Asian Year Ahead 2014

Asia Pacific Equity Research
18 November 2013
Asian Year Ahead 2014

Stock Ideas for the Year of the Horse
Asian Equity Strategy & Emerging Market Equity Strategy Adrian Mowat
AC
(852) 2800-8599 adrian.mowat@jpmorgan.com Bloomberg JPMA MOWAT <GO>
Director of Asia Pacific Equity Research Sunil Garg

AC
(852) 2800-8518 sunil.garg@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
For a full list of authors please refer to the sector and country heads list on the back page
See page 554 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. In the United States, this information is available only to persons who have received the proper option risk disclosure documents. Please contact your J.P. Morgan representative or visit http://www.optionsclearing.com/publications/risks/riskstoc.pdf. www.jpmorganmarkets.com
Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com
Asia Pacific Equity Research 18 November 2013
Asian Year AheadStocks for the Year of the Horse

The year-ahead process
The goal of this document is to present our key strategy themes for 2014 using our most and least favored stocks from the 1011 and 548 stocks in emerging markets and developed Asia, respectively, covered by J.P. Morgan. Both J.P. Morgan equity research analysts and our macroeconomic team have been involved in the production of this document. The process started with the Strategy Team briefing analysts on our key themes and macroeconomic forecasts for 2014. Analysts then reviewed their earnings models and presented their top picks and avoids to both their sector and country strategists. The sector and country teams then produced their list of top picks and avoids. These ideas form the core of this document.
Table of contents
Investment strategy ............................................................ 4 Surprises for the year of the Horse .................................. 34 Economic outlook ............................................................ 65 Economic forecasts .......................................................... 81 Country strategy .............................................................. 87 Sector strategy ............................................................... 111 Summary tables of stock ideas ...................................... 157 Top picks ....................................................................... 171 Stocks to avoid .............................................................. 393 Strategy dashboards ....................................................... 521
Table 1: What to own and avoid: Our country and sector teams views plus regional strategy country asset allocation
Hong Kong Philippines Gaming Singapore Indonesia Malaysia Australia Thailand
Banks Insurance Property Energy Materials Industrials Autos Cons' desc' Technology Infrastructure Staples Utilities Telecom Healthcare APxJ Strategy Teams View
Life Chems Chems Coal Gaming
Iron Ore Macau
Coal, Ni & Al SUV/OEM Internet E&C Wind, Pol, IPPs
Metals
Semis IPPs
Semis
Source: J.P. Morgan. @ indicates a conflict between strategy team and country strategists recommendation.
Other top picks: Chinese airlines, bulk shipping, China O&G and oil services, Malaysia O&G, China copper Other avoids: China power equipment makers, container shipping, policy plays in Indian O&G, Thermal coal
105 top picks

(See pages 171 to 391)
Examples of top picks
Top picks - examples Krung Thai Bank Tata Steel Ltd Hyundai Motor Company TSMC SK Hynix ICICI Bank Country Thailand India South Korea Taiwan South Korea India Return to our PT (%) 44 40 36 26 21 14
62 stocks to avoid
(See pages 393 to 519)
Examples of stocks to avoid
Stocks to avoid - examples Lotte Chemical Corp Unilever Indonesia Tbk DongFeng Motor Co., Ltd. Genting Singapore Bank of East Asia Hindustan Unilever Limited Country South Korea Indonesia China Singapore Hong Kong India Return to our PT (%) (32) (26) (26) (11) (10) (2)
Source: J.P. Morgan estimates. Note: To PT = Returns to analyst price target as at 14 Nov 2013. Stocks with 3m average trading value greater than US$20 million.
Source: J.P. Morgan estimates. Note: To PT = Returns to analyst price target as at 14 Nov 2013. Stocks with 3m average trading value greater than US$20 million.
Taiwan
Korea
China
India
Year of the Horse: Challenging steeplechase

Equity drivers
Faster (slightly) and broader economic growth: Growth premiums narrow UW staples OW cyclicals (exporters plus selected domestic) After 40% relative underperformance: Structural problems discounted Resilient economies versus expectations: Expectations low Cautious companies focus on profits and cash flow Tapering is the start of long road: Interest rate volatility in bond bear market Asset deflation in Hong Kong and Singapore UW Yield plays
Potential returns
MSCI APxJ end-2014 target 550 (+15%) Forward P/E of 12.5x, a marginal re-rating from 12x. Consensus 2015E MSCI APxJ EPS is 44. We fear downgrades in Korea earrings growth forecast, which contributes 20% to MSCI APxJ 2015 EPS growth. MSCI APxJ 2013 and 2014 earnings revised down by c6% year to date. (See page 22 for range of possible returns) 2013 YTD US dollar total returns (MSCI indices): Asia Pacific ex Japan 4%, Japan 27% Pacific ex Japan 10%, EM Asia 0%
Investment themes/baskets
1. 2014 Top Picks in Preferred Country Sectors (JPHAPTOP <Index>): top picks in country sectors preferred by the strategy team Long Global Demand (JPHAPGDM <Index>): top picks with exposure to global demand) Cheap Domestic Growth (JPHAPDGR <Index>): top picks with domestic growth bias that are trading cheaper compared to 10-year average forward P/E (trailing P/BV for banks) Downgrade Dogs (JPHAPDOG <Index>): top picks which suffered EPS downgrades in 2013.Possible recovery plays. Best ideas from country strategist Best ideas from sector heads Avoid expensive: stocks expensive relative to 10-year average forward P/E (trailing P/BV for banks) Rotation Riders Underperforming top picks with low P/BV relative to 10-year average and the opposite for stocks to avoid. (See page 27 for details)
Risks
Unclear Fed communication US policy and economic surprise US economic growth disappoints (again) Inflation complacency Uncertain Chinese economic policy Chinese environmental crisis Amnesty Bill resubmitted in Thailand Political cycle frustrates reform Volatility in FX and energy not priced into markets India faces deteriorating growth inflation trade-off Risk to OW on technology European political risk (See page 32 for details) Politics: Horse race Neutral monetary policy Lessons from past bond market sell-off EM underperforming DM by 40% China discounting structural issues Valuation: The extremes EM credit growth not crunch EM GDP correlated to Europe
2. 3.
4.
5. 6. 7. 8.
Key issues for Horse briefing notes

Technical Strategy
Asias growth struggles have kept markets range-bound with MXAPJ flat YTD and some of the high-growth markets underperforming the most. Near-term outlook is bearish in absolute terms and we renew our Asian underperformance call. MXAPJ needs a volume-led breakout from the 485-93 resistance zone to get constructive, in our view. MACD, RSI and moving average positioning suggest downside risks in the near term and increasing likelihood of a reversal in the intermediate trend. 450 is an important support/ stop level. (See page 51 for details)
Market performance
600 500 400 300 200 100 0 88 90 92 95 97 PxJ
Figure 1: MSCI PxJ and EM Asia index performance

EM Asia Life High: PxJ: 594 EM Asia: 572
Current: PxJ: 500 EM Asia: 438 99 02 04 06 09 11 13
Source: Bloomberg, 13 November 2013 3
Equity Strategy: Challenging steeplechase

Faster (slightly) and broader economic growth: Growth premiums narrow (Philippines downgrade) UW staples Stay OW won export cyclicals (IT and Korean CD) Out of sync: China cyclical peak in 3Q13 After 40% relative underperformance: BRICs are pricing in structural issues Companies managing for a tough environmentearnings prove more resilient Resilient economies versus expectations Credit growth little changed after the May taper scare Modest slowdown in Australia Tapering is the start of a long road: Multi-year bond bear market. Fed can offset with dovish guidance on first Fed Fund Target rate increase Long beneficiaries of higher interest rates: Korean and Taiwanese financials Avoid simple yield plays Asset deflation in Hong Kong and Singapore (UW) Sweet and sour Australia: Sweet switch from cash/bonds Sour valuations and currency risk Chinas debt to GDP continues to rise Structural reform too expensive.old model continues Financial risk rises 2014 risk to consumption with decelerating wage growth and rising inflation Overweight markets India, Taiwan, Korea, and Thailand Underweight markets China, Indonesia, Hong Kong, and Singapore Before considering 2014 we need to agree what equities imply today. EM underperformance of DM since its relative peak in 2010 is circa 40%. As described on page 15 this was a three-stage relative de-rating. In 2010 the consensus was that EM was structurally sound while the probability of a sustainable recovery in DM was low. Japan was off the map. These perceptions have changed. Confidence in EM policy is low. EM embraced the cheap leveraged of QE. As was demonstrated mid-year those with current account deficits woke up to the risk as the Fed alluded to tapering QE. Our starting assumption is that EM equities are pricing in the structural issues; a frustrating reality for a strategist.
4
DM equities made new highs with weak growth. The key test is can the companies deliver a constant improvement in cash flow? EMs in aggregate failed to do this. We believe this is changing. Economic growth forecasts are modest (see page 81 for complete Asia and EM forecasts). The feared credit crunch after the tapering stress did not occur (see page 20). With the bar set low, EM equities should squeeze higher as companies generate growth in earnings and cash flow ahead of expectations. Resilience of earnings is a key theme. Each country and sector page covers this topic. We are OW on India, Taiwan and Thailand where we believe 2014 GDP growth forecasts are below potential. This increases the chance of a positive surprise. Thailand should enjoy the benefit of lower interest rates, a more competitive currency and stronger global trade in 2014.
Figure 2: Large relative underperformance vs. DM
Source: Bloomberg, 11 November 2013.
Table 2: Economic growth below potential in most countries

Country 2014E 2014E Potential GDP growth 0.8 0.6 0.2 -0.1 -0.3 -0.3 -0.6 -0.8 -0.9 -1.0 -1.2 -1.4 -1.5 2014E - Max GDP growth in last 10 years -10.9 -2.0 -1.7 -1.6 -2.6 -1.9 -6.8 -6.3 -5.2 -4.7 -5.4 -7.6 -4.9 Avg GDP growth over 20 quarters (%oya) 4.4 5.1 4.0 5.9 2.7 2.5 8.8 1.0 2.6 6.7 2.5 2.8 2.8
Singapore Philippines Malaysia Indonesia Korea Australia China Russia Brazil India Hong Kong Taiwan Thailand
3.8 5.6 5.7 4.9 3.7 2.7 7.4 2.2 2.3 5.0 3.3 3.1 3.0
Source: J.P. Morgan forecasts. Note: Table sorted by 2014E potential GDP growth.
Faster (slightly) and broader economic growth With all DMs growing and a cyclical lift ex-China growth is broadening (see table below). Our style bias is shifting to value. The large premiums in staples and growth stocks that developed in 2013 should reverse in 2014 (see page 17). The Philippines forward P/E is 35% above average. We are downgrading the Philippines to neutral as valuations discount strong fundamentals. Australia: carry can carry high P/Es, not currency Australias equity market is largely made up of highreturn, high-payout oligopolies in a high-rate currency. Hence it has been squarely in the way of the global carry trade in which valuation bands have been blurred by easy DM monetary policy. An Aussie OW within a regional portfolio duly behaved like a typical carry trade in 2013: steady positive returns most of the time, with a big drawdown when volatility spiked in the middle of the year. Going into 2014 we see two possible reasons to be underweight Australia versus Asia-Pacific. The negative one is that this liquidity-driven upward grind has pushed valuations to vulnerable levels, both for stocks and for the currency. We are more cautious on the latter than the former. It is optimistic, in our view, to expect growth to rebalance from the terms of trade and commodity capex at this exchange rate. The AUD remains vulnerable to the tapering cycle. We are more reconciled to high multiples, but take issue with those who see them as a
down-payment on a profits upswing. There is little macro or micro basis to forecast earnings acceleration. Yet high valuations do not justify a bear case while global rates remain supportive and RBA easing. Cash rates hitting excrisis lows bring local investors into the carry business. Australia lagged MSCI World in 2013 but edged ahead of Asia Pacific ex Japan. Valuations imply the continuation of high returns in the key non-Mining sectors, which may be right but leaves less room for rerating. Hong Kong and Singapore, the other developed Asian markets, face asset deflation. To avoid a large underweight in developed Asia we are neutral on Australia. The key risk is Australian dollar weakness. Fortunately hedging costs are reasonable.
Figure 3: AUD driving relative performance particularly since May
Source: Bloomberg, 11 November 2013. Note: Chart shows total returns of MSCI Australia relative to MSCI APxJ in USD and AUD.
Table 3: The Economic Heatmap Better and broader momentum into 2014 Real GDP growth QoQ saar for EM and DM
QoQ saar EM Asia China India Indonesia Korea Malaysia Philippines Taiwan Thailand LatAm Brazil Colombia Mexico Czech Rep. Hungary Poland Russia South Africa Turkey United States Euro area Japan Australia Hong Kong Singapore 1Q11 9.1 9.9 10.6 6.0 5.3 6.1 4.3 10.3 2.1 4.3 3.2 6.7 1.5 3.0 5.7 4.5 2.5 4.8 14.2 -1.3 3.1 -7.6 -1.9 11.2 17.5 2Q11 6.1 8.9 2.3 6.2 3.3 3.1 4.4 1.2 -4.0 4.5 2.6 7.9 5.3 0.7 -1.2 5.3 3.7 1.9 0.1 3.2 0.3 -3.4 5.0 -1.6 -2.9 3Q11 6.8 8.6 5.1 6.0 3.3 6.8 2.2 -0.5 10.1 2.6 -0.3 5.8 6.1 -0.2 -0.1 3.2 7.4 1.9 3.4 1.4 0.3 10.7 4.9 0.8 3.4 4Q11 5.1 7.8 6.7 7.4 1.5 4.1 7.0 -4.6 -35.9 2.2 0.2 6.0 3.1 0.1 0.8 3.6 5.8 3.3 3.2 4.9 -0.8 1.4 2.6 2.0 -2.3 1Q12 7.1 6.8 5.5 5.2 3.3 -6.1 9.7 5.7 53.7 2.7 0.7 3.7 2.6 -2.0 -5.8 1.2 2.3 2.5 -1.6 3.7 -0.4 5.0 5.4 1.2 7.8 2Q12 6.1 7.8 4.6 6.3 1.2 6.0 5.4 0.0 10.1 2.0 0.4 2.8 6.2 -1.9 -2.0 0.0 2.5 3.4 5.9 1.2 -1.2 -1.2 1.9 -0.4 0.1 3Q12 6.0 7.7 3.8 5.9 0.2 10.0 7.0 3.0 7.9 1.9 1.5 -0.1 1.1 -1.2 0.0 1.6 2.0 1.2 0.9 2.8 -0.5 -3.5 3.2 4.5 -4.6 4Q12 7.6 9.0 5.5 6.4 1.1 16.6 7.8 7.1 11.4 3.8 3.1 6.9 3.0 -1.4 -2.1 0.4 1.2 2.1 0.8 0.1 -2.0 1.1 2.7 5.7 3.3 1Q13 4.7 6.4 5.2 5.5 3.4 -13.0 9.6 -2.5 -6.5 2.1 2.6 1.2 0.1 -5.1 2.3 0.8 0.9 0.9 6.0 1.1 -0.9 4.1 2.2 0.8 1.7 2Q13 5.8 6.9 3.1 5.5 4.5 7.1 5.7 2.3 -1.4 4.4 6.0 8.9 -2.9 2.5 0.3 1.6 1.0 3.0 8.5 2.5 1.1 3.8 2.4 3.2 15.5 3Q13 6.7 9.1 3.0 5.0 4.3 5.5 4.9 0.4 2.6 0.6 -1.0 2.0 3.1 2.6 2.7 3.5 2.0 0.8 0.0 2.8 0.4 1.5 1.9 3.8 -0.8 4Q13E 6.3 7.8 4.5 4.5 3.8 5.5 5.7 3.5 3.5 2.9 1.9 4.5 4.6 2.0 2.5 2.5 3.0 3.9 0.4 1.5 1.0 3.8 1.7 4.0 4.5 1Q14E 6.0 7.0 5.5 5.0 4.0 5.5 5.7 3.4 3.8 3.1 2.4 4.5 4.0 1.4 2.0 2.5 2.0 3.6 2.8 2.5 1.5 4.0 2.7 2.0 3.4 2Q14E 5.9 7.0 4.8 5.0 3.5 6.0 5.7 3.7 4.0 3.2 2.9 4.7 3.2 1.8 2.0 2.5 2.0 3.3 6.1 2.5 1.5 -4.5 3.4 3.5 3.4 3Q14E 6.1 7.2 5.0 5.0 3.5 6.5 5.7 4.0 4.2 3.0 2.9 5.0 3.5 1.3 1.8 3.0 2.5 3.7 7.0 3.0 1.5 1.2 3.6 3.5 3.4 4Q14E 6.0 7.2 5.3 4.5 3.0 6.5 5.7 4.2 4.0 3.1 2.6 4.5 3.6 1.4 2.0 3.0 2.7 3.7 7.0 3.0 1.5 1.7 3.9 4.0 3.4
Source: J.P. Morgan economics. Note: Yellow slowdown, green recovery, red contraction
The IMF article IV on China was a rude shock for the final bulls. As was the case in other Asian countries in the mid-90s, the economic miracle of opening a competitiveness ambitious workforce to global demand has matured into a leverage-driven growth model. Debt/GDP expanded by 50% in the last four years (see Figure 25). The augmented fiscal deficit was an alarming 10% of GDP (excluding the railway budget). Investors have voted. Asset-based businesses including banks are at distressed valuations. The few growth/ thematic sectors internet, pollution control and staples re-rated. We are left agreeing with the market. We are concerned that inflation is rising as wage growth is decelerating. This is a poor combination for real consumption growth. There remains a strange expectation that more rational capital allocation is consistent with growth above 7%. In our view, it is not. Talk of rebalancing is simply talk: the data is that 57% of growth in 3Q13 was driven by investment. This is disturbing. To defeat 19 months of PPI deflation (see Figure 26), less capex combined with capacity reduction is needed. But this would hit local government revenue as would land reform. Credible reform is expensive in a fiscally constrained country and could result in much slower headline growth. The high cost of reform may explain the lack of detail from the Third Party Plenum. The stock market is not the economy. Reform that leads to better capital allocation may prove more profitable for equity investors. We expect China to remain a narrow market of expensive thematic sectors with occasional cyclical rallies with mini-stimulus similar to 3Q13. This was the pattern for Japanese equities in the last two decades. The notable difference is that Chinese equities do not appear to be overvalued. We are UW on China as thematic growth stocks are crowded expensive trades and the cyclical peak was in 3Q13. Industrial production in India is barely growing (2%oya in September). Despite a very weak economy, EPS growth in India is ahead of that of many markets (see page 22). Equity markets are not simply a reflection of the local economy. Export earnings and a corporate sector that assumes a difficult macro environment provides the condition for more resilient earnings. Policy expectations are understandably low ahead of the general election (see page 8). The Reserve Bank of India policies helped restore confidence. FX reserves are rising and the current account deficit narrowing. We are OW on IT, financials and metals in India, resulting in an OW on India within APxJ.
Figure 4: Rising investment share of GDP growth in China

% ytd 80 60 40 20 0 -20 2010 Net export Gross fixed capital formation Total consumption expenditure
2011
2012
2013
2014
Source: J.P. Morgan economics, Data until 3Q13
Figure 5: Chinese IT and staples performance relative to MSCI China
Source: Bloomberg, 11 November 2013.
Figure 6: China: Higher CPI and lower wage growth
Source: Bloomberg, 31 October 2013, Wage inflation data till 2Q13
Figure 7: Indian IP growth and market performance
Source: Bloomberg, 31 October 2013.
We are in a 'tapering time-out'. See page 10 for the uncomfortable journey to neutral monetary policy. Strangely the new goldilocks is slow US growth combined with a better Europe and Japan. This lukewarm US delays tapering in the US, while providing an external lift for EM exports to Europe and Japan. We doubt this environment will be sustained through 2014. J.P. Morgans estimate on the start of tapering was 2Q14; it is now 1Q14. The change was driven by one data point Octobers non-farm payroll. Those current account deficits (CAD) countries that use the taperingtime-out to promote pro-FDI policies and narrow their CAD will be less vulnerable when the time-out ends. The rest are likely to suffer from weaker currencies and asset prices. Be prepared to move ahead of the herd. Tapering is just the start. The all-time low for 10-year US Treasuries was 1.39% on 24 July 2012. This years low was 1.63% in early May, after the BoJ announcement on QQE and a few weeks before the Feds tapering minutes. J.P. Morgan forecasts that we are now in a bond bear market. UST10-year yields of 5-6% would be consistent with pre-GFC neutral monetary policy. The two key forecasts are the first increase in the Fed fund target rate in 3Q15 and a 4Q14 UST10-year yield of 3.5%. Our global fixed income returns forecasts are +/5%; little reward for unchartered territory. The journey to neutral policy is likely to be protracted and uncomfortable. Korean and Taiwanese financials are some of the few direct beneficiaries of higher interest rates. We are OW on Taiwan and Korea. These countries also benefit from current account surpluses. Zero interest rates generated bubbles in Hong Kong and Singapore property. We forecast asset deflation. Policy designed to control prices has just increased market friction through high stamp duty. This is counterproductive as it impacts supply. Lower transaction volume typically leads to volatility. Our concern is that property prices gap down. Banks in Hong Kong proved resilient when property prices fell 70% from 1997 to 2003. Risk today is higher due to cross-border lending. Avoid real estate and banks in Hong Kong and Singapore. We are UW on Hong Kong and Singapore. The dispersion in FX returns drove relative performance in 2013. FX risk is likely to be higher for expensive currencies. We are concerned about Indonesian Rupiah and the Australian dollar. J.P. Morgans end-2014 forecast for the IDR and AUD are 11,800 and 0.92 respectively. The combination of a weakening currency and higher interest rates drives our UW in Indonesia. The core of this document is the contribution from our country and sector heads (see page 87 to156) plus 105 top picks and 62 stocks to avoid (see pages 171 to 519).
For more details on strategy please see: Politics: Horse race (page 8) Neutral monetary policy (page 10) Lessons from past bond market sell-off (page 11) EM underperforming DM by 40% (page 15) China discounting structural issues (page 16) Valuation: The extremes (page 17) EM credit growth not crunch (page 20) EM GDP correlated to Europe (page 21) For risks to our strategy (page 32)
Figure 8: Volatile journey to neutral policy J.P. Morgan EM currency volatility index & US 5Y bond yield
Source: Bloomberg, J.P Morgan, 12 November 2013.
Table 4: Impact of FX on dollar returns in APxJ markets

Country Australia Hong Kong Taiwan Malaysia Philippines APxJ Korea China Thailand India Indonesia Year to date performance Market (US$) Market (lcy) 9.4 22.0 7.9 7.9 5.8 7.8 5.5 10.8 5.5 12.5 3.5 2.3 2.4 0.9 1.0 (2.0) 1.3 (10.4) 4.0 (17.2) (0.4) Currency (11.7) (0.0) (1.9) (4.7) (6.3) (0.8) 2.3 (3.2) (13.7) (15.9)
Source: MSCI, Datastream, Bloomberg, 12 November 2013
Figure 9: Bubble about to burst? HK property price index
Source: HEOSA, June 2013.
Politics: Horse race

Table 5: Current parliamentary composition
The key political events in Asia are: 1. India: May general elections 2. Indonesia: July presidential elections India and Indonesia face similar challenges: slowing economic growth, governance issues, and the need for structural reforms.
Party Indian National Congress (INC ) Nationalist Congress Party (NCP ) Rashtriya Lok Dal (RLD) J&K National Conference (J&KNC ) Others UPA Outside Support to UPA Total Support Bharatiya Janata Party (BJP) Shiv Sena (SS) Shiromani Akali Dal (SAD) Others NDA Samajwadi Party (SP ) Bahujan Samaj Party (BSP ) Rashtriya Janata Dal (RJD ) Janata Dal (Secular) Janata Dal (United) (JD(U)) Parliament Lower House
Source: loksabha.nic.in, J.P. Morgan.
No. of Seats in Lok Sabha 204 9 5 3 6 227 50 277 117 11 4 3 135 22 21 4 3 20 542
India
Key parties: 1. United Progressive Alliance (UPA) led by Indian National Congress: The ruling coalition UPA did better than in the opinion polls in the last two elections. The governments pro-rural policies may have helped. The UPA is yet to announce its candidate for PM. 2. National Democratic Alliance (NDA) led by Bharatiya Janata Party (BJP): Recent opinion polls have the NDA in the lead. Mr Narendra Modi, the current Chief Minister of Gujarat, is a potential BJP PM candidate. GDP growth in Gujarat averaged 10% versus 8% median growth of states in India, from FY06 to FY12 (Source: CSO). 3. Third Front: Left Front, Bahujan Samaj Party (BSP), Biju Janata Dal (BJD), Telugu Desam Party (TDP), All India Anna Dravida Munnetra Kazhagam (AIADMK) and Janata Dal United (JDU) are some of the key parties in the Third Front alliance. The Third Front has no track record or well-defined policy priorities. But there have been some major policy developments in non-NDA, non-UPA coalition governments. Five big state elections from 11 November to 4 December (Chattisgarh, Madhya Pradesh, Rajasthan, Mizoram and Delhi) will be viewed as a guide to the May election. The result of a recent opinion poll carried out for ET NOW was an increase in votes for the BJP at the expense of the UPA. A ruling majority is 272 seats in the Lok Sabha. This is a challenge for all potential coalitions. The market and opinion polls track record in predicting the election is poor. Be careful if the market is discounting its desired outcome.
Table 6: Parties currently governing the states in India

State Name Andhra Pradesh Arunachal Pradesh Assam Delhi Haryana Himachal Pradesh Karnataka Kerala Maharashtra Manipur Meghalaya Mizoram Rajasthan Uttarakhand Chhattisgarh Goa Gujarat Madhya Pradesh Tamil Nadu Pondicherry West Bengal Odisha Tripura Jammu and Kashmir Bihar Jharkhand Nagaland Uttar Pradesh Punjab Sikkim Ruling party Indian National Congress Indian National Congress Indian National Congress Indian National Congress Indian National Congress Indian National Congress Indian National Congress Indian National Congress Indian National Congress Indian National Congress Indian National Congress Indian National Congress Indian National Congress Indian National Congress Bharatiya Janata Party Bharatiya Janata Party Bharatiya Janata Party Bharatiya Janata Party All India Anna Dravida Munnetra Kazhagam All India N.R. Congress All India Trinamool Congress Biju Janata Dal Communist Party of India (Marxist) Jammu & Kashmir National Conference Janata Dal (United) Jharkhand Mukti Morcha Naga People's Front Samajwadi Party Shiromani Akali Dal Sikkim Democratic Front
Source: J.P. Morgan. Note states with elections in italic and bold
Indonesia
Candidates for president will be announced after the parliamentary elections in early April. Parties or groups of parties that control at least 20% of the parliament or have 25% of the popular vote will be eligible to nominate a presidential candidate. We believe the stock market will react positively if Joko Widodo, the governor of Jakarta, is nominated. Below we list the leading parties in the current parliament and some of the potential presidential nominees: 1. Partai Demokrat: 21% of the current parliament, founded by current president SBY. By constitutional limits, SBY cannot stand for another term. PD has opted for a convention process to choose its next candidate. Ret. Gen. Edie Pramono, ex army chief of staff and brother in law of the current president, is among prominent convention candidates. According to recent surveys PD may lose many seats and could end up with 7-10% of the next parliament. This could make it difficult for it to nominate a candidate without an alliance with another party. 2. Golkar: 14.4% of the current parliament, founded by Soeharto, but targets getting over 20%. The Presidential candidate is Abu Rizal Bakrie, the party Chair. However he is polling at low levels in presidential preference polls (LIPI, CSIS April 2013), with weakness in Central and East Java surveys. His candidacy could be vulnerable to a leadership challenge if the party does well but his personal popularity does not improve. Other senior politicians from Golkar include former VP Jusuf Kalla. 3. PDI-P: 14.4% of the current parliament, but aims to get to more than 20%. This is the party led by former President Megawati Soekarnoputri, the daughter of Indonesias first President. She has been its presidential candidate in every election since 2000. The party has not officially announced its candidate, but the highly popular Jakarta Governor, Joko Widodo, a PDIP member, has been widely discussed as a contender. It is unlikely that PDIP will make an official decision until early next year. Other important party functionaries include Megawatis daughter, Puan Maharani. 4. Gerindra: Gerindra has 4.5% of the current parliament. Polls put the party at c11% currently. Its candidate is Prabowo Subianto, a former general, who is personally polling strongly among presidential aspirants, behind only Mr Widodo. The issue for Mr Prabowo would be to get through the nomination threshold. He needs to convince voters to go out and vote for Gerindra and then go out again to vote for him.
9
5. Hanura: Hanura is headed by former head of the Army Ret. General Wiranto, and has 3.6% of the current parliament. Its presidential candidate is Ret. Gen. Wiranto, with MNC group Taipan Hary Tanoesoedipto as his running mate. Current opinion polls suggest it is unlikely that the party will reach the nomination threshold, but it might look to exert leverage as a swing factor for another party making the nomination.
Table 7: 2014 election calendar
Jan Feb Mar Turkey Local election June
Apr Indonesia Parliamentary election South Africa General election Hungary Parliamentary election Jul Indonesia Presidential election Oct Brazil Presidential election
Source: J.P. Morgan.
May India General election Colombia Presidential election
Aug Turkey Presidential election Nov Poland Local election
Sep
Dec
The uncomfortable journey to neutral monetary policy

The destination should be neutral policy. This assumes that the US economy has not entered a Japanese-style period of protracted deflation. Based on pre-GFC monetary policy, period from 1971 to 2007, neutral Fed Fund Target Rate (FDTR) is 4% and assuming an average yield curve the 10-year bond yield would be 5.7%. This destination is a long way from todays 0.125% FDTR and 2.5% bond yield. In our view the US economy has recovered from the excess of the global financial crisis and that the bulk of the fiscal adjustment is behind us. J.P. Morgan estimates GDP growth in 2013 at 1.6%oya, but this was with a 1.4% fiscal drag. The estimate for fiscal drag in 2014 is 0.4%. It is likely to be concentrated in 1H14. In 2H14 GDP growth is forecast to be near trend at 3%. Based on the Case Shiller Index property prices are inflating. Job creation is slow, but is creation. The May taper-tantrum was the start of the market speculation on exiting QE. In our view the amount of tapering is not important; rather it is the signaling of the exit from extraordinary monetary policy. The added complication is central banks use of forward guidance. We doubt the Fed intended to tighten monetary policy in May, but it did. It is experimenting. No central bank has exited QE. The challenge is to neutralize policy while minimizing bond volatility. We believe the Fed wishes to exit QE but will offset the impact by dovish guidance on the timing of the first Fed fund target rate increase. It is possible that the journey to neutral policy is characterized by a period of interest-rate stability punctuated by volatility driven by good economic data, i.e. recovery in corporate capex. With the position less bullish in bonds than after the announcement of QQE by the BoJ on 12 April 2013, volatility should be lower during the next period of isntability. Equities, particularly EM equities, are likely to decline during periods of interest-rate volatility. Neutral policy results in a bond bear market. QE asset bubbles, e.g. Hong Kong and Singapore real estate, are likely to deflate. Investors are likely to switch from bonds to equities, although regulatory restrictions and anchoring on past performance will probably slow this switch. The QE leveraging tailwind for EM is gone. Carry bond markets are likely to struggle. 2016 or 2017 problem: some additional facts Average yield curve (US10Y FDTR): 1971 to date = 1.8% (ex inversion), 1.1% 1971 to 2007 = 1.7% (ex inversion), 0.9% Average real rates FDTR minus PCE deflator 1971 to date = 2% (median 2.8%) 1971 to 2007 = 2.5% JPM 2016 FDTR forecast 2.25% Neutral would normally be circa 4%
Figure 10: The curve and real yields (FDTR PCE deflator)
Source: Bloomberg, 30 October 2013
Table 8: US interest rate forecasts

4Q13 0.25 0.25 0.35 1.40 2.60 3.65 JPM 1Q14 2Q14 0.25 0.25 0.25 0.30 0.45 0.55 1.70 2.00 2.85 3.10 3.85 4.05 3Q14 0.25 0.40 0.65 2.20 3.30 4.20 4Q13 0.25 0.26 0.45 2.80 Consensus 1Q14 2Q14 0.25 0.25 0.28 0.31 0.52 0.63 2.98 3.14 3Q14 0.25 0.35 0.77 3.27
FDTR* 3M Libor 2Y treasury 5Y treasury 10Y treasury 30Y treasury
Source: J.P. Morgan forecasts, Bloomberg, *Federal Funds Target Rate (FDTR), Consensus forecasts not available for 5Y and 30Y benchmark yield.
Table 9: US deficit decomposition

FY, % of GDP Deficit Automatic stabilizers TARP and GSE's Structural deficit Change in structural deficit Thrust (+) Drag (-)* 2010 -9.0 -2.7 0.8 -7.1 0.6 0.4 2011 -8.7 -2.6 0.2 -6.3 -0.8 -0.6 2012 -7.0 -2.3 -0.1 -4.6 -1.7 -1.2 2013f -4.0 -2.5 0.6 -2.1 -2.5 -1.8 2014f -3.4 -2.5 0.0 -0.9 -1.2 -0.8
Source: CBO, J.P. Morgan, *Assuming average 0.7 multiplie
10
Lessons from past bond market sell-off

Kedran Panageas AC 2013 has been a difficult year for US fixed income assets. The US component of our Global Aggregate Bond Index (GABI) has returned -2.1% through September, and fixed income mutual funds have seen substantial outflows over recent months. In particular, bond funds saw a $60bn outflow in Junethe biggest monthly outflow in the history of the series (back to 1992)and another $60bn of outflows over July through September. The large magnitude of these outflows has led investors to wonder if these outflows are temporary or the start of a broader trendi.e. a great rotation. This begs the question, what is a great rotation? First, we could consider a great rotation to be a sustained shift in flows out of fixed income mutual funds. For example, if we look back over the past 20 years, we can see that most of the time, 12-month flows into bond funds were positive (Figure 12). In particular, inflows into bond funds after the financial crisis and the onset of the Feds quantitative easing programs have been substantial relative to history: over 1993-2008, bond funds saw an average 12-month inflow of $39bn, but over 2009-2012, the average inflow rose to $181bn. However, there are three distinct periods when bond funds saw outflows1994-95, 1999-2000, and 2004 and we can consider these periods to be periods of great rotation. Unsurprisingly, these periods coincide with Fed tightening cycles. Alternatively, we could consider a great rotation to be a shift in allocations between equities and fixed income. For much of the 1990s, inflows into equity funds outpaced inflows into bond funds (Figure 11). As the Fed began easing in 2001, however, the balance shifted, and bond funds saw more inflows than equity funds. As the economy recovered in the middle of the 2000s, equity inflows again outpaced bond flows. Since the financial crisis and the onset of the Feds subsequent quantitative easing programs, however, flows into bond funds have substantially outpaced equity fund flows, though the balance appears to have shifted in recent months.
Figure 11: Mutual fund investors tend to chase returns, preferring equities to fixed income when S&P returns are higher than bond returns and vice-versa
1-yr flows into fixed income mutual funds* minus 1-yr flows into equity mutual funds versus 1-yr total return on J.P. Morgan Global Aggregate Bond Index minus 1-yr total return on S&P 500; $bn %
* Includes flows into investment grade, high yield, municipal, Treasury and MBS mutual funds. Source: Lipper FMI, J.P. Morgan
Figure 12: In the past, sustained outflows from bond funds coincided with Fed tightening periods
1-yr rolling sum of flows into fixed income mutual funds* versus Fed funds target rate; $bn % (inverted axis)
* Includes flows into investment grade, high yield, municipal, Treasury and MBS mutual funds. Source: Lipper FMI
11
Equity/bond allocations appear to be driven by returns. When equity returns outpaced bond returns, retail investors preferred equity funds to bond funds and viceversa. Interestingly, the 1999-2000 period and 2004 periods of negative bond fund flows coincide with periods when investors most preferred equities to fixed income, but this preference was not so apparent in 19941995. In the current cycle, with bonds underperforming equities, bond funds seeing outflows, and inflows into equities outpacing those into bond funds, we do appear to be at the beginning of a great rotationat least by retail investorsbut it is too soon to tell if it will be sustained. Past sell-offs began with the Fed tightening The Treasury market sell-offs in 1987, 1994, 1999 and 2004 were all sparked by the beginning of a Fed tightening cycle, but each of these cycles were unique. The 1994-95 tightening cycle was especially aggressive: the Fed doubled the Fed funds ratefrom 3% to 6% over 12 months, and this tightening came after an extended 17-month on-hold period (Figure 13). The sizes of the rate increases were generally large: the Fed raised rates six times in total, including two 50bp increases and one 75bp tightening. In contrast, the pace of tightening in 1999 and 2004 was much more gradual: in 1999 and 2004, the Fed tightened by approximately 50bp per quarter, well below the 74bp per quarter rate seen during the 1994 period. Meanwhile, the 1987 episode is somewhat unique: the Fed began tightening after a relatively short period of just six months on hold, and the tightening cycle lasted just 7 months. However, in this short horizon, the Fed managed to raise the Fed funds rate by 150bp, second only to the 1994 episode for the aggressive pace of tightening.
Figure 13: The bond market sell-offs in 1987, 1994, 1999 and 2004 were driven by Fed tightening, but these cycles were distinctly different
Details around the 1987, 1994, 1999 and 2004 Fed tightening cycles
Given that the pace of tightening in each of these periods was different, the markets reaction was quite different as well. Figure 4 shows the cumulative change in 10-yr yields from six months before the first tightening in February 1987, February 1994, June 1999 and June 2004, until six months after. In 1987 and 1994, 10-yr Treasury yields rose only modestly in the months leading up to the first tightening, and then reacted severely, rising almost 200bp in the six months following the first rate hikes. Meanwhile, in 1999, 10-yr yields rose more than 100bp in the six months leading up to the first tightening, but then rose 55bp in the following six months. Finally, in 2004, 10-yr yields rose more than 50bp in anticipation of the first Fed tightening, but then steadily rallied once the Fed began to raise rates.
Figure 14: in 1987, 1994 and 1999, yields rose in reaction to the first tightening, while in 2004, yields rose in anticipation of Fed tightening
Cumulative changes in 10-yr Treasury yields from 6 months before the first Fed tightening until 6 months after*;bp
* Vertical line denotes first Fed tightening on February 11, 1987, February 4, 1994, June 30, 1999 and June 30, 2004
Last easing First tightening Last tightening On hold period (months) Tightening period (months) Starting FF rate Ending FF rate Cumulative FF chg (bp) Avg tightening/quarter (bp)
12
1987 Aug-86 Feb-87 Sep-87
1994 Sep-92 Feb-94 Feb-95
1999 Nov-98 Jun-99 May-00
2004 Jun-03 Jun-04 Jun-06 12 24 1.00% 5.25% 425 52
6 7 5.875% 7.375% 150 66
17 12 3.00% 6.00% 300 74
8 11 4.75% 6.50% 175 49
Aside from the varying pace of Fed tightening, market expectations and foreign investor demand offer insights on the degree of yield behavior. First, in 1994, the tightening took the market by surprise: just weeks before the first rate hike, Fed funds futures markets were pricing in only 25bp of tightening in the following three FOMC meetings, while in 2004, the market had already priced in more than 75bp of tightening over the following three meetings. Meanwhile, in 1999, the market was pricing in just 25bp of tightening in the month leading up to the first rate hike, but rates had already begun to rise as the volatility stemming from the 1998 financial crisis subsided. Finally, the muted response of long-term yields to the 2004-2006 tightening cycle was characterized by then-FOMC Chairman Greenspan as a conundrum. In this period, foreign central banks began to grow their dollar reserves
substantially: in 2004, foreign central banks accumulated $20bn Treasuries per month on average, more than twice the rate observed in 2003 and more than four times the rate observed in 2002. This strong demand from foreign investors likely helped depress bond yields after the onset of the tightening cycle. Looking beyond Treasuries, it is also useful to examine how other fixed income sectors performed in past great rotation periods. However, given data limitations, we will focus only on the 2004 cycle. Figure 15 presents the total returns for a variety of asset classes over 2Q04, when the bulk of the increase in yields occurred. Higher-duration sectors, such as emerging market sovereigns and Treasuries, generally underperformed on a total return basis, while the lowerduration sectors like MBS and high yield outperformed. On a spread basis, emerging markets clearly underperformed, with spreads widening 68bp over 2Q04, while high yield spreads actually tightened 50bp (Figure 16). In contrast, spreads on Agencies, high grade, and MBS were close to unchanged over this period.
Figure 15: In the 2004 sell-off, EM performed the worst, while high yield performed the best, both on a total return basis
Figure 17: In this years sell-off, EM also underperformed the most, while high yield performed the best
Index duration as of the end of April 2013, monthly total returns, and total return over May-August 2013
Figure 18: but both EM and high yield underperformed on a spread basis, with spreads widening across all sectors
Monthly changes in index spread* and cumulative change over May-August 2013; bp
* For MBS, this is the Libor OAS spread; for all others, it is a spread to Treasuries.
Index duration as of the end of March 2004, monthly total returns, and total return over 2Q04 Mar 04 Total returns ov er: dur'n (y rs) Apr 04 May 04 Jun 04 2Q cum EM 5.8 -5.4% -1.5% 1.5% -5.5% Tsy 5.8 -3.4% -0.4% 0.4% -3.3% Agy 4.1 -2.8% -0.5% 0.4% -2.9% IG 6.2 -2.9% -0.5% 0.6% -2.9% MBS 2.6 -1.8% -0.2% 0.9% -1.2% HY 3.8 -0.2% -1.5% 1.5% -0.3% GABI 4.3 -2.7% -0.4% 0.6% -2.5%
Tightening cycles have accompanied significant changes to the Feds communication policies Fed communication has evolved since the FOMC first began the practice of issuing statements after its meetings during the 1994-95 tightening cycle. It first announced the outcome of a meeting in February 1994, when it first raised rates in that cycle, and the statement noted Chairman Greenspan decided to announce this action immediately so as to avoid any misunderstanding of the Committees purposes, given the fact that this is the first firming of reserve market conditions by the Committee since early 1989. After the last tightening in the cycle in February 1995, the Committee indicated in the minutes that it would immediately communicate all changes in the stance of monetary policy through a press release, though it would not necessarily issue a statement if no policy change was made. In January 2000, in the middle of the 1999-2000 tightening cycle, the Fed announced that it would issue a statement after every regularly scheduled meeting, regardless of whether a policy change had been made or not. In December 2004, in the middle of the 2004-2006 tightening cycle, the Fed changed the release schedule for FOMC meeting minutes. From February 1993 until that date, the minutes for a given meeting had been published about 3 days after the subsequent meeting. Starting in December 2004, however, the minutes were released 3 weeks after the meeting.
Figure 16: and on a spread basis
Monthly changes in index spread* and cumulative change over 2Q04; bp
Apr 04 May 04 Jun 04 2Q04 cum EM 53 26 -11 68 Agy 1 6 -2 5 IG -4 7 -1 2 MBS 4 -1 -4 -1 HY -59 31 -22 -50 * For MBS, this is the Libor OAS spread; for all others, it is a spread to Treasuries.
This summer, we saw a similar pattern play out on a total return basis. Underperformance was driven by the higher-duration sections like emerging markets and high grade once again (Figure 17). In addition, given that the average duration across sectors is generally higher than in 2004, total returns were more negative than in 2004. On a spread basis, however, the current cycle looks considerably different: both emerging market and high yield spreads widened significantly, while spread widening across the other sectors was more muted (Figure 8).
13
In recent years, although we have not been in a tightening cycle, several additional changes have been made to improve transparency under Chairman Bernankes tenure. First, in October 2007, the FOMC began releasing the Summary of Economic Projections (SEP) produced by the FOMC meeting participants in the meeting minutes. Second, in April 2011, the Chairman began holding post-meeting press conferences after selected FOMC meetings. At these meetings, an advance version of the SEP is released in conjunction with the press conference.
Figure 19: Summary of the Federal Reserves large-scale asset programs
Announced 11/25/2008 3/18/2009 8/10/2010 11/3/2010 9/21/2011 6/20/2012 9/13/2012 12/12/2012 Program Name QE1 QE1
In addition to changing the Feds communication policies, the Bernanke Fed has also expanded the FOMCs monetary policy toolbox. Since 2008, the Fed has initiated several rounds of large-scale asset purchases (LSAP), as detailed in Figure 19. Since 2011, the Fed has also included guidance on the future stance of monetary policy, first by forecasting how long it would stay on hold (calendar guidance) and then by introducing explicit macroeconomic scenarios (thresholds) that would determine how long the Fed would stay on hold (Figure 20).
QE2 Operation Twist Twist 2.0 QE3 (open-ended) QE3 (open-ended)
Description Announced it will purchase up to $100bn of Agency debt and up to $500bn of Agency MBS Increased purchases to $200bn of Agency debt, $1250bn of Agency MBS, and $300bn of Treasuries Announced it will reinv est matured Agency debt/MBS into Tresauries Announced it will purchase $60bbn Treasuries by end of 2H11 Announced it will sell $400bn of front-end Treasuries and buy longer-maturity Treasuries through 2H12 Ex tended Operation Twist through end of 2012 (approx imately $267bn of purchases/sales) Announced it would purchase $40bn of Agency MBS per month Announced it would also purchase $45bn of Treasuries per month
Figure 20: Summary of the Federal Reserves forward guidance
14
How emerging markets underperformed developed by 40%

From its relative high in 2010 MSCI EM has underperformed DM by circa 40% (see Figure 21). Partly this is a function of low DM expectations in 2010; US fiscal challenge, questions on EU solvency and Japan off-the radar screen. These all improved. While in EM there were four phases of deteriorating fundamentals: 2011: Policy makers fighting inflation EM policy after the GFC was too simulative. This combined with strong commodity demand from China, poor harvests globally, and QE2 drove inflation. All policy makers, except in Indonesia and Australia, tightened. Higher interest rate and lower growth resulted in the usual P/E derating. 2012: Lower potential GDP growth in the BRICs Investors woke up to the decline in potential GDP in the BRIC countries. In India, J.P. Morgan economists forecasts potential growth falling to 6%-6.5% from the 2003-07 average of 8%-8.5% underpinned by declining corporate investment (Indias falling potential growth). In China, our economists forecasts growth to average 8.3% in 2013-15 and 6.6% in 2016-20, compared to average growth of 10.4% in 2001-2011 (Chinas growth trend to slow below 7%). In Brazil, our economists downgraded expectations of potential GDP growth between 3.0%-3.5%, down from 3.5%-4.0% (Brazil: Reality Bites - revising GDP down and inflation up for 2014). Recently, Russia cut its long-term growth forecast to 2.5% to 2030, down from 4.3% in April (Source: Financial Times). 2013: Cyclical weak 1H13 EM equities 2013 peak was on 3 January. They correctly signaled a deceleration in 1H13 growth. Weaker US economic growth due to higher-than-forecast fiscal drag hit exports. Malaysia disappointed as the May general election delayed investment. In Thailand aggressive proconsumption policies boosted 2012 demand at the expense of 2013. The planned boost from investments did not occur due to political delays on project approval. 2013: Tapering fears and IMF article IV FED minutes for the 30 April meeting released on 22 May which referred to tapering bond purchase led to EM sell off. Current account deficit markets bore the brunt of declines. The IMF article IV discussion on China released on 17 July 2013 estimated that Debt/GDP expanded by 50% in the past four years, with the corresponding estimate of an augmented fiscal deficit in the order of 14% of GDP in 2012.
Source: Bloomberg, 5 November 2013, MSCI country indices in US dollars. The black line is centered on 22 May 2013 when FED minutes for the 30 April meeting were released
Figure 21: Pricing in poorer fundamentals: EM relative to DM
Source: Bloomberg, 14 November 2013
Figure 22: EM 12M fwd P/E (Inverted) and inflation: P/E de-rating impact of higher inflation in 2011
Source: IBES, MSCI, Datastream, J.P. Morgan
Figure 23: GDP growth (actual and forecast, %oya)
Source: J.P. Morgan economics, Shaded area indicates forecasts, J.P. Morgan forecasts for 2013 and 2014 GDP growth.
Figure 24: EM CAD market weakness post 22 May
15
China: The market discounting structural issues

Economic growth is now debt-dependent. Total social financing increased from 126% of GDP at year-end 2007 to c200% of GDP in 3Q13 (see Figure 25). This year we forecast 22% growth in TSF with just 9% nominal GDP growth. Debt to GDP continues to expand. The country is fiscally challenged. The IMF calculates the augmented fiscal deficit at 10% of GDP in 2012 (excluding railroads). Local government financing is weak. Their dependence on revenue from property sales is high. The property bubble continues to inflate. Housing prices are up more than 10% in most cities. This increases financial risks. Since 2010 the market has been adjusting to pricing in the structural issues (see Figure 27). Asset-based business, including banks and property, de-rated as debt to GDP increased as did FAI-dependent businesses. Those sectors offering thematic long-term growth rerated; internet, staples and pollution control. We think the market is correctly pricing in the risks to the growth model.
Figure 25: China credit to GDP ratio (%)
200 180 160 140 120 100 Bank loans
Total social financing
02
04
06
08
10
12
14
Source: J.P. Morgan, September 2013
Figure 26: China: Longest period of PPI deflation (%oya)
Source: Bloomberg, September 2013
Figure 27: Pricing in structural problems: P/E and P/BV relative to 10-year average
Source: MSCI, IBES, Datastream, Note: CS = Consumer Staples, IT = Information Technology, EES=Energy Equipment and Services, CSS = Commercial Services & supplies, TR= Transportation, HC = Healthcare, M= Materials, TE = Telecom, CD= Consumer discretionary, UT= Utilities, EN= Energy, OG= Oil, gas and consumer fuels, ID= Industrials, CG= Capital goods, RE= Real estate, DF= Diversified financials, IN= Insurance, FN= Financials, BA= Banks Red, green and black markers are for financial, energy and industrial subsectors respectively
16
Valuation: The extremes

The analysis is the current valuation of stocks, sectors and regions versus their 10-year average P/E and P/BV. There are diverging trends. This is best demonstrated by scatter charts for China (see Figure 27) and India. Staples are at a significant premium. Our forecast is for growth to broaden in 2014. We think confidence in global growth will lead to compression in premium valuation of staples (see Figure 28). Unilever Indonesia, Colgate Palmolive (India), Big C Supercenter and Hindustan Unilever are expensive and in our stocks-to-avoid list. There is potentially value in cyclical stocks that are expensive on forward P/E but cheap on P/BV if margins are at their cyclical lows (see Table 14). Tata Steel and Hiwin Technology current margins are in the third quartile (fourth quartile is lowest margin). Chinese equities are pricing a problem with its economic growth model. FAI sectors (banks, materials, construction) and insurance are cheap versus their history. As noted earlier we think this is justified. Our advice on banks is to trade at P/BV range of 1x-1.4x. For India, J.P. Morgan economists forecast 2013 GDP growth of just 4.1%oya.The problem, in our view, is more cyclical than structural. Banks, diversified financials, and capital goods are cheap (see Figure 29). Materials are cheap on a P/BV basis. From these, ICICI Bank and Tata Steel are our top picks. We like the Philippines but believe that valuations discount the strong fundamentals.
Table 10: Top 10 expensive and cheap sectors in APxJ
Sectors Expensive Sectors Thailand Ind. Thailand Telecom Philippines CS Thailand CS Thailand CD Philippines Ind. China CS India Telecom Thailand Utilities Indonesia CS Cheap Sectors Singapore CS India Cap Goods China Insurance India Oil & Gas India Utilities India Div. Fin. China Real Estate China Materials Australia Oil & Gas China Cap Goods 12 M Fwd PE 22.8 22.9 26.3 21.7 22.3 17.9 24.6 25.4 12.4 20.3 11.9 12.9 12.6 9.9 10.7 9.1 7.5 10.5 16.3 10.0 Trailing PB 3.5 16.8 5.6 4.4 7.7 3.2 3.8 2.0 2.6 4.9 0.9 1.6 1.9 1.4 1.2 1.5 1.2 1.1 1.5 1.1 Prem/Disc avg. 10Y fwd PE PB 107 54 26 57 31 26 49 66 24 30 (24) (23) (38) (18) (22) (43) (32) (8) (9) (22) 211 147 193 40 51 71 29 18 48 22 (63) (62) (43) (44) (41) (33) (33) (45) (42) (31)
Source: MSCI, IBES, Datastream, 4 November 2013. Note: We have excluded sectors which had only one stock as their constituent. We have also excluded sectors which have a dividend yield > 3% (average APxJ div yield).
Figure 28: Staples Prem/ Disc. vs. GDP growth (inverted)
Figure 29: India Premium/ Disc. to 10-year average P/E and P/BV
Source: J.P. Morgan economics. Note: 3-year rolling GDP calculated using qoq saar data.
Source: MSCI, IBES, Datastream. Red, green and black markers are for financial, energy and industrial subsectors respectively. Source: MSCI, IBES, Datastream. CS = Consumer Staples, IT = Information Technology, EES=Energy Equipment and Services, CSS = Commercial Services & supplies, TR= Transportation, HC = Healthcare, M= Materials, TE = Telecom, CD= Consumer discretionary, UT= Utilities, EN= Energy, OG= Oil, gas and consumer fuels, ID= Industrials, CG= Capital goods, RE= Real estate, DF= Diversified financials, IN= Insurance, FN= Financials, BA= Banks 17
Table 11: APxJ sector valuation

Sector Staples Materials Health Care Telecom Industrials Utilities Cons. Disc. Energy Financials Info Tech APxJ PE PB % Prem/Disc from 10 Y avg. Fwd. PE PB 21 (5) 19 (32) 10 18 10 (10) 7 (24) (0) (3) (4) (6) (6) (43) (11) (22) (17) (14) (3) (20)
Table 12: APxJ country valuation

Country Philippines Indonesia Thailand Australia Malaysia Taiwan Singapore India Hong Kong Korea China PE PB % Prem/Disc from 10 Y avg. Fwd. PE PB 36 40 17 (3) 15 8 11 (4) 11 8 4 0 1 (15) (3) (25) (3) (14) (4) (22) (24) (33)
13E 21.8 15.8 25.1 14.5 17.7 15.7 13.0 11.6 12.0 12.0 13.4
14E 19.4 12.9 21.5 13.8 14.1 13.4 11.4 10.5 11.0 10.7 12.0
13E 2.8 1.6 4.5 2.2 1.4 1.5 2.0 1.4 1.4 2.1 1.6
14E 2.6 1.5 4.1 2.0 1.3 1.4 1.8 1.3 1.3 1.8 1.5
13E 20.4 15.6 13.5 15.3 16.8 15.6 15.0 16.0 16.4 10.6 9.8
14E 18.9 13.6 11.8 14.1 15.5 14.2 13.8 13.7 15.0 8.8 8.9
13E 3.2 3.1 2.2 2.0 2.2 1.8 1.4 2.5 1.3 1.2 1.4
14E 2.9 2.8 1.9 1.9 2.0 1.7 1.4 2.2 1.3 1.1 1.3
Source: MSCI, IBES, Datastream, J.P. Morgan. 4 November 2013
Source: MSCI, IBES, Datastream, J.P. Morgan. 4 November 2013
Table 13: APxJ hindsight (country sector) valuations

Index Value LC 221 1346 218 537 191 113 375 391 286 263 275 235 1000 392 2133 665 130 133 131 1147 193 765 161 86 191 4548 330 224 443 484 Market Value US$mn 53 44 68 58 72 53 62 194 94 42 44 41 49 61 108 108 45 79 233 29 40 231 546 78 105 57 224 83 289 4,029 P/E 12M Fwd 20.3 24.6 26.7 11.7 13.4 20.2 19.5 12.9 17.6 14.1 15.9 12.5 17.2 16.2 7.8 8.9 11.6 11.2 13.2 9.9 13.1 7.6 14.2 13.0 13.5 13.5 14.5 10.3 6.4 12.1 P/E (x) 13E 22.5 28.6 33.8 15.7 22.7 21.4 22.9 13.5 18.1 15.3 16.8 14.4 19.3 18.3 8.6 9.3 12.9 11.2 14.3 10.6 15.0 8.3 14.5 13.3 14.4 15.0 15.4 12.3 6.8 13.4 14E 19.8 23.9 25.5 11.1 12.4 18.2 19.0 12.2 16.7 13.8 15.7 12.2 16.3 15.3 7.7 8.8 11.3 11.2 13.0 9.5 12.8 7.5 13.7 12.9 13.3 12.6 14.5 10.0 6.3 12.0 13E 1.7 3.8 6.1 1.0 1.1 2.2 4.5 2.1 2.5 1.6 2.2 2.2 4.9 1.5 1.4 1.2 1.2 1.4 1.9 1.4 1.0 1.6 1.8 1.3 1.3 2.2 1.1 0.8 1.1 1.6 P/BV (x) 14E 1.7 3.5 5.0 0.9 1.0 2.1 4.0 1.9 2.4 1.5 2.0 2.0 4.1 1.5 1.2 1.1 1.1 1.4 1.8 1.3 0.9 1.4 1.8 1.2 1.2 2.0 1.0 0.7 1.0 1.5 Prem/Disc from 10Y avg FWD P/E P/BV 62 (3) 49 29 44 72 42 (27) 32 (29) 16 8 16 20 8 (28) 8 (8) 7 (18) 6 (9) (8) (6) (8) (18) (9) (42) (10) (12) (12) (42) (13) (32) (14) (41) (14) (4) (18) (44) (19) (5) (31) (23) 13 6 (8) (7) (4) (12) (14) (19) (7) (20) 18 (37) (52) (46) (3) (15) EPS Growth 13E 85 1 59 (13) (31) 2 19 15 5 (10) 4 25 19 (1) 8 (1) 10 2 37 1 8 34 6 18 (1) 10 9 (22) 12 8 14E 14 20 33 41 84 17 21 11 9 11 7 19 19 19 12 6 14 0 11 12 17 10 6 3 8 19 6 23 9 12 DY (%) 13E 2.9 1.6 0.6 1.5 1.1 3.5 2.5 3.2 4.4 3.9 3.4 1.8 1.5 4.2 0.8 3.8 2.5 3.8 3.1 2.1 2.3 0.5 5 2 3 2 3 2 4 3.0 RoE (%) 13E 7.5 13.4 18.0 6.3 5.0 10.3 19.6 15.2 14.0 10.3 12.8 15.5 25.5 8.4 16.0 13.2 9.1 12.9 13.4 13.6 6.5 19.8 13 10 9 15 7 6 17 12.2
MSCI Sector Taiwan Materials China CS China IT Korea Materials Korea Industrials Australia Industrials Hong Kong CD Australia Materials Australia CS Singapore Industrials Hong Kong Utilities China CD India IT Australia Energy Korea CD China Energy China Industrials China Telecom Taiwan IT India Energy Hong Kong Industrials Korea IT Australia Financials Taiwan Financials Singapore Financials India Financials Hong Kong Financials Korea Financials China Financials APxJ
Source: MSCI, IBES, Datastream, 4 November 2013. Note: Table sorted by premium/discount to 10-year average P/E. For financials, we sort by premium/discount to 10-year average price to book
18
Table 14: 40 cheapest (based on price to book) cyclical stocks in APxJ

Stock Htc Corp Acer Inc Oci Co Ltd Samsung Engineer U-Ming Marine Feng Hsin Iron Hanwha Chem Irpc Pcl China Steel Corp Orient Overseas Formosa Petroche Formosa Plastic Lotte Chemical C Yanzhou Coal-H Mmc Corp Bhd Tabcorp Hldgs Tsrc Corp Shangri-La Asia Hyundai Steel Lcy Chemical Cor Powertech Techno Doosan Infracore Korea Zinc Co Au Optronics Cor Indorama Venture Posco Qantas Airways Hyundai Heavy Unimicron Techno Siemens Ltd Jsw Steel Ltd Boral Ltd Tata Steel Ltd Ambuja Cements Hiwin Technologi Evergreen Marine Kcc Corp Guangzhou Auto Ultratech Cement Naver Corp BBG Code 2498 TT 2353 TT 010060 KS 028050 KS 2606 TT 2015 TT 009830 KS IRPC TB 2002 TT 316 HK 6505 TT 1301 TT 011170 KS 1171 HK MMC MK TAH AU 2103 TT 69 HK 004020 KS 1704 TT 6239 TT 042670 KS 010130 KS 2409 TT IVL TB 005490 KS QAN AU 009540 KS 3037 TT SIEM IN JSTL IN BLD AU TATA IN ACEM IN 2049 TT 2603 TT 002380 KS 2238 HK UTCEM IN 035420 KS Country Taiwan Taiwan S.Korea S.Korea Taiwan Taiwan S.Korea Thailand Taiwan Hong Kong Taiwan Taiwan S.Korea China Malaysia Australia Taiwan Hong Kong S.Korea Taiwan Taiwan S.Korea S.Korea Taiwan Thailand S.Korea Australia S.Korea Taiwan India India Australia India India Taiwan Taiwan S.Korea China India S.Korea Sector IT IT Materials Industrials Industrials Materials Materials Energy Materials Industrials Energy Materials Materials Energy Industrials CD Materials CD Materials Materials IT Industrials Materials IT Materials Materials Industrials Industrials IT Industrials Materials Materials Materials Materials Industrials Industrials Industrials CD Materials IT Re co UW UW NC UW N NC UW NC N OW NR NR UW UW NR OW UW NC OW NC NC N NC UW OW N UW N N UW OW N OW UW OW OW NC OW UW OW
Source: MSCI, IBES, Datastream, Bloomberg, J.P. Morgan 4 November 2013. NC= not covered. * The stocks whose operating margins are at lowest are highlighted in green and marked as 4th quartile. The analysis for each stocks is done with respect to its historical operating margins.
FF Mcap (US$bn) 3.7 1.6 3.0 2.1 0.7 0.8 1.8 1.1 10.0 1.1 3.1 10.9 3.3 2.0 0.6 2.5 1.1 2.9 4.6 0.7 1.0 1.4 2.5 2.8 1.1 19.5 1.3 10.1 1.0 0.7 1.2 3.6 1.6 2.1 1.4 1.0 1.8 2.8 1.1 15.4
12M fwd PE 240.3 70.4 37.5 34.5 35.8 23.1 15.2 21.4 21.6 12.6 27.4 19.2 12.1 15.6 22.5 18.3 13.8 33.6 11.0 18.0 12.1 17.2 10.4 16.4 17.4 10.4 33.5 20.1 15.4 37.2 10.9 20.4 10.5 20.1 21.6 39.4 19.2 12.2 19.7 28.2
Trailin g PB 1.5 0.7 1.6 2.1 1.7 2.1 0.8 1.0 1.4 0.7 3.3 2.0 1.2 0.8 1.2 1.9 2.8 0.9 0.8 1.4 1.2 1.0 1.4 0.6 2.1 0.6 0.5 0.9 0.8 5.0 1.1 1.2 1.0 3.3 6.0 1.1 0.8 1.4 3.5 7.4
Prem/Disc from 10 y av. Fwd. PE PB 122 (80) 378 (61) 206 (54) 183 (65) 171 (19) 109 (1) 106 (9) 81 (12) 62 (22) 60 (31) 58 (7) 57 (3) 55 (8) 55 (63) 50 (5) 49 (6) 46 (2) 43 (31) 42 (25) 40 (22) 39 (53) 38 (59) 38 (12) 35 (56) 35 (39) 33 (48) 219 (53) 133 (56) 58 (46) 50 (45) 45 (35) 43 (11) 41 (60) 38 (15) 36 (9) 155 (6) 45 (4) 33 (44) 33 (20) 46 (17)
3M return 8 (15) 19 (8) 10 3 26 6 2 (8) 0 1 24 48 4 14 1 15 27 (2) (17) 18 14 (13) 32 0 5 27 (10) 29 59 21 65 9 24 4 24 27 8 72
YTD (50) (28) 16 (55) 6 2 25 (20) (7) (19) (10) 1 (15) (38) (1) 6 (10) (8) 1 4 (3) (14) (23) (28) (10) (9) (24) 7 (28) (22) (6) 2 (30) (17) 7 (3) 40 41 (13) 112
*Quartile for OP. Margins 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th 3rd 3rd 3rd 3rd 3rd 3rd 3rd 3rd 3rd 2nd 2nd 2nd 2nd 1st
19
EM credit growth not crunch

Expectation of credit crunch Capital flows to EM changed in May. The threat of FED tapering drove up bond yields globally (see Figure 31). EM fixed income flows reversed. India, Brazil and Indonesia increased interest rates to defend their currencies. We and the market feared a credit crunch in EM. EM credit growth little changed post May The banking system in EM proved resilient. Post May credit growth is in-line with pre-May credit growth. Loan growth is particularly strong in Turkey, Indonesia, Russia, India and Brazil. In Korea and Taiwan loan growth is sub 5%, its normal trend. Corporate lending (India: +16%oya, Indonesia: +29%oya) is impressive. Following factors are supporting this growth: FAI/GDP in South Asia is at the highest level since the Asian crisis (see Figure 32). ASEAN central banks reduced sterilization operations to support base money. Indonesia FX reverses increased by US$4 billion from July end. Chinas FX reserves have increased by US$348 billion YTD. Indias narrowing trade deficit, good monsoon and pick-up in external demand. Delay in QE tapering. Our forecast for tapering is that it will start in April 2014. (For more please read Asia Banks & Credit Supply: Subtle Shifts in Monthly Data for North & South Asia, Klaczek et al., 17 October 2013)
Figure 30: China: FX reserves give flexibility to sustain credit supply
Source: CEIC
Figure 31: Tighter world: EM bond yields rose sharply
Source: Bloomberg, J.P. Morgan, 10 November 2013
Figure 32: ASEAN: Falling rates boost construction capex
Figure 33: EM loan growth and forecasts

EM Countries Turkey Indonesia Russia Hong Kong Brazil India Singapore China Philippines Thailand Mexico Malaysia South Africa Taiwan Australia Korea 2010 34% 22% 12% 29% 21% 27% 13% 20% 9% 15% 9% 13% 4% 16% 6% 3% 2011 28% 23% 30% 20% 19% 16% 24% 14% 19% 8% 16% 14% 5% 20% 6% 7%
2012 16% 24% 18% 10% 16% 15% 10% 15% 16% 19% 11% 10% 11% 13% 5% 2%
2013* 28% 21% 21% 17% 16% 16% 15% 14% 14% 12% 10% 9% 7% 6% 5% 3%
2014E** 14% 17% 12% 7% 19% 11% 12% 23% 10% 14% 8% 6% 4% 4%
Source: CEIC
Source: CEIC, J.P. Morgan estimates. *The credit growth data is for August 2013. For China, Russia and South Africa it is for September 2013 and for Mexico it is 2Q 13.** The forecast is done using bottom up approach for JP Morgan covered banks in each country. The table is sorted by 2013 credit growth.
20
EM GDP more correlated to Europe than the US

Europe exited a protracted recession in 2H13. This is good news for the bulk of the EM countries whose economic growth is more correlated to Europe than the US or Japan. The current conditions of OK European growth and below-forecast US data are particularly favorable for EM. Poor US data justifies a protracted tapering time-out. Good European growth is good for EM exports. This may last through 1Q14 assuming that a repeat of the debt ceiling debate in January impact US growth. Methodology Calculate regression coefficient of quarterly GDP growth (%q/q saar) for each EM country vs. US, Japan and EMU (independent variables) over 40 quarters. Observations The coefficient for euro areas growth on EM GDP is higher than that of the US and Japan (EM vs. EMU, US and Japan are at 0.85, 0.67 and 0.37 respectively (see Figure 34). Improvement in euro area growth is sharper than that of the US and Japan, with GDP growth swinging from a contraction at a -0.9% pace in 1Q13 to an expansion of 1.5% by 1Q14. There is clear divergence in sensitivity of EM growth to DM across EM countries (see Figure 36). Not surprisingly, Turkey is the most sensitive to euro area growth among EM economies followed by Russia and Taiwan. Sensitivity of Turkey growth to EMU increased significantly over the last six years (see Figure 35). Indonesia, Poland, China, Philippines and India are less sensitive to DM growth.
Figure 34: EM rolling regression
Source: J.P Morgan, The regression coefficient represents the rate of change in dependent variable (EM GDP growth) relative to changes in independent variable (EMU, US, Japan GDP growth). Data till 2Q13
Figure 35: Turkey rolling regression
Source: J.P Morgan, The regression coefficient represents the rate of change in dependent variable (Turkey GDP growth) relative to changes in independent variable (EMU, US, Japan GDP growth). Data till 2Q13
Figure 36: EM: Relationship with DM GDP growth (regression coefficients)
Source: J.P Morgan, The regression coefficient represents the rate of change in dependent variable (respective country GDP growth) relative to changes in independent variable (EMU, US, Japan GDP growth). Data till 2Q13
21
Potential returns and earnings estimates

End 2014 strategy team index forecasts MSCI APxJ 550 (+15%) Base case Current MSCI APxJ forward P/E of 12x Consensus 2015E MSCI APxJ EPS is 44 Forward P/E is 12.5x, marginal re-rating Pick your methodology To illustrate the impact of different methodologies on potential returns we calculate index targets using six assumptions: 1. Current earnings to bond yield ratio using provisional 2014 yield forecast and end-2015E EPS. 2. Five-year average earnings to bond yield ratio using provisional 2014 yield forecast and end 2015E EPS. 3. Current forward P/E multiplied by 2015E EPS based on the lower of 2015E EPS growth or potential nominal GDP 4. Current forward P/E multiplied by 2015E EPS 5. Three-year average P/E multiplied by 2015E EPS 6. Gordon Growth model theoretical P/E multiplied by 2015E EPS. This generates P/E in excess of 30 for six markets as local bond yields in these countries are very low relative to nominal GDP growth and RoE. Statistical warning EM equity markets valuations trend rather than meanrevert. Indices also evolve with sector composition changing. The growth characteristics of stocks also change and thus their valuations. Prior to the mid-90s current account crisis fixed exchange rates and high nominal growth supported high valuations. Investors should be suspicious of statistical justification for index targets. 2013 and 2014 earnings revised down by c6% year to date. It is important to forecast accurate earnings to calculate index target.
Table 15: Current forward P/E with standard deviation ranges
Index APxJ EM Asia US Europe Japan Australia China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Current Fwd PE 11.7 10.4 14.9 12.9 13.8 14.7 8.7 14.7 14.2 13.6 8.7 15.5 18.4 13.9 13.9 11.6 Avg 10Y 12.5 11.5 14.1 12.0 16.0 13.3 12.0 15.7 14.9 11.9 9.5 14.1 14.2 13.9 13.7 10.5 +1 SD 13.9 13.2 15.7 13.9 19.8 15.0 14.9 17.6 17.4 14.2 11.0 15.2 16.5 15.4 17.0 11.7 -1 SD 11.0 9.8 12.4 10.0 12.3 11.6 9.0 13.7 12.3 9.6 8.0 13.0 11.8 12.3 10.5 9.3 Top Decile 14.7 14.0 16.1 14.7 19.6 15.2 15.4 17.8 18.0 14.4 11.7 15.4 17.4 15.9 16.2 12.0 Bottom Decile 10.9 9.6 11.9 9.6 11.8 10.9 8.7 13.6 11.8 8.4 7.9 12.8 11.5 12.2 11.6 9.4
Source: MSCI, IBES, Datastream, 8 November 2013.
Table 16: Consensus earnings growth forecast (%)

Index APxJ US Europe Japan Australia Hong Kong Singapore Korea Taiwan China India Malaysia Thailand Indonesia Philippines Consensus Earning Growth (%) 13E 14E 15E 8.1 12.2 10.4 6.6 10.1 10.7 (2.5) 12.8 11.0 34.3 69.6 8.8 1.5 7.9 7.8 9.9 9.5 10.7 (2.6) 8.7 10.3 11.4 20.4 9.5 31.3 9.8 10.0 10.4 9.2 11.4 8.8 17.4 15.2 (0.6) 7.6 9.0 12.2 14.2 11.6 9.0 14.5 15.3 9.3 7.2 17.4 EPS growth CAGR 14/ 09 10.4 15.3 8.0 25.4 4.7 11.5 6.3 14.9 13.8 13.3 11.7 11.0 13.6 11.8 12.1
Source: MSCI, Datastream, IBES, J. P. Morgan, 8 November 2013
22
Table 17: Pick your methodology and thus your return: Percentage return to end 2014 targets based on multiple methodologies
Index Level (LC) APxJ Australia China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand 471 1106 61 13013 796 5176 581 648 1067 368 291 506 (1) Current EY/BY 8 (4) 4 21 (0) 13 20 9 26 18 10 8 (2) 5yr avg EY/BY 1 (12) 1 (15) (1) (0) 41 1 56 (6) (8) (12) (3) FWD PE 2015 EPS = GDP 13 8 14 9 14 12 9 10 11 7 8 9 (4) Current FWD PE 14 9 11 18 25 16 17 13 20 10 10 14 (5) 3year average FWD PE 10 (13) 16 9 13 14 22 2 4 10 9 4 Median Max Min Range of returns 13 23 15 36 26 16 32 13 52 25 18 26 (6) Gordon Growth PE 143 13 271 125 12 62 311 113 93 136 142 99
10 (4) 11 9 13 13 20 9 20 10 9 8
14 9 16 21 25 16 41 13 56 18 10 14
1 (13) 1 (15) (1) (0) 9 1 4 (6) (8) (12)
Source: MSCI, IBES, Datastream, Bloomberg, J.P. Morgan. 8 November 2013 Note: All index levels and returns are in local currency; please email EM_Equity_Strategy@jpmorgan.com for the assumptions
Table 18: Consensus EPS estimates and revisions since the beginning of 2013
Index APxJ (US$) APxJ US Europe Japan Australia Hong Kong Singapore Korea Taiwan China India Malaysia Thailand Indonesia Philippines 11 33 32 91 121 31 69 843 24 43 14.8 5.68 44 35 32 312 45 Actual 12 33 33 97 120 23 69 740 25 52 15 5.82 46 39 34 311 50 Current Consensus EPS 13E 14E 15E 36 40 44 36 40 44 103 114 126 117 131 146 29 50 54 70 75 81 813 891 986 25 27 30 57 68 75 19 21 23 6.42 7.01 7.81 50 59 68 39 42 46 38 44 49 336 385 443 54 58 69 Consensus EPS beginning of this Year 13E 14E 15E 39 43 48 37 41 46 105 118 131 127 141 157 31 42 47 71 78 83 809 899 931 26 28 30 67 76 90 19 22 26 6.27 6.96 7.70 55 63 81 41 45 47 43 48 54 378 438 458 56 60 65 Revision in Consensus EPS (%) 13E 14E 15E (7.0) (6.6) (7.4) (3.7) (3.2) (4.1) (2.0) (3.6) (3.5) (8.2) (7.1) (7.2) (4.6) 18.8 14.6 (1.8) (3.0) (2.1) 0.5 (0.9) 5.9 (4.9) (5.2) (1.6) (15.3) (10.0) (17.1) (0.9) (2.6) (10.0) 2.4 0.7 1.4 (9.2) (6.3) (16.7) (4.7) (6.6) (2.0) (10.4) (8.0) (9.0) (11.1) (12.2) (3.2) (3.5) (2.5) 4.9
Source: MSCI, Datastream, IBES, J. P. Morgan, 8 November 2013. Note: All EPS are in local currency
Table 19: Consensus EPS estimates and revisions since the beginning of 2013
Index Cons. Disc. Cons. Staples Energy Financials Healthcare Industrials IT Materials Telecom Utilities Banks Div. Financials Insurance Real Estate Capital Goods Transportation 11 25.5 19.5 66.4 22.4 29.0 11.5 14.6 45.1 8.2 8.5 25.0 25.0 7.6 13.1 14.4 6.7 Actual 12 31.8 18.6 57.4 22.5 30.6 9.9 20.3 32.6 8.1 11.4 26.1 22.1 7.3 12.0 12.2 6.8 Current Consensus EPS 13E 14E 15E 33.8 38.4 43.0 19.3 21.7 24.5 57.6 63.8 69.0 24.1 26.2 28.8 34.8 40.6 46.3 9.4 11.9 13.9 27.4 30.7 33.2 28.7 35.2 39.3 8.7 9.1 9.7 14.3 16.5 18.6 27.4 29.2 31.9 23.5 27.5 30.7 10.0 11.7 13.2 12.6 13.8 15.2 10.8 13.8 15.9 8.5 10.8 13.6 Consensus EPS beginning of this Year 13E 14E 15E 38.1 43.1 38.3 22.4 25.2 28.5 66.8 71.8 72.3 24.6 26.9 29.2 37.0 43.2 45.8 12.1 13.9 13.5 26.5 29.9 35.1 37.1 43.9 47.1 9.1 9.8 10.0 14.9 16.8 17.1 27.4 29.7 32.3 27.3 30.9 27.7 10.6 11.9 14.3 13.0 14.2 12.7 14.0 15.5 15.2 10.9 14.1 14.6 Revision in Consensus EPS (%) 13E 14E 15E (11.3) (10.9) 12.3 (14.0) (14.0) (14.0) (13.7) (11.2) (4.6) (2.1) (2.6) (1.5) (6.0) (6.1) 1.1 (22.1) (14.4) 3.4 3.5 2.6 (5.6) (22.5) (19.9) (16.6) (4.6) (7.2) (3.1) (3.6) (1.5) 8.3 0.0 (1.5) (1.3) (13.9) (10.8) 10.9 (5.9) (2.3) (7.9) (2.6) (2.8) 20.2 (22.6) (10.9) 4.5 (21.4) (23.4) (7.2)
Source: MSCI, Datastream, IBES, J. P. Morgan, 8 November 2013. Note: All EPS are in local currency
23
Dissection of Asia Pacific ex-Japan EPS growth

The objective Disaggregate the Asia Pacific ex-Japan EPS growth into countries, sectors and key sectors in countries. Note the analysis is of IBES or consensus data. Main observations on 2014E consensus EPS growth MSCI APxJ weighted and median EPS growth is 12% and 14% respectively. This is inline with our economists 2014 nominal GDP growth forecast of 11%. Korea earnings growth forecast is 20% and contributes one-third of MSCI APxJ 2014 EPS growth. China and Australia contributes another c35% of EPS growth. Financials, IT and materials are the highest contributors to 2014E earnings growth (but note Figure 37). The contribution from healthcare and telecom is the lowest (see Table 21). The forecast rebound in Korean banks 2014 EPS is a combination of gradual NIM recovery and improving corporate credit cost. Four sectors contribute c20% of MSCI APxJ 2014 EPS growth; Korea semiconductors, China diversified banks, Australia diversified metal & mining and Korea construction & engineering. Calculation The index's calendar year EPS is calculated using the profit-weight of the constituents. Index EPS = I x ( (C-EPS x FFS) / (FFS x P)) Where C-EPS = Index constituents EPS, FFS = free float shares for the constituents, I = index level and P = current market price The check Median EPS growth of the index constituents: Reviewing the median helps identify sectors in which a single stocks impact on weighted EPS growth is large. This could be due its large weight in the index or moving from loss to profit. Where J.P. Morgan analysts forecasts differ Higher: China IT, Taiwan Financials, Australia Energy, Australia Materials Lower: Korea Materials, Australia Ind., HK Financials, China Telecom, China CS
Figure 37: Korea materials EPS revisions
Dataset IBES EPS forecasts for MSCI Asia Pacific ex-Japan constituents
Source: MSCI, IBES, Datastream, 31 October 2013
Table 20: Asia Pacific ex-Japan consensus earnings growth and contribution
Country Korea China Australia Taiwan Hong Kong India Singapore Thailand Indonesia Malaysia Philippines APxJ Mkt Cap Weight 15.2 18.1 26.1 10.9 9.3 5.9 5.0 2.4 2.3 3.6 0.9 100 Earnings weights (%) 2013 2014 2015 18.8 20.4 20.2 25.0 24.4 24.5 21.8 21.3 20.7 9.4 9.2 9.1 7.7 7.6 7.7 4.8 4.9 5.1 4.4 4.3 4.3 2.4 2.4 2.4 2.0 2.1 2.1 2.9 2.8 2.8 0.6 0.6 0.6 100.0 100.0 100.0 Index EPS Growth 2013 2014 2015 11.4 20.4 9.5 10.4 9.2 11.4 1.5 7.9 7.8 31.3 9.8 10.0 9.9 9.5 10.7 8.8 17.4 15.2 (2.6) 8.7 10.3 12.2 14.2 11.6 9.0 14.5 15.3 (0.6) 7.6 9.0 9.3 7.2 17.4 8.1 12.2 10.4 Median EPS Growth 2013 2014 2015 4.5 22.5 14.1 10.0 16.3 16.0 5.1 9.5 9.3 16.2 11.7 10.5 5.8 10.2 11.4 11.3 16.6 16.8 2.1 7.8 9.5 13.7 14.7 15.0 7.8 12.8 15.4 3.5 9.8 9.6 16.8 12.1 16.7 8.1 13.9 12.7 Contribution to Earnings growth (%) 2013 2014 2015 18 34 19 29 19 26 6 17 15 29 8 8 9 6 9 5 6 7 (2) 3 4 3 3 3 2 2 3 (1) 2 3 1 0 1 100 100 100
Source: IBES, Datastream, J.P. Morgan calculation. Note: Sorted by 2014E earnings growth contribution.
24
Table 21: Asia Pacific ex-Japan sector earnings growth and contribution
APxJ Sectors Financials Information Technology Materials Industrials Consumer Discretionary Energy Consumer Staples Utilities Telecommunication Services Health Care APxJ Mkt Cap Weight 37.4 14.5 9.4 7.8 8.0 6.1 6.4 3.1 5.2 2.1 100 Earnings weights (%) 2013 2014 2015 42.1 40.7 41.0 15.9 16.0 15.6 8.3 8.9 8.8 6.0 6.7 7.1 8.1 8.2 8.3 7.1 7.0 6.9 3.9 4.0 4.1 2.7 2.8 2.8 4.8 4.5 4.3 1.1 1.2 1.2 100.0 100.0 100.0 Index EPS Growth 2013 2014 2015 6.7 8.5 11.6 35.8 12.1 8.5 (1.4) 19.5 10.6 (5.7) 26.8 16.4 6.9 14.1 12.1 0.1 10.7 8.2 3.8 13.1 13.5 26.3 16.3 11.7 6.0 4.9 6.5 12.7 16.8 16.2 8.1 12.2 10.4 Median EPS Growth 2013 2014 2015 9.5 11.3 12.1 15.5 15.4 11.1 4.7 16.4 12.1 5.7 17.9 15.2 9.5 14.2 12.7 3.0 11.9 10.2 6.2 16.8 16.2 3.3 6.2 9.1 8.3 10.4 12.1 15.7 16.9 17.1 8.1 13.9 12.7 Contribution to Earnings growth (%) 2013 2014 2015 33 30 43 52 16 12 (1) 14 9 (4) 13 10 6 9 9 0 6 5 2 4 5 7 4 3 3 2 3 2 2 2 100 100 100
Table 22: Country sub-industries contributing 65% of APxJ earnings growth

Country Sub-Industry Korea Semiconductors China Diversified Banks Australia Div. Metals & Mining Korea Construction & Eng Australia Diversified Banks Taiwan Semiconductors Korea Diversified Banks China Real Estate Development Korea Electric Utilities Korea Auto Manufacturers Korea Commodity Chemicals Korea Steel China Life & Health Insurance Australia Prop & Casualty Insur India IT Consulting & Other svs HK Life & Health Insurance Korea Oil & Gas Refining & Mkt Hong Kong Casinos & Gaming China Integrated Oil & Gas Thailand Diversified Banks HK Div. Real Estate Activities China Internet Software & Svs Australia Oil & Gas E&P Singapore Diversified Banks China Automobile Manufacturers Korea Industrial Conglomerates India Diversified Banks Korea Construction & Machinery Korea Auto Parts & Equipment Korea Consumer Electronics Korea Trading Companies HK Industrial Conglomerates Australia Steel Indonesia Diversified Banks Korea Electronic Components Korea IB & Brokerage Korea Diversified Chemicals Korea Prop & Casualty Insuranc Taiwan Electronic Mftg Svs Mkt Cap Weight 4.6 4.4 3.6 0.3 9.5 3.4 1.3 1.0 0.2 1.5 0.6 0.6 0.9 1.1 1.2 1.5 0.4 1.2 1.1 0.9 1.7 1.4 0.9 1.6 0.6 0.4 0.7 0.5 0.6 0.2 0.2 0.8 0.2 0.8 0.4 0.2 0.2 0.3 0.7 Earnings weights (%) 2013 8.5 10.7 3.3 0.0 8.6 2.9 1.6 1.7 0.0 2.8 0.5 0.6 0.8 1.0 0.8 1.0 0.4 0.7 1.6 1.1 1.6 0.5 0.7 1.8 0.6 0.5 0.6 0.4 0.9 0.1 0.1 0.7 0.4 0.8 0.3 0.1 0.0 0.3 0.9 2014 8.3 10.1 3.4 0.4 8.0 2.9 1.7 1.7 0.2 2.7 0.7 0.7 0.9 1.0 0.9 1.0 0.5 0.7 1.6 1.1 1.6 0.6 0.7 1.7 0.6 0.6 0.6 0.4 0.9 0.2 0.2 0.8 0.4 0.8 0.4 0.2 0.1 0.3 0.9 2015 7.7 10.0 3.2 0.4 7.6 2.9 1.7 1.8 0.3 2.6 0.7 0.7 1.0 1.1 0.9 NA 0.5 0.8 1.5 1.1 1.6 0.6 0.7 1.7 0.6 0.6 0.7 0.5 0.9 0.2 0.2 0.7 0.3 0.8 0.4 0.2 0.1 0.4 0.8 Index EPS Growth 2013 44.2 8.8 (11.0) NM 5.5 16.8 (23.2) 11.4 (96.5) 6.4 6.2 (27.0) 79.8 22.9 19.4 38.5 4.4 34.6 10.8 16.4 4.5 29.3 (5.6) (3.5) 35.3 19.7 10.6 (19.3) (2.3) 678.6 (37.5) 11.2 46.1 8.5 (32.7) NA (10.9) NA 3.8 2014 9.1 6.2 14.1 NM 4.6 12.4 19.4 16.1 NM 8.9 41.9 33.9 20.9 17.8 17.7 13.9 34.8 20.7 8.6 12.7 8.1 26.6 18.1 7.0 20.7 22.3 18.1 28.1 12.0 110.3 106.9 13.5 26.6 12.3 26.6 110.8 220.2 28.1 9.4 2015 3.6 10.0 6.5 27.3 4.9 12.2 11.5 18.2 42.7 7.6 18.6 10.3 18.8 11.5 16.4 NA 10.0 18.0 4.3 14.2 11.6 26.0 11.9 10.9 15.6 8.7 18.4 24.4 8.9 23.0 18.8 10.3 (7.7) 16.9 21.3 15.3 29.3 13.4 4.9 Median EPS Growth 2013 31.4 9.4 (10.9) 19.5 5.6 17.4 (17.5) 15.2 NA 4.9 10.5 (28.9) 46.3 20.7 23.4 38.5 6.1 15.0 10.8 13.7 8.8 29.3 (2.8) (4.1) 46.0 30.9 (1.8) 8.7 4.7 678.6 (21.4) 2.2 46.1 10.2 10.8 NA 43.5 NA 3.8 2014 15.7 5.9 12.6 29.4 4.8 14.6 17.5 18.8 NA 8.6 83.8 20.4 23.0 17.5 18.8 13.9 33.8 16.5 8.6 13.5 8.0 26.6 16.2 7.5 23.9 23.8 13.4 30.2 14.9 110.3 84.4 13.6 26.6 12.8 32.1 86.4 2.7 28.3 9.4 2015 0.1 11.1 7.0 33.6 5.1 11.0 13.6 18.9 42.7 7.8 18.3 9.8 19.0 9.4 15.4 NA 8.0 10.7 4.3 15.0 10.3 26.0 23.5 11.3 19.6 7.5 13.0 32.4 11.0 23.0 17.2 10.2 (7.7) 17.5 23.8 11.9 36.7 13.0 4.9 Contribution to Earnings growth (%) 2013 2014 2015 32 6 3 11 5 9 (5) 4 2 (5) 4 1 6 3 4 5 3 3 (6) 3 2 2 2 3 5 2 1 2 2 2 0 2 1 (3) 2 1 5 1 2 2 1 1 2 1 1 4 1 NA 0 1 0 2 1 1 2 1 1 2 1 1 1 1 2 1 1 1 (1) 1 1 (1) 1 2 2 1 1 1 1 0 1 1 1 (1) 1 1 (0) 1 1 1 1 0 (1) 1 0 1 1 1 1 1 (0) 1 1 1 (2) 1 1 NA 1 0 (0) 1 0 NA 1 0 0 1 0
25
Table 23: APxJ hindsight sectors: J.P. Morgan vs consensus EPS growth
Country/Sector APxJ Australia Australia Fin. Australia Materials Australia CS Australia Energy Australia Ind. China China Financials China Energy China Telecom China Industrials China CS China IT China CD Korea Korea IT Korea Industrials Korea Financials Korea CD Korea Materials Taiwan Taiwan IT Taiwan Financials Taiwan Materials India India Financials India IT India Energy Hong Kong HK Financials HK Utilities Hong Kong CD HK Industrials Singapore Singapore Fin. Singapore Ind. Malaysia Indonesia Thailand Philippines Weights 100.0 26.2 13.4 4.9 2.4 1.5 1.3 18.3 7.2 2.7 2.0 1.1 1.1 1.7 1.0 15.2 5.7 1.8 2.1 2.7 1.5 10.8 5.7 2.0 1.3 5.6 1.3 1.2 0.7 9.4 5.6 1.1 1.5 1.0 5.0 2.6 1.1 3.6 2.2 2.4 0.8 2014E EPS Growth (%) JPM Consensus 12.8 12.2 11.0 9.3 6.5 6.4 21.0 15.7 8.5 7.8 25.2 16.7 5.4 9.3 10.3 9.2 9.5 8.9 6.2 5.5 (3.2) 0.0 17.2 14.0 19.8 19.8 44.0 33.2 18.7 18.8 19.2 20.4 5.1 10.2 116.4 85.2 22.8 23.5 16.2 12.0 27.8 41.6 14.4 9.9 15.7 10.6 10.3 3.1 16.1 13.5 19.2 17.4 22.9 19.2 18.3 19.0 10.5 9.1 6.6 9.5 2.5 6.0 3.5 6.6 19.8 20.8 17.8 17.5 10.5 8.7 8.2 7.9 12.6 11.5 12.5 7.6 11.7 14.5 14.4 14.2 7.3 7.2 Diff in Growth (%) JPM minus Cons 0.6 1.7 0.1 5.3 0.7 8.5 (3.9) 1.0 0.7 0.8 (3.2) 3.2 (0.0) 10.8 (0.1) (1.3) (5.1) 31.2 (0.7) 4.3 (13.7) 4.5 5.0 7.2 2.6 1.8 3.6 (0.6) 1.4 (2.9) (3.5) (3.2) (1.0) 0.3 1.9 0.4 1.1 4.9 (2.8) 0.2 0.1 JPM EPS 13E 14E 35 40 68 76 11 11 27 33 15 17 21 27 5.1 5.3 6.4 7.1 65 72 72 77 12 11 10 11 45 54 6.7 9.6 17 20 55 65 95 100 7.0 15 18 22 237 276 33 43 19 22 8.8 10 6.7 7.4 10 11 48 58 290 356 50 59 109 120 802 855 21 21 17 17 17 20 12 14 24 26 18 20 22 25 38 43 355 397 38 43 55 59 Consensus EPS 13E 14E 36 40 70 76 11 12 27 32 15 17 22 25 5 6 6.4 7.0 65 71 71 75 12 12 10 11 47 56 6.5 8.6 16 19 57 68 93 102 8.3 15 18 22 246 276 34 47 19 21 9.1 10 6.5 6.7 10 11 50 59 303 361 52 62 108 118 813 891 21 23 16 17 16 20 13 15 25 27 19 20 22 25 39 42 336 385 38 44 54 58 JPM/Cons EPS (%) 13E 14E (1.3) (0.8) (1.9) (0.3) (2.8) (2.7) (0.0) 4.6 (0.1) 0.5 (2.0) 5.2 (4.2) (7.6) 0.1 1.0 0.7 1.3 1.0 1.7 (1.8) (4.9) (3.0) (0.3) (4.6) (4.6) 3.1 11.4 3.5 3.4 (3.1) (4.1) 2.6 (2.2) (15.8) (1.6) (0.3) (0.9) (3.8) (0.1) (0.4) (10.1) (1.2) 2.8 (3.4) 1.0 3.6 10.8 0.1 2.4 (3.4) (1.9) (4.4) (1.5) (3.8) (4.3) 0.8 2.1 (1.4) (4.1) (2.3) (5.6) 3.4 0.3 0.7 (0.1) (4.1) (3.9) (3.8) (2.1) (4.3) (3.8) (2.5) (2.0) (2.0) 2.4 5.8 3.2 (1.4) (1.2) 1.2 1.3
Source: J.P Morgan, MSCI, IBES, Datastream, 13 November 2013
Table 24: Where J.P. Morgan analysts estimates differ from the consensus
J.P. Morgan more bullish than consensus JPM EPS JPM/Cons EPS (%) Weights 13E 14E 13E 14E 1.7 6.7 9.6 3.1 11.4 2.0 6.7 7.4 3.6 10.8 1.5 21 27 (2.0) 5.2 4.9 27 33 (0.0) 4.6 1.0 17 20 3.5 3.4 2.2 355 397 5.8 3.2 10.8 19 22 (1.2) 2.8 3.6 38 43 (2.0) 2.4 1.3 10 11 0.1 2.4 0.7 109 120 0.8 2.1 J.P. Morgan more bearish than consensus JPM EPS JPM/Cons EPS (%) Country/Sector Weights 13E 14E 13E 14E Korea Materials 1.5 33 43 (0.4) (10.1) Australia Ind. 1.3 5.1 5.3 (4.2) (7.6) HK Financials 5.6 21 21 (2.3) (5.6) China Telecom 2.0 12 11 (1.8) (4.9) China CS 1.1 45 54 (4.6) (4.6) India IT 1.2 50 59 (3.8) (4.3) Korea 15.2 55 65 (3.1) (4.1) Hong Kong 9.4 802 855 (1.4) (4.1) HK Industrials 1.0 12 14 (4.1) (3.9) Singapore Fin. 2.6 18 20 (4.3) (3.8)
Country/Sector China IT Taiwan Financials Australia Energy Australia Materials China CD Indonesia Taiwan Malaysia Taiwan Materials India Energy
Source: J.P Morgan, MSCI, IBES, Datastream, 13 November 2013
26
Thematic Stock Baskets for the Year Ahead

We have divided a short list of stocks in the Year Ahead into eight thematic baskets: 1. 2014 Top Picks in Preferred Country Sectors (JPHAPTOP <Index>): top picks in the country sectors preferred by our strategy team. 2. Long Global Demand (JPHAPGDM <Index>): top picks with exposure to global demand. 3. Cheap Domestic Growth (JPHAPDGR <Index>): top picks with domestic growth bias that are trading cheaper compared to 10-year average forward P/E (trailing P/B for banks) 4. Downgrade Dogs (JPHAPDOG <Index>): top picks which suffered EPS downgrades in 2013 and now have low earnings expectations. The downgrade dogs may offer the potential of EPS upgrades in 2014. 5. Best idea by country strategist: one top pick and avoid for each country 6. Best idea by sector heads: one top pick and avoid for each sector 7. Avoid expensive Stocks to avoid from the Year Ahead report that are trading expensive compared to 10 year average forward PE (trailing PB for banks) 8. Rotation Riders - Underperforming top picks with low P/B relative to 10-year average and the opposite for stocks to avoid. The tables on the following pages summarize the basket constituents and liquidity (based on one-third of constituent stocks 3M average daily turnover). The basket weights were determined by striking a balance between liquidity and diversity with the component shares established as of November 12, 2014. Investors can track the performance of these J.P. Morgan Thematic Baskets (JPTH <GO>) on Bloomberg using the tickers in brackets above. For more information, please contact your J.P. Morgan salesperson or Equity Derivatives & Quantitative Strategy team.
Table 25: 2014 Top Picks in Preferred Country Sectors (JPHAPTOP <Index>)
Name Top Picks Hyundai Motor Company Sinopec Corp - H SK Hynix Krung Thai Bank Sesa Sterlite KB Financial Group Kasikornbank Siam Commercial Bank ASE Tata Steel Ltd Samsung Card Samsung Fire & Marine Ins. TSMC ICICI Bank Cathay Financial Holdings HCL-Technologies Anton Oilfield Services CJ O Shopping MGM China Holdings Wipro Ltd. Infosys Sands China Ltd Seoul Semiconductor Sa Sa International Naver DLF Limited Sapphire Technology Average Median Share Price (LC) 243000 6.3 32300 19.5 191 38400 182.5 166 29.1 375 37350 256000 104 1052 43.1 1085 4.8 364600 27.0 486 3354 55.4 39800 8.1 620000 145 36900 PT 2014 (LC) 330000 7.5 39000 28.0 240 49000 240.0 210 35.0 525 51000 330000 130 1200 50.8 1100 6.4 430000 30.5 560 3500 62.0 50000 9.4 770000 210 60000 % Change to target 35.8 19.0 20.7 43.6 25.8 27.6 31.5 26.5 20.3 39.9 36.5 28.9 25.6 14.1 18.0 1.4 32.5 17.9 13.2 15.2 4.3 11.9 25.6 16.2 24.2 44.5 62.0 25.6 25.6 Bloomberg Code 005380 KS 386 HK 000660 KS KTB TB SSLT IN 105560 KS KBANK TB SCB TB 2311 TT TATA IN 029780 KS 000810 KS 2330 TT ICICIBC IN 2882 TT HCLT IN 3337 HK 035760 KS 2282 HK WPRO IN INFO IN 1928 HK 046890 KQ 178 HK 035420 KS DLFU IN 123260 KQ JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW N OW OW OW OW OW OW OW Mkt Cap, US$ MM 50049 90062 21449 8624 8938 13872 13822 17829 7621 5759 4046 11340 90619 19186 17394 11965 1345 2115 13208 18938 30426 57607 2170 2959 19109 4088 282 20179 13208 P/E (X) 13E 14E 7.5 8.0 9.1 9.5 5.4 11.2 10.4 11.3 14.8 NM 12.9 21.5 14.5 15.5 15.1 19.0 20.6 18.3 19.4 19.5 20.4 25.8 45.4 27.8 47.6 32.5 NM 18.5 15.5 6.8 7.2 7.4 8.1 8.2 8.5 9.0 9.8 11.1 11.3 11.6 12.1 12.3 13.4 13.7 14.1 14.5 15.4 15.5 15.8 19.0 19.4 21.2 24.8 31.5 44.9 56.1 16.4 13.4 EPS Growth 13E 14E 2.4 (15.4) NM 9.8 69.1 (26.5) 19.2 24.7 14.7 NM 43.6 (27.0) 11.5 23.4 79.1 62.8 31.5 1.1 16.6 17.2 13.5 80.0 NM 18.3 (1.9) (38.1) NM 18.7 16.6 10.9 11.1 23.8 17.0 (33.6) 30.7 15.2 14.6 33.1 NM 11.5 76.9 17.3 15.8 10.5 34.8 41.6 18.9 25.0 23.7 7.1 33.0 NM 12.3 51.1 (27.6) NM 19.8 17.1 DY(%) 14E 1.0 5.7 0.0 4.6 2.3 2.0 2.2 3.3 3.9 2.4 1.9 2.7 2.9 2.2 2.2 0.7 2.2 0.9 4.1 1.0 1.8 3.6 0.0 2.9 0.6 0.0 0.0 2.1 2.2 ROE (%) 14E 17.0 13.7 21.8 15.9 9.6 6.6 20.3 21.2 14.9 8.8 5.7 9.8 21.6 12.9 13.7 33.4 22.9 23.3 75.7 24.1 23.6 45.8 16.1 43.9 26.7 2.2 6.2 20.6 17.0
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 14, 2013. Sorted in ascending order of 2014E P/E.
27
Table 26: Long Global Demand (JPHAPGDM <Index>)

Name Top Picks Hyundai Motor Company SK Hynix Pacific Basin Shipping ASE TSMC Keppel Corporation China State Construction Golden Agri-Resources Ltd HCL-Technologies Top Glove Corporation Evergreen Marine Corp Wipro Ltd. Hiwin Infosys Nidec (6594) Seoul Semiconductor Dr. Reddy's Laboratories Hyundai Mipo Dockyard Naver Singapore Airlines Sapphire Technology Average Median Share Price (LC) 243000 32300 5.2 29.1 104 11.0 12.9 0.6 1085 5.9 16.7 486 231 3354 9120 39800 2462 181000 620000 10.3 36900 PT 2014 (LC) 330000 39000 6.5 35.0 130 13.3 19.0 0.7 1100 6.7 22.0 560 250 3500 11000 50000 2800 210000 770000 13.0 60000 % Change to target 35.8 20.7 24.3 20.3 25.6 20.9 47.3 19.7 1.4 14.5 31.7 15.2 8.2 4.3 20.6 25.6 13.7 16.0 24.2 26.1 62.0 23.2 20.7 Bloomberg Code 005380 KS 000660 KS 2343 HK 2311 TT 2330 TT KEP SP 3311 HK GGR SP HCLT IN TOPG MK 2603 TT WPRO IN 2049 TT INFO IN 6594 JT 046890 KQ DRRD IN 010620 KS 035420 KS SIA SP 123260 KQ JPM Rating OW OW OW OW OW OW OW OW OW OW OW N OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 50049 21449 1306 7621 90619 15925 6470 6015 11965 1131 1960 18938 1980 30426 13231 2170 6611 3385 19109 9692 282 15254 7621 P/E (X) 13E 14E 7.5 9.1 63.3 14.8 14.5 12.6 17.3 22.0 19.0 17.3 64.1 19.5 27.5 20.4 NM 45.4 31.8 NM 47.6 32.3 NM 27.0 19.9 6.8 7.4 10.4 11.1 12.3 12.6 12.9 13.1 14.1 14.4 14.7 15.8 18.3 19.0 19.9 21.2 24.9 25.6 31.5 35.4 56.1 18.9 14.7 EPS Growth 13E 14E 2.4 NM NM 14.7 11.5 (18.2) 31.4 (33.7) 62.8 0.8 NM 17.2 3.2 13.5 (80.1) NM 16.8 NM (1.9) 14.4 NM 3.6 11.5 10.9 23.8 NM 33.1 17.3 (0.2) 34.5 68.0 34.8 20.3 NM 23.7 50.2 7.1 NM NM 27.6 NM 51.1 (8.7) NM 26.2 23.8 DY(%) 14E 1.0 0.0 5.4 3.9 2.9 4.1 2.3 2.3 0.7 3.5 0.0 1.0 1.0 1.8 0.9 0.0 0.7 0.8 0.6 2.3 0.0 1.7 1.0 ROE (%) 14E 17.0 21.8 10.0 14.9 21.6 15.1 23.1 5.1 33.4 18.2 6.0 24.1 23.8 23.6 14.0 16.1 20.8 4.5 26.7 2.7 6.2 16.6 17.0
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 14, 2013. Sorted in ascending order of 2014E PE
Table 27: Downgrade Dogs (JPHAPDOG <Index>)

Name Top Picks Evergreen Marine Corp Hyundai Mipo Dockyard Hyundai Development Co. DLF Limited Jiangxi Copper - H Tata Steel Ltd 21Vianet Group Inc. Thai Union Frozen Products Jardine Cycle & Carriage Ltd Buru Energy Golden Agri-Resources Ltd Global Logistic Properties SK Innovation Co Ltd Sims Metal Management Ltd MNC Sky Vision tbk Genting Plantations United Tractors Air China H KB Financial Group Rio Tinto Limited Naver PCCW Limited Singapore Airlines China Shenhua Energy - H Coca-Cola Amatil PetroChina Weichai Power CP All Pcl Average Median Share Price (LC) 16.7 181000 23150 145 14.4 375 18.6 63.3 34.2 1.5 0.6 3.0 135000 10.2 2100 11.1 19050 5.1 38400 65.1 620000 3.4 10.3 23.8 12.1 8.6 30.5 41.3 PT 2014 (LC) 22.0 210000 30000 210 19.5 525 25.0 63.0 51.0 3.2 0.7 3.2 180000 11.3 3100 12.6 23500 7.0 49000 78.0 770000 4.1 13.0 26.5 13.3 11.0 37.0 51.0 % Change to target 31.7 16.0 29.6 44.5 35.2 39.9 34.8 (0.4) 49.1 112.7 19.7 5.0 33.3 11.3 47.6 13.9 23.4 36.5 27.6 19.8 24.2 20.9 26.1 11.6 10.1 28.1 21.5 23.6 28.5 25.1 Bloomberg Code 2603 TT 010620 KS 012630 KS DLFU IN 358 HK TATA IN VNET US TUF TB JCNC SP BRU AU GGR SP GLP SP 096770 KS SGM AU MSKY IJ GENP MK UNTR IJ 753 HK 105560 KS RIO AU 035420 KS 8 HK SIA SP 1088 HK CCL AU 857 HK 2338 HK CPALL TB JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 1960 3385 1632 4088 7515 5759 1095 2297 9746 414 6015 11436 11672 1927 1301 2616 6233 8431 13872 98667 19109 3180 9692 53738 8569 226388 6570 11726 19251 6401 P/E (X) 13E 14E 64.1 NM NM 32.5 11.8 NM 62.8 30.6 9.6 NM 22.0 32.0 10.7 NM 83.6 29.6 16.4 20.6 11.2 12.0 47.6 14.4 32.3 8.7 17.7 10.7 12.8 33.1 31.2 21.3 14.7 25.6 8.8 44.9 10.6 11.3 28.6 15.2 9.0 83.9 13.1 42.1 8.0 15.6 36.7 19.6 11.4 13.4 8.5 10.2 31.5 12.9 35.4 9.2 16.3 9.2 10.8 25.8 20.8 14.1 EPS Growth 13E NM NM NM (27.6) 11.1 NM NM NM 6.7 NM 68.0 (24.0) 33.4 NM NM 50.6 43.9 53.6 30.7 17.6 51.1 12.1 (8.7) (6.0) 8.3 16.6 19.1 28.0 20.2 17.6 DY % 14E 0.0 0.8 1.3 0.0 2.8 2.4 0.0 3.3 4.2 0.0 2.3 1.3 1.9 3.2 1.0 1.1 3.5 1.3 2.0 3.0 0.6 5.8 2.3 4.2 5.2 4.9 0.9 2.2 2.2 2.1 ROE (%) 14E 6.0 4.5 8.4 2.2 8.1 8.8 10.5 13.1 19.3 3.5 5.1 7.6 7.9 6.8 17.7 11.3 18.3 7.4 6.6 19.9 26.7 23.8 2.7 13.6 25.6 11.5 14.8 44.0 12.7 9.6 FY2 EPS Revision YTD (%) (67.2) (63.3) (46.0) (44.5) (42.8) (34.9) (34.6) (33.9) (26.6) (26.6) (26.5) (25.0) (24.5) (24.3) (21.9) (21.0) (20.4) (20.4) (18.8) (18.7) (17.7) (17.4) (17.1) (17.1) (17.0) (12.7) (11.1) (10.1) (27.2) (23.1)
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 14, 2013. Sorted in ascending order of FY2 earnings revision
28
Table 28: Avoid Expensive

Share Price (LC) 9.7 205500 104 29900 7.1 47.2 580 0.9 33.7 105 3625 189 63.7 48.2 746 1250 61.0 249000 9.5 1613 25.2 1.4 PT 2014 (LC) 8.0 140000 103 22000 5.6 47.0 570 0.6 27.0 99 3820 213 56.0 40.0 600 1220 67.0 200000 8.1 1350 25.0 1.3 % Change to target (17.5) (31.9) (1.0) (26.4) (21.3) (0.3) (1.8) (33.3) (19.8) (5.7) 5.4 12.7 (12.1) (17.0) (19.5) (2.4) 9.8 (19.7) (15.4) (16.3) (0.8) (11.1) (11.2) (13.7) Bloomberg Code FBU NZ 011170 KS 303 HK UNVR IJ MAXIS MK 2103 TT HUVR IN IFAR SP AP PM DTAC TB ISAT IJ BIGC TB 4904 TT 2301 TT HAVL IN CLGT IN 2 HK 097950 KS ALQ AU MSIL IN 101 HK GENS SP JPM Rating UW UW UW UW UW UW UW UW UW UW UW N UW UW UW UW N UW UW UW N UW Mkt Cap, US$ MM 5499 6586 3365 20011 16652 1252 19822 1022 5675 7868 1728 4934 7009 3780 1470 2685 19876 3050 3411 7695 14556 14102 7820 5587 Fwd P/E (X) No. of std Current dev 17.1 14.1 15.7 38.6 24.0 12.9 34.4 15.6 13.1 18.1 20.5 20.8 16.7 12.1 18.1 27.8 15.1 13.1 17.6 15.8 19.7 24.1 19.3 17.3 2.5 2.3 2.0 2.0 1.9 1.8 1.8 1.4 1.4 1.4 1.3 1.2 1.1 1.1 1.0 1.0 0.8 0.7 0.7 0.6 0.4 0.3 1.3 1.3 Trailing PB (X) No. of std Current dev 1.9 1.2 6.3 57.7 7.7 2.7 46.1 0.7 3.1 7.6 1.3 5.1 3.0 1.7 6.4 34.4 1.7 1.1 3.6 2.6 1.0 2.8 9.1 2.9 0.5 0.2 1.9 2.7 1.8 0.8 3.0 (1.1) 0.8 2.1 (1.4) 1.9 1.8 0.5 0.8 1.1 (1.3) (0.5) 0.6 (0.2) (1.0) (0.0) 0.7 0.7 DY % 14E 3.6 0.5 6.0 1.9 5.6 3.2 1.9 0.6 3.8 5.7 3.3 1.5 6.9 5.6 1.1 2.8 4.3 0.7 4.2 0.6 3.0 0.7 3.1 3.1 ROE (%) 14E 10.2 6.2 37.0 202.0 39.4 13.7 109.7 5.7 19.7 36.8 6.6 20.2 18.0 10.0 31.4 102.5 10.2 3.3 17.0 13.7 4.1 7.0 32.9 15.4
Name Stocks to Avoid Fletcher Building Ltd Lotte Chemical Corp VTech Holdings Unilever Indonesia Tbk Maxis Berhad TSRC Corp Hindustan Unilever Limited Indofood Agri Resources Ltd Aboitiz Power Total Access Communication PT Indosat Tbk Big C Supercenter Pcl Far EasTone Telecom Lite-On Technology Havells India Ltd Colgate-Palmolive (India) CLP Holdings CJ Cheiljedang ALS Limited Maruti Suzuki India Ltd Hang Lung Properties Genting Singapore Average Median
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 14, 2013. Sorted in descending order of number of standard deviation from 10-year average P/E.
Table 29: Best idea by country strategist

Name Share Price (LC) 243000 166 61.3 19050 104 11.0 1052 10.2 55.4 44.5 4.2 PT 2014 (LC) 330000 210 84.0 23500 130 13.3 1200 11.3 62.0 51.0 5.0 % Change to target 35.8 26.5 37.1 23.4 25.6 20.9 14.1 11.3 11.9 14.6 18.2 21.8 20.9 (2.1) (19.8) (33.3) 5.4 (12.1) (15.4) (5.7) (0.8) (21.3) (25.5) (1.8) (12.0) (12.1) Bloomberg Code 005380 KS SCB TB 2318 HK UNTR IJ 2330 TT KEP SP ICICIBC IN SGM AU 1928 HK PGOLD PM SAKP MK JPM Rating OW OW OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 50049 17829 53582 6233 90619 15925 19186 1927 57607 2821 7901 29425 17829 4854 5675 1022 1728 7009 3411 7868 14556 16652 2510 19822 7737 5675 P/E (X) 13E 14E 7.5 11.3 13.2 16.4 14.5 12.6 15.5 NM 25.8 30.7 37.1 27.8 15.5 11.5 13.1 28.2 22.1 17.4 13.7 23.2 28.0 25.4 NM 43.9 22.7 22.6 6.8 9.8 10.4 11.4 12.3 12.6 13.4 15.6 19.4 23.0 24.9 14.5 12.6 11.3 13.2 14.5 15.2 15.6 17.3 17.4 23.4 23.6 28.2 33.9 19.4 17.3 EPS Growth (%) 13E 14E 2.4 24.7 43.8 (25.1) 11.5 (18.2) 23.4 (76.7) 80.0 30.7 (0.9) 8.7 11.5 46.9 (20.5) (59.7) (45.9) 12.8 5.6 (4.1) (34.4) 2.4 NM 11.3 (8.6) -0.9 10.9 14.6 27.0 43.9 17.3 (0.2) 15.8 NM 33.0 33.4 49.1 24.5 22.2 1.5 (0.7) 94.2 45.5 11.2 (20.6) 32.9 19.3 7.6 NM 29.7 22.0 15.2 DY(%) 14E 1.0 3.3 1.1 3.5 2.9 4.1 2.2 3.2 3.6 0.9 0.0 2.3 2.9 3.5 3.8 0.6 3.3 6.9 4.2 5.7 3.0 5.6 1.5 1.9 3.6 3.5 ROE (%) 14E 17.0 21.2 17.3 18.3 21.6 15.1 12.9 6.8 45.8 16.3 12.6 18.6 17.0 31.6 19.7 5.7 6.6 18.0 17.0 36.8 4.1 39.4 9.1 109.7 27.1 18.0
Top Picks Hyundai Motor Company Siam Commercial Bank Ping An Insurance Group - H United Tractors TSMC Keppel Corporation ICICI Bank Sims Metal Management Ltd Sands China Ltd Puregold Price Club SapuraKencana Petroleum Average Median Stocks to Avoid AAC Technologies Holdings Aboitiz Power Indofood Agri Resources Ltd PT Indosat Tbk Far EasTone Telecom ALS Limited Total Access Communication Hang Lung Properties Maxis Berhad Samsung Engineering Hindustan Unilever Limited Average Median
30.7 33.7 0.9 3625 63.7 9.5 105 25.2 7.1 67100 580
30.0 27.0 0.6 3820 56.0 8.1 99 25.0 5.6 50000 570
2018 HK AP PM IFAR SP ISAT IJ 4904 TT ALQ AU DTAC TB 101 HK MAXIS MK 028050 KS HUVR IN
UW UW UW UW UW UW UW N UW UW UW
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 14, 2013. Sorted in ascending order of 2014E PE.
29
Table 30: Best idea by sector head

Name Share Price (LC) 135000 11.8 23.8 8.0 61.3 13.4 120 375 104 5.1 1085 4.8 19 55 3.7 32.6 411 18.6 36900 PT 2014 (LC) 180000 13.6 26.5 10.9 84.0 20.0 124 525 130 7.0 1100 6.4 23 62 3.8 38.1 506 25.0 60000 % Change to target 33.3 15.1 11.6 35.9 37.1 49.7 3.6 39.9 25.6 36.5 1.4 32.5 18.9 11.9 1.6 16.9 23.2 34.8 62.0 26.3 25.6 (4.4) (11.4) (11.3) (8.5) (11.4) (15.8) (3.4) 5.4 (16.3) (31.9) (19.7) (19.5) (0.8) (5.0) (11.1) 1.8 (26.3) (11.2) (11.3) Bloomberg Code 096770 KS 2386 HK 1088 HK 868 HK 2318 HK 1114 HK 1 HK TATA IN 2330 TT 753 HK HCLT IN 3337 HK 2196 HK 1928 HK 371 HK 2319 HK 700 HK VNET US 123260 KQ JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 11672 6750 53738 4055 53582 8660 35756 5759 90619 8431 11965 1345 6611 57607 4069 7716 98523 1095 282 24644 8431 1603 6843 2909 845 16169 3224 10023 1728 7695 6586 3050 1470 14556 3095 14102 7263 858 6001 3224 P/E (X) 13E 14E 10.7 10.7 8.7 13.6 13.2 14.7 11.6 NM 14.5 20.6 19.0 20.6 19.0 25.8 28.2 31.3 35.4 62.8 NM 21.2 19.0 12.1 10.1 9.0 13.4 10.8 13.2 11.2 22.1 20.4 18.5 20.4 24.0 28.0 25.1 30.2 NM NM 17.9 18.5 8.0 9.2 9.2 10.2 10.4 11.2 11.2 11.3 12.3 13.4 14.1 14.5 17.0 19.4 21.4 23.0 24.2 28.6 56.1 17.1 13.4 8.1 9.5 10.1 10.9 11.8 13.2 14.1 15.2 16.8 17.3 17.7 18.1 23.4 25.1 25.4 NM NM 15.8 15.2 EPS Growth (%) 13E 14E (1.2) (22.0) (12.5) 85.9 43.8 55.9 (3.5) NM 11.5 (47.3) 62.8 31.5 (1.9) 80.0 22.2 14.9 19.4 (38.6) NM 17.7 14.9 12.1 (0.6) 52.0 NM 9.9 (36.6) (51.2) (45.9) 39.9 17.0 (40.5) 4.6 (34.4) NM (0.8) NM NM (5.7) -0.6 33.4 16.4 (6.0) 33.0 27.0 31.2 3.5 NM 17.3 53.6 34.8 41.6 11.5 33.0 31.5 36.3 46.0 NM NM 27.8 32.2 48.9 6.9 (10.0) 22.8 (8.0) (0.5) (20.0) 45.5 21.1 6.9 15.3 32.9 19.3 0.2 19.0 NM NM 13.3 15.3 DY(%) 14E 1.9 3.3 4.2 4.4 1.1 1.0 2.8 2.4 2.9 1.3 0.7 2.2 1.5 3.6 1.6 0.7 0.3 0.0 0.0 1.9 1.6 2.5 3.2 5.9 1.5 2.6 2.3 2.1 3.3 0.6 0.5 0.7 1.1 3.0 4.4 0.7 0.0 0.0 2.0 2.1 ROE (%) 14E 7.9 15.7 13.6 24.1 17.3 29.7 6.3 8.8 21.6 7.4 33.4 22.9 12.6 45.8 10.8 13.8 37.1 10.5 6.2 18.2 13.8 11.3 8.3 7.7 8.1 17.2 9.1 3.9 6.6 13.7 6.2 3.3 31.4 4.1 37.9 7.0 (7.0) (18.5) 8.8 7.7
Top Picks SK Innovation Co Ltd Sinopec Engineering Group China Shenhua Energy - H Xinyi Glass Ping An Insurance Group - H Brilliance China Automotive Cheung Kong Holdings Tata Steel Ltd TSMC Air China H HCL-Technologies Anton Oilfield Services Fosun Pharmaceutical-H Sands China Ltd Beijing Enterprises Water China Mengniu Dairy Co Tencent 21Vianet Group Inc. Sapphire Technology Average Median Stocks to Avoid Beach Energy Ltd. Shanghai Electric Group Co Pegatron Corp Lonking Holdings Ltd PT Bank Mandiri Tbk. Dongbu Insurance China Coal Energy - H PT Indosat Tbk Maruti Suzuki India Ltd Lotte Chemical Corp CJ Cheiljedang Havells India Ltd Hang Lung Properties Cochlear Limited Genting Singapore CHALCO - H China Rongsheng Heavy Average Median
1.4 2.7 37.2 1.5 7900 48700 4.7 3625 1613 205500 249000 746 25.2 58.4 1.4 2.8 1.0
1.3 2.4 33.0 1.4 7000 41000 4.5 3820 1350 140000 200000 600 25.0 55.5 1.3 2.8 0.7
BPT AU 2727 HK 4938 TT 3339 HK BMRI IJ 005830 KS 1898 HK ISAT IJ MSIL IN 011170 KS 097950 KS HAVL IN 101 HK COH AU GENS SP 2600 HK 1101 HK
UW UW UW UW UW UW N UW UW UW UW UW N UW UW N UW
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 14, 2013. Sorted in ascending order of 2014E P/E
Table 31: Cheap Domestic Growth (JPHAPDGR <Index>)

Share Price (LC) 61.3 1052 387 43.1 85 2100 19050 256000 4.8 PT 2014 (LC) 84.0 1200 445 50.8 102 3100 23500 330000 6.5 % Change to target 37.1 14.1 15.0 18.0 19.9 47.6 23.4 28.9 35.4 26.6 23.4 Bloomberg Code 2318 HK ICICIBC IN TTMT IN 2882 TT 5 HK MSKY IJ UNTR IJ 000810 KS MPI PM JPM Rating OW OW OW OW OW OW OW OW OW , Mkt Cap US$ MM 53582 19186 18022 17394 205762 1301 6233 11340 2863 37298 17394 Fwd P/E (X) No. of Current std dev 11.6 12.9 8.8 18.2 10.7 35.0 12.1 13.7 14.1 15.3 12.9 (1.3) (0.6) (0.5) (0.5) (0.4) (0.3) (0.2) (0.0) (0.0) (0.4) (0.4) Trailing PB (X) No. of std Current dev 2.4 1.9 3.2 2.4 1.2 7.3 2.2 2.1 1.5 2.7 2.2 (0.9) (0.2) (0.0) (0.2) (0.9) 0.3 (0.7) (0.6) (0.1) (0.4) (0.2) DY(%) 14E 1.1 2.2 0.5 2.2 5.0 1.0 3.5 2.7 0.7 2.1 2.2 ROE (%) 14E 17.3 12.9 4.1 13.7 10.0 17.7 18.3 9.8 8.6 12.5 12.9
Name
Top Picks Ping An Insurance Group - H ICICI Bank Tata Motors Cathay Financial Holdings HSBC Holdings plc MNC Sky Vision tbk United Tractors Samsung Fire & Marine Insu Metro Pacific Investments Average Median
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 14, 2013. Sorted in ascending order of number of standard deviation from 10 year average P/E
30
Table 32: Rotation Riders

Price % Share Target Change Bloomberg Name Price (LC) 2014 (LC) to target Code Top Picks (poor performers in 2013 that we forecast will outperform in 2014) Golden Agri-Resources Ltd 0.6 0.7 19.7 GGR SP Samsung Card 37350 51000 36.5 029780 KS SK Innovation Co Ltd 135000 180000 33.3 096770 KS Tata Steel Ltd 375 525 39.9 TATA IN Singapore Airlines 10.3 13.0 26.1 SIA SP Jiangxi Copper - H 14.4 19.5 35.2 358 HK DLF Limited 145 210 44.5 DLFU IN Sesa Sterlite 191 240 25.8 SSLT IN Sims Metal Management Ltd 10.2 11.3 11.3 SGM AU Air China H 5.1 7.0 36.5 753 HK PT Aneka Tambang Tbk 1370 1800 31.4 ANTM IJ Cairn India Limited 317 400 26.0 CAIR IN China Construction Bank 5.8 7.9 35.3 939 HK PetroChina 8.6 11.0 28.1 857 HK China Shenhua Energy - H 23.8 26.5 11.6 1088 HK Reliance Industries Ltd 852 1000 17.4 RIL IN Metro Pacific Investments Corp. 4.8 6.5 35.4 MPI PM Thai Union Frozen Products 63.3 63.0 (0.4) TUF TB ICICI Bank 1052 1200 14.1 ICICIBC IN United Tractors 19050 23500 23.4 UNTR IJ Ping An Insurance Group - H 61.3 84.0 37.1 2318 HK Rio Tinto Limited 65.1 78.0 19.8 RIO AU Top Glove Corporation 5.9 6.7 14.5 TOPG MK Average 26.2 Median 26.1 Stocks to Avoid (outperformers in 2013 forecast to underperform in 2014) Lite-On Technology Corporation 48.2 40.0 (17.0) 2301 TT OCBC Bank 10.5 9.5 (9.5) OCBC SP Fletcher Building Ltd 9.7 8.0 (17.5) FBU NZ Chailease Holding 71.2 77.5 8.8 5871 TT Oil Search 8.4 7.4 (12.2) OSH AU Cheng Shin Rubber Industry 73.8 74.0 0.3 2105 TT VTech Holdings 104 103 (1.0) 303 HK Havells India Ltd 746 600 (19.5) HAVL IN Total Access Communication 105 99 (5.7) DTAC TB Average (8.2) Median (9.5) JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 6015 4046 11672 5759 9692 7515 4088 8938 1927 8431 1146 9581 187865 226388 53738 43466 2863 2297 19186 6233 53582 98667 1131 33662 8431 3780 28865 5499 2394 10520 8078 3365 1470 7868 7982 5499 P/E (x) 14E 13.1 11.6 8.0 11.3 35.4 10.6 44.9 8.2 15.6 13.4 8.0 4.4 5.0 9.2 9.2 11.7 15.1 15.2 13.4 11.4 10.4 10.2 14.4 13.5 11.4 11.8 13.3 18.2 10.3 28.4 12.6 15.8 18.1 17.4 16.2 15.8 EPS Growth 14E 68.0 11.5 33.4 NM (8.7) 11.1 (27.6) (33.6) NM 53.6 19.5 14.3 7.9 16.6 (6.0) 12.6 8.5 NM 15.8 43.9 27.0 17.6 20.3 15.3 15.1 9.5 11.2 11.9 20.5 NM 5.0 5.9 32.9 32.9 16.2 11.6 ROE (%) 14E 5.1 5.7 7.9 8.8 2.7 8.1 2.2 9.6 6.8 7.4 3.2 25.7 19.9 11.5 13.6 14.9 8.6 13.1 12.9 18.3 17.3 19.9 18.2 11.3 9.6 10.0 10.6 10.2 23.1 10.5 23.0 37.0 31.4 36.8 21.4 23.0 Trailing P/B (X) No. of Current SD 0.7 0.8 0.9 1.0 1.0 1.0 1.0 1.0 1.1 1.1 1.2 1.3 1.3 1.3 1.5 1.5 1.5 1.7 1.9 2.2 2.4 2.6 2.8 1.4 1.3 1.7 1.7 1.9 3.0 3.7 4.0 6.3 6.4 7.6 4.0 3.7 (0.2) (1.0) (0.8) (1.2) (1.2) (1.2) (0.8) (1.2) (1.1) (0.9) (0.8) (0.0) (1.1) (1.0) (1.3) (0.7) (0.1) (0.2) (0.2) (0.7) (0.9) (0.6) (0.4) (0.8) (0.8) 0.5 0.7 0.5 1.3 1.8 2.2 1.9 0.8 2.1 1.3 1.3 12M Rel Perf (%) (12.7) (16.6) (19.3) (21.4) (8.5) (32.3) (43.7) (10.4) (6.6) (5.5) (13.3) (22.8) (5.9) (22.3) (29.5) (12.2) (0.8) (20.2) (19.7) (23.8) (4.5) (5.2) (3.5) (15.7) (13.3) 21.5 8.3 28.4 27.5 2.4 11.5 10.4 4.0 17.0 14.6 11.5
UW UW UW N UW N UW UW UW
Source: Datastream, MSCI, IBES, J.P. Morgan estimates. Note: Prices and valuations as of November 14, 2013. Sorted in ascending order of trailing P/B.
31
Risks to our strategy

Unclear Fed communication Fed minutes debating tapering were the catalyst for the 2013 market correction. US treasury yields increased 100bp. Risk assets fell. EM bonds, currencies and equities led the decline. The Fed tightened policy by mistake. It backtracked by increasing ambiguity on economic targets. Risk assets rallied. No central bank has exited QE. Normal interest rates are much higher than todays rates. We believe the Fed wishes to taper soon. We think the Fed will balance announcing the start of the end of QE (tapering) with dovish forward guidance by extending the period of nearzero short rates. This is a difficult balancing act. A change of leadership adds to the risk. Fed Chairman Bernanke is due to step down on 31 January 2014. To build credibility, the prospective chairperson Janet Yellen may need to move to the centre from her normal dovish stance. The market may view this as a hawkish shift by the Fed. Our fixed-income colleagues forecast 12-month returns of +/-5% across bond markets. Low to negative return expectations combined with Fed communication risk is a recipe for volatility. Periods of EM bond, currency and equity corrections are likely in 2014. US policy and economic surprise A quick benign resolution to the fiscal impasse would boost business confidence. This may lead to the combination of a pick-up in business investment and job creation. This would be good for equity markets but lead to weaker bonds. US economic growth disappoints (again) This is a threat to our OW exporters (Korea and Taiwan). It is not clear why US corporate capex is so weak. In 3Q13, business investment declined 3.7% saar, only the second quarter of contraction. The US fiscal impasse can was kicked into 2014. In midDecember the House and Senate are tasked to propose an FY14 budget. The next date for a potential shutdown is 15 January and then we estimate the debt ceiling will be hit on 7 February. The result could be a repeat of 1Q13 larger-than-forecast fiscal drag.
Figure 38: Volatile journey to neutral policy - J.P. Morgan EM currency volatility index and US 5Y bond yield
Source: Bloomberg, J.P Morgan, 12 November 2013.
Figure 39: US GDP forecast revision (% oya)
Source: J.P. Morgan economics
Inflation complacency With economic growth still below trend, inflation is forecast to remain low. An inflation surprise would be very disruptive. Uncertain Chinese economic policy Chinese economic policy is confusing. We see two possible extreme scenarios. The first is credible economic reform and rational capital allocation leading to significantly lower economic growth, an outcome that would be good for equity investors. The second is that leverage continues to increase to support the current growth model. As a result investors are forced to manage for cyclical rallies driven by mini-stimulus similar to 3Q13. The second outcome exacerbates Chinas high debt/GDP problem and increases risks in the financial system. This leads to the final risk which is a liquidity event in the onshore interbank market or unwind of the short US dollar long Renminbi carry trade.
32
Amnesty Bill resubmitted in Thailand The Amnesty Bill generated large-scale protests in Thailand. The bill was approved by the Lower House. The Senate rejected the bill by a 141-0 vote. However the lower house can legally pass legislation without the approval of the Senate after 180 days. Such an event would increase market volatility and is a risk to our OW on Thailand. Political cycle frustrates reform There are important elections in six emerging markets next year: South Africa (April general elections), India (May general elections), Colombia (May presidential elections), Indonesia (July presidential elections), Turkey (August presidential elections) and Brazil (October presidential elections). Elections tend to disrupt progress on reforms but the also result in low reform expectations! Please see page 8 for more on elections. European political risk Tail risks are no-longer priced in Europe. Fiscal consolidation continues. The electorates and thus politicians willingness to pursue reform may fall as the sense of crisis diminishes. Volatility in FX and energy not priced into markets It is a difficult environment to forecast currency and oil price movements. Our forecasts are close to spot. FX volatility could increase if the US economy accelerates and the Fed exits QE. Our commodity strategist, Colin Fenton, notes: The bull case is a seasonal pick-up in refinery runs, increased MENA supply outages and accelerating 4Q13 demand. The bear case is a peace deal with Iran (rapid supply increase), weak refinery margins prompting run cuts, improved efficiency of shale extraction, impending US debt ceiling and needed budget resolution in 1Q14. The rapid decline in the cost of solar energy makes it a disruptive technology. It is scalable, which allows for faster adoption. It is another bear factor for thermal coal. Although at an early stage, large autos companies are launching appealing electric cars in 2014. If successful, these may change the long-term demand forecasts for oil.
Chinese environmental crisis China needs to reduce the use of fossil fuels in urban areas. An aggressive anti-pollution drive would hit both coal and oil demand. India faces deteriorating growth inflation trade-off The key risk to our OW on India is that inflation accelerates while domestic demand is still weak. Indias PMI is below 50 for the last five months. With the exception of export orders, all other PMI components reflect a weakening macro environment. Notably the PMI orders to inventory ratio is at a 57-month low. Sluggish manufacturing activity has failed to contain inflation. The PMI output price index is at a seven-month high. The concern is that firms will begin to raise prices and normalize margins at the first sign of demand recovery. This could lead to further policy tightening.
Figure 40: Just plus or minus 5%.....2014 return forecasts for FX, Brent and fixed income (%)
Source: Bloomberg, J.P. Morgan estimates. Note: We have taken FX forecasts as of Sep 2014.
Risk to OW on technology Smartphone sales are forecast to decelerate in 2014. Our tech analyst, Alvin Kwock notes that there are signs of saturation in two key markets for late-cycle smartphones: a) Brands with high DM exposure have found it difficult to see further unit growth; for instance, recent supply chain checks suggest while iPhone 5S has seen ~5MM increase in order rates, 5C order rate almost halved, with a net unit cut of ~7MM overall for 4Q; b) China smartphone diffusion rate is estimated at 80+%. NonChina EMs smartphone demand is at an early stage of conversion. The potential market unit size is 3-4x bigger than China. A pick-up in enterprise spending could offset some consumer weakness.
33
None of these scenarios reflect an official J.P. Morgan view; they are intend to stimulate debate
Potential surprises for the horse

The elusive Grand Bargain for the US budget is finally achieved: US long-run risks change dramatically. Business capex accelerates. UST 10-year bond yields hit 4%. Equities shrug off a higher discount rate and focus on growth. Europes fragile recovery fades. Political will for fiscal consolidation ebbs. Euro risk rises. EM exports to Europe contract. Turkey and CE3 decline. Asias exporters, Korea and Taiwan, underperform. The euro weakens. Resultant dollar strength hits EM risk assets. Fed communication is unclear. The market misinterprets the new Chair of the Fed as more hawkish. Investors fear a rapid move to normal rates. Risk assets fall. Chinas exporters get their wish. Renminbi weakens to restore confidence. The short dollar long Renminbi carry trade suffers a disorderly unwind. Speculators remove assets from trust products to repay offshore liabilities. This happens as the CBRC is policing new regulation on interbank assets. The result is a liquidity event. Chinese equities fall sharply. We underestimated their resolve. Chinas leadership accepts pain and low growth now for long-term stability. The economy enters a protracted period of deleveraging. Excess capacity is cut aggressively. Growth falls sharply. New asset management companies acquire large band loans. Equities in sectors with capacity cuts rally. Perception of risk in the banks declines post transfer of NPA to AMCs. Solar hits grid parity. Homes, factories and offices adopt quickly this green and scalable energy source. Thermal coal prices fall. Power generation equipment makers shares decline. The market underestimates demand for all electric cars as major auto companies launch appealing models. Long-term demand forecast for oil is reduced. Large swings in the crude oil price. Initially prices spike as Middle East tensions rise (third Libyan oil production shock, Syrian crisis increases freight rates and insurance premiums, Suez Canal disruption, and Saudi succession concerns). Then oil prices fall as a peace deal results in a sharp increase of Iranian crude production, non-conventional oil production exceeds forecasts, and China restricts urban auto use to curb pollution. Japanese savers spoilt for choice at home. With euro and US rates near zero for the foreseeable future, carry trades funded locally rather than short Yen. Locals repatriate savings to buy homes and shares. Yen appreciates. More transparency = less corruption. Transparency International and UN cooperate with major technology companies to develop systems that break the decision making log-jams in key EMs. Transparent rapid bureaucracy lifts potential GDP growth. EMs outperform.
Grand Bargain Great Rally
It wasnt safe in Europe
Its is not easy exiting QE
Weak Rmb leads to liquidity event
They are serious on reform
Disruptive technologies Solar grid parity Electric autos Plus 3D printing
Oil price swings widely
Yen appreciation
Governance revolution
34
Figure 41: Asia Pacific ex-Japan Heat Map Regional Strategy Team Views
Australia CS Aus. Indus Australia Energy Australia Others Australia Materials Australia Banks Korea CD Australia Fin. Korea Others Ex banks Korea IT Korea Financials Taiwan IT HK Indust. HK CD HK Utilities HK Others HK Financials Malaysia
Korea Ind Singapore India Others China CD Financials China Others China CS China IT Taiw. Others China Banks China Indus. India Energy Sing. Indus. China China Fin ex China Tawian India Fin. Sing. Others Energy Banks Telecom Financials India IT Philippines
Korea Mat Taiwan Mat
Indonesia
Thailand
Source: J.P. Morgan Strategy, MSCI, Datastream. Note: Red Indicates UW, green OW and white Neutral. Area of the sector indicates weight in MSCI APxJ.
Table 33: Key country and sector recommendations, performance and fundamentals
Country/Sector Wt Rec Demand Classific -ation DD GPT DD GPT DD DD GPT DD 50% DD DD DD DD GC/C 60% DD DD GC GPT GC/C DD GPT DD GC GPT DD DD GC GPT DD GC Performance (USD Returns) 1M 3M 6M -1.0 1.7 1.4 5.0 1.3 0.4 -1.6 -1.7 -1.9 -0.3 -5.0 0.0 -1.2 -1.3 -1.0 -0.8 0.8 -4.5 -1.1 -1.5 0.1 -2.5 -2.2 -3.1 -2.7 -5.2 -4.9 -4.1 -5.1 -1.5 -1.5 -3.5 2.6 -3.2 0.6 0.6 -0.8 -0.4 -6.5 -3.2 -3.5 5 7 8 5 6 9 8 5 6 3 -3 7 4 12 9 14 23 10 10 13 8 6 7 6 6 2 0 8 -3 2 1 -8 23 1 0 -2 4 2 -16 0 -2 -3 -3 -4 -2 -7 0 -4 -2 -7 -6 -6 0 5 44 3 10 7 11 10 23 12 -3 -8 5 4 -14 -28 20 -15 -3 -6 -14 24 2 -7 -9 -3 -6 -30 -16 -17 P/E (x) YTD 6 9 16 -7 7 7 12 5 6 -10 -5 6 7 46 13 10 14 4 15 18 2 9 4 26 9 -8 -22 28 -11 9 5 -3 42 12 5 7 1 5 -20 2 11 13E 13.1 18.0 16.1 20.8 19.8 20.2 22.2 9.7 6.7 9.6 11.0 12.5 29.0 32.8 14.4 9.3 8.0 20.1 11.9 7.3 15.2 15.0 13.9 12.0 22.1 17.2 15.4 20.5 11.5 16.7 15.7 16.3 22.7 15.6 14.8 13.7 16.6 17.4 14.8 14.0 20.1 14E 11.6 15.1 14.7 12.6 18.0 15.9 20.7 8.9 6.2 8.7 11.3 11.6 23.2 25.8 12.2 8.4 8.0 12.0 9.7 6.5 11.7 13.5 12.6 11.3 18.9 14.7 12.8 17.8 10.9 15.6 15.3 15.6 18.8 13.4 13.2 12.8 14.1 15.8 13.3 12.0 18.4 EPS Growth (%) 13E 8.0 -4.5 5.4 -31.7 5.7 3.6 23.2 10.3 12.6 -0.7 1.7 9.6 1.3 59.6 25.7 9.6 34.9 -32.7 -32.9 6.8 -14.6 31.5 36.4 18.3 82.4 8.8 9.8 19.3 1.4 9.9 9.5 3.7 19.1 7.5 -2.6 -1.1 -10.2 -0.6 8.0 12.2 9.3 14E 12.2 7.1 5.6 15.2 5.1 -1.5 1.2 9.2 8.9 5.5 0.0 14.0 19.8 33.2 18.8 20.4 10.2 85.2 23.5 12.0 41.6 9.9 10.6 3.1 13.5 17.4 19.2 19.0 11.7 9.5 6.0 6.6 20.8 17.5 8.7 7.9 11.5 7.6 14.5 14.2 7.2 EPS EPS PEG CAGR (%) CAGR (%) (08-14) by SD Ratio 10.4 -0.1 1.0 -3.6 4.2 3.6 -7.3 13.3 17.8 8.1 3.2 15.1 5.5 36.6 11.0 20.4 67.0 6.2 2.8 30.3 -2.2 20.1 17.9 75.6 4.9 12.2 13.4 15.5 9.4 8.6 9.4 4.1 6.5 13.5 2.9 3.3 2.2 5.2 10.3 14.5 11.8 0.8 0.0 0.1 -0.1 1.0 0.2 0.0 1.0 1.9 0.4 0.4 0.3 0.3 0.5 0.6 0.6 0.3 0.1 0.1 0.6 -0.1 0.4 0.3 0.2 0.1 1.0 1.5 1.9 0.9 0.4 0.5 0.4 0.3 0.2 0.2 0.2 0.1 0.3 1.3 1.0 0.9 1.3 NM NM NM 5.1 4.5 NM 0.7 0.4 1.1 3.6 0.9 5.0 1.1 1.4 0.5 0.1 3.3 4.0 0.3 NM 0.9 0.9 0.2 6.3 1.2 0.9 1.4 1.1 1.7 1.3 4.2 3.4 1.0 4.4 3.5 6.2 3.0 1.5 0.9 1.6 DY (%) 14E 3.1 4.4 5.1 3.3 4.5 4.4 3.6 3.7 5.1 4.2 3.9 2.7 1.9 0.6 2.0 1.0 0.5 1.1 2.0 0.9 1.4 3.1 2.8 3.2 3.6 1.7 1.9 1.3 2.2 2.8 2.8 3.5 2.2 2.8 3.5 3.3 4.1 3.3 3.1 3.6 2.3 ROE (%) 14E 12.8 13.1 12.4 15.7 14.2 9.2 9.9 14.8 16.4 13.9 12.3 9.5 15.3 19.7 16.2 13.0 16.0 8.5 7.5 18.7 8.3 12.0 13.5 10.3 8.7 15.1 15.8 22.9 13.9 8.2 6.8 13.8 21.6 7.1 10.5 9.7 10.4 13.2 19.6 13.7 15.2
APxJ Australia Australia Fin. Australia Materials Australia CS Australia Energy Australia Ind. China China Financials China Energy China Telecom China Industrials China CS China IT China CD Korea Korea IT Korea Industrials Korea Financials Korea CD Korea Materials Taiwan Taiwan IT Taiwan Financials Taiwan Materials India India Financials India IT India Energy Hong Kong HK Financials HK Utilities Hong Kong CD HK Industrials Singapore Singapore Fin. Singapore Ind. Malaysia Indonesia Thailand Philippines
Source: MSCI, IBES, Bloomberg, J.P. Morgan, 12 November 2013. Note: Outperformance of more than 2% vs. MSCI APxJ. Underperformance of more than 2% vs MSCI APxJ. DD=Domestic Demand, GPT=Global Price Takers, GC/C=Global Capex/Consumer, GC=Global Consumer, GCP =Global Capex.
100.0 26.2 13.4 4.9 2.4 1.5 1.3 18.3 7.2 2.7 2.0 1.1 1.1 1.7 1.0 15.2 5.7 1.8 2.1 2.7 1.5 10.8 5.7 2.0 1.3 5.6 1.3 1.2 0.7 9.4 5.6 1.1 1.5 1.0 5.0 2.6 1.1 3.6 2.2 2.4 0.8
-N UW OW N OW UW UW UW N UW n/a N N N OW OW N OW OW UW OW OW OW UW OW OW OW N UW UW UW OW N UW UW N N UW OW N
35
Japan
Bullish Japan Equities We think the structural bull market for Japanese risk assets -- equities and real estate -- is poised to regain momentum in 2014. We forecast TOPIX will rise toward 1,800 over the coming 12-18 months, driven by relentless monetary stimulus, steady increases in profits as well as company leaders implementing more return-focused corporate strategies. By sectors, we are most focused on domestic demand sectors--banks are our top pick, followed by real estate, construction, services and retail. For exporters, we are positive capital goods and cars. The tech space we view as more stock specific, as global competition intensifies and Japanese makers appear to lack innovative massconsumer products. Profit Growth Surprises While Japan's quarterly GDP is poised to be have extraordinary volatility due to the consumption tax hike from April 1, the underlying improvement in corporate earnings is set to continue, in our view. Benefits of last years' restructuring --stepped-up overseas production, aggressive M&A, and capacity cutbacks-- are poised to feed structurally higher margins. We think Japan stands at the beginning of a productivity boom. Specifically, we forecast ROE to rise towards 12% by early 2015. Key indicators for 2014 Our Japan thesis is one of the economy pulling out of its liquidity trap, so money and credit growth data is key. Specifically, we want to see a broadening-out of credit growth led by corporate sector re-leveraging. Also, price developments are key. In 2013, the switch from deflation to inflation was almost entirely because of cost-push factors. In 2014, demand-pull and corporate price power must start to materialize for our bull-market thesis to be sustained. Unfortunately, we believe this may take until July or August to get first insights into true underlying price power trends (due to the tax hike distortions). Risk factors On the Japan domestic front, we think the biggest risk is cost-push inflation. If all price pressure stays cost-push only, our thesis of structural profit margin increases will come under pressure. If this were the case, monetary authorities would have to engineer a more significant round of yen depreciation to provide a positive offset via higher earnings from exports and off-shore production.
Jesper J Koll AC
(81-3) 6736-8600, jesper.j.koll@jpmorgan.com JPMorgan Securities Japan Co., Ltd.
TOPIX consensus EPS current month and 12-months trailing

103 81 60 29
Source: Bloomberg and J.P. Morgan calculations.
Return on Equity Back toward 11%
TOPIX companies Net margin (EPS)

% 5.1%
4.2%
1.4%
36
Derivatives
Asia Pacific Equity Derivatives Strategy Tony SK Lee AC
(852) 2800-8857, tony.sk.lee@jpmorgan.com Bloomberg JPMA TONYLEE <GO>
Risk of Contagion Remains

Asia equity volatility failed to stay immune to the rise in interest rate volatility from Fed tapering concerns. To start with, a sharp rise in US treasury yields tightly followed the Feds guidance on the slowing purchases of assets. Within one month since the May 22 congressional testimony, the yield on the 10y US treasuries rose more than 100bp to a high of 2.7%. Sharp moves in the US treasuries subsequently resulted in a broader market jitters through the unwinding of carry assets, such as high-interest-rate currencies and high-dividend-paying stocks, inducing equity investors to flock into buying options for protection. Throughout the year, every episode of higher US treasury yields, as the Fed tapering expectation was pulled forward and then pushed back, was accompanied by higher subsequent equity volatility in the region (Figure 42). Our economists believe that tapering is likely to start in January next year. As tapering represents only the beginning of a long road to monetary policy normalization, we expect the discomfort with higher interest rates to represent a major upside risk to equity volatility. Recent history suggests that equity volatility is positively correlated with interest rate volatility while the relationship varies in both magnitude and direction. Figure 43 shows the 6M correlation of 3M implied volatility, measured by weekly changes between US 10Y swap rates against those of a few key equity indices. The correlation of implied volatility may have peaked but remains elevated, suggesting the lingering contagion risk to equity implied volatility from any potential turbulence in the bond market.
Sue Lee AC
(852) 2800-7898, sue.sj.lee@jpmorgan.com
Haoshun Liu AC
(852) 2800-7736, haoshun.liu@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Figure 42: Rising US Treasury yields are followed by higher equity volatility
Figure 43: High correlation of implied volatility points to lingering contagion risks
Source: J.P. Morgan Note: Periods of rising UST 10s: 2W change greater than 15 bps
Source: J.P. Morgan
Following the resolution of the US debt ceiling and expectations of a delayed tapering in October, Asian equity volatility resumed its downward trend. Current equity volatility levels reflect a relative optimistic assessment of potential risks. Specifically the derivatives markets continue to price in volatility for 1H14 similar to levels realized in 2H13 (Figure 44), with a median implied-to-realized spread of only 1.1 volatility points. Low expected volatility may correctly predict the return to the old normal regime of higher growth and lower risks. However generally speaking, when VIX stays in the low teens (~13 at the time of this writing), too much complacency in place can
37
exacerbate the effect of exogenous shocks, especially when forward guidance of the Fed is in focus, and it has a history of catching people off guard. Considering the aforementioned policy risk factors and implied volatility currently at the low end of their trading range for most markets, downside to volatility going into 2014 is limited, in our view.
Figure 44: 6M implied volatility trading inline with realized volatility but Figure 45: Average absolute quarterly move versus quarterly realized at the low end of the 2Y trading range volatility over past 10 years
35% 30% 25%
Volatility
6M ATM Implied Vol 6M Realised Vol Implied Vol 2Y %tile
70% 60% 50%
16% 14%
Avg EM Asia (HSI, HSCEI, KOSPI2, TWSE, NIFTY) Avg DM Asia (NKY, AS51) Avg US & Europe (SPX, SX5E)
Avg Absolute Quarterly Move
12% 10% 8% 6% 4% 2% 0%
15% 10% 5% 0%
30% 20% 10% 0%
Percentile
20%
40%
Below 10%
AS51 TWSE
SPX KOSPI2 HSI
SX5E
NKY HSCEI NIFTY
Between 10% - 20% Between 20% - 30% Between 30% - 40% Quarterly Realized Volatility
Asian options offer attractive risk-reward for direction investors Although low levels of implied volatility resulted in substantially cheaper option pricing, the current low realized volatility environment has made long volatility or option positions difficult to manage for volatility investors due to a negative carry. However, we find that historically, the high beta, trending nature of Asian markets in particular EM Asia has resulted in significant price swings even during lowvolatility environments. Indeed, when we compare the quarterly absolute moves over the past 10 years and group them into various buckets of quarterly realized volatility (Figure 45), we find that even during the low volatility environment similar to the one we are experiencing today (i.e. between 10% and 20% realized volatility), the average quarterly moves exhibited by EM Asia indices have been much greater than the average quarterly moves in the US and Europe indices (7% versus 5%). This analysis reinforces the notion that EM Asia can have relatively larger directional moves while realizing low volatility, improving the profitability and breakeven attractiveness of owning options in this region.
38
Options Strategies for Our Country Allocation

The combination of relatively high beta, trending nature, and current low volatility makes the use of options for directional bets or portfolio hedging much more attractive in Asia. Buy KOSPI 200 and Taiwan TAIEX shorted-dated call options: For Korea and Taiwan, two of J.P. Morgans overweight countries within Asia Pacific, their shortdated vanilla call options appear attractive as the TWSE call premium is among the cheapest across major global indices and the KOSPI2 call premium is near 1Y lows (Table 34). As the option premium is fairly low and outright vanilla call positions are a reasonably easy way to gain leveraged upside exposure with limited risk, we prefer the simplicity of using KOSPI2 and TWSE calls to implement our bullish views on these two equity markets. In addition, seasonality also supports the use of short-dated options towards year end and towards the end of first quarter to beginning of second quarter. For NIFTY, due to its higher volatility and index forward dynamics, the call options do not provide an attractive risk-reward, in our view.
Table 34: 3M 105% call options sorted by current premium Table 35: Average monthly performance over past 10 years
Average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec KOSPI2 -0.2% 1.1% 2.4% 2.5% -1.1% -1.5% 3.3% -1.0% 3.8% -2.1% 1.1% 3.4% TWSE -1.2% 3.2% 1.6% 2.0% 0.3% -1.8% 0.4% -1.4% 1.1% -1.9% -0.6% 3.7% NIFTY -1.7% -1.1% 2.2% 3.3% -0.6% 0.0% 2.9% -0.1% 5.6% -0.2% 2.4% 4.8% HSI -0.6% 1.2% -1.8% 3.7% -0.9% -0.4% 4.2% -1.3% 1.7% 1.6% -0.1% 1.5% HSCEI -2.2% 2.8% -0.4% 2.1% 0.0% -0.8% 4.4% -2.8% 1.7% 2.7% 1.4% 6.6% AS51 -0.6% 0.7% 1.4% 1.6% -1.8% -0.4% 1.2% 1.3% 1.0% 0.8% -0.8% 1.8% NKY -0.9% 1.6% 2.0% 2.1% -2.1% 1.1% -0.5% -1.5% 0.3% -2.2% -0.1% 5.3% SPX -0.4% -0.2% 1.9% 2.1% -0.3% -1.3% 1.5% -0.4% 0.9% 0.2% 0.3% 1.9% SX5E -0.8% -0.7% 0.5% 1.7% -1.5% -0.9% 1.8% -1.1% 1.2% 0.7% -0.5% 2.9%
Source: J.P. Morgan Source: J.P. Morgan Note: Ratio of return to current call premium if the index rises to highs since 2010
Sell Taiwan TAIEX long-dated risk reversals (sell put and buy call): Investors with a medium-to-long-term bullish view on Taiwan can consider selling risk reversals on TWSE to take advantage of the index forward discount, which is a function of low interest rates and high dividend and borrow rates. For example, investors can sell 12M 91.5%-ATM risk reversals (buy ATM call & sell 91.5% put) at zero-cost. The strike level of puts to sell to fully fund the purchase of ATM calls reversal is by far the lowest in TWSE versus other major equity indices, providing a strategy with asymmetric risk-reward characteristics (Table 36). Another way to measure the inherent value in the risk reversal strategy is to compare the number of call options with a particular strike you can purchase fully financed by selling one put option with a particular strike. Using this measure with 12M 95% call and 105% put options, TWSE stands out again at the top as investors can buy 2.3x 12M 105% calls by selling 1x 12M 95% put. Compared to an outright long cash equity position, selling risk reversals on the TWSE has a superior payoff profile as shown in Figure 46. Global benchmark investors who are currently using ETFs to track their Taiwan exposure can consider switching into the TWSE risk reversals for improved risk-reward.
39
Table 36: Indicative prices for various sell put and buy call structures
Index Strike of 12M put to sell to fully fund the cost of 1x 12M ATM call 91.5% 94.7% 95.1% 95.8% 97.5% 97.8% 98.9% 103.8% Number of 12M 105% calls purchased financed by 1x 12M 95% put sold 2.3 1.6 1.3 1.4 1.4 1.4 1.0 0.7
Figure 46: Payoff at maturity for short TWSE zero-cost risk reversal
30 20 10 0 -10 -20 -30
TWSE SX5E HSCEI HSI SPX AS51 NKY KOSPI2 Source: J.P. Morgan
Payoff at Maturity
Long Index (Cash Equity Basket, ETF) Short Risk Reversal (Short 91.5% Put + Buy ATM Call) 75 80 85 90 95 100 105 Index Price at Maturity (%) 110 115 120 125
Source: J.P. Morgan
Buy Hang Seng, MSCI Singapore and ASX 200 short-dated puts to hedge for Fed tapering risk: We are underweight on Hong Kong and Singapore within Asia Pacific due to the asset deflation risk and remain cautious on the AUD vulnerability to the tapering cycle. Past tapering history supports the view that HSI, SIMSCI and AS51 are particularly vulnerable to higher treasury yields given the high yielding nature of their equity markets and the heavy weights of the property segment. Investors with bearish views on these markets can consider buying puts to hedge the downside risks, especially after the strong run in recent months. Looking at the correlation of equity indices with US 10yr swap rates (measured by weekly data for 1yr) in Table 37, both AS51 and SIMSCI are highly negatively correlated with swap rate moves (correlation < -10%). Table 37 also shows the return-to-premium ratio for 3M 95% puts on major Asian equity indices. This measure compares the potential gain on going long the put option if the underlying index goes back to the lows since May 2013 with the current cost of purchasing put options. By this measure, AS51 3M 95% put ranks the highest, implying the attractiveness of puts for protection. HSI 3M 95% put also ranks highly despite its relatively expensive option pricing compared to AS51 and SIMSCI.
Table 37: Indicative option pricing of 3M 95% puts and ratio of return to premium if the underlying index reverts to lows since May 2013
AS51 1Y weekly correlation with US 10yr swap rates 3M 95% put offer Distance to lows since May 2013 Ratio of return to premium
HSI -1.7% 1.46% 11.8% 4.7
KOSPI2 -17.7% 1.23% 10.8% 4.7
NIFTY -11.7% 2.22% 15.4% 4.7
HSCEI 5.8% 2.17% 13.7% 4.0
NKY 4.4% 1.83% 11.8% 3.7
SIMSCI -24.6% 1.29% 6.1% 0.9
TWSE -15.0% 1.10% 5.4% 0.4
-12.9% 1.01% 13.0% 7.9
40
Bloomberg subscribers can use the ticker JPHAXREI <Index> to access tracking information on baskets created by the J.P. Morgan Delta One desk to leverage the theme discussed in this report. Over time, the performance of JPHAXREI <Index> could diverge from returns quoted in our research, because of differences in methodology. J.P. Morgan Research does not provide research coverage of this basket and investors should not expect continuous analysis or additional reports relating to it. For more information, please contact your J.P. Morgan salesperson or the Delta One Desk.
Option Strategies for Our Sector Allocation

In order to implement different sectoral views, investors can consider using swaps or options on relevant index or customized basket of stocks. As mentioned earlier, current low equity volatility benefits the usage of options. For example, investors who agree with our bullish view on Korea and Taiwan financials can consider: KOSPI 200 Finance (KSP2FI <Index>) 3M 105% call options offered at indicative premium of 1.87% (implied vol: 18.9%) Taiwan Banking and Insurance (TWSEBKI <Index>) 3M 105% call options offered at indicative premium of 1.24% (implied vol: 15.9%)
For those who agree with our bearish view in Hong Kong and Singapore properties on the back of potential asset deflation risk, we suggest: JPM Asia ex-Japan REIT (JPHAXREI <Index>) 3M 95% puts offered at indicative premium of 2.20% (implied vol: 18.5%) Hang Seng Property (HSP <Index>) 3M 95% puts offered at indicative premium of 2.27% (implied vol: 21.2%)
J.P. Morgan Asia ex-Japan REIT (Bloomberg: JPHAXREI<Index>) is composed of 7 largest and liquid regional REITs. Basket liquidity: US$26MM/day (assuming 1/3 of stocks 3M average daily turnover)
Figure 47: KOSPI200 Finance (KSP2FI <Index>) Figure 48: Taiwan Banking and Insurance (TWSEBKI <Index>)
Source: KRX, Bloomberg, J.P. Morgan.
Source: TAIEX, Bloomberg, J.P. Morgan.
Figure 49: J.P. Morgan Asia ex-Japan REIT (JPHAXREI <Index>)
Figure 50: Hang Seng Property (HSP <Index>)
Source: MSCI, Bloomberg, J.P. Morgan.
Source: Hang Seng, Bloomberg, J.P. Morgan.
41
Bloomberg subscribers can use the ticker JPHLCHBK <Index> and JPHCHBK2 <Index> to access tracking information on baskets created by the J.P. Morgan Delta One desk to leverage the theme discussed in this report. Over time, the performance of JPHLCHBK <Index> and JPHCHBK2 <Index> could diverge from returns quoted in our research, because of differences in methodology. J.P. Morgan Research does not provide research coverage of this basket and investors should not expect continuous analysis or additional reports relating to it. For more information, please contact your J.P. Morgan salesperson or the Delta One Desk.
China upside hedge via H-shares or bank options

Although we have a fundamentally bearish view on Chinese equities overall, Asian equity investors cannot be too prudent about the possibility of an unexpected rally in the China market given the low valuation (MSCI China 12-month forward P/E at 9.0x versus MSCI APxJs 11.8x) and propensity to show high beta in a rising market. With Chinese equity volatility trading near its 5Y lows, investors who are underweight or short China in their portfolio can consider using options to hedge against the upside risk of that market at low cost. In addition to using H-shares options, investors can use options on China banks which have the lowest valuation among all the sectors and perhaps are more vulnerable to upside squeeze in a valuedriven market rally. With the upside potential limited by unfavorable fundamentals, we prefer a call spread strategy while investors can also consider further OTM calls to hedge against upside tail risk at lower cost. Indicatively: H-shares 3M 105%-115% call spread can be purchased at 1.77% and 3M 110% call at 1.10% (implied vol: 20.6%) JPM China Big 4 Bank (JPHLCHBK) 3M 105%-115% call spread can be purchased at 2.04% and 3M 110% call at 1.50% (implied vol: 23.4%) JPM China Bank (JPHCHBK2) 3M 105%-115% call spread can be purchased at 1.26% and 3M 110% call at 1.85% (implied vol: 25.8%)
J.P. Morgan China Big 4 Bank (Bloomberg: JPHLCHBK <Index>) is composed of the Big 4 H-share banks, namely ABC, BOC, CCB and ICBC. Basket liquidity: US$77MM/day (assuming one-third of stocks 3M average daily turnover) J.P. Morgan China Bank (Bloomberg: JPHCHBK2 <Index>) is composed of 8 China banks listed on the H-shares market, namely ABC, BOC, CCB, ICBC, CMB, BoComm, Minsheng and Citic. Basket liquidity: US$61MM/day
Figure 51: H-shares and China banks* implied volatility for past 5 years
Table 38: MSCI China sector valuation

PE CY13 Consumer Discretionary 13.9 Consumer Staples 27.9 Energy 9.5 Financials 6.7 Banks 5.7 Insurance 15.0 Real Estate 7.4 Health Care 19.5 Industrials 12.4 Information Technology 33.5 Materials 11.7 Telecommunication Services 11.4 Utilities 12.2 Aggregate 9.6 CY14 11.4 22.4 8.5 6.2 5.3 12.4 7.2 17.2 11.4 23.0 10.3 11.7 11.2 8.8 PB CY13 CY14 2.1 1.9 3.7 3.3 1.2 1.1 1.1 1.0 1.0 0.9 1.9 1.7 1.1 1.0 2.2 2.0 1.2 1.1 5.8 4.9 1.1 1.0 1.4 1.3 1.8 1.6 1.4 1.3 Growth CY13 CY14 27 22 1 25 -8 13 14 8 11 8 67 21 8 2 18 13 20 9 70 46 7 13 0 -3 37 9 10 10 DY CY13 CY14 1.7 2.0 1.7 2.0 3.6 4.3 4.6 5.0 5.8 6.3 1.5 1.9 3.2 3.7 1.7 1.9 2.7 2.7 0.6 0.6 2.5 2.5 3.7 3.7 2.8 2.9 3.4 3.7
*Note: Average of 8 Chinese banks in JPHCHBK2
Source: MSCI, IBES, Bloomberg, J.P. Morgan estimates Note: Sector/aggregate average valuation weighted by free float market capitalization using J.P. Morgan estimates for covered stocks and IBES estimates for the rest (data as of 11-Nov-13).
42
Bloomberg subscribers can use the ticker JPHAPTOP <Index>, JPHAPGDM <Index>, JPHAPDGR <Index>, and JPHAPDOG<Index> to access tracking information on baskets created by the J.P. Morgan Delta One desk to leverage the theme discussed in this report. Over time, the performance of JPHAPTOP <Index>, JPHAPGDM <Index>, JPHAPDGR <Index>, and JPHAPDOG<Index> could diverge from returns quoted in our research, because of differences in methodology. J.P. Morgan Research does not provide research coverage of this basket and investors should not expect continuous analysis or additional reports relating to it. For more information, please contact your J.P. Morgan salesperson or the Delta One Desk.
Thematic Stock Baskets for the Year Ahead

We have divided a shortlist of stocks in the Year Ahead into four tradable thematic baskets: 1. 2014 Top Picks in Preferred Country Sectors (JPHAPTOP <Index>): top picks in the country sectors preferred by our strategy team. Long Global Demand (JPHAPGDM <Index>): top picks with exposure to global demand. Cheap Domestic Growth (JPHAPDGR <Index>): top picks with domestic growth bias that are trading cheaper compared to 10-year average forward P/E (trailing P/BV for banks). Downgrade Dogs (JPHAPDOG <Index>): top picks which suffered EPS downgrades in 2013 and now have low earnings expectations. The downgrade dogs may offer the potential of EPS upgrades in 2014.
2.
3.
4.
The tables on the following pages summarize the basket constituents and liquidity (based on one-third of constituent stocks 3M average daily turnover). The basket weights were determined by striking a balance between liquidity and diversity with the component shares established as of November 12, 2014. Investors can track the performance of these J.P. Morgan Thematic Baskets (JPTH <GO>) on Bloomberg using the tickers in brackets above. For more information, please contact your J.P. Morgan salesperson or Equity Derivatives & Delta One Strategy team.
43
Table 39: 2014 Top Picks in Preferred Country Sectors (JPHAPTOP <Index>) basket liquidity: US$74MM/day
Name Top Picks Hy undai Motor Company SK Hy nix Sinopec Corp - H Krung Thai Bank Sesa Sterlite KB Financial Group Siam Commercial Bank ASE Tata Steel Ltd Samsung Fire & Marine Insurance ICICI Bank TSMC Samsung Card Cathay Financial Holdings HCL-Technologies CJ O Shopping MGM China Holdings Ltd Wipro Ltd. Anton Oilfield serv ices Melco International Dev elopment Infosy s Sands China Ltd Seoul Semiconductor Sa Sa International Holdings Limited Nav er DLF Limited Sapphire Technology Average Median 249000 31950 6 20 192 39450 169 30 352 253000 1013 105 38050 43 1097 353400 27 483 5 25 3337 55 39950 8 614000 144 35800 330000 39000 8 28 240 49000 210 35 500 330000 1200 130 51000 51 1100 430000 31 560 6 25 3500 62 50000 9 770000 210 60000 32.5 22.1 16.6 43.6 25.0 24.2 24.6 18.6 41.9 30.4 18.5 23.8 34.0 17.3 0.2 21.7 13.0 16.0 37.6 3.3 4.9 13.3 25.2 13.3 25.4 45.7 62.0 24.8 23.8 005380 KS 000660 KS 386 HK KTB TB SSLT IN 105560 KS SCB TB 2311 TT TATA IN 000810 KS ICICIBC IN 2330 TT 029780 KS 2882 TT HCLT IN 035760 KS 2282 HK WPRO IN 3337 HK 200 HK INFO IN 1928 HK 046890 KQ 178 HK 035420 KS DLFU IN 123260 KQ OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW N OW OW OW OW OW OW OW OW OW 51113 21145 92323 8615 8891 14203 18079 7730 5346 11169 18261 91981 4108 17504 11969 2043 13234 18582 1295 4855 29928 56886 2171 3036 18860 4008 273 19912 11969 5.9 9.0 8.1 9.5 5.5 11.4 11.4 15.0 NM 21.2 14.1 14.7 15.0 15.2 19.2 17.2 19.4 19.3 20.1 22.9 20.3 25.5 45.5 28.4 52.1 34.5 NM 19.2 17.2 5.4 7.3 7.3 8.1 8.2 8.8 10.0 11.2 11.9 12.0 12.3 12.5 13.6 13.7 14.3 14.4 15.5 15.6 15.8 17.0 18.5 19.2 21.3 25.4 34.5 44.5 54.5 16.8 13.7 2.4 NM (15.5) 9.8 69.1 (21.5) 24.7 14.4 NM (27.0) 32.5 11.5 (58.6) 79.1 62.8 1.1 16.6 17.2 65.0 23.5 13.5 80.0 NM 19.2 (1.9) (41.0) NM 16.4 14.4 10.9 23.8 11.1 17.0 (33.6) 30.0 14.6 33.1 NM 76.9 14.5 17.3 10.7 10.5 34.8 18.9 25.0 23.7 27.7 34.6 9.3 33.0 NM 11.9 51.1 (22.5) NM 20.2 18.1 1.0 0.0 5.6 4.6 2.2 1.9 3.3 3.9 2.6 2.8 2.3 2.9 1.8 2.2 0.7 1.0 4.1 1.0 2.0 0.0 1.8 3.6 0.0 2.8 0.6 0.0 0.0 2.0 2.0 17.0 21.8 13.7 15.9 9.6 6.6 21.2 14.9 7.9 9.8 12.9 21.6 5.7 13.7 33.4 23.3 75.7 24.1 19.5 19.4 23.6 45.8 16.1 43.9 26.7 2.2 6.2 20.5 17.0 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 2.0% 4.0% 4.0% 2.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 2.0% 4.0% 4.0% 2.0% Share Price (LC) Price Target % Change Bloomberg 2014 (LC) to target Code JPM Rating Mkt Cap, US$ MM P/E (X) 2013E P/E (X) 2014E EPS Growth EPS Growth 2013E 2014E Yield (%) 2014E ROE (%) 2014E Basket Weight
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 12, 2013. Sorted in ascending order of 2014E P/E.
Figure 52: JPHAPTOP sector breakdown

Energy 8% Materials 8%
Figure 53: Relative performance of JPHAPTOP vs benchmark
Information Technology 34%
Financials 30% Consumer Discretionary 20%

Source: MSCI, Bloomberg, J.P. Morgan
44
Table 40: J.P. Morgan Long Global Demand (JPHAPGDM <Index>) basket liquidity: US$76MM/day
Name Top Picks Hyundai Motor Company SK Hynix Pacific Basin Shipping ASE TSMC Keppel Corporation Golden Agri-Resources Ltd China State Construction HCL-Technologies Evergreen Marine Corp Taiwan Ltd Wipro Ltd. Hiwin Infosys Seoul Semiconductor Dr. Reddy's Laboratories Limited Nidec (6594) Hyundai Mipo Dockyard Naver Singapore Airlines Sapphire Technology Average Median 249000 31950 5 30 105 11 1 13 1097 17 483 217 3337 39950 2470 9260 185000 614000 10 35800 330000 39000 7 35 130 13 1 19 1100 22 560 250 3500 50000 2800 11000 210000 770000 13 60000 32.5 22.1 23.1 18.6 23.8 21.2 23.9 48.0 0.2 29.4 16.0 15.5 4.9 25.2 13.4 18.8 13.5 25.4 26.8 60.0 23.5 22.1 005380 KS 000660 KS 2343 HK 2311 TT 2330 TT KEP SP GGR SP 3311 HK HCLT IN 2603 TT WPRO IN 2049 TT INFO IN 046890 KQ DRRD IN 6594 JT 010620 KS 035420 KS SIA SP 123260 KQ OW OW OW OW OW OW OW OW OW OW N OW OW OW OW OW OW OW OW OW 51113 21145 1319 7730 91981 15857 5800 6440 11969 1996 18582 1857 29928 2171 6559 13485 3448 18860 9621 273 15298 7730 5.9 9.0 57.2 15.0 14.7 12.6 21.2 17.3 19.2 65.2 19.3 25.8 20.3 45.5 25.1 NM NM 52.1 31.7 NM 26.4 19.8 5.4 7.3 9.4 11.2 12.5 12.6 12.6 12.8 14.3 15.0 15.6 17.2 18.5 21.3 21.6 21.8 26.2 34.5 34.7 54.5 18.7 15.0 2.4 NM NM 14.4 11.5 (30.0) (34.6) 31.4 62.8 NM 17.2 3.2 13.5 NM 17.2 (80.4) NM (1.9) 14.3 NM 2.5 11.5 10.9 23.8 NM 33.1 17.3 (0.2) 68.0 34.5 34.8 NM 23.7 50.2 9.3 NM 16.3 NM NM 51.1 (8.7) NM 26.2 23.8 1.0 0.0 5.3 3.9 2.9 4.1 2.4 2.3 0.7 0.0 1.0 1.0 1.8 0.0 0.7 0.9 0.8 0.6 2.3 0.0 1.7 1.0 17.0 21.8 10.0 14.9 21.6 15.1 5.1 23.1 33.4 6.0 24.1 23.8 23.6 16.1 20.8 14.0 4.5 26.7 2.7 6.2 16.6 17.0 6.0% 6.0% 2.0% 6.0% 6.0% 6.0% 6.0% 3.0% 6.0% 2.0% 6.0% 5.0% 6.0% 6.0% 5.0% 6.0% 6.0% 6.0% 3.0% 2.0% Share Price (LC) Price Target % Change 2014 (LC) to target Bloomberg Code JPM Rating Mkt Cap, US$ MM P/E (X) 2013E P/E (X) 2014E EPS Growth EPS Growth 2013E 2014E Yield (%) 2014E ROE (%) 2014E Basket Weight
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 12, 2013. Sorted in ascending order of 2014E PE. *TOPG MK has been removed due to low liquidity
Figure 54: JPHAPGDM country breakdown
Figure 55: Relative performance of JPHAPGDM vs benchmark
45
Table 41: J.P. Morgan Cheap Domestic Growth (JPHAPDGR <Index>) basket liquidity: US$30MM/day
Name Top Picks Ping An Insurance Group - H ICICI Bank Tata Motors Cathay Financial Holdings HSBC Holdings plc United Tractors Samsung Fire & Marine Insurance Metro Pacific Inv estments Corp. Average Median 62 1013 360 43 86 19250 253000 5 84 1200 445 51 102 23500 330000 7 34.9 18.5 23.6 17.3 18.6 22.1 30.4 37.1 27.4 23.6 2318 HK ICICIBC IN TTMT IN 2882 TT 5 HK UNTR IJ 000810 KS MPI PM OW OW OW OW OW OW OW OW 54499 18261 16582 17504 207963 6183 11169 2815 37365 16582 11.6 12.9 8.8 18.2 10.7 12.1 13.7 14.1 15.3 12.9 (1.3) (0.6) (0.5) (0.5) (0.4) (0.2) (0.0) (0.0) (0.4) (0.4) 2.4 1.9 3.2 2.4 1.2 2.2 2.1 1.5 2.7 2.2 (0.9) (0.2) (0.0) (0.2) (0.9) (0.7) (0.6) (0.1) (0.4) (0.2) 1.1 2.3 0.6 2.2 5.0 3.5 2.8 0.7 2.1 2.2 17.3 12.9 4.1 13.7 10.0 18.3 9.8 8.6 12.5 12.9 15.0% 15.0% 15.0% 15.0% 15.0% 5.0% 15.0% 5.0% Share Price (LC) Price Target % Change Bloomberg 2014 (LC) to target Code JPM Rating Mkt Cap, US$ MM Forward P/E (X) Current No. of SD Trailing P/B (X) Current No. of SD Yield (%) 2014E ROE (%) 2014E Basket Weight
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 12, 2013. Sorted in ascending order of 2014E P/E. *MSKY IJ has been removed due to low liquidity
Figure 56: JPHAPDGR sector breakdown

Industrials 5% Consumer Discretionary 15%
Figure 57: Relative performance of JPHAPDGR vs benchmark
Financials 80%
Source: MSCI, Bloomberg, J.P. Morgan Source: MSCI, Bloomberg, J.P. Morgan
46
Table 42: J.P. Morgan Downgrade Dogs (JPHAPDOG <Index>) basket liquidity: US$61MM/day
Name Top Picks Ev ergreen Marine Corp Taiw an Ltd Hy undai Mipo Docky ard Hy undai Dev elopment Company DLF Limited Jiangx i Copper - H Tata Steel Ltd 21Vianet Group Inc. Thai Union Frozen Products Jardine Cy cle & Carriage Ltd Golden Agri-Resources Ltd Global Logistic Properties Ltd Sims Metal Management Ltd SK Innov ation Co Ltd United Tractors Air China H KB Financial Group Rio Tinto Limited Nav er PCCW Limited China Shenhua Energy - H Coca-Cola Amatil Singapore Airlines PetroChina Weichai Pow er CP All Pcl Average Median 17 185000 22950 144 14 352 18 63 35 1 3 10 141000 19250 5 39450 65 614000 3 24 12 10 9 31 41 22 210000 30000 210 20 500 25 63 51 1 3 11 180000 23500 7 49000 78 770000 4 27 13 13 11 37 51 29.4 13.5 30.7 45.7 35.0 41.9 36.6 0.8 45.7 23.9 6.8 13.7 27.7 22.1 37.0 24.2 20.6 25.4 20.6 10.2 9.5 26.8 26.3 19.4 24.4 27.5 24.4 2603 TT 010620 KS 012630 KS DLFU IN 358 HK TATA IN VNET US TUF TB JCNC SP GGR SP GLP SP SGM AU 096770 KS UNTR IJ 753 HK 105560 KS RIO AU 035420 KS 8 HK 1088 HK CCL AU SIA SP 857 HK 2338 HK CPALL TB OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW 1996 3448 1612 4008 7655 5346 1080 2267 9956 5800 11228 1889 12150 6183 8465 14203 99592 18860 3189 54246 8627 9621 230282 6654 11643 18793 6183 65.2 NM NM 34.5 11.8 NM 61.9 24.6 9.8 21.2 16.1 NM 11.2 16.6 14.3 11.4 14.6 52.1 14.5 8.8 18.1 31.7 10.9 13.0 34.1 26.0 16.6 15.0 26.2 8.7 44.5 10.6 11.9 28.2 14.9 9.2 12.6 17.5 15.2 8.4 11.5 13.3 8.8 10.2 34.5 12.9 9.3 16.4 34.7 9.3 10.9 25.7 20.5 14.9 NM NM NM (22.5) 11.1 NM 119.4 65.0 6.7 68.0 (8.4) NM 33.4 43.9 6.9 30.0 44.1 51.1 12.1 (6.0) 10.3 (8.7) 16.6 19.1 32.6 28.4 19.1 0.0 0.8 1.3 0.0 2.8 2.6 0.0 3.3 4.1 2.4 1.4 3.3 1.8 3.5 1.3 1.9 3.0 0.6 5.7 4.2 5.2 2.3 4.8 0.9 2.2 2.1 1.9 6.0 4.5 8.4 2.2 8.1 7.9 10.5 13.1 19.3 5.1 7.6 6.8 7.9 18.3 7.4 6.6 19.9 26.7 23.8 13.6 25.6 2.7 11.5 14.8 44.0 12.4 8.4 (67.2) (63.3) (46.0) (44.5) (41.0) (34.9) (34.6) (34.2) (26.6) (26.5) (25.0) (24.3) (23.7) (20.4) (20.4) (18.8) (18.7) (17.6) (17.4) (17.1) (17.0) (15.5) (12.4) (11.1) (10.1) (27.3) (23.7) 2.5% 4.9% 3.0% 4.9% 4.9% 4.9% 3.0% 2.5% 3.0% 4.9% 4.9% 3.0% 4.9% 2.5% 3.0% 4.9% 4.9% 4.9% 2.5% 4.9% 4.9% 3.0% 5.0% 3.0% 4.9% Share Price (LC) Price Target 2014 (LC) % Change to target Bloomberg Code JPM Rating Mkt Cap, US$ MM P/E (X) 2013E P/E (X) 2014E EPS Growth 2014E Yield (%) 2014E ROE (%) 2014E FY2 Earnings Revision YTD (%) Basket Weight
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 12, 2013. Sorted in ascending order of FY2 earnings revisions. *BRU AU, GENP MK, PSL TB and MSKY IJ have been removed due to low liquidity
Figure 58: JPHAPDOG sector breakdown

Information Technology 8% Consumer Discretionary 3% Telecommun ication Services 2% Industrials 22%
Figure 59: Relative performance of JPHAPDOG vs benchmark
Energy 15% Materials 18% Financials 15% Consumer Staples 17%
47
Additional Basket Methodology

In order to keep the basket relevant to the investment theme, J.P. Morgan reserves the right to review the following at any time: Basket methodology. This is to ensure the rules of the basket remain relevant following any structural changes to the theme. This may include ensuring that the sector exposure of the basket remains broadly consistent with the investment theme. Basket change implementation. J.P. Morgan will consider extending the implementation of changes to the basket composition from one trading session to any period up to five trading sessions in the event that a material increase in the liquidity or capacity of the basket is required to minimize market impact. Corporate actions may affect the baskets. The composition of a custom basket is typically adjusted in the following manner: Cash Merger. The divisor is adjusted, and we remove the merging company from the basket on the day of merger and redistribute gains into remaining companies according to recalculated market cap weights of surviving constituents in the basket. Stock Merger. If the acquirer is a member of the basket, then the weight allocated to the acquired will transfer to the surviving entity on the close of the last day it trades. If the acquirer is not a part of the basket, then proceeds (losses) from the acquired company will be redistributed to the surviving basket constituents based on the recalculated weighting on the close of its last trading day. Spinoffs. The spinoff company and parent will be included in the basket, and both the spinoff and parent company weights will be readjusted according to new market capitalizations after the spinoff date. Tender Offers and Share Buybacks. The company remains in the basket and its weight is adjusted according to the impact the tender/buyback has on the stocks market value.
48
Risks of Common Option Strategies

Risks to Strategies: Not all option strategies are suitable for investors; certain strategies may expose investors to significant potential losses. We have summarized the risks of selected derivative strategies. For additional risk information, please call your sales representative for a copy of Characteristics and Risks of Standardized Options. We advise investors to consult their tax advisors and legal counsel about the tax implications of these strategies. Please also refer to option risk disclosure documents. Put Sale. Investors who sell put options will own the underlying asset if the assets price falls below the strike price of the put option. Investors, therefore, will be exposed to any decline in the underlying assets price below the strike potentially to zero, and they will not participate in any price appreciation in the underlying asset if the option expires unexercised. Call Sale. Investors who sell uncovered call options have exposure on the upside that is theoretically unlimited. Call Overwrite or Buywrite. Investors who sell call options against a long position in the underlying asset give up any appreciation in the underlying assets price above the strike price of the call option, and they remain exposed to the downside of the underlying asset in the return for the receipt of the option premium. Booster. In a sell-off, the maximum realized downside potential of a double-up booster is the net premium paid. In a rally, option losses are potentially unlimited as the investor is net short a call. When overlaid onto a long position in the underlying asset, upside losses are capped (as for a covered call), but downside losses are not. Collar. Locks in the amount that can be realized at maturity to a range defined by the put and call strike. If the collar is not costless, investors risk losing 100% of the premium paid. Since investors are selling a call option, they give up any price appreciation in the underlying asset above the strike price of the call option. Call Purchase. Options are a decaying asset, and investors risk losing 100% of the premium paid if the underlying assets price is below the strike price of the call option. Put Purchase. Options are a decaying asset, and investors risk losing 100% of the premium paid if the underlying assets price is above the strike price of the put option. Straddle or Strangle. The seller of a straddle or strangle is exposed to increases in the underlying assets price above the call strike and declines in the underlying assets price below the put strike. Since exposure on the upside is theoretically unlimited, investors who also own the underlying asset would have limited losses should the underlying asset rally. Covered writers are exposed to declines in the underlying asset position as well as any additional exposure should the underlying asset decline below the strike price of the put option. Having sold a covered call option, the investor gives up all appreciation in the underlying asset above the strike price of the call option. Put Spread. The buyer of a put spread risks losing 100% of the premium paid. The buyer of higher-ratio put spread has unlimited downside below the lower strike (down to zero), dependent on the number of lower-struck puts sold. The maximum gain is limited to the spread between the two put strikes, when the underlying is at the lower strike. Investors who own the underlying asset will have downside protection between the higher-strike put and the lower-strike put. However, should the underlying assets price fall below the strike price of the lower-strike put,
49
investors regain exposure to the underlying asset, and this exposure is multiplied by the number of puts sold. Call Spread. The buyer risks losing 100% of the premium paid. The gain is limited to the spread between the two strike prices. The seller of a call spread risks losing an amount equal to the spread between the two call strikes less the net premium received. By selling a covered call spread, the investor remains exposed to the downside of the underlying asset and gives up the spread between the two call strikes should the underlying asset rally. Butterfly Spread. A butterfly spread consists of two spreads established simultaneously one a bull spread and the other a bear spread. The resulting position is neutral, that is, the investor will profit if the underlying is stable. Butterfly spreads are established at a net debit. The maximum profit will occur at the middle strike price; the maximum loss is the net debit. Pricing Is Illustrative Only: Prices quoted in the above trade ideas are our estimate of current market levels, and are not indicative trading levels.
50
Buy Japan, Sell Asia

Asia Technicals Strategy: Charting The Course
Priced on 13 Nov 2013 Tough Times in Asia Asias growth struggles have kept markets range-bound with MXAPJ flat YTD with some of the "high-growth" markets underperforming the most. Near-term outlook is sideways/bearish in absolute terms and we renew an Asian underperformance call. Japan to Outperform Japans summer consolidation following a vertical rally (from Nov12 lows) appears to be ending although specific breakouts are awaited. As we await specific buy signals in Japan, we expect MSCI Japan to resume its outperformance, particularly relative to Asia, with domestic sectors preferred.
Asia Technical Analysis Research Sunil GargAC
(852) 2800-8518 sunil.garg@jpmorgan.com Bloomberg JPMA GARG <GO> J.P. Morgan Securities (Asia Pacific) Limited
Figure 60: MXAPJ Weekly (top Chart) + MXAPJ vs. MXWO (bottom Chart)
MXAPJ View
Absolute View MXAPJ needs a volume led breakout from the 485-93 resistance zone for us to get constructive. MACD, RSI and moving average positioning suggest downside risks in the near term and increasing likelihood of a reversal in the intermediate trend. 450 remains an important support/ stop level. Asia vs. World Outperformance since Aug13 has mostly unwound with relative index hovering just above important support level. A break below Aug13 lows will accelerate MXAPJs underperformance. Country View (1) Outperform Japan, Hong Kong, Korea, Singapore (2) Underperform India, Asean, China. On a country basis, we see most potential in Japan both on absolute basis (once we break out of current consolidation) and vs. MXAPJ. MXAPJ and MXASJ are expected to under-perform global markets. Sector View (1) Outperform Tech, Industrials, Materials (2) Underperform Financials, Consumer, Energy, Defensives. Incrementally, we see risks arising in the consumer discretionary sector after a solid outperformance since Apr13
Source: Bloomberg.
51
Country Rotation Asia ex-Japan Losing Momentum Across the Board

Figure 61: MSCI Asian Country Indices Rotational Trends
Source: Bloomberg.
Sector Rotation Materials, Industrials, Tech preferred

Figure 62: MSCI Asian Sector Indices Rotational Trends
Source: Bloomberg.
52
MXAPJ Glass Ceilings

Figure 63: MXAPJ Monthly, Weekly and Daily Charts
MXAPJs inability to pierce glass ceiling zone of 485-493 is now putting the intermediate trend at risk of a reversal. A 450 stop is yet to be triggered although momentum has a distinctive bearish hue Outperformance since Aug13 mostly unwound and a break below Aug13 levels risks deeper underperformance
Absolute View Monthly Nov risks a bearish harami candle as the index struggles against 2007 downtrendline. Lackluster volume/ RSI/ MACD positioning. Weekly - for now, risk of a double top is the dominant read and a break below 450 will reverse the previous higher highs and higher lows trend. MXAPJ sitting on crucial 40wma but with both MACD and RSI turning down, a downside break is looking likely Daily MACD in sell mode as is 20/50dma. Sitting on 200dma critical level
Relative View A 550bp outperformance since early Aug13 is mostly unwound following 26wma resistance. RSI shows momentum fade Primary trend is bearish and breaks below Aug13 lows will accelerate under-performance
Source: Bloomberg.
53
Back to Japan
Figure 64: TOPIX (Top Chart) + TOPIX Banks (Bottom Chart)
Topix has been consolidating after a vertical Nov'12-May13 rally. Primary trend is constructive but we need a breakout above 1232 to recommend absolute long positions Topix Banks Index is in a similar consolidation phase, awaiting a clear breakout Relative to Asia, MSCI Japans underperformance since Jul13 appears to have ended with index bouncing off its 40wma Banks have underperformed export and currency led Autos we see a reversal - Switch from Autos to Banks
Source: Bloomberg.
Figure 65: MSCI Japan vs. MXAPJ - Weekly
Figure 66: Japan Cars vs. Japan Banks
Source: Bloomberg.
Source: Bloomberg.
54
Country & Sector Views

COUNTRY/ SECTOR/ REGION MXAPJ (MSCI Asia) China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Japan Australia Japan Banks Japan Cars vs. Banks CONSUMER DISCRETIONARY FINANCIALS MATERIALS TECHNOLOGY
ABSOLUTE VIEW Sideways/ Bearish Sideways/ Bearish Sideways Bearish Bearish Sideways Bearish Bearish Bearish Sideways Bearish Sideways Bearish Sideways
RELATIVE VIEW UNDERPERFORM MSCI World UNDERPERFORM OUTPERFORM UNDERPERFORM UNDERPERFORM OUTPERFORM UNDERPERFORM UNDERPERFORM OUTPERFORM NEUTRAL UNDERPERFORM OUTPERFORM OUTPERFORM OUTPERFORM Banks to Outperform Cars UNDERPERFORM UNDERPERFORM OUTPERFORM OUTPERFORM
KEY LEVELS 450 1950-2000 on downside 21466 on downside 5700 4200 1750-2057 1750-1827 5900-6200 2990 7700-8400 1340-50 1232-90 5250
55
Country Charts
Figure 67: Topix + MSCI Japan vs. MXAPJ Figure 68: AS51 + MSCI Australia vs. MXAPJ
Source: Bloomberg.
Figure 69: HSI + MSCI HK vs. MXAPJ
Source: Bloomberg.
Figure 70 SHCOMP + MSCI China vs. MXAPJ
Source: Bloomberg.
Figure 71: KOSPI + MSCI Korea vs. MXAPJ
Source: Bloomberg.
Figure 72: TWSE + MSCI Taiwan vs. MXAPJ
Source: Bloomberg.
Figure 73: NIFTY + MSCI India vs. MXAPJ
Source: Bloomberg.
Figure 74: STI + MSCI Singapore vs. MXAPJ
56
Source: Bloomberg.
Figure 75: KLCI + MSCI Malaysia vs. MXAPJ
Source: Bloomberg.
Figure 76: JCI + MSCI Indonesia vs. MXAPJ
Source: Bloomberg.
Figure 77: SET + MSCI Thailand vs. MXAPJ
Source: Bloomberg.
Figure 78: PCOMP + MSCI Philippines vs. MXAPJ
Source: Bloomberg.
Source: Bloomberg.
57
Sector Relatives
Figure 79: Cons. Disc vs. ASIA - Weekly Figure 80: Cons. Stap vs. ASIA - Weekly
Source: Bloomberg.
Figure 81: Energy vs. ASIA - Weekly
Source: Bloomberg.
Figure 82: Financials vs. ASIA - Weekly
Source: Bloomberg.
Figure 83: Healthcare vs. ASIA - Weekly
Source: Bloomberg.
Figure 84: Industrials vs. ASIA - Weekly
Source: Bloomberg.
Source: Bloomberg.
58
Figure 85: Tech vs. ASIA - Weekly
Figure 86: Materials vs. ASIA - Weekly
Source: Bloomberg.
Figure 87: Telecom vs. ASIA - Weekly
Source: Bloomberg.
Figure 88: Utilities vs. ASIA - Weekly
Source: Bloomberg.
Source: Bloomberg.
59
Quantitative (Asia ex Japan)

A change in the air? For our year ahead view we focus on the recent changes we have seen in the demand for quality in the region. Firstly let us say we see quality names as over-owned and expensive. Defensive investing has dominated the last 3-4 years in Asia and Value strategies have woefully underperformed leaving many Value investors asking will Value ever work again? But of course we have faith! And the other side of the story is that Quality investing has been hugely popular and bid up to what some would call vulnerable levels. So what is it going to be for 2014: Value or Quality? Its a big ask to forecast the full year but there are a few trends going on that might be a reflection of a change in the air. We track a bunch of indicators we use to get a handle on whether we should be offensive or defensive, and they have been pointing defensive all year, but switched gears to offensive last September (see our Fund Manager Monthly September 2013, Smith/Ma). Our broad thinking is that if the market conditions and investor sentiment are both supportive of risk-on investing, and if we can navigate the year end macro overhangs without any disasters, then Value should have the road clear ahead especially so when there is also a seasonality aspect of Value that we cannot ignore. Some indicators suggesting we add risk Firstly the upside to risk has been huge! Putting it mildly, beta has been so beaten up that we have never seen it get so cheap (relative to defensives over the last 20 years). Big upside means a better risk/reward profile. Buy Risk! Hate Risk On/Risk off markets? We do too. Thankfully beta volatility has come down a long way since last year and the environment has been far more conducive to micro rather than macro this year. With the volatility lower, risk investing has a smoother ride. Buy Risk! Market mood seems to be up and some of the high level indicators we track (VIX, Bloomberg FCON, Oil/Gold) are all reflecting better risk sentiment. Sure these are only weak indicators and we dont want to hang our hat on them, but at least they are also pointing in the right direction. Buy Risk!
For a full description of our beta timing model see our report Beta aware Alpha, Smith/Ma, July 2013.
Robert Smith AC
(852) 2800 8569, robert.z.smith@jpmorgan.com Bloomberg JPMA RSMITH<GO> J.P. Morgan Securities (Asia Pacific) Limited
Quality vs. Value performance over the last 3 years note the overall better performance of Quality, with pockets of Value performance here and there
Source: MSCI Barra, Thomson Reuters; Universe: MSCI Asia ex Japan
This chart is the PE of Risk or in other words the differential in PE (forward) terms between a basket of high beta and low beta
Cross-sectional correlation of P/B and Beta near all time highs
60
Position for risk using Value The best way to get exposure to risk we think is through deep value in particular the P/B factor. The crosssectional correlation of P/B and Beta is currently at an all time high of 35-40% (see Figure 3 on the previous page). This way you are buying an 'alpha' factor at least. Buying high beta stocks directly is a pure market call. But P/B is an alpha factor, and buying cheap can work regardless what the markets are doing. The Seasonality cherry on the Value pie We have been making a case for Value without yet considering the calendar effects on the factors. This is one aspect we have not included in our formal risk timer model. Instead we prefer to keep an eye on this factor seasonality separately, and around year end is when it has some particularly interesting effects. Firstly, Value investing dominates around year end December and January are big P/B months. Now this is not something we get too excited about and so its not included in our style timing models. But the hit rates are very compelling. Over the last 20 years Value has outperformed in January 80% of the time. Since 2008 that hit rate has been 100%. Most investors are aware of this and have their favourite 'risk-on' stocks to own each January - and we think the effect might be becoming diluted as some pre positioning is happening and profit taking happening sooner. But for what it is worth Value typically outperforms in January. Secondly, the biggest loser is Price momentum in January (i.e. the 12-month winners). Watch out for the winners as they are not cheap! And our last interesting aspect on factor seasonality is the complete failing of Earnings momentum in December and January; a factor which otherwise works great the rest of the year! (Which makes sense as everyone is on holidays and probably more focused on the eggnog than earnings.) So in summary, buy cheap and avoid the winners going into year end. Furthermore dont be as concerned about Earnings over December / January as you usually would.
Price / Book by calendar month since 1994 performs strongly in January and somewhat in December too
Source: MSCI Barra, Thomson Reuters; Universe: MSCI Asia ex Japan; 1994 to 2013
Price momentum 12-months by calendar month is typically sold off in January
Earnings Momentum is by calendar month a non-event in December and January, but normally great!
61
Sitting on the risk fence Of course there is always the good old quality at a reasonable price for the fence sitters out there. And we also like to hedge our views, so a more beta/risk neutral approach makes good sense to us too (yes to fence sitting!). In its simplest form this can be implemented as PB + ROE which are a powerful combination in Asia and GEM. The strategy has delivered constant and impressive returns for the last decade or more if bought at the start of every January (but note the trades need to be in place at the very start of the year to benefit from the PB boost each year). See the performance and max drawdown in the top chart to the right. In these tests we are buying a composite blend of P/B and Historical ROE every January and holding the stocks all year an added benefit is that turnover is super low! For the strategy we build a 50:50 composite of the crosssectional z-scores of P/B (lower is better) and Historical ROE (higher is better). We rank this new score from highest to lowest and go long the top 10% and short the bottom 10% of the MSCI Asia ex Japan universe. Rebalance is every 31 December (starting in 1999).
L/S Performance of PB + ROE since 2000 rebalanced every Dec 31st does very well especially in the last 5 years
Monthly turnover for the strategy
62
Alpha in Asia sliced by country & sector

If its more of a long-term view you are after, we have available our Factor Reference book for Asia ex Japan. In this we take an 18-year view to look at what strategies worked where. See the links to the left for the full report and chartbooks.
Asia ex-Japan Factor Reference Asia ex-Japan Factor Reference Companion Backtest Results: Regional Chartbook Country Chartbook Sector Chartbook GEM Chartbook Other Factor Reference Books Europe US Other key reports The JPM Q-Score for EM Stock Selection Macro Factor Rotation Model 2.0 for AxJ Style timing using Macro Indicators Market Timing Model Country versus Sector Sector Selection in AsiaPac
Country Matrix
When comparing factor performance by country, we notice a few interesting points: Malaysia has the highest risk-adjusted returns for quant and Korea has the highest absolute long-short returns for quant (although shorting is a problem) Quant models with a Value Bias generally performed better outperforming in 6 out of 10 countries Earnings factors that worked well were those related to Net Earnings Revisions to FY1 and FY2 and Change in Consensus Recommendations, although they have quite high turnover For a simple composite, P/B ROE performed consistently across geographies, and was even the best performing factor in Korea 1-mth Price Momentum and RSI 10-day taken as contra-indicators (e.g. 1-mth Price Reversion) worked fairly consistently across geographies Historical Dividend Yield worked best in the more developed markets of Hong Kong, Singapore, Korea, and China (with the exception of Malaysia where many systematic strategies worked)
Table 43: Risk-adjusted Return Matrix by Country

ex C h Japa in n a Ho ng Ko ng In di a In do ne s K o ia re a
0.98 0.69 0.60 0.18 -0.12 1.00 1.10 0.73 0.58 0.54 0.63 0.24 0.48 -0.24 -0.15 -0.78 -0.76 -0.13 0.00 -0.16 -0.05 -0.30 Factor Factor Family C C C C C C C V V V ES ES ES ES PT PT PT Q Q R R R Name Q-Score Composite Composite Value (w ith Grow th) Composite Earnings / Sentiment Composite Price / Technical Composite Quality Q-Score Composite (Value Biased) Composite Price to Book ROE P/E (1-y ear forw ard) P/B (1-y ear trailing) Div idend Yield (1-y ear trailing) Net Earnings Rev isions FY1 FY2 (rel. to total changes) Change in Consensus Recommendations (1-mth chg.) Forw ard Earnings Momentum (1-month change) Forecast Earnings Grow th FY1 to FY2 Price Momentum 12-month Price Momentum 1-month RSI 10-day Return On Equity (1-y ear trailing) Sales Grow th (1-y ear trailing) Beta (Barra) Volatility (Barra) Size (Barra) 1.80 1.13 1.84 0.35 0.11 2.40 1.37 1.17 0.61 0.86 1.20 1.59 0.80 -0.17 -0.12 -0.55 -0.85 0.04 0.12 -0.19 -0.07 -0.29
0.45 0.48 0.18 0.13 -0.19 0.76 0.67 0.44 0.45 0.45 0.48 0.12 0.10 0.03 -0.16 -0.40 -0.41 -0.31 -0.44 -0.38 -0.10 -0.07
0.46 0.01 0.47 0.19 0.23 0.35 0.18 -0.03 -0.10 0.41 0.41 0.32 0.25 -0.28 -0.11 -0.32 -0.84 0.26 0.53 -0.24 -0.32 -0.09
0.80 0.23 0.83 0.29 0.16 0.78 0.34 0.08 -0.25 -0.02 0.56 0.61 0.61 -0.18 0.05 -0.05 -0.58 0.07 -0.11 -0.54 -0.37 -0.07
0.21 0.40 1.00 -0.34 -0.44 0.47 0.49 0.24 0.28 0.00 0.44 0.50 0.35 -0.06 -0.54 -0.60 -0.59 0.00 0.05 0.19 0.54 -0.51
1.05 0.33 0.95 -0.22 -0.22 1.25 0.79 0.54 0.33 0.63 0.91 1.33 0.37 -0.30 0.00 -0.28 -0.62 -0.09 -0.07 -0.15 -0.16 -0.13
Source: J.P. Morgan, MSCI, IBES, Reuters, Factset, Barra. For Sharpe Ratio calculation, the risk-free rate is assumed to be 0%.
ala ys ia Ph il ip pi ne Si s ng ap or e Ta iw an Th ai lan d
0.80 0.47 0.50 -0.13 0.00 0.74 0.43 0.40 0.23 -0.19 -0.49 0.58 -0.10 -0.29 0.00 0.00 -0.70 0.00 -0.22 0.22 -0.07 -0.48 0.43 0.16 0.48 -0.29 -0.01 0.43 0.59 0.40 0.17 0.40 0.34 0.56 0.31 -0.14 -0.34 -0.14 -0.64 -0.25 -0.28 -0.14 -0.13 -0.33 0.87 0.66 0.61 0.18 0.51 1.19 0.41 0.73 -0.08 0.26 0.51 0.50 0.32 -0.25 0.18 -0.06 -0.13 0.23 -0.14 -0.16 -0.22 -0.04 0.30 0.58 0.83 0.00 -0.14 0.79 0.17 -0.08 0.17 -0.06 0.69 0.49 0.37 -0.44 -0.27 -0.07 0.10 0.00 -0.24 -0.21 -0.06 0.00
As ia
63
Sector Matrix
When comparing factor performance by sector, we notice a few interesting points and key takeaways: Consumer Discretionary, Industrials, Information Technology, and Industrials had the best risk-adjusted long-short returns for our Q-Score, indicating that these sectors are relatively more quant friendly Sectors that are more homogeneous such as Utilities and Energy or sectors with fewer companies such as Health Care may do less well on a standalone basis due to a lack of diversification Our Q-Score with a Value Bias (and underweight Price/Technical and Quality) outperformed our regular Q-Score in 7 sectors Earnings/Sentiment was the best performing factor family for 6 sectors (particularly for Financials and Information Technology), and the Value factor family was the best performing for 4 sectors 1-mth Price Momentum was a strong contra-indicator for Materials (or as a strong positive indicator as 1-mth Price Reversion) The best overall sector specific Sharpe ratio was for the Q-Score in Consumer Discretionary and Composite Earnings/Sentiment for Financials
Table 44: Risk-adjusted Return Matrix by Sector

ex -J ap En an er gy M at er ia ls In du st r ia ls Co ns um er Co Di ns sc um re tio e rS He na ta ry alt pl h e Ca s re Fi na nc ia ls In fo rm at io Te n T lec o m echn ol Ut og il it y ie s
0.09 0.21 0.13 -0.19 -0.26 0.29 0.40 0.02 0.15 -0.03 -0.33 0.43 -0.26 -0.22 -0.27 0.15 -0.12 0.06 0.32 -0.59 -0.63 0.00 0.73 0.64 0.44 0.14 0.03 0.75 0.46 0.63 0.70 -0.08 0.30 0.07 0.63 -0.07 -0.36 -0.96 -1.01 0.02 0.06 -0.28 -0.11 -0.44 0.92 0.87 0.79 0.10 -0.16 0.92 0.60 0.72 0.85 0.39 1.15 0.37 0.44 0.30 -0.31 -0.45 -0.74 -0.36 -0.24 -0.22 -0.01 -0.14 1.18 0.74 0.87 0.58 0.19 1.16 0.60 0.86 0.09 0.61 0.87 0.70 0.50 -0.13 0.19 -0.53 -0.85 0.01 -0.23 0.01 0.05 0.03 0.35 0.00 0.57 0.03 -0.09 0.28 0.01 -0.24 -0.04 0.29 0.14 0.48 -0.15 0.22 -0.36 -0.50 -0.60 -0.15 0.44 0.09 -0.04 -0.35 0.14 0.34 0.70 0.12 -0.42 0.35 -0.31 0.09 -0.02 -0.26 -0.16 0.16 0.24 0.30 0.13 -0.39 0.00 -0.45 -0.26 -0.03 0.11 -0.45 0.77 0.61 1.18 -0.21 -0.25 0.96 0.62 0.36 0.51 0.38 0.36 1.03 0.11 0.00 -0.48 -0.65 -0.71 0.01 0.01 0.19 0.20 -0.41 0.87 -0.13 0.85 0.11 -0.12 0.91 -0.05 0.02 -0.12 -0.02 0.76 0.90 0.27 -0.22 0.35 0.25 0.15 -0.31 0.20 -0.11 -0.17 0.36 0.55 -0.02 0.35 -0.20 0.14 0.55 0.27 0.22 -0.10 0.27 0.05 0.32 0.09 -0.56 -0.15 -0.46 -0.16 0.10 -0.37 -0.09 -0.12 0.00 -0.03 0.38 -0.08 -0.36 -0.43 0.35 0.14 0.62 0.23 -0.05 0.46 0.15 -0.18 -0.23 -0.35 -0.31 -0.30 -0.31 0.08 0.14 0.17 -0.31
Factor Factor Family C C C C C C C V V V ES ES ES ES PT PT PT Q Q R R R Name Q-Score Composite Composite Value (w ith Grow th) Composite Earnings / Sentiment Composite Price / Technical Composite Quality Q-Score Composite (Value Biased) Composite Price to Book ROE P/E (1-y ear forw ard) P/B (1-y ear trailing) Div idend Yield (1-y ear trailing) Net Earnings Rev isions FY1 FY2 (rel. to total changes) Change in Consensus Recommendations (1-mth chg.) Forw ard Earnings Momentum (1-month change) Forecast Earnings Grow th FY1 to FY2 Price Momentum 12-month Price Momentum 1-month RSI 10-day Return On Equity (1-y ear trailing) Sales Grow th (1-y ear trailing) Beta (Barra) Volatility (Barra) Size (Barra) 1.80 1.13 1.84 0.35 0.11 2.40 1.37 1.17 0.61 0.86 1.20 1.59 0.80 -0.17 -0.12 -0.55 -0.85 0.04 0.12 -0.19 -0.07 -0.29
Source: J.P. Morgan, MSCI, IBES, Reuters, Factset, Barra. For Sharpe Ratio calculation, the risk-free rate is assumed to be 0%.
64
As ia
Japan economic outlook ...........................................66 Asian economic outlook ..........................................67 China economic outlook ..........................................69 Indian economic outlook..........................................70 Korea economic outlook ..........................................71 Taiwan economic outlook ........................................72 ASEAN economic outlook ......................................73 Asia credit outlook ...................................................75 Asia rates outlook .....................................................77 Asia FX 2014 ...........................................................79 Economic Forecasts .................................................81 Interest Rate Forecasts .............................................84
Economics, Rates, FX and Commodities

65
Table of Contents
Japan economic outlook: VAT vs Abenomics

Masamichi Adachi
AC
Real GDP and private consumption

%q/q saar 6 4 2 0 -2 -4 -6 -8 -10 J.P. Morgan forecast
(81-3) 6736-1172, masamichi.x.adachi@jpmorgan.com JPMorgan Securities Japan Co., Ltd.
GDP
In 2014, the effect from the consumption tax (VAT) rate hike in April from the current 5% to 8% and a change in corporate behaviorthe source of success in Abenomicswill be key factors determining Japans economic outlook. Abenomicsthe combination of ultra-easy monetary policy, flexible fiscal policy, and growth strategyhas worked quite well so far in 2013 as the sharp depreciation of the yen pushed equity prices materially higher and the wealth effect lifted private consumption in the first half of this year. The associated improvement in business and consumer confidence also supported spending, although the pace of the pickup in capex has been rather modest. In addition, the large fiscal stimulus (2% of GDP, of which 1% is in public investment) that was introduced in February 2013 likely has boosted growth from the middle of the year. Note, though, despite the weaker yen, exports were weak in the past 3Q, mainly due to soft external demand from Asia. Also, consumer spending was soft in summer, partly due to bad weather and a loss in purchasing power of households affected by higher inflation. The recent soft patch in equity prices might have weighed on spending as well. However, the latest monthly data points suggest that consumption is picking up. While purchasing power has deteriorated, the improvement in employment conditions is probably supporting consumer spending. Also, the front-loaded consumption demand ahead of the upcoming tax hike has already boosted spending, which will most likely continue until 1Q 2014. Based on the experience ahead of the previous tax hike from 3% to the current 5% in April 1997, consumption will likely jump in March after moderate pace of gains until February. Obviously, the front-loaded demand will be accompanied by a large negative pay back after the tax hike. In our view, a large contraction of consumption and GDP in 2Q next year seems inevitable. Our current forecast looks for a 4.5% annualized contraction in 2Q14 real GDP after a strong 4.0% gain in 1Q, and followed by a decent 1 to 2% gain in the second half of the year. However, given the experience in 1997, the size of swing in the first half of the year may be larger. Also, the government has committed to introduce another round of fiscal stimulus (1% of GDP) and a 2%pt cut in the corporate tax rate to ease the pain of the consumption tax hike. The timing of when the impact of the stimulus measures will materialize is hard to predict.
66
Private consumption 2013 2014
Source: Cabinet Office, J.P. Morgan forecast
2012
Core CPI
%oya 4 3 2 1 0 -1 2012 2013
BoJ board members' median outlook for FY2014
2014
Source: Statistics bureau, BoJ, J.P. Morgan forecast
As such, the quarterly swing likely will mask the underlining strength of the economy so the forecast for the fiscal year (April-March) is probably more meaningful to gauge the strength. We currently look for a 0.7% gain in FY2014 after an expected 2.6% gain in FY2013. Our 0.7% growth forecast is not strong, and far below the BoJs outlook of 1.5%. Still, given that Japans potential growth rate is around 0.7%, our forecast is not particularly weak. Given that the inflation rate is expected to accelerate to close to 3% from currently less than 1% pace (the tax hike is expected to boost prices 2.0%-pts), a fall in real income and consumption in FY2014 looks certain. While wages within large firms may rise to some extent, we think it is unrealistic to expect that average wages for all workers will increase more than 2%oya. In our view, the key driver to sustain growth is capex. Exports likely will rise next year, but imports will likely rise as well so we do not expect a boost from net trade. Capex is basically determined by corporate profits and confidence of business management (note that credit conditions are currently already accommodative in Japan). In this regard, how effective Abenomics is in boosting confidence and how strongly global economy recovers next year are critical for Japans outlook. On the policy front, we now expect that the BoJ will add to its easing in April 2014, as our CPI inflation and growth forecast is more cautious than that of the BoJ. Easing measures probably will include an increase in ETF and yen bond purchases (mostly local bonds and agency bonds, not JGBs).
Asian economic outlook: Better policy anchoring stable growth

Jahangir Aziz AC
(1-202) 585-1254, jahangir.x.aziz@jpmorgan.com J.P. Morgan Securities LLC
EM Asia: macro forecasts

%oya EM Asia GDP Consumption Investment Net Exports Current account, % GDP US$ bn CPI, %oya, eop 2012 6.2 3.5 3.2 -0.5 1.8 253.8 3.7 2013F 6.0 3.1 2.8 0.1 1.9 293.7 3.9 2014F 6.1 3.2 2.9 0.0 1.7 294.5 3.8
Growth in EM Asia is expected to remain largely unchanged at around 6% in 2014 reflecting offsetting effects of four broad global developments. On the positive side improved growth prospects in developed market economies (DM), particularly in the euro area, should strengthen external demand for EM Asia exports. But this is likely to be accompanied by a hardening of global financial conditions which, as already seen during this summer, could weigh heavily on EM Asia assets and currencies especially in economies with a current account deficit, such as India and Indonesia. Adding to this headwind is the structural and policy-induced slowdown of the Chinese economy. Chinas demand for both intermediate and final goods has been a key growth driver for the region and its moderation will negatively effect regional growth. A separate impact of the China slowdown, particularly the policy-driven weaning of the economy away from resource-intensive growth, is the attendant moderation in global commodity prices. The impact of this is likely to vary across EM Asia with economies that are commodity exporters suffering while those that are net importers benefitting at the margin. Needless to say that the net impact on specific countries will depend on how sensitive they are to these factors, their cyclical position, and policy response. Most EM Asia economies are coming out of an extended period of policy support since 2008. And while the policy cushionfiscal, monetary, and reservesremains adequate (barring India and Indonesia) , policymakers appear to have accepted the reality that trend growth is unlikely to go back to the pre-2008 days any time soon. This general acceptance of lower trend growth suggests that the policy space will be used only sparingly to support the economy in the event growth plummets. Trend growth has fallen across the region and except in a few sectors in some parts of the region there is no real sign of significant excess capacity. Thus despite generally benign inflation, macroeconomic policy is likely to remain neutral.
Note: Consumption, Investment and Net Exports show %-pt. contribution to headline GDP growth. Source: J.P. Morgan Economics
EM Asia ex CN & IN: real fixed investment and merchandise exports

%oya, both scales
15 10 5 0 -5 -10 01 03 05 07 09 Nominal exports, US$ terms 11 13 Fixed investment 60 40 20 0 -20 -40
Source: J.P. Morgan Economics
EM Asia: fixed investment and global PMI

DI, sa
65 60 55 50 45 40 35 01 03 05 07 09 Korea and Taiwan 11 13 Global PMI
%-pt. contribution to oya GDP

ASEAN 4 2 0 -2 -4
67
Recent changes in the economic management teams in both India and Indonesia, which were badly hit by fears of Fed tapering, have markedly improved policy setting towards greater orthodoxy. But with both countries facing general elections in the first half of 2014 market fears of policy being used to boost short-term growth is understandable. However, with the threat of Fed tapering still on the table before the elections in these countries, such fears may be overblown. Instead policy is likely to be tightened in the coming quarters on fears of aggravating the current account deficit (both India and Indonesia) or inflation in the case of India before the elections and the inevitable start of tapering. Going back to the regions growth prospects, the flat projection for EM Asia sits uneasy with the 1%-ppt higher expected growth in DM economies belying historical linkages between these two regions. Indeed empirical studies show that in the post 2008 period, the demand impulse from DM economies to EM Asia growth has waned substantially. Instead, demand from non-Asia EM economies have become a much bigger driver of growth in Asia. The declining share of DM economies in EM Asia export destinations and the rising share of EM economies confirm the latters rising influence. Indeed the growth slowdown in non-Asia EM economies has dragged down Asias export growth in recent quarters despite somewhat better demand from DMs. More generally EM Asias traditional growth driver exportshas not fired in the last two years after recovering strongly in 2009-10 from the 2008 crisis. In level terms Asias exports have remained stuck at its 2010 level. The sluggishness in exports has spilled over to corporate investmentAsias other key growth driveramplifying the impact on GDP growth. Whether this is just a post-crisis aberration or a trend setter, i.e., a fundamental change in Asias growth driver, is too early to tell. But if this is just an anomaly then as economic conditions in DMs improve and sustain both export growth and corporate investment in EM Asia could rebound strongly providing a significant upside risk to the baseline scenario.
EM Asia-5: fixed invest. ex. construction and capital goods imports

%2q/2q, q q saar, real terms
30 20 10 0 -10 -20 -30 03 Fixed investment ex. cons, real terms 05 07 09 Capital goods imports, US$ terms 11 13
%2q/2q, q saar, q US$ terms

60 40 20 0 -20 -40 -60
At the disaggregated level, growth in China is expected to slow from the sharp rise in 3Q13 as the impact of the high credit growth earlier in the year and the mid-year fiscal stimulus fades. How quickly this happens will depend to a large extent on the aggressiveness with which the authorities purse the much needed rebalancing of the economy, which will become clearer in the course 2014 as policies are recalibrated to deliver the broad guidance of the CPCs 3rd plenary session concluded this November. Growth in India is likely to pick up in 2H14 provided the May elections deliver clarity on reforms and the dysfunctional investment framework. In ASEAN the smaller open economies that are more integrated to the global tech cycle will likely perform better than those that depend on domestic demand such as Indonesia and the Philippines. Finally both Korea and Taiwan should see growth improving from the lackluster 2013 performance with the tech cycle playing a decisive role.
68
China economic outlook

Haibin ZhuAC
(852) 2800-7053, haibin.zhu@jpmorgan.com JPMorgan Chase Bank, N.A., Hong Kong
Chinas economic activity experienced solid recovery in 2H13 against a backdrop of a policy shift to growth stabilization since July, lagging effect of strong credit expansion in 1Q13, and improving global final demand led by the DM world. However, the key question is the sustainability of the growth recovery. In our baseline scenario, 3Q13 likely marked the peak of economic recovery (in q/q terms), and economic growth is likely to moderate to a decent rate of 7.8%q/q saar in 4Q13, then to 7% q/q saar in 2014. Our full-year GDP growth forecasts stand at 7.6% in 2013 and 7.4% in 2013. Recovery momentum to slow in 2014 The main arguments behind our forecast of growth trajectory are twofold. On the domestic front, recent benign economic conditions provide a favorable backdrop for structure reforms. It is well anticipated that the 3rd Plenary Session of the CPC Central Committee (to be held on November 9-12th) will lay out economic policies of new leaders in the next 5-10 years. The main theme of the meeting, if without surprise, is to deepen economic reform and openness. The governments effort on structural reforms could drag on growth in the near term. Moreover, from an external perspective, despite the recovery in advanced economies, emerging market economies (which have become a more important export destination for China in recent years) have continued to struggle with soft economic performance. In addition, the CNY appreciation (especially in REER terms) will have a negative impact on Chinas export recovery. Overall, while we expect Chinas exports to improve, it is unlikely to return to the solid double-digit growth. Inflation to rise moderately but remain benign The headline CPI is likely to remain stable at the current level in 4Q, and our full-year forecast of CPI inflation is 2.7%, well below the governments target of 3.5%. Going into 2014, inflation is likely to pick up moderately and average at 3.4% for the full year. The relatively benign inflation dynamics suggest that stabilizing growth and economic reform remain the priority issues for the policymakers in the near term. Credit normalization will continue In the near term, the government will likely maintain proactive fiscal policy (modestly easing) and neutral monetary policy. With relatively benign inflation dynamics, we expect no change in policy rates and RRR during next year, and credit tapering (i.e. credit growth
to slow down but still be much higher than nominal GDP growth) to continue as it is crucial in rebalancing the economic structure. Although credit normalization generally has a negative impact on economic growth, it could be offset by improving the effectiveness of the transmission channel by cracking down on speculative financial activities, and directing credit to highproductivity and fast credit-turnover sectors.
China: real GDP growth
Source: NBS, J.P. Morgan estimates
China: headline CPI and benchmark lending rate
Source: PBOC, NBS, J.P. Morgan estimates
Credit growth in China
Source: PBOC, NBS, J.P. Morgan estimates
69
Indian economic outlook: Macro prospects hinge on election outcome

Sajjid Z Chinoy AC
(91-22) 6157-3386, sajjid.z.chinoy@jpmorgan.com J.P. Morgan India Private Limited
Indias macroeconomic prospects in 2014 will hinge critically on the outturn of the national parliamentary elections in the spring. The election outcome is increasingly looking binary, with the favorable scenario (which still remains our baseline) involving one of the two national parties leading a coalition government. This is expected to boost sentiment, rekindle animal spirits and induce a pick-up in the much-awaited domestic investment cycle, thereby boosting growth, making the fiscal consolidation more tenable and taking the pressure off the central bank to contain inflation. The lessfavorable outcome entails a more fragmented polity with regional parties forming a coalition government. Such an outcome runs the risk of further depressing investment and growth, challenging any fiscal consolidation, and putting more pressure on the Rupee. Under our central scenario, growth expected to accelerate to 5% in 2014-15 from 4.1% in the current fiscal. There are indications of a cyclical upturn in growth underpinned by a firming of rural and external demand. But any acceleration is likely to be modest and temporary unless accompanied by a pick-up in domestic private investment. To their credit, the government has cleared 3-4% of GDP in projects, but implementation will likely have to wait post the spring 2014 elections when political uncertainty is resolved. Assuming political stability post election, these project approvals could provide some momentum to domestic investment, subject to the debt overhang on corporate and bank balance sheets playing itself out. Inflation pressures are likely to remain elevated as firms normalize margins, inducing more monetary tightening. Despite weak growth, WPI inflation has accelerated sharply in recent months and CPI inflation remains close to double digits. Food prices are likely to abate post the strong harvest thereby providing some relief to headline inflation. But core inflation is likely to accelerate as firms that have taken significant margins over the last year use any pick-up in demand to normalize margins. Given theses dynamics we expect at least another 25 bps of policy rate hike in the run-up to the election. Even if investment picks up post elections, it will likely pressure inflation likely resulting in more tightening in 2014 before the produced capacity comes online and puts downward pressure on core prices.
Rupee depreciation has helped narrow external imbalances. Exports have accelerated as global demand has firmed and the real exchange rate depreciation has increased competitiveness. Furthermore, gold imports have fallen sharply, and weak growth has dampened nonoil, non-gold imports. These dynamics are likely to keep the CAD to 3% of GDP this fiscal from nearly 5% last year. The CAD in 2014-15 could rise to 3.3-3.5% of GDP if growth accelerates. But, to the extent that growth is driven by investment, FDI and ECBs inflows are likely to help fund the CAD. All told, however, capital inflows and the currency are likely to be influenced most by the extent of political stability and prospects for growth and reform that emerge from the spring parliamentary elections.
Exports and rural demand driving a cyclical lift in growth
Two wheeler sales % oya, 3mma
15.0 11.0 7.0 3.0 -1.0 -5.0 Jan-12 May-12 Sep-12 Two wheeler sales Jan-13 May-13 Sep-13 Exports
Exports %,oya, 3mma

15.0 10.0 5.0 0.0 -5.0 -10.0
Inflation pressures have re-accelerated and likely to stay elevated

CPI% oya
12.0 11.0 10.0 9.0 8.0 7.0 6.0 Jan-12 May-12 Sep-12 Jan-13 May-13 WPI CPI
WPI % oya
8.0 7.0 6.0 5.0 4.0
Sep-13
Trade deficit has narrowed sharply reducing external imbalances

US$billion, 3mma
20 18 16 14 12 10 8 6 4 Apr-11
Nov-11
Jun-12
Jan-13
Aug-13
70
Korea economic outlook: Koreas insipid return to trend growth

Jiwon Lim AC
(82-2) 758-5509, jiwon.c.lim@jpmorgan.com JPMorgan Chase Bank, N.A., Seoul Branch
Full-year real GDP to recover trend growth in 2014 We expect real GDP to increase 3.7%y/y in 2014, after having seen a below-trend growth for two straight years. On a seasonally-adjusted quarter-on-quarter basis, real GDP already bottomed out in 1Q13, having run at a 4% annualized pace for about three quarters since 2Q. We expect the pace of growth to stay in the range for now, but the over-year-ago comparison should rise further for some more quarters, with the base effect turning favorable. Growth leadership to keep rotating Growth leadership is likely to keep rotating. In the first half of 2013, the main growth drivers were government consumption and construction investment. Exports, too, remained relatively firm, but other cyclically sensitive components, such as business equipment investment and private consumption, stayed weak. In 3Q, private sector domestic demand improved modestly, but exports and government consumption slowed. We expect the contribution from cyclically sensitive demand components to rise in 2014, and government spending to step back further. Specifically, we forecast exports to rise modestly in 2014, with the prospective gain in DM countries demand more likely to outweigh the structural deceleration of Chinas. Koreas household consumption should benefit from the continued improvement of job market conditions and low level of inflation, but the case of full-stretch is still constrained by the structurally high debt-servicing burden. Business equipment investment is likely to improve as well, but not by much, with forward-looking machinery orders up only modestly via heavy volatility and business surveys hinting at a relatively high level of business caution. The key wild card will be construction investment, which has risen strongly throughout this year, even as the real estate market remained weak enough to call for supportive measures from the government. In our view, the solid gain in construction investment this year was mainly due to previous orders, as the government implemented earlier plans to relocate most of its ministries to non-Seoul metropolitan areas. Now, given
the usual time gap between construction orders and the actual investment, we believe construction investment is likely to slow down during most of 2014. Monetary policy and micro-level measures supportive, while macro-level fiscal policy to turn relatively tight Headline consumer prices rose only 0.7%oya in October, marking the lowest level since July 1999. We expect consumer inflation to rise, but only gradually, mainly as cost-push factors are likely to turn less favorable and demand-pull pressures stay at bay, with the output gap to remain in negative territory for most of next year. Against this backdrop, we expect monetary policy to stay accommodative, with the BoKs base rate staying pat until 3Q 2014. In terms of government polices, micro-level measures are likely to stay supportive, notably for real estate markets, progress in which will be important for the medium-term outlook for consumption and construction investment. However, macro-level fiscal policy will probably unwind much of its earlier stimulus. According to the preliminary plan of 2014 budget, total fiscal expenditures are expected to rise only 2.5%y/y in 2014, compared to 7.2% in 2013, also with the spending focus in favor of social safety net and welfare programs, at the cost of relatively high-multiplier items, such as infrastructure spending and industry support. Current account surplus to drop only modestly Koreas external conditions will remain healthy, with the balance of payment to stay in surplus and the ratio of short-term debt to foreign exchange reserves to keep coming down. The seasonally-adjusted current account surplus likely peaked, but we expect the prospective decline to be only gradual, if we are correct in forecasting that global oil prices, Koreas domestic demand, and a traded-weighted Won rise modestly.
Source: Bank of Korea
71
Taiwan economic outlook

Grace Ng
AC
GDP merchandise exports and custom export volume

Index, 1Q11=100, sa, 2006 prices 102 100 98 96 94 2011 2012 GDP merchandise exports, freight and insurance 2013 Customs exports, in volume terms
(852) 2800-7002, grace.h.ng@jpmorgan.com JPMorgan Chase Bank, N.A., Hong Kong
Moderate recovery in 2013 The Taiwanese economy was severely affected by a number of negative external shocks since early 2011, including the Japan earthquake and the related shock to the regional supply chain, the European sovereign crisis, and the China slowdown. Taiwans export sector bottomed in 1H12, followed by a gradual, steady recovery in the following quarters. By 2Q this year, real merchandise exports finally returned to the level seen in early 2011. Meanwhile, domestic consumption remained largely sluggish, likely reflecting the lagging effect of the softness in the manufacturing sector in earlier quarters. We expect full-year 2013 GDP growth to be 1.8%oya, with 2014 growth forecast at 3.1%oya. Global economy returns to trend-like growth Following the 2011-12 slowdown in global growth, the global economy has been gradually recovering, and is expected to track a steady, trend-like growth pace in the coming quarters, led by the DM world. In addition, the more upbeat near term growth picture in China will likely support cross-strait trade flow. We think such a constructive external backdrop will support a moderate, gradual improvement in Taiwans manufacturing and export sector. Gradual feed-through to domestic demand Regarding the domestic demand outlook, while Taiwans industrial sector employment weakened steadily for the four months through June, such employment began to turn up in recent months, rising 0.3% m/m, sa in September, consistent with the recent improvement in the manufacturing sector. In addition, regular labor earnings growth (in over-year-ago terms), discounted by CPI inflation, also began to come back to positive territory lately, after staying in the negative zone for the year through June. As such, if the constructive outlook on the global economy comes true, it would likely begin to feed through to some moderate recovery in domestic consumption in the coming quarters. Monetary policy likely to remain stable Taiwans CPI has been well-contained this year. Going into 2014, CPI inflation may move up moderately to an average 1.6%oya (compared to 0.8% in 2013), but we think the overall inflation picture will still be manageable. Considering the general growth-inflation dynamics, the Taiwan central bank is likely to keep major policy rates on hold at least through 1H14.
72
Source: DGBAS, MoF, J.P. Morgan.
China IP and Taiwans exports to China/ Hong Kong
Source: MoF, China NBS, J.P. Morgan.
Taiwan tech exports and US new tech orders
Source: MoF, US Census Bureau, J.P. Morgan
Real labor income and private consumption
Source: DGBAS, J.P. Morgan.
ASEAN economic outlook: A mixed outlook in ASEAN

Sin Beng Ong AC
(65) 6882-1623, sinbeng.ong@jpmorgan.com
ASEAN ex SG: trade
US$bn, 3mma, sa, both scales
Matt L Hildebrandt AC
(65) 6882-2253, matt.l.hildebrandt@jpmorgan.com
Benjamin Shatil AC
(65) 6882-2311, benjamin.shatil@jpmorgan.com JPMorgan Chase Bank, N.A., Singapore Branch
In 2014, stronger G-3 growth and the beginning of Fed tapering will be key drivers for ASEANs outlook. This year, countries that were hardest hit in Asia from Fed tapering fears were the ones with sizeable external financing requirements, mainly Indonesia and India. As a result, policy in Indonesia is focused on managing the current account deficit, which has led to and which should continue to lead to further monetary tightening in 2014. Tighter policy will in turn lead to slower growth. In contrast, growth in the rest of ASEAN is expected to pick up though it will remain lackluster as the lift in the G-3 benefits ASEAN's manufacturing sector less than the North Asian countries and because domestic demand is expected to slow as fiscal support and credit cycles ease. Uninspiring growth along with contained food and fuel prices should keep inflation low in the region in 2014, leaving policy stances mostly unchanged. Indonesia is the exception as we expect 50bp of tightening in 1H14. In Indonesia, the main event for 2014 will be the legislative elections. Parliamentary elections are to be held on April 9, the first round presidential on July 9 and the second round presidential elections, if needed, in September. The outcome of the elections may have a material impact in 4Q14. Aside from the elections, the policy focus this year was on managing the current account deficit, which is expected to remain the case in 2014. For this reason, investment outlays are forecast to slow, especially construction and could dent growth. However, despite the slowing in domestic investment, the external terms of trade could slow as China rebalances its growth, which could imply slowing demand for commodities. Thus, despite slowing domestic demand, the current account is not expected to improve materially. The good news is that inflation is expected to ease to around 4.5-5.0%oya but this would not likely provide much room for monetary easing.
ASEAN-4: current account balance

US$bn
EM Asia: capital goods imports
Index, 2010=100, 3mma, sa, US$ terms
73
Domestic demand is expected to be in the drivers seat in Malaysia. Under the official 2014 forecast, fixed investment is also expected to continue to expand, to yield an investment to GDP of 28.9% from 28.7% in 2013, and up from the recent average of between 22-24% in the past decade. The implication here is that the current account would also continue to remain narrow at 2.3% of GDP (J.P. Morgan: 0.6% of GDP). Notably, inflation is expected to rise to between 2.0-3.0%oya in 2014 from a forecast average of 2.1%oya this year. To reach the mid-point of this forecast, month-on-month seasonally adjusted inflation would have to average 0.25%m/m, sa over the course of 2014, which would represent an acceleration relative to the 2012/2013 monthly average of 0.16%m/m, sa. This rise in inflation together with a reduction in the subsidy bill to 3.7% of GDP from 4.7% of GDP in 2013 implies some form of subsidy rationalization. In the Philippines, the economy is likely to cool to a trend-like 5.6% growth pace from 7.1% this year as investment eases from a blistering pace. Slower growth and contained food and fuel prices should keep inflation near the bottom end of BSPs 3%-5% target range (we forecast 3.4% in 2014 from 2.9% this year). The current account surplus should stay strong at 2.5% of GDP, slightly smaller than this years 3.4% of GDP as remittance growth continues to grow in the mid-single digit range compared to around 10% growth in nominal GDP. Trend-like growth along with subdued price pressures should keep BSP on hold in 2014, though in past years growth has surprised on the upside and thus risks are tilted toward modest tightening in 2H14. In Singapore, growth is forecast to accelerate slightly to 3.8% in 2014 from 3.4% in 2013 as investment picks up from the more constructive G3 outlook (exports will firm as well but the overall trade contribution will be held back from stronger imports, which should grow fast enough to cause some modest further compression in the double-digit current account surplus). Slightly stronger growth and still tight labor market conditions should lead to modestly firmer consumer prices pressures with core prices forecast to rise 2.3% in 2014 from 1.7% this year. This outlook is firm enough to keep the MAS bias modestly hawkish and the NEER policy slope on an upward trajectory but risks to the global outlook are still large enough that we do not expect any further tightening. Thus, 2014 should be another year of MAS policy inaction with acceptable but not exceptional growth.
The outlook for Thailand will hinge on the political economy, with the governments planned THB2tn spending on infrastructure projects key to the forecast. At this juncture, we expect limited impulse from the implementation of these mega projects next year, reflected in only a modest expectation for growth to lift to about 3% in 2014 from 2.6% in 2013. The improvement in growth should reflect further stabilization in domestic demand through the year, but risks to outlook include the recent deterioration in the political environment, as well as an uncertain external environment. The fragile outlook should keep the BoT on hold with a dovish bias through early 2014, unless we see further deterioration in the real economy or a marked escalation in political tensions.
ASEAN: composition of growth
%-pt. contribution to yoy GDP growth Indonesia Consumption Gross investment Net trade Malaysia Consumption Gross investment Net trade Philippines Consumption Gross investment Net trade Singapore Consumption Gross investment Net trade Thailand Consumption Gross investment Net trade 2010 6.2 2.7 2.6 0.9 7.4 3.6 5.2 -1.4 7.6 2.8 5.4 -0.6 14.8 3.5 0.5 10.8 7.8 3.2 5.1 -0.5 2011 6.5 2.9 2.0 1.5 5.1 5.4 0.9 -1.1 3.6 4.1 0.4 -0.9 5.2 1.7 2.5 1.0 0.1 0.8 -0.1 -0.7 2012 6.2 3.0 4.7 -1.5 5.6 4.5 5.0 -3.8 6.8 5.8 -0.6 1.6 1.3 0.4 6.5 -5.6 6.5 4.2 3.7 -1.4 2013F 5.5 2.8 -0.4 3.0 3.3 3.8 3.2 -3.8 7.1 5.7 4.1 -2.7 3.4 1.4 0.0 1.9 2.6 0.9 1.3 0.4 2014F 4.9 2.6 0.2 2.1 5.7 3.3 4.1 -1.6 5.6 5.8 2.1 -2.3 3.8 1.4 1.5 0.9 3.0 1.0 0.9 1.0 Chg.1 -0.6 -0.2 0.6 -1.0 -1.5 -0.6 0.8 2.2 -1.5 0.2 -2.0 0.3 0.5 0.0 1.5 -1.1 0.3 0.1 -0.4 0.6
Source: J.P. Morgan Economics. 1. 2014 less 2013
74
Asia credit outlook

Soo Chong, LimAC
(852) 2800 7931, soo.ch.lim@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
JACI total return has been volatile partly due to a swing in UST yields
A choppy ride in 2013 It was a rather choppy year for the Asia credit market. After a strong start, the market turned for the worst in May on Fed tapering talks. The spike-up in UST yields and widening credit spreads led to the worst selloff in the Asia credit market since the 2008 financial crisis. Fear of liquidity drain from EM countries also put some macro strains on twin deficit countries such India and Indonesia, whose corporates suffered the brunt of the selloff. The negative return on the market led to retail outflow from EM fixed income funds, which turned into a downward spiral as negative return caused more outflow. The market only managed to regain its footing after the Fed surprised the market by deciding to push back tapering in September. While the JACI has regained some lost ground since September, the index is still in the red and is likely end the year with a negative total return of 1-2%. Despite the softer tone for the market as a whole, the various segments of the market turned in rather a mixed performance. The best performer is the HY corporates sector (+3.2% total return ytd) and the worst performer is sovereigns (-7.7% total return) that have the longest duration and thus are most sensitive to UST yields. A year of the working horse We expect 2014 to be the year of the working horse (the zodiac sign for 2014 under the Chinese lunar calendar) that has to climb a rising slope of UST yield, while carrying a still heavy burden of new issuance. Furthermore, there are other hurdles to overcome, i.e. the general elections in India and Indonesia and some weakening in credit fundamentals. With credit spreads only marginally wider than historical average, we see limited room for further tightening. All these factors will likely mean that total return for the market remains subpar, in the 2-3% range, coming mainly from carry as we expect negative mark-to-market on rising UST yields that can only be partially cushioned by tighter credit spreads. Rising UST yield would be a major headwind Our US rate strategy team expects UST yields to continue their upward march and expects the Fed to start tapering in January 2014. While the rehearsal in May and June of 2013 would probably mean that investors are more prepared for this eventuality, the market could remain choppy when Fed tapering starts. J.P. Morgan expects the 5-year UST yield to rise by 103bp from the current level to 2.4%, and 10-year by 88bp to 3.50%. This upward movement in UST yields would be a big headwind for the Asia credit market.
New issuance has been heavy and could remain so into 2014 as issuers try to lock in borrowing costs
US$ in billions
Source: Bond Radar, Bloomberg, J.P. Morgan
An expanding base of Asian investors has helped to absorb record issuance
75
Heavy new supply could be another drag Another drag on the market could be new issuance, which we expect could remain heavy in 2014 as issuers try to lock in borrowing costs before benchmark rates continue to rise. Notwithstanding the turn in market sentiment during the summer months, Asia has seen the print of US$114bn of new supply (till November 9) and full-year supply is likely to exceed the US$116.5bn record set in 2012. For 2014, we have penciled in US$110bn of new supply, which would translate into US$49bn of net financing requirement after deducting coupon and bond redemptions. While the amount looks manageable as compared to US$74-78bn for 2012 and 2013, it could still cap upside for the market. One mitigating factor is that we have seen greater participation of Asia investors, ranging from commercial banks, insurance companies, real money accounts and private bank clients. This is reflected in new issuance allocation with Asia accounting for around two-thirds of new issues in 2013, up from less than 50% in 2009. This could remain a supporting factor, Credits have weakened but default rate to stay muted In our view, the credit cycle has turned south as indicated by the trailing 6-months cumulative rating upgrade and downgrade ratio. There are several stress points for Asia credits. One key risk is currency volatility, especially for current deficit countries such as Indian and Indonesia, both incidentally are having their general elections next year. Some sectors such as mining could also see some downward pressure. While we expect the down trend in the credit cycle could continue, we do not expect too many credits to fall off the cliff as we only expect a marginal increase in the HY default rate to 1.5% in 2014 from a 0.8% estimate for 2013. Valuations look reasonable but not cheap The rise in UST and widening in credit spreads has brought YTM for JACI back to 5.17% (as at November 9), pushing it above the historical average of 4.87% since January 2010. The current z-spread at 282bp is slightly wider than the historical average of 293bp. We expect some tightening in credit spreads for 2014 to cushion but not nullify rising UST yields. Staying near the front in IG and selective HY names The rising UST yields mean that we would rather stay at the front end of the credit curve, and would only selectively go into the long-end after hedging treasury risk. In IG corporate, we like Hutchison 6% perps, Tencent 19s and Venke 18s. For banks, we still like LT2 papers from Singapore. In HY, we like Agile 17s, Kaisa 17s, Shanshui Cement 17s, Anton 18s in China, and Star Energy 20s, Cikarang 19s, Indika 18s and Gajah Tunggal 18s in Indonesia.
Credit cycle has turned south as we have seen more downgrades than upgrades
Source: Moody's, S&P, Fitch and J.P. Morgan
Asia HY default rate remains muted as refinancing risk remains manageable
Source: J.P. Morgan estimates.
JACI valuation has improved after the recent selloff
Source: J.P. Morgan
76
Asia rates outlook: Curves rising and steepening, much like in 2013
Bert Gochet
AC
supply (+17%), which might make it difficult for the market to digest duration.
10Y IGB yields are at 10-year highs
(852) 2800 8325, bert.j.gochet@jpmorgan.com JPMorgan Chase Bank, N.A., Hong Kong
Jason Mortimer AC
(65) 6882-1638, jason.j.mortimer@jpmorgan.com JPMorgan Chase Bank, N.A., Singapore Branch
We believe rates in EM Asia will move higher across the board in 2014, at a similar magnitude to the rise in yields seen in 2013. Higher US rates and a slowdown in foreign investment flows to EM bonds will continue to push Asian yields 50-100bp higher next year, in our view. In addition, we believe EM Asian inflation has bottomed and will resume a rising trend in early 2014, thus precluding the risk of any more policy easing. But growth and inflation will not be high enough for central banks to justify a region-wide round of rate hikes (exceptions are: India, Indonesia in 1Q14, and Korea in 4Q14). Bond issuance will be the same as this year, in our view, or even rise in several key markets, exacerbating the slowdown in foreign demand. We believe domestic investors will to some extent support government bond sells in a foreign outflow-driven sell off, but they will likely demand further price concessions before they do so. In Korea, we expect rates to continue rising at a modest pace in 2014 and mainly via yield curve steepening. Export-led growth is re-accelerating into the start of 2014, KTB issuance in gross terms is increasing next year (net supply is flat YoY), and we expect Korean bond yields will continue to trade with a beta of 0.50.75% to US treasuries. Still, we expect the short end of the Korean yield curve to outperform the region given Koreas high real interest rate (+2.5%) and continued currency outperformance. We are constructive risk-reward in Indian government bonds in 2014, at 10Y yields above 9%. We believe there are three potential upside scenarios next year: a strong government post the national elections that improves the investment climate, improved access for foreigners into government bonds, and a decline in inflation amid slow growth. The hurdle for bonds is that sub-optimal measures used to rein in the fiscal deficit this year will make fiscal management more challenging in 2014. This includes a significantly higher gross IGB
Source: Bloomberg, J.P. Morgan
Foreign buying of MGS has declined sharply
In Indonesia, we recommend a neutral duration stance to start 2014. On paper, the combination of Indonesias current account deficit, high inflation, and reliance on foreign bond buyers make it the most vulnerable in the region. But Indonesias new group of policy makers have already made strides this year towards addressing the underlying problems by raising policy rates (175bp YTD) and cutting fuel subsidies (by 1/3rd) to slow growth and fuel imports. INDOGBs will face further adjustment for next year, but yields have already risen 300bp in 2013 and fuel price hike-driven headline inflation is beginning to roll over. Therefore, the bulk of the move on duration may be behind us, and would focus more on the risk of relatively more FX weakening for adjustment in the balance of payments and greater apparent willingness of the authorities to allow for a liquid and functional currency market.
77
In Malaysia, we once again recommend an underweight in MGS for 2014. The market faces similar headwinds as in 2013, namely Malaysias low level of yields (at 3.73% the lowest in GBI-EM), reliance on inflows (foreign ownership is 42%), and a declining current account surplus (we are also negative on the currency). Added to this, inflation in 2014E has now risen to 2.6% (with further upside risk), on the back of fuel subsidy reductions, thus cutting Malaysian real policy rates to 0.4%. Foreigners have purchased an average MYR30 billion of Malaysian bonds every year for three years from 2010-2012, accounting for roughly 150% of net issuance of MGS, but YTD figures in 2013 show net selling. We expect foreigners will continue to shun MGS next year, putting the onus back on domestic real-money to absorb government issuance. Locals are well capitalized and able to buy, but need price concessions before entering.
EM Asia local bond market vulnerabilities in case UST yields rise 100 bp
78
Asia FX 2014: Pockets of resilience in a tapering world

Daniel Hui AC
(65) 6882-2216, daniel.hui@jpmorgan.com JPMorgan Chase Bank, N.A., Singapore Branch
Equity flows anticipate and (usually) lead overall growth
The beginning of Fed Tapering will be a critical, but not the sole factor driving Asian currency returns in 2014. Next year will likely see pockets of reasonably resilient performance in the Asian FX world. The resumption of Fed tapering should drive an average 5% depreciation where it is the most relevant in IDR, MYR, and THB. Outside of these bond driven currencies, Asian FX look relatively resilient in 2014, with limited bond exposure, current account and FX reserve buffers, and a range-bound DXY view limiting the impact of tapering. In fact, we expect a cyclical lift and a continued return of equity investors to drive modest appreciation averaging 0-2% for CNY, KRW, TWD, SGD, INR, PHP. In other words, the next year should see idiosyncratic and relative value opportunities much as 2013 has. Currencies with the highest dependency on bond inflows for their BoP balance are most vulnerable. IDR and MYR top the list. In both, historical inflows because of reach-for-yield (IDR) and high carry-to-vol (MYR) lead to high foreign ownership of local bonds (33% in Indonesia and 42% in Malaysia), which in turn funded fiscal and BoP balances. Both economies had to make policy shifts in 2013 to adapt to the new post-QE external equilibrium conditions, but we argue that these responses remain insufficient. The current account in IDR will only narrow 0.2% of GDP to -3.4% next year, and MYRs surplus will dwindle further to 0.6% of GDP against continued structural outflows, in our view. Therefore both currencies remain susceptible to taperings impact on investment flows. The outcome in INR is binary for next year, but we are biased for better performance compared to 2013. Central government elections in 2Q14 and the resulting actions from rating agencies will have a large impact on India risk. The bullish case is for a strong government post the election which could improve the investment climate thereby improving BoP funding. India will also have a narrowing current account deficit funding requirement next year (USD55bn FY2014 vs 88bn 2013). The bearish alternative is an adverse political outcome which puts fiscal consolidation in jeopardy, and which would risk a rating downgrade to junk thus renewing stress on INR. Independent of these risks, we expect the RBI under Dr Rajan will continue to create solutions to attract capital flows.
North Asia has greater potential for upside from growth and equity inflows, compared to ASEAN. North Asian currencies are more driven by foreign equity flows than bond flows compared to ASEAN (ex SG) where bond flows dominate by a factor of 4:1 compared to 1:1.5 bond/equity inflow ratio in the North (KR + TW). North Asia has also kept a high beta to final manufactured goods demand compared to ASEAN where domestic policy drives the growth cycle and exports are dominated by global infrastructure commodities demand. The top Asian currency outperformers in 2014 will be KRW and SGD. In 2014, we expect KRW bond flows will remain flat even as the Fed tapers, while equity investors will continue to increase allocations in Korea. Corporate inflows from Koreas large trade surplus will put more downward pressure on USDKRW, and there remains a considerable overhang of earlier corporate dollar hoarding. As in 2013, BOK smoothing will likely determine the pace of KRW performance but ultimately not the direction. For ASEAN, SGD shares the best characteristics with North Asia with a large and resilient current account surplus, high-beta to global growth, and relatively high foreign equity vs bond flow exposure. However, versus the USD, SGD performance is complicated by the fact that other more vulnerable ASEAN currencies (and JPY) together represent 33% of the S$NEER policy basket. CNY is set for another year of stable returns from attractive carry, although ongoing evolution in the FX regime may erode carry-to-vol. Chinese growth will structurally slow in 2014 but exports will remain well supported and the outlook remains dominated by the trend towards exchange rate flexibility and interest rate liberalization. Rising domestic funding costs will encourage Chinese corporates to execute carry trades via borrowing in USD to fund onshore CNY assets. Our Dec14 forecast for CNY is 6.00.
79
Vulnerability of EM Asia FX to tapering
80
Economic Forecasts
GDP and CPI growth forecasts
The Americas United States Canada Latin America Argentina Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela Asia/Pacific Japan Australia New Zealand Asia ex Japan China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Africa/Middle East Israel South Africa Europe Euro area Germany France Italy Spain United Kingdom Emerging Europe Bulgaria Czech Republic Hungary Poland Romania Russia Turkey Global Developed markets Emerging markets Memo: Global PPP weighted Real GDP % over a year ago 2012 2013E 2014E 2.8 1.7 2.6 1.9 0.9 5.6 4.2 5.1 3.8 6.3 3.9 5.6 2.0 3.7 2.7 6.2 7.7 1.5 5.0 6.2 2.0 5.6 6.8 1.3 1.3 6.5 3.3 2.5 -0.6 0.9 0.0 -2.4 -1.6 0.1 2.3 0.8 -1.2 -1.7 1.9 0.7 3.4 2.2 2.5 1.4 4.6 3.1 1.6 1.6 2.7 5.6 2.5 4.1 3.8 3.0 1.4 5.0 3.5 0.0 1.8 2.4 2.6 6.0 7.6 3.1 4.1 5.5 2.8 3.3 7.1 3.4 1.8 2.6 3.6 1.9 -0.4 0.5 0.2 -1.8 -1.3 1.5 1.7 0.6 -0.9 0.6 1.4 2.6 1.5 3.5 2.2 1.0 4.4 2.7 2.4 2.1 2.9 1.5 2.3 4.0 4.5 4.0 3.4 6.0 4.0 3.0 1.5 2.7 2.8 6.1 7.4 3.3 5.0 4.9 3.7 5.7 5.6 3.8 3.1 3.0 3.5 3.1 1.2 2.0 1.0 1.0 0.7 3.0 2.6 1.2 1.8 2.0 2.8 2.3 2.2 3.8 2.9 1.9 4.7 3.4 1Q13 1.1 2.2 2.1 9.1 2.6 3.2 1.2 0.8 0.1 5.5 7.2 -5.1 4.1 2.2 1.6 4.7 6.4 0.8 5.2 5.5 3.4 -13.0 9.6 1.7 -2.5 -6.5 2.6 0.9 -0.9 0.0 -0.6 -2.4 -1.5 1.5 0.5 -5.1 2.3 0.8 1.5 0.9 1.9 1.0 3.4 2.2 Real GDP % over previous period, saar 2Q13 3Q13E 4Q13E 1Q14E 2Q14E 2.5 1.7 4.4 10.8 6.0 1.9 8.9 3.0 -2.9 7.5 9.5 6.4 3.8 2.4 0.7 5.8 6.9 3.2 3.1 5.5 4.5 7.1 5.7 15.5 2.3 -1.4 5.0 3.0 1.1 2.9 2.1 -1.2 -0.4 2.7 1.3 2.5 0.3 1.6 2.2 1.0 3.1 2.2 4.8 3.4 2.8 2.0 0.6 -1.8 -1.0 3.9 2.0 3.5 3.1 3.5 7.0 1.5 1.5 1.9 3.6 6.7 9.1 3.8 3.0 5.0 4.3 5.5 4.9 -0.8 0.4 2.6 3.6 0.8 0.4 1.2 0.0 -0.4 0.4 3.2 2.6 2.6 2.7 3.5 5.3 2.0 2.7 1.8 4.5 3.2 1.5 2.1 2.9 3.0 1.9 2.9 4.5 4.0 4.6 5.0 6.0 2.5 3.8 1.7 3.0 6.3 7.8 4.0 4.5 4.5 3.8 5.5 5.7 4.5 3.5 3.5 3.6 3.9 1.0 2.0 0.5 1.0 0.0 3.5 2.8 2.0 2.5 2.5 2.4 3.0 2.9 1.8 4.9 3.4 2.5 1.9 3.1 1.0 2.4 6.0 4.5 4.0 4.0 7.0 4.0 3.0 4.0 2.7 3.5 6.0 7.0 2.0 5.5 5.0 4.0 5.5 5.7 3.4 3.4 3.8 3.2 3.6 1.5 2.0 1.0 2.0 1.0 3.0 2.0 1.4 2.0 2.5 1.6 2.0 3.2 2.4 4.7 3.6 2.5 2.2 3.2 3.0 2.9 2.7 4.7 4.0 3.2 6.5 3.0 3.0 -4.5 3.4 1.6 5.9 7.0 3.5 4.8 5.0 3.5 6.0 5.7 3.4 3.7 4.0 3.6 3.3 1.5 2.0 1.5 1.5 1.0 2.5 2.0 1.8 2.0 2.5 1.2 2.0 2.4 1.2 4.6 3.0 3Q14E 3.0 2.5 3.0 -2.0 2.9 4.1 5.0 4.5 3.5 6.5 3.0 4.5 1.2 3.6 2.8 6.1 7.2 3.5 5.0 5.0 3.5 6.5 5.7 3.4 4.0 4.2 3.2 3.7 1.5 2.0 1.5 1.0 1.5 3.0 2.4 1.3 1.8 3.0 2.3 2.5 3.1 2.2 4.8 3.5 Consumer Prices % over a year ago 2Q13 4Q13E 2Q14E 4Q14E 1.4 0.8 5.2 10.4 6.6 1.3 2.1 2.9 4.5 2.5 8.1 33.0 -0.3 2.4 0.7 3.6 2.4 4.0 10.7 5.6 1.1 1.8 2.7 1.6 0.8 2.3 1.2 5.7 1.4 1.5 0.9 1.3 1.8 2.7 5.6 1.5 1.8 0.5 5.3 7.2 7.0 2.3 1.2 4.2 2.8 1.3 1.6 4.7 11.0 6.0 2.2 2.5 2.1 3.4 3.0 8.7 48.9 1.0 2.3 1.7 4.0 3.1 4.4 9.5 7.9 0.8 2.7 3.2 2.1 1.3 1.9 2.2 5.7 0.8 1.7 0.8 1.2 0.4 2.5 5.0 1.3 1.1 1.1 2.5 6.0 7.8 2.3 1.2 4.3 2.8 1.6 1.8 4.7 11.0 5.9 3.0 3.0 2.0 3.1 3.0 8.1 45.6 3.2 2.5 2.3 4.3 3.8 3.9 8.5 6.2 2.1 2.3 3.7 3.4 2.2 2.2 1.9 6.2 1.0 1.8 1.2 1.2 0.5 2.4 4.5 0.9 1.8 1.9 1.9 5.1 7.0 2.7 1.7 4.4 3.1 1.6 2.0 4.9 13.0 6.0 3.3 2.9 3.2 3.7 2.5 7.8 31.3 2.9 2.0 2.2 3.9 3.2 3.2 8.5 4.6 2.9 1.5 3.2 2.6 2.2 2.8 2.2 5.9 1.1 1.6 1.1 1.0 0.2 2.1 4.2 2.1 2.7 2.0 3.7 4.4 6.2 2.6 1.7 4.2 2.9
Source: J.P. Morgan economics, 12 November 2013. Note: For some emerging economies, 2013-2014 quarterly forecasts are not available and/or seasonally adjusted GDP data are estimated by J.P. Morgan. On July 6 we shifted to using concurrent nominal GDP weights in computing our global and regional aggregates from a static 5-year average GDP weight. We maintain the use of current FX rates but still report PPP-based aggregates. For details, see research note "Global economic aggregates get new weights in July 6, 2012 GDW.
81
Sources of GDP Growth

Country USA Real GDP Consumption Fixed investment Net external demand UK Real GDP Consumption Fixed investment Net external demand Euro Real GDP Consumption Fixed investment Net external demand Japan Real GDP Consumption Fixed investment Net external demand Australia Real GDP Consumption Fixed investment Net external demand Brazil Real GDP Consumption Fixed investment Net external demand China Real GDP Consumption Fixed investment Net external demand Czech Republic Real GDP Consumption Fixed investment Net external demand Hong Kong Real GDP Consumption Fixed investment Net external demand Hungary Real GDP Consumption Fixed investment Net external demand India Real GDP Consumption Fixed Investment Net external demand Indonesia Real GDP Consumption Fixed investment Net external demand Korea Real GDP Consumption Fixed investment Net external demand Malaysia Real GDP Consumption Fixed investment Net external demand Mexico Real GDP Consumption Fixed investment Net external demand 2011 88.2 14.7 -3.0 85.9 14.9 -0.9 77.9 19.4 2.7 78.6 18.9 2.5 71.6 27.8 0.6 81.2 21.6 -2.8 48.0 47.4 4.6 67.2 24.6 8.2 72.8 24.1 3.1 72.3 17.8 9.9 75.7 33.8 -9.5 63.8 24.9 11.3 65.7 25.9 8.5 62.9 24.1 13.0 77.7 22.6 -0.2 Share of Real GDP 2012 2013E 87.1 15.7 -2.8 87.0 14.7 -1.7 77.5 18.2 4.3 78.9 19.3 1.7 71.3 29.2 -0.5 83.0 19.8 -2.8 48.4 47.5 4.1 66.5 23.5 10.0 74.0 25.0 1.0 72.4 15.6 12.1 74.9 35.7 -10.6 62.9 27.9 9.2 65.7 24.9 9.4 63.8 27.5 8.7 78.0 22.7 -0.8 86.6 16.1 -2.6 86.9 14.6 -1.5 77.5 17.6 4.9 78.9 19.5 1.6 70.9 27.4 1.8 83.0 20.1 -3.0 48.4 47.9 3.7 66.6 23.1 10.3 74.8 25.4 -0.2 71.3 15.8 12.9 74.7 36.2 -10.9 62.4 26.0 11.6 65.2 24.5 10.2 65.5 29.8 4.8 78.8 22.4 -1.2 2014E 85.8 16.6 -2.4 85.5 15.5 -1.0 77.2 17.7 5.1 78.6 19.9 1.5 70.5 26.1 3.4 82.8 20.0 -2.8 48.6 48.1 3.3 65.7 23.0 11.4 75.3 25.5 -0.9 70.2 16.0 13.9 74.0 37.5 -11.5 62.0 25.0 13.0 64.5 24.3 11.2 65.0 32.0 3.0 78.4 23.0 -1.4 Contribution to Real GDP growth 2011 2012 2013E 2014E 1.8 2.8 1.6 2.4 1.2 1.3 0.9 1.3 0.7 1.2 0.7 1.1 0.0 0.3 0.1 0.0 1.1 0.1 1.5 3.0 -0.4 1.1 1.2 1.2 0.1 0.1 -0.3 0.8 1.4 -1.1 0.6 1.0 1.6 -0.6 -0.4 1.2 0.1 -0.9 -0.3 0.6 0.4 -0.7 -0.7 0.2 1.1 1.0 0.5 0.4 -0.6 2.0 1.8 1.5 0.4 1.9 1.4 0.8 -0.1 0.8 0.7 0.8 -0.9 -0.7 -0.3 -0.1 2.4 3.7 2.4 2.7 2.2 2.3 1.3 1.5 2.3 2.4 -0.4 -0.1 -2.1 -1.1 1.4 1.3 2.7 0.9 2.5 2.3 2.9 2.5 2.1 1.7 0.7 -1.7 0.8 0.3 -0.8 0.0 -0.4 0.2 9.3 7.7 7.6 7.4 5.0 4.1 3.7 3.8 4.7 3.8 4.0 3.8 -0.4 -0.2 -0.1 -0.2 1.8 -1.2 -0.9 1.8 -0.3 -1.5 -0.5 0.3 -0.3 -1.3 -0.7 0.3 2.4 1.6 0.3 1.2 4.9 1.5 3.1 3.3 5.8 2.4 3.1 3.0 0.8 1.2 1.2 1.0 -1.7 -2.1 -1.2 -0.7 1.6 -1.7 0.6 2.0 0.2 -1.2 -0.7 0.3 -0.3 -2.5 0.3 0.5 1.8 2.0 0.9 1.2 6.2 5.0 4.1 5.0 6.0 3.0 2.8 3.0 3.2 3.6 2.0 3.3 -3.0 -1.6 -0.7 -1.2 6.5 6.2 5.5 4.9 2.9 3.0 2.8 2.6 2.0 4.7 -0.4 0.2 1.5 -1.5 3.0 2.1 3.7 2.0 2.8 3.7 1.5 1.4 1.3 1.7 0.2 -0.5 0.3 0.6 1.9 1.1 1.1 1.4 5.1 5.6 3.3 5.7 5.4 4.5 3.8 3.3 0.9 5.0 3.2 4.1 -1.1 -3.8 -3.8 -1.6 4.0 3.8 1.4 3.4 3.4 3.3 2.0 2.2 0.5 1.0 0.0 1.5 0.0 -0.6 -0.5 -0.2 2011 1.4 GDP Deflator Y/Y 2012 2013E 1.8 1.3 2014E 1.4
2.3
1.7
2.0
2.0
1.2
1.3
1.6
1.3
-1.9
-0.9
-0.5
1.3
4.0
-0.6
1.6
1.6
7.0
5.3
6.0
5.7
8.2
4.0
3.5
3.8
17.8
9.7
11.4
11.5
3.9
3.9
3.5
3.5
3.1
3.1
3.5
3.5
8.4
6.3
6.7
6.7
8.3
4.5
6.5
6.0
1.7
2.0
1.0
1.9
5.5
0.7
1.0
2.0
4.9
3.6
3.4
3.5
82
Sources of GDP Growth (contd)

Country Philippine Real GDP Consumption Fixed investment Net external demand Poland Real GDP Consumption Fixed investment Net external demand Russia Real GDP Consumption Fixed investment Net external demand Singapore Real GDP Consumption Fixed investment Net external demand South Africa Real GDP Consumption Fixed investment Net external demand Taiwan Real GDP Consumption Fixed Investment Net external demand Thailand Real GDP Consumption Fixed investment Net external demand Turkey Real GDP Consumption Fixed investment Net external demand
Source: J.P. Morgan economics.
2011 80.4 20.4 -0.8 76.9 25.1 -2.0 69.3 21.9 8.7 45.0 20.9 34.1 86.5 19.9 -6.4 64.5 17.1 18.4 62.1 22.2 15.7 78.7 25.9 -4.6
Share of Real GDP 2012 2013E 80.7 18.5 0.8 75.9 24.1 0.0 70.2 23.0 6.7 44.8 27.1 28.2 87.5 20.6 -8.0 64.4 16.1 19.4 62.2 24.3 13.5 77.3 23.3 -0.5 80.7 21.1 -1.8 75.8 23.2 1.0 71.0 22.9 6.1 44.7 26.2 29.1 88.0 20.5 -8.6 64.1 16.3 19.7 61.5 24.9 13.5 77.3 24.2 -1.5
2014E 81.9 22.0 -3.9 75.2 23.0 1.8 71.1 23.4 5.5 44.4 26.7 28.9 88.0 20.8 -8.8 63.4 16.5 20.1 60.8 25.1 14.2 77.0 25.2 -2.2
Contribution to Real GDP growth 2011 2012 2013E 2014E 3.6 6.8 7.1 5.6 4.1 5.8 5.7 5.8 0.4 -0.6 4.1 2.1 -0.9 1.6 -2.7 -2.3 4.5 1.9 1.4 2.8 1.3 0.5 1.0 1.5 2.5 -0.5 -0.6 0.4 0.7 2.0 1.0 0.9 4.3 3.4 1.5 2.2 3.4 3.3 1.8 1.7 4.9 1.9 0.2 1.1 -4.0 -1.8 -0.5 -0.5 5.2 1.3 3.4 3.8 1.7 0.4 1.4 1.4 2.5 6.5 0.0 1.5 1.0 -5.6 1.9 0.9 3.5 2.5 1.9 3.1 4.1 3.2 2.3 2.7 0.8 1.2 0.4 1.0 -1.4 -1.8 -0.7 -0.6 4.1 1.3 1.8 3.1 1.9 0.8 0.8 1.3 -1.5 -0.8 0.4 0.7 3.6 1.3 0.6 1.1 0.1 6.5 2.6 3.0 0.8 4.2 0.9 1.0 -0.1 3.7 1.3 0.9 -0.7 -1.4 0.4 1.0 8.8 2.2 3.5 3.8 5.8 0.3 2.7 2.6 4.1 -2.2 1.8 2.0 -1.1 4.1 -1.0 -0.8
2011 4.0
GDP Deflator Y/Y 2012 2013E 1.9 4.0
2014E 3.0
3.2
2.4
2.0
1.5
15.5
8.5
5.0
5.5
0.2
3.0
3.0
3.0
6.0
5.5
7.0
6.0
-3.0
1.3
1.5
1.5
3.0
2.2
2.5
3.0
8.6
6.8
8.0
6.7
83
Interest Rate Forecasts

Global excluding US Developed Emerging Latin America EMEA EM EM Asia The Americas United States Canada Brazil Mexico Chile Colombia Peru Europe/Africa Euro area United Kingdom Czech Republic Hungary Israel Poland Romania Russia South Africa Turkey Asia/Pacific Australia New Zealand Japan Hong Kong China Korea Indonesia India Malaysia Philippines Thailand Taiwan Official interest rate Current Change since (bp) Jul 11 -62 -75 -50 -87 -205 -88 -46 -41 0 0 -300 -100 -50 -125 -25 -97 -125 0 -70 -260 -225 -200 -225 N/A -50 -1 -45 -225 0 0 0 -56 -75 50 -25 0 -100 -75 0 Last change Next meeting Forecast next change Dec13E 2.24 2.93 0.39 5.71 7.13 4.70 5.56 Mar14E 2.24 2.93 0.39 5.71 7.12 4.56 5.61 Jun14E 2.23 2.92 0.39 5.68 7.10 4.40 5.63 Sep14E 2.23 2.92 0.39 5.69 7.16 4.35 5.63 (%pa) 05-07 avg Trough* 2.09 -225 27 2.73 -155 29 0.32 -316 0 5.40 -163 52 6.98 -379 103 3.46 -300 0 5.51 -28 103 1.63 0.125 1.00 9.50 3.50 4.75 3.25 4.00 0.98 0.25 0.50 0.05 3.40 1.00 2.50 4.00 5.50 5.00 6.24 3.67 2.50 2.50 0.05 0.50 6.00 2.50 7.25 7.75 3.00 3.50 2.50 1.875 -347 -438 -273 -575 -437 6 -406 -6 -283 -273 -444 -235 -373 -325 -202 -419 N/A -329 -969 0 -344 -488 -17 -548 -14 -165 -262 88 -24 -356 -133 -71 51 0 75 225 0 425 25 275 0 0 0 0 0 50 0 0 N/A 0 101 77 0 0 0 0 69 50 150 300 100 0 125 62.5
Fed funds O/N rate SELIC O/N Repo rate Disc rate Repo rate Reference Refi rate Bank rate 2-wk repo 2-wk dep Base rate 7-day interv Base rate Repo rate Repo rate Effective rate Cash rate Cash rate O/N call rate Disc. wndw 1-yr working Base rate BI rate Repo rate O/N rate Rev repo 1-day repo Official disc.
16 Dec 08 (-87.5bp) 8 Sep 10 (+25bp) 10 Oct 13 (+50bp) 25 Oct 13 (-25bp) 17 Oct 13 (-25bp) 22 Mar 13 (-50bp) 7 Nov 13 (-25bp) 7 Nov 13 (-25bp) 5 Mar 09 (-50bp) 1 Nov 12 (-20bp) 29 Oct 13 (-20bp) 23 Sep 13 (-25bp) 3 Jul 13 (-25bp) 5 Nov 13 (-25bp) 13 Sep 12 (+25bp) 19 Jul 12 (-50bp) N/A 6 Aug 13 (-25bp) 10 Mar 11 (-50bp) 5 Oct 10 (-5bp) 17 Dec 08 (-100bp) 7 Jul 12 (-31bp) 9 May 13 (-25bp) 12 Sep 13 (+25bp) 29 Oct 13 (+25bp) 5 May 11 (+25bp) 25 Oct 12 (-25bp) 29 May 13 (-25bp) 30 Jun 11 (+12.5bp)
18-Dec-13 04-Dec-13 27-Nov-13 06-Dec-13 19-Nov-13 29-Nov-13 12-Dec-13 5-Dec-13 5-Dec-13 17-Dec-13 26-Nov-13 25-Nov-13 4-Dec-13 8-Jan-14 13-Dec-13 21-Nov-13 19-Nov-13 3-Dec-13 12-Dec-13 20-Nov-13 19-Dec-13 14-Nov-13 12-Nov-13 18-Dec-13 29-Jan-14 12-Dec-13 27-Nov-13 4Q 13
On hold On hold 27 Nov 13 (+50bp) On hold Dec 14 (-25bp) Jul 14 (+25bp) On hold On hold On hold On hold 26 Nov 13 (-20bp) On hold 4Q 14 (+25bp) 8 Jan 14 (-25bp) 1Q 14 (-25bp) Sep 14 (+50bp) N/A Mar 14 (-25bp) 2Q 14 (+25bp) On hold On hold On hold 4Q 14 (+25bp) 12 Nov 13 (+25bp) 1Q 14 (+25bp) On hold On hold On hold 4Q 14 (+12.5bp)
1.66 1.65 1.65 1.66 0.125 0.125 0.125 0.125 1.00 1.00 1.00 1.00 10.00 10.50 10.50 10.50 3.50 3.50 3.50 3.50 4.50 4.25 4.25 4.25 3.25 3.25 3.25 4.00 4.00 4.00 4.00 4.00 1.25 0.25 0.50 0.05 3.20 1.00 2.50 4.00 5.50 5.00 7.00 1.22 0.25 0.50 0.05 3.00 1.00 2.50 3.50 5.25 5.00 7.00 1.18 0.25 0.50 0.05 3.00 1.00 2.50 3.50 4.75 5.00 7.00 1.17 0.25 0.50 0.05 3.00 1.00 2.50 3.50 4.75 5.50 6.50
3.69 3.71 3.72 3.72 2.50 2.25 2.25 2.25 2.50 2.50 2.75 3.00 0.05 0.05 0.05 0.05 0.50 0.50 0.50 0.50 6.00 6.00 6.00 6.00 2.50 2.50 2.50 2.50 7.50 7.75 8.00 8.00 7.75 8.00 8.00 8.00 3.00 3.00 3.00 3.00 3.50 3.50 3.50 3.50 2.50 2.50 2.50 2.50 1.875 1.875 1.875 1.875
Source: J.P. Morgan economics, 12 November 2013. Note: *Refers to trough end-quarter rate from 2009-present Effective rate adjusted on daily basis. Aggregates are GDP-weighted averages
84
Exchange Rate Forecasts

Country Euro Sterling Yen Australia China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Argentina Brazil Chile Colombia Mexico Peru Venezuela South Africa Czech Republic Hungary Poland Russia Turkey 2009 1.40 1.57 94 0.81 6.83 7.75 48.1 10207 1248 3.51 47.63 1.45 32.69 34.07 3.79 1.95 544 2168 13.48 2.99 2.147 8.05 18.72 200 3.10 31.36 1.55 FX rate vs US dollar annual average 2010 2011 2012 2013E 1.32 1.37 1.30 1.09 1.54 1.58 1.60 1.12 87 79 82 98 0.93 6.72 7.77 45.1 9021 1154 3.17 44.77 1.35 31.11 31.31 3.93 1.73 506 1889 12.57 2.81 4.295 7.14 19.15 210 3.03 30.46 1.52 1.02 6.42 7.78 47.8 8785 1126 3.10 43.59 1.27 29.72 30.90 4.17 1.73 496 1877 12.87 2.76 4.295 7.43 18.08 208 3.08 30.19 1.73 1.03 6.29 7.76 53.6 9436 1113 3.09 41.90 1.24 29.42 31.00 4.63 1.98 486 1784 12.97 2.62 4.295 8.15 19.32 222 3.19 30.86 1.79 0.98 6.14 7.77 59.4 10606 1097 3.17 42.5 1.25 29.71 30.60 5.66 2.18 499 1896 12.74 2.73 6.294 9.69 19.50 226 3.20 32.06 1.94 2014E 1.32 1.62 102 0.92 6.05 7.80 61.0 11800 1052 3.30 42.08 1.24 29.40 32.33 7.87 2.37 515 1950 12.28 2.82 9.500 9.97 19.50 219 3.14 32.96 2.10 1Q13 1.28 1.52 94 1.04 6.21 7.76 54.3 9718 1111 3.09 40.85 1.24 29.83 29.29 5.12 2.02 472 1825 12.32 2.59 6.292 9.24 20.08 237 3.26 31.08 1.81 FX rate vs US dollar*** Quarter end forecasts 2Q13 3Q13 Current 1Q14E 2Q14E 1.30 1.35 1.34 1.33 1.32 1.52 1.62 1.59 1.63 1.61 99 98 100 102 102 0.91 6.14 7.76 59.5 9925 1142 3.16 43.10 1.27 29.96 31.02 5.39 2.23 508 1922 12.95 2.78 6.292 9.88 19.98 227 3.32 32.84 1.93 0.93 6.12 7.76 62.6 11580 1075 3.26 43.48 1.26 29.56 31.28 5.79 2.22 505 1912 13.09 2.79 6.292 10.03 18.98 220 3.12 32.39 2.02 0.93 6.09 7.75 63.7 11593 1073 3.21 43.78 1.25 29.58 31.63 5.97 2.33 522 1935 13.18 2.80 6.292 10.37 20.11 223 3.13 32.87 2.05 0.93 6.08 7.80 62.0 11800 1055 3.25 42.25 1.24 29.40 32.00 7.30 2.35 510 1950 12.50 2.80 9.500 9.90 19.47 222 3.16 32.22 2.05 0.92 6.05 7.80 60.5 11800 1050 3.30 42.00 1.24 29.40 32.50 7.80 2.37 515 1950 12.25 2.82 9.500 10.00 19.55 220 3.14 33.22 2.10 3Q14E 1.32 1.61 103 0.91 6.03 7.80 60.5 11800 1050 3.35 42.00 1.24 29.40 32.50 8.50 2.40 520 1950 12.10 2.83 9.500 10.00 19.47 216 3.11 33.44 2.15
Source: J.P. Morgan FX team, 8 November 2013. Current as of 12 November 2013.
Commodity Forecasts
Energy WTI crude (US$/bbl) Brent Crude (US$/bbl) Natural gas (US$/mmbtu) Precious Metals Gold (US$/oz) Silver (US$/oz) Base Metals Aluminum (US$/metric ton) Copper (US$/metric ton) Nickel (US$/metric ton) Zinc (US$/metric ton) Lead (US$/metric ton) Tin (US$/metric ton) Agriculture Corn (US$/bushel) Wheat (US$/bushel) Soybeans (US$/bushel) Soybean Oil (US cents/lb) Soybean Meal (US$/short ton) Sugar (US cents/lb) Current 93.0 105.8 3.62 1268 20.7 1800 7120 13630 1885 2107 22700 4.3 6.5 13.1 40.8 427.7 17.9 4Q13E 109.0 113.0 4.10 1325 20.5 1825 7300 13900 1950 2125 23050 4.6 6.4 12.5 41.2 390.0 17.5 1Q14E 106.0 113.0 4.25 1375 21.0 1950 7050 14650 2150 2275 23200 4.3 6.5 11.5 38.5 360.0 17.2 2Q14E 98.0 105.0 4.00 1400 21.3 1925 7325 13000 2100 2150 23100 4.4 6.3 11.0 35.5 350.0 17.1 3Q14E 106.0 113.0 4.25 1430 21.5 1950 7150 13150 2150 2275 23050 4Q14E 106.0 117.0 4.50 1400 21.8 2000 7550 14000 2200 2350 23100 2012 94.2 111.7 2.82 1669 31.2 2021 7957 17524 1948 2061 21079 6.9 7.5 14.6 52.3 430.0 21.6 2013E 100.8 109.6 3.79 1425 23.8 1861 7366 15030 1920 2142 22313 6.0 6.8 13.9 45.8 425.7 17.5 2014E 104.0 112.0 4.25 1401 21.4 1956 7269 13700 2150 2263 23113 4.4 6.4 11.3 37.0 355.0 17.1
Source: Bloomberg, Exchanges, J.P. Morgan Commodities Research. Note: Forward prices are the average of the contracts in the quarter. Current as of 12 November 2013, 2014E for agricultural commodities is up to 1H14
85
This page has been left blank intentionally
86
Table of Contents
Australia ...................................................................88 China ........................................................................90 Hong Kong ...............................................................92 India .........................................................................94 Indonesia ..................................................................96 Malaysia ...................................................................98 Philippines .............................................................100 Singapore ...............................................................102 South Korea ...........................................................104 Taiwan ...................................................................106 Thailand .................................................................108
Asian Market Overviews

87
Australia
Micro-level investment case Australia appears to be in the sweet spot of a liquiditydriven rally given its high-yield status, but has recovered only a fraction of its sharp underperformance in the midyear tapering correction. We think that the absence of a credible earnings growth story for the big cap sectors is weighing on the index as low rates push multiples into uncomfortable territory. The bull case has this P/E expansion being a down payment on an earnings upgrade cycle, but we cant see the macro or micro support for this. Earnings for most sectors are not at cyclically low levels and industry structure support for margins cant get much better in most cases, in our view. Resilience of the growth outlook Consensus forecasts imply around 12% EPS growth for Aussie stocks in FY14 on a cap-weighted basis (median stock 9%). We think this is optimistic, but to no greater an extent than earnings forecasts usually are. We would be more concerned if a few green shoots in macro data led to forecasts being upgraded, but we expect a weak job market to have the final say and expect no better than sluggish growth from the local economy. Drivers, trends, and datapoints we are tracking The macro outlook is a tussle between localized hotspots of activity, notably housing turnover and starts, and a broader picture of hiring conservatism and tepid credit growth. If jobs and lending figures continue to struggle we will be more confident in our skepticism on the recovery story; if they turn better we will likely rethink. Micro data from companies has been mostly supportive to our view, with a number saying recently that they see no signs of improved activity. Key stock picks Our view also calls for AUD weakness to resume as optimism on local growth ebbs. This tilt is reflected in three of our top picks Resmed, Brambles and Sims. The latter two also offer exposure to any improvement in developed world growth. CCL is a contrarian investment case arguing that concerns on structural market change are overdone. Crown has an EM growth angle via Macau and the secular rise in Asian consumer spending power. The avoid list includes Fletcher Building, which is a case of valuation getting ahead of recovery prospects, ALS which is vulnerable to a still-weakening commodity capex cycle; and Cochlear, a story of pressure on growth expectations combined with a high rating.
Paul BrunkerAC
(61 2) 9003 8641, paul.brunker@jpmorgan.com Bloomberg JPMA Brunker <GO> J.P. Morgan Securities Australia Limited
MSCI Australia versus MSCI World (AUD terms)
Source: Bloomberg.
P/E of ASX200 relative to P/E of MSCI World (one-year forward)
Source: IBES
ASX200 one-year forward divi yield minus Aus 10-year bond yield
Source: Bloomberg, RBA
ASX200 stocks: median EPS growth forecast FY13 and FY14
Source: Bloomberg
88
Top picks and stocks to avoid

Price (LC) 16.7 12.3 10.1 5.3 9.2 56.5 8.4 9.7 Code CWN.AX CCL.AX SGM.AX RMD.AX BXB.AX COH.AX FBU.AX ALQ.AX Rating OW OW OW OW OW UW UW UW Mkt cap (US$MM) 12,164.2 9,354.0 2,065.9 7,501.9 14,372.2 3,221.2 5,791.7 3,729.1 14E 18.8 16.6 15.6 20.3 19.5 24.2 15.9 17.6 P/E (x) 15E 17.0 15.5 10.8 18.2 17.4 20.3 12.2 17.0 EPS (LC) 14E 15E 0.9 0.7 0.7 0.3 0.5 2.3 0.5 0.6 1.0 0.8 0.9 0.3 0.5 2.8 0.7 0.6 Div. yield 14E (%) 2.2% 5.1% 3.3% 2.0% 3.0% 4.5% 4.2% 4.1% ROE 14E (%) 17.8% 27.2% 6.9% 23.0% 23.2% 37.2% 10.2% 19.2%
Top picks Crown Resorts Ltd Coca-Cola Amatil Ltd Sims Metal Management Ltd Resmed Inc (CDI) Brambles Ltd Stocks to avoid Cochlear Ltd Fletcher Building Ltd ALS Ltd
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov 6th 2013.
Best Idea - Overweight Sims Metal Jason Steed AC

Ticker: SGM, Price: $10.11, PT: $11.30 (Jun-14) Investment thesis: Exposure to later-cycle US growth and to European recovery; new management should make headway on costs; well below mid-cycle profitability; foreign currency exposure is helpful if AUD weakness resumes as we expect. Drivers/catalysts: Announcements from new CEO, particularly on costs; improvement in arisings in the US market (auto scrapping, demolition). Valuation and risks: Significant upside to June-14 PT of $11.30; risks are weakening DM growth, especially the US, and intensity of competition for scrap inputs.
ASX View + MXAU Rel. View
Source: Bloomberg.
Best Idea - Underweight ALS Limited Anthony Passe-de Silva AC

Ticker: ALQ, Price: $9.69, PT: $8.07 (Jun-14) Investment thesis: Minerals business remains under pressure as commodity capex slows and competitors are stepping up pressure in ALQs core Asia-Pacific markets. Drivers/catalysts: weakness in capex on the part of commodity sector customers, potential margin pressure from competition. Valuation and risks: A high-teen FY14E P/E looks at odds with the cyclical weakness of the Minerals business and the potential for margin decline. Upside risks include stronger than expected conditions in minerals exploration activity and better than-expected pricing. ASX Absolute View ASX is technically weak, with the recent high accompanied by fading momentum and bearish RSI divergence. While a clear sell signal is yet to be generated we see merit in reducing long positions short signals are likely, but as yet not confirmed. Relative View (MSCI Australia vs. MXAPJ) MSCI Australias relative performance is largely a hostage to currency moves for now, we see an up-channel (in place since mid-2013) supporting outperformance. A$ will remain an important determinant of absolute and relative positions in Australia. We see emerging absolute downside although would await specific sell signals. On a relative basis, we expect outperformance, but recommend hedging the currency for now.
89
China
Micro-level investment case Our base case for 2014 is no major structural reforms and thus no market rerating. Hopefully the return will be better than this years unchanged index. In 2013 sector dispersion was high; IT (internet) outperformed materials by 70%. We believe this alpha, not beta environment will continue. Stay OW internet, select consumer staples and policy beneficiaries. The sectors with policy support are healthcare, insurance (medical), railway/construction and utilities due pollution control (clean(er) energy gas utilities and waste water treatment). Risks include tighter regulations on banks and higher inflation. These risks are why we are underweight on banks, materials, coal and telecoms. We are neutral on consumer discretionary and real estate. Resilience of the growth outlook MSCI Chinas 2014 EPS growth forecast is 9%. Our 7.4% 2014 GDP growth forecast assumes supportive policies. Policy priorities include information consumption (State Council target of US$0.5trillion by 2015). E-commerce grew +45%oya in 1H13. Social welfare policies include shanty town redevelopment. It is policy support that makes us confidence in earnings for healthcare, insurance, mid-to-low-end consumption (but there is a risk from slower wage growth and higher CPI), environmental protection and clean energy. Confidence in bank earnings forecasts is low due to asset quality concerns, NIM/ROE compression and regulatory risk on WMP and interbank business. Drivers, trends, and datapoints we are tracking Despite talk of reform, debt to GDP (>200%) and investment to GDP (56%) increased in 2013. The PBoC is hinting at a decline in leverage, this would be a significant change. We are into month 19 of PPI deflation. Capacity rationalization is necessary to address pricing power. Deleveraging and capacity rationalization are potential threats to growth. J.P. Morgan forecasts CPI to increase to 3.5%oya in 2014. This plus housing inflation will constrain monetary policy. Pollution is a serious public health problem. Significant steps to control pollution would impact energy and car use. Key stock picks Our top picks are Fosun Pharm (leading co with mixed business operations), Ping An Insurance (best agent channel and strong growth prospects from healthcare insurance), Tencent (mobile social platform monetization), Xinyi Glass (a diversified low-cost glass producer) and Brilliance China (strong SUV sale and premium story).
Michael YuAC
(852) 2800-8511, michael.yu@jpmorgan.com Bloomberg JPMA YU<GO> J.P. Morgan Securities (Asia Pacific) Limited
Potential GDP growth breakdown

12 10 8 6 4 2 0 -2
9.9%
9.6% 8.4% 7.0%
Potential GDP growth %
1978-1994 Employment growth
1995-2009 TFP growth
2010-2015 Human capital/labor
2016-2020 Capital/labor
Source: NBS, Worldbank.
MSCI China Trailing P/E vs forward earnings growth
Source: MSCI, Datastream, IBES.
Chinese companies leverage ratios

150% 100% 50% 0% -50% -100%
Utilities
295% 111% 85% 75% 50%
2008-2012 Change (%, LHS) 37% 35% 13% 49% 1% -21% 51%
-39%
Food Beverage
Transportation
Environmental
Source: Bloomberg, J.P. Morgan.
90
Consumer Durables
Health Care Equip.
Capital Goods
Real Estate
Hardware
Energy
Auto
Materials
Pharms

Price (LC) 17.2 62.5 411.2 7.8 13.7 11.4 1.6 31.5 Code 2196 HK 2318 HK 700 HK 868 HK 1114 HK 489 HK 3339 HK 2018 HK Rating OW OW OW OW OW UW UW UW Mkt cap (US$MM) 6,040 53,694 98,630 3,944 8,855 12,669 878 4,989 13E 17.3 13.5 37.6 13.2 14.9 7.6 13.9 11.8 P/E (x) 15.5 10.6 26.5 9.9 11.4 7.9 11.3 11.6 14E 13E 0.8 3.6 8.6 0.6 0.7 1.2 0.1 2.1 EPS (LC) 14E Div. yield 14E (%) 1.7 1.1 0.3 4.5 0.9 1.9 1.5 3.4 ROE 14E (%) 12.6 17.3 36.6 24.1 29.7 15.5 8.1 31.6
Top picks Fosun Pharm -H Ping An Insurance - H Tencent Xinyi Glass Brilliance China Stocks to avoid DongFeng Motor Lonking Holdings Ltd AAC Technologies Hld
0.9 4.6 12.2 0.8 0.9 1.1 0.1 2.1
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of November 11, 2013.
Best Idea Overweight Ping An Insurance Group MW Kim AC

Ticker: 2318 HK, Price: HK$62.5, PT: HK$84.0 Investment thesis: With an NBV margin already at AIA Group's FY09 level, the private health insurance market expansion should see its market dominant agency operation drive further value increase. Drivers/catalysts: (1) strong NBV growth potential backed by best agency operation. (2): ~5% non-life underwriting margin outlook with >20% top-line growth; (3) better synergy evidence between banking and insurance Valuation and risks: Dec-14 PT of HK$84 is based on 8.7x NBM for life, 1.9x P/BV for non-life, 0.7x P/BV for bank. Key downside risk is asset quality concerns at its banking and trust operations, weaker than expected household demand for protection-type products.
SHCOMP View + MXCN Rel. View
Source: Bloomberg.
Best Idea Underweight AAC Technologies Holdings Qin Zhang AC

Ticker: 2018 HK, Price: HK$31.5, PT: HK$30.00 Investment thesis: We are UW because competitors (GoerTek) have broken into Apples supply chain and won a greater share of acoustic component orders. Drivers/catalysts: Gross profit margin weakness could continue for the next 2-3 quarters as AAC expands into non-acoustic business. We will revisit our thesis when the iPhone 6 comes out in summer 2014. Valuation and risks: Our June-14 PT of HK$30 is based on 12x average 2013E/14E P/E, vs. historical average P/E of 13.5x to account for lower growth. Upside risks: non-acoustics taking off meaningfully, risking market share.
SHCOMP Absolute View SHCOMPs rangebound existence remains firmly in place and the index continues to have a bearish bias. 1950-2000 are absolutely critical levels on the downside. Relative View (MSCI China vs. MXAPJ) MXCN relative index has also been range bound for well over two years and is currently showing a modest rebound. We have had and retain a bearish bias on SHCOMP within its near two-year trading range. A break below 1950-2000 will risk substantially deeper pullbacks. On a relative basis, the trading range existence also continues but we would be hesitant to trade against the broad bearish trend.
91
Hong Kong
Micro-level investment case Challenges ahead.The Hong Kong market is likely to be overshadowed in 2014 by investment issues such as: 1) how fast the US economy is recovering; 2) potential rate rises in the US; 3) further contraction of hot money inflow into Hong Kong; 4) further slowdown in Hong Kong retail sales; 5) negative wealth effect from the potential fall in residential property prices. The macro support from a continuation of the low interest rate environment is something the market will be reluctant to count on. On the other hand, the valuation matrix of the MSCI Hong Kong does not look particularly attractive. Buying "beta" is surely not the way to go. Selective alpha may still offer potential upside for investors but we expect the market upside to be subdued. Resilience of the growth outlook Safest growth from outside Hong Kong.. It is hard to find genuine earnings growth from "domestic" Hong Kong names: we estimate the banks, property and utilities sectors to see 0.5%, 8% and 3.6% earnings growth in 2014 respectively. We believe growth will be more resilient if generated from outside Hong Kong. We see high earnings risk for the property sector in 2014 with correction of property prices expected. There are also clear signs that the momentum of Hong Kong retail sales is slowing despite healthy tourist arrival growth. We believe this is likely to cause a chained slowdown in the Hong Kong economy if trade cannot recover quickly enough to offset this. Drivers, trends, and datapoints we are tracking The pace of the property price correction and the slowdown in local retail sales are the key data to watch in 2014. While US interest rates are expected to rise, we do not think this will present too much of a surprise to the market. Moreover, the gaming revenue growth in Macau is a good proxy for the pace of hot money inflow into Hong Kong. Key stock picks Given our cautious view on the Hong Kong market, of our five top picks, four (HSBC, AIA, Sands China and Techtronics) are driven by their expected resilience in earnings, while Sa Sa is expected to do well even if consumption slows given its quasi-staple nature.
Cusson LeungAC
(852) 2800-8526, cusson.leung@jpmorgan.com Bloomberg JPMA LEUNG <GO> J.P. Morgan Securities (Asia Pacific) Limited
MSCI Hong Kong 12-month forward PER
30x 25 20 15 10 5 +1 std dev
Current=15.3x
long term avg=15.3x
-1 std dev
90 92 94 96 98 00 02 04 06 08 10 12
MSCI Hong Kong trailing dividend yield

7 6 5 4 3 2 1
% Current=2.6%
+1 std dev long term avg=3.3% -1 std dev
90
92
94
96
98
00
02
04
06
08
10
12
MSCI Hong Kong price to book ratio
x 3.5
3 2.5 2 1.5 1 0.5
Current=1.3x
+1 std dev long term avg=1.6x
-1 std dev
90 92 94 96 98 00 02 04 06 08 10 12
92

Price (HK$) 86.35 38.75 54.25 19.16 8.42 62.05 25.8 33.3 Code 5 HK 1299 HK 1928 HK 669 HK 178 HK 2 HK 101 HK 23 HK Rating OW OW OW OW OW N N N Mkt cap (US$MM) 208,079 59,988 56,221 4,507 3,070 20,150 14,853 9,797 P/E (x) 13E 11.7 18.3 25.2 18.0 28.8 16.6 28.5 15.0 14E 11.4 18.4 19.0 13.4 24.3 16.3 23.9 13.6 EPS (HK$) 13E 7.4 2.1 2.2 1.1 0.3 3.7 0.9 2.2 14E 7.6 2.1 2.9 1.4 0.3 3.8 1.1 2.4 Div. yield 14E (%) 5.0 1.2 3.7 1.8 3.0 4.3 2.9 2.9 ROE 14E (%) 10.0 10.7 45.8 18.0 46.2 10.2 4.1 9.1
Top picks HSBC AIA Sands China Techtronics Sa Sa Stocks to avoid CLP Hang Lung Prop Bank of East Asia
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov 5 2013.
Best Idea Overweight Sands China Kenneth Fong AC

Ticker: 1928.HK, Price: HK$54.25, PT: HK$62 Investment thesis: We expect Sands China to have strong earnings growth in 2014, driven by: (1) robust industry mass market performance; (2) yield improvement from existing capacity; (3) margin expansion from operating leverage; and (4) nonorganic growth from its new retail area opening in 2H14 in SCC. Drivers/catalysts: we believe Street earnings upgrades and multiple expansion will be the key drivers. Valuation and risks: Our Dec-14 PT of HK$62.0 is based on our SOTP valuation, applying a 15-19x 2014E EBITDA multiple to its casinos. Downside risks to our PT include: regulatory risks from China; execution risks from Sands Cotai Central; and potential credit risk around its direct VIP business
HSI Absolute View + MXHK Rel. View
Source: Bloomberg.
Best Idea Neutral Hang Lung Properties Amy Luk AC

Ticker: 0101.HK, Price: HK$25.8, PT: HK$25 Investment thesis: We expect upcoming office supply in Shanghai will be a threat to HLP as its office tenants are moving out to newer buildings and decentralized areas. Some existing tenants might be attracted by pricing of the new buildings. Drivers/catalysts: Competitive threat to intensify in 2014 as Kerrys Jing An Kerry Centre officially opens. Valuation and risks: Our Dec-14 price target of HK$25 is based on 22% discount to NAV, which is the long-term average. Upside risk: better-than-expected office and retail outlook in China. Downside risks: potential delay in completion, construction cost rises
HSI Absolute View Similar to many Asian indices, HSI lacks direction and needs a clear breakout of the current congestion zone to establish directional trades. Resistance at 23512; 23945 needs to be cleared for fresh long positions. Relative View (MSCI HK vs. MXAPJ) HK Relative index is supported at the bottom end of two-year-old outperformance up-channel as well as on its 40wma. We expect outperformance to resume protect relative positions with 325 stop (current 330). While HISs absolute positioning is stuck in a range, much like MXAPJ, recent moves have opened up downside risks. We do, however, expect MSCI HK to resume its outperformance after a nearly three-month underperformance.
93
India
Micro-level investment case We expect domestic growth, inflation and fiscal dynamics to remain challenging over 1H 2014. Exports will likely benefit from global revival and consumption could benefit marginally from agri sector growth. But the investment cycle will likely remain constrained. Inflation is expected to remain elevated. There seems to be a notable shift in policy focus from WPI to CPI. Our economics team expects another 25bp hike in the benchmark interest rate over 1Q CY14. The dependence on global liquidity and QE tapering linked volatility will likely continue over 1Q CY14. The result of the national election in May would play an important role in 2H CY growth revival, particularly for the investment cycle and also for the performance of Indian equities. Resilience of the growth outlook After three years of consistent downward trajectory, GDP growth and earnings growth are expected to recover over FY15. The pace of growth recovery will be influenced by the new governments policy priorities, particularly their ability to revive the investment cycle. Our economics team expects GDP growth to accelerate from 4.1% to 5.0% over FY 15. Our analyst team expects earnings growth momentum to accelerate over the coming fiscal year, from 10% to 16% oya for MSCI India companies. Drivers, trends, and datapoints we are tracking We believe the key indicator to focus on would be the revival in private sectors capex cycle. Else, Indias growth could remain range bound and inhibit market valuations. Separately, the governments ability to push important fiscal reforms viz. Goods and Services Tax (GST) and Direct Taxes Code (DTC) would also have an important bearing on investor sentiment. Key stock picks Our top picks have a cyclical bias. ICICI Bank and DLF are domestic cyclical expected to benefit from a revival in growth and modest valuations. We also expect global growth to accelerate into the year ahead. Tata Motors, Tata Steel and HCL Tech should benefit from the acceleration in global growth. Cyclical recovery makes us more cautious on expensive defensives Hindustan Uniliver and Colgate.
Bharat Iyer
AC
(91-22) 6157 3600, bharat.x.iyer@jpmchase.com Bloomberg JPMA IYER<GO> J.P. Morgan India Private Limited
Indian treasury yield curve

10.0 9.0 8.0 7.0 6.0 %
91 Days Current
1 Yr -1 Mth
5Yr -1 Yr
10Yr -3 Yr
Source: Bloomberg
MSCI India forward P/E and growth dependence

28 23 18 13 8 GDP growth average of 5.4% oya ; average 12 M fwd PE of 12X GDP growth average of 8.4% oya ; average 12 M fwd PE of 15X
Source: MSCI, Datastream.
QE announcements and Sensex Performance

21,500 20,500 19,500 18,500 17,500 Tapering deffered 16,500 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-1
QE3 announced - monthly Fed purchase of US$ 85 bn starts
Fed official indicates possibility of QE tapering
94

Price (LC) 1,096 339 395 1,101 161 596 1,244 583 Code ICICIBC IN TATA IN TTMT IN HCLT IN DLFU IN HUVR IN CLGT IN PNB IN Rating OW OW OW OW OW UW UW UW Mkt cap (US$MM) 20,515 5,338 17,541 12,467 4,644 20,897 2,743 3,342 13E 13 11 243 14 50 35 32 5 P/E (x) 14E 11 7 84 13 17 32 28 4 13E 82 30 2 77 3 17 39 129 EPS (LC) 14E 99 52 5 85 10 19 44 162 Div. yield 14E (%) 2.6 3.2 1.0 0.7 0.0 1.8 3.2 6.2 ROE 14E (%) 14 13 10 27 6 89 107 16
Top picks ICICI Bank Tata Steel Tata Motors HCL Technologies DLF Stocks to avoid Hindustan Unilever Colgate-Palmolive India Punjab National Bank
Best Idea Overweight ICICI Bank Seshadri Sen AC

Ticker: ICICIBC IN, Price: Rs1,096, PT: Rs1,200 Investment thesis: Revenue momentum to remain strong driven by improving margins, robust fee income and strong retail loan growth. We believe its the most attractively valued defensive play in a high interest rate environment. Even with increasing credit costs, we see ROEs rising by 300bp over the next two fiscal years. Drivers/catalysts: Key driver would be significant reforms in the infra space thereby resulting in lower than expected restructuring/ losses & hence lower credit costs for the bank. Valuation and risks: Our Sep-14 PT is based on 2stage Gordon growth model (COE 15.4%, Norm ROE ~22%, term. growth 5%). Key risks: large losses from infrastructure exposures, weak demand for retail loans.
NIFTY View + MXIN Rel. View
Source: Bloomberg.
Best Idea Underweight Hindustan Unilever Limited Latika Chopra AC

Ticker: HUVR IN, Price: Rs596, PT: Rs570 Investment thesis: Weak macro to weigh on volume growth especially for discretionary/premium categories. Margin expansion to moderate given uptick in RM inflation, moderating premiumisation, likely media inflation and high competitive activity. Drivers/catalysts: Volume growth trends, level of competitive intensity and cost inflation trends. Valuation and risks: Our Sep-14 PT is based on target P/E of 29x, in line with the stocks 3-year average P/E, and at 10% premium to the 5-year average. Upside risks: a sharp improvement in revenue /margin growth and parent further increasing stake at higher valuations.
NIFTY Absolute View Niftys remarkably strong rally, despite a weak macro backdrop, appears to have come to an end for now and we see the 6357 (Jan 2008) top as a difficult one to break out of. Technicals recommend short positions on the Nifty. Relative View (MSCI India vs. MXAPJ) A post summer outperformance within a broader downtrend has ended and MSCI India relative index is expected to resume under-performance. A bearish INR outlook adds to an under-performance view, based on technicals. Indian indices and currency have delivered a solid performance in recent months despite challenging fundamentals. We see downside as well as underperformance risks in the short term.
95
Indonesia
Micro-level investment case After an extended period of growth, Indonesia is entering a phase of macroeconomic adjustment. Policy makers are trying to cool the economy through tightening. The wide current account deficit means that growth needs to decelerate further. The CA funding gap biases us against expecting the Rupiah to strengthen meaningfully in FY14E. This does not paint an attractive risk reward profile for equities going into an election year. On the positive side however, we think the quality of policymaking has improved recently, and light investor positioning means that expectations are not demanding. Resilience of the growth outlook Real GDP growth has slowed from 6.5%, and our economics team expects it to slow further to 5.2% next year. Notably though, Indonesian growth has proven resilient, with GDP having grown by more than 4% for the last 45 quarters. Election related spending could help support domestic demand in FY14E. We expect policy action to be tolerant of an easing in growth rates next year. Drivers, trends, and data points we are tracking Ultimately the currency and the current account are variables we are watching, along with monetary conditions. We believe Fx reserves will determine the currency and are well correlated to Portfolio flows and the trade balance (released monthly). In addition high frequency data including 2 & 4 wheeler sales, and cement demand and will help us calibrate the slowing of demand and provide cues on policy direction. Finally we are tracking banking sector liquidity. Key stock picks Our top picks include contrarian stances on UNTR, where we think risk-reward supports positioning for a cyclical recovery, and ANTM, available at close to book value and exposed to a European recovery. We like PT Telkom, less as a defensive and more because we see industry competitive dynamics moving favorably, resulting in positive revisions. We think the affluent consumer will remain resilient and pick MSKY. Strong growth is a thread that links INDF. On the avoid side, we see UNVR as an expensive defensive. We have concerns on profitability and capex needs at ISAT and have a contrarian negative thesis on Indonesian Banks.
Aditya Srinath, CFA AC

(62-21) 5291-8573, aditya.srinath@@jpmorgan.com Bloomberg JPMA SRINATH<GO> PT J.P. Morgan Securities Indonesia
Figure 1: FDI, CA and Rp/$

6% 4% 2% 0% -2% -4% -6%
CA/ GDP (%) FDI / GDP (%) Rp / US$ - RHS
8000 8500 9000 9500 10000 10500 11000 11500 12000
M-06 D-06 S-07 J-08 M-09 D-09 S-10 J-11 M-12 D-12
Source: CEIC.
Figure 2: Indonesia Domestic Demand
% contribution to headline GDP oya growth
Source: J.P. Morgan economics team.
Figure 3: Net FX reserves and trade/portfolio flows

US$B, nsa
US$bn, nsa 8 4 0 -4 -8 -12 2010 Net FX reserves, IMF IRFCL definition 2011 2012 2013 2014 Trade and portfolio
Source: J.P. Morgan economics team
96

Price (LC) 19,350 6,700 2,275 2,150 1,470 30,150 3,750 8,200 Code UNTR IJ INDF IJ TLKM IJ MSKY IJ ANTM IJ UNVR IJ ISAT IJ BMRI IJ Rating OW OW OW OW OW UW UW UW Mkt cap (US$MM) 6,326 5,156 20,098 1,331 1,229 20,162 1,786 16,769 13E 16.7 15.3 15.0 85.6 47.3 44.0 22.9 11.2 P/E (x) 14E 11.6 10.6 13.1 37.5 34.1 40.6 15.7 12.2 EPS (LC) 13E 14E 1,160 439 152 25 31 686 164 730 1,669 630 173 57 43 744 239 672 Div. yield 14E (%) 3.4 3.1 4.9 0.9 1.0 1.9 3.2 2.5 ROE 14E (%) 18.3 23.9 31.1 17.7 3.2 202.0 6.6 17.2
Top picks United Tractors Indofood Telekomunikasi Indonesia MNC Sky Vision Aneka Tambang Stocks to avoid Unilever Indonesia Indosat Bank Mandiri
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 7 Nov 2013.
Best Idea Overweight United Tractors Aditya Srinath AC

Ticker: UNTR IJ, Price: Rp19,350, PT: Rp23,500 Investment thesis: Weaker currency will boost margin and earnings. FY13 should mark the bottom, and Street should come around to our 14% above consensus FY14E earnings, thus driving the outperformance. Drivers/catalysts: 1) Change in coal price and broader industry outlook, 2) Komatsu sales. Valuation and risks: Dec-14 PT based DCF (rfr of 8%, COE 17.7%, WACC 13.9%). Risks: weak coal mining economics pressuring UNTRs equipment and contracting businesses, Komatsu sales disappoint, Rupiah moves higher.
JCI View + MXID Rel. View
Best Idea Underweight Indosat Princy Singh AC

Source: Bloomberg.
Ticker: ISAT IJ, Price: Rp3,750, PT: Rp3,820 Investment thesis: ISAT trades at >50% FY13E PE premium to regional peers. We think this multiple is unjustified in the context of poor capital return profile (14E ROE 6.6%, lowest in ASEAN) and business fundamentals, as we think data unit pricing will decline. Drivers/catalysts: 1) data unit pricing, 2) any gain/ loss in market share as competition is very high, 3) capex development. Valuation and risks: Jun-14 PT based on sum of potential upside/ (downside) to consensus EPS vs. JPM EPS estimates and estimated multiple expansion/ (contraction) based on peak P/E of 16x. Risks include: lower competitive intensity driving data pricing higher, potential increase in dividend payout and consolidation in industry.
JCI Absolute View JCIs glass ceiling for 4575 has held on as a resistance for now with primary trend classified as bearish. A rally attempt after the summer has fizzled out and lacked momentum in the first place. We remain bearish. Relative View (MSCI Indonesia vs. MXAPJ) MSCI Indonesias relative index, currently 93.6, has substantial under-performance risk below 90. While we would remain underweight, we believe 90 will be an important support level in the short term. Along with India, Indonesia has perhaps the most challenging technicals. We see rallies as selling opportunities and opportunities to reduce weightings.
97
Malaysia
Micro-level investment case Subsidy reduction is a key theme given the governments need for fiscal prudence and sustaining domestic-led growth. Tenaga is the biggest beneficiary, in our view. Petronas M$300B capex is much needed to support government revenues and domestic growth, favourable for oil and gas service providers. M$160B rail-related infrastructure spending is positive for construction over the medium term. Consensus UW on plantations could reverse, on successful Indo biofuel mandate execution. Visit Malaysia 2014 supports higher tourist arrivals benefitting airlines and airports (MAHB). We prefer the latter. We expect the glove/timber sectors to track US/EU/Japan recovery. We are most negative on expensive defensives such as telcos, and cautious on developers/consumer-led banks due to property-demand cooling measures and moderating consumption growth. Resilience of the growth outlook We forecast 2014 earnings growth of 10% (2013E: -1%). Earnings confidence in oil and gas, construction /infrastructure, utilities, REITs, and gaming (domestic). Expect beats from capex-led sectors (particularly oil & gas) and plantation (low expectations). Lower earnings certainty for consumption-led sectors from subsidy reductions, especially consumer-led banks. Expect negative surprises from property earnings on higher RPGT, especially Iskandar-centric developers. Potential negative surprise from externally-led shipping /petrochemicals/aviation sectors. Drivers, trends, and datapoints we are tracking Accelerating oil and gas project awards, averaging M$60B p.a. vs M$45.6B in 2012. Expect moderating private consumption growth; in addition we track retail sales data, and property transactions. Sustained private investments growth (2014E: +15%). For external sector green shoots, we track CPO price/supply trends, and new housing starts in Japan. Tracking tourist arrival/passenger growth for Visit Malaysia 2014-led growth. Key stock picks Tenaga: biggest beneficiary of subsidy reductions on potential tariff adjustment. SAKP: Best proxy to Petronas capex spending. Gamuda: best proxy to railway-related infrastructure spending. Top Glove: defensive healthcare demand, amidst US/EU growth recovery. Genting Plantations: volumes doubling, CPO price hike an added bonus. Stocks to avoid include Maxis, an expensive defensive with little growth. Avoid UEM Sunrise, on increased competition in Iskandar Malaysia amidst property-demand cooling measures.
Hoy Kit Mak AC

(60-3) 2718-0713, hoykit.mak@jpmorgan.com Bloomberg JPMA MAK <GO> JPMorgan Securities (Malaysia) Sdn. Bhd. (18146-X)
Private investments as % of GDP

20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E2014E
Source: 2013/14 Economic report, CEIC, Ministry of Finance
Domestic demand leading growth

Malaysia: contributions to GDP
%-pt. contribution to %oya headline GDP 15 10 5 0 -5 -10 -15 -20 06 07 08 09 10 11 Net exports 12 13 Domestic demand
Source: CEIC; Bank Negara
Petronas robust capex

M$ B 70 60 50 40 30 20 9.5 10 11.6 0
13.5 14.7
17.6 20
17.8 26.2
10.3 26.8
11.5 23.4
14.1 31.5 50
60
Domestic
International
* Petronas CAPEX is estimated to average of M$60B p.a. from 2013-2017E Source: Petronas, The Edge , J.P.Morgan estimates
98

Price (LC) 4.82 11.00 4.11 9.39 5.73 7.12 2.34 Code GAM MK GENP MK SAKP MK TNB MK TOPG MK MAXIS MK UEMS MK Rating OW OW OW OW OW UW N Mkt cap (US$MM) 3,465 2,624 7,744 16,664 1,118 16,798 3,200 CY13E 16.3 29.2 24.6 11.9 15.9 25.4 26.4 P/E (x) CY14E 13.3 22.3 18.1 11.5 13.7 23.6 19.6 EPS (LC) CY13E CY14E 0.30 0.38 0.17 0.79 0.36 0.28 0.09 0.36 0.49 0.23 0.82 0.42 0.30 0.12 Div. yield FY14E (%) 2.3 1.0 0.0 2.9 3.5 5.6 1.7 ROE FY14E (%) 14.9 10.0 12.6 11.3 18.2 39.4 8.9
Top picks Gamuda Genting Plantations SapuraKencana Tenaga Nasional Top Glove Stocks to avoid Maxis UEM Sunrise
Best Idea Overweight SapuraKencana Ajay Mirchandani AC

Ticker: SAKP MK, Price: M$4.11, PT: M$5.00 Investment thesis: Key beneficiary of (i) solid global oil services capex needs (via its Petrobras PLSV contracts, Tender Rig portfolio), (ii) Petronas M$300B capex plan, and (iii) contribution from newly-acquired Newfields Malaysia oil and gas assets. Drivers/catalysts: New contract wins and potential 3045% earnings accretion from Newfields Malaysia oil and gas assets. Valuation and risks: Our Jan-15 PT of M$5.00 is based on SOTP, valuing a) Tender Rig business at 18x P/E; b) OCSS at 22x P/E; c) Fab and HUC at 22x P/E; d) EJV at 16x P/E; and e) Others at 15x P/E. Execution risks and contract award delays are key downside risks.
KLCI View + MXMY Rel. View
Best Idea Underweight Maxis Princy Singh AC

Ticker: MAXIS MK, Price: M$7.12, PT: M$5.60 Investment thesis: Maxis increased focus on market share will keep margins under pressure. We see growth challenges as its share of net sub addition of 13.6% for 2012 is the lowest among peers, while ARPUs continue to decline. Drivers/catalysts: Higher than expected marketing costs given significantly lower-than-peers marketing cost/subscriber and potential dividend misses. Valuation and risks: Our Jun-14 PT is M$5.60 is based on 20x 2014E P/E, in-line with the stocks historical trading range and expected future business changes. Key upside risks include higher-than-expected market share gains, better cost management and potential increase in dividend payout.
Source: Bloomberg.
KLCI Absolute View 1827 glass ceiling has been a tough one for the KLCI to penetrate and the Malaysian index is in retreat mode after delivering bearish RSI divergence. Look for initial support around 1750, although protecting 1660-1700 will be crucial to remaining constructive. Relative View (MSCI Malaysia vs. MXAPJ) MSCI Malaysia has unwound all of its post-election outperformance with the relative index delicately poised on important support levels. Continuation of under-performance is a high risk. Post election rally and outperformance appears over for now and we will look for downside breaks to recommend shorts. Relative positions should likely be neutralized with an under-performance bias.
99
Philippines
Micro-level investment case The Philippines is one of the few economies in EM growing above potential. Domestic demand is robust. BoP position is strong, making the Philippines more defensive in an EM bond bear market. We are confident about domestic growth companies, financials, property, consumer, and infrastructure. The gaming sector is developing fast. But high valuations reflect these strong fundamentals. We downgrade the Philippines to Neutral. This is in-line with the global EM view that high growth premiums are vulnerable as global growth accelerates. Typhoon Haiyan is a humanitarian disaster. It will disrupt economic activity but is expected to provide a boost post reconstruction/rebuilding efforts. Resilience of the growth outlook We forecast 2014 real GDP growth to slow from 7% in 2013 to 5.6%, one of the highest in the region. However, 2014E EPS growth of 12% is below EMs 15%. Consumer EPS should continue growing at the +20% level but the drag is coming from a lackluster Utilities growth and our expectation of a drop in banks earnings due to higher bond yields. Otherwise, core banking earnings (pre-trading gains) should be robust given the macro backdrop and domestic liquidity situation. Drivers, trends, and datapoints we are tracking We are watching investments flows/growth from both government and private, which we think is crucial to keep the growth momentum intact. Other key data we are watching closely include bond yields, PPP project rollout and execution, government spending, inflation, OFW remittances, loan growth, property sales, car sales, and SSSG trend of retailers. Key stock picks Our top picks include Puregold which we like for its quality and momentum of earnings growth amid ample structural growth opportunities. We like Ayala Land and Ayala Corp for their high leverage to the robust economic growth; Ayala Land is also best positioned to take advantage of the excess domestic liquidity which we expect to drive consumer loans growth. We like MPI because of its portfolio of quality assets and compelling valuation. We are UW on Aboitiz Power due to downside earnings risk.
Jeanette YutanAC
(632) 878 1188, jeanette.g.yutan@jpmorgan.com Bloomberg JPMA YUTAN<GO> J.P. Morgan Securities Philippines, Inc.
Interest rate trend

20
15
10
3.63
0 -2.65
Dec-99
Nov-02
Dec-06
Nov-09
Oct-98
Oct-05
Jun-03
Jan-04
Jun-10
May-99
May-06
Jan-11
Oct-12
Real rate (3M-inflation)
10-yr Bond
Source: Bloomberg
GDP growth trend
Philippines: contributions to growth

%-point contribution to %oya headline growth 6 4 2 0 -2 -4 03 05 07 Government consumption 09 11 13 Fixed investment Private consumption
Government spending trend

Philippines: government spending
% oya 20 10 0 -10 -20 02 03 04 05 06 07 08 09 10 11 12 13 14
100
May-13
Mar-05
Feb-01
Sep-01
Aug-04
Feb-08
Sep-08
Aug-11
Mar-12
Jul-00
Apr-02
Jul-07
Apr-09
-5

Price (LC) 28.6 592.5 45.00 4.61 33.5 Code ALI PM AC PM PGOLD PM MPI PM AP PM Rating OW OW OW OW UW Mkt cap (US$MM) 9,381 8,219 2,881 2,777 5,705 P/E (x) 13E 35.1 25.0 31.0 16.3 13.3 14E 26.3 22.0 23.3 15.0 13.4 EPS (LC) 13E 0.8 23.9 1.5 0.3 2.6 14E 1.1 27.1 1.9 0.3 2.5 Div. yield 14E (%) 1.9 0.7 0.9 0.7 3.8 ROE 14E (%) 14.8 11.6 16.3 8.6 19.7
Top picks Ayala Land Ayala Corporation Puregold Price Club Metro Pacific Stocks to avoid Aboitiz Power
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 8 November 2013.
Best Idea Overweight Puregold Price Club Jeanette Yutan AC

Ticker: PGOLD PM, Price: Php45.00, PT: Php51.00 Investment thesis: PGOLDs medium-term growth prospect looks positive, which will be driven by rising modern retail penetration and the shift of its store geographic mix. Drivers/catalysts: Pick-up of SSSG in 2014E and full year consolidation of the two S&R stores will be the key drivers of 2014E earnings surprise. Valuation and risks: Our Dec-14 PT of Php51 implies a 26x 2014E P/E, or 1.3x PEG which we think is appropriate considering the quality and momentum of PGOLDs earnings growth.
PCOMP View + MXPH Rel. View
Best Idea Underweight Aboitiz Power Ajay Mirchandani AC

Ticker: AP PM, Price: Php34.00, PT: Php27.00 Investment thesis: We have an UW on AP on the back of (a) lower ancillary earnings (potential earnings impact of Php1.5-2.0B), (b) tax holiday expiry (lowering earnings by Php2-2.5B p.a. on FY15E/ FY16E), and (c) lower earnings from Tiwi-Makban. Drivers/catalysts: Flattish to slightly trending downwards of earnings over the next couple of years will be the main driver of the stock. Valuation and risks: Our Dec-14 SOTP-based PT of Php27 implies a 10.6x P/E and 2.0x P/BV. Key upside risks are stronger-than-expected sales volume growth, surge in spot prices. Key downside risks are execution of expansion plans, and signing of less lucrative contracts.
Source: Bloomberg.
PCOMP Absolute View 6600 defined PCOMPs glass ceiling", and with a 40wma resistance as well as underside of two-year uptrend-line, we see PCOMP sitting in a primary downtrend, in sync with ASEAN peers. Relative View (MSCI Philippines vs. MXAPJ) MSCI Philippines relative index post summer rally is over and under-performance is back in place. Technicals recommend underweight positions. Most ASEAN countries benefit from perennial optimism the Philippines is no different. While the long-term structural argument looks solid, charts suggest bearish absolute and relative outlook.
101
Singapore
Micro-level investment case Singapore is in the midst of a structural transformation from an input-driven economy towards a productivitydriven economy. This transformation is having a significant impact on economic growth rates, inflation, the currency, and the overall structure of the economy. Based on our previous research on the impact on growth rates from immigration reform, productivity, as well as industry cost structures, we believe Singapores inability to continue to rely on immigration flows for growth will present a significant retraining/development challenge. This in turn could create an extended drag on the economy. Resilience of the growth outlook While we are expecting a modest rebound in FY14 GDP growth expectations, this is also relative to significantly lower expectations since the start of 2013, with the Street revising FY13E GDP growth seven times from 3.8% to 2.7%. On a longer-term basis, we believe structural growth trends for Singapore will moderate going forward with tepid productivity gains unable to offset the slowdown in foreign labor flows. We expect long-term GDP growth to moderate from a 10-year historical CAGR of 6.2% to 4.1%, in line with the governments projections of 3-5% p.a. Drivers, trends, and datapoints we are tracking We would closely track the magnitude and direction of macro forecast errors, as seen through our JPM Macro Error Index. We would also track key output-related indicators (e.g. GDP, PMI, Electronics indexes) in assessing the strength of the recovery. On Singapores labor transformation efforts, we would remain focused on labor productivity trends and wage pressure trends (either through core inflation or from read-throughs via corporate earnings). As we believe investor positioning will entail a cyclical bias, we would also keep an eye on major cyclical-related indices such as the BDI and aviation-related datapoints (load factors, pricing trends). Key stock picks We believe this marks the inflection point to position with a cyclical bias given improving economic fundamentals. Common themes within our top picks are names that are sector leaders in either product differentiation/cost efficiency (KEP SP, EZI SP), and names positioned to capitalize on structural industry upcycles (JCNC SP, GGR SP).
James R. Sullivan, CFA AC

(65) 6882-2374, james.r.sullivan@jpmorgan.com Bloomberg JPMA SULLIVAN <GO> J.P. Morgan Securities Singapore Private Limited
Figure 4: Manufacturing output breakdown by sector

%
Source: Singapore Statistical Yearbook, J.P Morgan calculations
Figure 5: Estimated Singapore labor force impact from transition

% (LHS) / 000 employees (RHS)
Source: Bureau of Economic Analysis, US Dept of Commerce, Singstats
Figure 6: J.P. Morgan Macro Error Index

%
Source: Singstats, J.P. Morgan estimates
102

Price (S$) 10.84 2.32 0.57 36.77 0.89 10.47 0.89 Code KEP SP EZI SP GGR SP JCNC SP IFAR SP OCBC SP FEHT SP Rating OW OW OW OW UW UW UW Mkt cap (US$MM) 15,771 1,799 5,838 10,528 1,010 28,927 1,255 13E 12.4 15.5 20.8 10.4 24.5 14.8 17.5 P/E (x) 14E 12.5 8.7 13.6 9.8 16.2 13.3 17.7 13E EPS (LC) 14E Div. yield 14E (%) 4.2% 0.1% 2.2% 3.8% 0.6% 3.2% 6.2% ROE 14E (%) 15% 25% 5% 19% 5% 11% 6%
Top picks Keppel Corp Ezion Holdings Ltd Golden Agri-Resources Ltd Jardine Cycle & Carriage Stocks to avoid Indofood Agri Ltd OCBC Bank Far East Hospitality Trust
87.1 12.1 2.2 284.4 33,226.7 71.0 5.1
87.0 21.5 3.3 303.4 50,284 78.9 5.0
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 06 November, 2013.
Best Idea Overweight Keppel Corp Ltd Ajay Mirchandani AC

Ticker: KEP SP, Price: S$10.84, PT: S$13.30 Investment thesis: Strong order momentum in jackups along with growing semisub orders. Keppels strong track record in rig deliveries is one reason why many rig owners prefer Keppel over Chinese yards. Drivers/catalysts: i) Better O&M margins. ii) Product mix. iii) Potential drillship/FLNG orders. iv) Orders from new Mexico yard. Valuation and risks: Our Dec-14 PT is based on SOTP, which uses DCF to value the rig-building business, 12x P/E for ship repair and other, property at NAV, Keppel Land at our PT, and infrastructure at 1.5x book. Key risks include a worse-than-expected delay in new orders and a collapse in oil prices.
STI View + MXSG Rel. View
Best Idea Underweight Indofood Agri Resources Ying-Jian Chan AC

Ticker: IFAR SP, Price: S$0.885, PT: S$0.60
Source: Bloomberg.
Investment thesis: IndoAgri reported an FY13 production FFB/CPO decline, and we dont see any catalysts for a sharp recovery in FY14. Net gearing has risen 3.5x from c.12% in 1Q12 to c.42% in 3Q13, presenting earnings risks given a rising IR environment. Drivers/catalysts: Guided 5% Y/Y decline in FY13E FFB production after the 5%/12% drop in FFB/CPO production in 9M13. Management also expects interest rates to rise further after a Q/Q rise of 150% in 3Q13. Valuation and risks: Our Dec-14 PT is based on SOTP, comprising IndoAgris 72% stake in SIMP, net cash, and applying a 5% holding company discount. Key upside risks to our PT include a strong recovery in CPO prices, and growth via synergistic M&As.
STI Absolute View STI is in a sideways range but appears to be in distribution mode; hence our bear bias on Singapore. 2990 is an important support level, which if broken, will accelerate downside. Relative View (MSCI Singapore vs. MXAPJ) After unwinding its 1H13 outperformance in 2H13, MSCI Singapores relative index is bouncing off oversold levels and has clawed back its four-year-old outperformance uptrend-line. Restoring our outperformance call. While absolute positioning looks unattractive and appears to be in distribution mode, relative index has clawed back an important uptrend-line we expect outperformance.
103
South Korea
Micro-level investment case We are selective buyers of Korean equity in 2014, preferring DM growth beneficiaries as well as domestic housing market recovery plays. Our economic research team expects the Korean economy to recover modestly in 2014 from a subpar growth in 2013 (GDP growth of 3.7% in 2014E vs. 2.7% in 2013E). Of note, our economic research teams base case scenario for 2014 economic outlook is based on the combination of: 1) strong export growth only from limited segments such as tech, auto, and shipbuilding, and 2) a mild pick-up in domestic consumption without assuming a meaningful housing market recovery. However, our bottom-up analysis for Korea economy suggests that the risk is on the upside for domestic consumption in 2014. We are more positive on the domestic housing market dynamics in 2014, based on the view that the housing market has been on a gradual recovery trajectory from 2H13 and a pick-up in housing prices would have positive spill-over effects for domestic consumption and retail investment sentiment of the Korean equity markets. Resilience of the growth outlook We forecast KRW to appreciate gradually in 2014 toward USD/KRW 1,050 (year-avg.) from 1,090 in 2013. We believe KRW appreciation will have a limited effect on key export segments such as tech, auto and shipbuilding. However, once KRW appreciation accelerates beyond our estimates, our earnings forecasts for exporters are likely to be at risk of significant downward revisions. Eased (relatively) regulatory intervention amidst benign inflationary pressure should improve operational visibility of the domestic companies for 2014. Finally, while we officially forecast no BOK rate change in 2014, a rate rise/cut in 2H14E may add to EPS upside/ downside of Korea financials. Drivers, trends, and datapoints we are tracking We advise investors to track monthly data sets for domestic housing price and transaction volume as key datapoints for capturing changes of domestic consumption dynamics in 2014. Key stock picks Our top Korean picks for 2014 are Hyundai Motor, SK Hynix, Naver, CJ O Shopping, and KB Financial Group. Our top avoids are CJ Cheiljedang, Samsung Engineering, and Hanjin Shipping.
Scott Seo AC
(82 2) 758 5759, scott.seo@jpmorgan.com Bloomberg JPMA SEO <GO> J.P. Morgan Securities (Far East) Ltd., Seoul Branch
MSCI KoreaRelative performance to APxJ and EM

One year ago = 100
110 108 106 104 102 100 98 96 94 92 90 Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-
rel. to MSCI AxJ

Source: Bloomberg
rel. to MSCI EM
KoreaRelationship between KOSPI and USD/KRW

Index
USD/KRW
2,500 2,000 1,500 1,000 500 0 2001

Source: Bloomberg
800 1,000 1,200 1,400 1,600 2003 2005 2007 KOSPI Index 2009 2011 2013 USD/KRW (RHS, Inverted)
KoreaHousing purchase and chonsei price growth (Y/Y)

%
40% 30% 20% 10% 0% -10% -20% -30% 1987 1990 1993 1996 1999 2002 2005 2008 2011
Housin purchase price

Source: Kookmin Bank
Housing chonsei price
104

Price (KRW) 254,000 32,350 583,000 346,700 39,700 70,400 246,000 7,120 Code 005380 KS 000660 KS 035420 KS 035760 KS 105560 KS 028050 KS 097950 KS 117930 KS Rating OW OW OW OW OW UW UW N Mkt cap (US$MM) 51,895 21,368 16,298 2,012 14,545 2,695 3,081 862 P/E (x) 13E 7.9 9.1 49.4 17.4 11.5 N.A. 21.2 N.A. 14E 7.1 7.4 33.2 14.6 8.8 29.6 18.4 N.A. EPS (KRW) 13E 14E 32,314 3,543 11,805 19,978 3,460 -18,221 11603.80 -3,728 35,835 4,387 17,541 23,744 4,499 2,382 13380.43 -766 Div. yield 14E (%) 1.0 N.A. 0.6 1.0 1.9 1.4 0.7 0.0 ROE 14E (%) 17.0 21.8 26.4 23.3 6.6 9.1 3.3 N.A.
Top picks Hyundai Motor SK Hynix Naver CJ O Shopping KB Financial Stocks to avoid Samsung Engineering CJ Cheiljedang Hanjin Shipping
Best Idea Overweight Hyundai Motor Wansun Park AC

Ticker: 005380 KS, Price: W254,000, PT: W330,000 Investment thesis: HMC will re-enter accelerated EPS growth cycle in 2014E with low-teen EPS growth, up from a low single digit in 2013E. Drivers/catalysts: Product cycle should turn up from 1H14 and peak in 2H15. The possibility of the second phase of capacity expansion could add a positive spin to sustainable growth beyond 2014. Improving demand in key markets including Europe is additional positive earnings driver. Valuation and risks: Our Jun-14 PT is W330,000, based on 10x FY14E EPS (higher end of historical band (5-12x). Short-term risk is the pace of KRW appreciation. Long-term risk is rising R&D burden.
KOSPI View + MXKR Rel. View
Source: Bloomberg.
Best Idea Underweight CJ Cheiljedang Youna Kim AC

Ticker: 097950 KS, Price: W246,000, PT: W200,000 Investment thesis: Due to over-supply of lysine in China, we expect bio division margins to come under pressure in 2014. We expect further downward consensus earnings revisions. Drivers/catalysts: Slower-than-expected lysine price rebound is likely to continue to weigh on consensus earnings forecast. Valuation and risks: Our Dec14 PT is based on: (1) an EV/EBITDA multiple of 8.0x for core ops (ex. CJ Korea Express) the mean of global lysine manufacturers and Korean packaged food makers; (2) estimated value of ~W1,249B for non-core ops. Upside risks include a larger-than-expected lysine price rebound, and higher food division sales. KOSPI Absolute View Similar to many Asian indices, Kospi has been stuck in a broad sideways range for well over two years (1759-2057). While the broad trend is constructive, we would recommend fresh longs only above 2057. Relative View (MSCI Korea vs. MXAPJ) Koreas relative outperformance is solidly in place and continues to evolve in an upsloping channel, in place since May2013. Relative index is likely o face resistance at 119-120 (currently 116). We would recommend adding to KOSPI longs above 2057. In the meantime, we expect relative outperformance to continue and accelerate above 119120 (currently 116).
105
Taiwan
Micro-level investment case We expect a continuation of 2H13 trends. Upstream tech, life insurance and selective non-tech global demand play are likely to lead the market we think. Apple production shift and an end to a reduction in inventories by year end should support semiconductors. Life insurance is correlated to rising long bond yields (for every 50bp chg, EV increases 25% in Taiwan vs. 10% in China and Korea). We also favor selective non-tech export-resort sectors, which are geographically diverse with scale and long track records, e.g., textile, contact lenses, and bicycles. Regulatory and political catalysts are limited. Trade in Service Agreement with China, signed at endJun, is still under revision by the legislative entities in Taiwan. Our base case is no agreement until 2H14-1H15. Resilience of the growth outlook We believe that the resilience of non-tech global companies earnings is underappreciated. This is a function of a dominant market position, combined with geographically diversified manufacturing and markets for textile, contact lens, and bicycle companies. The outlook for the tech sector is split. The visibility for semiconductor profits is higher than for downstream. Taiwan financials are relatively unique in their direct correlation with higher US bond yields. Drivers, trends, and datapoints we are tracking J. P. Morgan forecasts 3.1%oya Taiwan 2014 GDP growth. 1) The export environment: PMI Index Taiwan (>50), China (>51) and the US (>55~56): US and China as drivers of exports. Global end demand Retail US >5%oya ad China >15%oya. Tech inventory - We forecast a normalization in upstream techs inventory. 2) Domestic monetary conditions We expect the CBC will be on hold in 1H14. There is a low possibility of higher policy rates in 2H14. Taiwan long rates are 0.5x correlated to US bond yields. Our forecast is for US 10year yield of 3.5% by end 2014. Key stock picks Our top picks are in semiconductors (TSMC and ASE), life insurance (Cathay), textiles (Makalot) and automation (Hiwin). We believe downstream assemblers face significant order reshuffling, shrinking margins and marginalizing weaker players. Post the 4G spectrum auction, mobile competition is forecast to increase. The stocks we would avoid are Far EasTone, the telecom provider, Cheng Shin Rubber from materials, and Pegatron, the component supplier.
Alvin KwockAC
(852) 2800-8533, alvin.yl.kwock@jpmorgan.com Bloomberg JPMA KWOCK<GO> J.P. Morgan Securities (Asia Pacific) Limited
PMI Index China, US and Taiwan

65 60 55 50 45
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13 Apr 13
China PMI
Source: Markit and J.P. Morgan.
US PMI
Taiwan PMI
Taiwan Real GDP vs. PMI Index

25 20 15 10 5 0 -5 -10 -15 -20 -25 65 60 55 50 45 40 35 30 25 20
1Q07
3Q07
1Q08
3Q08
1Q09
3Q11
1Q12
3Q12
3Q09
1Q10
3Q10
1Q11
1Q13
Taiwan Real GDP (%sa)

Source: Bloomberg, Mrkit and J.P. Morgan.
Taiwan PMI (RHS)
Retail sales growth (%3m/3m saar)

35 30 25 20 15 10 5 0 -5
Oct 10
Oct 11
Jan 10
Jan 11
Jan 12
Oct 12
Jan 13
Jul 11
Jul 10
Apr 10
Apr 11
China
Source: Bloomberg and J.P. Morgan.
106
Apr 12
US
Jul 12
Jul 13
3Q13
3Q13
40

Price (LC) 106.5 28.3 42.9 179.0 218.5 64.3 77.6 41.0 Code 2330 TT 2311 TT 2882 TT 1477 TT 2049 TT 4904 TT 2105 TT 4938 TT Rating OW OW OW OW OW UW N UW Mkt cap (US$MM) 93,802 7,427 17,416 1,022 1,884 7,117 8,545 3,190 P/E (x) 13E 14.9 14.3 15.0 20.5 26.0 17.5 13.9 10.0 14E 12.7 10.8 13.6 15.9 17.3 15.8 13.2 11.1 EPS (LC) 13E 7.1 2.0 2.9 8.7 8.4 3.7 5.6 4.1 14E 8.4 2.6 3.2 11.3 12.6 4.1 5.9 3.7 Div. yield 14E (%) 2.8 4.0 2.2 4.1 1.0 6.8 2.9 5.4 ROE 14E (%) 21.6 14.9 13.7 34.8 23.8 18.0 23.0 7.7
Top picks TSMC ASE Cathay Makalot Hiwin Stocks to avoid Far EasTone Chen Shin Rubber Pegatron
Best Idea Overweight TSMC JJ Park AC

Ticker: 2330 TT, Price: NT$106.5, PT: NT$130 Investment thesis: For higher-end 28nm HKMG, TSMC still retains 90%+ share with very limited competition, thus indicating to us the markets concerns over competition are overblown. Drivers/catalysts: (1) robust demand from Apple; (2) more customers signing up for the 20nm move; (3) increasing signs in the supply chain of delays for 14nm at a large IDM competitor; (4) improving profitability. Valuation and risks: Our Jun-14 PT of NT$130 is based on 15x 12m forward P/E, or on 3.3x FY14E P/B for a company generating 22% ROE. Risks include: (1) Intels abandoning ATOM and stepping headlong into ARM Foundry, and 2) slowdown in mobile device.
TWSE View + MXTW Rel. View
Best Idea - Underweight Far EasTone Lucy LiuAC

Ticker: 4904 TT, Price: NT$64.3, PT: NT$56 Investment thesis: After 4G spectrum bidding, we see earnings downside, particularly to FET, starting in 2015, which we believe will pose significant downside risk to dividends. The reasons for investing in Taiwan telcos in the past will no longer hold, in our view. Drivers/catalysts: FET has the highest mobile exposure and hence the least earnings buffer from other businesses. FET has the weakest balance sheet and FCF, which would carry higher funding needs. Valuation and risks: Our Dec-14 price target is based on a 10-year DCF valuation. Upside risks include better-than-expected market competition and strongerthan-expected ARPU growth.
Source: Bloomberg.
TWSE Absolute View TWSE is currently in retreat from its glass ceiling of 8439, although the broad trend (in up-channel for over a year and above 40wma) remains constructive. While the very-near-term outlook suggests weakness, we see strong support around 8100-8190. Relative View (MSCI Taiwan vs. MXAPJ) After a solid 1H outperformance, MSCI Taiwan relative index has retreated into a bearish/ sideways range and is currently poised on important support levels. On an absolute basis, we see merit in remaining long the TWSE with a medium-term view although need better conviction to own Taiwan on a relative basis.
107
Thailand
Micro-level investment case We continue to believe Thailands growth will shift from consumption to investments. Private investments as well as public investments will be the key drivers of GDP growth for the country in the short-term and long-term. This is after multi-years of strong consumption growth driving higher household leverage. Private investments are expected to be in areas of exports as well as construction and building materials. Public investments are planned to be relating to infrastructure including mass transportations and railway. Overall, growth has normalized (i.e. slow) but things remain healthy on both public and private sides (banking sector and corporate balance sheets). Resilience of the growth outlook Overall earnings revision trend has been negative. However, we believe expectations have been readjusted. We currently forecast 10% EPS growth for 2014. This is based on 3% GDP growth forecasts for next year. Areas where we believe growth will be resilient are banks, constructions, and building materials. Areas where we believe there could be more downside to earnings are retail, real estate, and telecommunications. Drivers, trends, and datapoints we are tracking Key data to watch will include loan growth, car sales, property sales, inflation, exports, and public spending. We expect a slowdown in loan growth - slowdown in auto HP growth will likely be offset by an acceleration in mortgage demand. We believe car sales will be more resilient than market expectations. However, this will be at the expense of declining used car market, a structural change. We believe growth in property sales will slow from last year given the increase in supply, tighter bank credit, and still-soft consumer confidence. So far there has been limited passthrough impact from minimum wage hike to inflation. The central bank continues to focus on inflation when managing monetary policy. Progress on public investments is also a key for GDP growth momentum. Key stock picks Key theme that we see is winners get stronger in each of the sector given their stronger competitiveness over peers. Hence, we like KBANK and SCB among banks and BEC in media. We also like TUF on earnings recovery and SCC on strong material demand.
Anne JirajariyavechAC
(66-2) 684 2684, anne.x.jirajariyavech@jpmorgan.com Bloomberg JPMA JIRAJARIYAVECH<GO> JPMorgan Securities (Thailand) Limited
GDP growth contribution

%-pt. contribution to oya headline growth 8 6 4 2 0 -2 -4 06 07 08 09 10 11 12 13
Source: NESDB, J.P. Morgan Economics.
Private consumption
Fixed investment
Government consumption
Earnings growth expectation

Data as of 7-Nov-13 Market Market (Core) Bank Communication Construction materials Commerce Energy Petrochem Property developer EPS growth (%) 2012 2013E 2014E 8.6 7.7 12.5 4.1 9.3 15.0 21.7 20.1 11.8 36.6 -0.8 17.9 -13.6 27.2 16.4 30.2 7.5 27.9 -0.3 1.9 9.8 -15.1 3.4 15.2 25.1 22.5 10.7 P/E (x) 2012 2013E 2014E 13.9 12.9 11.5 20.1 13.3 11.5 13.1 10.9 9.8 20.9 21.1 17.9 22.0 17.3 14.9 35.0 32.5 25.5 9.6 9.5 8.6 12.5 12.1 10.5 13.5 11.0 9.9
Source: J.P. Morgan estimates and calculation.
Thailands 12-month forward P/E

x 24 22 20 18 16 14 12 10 8 6 4 Current 12-month f orward P/E (SET Index) = 11.6x +2 stdev = 20.7x +1 stdev = 17.2x Average = 13.8 -1 stdev = 10.3x -2 stdev = 6.8x 02 03 04 05 06 07 08 09 10 11 12 13
Source: J.P. Morgan estimates and calculation.
108

Price (Bt) 167.00 185.00 60.00 56.00 424.00 34.25 103.00 193.50 Code SCB.BK KBAN.BK TUF.BK BEC.BK SCC.BK TCAP.BK DTAC.BK BIGC.BK Rating OW OW OW OW OW UW UW N Mkt cap (US$MM) 17,908 13,989 2,176 3,539 16,076 1,306 7,706 5,044 P/E (x) 13E 11.3 10.5 23.7 19.8 17.0 4.7 22.9 24.1 14E 9.9 9.2 14.3 17.7 14.6 8.0 17.1 19.9 EPS (Bt) 13E 14.8 17.6 2.5 2.8 25.0 7.3 4.5 8.0 14E 16.9 20.2 4.2 3.2 29.1 4.3 6.0 9.7 Div. yield 14E (%) 3.3 2.2 3.5 5.4 3.4 4.4 5.8 1.5 ROE 14E (%) 21.2 20.3 12.9 69.1 19.7 10.5 40.7 20.2
Top picks Siam Commercial Bank Kasikornbank Thai Union Frozen Products BEC World Siam Cement Stocks to avoid Thanachat Capital Total Access Communication Big C Supercenter
Best Idea Overweight KASIKORNBANK

Anne Jirajariyavech
AC
SET View + MXTH Rel. View
Ticker: KBANK TB, Price: Bt183, PT: Bt240 Investment thesis: KBANK continues to lead the sector in revenue growth & ROE. The bank has added 2pt of Tier 1 capital ratio over the past two years. This should lead to market share. Strong profitability should be enough to accommodate higher level of provision. Drivers/catalysts: Acceleration in mortgage demand & rising corp activities in capital market are key catalysts. Strong deposit franchise should lead to better NIM. Valuation and risks: Our Dec-14 PT is based on DDM (ROE 20.6%, COE 12.8%, growth 8.0%). Key risks: 1) fiercer-than-expected competition in SME; 2) slowerthan-expected consumer loan & non-NII growth; and 4) higher-than-expected opex from K-Transformation.
Source: Bloomberg.
Best Idea Underweight Total Access Communication Princy Singh

AC
Ticker: DTAC TB, Price: Bt112, PT: Bt90 Investment thesis: Competition in the Thai telco market has increased with operators starting to offer increasingly more free usage and higher commissions to distributors. This, we believe, will lead to higher marketing expenses and earnings misses. Drivers/catalysts: Weaker-than-expected ARPU and below-consensus profit margin are key catalysts. Valuation and risks: Our Dec-14 PT is based on the sum of potential upside/(downside) to consensus EPS vs. JPM EPS estimates, and estimated multiple expansion /(contraction) based on peak P/E multiple. Risks include higher-than-expected customer migration to the new network and an increase in dividend payout.
SET Absolute View Failure to break out above its 40wma puts the SET at risk of now breaking down below 1380 (initial support) and slipping into a deeper downtrend. While a breakout above 1485-1500 can revive a positive view, indicator position is bearish. Relative View (MSCI Thailand vs. MXAPJ) MSCI Thailands sharp under-performance since Apr13 is solidly in place. A bounce post summer from oversold levels appears over and we expect Thailands underperformance to resume. Thailand, similar to other ASEAN countries, retains the risk of absolute downside and under-performance.
109
110
Table of Contents
Asia infrastructure ecosystem ..................................112 Asia Infra & Industrials .........................................113 Metals & Mining ....................................................115 Asia Autos .............................................................117 Consumer ...............................................................119 Regional Gaming ...................................................121 Energy Ecosystem..................................................123 Oil & Gas ...............................................................125 Petrochemicals/Refining ........................................127 Utilities & Power Equipment .................................129 Thermal Coal .........................................................131 Financial Sector .....................................................133 Insurance ................................................................135 Real Estate .............................................................137 Logistics Ecosystem ..............................................139 Transportation ........................................................140 Asia Content Ecosystem ........................................142 Internet ...................................................................143 Telecommunications ..............................................145 India IT Services ....................................................147 Technology ............................................................149 Emerging Technology............................................151 Healthcare ..............................................................153 SMID Caps ............................................................155
Sector Overviews
111
Asia infrastructure ecosystem

Capex growth: The needle moves from East to West We expect EU capex to inflect in light of capex to GDP in the region being at record lows, corporate profitability is recovering, while the EUs credit demand may be bottoming out. The US has a strengthened growth bias, having stepped back from a widely expected September tapering move; housing starts and construction activity began to accelerate since md-2011 after bottoming out in 2009. In Japan, although capacity to stimulate with government spending may soon approach limits, negative real rates may help spur business investment amidst improving external demand aided by a cheaper yen. C hina, A SE A N slowdown in investment cycle ahead Chinas FAI to GDP is at/near record highs. We expect government spending and property investment growth to slow as policies turn restrictive. Chinas new leadership has taken measures to deal with issues such as inappropriate bank lending and social financing, and on a medium-term basis, called for the rebalancing of its economy to one which is less investment driven. We expect manufacturing FAI growth to slow as the base becomes high, while Chinas corporate profitability is still hovering at low levels. ASEAN countries have boosted domestic investment via private credit & public stimulus in recent years to counter the effects of weak external demand, thus we believe tailwinds from QE cant be underestimated, as capital flows pushed down real interest rates and incentivized investment. Recommendations In the machinery space, we like names that can benefit from a capex recovery in DM markets, including Japanese producers as a cheaper yen may boost exports on sizable DM exposure and upgrade demand may start to kick in. In ASEAN, we turned positive on industrial machinery distributors on a weaker rupiah and gradual volume recovery from next year. In China, we are most positive on the growth outlook of heavy-duty trucks in light of imminent replacement demand. Asian E&C names we prefer Chinese hydrocarbon E&C companies and Malaysia E&C names over Korean E&C players on strong order growth outlook in domestic markets (new coal chemical projects in China and railway projects in Malaysia). We remain cautious on Korea E&C names with sizeable ME exposure which may continue to weigh on profitability, while we prefer names with higher exposure to domestic housing, the outlook of which seems to be improving.
Karen Li, CFAAC

(852) 2800-8589, karen.yy.li@jpmorgan.com Bloomberg JPMA KLI<GO> J.P. Morgan Securities (Asia Pacific) Limited
Eurozone Non-residential capex vs MSCI Eurozone earnings
Source: Eurostat, IBES, J.P. Morgan European equity strategy research team.
Chinas corporate profitability has been hovering at low levels
Source: Datastream, J.P. Morgan research. .
China Investment to GDP ratio has been trending up
Source: CEIC, J.P. Morgan research.
112
Asia Infra & Industrials

Micro-level investment case For infra E&C, we are positive on the railway capex outlook for China and Malaysia, while expecting newcoal-chemical investment to accelerate from 2014 in China. On the other hand, we stay cautious on those Korean E&C names with substantial overseas exposure, preferring the contractors that can benefit from recovery in the domestic housing market in light of favorable policy measures announced in Korea. For machinery, we are most positive on the growth outlook of Chinas heavy-duty trucks in light of imminent replacement demand, while we retain our cautious view on construction machinery and coal mining equipment given continued demand-supply imbalances. For infra operators, policy has turned more supportive since 2013 for Chinas tollroad sector while traffic flow rebounded amidst recovery of export activity, particularly that of commercial vehicles in the coastal regions. Throughput growth in China seems moderating but asset revaluation drives re-rating on the back of a potential free trade zone development. Lastly, we are positive on Asian airports, driven by the regions growing economies and rising middle-class incomes. Resilience of the growth outlook For infra E&C, railway investment outlook in China has been improving in light of the impending rebalancing of transportation investment among infrastructure and enhancing policy support under Chinas new leadership. In Malaysia, despite the government's needs to maintain fiscal prudence to narrow the fiscal deficit, the development of rail-related infrastructure in the coming years remains a priority in our view. For machinery, the growth outlook is more resilient for heavy duty trucks relative to construction machinery and coal mining equipment, reflecting differences in end user usage and need for provision of vendor financing. For infra operators, traffic at airports and tollroads are more driven by domestic demand, while container throughput at ports is more driven by external trade. Drivers, trends, and datapoints we are tracking For infra E&C, we are looking for more supportive policy measures to Chinas railway sector to be announced in the coming 6-12 months. For Malaysia, we are closely tracking the upcoming Budget 2014, the countrys fiscal deficit, and most importantly, the timeline of the new order awarding for mega railway projects. In Korea, E&C players likely continued provisions against the problematic overseas projects and
Karen Li, CFAAC

(852) 2800-8589, karen.yy.li@jpmorgan.com Bloomberg JPMA KLI<GO> J.P. Morgan Securities (Asia Pacific) Limited
recovery of domestic housing market are expected to be the key focuses in the near-term. For machinery, we are tracking the monthly sales data, which has been showing uneven growth rates across different types of products. For infra operators, we compare the growth pace of domestic economies vs. that of the DM world. Key stock picks We are OW on Sinopec Engineering, Weichai Power, Hollysys Automation, Gamuda and Hyundai Development. On the other hand, we stay cautious on Lonking and Samsung Engineering.
Chinas new coal chemical engineering market is estimated to grow at a CAGR of 42% during 2011-2016
Source: CICCC, J.P. Morgan research.
Korean E&Coperating margins have been trending amidst intensifying competition in overseas markets
Source: Company data, J.P. Morgan estimates.
Malaysia E&Cmajor infrastructure project awards
Source: CEIC, Ministry of Finance, J.P. Morgan estimates.
113

Price (LC) 11.62 31.2 16.27 4.84 23,950 1.61 71,500 Code 2386 HK 2338 HK HOLI US GAM MK 012630 KS 3339 HK 028050 KS Rating OW OW OW OW OW UW UW Mkt cap (US$MM) 6,638 6,724 936 3,478 1,701 889 2,694 13E 10.5 13.1 12.9 15.0 NM 14.1 NM P/E (x) 14E 9.0 11.0 11.1 11.7 12.7 11.5 30.0 13E 0.87 1.87 1.26 0.32 61 0.09 -18,221 EPS (LC) 14E Div. yield 14E (%) 3.3 0.9 0.0 2.9 1.3 1.5 1.4 ROE 14E (%) 15.7 14.8 15.9 17.2 5.9 8.1 9.1
Top picks Sinopec Engineering Weichai Power Hollysys Automation Gamuda Hyundai Development Stocks to avoid Lonking Samsung Engineering
1.01 2.22 1.47 0.41 1,880 0.11 2,382
Best Idea - Overweight Sinopec Engineering Karen Li, CFA AC

Ticker: 2386 HK, Price: HK$11.46, PT: HK$13.60 Investment thesis: SEG is well positioned to ride on capex up-cycle for China's new-coal-chemical sector in the coming years in light of the country's abundance in coal resources while shortage in oil reserves. Overseas expansion is expected to emerge as a new source of growth. Drivers/catalysts: Accelerated new coal chemical project approvals and EPC contract awarding Valuation and risks: Our DCF based Dec-14 PT corresponds to a P/E of 10.6x/9.0x and a P/B of 1.5x/1.2x on 2014/2015E. Key downside risks include delay in major projects and unexpected cost inflation.
New coal chemical sector is expected to emerge as the new growth driver for China's hydrocarbon engineering capex
Source: CICCC, J.P. Morgan research.
Best Idea - Underweight Lonking Holding Ltd Karen Li, CFA AC

Ticker: 3339 HK, Price: HK$1.61, PT: HK$1.40 Investment thesis: Despite ongoing industry recovery, Lonking has been losing market share amidst intensifying competition. A stretched balance sheet and weak cash conversion has inhibited the company's ability to pursue growth. Drivers/catalysts: Continued weak market position as constrained by high gearing and working capital requirements. Valuation and risks: Our DCF based Dec-14 PT corresponds to a target P/E of 13x/10x, and P/B of 0.9x/0.8x on 2013-2014E. Key upside risks include better-than-expected market share gains and stronger-than-expected loader sales.
Lonkingsales growth fared worse than industry peers not on the front foot of a recovery
Source: CCMA, Company data, J.P. Morgan research.
114
Metals & Mining

Micro-level investment case Commodity markets have stabilized and are showing signs of recovery with prices rebounding off their midyear lows. Prices had fallen to levels which triggered a supply response, helping ease oversupply conditions across most markets. Meanwhile, resilient Chinese demand and seasonal 4Q restocking have seen prices recover. This backdrop has enabled sector downgrades to stabilize or reverse. While the worst of the storm might now be behind us, low global growth should still see commodity prices continue to trade around marginal cost levels. In this environment, we prefer companies with low (or declining) costs, high quality growth and positive FCF while high cost, high debt plays should be avoided. Resilience of the growth outlook Driving c40% of demand in most commodities, China continues to hold the key to the direction of the sector. Resilient Chinese demand has been the main saviour to the recovery in commodity prices in 2013, helping offset anemic growth in the rest of the world (ROW). As China looks to reform and restructure to a more balanced economy, growth momentum will likely slow into 2014. Yet with industry overcapacity likely to be targeted and growth policies likely to remain supportive, this is a favorable backdrop for commodities. In any case, EM growth is forecast to pick up, which should ease the burden on China. That said, new supply should ensure markets are well supplied and we forecast 2014 average prices to be lower than 2013 levels (but higher than spot). Iron ore and copper are our preferred commodities while we would avoid nickel and aluminium. Drivers, trends and datapoints we are tracking A benign commodity price outlook means that self help from control of costs and capex will be critical to ensure positive free cash generation. For signals on underlying market strength, we continue to religiously monitor market inventory and end user demand data trends (i.e. construction, durable goods). Key stock picks We recommend selective sector exposure in stocks with high quality, low (and declining) cost assets with volume growthRio Tinto, Fortescue Metals, Jiangxi Copper, Sesa Sterlite and Tata Steel. Tactically, we also recommend trading into restocking cycles. On the other hand, we would avoid higher cost, higher debt companies that struggle on negative free cash generationAquila Resources, Chalco and Indika Energy.
Daniel KangAC
(852) 2800 8570, daniel.kang@jpmorgan.com Bloomberg JPMA KANG <GO> J.P. Morgan Securities (Asia Pacific) Limited
Sector bottoming on supply cuts and unlimited QE
MSCI Global Metals & Mining index bottoms out
Source: Bloomberg.
China FAI - Government picks up the pricate sector slack
FAI Government and Private
Source: CEIC
Sector valuations remain attractive
Scope for re-rating - Asia sector PB valuations below 3 year averages
Note: Diversifieds (BHP and RIO) use a P to NPV as a proxy for PBV. Source: J.P. Morgan estimates
115

Price (LC) 64.7 14.72 5.53 201.75 339 2.35 760 2.86 Code RIO AU 358 HK FMG AU SSLT IN TATA IN AQA AU INDY IJ 2600 HK Rating OW OW OW OW OW UW N N Mkt cap (US$MM) 102,594 7,822 16,345 9,701 5,340 919 349 1,455 13E 12.2 12.1 5.5 na 11.5 235.0 na -6.8 P/E (x) 14E 10.4 10.9 5.0 na 6.6 na 9.6 -10.1 13E EPS (LC) 14E Div. yield 14E (%) 2.9 2.8 1.9 na 3.2 0.0 0.0 0.0 ROE 14E (%) 17.0 8.1 26.0 12.7 12.7 -2.0 5.2 -7.0
Top picks Rio Tinto Jiangxi Copper Fortescue Metals Group Sesa Sterlite Tata Steel Stocks to avoid Aquila Resources Indika Energy Chalco
4.11 0.96 0.56 35.04 -74.39 0.74 -0.007 -0.33
5.92 1.07 1.00 23.27 29.58 0.25 0.007 -0.23
Best Idea - Overweight Tata Steel Pinakin Parekh AC

Ticker: TATA IN, Price: Rs356, PT: Rs500 Investment thesis: Continued re-rating from: a) European turnaround, b) vertically integrated domestic operations, c) potential asset divestments. Drivers/catalysts: European assets largely written off by investors but now recovering. We estimate each $10/T rise in European EBITDA equates to Rs40/share to Tata Steels stock price. In India, we expect improved domestic steel demand FY15. Valuation and risks: Our Jun-14 PT of Rs500 is based on SOTP, valuing Indian operations at 5.7x, Asia at 5.0x, Europe at 5.5x FY15E EV/EBITDA. Key risks include higher inputs costs and/or increase in domestic royalties, lower ASP on back of poor mix, and demand in Europe stagnating.
Tata Steel: Price performance
Source: Bloomberg.
Best Idea - Neutral Chalco Daniel Kang AC

Ticker: 2600 HK, Price: HKD2.86, PT: HKD2.80 Investment thesis: The divestment program is coming to an end, exposing Chalcos core problem of a high cost aluminium business that struggles for profitability in a structurally oversupplied market. Drivers/catalysts: We forecast Chalco to remain in core losses of Rmb3.0bn in 2014 despite marginally higher aluminium prices (+5% in 2013), given flattish volume growth and high financing costs. Valuation and risks: Our Dec-14 PT is based on 0.7x PB (residual income model (P/BV = ROEg/COE-g) with sustainable ROE of 8.2%. Risks include potential M&A or divestments and fluctuations in aluminium prices.
Chalco: Price performance
Source: Bloomberg.
116
Asia Autos
Micro-level investment case Our preferences in Asia Autos space are Japan, China and Korea. Japan and China are expected to lead earnings growth in 2014. Thanks to income growth, sustained property price and replacement demand, we estimate China PV sales to grow 9%yoy in 2014. We prefer SUVs and OEMs over dealers/parts in China. Japan's performance will be driven by JPY movement and the developed market. Korea presents one of the best buying opportunities given its meaningful earnings rebound and model cycle especially for Hyundai Motor. We are bearish on domestic India market overall and the opportunity comes from companys overseas growthfor instance, Tata Motors exposure through Jaguar Land Rover. Indonesias Astra International should benefit from Toyotas aggressive model launches but we are mindful of intense competition. Resilience of the growth outlook In China, SUV and consumption upgrade (to bigger or premium cars, kicking in from ~2014) are two structural and secular trends we expect will persist in the next 3-4 years. Korea and Japan are dominated by developed markets where we are bullish on the US and turning constructive on the EU market. Drivers, trends, and datapoints we are tracking Auto penetration rate, fleet and sales across the region; weekly and monthly sales momentum; dealers price discounts and inventory; capacity and production level, consumption power and currency trends. Key stock picks Our top picks in Asia Auto sector are Brilliance China, Geely and Guangzhou Auto in China, Hyundai Motor in Korea and Tata Motors in India. We are more cautious on DongFeng Motor in China and Maruti Suzuki in India.
Nick LaiAC
(852) 2800 8543, nick.yc.lai@jpmorgan.com Bloomberg JPMA LAI<GO> J.P.Morgan Securities (Asia Pacific) Limited
PV penetration comparison
Source: CEIC, J.P. Morgan estimates.
2014E earnings revision (Bloomberg consensus)
Source: Bloomberg estimates.
China PV sales forecast
Source: CEIC, J.P. Morgan estimates.
117

Price (LC) 7-Nov 13.8 3.9 9.5 380 254,000 11.3 1,611 Code 1114.HK 0175.HK 2238.HK TAMO.BO 005380.KS 0489.HK MRTI.BO Rating OW OW OW OW OW UW UW Mkt cap (US$MM) 8,869 4,337 8,521 18,336 51,451 12,538 7,617 13E 15.1 8.8 17.2 10.7 7.9 7.5 16.8 P/E (x) 14E 11.5 7.0 11.0 9.2 7.1 7.9 15.5 13E EPS (LC) 14E Div. yield 14E (%) 0.9% 2.0% 1.2% 1.1% 0.9% 2.0% 0.6% ROE 14E (%) 30% 20% 12% 21% 17% 16% 13%
Top picks Brilliance China Geely Automobile Guangzhou Auto Tata Motors Hyundai Motor Stocks to avoid Dongfeng Motor Maruti Suzuki
0.72 0.35 0.43 35 3,2313 1.18 95.92
0.94 0.44 0.68 41 35,834 1.13 104.23
Best Idea - Overweight Brilliance China Nick Lai AC

Brilliance BMW sales forecast (units)
Ticker: 1114 HK, Price: HKD13.8, PT: HK$20 Investment thesis: 1) We believe Brilliances BMW volume will grow by 40% in 2014 thanks to 3-series and completion of capacity expansion in Oct-13. 2) R&D investment in Brilliance's new energy car business could be much lower in 2014- same for loss in its mini-bus business. Drivers/catalysts: 1) Customers start to see entrylevel models of premium brands (e.g. BMW, Audi) and a shift favoring premium product is inevitable. 2) We expect Brilliances BMW X1 to grow at 30% in 2014 while localization of BMW X3, likely in (2H) 2016, will be a major LT boost to bottom line. Valuation and risks: Dec14 PT based on 0.7x PEG or equivalent to 17x 2014 PER, high end of the stocks historical trading band. Risks: worst than expected sales from BMW JV and sharper-thanexpected price cut in Chinas auto market.
Source: Company data, J.P. Morgan estimates
Best Idea - Underweight Maruti Suzuki Aditya Makharia AC

Maruti Suzuki monthly sales
Ticker: MSIL IN, Price: Rs1,611, PT: Rs1,350 Investment thesis: The weak demand environment and volatile currency trends will offset cost rationalization efforts over the near term. Drivers/catalysts: 1) Challenging demand environment, 2) Volatile currency trends. Valuation and risks: Mar14 PT of Rs.1,350 is based on 13x forward PER (10% discount to the historic multiple). Risks: revival in industry growth, foray into new export geographies, favorable forex rates, improved benefits from localization program.
Source: Company.
118
Consumer
Micro-level investment case In China, we believe discretionary SSSG has bottomed out; however, there is no sign of strong recovery yet. Separately there are structural challenges threatening margins. Therefore, we focus on discretionary segments immune from structural pressures and some select staples. Headline consumption is normalizing in Thailand with performance differentiated at the subsector level. We prefer to be selective. In Korea, with housing price recovery, we are more confident on discretionary names. In India, we believe 1H is too early too see a strong recovery in consumption. Resilience of the growth outlook With momentum in the economy likely to fade away in 2014 (as per our China economists) and given over capacity in retail and structural challenges in some subsectors, we do not believe discretionary top line and EPS growth outlook is resilient in China. We are likely to see further normalization in margins. In Korea, though, the recovery is gradual and we are seeing slightly better macro data in local consumption, property prices and there are less structural challenges for discretionary names. In Thailand and Philippines long term structural drivers (demographic support, urbanization trends, provincial growth and low penetration levels of modern trade) are in place, though in Thailand headline consumption is normalizing in select segments in the short term. Drivers, trends, and datapoints we are tracking We are following urban and rural incomes, shifts in consumption patterns, property prices, changes in distribution channels, product prices, promotion levels, SSSG, competitive pressures, cost pressures as well as consumer confidence. Key stock picks Our top picks are China Mengniu (product mix driving margins, benefitting from consolidation in IMF segment), CTF (immune from structural pressures in China discretionary), CJO Shopping (play on Korea discretionary), CPALL (leading CVS operator in Thailand, selling pressure due to acquisition over done), Puregold (strong earnings momentum in Philippines). We avoid Belle (margins under pressure due to pricing pressure), CJ Cheiljedang (lack of lysine price rebound), Colgate (severe competitive pressure).
Ebru Sener KurumluAC

(852) 2800-8521, ebru.sener@jpmorgan.com Bloomberg JPMA KURUMLU<GO> J.P. Morgan Securities (Asia Pacific) Limited
China Retailers SSSG trend (ex Sportswear)
Source: Company reports, J.P. Morgan estimates
Thailand SSSG trend
Source: Company reports, J.P. Morgan estimates
Korea Monthly m/m growth of apartment price trends
Source: KB Bank
119

Price (LC) 33 12.6 344,500 38.0 45.9 10.4 246,000 1,244 Code 2319 HK 1929 HK 035760 KS CPALL.TB PGOLD PM 1880 HK 097950 KS CLGT IN Rating OW OW OW OW OW N UW UW Mkt cap (US$MM) 7,516 16,254 2,011 10,916 1,694 11,294 3,081 2,741 P/E (x) 13E 31.7 17.6 17.2 31.5 31.6 15.3 21.2 34.2 14E 23.3 14.9 14.5 22.6 23.7 13.6 18.4 32.3 EPS (LC) 13E 0.82 0.72 19977.71 1.21 1.45 0.53 11603.80 36.42 14E Div. yield 14E (%) 0.7 2.0 1.0 2.4 0.8 2.9 0.7 2.8 ROE 14E (%) 13.8 20.6 23.3 45.7 16.3 18.9 3.3 n.a.
Top picks China Mengniu Chow Tai Fook CJ O Shopping CP All Pcl Puregold Price Club Stocks to avoid Belle CJ Cheiljedang Colgate-Palmolive (India) Limited
1.11 0.85 23743.88 1.68 1.94 0.60 13380.43 38.51
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov 5 2013.
Best Idea - Overweight China Mengniu Ebru Sener Kurumlu AC
China Mengniu: Price performance
Ticker: 2319 HK, Price: HK$33, PT: HK$38.1 Investment thesis: Mengniu is well positioned to gain market share in the dairy sector (fastest growth in staples space) and drive margin expansion through product mix. Drivers/catalysts: While 2H13 earnings will likely be impacted from raw milk cost increases, we would use this as a buying opportunity as long term drivers are intact. We expect 15%/36% earnings growth for FY13/FY14. Valuation and risks: Jun14 PT is HK$38.1, based on 27x 1-yr forward PE (pegged to historical mean). Key risks are shortage of raw milk supply in China and slower momentum in high-end products.
Source: Bloomberg
Best Idea - Underweight CJ Cheiljedang Youna Kim AC

Ticker: 097950 KS, Price: W246,000, PT: W200,000 Investment thesis: Due to over-supply of lysine in China, we expect bio division margins to come under pressure in 2014. We expect further downward consensus earnings revisions. Drivers/catalysts: Slower than expected lysine price rebound is likely to continue to weigh on consensus earnings forecast. Valuation and risks: Dec14 PT is based on (1) EV/EBITDA multiple of 8.0x for core ops (ex. CJ Korea Express) - mean of global lysine manufacturers & Korean packaged food makers; (2) Est value ~W1,249bn for non-core ops. Upside risks include a larger-than-expected lysine price rebound, and higher food division sales.
CJ Cheiljedang: Price performance
Source: Bloomberg
120
Regional Gaming
Micro-level investment case We are positive on Macau gaming names as a structural growth story on a favorable supply-demand dynamics, undemanding valuation with a 4-5% dividend yield as price support. Malaysia market offers a steady growth and revenue environment. We are relatively more cautious on Genting Singapore as we see risk of valuation multiple de-rating as growth slows and Genting Berhad because of Singapore drag. Resilience of the growth outlook We see revenue trend to diverge: Macau: After the two major infrastructure improvements in 2013 and increased supply of hotel rooms, Macau mass market segment should continue to stay strong at 28% for 2014. We expect VIP to grow at a slower pace at 11% tracking the nominal China GDP growth. Overall, we expect a 16% headline growth for the market in 2014. We are at the high end of the Street's estimate. Singapore: We expect 11% revenue growth with downside risk as we believe that the political pressure and mounting bad debt risk of the operators may limit growth. Malaysia should continue to see a steady trend growth of 3-5% as in the past. Drivers, trends, and datapoints we are tracking Macau gaming revenue is tracking a 16% growth for 2013 with yoy growth rate accelerated in 2H13 to around 20%. Adjusted for luck, Singapore market yoy growth decelerated from 20% yoy in 1Q to -9% in 4Q as a result of slowing VIP revenue, based on our estimates. Key stock picks We like Sands China (1928.HK) for its strong mass market exposure with a steady dividend stream of 4%. The continued ramp up of its newly opened and still under-utilized facilities of Sands Cotai Central could bring upside earning surprise in 2014, in our view. MGM (27.HK) for its steady dividend yield at 4% with a free growth option for its upcoming Cotai project (scheduled to open in 2016). We recommend avoiding Genting Singapore (GENS.SP) as we believe that a significant earnings downgrade risk and multiple contraction is likely to cap share price performance. We also do not recommend Genting Bhd (GENT.MK) as we believe that its performance will be dragged by a potentially weaker performance of GENS.
Kenneth FongAC
(852) 2800-8597, kenneth.kc.fong@jpmorgan.com Bloomberg JPMA FONG<GO> J.P. Morgan Securities (Asia Pacific) Limited
Macau gaming revenue and growth

MOP Bn 600 500 400 300 200 100 0 Mass VIP Slot YoY chg 70% 60% 50% 40% 30% 20% 10% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 0%
Source: DICJ, J.P. Morgan.
Singapore gaming revenue and growth

($ m) 10,000 8,000 6,000 4,000 2,000 0
VIP revenue (LHS) Mass revenue (LHS) Slot revenues (LHS) Total revenue yoy growth rate (RHS)
60% 50% 40% 30% 20% 10% 0%
2010A
2011A
2012A
2013E
2014E
2015E
-10%
GENS, GENM and Macau gaming names rolling P/E multiple

P/E x 38 33 28 23 18 13 8 GENS forward P/E Macau forward P/E GENM forward P/E
Feb-11
Apr-11
Feb-12
Apr-12
Feb-13
Dec-10
Dec-11
Dec-12
Jun-10
Jun-11
Jun-12
Apr-13
Aug-10
Aug-11
Aug-12
Jun-13
Aug-13
Oct-10
Oct-11
Oct-12
Source: Company data, Bloomberg, J.P. Morgan estimates.
Oct-13
121

Price (LC) 54.70 27.00 1.47 Code 1928 HK 2282 HK GENS SP Rating OW OW UW Mkt cap (US$MM) 56,885 13,234 14,267 13E 25.3 18.7 31.7 P/E (x) 14E 19.1 15.4 26.6 EPS (LC) 13E 0.28 1.39 0.05 14E 0.37 1.74 0.06 Div. yield 14E (%) 3.7% 4.1% 0.7% ROE 14E (%) 45.7% 74.4% 8.2%
Top picks Sands China MGM China Stocks to avoid Genting Singapore
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 12 Nov 2013 market close.
Best Idea - Overweight Sands China Kenneth Fong AC

Ticker: 1928.HK, Price: HK$54.7, PT: HK$62.0 Investment thesis: We expect the strongest earnings growth to come from Sands China in 2014 driven by the robust mass market growth, yield improvement from its existing facilities, margin expansion and non-organic new opening. Drivers/catalysts: Strong Macau gaming revenue and potential Street earnings upgrade. Valuation and risks: Our Dec-14 PT of HK$62.0 is based on our SOTP valuation, applying a 15-19x 2014E EBITDA multiple to its casinos. We assume Macau gaming revenue to grow 16% for FY13 and 16% for FY14.Downside risks to our PT include: regulatory risks from China; execution risks from Sands Cotai Central; and potential credit risk around its direct VIP business.
Sands China share price performance vs. one-year forward rolling P/E ratio
(HK$) 68 58 48 38 28 18 8
Price (LHS) P/E (RHS)
P/E (x) 24 22 20 18 16 14 12 10 8
Source: Bloomberg, J.P. Morgan estimates.
Best Idea Underweight Genting Singapore Kenneth Fong AC

Ticker: GENS.SP, Price: S$1.47, PT: S$1.28 Investment thesis: We believe the risk of earnings downgrades (as a result of slower VIP and decelerating mass) and multiple contraction (valuation converge with Macau peers) will cap share price performance. Drivers/catalysts: Worse-than-expected result. Valuation and risks: Our Jun-14 PT of S$1.28 is based on a SOTP, where its Singapore business at 10x FY14 EV/EBITDA, a discount to the 12x-19x for its Macau peers. Key upside risks: (1) Strongerthan-expected growth in the Singapore gaming market; (2) Quicker-than-expected market share recovery with the help of Marine Life Park, (3) Positive operating leverage from RWS's ramp-up and (4) Quicker-than-expected materialization of M&As or overseas venture.
Genting Singapore share price performance vs. 1-year forward rolling P/E ratio
(S$) 2.5 2.3 2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5 15 20 25 30 35 Price (LHS) 1 yr forward P/E (RHS) P/E (x) 40
Dec-10
Dec-11
Dec-12
Jun-10
Jun-11
Jun-12
Aug-10
Aug-11
Aug-12
Jun-13
Aug-13
Oct-10
Oct-11
Oct-12
Feb-11 Apr-11
Feb-12 Apr-12
122
Feb-13 Apr-13
Oct-13
Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13
Energy Ecosystem
Structural growth for oil services/energy infrastructure We see companies leveraged to oil services and energy infrastructure as offering a good investment opportunity within the current energy price environment, where free cash flow for some energy producers remains under pressure combined with geopolitical/execution risks. For China, a declining hydrocarbon resource base, increasing import dependency and access to potentially the largest non-conventional gas base globally, the government is actively promoting the local oil services and energy infrastructure sectors. With the potential for more nonconventional wells to be drilled, increasing energy connectivity and continued spending on onshore/offshore oil & gas fields (also a benefit for Asian oil services/yards), we see the Chinese oil services market as worth up to cUS$250 billion by 2020. Rising domestic natural gas prices in Asia; structurally tight LNG market globally We see a tight global LNG market in the medium term with supply risks and upward pressure on pricing. While uncertainty around the timing of Japans nuclear plant restarts is likely to persist in 2014, we expect strong demand for LNG. All these positive fundamentals frame our investment choices to be leveraged to selected LNG producers and oil services/shipyards providing products and LNG vessels. In contrast, higher gas import prices continue to exert pressure on governments, such as those in China, ASEAN and India, to reduce the cost burden and raise domestic gas prices. Flat, but high oil price outlook We see a relatively tight oil market, but Brent at essentially a similar level to the last three years, other non-OPEC supply offsetting North American output growth and continued geopolitical risks to oil supply. We use a base-case Brent price assumption of US$112/bl for 2014 and US$105/bl for 2015.
Selected macro assumptions
Brent, US$/bl WTI, US$/bl Thermal coal, US$/ton Asia refining margin, US$/bl
Source: J.P. Morgan estimates
Scott L DarlingAC
(852) 2800 8578, scott.l.darling@jpmorgan.com Bloomberg JPMA DARLING <GO> J.P. Morgan Securities (Asia Pacific) Limited
Drilling in China seems largely inelastic to prices
Source: Company data, J.P. Morgan estimates. Charts shows exploration/production wells for PetroChina and Sinopec (including dry wells)
Supply-constrained domestic natural gas markets
Source: Wood Mackenzie, J.P. Morgan. Chart shows natural gas demand and conventional supply. All data 2013+ are estimates
LNG prices to remain high this decade; Asia domestic price hikes
Source: Bloomberg, J.P. Morgan. Chart shows spot natural gas prices by region. *For China, PetroChinas realized wellhead natural gas price shown.
Structurally tight LNG market; more equipment required
2013E 110 101 83 6.30
2014E 112 104 84 6.30
2015E 105 98 87 6.30
Source: J.P. Morgan estimates. Chart shows global LNG demand forecast / spare capacity in mtpa
123
Thermal coal oversupply to persist Coal markets have stabilized and are showing some early signs of recovery with prices rebounding off their September lows. Prices had fallen to marginal levels prompting some supply response but seasonal 4Q winter restocking has been the primary driver of this recent rebound in coal prices. Beyond seasonality, any rebound will likely be muted by significant idled capacity. In this environment, we prefer companies with low (or declining) costs, high-quality growth and positive free cash flow, and would avoid high-cost, high-debt companies. Be selective on utilities While the valuation for the entire sector is still close to historical average, selected sub-sectors (e.g. China gas distributors) have enjoyed significant re-rating and any headwinds could reverse the trend. Underperforming sub-sectors (China equipment makers) are unlikely to recover given their LT structural problems. We focus on non-yield stocks that have (1) emerging +ve catalysts; (2) major overhang removed; (3) growing strong cash flows, and avoid ex-growth yield plays. Key potential catalysts are 1) sustained coal price weakness, 2) consistent growth (organic & M&A), and 3) rising US treasury yields. Refining not as bad as expected Despite the significant capacity addition in Asia and ME, we believe GRMs will only be slightly lower to flat in 2014 vs. 2013 for the following reasons: 1) Chinese gasoline specs upgrade to China IV will likely mean less production from teapots refiners who have not made the investment to upgrade their equipment, meaning Sinopec and Petrochina need to fill in the gap and thus potentially export less to Asia; 2) both Australia and Japan will have refinery closures which should be positive for margins; 3) Saudi SATORP start-up may have less of an impact as first thought as they will make high-spec products with the bulk targeted for Europe. Downside risk is potentially lower gasoline demand in Indonesia and Malaysia where subsidies were recently cut. Petrochemicals deceleration into 2014 We continue to hold the view that 3Q was only a blip in an otherwise general downtrend in petchemical spreads. 3Q was supported by higher oil prices, looser credit liquidity in China, and many unplanned outages in Asia. With 2013 new supply generally back-end-loaded and even more new capacity coming on-stream in 2014, we do not believe demand growth next year will outpace supply additions. Furthermore with lower cotton prices, we see margins pressure for the whole polyester chain, especially PX, where spreads have held up well in 2013.
124
Divergence in fundamentals between coal and oil
Source: Bloomberg, J.P. Morgan estimates
China annualized coal output
Source: NBS, WIND, J.P. Morgan estimates
Net refining additions (kb/d) concentrated in Asia/MENA
Source: J.P. Morgan Commodities Research estimates
Weaker cotton prices will be negative for the polyester chain
Source: IHS Chemical, Bloomberg. Data in US$/ton
We believe PX spreads have the greatest downside in 2014
Source: IHS Chemical, Bloomberg. Data in US$/to
Oil & Gas

Micro-level investment case For our coverage, we see differentiation within the sector and have a preference for companies which focus on free cash flow from exploration growth, capital discipline and/or restructuring which we expect to be rewarded by investors within an oils equities context. For China, we see incremental margin uplift for upgraded refiners from fuel specification changes, further natural gas price hikes possibly for residential users, and increased focus on non-conventional projects with continued drilling activity. For India and parts of ASEAN, energy reforms are likely to continue, with gradual rises in fuel and natural gas prices with less visibility as observed for China in 2013. Resilience of the growth outlook We expect Chinese oil demand to be driven by doubledigit gasoline demand growth from urbanization, wage growth and increased car ownership in 2014. Diesel demand is likely to disappoint, growing 1% y/y unless we see a turnaround in export growth (c60% of demand is heavy duty transportation). We forecast China oil demand growth at 4% y/y in 2014, unchanged from 2012-13. For India, we forecast c3% oil demand growth and ASEAN at c2.5% y/y. Chinese natural gas demand should moderate to low double-digit growth, relative to c20% y/y during 2005-10 and 12-13% y/y in 2012-13 reflecting lower industrial demand growth, while Indias growth estimated at c10% y/y. Given Chinas slowdown in its property sector, the intensity of petrochemical demand per unit of GDP growth has declined to 0.5x growth from over 1x prior to 2011. We forecast demand to grow 4-5% in 2014, similar to 2012-13, given a GDP growth target of 7.5%. Drivers, trends, and datapoints we are tracking We are tracking passenger auto sales for personal transportation demand for energy (gasoline), merchandise export data for heavy duty transportation energy demand (diesel), and GDP growth as a signal for petrochemical demand growth. Key stock picks We have a preference for investments indirectly linked to the oil capex cycle such as oil services (Anton Oil), upstream leverage with credible exploration pipeline (Cairn India/Buru Energy) at good value and those undergoing corporate re-positioning to sustain returns within the current oil price environment where industry returns are under pressure (Sinopec/PetroChina).
Scott L DarlingAC
(852) 2800 8578, scott.l.darling@jpmorgan.com Bloomberg JPMA DARLING <GO> J.P. Morgan Securities (Asia Pacific) Limited
Incremental Chinese refining margins - US$/bbl
Chinese oil demand growth remains robust, mb/d
Supply constrained Chinese gas market; demand moderation
Increasing focus on upstream cash conversion
Source: Company data, J.P. Morgan. 125

Price (LC) 1.51 4.9 318 6.4 8.7 1.45 8.48 282 Code BRU AU 3337 HK CAIR IN 386 HK 857 HK BPT AU OSH AU ONGC IN Rating OW OW OW OW OW UW UW N Mkt cap (US$MM) 392 1,359 9,804 72,030 204,700 1,744 10,804 39,130 P/E (x) 13E nm 20.5 5.1 8.1 10.8 13.0 61.6 10.0 14E nm 14.5 4.5 7.3 9.3 8.7 29.2 9.9 EPS (LC) 13E 0.02 0.19 71.40 0.62 0.63 0.12 0.13 28.4 14E 0.11 0.27 75.11 0.69 0.73 0.17 0.28 35.85 Div. yield 14E (%) 0 2 4 6 5 2 0 3 ROE 14E (%) 3 23 22 14 12 11 10 12
Top picks Buru Energy Anton Oil Cairn India Sinopec PetroChina Stocks to avoid Beach Energy Oil Search ONGC
Best Idea - Overweight Anton Oil Scott Darling AC

Ticker: 3337 HK, Price: HK$4.9, PT: HK$6.4 Investment thesis: Anton Oils structural growth story built around Chinas non-conventional gas resource base will continue to act as a key value driver, we see its positioning toward an integrated service model not fully reflected in its valuation. Drivers/catalysts: New order wins from China and Iraq, new integrated service businesses and start-up of its Tianjin manufacturing site. Valuation and risks: Our SOP PT of HK$6.4 (Dec14) assigns an EV/EBITDA multiple to each business segment based on regional/global peers. Key risks are increased competition lowering margins, and lower oil industry capex.
Anton Oils integrated model to improve margins
Source: Company data, J.P. Morgan estimates; Note Tubular services net margin affected by one off charge in 2011.
Best Idea - Underweight Beach Energy Ben Wilson AC

Ticker: BPT AU, Price: A$1.45, PT: A$1.29 Investment thesis: Beach has strong conventional Cooper Basin assets, however we are yet to be convinced of the commerciality of its unconventional exploration. We are unable to achieve a base case valuation above A$1.47/sh and do not explicitly value BPT's Cooper shale potential. Drivers/catalysts: Beach will frac test its Holdfast-2 horizontal well in PEL218 shortly with results expected over 1QCY14. Valuation and risks: Our SOP/DCF PT includes value for the BPT gas contract with Origin and the potential expansion of Cooper Western Flank exploration but no option value for the early stage shale gas, nor Abu Sennan etc. Key risks are higher oil prices, exploration & development success especially in the Cooper Basin
Beach Energy production profile by product (mmboe)
Source: J.P. Morgan estimates, Company data.
126
Petrochemicals/Refining
Micro-level investment case In 2014, we prefer refining over petrochemicals. While headline refining capacity growth in Asia and ME appears at first to be significant, we believe with much of that capacity growth in China, the net impact on Asian GRMs will be minimal. As China migrates to China IV gasoline next year, many teapot refineries that have not made the upgrading investment will likely need to shut, which means Sinopec and Petrochina may increase output to fill in the gap. Also we dont believe China will become a large exporter of refined products as this would involve increasing crude imports. The situation for petrochemicals is somewhat different. We believe increasing Chinese production will lead to less imports required, which will be negative for N Asia exporters which need to compete with more competitive ME and US producers based on gas. Resilience of the growth outlook We believe consensus earnings for petrochemicals remain too high in 2014 where we expect companies to report generally flat earnings growth over 2013. While 3Q13 was a good quarter for spreads, we do not believe they are sustainable in the next 6-9 months as the higher spreads were mainly driven by supply issues rather than a surge in demand. We expect the Ethylene chain to weaken in 2014 and in particular BD spreads to remain at low levels (vs. history) due to weak demand for SBR. We are particularly bearish on PX, where we think spreads will come off significantly in 2014 due to the slew of new capacities coupled with increasingly lower cotton prices, which limits the upside to polyester prices. Drivers, trends, and datapoints we are tracking While the macro Chinese datapoints such as PMI and IP growth remain important, the key trends of the industry remain downstream demand and trade flow. For refining, we are forecasting slightly lower to flat GRMs next year while for petrochemicals we are assuming generally lower spreads in 2014. Key refining trade flow to watch is where the new SATORP refinery (Saudi) will ship their products. In petrochemicals, we are closely watching the trade flow of recycle plastics into China and increasing exports from ME. Key stock picks We prefer refineries over petrochemicals. Our top picks have organic growth and trough valuations (SK Inno and Reliance). SPC is our preferred exposure to a recovery in Chinese refining margins. Avoid pure commodity chemical companies i.e. Lotte Chemical.
Samuel LeeAC
(852) 2800-8536, samuel.sw.lee@jpmorgan.com Bloomberg JPMA SLEE<GO> J.P. Morgan Securities (Asia Pacific) Limited
Net refining additions concentrated in Asia/MENA

000 bbl/d
Source: J.P. Morgan Commodities Research estimates.
We forecast PE supply to outpace demand growth

LHS (000 tons), RHS ($/ton)
Source: IHS Chemical, J.P. Morgan estimates.
Weaker cotton prices will be negative for the polyester chain

$/ton
Source: Bloomberg.
We believe PX spreads have the greatest downside in 2014

$/ton
Source: IHS Chemical, Bloomberg.
127

Price (LC) 140,500 876 1.99 207,000 75,300 Code 096770 KS RIL IN 0386 HK 011170 KS 010950 KS Rating OW OW OW UW UW Mkt cap (US$MM) 12,184 44,676 4,191 6,654 7,950 P/E (x) 13E 10.7 12.0 18.4 18.6 18.5 14E 8.4 10.9 12.2 17.4 14.7 EPS (LC) 13E 13,121 72.71 0.11 11,133 4,062 14E 16,804 80.23 0.16 11,896 5,121 Div. yield 14E (%) 1.8 1.3 2.5 0.5 3.4 ROE 14E (%) 7.9 14.5 10.3 6.2 9.9
Top picks SK Innovation Reliance Industries Shanghai Petchem Stocks to avoid Lotte Chem S-Oil
Source: Bloomberg, J.P. Morgan estimates. Note: Shanghai Petchem covered by Sophie Tan. RIL March year-end. Share prices and valuations are as of November 8, 2013.
Best Idea Overweight SK Innovation Samuel Lee AC

Ticker: 096770 KS, Price: W140,500, PT: W180,000 Investment thesis: With flat to slightly lower GRM forecasted for 2014, we want to buy companies with organic growth and low valuations. We also believe the market remains overly negative on SK Innos corporate governance. Drivers/catalysts: Aside from the significant PX capacity expansion in 2014, SK Inno will also upgrade its Incheon refinery so that it can run near 100% rather than 50% currently and at the same time, improve the product yield which is the key value add of the project. Valuation and risks: Dec14 PT based on 0.8x 2014 BV vs. forecasted ROE of 8-9%. Downside risks are stronger Korean Won, highly volatile crude oil prices and delays to new capacity startup.
SK Inno capacity expansion also includes refinery yield upgrade

CDU #1 (75 kpbd) Desulfurization (80 kpbd)
Crude
New Refined Products Yield Light Naphtha (26%) Diesel/Jet Fuel (48%) Fuel Oil (16%) LPG (10%) CDU #2/condensate splitter (200 kpbd) Reformer (70 kpbd) New PX unit Net Petchem Products BTX (500 kta) PX (1300 kta)
Condensate
Heavy Naphtha
Source: Company data, J.P. Morgan.
Best Idea - Underweight Lotte Chem Samuel Lee AC

Ticker: 011170 KS, Price: W207,000, PT: W140,000 Investment thesis: With the polyester chain likely to remain weak next year and our bearish outlook for the Ethylene chain (coupled with minimal capacity growth), we believe consensus remains too bullish on 2014 earnings (we are more than 30% below). Drivers/catalysts: Earnings downgrade remains a key negative catalyst as was shown in 1H13 while falling BD and MEG prices would also be negative for Lottes earnings and share price. Valuation and risks: Dec14 PT based on 0.7x 2014 BV vs. forecasted avg ROE of 7% for 2014-15. Upside risks are higher crude oil which is generally positive for petchem pricing and stronger demand for SBR, which would be positive for BD prices.
Lotte share price continues to move with BD spreads
Source: Bloomberg.
128
Utilities & Power Equipment

Micro-level investment case Following 2-3 years of strong performance, Asia utilities began to underperform over the past 6 months amidst (1) tapering concerns and (2) other sector specific factors (e.g. power tariff cuts & natural gas hikes in China, water tariff cuts in Philippines). While valuation for the entire sector is still close to historical average, selected subsectors (e.g. China gas distributors) have enjoyed significant re-rating and any headwinds will reverse the trend. Also, underperforming sub-sectors (India IPPs / China equipment makers) will not likely recover given their LT structural problems. In this respect, investors should be stock-selective and focus on non-yield stocks that have (1) emerging +ve catalysts, (2) major overhang removed and (3) growing strong cash flows, and avoid ex-growth yield plays. Key catalysts to watch out for are 1) sustained coal price weakness, 2) consistent growth (organic & M&A) and 3) rising US treasury yields. Resilience of the growth outlook In general, Asia utilities are relatively less affected by economic growth than other sectors. Specifically, (1) HK utilities and Thai IPPs are protected by proven tariff regime mechanism. (2) China wind farm, city gas & wastewater treatment operators enjoy structural growth thanks to the Governments pollution control plans, irrespective of economic conditions. (3) China IPPs, Tenaga and Korean utilities should even have improved margins thanks to weakening fuel prices (coal + LNG). The only players that we think will be negatively affected are power equipment makers and possibly Indian IPPs. Drivers, trends, and data points we are tracking Key data points to keep track of are (1) spot coal prices, (2) power demand growth, (3) gas demand growth, (4) CPI, (5) FX fluctuations against US$ (e.g. KRW, INR, MYR and to a less extent CNY). Key stock picks Our top picks are CR Power (sustainable weak coal prices & strong cash flow), BJE Water (M&A opportunities & Govt support), Longyuan (& new solar opportunities + Govt support), Tenaga (sustainable weak coal prices & resilient energy demand growth), and Metro Pacific (steady growth in tollway business + upside from new infrastructure projects). Stocks to avoid are Shanghai Electric (weak domestic coal-fired order outlook + earnings disappointment) and Adani Power (Highest exposure to weakening INR & gearing (~1000%) + earnings disappointment).
Boris KanAC
(852) 2800 8573, boris.cw.kan@jpmorgan.com Bloomberg JPMA KAN <GO> J.P. Morgan Securities (Asia Pacific) Limited
MSCI AEJ Utilities, MSCI AEJ, UST 10-yr yield (Rebased at 100)
Source: Bloomberg
Asia utilities & equipment: Re (De)-rating from Jan 11 to now **
Source: Bloomberg, J.P. Morgan estimates ** Based on 1-yr forward P/B
J.P. Morgan thermal coal price forecasts: QHD (Rmb / ton)
Source: J.P. Morgan Coal Team
129

Top picks CR Power BJ Ent Water Longyuan Tenaga Metro Pacific Stocks to avoid Shanghai Electric Adani Power Price (LC) 19.92 3.6 9.38 9.39 4.79 2.79 35.25 Code 836 HK 371 HK 916 HK TNB MK MPI PM 2727 HK ADANI IN Rating OW OW OW OW OW UW UW
Mkt cap (US$MM) 12,151 3,918 9,522 16,700 2,817 4,599 1,633
P/E (x) 13E 8.9 27.1 18.9 12.2 15.6 10.4 NM
14E 8.4 20.6 14.8 11.5 14.5 9.8 27.1
EPS (LC) 13E 2.25 0.13 0.50 0.77 0.31 0.27 -9.76
14E 2.37 0.17 0.63 0.82 0.33 0.29 1.30
ROE 14E (%) 17.5 10.8 12.0 11.3 8.9 8.3 8.4
Best Idea Overweight BJ Ent Water Elaine Wu AC

Ticker: 371 HK, Price: HK$3.6, PT: HK$3.8 Investment thesis: BEW is a leader in China's wastewater treatment sector. Its strength lies in its breadth of geographic reach and strong project execution. In 2014, we believe it will take advantage of industry consolidation and add to its existing capacity by acquiring smaller water companies or acquiring projects from local governments. Drivers/catalysts: Acquisitions of water treatment companies and brownfield projects, higher contribution of operational revenue. Valuation and risks: Our Dec-14 PT is based on SOTP - P/E multiple of 7x (construction contractors average) to derive the valuation of the build-transfer segment and DCF (WACC 8.2%, terminal g 2% to value the remaining water segment. Risks include equity dilution risks and higher interest rates.
BJE Water: Net profit and ROE outlook
Source: Company data, J.P. Morgan estimates
Best Idea Underweight Shanghai Electric Boris Kan AC

Ticker: 2727 HK, Price: HK$2.79, PT: HK$2.4 Investment thesis: Our bearish view on SHE rests on expected weak demand for coal-fired equipment as China (1) continues to rely less on coal due to pollution concerns, (2) has slower power demand growth as it shifts away from FAI growth model. Drivers/catalysts: New order flows (and ASP trend), margin on equipment sales (and outlook), nuclear orders, rollout of overseas projects. Valuation and risks: Our Jun14 PT is based on 7.9x 4-yr fwd through-cycle EPS in 2013-15E (7.9x is based on one SD below 5-year historical average 1year forward P/E). Risks include better than expected coal-fired equipment delivery, earlier than expected nuclear order rollout.
China thermal utilization hours and capacity addition
Source: CEC, J.P. Morgan estimates
130
Thermal Coal
Micro-level investment case Coal markets are showing early signs of recovery with prices rebounding off their September lows. Prices had fallen to marginal levels prompting some supply response but seasonal 4Q winter restocking has been the primary driver of this recent rebound in coal prices. Beyond seasonality, any rebound will likely be muted by significant idled capacity. In this environment, we prefer companies with low (or declining) costs, high quality growth and positive free cash flow while high cost, high debt plays should be avoided. Resilience of the growth outlook China (c25%) and India (10-15%) remain the dominant consumers of coal, accounting for c35-40% of global coal demand but driving nearly all of the growth in global seaborne trade over recent years. In 2013, thermal coal imports to China and India are on track to grow 12%, helping overall global coal demand to grow by c4% to c950mt this year. However, this has been overwhelmed by new supply as a result of new coal infrastructure over recent years. Meanwhile, US coal exports remain stubbornly high despite weak economics, which we assume are due to take or pay contracts. Going forward, we expect Chinese imports to fall given climate change and energy mix policies and improved infrastructure that should ease the supply bottleneck. While we remain positive on the longer term picture for seaborne coal as EM nations seek to grow their economies with affordable power, we expect the sector to struggle with oversupply in the near term if there is no sharp increase in demand. Drivers, trends, and datapoints we are tracking With coal markets remaining in oversupply, companies will need to focus on self help measures such as control of costs and capex to ensure positive free cash generation. For signals on underlying market strength, we continue to monitor market inventory, import and end user demand trends (ie. IPP stock days, power generation). Neutral stance Stick with defensive integrated plays With investors already positioned heavily UW the sector, we recommend a N sector stance. Our preferred sector exposure is Shenhua for its world class, low cost coal assets integrated with its own rail assets and IPP assets that offer some protection to low coal prices. We recommend avoiding higher cost, high debt companies that struggle on negative free cash generation including:China Coal and Indika. With Coal India, we believe the sustainability of its superior return profile is at risk from production and policy uncertainty.
Daniel KangAC
(852) 2800 8570, daniel.kang@jpmorgan.com Bloomberg JPMA KANG <GO> J.P. Morgan Securities (Asia Pacific) Limited
China domestic price war is over, recovery begins
QHD 5500Kc versus Bohai Rim thermal price
Source: Bloomberg, Sxcoal.
Significant idled capacity remains available
IPP coal inventory and stock days
Source: NBS, J.P. Morgan
All priced in? Valuations close to trough and below trend
Coal Price/Book valuations

Asia Coal 1 Yr Forward PBV Shenhua H China Coal H Yanzhou H Banpu Coal India Adaro Energy Indika Energy PTBA Semirara Mining Sector Avg Spot 2014E JPM 1.2 0.6 0.6 0.9 3.1 1.2 0.5 3.1 0.5 1.2 Average 5 years 2.1 1.3 1.5 1.8 4.0 2.2 2.9 4.0 3.5 2.4 Low 0.9 0.4 0.4 0.7 2.7 0.7 2.2 1.6 1.5 1.1 High 3.6 2.6 2.8 2.9 5.6 4.0 3.6 6.4 5.0 3.9
Source: NBS, WIND, J.P. Morgan estimates
131

Price (LC) 23.9 760 4.85 295.4 Code 1088 HK INDY IJ 1898 HK COAL IN Rating OW N N N Mkt cap (US$MM) 10,479 349 2,569 30,261 13E 8.7 na 11.7 11.0 P/E (x) 14E 9.3 9.6 14.7 10.2 13E 2.15 -0.007 0.33 27.48 EPS (LC) 14E 2.02 0.007 0.26 26.96 Div. yield 14E (%) 4.2 0.0 2.0 4.8 ROE 14E (%) 13.6 5.2 3.9 31.8
Top picks Shenhua Stocks to avoid Indika Energy China Coal Energy Coal India
Best Idea - Overweight China Shenhua Energy Daniel Kang AC

Ticker: 1088 HK, Price: HKD23.90, PT: HKD26.50 Investment thesis: With a robust organic growth outlook (+5% coal output growth in 2014-15E) and its own IPP business, we believe Shenhua provides defensive coal exposure with a resilient profit outlook. Drivers/catalysts: Driven by lower assumed coal prices, we forecast FY14 profits to fall 6%, relatively better than the sector due to its own IPP operations. A clean balance sheet offers potential for M+A. Valuation and risks: Dec-14 PT based on blended avg of: 1) PB-ROE of HKD22.37, HKD37.05 using EV/EBITDA 7.1x, HKD32.54 using PE 11.9x, DCFbased NPV of HKD35.92. Downside risks include lower than expected coal price and power tariffs, slower volume growth
Shenhua: Price performance
Source: Bloomberg.
Best Idea - Neutral China Coal Energy Daniel Kang AC

Ticker: 1898 HK, Price: HKD4.67, PT: HKD4.50 Investment thesis: Consensus downgrades likely (JPM FY14E 34% below Street), negative FCF from ongoing capex leading to high gearing, lower ROE Drivers/catalysts: Coal prices forecast to average lower and with higher interest expenses, we expect FY14E profits to fall 20% yoy. Startup of coal to chemicals project offer potential contribution. Capex cycle yet to peak, ensuring negative FCF continues. Valuation and risks: Dec-14 price target of HKD4.50/share assuming a 13.5x. Risks include coal price movement, execution risk on growth projects
China Coal Energy (1898 HK): Price performance
Source: Bloomberg.
132
Financial Sector
Micro-level investment case We think 2014 will be very much a year of muddle through, as tighter system liquidity begins to weigh on growth & pushes up credit costs, but without the kind of acute shock we saw earlier this year. Loans continue to grow at 3-5% above deposits, pushing up LDRs at an accelerated pace going into the end of 2013. While LDRs are now approaching 100% across much of EM Asia, that in itself is not a constraint; indeed, we see mgmt teams allowing leverage to continue to build. This may support modest loan growth (+12% average) and EPS growth (+8% average) for the region, but we think investors will ultimately assign a much lower multiple to those earnings, as we near the end of the re-leveraging cycle post-08. Resilience of the growth outlook As mentioned above, we think banks are more confident in their ability to continue to supply credit, despite fears of excessive leverage and/or high LDRs (see next page). That said, wed rather own companies benefit from ongoing easy liquidity, than companies that provide it, and ultimately hold the credit risk when economic growth decelerates later on. The biggest question is whether continued credit growth next year feeds through to inflation, forcing policy rate hikes. For now we only see further hikes in India and Indonesia. That would be the trigger for a significant downside in growth forecasts. Drivers, trends, and datapoints we are tracking The prospect of steepening yield curves is likely to benefit NIM sensitive geographies like Taiwan, HK, Singapore, and to a lesser extent Korea. It also plays to our preference for life insurers, of which Ping An (in China) and Samsung Life (in Korea) are among our key Overweights. At the same time, rising interest rates remains a threat to asset quality in areas where leverage has increased the most in recent years (Indonesia; Thai consumer). In general, wed have an negative stance on Financials in the region, given the cyclical headwinds. Key stock picks On the long side, we like CCB and Samsung Card for their defensive balance sheets & gearing to the North Asia. ICICI remains our top pick in India, given its strong capital position & improving mix (retail/onshore) of loans, which should drive up ROEs. KTB is a play on corporate loan growth in Thailand, which we see as less risky than consumer; and Ping An is our top pick on structural developments in Chinas life insurance space (e.g. health). Our UWs include OCBC (overseas risk; gearing); Mandiri (on NIMs, asset quality, growth); and Chailease (on NPL risk; valuations).
Josh KlaczekAC
(852) 2800-8534, josh.klaczek@jpmorgan.com Bloomberg JPMA KLACZEK <GO> J.P. Morgan Securities (Asia Pacific) Limited
Global Dollar Base vs. Asia 10Y Sovereign Yield (Avg)
Source: CEIC.
ASEAN: LDRs Increase Alongside Fixed Investment
Source: CEIC.
North Asia: LDRs Decrease Alongside Fixed Investment
Source: CEIC.
133

Price (LC) 5.84 37,950 1,012.75 19.5 61.1 10.45 7,600 71.2 Code 939 HK 029780 KS ICICIBC IN KTB TB 2318 HK OCBC SP BMRI IJ 5871 TT Rating OW OW OW OW OW UW UW N Mkt cap (US$MM) 188,178 4,093 18,344 8,629 53,466 28,723 15,296 2,395 P/E (x) 13E 5.36 14.96 12.90 9.62 13.26 14.52 10.48 12.45 14E 4.97 13.52 10.53 8.10 10.43 13.06 11.39 10.33 EPS (LC) 13E 0.86 2,536 78.52 2.03 3.64 0.72 730.07 5.72 14E 0.92 2,806 96.15 2.41 4.63 0.80 671.71 6.89 Div. yield 14E (%) 7.04 1.84 2.86 4.62 1.14 3.25 2.63 3.38 ROE 14E (%) 19.86 5.70 12.94 15.99 17.30 10.61 17.20 23.10
Top picks China Construction Bank Samsung Card ICICI Bank Krung Thai Bank Ping An Insurance Stocks to avoid OCBC Bank PT Bank Mandiri Tbk. Chailease Holding
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov 13, 2013.
Best Idea - Overweight Ping An Insurance Group MW Kim AC

Loan/Deposits: Rise Post-08 = Less Excess Liquidity
Ticker: 2318 HK, Price: HK$61.0, PT: HK$84.0 Investment thesis: As its NBV margin already reaches to AIA Group's FY09 level, following the private health insurance market expansion, its market dominant agency operation could bring further value-increase momentum. Drivers/catalysts: (1) strong NBV growth potential backed by the best agency operation. (2): ~5% nonlife underwriting margin outlook with >20% top-line growth; (3) better synergy evidence between banking and insurance Valuation and risks: Our Dec-14 PT of HK$84 is based on 8.7x NBM for life, 1.9x P/BV for non-life, 0.7x P/BV for bank. Key downside risks are asset quality concerns at its banking and trust operations.
Source: CEIC.
Best Idea - Underweight PT Bank Mandiri Tbk Harsh W Modi AC

Private Credit/GDP: Rise Post-08 = Greater Credit Risk
Ticker: BMRI IJ, Price: Rp7,600, PT: Rp7,000 Investment thesis: Mandiri has underperformed its peers by 7% YTD and we believe the trend will persist in 2014 due to: slower loan growth, margin compression and higher credit costs. Drivers/catalysts: 1) Loan growth will slow down to 12% in FY14 due to tighter liquidity condition and credit standards, 2) NIM will decline as funding costs continue to increase, 3) NPL will increase 60bps y/y to 2.7% on lower credit availability, cashflow strains at borrowers and currency depreciation. Valuation and risks: Dec-14 PT of Rp7,000 based on DDM: RFR of 8% CoE of 15.2%, Normalized RoE of 19.9% and terminal growth of 8%. Key downside risks to our view include better than expected asset quality, NIM and loan growth.
Source: World Bank.
134
Insurance
Micro-level investment case Following the last 30 months yield curve flattening, Asian insurers balance sheets have largely inflated backed by valuations gains from AFS bond book. Under a curve steepening scenario, rising balance sheet stress will impact insurers underwriting, asset allocation, and dividend policy. Thus, we believe staying with overcapitalized insurers will provide better risk/return. In China, following strong volume increase in healthcare insurance, source of earnings change from "investment spread margin" to "mortality/morbidity" should support earnings/ NBV/ share price re-rating during 2014. Resilience of the growth outlook China insurers business model is fast transforming from volume to value. Thus, improving NBV growth backed by rising household demand/ government subsidy increase is key value growth driver for the life sector. Korean life insurers would get continuing benefit from demographics changes and demand on tax-efficient insurance products. We expect double-digit volume growth for China non-life insurers backed by new car sales. ASEAN insurers could enjoy rising household demand on insurance products following GDP growth and young demographics/raising middle income household increase. Drivers, trends, and datapoints we are tracking We are observing a rising demand for protection-type (health/ accident) insurance following household wealth increase and/or better risk awareness. Thus, agency headcounts/ product mix trend should be key drivers for AIA Group/ Chinese life insurers. Underwriting cycle in auto insurance, mortality margin trend on health insurance should be more relevant datapoints for Korean non-life insurers. Demand for insurance for ageing population and liability funding cost trend should remain key drivers for Korean life insurers. Key stock picks Ping An Group is our top pick as we believe it has the best agent channel, and strong growth prospects from the meaningfully opening healthcare insurance market in China. AIA Groups business turnaround from ASEAN countries, SFMs improving shareholder return, SLIs NBV/ earnings improvements remain key sector catalysts. Dongbu stays our top UW due to the high chance of its mortality/morbidity margin deterioration during 2014. We remain cautious on New China Life due to vulnerable to regulatory developments.
MW Kim AC
(852) 2800-8517, mw.kim@jpmorgan.com Bloomberg JPMA MKIM<GO> J.P. Morgan Securities (Asia Pacific) Limited
Ping An Group First year premiums by channel

%
Source: Company reports.
China life insurers agency headcount trend

Person
Korea non-life insurers solvency ratio trend

%
Source: Financial Supervisory Service (FSS)
135

Price (LC) 61.0 38.4 247,000 104,000 49,400 22.0 Code 2318 HK 1299 HK 000810 KS 032830 KS 005830 KS 1336 HK Rating OW OW OW OW UW N Mkt cap (US$MM) 53,322 59,662 11,005 19,561 3,289 10,997 P/E (x) 13E 13.2 18.2 20.7 25.4 14.4 14.2 14E 10.4 18.3 11.7 17.8 8.8 11.2 EPS (LC) 13E 3.64 0.27 11,926 4,123 3,386 1.45 14E 4.63 0.27 21,092 5,920 5,622 1.34 Div. yield 14E (%) 1.1 1.2 2.8 1.7 2.2 1.1 ROE 14E (%) 17.3 10.7 9.8 5.4 9.1 10.0
Top picks Ping An Insurance Group AIA Group Samsung Fire & Marine Samsung Life Stocks to avoid Dongbu Insurance New China Life
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 7th November 2013.
Best Idea - Overweight Ping An Insurance Group MW Kim AC

Ticker: 2318 HK, Price: HK$61, PT: HK$84 Investment thesis: With its NBV margin already reaching AIA Groups FY09 level, following the private health insurance market expansion, we believe the market dominant agency operation will bring further value for the stock. Drivers/catalysts: (1) strong NBV growth potential backed by best agency operation; (2) ~5% non-life underwriting margin outlook with >20% top-line growth; (3) better synergy evidence between banking and insurance. Valuation and risks: Dec-14 PT uses appraisal value approach for life insurance, P/B for non-life insurance and banking business, P/E for securities business and 20% discount to holding company capital. Key risks are asset quality concerns at its banking and trust operations.
China life insurers- NBV margin trend

%
Source: Company reports and J.P. Morgan estimates. Note: NBV margin = NBV/ First Year Premium (FYP)
Best Idea - Underweight Dongbu Insurance MW Kim

AC
Korea non-life insurers- auto loss ratio trend

%
Ticker: 005830 KS, Price: W49,400, PT: W41,000 Investment thesis: Our bearish view on this name is based on its potential earnings de-rating following the mortality/morbidity margin contraction. Drivers/catalysts: (1) fast claim increase potential with limited pricing adjustment, (2) existing policyholders' gradual product migration into cheap policy, (3) potential delaying on auto premium hike. Valuation and risks: Dec-14 PT is SOTP -0.9x FY14E P/B for non-life business and 1.0x FY14E P/EV for life business. Key risks: alleviated regulatory control in long-term segment; milderthan-expected worsening in the auto loss ratio.
136
Real Estate
Micro-level investment case Start of an asset deflation cycle.we believe all the good things supporting Asian asset prices over the last four years are coming to an end and 2014 may mark the beginning of an asset deflation cycle. However, we believe the upcoming deflationary cycle will be unlike the one we saw in 1997-2003 as the overall leverage in the system is not as high and central banks around the region have been prompt in limiting loan growth to the property sector. Interest rate rises are not all bad for the property sector. We believe the expectation of a recovery in US economic growth may in fact provide support for Grade A office demand in general, although part of this potential valuation uplift would be offset by the potential cap rate expansion. Resilience of the growth outlook Earnings risk the highest in the residential and retail sectorwe believe earnings risks will be highest in the residential sector followed by the retail landlords. On the other hand, office demand normally moves in the same direction as the interest rate cycle. This is being helped particularly by the shortage of supply. We also believe the resilience of China developers earnings growth is high. While prices are expected to be stable, we expect volume will continue to grow at a healthy pace. Drivers, trends, and data points we are tracking We believe the main drivers for the residential price decline will be from 1) fall in residential rents; 2) normalization of the rental yield gap; 3) the expansion of yield in line with the interest rate cycle. Credit growth is the key datapoint to watch in China. If it implodes, we see a risk that Chinese developers may start to fire-sale to keep their cash-flow going. The pace of further slowdown in retail sales in Hong Kong is important as it could create a downward spiral in the economy. Key stock picks Given our cautious outlook on the property sector, we are picking only a handful names as our top picks. Cheung Kong offers the upside from interests outside Hong Kong. COLI remain our preferred pick in China because of its proven track record in sustainable growth. We like CMA and GLP due to its diversified mall exposure and leverage to increase in business activities respectively.
Cusson LeungAC
(852) 2800-8526, cusson.leung@jpmorgan.com Bloomberg JPMA LEUNG <GO> J.P. Morgan Securities (Asia Pacific) Limited
HK developers - discount/premium to NAV

30% 20% 10% 0% -10% -20% -30% -1 s.d. -40% -50% -60% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 -2 s.d. Average = -17.9% + 1 s.d. +2 s.d.
China developers discount/premium to NAV (excl. Vanke and COLI)
Singapore developers - discount/premium to RNAV
137

Price (LC$) 121.8 23.2 3.08 25.8 33.15 13.7 2.68 Code 1 HK 688 HK GLP SP 101 HK 683 HK 200002 CH 817 HK Rating OW OW OW N N N N Mkt cap (US$MM) 36,261 24,371 1,884 14,853 6,148 2,316 3,156 P/E (x) 13E 11.8 9.7 41.0 28.6 11.6 10.3 8.3 14E 11.4 8.2 53.9 24.0 13.1 8.8 8.0 EPS (LC$) 13E 10.3 2.4 0.1 0.9 2.9 1.3 0.3 14E 10.7 2.8 0.1 1.1 2.5 1.6 0.3 Div. yield 14E (%) 2.7 2.4 1.1 2.9 2.6 1.6 3.2 ROE 14E (%) 6.3 20.2 7.6 4.1 4.9 20.4 9.6
Top picks Cheung Kong COLI GLP Stocks to avoid Hang Lung Properties Kerry Properties China Vanke Franshion
Best Idea - Overweight Cheung Kong Amy Luk AC

Ticker: 0001.HK, Price: HK$121.8, PT: HK$124 The least affected by the Hong Kong property cycle: Hutch accounts for 48% of Cheung Kongs NAV and 67% of its earnings in FY14, hence we believe the company is relatively immune from the expected correction in the local property market. Drivers/catalysts: Cheung Kongs high asset turnover strategy make it stands out in the current environment where high-end properties are facing tough times. We believe the upcoming launches of HEMERA in TKO and Mont Vert in Tai Po will be key catalysts. Valuation and risks: Our Jun-14 PT of HK$124 is based on 1) 38% discount to property stub NAV (excl Hutchison), 0.5 s.d. below LT avg mean, and 2) Hutchison at current price. Key risks: Hutchison share performance, further delay in key launches or launch prices being substantially below market expectations
Fwd REIT dividend-government bond yield differential
Best Idea - Neutral Hang Lung Properties Amy Luk AC

Ticker: 0101.HK, Price: HK$25.8, PT: HK$25 Investment thesis: We expect upcoming office supply in Shanghai will be a threat to HLP as its office tenants are moving out to newer buildings and decentralized areas. Some existing tenants might be attracted by pricing of the new buildings. Drivers/catalysts: Competitive threat to intensify in 2014 as Kerrys Jing An Kerry Centre officially opens. Valuation and risks: Our Dec-14 price target of HK$25 is based on 22% discount to NAV, which is the long-term average. Upside risk: better-than-expected office and retail outlook in China. Downside risks: potential delay in completion, construction cost rises
APAC developers YTD performance relative to broader indices
Source: Bloomberg.
138
Logistics Ecosystem
Prefer operators and builders of smaller vessels Orderbook-to-fleet is low due to historical underinvestment in small vessels and vessel-upsizing trend in previous cycles. Scrap rate is higher due to a larger proportion of older vessels. Exit of smaller players due to financing/execution challenges will also benefit the stronger players which will grow in market share. Vessel demolition will benefit ship recyclers. P3 alliance will impact liners, shipbuilders and ports P3, if approved, will have a combined market share of 45%/21% on the Asia-Europe/US trade vs 20%/34% for G6 alliance and 18%/26% for CKYH alliance. P3s market shares on Asia-Middle East and Transatlantic trade will also be substantial at 55% and 35%. This could crowd out the smaller carriers given their lower unit costs. P3 could also drive consolidation and force others to order mega ships as a defensive strategy. Key challenges: national interests, integration issues and loss of customers. Long-haul cargo will be carried by fewer and larger ships which will benefit some ports (e.g. Antwerp) but hurt others (e.g. Port Klang, Rotterdam). Key industry trends The lowest cost/most efficient operator will dominate as markets liberalize air services agreements and there are more cross-border alliances/JVs. Low cost carriers will continue to grow market share, particularly in N Asia. Substitution between road/rail/water/air transport will intensify on domestic routes but sea/air transport will continue to dominate cross-border, especially long-haul, carriage. The symbiotic relationship between carriers and support industries implies that airports, ports, travel agencies, logistics operators, ground services, repair facilities will also need to expand/upgrade or risk being bypassed. The airlines capacity expansion and increased govt defense contracts will drive aerospace/MRO demand. Improved capabilities and lower labour costs vs. US/Europe will encourage greater outsourcing to Asia. Customers favour hi-quality Korean/Japanese yards over Chinese yards. For tollroads, we expect stable regulatory outlook and toll revenue growth to normalize in FY14 with small operators outperforming mature ones in China. Commodity markets/environmental regulations/technological advances drive changes Lower iron ore/coal/grains prices will boost rail transport/shipping demand and port volumes. Tightening environmental regulations could drive vessel renewal and fall in old ship values. Cheaper fuel prices/development of alternative fuels will benefit carriers. LNG-fuelled ships could take off. New polar routes could cut travel times and costs for long-haul transport, bypassing certain hubs while driving Arctic shipbuilding demand.
Corrine PngAC
(65) 6882-1514, corrine.ht.png@jpmorgan.com Bloomberg JPMA PNG<GO> J.P. Morgan Securities (Asia Pacific) Limited
Oval of Logistics
Orderbook-to-Existing Fleet
Source: Company reports and J.P. Morgan.
Traffic vs Economic Growth
Last 10 Years Average Multiplier
AsiaPac Container Throughput Bulk Cargo Airlines Pax Traffic Airlines Cargo Traffic Rail Traffic Road Traffic
Source: World Bank Indicators, IATA and Clarksons.
Global 3.1 2.1 2.2 1.2 0.7 0.9
1.9 1.8 1.1 0.6 0.5 0.5
139
Transportation
Micro-level investment case Transportation: 2014 brings more cheer as scheduled aircraft and vessel deliveries will moderate: Valuations are at a c.25% discount to historical average levels with bulk stocks providing the biggest potential and container shipping the least. We are more positive on the outlook for airlines and bulk shipping, while staying cautious on container shipping. Shipbuilding: We expect the diminishing labor cost gap and the rising importance of fuel efficiency to change the Asian shipbuilding landscape. We expect Japan to become the number-two shipbuilding country, ahead of China, within 2015. Technology and quality are increasingly important amid tightening environmental regulations and the focus on fuel efficiency. We expect Korean yards to strengthen their number-one position thanks to newly designed ecoships. The sector has started to recover on these themes, but the outlook is far from fully priced in. Resilience of the growth outlook Airlines: The outlook should improve markedly from 2014 as supply growth moderates, particularly in the Chinese airline sector which we recently upgraded. We are bullish on the budget air travel market and believe this threat is less priced in for North Asian carriers. Bulk Shipping: We expect freight rates to pull back at year-end/early next year during the holiday season and as new vessels are delivered. Longer term, we still have a positive contrarian view and expect average freight rates in 2014 to surpass 2013 levels, driving earnings recovery. Container Shipping: To sustain/raise rates further, the liners would need to exercise significant capacity rationalization. Demand-supply growth will likely return to balance from 2015. Drivers, trends and datapoints we are tracking Airlines: Sector still faces oversupply which needs to be effectively managed. Bulk Shipping: The order book looks overstated and vessel delivery shortfalls have been significant given financing challenges for many ship owners and builders. Vessel demolition has also helped to mitigate capacity growth. Container Shipping: Nominal supply growth will remain substantial in 2014. P3 alliance could crowd out smaller liners LT. Key stock picks Our top airline picks are Air China and Singapore Airlines among the airlines. In shipping, we prefer Evergreen Marine among the container shippers and Pacific Basin among the bulk shippers. Hyundai Mipo is our top pick among the shipbuilders. Our top avoids are China Rongsheng, Hanjin Shipping and Yang Ming Marine.
Corrine PngAC
(65) 6882-1514, corrine.ht.png@jpmorgan.com Bloomberg JPMA PNG<GO> J.P. Morgan Securities (Asia Pacific) Limited
Asian Airlines Passenger Demand-Supply Growth
Source: AAPA, IATA, Company reports, CEIS, J.P. Morgan estimates.
Dry Bulk Sector Demand-Supply Projection
Source: Clarksons, J.P. Morgan estimates.
Container Shipping Sector Demand-Supply Projection

20% 15% 10% 5% 4.0% 0% -5% -10% -15% -1.3% 3.0% 14.9% 14.9% 10.7% 13.2% 13.2% 9.2% 13.1% 9.8% 6.0% 3.1% 3.9% 3.5% 5.8% 4.1% 4.1%
7.8%
8.7% 7.1% 7.2%
8.1% 4.3% 4.5% 3.8%
-9.2%
2007
2008
2009
2010
2011
2012
2013E
2014E
2015E
Supply Growth
Supply Growth Net of Idle Capacity and Scrapping
Demand Growth
Source: Clarksons, Alphaliner and J.P. Morgan estimates.
140

Price (LC) 5.34 17.00 167,000 5.48 10.30 0.92 7,360 13.00 Code 753 HK 2603 TT 010620 KS 2343 HK SIA SP 1101 HK 117930 KS 2609 TT Rating OW OW OW OW OW UW N N Mkt cap (US$MM) 8,677 2,008 3,147 1,369 9,730 831 869 1,246 P/B (x) 13E 1.1 0.9 1.1 1.0 0.9 0.4 1.2 1.1 14E 1.0 0.9 1.1 0.9 0.9 0.5 1.4 1.0 EPS (LC) 13E 14E 0.28 0.26 (2,486) 0.01 0.30 (0.34) (3,728) (0.52) 0.30 1.13 7.074 0.07 0.84 (0.29) (766) 0.72 Div. yield 14E (%) 1.2% 0.0% 0.95 5.7% 6.5% 0.0% 0.0% 0.0% ROE 14E (%) 7.4% 6.0% 4.5% 10.0% 7.5% (18.5%) -13.2% 3.6%
Top picks Air China Evergreen Marine Hyundai Mipo Pacific Basin Singapore Airlines Stocks to avoid China Rongsheng Hanjin Shipping Yang Ming Marine
Best Idea Overweight Air China Corrine Png AC

Ticker: 753 HK, Price: HK$5.34, PT: HK$7.00 Investment thesis: We like AC given its strong organic growth prospects, leverage to West China market and lowest exposure to HSR competition. Drivers/catalysts: Rising travel penetration in China, yield improvement from increased premium traffic, traffic feed from Star Alliance partners will be positive catalysts. Valuation and risks: Our Dec-14 PT of HK$7.0 is based on 1.3x P/BV. Key risks: Chinas growth stalls, rising competition from high-speed rail expansion, volatile fuel prices, and weaker-thanexpected profits from CX.
Air China P/BV Trading Range Since listing
Source: Company reports, Bloomberg and J.P. Morgan estimates.
Best Idea Underweight China Rongsheng Heavy Sokje Lee

AC
China Rongsheng Heavy Sales & OP margin trend

RMB in millions, %
Ticker: 1101 HK, Price: HK$0.92, PT: HK$0.70 Investment thesis: We believe delays in ship delivery are unlikely to ease in the near future, especially given the significant staff reductions, and Rongsheng might face increased claims and cancellation risks from ship owners. Further earnings loss seems inevitable in the upcoming 2-3 years. Drivers/catalysts: Better-than-expected operation and government support may support further earnings downside. Valuation and risks: Our Dec-14 price target is based on 2014E BPS of HK$1.41 with a 0.5x multiple (companys historical bottom level). Key risks: Newbuilding ship price recovery, successful operational execution and lowered delivery delay.
Source: Company reports and J.P. Morgan estimates.
141
Asia Content Ecosystem

The next 10-year trade... Investing in the Asia Telco/Media/Equipment Ecosystem was historically a simple task recognize a fundamental misunderstanding regarding the sector, buy exposure to this misunderstanding, and hold the stocks for a decade. The key misunderstanding in a wireless voice world was the scalability of wireless voice networks combined with the ability to trade quality for quantity, further leveraging the model. The end result was profitable ARPU at far lower levels than previously thought possible, and wireless penetration rates many times earlier estimates. This drove a portfolio comprised of China Mobile, Bharti, and AMX, up 1,360% from 2002 through 2007. The key misunderstanding in a data environment, in our view, is that these networks, unfortunately for emerging market operators, do not scale very well. EM operators pursuing scale strategies for data are seeing margin compression and upside to capex. This is particularly evident in markets such as Indonesia but is visible across EM. Current data pricing is effectively a direct subsidy to content companies, as users can afford to use more data then they should. The next 10-year trade leverages this key misunderstanding. First, we are positive on content platforms such as Sina (SINA.O; US$75.91*), Tencent (0700.HK; HK$409*) and Baidu (BIDU.O; US$150.43*) (all OW, covered by Alex Yao), Naver (035420.KS; W600,000*; OW) (Stanley Yang), and DeNA (2432.T; Y1808*; OW), Haruka Mori). Second, we attempt to mirror the 10-year wireless trade success characteristics (namely scalable networks and falling cost of entry, i.e. handsets) within EM Pay TV. DTH networks provide significant scalability while Set Top Box pricing has fallen from over US$300 to less than US$40. We see MSKY (MSKY.JK; Rp2150*) and ASTRO (ASTR.KL; M$2.86*) (both OW, Princy Singh) as best positioned. Our preference in the telco space remains biased towards developed markets with: a) evidence of data price repair, i.e. where operators are charging a profitable price relative to their spectrum holdings and capex demands, and b) integrated players that can leverage an asset-based cost structure advantage through Wi-Fi. This leaves us positive on operators in Japan, Korea, Singapore M1 (MONE.SI; S$3.38*) (OW, Princy Singh), and Hong Kong PCCW (0008.HK; HK$3.4*) (OW, Michelle Wei) and negative on EM wireless carriers in markets such as Indonesia ISAT (ISAT.JK; Rp3700*) / EXCL (EXCL.JK; Rp4775*) (UW, Princy Singh), and Thailand ADVANC (ADVA.BK; Bt233*)/DTAC (DTAC.BK; Bt107.50*) (UW, Princy Singh).
*All prices 12 November 2013
142
James R. Sullivan, CFAAC

(65) 6882 2374, james.r.sullivan@jpmorgan.com Bloomberg JPMA SULLIVAN<GO> J.P. Morgan Securities (Asia Pacific) Limited
Global sector value capture EBITDA
Source: J.P. Morgan estimates, Bloomberg. Note: 2013-2016 numbers are consensus forecasts according to Bloomberg.
Penetration as a share price driver Bharti now, MSKY next?
Source: J.P. Morgan, Bloomberg.
Most/least upside to our price target Asia Content Ecosystem
Internet
Micro-level investment case We believe the China internet sector offers structural growth opportunities to investors with a reasonable risk/reward profile. In addition to the offline economy shifting online, we expect mobile internet monetization to drive high growth of the sector (26% 2014-16E earnings CAGR across our coverage universe). Chinas mobile internet has completed its initial growth stage with Tencent and Qihoo having formed large mobile traffic platforms. These traffic platforms will continue to benefit from its user base on which mature business models can be applied. We believe gaming is a particularly feasible and proven model in China and other Asian markets. Resilience of the growth outlook We believe sector growth will be fueled by: 1) mobile internet population dividends arising from the user shift from PC to mobile internet, and 2) fast adoption of mobile monetization. Some of the proven business models on PC can be applied to mobile platforms. With proven success, gaming has been the first choice of many internet companies to initiate mobile monetization. We expect monetization by e-commerce and advertising to follow. Drivers, trends, and datapoints we are tracking Mobile population in China saw a 21% CAGR over the past two years, reaching 464m as of 1H13. Mobile internet user penetration increased to 78% by 1H13. Ecommerce, online advertising and online gaming jointly contributed 88% of the total PC internet market size. We expect similar market patterns to be replicated from PC to mobile, with mobile gaming set to lead the trend at the initial stage.
Alex YaoAC
(852) 2800 8535, alex.c.yao@jpmorgan.com Bloomberg JPMA YAO <GO> J.P. Morgan Securities (Asia Pacific) Limited
Mobile internet population and penetration
Source: CNNIC, J.P. Morgan estimates.
Desktop internet economy vs. mobile internet economy
Source: iResearch.
Key stock picks In the China internet sector, we prefer Tencent and Qihoo, which have already built their respective mobile traffic platforms. Tencent is a leader in mobile SNS and messaging, while Qihoo has a strong foothold in internet security and app distribution. Strong user demand on these services enables both platforms to generate recurring mobile traffic at a very low cost. Tencent has already started to monetize its mobile traffic through mobile gaming, which we believe will drive its earnings growth in 2014.
PC internet economy breakdown in 2012
Source: iResearch . 143
Top picks
Price HKD 401.4 USD 79.3 Code 700 HK QIHU US Rating OW OW Mkt cap (US$MM) 96,293 9,737 P/E (x) 13E 34.5x 76.4x 14E 24.2x 39.1x EPS 13E HKD11.64 USD1.04 14E HKD 16.6 USD1.76 Div. yield 14E (%) 0.2% 0 ROE 14E (%) 36.6% 36.3%
Top picks Tencent Qihoo
Best Idea - Overweight Tencent Alex Yao AC

Ticker: 700 HK, Price: HKD401.4, PT: HKD506 Investment thesis: We believe Tencent will monetize its mobile social platform through mobile games first, followed by ads, online reading and e-commerce. We expect Tencent's mobile social platform to drive EPS growth to 43% in 2014. Drivers/catalysts: Mobile social platform monetization; margin improvements; contribution from new game titles e.g. Blade & Soul and Asura. Valuation and risks: Overweight on Tencent with a Jun-14 PT of HK$506. PT is based on 2014E/PE of HK$16.61, FY14-16E EPS CAGR of 25% and a PEG of 1.2. Risks: Game aging, cannibalization.
EPS growth to accelerate in 2014
Source: Company data.
144
Telecommunications
Micro-level investment case The nexus of outperformance has shifted away from its traditional EM wireless base towards developed markets and integrated operators. This is due to a structural change in network scalability as we move from voice to data, impacting operators ability to leverage volume to offer a product affordable at low income levels at limited incremental capital outlays. Industry revenue growth is now trending at sub-GDP growth levels in most markets. Investors need to focus either on content-related investments (please see our Asia Content Ecosystem comments in this report) or look at developed market and/ or integrated operators vs the historical scale/penetrationdriven EM wireless focus. Resilience of the growth outlook We expect a bifurcation in outlook between markets undergoing data price repair (which should track inline with to ahead of macro growth Japan, Korea, Singapore, Hong Kong) and markets where operators are still paying tuition for subscribers (all of EM Asia). We expect to see this weak revenue growth across EM combine with margin compression and rising capex as operators struggle with data usage growth significantly in excess of data revenue growth. Drivers, trends and data points we are tracking The most important statistic we are tracking is unit data pricing, topic covered in detail in our latest edition of Telco Conversations, Defining V and R to solve for P, dated 1 November 2013. The lack of scalability of data networks enables us to estimate a capex break-even price based on spectrum banks. Price repair appears critical in most EM Asia Telco markets. Key stock picks Our preference in the telco space remains biased towards developed markets with: 1) evidence of data price repair, i.e., where operators are charging a profitable price relative to their spectrum holdings and capex demands and 2) integrated players that can leverage an asset-based cost structure advantage through Wi-Fi. This leaves us positive on operators in Japan, Korea, Singapore M1 (OW, covered by Princy Singh) and Hong Kong PCCW (OW, Michelle Wei), and negative on EM wireless carriers in markets such as Indonesia ISAT/ EXCL (UW, Princy Singh) and Thailand ADVANC/ DTAC (UW, Princy Singh).
James R. Sullivan
(65) 6882 2374, james.r.sullivan@jpmorgan.com Bloomberg JPMA SULLIVAN <GO> J.P. Morgan Securities Singapore Private Limited
EM telco revenue no longer outgrowing GDP as penetration gains wane / data mispricing (revenue growth GDP growth)
Data impact: Sector EBITDA no longer keeping pace with capex
Most / least upside to J.P. Morgan price target Asia telcos
Source: J.P. Morgan, Bloomberg. .
145

Price (LC) 3.40 3.42 18.24 3,600 4,800 103 Code M1 SP 8 HK VNET US ISAT IJ EXCL IJ DTAC TB Rating OW OW OW UW UW UW Mkt cap (US$MM) 2,511 3,208 1,077 1,692 3,544 7,706 P/E (x) 13E 18.9 14.9 10.1 22.0 25.0 20.6 14E 16.2 13.2 4.6 15.1 18.0 15.0 EPS (LC) 13E 0.18 0.23 1.80 163.99 192 4.99 14E 0.21 0.26 3.95 238.61 267 6.86 Div. yield 14E (%) 5.0% 5.8% n/a 3.3% 1.9% 6.7% ROE 14E (%) 47.8% 20.9% 10.5% 6.6% 13.5% 41.4%
Top picks M1 Ltd PCCW Ltd 21 Vianet Group Inc Stocks to avoid PT Indosat Tbk PT XL Axiata Tbk Total Access Comm
Best Idea Overweight 21Vianet Lucy Liu AC

Ticker: VNET US, Price: $18.4, PT: $25 Investment thesis: Data usage growth in China will likely accelerate as CMHK attempts to push usage on its TD-LTE network in 2014, adding to already strong demand for data center services. Drivers/catalysts: VNET is rebounding from weak margins driven by longer-than-expected sell-through cycles (and therefore inventory build). New capacity is largely pre-sold on firm pricing. Valuation and risks: Dec-14 PT is arrived at by using an EV/EBITDA multiple of 13x 2014E. It implies 2014E and 2015E P/E of 38x and 23x, respectively. Downside risks include delay of commercial launch of cloud business and slowerthan-expected sell-through of new cabinets.
VNET expected to see strong rebound in 2014
Source: Bloomberg.
Best Idea Underweight P.T. Indosat Princy Singh AC

Ticker: ISAT IJ, Price: IDR3,600, PT: IDR3,820 Investment thesis: Indonesia is a case study of data mispricing driving margins lower and capex higher. It shows the second worst off-net voice margins in the world, meaning ISATs market share losses recently further depress margins. Drivers/catalysts: Data price repair and minute market share gains are required to repair margins. The largest catalyst is the proposed XL/Axis merger, whose completion will likely result in price cuts. Valuation and risks: Jun-14 PT is based on a sum of 1) potential upside/ (downside) to consensus EPS vs. JPM EPS estimates and 2) our estimated multiple expansion/ (contraction) based on peak P/E multiple. The largest positive risk is that ISAT secures significant additional spectrum at low cost.
Disconnect between ISAT earnings revisions and valuation
Source: Bloomberg.
146
India IT Services
Micro-level investment case We expect IT Services spending strength to continue in 2014 barring hard-to-estimate effects of events such as an adverse US immigration bill. Available indicators at this point suggest 2014 will be a year of consolidation with decent probability of a mild pick-up relative to 2013 (though we may not see a marked growth pick-up in 2014 versus 2013). We estimate 13-15% industry growth for FY15, based on three factors (a) pick-up in demand from Europe (particularly ex-UK), (b) continued strength in discretionary spending from the US, (c) 2014 is likely to be a better year for large-legacy rebid deals opening up for renewal. It is sweet spot for Indian IT players. Resilience of the growth outlook We are relatively confident of healthy revenue growth for large Indian IT players in CY14. Improvement in discretionary spending from the US and incremental offshoring from Europe (particularly from first-time outsourcers) are likely to drive growth. We expect Indian IT players to continue to gain market share and expand their addressable market. We think Indian IT industry will likely deliver USD revenue growth of 13-15% Y/Y in FY15. Drivers, trends, and datapoints we are tracking Y/Y revenue growth for the Indian IT players is looking up due to healthy demand and cyclical upturn in discretionary spending. We expect discretionary demand to remain strong in CY14. We would watch for management commentary on Europe (particularly ex-UK) and discretionary spend. We note that all large-cap Indian IT players (including laggards such as Wipro and Infosys) point to improving demand environment. In terms of data points, we would watch for Cognizants internal revenue targets (in Dec-13), Infosys' and Cognizants guidance (in Apr-14) and macro data points from Europe and the US. Key stock picks We continue to stay constructive on Indian IT believing CY14 will be a steady year for Indian IT consolidating on the gains in 2013. Infosys & HCLT are OW-rated stocks for us. We are Neutral on TCS as we find nearterm valuations a tad punchy. But we see TCS as a core holding for strategic portfolios as gains from leadership compound long term. Compounding tends to be underappreciated the longer the timeframe, the greater the compounding gains.
Viju K GeorgeAC
(91-22) 6157 3597, viju.k.george@jpmorgan.com Bloomberg JPMA VGEORGE<GO> J.P. Morgan India Private Limited
Y/Y revenue growth bottomed in Sep-12 quarter but shown steady growth since; we see this Y/Y rising trend sustaining over the next 2-3 quarters thanks to discretionary spending
35% 30% 25% 20% 15% 10% 5% 0%
9% 2% 2% 2% 27% 21% 30% 31% 30% 28% Y/Y revenue growth has picked-up after hitting cyclical bottom in Sep-12 23% quarter 18% 16% 11% 12% 10% 15% 14% 12%
24% 18% 11%
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
20
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Y/Y revenue growth for large-5 offshore players (consolidated/combined)

Source: Company reports, J.P. Morgan.
The market is being driven increasingly by smaller contracts (ACV of USD 5-39 mn), which is the sweet-spot for Indian IT players; the count of such deals has increased sharply in 3QCY13 providing visibility on revenues for CY14
350 300 250 200 150 100 50 0 21 3Q11 18 4Q11 23 1Q12 23 2Q12 20 3Q12 23 4Q12 13 1Q13 16 2Q13 246 270
Quarterly number of contracts

296 241 256 226 242 187 323
3Q13
USD 5-39 mn
Source: ISG, J.P. Morgan.
USD 40-99 mn
USD 100+
Ex-UK Europes annual IT services spending (third-party) is about USD ~180 billion; Indian IT industry (exports) account for just about 2-3% of total IT services spending in ex-UK Europe; this is a significant growth opportunity for Indian IT players
Source: Gartner, J.P. Morgan. .
147
Jun-13
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Top picks
Price (LC) 3,306 482 1,083 Code INFO.BO WPRO.BO HCLT.BO Rating OW Neutral OW Mkt cap (US$MM) 30.27 19.05 12.26 P/E (x) 14E 18.4 15.6 14.0 15E 15.6 13.8 12.8 EPS (LC) 14E 180.0 30.9 77.6 15E 211.4 35.0 84.8 Div. yield 14E (%) 1.8% 1.0% 0.7% ROE 14E (%) 22.6% 24.2% 31.2%
Top picks Infosys Wipro HCL Tech
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov. 6th, 2013.
Best Idea - Overweight HCL Technologies Viju K. George AC

Ticker: HCLT IN Equity, Price: 1,083, PT: 1,100 Investment thesis: HCLT has consistently delivered healthy revenue growth over the last several quarters primarily driven by its strong positioning in Infra management space. Along with solid revenue growth, HCLT has shown strong margin performance (particularly gross margins) as well. It suggests that management has complete control over the cost structure. Also, HCLT's operating cash flow performance continues to be robust. Notably, HCLT reported deal wins of more than USD 1 billion in each of the last 3 quarters, which provides near-term (CY14) visibility on revenue growth. Drivers/catalysts: We think continued healthy revenue growth along with healthy margins will drive stock returns. The deal wins (of USD 1+ bn) over the last 3-4 quarters provides meaningful revenue visibility for CY14. Strong demand environment and rebid deals should support growth. Valuation and risks: HCLT is currently trading at 12.8x FY15E EPS. We believe healthy EPS growth and modest increase in multiple should drive stock returns. Risks are inability to grow software services revenues, weakness in demand environment and meaningful INR appreciation (vs. USD)
HCLT reported consistent/sustained USD revenue growth over the last several quarters; deal wins over the last 3-4 quarters provide visibility for CY14
HCLTs operating margins have almost doubled from early FY11; the significant margin expansion driven by gross margins is impressive
148
Technology
Micro-level investment case 2013 was a year of mobile computing devices (MCD) addressing concerns about premium and beginning to show cannibalization of mass-tier products, smartphone and tablet PCs. While traditional set devices (Consumer Electronics and PCs) will likely continue to show stagnant growth, we expect key components in the semiconductor space (foundry, memory, and IC design) to post healthy growth and profitability upon supply discipline and trend toward efficient power computing. Moreover, we expect new emerging technologies (LED general lighting, xEV batteries) and business models (Lenovo) to present important positions in the sector in 2014. Resilience of the growth outlook Most tech companies still show concern about the muted global macro condition and expect this trend to continue into 2014. Coupled with anemic consumption growth, we believe a lack of technology breakthrough in relevant sectors; semiconductor (slowing down node migration) and display (unsolved key hurdles toward flexible) to also weigh down volume growth. We believe industry leaders with superior cost structure and economies of scale should relatively benefit and outperform peers. Drivers, trends, and datapoints we are tracking The near-term catalyst we anticipate from the sector is year-end holiday demand across the globe to identify overall consumer appetite toward new tech devices. We are also interested in the potential upside to the PC market in 2014, provided low market expectation and replacement cycle kicks-in. On the last, we would keep our eye on the convergence across sectors; new product emergence and potential restructuring/M&A activities to see the potential winner after next technology breakthrough. Key stock picks We prefer components over set names and believe key players in the semiconductor space (TSMC, SK Hynix, Mediatek) should benefit from supply discipline and robust volume growth. We also like LED lighting play (SSC) and LED application expansion story (STC) on the back of robust demand at general lighting and technology breakthrough at MCD. However, we stay cautious on large-area display (TV space) mainly upon sluggish demand outlook and avoid TV-centric panel name (Innolux) and traditional CE names.
JJ ParkAC
(82-2) 758-5717, jj.park@jpmorgan.com Bloomberg JPMA BBG PARK <GO> J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Smartphone shipment breakdown by price bands
Source: IDC, Company data, J.P. Morgan estimates.
Foundry market growth (2001-2015E)
Source: Gartner, Company data, J.P. Morgan estimates
Major LED makers LED general lighting revenue trend
149

Price (LC) 105 31,950 9,260 30 39,950 155 10 38 Code 2330.TT 000660.KS 6594.JT 2311.TT 046890.KQ 2498.TT 3481.TT 4938.TT Rating OW OW OW OW OW UW UW UW Mkt cap (US$MM) 92.1 21.1 13.5 7.7 2.1 4.3 3.0 2.9 P/E (x) 13E 14.7 9.0 20.2 15.0 45.6 na 14.5 9.1 14E 12.5 7.3 15.3 11.3 21.3 na na 10.1 EPS (LC) 13E 7.2 3543 458 2.0 877 -1.1 0.7 4.1 14E 8.4 4387 604 2.6 1875 -3.3 -0.5 3.7 Div. yield 14E (%) 2.9% 0.0% 0.9% 3.9% 0.0% 0.0% 0.0% 5.7% ROE 14E (%) 21.6% 21.8% 16.2% 14.9% 16.1% -3.1% -2.3% 7.7%
Top picks TSMC SK Hynix Nidec ASE Seoul Semiconductor Stocks to avoid HTC Innolux Pegatron
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov. 12. 2013.
Best Idea - Overweight TSMC Gokul Hariharan

AC
TSMC as % of global foundry market

Unit: USD billion
Ticker: 2330.TT, Price: NT$105, PT: NT$130 Investment thesis: We expect TSMC to grow in the high-teens, helped by strong 20nm traction and ongoing demand for high-end 28nm High K metal gate products. Competitive pressure likely be limited Drivers/catalysts: (1) Stronger than expected 20nm traction, (2) Apple contribution from 2Q13, (3) End of inventory correction by 4Q13, (4) Improvement in structural profitability due to better ASPs. Valuation and risks: June-14 PT of NT$130 based on 15x 12m forward P/E (long-run average). Key downside risks are (1) slowdown in a mobile device growth; and (2) Intel's abandoning ATOM and stepping headlong into ARM Foundry.
Source: Gartner, Company data, J.P. Morgan estimates.
Best Idea - Underweight Innolux Narci Chang AC

Ticker: 3481.TT, Price: NT$10.6, PT: NT$10 Investment thesis: We expect capacity to outgrow demand in 2014, leading to further panel price decline, which could weigh down its earnings in 2014. Weak balance sheet remains concern. Drivers/catalysts: (1) Further panel price declines and muted TV demand; (2) M/S loss to Chinese vendors due to intensifying competition; (3) Large debts to become mature in 2014. Valuation and risks: Dec-14 PT of NT$10 based on 0.5x P/B (down cycle valuation). Key upside risks are (1) higher than expected panel price due to strong end-demand; (2) better cost reduction at specialty TV sizes; and (3) Share gain through help of Hon Hai.
Innolux share price vs. revenue Y/Y growth
Source: Bloomberg, Company data and J.P.M organ estimates
150
Emerging Technology
Micro-level investment case The story for tech over the last several years has been about smartphones/tablets, but we believe we are reaching the late cycle in light of the following signs of saturation: (1) Most high-end smartphone launches since the iPhone 5 have been disappointing; and (2) the China smartphone diffusion rate is expected to reach 80%+ by 2013, meaning that we have passed the peak of conversion. The non-China EM is still in the budding stages of conversion, and that market unit size is 3-4x bigger than China, which would be the last leg of growth. Resilience of the growth outlook The growth profile across PCs, smartphones and TVs is single-digits at best or even negative this will drive growth deceleration across most companies. Our discovery for high-growth stocks is based on the following framework: (1) high exposure to non-China EM smartphones (Mediatek, TCL-Comm); (2) new features in high-end smartphones, like fingerprints (Sapphire Tech, ASE); and (3) transformation to new high-growth businesses (Anxin in public/private safety surveillance, Nidec to new motor markets with higher energy efficiency). Drivers, trends, and datapoints we are tracking We track the blended ASP trend for Mediatek and TCLComm given that feature phones are still more than half of shipments, we believe there is still plenty of smartphone conversion to drive an ASP uplift. We monitor if there are sapphire replacements or new SiP vendors coming up demand growth is quite clear to us; its really about whether the vendors can maintain their competitive advantages. We follow new contract wins to gauge the pace of transformation for Anxin and Nidec. Key stock picks Our top picks are Anxin, TCL-Comm, Sapphire Tech, ASE and Nidec, as detailed above. Our top avoids are Shinko, Lite-On Tech and Pegatron the avoids are all expected to see RoE compression due to competitive threats: Shinko could see cannibalization by ARM-based CPUs and also new competition from Unimicron for its Intel business; Lite-On Tech had done very well in camera modules, but now a number of Chinese vendors are entering the space; Pegatron is losing the default second-source status for Apple, which has qualified Wistron for iPhones and Compal Comm for iPads.
Alvin KwockAC
(852) 2800-8533, alvin.yl.kwock@jpmorgan.com Bloomberg JPMA KWOCK<GO> J.P. Morgan Securities (Asia Pacific) Limited
Galaxy Note 3 price on Taobao website
Source: Taobao. Note: W stands for Week.
China handset market Smartphone diffusion rate saturating
Source: Huaqiang Electronic Industry Research Centre and J.P. Morgan estimates
TCL Comm Substantial blended ASP uplift on the way, with non-China EM smartphone diffusion rate still at 30-35%
Source: Company reports 151

Price (LC) 2.3 6.99 35,350 29.2 9,150 794 49.45 38.8 Code 1149 HK 2618 HK 123260 KS 2311 TT 6594 JT 6967 JT 2301 TT 4938 TT Rating OW OW OW OW OW N UW UW Mkt cap (US$ M) 861 1,005 272 7,671 13,391 1,073 3,852 2,972 P/E (x) 13E 9.1 24.9 NA 14.8 20.0 11.3 12.7 9.4 14E 7.6 9.5 53.8 11.1 15.2 18.5 12.2 10.5 EPS (LC) 13E 0.25 0.28 -2960 1.97 458.2 70.3 3.90 4.11 14E 0.30 0.74 698 2.62 603.5 42.9 4.04 3.70 Div. yield 14E (%) 2.6% 3.6% 0.0% 3.9% 1.0% 2.6% 5.7% 5.7% ROE 14E (%) 22.1% 28.8% 6.2% 14.9% 16.2% 4.1% 10.0% 7.7%
Top picks Anxin TCL-Comm Sapphire Tech ASE Nidec Stocks to avoid Shinko Lite-On Tech Pegatron
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 11 Nov 2013. For Nidec and Shinko, FY14 and FY15 are used instead of FY13 and FY14, respectively.
Best Idea Overweight Sapphire Tech Narci Chang AC

Ticker: 123260 KQ, Price: W34,600 , PT: W60,000 Investment thesis: (1) Tremendous growth potential new applications (non-LED); (2) Steady growth from LED upcycle. Drivers/catalysts: Improving industry dynamics: (1) Further demand expansion for smartphone/tablet applications, and more brands adopting this beyond Apple; (2) Solid LED demand growth from LED lighting cycle. Sapphires demand could expand several-fold if Apple adopts sapphire for smartphone covers or other applications. Valuation and risks: We use sector-average 18x FY15E forward P/E to derive our Dec-14 PT of W60,000. Key risks: (1) Future Apple products stop using sapphire components; (2) Other materials replace sapphire wafers in LEDs.
2-inch Sapphire ingot price trend
Source: Company data and J.P. Morgan estimates
Sapphire Tech share price vs. OP trend
Best Idea Underweight Pegatron Corp Gokul Hariharan AC

Ticker: 4938 TT, Price: NT$38.8, PT: NT$33 Investment thesis: (1) Apple EMS diversification to kick in from 2014; no longer default second source. (2) Non-Apple market share has collapsed, no diversification in sight. Drivers/catalysts: (1) iPhone 5C volumes to be weak in 4Q13 after initial build-up; (2) Wistron/ Compal begin production of iPhones/ iPads in 1H14. Valuation and risks: Our Jun-14 PT of NT$33 is based on 9x FY14E EPS. Key upside risks are potential price actions from Apple on iPhone 5C and upside from Caseteks metal casing business.
Source: Bloomberg, Company reports and J.P. Morgan estimates
Apple qualified vendor list

Product iPhone iPad Macbook iMac Current Hon Hai, Pegatron Hon Hai, Pegatron Quanta, Hon Hai Quanta, Hon Hai Future Additions Compal Comm, Wistron Compal Comm, Wistron Wistron Wistron
Source: Company reports and J.P. Morgan
152
Healthcare
Micro-level investment case We believe the drug subsector will continue facing pricing pressure as 2014 will be a year of the tender. With other provinces looking at Guangdong for new tender models, headwinds appear to be strong for the drug subsector, which will likely spill over to distributors, who could also face margin pressure. However, the fundamentals of the healthcare industry remain strong: 1) an aging population; 2) increasing government spending on healthcare; 3) expanding insurance coverage; and 4) rising disposal income. We remain positive in the longer term and see 2014 as a solid year for industry growth, albeit at a lower pace and consolidation. Resilience of the growth outlook Although the drug subsector is likely to face continued pricing pressure, the implementation of an expanded EDL and new tenders should give volume expansion; i.e., drug sector sales growth should continue to be about 1718% Y/Y. Medical devices and equipment remain underpenetrated and should benefit from continued strength of the hospital services sector, supported by expanding private hospital chains. Drivers, trends, and datapoints we are tracking We are tracking monthly healthcare industry output and profit data announced by the NDRC. We monitor some key commodity product prices such as corn, 6-APA, amoxicillin, and etc. Very importantly, we keep a close eye on tenders carried out by various provinces throughout the year to gauge pricing trends and the weight of quality vs. price. Key stock picks We are OW Fosun Pharma because of its diversified product and service offering along the healthcare vertical, its strengthening drug manufacturing operations, and budding hospital services segment. We like CSPC Pharma because the company has the best and most balanced product portfolio and pipeline and its potential upside from upswing of ASP for Vitamin C bulk. We are UW Shineway because of its outsized exposure to sales from EDL products and do not foresee quick turnaround of OTC businesses from sales channel restructuring.
Sean WuAC
(852) 2800-8538, sean.wu@jpmorgan.com Bloomberg JPMA SWU<GO> J.P. Morgan Securities (Asia Pacific) Limited
Low spending as a part of GDP means considerable room for growth
Source: China Statistics Bureau.
Chinas ageing population puts extra demand on healthcare
Source: UN.
Chinas healthcare payments (Rmb bn)
Source: MOH.
153

Price (LC) 4.74 17.86 5.40 2,470 11.22 58.11 Code 1093 HK 2196 HK RMD AX DRRD IN 2877 HK COH AX Rating OW OW OW OW N UW Mkt cap (US$MM) 3,298 4,387 719.94 6,593 1,186 3,059 P/E (x) 13E 25.1 17.9 25.7 21.6 10.4 24.6 14E 20.6 16.1 20.8 16.8 9.2 24.5 EPS (LC) 13E 0.19 0.78 0.21 114.5 0.84 2.33 14E 0.23 0.87 0.26 146.7 0.95 2.33 Div. yield 14E (%) 0.00 1.6 14.0 0.9 2.9 4.4 ROE 14E (%) 0.00 1.7 18.5 25.2 3.3 37.9
Top picks CSPC Pharma Fosun Pharma-H ResMed Inc. Dr. Reddy's Labs Stocks to avoid China Shineway Cochlear Limited
Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of November 12, 2013; Note: Dr Reddy's Labs year-end Mar-14
Best Idea - Overweight Fosun Pharma - H Sean Wu AC

Ticker: 2196 HK, Price: HK$17.86, PT: HK$22.5 Investment thesis: Fosun is a leading Chinese healthcare company with business operations covering most important segments in healthcare industry value chain. Diversified risks and balanced strengths make a compelling investment, in our view. Drivers/catalysts: Sustainable healthcare industry growth is driven by strong fundamentals. Key catalysts include quarterly results and major M&A, including hospital acquisitions. Valuation and risks: Our Dec14 PT is a blend of SOTP (core business, Sinopharm, other associated companies, securities held for sale) with PE multiple. For DCF, we use rfr of 4.2%, beta of 1. Risks: severe price cuts and expensive acquisitions.
Fosun Pharma diversified product portfolio and emerging hospital services segment
Source: J.P. Morgan Estimates
Best Idea Underweight Cochlear Limited Steven Wheen AC

Ticker: COH AU, Price: A$58.11, PT: A$55.49 Investment thesis: COH is facing increasing competitive pressures from more credible peers. At the same time threats from cheaper overseas manufacturers impacting price of tender contracts in EM. COH needs a significant uplift in sales during 2H14 to meet FY14 guidance of flat y/y growth. Drivers/catalysts: Partial release of the Nucleus 6 in the US is currently not offsetting market share losses since the Nucleus 5 recall. M/s rebasing for COH, which is weighing on growth. Valuation and risks: Jun-14 PT DCF based (terminal g 3%, WACC 9.8%). Risks: m/s gains, changes to competitive landscape, faster thanforecast adoption of bilateral implantation, f/x rates different from our forecast.
Cochlear: Price performance
Source: Bloomberg.
154
SMID Caps
Micro-level investment case We find more evidence at the interim results that supports our view that the snap back in margins since 3Q12 is continuing well into 2014. The rise in margins should cause a re-rating in shares in 2H13. We are still at fwd PE multiples of around 10-11x, which is below the 15-20x PE that is typical at market peaks. We are seeing a reacceleration of demand in China staring Aug 2013 and this should further drive margins from below to above historical norms before end-2013. The market of most concern for SMID-Caps is India where the falling currency and soft demand should crimp margins in 2014 (as what was experienced in China in 2012). Resilience of the growth outlook The key reason, we believe, end user demand and pricing power will return in the next 12-18 months is the trend of nearly all companies increasing expansion plans in 2013 relative to expectations. The change in sentiment by corporate from cash conservation to more aggressive expansion is not fully appreciated by the market. Even companies with very slow sales growth in so far in 2013 are planning to add capacity despite not operating at full capacity due to confidence that demand would improve quickly and the need to expand now rather than missing the impending rush of orders. Drivers, trends, and datapoints we are tracking We polled over 50 SMID Caps in recent months and assessed the outlook of managements across multiple sectors. Our key conclusions from S-Gauge are: 1) Demand: credit is less tight but government stimulus measures slower than expected. 2) Margins: cost pressures have eased since mid 2012 and higher plant utilizations should lead to margin expansion in 2013. 3) Balance Sheets: Most managements lowered debt by end of 2012 and have begun spending on expansion. Key stock picks Our top picks in HK/China include Xinyi Glass, the most diversified glass producer in China; China State Construction, China's leading builder of affordable housing, Techtronics, which is benefiting from a US recovery in Housing and better prospects in Europe. Regionally, we highlight Makalot from Taiwan as a leading provider of high quality garments. We are cautious on industrial stocks in India such as Havells.
Leon Chik, CFAAC

(852) 2800 8590, leon.hk.chik@jpmorgan.com Bloomberg JPMA CHIK <GO> J.P. Morgan Securities (Asia Pacific) Limited
Rising margins at Xinyi Glass
Source: Bloomberg ; J.P. Morgan estimates.
Containerboard Over / Under supply in lines (China)
Source: J.P. Morgan estimates. (bars below indicates undersupply or shortages)
Makalots margins trends
Source: Bloomberg ; J.P. Morgan estimates.
155

Price (LC) 12.9 179 7.7 19.2 7.4 745 54.3 111.1 Code 3311 HK 1477 TT 868 HK 669 HK 2618 HK HAVL IN 2103 TT 303 HK Rating OW OW OW OW OW UW UW UW Mkt cap (US$MM) 6,431 1,024 3,862 4,495 1,087 1525 1,452 3,573 P/E (x) 13E 17.3 19.0 13.0 18.0 26.2 18.2 7.4 16.9 14E 12.9 15.1 9.8 13.3 10.0 16.5 16.5 16.1 EPS (LC) 13E 0.74 8.71 0.59 0.14 0.28 31.0 3.17 0.84 14E 1.00 11.29 0.79 0.18 0.74 41.2 4.01 0.88 Div. yield 14E (%) 1.7 4.4 3.7 1.4 1.3 1.2 4.1 5.6 ROE 14E (%) 20.2 34.8 20.7 15.5 12.4 30 15.6 35.7
Top picks CSC Makalot Xinyi Glass Techtronic TCL Comm Stocks to avoid Havells TSRC V Tech
Best Idea - Overweight Xinyi Glass Leon Chik AC

Ticker: 0868HK, Price: HK$7.7, PT: HK$10.9 Investment thesis: XYG is one of the largest and most diversified glass producers in China. It can produce high quality glass product at lower costs than most other global/domestic competitors and has a record of developing innovative new products. Drivers/catalysts: Demand for construction glass is rising in line with the domestic economy. Solar glass demand is soaring as China offers new rebates. New electric glass is a high margin business in 2015. Valuation and risks: Our PT (Dec-14, DCF based rfr 4.20%, terminal g 3%) implies a fwd P/BV of 2.7x and fwd P/E of 10.2x (FY15E). Key risk is falling demand for construction glass that could result from a cooling property market in China.
Xinyi Glass sales mix
Source: Company reports ; J.P. Morgan estimates.
Best Idea - Underweight Havells India Gunjan Prithyani AC

Ticker: HAVL IN, Price: Rs749, PT: Rs600 Investment thesis: We expect HAVLs earnings growth in next 2 years to be slower vs. past (15% vs. last 3-yr CAGR 27%) given demand moderation in domestic consumer business. Overseas business, Sylvanias turnaround will likely take time given weak trends in Europe. Valn at 19x standalone earnings is at a premium (last 4 year avg of 17x). Drivers/catalysts: HAVL and building product industry have benefitted from scale-up in new home deliveries & large commercial completions over past few years. New completions, however, to fall over FY15/16E. This does not bode well for demand outlook in the medium term, in our view. Valuation/risks: SOTP Mar-15 PT14x P/E domestic business, 5x EV/EBITDA Sylvania. Risks are better than expected growth rates in domestic segment, improved profitability in Sylvania.
Havells India Growth trends
Source: Company reports ; J.P. Morgan estimates.
156
Stocks for the Year of the Horse

157
Top picks by country strategists

Name Share Price Target % Change Price (LC) 2014 (LC) to target Australia 8.4 Sims Metal Management Ltd 10.2 11.3 11.3 Coca-Cola Amatil 12.1 13.3 10.1 Crown Limited 16.4 18.0 9.5 Brambles Limited 9.3 9.4 1.7 ResMed Inc 5.4 5.9 9.4 China 33.0 Xinyi Glass 8.0 10.9 35.9 Ping An Insurance Group - H 61.3 84.0 37.1 Brilliance China Automotive 13.4 20.0 49.7 Fosun Pharmaceutical-H 18.9 22.5 18.9 Tencent 411 506 23.2 Hong Kong 22.7 HSBC Holdings plc 85.1 102.0 19.9 Techtronic Industries 19.0 28.0 47.1 AIA Group Ltd 38.1 45.0 18.3 Sands China Ltd 55.4 62.0 11.9 Sa Sa International Holdings Ltd. 8.1 9.4 16.2 India 23.0 Tata Motors 387 445 15.0 Tata Steel Ltd 375 525 39.9 ICICI Bank 1052 1200 14.1 HCL-Technologies 1085 1100 1.4 DLF Limited 145 210 44.5 Indonesia 28.8 PT Aneka Tambang Tbk 1370 1800 31.4 Indofood 6550 7500 14.5 United Tractors 19050 23500 23.4 PT Telekomunikasi Indonesia Tbk 2175 2770 27.4 MNC Sky Vision tbk 2100 3100 47.6 Korea 25.3 Hyundai Motor Company 243000 330000 35.8 SK Hynix 32300 39000 20.7 KB Financial Group 38400 49000 27.6 CJ O Shopping 364600 430000 17.9 Naver 620000 770000 24.2 Malaysia 16.5 Tenaga 9.4 11.6 23.4 Top Glove Corporation 5.9 6.7 14.5 Gamuda 4.9 5.5 12.5 Genting Plantations 11.1 12.6 13.9 SapuraKencana Petroleum Bhd 4.2 5.0 18.2 Philippines 25.5 Metro Pacific Investments Corp. 4.8 6.5 35.4 Ayala Corporation 573 715 24.8 Puregold Price Club 44.5 51.0 14.6 Ayala Land 28.3 36.0 27.2 Singapore 28.2 Ezion Holdings Ltd 2.1 2.6 23.2 Jardine Cycle & Carriage Ltd 34.2 51.0 49.1 Keppel Corporation 11.0 13.3 20.9 Golden Agri-Resources Ltd 0.6 0.7 19.7 Taiwan 18.5 ASE 29.1 35.0 20.3 TSMC 104 130 25.6 Cathay Financial Holdings 43.1 50.8 18.0 Makalot Industrial Co. Ltd. 171 206 20.5 Hiwin 231 250 8.2 Thailand 22.0 KASIKORNBANK 182.5 240.0 31.5 Siam Commercial Bank 166 210 26.5 Siam Cement 420 530 26.2 Thai Union Frozen Products 63.3 63.0 (0.4) BEC World Public Co Ltd 55.5 70.0 26.1 Bloomberg Code SGM AU CCL AU CWN AU BXB AU RMD AU 868 HK 2318 HK 1114 HK 2196 HK 700 HK 5 HK 669 HK 1299 HK 1928 HK 178 HK TTMT IN TATA IN ICICIBC IN HCLT IN DLFU IN ANTM IJ INDF IJ UNTR IJ TLKM IJ MSKY IJ 005380 KS 000660 KS 105560 KS 035760 KS 035420 KS TNB MK TOPG MK GAM MK GENP MK SAKP MK MPI PM AC PM PGOLD PM ALI PM EZI SP JCNC SP KEP SP GGR SP 2311 TT 2330 TT 2882 TT 1477 TT 2049 TT KBANK TB SCB TB SCC TB TUF TB BEC TB JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 8437 1927 8569 11125 13395 7167 34286 4055 53582 8660 6611 98523 65985 205762 4494 59104 57607 2959 11804 18022 5759 19186 11965 4088 6591 1146 5045 6233 19231 1301 21319 50049 21449 13872 2115 19109 6334 16536 1131 3485 2616 7901 5687 2863 7871 2821 9192 8410 1953 9746 15925 6015 23717 7621 90619 17394 971 1980 10682 13822 17829 15949 2297 3513 P/E (x) 2013E 2014E 41.4 17.8 121.3 15.6 17.7 16.3 24.2 18.4 19.9 19.1 24.0 19.7 19.2 14.6 13.6 10.2 13.2 10.4 14.7 11.2 19.0 17.0 35.4 24.2 20.3 17.4 11.6 11.4 18.0 13.3 18.0 18.1 25.8 19.4 27.8 24.8 19.6 18.9 11.3 10.9 NM 11.3 15.5 13.4 19.0 14.1 32.5 44.9 27.8 15.6 9.6 8.0 14.9 9.2 16.4 11.4 14.4 12.6 83.6 36.7 18.7 13.9 7.5 6.8 9.1 7.4 11.2 8.5 18.3 15.4 47.6 31.5 22.8 17.1 12.2 11.5 17.3 14.4 17.8 15.0 29.6 19.6 37.1 24.9 26.4 21.3 16.4 15.1 24.0 21.2 30.7 23.0 34.7 26.1 14.6 10.6 14.0 7.6 9.6 9.0 12.6 12.6 22.0 13.1 18.3 14.1 14.8 11.1 14.5 12.3 15.1 13.7 19.6 15.2 27.5 18.3 17.8 13.2 10.4 9.0 11.3 9.8 16.8 14.4 30.6 15.2 19.7 17.5 EPS Growth Yield (%) ROE (%) 2013E 2014E 2014E 2014E (11.7) 16.3 3.1 18.6 (76.7) NM 3.2 6.8 (6.6) 8.3 5.2 25.6 (2.1) 31.2 2.3 16.9 4.0 4.0 3.1 21.7 22.8 21.7 2.0 21.8 40.6 29.8 1.7 24.2 85.9 33.0 4.4 24.1 43.8 27.0 1.1 17.3 55.9 31.2 1.0 29.7 (1.9) 11.5 1.5 12.6 19.4 46.0 0.3 37.1 30.9 16.5 2.9 25.7 28.0 2.5 5.0 10.0 19.5 35.0 1.8 18.4 8.8 (0.5) 1.2 10.7 80.0 33.0 3.6 45.8 18.3 12.3 2.9 43.9 10.1 6.7 1.2 12.3 (7.8) 3.8 0.5 4.1 NM NM 2.4 8.8 23.4 15.8 2.2 12.9 62.8 34.8 0.7 33.4 (38.1) (27.6) 0.0 2.2 (13.1) 34.8 2.8 18.8 (54.3) 19.5 1.0 3.2 16.1 61.6 3.1 23.9 (25.1) 43.9 3.5 18.3 11.9 14.3 5.2 31.1 (14.0) NM 1.0 17.7 (6.2) 27.1 0.9 19.1 2.4 10.9 1.0 17.0 NM 23.8 0.0 21.8 (26.5) 30.7 2.0 6.6 1.1 18.9 0.9 23.3 (1.9) 51.1 0.6 26.7 4.9 29.0 1.9 13.7 33.5 6.5 2.9 11.3 0.8 20.3 3.5 18.2 4.5 18.3 2.2 14.9 (13.2) 50.6 1.1 11.3 (0.9) 49.1 0.0 12.6 25.8 22.1 1.0 12.8 12.8 8.5 0.7 8.6 35.6 13.2 0.7 11.6 30.7 33.4 0.9 16.3 24.1 33.2 1.9 14.8 6.1 39.3 3.0 16.1 73.6 82.8 1.4 24.9 2.6 6.7 4.2 19.3 (18.2) (0.2) 4.1 15.1 (33.7) 68.0 2.3 5.1 26.2 28.1 2.9 21.8 14.7 33.1 3.9 14.9 11.5 17.3 2.9 21.6 79.1 10.5 2.2 13.7 22.8 29.6 4.3 34.8 3.2 50.2 1.0 23.8 8.5 14.6 3.5 28.7 19.2 15.2 2.2 20.3 24.7 14.6 3.3 21.2 27.2 16.4 3.5 19.7 (46.5) NM 3.3 13.1 18.2 12.1 5.4 69.1
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 14, 2013. Sorted in ascending order of 2014E P/E. Simple average is calculated in grey shaded row.
158
Stocks to avoid by country strategists

Name Australia ALS Limited Fletcher Building Ltd Cochlear Limited China DongFeng Motor Co., Ltd. Lonking Holdings Ltd AAC Technologies Holdings Hong Kong Bank of East Asia CLP Holdings Hang Lung Properties India Punjab National Bank Colgate-Palmolive (India) Limited Hindustan Unilever Limited Indonesia PT Bank Mandiri Tbk. PT Indosat Tbk Unilever Indonesia Tbk Korea CJ Cheiljedang Samsung Engineering Hanjin Shipping Co Ltd Malaysia UEM Sunrise Bhd Maxis Berhad Philippines Aboitiz Power Singapore OCBC Bank Indofood Agri Resources Ltd Far East Hospitality Trust Taiwan Pegatron Corp Cheng Shin Rubber Industry Co., Ltd Far EasTone Telecom Thailand Thanachart Capital Total Access Communication Big C Supercenter Pcl Share Price Target % Change Price (LC) 2014 (LC) to target (12.6) 9.5 8.1 (15.4) 9.7 8.0 (17.5) 58.4 55.5 (5.0) (12.3) 11.5 8.5 (26.2) 1.5 1.4 (8.5) 30.7 30.0 (2.1) (0.5) 33.5 30.0 (10.4) 61.0 67.0 9.8 25.2 25.0 (0.8) (5.9) 521 450 (13.6) 1250 1220 (2.4) 580 570 (1.8) (10.8) 7900 7000 (11.4) 3625 3820 5.4 29900 22000 (26.4) (10.2) 249000 200000 (19.7) 67100 50000 (25.5) 6990 8000 14.4 (10.5) 2.3 2.3 0.4 7.1 5.6 (21.3) (19.8) 33.7 27.0 (19.8) (17.3) 10.5 9.5 (9.5) 0.9 0.6 (33.3) 0.9 0.8 (9.1) (7.7) 37.2 33.0 (11.3) 73.8 63.7 34.8 105 189 74.0 56.0 34.0 99 213 0.3 (12.1) 1.6 (2.2) (5.7) 12.7 Bloomberg Code ALQ AU FBU NZ COH AU 489 HK 3339 HK 2018 HK 23 HK 2 HK 101 HK PNB IN CLGT IN HUVR IN BMRI IJ ISAT IJ UNVR IJ 097950 KS 028050 KS 117930 KS UEMS MK MAXIS MK AP PM OCBC SP IFAR SP FEHT SP 4938 TT 2105 TT 4904 TT TCAP TB DTAC TB BIGC TB JPM Rating UW UW UW UW UW UW N N N UW UW UW UW UW UW UW UW N N UW UW UW UW UW UW N UW UW UW N Mkt Cap, US$ MM 4002 3411 5499 3095 6167 12801 845 4854 14774 9889 19876 14556 8472 2908 2685 19822 12636 16169 1728 20011 2126 3050 2510 819 9879 3105 16652 5675 5675 10376 28865 1022 1242 5999 2909 8078 7009 4710 1327 7868 4934 P/E (x) 2013E 2014E 19.7 20.2 13.7 17.3 20.4 18.2 25.1 25.1 10.5 10.1 6.8 8.1 13.4 10.9 11.5 11.3 19.5 17.5 14.3 13.1 16.3 16.0 28.0 23.4 27.4 23.5 3.9 4.0 34.3 32.5 43.9 33.9 18.2 15.7 10.8 11.8 22.1 15.2 21.8 20.1 20.4 22.9 20.4 17.7 NM 28.2 NM NM 25.7 21.4 25.9 19.2 25.4 23.6 13.1 13.2 13.1 13.2 20.1 15.1 14.8 13.3 28.2 14.5 17.4 17.6 13.2 12.7 9.0 10.1 13.2 17.4 16.9 4.8 23.2 22.7 12.6 15.6 15.0 8.1 17.4 19.4 EPS Growth Yield (%) ROE (%) 2013E 2014E 2014E 2014E 3.9 (2.9) 4.0 21.7 5.6 (20.6) 4.2 17.0 2.2 11.9 3.6 10.2 NM 0.2 4.4 37.9 39.0 2.4 2.3 18.4 31.0 (17.1) 1.9 15.5 NM 22.8 1.5 8.1 46.9 1.5 3.5 31.6 (13.2) 10.2 3.4 7.8 (13.5) 9.4 2.9 9.1 8.3 2.0 4.3 10.2 (34.4) 19.3 3.0 4.1 5.2 10.5 3.5 75.4 (6.7) (3.9) 5.8 13.9 10.9 5.8 2.8 102.5 11.3 29.7 1.9 109.7 (9.3) 15.3 2.6 75.3 9.9 (8.0) 2.6 17.2 (45.9) 45.5 3.3 6.6 8.1 8.4 1.9 202 (40.5) 15.3 0.7 (0.3) (40.5) 15.3 0.7 3.3 NM NM 1.5 9.1 NM NM 0.0 (13.2) 5.9 21.3 3.7 24.2 9.3 34.9 1.7 8.9 2.4 7.6 5.6 39.4 (20.5) (0.7) 3.8 19.7 (20.5) (0.7) 3.8 19.7 (48.4) 34.7 3.4 7.3 (37.2) 11.2 3.2 10.6 (59.7) 94.2 0.6 5.7 NM (1.4) 6.3 5.6 26.3 2.1 5.3 16.3 52.0 (10.0) 5.9 7.7 14.1 12.8 28.2 77.2 (4.1) 11.5 5.0 11.2 2.9 (41.1) 32.9 16.8 3.0 6.9 3.9 4.3 5.7 1.5 23.0 18.0 22.5 10.5 36.8 20.2
159
Top picks by sector heads

Name Auto Hyundai Motor Company Geely Automobile Holdings Ltd. Tata Motors Guangzhou Automobile Group Co. Ltd. Brilliance China Automotive Banks China Construction Bank Krung Thai Bank Ping An Insurance Group - H Samsung Card ICICI Bank Chemicals and Refining SK Innovation Co Ltd Sinopec Shanghai Petrochemical Reliance Industries Ltd Consumer CJ O Shopping Chow Tai Fook Jewellery Company Ltd. China Mengniu Dairy Co. Ltd. Puregold Price Club CP All Pcl Emerging Technology Anxin-China Holdings TCL Communication Technology ASE Nidec (6594) Sapphire Technology Gaming MGM China Holdings Ltd Sands China Ltd Healthcare Fosun Pharmaceutical-H ResMed Inc CSPC Pharmaceutical Dr. Reddy's Laboratories Limited India IT Services HCL-Technologies Wipro Ltd. Infosys Infrastructure & Industrials Hyundai Development Company Sinopec Engineering Group Weichai Power Hollysys Automation Technologies Ltd. Gamuda Insurance Ping An Insurance Group - H Samsung Fire & Marine Insurance Internet Tencent Qihoo 360 Technology Co. Ltd Oil & Gas Cairn India Limited Sinopec Corp - H PetroChina Anton Oilfield Services Group Buru Energy Metals & Mining Fortescue Metals Group Ltd Sesa Sterlite Rio Tinto Limited Jiangxi Copper - H Tata Steel Ltd Share Price Target % Change Bloomberg Price (LC) 2014 (LC) to target Code 43.2 243000 330000 35.8 005380 KS 3.9 7.5 90.4 175 HK 387 445 15.0 TTMT IN 9.6 13.4 5.8 19.5 61.3 37350 1052 135000 2.0 852 364600 12.5 32.6 44.5 41.3 2.3 7.8 29.1 9120 36900 27.0 55.4 18.9 5.4 4.9 2462 1085 486 3354 23150 11.8 30.5 16.3 4.9 61.3 256000 411 89.4 317 6.3 8.6 4.8 1.5 5.8 191 65.1 14.4 375 12.0 20.0 7.9 28.0 84.0 51000 1200 180000 2.5 1000 430000 13.5 38.1 51.0 51.0 4.0 8.2 35.0 11000 60000 30.5 62.0 22.5 5.9 5.5 2800 1100 560 3500 30000 13.6 37.0 19.0 5.5 84.0 330000 506 94.0 400 7.5 11.0 6.4 3.2 6.6 240 78.0 19.5 525 25.1 49.7 33.3 35.3 43.6 37.1 36.5 14.1 25.9 33.3 26.9 17.4 16.1 17.9 7.7 16.9 14.6 23.6 38.4 75.4 4.9 20.3 20.6 62.0 12.5 13.2 11.9 13.5 18.9 9.4 12.0 13.7 7.0 1.4 15.2 4.3 19.1 29.6 15.1 21.5 16.9 12.5 33.0 37.1 28.9 14.2 23.2 5.2 43.7 26.0 19.0 28.1 32.5 112.7 26.8 13.4 25.8 19.8 35.2 39.9 2238 HK 1114 HK 939 HK KTB TB 2318 HK 029780 KS ICICIBC IN 096770 KS 338 HK RIL IN 035760 KS 1929 HK 2319 HK PGOLD PM CPALL TB 1149 HK 2618 HK 2311 TT 6594 JT 123260 KQ 2282 HK 1928 HK 2196 HK RMD AU 1093 HK DRRD IN HCLT IN WPRO IN INFO IN 012630 KS 2386 HK 2338 HK HOLI US GAM MK 2318 HK 000810 KS 700 HK QIHU US CAIR IN 386 HK 857 HK 3337 HK BRU AU FMG AU SSLT IN RIO AU 358 HK TATA IN JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW N OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 18089 50049 4472 18022 9243 8660 54661 187865 8624 53582 4046 19186 19754 11672 4125 43466 8110 2115 16173 7716 2821 11726 4636 885 1161 7621 13231 282 35408 13208 57607 5982 6611 7167 3538 6611 20443 11965 18938 30426 3875 1632 6750 6570 936 3485 32461 53582 11340 54748 98523 10973 65558 9581 90062 226388 1345 414 27543 16836 8938 98667 7515 5759 P/E (x) 2013E 2014E 12.0 9.5 7.5 6.8 9.4 7.4 11.3 10.9 17.4 14.7 11.3 5.4 9.5 13.2 12.9 15.5 12.7 10.7 14.3 13.2 27.2 18.3 22.8 31.3 30.7 33.1 17.2 9.0 27.9 14.8 NM NM 22.6 19.4 25.8 25.7 19.0 24.0 28.2 31.8 19.6 19.0 19.5 20.4 14.4 NM 10.7 12.8 16.2 17.8 17.3 13.2 21.5 50.8 35.4 66.3 11.1 5.1 8.0 10.7 20.6 NM 9.9 10.5 5.4 12.0 11.8 NM 11.1 11.2 9.7 5.0 8.1 10.4 11.6 13.4 9.7 8.0 9.5 11.7 20.9 15.4 17.5 23.0 23.0 25.8 21.1 7.6 10.6 11.1 19.9 56.1 17.5 15.5 19.4 20.8 17.0 19.7 21.4 24.9 16.3 14.1 15.8 19.0 11.3 8.8 9.2 10.8 12.9 15.0 11.3 10.4 12.1 31.8 24.2 39.4 23.9 4.4 7.2 9.2 14.5 83.9 9.2 5.6 8.2 10.2 10.6 11.3 EPS Growth Yield (%) ROE (%) 2013E 2014E 2014E 2014E 18.1 25.6 1.1 16.5 2.4 10.9 1.0 17.0 21.7 25.9 2.0 19.9 (7.8) 3.8 0.5 4.1 NM 55.9 26.3 10.9 9.8 43.8 43.6 23.4 3.0 (1.2) NM 7.2 7.1 1.1 (13.2) 14.9 30.7 2.0 (13.3) 25.4 NM 14.7 (80.1) NM 48.3 16.6 80.0 (6.3) (1.9) 22.8 (63.1) 16.8 31.2 62.8 17.2 13.5 (0.5) NM (22.0) 24.8 (9.1) 4.5 8.4 43.8 (27.0) 44.5 19.4 69.5 16.1 48.4 (15.4) (0.1) 31.5 NM 11.1 10.5 69.1 0.4 (35.7) NM 56.0 31.2 15.8 7.9 17.0 27.0 11.5 15.8 32.3 33.4 50.8 12.6 29.3 18.9 30.0 36.3 33.4 28.0 26.4 19.7 NM 33.1 NM NM 29.0 25.0 33.0 23.2 11.5 21.7 31.8 27.6 21.9 34.8 23.7 7.1 19.8 NM 16.4 19.1 25.5 18.3 51.9 27.0 76.9 57.2 46.0 68.4 20.9 14.3 11.1 16.6 41.6 NM 20.6 87.5 (33.6) 17.6 11.1 NM 1.2 1.0 3.4 7.1 4.6 1.1 1.9 2.2 2.1 1.9 3.2 1.2 1.3 0.9 1.7 0.7 0.9 2.2 2.1 2.6 3.2 3.9 0.9 0.0 3.8 4.1 3.6 1.1 1.5 2.0 0.0 0.7 1.2 0.7 1.0 1.8 1.6 1.3 3.3 0.9 0.0 2.2 1.9 1.1 2.7 0.1 0.3 0.0 3.4 4.5 5.7 4.9 2.2 0.0 2.4 1.6 2.3 3.0 2.8 2.4 12.1 29.7 14.4 19.9 15.9 17.3 5.7 12.9 11.0 7.9 10.3 14.9 23.5 23.3 20.2 13.8 16.3 44.0 17.2 22.1 28.8 14.9 14.0 6.2 60.7 75.7 45.8 17.9 12.6 21.8 16.6 20.8 27.0 33.4 24.1 23.6 14.0 8.4 15.7 14.8 16.1 14.9 13.5 17.3 9.8 36.7 37.1 36.3 15.5 25.7 13.7 11.5 22.9 3.5 17.5 41.4 9.6 19.9 8.1 8.8
160
Top picks by sector heads (contd)

Name Real Estate China Overseas Land & Investment Cheung Kong Holdings Global Logistic Properties Ltd SMID Caps Xinyi Glass TCL Communication Technology China State Construction Techtronic Industries Makalot Industrial Co. Ltd. Technology SK Hynix TSMC Nidec (6594) Seoul Semiconductor Telecoms PCCW Limited M1 21Vianet Group Inc. Thermal Coal China Shenhua Energy - H Transportation Pacific Basin Shipping Air China H Evergreen Marine Corp Taiwan Ltd Hyundai Mipo Dockyard Singapore Airlines Utilities & Power Equipment China Resources Power Holdings Tenaga China Longyuan Power Group Corp. Metro Pacific Investments Corp. Beijing Enterprises Water Share Price Target % Change Bloomberg Price (LC) 2014 (LC) to target Code 8.9 22.9 120 3.0 8.0 7.8 12.9 19.0 171 32300 104 9120 39800 3.4 3.3 18.6 23.8 5.2 5.1 16.7 181000 10.3 18.5 9.4 9.4 4.8 3.7 27.0 124 3.2 10.9 8.2 19.0 28.0 206 39000 130 11000 50000 4.1 4.0 25.0 26.5 6.5 7.0 22.0 210000 13.0 23.5 11.6 9.8 6.5 3.8 18.2 3.6 5.0 31.1 35.9 4.9 47.3 47.1 20.5 23.1 20.7 25.6 20.6 25.6 25.3 20.9 20.1 34.8 11.6 11.6 26.9 24.3 36.5 31.7 16.0 26.1 18.3 27.2 23.4 3.9 35.4 1.6 688 HK 1 HK GLP SP 868 HK 2618 HK 3311 HK 669 HK 1477 TT 000660 KS 2330 TT 6594 JT 046890 KQ 8 HK M1 SP VNET US 1088 HK 2343 HK 753 HK 2603 TT 010620 KS SIA SP 836 HK TNB MK 916 HK MPI PM 371 HK JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 23759 24085 35756 11436 3430 4055 1161 6470 4494 971 31867 21449 90619 13231 2170 2245 3180 2462 1095 53738 53738 4955 1306 8431 1960 3385 9692 8946 11418 16536 9843 2863 4069 P/E (x) 2013E 2014E 17.7 20.5 9.5 11.6 32.0 19.3 13.6 27.9 17.3 18.0 19.6 23.0 9.1 14.5 NM 45.4 31.8 14.4 18.3 62.8 8.7 8.7 45.1 63.3 20.6 64.1 NM 32.3 16.8 8.2 12.2 19.0 16.4 28.2 8.1 11.2 42.1 12.4 10.2 10.6 12.9 13.3 15.2 15.2 7.4 12.3 19.9 21.2 19.1 12.9 15.8 28.6 9.2 9.2 19.9 10.4 13.4 14.7 25.6 35.4 14.1 7.8 11.5 14.9 15.1 21.4 EPS Growth Yield (%) ROE (%) 2013E 2014E 2014E 2014E 9.9 (0.9) 2.2 11.4 23.2 (3.5) 10.0 39.9 85.9 NM 31.4 19.5 22.8 (34.3) NM 11.5 (80.1) NM (7.6) 2.5 13.3 (38.6) (12.5) (12.5) (16.5) NM (47.3) NM NM 14.4 24.8 43.1 33.5 12.4 12.8 22.2 17.7 3.5 (24.0) 33.0 33.0 NM 34.5 35.0 29.6 20.6 23.8 17.3 NM NM 13.9 12.1 15.7 NM (6.0) (6.0) 22.4 NM 53.6 NM NM (8.7) 16.0 5.4 6.5 28.0 8.5 31.5 2.5 2.8 1.3 3.2 4.4 3.2 2.3 1.8 4.3 1.0 0.0 2.9 0.9 0.0 3.6 5.8 5.1 0.0 4.2 4.2 2.0 5.4 1.3 0.0 0.8 2.3 2.1 4.2 2.9 1.3 0.7 1.6 20.2 6.3 7.6 25.8 24.1 28.8 23.1 18.4 34.8 18.4 21.8 21.6 14.0 16.1 27.4 23.8 47.8 10.5 13.6 13.6 6.1 10.0 7.4 6.0 4.5 2.7 12.1 17.5 11.3 12.0 8.6 10.8
161
Stocks to avoid by sector heads

Share Price Target % Change Price (LC) 2014 (LC) to target Auto (21.2) DongFeng Motor Co., Ltd. 11.5 8.5 (26.2) Maruti Suzuki India Ltd 1613 1350 (16.3) Banks (4.0) Chailease Holding 71.2 77.5 8.8 PT Bank Mandiri Tbk. 7900 7000 (11.4) OCBC Bank 10.5 9.5 (9.5) Chemicals and Refining (19.2) Indian Oil Corporation 198 185 (6.6) Lotte Chemical Corp 205500 140000 (31.9) Consumer (6.7) Belle International Holdings Ltd. 9.4 9.6 1.9 CJ Cheiljedang 249000 200000 (19.7) Colgate-Palmolive (India) Limited 1250 1220 (2.4) Emerging Technology (13.4) Pegatron Corp 37.2 33.0 (11.3) Shinko Electric Industries (6967) 816 720 (11.8) Lite-On Technology Corporation 48.2 40.0 (17.0) Gaming (11.1) Genting Singapore 1.4 1.3 (11.1) Healthcare (5.0) China Shineway Pharmaceutical 11.0 13.0 18.2 Cochlear Limited 58.4 55.5 (5.0) Infrastructure & Industrials (17.0) Lonking Holdings Ltd 1.5 1.4 (8.5) Samsung Engineering 67100 50000 (25.5) Insurance (5.3) Dongbu Insurance 48700 41000 (15.8) New China Life Insurance - H 22.8 24.0 5.3 Oil & Gas (1.9) Beach Energy Ltd. 1.4 1.3 (4.4) Oil and Natural Gas Corporation 270 300 11.1 Oil Search 8.4 7.4 (12.2) Metals & Mining 1.0 Aquila Resources Ltd 2.2 2.1 (7.7) Aluminum Corporation of China - H 2.8 2.8 1.8 Indika Energy 790 860 8.9 Real Estate 6.0 China Vanke 13.5 15.5 14.5 Franshion Properties (China) Ltd. 2.6 2.7 5.5 Kerry Properties 32.9 34.5 4.9 Hang Lung Properties 25.2 25.0 (0.8) SMID Caps (6.9) TSRC Corp 47.2 47.0 (0.3) VTech Holdings 104 103 (1.0) Havells India Ltd 746 600 (19.5) Technology (19.6) Pegatron Corp 37.2 33.0 (11.3) HTC Corp 154 90 (41.4) Innolux Corporation 10.7 10.0 (6.1) Telecoms (14.2) Total Access Communication 105 99 (5.7) PT XL Axiata Tbk 4875 3770 (22.7) Thermal Coal 2.6 Coal India 274 310 13.0 China Coal Energy - H 4.7 4.5 (3.4) Indika Energy 790 860 8.9 Transportation 5.9 Yang Ming Marine 12.4 16.0 29.6 China Rongsheng Heavy Industries 1.0 0.7 (26.3) Hanjin Shipping Co Ltd 6990 8000 14.4 Utilities & Power Equipment 6.0 Shanghai Electric Group Co. Ltd 2.7 2.4 (11.4) Adani Power 34.7 31.0 (10.7) Name Bloomberg Code 489 HK MSIL IN 5871 TT BMRI IJ OCBC SP IOCL IN 011170 KS 1880 HK 097950 KS CLGT IN 4938 TT 6967 JT 2301 TT GENS SP 2877 HK COH AU 3339 HK 028050 KS 005830 KS 1336 HK BPT AU ONGC IN OSH AU AQA AU 2600 HK INDY IJ 200002 CH 817 HK 683 HK 101 HK 2103 TT 303 HK HAVL IN 4938 TT 2498 TT 3481 TT DTAC TB EXCL IJ COAL IN 1898 HK INDY IJ 2609 TT 1101 HK 117930 KS 2727 HK ADANI IN JPM Rating UW UW N UW UW UW UW N UW UW UW N UW UW N UW UW UW UW N UW N UW UW N N N N N N UW UW UW UW UW UW UW UW N N N N UW N UW UW Mkt Cap, US$ MM 10248 12801 7695 15810 2394 16169 28865 7092 7598 6586 5327 10247 3050 2685 2597 2909 1103 3780 14102 14102 3095 1173 3095 1677 845 2510 6924 3224 10625 16209 1603 36503 10520 2825 849 7263 361 9958 16128 3025 6123 14556 2029 1252 3365 1470 3530 2909 4407 3273 5759 7868 3649 5994 27384 10023 361 951 1175 858 819 9958 6843 1574 P/E (x) 2013E 2014E 13.6 12.5 6.8 8.1 20.4 16.8 12.7 11.8 12.5 10.3 10.8 11.8 14.8 13.3 14.0 13.5 9.6 9.7 18.5 17.3 22.9 20.8 13.9 12.3 20.4 17.7 34.3 32.5 18.4 11.1 9.0 10.1 33.4 11.6 12.9 11.8 30.2 25.4 30.2 25.4 25.1 25.1 10.2 9.1 25.1 25.1 13.4 19.5 13.4 10.9 NM 28.2 12.7 13.3 13.2 13.2 12.3 13.3 27.2 15.3 12.1 8.1 9.5 9.5 59.8 28.4 #DIV/0! 264.4 NM 264.4 NM NM NM NM 14.2 12.9 8.0 6.8 9.5 8.3 11.5 13.0 28.0 23.4 20.8 16.0 21.6 14.0 16.7 15.8 24.0 18.1 NM 10.1 9.0 10.1 NM NM 15.4 NM 24.3 17.8 23.2 17.4 25.4 18.3 11.4 13.5 10.0 10.2 11.2 14.1 NM NM NM 17.2 NM 17.2 NM NM NM NM 14.2 12.9 10.1 9.5 NM NM EPS Growth Yield (%) ROE (%) 2013E 2014E 2014E 2014E 35.5 2.0 1.2 14.6 31.0 (17.1) 1.9 15.5 39.9 21.1 0.6 13.7 (0.8) 7.9 3.1 17.0 25.0 20.5 3.4 23.1 9.9 (8.0) 2.6 17.2 (37.2) 11.2 3.2 10.6 21.8 2.8 1.8 7.0 26.6 (1.3) 3.1 7.7 17.0 6.9 0.5 6.2 (8.8) 11.4 2.3 41.6 3.1 13.1 3.2 18.9 (40.5) 15.3 0.7 3.3 10.9 5.8 2.8 102.5 32.8 (0.3) 4.6 8.2 52.0 (10.0) 5.9 7.7 NM NM 2.5 7.0 13.5 9.5 5.6 10.0 (0.8) 19.0 0.7 7.0 (0.8) 19.0 0.7 7.0 NM 0.2 4.4 37.9 7.8 12.4 3.3 16.5 NM 0.2 4.4 37.9 NM 22.8 1.5 8.6 NM 22.8 1.5 8.1 NM NM 1.5 9.1 8.9 (4.1) 1.7 9.5 (36.6) (0.5) 2.3 9.1 54.4 (7.6) 1.1 10.0 7.7 24.6 2.2 12.3 12.1 48.9 2.5 11.3 (3.1) 0.3 3.5 15.2 14.1 NM 0.5 10.5 NM #DIV/0! 0.0 (0.5) NM NM 0.0 0.4 NM NM 0.0 (7.0) NM NM 0.0 5.2 8.6 9.7 2.0 9.9 20.9 17.0 2.6 20.4 59.7 14.1 0.0 10.4 (11.7) (11.5) 2.6 4.9 (34.4) 19.3 3.0 4.1 (7.7) 30.9 3.5 27.4 (33.3) 53.9 3.2 13.7 5.5 5.9 6.0 37.0 4.6 32.9 1.1 31.4 NM NM 2.0 0.8 52.0 (10.0) 5.9 7.7 NM NM 0.0 (3.1) NM NM 0.0 (2.3) (24.8) 35.8 3.8 25.2 (4.1) 32.9 5.7 36.8 (45.5) 38.8 1.9 13.5 (6.4) (1.3) 1.3 (3.4) 17.4 (1.9) 5.5 33.2 (51.2) (20.0) 2.1 3.9 NM NM 0.0 5.2 NM NM 0.0 (8.7) NM NM 0.0 5.6 NM NM 0.0 (18.5) NM NM 0.0 (13.2) 8.6 9.7 2.0 9.9 (0.6) 6.9 3.2 8.3 NM NM 0.0 (60.1)
162
Large-cap stocks
Name Top Picks Cairn India Limited China Construction Bank Fortescue Metals Group Ltd Hyundai Motor Company Sinopec Corp - H SK Hynix Geely Automobile Holdings Ltd. China Resources Power Holdings SK Innovation Co Ltd China Overseas Land & Investment Krung Thai Bank Sesa Sterlite KB Financial Group KASIKORNBANK Jardine Cycle & Carriage Ltd Sinopec Engineering Group PetroChina China Shenhua Energy - H Indofood Sinopec Shanghai Petrochemical Siam Commercial Bank Xinyi Glass Rio Tinto Limited Ping An Insurance Group - H Jiangxi Copper - H Weichai Power Tata Motors ASE Guangzhou Automobile Group Co. Brilliance China Automotive Cheung Kong Holdings Tata Steel Ltd HSBC Holdings plc United Tractors Tenaga Samsung Card Reliance Industries Ltd Samsung Fire & Marine Insurance TSMC PT Telekomunikasi Indonesia Tbk Keppel Corporation China State Construction PCCW Limited Golden Agri-Resources Ltd Techtronic Industries Air China H ICICI Bank Cathay Financial Holdings HCL-Technologies Siam Cement China Longyuan Power Group Corp. Gamuda MGM China Holdings Ltd Wipro Ltd. Coca-Cola Amatil Fosun Pharmaceutical-H Chow Tai Fook Jewellery Co.Ltd. BEC World Public Co Ltd AIA Group Ltd Crown Limited Infosys Brambles Limited Sands China Ltd Price Share Target Price (LC) 2014 (LC) 317 5.8 5.8 243000 6.3 32300 3.9 18.5 135000 22.9 19.5 191 38400 183 34.2 11.8 8.6 23.8 6550 2.0 166 8.0 65.1 61.3 14.4 30.5 387 29.1 9.6 13.4 120 375 85.1 19050 9.4 37350 852 256000 104 2175 11.0 12.9 3.4 0.6 19.0 5.1 1052 43.1 1085 420 9.4 4.9 27.0 486 12.1 18.9 12.5 55.5 38.1 16.4 3354 9.3 55.4 400 7.9 6.6 330000 7.5 39000 7.5 23.5 180000 27.0 28.0 240 49000 240 51.0 13.6 11.0 26.5 7500 2.5 210 10.9 78.0 84.0 19.5 37.0 445 35.0 12.0 20.0 124 525 102 23500 11.6 51000 1000 330000 130 2770 13.3 19.0 4.1 0.7 28.0 7.0 1200 50.8 1100 530 9.8 5.5 30.5 560 13.3 22.5 13.5 70.0 45.0 18.0 3500 9.4 62.0 % Change to target 23.0 26.0 35.3 13.4 35.8 19.0 20.7 90.4 27.2 33.3 18.2 43.6 25.8 27.6 31.5 49.1 15.1 28.1 11.6 14.5 26.9 26.5 35.9 19.8 37.1 35.2 21.5 15.0 20.3 25.1 49.7 3.6 39.9 19.9 23.4 23.4 36.5 17.4 28.9 25.6 27.4 20.9 47.3 20.9 19.7 47.1 36.5 14.1 18.0 1.4 26.2 3.9 12.5 13.2 15.2 10.1 18.9 7.7 26.1 18.3 9.5 4.3 1.7 11.9 Bloomberg Code CAIR IN 939 HK FMG AU 005380 KS 386 HK 000660 KS 175 HK 836 HK 096770 KS 688 HK KTB TB SSLT IN 105560 KS KBANK TB JCNC SP 2386 HK 857 HK 1088 HK INDF IJ 338 HK SCB TB 868 HK RIO AU 2318 HK 358 HK 2338 HK TTMT IN 2311 TT 2238 HK 1114 HK 1 HK TATA IN 5 HK UNTR IJ TNB MK 029780 KS RIL IN 000810 KS 2330 TT TLKM IJ KEP SP 3311 HK 8 HK GGR SP 669 HK 753 HK ICICIBC IN 2882 TT HCLT IN SCC TB 916 HK GAM MK 2282 HK WPRO IN CCL AU 2196 HK 1929 HK BEC TB 1299 HK CWN AU INFO IN BXB AU 1928 HK JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW N OW OW OW OW OW OW OW OW OW Mkt Cap, US$ MM 25579 9581 187865 16836 50049 90062 21449 4472 11418 11672 24085 8624 8938 13872 13822 9746 6750 226388 53738 5045 4125 17829 4055 98667 53582 7515 6570 18022 7621 9243 8660 35756 5759 205762 6233 16536 4046 43466 11340 90619 19231 15925 6470 3180 6015 4494 8431 19186 17394 11965 15949 9843 3485 13208 18938 8569 6611 16173 3513 59104 11125 30426 13395 57607 P/E (x) 2013E 2014E 18.2 15.1 5.1 4.4 5.4 5.0 10.5 5.6 7.5 6.8 8.0 7.2 9.1 7.4 9.4 7.4 8.2 7.8 10.7 8.0 9.5 8.1 9.5 8.1 5.4 8.2 11.2 8.5 10.4 9.0 9.6 9.0 10.7 9.2 10.7 9.2 8.7 9.2 14.9 9.2 14.3 9.5 11.3 9.8 13.6 10.2 12.0 10.2 13.2 10.4 11.8 10.6 12.8 10.8 11.3 10.9 14.8 11.1 17.4 11.1 14.7 11.2 11.6 11.2 NM 11.3 11.6 11.4 16.4 11.4 12.2 11.5 12.9 11.6 13.2 11.7 21.5 12.1 14.5 12.3 14.4 12.6 12.6 12.6 17.3 12.9 14.4 12.9 22.0 13.1 18.0 13.3 20.6 13.4 15.5 13.4 15.1 13.7 19.0 14.1 16.8 14.4 19.0 14.9 17.8 15.0 19.4 15.5 19.5 15.8 17.7 16.3 19.0 17.0 22.8 17.5 19.7 17.5 18.0 18.1 24.2 18.4 20.4 19.0 19.9 19.1 25.8 19.4 EPS Growth Yield (%) ROE (%) 2013E 2014E 2014E 2014E 11.4 22.6 2.4 18.7 48.4 14.3 4.5 25.7 10.9 7.9 7.1 19.9 10.5 87.5 1.6 41.4 2.4 10.9 1.0 17.0 (15.4) 11.1 5.7 13.7 NM 23.8 0.0 21.8 21.7 25.9 2.0 19.9 43.1 5.4 4.2 17.5 (1.2) 33.4 1.9 7.9 23.2 17.7 2.5 20.2 9.8 17.0 4.6 15.9 69.1 (33.6) 2.3 9.6 (26.5) 30.7 2.0 6.6 19.2 15.2 2.2 20.3 2.6 6.7 4.2 19.3 (22.0) 16.4 3.3 15.7 (0.1) 16.6 4.9 11.5 (12.5) (6.0) 4.2 13.6 16.1 61.6 3.1 23.9 NM 50.8 3.2 10.3 24.7 14.6 3.3 21.2 85.9 33.0 4.4 24.1 0.4 17.6 3.0 19.9 43.8 27.0 1.1 17.3 (35.7) 11.1 2.8 8.1 24.8 19.1 0.9 14.8 (7.8) 3.8 0.5 4.1 14.7 33.1 3.9 14.9 NM 56.0 1.2 12.1 55.9 31.2 1.0 29.7 (3.5) 3.5 2.8 6.3 NM NM 2.4 8.8 28.0 2.5 5.0 10.0 (25.1) 43.9 3.5 18.3 33.5 6.5 2.9 11.3 43.6 11.5 1.9 5.7 7.2 12.6 1.2 14.9 (27.0) 76.9 2.7 9.8 11.5 17.3 2.9 21.6 11.9 14.3 5.2 31.1 (18.2) (0.2) 4.1 15.1 31.4 34.5 2.3 23.1 2.5 12.1 5.8 23.8 (33.7) 68.0 2.3 5.1 19.5 35.0 1.8 18.4 (47.3) 53.6 1.3 7.4 23.4 15.8 2.2 12.9 79.1 10.5 2.2 13.7 62.8 34.8 0.7 33.4 27.2 16.4 3.5 19.7 12.4 28.0 1.3 12.0 4.5 18.3 2.2 14.9 16.6 25.0 4.1 75.7 17.2 23.7 1.0 24.1 (6.6) 8.3 5.2 25.6 (1.9) 11.5 1.5 12.6 (13.2) 30.0 1.7 20.2 18.2 12.1 5.4 69.1 8.8 (0.5) 1.2 10.7 (2.1) 31.2 2.3 16.9 13.5 7.1 1.8 23.6 4.0 4.0 3.1 21.7 80.0 33.0 3.6 45.8
163
Large-cap stocks (contd)

Name Top Picks ResMed Inc Nidec (6594) Ayala Corporation CSPC Pharmaceutical Beijing Enterprises Water China Mengniu Dairy Co. Ltd. Tencent SapuraKencana Petroleum Bhd Dr. Reddy's Laboratories Limited Hyundai Mipo Dockyard CP All Pcl Ayala Land Naver Singapore Airlines Qihoo 360 Technology Co. Ltd Global Logistic Properties Ltd DLF Limited Stocks to Avoid China Vanke DongFeng Motor Co., Ltd. Franshion Properties (China) Ltd. Shanghai Electric Group Co. Ltd. Oil and Natural Gas Corporation Indian Oil Corporation Coal India AAC Technologies Holdings PT Bank Mandiri Tbk. Lite-On Technology Corporation Belle International Holdings Ltd. Cheng Shin Rubber Industry Co., Ltd Kerry Properties Bank of East Asia Dongbu Insurance Aboitiz Power OCBC Bank New China Life Insurance - H China Coal Energy - H Far EasTone Telecom VTech Holdings CLP Holdings Maruti Suzuki India Ltd Lotte Chemical Corp ALS Limited Total Access Communication CJ Cheiljedang Fletcher Building Ltd PT XL Axiata Tbk UEM Sunrise Bhd Big C Supercenter Pcl Unilever Indonesia Tbk Hang Lung Properties Maxis Berhad Cochlear Limited Genting Singapore Oil Search Hindustan Unilever Limited Aluminum Corporation of China - H HTC Corp Innolux Corporation Price Share Target Price (LC) 2014 (LC) 5.4 9120 573 4.9 4 32.6 411 4.2 2462 181000 41.3 28.3 620000 10.3 89.4 3.0 145 13.5 11.5 2.6 2.7 270 198 274 30.7 7900 48.2 9.4 73.8 32.9 33.5 48700 33.7 10.5 22.8 4.7 63.7 104 61.0 1613 205500 9.5 105 249000 9.7 4875 2.3 189 29900 25.2 7.1 58.4 1.4 8.4 580 2.8 154 10.7 5.9 11000 715 5.5 4 38.1 506 5.0 2800 210000 51.0 36.0 770000 13.0 94.0 3.2 210 15.5 8.5 2.7 2.4 300 185 310 30.0 7000 40.0 9.6 74.0 34.5 30.0 41000 27.0 9.5 24.0 4.5 56.0 103 67.0 1350 140000 8.1 99.0 200000 8.0 3770 2.3 213 22000 25.0 5.6 55.5 1.3 7.4 570 2.8 90 10.0 % Change to target 23.0 9.4 20.6 24.8 12.0 1.6 16.9 23.2 18.2 13.7 16.0 23.6 27.2 24.2 26.1 5.2 5.0 44.5 (7.8) 14.5 (26.2) 5.5 (11.4) 11.1 (6.6) 13.0 (2.1) (11.4) (17.0) 1.9 0.3 4.9 (10.4) (15.8) (19.8) (9.5) 5.3 (3.4) (12.1) (1.0) 9.8 (16.3) (31.9) (15.4) (5.7) (19.7) (17.5) (22.7) 0.4 12.7 (26.4) (0.8) (21.3) (5.0) (11.1) (12.2) (1.8) 1.8 (41.4) (6.1) Bloomberg Code RMD AU 6594 JT AC PM 1093 HK 371 HK 2319 HK 700 HK SAKP MK DRRD IN 010620 KS CPALL TB ALI PM 035420 KS SIA SP QIHU US GLP SP DLFU IN 200002 CH 489 HK 817 HK 2727 HK ONGC IN IOCL IN COAL IN 2018 HK BMRI IJ 2301 TT 1880 HK 2105 TT 683 HK 23 HK 005830 KS AP PM OCBC SP 1336 HK 1898 HK 4904 TT 303 HK 2 HK MSIL IN 011170 KS ALQ AU DTAC TB 097950 KS FBU NZ EXCL IJ UEMS MK BIGC TB UNVR IJ 101 HK MAXIS MK COH AU GENS SP OSH AU HUVR IN 2600 HK 2498 TT 3481 TT JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW N UW N UW N UW N UW UW UW N N N N UW UW UW N N UW UW N UW UW UW UW UW UW UW N N UW N UW UW UW UW UW N UW UW Mkt Cap, US$ MM 25579 7167 13231 7871 3538 4069 7716 98523 7901 6611 3385 11726 9192 19109 9692 10973 11436 4088 10185 16128 12801 3025 6843 36503 7598 27384 4854 16169 3780 10247 8078 6123 9889 3224 5675 28865 10625 10023 7009 3365 19876 7695 6586 3411 7868 3050 5499 3649 3105 4934 20011 14556 16652 3095 14102 10520 19822 7263 4407 3273 P/E (x) 2013E 2014E 18.2 15.1 24.0 19.7 NM 19.9 24.0 21.2 28.2 21.4 28.2 21.4 31.3 23.0 35.4 24.2 37.1 24.9 31.8 24.9 NM 25.6 33.1 25.8 34.7 26.1 47.6 31.5 32.3 35.4 66.3 39.4 32.0 42.1 32.5 44.9 18.1 15.9 8.0 6.8 6.8 8.1 9.5 8.3 10.1 9.5 9.5 9.5 9.6 9.7 10.0 10.2 11.5 11.3 10.8 11.8 12.9 11.8 13.9 12.3 13.2 12.6 11.5 13.0 14.3 13.1 13.2 13.2 13.1 13.2 14.8 13.3 12.3 13.3 11.2 14.1 17.4 15.6 16.7 15.8 16.3 16.0 20.4 16.8 18.5 17.3 13.7 17.3 23.2 17.4 20.4 17.7 20.4 18.2 25.4 18.3 25.9 19.2 22.7 19.4 21.8 20.1 28.0 23.4 25.4 23.6 25.1 25.1 30.2 25.4 59.8 28.4 43.9 33.9 NM NM NM NM 15.4 NM EPS Growth Yield (%) ROE (%) 2013E 2014E 2014E 2014E 11.4 22.6 2.4 18.7 22.8 21.7 2.0 21.8 (80.1) NM 0.9 14.0 35.6 13.2 0.7 11.6 (63.1) 31.8 0.0 16.6 22.2 31.5 1.6 10.8 14.9 36.3 0.7 13.8 19.4 46.0 0.3 37.1 (0.9) 49.1 0.0 12.6 16.8 27.6 0.7 20.8 NM NM 0.8 4.5 2.0 28.0 2.2 44.0 24.1 33.2 1.9 14.8 (1.9) 51.1 0.6 26.7 14.4 (8.7) 2.3 2.7 69.5 68.4 0.0 36.3 10.0 (24.0) 1.3 7.6 (38.1) (27.6) 0.0 2.2 3.9 7.6 2.7 21.3 20.9 17.0 2.6 20.4 31.0 (17.1) 1.9 15.5 59.7 14.1 0.0 10.4 (0.6) 6.9 3.2 8.3 (3.1) 0.3 3.5 15.2 26.6 (1.3) 3.1 7.7 17.4 (1.9) 5.5 33.2 46.9 1.5 3.5 31.6 9.9 (8.0) 2.6 17.2 13.5 9.5 5.6 10.0 3.1 13.1 3.2 18.9 14.1 5.0 3.0 23.0 (11.7) (11.5) 2.6 4.9 (13.5) 9.4 2.9 9.1 (36.6) (0.5) 2.3 9.1 (20.5) (0.7) 3.8 19.7 (37.2) 11.2 3.2 10.6 54.4 (7.6) 1.1 10.0 (51.2) (20.0) 2.1 3.9 12.8 11.2 6.9 18.0 5.5 5.9 6.0 37.0 8.3 2.0 4.3 10.2 39.9 21.1 0.6 13.7 17.0 6.9 0.5 6.2 5.6 (20.6) 4.2 17.0 (4.1) 32.9 5.7 36.8 (40.5) 15.3 0.7 3.3 2.2 11.9 3.6 10.2 (45.5) 38.8 1.9 13.5 9.3 34.9 1.7 8.9 11.5 16.8 1.5 20.2 8.1 8.4 1.9 202.0 (34.4) 19.3 3.0 4.1 2.4 7.6 5.6 39.4 NM 0.2 4.4 37.9 (0.8) 19.0 0.7 7.0 14.1 NM 0.5 10.5 11.3 29.7 1.9 109.7 NM NM 0.0 (7.0) NM NM 0.0 (3.1) NM NM 0.0 (2.3)
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 14, 2013. Large cap are stocks with market cap over US$ 3 billion. Sorted in ascending order of 2014E P/E. Simple average is calculated in grey shaded row.
164
Mid-cap stocks
% Share Price Target Change Price (LC) 2014 (LC) to target Top Picks 21.9 Ezion Holdings Ltd 2.1 2.6 23.2 PT Aneka Tambang Tbk 1370 1800 31.4 Hyundai Development Company 23150 30000 29.6 Pacific Basin Shipping 5.2 6.5 24.3 TCL Communication Technology 7.8 8.2 4.9 Top Glove Corporation 5.9 6.7 14.5 Anton Oilfield Services Group 4.8 6.4 32.5 Evergreen Marine Corp Taiwan Ltd 16.7 22.0 31.7 Metro Pacific Investments Corp. 4.8 6.5 35.4 Thai Union Frozen Products 63.3 63.0 (0.4) CJ O Shopping 364600 430000 17.9 Sims Metal Management Ltd 10.2 11.3 11.3 M1 3.3 4.0 20.1 Hiwin 231 250 8.2 Genting Plantations 11.1 12.6 13.9 Seoul Semiconductor 39800 50000 25.6 Puregold Price Club 44.5 51.0 14.6 Sa Sa International Holdings Limited 8.1 9.4 16.2 21Vianet Group Inc. 18.6 25.0 34.8 MNC Sky Vision tbk 2100 3100 47.6 Stocks to Avoid (5.1) Punjab National Bank 521 450 (13.6) Thanachart Capital 34.8 34.0 (2.2) Beach Energy Ltd. 1.4 1.3 (4.4) China Shineway Pharmaceutical Group Limited 11.0 13.0 18.2 Pegatron Corp 37.2 33.0 (11.3) Chailease Holding 71.2 77.5 8.8 Shinko Electric Industries (6967) 816 720 (11.8) TSRC Corp 47.2 47.0 (0.3) Indofood Agri Resources Ltd 0.9 0.6 (33.3) PT Indosat Tbk 3625 3820 5.4 Yang Ming Marine 12.4 16.0 29.6 Far East Hospitality Trust 0.9 0.8 (9.1) Havells India Ltd 746 600 (19.5) Samsung Engineering 67100 50000 (25.5) Colgate-Palmolive (India) Limited 1250 1220 (2.4) Adani Power 34.7 31.0 (10.7) Name Bloomberg Code EZI SP ANTM IJ 012630 KS 2343 HK 2618 HK TOPG MK 3337 HK 2603 TT MPI PM TUF TB 035760 KS SGM AU M1 SP 2049 TT GENP MK 046890 KQ PGOLD PM 178 HK VNET US MSKY IJ PNB IN TCAP TB BPT AU 2877 HK 4938 TT 5871 TT 6967 JT 2103 TT IFAR SP ISAT IJ 2609 TT FEHT SP HAVL IN 028050 KS CLGT IN ADANI IN JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW UW UW UW N UW N N UW UW UW N UW UW UW UW UW Mkt Cap, US$ MM 1912 1953 1146 1632 1306 1161 1131 1345 1960 2863 2297 2115 1927 2462 1980 2616 2170 2821 2959 1095 1301 1755 2908 1327 1603 1173 2909 2394 1103 1252 1022 1728 1175 1242 1470 2510 2685 1574 P/E (x) 2013E 2014E 38.4 16.9 14.0 7.6 9.6 8.0 NM 8.8 63.3 10.4 27.9 10.6 17.3 14.4 20.6 14.5 64.1 14.7 16.4 15.1 30.6 15.2 18.3 15.4 121.3 15.6 18.3 15.8 27.5 18.3 29.6 19.6 45.4 21.2 30.7 23.0 27.8 24.8 62.8 28.6 83.6 36.7 18.0 14.6 3.9 4.0 4.8 8.1 12.1 8.1 10.2 9.0 12.5 33.4 21.6 28.2 22.1 NM 17.4 24.0 NM 34.3 NM 9.1 10.1 10.3 11.6 14.0 14.5 15.2 17.2 17.6 18.1 28.2 32.5 NM EPS Growth Yield (%) ROE (%) 2013E 2014E 2014E 2014E (3.9) 32.2 1.9 18.1 73.6 82.8 1.4 24.9 (54.3) 19.5 1.0 3.2 NM NM 1.3 8.4 NM NM 5.4 10.0 NM NM 3.2 28.8 0.8 20.3 3.5 18.2 31.5 41.6 2.2 22.9 NM NM 0.0 6.0 12.8 8.5 0.7 8.6 (46.5) NM 3.3 13.1 1.1 18.9 0.9 23.3 (76.7) NM 3.2 6.8 13.3 15.7 5.1 47.8 3.2 50.2 1.0 23.8 (13.2) 50.6 1.1 11.3 NM NM 0.0 16.1 30.7 33.4 0.9 16.3 18.3 12.3 2.9 43.9 (38.6) NM 0.0 10.5 (14.0) NM 1.0 17.7 4.0 21.5 2.9 13.1 (6.7) (3.9) 5.8 13.9 77.2 (41.1) 4.3 10.5 12.1 48.9 2.5 11.3 7.8 52.0 25.0 NM (33.3) (59.7) (45.9) NM NM 4.6 NM 10.9 NM 12.4 (10.0) 20.5 NM 53.9 94.2 45.5 NM (1.4) 32.9 NM 5.8 NM 3.3 5.9 3.4 2.5 3.2 0.6 3.3 0.0 6.3 1.1 1.5 2.8 0.0 16.5 7.7 23.1 7.0 13.7 5.7 6.6 5.6 5.6 31.4 9.1 102.5 (60.1)
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 14, 2013. Mid cap are stocks with market cap between US$1billion & US$3billion. Sorted in ascending order of 2014E P/E. Simple average is calculated in grey shaded row.
Small-cap stocks
Name Top Picks Anxin-China Holdings Hollysys Automation Technologies Makalot Industrial Co. Ltd. Sapphire Technology Buru Energy Stocks to Avoid Lonking Holdings Ltd Aquila Resources Ltd Hanjin Shipping Co Ltd Indika Energy China Rongsheng Heavy Industries Group Holdings Ltd Share Price Target % Change Bloomberg Price (LC) 2014 (LC) to target Code 59.2 2.3 4.0 75.4 1149 HK 16.3 19.0 16.9 HOLI US 171 206 20.5 1477 TT 36900 60000 62.0 123260 KQ 1.5 3.2 112.7 BRU AU (3.8) 1.5 1.4 (8.5) 3339 HK 2.2 2.1 (7.7) AQA AU 6990 8000 14.4 117930 KS 790 860 8.9 INDY IJ 1.0 0.7 (26.3) 1101 HK JPM Rating OW OW OW OW OW UW UW N N UW Mkt Cap, US$ MM 698 885 936 971 282 414 746 845 849 819 361 858 P/E (x) 2013E 2014E 14.9 35.1 9.0 7.6 16.2 12.9 19.6 15.2 NM 56.1 NM 83.9 13.4 137.6 13.4 10.9 NM 264 NM NM NM NM NM NM EPS Growth 2013E 2014E 13.0 24.9 25.4 19.7 (9.1) 25.5 22.8 29.6 NM NM NM NM NM 22.8 NM 22.8 NM NM NM NM NM NM NM NM Yield (%) ROE (%) 2014E 2014E 1.4 16.5 2.6 22.1 0.0 16.1 4.3 34.8 0.0 6.2 0.0 3.5 0.3 (3.6) 1.5 8.1 0.0 0.4 0.0 (13.2) 0.0 5.2 0.0 (18.5)
Source: Datastream, MSCI, IBES, J.P. Morgan estimates Note: Prices and valuations as of November 14, 2013. Small cap are stocks with market cap less than US$1billion. Sorted in ascending order of 2014E PE. Simple average is calculated in grey shaded row.
165
2013 losers picked to be 2014 winners (stocks with relative underperformance end 2012 to date and top picks)
Share Price Target % Change Bloomberg Price (LC) 2014 (LC) to target Code Top Picks 28.6 Cairn India Limited 317 400 26.0 CAIR IN China Construction Bank 5.8 7.9 35.3 939 HK Sinopec Corp - H 6.3 7.5 19.0 386 HK China Resources Power Holdings 18.5 23.5 27.2 836 HK PT Aneka Tambang Tbk 1370 1800 31.4 ANTM IJ SK Innovation Co Ltd 135000 180000 33.3 096770 KS China Overseas Land & Investment 22.9 27.0 18.2 688 HK 19.5 28.0 43.6 KTB TB Krung Thai Bank Sesa Sterlite 191 240 25.8 SSLT IN KASIKORNBANK 183 240 31.5 KBANK TB Jardine Cycle & Carriage Ltd 34.2 51.0 49.1 JCNC SP PetroChina 8.6 11.0 28.1 857 HK China Shenhua Energy - H 23.8 26.5 11.6 1088 HK Indofood 6550 7500 14.5 INDF IJ Siam Commercial Bank 166 210 26.5 SCB TB Rio Tinto Limited 65.1 78.0 19.8 RIO AU Ping An Insurance Group - H 61.3 84.0 37.1 2318 HK Jiangxi Copper - H 14.4 19.5 35.2 358 HK Weichai Power 30.5 37.0 21.5 2338 HK Tata Steel Ltd 375 525 39.9 TATA IN United Tractors 19050 23500 23.4 UNTR IJ Reliance Industries Ltd 852 1000 17.4 RIL IN Golden Agri-Resources Ltd 0.6 0.7 19.7 GGR SP Air China H 5.1 7.0 36.5 753 HK ICICI Bank 1052 1200 14.1 ICICIBC IN Top Glove Corporation 5.9 6.7 14.5 TOPG MK Siam Cement 420 530 26.2 SCC TB Evergreen Marine Corp Taiwan Ltd 16.7 22.0 31.7 2603 TT 63.0 (0.4) TUF TB Thai Union Frozen Products 63.3 Sims Metal Management Ltd 10.2 11.3 11.3 SGM AU Coca-Cola Amatil 12.1 13.3 10.1 CCL AU BEC World Public Co Ltd 55.5 70.0 26.1 BEC TB CP All Pcl 41.3 51.0 23.6 CPALL TB Singapore Airlines 10.3 13.0 26.1 SIA SP MNC Sky Vision tbk 2100 3100 47.6 MSKY IJ DLF Limited 145 210 44.5 DLFU IN Buru Energy 1.5 3.2 112.7 BRU AU Name JPM Rating OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW Yield ROE Performance end 12 to P/E (x) Mkt Cap, (%) (%) date (%) US$ MM 2013E 2014E 2013E 2014E Absolute Rel to Region 26972 21.2 15.5 2.9 16.2 (15.4) (15.0) 9581 5.1 4.4 4.5 25.7 (13.9) (13.5) 187865 5.4 5.0 7.1 19.9 (6.1) (5.8) 90062 8.0 7.2 5.7 13.7 (6.8) (6.4) 11418 8.2 7.8 4.2 17.5 (6.6) (6.2) 1146 9.6 8.0 1.0 3.2 (9.5) (9.2) 11672 10.7 8.0 1.9 7.9 (22.6) (22.2) 24085 8624 8938 13822 9746 226388 53738 5045 17829 98667 53582 7515 6570 5759 6233 43466 6015 8431 19186 1131 15949 1960 2297 1927 8569 3513 11726 9692 1301 4088 414 9.5 9.5 5.4 10.4 9.6 10.7 8.7 14.9 11.3 12.0 13.2 11.8 12.8 NM 16.4 13.2 22.0 20.6 15.5 17.3 16.8 64.1 30.6 121.3 17.7 19.7 33.1 32.3 83.6 32.5 NM 8.1 8.1 8.2 9.0 9.0 9.2 9.2 9.2 9.8 10.2 10.4 10.6 10.8 11.3 11.4 11.7 13.1 13.4 13.4 14.4 14.4 14.7 15.2 15.6 16.3 17.5 25.8 35.4 36.7 44.9 83.9 2.5 4.6 2.3 2.2 4.2 4.9 4.2 3.1 3.3 3.0 1.1 2.8 0.9 2.4 3.5 1.2 2.3 1.3 2.2 3.5 3.5 0.0 3.3 3.2 5.2 5.4 2.2 2.3 1.0 0.0 0.0 20.2 15.9 9.6 20.3 19.3 11.5 13.6 23.9 21.2 19.9 17.3 8.1 14.8 8.8 18.3 14.9 5.1 7.4 12.9 18.2 19.7 6.0 13.1 6.8 25.6 69.1 44.0 2.7 17.7 2.2 3.5 (1.1) (3.7) (15.5) (8.7) (30.5) (21.8) (30.1) (5.4) (11.4) (11.7) (5.7) (29.3) (11.5) (24.2) (18.3) (12.2) (11.9) (21.7) (20.0) (1.1) (6.9) (5.5) (14.9) (1.8) (19.3) (24.3) (13.2) (6.2) (26.0) (45.5) (44.3) (0.8) (3.3) (15.1) (8.3) (30.1) (21.4) (29.7) (5.0) (11.1) (11.4) (5.3) (29.0) (11.2) (23.8) (17.9) (11.8) (11.6) (21.4) (19.6) (0.8) (6.6) (5.1) (14.6) (1.5) (18.9) (24.0) (12.8) (5.8) (25.7) (45.1) (43.9)
166
2013 winners picked to be 2014 losers (stocks with relative outperformance end 2012 to date and stocks to avoid)
Name Stocks to Avoid China Vanke Chailease Holding AAC Technologies Holdings Shinko Electric Industries (6967) Lite-On Technology Corporation Cheng Shin Rubber Industry Co. Bank of East Asia Dongbu Insurance OCBC Bank VTech Holdings Total Access Communication Fletcher Building Ltd UEM Sunrise Bhd Unilever Indonesia Tbk Maxis Berhad Genting Singapore Oil Search Share Price (LC) 13.5 71.2 30.7 816 48.2 73.8 33.5 48700 10.5 104 105 9.7 2.3 29900 7.1 1.4 8.4 Price Target % Change 2014 (LC) to target (8.1) 15.5 14.5 77.5 8.8 30.0 (2.1) 720 (11.8) 40.0 (17.0) 74.0 0.3 30.0 (10.4) 41000 (15.8) 9.5 (9.5) 103 (1.0) 99 (5.7) 8.0 (17.5) 2.3 0.4 22000 (26.4) 5.6 (21.3) 1.3 (11.1) 7.4 (12.2) Bloomberg Code 200002 CH 5871 TT 2018 HK 6967 JT 2301 TT 2105 TT 23 HK 005830 KS OCBC SP 303 HK DTAC TB FBU NZ UEMS MK UNVR IJ MAXIS MK GENS SP OSH AU JPM Rating N N UW N UW N N UW UW UW UW UW N UW UW UW UW Yield ROE Performance end 12 to P/E (x) Mkt Cap, (%) (%) date (%) US$ MM 2013E 2014E 2013E 2014E Absolute Rel to Region 9379 21.0 16.0 3.2 29.2 10.8 11.2 16128 8.0 6.8 2.6 20.4 8.3 8.6 2394 12.5 10.3 3.4 23.1 15.4 15.8 4854 11.5 11.3 3.5 31.6 13.1 13.4 1103 33.4 11.6 2.5 7.0 3.0 3.3 3780 12.9 11.8 5.6 10.0 23.4 23.7 8078 13.2 12.6 3.0 23.0 10.5 10.9 9889 14.3 13.1 2.9 9.1 12.9 13.3 3224 13.2 13.2 2.3 9.1 5.8 6.1 28865 14.8 13.3 3.2 10.6 5.6 5.9 3365 16.7 15.8 6.0 37.0 19.7 20.1 7868 23.2 17.4 5.7 36.8 15.2 15.6 5499 20.4 18.2 3.6 10.2 15.3 15.7 3105 25.9 19.2 1.7 8.9 3.8 4.1 20011 21.8 20.1 1.9 202.0 21.2 21.6 16652 25.4 23.6 5.6 39.4 1.9 2.2 14102 30.2 25.4 0.7 7.0 1.7 2.1 10520 59.8 28.4 0.5 10.5 7.6 8.0
167
Running with 2013 winners (stocks with relative outperformance end 2012 to date and top picks)
Name Share Price Target % Change Bloomberg JPM Price (LC) 2014 (LC) to target Code Rating Top Picks 22.4 Fortescue Metals Group Ltd 5.8 6.6 13.4 FMG AU OW Hyundai Motor Company 243000 330000 35.8 005380 KS OW SK Hynix 32300 39000 20.7 000660 KS OW Geely Automobile Holdings Ltd. 3.9 7.5 90.4 175 HK OW Anxin-China Holdings 2.3 4.0 75.4 1149 HK OW Ezion Holdings Ltd 2.1 2.6 23.2 EZI SP OW KB Financial Group 38400 49000 27.6 105560 KS OW Hyundai Development Company 23150 30000 29.6 012630 KS OW Sinopec Shanghai Petrochemical 2.0 2.5 26.9 338 HK OW Xinyi Glass 8.0 10.9 35.9 868 HK OW Pacific Basin Shipping 5.2 6.5 24.3 2343 HK OW TCL Communication Technology 7.8 8.2 4.9 2618 HK OW Tata Motors 387 445 15.0 TTMT IN OW ASE 29.1 35.0 20.3 2311 TT OW Guangzhou Automobile Group Co. Ltd. 9.6 12.0 25.1 2238 HK OW 1114 HK OW Brilliance China Automotive 13.4 20.0 49.7 Cheung Kong Holdings 120 124 3.6 1 HK OW HSBC Holdings plc 85.1 102.0 19.9 5 HK OW Tenaga 9.4 11.6 23.4 TNB MK OW Samsung Card 37350 51000 36.5 029780 KS OW Samsung Fire & Marine Insurance 256000 330000 28.9 000810 KS OW 2330 TT OW TSMC 104 130 25.6 PT Telekomunikasi Indonesia Tbk 2175 2770 27.4 TLKM IJ OW KEP SP OW Keppel Corporation 11.0 13.3 20.9 Hollysys Automation Technologies Ltd. 16.3 19.0 16.9 HOLI US OW 3311 HK OW China State Construction 12.9 19.0 47.3 Techtronic Industries 19.0 28.0 47.1 669 HK OW Cathay Financial Holdings 43.1 50.8 18.0 2882 TT OW HCL-Technologies 1085 1100 1.4 HCLT IN OW Anton Oilfield Services Group 4.8 6.4 32.5 3337 HK OW China Longyuan Power Group Corp. 9.4 9.8 3.9 916 HK OW GAM MK OW Gamuda 4.9 5.5 12.5 Metro Pacific Investments Corp. 4.8 6.5 35.4 MPI PM OW Makalot Industrial Co. Ltd. 171 206 20.5 1477 TT OW CJ O Shopping 364600 430000 17.9 035760 KS OW MGM China Holdings Ltd 27.0 30.5 13.2 2282 HK OW Wipro Ltd. 486 560 15.2 WPRO IN N M1 3.3 4.0 20.1 M1 SP OW Fosun Pharmaceutical-H 18.9 22.5 18.9 2196 HK OW Chow Tai Fook Jewellery Company Ltd. 12.5 13.5 7.7 1929 HK OW AIA Group Ltd 38.1 45.0 18.3 1299 HK OW Hiwin 231 250 8.2 2049 TT OW Crown Limited 16.4 18.0 9.5 CWN AU OW Infosys 3354 3500 4.3 INFO IN OW Brambles Limited 9.3 9.4 1.7 BXB AU OW Sands China Ltd 55.4 62.0 11.9 1928 HK OW Genting Plantations 11.1 12.6 13.9 GENP MK OW ResMed Inc 5.4 5.9 9.4 RMD AU OW Nidec (6594) 9120 11000 20.6 6594 JT OW Ayala Corporation 573 715 24.8 AC PM OW Seoul Semiconductor 39800 50000 25.6 046890 KQ OW CSPC Pharmaceutical 4.9 5.5 12.0 1093 HK OW Beijing Enterprises Water 3.7 3.8 1.6 371 HK OW China Mengniu Dairy Co. Ltd. 32.6 38.1 16.9 2319 HK OW Yield ROE Performance end 12 to P/E (x) Mkt Cap, (%) (%) date (%) US$ MM 2013E 2014E 2013E 2014E Absolute Rel to Region 16366 22.7 17.1 1.9 19.8 37.4 37.7 16836 10.5 5.6 1.6 41.4 12.0 12.3 50049 7.5 6.8 1.0 17.0 11.0 11.3 21449 9.1 7.4 0.0 21.8 25.2 25.5 4472 9.4 7.4 2.0 19.9 7.3 7.7 885 9.0 7.6 2.6 22.1 20.0 20.3 1953 14.0 7.6 1.4 24.9 46.6 46.9 13872 11.2 8.5 2.0 6.6 1.1 1.5 1632 NM 8.8 1.3 8.4 6.7 7.1 4125 14.3 9.5 3.2 10.3 7.0 7.4 4055 13.6 10.2 4.4 24.1 67.7 68.1 1306 63.3 10.4 5.4 10.0 20.2 20.5 1161 27.9 10.6 3.2 28.8 223.0 223.4 18022 11.3 10.9 0.5 4.1 7.1 7.5 7621 14.8 11.1 3.9 14.9 13.4 13.7 9243 8660 35756 205762 16536 4046 11340 90619 19231 15925 936 6470 4494 17394 11965 1345 9843 3485 2863 971 2115 13208 18938 2462 6611 16173 59104 1980 11125 30426 13395 57607 2616 7167 13231 7871 2170 3538 4069 7716 17.4 14.7 11.6 11.6 12.2 12.9 21.5 14.5 14.4 12.6 16.2 17.3 18.0 15.1 19.0 20.6 19.0 17.8 16.4 19.6 18.3 19.4 19.5 18.3 19.0 22.8 18.0 27.5 24.2 20.4 19.9 25.8 29.6 24.0 NM 24.0 45.4 28.2 28.2 31.3 11.1 11.2 11.2 11.4 11.5 11.6 12.1 12.3 12.6 12.6 12.9 12.9 13.3 13.7 14.1 14.5 14.9 15.0 15.1 15.2 15.4 15.5 15.8 15.8 17.0 17.5 18.1 18.3 18.4 19.0 19.1 19.4 19.6 19.7 19.9 21.2 21.2 21.4 21.4 23.0 1.2 1.0 2.8 5.0 2.9 1.9 2.7 2.9 5.2 4.1 0.0 2.3 1.8 2.2 0.7 2.2 1.3 2.2 0.7 4.3 0.9 4.1 1.0 5.1 1.5 1.7 1.2 1.0 2.3 1.8 3.1 3.6 1.1 2.0 0.9 0.7 0.0 0.0 1.6 0.7 12.1 29.7 6.3 10.0 11.3 5.7 9.8 21.6 31.1 15.1 16.1 23.1 18.4 13.7 33.4 22.9 12.0 14.9 8.6 34.8 23.3 75.7 24.1 47.8 12.6 20.2 10.7 23.8 16.9 23.6 21.7 45.8 11.3 21.8 14.0 11.6 16.1 16.6 10.8 13.8 39.5 40.0 0.6 4.6 28.9 2.1 17.2 4.8 2.1 1.4 36.9 38.7 32.5 44.0 51.7 18.1 75.9 27.8 1.5 85.7 31.4 102.9 19.6 20.9 61.4 0.8 25.7 9.7 37.9 25.2 10.2 63.1 17.3 23.3 57.2 4.3 64.1 120.1 86.9 48.1 39.9 40.3 0.9 5.0 29.3 2.5 17.5 5.1 2.5 1.7 37.2 39.0 32.9 44.3 52.1 18.4 76.2 28.2 1.8 86.1 31.7 103.2 20.0 21.3 61.7 1.1 26.1 10.0 38.2 25.6 10.6 63.5 17.7 23.7 57.5 4.6 64.5 120.5 87.3 48.5
168
Running with 2013 winners (Stocks with relative outperformance end 2012 to date and top picks) (contd)
Name Share Price Target % Change Bloomberg JPM Price (LC) 2014 (LC) to target Code Rating Top Picks 22.4 Puregold Price Club 44.5 51.0 14.6 PGOLD PM OW Tencent 411 506 23.2 700 HK OW Sa Sa International Holdings Ltd. 8.1 9.4 16.2 178 HK OW SapuraKencana Petroleum Bhd 4.2 5.0 18.2 SAKP MK OW Dr. Reddy's Laboratories Limited 2462 2800 13.7 DRRD IN OW Hyundai Mipo Dockyard 181000 210000 16.0 010620 KS OW Ayala Land 28.3 36.0 27.2 ALI PM OW 21Vianet Group Inc. 18.6 25.0 34.8 VNET US OW Naver 620000 770000 24.2 035420 KS OW Qihoo 360 Technology Co. Ltd 89.4 94.0 5.2 QIHU US OW Global Logistic Properties Ltd 3.0 3.2 5.0 GLP SP OW Sapphire Technology 36900 60000 62.0 123260 KQ OW Yield ROE Performance end 12 to P/E (x) Mkt Cap, (%) (%) date (%) US$ MM 2013E 2014E 2013E 2014E Absolute Rel to Region 16366 22.7 17.1 1.9 19.8 37.4 37.7 2821 30.7 23.0 0.9 16.3 27.2 27.6 98523 35.4 24.2 0.3 37.1 64.9 65.3 2959 27.8 24.8 2.9 43.9 28.6 28.9 7901 37.1 24.9 0.0 12.6 27.8 28.2 6611 31.8 24.9 0.7 20.8 16.4 16.8 3385 NM 25.6 0.8 4.5 42.2 42.6 9192 34.7 26.1 1.9 14.8 0.7 1.0 1095 62.8 28.6 0.0 10.5 93.0 93.4 19109 47.6 31.5 0.6 26.7 73.9 74.3 10973 66.3 39.4 0.0 36.3 201.0 201.4 11436 32.0 42.1 1.3 7.6 5.6 5.9 282 NM 56.1 0.0 6.2 33.9 34.3
Non-consensus stocks to avoid

Name Stocks to Avoid Punjab National Bank China Vanke Thanachart Capital Beach Energy Ltd. DongFeng Motor Co., Ltd. Franshion Properties (China) Ltd. China Shineway Pharmaceutical Group Shanghai Electric Group Company Oil and Natural Gas Corporation Indian Oil Corporation Pegatron Corp Coal India Chailease Holding Lonking Holdings Ltd AAC Technologies Holdings PT Bank Mandiri Tbk. Lite-On Technology Corporation Belle International Holdings Ltd. Cheng Shin Rubber Industry Co., Ltd Kerry Properties Dongbu Insurance OCBC Bank New China Life Insurance Co. Ltd - H PT Indosat Tbk Far EasTone Telecom Maruti Suzuki India Ltd Lotte Chemical Corp Total Access Communication CJ Cheiljedang Havells India Ltd PT XL Axiata Tbk UEM Sunrise Bhd Hang Lung Properties Genting Singapore Oil Search Share Price (LC) 520.9 14 34.8 1 12 3 11.0 3 270 198.1 37 274.5 71.2 1.5 30.7 7900.0 48.2 9.4 74 33 48700.0 10.5 23 3625.0 63.7 1613 205500 105.0 249000.0 746 4875.0 2 25.2 1.4 8.4 Price Target % Change 2014 (LC) to target (5.8) 450.0 (13.6) 16 14.5 34.0 (2.2) 1 (4.4) 9 (26.2) 3 5.5 13.0 18.2 2 (11.4) 300 11.1 185.0 (6.6) 33 (11.3) 310.0 13.0 77.5 8.8 1.4 (8.5) 30.0 (2.1) 7000.0 (11.4) 40.0 (17.0) 9.6 1.9 74 0.3 35 4.9 41000.0 (15.8) 9.5 (9.5) 24 5.3 3820.0 5.4 56.0 (12.1) 1350 (16.3) 140000 (31.9) 99.0 (5.7) 200000.0 (19.7) 600 (19.5) 3770.0 (22.7) 2 0.4 25.0 (0.8) 1.3 (11.1) 7.4 (12.2) Bloomberg Code PNB IN 200002 CH TCAP TB BPT AU 489 HK 817 HK 2877 HK 2727 HK ONGC IN IOCL IN 4938 TT COAL IN 5871 TT 3339 HK 2018 HK BMRI IJ 2301 TT 1880 HK 2105 TT 683 HK 005830 KS OCBC SP 1336 HK ISAT IJ 4904 TT MSIL IN 011170 KS DTAC TB 097950 KS HAVL IN EXCL IJ UEMS MK 101 HK GENS SP OSH AU JPM Bloomberg Rating Rating UW N UW UW UW N N UW N UW UW N N UW UW UW UW N N N UW UW N UW UW UW UW UW UW UW UW N N UW UW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW P/E (x) Mkt Cap, Yield (%) ROE (%) US$ MM 2013E 2014E 2013E 2014E 8478 16.0 13.4 2.9 14.2 2908 3.9 4.0 5.8 13.9 16128 8.0 6.8 2.6 20.4 1327 4.8 8.1 4.3 10.5 1603 12.1 8.1 2.5 11.3 12801 6.8 8.1 1.9 15.5 3025 9.5 8.3 0.0 10.4 1173 10.2 9.1 3.3 16.5 6843 10.1 9.5 3.2 8.3 36503 9.5 9.5 3.5 15.2 7598 9.6 9.7 3.1 7.7 2909 9.0 10.1 5.9 7.7 27384 10.0 10.2 5.5 33.2 2394 12.5 10.3 3.4 23.1 845 13.4 10.9 1.5 8.1 4854 11.5 11.3 3.5 31.6 16169 10.8 11.8 2.6 17.2 3780 12.9 11.8 5.6 10.0 10247 13.9 12.3 3.2 18.9 8078 13.2 12.6 3.0 23.0 6123 11.5 13.0 2.6 4.9 3224 13.2 13.2 2.3 9.1 28865 14.8 13.3 3.2 10.6 10625 12.3 13.3 1.1 10.0 1728 22.1 15.2 3.3 6.6 7009 17.4 15.6 6.9 18.0 7695 20.4 16.8 0.6 13.7 6586 18.5 17.3 0.5 6.2 7868 23.2 17.4 5.7 36.8 3050 20.4 17.7 0.7 3.3 1470 24.0 18.1 1.1 31.4 3649 25.4 18.3 1.9 13.5 3105 25.9 19.2 1.7 8.9 14556 28.0 23.4 3.0 4.1 14102 30.2 25.4 0.7 7.0 10520 59.8 28.4 0.5 10.5
Source: Datastream, MSCI, Bloomberg, J.P. Morgan estimates Note: Prices and valuations as of November 14, 2013. Sorted in ascending order of 2014E P/E. Simple average is calculated in grey shaded row.
169
170
Top Picks
171
21Vianet Group Inc.

Overweight
www.en.21vianet.com/
VNET,VNET US Price: $18.55 Price Target: $25.00
China Internet Infrastructure Lucy Liu

AC
Company overview 21Vianet is the largest carrier-neutral Internet data center services provider in China. 21Vianet provides hosting and related services, managed network services and cloud computing infrastructure services, improving the reliability, security and speed of its customers' Internet connections through 21Vianet's Internet infrastructure. It operates in more than 40 cities throughout China, servicing more than 2,000 customers. Investment case We see more than 30% potential upside over the coming year driven by: 1) stronger data center demand in China to translate into quicker cabinets sell-through with rising prices; and 2) the mix of the cabinets portfolio to shift significantly to self-built ones in Beijing in the next 15 months, which will likely underpin a stronger margin trend. VNET is the sole partner of Microsoft cloud service in China, and we believe Windows Azure and Office 365 will be major growth drivers alongside hosting business in the next few years. Resilience of the growth outlook 21Vianet is well positioned to ride the growth of cloud computing services in China as the sole partner with Microsoft for the latters Windows Azure and Office 365 products. 21Vianet, as the largest carrier-neutral data center service provider, is also the major beneficiary of the increase in demand for data center services driven by the strong Internet traffic growth. Risks to the earnings outlook in 2014 Slow sell-through of new cabinets may present downside risks to our earnings forecasts. Price target, and risks to our investment view We are Overweight the stock and we adopt an EV/EBITDA multiple of 13x 2014E EV/EBITDA to set our price target. Our Dec-14 PT of US$25 implies 2014E and 2015E P/E of 38x and 23x, respectively. Key downside risks include delay of commercial launch of cloud business and slower-than-expected sell-through of new cabinets.
(852) 2800-8566 lucy.y.liu@jpmorgan.com Bloomberg JPMA LLIU <GO> J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 91.6% 64.2%
1m -0.7% -4.6%
3m 36.3% 28.7%
12m 84.6% 47.1%
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price ($) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value ($ mn) 3M - Avg daily value ($ mn) CCMP Exchange Rate Fiscal Year End
59 6,667 1,094 18.55 13 Nov 13 50.7% 0.50 8.43 8.4 3965.58 1.00 Dec
21Vianet Group Inc. (Reuters: VNET, Bloomberg: VNET US) Rmb in mn, year-end Dec FY11A FY12A FY13E Revenue (Rmb mn) 1,021 1,524 1,982 Revenue growth (%) 94.4% 49.3% 30.0% Adjusted EBITDA (Rmb mn) 209 294 363 Adjusted EBITDA growth 148.6% 40.8% 23.2% Adjusted EBITDA margin 20.5% 19.3% 18.3% Non-GAAP net profit (Rmb mn) 170 167 105 Non-GAAP net profit growth 185.8% (1.5%) (37.3%) P/E 28.8 38.6 62.9 EV/ Adjusted EBITDA 31.0 21.8 17.8
FY14E 3,012 52.0% 645 77.9% 21.4% 257 144.6% 28.6 10.1
FY15E 4,342 44.1% 1,008 56.2% 23.2% 430 67.5% 17.1 6.3
172
21Vianet Group Inc.: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted)
Ratio Analysis FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 1,021 1,524 1,982 3,012 4,342 Gross margin (744) (1,098) (1,462) (2,126) (2,992) EBITDA margin 276 426 520 887 1,350 Operating margin (35) (64) (75) (97) (144) Net margin (164) (263) (323) (454) (635) R&D/sales 15 81 81 257 434 SG&A/Sales 104 209 281 537 853 15 16 37 59 60 Sales growth (4) (11) (117) (140) (146) Operating profit growth 11 5 (79) (81) (86) Net profit growth 34 8 7 (1) (1) EPS (reported) growth 60 94 9 174 347 (14) (36) (32) (72) (118) Interest coverage (x) 18 56 (24) 101 228 170 167 105 257 430 Net debt to total capital Net debt to equity EPS (reported) 0.42 0.99 (0.41) 1.56 3.51 EPS (adjusted) 3.93 2.93 1.80 3.95 6.62 Asset turnover BVPS 38.59 33.09 41.03 38.44 41.95 Working capital turns (x) DPS - ROE Shares outstanding 43 57 58 65 65 ROIC Balance sheet Cash flow statement Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec Cash and cash equivalents 415 624 1,966 2,000 2,184 Net income Accounts receivable 148 293 389 494 612 Depr. & amortization Inventories - Change in working capital Others 94 123 186 233 289 Other Current assets 1,551 1,263 2,941 3,077 3,385 Cash flow from operations LT investments - Capex Net fixed assets 454 823 1,288 1,741 2,089 Disposal/(purchase) Others 21 290 305 320 336 Cash flow from investing Total Assets 2,403 2,977 5,075 5,619 6,231 Free cash flow Liabilities Equity raised/(repaid) ST Loans 126 214 237 257 277 Debt raised/(repaid) Payables 82 110 138 193 282 Other Others 254 487 651 866 1,060 Dividends paid Total current liabilities 463 810 1,026 1,316 1,619 Cash flow from financing Long-term debt 74 115 1,493 1,543 1,593 Net change in cash Other liabilities 197 162 161 264 297 Beginning cash Total Liabilities 733 1,088 2,679 3,123 3,508 Ending cash Shareholder's equity 1,670 1,889 2,396 2,498 2,726 Source: Company reports and J.P. Morgan estimates.
FY11 27.1% 20.5% 14.7% 16.6% 3.4% 16.0%
FY12 27.9% 19.3% 13.2% 11.0% 4.2% 17.3%
FY13E 26.2% 18.3% 11.3% 5.3% 3.8% 16.3%
FY14E FY15E 29.4% 31.1% 21.4% 23.2% 14.1% 14.9% 8.5% 9.9% 3.2% 3.3% 15.1% 14.6%
94.4% 49.3% 30.0% 52.0% 44.1% (106.3%) 447.8% 0.6% 215.1% 69.0% (107.2%) 206.9% (142.2%) (527.4%) 124.6% (102.0%) 132.6% (141.2%) (484.2%) 124.6% NM NM 4.6 (10.9%) (9.8%) 0.5 1.7 4.9% FY13E (24) 200 (184) 362 353 (545) 0 (14) (129) 0 1,003 0 1,003 1,342 624 1,966 8.0 11.8
(14.8%) (18.5%) (12.9%) (15.6%) 0.7 1.9 17.4% FY11 18 89 (23) 54 166 (257) 8 (1,268) (93) 1,333 65 46 1,444 327 88 415 0.6 2.0 9.4% FY12 56 130 (81) 67 174 (581) 0 (176) (411) 0 77 (53) 24 22 602 624
(8.7%) (13.0%) (8.0%) (11.5%) 0.6 1.6 10.5% 0.7 2.5 16.5% -
FY14E FY15E 101 228 280 419 196 74 49 90 627 811 (613) (647) 0 0 (613) (647) 78 232 0 0 20 20 0 0 20 20 34 184 1,966 2,000 2,000 2,184
173
AIA Group Ltd

Overweight
www.aia.com.hk/en/index.html
1299.HK,1299 HK Price: HK$38.75 Price Target: HK$45.00
Hong Kong Insurance - Life MW Kim

AC
Company overview For 90 years, AIA Group has offered life insurance, accident and health insurance as well as wealth management solutions to individuals and businesses in the Asia Pacific region largely based by the exclusive agency forces. Through an extensive network of agents, it serves customers across 15 geographical markets. Investment case AIAs 2013 results look broadly supported by better-than-expected NBV growth from China/ HK (volume and margin) and Korea (volume) mitigating negativities (currency/weak demand) on ASEAN countries. In 2014, factoring in strong restructuring efforts during 2013, higher NBV growth in Malaysia (business synergy post acquisition), a volume turnaround in Thailand (through agency restructuring), a gradual opening up of healthcare insurance in China should support >18% NBV growth, triggering an upward revision of the NBV consensus outlook on AIA. Resilience of the growth outlook AIA has managed the agency operation with top market share across the region. Following GDP growth, household rising demand for better risk protection should support AIAs growth. From AIAs existing policies, we expect a ~US$2B annual net profit contribution until 2027.
(852) 2800-8517 mw.kim@jpmorgan.com Bloomberg JPMA MKIM <GO> J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 24.6% 25.8%
1m 5.9% 5.6%
3m 6.3% 2.6%
12m 24.2% 19.5%
Risks to the earnings outlook in 2014 Due to diversified exposure across the Asia Pacific region, potential weakness of local currencies and/or an economic slump in each region could work against AIAs earnings/ NBV growth outlook. 5% depreciation in the local currency would affect Singapore/Malaysia/Thailand division earnings by -9%/-4%/-1% respectively. Price target, and risks to our investment view Our Jun-14 PT of HK$45 is derived from our multi-stage NBV growth model which yields an implied blended P/EV of 1.8x and blended new business multiple of 18x for the group. Key risks: 1) slowing NBV growth momentum; 2) a delay in the launch of high-margin unit-linked products; and 3) a longer-than-expected business turnaround in Malaysia.
Company Data Shares O/S (mn) Market Cap ($ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ bn) 3M - Avg daily value ($ mn) HSI Exchange Rate Fiscal Year End
12,044 60,051 60,051 38.65 06 Nov 13 24.81 0.91 117.2 2,3038.95 7.75 Nov
AIA Group Ltd (Reuters: 1299.HK, Bloomberg: 1299 HK) $ in mn, year-end Nov FY11A FY12A FY13E EPS ($) 0.13 0.25 0.27 EPS growth (40.8%) 88.7% 8.8% BVPS ($) 1.77 2.22 2.44 DPS ($) 0.04 0.05 0.05 EV per share ($) 2.26 2.61 2.89 NBV per share 0.08 0.10 0.12 P/E (x) 37.5 19.9 18.3 P/BV (x) 2.8 2.2 2.0 P/EV 2.2 1.9 1.7 Dividend Yield 0.9% 1.0% 1.1% ROE 7.8% 12.6% 11.7%
FY14E 0.27 (0.5%) 2.65 0.06 3.22 0.14 18.4 1.9 1.6 1.2% 10.7%
FY15E 0.31 14.0% 2.89 0.07 3.60 0.17 16.1 1.7 1.4 1.3% 11.2%
174
AIA Group Ltd: Summary of Financials

Income Statement ($ in millions) FY11 FY12 FY13E FY14E FY15E GWP & Policy fees 12,935 13,816 16,347 18,585 21,210 Net written premiums 12,301 13,054 15,906 18,083 20,637 Net earned premiums 12,301 13,054 15,906 18,083 20,637 Total technical outgo (9,072) (13,374) (14,872) (16,944) (19,399) Total expenses (2,902) (2,981) (3,658) (4,123) (4,705) Underwriting profit 327 (3,301) (2,624) (2,984) (3,467) Net Investment Income 4,150 4,463 5,312 5,886 6,786 Realized & unreal. Investment income (2,177) 2,743 1,851 1,635 1,837 Other income/expenses (132) (191) (141) (161) (168) Pre-tax profit 2,168 3,714 4,397 4,376 4,988 Tax (560) (685) (1,099) (1,094) (1,247) Minorities (8) (10) (14) (14) (14) Net profit 1,600 3,019 3,284 3,268 3,727 Balance sheet ($ in millions) FY11 FY12 FY13E FY14E FY15E Bonds 68,677 81,500 88,030 100,054 112,186 Equities 19,012 23,656 24,973 28,184 31,602 Deposits 5,925 6,259 6,868 7,046 7,900 Other Investments 2,943 3,114 3,746 4,228 4,740 Total Investments 97,453 115,564 124,865 140,921 158,008 Total Assets 114,461 134,439 149,209 165,558 184,229 Total insurance reserves 87,112 99,439 110,991 124,160 139,214 Subordinated debts 559 766 766 766 766 Total liabilities 93,046 107,611 119,725 133,511 149,245 Minority Interest 102 131 145 159 173 Shareholders' funds 21,313 26,697 29,339 31,889 34,811 Income Statement growth rates 11,Y/Y 12,Y/Y 13E, Y/Y 14E, Y/Y 15E, Y/Y GWP & policy fees 11.9% 6.8% 18.3% 13.7% 14.1% Net earned premiums 11.0% 6.1% 21.8% 13.7% 14.1% Net Investment Income 16.7% 7.5% 19.0% 10.8% 15.3% Total technical outgo (24.9%) 47.4% 11.2% 13.9% 14.5% Total expenses 12.3% 2.7% 22.7% 12.7% 14.1% Underwriting profit (109.1%) (1109.5%) (20.5%) 13.7% 16.2% Pre-tax profit (38.9%) 71.3% 18.4% (0.5%) 14.0% Net profit (40.8%) 88.7% 8.8% (0.5%) 14.0% Source: Company reports and J.P. Morgan estimates. Capital Strength FY11 FY12 FY13E FY14E FY15E Shareholders' funds to insurance liab. 24.6% 27.0% 26.6% 25.8% 25.1% Solvency margin ratio (group operation) 310.9% 353.2% 351.9% 347.2% 342.9% First-year premiums FY11 FY12 FY13E FY14E FY15E Single premiums 1,499 2,398 3,400 3,973 4,617 Regular premiums 2,101 2,322 3,060 3,576 4,155 AFYPs 2,472 2,696 3,400 3,973 4,617 Profitability measure FY11 FY12 FY13E FY14E FY15E Loss ratio 73.8% 102.5% 93.5% 93.7% 94.0% Expense ratio 23.6% 22.8% 23.0% 22.8% 22.8% Combined ratio 97.3% 125.3% 116.5% 116.5% 116.8% Total investment yield (incl. gains/losses) 2.1% 6.8% 6.0% 5.7% 5.8% ROA 1.4% 2.4% 2.3% 2.1% 2.1% ROE 7.8% 12.6% 11.7% 10.7% 11.2% Per share data FY11 FY12 FY13E FY14E FY15E EPS 0.13 0.25 0.27 0.27 0.31 Y/Y (40.8%) 88.7% 8.8% (0.5%) 14.0% DPS 0.04 0.05 0.05 0.06 0.07 Payout ratio 31.9% 19.0% 19.5% 22.0% 21.6% BVPS 1.77 2.22 2.44 2.65 2.89 No. of shares 12,044 12,044 12,044 12,044 12,044 Group embedded value 2.26 2.61 2.89 3.22 3.60 Life operation embedded value 2.26 2.61 2.89 3.22 3.60 Y/Y 10.1% 15.3% 11.0% 11.1% 12.0% New business value 0.08 0.10 0.12 0.14 0.17 Y/Y 39.7% 27.5% 23.9% 17.4% 17.1% Balance sheet growth rates 11,Y/Y 12,Y/Y 13E, Y/Y 14E, Y/Y 15E, Y/Y Bonds 9.0% 18.7% 8.0% 13.7% 12.1% Equities (13.8%) 24.4% 5.6% 12.9% 12.1% Deposits 69.2% 5.6% 9.7% 2.6% 12.1% Total investments 5.7% 18.6% 8.0% 12.9% 12.1% Total Assets 6.1% 17.5% 11.0% 11.0% 11.3% Total insurance reserves 5.9% 14.2% 11.6% 11.9% 12.1% Total liabilities 5.5% 15.7% 11.3% 11.5% 11.8% Shareholders' funds 9.0% 25.3% 9.9% 8.7% 9.2%
175
Air China H
Overweight
www.airchina.com
Hong Kong Airlines Corrine Png

AC
(65) 6882-1514 corrine.ht.png@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD -18.8% -8.2%
1m 3.7% 1.7%
3m 1.9% -7.5%
12m -1.5% -0.3%
Company overview Air China is the national flag carrier of China, providing domestic and international passenger and cargo transportation services. It is a member of the Star Alliance group. Its 1H13 revenue breakdown was: passenger: 89%, cargo services: 8% and others: 3%. Air China also owns a 29.9% stake in Cathay Pacific which in turn owns a 20.1% stake in Air China. Investment case We like Air China best in the long term given its strong organic growth prospects (driven by rising outbound Chinese traffic, premium/transit pax/cargo market share gains), leverage to growing West China market, and lowest exposure to high-speed rail competition. Resilience of the growth outlook Industry demand-supply growth balance should improve in 2014 with potential supply shortage in the longer term as aircraft deliveries moderate implying fleet growth of only c.9% in 2014E and c.5% in 2015E, before taking into account aircraft retirement. Notwithstanding Chinas lower economic growth, we remain bullish on the LT growth prospects of the airline sector given Chinas low travel penetration (at 0.3x trips per capita vs 2.0x for developed markets) and expect Chinas air traffic to grow 1.5x Chinas real GDP growth going forward, in line with sector average multiplier. We expect this to help lift the sector and Air Chinas recurring earnings growth next year, driving a re-rating. Risks to the earnings outlook in 2014 Key downside risks would be weaker than expected economic conditions in China, resulting in industry oversupply, rising competition from high-speed rail expansion, volatile fuel prices and Cathay Pacifics results disappoint. Price target, and risks to our investment view Our Dec-14 PT of HK$7.0 is based on 1.3x P/BV, a 25% discount to Air Chinas historical average valuation since listing (excluding the M&A speculation period) given its lower than historical average profitability. Key downside risks: Chinas growth stalls, resulting in industry oversupply, rising competition from high-speed rail expansion, volatile fuel prices, weaker than expected earnings contribution from Cathay Pacific and other associates.
Air China H (Reuters: 0753.HK, Bloomberg: 753 HK) Rmb in mn, year-end Dec FY11A FY12A Revenue (Rmb mn) 98,410 100,838 Net Profit (Rmb mn) 7,082 4,637 Recurring Net Profit (Rmb mn) 3,964 4,513 EPS (Rmb) 0.58 0.38 Recurring EPS (Rmb) 0.33 0.37 DPS (Rmb) 0.13 0.06 Revenue growth (%) 19.3% 2.5% Recurring Net Profit growth (60.6%) 13.8% EPS growth (%) (42.6%) (34.4%) Recurring EPS growth (61.6%) 14.1% ROCE 3.6% 4.3% ROE 16.2% 9.7% P/E (x) 7.2 11.0 P/BV (x) 1.1 1.0 EV/EBITDA (x) 9.2 8.7 Dividend Yield 3.0% 1.5%
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) HSCEI Exchange Rate Fiscal Year End
12,137 51,099 8,376 5.35 06 Nov 13 26.0% 11.65 62.08 8.0 1,0637.15 7.75 Dec
FY13E 100,027 3,683 2,564 0.28 0.20 0.03 (0.8%) (43.2%) (26.3%) (47.3%) 2.8% 7.3% 15.0 1.1 9.7 0.8%
FY14E 108,168 3,938 3,938 0.30 0.30 0.05 8.1% 53.6% 6.9% 53.6% 3.3% 7.4% 14.0 1.0 8.6 1.2%
FY15E 116,032 4,905 4,905 0.37 0.37 0.06 7.3% 24.6% 24.6% 24.6% 3.6% 8.6% 11.2 0.9 7.9 1.5%
176
Air China H: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Recurring Net income % change Y/Y Shares outstanding EPS (reported) % change Y/Y Recurring EPS % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 98,410 19.3% 15,905 (18.4%) 6,344 (41.9%) 6.4% 1,682 9,355 (36.9%) (2,292) 24.5% 7,082 (41.0%) 3,964 (60.6%) 12,162 0.58 (42.6%) 0.33 (61.6%) FY11 15,590 5,398 1,810 555 23,353 FY12 100,838 2.5% 18,585 16.9% 8,209 29.4% 8.1% (2,036) 6,576 (29.7%) (1,648) 25.1% 4,637 (34.5%) 4,513 13.8% 12,137 0.38 (34.4%) 0.37 14.1% FY12 12,851 6,985 1,637 968 22,440
LT investments Net fixed assets 112,399 125,370 Total Assets 175,850 187,591 Liabilities Short-term loans 30,825 34,167 Payables 23,233 20,049 Others 7,273 5,130 Total current liabilities 61,332 59,346 Long-term debt 58,821 67,912 Other liabilities 4,672 5,044 Total Liabilities 127,525 135,313 Shareholder's equity 48,325 52,278 BVPS (Rmb) 3.79 4.09 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY13E FY14E FY15E Rmb in millions, year end Dec 100,027 108,168 116,032 EBIT (0.8%) 8.1% 7.3% Depr. & amortization 17,403 20,048 22,197 Change in working capital (6.4%) 15.2% 10.7% Taxes 5,845 7,344 8,347 Cash flow from operations (28.8%) 25.6% 13.7% 5.8% 6.8% 7.2% Capex (1,545) (2,847) (2,949) Disposal/(purchase) 4,981 5,325 6,633 Net Interest (24.3%) 6.9% 24.6% Other (1,248) (1,334) (1,662) Free cash flow 25.1% 25.1% 25.1% 3,683 3,938 4,905 Equity raised/(repaid) (20.6%) 6.9% 24.6% Debt raised/(repaid) 2,564 3,938 4,905 Other (43.2%) 53.6% 24.6% Dividends paid 13,085 13,085 13,085 Beginning cash 0.28 0.30 0.37 Ending cash (26.3%) 6.9% 24.6% DPS 0.20 0.30 0.37 (47.3%) 53.6% 24.6% Ratio Analysis FY13E FY14E FY15E Rmb in millions, year end Dec 13,172 14,779 15,926 EBITDA margin 6,929 7,492 8,037 Operating margin 1,624 1,756 1,884 Net margin 968 968 968 22,693 24,996 26,815 Sales per share growth - Sales growth 134,283 142,050 148,671 Net profit growth 197,436 208,334 218,009 EPS growth Interest coverage (x) 34,167 34,167 34,167 19,888 21,507 23,070 Net debt to equity 5,084 5,049 5,034 Sales/assets 59,138 60,723 62,271 Assets/equity 76,912 82,912 86,912 ROE 3,925 3,925 3,925 ROCE 142,986 150,571 156,119 54,450 57,763 61,890 3.96 4.21 4.52
FY11 6,344 9,561 6,798 (3,466) 19,670
FY12 8,209 10,376 (3,204) (3,072) 9,460
FY13E 5,845 11,557 (92) (1,248) 13,353
FY14E 7,344 12,703 922 (1,334) 16,755
FY15E 8,347 13,850 891 (1,662) 18,461
(22,253) (15,599) (20,471) (20,471) (20,471) 1,106 420 0 0 0 1,682 (2,036) (1,545) (2,847) (2,949) (522) 3,651 0 0 0 (2,000) (2,069) (7,118) (3,716) (2,009) 3,489 12,482 380 (11,630) (1,524) (1,523) 15,245 15,590 15,590 12,851 0.13 0.06 9,000 (1,119) (441) 12,851 13,172 0.03 6,000 0 (678) 13,172 14,779 0.05 4,000 0 (844) 14,779 15,926 0.06
FY11 16.2% 6.4% 4.0%
FY12 18.4% 8.1% 4.5%
FY13E 17.4% 5.8% 2.6%
FY14E 18.5% 6.8% 3.6% 8.1% 8.1% 6.9% 6.9% 7.0
FY15E 19.1% 7.2% 4.2% 7.3% 7.3% 24.6% 24.6% 7.5
16.1% 2.7% (8.0%) 19.3% 2.5% (0.8%) (41.0%) (34.5%) (20.6%) (42.6%) (34.4%) (26.3%) NM 9.1 11.3
160.6% 179.7% 189.1% 185.9% 177.9% 0.6 0.6 0.5 0.5 0.5 382.2% 379.5% 379.6% 379.9% 373.5% 16.2% 9.7% 7.3% 7.4% 8.6% 3.6% 4.3% 2.8% 3.3% 3.6%
177
Anton Oilfield Services Group

Overweight
www.antonoil.com
China Oil Services & Equipment Scott L Darling

AC
Company overview Anton Oil is one of Chinas integrated oil services companies with Schlumberger (SBL.US; OW) as its strategic shareholder (c20% interest). The company is comprised of four segments: Down-hole Operations, Well Completion, Drilling Technology and Tubular Services. These businesses have patented technologies, and Anton Oils proprietary products of downhole tools, chemicals and service equipment combined with job design allows it to provide a one-stop service for the oil and gas industry. Investment case While the structural growth story built around Chinas non-conventional gas resource base will continue to act as a key value driver, we think its strategic positioning towards an integrated model is not fully reflected in its valuation, with the shares trading at c15% P/E 14 discount to local peers. We think the move towards integrated production and rig management will see robust margins vs peers and reversal of the shares recent underperformance (c30% both absolute and relative to the HSI since June) in the medium term. Resilience of the growth outlook We expect Anton Oils earnings to be driven by new business in China, with a supply constrained natural gas market and price hikes incentivizing new drilling and project developments; by new awards overseas, particularly from Iraq as the country continues to ramp up oil output; and by a gradual improvement in product offering from Anton Oils integrated oil service model. Risks to the earnings outlook in 2014 Main risks to our earnings are lower than expected tenders and new contracts from lower oil company activity; lower margins due to increased competition in the local market and a sharp fall in oil prices reducing industry spending in the medium term. Price target, and risks to our investment view Our Dec-14 PT of HK$6.4 is based on a sum-of-the-parts methodology and derived by assigning an EV/EBITDA multiple to each of the four business segments. Key risks are increased competition in the oilfield services sector from international and SOE entrants, and speed and direction of political reform limiting growth of private firms.
(852) 2800 8578 scott.l.darling@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 7.8% 18.4%
1m -8.4% -10.4%
3m -3.7% -13.1%
12m 101.3 % 102.5 %
2,158 7,915 1,297 4.66 06 Nov 13 43.0% 18.56 89.72 11.6 1,0637.15 7.75 Dec
Anton Oilfield Services Group (Reuters: 3337.HK, Bloomberg: 3337 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Rmb mn) 1,259 2,005 2,624 3,242 Net Profit (Rmb mn) 77 303 398 563 EPS (Rmb) 0.04 0.14 0.19 0.27 DPS (Rmb) 0.02 0.05 0.06 0.08 Revenue growth (%) 32.4% 59.2% 30.9% 23.6% EPS growth (%) (33.8%) 288.1% 31.5% 41.6% ROCE 7.6% 15.5% 14.7% 16.5% ROE 4.7% 16.6% 18.8% 22.9% P/E (x) 99.5 25.6 19.5 13.8 P/BV (x) 4.4 3.7 3.3 2.8 EV/EBITDA (x) 33.7 16.3 11.3 8.4 Dividend Yield 0.5% 1.3% 1.6% 2.2%
FY15E 4,012 797 0.38 0.12 23.7% 41.6% 20.3% 27.0% 9.7 2.3 6.9 3.1%
178
Anton Oilfield Services Group: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 1,259 32.4% 234 19.2% 175 20.2% 13.9% (16) 113 (20.9%) (21) 18.5% 77 (33.7%) 2,098 0.04 (34.5%) FY12 2,005 59.2% 491 110.1% 398 127.6% 19.9% (31) 367 226.5% (50) 13.5% 303 291.2% 2,116 0.14 284.2% FY13E 2,624 30.9% 724 47.3% 568 42.8% 21.7% (81) 487 32.5% (74) 15.2% 398 31.5% 2,116 0.18 31.5% FY14E 3,242 23.6% 957 32.2% 806 41.9% 24.9% (129) 677 39.2% (99) 14.6% 563 41.6% 2,116 0.26 41.6% FY15E 4,012 23.7% 1,216 27.0% 1,070 32.7% 26.7% (120) 950 40.3% (137) 14.5% 797 41.6% 2,116 0.37 41.6% Cash flow statement Rmb in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis Rmb in millions, year end Dec EBITDA margin EBIT margin Net margin FY11 175 59 7 (28) 220 (163) (16) (35) 71 0 135 162 (39) 189 462 0.02 FY11 18.6% 13.9% 6.1% FY12 FY13E FY14E FY15E 398 568 806 1,070 93 156 151 147 (133) (97) (176) (233) (50) (74) (99) (137) 350 471 554 726 (235) (31) (38) 141 0 23 13 (47) 462 523 0.05 FY12 24.5% 19.9% 15.1% (450) (81) (71) 91 0 1,338 0 (124) 523 1,688 0.06 FY13E 27.6% 21.7% 15.2% (450) (129) (88) 214 0 0 0 (173) 1,688 1,530 0.08 FY14E 29.5% 24.9% 17.4% 23.6% 23.6% 41.6% 41.6% 7.4 (450) (120) (109) 378 0 (299) 0 (244) 1,530 1,154 0.12 FY15E 30.3% 26.7% 19.9% 23.7% 23.7% 41.6% 41.6% 10.2
FY11 462 671 271 136 1,541
FY12 FY13E FY14E FY15E 523 1,688 1,530 1,154 948 863 1,061 1,308 487 505 632 769 256 356 436 536 2,214 3,411 3,660 3,767 1,270 5,155 0 547 385 932 1,849 4 2,785 2,261 1.12 1,590 5,791 0 691 771 1,462 1,550 4 3,016 2,666 1.31
LT investments Net fixed assets 539 955 Total Assets 2,498 3,593 Liabilities Short-term loans 315 192 Payables 258 730 Others 169 287 Total current liabilities 742 1,209 Long-term debt 0 299 Other liabilities 16 4 Total Liabilities 758 1,512 Shareholder's equity 1,666 1,972 BVPS (Rmb) 0.83 0.98 Source: Company reports and J.P. Morgan estimates.
Sales per share growth - Sales growth 1,914 Net profit growth 6,310 EPS growth Interest coverage (x) 0 846 Net debt to equity 566 Sales/assets 1,412 Assets/equity 1,550 ROE 4 ROCE 2,966 3,234 1.58
32.1% 57.9% 30.9% 32.4% 59.2% 30.9% (33.7%) 291.2% 31.5% (34.5%) 284.2% 31.5% 14.5 16.1 8.9 (8.5%) 0.5 1.4 4.7% 7.6%
(1.6%) 6.8% 0.7% 11.8% 0.7 0.6 0.6 0.7 1.7 2.1 2.2 2.1 16.6% 18.8% 22.9% 27.0% 15.5% 14.7% 16.5% 20.3%
Anton Oil - SOTP Valuation

Segment Down-hole operation cluster Well completion cluster Drilling technology cluster Tubular services Corporate Expenses Total Net (Debt) / Cash Equity value NOSH Fair Value (Rmb) Price Target (HK$) RMB/HK$Exchange Rate (Spot) EBITDA (mn Rmb) 607 167 227 310 (353) 957 High 9.7 9.7 8.6 26.1 Global multiples Low 4.7 4.7 4.6 6.5 Avg 7.3 7.3 6.7 12.0 EV/EBITDA 9.5 9.5 8.5 12.5 6.0 EV 5,765 1,588 1,928 3,871 (2,119) 11,034 (319) 10,715 2,158 5.0 6.4 1.271 EV/Share 54% 15% 18% 36% (20%) 103% (3%) 100%
Source: J.P. Morgan estimates. Global multiples as of 2013-11-11.
179
Anxin-China Holdings
Overweight
www.anxin-china.com.hk/
China Enterprise Software Applications Qin Zhang, CFA

AC
Company overview Anxin-China manufactures Intelligent Surveillance, Disaster Alert and Rescue Coordination (ISD) systems to monitor safety conditions in mines, gas stations and other high risk areas. The company entered the Intelligent Safety System (ISS) market in November 2012 to analyze video content for Chinas growing public security market. Investment case We rate Anxin OW based on the companys dominant position in the work safety and surveillance industry. The State Administration of Work Safety mandates that large and mid-sized enterprises in 31 high-risk industries have at least an 80% compliance rate in terms of building an emergency response platform by the end of 2015. Anxin is also entering the public safety and surveillance market. Resilience of the growth outlook We believe Anxins ISD segment will maintain robust growth, given that demand for work safety and surveillance compliance is driven by the Chinese government and that ISD system penetration is currently below 5%, implying much room for growth.
(852) 2800-8532 qin.zhang@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 26.7% 27.9%
1m -7.6% -7.9%
3m -6.2% -9.9%
12m 39.9% 35.2%
Risks to the earnings outlook in 2014 Key downside risks include project delays and falling coal prices, which may result in more coal mines shutting down. Price target, and risks to our investment view Our Jun-2014 target price is HK$4, based on a 15x fwd P/E and implying a 2.9x forward P/B. Stocks in the safety and surveillance sector trade at an avg fwd P/E of 20.4x excluding the A-shares and 23.9x including the A-shares. We have taken into account Anxins 25% EPS CAGR in 2013-15E, as well as a trading liquidity discount. Key risks include project delays and falling coal prices, which may result in more coal mines shutting down.
Bloomberg 1149 HK, Reuters 1149.HK

(Year-end Dec, HK$ mn) Sales Gross Profit Operating Profit EBITDA Pre-Tax Profit Net profit EPS (HK$) BPS (HK$)
FY11 FY12 FY13E FY14E FY15E FY11 FY12 FY13E FY14E FY15E 52-Week range 598 850 1,207 1,629 2,199 P/E (x) 16.1 12.0 9.6 8.0 6.1 Market Cap 536 717 983 1,301 1,728 P/BV (x) 2.5 2.0 1.9 1.6 1.3 Market Cap 432 569 789 1,053 1,409 Div. Yield (%) 1.2 1.5 1.9 2.5 3.3 Share Out. (Com) 472 643 896 1,168 1,534 ROE (%) 19.8 18.3 20.0 22.1 24.0 Free float 402 615 848 1,121 1,487 ROIC (%) 8.8 13.8 14.7 16.6 18.0 Avg daily val (US$) 404 548 746 986 1,309 WC Turns (x) 0.7 0.6 0.7 0.6 0.6 Avg daily vol. 0.17 0.20 0.25 0.30 0.40 Net Debt/Equity (41.8%) (46.4%) (49.8%) (56.5%) (61.9%) Dividend yield (%) 0.96 1.21 1.27 1.49 1.80 Hang Seng Index
HK$3.07-1.51 HK6,994MM US$902MM 2,902MM 70.3% 6.6MM 19.2MM 1.9 2,3038.95
Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash. Priced at November 11, 2013
180
Anxin-China Holdings: Summary of Financials
Income Statement Ratio Analysis HK$ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Dec Revenues 598 850 1,207 1,629 2,199 Gross margin Cost of goods sold (62) (133) (224) (328) (471) EBITDA margin Gross Profit 536 717 983 1,301 1,728 Operating margin SG&A expenses (96) (162) (175) (226) (297) Net margin R&D expenses (51) (77) (109) (142) (184) R&D/sales Other operating income 83 165 197 235 287 SG&A/Sales Depreciation (39) (74) (108) (115) (125) Operating profit (EBIT) 432 569 789 1,053 1,409 Sales growth EBITDA 472 643 896 1,168 1,534 Operating profit growth Interest income 5 6 10 13 18 Net profit growth Interest expense (12) (6) (6) (6) (7) EPS (reported) growth Non-operating Income (expense) (22) 46 56 61 67 Earnings before tax 402 615 848 1,121 1,487 Interest coverage (x) Tax 2 (67) (102) (135) (178) Net income (reported) 404 548 746 986 1,309 Net debt to total capital Net income (adjusted) 404 548 746 986 1,309 Net debt to equity EPS (reported) 0.17 0.20 0.25 0.30 0.40 Asset turnover EPS (adjusted) 0.17 0.20 0.25 0.30 0.40 Working capital turns (x) BVPS 0.96 1.21 1.27 1.49 1.80 ROE DPS 0.03 0.04 0.05 0.06 0.08 ROIC Shares outstanding 2,398 2,716 2,949 3,257 3,308 Balance sheet Cash flow statement HK$ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Dec Cash and cash equivalents 1,078 1,581 2,021 2,763 3,715 Net income Accounts receivable 235 378 518 699 944 Depr. & amortization Inventories 11 19 36 49 66 Change in working capital Others 0 19 26 35 48 Other Current assets 1,324 1,997 2,601 3,546 4,773 Cash flow from operations LT investments - Capex Net fixed assets 108 135 192 272 383 Other Others 1,218 1,950 1,859 1,767 1,676 Cash flow from investing Total Assets 2,650 4,082 4,652 5,585 6,831 Free cash flow Liabilities Equity raised/(repaid) ST Loans 0 0 0 0 0 Debt raised/(repaid) Payables 50 164 218 316 445 Dividends paid Others 13 329 180 169 158 Other Total current liabilities 63 493 398 485 604 Cash flow from financing Long-term debt 0 0 0 0 0 Exchange Rate Effects Other liabilities 12 179 199 209 224 Net change in cash Total Liabilities 75 672 598 694 828 Beginning cash Shareholder's equity 2,576 3,410 4,054 4,891 6,003 Ending cash Source: Company reports and J.P. Morgan estimates.
FY11 89.7% 78.9% 72.3% 67.6% 8.6% 16.1% 96.1% 118.9% 199.9% 25.6% 60.6
FY12 84.4% 75.7% 67.0% 64.5% 9.1% 19.0% 42.1% 31.7% 35.5% 19.7% 978.9
FY13E 81.5% 74.3% 65.4% 61.9% 9.0% 14.5% 42.0% 38.5% 36.3% 25.5% NM
FY14E 79.9% 71.7% 64.7% 60.6% 8.7% 13.9% 35.0% 33.6% 32.2% 19.6% NM
FY15E 78.6% 69.8% 64.1% 59.5% 8.4% 13.5% 35.0% 33.8% 32.7% 30.7% NM
(72.0%) (86.4%) (99.4%) (129.8%) (162.3%) (41.8%) (46.4%) (49.8%) (56.5%) (61.9%) 0.3 0.3 0.3 0.3 0.4 0.7 0.6 0.7 0.6 0.6 19.8% 18.3% 20.0% 22.1% 24.0% 8.8% 13.8% 14.7% 16.6% 18.0% FY11 404 39 (155) 47 336 (7) 4 (3) 329 317 (20) 0 2 299 45 678 400 1,078 FY12 548 74 (92) 89 618 (112) (11) (123) 507 74 0 (80) (2) (8) 16 503 1,078 1,581 FY13E 746 108 (259) 0 595 (73) 0 (73) 522 0 0 (149) 67 (82) 0 440 1,581 2,021 FY14E 986 115 (117) 0 985 (103) 0 (103) 882 0 0 (197) 57 (140) 0 742 2,021 2,763 FY15E 1,309 125 (156) 0 1,278 (144) 0 (144) 1,134 0 0 (262) 80 (182) 0 952 2,763 3,715
181
ASE
Overweight
www.aseglobal.com
2311.TW,2311 TT Price: NT$28.55 Price Target: NT$35.00
Company overview ASE is the worlds largest OSAT, offering chip packaging and testing services to global fabless and IDM customers like QCOM, BRCM, MTK, MRVL and others. ASE acquired an EMS firm, USI, and started consolidating its operations in 1Q10. Investment case We foresee meaningful revenue growth /margin expansion for ASE in 2014 backed by: (1) meaningful allocation likely for Apples 20nm AP (fabbed at TSMC), given ASEs leadership in PoP packaging; (2) potential synergies between in-house assembly/test and EMS segments for ramping SiP business; (3) industry migration toward advanced packaging; and (4) substantial downside protection for wirebonder utilizations due to significant IDM exposure. Resilience of the growth outlook With the replacement cycle for gold wire bonders (to copper ones) coming to an end, the drag on ASEs earnings should decline because most of the capex over the past three to four years that went into the conversion did not result in incremental revenues or profits. With the bulk of fresh investments going into advanced packaging, fresh revenue generation should pick up, in our view. Moreover, ASEs 3Q13 packaging GM came in at an 11-quarter high, primarily due to lower depreciation and higher exposure to advanced packaging. With depreciation expected to peak in 2013, and an increase expected in advanced packaging revenues, we believe packaging GM is likely to remain high in 2014 and beyond. Risks to the earnings outlook in 2014 We are concerned about lower wirebonder utilization in 2014 as the industry moves aggressively toward flip chip and advanced packaging. However, we believe IDMs are likely to help save wirebonder utilizations since they are likely to move more slowly than fabless vendors to advanced packaging. ASE stands out better in this regard, with 37% exposure to IDM (compared to 9% for SPIL). Price target, and risks to our investment view Our Jun-14 PT of NT$35 is based on 2x FY14E book, with an ROE of 15%, in line with the higher end of its revised mid-cycle valuation, given an improving ROE profile. Key downside risks include a slower ramp-up of advanced packaging and the likelihood of low utilization in the wirebonding and testing business.
Taiwan Semiconductors Gokul Hariharan

AC
(852) 2800-8564 gokul.hariharan@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 9.2% 2.7%
1m -2.2% -1.2%
3m 15.8% 12.8%
12m 28.3% 13.9%
Share Price: NT$28.55, Date of Price: (06 Nov 13), Bloomberg 2311 TT, Reuters 2311.TW
(Year-end Dec, NT$ B) Revenue Operating profit EBITDA Pre-tax profit Adjusted net profit Profit growth (%) EPS (NT$)* BVPS (NT$, yr-end) Cash dividend yield (%) ROE (%) ROIC (net of cash, %) Net debt/equity (%) FY12 194.0 17.8 41.2 16.6 13.1 -4.6 1.72 14.81 2.0 11.6 8.5 53.6 FY13E 217.1 21.1 46.8 19.2 15.1 15.1 1.97 16.08 3.6 12.1 9.7 40.3 FY14E 251.4 26.1 52.3 25.1 20.3 35.0 2.62 17.57 4.0 14.9 12.5 29.0 FY15E 274.9 28.1 55.4 27.0 21.9 7.9 2.83 18.86 5.4 15.0 13.8 15.8 P/E (x) P/B (x) EV/EBITDA (x) FCF/Mkt cap (%) Price target PT (30-Jun-14) Diff from consensus Quarterly EPS (NT$) FY12 FY13E FY14E
FY12 FY13E FY14E 16.6 14.5 10.9 1.9 1.8 1.6 7.0 6.0 5.1 -2.4 4.7 9.1
1Q 0.27 0.29 0.47
2Q 0.42 0.50 0.69
3Q 0.45 0.58 0.75
FY15E 10.1 52-Week range NT$ 29.90-21.90 1.5 Share out'g 7,740M 4.5 Avg daily volume 25.8M 13.1 Avg daily val (US$) 24.3M Local Free float 63.3% NT$ 35.00 Market cap (US$) 7.5B 8.4% Exchange rate NT$ 29.43/US$1 Index (TWSE) 8281.97 4Q 0.58 0.59 0.72
182
ASE: Summary of Financials
Income Statement NT$ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Revenues 185,347 193,972 217,068 251,425 274,868 Cost of goods sold (150,338) (157,349) (175,283) (200,965) (220,091) Gross Profit 35,009 36,624 41,785 50,460 54,776 R&D expenses (7,118) (7,874) (8,997) (10,745) (11,756) SG&A expenses (11,070) (10,988) (11,724) (13,624) (14,943) Operating profit (EBIT) 16,821 17,761 21,064 26,090 28,077 EBITDA 39,767 41,176 46,768 52,271 55,350 Interest income 331 322 86 0 0 Interest expense (1,666) (2,004) (2,139) (1,802) (1,660) Investment income (loss) 718 128 (4) 29 29 Non-operating Income (expense) 793 384 156 754 550 Earnings before tax 16,997 16,591 19,163 25,071 26,996 Income tax (3,018) (3,042) (3,647) (4,262) (4,589) Minority interest (253) (458) (448) (464) (464) Net income (reported) 13,726 13,091 15,068 20,345 21,943 Net income (adjusted) 13,726 13,091 15,068 20,345 21,943 EPS (reported) EPS (adjusted) BVPS DPS (cash only) Adjusted O/S (M) Balance sheet NT$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Other current assets Total current assets 1.78 1.78 13.3 0.51 7,699 1.72 1.72 14.8 0.57 7,594 1.97 1.97 16.1 1.03 7,644 2.62 2.62 17.6 1.14 7,754 2.83 2.83 18.9 1.54 7,754
Ratio Analysis NT$ in millions, year end Dec Gross margin EBITDA margin Operating Margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth EPS (adjusted) growth Interest coverage (x) Net debt to equity Days receivable Days inventory Days payable Cash cycle Asset turnover ROE (single yr) ROIC (net of cash)
FY11 FY12 FY13E FY14E 18.9% 18.9% 19.2% 20.1% 21.5% 21.2% 21.5% 20.8% 9.1% 9.2% 9.7% 10.4% 7.4% 6.7% 6.9% 8.1% 3.8% 4.1% 4.1% 4.3% 6.0% 5.7% 5.4% 5.4%
FY15E 19.9% 20.1% 10.2% 8.0% 4.3% 5.4%
(1.8%) 4.7% 11.9% 15.8% 9.3% (30.2%) 5.6% 18.6% 23.9% 7.6% (25.1%) (4.6%) 15.1% 35.0% 7.9% (25.2%) (3.3%) 14.4% 33.1% 7.9% 10.1 8.9 9.8 14.5 16.9 50.4% 53.6% 40.3% 29.0% 15.8% 62.9 63.7 68.0 67.0 65.8 64.8 72.1 71.9 70.9 69.5 55.3 52.7 54.1 53.2 52.2 72.3 83.1 85.8 84.7 83.0 0.9 0.8 0.8 0.9 1.0 13.4% 11.6% 12.1% 14.9% 15.0% 9.7% 8.5% 9.7% 12.5% 13.8% FY11 13,726 22,945 2,906 (6,774) (3,197) 481 30,340 FY12 13,091 23,414 (6,737) (2,003) 3,035 1,231 32,489 FY13E 15,068 25,704 (6,503) (4,917) 3,517 2,412 35,728 FY14E 20,345 26,181 (4,830) (4,087) 3,088 861 42,021 FY15E 21,943 27,273 (1,938) (1,640) 1,272 772 48,145
Cash flow statement NT$ in millions, year end Dec Net income Depr. & amortization Change in receivables Change in inventory Change in payables Other adjustments Long term investments 2,221 2,366 2,395 2,424 2,454 Cash flow from operations Gross PPE 240,390 262,352 285,579 306,198 324,118 Accumulated depreciation (137,123) (144,268) (169,739) (194,736) (220,776) Capex Others 28,259 28,012 30,398 30,598 30,798 Purchase (sale) of investments Total Assets 223,878 246,504 283,188 279,125 285,142 Other adjustments Cash flow from investing Short-term loans 26,426 40,099 46,804 34,950 31,966 Accounts payable 21,192 24,227 27,744 30,832 32,104 Free cash flow Accrued expenses & other CL 19,144 20,378 23,379 24,782 25,772 Equity raised/(repaid) Total current liabilities 66,762 84,703 97,927 90,564 89,842 Debt raised/(repaid) Long-term debt 50,367 44,592 52,377 44,147 40,846 Other LT liabilities 4,467 4,750 8,203 8,203 8,203 Dividends paid Total Liabilities 121,596 134,045 158,507 142,914 138,890 Other adjustments Cash flow from financing Shareholder's equity 102,282 112,459 124,681 136,211 146,252 Total Liabilities and Shareholder Equity 223,878 246,504 283,188 279,125 285,142 Net change in cash Beginning cash Ending cash Source: Company reports and J.P. Morgan estimates. FY11 25,268 30,476 30,070 4,317 90,132 FY12 FY13E FY14E FY15E 24,436 48,939 39,565 49,677 37,213 43,716 48,546 50,485 32,073 36,990 41,078 42,718 4,321 4,910 5,452 5,670 98,042 134,555 134,641 148,549
(34,871) (37,786) (25,393) (21,803) (19,153) 720 (344) (482) (229) (229) (34,151) (38,130) (25,875) (22,032) (19,383) (4,531) (5,296) 10,335 20,218 28,992 7,016 8,406 1,595 0 0 7,245 7,897 14,491 (20,084) (6,285) (3,932) (4,325) (7,988) (8,815) (11,902) (6,344) (7,170) 6,551 (464) (464) 3,985 4,808 14,650 (29,363) (18,651) 174 (832) 24,503 (9,374) 10,112 25,095 25,268 24,436 48,939 39,565 25,268 24,436 48,939 39,565 49,677
183
Ayala Corporation
Overweight
www.ayala.com.ph
AC.PS,AC PM Price: Php597.00 Price Target: Php715.00
Philippines Conglomerates & Multi-industry Jeanette Yutan

AC
Company overview Ayala Corporation is the holding company of one of the largest and most diversified business groups in the Philippines. It maintains a leading presence in real estate development (Ayala Land), financial services (Bank of the Philippine Islands), telecommunications (Globe Telecom), water delivery, sewerage and sanitation services (Manila Water), and electronics manufacturing services (Integrated Microelectronics). It also has exposure to the business process outsourcing sector through LiveIt. Investment case AC is our preferred conglomerate pick in the Philippines given its leverage to the robust macro story, access to well-managed assets, good stock liquidity, and attractive valuations. AC provides one-stock access to a portfolio of quality companies that leverage on the cyclical uptrend of the country. Resilience of the growth outlook We believe AC will sustain its robust growth barring any meaningful slowdown in the Philippine economy. ACs underlying subsidiaries like AC and BPI are highly leveraged to the robust growth of the economy. Other growth drivers for the company include its energy-related ventures and infra project roll-outs of the government. Risks to the earnings outlook in 2014 A sudden, sharp rise in interest rate is a key risk to ACs 2014 earnings as this will impact ALI and BPI negatively. Further delay in the arbitration of MWC is also a key risk to our 2014 forecasts. Price target, and risks to our investment view Our Dec-14 PT of Php715 is derived from a 15% discount to our Php840 NAV. Our 15% discount is in line with the stocks 8-year discount to NAV of 14% and takes into account potential higher discount rates, zero progress on infrastructure, and possible replication of more than 90% of its portfolio in the market. Our NAV is a SOTP of the major subsidiaries and associates. Key downside risks to our PT are major disappointment in the operating performance of its subsidiaries, ALIs failure to deliver on long-term targets, and overpaying for new projects.
(63-2) 878-1188 jeanette.g.yutan@jpmorgan.com J.P. Morgan Securities Philippines, Inc.
Abs Rel
YTD 13.5% 2.3%
1m -2.9% -4.1%
3m 0.2% 0.0%
12m 34.2% 14.7%
Company Data Shares O/S (mn) Market Cap (Php mn) Market Cap ($ mn) Price (Php) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (Php mn) 3M - Avg daily value ($ mn) PSE Exchange Rate Fiscal Year End
599 353,358 8,181 589.50 06 Nov 13 38.0% 0.55 319.67 7.4 6477.30 43.19 Dec
Ayala Corporation (Reuters: AC.PS, Bloomberg: AC PM) Php in mn, year-end Dec FY11A FY12A FY13E Revenue (Php mn) 107,532 125,074 132,758 Net Profit (Php mn) 9,395 10,574 14,340 EPS (Php) 16.14 17.64 23.92 DPS (Php) 4.00 4.00 4.00 Revenue growth (%) 9.6% 16.3% 6.1% EPS growth (%) (13.9%) 9.3% 35.6% ROCE 10.3% 9.9% 10.0% ROE 8.2% 9.1% 11.0% P/E (x) 36.5 33.4 24.6 P/BV (x) 3.2 2.8 2.6 EV/EBITDA (x) 8.8 7.8 7.4 Dividend Yield 0.7% 0.7% 0.7%
FY14E 160,788 16,235 27.08 4.00 21.1% 13.2% 11.5% 11.6% 21.8 2.4 6.0 0.7%
FY15E 189,832 19,933 33.25 4.00 18.1% 22.8% 13.1% 13.2% 17.7 2.2 4.7 0.7%
184
Ayala Corporation: Summary of Financials

Income Statement Php in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y
Balance sheet Php in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets . LT investments Net fixed assets Total Assets . Liabilities Short-term loans 14,125 30,664 Payables 51,014 77,178 Others 4,169 8,454 Total current liabilities 69,308 116,297 . Long-term debt 92,592 139,093 Other liabilities 75,233 93,744 Total Liabilities 250,583 362,724 Shareholder's equity 107,044 125,602 BVPS (Php) 183.92 209.54 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY11 FY12 FY13E FY14E FY15E Php in millions, year end Dec 107,532 125,074 132,758 160,788 189,832 EBIT 9.6% 16.3% 6.1% 21.1% 18.1% Depr. & amortization 32,443 37,637 38,857 45,604 54,204 Change in working capital 12.4% 16.0% 3.2% 17.4% 18.9% Taxes 25,843 31,072 35,326 40,684 48,392 Cash flow from operations 9.3% 20.2% 13.7% 15.2% 18.9% 24.0% 24.8% 26.6% 25.3% 25.5% Capex (6,175) (7,874) (4,726) (4,379) (4,219) Disposal/(purchase) 19,668 23,198 30,600 36,306 44,174 Net Interest 4.1% 17.9% 31.9% 18.6% 21.7% Other (3,869) (4,416) (5,540) (6,864) (8,322) Free cash flow 19.7% 19.0% 18.1% 18.9% 18.8% 9,395 10,574 14,340 16,235 19,933 Equity raised/(repaid) (15.8%) 12.5% 35.6% 13.2% 22.8% Debt raised/(repaid) 582 599 599 599 599 Other 16.14 17.64 23.92 27.08 33.25 Dividends paid (13.9%) 9.3% 35.6% 13.2% 22.8% Beginning cash Ending cash DPS Ratio Analysis FY11 FY12 FY13E FY14E FY15E Php in millions, year end Dec 53,577 76,761 59,137 55,811 65,808 EBITDA margin 31,320 41,968 56,128 72,309 86,856 Operating margin 27,766 29,648 28,531 28,531 28,531 Net margin 9,289 19,718 19,718 19,718 19,718 121,951 168,093 163,514 176,369 200,912 Sales per share growth - Sales growth 13,851 24,818 20,350 29,930 27,620 Net profit growth 357,627 488,325 493,909 540,868 596,762 EPS growth Interest coverage (x) 9,045 1,889 2,600 97,611 124,246 148,089 Net debt to equity 7,614 7,614 7,615 Sales/assets 114,270 133,749 158,303 Assets/equity ROE 140,546 144,512 147,130 ROCE 104,464 117,670 133,589 359,280 395,931 439,022 134,630 144,937 157,740 224.60 241.80 263.15
FY11 25,843 6,600 (2,588) (3,869) 12,416
FY12 31,072 6,565 (1,587) (4,264) 15,220
FY13E 35,326 3,531 7,389 (5,540) 22,651
FY14E 40,684 4,919 24,735 (6,864) 45,636
FY15E 48,392 5,812 35,116 (8,322) 61,009
(3,741) (9,340) (13,500) (14,500) (14,500) (6,175) (7,874) (4,726) (4,379) (4,219) (15,892) (59,849) (22,736) (32,500) (32,000) 13,636 12,255 13,021 34,686 49,933 (5,800) 49,280 (28,680) (5,305) 53,143 53,398 4.00 FY11 30.2% 24.0% 8.2% 12.2% 9.6% (15.8%) (13.9%) 5.3 6,383 71,531 6,658 (5,415) 53,398 76,581 4.00 FY12 30.1% 24.8% 8.5% 12.9% 16.3% 12.5% 9.3% 4.8 0 1,453 0 (5,312) 76,581 59,137 4.00 FY13E 29.3% 26.6% 10.8% 6.1% 6.1% 35.6% 35.6% 8.2 0 3,966 0 (5,928) 59,137 55,811 4.00 FY14E 28.4% 25.3% 10.1% 21.1% 21.1% 13.2% 13.2% 10.4 0 2,618 0 (7,130) 55,811 65,808 4.00 FY15E 28.6% 25.5% 10.5% 18.1% 18.1% 22.8% 22.8% 12.8
49.6% 74.0% 67.2% 62.5% 53.2% 0.3 0.3 0.3 0.3 0.3 313.6% 363.6% 377.4% 370.1% 375.9% 8.2% 9.1% 11.0% 11.6% 13.2% 10.3% 9.9% 10.0% 11.5% 13.1%
185
Ayala Land
Overweight
www.ayalaland.com.ph/
ALI.PS,ALI PM Price: Php28.85 Price Target: Php36.00
Company overview Ayala Land is the largest and most diversified real estate developer in the Philippines, with interests in housing, retail, office, and hotel developments. The company's expertise lies in master planning business districts, such as Makati and Fort Bonifacio, which are premier CBDs in the country. Investment case We believe that ALI is the best exposure to the Philippines' robust macro story. ALI is well positioned to benefit from the strong economic growth, favorable credit environment which should underpin the sustained robust growth in real estate demand. We expect ALI to deliver a faster-than-peers 20% EPS CAGR in FY14EFY15E as the company sustains its aggressive project launches and commercial lease expansion. Resilience of the growth outlook ALIs robust earnings growth potential is supported by attractive long-term structural drivers. Rising income, expanding middle income families, high consumer confidence, structurally low interest rates amid favorable demographics and large housing backlog augur well for secular real estate demand. ALIs unbooked revenues of Php90bn as of Sept-13 represents 58% of our FY14E-FY15E real estate revenue forecast.
Philippines Property Jeanette Yutan

AC
Abs Rel
YTD 8.3% -2.9%
1m 0.2% -1.0%
3m -1.5% -1.7%
12m 22.5% 3.0%
Risks to the earnings outlook in 2014 Key earnings risk for ALI would be a sharp increase in interest rates due to external factors, as this may weigh down on real estate demand. However, we believe that any potential rate increase will be capped by the substantial domestic liquidity and strong macro fundamentals. A substantial appreciation of peso is also a risk to office segment growth which is being driven by demand from the offshoring and outsourcing industry. Price target, and risks to our investment view Our Dec-14 PT of Php36 is based on a 10% discount to our NAV estimate of Php41/share. This reflects the NAV discount that is near the +1 SD above its historical average. We think it is justifiable given the company's superior return profile, established execution track record, robust long-term structural drivers, and the company's higher growth trajectory. Downside key risks: sharp rise in interest rates, lower-than-expected residential take-up, meaningful slowdown in economic growth
14,171 405,291 9,383 28.60 06 Nov 13 14.20 394.95 9.1 6477.30 43.19 Dec
Ayala Land, Inc. (Reuters: ALI.PS, Bloomberg: ALI PM) Php in mn, year-end Dec FY11A FY12A FY13E Revenue (Php mn) 41,231 49,904 68,719 Net Profit (Php mn) 7,139 9,038 11,560 EPS (Php) 0.55 0.66 0.82 DPS (Php) 0.22 0.30 0.41 Revenue growth (%) 16.4% 21.0% 37.7% EPS growth (%) 32.1% 20.1% 24.1% ROCE 8.5% 7.6% 8.8% ROE 12.0% 12.5% 12.7% P/E (x) 52.3 43.5 35.1 P/BV (x) 6.0 4.8 4.1 EV/EBITDA (x) 36.1 33.1 23.5 Dividend Yield 0.8% 1.0% 1.4%
FY14E 92,316 15,394 1.09 0.54 34.3% 33.2% 10.6% 14.8% 26.3 3.7 18.2 1.9%
FY15E 113,429 19,021 1.34 0.67 22.9% 23.6% 12.1% 16.6% 21.3 3.4 14.7 2.3%
FY16E 130,838 22,492 1.59 0.79 15.3% 18.2% 13.1% 17.7% 18.0 3.0 12.2 2.8%
186
Ayala Land: Summary of Financials

Income Statement Php in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 41,231 16.4% 12,120 33.5% 9,810 34.9% 23.8% (221) 10,709 36.2% (2,620) 24.5% 7,139 30.8% 13,043 0.55 32.1% FY12 49,904 21.0% 14,112 16.4% 12,022 22.5% 24.1% (326) 13,226 23.5% (2,892) 21.9% 9,038 26.6% 13,752 0.66 20.1% FY13E 68,719 37.7% 20,177 43.0% 17,886 48.8% 26.0% (2,241) 16,937 28.1% (3,650) 21.6% 11,560 27.9% 14,171 0.82 24.1%
Balance sheet Php in millions, year end Dec FY11 FY12 Cash and cash equivalents 24,603 28,596 Accounts receivable 21,578 34,086 Inventories 21,909 24,070 Others 7,035 14,514 Current assets 75,317 101,284 . LT investments Net fixed assets 5,395 16,559 Total Assets 154,542 231,232 . Liabilities Short-term loans 6,196 15,670 Payables 38,129 51,729 Others 1,304 4,855 Total current liabilities 45,629 72,253 . Long-term debt 28,258 53,781 Other liabilities 8,612 13,653 Total Liabilities 82,499 139,687 Shareholder's equity 72,043 91,545 BVPS (Php) 4.78 5.99 Source: Company reports and J.P. Morgan estimates.
FY13E 21,825 46,937 37,954 14,514 121,247 20,888 270,471
Cash flow statement FY14E FY15E Php in millions, year end Dec 92,316 113,429 EBIT 34.3% 22.9% Depr. & amortization 25,980 31,166 Change in working capital 28.8% 20.0% Taxes 23,460 28,393 Cash flow from operations 31.2% 21.0% 25.4% 25.0% Capex (2,194) (1,826) Disposal/(purchase) 22,645 28,042 Net Interest 33.7% 23.8% Other (4,951) (6,179) Free cash flow 21.9% 22.0% 15,394 19,021 Equity raised/(repaid) 33.2% 23.6% Debt raised/(repaid) 14,171 14,171 Other 1.09 1.34 Dividends paid 33.2% 23.6% Beginning cash Ending cash DPS Ratio Analysis FY14E FY15E Php in millions, year end Dec 24,103 38,669 EBITDA margin 63,055 77,475 Operating margin 38,673 27,853 Net margin 14,514 14,514 140,361 158,528 Sales per share growth - Sales growth 25,100 29,183 Net profit growth 308,686 345,757 EPS growth
FY11 FY12 FY13E FY14E 9,810 12,022 17,886 23,460 2,310 2,090 2,291 2,521 (1,851) (856) 8,698 24,799 (2,240) (3,116) (3,650) (4,951) 8,912 11,352 25,225 45,829
FY15E 28,393 2,773 35,242 (6,179) 60,229
(2,309) (8,585) (5,500) (5,500) (5,500) 66 15 0 0 0 (221) (326) (2,241) (2,194) (1,826) 2,349 630 1,434 1,378 1,754 6,836 3,036 21,483 42,043 56,152 130 13,560 (1,615) (2,604) 18,019 24,603 0.22 FY11 29.4% 23.8% 17.3% 16.3% 16.4% 30.8% 32.1% 54.8 13,588 31,403 (3,815) (2,901) 24,603 28,596 0.30 9,655 (131) (3,450) (4,005) 28,596 21,825 0.41 0 (398) (3,312) (5,718) 21,825 24,103 0.54 0 (1,000) (3,281) (7,635) 24,103 38,669 0.67
FY12 FY13E FY14E FY15E 28.3% 29.4% 28.1% 27.5% 24.1% 26.0% 25.4% 25.0% 18.1% 16.8% 16.7% 16.8% 14.8% 21.0% 26.6% 20.1% 43.3 33.6% 37.7% 27.9% 24.1% 9.0 34.3% 34.3% 33.2% 33.2% 11.8 22.9% 22.9% 23.6% 23.6% 17.1
Interest coverage (x) 16,913 9,681 10,283 72,161 98,797 122,639 Net debt to equity 4,855 4,855 4,855 Sales/assets 93,930 113,332 137,777 Assets/equity ROE 52,406 59,242 57,639 ROCE 13,653 13,653 13,653 159,989 186,227 209,070 110,482 122,459 136,687 7.02 7.71 8.51
13.7% 44.6% 43.0% 36.6% 21.4% 0.3 0.3 0.3 0.3 0.3 231.7% 266.7% 275.9% 277.5% 284.8% 12.0% 12.5% 12.7% 14.8% 16.6% 8.5% 7.6% 8.8% 10.6% 12.1%
187
BEC World Public Co Ltd

Overweight
www.becworld.com
BEC.BK,BEC TB Price: Bt56.50 Price Target: Bt70.00
Thailand Broadcasting & Radio Kae Pornpunnarath, CFA

AC
Company overview BEC World operates Channel 3, Thailands second-most popular free-TV channel. It earns the bulk of its revenue and profit from selling advertising minutes on its TV channel. Other businesses are complementary (such as radio stations, show organizations) but do not contribute meaningfully to the bottom line. BEC receives the concession to operate Channel 3 from the Mass Communication Organization of Thailand (MCOT). The last concession extension is for 10 years ending March 2020. BEC paid an extra Bt405 million for the extension, upfront. Investment case Our positive view on the stock is premised on BECs ongoing market share gains thanks to its large library of quality content and pool of talent. The stock recently underperformed on concerns about slowing GDP and the threat from Digital Free-TV transition (D-FTV), but we believe this is unlikely to materialize until after 2016. As a result, we see the underperformance as overdone. Resilience of the growth outlook On the existing analog platform, growth has been resilient. We expect this to continue until 2015. However, once D-FTV becomes more popular, the competitive landscape could change the industrys growth outlook, which could represent either an opportunity or threat to the growth of BEC. Risks to the earnings outlook in 2014 Faster-than-expected D-FTV adoption could potentially trigger market share redistribution earlier than we thought. Slowing consumption and GDP could cause a cut in adex by advertisers. Price target, and risks to our investment view Our Dec-14 PT for BEC of Bt70 is based on 22x P/E (the 10-year mean) on the back of solid CF, 13% three-year EPS CAGR and a 62% ROE in FY14E. Key risks: 1) faster-than-expected D-FTV adoption; 2) further pull-back in adex; and 3) regulatory risks.
(66-2) 684-2679 kae.pornpunnarath@jpmorgan.com JPMorgan Securities (Thailand) Limited
Abs Rel
YTD -20.4% -21.0%
1m 1.3% 1.2%
3m -4.6% -4.0%
12m -2.6% -10.9%
Company Data Shares O/S (mn) Market Cap (Bt mn) Market Cap ($ mn) Price (Bt) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (Bt mn) 3M - Avg daily value ($ mn) SET Exchange Rate Fiscal Year End
2,000 113,000 3,612 56.50 05 Nov 13 2.93 168.60 5.4 1415.44 31.28 Dec
BEC World Public Co Ltd (Reuters: BEC.BK, Bloomberg: BEC TB) Bt in mn, year-end Dec FY11A FY12A FY13E Revenue (Bt mn) 12,804 14,886 16,295 Net Profit (Bt mn) 3,530 4,777 5,646 EPS (Bt) 1.77 2.39 2.82 DPS (Bt) 1.80 2.25 2.68 Revenue growth (%) 9.3% 16.3% 9.5% EPS growth (%) 6.9% 35.3% 18.2% ROCE 47.1% 61.9% 66.1% ROE 47.4% 62.3% 66.8% P/E (x) 32.0 23.7 20.0 P/BV (x) 15.6 14.0 12.8 EV/EBITDA (x) 16.2 13.6 12.1 Dividend Yield 3.2% 4.0% 4.7%
FY14E 17,615 6,328 3.16 3.01 8.1% 12.1% 68.5% 69.1% 17.9 11.9 10.9 5.3%
FY15E 19,016 6,938 3.47 3.30 8.0% 9.6% 70.1% 70.7% 16.3 11.1 9.9 5.8%
188
BEC World Public Co Ltd: Summary of Financials

Income Statement Bt in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 FY12 FY13E 12,804 14,886 16,295 9.3% 16.3% 9.5% 7,008 8,311 9,290 8.6% 18.6% 11.8% 5,086 6,194 6,986 8.3% 21.8% 12.8% 39.7% 41.6% 42.9% (1) (0) 0 5,252 6,436 7,275 7.9% 22.5% 13.0% (1,623) (1,498) (1,455) 30.9% 23.3% 20.0% 3,530 4,777 5,646 6.9% 35.3% 18.2% 2,000 2,000 2,000 1.77 2.39 2.82 6.9% 35.3% 18.2% FY14E 17,615 8.1% 10,224 10.1% 7,841 12.2% 44.5% 0 8,155 12.1% (1,631) 20.0% 6,328 12.1% 2,000 3.16 12.1% FY15E 19,016 8.0% 11,172 9.3% 8,604 9.7% 45.2% 0 8,941 9.6% (1,788) 20.0% 6,938 9.6% 2,000 3.47 9.6% Cash flow statement Bt in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis Bt in millions, year end Dec EBITDA margin Operating margin Net margin FY11 5,086 1,922 666 6,217 (1,868) (1) (498) 4,350 0 (25) (344) (3,600) 5,243 5,148 1.80 FY11 54.7% 39.7% 27.6% 9.3% 9.3% 6.9% 6.9% FY12 6,194 2,116 (284) 6,747 (2,127) (0) (201) 4,620 0 (8) 0 (4,000) 5,148 5,666 2.25 FY12 55.8% 41.6% 32.1% 16.3% 16.3% 35.3% 35.3% FY13E 6,986 2,304 (95) 7,977 (2,281) 0 (277) 5,696 0 0 0 (4,900) 5,666 6,237 2.68 FY13E 57.0% 42.9% 34.6% 9.5% 9.5% 18.2% 18.2% FY14E 7,841 2,383 (10) 8,840 (2,427) 0 (178) 6,413 0 0 0 (5,669) 6,237 6,860 3.01 FY14E 58.0% 44.5% 35.9% 8.1% 8.1% 12.1% 12.1% FY15E 8,604 2,568 (17) 9,642 (2,632) 0 (268) 7,010 0 0 0 (6,273) 6,860 7,393 3.30 FY15E 58.8% 45.2% 36.5% 8.0% 8.0% 9.6% 9.6% -
Balance sheet Bt in millions, year end Dec FY11 FY12 Cash and cash equivalents 5,148 5,666 Accounts receivable 907 1,192 Inventories 0 1 Others 169 222 Current assets 6,224 7,081 . LT investments Net fixed assets 258 269 Total Assets 9,849 10,774 . Liabilities Short-term loans 8 0 Payables 398 515 Others 2,013 1,951 Total current liabilities 2,419 2,467 . Long-term debt 0 0 Other liabilities Total Liabilities 2,419 2,467 Shareholder's equity 7,430 8,307 BVPS (Bt) 3.63 4.04 Source: Company reports and J.P. Morgan estimates.
FY13E FY14E FY15E 6,237 6,860 7,393 1,307 1,413 1,525 0 0 0 222 222 222 7,765 8,495 9,140
Sales per share growth - Sales growth 246 290 354 Net profit growth 11,538 12,294 13,055 EPS growth 0 550 1,935 2,485 0 2,485 9,053 4.41 0 579 2,002 2,581 0 2,581 9,713 4.74 Interest coverage (x) 0 615 Net debt to equity 2,061 Sales/assets 2,677 Assets/equity ROE 0 ROCE 2,677 10,378 5.08
11,019.3 19,063.3 (69.2%) 1.3 130.7% 47.4% 47.1%
(68.2%) (68.9%) (70.6%) (71.2%) 1.4 1.5 1.5 1.5 134.4% 131.9% 130.1% 129.1% 62.3% 66.8% 69.1% 70.7% 61.9% 66.1% 68.5% 70.1%
189
Beijing Enterprises Water

Overweight
www.bewg.com.hk
China Water Elaine Wu

AC
Company overview Beijing Enterprises Water (BEW) is the water subsidiary of Beijing Enterprises Holdings, which owns 45% of BEW. The company is predominantly involved in constructing and operating wastewater treatment plants in China. As of the end of 2012, the company had 10MM tons of wastewater treatment capacity in its portfolio. Management has guided for 2MM ton capacity growth pa going forward. Investment case BEW is a leader in China's wastewater treatment sector. Its strength lies in its breadth of geographic reach and strong project execution. Looking into 2014, we believe the company will take advantage of industry consolidation and add to its existing capacity by acquiring smaller water companies or acquiring projects from local governments. Resilience of the growth outlook Two of the advantages BEW has over peers are its ability to obtain low-cost financing and its backing by a strong parent, Beijing Enterprises Holdings. Risks to the earnings outlook in 2014 Downside risks to earnings may come from lower-than-expected earnings from recent acquisitions. In addition, there could be cash flow risks if the amounts due from build-transfer construction projects are not collected on schedule. Price target, and risks to our investment view Our Dec-14 PT is based on a sum-of-the parts valuation, using a P/E multiple of 7x (construction contractors average) to derive the valuation of the build-transfer segment and a DCF with a WACC of 8.2% and a terminal growth rate of 2% to value the remaining water segment. Our PT implies a FY14E P/E of 20x. Key downside risks to our price target include: a potential equity placement, which may dilute EPS; higher interest rates, which would lower earnings; low project utilization rates, which would reduce operations revenue; delays in payments from customers, which would result in higher accounts receivable and working capital issues; and less supportive government policies for the water sector, which would result in fewer investment opportunities for the company.
(852) 2800-8575 elaine.wu@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 78.2% 88.8%
1m 7.5% 5.5%
3m 10.8% 1.4%
12m 97.8% 99.0%
Company Data Shares O/S (mn) Market Cap (HK$ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) HSCEI Exchange Rate Fiscal Year End
8,689 31,454 4,058 3.62 06 Nov 13 43.0% 27.13 89.51 11.5 1,0637.15 7.75 Dec
Beijing Enterprises Water (Reuters: 0371.HK, Bloomberg: 371 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E Revenue (HK$ mn) 2,655 3,727 5,821 Net Profit (HK$ mn) 601 750 1,133 EPS (HK$) 0.09 0.11 0.13 DPS (HK$) 0.03 0.04 0.05 Revenue growth (%) (58.2%) 40.4% 56.2% EPS growth (%) (16.8%) 21.5% 22.2% ROCE 6.3% 6.3% 7.2% ROE 10.0% 9.1% 10.3% P/E (x) 40.5 33.3 27.3 P/BV (x) 3.0 3.0 2.3 EV/EBITDA (x) 30.9 24.9 18.7 Dividend Yield 0.8% 1.2% 1.3%
FY14E 7,525 1,515 0.17 0.06 29.3% 31.5% 7.5% 10.8% 20.8 2.2 15.8 1.7%
FY15E 8,941 1,739 0.20 0.07 18.8% 14.7% 8.2% 11.6% 18.1 2.0 13.6 1.9%
190
Beijing Enterprises Water: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Associates Other Income Earnings before tax % change Y/Y Tax as % of EBT Exceptional items Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 2,655 (58.2%) 1,201 24.0% 1,153 24.1% 43.4% (291) 21 (22) 861 23.9% (170) 19.7% 601 17.2% 6,909 0.09 (16.8%) FY12 3,727 40.4% 1,601 33.4% 1,531 32.8% 41.1% (459) 55 (35) 1,092 26.8% (225) 20.6% 750 24.9% 6,909 0.11 21.5% FY13E 5,821 56.2% 2,242 40.0% 2,149 40.3% 36.9% (481) 57 (77) 1,649 51.0% (339) 20.6% 1,133 51.0% 8,689 0.13 22.2% FY14E 7,525 29.3% 2,821 25.9% 2,655 23.5% 35.3% (482) 60 (28) 2,205 33.7% (454) 20.6% 1,515 33.7% 8,689 0.17 31.5% FY15E 8,941 18.8% 3,391 20.2% 3,226 21.5% 36.1% (719) 63 (41) 2,529 14.7% (520) 20.6% 1,739 14.7% 8,689 0.20 14.7% Cash flow statement HK$ in millions, year end Dec Pre-tax profit Depr. & amortization Change in working capital Taxes Others Cash flow from operations Capex Disposal/(purchase) Free cash flow Other Cash flow from investing Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing FY11 FY12 FY13E FY14E FY15E 861 1,092 1,649 2,205 2,529 47 70 92 167 165 (2,889) (1,887) (5,875) (3,532) (2,801) (105) (71) (305) (408) (468) 43 294 365 458 636 (2,198) (773) (4,284) (1,392) (262) (66) (2,264) (1,430) (1,496) 3,385 (2,231) 2,488 (66) 3,576 1,962 1,948 0.03 FY11 45.2% 22.6% (70.3%) (58.2%) 17.2% (16.8%) 4.1 (109) (109) (124) (882) (4,393) (1,516) (451) 403 333 (560) 294 209 0 2,619 351 (2) 2,969 1,948 4,291 0.04 2,304 0 (810) 4,214 155 (1,740) (397) (530) 1,251 1,944 4,291 1,553 0.05 1,553 2,313 0.06 (142) (403) 447 305 0 1,553 (760) (608) 184 2,313 2,541 0.07
FY11 FY12 FY13E 1,948 4,291 1,553 3,930 2,768 1,870 13 30 43 5,763 6,590 6,583 11,654 13,679 10,048 16,960 601 8,445 36,054 2,568 2,704 4,131 9,403 9,896 836 20,135 13,479 1.58
LT investments 8,878 11,754 Net fixed assets 233 528 Others 3,984 5,329 Total Assets 24,750 31,290 Liabilities Short-term loans 1,070 2,810 Payables 2,049 1,919 Others 3,552 4,529 Total current liabilities 6,671 9,258 Long-term debt 7,691 10,465 Other liabilities 678 836 Total Liabilities 15,039 20,558 Shareholder's equity 8,082 8,467 BVPS 1.20 1.23 Source: Company reports and J.P. Morgan estimates.
Beginning cash Ending cash DPS Ratio Analysis FY14E FY15E HK$ in millions, year end Dec 2,313 2,541 EBITDA margin 2,373 2,825 Net profit margin 66 81 6,054 5,569 10,806 11,016 Sales per share growth Sales growth 19,688 21,677 Net profit growth 686 782 EPS growth 9,125 9,834 Interest coverage (x) 40,305 43,310 Net debt to equity 3,828 4,292 Sales/assets 2,704 2,704 Assets/equity 4,177 4,229 ROE 10,708 11,224 ROCE 11,621 12,710 ROA 836 836 23,165 24,770 14,464 15,594 1.66 1.79
FY12 FY13E FY14E FY15E 43.0% 38.5% 37.5% 37.9% 20.1% 19.5% 20.1% 19.4% 36.6% 40.4% 24.9% 21.5% 3.5 26.3% 56.2% 51.0% 22.2% 4.7 27.1% 29.3% 33.7% 31.5% 5.9 18.8% 18.8% 14.7% 14.7% 4.7
84.3% 106.1% 0.1 0.1 3.5 3.4 10.0% 9.1% 6.3% 6.3% 2.9% 2.7%
81.0% 90.8% 92.7% 0.2 0.2 0.2 3.1 2.7 2.8 10.3% 10.8% 11.6% 7.2% 7.5% 8.2% 3.4% 4.0% 4.2%
191
Brambles Limited
Overweight
www.brambles.com
BXB.AX,BXB AU Price: A$9.22 Price Target: A$9.41
Australia Logistics & Freight Carolyn Holmes

AC
Company overview Brambles (BXB) is a pooling solutions company specialising in the provision of reusable pallets, crates and containers and associated logistics services. BXB operates across multiple industry supply chains in more than 50 countries. Its pooling solution businesses are divided into three segments, pallets, re-useable plastic crates (RPCs) and containers. BXB is in the process of demerging its Recall, an information management company which is expected to be completed by calendar 2013 year end. Investment case BXB is a well managed company focused on generating above WACC returns on its global pooling solutions operations. Post the GFC it focused on improving its own pallet logistics and increasing productivity levels. In our view BXB is well placed to leverage off increased economic activity levels in 2014 from its key markets of the USA and Europe with additional growth generated from developing new markets and expanding its product range and targeting new customer bases. We translate our USD valuation to AUD using spot FX rate, therefore a weak AUD is positive for valuation. Resilience of the growth outlook BXB has strong market shares in its key markets. In our view senior management post the demerger of Recall will be entirely focused on driving shareholder wealth creation through net customer wins, developing new markets and improving efficiencies. Risks to the earnings outlook in 2014 Underlying EBIT FY14 growth guidance of 4-8% (JPMe 7%), may prove conservative if global growth is stronger than expected and if translated earnings are higher due to a weak USD. Customer losses and /or a stronger USD may negatively impact 2014 EPS. Price target, and risks to our investment view Our June 2014 price target of A$9.41ps is based on a roll forward of our current SOTP DCF converted at spot A$1:US$0.95. Risks include: customer losses to competitors in the US and Europe; Difficulties integrating the IFCO acquisition; An adverse reaction by customers to Brambles strong market share position in US pallets with white wood and pooled assets; and a slowdown in global economic growth.
(61-2) 9003-8647 carolyn.j.holmes@jpmorgan.com J.P. Morgan Securities Australia Limited
Abs Rel
YTD 22.8% 4.7%
1m 1.4% -4.0%
3m -1.9% -8.4%
12m 29.9% 7.5%
Company Data Shares O/S (mn) Market Cap (A$ mn) Market Cap ($ mn) Price (A$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (A$ mn) 3M - Avg daily value ($ mn) ASX100 Exchange Rate Fiscal Year End
1,557 14,359.55 13,652.36 9.22 06 Nov 13 5.78 52.45 49.9 4511.50 1.05 Jun
Brambles Limited (Reuters: BXB.AX, Bloomberg: BXB AU) Year-end Jun ($) FY12A FY13A FY14E Revenue ($ mn) 5,625 5,890 6,263 EBITDA ($ mn) 1,562 1,614 1,696 Net Profit ($ mn) 576 641 706 EPS ($) 0.39 0.41 0.45 P/E (x) 22.8 21.4 19.5 EV/EBITDA (x) 11.1 10.8 10.3 DPS ($) 0.27 0.27 0.26 DPS (A$) 0.28 0.29 0.28 Dividend Yield 3.1% 3.1% 3.0% Normalised EPS ($) 0.42 0.43 0.45 Normalised EPS Growth 16.3% 4.0% 4.0% Normalised PE 21.1 20.3 19.5
FY15E 6,684 1,846 793 0.51 17.4 9.4 0.27 0.29 3.1% 0.51 12.3% 17.4
FY16E 7,085 1,982 867 0.56 15.9 8.8 0.29 0.31 3.3% 0.55 9.3% 15.9
192
Brambles Limited: Financial Summary

$ in millions, year end Jun Profit And Loss Revenue Revenue growth COGS Operating Expenses EBITDA EBITDA growth EBITDA margin Amortisation Depreciation EBIT Other Income Other Expenses Net Interest Pre-Tax Profit Tax Tax Rate Minorities Abnormals (post tax) Reported NPAT Normalised NPAT Growth End of Period Shares EFPOWA Reported EPS ($) Normalised EPS ($) Growth DPS ($) Growth DPS/EPS payout Cash Flow Statement Net Profit for Cashflow Depreciation & Amortisation Non Cash Items Working Capital Changes Other Operating Cashflows Cashflow from Operating Activities Net Capex Net Acquisitions Other Investing cashflows Investing Cash Flow Inc/(Dec) in Borrowings Equity Issued Dividends Paid Other Financing Cashflows Financing Cash Flow Net Cash Flow FY12 FY13 FY14E FY15E 5,625 5,890 6,263 6,684 20.4% 4.7% 6.3% 6.7% (4,063) (4,276) (4,566) (4,837) 1,562 1,614 1,696 1,846 16.8% 3.3% 5.1% 8.9% 27.8% 27.4% 27.1% 27.6% (33) (33) (33) (33) (519) (524) (562) (592) 1,010 1,057 1,101 1,221 (152) (111) (120) (119) 858 946 981 1,102 (233) (269) (275) (308) 28.8% 29.7% 28.0% 28.0% (48) (37) 0 0 576 641 706 793 625 19.3% 1,479 1,501 0.39 0.42 16.3% 0.27 0.3% 677 8.4% 1,557 1,565 0.41 0.43 4.0% 706 793 4.3% 12.3% 1,557 1,570 1,557 1,570 FY16E 7,085 6.0% (5,102) 1,982 7.4% 28.0% (33) (621) 1,328 (124) 1,204 (337) 28.0% 0 867
Relative recommendation:
Valuation Summary Current mkt capitalisation Price Target Capital growth to price target Trading Multiples PE Pre-abnormals PE Reported EV/EBITDA EV/EBIT Key Ratios Dividend Yield Franking Return on Assets (%) Return on Equity (%) ROIC (%) FY12 21.1 22.8 11.1 17.2 FY12 3.1% 25.0% 8.2% 24.1% 13.1% FY13 FY14E 20.3 19.5 21.4 19.5 10.8 10.3 16.4 15.8 FY13 FY14E 3.1% 3.0% 30.0% 30.0% 8.7% 8.6% 23.5% 21.7% 13.2% 13.0%
Overweight
$m 14,359.55 $ps 9.22 9.41 2.0% FY15E FY16E 17.4 15.9 17.4 15.9 9.4 8.8 14.3 13.1 FY15E FY16E 3.1% 3.3% 30.0% 30.0% 9.2% 9.4% 21.7% 21.3% 13.5% 13.7% FY15E FY16E 71.8% 63.5% 41.8% 38.8% 149.6% 137.0% 10.2 10.7 FY15E FY16E 126 235 1,216 1,282 65 69 72 72 1,479 1,658 5,267 5,643 2,073 2,073 90 90 7,430 7,806 8,910 9,463 1,341 1,405 0 0 183 183 1,525 1,588 2,888 2,950 595 595 3,535 3,597 5,060 5,185 6,619 6,619 (0) 0 (6,581) (6,567) 3,812 4,227 0 0 3,850 4,279 2,762 2,715
0.45 0.51 0.45 0.51 4.0% 12.3% 0.27 3.5%
0.27 0.26 1.8% (3.8%)
70.1% 67.0% 58.6% 54.0% FY12 576 552 (84) 44 1,089 FY13 FY14E FY15E 641 706 793 557 595 626 (1) (9) (4) 143 19 0 1,340 1,312 1,414 (453) 0 (889) (0) 0 (422) 0 (422) 1 (508) 0 (996) 45 0 (414) 0 (368) 50
(377) (383) (77) (216) (933) (1,010) 12 327 (398) 5 (55) 72 (94) 117 (426) 7 (395) (78)
Leverage Gearing (Net Debt / Equity) 867 Gearing (ND / (ND + E)) 9.3% Net Debt / EBITDA EBIT Interest Cover (x) 1,557 1,570 Balance Sheet Cash 0.56 Receivables 0.55 Investments 9.3% Inventories Other Current Assets 0.29 Total Current Assets 6.5% Net PPE Total Intangibles 52.6% Other Non Current Assets Total Non Current Assets FY16E Total Assets 867 Creditors 654 Current Borrowings - Current Tax Provisions (6) Other Current Provisions 0 Other Current Liabilities 1,515 Total Current Liabilities Non Current Creditors (508) Non Current Borrowings 0 Deferred Tax Liabilities - Other Non Current Provisions (1,029) Other Non Current Liabilities Total Non Current Liabilities 62 Total Liabilities 0 Equity (438) Other Equity 0 Reserves (377) Retained Profits Outside Equity Interests 109 Total Shareholders Equity Net Debt
FY12 FY13 FY14E 98.2% 89.7% 79.7% 49.5% 47.3% 44.4% 172.2% 168.2% 163.1% 6.6 9.5 9.2 FY12 FY13 FY14E 174 129 76 1,055 1,124 1,137 48 56 61 75 72 72 1,352 1,381 1,345 4,139 4,408 4,897 1,970 2,073 2,073 85 90 90 6,193 6,571 7,060 7,546 7,952 8,405 1,177 1,254 1,262 86 157 0 142 183 183 1,405 1,594 1,445 2,778 2,686 2,843 564 595 595 3,401 3,333 3,490 4,805 4,927 4,935 6,484 6,619 6,619 0 0 0 (6,689) (6,748) (6,592) 2,945 3,155 3,444 0 0 0 2,740 3,025 3,471 2,690 2,714 2,767
193
Current J.P. Morgan valuation of BXB (June 2013)

US$ Pallets Reusable plastic containers (RPCs) Containers Recall Brambles corporate Net debt (June 2013 after 2H13E DPS) Equity valuation (US$) Converted at spot (A$1:US$ 0.96)
US$m 11,336.3 2,665.3 1,186.8 1,527.9 (381.0) (2,904.3) 13,430.9 A$
US$/ps 7.28 1.71 0.76 0.98 (0.24) (1.87) 8.63 8.99
194
195
Brilliance China Automotive

Overweight
www.brillianceauto.com/main.html
Company overview Brilliance China has a 50% stake in the Brilliance China BMW JV, which produces 3- series and 5-series sedans and X1 SUVs in China. It is also a major minivan producer in China and its products include the Jinbei Haise minibus. Investment case 1) We believe Brilliances BMW volume will grow by 40%, if not close to 50%, in 2014 (consensus 30%), thanks to 3-series and completion of capacity expansion in Oct-13. 2) R&D investment in Brilliance's new energy car business could be much lower in 2014- same for loss in its mini-bus business. Both will be a surprise to the market if materializes. 2) On SUV, we expect Brilliances BMW X1 SUV to grow at 30% in 2014 while localization of BMW X3, likely in (2H) 2016, will be a major LT boost to bottom line. We estimate X3 model alone can bring to Brilliance ~Rmb34bn profit a year- this is huge considering Brilliances profit of Rmb3.6bn in 2013E. Resilience of the growth outlook We estimate a total of over 5mn units of mid to large size PV fleet will be over 8-9 years old by end-2013. Those cars are not only old subject to scrape or replace, they are not even Euro II emission standard. In this segment (pricing largely ~Rmb200400k), customers are starting to see entry-level models of premium brands (e.g. BMW, Audi) and a shift favoring premium product is inevitable. Risks to the earnings outlook in 2014 Key risks include weaker-than-expected sales volume of BMWs cars in China, and a sharper-than-expected price cut in Chinas auto market, including the luxury segment that Brilliance focuses on. We are also cautious of any higher than anticipated loss from mini bus and future new energy car business. Price target, and risks to our investment view Dec14 PT of HK$20 based on 0.7x PEG or equivalent to 17x 2014E PER, high end of the stocks historical trading band. Risks: 1) failure of 3-series and 5-series facelift; 2) worse than expected profit contribution from BMW JV (currently forecasting Rmb 4.8bn and 5.8bn in 2014 and 2015).
China Automobile Manufacture Nick Lai

AC
(852) 2800 8543 nick.yc.lai@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 36.5% 40.0%
1m 14.5% 13.9%
3m 38.9% 30.5%
12m 43.8% 38.5%
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) R-CHIP Exchange Rate Fiscal Year End
5,026 54,977 9,012 13.90 06 Nov 13 57.4% 12.07 144.56 18.6 4511.97 7.75 Dec
Brilliance China Automotive (Reuters: 1114.HK, Bloomberg: 1114 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E Revenue (Rmb mn) 6,443 5,916 5,651 Net Profit (Rmb mn) 1,812 2,301 3,613 EPS (Rmb) 0.36 0.46 0.72 DPS (Rmb) 0.00 0.00 0.10 Revenue growth (%) (28.0%) (8.2%) (4.5%) EPS growth (%) 42.5% 26.3% 56.9% ROE 27.2% 27.1% 30.6% P/E (x) 30.2 23.9 15.2 P/BV (x) 7.8 5.5 4.1 Dividend Yield 0.0% 0.0% 0.9%
FY14E 5,518 4,741 0.94 0.10 (2.4%) 30.7% 29.7% 11.6 3.0 0.9%
FY15E 5,642 5,713 1.13 0.10 2.2% 20.5% 27.0% 9.7 2.3 0.9%
196
Brilliance China Automotive: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Profit EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax Net income (core) % change Y/Y Shares Outstanding EPS (core) (Rmb) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 FY12 FY13E FY14E 6,443 5,916 5,651 5,518 (28.0%) (8.2%) (4.5%) (2.4%) 856 696 594 593 2,064 2,533 3,851 5,004 NM NM 47.4% NM 32.0% 42.8% 68.1% 90.7% (194) (174) (146) (142) 1,949 2,295 3,648 4,806 33.1% 17.7% 59.0% 31.8% (58) (58) (92) (121) 1,812 2,301 3,613 4,741 42.6% 27.0% 57.0% 31.2% 4,998 5,024 5,026 5,046 0.36 0.46 0.72 0.94 42.5% 26.3% 56.9% 30.7% FY11 1,869 1,418 737 2,008 6,032 FY12 FY13E FY14E 1,949 2,197 2,482 1,812 1,544 1,287 838 696 724 1,818 5,308 9,371 6,417 9,745 13,864 Cash flow statement Rmb in millions, year end Dec EBIT Depreciation & amortization Change in working capital Others 5,988 Cash flow from operations 2.1% 106.1% Capex (130) 5,802 Free cash flow 20.7% (146) Equity raised/(repaid) 5,713 Debt raised/(repaid) 20.5% Dividends paid 5,046 Other Cash flow from financing 1.13 Beginning cash 20.5% Ending cash Ratio Analysis FY15E Rmb in millions, year end Dec 2,542 Net margin 1,226 737 Sales growth 14,639 Net profit growth 19,144 Sales/assets 2,899 Assets/equity 424 611 ROE 29,957 1,619 3,795 889 6,303 0 18 18 6,321 24,002 (366) 4.76 FY15E 5,642 2.2% 606 FY11 FY12 FY13E FY14E FY15E 2,064 2,533 3,851 5,004 5,988 138 140 137 153 165 (783) (133) 535 454 273 (2,046) (2,542) (3,994) (5,154) (6,163) (628) (2) 529 456 263 (306) (741) 9 688 0 25 722 428 586 FY11 28.1% (28.0%) 42.6% (526) (355) 5 27 0 (143) (110) 586 837 FY12 38.9% (8.2%) 27.0% (700) (27) 0 100 (574) 0 (474) 837 964 FY13E 63.9% (4.5%) 57.0% (500) 97 0 200 (596) 0 (396) 964 1,299 (500) (109) 0 200 (616) 0 (416) 1,299 1,409
FY14E FY15E 85.9% 101.3% (2.4%) 31.2% 2.2% 20.5%
Net fixed assets 1,670 1,745 2,143 2,526 Intangibles 261 424 424 424 Other LT assets 612 611 611 611 Total Assets 12,761 16,058 19,783 24,296 ST loans 1,297 1,119 1,219 1,419 Payables 4,256 4,828 4,698 4,158 Others 1,019 910 903 896 Total current liabilities 6,572 6,857 6,820 6,473 Long-term debt 0 0 0 0 Other LT liabilities 2 2 2 10 Total non-current liabilities 2 2 2 10 Total Liabilities 6,573 6,859 6,822 6,483 Shareholders' equity 6,989 10,015 13,627 18,329 Minorities (752) (816) (666) (516) BVPS 1.39 2.00 2.70 3.63 Source: Company reports and J.P. Morgan estimates.
0.5 0.4 0.3 0.3 0.2 194.4% 169.5% 151.6% 137.9% 128.2% 27.2% 27.1% 30.6% 29.7% 27.0%
197
Buru Energy
Overweight
www.buruenergy.com
BRU.AX,BRU AU Price: A$1.51 Price Target: A$3.18
Australia Oil Services & Equipment Benjamin Wilson

AC
Company overview Buru operates a 64,000 km2 or ~16m acre position in Australias north west Canning Basin. It holds 50% of the more prospective areas (with Mitsubishi) and generally 25-30% (with Mitsubishi and now Apache) in the lower priority areas after a recent farm down. Frac testing of 5 wet gas wells will begin around April 2014. Buru also discovered conventional oil in the Ungani trend, and this is due to begin production at 3-5kbopd in 2014. Its vast acreage position also holds ~300mmbls of risked prospective conventional oil resource across 20+ leads. Investment case Buru operates one of the largest contiguous shale exploration plays in the world. The main issue for the unconventional wet gas plays, even if they achieve strong flow rates during testing in mid 2014, is infrastructure and commercialization due to the acreage remote location and terrain. Buru has plans to deal with this but they are ambitious. In contrast, the up to 20mmbbls discovered oil and ~300mmbbls risked oil prospects should be economic to produce despite the transportation logistics involved. Resilience of the growth outlook Other than the modest Ungani oil development planned in 2014, the growth outlook is highly dependent upon exploration results. It carries a high degree of variability/risk. Risks to the earnings outlook in 2014 The main risk relates to the startup of full commercial production from the Ungani field in 2014; primarily the timing and the speed of ramp up. The upside risk relates to the success and tie-in of a further 3-4 Ungani oil exploration wells due to drill in 2014. Price target, and risks to our investment view Our rating is Overweight and our Jun-14 PT is A$3.18. Our PT is based upon our sum of the parts DCF where we apply risk factors to each growth option based on its maturity and our confidence in each project. Assumptions: US$90/bbl LT real oil price; LT exchange rate of A$/US$0.80 (base case valuations) and US$0.90 (PTs); WACC of 10%. Key downside risks: decreases in oil price; failures on either unconventional wet gas or conventional oil exploration/appraisal; and cancellation or deferral of resources related projects in Western Australia which could lower gas pricing and demand.
(61-2) 9003-8612 benjamin.x.wilson@jpmorgan.com J.P. Morgan Securities Australia Limited
Abs Rel
YTD -37.3% -55.4%
1m -6.5% -11.9%
3m -20.2% -26.7%
12m -44.1% -66.5%
274 412.42 392.11 1.51 06 Nov 13 0.76 1.32 1.3 4511.50 1.05 Jun
Buru Energy (Reuters: BRU.AX, Bloomberg: BRU AU) Year-end Jun (A$) FY11A FY12A Revenue (A$ mn) 2 2 EBITDA (A$ mn) (13) (10) Net Profit (A$ mn) (10) (1) EPS (A$) (0.06) (0.00) P/E (x) NM NM EV/EBITDA (x) NM NM DPS (A$) 0.00 0.00 Dividend Yield 0.0% 0.0% Normalised EPS (A$) (0.06) (0.03) Normalised EPS Growth 131.1% (53.6%) Normalised PE NM NM
FY13A 5 (16) (23) (0.08) NM NM 0.00 0.0% (0.06) 123.9% NM
FY14E 31 2 5 0.02 84.5 230.9 0.00 0.0% 0.02 (129.0%) 88.4
FY15E 118 57 33 0.11 13.5 9.2 0.00 0.0% 0.11 560.7% 13.4
198
199
Cairn India Limited

Overweight
www.cairnindia.com
CAIL.BO,CAIR IN Price: Rs317.45 Price Target: Rs400.00
Company overview Cairn India is an E&P-focused company, with a stake in nine blocks (three of which are producing), including the prolific Rajasthan asset (gross reserves are ~7.3bn boe). Crude prices, along with output growth, are key earnings drivers. Investment case Cairn offers production growth (c.13% pa medium term), biased to oil. Cairns barrels are among the highest-margin in the oil industry, with low opex. With an upstream focus, Cairn is less exposed to regulatory drags faced by downstream companies in India. Valuations look inexpensive, with shares at a 50% discount to peers, which we believe reflects concerns about corporate structure. With potential exploration success, a greater focus on shareholder returns will close this gap, in our view. Resilience of the growth outlook Cairn has a high-quality resource base, with the Rajasthan asset expected to cross 200kbopd in early 2014. With high-margin barrels (lower than industry opex), Cairns returns should be more resilient to any correction in commodity prices. A strong exploratory program in the Rajasthan asset should aid reserve accretion.
India Exploration & Production Scott L Darling

AC
Abs Rel
YTD -1.1% -5.3%
1m -1.5% -0.5%
3m 2.5% -2.8%
12m -6.1% -16.5%
Risks to the earnings outlook in 2014 Risks to earnings in 2014 emanate from lower-than-expected oil prices and upstream project execution risks. FX appreciation would be a negative as well (sales are US$ denominated). Price target, and risks to our investment view We have a Sep-14 target of Rs400. We use a risk-based methodology to arrive at a Net Asset Value (NAV) through a bottom-up approach. We have grouped Cairn Indias assets into two main categories: core NAV, which is the value of producing assets and those under development, and risked upside which is generated by the value of Cairn Indias exploration and appraisal (E&A) assets on a risked basis. Falling commodity prices, FX appreciation, and project delays are key downside risks to our price target.
Company Data Shares O/S (mn) Market Cap ($ mn) Price (Rs) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (Rs mn) 3M - Avg daily value ($ mn)
1,899 9,549 317.45 14 Nov 13 2.82 904.90 14.3
Cairn India Limited (Reuters: CAIL.BO, Bloomberg: CAIR IN) Rs in mn, year-end Mar FY12A FY13A FY14E Revenue (Rs mn) 118,129 175,043 206,675 Net Profit (Rs mn) 79,377 120,564 136,385 EPS (Rs) 41.71 63.16 71.40 DPS (Rs) 11.50 14.28 Revenue growth (%) 15.5% 48.2% 18.1% EPS growth (%) 25.0% 51.4% 13.0% ROCE 15.9% 22.6% 23.6% ROE 18.1% 24.8% 25.7% P/E (x) 7.6 5.0 4.4 P/BV 1.3 1.3 1.0 EV/EBITDA 5.8 3.5 2.4 Dividend Yield 3.6% 4.5%
FY15E 228,168 143,470 75.11 15.02 10.4% 5.2% 20.1% 22.3% 4.2 0.9 1.8 4.7%
FY16E 217,324 118,790 62.19 12.44 (4.8%) (17.2%) 13.6% 15.9% 5.1 0.8 1.7 3.9%
200
Cairn India Limited: Summary of Financials

Income Statement Rs in millions, year end Mar Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rs in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets FY12 118,129 15.5% 92,544 12.1% 78,141 10.7% 66.1% (2,258) 84,235 22.3% (4,857) 5.8% 79,377 25.3% 1,903 41.71 25.0% FY13 175,043 48.2% 130,332 40.8% 111,872 43.2% 63.9% (687) 122,915 45.9% (2,351) 1.9% 120,564 51.9% 1,909 63.16 51.4% FY14E 206,675 18.1% 159,354 22.3% 133,960 19.7% 64.8% 0 145,668 18.5% (9,283) 6.4% 136,385 13.1% 1,910 71.40 13.0% FY15E 228,168 10.4% 171,070 7.4% 139,332 4.0% 61.1% 0 154,442 6.0% (10,972) 7.1% 143,470 5.2% 1,910 75.11 5.2% FY16E 217,324 (4.8%) 148,790 (13.0%) 110,947 (20.4%) 51.1% 0 129,155 (16.4%) (10,365) 8.0% 118,790 (17.2%) 1,910 62.19 (17.2%)
Cash flow statement Rs in millions, year end Mar EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis Rs in millions, year end Mar EBITDA margin EBIT margin Net margin
FY12 FY13 FY14E FY15E FY16E 78,141 111,872 133,960 139,332 110,947 14,403 18,459 25,393 31,738 37,843 (15,174) (76,434) (18,657) (22,097) (21,227) (15,545) (24,543) (29,677) (31,050) (25,863) 63,785 35,269 115,482 122,914 107,675 (32,891) (26,705) (60,500) (78,650) (75,625) (2,258) (687) 0 0 0 1,969 (75,105) (3,865) (2,799) (2,388) 33,022 9,238 54,982 44,264 32,050 55 28 0 0 0 (14,264) (12,518) 0 0 0 (2,258) (687) 0 0 0 0 (25,465) (31,641) (33,285) (27,559) 44,270 70,135 55,568 114,763 164,895 70,135 55,568 114,763 164,895 206,251 11.50 14.28 15.02 12.44 FY12 78.3% 66.1% 67.8% 15.3% 15.5% 25.3% 26.1% 41.0 FY13 74.5% 63.9% 68.1% 47.7% 48.2% 51.9% 48.4% 189.8 FY14E 77.1% 64.8% 66.0% 18.0% 18.1% 13.1% 14.3% FY15E 75.0% 61.1% 62.9% FY16E 68.5% 51.1% 54.7%
Sales per share growth LT investments - Sales growth Net fixed assets 59,072 60,645 77,241 100,298 116,942 Net profit growth Total Assets 534,536 540,012 651,309 769,859 868,836 EPS growth Liabilities Interest coverage (x) Short-term loans 0 0 0 0 0 Payables 6,072 5,367 5,390 6,908 8,503 Net debt to equity Others 7,444 28,970 30,418 31,939 33,536 Sales/assets Total current liabilities 13,516 34,336 35,808 38,847 42,039 Assets/equity Long-term debt 12,518 0 0 0 0 ROE Other liabilities 25,581 28,681 29,398 30,133 30,887 ROCE Total Liabilities 51,615 63,018 65,207 68,981 72,925 Shareholder's equity 482,921 476,994 586,103 700,878 795,911 BVPS (Rs) 253.76 249.88 306.82 366.91 416.65 Source: Company reports and J.P. Morgan estimates.
FY12 FY13 FY14E FY15E FY16E 70,135 55,568 114,763 164,895 206,251 14,968 22,852 24,935 29,476 30,618 1,361 1,961 2,494 2,948 3,062 9,630 12,935 14,875 17,106 19,672 114,450 197,138 276,463 351,730 417,504
10.4% (4.8%) 10.4% (4.8%) 5.2% (17.2%) 5.2% (17.2%) -
(15.7%) (33.4%) (40.0%) (43.1%) (45.8%) 0.2 0.3 0.3 0.3 0.3 1.1 1.1 1.1 1.1 1.1 18.1% 24.8% 25.7% 22.3% 15.9% 15.9% 22.6% 23.6% 20.1% 13.6%
201
Cathay Financial Holdings

Overweight
www.corpasia.net/taiwan/2882/irwebsite
Taiwan Insurance - Life Jemmy S Huang

AC
Company overview Cathay Financial Holdings (Cathay) is a life insurance-centric financial holding co with a strong franchise in traditional, interest-sensitive and investment-linked products. Cathay Life is the largest insurance company in Taiwan with the most market share. Cathay United Bank is a major private bank in Taiwan focusing on corporate lending and mortgages. Investment case Cathay has greater asset-liability duration mismatch compared to peers. Duration mismatch was a negative factor amid a declining rate environment to further exacerbate negative spread issues but now becomes a potential positive if market yields start to move up, in that Cathay will likely be able to re-price its asset yields faster than its peers. Resilience of the growth outlook Looking into 2014, we expect banking operations to remain stable with growing contributions from overseas operations (both in China and ASEAN) and solid asset quality. Continued improvement on cost of liability, FYP mix, and new money yields should gradually enhance the profitability of life operations, in our view.
(886-2) 2725-9870 jemmy.s.huang@jpmorgan.com J.P. Morgan Securities (Taiwan) Limited
Abs Rel
YTD 47.3% 40.8%
1m 6.8% 7.8%
3m 8.5% 5.5%
12m 57.7% 43.3%
Risks to the earnings outlook in 2014 Upside risks: Continued and smooth rebound on market yields; sharp NTD depreciation from current levels; strategic alliance with Mainland financial institution. Downside risks: Strong NTD appreciation to drive up hedging costs; sharp stock market correction to result in very large unrealized MTM losses, putting pressure on capital position; unexpected default of large syndication at banking subsidiary operating expenses. Price target, and risks to our investment view Despite a strong rally of 48% YTD (outperforming financial index/TAIEX by 30%/41%). Cathay is still trading at a 25-45% discount to its long-term average P/BV and P/EV with an improving operating outlook and easing dilution concerns. We are OW on the stock with a SOTP Dec-14 PT at NT$50.8, equivalent to 2.1x BV (FY14E). Risks to our price target are discussed above.
Company Data 52-week Range (NT$) Market Cap (NT$ mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (NT$) Date Of Price 3M - Avg daily value (NT$ mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) TSE Exchange Rate
44.40-26.61 463,944 15,764 10,665 Dec 43.50 06 Nov 13 847.20 28.8 20.64 8281.97 29.43
Cathay Financial Holdings (Reuters: 2882.TW, Bloomberg: 2882 TT) FY11A FY12A FY13E Operating Profit (NT$ mn) 9,618 17,020 37,585 Net Profit (NT$ mn) 11,129 17,002 33,582 EPS (NT$) 1.10 1.59 2.85 DPS (NT$) 0.50 0.70 0.86 EPS Growth 143.2% 45.5% 79.1% ROE 5.1% 7.4% 13.3% P/E 39.7 27.3 15.2 BVPS (NT$) 21.03 22.96 21.96 P/BV (x) 2.1 1.9 2.0 Div. Yield 1.1% 1.6% 2.0%
FY14E 41,877 37,104 3.15 0.95 10.5% 13.7% 13.8 24.25 1.8 2.2%
FY15E 45,447 40,325 3.43 1.03 8.7% 13.4% 12.7 26.73 1.6 2.4%
202
Cathay Financial Holdings: Summary of Financials

Income Statement (NT$ in millions) GWP & Policy fees Net written premiums Net earned premiums Total technical outgo Total expenses Underwriting profit Net Investment Income Realized & unreal. Investment income Other income/expenses Pre-tax profit Tax Minorities Net profit Balance sheet (NT$ in millions) Bonds Equities Deposits Other Investments Total Investments Total Assets Total insurance reserves Subordinated debts Total liabilities Minority Interest Shareholders' funds Income Statement growth rates GWP & policy fees Net earned premiums Net Investment Income Total technical outgo Total expenses Underwriting profit Pre-tax profit Net profit FY11 FY12 FY13E FY14E FY15E 408,031 472,015 383,549 401,750 422,815 385,633 443,418 374,847 402,403 423,410 387,705 443,354 374,847 402,403 423,410 (251,366) (220,675) (203,652) (215,166) (231,342) (35,103) (36,717) (33,871) (33,491) (36,840) (96,383) (119,575) (122,684) (105,560) (115,884) 92,692 98,204 101,784 110,813 122,463 (3,870) 21,067 36,187 28,867 31,116 4,485 2,787 4,824 (11,578) (12,880) 9,618 17,020 37,585 41,877 45,447 1,667 38 (3,946) (4,717) (5,065) (156) (56) (56) (56) (56) 11,129 17,002 33,582 37,104 40,325 FY11 FY12 FY13E FY14E FY15E 485,300 544,700 545,852 588,897 634,107 251,100 267,500 311,887 336,482 362,314 253,600 268,700 170,554 184,003 198,130 1,810,700 1,980,571 2,217,103 2,391,937 2,575,571 2,959,200 3,244,971 3,502,122 3,778,289 4,068,356 5,005,403 5,435,303 5,891,313 6,255,090 6,640,032 2,793,900 3,088,413 3,407,067 3,664,307 3,933,353 4,787,691 5,186,718 5,629,254 5,966,001 6,321,749 4,051 3,752 3,752 3,752 3,752 213,661 244,833 258,308 285,337 314,531 11,Y/Y 12,Y/Y 13E, Y/Y 14E, Y/Y 15E, Y/Y (20.8%) 15.7% (18.7%) 4.7% 5.2% (11.0%) 14.4% (15.5%) 7.4% 5.2% 11.4% 5.9% 3.6% 8.9% 10.5% (7.3%) (12.2%) (7.7%) 5.7% 7.5% 9.9% 4.6% (7.8%) (1.1%) 10.0% (2.6%) 24.1% 2.6% (14.0%) 9.8% 275.0% 77.0% 120.8% 11.4% 8.5% 143.2% 52.8% 97.5% 10.5% 8.7% Capital Strength Shareholders' funds to insurance liab. Solvency margin ratio (group operation) First-year premiums Single premiums Regular premiums AFYPs Profitability measure Loss ratio Expense ratio Combined ratio Total investment yield (incl. gains/losses) ROA ROE Per share data EPS Y/Y DPS Payout ratio BVPS No. of shares Group embedded value Life operation embedded value Y/Y New business value Y/Y Balance sheet growth rates Bonds Equities Deposits Total investments Total Assets Total insurance reserves Total liabilities Shareholders' funds FY11 FY12 FY13E FY14E FY15E FY11 FY12 FY13E FY14E FY15E FY11 FY12 FY13E FY14E FY15E 65.2% 49.8% 54.3% 53.5% 54.6% 9.1% 8.3% 9.0% 8.3% 8.7% 74.2% 58.0% 63.4% 61.8% 63.3% 3.2% 3.8% 4.0% 3.8% 3.9% 0.2% 0.3% 0.6% 0.6% 0.6% 5.1% 7.4% 13.3% 13.7% 13.4% FY11 FY12 FY13E FY14E FY15E 1.10 1.59 2.85 3.15 3.43 143.2% 45.5% 79.1% 10.5% 8.7% 0.50 0.70 0.86 0.95 1.03 45.6% 43.9% 30.0% 30.0% 30.0% 21.03 22.96 21.96 24.25 26.73 10,158 10,665 11,765 11,765 11,765 28.93 35.03 34.78 43.11 48.91 18.57 24.40 24.10 31.79 36.97 7.5% 31.4% (1.3%) 31.9% 16.3% 1.38 2.17 2.07 2.27 2.50 37.2% 57.5% (4.8%) 10.0% 10.0% 11,Y/Y 12,Y/Y 13E, Y/Y 14E, Y/Y 15E, Y/Y 13.0% 12.2% 0.2% 7.9% 7.7% 25.8% 6.5% 16.6% 7.9% 7.7% (28.1%) 6.0% (36.5%) 7.9% 7.7% 7.8% 9.7% 7.9% 7.9% 7.7% 6.7% 8.6% 8.4% 6.2% 6.2% 8.0% 10.5% 10.3% 7.6% 7.3% 7.2% 8.3% 8.5% 6.0% 6.0% (2.2%) 14.6% 5.5% 10.5% 10.2%
Sum-of-the-parts valuation Cathay Life EV VoNB VoNB multiplier AV Cathay United Bank Cathay Century Cathay Securities FHC & Other subsidiaries Group value per share
Methodology Investment return at 3.4% Investment return at 3.1% = EV + VoNB x multiplier 1.5x P/B 1.9x P/B 0.5x P/B = Life AV + other operations
Value /sh 24.10 2.07 7 38.56 16.63 0.85 0.20 -5.45 50.8
203
Cheung Kong Holdings

Overweight
www.ckh.com.hk
Hong Kong Property Amy Luk, CFA

AC
(852) 2800 8524 amy.kp.luk@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD -2.1% 1.5%
1m -3.8% -0.6%
3m 3.1% 3.4%
12m 6.0% 0.0%
Company overview CK is a HK and China developer focusing mainly on residential properties. It also has a portfolio of commercial properties for collecting rental. CK is also the parent company of a globally diversified conglomerate, Hutchison Whampoa (Hutch). Through its holding in Hutch, the groups operations span over container ports, infrastructure, retail, energy and telecom. Investment case CK is one of the few developers in HK to be least affected by expected downturn in the residential market. CKs business model is to focus on asset turnover. Its track record demonstrated it always manages to sell products throughout cycles. Although CK's margins are generally lower than competitors, it is consistently focusing on large scale residential projects by partnering with MTRC. Those large scale projects can normally offset the impact of lower margins. In a potential property downturn in 2014, we believe CK will stand out as a winner to dominate news flow of new project launches. Resilience of the growth outlook The resilience of CKs earnings is sustained by its high asset turnover business model in residential development. The group has also proven to be a willing asset seller when valuation is at a satisfactory level. This has always helped to surprise earnings on the upside. However, Hutch accounts for 48% of CKs NAV and 67% of its earnings in FY14E. Hutchs earnings are resilient given its diversification, and we expect it to provide strong support to CK's earnings. Risks to the earnings outlook in 2014 We believe all good things supporting Asian asset prices in the last 4 years are coming to an end and 2014 may mark the beginning of an asset deflation cycle. We expect residential prices to decline in 2014. Key risk is deflation expectation in property market might totally dry up primary sales as quasi-investment demand diminishes. Price target, and risks to our investment view Our Jun-14 PT of HK$124 is based on 38% discount to NAV for CK's property stub, being 0.5 s.d. below LT avg discount, and Hutchison at current share price. It is currently trading at a stub discount to NAV of 49% which makes it one of the cheapest among the property developers (pls refer to NAV breakdown). We believe the largest risk to our view is a wholesale de-rating of the property sector in a worse than expected deflationary environment.
Cheung Kong Holdings (Reuters: 0001.HK, Bloomberg: 1 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E Revenue (HK$ mn) 42,359 31,106 26,178 Net Profit (HK$ mn) 24,456 28,007 23,902 Core Profit (HK$ mn) 22,902 24,760 23,902 EPS (HK$) 10.56 12.09 10.32 Core EPS (HK$) 9.89 10.69 10.32 Core EPS growth (%) 18.4% 8.1% (3.5%) DPS (HK$) 3.16 3.16 3.30 ROE 7.9% 7.6% 6.5% P/E (Core) 12.1 11.2 11.6 P/BV (x) 0.9 0.8 0.7 BVPS (HK$) 134.31 146.94 168.53 RNAV/Share 163.08 Dividend Yield 2.7% 2.7% 2.8%
Company Data Shares O/S (mn) Market Cap (HK$ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) HSI Exchange Rate Fiscal Year End
2,316 276,086 35,610 119.20 13 Nov 13 53.9% 3.76 443.54 57.2 2,2901.41 7.75 Dec
FY14E 30,409 24,740 24,740 10.68 10.68 3.5% 3.40 6.3% 11.2 0.7 170.09 163.27 2.9%
FY15E 36,364 26,663 26,663 11.51 11.51 7.8% 3.40 6.7% 10.4 0.7 171.50 2.9%
204
Cheung Kong Holdings: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Core net profit % change Y/Y Shares outstanding EPS (reported) (HK$) % change Y/Y Core EPS (HK$) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 42,359 28.9% 15,111 16.1% 35.7% (197) 28,223 13.7% (3,563) 12.6% 24,456 15.4% 22,902 18.4% 2,316 10.56 15.4% 9.89 18.4% FY11 19,894 2,805 68,932 155 92,006 FY12 31,106 (26.6%) 14,567 (3.6%) 46.8% (286) 31,995 13.4% (3,616) 11.3% 28,007 14.5% 24,760 8.1% 2,316 12.09 14.5% 10.69 8.1% FY12 21,167 2,418 80,088 436 104,345 FY13E 26,178 (15.8%) 11,789 (19.1%) 45.0% (264) 26,391 (17.5%) (2,399) 9.1% 23,902 (14.7%) 23,902 (3.5%) 2,316 10.32 (14.7%) 10.32 (3.5%) FY13E 31,993 2,418 119,663 436 154,746 11,928 40,910 461,017 5,098 14,790 1,801 21,689 45,151 883 67,723 390,340 168.53 FY14E 30,409 16.2% 11,319 (4.0%) 37.2% (391) 27,286 3.4% (2,415) 8.8% 24,740 3.5% 24,740 3.5% 2,316 10.68 3.5% 10.68 3.5% FY14E 40,614 2,418 115,163 436 158,867 Cash flow statement HK$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS (HK$) Ratio Analysis %, year end Dec EBIT margin Net margin SG&A/Sales FY11 15,111 400 (10,553) (8,031) 6,272 (1,273) 0 (223) 5,171 4,051 9,130 (448) (7,179) 25,147 19,894 3.16 FY11 35.7% 54.1% 28.9% 28.9% 18.4% 18.4% 78.8 7.6% 8.2% 0.1 1.2 7.9% 4.0% FY12 14,567 340 (6,175) (15,839) 6,333 (126) 1,065 (120) 6,460 847 1,761 (954) (7,611) 19,894 21,167 3.16 FY12 46.8% 79.6% (26.6%) (26.6%) 8.1% 8.1% 52.2 7.2% 7.8% 0.1 1.2 7.6% 3.5% FY13E 11,789 357 6,500 (12,531) 18,228 0 0 252 18,468 0 2,150 0 (7,611) 21,167 31,993 3.30 FY13E 45.0% 91.3% (15.8%) (15.8%) (3.5%) (3.5%) 46.0 4.4% 4.6% 0.1 1.2 6.5% 2.6% FY14E 11,319 375 6,500 (15,376) 16,239 0 0 303 16,596 0 2,258 0 (7,935) 31,993 40,614 3.40 FY14E 37.2% 81.4% 16.2% 16.2% 3.5% 3.5% 29.9 2.9% 2.9% 0.1 1.2 6.3% 2.3%
LT investments 8,507 11,928 Net fixed assets 36,413 39,801 Total Assets 373,186 407,566 Liabilities ST loans 22,897 5,098 Payables 9,701 13,290 Others 2,433 1,801 Total current liabilities 35,031 20,189 Long-term debt 23,020 43,001 Other liabilities 850 883 Total Liabilities 58,901 64,073 Shareholder's equity 311,073 340,336 BVPS 134.31 146.94 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 11,928 Sales growth 42,055 Net profit growth 468,224 EPS growth Interest coverage (x) 5,098 Net debt to total capital 16,290 Net debt to equity 1,801 Sales/assets 23,189 Assets/equity 47,409 ROE 883 ROCE 71,481 393,950 170.09
205
NAV Breakdown Property Development Hong Kong Luxury residential Mass residential HK Dev China Res/Com China Dev (sqm) Other overseas Dev Total Property Development Investment Property Hong Kong Office Retail Industrial/others HK Inv pty China Residential Office Retail China Inv pty Total Investment Property Hotel Hong Kong HK hotel total China Existing Total Hotel Agricultural Landbank Investments Hutchison Whampoa Ltd (0013.HK) TOM Group Ltd. (2383.HK) CK Life (0775.HK) Hutchison Telecom Int'l (2332.HK) Hutchison Telecom Hong Kong (0215.HK) Fortune REIT (FRT SP) Prosperity REIT (808 HK) Hui Xian REIT (87001 HK) ARA Asset Management (ARA SP) Infrastructure Securities Other investments (incl infra) Gross Asset Value Gross debt (incl perpetual debt) Less Cash & Short Term Deposits Est Net Interest Bearing Debt Associated debt NAV
Dec-13 HK$MM
Value HK$/sh
Dec-14 HK$MM
Value HK$/sh
21,782 27,865 49,647 37,417 37,417 8,108 95,172
9.4 12.0 21.4 0.0 16.2 16.2 3.5 41.1
5.1% 6.5% 11.6% 8.8% 8.8% 1.9% 22.3%
21,782 27,865 49,647 37,417 37,417 8,108 95,172
9.4 12.0 21.4 0.0 16.2 16.2 3.5 41.1
5.1% 6.5% 11.6% 8.7% 8.7% 1.9% 22.2%
14,954 22,847 2,242 40,043 2,783 2,121 16,675 21,579 61,622
6.5 9.9 1.0 17.3 1.2 0.9 7.2 9.3 26.6
3.5% 5.3% 0.5% 9.4% 0.7% 0.5% 3.9% 5.0% 14.4%
14,875 22,466 2,177 39,518 3,085 2,174 17,244 22,503 62,021
6.4 9.7 0.9 17.1 1.3 0.9 7.4 9.7 26.8
3.5% 5.3% 0.5% 9.2% 0.7% 0.5% 4.0% 5.3% 14.5%
29,983 1,697 31,679 2,492 200,239 819 3,093 113 167 2,590 407 4,756 1,038 11,085 12,164 36,231 427,436 (53,751) 21,167 (32,584) (2,990) 391,862
12.9 0.7 13.7 1.1 86.5 0.4 1.3 0.0 0.1 1.1 0.2 2.1 0.4 4.8 5.3 15.6 184.5 -23.2 9.1 -14.1 -1.3 169
7.0% 0.4% 7.4% 0.6% 46.8% 0.2% 0.7% 0.0% 0.0% 0.6% 0.1% 1.1% 0.2% 2.6% 2.8% 8.5% 100.0%
29,983 1,747 31,730 2,492 200,239 819 3,093 113 167 2,590 407 4,756 1,038 11,085 12,164 36,231 427,886 (53,751) 21,167 (32,584) (2,990) 392,312
12.9 0.8 13.7 1.1 86.5 0.4 1.3 0.0 0.1 1.1 0.2 2.1 0.4 4.8 5.3 15.6 184.7 -23.2 9.1 -14.1 -1.3 169
7.0% 0.4% 7.4% 0.6% 46.8% 0.2% 0.7% 0.0% 0.0% 0.6% 0.1% 1.1% 0.2% 2.6% 2.8% 8.5% 100.0%
206
207
China Construction Bank

Overweight
www.ccb.com/en/home/index.html
China Banks Katherine Lei

AC
(852) 2800-8552 katherine.lei@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs
YTD -6.4%
1m -0.2%
3m 4.5%
12m 2.0%
Company overview CCB is the second largest bank in China with nearly 11.3% market share in domestic deposits end-1H13. It had 14,295 branches across China at end-1H13. It was originally the financing arm of the Ministry of Finance, and became a financial institution in 1979. Since the late 1990s, the government took initiatives to strengthen the bank's capital base and improve its asset quality. Post financial restructuring and reform, the bank was listed in Hong Kong in Oct. 2005. Investment case We have an OW rating on CCB based on the following: a) CCB is one of the largest banks in China with a strong franchise in deposits, loans and fee business; b) CCB's loan deposits ratio was 69.1% end 3Q13, significantly below the regulatory cap of 75%, the liquid balance sheet enables it to have stable balance sheet growth, more resilient NIM and lower risk profile; c) CCB is very prudent in terms of risk management its NPL ratio and loan loss reserve was 0.98% and 267.9% respectively at end-3Q13. As loan loss reserve was higher than the required 2.5%, CCB sees lower pressure on provisioning. Resilience of the growth outlook We believe that the key challenges for China banks going forward will be interest rate liberalization, further regulatory tightening on shadow banking and asset quality concern. CCBs strong deposits franchise, particularly on the retail front, positions it better than peers in a rising funding costs environment due to more fierce competition for deposits. In addition, as CCB is relatively more prudent in terms of wealth management and interbank business, it sees lower regulatory and credit risks related to these business than some of its peers. Risks to the earnings outlook in 2014 These include: a) worse than expected asset quality deterioration due to slower than expected macro growth; b) more severe than expected NIM contraction due to faster than expected liberalization process on interest rates; c) lower-than-expected fee income due to regulatory actions on fee charges and innovative financial products; Price target, and risks to our investment view Our Dec-14 PT of HKD7.90 is based on a DDM-derived model with cost of equity of 13.7%, normalised ROE of 14% and fair value P/B of 1.06x. Downside risks to our investment view will be mainly from unexpected changes in: a) regulatory environments, b) monetary policy, and c) structural reforms in China.
China Construction Bank (Reuters: 0939.HK, Bloomberg: 939 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E Operating Profit (Rmb mn) 254,866 291,452 318,129 Net Profit (Rmb mn) 169,258 193,179 214,249 Cash EPS (Rmb) 0.68 0.77 0.86 Fully Diluted EPS (Rmb) 0.68 0.77 0.86 DPS (Rmb) 0.24 0.27 0.30 EPS growth (%) 21.0% 14.1% 10.9% ROE 22.4% 22.0% 21.1% P/E (x) 7.0 6.1 5.5 BVPS (Rmb) 3.24 3.77 4.35 P/BV (x) 1.5 1.3 1.1 Dividend Yield 5.0% 5.7% 6.4%
Company Data 52-week Range (HK$) Market Cap (Rmb mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (HK$) Date Of Price 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) Index 1 Exchange Rate
6.75-5.00 1,178,552 193,190 250,011 Dec 5.99 06 Nov 13 1,611.89 207.9 272.72 7.75
FY14E 350,817 231,109 0.92 0.92 0.32 7.9% 19.9% 5.1 4.96 0.9 6.9%
FY15E 391,640 249,340 1.00 1.00 0.35 7.9% 18.8% 4.7 5.63 0.8 7.4%
208
China Construction Bank: Summary of Financials

Income Statement Rmb in millions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data CNY EPS DPS Payout Book value Fully Diluted Shares PPOP per share Key Balance sheet Rmb in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term borrowing Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY11 2.7% 97.8% 2.6% 304,572 94,831 86,994 2,144 399,403 FY12 2.7% 97.9% 2.7% 353,202 109,331 93,507 5,399 462,533 FY13E 2.7% 97.4% 2.6% 388,339 120,833 106,281 3,515 509,172 FY14E 2.7% 97.7% 2.6% 434,735 134,065 118,424 3,500 568,800
(144,537) (171,081) (191,043) (217,982) 254,866 291,452 318,129 350,817 (32,403) (38,330) (39,085) (50,337) 24 28 3 0 0 0 0 0 219,107 (49,668) (181) 169,258 251,439 (57,837) (423) 193,179 277,560 (62,759) (553) 214,249 298,980 (67,270) (600) 231,109
Growth Rates FY15E 2.7% Loans 97.7% Deposits 2.6% Assets Equity 488,275 RWA 148,957 Net Interest Income 132,102 Non-Interest Income 3,500 of which Fee Grth Revenues 637,231 Costs Pre-Provision Profits (245,592) Loan Loss Provisions 391,640 Pre-Tax (67,641) Attributable Income 0 EPS 0 DPS 322,499 (72,562) (597) 249,340
FY11 14.6% 10.1% 13.6% 16.4% 12.4% 21.1% 27.7% 31.5% 22.6% 19.1% 24.7% 26.4% 25.1% 25.5% 21.0% 11.5%
FY12 15.6% 13.6% 13.8% 16.1% 13.0% 16.0% 15.3% 7.5% 15.8% 18.4% 14.4% 18.3% 14.8% 14.1% 14.1% 13.3%
FY13E 14.2% 10.3% 10.8% 15.4% 29.7% 9.9% 10.5% 13.7% 10.1% 11.7% 9.2% 2.0% 10.4% 10.9% 10.9% 11.9%
FY14E 14.5% 12.3% 12.9% 14.3% 12.9% 11.9% 10.9% 11.4% 11.7% 14.1% 10.3% 28.8% 7.7% 7.9% 7.9% 7.9%
FY15E 14.5% 12.3% 13.2% 13.4% 13.2% 12.3% 11.1% 11.6% 12.0% 12.7% 11.6% 34.4% 7.9% 7.9% 7.9% 7.9%
FY11 FY12 FY13E FY14E FY15E 0.68 0.77 0.86 0.92 1.00 0.24 0.27 0.30 0.32 0.35 34.9% 34.7% 35.0% 35.0% 35.0% 3.24 3.77 4.35 4.96 5.63 250,011 250,011 250,011 250,011 250,011 1.02 1.17 1.27 1.40 1.57 FY11 FY12 FY13E FY14E FY15E 6,325,194 7,309,879 8,350,778 9,556,292 10,926,675 (171,217) (202,433) (229,977) (266,957) (318,979) 6,496,411 7,512,312 8,580,755 9,823,248 11,245,655 70,915 74,618 85,909 101,621 119,156 2,741,750 2,866,648 2,938,656 3,117,326 3,355,334 133,174 171,391 198,207 218,524 240,922 11,292,800 12,845,124 14,343,125 16,105,997 18,196,988 1,662 1,456 1,463 1,522 1,583 12,281,834 13,972,828 15,479,982 17,477,799 19,780,799 9,987,450 11,343,079 12,513,921 14,055,636 15,787,291 168,312 262,991 346,768 405,640 522,299 119,861 159,834 160,000 138,000 138,000 10,452,801 11,815,615 13,087,551 14,564,566 16,367,576 11,546,076 13,127,331 14,726,405 16,478,890 18,629,299 811,141 941,732 1,086,346 1,241,162 1,408,033 6,760,117 7,637,705 9,907,188 11,185,791 12,659,712 6,387,723 7,198,911 8,772,447 10,546,490 11,922,751
Balance Sheet Gearing FY11 FY12 FY13E FY14E FY15E Loan/deposit 63.3% 64.4% 66.7% 68.0% 69.2% Investment/assets 24.5% 21.4% 19.7% 18.4% 17.4% Loan/Assets 52.7% 53.4% 54.6% 55.8% 56.5% Customer deposits/liab. 87.1% 87.1% 87.0% 86.6% 86.0% LT debt/liabilities 1.2% 1.8% 2.2% 2.5% 2.7% Asset Quality/Capital FY11 FY12 FY13E FY14E FY15E Loan loss reserves/loans (2.6%) (2.7%) (2.7%) (2.7%) (2.8%) NPLs/loans 1.1% 1.0% 1.0% 1.0% 1.0% Loan loss reserves/NPLs 231.8% 256.7% 269.4% 265.0% 265.4% Growth in NPLs 9.6% 5.2% 15.1% 18.3% 17.3% Tier 1 Ratio 11.0% 11.3% 10.9% 11.1% 11.1% Total CAR 13.7% 14.3% 13.5% 13.3% 13.3% Du-Pont Analysis FY11 FY12 FY13E FY14E FY15E NIM (as % of avg. assets) 2.7% 2.7% 2.7% 2.7% 2.7% Earning assets/assets 97.8% 97.9% 97.4% 97.7% 97.7% Margins (as % of Avg. Assets) 2.6% 2.7% 2.6% 2.6% 2.6% Non-Int. Rev./ Revenues 23.7% 23.6% 23.7% 23.6% 23.4% Non IR/Avg. Assets 0.8% 0.8% 0.8% 0.8% 0.8% Revenue/Assets 3.5% 3.5% 3.5% 3.5% 3.4% Cost/Income 36.2% 37.0% 37.5% 38.3% 38.5% Cost/Assets 1.3% 1.3% 1.3% 1.3% 1.3% Pre-Provision ROA 2.2% 2.2% 2.2% 2.1% 2.1% LLP/Loans (0.5%) (0.5%) (0.5%) (0.5%) (0.6%) Loan/Assets 52.7% 53.4% 54.6% 55.8% 56.5% Other Prov, Income/ Assets 0.0% 0.0% 0.0% 0.0% 0.0% Operating ROA 1.9% 1.9% 1.9% 1.8% 1.7% Pre-Tax ROA 1.9% 1.9% 1.9% 1.8% 1.7% Tax rate 22.7% 23.0% 22.6% 22.5% 22.5% Minorities & Outside Distbn. 0.0% 0.1% 0.1% 0.0% 0.0% ROA 1.5% 1.5% 1.5% 1.4% 1.3% RORWA 2.6% 2.7% 2.4% 2.2% 2.1% Equity/Assets 6.5% 6.7% 6.9% 7.1% 7.1% ROE 22.4% 22.0% 21.1% 19.9% 18.8%
209
China Longyuan Power Group Corp.

Overweight
www.clypg.com.cn/
China Independent Power Producers Boris Kan

AC
Company overview China Longyuan Power (Longyuan) is the largest and the most established wind farm operator in China. Longyuan designs, develops, manages and operates wind farms and sells the electricity to the power grid. Longyuan Power is a subsidiary of the state-owned China Guodian Corporation, responsible for Guodian's renewable energy assets. As at end of Dec 2012, Longyuan had a total consolidated installed capacity of 12.7GW, of which 10.5GW is from wind power business. Investment case As the largest and the most established wind farm operator in China, Longyuan benefits from the Governments continued support on environmental protection. With firmer commitment by the Grid on taking on wind power and increased infrastructure development on UHV lines, Longyuan's wind farm utilization will likely continue to improve. New opportunities in solar farm projects following recent Government policy changes will offer more positive surprises to the market. Resilience of the growth outlook The companys growth outlook should be very resilient, irrespective of the macro economy thanks to government policies, and the expected improvement in grid infrastructure over the next few years, along with the grid's increased commitment to take on more wind power. As such, wind farm utilization will continue to improve over time, along with wind farm capacity additions. In addition, we expect more new opportunities from solar farms. Risks to the earnings outlook in 2014 Risks to 2014 earnings outlook include (1) less-than-expected government support (e.g. tariff cut), (2) less-than-expected wind resources in 2014, (3) potential wind tariff cuts which will affect returns on new wind projects. Price target, and risks to our investment view Our June-14 price target of HK$9.80 is based upon sum-of the parts valuation which is broken down into three parts wind power projects (including both existing and new ones), coal-related business and an offsetting net debt factor. The stock would trade at 15.4x 2014E PER and 1.8x 2014E PBR on our PT. Risk to our PT includes lower-than-expected utilization hours in provinces with grid connection problems such as Inner Mongolia and NE China.
(852) 2800-8573 boris.cw.kan@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 69.0% 79.6%
1m 15.9% 13.9%
3m 14.0% 4.6%
12m 84.6% 85.8%
8,036 58,185 9,538 9.20 06 Nov 13 26.0% 16.19 135.34 17.5 1,0637.15 7.75 Dec
China Longyuan Power Group Corp. (Reuters: 0916.HK, Bloomberg: 916 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Rmb mn) 16,585 17,288 20,003 21,787 Net Profit (Rmb mn) 2,578 2,593 3,154 4,037 EPS (Rmb) 0.35 0.35 0.39 0.50 DPS (Rmb) 0.07 0.07 0.08 0.10 Revenue growth (%) 16.6% 4.2% 15.7% 8.9% EPS growth (%) 28.1% 0.3% 12.4% 28.0% ROCE 6.8% 6.6% 7.0% 7.6% ROE 10.5% 9.4% 10.3% 12.0% P/E (x) 21.0 20.9 18.6 14.5 P/BV (x) 2.1 2.0 1.8 1.7 EV/EBITDA (x) 14.6 13.0 11.5 10.5 Dividend Yield 1.0% 1.0% 1.1% 1.4%
FY15E 23,764 4,860 0.60 0.12 9.1% 20.4% 8.3% 13.1% 12.1 1.5 9.3 1.7%
210
China Longyuan Power Group Corp.: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY12 17,288 4.2% 9,742 20.3% 56.3% 6,045 18.5% 35.0% (2,518) 3,667 4.0% (342) 9.3% 2,593 0.6% 8,036 0.35 0.3% FY12 5,138 7,998 816 3,835 17,786 FY13E 20,003 15.7% 11,611 19.2% 58.0% 7,290 20.6% 36.4% (2,632) 4,798 30.8% (591) 12.3% 3,154 21.6% 8,094 0.39 12.4% FY13E 2,375 9,802 1,109 3,871 17,156 FY14E 21,787 8.9% 13,121 13.0% 60.2% 8,403 15.3% 38.6% (2,562) 5,981 24.7% (737) 12.3% 4,037 28.0% 8,094 0.50 28.0% FY14E 2,430 10,676 1,208 3,895 18,209 Cash flow statement Rmb in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Others Cash flow from operations Capex Disposal/(purchase) Cash outflow on investing activities Free cash flow Equity raised/(repaid) Debt raised/(repaid) Dividends paid Other Cash flow from financing act. Increase (decrease) in cash Beginning cash Ending cash DPS Ratio Analysis FY15E Rmb in millions, year end Dec 6,114 EBITDA margin 10,993 Net profit margin 992 3,921 22,021 SG&A/Sales Sales per share growth 6,874 Sales growth 94,099 Net profit growth 130,597 EPS growth Interest coverage (x) 26,170 Net debt to total capital 1,668 Net debt to equity 8,644 Sales/assets 36,482 Assets/equity 41,482 ROE 2,861 ROA 80,825 39,068 4.83 FY15E 23,764 9.1% 14,946 13.9% 62.9% 9,746 16.0% 41.0% (2,685) 7,200 20.4% (888) 12.3% 4,860 20.4% 8,094 0.60 20.4% FY12 FY13E FY14E FY15E 6,045 7,290 8,403 9,746 3,697 4,321 4,718 5,200 (2,161) (2,227) (872) 335 (471) (591) (737) (888) 2,869 3,928 4,012 4,382 6,998 9,175 11,895 14,777 (13,745) (11,638) (11,446) (10,409) (14,117) (11,469) (11,369) (10,332) (4,464) (155) 2,696 6,723 4,771 0 0 0 8,067 3,000 3,000 3,000 (515) (631) (808) (973) (3,467) (2,837) (2,663) (2,789) 8,856 (469) (471) (762) 1,736 (2,763) 56 3,683 3,708 5,138 2,375 2,430 5,138 2,375 2,430 6,114 0.07 0.08 0.10 0.12 FY12 56.3% 15.0% 4.0% 4.2% 0.6% 0.3% 3.9 59.5% 146.9% 0.2 3.7 9.4% 2.6% FY13E 58.0% 15.8% 7.0% 15.7% 21.6% 12.4% 4.4 59.7% 148.2% 0.2 3.6 10.3% 2.8% FY14E 60.2% 18.5% 8.9% 8.9% 28.0% 28.0% 5.1 58.3% 140.0% 0.2 3.5 12.0% 3.4% FY15E 62.9% 20.5% 9.1% 9.1% 20.4% 20.4% 5.6 55.3% 123.6% 0.2 3.4 13.1% 3.9%
LT investments 6,874 6,874 6,874 Net fixed assets 74,846 82,163 88,891 Total Assets 107,840 114,284 121,820 Liabilities Short-term loans 26,170 26,170 26,170 Payables 1,261 1,130 1,231 Others 8,644 8,644 8,644 Total current liabilities 36,075 35,944 36,045 Long-term debt 32,482 35,482 38,482 Other liabilities 2,861 2,861 2,861 Total Liabilities 71,418 74,287 77,388 Shareholders' equity 29,429 31,952 35,181 BVPS 3.66 3.95 4.35 Source: Company reports and J.P. Morgan estimates.
211
China Mengniu Dairy Co. Ltd.

Overweight
www.mengniuir.com/html/index.php
China Food & Food Manufacture Ebru Sener Kurumlu

(852) 2800-8521 ebru.sener@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
AC
Abs Rel
YTD 47.4% 51.9%
1m -8.0% -8.6%
3m 2.8% -4.8%
12m 40.2% 37.0%
Company overview Mengniu is a leading dairy producer in China. Its major products include liquid milk product and ice cream. In 1H13, it ranked No.1 in market share in the sectors of liquid milk, UHT and chilled products in China dairy industry, according to AC Nielson data. Investment case We highlight Mengniu as our top pick in the China Staples space given: 1) Mengniu is positioned in a growth segment with low competitive intensity ii) product mix is driving margin expansion iii) strong market share gains expected in IMF segment iv) strong ties with Danone. While 2H13 earnings are likely to have a short term hiccup given raw milk cost increases, we would use this as a buying opportunity as long term drivers (as detailed above) are intact. We expect 15% earnings growth and 36% for FY13/ FY14 respectively. Resilience of the growth outlook We continue to expect DD growth in the dairy sector from 2013F to 2017F. Urbanization trends and our deep dive into expenditure patterns shows that all food sub-categories are on a decreasing trend as a percentage of the average Chinese household consumption expenditure except for Dairy (and Dried and Fresh Fruits and dining out) which is on an increasing trend. We are also positive on the companys strategy to focus on higher end products (resulting in margin expansion barring any raw milk cost spikes), and continuous improvement in upstream and strong backing by parents Risks to the earnings outlook in 2014 If the raw milk supply crunch sustains longer than expected, ASP increases/ mix shifts may not be able to fully offset raw milk cost spikes. Raw milk supply cap may also cap sales growth. Our expectation is for raw milk prices to increase MSD (with supply/demand situation stabilizing in FY14 from continuing investments in dairy farms and normalizing weather), and margin expansion to resume in 2014. Price target, and risks to our investment view Our Dec-14 PT is HK$38.1. We value Mengniu at 27x 1-yr forward earnings estimates which is pegged to historical mean. Key risks to our price target are higherthan-expected A&P spending, shortage of raw milk supply in China and slower momentum in Mengnius high-end products.
China Mengniu Dairy Co. Ltd. (Reuters: 2319.HK, Bloomberg: 2319 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Rmb mn) 37,388 35,848 42,719 54,133 Net Profit (Rmb mn) 1,424 1,203 1,445 1,970 EPS (Rmb) 0.81 0.68 0.82 1.11 Recurring EPS (Rmb) 0.81 0.71 0.82 1.11 DPS (Rmb) 0.20 0.16 0.16 0.19 Revenue growth (%) 23.5% (4.1%) 19.2% 26.7% Net Profit growth (%) 15.1% (15.5%) 20.1% 36.3% Recurring profit growth 15.1% (11.6%) 14.9% 36.3% EPS growth (%) 13.1% (15.5%) 20.1% 36.3% ROE 13.4% 10.5% 11.2% 13.8% ROA 7.6% 6.1% 5.0% 5.1% P/E (x) 32.6 38.9 32.4 23.8 P/BV (x) 4.1 3.8 3.5 3.1 EV/EBITDA (x) 15.1 16.3 15.6 11.3 Dividend Yield 0.7% 0.6% 0.6% 0.7%
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) MSCI-Cnx Exchange Rate Fiscal Year End
1,768 46,826 7,676 33.65 06 Nov 13 60.6% 5.64 191.73 24.7 6311.29 7.75 Dec
FY15E 64,002 2,680 1.52 1.52 0.25 18.2% 36.1% 36.1% 36.1% 16.3% 6.3% 17.5 2.6 8.3 0.9%
212
China Mengniu Dairy Co. Ltd.: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y Gross margin Other operating income EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Share of JVs Other non operating income Earnings before tax % change Y/Y Tax as % of EBT Minorities Net income (reported) % change Y/Y Recurring Net Income % change Y/Y EPS (reported) % change Y/Y Recurring EPS % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets Goodwill Intangible assets Long term investments Net fixed assets Other assets Total Assets FY11 37,388 23.5% 9,592 23.2% 25.7% 296 2,760 27.3% 7.4% 1,896 30.3% 5.1% 112 52 2,061 34.0% (276) 13.4% (195) 1,424 15.1% 1,424 15.1% 0.81 13.1% 0.81 13.1% FY12 35,848 (4.1%) 8,922 (7.0%) 24.9% 256 2,609 (5.5%) 7.3% 1,592 (16.0%) 4.4% 180 (86) 1,686 (18.2%) (245) 14.6% (182) 1,203 (15.5%) 1,258 (11.6%) 0.68 (15.5%) 0.71 (11.6%) FY13E 42,719 19.2% 11,177 25.3% 26.2% 276 2,958 13.4% 6.9% 1,694 6.4% 4.0% 178 123 1,995 18.3% (330) 16.5% (220) 1,445 20.1% 1,445 14.9% 0.82 20.1% 0.82 14.9% FY13E 12,233 932 2,277 2,872 18,314 3,238 10,183 2,733 37,232 FY14E 54,133 26.7% 15,524 38.9% 28.7% 346 4,035 36.4% 7.5% 2,639 55.8% 4.9% 145 262 3,047 52.7% (595) 19.5% (482) 1,970 36.3% 1,970 36.3% 1.11 36.3% 1.11 36.3% FY14E 13,392 1,060 2,850 3,157 20,460 3,238 11,302 2,719 40,482 4,322 5,334 4,402 14,058 9,000 975 24,033 1,287 15,161 8.58 FY15E 64,002 18.2% 18,907 21.8% 29.5% 394 5,212 29.2% 8.1% 3,700 40.2% 5.8% 172 324 4,196 37.7% (851) 20.3% (665) 2,680 36.1% 2,680 36.1% 1.52 36.1% 1.52 36.1% FY15E 15,799 1,210 3,576 3,502 24,087 3,238 12,006 2,704 44,798 Cash flow statement Rmb in millions, year end Dec PBT Depr. & amortization Change in working capital Tax & Other Cash flow from operations FY11 2,061 864 38 (442) 2,520 FY12 1,686 1,017 (68) (627) 2,008 FY13E FY14E FY15E 1,995 3,047 4,196 1,264 1,396 1,512 738 100 82 (1,040) (1,092) (1,437) 3,460 3,451 4,353
Capex Sale of assets Acquisition of subsidiaries/intangibles Other Cash flow from investing Equity raised/(repaid) Debt raised/(repaid) Dividends paid Other Cash flow from financing FX gain/(loss) Net change in cash Ending cash DPS
(2,484) (2,658) (1,746) (2,500) (2,200) (17) (153) (9,837) 0 0 856 (429) 387 497 586 (1,645) (3,239) (11,196) (2,003) (1,614) 521 (450) (331) 22 (238) 12 263 (421) (35) (181) 0 12,392 (275) 0 12,117 0 0 (288) 0 (288) 0 0 (332) 0 (332)
(52) (2) 585 (1,415) 4,360 2,945 0.20 0.16
0 0 0 4,381 1,159 2,407 9,399 10,558 12,965 0.16 0.19 0.25
FY11 FY12 6,523 5,778 836 801 1,685 1,420 1,342 1,761 10,387 9,761 707 708 7,694 8,489 1,261 1,954 20,202 20,991
Ratio Analysis Rmb in millions, year end Dec Gross margin EBITDA margin Operating Margin Net margin Recurring net profit margin Sales growth Net profit growth Recurring net profit growth EPS growth
FY11 FY12 25.7% 24.9% 7.4% 7.3% 5.1% 4.4% 3.8% 3.5% 3.8% 3.5% 23.5% (4.1%) 15.1% (15.5%) 15.1% (11.6%) 13.1% (15.5%)
FY13E FY14E FY15E 26.2% 28.7% 29.5% 6.9% 7.5% 8.1% 4.0% 4.9% 5.8% 3.4% 3.6% 4.2% 3.4% 3.6% 4.2% 19.2% 26.7% 18.2% 20.1% 36.3% 36.1% 14.9% 36.3% 36.1% 20.1% 36.3% 36.1%
Liabilities Short-term loans 657 599 13,322 Trade & other payables 3,685 3,679 4,676 Others 2,885 2,703 3,974 Total current liabilities 7,226 6,981 21,971 Long-term debt 0 0 0 Others 927 938 975 Total Liabilities 8,153 7,919 22,946 Minorities 578 629 854 Shareholders' equity 11,471 12,443 13,431 BVPS 6.49 7.04 7.60 Source: Company reports and J.P. Morgan estimates.
Interest coverage (x) Net debt to equity Sales/assets 4,322 Assets/equity 6,130 ROE 4,909 ROCE 15,361 9,000 975 25,335 1,705 17,756 10.05
(48.7%) (39.6%) 7.6% (0.4%) (12.7%) 2.0 1.7 1.5 1.4 1.5 176.7% 172.2% 225.0% 271.8% 259.1% 13.4% 10.5% 11.2% 13.8% 16.3% 14.5% 10.8% 7.1% 7.7% 9.9%
213
China Overseas Land & Investment

Overweight
www.coli.com.hk
China Property Ryan Li, CFA

AC
Company overview China Overseas Land & Investment (COLI) is a red-chip company controlled by China State Construction Engineering Corporation (CSCEC), the largest state-owned construction company in China, listed on the A-share market in July 2009. COLI was established in 1979 and listed in 1992. The group is principally engaged in property development and investment in China and Hong Kong. Investment case We believe COLI can maintain above-peer margins and hence high ROE. The company achieved Rmb88 bn contracted sales in 9M2013, and we expect full-year sales to be Rmb109 bn, 15% higher than the companys target. The potential injection from parent company CSCEC (601668.SS) will likely be NAV accretive to COLI due to numerous synergies it could bring, including: 1) brand premium, given COLIs much stronger brand than CSCEC and 2) economies of scale, as COLIs average monthly sales are more than three times those of CSCEC. We think COLI can create more value in these projects than CSCEC, and the injection is a mid-term catalyst, in our view. Resilience of the growth outlook Since January 17, 2013, COLI has performed in line with MSCI China and has underperformed large-cap developers by 3%. With the sector trending to a more stable policy outlook, earnings growth set to continue and with the injection being a mid-term catalyst, we believe COLI should gradually re-rate. Risks to the earnings outlook in 2014 COLIs strong sales performance was mainly due to a high sell-through rate rather than abundant sellable resources. Without a change in development plan or asset injection from the parent company, COLI might find it difficult to achieve another 20% growth in 2014 given a lack of landbank and sellable resources. Price target, and risks to our investment view Our Dec-14 PT of HK$27.00 per share is based on 9.5x 2014E P/E, which is among the highest in the industry due to its SOE nature and lower cash flow risk. Key downside risks are restrictive policy on property, tightening in mortgages and delay in asset injection.
(852) 2800-8529 ryan.lh.li@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 0.0% 0.4%
1m -0.4% -1.0%
3m 0.0% -8.4%
12m 7.7% 2.1%
Company Data Shares O/S (mn) Market Cap (HK$ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) R-CHIP Exchange Rate Fiscal Year End
8,173 188,787 24,354 23.10 06 Nov 13 46.5% 17.80 420.13 54.2 4511.97 7.75 Dec
China Overseas Land & Investment Ltd. (Reuters: 0688.HK, Bloomberg: 688 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (HK$ mn) 51,332 64,581 77,974 96,024 Net Profit (HK$ mn) 15,464 18,722 22,591 23,122 Core Profit (HK$ mn) 12,331 15,949 19,645 23,122 EPS (HK$) 1.89 2.29 2.76 2.83 Core EPS (HK$) 1.51 1.95 2.40 2.83 Core EPS growth (%) 37.9% 29.3% 23.2% 17.7% DPS (HK$) 0.33 0.41 0.55 0.57 ROE 19.7% 20.2% 20.4% 20.2% P/E (Core) 15.3 11.8 9.6 8.2 P/BV (x) 2.7 2.2 1.8 1.5 BVPS (HK$) 8.60 10.68 12.89 15.15 RNAV/Share 25.23 Dividend Yield 1.4% 1.8% 2.4% 2.4%
FY15E 116,812 26,841 26,841 3.28 3.28 16.1% 0.66 19.9% 7.0 1.3 17.78 2.8%
214
China Overseas Land & Investment: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Core net profit % change Y/Y Shares outstanding EPS (reported) (HK$) % change Y/Y Core EPS (HK$) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY12 64,581 25.8% 23,072 19.7% 35.7% 27 28,510 23.9% (9,677) 33.9% 18,722 21.1% 15,949 29.3% 8,173 2.29 21.1% 1.95 29.3% FY12 40,880 2,599 125,912 10,876 180,268 FY13E 77,974 20.7% 27,242 18.1% 34.9% (19) 33,740 18.3% (11,038) 32.7% 22,591 20.7% 19,645 23.2% 8,173 2.76 20.7% 2.40 23.2% FY13E 50,348 2,599 161,091 10,876 224,914 FY14E 96,024 23.1% 31,206 14.5% 32.5% 11 35,969 6.6% (12,736) 35.4% 23,122 2.3% 23,122 17.7% 8,173 2.83 2.3% 2.83 17.7% FY14E 42,980 2,599 189,637 10,876 246,092 1,305 310,832 10,297 37,211 66,774 114,283 38,440 33,759 186,481 123,818 15.15 FY15E 116,812 21.6% 36,990 18.5% 31.7% 44 42,784 18.9% (15,833) 37.0% 26,841 16.1% 26,841 16.1% 8,173 3.28 16.1% 3.28 16.1% FY15E 56,684 2,599 206,590 10,876 276,749 Cash flow statement HK$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS (HK$) Ratio Analysis %, year end Dec EBIT margin Net margin SG&A/Sales FY12 28,510 53 (7,946) (13,566) 7,050 (117) 87 (1,492) 6,916 0 5,045 11,556 (3,100) 17,841 39,880 0.41 FY12 35.7% 29.0% 3.2% 25.8% 25.8% 21.1% 21.1% NM (3.8%) (3.7%) 0.3 2.6 20.2% 12.5% FY13E 33,740 55 (16,658) (17,700) (564) (4,455) (4,070) 297 (5,006) 0 17,336 0 (4,517) 39,880 47,478 0.55 FY13E 34.9% 29.0% 3.5% 20.7% 20.7% 20.7% 20.7% 1,456.5 (1.5%) (1.5%) 0.3 2.7 20.4% 12.5% FY14E 35,969 60 (20,971) (17,325) (2,267) (1,398) (5,252) 327 (3,672) 0 0 0 (4,623) 47,478 39,017 0.57 FY14E 32.5% 24.1% 3.5% 23.1% 23.1% 2.3% 2.3% NM 4.4% 4.6% 0.3 2.6 20.2% 12.3% FY15E 42,784 66 (1,971) (20,833) 20,046 (1,468) (6,251) 359 18,551 0 0 0 (5,367) 39,017 52,088 0.66 FY15E 31.7% 23.0% 3.5% 21.6% 21.6% 16.1% 16.1% NM (5.8%) (5.4%) 0.4 2.5 19.9% 12.7%
LT investments Net fixed assets 1,138 1,296 Total Assets 229,825 282,996 Liabilities ST loans 5,546 10,297 Payables 17,733 32,211 Others 60,697 62,547 Total current liabilities 83,975 105,055 Long-term debt 32,095 38,440 Other liabilities 26,197 33,759 Total Liabilities 142,268 177,254 Shareholder's equity 87,244 105,319 BVPS 10.68 12.89 Source: Company reports and J.P. Morgan estimates.
Sales per share growth - Sales growth 1,314 Net profit growth 349,216 EPS growth Interest coverage (x) 10,297 Net debt to total capital 42,211 Net debt to equity 78,573 Sales/assets 131,081 Assets/equity 38,440 ROE 33,759 ROCE 203,280 145,292 17.78
215
China Resources Power Holdings

Overweight
www.cr-power.com/
Company overview China Resources Power is a flagship subsidiary of China Resources (Holdings) Company Limited, engaged in the investment, development, operation and management of power plants. As of 30 June 2013, total attributable operational generation capacity of the company is 26,062MW. Investment case Our bullish investment case rests on our expectation that coal price will remain at low levels over the next 1-2 years, according to our Coal Team. And with IPP tariffs remaining relatively stable, China IPPs will likely have more stable and predictable earnings. This is very different from the past 5-8 years, where earnings were very volatile, depending on coal price movements. In particular, CR Power can deliver positive free cash flows thanks to their strong return-based investment discipline. Along with the other businesses (e.g., wind farms), we expect CR Power to deliver very stable earnings growth going forward. Accordingly, we believe the entire sector should enjoy further re-rating. Resilience of the growth outlook CRP's growth profile does not depend largely on new coal-fired capacity rollout. Rather, stabilizing coal prices and continued wind farm expansion are the key underlying drivers for future growth. The only segment which might tie in more to the overall macro condition is its coal mine business. But we only assume <10% of earnings contributions from this area. Risks to the earnings outlook in 2014 Risks to 2014 earnings include: (1) further decline in its coal production resulting from China's slower-than-expected economic recovery, which in turn resulted in a fall in demand for thermal coal, and (2) negative impacts on its management and business in case of unfavorable litigation results. Price target and risks to our investment view Our June-14 PT of HK$23.5 is based on a 10-year DCF assuming a WACC of 8.4% plus a 15% discount in light of recent litigations. Our DCF assumes long-term average power demand growth of 3% pa. The stock would trade at 9.9x 2014E PER and 1.6x 2014E PBR on our PT. Downside risks to our rating and PT include: (1) spot coal spike in light of railway transportation disruption, (2) higher-than-expected further tariff cuts based on coal-cost pass-through mechanism, and (3) contract coal elimination.
China Independent Power Producers Boris Kan

AC
Abs Rel
YTD 0.1% 0.5%
1m 6.5% 5.9%
3m 15.1% 6.7%
12m 18.4% 12.8%
4,763 94,305 12,166 19.80 06 Nov 13 7.77 142.99 18.4 4511.97 7.75 Dec
China Resources Power Holdings (Reuters: 0836.HK, Bloomberg: 836 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (HK$ mn) 60,709 62,436 68,815 78,610 Net Profit (HK$ mn) 4,451 7,479 10,706 11,288 EPS (HK$) 0.95 1.59 2.25 2.37 DPS (HK$) 0.30 0.51 0.73 0.77 Revenue growth (%) 25.0% 2.8% 10.2% 14.2% EPS growth (%) (9.9%) 67.3% 41.7% 5.4% ROCE 6.3% 8.0% 10.9% 10.6% ROE 9.9% 14.7% 18.6% 17.5% P/E (x) 20.9 12.5 8.8 8.4 P/BV (x) 2.0 1.7 1.5 1.4 EV/EBITDA (x) 11.7 9.6 6.9 5.9 Dividend Yield 1.5% 2.6% 3.7% 3.9%
FY15E 83,963 12,185 2.56 0.83 6.8% 7.9% 10.7% 16.9% 7.7 1.2 5.5 4.2%
216
China Resources Power Holdings: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y Gross Margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY12 62,436 2.8% 41.2% 18,189 20.9% 29.1% 12,006 25.8% 19.2% (3,836) 9,904 44.3% (1,179) 11.9% 7,479 68.0% 4,763 1.59 67.3% FY12 4,397 14,759 3,259 4,373 26,793 FY13E 68,815 10.2% 52.3% 26,076 43.4% 37.9% 19,038 58.6% 27.7% (3,870) 15,910 60.6% (3,182) 20.0% 10,706 43.1% 4,763 2.25 41.7% FY13E 4,248 16,267 3,592 4,373 28,485 FY14E 78,610 14.2% 51.3% 30,483 16.9% 38.8% 20,945 10.0% 26.6% (3,953) 17,713 11.3% (4,428) 25.0% 11,288 5.4% 4,763 2.37 5.4% FY14E 6,406 18,582 4,103 4,373 33,470 Cash flow statement HK$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Others Cash flow from operations Capex Disposal/(purchase) Cash outflow on investing activities Free cash flow Equity raised/(repaid) Debt raised/(repaid) Dividends paid Other Cash flow from financing act. Increase (decrease) in cash Beginning cash Ending cash DPS Ratio Analysis FY15E HK$ in millions, year end Dec 8,132 EBITDA margin 19,848 Net profit margin 4,382 4,373 36,740 SG&A/Sales Sales per share growth 20,170 Sales growth 129,498 Net profit growth 214,684 EPS growth Interest coverage (x) 24,493 Net debt to total capital 30,960 Net debt to equity 4,086 Sales/assets 59,539 Assets/equity 56,883 ROE 1,519 ROA 117,941 75,831 15.92 FY15E 83,963 6.8% 50.6% 32,617 7.0% 38.8% 22,090 5.5% 26.3% (3,880) 18,966 7.1% (4,742) 25.0% 12,185 7.9% 4,763 2.56 7.9% FY12 FY13E FY14E FY15E 12,006 19,038 20,945 22,090 6,183 7,038 9,538 10,526 2,032 511 785 429 846 317 (836) (1,239) 18,965 23,776 27,200 28,682 (10,645) (20,340) (16,300) (16,300) 25 0 0 0 (9,983) (20,340) (16,300) (16,300) 11,699 6,533 13,865 15,292 108 0 0 0 (3,572) 4,191 (693) (2,389) (1,414) (3,479) (3,668) (3,960) (4,203) (4,298) (4,380) (4,308) (9,081) (3,586) (8,742) (10,656) (99) (150) 2,158 1,726 4,497 4,397 4,248 6,406 4,397 4,248 6,406 8,132 0.51 0.73 0.77 0.83 FY12 29.1% 12.0% 2.4% 2.8% 68.0% 67.3% 4.7 52.4% 110.1% 0.4 3.4 14.7% 4.3% FY13E 37.9% 15.6% 9.1% 10.2% 43.1% 41.7% 6.7 50.8% 103.2% 0.4 3.2 18.6% 5.8% FY14E 38.8% 14.4% 14.2% 14.2% 5.4% 5.4% 7.7 47.1% 89.0% 0.4 3.1 17.5% 5.7% FY15E 38.8% 14.5% 6.8% 6.8% 7.9% 7.9% 8.4 43.1% 75.7% 0.4 2.9 16.9% 5.8%
LT investments 19,060 19,431 19,792 Net fixed assets 103,661 116,963 123,725 Total Assets 177,790 193,155 205,262 Liabilities Short-term loans 20,391 24,582 23,889 Payables 23,022 25,375 28,986 Others 4,086 4,086 4,086 Total current liabilities 47,499 54,042 56,961 Long-term debt 59,876 59,876 59,876 Other liabilities 1,519 1,519 1,519 Total Liabilities 108,894 115,437 118,356 Shareholders' equity 54,043 60,842 68,034 BVPS 11.35 12.77 14.28 Source: Company reports and J.P. Morgan estimates.
217
China Shenhua Energy - H

Overweight
www.csec.com
China Mining Daniel Kang

AC
Company overview China Shenhua Energy (Shenhua) is Chinas largest integrated coal-based energy company with coal production of 304Mt in 2012. The company is unique in the domestic coal market with a vertically integrated mine-rail-port network to sell coal products primarily domestic customers and its own power generation business. Its main shareholder is its state-owned parent company Shenhua Group (73%). Investment case With a robust organic growth outlook (+5% coal output growth in 2014-15E) and its own IPP business, Shenhua provides a relatively defensive coal exposure. We forecast a resilient profit outlook (FY14 NPAT -6% yoy). We view Shenhua as attractively valued against historical P/E and yield with likely catalysts being parent asset injections. Resilience of the growth outlook Shenhua's defensive attributes as an integrated, high-quality, low-cost coal to energy play has already been reflected in a more resilient earnings performance this year, relative to its sector peers. We forecast FY14 earnings to fall 6% driven largely by lower coal prices, this is 8% below consensus estimates. In a low growth environment, Shenhuas growth is organic expansion plans in its coal and infrastructure assets. Beyond this, parent asset injections can potentially add another 100mtpa of coal output. Risks to the earnings outlook in 2014 Key upside risks to earnings lies in tighter-than-expected coal markets a 5% change in coal prices and power tariffs impacts FY14E EBITDA by 6.4% and 4.0%, respectively. With an under-utilized balance sheet, Shenhua is also strongly positioned to grow both organically and through acquisitions. Containing cost pressures and delivery of mine growth are key downside risks to earnings. Price target, and risks to our investment view Our Dec-14 price target for Shenhua-H is HK$26.50/share assuming a 10x P/E based on a blended average of NPV, PB-ROE and earnings multiples. Key downside risks include lower-than-expected coal price and power tariffs, slower volume growth.
(852) 2800 8570 daniel.kang@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD -29.6% -31.3%
1m 1.3% 1.0%
3m 8.1% 4.4%
12m -28.3% -33.3%
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) HSI Exchange Rate Fiscal Year End
19,890 374,100 61,323 23.90 06 Nov 13 19.79 483.79 62.4 2,3038.95 7.75 Dec
China Shenhua Energy - H (Reuters: 1088.HK, Bloomberg: 1088 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E Revenue (Rmb mn) 209,225 250,260 235,566 Net Profit (Rmb mn) 45,826 48,858 42,758 EPS (Rmb) 2.30 2.46 2.15 DPS (Rmb) 0.90 0.96 0.84 Revenue growth (%) 32.7% 19.6% (5.9%) EPS growth (%) 18.0% 6.6% (12.5%) ROCE 19.3% 19.0% 15.4% ROE 21.2% 20.2% 15.8% P/E (x) 8.2 7.7 8.7 P/BV (x) 1.6 1.5 1.3 EV/EBITDA (x) 5.0 5.1 5.4 Dividend Yield 4.8% 5.1% 4.5%
FY14E 237,223 40,201 2.02 0.79 0.7% (6.0%) 13.8% 13.6% 9.3 1.2 5.4 4.2%
FY15E 247,918 43,140 2.17 0.85 4.5% 7.3% 13.8% 13.5% 8.7 1.1 4.6 4.5%
218
China Shenhua Energy - H: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets Cash flow statement FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 209,225 250,260 235,566 237,223 247,918 EBIT 32.7% 19.6% (5.9%) 0.7% 4.5% Depr. & amortization 38.5% 33.0% 32.1% 31.3% 31.9% Change in working capital 83,562 86,401 83,625 84,792 92,569 Taxes 17.9% 3.4% (3.2%) 1.4% 9.2% Other 39.9% 34.5% 35.5% 35.7% 37.3% Cash flow from operations 68,706 69,604 64,604 62,626 66,869 19.4% 1.3% (7.2%) (3.1%) 6.8% Capex 32.8% 27.8% 27.4% 26.4% 27.0% Disposal/(purchase) (2,204) (2,071) (1,694) (3,120) (3,010) Net Interest 66,829 68,011 63,352 59,935 64,317 Free cash flow 19.5% 1.8% (6.9%) (5.4%) 7.3% (14,041) (10,965) (12,354) (11,987) (12,863) Equity raised/(repaid) 21.0% 16.1% 19.5% 20.0% 20.0% Debt raised/(repaid) 45,826 48,858 42,758 40,201 43,140 Other 18.0% 6.6% (12.5%) (6.0%) 7.3% Dividends paid 19,890 19,890 19,890 19,890 19,890 Beginning cash 2.30 2.46 2.15 2.02 2.17 Ending cash 18.0% 6.6% (12.5%) (6.0%) 7.3% DPS Ratio Analysis FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 61,652 51,627 43,998 37,622 61,480 Net profit margin 13,618 20,028 21,747 18,985 19,841 SG&A/Sales 12,939 15,171 15,905 14,728 15,264 20,317 24,534 37,243 23,780 24,398 Interest coverage (x) 108,526 111,360 118,894 95,114 120,982 Net debt to equity Sales/assets LT investments 4,827 5,649 5,649 5,649 5,649 Assets/equity Net fixed assets 223,329 236,048 275,346 319,526 332,085 Total Assets 406,507 457,367 516,483 505,538 535,706 ROE a ROA Liabilities ROCE Short-term loans 16,489 28,093 28,093 28,093 28,093 Payables 23,763 31,072 28,916 30,164 31,262 Others 47,497 46,392 80,695 45,030 46,671 Total current liabilities 87,749 105,557 137,704 103,288 106,025 Long-term debt 45,443 39,624 39,624 39,624 39,624 Other liabilities 5,201 5,629 5,779 5,760 5,761 Total Liabilities 138,393 150,810 183,107 148,672 151,411 Shareholder's equity 228,199 256,589 283,407 306,898 334,327 BVPS 11.47 12.90 14.25 15.43 16.81 Source: Company reports and J.P. Morgan estimates. FY11 FY12 68,706 69,604 14,856 16,797 7,648 (4,224) 2,619 7,624 70,949 69,055 FY13E FY14E 64,604 62,626 19,022 22,166 16,984 (17,013) 150 (19) 78,915 45,335 FY15E 66,869 25,700 727 1 69,568
(45,082) (52,256) (67,450) (35,000) (30,000) (2,204) (2,071) (1,694) (3,120) (3,010) 27,608 18,536 12,828 12,831 41,976 (16,493) 1,565 0 0 0 77 (817) 0 0 0 (14,917) (17,901) (19,094) (16,710) (15,711) 77,302 61,652 51,627 43,998 37,622 61,652 51,627 43,998 37,622 61,480 0.90 0.96 0.84 0.79 0.85 FY11 21.9% 5.3% 37.9 0.1% 0.5 1.8 21.2% 11.8% 19.3% FY12 19.5% 5.2% 41.7 5.2% 0.6 1.8 20.2% 11.3% 19.0% FY13E 18.2% 4.6% 49.4 7.1% 0.5 1.8 15.8% 8.8% 15.4% FY14E 16.9% 4.8% 27.2 8.4% 0.5 1.7 13.6% 7.9% 13.8% FY15E 17.4% 4.8% 30.8 1.6% 0.5 1.6 13.5% 8.3% 13.8%
219
China State Construction

Overweight
www.csci.com.hk
Hong Kong Construction Leon Chik, CFA

AC
(852) 2800-8590 leon.hk.chik@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 38.3% 45.3%
1m 4.6% 2.6%
3m 3.0% -6.4%
12m 33.3% 34.2%
Company overview CSC was spun off from China Overseas Land in 2005 and is the one of the largest contractors in Hong Kong and Macau. The company expanded into the Chinese construction market in 2008 and also invested in Chinese infrastructure projects starting in 2009. The company is transforming itself from a construction company into a construction service and infrastructure BOT company. Investment case CSC signed HK$18.3bn in BT projects (a run rate that is 16% ahead of our FY13 estimate of HK$21bn) and HK$22.3bn in cash contracts (a run rate that is 18% ahead of our FY13 estimate of HK$25.2bn) from Jan-13 to Sept-13. We estimate a total of HK$55bn will be signed in 2014. The current unfinished project backlog of HK$79bn underpins revenues until the end of 2015 (our FY12-15E sales CAGR is 32%). Resilience of the growth outlook The company has indicated that it has received more than HK$2.6bn in cash related to BT projects since the start of the BT business, and five of these payments have been in advance of the due date. So far, there have been no delinquent payments or bad debts related to the BT program. While the incoming cash is still only a small proportion of the cash outflow related to the ongoing construction of BT projects, we believe there will be significant cash inflows to nearly balance cash outflows after Dec-14. Risks to the earnings outlook in 2014 Concerns about the need for new equity was heightened by the cash needs of the new Novo-Taipa property development, where CSCs 29% stake requires a HK$2bn upfront investment in the property (to be paid in 4Q13), as well as ongoing construction costs (FY13-15E) of HK$2bn. Payment for the land itself would leave CSC with a net debt-to-equity level of around 33% (J.P. Morgan estimate), below the 40% management has said was a comfortable level for CSC. Price target, and risks to our investment view CSC trades at a 17.3x FY13E P/E and an EPS CAGR of 26% (FY13-15E). Our DCF-based PT (Dec-14; g: 3%; beta: 1.3) of HK$19.0 implies a FY15E P/E of 16.3x (about 1.6 standard deviations from its five-year average forward P/E), but we believe this multiple is justified by the higher profitability of new BT projects. Key downside risks to our price target include falling construction activity in China, lower-than-expected returns on long-term projects in China and a shortage of workers or a hike in raw materials, which could crimp margins.
China State Construction (Reuters: 3311.HK, Bloomberg: 3311 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E Revenue (HK$ mn) 16,379 19,765 25,492 Net Profit (HK$ mn) 1,507 2,131 2,932 EPS (HK$) 0.43 0.57 0.74 DPS (HK$) 0.13 0.16 0.22 Revenue growth (%) 36.7% 20.7% 29.0% EPS growth (%) 25.0% 33.0% 31.4% ROCE 10.5% 10.0% 11.0% ROE 21.4% 18.5% 20.2% P/E (x) 30.2 22.7 17.3 P/BV (x) 4.8 3.7 3.2 EV/EBITDA (x) 23.7 18.2 13.5 Dividend Yield 1.0% 1.2% 1.7%
3,540 45,520 5,872 12.86 06 Nov 13 35.0% 5.04 63.23 8.2 1,0637.15 7.75 Dec
FY14E 36,925 3,911 1.00 0.30 44.9% 34.5% 13.0% 23.1% 12.9 2.7 10.2 2.3%
FY15E 46,125 4,591 1.17 0.35 24.9% 17.4% 13.6% 23.0% 10.9 2.3 8.6 2.7%
220
China State Construction: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 16,379 36.7% 1,798 36.6% 1,850 63.3% 1,643 66.4% 10.0% (88) 1,844 38.3% (334) 18.1% 1,507 45.4% 3,540 0.43 25.0% FY12 19,765 20.7% 2,410 34.0% 2,568 38.8% 2,325 41.5% 11.8% (171) 2,522 36.8% (385) 15.3% 2,131 41.4% 3,764 0.57 33.0% FY13E 25,492 29.0% 3,434 42.5% 3,583 39.5% 3,282 41.2% 12.9% (315) 3,480 38.0% (541) 15.6% 2,932 37.5% 3,939 0.74 31.4% FY14E 36,925 44.9% 4,700 36.8% 4,854 35.5% 4,528 38.0% 12.3% (366) 4,707 35.3% (786) 16.7% 3,911 33.4% 3,908 1.00 34.5% FY15E 46,125 24.9% 5,656 20.4% 5,740 18.2% 5,383 18.9% 11.7% (401) 5,541 17.7% (938) 16.9% 4,591 17.4% 3,908 1.17 17.4% Cash flow statement HK$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis HK$ in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin FY11 FY12 FY13E FY14E FY15E 1,643 2,325 3,282 4,528 5,383 207 243 300 326 356 (2,448) (5,403) (539) (1,176) (871) (213) (334) (385) (541) (786) (811) (3,168) 2,658 3,137 4,082 (479) (807) (3,918) (3,471) (2,946) (88) (171) (315) (366) (401) 315 349 464 483 626 (1,218) (3,831) (994) (29) 1,469 3,584 3,324 (3,584) (430) 3,728 5,458 0.13 FY11 11.0% 11.3% 10.0% 9.2% 17.5% 36.7% 45.4% 25.0% 21.0 8.4% 17.3% 0.7 3.2 21.4% 10.5% 2,271 3,296 0 (520) 5,458 6,717 0.16 0 0 0 1,000 2,000 0 0 0 0 (726) (1,010) (1,259) 6,717 5,881 6,653 5,881 6,653 6,754 0.22 0.30 0.35
FY11 FY12 FY13E FY14E FY15E 5,458 6,717 5,881 6,653 6,754 4,736 6,560 8,460 12,255 15,308 150 185 239 346 433 4,063 6,976 8,516 11,205 12,680 14,407 20,438 23,096 30,460 35,176
FY12 FY13E FY14E FY15E 12.2% 13.5% 12.7% 12.3% 13.0% 14.1% 13.1% 12.4% 11.8% 12.9% 12.3% 11.7% 10.8% 11.5% 10.6% 10.0% 13.5% 20.7% 41.4% 33.0% 15.1 24.0% 40.3% 0.6 2.8 18.5% 10.0% 23.2% 29.0% 37.5% 31.4% 11.4 33.1% 28.5% 0.6 2.8 20.2% 11.0% 46.0% 44.9% 33.4% 34.5% 13.3 34.9% 24.9% 0.8 2.9 23.1% 13.0% 24.9% 24.9% 17.4% 17.4% 14.3 29.2% 22.0% 0.8 2.9 23.0% 13.6%
LT investments 10,456 14,584 Net fixed assets 1,870 2,191 Total Assets 26,733 37,213 Liabilities Short-term loans 1,298 49 Payables 6,458 7,718 Others 3,821 4,709 Total current liabilities 11,577 12,475 Long-term debt 4,961 9,996 Other liabilities 698 888 Total Liabilities 17,236 23,360 Shareholders' equity 9,490 13,510 BVPS 2.67 3.50 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 18,165 21,210 23,731 Sales growth 2,228 2,328 2,397 Net profit growth 43,489 53,998 61,303 EPS growth Interest coverage (x) 54 63 63 9,954 14,419 18,011 Net debt to equity 5,833 6,781 6,975 Working Capital to Sales 15,841 21,263 25,049 Sales/assets 10,992 12,982 12,982 Assets/equity 1,077 1,421 1,709 ROE 27,909 35,665 39,740 ROCE 15,580 18,332 21,563 4.04 4.75 5.59
221
Chow Tai Fook Jewellery Company Ltd.

Overweight
www.corporate.chowtaifook.com/en-gb/index.php
Hong Kong Luxury Goods Ebru Sener Kurumlu

AC
Company overview Chow Tai Fook is a leading jewellery and watch retailer in the Greater China region. Jewellery sales represent c93% of sales with the remainder coming from watch sales. It retails mass luxury and high-end luxury jewellery products including gem-set jewellery, platinum/karat gold products, gold products and watches. It has an extensive retail network, with 1,743 jewellery POS and 93 watch POS as of Mar-13. With its 80-year heritage, Chow Tai Fook ranks #1 in the jewellery retail industry in the PRC with 14.4% market share and in Hong Kong and Macau with 21.4% market share, according to Frost & Sullivan. Investment case While we are concerned about structural challenges facing discretionary names in China (ecommerce/changes in distribution channels/pressure on pricing as consumer awareness improves), we believe jewellery is one segment which is relatively immune from these challenges. We do not expect any risks to CTF's product prices or margins on the back of these. We are looking for 15% revenue growth (9% driven by SSSG) and 18% earnings growth in FY ending Mar-15. Resilience of the growth outlook 2013 has been an important year for CTF as we saw a notable decline in the gold price but volumes more than compensated for the price decline. We believe for the next 2-3 years CTF's earnings growth will be supported by SSSG and expansion. Beyond that the expansion component will likely be limited, but product mix improvement is likely to be more important as gem sets share out of total sales increase. Risks to the earnings outlook in 2014 While we do not see any major risk from structural challenges, further weakening in discretionary spending (though we believe this has bottomed out) or a prolonged decline in the gold price for the entire year could pose risks to 2014 earnings. Price target, and risks to our investment view Our Mar-15 PT is HK$13.5 based on 1x PEG and a 16% 2-yr earnings CAGR post Mar-15. Main risks to our view are a sudden slowdown in gem set sales, inability to keep cost-plus model, and unexpected pressure on margins from promotions and costs.
Abs Rel
YTD 0.8% -0.9%
1m 10.0% 9.7%
3m 25.1% 21.4%
12m 19.7% 14.7%
10,000 125,400 16,177 12.54 06 Nov 13 10.6% 5.47 62.17 8.0 2,3038.95 7.75 Mar
Chow Tai Fook Jewellery Company Ltd. (Reuters: 1929.HK, Bloomberg: 1929 HK) HK$ in mn, year-end Mar FY11A FY12A FY13A FY14E Revenue (HK$ mn) 35,043 56,571 57,434 72,979 Net Profit (HK$ mn) 3,538 6,341 5,505 7,154 EPS (HK$) 0.40 0.63 0.55 0.72 Recurring EPS (HK$) 0.40 0.63 0.55 0.72 DPS (HK$) 0.00 0.10 0.16 0.21 Revenue growth (%) 52.8% 61.4% 1.5% 27.1% Net Profit growth (%) 65.4% 79.2% (13.2%) 30.0% Recurring profit growth 65.4% 79.2% (13.2%) 30.0% EPS growth (%) 84.8% 60.4% (13.2%) 30.0% ROE 36.4% 31.5% 17.8% 20.2% ROA 15.4% 16.6% 12.1% 15.3% P/E (x) 31.7 19.8 22.8 17.5 P/BV (x) 9.9 4.3 3.8 3.3 EV/EBITDA (x) 27.1 14.6 15.6 12.7 Dividend Yield 0.0% 0.8% 1.3% 1.7%
FY15E 84,180 8,464 0.85 0.85 0.25 15.3% 18.3% 18.3% 18.3% 20.6% 15.6% 14.8 2.8 10.7 2.0%
222
Chow Tai Fook Jewellery Company Ltd.: Summary of Financials

Income Statement HK$ in millions, year end Mar Revenues % change Y/Y Gross Profit % change Y/Y Gross margin Other operating income EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Share of JVs Other non operating income Earnings before tax % change Y/Y Tax as % of EBT Minorities Net income (reported) % change Y/Y Recurring Net Income % change Y/Y EPS (reported) % change Y/Y Recurring EPS % change Y/Y Balance sheet HK$ in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets Goodwill Intangible assets Long term investments Net fixed assets Other assets Total Assets FY11 35,043 52.8% 9,928 51.5% 28.3% 124 4,911 68.1% 14.0% 4,656 72.8% 13.3% (32) (5) 4,620 69.9% (947) 20.5% (135) 3,538 65.4% 3,538 65.4% 0.40 84.8% 0.40 84.8% FY12 56,571 61.4% 16,448 65.7% 29.1% 138 8,842 80.0% 15.6% 8,440 81.3% 14.9% (274) 0 8,166 76.8% (1,595) 19.5% (230) 6,341 79.2% 6,341 79.2% 0.63 60.4% 0.63 60.4% FY13 57,434 1.5% 16,283 (1.0%) 28.4% 215 7,824 (11.5%) 13.6% 7,317 (13.3%) 12.7% (222) 0 7,095 (13.1%) (1,417) 20.0% (173) 5,505 (13.2%) 5,505 (13.2%) 0.55 (13.2%) 0.55 (13.2%) FY14E 72,979 27.1% 20,478 25.8% 28.1% 147 10,051 28.5% 13.8% 9,457 29.2% 13.0% (23) 0 9,434 33.0% (1,981) 21.0% (298) 7,154 30.0% 7,154 30.0% 0.72 30.0% 0.72 30.0% FY15E 84,180 15.3% 23,967 17.0% 28.5% 161 11,879 18.2% 14.1% 11,235 18.8% 13.3% (75) 0 11,160 18.3% (2,344) 21.0% (353) 8,464 18.3% 8,464 18.3% 0.85 18.3% 0.85 18.3% FY15E 6,795 6,458 41,242 25 54,684 172 2,416 1,100 58,386 Cash flow statement HK$ in millions, year end Mar PBT Depr. & amortization Change in working capital Tax & Other Cash flow from operations FY11 FY12 4,620 8,166 255 402 (7,507) (14,504) 20 (741) (2,612) (6,677) (769) 2 (55) 746 (76) 2 6,123 (9) (8) 6,107 79 3,498 5,605 0.00 (867) 14 0 1,294 440 FY13 7,095 507 3,794 (1,411) 9,985 FY14E 9,434 595 (9,787) (2,925) (2,684) FY15E 11,160 645 (5,813) (2,477) 3,515 (500) 0 0 127 (373)
(1,084) (1,000) 19 0 (90) 0 32 139 (1,123) (861)
15,499 35 0 0 (339) (8,722) 2,300 1,500 (4,543) (1,710) (2,079) (2,460) (116) (1) (158) (208) 10,501 (10,399) 62 (1,168) 63 4,327 9,932 0.10 22 0 (1,514) (3,483) 8,474 4,822 0.16 0.21 0 1,973 6,795 0.25
FY11 FY12 FY13 FY14E 5,605 9,988 8,305 4,822 3,228 5,323 3,973 5,598 17,101 29,694 27,315 35,960 0 72 24 24 27,503 45,258 39,777 46,562 87 96 172 172 1,165 1,688 2,155 2,560 248 363 1,100 1,100 29,049 47,414 43,219 50,408
Ratio Analysis HK$ in millions, year end Mar Gross margin EBITDA margin Operating Margin Net margin Recurring net profit margin Sales growth Net profit growth Recurring net profit growth EPS growth
FY11 28.3% 14.0% 13.3% 10.1% 10.1% 52.8% 65.4% 65.4% 84.8%
FY12 FY13 FY14E FY15E 29.1% 28.4% 28.1% 28.5% 15.6% 13.6% 13.8% 14.1% 14.9% 12.7% 13.0% 13.3% 11.2% 9.6% 9.8% 10.1% 11.2% 9.6% 9.8% 10.1% 61.4% 1.5% 27.1% 15.3% 79.2% (13.2%) 30.0% 18.3% 79.2% (13.2%) 30.0% 18.3% 60.4% (13.2%) 30.0% 18.3%
Liabilities Short-term loans 14,646 11,381 5,836 7,169 Trade & other payables 2,050 1,838 1,754 2,238 Others 518 999 823 823 Total current liabilities 17,213 14,218 8,413 10,229 Long-term debt 0 3,426 0 0 Others 694 694 Total Liabilities 17,376 17,841 9,358 11,174 Minorities 366 595 935 1,233 Shareholders' equity 11,307 28,978 32,926 38,001 BVPS 1.26 2.90 3.29 3.80 Source: Company reports and J.P. Morgan estimates.
Interest coverage (x) Net debt to equity Sales/assets 8,460 Assets/equity 2,566 ROE 823 ROCE 11,850 0 694 12,795 1,586 44,006 4.40
154.0 32.2 35.3 433.2 158.8 77.5% 16.3% (7.3%) 6.0% 3.7% 1.5 1.5 1.3 1.6 1.5 236.6% 189.8% 146.4% 132.0% 132.7% 36.4% 31.5% 17.8% 20.2% 20.6% 18.0% 19.5% 14.2% 17.8% 18.2%
223
CJ O Shopping
Overweight
company.cjmall.com/company2_eng/index.jsp
035760.KQ,035760 KS Price: W344,100 Price Target: W430,000
South Korea Specialty Retailing Youna Kim

AC
Company overview CJ O Shopping is the second-largest home shopping company in Korea, with roughly 24% market share. CJ O Shopping generates around 60% of its revenue from Cable TV, 30% from the Internet, and the remainder from Catalogue and Others. It also owns CJ Hellovision and Dongfang CJ of China. Investment case Home shopping is one of our preferred retail channels in the Korea retail market. Home shopping provides convenience and value, which are two important factors that consumers look for in Korea retail. We believe home shopping sales momentum will be sustained with the emergence of shopping by mobile phone, with an increasing proportion of PB products and accelerating sales from mobile (replacing internet) likely to lead to margin expansion. We expect solid operating profit growth momentum to continue, and we estimate CJ O Shopping will record a 16% CAGR over 2013-15. Resilience of the growth outlook Home shopping has grown at a 19% CAGR over the last four years, representing 3.3% of total retail sales in Korea, up from around 0% in 2007. This rapid growth was mainly due to increased cable TV subscribers and home shopping's unique appeal, differentiating itself from other retail formats. Home shopping offers value, convenience and the introduction of new products on TV, capturing consumer interest. Risks to the earnings outlook in 2014 Downside risks are weaker-than-expected sales growth from TV and higher-thanexpected SO commissions. Also, competition among three major players would likely lead to an increase A&P expenses as companies try to gain market share. Price target, and risks to our investment view Our Dec-14 PT of W430,000 is based on our sum-of-the-parts valuation, which values the home shopping operation in Korea at 12x Dec-14 NOPAT, CJ Hellovision at a 30% discount to market price, Samsung Life Insurance at a 30% discount to J.P. Morgans PT and Dongfang CJ at a 25x Jun-14 P/E. For the home shopping operation, we expect the stock to re-rate in view of 1) a moderated SO commission increase, and 2) our expectation that the competition will not get worse from here.
(82-2) 758-5715 youna.kim@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Abs Rel
YTD 24.2% 23.4%
1m -2.8% -3.6%
3m -2.8% -8.4%
12m 41.7% 37.3%
Company Data 52-week Range (W) Market Cap (W bn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free Float(%) 3M - Avg daily volume (th) 3M - Avg daily value (W mn) 3M - Avg daily value ($ mn) KOSPI Exchange Rate
372,700-236,000 2,135 2,012 6 Dec 344,100 06 Nov 13 50.2% 19.0 6,463.5 6.1 2,013.7 1,061.2
CJ O Shopping (Reuters: 035760.KQ, Bloomberg: 035760 KS) Year-end Dec FY12A FY13E Revenue (W bn) 1,077 1,209 Net profit (W bn) 123 124 EPS (W) 19,769 19,978 DPS (W) 2,876 2,907 Revenue growth 20.4% 12.3% Net profit growth 38.7% 1.1% EPS growth 38.7% 1.1% ROE 30.1% 23.9% P/E (x) 17.4 17.2 P/BV (x) 4.6 3.8 EV/EBITDA (x) 15.4 13.1 Dividend Yield 0.8% 0.8%
FY14E 1,319 147 23,744 3,455 9.0% 18.9% 18.9% 23.3% 14.5 3.1 10.3 1.0%
FY15E 1,427 164 26,489 3,854 8.2% 11.6% 11.6% 21.5% 13.0 2.6 8.7 1.1%
224
CJ O Shopping: Summary of Financials

Income Statement W in billions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY12 1,077 20.4% 156 7.4% 142 7.6% 13.2% (8) 163 38.0% (40) 24.6% 123 38.7% 6 19,769 38.7% FY13E 1,209 12.3% 177 13.7% 164 15.2% 13.6% (6) 161 (0.8%) (37) 23.2% 124 1.1% 6 19,978 1.1% FY14E 1,319 9.0% 215 21.5% 196 19.5% 14.9% (4) 194 20.1% (47) 24.0% 147 18.9% 6 23,744 18.9% FY15E 1,427 8.2% 244 13.4% 221 12.6% 15.5% (7) 216 11.6% (52) 24.0% 164 11.6% 6 26,489 11.6%
Cash flow statement W in billions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow
FY12 142 14 (44) 74 (7) (8) 22 74 (34) 0 (12) 27 67 2,876 FY12 14.5% 11.4%
FY13E 164 13 46 150 (6) (63) 155 (8) 0 (12) 67 135 2,907 FY13E 14.7% 10.2%
FY14E 196 20 23 175 (70) (4) (1) 108 (16) 0 (18) 135 204 3,455 FY14E 16.3% 11.2%
FY15E 221 24 19 190 (70) (7) (1) 125 (15) 0 (21) 204 287 3,854 FY15E 17.1% 11.5%
Balance sheet W in billions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets
FY12 67 87 58 11 234
FY13E 135 108 76 18 355
FY14E 204 119 84 20 455 676 193 1,346 92 378 77 546 97 8 652 694 111,947
LT investments 639 676 Net fixed assets 114 139 Total Assets 1,007 1,191 Liabilities Short-term loans 113 99 Payables 252 342 Others 67 67 Total current liabilities 432 509 Long-term debt 100 105 Other liabilities 7 8 Total Liabilities 539 623 Shareholder's equity 468 569 BVPS (W) 75,497 91,658 Source: Company reports and J.P. Morgan estimates.
Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis FY15E W in billions, year end Dec 287 EBITDA margin 129 Net margin 91 22 567 Sales per share growth 676 Sales growth 243 Net profit growth 1,510 EPS growth Interest coverage (x) 85 408 Net debt to equity 84 Sales/assets 577 Assets/equity 90 ROE 8 ROCE 675 835 134,582
20.4% 20.4% 38.7% 38.7% 18.5 28.5% 1.1 2.3 30.1% 16.9%
12.3% 12.3% 1.1% 1.1% 28.0 9.2% 1.1 2.1 23.9% 17.3%
9.0% 9.0% 18.9% 18.9% 49.1 (6.0%) 1.0 2.0 23.3% 18.0%
8.2% 8.2% 11.6% 11.6% 36.6 (18.0%) 1.0 1.9 21.5% 17.7%
225
Coca-Cola Amatil
Overweight
www.ccamatil.com
CCL.AX,CCL AU Price: A$12.25 Price Target: A$13.30
Australia Beverages Stuart Jackson, CFA

AC
Company overview CCL is the licensed bottler for The Coca Cola Company in Australia, New Zealand, Fiji, Indonesia and Papua New Guinea. CCL also owns the Mount Franklin, Deep Spring and Kirks brands and distributes Rekorderlig ciders and the Beam spirit portfolio. From mid Dec-13, CCL will distribute Samuel Adams and Molson premium beers. CCL also owns an Australian packaged fruit and vegetables business (SPCA). Investment case We believe that the consensus view that CCL's model is broken due to a structural shift from its products toward healthier beverages is flawed given non-grocery CSD volumes increased in 1H13, grocery CSD volumes returned to growth in the Sept quarter (outperforming the overall beverages market) and CCL has a high share in most beverage categories ex CSDs. With capex moderating, free cash flow will accelerate. Given CCLs undergeared balance sheet, it is likely to increase its payout ratio. Resilience of the growth outlook Given CCLs strong brand equity, evidenced by the 38-50% price premium the brand commands over its main competitor, combined with CCL cycling an easy comp due to a one-off reduction in retailer inventory levels and intense competitive pressures around the launch of Pepsi Next, we believe the growth outlook for CCL is resilient. Risks to the earnings outlook in 2014 Recent results have been impacted by an increase in the frequency and depth of promotional activity from CCLs major competitor. To maintain volume share, CCL reacted which impacted its unit price realisation. While competitive pressures have been more benign to date in 2H13, there is a risk they intensify in 2014, resulting in weak pricing growth. Price target, and risks to our investment view Our 31 December 2014 share price target is A$13.30 (future value of our valuation less dividends) See table over. Downside risks to our price target include: 1) An appreciation of the AUDIDR and AUDNZD; 2) An increase in sugar, aluminium and PET prices; 3) Increased discounting by CCLs competitors; and 4) A weak consumer. environment.
(61-2) 9003-8631 stuart.a.jackson@jpmorgan.com J.P. Morgan Securities Australia Limited
Abs Rel
YTD -8.9% -27.0%
1m -0.6% -6.0%
3m -5.2% -11.7%
12m -7.8% -30.2%
762 9,336.13 8,876.34 12.25 06 Nov 13 2.36 29.36 27.9 4511.50 1.05 Dec
Coca-Cola Amatil Limited (Reuters: CCL.AX, Bloomberg: CCL AU) Year-end Dec (A$) FY11A FY12A FY13E Revenue (A$ mn) 4,901 5,156 5,101 EBITDA (A$ mn) 1,073 1,128 1,107 NPAT pre Sig Items (A$ mn) 532 556 521 EPS (A$) 0.78 0.60 0.67 P/E (x) 15.7 20.4 18.3 EV/EBITDA (x) 10.2 9.6 9.9 DPS (A$) 0.53 0.60 0.57 Dividend Yield 4.3% 4.9% 4.6% Normalised EPS (A$) 0.69 0.72 0.67 Normalised EPS Growth 4.4% 4.8% (6.7%) Normalised PE 17.8 17.0 18.2
FY14E 5,370 1,182 567 0.74 16.6 9.2 0.63 5.1% 0.73 8.7% 16.7
FY15E 5,688 1,244 607 0.79 15.5 8.7 0.67 5.5% 0.78 6.8% 15.7
226
Coca-Cola Amatil: Financial Summary

A$ in millions, year end Dec Profit And Loss Revenue Revenue growth COGS Operating Expenses EBITDA EBITDA growth EBITDA margin Amortisation Depreciation EBIT Other Income Other Expenses Net Interest Pre-Tax Profit Tax Tax Rate Minorities Abnormals (post tax) Reported NPAT Normalised NPAT Growth End of Period Shares EFPOWA Reported EPS ($) Normalised EPS ($) Growth DPS ($) Growth DPS/EPS payout Cash Flow Statement Net Profit for Cashflow Depreciation & Amortisation Non Cash Items Working Capital Changes Other Operating Cashflows Cashflow from Operating Activities Net Capex Net Acquisitions Other Investing cashflows Investing Cash Flow Inc/(Dec) in Borrowings Equity Issued Dividends Paid Other Financing Cashflows Financing Cash Flow Net Cash Flow FY11 4,901 6.3% (2,519) (1,294) 1,073 3.7% 21.9% (20) (185) 868 (0) (128) 741 (209) 20.3% 0 60 592 522 5.0% 760 758 0.78 0.69 4.4% FY12 5,156 5.2% (2,690) (1,323) 1,128 5.1% 21.9% (22) (212) 895 0 (114) 781 (224) 29.1% (0) (99) 458 FY13E 5,101 (1.1%) (2,657) (1,323) 1,107 (1.8%) 21.7% (23) (238) 847 0 (119) 728 (206) 28.3% (0) (9) 512 FY14E 5,370 5.3% (2,779) (1,396) 1,182 6.7% 22.0% (23) (252) 907 0 (114) 792 (225) 28.4% (0) 0 567 561 9.0% 767 766 0.74 0.73 8.7% FY15E 5,688 5.9% (2,943) (1,486) 1,244 5.3% 21.9% (24) (258) 963 0 (115) 848 (241) 28.4% (0) 0 607
Overweight
A$m 9,122.74 A$ps 11.97 13.30 11.1% FY14E FY15E 16.2 15.2 16.2 15.2 9.2 8.7 12.0 11.3 FY14E FY15E 5.3% 5.6% 83.7% 85.6% 8.4% 8.9% 25.6% 25.9% 12.7% 13.6% FY14E FY15E 75.5% 69.6% 43.0% 41.0% 146.6% 134.6% 7.9 8.4 FY14E FY15E 757 967 928 979 782 826 141 148 2,608 2,920 2,216 2,277 1,521 1,503 430 132 4,168 3,911 6,776 6,831 802 852 179 179 162 178 391 413 1,532 1,622 2 2 2,647 2,500 187 188 2,949 4,481 2,324 (0) (150) 115 6 2,295 2,068 2,803 4,425 2,345 0 (160) 215 7 2,406 1,711
549 514 5.2% (6.4%) 762 761 765 763
0.60 0.67 0.72 0.67 4.8% (6.7%)
0.53 0.60 0.57 0.63 8.2% 13.3% (5.0%) 11.5% 67.3% 98.9% 84.2% 85.2% FY11 592 205 128 (283) 642 (358) (12) (6) (375) 349 5 (344) 10 277 FY12 FY13E FY14E 458 512 567 233 260 275 6 (64) (38) 45 28 25 742 736 828 (87) (141) 0 (228) 530 0 (383) 147 661 (413) (62) 0 (474) (4) 16 (451) (439) (177) (324) 0 0 (324) (197) 36 (444) (605) (100)
Leverage Gearing (Net Debt / Equity) 601 Gearing (ND / (ND + E)) 7.1% Net Debt / EBITDA EBIT Interest Cover (x) 769 769 Balance Sheet Cash 0.79 Receivables 0.78 Investments 6.8% Inventories Other Current Assets 0.67 Total Current Assets 6.3% Net PPE Total Intangibles 84.9% Other Non Current Assets Total Non Current Assets FY15E Total Assets 607 Creditors 282 Current Borrowings - Current Tax Provisions (47) Other Current Provisions 35 Other Current Liabilities 876 Total Current Liabilities Non Current Creditors (334) Non Current Borrowings 0 Deferred Tax Liabilities 0 Other Non Current Provisions (334) Other Non Current Liabilities Total Non Current Liabilities (147) Total Liabilities 22 Equity (507) Other Equity - Reserves (632) Retained Profits Outside Equity Interests (90) Total Shareholders Equity Net Debt
FY11 FY12 FY13E 86.9% 78.5% 85.2% 46.5% 44.0% 46.0% 164.7% 144.7% 165.2% 6.8 7.8 7.1 FY11 665 1,153 752 74 2,644 1,772 1,507 105 3,385 6,029 736 128 145 380 1,388 0 2,341 166 2,606 3,995 2,218 0 (108) (76) 0 2,034 1,804 FY12 FY13E 1,178 857 960 888 690 748 104 134 2,931 2,627 1,994 2,161 1,534 1,540 263 429 3,791 4,130 6,722 6,757 806 762 371 179 137 151 435 373 1,749 1,465 2 1 2,625 2,843 171 186 2,894 4,643 2,250 0 (146) (30) 5 2,079 1,819 3,144 4,609 2,288 0 (139) (7) 6 2,147 2,165
227
CCL - J.P. Morgan Sum of the Parts Implied EBITA Multiple Valuation
2010 590.2 75.0 81.4 94.6 841.2 2011 609.2 88.1 79.5 93.5 870.3 EBITA ($m) 2012 624.0 105.5 70.1 95.4 895.0 2013E 576.5 110.0 81.6 79.2 847.3 2014E 625.5 110.4 87.1 83.9 906.9 2015E 661.9 124.6 89.2 87.3 963.0 CY14E EBITA Multiple 13.9x 10.9x 11.7x 7.7x 12.8x Valuation 8,726 1,202 1,021 649 11,598 1,919 34 5 0 9,641 $12.62
Australian Beverages Indonesia & PNG Pacific Food & Services Enterprise Value Net Debt Pension Fund Liability Outside Equity Interest PV of Option Exercises Valuation Per Share
228
229
CP All Pcl
Overweight
www.cpall.co.th
CPALL.BK,CPALL TB Price: Bt38.00 Price Target: Bt50.00
Thailand Broadlines/Department Stores Kae Pornpunnarath, CFA

AC
Company overview CPALL is the largest convenience store operator in Thailand and is now the world's third largest 7-Eleven operator behind Japan and Taiwan. Its main competitor Tesco Express has just below 1,000 stores under management. With competition being light, CPALL has continued its plan of opening 500-550 new stores each year and aims to achieve 7,000 stores by YE14. At the end FY12 CPALL had 6,822 7-Eleven stores; 53% are in the provinces and 47% in BKK and suburbs. In mid-2013, the company spent US$6.6bn on a 98% stake in Siam Makro (MAKRO), a leading retailer in cash & carry. Investment case Our positive view on the stock lies on the groups sustainable competitive advantages to maintain its dominant market position in both convenience store and cash & carry businesses. The merger between CPALL and MAKRO will create a retail company that accounts for 45% of the organized grocery retail market in Thailand (19% of the total grocery retail market), emphasizing much strong bargaining power through joint-procurement by the two companies. We also expect MAKRO to gear up its pace of expansion under CPALLs umbrella. Resilience of the growth outlook The convenience store business has proven to be the most resilient retail format through various cycles in the past. Risks to the earnings outlook in 2014 Interest rate rise could increase the interest expense beyond expectation. Operating cost pressure could also be a downside risk to profitability. Price target, and risks to our investment view Our Jun-14 PT of Bt51 is based a combination of DCF and 1x PEG. On the DCF, we assume 8.6% terminal WACC, taking into account 4% RF, 6.5% risk premium, 1x beta with 2% terminal growth rate. Key risk to PT includes capital increase, interest rate uptrend, integration execution and competition.
Abs Rel
YTD -17.4% -18.0%
1m 4.8% 4.7%
3m 7.8% 8.4%
12m -6.7% -15.0%
8,986 341,479 10,916 38.00 05 Nov 13 28.07 1,020.40 32.6 1415.44 31.28 Dec
CP All Pcl (Reuters: CPALL.BK, Bloomberg: CPALL TB) Bt in mn, year-end Dec FY11A FY12A Revenue (Bt mn) 155,360 188,702 Net Profit (Bt mn) 8,008 11,023 EPS (Bt) 0.89 1.23 DPS (Bt) 0.63 0.90 Revenue growth (%) 15.1% 21.5% EPS growth (%) 20.2% 37.7% ROCE 29.2% 33.3% ROE 39.7% 45.5% P/E (x) 42.6 31.0 P/BV (x) 15.9 12.8 EV/EBITDA (x) 24.6 19.9 Dividend Yield 1.6% 2.4%
FY13E 275,236 10,842 1.21 0.90 45.9% (1.6%) 35.4% 38.6% 31.5 11.6 15.7 2.4%
FY14E 394,396 15,089 1.68 0.90 43.3% 39.2% 18.6% 45.7% 22.6 9.4 14.8 2.4%
FY15E 453,717 20,690 2.30 0.90 15.0% 37.1% 13.7% 48.3% 16.5 7.0 12.1 2.4%
230
CP All Pcl: Summary of Financials

Income Statement Bt in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y
Cash flow statement FY11 FY12 FY13E FY14E FY15E Bt in millions, year end Dec 155,360 188,702 275,236 394,396 453,717 EBIT 15.1% 21.5% 45.9% 43.3% 15.0% Depr. & amortization 13,630 16,589 21,192 31,647 37,881 Change in working capital 13.4% 21.7% 27.7% 49.3% 19.7% Taxes 10,328 13,221 16,509 25,456 31,051 Cash flow from operations 15.7% 28.0% 24.9% 54.2% 22.0% 6.6% 7.0% 6.0% 6.5% 6.8% Capex 451 729 (2,997) (6,756) (5,505) Disposal/(purchase) 10,778 13,950 13,512 18,700 25,547 Net Interest 16.4% 29.4% (3.1%) 38.4% 36.6% Other (2,981) (2,931) (2,587) (3,457) (4,675) Free cash flow 27.1% 21.0% 19.1% 18.5% 18.3% 8,008 11,023 10,842 15,089 20,690 Equity raised/(repaid) 20.2% 37.7% (1.6%) 39.2% 37.1% Debt raised/(repaid) 8,986 8,985 8,983 8,983 8,983 Other 0.89 1.23 1.21 1.68 2.30 Dividends paid 20.2% 37.7% (1.6%) 39.2% 37.1% Beginning cash Ending cash DPS Balance sheet Ratio Analysis Bt in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Bt in millions, year end Dec Cash and cash equivalents 14,202 23,085 23,003 21,219 26,393 EBITDA margin Accounts receivable 477 541 891 1,023 1,178 Operating margin Inventories 8,642 9,148 18,295 20,481 22,981 Net margin Others 13,083 16,080 7,201 7,201 7,201 Current assets 36,404 48,854 49,391 49,924 57,753 Sales per share growth LT investments Sales growth Net fixed assets 14,994 18,094 80,291 85,241 89,956 Net profit growth Total Assets 55,341 71,798 281,089 286,573 299,116 EPS growth Liabilities Interest coverage (x) Short-term loans 6,084 8,445 10,710 10,710 10,710 Payables 24,393 32,580 56,249 64,574 74,331 Net debt to equity Others 2 0 180,135 34,027 32,027 Sales/assets Total current liabilities 30,479 41,025 247,094 109,311 117,068 Assets/equity Long-term debt 0 0 0 136,108 128,108 ROE Other liabilities 3,163 3,788 4,214 4,214 4,214 ROCE Total Liabilities 33,642 44,812 251,308 249,633 249,390 Shareholder's equity 21,699 26,986 29,781 36,939 49,726 BVPS (Bt) 2.39 2.98 3.28 4.06 5.47 Source: Company reports and J.P. Morgan estimates.
FY11 10,328 3,302 1,668 (2,981) 12,985 (3,921) 451 (87) 8,737 0 2 25 (4,493) 15,716 14,202 0.63 FY11 8.8% 6.6% 5.0% 15.1% 15.1% 20.2% 20.2% NM
FY12 13,221 3,368 8,942 (2,931) 23,666 (6,347) 729 (94) 16,744
FY13E 16,509 4,683 25,316 (2,866) 40,924
FY14E 25,456 6,191 6,007 (3,697) 27,442
FY15E 31,051 6,830 7,102 (4,561) 34,803
(8,669) (11,141) (11,544) (2,997) (6,756) (5,505) (256) 0 0 34,679 21,808 27,756
0 0 0 0 (2) 180,135 (10,000) (10,000) (31) 464 0 0 (5,612) (8,085) (8,085) (8,085) 14,202 23,085 23,003 21,219 23,085 23,003 21,219 26,393 0.90 0.90 0.90 0.90 FY12 8.8% 7.0% 5.8% 21.5% 21.5% 37.7% 37.7% NM FY13E 7.7% 6.0% 3.9% 45.9% 45.9% (1.6%) (1.6%) 7.1 FY14E 8.0% 6.5% 3.8% 43.3% 43.3% 39.2% 39.2% 4.7 340.0% 1.4 860.0% 45.7% 18.6% FY15E 8.3% 6.8% 4.6% 15.0% 15.0% 37.1% 37.1% 6.9 226.1% 1.5 684.1% 48.3% 13.7%
(37.4%) (54.3%) (41.3%) 3.0 3.0 1.6 263.1% 263.6% 627.4% 39.7% 45.5% 38.6% 29.2% 33.3% 35.4%
231
Crown Limited
Overweight
www.crownresorts.com.au
CWN.AX,CWN AU Price: A$16.70 Price Target: A$18.00
Australia Gaming Matthew Ryan

AC
Company overview CWN operates two integrated casino resorts in Australia, one in Melbourne (Crown Melbourne) and the other in Perth (Burswood). CWN also operates a high end gaming facility in the UK called Aspinalls. CWN also has a 33.5% stake in Melco Crown Entertainment, which operates casinos in Macau and is listed in the US (MPEL). CWN is currently in discussions to develop an integrated casino resort in Sri Lanka. Investment case We estimate the combination of strong cost performance in Australia and ongoing strength in Macau will drive strong EPS growth in FY14. We subsequently believe CWN offers the best risk/return proposition of the Australian listed gaming stocks. Resilience of the growth outlook MPEL provides CWN with exposure to attractive market wide growth in Macau, particularly the faster growing mass segment. We expect this strong growth to continue in 2014 given credit availability to Chinese gamblers and lack of alternate destinations in the region. While the consumer environment remains difficult in Australia, we expect CWN to continue to benefit from its cost savings programme and recent investments in its non-gaming operations. Risks to the earnings outlook in 2014 The main risks to our earnings forecasts in 2014 are: 1) A slowdown in the Macau gaming market; 2) Worse-than-expected execution on CWNs cost savings programme at Crown Melbourne and Burswood; and 3) a loss of market share in VIP. Price target, and risks to our investment view Our 30 June 2014 PT is A$18.00 (future value of our fundamental valuation, less the dividends to be paid between now and the target date and a 10% holding company discount to the value of MPEL). Key downside risks include: 1) A downturn in consumer spending; 2) Potential adverse changes to the regulatory environment; 3) The threat of new competition; 4) Construction risk of property refurbishments; and 5) Weaker-than-expected macroeconomic conditions in Melbourne, Perth and Macau.
(61-2) 9003-8634 matthew.h.ryan@jpmorgan.com J.P. Morgan Securities Australia Limited
Abs Rel
YTD 56.5% 38.4%
1m 5.8% 0.4%
3m 24.5% 18.0%
12m 70.4% 48.0%
728 12,164.18 11,565.11 16.70 06 Nov 13 1.77 27.30 26.0 4511.50 1.05 Jun
Crown Limited (Reuters: CWN.AX, Bloomberg: CWN AU) Year-end Jun (A$) FY12A FY13A FY14E Revenue (A$ mn) 2,798 2,882 2,988 EBITDA (A$ mn) 801 752 819 Net Profit (A$ mn) 513 396 650 EPS (A$) 0.69 0.54 0.89 P/E (x) 24.1 30.7 18.7 EV/EBITDA (x) 14.2 14.9 13.7 DPS (A$) 0.37 0.37 0.37 Dividend Yield 2.2% 2.2% 2.2% Normalised EPS (A$) 0.56 0.65 0.89 Normalised EPS Growth 25.1% 15.7% 37.3% Normalised PE 29.7 25.7 18.7
FY15E 3,176 867 717 0.98 17.0 12.7 0.37 2.2% 0.98 10.3% 17.0
FY16E 3,393 921 800 1.10 15.2 12.0 0.43 2.6% 1.10 11.6% 15.2
232
Crown Limited: Financial Summary

A$ in millions, year end Jun Profit And Loss Revenue Revenue growth COGS Operating Expenses EBITDA EBITDA growth EBITDA margin Amortisation Depreciation EBIT Other Income Other Expenses Net Interest Pre-Tax Profit Tax Tax Rate Minorities Abnormals (post tax) Reported NPAT Normalised NPAT Growth End of Period Shares EFPOWA Reported EPS ($) Normalised EPS ($) Growth DPS ($) Growth DPS/EPS payout Cash Flow Statement Net Profit for Cashflow Depreciation & Amortisation Non Cash Items Working Capital Changes Other Operating Cashflows Cashflow from Operating Activities Net Capex Net Acquisitions Other Investing cashflows Investing Cash Flow Inc/(Dec) in Borrowings Equity Issued Dividends Paid Other Financing Cashflows Financing Cash Flow Net Cash Flow FY12 FY13 FY14E FY15E 2,798 2,882 2,988 3,176 16.6% 3.0% 3.7% 6.3% (1,997) (2,130) (2,169) (2,310) 801 752 819 867 25.8% (6.2%) 8.9% 5.9% 28.6% 26.1% 27.4% 27.3% (18) (17) (17) (17) (201) (221) (230) (234) 583 514 572 616 0 0 0 0 (102) (120) (111) (92) 481 393 460 523 (106) (46) (92) (105) 17.2% 4.0% 12.4% 12.7% 0 0 0 0 0 (99) 0 0 513 396 650 717 415 473 650 717 22.0% 14.0% 37.3% 10.3% 728 739 728 728 728 728 728 728 FY16E 3,393 6.8% (2,472) 921 6.2% 27.1% (17) (240) 663 0 (63) 600 (120) 13.0% 0 0 800
Overweight
A$m 12,164.18 A$ps 16.70 18.00 7.8% FY15E FY16E 17.0 15.2 17.0 15.2 12.7 12.0 17.9 16.6 FY15E FY16E 2.2% 2.6% 50.0% 50.0% 11.1% 11.6% 16.9% 17.0% 8.5% 8.5% FY15E FY16E 28.3% 24.9% 22.1% 19.9% 145.4% 133.9% 6.7 10.5 FY15E FY16E 206 356 222 233 13 14 22 24 462 626 2,954 3,143 879 862 2,283 2,600 6,116 6,605 6,578 7,231 364 389 81 81 83 88 0 0 529 559 (5) (8) 1,381 1,503 202 202 18 18 5 5 1,600 1,719 2,129 2,278 447 447 (0) 0 440 440 3,567 4,070 0 0 4,453 4,957 1,256 1,229
0.69 0.54 0.89 0.98 0.56 0.65 0.89 0.98 25.1% 15.7% 37.3% 10.3% 0.37 0.0% 0.37 0.0% 0.37 0.0% 0.37 0.7%
53.3% 68.1% 41.5% 37.9% FY12 513 218 45 (206) 571 (464) 0 (286) (750) 615 (273) (199) 143 (36) FY13 FY14E FY15E 396 650 717 238 247 251 (110) 117 9 (28) (407) (292) 496 607 685 (254) 0 184 (69) (108) (270) 0 (377) 50 (307) 0 0 (307) (27) (273) 0 (300) (0) (246) 0 0 (246) (157) (282) 0 (439) (0)
Leverage Gearing (Net Debt / Equity) 800 Gearing (ND / (ND + E)) 11.6% Net Debt / EBITDA EBIT Interest Cover (x) 728 728 Balance Sheet Cash 1.10 Receivables 1.10 Investments 11.6% Inventories Other Current Assets 0.43 Total Current Assets 14.8% Net PPE Total Intangibles 38.9% Other Non Current Assets Total Non Current Assets FY16E Total Assets 800 Creditors 257 Current Borrowings - Current Tax Provisions 12 Other Current Provisions (316) Other Current Liabilities 753 Total Current Liabilities Non Current Creditors (429) Non Current Borrowings 0 Deferred Tax Liabilities 0 Other Non Current Provisions (429) Other Non Current Liabilities Total Non Current Liabilities 123 Total Liabilities - Equity (297) Other Equity 0 Reserves (174) Retained Profits Outside Equity Interests 150 Total Shareholders Equity Net Debt
FY12 FY13 FY14E 46.7% 39.2% 35.2% 31.8% 28.2% 26.0% 196.7% 190.6% 172.9% 5.7 4.3 5.1 FY12 149 202 12 19 382 2,804 865 1,821 5,491 5,873 326 29 203 22 580 0 1,666 206 38 9 1,918 2,498 447 0 298 2,630 0 3,375 1,545 FY13 FY14E 206 206 257 213 13 12 19 21 495 451 2,865 2,942 854 896 1,795 1,988 5,515 5,826 6,010 6,277 297 344 81 81 174 77 0 0 552 503 0 (2) 1,554 1,536 202 202 44 18 5 5 1,805 1,758 2,357 2,261 447 447 0 0 450 441 2,756 3,133 0 0 3,653 4,020 1,430 1,412
233
J.P. Morgan CWN Valuation

2011 370.5 157.7 3.6 (42.5) 489.3 34.9 (2.5) 521.7 2012 359.8 180.4 19.4 (38.1) 521.5 135.8 3.1 660.4 EBITA 2013 386.7 183.7 32.2 (65.4) 537.3 149.4 (1.5) 685.2 2014E 403.4 207.4 25.3 (47.3) 588.7 281.8 0.0 870.5 2015E 426.1 229.2 26.4 (48.7) 633.0 297.8 0.0 930.9 FY15E Implied EBITA Multiple 11.8x 12.8x 11.5x 11.3x 12.2x NMF 15.5x Valuation 5,041 2,924 303 (550) 7,718 6,660 5 14,383 147 1,439 13,091 $17.97 Per Share $6.92 $4.01 $0.42 ($0.75) $10.60 $9.14 $0.01 $19.75 $0.20 $1.98 $17.97
Crown Melbourne Burswood Aspinalls Corporate Costs Total Consolidated Assets MPEL Betfair Enterprise Value Loans to Associates A$ Net Debt Equity Value Per Share
234
235
CSPC Pharmaceutical
Overweight
www.cspc.com/cn/english/index.aspx
China Pharmaceuticals Sean Wu

AC
(852) 2800-8538 sean.wu@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 111.2 % 109.3 %
1m 10.8% 9.6%
3m 11.3% 13.2%
12m 108.4 % 117.8 %
Company overview CSPC Pharmaceuticals Group Ltd. is an investment holding company with subsidiaries that are principally engaged in the manufacture and sale of pharmaceutical products. It operates in three business segments: manufacture and sale of intermediate and bulk drugs, including vitamin C series and caffeine; finished drugs, including innovative drugs such as NBP, Jinyouli, and Yuanning and generics such as OuLaining; and other pharmaceutical related business and development activities. Investment case After acquiring OYY, NBP and XNW from its parent company in October 2012, CSPC Pharma, formerly China Pharmaceutical, has achieved strategic transformation from a manufacturer of bulk medicine products to a provider of innovative drugs and branded generics, which in our opinion has made it one of the more compelling investment opportunities in the China healthcare space. Although we are overall quite cautious on the drug subsector because of policy headwinds including tenders and price cuts, ongoing investigation of GSK, and anti-bribery efforts by the Chinese government, we believe CSPC can withstand policy headwinds better than many of its peers because its strong portfolio of unique innovative and branded generic products provide the company with strong pricing power. In addition, the company's API businesses are shielding CSPC partly from government price control of finished drugs. Resilience of the growth outlook Demand for healthcare products is resilient to economic slowdown. CSPC has a portfolio of finished products, many of which are unique or have few direct competitors, which should allow CSPC to withstand pricing pressure better than most of its peers. Some newly launched products, including Jinyouli and a unique TCM for the treatment of liver fibrosis should add fuel to the companys sustainable growth. Risks to the earnings outlook in 2014 The greatest risk is if price cuts to the companys key drugs are higher than expected. If Vc ASPs continue to fall, unlikely in our opinion, the company's earnings and growth would also be hurt. Price target, and risks to our investment view Our DCF-based Dec-14 price target of HK$5.5 (WACC 10.6%, terminal growth of 4%, at the low end of the 3-6% growth rate we use for health care stocks) implies a FY14E P/E of 23.9x. Key risks include unexpected sales slowdown for key products and further erosion of VC ASP; unexpected industry-wide slowdown; unexpected safety issues seen with some newer products; and larger than expected sales force turnover.
CSPC Pharmaceutical (Reuters: 1093.HK, Bloomberg: 1093 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E Revenue (HK$ mn) 2,407 4,146 8,954 Net Profit (HK$ mn) 355 2,162 1,019 EPS (HK$) 0.08 0.45 0.19 DPS (HK$) 0.00 0.06 0.00 Revenue growth (%) (69.0%) 72.2% 115.9% EPS growth (%) (83.2%) 440.8% (57.6%) ROCE 8.4% 13.2% 10.9% ROE 10.6% 57.4% 14.4% P/E (x) 57.2 10.6 24.9 P/BV (x) 21.4 3.9 3.3 EV/EBITDA (x) 42.6 24.6 10.6 Dividend Yield 0.0% 1.2% 0.0%
Company Data Shares O/S (mn) Market Cap (HK$ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) MSCICNX-HLTH Exchange Rate Fiscal Year End
5,395 25,409 3,278 4.71 06 Nov 13 17.35 72.23 9.3 119.49 7.75 Dec
FY14E 9,226 1,378 0.23 0.00 3.0% 21.5% 14.7% 16.6% 20.5 3.1 8.3 0.0%
FY15E 10,511 1,722 0.29 0.00 13.9% 25.0% 15.8% 17.5% 16.4 2.6 7.7 0.0%
236
CSPC Pharmaceutical: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 FY12 FY13E FY14E 2,407 4,146 8,954 9,226 (69.0%) 72.2% 115.9% 3.0% 1,037 1,805 2,936 3,328 (54.4%) 74.1% 62.6% 13.3% 519 966 2,152 2,555 (68.9%) 86.2% 122.8% 18.7% 443 764 1,274 1,724 (56.6%) 72.5% 66.8% 35.3% 18.4% 18.4% 14.2% 18.7% (22) (60) (75) (75) 418 2,301 1,294 1,659 (56.7%) 450.3% (43.7%) 28.2% (61) (132) (250) (249) 14.6% 5.7% 19.3% 15.0% 355 2,162 1,019 1,378 (52.7%) 508.4% (52.9%) 35.2% 4,316 5,395 5,395 6,000 0.08 0.47 0.17 0.23 (83.2%) 472.9% (63.1%) 31.8% FY11 310 606 304 40 1,261 FY12 1,450 3,200 2,022 137 6,810 FY15E 10,511 13.9% 4,016 20.7% 2,573 0.7% 2,161 25.4% 20.6% (75) 2,098 26.5% (336) 16.0% 1,722 25.0% 6,000 0.29 25.0%
Cash flow statement HK$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis HK$ in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin
FY11 FY12 443 764 76 202 11 (1,873) (190) (61) 286 498 (249) (22) 0 55 0 120 26 (47) 664 801 0.00 FY11 43.1% 21.5% 18.4% 14.8% (194) (60) 456 361 846 0 (61) (408) 310 1,450 0.06 FY12 43.5% 23.3% 18.4% 52.1%
FY13E 1,274 878 (3,030) (132) (1,088) (505) (75) (24) (1,532) 0 0 1,252 (136) 1,450 950 0.00 FY13E 32.8% 24.0% 14.2% 11.4%
FY14E 1,724 832 (45) (250) 2,096 (405) (75) (11) 1,755 0 0 0 0 950 2,630 0.00 FY14E 36.1% 27.7% 18.7% 14.9% (7.4%) 3.0% 35.2% 31.8% 34.2
FY15E 2,161 412 (278) (249) 1,880 (461) (75) (15) 1,482 0 0 0 0 2,630 4,035 0.00 FY15E 38.2% 24.5% 20.6% 16.4% 13.9% 13.9% 25.0% 25.0% 34.4
FY13E FY14E FY15E 950 2,630 4,035 3,000 3,030 3,171 2,100 2,164 2,465 2,559 3,139 3,270 8,609 10,963 12,941
LT investments 1 92 Net fixed assets 909 6,134 Total Assets 2,409 13,699 Liabilities Short-term loans 298 2,547 Payables 143 1,172 Others 939 2,521 Total current liabilities 1,379 6,240 Long-term debt 62 499 Other liabilities 7 196 Total Liabilities 1,448 6,935 Shareholders' equity 949 6,587 BVPS 0.22 1.22 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 97 102 107 Sales growth 6,328 5,933 6,019 Net profit growth 15,160 17,124 19,193 EPS growth Interest coverage (x) 900 900 900 1,625 1,641 1,717 2,876 2,918 3,148 Net debt to equity 5,401 5,459 5,766 Working Capital to Sales 750 750 750 Sales/assets 1,197 1,697 1,697 Assets/equity 7,348 7,906 8,213 ROE 7,610 8,984 10,706 ROCE 1.41 1.50 1.78
(89.0%) 53.1% 94.4% (69.0%) 72.2% 115.9% (52.7%) 508.4% (52.9%) (83.2%) 472.9% (63.1%) 23.9 16.1 28.7 5.1% NM 0.4 1.8 10.6% 8.4% 23.6% 0.1 0.5 2.1 57.4% 13.2%
9.0% (10.6%) (21.7%) 0.4 0.6 0.7 0.6 0.6 0.6 2.0 1.9 1.8 14.4% 16.6% 17.5% 10.9% 14.7% 15.8%
237
DLF Limited
Overweight
www.dlf.in
DLF.BO,DLFU IN Price: Rs160.80 Price Target: Rs210.00
India Property Saurabh Kumar

AC
Company overview DLF is the largest private developer in India with a development pipeline of 310+msf across various cities. In the past, the company has primarily focused on the NCR market, and has been credited with the development of Gurgaon and DLF City Township. The company now has a diversified presence and is currently executing 52msf projects across various cities. Investment case DLF has delivered well on the two key parameters of debt reduction and launch of luxury projects. Phase 5 (Gurgaon) launches have seen strong response even in a weak market. Management expects to return to positive FCF position from next year onwards on the back of these super luxury launches. Debt reduction has partially happened (post IPP/ asset sales) and further reduction is expected based on asset sales in the pipeline. Rental business is well placed to deliver 15-20% pa growth over the next 2-3 years on the back of large retail completions, committed rent escalations and office leasing. Risk reward is favorable at current valuations (P/B 1x), in our view. Resilience of the growth outlook Phase V launches have the potential to turn around the cash flows and earnings for the company. The launched projects (Camilias / Crest) are expected to generate Rs120B+ of pre sales over a 4-5 year period. Margins here will be 70%+ given the historic low cost of land and hence these projects have the potential to generate Rs80B+ EBITDA overall or Rs15-20B annualized. This is against dev. company EBITDA of Rs24B last year. Initial success herein is encouraging and provides visibility on medium term cash flow /earnings growth. Risks to the earnings outlook in 2014 Near-term earnings are likely to be muted due to the transition to new accounting norms of 25% recognition threshold. New high realization launches done over the last year will take 12-18 months to hit the revenue recognition threshold. Any delay in execution of new projects remains the key risk to earnings near term. Price target, and risks to our investment view Maintain Overweight rating with Mar-14 Price Target of Rs 210/share. Our PT is derived from a stabilized cash flow model valuing the development business at 10x and Rent co at 13x cash flow. Key downside risks (a) Slow progress on debt reduction due to delay in closure of non core asset sales; (b) Lower than expected pre sale performance and (c) Tight liquidity and any material de rating in macro fundamentals.
(91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com J.P. Morgan India Private Limited
Abs Rel
YTD -31.7% -38.8%
1m 16.5% 11.1%
3m 24.4% 15.1%
12m -20.7% -32.5%
Company Data Shares O/S (mn) Market Cap ($ mn) Price (Rs) Date Of Price 3M - Avg daily volume (mn) 3M - Avg daily value (Rs mn) 3M - Avg daily value ($ mn) BSE30 Exchange Rate
1,697 4,421 160.80 05 Nov 13 11.64 1,678.84 27.2 2,1239.36 61.73
DLF Limited (Reuters: DLF.BO, Bloomberg: DLFU IN) Rs in mn, year-end Mar FY11A FY12A Revenue (Rs mn) 95,606 96,294 Net Profit (Rs mn) 16,396 12,008 EPS (Rs) 9.66 7.08 Net Debt/Equity 96.4% 97.5% EPS growth (%) (4.7%) (26.8%) ROE 6.1% 4.9% P/E (x) 16.6 22.7 P/BV (x) 1.1 1.1
FY13A 77,728 7,090 4.18 93.5% (41.0%) 3.0% 38.5 1.1
FY14E 88,009 5,766 3.24 79.3% (22.5%) 2.2% 49.6 1.1
FY15E 115,513 17,076 9.60 68.9% 196.2% 6.2% 16.8 1.0
238
DLF Limited: Summary of Financials

Profit and Loss Statement Rs in millions, year end Mar FY12 FY13 Revenues 96,294 77,728 % change Y/Y 0.7% (19.3%) EBIT 32,155 18,270 % change Y/Y 3.0% (43.2%) EBIT margin (%) 33.4% 23.5% Net Interest (16,520) (9,912) Earnings before tax 15,635 8,359 % change Y/Y (21.8%) (46.5%) Tax (3,693) (1,251) as % of EBT 23.6% 15.0% Net income (reported) 12,008 7,090 % change Y/Y (26.8%) (41.0%) Core net profit 12,263 7,594 % change Y/Y (20.5%) (38.1%) Shares outstanding 1,697 1,697 EPS (reported) 7.08 4.18 % change Y/Y (26.8%) (41.0%) Balance sheet Rs in millions, year end Mar FY12 FY13 Cash and cash equivalents 16,597 21,668 Accounts receivable 17,659 16,533 Inventories 161,756 176,455 Others 131,484 138,109 Current assets 327,496 352,765 a Investments 13,082 16,674 Net fixed assets 277,069 261,209 Total Assets 633,894 646,328 a Liabilities Accounts payables 38,013 36,420 Others 68,658 82,539 Total current liabilities 106,671 118,959 Total debt 268,650 266,064 Other liabilities 0 0 Total Liabilities 375,321 385,023 Shareholder's equity 254,367 257,285 BVPS 149.19 151.61 Source: Company reports and J.P. Morgan estimates. FY14E 88,009 13.2% 26,188 43.3% 29.8% (18,500) 7,688 (8.0%) (1,922) 25.0% 5,766 (18.7%) 5,766 (24.1%) 1,780 3.24 (22.5%) FY14E 20,933 18,186 172,676 135,869 347,664 16,674 260,560 640,578 41,883 85,317 127,200 238,654 0 365,854 270,703 152.11 FY15E 115,513 31.3% 38,769 48.0% 33.6% (16,000) 22,769 196.2% (5,692) 25.0% 17,076 196.2% 17,076 196.2% 1,780 9.60 196.2% FY15E 33,435 20,004 153,790 133,869 341,098 16,674 258,079 631,532 46,072 66,188 112,260 231,654 0 343,914 283,598 159.35
Cash flow statement Rs in millions, year end Mar EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash Ratio Analysis Rs in millions, year end Mar EBIT margin Net margin a a Sales growth Net profit growth EPS growth a Interest coverage (x) Net debt to total capital Net debt to equity Sales/assets Assets/equity ROE ROCE a a a a
FY12 32,155 6,888 (7,303) 14,912 26,505 (2,256) (30,125) 36,867 0 0 (27,748) (3,988) 16,023 16,597 FY12 33.4% 12.7% 0.7% (26.8%) (26.8%) 2.4 49.4% 97.5% 0.2 2.5 4.9% 4.8%
FY13 18,270 7,962 1,380 15,497 31,929 0 (32,431) 40,357 0 0 (29,886) (3,988) 16,597 21,668 FY13 23.5% 9.8% (19.3%) (41.0%) (41.0%) 2.6 48.3% 93.5% 0.1 2.5 3.0% 3.0%
FY14E 26,188 6,700 18,608 24,000 55,074 (6,052) (30,000) 62,897 18,630 0 (36,795) (4,182) 21,668 20,933 FY14E 29.8% 6.6% 13.2% (18.7%) (22.5%) 1.8 44.2% 79.3% 0.1 2.4 2.2% 3.8%
FY15E 38,769 7,035 9,126 21,000 54,238 (4,554) (26,000) 61,684 0 0 (26,000) (4,182) 20,933 33,435 FY15E 33.6% 14.8% 31.3% 196.2% 196.2% 2.9 40.8% 68.9% 0.2 2.3 6.2% 5.7%
239
Dr. Reddy's Laboratories Limited

Overweight
www.drreddys.com
REDY.BO,DRRD IN Price: Rs2,406.30 Price Target: Rs2,800.00
India Pharmaceuticals Neha Manpuria

AC
(91-22) 6157-3589 neha.x.manpuria@jpmorgan.com J.P. Morgan India Private Limited
Abs Rel
YTD 31.1% 24.0%
1m 0.9% -4.5%
3m 8.9% -0.4%
12m 33.9% 22.1%
Company overview Dr. Reddys Laboratories (DRRD) is engaged in the manufacture and distribution of pharmaceutical products by way of finished dosage forms, active pharmaceutical ingredients and intermediates and bio-technology products. DRRDs activities also include research of new molecular entities, providing customised pharmaceutical services in-licensed patented dermatology products. Investment case DRRDs recent approval and filings for complex generics underline the companys focus on transition to growth driven by its niche product portfolio in the US. In our view, DRRDs US revenue will improve over the next few quarters aided by approvals of its limited competition complex generics. DRRDs performance in Russia is expected to remain strong in a challenging environment and the potential launch of bio-similars in the market remains a key medium term driver, in our view. Resilience of the growth outlook US business growth in medium-term would be driven by approvals for limited competition products, in our view. The company is ahead of its peers in transitioning into complex generic product with the approval of key products over the last few months. DRRD is likely to maintain the US growth trajectory aided by the ramp up of injectable and new launches (10-15 launches expected in FY14E). We expect R&D to remain elevated, but increasing shift toward complex generic and emerging market (Russia/CIS) growth should help offset some of the margin pressure in the near term. Risks to the earnings outlook in 2014 Our investment thesis is predicated on product launches based on timely approvals of its filing by the regulatory authority. Any delay in approvals by regulatory authorities could impact earnings growth in key geographies. US and Russia revenue growth are key drivers for margin expansion in the medium term and slowdown in growth could impact EBITDA margins of the company. Price target, and risks to our investment view Our Sep-14 price target of Rs2800 based on SOTP (core business valued at Rs2607 at 20x Mar-15E P/E, in-line with domestic peer group and FTF/complex products at Rs64/share). Key downside risks include any potential regulatory issues (USFDA related/Russia), delays in product launches in the US and adverse foreign exchange fluctuation.
Dr. Reddy's Laboratories Limited (Reuters: REDY.BO, Bloomberg: DRRD IN) Rs in mn, year-end Mar FY12A FY13A FY14E FY15E Revenue (Rs mn) 96,769 116,266 140,807 165,819 Net Profit (Rs mn) 14,294 16,777 19,512 25,007 EPS (Rs) 84.00 98.44 114.48 146.73 Core EPS (Rs) 66.31 77.44 98.84 117.43 DPS (Rs) 13.70 14.95 17.39 22.29 Revenue growth (%) 29.6% 20.1% 21.1% 17.8% EPS growth (%) 29.3% 17.2% 16.3% 28.2% ROCE 19.1% 15.9% 16.3% 17.9% ROE 21.8% 20.2% 20.8% 20.1% Core P/E (x) 36.3 31.1 24.3 20.5 EV/EBITDA (x) 18.0 17.2 14.7 11.7 Dividend Yield 0.6% 0.6% 0.7% 0.9%
Company Data Shares O/S (mn) Market Cap (Rs mn) Market Cap ($ mn) Price (Rs) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (Rs mn) 3M - Avg daily value ($ mn) BSE30 Exchange Rate Fiscal Year End
170 409,499 6,634 2,406.30 05 Nov 13 65.4% 0.33 759.22 12.3 2,1239.36 61.73 Mar
FY16E 179,025 28,515 167.31 149.77 25.41 8.0% 14.0% 17.8% 21.0% 16.1 10.1 1.1%
240
Dr. Reddy's Laboratories Limited: Summary of Financials

Income Statement Rs in millions, year end Mar Revenues % change Y/Y Gross Profit % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rs in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets Cash flow statement FY12 FY13 FY14E FY15E FY16E Rs in millions, year end Mar 96,769 116,266 140,807 165,819 179,025 PBT 29.6% 20.1% 21.1% 17.8% 8.0% Depr. & amortization 53,338 60,579 76,021 91,088 98,591 Change in working capital 32.5% 13.6% 25.5% 19.8% 8.2% Other 23,498 26,662 30,423 37,347 41,593 Cash flow from operations 40.1% 13.5% 14.1% 22.8% 11.4% 18,284 21,112 23,898 30,222 33,905 Capex 44.8% 15.5% 13.2% 26.5% 12.2% Other 18.9% 18.2% 17.0% 18.2% 18.9% Free cash flow 630 942 835 1,285 2,035 18,499 21,677 24,361 31,623 36,062 Equity raised/(repaid) 48.7% 17.2% 12.4% 29.8% 14.0% Debt raised/(repaid) (4,204) (4,900) (4,850) (6,617) (7,548) Other 22.7% 22.6% 19.9% 20.9% 20.9% Dividends paid 14,294 16,777 19,512 25,007 28,515 Beginning cash 29.5% 17.4% 16.3% 28.2% 14.0% Ending cash 170 170 170 170 170 DPS 84.00 98.44 114.48 146.73 167.31 29.3% 17.2% 16.3% 28.2% 14.0% Ratio Analysis FY12 FY13 FY14E FY15E FY16E Rs in millions, year end Mar 7,379 5,136 6,067 11,214 24,354 Gross margin 25,339 31,972 38,720 45,598 49,230 EBITDA margin 19,352 21,600 26,486 31,191 33,675 Operating margin 7,109 10,043 13,221 15,382 16,522 Net margin 69,952 85,714 101,458 120,348 140,744 Sales per share growth LT investments 368 472 472 472 472 Sales growth Net fixed assets 33,246 37,814 44,092 46,845 49,073 Net profit growth Total Assets 119,477 142,369 164,089 185,354 206,812 EPS growth Liabilities Interest coverage (x) Payables 9,502 11,862 13,502 15,900 17,167 Others 18,083 17,731 21,984 25,289 27,033 Net debt to equity Total current liabilities 43,460 53,646 54,400 55,103 53,114 Working Capital to Sales Long-term debt 16,335 12,625 17,547 17,547 17,547 Sales/assets Other liabilities 2,238 2,993 2,993 2,993 2,993 Assets/equity Total Liabilities 62,033 69,264 74,940 75,643 73,654 ROAE Shareholders' equity 57,444 73,085 89,130 109,693 133,142 ROACE BVPS 337.55 428.82 522.96 643.62 781.20 Source: Company reports and J.P. Morgan estimates. FY12 FY13 18,499 21,677 5,214 5,549 (8,960) (13,146) 5,634 4,138 16,182 13,318 (8,421) (10,244) (2,483) 6 7,054 (1,109) (2,216) 5,660 7,379 13.70 FY14E 24,361 6,525 (8,838) (353) 16,844 FY15E 31,623 7,125 (8,040) (1,285) 22,805 FY16E 36,062 7,687 (4,245) (2,035) 29,921
(7,018) (12,500) (9,500) (8,750) (5,180) 0 0 0 (626) 4,344 13,305 21,171 1 2,293 (1,372) (2,714) 7,461 5,136 14.95 0 0 0 (217) (5,000) (5,000) 353 1,285 2,035 (3,467) (4,444) (5,067) 5,055 6,068 11,215 6,067 11,214 24,354 17.39 22.29 25.41
FY12 55.1% 24.3% 18.9% 11.7% 29.4% 29.6% 29.5% 29.3% NM 43.2% 27.4% 0.9 2.1 21.8% 19.1%
FY13 52.1% 22.9% 18.2% 11.4% 20.0% 20.1% 17.4% 17.2% NM 43.1% 27.6% 0.9 2.0 20.2% 15.9%
FY14E 54.0% 21.6% 17.0% 12.0% 21.1% 21.1% 16.3% 16.3% NM 34.1% 33.4% 0.9 1.9 20.8% 16.3%
FY15E 54.9% 22.5% 18.2% 12.1%
FY16E 55.1% 23.2% 18.9% 14.3%
17.8% 8.0% 17.8% 8.0% 28.2% 14.0% 28.2% 14.0% NM NM 18.5% 1.6% 39.3% 48.9% 0.9 0.9 1.8 1.6 20.1% 21.0% 17.9% 17.8%
DRRD SOTP Summary

Base Sep-15E EPS Target P/E Multiple Base Target Price US Opportunities Settlements Complex Generics/Limited Competition Total US Opportunities DRRD Target price (Rs/share)
Rs/share 133.6 20 2729 14.7 11.8 37.4 64.0 2800
Comments In-line with current domestic peer group Avelox, Aciphex, Aloxi Singular, Actos, Propecia, Nexium, Namenda Fondaparinux, Fexofenadine+Pseudophedrine, Decitabine, Vidaza
241
Evergreen Marine Corp Taiwan Ltd

Overweight
www.evergreen-marine.com
Taiwan Shipping Caren Huang

AC
Company overview Evergreen Marine Corp (EMC) is part of the worlds fourth-largest container shipping group Evergreen Line (source: Alphaliner), which operates 200 vessels with a total capacity of about 791,000 TEU. The consolidated listed company, EMC, and the subsidiaries, Evergreen Marine (UK) Ltd and Greencompass Marine (GMS), contribute about 50% of group capacity. Investment case We expect the supply-demand of the container shipping sector to reach balance in 2015 and suggest investors revisit the sector in 2014, ahead of the cycle recovery. EMC is our top pick because it is not just riding the cycle recovery, but better positioned than peers due to its: (1) healthy balance with low gearing (about 30% net debt-to-equity vs. the sector average of 146%); (2) savvy procurement of new vessels during the downturn (2010-2012) with low shipbuilding costs; and (3) deliveries of eco-vessels in 2013-15 to stay cost competitive. Resilience of the growth outlook We expect EMC to deliver Y/Y revenue growth of 17% in FY14 and FY14 net income of NT$3.9B, up 335% Y/Y. Growth should be driven by 18% capacity growth in 2014, about 20% fuel efficiency cost savings from 15 new vessel deliveries over 2013-2015 and about 43% revenue exposure in transpacific trades, where the rates are more benign than in other routes. Longer-term, the potential success of the P3 network will likely favor big players like EMC and marginalize small shippers. Risks to the earnings outlook in 2014 Nominal supply growth will remain substantial in 2014, which may continue hampering freight rates. If shippers fail to rationalize capacity, freight rates will likely stay at low levels. Rising fuel prices also represent another swing factor to profitability. Price target, and risks to our investment view We remain OW on EMC with a Jun-14 price target of NT$22, based on 1.2x FY14E BVPS of NT$18.4, equivalent to one standard deviation above its historical average valuation. Because EMC is a cyclical stock, we believe P/B is a relevant methodology. Downside risks to our price target include: (1) weak loading volume growth; (2) prolonged sector oversupply, which would bring pressure to rate hikes; and (3) the likelihood of participating in a fundraising plan for group affiliates.
(886-2) 2725-9872 caren.huang@jpmorgan.com J.P. Morgan Securities (Taiwan) Limited
Abs Rel
YTD -6.8% -13.3%
1m -3.7% -2.7%
3m 0.9% -2.1%
12m 4.3% -10.1%
Company Data Shares O/S (mn) Market Cap (NT$ mn) Market Cap ($ mn) Price (NT$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (NT$ mn) 3M - Avg daily value ($ mn) TSE Exchange Rate Fiscal Year End
3,475 59,074 2,007 17.00 06 Nov 13 8.71 152.78 5.2 8281.97 29.43 Dec
Evergreen Marine Corp Taiwan Ltd (Reuters: 2603.TW, Bloomberg: 2603 TT) NT$ in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (NT$ mn) 108,156 141,028 163,742 192,054 Net Profit (NT$ mn) (3,092) 129 906 3,940 EPS (NT$) (0.89) 0.04 0.26 1.13 DPS (NT$) 1.00 0.00 0.00 0.00 Revenue growth (%) (1.1%) 30.4% 16.1% 17.3% EPS growth (%) (120.2%) (104.2%) 604.7% 335.0% ROCE (3.4%) 0.2% 1.4% 4.3% ROE (4.6%) 0.2% 1.4% 6.0% P/E (x) NM 459.6 65.2 15.0 P/BV (x) 0.9 0.9 0.9 0.9 EV/EBITDA (x) 32.6 15.6 11.0 7.3 Dividend Yield 5.9% 0.0% 0.0% 0.0%
FY15E 219,330 7,717 2.22 0.34 14.2% 95.9% 7.5% 10.7% 7.7 0.8 4.9 2.0%
242
Evergreen Marine Corp Taiwan Ltd: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY12 FY13E FY14E FY15E NT$ in millions, year end Dec 141,028 163,742 192,054 219,330 EBIT 30.4% 16.1% 17.3% 14.2% Depr. & amortization 5,951 8,707 13,549 18,176 Change in working capital 130.6% 46.3% 55.6% 34.2% Taxes 303 1,842 5,871 10,959 Cash flow from operations (110.1%) 508.8% 218.7% 86.7% 0.2% 1.1% 3.1% 5.0% Capex (225) (417) (449) (486) Disposal/(purchase) (155) 1,122 5,150 10,088 Net Interest (95.5%) (822.8%) 359.2% 95.9% Free cash flow (263) (56) (515) (1,009) (169.8%) 5.0% 10.0% 10.0% Equity raised/(repaid) 129 906 3,940 7,717 Debt raised/(repaid) (104.2%) 604.7% 335.0% 95.9% Other 3,475 3,475 3,475 3,475 Dividends paid 0.04 0.26 1.13 2.22 Beginning cash (104.2%) 604.7% 335.0% 95.9% Ending cash DPS Balance sheet Ratio Analysis NT$ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E NT$ in millions, year end Dec Cash and cash equivalents 23,006 31,985 28,708 25,665 36,013 EBITDA margin Accounts receivable 10,339 14,231 14,119 16,458 18,809 Net margin Inventories 0 0 0 0 0 Others 9,566 8,145 8,145 8,145 8,145 Current assets 46,095 55,769 52,381 51,676 64,375 Sales per share growth LT investments 26,471 26,613 26,613 26,613 26,613 Sales growth Net fixed assets 64,763 71,944 76,796 83,015 79,047 Net profit growth Total Assets 137,785 155,298 156,761 162,276 171,007 EPS growth Liabilities Interest coverage (x) Short-term loans 4,039 1,565 1,565 1,565 1,565 Payables 4,976 5,733 6,131 7,011 7,844 Net debt to equity Others 19,440 22,747 22,747 22,747 22,747 Sales/assets Total current liabilities 28,455 30,044 30,442 31,322 32,155 Assets/equity Long-term debt 39,817 58,742 58,742 58,742 58,742 ROE Other liabilities 1,144 519 519 519 519 ROCE Total Liabilities 72,184 92,869 93,267 94,146 94,980 Shareholder's equity 65,602 62,429 63,494 68,130 76,027 BVPS (NT$) 18.89 17.97 18.27 19.61 21.88 Source: Company reports and J.P. Morgan estimates. FY11 108,156 (1.1%) 2,581 (89.7%) (3,003) (115.6%) (2.8%) (176) (3,419) (118.2%) (261) (7.6%) (3,092) (120.4%) 3,473 (0.89) (120.2%) FY11 (3,003) 5,584 807 261 (671) FY12 303 5,649 (3,135) 263 7,889 FY13E 1,842 6,865 509 56 9,380 FY14E 5,871 7,678 (1,459) 515 11,159 FY15E 10,959 7,217 (1,517) 1,009 14,417
(15,276) (13,511) (11,717) (13,898) (3,248) 5,226 14,521 1,100 1,000 1,000 (176) (225) (417) (449) (486) (15,736) (5,438) (1,927) (2,320) 11,616 0 15,474 (318) (3,158) 19,716 23,006 1.00 FY11 2.4% (2.9%) 0 15,795 544 0 23,006 31,985 0.00 FY12 4.2% 0.1% 0 0 0 0 31,985 28,708 0.00 FY13E 5.3% 0.6% 0 0 0 0 0 0 0 (1,182) 28,708 25,665 25,665 36,013 0.00 0.34 FY14E FY15E 7.1% 8.3% 2.1% 3.5%
(2.1%) 30.3% 16.1% 17.3% 14.2% (1.1%) 30.4% 16.1% 17.3% 14.2% (120.4%) (104.2%) 604.7% 335.0% 95.9% (120.2%) (104.2%) 604.7% 335.0% 95.9% 14.6 26.5 20.9 30.2 37.4 29.1% 0.8 2.0 (4.6%) (3.4%) 46.8% 1.0 2.3 0.2% 0.2% 51.2% 1.0 2.5 1.4% 1.4% 52.1% 33.1% 1.2 1.3 2.4 2.3 6.0% 10.7% 4.3% 7.5%
243
Ezion Holdings Ltd

Overweight
www.ezionholdings.com /
EZHL.SI,EZI SP Price: S$2.33 Price Target: S$2.60
Singapore Oil Services & Equipment Ajay Mirchandani

AC
(65) 6882-2419 ajay.mirchandani@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Abs Rel
YTD 37.9% 37.8%
1m 7.4% 5.2%
3m 2.2% 3.3%
12m 74.5% 68.8%
Company overview Ezion Holdings specializes in the development, ownership and chartering of strategic offshore assets and the provision of offshore marine logistics and support services to the offshore oil and gas industry. Its two business segments are: 1) offshore logistics support vessel services: Ezion is involved in oil & gas related logistics support and 2) Liftboats & Service Rigs: Ezion provides liftboats/service rigs to the offshore oil & gas industry. Investment case We remain Overweight on Ezion as we expect strong liftboat demand due to aging platforms and increasing offshore construction activity Ezion liftboat fleet is backed by bareboat charters worth over US$1bn which is set to see a nearly 70% earnings growth into 2014E. We also see Ezions separate listing of its marine base as potential value unlocking with potential earnings of US$7-10mn in FY14E. Among asset owners in Singapore, Ezion stands out to be one of the cheapest stocks at an FY14E P/E of ~9x currently. Resilience of the growth outlook We remain confident on our outlook on Ezion due to a) Ezions unique position in liftboats/service rig segments where the number of players is comparatively low b) strong liftboat demand due to higher offshore activity. Risks to the earnings outlook in 2014 Risks to earnings outlook include a) rising gearing and higher interest expense as the company looks to raise cash b) declining margins if competition increases in this space. Price target, and risks to our investment view Dec-14 PT of S$2.60 based on SOTP of: 1) liftboat/service rigs fleet, 2) offshore logistics fleet for LNG projects in Australia (12x P/E), 3) remaining offshore logistics fleet (10x P/E) and 4) option value associated additional order wins. For the liftboat/service rigs segment, we have valued each asset based on its cash flows over a period of 15 years for "newbuild" Liftboats (Depreciation life = 25 years) and 10 years (Depreciation life = 10-20 years) for Service Rigs. Risks: 1) rising gearing, 2) capital needs to expand, 3) limited barriers to entry and 4) yard delivery delays which may delay earnings.
Ezion Holdings Ltd (Reuters: EZHL.SI, Bloomberg: EZI SP) $ in mn, year-end Dec FY10A FY11A FY12A Revenue ($ mn) 117 107 159 Net profit (reported) ($ mn) 40 58 80 Net Profit (rec) ($ mn) 30 47 65 EPS (reported) ($) 0.05 0.07 0.09 EPS (recurring) ($) 0.04 0.06 0.07 P/E (Recurring) 49.1 31.5 26.5 P/BV (x) 7.1 5.5 3.1 EV/EBITDA 59.6 44.8 36.3 ROE 17.4% 19.8% 15.8% Net debt to equity 26.2% 35.2% 75.5%
Company Data Shares O/S (mn) Market Cap ($ mn) Market Cap ($ mn) Price (S$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (S$ mn) FTSTI Exchange Rate
964 1,807 1,807 2.33 05 Nov 13 3.90 8.91 3203.94 1.24
FY13E 347 127 119 0.13 0.12 15.5 2.5 13.8 18.3% 61.3%
FY14E 520 220 212 0.22 0.22 8.7 1.9 8.9 24.9% 53.3%
244
Ezion Holdings Ltd: Summary of Financials

Income Statement $ in millions, year end Dec Revenues % change Y/Y Gross Profit Gross Margin EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Associates Earnings before tax % change Y/Y Tax as % of EBT Minority Interests Net income (reported) Net income (recurring) % change Y/Y Shares outstanding Fully Diluted EPS Balance sheet $ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets Net fixed assets Other non-current assets Total Assets
a
FY10 117 122.7% 45 38.2% 38 77.7% 32.3% 39 201.4% 24.5% (2) 7 43 234.2% (3) 6.9% 0 40 30 147.8% 794 0.04 FY10 76 36 1 86 198 151 48 397
FY11 107 (8.7%) 55 51.7% 51 35.4% 47.9% 52 35.4% 38.7% (1) 10 61 41.3% (3) 4.7% 0 58 47 56.2% 794 0.06 FY11 63 32 1 32 128 271 72 471
Short-term loans 71 39 Payables 31 26 Total current liabilities 126 82 Long-term debt 59 118 Other liabilities 2 2 Total Liabilities 187 202 Shareholders' equity 210 268 Total Liabilities and equity 397 470 BVPS 0.26 0.34 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY12 FY13E FY14E $ in millions, year end Dec 159 347 520 Profit After tax 48.4% 118.7% 50.0% Depreciation & amortization 71 154 263 Change in working capital 44.6% 44.3% 50.5% Other non-cash items 75 200 316 Cash flow from operations 46.1% 167.3% 58.0% Capex 47.1% 57.6% 60.7% Net Acquisitions 71 131 227 Other investing Cash flow 35.2% 85.3% 73.3% Cash flow from investments 36.7% 37.7% 43.6% Free cash flow (5) (19) (31) a 17 29 48 Equity raised/(repaid) 83 140 244 Debt raised/(repaid) 35.7% 69.6% 73.6% Other (4) (14) (24) Dividends paid 4.7% 9.7% 9.8% Cash flow from financing 1 0 0 Net change in cash 80 127 220 Beginning cash 65 119 212 Ending cash 37.5% 82.8% 78.2% DPS 920 986 986 a 0.07 0.12 0.22 a Ratio Analysis FY12 FY13E FY14E $ in millions, year end Dec 135 181 185 Gross margin 57 133 207 EBITDA margin 0 3 4 EBIT margin 80 13 13 Net margin 273 330 408 a 794 1,006 1,167 Sales growth 132 160 209 EBIT growth 1,198 1,496 1,784 Recurring profit growth Recurring EPS growth 77 123 133 a 33 67 82 Interest coverage (x) 158 220 252 Net debt to equity 475 517 562 a 12 12 12 Sales/assets 645 749 826 Assets/equity 553 748 957 ROE 1,198 1,496 1,784 ROCE 0.60 0.76 0.97 a
FY10 40 9 4 45 (116) 14 (102) (69) 40 87 (29) (0) 97 41 27 68 0.08
FY11 58 10 (20) 35 (126) 55 (70) (90) 0 101 (75) (1) 26 (10) 68 58 0.08
FY12 79 17 19 91 (605) (47) (652) (509) 199 519 (85) (1) 633 77 58 135 0.08
FY13E FY14E 127 220 69 89 5 (52) 191 240 (281) (250) 4 2 (278) (248) (73) 18 2 88 (31) (1) 58 (29) 135 106 0.15 0 55 (41) (3) 12 4 106 110 0.27
FY10 38.2% 32.3% 24.5% 25.9% 122.7% 201.4% 147.8% 112.1%
FY11 51.7% 47.9% 38.7% 44.2% (8.7%) 35.4% 56.2% 56.2%
FY12 44.6% 47.1% 36.7% 41.0%
FY13E FY14E 44.3% 50.5% 57.6% 60.7% 37.7% 43.6% 34.3% 40.7% 50.0% 73.3% 78.2% 78.2% 10.1 53.3% 0.3 1.9 24.9% 13.9%
48.4% 118.7% 35.2% 85.3% 37.5% 82.8% 18.7% 70.5% 10.4 61.3% 0.3 2.1 18.3% 10.3%
17.1 75.1 15.9 26.2% 35.2% 75.5% 0.3 0.2 0.2 2.0 1.8 2.0 17.4% 19.8% 15.8% 8.7% 11.7% 8.2%
245
Fortescue Metals Group Ltd

Overweight
www.fmgl.com.au/
FMG.AX,FMG AU Price: A$5.84 Price Target: A$6.60
Company overview FMG is one of the worlds largest iron ore producers with operations based in Western Australia. The company is currently producing around 115Mtpa rate, ramping up to 155Mtpa in December 2013. Investment case We continue to rate FMG as one of our top picks amongst the Australian miners with the stock likely to re-rate materially over the next 12 months based on: 1) operations ramping up to a 155Mtpa rate, 2) increased FCF as the company goes ex-growth capex, and 3) decreased net debt, with the company already generating positive FCF. Resilience of the growth outlook FMGs ability to withstand commodity price volatility is increasingly improving given it is now ex-growth capex and commissioning to 155Mtpa is imminent. Coupled with its improving FCF profile, FMGs gearing will reduce significantly in the near-term. Risk to the earnings outlook in 2014 The main risk lies in the trajectory of the iron ore price and the A$, given the impact on revenue and costs, respectively. A 10% increase in our iron ore or A$ forecast would result in +18% and -6% change to earnings. FMG has also maintained FY14 guidance including: 1) capex of US$1.9bn, 2) shipments of 127-133Mt, and 3) C1 costs of US$36-38/t. FMG continues to target a 155Mtpa rate by the end of Dec-13, with steady state reached post the 1QCY14 wet season. Price target, and risks to our investment view We maintain our Overweight rating on FMG due to: 1) attractive valuation metrics, 2) ramp-up risk diminishing as projects approach completion, and 3) increased free cash flow as FMG goes ex-growth. Our Jun-14 target price of A$6.60ps is set equal to our DCF valuation, rounded to the nearest five cents (refer to datasheet). The key downside risks to our target price relate to lower realized outcomes for iron ore price, higher costs, higher capex, and disappointing ramp-up of expansion relative to our expectations.
Australia Iron Lyndon Fagan

AC
(61-2) 9003-8648 Lyndon.fagan@jpmorgan.com J.P. Morgan Securities Australia Limited
Abs Rel
YTD 25.6% 7.5%
1m 22.3% 16.9%
3m 48.6% 42.1%
12m 46.0% 23.6%
3,114 18,184.59 17,289.02 5.84 06 Nov 13 22.40 104.38 99.2 4511.50 1.05 Jun
Fortescue Metals Group Ltd (Reuters: FMG.AX, Bloomberg: FMG AU) Year-end Jun ($) FY12A FY13A FY14E FY15E Revenue ($ mn) 6,122 7,461 10,924 11,949 EBITDA ($ mn) 2,879 3,276 5,691 6,203 Net Profit ($ mn) 1,559 1,746 3,106 3,254 EPS ($) 0.50 0.56 1.00 1.04 P/E (x) 11.1 9.9 5.6 5.3 EV/EBITDA (x) 7.6 8.0 4.2 3.4 DPS ($) 0.08 0.10 0.09 0.09 Dividend Yield 1.5% 1.7% 1.6% 1.6% Normalised EPS ($) 0.47 0.51 0.96 1.04 Normalised EPS Growth (8.9%) 10.5% 87.5% 8.4% Normalised PE 11.9 10.8 5.8 5.3
FY16E 11,222 5,336 2,737 0.88 6.3 3.5 0.09 1.6% 0.88 (15.9%) 6.3
246
Fortescue Metals Group (FMG): Financial Summary

Profit & Loss (US$m)
Revenue Operating Expenses EBITDA Depreciation and amortisation EBIT Net Interest MRRT NPBT Tax Expense Normalised NPAT Extraordinary Items Reported NPAT Shares outstanding (m) Reported EPS (cents) Normalised EPS (cents) Normalised EPS grow th DPS (Aps ) DPS/EPS payout
FY16E
13,047 (7,711) 5,336 (1,045) 4,291 (381) 3,910 (1,173) 2,737 2,737 3,114 87.9 87.9 -16% 10.0 11% 12 m th price target Capital grow th to price target 12 mth f orecast DYld 12 m th forecast total return WACC
OW
A$m
17,219 28,772 A$6.55 18% 1.5% 20% 10%
FY12A
6,731 (3,852) 2,879 (267) 2,612 (505) 2,107 (657) 1,450 109 1,559 3,114 50.1 46.6 -11% 8.0 17%
FY13A
8,134 (4,858) 3,276 (463) 2,813 (553) 2,260 (658) 1,602 144 1,746 3,114 56.1 51.4 10% 10.0 19%
FY14E
12,329 (6,638) 5,691 (669) 5,022 (732) 4,290 (1,287) 3,003 103 3,106 3,114 99.7 96.4 87% 10.0 10%
FY15E
13,710 (7,507) 6,203 (1,006) 5,197 (549) 4,648 (1,395) 3,254 3,254 3,114 104.5 104.5 8% 10.0 10%
Valuation Summary
Current mkt capitalisation EV
DCF valuation
Chichester Ranges Solomon Western Hub Total Operations Net (debt) / cash MRRT Corporate overheads Magnetite / exploration Total Valuation P/NPV
A$m
14233 15589 0 29822 -8601 0 -995 182 20409
A$ps
4.57 5.01 0.00 9.58 -2.76 0.00 -0.32 0.06 6.55 0.84
Cashflow (US$m)
Operating cashf low Capex Free cash f low Investing cashf low s Financing cashf low s Change in cash
FY12A
2,808 (6,044) (3,236) (5,990) 2,793 (389)
FY13A
3,004 (6,355) (3,351) (6,166) 2,989 (173)
FY14E
5,020 (1,942) 3,078 (1,296) (4,080) (356)
FY15E
4,767 (1,191) 3,576 (1,150) (3,229) 388
FY16E
4,127 (1,134) 2,994 (1,067) (3,405) (346)
Key Ratios
PE EV/EBITDA (x) Dividend yield ROE (Norm NPAT/Equity) ROA - EBIT / (assets - cash) ROIC (EBIT/Assets)
FY12A
11.1 7.8 1.5% 39% 21% 17% 5.2 5.7 2.1 164% 62% 39% 43% 31% -103.9 -5.0 n/a
FY13A
10.1 8.1 1.9% 30% 15% 13% 5.1 5.9 3.2 199% 67% 35% 40% 29% -107.6 -4.8 n/a
FY14E
5.4 4.3 1.9% 32% 25% 23% 6.9 7.8 1.4 87% 47% 41% 46% 30% 98.8 5.2 19%
FY15E
5.0 3.5 1.9% 26% 25% 23% 9.5 11.3 0.9 43% 30% 38% 45% 30% 114.8 4.5 22%
FY16E
5.9 3.6 1.9% 18% 21% 19% 11.3 14.0 0.6 20% 17% 33% 41% 30% 96.1 5.4 19%
Balance Sheet (US$m)

Cash Property plant & equipment Assets Debt Liabilities Equity Net debt / (cash)
FY12A
2,343 2,898 15,063 8,501 11,301 3,762 6,158
FY13A
2,158 17,159 20,867 12,691 15,578 5,289 10,533
FY14E
1,802 18,432 22,221 9,872 12,980 9,242 8,070
FY15E
2,190 18,617 22,709 7,572 10,208 12,501 5,382
FY16E
1,844 18,706 22,387 4,930 7,278 15,108 3,085
EBIT / net interest EBITDA / net interest Net debt / EBITDA Gearing - net debt/equity Gearing - net debt/ (net debt + equity) EBIT margin EBITDA margin Ef f ective tax rate FCFPS (US) P/f ree cash f low (x)
Half Yearly P&L (US$m)

Revenue Operating Expenses EBITDA Depreciation and amortisation EBIT Net Interest MRRT NPBT Tax Expense Normalised NPAT Extraordinary Items Reported NPAT
1H13A
4,808 (2,529) 2,279 (285) 1,994 (263) 1,731 503 1,228 40 1,268
2H13A
5,991 (3,049) 2,942 (287) 2,655 (390) 2,264 679 1,585 103 1,688
1H14E
6,338 (3,589) 2,750 (382) 2,368 (342) 2,025 608 1,418 1,418
2H14E
7,279 (3,812) 3,467 (507) 2,960 (291) 2,669 801 1,868 1,868
1H15E
6,432 (3,696) 2,736 (499) 2,237 (258) 1,979 594 1,386 1,386
Free cash f low yield (%)
Volume forecasts
Chichesters sales (Mt) Solomon sales (Mt) 3rd party ore sold (Mt) Total ore sales (Mt)
FY12A
56 0 0 56
FY13A
78 0 3 81
FY14E
91 33 5 128
FY15E
90 59 5 154
FY16E
92 60 4 157
Cash costs
Chichesters C1 costs (US$/t) Solomon C1 costs (US$/t) Average C1 cash cost (US$/t) Royalties (US$/t) Shipping (US$/t) Admin (US$/t)
FY12A
48 0 48 7 12 2 69 11 28 109
FY13A
44 0 44 7 10 1 63 11 12 85
FY14E
38 31 36 7 10 1 54 6 9 68
FY15E
38 26 33 6 10 1 50 4 7 61
FY16E
39 27 34 6 10 1 51 3 7 60
Sensitivity
NPV / NPAT Iron ore +10% increase Iron ore +10% increase Iron ore +US$1/t increase Iron ore +US$1/t increase AUD +10% increase AUD +10% increase AUD +1c increase AUD +1c increase Source: Company data, J.P. Morgan estimates.
NPV
6.55 2.39 36% 0.33 5% -1.38 -27% -0.17 -3%
FY14E
3003 536 18% 57 2% -172 -6% -19 -1%
FY15E
3254 788 24% 91 3% -314 -10% -36 -1%
FY16E
2737 770 28% 96 4% -345 -13% -39 -1%
Total EBITDA cost (US$/t) Net interest (US$/t) Sustaining capex (US$/t) All in cost (US$/t)
Assumptions
AUD/USD Iron ore CFR China (US$/t) Iron ore CFR China (US$/ dry t) - FMG
FY12A
1.03 155 133
FY13A
1.03 127 116
FY14E
0.90 118 110
FY15E
0.88 110 100
FY16E
0.88 103 94
247
Fosun Pharmaceutical-H
Overweight
www.fosunpharma.com/

AC
Abs Rel
YTD 48.1% 46.2%
1m 29.9% 28.7%
3m 27.6% 29.5%
12m 57.2% 66.6%
Company overview Shanghai Fosun Pharmaceutical Group is a Shanghai-based company engaged in R&D, manufacture, distribution and retailing of healthcare products. The Groups principal products include pharmaceuticals for malaria and liver inflammation; gynecological diseases; and for diabetes. The Group also operates drugstore chains. It distributes products primarily in the domestic and overseas markets. The company owns about 32.1% of Sinopharm, the largest medical product distributor in China. By entering into a strategic collaboration with Chindex and taking major stakes in two private hospitals, Fosun Pharma has extended its services offerings to the hospital services sector. Investment case Fosun is a leading Chinese healthcare company with business operations covering most of the important segments in the healthcare industry value chain. The Group has expanded rapidly through organic growth, M&A and strategic investments. The company owns about 30% of Sinopharm, which forms part of Fosuns core valuation. It has recently vastly expanded its manufacturing operations through aggressive acquisitions, including Jinzhou Aohong, which produces Aodejin, a top-5 best selling prescription drugs in China. It has also aggressively been amassing hospital services assets, which allows the company to play in a potentially very lucrative space. Resilience of the growth outlook Demand for healthcare products is resilient to economic slowdown. The company is expected to complement organic growth with acquisitions and newly acquired hospitals and other businesses should contribute on a full-year basis in 2014. The exposure in other subsectors makes Fosun less susceptible to expected price cuts for drugs through tenders in 2014. Risks to the earnings outlook in 2014 The greatest risk is higher than expected price cuts for the companys key drugs. Unfavorable market conditions may cut the companys investment gains associated with disposal of PE assets. Price target, and risks to our investment view Our PT (Dec-14, DCF-derived) of HK$22.5 (WACC 10.2%, terminal growth 5%, the high end of the 3-6% growth rate we use for health care stocks) implies 2014E P/E of 20.2x. Key risks to our rating and PT include 1) Unfavorable government policies on prices of healthcare products and services. 2) Failure to gain from any future M&A transactions in terms of yield synergies and growth. 3) Difficulty in exiting minority investments due to unfavorable market conditions. 4) Unexpected further delays in the launch of human insulin. 5) Penetrating into private healthcare services and realizing target returns proving exceedingly difficult.
Fosun Pharmaceutical-H (Reuters: 2196.HK, Bloomberg: 2196 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E Revenue (Rmb mn) 6,433 7,278 9,161 Net Profit (Rmb mn) 1,166 1,564 1,754 EPS (Rmb) 0.61 0.80 0.78 DPS (Rmb) 0.10 0.24 0.21 Revenue growth (%) 42.0% 13.1% 25.9% EPS growth (%) 35.0% 30.3% (1.8%) ROCE 1.9% 2.9% 3.9% ROE 12.9% 13.5% 12.4% P/E (x) 22.3 17.1 17.4 P/BV (x) 2.7 2.3 2.1 EV/EBITDA (x) 39.0 21.2 16.0 Dividend Yield 0.7% 1.8% 1.5%
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) MSCICNX-HLTH Exchange Rate Fiscal Year End
1,904 26,018 4,265 17.36 06 Nov 13 100.0% 3.95 60.88 7.9 119.49 7.75 Dec
FY14E 11,523 1,957 0.87 0.23 25.8% 11.5% 4.6% 12.6% 15.6 1.9 13.1 1.7%
FY15E 13,746 2,061 0.92 0.24 19.3% 5.3% 4.9% 12.1% 14.9 1.7 12.0 1.8%
248
Fosun Pharmaceutical-H: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets Cash flow statement FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 7,278 9,161 11,523 13,746 EBIT 13.1% 25.9% 25.8% 19.3% Depr. & amortization 3,151 3,940 4,922 5,960 Change in working capital 29.1% 25.0% 24.9% 21.1% Taxes 1,011 1,574 2,020 2,256 Cash flow from operations 62.1% 55.6% 28.4% 11.7% 594 968 1,252 1,529 Capex 71.9% 63.0% 29.4% 22.1% Net Interest 8.2% 10.6% 10.9% 11.1% Other (371) (360) (395) (458) Free cash flow 2,123 2,599 2,872 3,100 22.9% 22.4% 10.5% 7.9% Equity raised/(repaid) (284) (514) (597) (675) Debt raised/(repaid) 13.4% 19.8% 20.8% 21.8% Other 1,564 1,754 1,957 2,061 Dividends paid 34.1% 12.2% 11.5% 5.3% Beginning cash 1,960 2,240 2,240 2,240 Ending cash 0.80 0.78 0.87 0.92 DPS 30.3% (1.8%) 11.5% 5.3% Ratio Analysis FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 2,895 4,973 2,098 2,121 2,872 Gross margin 1,148 1,075 1,168 1,268 1,350 EBITDA margin 1,124 1,273 1,383 1,502 1,599 Operating margin 883 1,060 2,935 4,240 5,580 Net margin 6,049 8,382 7,584 9,131 11,400 Sales per share growth LT investments 2,122 2,355 4,722 5,491 5,903 Sales growth Net fixed assets 2,632 3,502 5,126 5,849 6,468 Net profit growth Total Assets 22,234 25,450 28,200 31,198 34,458 EPS growth Liabilities Interest coverage (x) Short-term loans 2,177 1,375 1,370 1,575 1,769 Payables 920 882 996 1,125 1,233 Others 1,895 1,636 2,440 2,555 2,768 Net debt to equity Total current liabilities 4,992 3,893 4,806 5,254 5,770 Working Capital to Sales Long-term debt 3,917 4,280 4,385 5,180 5,986 Sales/assets Other liabilities 2,011 2,029 2,147 2,088 2,118 Assets/equity Total Liabilities 10,920 10,202 11,338 12,523 13,874 ROE Shareholders' equity 9,715 13,502 14,786 16,281 17,826 ROCE BVPS 5.10 6.03 6.60 7.27 7.96 Source: Company reports and J.P. Morgan estimates. FY11 6,433 42.0% 2,441 58.1% 624 78.9% 345 95.9% 5.4% (314) 1,727 43.7% (342) 19.8% 1,166 35.0% 1,904 0.61 35.0% FY11 345 278 184 (217) 317 FY12 FY13E FY14E FY15E 594 968 1,252 1,529 418 606 768 727 (223) (166) (382) (347) (284) (53) (431) (519) 666 1,150 963 1,110
(1,986) (1,399) (4,366) (1,969) (1,412) (314) (371) (360) (395) (458) 279 424 325 409 437 (1,417) (412) (2,928) (693) 56 0 3,080 1,380 439 (337) (1,329) (190) (125) 2,971 2,895 2,895 4,973 0.10 0.24 FY11 38.0% 9.7% 5.4% 18.1% 42.0% 42.0% 35.0% 35.0% 2.0 28.3% 0.2 0.3 2.2 12.9% 1.9% 0 218 0 (201) 4,973 2,098 0.21 0 0 941 (321) 2,098 2,121 0.23 0 1,029 0 (413) 2,121 2,872 0.24
FY12 FY13E FY14E FY15E 43.3% 43.0% 42.7% 43.4% 13.9% 17.2% 17.5% 16.4% 8.2% 10.6% 10.9% 11.1% 21.5% 19.2% 17.0% 15.0% 9.9% 13.1% 34.1% 30.3% 2.7 4.5% 0.6 0.3 2.1 13.5% 2.9% 10.1% 25.9% 12.2% (1.8%) 4.4 21.7% 0.3 0.3 1.9 12.4% 3.9% 25.8% 25.8% 11.5% 11.5% 5.1 24.8% 0.3 0.4 1.9 12.6% 4.6% 19.3% 19.3% 5.3% 5.3% 4.9 23.7% 0.4 0.4 1.9 12.1% 4.9%
249
Gamuda
Overweight
www.gamuda.com.my
GAMU.KL,GAM MK Price: M$4.82 Price Target: M$5.50
Malaysia Construction Hoy Kit Mak

AC
(60-3) 2718-0713 hoykit.mak@jpmorgan.com JPMorgan Securities (Malaysia) Sdn. Bhd. (18146-X)
Abs Rel
YTD 34.3% 27.3%
1m 5.2% 3.5%
3m 2.9% 1.5%
12m 33.2% 23.9%
Company overview Gamudas core business is its engineering and construction division, with capable heavy engineering skillsets, particularly in tunnelling. Other businesses include toll concessions - KESAS, LITRAK, SPRINT, and Indias Durgapur and Panagarh Palsit Highway. Also owns water concession SPLASH (water O&M company, Gamuda Water). Established township developments in Malaysia, making inroads into Vietnam. Investment case Gamuda is poised to be the key beneficiary of the govts M$160B rail-related infrastructure spending given its superior heavy engineering skillsets and large scale project interface capabilities. First mover advantage for the Klang Valley MRT project. Line 1 in the bag, with Line 2 next pending govt approval. Eventual sale of SPLASH water concession could lead to special dividends of M$0.32/share. Potential for remaining concession assets injection into a Business Trust to unlock value. Resilience of the growth outlook Recurring concession earnings anchor a third of earnings. Construction earnings driven by locked in construction order book of M$10B, while property earnings are driven by unbilled property sales of M$1.5B. Risks to the earnings outlook in 2014 The hike in Real Property Gains Tax announced in Budget 2014 and foreign minimum thresholds could curtail property demand growth, especially in Iskandar Malaysia. Greater than expected delays in infrastructure project rollouts, and higher than expected increase in building material costs could negatively affect earnings outlook. Price target, and risks to our investment view Our Dec14 SoTP-based PT of M$5.50 assumes 18x P/E on CY15 construction earnings, in line with historical average. Property division is valued based on16x P/E on CY15 property earnings, in line with implied sector average target P/E, at 10% discount. Gamudas 45.8% stake in highway concessionaire Litrak (LTK MK) is marked-to-market at M$4.40/share. Other concessions are valued based on DCF at WACC of 9%, while Indian toll concessions are based on WACC of 15.4%. Downside risks emanate from project execution, delays in project awards, sharp spikes in building material costs that affect margins, and lower than expected property sales.
Gamuda Berhad (Reuters: GAMU.KL, Bloomberg: GAM MK) M$ in mn, year-end Jul FY12A FY13A FY14E Revenue (M$ mn) 3,087 3,883 3,940 Net Profit (M$ mn) 547 630 725 EPS (M$) 0.26 0.30 0.32 DPS (M$) 0.08 0.09 0.11 Revenue growth (%) 15.5% 25.8% 1.5% EPS growth (%) 27.8% 15.1% 6.2% ROCE 7.1% 5.2% 5.6% ROE 14.2% 14.1% 14.9% P/E (x) 18.3 15.9 15.0 P/BV (x) 2.5 2.1 2.0 EV/EBITDA (x) 18.8 22.4 19.9 Dividend Yield 1.7% 1.9% 2.3%
Company Data Shares O/S (mn) Market Cap (M$ mn) Market Cap ($ mn) Price (M$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (M$ mn) 3M - Avg daily value ($ mn) FBMKLCI Exchange Rate Fiscal Year End
2,079 10,023 3,159 4.82 06 Nov 13 71.4% 6.46 29.67 9.4 1807.47 3.17 Jul
FY15E 4,596 934 0.41 0.14 16.6% 28.9% 6.7% 17.2% 11.6 1.8 14.7 2.9%
FY16E 4,700 1,052 0.47 0.14 2.3% 12.6% 7.1% 17.2% 10.3 1.6 12.4 2.9%
250
Gamuda: Summary of Financials
Income Statement Cash flow statement M$ in millions, year end Jul FY12 FY13 FY14E FY15E FY16E M$ in millions, year end Jul Revenues 3,087 3,883 3,940 4,596 4,700 EBIT % change Y/Y 15.5% 25.8% 1.5% 16.6% 2.3% Depr. & amortization EBITDA 561 471 526 692 783 Change in working capital % change Y/Y 40.9% (16.0%) 11.7% 31.4% 13.3% Others EBIT 539 448 501 664 753 Cash flow from operations % change Y/Y 42.7% (16.9%) 11.8% 32.6% 13.4% EBIT Margin 17.5% 11.5% 12.7% 14.4% 16.0% Capex Net Interest (17) 4 (4) (4) (5) Disposal/(purchase) Earnings before tax 728 693 858 1,107 1,246 Net Interest % change Y/Y 33.7% (4.9%) 23.8% 29.1% 12.6% Other Tax (162) (143) (124) (165) (187) Free cash flow as % of EBT 22.3% 20.6% 14.5% 14.9% 15.0% Core net profit 547 630 725 934 1,052 Equity raised/(repaid) % change Y/Y 28.7% 15.1% 15.0% 28.9% 12.6% Debt raised/(repaid) Shares outstanding 2,079 2,079 2,251 2,251 2,251 Other Core EPS 0.26 0.30 0.32 0.41 0.47 Dividends paid % change Y/Y 27.8% 15.1% 6.2% 28.9% 12.6% Beginning cash Fully diluted EPS 0.26 0.28 0.33 0.41 0.46 Ending cash % change Y/Y 27.8% 4.5% 18.3% 27.4% 12.1% DPS Balance sheet Ratio Analysis M$ in millions, year end Jul FY12 FY13 FY14E FY15E FY16E M$ in millions, year end Jul Cash and cash equivalents 1,616 1,745 1,793 1,720 1,749 EBITDA margin Accounts receivable 1,729 1,963 1,992 2,323 2,376 Operating margin Inventories 1,878 2,008 2,038 2,077 2,124 Net margin Others 0 0 0 0 0 Current assets 5,223 5,717 5,823 6,120 6,249 . Sales per share growth LT investments 480 577 577 576 575 Sales growth Investments in associates 1,660 1,803 2,111 2,481 2,888 Net profit growth Other long term assets 123 145 141 138 135 EPS growth Net fixed assets 1,009 1,568 1,845 2,120 2,393 Total Assets 8,494 9,809 10,498 11,436 12,240 Interest coverage (x) . Liabilities Net debt to equity Short-term loans 1,327 741 511 511 511 Sales/assets Payables 1,721 1,657 1,682 1,961 2,006 Assets/equity Others 53 82 17 58 80 ROE Total current liabilities 3,100 2,481 2,210 2,530 2,597 ROCE . Long-term debt 855 1,717 2,200 2,199 2,199 Other liabilities 270 504 504 504 504 Total Liabilities 4,225 4,702 4,914 5,234 5,300 Minorities 221 226 226 226 226 Shareholder's equity 4,048 4,881 5,358 5,977 6,713 BVPS 1.95 2.35 2.38 2.65 2.98 Source: Company reports and J.P. Morgan estimates.
FY12 539 22 (103) (126) 332 (83) 0 (17) (8) 262 15 0 (166) 1,386 1,616 0.08
FY13 FY14E FY15E FY16E 448 501 664 753 24 26 28 31 (429) (34) (90) (55) (56) (232) (483) (524) (13) 261 119 204 (73) 0 4 (2) (90) 197 0 (177) 1,616 1,745 0.09 (300) 0 (4) (4) (36) 0 0 (217) 1,745 1,793 0.11 (300) 0 (4) (3) (178) 0 0 (281) 1,793 1,720 0.14 (300) 0 (5) (4) (92) 0 0 (315) 1,720 1,749 0.14
FY12 FY13 FY14E FY15E FY16E 18.2% 12.1% 13.4% 15.1% 16.7% 17.5% 11.5% 12.7% 14.4% 16.0% 17.7% 16.2% 19.4% 21.2% 23.2% 14.7% 15.5% 28.7% 27.8% 33.6 25.8% 25.8% 15.1% 15.1% NM (6.3%) 1.5% 15.0% 6.2% 140.1 16.4% 0.4 2.0 14.9% 5.6% 16.6% 16.6% 28.9% 28.9% 165.1 16.0% 0.4 1.9 17.2% 6.7% 2.3% 2.3% 12.6% 12.6% 157.7 13.9% 0.4 1.9 17.2% 7.1%
13.3% 14.0% 0.4 0.4 2.1 2.0 14.2% 14.1% 7.1% 5.2%
251
Geely Automobile Holdings Ltd.

Overweight
global.geely.com/
Company overview Geely Automobile is among the top local branded auto producers in China. It is engaged in the production and sale of small cars in China. Unlike most of its domestic peers, Geely is not just an assembler, but also an integrated auto manufacturer. Investment case 1) Localization of selective Volvo models, including S60L sedan at Chengdu plant (70% owned by Geely parent) and XC90 SUV at Daqing plant (50% owned by Geely parent). Once the operations turn profitable, we believe likely in 2H14 or after, Geely parent is expected to inject the asset into the listco at fair market value. 2) Rebranding and enhancing dealer efficiency (e.g. avg per store sales should rise by ~10% in 2014E from current ~360-380 units p.a.) with new sales& marketing head joined recently from GM. Resilience of the growth outlook Government grants have been a concern for investors on Geely's earnings quality, although we would argue that subsidy itself is not free money and a large part of it is related to expansion or R&D. We forecast Geely's core auto earnings, on a pretax level, if simply stripping out the subsidy, could top Rmb4.4bn, leading to PAT after minority of Rmb3.45bn in 2014E. Risks to the earnings outlook in 2014 1) Lower-than-expected sales volume of Geelys sedan and SUV businesses, and 2) lower-than-expected margins on heightening competitive pressure along with oversupply in the passenger vehicle sector in 2014E leading to a worse-than-expected price war. Price target, and risks to our investment view We maintain OW on Geely with a PT of HK$7.5 (June-14) based on 13.5x forward PER or the higher end of its historical trading band, but in line with Great Wall Motor when it was re-rated back in 2009-11 when the PER multiple expanded from 5x to 18x. Considering Geelys strong model line-ups in both sedan and SUV business and JV development with Volvo in 2014, we believe our PT is achievable. Risks include: Slower-than-expected development and cooperation with Volvo Car is another potential swing to the companys longer-term profitability and share price performance.

AC
Abs Rel
YTD 7.6% 14.6%
1m -9.8% -11.8%
3m 19.3% 9.9%
12m 13.5% 14.4%
Company Data 52-week Range (HK$) Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value ($ mn) HSCEI Exchange Rate
4.75-2.84 8,267 25,698 4,212 3.95 06 Nov 13 59.6% 84.73 43.6 1,0637.15 7.75
Geely Automobile Holdings Ltd. (Reuters: 0175.HK, Bloomberg: 175 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Rmb mn) 20,965 24,628 33,198 42,449 EBIT (Rmb mn) 2,222 2,756 3,759 4,529 Net Profit (Rmb mn) 1,543 2,040 2,737 3,446 EPS (Rmb) 0.21 0.27 0.33 0.42 DPS (Rmb) 0.02 0.03 0.04 0.06 Revenue growth (%) 4.3% 17.5% 34.8% 27.9% EPS growth (%) 11.5% 30.6% 22.4% 25.9% ROE 17.5% 18.2% 19.2% 19.9% P/E (x) 15.0 11.5 9.4 7.5 P/BV (x) 2.4 1.8 1.6 1.3 Dividend Yield 0.8% 0.9% 1.3% 1.9%
FY15E 53,549 5,608 4,261 0.52 0.07 26.1% 23.6% 20.1% 6.0 1.1 2.3%
252
Geely Automobile Holdings Ltd.: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y Gross margin Operating Profit % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Net margin Wt. Avg. Shares (MM) Wt. Avg. EPS (Rmb) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents ST investments Accounts receivable Inventories Others Current assets Cash flow statement FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 24,628 33,198 42,449 53,549 Earnings before tax 17.5% 34.8% 27.9% 26.1% Depreciation & amortization 4,559 6,606 8,518 10,779 Change in working capital 19.3% 44.9% 28.9% 26.5% Others 18.5% 19.9% 20.1% 20.1% Cash flow from operations 2,768 3,770 4,670 5,769 15.2% 36.2% 23.8% 23.5% Purchase of fixed assets 11.2% 11.3% 10.7% 10.5% Others (237) (201) (242) (242) Cash flow from investment 2,529 3,568 4,428 5,527 15.8% 41.1% 24.1% 24.8% Equity raised/(repaid) (479) (821) (841) (1,105) Debt raised/(repaid) 19.0% 23.0% 19.0% 20.0% Other 2,040 2,737 3,446 4,261 Dividends paid 32.2% 34.2% 25.9% 23.6% Cash flow from financing 8.3% 8.2% 8.1% 8.0% Beginning cash 7,541 8,267 8,267 8,267 Ending cash 0.27 0.33 0.42 0.52 30.6% 22.4% 25.9% 23.6% Ratio Analysis FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 3,384 4,502 6,280 6,186 9,307 Gross margin 12 13 13 13 13 Operating margin 10,551 11,569 13,254 16,479 19,953 Net margin 1,358 1,822 2,987 3,254 3,515 1,702 1,948 2,995 3,914 5,903 Sales growth 17,006 19,855 25,529 29,846 38,692 Net profit growth Gross profit growth LT investments 87 199 199 209 219 Operating profit growth Net fixed assets 6,796 7,008 9,687 11,756 13,245 ROE Goodwill 3,708 4,282 4,282 4,582 4,982 Other LT assets 0 37 37 37 37 Total Assets 27,597 31,380 39,733 46,429 57,174 Short-term loans 6 7 3,157 4,683 4,683 Payables 7,386 9,815 11,242 13,447 17,788 Others 7,592 6,872 7,465 8,358 10,351 Total current liabilities 14,985 16,693 21,863 26,488 32,823 Long term debt 2,370 1,374 1,674 147 147 Other LT liabilities 92 109 109 117 125 Total non-current liabilities 2,462 1,483 1,783 264 272 Total Liabilities 17,447 18,176 23,646 26,752 33,095 Shareholders' equity 9,582 12,887 15,620 19,060 23,312 Minorities 568 317 467 617 767 Source: Company reports and J.P. Morgan estimates. FY11 20,965 4.3% 3,820 2.7% 18.2% 2,402 11.6% 10.6% (211) 2,183 14.9% (467) 21.4% 1,543 12.8% 7.4% 7,450 0.21 11.5% FY11 FY12 FY13E FY14E FY15E 2,183 2,529 3,568 4,428 5,527 642 860 321 431 511 (1,647) 1,503 (1,429) (1,294) 600 804 (3,684) 1,979 (781) (1,019) 1,208 4,438 1,700 2,784 5,619 (1,420) (1,076) (3,000) (2,500) (2,000) (734) (852) 0 (300) (400) (2,953) (2,071) (3,000) (2,800) (2,400) 14 618 716 (1,460) (166) (193) (170) (170) 393 (1,206) 4,393 3,030 3,030 4,189 0 3,450 0 (59) 3,391 4,189 6,280 0 0 0 (78) (78) 6,280 6,186 0 0 0 (97) (97) 6,186 9,307
FY11 18.2% 10.6% 7.4% 4.3% 12.8% 2.7% 11.6% 17.5%
FY12 FY13E FY14E FY15E 18.5% 19.9% 20.1% 20.1% 11.2% 11.3% 10.7% 10.5% 8.3% 8.2% 8.1% 8.0% 17.5% 32.2% 19.3% 15.2% 18.2% 34.8% 34.2% 44.9% 36.2% 19.2% 27.9% 25.9% 28.9% 23.8% 19.9% 26.1% 23.6% 26.5% 23.5% 20.1%
253
Genting Plantations
Overweight
www.gentingplantations.com
GENP.KL,GENP MK Price: M$11.00 Price Target: M$12.60
Malaysia Plantations Ying-Jian Chan, CFA

AC
Company overview Genting Plantations (GENP) is a listed plantation entity, of which 54% is owned by Genting Bhd. GENP has 59,623ha of planted land bank in Malaysia and 55,816ha in Indonesia. Its JV in Indonesia since 2005/06 has rapidly accumulated 162,741ha of plantation land in the region. Investment case GENPs Indonesian estates have rapidly expanded since 2005 and we expect it to double its planted area to about 120,000ha within the next four years exceeding its Malaysia planted area. Hence, we expect a doubling in production growth from maturing Indonesian estates in four years just as the 2013 crop comes into its maiden harvest. GENP may also benefit from Iskandar exposure due to the rising demand for properties in the area and potential opportunistic conversion of ageing plantation land. Resilience of the growth outlook GENP has doubled its planted area to 120,656ha following six straight years of aggressive new plantings in Indonesia. We expect Indonesian FFB output to improve from 6% of total FFB production in FY12 to 15% in FY13E and 18% in FY14E. This would help GENP double current FFB production levels by FY16E. Commissioning of new mills in Kalimantan would allow more value extraction from its own FFB harvest into CPO to third-parties from FY13. Risks to the earnings outlook in 2014 Risks to the earnings outlook in 2014 include regulatory hurdles in Indonesia that reduces new planting pace; concentrated exposure to Kalimantan; and cost overruns on newly planted estates. Price target, and risks to our investment view Our Dec-14E PT of M$12.60 is based on a sum-of-the-parts, valuing the plantation business at 22x FY14 P/E, in line with the P/E for KLK's plantations business given the presence of growth drivers for both companies in Indonesia, and property at 1.5x P/B. Key downside risks are a further decline in CPO prices and sub-optimal yield performance.
(65) 6882-2378 ying.jian.yj.chan@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Hoy Kit Mak

Abs Rel
YTD 22.6% 14.7%
1m 11.1% 9.4%
3m 10.9% 9.5%
12m 24.7% 14.9%
759 8,347 2,630 11.00 06 Nov 13 24.8% 0.30 2.89 0.9 1807.47 3.17 Dec
Genting Plantations (Reuters: GENP.KL, Bloomberg: GENP MK) M$ in mn, year-end Dec FY11A FY12A FY13E Revenue (M$ mn) 1,336 1,233 1,260 Net Profit (M$ mn) 442 327 251 Core Profit (M$ mn) 442 327 286 EPS (M$) 0.58 0.43 0.33 Core EPS (M$) 0.58 0.43 0.38 DPS (M$) 0.12 0.09 0.08 Revenue growth (%) 35.2% (7.7%) 2.1% EPS growth (%) 36.2% (26.0%) (23.4%) Core EPS Growth 36.2% (26.0%) (12.7%) ROE 14.5% 9.8% 8.1% Core P/E (x) 18.9 25.5 29.2 P/BV (x) 2.6 2.4 2.3 Dividend Yield 1.1% 0.9% 0.8%
FY14E 1,569 375 375 0.49 0.49 0.11 24.5% 49.6% 31.3% 10.0% 22.3 2.1 1.0%
FY15E 1,808 453 453 0.60 0.60 0.13 15.2% 20.9% 20.9% 11.1% 18.4 2.0 1.2%
254
Genting Plantations: Summary of Financials

Income Statement M$ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Minority Interest Net income (reported) % change Y/Y Net Profit (Recurring) Shares outstanding EPS (reported) Balance sheet M$ in millions, year end Dec Cash Accounts receivable Inventories Others Current assets LT investments Net fixed assets Total Assets FY11 1,336 35.2% 641 37.2% 48.0% 597 37.3% 44.7% (2) 601 36.7% (159) 26.4% (1) 442 36.3% 442 759 0.58 FY11 1,017 113 129 148 1,407 882 4,106 FY12 1,233 (7.7%) 452 (29.6%) 36.6% 395 (33.8%) 32.1% (4) 404 (32.8%) (82) 20.3% 5 327 (26.0%) 327 759 0.43 FY12 951 161 127 228 1,468 1,011 4,724 FY13E 1,260 2.1% 345 (23.7%) 27.4% 292 (26.2%) 23.1% (1) 310 (23.2%) (62) 20.0% 2 251 (23.4%) 286 759 0.33 FY14E 1,569 24.5% 496 43.9% 31.6% 435 49.3% 27.8% (1) 464 49.6% (93) 20.0% 4 375 49.6% 375 759 0.49 FY15E 1,808 15.2% 595 20.0% 32.9% 533 22.3% 29.5% (1) 561 20.9% (112) 20.0% 4 453 20.9% 453 759 0.60
Cash flow statement M$ in millions, year end Dec Profit before tax Depr. & amortization Change in working capital Other non-cash items Cash flow from operations Capex Disposal/(purchase) Cash flow from investing Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing Net change in cash Beginning cash Ending cash Free cash flow DPS Ratio Analysis M$ in millions, year end Dec EBITDA margin Operating margin Net profit margin SG&A/Sales
FY11 601 44 81 (191) 535 (244) 1 (352) 0 163 (12) (73) 78 261 756 1,017 291 0.12 FY11 48.0% 44.7% 33.1% 10.0%
FY12 404 56 (84) (185) 192 (316) 11 (363) 0 216 (17) (92) 106 (64) 1,017 951 (124) 0.09 FY12 36.6% 32.1% 26.5% -
FY13E FY14E 310 464 53 60 (8) (9) (60) (89) 296 426 (500) 0 (500) 0 0 0 (63) (63) (267) 951 685 (204) 0.08 FY13E 27.4% 23.1% 22.7% (400) 0 (400) 0 0 0 (82) (82) (56) 685 628 26 0.11 FY14E 31.6% 27.8% 23.9% 24.5% 49.3% 49.6% 49.6% 352.5 1.8%
FY15E 561 63 (7) (108) 509 (400) 0 (400) 0 0 0 (100) (100) 9 628 637 109 0.13 FY15E 32.9% 29.5% 25.1% 15.2% 22.3% 20.9% 20.9% 423.0 1.5%
Short-term loans 0 1 Payables 202 258 Others 29 6 Total current liabilities 231 264 Long-term debt 427 703 Other liabilities 96 104 Total Liabilities 754 1,071 Shareholder's equity 3,234 3,424 Total Liabilities & equity 4,106 4,724 BVPS (M$) 4.26 4.51 Source: Company reports and J.P. Morgan estimates.
FY13E FY14E FY15E 685 628 637 107 133 153 121 151 174 228 228 228 1,141 1,141 1,193 - Sales growth 1,151 1,191 1,228 EBIT growth 4,844 5,183 5,573 Net profit growth EPS growth 1 1 1 190 237 273 Interest coverage (x) 6 6 6 Net debt to equity 197 243 279 703 703 703 Sales/assets 104 104 104 Assets/equity 1,003 1,050 1,086 ROE 3,612 3,904 4,258 ROCE 4,844 5,183 5,573 4.76 5.15 5.61
35.2% (7.7%) 2.1% 37.3% (33.8%) (26.2%) 36.3% (26.0%) (23.4%) 36.2% (26.0%) (23.4%) 318.6 (17.6%) 119.6 (6.8%) 245.0 0.5%
0.4 0.3 0.3 0.3 0.3 125.0% 132.6% 136.0% 133.4% 131.8% 14.5% 9.8% 8.1% 10.0% 11.1% 13.0% 8.1% 5.5% 7.8% 8.9%
255
Global Logistic Properties Ltd

Overweight
www.glprop.com/
GLPL.SI,GLP SP Price: S$3.08 Price Target: S$3.15
Singapore Property Joy Wang

AC
Company overview Global Logistics Properties Limited (GLP) is a leading provider of modern logistics facilities in China, Japan and Brazil. GLP develops, owns, manages and leases out a portfolio of 578 completed logistics facilities in China, Japan and Brazil with a total GFA of 21.4million sqm, and has a development pipeline of 6.5million sqm. Investment case Leasing momentum for China continues to remain strong despite subdued 1QFY14 leasing numbers, with a notable pickup in leasing announcements in 2QFY14. With the group delivering on its capital recycling plan in Japan, the market will focus on its growth progress in China, in our view. We also note that after several quarters of consolidation, demand from e-commerce platforms in China has picked up recently. Resilience of the growth outlook Growth in China e-commerce remains a key demand driver for GLP, with long-term sectoral growth remaining intact in our view. Based on our research from our Consumer analyst Shen Li, the level of e-commerce penetration in China has reached 9% from 2% over the last 3.5 years, and will continue to take market share. Ecommerce currently represents 20% of lease area in China.
(65) 6882-2312 joy.qq.wang@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Abs Rel
YTD 11.2% 11.1%
1m 8.8% 6.6%
3m 7.3% 8.4%
12m 14.1% 8.4%
Risks to the earnings outlook in 2014 Key risks to the earnings outlook would include the groups inability to meet our expectations of 2million sqm China completions in FY14, and also lower-thanexpected earnings contributions from its China, Japan and Brazil joint ventures. Price target, and risks to our investment view Our Jun-14 price target of S$3.15 is based on our FY15E SOP (net asset value S$2.42/share; AUM business S$0.22/share, or 20x current year fee earnings; the portfolio intangible value is S$0.48/share, or 20% premium over the net tangible value. Key downside risks include: 1) volatility in JPY and RMB that could swing the group's net profit and net asset value in USD; 2) unexpected period with soft leasing activities that could result in GLP cutting back on development and investment, and 3) inability to deploy the groups surplus capital accretively.
Company Data Shares O/S (mn) Market Cap ($ mn) Market Cap ($ mn) Price (S$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (S$ mn) 3M - Avg daily value ($ mn) FTSTI Exchange Rate Fiscal Year End
4,596 11,393 11,393 3.08 05 Nov 13 9.13 26.13 21.0 3203.94 1.24 Mar
Global Logistic Properties Ltd (Reuters: GLPL.SI, Bloomberg: GLP SP) $ in mn, year-end Mar FY12A FY13A FY14E FY15E Revenue ($ mn) 566 642 561 677 Net Profit ($ mn) 541 684 640 664 EPS ($) 0.12 0.15 0.13 0.14 Core EPS ($) 0.07 0.08 0.06 0.07 DPS ($) 0.02 0.03 0.03 0.03 Revenue growth (%) 19.4% 13.5% (12.7%) 20.7% EPS growth (%) (23.6%) 24.9% (8.4%) 3.7% ROCE 3.9% 4.3% 3.9% 4.0% ROE 7.5% 8.5% 7.6% 7.6% P/E (x) 21.1 16.9 18.4 17.8 Core P/E (x) 36.3 33.0 43.4 37.4 P/BV (x) 1.5 1.4 1.4 1.3 EV/EBITDA (x) 31.7 24.5 31.5 29.7 Dividend Yield 0.9% 1.3% 1.3% 1.3% RNAV/Share 2.83 3.12
FY16E 833 639 0.13 0.08 0.03 23.0% (3.8%) 4.2% 6.9% 18.4 32.8 1.2 27.1 1.3% -
256
Global Logistic Properties Ltd: Summary of Financials

Income Statement $ in millions, year end Mar Revenues % change Y/Y EBIT % change Y/Y EBIT Margin (%) Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Core net profit % change Y/Y Shares outstanding EPS (reported) ($) % change Y/Y DPS % change Y/Y Balance sheet $ in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets FY13 642 13.5% 590 17.4% 91.8% 124 842 31.9% (126) 15.0% 684 26.5% 350 11.4% 4,758 0.15 24.9% 0.03 40.0% FY13 1,957 304 2,318 FY14E 561 (12.7%) 500 (15.2%) 89.2% 137 737 (12.5%) (77) 10.4% 640 (6.4%) 272 (22.4%) 4,758 0.13 (8.4%) 0.03 (2.1%) FY14E 1,044 304 1,405 FY15E 677 20.7% 571 14.1% 84.3% 164 767 4.2% (80) 10.5% 664 3.7% 315 15.9% 4,758 0.14 3.7% 0.03 0.0% FY15E 1,020 304 1,381 2,361 11,331 15,567 95 529 52 677 4,402 843 5,922 8,997 1.89 FY16E 833 23.0% 678 18.8% 81.4% 225 738 (3.8%) (73) 9.9% 639 (3.8%) 359 14.0% 4,758 0.13 (3.8%) 0.03 0.0% FY16E 1,124 304 1,485 Cash flow statement $ in millions, year end Mar EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis $ in millions, year end Mar EBIT Margin (%) Net profit margin SG&A/Sales FY13 590 0 8 (282) 411 (1,020) (522) 331 (1,118) (150) (108) 1,616 1,957 0.03 FY13 91.8% 106.6% 12.1% 13.5% 26.5% 24.9% 5.8 8.8% 9.6% 0.0 1.7 8.5% 4.3% FY14E 500 0 0 (335) 306 (1,178) (773) 0 425 (161) (153) 1,957 1,044 0.03 FY14E 89.2% 114.2% (14.5%) (12.7%) (6.4%) (8.4%) 4.5 19.4% 24.0% 0.0 1.6 7.6% 3.9% FY15E 571 0 0 (285) 379 (1,331) (818) 0 1,190 (203) (153) 1,044 1,020 0.03 FY15E 84.3% 98.1% 20.7% 20.7% 3.7% 3.7% 3.8 26.2% 35.5% 0.0 1.7 7.6% 4.0% FY16E 678 0 0 (161) 478 (1,468) (799) 0 1,468 (268) (153) 1,020 1,124 0.03 FY16E 81.4% 76.8% 23.0% 23.0% (3.8%) (3.8%) 3.2 32.2% 47.4% 0.1 1.8 6.9% 4.2%
LT investments 1,712 2,014 Net fixed assets 8,722 9,941 Total Assets 13,248 13,855 Liabilities ST Loans 95 95 Payables 529 529 Others 52 52 Total current liabilities 677 677 Long-term debt 2,787 3,212 Other liabilities 737 791 Total Liabilities 4,201 4,679 Shareholders' equity 8,398 8,527 BVPS 1.77 1.79 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 2,488 Sales growth 13,054 Net profit growth 17,521 EPS growth Interest coverage (x) 95 Net debt to total capital 529 Net debt to equity 52 Sales/assets (x) 677 Assets/equity (x) 5,870 ROE 884 ROCE 7,431 9,442 1.98
257
Golden Agri-Resources Ltd

Overweight
www.goldenagri.com.sg/
GAGR.SI,GGR SP Price: S$0.58 Price Target: S$0.70
Singapore Plantations Ying-Jian Chan, CFA

AC
Company overview Golden Agri-Resources is the world's second largest oil palm plantation company with a total planted area of over 400,000 hectares located in Indonesia. It is involved in both upstream cultivation and downstream refining. GAR also operates in China through an integrated deep sea port, storage, oil-seed crushing facilities and refinery facilities in Ningbo and Zhuhai. Investment case Management has maintained its 5-10% production growth guidance despite flat production trend in 1H13 signaling the potential of strong pick up in 2H13. We forecast a strong c.8% growth in nucleus FFB and CPO production for FY14E translating into a Y/Y sales and EPS growth of 25% and 53%, respectively. We also expect GGR to be the biggest beneficiary amongst the Singapore planters of the IDR depreciation in 3Q13, primarily via its lower operating expenses which is c.70% IDR-denominated. Resilience of the growth outlook Besides a recovery from the tree stress due to dryness of weather this year, production kicker should also come from the c.16000 ha of mature area acquired in end-2012 experiencing yield improvement after it comes under the management of the Group. We also expect earnings of its China operations to improve as trading capabilities get boosted by earlier management team hires. Risks to the earnings outlook in 2014 (1) Any hiccups in the implementation of B10 program in Indonesia, smooth implementation of which is expected to augment CPO demand and strengthen prices; (2) Under recovery in FFB/CPO production, assumed on the back of improving yields. Price target, and risks to our investment view Our Dec-14 PT for GAR is based on 14x FY14E P/E which is in line with historical mean. Our PT implies P/E multiples of 22.0x/14.3x and dividend yields of 1.4%/2.1% for FY13E/14E. Key downside risks to our PT include weaker than expected CPO demand and higher than expected output which can depress CPO prices.
Abs Rel
YTD -14.1% -14.2%
1m 10.5% 8.3%
3m 10.5% 11.6%
12m -5.7% -11.4%
Company Data Shares O/S (mn) Market Cap (S$ mn) Market Cap ($ mn) Price (S$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (S$ mn) 3M - Avg daily value ($ mn) FTSTI Exchange Rate Fiscal Year End
12,570 7,291 5,868 0.58 05 Nov 13 50.0% 48.90 26.50 21.3 3203.94 1.24 Dec
Golden Agri-Resources Ltd (Reuters: GAGR.SI, Bloomberg: GGR SP) $ in mn, year-end Dec FY11A FY12A FY13E Revenue ($ mn) 5,953 6,052 4,548 Net Profit ($ mn) 1,268 410 275 Net Profit (Recurring) ($ mn) 571 404 275 EPS ($) 0.10 0.03 0.02 EPS (Recurring) ($) 0.05 0.03 0.02 DPS ($) 0.01 0.01 0.01 Revenue growth (%) 69.9% 1.7% (24.8%) EPS growth (%) (11.5%) (68.4%) (33.0%) EPS Recurring Growth 46.6% (30.8%) (32.0%) ROE 7.7% 4.9% 3.2% P/E (x) 4.5 14.3 21.4 P/BV (x) 0.7 0.7 0.7 Dividend Yield 3.1% 2.1% 1.4%
FY14E 5,679 421 421 0.03 0.03 0.01 24.9% 53.3% 53.3% 4.7% 13.9 0.7 2.2%
FY15E 6,153 480 480 0.04 0.04 0.01 8.4% 14.1% 14.1% 5.2% 12.2 0.6 2.5%
258
Golden Agri-Resources Ltd: Summary of Financials

Income Statement $ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Minority Interest Net income (reported) % change Y/Y Net Profit (Recurring) Shares outstanding EPS (reported) Balance sheet $ in millions, year end Dec Cash Accounts receivable Inventories Others Current assets LT investments Net fixed assets Total Assets FY11 5,953 69.9% 1,853 (9.8%) 31.1% 1,759 (10.8%) 29.5% (53) 1,712 (11.2%) (428) 25.0% (16) 1,268 (10.9%) 571 12,285 0.10 FY11 277 234 751 620 1,882 91 1,759 11,837 FY12 6,052 1.7% 818 (55.8%) 13.5% 703 (60.1%) 11.6% (67) 612 (64.3%) (196) 32.1% (6) 410 (67.7%) 404 12,570 0.03 FY12 560 400 840 622 2,422 531 2,007 13,286 FY13E 4,548 (24.8%) 600 (26.7%) 13.2% 464 (33.9%) 10.2% (67) 397 (35.0%) (119) 30.0% (4) 275 (33.0%) 275 12,570 0.02 FY14E 5,679 24.9% 839 40.0% 14.8% 677 45.9% 11.9% (68) 609 53.3% (183) 30.0% (6) 421 53.3% 421 12,570 0.03 FY15E 6,153 8.4% 951 13.3% 15.5% 765 13.0% 12.4% (70) 695 14.1% (209) 30.0% (6) 480 14.1% 480 12,570 0.04 Cash flow statement $ in millions, year end Dec Profit before tax Depr. & amortization Change in working capital Other non-cash items Cash flow from operations Capex Disposal/(purchase) Cash flow from investing Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing Net change in cash Beginning cash Ending cash Free cash flow DPS Ratio Analysis $ in millions, year end Dec EBITDA margin Operating margin Net profit margin SG&A/Sales FY11 1,712 95 (115) (853) 651 (446) 6 (561) 0 105 (44) (79) (19) 70 218 277 204 0.01 FY11 31.1% 29.5% 9.6% 17.5% FY12 612 116 (116) 39 343 (410) 21 (910) 299 797 26 (244) 879 311 277 560 (68) 0.01 FY12 13.5% 11.6% 6.7% 16.2% FY13E 397 135 138 63 548 (550) 0 (550) 0 0 0 (82) (82) (84) 560 475 (2) 0.01 FY13E 13.2% 10.2% 6.0% 0.0% FY14E 609 162 (104) 62 479 (500) 0 (500) 0 0 0 (126) (126) (147) 475 328 (21) 0.01 FY14E 14.8% 11.9% 7.4% 0.0% 24.9% 45.9% 53.3% 53.3% 12.3 4.8% FY15E 695 186 (44) 64 623 (500) 0 (500) 0 0 0 (144) (144) (22) 328 307 123 0.01 FY15E 15.5% 12.4% 7.8% 0.0% 8.4% 13.0% 14.1% 14.1% 13.5 4.9%
Short-term loans 422 433 Payables 491 685 Others 231 184 Total current liabilities 1,143 1,302 Long-term debt 664 461 Other liabilities 1,917 2,905 Total Liabilities 3,725 4,668 Shareholder's equity 8,025 8,527 Total Liabilities & equity 11,837 13,286 BVPS ($) 0.65 0.68 Source: Company reports and J.P. Morgan estimates.
FY13E FY14E FY15E 475 328 307 301 375 407 631 788 854 622 622 622 2,029 2,114 2,190 531 531 531 Sales growth 2,422 2,760 3,074 EBIT growth 13,308 13,731 14,121 Net profit growth EPS growth 433 433 433 515 643 696 Interest coverage (x) 184 184 184 Net debt to equity 1,132 1,260 1,314 461 461 461 Sales/assets 2,905 2,905 2,905 Assets/equity 4,498 4,626 4,679 ROE 8,719 9,014 9,350 ROCE 13,308 13,731 14,121 0.69 0.72 0.74
69.9% 1.7% (24.8%) (10.8%) (60.1%) (33.9%) (10.9%) (67.7%) (33.0%) (11.5%) (68.4%) (33.0%) 34.7 8.8% 12.3 2.4% 9.0 3.3%
0.5 0.5 0.3 0.4 0.4 147.8% 151.8% 154.2% 152.5% 151.7% 7.7% 4.9% 3.2% 4.7% 5.2% 15.6% 5.1% 3.4% 4.9% 5.3%
259
Guangzhou Automobile Group Co. Ltd.

Overweight
www.gagc.com.cn/
Company overview Guangzhou Auto is the sixth-largest auto producer in China. It mainly produces and sells passenger vehicles through its GAC Toyota JV, Guangqi Honda JV, as well as Mitsubishi and Fiat JVs, and commercial vehicles through its GAC Bus and GAC Hino business. Investment case GACs model cycle has just started in 2H13, first by the launch of Honda Crider sedan in June-13, followed by whole new Honda Accord in Sep-13. Into 2014-15E, GAC is expected to introduce another 12 new or major redesigned models from its JVs, including Toyota, Mitsubishi, Fiat and Honda. A strong model cycle should bring GAC's bottom line to Rmb4.3bn in 2014 based on our forecast (or 12% above consensus), a level similar to 2011 or more than triple from only Rmb1.1bn in 2012. Resilience of the growth outlook Key potential catalysts include: 1) strong 3Q13 results should lead to consensus earnings upgrades for 2013 and 2014E. We note our 2014E estimate is 7% above the Street. 2) New model launches from major JVs into 2014-15E should enhance topline sales and thus contribute to net earnings.

AC
Abs Rel
YTD 38.3% 45.3%
1m 12.7% 10.7%
3m 19.5% 10.1%
12m 79.2% 80.1%
Risks to the earnings outlook in 2014 1) Failure of new model launches in 2014; 2) worse-than-expected sales from major JVs; 3) worse-than-anticipated turnaround of GACs own brand business, and 4) worse-than-expected demand in the overall market. Price target, and risks to our investment view We are Overweight on GAC with a June-2014 PT of HK$12, based on 14x forward PER (high end of its own historical trading range) and DCF analysis (key assumptions include risk free rate 5%, risk premium 6%, beta 1.2 and terminal growth 2%). With a strong model cycle and potential consensus earnings upgrades, we believe a re-rating is possible on the stock and its strong 3Q13 result is a support of our thesis. Risks include: lower-than-expected profit contribution from major JV businesses such as GAC Toyota, GAC Honda and GAC Mitsubishi due to unexpected tension between China and Japan.
10.00-4.98 6,414 47,954 7,861 9.50 06 Nov 13 100.0% 9.06 9.9 1,0637.15 7.75
Guangzhou Automobile Group Co. Ltd. (Reuters: 2238.HK, Bloomberg: 2238 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Rmb mn) 10,984 12,964 17,075 19,401 EBIT (Rmb mn) (167) (1,108) (550) 399 Net Profit (Rmb mn) 4,272 1,134 2,784 4,342 EPS (Rmb) 0.69 0.18 0.43 0.68 DPS (Rmb) 0.11 0.20 0.02 0.09 Revenue growth (%) 25.6% 18.0% 31.7% 13.6% EPS growth (%) (24.4%) (74.4%) 143.5% 56.0% ROE 15.6% 3.8% 8.5% 12.1% P/E (x) 10.8 42.0 17.2 11.0 P/BV (x) 1.6 1.5 1.4 1.3 Dividend Yield 1.5% 2.7% 0.3% 1.2%
FY15E 21,787 521 5,291 0.82 0.14 12.3% 21.9% 13.2% 9.1 1.1 1.8%
260
Guangzhou Automobile Group Co. Ltd.: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y Gross margin Operating Profit % change Y/Y Operating Margin Net Interest Earnings before tax % change Y/Y Tax Net income (reported) % change Y/Y Net margin Wt. Avg. Shares (MM) Wt. Avg. EPS (Rmb) Balance sheet Rmb in millions, year end Dec Cash and cash equivalents ST investments Accounts receivable Inventories Others Current assets FY11 10,984 25.6% 424 (42.9%) 3.9% (167) (186.2%) (1.5%) (415) 4,057 (26.5%) 110 4,272 (0.5%) 38.9% 6,148 0.69 FY12 12,964 18.0% 690 62.7% 5.3% (1,108) 564.1% (8.6%) (529) 1,000 (75.4%) 65 1,134 (73.5%) 8.7% 6,363 0.18 Cash flow statement FY13E FY14E FY15E Rmb in millions, year end Dec 17,075 19,401 21,787 Profit before tax 31.7% 13.6% 12.3% Depreciation & amortization 1,782 3,003 3,507 Change in working capital 158.2% 68.5% 16.8% Others 10.4% 15.5% 16.1% Cash flow from operations (550) 399 521 (50.4%) (172.5%) 30.6% Purchase of fixed assets (3.2%) 2.1% 2.4% Others (495) (525) (527) Cash flow from investment 2,814 4,712 5,742 181.4% 67.5% 21.9% Equity raised/(repaid) 56 (236) (287) Debt raised/(repaid) 2,784 4,342 5,291 Other 145.5% 56.0% 21.9% Dividends paid 16.3% 22.4% 24.3% Cash flow from financing 6,414 6,414 6,414 Beginning cash 0.43 0.68 0.82 Ending cash Ratio Analysis FY13E FY14E FY15E Rmb in millions, year end Dec 15,485 17,786 21,036 Gross margin 31 31 31 Operating margin 2,727 5,345 6,117 Net margin 2,179 2,471 2,755 4,350 2,424 3,058 Sales growth 24,772 28,058 32,997 Net profit growth Gross profit growth 17,128 17,138 17,148 Operating profit growth - ROE 4,141 4,141 4,141 10,103 13,369 15,592 56,144 62,706 69,878 0 0 0 5,866 7,026 8,174 6,519 7,512 8,505 12,385 14,538 16,679 8,039 8,539 9,039 564 564 564 8,603 9,103 9,603 20,988 23,641 26,282 34,084 37,843 42,224 1,072 1,222 1,372 FY11 4,057 317 (5,180) (633) FY12 FY13E 1,000 2,814 688 169 2,630 661 4,318 3,644 FY14E FY15E 4,712 5,742 234 277 899 115 5,845 6,134 (3,500) (2,500) 80 85 (3,420) (2,415) 500 500 0 0 (673) (1,019) (173) (519) 15,535 17,836 17,786 21,036 FY14E FY15E 15.5% 16.1% 2.1% 2.4% 22.4% 24.3%
(2,244) (3,000) (4,000) 1,977 (1,381) 75 (267) (4,381) (3,925) 429 56 (686) (201) 18,200 17,140 FY11 3.9% (1.5%) 38.9% 38 263 (1,077) 287 (686) (186) (1,725) 364 17,342 15,402 15,542 15,485 FY12 FY13E 5.3% 10.4% (8.6%) (3.2%) 8.7% 16.3%
FY11 FY12 17,140 15,542 2 31 2,980 1,095 1,537 1,397 0 2,208 21,659 20,274
LT investments 14,583 17,128 Net fixed assets Intangibles 3,257 4,141 Other LT assets 5,113 7,891 Total Assets 44,612 49,434 Short-term loans 0 0 Payables 2,528 3,928 Others 3,678 5,102 Total current liabilities 6,206 9,030 Long term debt 7,737 7,776 Other LT liabilities 483 564 Total non-current liabilities 8,220 8,340 Total Liabilities 14,426 17,370 Shareholders' equity 29,210 31,142 Minorities 976 922 Source: Company reports and J.P. Morgan estimates.
25.6% 18.0% 31.7% 13.6% 12.3% (0.5%) (73.5%) 145.5% 56.0% 21.9% (42.9%) 62.7% 158.2% 68.5% 16.8% (186.2%) 564.1% (50.4%) (172.5%) 30.6% 15.6% 3.8% 8.5% 12.1% 13.2%
261
HCL-Technologies
Overweight
www.hcltech.com
HCLT.BO,HCLT IN Price: Rs1,101.00 Price Target: Rs1,100.00
India eBusiness/IT Services Viju K George

AC
Company overview HCL Technologies (HCLT) is one of Indias largest IT services vendors, with presence in software services, infrastructure management, and BPO. The company has 85,000+ employees working for 500+ clients. HCL Tech has good leverage to high-growth services, with 33% of its revenues coming from Infra-management. Investment case HCLT has consistently delivered healthy revenue growth along with solid margin expansion over the last 7-8 quarters. Also, HCLT's operating cash flow performance continues to be robust. The company reported deal wins of more than USD 1 billion in each of the last 3 quarters, which provide near-term (CY14) visibility on revenue growth. We expect HCLT to benefit from increase in rebid deals as well. Our only concern is the lop-sided nature of revenue growth as infra-management drives growth solely, while software service business continues to struggle. Resilience of the growth outlook We believe HCLT has healthy revenue growth momentum (particularly in inframanagement) in an improving demand environment. HCLT is also well positioned to benefit from churn in large, legacy rebid deals opening up for renewal in CY14. Also, the strong deal wins over the last 3 quarters provides revenue visibility in CY14. Risks to the earnings outlook in 2014 The key risks for HCLT' earnings are: weakness in demand environment (particularly discretionary demand); an adverse immigration bill; pricing decline and supply-side pressures; continued weakness in Software Services business. Price target, and risks to our investment view Our Jun-14 price target of INR 1,100 is based on a one-year forward P/E multiple of 13x which embeds a one-year forward valuation discount of ~30% to TCS, which we believe is fair given HCLTs weaker margin profile and return ratios. Downside risks: slowdown in deal ramp-ups and appreciation of the rupee against the USD. Taking on higher-than normal share of lower-margin and/or asset-heavy risky deals could impact operating margins and return ratios, affecting HCLTs valuation.
(91-22) 6157-3597 viju.k.george@jpmorgan.com J.P. Morgan India Private Limited
Abs Rel
YTD 77.0% 71.9%
1m -1.6% -7.5%
3m 15.9% 5.9%
12m 79.4% 69.8%
Bloomberg HCLT IN, Reuters HCLT.BO

(Year-end Jun, INR mn) Revenue Operating Profit EBITDA Net profit (Reported) EPS P/E (x) EV/EBITDA (x) Cash Equity FY12 210,315 33,909 39,551 24,567 35.06 31.4 19.4 23,851 100,577
FY13 FY14E FY15E FY12 257,339 323,400 364,446 ROE(%) 26.6 50,651 71,913 75,471 CORE ROIC(%) 22.3 57,378 79,788 83,879 Quarterly EPS (Rs) 1Q 40,030 58,844 65,618 EPS (14) E 20.09 56.75 82.98 91.75 EPS (15) E 22.28 19.4 13.3 12.0 Local 1M 12.8 8.7 7.8 Abs. Perf.(%) 0.4% 46,455 85,462 124,714 Rel. Perf.(%) (6.6%) 133,300 194,761 252,562 Target Price (31-Mar-14)
FY13 FY14E FY15E 34.2 35.9 29.3 52-Week range 30.2 38.4 34.9 Share Out. (Com) 2Q 3Q 4Q Market Cap 19.51 20.87 22.50 Market Cap(US) 21.72 23.09 24.65 Free float 3M 12M Avg daily val (Rs) 15.9% 79.4% Dividend Yield 4.8% 68.6% Index Rs 1250.00 Exchange rate
1,178.45-602.00 707MN 778BN US$12,602MN 29.7% 1,581.67MN 0.7% 6317.35 61.73
262
HCL-Technologies: Summary of Financials
Income Statement Ratio Analysis Rs in millions, year end Jun FY12 FY13 FY14E FY15E FY16E Rs in millions, year end Jun Revenues 210,315 257,339 323,400 364,446 - Gross margin Cost of goods sold (141,265) (165,438) (202,007) (234,318) - EBITDA margin Gross Profit 69,050 91,900 121,393 130,127 - Operating margin R&D expenses - Net margin SG&A expenses (29,499) (34,522) (41,605) (46,248) - R&D/sales Operating profit (EBIT) 33,909 50,651 71,913 75,471 - SG&A/Sales EBITDA 39,551 57,378 79,788 83,879 Interest income - Sales growth Interest expense - Operating profit growth Investment income (Exp.) - Net profit growth Non-operating Income (expense) (1,169) 1,571 2,756 8,119 - EPS (reported) growth Earnings before tax 32,740 52,222 74,669 83,590 Tax (8,174) (12,192) (15,824) (17,972) - Interest coverage (x) Net income (reported) 24,567 40,030 58,844 65,618 Net income (adjusted) 24,567 40,030 58,844 65,618 - Net debt to total capital Net debt to equity EPS (reported) 35.06 56.75 82.98 91.75 EPS (adjusted) 35.06 56.75 82.98 91.75 - Asset turnover BVPS 143.09 188.86 273.77 352.05 - Working capital turns (x) DPS 10.58 8.09 8.02 8.03 - ROE Shares outstanding 701 705 709 715 - CORE ROIC Balance sheet Cash flow statement Rs in millions, year end Jun FY12 FY13 FY14E FY15E FY16E Rs in millions, year end Jun Cash and cash equivalents 23,851 46,455 85,462 124,714 - Net income Accounts receivable 50,085 57,598 79,000 86,650 - Depr. & amortization Inventories - Change in working capital Others 14,256 17,783 20,451 22,974 - Other Current assets 88,193 121,836 184,914 234,338 - Cash flow from operations LT investments 1,872 72 103 102 - Capex Net fixed assets 69,525 71,676 81,728 87,320 - Disposal/(purchase) Others 17,808 21,344 23,879 23,622 - Cash flow from investing Total Assets 177,397 214,928 290,623 345,382 - Free cash flow Liabilities Equity raised/(repaid) ST Loans - Debt raised/(repaid) Payables - Other Others 46,294 61,009 73,101 73,742 - Dividends paid Total current liabilities 46,294 61,009 73,101 73,742 - Cash flow from financing Long-term debt 18,016 6,491 5,579 2,079 - Net change in cash Other liabilities 12,510 14,128 17,183 16,998 - Beginning cash Total Liabilities 76,820 81,628 95,862 92,820 - Ending cash Shareholders' equity 100,577 133,300 194,761 252,562 Source: Company reports and J.P. Morgan estimates.
FY12 32.8% 18.8% 16.1% 11.7% 14.0% 31.2% 56.9% 51.7% 51.1% -
FY13 35.7% 22.3% 19.7% 15.6% 13.4% 22.4% 49.4% 62.9% 61.9% -
FY14E 37.5% 24.7% 22.2% 18.2% 12.9% 25.7% 42.0% 47.0% 46.2% -
FY15E FY16E 35.7% 23.0% 20.7% 18.0% 12.7% 12.7% 4.9% 11.5% 10.6% -
(6.2%) (42.8%) (69.5%) (94.4%) (5.8%) (30.0%) (41.0%) (48.6%) 1.3 5.4 26.6% 22.3% FY12 24,567 5,819 (3,491) 27,441 (10,766) (17,748) 16,675 (1,509) 2,377 0 (7,437) (6,569) 3,124 22,428 23,851 1.3 5.0 34.2% 30.2% FY13 40,030 6,790 7,203 54,327 (8,465) (10,678) 45,863 (1,917) (9,907) 0 (5,695) (17,519) 26,131 23,851 46,455 1.3 3.7 35.9% 38.4% FY14E 58,844 7,868 (9,311) 57,377 (17,435) (20,485) 39,943 8,310 2,143 0 (5,669) 4,784 41,675 46,455 85,462 1.1 2.7 29.3% 34.9%
FY15E FY16E 65,618 8,409 (7,009) 67,018 (13,521) (13,743) 53,497 (2,095) (3,684) 0 (5,721) (11,501) 41,774 85,462 124,714 -
263
Hiwin
Overweight
www.hiwin.com/
Company overview Hiwin is the third-largest linear motion vendor in the world, and its products include linear guideway, ball screw and industry robots. Hiwins customers are diversified, with machine tools and IT industry being the two major application areas. Investment case We expect Hiwins sales/profits to bottom in 2014 and grow 20%/50%, respectively, driven by continuous recovery in China and Europe. We believe improving PMI data and rising backlog orders among Taiwan machine tool vendors indicate positive end demand resumption, which bodes well for Hiwins heating growth momentum. Resilience of the growth outlook Industrial robots should emerge as a promising sector for Hiwin in 2014, with noticeable penetration into new customers, as the company has made good progress with a Taiwan foundry leader and a Japan auto front-runner and will start discussions with other vendors soon. EMS/ODMs are also gaining interest in one-station automation due to rising labor costs. Therefore, we believe industrial robots could bring another layer of growth for Hiwin in 2014.
Taiwan Precision Instruments William Chen

AC
(886-2) 2725-9871 william.chen@jpmorgan.com J.P. Morgan Securities (Taiwan) Limited
Abs Rel
YTD 0.7% -5.8%
1m 6.4% 7.4%
3m 16.9% 13.9%
12m 25.0% 10.6%
Risks to the earnings outlook in 2014 Hiwins earnings might be adversely impacted if the recovery in China and Europe turns out to be weaker than expected. Any hiccups during qualification for industrial robots could also dampen the fast-growing segments contribution to Hiwin. Price target, and risks to our investment view We derive our Jun-14 PT of NT$250 via 20x 2014E EPS, the high end of the historical valuation range. We think the valuation is justified, given: (1) growth expected in 2014 on an economic recovery; and (2) the scarcity of quality names in the Taiwan automation space. Key downside risks to our investment view include: (1) slower-than-expected penetration into Japan; (2) an unsustainable China demand recovery; and (3) a faster-than-expected increase in steel prices.
Bloomberg 2049 TT, Reuters 2049.TW

(Year-end Dec, NT$ bn) Sales Operating Profit EBITDA Pretax Profit Adj. Net Profit (New TW GAAP) New TW GAAP EPS (NT$) Net Debt / Equity Y/E BPS (NT$)
FY11 15.82 4.57 5.27 4.53 3.81 15.48 59.0% 37.54
FY12 FY13E FY14E 12.37 12.09 14.48 2.77 2.50 3.86 3.71 3.63 5.19 2.59 2.44 3.71 2.00 2.07 3.11 8.14 8.39 12.61 96.9% 96.4% 69.5% 42.11 47.88 58.22
New TW GAAP P/E P/BV (x) ROE(%) Cash Div (NT$) Quarterly EPS (NT$) EPS (12) EPS (13) E EPS (14) E
FY11 14.1 5.8 49.7 2.8 1Q 2.27 0.81 2.61
FY12 FY13E FY14E 26.7 25.9 17.3 5.2 4.5 3.7 20.4 18.7 23.8 5.1 2.2 2.3 2Q 3Q 4Q 2.56 1.99 1.32 1.76 2.75 3.07 2.96 3.78 3.26
Target Price (NT$) 52-Week range (NT$) Share Outstanding Free float Avg daily volume Avg daily val (USD) Dividend Yield (2013) QFII Holding (%) Market Cap(USD)
250 247.57-163.59 235mn 65.0% 2.20mn 15.5mn 1.0% 32.0% 1,734mn
Source: Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash. Priced at 11 November.
264
Hiwin: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) FY10 FY11 FY12 FY13E 9,488 15,820 12,372 12,090 (5,848) (9,323) (7,639) (7,419) 3,640 6,497 4,733 4,671 (237) (268) (391) (493) (1,261) (1,663) (1,568) (1,682) 2,142 4,566 2,774 2,496 2,696 5,268 3,715 3,626 1 1 0 0 (55) (52) (106) (152) (55) (51) (106) (152) (120) 14 (80) 96 1,968 4,530 2,589 2,440 (278) (721) (662) (462) 1,690 3,809 2,003 2,068 1,690 3,809 2,003 2,068 8.14 8.14 42.11 5.09 246 FY12 1,317 4,589 3,766 316 9,988 449 14,557 316 25,309 8.39 8.39 47.88 2.20 246 FY13E 1,230 5,027 4,253 358 10,869 451 15,070 2,633 29,023 FY14E 14,480 (8,586) 5,894 (434) (1,604) 3,856 5,192 13 (157) (144) 0 3,712 (695) 3,107 3,107 12.61 12.61 58.22 2.27 246 FY14E 2,374 5,289 4,475 377 12,515 451 15,951 2,633 31,550
Ratio Analysis NT$ in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth EPS (reported) growth Interest coverage (x) Net debt to total capital Net debt to equity Asset turnover Working capital turns (x) ROE ROIC Cash flow statement NT$ in millions, year end Dec Net income Depr. & amortization Change in working capital Other Cash flow from operations Capex Disposal/(purchase) Cash flow from investing Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing Net change in cash Beginning cash Ending cash
FY10 38.4% 28.4% 22.6% 17.8% 2.5% 13.3%
FY11 41.1% 33.3% 28.9% 24.1% 1.7% 10.5%
FY12 38.3% 30.0% 22.4% 16.2% 3.2% 12.7%
FY13E 38.6% 30.0% 20.6% 17.1% 4.1% 13.9%
FY14E 40.7% 35.9% 26.6% 21.5% 3.0% 11.1%
116.9% 66.7% (21.8%) (2.3%) 19.8% 563.6% 113.1% (39.2%) (10.0%) 54.5% 507.4% 125.4% (47.4%) 3.2% 50.2% 492.5% 125.4% (47.4%) 3.2% 50.2% 49.4 35.4% 54.8% 0.8 10.4 31.5% FY10 1,690 553 391 0 2,635 (1,935) (1,998) 747 0 201 (117) (67) 17 654 408 1,062 104.1 37.1% 59.0% 0.9 15.4 49.7% FY11 3,809 702 (1,397) 0 3,113 (4,240) (4,606) (1,085) 0 2,000 69 (684) 1,385 (108) 1,062 954 35.1 49.2% 96.9% 0.5 9.3 20.4% FY12 2,003 941 (3,095) 0 (228) (3,886) (3,674) (4,035) 0 4,972 623 (1,330) 4,265 363 954 1,317 23.9 36.1
EPS (reported) 6.87 15.48 EPS (adjusted) 6.87 15.48 BVPS 24.76 37.54 DPS 0.27 2.78 Shares outstanding 246 246 Balance sheet NT$ in millions, year end Dec FY10 FY11 Cash and cash equivalents 1,062 954 Accounts receivable 1,955 3,761 Inventories 2,026 2,971 Others 181 278 Current assets 5,224 7,963 LT investments 328 703 Net fixed assets 8,073 11,612 Others 282 273 Total Assets 13,907 20,551 Liabilities ST Loans 1,290 1,794 Payables 2,304 2,768 Others 995 1,982 Total current liabilities 4,589 6,544 Long-term debt 3,111 4,607 Other liabilities 115 162 Total Liabilities 7,815 11,312 Shareholder's equity 6,092 9,239 Source: Company reports and J.P. Morgan estimates.
49.1% 41.0% 96.4% 69.5% 0.4 0.5 16.0 13.8 18.7% 23.8% FY13E FY14E 2,068 3,107 1,131 1,336 (25) (264) 0 0 3,083 4,089 (1,644) (2,217) (3,964) (2,217) 1,563 1,989 0 0 (1,227) 260 198 181 (631) (649) (1,660) (208) (2,540) 1,664 1,317 1,230 (1,223) 2,894
5,421 6,354 6,170 1,774 2,323 2,461 1,542 1,934 2,035 8,737 10,612 10,666 5,952 6,245 6,170 242 366 366 14,931 17,223 17,202 10,378 11,800 14,348
265
Hollysys Automation Technologies Ltd.

Overweight
www.hollysys.com.sg/home/
HOLI,HOLI US Price: $16.27 Price Target: $19.00
China Engineering Chapman Deng, CFA

AC
Company description Hollysys is a leading provider of automation and control technologies and applications in China. Founded in 1993, Hollysys' proprietary technologies are applied in its industrial automation solution suite including Distributed Control System (DCS), Programmable Logic Controller (PLC), RMIS, HAMS, OTS, highspeed railway signaling system of Train Control Center (TCC) and Automatic Train Protection (ATP), and other products, subway supervisory and control platform (SCADA), and nuclear conventional island automation and control system. Investment thesis We see secular growth in industrial automation as Hollysys is well positioned to gain market share from its overseas competitors. The key advantages of Hollysys include strong R&D capabilities, nationwide sales & service network, and management expects 15-20% growth in industrial automation in the medium term. Breakthrough in subway signaling segment would be a key catalyst in FY14 with Hollysys proprietary signaling system being certified. Hollysys is targeting at commercial bidding in Singapore and Malaysia. We expect both revenue and GPM upside in subway segment. Resilience of the growth outlook We believe Hollysyss unparalleled R&D capability will continue to drive revenue growth. Management expects track circuit, positive train control (PTC), subway signaling (CBTC), and factory automation (PLC application) to become meaningful revenue growth drivers in FY14/15. We expect Hollysys to generate 15-20% earnings growth in IA from now till 2020 with a view that growth is primarily driven by market share gain in the selected focus segments. Risks to the earnings outlook in 2014 Risks to earnings could come from an unexpected slowdown in China IA market, or delays in overseas market projects. Price target, and risks to our investment view Our Jun 14 PT of $19 is based on DCF (rfr 5%, WACC 13.6%, beta 1.6) and implies FY14 PER of 15x. Key risks to our price target are an unexpected slowdown in China IA market, or delays in overseas market projects.
(852) 2800-8577 chapman.zw.deng@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 32.4% 5.8%
1m 2.5% -1.0%
3m 14.2% 7.5%
12m 56.4% 25.1%
Company Data Shares O/S (mn) Market Cap ($ mn) Market Cap ($ mn) Price ($) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value ($ mn) 3M - Avg daily value ($ mn) CCMP Exchange Rate Fiscal Year End
56 919 919 16.27 05 Nov 13 58.5% 0.15 2.30 2.3 3939.86 1.00 Jun
Hollysys Automation Technologies Ltd. (Reuters: HOLI, Bloomberg: HOLI US) $ in mn, year-end Jun FY11A FY12A FY13A FY14E Revenue ($ mn) 274 346 372 534 Net Profit ($ mn) 42 59 58 72 EPS ($) 0.75 1.05 1.01 1.26 DPS ($) 0.00 0.00 0.00 0.00 Revenue growth (%) 47.4% 26.6% 7.4% 43.5% EPS growth (%) 53.0% 39.0% (3.3%) 24.7% ROE 17.4% 20.7% 15.3% 16.1% P/E (x) 21.6 15.5 16.1 12.9 P/BV (x) 4.0 3.4 2.7 2.2 EV/EBITDA (x) 14.9 8.6 9.6 7.1 Dividend Yield 0.0% 0.0% 0.0% 0.0%
FY15E 604 84 1.47 0.00 13.1% 16.3% 15.9% 11.1 1.9 5.6 0.0%
266
Hollysys Automation Technologies Ltd.: Summary of Financials

Income Statement $ in millions, year end Jun Revenues % change Y/Y Gross Profit EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY12 FY13 FY14E FY15E FY16E $ in millions, year end Jun 346 372 534 604 684 EBIT 26.6% 7.4% 43.5% 13.1% 13.2% Depr. & amortization 147 149 194 220 249 Change in working capital 79 70 92 106 123 Other adjustment 60.7% (11.8%) 32.0% 15.0% 16.4% Taxes 22.8% 18.7% 17.2% 17.5% 18.0% Cash flow from operations 71 62 83 97 113 Capex 51.4% (8.2%) 34.4% 16.1% 16.2% Disposal/(purchase) 20.6% 16.7% 15.6% 16.1% 16.5% Other adjustments (1) 1 (1) (0) (0) Cash flow from investing 69 66 86 100 116 Free cash flow 44.9% (4.7%) 29.6% 16.3% 15.8% Equity raised/(repaid) (10) (8) (13) (15) (17) Debt raised/(repaid) 14.9% 12.2% 15.0% 15.0% 15.0% Other adjustments 59 58 72 84 97 Dividends paid 41.6% (2.0%) 25.5% 16.3% 15.8% Cash flow from financing 56 57 57 57 57 Net changes in cash 1.05 1.01 1.26 1.47 1.70 Beginning cash 39.0% (3.3%) 24.7% 16.3% 15.8% Ending cash DPS Balance sheet Ratio Analysis $ in millions, year end Jun FY12 FY13 FY14E FY15E FY16E $ in millions, year end Jun Cash and cash equivalents 118 133 130 189 269 Gross margin Accounts receivable 137 177 230 246 261 EBITDA margin Inventories 27 34 43 48 55 Operating margin Others 156 203 241 250 276 Net profit margin Current assets 438 546 645 733 861 Other LT investments 16 20 20 21 22 EBITDA / Interest Paid (x) Net fixed assets 70 79 83 98 90 Net debt to total capital Total Assets 553 745 847 951 1,072 Net debt to equity Sales/assets Liabilities Assets/equity Short-term loans 0 8 8 6 5 ROE Trade Payables 79 111 160 181 205 ROA Others 110 149 149 149 149 Total current liabilities 189 268 317 336 359 Net WC to sales ratio Long-term debt 25 19 0 0 0 Other liabilities 0 42 42 42 42 Total Liabilities 213 329 358 378 401 Minority interests 1 2 2 3 4 Shareholder's equity 338 414 486 570 667 BVPS 4.81 6.02 7.27 8.49 9.96 Source: Company reports and J.P. Morgan estimates. FY12 71 8 (33) 24 (10) 57 (8) 3 (27) (28) 53 1 (18) (7) 0 (24) 6 91 118 0.00 FY12 42.5% 22.8% 20.6% 18.1% FY13 62 8 (43) 8 (8) 31 (9) 0 9 (12) 23 1 (23) 20 0 (3) 16 118 133 0.00 FY13 40.2% 18.7% 16.7% 15.5% FY14E 83 9 (51) (1) (13) 29 (12) 0 0 (12) 17 0 (20) 0 0 (20) (3) 133 130 0.00 FY14E 36.4% 17.2% 15.6% 13.5% FY15E 97 9 (8) (1) (15) 85 (24) 0 0 (24) 61 0 (2) 0 0 (2) 59 130 189 0.00 FY15E 36.4% 17.5% 16.1% 13.9% FY16E 113 11 (23) (2) (17) 84 (3) 0 0 (3) 82 0 (1) 0 0 (1) 80 189 269 0.00 FY16E 36.4% 18.0% 16.5% 14.2%
58.8 57.4 143.0 420.4 611.7 (37.9%) (34.1%) (33.5%) (46.9%) (65.0%) (27.5%) (25.4%) (25.1%) (31.9%) (39.4%) 0.7 0.6 0.7 0.7 0.7 167.7% 172.6% 176.9% 170.2% 163.5% 20.7% 15.3% 16.1% 15.9% 15.7% 12.4% 8.9% 9.1% 9.4% 9.6% 0.7 0.7 0.6 0.7 0.7
267
HSBC Holdings plc

Overweight
www.hsbc.com
Hong Kong Banks Josh Klaczek

AC
(852) 2800-8534 josh.klaczek@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 6.5% 4.8%
1m 2.7% 2.4%
3m 1.8% -1.9%
12m 12.9% 7.9%
Company overview HSBC's international network comprises around 9,500 offices in 86 countries. The acquisition of Household (now HFC) in 2003 has driven up credit losses at HSBC in recent times. A recent decision to place HFC into run-off completes the round trip. A key strength is its trade biased SME business which contributes 1/4th to PPOP. Investment case We continue to like HSBC for its core deposit franchise (LDR: 75%), high capital levels (CE Tier 1: 10.6%), and progressive dividend policy, in a period where revenue growth is still uncertain. The bank has significant potential upside to rising US rates, but until then, continues to drive high RoRWA and reasonable mid-single-digit growth in its core UK and HK franchise. HSBCs EM footprint is likely to face headwinds from rising provisions, but not to a large extent, given its mix of retail, blue chip corporate, and/or transaction banking. Indeed, after a disappointing 2Q result on credit costs in LatAm, 3Q looks much better, with total Group provisions down -18% Q/Q to $1.6bn. Resilience of the growth outlook With cost/income at 57% underlying, were willing to stick by a capital + steady growth story at a time when EM asset quality is increasingly in question. We still see 10-11% ROEs in the next few years, although this could increase based on non-core rundown (with US book to halve in the next three years); increased capital deployment to EM vs DM businesses (70% vs. 30%); and capital management via buybacks. Risks to the earnings outlook in 2014 Our earning estimates would be affected from 1) potential deterioration of credit quality; 2) great NIM pressures, particularly in EM markets; and 3) increasingly onerous capital demands in the UK. We also could see slower-than-expected rundown of the US mortgage portfolio. Price target, and risks to our investment view Our Dec-14 PT of HK$102 is derived from a combination of (i) a sum-of-the-parts based on fair values of each of the six markets, which we think is in-line with how European investors look at the stock (implies HK$99); and (ii) DDM analysis, where we forecast normalized ROEs of 12.7% on fully-loaded Basel III and a cost of capital of 9.8%, in-line with how we think Asia investors look at the stock (implies HK$102). Key risks to our PT include credit quality; NIM pressures; regulatory impact on capital.
HSBC Holdings plc (Reuters: 0005.HK, Bloomberg: 5 HK) $ in mn, year-end Dec FY11A FY12A FY13E Operating Profit ($ mn) 27,472 26,954 28,519 Net Profit ($ mn) 16,224 13,454 17,659 Cash EPS ($) 0.91 0.74 0.94 Fully Diluted EPS ($) 0.91 0.74 0.94 DPS ($) 0.41 0.45 0.50 EPS growth (%) 25.2% (18.7%) 28.0% ROE 10.6% 8.1% 10.0% P/E (x) 12.3 15.2 11.9 BVPS ($) 8.88 9.48 9.54 P/BV (x) 1.3 1.2 1.2 Dividend Yield 3.7% 4.0% 4.5%
Company Data 52-week Range (HK$) Market Cap ($ mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (HK$) Date Of Price 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) HSI Exchange Rate
90.70-73.55 199,616 199,616 17,868 Dec 86.60 06 Nov 13 1,113.82 143.7 13.08 2,3038.95 7.75
FY14E 30,017 18,290 0.97 0.97 0.55 2.5% 10.0% 11.6 9.91 1.1 4.9%
FY15E 32,853 20,415 1.07 1.07 0.60 10.7% 10.7% 10.4 10.33 1.1 5.4%
268
HSBC Holdings plc: Summary of Financials

Income Statement $ in millions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data USD EPS DPS Payout Book value Fully Diluted Shares PPOP per share Key Balance sheet $ in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY11 1.7% 94.2% 1.6% 40,662 27,457 17,160 7,562 68,119 (40,647) 27,472 (12,127) (898) 4,161 3,264 21,872 (3,928) (1,147) 16,224 FY11 0.91 0.41 45.3% 8.88 17,922 1.55 FY11 940,429 (17,511) 957,940 41,585 1,107,730 127,502 2,360,451 29,034 2,555,579 1,253,925 1,000,404 2,222,324 2,505,134 158,725 1,209,514 1,156,314 FY12 1.5% 94.0% 1.4% 37,672 27,885 16,430 8,501 65,557 (38,603) 26,954 (8,311) 2,763 (4,314) 3,557 20,649 (5,315) (1,307) 13,454 FY13E 1.4% 94.5% 1.3% 34,646 29,798 16,857 11,138 64,444 (35,926) 28,519 (6,509) 2,194 (1,419) 2,417 25,201 (5,165) (1,805) 17,659 FY14E 1.3% 94.8% 1.2% 34,575 31,508 17,749 11,349 66,083 (36,066) 30,017 (7,282) 0 0 2,700 25,435 (5,179) (1,393) 18,290
FY12 FY13E FY14E 0.74 0.94 0.97 0.45 0.50 0.55 61.1% 53.1% 56.9% 9.48 9.54 9.91 18,271 18,736 18,926 1.48 1.53 1.60 FY12 FY13E FY14E 997,623 976,212 1,013,452 (16,112) (14,461) (14,703) 1,013,735 990,673 1,028,155 38,672 34,157 32,606 1,220,944 1,232,507 1,364,779 109,406 107,623 107,623 2,465,435 2,553,973 2,650,011 29,853 28,537 28,537 2,692,538 2,712,002 2,881,515 1,340,014 1,037,418 2,315,881 2,624,059 175,242 1,123,943 1,166,729 1,348,618 1,044,588 2,385,319 2,702,270 178,529 1,260,569 1,192,256 1,398,240 1,156,102 2,473,773 2,796,759 186,906 1,312,509 1,286,539
Growth Rates FY15E 1.3% Loans 95.1% Deposits 1.2% Assets Equity 36,529 RWA 32,999 Net Interest Income 18,734 Non-Interest Income 11,845 of which Fee Grth Revenues 69,528 Costs Pre-Provision Profits (36,675) Loan Loss Provisions 32,853 Pre-Tax (7,672) Attributable Income 0 EPS - DPS 0 3,022 Balance Sheet Gearing 28,203 Loan/deposit (5,733) Investment/assets (1,482) Loan/Assets 20,415 Customer deposits/liab. LT debt/liabilities FY15E Asset Quality/Capital 1.07 Loan loss reserves/loans 0.60 NPLs/loans 56.1% Loan loss reserves/NPLs 10.33 Growth in NPLs 19,076 Tier 1 Ratio 1.74 Total CAR FY15E Du-Pont Analysis 1,056,801 NIM (as % of avg. assets) (15,646) Earning assets/assets 1,072,447 Margins (as % of Avg. Assets) 31,961 Non-Int. Rev./ Revenues 1,507,566 Non IR/Avg. Assets 107,623 Revenue/Assets 2,827,836 Cost/Income 28,537 Cost/Assets 3,067,651 Pre-Provision ROA LLP/Loans 1,451,879 Loan/Assets 1,279,119 Other Prov, Income/ Assets - Operating ROA 2,642,670 Pre-Tax ROA 2,974,583 Tax rate 196,385 Minorities & Outside Distbn. 1,374,975 ROA 1,343,742 RORWA Equity/Assets ROE
FY11 (2.1%) 2.1% 4.1% 7.5% 9.6% 3.1% (5.5%) (1.1%) (0.6%) 7.9% (10.9%) (13.6%) 14.9% 27.3% 25.2% 13.9% FY11 75.0% 43.7% 38.6% 52.5% 41.9% FY11 (1.8%) 3.6% 54.0% 48.0% 10.1% 12.7% FY11 1.7% 94.2% 1.6% 40.3% 1.1% 2.7% 59.7% 1.6% 1.1% (1.3%) 38.6% 0.3% 0.6% 0.9% 18.0% 0.6% 0.6% 1.4% 6.1% 10.6%
FY12 5.8% 6.9% 5.4% 10.4% (7.1%) (7.4%) 1.6% (4.3%) (3.8%) (5.0%) (1.9%) (31.5%) (5.6%) (17.1%) (18.7%) 9.8% FY12 74.4% 44.4% 37.6% 53.4% 41.6% FY12 (1.6%) 4.1% 41.9% (7.0%) 12.3% 15.0% FY12 1.5% 94.0% 1.4% 42.5% 1.1% 2.5% 58.9% 1.5% 1.0% (0.8%) 37.6% 0.1% 0.7% 0.8% 25.7% 0.6% 0.5% 1.2% 6.4% 8.1%
FY13E (2.3%) 0.6% 0.7% 1.9% 12.2% (8.0%) 6.9% 2.6% (1.7%) (6.9%) 5.8% (21.7%) 22.0% 31.3% 28.0% 11.1% FY13E 72.4% 45.4% 37.1% 53.4% 41.4% FY13E (1.5%) 3.6% 42.0% (11.7%) 11.5% 14.2% FY13E 1.4% 94.5% 1.3% 46.2% 1.1% 2.4% 55.7% 1.3% 1.1% (0.6%) 37.1% 0.1% 0.8% 0.9% 20.5% 0.6% 0.7% 1.5% 6.5% 10.0%
FY14E 3.8% 3.7% 6.3% 4.7% 4.1% (0.2%) 5.7% 5.3% 2.5% 0.4% 5.3% 11.9% 0.9% 3.6% 2.5% 10.0% FY14E 72.5% 46.4% 36.1% 52.1% 42.2% FY14E (1.4%) 3.3% 43.7% (4.5%) 11.7% 14.2% FY14E 1.3% 94.8% 1.2% 47.7% 1.1% 2.4% 54.6% 1.3% 1.1% (0.7%) 36.1% 0.1% 0.8% 0.9% 20.4% 0.6% 0.7% 1.4% 6.5% 10.0%
FY15E 4.3% 3.8% 6.5% 5.1% 4.8% 5.6% 4.7% 5.6% 5.2% 1.7% 9.5% 5.4% 10.9% 11.6% 10.7% 9.1% FY15E 72.8% 48.3% 35.3% 50.7% 43.9% FY15E (1.5%) 3.1% 47.0% (2.0%) 11.9% 14.3% FY15E 1.3% 95.1% 1.2% 47.5% 1.1% 2.3% 52.7% 1.2% 1.1% (0.7%) 35.3% 0.1% 0.8% 0.9% 20.3% 0.5% 0.7% 1.5% 6.4% 10.7%
269
Hyundai Development Company

Overweight
www.hyundai-dvp.com
012630.KS,012630 KS Price: W23,950 Price Target: W30,000
South Korea Construction Sokje Lee

AC
Company overview Hyundai Development Company was established in 1977 and spun off from Hyundai Group in 1999. The company is focused mostly on the domestic market in housing, civil engineering and architecture. It specializes not only in contract housing construction, but also in being a developer, based on its in-house projects and expertise. Investment case We expect Hyundai Development will benefit from the domestic housing recovery cycle. Also, after clearing residual burdens through reporting depressed earnings in 2H13, HDC should benefit from the following positive drivers, in our view: (1) contraction of net debt; (2) recovery of housing margins; and (3) additional growth opportunities in civil projects. Resilience of the growth outlook As the company clears its losses from housing business, we think top-line and earnings growth will accelerate, coupled with a domestic housing market recovery. Also, the companys large-sized civil projects in backlog should generate ample topline growth from 2015 onwards.
(82-2) 758-5729 sokje.lee@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Abs Rel
YTD 10.6% 9.8%
1m 7.2% 6.4%
3m 13.5% 7.9%
12m 21.6% 17.2%
Risks to the earnings outlook in 2014 Hyundai Development had previously guided to weak 2H13 earnings, mainly due to its provisions on the domestic housing business. As the company will reflect most of the losses from its low-margin in-house projects (based on PF acquisition) within this year, we expect to see a faster earnings recovery in 2014. Price target, and risks to our investment view Our Dec-14 price target of W30,000 is based on a 0.9x P/BV multiple applied to 2014E BPS. 0.9x is the companys five-year average P/BV. Key downside risks include: (1) sluggish presale results from in-house projects; (2) a slower-than expected housing cycle recovery; (3) potential earnings downside from further housing provisions; and (4) unexpected delays in the housing project launch schedule.
Company Data Shares O/S (mn) Market Cap (W bn) Market Cap ($ mn) Price (W) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (W bn) 3M - Avg daily value ($ mn) KOSPI Exchange Rate Fiscal Year End
75 1,805 1,701 23,950 06 Nov 13 76.0% 0.39 8.77 8.3 2013.67 1,061.15 Dec
Hyundai Development Company (Reuters: 012630.KS, Bloomberg: 012630 KS) Year-end Dec FY12A FY13E FY14E Revenue (W bn) 3,334 3,995 4,806 Operating Profit (W bn) 104 (31) 299 Net Profit (W bn) 2 (82) 198 EPS (W) 20 -1,083 2,629 BVPS (W) 31,204 30,081 32,471 Revenue growth (18.8%) 19.8% 20.3% EPS growth (99.3%) (5418.6%) (342.7%) ROE 0.1% (3.5%) 8.4% ROA 0.0% (1.2%) 3.0% P/E (x) 1,175.9 NM 9.1 P/BV (x) 0.8 0.8 0.7 EV/EBITDA (x) 27.5 376.7 10.5 Dividend Yield 0.8% 0.4% 1.3%
FY15E 5,446 391 269 3,567 35,701 13.3% 35.7% 10.5% 4.0% 6.7 0.7 7.4 1.7%
270
Hyundai Development Company: Summary of Financials

Balance sheet
W in billions, year end Dec Assets Current assets Cash and cash equivalents Trade and Other Current Receivables Inventories Others Non-current Assets Property, Plant and Equipment Intangible Assets Investments in Associates Others Liabilities Current liabilities Trade and Other Current Payables Others Non-current Liabilities Long-term debt Non-Current Provisions for Employee Others Stockholders' Equity Total Debt Net Debt(Cash) Cash flow statement W in billions, year end Dec Cash Flows from Operating Net Income(Net Loss) Depreciation & Amortisation (Inc) Dec in working capital Payments of Income Taxes Others Cash Flows from Investing Free cash flow Cash Flows from Financing Inc(Dec) in Cash Cash at The Beginning Cash at The End
FY12
6,638 4,746 343 1,509 2,223 672 1,892 894 23 54 922 4,211 2,551 835 1,715 1,660 1,173 27 460 2,428 2,604 2,171
FY13E
6,611 4,643 443 1,498 2,108 594 1,968 961 21 56 929 4,268 2,736 923 1,813 1,532 1,058 25 448 2,343 2,426 1,889
FY14E
6,715 4,644 300 1,602 2,136 606 2,071 1,054 20 59 939 4,089 2,729 984 1,745 1,360 887 25 448 2,523 2,211 1,812
FY15E W in billions, year end Dec 6,883 Net Sales Growth(%) 4,745 496 Cost of Sales 1,664 Gross Profit on Sales Gross margin 1,967 618 SG&A
2,138 1,109 18 62 949 4,002 2,779 1,112 1,668 1,222 749 25 448 2,767 2,039 1,440
Income Statement
3,334 (18.8%) (2,990) 344 10.3% (240)
FY12
FY13E
3,995 19.8% (3,693) 302 7.6% (334)
FY14E
4,806 20.3% (4,167) 639 13.3% (340)
FY15E
5,446 13.3% (4,708) 738 13.5% (347)
Operating Income Growth(%) Operating Margin (%) Income Before Income Taxes Income Taxes Expenses Tax Rate (%) Net Income Growth(%) EBITDA Growth(%)
104 (74.1%) 3.1% 41 (36) 86.6% 2 (99.3%) 144 (67.1%)
(31) (130.3%) (0.8%) (103) 26 (25.0%) (82) (5418.6%) 10 (93.2%)
299 (1051.1%) 6.2% 270 (67) 25.0% 198 (342.7%) 341 3405.6%
391 30.8% 7.2% 364 (91) 25.0% 269 35.7% 437 27.9%
20 (99.3%) 31,204 200 0.8% 1,175.9 0.8 27.5 0.1% 10.3% 3.1% 0.0% 4.3% 1.5 271.7 Source: Company reports and J.P. Morgan estimates. Net profit, EPS and ROE based on Owners' net income; BVPS based on Owners of parent equity.
FY12
(47) 2 40 89 (116) (32) (302) (239) 195 (154) 497 343
FY13E
338 (82) 41 230 26 47 (71) 347 (165) 101 343 443
FY14E
187 198 42 (57) (67) 47 (112) 113 (217) (141) 443 300
Ratio Analysis FY15E W, year end Dec 490 EPS 269 EPS Growth(%) 45 BPS 32 DPS (91) Dividend Yield(%) 47 PER (x) (112) PBR (x) 415 EV/ EBITDA (x) (181) ROE(%) 197 Gross Margin (%) 300 Operating Margin (%) 496 Net margin(%) EBITDA Margin (%) Working Capital Turnover (x) Inventory Turnover (days)
FY12
-1,083 (5418.6%) 30,081 100 0.4% NM 0.8 376.7 (3.5%) 7.6% (0.8%) (2.0%) 0.2% 1.9 214.1
FY13E
2,629 (342.7%) 32,471 300 1.3% 9.1 0.7 10.5 8.4% 13.3% 6.2% 4.1% 7.1% 2.5 185.9
FY14E
FY15E
3,567 35.7% 35,701 400 1.7% 6.7 0.7 7.4 10.5% 13.5% 7.2% 4.9% 8.0% 2.8 159.0
271
Hyundai Mipo Dockyard

Overweight
www.hmd.co.kr
Company overview Hyundai Mipo Dockyard builds medium-ranged product carriers, chemical tankers, containerships, LPG carriers, and pure car truck carriers. It has emerged as the biggest player in small and medium sized vessels. Investment case We believe there are three key drivers for Mipo: 1) It will be the biggest beneficiary of the US shale revolution. 2) Mipo has started to create demand for itself through the development of its own eco-ship, which offers significant fuel savings. 3) Mipo has no competitors globally for smaller sized vessels, especially after massive restructuring in the industry. For this reason, we believe Mipo will be one of the biggest beneficiaries of the current cycle, unlike the previous one. Resilience of the growth outlook Thanks to its long-term experience in mid-sized commercial vessels, Hyundai Mipo has already achieved 92% of its annual new order target of $3.2bn. We expect more orders to follow in 2014, helped by the recovery of the commercial vessel market. Risks to the earnings outlook in 2014 We expect Mipo's margin to remain sluggish in 2014, on the back of revenue recognition from low-priced commercial vessels received from 2011. Operational risks from its Vietnam subsidiary, Hyundai Vinashin Shipyard, are also likely to pressure Mipo's earnings. However, we expect this is already priced-in, and believe further momentum will be driven by Mipos order recovery and newbuilding price hike. Price target, and risks to our investment view We are OW with a Dec-14 price target of W210,000. Our price target is based on SOTP, considering Mipos investment holding value of W1,732bn and W2,332bn shipbuilding operational value. Its operational value comes from an EV/Sales ratio at 0.68x, the average of DSME and SHI. Key downside risks include negative sentiment on the global economic outlook that may result in slower order recovery, and a fall in oil prices that could result in less favor towards Mipos fuel-efficient vessels.
South Korea Ship Building & Repairs Sokje Lee

AC
Abs Rel
YTD 38.6% 37.8%
1m 13.5% 12.7%
3m 35.4% 29.8%
12m 53.0% 48.6%
20 3,520 3,317 176,000 06 Nov 13 48.5% 0.14 20.84 19.6 2013.67 1,061.15 Dec
Hyundai Mipo Dockyard (Reuters: 010620.KS, Bloomberg: 010620 KS) Year-end Dec FY12A FY13E FY14E Revenue (W bn) 4,415 3,926 4,225 Operating Profit (W bn) 93 (94) 84 Net Profit (W bn) 97 (50) 141 EPS (W) 4,827 -2,486 7,074 BVPS (W) 159,158 154,794 159,889 Revenue growth (4.5%) (11.1%) 7.6% EPS growth (51.7%) (151.5%) (384.5%) ROE 3.0% (1.6%) 4.5% ROA 1.2% (0.7%) 2.0% P/E (x) 36.5 NM 24.9 P/BV (x) 1.1 1.1 1.1 EV/EBITDA (x) 29.3 NM 25.4 Dividend Yield 0.9% 0.9% 0.9%
Source: Company data, Bloomberg, J.P. Morgan estimates. *Net profit, EPS, ROE based on owner's net income; BVPS based on owners of parent equity.
FY15E 4,426 258 268 13,417 171,327 4.8% 89.7% 8.1% 3.8% 13.1 1.0 11.2 0.9%
272
Hyundai Mipo Dockyard: Summary of Financials

Balance sheet
FY12
7,723 4,169 155 1,314 187 2,514 3,554 917 340 31 2,265 4,330 3,673 918 2,755 657 211 32 414 3,393 2,002 1,790
FY13E
7,023 3,588 189 982 164 2,254 3,435 883 342 31 2,178 3,721 3,213 838 2,375 508 211 25 271 3,302 1,502 1,253
FY14E
7,099 3,645 451 939 176 2,079 3,454 901 343 31 2,178 3,682 3,237 864 2,373 444 148 25 271 3,418 1,302 788
FY15E W in billions, year end Dec 7,186 Net Sales Growth(%) 3,714 293 Cost of Sales 984 Gross Profit on Sales Gross margin 184 2,253 SG&A
3,473 918 345 31 2,178 3,522 3,122 868 2,254 400 104 25 271 3,664 1,039 679
Income Statement
4,415 (4.5%) (4,058) 357 8.1% (265)
FY12
3,926 (11.1%) (3,773) 153 3.9% (248)
FY13E
FY14E
4,225 7.6% (3,887) 338 8.0% (254)
FY15E
4,426 4.8% (3,908) 518 11.7% (260)
93 (75.8%) 2.1% 119 (33) 27.5% 97 (51.7%) 159 (64.3%)
(94) (201.8%) (2.4%) (83) 23 (27.5%) (50) (151.5%) (36) (122.4%)
84 (189.5%) 2.0% 181 (50) 27.5% 141 (384.5%) 145 (506.2%)
258 205.3% 5.8% 356 (98) 27.5% 268 89.7% 320 120.7%
4,827 (51.7%) 159,158 1,500 0.9% 36.5 1.1 29.3 3.0% 8.1% 2.1% 2.2% 3.6% 12.3 21.1 Source: Company reports and J.P. Morgan estimates. Net profit, EPS and ROE based on Owners' net income; BVPS based on Owners of parent equity.
FY12
(732) 97 67 (721) (67) (108) 22 (852) 291 (420) 564 155
FY13E
530 (50) 59 357 23 141 2 439 (498) 34 155 189
FY14E
541 141 61 206 (50) 183 (81) 455 (198) 262 189 451
Ratio Analysis FY15E W, year end Dec 186 EPS 268 EPS Growth(%) 62 BPS 62 DPS (98) Dividend Yield(%) (109) PER (x) (81) PBR (x) 98 EV/ EBITDA (x) (262) ROE(%) (158) Gross Margin (%) 451 Operating Margin (%) 293 Net margin(%) EBITDA Margin (%) Working Capital Turnover (x) Inventory Turnover (days)
FY12
-2,486 (151.5%) 154,794 1,500 0.9% NM 1.1 NM (1.6%) 3.9% (2.4%) (1.3%) (0.9%) 9.0 16.9
FY13E
7,074 (384.5%) 159,889 1,500 0.9% 24.9 1.1 25.4 4.5% 8.0% 2.0% 3.3% 3.4% 10.8 15.9
FY14E
13,417 89.7% 171,327 1,500 0.9% 13.1 1.0 11.2 8.1% 11.7% 5.8% 6.1% 7.2% 8.9 16.8
FY15E
273
Hyundai Motor Company

Overweight
worldwide.hyundai.com
South Korea Automobile Manufacture Wan Sun Park

AC
Company overview Hyundai Motor Company (HMC) is the largest auto maker in Korea, with 43% of domestic market share (2012A). HMC owns 38% in KIA Motors, the second-largest auto maker in Korea, together with it dominates over 70% of the Korean market. HMC/KIA are the worlds fifth-largest auto manufacturers, based on annual sales volume, and operate 14 manufacturing and assembly operations in eight countries. Investment case In 2014, HMC will re-enter an accelerated EPS growth cycle. We expect 2014 EPS growth to turn to low teens from low single digit in 2013E. Main driver will be the product cycle, which will turn up from 1H14 and peak in 2H15, in our view. Driven by model cycle, price realizations should also be sizable. Possibility of the second phase of capacity expansion (China and potentially Russia or US) will add a positive spin to sustainable growth beyond 2014. Improving demand in key markets including Europe is an additional positive earnings driver, given Hyundai Motor is the most leveraged auto stock to European recovery among Asian auto stocks. Resilience of the growth outlook We think there is limited risk to our view that HMCs 2014 earnings growth will experience an upward trajectory from the bottom in 2013. Key supporting factor is the product cycle. Product cycle is by far the most important earnings driver for auto makers. Although at a smaller degree, we expect net price realization is also going to be significant at over 10%. Risks to the earnings outlook in 2014 However, for some markets where the growth rate will slow down like the US, competition with less attractive product cycles and falling market share position should impact overall pricing and incentive/cost trends. HMCs earnings can be also affected by this competitive landscape. Price target, and risks to our investment view Our June-14 PT is W330,000, based on 10x FY14E EPS (higher end of historical band (5-12x). Short-term risk is the pace of KRW appreciation. Long-term risk is rising R&D burden.
(82-2) 758-5722 wansun.c.park@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Abs Rel
YTD 14.4% 13.6%
1m 0.2% -0.6%
3m 7.5% 1.9%
12m 20.2% 15.8%
Company Data 52-week Range (W) Market Cap (W bn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free Float 3M - Avg daily volume (mn) 3M - Avg daily value (W bn) 3M Avg. daily value ($ mn) KOSPI Exchange Rate
269,000-176,500 55,069 51,895 220 Dec 250,000 06 Nov 13 62.0% 0.46 112.51 106.0 2013.67 1,061.15
Hyundai Motor Company (Reuters: 005380.KS, Bloomberg: 005380 KS) Year-end Dec FY11A FY12A FY13E FY14E Revenue (W bn) 77,798 84,470 88,786 93,905 Operating Profit (W bn) 8,029 8,437 8,633 9,546 Net Profit (W bn) 8,105 9,009 9,276 10,221 EPS (W) 28,213 31,552 32,314 35,835 Revenue growth 16.1% 8.6% 5.1% 5.8% Operating Profit growth 14.5% 5.1% 2.3% 10.6% EPS growth 37.4% 11.8% 2.4% 10.9% ROA 7.5% 7.4% 7.1% 7.5% ROE 22.8% 21.1% 18.2% 17.0% P/E (x) 8.9 7.9 7.7 7.0 P/BV (x) 1.9 1.6 1.4 1.1 EV/EBITDA (x) 8.1 7.5 7.1 6.2
FY15E 100,692 10,789 11,627 41,017 7.2% 13.0% 14.5% 8.1% 16.5% 6.1 1.0 5.3
274
Hyundai Motor Company: Summary of Financials

Income Statement W in billions, year end Dec Revenues % change Y/Y Gross margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income Owners of Parent Equity % change Y/Y Non-Controlling Interests Equity EPS (reported) % change Y/Y Balance sheet W in billions, year end Dec Cash and cash equivalents ST financial instruments Accounts receivable Inventories Others Current assets LT investments Net fixed assets Intangibles Other non-current assets Total Assets FY12 84,470 8.6% 23.1% 10,876 4.9% 12.9% 8,437 5.1% 10.0% 164 11,558 10.6% (2,549) 22.1% 9,009 8,562 11.8% (494) 31,552 11.8% FY12 6,759 12,384 3,687 6,773 4,377 33,980 14,714 20,706 2,883 49,255 121,538 FY13E 88,786 5.1% 22.6% 11,251 3.4% 12.7% 8,633 2.3% 9.7% 197 11,889 2.9% (2,613) 22.0% 9,276 8,768 2.4% (497) 32,314 2.4% FY13E 8,111 12,384 3,728 7,119 4,595 35,937 15,449 20,536 2,883 51,772 126,578 13,694 6,507 11,300 31,501 42,590 74,091 52,487 193,424 FY14E 93,905 5.8% 23.1% 12,282 9.2% 13.1% 9,546 10.6% 10.2% 119 13,104 10.2% (2,883) 22.0% 10,221 9,724 10.9% (497) 35,835 10.9% FY14E 9,956 12,384 3,943 7,529 4,854 38,666 16,222 20,739 2,883 54,757 133,266 12,694 6,752 11,300 30,746 40,413 71,160 62,107 228,876 FY15E 100,692 7.2% 23.6% 13,669 11.3% 13.6% 10,789 13.0% 10.7% 151 14,907 13.8% (3,279) 22.0% 11,627 11,130 14.5% (497) 41,017 14.5% FY15E 12,679 12,384 4,228 8,074 5,197 42,560 Cash flow statement W in billions, year end Dec EBIT Add:Depr. & amortization Less:tax paid Interest paid Gross cash flow Capital expenditures Investments Change in working capital Free cash flow Dividends paid New shares issued Other Net cash flow FY12 8,437 2,439 (2,549) 164 8,491 (4,576) (895) (332) 3,788 (500) 0 1,869 4,389 FY13E 8,633 2,619 (2,613) 197 8,835 (4,500) (736) (748) 4,181 (500) 0 (1,000) 2,100 FY14E 9,546 2,736 (2,883) 119 9,518 (4,990) (772) (412) 4,435 (500) 0 (1,000) 2,256 FY15E 10,789 2,881 (3,279) 151 10,541 (4,990) (811) (518) 5,433 (500) 0 (1,000) 3,241
Ratio Analysis %, year end Dec EBITDA margin Operating margin Net margin SG&A/sales
FY12 12.9% 10.0% 10.1% 10.2% 8.6% 5.1% 11.2% 11.8% NM 94.3% 0.7 21.1% 7.4%
FY13E 12.7% 9.7% 9.9% 10.0% 5.1% 2.3% 3.0% 2.4% NM 84.2% 0.7 18.2% 7.1%
FY14E 13.1% 10.2% 10.4% 10.0% 5.8% 10.6% 10.2% 10.9% NM 69.6% 0.7 17.0% 7.5%
FY15E 13.6% 10.7% 11.1% 10.0% 7.2% 13.0% 13.8% 14.5% NM 57.7% 0.7 16.5% 8.1%
Short-term loans 14,694 Payables 6,841 Others 11,300 Total current liabilities 32,836 Total non-current liabilities 40,785 Total Liabilities 73,620 Shareholder's equity 47,918 BVPS (W) 176,586 Source: Company reports and J.P. Morgan estimates.
Sales growth Operating profit growth 17,033 Net profit growth 20,797 EPS growth 2,883 58,715 Interest coverage (x) 141,988 Gross debt / Equity Sales/assets 11,694 7,105 ROE 11,300 ROA 30,099 38,756 68,855 73,133 269,509
275
ICICI Bank
Overweight
www.icicibank.com
ICBK.BO,ICICIBC IN Price: Rs1,096.00 Price Target: Rs1,200.00
India Banks Seshadri K Sen, CFA

AC
Company overview ICICI Bank is one of India's largest banks, with significant market share in most retail loan segments. After the ~38% credit CAGR over FY04-08, ICICI consolidated its loan book over FY08-10 to increase focus on profitability. It has subsequently re-started growing, but is cautious on pricing and credit controls. Investment case We expect revenue momentum to remain strong driven by improving margins, robust fee income and strong retail loan growth. Even with increasing credit costs, we see ROEs rising continuously through FY16 to 16.4% vs 13.6% in FY14. ICICI has derisked its loan book in recent years; the infrastructure book is less risky than PSU peers, given the low exposure to UMPPs and gas projects. The stock trades at a very attractive valuation of 1.6x PB (1yr fwd) and we believe its the most defensive play in the high interest rate environment. Resilience of the growth outlook We expect loan growth to remain strong at ~18% in FY14E, higher than the system average & mainly driven by the retail segment. The bank has witnessed significant traction in its distribution network which would keep the retail momentum strong. We believe the banks strong capital base is a significant advantage as compared to its competitors (especially PSUs), as they may have to forsake growth to preserve capital. Risks to the earnings outlook in 2014 We expect credit costs of 101bp for FY14E & 115bp for FY15E; however if the macro situation continues to remain weak for a longer period of time then credit costs could inch upwards, which could impact profitability. Higher competition from PSUs in the retail segment can impact loan growth & thereby revenue in FY14-15E. Price target, and risks to our investment view Our Sept-14 PT for ICICI Bank of Rs 1,200 is based on 2 stage Gordon growth model implying 1.8x Sept14 book and Rs218/share valuation for the subsidiaries. Our valuations factor in Cost of Equity at 15.4%, Normalized ROE of ~22% and terminal growth of 5%. The key risks 1) large losses from their infrastructure-related exposures and 2) weak demand for retail loans.
(91-22) 6157-3575 seshadri.k.sen@jpmorgan.com Bloomberg JPMA SEN <GO> J.P. Morgan India Private Limited
Abs Rel
YTD -5.4% -10.5%
1m 19.6% 13.7%
3m 21.4% 11.4%
12m 1.7% -7.9%
Company Data 52-week Range (Rs) Market Cap (Rs mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Rs) Date Of Price 3M - Avg daily value (Rs mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) NIFTY Exchange Rate
1,238.40-756.90 1,263,434 20,467 1,153 Mar 1,096.00 05 Nov 13 4,984.34 80.7 5.45 6317.35 61.73
ICICI Bank (Reuters: ICBK.BO, Bloomberg: ICICIBC IN) Rs in mn, year-end Mar FY12A FY13A FY14E Operating Profit (Rs mn) 103,865 132,195 162,672 Net Profit (Rs mn) 62,449 82,798 94,781 Cash EPS (Rs) 54.17 71.77 82.16 Fully Diluted EPS (Rs) 54.83 67.68 78.38 DPS (Rs) 16.50 20.00 23.00 EPS growth (%) 21.1% 32.5% 14.5% ROE 10.9% 12.3% 12.9% P/E (x) 20.2 15.3 13.3 BVPS (Rs) 523.98 578.18 633.43 P/BV (x) 2.1 1.9 1.7 Dividend Yield 1.5% 1.8% 2.1%
FY15E 200,671 114,117 98.92 95.14 29.00 20.4% 14.3% 11.1 698.42 1.6 2.6%
FY16E 243,247 140,123 121.46 117.68 33.00 22.8% 15.9% 9.0 781.27 1.4 3.0%
276
ICICI Bank: Summary of Financials

Income Statement Rs in millions, year end Mar NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc (treasury Income) Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income FY12 2.6% 94.9% 2.4% 107,342 75,028 61,715 182,369 (78,504) 103,865 (15,830) (757) 87,278 (24,828) 0 62,449 FY13 2.9% 94.3% 2.7% 138,664 83,660 63,734 222,324 FY14E 3.1% 93.7% 2.9% 170,824 96,245 77,756 267,068 FY15E 3.3% 93.7% 3.0% 209,929 109,563 93,307 319,493
(90,129) (104,396) (118,821) 132,195 162,672 (18,025) (31,940) 114,170 130,732 (31,372) (35,951) 0 0 82,798 94,781 200,671 (43,269) 157,403 (43,286) 0 114,117
Growth Rates FY16E 3.3% Loans 93.6% Deposits 3.1% Assets Equity 252,150 RWA 126,384 Net Interest Income 110,102 Non-Interest Income of which Fee Grth 378,534 Revenues Costs (135,288) Pre-Provision Profits Loan Loss Provisions 243,247 Pre-Tax (49,974) Attributable Income - EPS - DPS - Balance Sheet Gearing 193,273 Loan/deposit (53,150) Investment/assets 0 Loan/Assets 140,123 Customer deposits/liab. LT debt/liabilities FY16E 121.46 33.00 27.2% 781.27 1,154 FY16E 4,850,229 (141,796) 4,992,026 184,675 1,060,048 519,439 7,651,182 8,878,573 5,584,934 1,818,399 349,090 6,795,311 8,171,592 901,306 7,385,121 6,785,775 Asset Quality/Capital Loan loss reserves/loans NPLs/loans Specific loan loss reserves/NPLs Growth in NPLs Tier 1 Ratio Total CAR Du-Pont Analysis NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Non-Int. Rev./ Revenues Non IR/Avg. Assets Revenue/Assets Cost/Income Cost/Assets Pre-Provision ROA LLP/Loans Loan/Assets Other Prov, Income/ Assets Operating ROA Pre-Tax ROA Tax rate Minorities & Outside Distbn. ROA RORWA Equity/Assets ROE
FY12 16.7% 13.3% 16.6% 9.6% 16.7% 19.0% 9.5% 4.1% 14.9% 18.6% 12.3% (30.8%) 29.1% 21.2% 21.1% 37.5% FY12 99.3% 16.1% 55.2% 61.8% 32.7% FY12 (2.9%) 4.0% 78.1% (5.6%) 12.7% 18.5% FY12 2.6% 94.9% 2.4% 41.1% 1.7% 4.1% 43.0% 1.8% 2.4% (0.7%) 55.2% (0.0%) 2.0% 2.0% 28.4% 0.0% 1.4% 1.7% 13.1% 10.9%
FY13 13.9% 14.5% 13.3% 10.4% 10.9% 29.2% 11.5% 3.3% 21.9% 14.8% 27.3% 13.9% 30.8% 32.6% 32.5% 21.2% FY13 99.2% 14.9% 55.3% 62.2% 32.3% FY13 (2.5%) 3.4% 78.6% 1.4% 12.8% 18.7% FY13 2.9% 94.3% 2.7% 37.6% 1.7% 4.4% 40.5% 1.8% 2.6% (0.6%) 55.3% 2.3% 2.3% 27.5% 0.0% 1.5% 1.9% 12.6% 12.3%
FY14E 18.3% 24.0% 17.8% 9.6% 18.2% 23.2% 15.0% 22.0% 20.1% 15.8% 23.1% 77.2% 14.5% 14.5% 14.5% 15.0% FY14E 94.5% 14.1% 55.6% 64.9% 29.4% FY14E (2.5%) 3.3% 76.8% 20.1% 12.4% 17.7% FY14E 3.1% 93.7% 2.9% 36.0% 1.6% 4.6% 39.1% 1.8% 2.8% (1.0%) 55.6% 2.2% 2.2% 27.5% 0.0% 1.5% 1.9% 12.0% 12.9%
FY15E 18.6% 23.9% 18.0% 10.3% 18.4% 22.9% 13.8% 20.0% 19.6% 13.8% 23.4% 35.5% 20.4% 20.4% 20.4% 26.1% FY15E 90.3% 13.2% 55.8% 67.5% 26.6% FY15E (2.7%) 3.4% 76.8% 27.4% 11.7% 16.2% FY15E 3.3% 93.7% 3.0% 34.3% 1.6% 4.6% 37.2% 1.7% 2.9% (1.1%) 55.8% 2.3% 2.3% 27.5% 0.0% 1.6% 1.9% 11.1% 14.3%
FY16E 19.5% 24.2% 18.9% 11.9% 19.4% 20.1% 15.4% 18.0% 18.5% 13.9% 21.2% 15.5% 22.8% 22.8% 22.8% 13.8% FY16E 86.8% 12.3% 56.1% 70.0% 24.0% FY16E (2.8%) 3.6% 76.8% 25.6% 11.1% 14.9% FY16E 3.3% 93.6% 3.1% 33.4% 1.5% 4.6% 35.7% 1.7% 3.0% (1.1%) 56.1% 2.4% 2.4% 27.5% 0.0% 1.7% 2.0% 10.4% 15.9%
Per Share Data EPS DPS Payout Book value Fully Diluted Shares Key Balance sheet Rs in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA
FY12 54.17 16.50 30.5% 523.98 1,153 FY12 2,537,277 (76,135) 2,613,412 94,744 721,716 195,130 4,173,294 4,736,447 2,555,000 1,401,649 316,615 3,654,106 4,399,392 604,029 3,985,858 3,700,419
FY13 71.77 20.00 27.9% 578.18 1,154 FY13 2,902,494 (73,762) 2,976,256 96,068 783,598 290,826 4,762,888 5,367,902 2,926,136 1,453,415 332,852 4,168,100 5,052,174 667,015 4,419,435 4,202,646
FY14E 82.16 23.00 28.0% 633.43 1,154 FY14E 3,431,256 (88,616) 3,519,871 115,413 863,524 352,665 5,477,893 6,324,640 3,629,849 1,574,377 349,090 4,791,889 5,846,271 730,751 5,224,544 4,821,990
FY15E 98.92 29.00 29.3% 698.42 1,154 FY15E 4,062,980 (112,939) 4,175,920 147,092 954,459 426,821 6,457,926 7,464,612 4,497,117 1,690,170 349,090 5,695,757 6,894,626 805,725 6,186,430 5,705,487
277
Indofood
Overweight
www.indofood.co.id
INDF.JK,INDF IJ Price: Rp6,650 Price Target: Rp7,500
Indonesia Food & Food Manufacture Stevanus Juanda

AC
(62-21) 5291 8574 stevanus.x.juanda@jpmorgan.com PT J.P. Morgan Securities Indonesia
Abs Rel
YTD 14.7% 18.7%
1m -0.7% -2.1%
3m -1.5% 1.7%
12m 14.7% 11.6%
Company overview Indofood is a food conglomerate controlled by Salim Group via First Pacific (50.5% ownership). Its businesses include instant noodles, flour, CPO edible oil (including plantation), sugar, milk, seasoning, baby food, snack and distribution. More than 80% of EBIT accrues from instant noodles, flour, edible oil, and dairy divisions. We expect INDF's earnings will be driven by the price of CPO, wheat, Rupiah exchange rate and its deleveraging plan. Its stock price should correlate to the price of the underlying commodity and expectation of earnings growth. It recently acquired a controlling stake in vegetable processor and planter: China Minzhong (MINZ SP). Investment case We believe INDF could outperform on: (1) Addition of MINZ SP into INDF operation; adding 15% to FY14E EBIT. (2) Price increase enacted in Oct-13 which could pass through any pressure from currency depreciation. (3) Recovery in CPO price. (4) Dairy division is expected to grow by 18% in FY14E. (5) 44% EPS growth in FY14E. Resilience of the growth outlook INDF has the pricing power to overcome the potential cost pressure due to input cost and currency depreciation. MINZ operation could add sizable contribution to FY14E net income. Dairy is expected to continue its strong growth in FY14E. Risks to the earnings outlook in 2014 The risks to earnings are: (1) Potentially lower than expected contribution from MINZ; given the weak 2Q13 performance. (2) Volatility in CPO price could cause earnings on edible oil to be unpredictable. (3) Additional debt arising from MINZ acquisition could work against profit. Price target, and risks to our investment view Our SOTP based Dec-14 PT of Rp7,500 represents 11.9x FY14E PE: below the average 3 year PE of 14x. The value of its listed subsidiaries: IFAR, ICBP and MINZ, are marked to market, while the unlisted subsidiaries are valued using DCF methods: using a risk free rate of 8.0%, equity risk premium of 8.0% and terminal growth rate of 7.0%. We also assign a holding company discount of 12.5% to the DCF valuation. Downside risks: 1) Acquisition of MINZ fails to deliver the earnings contribution; 2) continued weak operation at Bogasari; and 3) noodle competition intensifies.
Indofood Sukses Makmur Tbk (Reuters: INDF.JK, Bloomberg: INDF IJ) Rp in bn, year-end Dec FY11A FY12A FY13E Revenue (Rp bn) 45,332 50,059 54,296 Net Profit (Rp bn) 3,077 3,262 3,786 EPS (Rp) 356.42 377.77 438.53 DPS (Rp) 175.30 247.83 180.07 Revenue growth (%) 18.0% 10.4% 8.5% EPS growth (%) 4.4% 6.0% 16.1% ROCE 16.4% 14.9% 15.0% ROE 17.0% 16.1% 16.9% P/E (x) 18.7 17.6 15.2 P/BV (x) 3.0 2.7 2.4 EV/EBITDA (x) 9.1 10.6 9.1 Dividend Yield 2.6% 3.7% 2.7%
Company Data Shares O/S (mn) Market Cap (Rp bn) Market Cap ($ bn) Price (Rp) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (Rp mn) 3M - Avg daily value ($ mn) JCI Exchange Rate Fiscal Year End
8,634 57,412.92 5.06 6,650 06 Nov 13 10.95 72,926.96 6.4 4449.76 11,355.89 Dec
FY14E 64,210 5,441 630.27 204.37 18.3% 43.7% 19.4% 23.9% 10.6 2.1 7.6 3.1%
FY15E 69,813 5,873 680.28 281.07 8.7% 7.9% 19.0% 21.8% 9.8 1.8 6.8 4.2%
278
Indofood: Summary of Financials

Income Statement Rp in billions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rp in billions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 45,332 18.0% 7,761 7.7% 6,853 8.8% 15.1% (499) 6,352 16.9% (1,461) 23.0% 3,077 4.4% 8,634 356.42 4.4% FY12 50,059 10.4% 6,871 (11.5%) 6,871 0.3% 13.7% (528) 6,310 (0.7%) (1,530) 24.3% 3,262 6.0% 8,634 377.77 6.0% FY13E 54,296 8.5% 8,496 23.6% 7,204 4.8% 13.3% (280) 6,897 9.3% (1,562) 22.6% 3,786 16.1% 8,634 438.53 16.1% FY14E 64,210 18.3% 10,814 27.3% 9,751 35.4% 15.2% (440) 9,220 33.7% (2,009) 21.8% 5,441 43.7% 8,634 630.27 43.7% FY15E 69,813 8.7% 11,769 8.8% 10,453 7.2% 15.0% (384) 9,983 8.3% (2,188) 21.9% 5,873 7.9% 8,634 680.28 7.9%
Cash flow statement Rp in billions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow
FY11 FY12 FY13E FY14E FY15E 6,853 6,871 7,204 9,751 10,453 909 0 1,292 1,738 1,849 (1,643) (143) (1,368) (1,212) (846) (1,831) (2,274) (782) (2,208) (2,388) 4,969 7,407 9,017 9,889 8,060 (2,857) (4,137) (2,078) (8,931) (2,202) 49 298 60 60 60 (499) (528) (280) (440) (384) (241) (941) (4,291) (498) (448) 2,496 3,671 7,155 1,309 6,162 3,349 (962) (92) (1,513) 10,901 13,049 175.30 FY11 17.1% 6.8% 0 (150) (19) (2,140) 13,624 13,343 247.83 0 0 0 (1,147) 492 (1,285) (3,001) (0) (0) (1,555) (1,764) (2,427) 13,896 10,836 9,980 10,288 9,475 11,173 180.07 204.37 281.07
FY11 13,049 3,669 6,536 672 24,502
FY12 13,343 3,618 7,783 907 26,203
FY13E 10,288 3,967 8,745 939 24,487
FY14E 9,475 4,610 9,485 1,062 25,138
LT investments 86 296 2,666 2,800 Net fixed assets 12,921 15,776 16,562 23,755 Total Assets 53,586 59,324 63,933 72,590 Liabilities Short-term loans 8,012 6,970 5,977 6,163 Payables 2,868 3,919 3,863 4,035 Others 1,952 2,191 2,488 2,824 Total current liabilities 12,831 13,081 12,329 13,021 Long-term debt 5,750 8,446 8,291 8,596 Other liabilities 3,394 3,655 4,081 4,684 Total Liabilities 21,976 25,182 24,701 26,301 Shareholder's equity 19,397 21,209 23,602 27,529 BVPS (Rp) 2,246.68 2,456.55 2,733.77 3,188.63 Source: Company reports and J.P. Morgan estimates.
Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis FY15E Rp in billions, year end Dec 11,173 EBITDA margin 5,060 Net margin 10,350 1,151 28,330 Sales per share growth 2,940 Sales growth 24,109 Net profit growth 77,448 EPS growth Interest coverage (x) 5,863 4,504 Net debt to equity 3,043 Sales/assets 13,410 Assets/equity 7,611 ROE 5,072 ROCE 26,093 31,226 3,616.80
FY12 FY13E FY14E FY15E 13.7% 15.6% 16.8% 16.9% 6.5% 7.0% 9.5% 9.2%
18.0% 18.0% 4.4% 4.4% 15.6 0.4% 0.9 2.8 17.0% 16.4%
10.4% 10.4% 6.0% 6.0% 13.0 4.5% 0.9 2.8 16.1% 14.9%
8.5% 8.5% 16.1% 16.1% 30.3 8.7% 0.9 2.8 16.9% 15.0%
18.3% 18.3% 43.7% 43.7% 24.6 10.3% 0.9 2.7 23.9% 19.4%
8.7% 8.7% 7.9% 7.9% 30.6 3.3% 0.9 2.6 21.8% 19.0%
279
Infosys
Overweight
www.infosys.com
INFY.BO,INFO IN Price: Rs3,265.85 Price Target: Rs3,500.00
Company overview Infosys is one of Asias largest IT services companies with significant experience across vertical domains (BFSI, manufacturing and telecoms) and technology platforms. Infosys serves 850+ clients and has a wide portfolio of service offerings. Investment case Infosyss focus on revenue growth is encouraging in our view. Its win rates in the bread-and-butter segments (incl. large deals) seem to be improving. Infosys is also prepared to temper the near-term margin profile for market share. The other positives are: (a) strong deals wins over the last 3-4 quarters provide revenue visibility, (b) meaningful headroom for cost-optimization/margin expansion, (c) management seems confident of revenue & margin exit rate in Mar-14 quarter, (d) relatively healthy demand environment in CY14 coupled with improved win rates should boost growth. Resilience of the growth outlook Infosyss management pointed to improved demand environment and relatively normalized/better decision making cycle. Infosys's win rate/yields have also improved over the last 2-3 quarters. As we expect CY14 demand environment to stay healthy, Infosys should gain from sustained/improving win rates. Risks to the earnings outlook in 2014 The key risk for Infosys's earnings is weakness in demand due to macro weakness/ event. An adverse US immigration bill might impact the companys growth prospects in the US. Pricing decline and supply-side pressures are the other key risks. Price target, and risks to our investment view We have an OW rating on Infosys with Mar-14 price target of INR 3,500 based on a one-year forward P/E multiple of 16.5x, at a modest (~15%) discount to TCS target multiple of 19x. We believe the discount is justified as TCS's revenue growth and margin profile remains better than Infosys, in our view. Downside risks: lower than expected volume growth, meaningful decline in pricing/realizations, adverse US immigration bill, INR appreciation (vs. USD) and higher than expected attrition.

AC
Abs Rel
YTD 41.4% 36.3%
1m 8.1% 2.2%
3m 8.5% -1.5%
12m 37.3% 27.7%
Bloomberg INFO IN, Reuters INFY.BO

(Year-end Mar, INR mn) Revenue Operating Profit EBITDA Net profit (Reported) EPS P/E (x) EV/EBITDA (x) Cash Equity FY12 336,921 97,312 106,672 82,884 145.05 22.5 0.4 209,676 334,587
FY13 403,397 104,133 115,418 94,071 164.63 19.8 0.4 235,673 398,000
FY14E 495,929 119,752 133,097 102,844 179.99 18.1 0.3 282,348 456,381
FY15E 551,290 137,209 152,638 120,810 211.43 15.4 0.3 343,284 537,078
FY12 FY13 FY14E FY15E Date of Price ROE(%) 27.3 25.7 23.6 24.3 52-Week range CORE ROIC(%) 48.4 42.7 40.9 44.4 Share Out. (Com) Quarterly EPS (Rs) 1Q 2Q 3Q 4Q Market Cap EPS (14) E 41.38 42.07 47.31 49.23 Market Cap(US) EPS (15) E 48.04 51.33 54.73 57.33 Free float Local 1M 3M 12M Avg daily val Abs. Perf.(%) 8.3% 8.5% 37.3% Dividend Yield Rel. Perf.(%) 1.3% (2.6%) 26.6% Index Target Price (31-Mar-14) 3500.00 Exchange rate
05 Nov 13 3,377.70-2,186.00 571MN 1,866BN US$30,230MN 78.3% 4,129.13MN 1.8% 6317.35 61.73
280
Infosys: Summary of Financials

Income Statement Rs in millions, year end Mar Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) FY11 FY12 FY13 274,989 336,921 403,397 (150,577) (188,782) (241,518) 115,808 138,778 150,594 (34,824) (41,466) (46,462) 80,984 97,312 104,133 89,588 106,672 115,418 FY14E FY15E 495,929 551,290 (305,110) (335,681) 177,473 200,179 (57,721) (62,971) 119,752 137,209 133,097 152,638 -
Ratio Analysis Rs in millions, year end Mar Gross margin EBITDA margin Operating margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth
FY11 42.1% 32.6% 29.5% 24.8% 12.7% 20.8% 17.1% 9.7% 9.6% -
FY12 41.2% 31.7% 28.9% 24.6% 12.3% 22.5% 20.2% 21.5% 21.5% -
FY13 37.3% 28.6% 25.8% 23.3% 11.5% 19.7% 7.0% 13.5% 13.5% -
FY14E 35.8% 26.8% 24.1% 20.3% 11.6% 22.9% 15.0% 9.3% 9.3% -
FY15E 36.3% 27.7% 24.9% 21.9% 11.4% 11.2% 14.6% 17.5% 17.5% -
12,143 19,126 23,606 23,184 27,158 EPS (reported) growth 93,127 116,438 127,739 142,936 164,367 (24,894) (33,554) (33,668) (37,895) (43,557) Interest coverage (x) 68,233 82,884 94,071 102,844 120,810 68,233 82,884 94,071 100,744 120,810 Net debt to total capital Net debt to equity EPS (reported) 119.42 145.05 164.63 179.99 211.43 EPS (adjusted) 119.42 145.05 164.63 176.31 211.43 Asset turnover BVPS - Working capital turns (x) DPS 60.00 47.00 42.00 60.00 60.00 ROE Shares outstanding 571 571 571 571 571 CORE ROIC Balance sheet Cash flow statement Rs in millions, year end Mar FY11 FY12 FY13 FY14E FY15E Rs in millions, year end Mar Cash and cash equivalents 168,097 209,676 235,673 282,348 343,284 Net income Accounts receivable 46,518 58,817 70,848 82,449 92,389 Depr. & amortization Inventories 6,199 0 0 0 0 Change in working capital Others 9,857 15,264 22,259 24,061 26,961 Other Current assets 230,671 283,758 328,780 388,858 462,634 Cash flow from operations LT investments 0 0 0 0 0 Capex Net fixed assets 48,436 54,085 64,659 72,411 80,982 Disposal/(purchase) Others 21,096 26,916 45,766 55,140 55,140 Cash flow from investing Total Assets 300,203 364,759 439,206 516,410 598,755 Free cash flow Liabilities Equity raised/(repaid) ST Loans 0 0 0 0 0 Debt raised/(repaid) Payables 446 254 1,900 966 1,070 Other Others 35,948 47,420 60,968 85,943 87,487 Dividends paid Total current liabilities 36,394 47,675 62,868 86,909 88,557 Cash flow from financing Long-term debt 0 0 0 0 0 Net change in cash Other liabilities 3,211 1,221 2,715 3,300 3,300 Beginning cash Total Liabilities 39,605 48,896 65,582 90,209 91,857 Ending cash Shareholders' equity 273,041 334,587 398,000 456,381 537,078 Source: Company reports and J.P. Morgan estimates.
(160.2%) (167.9%) (145.2%) (162.2%) (177.1%) (61.6%) (62.7%) (59.2%) (61.9%) (63.9%) 1.0 1.5 26.6% 50.4% FY11 68,233 8,604 (15,763) 61,074 (12,633) 0 (11,279) 48,440 (2,023) 0 (336) (33,878) (36,237) 13,558 158,587 172,145 1.0 1.6 27.3% 48.4% FY12 82,884 9,360 (227) 92,017 (15,010) 0 (20,830) 77,007 5,210 0 (1,990) (26,548) (23,328) 47,860 168,097 215,957 1.0 1.6 25.7% 42.7% FY13 94,071 11,285 (3,833) 101,523 (21,859) 0 (40,710) 79,664 (6,540) 0 1,493 (24,118) (29,165) 31,649 209,676 241,325 1.0 1.7 23.6% 40.9% FY14E 102,844 13,346 10,639 126,829 (21,098) 0 (30,471) 105,731 (10,761) 0 586 (33,703) (43,878) 52,479 235,673 288,152 1.0 1.6 24.3% 44.4% FY15E 120,810 15,430 (11,192) 125,047 (24,000) 0 (24,000) 101,047 (5,828) 0 0 (34,284) (40,112) 60,935 282,348 343,284
281
Jardine Cycle & Carriage Ltd

Overweight
www.jcclgroup.com
JCYC.SI,JCNC SP Price: S$36.77 Price Target: S$51.00
Singapore Auto Parts Aditya Srinath, CFA

AC
Company overview JC&C, formed in 1899, is part of the Jardine Matheson group. JC&Cs main source of income and its largest asset is its 50.1% holding in Astra International, the largest independent automobile dealer in Southeast Asia. It represents motor principals including Toyota, Kia, Mercedes Benz and Daihatsu, and its span includes Indonesia, Singapore, Malaysia, Vietnam and Myanmar. Investment case We see as JC&C as undervalued relative to its assets at this time. Its holding in Astra is worth 125% of its EV, at the upper end of the three-year range. We have a constructive view on Astra and think JC&C is an attractive route to exposure. The risk of a weaker Rupiah in FY14 leads us to prefer JC&C over Astra at this time. Resilience of the growth outlook Vehicle sales in Indonesia are proving resilient. The impact of competition, a major factor in Astras underperformance earlier this year, appears overblown, in our view. This is evidenced by the strong bounceback in margins in 3Q. Further, rising wages underpin two-wheeler growth prospects. We recently upgraded UNTR to OW, which, along with a more positive outlook for palm oil, bolsters our growth outlook. Risks to the earnings outlook in 2014 JC&C earns most of its income in Rupiah, but reports in USD, leading to translation risks to reported earnings. Indonesia is embarking on a phase of macroeconomic adjustment. This may lead to weaker domestic demand and restricted credit availability, which could affect Astra's auto and financing earnings. Small car competition and policy risks due to vehicle congestion in Jakarta (and Singapore) are also possible risk factors. Price target, and risks to our investment view We rate JC&C OW with a Jun-14 PT of S$51, based on a 12-month forward P/E multiple of 13x. This implies an exit SoP discount of 5% and an 8% P/E discount to Astra. Risks to our view include JC&C earnings falling short on currency risks. JC&Cs dependence on Indonesia is also a risk if Indonesian asset prices are derated.
(62-21) 5291-8573 aditya.s.srinath@jpmorgan.com PT J.P. Morgan Securities Indonesia
James R. Sullivan, CFA

(65) 6882-2374 james.r.sullivan@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Abs Rel
YTD -23.6% -26.3%
1m 6.2% 3.5%
3m -9.9% -9.4%
12m -23.1% -30.9%
Company Data Shares O/S (mn) Market Cap ($ mn) Market Cap ($ mn) Price (S$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (S$ mn) 3M - Avg daily value ($ mn) MSCI-Sg Exchange Rate Fiscal Year End
356 10,528 10,528 36.77 06 Nov 13 0.28 10.16 8.2 1724.45 1.24 Dec
Jardine Cycle & Carriage Ltd (Reuters: JCYC.SI, Bloomberg: JCNC SP) $ in mn, year-end Dec FY09A FY10A FY11A FY12A Revenue ($ mn) 10,640 15,680 20,084 21,541 Recurring Profit ($ mn) 512 944 1,030 986 EPS ($) 1.44 2.65 2.90 2.77 DPS ($) 0.47 0.63 1.00 1.00 Revenue growth (%) (4.9%) 47.4% 28.1% 7.3% EPS growth (%) 13.3% 84.4% 9.1% (4.2%) ROCE 20.3% 29.7% 22.8% 19.2% ROE 20.0% 28.4% 25.3% 21.8% P/E (x) 20.6 11.2 10.2 10.7 P/BV (x) 3.6 2.8 2.4 2.3 EV/EBITDA (x) 10.4 7.0 7.1 7.4 Dividend Yield 1.6% 2.1% 3.4% 3.4%
FY13E 20,157 1,012 2.84 1.14 (6.4%) 2.6% 19.5% 20.5% 10.4 2.0 6.6 3.9%
FY14E 22,695 1,079 3.03 1.14 12.6% 6.7% 20.5% 19.3% 9.8 1.8 6.3 3.8%
282
Jardine Cycle & Carriage Ltd: Summary of Financials

Income Statement $ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 FY12 20,084 21,541 28.1% 7.3% 2,993 3,069 8.2% 2.5% 2,353 2,430 4.6% 3.2% 11.7% 11.3% 0 (37) 3,028 2,969 7.1% (1.9%) (574) (622) 19.0% 21.0% 1,019 1,016 25.5% (0.3%) 356 356 2.86 2.85 25.5% (0.3%) Cash flow statement FY13E FY14E FY15E $ in millions, year end Dec 20,157 22,695 - EBIT (6.4%) 12.6% - Depr. & amortization 3,458 3,736 - Change in working capital 12.7% 8.0% - Taxes 2,524 2,758 - Cash flow from operations 3.9% 9.3% 12.5% 12.2% - Capex (74) (63) - Disposal/(purchase) 3,077 3,373 - Net Interest 3.6% 9.6% - Other (542) (598) - Free cash flow 17.6% 17.7% 1,012 1,079 - Equity raised/(repaid) (0.4%) 6.7% - Debt raised/(repaid) 356 356 - Other 2.84 3.03 - Dividends paid (0.4%) 6.7% - Beginning cash Ending cash DPS Ratio Analysis FY13E FY14E FY15E $ in millions, year end Dec 1,184 1,103 - EBITDA margin 4,968 5,757 - Operating margin 1,413 1,668 - Net margin 75 75 7,641 8,603 Sales per share growth 1,223 1,353 - Sales growth 2,825 3,125 - Net profit growth 5,063 4,786 - EPS growth 21,703 23,648 Interest coverage (x) 2,788 2,552 150 5,490 2,788 625 9,551 5,245 14.74 2,688 2,902 150 5,740 2,688 675 9,851 5,919 16.64 Net debt to equity Sales/assets Assets/equity ROE ROCE FY11 2,353 640 (574) (574) 283 (1,409) 0 (777) (1,126) 0 1,518 1,407 (356) 838 1,504 1.00 FY11 14.9% 11.7% 5.1% 28.1% 28.1% 25.5% 25.5% 35.7% 1.2 412.7% 25.3% 22.8% FY12 2,430 640 (1,057) (622) 3 (890) (37) (116) (858) 0 831 248 (356) 1,505 1,226 1.00 FY12 14.2% 11.3% 4.6% 7.3% 7.3% (0.3%) (0.3%) 83.0 FY13E 2,524 934 172 (542) 1,254 (653) (74) (800) 662 0 (321) 884 (406) 1,226 1,184 1.14 FY13E 17.2% 12.5% 5.0% (6.4%) (6.4%) (0.4%) (0.4%) 47.0 FY14E 2,758 978 (694) (598) 455 (152) (63) (800) 354 0 (200) 1,021 (405) 1,184 1,103 1.14 FY14E 16.5% 12.2% 4.8% 12.6% 12.6% 6.7% 6.7% 59.5 FY15E 0 FY15E -
Balance sheet $ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets LT investments Associates Net fixed assets Total Assets
FY11 1,505 4,591 1,449 69 7,613
FY12 1,226 5,095 1,741 107 8,168
1,117 1,093 2,409 2,525 4,043 4,840 19,095 20,748
Liabilities Short-term loans 2,424 2,798 Payables 3,086 2,846 Others 153 170 Total current liabilities 5,663 5,813 Long-term debt 2,641 3,099 Other liabilities 413 575 Total Liabilities 9,130 10,036 Shareholders' equity 4,407 4,639 BVPS 12.39 13.04 Source: Company reports and J.P. Morgan estimates.
43.6% 36.1% 31.0% 1.1 0.9 1.0 440.5% 429.5% 406.2% 399.5% 21.8% 20.5% 19.3% 19.2% 19.5% 20.5% -
283
Jiangxi Copper - H
Overweight
www.jxcc.com
China Metals Daniel Kang

AC
Company overview Jiangxi Copper (JXC) is Chinas largest refined copper producer with a market share of 19% (based on 2012 production data). JXC is primarily a smelter as its own mines supply c20% of its concentrate requirement, with the balance purchased from external sources. With 14.6mt of contained copper reserves, JXC produces 210kt of mined copper. It also boasts an annual smelting/refining capacity of 1.2mtpa. It is 42% owned by Jiangxi Copper Corporation, a 100% provincial government entity. Investment case Armed with a clean balance sheet and large low-cost domestic operations, JXC has weathered the latest cyclical copper downturn far better than in the past. Higher treatment and refining charges (TC/RCs) in FY14 should return its smelters to profits. With the stock trading below BV (4-year average of 1.3x P/B), we see valuation support and re-rating catalysts likely from rising TC/RCs and potential M&A. Resilience of the growth outlook Looking ahead into FY14, with copper prices forecast to average broadly similar to 2013 but TC/RC forecast to rise by 20%, we forecast JXCs earnings to grow by 11%. Notwithstanding significant new supply coming on stream, we expect improving global growth to contain global copper markets surpluses, supporting average copper prices above USD7,250/t. With copper mining costs at USD3000/t (ex by products), JXC's mines should remain strongly profitable. We are c13% ahead of consensus estimates. Risks to the earnings outlook in 2014 The key upside risks to earnings lies in higher than expected TC/RCs where we estimate a 5% change in TC/RCs impacts FY14 EBITDA by 3%. Current spot TC/RCs are transacting at USD120/12c (FY13 USD70/7c, JPM FY14E USD85/8.5). Price target, and risks to our investment view Our Dec-14 price target for JXC-H is HKD19.50/share equates to 1.1x PB based on a blended average of NPV and PB-ROE. Key risks include copper price movement, M+A and execution risk on growth projects (Afghanistan and Peru).
Abs Rel
YTD -28.0% -29.7%
1m -1.7% -1.3%
3m 10.2% 5.1%
12m -27.5% -32.5%
3,463 40,004 6,558 14.68 06 Nov 13 11.92 180.98 23.3 2,3038.95 7.75 Dec
Jiangxi Copper - H (Reuters: 0358.HK, Bloomberg: 358 HK) Rmb in mn, year-end Dec FY10A FY11A FY12E Revenue (Rmb mn) 76,139 117,119 158,006 Net Profit (Rmb mn) 4,988 6,587 5,170 Core Profit (Rmb mn) 4,988 6,587 5,170 EPS (Rmb) 1.59 1.90 1.49 Core EPS (Rmb) 1.51 1.90 1.49 Revenue growth (%) 48.0% 53.8% 34.9% EPS growth (%) 101.7% 19.6% (21.5%) Core EPS growth 105.4% 26.1% (21.5%) P/E (x) 7.3 6.1 7.7 P/BV (x) 1.1 1.0 0.9 EV/EBITDA (x) 6.6 5.3 6.0 Dividend Yield 1.8% 4.3% 4.3%
FY13E 175,005 3,327 3,327 0.96 0.96 10.8% (35.7%) (35.7%) 12.0 0.9 8.6 2.5%
FY14E 175,232 3,695 3,695 1.07 1.07 0.1% 11.1% 11.1% 10.8 0.9 7.3 2.8%
284
Jiangxi Copper - H: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets
Cash flow statement FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec 76,139 117,119 158,006 175,005 175,232 EBIT 48.0% 53.8% 34.9% 10.8% 0.1% Depr. & amortization 10.6% 8.3% 4.7% 3.4% 3.8% Change in working capital 7,512 9,061 7,722 5,795 6,598 Taxes 66.9% 20.6% (14.8%) (24.9%) 13.8% Other 9.9% 7.7% 4.9% 3.3% 3.8% Cash flow from operations 6,505 7,883 6,457 4,451 5,223 82.1% 21.2% (18.1%) (31.1%) 17.3% Capex 8.5% 6.7% 4.1% 2.5% 3.0% Disposal/(purchase) (444) (174) (184) (467) (503) Net Interest 6,061 7,709 6,273 3,984 4,719 Free cash flow 88.8% 27.2% (18.6%) (36.5%) 18.5% (1,015) (1,060) (1,026) (797) (1,180) Equity raised/(repaid) 16.7% 13.8% 16.4% 20.0% 25.0% Debt raised/(repaid) 4,988 6,587 5,170 3,327 3,695 Other 109.3% 32.1% (21.5%) (35.7%) 11.1% Dividends paid 3,306 3,463 3,463 3,463 3,463 Beginning cash 1.51 1.90 1.49 0.96 1.07 Ending cash 105.4% 26.1% (21.5%) (35.7%) 11.1% DPS Ratio Analysis FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec 3,864 11,082 16,678 14,095 13,503 Net profit margin 5,169 7,597 9,444 9,041 9,166 SG&A/Sales 18,270 14,097 15,936 15,859 16,078 7,571 13,207 10,397 15,695 15,695 Interest coverage (x) 34,875 45,983 52,456 54,690 54,442 Net debt to equity Sales/assets LT investments - Assets/equity Net fixed assets 16,704 18,092 19,934 20,707 21,832 Total Assets 54,845 68,150 78,088 81,324 82,201 ROE a ROA Liabilities ROCE Short-term loans 3,596 9,809 12,417 13,094 11,094 Payables 5,105 5,576 7,293 6,988 7,058 Others 5,403 6,668 7,527 8,520 8,520 Total current liabilities 14,104 22,054 27,238 28,603 26,673 Long-term debt 5,891 5,596 6,299 6,567 6,832 Other liabilities 312 694 689 852 852 Total Liabilities 20,307 28,344 34,226 36,021 34,357 Shareholder's equity 34,123 39,303 42,775 44,363 47,061 BVPS 10.32 11.35 12.35 12.81 13.59 Source: Company reports and J.P. Morgan estimates.
FY10 FY11 FY12E FY13E FY14E 6,505 7,883 6,457 4,451 5,223 1,006 1,178 1,265 1,345 1,375 (8,843) (1,534) (242) 176 (275) (807) (3,447) (4,191) (797) (1,180) 3,003 2,364 4,066 (777) 503 (1,973) 6,632 6,334 3,934 5,143 (2,389) (2,459) (2,674) (2,258) (2,500) 16 29 18 47 0 (444) (174) (184) (467) (503) (3,992) 4,324 3,814 2,050 3,021 1 36 450 0 0 8,085 6,280 3,052 256 (2,238) (6) 1,000 637 446 0 (302) (1,753) (2,236) (1,739) (998) 1,703 3,864 11,082 16,678 14,095 3,874 11,087 16,684 14,103 13,503 0.21 0.50 0.50 0.29 0.32 FY10 6.6% 2.0% FY11 FY12E FY13E FY14E 5.6% 3.3% 1.9% 2.1% 1.7% 0.6% 0.8% 0.8% 42.0 12.4 4.6% 12.3% 2.2 2.2 1.8 1.8 7.6% 4.2% 5.7% 13.1 9.2% 2.1 1.8 8.1% 4.5% 6.1%
16.9 52.0 16.3% 10.9% 1.6 1.9 1.6 1.7
17.5% 17.9% 12.6% 10.7% 10.7% 7.1% 14.6% 13.8% 9.3%
285
KASIKORNBANK
Overweight
http://www.kasikornbank.com/
KBAN.BK,KBANK TB Price: Bt181.50 Price Target: Bt240.00
Thailand Banks Anne Jirajariyavech, CFA

AC
Company overview KBANK is one of the leading commercial banks in Thailand. The bank provides a full range of services, but has significant market share in wholesale lending, particularly in the SME segment. Over the past couple of years, KBANK has become more active in the retail banking business, which has resulted in high retail loan growth and non-NII. Investment case KBANKs revenue growth has been above the industry average since FY08 and the growth momentum within the industry top two. Being in the top three in the mortgage business, KBANK now stands to benefit from rising mortgage demand, in our view. Tier-1 ratio at 12.5% also gives the bank ability to tackle competition in SME lending and pay higher dividends. Resilience of the growth outlook We believe KBANKs balanced growth policy will pay off well in the medium term. The banks non-NII growth continues to lead the sector. We note that KBANK has the strongest deposit franchise in the system and thus the bank should benefit as interest rates start to move up. KBANKs deposit cost of 1.45% in 3Q13 is the best in its class (30bp below industry and 15bp below BBL). Risks to the earnings outlook in 2014 KBANKs coverage ratio has dropped to 138% due to higher NPL formation. This will keep credit cost pressure elevated in FY14. We forecast 90bp credit costs for FY14, up from 66bp/86bp in FY12/13E. Price target, and risks to our investment view We maintain our OW rating with a Dec-14 PT of Bt240 based on DDM, using a 20.6% ROE, 12.8% COE, and 8% growth. Key risks to our PT are: 1) impact from minimum wage increase to SME businesses; 2) fiercer-than-expected competition in SME, which is the largest portion of KBANKs loan-book; 3) slower-than-expected consumer loan growth and non-NII growth; and 4) higher-than-expected opex from K-Transformation.
(66-2) 684-2684 anne.x.jirajariyavech@jpmorgan.com JPMorgan Securities (Thailand) Limited
Abs Rel
YTD -7.4% -7.2%
1m -3.5% 0.1%
3m -1.9% 1.8%
12m 1.1% -7.9%
Company Data 52-week Range (Bt) Market Cap (Bt mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Bt) Date Of Price 3M - Avg daily value (Bt mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) SET Exchange Rate
225.00-158.00 434,558 13,741 2,394 Dec 181.50 13 Nov 13 1,772.45 56.0 9.95 1404.77 31.63
KASIKORNBANK (Reuters: KBAN.BK, Bloomberg: KBANK TB) Bt in mn, year-end Dec FY11A FY12A FY13E Operating Profit (Bt mn) 46,737 56,794 68,154 Net Profit (Bt mn) 24,226 35,260 42,027 Cash EPS (Bt) 10.12 14.73 17.55 Fully Diluted EPS (Bt) 10.12 14.73 17.55 DPS (Bt) 2.50 3.00 3.50 EPS growth (%) 20.8% 45.5% 19.2% ROE 16.7% 20.8% 20.8% P/E (x) 17.9 12.3 10.3 BVPS (Bt) 64.65 77.25 91.30 P/BV (x) 2.8 2.3 2.0 Dividend Yield 1.4% 1.7% 1.9%
FY14E 78,590 48,394 20.21 20.21 4.00 15.2% 20.3% 9.0 107.51 1.7 2.2%
FY15E 88,915 54,999 22.97 22.97 4.50 13.6% 19.7% 7.9 125.98 1.4 2.5%
286
KASIKORNBANK: Summary of Financials

Income Statement Bt in millions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data THB EPS DPS Payout Book value Fully Diluted Shares PPOP per share Key Balance sheet Bt in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY11 3.6% 94.7% 3.5% 56,491 33,265 26,048 5,227 89,756 (43,019) 46,737 (7,346) 752 40,144 (13,962) (1,957) 24,226 FY11 10.12 2.50 24.7% 64.65 2,394 19.52 FY11 1,172,596 (40,343) 1,212,939 31,922 264,295 68,785 1,551,023 0 1,722,940 1,242,229 123,644 0 1,293,953 1,637,234 154,799 1,199,923 1,133,816 FY12 3.5% 95.8% 3.3% 63,581 40,147 31,794 5,575 103,728 FY13E 3.4% 96.3% 3.3% 72,520 47,507 38,789 5,941 120,027 FY14E 3.5% 96.8% 3.4% 81,691 53,993 44,608 6,331 135,684
(46,934) (51,873) (57,095) 56,794 68,154 78,590 (8,390) (11,996) (13,823) 578 92 0 48,981 56,250 64,767 (11,136) (11,250) (12,953) (2,585) (2,973) (3,419) 35,260 42,027 48,394 FY12 14.73 3.00 20.4% 77.25 2,394 23.72 FY12 1,285,310 (43,723) 1,329,032 33,352 382,330 73,128 1,819,441 0 2,077,442 1,391,380 261,398 0 1,509,326 1,900,191 184,946 1,317,221 1,258,572 FY13E 17.55 3.50 19.9% 91.30 2,394 28.47 FY13E 1,408,199 (52,651) 1,460,850 36,010 401,446 80,441 2,110,047 0 2,304,131 1,530,518 278,838 0 1,731,067 2,190,787 218,592 1,443,095 1,380,158 FY14E 20.21 4.00 19.8% 107.51 2,394 32.82 FY14E 1,547,766 (63,091) 1,610,858 41,853 421,518 84,463 2,350,587 0 2,552,958 1,683,570 306,722 0 1,899,824 2,428,545 257,410 1,602,840 1,522,967
Growth Rates FY15E 3.5% Loans 97.3% Deposits 3.4% Assets Equity 90,368 RWA 61,406 Net Interest Income 51,299 Non-Interest Income 6,746 of which Fee Grth Revenues 151,773 Costs Pre-Provision Profits (62,859) Loan Loss Provisions 88,915 Pre-Tax (15,252) Attributable Income 0 EPS - DPS - Balance Sheet Gearing 73,663 Loan/deposit (14,733) Investment/assets (3,932) Loan/Assets 54,999 Customer deposits/liab. LT debt/liabilities FY15E Asset Quality/Capital 22.97 Loan loss reserves/loans 4.50 NPLs/loans 19.6% Loan loss reserves/NPLs 125.98 Growth in NPLs 2,394 Tier 1 Ratio 37.14 Total CAR FY15E Du-Pont Analysis 1,703,775 NIM (as % of avg. assets) (74,608) Earning assets/assets 1,778,383 Margins (as % of Avg. Assets) 48,297 Non-Int. Rev./ Revenues 442,594 Non IR/Avg. Assets 88,686 Revenue/Assets 2,618,134 Cost/Income 0 Cost/Assets 2,828,324 Pre-Provision ROA LLP/Loans 1,851,927 Loan/Assets 337,394 Other Prov, Income/ Assets 0 Operating ROA 2,089,806 Pre-Tax ROA 2,690,641 Tax rate 301,634 Minorities & Outside Distbn. 1,775,823 ROA 1,689,331 RORWA Equity/Assets ROE
FY11 12.5% 12.9% 11.0% 14.7% 12.4% 20.9% 19.3% 17.9% 20.3% 13.2% 27.6% 9.6% 31.9% 20.8% 20.8% 0.0% FY11 94.4% 15.7% 70.0% 79.8% 8.3% FY11 (3.3%) 2.8% 118.2% (4.3%) 10.2% 14.6% FY11 3.6% 94.7% 3.5% 37.1% 2.0% 5.5% 47.9% 2.6% 2.9% (0.6%) 70.0% 0.0% 2.4% 2.5% 34.8% 0.7% 1.5% 2.1% 8.8% 16.7%
FY12 9.6% 12.0% 20.6% 19.5% 9.8% 12.6% 20.7% 22.1% 15.6% 9.1% 21.5% 14.2% 22.0% 45.5% 45.5% 20.0% FY12 92.4% 17.0% 66.9% 74.1% 11.2% FY12 (3.3%) 2.6% 128.8% 4.5% 10.8% 16.6% FY12 3.5% 95.8% 3.3% 38.7% 2.1% 5.5% 45.2% 2.5% 3.0% (0.7%) 66.9% 0.0% 2.5% 2.6% 22.7% 0.7% 1.9% 2.8% 8.9% 20.8%
FY13E 9.9% 10.0% 10.9% 18.2% 9.6% 14.1% 18.3% 22.0% 15.7% 10.5% 20.0% 43.0% 14.8% 19.2% 19.2% 16.7% FY13E 92.0% 17.9% 63.7% 74.1% 13.7% FY13E (3.6%) 2.5% 138.9% 8.0% 12.1% 17.4% FY13E 3.4% 96.3% 3.3% 39.6% 2.2% 5.5% 43.2% 2.4% 3.1% (0.9%) 63.7% 0.0% 2.6% 2.6% 20.0% 0.8% 1.9% 3.0% 9.2% 20.8%
FY14E 10.3% 10.0% 10.8% 17.8% 11.1% 12.6% 13.7% 15.0% 13.0% 10.1% 15.3% 15.2% 15.1% 15.2% 15.2% 14.3% FY14E 91.9% 16.9% 63.2% 74.1% 13.5% FY14E (3.9%) 2.5% 148.6% 16.2% 13.3% 18.0% FY14E 3.5% 96.8% 3.4% 39.8% 2.2% 5.6% 42.1% 2.4% 3.2% (0.9%) 63.2% 0.0% 2.7% 2.7% 20.0% 0.8% 2.0% 3.2% 9.8% 20.3%
FY15E 10.4% 10.0% 10.8% 17.2% 10.8% 10.6% 13.7% 15.0% 11.9% 10.1% 13.1% 10.3% 13.7% 13.6% 13.6% 12.5% FY15E 92.0% 16.1% 63.0% 74.1% 13.5% FY15E (4.2%) 2.7% 152.7% 15.4% 14.4% 18.7% FY15E 3.5% 97.3% 3.4% 40.5% 2.3% 5.6% 41.4% 2.3% 3.3% (0.9%) 63.0% 0.0% 2.7% 2.7% 20.0% 0.9% 2.0% 3.3% 10.4% 19.7%
287
KB Financial Group
Overweight
www.kbfng.com
South Korea Banks Scott YH Seo

AC
Company overview KB Financial Group (KBG) runs the largest retail banking operation among bankcentric FHCs in Korea. It has eleven subsidiaries under FHC structure, including Kookmin Bank, KB Card, KB Invest. & Securities, KB Asset Mgt. and KB Life Insurance. Investment case Along with the other Korean banks/bank-centric FHCs in our universe, we expect KBGs key cyclical earnings drivers such as NIM, loan growth, and credit cost to start recovering in 2014. However, we believe KBG will see higher than average growth in 2014 considering the low base effect (i.e., sizable MTM losses from legacy assets in 2013) and greater gearing towards domestic consumption and housing market recovery. Resilience of the growth outlook We project KBGs earnings to grow by 30% Y/Y in FY14E on the back of NIM stabilization, improvement in corporate credit cost, and limited impairment recognition from legacy assets. Considering that our central case scenario is not based on meaningful pick-up in loan growth (4% Y/Y) for 2014, upside risk to our earnings estimate could come from (1) stabilization / normalization of housing market, (2) DM recovery benefitting Korea exporters, and (3) pick-up in local CAPEX cycle. Risks to the earnings outlook in 2014 While KBGs 4Q13E earnings may disappoint on provision top-up and seasonality in overhead cost, we dont see any meaningful downside risk to 2014 earnings considering KBGs continuing effort to clean up their NPLs as well as sizable MTM loss recognition on legacy asset in 2013. Price target, and risks to our investment view Our Dec-14 DDM-based PT of W49,000 assumes sustainable ROE of 7.4%, growth of 3.1% and implies 0.8x FY14E NAV and 10.9x FY14E earnings. Key risks are unexpected regulatory changes as well as execution risk on local M&A opportunities.
(82-2) 758 5759 scott.seo@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Abs Rel
YTD 5.4% 4.6%
1m 3.9% 3.1%
3m 9.3% 3.7%
12m 7.2% 2.8%
Company Data 52-week Range (W) Market Cap (W bn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price 3M - Avg daily value (W bn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) KOSPI Exchange Rate (KRW/USD)
44,250-31,100 15,435 14,545 386 Dec 39,950 06 Nov 13 46.46 43.8 1.21 2013.67 1,061.15
KB Financial Group (Reuters: 105560.KS, Bloomberg: 105560 KS) Year-end Dec FY11A FY12A FY13E Pre-provision OP (W bn) 4,911 4,019 3,573 Reported net profit (W bn) 2,373 1,703 1,337 *Attrib. net profit (W bn) 2,373 1,703 1,337 EPS (W) 6,466 4,408 3,460 Cash DPS (W) 720 600 700 EPS growth 2411.2% (31.8%) (21.5%) ROE 11.6% 7.6% 5.3% P/E (x) 6.2 9.1 11.5 **Tangible NAV/share (W) 53,526 56,874 59,958 ***Adjusted BV/share (W) 53,897 57,433 60,501 P/Tangible NAV (x) 0.7 0.7 0.7 P/Adjusted BV (x) 0.7 0.7 0.7 Dividend Yield 1.8% 1.5% 1.8%
FY14E 3,745 1,738 1,738 4,499 750 30.0% 6.6% 8.9 63,869 64,411 0.6 0.6 1.9%
FY15E 3,933 1,837 1,837 4,754 800 5.7% 6.6% 8.4 68,011 68,553 0.6 0.6 2.0%
288
KB Financial Group: Summary of Financials

Income Statement W in billions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Pre-tax Associate Tax Minorities Preferred dividend and hybrid capital interest expense Attributable Income Per Share Data W EPS DPS Payout Adjusted Book value Tangible NAV Fully Diluted Shares (mn) Key Balance sheet W in billions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Borrowings of which:sub-debt Avg. IBL Avg. Assets Common Equity RWA Avg. RWA Source: Company reports and J.P. Morgan estimates.
Growth Rates FY12 FY13E FY14E FY15E 2.7% 2.4% 2.4% 2.4% Loans 93.3% 92.3% 92.0% 91.9% Deposits 2.6% 2.2% 2.2% 2.2% Assets Equity 7,116 6,479 6,549 6,843 RWA 2,444 2,725 2,988 3,122 Net Interest Income 1,593 1,500 1,482 1,534 Non-Interest Income 666 615 842 884 of which Fee Grth Revenues 9,560 9,203 9,537 9,965 Costs Pre-Provision Profits (5,541) (5,631) (5,793) (6,032) Loan Loss Provisions Pre-Tax 4,019 3,573 3,745 3,933 Attributable Income (1,608) (1,506) (1,393) (1,449) EPS (58) (61) DPS (137) (75) 0 0 0 0 Balance Sheet Gearing 2,261 1,889 2,293 2,423 Loan/deposit (14) (104) 0 0 Investment/assets (549) (549) (555) (586) Loan/Assets (9) (3) 0 0 Customer deposits/liab. 0 0 0 - LT debt/liabilities 1,703 1,337 1,738 1,837 Asset Quality/Capital FY12 FY13E FY14E FY15E Loan loss reserves/loans 4,408 3,460 4,499 4,754 NPLs/loans 600 700 750 800 Provisions/Avg loans 13.6% 20.2% 16.7% 16.8% Growth in NPLs 57,433 60,501 64,411 68,553 Tier 1 Ratio 57,433 60,501 64,411 68,553 Total CAR 386 386 386 386 FY12 FY13E FY14E FY15E Du-Pont Analysis 212,716 221,310 230,609 240,281 NIM (as % of avg. assets) (3,268) (3,323) (3,008) (2,681) Earning assets/assets 215,985 224,632 233,618 242,962 Margins (as % of Avg. Assets) 3,183 3,764 3,671 3,600 Non-Int. Rev./ Revenues 37,932 35,535 37,312 39,178 Non IR/Avg. Assets 14,631 15,610 16,234 16,883 Revenue/Assets 262,922 270,204 281,334 293,110 Cost/Income 216 210 210 210 Cost/Assets 285,751 299,463 312,272 325,623 Pre-Provision ROA LLP/Loans 192,651 201,481 211,556 222,133 Loan/Assets 42,321 44,089 43,656 43,080 Other Prov, Income/ Assets 2,970 2,970 2,970 2,970 Operating ROA 236,400 242,468 253,099 263,056 Pre-Tax ROA 281,676 292,607 305,867 318,947 Tax rate 24,763 25,434 26,920 28,506 Minorities & Outside Distbn. 193,510 195,533 203,896 212,614 ROA 193,161 194,521 199,715 208,255 RORWA Equity/Assets ROE
FY12 0.2% 2.0% 2.9% 7.2% 0.4% 0.2% (25.8%) (11.3%) (8.1%) 1.0% (18.2%) 6.3% (30.7%) (28.2%) (31.8%) (16.7%)
FY13E 4.0% 4.6% 4.8% 3.5% 1.0% (9.0%) 11.5% (5.8%) (3.7%) 1.6% (11.1%) (6.3%) (16.5%) (21.5%) (21.5%) 16.7%
FY14E FY15E 4.0% 4.0% 5.0% 5.0% 4.3% 4.3% 5.8% 5.9% 4.3% 4.3% 1.1% 4.5% 9.7% 4.5% (1.2%) 3.5% 3.6% 4.5% 2.9% 4.1% 4.8% 5.0% (7.5%) 4.0% 21.4% 5.7% 30.0% 5.7% 30.0% 5.7% 7.1% 6.7%
FY12 FY13E FY14E FY15E 110.4% 109.8% 109.0% 108.2% 13.2% 12.6% 11.9% 12.0% 76.6% 75.3% 74.9% 74.7% 73.8% 73.5% 74.1% 74.8% 17.1% 16.2% 15.7% 14.9% FY12 FY13E FY14E FY15E (1.5%) (1.5%) (1.3%) (1.1%) 1.4% 1.6% 1.6% 1.5% (0.7%) (0.7%) (0.6%) (0.6%) 5.0% 18.2% (2.5%) (1.9%) 10.7% 11.3% 11.7% 12.2% 13.9% 14.5% 14.8% 15.2% FY12 FY13E FY14E FY15E 2.7% 2.4% 2.4% 2.4% 93.3% 92.3% 92.0% 91.9% 2.6% 2.2% 2.2% 2.2% 25.6% 29.6% 31.3% 31.3% 0.9% 0.9% 1.0% 1.0% 3.4% 3.1% 3.1% 3.1% 58.0% 61.2% 60.7% 60.5% 2.0% 1.9% 1.9% 1.9% 1.4% 1.2% 1.2% 1.2% (0.7%) (0.7%) (0.6%) (0.6%) 76.6% 75.3% 74.9% 74.7% (0.1%) (0.1%) (0.0%) (0.0%) 0.9% 0.7% 0.8% 0.8% 0.8% 0.6% 0.7% 0.8% 24.3% 29.1% 24.2% 24.2% 0.1% 0.0% 0.0% 0.0% 0.6% 0.5% 0.6% 0.6% 0.9% 0.7% 0.9% 0.9% 8.4% 8.5% 8.6% 8.7% 7.6% 5.3% 6.6% 6.6%
289
Keppel Corporation
Overweight
www.kepcorp.com/
KPLM.SI,KEP SP Price: S$10.84 Price Target: S$13.30
Singapore Conglomerates & Multi-industry Ajay Mirchandani

AC
Company overview Keppel Corporations key businesses include Offshore & Marine, Property and Infrastructure. Its Offshore & Marine business includes the construction of offshore rigs. On the property side, it is involved in property development, primarily via Keppel Land. Its infrastructure business comprises environmental engineering, power & gas, logistics and data center businesses. Investment case We remain Overweight on Keppel as we continue to see strong order momentum in jackups (>50 jackups ordered in 2013 globally) along with growing semisub orders. Keppel remains our top pick among Singapore rig builders due to i) better O&M margins forecasted over the next 1-2 years as Brazil will act as baseload; ii) product mix as Keppel enjoys orders in FLNG market; iii) potential drillship/FLNG orders; iv) orders expected from Mexico after it sets up a yard. Resilience of the growth outlook Keppels great track record in the delivery of rigs is one reason why rig owners prefer Keppel over Chinese yards. We expect strong earnings in O&M to continue on the back of order replenishment. With Keppel announcing to build a yard in Mexico, the company is also set to benefit from strong rig demand coming from Mexico.
Abs Rel
YTD -1.5% -2.7%
1m 3.2% 1.1%
3m 4.8% 5.4%
12m 3.2% -3.0%
Risks to the earnings outlook in 2014 Prices and margins remain under pressure due to increased competition, especially from Chinese yards (for Jackups) and Korean yards (on pricing for semisubs and high spec jackups). Price target, and risks to our investment view Our Dec-14 PT of S$13.30 is based on our sum-of-the-parts valuation with a DCFbased calculation for the rig-building business and a 12x P/E for ship repair and other businesses, in line with the historical average for the repair business. We value property (Keppel Bay) at NAV and Keppel Land at our PT. Finally, we value the infrastructure business at 1.5x book. The key risks to our PT include a worse-thanexpected delay in new orders and a collapse in oil prices.
Company Data Shares O/S (mn) Market Cap (S$ mn) Market Cap ($ mn) Price (S$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (S$ mn) FTSTI Exchange Rate
1,807 19,593 15,772 10.84 06 Nov 13 3.31 34.80 3205.54 1.24
Keppel Corporation (Reuters: KPLM.SI, Bloomberg: KEP SP) S$ in mn, year-end Dec FY10A FY11A FY12A Revenue (S$ mn) 9,140 10,082 13,965 Core Profit (S$ mn) 1,307 1,491 1,914 Core EPS (S$) 0.74 0.84 1.06 Core EPS growth (%) 2.7% 12.9% 27.4% DPS (S$) 0.42 0.43 0.45 P/E (Recurring) 14.6 13.0 10.2 P/BV (x) 3.0 2.5 2.1 ROE (%) 21.4% 21.1% 22.6% Div Yield 3.9% 4.0% 4.2%
FY13E 12,947 1,566 0.87 (18.2%) 0.45 12.4 1.9 16.3% 4.2%
FY14E 12,994 1,564 0.87 (0.2%) 0.45 12.5 1.8 15.1% 4.2%
290
Keppel Corporation: Summary of Financials

Income Statement S$ in millions, year end Dec FY10 FY11 Revenues 9,140 10,082 EBITDA 1,745 3,033 % change Y/Y 3.9% 73.8% EBITDA Margin 19.1% 30.1% EBIT 1,556 2,824 % change Y/Y 3.4% 81.5% EBIT Margin 17.0% 28.0% Net Interest 47 16 Associates 278 448 Exceptionals (204) (455) Earnings before tax 2,550 3,313 % change Y/Y 17.1% 29.9% Tax (560) (444) as % of EBT 22.0% 13.4% Minority Interests (479) (923) Net income (reported) 1,511 1,946 Net income (recurring) 1,307 1,491 Shares outstanding 1,766 1,784 EPS (Recurring) 0.74 0.84 EPS (reported) 0.86 1.09 Balance sheet S$ in millions, year end Dec FY10 FY11 Cash and cash equivalents 4,246 3,020 Accounts receivable 1,959 2,028 Inventories 3,940 6,606 Others 842 981 Current assets 10,987 12,635 LT investments 3,507 4,921 Net fixed assets 2,243 2,716 Total Assets 20,461 25,099 Short-term loans 392 808 Payables 4,343 5,710 Total current liabilities 7,093 9,003 Long-term debt 3,676 4,069 Other liabilities 410 267 Total Liabilities 11,179 13,338 Shareholders' equity 6,415 7,699 Total Liabilities and equity 20,461 25,099 BVPS 3.63 4.32 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY12 FY13E FY14E S$ in millions, year end Dec 13,965 12,947 12,994 EBIT 2,832 2,048 2,170 Depreciation & amortization (6.6%) (27.7%) 6.0% Change in working capital 20.3% 15.8% 16.7% Other non-cash items 2,621 1,755 1,870 Cash flow from operations (7.2%) (33.0%) 6.5% 18.8% 13.6% 14.4% Capex 26 27 (7) Disposal/(purchase) 603 894 840 Cash flow from investments (323) 0 0 Equity raised/(repaid) 3,256 2,693 2,718 Debt raised/(repaid) (1.7%) (17.3%) 0.9% Other (501) (733) (728) Dividends paid 15.4% 27.2% 26.8% Cash flow from financing (518) (393) (427) Net change in cash 2,237 1,566 1,564 Beginning cash 1,914 1,566 1,564 Ending cash 1,798 1,798 1,798 1.06 0.87 0.87 Free cash flow 1.24 0.87 0.87 DPS Ratio Analysis FY12 FY13E FY14E S$ in millions, year end Dec 4,055 3,484 4,375 Gross margin 1,995 2,312 2,320 EBITDA margin 7,443 7,768 7,797 EBIT margin 1,114 1,194 1,274 Net margin 14,607 14,758 15,766 5,648 5,648 5,648 Sales growth 3,337 3,705 3,891 EBIT growth 29,171 29,689 30,884 Net profit growth 1,006 1,006 1,006 EPS growth 5,536 4,855 4,873 9,064 8,432 8,445 Interest coverage (x) 6,202 6,202 6,202 Net debt to equity 326 326 326 15,592 14,961 14,973 Sales/assets 9,246 10,003 10,758 Assets/equity 29,171 29,689 30,884 ROE 5.14 5.57 5.99 ROCE
FY10 FY11 FY12 1,556 2,824 2,621 189 209 211 (1,101) (1,890) (1,448) 44 (1,045) (192) 450 (224) 1,007 (815) (802) (860) (761) (1,258) (1,069) 74 99 82 3,221 809 2,331 (1,046) 90 (346) (627) (724) (789) 1,621 275 1,277 1,311 (1,225) 1,035 2,934 4,246 3,020 4,246 3,020 4,055 (401) (1,039) 0.42 0.43 FY10 19.1% 17.0% 14.3% (25.4%) 3.4% (7.0%) 2.7% NM (1.9%) FY11 30.1% 28.0% 14.8% 10.3% 81.5% 28.8% 12.9% NM 15.8% 124 0.45 FY12 20.3% 18.8% 13.7%
FY13E 1,755 293 (1,354) 910 898 (1,003) (1,003) 0 0 344 (809) (465) (570) 4,055 3,485 (125) 0.45 FY13E 15.8% 13.6% 12.1%
FY14E 1,870 301 (104) 856 2,187 (487) (487) 0 0 0 (809) (809) 891 3,484 4,375 1,705 0.45 FY14E 16.7% 14.4% 12.0% 0.4% 6.5% (0.2%) (0.2%) 302.3 17.8%
38.5% (7.3%) (7.2%) (33.0%) 15.0% (30.0%) 27.4% (18.2%) NM 23.2% NM 25.3%
48.9% 44.3% 51.5% 44.0% 42.9% 306.8% 322.8% 320.3% 305.8% 291.8% 21.4% 21.1% 22.6% 16.3% 15.1% 13.5% 21.2% 15.3% 7.6% 7.8%
291
Krung Thai Bank

Overweight
www.ktb.co.th/
KTB.BK,KTB TB Price: Bt20.30 Price Target: Bt28.00

AC
Company overview Krung Thai Bank (KTB) is Thailands largest state-owned bank, with Financial Institutions Development Fund (FIDF) being the banks largest shareholder, owning 55.29% of the bank. This has lent a benefit to KTB, which has the largest market share in lending and deposit-taking with the government and SOEs. Investment case KTB offers the most attractive valuation in the sector, in our view, along with decent yield and ROE. The stock trades at 1.29x FY14E P/BV and 8.6x FY14E P/E and offers a 4% dividend yield, 17% EPS growth and 16% ROE. Our estimates already price in high credit cost expectations (100bp vs. 84bp) for KTB in 2014, as the banks coverage ratio is below the industry average (108% vs. 137%). Resilience of the growth outlook The key drag on KTBs share price has been the delay in government infrastructure spending. We believe this spending will happen, although the timing is unclear at this stage. We believe the stocks low valuation reflects low expectations built in by the market, and we thus see potential for considerable upside should the government spending commence in 2014.
Abs Rel
YTD 3.6% 0.5%
1m 2.5% 2.0%
3m 14.7% 14.3%
12m 12.2% 1.9%
Risks to the earnings outlook in 2014 Despite the recapitalization in 4Q12, KTBs tier 1 capital ratio of 10.7% is still below the industry average of 12.3% and does not totally remove the possibility of recapitalization again if loan demand comes down significantly. That said, KTB recently raised its 2013 loan growth target to 10% from previous guidance of 7.5%, alleviating concerns regarding loan growth in the near term. Price target, and risks to our investment view We maintain our Overweight rating on KTB with a Dec-14 PT of Bt28 based on DDM, using a 14.6% ROE, 13.5% COE and 7.0% growth. Risks to our rating and price target include potential M&A and credit quality deterioration, given the fact that KTB has a lower-than-industry-average NPL coverage ratio.
27.75-16.10 227,061 7,257 11,185 Dec 20.30 06 Nov 13 1,282.50 41.0 66.25 1434.97 31.29
Krung Thai Bank (Reuters: KTB.BK, Bloomberg: KTB TB) Bt in mn, year-end Dec FY11A FY12A FY13E Operating Profit (Bt mn) 35,851 46,202 52,866 Net Profit (Bt mn) 17,027 23,527 28,705 Cash EPS (Bt) 1.52 1.87 2.05 Fully Diluted EPS (Bt) 1.52 1.87 2.05 DPS (Bt) 0.62 0.80 0.80 EPS growth (%) 14.2% 22.8% 9.8% ROE 13.3% 15.0% 15.0% P/E (x) 13.3 10.9 9.9 BVPS (Bt) 11.61 13.08 14.33 P/BV (x) 1.7 1.6 1.4 Dividend Yield 3.1% 3.9% 3.9%
FY14E 60,172 33,572 2.40 2.40 0.90 17.0% 15.9% 8.5 15.83 1.3 4.4%
FY15E 67,838 38,351 2.74 2.74 1.00 14.2% 16.4% 7.4 17.58 1.2 4.9%
292
Krung Thai Bank: Summary of Financials

Income Statement Bt in millions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data THB EPS DPS Payout Book value Fully Diluted Shares PPOP per share Key Balance sheet Bt in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY11 2.8% 96.3% 2.7% 50,384 18,642 11,374 3,085 69,026 (33,175) 35,851 (13,544) 498 22,804 (5,777) 0 17,027 FY11 1.52 0.62 40.7% 11.61 11,185 3.21 FY11 1,384,712 (44,271) 1,428,983 64,543 226,500 49,961 1,795,350 0 1,964,999 1,285,390 470,437 0 1,663,967 1,863,738 129,825 1,274,629 1,194,718 FY12 2.9% 97.2% 2.8% 58,569 22,976 13,217 5,695 81,545 (35,343) 46,202 (15,163) 351 31,390 (7,863) 0 23,527 FY12 1.87 0.80 42.8% 13.08 12,583 3.67 FY12 1,480,505 (55,188) 1,535,693 59,868 301,040 37,092 2,051,795 0 2,256,497 1,666,961 338,648 0 1,880,718 2,110,748 182,850 1,493,877 1,384,253 FY13E 2.8% 98.4% 2.7% 64,194 27,921 15,861 7,794 92,115 (39,249) 52,866 (16,352) (633) 35,881 (7,176) 0 28,705 FY13E 2.05 0.80 39.0% 14.33 13,982 3.78 FY13E 1,667,962 (66,683) 1,734,645 64,475 331,144 38,946 2,329,482 0 2,478,655 1,833,657 372,512 0 2,105,889 2,367,576 200,369 1,686,245 1,590,061 FY14E 2.8% 99.0% 2.8% 71,840 31,506 18,240 8,573 103,346 (43,174) 60,172 (18,208) 0 41,964 (8,393) 0 33,572 FY14E 2.40 0.90 37.5% 15.83 13,982 4.30 FY14E 1,827,315 (79,551) 1,906,866 69,679 364,258 40,894 2,575,604 0 2,724,587 2,017,023 409,764 0 2,316,478 2,601,621 221,357 1,852,939 1,769,592
Growth Rates FY15E 2.8% Loans 99.5% Deposits 2.8% Assets Equity 79,257 RWA 35,569 Net Interest Income 20,976 Non-Interest Income 9,430 of which Fee Grth Revenues 114,826 Costs Pre-Provision Profits (46,988) Loan Loss Provisions 67,838 Pre-Tax (19,900) Attributable Income 0 EPS - DPS - Balance Sheet Gearing 47,939 Loan/deposit (9,588) Investment/assets 0 Loan/Assets 38,351 Customer deposits/liab. LT debt/liabilities FY15E Asset Quality/Capital 2.74 Loan loss reserves/loans 1.00 NPLs/loans 36.5% Loan loss reserves/NPLs 17.58 Growth in NPLs 13,982 Tier 1 Ratio 4.85 Total CAR FY15E Du-Pont Analysis 1,979,424 NIM (as % of avg. assets) (93,646) Earning assets/assets 2,073,071 Margins (as % of Avg. Assets) 75,400 Non-Int. Rev./ Revenues 400,684 Non IR/Avg. Assets 42,938 Revenue/Assets 2,847,230 Cost/Income 0 Cost/Assets 2,996,222 Pre-Provision ROA LLP/Loans 2,218,725 Loan/Assets 450,740 Other Prov, Income/ Assets 0 Operating ROA 2,548,126 Pre-Tax ROA 2,860,405 Tax rate 245,727 Minorities & Outside Distbn. 2,037,251 ROA 1,945,095 RORWA Equity/Assets ROE
FY11 14.2% 3.0% 11.5% 3.2% 14.3% 26.7% 13.7% 10.1% 22.9% 11.7% 35.5% 121.2% 11.5% 14.2% 14.2% 21.6% FY11 107.7% 11.5% 71.9% 70.0% 22.9% FY11 (3.1%) 5.3% 63.3% (15.9%) 9.4% 14.9% FY11 2.8% 96.3% 2.7% 27.0% 1.0% 3.7% 48.1% 1.8% 1.9% (1.0%) 71.9% 0.0% 1.2% 1.2% 25.3% 0.0% 0.9% 1.4% 6.9% 13.3%
FY12 7.5% 29.7% 14.8% 40.8% 17.2% 16.2% 23.2% 16.2% 18.1% 6.5% 28.9% 11.9% 37.6% 38.2% 22.8% 29.0% FY12 88.8% 12.5% 70.2% 80.4% 20.7% FY12 (3.6%) 4.2% 79.9% (7.2%) 11.0% 17.7% FY12 2.9% 97.2% 2.8% 28.2% 1.1% 3.9% 43.3% 1.7% 2.2% (1.0%) 70.2% 0.0% 1.5% 1.5% 25.1% 0.0% 1.1% 1.7% 7.4% 15.0%
FY13E 13.0% 10.0% 9.8% 9.6% 12.9% 9.6% 21.5% 20.0% 13.0% 11.1% 14.4% 7.8% 14.3% 22.0% 9.8% 0.0% FY13E 91.0% 13.4% 69.1% 80.5% 16.3% FY13E (3.8%) 3.8% 98.0% 7.7% 10.7% 16.6% FY13E 2.8% 98.4% 2.7% 30.3% 1.2% 3.9% 42.6% 1.7% 2.2% (1.0%) 69.1% (0.0%) 1.5% 1.5% 20.0% 0.0% 1.2% 1.8% 8.1% 15.0%
FY14E 9.9% 10.0% 9.9% 10.5% 9.9% 11.9% 12.8% 15.0% 12.2% 10.0% 13.8% 11.3% 17.0% 17.0% 17.0% 12.5% FY14E 90.6% 13.4% 70.0% 80.6% 16.4% FY14E (4.2%) 3.7% 109.0% 8.1% 10.8% 16.2% FY14E 2.8% 99.0% 2.8% 30.5% 1.2% 4.0% 41.8% 1.7% 2.3% (1.0%) 70.0% 0.0% 1.6% 1.6% 20.0% 0.0% 1.3% 1.9% 8.1% 15.9%
FY15E 8.7% 10.0% 10.0% 11.0% 9.9% 10.3% 12.9% 15.0% 11.1% 8.8% 12.7% 9.3% 14.2% 14.2% 14.2% 11.1% FY15E 89.2% 13.4% 69.6% 80.7% 16.4% FY15E (4.5%) 3.6% 119.4% 8.2% 11.0% 15.9% FY15E 2.8% 99.5% 2.8% 31.0% 1.2% 4.0% 40.9% 1.6% 2.4% (1.0%) 69.6% 0.0% 1.7% 1.7% 20.0% 0.0% 1.3% 2.0% 8.2% 16.4%
293
M1
Overweight
www.m1.com.sg
MONE.SI,M1 SP Price: S$3.39 Price Target: S$4.00
Singapore Wireless Services Princy Singh

AC
Company overview M1 is the third-largest mobile operator in Singapore, providing mobile and broadband services. It also recently launched IPTV-based pay TV services. As of 3Q13, M1 had a subscriber share of 26% of Singapores wireless market, which has a 150% wireless penetration rate. Investment case Our OW rating on M1 is predicated on rising data pricing and lower subscriber acquisition costs (SAC) over the next two to three years and the potential for higher dividend payouts. SAC for Singapore telcos increased 70-80% over 2008-2012 as operators drove aggressive smartphone adoption. With current adoption levels at ~80%, we see a case for less aggressive handset subsidies. M1s SAC declined 11.9% YoY in 3Q (partly driven by subsidy cuts), and we believe this trend could intensify. In addition, we see tailwinds from potential increases in 4G pricing and from customers migrating to bundled data packs. Net debt-to-EBITDA for 9M13 declined to 0.6x, below the stated target of 1x. We estimate that M1 can increase 2013E/14E payouts to 100% (implying 5.2%/6.1% yields for 2013E/14E) and still maintain gearing targets. Resilience of the growth outlook Singapore is a three-player wireless market, and competitive intensity remains low, with operators being rational on pricing. While revenue growth over 2013-15E is likely to be at a CAGR of 6%, we expect it to be fairly resilient. Risks to the earnings outlook in 2014 Key risks to the earnings outlook include higher handset subsidies and potential aggressiveness from M1 on its recently launched pay TV platform. Price target, and risks to our investment view Our Sep-14 PT of S$4.00 is based on an 18x Sep-15E P/E. Our target P/E multiple is based on the stocks historical trading range and expected future business changes. Key downside risks include a reversal of sovereign bond yields, as M1s valuations have expanded over the past three years, driven by declining sovereign bond yields.
(65) 6882-2746 princy.singh@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Abs Rel
YTD 25.1% 23.9%
1m 1.2% -0.9%
3m 7.6% 8.2%
12m 30.9% 24.7%
Company Data 52-week Range (S$) Market Cap (S$ mn) Market Cap ($ mn) Shares O/S (mn) Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value ($ mn) FTSTI Exchange Rate Price (S$) Date Of Price
3.52-2.56 3,089 2,486 911 38.2% 0.96 2.5 3205.54 1.24 3.39 06 Nov 13
M1 (Reuters: MONE.SI, Bloomberg: M1 SP) S$ in mn, year-end Dec FY11A FY12A Revenue (S$ mn) 1,067 1,079 EBITDA (S$ mn) 310 300 EBITDA Growth (1.1%) (3.3%) Recurring profit (S$ mn) 164 147 Recurring EPS (S$) 0.18 0.16 EPS growth (%) 3.4% (11.0%) DPS (S$) 0.15 0.15 EV/EBITDA (x) 11.1 11.4 P/E (x) 18.7 21.1 Dividend Yield 4.3% 4.3% FCF to mkt cap (%) 6.1% 5.1%
FY13E 1,081 320 6.8% 168 0.18 13.3% 0.15 10.7 18.6 4.3% 4.5%
FY14E 1,150 353 10.4% 194 0.21 15.7% 0.17 9.6 16.1 5.0% 5.6%
FY15E 1,207 378 6.9% 211 0.23 8.9% 0.18 8.8 14.7 5.4% 7.2%
294
M1: Summary of Financials

Income Statement S$ in millions, year end Dec Revenue EBITDA Depreciation & Amortization EBIT Interest expense Other Income Profit before tax Tax Minorities Net profit - reported Net profit - adjusted Shares Outstanding (mn) EPS (S$) (reported) DPS (S$) DPS payout ratio FY11 1,067 310 (107) 203 (6) 1 197 (33) 164 164 906 0.18 0.15 80.1%
Balance sheet FY12 FY13E FY14E FY15E S$ in millions, year end Dec 1,079 1,081 1,150 1,207 Cash and cash equivalents 300 320 353 378 Accounts receivable (108) (112) (115) (118) Others 192 209 239 260 Total current assets (6) (5) (5) (5) (3) 0 0 0 ST loans 183 203 234 254 Accounts Payables (37) (36) (40) (43) Others current liabilities - Total current liabilities 147 168 194 211 147 168 194 211 Net working capital 910 919 919 919 Net fixed assets 0.16 0.18 0.21 0.23 Net Goodwill 0.15 0.15 0.17 0.18 Net Intangibles 90.9% 80.0% 80.0% 80.0% Others non current assets Total non-current assets Revenue growth 8.9% 1.2% 0.2% 6.4% 4.9% EBITDA growth (1.1%) (3.3%) 6.8% 10.4% 6.9% Total Assets Net profit growth 4.4% (10.7%) 14.4% 15.7% 8.9% EPS growth 3.4% (11.0%) 13.3% 15.7% 8.9% Long-term debt DPS growth (17.1%) 1.0% (0.3%) 15.7% 8.9% Other liabilities Total Liabilities Shareholders' equity Total liabilities and equity Net debt/(cash) Ratio Analysis Cash flow statement %, year end Dec FY11 FY12 FY13E FY14E FY15E S$ in millions, year end Dec EBITDA margin 29.1% 27.8% 29.6% 30.7% 31.3% Cash flow from operations FCF margin 17.6% 14.5% 12.9% 15.2% 18.5% Capex ROE 52.4% 43.7% 46.0% 47.8% 46.4% Cash flow from other investing ROC 27.1% 24.6% 27.0% 29.3% 29.6% Cash flow from financing ROA 17.1% 15.0% 16.9% 18.8% 19.3% Change in cash for year Tax rate 16.9% 20.1% 17.6% 17.0% 17.0% Capex to sales 9.6% 11.4% 12.9% 11.9% 9.1% Beginning cash Debt/Capital 47.5% 42.8% 40.7% 35.2% 26.8% Ending cash Net debt or (cash) to equity 90.4% 74.8% 68.6% 54.3% 36.6% Interest coverage (x) 52.5 54.5 61.6 68.0 72.7 Source: Company reports and J.P. Morgan estimates.
FY11 FY12 FY13E FY14E FY15E 12 12 11 38 96 188 180 180 192 201 61 55 55 55 55 261 246 246 285 352 53 196 61 311 (9) 607 13 97 1 718 979 250 95 656 323 979 292 272 188 65 524 (8) 630 13 86 0 729 975 0 103 627 348 975 260 272 183 64 519 (3) 669 13 74 0 756 1,002 0 103 622 380 1,002 261 272 192 65 529 (0) 702 13 62 0 778 1,062 0 103 632 430 1,063 234 272 200 67 539 2 706 13 50 0 769 1,121 0 103 641 480 1,121 176
FY11 FY12 FY13E FY14E FY15E 286 275 274 307 329 (103) (123) (139) (136) (110) (22) 1 0 0 0 (158) (154) (135) (144) (162) 3 9 12 (0) 12 12 (0) 12 11 27 11 38 58 38 96
295
Makalot Industrial Co. Ltd.

Overweight
www.makalot.com.tw/
Taiwan Apparel Caren Huang

AC
Company overview Makalot is one of the major apparel ODM/OEM companies in Asia. Major customers include department stores (Kohls), mass merchants (Target, Wal-Mart), and apparel specialty stores (Carters, Fast Retailing, A&F). Makalot focuses on casual wear and around 85% of its products is sold in the US. Makalot has its headquarters and R&D center in Taiwan, with the production plants located in five countries: Indonesia (30%), Vietnam (30%), Cambodia (27%), the Philippines (8%), and China (6%). Investment case We expect Makalot to experience a growth stage with c.25% earnings CAGR from 2013 to 2015 and earnings growth acceleration from FY14. First, Makalot moved ahead of the curve to expand its production base in Southeast Asia away from China. Given c.30% of capacity is located in Vietnam, Makalot is a beneficiary if Vietnam joins the TPP agreement. Second, the company also expects to improve its margin by improving production efficiency and growing economies of scale. Finally, we expect Makalot's new customers H&M, Inditex, Fast Retailing, Ralph Lauren and VF to become growth drivers from 2014 onwards. Resilience of the growth outlook We expect Makalot to deliver 30% Y/Y growth in FY14E earnings, driven by 1) c.20% volume growth, 2) a 2% ASP hike, and 3) 0.5-1 ppt gross margin expansion. We believe that the strong demand for textile supply chain in Southeast Asia should bode well for companies like Makalot which is experienced in this region. Risks to the earnings outlook in 2014 Labor costs in Southeast Asia have been rising in the past three years, although the wage level is still lower than in China. While the supply chain is growing fast in this area, labor shortages or wage hikes are a potential concern to earnings upside. Price target, and risks to our investment view We are OW with a DCF-based (10.8% WACC, 1.5% terminal growth) Dec-14 price target of NT$206. Makalot has consistently delivered stable cash flow and therefore we believe DCF is a relevant methodology. Downside risks to our PT and forecasts include: (1) Sharp USD depreciation, (2) Slowdown in the US economy, (3) customer concentration risk.
Abs Rel
YTD 86.6% 80.1%
1m 3.0% 4.0%
3m 5.9% 2.9%
12m 88.9% 74.5%
165 28,127 956 170.00 06 Nov 13 82.2% 1.53 249.62 8.5 8281.97 29.43 Dec
Makalot Industrial Co. Ltd. (Reuters: 1477.TW, Bloomberg: 1477 TT) NT$ in mn, year-end Dec FY11A FY12A FY13E Revenue (NT$ mn) 15,123 15,867 18,436 Net Profit (NT$ mn) 1,109 1,174 1,468 EPS (NT$) 6.81 7.09 8.71 DPS (NT$) 4.57 6.05 6.20 Revenue growth (%) 7.0% 4.9% 16.2% EPS growth (%) 17.8% 4.1% 22.8% ROCE 25.4% 22.9% 23.6% ROE 27.0% 25.8% 30.0% P/E (x) 24.9 24.0 19.5 P/BV (x) 6.3 6.0 5.5 EV/EBITDA (x) 17.0 16.3 14.2 Dividend Yield 2.7% 3.6% 3.6%
FY14E 22,633 1,901 11.29 7.40 22.8% 29.6% 25.6% 34.8% 15.1 4.9 11.3 4.4%
FY15E 27,609 2,450 14.54 9.59 22.0% 28.8% 30.4% 39.3% 11.7 4.2 9.0 5.6%
296
Makalot Industrial Co. Ltd.: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet NT$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 FY12 FY13E FY14E 15,123 15,867 18,436 22,633 7.0% 4.9% 16.2% 22.8% 1,623 1,649 2,120 2,676 14.5% 1.6% 28.5% 26.2% 1,440 1,456 1,821 2,364 19.4% 1.2% 25.0% 29.8% 9.5% 9.2% 9.9% 10.4% (23) (8) (4) (25) 1,399 1,423 1,782 2,324 19.1% 1.7% 25.2% 30.4% (293) (261) (326) (422) 21.0% 18.4% 18.3% 18.2% 1,109 1,174 1,468 1,901 20.8% 5.9% 25.0% 29.6% 163 165 165 165 6.81 7.09 8.71 11.29 17.8% 4.1% 22.8% 29.6% FY15E 27,609 22.0% 3,356 25.4% 3,033 28.3% 11.0% (23) 2,994 28.8% (544) 18.2% 2,450 28.8% 165 14.54 28.8% Cash flow statement NT$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow FY11 1,440 183 (1,217) 293 476 (368) 26 (23) (9) 126 0 139 0 (734) 2,314 1,881 4.57 FY11 10.7% 7.3% FY12 FY13E FY14E FY15E 1,456 1,821 2,364 3,033 193 299 312 323 839 (730) (641) (722) 261 326 422 544 2,264 1,036 1,573 2,050 (247) (3,116) 5 0 (8) (4) (2) 0 2,023 (2,076) (295) 0 (25) 0 1,299 (294) 0 (23) 0 1,775
FY11 1,881 1,709 2,279 257 6,283
FY12 FY13E 3,217 1,373 838 1,404 2,389 2,702 271 271 6,877 5,911
LT investments 0 0 148 Net fixed assets 964 1,014 3,832 Total Assets 7,514 8,174 10,173 Liabilities Short-term loans 364 17 17 Payables 1,199 1,278 1,426 Others 1,436 1,416 1,416 Total current liabilities 2,999 2,712 2,859 Long-term debt 0 639 2,049 Other liabilities 0 8 8 Total Liabilities 3,097 3,497 5,054 Shareholder's equity 4,417 4,677 5,119 BVPS (NT$) 27.14 28.27 30.94 Source: Company reports and J.P. Morgan estimates.
Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis FY14E FY15E NT$ in millions, year end Dec 1,226 1,181 EBITDA margin 1,762 2,153 Net margin 3,287 3,985 271 271 6,707 7,751 Sales per share growth 207 280 Sales growth 3,814 3,786 Net profit growth 11,011 12,100 EPS growth Interest coverage (x) 17 17 1,728 2,095 Net debt to equity 1,416 1,416 Sales/assets 3,162 3,529 Assets/equity 1,908 1,767 ROE 8 8 ROCE 5,216 5,442 5,795 6,658 35.02 40.24
0 0 0 0 353 1,410 (141) (141) 4 0 0 0 (994) (1,026) (1,225) (1,587) 1,881 3,217 1,373 1,226 3,217 1,373 1,226 1,181 6.05 6.20 7.40 9.59 FY12 FY13E FY14E FY15E 10.4% 11.5% 11.8% 12.2% 7.4% 8.0% 8.4% 8.9%
4.4% 7.0% 20.8% 17.8% 70.7
3.2% 4.9% 5.9% 4.1% 214.3
14.1% 16.2% 25.0% 22.8% 498.6 13.1% 2.0 1.9 30.0% 23.6%
22.8% 22.8% 29.6% 29.6% 105.9 11.7% 2.1 1.9 34.8% 25.6%
22.0% 22.0% 28.8% 28.8% 146.9 8.7% 2.4 1.9 39.3% 30.4%
(35.7%) (55.3%) 2.2 2.0 1.7 1.7 27.0% 25.8% 25.4% 22.9%
297
Metro Pacific Investments Corp.

Overweight
MPI.PS,MPI PM Price: Php4.76 Price Target: Php6.50
www.mpic.com.ph/
Company overview Metro Pacific Investments (MPI) is an investment holding company focused on Philippine utilities/infrastructure. Its portfolio of quality assets includes water utility Maynilad Water, power distribution utility Manila Electric Co. (Meralco), tollroad company Metro Pacific Tollways Corp (MPTC), and a group of healthcare facilities. Investment case Given that MPIs ~25% stake in Meralco accounts for ~58% of MPIs current market cap (Php2.8/share), we believe the other businesses (Maynilad and tollroads) are significantly undervalued. Assuming Meralco at the current share price and no tariff increase for Maynilad (which would reduce Maynilads valuation from Php2.2/share to Php1.5/share), the current share price implies that the tollroad business comes for free. MPI is our top pick among Philippine utilities, with upside potential from PPP bidding, including: (1) LRT1; (2) CALA-EX; and (3) Cebu-Mactan airport. Resilience of the growth outlook With steady earnings growth across its portfolio of assets Meralco expected to grow with power demand and upside from power generation, Maynilad expected to see steady volume growth (and upside assuming arbitration comes in favor) and the tollroad business expected to see steady traffic growth we expect MPI to enjoy steady earnings growth with upside surprises possible from potential PPP project success. Risks to the earnings outlook in 2014 A Maynilad arbitration decision against the company would negatively affect our FY14 estimates. Drastic declines in business units key operating metrics (billed volume for Maynilad, vehicle traffic for MPTC, kWh sales for Meralco) are also risks to earnings. Price target, and risks to our investment view Our Dec-14 PT of Php6.5 reflects a 10% conglomerate discount to our NAV/share of Php7.30, which is derived from a SOTP of MPIs major business units. Key downside risks include an unfavorable decision on Maynilad arbitration, disappointment in business units key operating metrics, and larger-than-expected tariff cuts for Meralco.
Philippines Conglomerates & Multi-industry Ajay Mirchandani

AC
Jeanette Yutan
Abs Rel
YTD 7.0% -4.4%
1m 3.0% 1.6%
3m -4.8% -5.7%
12m 13.9% -4.4%
26,017 123,839 2,867 4.76 06 Nov 13 40.0% 43.20 207.86 4.8 6477.30 43.19 Dec
Metro Pacific Investments Corp. (Reuters: MPI.PS, Bloomberg: MPI PM) Php in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Php mn) 22,070 27,807 31,652 34,530 Net Profit (Php mn) 5,063 6,389 8,014 8,602 EPS (Php) 0.21 0.26 0.31 0.33 EPS (recurring) (Php) 0.20 0.26 0.31 0.33 DPS (Php) 0.03 0.03 0.03 0.03 Revenue growth (%) 18.9% 26.0% 13.8% 9.1% EPS growth (%) 44.5% 26.1% 18.7% 7.3% ROCE 9.2% 8.2% 9.9% 9.5% ROE 7.9% 8.3% 9.3% 8.9% P/E (x) 23.1 18.3 15.5 14.4 P/BV (x) 1.6 1.5 1.3 1.2 EV/EBITDA (x) 13.1 10.9 9.2 8.0 Dividend Yield 0.5% 0.6% 0.7% 0.7%
FY15E 38,153 9,361 0.36 0.36 0.04 10.5% 8.8% 9.8% 8.9% 13.2 1.1 6.6 0.8%
298
Metro Pacific Investments Corp.: Summary of Financials

Income Statement Php in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Php in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 22,070 18.9% 12,619 18.9% 9,493 17.6% 43.0% (3,234) 8,246 52.4% (414) 5.0% 5,063 76.3% 24,593 0.21 44.5% FY12 27,807 26.0% 15,104 19.7% 11,259 18.6% 40.5% (3,027) 11,364 37.8% (1,670) 14.7% 6,389 26.2% 24,614 0.26 26.1% FY13E 31,652 13.8% 16,981 12.4% 14,313 27.1% 45.2% (2,995) 13,931 22.6% (1,632) 11.7% 8,014 25.4% 26,017 0.31 18.7% FY14E 34,530 9.1% 18,398 8.3% 15,482 8.2% 44.8% (2,720) 15,321 10.0% (2,252) 14.7% 8,602 7.3% 26,017 0.33 7.3% FY15E 38,153 10.5% 20,019 8.8% 16,750 8.2% 43.9% (2,141) 16,920 10.4% (2,510) 14.8% 9,361 8.8% 26,017 0.36 8.8% Cash flow statement Php in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis Php in millions, year end Dec EBITDA margin Operating margin Net margin FY11 9,493 3,126 (913) 14,254 FY12 11,259 3,846 918 16,436 FY13E FY14E FY15E 14,313 15,482 16,750 2,668 2,916 3,269 (442) 96 100 16,589 20,813 22,386
(9,510) (7,577) (18,007) (9,807) (9,759) (3,234) (3,027) (2,995) (2,720) (2,141) 192 (11,371) 0 0 0 7,816 11,441 1,226 13,326 14,450 8,646 6,085 0 0 4,942 15,101 0.03 FY11 57.2% 43.0% 22.9% (2.6%) 18.9% 76.3% 44.5% 3.9 49 3,442 0 0 15,102 9,106 0.03 FY12 54.3% 40.5% 23.0% 25.9% 26.0% 26.2% 26.1% 5.0 6,163 0 0 45 (0) (741) 0 0 0 (834) (895) (974) 9,106 10,363 17,720 10,363 17,720 26,044 0.03 0.03 0.04 FY13E FY14E FY15E 53.6% 53.3% 52.5% 45.2% 44.8% 43.9% 25.3% 24.9% 24.5% 7.7% 13.8% 25.4% 18.7% 5.7 9.1% 9.1% 7.3% 7.3% 6.8 10.5% 10.5% 8.8% 8.8% 9.3
FY11 15,102 2,949 323 4,321 22,719
FY12 9,106 2,941 336 3,629 16,025
FY13E 10,363 2,762 111 2,630 15,865
FY14E 17,720 2,963 118 2,630 23,431
LT investments 39,146 53,884 53,884 53,884 Net fixed assets 82,687 87,919 99,924 109,477 Total Assets 160,173 173,504 186,807 209,254 Liabilities Short-term loans 0 4,700 4,700 4,700 Payables 11,677 13,712 12,177 13,460 Others 6,873 6,485 7,052 7,148 Total current liabilities 18,549 24,897 23,929 25,308 Long-term debt 38,429 37,068 37,113 37,113 Other liabilities 16,765 17,180 18,063 31,423 Total Liabilities 73,743 79,144 79,105 93,844 Shareholder's equity 73,763 79,627 92,970 100,678 BVPS (Php) 3.00 3.24 3.57 3.87 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 53,884 Sales growth 118,958 Net profit growth 229,268 EPS growth Interest coverage (x) 4,700 14,842 Net debt to equity 7,248 Sales/assets 26,790 Assets/equity 36,371 ROE 42,309 ROCE 105,470 109,066 4.19
FY15E 26,044 3,218 125 2,630 32,018
27.0% 34.6% 29.2% 20.9% 12.1% 0.2 0.2 0.2 0.2 0.2 227.8% 217.5% 208.8% 204.5% 209.1% 7.9% 8.3% 9.3% 8.9% 8.9% 9.2% 8.2% 9.9% 9.5% 9.8%
299
MGM China Holdings Ltd

Overweight
www.mgmchinaholdings.com/
Hong Kong Gaming Kenneth Fong, CFA

AC
Company overview MGM China Holdings Limited, is one of the leading casino gaming resort developers, owners and operators in the greater China region and holds one of the six gaming concessions/subconcessions in Macau. The company currently owns and operates MGM Macau, which is located on the Macau Peninsula. MGM Cotai project is expected to open in 2016 with estimated CapEx to be around HK$ 20bn. Investment case Despite competition from the new supply on Cotai over the past two years, MGM was able to grow with the market (maintain market share at 9-10%) and maintain profitability, as evidenced by its improving margin. With low market expectations (our FY14E EBITDA is around 7% above consensus), valuations look undemanding to us (at 15x FY14E P/E) and the stock remains under-owned, so we think strong performance will persist in 2014. Medium term, MGM is also attractive for it steady dividend yield (2014 and 2015) and growth (with capacity doubled when its Cotai project opens in 2016). Resilience of the growth outlook As there will be no new industry supply in the next 1.5 years, the operating environment is likely to be more favorable for MGM. Strong visitation and fast growing internal consumption-driven mass market (currently at around 55% of MGM's EBITDA) should provide MGM earnings resilience into 2014. Risks to the earnings outlook in 2014 Policy changes from Mainland China may post risks to the sector, such as visa restrictions. Newsflow related to anti-corruption fight in China may hurt sentiment and potentially VIP market demand. Macroeconomic slowdown in China may also impact gaming revenue, especially the credit driven VIP segment. Price target, and risks to our investment view We value MGM China on 14x FY14E EBITDA (see next page for support methodology). Our Dec-14 price target is HK$30.5. Downside risks include 1) significant market share loss if VIP market competition intensifies, 2) significant foot traffic shift to Cotai, and 3) regulatory risks from China.
(852) 2800-8597 kenneth.kc.fong@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 92.6% 90.9%
1m 4.0% 4.4%
3m 17.9% 12.8%
12m 94.0% 89.0%
Company Data 52-week Range (HK$) Market Cap (HK$ mn) Market Cap ($ mn) Shares O/S (mn) Price (HK$) Date Of Price 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) Exchange Rate HSI
30.00-12.24 102,600 13,236 3,800 27.00 06 Nov 13 4.51 113.54 7.75 2,3038.95
MGM China Holdings Ltd (Reuters: 2282.HK, Bloomberg: 2282 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E Revenue (HK$ mn) 20,293 21,773 25,320 EBITDA (HK$ mn) 4,933 5,309 6,324 Net Profit (HK$ mn) 3,279 4,530 5,281 EPS (HK$) 0.86 1.19 1.39 DPS (HK$) 0.82 1.02 1.00 ROE 111.2% 87.7% 79.8% P/E (x) 31.3 22.7 19.4 Dividend Yield 3.0% 3.8% 3.7% EV/EBITDA 20.3 18.5 15.4 EBITDA Margin 24.3% 24.4% 25.0%
FY14E 29,386 7,552 6,602 1.74 1.10 75.7% 15.5 4.1% 13.0 25.7%
FY15E 33,194 8,561 7,633 2.01 1.10 64.4% 13.4 4.1% 11.5 25.8%
300
MGM China Holdings Ltd: Summary of Financials

Profit and Loss Statement HK$ in millions, year end Dec Revenue Casino Less: Promotional allowances Net gaming revenue Rooms Food & beverage Other Less: Promotional allowances Net non-gaming revenue Total Revenues % Change Y/Y Total EBITDA % Change Y/Y Depreciation & Amortization EBIT % Change Y/Y Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net Income (reported) % change Y/Y Shares Outstanding EPS (reported) % change Y/Y DPS a. Cashflow Statement HK$ in millions, year end Dec Earnings before tax Depr. & amortization Change in working capital Taxes Others Cash flow from operations Capex Others Cash flow from investing activities a. Equity raised/repaid Increase in borrowings Other Dividends paid Cash flow from financing activities FY12 FY13E 29,279 (7,825) 21,454 442 521 74 (717) 319 21,773 7.3% 5,309 7.6% (794) 4,516 7.9% (318) 4,120 10.2% 410 10.0% 4,530 38.1% 3,800 1.19 38.1% 1.02 FY14E 34,006 39,253 (8,995) (10,101) 25,011 29,152 441 493 529 592 75 84 (735) (934) 309 235 25,320 29,386 16.3% 16.1% 6,324 7,552 19.1% 19.4% (723) (727) 5,601 6,826 24.0% 21.9% (203) (119) 5,328 6,637 29.3% 24.6% (46) (35) 0.9% 0.5% 5,281 6,602 16.6% 25.0% 3,800 3,800 1.39 1.74 16.6% 25.0% 1.00 1.10 FY14E 6,637 727 204 150 7,718 (50) (4,500) (4,550) 0 (498) (187) (3,800) (4,485) (1,317) 6,609 Balance Sheet FY15E HK$ in millions, year end Dec Cash and cash equivalent 44,128 Accounts Receivables (11,138) Inventories 32,991 Others 525 Current assets 631 a. 89 Net fixed assets (1,042) Intangibles and goodwill 203 Other non-current assets 33,194 Total assets 13.0% a. 8,561 Liabilities 13.4% Short-term loans (730) Payables 7,831 Others 14.7% Total current liabilities (97) a. 7,664 Long term debt 15.5% Other liabilities (30) Total liabilities 0.4% 7,633 Minority interests 15.6% Shareholders' equity 3,800 Total Shareholders Equity 2.01 a. 15.6% Net Debt 1.10 BVPS FY15E 7,664 730 206 133 8,734 (50) (4,500) (4,550) 0 (373) (165) (4,180) (4,718) (534) 6,074 Ratio Analysis HK$ in millions, year end Dec EBITDA margin Operating margin Net margin a. P/E Adjusted P/E Dividend yield Price/BV EV/EBITDA Net Debt/EBITDA a. Interest coverage (x) Net debt to Total Capital Net debt to equity Sales/Assets Assets/Equity ROE ROCE FY12 7,381 479 86 57 8,004 5,666 332 778 14,781 7 4,475 404 4,886 3,983 0 8,869 5,911 5,911 (3,391) 1.56 FY12 24.4% 20.7% 20.8% 22.7 22.7 3.8% 17.4 18.5 (63.9%) FY13E 7,925 503 87 58 8,573 5,014 313 3,017 16,917 505 5,147 464 6,116 3,485 0 9,601 7,317 7,317 (3,935) 1.93 FY13E 25.0% 22.1% 20.9% FY14E 6,609 578 88 59 7,333 4,357 294 7,517 19,502 381 5,404 487 6,272 3,112 0 9,384 10,118 10,118 (3,116) 2.66 FY14E 25.7% 23.2% 22.5% FY15E 6,074 665 89 59 6,887 3,697 275 12,017 22,876 350 5,674 512 6,535 2,769 0 9,305 13,572 13,572 (2,955) 3.57 FY15E 25.8% 23.6% 23.0%
FY12 FY13E 4,120 5,328 794 723 820 706 712 191 6,445 6,948 (251) (50) (831) (2,239) (1,081) (2,289) 0 0 0 0 (472) (239) (3,101) (3,876) (3,573) (4,115) 544 7,925
19.4 15.5 13.4 19.4 15.5 13.4 3.7% 4.1% 4.1% 14.0 10.1 7.6 15.4 13.0 11.5 (62.2%) (41.3%) (34.5%)
Net change in cash 1,791 Ending cash 7,381 Source: Company reports and J.P. Morgan estimates.
14.2 27.6 57.5 80.8 (134.6%) (116.4%) (44.5%) (27.8%) (57.4%) (53.8%) (30.8%) (21.8%) 1.6 1.6 1.6 1.6 2.7 2.4 2.1 1.8 87.7% 79.8% 75.7% 64.4% 44.1% 52.4% 54.5% 51.5%
301
MNC Sky Vision tbk

Overweight
www.indovision.tv
MSKY.JK,MSKY IJ Price: Rp2,225 Price Target: Rp3,100
Indonesia Broadcasting & Radio Aditya Srinath, CFA

AC
Company overview PT MNC Sky Vision Tbk is the largest Pay TV operator in Indonesia with subscriber market share of over 70%. MSKY operates its services under three different brands: Indovision, OkeVision and Top TV, with a segmented marketing approach. Indovision is the companys flagship service. MNC Sky Vision Tbk is a subsidiary of PT Global Mediacom Tbk, which currently has a 66.47% total shareholding. Investment case Our Overweight rating on MSKY is premised on its strong market leadership in Asia's least penetrated pay TV market. MSKY had 71% (end 2012) share of Indonesias Pay TV market, which has only 7% household penetration and is estimated to grow at 28% CAGR over 2012-16 (source: MPA). MSKYs content breadth accentuated by association with group company MNCN, exclusive broadcast rights over S-Band, offering resiliency to heavy rains (implying lower outages), and strong in-house distribution make it well-positioned to sustain its pay TV dominance, in our view. We believe MSKY offers a potential multi-year trade similar to EM telcos of early 2000s, driven by rising penetration aided by rising affordability. Resilience of the growth outlook We estimate 25% revenue CAGR for MSKY over 2013-15E. While MSKY dominates the Indonesian Pay TV market, the market is highly segregated with new players also entering the market. The most recent entrant is Big TV, part of the Lippo Group. Increasing competition could drive churn rates higher in the near term. Risks to the earnings outlook in 2014 MSKY has a large part of its content costs, capex and debt denominated in US dollars. Further IDR depreciation will adversely impact near-term earnings. We estimate 5% IDR depreciation will adversely impact 2013-15 net profit by 8%-17%. Price target, and risks to our investment view Our Jun-14 PT of Rp3,100 is based on 15x Jun-15E EV/EBITDA, a 25% premium to ASEAN media peer group given MSKY's stronger market position (71% market share) as well as superior long-term earnings growth. Key downside risks include recent entry of Big TV and sustained and higher-than-expected depreciation of the IDR.
Abs Rel
YTD -7.3% -3.3%
1m -4.3% -5.7%
3m -7.3% -4.1%
12m 2.3% -0.8%
7,064 15,717.15 1.38 2,225 06 Nov 13 19.9% 3.63 7,098.27 0.6 4449.76 11,355.89 Dec
MNC Sky Vision tbk (Reuters: MSKY.JK, Bloomberg: MSKY IJ) Rp in bn, year-end Dec FY11A FY12A FY13E Revenue (Rp bn) 1,738 2,394 3,110 Net Profit (Rp bn) 65 82 (177) EPS (Rp) 10.51 12.36 (25.01) DPS (Rp) 0.00 0.00 0.00 Revenue growth (%) 23.1% 37.7% 29.9% EPS growth (%) (55.5%) 17.6% (302.4%) ROCE 8.9% 10.6% 14.8% ROE 9.3% 12.0% 8.2% P/E (x) 211.7 180.1 NM P/BV (x) 14.4 6.5 7.5 EV/EBITDA (x) 19.3 14.1 12.1 Dividend Yield 0.0% 0.0% 0.0%
FY14E 3,988 404 57.26 20.04 28.2% (328.9%) 10.9% 17.7% 38.9 6.3 9.4 0.9%
FY15E 4,771 586 83.00 29.05 19.6% 44.9% 12.9% 21.6% 26.8 5.4 7.5 1.3%
302
MNC Sky Vision tbk: Summary of Financials

Income Statement Rp in billions, year end Dec Revenue EBITDA Depreciation Amortization EBIT Interest income Interest expense Associates Profit before tax Tax Minorities Net profit - reported Net profit - adjusted Shares Outstanding (mn) EPS (Rp) (reported) EPS (Adjusted) DPS (Rp) DPS payout ratio Revenue growth EBITDA growth Net profit growth Adj EPS growth DPS growth FY11 1,738 728 (339) (36) 353 2 (205) 107 (42) 65 86 FY12 2,394 1,002 (440) (67) 495 2 (209) 121 (39) 82 193 FY13E 3,110 1,242 (594) (102) 546 2 (269) (209) 32 (177) 177
6,216 6,624 7,064 10.51 12.36 (25.01) 13.87 29.21 25.12 0.00 0.00 0.00 0.0% 0.0% 0.0% 23.1% 37.7% 29.9% 39.3% 37.7% 23.9% (55.5%) 25.3% (315.9%) (24.1%) 110.6% (14.0%) -
Ratio Analysis %, year end Dec EBITDA margin FCF margin ROE ROC ROA
FY11 FY12 41.9% 41.9% 11.4% (14.6%) 9.3% 12.0% 8.9% 10.6% 2.6% 4.6%
FY13E 39.9% 2.4% 8.2% 14.8% 3.2% (15.3%) 49.5% 54.5% 119.7% 4.7
Tax rate 38.9% 32.5% Capex to sales 30.9% 44.9% Debt/Capital 60.8% 40.0% Net debt or (cash) to equity 155.4% 66.7% Interest coverage (x) 3.6 4.8 Source: Company reports and J.P. Morgan estimates.
Balance sheet FY14E FY15E Rp in billions, year end Dec 3,988 4,771 Cash and cash equivalents 1,629 2,045 Accounts receivable (761) (874) Others (140) (181) Total current assets 728 990 3 5 ST loans (192) (213) Accounts Payables - Others 539 782 Total current liabilities (135) (195) - Net working capital 404 586 404 586 Net fixed assets Net Intangibles 7,064 7,064 Investments in Associates 57.26 83.00 Other long term assets 57.26 83.00 Total non-current assets 20.04 29.05 35.0% 35.0% Total Assets 28.2% 19.6% Long-term debt 31.2% 25.5% Other liabilities (328.9%) 44.9% Total Liabilities 127.9% 44.9% - 44.9% Shareholders' equity Total liabilities and equity Net debt/(cash) Book value per share Cash flow statement FY14E FY15E Rp in billions, year end Dec 40.8% 42.9% Cash flow from operations 3.7% 7.1% Capex 17.7% 21.6% Cash flow from other investing 10.9% 12.9% Cash flow from financing 6.1% 7.7% Change in cash for year 25.0% 25.0% 37.8% 34.9% Beginning cash 51.8% 49.2% Closing cash 107.6% 97.0% 8.6 9.8
FY11 35 235 150 566 76 385 463 924 (358) 1,826 335 2,882 3,448 1,448 118 2,489
FY12 FY13E FY14E FY15E 36 98 215 349 301 392 502 601 438 438 438 438 1,253 1,569 1,965 2,323 38 704 298 1,041 212 2,467 499 3,687 4,939 1,506 132 2,679 88 946 344 1,378 191 3,160 650 4,531 6,100 2,506 132 4,015 88 1,194 392 1,674 291 3,628 787 5,136 7,101 2,806 132 4,612 88 1,380 430 1,898 426 4,117 907 5,745 8,069 3,106 132 5,135
958 2,261 2,084 2,489 2,933 3,448 4,939 6,100 7,101 8,069 1,489 1,508 2,496 2,678 2,845 154.15 341.33 295.05 352.31 415.27 FY11 FY12 FY13E FY14E FY15E 612 585 1,307 1,512 1,848 (538) (1,075) (1,540) (1,506) (1,664) (103) (396) (486) 3 5 47 887 781 108 (55) 18 16 35 1 35 36 62 36 98 117 98 215 134 215 349
303
Naver
Overweight
www.navercorp.com/en
South Korea Internet Stanley Yang

AC
Company overview Recently split from NHN, Naver was incorporated in June 1999, as an internet search portal, and merged with Hangame, a web-board game service provider, in July 2000. Naver.com, NHNs search portal in Korea, has a search query market share of +70%. In June 2011, the company launched a mobile messenger service in Japan, which has around 140 million MAU worldwide. Investment case Key driver is its messaging app business. We believe that its social networking business, dominant in Japan and gaining market share in other regions as well, has potential monetization upside. We recommend investors to build up positions at the current early growth stage of the business, which we believe has the potential of becoming a global leading social communication platform. Resilience of the growth outlook While we forecast secular bullish growth of social networking game revenue (61% 3yr CAGR 2013-16E), we expect social networking ad/contents as the next monetization surprise in 2014E with 128%/88% 3yr revenue CAGR (2013-16E). Japan is the dominant value proposition for its monetization in the mid term. The potential revenue mix shift into ad/commerce should render further re-rating of the social networkings valuation. Risks to the earnings outlook in 2014 (1) Potential intensifying social networking app competition and higher marketing cost, (2) Delayed break-even-point of social networking business due to its slower than expected monetization. Price target, and risks to our investment view Our Dec-14 PT of W770,000 is based on SOTP, comprising: (1) Naver portal by applying 21.2x global portal peer average 2014E P/E. (2) Social networking business. (3) Treasury shares, (4) Net cash, (5) NHN Entertainment. Downside risks to our view include potential pull-back of global internet sector peer valuation, potentially more significant than expected negative impact of domestic portal regulation, and intensifying social networking app competition and higher marketing costs.
(82-2) 758-5712 stanley.yang@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Abs Rel
YTD 63.0% 62.2%
1m 6.0% 5.2%
3m 26.1% 20.5%
12m 45.4% 41.0%
Company Data 52-week Range (W) Market Cap (W bn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free Float(%) 3M - Avg daily volume (th) 3M - Avg daily value (W bn) 3M - Avg daily value ($ mn) KOSPI Exchange Rate (W/$)
687,000-336,967 17,294 16,298 30 Dec 580,000 06 Nov 13 72.7% 232.3 125.8 118.5 2,014 1,061
Naver (Reuters: 035420.KS, Bloomberg: 035420 KS) Year-end Dec FY12A FY13E Revenue (W bn) 1,781 2,417 Operating Profit (W bn) 496 497 Net Profit (W bn) 396 389 EPS (net treasury) (W) 13,281 13,050 Revenue growth 20.3% 35.7% Operating Profit growth 0.3% EPS (net treasury) growth (1.7%) ROE 52.4% 22.8% P/E (net treasury, x) 43.7 44.4 P/BV (x) 11.4 9.1 EV/EBITDA (x) 34.3 29.8 DPS (W) 485 1,517 Dividend Yield 0.1% 0.3%
FY14E 3,307 768 578 19,391 36.8% 54.5% 48.6% 26.4% 29.9 7.0 19.6 3,542 0.6%
FY15E 4,285 1,244 901 30,231 29.6% 61.9% 55.9% 30.8% 19.2 5.1 12.1 5,262 0.9%
304
Naver: Summary of Financials

Income Statement W in billions, year end Dec . Revenue Search ad Display ad Others LINE Operating expense Labor Commission Marketing D&A Others Operating profit EBITDA Net non-operating Profit before tax Income tax . Net profit EPS (W, adj., excl. treasury) EPS (W, reported) FY12 1,781 1,206 347 168 60 (1,285) (476) (404) (76) (97) (232) 496 593 27 523 (127) 396 13,281 12,014 FY13E 2,417 1,322 337 200 557 (1,920) (557) (769) (263) (116) (215) 497 614 36 533 (144) 389 13,050 11,805 FY14E 3,307 1,450 372 226 1,259 (2,538) (641) (1,178) (334) (148) (237) 768 916 42 811 (232) 578 19,391 17,541
Cash Flow Statement FY15E W in billions, year end Dec 4,285 1,588 409 252 2,035 (3,042) (744) (1,513) (349) (181) (255) 1,244 1,425 44 1,288 (386) Cash flows from operating Net profit D&A Net working capital & others Cash flows from investing Capital expenditures Other investments Cash flows from financing Cash dividend Share buyback/sale Other Net change in cash Beginning cash Ending cash
FY12 430 396 97 (63) (473) (192) (281) 16 (16) 0 32 (27) 59 32 238
FY13E 496 389 116 (10) (400) (350) (50) 0 (50) 0 50 96 32 128 146
FY14E 716 578 148 (10) (280) (230) (50) (67) (117) 0 50 369 128 497 486
FY15E 1,072 901 181 (10) (300) (250) (50) (123) (173) 0 50 649 497 1,146 822
901 FCF 30,231 27,347 Ratio Analysis FY15E W in billions, year end Dec 2,277 1,146 515 263 354 1,768 769 407 56 535 4,044 582 143 94 345 82 0 82 664 3,381 4,044 OP margin EBITDA margin Net profit margin Sales growth Operating profit growth EBITDA growth Net profit growth EPS growth Sales per share (W) BVPS (W) Shares outstanding (m) Net treasury shares O/S (mn) Payout ratio Sales/assets (x) Assets/equity (x) ROE ROA
Balance Sheet W in billions, year end Dec . Total current assets Cash & cash eq. ST investments Receivables Other current asset Total fixed assets Investments Tangible assets Intangible assets Other long-term assets Total assets
FY12 777 32 354 159 233 1,310 454 359 39 458 2,088
FY13E 1,013 128 407 199 280 1,495 581 380 44 490 2,508
FY14E 1,525 497 468 239 322 1,594 631 399 49 515 3,119 557 130 96 331 82 0 82 639 2,479 3,119
FY12 27.8% 33.3% 22.2% 20.3% 54,027 50,710 33 30 3.7% 1.7 1.4 52.4% 37.9%
FY13E 20.6% 25.4% 16.1% 35.7% 0.3% 3.5% (1.7%) (1.7%) 73,323 63,760 33 30 11.6% 1.1 1.3 22.8% 16.9%
FY14E 23.2% 27.7% 17.5% 36.8% 54.5% 49.3% 48.6% 48.6% 100,317 83,151 33 30 18.3% 1.2 1.3 26.4% 20.6%
FY15E 29.0% 33.2% 21.0% 29.6% 61.9% 55.5% 55.9% 55.9% 130,004 113,383 33 30 17.4% 1.2 1.2 30.8% 25.2%
Total current liabilities 494 525 Accounts payable 87 108 ST borrowings/CPLTD 100 98 Other current liabilities 307 319 Total LT liabilities 82 82 LT borrowings/bonds 0 0 Other LT liabilities 82 82 Total liabilities 575 607 Shareholder's equity 1,512 1,901 Total liabilities and equity 2,088 2,508 Source: Company reports and J.P. Morgan estimates.
305
Nidec (6594)
Overweight
www.nidec.com/
6594.T,6594 JT Price: 9,370 Price Target: 11,000
Japan Electrical Equipment Masashi Itaya

AC
(81-3) 6736 8633 masashi.itaya@jpmorgan.com JPMorgan Securities Japan Co., Ltd.
Company overview Commands 80% market share in HDD motors, which earn operating margins of more than 20% and generate more than 50% of profits. Dominates also in small motors such as DC motors and STM motors, in which it has majority market shares. Now focusing on growth in general motors for auto and home appliance applications. Expediting M&A strategy using the tailwind created by tightening environmental regulations and yen strength, amid attempts to expand business high-efficiency brushless motor technology. Investment case For FY2014 we forecast record-high operating profit of 110 billion. In response to PC market contraction, Nidec is rapidly shifting the focus of its business portfolio from HDD motors to general motors (motors for automotive, home appliance, commercial, and industrial applications). In FY2014 we expect the general motors segment to generate around 33% of the companys total profit (vs. 15% in FY2012 and an estimated 25% in FY2013), fueling overall earnings growth. Resilience of the growth outlook We think automotive motors are particularly promising as a growth driver. Regulations aimed at making cars safer and more fuel efficient are creating new applications for automotive motors, and Nidec is aggressively targeting this market through M&A. Additionally, following last years restructuring, management has shifted its approach regarding businesses acquired via M&A to a focus on groupwide optimization rather than individual optimization. Management expects this to yield cost synergies of 15 billion in FY2014 and 30 billion in FY2015, but we have not yet factored this fully into our earnings forecasts for Nidec. Risks to the earnings outlook in 2014 Risks include a worse-than-expected slump in the HDD market stemming from soft PC demand and/or widespread use of SSDs in notebook PCs, and downward pressure on margins in the general motors segment owing to development cost overruns in automotive motors. Price target, and risks to our investment view We base our 11,000 price target on our FY2014 EPS estimate and a P/E of 18.2x, reflecting a 30% premium over the electronic components sectors historical P/E average of 14x. We apply this premium to account for medium-term growth potential in the general motors segment along with prospects for relatively rapid profit growth in the other precision motors business. The time horizon for our price target is to December 2014.
Nidec Corporation (Reuters: 6594.T, Bloomberg: 6594 JT) 2012/3 2013/3 2014/3 E Sales ( bn) 682.3 709.3 867.0 Operating Profit ( bn) 73.1 17.6 86.0 Pretax Profit ( bn) 70.9 13.4 85.0 Net Profit ( bn) 40.7 8.0 61.5 EPS () 297.7 59.3 458.2 BPS () 2705.3 3085.1 3469.0 ROE 11.2% 2.0% 14.0% P/E (x) 31.5 158.0 20.4 P/BV (x) 3.5 3.0 2.7
Company Data Price () Date Of Price Market Cap ( bn) Shares O/S (mn) 52-week Range () TOPIX DPS () Dividend Yield ROE
9,370 06 Nov 13 1,282.14 137 9,640-4,555 1,192.16 85.00 0.9% 14.0%
2015/3 E 905.5 110.0 111.5 81.0 603.5 3982.5 16.2% 15.5 2.4
2016/3 E 948.5 125.0 127.0 92.0 685.5 4578.0 16.0% 13.7 2.0
306
Nidec (6594): Summary of Financials

Income statement in billions 2013/3 2014/3E 2015/3E 2016/3E Cash Flow statement in billions Revenues 709.3 867.0 905.5 948.5 Operating CF Cost of revenue -470.2 -497.0 -477.5 -482.5 D&A Operating expenses - Net change in working capital EBITDA 55.9 129.5 155.0 170.0 Investment CF Depreciation -38.3 -43.5 -45.0 -45.0 Capex Operating profit (EBIT) 17.6 86.0 110.0 125.0 Net change in investments Other income - Free cash flow Other expenses -5.3 -2.0 0.0 0.0 Financing CF Pretax income 13.4 85.0 111.5 127.0 Net debt (cash) Abnormal items (net) 0.0 0.0 0.0 0.0 Change in Net debt (cash) Income taxes -6.6 -21.5 -28.0 -32.0 Minorities 1.1 -2.0 -2.5 -3.0 Net income - GAAP 8.0 61.5 81.0 92.0 Diluted shares outstanding (mn) 135 134 134 134 Balance Sheet in billions 2013/3 2014/3E 2015/3E 2016/3E Ratio Analysis Total assets 1,004.9 1,085.2 1,161.9 1,250.5 Gross Margin Cash and cash equivalents 193.4 216.2 278.8 351.8 EBITDA margin Trade receivable 159.1 194.5 203.1 212.7 ROCE Other current assets 48.4 48.4 48.4 48.4 Return on equity (ROE) Net Tangible fixed assets 278.0 278.0 278.0 278.0 D/E ratio Net intangible fixed assets 132.9 132.9 132.9 132.9 Div payout ratio Investments/other assets 93.3 93.3 93.3 93.3 Total liabilities 551.4 581.2 588.5 596.6 Short term debt 0.0 0.0 0.0 0.0 Other short term liabilities 128.1 98.3 91.0 82.8 Long term debt 0.0 0.0 0.0 0.0 Other long term liabilities 289.1 319.0 326.2 334.4 Minority interests 38.0 38.4 38.9 39.5 Total Equity 453.5 504.0 573.4 653.9 Source: Company data and J.P. Morgan estimates Note: in billions (except per-share data).Fiscal year ends Mar 2013/3 2014/3E 2015/3E 2016/3E 110.3 77.3 119.2 129.4 38.3 43.5 45.0 45.0 58.8 -27.7 -6.8 -7.6 -133.9 -43.5 -45.0 -45.0 -61.4 -43.5 -45.0 -45.0 48.3 33.0 73.1 82.9 61.1 -11.4 -12.1 -12.1 -193.4 -216.2 -278.8 -351.8 -251.6 -22.8 -62.6 -73.0
2013/3 2014/3E 2015/3E 2016/3E 33.7% 42.7% 47.3% 49.1% 7.9% 14.9% 17.1% 17.9% 1.8% 14.6% 16.5% 16.3% 2.0% 14.0% 16.2% 16.0% 0.0% 0.0% 0.0% 0.0% 151.8% 18.6% 14.9% 13.1%
307
Pacific Basin Shipping

Overweight
www.pacbasin.com
Company overview Pacific Basin Shipping provides dry bulk shipping and towage services. It has a large, young and uniformly-sized fleet of shallow-draft Handysize and Handymax vessels. 1H13 revenue breakdown: Handysize TCE: 70% and Handymax TCE: 30%. Investment case PacBasin provides a low-risk play on the sector recovery from 2014 and its countercyclical strategy to acquire cheap vessels will provide a significant cost advantage over peers. It also operates in our preferred Handysize segment which has the lowest order book-to-fleet ratio and highest level of scrap rate. PacBasin operates one of the youngest fleet in the bulk shipping sector with average age of 6 years. Resilience of the growth outlook Longer term, we have a positive contrarian view on the dry bulk shipping sector and expect average freight rates in 2014 to surpass 2013 levels, driving earnings recovery. We believe this year marks the cycles bottom and 2014 average freight rates will improve y/y as sector demand-supply growth returns to balance, with potential supply shortage in 2015. Our preferred play is the Handysize segment as it has the lowest order book-to-fleet ratio and highest scrap rate and Pacific Basin Shipping is one of the best plays on this theme, in our view. Risks to the earnings outlook in 2014 Key downside risks would be if dry bulk shipping demand weakens and/or excessive newbuild vessel ordering takes place which will cap industry recovery. Price target, and risks to our investment view Our Dec-14 PT of HK$6.5 is based on 1.1x P/BV, a 10% discount to PacBasin's historical average valuation since listing to factor in its lower profitability near term. Key downside risks: Delayed dry bulk market recovery, further asset write-downs, management changes.
Hong Kong Shipping Corrine Png

AC
(65) 6882-1514 corrine.ht.png@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 26.7% 25.0%
1m 5.4% 5.8%
3m 16.2% 11.1%
12m 35.7% 30.7%
Company Data Shares O/S (mn) Market Cap ($ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) HSI Exchange Rate Fiscal Year End
1,933 1,374 1,374 5.51 06 Nov 13 91.5% 8.49 43.69 5.6 2,3038.95 7.75 Dec
Pacific Basin Shipping (Reuters: 2343.HK, Bloomberg: 2343 HK) $ in mn, year-end Dec FY11A FY12A FY13E Revenue ($ mn) 1,313 1,443 1,608 Net Profit ($ mn) 32 (158) 23 EPS ($) 0.02 (0.08) 0.01 DPS ($) 0.01 0.01 0.01 Revenue growth (%) 3.5% 9.9% 11.4% EPS growth (%) NM NM NM ROCE 6.6% 3.0% 3.0% ROE 2.1% (11.3%) 1.7% P/E (x) 43.0 NM 59.7 P/BV (x) 0.9 1.0 1.0 EV/EBITDA (x) 7.2 12.4 13.0 Dividend Yield 1.8% 0.9% 0.8%
FY14E 1,785 141 0.07 0.04 11.0% 510.9% 7.1% 10.0% 9.8 0.9 7.6 5.1%
FY15E 2,017 253 0.13 0.07 13.0% 79.6% 10.6% 16.7% 5.4 0.9 5.4 9.2%
308
Pacific Basin Shipping: Summary of Financials

Income Statement $ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY11 FY12 FY13E FY14E FY15E $ in millions, year end Dec 1,313 1,443 1,608 1,785 2,017 EBIT 3.5% 9.9% 11.4% 11.0% 13.0% Depr. & amortization 216 134 141 255 366 Change in working capital 12.5% (38.0%) 5.4% 80.1% 43.9% Taxes 154 70 71 177 284 Cash flow from operations 14.4% (54.8%) 2.2% 148.7% 60.7% 11.7% 4.8% 4.4% 9.9% 14.1% Capex (29) (18) (28) (30) (29) Disposal/(purchase) 123 54 49 152 261 Net Interest 17.1% (56.1%) (9.8%) 214.0% 71.0% Other (0) (2) (0) (2) (3) Free cash flow 0.1% 3.0% 1.0% 1.0% 1.0% 32 (158) 23 141 253 Equity raised/(repaid) NM NM NM 510.9% 79.6% Debt raised/(repaid) 1,934 1,933 1,937 1,937 1,937 Other 0.02 (0.08) 0.01 0.07 0.13 Dividends paid NM NM NM 510.9% 79.6% Beginning cash Ending cash DPS Ratio Analysis FY11 FY12 FY13E FY14E FY15E $ in millions, year end Dec 599 633 536 553 585 EBITDA margin 101 106 118 131 148 Operating margin 67 79 88 98 111 Net margin 29 72 72 72 72 796 890 814 854 915 Sales per share growth 3 3 3 3 3 Sales growth 1,525 1,270 1,559 1,726 1,868 Net profit growth 2,432 2,470 2,590 2,801 3,010 EPS growth 78 196 5 278 916 27 1,221 1,369 0.71 78 205 5 287 1,038 27 1,352 1,449 0.75 Interest coverage (x) 78 220 Net debt to equity 5 Sales/assets 303 Assets/equity ROE 1,100 ROCE 27 1,430 1,581 0.82 FY11 154 63 1 159 (170) 4 (29) 63 56 (80) (13) (53) 690 599 0.01 FY12 70 65 13 149 (190) 0 (18) (58) (99) 152 (6) (12) 599 633 0.01 FY13E 71 70 (0) 112 (360) 0 (28) 99 (148) 62 0 (12) 633 536 0.01 FY13E 8.8% 4.4% 1.4% FY14E 177 78 (14) 210 (245) 0 (30) 0 (35) 122 0 (70) 536 553 0.04 FY14E 14.3% 9.9% 7.9% FY15E 284 82 (14) 321 (225) 0 (29) 0 96 62 0 (127) 553 585 0.07 FY15E 18.2% 14.1% 12.5% 13.0% 13.0% 79.6% 79.6% 12.7
Balance sheet $ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets . LT investments Net fixed assets Total Assets . Liabilities Short-term loans 65 78 Payables 145 175 Others 3 5 Total current liabilities 214 258 . Long-term debt 714 854 Other liabilities 20 27 Total Liabilities 947 1,138 Shareholder's equity 1,485 1,332 BVPS ($) 0.77 0.69 Source: Company reports and J.P. Morgan estimates.
FY11 FY12 16.5% 9.3% 11.7% 4.8% 2.4% (11.0%) 3.2% 3.5% NM NM 7.5 10.0% 9.9% NM NM 7.3
11.2% 11.0% 11.4% 11.0% NM 510.9% NM 510.9% 5.0 8.5
12.2% 22.4% 33.4% 38.8% 37.5% 0.5 0.6 0.6 0.7 0.7 164.6% 174.0% 187.4% 191.3% 191.8% 2.1% (11.3%) 1.7% 10.0% 16.7% 6.6% 3.0% 3.0% 7.1% 10.6%
309
PCCW Limited
Overweight
www.pccw.com
Hong Kong Wireless Services Michelle Wei, CFA

AC
Company overview PCCW is a Hong Kong-based company which holds interests in telecommunications (63% of HKT Trust), media (Now TV), IT solutions (PCCW Solutions), property development and investment (74.5% of PCPD), and other businesses. Richard Li and China Unicom are the two largest shareholders with 28% and 18% interests in the company, respectively. Investment case We think PCCW deserves a re-rating based on: 1) its strengthening pay-TV leadership driven by the exclusive broadcasting rights of the Barclays Premier League (BPL); and 2) the rising growth profile of its Solutions business, both organically and inorganically. PCCW is trading at a 24% discount to the combined market value of its stakes in HKT and PCPD, in line with its historical avg. This implies that the improved growth prospects of its media and Solutions businesses are yet to be priced in. PCCW provides an attractive combination of 9% EPS CAGR (2012-2015E) with yield sustainable above 5%. Resilience of the growth outlook PCCWs leading position, with strong pricing power in local pay TV, fixed-line and broadband industries, should enable itself to drive sustainable growth through price increases. In the meantime, its IT solutions operations are well positioned to benefit from secular growth of cloud computing and data center services. Risks to the earnings outlook in 2014 Weaker-than-expected BPL take-up may present downside risk to our earnings forecasts. Price target, and risks to our investment view To arrive at our Dec-14 PT of HK$4.1 we apply a holding company discount of 20% to our SOTP-based NAV estimate of HK$5.2 (based on combining the equity value of each business and the redemption value of its convertible bond issued to PCPD). Our TP implies 12.6x 2014E P/E and 5.7x 2014E EV/EBITDA. Downside risks include a reduction of its stake in HKT Trust and yield de-rating in a rising-interestrate environment.
(852) 2800-8562 michelle.z.wei@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD -2.8% -4.5%
1m 1.5% 1.9%
3m -3.1% -8.2%
12m -2.8% -7.8%
Company Data 52-week Range (HK$) Market Cap (HK$ mn) Market Cap ($ mn) Shares O/S (mn) Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) HSI Exchange Rate Price (HK$) Date Of Price
4.21-2.98 25,235 3,255 7,272 53.7% 10.11 36.01 4.6 2,3038.95 7.75 3.47 06 Nov 13
PCCW Limited (Reuters: 0008.HK, Bloomberg: 8 HK) HK$ in mn, year-end Dec FY11A FY12A Revenue (HK$ mn) 24,638 25,318 Revenue growth (%) 7.3% 2.8% EBITDA (HK$ mn) 7,585 7,788 EBITDA Growth 3.2% 2.7% Net Profit (HK$ mn) 1,607 1,663 Net Profit growth (%) (16.6%) 3.5% EPS (HK$) 0.22 0.23 DPS (HK$) 0.16 0.19 P/E (x) 15.7 15.2 EV/EBITDA (x) 5.6 5.9 Dividend Yield 4.6% 5.5%
FY13E 28,132 11.1% 8,272 6.2% 1,704 2.5% 0.23 0.19 14.8 5.8 5.4%
FY14E 30,180 7.3% 8,856 7.1% 1,910 12.1% 0.26 0.20 13.2 5.7 5.6%
FY15E 32,390 7.3% 9,456 6.8% 2,164 13.3% 0.30 0.20 11.6 5.5 5.9%
310
PCCW Limited: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenue EBITDA Depreciation Amortization EBIT Interest income Interest expense Associates Profit before tax Tax Net profit - reported
Balance sheet FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Dec 24,638 25,318 28,132 30,180 32,390 Cash and cash equivalents 7,585 7,788 8,272 8,856 9,456 Accounts receivable (2,549) (2,482) (2,457) (2,481) (2,440) Others (1,400) (1,939) (2,215) (2,309) (2,403) Total current assets 3,636 3,367 3,600 4,066 4,613 71 62 57 109 110 ST loans (1,565) (966) (1,056) (1,258) (1,291) Others - Total current liabilities 2,318 2,799 3,019 3,242 3,715 (542) (232) (242) (357) (520) Net working capital 1,607 1,663 1,704 1,910 2,164 Net fixed assets Shares Outstanding (mn) 7,272 7,263 7,263 7,263 7,263 Other long term assets EPS (HK$) (reported) 0.22 0.23 0.23 0.26 0.30 Total non-current assets DPS (HK$) 0.16 0.19 0.19 0.20 0.20 DPS payout ratio 72.0% 83.2% 80.4% 74.3% 68.7% Total Assets Revenue growth 7.3% 2.8% 11.1% 7.3% 7.3% Long-term debt EBITDA growth 3.2% 2.7% 6.2% 7.1% 6.8% Other liabilities Net profit growth (16.6%) 3.5% 2.5% 12.1% 13.3% Total Liabilities DPS growth 3.9% 19.9% (1.0%) 3.5% 4.7% Shareholders' equity Total liabilities and equity Net debt/(cash) Book value per share Ratio Analysis Cash flow statement %, year end Dec FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Dec EBITDA margin 30.8% 30.8% 29.4% 29.3% 29.2% Cash flow from operations FCF margin 24.3% 18.8% 16.7% 18.3% 18.2% Capex Cash flow from other investing ROE 113.1% 22.1% 19.7% 23.8% 28.6% Cash flow from financing ROC 9.1% 9.5% 8.6% 8.6% 9.6% ROA 3.4% 3.5% 3.2% 3.3% 3.6% Change in cash for year Tax rate 23.4% 8.3% 8.0% 11.0% 14.0% Beginning cash Capex to sales 8.0% 8.8% 9.1% 8.6% 8.4% Closing cash Debt/Capital 79.4% 74.7% 79.9% 81.8% 81.7% Net debt or (cash) to equity 239.4% 263.5% 278.7% 286.1% 284.6% Interest coverage (x) 5.1 8.6 8.3 7.7 8.0 Source: Company reports and J.P. Morgan estimates.
FY11 FY12 FY13E FY14E FY15E 5,365 4,553 8,737 8,773 5,118 3,084 4,041 4,925 5,479 5,913 5,326 7,092 7,715 8,429 9,236 14,941 16,774 22,434 23,716 21,276 40 8,540 109 7,136 9,519 8,930 8,492 8,597 8,707 8,822 10,747 19,412 11,324 18,723 21,508 4,194 (2,638) 11,110 4,993 (232)
15,477 15,534 15,668 15,814 16,101 7,681 8,711 9,549 10,348 11,122 30,909 33,070 34,709 36,165 37,707 45,850 49,844 57,143 59,881 58,983 23,470 17,926 32,917 27,812 23,468 938 879 779 679 579 38,270 41,527 48,429 50,731 49,192 7,580 8,317 8,714 9,149 9,791 45,850 49,844 57,143 59,881 58,983 18,145 21,913 24,289 26,174 27,868 0.84 1.24 1.14 1.07 1.02 FY11 FY12 FY13E FY14E 6,778 6,168 6,356 7,116 (1,960) (2,236) (2,569) (2,605) (2,073) (3,233) (2,726) (2,688) (5,472) 40 3,123 (1,786) (2,736) 8,101 5,365 (812) 5,365 4,553 4,184 4,553 8,737 FY15E 7,576 (2,705) (2,721) (5,805)
36 (3,655) 8,737 8,773 8,773 5,118
311
PetroChina
Overweight
www.petrochina.com.cn
Hong Kong Integrated Oils Scott L Darling

AC
Company overview PetroChina is the largest oil company in China and one of the largest globally. Petrochina is integrated with E&P, R&C, Marketing and pipelines (NGP). In 2012, crude production was 2.5 mn BOPD and natural gas 1.16 mn BOEPD, refining throughput was 2.8 mn BOPD, olefin production 7.7 mn tonnes and it operated over 40,000 km of pipelines (crude, products and natural gas). PetroChina has SEC proven reserves of 22.2bn BOE (47% natural gas, 67% of crude is developed). Major profit drivers are crude prices and refining margins in China. Investment case We expect a strong earnings trend, driven by both upstream and refining profitability improvement (with the move to higher spec fuels) to aid stock performance. We expect investor focus to be on the companys ability to strategically shift its energy portfolio away from low return assets via asset divestments. We think further visibility on asset divestments and clarity over natural gas reform progress will lead to relative outperformance relative to local peers. Resilience of the growth outlook We think PetroChina earnings will be driven by robust Chinese oil demand growth (4% y/y) from double-digit gasoline demand growth more than offset by diesel demand growth at 1% y/y. We see good natural gas profitability from further price hikes and Chinese natural gas demand at low double-digit growth, which partly offsets a higher import burden. Oil prices forecast at $112/bl Brent in 2014 should support upstream profitability. Risks to the earnings outlook in 2014 Main risks to the earnings outlook are a sharp fall in oil prices, recent natural gas price hikes not being passed through to customers and no further rises, a higher import burden and weak chemicals profitability from lower demand and margins. Price target, and risks to our investment view Our Dec-14 PT of HK$11 is based on a sum-of-the-parts methodology, whereby we calculate a DCF based value (WACC 9.8%, terminal g 2%) for each business segment, namely upstream, refining, chemicals and marketing added to give our total NAV. Debt and financial liabilities are deducted at book value. Key downside risks are a collapse in the oil price, lack of nat gas price hikes and weakening downstream demand.
Abs Rel
YTD -21.0% -13.4%
1m 0.7% 0.3%
3m -4.1% -13.5%
12m -17.9% -16.3%
183,021 1,248,771 204,700 8.67 06 Nov 13 87.73 767.16 99.0 1,0637.15 7.75 Dec
PetroChina (Reuters: 0857.HK, Bloomberg: 857 HK) Rmb in mn, year-end Dec FY11A FY12A Revenue (Rmb mn) 2,003,843 2,195,296 Net Profit (Rmb mn) 132,961 115,326 EPS (Rmb) 0.73 0.63 DPS (Rmb) 0.35 0.32 Revenue Growth (%) 36.7% 9.6% EPS Growth (%) (5.0%) (13.3%) ROCE 11.6% 9.7% ROE 13.7% 11.2% P/E 9.4 10.8 P/BV 1.2 1.2 EV/EBITDA 5.0 5.5 Dividend Yield 5.1% 4.6%
FY13E 1,667,761 115,208 0.63 0.28 (24.0%) (0.1%) 8.9% 10.5% 10.8 1.1 5.5 4.2%
FY14E 1,761,171 134,305 0.73 0.33 5.6% 16.6% 9.4% 11.5% 9.3 1.0 5.0 4.8%
FY15E 1,728,931 128,545 0.70 0.32 (1.8%) (4.3%) 8.5% 10.4% 9.7 1.0 5.0 4.6%
312
PetroChina: Summary of Financials
Income Statement Cash flow statement Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Revenues 2,003,843 2,195,296 1,667,761 1,761,171 1,728,931 EBIT 182,461 174,519 180,280 203,622 193,940 % change Y/Y 36.7% 9.6% (24.0%) 5.6% (1.8%) Depr. & amortization 138,073 151,975 165,477 184,284 195,911 EBITDA 320,534 326,494 345,757 387,906 389,852 Change in working capital 1,377 (61,031) 15,397 2,283 (788) % change Y/Y 6.5% 1.9% 5.9% 12.2% 0.5% Taxes (46,379) (41,847) (36,158) (41,657) (39,816) EBIT 182,461 174,519 180,280 203,622 193,940 Cash flow from operations 290,155 239,288 333,802 348,532 349,247 % change Y/Y (2.8%) (4.4%) 3.3% 12.9% (4.8%) EBIT Margin 9.1% 7.9% 10.8% 11.6% 11.2% Capex (267,975) (311,744) (351,500) (304,460) (254,131) Net Interest (8,212) (16,101) (22,425) (20,856) (20,115) Disposal/(purchase) Earnings before tax 184,215 166,811 166,660 192,006 183,520 Net Interest (8,212) (16,101) (22,425) (20,856) (20,115) % change Y/Y (2.7%) (9.4%) (0.1%) 15.2% (4.4%) Other (29,408) (26,390) 0 0 0 Tax (38,256) (36,191) (36,158) (41,657) (39,816) Free cash flow 28,687 (59,848) (138) 60,403 110,867 as % of EBT 20.8% 21.7% 21.7% 21.7% 21.7% Net income (reported) 132,961 115,326 115,208 134,305 128,545 Equity raised/(repaid) 0 0 0 0 0 % change Y/Y (5.0%) (13.3%) (0.1%) 16.6% (4.3%) Debt raised/(repaid) 90,619 99,379 44,066 16,892 (17,737) Shares outstanding 183,021 183,021 183,021 183,021 183,021 Other (18,060) 34,018 6,641 (21,439) (1,530) EPS (reported) 0.73 0.63 0.63 0.73 0.70 Dividends paid (63,300) (58,041) (51,844) (60,437) (57,845) % change Y/Y (5.0%) (13.3%) (0.1%) 16.6% (4.3%) Beginning cash 45,709 61,172 43,395 24,561 12,888 Ending cash 61,172 43,395 24,561 12,888 40,587 DPS 0.35 0.32 0.28 0.33 0.32 Balance sheet Ratio Analysis Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Cash and cash equivalents 61,172 43,395 24,561 12,888 40,587 EBITDA margin 16.0% 14.9% 20.7% 22.0% 22.5% Accounts receivable 66,510 74,431 56,545 59,712 58,619 EBIT margin 9.1% 7.9% 10.8% 11.6% 11.2% Inventories 182,253 214,117 162,664 171,775 168,630 Net margin 6.6% 5.3% 6.9% 7.6% 7.4% Others 72,776 82,389 63,276 66,660 65,492 Current assets 382,711 414,332 307,046 311,035 333,329 Sales per share growth 36.7% 9.6% (24.0%) 5.6% (1.8%) LT investments - Sales growth 36.7% 9.6% (24.0%) 5.6% (1.8%) Net fixed assets 1,372,007 1,569,888 1,750,170 1,870,346 1,928,566 Net profit growth (5.0%) (13.3%) (0.1%) 16.6% (4.3%) Total Assets 1,917,586 2,168,896 2,290,487 2,415,498 2,497,632 EPS growth (5.0%) (13.3%) (0.1%) 16.6% (4.3%) Liabilities Interest coverage (x) 39.0 20.3 15.4 18.6 19.4 Short-term loans 137,698 151,247 181,247 181,247 201,247 Payables 302,600 351,456 320,400 338,346 332,152 Net debt to equity 23.5% 33.5% 38.6% 38.2% 34.1% Others 119,740 72,045 72,045 72,045 72,045 Sales/assets 1.1 1.1 0.7 0.7 0.7 Total current liabilities 560,038 574,748 573,692 591,638 605,444 Assets/equity 1.8 2.0 2.0 2.0 2.0 Long-term debt 180,675 293,774 337,840 354,732 336,995 ROE 13.7% 11.2% 10.5% 11.5% 10.4% Other liabilities 94,327 119,626 116,613 116,613 116,613 ROCE 11.6% 9.7% 8.9% 9.4% 8.5% Total Liabilities 835,040 988,148 1,028,145 1,062,983 1,059,052 Shareholder's equity 1,002,745 1,064,010 1,130,971 1,204,839 1,275,539 BVPS (Rmb) 5.48 5.81 6.18 6.58 6.97 Source: Company reports and J.P. Morgan estimates.
313
Ping An Insurance Group - H

Overweight
ir.pingan.com/en/index.shtml
China Insurance MW Kim

AC
Company overview Ping An was one of the first non-state owned financial conglomerates to provide insurance (both life and non-life), banking, securities, trust and asset management services to customers in China. Unlike other insurers, its business model is largely based on exclusive sales agents and customers are mostly affluent/HNWIs. Investment case We are observing fast business model transformation in the China life insurance sector from volume growth to value increase. Due to its strong agency based channel growth, Ping An Group is already delivering the highest YTD premium growth (+14% y/y) with a sector-leading NBV margin (28% in 1H13). Its NBV margin is already at AIA Group's FY09 level, and following the private health insurance market expansion during 2014 we think its market-dominant agency operation will drive further value increase resulting in a strong share price re-rating. Resilience of the growth outlook With a dominant position backed by agency channel, we expect Ping An to deliver the highest volume/NBV growth in the life sector. In non-life, as the second largest non-life insurer and given the increase in car sales and moderation in underwriting cycle deterioration, we forecast double-digit volume growth with ~5% underwriting margin. Finally, leveraging ~80M of existing insurance policyholders, Ping An Bank could generate sustainable fee-income growth. Risks to the earnings outlook in 2014 Our ~27% y/y earnings growth in 2014 would be adversely affected under the scenario of (1) potential asset quality deterioration from Ping An Bank/ Ping An Trust; (2) faster-than-expected deterioration in non-life underwriting cycle, or (3) potential correction in A-share equity market movement. Price target, and risks to our investment view Our Dec-14 SOTP PT of HK$84 is based on 8.7x NBM for life, 1.9x P/BV for nonlife, 0.7x P/BV for the bank business. Key downside risks are asset quality concerns at its banking and trust operations, weaker-than-expected demand for protection-type products, and further delays in A-share convertible bonds issuance.
(852) 2800-8517 mw.kim@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD -5.7% -7.4%
1m 3.8% 4.2%
3m 22.3% 17.2%
12m -1.5% -6.5%
7,916 381,259 62,496 61.20 06 Nov 13 13.45 763.71 98.5 2,3038.95 7.75 Dec
Ping An Insurance Group - H (Reuters: 2318.HK, Bloomberg: 2318 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E EPS (Rmb) 2.50 2.53 3.64 BVPS (Rmb) 16.53 20.16 22.43 DPS (Rmb) 0.41 0.45 0.45 EV per share (Rmb) 37.76 45.81 51.33 NBV per share 2.13 2.01 2.25 P/E (x) 19.2 19.0 13.2 P/BV (x) 2.9 2.4 2.1 Dividend Yield 0.8% 0.9% 0.9% P/EV 1.3 1.1 0.9 ROE 16.0% 13.8% 16.4%
FY14E 4.63 26.21 0.55 59.33 2.46 10.4 1.8 1.1% 0.8 17.3%
FY15E 5.55 35.59 0.55 68.63 3.35 8.7 1.4 1.1% 0.7 17.1%
314
Ping An Insurance Group - H: Summary of Financials

Income Statement (Rmb in millions) FY11 FY12 FY13E FY14E FY15E Capital Strength GWP & Policy fees 207,802 233,940 277,825 326,683 385,023 Shareholders' funds to insurance liab. Net written premiums 196,832 221,089 262,814 308,024 362,550 Solvency margin ratio (group operation) Net earned premiums 186,662 213,144 248,585 291,041 342,271 First-year premiums Total technical outgo (145,764) (165,994) (202,101) (229,932) (266,456) Single premiums Total expenses (64,686) (84,385) (91,488) (105,803) (122,971) Regular premiums Underwriting profit (23,788) (37,235) (45,003) (44,694) (47,156) AFYPs Net Investment Income 34,285 41,598 48,353 55,112 63,468 Profitability measure Realized & unreal. Investment income (5,020) (14,220) 6,076 8,030 9,509 Loss ratio Other income/expenses 24,549 42,195 46,685 51,327 48,112 Expense ratio Pre-tax profit 30,026 32,338 48,786 61,737 73,933 Combined ratio Tax (7,444) (5,588) (13,329) (16,729) (19,981) Total investment yield (incl. gains/losses) Minorities (3,107) (6,700) (6,615) (8,372) (10,025) ROA Net profit 19,475 20,050 28,842 36,636 43,926 ROE Balance sheet (Rmb in millions) FY11 FY12 FY13E FY14E FY15E Per share data Bonds 504,909 597,471 690,442 827,457 952,840 EPS Equities 99,870 101,470 160,706 199,969 230,270 Y/Y Deposits 226,212 314,895 295,224 282,715 325,553 DPS Other Investments 36,310 43,967 35,713 55,164 63,523 Payout ratio Total Investments 867,301 1,074,188 1,190,418 1,379,095 1,588,066 BVPS Total Assets 2,285,424 2,844,266 3,252,572 3,660,480 4,120,207 No. of shares Total insurance reserves 791,215 917,262 1,091,525 1,271,732 1,473,407 Group embedded value Subordinated debts 26,633 38,793 38,793 38,793 38,793 Life operation embedded value Total liabilities 2,114,082 2,634,617 3,011,028 3,378,281 3,788,410 Y/Y Minority Interest 40,475 50,032 50,032 50,032 50,032 New business value Shareholders' funds 130,867 159,617 191,512 232,166 281,764 Y/Y Income Statement growth rates 11,Y/Y 12,Y/Y 13E, Y/Y 14E, Y/Y 15E, Y/Y Balance sheet growth rates GWP & policy fees 30.4% 12.6% 18.8% 17.6% 17.9% Bonds Net earned premiums 32.3% 14.2% 16.6% 17.1% 17.6% Equities Net Investment Income 32.0% 21.3% 16.2% 14.0% 15.2% Deposits Total technical outgo 26.7% 13.9% 21.8% 13.8% 15.9% Total investments Total expenses 39.7% 30.5% 8.4% 15.6% 16.2% Total Assets Underwriting profit 17.4% 56.5% 20.9% (0.7%) 5.5% Total insurance reserves Pre-tax profit 34.4% 7.7% 50.9% 26.5% 19.8% Total liabilities Net profit 12.5% 3.0% 43.8% 27.0% 19.9% Shareholders' funds Source: Company reports and J.P. Morgan estimates. FY11 FY12 FY13E FY14E FY15E 16.5% 17.4% 17.5% 18.3% 19.1% 156.1% 190.6% 221.6% 242.0% 267.7% FY11 FY12 FY13E FY14E FY15E 31,416 20,007 20,364 22,195 24,549 39,501 39,263 43,396 47,573 57,983 31,262 33,661 37,087 41,428 53,865 FY11 FY12 FY13E FY14E FY15E 78.1% 77.9% 81.3% 79.0% 77.8% 34.7% 39.6% 36.8% 36.4% 35.9% 112.7% 117.5% 118.1% 115.4% 113.8% 3.6% 2.8% 4.8% 4.9% 4.9% 1.1% 0.8% 0.9% 1.1% 1.1% 16.0% 13.8% 16.4% 17.3% 17.1% FY11 FY12 FY13E FY14E FY15E 2.50 2.53 3.64 4.63 5.55 8.4% 1.2% 43.8% 27.0% 19.9% 0.41 0.45 0.45 0.55 0.55 16.3% 17.8% 12.4% 11.9% 9.9% 16.53 20.16 22.43 26.21 35.59 7,916 7,916 7,916 7,916 7,916 37.76 45.81 51.33 59.33 68.63 18.24 22.42 24.32 27.73 34.54 15.2% 22.9% 8.5% 14.0% 24.5% 2.13 2.01 2.25 2.46 3.35 4.8% (5.4%) 12.1% 9.2% 36.2% 11,Y/Y 12,Y/Y 13E, Y/Y 14E, Y/Y 15E, Y/Y 11.7% 18.3% 15.6% 19.8% 15.2% 34.4% 1.6% 58.4% 24.4% 15.2% 3.3% 39.2% (6.2%) (4.2%) 15.2% 13.7% 23.9% 10.8% 15.8% 15.2% 95.1% 24.5% 14.4% 12.5% 12.6% 18.1% 15.9% 19.0% 16.5% 15.9% 100.4% 24.6% 14.3% 12.2% 12.1% 16.8% 22.0% 20.0% 21.2% 21.4%
315
PT Aneka Tambang Tbk

Overweight
www.antam.com
ANTM.JK,ANTM IJ Price: Rp1,500 Price Target: Rp1,800
Indonesia Metals Stevanus Juanda

AC
Abs Rel
YTD 19.5% 24.1%
1m 6.2% 5.4%
3m 15.9% 20.6%
12m 19.5% 16.7%
Company overview The state-owned PT Aneka Tambang is one of the largest nickel miners in Indonesia and it has installed capacity of about 26,000 tons. Aside from its ferronickel operation, ANTM also operates gold, silver, and bauxite mines. Although currently small, precious metal is growing and ANTM is likely to expand this operation via exploration and acquisition. Investment case Nickel price and cost will be the drivers of profit. ANTMs main source of fuel is currently oil, making it a high cost producer. With the investment in coal fired power plant expected to come on stream in FY14, ANTMs costs could come down to near industry average. Nearer term, ANTM could outperform on: (1) Recovery in ferronickel demand from the developed economies such as Western Europe (59% of sales) and South Korea (41%). (2) Earnings contribution from Tayan Chemical Grade Alumina. (3) 39% Y/Y earnings growth in FY14E. (4) More restrictive measures to curb ore export could cause nickel price to rise. (5) Attractively trading at 1.1x PBV. Resilience of the growth outlook We believe ANTMs FY14E could rise by 39%Y/Y on: (1) ferronickel rising from US$15,355/ton in FY13E to US$16,750/ton in FY14E. (2) Rp260bn net income contribution (out of total Rp 432bn) from Tayan Chemical Grade Alumina. Risks to the earnings outlook in 2014 Risks to our earnings growth will come from: (1) Complete stoppage in ore export in Feb 14. Currently, we are forecasting a 4.5MM tons of ore export in FY14E compared to 7.5MM tons in FY13E. (2) The rise in ferronickel expectation does not materialize. (3) Tayan Chemical Grade Alumina's net income falling short of Rp260bn. Price target, and risks to our investment view Our DCF based Dec-14 PT of Rp1,800 represents 58x FY13E PE and 42x FY14E. The high multiple is because of depressed earnings level, but on PBV basis, ANTM is trading at an attractive 1.1x. The DCF method is derived using a risk free rate of 8.0%, equity risk premium of 5.5% and terminal growth rate of 5.0%. Risks: (1) Lower than expected Chinese recovery. (2) Rising interest cost that works against earnings. (3) Nickel pig iron supply working against nickel price.
PT Aneka Tambang Tbk (Reuters: ANTM.JK, Bloomberg: ANTM IJ) Rp in bn, year-end Dec FY11A FY12A FY13E Revenue (Rp bn) 10,346 10,450 10,082 Net Profit (Rp bn) 1,928 2,989 304 EPS (Rp) 202.12 313.37 31.05 DPS (Rp) 70.59 80.85 45.31 Revenue growth (%) 1.0% (3.5%) EPS growth (%) 55.0% (90.1%) ROCE 98.5% 17.8% 6.5% ROE 35.8% 25.3% 2.3% P/E (x) 7.4 4.8 48.3 P/BV (x) 1.3 1.1 1.1 EV/EBITDA (x) 4.3 3.6 12.3 Dividend Yield 4.7% 5.4% 3.0%
10,015 15,023.07 1.32 1,500 06 Nov 13 20.13 28,597.56 2.5 4449.76 11,355.89 Dec
FY14E 10,782 432 43.16 13.96 6.9% 39.0% 7.4% 3.2% 34.8 1.1 11.1 0.9%
FY15E 10,058 294 29.36 21.22 (6.7%) (32.0%) 5.5% 2.1% 51.1 1.1 11.2 1.4%
316
PT Aneka Tambang Tbk: Summary of Financials

Income Statement Rp in billions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rp in billions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 10,346 3,141 2,013 19.5% (13) 2,569 (641) 24.9% 1,928 202.12 FY12 10,450 1.0% 4,713 50.0% 896 (55.5%) 8.6% (118) 3,895 51.6% (902) 23.2% 2,989 55.0% 313.37 55.0% FY13E 10,082 (3.5%) 1,746 (62.9%) 489 (45.4%) 4.9% (400) 405 (89.6%) (101) 25.0% 304 (89.8%) 31.05 (90.1%) FY14E 10,782 6.9% 2,376 36.1% 872 78.2% 8.1% (667) 541 33.5% (108) 20.0% 432 42.4% 43.16 39.0% FY15E 10,058 (6.7%) 2,573 8.3% 930 6.7% 9.3% (877) 368 (32.0%) (74) 20.0% 294 (32.0%) 29.36 (32.0%)
Cash flow statement Rp in billions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis Rp in billions, year end Dec EBITDA margin Net margin
FY11 2,013 559 (512) 1,568
FY12 896 699 287 891
FY13E FY14E 489 872 941 1,167 (294) (287) 845 728 (6,063) (5,651) 0 0 (400) (667) (48) (85) (4,918) (4,389) 715 2,009 115 (432) 3,869 1,240 45.31 0 5,611 274 (136) 1,240 1,981 13.96
FY15E 930 1,328 (133) 1,958 (4,022) 0 (877) (135) (1,363) 0 2,425 111 (213) 1,981 1,948 21.22 FY15E 25.6% 2.9%
(2,076) (3,508) 83 (1,258) (13) (118) 466 12 (498) (2,526) 0 2,276 (67) (673) 4,229 5,640 70.59 0 1,639 (77) (868) 5,640 3,869 80.85
FY11 5,640 1,347 1,688 433 9,108
FY12 3,869 1,847 1,450 481 7,647
FY13E 1,240 2,032 1,595 464 5,331
FY14E 1,981 2,173 1,754 497 6,405
FY15E 1,948 2,027 1,930 463 6,368
FY11 FY12 30.4% 45.1% 18.6% 28.6%
FY13E FY14E 17.3% 22.0% 3.0% 4.0%
LT investments 1,245 5,110 4,931 5,273 4,919 Net fixed assets 2,981 4,663 9,785 14,268 16,962 Total Assets 15,201 19,709 22,384 28,415 30,751 Liabilities Short-term loans 75 1,664 1,605 1,717 1,602 Payables 258 417 423 437 395 Others 523 961 974 1,006 911 Total current liabilities 856 3,041 3,002 3,159 2,907 Long-term debt 2,992 2,993 5,060 10,560 13,100 Other liabilities 581 842 854 882 798 Total Liabilities 4,429 6,876 8,915 14,601 16,805 Shareholder's equity 10,772 12,832 13,469 13,815 13,947 BVPS (Rp) 1,129.33 1,345.32 1,377.64 1,379.38 1,392.51 Source: Company reports and J.P. Morgan estimates.
Sales per share growth Sales growth Net profit growth EPS growth Interest coverage (x) Net debt to equity Sales/assets Assets/equity ROE ROCE
- 1.0% (5.9%) 4.4% (6.7%) - 1.0% (3.5%) 6.9% (6.7%) - 55.0% (89.8%) 42.4% (32.0%) - 55.0% (90.1%) 39.0% (32.0%) 239.2 39.8 4.4 3.6 2.9 (23.9%) 6.1% 1.4 0.6 1.4 1.5 35.8% 25.3% 98.5% 17.8% 40.3% 74.5% 0.5 0.4 1.6 1.9 2.3% 3.2% 6.5% 7.4% 91.5% 0.3 2.1 2.1% 5.5%
317
PT Telekomunikasi Indonesia Tbk

Overweight
www.telkom.co.id
TLKM.JK,TLKM IJ Price: Rp2,275 Price Target: Rp2,770
Indonesia Wireless Services Princy Singh

AC
Company overview Telkom is the largest telecom service provider in Indonesia, providing fixed wireline, fixed wireless, cellular, data and Internet services. Its 65% owned mobile subsidiary Telkomsel has ~40% wireless subscriber market share, providing network coverage to over 90% of Indonesias population. TLKM is owned by the Republic of Indonesia, which currently has ~51.2% of total shareholding. Currently, institutional ownership in TLKM stands at 26%. Investment case Our Overweight rating on TLKM, which is also our top pick in ASEAN, is premised on our emerging Asia telco thesis driving preference for: (1) Integrated operators over pure wireless players, given their ability to off-load wireless data to fixed line; (2) market share gainers in emerging markets, given that market share drives net interconnect, which in turn drives margins higher. Resilience of the growth outlook We estimate 7% revenue CAGR for TLKM over 2013-15E. The Indonesian market remains highly competitive and while the level of intensity is stabilizing currently, we see risk to growth outlook if any operators were to become more competitive.
Abs Rel
YTD 27.1% 31.1%
1m 1.1% -0.3%
3m -4.0% -0.8%
12m 21.0% 17.9%
Risks to the earnings outlook in 2014 Higher than expected data pricing compression driven by intense competition could potentially negatively impact earnings. Moreover, if XL embarks on aggressive pricing to increase utilization levels post acquisition of Axis Telecom, this may put pressure on margins for all operators in the industry. Price target, and risks to our investment view Our Jun-14 PT of Rp2,770 is based on 16x2014E P/E (see datasheet). If our price target were achieved, Telkom would be trading at a 2013E/14E adjusted P/E of 18.3x/16.0x and providing a dividend yield of 3.6%/4.1% assuming a 65% payout of earnings. Key downside risks include higher-than-expected compression of data pricing and potential market share losses driven by more aggressive competition.
Company Data 52-week Range (Rp) Market Cap (Rp bn) Market Cap ($ bn) Shares O/S (mn) Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value ($ mn) JCI Exchange Rate Price (Rp) Date Of Price
2,566-1,721 217,815.20 19.18 95,743 44.9% 113.25 22.0 4449.76 11,355.89 2,275 06 Nov 13
PT Telekomunikasi Indonesia Tbk (Reuters: TLKM.JK, Bloomberg: TLKM IJ) Rp in bn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Rp bn) 67,698 72,476 81,362 89,926 EBITDA (Rp bn) 36,558 39,757 43,973 47,902 EBITDA Growth (1.5%) 8.8% 10.6% 8.9% Recurring profit (Rp bn) 11,299 12,993 14,506 16,579 Recurring EPS (Rp) 115.35 135.36 151.50 173.16 EPS growth (%) (1.4%) 17.3% 11.9% 14.3% DPS (Rp) 72.76 87.02 98.98 112.55 EV/EBITDA (x) 6.2 5.7 5.2 4.8 P/E (x) 19.7 16.8 15.0 13.1 Dividend Yield 3.2% 3.8% 4.4% 4.9% FCF to mkt cap (%) 8.2% 9.5% 8.5% 8.3%
FY15E 95,522 50,794 6.0% 17,931 187.27 8.2% 103.00 4.6 12.1 4.5% 8.7%
318
PT Telekomunikasi Indonesia Tbk: Summary of Financials

Income Statement Rp in billions, year end Dec Revenue EBITDA Depreciation & Amortization EBIT Interest income Interest expense Other Income Profit before tax Tax Minorities Net profit - reported Net profit - adjusted Shares Outstanding (mn) EPS (Rp) (reported) EPS (Adjusted) DPS (Rp) DPS payout ratio Revenue growth EBITDA growth Adj Net profit growth Adj EPS growth DPS growth Balance sheet FY11 FY12 FY13E FY14E FY15E Rp in billions, year end Dec 67,698 72,476 81,362 89,926 95,522 Cash and cash equivalents 36,558 39,757 43,973 47,902 50,794 Short Term Investments (14,863) (14,456) (15,834) (16,530) (17,805) Accounts receivable 21,695 25,301 28,139 31,372 32,989 Others 546 596 841 1,144 1,364 Total current assets (1,637) (2,055) (1,825) (1,950) (1,777) 253 583 237 64 64 ST loans 20,857 24,225 27,493 30,630 32,640 Accounts Payables (5,387) (5,866) (6,908) (7,657) (8,160) Others current liabilities (4,505) (5,512) (6,005) (6,393) (6,549) Total current liabilities 10,965 12,847 14,581 16,579 17,931 11,299 12,993 14,506 16,579 17,931 Net working capital 97,960 95,989 95,748 95,748 95,748 Net fixed assets 111.93 133.84 152.28 173.16 187.27 Net Intangibles 115.35 135.36 151.50 173.16 187.27 Long term investments 72.76 87.02 98.98 112.55 103.00 Other long term assets 65.0% 65.0% 65.0% 65.0% 55.0% Total non-current assets 3.3% 7.1% 12.3% 10.5% 6.2% Total Assets (1.5%) 8.8% 10.6% 8.9% 6.0% (1.8%) 15.0% 11.6% 14.3% 8.2% Long-term debt (1.4%) 17.3% 11.9% 14.3% 8.2% Preferred Equity 12.8% 19.6% 13.7% 13.7% (8.5%) Other liabilities Total Liabilities Shareholders' equity Total liabilities and equity Net debt/(cash) Ratio Analysis Cash flow statement %, year end Dec FY11 FY12 FY13E FY14E FY15E Rp in billions, year end Dec EBITDA margin 54.0% 54.9% 54.0% 53.3% 53.2% Cash flow from operations FCF margin 26.8% 28.7% 22.9% 20.0% 19.8% Capex Cash flow from other investing ROE 24.6% 26.2% 28.0% 31.1% 31.5% Cash flow from financing ROC 24.6% 28.6% 30.7% 34.1% 34.9% ROA 11.1% 12.1% 12.7% 13.5% 13.5% Change in cash for year Tax rate 25.8% 24.2% 25.1% 25.0% 25.0% Beginning cash Capex to sales 19.5% 11.3% 23.0% 25.1% 25.2% Closing cash Debt/Capital 11.0% 0.0% (5.4%) (9.5%) (15.3%) Net debt or (cash) to equity 12.4% 0.0% (5.1%) (8.6%) (13.2%) Interest coverage (x) 33.5 27.2 44.7 59.4 123.1 Source: Company reports and J.P. Morgan estimates. FY11 9,634 361 4,915 6,348 21,258 4,913 13,415 3,861 22,189 FY12 13,118 4,338 5,223 5,294 27,973 5,658 13,876 4,573 24,107 FY13E 15,650 4,338 5,675 6,064 31,727 4,658 14,927 4,876 24,461 FY14E 17,828 4,338 6,102 6,823 35,092 3,658 16,295 5,147 25,100 FY15E 21,079 4,338 6,499 7,296 39,212 1,658 17,346 5,350 24,354
(8,500) (8,653) (9,252) (10,193) (10,847) 74,897 77,047 79,891 85,942 92,161 1,789 1,443 1,443 1,443 1,443 235 275 275 275 275 4,875 4,631 4,631 4,631 4,631 81,796 83,396 86,240 92,291 98,510 103,054 111,369 117,967 127,383 137,722 12,644 11,803 11,593 11,383 11,383 7,240 8,481 8,481 8,481 8,481 42,073 44,391 44,535 44,964 44,218 60,981 66,978 73,432 82,419 93,504 103,054 111,369 117,967 127,383 137,722 7,562 5 (3,737) (7,125) (12,376) FY11 FY12 FY13E FY14E FY15E 30,553 27,941 36,551 39,955 42,670 (13,197) (8,221) (18,677) (22,581) (24,024) (1,308) (3,090) 0 0 0 (15,539) (13,314) (15,341) (15,196) (15,395) 514 9,120 9,634 3,484 9,634 13,118 2,533 13,118 15,650 2,178 15,650 17,828 3,251 17,828 21,079
319
Puregold Price Club

Overweight
www.puregold.com.ph
PGOLD.PS,PGOLD PM Price: Php45.85 Price Target: Php51.00
Philippines Food Retailing Jeanette Yutan

AC
Company overview Puregold Price Club is one of the biggest grocery retailers in the Philippines with a portfolio of three different brands, operating four different formats. As of June 2013, the company has a total of 192 stores across the country, nearly half of which are located in Metro Manila. Puregold is the flagship brand with three different formats, and it caters to the C and D income class customers. Investment case We are bullish on PGOLD's medium-term growth outlook driven by rising modern retail penetration and the shift in the companys store geographic mix. Our 20% EPS CAGR in 2014E-2016E is driven by aggressive new store expansion (25 new stores organically + M&A), pick-up in SSSG beginning 2014 (impact of new provincial stores), and margin expansion (due to S&R stores + gradual shift of store geographic mix away from Metro Manila). Resilience of the growth outlook 2014E growth outlook hinges on the sustained new store openings of the company particularly in non-Metro Manila areas, and full year impact of two S&R stores opened in 2013. Our 2014E forecast is 8% higher than consensus. We think the market is not imputing the potential impact of a pick-up in SSSG and the S&R impact on margins. Risks to the earnings outlook in 2014 A continued decline or further weakness of SSSG is a key risk to our 2014 earnings outlook. Execution risk of new store expansion is another risk. Price target, and risks to our investment view Our Dec-2014 PT of Php51 is based on a forward 2014E PER of 26x, which implies a 1.3x PEG on the company's FY15E-FY17E EPS CAGR of 20% (we believe this methodology captures the quality and momentum of the company's growth trajectory). Downside risks to our price target: (1) execution risk of new store expansion, (2) logistics and distribution risk, (3) ability to replicate logistics and distribution capability in Visayas and Mindanao, (4) sharp drop of SSSG, (5) irrational pricing behavior of competitors.
Abs Rel
YTD 38.9% 27.5%
1m 1.4% 0.0%
3m 13.5% 12.6%
12m 53.1% 34.8%
1,600 73,360 1,698 45.85 06 Nov 13 3.33 140.51 3.3 6477.30 43.19 Dec
Puregold Price Club (Reuters: PGOLD.PS, Bloomberg: PGOLD PM) Php in mn, year-end Dec FY10A FY11A FY12A FY13E Revenue (Php mn) 29,108 38,988 57,467 76,930 Net Profit (Php mn) 510 1,545 2,717 4,014 EPS (Php) 0.40 0.97 1.11 1.45 DPS (Php) 0.20 0.29 Revenue growth (%) 20.7% 33.9% 47.4% 33.9% EPS growth (%) 261.4% 139.5% 15.0% 30.7% ROCE 11.8% 23.1% 14.4% 14.2% ROE 30.8% 27.2% 14.8% 13.8% P/E (x) 113.7 47.5 41.3 31.6 P/BV (x) 28.3 7.9 4.1 4.1 EV/EBITDA (x) 51.1 23.3 12.3 7.9 Dividend Yield 0.4% 0.6%
FY14E 96,491 5,353 1.94 0.39 25.4% 33.4% 16.5% 16.3% 23.7 3.6 5.9 0.8%
FY15E 115,786 6,329 2.29 0.46 20.0% 18.2% 17.0% 16.9% 20.0 3.2 4.8 1.0%
320
Puregold Price Club: Summary of Financials

Income Statement Php in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 38,988 33.9% 2,673 111.4% 2,216 124.9% 5.7% (65) 2,205 196.7% (660) 29.9% 1,545 202.7% 1,600 0.97 139.5% FY12 57,467 47.4% 4,521 69.1% 3,846 73.5% 6.7% (74) 3,871 75.6% (1,154) 29.8% 2,717 75.9% 2,447 1.11 15.0% FY13E 76,930 33.9% 7,012 55.1% 6,033 56.9% 7.8% (315) 5,719 47.7% (1,705) 29.8% 4,014 47.7% 2,766 1.45 30.7%
Balance sheet Php in millions, year end Dec FY11 FY12 Cash and cash equivalents 1,955 9,084 Accounts receivable 410 957 Inventories 4,523 6,612 Others 560 730 Current assets 7,449 17,383 . LT investments Net fixed assets 6,006 9,583 Total Assets 16,680 45,444 . Liabilities Short-term loans 0 552 Payables 6,235 9,287 Others 394 938 Total current liabilities 6,629 10,777 . Long-term debt 0 4,909 Other liabilities 739 2,254 Total Liabilities 7,368 17,940 Shareholder's equity 9,312 27,504 BVPS (Php) 5.82 11.24 Source: Company reports and J.P. Morgan estimates.
FY13E 9,805 936 7,259 730 18,731 12,877 50,086
Cash flow statement FY14E FY15E Php in millions, year end Dec 96,491 115,786 EBIT 25.4% 20.0% Depr. & amortization 9,211 10,881 Change in working capital 31.3% 18.1% Taxes 7,939 9,327 Cash flow from operations 31.6% 17.5% 8.2% 8.1% Capex (312) (309) Disposal/(purchase) 7,627 9,017 Net Interest 33.4% 18.2% Other (2,274) (2,688) Free cash flow 29.8% 29.8% 5,353 6,329 Equity raised/(repaid) 33.4% 18.2% Debt raised/(repaid) 2,766 2,766 Other 1.94 2.29 Dividends paid 33.4% 18.2% Beginning cash Ending cash DPS Ratio Analysis FY14E FY15E Php in millions, year end Dec 10,946 13,150 EBITDA margin 1,122 1,305 Operating margin 9,119 11,011 Net margin 730 730 21,917 26,196 Sales per share growth - Sales growth 15,577 17,996 Net profit growth 55,973 62,670 EPS growth Interest coverage (x) 952 13,615 Net debt to equity 938 Sales/assets 15,506 Assets/equity ROE 4,850 ROCE 2,254 22,610 40,061 14.48
FY11 2,216 457 (571) (631) 1,358 (2,325) 17 (65) (2,559) (905) 5,719 (2,092) 0 0 1,838 1,955 FY11 6.9% 5.7% 4.0% 6.0% 33.9% 202.7% 139.5% 41.1
FY12 3,846 675 200 (1,040) 4,133 (4,232) 0 (74) 1,951 (48) 0 5,461 217 (400) 1,955 9,084 0.20 FY12 7.9% 6.7% 4.7% (3.6%) 47.4% 75.9% 15.0% 61.1
FY13E 6,033 979 363 (1,705) 5,356 (3,973) 0 (315) (300) 1,604 0 441 0 (803) 9,084 9,805 0.29 FY13E 9.1% 7.8% 5.2% 18.4% 33.9% 47.7% 30.7% 22.3
FY14E 7,939 1,272 (390) (2,274) 6,235 (3,973) 0 (312) 0 2,481 0 (50) 0 (1,071) 9,805 10,946 0.39 FY14E 9.5% 8.2% 5.5% 25.4% 25.4% 33.4% 33.4% 29.5
FY15E 9,327 1,554 (392) (2,688) 7,492 (3,973) 0 (309) 0 3,736 0 (50) 0 (1,266) 10,946 13,150 0.46 FY15E 9.4% 8.1% 5.5% 20.0% 20.0% 18.2% 18.2% 35.2
952 952 10,276 11,931 938 938 12,167 13,821 4,950 4,900 2,254 2,254 19,371 20,976 30,715 34,997 11.10 12.65
(21.0%) (31.0%) (28.8%) (28.6%) (30.4%) 2.9 1.9 1.6 1.8 2.0 236.0% 168.7% 164.1% 161.4% 158.1% 27.2% 14.8% 13.8% 16.3% 16.9% 23.1% 14.4% 14.2% 16.5% 17.0%
321
Qihoo 360 Technology Co. Ltd

Overweight
www.360.cn
QIHU,QIHU US Price: $89.38 Price Target: $94.00
China Internet Alex Yao

AC
Company overview Qihoo is a leading internet service company in China with a strong presence in the internet security realm. Qihoo is also involved in search, browser and webgame operations. Qihoo has many popular internet products among users, including 360 Safe Guard and 360 Safe Browser. It has built strong distribution ability on mobile through its 360 Mobile Assistant, one of the frequently used third-party app stores in China. Investment case Revenue comes primarily from online advertising and webgame operations. According to iResearch, Qihoo had 92% penetration rate among overall internet security users in China in 1H13. Qihoo represented an 11% market share in China's webgame publishing market in 2012. We expect Qihoos top line to grow by 70% to USD1,110m in 2014. Margin likely to see slight improvement on a non-GAAP basis, due to operating leverage. Resilience of the growth outlook Qihoo has achieved significant usage across PC and mobiles. Monetization in both still at an early stage. We expect Qihoo to grow revenue significantly from online ads, online search and game publishing in 2014. Monetization ramp-up across all these activities has little correlation to macro performance in the next 12 months, in our view. Risks to the earnings outlook in 2014 1) Search traffic monetization: Qihoo has a meaningful market share in China's PC search market. This traffic remains under-monetized. 2) Webgame market growth could slow due to cannibalization from mobile games, 3) lack of organic search traffic. Price target, and risks to our investment view We have an Overweight rating on Qihoo and a Jun-14 PT of US$94, based on 2014E non-GAAP FD EPADS of US$2.27, FY14-16E EPADS growth of 41% and a PEG of 1.0. We leverage PEG as our primary valuation methodology due to its ability to balance growth prospects against PE multiple. Our PT implies a 2014E/PE of 41x. Downside risks: lack of scalable revenue model on mobile, increasing competition in search market after Sogou and Soso integration.
(852) 2800 8535 alex.c.yao@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 200.0 % 172.6 %
1m 7.6% 3.7%
3m 26.9% 19.3%
12m 280.2 % 242.7 %
Bloomberg QIHU US, Reuters QIHU

(Year-end Dec, $ mn) Net Sales Operating Profit (EBIT) EBITDA Pre Tax Profit Reported Net profit Reported EPS (US$) P/E (x) Adj. EPS * Adj. P/E (X) EV/EBITDA (x) P/B (x) Y/E BPS (US$) FY12 329 46 113 63 47 0.38 234.0 0.80 112.3 75.6 47.6 1.88
FY13E FY14E FY15E 650 1,105 1,540 125 276 435 221 389 570 132 282 441 108 231 366 0.85 1.82 2.88 105.4 49.2 31.1 1.35 2.27 3.33 66.3 39.4 26.8 38.6 21.4 14.0 27.7 15.1 9.7 3.22 5.91 9.25
ROE(%) ROIC(%) Cash Equity Qtr GAAP EPS ($) EPS (12) EPS (13) E EPS (14) E Abs. Perf.(%) Rel. Perf.(%)
FY12 22.9% 382.6 478.3 1Q 0.12 0.04 0.23 1M 7.8% 3.2%
FY13E FY14E FY15E 30.3% 36.3% 36.8% 389.8 603.6 986.6 651.8 941.0 1,365.1 2Q 3Q 4Q 0.06 0.11 0.10 0.26 0.24 0.28 0.50 0.52 0.56 3M 12M 26.9% 280.2% 19.2% 242.7%
52-Week range Shares Outstg Market Cap(US) Free float Avg daily vol. Avg daily val ($) Dividend Yield Index (NASD) Price Target Price Date
96.74-22.41 122MN US$10,936MN 3.2MM shares 262.92MN 3965.58 94.00 13 Nov 13
Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense.
322
Qihoo 360 Technology Co. Ltd: Summary of Financials

Income Statement $ in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) Ratio Analysis FY11 FY12 FY13E FY14E FY15E $ in millions, year end Dec 168 329 650 1,105 1,540 Gross margin (19) (33) (79) (138) (181) EBITDA margin 149 296 571 967 1,360 Operating margin (22) (45) (89) (155) (216) Net margin (61) (153) (290) (478) (651) R&D/sales 18 46 125 276 435 SG&A/Sales 22 63 158 331 512 3 7 6 6 6 Sales growth (0) 0 0 0 0 Operating profit growth 3 7 6 6 6 Net profit growth 5 10 1 0 0 EPS (reported) growth 26 63 132 282 441 (11) (11) (25) (51) (75) Interest coverage (x) 16 47 108 231 366 64 97 171 289 424 Net debt to total capital Net debt to equity EPS (reported) 0.13 0.38 0.85 1.82 2.88 EPS (adjusted) 0.54 0.80 1.35 2.27 3.33 Asset turnover BVPS 0.77 1.88 3.22 5.91 9.25 Working capital turns (x) DPS - ROE Shares outstanding 116 118 119 119 119 ROIC Balance sheet Cash flow statement $ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E $ in millions, year end Dec Cash and cash equivalents 344 383 390 604 987 Net income Accounts receivable 17 24 40 68 94 Depr. & amortization Inventories 0 0 0 0 0 Change in working capital Others 14 29 50 85 111 Other Current assets 374 435 480 757 1,192 Cash flow from operations LT investments 16 28 28 28 28 Capex Net fixed assets 17 126 301 489 643 Disposal/(purchase) Others 5 10 10 10 10 Cash flow from investing Total Assets 424 690 909 1,374 1,964 Free cash flow Liabilities Equity raised/(repaid) ST Loans - Debt raised/(repaid) Payables 6 7 16 27 36 Other Others 41 197 234 398 555 Dividends paid Total current liabilities 47 204 250 426 591 Cash flow from financing Long-term debt 0 0 0 0 0 Net change in cash Other liabilities 6 8 8 8 8 Beginning cash Total Liabilities 52 211 257 433 599 Ending cash Shareholder's equity 371 478 652 941 1,365 Source: Company reports and J.P. Morgan estimates. FY11 88.7% 41.9% 39.4% 37.9% 13.2% 36.1% 191.1% 99.5% 83.4% 81.0% NM FY12 90.0% 34.4% 29.4% 29.6% 13.6% 46.6% 96.0% 156.4% 199.6% 191.0% NM FY13E 87.9% 34.1% 29.1% 26.4% 13.8% 44.7% 97.5% 171.8% 130.4% 122.0% NM FY14E 87.6% 35.3% 30.3% 26.2% 14.0% 43.3% 70.0% 120.3% 114.7% 114.1% NM FY15E 88.3% 37.0% 32.0% 27.5% 14.0% 42.3% 39.4% 57.4% 58.3% 58.3% NM
(1238.2%) (399.8%) (148.8%) (178.9%) (260.6%) (92.5%) (80.0%) (59.8%) (64.1%) (72.3%) 0.7 0.9 28.7% FY11 16 4 14 50 84 (18) (35) 64 0 2 233 284 61 345 0.6 1.2 22.9% FY12 47 17 4 49 117 (74) (84) 37 0 2 2 36 345 381 0.8 2.8 30.3% FY13E 108 32 9 66 215 (208) (208) 2 0 0 0 7 381 388 1.0 3.9 36.3% FY14E 231 55 112 58 457 (243) (243) 209 0 0 0 214 388 602 0.9 3.3 36.8% FY15E 366 77 113 58 614 (231) (231) 378 0 0 0 383 602 985
323
Reliance Industries Ltd

Overweight
www.ril.com
RELI.BO,RIL IN Price: Rs909.70 Price Target: Rs1,000.00
India Integrated Oils Samuel Lee, CFA

AC
Company overview RIL is a conglomerate with interests in refining, petrochemical, E&P, retail and telecoms. RIL is a significant player in the global refining and petrochemical market. It has refining capacity of 1.3mbpd. Over FY13-17E we estimate RIL's EPS will grow at an 18% CAGR. Investment case We are positive on RILs expansions in its petchem business, which will aid the 18% CAGR over FY13-17. RIL's integrated operations and value-added expansions in refining (coke gasification) will continue to cushion margins in a relatively moderate environment. We also believe resolution of the gas pricing issue will allow RIL to begin to ramp up D6 output, while growing shale revenues will help to offset the current fall in domestic E&P earnings. Resilience of the growth outlook RIL earns c.65% through exports (almost all revenues are $ linked). Margins across its downstream businesses are global in nature, allowing RIL to be leveraged to overall global economic growth, rather than particular geographies. Its high complexity refinery is able to earn margins at a premium to regional benchmarks. Domestic gas prices are likely to be higher starting April 2014, helping to boost revenues. RILs scale and integrated refining/petchem operations mean it is highly competitive compared with other non-gas based petchem producers in Asia. Risks to the earnings outlook in 2014 Risks to earnings in 2014 emanate from lower than expected margins in the cyclical downstream businesses - larger than expected capacity additions and potential global economic growth slowing down would be potential causes. Price target, and risks to our investment view Our SOTP-based Mar-15 PT of Rs1000 values the refining, petchem and shale/PMT businesses at 6.5x, 7x and 5x EV/EBITDA respectively (in line with peer group). We value D6 stake on an NPV basis, and we value investments at book value. Key downside risks would lower than expected gas price/output, project delays and weaker refining/PX margins. At our PT, the stock would trade at 12.5x FY15 EPS.
(852) 2800-8536 samuel.sw.lee@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 8.2% 1.1%
1m 7.8% 2.4%
3m 5.6% -3.7%
12m 12.8% 1.0%
3,235 2,942,880 47,673 909.70 05 Nov 13 3.73 3,204.01 51.9 2,1239.36 61.73 Mar
Reliance Industries Ltd (Reuters: RELI.BO, Bloomberg: RIL IN) Rs in mn, year-end Mar FY12A FY13A FY14E Revenue (Rs mn) 3,585,010 3,970,620 4,522,221 Net Profit (Rs mn) 197,170 208,860 235,218 EPS (Rs) 60.22 64.56 72.71 DPS (Rs) 10.00 10.00 10.00 Revenue growth (%) 34.9% 10.8% 13.9% EPS growth (%) (6.8%) 7.2% 12.6% ROCE 7.9% 7.2% 8.1% ROE 15.4% 14.7% 14.9% P/E (x) 15.1 14.1 12.5 P/BV (x) 2.2 2.0 1.7 EV/EBITDA (x) 8.6 9.0 7.7 Dividend Yield 1.1% 1.1% 1.1%
FY15E 4,788,559 259,539 80.23 11.00 5.9% 10.3% 8.4% 14.5% 11.3 1.5 6.7 1.2%
FY16E 4,735,408 305,381 94.40 12.00 (1.1%) 17.7% 9.3% 15.1% 9.6 1.4 5.5 1.3%
324
Reliance Industries Ltd: Summary of Financials
Income Statement Cash flow statement Rs in millions, year end Mar FY12 FY13 FY14E FY15E FY16E Rs in millions, year end Mar FY12 FY13 FY14E FY15E FY16E Revenues 3,585,010 3,970,620 4,522,221 4,788,559 4,735,408 EBIT 221,070 218,130 278,801 327,844 393,324 % change Y/Y 34.9% 10.8% 13.9% 5.9% (1.1%) Depr. & amortization 124,010 112,320 101,474 109,709 127,398 Gross Margin 16.8% 16.3% 11.7% 12.3% 14.3% Change in working capital (189,450) 78,590 (20,478) (666) 2,708 EBITDA 345,080 330,450 380,274 437,553 520,722 Taxes (52,260) (53,270) (62,281) (78,783) (99,212) % change Y/Y (9.3%) (4.2%) 15.1% 15.1% 19.0% Others 0 0 0 0 0 EBITDA Margin 9.6% 8.3% 8.4% 9.1% 11.0% Cash flow from operations 131,730 399,770 316,213 368,582 435,486 EBIT 221,070 218,130 278,801 327,844 393,324 a % change Y/Y (7.6%) (1.3%) 27.8% 17.6% 20.0% Capex (244,240) (302,190) (251,000) (311,500) (341,750) EBIT Margin 6.2% 5.5% 6.2% 6.8% 8.3% Disposal/(purchase) Net Interest 33,010 44,040 25,970 20,869 18,356 Free cash flow (138,127) 62,495 45,170 41,550 80,120 Earnings before tax 254,080 262,170 304,770 348,713 411,680 a % change Y/Y 5.6% 3.2% 16.2% 14.4% 18.1% Equity raised/(repaid) (28,260) (54,290) 0 0 0 Tax (56,910) (53,310) (69,553) (89,174) (106,300) Debt raised/(repaid) 11,609 88,719 41,215 41,404 (15,452) as % of EBT 22.4% 20.3% 22.8% 25.6% 25.8% Other Net income (reported) 197,170 208,860 235,218 259,539 305,381 Dividends paid (38,142) (37,688) (37,688) (41,457) (45,225) % change Y/Y 2.3% 5.9% 12.6% 10.3% 17.7% Beginning cash 301,390 407,310 504,335 430,249 424,213 Shares outstanding 3,274 3,235 3,235 3,235 3,235 Ending cash 407,310 504,335 430,249 424,213 389,913 EPS (reported) 60.22 64.56 72.71 80.23 94.40 DPS 10.00 10.00 10.00 11.00 12.00 % change Y/Y (6.8%) 7.2% 12.6% 10.3% 17.7% a Balance sheet Ratio Analysis Rs in millions, year end Mar FY12 FY13 FY14E FY15E FY16E Rs in millions, year end Mar Cash and cash equivalents 407,310 504,335 430,249 424,213 389,913 EBITDA margin Accounts receivable 169,390 97,500 125,678 132,695 129,798 Operating margin Inventories 466,920 546,010 615,284 642,813 626,824 Net margin Others 133,140 122,380 120,014 118,803 118,471 a Current assets 1,562,720 1,698,705 1,835,397 1,926,225 1,936,235 a a Sales per share growth LT investments - Sales growth Net fixed assets 1,305,794 1,495,664 1,645,191 1,846,982 2,061,333 Net profit growth Others 67,420 90,250 99,275 109,203 120,123 EPS growth Total Assets 2,935,934 3,284,619 3,579,863 3,882,409 4,117,691 Interest coverage (x) Liabilities Net debt to total capital Short-term loans - Net debt to equity Payables - Sales/assets Others 525,120 600,150 674,758 707,427 690,916 Assets/equity Total current liabilities 525,120 600,150 674,758 707,427 690,916 ROE Long-term debt 924,470 1,072,190 1,088,024 1,129,428 1,113,977 ROCE Other liabilities 119,880 121,190 128,462 138,853 145,941 a Total Liabilities 1,569,470 1,793,530 1,891,244 1,975,708 1,950,834 a Shareholder's equity 1,358,474 1,481,574 1,679,104 1,897,186 2,157,342 a BVPS 417.37 460.92 521.98 589.40 669.82 a Source: Company reports and J.P. Morgan estimates.
FY12 9.6% 6.2% 5.5% 22.8% 34.9% 2.3% (6.8%) NM 8.8% 9.6% 1.3 2.2 15.4% 7.9%
FY13 8.3% 5.5% 5.3% 12.1% 10.8% 5.9% 7.2% NM 8.5% 9.3% 1.3 2.2 14.7% 7.2%
FY14E 8.4% 6.2% 5.2% 13.9% 13.9% 12.6% 12.6% NM 6.3% 6.7% 1.3 2.2 14.9% 8.1%
FY15E 9.1% 6.8% 5.4% 5.9% 5.9% 10.3% 10.3% NM 4.9% 5.1% 1.3 2.1 14.5% 8.4%
FY16E 11.0% 8.3% 6.4% (1.1%) (1.1%) 17.7% 17.7% NM 2.4% 2.4% 1.2 2.0 15.1% 9.3%
325
ResMed Inc
Overweight
www.resmed.com
RMD.AX,RMD AU Price: A$5.28 Price Target: A$5.94
Australia Medical Supplies & Devices Steven Wheen

AC
Company overview ResMed manufactures medical devices for the diagnosis, treatment and management of sleep-disordered breathing (SDB) and other respiratory disorders. Its key products are flow generators which deliver air to an SDB patient at positive pressure, keeping the patients airway unobstructed, along with nasal masks with associated headgear and tubing to connect the flow generator to the patient. In FY13, the company derived ~56% of its revenues from the Americas. Investment case ResMed has been able to achieve margin expansion and double digit volumes growth despite an environment of increasing pricing pressure with the implementation of Round 2 of Competitive Bidding providing a backdrop. We think that volume disruptions caused by the implementation of Competitive Bidding Round 2 are likely to reverse and with new mask releases in the coming months also providing a boost, we expect upside to volumes and, to a lesser extent, pricing. Resilience of the growth outlook ResMed benefits from the positive underlying thematics of increased recognition of SDB as a comorbidity in diseases effectively increasing the addressable patient population, the use of Home Sleep Testing in diagnosing SDB versus the use of sleep labs and the launch of online monitoring systems to drive compliance and reimbursement. Risks to the earnings outlook in 2014 ResMed stated at their 1Q14 result that disruptions to volumes were a temporary result of the implementation of Round 2 of Competitive Bidding with some distributors that had won contracts needing to engage subcontractors because they lacked the physical presence within their contracted regions. Management stated that this disruption should correct over a matter of months. We see the distributors ability to respond to this disruption via implementation of more sophisticated patient management systems as crucial 2014 earnings. Price target, and risks to our investment view Our Jun-14 TP is based on a DCF methodology (terminal growth assumption of 3.0%, WACC 10.0%), using a Jun-14 AUDUSD of 0.88). Downside risks: further declines in price in key markets, a slowdown in market growth, market share losses, slower-than-expected product launches, regulatory changes plus unfavourable exchange rate movements.
(61-2) 9003-8627 steven.d.wheen@jpmorgan.com J.P. Morgan Securities Australia Limited
Abs Rel
YTD 34.0% 15.9%
1m -6.5% -11.9%
3m -2.2% -8.7%
12m 34.4% 12.0%
Company Data Shares O/S (mn) Market Cap (A$ mn) Market Cap ($ mn) Price (A$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (A$ mn) 3M - Avg daily value ($ mn) ASX100 Fiscal Year End
142 750.05 713.11 5.28 06 Nov 13 5.35 29.45 28.0 4511.50 Jun
ResMed Inc (Reuters: RMD.AX, Bloomberg: RMD AU) Year-end Jun ($) FY11A FY12A Revenue ($ mn) 1,243 1,369 EBITDA ($ mn) 337 380 Net Profit ($ mn) 227 255 EPS ($) 0.15 0.17 EV/EBITDA (x) 18.2 16.4 DPS ($) 0.00 0.17 Normalised EPS Growth 18.1% 19.4% Normalised PE 33.3 27.9
FY13A 1,514 433 307 0.21 14.3 0.76 29.8% 21.5
FY14E 1,599 511 370 0.26 12.1 1.00 12.1% 19.2
FY15E 1,749 548 397 0.29 10.8 1.00 9.2% 17.5
326
ResMed Inc: Financial Summary

$ in millions, year end Jun Profit And Loss Revenue Revenue growth COGS Operating Expenses EBITDA EBITDA growth EBITDA margin Amortisation Depreciation EBIT Other Income Other Expenses Net Interest Pre-Tax Profit Tax Tax Rate Minorities Abnormals (post tax) Reported NPAT Normalised NPAT Growth End of Period Shares EFPOWA Reported EPS ($) Normalised EPS ($) Growth DPS ($) Growth DPS/EPS payout Cash Flow Statement Net Profit for Cashflow Depreciation & Amortisation Non Cash Items Working Capital Changes Other Operating Cashflows Cashflow from Operating Activities Net Capex Net Acquisitions Other Investing cashflows Investing Cash Flow Inc/(Dec) in Borrowings Equity Issued Dividends Paid Other Financing Cashflows Financing Cash Flow Net Cash Flow FY12 1,369 10.1% (548) (402) 380 12.6% 27.8% (14) (72) 294 38 332 (77) 23.2% 0 255 FY13 1,514 10.7% (574) (431) 433 14.0% 28.6% (10) (68) 355 30 385 (78) 20.3% 0 307
Overweight
$m 750.05 $ps 5.28 5.94 12.5%
269 342 13.4% 27.3% 1,459 1,492 1,430 1,464
0.17 0.21 1.80 2.34 19.4% 29.8% 0.17 0.76 - 347.1% 99.5% 362.2% FY12 255 86 0 0 43 383 (47) (41) (14) (102) 62 0 (240) (177) 104 FY13 307 78 0 0 17 403 (64) (6) (8) (78) 69 (97) (126) (154) 171
FY14E FY15E FY16E Valuation Summary 1,599 1,749 1,922 Current mkt capitalisation 5.6% 9.3% 9.9% (614) (682) (750) Price Target (453) (489) (526) Capital growth to price target 511 548 606 18.0% 7.2% 10.5% Trading Multiples 32.0% 31.3% 31.5% PE Pre-abnormals (10) (10) (10) PE Reported (62) (64) (67) EV/EBITDA 439 474 529 EV/EBIT - Key Ratios 25 31 42 Dividend Yield 464 505 571 Franking (94) (109) (123) Return on Assets (%) 20.3% 21.5% 21.5% Return on Equity (%) - ROIC (%) 0 0 0 370 397 448 Leverage Gearing (Net Debt / Equity) 379 406 458 Gearing (ND / (ND + E)) 10.8% 7.1% 12.7% Net Debt / EBITDA EBIT Interest Cover (x) 1,413 1,385 1,392 1,447 1,419 1,426 Balance Sheet Cash 0.26 0.29 0.32 Receivables 2.62 2.86 3.21 Investments 12.1% 9.2% 12.1% Inventories Other Current Assets 1.00 1.00 1.00 Total Current Assets 31.6% 0.0% 0.0% Net PPE Total Intangibles 391.5% 357.9% 318.3% Other Non Current Assets Total Non Current Assets FY14E FY15E FY16E Total Assets 370 397 448 Creditors 72 74 77 Current Borrowings 0 0 0 Current Tax Provisions 0 0 0 Other Current Provisions (110) (45) (55) Other Current Liabilities 331 426 470 Total Current Liabilities Non Current Creditors (75) (82) (90) Non Current Borrowings 0 0 0 Deferred Tax Liabilities 77 0 0 Other Non Current Provisions 1 (82) (90) Other Non Current Liabilities Total Non Current Liabilities - Total Liabilities 49 53 59 Equity (142) (139) (139) Other Equity (155) 0 0 Reserves (247) (86) (80) Retained Profits Outside Equity Interests 85 258 300 Total Shareholders Equity Net Debt
FY12 29.4 29.4 16.4 21.2 FY12 3.4% 0.0% 12.1% 15.3% 12.3%
FY13 23.9 23.9 14.3 17.5 FY13 15.1% 0.0% 14.1% 19.1% 15.0%
FY14E 19.7 19.7 12.1 14.1 FY14E 19.9% 0.0% 15.9% 21.8% 17.3%
FY15E 18.0 18.0 10.8 12.5 FY15E 19.9% 0.0% 15.3% 20.5% 16.2%
FY16E 16.0 16.0 9.3 10.6 FY16E 19.9% 0.0% 15.2% 19.7% 15.8%
FY12 FY13 FY14E FY15E FY16E (34.8%) (35.7%) (33.7%) (41.1%) (47.1%) (53.3%) (55.6%) (50.9%) (69.7%) (89.1%) (147.0%) (132.8%) (117.5%) (156.6%) (191.2%) (7.8) (11.7) (17.7) (15.3) (12.6) FY12 810 283 0 174 94 1,361 434 311 31 777 2,138 55 0 0 198 253 0 251 9 0 18 277 530 900 (659) 1,367 0 1,608 (559) FY13 876 318 0 146 109 1,449 411 324 26 762 2,211 61 300 0 213 574 0 1 10 0 15 26 600 1,026 (992) 1,577 0 1,611 (575) FY14E 961 372 0 201 124 1,657 428 325 28 781 2,438 74 360 0 194 628 0 1 15 0 16 31 659 1,083 (1,108) 1,805 0 1,780 (601) FY15E 1,219 404 0 220 124 1,967 446 315 28 789 2,756 81 360 0 194 634 0 1 15 0 16 31 665 1,136 (1,108) 2,062 0 2,090 (859) FY16E 1,519 446 0 241 124 2,330 469 306 28 802 3,132 89 360 0 194 643 0 1 15 0 16 31 674 1,196 (1,108) 2,371 0 2,459 (1,158)
327
Rio Tinto Limited

Overweight
www.riotinto.com
RIO.AX,RIO AU Price: A$65.60 Price Target: A$78.00
Company overview Rio Tinto is a diversified mining company with leading businesses in iron ore, base metals, coal, mineral sands and uranium. Investment case While an expected decline in iron ore prices medium term could act as a headwind, we continue to believe the stock will re-rate as projects are delivered, and free cash flow improves, providing greater options for capital. RIO remains our preferred diversified miner based on attractive valuation metrics. Resilience of the growth outlook Compelling valuation support there is more than 20% upside potential from the current share price to our DCF based price target, with the stock on a 10x PE multiple for 2014. Strong production growth driven by iron ore RIO has begun ramping up Pilbara iron ore production to 290Mtpa (from 237Mtpa) which will likely support significant eps growth in 2014 even with lower iron ore prices. The company is also on the cusp of approving further iron ore expansions, likely to 360Mtpa. Risks to the earnings outlook in 2014 Earnings are leveraged to the iron ore division, where we forecast ~80% of earnings being generated in CY14. On this basis the key eps driver is the iron ore price, which has continued to surprise on the upside. In our view if the current iron ore price of US$135/t can be sustained heading into 2014, consensus earnings for RIO will likely need to move higher. Price target, and risks to our investment view We have an Overweight recommendation and a Jun-14 price target of A$78ps. Our price target is equal to our DCF valuation (10% WACC) rounded to the nearest dollar. The key risks to our investment view include 1) disproportionate exposure to cost inflation in Western Australia, 2) adverse outcomes in commodities, currencies, production and capex relative to our forecasts, or 3) potential changes to taxation, legislation, regimes or other operating conditions in key jurisdictions
Australia Metals Lyndon Fagan

AC
(61-2) 9003-8648 Lyndon.fagan@jpmorgan.com J.P. Morgan Securities Australia Limited
Abs Rel
YTD -0.6% -18.7%
1m 9.3% 3.9%
3m 9.6% 3.1%
12m 10.3% -12.1%
Company Data Shares O/S (mn) Market Cap ($ mn) Market Cap ($ mn) Price (A$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (A$ mn) 3M - Avg daily value ($ mn) ASX100 Exchange Rate Fiscal Year End
1,847 115,214.80 115,214.80 65.60 06 Nov 13 2.31 141.34 134.4 4511.50 1.05 Dec
Rio Tinto Limited (Reuters: RIO.AX, Bloomberg: RIO AU) Year-end Dec ($) FY11A FY12A Revenue ($ mn) 60,537 50,942 EBITDA ($ mn) 26,206 16,298 Net Profit ($ mn) 5,826 (3,028) EPS ($) 3.02 (1.64) P/E (x) 20.0 NM EV/EBITDA (x) 4.5 7.9 DPS ($) 1.45 1.67 Dividend Yield 2.3% 2.7% Normalised EPS ($) 8.31 5.01 Normalised EPS Growth 16.7% (39.7%) Normalised PE 7.5 12.4
FY13E 47,961 18,539 7,588 4.11 15.2 7.1 1.76 2.8% 5.03 0.4% 12.4
FY14E 52,956 21,845 10,933 5.92 10.5 6.0 1.81 2.9% 5.92 17.6% 10.5
FY15E 54,545 21,282 10,776 5.83 10.7 6.0 1.83 2.9% 5.83 (1.4%) 10.7
328
Rio Tinto (RIO) Financial Summary

Profit & Loss (US$m)
Revenue Operating expenses EBITDA Depreciation and amortisation EBIT Net interest Other NPBT Tax expense Minorities Normalised NPAT Extraordinary items Reported NPAT Shares outstanding (m) Reported EPS (cents) Normalised EPS (cents) Normalised EPS grow th DPS (cents) DPS grow th DPS/EPS payout
Relative recommendation: Overweight

2014F
52,956 (31,110) 21,845 (4,818) 17,027 (901) 368 16,495 (4,624) (938) 10,933 10,933 1,847 592 592 18% 181 3.0% 31%
2012A
50,942 (34,644) 16,298 (3,880) 12,418 (177) 640 12,881 (3,528) (84) 9,269 (12,297) (3,028) 1,849 (164) 501 (40%) 167 15.2% (102%)
2013F
47,961 (29,422) 18,539 (3,995) 14,544 (606) 204 14,142 (4,572) (273) 9,297 (1,709) 7,588 1,847 411 503 0% 176 5.1% 43%
2015F
54,545 (33,263) 21,282 (5,305) 15,978 (822) 685 15,841 (4,409) (656) 10,776 10,776 1,847 583 583 (1%) 183 1.5% 31%
2016F
54,470 (34,373) 20,097 (5,530) 14,567 (692) 574 14,449 (4,043) (638) 9,768 9,768 1,847 529 529 (9%) 186 1.3% 35%
Valuation Summary
Current mkt capitalisation EV 12 m th price target Capital grow th to price target 12 mth forecast DYld 12 m th forecast total return WACC
US$m
97,724 109,858
A$m
103,467 116,314 A$78.00 23% 3% 26% 10%
m
61,365 68,985 42.82 34% 3% 38% 10%
Current DCF
Iron Ore Aluminium Copper Energy Other operations Total operations Net debt Corporate costs Franking credits Exploration Total valuation P/NPV
US$m
85,727 14,503 21,924 4,853 10,792 137,799 (22,998) (2,829) 2,108 114,080
A$m
104,825 17,734 26,808 5,934 13,196 168,498 (22,998) (3,460) 2,577 144,618
A$ps
56.75 9.60 14.51 3.21 7.14 91.21 (12.45) (1.87) 1.40 78.29 0.81 x
m
58,987 9,979 15,085 3,339 7,426 94,817 (15,210) (1,947) 1,450 79,110
ps
31.93 5.40 8.17 1.81 4.02 51.33 (8.23) (1.05) 0.79 42.82 0.74 x
Cashflow (US$m)
Cashflow from operations Capex Exploration Free cashflow Investing cashflow s Dividends Financing cashflow Change in cash
2012A
9,430 (17,615) (1,971) (8,185) (18,243) (3,038) 6,324 (2,473)
2013F
12,942 (14,004) (777) (1,062) (12,601) (3,259) 4,253 4,570
2014F
16,228 (12,271) (500) 3,958 (12,271) (3,321) (1,321) 2,637
2015F
16,122 (9,749) (500) 6,374 (9,749) (3,387) (3,387) 2,986
2016F
15,286 (8,134) (500) 7,152 (8,134) (3,412) (3,412) 3,741
Key Ratios
PE (Ltd) PE (Plc) EV/EBITDA (x) Dividend yield (Ltd) Dividend yield (Plc) ROE (Norm NPAT/Avg. Equity) ROA - EBIT / (assets - cash) ROIC (EBIT/Assets) EBIT / net interest
2012A
12.0 10.1 7.9 2.8% 3.3% 16% 11% 10% 70.2 92.1 1.2 34% 26% 32.0% 27%
2013F
11.9 10.1 7.1 2.9% 3.5% 16% 13% 12% 24.0 30.6 1.2 37% 27% 38.7% 32%
2014F
10.1 8.6 6.0 3.0% 3.6% 17% 14% 12% 18.9 24.2 1.0 31% 24% 41.3% 28%
2015F
10.3 8.7 6.0 3.1% 3.6% 15% 13% 11% 19.4 25.9 0.9 24% 19% 39.0% 28%
2016F
11.3 9.6 6.1 3.1% 3.7% 12% 11% 10% 21.1 29.1 0.7 18% 15% 36.9% 28%
Balance Sheet (US$m)

2012A
7,135 76,985 118,437 26,904 60,697 57,740 19,769
2013F
11,552 79,360 123,830 33,924 62,538 61,292 22,372
2014F
14,190 86,812 136,393 35,924 66,098 70,295 21,734
2015F
17,176 91,256 144,527 35,924 66,729 77,799 18,748
2016F
20,916 93,861 151,083 35,924 67,028 84,055 15,008
EBITDA / net interest Net Debt / EBITDA Gearing - net debt/equity Gearing - net debt/ (net debt + equity) EBITDA margin Effective tax rate
Attributable production
Iron ore (Mt) Alumina (Mt) Aluminium (Mt) Copper mined (kt) Copper refined (kt) Gold mined (koz) Coal - hard coking (Mt) Coal - semi-soft coking (Mt) Coal - Australian thermal (Mt) Uranium (Mlb) Diamonds (Mcts) TiO2 feedstock (Mt)
2012A
199 10.0 3.5 549 279 290 8 3 20 9.8 13 1.6
2013F
209 9.4 3.5 602 272 296 8 4 22 8.9 16 1.7
2014F
241 11.2 3.6 648 313 576 11 4 22 9.8 25 2.1
2015F
261 11.4 4.1 741 333 597 11 4 22 9.0 25 2.3
2016F
285 11.4 4.1 703 330 676 11 4 22 8.3 25 2.3
Half Yearly P&L (US$m)

Revenue Operating expenses EBITDA Depreciation and amortisation EBIT Net interest Other NPBT Tax expense Minorities Normalised NPAT Extraordinary items Reported NPAT Normalised EPS (cents)
1H12A
25,324 (16,711) 8,613 (1,805) 6,808 (88) 359 7,079 (1,787) (140) 5,152 729 5,881 278
2H12A
25,618 (17,933) 7,685 (2,075) 5,610 (89) 281 5,802 (1,741) 56 4,117 (13,026) (8,909) 223
1H13E
24,511 (15,937) 8,574 (1,994) 6,580 (156) 142 6,566 (2,356) 19 4,229 (2,509) 1,720 229
2H13E
23,450 (13,485) 9,965 (2,001) 7,964 (450) 62 7,576 (2,216) (292) 5,068 800 5,868 274
1H14E
25,420 (15,116) 10,304 (2,320) 7,984 (454) 136 7,666 (2,177) (436) 5,053 5,053 274
Price assumptions
AUD/USD CAD/USD Iron ore (US$/t CFR China) Copper (US$/lb) Aluminium (US$/lb) Gold (US$/oz) Thermal coal (US$/t) Hard coking coal (US$/t) Rutile (US$/t)
2012A
1.04 1.00 129 3.61 0.92 1669 95 209 2339
2013F
0.96 0.98 132 3.34 0.85 1426 84 159 1239
2014F
0.88 1.02 115 3.30 0.89 1401 84 161 1328
2015F
0.89 1.01 105 3.40 0.93 1450 87 175 1257
2016F
0.90 1.00 100 3.51 0.98 1451 92 176 1181
Divisional NPAT (US$m)

Iron Ore Aluminium Copper Energy Diamond and minerals Other operations Corporate items (including interest) Normalised NPAT
2012A
9,242 3 1,092 283 (114) (528) (709) 9,269
2013F
9,603 82 642 (73) 615 (229) (1,343) 9,297
2014F
10,121 (47) 1,295 186 1,131 (237) (1,516) 10,933
2015F
9,015 (15) 1,796 264 1,423 (233) (1,474) 10,776
2016F
8,227 77 1,749 226 1,121 (235) (1,397) 9,768
NPAT sensitivity (US$m)

Copper +US$0.10/lb Aluminium +US$0.10/lb Gold +US$10/oz Molybdenum +US$1/lb Iron ore fines +US$0.10/dmtu Hard coking coal +US$10/t Thermal coal +US$10/t Semi soft +US$10/t AUD/USD +1
NPV A$ps
0.79 6.65 0.04 0.12 5.40 0.59 1.14 0.20 (2.02)
2013F
48 404 1 5 260 34 88 13 (50)
2014F
101 874 4 18 643 83 200 36 (122)
2015F
116 952 4 20 566 83 175 31 (131)
2016F
112 966 5 23 592 81 175 30 (142)
Divisional NPAT split

Iron Ore Aluminium Copper Energy Diamond and minerals Other operations Source: Company data, J.P. Morgan estimates.
2012A
93% 0% 11% 3% (1%) (5%)
2013F
90% 1% 6% (1%) 6% (2%)
2014F
81% (0%) 10% 1% 9% (2%)
2015F
74% (0%) 15% 2% 12% (2%)
2016F
74% 1% 16% 2% 10% (2%)
329
Sa Sa International Holdings Limited

Overweight
corp.sasa.com/en/home
Hong Kong Specialty Retailing Ebru Sener Kurumlu

AC
Abs Rel
YTD 34.0% 32.3%
1m -8.1% -7.7%
3m 3.9% -1.2%
12m 53.2% 48.2%
Company overview Sa Sa International is primarily engaged in the retailing and wholesaling of cosmetic products in Hong Kong, Macau, China, Taiwan, Singapore and Malaysia, with a total store network of 260 stores as of Mar-13. The companys core business is in HK/Macau which accounts for ~80% of sales for year ending Mar-13 (close to 100 stores). Within HK/Macau, Mainland Chinese tourists account for ~68% of sales. Investment case In the short term, we believe there is some risk of weak sales for Sa Sa. Given rental cost pressure, this places risks on margins. However, over the medium to longer term, we believe Sa Sa is attractive given its exposure to the travelling Chinese consumer. We believe Sa Sa will benefit from inbound Mainland Chinese tourism into HK. Resilience of the growth outlook Visitor arrivals from Mainland China continued to record strong growth numbers in 2013YTD, trending at ~20% levels. Sa Sa has been consistently reporting double digit SSSG over recent quarters. Most recently, Golden Week sales were lower than expected (~6%). The company attributed this to the evening out of tourist arrivals in HK between peak periods and normal periods as well as the upgrade of tourism facilities by other countries. We believe Sa Sa will continue to be a beneficiary of the travelling Chinese consumer seeking to capitalise on the pricing differences between China and Hong Kong. Risks to the earnings outlook in 2014 In the short term, we believe there is some risk of weak sales for Sa Sa. Given rental cost pressure, this places risks on margins for FY14 (year ending Mar-14). However, we believe there is risk of lower rental cost growth for FY15, which would be beneficial for margins. Expansion in Mainland China may continue to be an earnings drag on Sa Sa. Price target, and risks to our investment view Our Mar-15 PT of HK$9.40 is based on a PEG of 1.0x (in line with our big cap discretionary target PEG), and two-year earnings CAGR of 24% post 2015. Key downside risks include: (1) Weakness in sales in the companys core HK business; (2) Higher-than-expected cost inflation; (3) Any external factors that may negatively impact Mainland Chinese tourism into HK.
Sa Sa International Holdings Limited (Reuters: 0178.HK, Bloomberg: 178 HK) HK$ in mn, year-end Mar FY12A FY13A FY14E FY15E Revenue (HK$ mn) 6,405 7,670 9,245 11,255 Net Profit (HK$ mn) 690 826 976 1,176 EPS (HK$) 0.25 0.29 0.35 0.42 Recurring EPS (HK$) 0.25 0.29 0.35 0.42 DPS (HK$) 0.18 0.21 0.25 0.30 Revenue growth (%) 30.7% 19.7% 20.5% 21.7% Net Profit growth (%) 35.4% 19.7% 18.2% 20.5% Recurring profit growth 38.4% 19.3% 18.7% 20.5% EPS growth (%) 34.6% 19.2% 18.2% 20.5% ROE 46.2% 45.6% 46.2% 48.8% ROA 31.8% 31.2% 32.7% 34.8% P/E (x) 34.7 29.2 24.7 20.5 P/BV (x) 14.7 12.2 10.7 9.3 EV/EBITDA (x) 22.3 18.1 14.9 12.3 Dividend Yield 2.1% 2.5% 2.9% 3.5%
2,809 23,930 3,087 8.52 06 Nov 13 34.8% 4.27 36.20 4.7 2,3038.95 7.75 Mar
FY16E 13,687 1,484 0.53 0.53 0.38 21.6% 26.2% 26.2% 26.2% 53.4% 38.5% 16.3 8.1 9.7 4.5%
330
Sa Sa International Holdings Limited: Summary of Financials

Income Statement HK$ in millions, year end Mar Revenues % change Y/Y Gross Profit % change Y/Y Gross margin Other operating income EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Share of JVs Other non operating income Earnings before tax % change Y/Y Tax as % of EBT Minorities Net income (reported) % change Y/Y Recurring Net Income % change Y/Y EPS (reported) % change Y/Y Recurring EPS % change Y/Y Balance sheet HK$ in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets Goodwill Intangible assets Long term investments Net fixed assets Other assets Total Assets FY12 6,405 30.7% 2,897 31.0% 45.2% 40 945 39.8% 14.8% 828 38.7% 12.9% 6 0 835 36.1% (145) 17.4% 0 690 35.4% 690 38.4% 0.25 34.6% 0.25 37.6% FY12 599 70 1,191 136 1,996 0 0 333 138 2,466 FY13 7,670 19.7% 3,558 22.8% 46.4% 58 1,156 22.3% 15.1% 984 18.8% 12.8% 8 3 995 19.2% (169) 17.0% 0 826 19.7% 822 19.3% 0.29 19.2% 0.29 18.7% FY14E 9,245 20.5% 4,392 23.4% 47.5% 61 1,402 21.2% 15.2% 1,186 20.5% 12.8% 11 0 1,197 20.4% (221) 18.5% 0 976 18.2% 976 18.7% 0.35 18.2% 0.35 18.7% FY15E 11,255 21.7% 5,435 23.7% 48.3% 64 1,693 20.8% 15.0% 1,431 20.6% 12.7% 13 0 1,443 20.5% (267) 18.5% 0 1,176 20.5% 1,176 20.5% 0.42 20.5% 0.42 20.5% FY16E 13,687 21.6% 6,718 23.6% 49.1% 67 2,122 25.4% 15.5% 1,808 26.4% 13.2% 12 0 1,821 26.2% (337) 18.5% 0 1,484 26.2% 1,484 26.2% 0.53 26.2% 0.53 26.2% Cash flow statement HK$ in millions, year end Mar PBT Depr. & amortization Change in working capital Tax & Other Cash flow from operations FY12 835 117 (190) 21 639 (247) 2 63 (182) 14 0 (436) 0 (422) 3 39 599 0.18 FY13 995 173 (101) 0 890 (300) 0 5 (295) 1 0 (594) 0 (593) 0 2 601 0.21 FY14E 1,197 216 (47) 0 1,133 (340) 0 11 (329) 0 0 (705) 0 (705) 0 100 700 0.25 FY15E 1,443 262 (331) 0 1,095 (290) 0 13 (277) FY16E 1,821 314 (118) 0 1,667 (240) 0 12 (228)
0 0 0 0 (850) (1,072) 0 0 (850) (1,072) 0 (32) 668 0.30 0 367 1,036 0.38
Ratio Analysis FY13 FY14E FY15E FY16E HK$ in millions, year end Mar 752 852 820 1,187 Gross margin 93 59 126 99 EBITDA margin 1,235 1,424 1,765 2,053 Operating Margin 154 154 154 154 Net margin 2,234 2,489 2,865 3,494 Recurring net profit margin - Sales growth 0 0 0 0 Net profit growth 0 0 0 0 Recurring net profit growth 343 468 495 422 EPS growth 220 220 220 220 2,797 3,176 3,580 4,135 Interest coverage (x) Net debt to equity Liabilities Sales/assets Short-term loans 0 0 0 0 0 Assets/equity Trade & other payables 451 411 519 597 740 ROE Others 357 381 381 381 381 ROCE Total current liabilities 808 792 900 977 1,120 Long-term debt 0 0 0 0 0 Others 21 25 25 25 25 Total Liabilities 836 822 930 1,007 1,150 Minorities 0 0 0 0 0 Shareholders' equity 1,631 1,975 2,246 2,573 2,985 BVPS 0.58 0.70 0.80 0.91 1.06 Source: Company reports and J.P. Morgan estimates.
FY12 45.2% 14.8% 12.9% 10.8% 10.8% 30.7% 35.4% 38.4% 34.6%
FY13 46.4% 15.1% 12.8% 10.7% 10.7% 19.7% 19.7% 19.3% 19.2%
FY14E 47.5% 15.2% 12.8% 10.6% 10.6% 20.5% 18.2% 18.7% 18.2%
FY15E 48.3% 15.0% 12.7% 10.5% 10.5% 21.7% 20.5% 20.5% 20.5%
FY16E 49.1% 15.5% 13.2% 10.8% 10.8% 21.6% 26.2% 26.2% 26.2%
(36.7%) (38.1%) (37.9%) (31.9%) (39.8%) 2.9 2.9 3.1 3.3 3.5 145.6% 146.0% 141.5% 140.2% 138.8% 46.2% 45.6% 46.2% 48.8% 53.4% 45.9% 45.3% 45.8% 48.4% 53.0%
331
Samsung Card
Overweight
www.samsungcard.com
South Korea Specialty Finance Scott YH Seo

AC
Company overview Samsung Card (SSC) is a mono-line credit card issuer providing diversified credit card financial services, along with installment financing and leasing services. As a mono-line issuer, the company is primarily wholesale-funded, including card debentures and asset-backed securities. Investment case Our key investment thesis on SSC is that it is one of the largest beneficiaries in the Korea financial space of the improving macro view for Korea, given the 1) top-line benefit from a revival in domestic consumption, and 2) easing regulatory pressure on the card interchange fee scheme under benign inflation pressure. Help from Samsung group affiliates on new customer acquisitions as well as improved prospects of shareholder-friendly capital management should create additional upside. Resilience of the growth outlook We project SSCs earnings to grow by 11% Y/Y in FY14 on the back of stable net interest income growth and improvements in credit cost. While FY13E credit cost improvement has been slower than expected, we believe credit costs will start on a recovering trajectory in FY14 as moral hazard issues related to the government initiated bail-out funds fade away. A meaningful recovery in domestic consumption could also provide upside to our earnings estimates. Risks to the earnings outlook in 2014 Unforeseen asset quality problems from the retail segment and further tightening in the regulatory landscape may put our earnings estimates at risk. However, considering our top-down view of a modest economic recovery and benign inflationary environment for FY14E, we do not include this in our base-case scenario. Price target, and risks to our investment view Our SOTP valuation of W51,000 (Dec-14) is based on the 3Q13 NAV breakdown of the company, applying different valuation multiples for: 1) implied capital allocations for core card operations (9% premium applied), 2) distributable excess capital (treated as cash), and 3) non-distributable excess capital (35% discount applied). Key downside risks are regulatory changes and a deterioration of household asset quality.
(82-2) 758 5759 scott.seo@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Abs Rel
YTD 6.6% 5.8%
1m -4.5% -5.3%
3m 1.8% -3.8%
12m -8.6% -13.0%
Company Data 52-week Range (W) Market Cap (W bn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price 3M - Avg daily value (W bn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) KOSPI Exchange Rate (KRW/USD)
42,900-34,550 4,507 4,247 116 Dec 38,900 06 Nov 13 4.96 4.7 0.13 2013.67 1,061.15
Samsung Card (Reuters: 029780.KS, Bloomberg: 029780 KS) Year-end Dec FY11A FY12A FY13E Pre-provision OP (W bn) 625 1,345 662 Reported net profit (W bn) 375 750 294 *Attrib. net profit (W bn) 375 750 294 EPS (W) 3,051 6,125 2,536 Cash DPS (W) 700 700 700 EPS growth (67.9%) 100.8% (58.6%) ROE 5.8% 4.1% 5.5% P/E (x) 12.7 6.4 15.3 **Tangible NAV/share (W) 45,642 45,886 49,127 ***Adjusted BV/share (W) 45,642 45,886 49,127 P/Tangible NAV (x) 0.9 0.8 0.8 P/Adjusted BV (x) 0.9 0.8 0.8 Dividend Yield 1.8% 1.8% 1.8%
FY14E 648 325 325 2,806 700 10.7% 5.7% 13.9 52,952 52,952 0.7 0.7 1.8%
FY15E 686 353 353 3,045 700 8.5% 5.2% 12.8 55,184 55,184 0.7 0.7 1.8%
332
Samsung Card: Summary of Financials

Income Statement W in billions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Pre-tax Associate Tax Minorities Preferred dividend and hybrid capital interest expense Attributable Income Per Share Data W EPS DPS Payout Adjusted Book value Tangible NAV Fully Diluted Shares (mn) Key Balance sheet W in billions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Borrowings of which:sub-debt Avg. IBL Avg. Assets Common Equity RWA Avg. RWA Source: Company reports and J.P. Morgan estimates. FY12 16.0% 85.3% 13.6% 2,436 944 0 3,380 FY13E 14.6% 89.9% 13.2% 2,263 169 0 2,431 FY14E 14.9% 90.7% 13.5% 2,352 160 0 2,513
(2,035) (1,770) (1,865) 1,345 (356) (3) 986 (236) 0 750 FY12 6,125 700 11.4% 45,886 45,886 122 FY12 14,407 (335) 14,742 878 174 13,822 0 16,288 662 (274) (0) 387 (93) 0 294 FY13E 2,536 700 27.6% 49,127 49,127 116 FY13E 14,625 (360) 14,985 896 326 14,713 0 16,426 648 (223) 1 426 (101) 0 325 FY14E 2,806 700 24.9% 52,952 52,952 116 FY14E 15,001 (348) 15,349 1,014 339 15,161 0 17,017
8,327 7,878 8,014 7,389 7,992 7,993 16,212 16,357 16,721 5,931 6,283 6,684 -
Growth Rates FY15E 14.8% Loans 90.3% Deposits 13.4% Assets Equity 2,408 RWA 185 Net Interest Income - Non-Interest Income 0 of which Fee Grth Revenues 2,593 Costs Pre-Provision Profits (1,907) Loan Loss Provisions Pre-Tax 686 Attributable Income (225) EPS 1 DPS - Balance Sheet Gearing 462 Loan/deposit - Investment/assets (110) Loan/Assets 0 Customer deposits/liab. - LT debt/liabilities 353 Asset Quality/Capital FY15E Loan loss reserves/loans 3,045 NPLs/loans 700 Provisions/Avg loans 23.0% Growth in NPLs 55,184 Tier 1 Ratio 55,184 Total CAR 116 FY15E Du-Pont Analysis 15,427 NIM (as % of avg. assets) (353) Earning assets/assets 15,780 Margins (as % of Avg. Assets) - Non-Int. Rev./ Revenues 1,000 Non IR/Avg. Assets 353 Revenue/Assets 15,560 Cost/Income 0 Cost/Assets 17,437 Pre-Provision ROA LLP/Loans 8,112 Loan/Assets - Other Prov, Income/ Assets - Operating ROA 6,005 Pre-Tax ROA 17,227 Tax rate 6,943 Minorities & Outside Distbn. - ROA - RORWA Equity/Assets ROE
FY12 10.7% 4.2% 0.9% (3.3%) (0.9%) 157.5% 19.6% (7.6%) 115.3% 48.7% 156.0% 99.9% 100.8% 0.0%
FY13E FY14E FY15E 1.6% 2.4% 2.8% (5.4%) 1.7% 1.2% 0.8% 3.6% 2.5% 5.9% 6.4% 3.9% (7.1%) 4.0% 2.3% (82.1%) (4.8%) 15.6% (28.1%) 3.4% 3.2% (13.0%) 5.4% 2.3% (50.8%) (2.1%) 5.8% (23.0%) (18.8%) 0.7% (60.8%) 10.2% 8.5% (60.8%) 10.7% 8.5% (58.6%) 10.7% 8.5% 0.0% 0.0% 0.0%
FY12 FY13E FY14E FY15E 173.0% 185.6% 187.2% 190.2% 8.4% 5.4% 5.7% 5.8% 86.5% 90.9% 90.7% 90.3% 80.4% 77.7% 77.6% 77.3% FY12 FY13E FY14E FY15E (2.3%) (2.4%) (2.3%) (2.2%) (2.5%) (1.8%) (1.5%) (1.4%) FY12 FY13E FY14E FY15E 16.0% 14.6% 14.9% 14.8% 85.3% 89.9% 90.7% 90.3% 13.6% 13.2% 13.5% 13.4% 27.9% 6.9% 6.4% 7.2% 5.8% 1.0% 1.0% 1.1% 20.8% 14.9% 15.0% 15.1% 60.2% 72.8% 74.2% 73.6% 12.6% 10.8% 11.2% 11.1% 8.3% 4.0% 3.9% 4.0% (2.5%) (1.8%) (1.5%) (1.4%) 86.5% 90.9% 90.7% 90.3% (0.0%) (0.0%) 0.0% 0.0% 6.1% 2.4% 2.5% 2.7% 6.1% 2.4% 2.5% 2.7% 23.9% 24.0% 23.7% 23.7% 0.0% 0.0% 0.0% 0.0% 1.5% 2.0% 2.2% 2.0% 37.2% 37.3% 38.8% 39.6% 4.1% 5.5% 5.7% 5.2%
333
Samsung Fire & Marine Insurance

Overweight
ir.samsungfire.com/ir_index.jsp
South Korea Insurance - Non-life MW Kim

AC
Company overview SFM is the largest non-life insurer in Korea with a dominant market share of 25.9% in terms of direct premium written. Its business portfolio comprises LT insurance (69% of direct premium written in), auto insurance (22%), and general insurance policies (9%) as of FY12. Conservative underwriting and strong balance sheet (RBC >400%) are key differentiation factors. Investment case Higher capital deployment expectation in FY14 (+50% y/y net profit increase in FY14, active capital manage: 2/3 of net profit is scheduled to return shareholders as dividend & share buyback), restoring the channel bargaining power (market share gains), long-term growth potential from the long-term care insurance segment capturing the fast growing ageing population are key share price drivers for 2014, in our view. Resilience of the growth outlook The long-term line, which accounts for ~65% revenue/ ~70-80% of total profit, is moving into the matured stage. As the healthcare claim increase speed as well as minimum guarantee reserving growth (cash outflow) would exceed the premium growth rate (cash inflow), different from the industry trend, we expect the companys adequate pricing focus on HNWIs/ affluent mass will be rewarded proving solid cash-flow generation ability. Risks to the earnings outlook in 2014 Although the claim trend on health insurance looks solid and is expected to manage under ~25% of mortality profit, a larger-than-expected new business sales slowdown in private health insurance and/or sudden claim increase due to recent aggressive sales on the cancer insurer should remain a key risk for 2014 earnings outlook. Price target, and risks to our investment view Our Dec-14 PT of W330,000 is based on SOTP valuation target of 0.7x FY14E P/BV for the non-life business and 1.2x FY14E P/EV for life. Key risks: (1) a largerthan-expected new business sales slowdown in private health insurance; (2) another potential auto insurance premium cut; (3) further unfavourable regulatory changes in the long-term line.
Abs Rel
YTD 14.4% 13.6%
1m -4.4% -5.2%
3m 2.3% -3.3%
12m 10.9% 6.5%
Company Data 52-week Range (W) Market Cap (W bn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (W mn) 3M - Avg daily value ($ mn) KOSPI Exchange Rate
261,000-204,500 11,616 10,946 47 Mar 249,500 06 Nov 13 82.3% 0.09 22,139.35 20.9 2013.67 1,061.15
Samsung Fire & Marine Insurance (Reuters: 000810.KS, Bloomberg: 000810 KS) W in mn, year-end Mar FY12A FY13E FY14E Direct Premium Written (W bn) 16,563 13,328 19,968 DPW growth 13.6% (19.5%) 49.8% Net Profit (W bn) 760 539 953 EPS (W) 16,335 11,926 21,092 EPS growth (3.0%) (27.0%) 76.9% BVPS (W) 191,517 207,098 223,628 DPS (W) 3,750 3,940 6,960 P/E (x) 15.3 20.9 11.8 P/BV (x) 1.3 1.2 1.1 ROE 9.2% 5.9% 9.8% Dividend Yield 1.5% 1.6% 2.8%
FY15E 23,073 15.6% 1,087 24,066 14.1% 244,698 7,940 10.4 1.0 10.3% 3.2%
334
Samsung Fire & Marine Insurance: Summary of Financials

W in millions, year end Mar Income statement Net premium earned % change Y/Y Direct premium written % change Y/Y General % change Y/Y LT % change Y/Y Auto % change Y/Y Total incurred losses General LT Auto Underwriting expense Underwriting profit Investment profit Net profit before tax Income tax Net profit % change Y/Y Ratio analysis Claim Loss ratio General LT Auto Expense ratio Combined ratio Investment yield Per share data EPS (W) % change Y/Y BVPS (W) DPS (W) Payout ratio Source: Company reports and J.P. Morgan estimates. FY12 15,699 14.8% 16,563 13.6% 1,533 7.5% 11,483 19.9% 3,548 (0.9%) (13,370) (616) (10,008) (2,745) (2,684) (356) 1,445 986 (225) 760 (3.1%) FY12 18.0% 64.8% 88.0% 81.3% 17.1% 35.1% 4.7% FY12 16,335 (3.0%) 191,517 3,750 23.0% FY13E 12,311 (21.6%) 13,328 (19.5%) 1,329 (13.3%) 9,203 (19.9%) 2,797 (21.2%) (10,563) (460) (7,935) (2,169) (2,162) (415) 1,172 709 (171) 539 (29.1%) FY13E (3.1%) 58.4% 88.4% 85.1% 17.6% 14.5% 4.2% FY13E 11,926 (27.0%) 207,098 3,940 33.0% FY14E FY15E Balance sheet 18,265 21,001 Cash and cash equivalents 48.4% 15.0% Loan 19,968 23,073 Stock 49.8% 15.6% Bond 1,690 1,791 Overseas Securities 27.2% 6.0% Real Estate 14,350 17,113 Invested asset 55.9% 19.3% Total Assets 3,928 4,169 Policy reserve 40.5% 6.1% Unearned premium reserve (15,602) (17,938) Total Liabilities (521) (426) Paid In Capital (12,101) (14,376) Capital Surplus (2,980) (3,136) Retained Earnings (3,166) (3,580) Catastrophe reserve (503) (518) Capital Adjustments 1,760 1,952 Total shareholders' equity 1,257 1,435 (304) (347) ROE decomposition 953 1,087 ROA 76.9% 14.1% ROE FY14E FY15E Actuarials (29.1%) 76.9% Embedded value (EV) 62.0% 62.0% New business value (NBV) 87.3% 86.9% EV per share 83.8% 83.1% 17.3% 17.0% (11.8%) 93.9% 4.1% 4.1% FY14E FY15E 21,092 24,066 76.9% 14.1% 223,628 244,698 6,960 7,940 33.0% 33.0% FY12 496 9,993 4,662 18,214 1,580 38,238 45,649 29,578 2,700 36,733 736 26 5,172 1,386 2,982 8,916 FY13E 537 10,817 5,047 19,717 1,710 41,394 50,825 31,930 4,561 41,468 736 26 5,613 1,448 2,982 9,357 FY14E 563 11,351 5,296 20,691 1,794 43,437 53,659 33,537 4,791 43,555 736 26 6,359 1,533 2,982 10,104 FY15E 594 11,984 5,592 21,844 1,894 45,859 56,651 35,108 5,015 45,595 736 26 7,311 1,707 2,982 11,056
FY12 FY13E FY14E FY15E 1.8% 1.1% 1.8% 2.0% 9.2% 5.9% 9.8% 10.3% FY12 FY13E FY14E FY15E 12,884 13,702 14,549 15,439 935 694 722 775 300,528 323,315 343,301 364,297
335
Sands China Ltd

Overweight
www.sandschina.com/
Hong Kong Gaming Kenneth Fong, CFA

AC
Company overview Sands China is the leading developer, owner, and operator of integrated resorts and casinos in Macau. The groups strategy is to develop Cotai and to leverage its integrated resort business model to create Asias premier gaming, leisure, and convention destination. The group owns four casino properties including Sands Macao, the Venetian Macao, The Plaza and Sands Cotai Central (SCC). Investment case We expect the strongest earnings growth from Sands China in 2014, driven by: (1) robust industry mass market performance (we expect Macau mass market revenue to grow 28% in 2014); (2) yield improvement from existing capacity (particular its newly open SCC); (3) margin expansion from operating leverage; and (4) nonorganic growth from its new retail area opening in 2H14 in SCC. Going forward, we believe that the Streets earnings upgrades (our FY14E EBITDA is 10% above consensus) and multiple expansion (given its earnings quality and growth profile) will be the key drivers. Resilience of the growth outlook Sands China has the largest exposure to the fast-growing high-margin mass market and non-gaming business among its peers in Macau, contributing to more than 80% of their EBITDA based to our estimate. The resilience of internal consumptiondriven mass market and non-gaming revenue should give Sands higher earnings visibility, we think. Risks to the earnings outlook in 2014 Policy changes from Mainland China may post risks to the sector, such as visa restrictions. Newsflow related to anti-corruption flight in China may hurt sentiment and potentially VIP market demand. Macroeconomic slowdown in China may also impact gaming revenue, especially the credit- driven VIP segment. Price target, and risks to our investment view Our Dec-14 PT of HK$62.0 is based on our SOTP valuation, applying a 15-19x 2014E EBITDA multiple to its casinos. We assume Macau gaming revenue to grow 16% for FY13 and 16% for FY14. Downside risks: regulatory risks from China; execution risks from Sands Cotai Central; and potential credit risk around its direct VIP business.
Abs Rel
YTD 61.7% 60.0%
1m 9.1% 9.5%
3m 29.0% 23.9%
12m 76.0% 71.0%
Company Data 52-week Range (HK$) Market Cap ($ mn) Market Cap ($ mn) Shares O/S (mn) Price (HK$) Date Of Price 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) Exchange Rate HSI
60.50-29.35 56,997 56,997 8,048 54.90 06 Nov 13 12.56 628.64 7.75 2,3038.95
Sands China Ltd (Reuters: 1928.HK, Bloomberg: 1928 HK) $ in mn, year-end Dec FY11A FY12A FY13E Revenue ($ mn) 4,894 6,556 8,841 EBITDA ($ mn) 1,544 1,926 2,818 Net Profit ($ mn) 1,133 1,237 2,228 EPS ($) 0.14 0.15 0.28 DPS ($) 0.15 0.17 0.22 ROE 22.9% 22.3% 38.4% P/E (x) 50.3 46.1 25.6 Dividend Yield 2.1% 2.4% 3.1% EV/EBITDA 36.3 29.3 19.9 EBITDA Margin 31.5% 29.4% 31.9%
FY14E 10,543 3,544 2,963 0.37 0.26 45.8% 19.3 3.6% 15.7 33.6%
FY15E 12,256 4,319 3,755 0.47 0.33 50.2% 15.2 4.6% 12.7 35.2%
336
Sands China Ltd: Summary of Financials

Profit and Loss Statement $ in millions, year end Dec Revenue Casino Less: Promotional allowances Net gaming revenue Rooms Food & beverage Retail, Mall and Other Less: Promotional allowances Ferry & Other operations Net non-gaming revenue Total Revenues % Change Y/Y FY12 7,221 (443) 2,109 152 75 132 (97) 35 297 6,556 34.0% FY13E 7,221 (1,686) 7,859 521 263 428 (359) 130 983 8,841 34.9% FY14E 2,239 (1,929) 9,495 591 290 466 (429) 130 1,048 10,543 19.2% Balance Sheet FY15E $ in millions, year end Dec Cash and cash equivalent 2,263 Accounts Receivables (2,087) Inventories 11,118 Others 652 Current assets 317 520 Net fixed assets (481) Intangibles and goodwill 130 Other non-current assets 1,138 Total assets 12,256 a. 16.3% Liabilities Short-term loans Payables 4,319 Others 21.8% Total current liabilities (484) 3,835 25.1% (32) 3,757 26.7% (2) 0.0% 3,755 26.7% 8,055 0.47 26.7% 0.33 FY15E 3,757 484 162 30 4,434 (1,053) 47 (1,006) 0 (1,003) (79) (2,629) (3,711) (283) 2,994 a. Long term debt Other liabilities Total liabilities a. Minority interests Shareholders' equity Total Shareholders Equity Net Debt BVPS FY12 1,953 785 15 2,753 6,657 16 962 10,387 FY13E 3,040 824 15 3,879 6,953 16 962 11,811 FY14E 3,277 865 15 4,158 7,391 16 963 12,527 FY15E 2,994 909 16 3,918 7,950 16 963 12,847
a.
EBITDA Total EBITDA % Change Y/Y
a.
1,926 24.7% (354) 1,572 23.2% (41) 1,239 9.1% (2) 0.1% 1,237 9.2% 8,048 0.15 9.2% 0.17 FY12 1,239 354 98 210 1,901 (989) 3 (986) 0 (140) (125) (1,201) (1,467)
2,818 46.3% (477) 2,341 48.9% (78) 2,230 80.0% (2) 0.1% 2,228 80.1% 8,055 0.28 80.0% 0.22 FY13E 2,230 477 334 191 3,231 (783) 13 (770) 0 500 (91) (1,782) (1,373) 1,088 3,040
3,544 25.8% (480) 3,064 30.9% (64) 2,965 33.0% (2) 0.1% 2,963 33.0% 8,055 0.37 33.0% 0.26 FY14E 2,965 480 146 63 3,653 (1,078) 30 (1,048) 0 (200) (94) (2,074) (2,369) 237 3,277
49 1,503 2 1,554 3,212 36 4,801 5,586 5,586 1,320 0.69
200 1,876 2 2,078 3,674 37 5,789 6,032 6,032 846 0.75
1,003 2,062 2 3,068 2,671 38 5,776 6,921 6,921 410 0.86
835 2,267 2 3,105 1,835 39 4,979 8,047 8,047 (310) 1.00
Depreciation & Amortization EBIT % Change Y/Y Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net Income (reported) % change Y/Y Shares Outstanding EPS (reported) % change Y/Y DPS Cashflow Statement $ in millions, year end Dec Earnings before tax Depr. & amortization Change in working capital Others Cash flow from operations Capex Others Cash flow from investing activities a. Equity raised/repaid Increase in borrowings Other Dividends paid Cash flow from financing activities
Net change in cash (543) Ending cash 1,953 Source: Company reports and J.P. Morgan estimates.
Ratio Analysis $ in millions, year end Dec EBITDA margin Operating margin Net margin a. P/E Adjusted P/E Dividend yield Price/BV EV/EBITDA Net Debt/EBITDA a. Interest coverage (x) Net debt to Total Capital Net debt to equity Sales/Assets Assets/Equity ROE ROCE
FY12 29.4% 24.0% 18.9% 46.1 46.1 2.4% 10.2 29.3 68.5% 37.9 19.1% 23.6% 0.6 1.8 22.3% 17.6%
FY13E 31.9% 26.5% 25.2% 25.6 25.6 3.1% 9.5 19.9 30.0% 30.2 12.3% 14.0% 0.8 1.9 38.4% 24.9%
FY14E 33.6% 29.1% 28.1% 19.3 19.3 3.6% 8.2 15.7 11.6% 47.6 5.6% 5.9% 0.9 1.9 45.8% 29.8%
FY15E 35.2% 31.3% 30.6% 15.2 15.2 4.6% 7.1 12.7 (7.2%) 118.7 (4.0%) (3.9%) 1.0 1.7 50.2% 35.9%
337
SOTP valuation
Divisions Valuation Methodology NAV US$m 6,298 32,454 5,793 19,715 1,150 (150) (788) 64,472 (410) 64,063 Per share Per share HK$ US$ 0.78 4.03 0.72 2.45 0.14 (0.02) (0.10) 8.00 (0.05) 7.95 6.1 31.4 5.6 19.1 1.11 (0.1) (0.8) 62.4 (0.4) 62.0
Sands Macao Venetian Macao Four Seasons Sands Cotai Central Parisian Ferry business Less: Corporate expense Gross Asset Value Less net deb t Price target by Dec-2014
15x 2014E EBITDA 19x 2014E EBITDA 15x 2014E EBITDA 18x 2014E EBITDA Capitalized cost 15x 2014E EBITDA 15x 2014E EBITDA
End 2014E forecast
338
339
Sapphire Technology
Overweight
www.sapphiretech.com
123260.KQ,123260 KQ Price: W36,800 Price Target: W60,000
South Korea Semiconductors Narci Chang

AC
(886-2) 2725-9899 narci.h.chang@jpmorgan.com J.P. Morgan Securities (Taiwan) Limited
Price Performance
50,000 45,000 W 40,000 35,000 30,000 25,000
Nov-12 Feb-13 May-13 Aug-13 Nov-13
123260.KQ share price (W ) KOSPI (rebased)
Abs Rel
YTD 31.4% 31.0%
1m -22.0% -20.3%
3m 1.5% -3.0%
12m 8.4% 1.2%
Company overview Sapphire Technology is Korea based and mainly engaged in manufacture of sapphire ingots. It produces rectangular structured synthetic sapphire ingots in 2, 4 and 6 diameters with vertical horizontal gradient freezing method. It is also involved in manufacture of wafers. Its products are used for LEDs, LCD projectors, windows and smartphone components. Key customers: Apple, LG Innotek, Seoul Opto, Hansol, etc. Investment case STC is the sole vendor of Apples iPhone 5S home button sapphire wafers. We maintain our bullish view based on: 1.) Expanded application in smartphone components like camera lens cover, home button; 2.) Strong LED demand growth from LED lighting cycle. Nevertheless, we expect further demand expansion for smartphone/tablet applications. We believe structural improvement coupled with STCs differentiated technology edge will provide favorable riskreward to investors. Resilience of the growth outlook We forecast 2014 iPhones 6S/6C will carry sapphire home buttons. STC is actively involved in R&D of a wearable device, home button for tablets and sapphire cover glasses for smartphones for its key client(s), hence there could be upside risk to our demand forecast. We forecast a 28% CAGR in LED chip demand from 2013-15. Given muted capacity expansion from STCs competitors, we expect sapphire ingot supply to turn tighter in 2014/2015, extending the price recovery since early2013. Risks to the earnings outlook in 2014 Key risk is SiC, which could be used as substrate for LED, and Cree is main manufacturer using it. If Cree increases its m/s in LED, it could potentially jeopardize sapphire demand. Given STC is focusing heavily on non-LED applications, its prospects could be heavily dependent on one single customer Apple. If demand for Apples products falls short, it could have a severe impact on STC. Owing to the commodity nature of sapphire ingots, STCs earnings trend will depend heavily on supply/demand (i.e. supply discipline from STC's competitors). Price target, and risks to our investment view We use sector average of 18x FY15E fwd P/E to derive Dec14 PT of W60,000. We estimate STC to deliver stronger than sector earnings growth in 2014/15 and hence think the valuation is justified. Risks: Substitute material for LED wafer, limited negotiating power against Apple, and non adoption in future Apple products.
FY12 -59.2% -178.2% -187.9% 1Q -618 -1,199 -409 60,000 56,500 6.2 FY13E FY14E FY15E Date of Price 70.9% 71.5% 22.1% 52-Week range 15.8% -128.5% 326.7% Market Cap -6.4% -123.6% 376.4% Market Cap 2Q 3Q 4Q Share Out. (Com) -729 -642 -1,604 Free float -1,273 -870 -13 Avg daily val -43 427 722 Avg daily val (US$) Avg daily vol. Dividend yield (%) Exchange Rate 15 Nov 13 W$49,900-25,500 W300,288BN US$281MN 8MN 68.3% W5.9B 5.5MM 0.1MM shares 0.0 1,067.9
Bloomberg 123260 KQ, Reuters 123260.KQ (YE Dec, W bn) FY12 FY13E FY14E FY15E Sales 32 54 92 113 Sales growth Operating Profit -25 -29 8 35 OP growth EBITDA -14 -17 22 40 NP growth Net profit -26 -24 6 27 Quarterly EPS (W) EPS -3,318 -2,960 698 3,323 EPS (12) BPS (W) 14 11,289 11,987 15,310 EPS (13) E P/E (x) NM NM 52.8 11.1 EPS (14) E P/BV (x) 2,696.8 3.3 3.1 2.4 Price Target ROE (%) -21.4 -23.9 6.0 24.3 Consensus PT Net Debt 28 59 64 62 Difference (%) Source: Company data, Bloomberg, J.P. Morgan estimates.
340
Sapphire Technology: Summary of Financials

Income Statement W in billions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) FY11 77 -37 40 0 -3 32 41 0 -2 -2 -0 30 -2 29 29
EPS (reported) 4,779 EPS (adjusted) 4,779 BVPS 21,259 DPS 0 Shares outstanding 6 Balance sheet W in billions, year end Dec FY11 Cash and cash equivalents 49 Accounts receivable 2 Inventories 31 Others 5 Current assets 88 LT investments 19 Net fixed assets 65 Others 4 Total Assets 175 Liabilities ST Loans 28 Payables 2 Others 8 Total current liabilities 38 Long-term debt 4 Other liabilities 1 Total Liabilities 44 Shareholder's equity 131 Source: Company data and J.P. Morgan estimates
Ratio Analysis FY12 FY13E FY14E FY15E W in billions, year end Dec 32 54 92 113 Gross margin -51 -76 -78 -71 EBITDA margin -20 -22 15 42 Operating margin 0 0 0 0 Net margin -2 -3 -3 -3 R&D/sales -25 -29 8 35 SG&A/Sales -14 -17 22 40 1 1 1 1 Sales growth -3 -3 -4 -4 Operating profit growth -2 -3 -3 -3 Net profit growth -7 -0 0 0 EPS (reported) growth -33 -32 6 33 6 6 0 -4 Interest coverage (x) -26 -24 6 27 -26 -24 6 27 Net debt to total capital Net debt to equity -3,318 -2,960 698 3,323 -3,318 -2,960 698 3,323 Asset turnover 14 11,289 11,987 15,310 Working capital turns (x) 0 0 0 0 ROE 8 8 8 8 ROIC Cash flow statement FY12 FY13E FY14E FY15E W in billions, year end Dec 23 24 22 21 Net income 7 18 20 23 Depr. & amortization 28 15 12 14 Change in working capital 15 42 48 54 Other 73 99 102 112 Cash flow from operations 38 39 39 39 Capex 61 65 69 89 Disposal/(purchase) 4 6 6 6 Cash flow from investing 177 209 218 246 Free cash flow Equity raised/(repaid) 41 50 53 51 Debt raised/(repaid) 1 4 3 4 Other 11 15 15 17 Dividends paid 53 69 72 72 Cash flow from financing 10 33 32 31 Net change in cash 3 15 16 19 Beginning cash 67 117 120 121 Ending cash 110 92 98 125
FY11 52.4% 52.4% 41.8% 38.0% 0.0% 3.5%
FY12 -62.0% -45.7% -80.1% -81.8% 0.0% 7.1%
FY13E -41.7% -30.8% -54.3% -44.8% 0.0% 5.2%
FY14E 16.1% 23.6% 9.0% 6.2% 0.0% 3.0%
FY15E 37.2% 35.7% 31.5% 24.0% 0.0% 2.5%
2.2% -59.2% 70.9% 71.5% 22.1% -28.8% -178.2% 15.8% -128.5% 326.7% -27.4% -187.9% -6.4% -123.6% 376.4% -46.1% -169.4% -10.8% -123.6% 376.4% 18.8 -14.8% -12.9% 0.6 2.3 32.2% FY11 29 8 -24 -4 10 -22 -18 -43 -27 0 6 52 0 58 25 24 49 NM 20.2% 25.3% NM 38.9% 63.7% 7.9 39.4% 65.1% 0.4 3.0 6.0% FY14E 6 13 -0 -6 13 -18 0 -18 -3 0 2 1 0 3 -3 24 22 13.6 33.0% 49.3% 0.5 3.2 24.3% FY15E 27 5 -4 -3 25 -24 0 -24 4 0 -3 1 0 -2 -1 22 21
0.2 0.3 0.9 2.1 -21.4% -23.9% FY12 FY13E -26 -24 11 13 -3 5 -7 -25 -25 -31 -7 -17 -20 -1 -28 -19 -50 -46 0 0 19 32 8 19 0 0 26 51 -26 1 49 23 23 24
341
SapuraKencana Petroleum Bhd

Overweight
www.sapurakencana.com
SKPE.KL,SAKP MK Price: M$4.11 Price Target: M$5.00
Malaysia Oil Services & Equipment Ajay Mirchandani

AC
Hoy Kit Mak

Abs Rel
YTD 36.1% 28.2%
1m 8.4% 6.7%
3m 7.0% 5.6%
12m 42.7% 32.9%
Company overview SapuraKencana (SAKP) is Malaysias largest integrated oil services company, involved in EPC (Fabrication), Installation of Pipelines and Facilities (Pan-Malaysia jobs with further expansion via PLSV charters in Brazil), Hook-up & Commissioning (via 100% owned Sakru), Drilling (16 tender rigs + 5 newbuilds), Development & Production, (Berantai marginal field), Marine Services and Geotech & Maintenance. Investment case SAKP, with its uniquely shaped portfolio of oil services across the supply chain as well as globally, is a key beneficiary of both (i) solid global oil services capex needs (via its Petrobras PLSV contracts, Tender Rig portfolio) as well as (ii) Petronas M$300B capex plan where it plans to maintain or even grow production in the country with a thrust on developing marginal fields. We also see potential earnings growth from more fabrication jobs coming through, potential contract wins from Malaysia T&I contract and earnings contribution from the acquisition of Newfields Malaysia Oil and Gas asset, potentially adding 30-45% to our FY15E/16E earnings. Resilience of the growth outlook SAKP stands to benefit from Petronas looking to spend M$300B over 2011-15. We expect earnings growth to be driven by (i) strong orderbook from its drilling segment with the recently closed Seadrill tender rig acquisition, (ii) more fabrication jobs coming through (both locally and internationally), (iii) US$1.4B in order wins relating to Brazil PLSV, (iv) contract wins from the Malaysia T&I contract, and (v) potential earnings contribution from Newfields Malaysia Oil and Gas asset acquisition. Risks to the earnings outlook in 2014 SAKPs earnings risks include (i) rising gearing and capex from Newfields Malaysia Oil and Gas asset and recently closed Seadrill tender rig acquisitions, (ii) execution risk given the number of projects SAKP is working on, and (iii) rising competition for Malaysia jobs as Petronas looks to bring in international yards participation for more complex jobs and international bidders for Malaysia T&I contract. Price target, and risks to our investment view Our Jan-15 price target of M$5.0 is based on SOTP of: a) Tender Rig business valued at 18x P/E; b) OCSS valued at 22x P/E; c) Fab and HUC valued at 22x P/E; d) EJV valued at 16x P/E; and e) Others valued at 15x P/E. Key risks to our price target are (a) rising gearing, (b) execution risks, and (c) potential increased international competition.
SapuraKencana Petroleum Bhd (Reuters: SKPE.KL, Bloomberg: SAKP MK) M$ in mn, year-end Jan FY12A FY13A FY14E FY15E Revenue (M$ mn) 2,556 6,912 7,793 9,998 EBIT (M$ mn) 465 872 1,614 2,182 Core Profit (M$ mn) 282 525 1,036 1,386 Core EPS (M$) 0.10 0.17 0.23 Core EPS growth (%) 64.9% 33.9% BV per share (M$) 1.27 1.69 1.92 P/E (Recurring) 39.2 23.8 17.8 P/BV (x) 3.2 2.4 2.1 Dividend Yield ROE 43.6% 13.8% 12.6% 12.8% ROA 13.3% 5.4% 5.1% 5.2%
Company Data Shares O/S (mn) Market Cap (M$ mn) Market Cap ($ mn) Price (M$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (M$ mn) FBMKLCI Exchange Rate
5,992 24,628 7,761 4.11 06 Nov 13 11.78 44.63 1807.47 3.17
FY16E 10,710 2,458 1,537 0.26 10.9% 2.17 16.0 1.9 12.5% 5.3%
342
SapuraKencana Petroleum Bhd: Summary of Financials

Income Statement M$ in millions, year end Jan FY12 FY13 Revenues 2,556 6,912 EBITDA 561 1,104 % change Y/Y - 96.9% EBITDA Margin 21.9% 16.0% EBIT 465 872 % change Y/Y - 87.6% EBIT Margin 18.2% 12.6% Net Interest (42) (208) Associates 76 135 Exceptionals Earnings before tax 520 830 % change Y/Y - 59.7% Tax (73) (166) as % of EBT 14.1% 20.0% Minority Interests (164) (139) Net income (reported) 282 525 Net income (recurring) 282 525 Shares outstanding - 5,004 EPS (Recurring) 0.10 EPS (reported) 0.10 Balance sheet M$ in millions, year end Jan FY12 FY13 Cash and cash equivalents 705 1,026 Accounts receivable 1,253 3,206 Inventories 80 244 Others 0 0 Current assets 2,038 4,476 LT investments Net fixed assets 1,447 4,222 Total Assets 4,223 15,152 Short-term loans 830 2,374 Payables 1,149 2,280 Total current liabilities 1,999 4,750 Long-term debt 581 3,567 Other liabilities 18 92 Total Liabilities 2,598 8,409 Shareholders' equity 1,625 6,743 Total Liabilities and equity 4,223 15,152 BVPS 1.27 Source: Company reports and J.P. Morgan estimates. Cash flow statement FY14E FY15E FY16E M$ in millions, year end Jan 7,793 9,998 10,710 EBIT 1,982 2,594 2,871 Depreciation & amortization 79.5% 30.9% 10.7% Change in working capital 25.4% 25.9% 26.8% Other non-cash items 1,614 2,182 2,458 Cash flow from operations 85.2% 35.1% 12.7% 20.7% 21.8% 22.9% Capex (452) (616) (607) Disposal/(purchase) 120 108 108 Cash flow from investments - Equity raised/(repaid) 1,282 1,674 1,959 Debt raised/(repaid) 54.6% 30.5% 17.0% Other (192) (214) (251) Dividends paid 15.0% 12.8% 12.8% Cash flow from financing (55) (73) (171) Net change in cash 1,036 1,386 1,537 Beginning cash 1,036 1,386 1,537 Ending cash 5,992 5,992 5,992 0.17 0.23 0.26 Free cash flow 0.17 0.23 0.26 DPS Ratio Analysis FY14E FY15E FY16E M$ in millions, year end Jan 1,577 2,001 3,079 Gross margin 3,843 4,930 5,282 EBITDA margin 427 548 587 EBIT margin 0 0 0 Net margin 5,848 7,480 8,948 - Sales growth 13,354 13,641 13,929 EBIT growth 25,775 27,802 29,665 Net profit growth 2,374 2,374 2,374 EPS growth 2,088 2,655 2,810 4,557 5,124 5,280 Interest coverage (x) 10,567 10,567 10,567 Net debt to equity 92 92 92 15,216 15,784 15,939 Sales/assets 10,559 12,018 13,726 Assets/equity 25,775 27,802 29,665 ROE 1.69 1.92 2.17 ROCE FY12 465 96 (176) 274 (185) (828) 0 705 (129) (70) 506 (63) 768 705 125 FY12 21.3% 21.9% 18.2% 11.0% FY13 872 233 (340) 434 (843) (2,909) 0 2,958 (168) 0 2,789 321 705 1,026 (243) FY13 15.2% 16.0% 12.6% 7.6% FY14E FY15E FY16E 1,614 2,182 2,458 368 413 413 (1,012) (641) (235) 326 1,124 1,778 (9,500) (9,500) 2,726 7,000 0 0 9,726 552 1,026 1,577 (8,790) (700) (700) 0 0 0 0 0 424 1,577 2,001 961 (700) (700) 0 0 0 0 0 1,078 2,001 3,079 1,607 -
FY14E FY15E FY16E 24.8% 25.4% 26.3% 25.4% 25.9% 26.8% 20.7% 21.8% 22.9% 13.3% 13.9% 14.4% 12.7% 85.2% 97.4% 64.9% 28.3% 35.1% 33.9% 33.9% 4.2 91.0% 0.4 2.5 12.8% 14.7% 7.1% 12.7% 10.9% 10.9% 4.7 71.8% 0.4 2.3 12.5% 16.6%
- 170.4% - 87.6% - 86.2% 13.2 43.4% 1.2 3.3 43.6% 56.5%
5.3 4.4 72.9% 107.6% 0.7 2.5 13.8% 19.0% 0.4 2.5 12.6% 14.5%
343
Seoul Semiconductor
Overweight
www.seoulsemicon.com
046890.KQ,046890 KQ Price: W40,800 Price Target: W50,000
South Korea Semiconductors Narci Chang

AC
Company overview Seoul Semiconductor, Koreas leading LED manufacturer was established in 1987. The company offers a wide range of products for the handset, large display BLU, automotive, and general lighting. Its products include light emitting diode (LED) custom display, LED dot matrix, LED back light, photo diode, photo transistor, LED IR lamp, LED display with controller, and LED array. Key customers include Samsung Electronics, LG Display, Samsung SDI, Hyundai Motor Company, etc. Investment case SSC continued to outpace its peers in the lighting market, reaching c.50% as of 3Q13. We estimate LED lighting growth to accelerate once the residential market begins showing more appetite toward products. In the meantime, we prefer SSC as the most leveraged lighting play for rapidly growing commercial/outdoor lighting segment and expect the company to post solid margin improvement into 2014. Resilience of the growth outlook SSCs revenues will get a boost from penetrating into Apple products, and we expect mobile BLU to represent 12%/15%/18% of total sales in FY13/14E/15E. We estimate SSC to take 1%/6%/20% allocation from all Apple product lines in FY13/14/15E. In addition, management indicated that the company may need to raise capacity in 2014 to meet the market demand, although the magnitude of the expansion is yet to be finalized. We take a constructive view on the expansion plan as we expect the shipment demand to grow by 25 30% Y/Y in FY14/15. Risks to the earnings outlook in 2014 Key risks to our earnings outlook include: 1.) Slower-than-expected general lighting sales due to slow adoption rate in the commercial/outdoor lighting segment, 2.) Larger- than-expected pricing pressure, which could potentially lower the margins, and 3.) Aggressive capacity expansion from China MOCVD addition, which could corrupt supply/demand dynamics, leading to weak pricing trend. Price target, and risks to our investment view Our Dec14 PT of W50,000 is based on 3.8x trailing 12 month P/B (mid cycle valuation). Key risks to our bullish view include: 1.) Higher than expected LED package price decline. 2.) Slower than expected LED TV penetration and slower than expected market share gain at mobile display BLU 3.) Delayed general lighting market adoption and 4.) Earlier than expected penetration of OLED in display and lighting.
Abs Rel
YTD 68.6% 67.8%
1m -4.6% -5.4%
3m 17.4% 11.8%
12m 85.5% 81.1%
Bloomberg 046890 KQ, Reuters 046890.KQ (YE Dec, W bn) FY12 FY13E FY14E FY15E Sales 855 1,021 1,265 1,475 Sales growth Operating Profit 16 101 146 188 OP growth EBITDA 53 194 246 300 NP growth Net profit 9 51 109 147 Quarterly EPS (W) EPS 155 877 1,875 2,523 EPS (12) BPS (W) 10,481 10,721 12,596 15,118 EPS (13) E P/E (x) 262.8 46.5 21.8 16.2 EPS (14) E P/BV (x) 3.9 3.8 3.2 2.7 Price Target ROE (%) 1.5 8.3 16.1 18.2 Consensus PT Net Debt -10 136 76 -56 Difference (%) Source: Company data, Bloomberg, J.P. Morgan estimates.
344
FY12 FY13E FY14E 15.7% 19.3% 23.9% -47.5% 533.0% 44.3% -73.8% 465.1% 113.7% 1Q 2Q 3Q 53 103 33 161 198 173 366 449 531 50,000 45,720 9.4
FY15E Date of Price 16.6% 52-Week range 28.7% Market Cap 34.5% Market Cap 4Q Share Out. (Com) -33 Free float 344 Avg daily val 529 Avg daily val (US$) Avg daily vol. Dividend yield (%) Exchange Rate
06 Nov 13 W$45,250-21,000 W2,378,640BN US$2,242MN 58MN 62.6% W27.6B 26.0MM 0.7MM shares 0.0 1,061.2
Seoul Semiconductor: Summary of Financials

Income Statement W in billions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) FY12 855 -709 146 -60 16 53 7 -7 -1 -4 12 -3 9 9 FY13E 1,021 -736 285 -99 101 194 6 -15 -8 -4 89 -38 51 51 877 877 10,721 0 58 FY13E 145 248 81 33 507 121 457 1,129 162 90 82 335 119 51 504 625 FY14E 1,265 -880 384 -116 146 246 8 -15 -7 -3 137 -27 109 109 1,875 1,875 12,596 0 58 FY14E 216 342 111 46 714 119 437 1,315 173 123 113 409 119 54 581 734 FY15E 1,475 -1,004 471 -142 188 300 14 -15 -2 -3 184 -37 147 147 2,523 2,523 15,118 0 58 FY15E 351 403 131 54 938 116 405 1,507 176 143 133 452 119 55 625 881
Ratio Analysis W in billions, year end Dec Gross margin EBITDA margin Operating margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth EPS (reported) growth Interest coverage (x) Net debt to total capital Net debt to equity Asset turnover Working capital turns (x) ROE ROIC Cash flow statement W in billions, year end Dec Net income Depr. & amortization Change in working capital Other Cash flow from operations Capex Disposal/(purchase) Cash flow from investing Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing Net change in cash Beginning cash Ending cash
FY12 17.1% 6.2% 1.9% 1.1% 7.0% 15.7% -47.5% -73.8% -73.8% 96.0 -1.6% -1.6% 1.0 3.2 1.5% FY12 9 37 2 48 -24 2 0 27 0 -21 -7 0 -28 21 132 153
FY13E 27.9% 19.0% 9.9% 5.0% 9.7% 19.3% 533.0% 465.1% 465.1% 23.4 17.9% 21.8% 1.0 4.8 8.3% FY13E 51 93 -275 -131 -69 -18 -14 -214 0 174 -37 0 137 -8 153 145
FY14E 30.4% 19.5% 11.5% 8.6% 9.2% 23.9% 44.3% 113.7% 113.7% 36.5 9.3% 10.3% 1.0 5.3 16.1% FY14E 109 100 -73 137 -80 -2 -79 60 0 14 0 0 14 71 145 216
FY15E 31.9% 20.3% 12.7% 10.0% 9.6% 16.6% 28.7% 34.5% 34.5% 185.2 -6.8% -6.4% 1.0 3.7 18.2% FY15E 147 112 -49 210 -80 -2 -79 130 0 4 0 0 4 135 135
EPS (reported) 155 EPS (adjusted) 155 BVPS 10,481 DPS 0 Shares outstanding 58 Balance sheet W in billions, year end Dec FY12 Cash and cash equivalents 153 Accounts receivable 207 Inventories 63 Others 59 Current assets 482 LT investments 195 Net fixed assets 168 Others Total Assets 870 Liabilities ST Loans 123 Payables 64 Others 37 Total current liabilities 225 Long-term debt 20 Other liabilities 14 Total Liabilities 259 Shareholder's equity 611 Source: Company reports and J.P. Morgan estimates.
345
Sesa Sterlite
Overweight
www.sesagoa.com
SESA.NS,SSLT IN Price: Rs202.20 Price Target: Rs240.00
India Mining Pinakin Parekh, CFA

AC
(91-22) 6157-3588 pinakin.m.parekh@jpmorgan.com J.P. Morgan India Private Limited
Abs Rel
YTD 1.8% -5.3%
1m 7.3% 1.9%
3m 55.6% 46.3%
12m 14.4% 2.6%
Company overview Sesa Sterlite is one of the largest diversified non-ferrous metal companies in India, with operations in aluminium, copper, zinc, iron ore, oil and power. It is a subsidiary of Vedanta Group, a London-based company controlled by Anil Agarwal. Sesa Sterlite has significant size and scale in all the base metals, oil and power. Investment case While the stock has run up significantly from recent lows, in our view, the re-rating is likely to continue over next year as: a) SSLT delivers consolidated EBITDA of ~$1.2-1.4bn on a quarterly run rate with volume growth in key oil and zinc subs; b) net debt continues to fall with strong cash generation at subs and limited capex; c) diversified resource base providing earnings stability; and d) regulatory environment continues to improve. We expect SSLT to emerge as a key holding across MM/industrials, given size, cash flow strength and embedded option values from power and ally investments. Resilience of the growth outlook Zinc and oil account for a large part of current earnings (~73% in FY14E); we expect this to reduce over the next 2 years to ~60% as other segments ramp up. Diversified resource base provides earnings stability and should result in a higher multiple than current ones. Our earnings growth forecast is not driven by commodity prices, but by volume growth across all key segments. We forecast attributable EBITDA CAGR of 11% over FY13-16E driven by a combination of higher volumes, more supportive INR. Risks to the earnings outlook in 2014 The biggest risk to our earnings outlook for 2014 is regulatory uncertainty. Over the recent past, SSLT's iron ore, copper and power operations have been impacted for a variety of regulatory reasons with its Goa iron ore mining operations yet to re-start. Delay in re-starting of Goa mining as well as any regulatory hurdles for its other business segments constitute the biggest risk to our earnings estimates. Price target, and risks to our investment view Our Sep-14 PT of Rs240 is based on a sum-of-the-parts (SOTP) valuation and we assign EV/EBITDA multiples to underlying EBITDA. SESAs PT is based on a SOTP valuation for FY15E financials. Key risks include: 1) no start to Goa mining; 2) the power segment ramp-up gets delayed and 3) significant price decline across key commodities.
Sesa Sterlite (Reuters: SESA.NS, Bloomberg: SSLT IN) Rs in mn, year-end Mar FY12A FY13A FY14E Net Sales (Rs mn) 544,762 557,119 526,763 Net Profit (Rs mn) 61,426 103,895 69,005 EPS (Rs) 20.72 35.04 23.27 Net Profit growth (%) 69.1% (33.6%) ROE 20.1% 15.9% 9.6% P/E (x) 9.8 5.8 8.7 P/BV (x) 1.0 0.9 0.8 EV/EBITDA (x) 4.8 6.0 5.5
Company Data 52-week Range (Rs) Market Cap (Rs mn) Market Cap ($ mn) Price (Rs) Date Of Price 3M - Avg daily volume (mn) 3M - Avg daily value ($ mn) BSE30
209.40-119.30 599,523 9,712 202.20 05 Nov 13 10.64 31.3 2,1239.36
FY15E 688,781 100,608 33.93 45.8% 12.7% 6.0 0.7 4.1
FY16E 739,562 100,751 33.98 0.1% 11.6% 6.0 0.7 3.8
346
Sesa Sterlite: Summary of Financials

Income Statement Rs in millions, year end Mar Revenues % change Y/Y EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (Pre exceptionals) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rs in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets LT investments Net fixed assets Total Assets FY13 557,119 2.3% 170,740 8.3% 30.6% 129,131 4.4% 23.2% (16,378) 190,419 59.0% (8,859) 4.7% 103,895 69.1% 2,965 35.04 69.1% FY13 457,165 56,727 150,083 663,975 FY14E 526,763 (5.4%) 186,632 9.3% 35.4% 119,309 (7.6%) 22.6% (48,212) 154,421 (18.9%) 5,408 3.5% 69,005 (33.6%) 2,965 23.27 (33.6%) FY15E 688,781 30.8% 231,056 23.8% 33.5% 159,761 33.9% 23.2% (45,771) 208,230 34.8% (5,881) 2.8% 100,608 45.8% 2,965 33.93 45.8% FY16E 739,562 7.4% 237,848 2.9% 32.2% 161,939 1.4% 21.9% (46,304) 206,749 (0.7%) (7,384) 3.6% 100,751 0.1% 2,965 33.98 0.1%
Cash flow statement Rs in millions, year end Mar Net income (Pre exceptionals) Depr. & amortization Change in working capital Cash flow from operations Net Capex Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS
FY13 103,895 41,608 66,495 296,512
FY14E 69,005 67,323 107,911 335,898
FY15E 100,608 71,295 (19,223) 254,830
FY16E 100,751 75,910 6,699 284,837
(171,657) (128,657) (142,812) (153,340) 124,854 207,241 112,017 131,497 (77,485) 127,153 (820,769) (15,584) 267,477 457,165 5.26 (76,821) 152,720 (83,646) (12,801) 457,165 643,858 4.32 (84,853) 29,000 114,327 (19,122) 643,860 795,229 6.45 (81,493) 22,000 76,448 (19,150) 795,229 924,531 6.46
FY14E FY15E FY16E 643,860 795,229 924,531 58,768 69,370 75,649 139,274 157,205 159,945 841,902 1,021,805 1,160,125
Ratio Analysis Rs in millions, year end Mar EBITDA margin Operating margin Net margin
FY13 30.6% 23.2% 18.6% 2.3% 69.1% 69.1% 10.4 25.5% 49.4% 0.3 3.3 15.9% 8.9%
FY14E 35.4% 22.6% 13.1% (5.4%) (33.6%) (33.6%) 3.9 21.4% 41.2% 0.2 3.2 9.6% 7.2%
FY15E 33.5% 23.2% 14.6% 30.8% 45.8% 45.8% 5.0 12.5% 22.4% 0.3 3.3 12.7% 8.8%
FY16E 32.2% 21.9% 13.6% 7.4% 0.1% 0.1% 5.1 5.1% 8.7% 0.3 3.2 11.6% 8.4%
887,559 934,055 988,276 2,105,355 2,504,693 2,724,343
Liabilities Short-term loans 206,631 312,840 332,840 Payables 41,425 53,489 59,138 Others 176,172 263,251 266,913 Total current liabilities 424,227 629,580 658,891 Long-term debt 593,442 639,952 648,952 Other liabilities 83,362 97,810 112,810 Total Liabilities 1,101,031 1,367,342 1,420,653 Shareholder's equity 693,748 749,951 831,438 BVPS 233.98 252.93 280.42 Source: Company reports and J.P. Morgan estimates.
Sales growth Net profit growth - EPS growth 1,045,723 2,940,155 Interest coverage (x) Net debt to total capital Net debt to equity 347,840 Sales/assets 73,816 Assets/equity 267,952 ROE 689,608 ROCE 655,952 127,810 1,473,371 913,039 307.94
SOTP Summary
Zinc-India Zinc Int BALCO VAL Copper Power Iron ore Oil
FY15E 56,784 16,345 4,791 20,961 15,793 14,986 11,917 89,479
Multiple 5.5 4.0 7.0 7.0 6.0 5.5 5.5 3.0 Total EV Net debt Equity Per Share
FY15E 312,311 65,379 33,534 146,730 94,757 82,425 65,546 268,436 1,069,119 354,406 714,712 240
Explanation Valued at the lower end of its historical trading range Valued at a 30% discount to India zinc assets given limited mine life LME aluminum currently below marginal cost, and investments made by the company is yet to be fully operational, valued at the higher end of historical global aluminum company valuations LME aluminum is currently below marginal cost, and investments made by the company is yet to be fully operational, valued at the higher end of historical global aluminum company valuations Copper smelter earnings relatively steady state, less volatile, hence at higher end of commodity co val. Valued at higher end of earnings range as most of the assets yet to be fully operational Valued at the lower end of its historical trading range, as volume growth outlook remains hazy Valued at the mid range of commodity companies given volume growth prospects
347
Siam Cement
Overweight
www.scg.co.th
SCC.BK,SCC TB Price: Bt436.00 Price Target: Bt530.00
Thailand Cement Avin Sony

AC
(66-2) 684-2683 avin.sony@jpmorgan.com JPMorgan Securities (Thailand) Limited
Abs Rel
YTD -0.9% -4.0%
1m 0.9% 0.4%
3m -2.7% -3.1%
12m 11.8% 1.5%
Company overview Since its founding, Siam Cement has diversified, under the name Siam Cement Group (SCG), to meet the needs of Thailands growing economy. SCC has five core businesses focused on chemicals, paper, cement, building materials, and distribution. It comprises over 100 companies under five business groups and handles more than 64,000 product items which are sold to all regions of the world. Investment case SCC offers distinctive leverage to both domestic and global economic growth. Its cement and building materials business should benefit significantly in 2014-2017, in our view, from the rise in government spending as it starts to build infrastructure projects to improve the countrys logistics leading to increased urbanization and a rise in new property projects. Its chemical business on the other hand should benefit from improved economies of the West while at the same time see a much more balanced supply demand outlook resulting in higher margins and higher earnings. Resilience of the growth outlook Due to SCCs diversified businesses its well equipped to handle challenges. Weakness in cement business in 2005-08 was offset by the chemical business, while cement business did very well in 2011-2012 offsetting weakness in chemicals business. Risks to the earnings outlook in 2014 Delays in government spending could hurt our domestic cement demand growth forecasts, weakness in global economy hurting the demand for petrochemical products resulting in lower margins and hence lower cash flows from petrochemicals business. Price target, and risks to our investment view Dec-14 PT of Bt530 based on SOTP, driven by various EV/EBITDA multiples that we attach to each business division, as per respective return in terms of EBITDA/assets (assoc. 4%, cement 40%, petchem 15%, paper 24%, bldg mat 17%). We incorporate a 10% growth premium to our Net SOTP reflecting new investments in the cement sector in Myanmar and Indonesia which have not yet been incorporated into our model. Risks: lower petrochemical, lower cement demand and rising oil and coal prices.
1,200 523,200 16,721 436.00 06 Nov 13 1.53 661.23 21.1 1434.97 31.29 Dec
Siam Cement (Reuters: SCC.BK, Bloomberg: SCC TB) Bt in mn, year-end Dec FY11A FY12A Revenue (Bt mn) 368,579 407,601 Net Profit (Bt mn) 27,281 23,580 EPS (Bt) 22.73 19.65 DPS (Bt) 12.50 9.82 Revenue growth (%) 22.3% 10.6% EPS growth (%) (27.0%) (13.6%) ROCE 6.8% 4.9% ROE 20.0% 16.6% P/E (x) 19.2 22.2 P/BV (x) 3.7 3.7 EV/EBITDA (x) 16.8 20.4 Dividend Yield 2.9% 2.3%
FY13E 405,976 29,986 24.99 12.49 (0.4%) 27.2% 8.6% 19.3% 17.4 3.1 14.1 2.9%
FY14E 415,452 34,906 29.09 14.54 2.3% 16.4% 9.4% 19.7% 15.0 2.8 12.4 3.3%
FY15E 422,092 40,488 33.74 16.87 1.6% 16.0% 10.2% 20.5% 12.9 2.5 10.8 3.9%
348
Siam Cement: Summary of Financials

Income Statement Bt in millions, year end Dec FY11 FY12 Revenues 368,579 407,601 % change Y/Y 22.3% 10.6% Gross Margin (%) 17.9% 16.7% EBITDA 39,612 32,995 % change Y/Y (9.9%) (16.7%) EBITDA Margin (%) 10.7% 8.1% EBIT 26,404 18,948 % change Y/Y (16.1%) (28.2%) EBIT Margin (%) 7.2% 4.6% Net Interest 4,846 4,416 Earnings before tax 31,250 23,364 % change Y/Y (5.8%) (25.2%) Tax (7,504) (4,742) as % of EBT 24.0% 20.3% Core net income (reported) 27,281 23,580 % change Y/Y (0.5%) (13.6%) Shares outstanding 1,200 1,200 Core EPS (reported) - (Bt) 22.73 19.65 % change Y/Y (0.5%) (13.6%) Balance sheet Bt in millions, year end Dec FY11 FY12 Cash and cash equivalents 29,885 32,741 Accounts receivable 35,658 43,318 Inventories 41,838 48,890 Others 9,383 4,318 Current assets 116,764 129,266 LT investments 86,610 82,383 Net fixed assets 156,683 165,292 Total Assets 374,738 395,573 Liabilities Short-term loans 64,273 49,005 Payables 25,536 45,471 Others 16,642 4,254 Total current liabilities 106,451 98,731 Long-term debt 97,995 126,570 Other liabilities 7,322 9,149 Total Liabilities 211,768 234,450 Shareholder's equity 140,200 143,186 BVPS (Bt) 116.83 119.32 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY13E FY14E FY15E Bt in millions, year end Dec 405,976 415,452 422,092 EBIT (0.4%) 2.3% 1.6% Depr. & amortization 19.5% 21.0% 23.3% Change in working capital 48,153 55,353 65,514 Taxes 45.9% 15.0% 18.4% Cash flow from operations 11.9% 13.3% 15.5% 33,456 40,018 49,169 Capex 76.6% 19.6% 22.9% Disposal/(purchase) 8.2% 9.6% 11.6% Net Interest 3,525 3,363 2,997 Free cash flow 36,981 43,381 52,165 58.3% 17.3% 20.2% Equity raised/(repaid) (5,294) (6,279) (9,069) Debt raised/(repaid) 14.3% 14.5% 17.4% Other 29,986 34,906 40,488 Dividends paid 27.2% 16.4% 16.0% Beginning cash 1,200 1,200 1,200 Ending cash 24.99 29.09 33.74 DPS - (Bt) 27.2% 16.4% 16.0% Ratio Analysis FY13E FY14E FY15E Bt in millions, year end Dec 34,681 34,773 31,182 EBITDA margin 38,821 40,049 39,459 Net profit margin 52,109 50,942 49,047 9,500 9,500 9,500 135,111 135,265 129,189 92,773 104,582 116,609 Sales growth 176,958 191,622 215,277 Net profit growth 417,576 445,904 482,715 EPS growth Interest coverage (x) 55,073 57,473 61,973 31,548 31,812 30,513 Net debt to equity 8,172 8,208 8,097 Sales/assets (x) 94,793 97,493 100,583 Assets/equity (x) 128,503 134,103 144,603 ROE 7,500 7,500 7,500 ROCE 230,796 239,096 252,686 167,994 186,923 208,841 139.99 155.77 174.03
FY11 26,404 13,208 (15,459) (7,504) 14,722
FY12 FY13E 18,948 33,456 14,047 14,697 (2,100) (13,910) (4,742) (5,294) 29,008 25,237
FY14E 40,018 15,336 239 (6,279) 44,571
FY15E 49,169 16,345 1,075 (9,069) 51,538
(18,492) (22,655) (26,363) (30,000) (40,000) 4,846 4,416 3,525 3,363 2,997 (7,452) 2,833 (4,146) 11,695 9,062 0 0 0 0 0 9,017 13,308 8,000 8,000 15,000 (751) 1,827 (1,649) 0 0 (16,200) (13,116) (13,071) (15,977) (18,569) 69,827 29,885 32,741 34,681 34,773 29,885 32,741 34,681 34,773 31,182 12.50 9.82 12.49 14.54 16.87 FY11 10.7% 7.4% FY12 8.1% 5.8% FY13E 11.9% 7.4% FY14E 13.3% 8.4% FY15E 15.5% 9.6%
22.3% 10.6% (27.0%) (13.6%) (27.0%) (13.6%) NM NM 81.2% 1.0 2.7 20.0% 6.8% 88.7% 1.1 2.7 16.6% 4.9%
(0.4%) 27.2% 27.2% NM 79.7% 1.0 2.6 19.3% 8.6%
2.3% 16.4% 16.4% NM 75.8% 1.0 2.4 19.7% 9.4%
1.6% 16.0% 16.0% NM 76.2% 0.9 2.3 20.5% 10.2%
349
Siam Commercial Bank

Overweight
www.scb.co.th/
SCB.BK,SCB TB Price: Bt166.50 Price Target: Bt210.00

AC
Company overview Siam Commercial Bank (SCB) is one of the leading commercial banks in Thailand. The bank provides a full range of services and has significant market share in mortgage and private blue-chip lending. After having built a strong retail banking franchise, SCB has shown an excellent non-NII contribution and cost efficiency. This has resulted in the highest ROE among major Thai banks. Investment case The stock has underperformed the sector due to concerns about potential NPL formation and recent aggressive lending. However, we note that earnings have been stronger than expected, giving SCB flexibility in building a higher LLR position. The ongoing maturity of high-cost deposits should drive funding costs lower, leading to a better NIM trend going forward. We believe the banks NIM will expand by 10bps in FY14E. Being ahead in provisioning, SCBs profitability should also remain strong in the future. We expect EPS growth of 15% in FY14 with a sustained ROE of 21%. Resilience of the growth outlook SCB is the #1 Thai bank in the mortgage business with ~30% market share. Hence, SCB will benefit the most on our expectation that mortgage loan growth had in the past lagged overall loan growth, but that growth is due to accelerate in the medium term on the back of strong residential completions waiting for transfers by developers. Risks to the earnings outlook in 2014 We expect credit demand to shift to the corporate sector as Thailands growth drivers shift from consumption to investment. This trend could expose the bank to an increased pie of corporate loans, resulting in high LDR, low-margin corporate loans, higher concentration risk and higher capital consumption, and drive down ROE. Price target, and risks to our investment view We remain Overweight with a Dec-14 price target of Bt210 based on our DDM, using a 19.5% ROE, 12.5% COE and 7.5% growth. Key risks include high opex, stronger-than-expected competition in retail and corporate lending, and changes in asset quality conditions, especially given the aggressive assets growth in the past few years.
Abs Rel
YTD -8.3% -11.4%
1m 8.1% 7.6%
3m 6.7% 6.3%
12m 5.7% -4.6%
199.50-134.00 565,966 18,088 3,399 Dec 166.50 06 Nov 13 1,462.96 46.8 9.46 1434.97 31.29
Siam Commercial Bank (Reuters: SCB.BK, Bloomberg: SCB TB) Bt in mn, year-end Dec FY11A FY12A FY13E Operating Profit (Bt mn) 48,822 59,291 74,276 Net Profit (Bt mn) 36,273 40,220 50,140 Cash EPS (Bt) 10.67 11.83 14.75 Fully Diluted EPS (Bt) 10.67 11.83 14.75 DPS (Bt) 3.50 4.50 4.75 EPS growth (%) 49.9% 10.9% 24.7% ROE 21.3% 19.9% 21.4% P/E (x) 15.6 14.1 11.3 BVPS (Bt) 54.68 64.02 74.02 P/BV (x) 3.0 2.6 2.2 Dividend Yield 2.1% 2.7% 2.9%
FY14E 84,274 57,485 16.91 16.91 5.50 14.6% 21.2% 9.8 85.43 1.9 3.3%
FY15E 93,780 63,762 18.76 18.76 6.50 10.9% 20.5% 8.9 97.69 1.7 3.9%
350
Siam Commercial Bank: Summary of Financials

Income Statement Bt in millions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data THB EPS DPS Payout Book value Fully Diluted Shares PPOP per share Key Balance sheet Bt in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY11 3.2% 94.8% 3.0% 50,526 35,180 26,064 6,689 85,706 (36,883) 48,822 (6,630) 5,330 47,521 (11,213) (36) 36,273 FY11 10.67 3.50 32.8% 54.68 3,399 14.36 FY11 1,249,688 (45,995) 1,295,683 36,281 330,774 92,134 1,590,799 0 1,877,836 1,184,388 309,274 0 1,348,210 1,677,286 185,871 1,262,694 1,160,062 FY12 3.1% 96.2% 3.0% 62,105 39,588 29,775 7,513 101,693 FY13E 3.2% 97.3% 3.1% 73,272 48,189 34,241 9,164 121,461 FY14E 3.2% 97.7% 3.2% 82,206 53,972 38,350 10,263 136,178 (51,904) 84,274 (12,946) 1,000 72,328 (14,466) (377) 57,485 FY14E 16.91 5.50 32.5% 85.43 3,399 24.79 FY14E 1,885,847 (69,325) 1,955,172 42,521 458,943 80,506 2,544,105 0 2,748,895 2,006,395 232,816 0 2,119,254 2,604,232 290,385 1,833,631 1,737,135
(42,402) (47,185) 59,291 74,276 (9,396) (12,190) 1,293 1,000 51,188 63,085 (10,682) (12,617) (285) (328) 40,220 50,140 FY12 11.83 4.50 38.0% 64.02 3,399 17.44 FY12 1,498,993 (51,956) 1,550,949 35,932 458,943 73,021 1,994,566 0 2,269,884 1,614,059 239,640 0 1,673,681 2,073,860 217,601 1,514,110 1,388,402 FY13E 14.75 4.75 32.2% 74.02 3,399 21.85 FY13E 1,683,282 (60,484) 1,743,766 39,034 458,943 76,672 2,300,745 0 2,459,569 1,791,424 207,872 0 1,926,498 2,364,726 251,595 1,640,638 1,577,374
Growth Rates FY15E 3.2% Loans 98.1% Deposits 3.1% Assets Equity 90,426 RWA 60,448 Net Interest Income 42,952 Non-Interest Income 11,495 of which Fee Grth Revenues 150,874 Costs Pre-Provision Profits (57,094) Loan Loss Provisions 93,780 Pre-Tax (14,536) Attributable Income 1,000 EPS - DPS - Balance Sheet Gearing 80,244 Loan/deposit (16,049) Investment/assets (433) Loan/Assets 63,762 Customer deposits/liab. LT debt/liabilities FY15E Asset Quality/Capital 18.76 Loan loss reserves/loans 6.50 NPLs/loans 34.7% Loan loss reserves/NPLs 97.69 Growth in NPLs 3,399 Tier 1 Ratio 27.59 Total CAR FY15E Du-Pont Analysis 2,118,661 NIM (as % of avg. assets) (79,245) Earning assets/assets 2,197,906 Margins (as % of Avg. Assets) 46,432 Non-Int. Rev./ Revenues 458,943 Non IR/Avg. Assets 84,531 Revenue/Assets 2,853,748 Cost/Income 0 Cost/Assets 3,070,426 Pre-Provision ROA LLP/Loans 2,247,163 Loan/Assets 260,754 Other Prov, Income/ Assets 0 Operating ROA 2,373,564 Pre-Tax ROA 2,909,661 Tax rate 332,052 Minorities & Outside Distbn. 2,048,107 ROA 1,940,869 RORWA Equity/Assets ROE
FY11 22.2% 8.4% 27.2% 20.4% 19.4% 27.1% 26.9% 26.8% 27.0% 20.8% 32.2% 41.1% 40.2% 49.9% 49.9% 16.7% FY11 105.5% 14.4% 70.2% 70.1% 13.9% FY11 (3.5%) 3.2% 116.7% (6.4%) 11.1% 14.5% FY11 3.2% 94.8% 3.0% 41.0% 2.1% 5.1% 43.0% 2.2% 2.9% (0.6%) 70.2% 0.3% 2.5% 2.8% 23.6% 0.1% 2.2% 3.1% 10.1% 21.3%
FY12 19.7% 36.3% 20.9% 17.1% 19.9% 22.9% 12.5% 14.2% 18.7% 15.0% 21.4% 41.7% 7.7% 10.9% 10.9% 28.6% FY12 92.9% 19.0% 68.6% 78.7% 14.7% FY12 (3.3%) 2.5% 135.6% (1.0%) 10.9% 16.5% FY12 3.1% 96.2% 3.0% 38.9% 1.9% 4.9% 41.7% 2.0% 2.9% (0.7%) 68.6% 0.1% 2.4% 2.5% 20.9% 0.1% 1.9% 2.9% 9.7% 19.9%
FY13E 12.4% 11.0% 8.4% 15.6% 8.4% 18.0% 21.7% 15.0% 19.4% 11.3% 25.3% 29.7% 23.2% 24.7% 24.7% 5.6% FY13E 94.0% 19.4% 69.7% 81.2% 10.5% FY13E (3.5%) 2.3% 150.0% 8.6% 12.0% 17.2% FY13E 3.2% 97.3% 3.1% 39.7% 2.0% 5.1% 38.8% 2.0% 3.1% (0.7%) 69.7% 0.0% 2.6% 2.7% 20.0% 0.1% 2.1% 3.2% 9.9% 21.4%
FY14E 12.1% 12.0% 11.8% 15.4% 11.8% 12.2% 12.0% 12.0% 12.1% 10.0% 13.5% 6.2% 14.7% 14.6% 14.6% 15.8% FY14E 94.0% 17.6% 71.0% 81.7% 9.5% FY14E (3.5%) 2.2% 159.2% 8.9% 12.9% 17.5% FY14E 3.2% 97.7% 3.2% 39.6% 2.1% 5.2% 38.1% 2.0% 3.2% (0.7%) 71.0% 0.0% 2.7% 2.8% 20.0% 0.1% 2.2% 3.3% 10.4% 21.2%
FY15E 12.4% 12.0% 11.7% 14.3% 11.7% 10.0% 12.0% 12.0% 10.8% 10.0% 11.3% 12.3% 10.9% 10.9% 10.9% 18.2% FY15E 94.3% 15.8% 71.4% 82.1% 9.5% FY15E (3.6%) 2.1% 167.0% 9.2% 13.6% 17.8% FY15E 3.2% 98.1% 3.1% 40.1% 2.1% 5.2% 37.8% 2.0% 3.2% (0.7%) 71.4% 0.0% 2.7% 2.8% 20.0% 0.1% 2.2% 3.3% 10.7% 20.5%
351
Sims Metal Management Ltd

Overweight
www.simsmm.com/
SGM.AX,SGM AU Price: A$10.11 Price Target: A$11.30
Australia Steel Jason Steed

AC
Company overview SGM is a metals recycler that purchases, processes, and sells ferrous and non-ferrous scrap metal. It is the worlds largest publicly-listed recycling company and has operations in North America, Europe and Australasia across 270 locations. In FY13, SGMs volumes were primarily derived from North America. Investment case Earnings recovery for SGM will rely on 4 key factors: 1) A lift in volumes; 2) Improved raw material availability and price; 3) Rising consumer confidence; and 4) Tighter cost control. With the exception of consumer confidence, the remaining three factors have begun to show early signs of improvement. Given the fixed cost leverage of the business, the trajectory of the companys earnings recovery should be steep when all of the factors above align. Resilience of the growth outlook Commentary from both SGM and its peer SCHN indicates that the supply of scrap has begun to improve. In addition, SGMs recent focus on cost savings and resolving inventory issues provides a level of confidence that the business is not just looking at the top-line to grow earnings. Risks to the earnings outlook in 2014
(61-2) 9003-8609 jason.h.steed@jpmorgan.com J.P. Morgan Securities Australia Limited
Abs Rel
YTD 9.3% -8.8%
1m 4.8% -0.6%
3m 8.9% 2.4%
12m 10.6% -11.8%
Despite continued increases in auto sales in the US (automotive scrap is a key source of scrap metal), there has been little evidence to suggest that this has increased the scrappage rate for vehicles. While our US Autos & Auto Parts analyst Ryan Brinkman firmly believes the vehicle scrappage rate will rise, investors may be wary of such until there is firm evidence the number of cars being scrapped in the US is increasing. Price target, and risks to our investment view Our Price Target is calculated on an evenly weighted combination of our Jun-14 sum-of-the-parts (SoP) and Group DCF valuations, adjusted for grossed up dividends where applicable (see datasheet). Downside risks include: a decline in steel/scrap prices; low economic growth in the US, UK and Australia, leading to further deterioration in scrap quality; softening of Turkish demand, which would impact the price achieved for SGMs output; and intake prices remaining high due to competition for scrap arisings.
204 2,065.65 1,963.92 10.11 06 Nov 13 1.09 10.59 10.1 4511.50 1.05 Jun
Sims Metal Management Ltd (Reuters: SGM.AX, Bloomberg: SGM AU) Year-end Jun (A$) FY12A FY13A FY14E FY15E Revenue (A$ mn) 9,036 7,193 8,079 8,528 EBITDA (A$ mn) 253 191 320 400 Net Profit (A$ mn) (623) (466) 133 192 EPS (A$) (3.02) (2.28) 0.65 0.94 P/E (x) NM NM 15.5 10.8 EV/EBITDA (x) 8.3 10.3 5.9 4.4 DPS (A$) 0.20 0.00 0.33 0.47 Dividend Yield 2.0% 0.0% 3.2% 4.6% Normalised EPS (A$) 0.36 0.08 0.65 0.94 Normalised EPS Growth (59.6%) (76.7%) 679.1% 44.1% Normalised PE 28.1 120.8 15.5 10.8
FY16E 8,250 405 196 0.96 10.5 4.1 0.48 4.7% 0.96 2.0% 10.5
352
Sims Metal Management (SGM) : Financial Summary

Profit & Loss (A$m)
Revenue Operating Expenses EBITDA Growth EBITDA margin D&A EBIT Net Interest NPBT Tax Expense Tax rate Norm alised NPAT Growth Significant Items - Net Reported NPAT Growth Wtd average FPO shares (m ) Year end FPO shares (m) Norm alised EPS (cents) Normalised EPS growth Reported EPS (cents) DPS (cents) DPS growth DPS/EPS payout
Relative recommendation: OVERWEIGHT

13-Nov-13
FY16E
8,250.1 (7,845.3) 404.8 1.1% 4.9% (112.3) 292.5 1.7 294.2 (98.4) 33% 195.8 2.0% 195.8 2.0% 204.3 204.3 95.8 2.0% 95.8 48.0 2.1% 95.0% 12 m th price target (Jun-14) Capital grow th to price target 12 mth forecast Dividend 12 mth forecast DYld 12 m th forecast total return 11.30 13.3% 0.33 3.3% 16.6%
FY12A
9,035.7 (8,782.3) 253.4 (38.8%) 2.8% (129.9) 123.5 (21.2) 102.3 (28.3) 28% 74.0 (59.3%) (696.5) (622.5) -432.4% 205.8 204.8 36.0 (59.6%) (302.4) 20.0 (57.4%) 55.6%
FY13A
7,193.0 (7,001.6) 191.4 (24.5%) 2.7% (123.5) 67.9 (17.6) 50.3 (33.2) 66% 17.1 (76.9%) (483.2) (466.1) -25.1% 204.4 204.3 8.4 (76.7%) (228.0) (100.0%) 0.0%
FY14E
8,079.3 (7,759.3) 320.1 67.2% 4.0% (123.7) 196.4 (0.4) 196.0 (62.8) 32% 133.2 678.8% 133.2 -128.6% 204.3 204.3 65.2 679.1% 65.2 32.5 #DIV/0! 49.9%
FY15E
8,527.9 (8,127.6) 400.3 25.1% 4.7% (116.8) 283.4 1.4 284.8 (92.9) 33% 191.9 44.1% 191.9 44.1% 204.3 204.3 93.9 44.1% 93.9 47.0 44.6% 50.0%
Total Return Metrics

Current m kt capitalisation
A$m
2,037.3
A$ps
9.97
Valuation Summary
Valuation Methodology 3-Phase Discounted Cash Flow Sum-of-the-Parts Weighted Valuation
Weighting
50% 50%
A$ps
10.87 11.68 11.27
Current SoP (June 2013)

North America Australasia Europe Less: Corp, WC, Corp Capex Enterprise Value Add: Deferred Tax Asset Add: Other Financial Assets Less: Net Debt Less: Provisions Equity Value
WACC
10.8%
A$m
1,623.2 473.1 432.6 (129.1) 2,399.8 49.2 47.9 (69.2) (40.5) 2,387.2
A$ps
7.94 2.31 2.12 (0.63) 11.74 0.24 0.23 (0.34) (0.20) 11.68
Divisional forecasts (A$m)

VOLUMES (kt) North America Australasia Europe Total Sales Volum es AVERAGE PRICE (A$/t) North America Australasia Europe GROSS PROFIT / TONNE (A$/t) North America Australasia Europe GROSS PROFIT MARGIN (%) North America Australasia Europe EBIT / TONNE (A$/t) North America Australasia Europe EBIT North America Australasia Europe Corporate Total EBIT EBIT growth
FY12A
11,080 1,772 1,651 14,503
FY13A
9,377 1,764 1,645 12,786
FY14E
9,682 1,789 1,664 13,134
FY15E
10,158 1,804 1,680 13,642
FY16E
10,649 1,824 1,698 14,171
Key Ratios
PE (x) EPS grow th profile PEG ratio EV/Sales (x) EV/EBIT (x) EV/EBITDA (x) DYld
FY11A
19.8 36.5% 0.4 13.4 9.2 2.7% 11.9 4.1% 6.2% 6.1%
FY12A
26.7 -59.6% 0.3 18.8 9.2 2.1% 5.8 11.3% 3.2% 3.4%
FY13A
98.7 -76.7% 0.0 0.3 28.3 10.0 0.0% 3.9 7.4% 0.9% 1.1%
FY14E
15.3 679.1% 0.3 11.1 6.8 3.3% 499.9 3.4% 6.7% 6.4%
FY15E
10.6 44.1% 0.2 7.3 5.2 4.7% -201.4 -2.2% 9.2% 9.2%
544.0 693.1 1,078.5
483.6 614.0 957.6
554.4 616.6 966.9
568.0 618.2 977.9
525.8 572.3 946.8
Net Interest cover (EBIT/Int) ND/(ND+E) ROE (NPAT/Equity) ROIC (NOPLAT/assets)
63.6 146.2 193.1
74.5 146.7 136.0
89.1 152.4 172.4
94.4 154.1 184.6
94.8 145.2 185.8
Balance Sheet (A$m)

Cash Other Total Current Assets Property plant & equipment
FY11A
165.5 1,601.0 1,766.5 865.5 1,547.8 4,179.8 0.5 823.3 291.2 144.8 1,259.3 2,920.5 126.2
FY12A
51.4 1,377.7 1,429.1 977.1 1,102.8 3,509.0 13.7 734.2 329.9 161.2 1,225.3 2,283.7 292.2
FY13A
46.9 1,112.5 1,159.4 992.2 765.2 2,916.8 11.6 671.4 189.1 127.5 988.0 1,928.8 153.8
FY14E
46.9 1,211.1 1,258.0 972.5 742.3 2,972.8 11.6 745.2 104.5 127.5 977.3 1,995.6 69.2
FY15E
56.3 1,250.4 1,306.7 964.0 724.8 2,995.5 11.6 776.5 127.5 904.0 2,091.5 (44.7)
11.7% 21.1% 17.9%
15.4% 23.9% 14.2%
16.1% 24.7% 17.8%
16.6% 24.9% 18.9%
18.0% 25.4% 19.6%
Other Total assets Short term debt Total current liabilities
-0.1 42.1 34.0
3.9 35.0 -11.7
10.2 39.9 22.5
16.5 40.3 32.2
19.2 30.4 26.2
Long term debt Other Total liabilities Net assets Net debt
-1.5 74.6 56.1 -5.7 123.5 -56.4%
36.7 61.7 -19.2 -11.3 67.9 -45.0%
98.9 71.3 37.5 -11.3 196.4 189.3%
167.9 72.7 54.1 -11.3 283.4 44.3%
203.9 55.5 44.4 -11.3 292.5 3.2%
Cashflow (A$m)
EBITDA Net interest Taxation Other Cashflow from operations
FY11A
414.0 (18.7) (57.9) (178.8) 158.6 (142.8) (82.3) (52.4) 179.9 3.6 (31.4) 33.2
FY12A
253.4 (20.0) (64.8) 121.0 289.6 (161.1) (181.5) (69.3) 43.0 1.5 (36.3) (114.1)
FY13A
191.4 (16.7) (9.4) 132.0 297.3 (149.0) 30.2 (20.4) (157.3) (5.3) (4.5)
FY14E
320.1 (0.4) (62.8) (24.8) 232.1 (81.1) (66.4) (84.6) -
FY15E
400.3 1.4 (92.9) (8.0) 300.7 (90.8) (96.0) (104.5) 9.4
Key Assumptions
Scrap Price Grow th US Real GDP Grow th Australia Real GDP Grow th Europe Area Real GDP Grow th A$/US$ - Average A$/US$ - Average
FY12A
1.1% 2.1% 3.7% -0.5% 1.03 1.02
FY13A
-14.4% 1.8% 2.5% -0.9% 1.03 0.91
FY14E
0.4% 2.3% 3.4% 1.1% 0.90 0.88
FY15E
0.3% 2.4% 2.8% 1.0% 0.88 0.88
FY16E
-7.4% 2.3% 3.1% 1.1% 0.88 0.88
Capex Other investing cashflow s Dividends Paid Change in debt funds Equity issued Other Surplus cash
353
Singapore Airlines
Overweight
www.singaporeair.com
SIAL.SI,SIA SP Price: S$10.45 Price Target: S$13.00
Singapore Airlines Corrine Png

AC
Company overview SIA provides passenger and cargo transportation services. It is the ninth largest international passenger airline (based on RPK) and sixth largest international cargo airline (based on FTK) globally. It also owns 80% of SIA Engineering, 33% of Tigerair and 20% of Virgin Australia. 1QFY14 revenue breakdown: Passenger: 68%, Cargo: 14%, Others: 18%. Investment case At 0.9x P/BV and with net cash amounting to c.38% of current market cap and the ability to sustain a S$0.7 average annual dividend (implying a c.6% yield) for the next three years, we believe SIA offers the lowest risk option to play the longer-term cyclical recovery among the full-service airlines. New budget carrier Scoot will help drive organic growth and help reduce SIAs dependence on the more cyclical premium business longer term. Resilience of the growth outlook We believe the market tends to underestimate SIAs potential return. SIA offers c.58% upside potential to its peak valuations. If SIA pays out one-third of its current net cash balance or S$1.28 DPS, the yield would be 12%. Alternatively, it could partially divest its stake in SIA Eng via a dividend in specie. Reducing its 78.8% stake in SIA Eng to 51% would imply an c.13% dividend yield based on current share prices. Risks to the earnings outlook in 2014 Volatile fuel prices, weak cargo market, increased competition from low-cost carriers and Middle Eastern carriers, value-destroying M&A. Price target, and risks to our investment view Our Jun-14 price target of S$13 is based on 1.1x P/BV, in line with SIA's historical average over the past 10 years. This is well supported by SIAs liquidation value of c.S$13.3/shr. Key downside risks: deterioration in the macro environment, rising fuel prices, worse-than-expected competition from low-cost carriers and Middle Eastern carriers, value-destroying M&A, and a weaker Singapore dollar.
(65) 6882-1514 corrine.ht.png@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Abs Rel
YTD -2.8% -4.0%
1m 1.3% -0.8%
3m 4.6% 5.2%
12m -0.4% -6.6%
1,187 12,403 9,984 10.45 06 Nov 13 41.7% 0.86 8.65 7.0 3205.54 1.24 Mar
Singapore Airlines (Reuters: SIAL.SI, Bloomberg: SIA SP) S$ in mn, year-end Mar FY12A FY13A FY14E Revenue (S$ mn) 14,858 15,098 15,618 Net Profit (S$ mn) 336 379 354 EPS (S$) 0.28 0.32 0.30 DPS (S$) 0.20 0.23 0.24 Revenue growth (%) 2.3% 1.6% 3.4% EPS growth (%) (69.0%) 14.3% (8.7%) ROCE 1.7% 1.5% 1.2% ROE 2.5% 2.9% 2.7% P/E (x) 36.9 32.3 35.4 P/BV (x) 1.0 0.9 1.0 EV/EBITDA (x) 4.7 4.6 4.6 Dividend Yield 1.9% 2.2% 2.3%
FY15E 17,171 1,007 0.84 0.67 9.9% 184.3% 5.9% 7.5% 12.4 0.9 2.9 6.4%
FY16E 18,878 1,595 1.33 1.06 9.9% 58.4% 9.5% 11.4% 7.9 0.9 2.2 10.2%
354
Singapore Airlines: Summary of Financials

Income Statement S$ in millions, year end Mar Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y
Balance sheet S$ in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets . LT investments Net fixed assets Total Assets . Liabilities Short-term loans 67 74 Payables 4,342 4,635 Others 856 838 Total current liabilities 5,265 5,547 . Long-term debt 1,019 945 Other liabilities 2,572 2,519 Total Liabilities 8,856 9,011 Shareholder's equity 13,187 13,417 BVPS (S$) 10.86 11.18 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY12 FY13 FY14E FY15E FY16E S$ in millions, year end Mar 14,858 15,098 15,618 17,171 18,878 EBIT 2.3% 1.6% 3.4% 9.9% 9.9% Depr. & amortization 1,874 1,819 1,826 2,717 3,545 Change in working capital (36.3%) (3.0%) 0.4% 48.8% 30.5% Taxes 286 229 181 934 1,582 Cash flow from operations (77.5%) (19.8%) (21.0%) 415.0% 69.4% 1.9% 1.5% 1.2% 5.4% 8.4% Capex (24) 20 25 30 35 Disposal/(purchase) 448 482 443 1,192 1,855 Net Interest (68.4%) 7.6% (8.2%) 169.1% 55.7% Other (51) (40) (17) (103) (179) Free cash flow 11.5% 8.4% 3.8% 8.6% 9.6% 336 379 354 1,007 1,595 Equity raised/(repaid) (69.2%) 12.9% (6.6%) 184.3% 58.4% Debt raised/(repaid) 1,187 1,172 1,200 1,200 1,200 Other 0.28 0.32 0.30 0.84 1.33 Dividends paid (69.0%) 14.3% (8.7%) 184.3% 58.4% Beginning cash Ending cash DPS Ratio Analysis FY12 FY13 FY14E FY15E FY16E S$ in millions, year end Mar 4,703 5,060 5,283 5,832 6,018 EBITDA margin 1,500 1,737 1,796 1,975 2,171 Operating margin 306 275 284 313 344 Net margin 72 79 79 79 79 7,206 7,500 7,792 8,548 8,961 Sales per share growth 374 707 707 707 707 Sales growth 13,381 13,098 13,104 13,420 14,207 Net profit growth 22,043 22,428 22,715 23,823 25,061 EPS growth 74 4,795 838 5,706 945 2,519 9,170 13,545 10.97 74 5,272 838 6,183 945 2,519 9,647 14,176 11.43 Interest coverage (x) 74 5,796 Net debt to equity 838 Sales/assets 6,707 Assets/equity ROE 945 ROCE 2,519 10,171 14,890 11.95
FY12 286 1,589 20 1,703 (1,641) 495 (24) (380) 122 (1,159) (138) (1,557) 7,434 4,703 0.20 FY12 12.6% 1.9% 2.3% 3.0% 2.3% (69.2%) (69.0%) 78.8
FY13 229 1,589 16 1,854 (1,875) 648 20 82 708 (68) (96) (188) 4,703 5,060 0.23 FY13 12.0% 1.5% 2.5% 2.9% 1.6% 12.9% 14.3% NM
FY14E 181 1,644 90 1,910 (1,850) 200 25 204 464 0 58 (298) 5,060 5,283 0.24 FY14E 11.7% 1.2% 2.3%
FY15E 934 1,783 270 2,899 (2,300) 200 30 168 967 0 39 (457) 5,283 5,832 0.67 FY15E 15.8% 5.4% 5.9%
FY16E 1,582 1,963 297 3,682 (2,950) 200 35 177 1,109 0 39 (962) 5,832 6,018 1.06 FY16E 18.8% 8.4% 8.4% 9.9% 9.9% 58.4% 58.4% NM
1.0% 9.9% 3.4% 9.9% (6.6%) 184.3% (8.7%) 184.3% NM NM
(28.1%) (30.8%) (32.4%) (35.1%) (34.9%) 0.6 0.7 0.7 0.7 0.8 171.9% 171.1% 171.9% 173.2% 174.3% 2.5% 2.9% 2.7% 7.5% 11.4% 1.7% 1.5% 1.2% 5.9% 9.5%
355
Sinopec Corp - H
Overweight
www.sinopec.com
China Integrated Oils Scott L Darling

AC
Company overview Sinopec is the second- largest oil company in China. Sinopec is integrated with E&P, R&M and Chemicals. In 2012, crude production was 0.9mn BOPD and natural gas 0.27mn BOEPD, refining throughout was 4.7mn BOPD, ethylene production 10mn tonnes. Sinopec has SEC proven reserves of 4.0bn BOE (70%+ is crude). Major profit drivers are crude price and refining margins in China. Investment case We expect Sinopecs refining margins to improve as China moves to tougher gasoline standards with a sequential benefit as diesel specs tighten in 2015. China IV gasoline may add cUS$1/bl to refining margins in 2014 and almost a similar incremental uplift for diesel in 2015. Further upstream asset injections and strong natural gas production growth as well as further natural gas price hikes should support upstream profitability. Resilience of the growth outlook We see Sinopec earnings to be driven by robust Chinese oil demand growth (4% y/y) from double-digit gasoline demand growth more than offset by diesel demand growth at 1% y/y. We expect Sinopec to capture incremental refining margin as the country rolls out its tighter gasoline specifications. Oil prices at $112/bl Brent in 2014 should support upstream profitability as well as asset injections Risks to the earnings outlook in 2014 Risks are lower oil product demand and margins, a collapse in chemicals profitability from weaker margins and less than expected incremental refining margin upside from fuel spec reform. Price target, and risks to our investment view Our Dec-14 PT of HK$7.5 is based on our DCF valuation of the different segments, using a WACC of 10.5%; growth rate 2%. We expect improving returns, driven by a repositioning towards the upstream segment, to close the valuation gap with peers. Key downside risks are lower oil product/chemical demand and margins, asset integration/execution issues, and sharply higher oil prices. We have an OW rating on the stock.
Abs Rel
YTD -26.7% -19.1%
1m 3.7% 3.3%
3m 12.0% 2.6%
12m -21.7% -20.1%
86,702 439,420 72,030 6.44 06 Nov 13 88.77 534.60 69.0 1,0637.15 7.75 Dec
Sinopec Corp - H (Reuters: 0386.HK, Bloomberg: 386 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E Revenue (Rmb mn) 2,505,643 2,786,049 3,018,935 Net Profit (Rmb mn) 73,405 63,883 72,576 EPS (Rmb) 0.85 0.74 0.62 DPS (Rmb) 0.30 0.30 0.25 Revenue Growth (%) 31% 11% 8% EPS Growth (%) 2% (13%) (15%) ROCE 12% 10% 10% ROE 16% 13% 14% P/E 6.0 6.9 8.1 P/BV 0.9 0.9 1.0 EV/EBITDA 3.7 4.0 3.8 Dividend Yield 5.9% 5.9% 5.0%
FY14E 3,202,488 80,659 0.69 0.28 6% 11% 10% 14% 7.3 1.0 3.3 5.6%
FY15E 3,175,239 83,666 0.72 0.29 (1%) 4% 10% 13% 7.1 0.9 3.1 5.8%
356
Sinopec Corp - H: Summary of Financials
Income Statement Cash flow statement Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Revenues 2,505,643 2,786,049 3,018,935 3,202,488 3,175,239 EBIT 105,710 98,666 112,412 123,487 126,120 % change Y/Y 31% 11% 8% 6% (1%) Depr. & amortization 63,816 70,456 76,973 85,931 90,505 EBITDA 169,526 169,122 189,384 209,418 216,625 Change in working capital (14,484) (24,046) 6,858 22,727 (15,597) % change Y/Y 3% (0%) 12% 11% 3% Taxes (26,120) (23,846) (26,949) (29,835) (30,908) EBIT 105,710 98,666 112,412 123,487 126,120 Cash flow from operations 150,622 142,380 165,517 198,831 168,511 % change Y/Y 1% (7%) 14% 10% 2% EBIT Margin 4% 4% 4% 4% 4% Capex (141,038) (156,741) (178,680) (141,999) (116,125) Net Interest (7,657) (9,963) (11,831) (11,937) (10,490) Disposal/(purchase) 1,216 325 0 0 0 Earnings before tax 104,745 90,646 102,442 113,411 117,491 Net Interest (7,657) (9,963) (11,831) (11,937) (10,490) % change Y/Y 1% (13%) 13% 11% 4% Other (2,450) (6,840) 0 0 0 Tax (26,120) (23,846) (26,949) (29,835) (30,908) Free cash flow 15,287 (7,021) (4,444) 65,629 60,116 as % of EBT 25% 26% 26% 26% 26% Net income (reported) 73,405 63,883 72,576 80,659 83,666 Equity raised/(repaid) 0 0 9,464 0 0 % change Y/Y 2% (13%) 14% 11% 4% Debt raised/(repaid) (9,013) (7,445) 30,000 5,000 (15,000) Shares outstanding 86,702 86,702 116,565 116,565 116,565 Other 25,966 38,559 0 0 0 EPS (reported) 0.85 0.74 0.62 0.69 0.72 Dividends paid (19,469) (25,486) (29,550) (32,841) (34,066) % change Y/Y 2% (13%) (15%) 11% 4% Beginning cash 17,008 24,647 10,456 7,207 36,198 Ending cash 24,647 10,456 7,207 36,198 39,517 DPS 0.30 0.30 0.25 0.28 0.29 Balance sheet Ratio Analysis Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Cash and cash equivalents 24,647 10,456 7,207 36,198 39,517 EBITDA margin 7% 6% 6% 7% 7% Accounts receivable 58,721 81,395 88,199 93,561 92,765 EBIT margin 4% 4% 4% 4% 4% Inventories 203,417 218,262 236,507 250,886 248,752 Net margin 3% 2% 2% 3% 3% Others 55,420 54,494 59,049 62,639 62,106 Current assets 342,755 365,015 391,369 443,693 443,549 Sales per share growth 31% 11% (19%) 6% (1%) LT investments 1,829 2,001 2,001 2,001 2,001 Sales growth 31% 11% 8% 6% (1%) Net fixed assets 677,247 757,946 851,599 899,209 915,949 Net profit growth 2% (13%) 14% 11% 4% Total Assets 1,144,528 1,266,693 1,372,575 1,481,120 1,507,189 EPS growth (1%) (10%) (15%) 11% 4% Liabilities Interest coverage (x) 22.1 17.0 16.0 17.5 20.7 Short-term loans 80,373 115,982 125,982 125,982 125,982 Payables 177,002 215,628 227,105 254,431 248,071 Net debt to equity 42% 49% 50% 42% 37% Others 186,865 181,763 190,762 216,246 211,158 Sales/assets 2.3 2.3 2.3 2.2 2.1 Total current liabilities 444,240 513,373 543,849 596,659 585,211 Assets/equity 2.4 2.5 2.5 2.4 2.3 Long-term debt 154,457 162,116 182,116 187,116 172,116 ROE 16% 13% 14% 14% 13% Other liabilities 38,487 43,168 43,168 43,168 43,168 ROCE 12% 10% 10% 10% 10% Total Liabilities 637,184 718,657 769,133 826,943 800,495 Shareholder's equity 472,328 510,914 563,403 611,221 660,821 BVPS (Rmb) 5.45 5.89 4.83 5.24 5.67 Source: Company reports and J.P. Morgan estimates.
357
Sinopec Engineering Group

Overweight
www.segroup.cn/en/
China Construction Karen Li, CFA

AC
Company overview Listed on the HK Mainboard on May 23, 2013, Sinopec Engineering Group (SEG) is the leading oil refining, petrochemical and new coal chemical engineering company in China. According to ICIS Consulting, SEG ranked #1 in 2010 and 2011, based on revenue generated from services provided to hydrocarbon industries among all PRC exploration and design enterprises and globally among the top 10 contractors in 2011. Investment case We expect SEG to ride on capex up-cycle for China's new-coal-chemical sector in the coming years in light of the country's abundance in coal resources and shortage in oil reserves. SEG is well positioned to capture growth opportunities in the field leveraging on Sinopec Group's planned investment and SEG's strong engineering capabilities, R&D platform, and technology licensing. Moreover, we believe SEG is competitive outside China, with its strength in engineering and ability to offer total solutions. Resilience of the growth outlook We expect order flow for new coal chemical projects to further accelerate from 4Q13. As of end-3Q13, SEGs backlog reached Rmb101B, equating to 2.1x of its one-year forward sales. This ensures SEGs near-term earnings visibility, in our view. SEG's superior cash generation capability and solid balance sheet with net cash position provide firm support to the company's further expansion and dividend payout potential, in our opinion. Risks to the earnings outlook in 2014 Key risks to SEGs earnings outlook include 1) slower-than-expected new order awarding for new coal chemical projects; 2) execution risks for overseas projects. Price target, and risks to our investment view Our Dec-14 PT of HK$13.60 is based on DCF (terminal g 1%, WACC 11%)with peer group valuation considered. Our PT corresponds to a P/E of 10.6x/9.0x and a P/B of 1.5x/1.2x on 2014/2015E. Key risks to our PT: Delay in major projects; Unexpected cost inflation; Unfavorable change in foreign exchange rate; Unexpected drop in oil/gas prices and/or unexpected increase in coal prices.
(852) 2800-8589 karen.yy.li@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 10.7% 18.3%
1m 20.9% 20.5%
3m 14.4% 5.0%
12m 10.7% 12.3%
4,428 51,453 6,638 11.62 06 Nov 13 8.07 81.80 10.6 1,0637.15 7.75 Dec
Sinopec Engineering (Group) Co., Ltd (Reuters: 2386.HK, Bloomberg: 2386 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E Total Revenue (Rmb mn) 30,601 38,526 42,494 49,231 Net Profit (Rmb mn) 3,375 3,317 3,860 4,491 EPS (Rmb) 1.14 1.12 0.87 1.01 DPS (Rmb) 0.00 0.00 0.26 0.30 Revenue growth (%) 2.4% 25.9% 10.3% 15.9% EPS growth (%) 16.8% (1.7%) (22.0%) 16.4% ROE 57.4% 67.6% 23.5% 15.7% P/E (x) 8.0 8.2 10.5 9.0 P/BV (x) 9.9 3.8 1.6 1.3 EV/EBITDA (x) 4.9 4.5 3.8 3.2 Dividend Yield 0.0% 0.0% 2.9% 3.3%
FY15E 54,165 5,251 1.19 0.36 10.0% 16.9% 15.0% 7.7 1.1 2.8 3.9%
358
Sinopec Engineering Group: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Backlog Gross Profit % change Y/Y Gross margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income % change Y/Y Net profit margin EPS % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets LT investments Net fixed assets Total non-current assets Total Assets FY11 30,601 2.4% 5,074 11.8% 16.6% 4,173 9.7% 13.6% 3,725 11.6% 12.2% 529 4,244 15.4% (869) 20.5% 3,375 16.8% 11.0% 1.14 16.8% FY11 5,575 4,809 495 26,532 37,412 7 3,463 6,993 44,404 FY12 38,526 25.9% 5,528 8.9% 14.3% 4,531 8.6% 11.8% 3,832 2.9% 9.9% 405 4,252 0.2% (935) 22.0% 3,317 (1.7%) 8.6% 1.12 (1.7%) FY12 4,822 6,074 747 17,407 29,051 8 3,834 8,079 37,130 FY13E 42,494 10.3% 6,518 17.9% 15.3% 5,379 18.7% 12.7% 4,668 21.8% 11.0% 278 4,949 16.4% (1,089) 22.0% 3,860 16.4% 9.1% 0.87 (22.0%) FY13E 22,786 6,054 690 18,179 47,709 9 5,249 9,452 57,161 FY14E 49,231 15.9% 7,505 15.1% 15.2% 6,250 16.2% 12.7% 5,362 14.9% 10.9% 393 5,758 16.4% (1,267) 22.0% 4,491 16.4% 9.1% 1.01 16.4% FY14E 27,086 7,014 800 19,771 54,670 10 6,476 10,706 65,376 FY15E 54,165 10.0% 8,644 15.2% 16.0% 7,352 17.6% 13.6% 6,285 17.2% 11.6% 444 6,732 16.9% (1,481) 22.0% 5,251 16.9% 9.7% 1.19 16.9% FY15E 32,626 7,717 873 20,936 62,152 11 7,515 11,744 73,896 Cash flow statement Rmb in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Other investing activity Cashflow from investing Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing Beginning cash Ending cash DPS Ratio Analysis Rmb in millions, year end Dec Gross margin EBITDA margin Operating margin Net profit margin EBITDA / Interest Paid (x) Net debt to total capital Net debt to equity Sales/assets Assets/equity ROE ROA Backlog New orders Accounts receivable turnover Accounts payable turnover Inventory turnover Asset Turnover Net WC FY11 3,725 449 (1,922) (749) 1,689 (304) 56 (1,514) (1,818) 965 0 5 162 (351) (184) 5,923 5,575 0.00 FY12 3,832 699 (1,369) (1,772) 1,556 (314) 55 (1,354) (1,668) 927 0 108 (377) (374) (644) 5,575 4,822 0.00 FY13E 4,668 711 1,144 (1,089) 5,591 (2,000) 0 0 (2,000) 3,375 13,676 (157) (305) 1,158 14,372 4,822 22,786 0.26 FY14E 5,362 888 584 (1,267) 5,248 (2,000) 0 0 (2,000) 2,942 0 0 (295) 1,347 1,052 22,786 27,086 0.30 FY15E 6,285 1,067 442 (1,481) 6,253 (2,000) 0 0 (2,000) 3,907 0 0 (288) 1,575 1,287 27,086 32,626 0.36
FY11 16.6% 13.6% 12.2% 11.0%
FY12 14.3% 11.8% 9.9% 8.6%
FY13E 15.3% 12.7% 11.0% 9.1%
FY14E 15.2% 12.7% 10.9% 9.1%
FY15E 16.0% 13.6% 11.6% 9.7%
29.1 37.4 51.4 65.5 83.6 197.9% (193.1%) (762.2%) (598.2%) (561.2%) (202.2%) (65.9%) (88.4%) (85.7%) (84.9%) 0.8 0.9 0.9 0.8 0.8 6.8 57.4% 8.4% 7.3 4.3 64.2 0.8 (479) 8.3 67.6% 8.1% 7.1 4.4 53.2 0.9 2,289 2.9 23.5% 8.2% 7.0 4.4 50.1 0.9 19,595 2.1 15.7% 7.3% 7.5 4.8 56.0 0.8 24,075 2.0 15.0% 7.5% 7.4 4.6 54.4 0.8 29,732
Liabilities Short-term loans 49 157 Payables 6,635 8,366 Others 31,205 18,239 Total current liabilities 37,890 26,762 Long-term debt Other liabilities 3,781 3,286 Total Liabilities 41,671 30,049 Shareholders' equity 2,730 7,078 Minority interests 3 3 Source: Company reports and J.P. Morgan estimates.
0 8,082 20,031 28,113 3,273 31,386 25,772 3
0 9,374 21,222 30,596 3,167 33,763 31,610 3
0 10,227 22,193 32,420 3,036 35,456 38,437 3
359
Sinopec Shanghai Petrochemical

Overweight
www.spc.com
China Independent Refiners Sophie Tan

AC
Company overview Sinopec Shanghai Petrochemical (SPC) is one of the five largest refineries owned by Sinopec Corp (51% shareholding). Post-refinery expansion and upgrades put into operation since early this year have enhanced SPC's processing capabilities, improved margins through the use of cheaper crude oil grades, and increased the flexibility to switch between products to capture changes in profitability. Investment case We expect further uplift to SPCs profitability with tougher fuel standards, and free cash flow generation should improve because the SPC has completed upgrades for China V gasoline and China IV diesel. Because a price hike occurred when Shanghai moved to China IV gasoline, the margin expansion for moving to China V will be Rmb50/ton (cUS$0.2/bbl). Shanghai will raise prices for China V gasoline on 1 November. The impact on earnings is expected to be more significant in 2014-15, when Zhejiang and Jiangsu also implement China IV diesel standards. Resilience of the growth outlook SPC can lower material costs and achieve better production flexibility for its refining segment following the refinery upgrade. Overall, we expect Chinese oil demand growth to remain similar Y/Y, at 4% in 2014.
(852) 2800 8531 sophie.lm.tan@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 12.0% 10.3%
1m 0.6% 1.0%
3m 25.6% 20.5%
12m 34.9% 29.9%
Risks to the earnings outlook in 2014 Key downside risks are lower oil product demand and margins, a collapse in chemicals profitability from weaker margins and lower-than-expected incremental refining margin upside from fuel spec reform. Price target, and risks to our investment view Our DCF-derived Dec-14 PT of HK$2.5 implies 1.2x 2014E BV and 11.8x 2014E EPS. Our 1.2x P/B target multiple is in line with SPCs five-year historical P/B. We remain OW, as we believe valuations do not fully reflect our expectation of higher refining profitability from price increases for tougher Chinese fuel standards or improving free cash flow generation (FCF yield at c17% in 2014E) from the completion of the refinery upgrade investments. Key downside risks include a sharp spike in crude oil prices, leading to weaker margins, and lower Chinese oil demand growth and petrochemicals profitability.
10,800 17,509 2,870 2.06 06 Nov 13 18.75 35.76 4.6 2,3038.95 7.75 Dec
Sinopec Shanghai Petrochemical (Reuters: 0338.HK, Bloomberg: 338 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Rmb mn) 89,510 87,217 97,565 96,086 Net Profit (Rmb mn) 956 (1,528) 1,171 1,766 EPS (Rmb) 0.09 (0.14) 0.11 0.16 DPS (Rmb) 0.03 0.00 0.10 0.05 Revenue growth (%) 24.2% (2.6%) 11.9% (1.5%) EPS growth (%) (65.5%) (259.9%) (176.6%) 50.8% ROCE 15.7% (24.8%) 10.5% 13.8% ROE 5.4% (9.0%) 7.2% 10.3% P/E (x) 18.3 NM 15.0 9.9 P/BV (x) 1.0 1.1 1.1 1.0 EV/EBITDA (x) 13.2 NM 13.3 10.9 Dividend Yield 2.1% 0.0% 6.2% 3.1%
FY15E 99,961 1,989 0.18 0.06 4.0% 12.6% 15.2% 10.8% 8.8 0.9 10.3 3.4%
360
Sinopec Shanghai Petrochemical: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 89,510 24.2% 2,684 (41.9%) 1,060 (64.2%) 1.2% (116) 1,297 (63.3%) (310) 23.9% 956 (65.5%) 10,800 0.09 (65.5%) Cash flow statement FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 87,217 97,565 96,086 99,961 EBIT (2.6%) 11.9% (1.5%) 4.0% Depr. & amortization (89) 3,852 4,481 4,705 Change in working capital (103.3%) (4408.3%) 16.3% 5.0% Taxes (1,772) 1,837 2,551 2,805 Cash flow from operations (267.2%) (203.7%) 38.9% 10.0% (2.0%) 1.9% 2.7% 2.8% Capex (270) (276) (193) (149) Disposal/(purchase) (2,016) 1,600 2,397 2,696 Net Interest (255.5%) (179.3%) 49.8% 12.5% Other 511 (406) (608) (684) Free cash flow (25.4%) 25.4% 25.4% 25.4% (1,528) 1,171 1,766 1,989 Equity raised/(repaid) (259.9%) (176.6%) 50.8% 12.6% Debt raised/(repaid) 10,800 10,800 10,800 10,800 Other (0.14) 0.11 0.16 0.18 Dividends paid (259.9%) (176.6%) 50.8% 12.6% Beginning cash Ending cash DPS Ratio Analysis FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 161 1,363 3,659 4,400 EBITDA margin 3,193 3,427 3,321 3,429 Operating margin 8,938 9,618 9,398 9,764 Net margin 599 645 630 655 12,891 15,053 17,007 18,247 Sales per share growth - Sales growth 17,469 16,913 16,014 16,387 Net profit growth 36,463 38,242 39,318 41,019 EPS growth Interest coverage (x) 12,524 12,524 12,524 7,704 7,528 7,821 Net debt to equity 2 2 2 Sales/assets 20,231 20,054 20,347 Assets/equity ROE 1,231 1,231 1,231 ROCE 0 0 0 21,462 21,285 21,578 16,780 18,032 19,441 1.53 1.64 1.77 FY11 1,060 1,642 (375) 2,220 (3,481) 70 (116) 1,387 (1,103) 0 1,315 (20) (713) 100 92 0.03 FY11 3.0% 1.2% 1.1% FY12 (1,772) 1,701 (1,488) (2,066) (4,260) 25 (270) 203 (5,964) 0 6,586 (27) (361) 91 161 0.00 FY12 (0.1%) (2.0%) (1.8%) FY13E FY14E FY15E 1,837 2,551 2,805 2,015 1,930 1,899 (1,291) 184 (255) 1,880 3,864 3,617 (1,459) (1,031) (2,272) 0 0 0 (276) (193) (149) 0 0 0 627 2,977 1,456 0 1,500 0 (718) 161 1,363 0.10 0 0 0 (537) 1,363 3,659 0.05 0 0 0 (604) 3,659 4,400 0.06
Balance sheet Rmb in millions, year end Dec FY11 Cash and cash equivalents 91 Accounts receivable 3,749 Inventories 5,582 Others 243 Current assets 9,666 . LT investments Net fixed assets 12,502 Total Assets 30,719 . Liabilities Short-term loans 5,512 11,024 Payables 6,737 7,901 Others 22 2 Total current liabilities 12,272 18,927 . Long-term debt 160 1,231 Other liabilities 91 0 Total Liabilities 12,523 20,159 Shareholder's equity 18,196 16,304 BVPS (Rmb) 1.66 1.48 Source: Company reports and J.P. Morgan estimates.
FY13E FY14E FY15E 3.9% 4.7% 4.7% 1.9% 2.7% 2.8% 1.2% 1.8% 2.0% 4.0% 4.0% 12.6% 12.6% 31.6
24.2% (2.6%) 11.9% (1.5%) 24.2% (2.6%) 11.9% (1.5%) (65.5%) (259.9%) (176.6%) 50.8% (65.5%) (259.9%) (176.6%) 50.8% 23.1 30.7% 3.0 166.8% 5.4% 15.7% NM 74.2% 2.6 197.8% (9.0%) (24.8%) 13.9 23.2
73.9% 56.0% 48.1% 2.6 2.5 2.5 229.7% 226.7% 218.2% 7.2% 10.3% 10.8% 10.5% 13.8% 15.2%
361
SK Hynix
Overweight
www.skhynix.com
South Korea Semiconductors JJ Park

AC
(822) 758-5717 jj.park@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Abs Rel
YTD 26.2% 25.4%
1m 0.2% -0.6%
3m 18.0% 12.4%
12m 25.5% 21.1%
Company overview SK Hynix manufactures semiconductors such as dynamic random access memory (DRAM) and NAND flash memory. Investment case SK Hynix is a DRAM centric company with more than 70% of its sales from DRAM. We maintain our view that DRAM industry will see a multi-year upturn cycle on 1.) Limited capacity expansion, 2.) Industry consolidation, and 3.) Ongoing strength in mobile and server DRAM offsetting weak PC DRAM. Although we are less bullish on NAND, we see this as a non-event for SK Hynix since its exposure to NAND market is much less than for other memory makers. Resilience of the growth outlook Due to halted production at Wuxi fab and temporary NAND capacity conversion into DRAM, DRAM and NAND will see double digit shipment decline in 4Q13. Nonoperating expense associated with the fire is a negative to bottomline earnings. Despite seasonal weakness, however, this implies stronger than expected 1H14, once operations normalize along with potential one time gain from insurance coverage. We estimate SK Hynix to generate historical high FCFs throughout our forecasting period (2015E) thanks to a healthy DRAM market and prudent capex within depreciation expense. We thus expect the companys financials to significantly improve and it will achieve an almost net cash position by end-2014. Risks to earnings outlook in 2014 Being a DRAM centric company, SK Hynixs earnings are highly correlated with DRAM ASPs which in turn depend on the market supply/demand situation. If other DRAM makers like Samsung and Micron ramp up DRAM production, we see downside risk to 2014 earnings outlook. We, however, believe such an oversupply situation is unlikely. Price target, and risks to our investment view Our Jun14 PT of W39,000 is based on 1.7x P/B, based on high-end of its historical trading range since we expect its ROE to remain high during our forecast period. Key risks are lower-than-expected DRAM prices and margins and prolonged uncertainty around end-demand/inventories.
FY15E 17,146 Sales growth 4,250 OP growth 7,419 NP growth 3,397 Quarterly EPS (W) 4,865 EPS (12) 27,162 EPS (13) E 6.7 EPS (14) E 1.2 Price Target 19.7 Consensus PT -3,148 Difference (%) FY12 FY13E FY14E FY15E Date of Price -2.2% 39.7% 11.8% 8.0% 52-Week range NM NM 18.2% 10.3% Market Cap 183.0% NM 23.9% 10.9% Market Cap 1Q 2Q 3Q 4Q Share Out. (Com) -389 -76 3 234 Free float 256 1,356 1,372 558 Avg daily val 783 1,030 1,234 1,340 Avg daily val (US$) 39,000 Avg daily vol. 40,808 Dividend yield (%) -4.4 Exchange Rate 06 Nov 13 W$35,000-23,600 W22,675BN US$21,368MN 698MN 67.3% W170.1B 160.3MM 5.6MM shares 0.0 1,061.15
Bloomberg 000660 KS, Reuters 000660.KS (YE Dec, W bn) FY12 FY13E FY14E Sales 10,162 14,193 15,872 Operating Profit -227 3,261 3,854 EBITDA 2,975 6,233 6,959 Net profit -159 2,473 3,063 EPS -228 3,543 4,387 BPS (W) 13,960 17,924 22,297 P/E (x) NM 9.2 7.4 P/BV (x) 2.3 1.8 1.5 ROE (%) -1.8 22.2 21.8 Net Debt 4,687 2,194 -42 Source: Company data, Bloomberg, J.P. Morgan estimates.
362
SK Hynix: Summary of Financials

Income Statement W in billions, year end Dec Revenues % change Y/Y Gross margin EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (W) Balance sheet W in billions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY12 10,162 -2.2% 15.9% 2,975 -20.2% 29.3% -227 NM -2.2% -238 -199 -542.9% 41 -20.3% -159 183.0% 698 -228 FY12 1,785 1,720 1,509 300 5,314 FY13E 14,193 39.7% 36.3% 6,233 109.5% 43.9% 3,261 NM 23.0% -202 2,656 -1432.6% -183 6.9% 2,473 NM 698 3,543 FY13E 2,923 1,860 1,116 283 6,183 689 12,257 20,160 1,751 574 1,107 3,432 3,366 856 7,654 12,505 17,924 2Q13A 3,933 947 1,356 FY14E 15,872 11.8% 39.8% 6,959 11.7% 43.8% 3,854 18.2% 24.3% -107 3,736 40.7% -672 18.0% 3,063 23.9% 698 4,387 FY14E 2,808 2,339 1,403 356 6,906 689 12,552 21,137 951 652 1,392 2,995 1,815 758 5,568 15,569 22,297 3Q13A 4,084 958 1,372 FY15E 17,146 8.0% 40.3% 7,419 6.6% 43.3% 4,250 10.3% 24.8% 12 4,194 12.3% -797 19.0% 3,397 10.9% 698 4,865 FY15E 3,422 2,407 1,444 366 7,639
Cash flow statement W in billions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Other investing cashflow Cash flow from investments Equity raised/(repaid) Debt raised/(repaid) Other Dividends Beginning cash Ending cash DPS (W) Ratio Analysis W in billions, year end Dec EBITDA margin Operating Margin Net margin SG&A / Sales
FY12 -227 3,202 -733 41 2,310 -3,889 -347 -4,236 2,106 -304 32 0 1,876 1,785 0 FY12 29.3% -2.2% -1.6% 1.4% -16.6% -2.2% 183.0% 141.5% 12.5 32.5% 48.1% 0.6 2.0 -1.8%
FY13E 3,261 2,972 228 -183 5,673 -3,643 29 -3,614 293 -1,354 141 0 1,785 2,923 0 FY13E 43.9% 23.0% 17.4% 1.3% 39.6% 39.7% NM -1656.4% 30.9 14.9% 17.5% 0.7 1.7 22.2%
FY14E 3,854 3,106 -475 -672 5,694 -3,400 41 -3,359 0 -2,351 -98 0 2,923 2,808 FY14E 43.8% 24.3% 19.3% 1.5% 11.8% 11.8% 23.9% 23.8% 65.1 -0.3% -0.3% 0.8 1.5 21.8%
FY15E 4,250 3,169 -12 -797 6,554 -3,400 39 -3,361 0 -2,492 -87 0 2,808 3,422 FY15E 43.3% 24.8% 19.8% 1.6% 8.0% 8.0% 10.9% 10.9% NM -19.9% -16.6% 0.8 1.3 19.7%
Long term investments 765 Net fixed assets 11,586 Total Assets 18,649 Liabilities Short-term loans 2,719 Payables 593 Others 1,129 Total current liabilities 4,441 Long-term debt 3,753 Other liabilities 715 Total Liabilities 8,909 Shareholders' equity 9,739 BVPS 13,960 Quarterly Data 1Q13A Revenues 2,781 Net income 179 EPS (W) 256 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 689 Sales growth 12,783 Net profit growth 22,062 EPS growth Interest coverage (x) 51 Net debt to total capital 719 Net debt to equity 1,432 Sales/assets 2,202 Assets/equity 223 ROE 671 3,096 18,966 27,162 4Q13E Quarterly Data 3,395 Revenues 390 Net income 558 EPS (W)
1Q14E 3,567 547 783
2Q14E 3,892 719 1,030
3Q14E 4,146 862 1,234
4Q14E 4,268 936 1,340
363
SK Innovation Co Ltd
Overweight
eng.skinnovation.com/
Company overview SK Innovation is the largest refining company in Korea and one of the largest integrated refining/petchem companies in Asia. SK Inno also has sizeable investments in upstream E&P which we forecast to account for 22% of 2013 revenues. Investment case For 2014 we like companies with organic growth trading at low valuations as we believe the industry outlook is only bearish to neutral. SK Inno is expected to almost triple its PX capacity in 2014 but more importantly, will upgrade its Incheon refinery so that it can double its current utilization rate while producing more valuable products at the same time. We believe the latter is the real value added of the capacity expansion project, which should allow SK Inno to grow earnings by 33% next year. Resilience of the growth outlook We have a more neutral view on refining as we believe new capacity in China will be offset by the closure of teapot refineries due to the upgrade of Chinese gasoline specs to China IV in 2014. While the startup of a new 400 bopd refinery in Saudi Arabia maybe negative for regional margins, we believe the impact will be smaller than expected as up to 40% of products will likely go to Europe while there will likely refinery closures in Japan and Australia next year to help offset the incremental volumes. Risks to the earnings outlook in 2014 The major risk to earnings in 2014 would be lower PX spreads due to significant capacity addition by the industry, including SK Inno. We current forecast PX spreads to fall from an average of $550/ton this year to $450/ton in 2014. However, with their own capacity expansion, we believe higher volumes will offset some margin decline. Price target, and risks to our investment view Our Dec-14 PT of W180,000 is based on 0.7x 2014e BV vs forecasted ROE of 8-9%. We believe SK Inno should trade at above current trough valuations. Downside risk to our view are delays in the capacity expansion mentioned, highly volatile crude oil prices and slowdown in gasoline demand in countries where subsidies have been cut this year.
South Korea Independent Refiners Samuel Lee, CFA

AC
Abs Rel
YTD -17.5% -18.3%
1m -0.3% -1.1%
3m -2.0% -7.6%
12m -13.3% -17.7%
92 13,269 12,504 143,500 06 Nov 13 0.36 52.48 49.5 2013.67 1,061.15 Dec
SK Innovation Co Ltd (Reuters: 096770.KS, Bloomberg: 096770 KS) W in bn, year-end Dec FY11A FY12A FY13E Revenue (W bn) 68,371 73,330 68,418 EBITDA (W bn) 3,565 2,322 2,776 Net Profit (W bn) 3,171 1,178 1,164 EPS (W) 34,292 12,742 12,591 DPS (W) 2,800 2,300 2,400 Revenue growth 55.9% 7.3% (6.7%) EPS growth 158.6% (62.8%) (1.2%) ROCE 10.4% 5.3% 5.9% ROE 24.7% 7.6% 6.6% P/E (x) 4.2 11.3 11.4 P/BV (x) 0.9 0.8 0.7 EV/EBITDA (x) 4.8 7.2 5.7 Dividend Yield 2.0% 1.6% 1.7%
FY14E 74,690 3,142 1,553 16,800 2,500 9.2% 33.4% 6.6% 7.9% 8.5 0.7 5.0 1.7%
FY15E 75,564 3,546 1,863 20,149 2,600 1.2% 19.9% 7.6% 8.8% 7.1 0.6 4.1 1.8%
364
SK Innovation Co Ltd: Summary of Financials

Income Statement W in billions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 68,371 55.9% 3,565 51.4% 2,959 72.7% 4.3% (418) 4,309 186.8% (1,133) 26.3% 3,171 158.6% 92 34,292 158.6% FY12 73,330 7.3% 2,322 (34.9%) 1,699 (42.6%) 2.3% (228) 1,689 (60.8%) (506) 30.0% 1,178 (62.8%) 92 12,742 (62.8%) FY13E 68,418 (6.7%) 2,776 19.5% 1,828 7.6% 2.7% (272) 1,553 (8.0%) (385) 24.8% 1,164 (1.2%) 92 12,591 (1.2%) FY14E 74,690 9.2% 3,142 13.2% 2,154 17.8% 2.9% (222) 2,079 33.9% (521) 25.1% 1,553 33.4% 92 16,800 33.4% FY15E 75,564 1.2% 3,546 12.9% 2,522 17.1% 3.3% (171) 2,498 20.1% (630) 25.2% 1,863 19.9% 92 20,149 19.9%
Cash flow statement W in billions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis W in billions, year end Dec EBITDA margin Operating margin Net margin Sales per share growth Sales growth Net profit growth EPS growth Interest coverage (x) Net debt to equity Sales/assets Assets/equity ROE ROCE
FY11 2,959 605 (13) 2,722 (1,192) 2,287 (418) (281) 4,125 0 (1,880) (7) (199) 2,248 4,380 2,800 FY11 5.2% 4.3% 4.6%
FY12 FY13E FY14E FY15E 1,699 1,828 2,154 2,522 623 948 987 1,024 (520) 452 (578) (81) 1,162 2,495 1,894 2,738 (1,458) (1,458) (1,458) (1,458) 50 0 0 0 (228) (272) (222) (171) (1,054) 0 0 0 (87) 1,242 603 1,408 0 0 0 0 (444) (1,000) (1,000) (1,000) 466 0 0 0 (264) (226) (236) (245) 4,380 2,829 2,640 1,840 2,829 2,640 1,840 1,875 2,300 2,400 2,500 2,600 FY12 FY13E FY14E FY15E 3.2% 4.1% 4.2% 4.7% 2.3% 2.7% 2.9% 3.3% 1.6% 1.7% 2.1% 2.5% 9.2% 9.2% 33.4% 33.4% 14.1 6.5% 2.2 1.7 7.9% 6.6% 1.2% 1.2% 19.9% 19.9% 20.7 1.3% 2.2 1.6 8.8% 7.6%
FY11 4,380 6,755 7,482 95 19,887
FY12 2,829 6,502 6,759 138 17,885
FY13E 2,640 6,067 6,306 138 16,808
FY14E 1,840 6,623 6,884 138 17,143
FY15E 1,875 6,700 6,965 138 17,336
LT investments 1,617 1,608 1,682 1,756 1,830 Net fixed assets 11,377 12,204 12,792 13,341 13,853 Total Assets 35,027 33,831 33,338 34,216 34,917 Liabilities Short-term loans 2,782 1,538 1,538 1,538 1,538 Payables 8,015 6,506 6,071 6,627 6,705 Others 3,508 3,980 2,214 2,214 2,214 Total current liabilities 14,305 12,025 9,822 10,379 10,457 Long-term debt 4,991 4,628 3,628 2,628 1,628 Other liabilities 899 830 830 830 830 Total Liabilities 20,195 17,483 14,281 13,837 12,915 Shareholder's equity 14,832 16,348 19,057 20,380 22,002 BVPS (W) 160,401 176,800 206,101 220,402 237,951 Source: Company reports and J.P. Morgan estimates.
55.9% 7.3% (6.7%) 55.9% 7.3% (6.7%) 158.6% (62.8%) (1.2%) 158.6% (62.8%) (1.2%) 8.5 10.2 10.2 20.1% 2.2 2.4 24.7% 10.4% 14.3% 2.1 2.2 7.6% 5.3% 8.0% 2.0 1.9 6.6% 5.9%
365
Tata Motors
Overweight
tatamotors.com
TAMO.BO,TTMT IN Price: Rs395.30 Price Target: Rs445.00
Company overview Tata Motors is among India's largest auto OEMs, with a dominant presence in the CV segment. The company acquired British OEM Jaguar Land Rover (JLR), which manufactures luxury cars and SUVs for the global market. Investment case The successful introduction of new models at JLR, including the New Range Rover Sport and Jaguar F-type, will drive growth, in our view. This will likely offset the weakness in the domestic markets, where the business outlook remains challenging given the weak macro economic environment. Resilience of the growth outlook The demand environment remains encouraging for JLR across key markets, such as the U.S., China and U.K. Further, new product launches should drive healthy margins. Risks to the earnings outlook in 2014 An increase in competitive intensity from global luxury OEMs and a sustained slowdown in the domestic market.
India Automobile Manufacture Aditya Makharia

AC
(91-22) 6157-3596 aditya.s.makharia@jpmorgan.com J.P. Morgan India Private Limited
Abs Rel
YTD 24.8% 19.7%
1m 13.6% 7.7%
3m 38.8% 28.8%
12m 46.5% 36.9%
Price target, and risks to our investment view Our Mar-15 PT of Rs445 is based on a sum-of-the-parts methodology, with the JLR business valued at 3.75x EV/EBITDA and the India business valued at 7.25x EV/EBITDA. Key downside risks include any increase in discounting trends by luxury OEMs and a delayed revival in the local industrial cycle.
Company Data 52-week Range (Rs) 393.30 - 251.80 Shares O/S (mn) 2,694 Market cap ($ mn) 17,252 Price (Rs) 395.30 Date Of Price 05 Nov 13 3mth Avg daily volume 9.40 Average 3m Daily Turnover ($ mn) 50.29 NIFTY 6,317
Tata Motors Ltd (Reuters: TAMO.BO, Bloomberg: TTMT IN) Rs in mn, year-end Mar FY11A FY12A FY13E Sales-Consolidated (Rs mn) 1,231,333 1,656,545 1,888,176 Net Income (Adjusted) (Rs mn) 90,888 125,325 103,923 Adjusted EPS -Consolidated (Rs) 28.5 39.5 32.6 ROE (%)-Consolidated 48.4% 40.8% 23.6% P/E (x)-Consolidated 10.0 7.2 8.7 P/BV (x) 6.6 3.8 3.0
FY14E 2,149,476 113,468 35.6 21.6% 8.0 2.4
FY15E 2,373,791 132,153 41.4 20.5% 6.9 2.0
366
Tata Motors: Summary of Financials
Consolidated Profit and Loss Statement Standalone Income Statement Rs in millions, year end Mar FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar Revenues 1,231,333 1,656,545 1,888,176 2,149,476 2,373,791 Revenues % change Y/Y 33% 35% 14% 14% 10% % change Y/Y Profit Before Tax 104,372 135,339 137,211 161,562 187,760 EBITDA % change Y/Y 170% 30% 1% 18% 16% % change Y/Y Tax 12,164 - 400 37,710 48,572 55,960 EBITDA margin Tax Rate (%) 11.7% (0.3%) 27.5% 30.1% 29.8% Other Income Net Income (Reported) 92,736 135,165 99,802 113,468 132,153 Depreciation % change Y/Y 218% 46% -26% 14% 16% EBIT Net income (Adjusted) 90,888 125,325 103,923 113,468 132,153 Net Interest % change Y/Y 219% 38% -17% 9% 16% Earnings before tax Adjusted EPS (in Rs) 28.5 39.5 32.6 35.6 41.4 Tax % change Y/Y 186% 39% -18% 9% 16% as % of EBT Dividend 4.00 4.04 2.00 3.00 4.00 Exceptionals Dividend Payout 14.0% 10.2% 6.1% 8.4% 9.7% Net income (Adjusted) % change Y/Y Shares Outstanding Consolidated Balance Sheet Standalone Balance sheet Rs in millions, year end Mar FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar Net Worth 191,715 331,499 423,172 525,710 643,289 Cash and cash equivalents Gross Debt 327,914 471,490 545,387 568,427 586,027 Accounts receivable Inventories Others Net Fixed Assets 434,931 562,125 687,932 853,748 994,926 Current assets Net Current Assets 40,511 85,564 121,704 77,444 67,315 Others 61,291 130,115 134,573 139,255 144,171 LT Investments Net fixed assets Ratio Analysis - Consolidated Total Assets %, year end FY11 FY12 FY13E FY14E FY15E Book Value Per Share (in Rs) 60 104 133 165 202 Liabilities Cash EPS (in Rs) 43 57 56 67 75 ROE (%) 48.4% 40.8% 23.6% 21.6% 20.5% Payables ROCE (%) 22.9% 22.1% 18.8% 18.5% 18.8% Others P/E (x) 10.0 7.2 8.7 8.0 6.9 Total current liabilities EV/EBITDA (x) 6.3 5.0 4.6 4.1 3.7 Total debt P/B (x) 4.7 2.7 2.1 1.7 1.4 Other liabilities Net Debt: Equity (x) 1.1 0.9 0.7 0.7 0.6 Total Liabilities Gross Debt: Equity (x) 1.7 1.4 1.3 1.1 0.9 Shareholders' equity Source: Company reports and J.P. Morgan estimates.
FY11 FY12 FY13E FY14E FY15E 480,405 543,066 447,657 426,545 488,668 35% 13% -18% -5% 15% 47,713 44,118 22,022 20,779 35,581 14% -8% -50% -6% 71% 9.9% 8.1% 4.9% 4.9% 7.3% 1,833 5,741 20,882 23,629 24,380 -13,608 -16,067 -18,176 -19,532 -21,257 34,105 28,051 3,845 1,247 14,325 -11,440 -12,186 -13,878 -13,915 -13,886 21,965 13,410 2,333 6,491 19,901 -3,847 -988 1,269 -1,298 -4,975 17.5% 7.4% 54.4% 20.0% 25.0% 19,589 17,104 7,943 5,193 14,925 27% -13% -54% -35% 187% 3,189 3,174 3,190 3,190 3,190 FY11 FY12 FY13E FY14E FY15E 26,029 27,083 18,235 17,355 19,894 38,914 45,882 42,549 39,338 43,767 140,906 147,112 132,096 117,826 131,756 226,242 204,936 204,936 204,936 204,936 174,756 190,562 201,386 206,854 210,597 541,905 542,609 538,517 529,716 547,389
113,587 48,965 162,552 158,988 20,232 341,772 200,133
87,448 62,028 149,477 175,819 21,054 346,349 196,260
79,020 68,231 147,252 177,603 21,054 345,908 192,609
69,420 74,768 144,188 177,603 21,054 342,844 186,871
79,576 81,933 161,509 177,603 21,054 360,165 187,223
367
Tata Steel Ltd

Overweight
www.tatasteel.com
TISC.BO,TATA IN Price: Rs338.95 Price Target: Rs500.00
India Steel Pinakin Parekh, CFA

AC
Abs Rel
YTD -22.6% -29.7%
1m 12.8% 7.4%
3m 63.0% 53.7%
12m -14.8% -26.6%
Company overview Tata Steel is the worlds sixth-largest steel company with existing annual crude steel production capacity of ~30 MTPA. Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 9.7 MTPA. Through investments in Corus, Millennium Steel and NatSteel Holdings, Singapore, it has created a manufacturing network spanning Europe, South-East Asia and the Pacific Rim countries. Investment case TATA remains our top pick despite the stock being up significantly from midAugust. In our view, expectations of a potential improvement in European metals demand is positive for TATAs European operations. We believe an improving Europe over the next two years, implies a further re-rating of the stock. In addition, domestic demand should remain stable with limited new capacity additions from major players. Potential investment sales to de-lever could provide further potential upside. Resilience of the growth outlook Recent data out of Europe support our thesis of improving steel demand in Europe. With the trough in Europe likely behind us, the focus has now moved to how fast TATA Europes earnings can ramp up. We expect TATA Europe to be EBITDApositive in the September and December quarters ($17-25/T) before rebounding further in the March quarter. We expect domestic steel demand to improve in FY15, which should benefit TATAs additional 1MT new capacity at Odisha. This should drive operating leverage for TATA given the relatively high fixed cost base of its India operations. Risks to the earnings outlook in 2014 Our investment thesis is predicated on our view of improving demand in Europe and stable volume and pricing in the domestic market. A slowdown in Europe as well as a significant decline in domestic demand could provide pressure on volumes and prices and would constitute a key risk to our earnings. Price target, and risks to our investment view Our Jun-14 PT of Rs500 is based on SOTP, where we value the India operations at 5.7x, Asia at 5.0x and European operations at 5.5x FY15E EV/EBITDA. Key risks (other than macro economic weakness) include a sharp decline in India profitability on higher inputs costs and/or increase in royalty, lower realizations on back of poor mix and demand in Europe stagnating, as against picking up.
Tata Steel Ltd (Reuters: TISC.BO, Bloomberg: TATA IN) Rs in bn, year-end Mar FY12A FY13A FY14E Net Sales (Rs bn) 1,329 1,347 1,382 Net Profit (Rs bn) 52 (75) 30 EPS (Rs) 51.45 (74.39) 29.58 Net Profit growth (%) (41.9%) (244.6%) (139.8%) ROE 12.1% (18.2%) 7.9% P/E (x) 6.6 NM 11.5 P/BV (x) 0.7 0.9 0.9 EV/EBITDA (x) 5.8 6.4 5.3
448.10-195.30 343,631 5,567 338.95 05 Nov 13 8.89 40.9 2,1239.36
FY15E 1,433 52 51.57 74.3% 12.7% 6.6 0.8 4.5
FY16E 1,573 85 83.76 62.4% 18.2% 4.0 0.7 3.6
368
Tata Steel Ltd: Summary of Financials

Income Statement Rs in billions, year end Mar Revenues % change Y/Y EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (Pre exceptionals) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rs in billions, year end Mar Cash and cash equivalents Short term investments Accounts receivable Inventories Others Current assets Net fixed assets Total Assets FY13 1,347 1.4% 123 (0.8%) 9.1% 67 (14.6%) 5.0% (37) 31 (39.1%) (32) 105.0% (75) (244.6%) 1,014 (74.39) (244.6%) FY13 99 8 140 241 55 542 692 1,469
Liabilities Short-term loans 191 Payables 218 Others 114 Total current liabilities 523 Long-term debt 462 Other liabilities 96 Total Liabilities 1,081 Shareholder's equity 372 BVPS 366.56 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY14E FY15E FY16E Rs in billions, year end Mar 1,382 1,433 1,573 Net income (Pre exceptionals) 2.6% 3.6% 9.8% Depr. & amortization 158 184 216 Change in working capital 28.6% 15.8% 17.9% Cash flow from operations 11.5% 12.8% 13.8% 100 126 156 Net Capex 48.6% 25.7% 24.2% Free cash flow 7.3% 8.8% 9.9% (33) (35) (35) Equity raised/(repaid) 67 91 122 Debt raised/(repaid) 117.8% 36.1% 33.3% Other (37) (39) (37) Dividends paid 55.2% 42.7% 30.2% Beginning cash 30 52 85 Ending cash (139.8%) 74.3% 62.4% DPS 1,014 1,014 1,014 29.58 51.57 83.76 (139.8%) 74.3% 62.4% Ratio Analysis FY14E FY15E FY16E Rs in billions, year end Mar 109 136 166 EBITDA margin 8 8 8 Operating margin 86 87 91 Net margin 267 260 280 55 55 55 Sales growth 525 546 599 Net profit growth EPS growth 755 790 812 1,514 1,571 1,645 Interest coverage (x) Net debt to total capital Net debt to equity 191 191 191 Sales/assets 271 270 295 Assets/equity 68 72 75 ROE 530 533 561 ROCE 515 528 507 62 61 60 1,107 1,123 1,128 391 431 500 385.84 425.28 493.67
FY13 (75) 56 9 67 (126) (60) (5) 60 (52) (9) 108 99 7.66
FY14E 30 58 36 124 (121) 3 0 53 (35) (10) 99 109 9.16
FY15E 52 58 9 119 (93) 26 0 13 (0) (12) 109 136 10.78
FY16E 85 60 4 148 (81) 67 0 (21) (1) (16) 136 166 13.66
FY13 9.1% 5.0% (5.6%) 1.4% (244.6%) (244.6%) 3.4 58.5% 147.1% 0.9 3.5 (18.2%) (0.3%)
FY14E 11.5% 7.3% 2.2% 2.6% (139.8%) (139.8%) 4.8 59.1% 150.6% 0.9 3.9 7.9% 4.2%
FY15E 12.8% 8.8% 3.6% 3.6% 74.3% 74.3% 5.3 56.2% 133.5% 0.9 3.8 12.7% 6.4%
FY16E 13.8% 9.9% 5.4% 9.8% 62.4% 62.4% 6.2 50.4% 104.9% 1.0 3.5 18.2% 9.3%
369
TCL Communication Technology

Overweight
www.tclcom.com
China Communications Equipment Andrew Hsu

AC
Company overview Founded in 1993, TCLC is a leading mobile handset manufacturer in China with two main brands, Alcatel and TCL. Headquartered in Shenzhen, the company has its production lines in Huizhou and R&D centers in Shenzhen, Shanghai and Huizhou, with more than 1,300 engineers. TCLC has 91% of its sales outside China as of 1H13 and officially launched 3G smartphones in FY11. Investment case The structural change in company fundamentals is twofold, in our view: (1) the scale factor, which requires 1.2mn+ monthly shipments; and (2) flagship products, which TCL Comm has now attached in Idol/Hero models. This cycle is still under way, in our view. (1) The introduction of 4G LTE smartphones and the expansion of the distribution network should help maintain top-line momentum. (2) EMEA (especially Russia and Italy) and some countries in Asia Pacific (e.g., Malaysia) have seen rapid growth in FY13 and should see solid shipments in FY14. (3) GM rebounded to 19.6% in 3Q13 (2Q13: 18.9%; 1Q13: 16.4%; 4Q12: 15.6%) thanks to the smartphone scale factor and an ASP upsurge (3Q13: US$45.4; 2Q13: US$40; 1Q13: US37) and should continue to go up in FY14. Resilience of the growth outlook Phase 2 of the production facility in Huizhou, expected to be complete in Jun-14, could help support the demand for smartphones. Also, we expect GM to return to the 20%+ level in FY14 thanks to an ASP upsurge and the scale effect. Risks to the earnings outlook in 2014 (1) Poor reception for the upcoming smartphone products. (2) Increasing competitiveness of the low-cost smartphone markets. (3) Lower-than-expected sales/ margins of tablets. Price target, and risks to our investment view Our DCF-derived (g: 3%; WACC: 10%) Dec-14 price target of HK$8.20 implies a P/BV (FY15E) of 2.3x and a P/E (FY15E) of 8.4x. Key downside risks include marketing/R&D expenses continuing to rise and a tighter margin squeeze from operators.
(852) 2800-8572 andrew.tj.hsu@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 202.1% 209.7%
1m 32.9% 32.5%
3m 111.9% 102.5%
12m 190.1% 191.7%
1,114 8,146 1,051 7.31 06 Nov 13 40.9% 5.90 32.07 4.1 1,0637.15 7.75 Dec
TCL Communication Technology Holdings Ltd. (Reuters: 2618.HK, Bloomberg: 2618 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E FY14E FY15E Revenue (HK$ mn) 10,653 12,031 17,531 28,962 41,123 Net Profit (HK$ mn) 800 (208) 318 853 1,127 EPS (HK$) 0.70 (0.18) 0.28 0.74 0.98 DPS (HK$) 0.29 0.00 0.09 0.25 0.33 Revenue growth (%) 22.4% 12.9% 45.7% 65.2% 42.0% EPS growth (%) 11.8% (126.0%) (253.2%) 163.1% 32.2% ROCE 10.0% 1.1% 5.3% 8.6% 9.2% ROE 32.7% (8.1%) 12.4% 28.8% 31.1% P/E (x) 10.4 NM 26.0 9.9 7.5 P/BV (x) 3.1 3.3 3.0 2.5 2.0 EV/EBITDA (x) 3.8 14.0 7.9 5.9 5.4 Dividend Yield 4.0% 0.0% 1.3% 3.5% 4.6%
370
TCL Communication Technology: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) Ratio Analysis FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Dec 10,653 12,031 17,531 28,962 41,123 Gross margin (8,325) (9,935) (14,231) (23,021) (32,754) EBITDA margin 2,328 2,097 3,300 5,940 8,369 Operating margin - Net margin (1,884) (2,551) (3,415) (5,641) (8,010) R&D/sales 953 89 633 1,358 1,762 SG&A/Sales 1,109 341 965 1,714 2,122 196 213 140 134 141 Sales growth (140) (166) (169) (173) (176) Operating profit growth 55 47 (29) (38) (35) Net profit growth (196) (213) (140) (134) (141) EPS (reported) growth 783 (188) 382 1,051 1,394 17 (32) (76) (210) (279) Interest coverage (x) 800 (208) 318 853 1,127 800 (208) 318 853 1,127 Net debt to total capital Net debt to equity EPS (reported) 0.70 (0.18) 0.28 0.74 0.98 EPS (adjusted) 0.70 (0.18) 0.28 0.74 0.98 Asset turnover BVPS 2.39 2.21 2.40 2.91 3.59 Working capital turns (x) DPS 0.29 0.00 0.09 0.25 0.33 ROE Shares outstanding 1,136 1,134 1,131 1,154 1,154 ROIC Balance sheet Cash flow statement HK$ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E HK$ in millions, year end Dec Cash and cash equivalents 7,279 5,191 4,977 5,221 5,343 Net income Accounts receivable 2,585 2,842 4,142 6,843 9,716 Depr. & amortization Inventories 981 1,263 1,840 3,040 4,317 Change in working capital Others 1,409 1,916 1,521 701 0 Other Current assets 12,254 11,212 12,480 15,805 19,376 Cash flow from operations LT investments - Capex Net fixed assets 497 1,118 1,344 1,435 1,467 Disposal/(purchase) Others 320 0 2,712 6,276 9,089 Cash flow from investing Total Assets 14,027 13,504 18,132 25,986 33,332 Free cash flow Liabilities Equity raised/(repaid) ST Loans 7,222 5,726 8,344 11,028 12,527 Debt raised/(repaid) Payables 1,952 2,429 3,539 5,846 8,301 Other Others 2,141 2,451 3,571 5,899 8,376 Dividends paid Total current liabilities 11,315 10,606 15,454 22,773 29,204 Cash flow from financing Long-term debt 0 0 0 0 0 Net change in cash Other liabilities 39 393 25 0 0 Beginning cash Total Liabilities 11,354 10,998 15,479 22,773 29,204 Ending cash Shareholder's equity 2,673 2,453 2,654 3,213 3,956 Source: Company reports and J.P. Morgan estimates. FY11 21.9% 10.4% 8.9% 7.5% 17.7% FY12 17.4% 2.8% 0.7% (1.7%) 21.2% FY13E FY14E FY15E 18.8% 20.5% 20.4% 5.5% 5.9% 5.2% 3.6% 4.7% 4.3% 1.8% 2.9% 2.7% 19.5% 19.5% 19.5% 65.2% 114.6% 168.4% 163.1% 44.7 42.0% 29.7% 32.2% 32.2% 60.3
22.4% 12.9% 45.7% 17.1% (90.7%) 614.6% 14.0% (126.0%) (252.8%) 11.8% (126.0%) (253.2%) NM (2.2%) (2.1%) 0.8 8.4 32.7% FY11 800 156 (804) (30) 122 (450) (698) (383) 0 0 957 (321) 637 60 1,345 7,279 NM 17.9% 21.8% 0.9 15.6 (8.1%) FY12 (208) 252 32 148 224 (800) (292) (631) 0 0 640 0 640 573 1,187 5,191 33.1
55.9% 64.4% 64.5% 126.9% 180.7% 181.6% 1.1 1.3 1.4 NM NM NM 12.4% 28.8% 31.1% FY13E FY14E FY15E 318 853 1,127 332 355 360 (461) (718) (1,676) 114 257 248 303 747 59 (500) (400) (354) (411) (222) (166) (174) 378 (267) 0 0 0 0 0 600 0 0 0 (105) (281) (372) (105) (281) 228 (214) 244 121 970 756 1,000 4,977 5,221 5,343
371
Techtronic Industries
Overweight
www.ttigroup.com
China Industrial Machinery Leon Chik, CFA

AC
Company overview Techtronics, listed in 1990, is one of the largest makers of branded power tools in China, with more than 70% of sales for the North American Market, Home Depot being the largest customer. The company has in-house R&D capabilities, with the bulk of its manufacturing in one location in Southern China. Key brands include Ryobi, Milwaukee, AEG, Hoover and Dirt Devil. Investment case Floor care could surprise in 2014. TTI is the largest global branded floor care company, with brands such as Hoover, VAX and Dirt Devil. Floor care divisional sales rose 17% Y/Y in 2013, due in part to the launch of a new product line-up in Hoover and VAX vacuum cleaners. Following additional costs in 1H13 related to moving production from Mexico to China, as well as additional R&D to develop more than 20 new models in 1H13, the benefits should start to flow to TTI in 2014, and we expect most of the impact to be felt in 2015. Resilience of the growth outlook European sales growth should come mostly through market share gains. European sales were 21% of total sales in 1H13 compared to 21% in 1H12 and 19% in 2H12. Growth in the European business was a respectable 8% Y/Y in 1H13, compared to flat sales growth in 2012. We expect TTI to continue to grow faster than the overall market in its power tools and floor care businesses, as TTI is less penetrated in Europe than in the U.S. Risks to the earnings outlook in 2014 (1) Improvement in the floor care business could not materialize. (2) European sales could weaken. (3) Milwaukee sales could fail to meet expectations. Price target, and risks to our investment view Our DCF-derived (beta: 1.3; g: 3%) Dec-14 price target of HK$28 implies a forward P/BV (FY14E) of 3.3x and a forward P/E of 15.8x (FY15E). Key downside risks to our price target include a rising cost of production in China, a slower-than-expected recovery in U.S. demand, implementation risk for new product introductions and the risk that new products could not be accepted by customers.
Abs Rel
YTD 36.6% 34.9%
1m -3.6% -3.2%
3m 3.3% -1.8%
12m 31.7% 26.7%
Company Data Shares O/S (mn) Market Cap ($ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) HSI Exchange Rate Fiscal Year End
1,770 4,481 4,481 19.62 06 Nov 13 5.18 98.81 12.7 2,3038.95 7.75 Dec
Techtronic Industries (Reuters: 0669.HK, Bloomberg: 669 HK) $ in mn, year-end Dec FY11A FY12A FY13E Revenue ($ mn) 3,667 3,852 4,272 Net Profit ($ mn) 150 202 254 EPS ($) 0.09 0.11 0.14 DPS ($) 0.02 0.02 0.03 Revenue growth (%) 7.9% 5.1% 10.9% EPS growth (%) 59.8% 25.0% 19.5% ROCE 8.2% 9.1% 10.6% ROE 12.7% 14.5% 15.5% P/E (x) 27.7 22.2 18.5 P/BV (x) 3.3 3.0 2.7 EV/EBITDA (x) 85.3 73.6 68.8 Dividend Yield 0.6% 0.9% 1.3%
FY14E 4,862 344 0.18 0.05 13.8% 35.0% 13.2% 18.4% 13.7 2.3 57.9 1.8%
FY15E 5,542 420 0.23 0.06 14.0% 22.1% 14.4% 19.4% 11.2 2.0 50.7 2.2%
372
Techtronic Industries: Summary of Financials

Income Statement $ in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet $ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 3,667 7.9% 1,194 9.1% 387 9.1% 219 9.5% 6.0% (58) 160 61.5% (9) 5.8% 150 61.3% 1,640 0.09 59.8%
Cash flow statement FY12 FY13E FY14E FY15E $ in millions, year end Dec 3,852 4,272 4,862 5,542 EBIT 5.1% 10.9% 13.8% 14.0% Depr. & amortization 1,289 1,450 1,670 1,916 Change in working capital 8.0% 12.5% 15.2% 14.7% Taxes 444 473 559 635 Cash flow from operations 14.7% 6.5% 18.2% 13.5% 261 306 403 485 Capex 19.4% 17.4% 31.7% 20.3% Net Interest 6.8% 7.2% 8.3% 8.8% Other (37) (26) (23) (20) Free cash flow 224 280 380 465 39.5% 25.3% 35.7% 22.4% (22) (27) (37) (47) Equity raised/(repaid) 9.9% 9.5% 9.9% 10.0% Debt raised/(repaid) 202 254 344 420 Other 34.9% 25.8% 35.0% 22.1% Dividends paid 1,770 1,864 1,864 1,864 Beginning cash 0.11 0.14 0.18 0.23 Ending cash 25.0% 19.5% 35.0% 22.1% DPS Ratio Analysis FY11 FY12 FY13E FY14E FY15E $ in millions, year end Dec 460 618 558 730 934 Gross margin 673 689 764 869 991 EBITDA margin 704 689 764 869 991 Operating margin 138 143 169 208 262 Net margin 1,976 2,138 2,255 2,677 3,178 Sales per share growth LT investments 131 129 132 134 137 Sales growth Net fixed assets 360 384 413 447 487 Net profit growth Total Assets 3,370 3,581 3,679 4,088 4,582 EPS growth Liabilities Interest coverage (x) Short-term loans 867 732 603 603 603 Payables 619 710 804 933 1,085 Net debt to equity Others 117 121 129 138 149 Working Capital to Sales Total current liabilities 1,603 1,563 1,536 1,675 1,837 Sales/assets Long-term debt 397 349 276 276 276 Assets/equity Other liabilities 116 113 119 131 145 ROE Total Liabilities 2,115 2,025 1,931 2,082 2,259 ROCE Shareholders' equity 1,246 1,549 1,741 2,000 2,317 BVPS 0.78 0.85 0.95 1.09 1.27 Source: Company reports and J.P. Morgan estimates.
FY11 219 169 (74) 1 313 (167) (58) 201 0 (133) (17) (21) 515 460 0.02 FY11 32.6% 10.6% 6.0% 4.1%
FY12 FY13E FY14E FY15E 261 306 403 485 183 167 156 150 16 (64) (95) (106) (9) (22) (27) (37) 451 387 438 491 (145) (37) 339 134 (215) 3 (33) 460 618 0.02 (169) (26) 241 0 (194) (6) (51) 618 558 0.03 (170) (23) 289 0 12 (12) (73) 558 730 0.05 (174) (20) 335 0 15 (15) (94) 730 934 0.06
FY12 FY13E 33.5% 33.9% 11.5% 11.1% 6.8% 7.2% 5.3% 6.0% 5.4% 10.9% 25.8% 19.5% 18.3 18.4% 16.8% 1.2 2.2 15.5% 10.6%
FY14E FY15E 34.4% 34.6% 11.5% 11.5% 8.3% 8.8% 7.1% 7.6% 13.8% 13.8% 35.0% 35.0% 24.1 7.4% 20.6% 1.3 2.1 18.4% 13.2% 14.0% 14.0% 22.1% 22.1% 31.6 (2.3%) 24.2% 1.3 2.0 19.4% 14.4%
6.9% (2.7%) 7.9% 5.1% 61.3% 34.9% 59.8% 25.0% 6.7 12.0 64.1% 10.2% 1.1 2.8 12.7% 8.2% 29.7% 14.9% 1.1 2.5 14.5% 9.1%
373
Tenaga Nasional Bhd

Overweight
www.tnb.com.my
TENA.KL,TNB MK Price: M$9.39 Price Target: M$11.60
Company overview Tenaga is Malaysia's national utility for Peninsula Malaysia and Sabah in East Malaysia. It holds the monopoly in distribution and transmission, and a 50% market share of the grid's generation capacity with the remainder controlled by the IPPs. Investment case We are positive on Tenaga on the back of: (1) Benign coal prices: every US$1 / ton (lower than our assumption of US$88 / ton) adds 1% to earnings (2) Imported gas to replace 'expensive' oil distillates fuel, (3) Potential tariff reform on: (i) fuel cost passthrough, (ii) tariff increase (every 1% tariff increase adds 7% to earnings), (4) cost savings on expiry of IPP contracts with new TNB capacity starting post 2015/16. Additionally, management has flagged our ideal case, where gas below 1,000 MMScfd will be charged at RM13.70 per MMBTU, and the remainder will be charged on a similar cost sharing basis in place for Oil/Distillates, where TNB will rd reflect 1/3 of the incremental cost in their books. Resilience of the growth outlook We estimate Malaysia power growth at 4-5% (with upside from ETP) and we see Tenaga as a key beneficiary of rising energy demand. Once the fuel cost passthrough is implemented (under review by the government), this will provide longer term visibility on cash flow and earnings and hence be a multiple re-rating event in our view. In the time we see TNB benefiting from benign coal prices. Risks to the earnings outlook in 2014 Tenagas earnings risks include: (i) delay in fuel cost pass through (ii) faster-thanexpected increase in coal cost (iii) lower utilization of coal fired plants which could see significant capacity coming off-line.
Malaysia Electric Utilities Ajay Mirchandani

AC
Hoy Kit Mak
AC
Abs Rel
YTD 36.1% 28.2%
1m 4.1% 2.4%
3m 4.9% 3.5%
12m 35.1% 25.3%
Price target, and risks to our investment view Our Aug-14 PT of M$11.60 is based on a 10-year DCF assuming a WACC of 7.5%. Our DCF assumes long-term average power demand growth of 4.1% pa (vs. 10-year historical average of 5.1% pa up to 2010). A key downside risk is faster-thanexpected increase in coal cost without an offsetting increase in tariffs, as even though a fuel-pass through formula (reviewed every six months) is in place, the quantum of increase is still subject to Cabinet approval. Another risk is longer than-expected gas curtailment that raises the cost of production and delay in fuel cost pass through once market-linked prices kick in for gas purchased from Melaka re- gasification plant.
Tenaga Nasional Bhd (Reuters: TENA.KL, Bloomberg: TNB MK) M$ in mn, year-end Aug FY11A FY12A FY13E Revenue (M$ mn) 32,241 35,848 37,131 Net Profit (M$ mn) 2,382 3,191 4,318 EPS (M$) 0.44 0.58 0.77 EPS (recurring) (M$) 0.44 0.58 0.77 DPS (M$) 0.05 0.20 0.27 Revenue growth (%) 6.3% 11.2% 3.6% EPS growth (%) (11.6%) 31.9% 33.5% ROCE 5.6% 6.5% 8.0% ROE 7.7% 9.4% 11.5% P/E (x) 21.5 16.3 12.2 P/BV (x) 1.6 1.4 1.4 EV/EBITDA (x) 9.0 7.5 6.1 Dividend Yield 0.5% 2.1% 2.9%
5,644 52,994 16,700 9.39 06 Nov 13 9.70 87.26 27.5 1807.47 3.17 Aug
FY14E 38,600 4,601 0.82 0.82 0.27 4.0% 6.5% 8.0% 11.3% 11.5 1.3 5.6 2.9%
FY15E 40,165 4,612 0.82 0.82 0.27 4.1% 0.3% 7.7% 10.6% 11.4 1.2 5.4 2.9%
374
Tenaga: Summary of Financials

Income Statement M$ in millions, year end Aug Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 FY12 FY13E 32,241 35,848 37,131 6.3% 11.2% 3.6% 7,509 8,986 10,810 (7.6%) 19.7% 20.3% 3,447 4,718 6,384 (17.5%) 36.9% 35.3% 10.7% 13.2% 17.2% (559) (634) (782) 1,157 5,537 5,681 (72.2%) 378.6% 2.6% (192) (1,331) (1,364) 16.6% 24.0% 24.0% 2,382 3,191 4,318 (11.5%) 33.9% 35.3% 5,457 5,542 5,617 0.44 0.58 0.77 (11.6%) 31.9% 33.5% FY14E 38,600 4.0% 11,567 7.0% 6,835 7.1% 17.7% (750) 6,134 8.0% (1,534) 25.0% 4,601 6.5% 5,617 0.82 6.5% FY15E 40,165 4.1% 11,866 2.6% 6,830 (0.1%) 17.0% (730) 6,150 0.3% (1,537) 25.0% 4,612 0.3% 5,617 0.82 0.3%
Cash flow statement M$ in millions, year end Aug EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis M$ in millions, year end Aug EBITDA margin Operating margin Net margin
FY11 3,447 4,062 (723) 5,098
FY12 4,718 4,268 (988) 8,476
FY13E 6,384 4,426 18 9,665 (7,000) (782) 0 3,259 0 (1,393) 1,096 (1,393) 8,626 9,601 0.27 FY13E 29.1% 17.2% 11.6% 2.2% 3.6% 35.3% 33.5% 13.8
FY14E 6,835 4,732 5 10,218
FY15E 6,830 5,036 3 10,537
(5,654) (6,998) (559) (634) 442 124 (89) 1,959 0 (838) (2,596) (838) 8,344 3,261 0.05 FY11 23.3% 10.7% 7.4% 6.2% 6.3% (11.5%) (11.6%) 13.4 0 (273) 3,618 (273) 3,954 8,308 0.20 FY12 25.1% 13.2% 8.9% 9.5% 11.2% 33.9% 31.9% 14.2
(7,000) (7,000) (750) (730) 0 0 3,781 4,084 0 0 (1,511) (1,518) 950 207 (1,511) (1,518) 9,601 10,746 10,746 11,453 0.27 0.27 FY14E 30.0% 17.7% 11.9% 4.0% 4.0% 6.5% 6.5% 15.4 FY15E 29.5% 17.0% 11.5% 4.1% 4.1% 0.3% 0.3% 16.3
Balance sheet M$ in millions, year end Aug Cash and cash equivalents Accounts receivable Inventories Others Current assets
FY11 4,245 6,022 2,646 12,923
FY12 FY13E FY14E FY15E 8,841 9,816 10,961 11,668 6,989 7,239 7,525 7,830 2,842 2,944 3,060 3,184 18,681 20,007 21,556 22,692
LT investments 4,280 5,018 Net fixed assets 61,861 64,770 Total Assets 79,064 88,469 Liabilities Short-term loans 1,727 1,604 Payables 6,858 7,725 Others Total current liabilities 8,585 9,330 Long-term debt 17,327 21,468 Other liabilities 21,155 21,535 Total Liabilities 47,067 52,332 Shareholder's equity 31,997 36,137 BVPS (M$) 5.86 6.52 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 5,098 5,148 5,198 Sales growth 67,343 69,611 71,575 Net profit growth 92,449 96,315 99,465 EPS growth Interest coverage (x) 1,604 1,604 1,604 7,931 8,166 8,417 Net debt to equity - Sales/assets 9,535 9,771 10,021 Assets/equity 21,468 21,468 21,468 ROE 22,384 22,926 22,730 ROCE 53,387 54,164 54,219 39,062 42,152 45,246 6.95 7.50 8.05
46.3% 39.4% 33.9% 28.7% 25.2% 0.4 0.4 0.4 0.4 0.4 249.3% 245.9% 240.6% 232.4% 224.0% 7.7% 9.4% 11.5% 11.3% 10.6% 5.6% 6.5% 8.0% 8.0% 7.7%
375
Tencent
Overweight
www.tencent.com
China Internet Alex Yao

AC
Company overview Tencent is a leading internet service company with a foothold in social networks, online gaming and e-commerce. The company has built the largest social activity based user base in China through its popular products/services such as QQ, Qzone and WeChat. The company is a leading game developer and operator in China. Investment case Tencent's revenue is largely driven by online gaming and online community services. The two businesses contributed over 70% of Tencents total revenue. The company represented 47% of China's client-based online gaming market in 2Q, according to Analysys International. We believe the solid market leadership will remain intact in the next one to two years. Driven by the monetization of mobile social platforms, we expect Tencents revenue to grow 42% in 2014. Growth of high-margin mobile social gaming business should further drive up earnings growth acceleration and margin improvement in the next two years. Resilience of growth outlook The revenue growth outlook hinges primarily on Tencents ability to continuously roll out successful game titles across PC & mobiles. If Tencent is unable to launch successful titles and game genres continuously, revenue growth could be adversely impacted. Risks to the earnings outlook in 2014 Weaker-than-expected monetization ability of Tencents mobile social platform; launch of mobile social games at a slower pace. Price target, and risks to our investment view We are OW Tencent with a Jun-14 PT of HK$506, based on 2014E/PE of HK$16.61, FY14-16E non-GAAP EPS CAGR of 25% and a PEG of 1.2. We leverage PEG as our primary valuation methodology as it balances valuation multiples against growth prospects. Our PT implies 30x 2014E/PE, 23x 2015E/PE. Downside risks: cannibalization between mobile games and PC games; core PC games aging faster than expected.
(852) 2800 8535 alex.c.yao@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Abs Rel
YTD 65.5% 63.8%
1m -1.7% -1.3%
3m 9.7% 4.6%
12m 49.4% 44.4%

(Year-end Dec, Rmb mn) Net Sales Operating Profit (EBIT) EBITDA Pre Tax Profit Reported Net profit Reported EPS (Rmb) P/E (x) Adj. EPS * Adj. P/E (X) EV/EBITDA (x) P/B (x) Y/E BPS (Rmb) FY12 43,894 15,479 19,004 15,051 12,732 6.84 47.4 7.64 42.4 41.3 14.3 22.64
FY13E 61,296 19,597 24,336 19,772 15,756 8.45 38.4 9.20 35.3 31.8 10.7
FY14E 86,914 27,843 34,378 28,027 22,381 11.99 27.1 13.12 24.7 21.9 7.8
FY15E 109,500 38,748 46,654 38,932 31,096 16.62 19.5 17.76 18.3 15.5 5.7 56.65
ROE(%) ROIC(%) Cash Equity Qtr GAAP EPS (Rmb) EPS (12) EPS (13) E EPS (14) E Abs. Perf.(%) Rel. Perf.(%)
FY12 FY13E FY14E FY15E 39.9% 34.7% 36.6% 36.3% 52-Week range 162.9% 136.8% 249.4% 631.6% Shares Outstg 13,383.4 23,747.4 46,396.5 74,386.1 Market Cap(US) 42,148.3 56,584.7 77,275.0 106,015.2 Free float 1Q 2Q 3Q 4Q Avg daily vol. 1.59 1.67 1.73 1.86 Avg daily val (HK$) 2.17 1.98 2.08 2.22 Dividend Yield 2.39 2.86 3.28 3.45 Index (NASD) 1M 3M 12M Price Target (1.7%) 9.7% 49.4% Price Date (1.3%) 4.6% 44.4%
455.00-237.00 1,862MN US$98,947MN 3.7MM shares 1,474.28MN 0.2% 2,3038.95 506.00 06 Nov 13
30.35 41.38
Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense.
376
Tencent: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) FY11 FY12 FY13E FY14E 28,496 43,894 61,296 86,914 (9,928) (18,207) (28,447) (39,906) 18,568 25,686 32,850 47,008 (6,596) (10,511) (14,943) (20,057) 12,254 15,479 19,597 27,843 14,193 18,100 23,256 33,031 0 0 14 0 0 0 (82) 0 0 0 (68) 0 (154) (428) 243 184 12,099 15,051 19,772 28,027 (1,874) (2,266) (3,976) (5,630) 10,203 12,732 15,756 22,381 10,940 14,224 17,147 24,495 8.45 9.20 30.35 0.74 1,833 11.99 13.12 41.38 0.93 1,836 FY15E 109,500 (49,681) 59,819 (22,484) 38,748 45,284 0 0 0 184 38,932 (7,821) 31,096 33,232 16.62 17.76 56.65 1.29 1,840
Ratio Analysis Rmb in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth EPS (reported) growth Interest coverage (x) Net debt to total capital Net debt to equity Asset turnover Working capital turns (x) ROE ROIC Cash flow statement Rmb in millions, year end Dec Net income Depr. & amortization Change in working capital Other Cash flow from operations Capex Disposal/(purchase) Cash flow from investing Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing Net change in cash Beginning cash Ending cash
FY11 65.2% 52.4% 45.6% 38.4% 23.1% 45.0% 24.6% 26.7% 26.9% 3.3% 3.4%
FY12 FY13E FY14E 58.5% 53.6% 54.1% 43.3% 39.7% 39.6% 37.3% 33.7% 33.6% 32.4% 28.0% 28.2% 23.9% 24.4% 23.1% 54.0% 26.3% 24.8% 24.6% 39.6% 26.6% 23.8% 23.6% 358.6 41.8% 42.1% 42.0% 41.8% -
FY15E 54.6% 42.6% 36.6% 30.3% 20.5% 26.0% 39.2% 38.9% 38.6% -
EPS (reported) 5.49 6.84 EPS (adjusted) 5.89 7.64 BVPS 15.65 22.64 DPS 0.49 0.67 Shares outstanding 1,819 1,827 Balance sheet Rmb in millions, year end Dec FY11 FY12 Cash and cash equivalents 12,612 13,383 Accounts receivable 2,021 2,354 Inventories 0 568 Others 2,212 3,878 Current assets 35,503 36,509 LT investments 4,344 16,524 Net fixed assets 5,885 8,753 Others 2,892 1,405 Total Assets 56,804 75,256 Liabilities ST Loans 7,999 1,077 Payables 7,258 10,513 Others 5,926 9,075 Total current liabilities 21,183 20,665 Long-term debt 5,593 11,131 Other liabilities 940 1,312 Total Liabilities 27,716 33,108 Shareholder's equity 29,088 42,148 Source: Company reports and J.P. Morgan estimates.
(2.9%) (25.6%) (79.3%) (141.8%) (2.8%) (20.4%) (44.2%) (58.7%) 0.8 2.1 36.3% 631.6% FY15E 31,096 6,537 7,077 (5,984) 38,740 (6,570) 0 (8,380) 32,170 0 0 0 (2,371) (2,371) 27,990 46,396 74,386
0.6 0.7 0.7 0.8 2.1 2.9 3.3 2.8 43.0% 39.9% 34.7% 36.6% 436.9% 162.9% 136.8% 249.4% FY11 10,203 1,939 1,177 (716) 13,358 (5,504) 1 (15,355) 7,855 (1,326) 6,584 10 (895) 4,373 2,204 10,408 12,612 FY12 12,732 2,620 3,508 516 19,429 (4,092) 4 (16,270) 15,342 97 (1,279) 22 (1,225) (2,386) 771 12,612 13,383 FY13E 15,756 3,659 5,984 (6,517) 18,921 (5,517) 0 (7,198) 13,458 0 0 0 (1,359) (1,359) 10,364 13,383 23,747 FY14E 22,381 5,188 3,188 2,278 33,051 (6,953) 0 (8,696) 26,098 0 0 0 (1,706) (1,706) 22,649 23,747 46,396
FY13E FY14E FY15E 23,747 46,396 74,386 4,018 5,698 7,178 0 0 0 1,930 6,305 4,069 46,633 76,011 103,986 16,794 16,978 17,162 10,610 12,375 12,408 7,653 5,191 10,990 94,824 124,757 159,819 1,077 15,206 9,514 25,797 11,131 1,312 38,239 56,585 1,077 1,077 20,874 24,044 13,089 16,241 35,040 41,362 11,131 11,131 1,312 1,312 47,482 53,804 77,275 106,015
377
Thai Union Frozen Products

Overweight
www.thaiuniongroup.com
TUF.BK,TUF TB Price: Bt58.50 Price Target: Bt63.00
Thailand Food & Food Manufacture Kae Pornpunnarath, CFA

AC
Company overview Having commenced operations in 1990, TUF is now a leading processor and exporter of frozen seafoods; canned tuna is its main product. Its main growth strategy is to acquire facilities and brands. Its position in the industry was helped by its acquisition of MWB in Europe which added 100,000 tons to its tuna canning capacity. TUF is one of the few companies in Thailand that owns brands recognized globally, such as Chicken of the Sea, John West, Petite Navire and many more. In Thailand its canned tuna is known as Sealect and snacks are branded Fisho; TUF created both brands. Investment case We believe the worst is over for TUF. While the EMS impact still lingers on shrimp farming, we expect the pace of shrimp price increases to be more stable and predictable. Hence, TUF as a processor should be able to pass on price rises more effectively. TUF has also scaled back capacity resulting in better utilization and turnaround in profitability. Tuna volumes in the OEM business have shown signs of a pick up after tuna price stabilization. As more than two-thirds of its sales are to the US and Europe, TUF also provides leverage to developed markets, where our economists expect GDP growth to accelerate from 1% to 2% in 2014.
Abs Rel
YTD -18.8% -21.9%
1m 5.9% 5.4%
3m 3.5% 3.1%
12m -18.8% -29.1%
Resilience of the growth outlook Throughout the trough and bull cycles, TUF has never made a loss in a single quarter since its establishment. However, earnings can fluctuate from quarter to quarter depending on the short-term price trend of raw materials. Risks to the earnings outlook in 2014 TUFs earnings risks include another prolonged EMS outbreak, resurgence of competition in the US market which would affect prices and margins. Price target, and risks to our investment view Our Dec-14 PT of Bt63 is based on 15x 12mth fwd P/E, 1 S.D. above its historical average; we think this is reasonable given TUF's higher sales contribution from branded products post the acquisition of MW Brands. Downside risks include margin squeeze from inability to pass on rising costs, removal of EU's preferential tariff to the ACP countries, strengthening of Baht vs. the Euro and US$.
1,016 59,440 1,900 58.50 06 Nov 13 2.56 137.36 4.4 1,435 31.29 Dec
Thai Union Frozen Products (Reuters: TUF.BK, Bloomberg: TUF TB) Bt in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Bt mn) 98,670 106,698 114,628 125,433 Net Profit (Bt mn) 5,075 4,694 3,093 5,151 EPS (Bt) 4.99 4.20 2.54 4.19 DPS (Bt) 1.47 2.16 1.03 2.09 Revenue growth (%) 38.0% 8.1% 7.4% 9.4% EPS growth (%) 70.4% (15.9%) (39.6%) 65.0% ROCE 12.8% 10.5% 5.5% 9.4% ROE 21.0% 14.0% 6.9% 13.1% P/E (x) 11.7 13.9 23.1 14.0 P/BV (x) 2.4 1.9 1.9 1.8 EV/EBITDA (x) 10.3 10.3 14.0 9.5 Dividend Yield 2.5% 3.7% 1.8% 3.6%
FY15E 139,963 5,969 4.72 2.36 11.6% 12.8% 10.1% 14.0% 12.4 1.6 8.7 4.0%
378
Thai Union Frozen Products: Summary of Financials

Income Statement Bt in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY11 FY12 FY13E FY14E FY15E Bt in millions, year end Dec 98,670 106,698 114,628 125,433 139,963 EBIT 38.0% 8.1% 7.4% 9.4% 11.6% Depr. & amortization 9,707 9,244 6,985 10,335 11,430 Change in working capital 89.8% (4.8%) (24.4%) 48.0% 10.6% Taxes 8,091 7,342 4,832 8,021 9,049 Cash flow from operations 107.0% (9.3%) (34.2%) 66.0% 12.8% 8.2% 6.9% 4.2% 6.4% 6.5% Capex (2,262) (2,317) (1,545) (1,574) (1,570) Disposal/(purchase) 5,912 5,095 3,392 6,563 7,606 Net Interest 86.3% (13.8%) (33.4%) 93.5% 15.9% Other (192) (120) (542) (709) (823) Free cash flow 3.3% 2.4% 16.0% 10.8% 10.8% 5,075 4,694 3,093 5,151 5,969 Equity raised/(repaid) 76.6% (7.5%) (34.1%) 66.6% 15.9% Debt raised/(repaid) 1,016 1,219 1,219 1,265 1,265 Other 4.99 4.20 2.54 4.19 4.72 Dividends paid 70.4% (15.9%) (39.6%) 65.0% 12.8% Beginning cash Ending cash DPS Balance sheet Ratio Analysis Bt in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Bt in millions, year end Dec Cash and cash equivalents 903 1,400 913 1,131 1,083 EBITDA margin Accounts receivable 11,161 11,918 12,876 14,090 15,722 Operating margin Inventories 26,132 33,290 34,153 36,221 40,044 Net margin Others 1,735 1,728 1,728 1,728 1,728 Current assets 39,930 48,337 49,670 53,170 58,576 Sales per share growth LT investments 1,031 1,876 1,876 1,876 1,876 Sales growth Net fixed assets 15,655 17,923 20,076 20,770 21,247 Net profit growth Total Assets 83,230 94,759 98,245 102,439 108,322 EPS growth Liabilities Interest coverage (x) Short-term loans 15,461 23,410 23,410 23,410 23,410 Payables 7,919 10,545 10,929 11,684 13,022 Net debt to equity Others 1,762 1,594 1,594 1,594 1,594 Sales/assets Total current liabilities 25,142 35,549 35,933 36,688 38,026 Assets/equity Long-term debt 24,306 11,598 13,098 12,598 13,098 ROE Other liabilities 6,713 7,268 7,268 7,268 7,268 ROCE Total Liabilities 56,161 54,415 56,299 56,554 58,393 Shareholder's equity 27,069 40,344 41,946 45,885 49,929 BVPS (Bt) 24.03 30.52 31.56 32.98 35.54 Source: Company reports and J.P. Morgan estimates. FY11 8,091 1,616 (1,864) (192) 5,462 (3,179) (2,262) 682 4,472 0 2,295 (2,666) (1,996) 1,037 903 1.47 FY11 9.8% 8.2% 4.8% FY12 7,342 1,902 2,498 (120) 4,451 (4,171) (2,317) 524 2,543 9,533 (4,758) (3,059) (1,884) 903 1,400 2.16 FY12 8.7% 6.9% 4.0% FY13E FY14E FY15E 4,832 8,021 9,049 2,153 2,314 2,380 (1,436) (2,527) (4,117) (542) (709) (823) 4,151 5,641 5,047 (4,306) (3,008) (2,857) (1,545) (1,574) (1,570) 0 0 0 1,144 4,036 3,591 0 0 0 1,500 (500) 500 0 0 0 (1,832) (1,915) (2,739) 1,400 913 1,131 913 1,131 1,083 1.03 2.09 2.36 FY13E 6.1% 4.2% 2.3% FY14E 8.2% 6.4% 4.2% 8.4% 9.4% 66.6% 65.0% 6.6 FY15E 8.2% 6.5% 4.3% 8.6% 11.6% 15.9% 12.8% 7.3
33.2% (1.7%) (1.5%) 38.0% 8.1% 7.4% 76.6% (7.5%) (34.1%) 70.4% (15.9%) (39.6%) 4.3 4.0 4.5
143.6% 83.3% 84.9% 76.0% 71.0% 1.2 1.2 1.2 1.3 1.3 348.1% 288.8% 255.0% 250.3% 243.2% 21.0% 14.0% 6.9% 13.1% 14.0% 12.8% 10.5% 5.5% 9.4% 10.1%
379
Top Glove Corporation

Overweight
www.topglove.com.my
TPGC.KL,TOPG MK Price: M$5.71 Price Target: M$6.70
Malaysia Medical Supplies & Devices Simone Yeoh

AC
(60-3) 2718-0710 simone.x.yeoh@jpmorgan.com JPMorgan Securities (Malaysia) Sdn. Bhd. (18146-X)
Abs Rel
YTD 4.3% -2.7%
1m -4.6% -6.3%
3m -2.5% -3.9%
12m 7.1% -2.2%
Company overview Top Glove is the worlds largest glove manufacturer, with global market share of 25%. Of its 41.9B pieces of gloves in installed capacity, 80% is supplied to the medical industry. Key to its success are its economies of scale and very hands-on management, while its just-completed automation initiatives should further drive efficiency. Investment case We are positive on Top Gloves strategy in augmenting its market share in the fast growing nitrile glove segment via its 60% capacity expansion over Jun-13/Apr-14, which should drive top-line growth. Nitriles contribution to total volumes is expected to rise from 20% in FY13 to 30-35% by FY14, with the remainder from latex gloves. The improved product mix (nitrile commands up to 5-6ppt higher gross margins versus latex) coupled with savings from automation of its production lines (to reduce labor requirements by 30%) will support stable to rising margins for FY14/16, in our view. Resilience of the growth outlook Malaysias export of nitrile gloves chalked up a strong CAGR growth of 43% over 2008-2012. Strong demand is expected to continue mainly from the developed nations (US, Europe and Japan), which we believe will be sufficient to absorb the estimated 23% CAGR in supply over 2014/16. The price of raw material (latex) is at a four-year low with prices anticipated to remain soft, which will also support bottom-line growth. Risks to the earnings outlook in 2014 Top Gloves earnings could be affected by i) greater-than-expected nitrile glove production capacity by domestic and regional producers resulting in an over-capacity in the market; ii) a steep upward revision in gas tariffs with the removal in subsidies. Price target, and risks to our investment view Our Jun-14 PT of M$6.70 is based on 16x FY14E P/E and 15x FY15E P/E; 15x is the stocks long-term historical mean. Key downside risks are: (1) stronger raw material prices and M$ currency; (2) waning demand for the companys lower-end powdered natural rubber latex gloves; and (3) higher energy (i.e., gas) costs from the removal of fuel subsidies. We estimate that a 10-24% pa rise in gas tariffs would need a 0.5-1.2% pa rise in ASPs to sustain margins, which is manageable and can be passed on to customers, in our view (gas accounts for just 5% of total production costs).
Top Glove Corporation (Reuters: TPGC.KL, Bloomberg: TOPG MK) M$ in mn, year-end Aug FY12A FY13A FY14E Revenue (M$ mn) 2,314 2,313 2,687 EBITDA (M$ mn) 311 322 409 Core Net Profit (M$ mn) 207 209 252 Net Profit (M$ mn) 203 196 252 Adjusted EPS (M$) 0.33 0.34 0.41 DPS (M$) 0.16 0.16 0.20 Revenue growth (%) 12.7% (0.1%) 16.1% Adjusted EPS growth 83.0% 0.8% 20.3% ROCE 17.4% 15.4% 18.6% ROE 17.4% 16.2% 18.2% Adjusted P/E 17.1 16.9 14.1 P/BV 2.8 2.7 2.4 EV/EBITDA 11.2 11.1 8.8 Dividend Yield 2.8% 2.8% 3.6%
619 3,534 1,114 5.71 06 Nov 13 48.9% 0.71 4.33 1.4 1807.47 3.17 Aug
FY15E 3,029 446 274 274 0.44 0.22 12.8% 8.7% 18.6% 18.0% 12.9 2.2 8.1 3.9%
FY16E 3,355 491 301 301 0.49 0.24 10.8% 10.0% 18.7% 18.1% 11.8 2.0 7.4 4.2%
380
Top Glove Corporation: Summary of Financials

Income Statement M$ in millions, year end Aug Revenues % change Y/Y Gross Margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Adjusted EPS % change Y/Y Balance sheet M$ in millions, year end Aug Cash and cash equivalents Accounts receivable Inventories Others Current assets LT investments Net fixed assets Intangibles Total Assets . Liabilities Short-term loans Payables Others Total current liabilities FY12 2,314 12.7% 9.4% 311 50.0% 13.4% 241 65.7% 10.4% (0) 241 65.5% (33) 13.9% 203 79.3% 619 0.33 79.2% 0.33 83.0% FY12 167 294 179 170 811 33 734 1,598 0 262 9 272 Cash flow statement FY13 FY14E FY15E FY16E M$ in millions, year end Aug 2,313 2,687 3,029 3,355 EBIT (0.1%) 16.1% 12.8% 10.8% Depr. & amortization 9.1% 10.4% 9.9% 9.9% Change in working capital 322 409 446 491 Taxes 3.9% 26.7% 9.0% 10.3% Others 13.9% 15.2% 14.7% 14.6% Cash flow from operations 242 313 336 370 0.3% 29.4% 7.4% 9.9% Capex 10.4% 11.6% 11.0% 10.9% Disposal/(purchase) (1) (4) (0) (0) Free cash flow 239 307 334 367 (0.7%) 28.4% 8.7% 10.0% Equity raised/(repaid) (37) (47) (51) (56) Debt raised/(repaid) 15.4% 15.4% 15.4% 15.4% Other 196 252 274 301 Dividends paid (3.4%) 28.4% 8.7% 10.0% Beginning cash 620 620 620 620 Ending cash 0.32 0.41 0.44 0.49 DPS (3.6%) 28.4% 8.7% 10.0% 0.34 0.41 0.44 0.49 0.8% 20.3% 8.7% 10.0% Ratio Analysis FY13 FY14E FY15E FY16E M$ in millions, year end Aug 123 60 54 55 EBITDA margin 295 301 339 376 Operating margin 218 269 303 336 Net margin 97 97 97 97 734 727 793 864 Sales per share growth 68 68 68 68 Sales growth 931 1,065 1,186 1,315 Net profit growth - EPS growth 1,758 1,886 2,073 2,272 56 260 9 325 0 351 9 360 3 41 404 34 1,448 2.34 0 392 9 401 3 41 445 43 1,585 2.56 0 431 9 440 Interest coverage (x) Net debt to total capital Net debt to equity Sales/assets Assets/equity FY12 241 69 (34) (33) (33) 242 (133) 110 29 1 (8) (99) 149 167 0.16 FY13 242 80 31 (37) (37) 316 (277) 40 (31) 55 (5) (98) 167 123 0.16 FY14E 313 95 34 (47) (47) 396 (230) 169 0 (55) 0 (126) 123 60 0.20 FY15E 336 109 (32) (51) (51) 363 (230) 133 0 0 0 (137) 60 54 0.22 FY16E 370 122 (30) (56) (56) 405 (250) 155 0 0 0 (150) 54 55 0.24
FY12 13.4% 10.4% 8.9% 12.6% 12.7% 79.3% 79.2%
FY13 13.9% 10.4% 9.0% (0.3%) (0.1%) (3.4%) (3.6%)
FY14E 15.2% 11.6% 9.4% 16.1% 16.1% 28.4% 28.4%
FY15E 14.7% 11.0% 9.0% 12.8% 12.8% 8.7% 8.7%
FY16E 14.6% 10.9% 9.0% 10.8% 10.8% 10.0% 10.0%
2,747.8 442.3 104.4 2,183.7 2,388.1 (14.7%) (5.0%) (4.0%) (3.2%) (3.0%) (12.8%) (4.8%) (3.9%) (3.1%) (2.9%) 1.5 1.4 1.5 1.5 1.5 126.0% 130.2% 131.5% 130.5% 130.9% 17.4% 17.4% 16.2% 15.4% 18.2% 18.6% 18.0% 18.6% 18.1% 18.7%
Long-term debt 3 3 Other liabilities 41 41 Total Liabilities 316 369 Minorities 24 26 Shareholder's equity 1,255 1,322 BVPS 2.03 2.13 Source: Company reports and J.P. Morgan estimates.
ROE 3 ROCE 41 484 53 1,735 2.80
381
TSMC
Overweight
www.tsmc.com
Company overview TSMC is the worlds largest semiconductor foundry, providing wafer fabrication services to global fabless and IDM customers like QCOM, NVDA, AMD, MTK. Investment case Given our expectations of robust demand from Apple, more customers signing up for the 20nm move (now QCOM, too) and a delay for 14nm at Intel, we hold upbeat demand expectations for TSMCs 20nm for 2014. Moreover, we expect the companys structural profitability to improve, helped by rising ASPs and better cost control. Resilience of the growth outlook TSMC now expects 20nm revenues in 2014 to be bigger than 28nm in 2012, in line with our belief that 20nm is not a small node for 2014. Moreover, 20nm is a key node for TSMC because winning at 20nm could enable high market share retention at 16nm (TSMC is pitching it as a minor transition achievable with limited design changes). Moreover, the market has been concerned about Global Foundries/Samsung taking share in 28nm, which we believe is mostly limited to PolySiON products. For higher-end 28nm HKMG (High-K Metal Gate), TSMC still retains 90%+ share with very limited competition, indicating that competition concerns are overblown, in our view. Risks to the earnings outlook in 2014 A slower-than-expected yield curve for 20nm and competition narrowing the gap, especially Global Foundries for 28nm HKMG. While the market has been worried about rising capex intensity and competition, our analysis indicates that heightened capex intensity is not eroding returns and that competition from Intel is still likely to remain very selective. Price target, and risks to our investment view Our Jun-14 PT of NT$130 is based on a 15x 12-month forward P/E, the long-run average P/E, or 3.3x FY14E P/B for a company generating 22% ROE, at the higher end of its historical P/B range. Longer-term risks include Intels abandoning ATOM and stepping headlong into ARM Foundry, and a slowdown in mobile device growth.
Taiwan Semiconductors JJ Park

AC
(822) 758-5717 jj.park@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Abs Rel
YTD 7.4% 0.9%
1m 2.9% 3.9%
3m 8.3% 5.3%
12m 18.4% 4.0%
Share Price: NT$107.0, Date of Price: (06 Nov 13), Bloomberg 2330 TT, Reuters 2330.TW
(Year-end Dec, NT$ B) Revenue Operating profit EBITDA Pre-tax profit Adjusted net profit Profit growth (%) EPS (NT$)* BVPS (NT$, yr-end) Cash dividend yield (%) ROE (%) Net debt/equity (%) FY12 506.2 181.1 312.4 181.6 166.2 23.8 6.41 27.90 2.8 22.9 -4.5 FY13E 595.9 209.4 370.8 213.9 185.3 11.5 7.15 33.45 2.8 21.4 -5.2 FY14E 696.1 248.4 455.4 252.7 217.4 17.3 8.38 38.84 2.8 21.6 -7.9 FY15E 783.3 278.4 520.6 284.3 244.6 12.5 9.43 45.27 2.8 20.8 -22.3 P/E (x) P/B (x) EV/EBITDA (x) FCF/Mkt cap (%) Price target PT (30-Jun-14) Diff from consensus Quarterly EPS (NT$) FY12 FY13E FY14E
FY12 FY13E FY14E 16.7 15.0 12.8 3.8 3.2 2.8 8.8 7.4 5.9 1.3 2.7 4.3
1Q 1.29 1.53 1.48
2Q 1.61 2.00 2.06
3Q 1.90 2.00 2.50
FY15E 11.3 52-Week range NT$ 116.5-89.0 2.4 Share out'g 25,928M 4.8 Avg daily volume 33.0M 9.6 Avg daily val (US$) 114.4M Local Free float 86.5% NT$ 130.0 Market cap (US$) 94.3B 7.8% Exchange rate NT$ 29.43/US$1 Index (TWSE) 8281.97 4Q 1.60 1.62 2.35
382
TSMC: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (loss) Non-operating Income (expense) Earnings before tax Income tax Minority interest & extraordinaries Net income (reported) Net income (adjusted) EPS (adjusted) BVPS DPS (cash only) Adjusted O/S (M) Balance sheet NT$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Other current assets Total current assets Long term investments Gross PPE Accumulated depreciation Others Total Assets Short-term loans Accounts payable Accrued expenses & other CL Total current liabilities Long-term debt Total Liabilities Shareholder's equity Total Liabilities and Shareholder Equity FY12 506,249 (262,654) 243,595 (40,402) (22,136) 181,057 312,406 1,645 (1,020) 2,029 (2,156) 181,554 (15,590) 0 166,159 166,159 6.41 27.9 3.00 25,921 FY12 150,918 52,279 37,830 11,261 252,289 FY13E 595,927 (314,721) 281,206 (47,700) (24,102) 209,404 370,825 1,888 (2,724) 2,904 2,410 213,881 (28,709) 0 185,294 185,294 7.15 33.5 3.00 25,928 FY13E 273,382 73,877 34,353 3,139 384,751 FY14E 696,104 (363,911) 332,193 (55,688) (28,108) 248,396 455,434 2,934 (3,247) 4,611 0 252,695 (35,377) 0 217,386 217,386 8.38 38.8 3.00 25,928 FY14E 285,690 95,473 44,348 4,082 429,593 FY15E 783,350 (412,179) 371,171 (61,304) (31,498) 278,369 520,558 3,507 (2,417) 4,846 0 284,305 (39,803) 0 244,570 244,570
Ratio Analysis NT$ in millions, year end Dec Gross margin Operating Margin EBITDA margin Net margin R&D/sales Sales growth Operating profit growth Net profit growth EPS (adjusted) growth Interest coverage (x) Net debt to equity Days receivable Days inventory Days payable Cash cycle
FY12 48.1% 35.8% 61.7% 32.8% 8.0% 18.5% 27.9% 23.8% 23.8% 177.4 (4.5%) 33.7 43.5 18.8 58.4 58.5% 22.9% FY12 166,159 131,349 (11,209) (12,990) 3,380 17,648 294,142
FY13E 47.2% 35.1% 62.2% 31.1% 8.0% 17.7% 15.7% 11.5% 11.5% 76.9 (5.2%) 38.6 41.9 16.0 64.5 55.0% 21.4% FY13E 185,294 161,421 (21,598) 3,478 (2,956) 5,734 331,252
FY14E 47.7% 35.7% 65.4% 31.2% 8.0% 16.8% 18.6% 17.3% 17.3% 76.5 (7.9%) 44.4 39.5 13.6 70.2 54.6% 21.6%
FY15E 47.4% 35.5% 66.5% 31.2% 7.8% 12.5% 12.1% 12.5% 12.5% 115.2 (22.3%) 44.6 39.4 13.3 70.7 56.5% 20.8%
65,786 90,512 95,123 1,498,750 1,730,647 2,066,653 (1,000,285) (1,162,474) (1,369,512) 19,430 23,566 23,566 955,035 1,211,460 1,340,203 35,757 15,239 91,440 142,436 82,161 229,281 18,053 12,283 89,052 119,388 210,416 343,736 16,248 14,904 101,004 132,157 189,374 332,878
725,754 867,724 1,007,324 955,035 1,211,460 1,340,203
9.43 45.3 Asset turnover 3.00 ROE (single yr) 25,928 Cash flow statement FY15E NT$ in millions, year end Dec 397,322 Net income 95,927 Depr. & amortization 44,555 Change in receivables 4,103 Change in inventory 541,907 Change in payables Other adjustments 99,969 Cash flow from operations 2,304,368 (1,611,701) Capex 23,566 Purchase (sale) of investments 1,434,881 Other adjustments Cash flow from investing 10,660 Free cash flow 15,055 101,565 Equity raised/(repaid) 127,280 Debt raised/(repaid) 124,249 Dividends paid 260,771 Other adjustments Cash flow from financing 1,174,109 1,434,881 Net change in cash Beginning cash Ending cash
FY14E FY15E 217,386 244,570 207,038 242,190 (21,596) (454) (9,995) (208) 2,621 150 11,009 540 406,395 486,720
(258,504) (256,523) (286,328) (219,707) (31,328) (24,725) (4,611) (4,846) 4,741 (4,136) 0 0 (285,091) (285,384) (290,939) (224,553) 35,638 74,729 120,067 267,013 82 40 0 0 63,571 110,551 (22,847) (70,713) (77,944) (77,895) (77,853) (77,853) 5,535 43,901 (2,448) (1,969) (8,756) 76,597 (103,148) (150,536) 296 122,464 12,308 111,632 150,622 150,918 273,382 285,690 150,918 273,382 285,690 397,322
383
United Tractors
Overweight
www.unitedtractors.com
UNTR.JK,UNTR IJ Price: Rp18,300 Price Target: Rp23,500
Indonesia Heavy Trucks Aditya Srinath, CFA

AC
Company overview UNTR is a subsidiary of Astra International and part of the Jardine Matheson group. It is the exclusive distributor of Komatsu in Indonesia, and also provides service and spares, along with certain other brands of heavy equipment. 100% subsidiary PAMA is the largest mining contractor in Indonesia and produces close to a quarter of all the coal mined in Indonesia. The company has been acquiring coal concessions over the last several years, but they are still a small part of overall operations. Investment case Equipment sales have fallen 58% from peak, and UNTR has seen PE multiples compress from 17-18x to 12-13x. We believe that a lot of the bad news is now in the price, and risk reward supports positioning for a cyclical recovery in volumes. 3Q results lend confidence to our view that a weaker currency will cushion margins. Construction and agri volumes have picked up and we believe mining demand will revert to covering replacement needs over the next 4-6 quarters driving growth. Resilience of the growth outlook 1) We estimate Komatsu sales to mining are running at 50-60% of replacement needs, which we expect to normalize by 2H14E. 2) A weaker rupiah will cushion margin and drive earnings higher. 3) Management thinks FY13 should mark the bottom for equipment business, and expects 5-7% sales growth in FY14E. Risks to the earnings outlook in 2014 Renewed slippage in coal prices (above $80/T recently) could push replacement capex out further. Some of the margin upside may need to be shared with mining owners. We estimate every 1% change in Rp/$ rate impacts PAT by 3%. Reported earnings may be eroded by translation gains/losses. Price target, and risks to our investment view Our Dec-14 PT of Rp23,500 is based on DCF (rfr of 8%, COE 17.7%, WACC 13.9%). Risks to our view: weak coal mining economics pressuring UNTRs equipment and contracting businesses, Komatsu sales disappoint, Rupiah moves higher.
Abs Rel
YTD -13.7% -9.7%
1m 6.4% 5.0%
3m 0.0% 3.2%
12m -11.6% -14.7%
3,730 68,261.49 6.01 18,300 06 Nov 13 2.80 47,380.20 4.2 4449.76 11,355.89 Dec
PT United Tractors tbk (Reuters: UNTR.JK, Bloomberg: UNTR IJ) Rp in bn, year-end Dec FY11A FY12A FY13E Revenue (Rp bn) 55,053 55,954 51,334 Net Profit (Rp bn) 5,901 5,780 4,326 EPS (Rp) 1,656.57 1,549.45 1,159.87 DPS (Rp) 662.63 619.78 463.95 Revenue growth (%) 47.5% 1.6% (8.3%) EPS growth (%) 43.8% (6.5%) (25.1%) ROCE 21.8% 17.7% 12.9% ROE 27.8% 20.7% 14.0% P/E (x) 11.0 11.8 15.8 P/BV (x) 2.6 2.3 2.1 EV/EBITDA (x) 5.7 5.8 6.0 Dividend Yield 3.6% 3.4% 2.5%
FY14E 63,689 6,224 1,668.51 667.40 24.1% 43.9% 15.8% 18.3% 11.0 1.9 4.7 3.6%
FY15E 73,532 6,735 1,805.58 722.23 15.5% 8.2% 15.4% 17.7% 10.1 1.7 4.0 3.9%
384
United Tractors: Summary of Financials

Income Statement Rp in billions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 FY12 FY13E FY14E 55,053 55,954 51,334 63,689 47.5% 1.6% (8.3%) 24.1% 11,041 11,739 10,466 12,873 37.7% 6.3% (10.8%) 23.0% 7,615 7,566 6,001 7,953 47.5% (0.6%) (20.7%) 32.5% 13.8% 13.5% 11.7% 12.5% (39) (59) (93) (29) 7,785 7,447 5,619 8,083 55.4% (4.3%) (24.5%) 43.9% (1,885) (1,693) (1,292) (1,859) 24.2% 22.7% 23.0% 23.0% 5,901 5,780 4,326 6,224 54.0% (2.1%) (25.1%) 43.9% 3,562 3,730 3,730 3,730 1,656.57 1,549.45 1,159.87 1,668.51 43.8% (6.5%) (25.1%) 43.9% FY15E 73,532 15.5% 14,233 10.6% 8,557 7.6% 11.6% 35 8,747 8.2% (2,012) 23.0% 6,735 8.2% 3,730 1,805.58 8.2%
Cash flow statement Rp in billions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis Rp in billions, year end Dec EBITDA margin Operating margin Net margin Sales per share growth Sales growth Net profit growth EPS growth Interest coverage (x) Net debt to equity Sales/assets Assets/equity ROE ROCE
FY11 FY12 FY13E FY14E FY15E 7,615 7,566 6,001 7,953 8,557 3,426 4,172 4,465 4,920 5,676 1,141 (3,297) 1,428 (1,929) (1,537) (1,885) (1,693) (1,292) (1,859) (2,012) 10,569 7,198 10,317 9,312 10,971 (3,835) (5,698) (3,515) (5,020) (4,991) (39) (59) (93) (29) 35 (6,197) (5,928) 0 0 0 6,763 1,545 6,873 4,314 5,953 6,023 0 0 0 0 (1,008) 569 (500) 0 0 2,595 3,015 0 0 0 (2,360) (2,312) (1,731) (2,490) (2,694) 1,385 7,172 4,016 8,587 10,390 7,172 4,016 8,587 10,390 13,676 662.63 619.78 463.95 667.40 722.23 FY11 20.1% 13.8% 10.7% 37.8% 47.5% 54.0% 43.8% 284.5 FY12 21.0% 13.5% 10.3% FY13E 20.4% 11.7% 8.4% FY14E 20.2% 12.5% 9.8% 24.1% 24.1% 43.9% 43.9% 448.9 FY15E 19.4% 11.6% 9.2% 15.5% 15.5% 8.2% 8.2% NM
Balance sheet Rp in billions, year end Dec FY11 FY12 FY13E FY14E FY15E Cash and cash equivalents 7,172 4,016 8,587 10,390 13,676 Accounts receivable 9,833 9,668 8,439 10,469 12,087 Inventories 7,129 7,174 6,329 7,852 9,066 Others 1,528 1,211 1,406 1,745 2,015 Current assets 25,662 22,069 24,761 30,456 36,843 . LT investments 616 834 834 834 834 Net fixed assets 13,670 15,196 14,249 14,351 13,669 Total Assets 46,440 50,301 52,045 57,843 63,548 . Liabilities Short-term loans 2,587 2,719 4,272 4,272 4,272 Payables 10,303 6,666 6,329 7,852 9,066 Others 2,039 1,942 1,828 2,268 2,619 Total current liabilities 14,930 11,327 12,430 14,393 15,957 . Long-term debt 2,116 2,554 500 500 500 Other liabilities 1,375 3,040 3,140 3,240 3,340 Total Liabilities 18,936 18,000 17,149 19,212 20,876 Shareholder's equity 27,504 32,301 34,896 38,631 42,672 BVPS (Rp) 7,056.16 7,944.98 8,640.90 9,642.01 10,725.35 Source: Company reports and J.P. Morgan estimates.
(2.9%) (8.3%) 1.6% (8.3%) (2.1%) (25.1%) (6.5%) (25.1%) 198.6 112.2
(9.0%) 3.9% (10.9%) (14.5%) (20.9%) 1.4 1.2 1.0 1.2 1.2 179.3% 172.9% 165.4% 161.1% 159.8% 27.8% 20.7% 14.0% 18.3% 17.7% 21.8% 17.7% 12.9% 15.8% 15.4%
385
Weichai Power
Overweight
www.weichai.com/
China Auto Parts Karen Li, CFA

AC
Company overview Weichai Power (Weichai) is a leading producer of diesel engines, which are used in heavy-duty vehicles, construction machines, vessels and power generators. It also holds a 51% stake in Shaanxi Heavy Duty Motor, Chinas fourth-largest manufacturer of heavy-duty trucks, and Shaanxi Fast Gear, one of the leading gearbox producers in China. Weichai first listed its H-shares on the HK Main Board on Mar. 11, 2004, and subsequently its A shares on Apr. 30, 2007. Investment case Weichai has strengthened its leading positions in the domestic market by regaining lost ground in diesel engines for heavy-duty-truck (HDT) and construction machinery. We expect truck sales growth to remain strong in 2014 driven by a continued demand recovery for logistics trucks. In addition, LNG truck engines and hydraulic components are emerging as new growth drivers. Resilience of the growth outlook We expect Chinas resilient highway freight traffic growth (highly correlated to retail sales growth) to support demand recovery for logistics trucks into 2014, which have been Weichai's key customers' main focus. Replacement demand for trucks sold prior to early 2011 is likely to kick in from end-2013 given the elevated utilization levels. Moreover, investment in KION offers exposure to an EU capex recovery, and we believe Weichai is one of the Chinese capital goods plays capable of benefiting from the potential capex recovery in the Eurozone. Risks to the earnings outlook in 2014 A key risk to Weichai's earnings outlook for 2014 is the faster-than-expected vertical integration by end customers, which may pose as a threat to Weichai's market share. Price target, and risks to our investment view Our Dec-2014 PT of HK$37.0 is based on DCF (WACC 12.1%, COE 14.1% (rfr 5%, equity risk premium 7%, beta 1.3x), and target P/E multiples, with peer valuations and trading history considered. Our PT translates into a target PT of 13.1x/11.7x,and P/B of 1.8x/1.6x on FY14/15E. Downside risks: 1) Weaker-than-expected recovery in heavy-duty truck sales and construction machinery sales; 2) worse-than-expected synergy from the Linde acquisition.
Abs Rel
YTD -9.3% -1.7%
1m 0.6% 0.2%
3m 16.0% 6.6%
12m 3.3% 4.9%
1,999 49,091 8,047 31.20 06 Nov 13 2.60 78.74 10.2 1,0637.15 7.75 Dec
Weichai Power (Reuters: 2338.HK, Bloomberg: 2338 HK) Rmb in mn, year-end Dec FY11A FY12A Revenue (Rmb mn) 60,019 48,165 Net Profit (Rmb mn) 5,597 2,991 EPS (Rmb) 2.80 1.50 DPS (Rmb) 0.10 0.33 Revenue growth (%) (5.2%) (19.8%) EPS growth (%) (17.5%) (46.6%) ROE 27.0% 12.5% P/E (x) 8.8 16.4 P/BV (x) 2.1 2.0 Dividend Yield 0.4% 1.3%
FY13E 55,390 3,733 1.87 0.19 15.0% 24.8% 14.1% 13.1 1.8 0.8%
FY14E 59,985 4,448 2.22 0.22 8.3% 19.1% 14.8% 11.0 1.5 0.9%
FY15E 64,459 4,988 2.49 0.25 7.5% 12.1% 14.5% 9.8 1.3 1.0%
386
Weichai Power: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding (MM) EPS (reported) (Rmb) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 60,019 (5.2%) 22.0% 8,787 (18.5%) 14.6% 7,330 (22.7%) 12.2% (14) 7,419 (21.1%) (1,099) 14.8% 5,597 (17.5%) 1,999 2.80 (17.5%) FY11 16,613 14,289 10,358 1,450 42,709 FY12 48,165 (19.8%) 19.5% 5,472 (37.7%) 11.4% 3,920 (46.5%) 8.1% 5 3,960 (46.6%) (726) 18.3% 2,991 (46.6%) 1,999 1.50 (46.6%) FY12 16,727 13,411 7,510 1,513 39,160 FY13E 55,390 15.0% 22.1% 6,571 20.1% 11.9% 4,769 21.7% 8.6% (54) 4,749 19.9% (712) 15.0% 3,733 24.8% 1,999 1.87 24.8% FY13E 17,654 14,417 8,867 1,646 42,583 FY14E 59,985 8.3% 22.5% 7,557 15.0% 12.6% 5,589 17.2% 9.3% 32 5,658 19.1% (849) 15.0% 4,448 19.1% 1,999 2.22 19.1% FY14E 17,974 15,612 9,555 1,730 44,871 FY15E 64,459 7.5% 22.6% 8,299 9.8% 12.9% 6,175 10.5% 9.6% 131 6,346 12.1% (952) 15.0% 4,988 12.1% 1,999 2.49 12.1% FY15E 19,980 16,777 10,249 1,813 48,819
Cash flow statement Rmb in millions, year end Dec EBIT Depreciation & amortization Change in working capital Others Cash flow from operations Capex Cash flow from investing Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing Beginning cash Ending cash
FY11 7,330 1,456 (1,903) 803 5,953 (3,421) (3,640) 0 2,406 645 (1,135) 1,916 9,103 16,613
FY12 FY13E FY14E FY15E 3,920 4,769 5,589 6,175 1,552 1,802 1,967 2,124 (2,204) (161) (663) (623) 417 796 429 338 2,756 6,170 6,181 6,827 (2,219) (2,190) (1,990) (1,990) (7,992) (1,839) (1,626) (1,603) 0 6,820 97 (871) 6,045 13,317 16,727 0 (2,339) (405) (660) (3,404) 14,099 17,654 0 (3,531) (332) (373) (4,236) 15,027 17,974 0 (2,517) (256) (445) (3,218) 15,346 19,980
Ratio Analysis Rmb in millions, year end Dec EBITDA margin Operating margin Gross margin
FY11 14.6% 12.2% 22.0%
FY12 FY13E FY14E FY15E 11.4% 11.9% 12.6% 12.9% 8.1% 8.6% 9.3% 9.6% 19.5% 22.1% 22.5% 22.6% 15.0% 24.8% 24.8% 8.3% 19.1% 19.1% 7.5% 12.1% 12.1%
LT investments 484 599 Net fixed assets 14,757 16,702 Other LT assets 946 1,305 Total Assets 61,545 66,320 Liabilities ST loans 8,207 8,339 Payables 13,079 9,962 Others 8,127 5,622 Total current liabilities 29,413 23,924 Long term debt 3,040 9,036 Other liabilities 189 1,962 Total Liabilities 32,642 34,921 Shareholders' equity 22,903 24,869 Minorities 5,999 6,530 BVPS 11.46 12.44 Source: Company reports and J.P. Morgan estimates.
599 599 17,049 17,032 1,302 1,300 70,166 72,513 5,242 11,822 6,570 23,634 9,794 1,962 35,389 27,943 6,834 13.98 2,517 12,740 7,094 22,351 8,988 1,962 33,301 32,018 7,195 16.01
Sales growth Net profit growth 599 EPS growth 16,858 1,299 76,367 996 13,665 7,590 22,251 7,992 1,962 32,205 36,561 7,601 18.29
(5.2%) (19.8%) (17.5%) (46.6%) (17.5%) (46.6%)
387
Wipro Ltd.
Neutral
www.wipro.com
WIPR.BO,WPRO IN Price: Rs480.10 Price Target: Rs560.00

AC
Company overview Wipro is one of Indias largest IT services players with FY13 revenues of c.USD 7 billion. Wipro serves nearly ~950 clients with a diverse range of service offerings. The company recently demerged other businesses from IT services to sharpen its focus. Investment case We keep the faith in Wipro's revival/recovery story and believe that the management has driven the right structural changes, results of which should be visible in the coming quarters. Some structural positives are visible - (a) broad-based revenue growth in Sep-13 quarter as all verticals, geographies and service lines reported healthy growth, (b) solid margin performance suggesting that focus on productivitybased execution is beginning to pay off, (c) Q/Q US$ revenue growth guidance at 1.8-3.6% for Dec-13 quarter suggests some sustained momentum going into a seasonally weak quarter, (d) Wipro should benefit from the healthy demand environment in CY14 Resilience of the growth outlook We believe expectations are relatively low for Wipro and moderate growth (compared to peers) is priced in to the current stock price. However, the structural changes in the company should start delivering results in the next calendar year. Management also pointed to improvement in win rates, which will likely drive revenue growth. Risks to the earnings outlook in 2014 The key risk for Wipro's earnings is weakness in demand due to macro weakness/event. An adverse US immigration bill might impact Wipros growth prospects. Pricing decline and supply-side pressures are the other key risks for earnings. Price target, and risks to our investment view We have a Neutral rating on Wipro with Mar-14 price target of INR 560. Our PT is based on one-year forward P/E multiple of 16x; this implies a ~15% discount to our target multiple for TCS of 19x. We think the discount is reasonable given Wipros lower expected growth and margins. Upside risks: Better than expected demand environment; productivity-driven margin gains. Downside risks: Weakness in the spending environment, INR appreciation (vs. USD) and supply-side pressures.
Abs Rel
YTD 21.0% 15.9%
1m -0.4% -6.3%
3m 6.9% -3.1%
12m 32.4% 22.8%
Bloomberg WPRO IN, Reuters WIPR.BO

(Year-end Mar, INR mn) Revenue Operating Profit EBITDA Net profit (Reported) EPS P/E (x) EV/EBITDA (x) Cash Equity FY12 318,747 56,584 66,713 52,325 21.29 22.5 2.5 119,627 285,314
FY13 FY14E FY15E 374,256 432,511 488,048 67,346 85,509 96,861 78,544 96,149 109,016 61,362 76,040 86,241 24.95 30.87 35.00 19.2 15.6 13.7 1.8 1.0 0.5 154,009 197,657 241,526 283,812 347,060 415,397
FY12 FY13 FY14E FY15E Date of Price ROE(%) 36.7 21.6 24.1 22.6 52-Week range CORE ROIC(%) 23.0 27.5 35.9 34.4 Share Out. (Com) Quarterly EPS (Rs) 1Q 2Q 3Q 4Q Market Cap EPS (14) E 6.60 7.84 7.95 8.48 Market Cap(US) EPS (15) E 8.44 8.26 8.90 9.40 Free float Local 1M 3M 12M Avg daily val Abs. Perf.(%) (0.6%) 6.9% 32.4% Dividend Yield Rel. Perf.(%) (7.5%) (4.2%) 21.7% Index Target Price (31-Mar-14) 560.00 Exchange rate
05 Nov 13 519.75-263.11 2,461MN 1,181BN US$19,140MN 19.2% 1,559.96MN 1.0% 6317.35 61.73
Source: Company data, Bloomberg, J.P. Morgan estimates. 388
Wipro Ltd.: Summary of Financials

Income Statement Rs in millions, year end Mar Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted)
Ratio Analysis FY12 FY13 FY14E FY15E Rs in millions, year end Mar 318,747 374,256 432,511 488,048 Gross margin (215,665) (249,467) (283,529) (320,590) EBITDA margin 92,953 113,591 138,342 155,304 Operating margin - Net margin (36,369) (46,245) (52,833) (58,443) R&D/sales 56,584 67,346 85,509 96,861 SG&A/Sales 66,713 78,544 96,149 109,016 8,982 11,317 14,358 17,330 Sales growth (3,371) (2,693) (2,561) (2,821) Operating profit growth 5,611 8,624 11,797 14,509 Net profit growth 3,328 2,626 52 0 EPS (reported) growth 65,523 78,596 97,357 111,370 (12,955) (16,912) (21,130) (25,129) Interest coverage (x) 52,325 61,362 76,040 86,241 52,325 61,362 76,040 86,241 Net debt to total capital Net debt to equity EPS (reported) 21.29 24.95 30.87 35.00 EPS (adjusted) 21.29 24.95 30.87 35.00 Asset turnover BVPS 116.12 115.33 140.84 168.57 Working capital turns (x) DPS 6.00 5.00 5.00 7.00 ROE Shares outstanding 2,458 2,459 2,463 2,464 CORE ROIC Balance sheet Cash flow statement Rs in millions, year end Mar FY12 FY13 FY14E FY15E Rs in millions, year end Mar Cash and cash equivalents 119,627 154,009 197,657 241,526 Net income Accounts receivable 80,328 76,635 81,321 104,536 Depr. & amortization Inventories 10,662 3,263 3,433 3,814 Change in working capital Others 62,871 73,496 93,421 103,796 Other Current assets 273,488 307,403 375,832 453,671 Cash flow from operations LT investments Capex Net fixed assets 58,988 50,525 48,673 50,518 Disposal/(purchase) Others 100,293 81,802 92,436 92,440 Cash flow from investing Total Assets 436,001 439,730 516,941 596,630 Free cash flow Liabilities Equity raised/(repaid) ST Loans 36,448 62,962 45,451 45,451 Debt raised/(repaid) Payables 47,258 48,067 52,981 58,893 Other Others 33,979 33,711 48,993 54,434 Dividends paid Total current liabilities 117,685 144,740 147,425 158,777 Cash flow from financing Long-term debt 22,510 854 10,963 10,963 Net change in cash Other liabilities 9,643 9,153 10,307 10,307 Beginning cash Total Liabilities 149,838 154,747 168,695 180,047 Ending cash Shareholders' equity 286,163 284,983 348,246 416,583 Source: Company reports and J.P. Morgan estimates.
FY12 29.2% 20.9% 17.8% 16.4% 11.4% NM (26.9%) (21.2%) 1.5 4.1 36.7% 23.0% FY12 52,325 10,129 (18,308) 44,146 (14,023) (33,513) 25,621 11,047 6,156 (1,295) (17,337) (1,429) 9,204 110,423 119,627
FY13 30.4% 21.0% 18.0% 16.4% 12.4% 17.4% 19.0% 17.3% 17.2% NM (46.3%) (31.6%) 0.9 2.4 21.6% 27.5% FY13 61,362 11,198 1,008 73,568 (2,735) 18,988 64,065 (47,750) 4,858 (812) (14,470) (58,174) 34,382 119,627 154,009
FY14E 32.0% 22.2% 19.8% 17.6% 12.2% 15.6% 27.0% 23.9% 23.7% NM (68.2%) (40.6%) 0.9 2.2 24.1% 35.9% FY14E 76,040 10,641 (4,585) 82,096 (8,789) (19,423) 64,071 1,900 (7,402) 967 (14,490) (19,025) 43,648 154,009 197,657
FY15E 31.8% 22.3% 19.8% 17.7% 12.0% 12.8% 13.3% 13.4% 13.4% NM (80.0%) (44.4%) 0.9 1.9 22.6% 34.4% FY15E 86,241 12,155 (22,619) 75,777 (14,000) (14,004) 50,542 0 0 0 (17,905) (17,905) 43,868 197,657 241,526
389
Xinyi Glass
Overweight
www.xinyiglass.com
China Auto Parts Leon Chik, CFA

AC
Company overview Xinyi Glass, founded in 1988 and listed in 2005, is one of the largest glass conglomerates in China, with the largest export volume in China for glass. Xinyi is a major supplier of replacement autoglass (about 30% U.S. market share for nonoriginal manufacturer autoglass) and also makes construction glass and float glass. Investment case (1) Float glass prices continue to rise, and the price hike in 2H13 exceeds the rises in the cost of natural gas and soda ash. We expect to see stable float glass gross margins in FY14. (2) New solar subsidies announced on 31 August allow for more certain expansion of solar modules and solar glass in FY14. (3) Electric glass, which Xinyi started producing in May 2013, is doing well and should continue to do so into FY14. (4) The more stable autoglass and construction glass are performing well and should remain solid in FY14. Resilience of the growth outlook We believe the solar spin-off suggests that there is an urgency to create a separate vehicle to take advantage of the upcoming surge in solar power installations in China, following the announcement of new solar subsidies at the end of Aug-13. The new listing would also allow Xinyi to better finance expansion in electric glass, float glass and other glass operations. Risks to the earnings outlook in 2014 (1) Demand for electric glass could weaken unexpectedly. (2) Float glass prices could drop significantly. (3) The impact of solar subsidies could be less favorable than expected. Price target, and risks to our investment view Our DCF-derived (beta: 1.3; g: 3%) Dec-14 price target of HK$10.90 implies a forward P/BV of 2.7x and a forward P/E of 10.2x (FY15E). Key downside risks to our price target include falling demand for construction glass, which may result from a cooling property market in China, and further weakness in PV glass demand from Europe.
Abs Rel
YTD 64.0% 62.3%
1m 7.8% 8.2%
3m 5.9% 0.8%
12m 70.8% 65.8%
3,687 28,904 3,729 7.84 06 Nov 13 49.6% 18.61 133.84 17.3 2,3038.95 7.75 Dec
Xinyi Glass (Reuters: 0868.HK, Bloomberg: 868 HK) HK$ in mn, year-end Dec FY11A FY12A Revenue (HK$ mn) 8,226 9,785 Net Profit (HK$ mn) 1,264 1,189 EPS (HK$) 0.34 0.32 DPS (HK$) 0.16 0.15 Revenue growth (%) 29.3% 19.0% EPS growth (%) (19.6%) (7.2%) ROCE 11.6% 9.1% ROE 16.8% 12.9% P/E (x) 22.9 24.7 P/BV (x) 3.4 3.0 EV/EBITDA (x) 14.9 14.6 Dividend Yield 2.0% 1.9%
FY13E 12,288 2,261 0.59 0.28 25.6% 85.9% 14.0% 20.7% 13.3 2.6 8.8 3.6%
FY14E 16,421 3,077 0.79 0.35 33.6% 33.0% 16.4% 24.1% 10.0 2.3 6.7 4.5%
FY15E 20,769 4,165 1.06 0.48 26.5% 35.4% 19.5% 28.2% 7.4 1.9 5.1 6.1%
390
Xinyi Glass: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 8,226 29.3% 2,354 (7.9%) 1,989 (9.6%) 1,548 (16.7%) 18.8% (25) 1,526 (19.4%) (262) 17.1% 1,264 (19.6%) 3,687 0.34 (19.6%) FY11 713 2,073 1,246 3 4,035 FY12 9,785 19.0% 2,475 5.2% 2,030 2.0% 1,446 (6.6%) 14.8% (57) 1,397 (8.4%) (209) 14.9% 1,189 (5.9%) 3,795 0.32 (7.2%) FY13E 12,288 25.6% 3,845 55.4% 3,401 67.5% 2,663 84.2% 21.7% (80) 2,712 94.0% (452) 16.7% 2,261 90.1% 3,915 0.59 85.9% FY14E 16,421 33.6% 5,475 42.4% 4,670 37.3% 3,785 42.1% 23.0% (98) 3,726 37.4% (650) 17.4% 3,077 36.1% 3,915 0.79 33.0% FY15E 20,769 26.5% 7,197 31.5% 6,175 32.2% 5,146 36.0% 24.8% (111) 5,044 35.4% (880) 17.4% 4,165 35.4% 3,915 1.06 35.4%
Cash flow statement HK$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis HK$ in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin Sales per share growth Sales growth Net profit growth EPS growth Interest coverage (x) Net debt to equity Working Capital to Sales Sales/assets Assets/equity ROE ROCE
FY11 1,548 441 (340) (321) 1,329
FY12 FY13E FY14E FY15E 1,446 2,663 3,785 5,146 584 738 885 1,029 (320) (885) (1,380) (1,498) (262) (209) (452) (650) 1,448 2,307 2,838 4,028
(3,735) (1,304) (2,471) (2,795) (2,388) (25) (57) (80) (98) (111) 3 7 7 7 7 (2,385) 193 (98) 123 1,731 643 1,809 0 (643) 640 713 0.16 FY11 28.6% 24.2% 18.8% 15.4% 29.3% 29.3% (19.6%) (19.6%) 78.8 42.3% 0.1 0.6 1.8 16.8% 11.6% 388 (49) 0 (579) 713 703 0.15 788 0 0 1,235 1,543 45 0 0 0 (826) (1,235) (1,629) 703 1,663 1,923 1,663 1,923 1,875 0.28 0.35 0.48
FY12 FY13E FY14E FY15E 703 1,663 1,923 1,875 2,140 2,687 3,591 4,542 1,204 1,588 2,334 3,100 5 48 259 447 4,053 5,987 8,107 9,964
FY12 FY13E FY14E FY15E 25.3% 31.3% 33.3% 34.7% 20.7% 27.7% 28.4% 29.7% 14.8% 21.7% 23.0% 24.8% 12.2% 18.4% 18.7% 20.1% 17.2% 19.0% (5.9%) (7.2%) 35.4 35.8% 0.1 0.6 1.7 12.9% 9.1% 22.8% 25.6% 90.1% 85.9% 42.5 32.7% 0.2 0.7 1.6 20.7% 14.0% 30.6% 33.6% 36.1% 33.0% 47.7 37.8% 0.2 0.8 1.7 24.1% 16.4% 26.5% 26.5% 35.4% 35.4% 55.6 32.6% 0.2 0.8 1.7 28.2% 19.5%
LT investments 1,689 1,943 2,234 2,569 2,955 Net fixed assets 9,622 10,069 11,512 13,086 14,060 Total Assets 15,346 16,065 19,732 23,763 26,979 Liabilities Short-term loans 1,105 1,770 1,424 1,807 1,807 Payables 2,166 1,455 1,827 2,442 3,089 Others 147 103 287 468 702 Total current liabilities 3,418 3,329 3,538 4,717 5,598 Long-term debt 3,214 2,496 4,142 5,258 5,258 Other liabilities 189 102 128 171 216 Total Liabilities 6,821 5,926 7,808 10,146 11,073 Shareholders' equity 8,508 9,942 11,921 13,614 15,905 BVPS 2.31 2.62 3.05 3.48 4.06 Source: Company reports and J.P. Morgan estimates.
391
392
Stocks to Avoid
393
AAC Technologies Holdings

Underweight
www.aactechnologies.com/
Company overview AAC manufactures speaker boxes, speakers, receivers, and microphones for handsets and tablets. Its key customers are Apple and Samsung. Investment case We retain our negative view on AAC because we believe that Chinese competitors will grab 23%/32% of Apples acoustic component orders in 2013/14. We expect AACs allocation from Apple to drop from 56% in 2013 to 52% in 2014, depressing ASP and eroding margins. Resilience of the growth outlook Following the iPad 5 launch in October 2013, we have a negative view on AAC for the next three quarters. We will revisit our thesis when the iPhone 6 comes out in summer 2014. Risks to the earnings outlook in 2014 We foresee four major risks to our investment thesis: 1) If voice-controlled apps, such as iPhones Siri, take off, smartphone manufacturers may be willing to pay more for higher quality acoustic components; 2) AAC could experience greater-thanexpected upside supplying components to low-end Chinese smartphones; 3) AAC has acquired a number of new technologies, including optics, antennas, etc., which could power the company's future growth; 4) If China Mobile and Apple reach an agreement for the world's largest cell phone carrier to sell iPhones, it could boost near-term sentiment of Apple supply chain stocks, including AAC. Price target, and risks to our investment view Our June 2014 target price of HK$30 is based on a 12x average 2013E/2014E P/E. Our target P/E multiple is below AACs historical average P/E of 13.5x to account for lower growth and greater cyclical risks. Risks: Rising market share in the low-end come and non-acoustics taking off in the meaningful way.
China Consumer Electronics Qin Zhang, CFA

AC
(852) 2800-8532 qin.zhang@jpmorgan.com Bloomberg JPMA QZHANG <GO> J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
50 40 HK$ 30 20
2018.HK share price (HK$) HSCEI (rebased)
Abs Rel
YTD 16.6% 24.2%
1m -12.8% -13.2%
3m -13.7% -23.1%
12m 7.1% 8.7%

(Year-end Dec, Rmb mn) Sales Gross Profit Operating Profit EBITDA Pre-Tax Profit Net profit EPS (Rmb) BPS (Rmb) FY11 4,060 1,784 1,175 1,381 1,142 1,017 0.83 3.87
FY12 6,283 2,774 1,904 2,190 2,016 1,755 1.43 4.95
FY13E 8,273 3,532 2,501 2,927 2,943 2,578 2.10 6.10
FY14E 9,697 4,116 2,943 3,436 3,035 2,618 2.13 7.38
FY15E 10,583 4,424 3,163 3,732 3,268 2,817 2.29 8.76
FY11 FY12 FY13E FY14E FY15E P/E (x) 30.0 17.4 11.8 11.7 10.8 P/BV (x) 6.4 5.0 4.1 3.4 2.8 EV/EBITDA (x) 29.7 18.8 14.0 12.0 11.0 Div. Yield (%) 1.4 1.7 3.6 3.4 3.7 ROE (%) 22.8 32.4 38.0 31.6 28.4 ROIC (%) 19.7 27.5 32.0 27.3 25.9 WC Turns (x) 2.3 3.7 3.6 3.1 2.6 Net Debt/Equity (10.0%) (4.6%) (7.5%) (13.4%) (18.4%)
52-Week range Market Cap (HKD) Market Cap Share Out. (Com) Free float Avg daily val (US$) Avg daily vol. Dividend yield (%) Hang Seng Index
HK$47.95-25.05 38,805MM US$5,006MM 1,228MM 59.1% 23.8MM 5.2MM 3.6 1,0637.15
Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash
394
AAC Technologies Holdings: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Other income Depr. & amortization Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Minority interest Exceptional Items Net income (reported) Net income (adjusted) Ratio Analysis FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 4,060 6,283 8,273 9,697 10,583 Gross margin (2,275) (3,509) (4,741) (5,581) (6,159) EBITDA margin 1,784 2,774 3,532 4,116 4,424 Operating margin (358) (462) (578) (659) (720) Net margin (290) (464) (521) (597) (633) R&D/sales 246 341 494 577 661 SG&A/Sales (207) (286) (426) (493) (568) 1,175 1,904 2,501 2,943 3,163 Sales growth 1,381 2,190 2,927 3,436 3,732 Operating profit growth 28 16 34 40 50 Net profit growth (6) (12) (12) (8) (5) EPS (reported) growth 22 4 22 32 45 (56) 108 421 60 60 Interest coverage (x) 1,142 2,016 2,943 3,035 3,268 (109) (259) (362) (425) (460) Net debt to total capital 4 5 7 8 8 Net debt to equity (20) (7) (9) 0 0 1,017 1,755 2,578 2,618 2,817 Asset turnover 1,017 1,755 2,578 2,618 2,817 Working capital turns (x) ROE EPS (reported) 0.83 1.43 2.10 2.13 2.29 ROIC EPS (adjusted) 0.83 1.43 2.10 2.13 2.29 BVPS 3.87 4.95 6.10 7.38 8.76 DPS 0.36 0.41 0.90 0.85 0.92 Shares outstanding 1,228 1,228 1,228 1,228 1,228 Balance sheet Cash flow statement Rmb in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec Cash and cash equivalents 1,374 1,314 1,948 2,156 2,613 Net income Accounts receivable 1,488 2,329 2,371 2,783 3,133 Depr. & amortization Inventories 559 958 1,067 1,194 1,294 Change in working capital Others 5 6 6 6 6 Other Current assets 3,425 4,607 5,393 6,139 7,046 Cash flow from operations LT investments 185 267 259 259 259 Capex Net fixed assets 2,697 3,624 4,092 4,585 5,153 Other investing cash flow Others 407 428 550 672 794 Cash flow from investing Total Assets 6,714 8,926 10,294 11,655 13,253 Free cash flow Liabilities Equity raised/(repaid) ST Loans 891 1,035 1,380 936 627 Debt raised/(repaid) Payables 899 1,575 1,155 1,361 1,553 Other Others 97 141 167 196 220 Dividends paid Total current liabilities 1,887 2,751 2,702 2,493 2,400 Cash flow from financing Long-term debt 0 0 0 0 0 Net change in cash Other liabilities 16 44 56 56 56 Beginning cash Total Liabilities 1,903 2,796 2,758 2,549 2,457 Ending cash Shareholder's equity 4,811 6,130 7,535 9,106 10,796 Source: Company reports and J.P. Morgan estimates. FY11 44.0% 34.0% 28.9% 25.1% 8.8% 7.2% 21.2% 8.4% 6.3% 6.3% NM FY12 44.2% 34.9% 30.3% 27.9% 7.3% 7.4% 54.8% 62.1% 72.5% 72.5% NM FY13E 42.7% 35.4% 30.2% 31.2% 7.0% 6.3% 31.7% 31.3% 46.9% 46.9% NM FY14E 42.4% 35.4% 30.4% 27.0% 6.8% 6.2% 17.2% 17.7% 1.5% 1.5% NM FY15E 41.8% 35.3% 29.9% 26.6% 6.8% 6.0% 9.1% 7.5% 7.6% 7.6% NM
(11.2%) (4.8%) (8.2%) (15.5%) (22.5%) (10.0%) (4.6%) (7.5%) (13.4%) (18.4%) 0.7 0.8 0.9 2.3 3.7 3.6 22.8% 32.4% 38.0% 19.7% 27.5% 32.0% 0.9 3.1 31.6% 27.3% 0.8 2.6 28.4% 25.9%
FY11 FY12 FY13E FY14E FY15E 1,142 2,016 2,943 3,035 3,268 259 343 426 493 568 (403) (646) (546) (304) (234) (53) (177) (362) (425) (460) 945 1,535 2,462 2,798 3,143 (1,163) (1,317) (894) (986) (1,136) (156) (22) (115) (122) (122) (1,319) (1,339) (1,009) (1,108) (1,259) (218) 218 1,567 1,813 2,007 427 191 345 (444) (309) 36 (25) (82) 8 8 (442) (417) (1,102) (1,047) (1,127) 21 (251) (819) (1,483) (1,428) (361) (60) 634 208 457 1,735 1,374 1,314 1,948 2,156 1,374 1,314 1,948 2,156 2,613
395
Aboitiz Power
Underweight
www.aboitizpower.com/
AP.PS,AP PM Price: Php33.95 Price Target: Php27.00
Philippines Electric Utilities Ajay Mirchandani

AC
Company overview Aboitiz Power Corporation is one of the largest power companies in the Philippines, with a nationwide portfolio of generation assets and distribution utilities. Its attributable power capacity now totals nearly 2,400 MW (including 700 MW relating to Pagbilao IPPA), while it controls the country's second- and third-largest distribution utilities. Investment case In spite of its solid performance YTD, we reiterate our Underweight rating on Aboitiz Power on the back of: (1) lower ancillary earnings (potential earnings impact of Php1.5-2 billion); (2) tax holiday expiry (lowering earnings by Php2-2.5 billion (on an annualized basis) by FY15E/16E); and (3) lower earnings from Tiwi-Makban. Resilience of the growth outlook Given the headwinds of the expiry of the tax holiday on various assets, lower ancillary revenues and lower earnings from Tiwi-Makban (upon the expiry of GRSC), we see earnings remaining flattish to trending slightly downward over the next couple of years.
12m 0.4% -17.9%

Price Performance
46 42 Php 38 34 30
AP.PS share price (Php) PSE (rebased)
Abs Rel
YTD -8.1% -19.5%
1m 0.1% -1.3%
3m 5.9% 5.0%
Risks to the earnings outlook in 2014 Key upside risks to FY14E earnings are much stronger volume growth and a surge in spot prices, providing a boost to earnings. Price target, and risks to our investment view Our Dec-14 PT of PhP27 is based on our SOTP valuation of Aboitiz Powers various power assets. These power assets are each valued on a DCF basis by discounting their future attributable net earnings. At our PT of PhP27, Aboitiz Power would trade at a 10.6x P/E and a P/BV of 2.0x for 2014E. Key upside risks include much stronger volume growth and a surge in spot prices, providing a boost to earnings.
7,359 249,825 5,784 33.95 06 Nov 13 2.30 75.88 1.8 6477.30 43.19 Dec
Aboitiz Power (Reuters: AP.PS, Bloomberg: AP PM) Php in mn, year-end Dec FY11A FY12E Revenue (Php mn) 54,476 62,153 Net Profit (Php mn) 21,608 24,407 EPS (Php) 2.94 3.32 EPS (recurring) (Php) 2.87 3.22 DPS (Php) 1.32 1.54 Revenue growth (%) 14.1% EPS growth (%) 13.0% ROCE 205.5% 147.7% ROE 61.6% 31.6% P/E (x) 11.6 10.2 P/BV (x) 3.6 3.1 EV/EBITDA (x) 12.2 10.9 Dividend Yield 3.9% 4.5%
FY13E 57,742 18,846 2.56 2.56 1.29 (7.1%) (22.8%) 193.7% 21.9% 13.3 2.8 12.3 3.8%
FY14E 62,986 18,712 2.54 2.54 1.29 9.1% (0.7%) 195.9% 19.7% 13.4 2.5 11.7 3.8%
FY15E 63,971 17,701 2.41 2.41 1.29 1.6% (5.4%) 180.5% 17.0% 14.1 2.3 11.3 3.8%
396
Aboitiz Power: Summary of Financials

Income Statement Php in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Php in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY10 FY11 54,476 32,831 29,485 38.6% (6,484) 23,001 (1,117) 4.9% 21,608 7,359 2.94 FY12E 62,153 14.1% 35,869 6.3% 32,352 9.7% 36.1% (6,073) 26,279 14.3% (1,383) 5.3% 24,407 13.0% 7,359 3.32 13.0% FY13E 57,742 (7.1%) 28,868 (12.3%) 24,699 (23.7%) 32.2% (4,643) 20,056 (23.7%) (1,098) 5.5% 18,846 (22.8%) 7,359 2.56 (22.8%) FY14E 62,986 9.1% 28,828 1.9% 24,333 (1.5%) 29.7% (4,404) 19,928 (0.6%) (1,104) 5.5% 18,712 (0.7%) 7,359 2.54 (0.7%)
Cash flow statement Php in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis Php in millions, year end Dec EBITDA margin Operating margin Net margin
FY10 -
FY11 29,485 3,346 (600) 22,642
FY12E 32,352 3,516 2,198 24,842 (9,905) (6,073) 14,447 20,496 0 (7,954) (4,388) (9,713) 23,392 30,678 1.54 FY12E 41.7% 36.1% 38.1%
FY13E 24,699 4,169 1,341 24,468 (7,131) (4,643) (2,404) 21,614 0 (3,668) (2,280) (9,517) 30,678 30,145 1.29 FY13E 39.4% 32.2% 32.6%
FY14E 24,333 4,495 (407) 22,913 (4,003) (4,404) 0 22,974 0 (21) 0 (9,468) 30,146 39,567 1.29 FY14E 36.8% 29.7% 29.7% 9.1% 9.1% (0.7%) (0.7%) 5.3
- (7,527) - (6,484) 2,548 - 21,102 0 950 - (3,812) - (9,713) - 18,302 - 23,392 1.32 FY10 FY11 44.8% 38.6% 38.7% 3.8
Sales per share growth LT investments - Sales growth Net fixed assets - 78,708 85,145 89,662 89,169 Net profit growth Total Assets - 153,528 163,271 166,452 176,336 EPS growth Liabilities Interest coverage (x) Short-term loans 1,615 1,277 1,277 1,277 Payables 7,169 10,121 10,658 11,207 Net debt to equity Others 1,664 4,452 144 144 Sales/assets Total current liabilities - 10,448 15,850 12,080 12,628 Assets/equity Long-term debt - 17,300 7,594 7,528 7,528 ROE Other liabilities - 55,587 57,019 54,594 54,573 ROCE Total Liabilities - 83,336 80,463 74,202 74,730 Shareholder's equity - 68,559 81,231 90,560 99,804 BVPS (Php) 9.32 11.04 12.31 13.56 Source: Company reports and J.P. Morgan estimates.
FY10 -
FY11 23,392 9,506 2,174 1,107 36,178
FY12E 30,678 8,115 2,174 1,041 42,008
FY13E 30,146 7,539 2,019 967 40,672
FY14E 39,567 8,224 2,203 1,055 51,049
14.1% (7.1%) 14.1% (7.1%) 13.0% (22.8%) 13.0% (22.8%) 4.3 4.9
- (6.4%) (26.3%) (23.1%) (30.3%) 0.7 0.4 0.4 0.4 - 223.9% 211.5% 191.9% 180.1% - 61.6% 31.6% 21.9% 19.7% - 205.5% 147.7% 193.7% 195.9%
397
Adani Power
Underweight
www.adanipower.com
ADAN.BO,ADANI IN Price: Rs35.45 Price Target: Rs31.00
India Electric Utilities Sumit Kishore

AC
(91-22) 6157-3581 sumit.x.kishore@jpmorgan.com J.P. Morgan India Private Limited
Price Performance
70 60 Rs 50 40 30
ADAN.BO share price (Rs) BSE30 (rebased)
Abs Rel
YTD -44.7% -51.4%
1m 7.6% 2.7%
3m 14.4% 2.9%
12m -28.6% -39.6%
Company overview Adani Power is a part of the diversified Adani Group, with interests ranging from infrastructure development to FMCG. Adani Power has 4.6GW of power capacity in Mundra, Gujarat which is fully operational and 3.3GW in Tiroda, Maharashtra of which phase 2 of 1.32GW is under construction. Another under construction project is the 2x660MW Kawai in Rajasthan, of which one unit has been commissioned. Investment case Adani has been making losses for the past 8 quarters, eroding net worth as they still await a tariff hike for 2.4GW of their operational and loss making 4.6GW capacity at Mundra. The ramp up of coal production from their group captive Indonesian mine has been slow and domestic linkage coal supply has been inadequate as a result of which they are dependent on expensive spot imports. With poor fuel security, a depreciated INR, project cost overruns and a fixed tariff structure, we think the Adani Power earnings model is unsustainable unless it gets relief on multiple counts. Resilience of the growth outlook With capacity increasing from 7.26GW currently to 9.24GW by next year, we expect Adani to achieve growth operationally but think profitability of the same is questionable given fuel and tariff issues. Risks to the earnings outlook in 2014 Our loss estimate for FY14 is Rs25.7B (consensus still at Rs13B loss, though 1H loss already Rs14.5B); we estimate FY15 PAT of Rs3.7B assuming a better fuel mix vs. FY14. As of Sep-13 D/E was 8.9x. Adani Enterprises loan support to Adani Power is Rs63bn, with interest accruing and adding to this amount every month. Price target, and risks to our investment view Our SOTP Sep-14 PT of Rs31 includes DCF based valuations for each plant plus Rs15/share for an expected 40paise Mundra tariff hike and Rs4/share for expected grant of regulated return on equity invested in the Mundra-IV transmission line. Higher compensatory tariff for 2.4GW, increased Bunyu coal production, lower spot coal price, higher PLF, INR appreciation and higher merchant rates are key upside risks.
Adani Power (Reuters: ADAN.BO, Bloomberg: ADANI IN) Rs in mn, year-end Mar FY12A FY13A FY14E Revenue (Rs mn) 40,898 67,794 119,545 Adjusted Profit (Rs mn) (924) (21,542) (25,690) Adjusted EPS (Rs) (0.42) (9.42) (9.76) Revenue growth (%) 91.5% 65.8% 76.3% Adjusted profit growth (%) (118.0%) 2230.8% 19.3% ROCE (1.0%) (0.6%) 2.1% ROE (1.5%) (41.7%) (60.1%) Adjusted P/E NM NM NM P/BV (x) 1.3 2.0 2.4 EV/EBITDA (x) 34.6 46.8 16.9
2,872 101,810 1,652 35.45 06 Nov 13 30.0% 3.59 124.07 2.0 2,0974.79 61.63 Mar
FY15E 180,713 3,733 1.30 51.2% (114.5%) 5.5% 8.4% 27.3 2.2 7.3
FY16E 179,186 9,333 3.25 (0.8%) 150.0% 7.8% 18.3% 10.9 1.8 6.6
398
Adani Power: Summary of Financials

Income Statement Rs in millions, year end Mar Revenues % change Y/Y EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Other income Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income % change Y/Y Adjusted profit % change Y/Y Shares outstanding EPS % change Y/Y Adjusted EPS % change Y/Y Balance sheet Rs in millions, year end Mar Net fixed assets CWIP Investments Cash and bank balances Net current assets ex-cash Total Assets Total Debt Shareholder's equity Minority interests Total Liabilities FY12 40,898 91.5% 13,252 8.6% 32.4% 7,347 (28.8%) 18.0% 1,980 (7,375) 1,952 (76.0%) (2,948) 151.1% (2,873) (156.9%) (924) (118.0%) 2,180 (1.32) (156.9%) (0.42) (118.0%) FY12 158,042 267,215 190 32,408 (15,844) 470,605 FY13 67,794 65.8% 10,680 (19.4%) 15.8% (2,217) (130.2%) (3.3%) 1,907 (16,464) (16,774) (959.4%) (4,768) (28.4%) (22,950) 698.9% (21,542) 2230.8% 2,393 (10.04) 661.7% (9.42) 2122.2% FY14E 119,545 76.3% 29,803 179.1% 24.9% 8,155 (467.9%) 6.8% 1,700 (31,716) (21,861) 30.3% (3,829) (17.5%) (30,614) 33.4% (25,690) 19.3% 2,872 (11.63) 15.9% (9.76) 3.6% FY15E 180,713 51.2% 65,237 118.9% 36.1% 39,007 378.3% 21.6% 336 (33,364) 5,979 (127.3%) (2,246) 37.6% 3,733 (112.2%) 3,733 (114.5%) 2,872 1.30 (111.2%) 1.30 (113.3%) FY16E 179,186 (0.8%) 67,923 4.1% 37.9% 41,693 6.9% 23.3% 174 (29,920) 11,947 99.8% (2,613) 21.9% 9,333 150.0% 9,333 150.0% 2,872 3.25 150.0% 3.25 150.0%
Cash flow statement Rs in millions, year end Mar EBIT Depreciation & Amortization Tax Other income Decrease in WC Operating CF Capex Change in investments Investing CF Free cash flow Change in equity Change in debt Other financing activities Financing CF Change in cash Opening cash Closing cash
FY12 FY13 FY14E 7,347 (2,217) 8,155 5,904 12,897 21,648 (2,948) (4,768) (3,829) 1,980 1,907 1,700 38,017 22,520 (5,000) 48,352 28,600 22,675 (169,501) (57,480) (19,802) (90) (34) 0 (169,591) (57,514) (19,802) (121,239) (28,913) 2,873
FY15E FY16E 39,007 41,693 26,230 26,230 (2,246) (2,613) 336 174 (5,000) (5,000) 58,328 60,484 0 0 0 58,328 1,543 224 1,767 62,251
407 (119) 25,368 0 0 149,078 31,951 (7,492) (29,359) (33,359) (5,751) (17,895) (30,637) (33,364) (29,920) 143,734 13,937 (12,761) (62,723) (63,279) 22,495 (14,976) (9,889) (4,395) (1,028) 9,643 32,408 17,181 7,292 2,897 32,408 17,181 7,292 2,897 1,869
EBITDA margin 386,003 417,954 410,462 381,103 347,745 Dividend payout ratio 60,413 42,934 42,613 46,345 55,679 5,590 0 0 0 0 404,602 435,121 428,708 399,349 365,991 Sales/GFA (x) GFA/Equity (x) BVPS (Rs) 27.71 17.94 14.84 16.14 19.39 Debt/Equity (x) Net debt/Equity (x) ROE ROCE Source: Company reports and J.P. Morgan estimates.
FY13 FY14E FY15E FY16E 290,817 463,236 437,005 410,775 189,765 15,500 15,500 15,500 224 224 224 0 17,181 7,292 2,897 1,869 (38,364) (33,364) (28,364) (23,364) 478,055 471,321 445,695 421,669
Ratio Analysis Rs in millions, year end Mar Revenue growth EBITDA growth PAT growth EPS growth
FY12 FY13 FY14E 91.5% 65.8% 76.3% 8.6% (19.4%) 179.1% (156.9%) 698.9% (156.9%) 661.7% 32.4% 15.8% -
FY15E 51.2% 118.9%
FY16E (0.8%) 4.1%
33.4% (112.2%) 150.0% 15.9% (111.2%) 150.0% 24.9% 36.1% 0.4 10.3 8.2 8.2 8.4% 5.5% 37.9% 0.4 8.5 6.2 6.2 18.3% 7.8%
0.1 0.1 0.3 6.5 9.2 11.1 6.4 9.7 9.6 5.9 9.3 9.5 (1.5%) (41.7%) (60.1%) (1.0%) (0.6%) 2.1%
399
ALS Limited
Underweight
www.alsglobal.com/
ALQ.AX,ALQ AU Price: A$9.69 Price Target: A$8.07
Australia Business Services Anthony Passe-de Silva

AC
(61-2) 9003-8614 anthony.g.passede.silva@jpmorgan.com J.P. Morgan Securities Australia Limited
Price Performance
13 12 A$ 11 10 9 8
ALQ.AX share price (A$) ASX100 (rebased)
Abs Rel
YTD -13.5% -31.6%
1m -1.1% -6.5%
3m 10.6% 4.1%
12m 6.5% -15.9%
Company overview ALQ is a global laboratory-based testing, inspection and certification group. ALQ has four divisions: ALS Minerals, ALS Life Sciences, ALS Energy and ALS Industrial. ALQs key end market exposures include mineral exploration, oil & gas well services, food/pharmaceutical/environmental testing and industrial assurance services. Investment case End market conditions for ALQs largest division, ALS Minerals, remain under pressure as mining companies curtail discretionary capex, weighing on demand for services linked to the global mineral exploration sector. While ALQs Life Sciences and Energy operations have organic growth opportunities supported by M&A, both businesses are lower margin than ALS Minerals and face other issues. Resilience of the growth outlook ALS Life Sciences benefits from its linkage to regulatory-related growth in demand (e.g. rising demand for higher quality/safer foods/pharmaceuticals). The acquisition of Reservoir Group also expands ALQ's exposure to the oil & gas sector. Risks to the earnings outlook in 2014 Continued capex cutbacks by mining customers is weighing on demand for mineral exploration-related services with little suggesting that this will improve potential further downside for ALS Minerals. Weakness in global oil & gas drilling activity and modest near term declines in oil prices may weigh on demand for associated well head services. Competitor moves into ALQs Asia Pacific markets and ALQs move into lower margin North Atlantic markets likely to weigh on ALS Life Sciences margins. Price target, and risks to our investment view Our Jun14 PT of $8.07/share is based on the average of our FY14E PE Rel (FY14E Jun yr ASX200 Industrials ex Financials Index PE of 16.2x), FY14E sum-of-theparts (based on EBIT multiples of various comparable companies) and DCF valuations (WACC 10.2%, TGR 2.5%, risk free rate 5.0%), rolled forward at the cost of equity less the grossed up 12mth fwd dividends. Upside risks to our PT include stronger-than-expected conditions in the global non-ferrous exploration market, better-than-expected demand conditions in global environmental, industrial and/or resource production activity, accretive acquisitions, better-than-expected pricing and weakness in the A$.
ALS Limited (Reuters: ALQ.AX, Bloomberg: ALQ AU) Year-end Mar (A$) FY12A FY13A Revenue (A$ mn) 1,406 1,499 EBITDA (A$ mn) 374 406 Net Profit (A$ mn) 222 227 EPS (A$) 0.66 0.66 P/E (x) 14.7 14.6 EV/EBITDA (x) 11.8 11.0 DPS (A$) 0.45 0.48 Dividend Yield 4.6% 5.0% Normalised EPS (A$) 0.66 0.69 Normalised EPS Growth 62.1% 5.6% Normalised PE 14.7 14.0
386 3,735.82 3,551.83 9.69 06 Nov 13 1.03 9.96 9.5 4511.50 1.05 Mar
FY14E 1,587 392 205 0.55 17.6 11.9 0.40 4.1% 0.55 (20.6%) 17.6
FY15E 1,742 422 220 0.57 17.0 10.9 0.41 4.2% 0.57 3.7% 17.0
FY16E 1,872 459 247 0.64 15.1 9.8 0.43 4.4% 0.64 12.3% 15.1
400
ALS Limited: Financial Summary

A$ in millions, year end Mar Profit And Loss Revenue Revenue growth COGS Operating Expenses EBITDA EBITDA growth EBITDA margin Amortisation Depreciation EBIT Other Income Other Expenses Net Interest Pre-Tax Profit Tax Tax Rate Minorities Abnormals (post tax) Reported NPAT
Underweight
A$m 3,735.82 A$ps 9.69 8.07 (16.7%)
FY12 FY13 FY14E FY15E FY16E Valuation Summary 1,406 1,499 1,587 1,742 1,872 Current mkt capitalisation 26.8% 6.7% 5.8% 9.8% 7.4% - Price Target (1,030) (1,092) (1,193) (1,318) (1,411) Capital growth to price target 374 406 392 422 459 56.9% 8.6% (3.5%) 7.8% 8.6% Trading Multiples 26.6% 27.1% 24.7% 24.2% 24.5% PE Pre-abnormals (1) (1) (1) (2) (2) PE Reported (45) (55) (70) (76) (79) EV/EBITDA 328 350 321 344 377 EV/EBIT (0) (0) (0) (0) (0) Key Ratios (15) (19) (27) (29) (26) Dividend Yield 312 331 293 315 351 Franking (87) (90) (85) (91) (100) Return on Assets (%) 28.0% 28.0% 28.9% 28.8% 28.5% Return on Equity (%) (2) (3) (4) (4) (4) ROIC (%) 0 (11) 0 0 0 222 227 205 220 247 Leverage Gearing (Net Debt / Equity) Normalised NPAT 222 238 205 220 247 Gearing (ND / (ND + E)) Growth 68.2% 7.0% (13.8%) 7.5% 12.3% Net Debt / EBITDA EBIT Interest Cover (x) End of Period Shares 338 344 385 385 385 EFPOWA 338 343 372 386 386 Balance Sheet Cash Reported EPS ($) 0.66 0.66 0.55 0.57 0.64 Receivables Normalised EPS ($) 0.66 0.69 0.55 0.57 0.64 Investments Growth 62.1% 5.6% (20.6%) 3.7% 12.3% Inventories Other Current Assets DPS ($) 0.45 0.48 0.40 0.41 0.43 Total Current Assets Growth 60.7% 6.7% (16.7%) 2.5% 4.9% Net PPE Total Intangibles DPS/EPS payout 68.4% 72.3% 72.6% 71.7% 67.0% Other Non Current Assets Total Non Current Assets Cash Flow Statement FY12 FY13 FY14E FY15E FY16E Total Assets Net Profit for Cashflow 222 227 205 220 247 Creditors Depreciation & Amortisation 46 56 71 79 81 Current Borrowings Non Cash Items 352 375 389 420 455 Current Tax Provisions Working Capital Changes (56) 3 24 (5) (1) Other Current Provisions Other Operating Cashflows (335) (413) (381) (404) (440) Other Current Liabilities Cashflow from Operating Activities 229 247 308 311 343 Total Current Liabilities Non Current Creditors Net Capex (83) (115) (84) (82) (94) Non Current Borrowings Net Acquisitions (192) (62) (606) (8) 0 Deferred Tax Liabilities Other Investing cashflows (0) (0) 0 0 0 Other Non Current Provisions Investing Cash Flow (275) (177) (690) (90) (94) Other Non Current Liabilities Total Non Current Liabilities Inc/(Dec) in Borrowings 214 19 299 (50) (50) Total Liabilities Equity Issued 0 0 294 0 0 Equity Dividends Paid (116) (102) (115) (155) (162) Other Equity Other Financing Cashflows (3) (3) (4) (4) (4) Reserves Financing Cash Flow 95 (86) 474 (209) (216) Retained Profits Outside Equity Interests Net Cash Flow 48 (17) 92 11 33 Total Shareholders Equity Net Debt Source: Company reports and J.P. Morgan estimates.
FY12 14.7 14.7 11.8 13.5 FY12 4.6% 50.0% 15.8% 25.4% 19.3%
FY13 FY14E 14.0 17.6 14.6 17.6 11.0 11.9 12.8 14.6 FY13 FY14E 5.0% 4.1% 50.0% 50.0% 14.1% 9.7% 24.9% 17.0% 17.4% 12.1%
FY15E FY16E 17.0 15.1 17.0 15.1 10.9 9.8 13.4 12.0 FY15E FY16E 4.2% 4.4% 50.0% 50.0% 8.8% 9.7% 15.1% 16.2% 10.9% 11.9% FY15E FY16E 36.4% 28.9% 26.7% 22.4% 129.4% 99.8% 12.1 14.6 FY15E FY16E 219 252 331 346 0 0 78 76 50 50 678 723 471 486 1,315 1,312 51 51 1,837 1,849 2,515 2,573 130 141 7 7 23 25 50 59 0 0 210 232 759 703 2 2 4 5 41 48 806 758 1,016 990 997 997 0 0 (44) (46) 535 620 12 12 1,499 1,583 546 458
FY12 FY13 FY14E 39.8% 41.4% 42.7% 28.5% 29.3% 29.9% 99.2% 101.7% 156.7% 21.4 18.2 11.9 FY12 133 264 0 81 29 506 325 768 37 1,130 1,636 123 5 28 39 0 196 499 2 3 6 510 706 610 0 (37) 351 6 930 371 FY13 FY14E 116 208 257 319 0 0 74 76 35 50 482 652 397 465 805 1,310 51 51 1,253 1,826 1,735 2,478 114 121 7 7 15 21 41 40 0 0 177 188 522 815 2 2 3 3 34 32 561 852 738 1,041 668 997 0 (0) (98) (40) 415 469 12 12 997 1,437 413 614
401
Aluminum Corporation of China - H

Neutral
www.chalco.com.cn
China Metals Daniel Kang

AC
Company overview Chalco is Chinas largest integrated aluminium producer with 12.9Mt capacity in alumina refining and 4Mt in aluminium smelting. The company recently divested its 1.7Mt in aluminium fabricated products operation. Chalcos core operations are spread across China. Its primary shareholder is its state-owned parent company Chinalco. Investment case We view Chalco as an event-driven stock with asset divestments being the key rerating catalyst. In a structurally oversupplied market, Chalcos high cost aluminium operations have resulted in the company reporting eight consecutive quarters of core losses. While the divestment of the Simandou project will help it return to reported profits in FY13, Chalcos key problem remains its core aluminium business that continues to struggle for profitability at current price levels to cover its financing costs. Resilience of the growth outlook Domestically, we estimate China has excess capacity of 4-5mt (or 20-25%) above existing demand. In the absence of far stronger demand conditions, we forecast aluminium to remain oversupplied. Supported by local governments via power subsidies, high cost capacity have been allowed to continue, exacerbating the metals oversupply and keeping aluminum prices at around marginal costs. We forecast Chalco to remain in core losses of Rmb3.0bn in 2014 despite marginally higher aluminium prices (+5% in 2013), given flattish volume growth and high financing costs. Risks to the earnings outlook in 2014 At its recent 3Q13 results briefing, Chalco indicated that it had no further plans for asset divestments. As such, aluminium prices and Chalco's ability to contain costs (eg. improving raw material self sufficiency) remain the key earnings drivers. Potential equity issuance remains a key downside risk. Price target, and risks to our investment view Our Dec-14 PT is HKD2.80, based on 0.7x PB (from our residual income model (P/BV = ROE-g/COE-g) using a sustainable ROE of 8.2%. Key risks are potential M&A or divestments and fluctuations in aluminium prices.
Price Performance
4.5 4.0 HK$ 3.5 3.0 2.5 2.0
2600.HK share price (HK$) HSI (rebased)
Abs Rel
YTD -20.0% -21.7%
1m 1.1% 1.5%
3m 15.0% 9.9%
12m -17.4% -22.4%
13,524 38,410 4,955 2.84 06 Nov 13 14.76 41.48 5.4 2,3038.95 7.75 Dec
Aluminum Corporation of China - H (Reuters: 2600.HK, Bloomberg: 2600 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Rmb mn) 145,874 149,479 135,688 137,803 Net Profit (Rmb mn) 238 (8,234) 1,250 (3,044) Core Profit (Rmb mn) 238 (8,219) (4,512) (3,044) EPS (Rmb) 0.02 (0.61) 0.09 (0.23) Core EPS (Rmb) 0.02 (0.61) (0.33) (0.23) Revenue growth (%) 20.6% 2.5% (9.2%) 1.6% EPS growth (%) (69.4%) (3559.9%) (115.2%) (343.4%) Core EPS growth (69.4%) (3553.7%) (45.1%) (32.5%) P/E (x) 127.0 NM 24.2 NM P/BV (x) 0.6 0.7 0.7 0.7 EV/EBITDA (x) 12.2 150.6 36.3 21.0 Dividend Yield 0.0% 0.0% 0.0% 0.0%
FY15E 147,645 (1,099) (1,099) (0.08) (0.08) 7.1% (63.9%) (63.9%) NM 0.7 15.3 0.0%
402
Aluminum Corporation of China - H: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 FY12 FY13E FY14E 145,874 149,479 135,688 137,803 20.6% 2.5% (9.2%) 1.6% 6.2% 0.6% 3.0% 5.1% 9,043 912 4,017 6,995 (6.8%) (89.9%) 340.6% 74.1% 6.2% 0.6% 3.0% 5.1% 3,587 (4,785) 638 731 5.4% (233.4%) (113.3%) 14.5% 2.5% (3.2%) 0.5% 0.5% (3,294) (4,599) (5,212) (5,222) 818 (9,092) 1,297 (3,925) (40.7%) (1211.5%) (114.3%) (402.7%) (127) 448 (403) 981 15.6% (4.9%) 31.1% (25.0%) 238 (8,234) 1,250 (3,044) (69.4%) (3559.9%) (115.2%) (343.4%) 13,524 13,524 13,524 13,524 0.02 (0.61) 0.09 (0.23) (69.4%) (3559.9%) (115.2%) (343.4%) FY11 10,591 5,632 24,124 9,622 49,970 FY12 9,064 2,616 25,596 11,740 49,016 FY13E 21,540 2,259 22,103 28,246 74,148 FY15E 147,645 7.1% 6.5% 9,582 37.0% 6.5% 3,289 349.8% 2.2% (5,227) (1,332) (66.1%) 333 (25.0%) (1,099) (63.9%) 13,524 (0.08) (63.9%) Cash flow statement Rmb in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Other Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow FY11 FY12 FY13E FY14E FY15E 3,587 (4,785) 638 731 3,289 5,457 5,696 3,379 6,264 6,293 (2,681) 202 2,744 (951) (1,426) (127) 448 (403) 981 333 (524) 3,458 (1,337) (210) (205) 2,490 1,122 6,036 2,059 3,563 (8,472) (8,963) 223 (3,418) (3,263) 80 186 7,223 3,582 3,737 (3,294) (4,599) (5,212) (5,222) (5,227) (3,202) (3,014) 9,851 5,169 6,834 0 0 0 0 0 11,099 10,421 81 0 0 (2,257) 10,008 8,314 0 0 0 0 0 0 0 8,983 10,591 9,064 21,540 20,492 10,591 9,064 21,540 20,492 21,097 0.00 0.00 0.00 0.00 0.00 FY11 FY12 FY13E FY14E FY15E 0.2% (5.5%) (3.3%) (2.2%) (0.7%) 2.7 0.2 0.8 1.3 1.8 124.0% 177.6% 183.2% 195.3% 197.9% 1.0 0.9 0.7 0.7 0.8 2.9 3.5 4.2 4.6 4.8 0.5% (17.2%) (10.2%) (7.0%) (2.7%) 0.2% (4.9%) (2.4%) (1.5%) (0.6%) 2.4% (3.5%) 0.3% 0.5% 2.5%
LT investments 3,950 19,149 17,885 Net fixed assets 93,775 96,248 85,622 Total Assets 157,134 175,017 198,995 a Liabilities Short-term loans 46,738 67,915 70,888 Payables 8,401 7,059 5,952 Others 7,221 8,879 9,145 Total current liabilities 62,360 83,853 85,985 Long-term debt 35,969 36,636 53,382 Other liabilities 651 757 3,558 Total Liabilities 98,980 121,246 142,925 Shareholder's equity 51,826 43,808 44,759 BVPS 3.83 3.24 3.31 Source: Company reports and J.P. Morgan estimates.
Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis FY14E FY15E Rmb in millions, year end Dec 20,492 21,097 Net profit margin 2,345 2,513 SG&A/Sales 22,950 24,590 24,663 20,927 Interest coverage (x) 70,451 69,126 Net debt to equity Sales/assets 17,885 17,885 Assets/equity 86,359 87,066 196,035 195,417 ROE ROA ROCE 70,888 70,888 5,936 6,316 9,145 9,145 85,969 86,350 53,382 53,382 3,558 3,558 142,908 143,289 41,716 40,617 3.08 3.00
403
Aquila Resources Ltd

Underweight
www.aquilaresources.com.au/
AQA.AX,AQA AU Price: A$2.29 Price Target: A$2.05
Australia Iron Mark Busuttil

AC
Company overview Aquila is an ASX-listed company with a number of assets in development. The companys two flagship projects are the West Pilbara Iron Ore Project, and the Eagle Downs Hard Coking Coal Project. The company also has a number of smaller scale projects including Washpool, Avontuur, and Thabazimbi. Investment case Aquila had A$591 million in cash at June 2013 and expects a further cash inflow of A$94 million from an insurance claim. Previously, management had indicated that this cash would be used in part for the A$6 billion West Pilbara Project, with a part sale of Aquila Coal (the entity that owns Aquilas 50% stake in Eagle Downs) to provide funding for the companys other flagship project. Resilience of the growth outlook Both the companys projects are highly dependent on financing. Development of the West Pilbara Project has been slowed down as Aquilas JV partner, AMCI, has disputed the cap-ex budget for FY2014. The companys existing cash reserves appear to be directed towards Eagle Downs, with no buyer as yet emerging for Aquila Coal.
12m -4.2% -26.6%
(61-2) 9003-8619 mark.busuttil@jpmorgan.com J.P. Morgan Securities Australia Limited
Price Performance
3.2 2.8 A$ 2.4 2.0 1.6
AQA.AX share price (A$) ASX100 (rebased)
Abs Rel
YTD -10.5% -28.6%
1m 7.5% 2.1%
3m 6.0% -0.5%
Risks to the earnings outlook in 2014 Near-term earnings forecasts are not relevant for Aquila given no assets in production and the companys value comes from growth projects. Price target, and risks to our investment view Our Underweight rating is driven predominately by valuation with the stock trading above our June 2014 price target. Our June 2014 price target is derived from our DCF-valuation (using a 10% discount rate) with a 25% discount for the companys development projects, consistent with the methodology we use for Aquilas peers. The completion of a part sale of Aquila Coal (which owns the companys 50% stake in Eagle Downs) or other assets could represent positive catalysts and upside risk to our price target.
412 943.03 896.59 2.29 06 Nov 13 0.39 0.85 0.8 4511.50 1.05 Jun
Aquila Resources Ltd (Reuters: AQA.AX, Bloomberg: AQA AU) Year-end Jun (A$) FY12A FY13A FY14E Revenue (A$ mn) 197 0 0 EBITDA (A$ mn) 4 (40) (20) Net Profit (A$ mn) (6) 292 103 EPS (A$) (0.02) 0.74 0.25 P/E (x) NM 3.2 9.1 EV/EBITDA (x) 238.2 NM NM DPS (A$) 0.00 0.00 0.00 Dividend Yield 0.0% 0.0% 0.0% Normalised EPS (A$) 0.01 (0.06) 0.01 Normalised EPS Growth (103.7%) (1080.7%) (113.1%) Normalised PE 350.6 NM 272.7
FY15E 0 (21) (22) (0.05) NM NM 0.00 0.0% (0.05) (732.8%) NM
FY16E 218 99 27 0.07 35.1 7.0 0.00 0.0% 0.07 (222.6%) 35.1
404
Aquila Resources (AQA): Financial Summary

Profit & Loss (A$m)
Revenue Operating Expenses EBITDA Depreciation and amortisation EBIT Net Interest NPBT Tax Expense Normalised NPAT Extraordinary Items Reported NPAT Shares outstanding (m) Reported EPS (cents) Normalised EPS (cents) Normalised EPS growth DPS (cents) DPS/EPS payout 0%
Underweight
FY16E
218 (119) 99 (85) 15 24 38 (11) 27 27 412 6.5 6.5 n/a 0% 12 mth price target Capital growth to price target 12 mth forecast DYld 12 mth forecast total return WACC A$2.05 -11% 0.0% -11% 10%
FY13A
(40) (40) 0 (40) 5 (36) 11 (25) 318 292 412 71.0 (6.4)
FY14E
(20) (20) (20) 25 5 (1) 3 100 103 412 25.1 0.8 n/a 0%
FY15E
(21) (21) (34) (54) 23 (31) 9 (22) (22) 412 (5.3) (5.3) n/a 0%
Valuation Summary
Current mkt capitalisation EV
A$m
947 367
DCF valuation
Eagle Downs - Underground (50%) Washpool - Open Cut (100%) Talwood Coking Coal Project (100%) West Pilbara - Open Cut (50% API) Thabazimbi Avontuur Corporate Net cash / (debt) Equity NPV P/NPV
A$m
260 47 50 0 75 100 -217 580 895
A$ps
0.66 0.12 0.13 0.00 0.19 0.25 -0.55 1.48 2.28 1.01
Cashflow (A$m)
Operating cashflow Capex Free cash flow Other investing cashflows Financing cashflows Change in cash
FY13A
(23) (69) (92) 634 (0) 541
FY14E
(10) (50) (60) 14 (47)
FY15E
12 (52) (40) (40)
FY16E
80 (351) (272) (272)
Key Ratios
PE EV/EBITDA (x) Dividend yield ROE (Norm NPAT/Equity) ROA - EBIT / (assets - cash) ROIC (EBIT/Assets) EBIT / net interest EBITDA / net interest
FY13A
n/a -7.8 n/a -3% -10% -4% 8.9 8.9 14.3 -70% -236% n/a n/a 30% -22.4 -9.7
FY14E
258.7 -17.9 n/a 0% -4% -2% 0.8 0.8 26.5 -57% -135% n/a n/a 30% -14.7 -14.8
FY15E
n/a -19.4 n/a -2% -11% -6% 2.3 0.9 23.9 -54% -119% n/a n/a 30% -9.7 -22.5
FY16E
33.3 6.8 n/a 3% 2% 1% -0.6 -4.2 -2.2 -24% -31% 7% 46% 30% -66.0 -3.3
Balance Sheet (A$m)

FY13A
591 116 1,006 11 181 825 (580)
FY14E
545 166 1,008 11 79 929 (533)
FY15E
505 184 986 11 79 907 (494)
FY16E
233 450 1,056 11 122 934 (222)
Net debt / EBITDA Gearing - net debt/equity Gearing - net debt/ (net debt + equity) EBIT margin EBITDA margin Effective tax rate CFPS (A) P/CF (x)
Half Yearly P&L (A$m)

Revenue Operating Expenses EBITDA Depreciation and amortisation EBIT Net Interest NPBT Tax Expense Normalised NPAT Extraordinary Items Reported NPAT
1H13A
(20) (20) (20) 2 (18) 5 (12) 239 227
2H13E
(21) (21) 0 (21) 3 (18) 5 (13) 78 65
1H14E
(10) (10) (10) 13 3 (1) 2 100 102
2H14E
(10) (10) (10) 12 2 (1) 2 2
Volume forecasts [kt wet]

Eagle Downs Coal Washpool Coal West Pilbara Iron Ore
FY13A
0 0 0
FY14E
0 0 0
FY15E
0 0 0
FY16E
0 0 6000
Real unit costs ex shipping, royalties

Eagle Downs Coal (A$/t) Washpool Coal (A$/t) West Pilbara Iron Ore (A$/t)
FY13A
FY14E
FY15E
FY16E
Sensitivity
NPV / NPAT Iron ore +10% increase Iron ore +10% increase Iron ore +US$1/t increase Iron ore +US$1/t increase AUD +10% increase AUD +10% increase AUD +1c increase AUD +1c increase Source: Company data, J.P. Morgan estimates.
FY13A
FY14E
FY15E
FY16E
Assumptions
AUD/USD Implied TSI index (US$/t) Hard coking coal (US$/t) Pulverised Coal Injection (US$/t) Semi-soft coking coal (US$/t) Thermal coal NEWC contract (US$/t)
FY13A
1.03 119 182 137 116 88
FY14E
0.90 110 149 127 95 81
FY15E
0.88 100 170 145 109 86
FY16E
0.89 92 175 149 112 89
405
Bank of East Asia

Neutral
www.hkbea.com/hk/index.htm
Hong Kong Banks Josh Klaczek

AC
Company overview BEA was incorporated in 1918 and is the largest local family-owned bank in Hong Kong by market cap. One of the first movers in the China market and currently operates one of the largest branch networks in the mainland. Its niche in China and a strong local franchise in Hong Kong have attracted various strategic investors including CaixaBank, Guoco, BOCHK and Sumitomo. Investment case We remain Neutral on BEA as China asset quality concerns are likely to persist, and NIM expansion is unlikely to continue as funding costs push up and leverage plateaus, particularly in the HK business, which has been a tailwind for the Group. BEA reported 1H13 profit of HK$3.2B, 16% ahead of consensus and up 29% H/H adjusted for one-offs and gains. Resilience of the growth outlook In a half with strong revenue growth, management did a solid job on cost control, with expenses flat H/H and +8% Y/Y. This in turn led to significant operating leverage, with cost/income down to 54% in the half. Capital was also a strong point, at 11.2% in 1H13, with a slight benefit from the move to Basel 3.
12m 17.1% 11.5%
(852) 2800-8534 josh.klaczek@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
34 32 HK$ 30 28 26
Abs Rel
YTD 13.0% 13.0%
1m 1.8% 4.7%
3m 3.9% 3.4%
Risks to the earnings outlook in 2014 Weak deposit growth is likely to be a capacity constraint going forward, while asset growth is likely to result in higher credit costs. Group NPLs rose +27% H/H (HK +12%, China +56%). Overall credit costs are still just +10bp, but this is buffered by both ongoing writebacks (3-5bp) as well as a run-down in NPL coverage. Price target, and risks to our investment view Our PT (Dec-14, DDM-derived) of HK$34 implies a P/BV of 1.2x and P/E of 13.3x (FY14E). Key upside risks to our PT are: (1) credit quality better than expectations, as China liquidity improves along with policy easing; (2) potential change in shareholding structure, and (3) China revenue contribution stronger than expected. Key downside risks are: (1) lending yield compression if mortgage pricing continues to fall; (2) strong competition could compress NIM in 2014; and (3) equity raising so as to strengthen the capital position, which is at the low end of the peer range.
Company Data 52-week Range (HK$) Market Cap (HK$ mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (HK$) Date Of Price 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) HSI Exchange Rate
34.40-26.50 74,611 9,623 2,227 Dec 33.50 14 Nov 13 78.92 10.2 2.44 2,2649.15 7.75
Bank of East Asia (Reuters: 0023.HK, Bloomberg: 23 HK) HK$ in mn, year-end Dec FY11A FY12A Operating Profit (HK$ mn) 4,881 6,367 Net Profit (HK$ mn) 4,030 5,704 Cash EPS (HK$) 1.96 2.71 Fully Diluted EPS (HK$) 1.96 2.71 DPS (HK$) 0.94 1.04 EPS growth (%) 1.8% 38.4% ROE 8.8% 10.9% P/E (x) 17.1 12.4 BVPS (HK$) 22.94 25.66 P/BV (x) 1.5 1.3 Dividend Yield 2.8% 3.1%
FY13E 7,032 5,268 2.34 2.34 1.00 (13.5%) 8.8% 14.3 26.39 1.3 3.0%
FY14E 7,956 5,838 2.56 2.56 0.97 9.4% 9.1% 13.1 27.36 1.2 2.9%
406
Bank of East Asia: Summary of Financials

Income Statement HK$ in millions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data HKD EPS DPS Payout Book value Fully Diluted Shares PPOP per share Key Balance sheet HK$ in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY11 1.7% 92.4% 1.6% 9,263 3,610 3,342 (229) FY12 FY13E FY14E 1.5% 1.7% 1.7% 89.3% 94.0% 94.0% 1.4% 1.6% 1.6% 9,724 11,402 12,326 5,368 4,982 5,605 3,379 3,881 4,302 1,439 494 666
12,873 15,092 16,383 17,931 (7,992) (8,725) (9,352) (9,974) 4,881 6,367 7,032 7,956 (75) (235) (599) (869) 388 672 0 0 122 203 0 0 435 536 590 649 5,751 7,544 7,023 7,736 (1,300) (1,411) (1,314) (1,447) (93) (98) (110) (120) 4,030 5,704 5,268 5,838 FY11 1.96 0.94 47.9% 22.94 2,060 2.37 FY11 347,950 (968) 348,918 1,475 71,760 7,137 529,314 4,215 611,402 467,354 50,540 16,741 470,758 572,798 47,616 376,036 358,984 FY12 2.71 1.04 38.2% 25.66 2,106 2.96 FY12 387,273 (1,018) 388,291 1,138 91,558 7,920 582,275 4,041 692,114 498,770 80,887 14,263 533,274 651,758 57,153 389,741 382,889 FY13E 2.34 1.00 42.7% 26.39 2,248 2.97 FY13E 435,241 (1,427) 436,668 1,366 78,678 8,387 667,357 4,041 727,953 508,745 100,369 14,263 580,123 710,034 62,518 422,315 406,028 FY14E 2.56 0.97 38.0% 27.36 2,278 3.34 FY14E 469,156 (1,938) 471,094 1,570 82,531 8,887 702,679 4,041 766,513 539,270 104,241 14,263 612,050 747,233 65,635 441,332 431,824
Growth Rates FY15E 1.7% Loans 94.1% Deposits 1.6% Assets Equity 13,029 RWA 5,869 Net Interest Income 4,710 Non-Interest Income 490 of which Fee Grth Revenues 18,898 Costs Pre-Provision Profits (10,642) Loan Loss Provisions 8,255 Pre-Tax (630) Attributable Income - EPS 0 DPS 0 713 Balance Sheet Gearing 8,338 Loan/deposit (1,560) Investment/assets (120) Loan/Assets 6,328 Customer deposits/liab. LT debt/liabilities FY15E Asset Quality/Capital 2.74 Loan loss reserves/loans 1.04 NPLs/loans 38.0% Loan loss reserves/NPLs 28.25 Growth in NPLs 2,308 Tier 1 Ratio 3.42 Total CAR FY15E Du-Pont Analysis 511,207 NIM (as % of avg. assets) (2,130) Earning assets/assets 513,337 Margins (as % of Avg. Assets) 1,759 Non-Int. Rev./ Revenues 85,513 Non IR/Avg. Assets 9,422 Revenue/Assets 742,823 Cost/Income 4,041 Cost/Assets 812,382 Pre-Provision ROA LLP/Loans 577,019 Loan/Assets 108,307 Other Prov, Income/ Assets 14,263 Operating ROA 650,156 Pre-Tax ROA 789,448 Tax rate 68,624 Minorities & Outside Distbn. 466,024 ROA 453,678 RORWA Equity/Assets ROE
FY11 FY12 FY13E FY14E FY15E 8.6% 11.3% 12.5% 7.9% 9.0% 11.3% 6.7% 2.0% 6.0% 7.0% 14.5% 13.2% 5.2% 5.3% 6.0% 7.6% 20.0% 9.4% 5.0% 4.6% 10.0% 3.6% 8.4% 4.5% 5.6% 22.8% 5.0% 17.3% 8.1% 5.7% (3.0%) 48.7% (7.2%) 12.5% 4.7% 13.6% 1.1% 14.9% 10.8% 9.5% 14.3% 17.2% 8.6% 9.4% 5.4% 15.8% 9.2% 7.2% 6.7% 6.7% 11.9% 30.4% 10.4% 13.1% 3.8% (73.7%) 212.7% 155.4% 45.1% (27.5%) 11.7% 31.2% (6.9%) 10.2% 7.8% 3.5% 41.5% (7.6%) 10.8% 8.4% 1.8% 38.4% (13.5%) 9.4% 7.0% (0.3%) 10.5% (3.3%) (2.7%) 7.1% FY11 FY12 FY13E FY14E FY15E 74.5% 77.6% 85.6% 87.0% 88.6% 12.2% 12.5% 12.0% 10.8% 10.6% 58.5% 56.6% 58.1% 60.7% 62.3% 83.6% 79.1% 77.0% 77.5% 78.1% 8.0% 11.0% 14.0% 15.1% 14.8% FY11 FY12 FY13E FY14E FY15E (0.3%) (0.3%) (0.3%) (0.4%) (0.4%) 0.5% 0.4% 0.3% 0.3% 0.3% 67.5% 76.0% 97.6% 114.6% 122.2% (7.3%) (22.8%) 20.0% 15.0% 12.0% 9.4% 10.7% 11.8% 12.1% 12.4% 13.7% 14.3% 15.2% 15.3% 15.4% FY11 FY12 FY13E FY14E FY15E 1.7% 1.5% 1.7% 1.7% 1.7% 92.4% 89.3% 94.0% 94.0% 94.1% 1.6% 1.4% 1.6% 1.6% 1.6% 28.0% 35.6% 30.4% 31.3% 31.1% 0.6% 0.8% 0.7% 0.8% 0.7% 2.2% 2.3% 2.3% 2.4% 2.4% 62.1% 57.8% 57.1% 55.6% 56.3% 1.4% 1.3% 1.3% 1.3% 1.3% 0.9% 1.0% 1.0% 1.1% 1.0% (0.0%) (0.1%) (0.1%) (0.2%) (0.1%) 58.5% 56.6% 58.1% 60.7% 62.3% 0.2% 0.2% 0.1% 0.1% 0.1% 0.8% 0.9% 0.9% 1.0% 1.0% 1.0% 1.2% 1.0% 1.0% 1.1% 22.6% 18.7% 18.7% 18.7% 18.7% 0.8% 0.7% 0.6% 0.6% 0.6% 0.7% 0.9% 0.7% 0.8% 0.8% 1.1% 1.5% 1.3% 1.4% 1.4% 8.0% 8.0% 8.4% 8.6% 8.5% 8.8% 10.9% 8.8% 9.1% 9.4%
407
Beach Energy Ltd.

Underweight
www.beachenergy.com.au
BPT.AX,BPT AU Price: A$1.45 Price Target: A$1.29
Company overview Beach Energy is an E&P company focused primarily in the Cooper Basin in central Australia. It has smaller, mainly exploration interests elsewhere in Australia, eastern Europe, Tanzania and Egypt. Its reserves total 93mmboe of which 24% are oil. Investment case BPT gas production should benefit from SACBJV infill drilling in FY14+ and operated oil production should increase. However we have little faith that the expensive Cooper unconventional program will prove economic; and BPT has made forays into other areas that we think are less prospective. We think cashflows from the low risk, attractive, producing Cooper conventional assets are at risk of reinvestment in more speculative exploration. We think BPT is overpriced relative to peers and NPV. Resilience of the growth outlook With many dozens of wells being drilled across BPTs Cooper interests, we think the case for increase production in the year or few ahead is strong. It would take a collapse in exploration success rates of 30%-50% (oil) to greatly impact the growth trajectory.
12m 3.2% -19.2%
Australia Exploration & Production Benjamin Wilson

AC
Price Performance
1.7 A$ 1.5 1.3 1.1
BPT.AX share price (A$) ASX100 (rebased)
Abs Rel
YTD -2.4% -20.5%
1m 9.5% 4.1%
3m 7.8% 1.3%
Risks to the earnings outlook in 2014 Oil production continued to grow strongly in 1Q FY14 (as it has for all Cooper Western Flank players in CY13). BPT has already guided towards the top end of its 8.7-9.3mmboe FY14 guidance range (JPMe 9.3mmboe). Short term earnings risk lies in the ability to continue to find and develop incremental oil discoveries in the Cooper. Price target, and risks to our investment view We carry an Underweight rating and our Jun-14 price target is A$1.29/share based upon our sum-of-the-parts DCF and a 10% WACC. Our DCF valuation includes value for the Cooper gas contract with Origin and the potential expansion of the Cooper Western Flank oil exploration program into FY15+. We do not incorporate explicit value for the option value of the early stage shale gas exploration in the Cooper Basin, nor Abu Sennan etc in Egypt. The main upside risks to our price target are: favourable oil prices, exploration and development success particularly in the Cooper Basin conventional oil & gas, and economic viability of its Cooper unconventional/shale gas.
1,269 1,834.28 1,743.95 1.45 06 Nov 13 4.27 5.81 5.5 4511.50 1.05 Jun
Beach Energy Ltd. (Reuters: BPT.AX, Bloomberg: BPT AU) Year-end Jun (A$) FY11A FY12A FY13A Revenue (A$ mn) 496 619 698 EBITDA (A$ mn) 145 264 329 Net Profit (A$ mn) (97) 164 154 EPS (A$) (0.09) 0.14 0.12 P/E (x) NM 10.1 11.9 EV/EBITDA (x) 10.6 5.4 4.5 DPS (A$) 0.02 0.02 0.03 Dividend Yield 1.2% 1.6% 1.9% Normalised EPS (A$) 0.03 0.10 0.11 Normalised EPS Growth (4203.7%) 210.0% 12.1% Normalised PE 45.1 14.5 13.0
FY14E 849 461 218 0.17 8.4 3.3 0.03 2.4% 0.17 48.9% 8.7
FY15E 876 546 273 0.21 6.7 2.3 0.07 4.5% 0.21 29.6% 6.7
408
409
Belle International Holdings Ltd.

Neutral
www.belleintl.com/en/index.php
China Specialty Retailing Ebru Sener Kurumlu

AC
Price Performance
20 16 HK$ 12 8
1880.HK share price (HK$) MSCI-Cnx (rebased)
Abs Rel
YTD -37.8% -36.5%
1m -8.7% -9.3%
3m -8.7% -16.3%
12m -28.0% -31.4%
Company overview Belle is engaged in manufacturing, distribution and retail of footwear products in China. Company-owned brands include Belle, Staccato, Teenmix and Tata, and Belle also distributes sportswear brands such as Nike and Adidas. As of Jun-13 Belle had 12,532 footwear and 5,784 sportswear POS in China. Investment case Belle is seeing several structural pressures. i) as consumers awareness in pricing improves (thanks to ecommerce), pricing is unlikely to be a component of SSSG anymore and thus margins will be under pressure; ii) expansion will be slower as there is already high penetration but more importantly department stores are losing share as the main distribution channel limits Belle's expansion opportunities and leads to lower traffic at existing POS; iii) it will be a challenge to turn around the ecommerce platform which is positioned almost like an online department store. Resilience of the growth outlook Belles 3Q SSSG was on the weak side with 1.3% SSSG for the footwear division. In our channel checks we do not see any notable pick-up in retailers SSSG in 4Q and the structural issues discussed above are likely to weigh on 2014 earnings. Risks to the earnings outlook in 2014 After 1H13 results announcement we cut our earnings estimate by 6% for FY13 and expect footwear margins to come under some pressure. For now we expect Belle to report c13% earnings growth in 2014. However if ASPs remain challenging, we are likely to see severe margin contraction, and this could be a longer-term downside risk to earnings including 2014. Price target, and risks to our investment view Our Jun-14 PT of HK$9.6 is based on 1x PEG and a 2-year EPS CAGR of 13.5%. We believe key downside risk is Belle's inability to raise ASPs, which will impact SSSG negatively and with cost pressures we are likely to see margins under pressure as well. Furthermore, one more year of disappointing numbers could lead the stock to further de-rate from here. Key upside risk would be fast expansion in new mass market area that could give a new avenue of growth (not tied up with department stores) and change in e-commerce strategy that would tie in offline and online business integration more strongly.
Belle International Holdings Ltd. (Reuters: 1880.HK, Bloomberg: 1880 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Rmb mn) 28,945 32,859 36,819 41,618 Net Profit (Rmb mn) 4,255 4,352 4,487 5,074 EPS (Rmb) 0.50 0.52 0.53 0.60 Recurring EPS (Rmb) 0.50 0.52 0.53 0.60 DPS (Rmb) 0.15 0.16 0.21 0.24 Revenue growth (%) 22.1% 13.5% 12.1% 13.0% Net Profit growth (%) 24.2% 2.3% 3.1% 13.1% Recurring profit growth 24.2% 2.3% 3.1% 13.1% EPS growth (%) 24.2% 2.3% 3.1% 13.1% ROE 23.3% 20.8% 18.8% 18.9% ROA 18.3% 16.0% 14.8% 15.0% P/E (x) 16.3 16.0 15.5 13.7 P/BV (x) 3.6 3.1 2.7 2.4 EV/EBITDA (x) 14.7 14.5 13.4 11.8 Dividend Yield 1.8% 2.0% 2.6% 2.9%
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) MSCI-Cnx Exchange Rate Fiscal Year End
8,434 69,429 11,381 10.46 06 Nov 13 17.78 197.87 25.5 6311.29 7.75 Dec
FY15E 46,299 5,774 0.68 0.68 0.27 11.2% 13.8% 13.8% 13.8% 19.2% 14.3% 12.0 2.2 9.6 3.3%
410
Belle International Holdings Ltd.: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y Gross margin Other operating income EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Share of JVs Other non operating income Earnings before tax % change Y/Y Tax as % of EBT Minorities Net income (reported) % change Y/Y Recurring Net Income % change Y/Y EPS (reported) % change Y/Y Recurring EPS % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets Goodwill Intangible assets Long term investments Net fixed assets Other assets Total Assets FY11 28,945 22.1% 16,556 25.3% 57.2% 5,914 28.7% 20.4% 5,151 32.0% 17.8% 205 0 114 5,471 32.6% (1,232) 22.5% 16 4,255 24.2% 4,255 24.2% 0.50 24.2% 0.50 24.2% FY12 32,859 13.5% 18,598 12.3% 56.6% 6,036 2.1% 18.4% 5,130 (0.4%) 15.6% 269 5 273 5,677 3.8% (1,351) 23.8% 27 4,352 2.3% 4,352 2.3% 0.52 2.3% 0.52 2.3% FY13E 36,819 12.1% 20,768 11.7% 56.4% 6,417 6.3% 17.4% 5,266 2.6% 14.3% 353 0 327 5,946 4.7% (1,486) 25.0% 28 4,487 3.1% 4,487 3.1% 0.53 3.1% 0.53 3.1% FY14E 41,618 13.0% 23,291 12.2% 56.0% 7,084 10.4% 17.0% 5,898 12.0% 14.2% 433 0 393 6,723 13.1% (1,681) 25.0% 32 5,074 13.1% 5,074 13.1% 0.60 13.1% 0.60 13.1% FY15E 46,299 11.2% 25,818 10.8% 55.8% 7,721 9.0% 16.7% 6,495 10.1% 14.0% 685 0 472 7,651 13.8% (1,913) 25.0% 36 5,774 13.8% 5,774 13.8% 0.68 13.8% 0.68 13.8% FY15E 16,222 4,059 10,100 7,150 37,531 Cash flow statement Rmb in millions, year end Dec PBT Depr. & amortization Change in working capital Tax & Other Cash flow from operations FY11 5,471 763 (2,277) 285 3,048 FY12 FY13E FY14E FY15E 5,677 5,946 6,723 7,651 906 1,151 1,186 1,226 (120) (1,520) (1,229) 5,810 (723) (353) (433) (685) 4,408 3,738 4,567 12,090 (750) 0 0 0 (750) (750) 0 0 0 (750) (550) 0 0 0 (550)
(1,697) (1,520) 5 12 (87) (264) (143) (2,370) (1,922) (4,143)
0 0 0 0 0 1,277 283 0 0 0 (1,940) (1,349) (1,567) (2,017) (2,295) 281 215 353 433 685 (382) (852) (1,214) (1,584) (1,611) (13) 731 2,887 0.15 0 (586) 2,301 0.16 0 1,774 4,061 0.21 0 0 2,233 9,929 6,293 16,222 0.24 0.27
FY11 FY12 FY13E FY14E 2,887 2,287 4,061 6,293 2,746 3,134 3,228 3,649 6,517 7,033 7,915 9,038 5,617 7,162 8,152 8,415 17,767 19,616 23,356 27,395 2,790 2,732 2,732 2,732 1,792 2,229 2,190 2,150 2,852 3,347 2,986 2,589 419 569 569 569 25,681 28,603 31,942 35,545
Liabilities Short-term loans 1,895 2,176 2,176 2,176 Trade & other payables 1,248 1,153 1,627 1,858 Others 2,686 2,530 2,502 2,849 Total current liabilities 5,830 5,859 6,306 6,883 Long-term debt 0 0 0 0 Others 258 180 180 180 Total Liabilities 6,087 6,039 6,486 7,063 Minorities 170 143 143 143 Shareholders' equity 19,424 22,421 25,313 28,339 BVPS 2.30 2.66 3.00 3.36 Source: Company reports and J.P. Morgan estimates.
Ratio Analysis Rmb in millions, year end Dec Gross margin EBITDA margin Operating Margin Net margin Recurring net profit margin Sales growth 2,732 Net profit growth 2,111 Recurring net profit growth 1,953 EPS growth 569 45,005 Interest coverage (x) Net debt to equity Sales/assets 2,176 Assets/equity 4,693 ROE 6,030 ROCE 12,900 0 180 13,080 143 31,782 3.77
FY11 57.2% 20.4% 17.8% 14.7% 14.7% 22.1% 24.2% 24.2% 24.2%
FY12 FY13E FY14E FY15E 56.6% 56.4% 56.0% 55.8% 18.4% 17.4% 17.0% 16.7% 15.6% 14.3% 14.2% 14.0% 13.2% 12.2% 12.2% 12.5% 13.2% 12.2% 12.2% 12.5% 13.5% 12.1% 13.0% 11.2% 2.3% 3.1% 13.1% 13.8% 2.3% 3.1% 13.1% 13.8% 2.3% 3.1% 13.1% 13.8%
NM NM NM NM NM (5.1%) (0.5%) (7.4%) (14.5%) (44.0%) 1.2 1.2 1.2 1.2 1.1 127.3% 129.7% 126.8% 125.8% 134.0% 23.3% 20.8% 18.8% 18.9% 19.2% 20.4% 17.0% 15.2% 15.3% 15.1%
411
Big C Supercenter Pcl

Neutral
www.bigc.co.th
BIGC.BK,BIGC TB Price: Bt199.00 Price Target: Bt213.00
Thailand Broadlines/Department Stores Kae Pornpunnarath, CFA

AC
Company overview BIGC is the second-largest hypermarket operator in Thailand with 131 big-box stores and 126 Mini Big C as of 2012. In most of its hypermarkets, it has rental space for third-party operators in line with its dual retail-property business model. BIGC is 63.2% owned by French retailer Casino Guichard Perrachon. Starting in 2013, BIGC will aggressively roll out hypermarkets, markets (2000m) and Mini BigC (160m). The stock was listed on the SET in 1993. In Jan-11 BIGC concluded the purchase of 42 stores of Carrefour in Thailand for Bt35.5B. Investment case We are bearish on hypermarkets given the saturation of this retail sub-segment, and therefore cautious on the growth outlook of BIGC. BIGC has tried to expand into faster-growth smaller-format stores, but we dont believe economies of scale will be achieved until 2H14. As consumption is slowing down and its rival Tesco aims to gain back market share, the competition could intensify and lead to lower profitability. Resilience of the growth outlook The growth outlook in the hypermarket business is inferior to that in other segments, in our view, given changes in consumer behavior and regulations. On the flip side, the rental business (40% of EBITDA) appears to provide resilient growth support. Risks to the earnings outlook in 2014 A slowdown in consumption could hurt hypermarkets SSSG, given that consumers are price sensitive. Rising interest rate has a chance to increase its interest expenses on its floating rate loan. Competition could erode margin, through price competition. Price target, and risks to our investment view Our Jun-14 PT of Bt213 is based on the average of DCF (4% Rf, 6.5% RP, 2% LTG) and 1.2x PEG. We use moving WACC to reflect changes in capital structure over the period, with perpetual WACC at 8.7%. Upside risks are a strong rebound in margins, faster roll-out of Mini Big C, and announcement of a REIT plan. Downside risks are competition with rival Tesco, rising interest rates, and execution of its expansion plan.
Price Performance
250 230 Bt 210 190 170
BIGC.BK share price (Bt) SET (rebased)
Abs Rel
YTD -3.9% -7.0%
1m -5.2% -5.7%
3m -2.9% -3.3%
12m 7.0% -3.3%
825 164,175 5,247 199.00 06 Nov 13 0.35 69.82 2.2 1434.97 31.29 Dec
Big C Supercenter Pcl (Reuters: BIGC.BK, Bloomberg: BIGC TB) Bt in mn, year-end Dec FY11A FY12A FY13E Revenue (Bt mn) 102,563 112,136 121,547 Net Profit (Bt mn) 5,242 6,074 6,621 EPS (Bt) 6.54 7.47 8.03 DPS (Bt) 1.96 2.21 2.41 Revenue growth (%) 46.8% 9.3% 8.4% EPS growth (%) 86.1% 14.2% 7.4% ROCE 15.6% 11.9% 13.0% ROE 24.1% 21.9% 20.0% P/E (x) 30.4 26.6 24.8 P/BV (x) 6.8 5.2 4.5 EV/EBITDA (x) 17.2 15.2 14.4 Dividend Yield 1.0% 1.1% 1.2%
FY14E 136,083 8,025 9.73 2.92 12.0% 21.2% 14.4% 20.2% 20.5 3.8 12.4 1.5%
FY15E 153,044 9,671 11.72 3.52 12.5% 20.5% 16.6% 20.9% 17.0 3.3 10.4 1.8%
412
Big C Supercenter Pcl: Summary of Financials

Income Statement Bt in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y
Balance sheet Bt in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets . LT investments Net fixed assets Total Assets . Liabilities Short-term loans 36,500 6,000 Payables 24,980 26,944 Others 2,463 4,036 Total current liabilities 63,942 36,980 . Long-term debt 0 21,325 Other liabilities 3,264 3,970 Total Liabilities 67,206 62,276 Shareholder's equity 23,520 31,887 BVPS (Bt) 29.32 38.62 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY11 FY12 FY13E FY14E FY15E Bt in millions, year end Dec 102,563 112,136 121,547 136,083 153,044 EBIT 46.8% 9.3% 8.4% 12.0% 12.5% Depr. & amortization 11,641 12,547 13,089 14,844 16,955 Change in working capital 68.2% 7.8% 4.3% 13.4% 14.2% Taxes 8,334 9,136 9,414 10,832 12,643 Cash flow from operations 90.3% 9.6% 3.0% 15.1% 16.7% 8.1% 8.1% 7.7% 8.0% 8.3% Capex (1,271) (1,295) (1,013) (833) (593) Disposal/(purchase) 7,062 7,841 8,401 9,999 12,050 Net Interest 61.5% 11.0% 7.1% 19.0% 20.5% Other (1,754) (1,749) (1,512) (1,950) (2,350) Free cash flow 24.8% 22.3% 18.0% 19.5% 19.5% 5,242 6,074 6,621 8,025 9,671 Equity raised/(repaid) 86.1% 15.9% 9.0% 21.2% 20.5% Debt raised/(repaid) 801 813 825 825 825 Other 6.54 7.47 8.03 9.73 11.72 Dividends paid 86.1% 14.2% 7.4% 21.2% 20.5% Beginning cash Ending cash DPS Ratio Analysis FY11 FY12 FY13E FY14E FY15E Bt in millions, year end Dec 7,422 8,780 6,587 6,519 6,018 EBITDA margin 274 315 341 382 430 Operating margin 8,941 9,196 9,825 10,828 11,977 Net margin 4,264 4,120 4,120 4,120 4,120 20,901 22,411 20,873 21,848 22,544 Sales per share growth - Sales growth 41,929 43,805 48,564 52,282 56,101 Net profit growth 90,726 94,163 97,384 102,077 106,592 EPS growth 2,000 29,348 4,036 35,384 21,325 3,970 60,679 36,705 44.44 2,000 32,979 4,036 39,015 16,325 3,970 59,310 42,767 51.76 Interest coverage (x) 2,000 37,203 Net debt to equity 4,036 Sales/assets 43,239 Assets/equity ROE 9,325 ROCE 3,970 56,535 50,058 60.56
FY11 FY12 FY13E FY14E FY15E 8,334 9,136 9,414 10,832 12,643 3,307 3,411 3,675 4,012 4,312 (770) 2,535 1,748 2,587 3,028 (1,754) (1,749) (1,512) (1,950) (2,350) 8,429 11,678 12,064 14,649 17,039 (3,693) (4,882) (8,434) (7,730) (8,131) (1,271) (1,295) (1,013) (833) (593) (107) (337) 0 0 0 5,691 7,803 4,461 7,589 9,386 0 4,156 0 0 0 36,500 (7,686) (4,000) (5,000) (7,000) (1,571) (1,571) (1,823) (1,987) (2,409) 5,132 7,422 8,780 6,587 6,519 7,422 8,780 6,587 6,519 6,018 1.96 2.21 2.41 2.92 3.52 FY11 11.3% 8.1% 5.2% 46.8% 46.8% 86.1% 86.1% 9.2 FY12 11.2% 8.1% 5.4% 7.7% 9.3% 15.9% 14.2% 9.7 FY13E 10.8% 7.7% 5.7% 6.8% 8.4% 9.0% 7.4% 12.9 FY14E 10.9% 8.0% 5.9% 12.0% 12.0% 21.2% 21.2% 17.8 FY15E 11.1% 8.3% 6.3% 12.5% 12.5% 20.5% 20.5% 28.6
123.6% 58.2% 45.6% 27.6% 10.6% 1.6 1.2 1.3 1.4 1.5 296.8% 334.0% 279.5% 251.3% 225.2% 24.1% 21.9% 20.0% 20.2% 20.9% 15.6% 11.9% 13.0% 14.4% 16.6%
413
Chailease Holding
Neutral
www.chaileaseholding.com/EN/ugC_InvestorRelations.asp
Taiwan Specialty Finance Jemmy S Huang

AC
Company overview Chailease is a leasing company established in 1977 and listed in the Taiwan market in 2011. It provides asset-backed financing services to corporations in Taiwan, China, Thailand, the U.S., and some Southeast Asian countries. Chailease has been focusing on the China market and now covers 21 cities/provinces in China. Management is guiding to expand to 50 cities/provinces by 2018. In Thailand, Chailease has a JV with Bangkok Bank. Investment case Despite the slowdown of GDP growth in China, automation upgrade remains the irreversible long-term trend for manufacturers in China. We believe Chailease can penetrate new manufacturing customers through branch expansion into new provinces/cities and at the same time deepen existing client relationships. Other than China, Chailease is also expanding fast in Thailand, and its Taiwan business is also growing steadily. Resilience of the growth outlook Resilient earnings growth is supported by the strong sales growth and solid asset quality. The group portfolio is expected to grow 22% YoY in FY14, driven by the major business in Taiwan (20% YoY), China (25% YoY) and Thailand (23% YoY). Although the delinquent balance is unlikely to decline given the aggressive asset growth target, we expect the delinquent ratio to ease, especially in China, easing market concerns. Risks to the earnings outlook in 2014 New VAT rules have slowed portfolio growth in China. Should the revision of VAT rules continue to be postponed, we believe the market will react more negatively to any downside surprise to operating results in the China business. Price target, and risks to our investment view Our Dec-14 PT is NT$77.5, equivalent to 2.4x 2014E BV and 12x 2014E EPS. The key downside risk other than the VAT rules revision is downside surprise in asset quality.
(886-2) 2725-9870 jemmy.s.huang@jpmorgan.com J.P. Morgan Securities (Taiwan) Limited
Price Performance
90 80 NT$ 70 60 50 40
5871.TW share price (NT$) TSE (rebased)
Abs Rel
YTD 18.1% 11.6%
1m 0.7% 1.7%
3m 6.7% 3.7%
12m 48.6% 34.2%
Company Data 52-week Range (NT$) Market Cap (NT$ mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (NT$) Date Of Price 3M - Avg daily value (NT$ mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) TSE Exchange Rate
88.91-47.36 71,301 2,423 996 Dec 71.60 06 Nov 13 778.20 26.4 11.44 8281.97 29.43
Chailease Holding (Reuters: 5871.TW, Bloomberg: 5871 TT) NT$ in mn, year-end Dec FY11A FY12A FY13E Operating Profit (NT$ mn) 3,733 5,315 7,677 Net Profit (NT$ mn) 2,448 4,141 5,695 EPS (NT$) 3.12 4.57 5.72 DPS (NT$) 2.30 2.00 2.00 Fully Diluted EPS growth 1.3% 46.8% 25.0% ROE 17.4% 20.6% 22.2% P/E (x) 23.0 15.7 12.5 BVPS (NT$) 20.47 26.62 27.40 P/BV (x) 3.5 2.7 2.6 Dividend Yield 3.2% 2.8% 2.8%
FY14E 9,382 6,870 6.90 2.41 20.6% 23.1% 10.4 32.30 2.2 3.4%
FY15E 11,606 8,448 8.48 2.97 23.0% 24.0% 8.4 38.37 1.9 4.1%
414
Chailease Holding: Summary of Financials

Income Statement NII Non interest income Total operating income Total operating expenses Operating profits Non-operating gain/(losses) Pre-tax profit Tax Minority interest Net income Balance Sheet Interest-earning assets TOTAL ASSETS Total debt Bond payable TOTAL LIABILITIES Minority interest TOTAL EQUITY FY12A 9,241 3,164 12,405 (7,090) 5,315 908 6,223 (1,834) (248) 4,141 FY12A 146,801 166,793 98,950 6,949 140,940 1,752 25,853 FY13E 12,175 4,129 16,304 (8,627) 7,677 689 8,366 (2,323) (348) 5,695 FY13E 176,328 195,860 118,315 6,949 166,823 1,752 29,037 FY14E 14,994 4,864 19,858 (10,476) 9,382 725 10,107 FY15E 18,240 5,745 23,985 (12,379) 11,606 775 12,381
Key Ratios (%) Cost/Income ratio Credit cost Delinquent ratio Coverage ratio Reserve/portfolio Debt/Equity
(2,820) (417) 6,870 FY14E 211,219 231,568 142,419 6,949 197,654 1,752 33,914
(3,453) DuPont analysis (480) Net int inc 8,448 Non-int inc Total revenues Opex FY15E Oper profits 250,415 Non-op 271,602 PBT 169,623 (1-tax rate) 6,949 Minorities 231,644 ROA 1,752 Assets/equity (x) 39,958 RoE
FY12A 57.2% 1.6% 3.0% 108.8% 3.3% 3.8 FY12A 6.1% 2.1% 8.2% (4.7%) 3.5% 0.6% 4.1% 70.5% (0.2%) 2.7% 7.5 20.6%
FY13E 52.9% 1.5% 3.4% 90.5% 3.1% 4.1 FY13E 6.7% 2.3% 9.0% (4.8%) 4.2% 0.4% 4.6% 72.2% (0.2%) 3.1% 7.1 22.2%
FY14E 52.8% 1.5% 3.4% 98.6% 3.4% 4.2 FY14E 7.0% 2.3% 9.3% (4.9%) 4.4% 0.3% 4.7% 72.1% (0.2%) 3.2% 7.2 23.1%
FY15E 51.6% 1.4% 3.5% 97.9% 3.4% 4.2 FY15E 7.3% 2.3% 9.5% (4.9%) 4.6% 0.3% 4.9% 72.1% (0.2%) 3.4% 7.2 24.0%
Source: Company reports and J.P. Morgan estimates. Note: NT$ in millions (except per-share data).Fiscal year ends Dec
415
Cheng Shin Rubber Industry Co., Ltd

Neutral
www.cst.com.tw
Taiwan Tires Caren Huang

AC
Company overview Cheng Shin Rubber is the largest tire producer in Taiwan, No. 4 in China (source: China Tire Association), and No. 9 in the world (source: Tire Business). Cheng Shin produces tires for bicycles, motorcycles, passenger cars, trucks, agriculture and industrial equipment under four brands: MAXXIS, Cheng Shin, Sakura and Presa. In 1H13, replacement tires accounted for 78% of revenue, with the remainder from OEM business; around 65% of revenue is exposed to greater China. Investment case We believe that demand for tires in China should remain in positive growth territory, but is likely to stay at a high single digit to low-teens growth rate (vs a 10-year CAGR of 20% over 2000-10). However, sector overcapacity would remain a concern on ASP pressure and therefore hamper earnings upside. Resilience of the growth outlook We expect Cheng Shin to deliver FY14E net profits of NT$19B, up 5% Y/Y, driven by increasing volume shipments from new production lines in China along with rising utilization. While we do not expect rubber costs to rise significantly in 2014, gross margin should remain at c.25% in FY14, in our view.
12m 22.6% 8.2%
Price Performance
90 80 NT$ 70 60
Abs Rel
YTD 17.9% 11.4%
1m -0.6% 0.4%
3m -11.2% -14.2%
Risks to the earnings outlook in 2014 Cheng Shin completed four new plants, equivalent to c.17% of additional capacity, in 2012. However, new capacity does not translate into top-line growth as major foreign brands such as Bridgestone, Goodyear and Hankook are expanding capacity from 2013-15. Cheng Shin positions its product in the mid- to high-end segments, which compete head-to-head with foreign brands; hence, price competition which happened since 2H13 would likely persist in 2014. Rubber costs remain an unknown factor in margins. Price target, and risks to our investment view Our Dec-14 PT of NT$92 is based on 12.5x FY14E EPS of NT$5.9, the mid-cycle valuation PER. Downside risks to our PT and forecasts are: 1) surging rubber prices in the short term, and 2) slower-than-expected ramp-up of new capacity. Upside risks are: 1) a significant recovery in tire demand in China/US, and 2) easing price competition.
3,241 252,182 8,569 77.80 06 Nov 13 55.0% 6.65 523.62 17.8 8281.97 29.43 Dec
Cheng Shin Rubber Industry Co., Ltd (Reuters: 2105.TW, Bloomberg: 2105 TT) NT$ in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (NT$ mn) 119,961 130,269 142,774 165,738 Net Profit (NT$ mn) 8,536 15,894 18,444 19,819 EPS (NT$) 3.45 5.64 5.69 6.11 DPS (NT$) 2.00 1.40 1.50 2.28 Revenue growth (%) 20.0% 8.6% 9.6% 16.1% EPS growth (%) (31.0%) 63.3% 0.9% 7.5% ROCE 9.5% 14.5% 15.4% 14.7% ROE 17.7% 27.7% 26.4% 23.8% P/E (x) 22.5 13.8 13.7 12.7 P/BV (x) 3.7 3.5 3.3 2.8 EV/EBITDA (x) 13.6 9.9 9.5 8.8 Dividend Yield 2.6% 1.8% 1.9% 2.9%
FY15E 184,382 20,001 6.17 2.45 11.2% 0.9% 13.8% 20.9% 12.6 2.5 8.5 3.1%
416
Cheng Shin Rubber Industry Co., Ltd: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY11 FY12 FY13E FY14E FY15E NT$ in millions, year end Dec 119,961 130,269 142,774 165,738 184,382 EBIT 20.0% 8.6% 9.6% 16.1% 11.2% Depr. & amortization 18,613 28,268 33,033 34,439 34,754 Change in working capital (2.5%) 51.9% 16.9% 4.3% 0.9% Taxes 12,025 20,655 24,307 26,033 26,408 Cash flow from operations (2.6%) 64.6% 16.9% 13.7% 0.6% 10.0% 15.9% 17.0% 15.7% 14.3% Capex (852) (1,056) (860) (765) (681) Disposal/(purchase) 10,863 19,386 23,161 24,887 25,116 Net Interest (11.8%) 78.5% 19.5% 7.5% 0.9% Other (2,276) (3,419) (4,632) (4,977) (5,023) Free cash flow 20.9% 17.6% 20.0% 20.0% 20.0% 8,536 15,894 18,444 19,819 20,001 Equity raised/(repaid) (17.2%) 86.2% 16.0% 7.5% 0.9% Debt raised/(repaid) 2,472 2,819 3,241 3,241 3,241 Other 3.45 5.64 5.69 6.11 6.17 Dividends paid (31.0%) 63.3% 0.9% 7.5% 0.9% Beginning cash Ending cash DPS Balance sheet Ratio Analysis NT$ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E NT$ in millions, year end Dec Cash and cash equivalents 18,604 15,612 17,970 26,864 35,871 EBITDA margin Accounts receivable 10,715 9,880 11,097 12,868 14,335 Operating margin Inventories 20,528 20,122 21,875 25,504 28,927 Net margin Others 3,340 2,974 2,974 2,974 2,974 Current assets 53,274 48,688 54,016 68,310 82,207 Sales per share growth LT investments 752 605 605 605 605 Sales growth Net fixed assets 83,210 96,475 105,748 105,342 104,996 Net profit growth Total Assets 142,786 151,091 165,693 179,581 193,132 EPS growth Liabilities Interest coverage (x) Short-term loans 14,081 14,049 14,049 14,049 14,049 Payables 8,785 8,541 8,843 10,198 11,584 Net debt to equity Others 14,453 16,874 16,874 16,874 16,874 Sales/assets Total current liabilities 37,319 39,464 39,765 41,121 42,506 Assets/equity Long-term debt 50,453 44,642 44,642 44,642 44,642 ROE Other liabilities 1,179 2,045 2,045 2,045 2,045 ROCE Total Liabilities 90,524 87,664 87,965 89,321 90,706 Shareholder's equity 52,261 63,427 77,728 90,260 102,426 BVPS (NT$) 20.96 22.31 23.78 27.62 31.35 Source: Company reports and J.P. Morgan estimates. FY11 12,025 6,588 (7,690) (2,276) 6,452 FY12 20,655 7,613 996 (3,419) 26,862 FY13E 24,307 8,726 (2,669) (4,632) 24,502 FY14E 26,033 8,406 (4,045) (4,977) 24,180 FY15E 26,408 8,346 (3,504) (5,023) 24,843
(27,272) (24,514) (18,000) (8,000) (8,000) 978 1,343 0 0 0 (852) (1,056) (860) (765) (681) (2,524) (532) 85 91 92 (19,163) 4,575 7,203 16,796 17,392 0 26,227 (187) (4,121) 15,708 18,604 2.00 FY11 15.5% 10.0% 7.1% (0.0%) 20.0% (17.2%) (31.0%) 21.8 88.7% 1.0 2.6 17.7% 9.5% 0 2,693 (4,591) (3,461) 18,604 15,612 1.40 FY12 21.7% 15.9% 12.2% (4.7%) 8.6% 86.2% 63.3% 26.8 68.6% 0.9 2.6 27.7% 14.5% 0 0 0 0 0 0 0 0 0 (4,228) (7,378) (7,928) 15,612 17,970 26,864 17,970 26,864 35,871 1.50 2.28 2.45 FY13E 23.1% 17.0% 12.9% FY14E 20.8% 15.7% 12.0% FY15E 18.8% 14.3% 10.8%
(4.7%) 16.1% 11.2% 9.6% 16.1% 11.2% 16.0% 7.5% 0.9% 0.9% 7.5% 0.9% 38.4 45.0 51.1 53.0% 35.8% 22.7% 0.9 1.0 1.0 2.3 2.1 1.9 26.4% 23.8% 20.9% 15.4% 14.7% 13.8%
417
China Coal Energy - H

Neutral
www.chinacoalenergy.com
China Mining Daniel Kang

AC
Price Performance
9 7 HK$ 5 3
Abs Rel
YTD -43.0% -44.7%
1m 2.3% 2.7%
3m 15.1% 10.0%
12m -40.7% -45.7%
Company overview China Coal Energy (CCE) is one of the largest coal producers in China, with 114Mt of commercial coal output in 2012. The company is primarily engaged in the production and trading of coal/coke products and the manufacturing of coal mining equipment. Its primary shareholder is its state-owned parent company China National Coal Group (57%). The company has listings in Hong Kong, and Shanghai. Investment case While we forecast organic volume growth of 7% in FY14, CCE is strongly levered to the outlook for thermal coal prices, where we hold a subdued view. Along with higher interest costs, we forecast FY14 profits to fall by 20%, suggesting likely consensus downgrades. Heavy capex into coal to chemical projects in recent years have drained CCEs balance sheet, pushing net gearing levels higher and reducing returns. Resilience of the growth outlook With a relatively higher cost structure (than Shenhua), CCEs high leverage to coal prices was clearly exposed in 2013. For FY13, on the back of a 17% fall in coal prices, we forecast net profits to sharply fall by 51% yoy. Looking ahead into FY14, with coal prices forecast to average lower and given higher debt expenses, we expect earnings to fall 20% further. Our estimates are currently 36% below consensus estimates. Risks to the earnings outlook in 2014 Key upside risks to earnings lies in tighter than expected coal markets a 5% change in coal prices impacts EBITDA by 13.5%, or a hike in contract prices (we currently forecast rollover in price or flat yoy). A heavy capex program in recent years has seen CCE continue to generate negative free cash, leading to an expansion of its balance sheet. Contribution from its coal to chemical projects offer upside earnings risk. Price target, and risks to our investment view Our Dec-14 PT is HKD4.50 assuming 13.5x PE based on blended average of NPV, PB-ROE and earnings multiples. PB-ROE of HKD2.94, assuming 0.3x PBV, 2) HKD3.57 using EV/EBITDA of 6.4x, 3) HKD4.22 using a P/E of 10.2x and 4) DCFbased NPV of HKD4.23.Key risks include coal price movement and execution risk on growth projects.
China Coal Energy - H (Reuters: 1898.HK, Bloomberg: 1898 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E Revenue (Rmb mn) 90,865 87,292 74,038 Net Profit (Rmb mn) 9,955 8,842 4,318 EPS (Rmb) 0.75 0.67 0.33 DPS (Rmb) 0.22 0.21 0.10 Revenue growth (%) 29.2% (3.9%) (15.2%) EPS growth (%) 33.3% (11.2%) (51.2%) ROCE 10.9% 7.8% 3.6% ROE 12.7% 10.4% 4.9% P/E (x) 5.0 5.7 11.6 P/BV (x) 0.6 0.6 0.6 EV/EBITDA (x) 3.8 5.6 9.8 Dividend Yield 5.7% 5.6% 2.6%
13,259 50,085 8,210 4.80 06 Nov 13 43.4% 59.41 287.36 37.1 2,3038.95 7.75 Dec
FY14E 75,125 3,453 0.26 0.08 1.5% (20.0%) 2.9% 3.9% 14.5 0.6 10.1 2.1%
FY15E 81,605 4,099 0.31 0.09 8.6% 18.7% 3.3% 4.5% 12.2 0.5 9.0 2.5%
418
China Coal Energy - H: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 90,865 29.2% 20.7% 18,887 29.5% 20.8% 14,219 28.5% 15.6% (198) 14,315 30.2% (3,462) 24.2% 9,955 33.3% 13,259 0.75 33.3% FY11 20,907 8,014 7,315 20,937 57,173 FY12 87,292 (3.9%) 19.8% 17,234 (8.8%) 19.7% 12,807 (9.9%) 14.7% (254) 12,789 (10.7%) (3,214) 25.1% 8,842 (11.2%) 13,259 0.67 (11.2%) FY12 13,223 11,394 6,697 18,068 49,381 FY13E 74,038 (15.2%) 14.1% 12,960 (24.8%) 17.5% 6,833 (46.6%) 9.2% (822) 6,293 (50.8%) (1,573) 25.0% 4,318 (51.2%) 13,259 0.33 (51.2%) FY13E 1,544 12,171 8,114 17,786 39,615 8,863 114,809 204,794 6,541 16,548 10,526 33,615 58,000 10,225 101,840 88,260 6.66 FY14E 75,125 1.5% 13.3% 14,428 11.3% 19.2% 6,338 (7.2%) 8.4% (1,588) 5,032 (20.0%) (1,258) 25.0% 3,453 (20.0%) 13,259 0.26 (20.0%) FY15E 81,605 8.6% 14.3% 17,702 22.7% 21.7% 8,120 28.1% 9.9% (2,428) 5,974 18.7% (1,493) 25.0% 4,099 18.7% 13,259 0.31 18.7%
Cash flow statement Rmb in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Other Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow
FY11 FY12 FY13E FY14E FY15E 14,219 12,807 6,833 6,338 8,120 4,669 4,427 6,127 8,089 9,583 290 (1,838) (2,423) 264 (268) (3,213) (3,214) (1,573) (1,258) (1,493) (216) (544) 562 321 381 14,698 10,887 8,586 12,127 13,795 (19,868) (31,146) (35,000) (30,000) (30,000) 42 0 0 0 0 (198) (254) (822) (1,588) (2,428) (5,021) (20,069) (25,798) (16,682) (14,384) 5,321 17,146 17,923 20,000 17,000 15,195 (984) (401) (321) (381) (2,073) (2,851) (2,784) (1,296) (1,036) 22,922 20,907 13,223 1,544 2,055 20,907 13,223 1,544 2,055 1,433 0.22 0.21 0.10 0.08 0.09 FY11 11.0% 5.2% 95.5 8.8% 0.6 1.8 12.7% 7.0% 10.9% FY12 10.1% 5.3% 67.9 32.9% 0.5 2.1 10.4% 5.1% 7.8% FY13E 5.8% 5.0% 15.8 61.2% 0.4 2.2 4.9% 2.2% 3.6% FY14E 4.6% 5.0% 9.1 78.5% 0.3 2.4 3.9% 1.6% 2.9% FY15E 5.0% 4.5% 7.3 87.9% 0.3 2.6 4.5% 1.7% 3.3%
LT investments 7,637 8,863 Net fixed assets 60,853 85,556 Total Assets 162,152 185,688 a Liabilities Short-term loans 3,062 6,541 Payables 11,003 16,102 Others 15,760 11,483 Total current liabilities 29,824 34,126 Long-term debt 26,411 40,077 Other liabilities 9,043 10,064 Total Liabilities 65,278 84,267 Shareholder's equity 82,525 86,726 BVPS 6.22 6.54 Source: Company reports and J.P. Morgan estimates.
Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis FY14E FY15E Rmb in millions, year end Dec 2,055 1,433 Net profit margin 12,349 13,415 SG&A/Sales 8,233 8,943 17,876 18,408 Interest coverage (x) 40,513 42,199 Net debt to equity Sales/assets 8,863 8,863 Assets/equity 137,095 157,883 227,603 249,706 ROE ROA ROCE 6,541 6,541 16,945 18,192 10,779 11,572 34,266 36,306 78,000 90,000 10,225 10,225 122,491 136,531 90,418 93,481 6.82 7.05
419
China Rongsheng Heavy Industries Group Holdings Ltd

Underweight
en.rshi.cn
China Ship Building & Repairs Sokje Lee

AC
Company overview China Rongsheng Heavy Industries Group Holdings Limited is a leading Chinese heavy industries group with a focus on vessels and offshore engineering, serving customers in the energy and resource sectors. It has a diversified product base that can be broadly classified into four key business segments: (1) shipbuilding; (2) offshore engineering; (3) marine engine building; and (4) engineering machinery. Investment case We believe Rongsheng Heavy is still facing a tough road ahead, affected by a lack of new orders and a potential loss from operational risks. Given the massive staff restructuring, we think delays in ship delivery and claims/cancellation risks from ship owners will affect the company's financials. Resilience of the growth outlook Because Rongsheng's operational risk is a fundamental problem, we think it will take some time for the company to recover from current risks. Despite the government's financial support for the company, we expect further restructuring and provisions in upcoming years.
(82-2) 758-5729 sokje.lee@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
1.8 HK$ 1.4 1.0 0.6
Abs Rel
YTD -25.0% -17.4%
1m 1.1% 0.7%
3m -13.9% -23.3%
12m -42.9% -41.3%
Risks to the earnings outlook in 2014 We expect earnings to remain weak in 2014, given the operational risks leading to ship delays and cancellations. We think the company may reflect further provisions, which will pressure earnings. Price target, and risks to our investment view We remain Underweight with a Dec-14 price target of HK$0.70. Our price target is based on 2014E BVPS of HK$1.41 and a 0.5x multiple, as we see the risk of continued losses. Our target multiple of 0.5x, the companys historical bottom, reflects the falling margin trend and high execution and delivery delay risks. Key upside risks to our price target include: (1) a newbuilding ship price recovery (which would be positive for shipbuilding margins); (2) successful operational execution and lower delivery delays; and (3) further financial support from the government.
Company Data Shares O/S (mn) Market Cap (Rmb bn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ bn) 3M - Avg daily value ($ mn) HSCEI Exchange Rate Fiscal Year End
7,000 5 840 0.93 06 Nov 13 43.4% 15.93 0.02 2.1 1,0637.15 7.75 Dec
China Rongsheng Heavy Industries Group Holdings Ltd (Reuters: 1101.HK, Bloomberg: 1101 HK) Year-end Dec FY12A FY13E FY14E FY15E Revenue (Rmb mn) 7,956 3,759 3,223 2,901 Operating Profit (Rmb mn) 226 (1,832) (1,429) (1,192) Net Profit (Rmb mn) (573) (2,360) (2,012) (1,690) EPS (Rmb) (0.08) (0.34) (0.29) (0.24) BVPS (Rmb) 2.03 1.69 1.41 1.17 Revenue growth (50.0%) (52.8%) (14.3%) (10.0%) EPS growth (133.3%) 312.1% (14.7%) (16.0%) ROE (3.9%) (18.1%) (18.5%) (18.8%) ROA (1.1%) (4.7%) (4.0%) (3.3%) P/E (x) NM NM NM NM P/BV (x) 0.4 0.4 0.5 0.6 EV/EBITDA (x) 30.9 NM NM NM Dividend Yield 0.0% 0.0% 0.0% 0.0%
420
China Rongsheng Heavy Industries Group Holdings Ltd: Summary of Financials

Balance sheet
Rmb in billions, year end Dec Assets Current assets Cash and cash equivalents Trade and Other Current Receivables Inventories Others Non-current Assets Property, Plant and Equipment Intangible Assets Others Liabilities Current liabilities Trade and Other Current Payables Others Non-current Liabilities Long-term debt Others Stockholders' Equity Total Debt Net Debt(Cash) Cash flow statement Rmb in billions, year end Dec Cash Flows from Operating Net Income(Net Loss) Depreciation & Amortisation (Inc) Dec in working capital Payments of Income Taxes Others Cash Flows from Investing Free cash flow Cash Flows from Financing Inc(Dec) in Cash Cash at The Beginning Cash at The End
50,169 27,978 2,144 3,811 2,289 19,734 22,191 18,616 469 2,784 35,081 25,600 9,278 16,322 9,480 8,789 691 15,088 24,072 21,928
FY12
FY13E
50,600 22,485 2,303 3,605 1,190 15,388 28,115 22,614 417 4,762 37,854 27,460 9,742 17,717 10,394 9,668 726 12,746 26,479 24,176
FY14E
50,468 18,906 2,232 3,091 1,122 12,462 31,562 24,327 423 6,491 39,728 28,815 10,230 18,585 10,913 10,151 762 10,741 27,803 25,571
FY15E Rmb in billions, year end Dec 50,732 Net Sales Growth(%) 16,132 704 Cost of Sales 2,782 Gross Profit on Sales Gross margin 1,111 11,535 SG&A 34,599 Operating Income Growth(%) 25,866 Operating Margin (%) 415
Income Statement
(0.08) (133.3%) 2.03 0.00 0.0% NM 0.4 30.9 (3.9%) 14.3% 2.8% (7.2%) 8.9% 2.0 131.2 Source: Company reports and J.P. Morgan estimates. Net profit, EPS and ROE based on Owners' net income; BVPS based on Owners of parent equity.
(1,888) (572) 485 (1,695) (44) (1,765) (4,220) (461) (4,111) 6,255 2,144
FY12
FY13E
1,156 (2,422) 606 5,245 73 (3,389) 49 2,392 159 2,144 2,303
FY14E
1,581 (2,064) 723 3,240 62 (3,041) 692 1,389 (71) 2,303 2,232
Ratio Analysis FY15E Rmb, year end Dec (26) EPS (1,732) EPS Growth(%) 821 BPS 1,174 DPS 52 Dividend Yield(%) - PER (x) (2,919) PBR (x) (859) EV/ EBITDA (x) 1,418 ROE(%) (1,527) Gross Margin (%) 2,232 Operating Margin (%) 704 Net margin(%) EBITDA Margin (%) Working Capital Turnover (x) Inventory Turnover (days)
7,996 41,669 Income Before Income Taxes Income Taxes Expenses 30,211 Tax Rate (%) 10,741 19,470 Net Income Growth(%) 11,459 10,659 800 EBITDA Growth(%) 9,063 29,193 28,488
7,956 (50.0%) (6,816) 1,141 14.3% (1,494) 226 (88.8%) 2.8% (572) 10 (1.8%) (573) (133.3%) 711 (71.4%)
FY12
3,759 (52.8%) (4,598) (839) (22.3%) (1,020) (1,832) (911.7%) (48.7%) (2,422) 73 (3.0%) (2,360) 312.1% (1,225) (272.4%)
FY13E
3,223 (14.3%) (3,659) (435) (13.5%) (1,020) (1,429) (22.0%) (44.3%) (2,064) 62 (3.0%) (2,012) (14.7%) (706) (42.4%)
FY14E
2,901 (10.0%) (3,299) (398) (13.7%) (820) (1,192) (16.6%) (41.1%) (1,732) 52 (3.0%) (1,690) (16.0%) (370) (47.5%)
FY15E
FY12
(0.34) 312.1% 1.69 0.00 0.0% NM 0.4 NM (18.1%) (22.3%) (48.7%) (62.8%) (32.6%) NM 138.1
FY13E
(0.29) (14.7%) 1.41 0.00 0.0% NM 0.5 NM (18.5%) (13.5%) (44.3%) (62.4%) (21.9%) NM 115.3
FY14E
(0.24) (16.0%) 1.17 0.00 0.0% NM 0.6 NM (18.8%) (13.7%) (41.1%) (58.3%) (12.8%) NM 123.5
FY15E
421
China Shineway Pharmaceutical Group Limited

Neutral
www.shineway.com.hk/eng/global/home.php

AC
Company overview Shineway is the largest Chinese medicine manufacturer of injection-based and soft capsule medicines in China in terms of volume. Shineway focuses on prescription medicines in three major formsinjection, soft capsule, and granule. All of the products are sold under the Shineway brand and developed mainly in-house. Investment case As the largest producer of TCM injections, Shineway has benefited from the government support of this unique class of drugs in China. The company operates the best regarded manufacturing facilities for TCM injections and it is aggressively diversifying into OTC markets to stay away from government price cutting pressure. However, the companys soft capsule drugs have attained their desired market shares and sales channel restructuring has taken much longer than expected. Resilience of the growth outlook Demand for healthcare products is resilient to economic slowdown. Sales growth for Shineways TCM injections may come in line with industry growth as they fulfill basic medical needs as mostly EDL drugs.
12m -4.7% 4.7%
Price Performance
16 14 HK$ 12 10
2877.HK share price (HK$) MSCICNX-HLTH (rebased)
Abs Rel
YTD -10.7% -12.6%
1m -1.7% -2.9%
3m -9.3% -7.4%
Risks to the earnings outlook in 2014 We see substantial risks to consensus earnings estimates as all have baked in a pretty decent recovery of the companys businesses, especially TCM injection sales. On the upside, OTC product sales may turn around and show much better than expected sales growth, especially for granule products targeting children. Price target, and risks to our investment view Our DCF-based Dec-14 PT of HK$15 (risk free rate 4.2%, market risk premium 6%, beta 1.2x, terminal growth 4%) implies 2014E P/E of 9.6x. Shineway may appear cheap, but we think it is at risk of being a valuation trap unless the company can reboot growth substantially. Key risks are continued high selling expenses and ineffective channel restructuring on the downside and much better-than-expected sales recovery of granules and soft capsules from channel restructuring on the upside.
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) MSCICNX-HLTH Exchange Rate Fiscal Year End
827 7,615 1,248 11.70 06 Nov 13 1000.0% 0.77 9.00 1.2 119.49 7.75 Dec
China Shineway Pharmaceutical Group Limited (Reuters: 2877.HK, Bloomberg: 2877 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E FY15E Revenue (Rmb mn) 1,985 2,132 2,330 2,611 2,887 Net Profit (Rmb mn) 756 648 727 838 938 EPS (Rmb) 0.91 0.78 0.88 1.01 1.13 DPS (Rmb) 0.27 0.32 0.26 0.30 0.34 Revenue growth (%) (2.6%) 7.4% 9.3% 12.1% 10.6% EPS growth (%) (8.0%) (14.3%) 12.2% 15.3% 12.0% ROCE 20.4% 15.3% 16.0% 16.4% 16.1% ROE 22.0% 16.9% 17.1% 17.5% 17.3% P/E (x) 10.1 11.8 10.5 9.1 8.1 P/BV (x) 2.1 1.9 1.7 1.5 1.3 EV/EBITDA (x) 5.6 6.3 5.2 4.2 3.4 Dividend Yield 3.0% 3.5% 2.9% 3.3% 3.7%
422
China Shineway Pharmaceutical Group Limited: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 1,985 (2.6%) 1,302 (9.3%) 1,013 (1.7%) 884 (6.4%) 44.5% 69 950 (4.3%) (194) 20.4% 756 (8.0%) 827 0.91 (8.0%) FY11 2,173 418 283 126 2,999 FY12 2,132 7.4% 1,392 6.9% 895 (11.6%) 724 (18.1%) 34.0% 80 800 (15.8%) (152) 19.0% 648 (14.3%) 827 0.78 (14.3%) FY13E 2,330 9.3% 1,515 8.8% 1,046 16.9% 839 15.9% 36.0% 63 897 12.2% (171) 19.0% 727 12.2% 827 0.88 12.2% FY14E 2,611 12.1% 1,691 11.6% 1,171 11.9% 945 12.6% 36.2% 69 1,009 12.5% (172) 17.0% 838 15.3% 827 1.01 15.3% FY15E 2,887 10.6% 1,863 10.2% 1,283 9.6% 1,052 11.3% 36.4% 84 1,130 12.0% (192) 17.0% 938 12.0% 827 1.13 12.0% Cash flow statement Rmb in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS FY11 884 130 (384) (170) 528 (480) 69 69 (6) 0 (0) 0 (279) 2,349 2,173 0.27 FY11 65.6% 51.1% 44.5% 38.1% FY12 724 171 (107) (194) 674 (470) 80 80 139 0 16 0 (246) 2,173 2,212 0.32 FY12 65.3% 42.0% 34.0% 30.4% FY13E 839 207 (120) (152) 837 (450) 63 63 336 0 8 0 (241) 2,212 2,426 0.26 FY13E 65.0% 44.9% 36.0% 31.2% 9.3% 9.3% 12.2% 12.2% NM FY14E 945 225 (153) (171) 917 (255) 69 69 604 0 12 0 (235) 2,426 2,930 0.30 FY14E 64.8% 44.8% 36.2% 32.1% 12.1% 12.1% 15.3% 15.3% NM FY15E 1,052 231 (165) (172) 1,030 (282) 84 84 678 0 12 0 (266) 2,930 3,502 0.34 FY15E 64.5% 44.4% 36.4% 32.5% 10.6% 10.6% 12.0% 12.0% NM
Ratio Analysis FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 2,212 2,426 2,930 3,502 Gross margin 522 570 639 706 EBITDA margin 204 223 250 276 Operating margin 123 235 240 227 Net margin 3,061 3,453 4,058 4,712 Sales per share growth LT investments 176 191 195 199 203 Sales growth Net fixed assets 1,108 1,398 1,641 1,671 1,723 Net profit growth Total Assets 4,377 4,743 5,290 5,929 6,638 EPS growth Liabilities Interest coverage (x) Short-term loans 0 0 0 0 0 Payables 262 255 279 312 345 Others 384 400 407 413 421 Net debt to equity Total current liabilities 646 655 685 726 766 Working Capital to Sales Long-term debt 0 0 0 0 0 Sales/assets Other liabilities 76 91 100 112 123 Assets/equity Total Liabilities 722 746 785 837 889 ROE Shareholders' equity 3,654 3,996 4,505 5,091 5,748 ROCE BVPS 4.42 4.83 5.45 6.16 6.95 Source: Company reports and J.P. Morgan estimates.
(2.6%) 7.4% (2.6%) 7.4% (8.0%) (14.3%) (8.0%) (14.3%) NM NM
(59.4%) (55.4%) (53.8%) (57.5%) (60.9%) 1.2 1.1 1.2 1.3 1.4 0.5 0.5 0.5 0.5 0.5 1.2 1.2 1.2 1.2 1.2 22.0% 16.9% 17.1% 17.5% 17.3% 20.4% 15.3% 16.0% 16.4% 16.1%
423
China Vanke
Neutral
www.vanke.com
200002.SZ,200002 CH Price: HK$13.51 Price Target: HK$15.50

AC
Company overview China Vanke is the largest home builder in China in terms of sales value. The company is a non-state-owned enterprise and there is no controlling shareholder so the company is managed by professional management. China Vanke initially focused on the Shenzhen property market but later expanded into other densely populated cities. Currently Vanke has about 300 projects in 57 cities. Investment case We think Vanke is a solid company but in order to sustain growth the company has spent a lot of resources to improve the corporate structure and the way they build and develop. While some of this is bearing fruit now, its margins are still below the market average and ROE is difficult to grow. This has capped the multiple at which it could trade. Resilience of the growth outlook The conversion of listing platform from B- to H-shares could bring about more financial flexibility and reduce borrowing costs, and thus further enhance net margins and ROE.
Price Performance
18 16 HK$ 14 12 10
200002.SZ share price (HK$) SHEN.B (rebased)
Abs Rel
YTD -1.7% -18.9%
1m -4.8% -4.7%
3m -3.5% -8.1%
12m 21.6% -15.8%
Risks to the earnings outlook in 2014 Slower-than-expected delivery is still the biggest uncertainty on Vankes earnings outlook. Net gearing hiked to 55% as of Jun-2013 from 30% as of end-2012 due to high capex on land and construction, and the trend is not likely to reverse any time soon. B-to-H conversion has no timeline and is still under government approval. Price target, and risks to our investment view Our Jun-14 PT of HK$15.5 is based on 8.5x FY13/14E average P/E, compared to 8.5-13.0x we apply to COLI and CR Land and 5.5x-8.5x for mid-cap developers. We take into account Vanke's B-share listing status, which limited its access to capital and investor base. We may use a higher multiple when there is more visibility on the B-to-H conversion. Vanke is the largest homebuilder in China by sales value and we think a valuation premium is warranted between Vanke and most mid-cap developers. Key downside risks are tightening policies that could impact end-user demand and slippage of completion schedule; key upside risks are unexpected CSRC approval on capital raising and faster-than-expected B-to-H conversion.
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) SHEN.B Exchange Rate Fiscal Year End
1,315 13,981 2,292 13.51 06 Nov 13 84.1% 1.58 23.00 3.0 836.74 7.75 Dec
China Vanke Company Ltd (Reuters: 200002.SZ, Bloomberg: 200002 CH) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Rmb mn) 67,709 96,860 126,434 134,431 Net Profit (Rmb mn) 9,459 12,126 14,763 17,268 Core Profit (Rmb mn) 9,523 12,210 14,763 17,268 EPS (Rmb) 0.85 1.09 1.33 1.55 Core EPS (Rmb) 0.86 1.10 1.33 1.55 Core EPS growth (%) 35.0% 28.2% 20.9% 17.0% DPS (Rmb) 0.13 0.18 0.22 0.28 ROE 19.6% 20.9% 21.1% 20.4% P/E (Core) 12.4 9.7 8.0 6.8 P/BV (x) 2.2 1.8 1.6 1.3 BVPS (Rmb) 4.77 5.75 6.83 8.41 RNAV/Share 19.44 Dividend Yield 1.2% 1.7% 2.1% 2.6%
FY15E 163,399 21,613 21,613 1.95 1.95 25.2% 0.32 20.7% 5.5 1.0 10.40 3.0%
424
China Vanke: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Core net profit % change Y/Y Shares outstanding EPS (reported) (Rmb) % change Y/Y Core EPS (Rmb) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY12 96,860 43.1% 25,139 31.3% 26.0% (672) 25,357 30.8% (10,035) 39.6% 12,126 28.2% 12,210 28.2% 11,105 1.09 28.2% 1.10 28.2% FY12 52,292 56,988 218 253,404 362,902 FY13E 126,434 30.5% 29,472 17.2% 23.3% (680) 30,036 18.5% (11,582) 38.6% 14,763 21.7% 14,763 20.9% 11,105 1.33 21.7% 1.33 20.9% FY13E 40,059 51,508 218 283,956 375,741 FY14E 134,431 6.3% 36,880 25.1% 27.4% (981) 37,222 23.9% (15,637) 42.0% 17,268 17.0% 17,268 17.0% 11,105 1.55 17.0% 1.55 17.0% FY14E 37,602 45,753 218 329,181 412,753 33,803 2,479 456,231 40,557 233,701 15,904 290,163 47,036 2,765 339,964 93,404 8.41 FY15E 163,399 21.5% 46,671 26.5% 28.6% (901) 47,380 27.3% (20,364) 43.0% 21,613 25.2% 21,613 25.2% 11,105 1.95 25.2% 1.95 25.2% FY15E 32,769 39,998 218 370,821 443,806
Cash flow statement Rmb in millions, year end Dec EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS (Rmb) Ratio Analysis %, year end Dec EBIT margin Net margin SG&A/Sales
FY12 12,126 58 (15,241) 6,950 3,893 (151) (3,036) (4,486) 4,150 0 20,613 (1,555) (2,279) 33,614 51,120 0.18 FY12 26.0% 12.5% 6.1% 43.1% 43.1% 28.2% 28.2% 37.5 19.0% 23.5% 0.3 5.8 20.9% 12.7%
FY13E 14,763 0 (20,348) 12,160 6,575 (181) (15,600) (5,576) 6,812 0 6,000 (7,498) (2,279) 51,120 40,059 0.22 FY13E 23.3% 11.7% 6.2% 30.5% 30.5% 21.7% 21.7% 43.4 28.1% 39.0% 0.3 5.6 21.1% 12.5%
FY14E 17,268 0 (26,021) 13,564 4,811 (217) (8,721) (6,053) 5,163 0 10,000 (6,553) (2,279) 40,059 37,602 0.28 FY14E 27.4% 12.8% 7.1% 6.3% 6.3% 17.0% 17.0% 37.6 30.1% 43.0% 0.3 5.1 20.4% 12.8%
FY15E 21,613 0 (34,177) 14,834 2,270 (260) (8,865) (5,699) 2,523 0 10,000 (6,199) (2,279) 37,602 32,769 0.32 FY15E 28.6% 13.2% 7.1% 21.5% 21.5% 25.2% 25.2% 51.8 31.3% 45.7% 0.3 4.6 20.7% 13.5%
LT investments 9,482 25,082 Net fixed assets 2,081 2,262 Total Assets 379,095 408,958 Liabilities ST loans 35,557 38,057 Payables 215,530 220,253 Others 8,747 12,203 Total current liabilities 259,834 270,513 Long-term debt 36,036 39,536 Other liabilities 1,087 2,765 Total Liabilities 296,957 312,814 Shareholder's equity 63,826 75,870 BVPS 5.75 6.83 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 42,667 Sales growth 2,740 Net profit growth 498,019 EPS growth Interest coverage (x) 43,057 Net debt to total capital 235,411 Net debt to equity 20,267 Sales/assets 298,735 Assets/equity 54,536 ROE 2,765 ROCE 356,035 115,447 10.40
425
CJ Cheiljedang
Underweight
eng.cjcheiljedang.com
South Korea Food & Food Manufacture Youna Kim

AC
(82-2) 758-5715 youna.kim@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Price Performance
400,000 360,000 W 320,000 280,000 240,000
097950.KS share price (W ) KOSPI (rebased)
Abs Rel
YTD -29.8% -30.6%
1m -7.8% -8.6%
3m -8.1% -13.7%
12m -24.6% -29.0%
Company overview CJ Cheiljedang (CJCJ) is Koreas largest food & bio company, founded in 1953. The companys business is largely divided into: 1) food (foodstuff and processed food); 2) bio (pharmaceuticals and amino acids for animal feed, neucleotides and MSG); and 3) animal feed and logistics (CJCJ owns 20% of CJ Korea Express). Investment case CJCJ faces challenges in the feed-additive business, in which it has invested over W1 trillion over the past several years in order to ramp up capacity. Despite the exit of small loss-making lysine makers and major competitors reduced production volumes in China, we expect any rebound to be moderate, given over-supply in China and additional supply from the new Iowa plant. Against this backdrop, we expect the companys bio divisions margins to stay under pressure. We foresee further downward pressure on the share price, with downward revision of consensus earnings estimates. Resilience of the growth outlook CJCJs net sales for its core business (excluding CJ Korea Express) were weak in 3Q13, down 0.2%y/y. Its food division is likely to record low-to-mid-single sales growth. Bio division sales growth and margin are likely to be the key factor for the share price. We believe sales growth in 2014 will be better than that of 2013 but short of the current consensus estimates. Risks to the earnings outlook in 2014 After the 3Q13 results announcement, we cut our earnings estimate by 13% for FY14; bio division margins are likely to stay low without any meaningful rebound in lysine prices. For now we expect CJCJ to report c15% earnings growth in 2014. However if lysine prices are lower than our estimate of a moderate rebound due to oversupply issues in China, we could see further downside risks to our margin assumptions for the bio division. Price target, and risks to our investment view Our Dec-14 price target of W200,000 is based on Dec-14E EBITDA for core operations (ex. CJ Korea Express) and a target multiple of 8.0x, the mean EV/EBITDA multiple of global lysine manufacturers and Korean packaged food makers. For non-core assets, we estimate the total value at W1,249 billion. Upside risks include 1) a larger-than-expected lysine price rebound, 2) higher-than-expected food division sales growth and margin expansion after the SKU restructuring in 2013, and 3) steep decline in soft commodity prices.
CJ Cheiljedang (Reuters: 097950.KS, Bloomberg: 097950 KS) Year-end Dec FY12A FY13E Revenue (W bn) 9,878 11,127 Operating Profit (W bn) 616 394 Operating Margin 6.2% 3.5% Net Recurring Profit (W bn) 255 152 Net Profit (W bn) 311 183 EPS (W) 19,514 11,604 BVPS (W) 410,390 409,059 Revenue growth 51.1% 12.6% Operating growth 35.5% (36.0%) Recurring profit growth 19.7% (40.5%) EPS growth 19.7% (40.5%) ROE 5.1% 2.9% P/E (x) 12.8 21.5 P/BV (x) 0.6 0.6
Company Data 52-week Range (W) Market Cap (W bn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free Float(%) 3M - Avg daily volume (th) 3M - Avg daily value (W bn) 3M - Avg daily value ($ mn) KOSPI Exchange Rate
390,000-240,000 3,268 3,080 13 Dec 249,500 06 Nov 13 47.3% 64.7 16.9 16.0 2,013.7 1,061.2
FY14E 11,824 458 3.9% 175 213 13,380 423,846 6.3% 16.1% 15.3% 15.3% 3.3% 18.6 0.6
FY15E 12,852 553 4.3% 233 287 17,823 444,408 8.7% 20.8% 33.2% 33.2% 4.2% 14.0 0.6
426
CJ Cheiljedang: Summary of Financials

Income Statement KRW in billions, year end Dec Net Sales COGS Gross Profit SG&A Expenses Depr. & amortization Operating Profit Non-operating income Non-operating expense Pre-tax Profit Income Taxes Net recurring profit Net Profit Growth Sales Operating profit Net recurring profit Net Profit Balance sheet KRW in billions, year end Dec Cash and cash equivalents ST Investments Accounts receivable Inventories Others Long term investments Net fixed assets Intangible Assets Other assets Asset FY12 9,878 (7,697) 2,181 (1,565) 310 616 351 (393) 425 (114) 255 311 51.1% 35.5% 19.7% (0.9%) FY12 557 131 1,300 1,139 237 813 5,575 1,606 525 12,364 FY13E 11,127 (9,068) 2,059 (1,665) 379 394 337 (402) 289 (106) 152 183 12.6% (36.0%) (40.5%) (41.3%) FY13E 170 273 1,801 1,591 343 691 6,437 1,700 438 13,955 FY14E 11,824 (9,627) 2,197 (1,739) 413 458 0 0 292 (78) 175 213 6.3% 16.1% 15.3% 16.7% FY14E 352 273 1,792 1,583 343 691 6,623 1,707 438 14,314 2,290 958 837 4,084 3,500 1,205 8,916 5,398 423,846 FY15E 12,852 (10,431) 2,421 (1,867) 423 553 0 0 392 (105) 233 287
Cash flow statement KRW in billions, year end Dec Net Profit Depr. & amortization Change in working capital Other operating cash flows Cash flow from operations Capex PPE Disposals Other investing cash flows Cash flow from investing
FY12 311 310 (53) 237 805 (971) 0 (125) (1,156) 0 1,097 (25) (616) 456 FY12 22.1% 6.2% 2.6% 19,514 1,728 5.1% 6.2% 0.8 239.0% 83.9%
FY13E 183 379 (746) 288 105 (1,003) 0 327 (727) 0 163 (25) 74 211 FY13E 18.5% 3.5% 1.4% 11,604 1,757 2.9% 3.5% 0.8 252.3% 111.7%
FY14E 213 413 40 352 1,017 (550) 0 0 (610) 0 0 (25) (200) (225) FY14E 18.6% 3.9% 1.5% 13,380 1,726 3.3% 3.9% 0.8 266.5% 100.7%
FY15E 287 423 (197) 374 886 (550) 0 0 (610) 0 0 (25) 0 (25) FY15E 18.8% 4.3% 1.8% 17,823 1,726 4.2% 4.3% 0.9 265.4% 88.1%
Liabilities Short-term borrowing 2,020 2,490 Account payables 639 963 Others 731 809 Total current liabilities 3,389 4,261 Long-term borrowing 2,920 3,500 Others 765 872 Liabiliaities 7,143 8,745 Total shareholders' equity 5,221 5,210 BVPS (W) 410,390 409,059 Source: Company reports and J.P. Morgan estimates.
Equity raised/(repaid) Debt raised/(repaid) 8.7% Dividends paid 20.8% Other financing cashflows 33.2% Cash flow from financing 34.5% Ratio Analysis (%) FY15E % year end Dec 604 Margin 273 GPM 1,942 OPM 1,716 NPM 343 EPS (W) 691 DPS (W) 6,801 1,714 RoE (%) 438 15,034 EBIT/sales (%) Sales/assets (x) Assets/equity (x) 2,090 Net debt/equity (%) 1,038 906 4,034 3,500 1,696 9,374 5,660 444,408
427
CLP Holdings
Neutral
www.clpgroup.com/
Hong Kong Electric Utilities Elaine Wu

AC
(852) 2800-8575 elaine.wu@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
74 70 HK$ 66 62 58
Abs Rel
YTD -4.7% -6.4%
1m -1.9% -1.5%
3m -4.0% -9.1%
12m -7.0% -12.0%
Company overview CLP Holdings is one of the two integrated power suppliers in HK via its 100% owned transmission and distribution utility CLP Power, and 40% owned generation entity CAPCO. Outside of HK, CLP is one of the largest regional power utilities in Asia with power assets in Australia, India, China, Taiwan and Southeast Asia. Investment case CLP is a dividend yield stock, which is quite sensitive to the movement of US Treasury yields, with a 0.76 correlation based on its historic share price. Given the likely tapering of the US asset purchasing program in 2014, we expect the share price to be negatively impacted. In addition, the pending disposal of Power Assetss HK power business in an HK IPO may trigger some investors to favor the newly-listed pure HK play over CLP, which has ~30% exposure to overseas earnings. Resilience of the growth outlook Growth outlook is expected to be weak due to volatility in CLP's overseas earnings and limited growth in its HK business. Risks to the earnings outlook in 2014 We believe there are potential downside earnings risks from Australia, its largest segment outside of HK, due to problems with the billing system, which have caused an increase in opex. Weak power demand has also resulted in lower power pool prices. Price target, and risks to our investment view Our Jun-14 PT is determined based on SOP valuation methodology, using DCF to value each segment. Our PT implies 17.7x FY14E P/E and 3.9% yield. Downside risks: Higher coal costs in China may result in lower earnings at CLP's coal-fired power plants in China as these do not have fuel cost pass through. A stronger USD would result in lower earnings from CLP's overseas businesses when foreign currencies are exchanged to HKD. CLP's Scheme of Control permitted return is based on a 9.99% return on average net fixed assets before interest. Therefore, a higher borrowing cost would result in lower net earnings. Upside risks: Better-than-expected margin improvement in CLP's business would result in higher net earnings. Approval of additional Scheme of Control capex would result in higher earnings as SOC earnings are on a 9.99% return on average net fixed assets.
CLP Holdings (Reuters: 0002.HK, Bloomberg: 2 HK) HK$ in mn, year-end Dec FY11A FY12A Revenue (HK$ mn) 91,634 104,861 Net Profit (HK$ mn) 9,288 8,312 EPS (HK$) 3.86 3.45 DPS (HK$) 2.52 2.57 Revenue growth (%) 56.9% 14.4% EPS growth (%) (10.1%) (10.7%) ROCE 10.5% 8.8% ROE 12.8% 9.6% P/E (x) 16.0 17.9 P/BV (x) 1.8 1.7 EV/EBITDA (x) 9.7 9.4 Dividend Yield 4.1% 4.2%
2,526 156,135 20,142 61.80 06 Nov 13 2.96 185.36 23.9 2,3038.95 7.75 Dec
FY13E 116,419 9,439 3.74 2.60 11.0% 8.3% 8.8% 10.2% 16.5 1.7 8.9 4.2%
FY14E 120,940 9,632 3.81 2.65 3.9% 2.0% 8.8% 10.2% 16.2 1.6 8.8 4.3%
FY15E 125,861 10,035 3.97 2.76 4.1% 4.2% 9.0% 10.4% 15.6 1.6 8.6 4.5%
428
CLP Holdings: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Associates Other Income Earnings before tax % change Y/Y Tax as % of EBT Exceptional items Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 91,634 56.9% 23,151 13.7% 16,798 9.9% 18.3% (5,859) 3,610 10,939 (2.1%) (1,650) 15.1% (1,024) 9,288 (10.1%) 2,406 3.86 (10.1%) FY12 104,861 14.4% 23,106 (0.2%) 16,085 (4.2%) 15.3% (6,101) 2,984 9,984 (8.7%) (1,692) 16.9% 0 8,312 (10.5%) 2,526 3.45 (10.7%) FY13E 116,419 11.0% 24,239 4.9% 16,968 5.5% 14.6% (5,480) 3,019 11,487 15.1% (2,047) 17.8% 0 9,439 13.6% 2,526 3.74 8.3%
FY11 3,866 19,419 1,470 2,300 27,055
FY12 13,026 18,552 1,667 3,908 37,153
FY13E 12,817 18,766 1,713 4,339 37,635
LT investments 19,691 21,053 21,245 Net fixed assets 130,382 134,329 137,843 Others 37,160 36,221 35,923 Total Assets 214,288 228,756 232,646 Liabilities Short-term loans 12,596 6,895 6,797 Payables 16,990 21,732 23,979 Others 8,852 8,821 8,996 Total current liabilities 38,438 37,448 39,772 Long-term debt 52,925 59,303 58,459 Other liabilities 41,573 40,804 41,118 Total Liabilities 132,936 137,555 139,349 Shareholder's equity 81,259 91,127 93,222 BVPS 33.77 36.07 36.90 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY14E FY15E HK$ in millions, year end Dec 120,940 125,861 Pre-tax profit 3.9% 4.1% Depr. & amortization 24,630 25,369 Change in working capital 1.6% 3.0% Taxes 17,164 17,743 Others 1.2% 3.4% Cash flow from operations 14.2% 14.1% (5,443) (5,509) Capex 3,083 3,141 Disposal/(purchase) - Free cash flow 11,721 12,234 Other 2.0% 4.4% Cash flow from investing (2,088) (2,198) 17.8% 18.0% Equity raised/(repaid) 0 0 Debt raised/(repaid) 9,632 10,035 Other 2.0% 4.2% Dividends paid 2,526 2,526 Cash flow from financing 3.81 3.97 2.0% 4.2% Beginning cash Ending cash DPS Ratio Analysis FY14E FY15E HK$ in millions, year end Dec 13,016 7,775 EBITDA margin 19,475 20,343 Net profit margin 1,761 1,811 4,507 4,691 38,760 34,619 Sales per share growth Sales growth 21,439 21,635 Net profit growth 140,718 143,456 EPS growth 36,697 38,329 Interest coverage (x) 237,615 238,040 Net debt to equity 6,953 6,608 Sales/assets 24,885 25,994 Assets/equity 9,132 9,281 ROE 40,970 41,883 ROCE 59,799 56,834 ROA 41,411 41,641 142,180 140,359 95,359 97,604 37.74 38.63
FY11 FY12 10,939 9,984 6,353 7,021 (3,080) 1,534 (800) (804) 5,501 7,048 18,062 23,915
FY13E 11,487 7,271 1,682 (1,607) 3,553 21,946
FY14E FY15E 11,721 12,234 7,466 7,627 111 142 (1,691) (1,792) 3,398 3,426 20,607 21,229
(12,109) (9,056) (10,785) (10,342) (10,365) 5,953 14,859 11,161 10,266 10,864 (13,150) 130 2,264 1,216 337 (25,259) (8,926) (8,521) (9,126) (10,028) 0 20,037 (7,782) (5,977) 6,278 7,556 0 0 (1,718) (943) 1,496 (5,906) (6,132) (6,084) (6,135) (6,560) (6,694) (6,203) (13,635) (11,282) 11,890 11,681 2.60 FY13E 20.8% 8.1% 5.9% 11.0% 13.6% 8.3% 4.4 56.3% 0.5 2.5 10.2% 8.8% 4.1% 11,681 11,880 2.65 FY14E 20.4% 8.0% 3.9% 3.9% 2.0% 2.0% 4.5 56.4% 0.5 2.5 10.2% 8.8% 4.1% 0 (3,309) (6,160) (6,974) (16,443) 11,880 6,639 2.76 FY15E 20.2% 8.0% 4.1% 4.1% 4.2% 4.2% 4.6 57.0% 0.5 2.5 10.4% 9.0% 4.2%
4,023 3,104 3,104 11,890 2.52 2.57 FY11 25.3% 11.3% FY12 22.0% 7.9%
56.9% 14.2% 56.9% 14.4% (10.1%) (10.5%) (10.1%) (10.7%) 4.0 3.8 75.9% 0.5 2.4 12.8% 10.5% 5.2% 58.3% 0.5 2.6 9.6% 8.8% 3.8%
SOTP table
HK$mn HK Australia China India Southeast Asia and Taiwan Net debt Tariff Stablisation Fund
NAV/share 65.5 14.5 6.8 1.1 1.1 (21.0) (0.4) 67.3
% of total 73.8% 16.3% 7.7% 1.2% 0.9 (0.4) 100.0%
429
Coal India
Neutral
www.coalindia.in
COAL.BO,COAL IN Price: Rs298.80 Price Target: Rs310.00
India Mining Pinakin Parekh, CFA

AC
Price Performance
400 360 Rs 320 280 240
COAL.BO share price (Rs) BSE30 (rebased)
Abs Rel
YTD -17.0% -23.7%
1m -3.6% -8.5%
3m 16.4% 4.9%
12m -15.1% -26.1%
Company overview Coal India (COAL) is the largest coal-producing company in the world (based on raw coal production). Coal India has the largest reserves of coal in the world at 67bn tonnes, with proven reserves of 52bn tonnes (47% of Indias proven reserves) and extractable reserves of 22bn tonnes. Investment case COAL has a distinctive business model with peculiar characteristics of: a) quasi monopoly, but limited pricing power on a majority of volume sales; b) among the lowest-cost producers in the world but high absolute fixed cost; c) limited capital spending and high operating cash flows resulting in high FCF generation; d) high RoE given no outflow for acquiring mines; e) global coal prices not a full passthrough but do have significant impact on earnings. Near-term potential stake sale from govt could create stock overhang, though higher-than-expected payout could support stock. Resilience of the growth outlook COAL would need to increase its supply materially, once its signs all the new FSA, to meet demand. We believe COAL would find it difficult to raise production given onground issues in Eastern India. Further, weakness in global coal prices has not allowed COAL to increase its market linked coal prices. Although INR depreciation has reduced pressure from imported coal prices, it has not been sufficient for COAL to raise prices. Risks to the earnings outlook in 2014 The biggest upside risk to our earnings outlook for 2014 is better-than-expected production and sales volumes. Our earnings estimates are based on lower production in Eastern India mines and a modest improvement in rake availability for coal transportation. Significant increase in rake availability could help COAL raise its sales volumes and consequently, lower-than-expected rake availability would result in lower dispatches. Lower-than-expected pricing resulting from poorer mix (lower sales through e-auction) would constitute another key downside risk. Price target, and risks to our investment view Our Jun-14 price target of Rs310 for COAL is based on 5.5x FY15E EV/EBITDA. Key upside risks include: 1) large price increases on power coal sales; 2) higher payout. Key downside risks include 1) no price increase on power coal sales; 2) a sharp reduction in e-auction coal sales; and 3) usage of cash in non-productive use.
Coal India (Reuters: COAL.BO, Bloomberg: COAL IN) Rs in mn, year-end Mar FY12A FY13A Net Sales (Rs mn) 624,154 683,027 Net Profit (Rs mn) 147,882 173,564 EPS (Rs) 23.41 27.48 Net Profit growth (%) 36.1% 17.4% ROE 40.1% 39.0% P/E (x) 12.8 10.9 P/BV (x) 4.7 3.9 EV/EBITDA (x) 6.1 5.3
374.85-238.20 1,887,330 30,626 298.80 06 Nov 13 2.70 12.3 2,0974.79
FY14E 701,757 170,316 26.96 (1.9%) 33.2% 11.1 3.5 4.6
FY15E 744,671 183,121 28.99 7.5% 31.8% 10.3 3.1 3.9
FY16E 797,178 199,069 31.52 8.7% 30.5% 9.5 2.7 3.2
430
Coal India: Summary of Financials

Income Statement Rs in millions, year end Mar Revenues % change Y/Y EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (Pre exceptionals) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rs in millions, year end Mar Cash and cash equivalents Short term investments Accounts receivable Inventories Others Current assets Net fixed assets Total Assets FY13 683,027 9.4% 190,107 10.9% 27.8% 171,978 13.4% 25.2% 87,015 249,722 17.9% (76,158) 30.5% 173,564 17.4% 6,316 27.48 17.4% FY14E 701,757 2.7% 196,300 3.3% 28.0% 177,155 3.0% 25.2% 89,048 254,204 1.8% (83,887) 33.0% 170,316 (1.9%) 6,316 26.96 (1.9%)
FY13 FY14E 622,360 722,846 9,947 0 104,802 70,000 56,178 56,178 203,635 203,635 996,922 1,052,660 169,617 200,513 1,215,648 1,303,281
Liabilities Short-term loans 0 0 Payables 8,372 11,078 Others 366,051 366,051 Total current liabilities 374,423 377,130 Long-term debt 13,053 13,053 Other liabilities 342,816 371,120 Total Liabilities 730,292 761,303 Shareholder's equity 484,720 541,342 BVPS 76.74 85.70 Source: Company reports and J.P. Morgan estimates.
Cash flow statement FY15E FY16E Rs in millions, year end Mar 744,671 797,178 Net income (Pre exceptionals) 6.1% 7.1% Depr. & amortization 215,359 239,603 Change in working capital 9.7% 11.3% Cash flow from operations 28.9% 30.1% 194,742 216,861 Net Capex 9.9% 11.4% Free cash flow 26.2% 27.2% 92,628 94,490 Equity raised/(repaid) 275,370 299,351 Debt raised/(repaid) 8.3% 8.7% Other (92,249) (100,283) Dividends paid 33.5% 33.5% Beginning cash 183,121 199,069 Ending cash 7.5% 8.7% DPS 6,316 6,316 28.99 31.52 7.5% 8.7% Ratio Analysis FY15E FY16E Rs in millions, year end Mar 784,274 859,375 EBITDA margin 0 0 Operating margin 75,000 80,000 Net margin 56,178 58,987 203,635 203,635 Sales growth 1,119,088 1,201,997 Net profit growth EPS growth 229,896 257,154 1,399,592 1,510,260 Interest coverage (x) Net debt to total capital Net debt to equity 0 0 Sales/assets 11,601 12,221 Assets/equity 366,051 366,051 ROE 377,653 378,272 ROCE 13,053 13,053 397,482 422,156 788,188 813,481 610,768 696,142 96.70 110.21
FY13 173,564 18,130 (48,754) 142,940 (24,310) 118,630
FY14E 170,316 19,145 37,509 226,970 (50,041) 176,930
FY15E 183,121 20,617 (4,477) 199,261 (50,000) 149,261
FY16E 199,069 22,742 (7,189) 214,621 (50,000) 164,621
8,287 0 0 0 (2,221) 0 0 0 21,433 28,305 26,861 25,174 (101,661) (113,695) (113,695) (113,695) 582,028 622,360 722,846 784,274 622,360 722,846 784,274 859,375 14.00 15.00 15.00 15.00
FY13 27.8% 25.2% 25.4% 9.4% 17.4% 17.4% NM 491.6% -125.7% 0.6 2.6 39.0% 26.1%
FY14E 28.0% 25.2% 24.3% 2.7% (1.9%) (1.9%) NM 423.0% -131.1% 0.6 2.5 33.2% 22.6%
FY15E 28.9% 26.2% 24.6% 6.1% 7.5% 7.5% NM 482.6% -126.3% 0.6 2.3 31.8% 22.0%
FY16E 30.1% 27.2% 25.0% 7.1% 8.7% 8.7% NM 565.9% -121.6% 0.5 2.2 30.5% 21.6%
431
Cochlear Limited
Underweight
www.cochlear.com/
COH.AX,COH AU Price: A$56.45 Price Target: A$55.49
Company overview Cochlear is a global manufacturer and supplier of cochlear implants for the treatment of profound to severe hearing loss. The company also manufactures bone anchored hearing aids (Baha) which are bone conduction implants used for the treatment of single sided nerve hearing loss, conductive hearing and mixed hearing loss. Investment case Cochlear is facing increasing competitive pressures with the likes of Med-El and Advanced Bionics taking share and threats from cheaper overseas manufacturers such as the Chinese-based Nurotron. William Demant, traditionally a hearing aid business, is now presenting as a formidable competitor with the integration of its recent acquisition, cochlear implant business Neurelec, making it the only company supplying traditional hearing aids, BAHA systems and cochlear implants. This allows it to compete directly against COHs yet to be approved "hybrid system that combines both hearing aid and cochlear implant technology. Resilience of the growth outlook Emerging Markets continue to provide significant growth potential in the cochlear implant space; the Chinese government has begun an annual tender for 4,000 cochlear implant units over 5 years. Growing popularity of bilateral implementation will also provide further industry growth.
12m -22.8% -45.2%
Australia Medical Supplies & Devices Steven Wheen

AC
(61-2) 9003-8627 steven.d.wheen@jpmorgan.com J.P. Morgan Securities Australia Limited
Price Performance
90 80 A$ 70 60 50
COH.AX share price (A$) ASX100 (rebased)
Abs Rel
YTD -28.6% -46.7%
1m -4.6% -10.0%
3m -5.9% -12.4%
Risks to the earnings outlook in 2014 In our view, COH needs a significant uplift in sales during 2H14 in order to meet its FY14 guidance of flat yr/yr growth but an uplift is heavily reliant on successful adoption of its new sound processor, the Nucleus 6. We believe that the share price is not currently reflecting the risks inherent in achieving this guidance: the Nucleus 6 has only been partially approved in the US and competitors such as Med-El and Advanced Bionics are gaining traction with their own products offering similar features. Price target, and risks to our investment view Our Jun-14 PT for COH is based on DCF methodology (terminal growth assumption of 3%, WACC 9.8%). Upside risks: market share gains, changes to the competitive landscape, faster thanforecast adoption of bilateral implantation, foreign exchange rates different from our forecast, higher-than normal contribution from new processor upgrades or new product launches or higher-than-expected margin improvement.
57 3,219.96 3,061.38 56.45 06 Nov 13 0.32 18.81 17.9 4511.50 1.05 Jun
Cochlear Limited (Reuters: COH.AX, Bloomberg: COH AU) Year-end Jun (A$) FY11A FY12A FY13A Revenue (A$ mn) 810 779 753 EBITDA (A$ mn) 261 239 202 Net Profit (A$ mn) 180 57 133 EPS (A$) 3.18 1.00 2.33 P/E (x) 17.9 56.6 24.3 EV/EBITDA (x) 13.1 14.3 17.5 DPS (A$) 2.25 2.45 2.52 Dividend Yield 4.0% 4.3% 4.5% Normalised EPS (A$) 3.09 2.78 2.32 Normalised EPS Growth 12.5% (10.0%) (16.4%) Normalised PE 18.3 20.3 24.3
FY14E 818 206 133 2.33 24.3 17.2 2.54 4.5% 2.33 0.2% 24.3
FY15E 903 242 159 2.78 20.3 14.6 2.34 4.2% 2.78 19.3% 20.3
432
Cochlear Limited: Financial Summary

A$ in millions, year end Jun Profit And Loss Revenue Revenue growth COGS Operating Expenses EBITDA EBITDA growth EBITDA margin Amortisation Depreciation EBIT Other Income Other Expenses Net Interest Pre-Tax Profit Tax Tax Rate Minorities Abnormals (post tax) Reported NPAT
Underweight
A$m 3,219.96 A$ps 56.45 55.49 (1.7%)
FY12 FY13 FY14E FY15E FY16E Valuation Summary 779 753 818 903 1,017 Current mkt capitalisation (3.8%) (3.4%) 8.6% 10.4% 12.7% - Price Target (536) (548) (609) (658) (715) Capital growth to price target 239 202 206 242 299 (8.4%) (15.7%) 2.2% 17.3% 23.7% Trading Multiples 30.7% 26.8% 25.2% 26.8% 29.4% PE Pre-abnormals (11) (9) (3) (3) (3) PE Reported (13) (14) (16) (17) (17) EV/EBITDA 215 179 187 222 279 EV/EBIT - Key Ratios (4) (6) (8) (8) (8) Dividend Yield 211 173 180 215 272 Franking (53) (40) (47) (56) (71) Return on Assets (%) 21.3% 23.2% 26.0% 26.0% 26.0% Return on Equity (%) 0 0 0 0 0 ROIC (%) (101) 0 0 0 0 57 133 133 159 201 Leverage Gearing (Net Debt / Equity) Normalised NPAT 158 133 133 159 201 Gearing (ND / (ND + E)) Growth (10.1%) (16.2%) 0.4% 19.3% 26.6% Net Debt / EBITDA EBIT Interest Cover (x) End of Period Shares 57 57 57 57 57 EFPOWA 57 57 57 57 57 Balance Sheet Cash Reported EPS ($) 1.00 2.33 2.33 2.78 3.53 Receivables Normalised EPS ($) 2.78 2.32 2.33 2.78 3.52 Investments Growth (10.0%) (16.4%) 0.2% 19.3% 26.6% Inventories Other Current Assets DPS ($) 2.45 2.52 2.54 2.34 2.54 Total Current Assets Growth 8.9% 2.9% 0.8% (7.7%) 8.3% Net PPE Total Intangibles DPS/EPS payout 245.5% 108.4% 109.1% 84.4% 72.2% Other Non Current Assets Total Non Current Assets Cash Flow Statement FY12 FY13 FY14E FY15E FY16E Total Assets Net Profit for Cashflow 57 133 133 159 201 Creditors Depreciation & Amortisation 24 23 19 20 20 Current Borrowings Non Cash Items - Current Tax Provisions Working Capital Changes 69 (48) 9 (13) (30) Other Current Provisions Other Operating Cashflows 18 (37) 0 0 0 Other Current Liabilities Cashflow from Operating Activities 168 70 161 165 191 Total Current Liabilities Non Current Creditors Net Capex (21) (21) (20) (18) (17) Non Current Borrowings Net Acquisitions (7) (15) 0 0 0 Deferred Tax Liabilities Other Investing cashflows (10) (14) 0 0 0 Other Non Current Provisions Investing Cash Flow (37) (50) (20) (18) (17) Other Non Current Liabilities Total Non Current Liabilities Inc/(Dec) in Borrowings 2 106 0 0 0 Total Liabilities Equity Issued 1 (2) 0 0 0 Equity Dividends Paid (136) (143) (145) (138) (139) Other Equity Other Financing Cashflows 0 0 0 0 0 Reserves Financing Cash Flow (133) (39) (145) (138) (139) Retained Profits Outside Equity Interests Net Cash Flow (2) (20) (5) 9 36 Total Shareholders Equity Net Debt Source: Company reports and J.P. Morgan estimates.
FY12 FY13 FY14E 20.3 24.3 24.3 56.6 24.3 24.3 14.3 17.5 17.2 15.9 19.8 18.9 FY12 4.3% 47.2% 21.9% 35.6% 31.7% FY12 (0.7%) (0.7%) (1.2%) 50.1 FY13 4.5% 35.0% 18.1% 35.7% 28.1% FY13 33.0% 24.8% 58.3% 28.7 FY14E 4.5% 30.0% 17.5% 37.9% 26.6% FY14E 35.5% 26.2% 59.4% 24.8
FY15E FY16E 20.3 16.1 20.3 16.1 14.6 11.7 15.9 12.5 FY15E 4.2% 30.0% 20.5% 44.7% 31.3% FY15E 31.0% 23.7% 46.8% 29.0 FY16E 4.5% 30.0% 24.4% 50.7% 36.4% FY16E 18.0% 15.3% 25.8% 37.1
FY12 FY13 FY14E 68 53 48 189 204 209 101 132 125 15 17 17 374 405 399 60 66 71 207 236 233 62 58 58 329 359 361 703 765 760 100 97 104 46 3 3 78 63 63 38 29 29 262 192 200 20 167 167 35 35 35 1 13 13 56 216 216 318 408 415 121 119 119 0 0 0 (17) (32) (32) 281 271 259 0 0 0 385 357 345 (3) 118 122
FY15E FY16E 57 93 221 248 135 146 17 17 430 505 72 72 229 226 58 58 359 356 789 861 112 122 3 3 63 63 29 29 207 217 167 167 35 35 13 13 216 216 423 433 119 119 0 0 (32) (32) 279 342 0 0 366 428 113 77
433
Colgate-Palmolive (India) Limited

Underweight
www.colgate.co.in
COLG.BO,CLGT IN Price: Rs1,241.15 Price Target: Rs1,220.00
India Cosmetics & Personal Care Latika Chopra, CFA

AC
Company overview Colgate Palmolive (India) is the countrys leading provider of oral care products which include toothpastes, toothpowder, toothbrushes and mouthwashes. The company also provides a range of personal care products under the 'Palmolive' brand. It has about a 56% volume share of the toothpaste market in the country and is a 51% owned subsidiary of Colgate-Palmolive, USA. Investment case We have a cautious view on Colgate India. Despite steady volume growth and market share trends which are supportive of mid-teens top-line growth, earnings growth has been sluggish on account of higher marketing (competitive) spend in recent quarters. Competitive intensity has stepped up in the toothpaste category (from P&G, HUL and GSK) and we think this will keep A&P spending higher and pricing power under check, posing downside risk to near-term margins. In light of this, valuations at 33x FY14E/29x FY15E P/E look demanding and offer limited upside potential in our view. Resilience of the growth outlook We expect mid-teens sales growth for Colgate India for FY14/15 led by high single digit volume growth and mid single digit price/mix growth. In 1HFY14 the company registered 15% sales growth. However, earnings fell -12% over 1H on lower margins (due to higher A&P spend) and higher tax rate. We believe margin growth will be under pressure considering heightened competitive activity in toothpaste category post P&Gs recent entry and more aggression from other existing players like HUL and P&G. Pricing power could also be challenged in a more aggressive competitive scenario. Risks to the earnings outlook in 2014 This stock has seen significant earnings downgrades in recent quarters by us and the street. Post Q2 results we reduced our EPS estimates for FY14/15 by 5-6%. Any deceleration in vol/price/mix growth (as seen in other FMCG categories in recent quarters on account of weak macro/increased competition) and higher than expected competitive intensity pose key downside risks to our growth assumptions for FY14/15. Price target, and risks to our investment view Our Sep14 target price of Rs1220 is based on a 26x P/E which is in line with the past five-year average P/E multiple for the company. Key upside risks to our rating and target price are better than anticipated cost savings, higher-than expected volume growth and a benign competitive environment.
(91-22) 6157-3584 latika.chopra@jpmorgan.com J.P. Morgan India Private Limited
Price Performance
1,600 1,500 Rs 1,400 1,300 1,200
COLG.BO share price (Rs) NIFTY (rebased)
Abs Rel
YTD -20.4% -24.8%
1m -3.3% -8.5%
3m -1.7% -13.8%
12m -5.1% -13.7%
Company Data Shares O/S (mn) Market Cap (Rs mn) Market Cap ($ mn) Price (Rs) Date Of Price 3M - Avg daily volume (mn) 3M - Avg daily value ($ mn) NIFTY Fiscal Year End
136 168,788 2,739 1,241.15 06 Nov 13 0.16 3.3 6253.15 Mar
Colgate-Palmolive (India) Limited (Reuters: COLG.BO, Bloomberg: CLGT IN) Rs in mn, year-end Mar FY11A FY12A FY13E FY14E Revenue (Rs mn) 22,206 26,239 30,841 35,691 Net Profit (Rs mn) 4,026 4,465 4,952 5,237 EPS (Rs) 29.60 32.83 36.42 38.51 Revenue growth (%) 13.2% 18.2% 17.5% 15.7% EPS growth (%) (4.2%) 10.9% 10.9% 5.8% ROE 113.4% 109.0% 107.1% 102.5% P/E (x) 41.9 37.8 34.1 32.2 EV/EBITDA (x) 32.2 29.1 25.4 24.1 Dividend Yield 2.1% 2.3% 2.6% 2.8%
FY15E 40,913 5,989 44.04 14.6% 14.4% 106.8% 28.2 20.6 3.2%
434
Colgate-Palmolive (India) Limited: Summary of Financials

Income Statement Rs in millions, year end Mar Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar 22,206 26,239 30,841 35,691 40,913 EBIT 13.2% 18.2% 17.5% 15.7% 14.6% Depr. & amortization 5,273 5,877 6,672 7,022 8,184 Change in working capital 5.8% 11.4% 13.5% 5.2% 16.6% Taxes 4,931 5,484 6,235 6,551 7,688 Cash flow from operations 7.0% 11.2% 13.7% 5.1% 17.3% 22.2% 20.9% 20.2% 18.4% 18.8% Capex 269 400 380 432 461 Disposal/(purchase) 5,200 5,884 6,615 6,983 8,149 Net Interest 7.9% 13.2% 12.4% 5.6% 16.7% Other (1,174) (1,419) (1,663) (1,746) (2,159) Free cash flow 22.6% 24.1% 25.1% 25.0% 26.5% 4,026 4,465 4,952 5,237 5,989 Equity raised/(repaid) (4.2%) 10.9% 10.9% 5.8% 14.4% Debt raised/(repaid) 136 136 136 136 136 Other 29.60 32.83 36.42 38.51 44.04 Dividends paid (4.2%) 10.9% 10.9% 5.8% 14.4% Beginning cash Ending cash DPS Balance sheet Ratio Analysis Rs in millions, year end Mar FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar Cash and cash equivalents 3,951 3,098 4,288 4,798 5,448 EBITDA margin Accounts receivable 753 873 812 1,173 1,345 Operating margin Inventories 1,537 2,177 1,853 2,339 2,666 Net margin Others 723 1,089 877 1,107 1,267 Current assets 7,060 7,237 7,930 9,517 10,826 Sales per share growth LT investments 291 471 371 371 371 Sales growth Net fixed assets 2,633 3,238 3,826 3,756 4,260 Net profit growth Total Assets 10,153 11,067 12,352 13,868 15,682 EPS growth Liabilities Interest coverage (x) Short-term loans Payables 0 0 0 0 0 Net debt to equity Others 6,222 6,634 7,814 8,899 10,149 Sales/assets Total current liabilities 6,222 6,634 7,814 8,899 10,149 Assets/equity Long-term debt 1 0 0 0 0 ROE Other liabilities - ROCE Total Liabilities 6,222 6,634 7,814 8,899 10,149 Shareholder's equity 3,840 4,354 4,896 5,327 5,890 BVPS (Rs) 28.24 32.02 36.00 39.17 43.31 Source: Company reports and J.P. Morgan estimates. FY11 4,931 342 (580) (1,042) 3,579 (411) 2 269 1,009 2,962 (45) (16) (3,168) 3,001 3,951 25.65 FY11 23.7% 22.2% 18.1% 13.2% 13.2% (4.2%) (4.2%) NM (102.9%) 2.3 267.2% 113.4% 106.8% FY12 5,484 393 (940) (911) 4,028 (1,022) 6 400 914 2,709 0 (15) (3,965) 3,951 3,098 29.06 FY12 22.4% 20.9% 17.0% 18.2% 18.2% 10.9% 10.9% NM (71.2%) 2.5 259.0% 109.0% 101.6% FY13E 6,235 437 1,375 (1,896) 6,149 (1,547) 26 380 0 4,343 0 0 (4,276) 3,098 3,450 32.54 FY13E 21.6% 20.2% 16.1% 17.5% 17.5% 10.9% 10.9% NM FY14E 6,551 470 8 (1,746) 5,716 (1,000) 0 432 600 4,392 0 0 (4,806) 4,288 4,798 35.34 FY14E 19.7% 18.4% 14.7% 15.7% 15.7% 5.8% 5.8% NM FY15E 7,688 496 591 (2,159) 7,077 (1,000) 0 461 0 5,738 0 0 (5,426) 4,798 5,448 39.90 FY15E 20.0% 18.8% 14.6% 14.6% 14.6% 14.4% 14.4% NM
(87.6%) (90.1%) (92.5%) 2.6 2.7 2.8 253.2% 256.5% 263.4% 107.1% 102.5% 106.8% 100.9% 96.1% 100.7%
435
Dongbu Insurance
Underweight
www.idongbu.com/Index.jsp?url=/EnMain.do?lang=eng
South Korea Insurance - Non-life MW Kim

AC
Company overview Dongbu Insurance (Dongbu) is the third-largest non-life insurer in Korea, with a market share of 15.4% in terms of written premiums. The companys business portfolio consists of long-term (66%), auto (26%) and general (8%) insurance products. The company has shown strong profitability backed by strict cost control. Investment case Notably, 65% of total premiums and 60%+ of net profit come from the life business thanks to strong volume growth of high-margin bundled healthcare insurance sales over 2008-2011. However, with more than 50% penetration in private health insurance, fast increases in claims, but limited pricing adjustments, and existing policyholders gradual migration to cheap private health insurance, the mortality/morbidity profit base should narrow during 2014, in our view. Resilience of the growth outlook We believe overall 2014 top-line growth will be low-single-digit or negative, as the industry is mature. That said, Dongbus growth should be slightly better than peers due to the companys relatively strong balance sheet among second-tier insurers.
Price Performance
56,000 52,000 W 48,000 44,000 40,000
Abs Rel
YTD 6.9% 6.1%
1m 6.7% 5.9%
3m -2.8% -8.4%
12m -4.1% -8.5%
Risks to the earnings outlook in 2014 The companys mortality/morbidity margin looks well managed at ~25%/20%, similar to SFM. However, in light of competitors risk loss ratio deterioration trend, we expect mortality/morbidity margin compression at Dongbu during 2014. A delayed auto premium hike would also pressure earnings, considering the companys aggressive auto insurance underwritings for the last 30 months (auto insurance market share: Dongbu 17%, HMF 16%, LIG 13%). Price target, and risks to our investment view Our Dec-14 PT of W41,000 is a 20% discount to the implied FY14E P/BV of 1.0x based on our sum-of-the-parts valuation targets of -0.9x FY14E P/BV for the non-life business and 1.0x FY14E P/EV for the life business. Key upside risks include: (1) better-than-expected equity market performance; (2) alleviated regulatory control in the long-term segment, with better product sales in private health insurance; and (3) a milder-than-expected worsening in the auto loss ratio.
Company Data 52-week Range (W) Market Cap (W bn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (W) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (W mn) 3M - Avg daily value ($ mn) KOSPI Exchange Rate
52,300-40,400 3,476 3,276 71 Mar 49,100 06 Nov 13 62.0% 0.13 6,169.94 5.8 2013.67 1,061.15
Dongbu Insurance (Reuters: 005830.KS, Bloomberg: 005830 KS) W in mn, year-end Mar FY12A FY13E Direct Premium Written (W bn) 9,004 7,273 DPW growth 7.6% (19.2%) Net Profit (W bn) 413 240 EPS (W) 5,837 3,386 EPS growth 2.5% (42.0%) BVPS (W) 38,932 37,865 DPS (W) 1,250 800 P/E (x) 8.4 14.5 P/BV (x) 1.3 1.3 ROE 16.7% 9.6% Dividend Yield 2.5% 1.6%
FY14E 10,628 46.1% 398 5,622 66.0% 43,175 1,100 8.7 1.1 9.1% 2.2%
FY15E 11,924 12.2% 463 6,536 16.3% 49,352 1,400 7.5 1.0 4.7% 2.9%
436
Dongbu Insurance: Summary of Financials

W in millions, year end Mar Income statement Net premium earned % change Y/Y Direct premium written % change Y/Y General % change Y/Y LT % change Y/Y Auto % change Y/Y Total incurred losses General LT Auto Underwriting expense Underwriting profit Investment profit Net profit before tax Income tax Net profit % change Y/Y FY12 9,004 7.6% 9,004 7.6% 838 13.2% 6,782 7.6% 2,072 2.4% (7,544) (243) (5,705) (1,596) (1,593) (133) 700 547 (134) 413 2.5% FY13E 7,273 (19.2%) 7,273 (19.2%) 689 (17.8%) 5,620 (17.1%) 1,628 (21.4%) (6,209) (193) (4,730) (1,286) (1,303) (240) 558 315 (75) 240 (42.0%) FY14E 10,628 46.1% 10,628 46.1% 973 41.3% 8,444 50.2% 2,239 37.5% (9,079) (253) (7,081) (1,744) (1,890) (341) 866 525 (127) 398 66.0% FY14E 85.4% 65.0% 86.1% 86.6% 17.8% 103.2% 4.1% FY14E 5,622 66.0% 43,175 1,100 19.6% FY15E 11,924 12.2% 11,924 12.2% 1,052 8.1% 9,638 14.2% 2,351 5.0% (10,210) (274) (8,111) (1,825) (2,121) (407) 1,017 611 (148) 463 16.3% FY15E 85.6% 65.0% 86.4% 86.3% 17.8% 103.4% 4.1% FY15E 6,536 16.3% 49,352 1,400 21.4% Balance sheet Cash and cash equivalents Loan Stock Bond Overseas Securities Real Estate Invested asset Total Assets Policy reserve Unearned premium reserve Total Liabilities Paid In Capital Capital Surplus Retained Earnings Catastrophe reserve Capital Adjustments Total shareholders' equity ROE decomposition ROA ROE FY12 1,049 4,168 1,388 8,766 875 1,194 17,439 21,189 8,324 1,450 18,433 35 38 2,066 544 211 2,756 FY12 2.1% 16.7% FY13E 469 4,484 2,064 9,430 1,144 1,257 18,761 24,365 8,802 1,696 21,684 35 38 2,249 583 211 2,681 FY13E 1.2% 9.6% FY14E 570 5,450 2,508 11,463 1,391 1,528 22,804 29,616 9,318 1,985 26,559 35 38 2,569 640 211 3,057 FY14E 1.0% 9.1% FY15E 667 6,376 2,935 13,410 1,627 1,787 26,678 34,646 9,797 2,322 31,152 35 38 2,933 701 211 3,494 FY15E 0.5% 4.7%
Ratio analysis FY12 FY13E Claim Loss ratio 83.8% 85.4% General 66.9% 66.7% LT 85.0% 85.9% Auto 82.7% 86.9% Expense ratio 17.7% 17.9% Combined ratio 101.5% 103.3% Investment yield 4.3% 4.1% Per share data FY12 FY13E EPS (W) 5,837 3,386 % change Y/Y 2.5% (42.0%) BVPS (W) 38,932 37,865 DPS (W) 1,250 800 Payout ratio 21.4% 23.6% Source: Company reports and J.P. Morgan estimates.
437
DongFeng Motor Co., Ltd.

Underweight
www.dfmg.com.cn/EN/Index.aspx
Company overview DongFeng Motor is one of the top auto producers in China, operating a comprehensive auto-related business, comprising passenger vehicles, commercial vehicles, auto engines and auto parts. Investment case Our reservations on DFM are based on its lack of capital management, which results in falling ROE. Despite its seemingly inexpensive valuation and high cash to market cap ratio (>30%), we see DFM as a value trap and believe it will continue to trade at single-digit multiples, as it has over the past three years. Resilience of the growth outlook We believe DFM is a proxy for the overall PV market in China, as DFM has diversified models across sedan, SUV and commercial vehicles. Nonetheless, we forecast growth in the PV market will decelerate with an increasing base. Thus, we believe investors should focus on specific sub-segments that will deliver superior growth, i.e., SUV and premium brands (we prefer Great Wall and Brilliance China). Risks to the earnings outlook in 2014 Key upside risks in 2014 include: 1) better-than-expected sales of Japanese cars in China, including DFMs Nissan and Honda vehicles, and 2) stronger-than-expected margin improvement for its passenger and commercial vehicle businesses. Price target, and risks to our investment view We are UW with a PT of HK$8.5 (June-14) based on FY14E P/E of 6.5x and DCF analysis. This multiple is the mid-range of DFMs historical trough valuation of around 5-8x forward P/E. Given our expectation that DFM will undergo a de-rating (due to competition from entry level luxury brands and weak truck demand), we believe that applying an average trough valuation is reasonable. In our DCF analysis, our key assumptions include a risk-free rate of 5%, risk premium 6%, WACC of 12% and terminal growth of 2%. Risks include: 1) better-than-expected ROE (we forecast DongFengs ROE at 20.7%/15.5%/13.4% in 2013/14/15E, from 17.6% in 2012 and 24.7% in 2011) and 2) a higher-than-expected dividend payout.
DongFeng Motor Co., Ltd. (Reuters: 0489.HK, Bloomberg: 489 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E Revenue (Rmb mn) 131,441 124,036 138,695 EBIT (Rmb mn) 14,284 12,299 13,980 Net Profit (Rmb mn) 10,481 9,092 10,207 EPS (Rmb) 1.22 1.06 1.18 DPS (Rmb) 0.18 0.18 0.18 Revenue growth (%) 7.4% (5.6%) 11.8% EPS growth (%) (4.6%) (13.3%) 12.3% ROE 24.7% 17.6% 20.7% P/E (x) 7.2 8.3 7.4 P/BV (x) 1.6 1.4 1.3 Dividend Yield 2.0% 2.0% 2.0%

AC
Price Performance
13 12 HK$ 11 10 9 8
Abs Rel
YTD -6.5% 1.1%
1m -4.4% -4.8%
3m 3.7% -5.7%
12m 11.6% 13.2%
13.26-9.36 8,616 75,807 12,426 11.18 06 Nov 13 100.0% 13.56 19.6 1,0637.15 7.75
FY14E 145,287 13,496 9,774 1.13 0.17 4.8% (4.2%) 15.5% 7.8 1.2 1.9%
FY15E 151,872 13,521 9,786 1.14 0.17 4.5% 0.1% 13.4% 7.7 1.0 1.9%
438
DongFeng Motor Co., Ltd.: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Profit % change Y/Y Gross margin Operating Profit % change Y/Y Operating Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Net margin Wt. Avg. Shares (MM) Wt. Avg. EPS (Rmb) % change Y/Y Balance sheet Rmb in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets Cash flow statement FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 124,036 138,695 145,287 151,872 Profit before tax (5.6%) 11.8% 4.8% 4.5% Depreciation & amortization 23,876 27,011 28,263 29,518 Change in working capital (9.5%) 13.1% 4.6% 4.4% Others 19.2% 19.5% 19.5% 19.4% Cash flow from operations 12,580 12,645 13,699 13,929 (12.5%) 0.5% 8.3% 1.7% Purchase of fixed assets 9.9% 10.1% 9.3% 8.9% Others (288) (416) (328) (337) Cash flow from investment 12,698 13,990 13,575 13,591 (11.6%) 10.2% (3.0%) 0.1% Equity raised/(repaid) (2,919) (3,358) (3,394) (3,398) Debt raised/(repaid) 23.0% 24.0% 25.0% 25.0% Other 9,092 10,207 9,774 9,786 Dividends paid (13.3%) 12.3% (4.2%) 0.1% Cash flow from financing 7.1% 8.3% 6.6% 6.2% Beginning cash 8,616 8,616 8,616 8,616 Ending cash 1.06 1.18 1.13 1.14 (13.3%) 12.3% (4.2%) 0.1% Ratio Analysis FY11 FY12 FY13E FY14E FY15E Rmb in millions, year end Dec 44,747 33,032 46,592 50,681 55,278 Gross margin 21,052 21,957 24,046 25,189 26,331 Operating margin 12,511 11,386 13,769 14,428 15,085 Net margin 5,706 8,016 8,028 8,040 8,052 84,016 74,391 92,435 98,337 104,745 Sales growth Net profit growth LT investments 1,832 1,916 1,916 1,926 1,936 Gross profit growth Net fixed assets 21,578 25,823 9,919 14,173 18,356 Operating profit growth Other LT assets 10,107 12,680 12,680 12,680 12,680 ROE Total Assets 117,533 114,810 116,950 127,117 137,717 Short-term loans 1,019 0 5,493 4,493 4,493 Payables 34,584 30,113 38,489 40,406 42,346 Others 29,112 24,951 38,881 40,614 42,348 Total current liabilities 64,715 55,064 82,863 85,514 89,186 Long term debt 2,820 1,328 2,256 2,256 2,256 Other LT liabilities 414 785 422 430 438 Total non-current liabilities 3,234 2,113 2,678 2,686 2,694 Total Liabilities 67,949 57,177 85,541 88,200 91,880 Shareholders' equity 46,394 53,918 57,574 65,797 74,117 Minorities 3,190 3,715 3,490 3,640 3,790 Source: Company reports and J.P. Morgan estimates. FY11 131,441 7.4% 26,390 0.1% 20.1% 14,384 (0.9%) 10.9% (402) 14,361 (1.5%) (3,401) 23.7% 10,481 (4.6%) 7.9% 8,616 1.22 (4.6%) FY11 14,284 3,114 (710) 9,216 (6,072) 5,537 (535) 0 (701) 156 (2,644) (3,189) 25,889 31,381 FY12 FY13E FY14E FY15E 12,299 13,980 13,496 13,521 2,769 571 746 817 8,095 679 610 (50) 308 12,176 11,844 11,267 (7,074) (5,000) (5,000) (5,000) 4,155 0 0 0 (2,919) (5,000) (5,000) (5,000) 0 (2,965) 293 (2,210) (4,882) 31,381 23,888 0 928 (1,000) (1,764) (1,836) 23,888 29,229 0 0 (1,000) (1,755) (2,755) 29,229 33,318 0 0 0 (1,670) (1,670) 33,318 37,915
FY11 20.1% 10.9% 7.9%
FY12 FY13E FY14E FY15E 19.2% 19.5% 19.5% 19.4% 9.9% 10.1% 9.3% 8.9% 7.1% 8.3% 6.6% 6.2%
7.4% (5.6%) 11.8% 4.8% 4.5% (4.6%) (13.3%) 12.3% (4.2%) 0.1% 0.1% (9.5%) 13.1% 4.6% 4.4% (0.9%) (12.5%) 0.5% 8.3% 1.7% 24.7% 17.6% 20.7% 15.5% 13.4%
439
Far East Hospitality Trust

Underweight
www.feht.com.sg/
FAEH.SI,FEHT SP Price: S$0.89 Price Target: S$0.80
Singapore REITs Joy Wang

AC
Company overview Far East Hospitality Trust (FEHT) is a REIT comprised of a portfolio of 12 properties (eight hotels and four serviced residences), all located in Singapore. FEHT is managed and sponsored by Far East Organization, with Far East owning 37% of the units. Investment case We remain cautious on the Singapore hospitality sector given supply dynamics in the next three years, coupled with slowing demand trends. This is also seen through the trust's 3Q13 earnings, where 3Q13 DPU missed forecast estimates by 8%. Given our cautious stance on the hospitality sector and our view of rising interest rate expectations, we forecast the trusts DPU to decline by a CAGR of 2% from FY13E15E. Resilience of the growth outlook The Singapore hospitality sector was challenged in 2013 by weak corporate demand, incremental room supply and continued labour cost pressures. Whilst there may be modest improvements in demand given views of an economic recovery, we believe the market will need time to digest the incremental 6,100 room supply coming onstream in the next two years. Risks to the earnings outlook in 2014 We note that the market has already priced in a weak outlook for the sector with Street lowering FY13/FY14E DPU by 6-9% since May-13. 3Q13 results, while missing forecast estimates, met both JPM and Street expectations. Risks to the earnings outlook could come from longer-than-expected low interest rate conditions, supporting yield stocks, or a stronger-than-expected rebound in overall demand trends. Price target, and risks to our investment view We remain Underweight on FEHT with end Jun-14 price target at S$0.80/share, based on the average of our DDM (6.8% discount rate, 1% growth rate) and RNAV estimates. Key upside risks to our rating and price target stem from better-thanexpected visitor arrivals and therefore better growth in hotel room rates.
(65) 6882-2312 joy.qq.wang@jpmorgan.com J.P. Morgan Securities Singapore Private Limited

Price Performance
1.20 1.10 S$ 1.00 0.90 0.80
FAEH.SI share price (S$) FTSTI (rebased)
Abs Rel
YTD -11.9% -13.1%
1m -1.1% -3.2%
3m -4.8% -4.2%
12m -11.1% -17.3%
1,605 1,421 1,144 0.89 06 Nov 13 1.02 0.90 0.7 3205.54 1.24 Dec
Far East Hospitality Trust (Reuters: FAEH.SI, Bloomberg: FEHT SP) S$ in mn, year-end Dec FY11A FY12A FY13E Revenue (S$ mn) 104 42 124 Net property income (S$ mn) 95 39 113 Distributable Profit (mn) 76 96 98 EPU (S$) 0.04 0.01 0.05 DPU (S$) 0.05 0.02 0.06 BVPU (S$) 0.93 0.97 0.91 Revenue growth (%) 12.4% (59.6%) 193.1% DPU growth (%) 16.0% (55.6%) 174.0% P/E (x) 21.4 87.6 18.4 P/BV (x) 1.0 0.9 1.0 Dividend Yield 5.3% 2.4% 6.5% Gearing 29.9% 27.6% 30.3% RNAV/Share Source: Company data, Bloomberg, J.P. Morgan estimates.
FY14E 130 118 98 0.05 0.06 0.88 5.1% (3.8%) 17.8 1.0 6.2% 30.9% 0.77
FY15E 135 123 100 0.05 0.06 0.92 3.6% (0.3%) 17.9 1.0 6.2% 29.9% -
440
Far East Hospitality Trust: Summary of Financials

Income Statement S$ in millions, year end Dec FY12 Revenues 42 % change Y/Y (59.6%) EBIT 22 % change Y/Y (73.3%) EBIT Margin (%) 52.5% Net Interest (4) Earnings before tax 16 % change Y/Y (75.6%) Tax 0 as % of EBT 0.0% Net income (reported) 16 % change Y/Y (75.6%) Core net profit 16 % change Y/Y (75.6%) Shares outstanding 1,607 EPS (reported) (S$) 0.01 % change Y/Y (75.6%) DPU (reported) (S$) 0.02 % change Y/Y (55.6%) Balance sheet S$ in millions, year end Dec FY12 Cash and cash equivalents 36 Accounts receivable 21 Inventories Others 0 Current assets 57 LT investments Net fixed assets 2,158 Total Assets 2,215 Liabilities ST Loans Payables 1 Others 6 Total current liabilities 8 Long-term debt 647 Other liabilities 7 Total Liabilities 662 Shareholders' equity 1,553 BVPS 0.97 Source: Company reports and J.P. Morgan estimates. FY13E 124 193.1% 98 341.5% 79.0% (13) 85 422.6% 0 0.0% 85 422.6% 85 422.6% 1,765 0.05 375.8% 0.06 174.0% FY13E 52 21 0 73 2,333 2,406 1 6 8 782 7 797 1,609 0.91 FY14E 130 5.1% 105 7.7% 81.0% (17) 88 4.3% 0 0.0% 88 4.3% 88 4.3% 1,775 0.05 3.7% 0.06 (3.8%) FY14E 52 21 0 73 2,289 2,363 1 6 8 782 7 797 1,566 0.88 FY15E 135 3.6% 109 3.7% 81.0% (21) 88 (0.1%) 0 0.0% 88 (0.1%) 88 (0.1%) 1,785 0.05 (0.7%) 0.06 (0.3%) FY15E 52 21 0 73 2,371 2,444 1 6 8 782 7 797 1,647 0.92 Cash flow statement S$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPU reported Ratio Analysis S$ in millions, year end Dec EBIT Margin Net margin FY12 22 0 (8) 9 17 0 21 645 647 (4) 0 0 36 0.02 FY12 52.5% 38.4% FY13E 98 0 0 24 109 0 122 146 135 (13) (96) 36 52 0.06 FY13E 79.0% 68.5% FY14E 105 0 0 26 115 0 131 0 0 (17) (98) 52 52 0.06 FY14E 81.0% 68.0% FY15E 109 0 0 30 119 0 140 0 0 (21) (98) 52 52 0.06 FY15E 81.0% 65.6%
Sales growth Net profit growth EPS growth Interest coverage (x) Net debt to total capital Net debt to equity Sales/assets (x) Assets/equity (x) ROE ROCE
(59.6%) (75.6%) (75.6%) 5.4 28.3% 39.4% 0.0 1.4 1.1% 1.0%
193.1% 422.6% 375.8% 7.5 31.2% 45.4% 0.1 1.5 5.4% 4.3%
5.1% 4.3% 3.7% 6.3 31.8% 46.6% 0.1 1.5 5.6% 4.4%
3.6% (0.1%) (0.7%) 5.3 30.7% 44.3% 0.1 1.5 5.5% 4.6%
441
Far EasTone Telecom

Underweight
www.fetnet.net/cs/Satellite/eCorporate/ecoInvestorService
Taiwan Wireless Services Lucy Liu

AC
Company overview Far EasTone (FET) is the third-largest wireless operator in Taiwan with a subscriber market share of 23% as of Dec-12, according to NCC statistics. It also has a fixedline operation focusing on the enterprise market, which contributes over 10% of the group's total revenue. Douglas Hsus Far Eastern Group is FETs largest shareholder with a 45% stake. NTT DOCOMO also holds a 4.7% stake in the company. Investment case We expect to see more intense competition with two new entrants, Ting Hsin and Hon Hoi, joining the game in 2015. We see earnings downside to incumbents, particularly to FET given its high exposure to mobile, starting from 2015E, which we believe will pose much downside to dividends. Reasons of investing in Taiwan telcos in the past (earnings stability + yield) will no longer be the case, so that we expect to see multiple compression from the high end of the regional comps group. Resilience of the growth outlook Due to its high exposure to mobile business, FET's growth outlook is particularly vulnerable to the potential increase in competition, i.e. subscriber market share loss and pricing pressure on voice/SMS.
12m -4.6% -19.0%
(852) 2800-8566 lucy.y.liu@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
85 80 NT$ 75 70 65 60
Abs Rel
YTD -12.6% -19.1%
1m -11.1% -10.1%
3m -13.3% -16.3%
Risks to the earnings outlook in 2014 Earlier than expected increase in competition in 2014 may present downside risk to our earnings forecasts for 2014. Price target, and risks to our investment view Our price target is based upon a 10-year DCF model. We assume a WACC of 8.3% derived from a beta of 0.9, cost of debt of 2.5%, equity risk premium assumption of 6.5% and a risk-free rate of 3.0% with 5.0% target gearing. Our Dec-14 DCF-based price target of NT$56 implies a P/E of 15.3x/13.7x and EV/EBITDA of 6.4x/6.8x for FY13E/FY14E, with an implied dividend yield of 7.8% for FY14E. Upside risks include better-than-expected market competition and stronger-than-expected ARPU growth.
Company Data 52-week Range (NT$) Market Cap (NT$ mn) Market Cap ($ mn) Shares O/S (mn) Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (NT$ mn) 3M - Avg daily value ($ mn) TSE Exchange Rate Price (NT$) Date Of Price
82.43-59.60 210,825 7,163 3,259 53.0% 7.03 481.19 16.3 8281.97 29.43 64.70 06 Nov 13
Far EasTone Telecommunications Co., Ltd. (Reuters: 4904.TW, Bloomberg: 4904 TT) NT$ in mn, year-end Dec FY11A FY12A FY13E FY14E FY15E Revenue (NT$ mn) 75,749 86,745 89,329 93,501 91,970 EBITDA (NT$ mn) 22,483 24,372 25,647 27,407 26,515 EBITDA Growth 2.1% 8.4% 5.2% 6.9% (3.3%) Net Profit (NT$ mn) 8,881 10,600 11,956 13,299 11,012 EPS (NT$) 2.73 3.25 3.67 4.08 3.38 EPS growth (%) 0.4% 19.4% 12.8% 11.2% (17.2%) DPS (NT$) 3.00 3.50 3.95 4.39 3.64 EV/EBITDA (x) 8.8 7.9 7.3 7.6 7.8 P/E (x) 23.7 19.9 17.6 15.9 19.1 Dividend Yield 4.6% 5.4% 6.1% 6.8% 5.6% FCF to mkt cap (%) 6.6% 7.0% 6.7% 6.8% 6.5%
442
Far EasTone Telecom: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 75,749 19.4% 22,483 2.1% 11,517 3.1% 15.2% 67 10,875 (0.8%) (1,948) 17.9% 8,881 0.4% 3,259 2.73 0.4% FY12 86,745 14.5% 24,372 8.4% 13,749 19.4% 15.8% 109 13,005 19.6% (2,375) 18.3% 10,600 19.4% 3,259 3.25 19.4% FY13E 89,329 3.0% 25,647 5.2% 15,328 11.5% 17.2% 131 14,717 13.2% (2,687) 18.3% 11,956 12.8% 3,259 3.67 12.8% FY14E 93,501 4.7% 27,407 6.9% 17,222 12.4% 18.4% (260) 16,370 11.2% (2,989) 18.3% 13,299 11.2% 3,259 4.08 11.2% FY15E 91,970 (1.6%) 26,515 (3.3%) 14,504 (15.8%) 15.8% (357) 13,555 (17.2%) (2,475) 18.3% 11,012 (17.2%) 3,259 3.38 (17.2%)
Cash flow statement NT$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis NT$ in millions, year end Dec EBITDA margin Operating margin Net margin
FY11 FY12 11,517 13,749 10,236 9,893 1,236 810 (1,948) (2,375) 22,646 23,596
FY13E 15,328 9,589 704 (2,687) 24,350
FY14E 17,222 9,455 858 (2,989) 25,649
FY15E 14,504 9,574 434 (2,475) 24,729
(8,665) (8,751) (10,120) (11,248) (11,063) 23 71 0 0 0 67 109 131 (260) (357) 97 88 3,495 2,334 2,369 13,981 14,845 14,230 14,402 13,665 (3,400) 56 5,011 15,000 0 (1,809) (2,129) 74 82 68 (8,196) (9,834) (11,405) (12,864) (14,308) 9,162 9,906 13,002 24,406 16,059 9,906 13,002 24,406 16,059 17,853 3.00 3.50 3.95 4.39 3.64 FY11 29.7% 15.2% 11.7% 19.4% 19.4% 0.4% 0.4% NM FY12 28.1% 15.8% 12.2% 14.5% 14.5% 19.4% 19.4% NM FY13E 28.7% 17.2% 13.4% 3.0% 3.0% 12.8% 12.8% NM FY14E 29.3% 18.4% 14.2% FY15E 28.8% 15.8% 12.0%
Balance sheet NT$ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E Cash and cash equivalents 9,906 13,002 24,406 16,059 17,853 Accounts receivable 6,641 7,294 7,511 7,862 7,733 Inventories 1,985 2,226 2,292 2,399 2,360 Others 2,750 3,699 3,728 3,776 3,758 Current assets 25,168 28,562 40,279 32,438 34,046 . Sales per share growth LT investments 570 1,183 3,183 3,183 3,183 Sales growth Net fixed assets 51,657 51,044 44,711 42,862 40,710 Net profit growth Total Assets 95,431 98,167 104,820 121,700 118,719 EPS growth . Liabilities Interest coverage (x) Short-term loans 2,946 950 950 950 950 Payables 5,397 6,627 7,092 7,704 7,854 Net debt to equity Others 11,743 14,199 14,751 15,502 15,601 Sales/assets Total current liabilities 20,085 21,777 22,794 24,157 24,405 Assets/equity . ROE Long-term debt 171 97 5,107 20,107 20,107 ROCE Other liabilities 1,895 2,124 2,124 2,124 2,124 Total Liabilities 22,654 24,492 30,520 46,883 47,131 Shareholder's equity 72,776 73,675 74,300 74,817 71,588 BVPS (NT$) 22.09 22.38 22.55 22.68 21.67 Source: Company reports and J.P. Morgan estimates.
4.7% (1.6%) 4.7% (1.6%) 11.2% (17.2%) 11.2% (17.2%) 105.3 74.2
(8.6%) (15.6%) (24.0%) 7.3% 5.2% 0.8 0.9 0.9 0.8 0.8 134.8% 133.6% 138.7% 153.7% 166.4% 12.4% 14.6% 16.3% 18.0% 15.2% 12.5% 15.0% 16.2% 16.0% 12.6%
443
Fletcher Building Ltd

Underweight
www.fletcherbuilding.com/
FBU.NZ,FBU NZ Price: NZ$9.50 Price Target: NZ$8.00
New Zealand Building Materials Jason Steed

AC
Company overview FBU is a construction company primarily exposed to the New Zealand and Australian construction markets. In New Zealand, the companys operations are fully integrated, running from the production of building products (e.g. plasterboard, insulation, roof tiles) and construction materials (e.g. cement, concrete, steel), through to homebuilding and non-residential construction. It also has operations in North America, Asia and Europe, which together accounted for 12% of revenues and 14% of EBIT in FY13. Investment case Over the past year, the Canterbury Rebuild in New Zealand has gathered momentum. This has, at least in part, driven FBUs positive share price performance. While the Rebuild will have a significant positive effect on near-term earnings, we remain of the opinion that the current share price is over-capitalising the earnings associated with the programme. Resilience of the growth outlook In early 2013, FBU announced a multi-year transformation programme FBUnite which will focus on extracting benefits from consolidating common functions and driving operational excellence. Benefits from FBUnite are expected from FY15 onwards, with near-term savings likely to be offset by investment in the programme. Risks to the earnings outlook in 2014 At FBUs May Investor Day, management discussed at length the importance of the Canterbury CBD rebuild being phased to match the wind-down in residential work. Since then, management has noted a degree of apprehension around this point, as the de-bottlenecking of bureaucracy appears to be taking longer than expected. Price target, and risks to our investment view Our Price Target is calculated on an evenly-weighted combination of our Jun-14 Sum-of-Parts (SoP) and Group DCF valuations, and adjusted for grossed up dividends where applicable (see datasheet). The upside risks to our Price Target include: a faster-than-expected ramp-up in the CBD phase of the Canterbury Rebuild; faster-than-expected cost savings from the FBUnite programme; weakening of the NZ$; a strong and sustained rebound in steel prices; and a material turnaround in Australian construction activity in the near term.
(61-2) 9003-8609 jason.h.steed@jpmorgan.com J.P. Morgan Securities Australia Limited
Price Performance
10.0 9.0 NZ$ 8.0 7.0
FBU.NZ share price (NZ$) NZSE50 (rebased)
Abs Rel
YTD 13.2% -8.4%
1m 0.4% -3.5%
3m 12.8% 4.7%
12m 33.2% 7.3%
Company Data Shares O/S (mn) Market Cap (NZ$ mn) Market Cap ($ mn) Price (NZ$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (NZ$ mn) 3M - Avg daily value ($ mn) NZSE50 Exchange Rate Fiscal Year End
686 6,517.92 5,450.67 9.50 06 Nov 13 1.87 17.09 14.3 4938.70 1.20 Jun
Fletcher Building Limited (Reuters: FBU.NZ, Bloomberg: FBU NZ) Year-end Jun (NZ$) FY12A FY13A FY14E Revenue (NZ$ mn) 8,839 8,517 9,342 EBITDA (NZ$ mn) 786 789 848 Net Profit (NZ$ mn) 185 326 365 EPS (NZ$) 0.27 0.48 0.53 P/E (x) 35.0 20.0 17.8 EV/EBITDA (x) 10.1 9.7 8.9 DPS (NZ$) 0.34 0.34 0.35 Dividend Yield 3.6% 3.6% 3.6% Normalised EPS (NZ$) 0.47 0.48 0.53 Normalised EPS Growth (18.4%) 2.2% 11.9% Normalised PE 20.4 20.0 17.8
FY15E 10,181 992 476 0.69 13.7 7.5 0.42 4.4% 0.69 30.5% 13.7
FY16E 10,694 1,035 508 0.74 12.8 7.0 0.45 4.7% 0.74 6.7% 12.8
444
Fletcher Building Ltd: Financial Summary

NZ$ in millions, year end Jun Profit And Loss Revenue Revenue growth Operating Expenses EBITDA EBITDA growth EBITDA margin Amortisation Depreciation EBIT EBIT growth EBIT margin Net Interest Pre-Tax Profit Tax Tax Rate Minorities Abnormals (post tax) Reported NPAT Normalised NPAT Growth End of Period Shares EFPOWA Reported EPS ($) Normalised EPS ($) Growth DPS ($) Growth DPS/EPS payout Cash Flow Statement EBITDA Net Interest (Paid)/Recd Tax Paid (Inc)/Dec in Working Capital Other Operating Items Operating Cash Flow Net Capex Net Acquisitions Other Investing cashflows Investing Cash Flow Inc/(Dec) in Borrowings Equity Issued Dividends Paid Other Financing Cashflows Financing Cash Flow Net Cash Flow FY12 FY13 FY14E 8,839 8,517 9,342 19.2% (3.6%) 9.7% (8,053) (7,728) (8,494) 786 789 848 (1.9%) 0.4% 7.5% 8.9% 9.3% 9.1% (230) (220) (224) 556 569 625 (6.7%) 2.3% 9.8% 6.3% 6.7% 6.7% (152) (147) (130) 404 422 495 (79) (85) (119) 29.0% 20.1% 24.0% (8) (11) (11) (132) 0 0 185 326 365 317 (11.7%) 681 681 0.27 0.47 (18.4%) 0.34 3.0% 125.2% FY12 786 (142) (123) (20) 53 448 (357) (81) 102 (336) 107 0 (214) 48 (59) 53 326 2.8% 685 685 0.48 0.48 2.2% 0.34 0.0% 71.4% FY13 789 (149) (60) 127 (114) 559 (215) 60 0 (155) (170) 0 (220) (59) (449) (45) 365 11.9% 685 685 0.53 0.53 11.9% 0.35 1.5% 64.8% FY14E 848 (130) (119) 50 11 650 (277) 0 0 (277) (125) 0 (248) 0 (373) (0)
Underweight
NZ$m 6,517.92 ps 9.50 8.00 (15.8%)
FY15E FY16E Valuation Summary 10,181 10,694 Current mkt capitalisation 9.0% 5.0% (9,189) (9,660) Price Target 992 1,035 Capital growth to price target 16.9% 4.3% 9.7% 9.7% Trading Multiples - PE Pre-abnormals (228) (231) PE Reported 764 804 EV/EBITDA 22.3% 5.3% EV/EBIT 7.5% 7.5% (118) (106) Key Ratios 646 698 Dividend Yield (155) (174) Franking 24.0% 25.0% Return on Assets (%) (15) (16) Return on Equity (%) 0 0 ROIC (%) 476 508 Leverage 476 508 Gearing (Net Debt / Equity) 30.5% 6.7% Gearing (ND / (ND + E)) Net Debt / EBITDA 685 685 EBIT Interest Cover (x) 685 685 0.69 0.74 Balance Sheet 0.69 0.74 Cash 30.5% 6.7% Receivables Investments 0.42 0.45 Inventories 20.3% 7.2% Other Current Assets Total Current Assets 59.7% 60.0% Net PPE Total Intangibles FY15E FY16E Other Non Current Assets 992 1,035 Total Non Current Assets (118) (106) Total Assets (155) (174) (21) (3) Creditors 15 16 Current Borrowings 697 751 Total Current Liabilities Non Current Borrowings (270) (263) Non Current Provisions 0 0 Other Non Current Liabilities 0 0 Total Non Current Liabilities (270) (263) Total Liabilities (128) (168) Equity 0 0 Reserves (299) (321) Retained Profits 0 0 Outside Equity Interests (427) (488) Total Shareholders Equity (0) 0 Net Debt
FY12 20.4 35.0 10.1 14.3 FY12 3.6% 50.0% 4.2% 8.9% 7.9%
FY13 FY14E 20.0 17.8 20.0 17.8 9.7 8.9 13.5 12.1 FY13 FY14E 3.6% 3.6% 50.0% 47.8% 4.5% 5.2% 9.4% 10.2% 8.2% 8.7%
FY15E FY16E 13.7 12.8 13.7 12.8 7.5 7.0 9.7 9.0 FY15E FY16E 4.4% 4.7% 47.0% 47.2% 6.7% 7.1% 12.7% 12.9% 10.6% 10.9% FY15E FY16E 39.3% 33.2% 28.2% 24.9% 153.6% 131.0% 6.5 7.6 FY15E FY16E 123 123 1,311 1,348 1,311 1,318 40 40 2,785 2,829 2,357 2,389 1,729 1,729 251 251 4,337 4,369 7,122 7,199 1,133 144 1,469 1,502 20 46 1,779 3,248 2,606 (165) 1,398 35 3,874 1,523 1,174 144 1,510 1,334 20 46 1,611 3,122 2,606 (165) 1,601 35 4,077 1,355
FY12 FY13 FY14E 59.6% 50.0% 44.8% 37.4% 33.3% 31.0% 262.0% 225.1% 194.6% 3.7 3.9 4.8 FY12 168 1,460 1,434 50 3,112 2,348 1,762 257 4,367 7,479 1,249 456 1,936 1,771 21 50 2,091 4,027 2,582 (147) 985 32 3,452 2,059 FY13 FY14E 123 123 1,346 1,280 1,353 1,305 40 40 2,862 2,748 2,261 2,314 1,729 1,729 251 251 4,241 4,294 7,103 7,043 1,181 144 1,517 1,755 20 46 2,032 3,549 2,606 (165) 1,078 35 3,554 1,776 1,117 144 1,453 1,630 20 46 1,907 3,360 2,606 (165) 1,206 35 3,682 1,651
445
FBU DCF-based SoP valuation

Segment Building Products Infrastructure Construction Distribution Laminates & Panels Less: Corp, WC, Corp Capex Enterprise Value Less: Net Debt Less: Provisions Equity Value
Valuation methodology / Comment DCF-based valuation (ex. Changes in working capital and provisions) DCF-based valuation (ex. Changes in working capital and provisions) DCF-based valuation (ex. Changes in working capital and provisions) DCF-based valuation (ex. Changes in working capital and provisions) DCF-based valuation (ex. Changes in working capital and provisions) DCF-based valuation of unallocated Corp O-heads, WC, Corp Capex Group net debt as at year-end: 2014E Group provisions as at year-end: 2014E Group SoP valuation
NZ$m 1,588 3,328 862 1,064 1,915 -1,538 7,219 -1,651 -83 5,485
NZ$/share 2.31 4.85 1.26 1.55 2.79 -2.24 10.52 -2.41 -0.12 7.99
446
447
Franshion Properties (China) Ltd.

Neutral
www.franshion.com

AC
Company overview Franshion Properties was established in 2004 in Hong Kong as the flagship real estate development company of Sinochem Corp. During 2005-07, Sinochem gradually transferred parts or entire stakes in development projects and commercial properties in Shanghai, Beijing and Zhuhai into Franshion. Franshion holds Shanghai Jinmao Office Tower, Beijing Chemsunny Plaza and 9 hotels, incl. Shanghai Grand Hyatt. Franshion was listed on Aug 17, 2007 at an IPO price of HK$2.35. Sinochem holds 62% in Franshion. Investment case Franshion has improved its asset mix over the years and now has exposure in development properties, investment properties, hotels and land development. Although it has done well in most segments, the lack of focus has been a problem, and for the land development segment, we think ROA is too low and has stretched the balance sheet. Corporate restructuring is the most effective way for Franshion to narrow its NAV discount, in our view. Resilience of the growth outlook Franshion has done pretty well in its portfolio. Rental income achieved a 16% CAGR in 2.5 years; hotel EBITDA margin maintained at >30%; development properties achieving >40% GM. The company is ramping up its land bank and speeding up asset turnover to sustain earnings growth beyond FY15. Moreover, the company intends to spin off the hotel portfolio in the long run and could unlock value if this succeeds. Risks to the earnings outlook in 2014 We think the primary land development business is the biggest drag. The primary land development business has relatively low risk and is supported by local governments, hence initial equity investment is low and ROE could be high. However, this still requires capital investment and the amount is big, even though equity investment is low, therefore, this may still use up Franshions debt quota and reduce its ability to expand into other businesses. Price target, and risks to our investment view Our Dec-14 PT HK$2.75 is based on a 51% discount to NAV, translating into 0.8x FY13E P/BV. The NAV discount applied is wider due to Franshion's multiple assets focus, which is not favourable in the market. Key upside risks are earlier-thanexpected corporate restructuring; key downside risks are: 1) further tightening property measures in Beijing; 2) a slowdown in the hospitality market in China; and 3) potential office oversupply in Shanghai Pudong.
Price Performance
2.9 2.7 HK$ 2.5 2.3 2.1
0817.HK share price (HK$) R-CHIP (rebased)
Abs Rel
YTD -4.3% -3.8%
1m 2.7% 2.5%
3m 1.5% -7.1%
12m 9.9% 4.3%
9,161 24,461 3,156 2.67 06 Nov 13 37.1% 4.93 13.25 1.7 4511.97 7.75 Dec
Franshion Properties (China) Ltd. (Reuters: 0817.HK, Bloomberg: 817 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (HK$ mn) 8,294 17,176 21,341 28,364 Net Profit (HK$ mn) 1,445 2,150 2,924 3,051 Core Profit (HK$ mn) 1,323 2,138 2,924 3,051 EPS (HK$) 0.16 0.23 0.32 0.33 Core EPS (HK$) 0.14 0.23 0.32 0.33 Core EPS growth (%) 36.1% 61.6% 36.7% 4.4% DPS (HK$) 0.04 0.07 0.09 0.11 ROE 5.4% 7.8% 9.8% 9.6% P/E (Core) 18.5 11.4 8.4 8.0 P/BV (x) 0.9 0.8 0.8 0.7 BVPS (HK$) 2.86 3.15 3.39 3.58 RNAV/Share 5.55 5.81 Dividend Yield 1.5% 2.6% 3.2% 4.1%
FY15E 23,442 2,636 2,636 0.29 0.29 (13.6%) 0.10 8.0% 9.3 0.7 3.58 3.6%
448
Franshion Properties (China) Ltd.: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Core net profit % change Y/Y Shares outstanding EPS (reported) (HK$) % change Y/Y Core EPS (HK$) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY12 17,176 107.1% 5,890 71.4% 34.3% (817) 5,076 82.8% (2,375) 46.8% 2,150 48.7% 2,138 61.6% 9,161 0.23 48.7% 0.23 61.6% FY12 12,888 4,404 20,188 719 38,199 FY13E 21,341 24.3% 7,650 29.9% 35.8% (1,094) 6,559 29.2% (2,886) 44.0% 2,924 36.0% 2,924 36.7% 9,161 0.32 36.0% 0.32 36.7% FY13E 8,990 2,424 30,436 719 42,569 615 25,525 86,151 9,400 11,817 2,805 24,021 23,419 2,950 50,390 31,073 3.39 FY14E 28,364 32.9% 8,776 14.7% 30.9% (892) 7,887 20.3% (3,253) 41.2% 3,051 4.4% 3,051 4.4% 9,161 0.33 4.4% 0.33 4.4% FY14E 6,842 2,545 31,979 719 42,085 615 23,953 84,096 9,870 11,817 3,317 25,004 17,949 2,950 45,903 32,757 3.58 FY15E 23,442 (17.4%) 7,609 (13.3%) 32.5% (689) 6,922 (12.2%) (3,054) 44.1% 2,636 (13.6%) 2,636 (13.6%) 9,161 0.29 (13.6%) 0.29 (13.6%) FY15E 5,360 2,673 32,059 719 40,810 Cash flow statement HK$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS (HK$) Ratio Analysis %, year end Dec EBIT margin Net margin SG&A/Sales FY12 2,150 231 (4,337) 1,877 (80) (434) 3 (779) (76) 0 3,119 (709) (366) 12,224 12,888 0.07 FY12 34.3% 12.5% 6.8% 107.1% 107.1% 48.7% 48.7% 7.5 30.8% 44.6% 0.2 2.8 7.8% 5.8% FY13E 2,924 250 (7,991) (423) (5,240) (700) 0 (2,023) (5,327) 0 4,500 (1,500) (959) 12,888 8,990 0.09 FY13E 35.8% 13.7% 5.5% 24.3% 24.3% 36.0% 36.0% 7.2 40.0% 66.6% 0.3 2.8 9.8% 7.1% FY14E 3,051 271 1,114 214 4,651 (700) 0 (1,670) 4,475 0 (5,000) 0 (1,099) 8,990 6,842 0.11 FY14E 30.9% 10.8% 4.5% 32.9% 32.9% 4.4% 4.4% 10.1 35.5% 54.9% 0.3 2.7 9.6% 8.3% FY15E 2,636 293 2,421 196 5,546 (700) 0 (1,317) 5,231 0 (5,000) 0 (1,328) 6,842 5,360 0.10 FY15E 32.5% 11.2% 4.5% (17.4%) (17.4%) (13.6%) (13.6%) 11.5 30.5% 43.9% 0.3 2.5 8.0% 7.3%
LT investments 615 Net fixed assets 27,075 Total Assets 82,502 Liabilities ST loans 8,952 Payables 14,468 Others 2,306 Total current liabilities 25,726 Long-term debt 19,323 Other liabilities 2,950 Total Liabilities 47,999 Shareholder's equity 28,878 BVPS 3.15 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 615 Sales growth 22,360 Net profit growth 81,227 EPS growth Interest coverage (x) 10,363 Net debt to total capital 11,817 Net debt to equity 3,847 Sales/assets 26,027 Assets/equity 12,455 ROE 2,950 ROCE 41,432 32,776 3.58
449
Genting Singapore
Underweight
www.gentingsingapore.com/
GENS.SI,GENS SP Price: S$1.51 Price Target: S$1.28
Singapore Gaming Kenneth Fong, CFA

AC
Company overview The group's principal activities are in developing integrated resorts and operating casinos. Its current only property, Resorts World Sentosa, is located on Sentosa island, Singapore. Genting Singapore (GENS) is 51.98% owned by Malaysia-listed Genting Bhd. Investment case While we remain positive on GENS long-term growth potential (duopoly market structure + seasoned management), we believe the risk of significant earnings downgrades and multiple contraction will cap share price performance. Trading at 26x FY14E P/E, GENS is more expensive and demonstrated slower growth than Macau peers whose industry average P/E is at 18x. We prefer Macau names compared to GENS. Resilience of the growth outlook On one hand, political pressure (Singapore government has been voicing displeasure at seeing locals visiting casinos and we are already seeing a decline in Singapore mass revenue due to shrinking local demand) and bad debt risk (accounts receivable turnover days reached 183 in 3Q13) may drag top-line growth; on the other hand, the concentration of its VIP customers have created high earnings volatility (both volume and VIP luck factor can fluctuate significantly), which may drag earnings multiple. Risks to the earnings outlook in 2014 More relaxed political environment regarding local visitation to casinos, significant growth in the Singapore VIP gaming market, legislative process acceleration for overseas gaming markets, as well as potential acquisitions.
12m 17.1% 10.9%
James R. Sullivan, CFA

(65) 6882 2374, james.r.sullivan@jpmorgan.com Bloomberg JPMA SULLIVAN<GO> J.P. Morgan Securities Singapore Private Limited
Price Performance
1.7 1.6 S$ 1.5 1.4 1.3 1.2
GENS.SI share price (S$) FTSTI (rebased)
Abs Rel
YTD 9.0% 7.8%
1m 6.0% 3.9%
3m 13.1% 13.7%
Price target, and risks to our investment view Our Dec-14 PT of S$1.28 is based on a SOTP where its Singapore business is valued at 10x FY14 EV/EBITDA, a discount to the 12x-19x we use for its Macau peers now. We now expect the Singapore market to grow by 7% in 2013 and 11% in 2014. Key upside risks: 1) stronger-than-expected growth in the Singapore gaming market; 2) positive operating leverage from RWS's ramp-up; and 3) quicker-than-expected materialization of M&As or overseas venture.
Genting Singapore (Reuters: GENS.SI, Bloomberg: GENS SP) S$ in mn, year-end Dec FY11A FY12A FY13E Revenue (S$ mn) 3,223 2,948 2,893 EBITDA (S$ mn) 1,648 1,360 1,221 Core Net Profit (S$ mn) 1,014 587 583 Adj. EPS (S$) 0.08 0.05 0.05 DPS (S$) 0.01 0.01 0.01 Revenue growth (%) 18.0% (8.5%) (1.9%) EBITDA growth (%) 16.2% (17.5%) (10.2%) Adj. EPS growth 59.6% (42.1%) (0.8%) ROE 18.0% 7.8% 6.3% P/E 18.1 31.4 31.6 P/BV 3.0 2.1 1.9 EV/EBITDA 11.1 13.7 14.8 Dividend Yield 0.7% 0.7% 0.7%
Company Data 52-week Range (S$) Market Cap (S$ mn) Market Cap ($ mn) Shares O/S (mn) Price (S$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (S$ mn) 3M - Avg daily value ($ mn) FTSTI Exchange Rate Fiscal Year End
1.64-1.18 18,427 14,833 12,203 1.51 06 Nov 13 19.30 27.54 22.2 3205.54 1.24 Dec
FY14E 3,242 1,440 694 0.06 0.01 12.1% 18.0% 19.0% 7.0% 26.6 1.8 12.1 0.7%
FY15E 3,456 1,529 779 0.06 0.01 6.6% 6.1% 12.3% 7.3% 23.6 1.7 11.4 0.7%
450
Genting Singapore: Summary of Financials

Profit and Loss Statement S$ in millions, year end Dec Revenues Singapore IR Gaming Non Gaming Others Total Revenues % Change Y/Y a. EBITDA Singapore IR Others Total EBITDA % Change Y/Y a. Depreciation & Amortization EBIT % Change Y/Y a. Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net Income (reported) % change Y/Y Shares Outstanding EPS (reported) % change Y/Y DPS a. Cashflow Statement S$ in millions, year end Dec Earnings before tax Depr. & amortization Change in working capital Others Cash flow from operations Capex Others Cash flow from investing activities a. Equity raised/repaid Issuance of perpetual capital securities Increase in borrowings Other Dividends paid Cash flow from financing activities FY12 2,948 2,373 558 17 2,948 (8.5%) 1,362 (1) 1,360 (17.5%) (390) 970 (26.8%) (33) 865 (29.7%) (187) 21.6% 587 (42.6%) 12,234 0.05 (42.7%) 0.01 FY12 865 390 (386) 167 1,036 (631) (869) (1,525) 1 2,275 (455) (241) 1,581 Balance Sheet FY13E FY14E FY15E S$ in millions, year end Dec Cash and cash equivalent 2,893 3,242 3,456 Accounts Receivables 2,235 2,532 2,719 Inventories 657 708 735 Others 2 2 2 Current assets 2,893 3,242 3,456 (1.9%) 12.1% 6.6% Net fixed assets Intangibles and goodwill Other non-current assets 1,235 1,455 1,543 Total assets (14) (14) (14) a. 1,221 1,440 1,529 Liabilities (10.2%) 18.0% 6.1% Short-term loans Payables (409) (402) (394) Others 811 1,039 1,134 Total current liabilities (16.3%) 28.0% 9.2% a. Long term debt (19) (5) 7 Other liabilities 858 1,015 1,122 Total liabilities (0.8%) 18.3% 10.5% (157) (203) (224) Minority interests 18.3% 20.0% 20.0% Perpetual capital securities 583 694 779 Shareholders' equity (0.8%) 19.0% 12.3% Total Shareholders Equity 12,234 12,234 12,234 0.05 0.06 0.06 Net Debt (0.8%) 19.0% 12.3% 0.01 0.01 0.01 BVPS Ratio Analysis FY13E FY14E FY15E S$ in millions, year end Dec 858 1,015 1,122 Gross Margin 409 402 394 EBITDA margin (93) (101) (111) Operating margin (158) (203) (224) Net margin 1,016 1,113 1,181 a. P/E (300) (300) (300) Adjusted P/E 0 0 0 Dividend yield (300) (300) (300) Price/BV EV/EBITDA 0 0 0 Net Debt/EBITDA 0 0 0 (479) (479) (488) Interest coverage (x) (118) (118) (118) Net debt to Total Capital - Net debt to equity (597) (597) (606) Sales/Assets Assets/Equity 119 216 274 ROE 4,503 4,718 4,992 ROCE FY12 4,384 959 54 829 6,225 6,198 104 428 12,956 479 759 214 1,452 2,218 348 4,018 0 2,308 6,629 8,937 147 0.73 FY12 46.1% 32.9% 19.9% 31.4 31.4 0.7% 2.1 13.7 10.8% 29.2 1.6% 1.7% 0.3 1.6 7.8% 7.3% FY13E 4,503 1,103 56 864 6,526 6,102 91 444 13,163 479 835 225 1,538 1,739 366 3,643 0 2,308 7,211 9,519 (468) 0.78 FY13E 42.2% 28.0% 20.1% FY14E 4,718 1,214 59 900 6,891 6,012 80 466 13,449 479 877 236 1,591 1,261 384 3,236 0 2,308 7,905 10,213 (1,180) 0.84 FY14E 44.4% 32.0% 21.4% FY15E 4,992 1,335 62 939 7,328 5,927 70 489 13,815 479 920 248 1,647 772 403 2,823 0 2,308 8,684 10,992 (1,962) 0.90 FY15E 44.2% 32.8% 22.5% 23.7 23.7 0.7% 1.7 11.4 (128.3%) (173.8) (21.7%) (17.8%) 0.3 1.3 7.3% 7.5%
31.7 26.6 31.7 26.6 0.7% 0.7% 1.9 1.8 14.8 12.1 (38.3%) (82.0%) 43.5 224.9 (5.2%) (13.1%) (4.9%) (11.6%) 0.2 0.2 1.4 1.3 6.3% 7.0% 5.7% 7.0%
Net change in cash 1,090 Ending cash 4,384 a. Source: Company reports and J.P. Morgan estimates.
451
Hang Lung Properties

Neutral
www.hanglung.com

AC
Company overview Hang Lung Properties (HLP) is a property development company in Hong Kong and China. The company has a portfolio of commercial, office, residential, serviced apts and industrial properties in Hong Kong with a total GFA of 7 million sf. HLP has a Shanghai office/retail portfolio with a GFA of 438,000 sqm. The company has five projects under development in Tianjin, Dalian, Shenyang, Kunming and Wuhan. Investment case We expect upcoming office supply in Shanghai will create a potential threat to HLP as we found that office tenants are moving out to newer buildings and decentralized areas. Some existing tenants might be attracted by pricing of the new buildings. Besides, new malls in Shanghai such as SHKPs IFC and IAPM and Kerrys Jing An Kerry Centre will likely create competition for HLP's Plaza 66 and Grand Gateway 66. Resilience of the growth outlook As rental growth of the two Shanghai investment properties is slowing down, rental growth in 2014 is likely to depend on contribution from new malls. In 2014, there will be full year contribution of Center 66 in Wuxi and a few months of contribution from the Riverside 66 in Tianjin, which is opening next year. Our FY14E earnings estimate is lower than consensus as we assume low volume in HK residential sales. Risks to the earnings outlook in 2014 Earnings risks in 2014 include lower-than-expected price and volume in residential sales, lower-than-expected rental growth and delay in opening of Tianjin mall. Price target, and risks to our investment view Our Dec-14 PT of HK$25 is based on 22% discount to NAV, which is its long-term average. The stock has once traded at a premium to NAV. But as more competitors with a proven track record enter the commercial properties market, the first-mover advantage of HLP might gradually fade out. Upside risks include better-thanexpected office and retail outlook in China and better-than-expected sales of HK residential units. Downside risks include potential delay in completion, construction rises and cap rate expansion.
Price Performance
32 30 HK$ 28 26 24
Abs Rel
YTD -16.1% -17.8%
1m -0.4% 0.0%
3m 1.2% -3.9%
12m -6.5% -11.5%
4,479 115,769 14,935 25.85 06 Nov 13 53.4% 4.86 124.41 16.0 2,3038.95 7.75 Dec
Hang Lung Properties (Reuters: 0101.HK, Bloomberg: 101 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E Revenue (HK$ mn) 5,712 7,372 7,165 Net Profit (HK$ mn) 3,116 6,178 4,055 Core Profit (HK$ mn) 3,116 6,178 4,055 EPS (HK$) 0.70 1.38 0.91 Core EPS (HK$) 0.70 1.38 0.91 Core EPS growth (%) (56.7%) 98.1% (34.4%) DPS (HK$) 0.90 0.74 0.74 ROE 3.0% 5.4% 3.4% P/E (Core) 37.1 18.7 28.5 P/BV (x) 1.1 1.0 1.0 BVPS (HK$) 24.54 26.34 26.39 RNAV/Share 32.40 Dividend Yield 3.5% 2.9% 2.9%
FY14E 8,926 4,838 4,838 1.08 1.08 19.3% 0.76 4.1% 23.9 1.0 26.61 32.37 2.9%
FY15E 10,565 5,728 5,728 1.28 1.28 18.4% 0.76 4.8% 20.2 1.0 27.03 2.9%
452
Hang Lung Properties: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Core net profit % change Y/Y Shares outstanding EPS (reported) (HK$) % change Y/Y Core EPS (HK$) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 5,712 (52.6%) 4,080 (51.2%) 71.4% 177 4,337 (49.3%) (895) 20.6% 3,116 (53.3%) 3,116 (53.3%) 4,473 0.70 (56.7%) 0.70 (56.7%) FY11 23,732 1,436 6,114 449 31,731 FY12 7,372 29.1% 7,890 93.4% 107.0% 278 7,585 74.9% (1,044) 13.8% 6,178 98.3% 6,178 98.3% 4,477 1.38 98.1% 1.38 98.1% FY12 36,025 1,270 6,109 452 43,856 FY13E 7,165 (2.8%) 5,100 (35.4%) 71.2% 345 5,492 (27.6%) (1,089) 19.8% 4,055 (34.4%) 4,055 (34.4%) 4,479 0.91 (34.4%) 0.91 (34.4%) FY13E 29,437 1,270 5,867 0 36,574 1,074 136,755 174,403 1,002 5,052 392 6,445 33,591 10,647 50,683 118,194 26.39 FY14E 8,926 24.6% 6,277 23.1% 70.3% 153 6,478 17.9% (1,286) 19.9% 4,838 19.3% 4,838 19.3% 4,479 1.08 19.3% 1.08 19.3% FY14E 28,665 1,270 5,867 0 35,802
Cash flow statement HK$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS (HK$) Ratio Analysis %, year end Dec EBIT margin Net margin SG&A/Sales
FY11 4,080 30 632 (13) 3,513 (9,771) 4 (2) (6,394) 70 8,411 (53) (3,176) 11,535 19,212 0.90 FY11 71.4% 54.6% (56.0%) (52.6%) (53.3%) (56.7%) NM (2.6%) (2.6%) 0.0 1.3 3.0% 2.8%
FY12 7,890 35 1,011 (2,467) 5,191 (5,328) 5,170 (283) 4,793 60 9,075 0 (2,403) 19,212 27,989 0.74 FY12 107.0% 83.8% 29.0% 29.1% 98.3% 98.1% NM (5.3%) (5.1%) 0.0 1.4 5.4% 4.9%
FY13E 5,100 30 483 (123) 4,793 (7,000) 0 0 (2,484) 0 4,968 0 (3,313) 27,989 27,437 0.74 FY13E 71.2% 56.6% (2.9%) (2.8%) (34.4%) (34.4%) NM 4.0% 4.2% 0.0 1.4 3.4% 2.7%
FY14E 6,277 31 253 68 5,544 (6,000) 0 0 (579) 0 3,088 0 (3,404) 27,437 26,665 0.76 FY14E 70.3% 54.2% 24.5% 24.6% 19.3% 19.3% NM 6.6% 7.0% 0.1 1.5 4.1% 3.3%
LT investments 1,492 1,053 Net fixed assets 117,440 122,955 Total Assets 150,663 167,864 Liabilities ST loans 4,700 1,113 Payables 3,823 4,811 Others 392 392 Total current liabilities 8,915 6,316 Long-term debt 16,034 28,623 Other liabilities 8,696 8,947 Total Liabilities 33,645 43,886 Shareholder's equity 111,462 117,928 BVPS 24.54 26.34 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 1,095 Sales growth 143,755 Net profit growth 180,652 EPS growth Interest coverage (x) 902 Net debt to total capital 5,304 Net debt to equity 392 Sales/assets 6,598 Assets/equity 36,679 ROE 10,647 ROCE 53,924 119,179 26.61
453
Hanjin Shipping Co Ltd

Neutral
www.hanjin.com
Company overview Hanjin Shipping provides mainly container shipping, dry bulk, tanker shipping and logistics services. 1H13 revenue breakdown: container transport and logistics: 82%, bulk shipping: 14% and others: 4%. Investment case We see limited upside near term as vessel deliveries remain substantial in 2014 which could keep pricing power low. The launch of P3 alliance could also crowd out the weaker Asian liners in the longer term. Hanjins high and rising financial leverage also raises potential equity-raising risks in our view. Resilience of the growth outlook HJS has one of the highest revenue exposures to the Asia-Europe trade among sector peers where freight rates have fallen below breakeven. Hanjin Shipping also has a less competitive cost structure compared to peers. Risks to the earnings outlook in 2014 Global shipping demand weakens further, industry newbuild vessel orderbook remains substantial, rebound in fuel prices, potential equity-raising due to high financial leverage. Price target, and risks to our investment view Our Dec-14 price target of W8,000 is based on 1.5x P/BV, similar to HJSs historical average valuation since its demerger in end 2009 with a smaller equity base. We expect HJS losses to reduce significantly and approach breakeven in 2014E. Key upside risks: better than expected volumes and freight rates, lower than expected capacity growth, falling fuel prices, exit of weaker industry players. Key downside risks: global container shipping demand weakens further, freight rates decline, rising fuel prices and limited pass-through, prolonged industry oversupply, potential equity raising given high financial leverage.
Hanjin Shipping Co Ltd (Reuters: 117930.KS, Bloomberg: 117930 KS) W in bn, year-end Dec FY11A FY12A FY13E Revenue (W bn) 9,523 10,589 10,422 Net Profit (W bn) (835) (650) (466) EPS (W) -8,482 -5,204 -3,728 DPS (W) 0 0 0 Revenue growth (1.1%) 11.2% (1.6%) EPS growth (170.8%) (38.6%) (28.4%) ROCE (7.0%) (1.4%) (1.8%) ROE (35.6%) (40.3%) (46.3%) P/E (x) NM NM NM P/BV (x) 0.4 0.7 1.2 EV/EBITDA (x) NM 29.0 33.8 Dividend Yield 0.0% 0.0% 0.0%
South Korea Shipping Corrine Png

AC
(65) 6882-1514 corrine.ht.png@jpmorgan.com J.P. Morgan Securities Singapore Private Limited

Price Performance
14,000 12,000 W 10,000 8,000 6,000
Abs Rel
YTD -38.7% -39.5%
1m -11.1% -11.9%
3m -9.4% -15.0%
12m -39.5% -43.9%
125 915 862 7,320 06 Nov 13 54.3% 1.73 15.23 14.3 2013.67 1,061.15 Dec
FY14E 11,725 (96) -766 0 12.5% (79.4%) 4.0% (13.2%) NM 1.3 12.8 0.0%
FY15E 13,434 162 1,295 0 14.6% (268.9%) 5.7% 21.3% 5.7 1.1 8.7 0.0%
454
Hanjin Shipping Co Ltd: Summary of Financials

Income Statement W in billions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY11 FY12 FY13E FY14E FY15E W in billions, year end Dec 9,523 10,589 10,422 11,725 13,434 EBIT (1.1%) 11.2% (1.6%) 12.5% 14.6% Depr. & amortization (124) 315 286 792 1,182 Change in working capital (118.6%) (354.2%) (9.3%) 177.1% 49.3% Taxes (514) (113) (135) 318 639 Cash flow from operations (177.0%) (78.0%) 20.0% (335.0%) 101.0% (5.4%) (1.1%) (1.3%) 2.7% 4.8% Capex (317) (378) (398) (416) (434) Disposal/(purchase) (815) (608) (533) (98) 205 Net Interest (178.2%) (25.4%) (12.3%) (81.6%) (309.3%) Other (9) (30) 80 15 (31) Free cash flow (1.0%) (4.9%) (15.0%) (15.0%) 15.0% (835) (650) (466) (96) 162 Equity raised/(repaid) (187.6%) (22.1%) (28.4%) (79.4%) (268.9%) Debt raised/(repaid) 99 125 125 125 125 Other -8,482 -5,204 -3,728 -766 1,295 Dividends paid (170.8%) (38.6%) (28.4%) (79.4%) (268.9%) Beginning cash Ending cash DPS Ratio Analysis FY11 FY12 FY13E FY14E FY15E W in billions, year end Dec 684 558 432 352 598 EBITDA margin 598 725 713 803 920 Operating margin 369 356 351 394 452 Net margin 458 509 509 509 509 2,144 2,199 2,056 2,108 2,529 Sales per share growth 951 835 835 835 835 Sales growth 7,920 7,801 7,880 8,206 8,463 Net profit growth 11,197 11,031 10,966 11,345 12,023 EPS growth 3,361 855 144 4,360 6,021 210 10,591 754 5,429 Interest coverage (x) 3,361 958 Net debt to equity 144 Sales/assets 4,463 Assets/equity ROE 6,421 ROCE 210 11,094 929 6,724 FY11 (514) 390 25 (406) (1,387) 309 (317) 46 (1,438) FY12 (113) 428 (6) (20) (839) 268 (378) (128) (718) FY13E (135) 421 6 (26) (500) 0 (398) 0 (526) 8,983 (8,583) 0 558 432 0 FY13E 2.7% (1.3%) (4.5%) FY14E 318 474 (71) 320 (800) 0 (416) 0 (480) 9,383 (8,983) 0 432 352 0 FY14E 6.8% 2.7% (0.8%) FY15E 639 543 (71) 646 (800) 0 (434) 0 (154) 9,783 (9,383) 0 352 598 0 FY15E 8.8% 4.8% 1.2%
Balance sheet W in billions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets . LT investments Net fixed assets Total Assets . Liabilities Short-term loans 1,551 3,361 3,361 Payables 696 804 793 Others 155 144 144 Total current liabilities 2,401 4,309 4,298 . Long-term debt 6,539 5,221 5,621 Other liabilities 231 210 210 Total Liabilities 9,172 9,740 10,129 Shareholder's equity 2,025 1,291 838 BVPS (W) 20,181 9,924 6,196 Source: Company reports and J.P. Morgan estimates.
8,090 8,583 (6,967) (7,988) (45) (2) 1,044 684 684 558 0 0 FY11 (1.3%) (5.4%) (8.8%) FY12 3.0% (1.1%) (6.1%)
(20.0%) (12.4%) (1.6%) (1.1%) 11.2% (1.6%) (187.6%) (22.1%) (28.4%) (170.8%) (38.6%) (28.4%) NM 0.8 0.7
12.5% 14.6% 12.5% 14.6% (79.4%) (268.9%) (79.4%) (268.9%) 1.9 2.7
372.6% 646.9% 1104.0% 1330.7% 1092.8% 0.9 1.0 0.9 1.1 1.1 465.8% 688.5% 1091.7% 1535.4% 1538.2% (35.6%) (40.3%) (46.3%) (13.2%) 21.3% (7.0%) (1.4%) (1.8%) 4.0% 5.7%
455
Havells India Ltd

Underweight
www.havells.com
HVEL.NS,HAVL IN Price: Rs750.55 Price Target: Rs600.00
India Electrical Equipment Gunjan Prithyani

AC
(91-22) 6157-3593 gunjan.x.prithyani@jpmorgan.com J.P. Morgan India Private Limited
Price Performance
850 750 Rs 650 550
HVEL.NS share price (Rs) BSE30 (rebased)
Abs Rel
YTD 17.5% 10.8%
1m 12.1% 7.2%
3m 24.1% 12.6%
12m 29.2% 18.2%
Company overview Havells is a leading brand in the electrical products industry in India, with a strong presence across segments such as switchgears, cables & wires, lighting products & fixtures and consumer durables. Its brands include Havells, Crabtree, Sylvania, Concord, Luminance, Linolite and SLI Lighting. The company is one of the top 4 players across its key segments. Increasing focus on consumer segments, widespread distribution network and scale up in brand investments has helped the company gain market share across segments over the last few years. Investment case We expect earnings growth over the next 2 years for Havells to be slower than in the past (15% vs. last 3-year CAGR of 27%). This given the demand moderation in the domestic consumer business; while industrial demand remains sluggish. Further, its overseas business, Sylvanias turnaround will likely take time given weak trends in Europe. Valuations at c.19x standalone earnings are at a premium (last 4 year avg of 17x) despite the expected growth moderation ahead. Resilience of the growth outlook Havells has a fairly strong brand name and extensive distribution network. It has been able to successfully leverage its strong brand equity by foraying into the newer segment. Launch of new products (in appliances segment), penetration into tier 2/3 markets and market share gains (as seen in past) should drive the growth ahead. Risks to the earnings outlook in 2014 Havells and the building product industry in general have benefitted from a scale-up in new home deliveries and large commercial (malls /hotels /office) completions over the past few years. New completions, however, are expected to come down across both metro and tier 2 cities over FY15/16. This does not bode well for the demand outlook in the medium term, in our view. Replacement demand, however, should remain healthy. Price target, and risks to our investment view Maintain UW with Mar-15 SOTP based PT of Rs600. We used 14x P/E multiple for domestic business, which is at a 20% discount to the average over the past four years. We believe this is justified given moderating growth expectations. This is at a 20% premium to global peers given its large exposure to the relatively high-growth India market. For Sylvania, we use a 5xEV/EBITDA multiple in line with the peer group (Osram). Key upside risks to our PT include: a) Better than expected growth rates in the domestic segment; b) Sharp pick up in industrial activity reviving the demand for cables/lighting segment; c) Better than expected profitability in Sylvania.
Havells India Ltd (Reuters: HVEL.NS, Bloomberg: HAVL IN) Rs in mn, year-end Mar FY11A FY12A FY13A Revenue (Rs mn) 56,126 65,182 72,479 Revenue growth (%) 8.7% 16.1% 11.2% EBITDA (Rs mn) 5,570 6,573 6,689 EBITDA Margin 9.9% 10.1% 9.2% Net Profit (Rs mn) 3,071 3,699 3,870 EPS (Rs) 24.61 29.65 31.02 DPS (Rs) 2.50 6.50 7.50 P/E (x) 30.5 25.3 24.2 EV/EBITDA (x) 17.3 14.4 13.8
Company Data Shares O/S (mn) Market Cap (Rs mn) Market Cap ($ mn) Price (Rs) Date Of Price 3M - Avg daily volume (mn) 3M - Avg daily value (Rs mn) 3M - Avg daily value ($ mn) BSE30 Exchange Rate Fiscal Year End
125 93,650 1,520 750.55 06 Nov 13 0.34 221.28 3.6 2,0974.79 61.63 Mar
FY14E 81,584 12.6% 8,209 10.1% 5,142 41.21 8.50 18.2 10.9
FY15E 87,694 7.5% 9,072 10.3% 5,669 45.43 9.50 16.5 9.5
456
Havells India Ltd: Summary of Financials

Profit and Loss Statement Rs in millions, year end Mar Revenues % change Y/Y EBIT % change Y/Y EBIT margin (%) Net Interest Earnings before tax % change Y/Y Tax as % of EBT Core net profit % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY12 65,182 16.1% 5,625 18.0% 8.6% (1,281) 4,757 16.0% (1,058) 22.2% 3,699 20.5% 125 29.65 20.5% FY13 72,479 11.2% 5,592 (0.6%) 7.7% (1,232) 4,694 (1.3%) (823) 17.5% 3,870 4.6% 125 31.02 4.6% FY14E 81,584 12.6% 6,999 25.2% 8.6% (613) 6,487 38.2% (1,345) 20.7% 5,142 32.9% 125 41.21 32.9% FY15E 87,694 7.5% 7,768 11.0% 8.9% (457) 7,431 14.6% (1,762) 23.7% 5,669 10.2% 125 45.43 10.2%
Cash flow statement Rs in millions, year end Mar EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash Ratio Analysis Rs in millions, year end Mar EBIT margin Net margin a a Sales growth Core Net profit growth EPS growth a Interest coverage (x) Net debt to total capital Net debt to equity Sales/assets Assets/equity ROE ROCE a a a a
FY12 5,625 949 (1,234) 0 3,202 (1,511) 2,688 0 (924) 153 (363) 1,779 2,336 FY12 8.6% 5.7% 16.1% 20.5% 20.5% 5.1 43.8% 78.0% 1.7 4.8 46.0% 23.7%
FY13 5,592 1,097 (1,419) 0 5,492 (1,440) 5,069 0 (423) (288) (943) 2,336 4,735 FY13 7.7% 5.3% 11.2% 4.6% 4.6% 5.4 25.9% 35.0% 1.7 3.6 32.3% 21.2%
FY14E 6,999 1,210 (789) 0 5,563 (1,564) 4,484 0 (2,500) 0 (1,246) 4,736 4,988 FY14E 8.6% 6.3% 12.6% 32.9% 32.9% 13.4 11.1% 12.5% 1.8 2.8 31.4% 22.3%
FY15E 7,768 1,303 (565) 0 6,407 (1,615) 5,141 0 (3,000) 0 (1,393) 4,988 5,388 FY15E 8.9% 6.5% 7.5% 10.2% 10.2% 19.8 (5.1%) (4.9%) 1.8 2.4 27.7% 22.6%
Balance sheet Rs in millions, year end Mar FY12 Cash and cash equivalents 2,336 Accounts receivable 8,905 Inventories 13,678 Others 2,264 Current assets 27,183 a Investments 0 Net fixed assets 10,946 Total Assets 41,754 a Liabilities Accounts payables 16,580 Others 5,013 Total current liabilities 21,592 Total debt 9,795 Other liabilities 810 Total Liabilities 32,197 Shareholder's equity 9,556 BVPS 76.59 Source: Company reports and J.P. Morgan estimates.
FY13 4,736 8,623 13,184 2,787 29,330 0 11,555 44,718 14,611 4,793 19,404 9,785 1,108 30,297 14,420 115.57
FY14E 4,988 9,966 15,065 2,443 32,463 0 11,910 48,206 16,224 5,272 21,495 7,285 1,108 29,888 18,317 146.80
FY15E 5,388 10,971 16,207 2,619 35,184 0 12,221 51,238 17,453 5,799 23,252 4,285 1,108 28,645 22,593 181.07
457
Hindustan Unilever Limited

Underweight
www.hul.co.in
HLL.BO,HUVR IN Price: Rs588.10 Price Target: Rs570.00
India Household Products Latika Chopra, CFA

AC
Company overview Hindustan Unilever is Indias leading consumer products company. It has a dominant share in soaps, laundry, skin care, shampoos and tea. It also has an extensive presence in toothpastes and packaged foods segments. It has the widest and well entrenched distribution reach in the country. It is a 67.25%-owned subsidiary of Unilever Plc. Investment case Weak macro has started to impact FMCG growth rates more so across discretionary/premium categories and urban markets. Moderation in growth rates for HULs most profitable personal care segment coupled with downtrading risks across categories could weigh on mix. Additionally, competitive intensity remains stiff, thereby making incremental gains on market share difficult to come by. Margin expansion will likely moderate in the coming quarters given uptick in RM inflation, moderating premiumisation, likely media inflation and sustained competitive activity in some categories. Current valuations of 39x FY14E and 32x FY15E P/E are high and provide no margin of safety, in our view. Resilience of the growth outlook Volume growth for HUL on an average over the past three quarters has moderated to ~5% impacted by uncertain macro weighing on growth rates across some of the personal care and foods categories. Pricing growth, which has been subdued on account of higher promotional activity in categories like soaps and laundry, is expected to pick up in 2H as company has unwound promotional offers in soaps and is taking calibrated price hikes in an attempt to offset rising cost pressures. We remain cautious about near term growth rates given the moderation in market growth rates, volatile input cost environment, step-up in competitive intensity, uncertain media inflation and higher tax rates. We estimate EPS growth of 11% and 9% in FY14 and FY15 respectively. Risks to the earnings outlook in 2014 Downside risks to earnings include sharp moderation in top-line growth rates, higher competitive spends and weak gross margins. Price target, and risks to our investment view Our Sep-14 PT of Rs570 is based on a target P/E multiple of 29x which is in-line with the stocks three-year average P/E. Key upside risks to our TP include benign input cost inflation, sharp improvement in revenue growth rates, benign competitive environment and parent further increasing stake increase at higher valuations.
(91-22) 6157-3584 latika.chopra@jpmorgan.com J.P. Morgan India Private Limited
Price Performance
700 Rs 600 500 400
HLL.BO share price (Rs) NIFTY (rebased)
Abs Rel
YTD 10.8% 6.4%
1m -3.1% -8.3%
3m -3.3% -15.4%
12m 10.4% 1.8%
Company Data Shares O/S (mn) Market Cap (Rs mn) Market Cap ($ mn) Price (Rs) Date Of Price 3M - Avg daily volume (mn) 3M - Avg daily value ($ mn) NIFTY Fiscal Year End
2,162 1,271,222 20,628 588.10 06 Nov 13 1.75 17.5 6253.15 Mar
Hindustan Unilever Limited (Reuters: HLL.BO, Bloomberg: HUVR IN) Rs in mn, year-end Mar FY11A FY12A FY13E FY14E Revenue (Rs mn) 193,810 229,877 263,172 289,028 Net Profit (Rs mn) 21,022 26,689 33,285 36,911 EPS (Rs) 9.63 12.35 15.40 17.08 Revenue growth (%) 10.6% 18.6% 14.5% 9.8% EPS growth (%) 2.1% 28.3% 24.7% 10.9% ROE 72.3% 80.9% 87.2% 109.7% P/E (x) 61.1 47.6 38.2 34.4 EV/EBITDA (x) 42.2 32.9 26.0 23.3 Dividend Yield 1.1% 1.3% 3.1% 1.9%
FY15E 323,045 40,207 18.60 11.8% 8.9% 88.5% 31.6 20.4 1.9%
458
Hindustan Unilever Limited: Summary of Financials

Income Statement Rs in millions, year end Mar Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar 193,810 229,877 263,172 289,028 323,045 EBIT 10.6% 18.6% 14.5% 9.8% 11.8% Depr. & amortization 29,513 37,432 47,374 52,311 58,659 Change in working capital 1.8% 26.8% 26.6% 10.4% 12.1% Taxes 27,304 35,096 44,860 49,611 55,859 Cash flow from operations 0.6% 28.5% 27.8% 10.6% 12.6% 14.1% 15.3% 17.0% 17.2% 17.3% Capex 2,517 2,556 4,922 4,523 5,393 Disposal/(purchase) 27,302 35,080 44,603 49,353 55,601 Net Interest 0.9% 28.5% 27.1% 10.7% 12.7% Other (6,280) (8,296) (11,214) (12,338) (15,290) Free cash flow 23.0% 23.6% 25.1% 25.0% 27.5% 21,022 26,689 33,285 36,911 40,207 Equity raised/(repaid) 2.1% 27.0% 24.7% 10.9% 8.9% Debt raised/(repaid) 2,184 2,162 2,162 2,162 2,162 Other 9.63 12.35 15.40 17.08 18.60 Dividends paid 2.1% 28.3% 24.7% 10.9% 8.9% Beginning cash Ending cash DPS Ratio Analysis FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar 16,285 19,964 19,007 32,457 52,657 EBITDA margin 9,432 8,567 9,965 11,878 13,276 Operating margin 28,108 26,674 27,060 28,882 32,426 Net margin 10,617 10,741 12,856 14,119 15,781 75,842 88,465 90,709 109,157 135,961 Sales per share growth 1,206 703 703 703 703 Sales growth 24,579 24,905 26,539 25,391 24,039 Net profit growth 101,627 114,072 117,950 135,250 160,702 EPS growth Interest coverage (x) 69,317 77,823 Net debt to equity 29,636 33,124 Sales/assets 98,953 110,947 Assets/equity ROE 247 247 ROCE 99,201 111,195 38,809 52,267 17.95 24.18 FY11 27,304 2,208 3,214 21,584 (1,925) 2,517 (6,554) 17,721 FY12 FY13E 35,096 44,860 2,335 2,513 (4,222) (10,837) 34,126 50,847 (2,404) 2,556 1,312 29,771 (3,514) 4,922 (4,002) 43,649 FY14E 49,611 2,700 (2,141) 41,752 (1,552) 4,523 0 36,807 FY15E 55,859 2,800 (5,390) 48,397 (1,448) 5,393 0 43,040
Balance sheet Rs in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets . LT investments Net fixed assets Total Assets . Liabilities Short-term loans Payables 57,828 57,399 64,830 Others 17,203 19,680 26,985 Total current liabilities 75,031 77,079 91,815 . Long-term debt 0 0 247 Other liabilities Total Liabilities 75,031 77,079 92,062 Shareholder's equity 26,595 36,811 28,648 BVPS (Rs) 12.18 17.03 13.25 Source: Company reports and J.P. Morgan estimates.
(22) 2 1 0 0 0 0 0 0 0 0 0 0 0 0 (15,970) (18,238) (44,988) (26,749) (26,749) 30,573 27,686 42,483 40,828 54,278 27,686 42,483 40,828 54,278 74,478 6.50 7.50 18.50 11.00 11.00 FY11 15.2% 14.1% 9.8% 10.6% 10.6% 2.1% 2.1% NM FY12 16.3% 15.3% 11.2% 19.8% 18.6% 27.0% 28.3% NM FY13E 18.0% 17.0% 10.8% 14.5% 14.5% 24.7% 24.7% NM FY14E 18.1% 17.2% 12.8% 9.8% 9.8% 10.9% 10.9% NM FY15E 18.2% 17.3% 12.5% 11.8% 11.8% 8.9% 8.9% NM
(104.1%) (115.4%) (141.7%) (139.2%) (142.0%) 2.0 2.1 2.3 2.3 2.2 371.5% 340.2% 354.5% 375.4% 325.0% 72.3% 80.9% 87.2% 109.7% 88.5% 80.2% 84.5% 102.2% 109.5% 88.5%
459
HTC Corp
Underweight
www.htc.com/tw
Taiwan Computer Hardware Alvin Kwock

AC
Company overview HTC is a leading manufacturer of Google Android smartphones. The company began transforming from ODM to own-brand in early 2006. Its main markets are Europe, North America, and Asia. Its key customers include Vodafone, Verizon, T-Mobile, Sprint, AT&T, Telefonica, Orange, and Google. Investment case We expect HTC to continue underperforming the market in 2014. 1) HTC has suffered operating losses in the last 2 quarters and we expect it to continue in 2014; 2) China profit sustainability to remain tough especially once Mediatek comes up with a single chip LTE solution in 2H14; 3) Revenue shortfall might force marketing budget cuts, making a recovery in the coming quarters even tougher. Resilience of the growth outlook HTC management seems adamant to engineer a comeback and has shown little intent to consider M&A options. Management is getting more actively involved in restructuring, and in particular is taking a proactive role in managing relationships with Chinese telecom carriers. We think it makes good sense as HTC appears to have identified China as the home market and reckon that there could be a short window of opportunity for HTC in 1H14 but we still believe that the profit sustainability will remain difficult with increasing competition from Chinese brands. Risks to the earnings outlook in 2014 Key upside risk could be a successful attempt by HTC to become a preferred TDLTE partner for China Mobile. If HTC is successful at restructuring and improves China profitability, we could see significant upside to its 2014 earnings outlook. Price target, and risks to our investment view We do not think it is time to value the stock based on M&A scenarios. Our Jun-14 PT of NT$90 is based on 0.9x FY14E P/B due to continuous operating losses reported by the company. Key risks are: 1) a successful attempt to become a preferred TD-LTE partner for China Mobile, 2) strategic events like investments by carriers, or factory sales, 3) successful launch in new products like wearable devices
(852) 2800-8533 alvin.yl.kwock@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
350 300 NT$ 250 200 150 100
Abs Rel
YTD -51.8% -58.3%
1m 8.1% 9.1%
3m -1.7% -4.7%
12m -27.2% -41.6%

(Year-end Dec, NT$ bn) Sales Operating Profit EBITDA Pretax Profit Adj. Net Profit (New TW GAAP) New TW GAAP EPS (NT$) Net Debt / Equity Y/E BPS (NT$) FY12 289.02 18.82 21.04 19.45 16.78 19.69 NM 94.32
FY13E 203.10 -3.61 -0.72 -0.44 -0.94 (1.10) NM 108.12
FY14E FY15E 167.07 139.46 New TW GAAP P/E -5.37 -7.11 P/BV (x) -2.38 -4.09 ROE(%) -3.62 -5.39 Cash Div (NT$) -2.81 -4.19 Quarterly EPS (NT$) (3.30) (4.92) EPS (12) NM NM EPS (13) E 103.31 97.87 EPS (14) E
FY12 FY13E FY14E FY15E 7.4 NM NM NM 1.5 1.4 1.4 1.5 18.5 -01.1 -03.1 -04.9 40.0 2.0 0.0 0.0 1Q 2Q 3Q 4Q 5.24 9.00 4.44 1.18 0.10 1.47 (3.49) 0.82 (0.56) (0.56) (1.16) (1.02)
90 307.50-122.00 852mn 77.9% 15.51mn 74.4mn 1.4% 50.7% 4,227mn
Source: Company data, Bloomberg, J. P. Morgan estimates. Note: In Net Debt/Equity, NM means company has net cash
460
HTC Corp: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) FY11 465,795 (333,997) 131,798 (4,575) (47,049) 68,788 70,352 702 (31) 671 71,424 (9,125) 61,976 61,976
Ratio Analysis FY12 FY13E FY14E FY15E NT$ in millions, year end Dec 289,020 203,098 167,071 139,457 Gross margin (216,095) (160,034) (136,805) (117,147) EBITDA margin 72,925 43,064 30,265 22,310 Operating margin (11,356) (9,932) (6,022) (5,012) Net margin (38,348) (35,151) (29,211) (24,385) R&D/sales 18,820 (3,605) (5,365) (7,110) SG&A/Sales 21,042 (721) (2,382) (4,087) 618 635 549 517 Sales growth (2) (2) 0 0 Operating profit growth 616 633 549 517 Net profit growth 19,450 (1,861) 16,781 16,781 (444) (493) (937) (937) (3,616) 805 (2,810) (2,810)
FY11 28.3% 15.1% 14.8% 13.3% 1.0% 10.1%
FY12 25.2% 7.3% 6.5% 5.8% 3.9% 13.3%
FY13E 21.2% (0.4%) (1.8%) (0.5%) 4.9% 17.3%
FY14E 18.1% (1.4%) (3.2%) (1.7%) 3.6% 17.5%
FY15E 16.0% (2.9%) (5.1%) (3.0%) 3.6% 17.5%
67.2% (38.0%) (29.7%) (17.7%) (16.5%) 56.4% (72.6%) (119.2%) 48.8% 32.5% 56.8% (72.9%) (105.6%) 199.9% 49.2%
EPS (reported) 72.14 19.69 (1.10) (3.30) EPS (adjusted) 72.14 19.69 (1.10) (3.30) BVPS 119.04 94.32 108.12 103.31 DPS 35.22 40.00 2.00 0.00 Shares outstanding 859 852 852 852 Balance sheet NT$ in millions, year end Dec FY11 FY12 FY13E FY14E Cash and cash equivalents 88,494 54,229 34,380 33,331 Accounts receivable 65,872 48,984 30,168 23,919 Inventories 28,431 23,809 37,932 30,075 Others 10,630 12,637 11,105 11,105 Current assets 193,428 139,659 113,584 98,430 LT investments 3,685 10,197 1,554 1,554 Net fixed assets 21,512 25,651 24,425 21,841 Others 35,967 31,097 36,439 36,439 Total Assets 254,592 206,604 176,001 158,264 Liabilities ST Loans 0 0 9,937 9,937 Payables 77,268 73,618 41,556 34,454 Others 74,862 52,557 31,528 24,998 Total current liabilities 152,130 126,175 83,021 69,389 Long-term debt 0 0 0 0 Other liabilities 1,036 60 854 854 Total Liabilities 153,166 126,235 83,874 70,242 Shareholder's equity 101,427 80,369 92,127 88,022 Source: Company reports and J.P. Morgan estimates.
- EPS (reported) growth 57.5% (72.7%) (105.6%) 199.9% 49.2% (5,394) 1,201 Interest coverage (x) NM NM 1.1 4.3 7.9 (4,192) (4,192) Net debt to total capital (684.3%) (207.5%) (36.1%) (36.2%) (33.6%) Net debt to equity NM NM NM NM NM (4.92) (4.92) Asset turnover 2.1 1.3 1.1 1.0 0.9 97.87 Working capital turns (x) 9.9 10.6 9.2 5.6 5.0 0.00 ROE 70.4% 18.5% (1.1%) (3.1%) (4.9%) 852 ROIC Cash flow statement FY15E NT$ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E 30,898 Net income 61,976 16,781 (937) (2,810) (4,192) 22,405 Depr. & amortization 1,564 2,223 2,885 2,983 3,024 28,171 Change in working capital 24,852 (6,452) (46,864) 472 (421) 11,105 Other 92,578 Cash flow from operations 88,069 11,743 (44,917) 645 (1,590) 1,554 Capex (9,052) (6,361) (1,658) (400) (400) 19,218 Disposal/(purchase) (31,934) (1,642) 3,301 0 0 36,439 Cash flow from investing (40,987) (8,003) 1,643 (400) (400) 149,789 Free cash flow 46,497 3,183 (44,612) (427) (2,622) Equity raised/(repaid) 3,246 1,608 2,743 0 0 9,937 Debt raised/(repaid) (24) 0 9,937 0 0 32,197 Other (7,558) (7,148) 12,449 (1,576) (443) 23,415 Dividends paid (30,253) (34,082) (1,703) 281 0 65,549 Cash flow from financing (34,590) (39,622) 23,425 (1,294) (443) 0 Net change in cash 12,493 (35,882) (19,849) (1,049) (2,433) 854 Beginning cash 75,355 88,494 54,229 34,380 33,331 66,402 Ending cash 87,848 52,612 34,380 33,331 30,898 83,387
461
Indian Oil Corporation

Underweight
www.iocl.com
IOC.BO,IOCL IN Price: Rs216.15 Price Target: Rs185.00
India Independent Refiners Neil Gupte

AC
Company overview IOC has seven refineries with a total refining capacity of 54.2 mmt; it also has a 52% stake in 10.5mmtpa Chennai Petroleum and 74% stake in 2.4mmtpa Bongaigaon Refinery. IOC markets ~68 mmt of petroleum products with c.42-45% market share, in petrol and diesel retailing. It has the most extensive network of crude and product pipelines. IOC has a 0.8mmt PX/PTA plant at its Panipat Refinery. Investment case IOCL is a low-margin refiner leveraged to Indias energy reform outlook; - we expect underperformance to continue into 2014, with the government also considering selling down some of its c79% interest. While the shares may look good value, trading at ~0.8x FY14E P/BV, given the uncertainty about oil product price reform, we see better opportunities elsewhere within our coverage. Resilience of the growth outlook The SOE R&M companies have delivered weak refining margins over the past several quarters lagging regional benchmarks. With our expectation that GRMs would be rangebound, we do not expect a meaningful rise in IOCLs margins. Subsidies are likely to remain high, with elevated commodity prices, and we expect the pace of reform to remain slow in light of inflationary concerns, and a crowded political calendar. Risks to the earnings outlook in 2014 A sharp pullback in commodity prices, or a strengthening of the INR could lead to a reduction in subsidies. Significant pricing reform could also lower the subsidy bill meaningfully, leading to upside to our estimates. Higher than expected GRMs would lead to upside to our estimates. Price target, and risks to our investment view Our Sep-14 PT is Rs185/share based on 5.5x EV/EBITDA (lower than regional peers to account for uncertainty over subsidies). Our earnings are based on a downstream subsidy share of ~Rs10bn. Lower crude/stronger INR, structural reforms and higher than expected GRMs would be upside risks.
(91-22) 6157 3592 neil.x.gupte@jpmorgan.com J.P. Morgan India Private Limited
Price Performance
340 300 Rs 260 220 180
IOC.BO share price (Rs) BSE30 (rebased)
Abs Rel
YTD -18.9% -25.6%
1m 2.2% -2.7%
3m 12.1% 0.6%
12m -17.5% -28.5%
2,428 524,801 8,516 216.15 06 Nov 13 0.64 135.52 2.2 2,0974.79 61.63 Mar
Indian Oil Corporation Limited (Reuters: IOC.BO, Bloomberg: IOCL IN) Rs in mn, year-end Mar FY11A FY12A FY13A FY14E Revenue (Rs mn) 3,538,822 4,229,322 4,706,506 5,894,186 Diluted NP (Rs mn) 74,455 116,624 50,052 49,387 EPS (Rs) 30.67 48.03 20.61 20.34 DPS (Rs) 9.20 8.03 6.18 6.10 Revenue growth (%) 30.5% 19.5% 11.3% 25.2% EPS growth (%) (27.2%) 56.6% (57.1%) (1.3%) ROCE 8.1% 10.6% 5.8% 5.7% ROE 14.1% 7.0% 8.4% 7.7% P/E 7.0 4.5 10.5 10.6 P/BV 0.9 0.9 0.9 0.8 EV/EBITDA 6.4 5.7 8.2 7.1 Dividend Yield 4.3% 3.7% 2.9% 2.8%
FY15E 5,984,112 64,930 26.74 8.02 1.5% 31.5% 6.6% 9.3% 8.1 0.7 6.0 3.7%
462
Indian Oil Corporation: Summary of Financials

Profit and Loss Statement Rs in millions, year end Mar FY12 FY13 FY14E FY15E FY16E Revenues 4,229,322 4,706,506 5,894,186 5,984,112 5,695,735 % Change Y/Y 19.5% 11.3% 25.2% 1.5% (4.8%) Gross Margin (%) 8.2% 7.1% 5.5% 6.0% 6.8% EBITDA 187,214 137,432 157,293 176,795 193,269 % Change Y/Y 45.3% (26.6%) 14.5% 12.4% 9.3% EBITDA Margin (%) 4.4% 2.9% 2.7% 3.0% 3.4% EBIT 138,536 85,422 101,217 117,468 130,693 % Change Y/Y 66.2% (38.3%) 18.5% 16.1% 11.3% EBIT Margin 3.3% 1.8% 1.7% 2.0% 2.3% Net Interest (23,915) (28,944) (32,624) (27,287) (20,547) Earnings before tax 114,621 56,478 68,593 90,181 110,146 % change Y/Y 26.0% (50.7%) 21.4% 31.5% 22.1% Tax (8,944) (3,719) (13,719) (18,036) (22,029) Tax as a % of BT 7.8% 6.6% 20.0% 20.0% 20.0% Net Income (Reported) 116,624 50,052 49,387 64,930 79,305 % change Y/Y 56.6% (57.1%) (1.3%) 31.5% 22.1% Shares Outstanding 2,428 2,428 2,428 2,428 2,428 EPS (Reported) 48.03 20.61 20.34 26.74 32.66 % Change Y/Y 56.6% (57.1%) (1.3%) 31.5% 22.1% Balance sheet Rs in millions, year end Mar FY12 FY13 FY14E FY15E FY16E Cash and cash equivalents 3,070 5,033 5,536 6,090 6,699 Accounts Receivable 97,255 112,548 129,188 131,159 124,838 Inventories 568,292 593,144 645,938 655,793 624,190 Others 403,793 435,875 443,240 450,752 458,415 Current assets 1,259,195 1,333,312 1,355,810 1,375,802 1,346,250 LT investments Net fixed assets Total assets a ST loans Payables Others Total current liabilities Long term debt Other liabilities Total liabilities Shareholders' equity BVPS
Cash flow statement Rs in millions, year end Mar FY12 FY13 FY14E EBIT 138,536 85,422 101,217 Depreciation & amortization 48,678 52,010 56,077 Change in working capital & Other (239,983) (37,616) (10,912) Taxes Cash flow from operations (43,825) 103,534 160,100 Capex Disposals/(purchase) Net Interest Free cash flow Equity raised/repaid Debt Raised/repaid Dividends paid Other Beginning cash Ending cash DPS Ratio Analysis EBITDA Margin (%) EBIT margin (%) Net margin (%) SG&A/Sales
FY15E 117,468 59,327 24,196 219,027
FY16E 130,693 62,577 47,121 262,419
(109,345) (105,722) (99,148) (90,000) (80,000) (131,121) 24,850 87,051 150,857 198,857 0 0 0 0 0 226,825 54,341 (61,350) (45,143) (93,210) (21,990) (16,937) (16,712) (21,972) (26,837) 12,944 3,070 8.03 FY12 4.4% 3.3% 0.9% 3,070 5,033 6.18 5,033 5,536 6.10 5,536 6,090 8.02 6,090 6,699 9.80
FY13 FY14E FY15E FY16E 2.9% 2.7% 3.0% 3.4% 1.8% 1.7% 2.0% 2.3% 1.1% 0.8% 1.1% 1.4% 1.5% (4.8%) 1.5% (4.8%) 31.5% 22.1% 31.5% 22.1% 6.5 43.9% 78.3% 2.6 3.4 9.3% 6.6% 9.4 37.8% 60.8% 2.4 3.2 10.6% 7.5%
Sales per share growth - Sales growth (%) 735,347 789,059 832,130 862,803 880,227 Attributable net profit growth (%) 2,098,598 2,239,953 2,317,267 2,367,932 2,355,803 EPS growth (%) 612,525 647,135 713,022 612,525 647,135 713,022 754,002 808,344 746,994 153,304 173,231 180,219 1,519,831 1,628,710 1,640,235 578,767 611,243 677,031 238.38 251.75 278.85 - Interest coverage (x) 756,556 773,416 Net debt to Total Capital 756,556 773,416 Net debt to equity 701,851 608,641 Sales/assets (x) 189,535 201,289 Assets/Equity 1,647,943 1,583,346 ROE 719,989 772,458 ROCE 296.54 318.15
19.5% 11.3% 25.2% 19.5% 11.3% 25.2% 56.6% (57.1%) (1.3%) 56.6% (57.1%) (1.3%) 7.8 49.4% 97.5% 2.2 3.4 7.0% 10.6% 4.7 50.2% 100.9% 2.2 3.6 8.4% 5.8% 4.8 47.4% 90.0% 2.6 3.5 7.7% 5.7%
463
Indika Energy
Neutral
www.indikaenergy.com
INDY.JK,INDY IJ Price: Rp760 Price Target: Rp860
Indonesia Mining Stevanus Juanda

AC
Company overview Indika Energy is a diversified energy company with operations in coal mining, coal mining contracting, oil and gas EPC contracting, and power plants. Indika owns a 46% stake at Kideco; Indonesias third largest coal mining company, which contributed more than 85% of its annual profit. Indika also owns 69.8% of Petrosea an energy company operating in mining contracting, engineering & contracting, and Petrosea Offshore Supply Base. Indika also owns Tripatra, a leading oil & gas EPC company in Indonesia and Mitrabahtera Segara Sejati with operations in coal barging and transshipment. Finally, Indika also owns 20% in Cirebon Electric Power, a 660MW power plant designed to take on Kideco's coal. Investment case We believe the following factors could work against INDY until 1Q14E: (1) Contract renegotiation at PTRO and MBSS could reduce the rate earned by 5% and 10% respectively. (2) Unexpected earnings downwards adjustments at Tripatra in 4Q13. (3) Coal price to decline post winter. (4) Quarterly net income losses continue until 1Q14.
Price Performance
2,000 1,600 Rp 1,200 800 400
INDY.JK share price (Rp) JCI (rebased)
Abs Rel
YTD -51.6% -47.6%
1m -3.8% -5.2%
3m 26.7% 29.9%
12m -49.3% -52.4%
Resilience of the growth outlook We expect FY13E net loss of US$35MM; a swing from US$69MM profit recorded in FY12. Until 9M13, INDY recorded a US$7.4MM net loss. Losses could be announced in 1Q14 and coal price could decline post winter; which might work against INDY. Risks to the earnings outlook in 2014 The risks to earnings outlook would come from the potential rate reduction at Petrosea and MBSS. Currently the coal industry is renegotiating the mining contracting contracts with an aim to reduce the rate by 5%. In the barging and logistics contracts, the industry is targeting a 10% reduction. Price target, and risks to our investment view Our Dec-14 SOTP based PT of Rp860 represents 12x FY14E reported PE; relatively in-line with ADRO (12x), Banpu (12x) and PTBA (13x). Maintain Neutral. Upside risks: (1) Unexpected recovery in coal price. (2) Better than expected profit at noncoal subsidiaries. Downside risks: (1) Lower than expected profit at Kideco. (2) Tripatra records another disappointment in profit. (3) Decline in coal price.
Company Data Shares O/S (mn) Market Cap ($ bn) Market Cap ($ bn) Price (Rp) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (Rp mn) 3M - Avg daily value ($ mn) JCI Exchange Rate Fiscal Year End
5,192,407 347.51 347.51 760 06 Nov 13 21.96 15,756.11 1.4 4449.76 11,355.89 Dec
Indika Energy (Reuters: INDY.JK, Bloomberg: INDY IJ) $ in mn, year-end Dec FY11A FY12A FY13E Revenue ($ mn) 593 750 832 Net Profit ($ mn) 128 66 (35) EPS ($) 0.025 0.013 -0.007 DPS ($) 0.00 0.01 0.01 Revenue growth (%) 43.2% 26.3% 11.0% EPS growth (%) 68.0% (48.2%) (153.4%) ROCE 2.1% 2.3% 19.3% ROE 19.6% 9.1% (4.8%) P/E (x) 2.7 5.2 NM P/BV (x) 0.5 0.4 0.5 EV/EBITDA (x) 6.8 5.9 3.5 Dividend Yield 4.6% 12.5% 9.0%
FY14E 922 34 0.007 0.00 10.8% (196.0%) 0.5% 5.2% 10.2 0.5 6.8 0.0%
FY15E 1,061 56 0.011 0.00 15.1% 63.8% (1.1%) 8.0% 6.2 0.5 10.4 5.5%
464
Indika Energy: Summary of Financials

Income Statement $ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 593 43.2% 66 130.9% 21 (391.3%) 3.6% (67) 154 54.4% (16) 10.4% 128 68.0% 5,192 0.025 68.0%
Cash flow statement FY12 FY13E FY14E FY15E $ in millions, year end Dec 750 832 922 1,061 EBIT 26.3% 11.0% 10.8% 15.1% Depr. & amortization 134 119 89 62 Change in working capital 104.2% (11.3%) (25.0%) (31.1%) Taxes 35 16 6 (15) Cash flow from operations 64.5% (53.9%) (60.1%) (342.6%) 4.6% 1.9% 0.7% (1.5%) Capex (66) (65) (60) (50) Disposal/(purchase) 105 (2) 59 91 Net Interest (31.7%) (101.7%) (3500.9%) 52.9% Other (18) (24) (13) (18) Free cash flow 17.3% (1399.2%) 22.6% 19.5% 66 (35) 34 56 Equity raised/(repaid) (48.2%) (153.4%) (196.0%) 63.8% Debt raised/(repaid) 5,192 5,192 5,192 5,192 Other 0.013 -0.007 0.007 0.011 Dividends paid (48.2%) (153.4%) (196.0%) 63.8% Beginning cash Ending cash DPS Balance sheet Ratio Analysis $ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E $ in millions, year end Dec Cash and cash equivalents 379 350 522 319 379 EBITDA margin Accounts receivable 122 145 198 220 253 Net margin Inventories 11 21 16 18 21 Others 69 104 116 129 148 Current assets 702 691 923 758 889 Sales per share growth LT investments 330 314 290 273 304 Sales growth Net fixed assets 590 753 603 568 631 Net profit growth Total Assets 2,015 2,347 2,476 2,331 2,666 EPS growth Liabilities Interest coverage (x) Short-term loans 238 309 98 68 75 Payables 97 93 152 176 206 Net debt to equity Others 158 126 140 155 179 Sales/assets Total current liabilities 492 528 389 400 460 Assets/equity Long-term debt 121 178 180 184 223 ROE Other liabilities 548 617 1,025 880 975 ROCE Total Liabilities 1,160 1,323 1,594 1,464 1,658 Shareholder's equity 706 797 664 653 756 BVPS ($) 0.14 0.15 0.13 0.13 0.15 Source: Company reports and J.P. Morgan estimates.
FY11 21 45 (66) (32) 98 (342) 18 (67) 168 (183) 0 164 74 (16) 235 382 0.00 FY11 11.1% 21.5%
FY12 35 100 0 (45) 22 (181) 190 (66) 213 (105) 0 (29) (8) (43) 379 352 0.01 FY12 17.9% 9.2%
FY13E 16 103 (29) (24) (54) (114) (9) (65) 140 814 0 267 (8) (31) 319 519 0.01 FY13E 14.3% (4.2%)
FY14E FY15E 6 (15) 83 77 (22) (8) (13) (18) (41) 41 (81) (10) (60) 69 (76) 0 (106) (8) (0) 486 319 0.00 (95) (12) (50) 91 (14) 0 20 (9) (19) 351 380 0.00
FY14E FY15E 9.7% 5.8% 3.7% 5.3%
43.2% 26.3% 11.0% 10.8% 15.1% 43.2% 26.3% 11.0% 10.8% 15.1% 68.0% (48.2%) (153.4%) (196.0%) 63.8% 68.0% (48.2%) (153.4%) (196.0%) 63.8% 1.0 2.1 1.8 1.5 1.2 (9.8%) 0.4 2.5 19.6% 2.1% 18.5% 0.3 2.9 9.1% 2.3% (20.2%) 0.3 3.3 (4.8%) 19.3% 1.4% 0.6% 0.4 0.4 3.7 3.5 5.2% 8.0% 0.5% (1.1%)
465
Indofood Agri Resources Ltd

Underweight
http://www.indofoodagri.com
IFAR.SI,IFAR SP Price: S$0.89 Price Target: S$0.60
Singapore Plantations Ying-Jian Chan, CFA

AC
Company overview IndoAgri follows a vertically integrated agri business involved in both upstream oil palm plantations and downstream CPO refining. It has leading market shares in the Indonesian branded cooking oil and shortening & margarine markets. The company entered into sugar plantation and production with the acquisition of LPI in 2008. Investment case We expect IFAR to be one of the few companies in the sector to report production decline for FFB and CPO for the full year FY13; any catalyst for a sharp recovery in FY14 seems absent. We forecast weak c.5% growth in nucleus FFB/CPO production for FY14E translating into Y/Y sales/EPS growth of 10%/20%, respectively. Also, net gearing has consistently increased 3.5x from c.12% in 1Q12 to c.42% in 3Q13; increased leverage in a rising IR environment may further pull profitability down. Resilience of the growth outlook Weak 9M13 production and a cautious 4Q13/FY14 outlook: the company is now guiding 5% Y/Y decline in FFB production for FY13E after reporting a 5%/12% decline in FFB/CPO production in 9M13. Management also expects the interest rates to rise further after a Q/Q increase of 150% in 3Q13 which translates into further drag on the groups profitability. Risks to the earnings outlook in 2014 Slowdown in CPO production growth may curb the supply, and faster than expected B10 biodiesel program roll out in Indonesia may augment the CPO demand; both of these may lead to a better than expected recovery in CPO prices. Price target, and risks to our investment view Our Dec-2014 price target of S$0.60 is based on SOTP comprising IndoAgri's 72% stake in SIMP and the net cash/(debt) position at the holding company level, applying a 5% holding company discount per historical average. Our valuation of IndoAgris 72% stake in SIMP is based on our PT of Rp620/share. Our IFAR PT implies a P/E of 10.7x/16.2x for FY13E/14E, respectively. Key upside risks to our PT include: (1) Strong recovery in CPO prices and (2) Growth via synergistic M&A.

Price Performance
1.3 S$ 1.1 0.9 0.7
IFAR.SI share price (S$) FTSTI (rebased)
Abs Rel
YTD -33.7% -34.9%
1m 11.3% 9.2%
3m 3.5% 4.1%
12m -27.8% -34.0%
1,434 1,269 1,022 0.89 06 Nov 13 28.0% 2.81 2.31 1.9 3205.54 1.24 Dec
Indofood Agri Resources Ltd (Reuters: IFAR.SI, Bloomberg: IFAR SP) Rp in bn, year-end Dec FY11A FY12A FY13E Revenue (Rp bn) 12,605 13,845 11,775 Net Profit (Rp bn) 1,490 1,049 477 Net Profit (Recurring) (Rp bn) 1,356 1,051 477 EPS (Rp) 1,035.56 731.60 332.27 EPS (Recurring) (Rp) 942.46 732.77 332.27 DPS (Rp) 22.09 67.21 30.48 Revenue growth (%) 32.9% 9.8% (15.0%) EPS growth (%) 6.9% (29.4%) (54.6%) EPS Recurring Growth 13.7% (22.2%) (54.7%) ROE 11.4% 7.9% 3.4% P/E (x) 7.8 11.1 24.3 P/BV (x) 0.9 0.8 0.8 Dividend Yield 0.3% 0.8% 0.4%
FY14E 14,338 721 721 502.84 502.84 46.12 21.8% 51.3% 51.3% 5.0% 16.1 0.8 0.6%
FY15E 15,127 711 711 495.52 495.52 45.45 5.5% (1.5%) (1.5%) 4.7% 16.3 0.7 0.6%
466
Indofood Agri Resources Ltd: Summary of Financials

Income Statement Rp in billions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Minority Interest Net income (reported) % change Y/Y Net Profit (Recurring) Shares outstanding EPS (reported) FY11 12,605 32.9% 4,266 23.6% 33.8% 3,779 24.7% 30.0% (224) 3,553 33.8% (913) 25.7% (1,151) 1,490 6.3% 1,356 1,439 1,035.56 FY11 6,535 1,033 1,678 191 9,437 7,245 33,207 FY12 13,845 9.8% 3,335 (21.8%) 24.1% 2,745 (27.4%) 19.8% (267) 2,442 (31.3%) (623) 25.5% (769) 1,049 (29.6%) 1,051 1,434 731.60 FY12 5,082 1,064 1,889 282 8,318 8,461 34,811 FY13E 11,775 (15.0%) 2,334 (30.0%) 19.8% 1,655 (39.7%) 14.1% (529) 1,096 (55.1%) (274) 25.0% (345) 477 (54.6%) 477 1,434 332.27 FY13E 3,391 905 1,607 282 6,185 9,282 35,000 FY14E 14,338 21.8% 3,054 30.8% 21.3% 2,284 38.0% 15.9% (589) 1,658 51.3% (414) 25.0% (522) 721 51.3% 721 1,434 502.84 FY14E 2,071 1,102 1,956 282 5,412 10,013 36,457 FY15E 15,127 5.5% 3,205 5.0% 21.2% 2,346 2.7% 15.5% (672) 1,634 (1.5%) (408) 25.0% (515) 711 (1.5%) 711 1,434 495.52 Cash flow statement Rp in billions, year end Dec Profit before tax Depr. & amortization Change in working capital Other non-cash items Cash flow from operations Capex Disposal/(purchase) Cash flow from investing Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Cash flow from financing Net change in cash Beginning cash Ending cash Free cash flow DPS Ratio Analysis Rp in billions, year end Dec EBITDA margin Operating margin Net profit margin SG&A/Sales FY11 3,553 488 (279) 137 2,768 FY12 FY13E FY14E FY15E 2,442 1,096 1,658 1,634 590 679 769 859 88 197 (244) (75) 708 183 66 157 2,809 1,353 1,246 1,495
(1,770) (2,804) (3,000) (3,000) (3,000) 9 3 0 0 0 (1,972) (3,477) (3,000) (3,000) (3,000) 0 0 0 0 0 (1,198) (480) 0 500 500 3,137 (372) 0 0 0 0 (32) (44) (66) (65) 1,939 (884) (44) 434 435 2,735 (1,552) (1,691) (1,320) (1,071) 3,796 6,535 5,082 3,391 2,071 6,535 5,082 3,391 2,071 1,001 998 4 (1,647) (1,754) (1,505) 22.09 67.21 30.48 46.12 45.45 FY11 33.8% 30.0% 10.8% 9.0% FY12 FY13E FY14E FY15E 24.1% 19.8% 21.3% 21.2% 19.8% 14.1% 15.9% 15.5% 7.6% 4.0% 5.0% 4.7% 9.6% 0.0% 0.0% 0.0%
Balance sheet Rp in billions, year end Dec Cash Accounts receivable Inventories Others Current assets LT investments Net fixed assets Total Assets
Short-term loans 3,334 2,664 2,664 2,664 Payables 1,282 1,636 1,391 1,694 Others 176 310 310 310 Total current liabilities 4,792 4,609 4,365 4,668 Long-term debt 3,201 3,390 3,390 3,890 Other liabilities 3,773 3,984 3,984 3,984 Total Liabilities 11,766 11,983 11,738 12,541 Shareholder's equity 12,819 13,796 14,229 14,884 Total Liabilities & equity 33,207 34,811 35,000 36,457 BVPS (Rp) 8,909.27 9,618.93 9,920.72 10,377.44 Source: Company reports and J.P. Morgan estimates.
FY15E 1,001 1,163 2,064 282 4,510 - Sales growth 10,654 EBIT growth 37,696 Net profit growth EPS growth 2,664 1,787 Interest coverage (x) 310 Net debt to equity 4,761 4,390 Sales/assets 3,984 Assets/equity 13,134 ROE 15,530 ROCE 37,696 10,827.51
32.9% 9.8% (15.0%) 21.8% 5.5% 24.7% (27.4%) (39.7%) 38.0% 2.7% 6.3% (29.6%) (54.6%) 51.3% (1.5%) 6.9% (29.4%) (54.6%) 51.3% (1.5%) 19.1 0.0% 12.5 4.3% 4.4 11.4% 5.2 4.8 18.7% 24.6%
0.4 0.4 0.3 0.4 0.4 257.7% 255.6% 249.1% 245.4% 243.8% 11.4% 7.9% 3.4% 5.0% 4.7% 14.7% 10.4% 6.2% 8.2% 8.0%
467
Innolux Corporation
Underweight
www.innolux.com
Taiwan Semiconductors Narci Chang

AC
Price Performance
22 18 NT$ 14 10
Abs Rel
YTD -38.1% -44.6%
1m -21.4% -20.4%
3m -23.7% -26.7%
12m -7.2% -21.6%
Company overview Innolux was established in Mar10 with the merger of CMO, Innolux and TPO, and carries the business of LCD panels and OEM. It is currently ranked No. 1 in terms of LCD TV panel shipments and is among the Top 2 in the global monitor OEM market. Investment case Increased channel inventory and TV ASP decline led to Innoluxs first OP decline in 3Q13 after 6 consecutive quarters of improvement. We expect further panel price weakness in 4Q13 and 1Q14, implying that Innolux will start recording losses from 4Q13. We expect the share price to trade lower along with the panel price trend. Resilience of the growth outlook The TFT-LCD panel supply/demand gap will likely widen in 2014. We expect 3%/9% capacity Y/Y growth in 2014/15 (factoring in UTR cut), compared to 5%/7% Y/Y demand growth. We expect panel price decline to last throughout 2H13 and 2014 unless panel makers cut UTR more aggressively. We see limited total LCD TV growth in the next 2 years with slower size mix migration for the UHD resolution upgrade. Innolux has NT$90bn short-term debt due within one year. With cash on hand of NT$39bn and credit line of NT$30bn, we think it remains challenging for Innolux to repay its maturing debt. (net gearing ratio could rise again from 4Q13 as it we estimate losses in 4Q13). Risks to the earnings outlook in 2014 1.) Industry capacity could outgrow area demand. Panel price could see further downside risk if industry lacks discipline on controlling UTR. 2.) We believe 4K2K is a nice feature and demand will only be driven by price elasticity. Upside in TV panel shipment could be offset by steeper price decline. 3.) Innoluxs BS is highly leveraged and large debts will mature next year. To meet the debt obligation, there could be risks in raising equity, leading to equity dilution, in our view. Price target, and risks to our investment view Dec-14 PT of NT$10 is based on 0.5x P/B (down cycle valuation). We believe muted demand in TV/PC and ongoing panel price decline will be negative share price drivers. We expect Samsung and BOEs G8.5 new capacity to put severe pressure on Innoluxs leading market share position in China. Key risks: 1.) Higher-thanexpected panel prices due to strong end demand outlook. 2.) Better cost reduction due to introduction of 29, 39, 50, 58 TV panels 3.) Order gains through the help of Hon Hai group.
FY12 FY13E FY14E FY15E Date of Price (5.2%) (13.6%) (21.8%) (8.6%) 52-Week range (69.1%) (183.5%) (101.3%) 1764.5% Market Cap (54.7%) (121.4%) (169.1%) 51.1% Market Cap 1Q 2Q 3Q 4Q Share Out. (Com) -1.7 -1.3 -0.5 -0.4 Free float 0.2 0.4 0.1 -0.0 Avg daily val -0.1 -0.1 -0.1 -0.0 Avg daily val (US$) -31.9 Avg daily vol. 10 Dividend yield (%) 15 Exchange Rate 06 Nov 13 NT$20.95-10.30 NT$93,750B US$3,185MM 9,102MM NT$0.7B 23.9MM 53.0MM shares 0.0 29.43

(Year-end Dec, NT$ bn) Sales Operating Profit EBITDA Net profit EPS BPS (NT$) P/E (x) P/BV (x) ROE (%) Net Debt
FY12 FY13E FY14E FY15E 483.6 417.8 326.6 298.6 Sales growth -19.3 16.2 -0.2 -3.8 OP growth 62.3 94.0 67.6 60.7 NP growth -29.2 6.2 -4.3 -6.5 Quarterly EPS (NT$) -3.9 0.7 -0.5 -0.7 EPS (12) 21.8 21.3 20.8 20.1 EPS (13) E NM 14.9 NM NM EPS (14) E 0.5 0.5 0.5 0.5 Difference (%) -15.7 3.4 -2.3 -3.5 Price Target 228.0 168.4 116.7 75.3 Consensus PT
468
Innolux Corporation: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) FY11 FY12 FY13E FY14E FY15E 510,081 483,610 417,817 326,617 298,621 (545,290) (478,873) (378,174) (303,160) (278,710) (35,209) 4,737 39,642 23,457 19,910 (10,361) (12,080) (13,393) (13,351) (13,352) (17,131) (12,002) (10,092) (10,309) (10,342) (62,700) (19,345) 16,157 (203) (3,784) 30,709 62,276 94,028 67,586 60,740 673 924 249 314 386 (5,884) (7,700) (5,043) (4,339) (3,578) (5,212) (6,776) (4,793) (4,025) (3,192) (1,818) (3,950) (69,730) (30,071) 4,970 597 (64,440) (29,205) (64,440) (29,205) (4,715) 6,649 (415) 6,237 6,237 0.69 0.69 21.26 0.00 9,030 (500) (4,728) 421 (4,307) (4,307) (0.47) (0.47) 20.78 0.00 9,102
Ratio Analysis NT$ in millions, year end Dec Gross margin EBITDA margin Operating margin Net margin R&D/sales SG&A/Sales Sales growth Operating profit growth Net profit growth
FY11 FY12 (6.9%) 1.0% 6.0% 12.9% (12.3%) (4.0%) (12.6%) (6.0%) 2.0% 2.5% 3.4% 2.5%
FY13E 9.5% 22.5% 3.9% 1.5% 3.2% 2.4%
FY14E FY15E 7.2% 6.7% 20.7% 20.3% (0.1%) (1.3%) (1.3%) (2.2%) 4.1% 4.5% 3.2% 3.5%
3.4% (5.2%) (13.6%) (21.8%) (8.6%) 1264.1% (69.1%) (183.5%) (101.3%) 1764.5% 334.4% (54.7%) (121.4%) (169.1%) 51.1% 282.4% (55.8%) (117.7%) (168.5%) 5.9 9.2 19.6 46.5% 87.0% 0.8 NM 3.4% 2.5% FY13E 6,237 77,871 (9,177) (3) 74,928 (19,957) (29,717) 59,465 0 (61,370) 14,360 0 (47,010) (1,799) 41,006 39,207 16.8 38.2% 61.7% 0.7 NM (2.3%) (0.2%) FY14E (4,307) 67,789 7,679 0 71,161 (20,000) (19,444) 55,544 0 (37,667) (13) 0 (37,680) 14,036 39,207 53,244 51.1% 19.0 29.2% 41.2% 0.7 18.5 (3.5%) (1.1%) FY15E (6,507) 64,524 3,355 0 61,372 (20,000) (19,966) 44,848 0 (25,873) (1) 0 (25,874) 15,532 53,244 68,776
EPS (reported) (8.81) (3.89) EPS (adjusted) (8.81) (3.89) BVPS 27.17 21.79 DPS 0.00 0.00 Shares outstanding 7,313 7,505 Balance sheet NT$ in millions, year end Dec FY11 FY12 Cash and cash equivalents 54,378 41,006 Accounts receivable 74,629 83,267 Inventories 59,301 42,068 Others 24,275 8,287 Current assets 212,583 174,628 LT investments 22,060 23,623 Net fixed assets 403,808 328,298 Others 45,215 44,309 Total Assets 683,665 570,858 Liabilities ST Loans 275,820 116,871 Payables 119,355 95,216 Others 23,997 24,943 Total current liabilities 419,172 237,030 Long-term debt 54,966 152,100 Other liabilities 10,859 9,287 Total Liabilities 484,997 398,416 Shareholder's equity 198,668 172,442 Source: Company data and J.P. Morgan estimates
FY13E FY14E 39,207 53,244 59,756 53,730 46,915 39,748 4,479 3,948 150,357 150,670 7,795 7,795 288,426 240,638 51,855 51,298 498,432 450,401 88,972 67,820 20,689 177,481 118,629 8,841 304,951 193,481 62,938 62,690 19,775 145,404 106,995 8,828 261,227 189,174
(167) EPS (reported) growth (7,143) 636 Interest coverage (x) (6,507) (6,507) Net debt to total capital Net debt to equity (0.71) (0.71) Asset turnover 20.07 Working capital turns (x) 0.00 ROE 9,102 ROIC Cash flow statement FY15E NT$ in millions, year end Dec 68,776 Net income 49,535 Depr. & amortization 34,201 Change in working capital 3,642 Other 156,153 Cash flow from operations 7,795 Capex 196,115 Disposal/(purchase) 51,263 Cash flow from investing 411,326 Free cash flow Equity raised/(repaid) 53,356 Debt raised/(repaid) 57,270 Other 18,502 Dividends paid 129,127 Cash flow from financing 90,705 Net change in cash 8,827 Beginning cash 228,659 Ending cash 182,667
58.2% 56.9% 139.1% 132.2% 0.7 0.8 NM NM (27.9%) (15.7%) (11.0%) (4.8%) FY11 FY12 (64,440) (29,205) 93,409 81,621 (20,935) 1,390 (321) (268) 7,714 53,537 (45,642) (16,844) - 10,076 (52,054) (6,768) (32,345) 53,680 0 0 37,455 (61,816) (1,297) 1,675 0 0 36,157 (60,141) (8,183) (13,372) 62,561 54,378 54,378 41,006
469
Kerry Properties
Neutral
www.kerryprops.com
Company overview Kerry Properties is a property developer and investor in Hong Kong and China. In HK, the company positions itself as a luxury residential developer, while in China it develops mixed-use projects, with offices, retail and residential. Kerry also engages in the logistics business, with a global network. Investment case We expect HK residential sales will be challenging for Kerry going forward given that most projects are targeting the high-end market, such as Ede Road project in Kowloon Tong. Unless the company offers a comparable price to the secondary market, volume is expected to be slow. If China contract sales do not pick up significantly in 2014, we think that next years contract sales could be lower than this year. Resilience of the growth outlook We estimate FY14E earnings will drop 12% mainly due to a lower contribution from HK residential sales. The opening of Jing An Kerry Centre is likely to bring in more rental income but we do not think it is sufficient to compensate for slow residential sales.
12m -16.1% -21.1%

AC
Price Performance
44 40 HK$ 36 32 28
Abs Rel
YTD -18.1% -19.8%
1m -1.9% -1.5%
3m -2.5% -7.6%
Risks to the earnings outlook in 2014 A slowdown in sales progress of residential sales might affect the construction and growth of the company. Since Kerry adopts a matching strategy in sales and construction, completion of some projects might be changed to a later date. In 1H13 results, we found that a number of projects have been moved to a later expected completion date. Price target, and risks to our investment view Our Jun-14 price target of HK$34.5 is based on 50% discount to NAV, 0.5 standard deviations below long-term average discount. Downside risks to our price target include interest rate hike, slower-than-expected residential sales progress and construction slippage of its mixed-use projects in China. Upside risks include betterthan-expected HK residential sales, better-than-expected China projects delivery and upside surprise in potential logistics spin-off.
1,440 47,445 6,120 32.95 06 Nov 13 67.3% 1.50 49.17 6.3 2,3038.95 7.75 Dec
Kerry Properties Limited (Reuters: 0683.HK, Bloomberg: 683 HK) HK$ in mn, year-end Dec FY11A FY12A FY13E Revenue (HK$ mn) 20,660 34,513 33,576 Net Profit (HK$ mn) 3,657 4,695 4,155 Core Profit (HK$ mn) 3,625 4,704 4,155 EPS (HK$) 2.54 3.26 2.89 Core EPS (HK$) 2.52 3.27 2.89 Core EPS growth (%) 11.0% 29.7% (11.7%) DPS (HK$) 0.87 0.95 0.85 ROE 6.0% 7.0% 5.8% P/E (Core) 13.1 10.1 11.4 P/BV (x) 0.7 0.7 0.6 BVPS (HK$) 44.46 49.21 51.15 RNAV/Share 70.50 Dividend Yield 2.6% 2.9% 2.6%
FY14E 33,608 3,676 3,676 2.55 2.55 (11.5%) 0.85 4.9% 12.9 0.6 52.85 68.58 2.6%
FY15E 35,482 4,082 4,082 2.83 2.83 11.1% 0.85 5.3% 11.6 0.6 54.84 2.6%
470
Kerry Properties: Summary of Financials

Income Statement HK$ in millions, year end Dec Revenues % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Core net profit % change Y/Y Shares outstanding EPS (reported) (HK$) % change Y/Y Core EPS (HK$) % change Y/Y Balance sheet HK$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 20,660 (2.7%) 3,248 (24.6%) 15.7% (137) 5,109 2.9% (1,075) 21.0% 3,657 7.4% 3,625 11.3% 1,438 2.54 7.2% 2.52 11.0% FY11 17,574 6,836 2,700 9,849 37,102 FY12 34,513 67.0% 6,650 104.8% 19.3% (258) 6,956 36.2% (1,263) 18.2% 4,695 28.4% 4,704 29.8% 1,439 3.26 28.3% 3.27 29.7% FY12 16,066 8,074 5,063 5,839 35,224 FY13E 33,576 (2.7%) 5,926 (10.9%) 17.6% (351) 6,250 (10.2%) (1,561) 25.0% 4,155 (11.5%) 4,155 (11.7%) 1,440 2.89 (11.6%) 2.89 (11.7%) FY13E 14,047 6,191 5,063 6,386 31,870 14,573 90,707 137,150 2,565 11,324 2,312 16,201 26,683 4,502 47,387 73,653 51.15 FY14E 33,608 0.1% 5,169 (12.8%) 15.4% (448) 5,759 (7.9%) (1,322) 23.0% 3,676 (11.5%) 3,676 (11.5%) 1,440 2.55 (11.5%) 2.55 (11.5%) FY14E 14,283 7,034 5,063 6,988 33,550
Cash flow statement HK$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS (HK$) Ratio Analysis %, year end Dec EBIT margin Net margin SG&A/Sales
FY11 3,248 353 (3,428) (119) 4,360 (5,202) 1,196 (433) 462 41 2,306 7,015 (1,461) 10,444 16,102 0.87 FY11 15.7% 17.5% (2.8%) (2.7%) 11.3% 11.0% 26.3 13.5% 15.6% 0.2 1.9 6.0% 3.0%
FY12 6,650 429 5,445 (756) 11,867 (15,220) 444 (735) (2,697) 14 11,000 (8,041) (1,490) 16,102 14,155 0.95 FY12 19.3% 13.6% 66.9% 67.0% 29.8% 29.7% 27.4 15.6% 18.4% 0.3 1.9 7.0% 5.5%
FY13E 5,926 472 1,883 (1,021) 6,805 (16,688) 0 (1,034) (9,620) 0 1,000 10,000 (1,224) 14,155 14,047 0.85 FY13E 17.6% 12.4% (2.8%) (2.7%) (11.7%) (11.7%) 18.2 14.5% 16.9% 0.2 1.9 5.8% 4.3%
FY14E 5,169 519 (843) (1,316) 3,459 (3,000) 0 (1,245) 805 0 1,000 0 (1,224) 14,047 14,283 0.85 FY14E 15.4% 10.9% 0.1% 0.1% (11.5%) (11.5%) 12.7 16.1% 19.2% 0.2 1.9 4.9% 3.8%
LT investments 13,608 14,573 Net fixed assets 72,658 87,333 Total Assets 123,369 137,130 Liabilities ST loans 8,112 2,565 Payables 10,444 11,324 Others 1,935 2,312 Total current liabilities 20,491 16,201 Long-term debt 21,552 29,524 Other liabilities 3,875 4,502 Total Liabilities 45,918 50,228 Shareholder's equity 63,922 70,792 BVPS 44.46 49.21 Source: Company reports and J.P. Morgan estimates.
Sales per share growth 14,573 Sales growth 94,200 Net profit growth 142,324 EPS growth Interest coverage (x) 2,565 Net debt to total capital 11,324 Net debt to equity 2,312 Sales/assets 16,201 Assets/equity 29,405 ROE 4,502 ROCE 50,108 76,105 52.85
471
Lite-On Technology Corporation

Underweight
www.liteon.com
Company overview LoT is a leading PC component provider in the world, with its products including power supplies, LEDs, ODD (optical disc drive) and enclosures. Key customers include HP, Dell, Acer and other PC OEMs. Investment case We expect LoTs 2014 earnings growth to slow down to 4% from 19% in 2013, with 70% of its business focusing on the declining segment (PC-related and sluggish mobile plastic casing) and its LED / camera module exposure still looks immaterial to move the needle. Resilience of the growth outlook We dont expect any upside surprise from its legacy PC-related business (power supply, storage and NB keyboard etc that contribute 50-60% of LoTs sales) given tepid PC industry outlook. Its mobile business LoM (10-15% of sales) will also languish due to product transition (from assembly to casing/mechanic parts) and limited traction from non-Nokia customers.
Taiwan Electronic Manufacturing Services William Chen

AC
(886-2) 2725-9871 william.chen@jpmorgan.com J.P. Morgan Securities (Taiwan) Limited
Price Performance
55 50 NT$ 45 40 35
Abs Rel
YTD 27.9% 21.4%
1m 1.2% 2.2%
3m 0.6% -2.4%
12m 35.0% 20.6%
Risks to the earnings outlook in 2014 We believe if the PC industry bottoms out faster than expected in 2014, then LoT should get a respite and see slower downward mobility in ASP and volumes. Any meaningful customer wins for its mobile business might also bring some earnings upside, given currently 90+% of LoMs sales comes from Nokia, which doesnt seem to come with a rosy growing trajectory. Price target, and risks to our investment view Our Jun-14 PT of NT$40.0 is based on 10x FY14E EPS, which is the mid point of 713x PE multiple in the last 5 years. We believe the multiple could also reflect its immense exposure to the declining PC industry. Key risks to our investment view are (1) another ROE accretive deal (e.g. Silitech) in addition to LoIT, (2) new customer breakthroughs (e.g. Apple), (3) better demand of LED lighting, and (4) faster SSD growth to offset ODD weakness.

FY11 FY12 FY13E FY14E 230.52 216.05 212.19 222.60 12.22 10.89 11.32 11.56 17.91 16.74 17.88 19.15 12.47 11.97 11.86 12.03 7.23 7.53 8.96 9.28 3.14 3.29 3.90 4.04 NM NM NM NM 38.56 39.13 39.97 41.21
FY11 16.2 1.3 08.2 2.8 1Q 0.59 0.69 0.83
FY12 FY13E FY14E 15.5 13.0 12.6 1.3 1.3 1.2 08.4 09.9 10.0 2.3 2.4 2.8 2Q 3Q 4Q 0.83 0.86 1.01 0.95 1.18 1.08 1.02 1.13 1.06
40 53.83-35.57 2,295mn 4.17mn 7.1mn 4.6% 3,970mn
472
Lite-On Technology Corporation: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) Ratio Analysis FY10 FY11 FY12 FY13E FY14E NT$ in millions, year end Dec 230,045 230,520 216,046 212,190 222,602 Gross margin (193,793) (196,472) (185,419) (180,574) (189,858) EBITDA margin 36,253 34,048 30,628 31,617 32,744 Operating margin (4,558) (5,098) (5,712) (6,059) (6,455) Net margin (17,719) (16,730) (14,023) (14,240) (14,725) R&D/sales 13,975 12,220 10,892 11,317 11,564 SG&A/Sales 20,600 17,914 16,742 17,881 19,150 400 578 1,064 1,135 1,324 Sales growth (490) (590) (555) (514) (686) Operating profit growth (90) (11) 510 621 638 Net profit growth 0 14,849 (2,964) 8,986 8,986 0 12,473 (2,752) 7,226 7,226 0 11,971 (2,452) 7,535 7,535 0 11,862 (2,632) 8,956 8,956 FY10 15.8% 9.0% 6.1% 3.9% 2.0% 7.7% FY11 FY12 FY13E FY14E 14.8% 14.2% 14.9% 14.7% 7.8% 7.7% 8.4% 8.6% 5.3% 5.0% 5.3% 5.2% 3.1% 3.5% 4.2% 4.2% 2.2% 2.6% 2.9% 2.9% 7.3% 6.5% 6.7% 6.6% 4.9% 2.2% 3.6%
23.6% 0.2% (6.3%) (1.8%) 39.0% (12.6%) (10.9%) 3.9% 27.4% (19.6%) 4.3% 18.9%
EPS (reported) 3.94 3.14 3.29 3.90 EPS (adjusted) 3.94 3.14 3.29 3.90 BVPS 38.17 38.56 39.13 39.97 DPS 2.20 2.81 2.26 2.35 Shares outstanding 2,279 2,303 2,287 2,296 Balance sheet NT$ in millions, year end Dec FY10 FY11 FY12 FY13E Cash and cash equivalents 50,925 56,627 60,603 70,769 Accounts receivable 40,847 45,554 44,231 46,679 Inventories 26,367 27,698 20,639 26,140 Others 6,518 6,906 7,635 7,303 Current assets 124,656 136,785 133,109 150,891 LT investments 9,386 7,936 5,722 5,867 Net fixed assets 37,849 39,986 37,476 36,688 Others 20,601 19,354 18,891 20,092 Total Assets 192,492 204,061 195,198 213,538 Liabilities ST Loans 7,031 5,995 11,484 18,055 Payables 56,652 61,915 52,388 54,667 Others 23,124 22,080 19,869 18,621 Total current liabilities 86,807 89,990 83,741 91,344 Long-term debt 16,711 23,862 20,380 27,656 Other liabilities 1,754 1,130 1,259 2,761 Total Liabilities 105,271 114,983 105,379 121,760 Shareholder's equity 87,221 89,078 89,819 91,778 Source: Company reports and J.P. Morgan estimates.
0 EPS (reported) growth 26.2% (20.4%) 5.0% 18.4% 3.6% 12,032 (2,670) Interest coverage (x) 229.2 1,612.5 NM NM NM 9,282 9,282 Net debt to total capital (45.3%) (43.0%) (47.1%) (37.6%) (44.8%) Net debt to equity NM NM NM NM NM 4.04 4.04 Asset turnover 1.2 1.2 1.1 1.0 1.0 41.21 Working capital turns (x) 6.1 5.4 4.5 3.9 3.6 2.81 ROE 10.6% 8.2% 8.4% 9.9% 10.0% 2,296 ROIC 41.9% (118.4%) (2.2%) 67.7% Cash flow statement FY14E NT$ in millions, year end Dec FY10 FY11 FY12 FY13E FY14E 74,980 Net income 8,986 7,226 7,535 8,956 9,282 46,833 Depr. & amortization 6,626 5,693 5,850 6,564 7,586 26,226 Change in working capital (3,343) (2,207) (4,086) (6,586) (179) 7,328 Other 155,366 Cash flow from operations 9,371 8,216 7,314 8,660 16,609 5,897 Capex (8,102) (7,831) (3,340) (5,776) (6,000) 35,102 Disposal/(purchase) 721 1,247 463 (1,200) 0 20,092 Cash flow from investing (7,485) (5,134) (663) (7,121) (6,029) 216,457 Free cash flow 2,062 1,642 4,032 1,200 10,112 Equity raised/(repaid) 227 252 (147) 7 0 18,055 Debt raised/(repaid) (2,068) 6,115 2,006 13,848 0 54,691 Other (1,105) (2,269) (3,330) (375) (80) 18,682 Dividends paid (5,022) (6,470) (5,174) (5,400) (6,448) 91,428 Cash flow from financing (7,967) (2,372) (6,645) 8,079 (6,528) 27,656 Net change in cash (6,081) 710 6 9,617 4,051 2,761 Beginning cash 51,210 50,925 56,627 60,603 70,769 121,845 Ending cash 50,925 56,627 60,603 70,769 74,980 94,612
473
Lonking Holdings Ltd

Underweight
www.lonkinggroup.com/
China Industrial Machinery Karen Li, CFA

AC
Company overview Founded in 1993, Lonking is a leading wheel loader manufacturer in China, selling a total of 25,073 wheel loaders in 2012 (market share of 14.4%). Lonking also manufactures excavators, road rollers, motor graders and forklifts. The company has 19 wholly-owned subsidiaries and four production bases, respectively, located in Fujian, Shanghai, Jiangxi and Henan, covering over 3MM square meters. Investment case Despite ongoing industry recovery, Lonking has been losing market share amidst intensifying competition. A stretched balance sheet and weak cash conversion has inhibited the company's ability to pursue growth. Resilience of the growth outlook Competition among the top 5 domestic wheel loader producers has been heating up, while other foreign leading excavator brands are trying to break in by M&As. Lonking, has been losing out the battle as its market share shrank by c4ppts since 2012. We expect Lonkings weak market position, constrained by high-gearing and working capital requirements, to persist into 2014, which may continue to weigh on its earnings growth outlook.
12m -17.0% -15.4%
Price Performance
2.4 HK$ 2.0 1.6 1.2
Abs Rel
YTD -21.1% -13.5%
1m -3.0% -3.4%
3m 0.6% -8.8%
Risks to the earnings outlook in 2014 Our 2014 earnings estimate is 10% below Street consensus. A key upside risk to our 2014 earnings forecast is the better than expected market share gains in the domestic wheel loader market. Price target, and risks to our investment view Our Dec-14 based PT of HK$1.40 for Lonking is based on the DCF valuation while taking into consideration the peer valuation and the companys own historical valuation. Our PT corresponds to a target P/E of 13x/10x, and P/B of 0.9x/0.8x on 2013-2014E. Key upside risks to our PT include: (1) Stronger-than-expected recovery in wheel loader sales and excavator sales; (2) Better-than-expected overseas expansions; 3) Better-than-expected receivable collections.
5,021 6,362 1,043 1.61 06 Nov 13 22.85 39.07 5.0 1,0637.15 7.75 Dec
Lonking Holdings Ltd (Reuters: 3339.HK, Bloomberg: 3339 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E Revenue (Rmb mn) 12,721 7,896 7,944 Net Profit (Rmb mn) 1,730 152 451 EPS (Rmb) 0.40 0.04 0.09 DPS (Rmb) 0.07 0.00 0.02 Revenue growth (%) 5.8% (37.9%) 0.6% EPS growth (%) (2.1%) (91.2%) 153.4% ROCE 17.1% 3.2% 6.8% ROE 29.7% 2.4% 7.0% P/E (x) 3.1 35.8 14.1 P/BV (x) 1.0 1.0 1.0 EV/EBITDA (x) 4.4 9.6 7.7 Dividend Yield 5.5% 0.0% 1.2%
FY14E 8,553 554 0.11 0.02 7.7% 22.8% 7.4% 8.1% 11.5 0.9 7.0 1.5%
FY15E 9,172 627 0.12 0.02 7.2% 13.3% 7.7% 8.5% 10.1 0.8 6.4 1.6%
474
Lonking Holdings Ltd: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 12,721 5.8% 2,358 (7.5%) 2,065 (11.7%) 16.2% (367) 2,068 (3.5%) (338) 16.3% 1,730 (2.1%) 4,280 0.40 (2.1%) FY12 FY13E FY14E 7,896 7,944 8,553 (37.9%) 0.6% 7.7% 999 1,249 1,372 (57.6%) 25.1% 9.9% 663 881 969 (67.9%) 32.8% 10.0% 8.4% 11.1% 11.3% (304) (261) (219) 276 543 683 (86.7%) 97.0% 25.8% (124) (92) (130) 45.0% 17.0% 19.0% 152 451 554 (91.2%) 197.2% 22.8% 4,280 5,021 5,021 0.04 0.09 0.11 (91.2%) 153.4% 22.8% FY15E 9,172 7.2% 1,512 10.2% 1,074 10.8% 11.7% (208) 794 16.2% (167) 21.0% 627 13.3% 5,021 0.12 13.3%
Cash flow statement Rmb in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis Rmb in millions, year end Dec EBITDA margin Operating margin Net margin
FY11 2,065 292 (847) (392) 1,299 (1,028) 27 (367) (185) 604 0 2,119 (228) (565) 306 1,684 0.07 FY11 18.5% 16.2% 13.6% 5.8% 5.8% (2.1%) (2.1%) 6.4
FY12 663 336 1,647 (180) 1,079 (510) 48 (304) (660) 784 0 (159) (279) (314) 1,684 883 0.00 FY12 12.7% 8.4% 1.9%
FY13E FY14E 881 969 368 404 174 (577) (92) (130) 1,791 578 (465) 35 (261) 405 1,577 0 (1,486) (286) (75) 883 877 0.02 FY13E 15.7% 11.1% 5.7% (463) 37 (219) (103) 329 0 205 (245) (93) 877 860 0.02 FY14E 16.0% 11.3% 6.5% 7.7% 7.7% 22.8% 22.8% 6.3
FY15E 1,074 439 179 (167) 1,421 (463) 37 (208) (104) 1,159 0 (488) (235) (105) 860 993 0.02 FY15E 16.5% 11.7% 6.8% 7.2% 7.2% 13.3% 13.3% 7.3
Balance sheet Rmb in millions, year end Dec FY11 FY12 Cash and cash equivalents 1,684 883 Accounts receivable 3,130 2,944 Inventories 4,380 2,731 Others 1,328 307 Current assets 11,347 7,960 . LT investments 652 1,387 Net fixed assets 3,878 3,980 Total Assets 16,140 13,674 . Liabilities Short-term loans 795 1,184 Payables 2,723 1,048 Others 1,289 1,025 Total current liabilities 4,808 3,257 . Long-term debt 4,542 3,953 Other liabilities 384 219 Total Liabilities 9,734 7,429 Shareholder's equity 6,407 6,245 BVPS (Rmb) 1.28 1.24 Source: Company reports and J.P. Morgan estimates.
FY13E FY14E FY15E 877 860 993 2,394 2,578 2,764 2,557 3,134 2,955 148 157 170 6,673 7,479 7,687
Sales per share growth 1,339 1,330 1,328 Sales growth 4,083 4,149 4,180 Net profit growth 12,325 13,128 13,299 EPS growth 595 1,024 812 2,430 3,056 219 5,705 6,620 1.32 1,088 1,102 871 3,060 2,768 219 6,047 7,081 1.41 Interest coverage (x) 584 1,179 Net debt to equity 930 Sales/assets 2,692 Assets/equity ROE 2,784 ROCE 219 5,696 7,604 1.51
(37.9%) (14.2%) (37.9%) 0.6% (91.2%) 197.2% (91.2%) 153.4% 3.3 4.8
57.0% 68.1% 41.9% 42.3% 31.2% 0.9 0.5 0.6 0.7 0.7 254.2% 235.7% 202.2% 185.8% 180.0% 29.7% 2.4% 7.0% 8.1% 8.5% 17.1% 3.2% 6.8% 7.4% 7.7%
475
Lotte Chemical Corp

Underweight
english.lottechem.com/contents/main/main.asp
Company overview Lotte Chemical is one of the largest commodity petrochemicals in Korea and Asia. They have production in three different sites in Korea, in Malaysia and with affiliate companies in Pakistan and the UK. Their key focus is the Ethylene and Polyester chain. Investment case Trading at 1.1x BV (historical average), we think Lotte is too expensive for a company whose forecasted earnings will be below mid-cycle levels. Our 2014 earnings forecast is more than 30% below consensus and we only expect ROE of 6%. We note that Lotte is currently trading at 2010 valuations where earnings were more than double of forecasted 2013 earnings but with nearly 40% less capacity back then. Resilience of the growth outlook We believe the market is too optimistic in interpreting the stronger 3Q results as a turnaround in the petchem cycle. On the contrary, we believe 3Q was more of a blip helped by higher average oil price Q/Q but still part of an overall down cycle. We remain concerned on new Chinese petchem capacities in late 2013 and 2014 which will likely lead to lower Chinese imports negative for Korean exporters.
12m -9.5% -13.9%
South Korea Petrochemicals Samuel Lee, CFA

AC
Price Performance
280,000 240,000 W 200,000 160,000 120,000
Abs Rel
YTD -14.7% -15.5%
1m 7.2% 6.4%
3m 18.7% 13.1%
Risks to the earnings outlook in 2014 The biggest difference between our earnings forecast and consensus is likely the latter's being more positive on the Ethylene chain in general and a more bullish view on BD spreads in 2014. We remain more bearish not only because of new Chinese capacities but potentially more exports from low feedstock cost regions such as US and ME. Lower cotton prices will also be negative for Lotte's polyester business as well. Price target, and risks to our investment view Our Dec-14 PT of W140,000 is based on 0.7x 2014e BV, which we think is fair as we forecast Lottes ROE for 2014-15 to be only around 6%. As we forecast little earnings growth in 2014, we find Lotte's valuation too rich when we can buy companies like SK Innovation at 0.7x BV with significant earnings growth next year. Upside risks are Chinese capacity start-up delays, higher oil prices and large rebound in BD prices.
33 6,928 6,528 209,500 06 Nov 13 0.23 44.77 42.2 2013.67 1,061.15 Dec
Lotte Chemical Corp (Reuters: 011170.KS, Bloomberg: 011170 KS) W in bn, year-end Dec FY11A FY12A FY13E Revenue (W bn) 15,699 15,903 14,446 EBITDA (W bn) 1,870 832 928 Net Profit (W bn) 978 315 382 EPS (W) 30,701 9,512 11,133 DPS (W) 1,750 1,000 1,000 Revenue growth 26.6% 1.3% (9.2%) EPS growth 24.5% (69.0%) 17.0% ROCE 16.5% 4.1% 4.7% ROE 19.7% 5.5% 6.2% P/E (x) 6.8 22.0 18.8 P/BV (x) 1.4 1.2 1.1 EV/EBITDA (x) 3.4 7.7 7.0 Dividend Yield 0.8% 0.5% 0.5%
FY14E 14,250 965 408 11,896 1,000 (1.4%) 6.9% 4.9% 6.2% 17.6 1.1 6.3 0.5%
FY15E 14,132 952 396 11,543 1,000 (0.8%) (3.0%) 4.5% 5.8% 18.1 1.0 5.9 0.5%
476
Lotte Chemical Corp: Summary of Financials

Income Statement W in billions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 15,699 26.6% 1,870 20.4% 1,492 18.1% 9.5% (31) 1,526 18.8% (394) 25.8% 978 24.5% 32 30,701 24.5% FY12 15,903 1.3% 832 (55.5%) 372 (75.1%) 2.3% (28) 387 (74.7%) (60) 15.6% 315 (67.8%) 33 9,512 (69.0%) FY13E 14,446 (9.2%) 928 11.6% 449 20.7% 3.1% (1) 456 18.0% (73) 16.0% 382 21.3% 34 11,133 17.0% FY14E 14,250 (1.4%) 965 4.0% 466 3.9% 3.3% 10 486 6.4% (76) 15.6% 408 6.9% 34 11,896 6.9% FY15E 14,132 (0.8%) 952 (1.3%) 434 (6.9%) 3.1% 25 468 (3.6%) (71) 15.1% 396 (3.0%) 34 11,543 (3.0%)
Cash flow statement W in billions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis W in billions, year end Dec EBITDA margin Operating margin Net margin Sales per share growth Sales growth Net profit growth EPS growth Interest coverage (x) Net debt to equity Sales/assets Assets/equity ROE ROCE
FY11 1,492 379 (3) 1,618 (913) 20 (31) 75 728 215 (100) (65) 530 1,251 1,750 FY11 11.9% 9.5% 6.2%
FY12 372 460 (504) 103 (598) 0 (28) 435 (472) 125 (212) (70) 1,251 745 1,000 FY12 5.2% 2.3% 2.0%
FY13E FY14E FY15E 449 466 434 479 498 518 98 12 13 952 912 919 (400) 0 (1) 0 553 (259) 0 (70) 745 683 1,000 (400) 0 10 0 503 (208) 0 (70) 683 633 1,000 (400) 0 25 0 518 (166) 0 (70) 633 632 1,000
FY11 1,251 1,676 1,267 137 4,889
FY12 745 1,635 1,501 93 4,179
FY13E 683 1,486 1,363 93 3,830
FY14E 633 1,466 1,345 93 3,741
FY15E 632 1,453 1,334 93 3,717
FY13E FY14E FY15E 6.4% 6.8% 6.7% 3.1% 3.3% 3.1% 2.6% 2.9% 2.8%
LT investments 103 113 113 113 113 Net fixed assets 4,308 4,205 4,733 4,635 4,517 Total Assets 10,747 10,372 10,237 10,343 10,494 Liabilities Short-term loans 303 640 640 640 640 Payables 2,032 1,855 1,666 1,640 1,629 Others 393 177 177 177 177 Total current liabilities 2,728 2,673 2,483 2,457 2,447 Long-term debt 1,554 1,297 1,038 830 664 Other liabilities 306 318 318 318 318 Total Liabilities 4,589 4,288 3,839 3,606 3,429 Shareholder's equity 5,463 6,043 6,355 6,693 7,018 BVPS (W) 149,635 181,530 184,169 193,965 203,412 Source: Company reports and J.P. Morgan estimates.
26.6% (2.4%) (12.4%) (1.4%) (0.8%) 26.6% 1.3% (9.2%) (1.4%) (0.8%) 24.5% (67.8%) 21.3% 6.9% (3.0%) 24.5% (69.0%) 17.0% 6.9% (3.0%) 60.3 30.1 753.4 NM NM 0.8% 1.6 2.0 19.7% 16.5% 16.2% 1.5 1.8 5.5% 4.1% 12.4% 1.4 1.7 6.2% 4.7% 9.4% 1.4 1.6 6.2% 4.9% 6.6% 1.4 1.5 5.8% 4.5%
477
Maruti Suzuki India Ltd

Underweight
Marutisuzuki.com
MRTI.BO,MSIL IN Price: Rs1,614.55 Price Target: Rs1,350.00
Company overview Maruti Suzuki India Ltd. is India's largest passenger car OEM, with a market share of ~40%. The company is a subsidiary of the Japanese parent, Suzuki, which owns a 56% stake. Investment case Domestic macro environment remains challenging this, coupled with elevated competition and rising interest rates, will keep industry demand under pressure, in our view. Also, the recent currency volatility will likely pose downside risks to margins. Resilience of the growth outlook Management has guided for negative industry growth of 2-4% in FY14, as demand trends remain weak. Risks to the earnings outlook in 2014 A challenging macro environment, coupled with a weakening INR, should pressure margins over 2H. Further, as additional capacities have been commissioned, utilization levels will come under pressure which could impact profitability.
12m 11.2% 2.6%
India Automobile Manufacture Aditya Makharia

AC
(91-22) 6157-3596 aditya.s.makharia@jpmorgan.com J.P. Morgan India Private Limited
Price Performance
1,800 1,600 Rs 1,400 1,200
MRTI.BO share price (Rs) NIFTY (rebased)
Abs Rel
YTD 6.6% 2.2%
1m 13.0% 7.8%
3m 21.2% 9.1%
Price target, and risks to our investment view Our Mar-14 PT of Rs.1,350 is based on a 13x forward P/E (10% discount to the historical multiple). Risks include a revival in industry growth, forays into new export geographies, favorable forex rates and improved benefits from localization programs.
Maruti Suzuki India Ltd (Reuters: MRTI.BO, Bloomberg: MSIL IN) Rs in mn, year-end Mar FY11A FY12A FY13E Revenue (Rs mn) 362,997 348,778 428,378 Adjusted Net Profit (Rs mn) 22,887 16,352 23,920 Adjusted EPS (Rs) 79.2 56.6 79.2 DPS (Rs) 7 7 8 Revenue growth (%) 25% -4% 23% EPS growth (%) -8% -29% 40% ROE 17% 11% 13% P/E (x) 20.4 28.5 20.4 P/BV (x) 3.4 3.1 2.6 Dividend Yield 0% 0% 0%
Company Data Shares O/S (mn) Market Cap (Rs mn) Market Cap ($ mn) Price (Rs) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (Rs mn) 3M - Avg daily value ($ mn) NIFTY Exchange Rate Fiscal Year End
289 466,605 7,572 1,614.55 06 Nov 13 0.78 1,097.79 17.8 6253.15 61.63 Mar
FY14E 439,145 28,976 95.9 10 3% 21% 14% 16.8 2.3 1%
FY15E 491,747 31,487 104.2 10 12% 9% 13% 15.5 2.0 1%
478
Maruti Suzuki India Ltd: Summary of Financials

Income Statement Rs in millions, year end Mar Revenues % change Y/Y EBITDA % margin Net Interest Other Income Depreciation Profit before tax Tax as % of PBT Net income (Adjusted) % change Y/Y Shares outstanding (in mm) EPS % change Y/Y Balance sheet Rs in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets . LT investments Net fixed assets Total Assets . Liabilities Payables Others Total current liabilities Debt Other liabilities Total Liabilities Net Worth BVPS (Rs) Cash flow statement FY11 FY12 FY13E FY14E FY15E Rs in millions, year end Mar 362,997 348,778 428,378 439,145 491,747 EBIT 25% -4% 23% 3% 12% Depr. & amortization 29,892 18,036 34,794 43,080 47,060 Change in working capital 8.2% 5.2% 8.1% 9.8% 9.6% Taxes (244) (552) (1,898) (1,811) (1,564) Cash flow from operations 12,227 15,361 15,625 17,469 19,904 (10,135) (11,384) (18,612) (20,103) (22,561) Capex 31,088 21,462 29,910 38,634 42,839 Net Interest (8,201) (5,110) (5,989) (9,659) (11,352) Other 26% 24% 20% 25% 27% Free cash flow 22,887 16,352 23,920 28,976 31,487 -8% -29% 46% 21% 9% Equity raised/(repaid) 289 289 302 302 302 Debt raised/(repaid) 79.2 56.6 79.2 95.9 104.2 Other -8% -29% 40% 21% 9% Dividends paid Beginning cash Ending cash Ratio Analysis FY11 FY12 FY13E FY14E FY15E %, year end Mar 25,085 24,361 7,750 16,147 23,473 P/E (x) 8,933 9,376 14,237 13,235 17,514 EV/EBITDA (x) 14,150 17,965 18,407 22,860 28,292 EV/Sales (x) 15,395 28,525 29,344 31,738 34,371 P/BV (x) 63,563 80,227 69,738 83,979 103,651 Dividend Yield 51,067 61,474 79,729 89,729 104,729 EBITDA margin 69,580 81,321 117,414 122,311 123,750 EBIT margin 184,210 223,022 266,881 296,019 332,130 Net margin FY11 19,757 10,135 3,384 (7,927) 24,697 FY12 6,653 11,384 (2,430) (3,731) 11,876 FY13E 16,183 18,612 1,234 (4,925) 31,103 FY14E FY15E 22,977 24,500 20,103 22,561 (3,065) (5,288) (9,454) (11,138) 30,561 30,635
(25,592) (23,125) (54,705) (25,000) (24,000) (244) (552) (1,898) (1,811) (1,564) 12,227 15,361 15,625 17,469 19,904 19,984 (10,828) (22,083) 6,919 7,784 (396) (5,121) (244) (2,167) 982 25,085 FY11 20.4 12.2 1.0 3.4 0% 8.2% 5.4% 6.3% 25% -8% -8% 122.5 0.0 2.1 1.4 17% 23% (986) 9,276 (552) (2,167) 25,085 24,361 FY12 28.5 20.2 1.0 3.1 0% 5.2% 1.9% 4.7% -4% -29% -29% 32.7 0.1 1.7 1.4 11% 13% 12,412 1,523 (1,898) (2,417) 24,361 7,749 FY13E 20.4 11.0 0.9 2.6 0% 8.1% 3.8% 5.6% 23% 46% 40% 18.3 0.1 1.7 1.5 13% 16% 0 77 (1,811) (2,898) 7,750 16,148 FY14E 16.8 8.5 0.8 2.3 1% 9.8% 5.2% 6.6% 3% 21% 21% 23.8 0.1 1.6 1.4 14% 18% 0 500 (1,564) (3,149) 16,147 23,473 FY15E 15.5 7.3 0.7 2.0 1% 9.6% 5.0% 6.4% 12% 9% 9% 30.1 0.1 1.6 1.4 13% 17%
Revenue growth 35,540 48,771 54,371 56,076 62,517 Net profit growth 5,258 6,985 8,741 9,814 10,432 EPS growth 40,798 55,756 63,112 65,891 72,949 3,093 12,369 13,892 13,969 14,469 Interest coverage (x) 1,644 3,023 4,087 4,291 4,506 Debt to equity (x) 45,535 71,148 81,091 84,151 91,924 Sales/assets (x) 138,675 151,874 185,790 211,868 240,206 Assets/equity (x) 480 526 615 701 795 ROE (%) ROCE (%) Source: Company reports and J.P. Morgan estimates.
479
Maxis Berhad
Underweight
www.maxis.com.my
MXSC.KL,MAXIS MK Price: M$7.12 Price Target: M$5.60
Malaysia Wireless Services Princy Singh

AC
Company overview Maxis is a Malaysia focused telecom services provider operating in both wireless and fixed-line segments. Wireless constitutes more than 90% of total revenues. As of 2Q13, it had a subscriber share of 34% of Malaysia's wireless market, which has 125% wireless penetration rate. Investment case Our UW rating on Maxis is premised on: 1) Market share strategy is hurting ARPUs, share of net adds still low. Maxis has become more aggressive on market share over the past few quarters, but this is yet to translate into meaningful upside. Maxis per subscriber marketing spend is M$2.0/month v/s M$4.1 for Axiata and M$4.1 for Digi, and we believe that Maxis will need to invest in marketing to drive potential market share gains; (2) Near-term upside from bundling Astros content is limited. Maxis recently launched its IPTV bundled packs offering Astros content on fiber wholesaled from TM. While this is likely to alter the competitive dynamics in Malaysian fixed-line industry, we dont see it significantly contributing to Maxis earnings in the near term. Resilience of the growth outlook Growth challenges for Maxis continue as it continues to lose subscriber market share and ARPUs continues to trend down. Maxis management have indicated that its cost base is likely to remain stable, we see risk to this assertion given significantly lower marketing spends compared to peers and impending roll out of 4G services.
Hoy Kit Mak

Price Performance
7.4 M$ 7.0 6.6 6.2
MXSC.KL share price (M$) FBMKLCI (rebased)
Abs Rel
YTD 7.7% 0.0%
1m 1.0% -0.5%
3m -0.4% -1.4%
12m 5.6% -4.0%
Risks to the earnings outlook in 2014 Maxis have sustained post paid share and losses have been on pre-paid subs. If Maxis is able to recoup some of the lost market share on pre-paid side with adequate cost control, it should positively impact its earnings. Price target, and risks to our investment view Our Jun-14 PT of M$5.60 is based on 18.5x 2014E P/E (in-line with its historic average trading multiple). Key upside risks include better-than-expected market share gains, better cost management and potential increase in dividend payout.
Company Data 52-week Range (M$) Market Cap (M$ mn) Market Cap ($ mn) Shares O/S (mn) Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value ($ mn) FBMKLCI Exchange Rate Price (M$) Date Of Price
7.32-6.21 53,400 16,828 7,500 21.8% 6.05 13.4 1807.47 3.17 7.12 06 Nov 13
Maxis Berhad (Reuters: MXSC.KL, Bloomberg: MAXIS MK) M$ in mn, year-end Dec FY11A FY12A FY13E Revenue (M$ mn) 8,800 8,967 9,404 EBITDA (M$ mn) 4,422 4,358 4,540 EBITDA Growth 0.1% (1.4%) 4.2% Recurring profit (M$ mn) 2,189 2,050 2,099 Recurring EPS (M$) 0.29 0.27 0.28 EPS growth (%) (4.6%) (6.3%) 2.4% DPS (M$) 0.40 0.40 0.40 EV/EBITDA (x) 12.8 13.2 12.7 P/E (x) 24.4 26.0 25.4 Dividend Yield 5.6% 5.6% 5.6% FCF to mkt cap (%) 5.4% 5.5% 6.3%
FY14E 9,832 4,764 4.9% 2,258 0.30 7.6% 0.40 12.2 23.6 5.6% 6.5%
FY15E 10,127 4,904 2.9% 2,428 0.32 7.5% 0.40 11.9 22.0 5.6% 6.7%
480
Maxis Berhad: Summary of Financials

Income Statement M$ in millions, year end Dec Revenue EBITDA Depreciation & Amortization EBIT Interest income Interest expense Other Income Profit before tax Tax Minorities Net profit - reported Net profit - adjusted EPS (M$) (reported) EPS (Adjusted) DPS (M$) Revenue growth EBITDA growth Net profit growth FY11 8,800 4,422 (1,190) 3,232 40 (268) 3,004 (473) (4) 2,527 2,189 FY12 8,967 4,358 (1,494) 2,864 51 (339) 2,576 (716) (4) 1,856 2,050 FY13E 9,404 4,540 (1,387) 3,154 36 (360) 2,829 (781) (4) 2,044 2,099 0.27 0.28 0.40 4.9% 4.2% 10.2% FY14E 9,832 4,764 (1,319) 3,445 39 (385) 3,099 (837) (4) 2,258 2,258 0.30 0.30 0.40 4.6% 4.9% 10.5% FY15E 10,127 4,904 (1,210) 3,694 49 (410) 3,332 (900) (4) 2,428 2,428 0.32 0.32 0.40 3.0% 2.9% 7.5%
Balance sheet M$ in millions, year end Dec Cash and cash equivalents Accounts receivable Others Total current assets ST loans Accounts Payables Others current liabilities Total current liabilities Net working capital Net fixed assets Net Intangibles Others non current assets Total non-current assets Total Assets Long-term debt Other liabilities Total Liabilities Shareholders' equity Total liabilities and equity Net debt/(cash) Cash flow statement M$ in millions, year end Dec Cash flow from operations Capex Cash flow from other investing Cash flow from financing
FY11 838 858 29 1,836 1,487 2,828 70 4,386
FY12 FY13E FY14E FY15E 967 464 1,113 830 922 967 1,011 1,042 35 35 35 35 2,042 1,585 2,277 2,025 28 2,633 107 2,768 28 2,779 107 2,914 28 2,896 107 3,031 28 2,984 107 3,119
(1,860) (1,593) (1,694) (1,766) (1,824) 4,971 4,459 4,107 3,823 3,592 11,060 11,152 11,152 11,118 11,118 124 149 149 149 149 16,155 15,760 15,407 15,090 14,859 17,991 17,802 16,992 17,367 16,884 4,811 7,208 7,208 8,208 8,208 612 667 667 667 667 9,902 10,745 10,891 12,008 12,096 8,088 7,057 6,101 5,360 4,788 17,991 17,802 16,992 17,367 16,884 5,460 6,269 6,772 7,123 7,406 FY11 FY12 FY13E FY14E FY15E 3,711 3,421 3,892 4,035 4,107 (1,029) (718) (762) (797) (775) (137) (272) (272) (204) (204) (2,605) (2,302) (3,360) (2,385) (3,410) (60) 898 838 129 838 967 (503) 967 464 649 464 1,113 (283) 1,113 830
0.34 0.25 0.29 0.27 0.40 0.40 (0.8%) 1.9% 0.1% (1.4%) 10.1% (26.6%)
Ratio Analysis %, year end Dec EBITDA margin FCF margin ROE ROC ROA
Change in cash for year Tax rate 15.7% 27.8% 27.6% 27.0% 27.0% Capex to sales 11.7% 8.0% 8.1% 8.1% 7.7% Beginning cash Debt/Capital 40.3% 47.0% 52.6% 57.1% 60.7% Closing cash Net debt or (cash) to equity 67.5% 88.8% 111.0% 132.9% 154.7% Interest coverage (x) 19.4 15.1 14.0 13.8 13.6 Source: Company reports and J.P. Morgan estimates.
FY11 50.3% 32.7% 26.1% 19.1% 12.1%
FY12 48.6% 32.5% 27.1% 14.4% 11.5%
FY13E 48.3% 35.8% 31.9% 16.5% 12.1%
FY14E 48.4% 35.5% 39.4% 18.7% 13.1%
FY15E 48.4% 35.5% 47.9% 24.7% 14.2%
481
New China Life Insurance Company Ltd - H

Neutral
www.newchinalife.com/Channel/638731
China Insurance - Life MW Kim

AC
Company overview New China Life, established in 1996 and headquartered in Beijing, was the thirdlargest life insurer in China in 2012, with a premium market share of ~10%. Despite recent premium contraction, the company has consistently outgrown the sector, with a CAGR of 20% (vs. the sector's 17%) for 2004-07 and 42% (vs. 29%) for 2007-10. Investment case The company has rebounded from the trough in tandem with strong earnings turnaround from narrowing impairment losses during 2013. However, as the earnings base is already reaching a normal level, we think the earnings outlook for 2014 is challenging, and scale contraction and relatively weak agency channel/ capital position will cap share price upside potential. Resilience of the growth outlook The bancassurance channel, which accounts for ~60% of its first year premium, is seeing intensifying competition among insurers (particularly, with bank-led insurers) and/or investment products, and despite the -7% y/y volume contraction for 9M13, we see further volume contraction and/or minor volume recovery from its low base in 2013. Its relatively weak solvency ratio, ~174% as of Jun-13 will remain challenge for the growth, in our view.
12m -16.0% -21.0%
Price Performance
32 HK$ 28 24 20
Abs Rel
YTD -25.0% -26.7%
1m -3.7% -3.3%
3m 7.8% 2.7%
Risks to the earnings outlook in 2014 We expect ~8% y/y earnings contraction in 2014 on the back of (1) rising policy surrender rate among existing policies; (2) acquisition cost (expense) increase for the agency sales increase; and (3) weak top-line growth (~5% y/y). Price target, and risks to our investment view Our Dec-14 PT of HK$24 is derived based on a multi-stage NBV growth model which assumes a new business multiple of 3x and yields an implied P/EV of 1.4x. Considering its weak position in the distribution channel, we apply a 20% discount to get to our PT. Upside risks include faster-than-expected restructuring results and a sustained rally in A-share markets. Downside risks include weak NBV growth as restructuring takes place, and any sooner-than-expected capital raising.
3,120 54,256 8,894 22.10 06 Nov 13 2.52 55.33 7.1 2,3038.95 7.75 Dec
New China Life Insurance Company Ltd - H (Reuters: 1336.HK, Bloomberg: 1336 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E FY15E Net Profit (Rmb mn) 2,799 2,933 4,531 4,188 4,377 EPS (Rmb) 1.30 0.94 1.45 1.34 1.40 BVPS (Rmb) 10.04 11.50 12.81 14.01 15.28 DPS (Rmb) 0.09 0.32 0.15 0.20 0.14 EV per share (Rmb) 19.94 23.13 25.43 27.44 30.08 NBV per share 1.40 1.34 1.06 1.04 1.06 P/E (x) 19.4 18.5 12.0 13.0 12.4 P/BV (x) 1.7 1.5 1.4 1.2 1.1 Dividend Yield 0.5% 1.8% 0.9% 1.1% 0.8% P/EV 0.9 0.8 0.7 0.6 0.6 ROE 14.8% 8.7% 12.0% 10.0% 9.6%
482
New China Life Insurance Company Ltd - H: Summary of Financials

Income Statement (Rmb in millions) GWP & Policy fees Net written premiums Net earned premiums Total technical outgo Total expenses Underwriting profit Net Investment Income Realized & unreal. Investment income Other income/expenses Pre-tax profit Tax Minorities Net profit Balance sheet (Rmb in millions) Bonds Equities Deposits Other Investments Total Investments Total Assets Total insurance reserves Subordinated debts Total liabilities Minority Interest Shareholders' funds Income Statement growth rates GWP & policy fees Net earned premiums Net Investment Income Total technical outgo Total expenses Underwriting profit Pre-tax profit Net profit FY11 95,151 95,735 95,664 (87,786) (16,546) (8,668) 13,736 (982) (811) 3,275 (475) (1) 2,799 FY11 190,464 29,051 144,566 9,877 373,958 386,771 312,815 5,073 355,458 7 31,306 11,Y/Y 3.5% 4.1% 46.6% 4.0% 5.6% 5.9% 45.2% 24.5% FY12 FY13E 98,081 97,649 98,086 97,551 97,951 97,454 (90,558) (95,852) (16,832) (17,364) (9,439) (15,762) 19,894 19,827 (6,335) 3,039 (1,832) (1,439) 2,288 5,665 646 (1,133) (1) (1) 2,933 4,531 FY12 FY13E 234,130 286,356 32,085 53,029 197,636 177,768 14,630 11,136 478,481 528,290 493,693 557,158 381,260 460,179 15,000 15,000 457,815 517,203 8 8 35,870 39,947 12,Y/Y 13E, Y/Y 3.1% (0.4%) 2.4% (0.5%) 44.8% (0.3%) 3.2% 5.8% 1.7% 3.2% 8.9% 67.0% (30.1%) 147.6% 4.8% 54.5% FY14E 102,815 102,713 102,610 (103,181) (18,386) (18,956) 22,742 3,030 (1,580) 5,236 (1,047) (1) 4,188 FY14E 341,016 75,781 199,452 13,262 629,512 648,721 545,527 15,000 604,997 8 43,716 14E, Y/Y 5.3% 5.3% 14.7% 7.6% 5.9% 20.3% (7.6%) (7.6%) FY15E 109,924 109,814 109,704 (113,441) (19,767) (23,503) 26,759 3,772 (1,556) 5,472 (1,094) (1) 4,377 FY15E 401,091 89,131 234,940 15,598 740,760 749,019 639,281 15,000 701,355 8 47,655 15E, Y/Y 6.9% 6.9% 17.7% 9.9% 7.5% 24.0% 4.5% 4.5% Capital Strength Shareholders' funds to insurance liab. Solvency margin ratio (group operation) First-year premiums Single premiums Regular premiums AFYPs Profitability measure Loss ratio Expense ratio Combined ratio Total investment yield (incl. gains/losses) ROA ROE Per share data EPS Y/Y DPS Payout ratio BVPS No. of shares Group embedded value Life operation embedded value Y/Y New business value Y/Y Balance sheet growth rates Bonds Equities Deposits Total investments Total Assets Total insurance reserves Total liabilities Shareholders' funds FY11 FY12 10.0% 9.4% 155.9% 192.5% FY11 FY12 25,966 19,404 16,897 14,397 19,494 16,337 FY11 FY12 99.4% 99.6% 17.3% 17.2% 116.7% 116.8% 3.8% 3.2% 0.8% 0.7% 14.8% 8.7% FY11 FY12 1.30 0.94 (30.8%) (27.5%) 0.09 0.32 6.9% 34.1% 10.04 11.50 3,117 3,120 19.94 23.13 15.72 18.23 (32.8%) 16.0% 1.40 1.34 (64.6%) (4.4%) 11,Y/Y 12,Y/Y 15.6% 22.9% (25.3%) 10.4% 74.6% 36.7% 27.7% 28.0% 27.0% 27.6% 22.9% 21.9% 19.3% 28.8% 376.7% 14.6% FY13E FY14E 8.7% 8.0% 177.8% 158.6% FY13E FY14E 13,040 12,272 13,726 14,313 15,030 15,540 FY13E FY14E 106.8% 109.1% 17.8% 17.9% 124.6% 127.0% 4.5% 4.5% 0.9% 0.7% 12.0% 10.0% FY13E FY14E 1.45 1.34 54.4% (7.6%) 0.15 0.20 10.5% 14.6% 12.81 14.01 3,120 3,120 25.43 27.44 20.05 21.63 10.0% 7.9% 1.06 1.04 (20.4%) (2.6%) 13E, Y/Y 14E, Y/Y 22.3% 19.1% 65.3% 42.9% (10.1%) 12.2% 10.4% 19.2% 12.9% 16.4% 20.7% 18.5% 13.0% 17.0% 11.4% 9.4% FY15E 7.5% 143.0% FY15E 12,993 15,343 16,643 FY15E 112.0% 18.0% 130.0% 4.5% 0.6% 9.6% FY15E 1.40 4.5% 0.14 10.0% 15.28 3,120 30.08 23.72 9.6% 1.06 2.3% 15E, Y/Y 17.6% 17.6% 17.8% 17.7% 15.5% 17.2% 15.9% 9.0%
483
OCBC Bank
Underweight
www.ocbc.com
OCBC.SI,OCBC SP Price: S$10.47 Price Target: S$9.50
Singapore Banks Harsh Wardhan Modi

AC
Company overview OCBC is one of the three domestic banks in Singapore. It has a meaningful presence in Malaysia and Indonesia with a small but increasing footprint in China and Vietnam. In addition to offering a complete banking product suit, OCBC also controls Great Eastern Holdings, its 87% owned insurance subsidiary. OCBC has a larger presence in consumer, SME lending and is leading from the front in WM. Investment case OCBC is costly relative to the RoE that it is generating. We expect non-par fund driven performance at GEH to cease to be an earnings driver next year as fixed income rally stalls. Moreover, the bank is in the process of evaluating inorganic growth options in the region, which raises the risk of earnings dilution, further increasing the risk of underperformance. Resilience of the growth outlook Earnings growth for the bank will be restrained by normalization of credit costs, lower non-par fund gains at GEH and flat to lower NIM. The growth expectations on WM business is at risk, as AUM growth slows down in the next couple of quarters. The recent volatility in fixed income markets will also challenge the AUM growth expectations for the next few quarters. Risks to the earnings outlook in 2014 We expect a relatively subdued earnings growth next year. Upside risks come from better than expected NIM, primarily on funding costs, resilient credit costs and faster balance sheet growth. Price target, and risks to our investment view We are UW on the stock with our 2 stage DDM methodology derived Jun-14 PT of S$9.5 based on the following valuation assumptions: RFR of 3.5% CoE of 8.5%, Normalised RoE of 10.3% and terminal growth of 2.5%. Key downside risks to our view include lack of any value eroding M&A, better than expected non-par fund performance and continued AUM growth.
(65) 6882- 2450 harsh.w.modi@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Price Performance
11.5 10.5 S$ 9.5 8.5
OCBC.SI share price (S$) FTSTI (rebased)
Abs Rel
YTD 7.6% 6.4%
1m 2.7% 0.6%
3m -1.8% -1.2%
12m 15.1% 8.9%
Company Data 52-week Range (S$) Market Cap (S$ mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (S$) Date Of Price 3M - Avg daily value (S$ mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) FTSTI Exchange Rate
11.20-8.84 36,491 29,374 3,485 Dec 10.47 06 Nov 13 39.76 32.0 3.87 3205.54 1.24
Oversea-Chinese Banking Corporation Ltd (Reuters: OCBC.SI, Bloomberg: OCBC SP) S$ in mn, year-end Dec FY10A FY11A FY12A FY13E FY14E FY15E Operating Profit (S$ mn) 3,071 3,192 3,950 3,541 4,043 4,730 Net Profit (S$ mn) 2,163 2,222 3,863 2,421 2,692 3,040 Cash EPS (S$) 0.66 0.66 1.13 0.71 0.79 0.89 Fully Diluted EPS (S$) 0.66 0.66 1.13 0.71 0.79 0.89 DPS (S$) 0.30 0.30 0.33 0.34 0.34 0.36 EPS growth (%) 11.2% (0.5%) 72.1% (37.2%) 11.2% 12.9% ROE 12.0% 11.2% 17.3% 10.0% 10.6% 11.3% P/E (x) 15.9 16.0 9.3 14.8 13.3 11.7 BVPS (S$) 5.58 5.92 6.88 7.08 7.51 8.01 P/BV (x) 1.88 1.77 1.52 1.48 1.39 1.31 Dividend Yield 2.9% 2.9% 3.2% 3.2% 3.2% 3.4%
484
OCBC Bank: Summary of Financials

Income Statement S$ in millions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data SGD EPS DPS Payout Book value Fully Diluted Shares PPOP per share Key Balance sheet S$ in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY11 1.8% 72.2% 1.3% 3,410 2,212 1,137 337 5,622 FY12 1.7% 73.8% 1.3% 3,748 2,897 1,198 606 6,645 FY13E 1.6% 74.3% 1.2% 3,881 2,532 1,378 499 6,413 FY14E 1.7% 74.8% 1.2% 4,384 2,802 1,515 552 7,185
(2,430) (2,695) (2,872) (3,143) 3,192 3,950 3,541 4,043 (206) (263) (292) (447) (44) 7 2,949 (470) (167) 2,222 FY11 0.66 0.30 45.7% 5.92 3,387 0.95 FY11 133,557 (1,532) 135,089 1,437 41,988 55,090 182,930 0 277,758 154,555 13,063 0 170,112 253,521 20,639 128,507 116,785 1,038 27 4,752 (551) (207) 3,863 FY12 1.13 0.33 29.2% 6.88 3,422 1.16 FY12 142,376 (1,662) 144,038 1,172 42,740 59,098 211,743 0 295,943 165,139 11,424 0 197,044 286,851 23,950 129,647 129,077 (68) 47 3,228 (517) (184) 2,421 FY13E 0.71 0.34 47.9% 7.08 3,411 1.05 FY13E 160,288 (1,882) 162,169 1,417 49,151 63,962 232,030 0 328,570 181,150 19,421 0 216,678 312,257 24,649 154,428 142,038 (68) 47 3,575 (572) (203) 2,692 FY14E 0.79 0.34 43.1% 7.51 3,411 1.20 FY14E 176,522 (2,248) 178,769 2,147 55,049 67,536 255,177 0 353,795 196,494 21,363 0 239,611 341,183 26,117 169,822 162,125
Growth Rates FY15E 1.8% Loans 75.3% Deposits 1.3% Assets Equity 5,072 RWA 3,097 Net Interest Income 1,667 Non-Interest Income 607 of which Fee Grth Revenues 8,169 Costs Pre-Provision Profits (3,439) Loan Loss Provisions 4,730 Pre-Tax (690) Attributable Income - EPS (68) DPS 47 Balance Sheet Gearing 4,019 Loan/deposit (643) Investment/assets (229) Loan/Assets 3,040 Customer deposits/liab. LT debt/liabilities FY15E Asset Quality/Capital 0.89 Loan loss reserves/loans 0.36 NPLs/loans 40.4% Loan loss reserves/NPLs 8.01 Growth in NPLs 3,411 Tier 1 Ratio 1.41 Total CAR FY15E Du-Pont Analysis 194,223 NIM (as % of avg. assets) (2,848) Earning assets/assets 197,071 Margins (as % of Avg. Assets) 2,951 Non-Int. Rev./ Revenues 61,655 Non IR/Avg. Assets 71,326 Revenue/Assets 277,270 Cost/Income 0 Cost/Assets 382,815 Pre-Provision ROA LLP/Loans 214,704 Loan/Assets 23,499 Other Prov, Income/ Assets 0 Operating ROA 260,872 Pre-Tax ROA 368,305 Tax rate 27,861 Minorities & Outside Distbn. 187,580 ROA 178,701 RORWA Equity/Assets ROE
FY11 26.9% 25.3% 21.1% 9.2% 22.3% 15.7% (7.0%) 15.7% 5.6% 7.8% 3.9% 32.9% 2.4% 2.7% (0.5%) 0.0% FY11 86.4% 15.5% 47.6% 60.8% 4.3% FY11 (1.1%) 1.1% 112.2% 19.0% 14.5% 15.7% FY11 1.8% 72.2% 1.3% 39.3% 0.9% 2.2% 43.2% 1.0% 1.3% (0.2%) 47.6% -0.01% 1.2% 1.2% 15.9% 1.1% 0.9% 1.9% 7.8% 11.2%
FY12 6.6% 6.8% 6.5% 16.0% 0.9% 9.9% 31.0% 5.4% 18.2% 10.9% 23.7% 27.7% 61.1% 73.9% 72.1% 10.0% FY12 86.2% 14.8% 48.7% 61.4% 4.7% FY12 (1.2%) 0.9% 122.4% (18.4%) 16.7% 18.6% FY12 1.7% 73.8% 1.3% 43.6% 1.0% 2.3% 40.6% 0.9% 1.4% (0.2%) 48.7% 0.37% 1.3% 1.7% 11.6% 1.0% 1.3% 3.0% 7.8% 17.3%
FY13E 12.6% 9.7% 11.0% 2.9% 19.1% 3.5% (12.6%) 15.0% (3.5%) 6.6% (10.3%) 11.0% (32.1%) (37.3%) (37.2%) 3.0% FY13E 88.5% 14.7% 49.0% 60.2% 5.4% FY13E (1.2%) 0.8% 136.9% 20.9% 15.2% 16.8% FY13E 1.6% 74.3% 1.2% 39.5% 0.8% 2.1% 44.8% 0.9% 1.1% (0.2%) 49.0% -0.01% 1.0% 1.0% 16.0% 0.9% 0.8% 1.7% 7.8% 10.0%
FY14E 10.2% 8.5% 7.7% 6.0% 10.0% 13.0% 10.6% 10.0% 12.0% 9.4% 14.2% 53.1% 10.7% 11.2% 11.2% 0.0% FY14E 89.8% 15.3% 50.0% 60.5% 6.5% FY14E (1.3%) 1.0% 115.9% 51.5% 14.8% 16.2% FY14E 1.7% 74.8% 1.2% 39.0% 0.8% 2.1% 43.7% 0.9% 1.2% (0.3%) 50.0% -0.01% 1.1% 1.0% 16.0% 0.9% 0.8% 1.7% 7.4% 10.6%
FY15E 10.2% 9.3% 8.2% 6.7% 10.5% 15.7% 10.5% 10.0% 13.7% 9.4% 17.0% 54.3% 12.4% 12.9% 12.9% 5.9% FY15E 90.5% 15.8% 51.0% 61.0% 6.6% FY15E (1.4%) 1.4% 100.0% 37.5% 14.4% 15.7% FY15E 1.8% 75.3% 1.3% 37.9% 0.8% 2.2% 42.1% 0.9% 1.3% (0.4%) 51.0% -0.01% 1.1% 1.1% 16.0% 0.8% 0.8% 1.7% 7.3% 11.3%
485
Oil and Natural Gas Corporation

Neutral
www.ongcindia.com
ONGC.BO,ONGC IN Price: Rs281.85 Price Target: Rs300.00
Company overview ONGC is Indias largest E&P company with ~10bn boe of oil and gas reserves. It accounts for c.75% of Indias current oil and gas output. Its subsidiary, OVL, invests in oil and gas acreages internationally. ONGC also has a 70% stake in MRPL, a refiner. Investment case ONGC continues to face a drag in profitability due to regulatory uncertainty with elevated oil prices and slow pace of pricing reform, we expect ONGC to continue to bear a high subsidy share. While we expect reform to continue, with a crowded political calendar, we expect the pace to moderate in the near term. While we expect gas prices to rise in April 2014, we expect subsidies to rise as well. ONGC has a large reserve base, but has been slow to bring these to production necessitating the purchase of potentially return dilutive assets. Resilience of the growth outlook With subsidies rising from 0.1% to 1% of GDP over FY08-13, we expect subsidy share to remain elevated in the near term, as the government looks to contain the fiscal deficit. The recent announced acquisitions (Mozambique) at full valuations continue to demonstrate the potential for returns erosion. Risks to the earnings outlook in 2014 Significant pricing reform could lower the subsidy bill meaningfully, leading to upside to our estimates. Higher production growth could see organic earnings growth beat our estimates. Price target, and risks to our investment view We employ a risk-based valuation methodology to derive our Sep-14 PT of Rs300. We group ONGCs assets into 2 categories: core NAV, which is the value of producing assets and those under development, and risked upside which is generated by the value of ONGC exploration and appraisal (E&A) assets on a risked basis. We value the companys non-upstream assets by assigning a multiple. The main downside risks are a collapse in oil prices, execution/integration risk, government sell-down and F/X appreciation. Upside risks are higher production and lower-thanexpected subsidies.
India Exploration & Production Scott L Darling

AC
Price Performance
360 320 Rs 280 240
ONGC.BO share price (Rs) BSE30 (rebased)
Abs Rel
YTD 6.1% -1.0%
1m 6.7% 1.3%
3m 2.7% -6.6%
12m 6.4% -5.4%
8,556 2,411,381 39,130 281.85 06 Nov 13 12.7% 4.37 1,186.54 19.3 2,0974.79 61.63 Mar
Oil and Natural Gas Corporation (Reuters: ONGC.BO, Bloomberg: ONGC IN) Rs in mn, year-end Mar FY12A FY13A FY14E FY15E Revenue (Rs mn) 1,511,003 1,658,488 1,804,211 2,017,963 Net Profit (Rs mn) 281,436 242,196 242,964 306,680 EPS (Rs) 32.90 28.31 28.40 35.85 DPS (Rs) 9.75 9.50 9.50 11.50 Revenue growth (%) 20.6% 9.8% 8.8% 11.8% EPS growth (%) 25.3% (13.9%) 0.3% 26.2% ROCE 16.4% 12.7% 11.5% 13.4% ROE 19.9% 16.8% 15.2% 17.3% P/E (x) 8.6 10.0 9.9 7.9 P/BV (x) 1.8 1.6 1.4 1.3 EV/EBITDA (x) 3.8 4.3 4.6 3.8 Dividend Yield 3.5% 3.4% 3.4% 4.1%
FY16E 2,013,776 325,783 38.08 12.00 (0.2%) 6.2% 13.1% 16.5% 7.4 1.2 3.5 4.3%
486
Oil and Natural Gas Corporation: Summary of Financials
Income Statement Cash flow statement Rs in millions, year end Mar FY12 FY13 FY14E FY15E FY16E Rs in millions, year end Mar FY12 FY13 FY14E FY15E FY16E Revenues 1,511,003 1,658,488 1,804,211 2,017,963 2,013,776 EBIT 353,045 317,359 323,072 420,439 449,862 % change Y/Y 20.6% 9.8% 8.8% 11.8% (0.2%) Depr. & amortization 237,002 231,399 240,504 269,804 285,987 Gross Margin 82.2% 82.4% 79.6% 79.9% 79.6% Change in working capital (30,918) (68,856) 12,125 (3,715) 10,078 EBITDA 590,047 548,758 563,576 690,244 735,849 Taxes (134,072) (107,290) (110,180) (139,322) (148,384) % change Y/Y 14.2% (7.0%) 2.7% 22.5% 6.6% Others (43,584) (50,062) (44,195) (43,968) (44,750) EBITDA Margin 39.0% 33.1% 31.2% 34.2% 36.5% Cash flow from operations 443,935 354,677 451,398 528,802 577,098 EBIT 353,045 317,359 323,072 420,439 449,862 a % change Y/Y 13.8% (10.1%) 1.8% 30.1% 7.0% Capex (453,211) (439,344) (650,624) (466,085) (466,085) EBIT Margin 23.4% 19.1% 17.9% 20.8% 22.3% Disposal/(purchase) Net Interest 43,584 50,062 44,195 43,968 44,750 Free cash flow (37,065) (117,355) (228,571) 33,522 81,299 Earnings before tax 396,629 367,422 367,267 464,407 494,612 a % change Y/Y 15.6% (7.4%) (0.0%) 26.4% 6.5% Equity raised/(repaid) (168) 0 0 0 Tax (143,746) (127,519) (123,402) (156,041) (166,190) Debt raised/(repaid) 92,684 47,652 100,000 5,000 (15,000) as % of EBT 36.2% 34.7% 33.6% 33.6% 33.6% Other (4,349) (4,838) (7,684) (7,809) (7,434) Net income (reported) 281,436 242,196 242,964 306,680 325,783 Dividends paid (95,093) (92,655) (92,655) (112,161) (117,038) % change Y/Y 25.3% (13.9%) 0.3% 26.2% 6.2% Beginning cash 208,158 278,914 196,191 30,925 25,828 Shares outstanding 8,555 8,555 8,555 8,555 8,555 Ending cash 278,914 196,191 30,925 25,828 46,191 EPS (reported) 32.90 28.31 28.40 35.85 38.08 DPS 9.75 9.50 9.50 11.50 12.00 % change Y/Y 25.3% (13.9%) 0.3% 26.2% 6.2% a Balance sheet Ratio Analysis Rs in millions, year end Mar FY12 FY13 FY14E FY15E FY16E Rs in millions, year end Mar Cash and cash equivalents 278,914 196,191 30,925 25,828 46,191 EBITDA margin Accounts receivable 117,181 153,956 148,291 160,331 159,999 Operating margin Inventories 131,680 127,804 129,940 142,069 143,995 Net margin Others 74,459 79,413 84,688 90,357 96,454 a Current assets 602,235 557,363 393,845 418,586 446,638 a a Sales per share growth LT investments 29,207 21,282 26,282 31,282 36,282 Sales growth Net fixed assets 1,412,430 1,647,049 2,084,014 2,297,794 2,495,392 Net profit growth Total Assets 2,321,889 2,534,573 2,827,359 3,086,841 3,335,259 EPS growth Liabilities Interest coverage (x) Short-term loans 0 0 0 0 0 Net debt to total capital Payables - Net debt to equity Others 395,774 364,771 378,642 404,766 422,533 Sales/assets Total current liabilities 395,774 364,771 378,642 404,766 422,533 Assets/equity Long-term debt 159,727 207,379 307,379 312,379 297,379 ROE Other liabilities 252,498 269,187 283,671 299,105 315,565 ROCE Total Liabilities 935,257 989,827 1,131,403 1,194,679 1,231,713 a Shareholder's equity 1,364,391 1,525,280 1,678,784 1,874,088 2,083,786 a BVPS 159.47 178.28 196.22 219.05 243.56 a Source: Company reports and J.P. Morgan estimates.
FY12 39.0% 23.4% 16.5%
FY13 33.1% 19.1% 14.6%
FY14E 31.2% 17.9% 13.5% 8.8% 8.8% 0.3% 0.3% NM 12.9% 14.8% 0.7 1.7 15.2% 11.5%
FY15E 34.2% 20.8% 15.2% 11.8% 11.8% 26.2% 26.2% NM 11.9% 13.5% 0.7 1.7 17.3% 13.4%
FY16E 36.5% 22.3% 16.2% (0.2%) (0.2%) 6.2% 6.2% NM 9.3% 10.2% 0.6 1.6 16.5% 13.1%
20.6% 9.8% 20.6% 9.8% 25.3% (13.9%) 25.3% (13.9%) NM NM (12.0%) (0.7%) (10.7%) (0.7%) 0.7 0.7 1.7 1.7 19.9% 16.8% 16.4% 12.7%
487
Oil Search
Underweight
www.oilsearch.com
OSH.AX,OSH AU Price: A$8.48 Price Target: A$7.40
Australia Exploration & Production Benjamin Wilson

AC
Company overview Oil Searchs main asset is a non-operating 29% of ExxonMobil's US$19b 6.9mtpa PNG LNG project. It is under construction and first production is expected in 2H14. The company has interests in other gas fields nearby PNGLNG and exploration acreage in Gulf of Papua, and either could be candidates for additional LNG trains in a future PNGLNG expansion. It has a modest oil business in PNG producing ~6mmbbl a year. It is appraising the 250-500+ mmbbl Taza resource in Kurdistan. Investment case Oil Search is an almost pure exposure to a high quality LNG project. PNGLNG has 20 year offtake contracts at high prices, and strong brownfield expansion potential, which OSH is likely to participate in given it has stakes in most potential sources of additional gas. The main stock issue is its over-valuation in absolute and relative terms. Resilience of the growth outlook Barring a PNGLNG startup issue affecting timing, a step change in production is due to begin in 2H14/1H15. From 2013 to 2015 the increase in net production is ~250%. Both before and after PNGLNG, OSH sales are almost exclusively linked to the oil price. Risks to the earnings outlook in 2014 The main risk is startup date for PNGLNG Train 1 which is due in 2H14. The exact date is not known and will step-change production. However the stock does not trade off 2014 earnings; look to 2015/16 as more representative for a multiple. Price target, and risks to our investment view Our recommendation is Underweight and our Jun-14 price target is A$7.40/share. Our price target is based upon our sum-of-the-parts DCF. Our NPV includes full value for the initial PNG LNG T1/T2, plus 75% of T3, and 50% of a Mananda-5+ oil development. We currently give nothing explicit for the speculative exploration in Gulf of Papua, nor the Taza discovery which has unclear economics. The main upside risks to our price target include: stronger oil price; successful commercialisation of OSH equity gas for PNGLNG expansion; demonstrated good economics at Taza discovery.
Price Performance
9.5 8.5 A$ 7.5 6.5
OSH.AX share price (A$) ASX100 (rebased)
Abs Rel
YTD 21.0% 2.9%
1m 1.7% -3.7%
3m 3.3% -3.2%
12m 14.1% -8.3%
Company Data Shares O/S (mn) Market Cap ($ mn) Market Cap ($ mn) Price (A$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (A$ mn) 3M - Avg daily value ($ mn) ASX100 Exchange Rate Fiscal Year End
1,340 10,803.73 10,803.73 8.48 06 Nov 13 3.53 29.76 28.3 4511.50 1.05 Dec
Oil Search Limited (Reuters: OSH.AX, Bloomberg: OSH AU) Year-end Dec ($) FY11A FY12A FY13E Revenue ($ mn) 733 725 767 EBITDA ($ mn) 525 380 424 Net Profit ($ mn) 202 176 176 EPS ($) 0.15 0.13 0.13 P/E (x) 52.8 61.2 61.6 EV/EBITDA (x) 22.1 34.9 34.6 DPS ($) 0.04 0.04 0.04 Dividend Yield 0.5% 0.5% 0.5% Normalised EPS ($) 0.18 0.11 0.13 Normalised EPS Growth 61.9% (35.5%) 14.1% Normalised PE 45.4 70.3 61.6
FY14E 1,009 754 373 0.28 29.2 20.5 0.04 0.5% 0.28 110.8% 29.2
FY15E 2,215 1,901 994 0.74 11.0 7.7 0.26 3.2% 0.74 166.7% 11.0
488
489
Pegatron Corp
Underweight
pegatroncorp.com/
Taiwan Electronic Manufacturing Services Gokul Hariharan

AC
Company overview Pegatron is among the Top 5 NB ODM vendors in the world and is the secondlargest EMS vendor for Apple (after Hon Hai). In addition to Apple, Pegatrons main customers include PC vendors like Asus, Toshiba and game console vendors like Sony. Investment case We expect Pegatron to see a 9/7% decline in its sales and profits heading into 2014, mainly dragged by Apple EMS diversification, which might kick in from 1H14, weaker-than-expected iPhone 5C momentum and its lack of noteworthy diversification into non-Apple business. Resilience of the growth outlook Apple EMS diversification into Compal/Wistron would result in more competitive pricing and higher volatility in volumes and margin, which hurt Pegatron the most, given Apple has been its fastest-growing customers in the past three years. We see limited chance for Pegatron to tap into any meaningful customers to offset declining Apple share as Pegatron has steadily lost its non-Apple traction (Asus, Lenovo, etc.).
(852) 2800-8564 gokul.hariharan@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Price Performance
60 55 NT$ 50 45 40 35
Abs Rel
YTD 8.8% 2.3%
1m -2.3% -1.3%
3m -10.1% -13.1%
12m 9.6% -4.8%
Risks to the earnings outlook in 2014 We believe Pegatrons earnings could see some upside if the company achieves any meaningful market share gains at Apple, while this looks distant as more competitors jump on the bandwagon. Better traction from PC vendors might also turn things more positive, while we feel the chances are quite small as the pie is declining. Price target, and risks to our investment view Our Jun-14 PT of NT$35 is based on 9x FY14E EPS. Our PT multiple of 9x is toward the lower end of the historical range (8-15x), as we believe Apple EMS diversification might pose a threat to Pegatron and its margin improvement is likely to be a slow process. Key upside risks to our investment view are: (1) Pegatrons order wins for Apple's flagship iPhone (iPhone 6) or 9.7 iPad, (2) any potential price action from Apple on iPhone 5C, and (3) upside from its subsidiary Caseteks metal casing business into Samsung or other non-Apple customers.

FY12 FY13E FY14E FY15E 881.90 942.11 855.07 784.64 11.16 16.37 16.74 16.76 21.83 32.62 33.98 31.58 13.80 18.39 17.41 18.50 6.10 9.78 9.08 9.31 2.67 4.27 3.97 4.07 NM NM NM NM 42.58 45.08 51.25 57.47
FY12 FY13E FY14E FY15E 15.2 9.6 10.3 10.1 1.0 0.9 0.8 0.7 06.5 09.8 08.2 07.5 0.0 1.5 2.2 2.2 1Q 2Q 3Q 4Q 0.56 0.36 0.59 1.16 1.01 0.61 1.18 1.48 0.94 0.76 1.08 1.19
35 55.40-35.20 2,256mn 11.00mn 16.2mn 3.7% 3,143mn
490
Pegatron Corp: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues Cost of goods sold Gross Profit R&D expenses SG&A expenses Operating profit (EBIT) EBITDA Interest income Interest expense Investment income (Exp.) Non-operating Income (expense) Earnings before tax Tax Net income (reported) Net income (adjusted) FY11 599,943 (572,946) 26,997 (9,909) (16,175) 913 1,309 544 (603) (59) 3,587 4,727 (1,422) 111 111 FY12 881,895 (839,426) 42,469 (12,039) (19,269) 11,161 21,826 754 (1,065) (311) 2,801 13,803 (3,825) 6,104 6,104
Ratio Analysis FY13E FY14E FY15E NT$ in millions, year end Dec 942,110 855,072 784,643 Gross margin (896,926) (812,283) (743,498) EBITDA margin 45,184 42,789 41,145 Operating margin (10,739) (9,116) (8,536) Net margin (18,075) (16,930) (15,852) R&D/sales 16,370 16,743 16,756 SG&A/Sales 32,617 33,979 31,579 718 860 1,107 Sales growth (1,276) (1,017) (898) Operating profit growth (558) (157) 208 Net profit growth 2,627 18,386 (4,208) 9,780 9,780 4.27 4.27 45.08 1.50 2,290 855 17,409 (3,919) 9,084 9,084 3.97 3.97 51.25 2.20 2,290 1,569 EPS (reported) growth 18,501 (4,625) Interest coverage (x) 9,312 9,312 Net debt to total capital Net debt to equity 4.07 4.07 Asset turnover 57.47 Working capital turns (x) 2.15 ROE 2,290 ROIC Cash flow statement FY15E NT$ in millions, year end Dec 101,967 Net income 88,988 Depr. & amortization 66,741 Change in working capital 8,548 Other 266,244 Cash flow from operations 3,979 Capex 53,480 Disposal/(purchase) 11,256 Cash flow from investing 334,958 Free cash flow Equity raised/(repaid) 22,571 Debt raised/(repaid) 105,211 Other 20,300 Dividends paid 148,082 Cash flow from financing 18,438 Net change in cash 2,693 Beginning cash 169,213 Ending cash 165,745
FY11 4.5% 1.6% 0.2% 0.0% 1.7% 2.7%
FY12 FY13E FY14E FY15E 4.8% 4.8% 5.0% 5.2% 2.5% 3.5% 4.0% 4.0% 1.3% 1.7% 2.0% 2.1% 0.7% 1.0% 1.1% 1.2% 1.4% 1.1% 1.1% 1.1% 2.2% 1.9% 2.0% 2.0% 6.8% (9.2%) (8.2%) 46.7% 2.3% 0.1% 60.2% (7.1%) 2.5% 60.2% (7.1%) 58.5 216.5 2.5% NM
13.1% 47.0% (89.5%) 1122.3% (98.2%) 5380.9% (98.2%) 5380.9% 158.2 70.2
EPS (reported) 0.05 2.67 EPS (adjusted) 0.05 2.67 BVPS 40.59 42.58 DPS 1.45 0.00 Shares outstanding 2,290 2,290 Balance sheet NT$ in millions, year end Dec FY11 FY12 Cash and cash equivalents 57,326 68,197 Accounts receivable 86,461 135,943 Inventories 65,716 92,678 Others 6,390 9,331 Current assets 215,894 306,150 LT investments 3,667 3,424 Net fixed assets 70,458 71,813 Others 9,557 10,054 Total Assets 299,576 391,441 Liabilities ST Loans 23,907 28,564 Payables 100,015 172,381 Others 27,569 33,032 Total current liabilities 151,491 233,977 Long-term debt 28,758 27,392 Other liabilities 1,130 2,045 Total Liabilities 181,379 263,413 Shareholder's equity 118,197 128,027 Source: Company reports and J.P. Morgan estimates.
(4.1%) (10.6%) (5.3%) (31.9%) (58.2%) NM NM NM NM NM 2.3 9.4 0.1% FY11 111 8,448 (3,010) 8,744 (25,804) (26,065) (17,018) 7,911 26,339 (18,341) 9,069 24,978 7,657 49,669 57,326 2.6 12.9 6.5% FY12 6,104 10,665 (1,555) 19,088 (12,020) (12,274) 7,292 (6,297) 3,290 1,015 6,049 4,058 10,872 57,326 68,197 2.5 12.5 9.8% FY13E 9,780 16,247 (16,124) 14,301 (13,620) (15,396) 1,111 5,856 4,473 (11,039) 1,013 303 (792) 68,197 67,405 2.5 9.6 8.2% FY14E 9,084 17,236 6,469 37,195 (8,176) (8,166) 29,140 0 (15,571) 1,263 (632) (14,940) 14,089 67,405 81,494 2.3 7.2 7.5% FY15E 9,312 14,823 3,429 32,128 (8,176) (8,166) 23,796 0 (3,848) 720 (360) (3,488) 20,473 81,494 101,967
FY13E FY14E 67,405 81,494 112,167 97,711 84,125 73,283 11,372 9,385 275,070 261,874 3,998 3,988 69,185 60,126 11,256 11,256 359,510 337,245 37,594 133,413 25,588 196,596 22,834 2,693 222,123 137,387 24,689 115,896 22,290 162,875 20,168 2,693 185,736 151,509
491
PT Bank Mandiri Tbk.

Underweight
www.bankmandiri.co.id
BMRI.JK,BMRI IJ Price: Rp8,250 Price Target: Rp7,000
Indonesia Banks Harsh Wardhan Modi

AC
Company overview BMRI is 60% owned by the Indonesian government. The bank was formed via a merger of several state owned banks in the aftermath of the Asian crisis. After an NPL related crisis in 2005, a new management team steered the bank back to health. BMRI's strength is its corporate lending franchise and the bank is working to develop its higher yielding business, especially in the retail segment. Investment case Mandiri has underperformed its peers by 7% YTD and we believe the trend will persist due to 3 reasons: 1) loan growth will slow down to 12% in FY14E from 20% in FY13E due to tighter liquidity condition and credit standards, 2) NIM will decline y/y due to higher funding costs, 3) we expect NPL to increase 60bps y/y to 2.7% on lower credit availability, cash-flow strains at borrowers and currency depreciation. Resilience of the growth outlook We expect earnings to decline 8% y/y in 2014 vs. Street estimates of 15% y/y growth in FY14. We differ from the Street across almost the entire Du Pont line items. As we highlight above, we expect lower growth, lower NIM and higher credit costs. The key difference appears to be our view on NIM compression. As a result, we expect 22% negative revision in FY14 consensus forecasts. Risks to the earnings outlook in 2014 Key upside risks include better than expected growth in deposit base, in turn leading to better loan growth. A pause in regulatory steps to arrest the current account deficit is the main macro risk to our investment case for the stock and the sector. Price target, and risks to our investment view We are UW on the stock with our 2 stage DDM methodology derived Dec-14 PT of Rp7,000 based on the following valuation assumptions: RFR of 8% CoE of 15.2%, Normalized RoE of 19.9% and terminal growth of 8%. Key risks include better than expected asset quality, NIM and loan growth. Improvement in macro variables will also provide a support to share price, and hence is a risk to our UW rating.
(65) 6882- 2450 harsh.w.modi@jpmorgan.com J.P. Morgan Securities Singapore Private Limited
Price Performance
11,000 10,000 Rp 9,000 8,000 7,000 6,000
BMRI.JK share price (Rp) JCI (rebased)
Abs Rel
YTD -14.9% -10.9%
1m -1.2% -2.6%
3m -1.8% 1.4%
12m -1.8% -4.9%
Company Data 52-week Range (Rp) Market Cap (Rp bn) Market Cap ($ bn) Shares O/S (bn) Fiscal Year End Price (Rp) Date Of Price 3M - Avg daily value (Rp mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) JCI Exchange Rate
10,750-6,250 192,499.70 16.95 23 Dec 8,250 06 Nov 13 346,569.60 30.5 43.79 4449.76 11,355.89
PT Bank Mandiri Tbk. (Reuters: BMRI.JK, Bloomberg: BMRI IJ) Rp in mn, year-end Dec FY10A FY11A FY12A FY13E Operating Profit (Rp bn) 16,500 19,178 22,993 28,137 Net Profit (Rp bn) 9,218 12,247 15,505 17,035 Cash EPS (Rp) 431.71 524.87 664.50 730.07 Fully Diluted EPS (Rp) 431.71 524.87 664.50 730.07 DPS (Rp) 131.78 104.97 199.29 219.02 EPS growth (%) 28.7% 21.6% 26.6% 9.9% ROE 24.1% 23.7% 22.7% 21.2% P/E (x) 19.1 15.7 12.4 11.3 BVPS (Rp) 1,945.54 2,648.27 3,196.29 3,681.91 P/BV (x) 4.2 3.1 2.6 2.2 Dividend Yield 1.6% 1.3% 2.4% 2.7%
FY14E 30,659 15,673 671.71 671.71 201.51 (8.0%) 17.2% 12.3 4,128.72 2.0 2.4%
FY15E 35,458 18,342 786.10 786.10 235.83 17.0% 17.9% 10.5 4,651.61 1.8 2.9%
492
PT Bank Mandiri Tbk.: Summary of Financials

Income Statement Rp in billions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data Rp EPS DPS Payout Book value Fully Diluted Shares Key Balance sheet Rp in billions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY11 5.6% 85.3% 4.7% 22,535 13,772 6,558 1,000 36,307 FY12 6.0% 87.1% 5.2% 28,421 14,402 7,377 1,434 42,823 FY13E 6.0% 87.2% 5.3% 33,659 16,840 10,697 1,112 50,500 FY14E 5.8% 87.3% 5.1% 37,287 19,089 12,301 1,253 56,376
(17,129) (19,830) (22,363) (25,717) 19,178 22,993 28,137 30,659 (2,831) (3,366) (5,954) (10,303) 0 166 16,513 (3,816) (450) 12,247 0 879 20,506 (4,461) (540) 15,505 (181) 527 22,529 (4,901) (593) 17,035 (181) 554 20,729 (4,509) (546) 15,673
FY11 FY12 FY13E FY14E 524.87 664.50 730.07 671.71 104.97 199.29 219.02 201.51 20.0% 30.0% 30.0% 30.0% 2,648.27 3,196.29 3,681.91 4,128.72 23 23 23 23 FY11 302,237 (12,105) 314,342 6,947 116,883 17,839 427,137 0 551,893 422,250 40,234 5,852 425,192 500,835 61,793 394,217 345,277 FY12 374,490 (14,011) 388,501 7,265 121,948 20,644 517,128 0 635,619 482,914 42,148 5,138 493,773 593,756 74,580 445,404 419,811 FY13E 440,302 (17,675) 457,976 9,596 128,045 23,741 599,647 0 739,238 551,307 63,749 5,909 570,059 687,429 85,911 543,340 494,372 FY14E 494,890 (20,251) 515,141 14,176 134,448 27,302 688,910 0 838,174 618,648 82,586 6,204 658,144 788,706 96,337 620,248 581,794
Growth Rates FY15E 5.9% Loans 87.3% Deposits 5.1% Assets Equity 43,405 RWA 21,628 Net Interest Income 14,146 Non-Interest Income 1,393 of which Fee Grth Revenues 65,033 Costs Pre-Provision Profits (29,575) Loan Loss Provisions 35,458 Pre-Tax (11,600) Attributable Income EPS (181) DPS 581 Balance Sheet Gearing 24,259 Loan/deposit (5,277) Investment/assets (639) Loan/Assets 18,342 Customer deposits/liab. LT debt/liabilities FY15E Asset Quality/Capital 786.10 Loan loss reserves/loans 235.83 NPLs/loans 30.0% Loan loss reserves/NPLs 4,651.61 Growth in NPLs 23 Tier 1 Ratio Total CAR FY15E Du-Pont Analysis 556,854 NIM (as % of avg. assets) (23,151) Earning assets/assets 580,004 Margins (as % of Avg. Assets) 19,327 Non-Int. Rev./ Revenues 141,170 Non IR/Avg. Assets 31,397 Revenue/Assets 783,937 Cost/Income 0 Cost/Assets 956,904 Pre-Provision ROA LLP/Loans 697,543 Loan/Assets 107,705 Other Prov, Income/ Assets 6,514 Operating ROA 753,241 Pre-Tax ROA 897,539 Tax rate 108,538 Minorities & Outside Distbn. 708,109 ROA 664,179 RORWA Equity/Assets ROE
FY11 27.7% 16.6% 22.7% 48.7% 33.0% 8.7% 58.4% 25.2% 23.4% 32.6% 16.2% 2.4% 18.2% 32.9% 21.6% (20.3%) FY11 71.6% 24.0% 56.0% 86.3% 7.3% FY11 (3.9%) 2.3% 182.8% 16.6% 12.4% 15.0% FY11 5.6% 85.3% 4.7% 37.9% 2.7% 7.2% 47.2% 3.4% 3.8% (1.0%) 56.0% 0.0% 3.3% 3.3% 23.1% 0.1% 2.4% 3.5% 10.3% 23.7%
FY12 23.6% 14.4% 15.2% 20.7% 13.0% 26.1% 4.6% 12.5% 17.9% 15.8% 19.9% 18.9% 24.2% 26.6% 26.6% 89.9% FY12 77.5% 20.1% 59.2% 86.4% 7.9% FY12 (3.6%) 2.0% 183.8% 4.6% 13.2% 15.3% FY12 6.0% 87.1% 5.2% 33.6% 2.4% 7.2% 46.3% 3.3% 3.9% (1.0%) 59.2% 0.1% 3.3% 3.5% 21.8% 0.2% 2.6% 3.7% 11.5% 22.7%
FY13E 17.9% 14.2% 16.3% 15.2% 22.0% 18.4% 16.9% 45.0% 17.9% 12.8% 22.4% 76.9% 9.9% 9.9% 9.9% 9.9% FY13E 79.9% 18.2% 61.6% 84.7% 8.8% FY13E (3.9%) 2.0% 187.9% 32.1% 12.8% 14.5% FY13E 6.0% 87.2% 5.3% 33.3% 2.4% 7.3% 44.3% 3.3% 4.1% (1.4%) 61.6% 0.1% 3.2% 3.3% 21.8% 0.3% 2.5% 3.4% 11.7% 21.2%
FY14E 12.5% 12.2% 13.4% 12.1% 14.2% 10.8% 13.4% 15.0% 11.6% 15.0% 9.0% 73.0% (8.0%) (8.0%) (8.0%) (8.0%) FY14E 80.0% 16.6% 61.7% 83.7% 10.5% FY14E (3.9%) 2.4% 159.5% 47.7% 12.5% 13.9% FY14E 5.8% 87.3% 5.1% 33.9% 2.4% 7.1% 45.6% 3.3% 3.9% (2.1%) 61.7% 0.0% 2.6% 2.6% 21.8% 0.4% 2.0% 2.7% 11.6% 17.2%
FY15E 12.6% 12.8% 14.2% 12.7% 14.2% 16.4% 13.3% 15.0% 15.4% 15.0% 15.7% 12.6% 17.0% 17.0% 17.0% 17.0% FY15E 79.8% 15.4% 61.0% 82.6% 12.0% FY15E (4.0%) 3.1% 129.5% 36.3% 12.3% 13.6% FY15E 5.9% 87.3% 5.1% 33.3% 2.4% 7.2% 45.5% 3.3% 4.0% (2.1%) 61.0% 0.0% 2.7% 2.7% 21.8% 0.4% 2.0% 2.8% 11.4% 17.9%
493
PT Indosat Tbk
Underweight
www.indosat.com
ISAT.JK,ISAT IJ Price: Rp3,625 Price Target: Rp3,820

AC
Company overview PT Indosat Tbk is a telecommunications and information service provider of cellular services, fixed data services, or MIDI (Multimedia, Internet and Data Communications), and fixed voice services. It is the second-largest provider of wireless services in Indonesia, accounting for ~18.5% of the mobile market. PT Indosat Tbk is a subsidiary of QTel (Qatar Telecom), which currently owns 65% of total shares. Investment case Our Underweight rating on ISAT is premised on: (1) Network issues that are hurting its market share. ISAT lost subscriber share in 3Q, with the wireless subscriber base declining 4.8% QoQ, to 53.8 million. ISAT continues to face quality issues with its network, driving higher churn; (2) ISATs per-unit data pricing is the highest vs. peers, which could drive the highest pricing compression, over and above the normal data pricing compression that the Indonesia telecom market is witnessing; (3) Capex is likely to remain elevated over the next two years, implying higher depreciation and interest costs. We do not see a potential trigger for ISATs stock in the near term and do not expect to see a reversal in the Streets earnings downgrade cycle yet. Resilience of the growth outlook We estimate a 5% revenue CAGR for ISAT over 2013-15E. The Indonesian market remains highly competitive, and while the level of intensity is stabilizing, we see risk to the growth outlook if any operators were to become more competitive. Risks to the earnings outlook in 2014 Early resolution of network issues, resulting in a clawback of lost market share, could help the company recoup its earnings momentum. Additionally, lower competitive intensity in Indonesia, driving a reversal in data pricing trends, could be another source of upside risk to our earnings estimates. Price target, and risks to our investment view Our Jun-14 price target of Rp3,820 is based on 16x 2015E P/E (see datasheet for breakdown). Key upside risks to our thesis include lower competitive intensity, driving data pricing higher, and potential consolidation in the industry.

Price Performance
8,000 7,000 Rp 6,000 5,000 4,000 3,000
ISAT.JK share price (Rp) JCI (rebased)
Abs Rel
YTD -43.8% -38.0%
1m -15.7% -12.9%
3m -28.9% -21.8%
12m -45.5% -45.9%
7,200-3,525 19,698.98 1.70 5,434 20.7% 1.79 0.6 4367.37 11,604.97 3,625 14 Nov 13
PT Indosat Tbk (Reuters: ISAT.JK, Bloomberg: ISAT IJ) Rp in bn, year-end Dec FY11A FY12A FY13E Revenue (Rp bn) 20,577 22,419 24,567 EBITDA (Rp bn) 9,411 10,540 11,179 EBITDA Growth (2.2%) 12.0% 6.1% Recurring profit (Rp bn) 1,306 1,646 891 Recurring EPS (Rp) 240.34 302.98 163.99 EPS growth (%) 118.6% 26.1% (45.9%) DPS (Rp) 76.83 34.51 46.51 EV/EBITDA (x) 5.2 4.4 4.1 P/E (x) 15.1 12.0 22.1 Dividend Yield 2.1% 1.0% 1.3% FCF to mkt cap (%) 13.3% 15.5% 10.7%
FY14E 26,318 11,916 6.6% 1,297 238.61 45.5% 119.27 3.8 15.2 3.3% 13.7%
FY15E 27,952 12,751 7.0% 1,955 359.71 50.8% 179.81 3.4 10.1 5.0% 16.7%
494
PT Indosat Tbk: Summary of Financials

Income Statement Rp in billions, year end Dec Revenue EBITDA Depreciation Amortization EBIT Interest income Finance Costs Other Income/Expenses Profit before tax Tax Net profit - reported Net profit - adjusted Shares Outstanding (mn) EPS (Rp) (reported) EPS (Adjusted) DPS (Rp) DPS payout ratio Revenue growth EBITDA growth Adj Net profit growth Adj EPS growth DPS growth FY11 FY12 FY13E 20,577 22,419 24,567 9,411 10,540 11,179 (6,581) (8,273) (8,393) 0 0 0 2,830 2,267 2,786 82 134 224 (1,790) (2,077) (2,099) (35) 878 77 1,182 462 880 (249) 26 (251) 837 375 506 1,306 1,646 891 FY14E 26,318 11,916 (8,176) 0 3,740 181 (1,949) 0 1,972 (552) 1,297 1,297 FY15E 27,952 12,751 (8,146) 0 4,605 105 (1,824) 0 2,886 (808) 1,955 1,955 5,434 359.71 359.71 179.81 50.0% 6.2% 7.0% 50.8% 50.8% 50.8%
Balance sheet Rp in billions, year end Dec Cash and cash equivalents Accounts receivable Others Total current assets ST loans Accounts Payables Others Total current liabilities Net working capital Net fixed assets Net Goodwill Other long term assets Total non-current assets Total Assets Long-term debt Other liabilities Total Liabilities Shareholders' equity Total liabilities and equity Net debt/(cash) Book value per share Cash flow statement Rp in billions, year end Dec Cash flow from operations Capex Cash flow from other investing Cash flow from financing
FY11 2,224 1,506 2,038 5,768 4,842 319 6,807 11,968 1,187 43,506 1,367 2,593 47,465 53,233 18,564 3,732 34,264
FY12 3,917 2,061 2,330 8,309 4,298 232 6,486 11,016 1,829 41,965 1,374 3,578 46,916 55,225 17,690 7,124 35,830
FY13E 2,494 2,259 2,567 7,320 4,298 261 6,760 11,319 1,998 41,699 1,374 3,578 46,650 53,970 15,690 7,124 34,133
FY14E 2,665 2,420 2,726 7,811 4,298 281 6,909 11,488 2,139 41,543 1,374 3,578 46,494 54,305 14,690 7,124 33,301
FY15E 2,562 2,570 2,852 7,983 4,298 297 7,061 11,655 2,273 41,468 1,374 3,578 46,420 54,403 13,190 7,124 31,969
5,434 5,434 5,434 5,434 153.99 69.04 93.06 238.61 240.34 302.98 163.99 238.61 76.83 34.51 46.51 119.27 49.9% 50.0% 50.0% 50.0% 3.9% 9.0% 9.6% 7.1% (2.2%) 12.0% 6.1% 6.6% 118.6% 26.1% (45.9%) 45.5% 118.6% 26.1% (45.9%) 45.5% 29.0% (55.1%) 34.8% 156.4%
Ratio Analysis %, year end Dec FY11 FY12 FY13E FY14E FY15E EBITDA margin 45.7% 47.0% 45.5% 45.3% 45.6% FCF margin 12.7% 13.6% 8.6% 10.2% 11.7% ROE 7.2% 8.8% 4.7% 6.6% 9.4% ROC 5.3% 5.1% 4.9% 6.7% 8.3% ROA 2.5% 3.0% 1.6% 2.4% 3.6% Tax rate 21.1% 5.6% 28.5% 28.0% 28.0% Change in cash for year Capex to sales 29.4% 25.7% 33.1% 30.5% 28.9% Debt/Capital 52.8% 48.2% 46.9% 43.7% 40.0% Beginning cash Net debt or (cash) to equity 111.7% 93.2% 88.2% 77.7% 66.5% Closing cash Interest coverage (x) 5.5 5.4 6.0 6.7 7.4 Source: Company reports and J.P. Morgan estimates.
18,969 19,395 19,837 21,004 22,433 53,233 55,225 53,970 54,305 54,403 21,182 18,071 17,494 16,323 14,927 3,407.37 3,471.06 3,529.61 3,721.70 3,962.14 FY11 7,320 (6,048) 10 (1,135) 149 2,075 2,224 FY12 6,989 (5,766) 3,077 (2,647) 1,693 2,224 3,917 FY13E 8,891 (8,127) 0 (2,188) (1,423) 3,917 2,494 FY14E 9,444 (8,020) 0 (1,253) 171 2,494 2,665 FY15E 10,116 (8,071) 0 (2,148) (103) 2,665 2,562
495
PT XL Axiata Tbk
Underweight
www.xl.co.id
EXCL.JK,EXCL IJ Price: Rp4,625 Price Target: Rp3,770
Company overview PT XL Axiata Tbk, also known as XL, is an Indonesia-based mobile telecommunications service operator with the second-highest market share in terms of subscribers, at 18% as of 3Q13. Investment case Our Underweight rating on XL is based on our view that current data pricing levels in Indonesia are driving down incremental returns on capital. Despite this, data pricing for XL continues to get compressed, down 60% YoY in 3Q13, which will continue to pressure margins. XL also recently announced the acquisition of Axis Telecom, which we believe will dilute 2014 EPS by at least 25%. Consensus has been cutting earnings estimates for past few quarters, and we expect this trend to continue, driving stock underperformance. Resilience of the growth outlook We estimate an 8% revenue growth CAGR for XL over 2013-15E. The Indonesian market remains highly competitive, and while the level of intensity is stabilizing, we see risks to the growth outlook if any operators were to become more competitive.
12m -28.3% -31.4%

AC

Price Performance
8,000 7,000 Rp 6,000 5,000 4,000
EXCL.JK share price (Rp) JCI (rebased)
Abs Rel
YTD -18.9% -14.9%
1m -0.5% -1.9%
3m 8.2% 11.4%
Risks to the earnings outlook in 2014 Lower competitive intensity in Indonesia, driving a reversal in data pricing trends, could be a source of upside risk to our earnings estimates. An earlier-than-expected turnaround at Axis Telecom could also drive earnings higher. Price target, and risks to our investment view Our Dec-14 price target of Rp3,770 is based on a 13x 2015E P/E. At our price target, XL would provide a 2014E/15E dividend yield of 2.5%/2.7%. Key upside risks include the potential for further consolidation of the Indonesian market through acquisitions, which would be positive for sentiment and drive valuations higher, in our view. In addition, a quick turnaround at Axis would be positive for valuation.
6,500-3,750 39,467.42 3.48 8,533 20.2% 5.31 2.1 4449.76 11,355.89 4,625 06 Nov 13
PT XL Axiata Tbk (Reuters: EXCL.JK, Bloomberg: EXCL IJ) Rp in bn, year-end Dec FY11A FY12A FY13E Revenue (Rp bn) 18,714 20,969 21,597 EBITDA (Rp bn) 9,350 9,746 8,778 EBITDA Growth 0.7% 4.2% (9.9%) Recurring profit (Rp bn) 3,112 3,007 1,640 Recurring EPS (Rp) 366 353 192 EPS growth (%) 2.4% (3.5%) (45.5%) DPS (Rp) 129.88 105.83 67.31 EV/EBITDA (x) 5.1 5.2 6.0 P/E (x) 12.7 13.1 24.1 Dividend Yield 2.8% 2.3% 1.5% FCF to mkt cap (%) 6.0% (1.9%) 0.6%
FY14E 23,666 9,421 7.3% 2,275 267 38.8% 93.43 5.6 17.3 2.0% 3.9%
FY15E 25,095 10,016 6.3% 2,472 290 8.6% 101.51 5.4 15.9 2.2% 3.8%
496
PT XL Axiata Tbk: Summary of Financials

Income Statement Rp in billions, year end Dec Revenue EBITDA Depreciation Amortization EBIT Interest income Finance Costs Associates Profit before tax Tax Minorities Net profit - reported Net profit - adjusted
Balance sheet FY11 FY12 FY13E FY14E FY15E Rp in billions, year end Dec 18,714 20,969 21,597 23,666 25,095 Cash and cash equivalents 9,350 9,746 8,778 9,421 10,016 Accounts receivable (4,683) (5,066) (5,490) (5,579) (5,805) Others - Total current assets 4,667 4,680 3,288 3,841 4,211 117 181 155 176 103 ST loans (755) (782) (862) (943) (973) Others 0 0 0 0 0 Accounts Payables 3,809 3,752 1,764 3,075 3,341 Total current liabilities (1,035) (987) (430) (799) (869) 0 0 0 0 0 Net working capital 2,774 2,765 1,334 2,275 2,472 3,112 3,007 1,640 2,275 2,472 Net fixed assets Other long term assets Shares Outstanding (mn) 8,515 8,524 8,529 8,524 8,524 Total non-current assets EPS (Rp) (reported) 326 324 156 267 290 EPS (Adjusted) 366 353 192 267 290 Total Assets DPS (Rp) 129.88 105.83 67.31 93.43 101.51 DPS payout ratio 39.9% 32.6% 43.0% 35.0% 35.0% Long-term debt Other liabilities Revenue growth 7.2% 12.0% 3.0% 9.6% 6.0% Total Liabilities EBITDA growth 0.7% 4.2% (9.9%) 7.3% 6.3% Adj Net profit growth 2.5% (3.4%) (45.5%) 38.7% 8.6% Shareholders' equity Adj EPS growth 2.4% (3.5%) (45.5%) 38.8% 8.6% DPS growth 21.4% (18.5%) (36.4%) 38.8% 8.6% Total liabilities and equity Net debt/(cash) Book value per share Ratio Analysis Cash flow statement %, year end Dec FY11 FY12 FY13E FY14E FY15E Rp in billions, year end Dec EBITDA margin 50.0% 46.5% 40.6% 39.8% 39.9% Cash flow from operations FCF margin 12.7% (3.6%) 1.1% 6.6% 6.0% Capex ROE 24.5% 20.7% 10.4% 13.5% 13.4% Cash flow from other investing ROC 14.7% 12.9% 8.3% 8.7% 9.0% Cash flow from financing ROA 10.7% 9.0% 4.4% 5.7% 5.8% Tax rate 27.2% 26.3% 24.4% 26.0% 26.0% Change in cash for year Capex to sales 34.8% 48.5% 38.0% 34.0% 34.0% Debt/Capital 41.6% 45.3% 47.3% 46.4% 45.7% Beginning cash Net debt or (cash) to equity 71.1% 82.8% 89.6% 86.4% 84.3% Closing cash Interest coverage (x) 14.7 16.2 12.4 12.3 11.5 Source: Company reports and J.P. Morgan estimates.
FY11 998 643 1,746 3,387 3,832 1,206 3,690 8,728 (3,047) 25,615 2,169 27,783 31,171 6,906 1,844 17,478 13,693
FY12 792 506 2,361 3,659 4,307 1,033 3,400 8,740 (2,895) 29,643 2,153 31,797 35,456 9,213 2,132 20,086 15,370
FY13E 760 521 2,632 3,914 5,307 1,061 3,884 10,252 (3,363) 32,361 2,153 34,514 38,428 9,913 2,132 22,297 16,131
FY14E 1,004 571 2,874 4,449 6,307 1,153 4,316 11,775 (3,745) 34,828 2,153 36,981 41,430 9,913 2,132 23,821 17,610
FY15E 24 605 3,016 3,645 6,307 1,216 4,569 12,091 (3,963) 37,555 2,153 39,709 43,354 9,913 2,132 24,137 19,216
31,171 35,456 38,428 41,430 43,353 9,740 12,728 14,460 15,216 16,196 1,608.00 1,803.18 1,891.26 2,065.91 2,254.43 FY11 FY12 8,433 8,985 (6,522) (10,176) (162) 175 (1,118) 806 632 366 998 (206) 998 792 FY13E 7,911 (8,207) 0 264 (32) 792 760 FY14E 9,030 (8,046) 0 (740) 244 760 1,004 FY15E 9,390 (8,532) 0 (1,838) (981) 1,004 24
497
Punjab National Bank

Underweight
www.pnbindia.in
PNBK.BO,PNB IN Price: Rs560.25 Price Target: Rs450.00
India Banks Seshadri K Sen, CFA

AC
Company overview Punjab National Bank is the third largest public sector bank in country with a loan book size of ~US$51bn that has grown by ~21% over FY08-13. It has one of the best liability franchises with a CASA of ~40% leading to relatively higher NIMs among PSU banks. Investment case We expect asset quality pressures to continue for the bank given the weak macro. PNBs mid-corporate book remains quite vulnerable, and its probably the most tied to the overall economic cycle among the larger PSU banks. There is a risk of margin pressure for the bank. The bank is quite aggressive in the working capital space and that is margin destructive, in the high rate environment. The cheap valuations can be misleading given the high dilution risk over the next 2-3 years with high delinquencies and falling ROEs. Resilience of the growth outlook The loan growth has remained subdued for the bank in the recent past (FY13 loan growth of 5%); if the slow growth persists for longer period of time given high competition in the retail segment and lack of demand from corporates then it can further impact growth in FY14E-15E. Risks to the earnings outlook in 2014 If the macro situation remains vulnerable for a longer period of time then credit costs could inch upwards, which could impact profitability & thereby return ratios. We expect credit costs of 118bp for FY14E. Price target, and risks to our investment view Our Sept-14 PT for PNB of Rs450 is based on 2 stage Gordon growth model implying 0.45x Sept14 book. Our valuations factor in Cost of Equity at 16.4%, Normalised ROE of ~8% and terminal growth of 5%. The key risk to our UW rating is a sudden improvement in the asset quality cycle. This could be triggered by 1) a surprise recovery in the economy (faster growth) or 2) policy support which helps PNB deal with its agri and SME NPLs.
(91-22) 6157-3575 seshadri.k.sen@jpmorgan.com J.P. Morgan India Private Limited
Price Performance
1,000 800 Rs 600 400
PNBK.BO share price (Rs) BSE30 (rebased)
Abs Rel
YTD -37.2% -43.9%
1m 19.1% 14.2%
3m 7.6% -3.9%
12m -26.0% -37.0%
Company Data 52-week Range (Rs) Market Cap (Rs mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Rs) Date Of Price 3M - Avg daily value (Rs mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) BSE30 Exchange Rate
922.10-400.20 190,025 3,084 339 Mar 560.25 06 Nov 13 1,026.05 16.6 2.08 2,0974.79 61.63
Punjab National Bank (Reuters: PNBK.BO, Bloomberg: PNB IN) Rs in mn, year-end Mar FY12A FY13A FY14E Operating Profit (Rs mn) 106,142 109,074 114,094 Net Profit (Rs mn) 48,841 47,476 45,624 Cash EPS (Rs) 144.00 134.31 129.07 Fully Diluted EPS (Rs) 144.00 134.31 129.07 DPS (Rs) 22.00 27.00 30.00 EPS growth (%) 2.9% (6.7%) (3.9%) ROE 21.0% 16.5% 13.9% P/E (x) 3.9 4.2 4.3 BVPS (Rs) 777.39 884.03 978.00 P/BV (x) 0.7 0.6 0.6 Dividend Yield 3.9% 4.8% 5.4%
FY15E 124,649 57,157 161.70 161.70 36.00 25.3% 15.6% 3.5 1,097.58 0.5 6.4%
FY16E 137,339 65,593 185.57 185.57 43.20 14.8% 16.9% 3.0 1,097.58 0.5 7.7%
498
Punjab National Bank: Summary of Financials

Income Statement Rs in millions, year end Mar NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc (treasury Income) Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income FY12 3.3% 97.4% 3.2% 134,143 42,026 29,788 176,169 (70,028) 106,142 (35,773) 70,369 (21,528) 0 48,841 FY13 3.3% 97.5% 3.2% 148,565 42,159 29,354 190,724 (81,651) 109,074 (43,856) 65,218 (17,742) 0 47,476 FY14E 3.3% 97.6% 3.2% 163,145 46,494 32,289 209,639 FY15E 3.3% 97.6% 3.2% 187,401 51,413 36,164 238,814
(95,544) (114,166) 114,094 (44,967) 69,127 (23,503) 0 45,624 124,649 (38,047) 86,602 (29,445) 0 57,157
Growth Rates FY16E 3.3% Loans 97.6% Deposits 3.2% Assets Equity 215,957 RWA 57,841 Net Interest Income 41,227 Non-Interest Income of which Fee Grth 273,798 Revenues Costs (136,459) Pre-Provision Profits Loan Loss Provisions 137,339 Pre-Tax (37,957) Attributable Income - EPS - DPS 99,383 (33,790) 0 65,593 Balance Sheet Gearing Loan/deposit Investment/assets Loan/Assets Customer deposits/liab. LT debt/liabilities Asset Quality/Capital Loan loss reserves/loans NPLs/loans Specific loan loss reserves/NPLs Growth in NPLs Tier 1 Ratio Total CAR Du-Pont Analysis NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Non-Int. Rev./ Revenues Non IR/Avg. Assets Revenue/Assets Cost/Income Cost/Assets Pre-Provision ROA LLP/Loans Loan/Assets Other Prov, Income/ Assets Operating ROA Pre-Tax ROA Tax rate Minorities & Outside Distbn. ROA RORWA Equity/Assets ROE
FY12 21.9% 21.3% 21.2% 31.6% 17.3% 13.6% 16.3% 21.6% 14.2% 10.0% 17.2% 43.5% 7.2% 10.2% 2.9% 0.0% FY12 77.4% 4.6% 65.1% 88.2% 8.7% FY12 (1.4%) 2.4% 49.5% 99.1% 9.3% 12.6% FY12 3.3% 97.4% 3.2% 23.9% 1.0% 4.2% 39.8% 1.7% 2.5% (1.3%) 65.1% 1.7% 1.7% 30.6% 0.0% 1.2% 1.8% 5.6% 21.0%
FY13 5.7% 3.2% 4.5% 18.5% 11.1% 10.8% 0.3% (1.5%) 8.3% 16.6% 2.8% 22.6% (7.3%) (2.8%) (6.7%) 22.7% FY13 78.8% 4.8% 65.6% 87.8% 8.8% FY13 (1.9%) 3.6% 46.4% 54.4% 9.8% 12.7% FY13 3.3% 97.5% 3.2% 22.1% 0.9% 4.1% 42.8% 1.7% 2.3% (1.4%) 65.6% 1.4% 1.4% 27.2% 0.0% 1.0% 1.5% 6.2% 16.5%
FY14E 14.3% 14.4% 14.9% 10.6% 18.6% 9.8% 10.3% 10.0% 9.9% 17.0% 4.6% 2.5% 6.0% (3.9%) (3.9%) 11.1% FY14E 78.6% 4.4% 65.8% 87.2% 9.2% FY14E (2.2%) 4.5% 46.8% 23.4% 9.4% 11.8% FY14E 3.3% 97.6% 3.2% 22.2% 0.9% 4.1% 45.6% 1.9% 2.2% (1.3%) 65.8% 1.3% 1.3% 34.0% 0.0% 0.9% 1.3% 6.4% 13.9%
FY15E 14.3% 12.1% 13.2% 12.2% 13.2% 14.9% 10.6% 12.0% 13.9% 19.5% 9.3% (15.4%) 25.3% 25.3% 25.3% 20.0% FY15E 79.9% 4.2% 66.0% 86.3% 10.0% FY15E (2.5%) 4.8% 49.1% 21.7% 9.2% 11.3% FY15E 3.3% 97.6% 3.2% 21.5% 0.9% 4.1% 47.8% 2.0% 2.1% (1.0%) 66.0% 1.5% 1.5% 34.0% 0.0% 1.0% 1.4% 6.3% 15.6%
FY16E 15.1% 14.4% 14.6% 0.0% 14.6% 15.2% 12.5% 14.0% 14.6% 19.5% 10.2% (0.2%) 14.8% 14.8% 14.8% 20.0% FY16E 80.3% 3.9% 66.4% 85.4% 10.9% FY16E (2.6%) 5.0% 50.5% 18.3% 8.1% 9.8% FY16E 3.3% 97.6% 3.2% 21.1% 0.9% 4.1% 49.8% 2.0% 2.1% (0.9%) 66.4% 1.5% 1.5% 34.0% 0.0% 1.0% 1.4% 5.8% 16.9%
Per Share Data EPS DPS Payout Book value Fully Diluted Shares Key Balance sheet Rs in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA
FY12 144.00 22.00 15.3% 777.39 339 FY12 2,937,748 (41,841) 2,979,588 87,196 226,467 97,929 4,060,962 4,567,445 3,795,885 372,643 111,903 3,806,706 4,167,993 263,675 2,919,190 2,703,395
FY13 134.31 27.00 20.1% 884.03 353 FY13 3,087,252 (61,028) 3,148,280 134,658 220,861 97,626 4,554,945 4,774,482 3,915,601 396,209 108,953 4,240,169 4,670,963 312,481 3,243,800 3,081,495
FY14E 129.07 30.00 23.2% 978.00 353 FY14E 3,519,467 (79,748) 3,599,215 166,141 234,818 111,854 5,004,530 5,484,731 4,480,523 486,428 106,003 4,639,381 5,129,606 345,698 3,847,373 3,545,587
FY15E 161.70 36.00 22.3% 1,097.58 353 FY15E 4,012,193 (101,066) 4,113,259 202,133 250,728 125,783 5,705,256 6,208,280 5,022,493 604,311 103,053 5,296,878 5,846,505 387,966 4,354,921 4,101,147
FY16E 185.57 43.20 23.3% 1,097.58 353 FY16E 4,614,022 (121,968) 4,735,989 239,152 270,162 144,398 6,502,558 7,116,068 5,747,479 758,474 100,103 6,066,379 6,662,174 387,966 4,991,707 4,673,314
499
Samsung Engineering
Underweight
www.samsungengineering.co.kr
South Korea Construction Sokje Lee

AC
Company overview Samsung Engineering was established in 1970 as Korea Engineering. After being taken over by the Samsung group, the companys name changed to Samsung Engineering. The company is an EPC contractor with a core competency in plant construction, and provides engineering & construction services in the domestic and international markets. Investment case Samsung Engineering is currently facing problems on project execution and labor sourcing, particularly from its overseas business in new markets and nonhydrocarbon projects. This had resulted in massive provisions and cost-overruns. We expect further upside to the companys share price is limited, given the depressed market sentiment and remaining concerns about the companys execution abilities. Resilience of the growth outlook Long-term earnings recovery will require more time, in our view. The companys low-priced contracts mostly received during 2010-11, as well as execution risks as a result of the company's diversification into new markets/new construction projects, are likely to put pressure its earnings for the next 1-2 years.
12m -52.0% -56.4%
Price Performance
180,000 140,000 W 100,000 60,000
Abs Rel
YTD -56.8% -57.6%
1m -12.4% -13.2%
3m -17.2% -22.8%
Risks to the earnings outlook in 2014 We believe Samsung Engineerings margin will recover from the expected net loss in 2013. However, in view of the companys ongoing cost overruns incurred by its overseas projects, we believe 2014 earnings will remain depressed, with the expected GP margin at 6.5% vs. 11.3% in FY12. Price target, and risks to our investment view We maintain UW with a Dec-14 price target of W50,000. Our price target is based on an 8.4x P/E multiple applied to 2015E EPS of W5,975, as we believe that normalized profitability will be seen from 2015E. Our price target multiple of 8.4x comes from the 2015E average of the KOSPI index. Key upside risks to our price target are: (1) better-than-expected execution of current projects in backlog, mainly received during 2010-2011; and (2) faster margin recovery of companys nonhydrocarbon projects.
40 2,860 2,695 71,500 06 Nov 13 0.47 38.08 35.9 2013.67 1,061.15 Dec
Samsung Engineering Co. Ltd (Reuters: 028050.KS, Bloomberg: 028050 KS) Year-end Dec FY12A FY13E FY14E Revenue (W bn) 11,440 9,732 8,736 Operating Profit (W bn) 732 (1,039) 141 Net Profit (W bn) 523 (729) 95 EPS (W) 13,082 -18,221 2,382 BVPS (W) 43,487 25,398 26,906 Revenue growth 23.0% (14.9%) (10.2%) EPS growth 2.3% (239.3%) (113.1%) ROE 33.9% (52.9%) 9.1% ROA 9.6% (12.6%) 1.7% P/E (x) 5.5 NM 30.0 P/BV (x) 1.6 2.8 2.7 EV/EBITDA (x) 3.9 NM 18.3 Dividend Yield 4.2% 0.0% 1.4%
Source: Company data, Bloomberg, J.P. Morgan estimates. Net profit, EPS and ROE based on Owners' net income; BVPS based on Owners of parent equity.
FY15E 9,290 319 239 5,975 32,007 6.3% 150.9% 20.3% 4.3% 12.0 2.2 9.7 1.4%
500
Samsung Engineering: Summary of Financials

Balance sheet
FY12
5,674 4,188 436 3,108 0 643 1,486 733 40 1 712 3,934 3,554 1,722 1,832 379 0 38 341 1,740 374 (113)
FY13E
5,936 4,393 355 3,433 0 604 1,544 790 45 1 707 4,920 4,231 2,069 2,162 689 436 25 228 1,016 1,410 1,002
FY14E
5,475 4,037 509 2,912 0 617 1,437 677 50 1 709 4,396 3,708 1,665 2,043 689 436 25 228 1,077 1,310 746
FY15E W in billions, year end Dec 5,593 Net Sales Growth(%) 4,167 442 Cost of Sales 3,097 Gross Profit on Sales Gross margin 0 629 SG&A
1,426 659 54 1 712 4,311 3,622 1,770 1,853 689 436 25 228 1,281 1,110 610
Income Statement
11,440 23.0% (10,153) 1,288 11.3% (555)
FY12
9,732 (14.9%) (10,297) (565) (5.8%) (475)
FY13E
8,736 (10.2%) (8,168) 568 6.5% (427)
FY14E
FY15E
9,290 6.3% (8,512) 778 8.4% (458)
732 16.9% 6.4% 701 (180) 25.6% 523 2.3% 792 19.2%
(1,039) (241.9%) (10.7%) (930) 203 (21.8%) (729) (239.3%) (955) (220.6%)
141 (113.5%) 1.6% 124 (27) 21.8% 95 (113.1%) 216 (122.6%)
319 126.9% 3.4% 308 (67) 21.8% 239 150.9% 392 82.0%
13,082 -18,221 2,382 5,975 2.3% (239.3%) (113.1%) 150.9% 43,487 25,398 26,906 32,007 3,000 0 1,000 1,000 4.2% 0.0% 1.4% 1.4% 5.5 NM 30.0 12.0 1.6 2.8 2.7 2.2 3.9 NM 18.3 9.7 33.9% (52.9%) 9.1% 20.3% 11.3% (5.8%) 6.5% 8.4% 6.4% (10.7%) 1.6% 3.4% 4.6% (7.5%) 1.1% 2.6% 6.9% (9.8%) 2.5% 4.2% 20.0 24.5 35.6 21.2 Source: Company reports and J.P. Morgan estimates. Net profit, EPS and ROE based on Owners' net income; BVPS based on Owners of parent equity. Net profit, EPS and ROE based on Owners' net income; BVPS based on Owners of parent equity.
FY12
(193) 523 60 (864) (178) 266 (180) (402) 259 (114) 560 436
FY13E
(1,094) (729) 84 (528) (180) 259 (14) (1,045) 1,026 (82) 436 355
FY14E
363 95 75 67 203 (78) (62) 367 (147) 154 355 509
Ratio Analysis FY15E W, year end Dec 242 EPS 239 EPS Growth(%) 73 BPS (72) DPS (27) Dividend Yield(%) 29 PER (x) (62) PBR (x) 237 EV/ EBITDA (x) (247) ROE(%) (67) Gross Margin (%) 509 Operating Margin (%) 442 Net margin(%) EBITDA Margin (%) Working Capital Turnover (x) Inventory Turnover (days)
FY12
FY13E
FY14E
FY15E
501
Shanghai Electric Group Company Limited

Underweight
www.shanghai-electric.com/
China Industrial Machinery Boris Kan

AC
Company overview Shanghai Electric is one of the top three power equipment manufacturers in China, capturing about one-third of the market share with an annual production capacity of over 30,000MW. Other than power generation equipment, the company also produces electromechanical & heavy machinery and railcars. Investment case Shanghai Electric is one of the largest equipment manufacturing conglomerates in China. Its core business segments are high-efficiency and clean energy as well as new energy equipment. Our bearish view on Shanghai Electric rests on the expected weak demand for coal-fired equipment as China (1) continues to rely less on coal due to pollution concerns (2) has slower power demand growth going forward as the nation shifts away from an FAI growth model. Resilience of the growth outlook Shanghai Electrics growth is a function of (1) coal-fired power demand growth, (2) revival of nuclear power projects and (3) overseas market opportunities. Given (1) Chinas pollution concerns and LT structural economic slowdown, (2) lack of clarity on timing of large-scale revival of nuclear power projects and (3) mixed outlook on overseas market (especially India), the companys growth outlook remain uncertain. Risks to the earnings outlook in 2014 Risks to 2014 earnings outlook include (1) higher-than-expected losses from heavy machinery business resulting from slower-than expected economic recovery, and (2) lower-than-expected ASP for coal-fired and wind units as a result of intensified competition, which will in turn lead to downside pressure on margins. Price target, and risks to our investment view Our June-14 price target of HK$2.4 is based on 7.9x the four-year forward throughcycle EPS for 2013-15E (7.9x is based on one SD below 5-year historical average 1year forward P/E). The stock would trade at 8.4x 2014E PER and 0.7x 2014E PBR on our PT. Upside risks include better than expected coal-fired equipment delivery and earlier than expected nuclear order rollout.
Price Performance
3.6 HK$ 3.2 2.8 2.4
2727.HK share price (HK$) H-SHARE (rebased)
Abs Rel
YTD -16.0% -10.2%
1m 2.2% 2.5%
3m 3.0% -10.0%
12m -12.9% -16.3%
Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) H-SHARE Exchange Rate Fiscal Year End
12,824 28,056 4,599 2.78 06 Nov 13 7.80 21.87 2.8 1,4764.71 7.75 Dec
Shanghai Electric Group Company Limited (Reuters: 2727.HK, Bloomberg: 2727 HK) Rmb in mn, year-end Dec FY11A FY12A FY13E FY14E FY15E Revenue (Rmb mn) 71,461 76,591 76,996 80,268 84,392 Net Profit (Rmb mn) 3,183 2,715 2,698 2,883 3,115 EPS (Rmb) 0.25 0.21 0.21 0.22 0.24 DPS (Rmb) 0.07 0.06 0.06 0.07 0.07 Revenue growth (%) 13.5% 7.2% 0.5% 4.2% 5.1% EPS growth (%) 13.3% (14.7%) (0.6%) 6.9% 8.1% ROCE 11.6% 11.7% 10.4% 10.4% 10.6% ROE 11.3% 9.0% 8.5% 8.3% 8.3% P/E (x) 8.8 10.3 10.4 9.7 9.0 P/BV (x) 1.0 0.9 0.8 0.8 0.7 Dividend Yield 3.4% 2.9% 2.9% 3.1% 3.3%
502
Shanghai Electric Group Company Limited: Summary of Financials

Income Statement Rmb in millions, year end Dec Revenues % change Y/Y Gross Margin EBITDA % change Y/Y EBITDA margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rmb in millions, year end Dec Inventories Trade debtors Bank balances and cash Other current assets Current assets Net fixed assets Other non-current assets Total Assets FY12 76,591 7.2% 18.3% 6,818 18.5% 8.9% 5,310 22.6% 6.9% (196) 5,726 16.4% (1,344) 23.5% 2,715 (14.7%) 12,824 0.21 (14.7%) FY12 21,934 29,198 22,766 17,918 91,816 FY13E 76,996 0.5% 18.0% 6,527 (4.3%) 8.5% 4,944 (6.9%) 6.4% (163) 5,545 (3.2%) (1,191) 21.5% 2,698 (0.6%) 12,824 0.21 (0.6%) FY13E 23,737 30,407 24,940 17,279 96,364 FY14E 80,268 4.2% 18.0% 6,986 7.0% 8.7% 5,324 7.7% 6.6% (163) 5,925 6.9% (1,272) 21.5% 2,883 6.9% 12,824 0.22 6.9% FY14E 24,306 31,260 27,545 16,768 99,878 Cash flow statement Rmb in millions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Others Cash flow from operations Capex Disposal/(purchase) Cash outflow on investing activities Free cash flow Equity raised/(repaid) Debt raised/(repaid) Dividends paid Other Cash flow from financing act. Increase (decrease) in cash Beginning cash Ending cash DPS Ratio Analysis FY15E Rmb in millions, year end Dec 25,093 EBITDA margin 32,403 Net profit margin 30,367 16,359 104,221 Sales growth Net profit growth 15,927 EPS growth 132,311 Net debt to total capital Net debt to equity 3,419 Sales/assets 29,648 Assets/equity 40,296 ROE 73,364 ROCE 2,029 2,202 77,595 39,202 3.06 FY15E 84,392 5.1% 18.0% 7,547 8.0% 8.9% 5,802 9.0% 6.9% (163) 6,403 8.1% (1,375) 21.5% 3,115 8.1% 12,824 0.24 8.1% FY12 5,310 1,507 29 (1,522) (539) 6,723 (1,909) 166 (2,841) 4,964 0 1,468 (5,249) (3,781) 101 22,766 0.06 FY12 8.9% 3.5% 7.2% (14.7%) (14.7%) FY13E 4,944 1,583 (1,383) (1,191) (2,465) 3,280 (1,600) 0 (927) 1,808 0 0 (163) (163) 2,190 24,940 0.06 FY13E 8.5% 3.5% 0.5% (0.6%) (0.6%) FY14E 5,324 1,662 (1,666) (1,272) (2,617) 3,304 (1,280) 0 (536) 2,152 0 0 (163) (163) 2,604 27,545 0.07 FY14E 8.7% 3.6% 4.2% 6.9% 6.9% FY15E 5,802 1,745 (2,162) (1,375) (2,795) 3,190 (1,024) 0 (204) 2,294 0 0 (163) (163) 2,822 30,367 0.07 FY15E 8.9% 3.7% 5.1% 8.1% 8.1%
17,013 17,030 16,648 118,700 124,029 127,925 3,419 27,050 44,293 74,762 2,029 2,202 78,993 33,204 2.59 3,419 28,199 42,387 74,005 2,029 2,202 78,236 36,087 2.81
Liabilities Short-term loans 3,419 Payables 26,488 Others 43,879 Total current liabilities 73,787 Long-term debt 2,029 Other liabilities 2,202 Total Liabilities 78,017 Shareholders' equity 30,507 BVPS 2.38 Source: Company reports and J.P. Morgan estimates.
(74.1%) (76.3%) (80.1%) (83.6%) (42.6%) (43.3%) (44.5%) (45.5%) 0.7 0.6 0.6 0.6 3.8 3.8 3.6 3.5 9.0% 8.5% 8.3% 8.3% 11.7% 10.4% 10.4% 10.6%
503
Shinko Electric Industries (6967)

Neutral
www.shinko.co.jp/
6967.T,6967 JT Price: 816 Price Target: 720
Japan Electrical Equipment Masashi Itaya

AC
(81-3) 6736 8633 masashi.itaya@jpmorgan.com JPMorgan Securities Japan Co., Ltd.
Price Performance
1,200 1,000 800 600 400
6967.T share price () TOPIX (rebased)
Company overview Fujitsu subsidiary and major supplier of semiconductor packages and lead frames, commanding a 3540% market share in Intel MPU packages. By focusing on the high end of the market, where domestic production can be profitable, the company has the highest level of forex sensitivity in the sector (roughly 1.3 billion profit swing for each 1/$ change in the currency rate). Investment case The company derives most of its profit from MPU packages, and therefore struggles when PC market growth is stagnant. Earnings improved sharply in 1H FY2013 thanks to yen depreciation, but we expect earnings to fall back significantly in 2H on lower prices and MPU package inventory adjustments. We forecast a steep decline in profits in FY2014. Resilience of the growth outlook The company is heavily dependent on Intel MPU packages, and earnings are therefore sensitive to PC market conditions. Despite its technological strength, growth potential is low because the company was late to enter the market for AP packages for smartphones and tablets. However, the company would benefit significantly if Intel were to make a strong comeback in smartphone and tablet processors. Risks to the earnings outlook in 2014 Key risks in FY2014 include a worse-than-expected slowdown in the PC market, and even stiffer competition in the market for Intel MPU packages. Asian rivals SEMCO and Nanya PCB lost market share in 2013 owing to quality-control problems, but they will likely recover. Additionally, we expect the market for Intel MPU packages to become more crowded when Unimicron enters the market, bringing the number of competing suppliers to five. Price target, and risks to our investment view Our price target is 720, which we base on our FY2013 BPS estimate and a P/B of 0.7x. We derive this valuation from the historical correlation between P/B and ROE during periods of earnings weakness. The time horizon of our price target is December 2014. Risk factors include further yen depreciation and the cultivation of new customers for AP packages for smartphones and tablets.
Shinko Electric Industries Co., Ltd. (Reuters: 6967.T, Bloomberg: 6967 JT) 2012/3 2013/3 2014/3 E 2015/3 E Sales ( bn) 125.8 127.2 145.5 144.4 Operating Profit ( bn) -3.7 3.0 12.5 9.0 Recurring Profit ( bn) -1.8 5.0 14.5 9.2 Net Profit ( bn) -2.2 2.9 9.5 5.8 EPS () -16.6 21.3 70.3 42.9 BPS () 962.7 971.2 1029.0 1051.9 Cash ( bn) 15.8 11.5 8.1 10.4 Gross Debt ( bn) 0.6 0.6 0.6 0.6 Equity ( bn) 130.0 131.2 139.0 142.1 ROE -1.3% 2.5% 7.0% 4.1% P/E (x) NM 38.4 11.6 19.0 P/BV (x) 0.8 0.8 0.8 0.8
Company Data Price () Date Of Price Market Cap ( bn) Shares O/S (mn) 52-week Range () TOPIX DPS () Dividend Yield ROE
816 14 Nov 13 110.23 135 1,299-463 1,218.55 20.00 2.5% 7.0%
2016/3 E 150.3 9.0 9.2 5.8 42.9 1074.8 11.9 0.6 145.2 4.0% 19.0 0.8
504
Shinko Electric Industries (6967): Summary of Financials

Income statement in billions 2013/3 2014/3E 2015/3E 2016/3E Cash Flow statement in billions Revenues 127.2 145.5 144.4 150.3 Operating CF Cost of revenue -111.6 -128.6 -126.4 -131.2 D&A Operating expenses -12.6 -4.4 -9.0 -10.1 Net change in working capital EBITDA 18.3 28.0 26.0 26.5 Investment CF Depreciation -15.3 -15.5 -17.0 -17.5 Capex Operating profit (EBIT) 3.0 12.5 9.0 9.0 Net change in investments Other income 1.9 1.8 0.0 0.0 Free cash flow Other expenses - Financing CF Pretax income 4.6 14.5 9.2 9.2 Net debt (cash) Abnormal items (net) -0.4 0.0 0.0 0.0 Change in Net debt (cash) Income taxes -1.7 -5.0 -3.4 -3.4 Minorities 0.0 -0.0 -0.0 -0.0 Net income - GAAP 2.9 9.5 5.8 5.8 Diluted shares outstanding (mn) 135 135 135 135 Balance Sheet in billions 2013/3 2014/3E 2015/3E 2016/3E Ratio Analysis Total assets 171.0 181.4 184.4 188.3 Gross Margin Cash and cash equivalents 11.5 8.1 10.4 11.9 EBITDA margin Trade receivable 35.8 40.9 40.6 42.2 ROCE Other current assets 43.3 43.3 43.3 43.3 Return on equity (ROE) Net Tangible fixed assets 66.1 73.7 74.7 75.2 D/E ratio Net intangible fixed assets 0.9 0.9 0.9 0.9 Div payout ratio Investments/other assets 0.1 0.1 0.1 0.1 Total liabilities 39.8 42.4 42.3 43.1 Short term debt 0.6 0.6 0.6 0.6 Other short term liabilities 14.5 11.8 12.0 11.1 Long term debt 0.0 0.0 0.0 0.0 Other long term liabilities 6.2 8.9 8.7 9.6 Minority interests 0.0 0.0 0.0 0.0 Total Equity 131.2 139.0 142.1 145.2 Source: Company data and J.P. Morgan estimates Note: in billions (except per-share data).Fiscal year ends Mar 2013/3 2014/3E 2015/3E 2016/3E 19.3 21.5 23.0 22.2 15.3 15.5 17.0 17.5 -0.8 -3.5 0.2 -1.1 -17.8 -23.1 -18.0 -18.0 -17.6 -23.1 -18.0 -18.0 1.6 -1.8 4.9 4.0 -2.7 -2.7 -2.7 -2.7 -11.8 -8.5 -10.8 -12.3 3.8 3.3 -2.3 -1.5
2013/3 2014/3E 2015/3E 2016/3E 12.3% 11.6% 12.5% 12.7% 14.4% 19.2% 18.0% 17.6% 1.5% 6.0% 4.0% 3.9% 2.5% 7.0% 4.1% 4.0% 0.5% 0.4% 0.4% 0.4% 94.0% 28.4% 46.6% 46.6%
505
Thanachart Capital
Underweight
www.thanachart.co.th/
TCAP.BK,TCAP TB Price: Bt34.75 Price Target: Bt34.00

AC
Company overview Thanachart Capital (TCAP) is a holding company with a 51% stake in Thanachart Bank (which is also 49%-owned by Novascotia). Thanachart Bank is the largest auto lender in Thailand and the eighth-largest commercial bank in Thailand in terms of asset size. The bank specializes in auto lending, but is in the process of acquiring 100% of SCIB, which would make it the fifth-largest bank, with a good business mix. Investment case We expect NIM to decline in FY14 with rising interest rates, as asset yields are fixed throughout the term. TCAPs NIM is also likely to come under pressure due to the competitive deposit market. We forecast a 7bp Y/Y decline in NIM to 2.6% and a 17% Y/Y decline in PPOP in FY14. We expect NP to drop 41% Y/Y, given the weak PPOP and the lack of asset disposal gain, as in this year. TCAPs NPL coverage of 84% is the lowest in the sector (137%), which will keep credit cost high for the bank, in our view. Resilience of the growth outlook Almost 60% of TCAPs loan book is car loans. Also, TCAP has been more active in used car financing and provincial market lending lately. The outlook for Thai auto lenders remains fragile, in our view, given tough asset conditions in the used car market and growth moderation for new cars. We see growth and quality in these two markets deteriorating substantially in FY13 without any signs of recovery in FY14. Risks to the earnings outlook in 2014 TCAPs NIM pressure may ease a bit if a low interest rate environment prevails in 2014, making case for earnings upgrades for the bank. More sops to the domestic auto industry may also revive loan growth to double-digits, further improving the earnings outlook for the bank. Price target, and risks to our investment view We remain Underweight with a Dec-14 price target of Bt34. Our price target is based on our DDM, using an 11.0% ROE, 13.0% COE and 7.25% growth. Key upside risks are better-than-expected NIM and better-than-expected asset quality control.
Price Performance
50 45 Bt 40 35 30
TCAP.BK share price (Bt) SET (rebased)
Abs Rel
YTD -7.9% -11.0%
1m 3.0% 2.5%
3m -0.7% -1.1%
12m -4.1% -14.4%
50.25-29.75 44,405 1,419 1,278 Dec 34.75 06 Nov 13 161.97 5.2 4.83 1434.97 31.29
Thanachart Capital (Reuters: TCAP.BK, Bloomberg: TCAP TB) Bt in mn, year-end Dec FY11A FY12A FY13E Operating Profit (Bt mn) 12,799 13,208 18,215 Net Profit (Bt mn) 5,003 5,481 9,310 Cash EPS (Bt) 3.75 4.11 7.29 Fully Diluted EPS (Bt) 3.75 4.11 7.29 DPS (Bt) 1.20 1.34 1.40 EPS growth (%) (11.3%) 9.6% 77.2% ROE 13.5% 13.5% 20.0% P/E (x) 9.3 8.5 4.8 BVPS (Bt) 28.70 33.47 39.36 P/BV (x) 1.2 1.0 0.9 Dividend Yield 3.5% 3.9% 4.0%
FY14E 15,066 5,480 4.29 4.29 1.50 (41.1%) 10.5% 8.1 42.15 0.8 4.3%
FY15E 15,472 5,457 4.27 4.27 1.60 (0.4%) 9.8% 8.1 44.82 0.8 4.6%
506
Thanachart Capital: Summary of Financials

Income Statement Bt in millions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data THB EPS DPS Payout Book value Fully Diluted Shares PPOP per share Key Balance sheet Bt in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY11 2.8% 95.6% 2.7% 24,315 10,244 5,499 4,744 34,559 (21,760) 12,799 (2,077) 1,186 11,908 (3,136) (3,770) 5,003 FY12 2.6% 95.7% 2.5% 24,234 11,546 8,105 3,441 35,780 (22,571) 13,208 (2,906) 1,911 12,214 (2,463) (4,270) 5,481 FY13E 2.6% 94.7% 2.4% 26,637 14,263 10,464 3,799 40,901 (22,685) 18,215 (11,630) 13,059 19,645 (1,427) (8,908) 9,310 FY14E 2.5% 93.1% 2.3% 27,494 12,678 11,261 1,416 40,172 (25,106) 15,066 (6,576) 2,059 10,549 (1,782) (3,287) 5,480
FY11 FY12 FY13E FY14E 3.75 4.11 7.29 4.29 1.20 1.34 1.40 1.50 32.0% 32.6% 19.2% 35.0% 28.70 33.47 39.36 42.15 1,333 1,333 1,278 1,278 9.60 9.91 14.25 11.79 FY11 FY12 FY13E FY14E 610,798 731,512 757,702 806,721 (27,286) (24,891) (36,521) (43,097) 638,084 756,403 794,223 849,818 39,268 33,599 38,514 42,763 154,184 152,438 143,182 157,500 41,757 44,453 44,453 44,453 849,219 918,257 998,905 1,055,722 894,822 1,024,102 1,085,531 1,183,381 435,865 322,804 0 758,157 888,369 38,259 664,912 638,232 693,421 733,355 814,110 177,478 182,544 192,790 0 0 0 814,784 893,399 961,399 959,462 1,054,816 1,134,456 42,772 50,293 53,856 724,925 752,429 810,040 694,919 738,677 781,234
Growth Rates FY15E 2.4% Loans 91.9% Deposits 2.2% Assets Equity 29,031 RWA 14,205 Net Interest Income 12,628 Non-Interest Income 1,577 of which Fee Grth Revenues 43,236 Costs Pre-Provision Profits (27,764) Loan Loss Provisions 15,472 Pre-Tax (7,036) Attributable Income 2,059 EPS - DPS - Balance Sheet Gearing 10,494 Loan/deposit (1,772) Investment/assets (3,265) Loan/Assets 5,457 Customer deposits/liab. LT debt/liabilities FY15E Asset Quality/Capital 4.27 Loan loss reserves/loans 1.60 NPLs/loans 37.5% Loan loss reserves/NPLs 44.82 Growth in NPLs 1,278 Tier 1 Ratio 12.11 Total CAR FY15E Du-Pont Analysis 859,172 NIM (as % of avg. assets) (50,134) Earning assets/assets 909,306 Margins (as % of Avg. Assets) 47,309 Non-Int. Rev./ Revenues 173,250 Non IR/Avg. Assets 44,453 Revenue/Assets 1,136,634 Cost/Income - Cost/Assets 1,290,058 Pre-Provision ROA LLP/Loans 902,852 Loan/Assets 204,048 Other Prov, Income/ Assets 0 Operating ROA 1,056,899 Pre-Tax ROA 1,236,719 Tax rate 57,269 Minorities & Outside Distbn. 872,178 ROA 841,109 RORWA Equity/Assets ROE
FY11 4.5% (18.1%) 1.5% 6.0% 8.7% 5.6% 5.7% 5.1% 5.6% 27.2% (18.0%) 25.7% (21.4%) (11.3%) (11.3%) 0.0% FY11 140.1% 17.0% 70.3% 53.2% 33.6% FY11 (4.3%) 6.2% 71.4% 2.9% 9.3% 13.7% FY11 2.8% 95.6% 2.7% 29.6% 1.2% 3.9% 63.0% 2.4% 1.4% (0.3%) 70.3% 0.1% 1.2% 1.3% 26.3% 4.1% 0.6% 0.8% 4.2% 13.5%
FY12 18.5% 59.1% 14.4% 11.8% 9.0% (0.3%) 12.7% 47.4% 3.5% 3.7% 3.2% 39.9% 2.6% 9.6% 9.6% 11.8% FY12 105.5% 16.0% 72.7% 73.7% 28.4% FY12 (3.3%) 5.2% 71.6% (14.4%) 8.5% 14.0% FY12 2.6% 95.7% 2.5% 32.3% 1.2% 3.7% 63.1% 2.4% 1.4% (0.4%) 72.7% 0.2% 1.1% 1.3% 20.2% 4.1% 0.6% 0.8% 4.2% 13.5%
FY13E 5.0% 5.8% 6.0% 17.6% 3.8% 9.9% 23.5% 29.1% 14.3% 0.5% 37.9% 300.2% 60.8% 69.9% 77.2% 4.3% FY13E 103.3% 14.0% 73.5% 74.4% 18.7% FY13E (4.6%) 4.7% 85.2% 14.6% 9.4% 14.7% FY13E 2.6% 94.7% 2.4% 34.9% 1.4% 3.9% 55.5% 2.2% 1.7% (1.5%) 73.5% 1.2% 0.6% 1.9% 7.3% 4.3% 0.9% 1.3% 4.4% 20.0%
FY14E 7.0% 11.0% 9.0% 7.1% 7.7% 3.2% (11.1%) 7.6% (1.8%) 10.7% (17.3%) (43.5%) (46.3%) (41.1%) (41.1%) 7.1% FY14E 99.1% 13.3% 72.5% 75.6% 18.2% FY14E (5.1%) 4.9% 98.0% 11.0% 9.4% 14.3% FY14E 2.5% 93.1% 2.3% 31.6% 1.1% 3.5% 62.5% 2.2% 1.3% (0.8%) 72.5% 0.2% 0.7% 0.9% 16.9% 4.5% 0.5% 0.7% 4.6% 10.5%
FY15E 7.0% 10.9% 9.0% 6.3% 7.7% 5.6% 12.0% 12.1% 7.6% 10.6% 2.7% 7.0% (0.5%) (0.4%) (0.4%) 6.7% FY15E 95.2% 13.4% 71.1% 76.8% 17.6% FY15E (5.5%) 5.1% 103.5% 10.6% 9.4% 13.9% FY15E 2.4% 91.9% 2.2% 32.9% 1.1% 3.5% 64.2% 2.2% 1.3% (0.8%) 71.1% 0.2% 0.7% 0.8% 16.9% 4.4% 0.4% 0.6% 4.5% 9.8%
507
Total Access Communication

Underweight
www.dtac.co.th
DTAC.BK,DTAC TB Price: Bt114.50 Price Target: Bt99.00
Thailand Wireless Services Princy Singh

AC
Company overview Total Access Communication Public Company Limited (DTAC) is one of the leading telecommunications services providers in Thailand. It is the second-largest GSM mobile phone provider in Thailand after AIS. As of 3Q13, DTAC had more than 27MM subscribers with subscriber market share of ~32%. Investment case Our Underweight rating on DTAC is premised on increasing competitive intensity amongst Thai Telcos. Operators have started to offer increasingly more free usage and higher commissions to distributors. We had anticipated rising marketing expenses as operators try to drive subscriber migration to new 3G networks, the aggression seems to be much higher than expectations. We believe that subscriber porting to the 3G networks is creating a window for operators to drive subscribers away from competitors True Corp appears to be leading the aggression here. DTAC management are looking to aggressively defend market share. Marketing expenses for DTAC increased 367bps YoY to 6.1pct in 3Q; we believe these could rise meaningfully going forward. Resilience of the growth outlook Thai interconnect economics (88% gross margin on off-net calls) make share gains more valuable giving high incentives for Thai operators to spend for share gains. This we believe makes the market inherently competitive.
12m 38.8% 28.5%
Anne Jirajariyavech, CFA

Price Performance
130 120 Bt 110 100 90 80
DTAC.BK share price (Bt) SET (rebased)
Abs Rel
YTD 29.7% 26.6%
1m -0.4% -0.9%
3m -3.4% -3.8%
Risks to the earnings outlook in 2014 Rational approach from Thai operators lowering the competition levels. Price target, and risks to our investment view Our Dec-14 PT of Bt99 is based on 14x 2015E P/E (see datasheet). We recently reduced our EPS estimates for 2013-15 by 9.5%-14.8% factoring in higher marketing expenses and lower ARPU driven by competitive intensity. Key upside risks include higher-than-expected customer migration on the new network and lower competitive intensity.
Company Data 52-week Range (Bt) Market Cap (Bt mn) Market Cap ($ mn) Shares O/S (mn) Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value ($ mn) SET Exchange Rate Price (Bt) Date Of Price
133.00-80.25 270,827 8,655 2,365 15.5% 3.05 10.9 1434.97 31.29 114.50 06 Nov 13
Total Access Communication (Reuters: DTAC.BK, Bloomberg: DTAC TB) Bt in mn, year-end Dec FY11A FY12A FY13E FY14E Revenue (Bt mn) 79,298 89,497 95,136 101,279 EBITDA (Bt mn) 27,296 26,809 28,844 35,125 EBITDA Growth 6.3% (1.8%) 7.6% 21.8% Recurring profit (Bt mn) 11,737 11,186 10,723 14,249 Recurring EPS (Bt) 4.96 4.73 4.53 6.02 EPS growth (%) 10.0% (4.6%) (4.1%) 32.9% DPS (Bt) 17.84 4.78 4.50 6.02 EV/EBITDA (x) 9.1 10.9 9.9 8.1 P/E (x) 23.1 24.2 25.3 19.0 Dividend Yield 15.6% 4.2% 3.9% 5.3% FCF to mkt cap (%) 7.8% 5.4% 5.6% 7.4%
FY15E 108,806 40,173 14.4% 16,764 7.09 17.6% 7.09 6.9 16.2 6.2% 9.3%
508
Total Access Communication: Summary of Financials

Income Statement Bt in millions, year end Dec Revenue EBITDA Depreciation & Amortization EBIT Interest income Interest expense Other Income Profit before tax Tax Minorities Net profit - reported Net profit - adjusted Balance sheet FY11 FY12 FY13E FY14E FY15E Bt in millions, year end Dec 79,298 89,497 95,136 101,279 108,806 Cash and cash equivalents 27,296 26,809 28,844 35,125 40,173 Accounts receivable (10,479) (11,389) (14,004) (15,464) (16,944) Others 16,817 15,420 14,840 19,661 23,228 Total current assets 580 385 167 185 179 (430) (1,119) (1,467) (1,577) (1,350) ST loans 1 (141) (2) 0 0 Accounts Payables 17,081 14,795 13,447 18,268 22,058 Others (5,266) (3,525) (2,796) (4,019) (5,294) Total current liabilities 0 2 2 0 0 11,815 11,273 10,653 14,249 16,764 Net working capital 11,737 11,186 10,723 14,249 16,764 Net fixed assets Shares Outstanding (mn) 2,368 2,365 2,365 2,365 2,365 Other long term assets EPS (Bt) (reported) 4.99 4.77 4.50 6.02 7.09 Total non-current assets EPS (Adjusted) 4.96 4.73 4.53 6.02 7.09 DPS (Bt) 17.84 4.78 4.50 6.02 7.09 Total Assets DPS payout ratio 357.5% 100.3% 99.9% 100.0% 100.0% Long-term debt Revenue growth 9.6% 12.9% 6.3% 6.5% 7.4% Other liabilities EBITDA growth 6.3% (1.8%) 7.6% 21.8% 14.4% Total Liabilities Adj Net profit growth 10.0% (4.7%) (4.1%) 32.9% 17.6% Adj EPS growth 10.0% (4.6%) (4.1%) 32.9% 17.6% Shareholders' equity DPS growth 373.2% (73.2%) (5.9%) 33.9% 17.6% Minorities Total liabilities and equity Net debt/(cash) Ratio Analysis Cash flow statement %, year end Dec FY11 FY12 FY13E FY14E FY15E Bt in millions, year end Dec EBITDA margin 34.4% 30.0% 30.3% 34.7% 36.9% Cash flow from operations FCF margin 26.8% 16.2% 16.0% 19.7% 23.1% Capex Cash flow from other investing ROE 22.6% 32.1% 29.4% 36.8% 42.3% Cash flow from financing ROC 48.1% 22.4% 18.3% 24.4% 29.2% ROA 11.6% 10.9% 10.6% 14.3% 17.6% Change in cash for year Tax rate 30.8% 23.8% 20.8% 22.0% 24.0% Beginning cash Capex to sales 6.3% 8.7% 12.4% 10.5% 9.5% Closing cash Net debt or (cash) to equity (49.5%) 73.6% 49.7% 43.1% 30.8% Interest coverage (x) NM 36.5 22.2 25.2 34.3 Source: Company reports and J.P. Morgan estimates. FY11 21,873 6,575 2,677 31,125 1,321 19,480 44,049 64,850 FY12 4,555 8,386 4,029 16,969 8,808 23,592 5,400 37,800 FY13E 6,303 9,368 4,029 19,700 9,808 25,535 5,783 41,126 FY14E 6,375 10,323 4,029 20,727 10,808 25,939 6,156 42,903 FY15E 5,946 10,986 4,029 20,961 10,808 27,196 6,415 44,419
(12,905) (15,206) (16,167) (15,615) (16,209) 62,646 10,075 72,722 61,902 22,147 84,049 60,124 21,720 81,844 56,236 21,404 77,640 98,367 12,460 3,778 59,142 39,213 12 98,367 16,893 50,591 21,050 71,640 92,601 7,460 743 52,622 39,967 12 92,601 12,323
103,847 101,018 101,545 3,269 840 68,959 21,460 6,814 66,074 15,460 6,814 63,401
34,871 34,929 38,131 17 15 12 103,847 101,018 101,545 (17,284) 25,714 18,965
FY11 FY12 FY13E FY14E FY15E 26,296 21,735 25,999 29,535 34,561 (4,976) (7,779) (11,799) (10,683) (10,369) (239) (7,309) 0 (3,611) (3,611) (11,755) (23,966) (12,451) (15,168) (21,010) 9,326 (17,318) 12,548 21,873 21,873 4,555 1,749 4,555 6,303 72 6,303 6,375 (429) 6,375 5,946
509
TSRC Corp
Underweight
www.tsrc.com.tw
Taiwan Plastics Caren Huang

AC
Company overview TSRC is the largest synthetic rubber manufacturer in Taiwan and the 4th largest pure synthetic rubber producer in Asia. The company also has exposure to Thailand and India. Its main products are SBR, BR, TPE, and TPR. Around 60% of products are used for making tire and the rest is used for making shoes, conveyor belts, sports equipment, toys, and wires. Investment case J.P. Morgan expects a declining trend for the spread of Butadiene (BD) and Styrene Monomer (SM) major feedstocks for synthetic rubber. Low spreads in raw materials imply low ASPs and low margins in synthetic rubber. In addition, oversupply still remains a concern in BR segment (accounts for c.16-20% of total revenue), which would also continue capping ASP upside in 1H14. Resilience of the growth outlook We expect TSRC to deliver 26% Y/Y earnings growth in FY14E but it will be backend loaded in 2H14, along with rising utilization rate of new capacity in India, rather than a strong hike in ASPs. We see some earnings downside risk to our estimates, most likely in 1H14 as BD/SBR inventory in the region is high and therefore the near term price would likely remain weak, according to ICIS news. Risks to the earnings outlook in 2014 Around 60% of total revenue is exposed to the tire sector. If tire demand picks up significantly in China (given c.56% of production is located in China for domestic market), earnings would likely recover earlier than our expectation. In addition, TSRC's new capacity in India will start mass production in 4Q13. The ramp-up speed of the new plant represents another swing factor to our FY14 estimates as well. Price target, and risks to our investment view We reiterate UW on TSRC with a Jun-14 price target of NT$47, based on 2.1x FY14E BVPS of NT$22.5, equivalent to a mid-cycle valuation and the previous trough valuation in 2011. As a cyclical stock, we believe PB is a relevant methodology. Upside risks: (1) ASP hike driven by rising input costs or sector supply disruption, (2) easing BR oversupply in China.
Price Performance
65 60 NT$ 55 50 45
Abs Rel
YTD -7.9% -14.4%
1m -0.4% 0.6%
3m 1.7% -1.3%
12m -0.9% -15.3%
786 42,858 1,456 54.50 06 Nov 13 66.0% 1.31 69.32 2.4 8281.97 29.43 Dec
TSRC Corp (Reuters: 2103.TW, Bloomberg: 2103 TT) NT$ in mn, year-end Dec FY11A FY12A Revenue (NT$ mn) 55,075 45,364 Net Profit (NT$ mn) 5,742 2,574 EPS (NT$) 7.30 3.27 DPS (NT$) 3.50 5.00 Revenue growth (%) 50.1% (17.6%) EPS growth (%) 75.1% (55.2%) ROCE 30.2% 11.2% ROE 32.0% 13.3% P/E (x) 7.5 16.6 P/BV (x) 1.9 2.4 EV/EBITDA (x) 3.8 9.6 Dividend Yield 6.4% 9.2%
FY13E 36,425 2,495 3.17 2.60 (19.7%) (3.1%) 11.0% 13.4% 17.2 2.2 9.3 4.8%
FY14E 36,488 3,153 4.01 2.22 0.2% 26.4% 13.1% 15.6% 13.6 2.0 7.3 4.1%
FY15E 51,204 4,443 5.65 2.81 40.3% 40.9% 16.8% 19.4% 9.6 1.7 5.5 5.2%
510
TSRC Corp: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 55,075 50.1% 11,467 85.2% 10,645 96.4% 19.3% (138) 10,439 98.7% (2,960) 28.4% 5,742 75.1% 715 7.30 75.1%
Cash flow statement FY12 FY13E FY14E FY15E NT$ in millions, year end Dec 45,364 36,425 36,488 51,204 EBIT (17.6%) (19.7%) 0.2% 40.3% Depr. & amortization 5,089 5,075 6,076 8,056 Change in working capital (55.6%) (0.3%) 19.7% 32.6% Taxes 4,155 4,078 5,122 7,141 Cash flow from operations (61.0%) (1.9%) 25.6% 39.4% 9.2% 11.2% 14.0% 13.9% Capex (144) (135) (131) (114) Disposal/(purchase) 3,927 3,852 4,868 6,859 Net Interest (62.4%) (1.9%) 26.4% 40.9% Other (748) (770) (974) (1,372) Free cash flow 19.0% 20.0% 20.0% 20.0% 2,574 2,495 3,153 4,443 Equity raised/(repaid) (55.2%) (3.1%) 26.4% 40.9% Debt raised/(repaid) 786 786 786 786 Other 3.27 3.17 4.01 5.65 Dividends paid (55.2%) (3.1%) 26.4% 40.9% Beginning cash Ending cash DPS Balance sheet Ratio Analysis NT$ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E NT$ in millions, year end Dec Cash and cash equivalents 6,056 5,147 6,856 9,559 9,719 EBITDA margin Accounts receivable 8,431 5,703 5,563 5,560 7,623 Net margin Inventories 7,040 6,104 5,169 5,000 7,034 Others 685 825 825 825 825 Current assets 22,211 17,779 18,414 20,944 25,201 Sales per share growth LT investments 2,147 2,857 2,857 2,857 2,857 Sales growth Net fixed assets 8,724 9,719 9,922 9,468 9,054 Net profit growth Total Assets 38,543 35,559 36,397 38,473 42,317 EPS growth Liabilities Interest coverage (x) Short-term loans 5,101 6,194 6,194 6,194 6,194 Payables 2,611 1,742 1,542 1,471 2,034 Net debt to equity Others 3,490 2,685 2,685 2,685 2,685 Sales/assets Total current liabilities 11,202 10,621 10,421 10,350 10,913 Assets/equity Long-term debt 5,162 5,293 5,293 5,293 5,293 ROE Other liabilities 209 430 430 430 430 ROCE Total Liabilities 17,850 17,440 17,240 17,169 17,732 Shareholder's equity 20,693 18,120 19,157 21,305 24,584 BVPS (NT$) 28.95 23.04 24.36 27.09 31.26 Source: Company reports and J.P. Morgan estimates.
FY11 10,645 822 (5,957) 2,960 5,672 (1,154) 15 (138) (5,695) 4,618 0 6,029 (226) (2,937) 4,096 6,056 3.50 FY11 20.8% 10.4%
FY12 4,155 934 2,795 748 5,919 (1,815) 18 (144) 354 4,223 0 716 310 (5,280) 6,056 5,147 5.00 FY12 11.2% 5.7%
FY13E FY14E FY15E 4,078 5,122 7,141 997 954 914 875 101 (3,534) 770 974 1,372 4,391 4,208 1,823 (1,200) 0 (135) 563 3,302 (500) 0 (131) 741 3,815 (500) 0 (114) 1,044 1,416
0 0 0 0 0 0 0 0 0 (2,045) (1,747) (2,207) 5,147 6,856 9,559 6,856 9,559 9,719 2.60 2.22 2.81 FY13E FY14E FY15E 13.9% 16.7% 15.7% 6.9% 8.6% 8.7%
50.1% 50.1% 75.1% 75.1% 83.3 21.0% 1.7 1.8 32.0% 30.2%
(17.6%) (19.7%) (17.6%) (19.7%) (55.2%) (3.1%) (55.2%) (3.1%) 35.3 37.5 36.0% 1.2 1.9 13.3% 11.2% 25.1% 1.0 1.9 13.4% 11.0%
0.2% 0.2% 26.4% 26.4% 46.4 9.9% 1.0 1.9 15.6% 13.1%
40.3% 40.3% 40.9% 40.9% 70.7 7.9% 1.3 1.8 19.4% 16.8%
511
UEM Sunrise Bhd

Neutral
www.uemsunrise.com
UMSB.KL,UEMS MK Price: M$2.34 Price Target: M$2.30
Malaysia Property Simone Yeoh

AC
(60-3) 2718-0710 simone.x.yeoh@jpmorgan.com JPMorgan Securities (Malaysia) Sdn. Bhd. (18146-X)

Price Performance
4.0 3.5 M$ 3.0 2.5 2.0
UMSB.KL share price (M$) FBMKLCI (rebased)
Abs Rel
YTD 11.4% 3.7%
1m -7.9% -9.4%
3m -16.1% -17.1%
12m 10.4% 0.8%
Company overview UEM Sunrise is the largest landowner in the Iskandar Development Region (IDR) in Johor and the master developer of Nusajaya, one of the five key flagship zones under IDR. Johor accounts for 70% of UEM Lands total land-bank of 12,516 acres and over 80% of its total project GDV of M$81B, with Klang Valley accounting for the rest. Investment case We are cautious on the outlook for property developers in 1H14 following recent budget-cooling measures. We believe Iskandar-focused stocks will be impacted most by the rise in the Real Property Gains Tax (RPGT), which was much more significant for foreigners than locals, and the overhang from further potential foreign restrictions in Johor (i.e., higher upfront levies and a ban on secondary market transactions with locals). The Iskandar, Johor projects account for an estimated 80% of group FY13E sales. Foreigners make up to 50-60% in value of its key large projects in Iskandar. Resilience of the growth outlook We remain cautious on 2014, given the higher RPGT and rising supply/competition in Iskandar. Prospects should improve longer-term, given improved connectivity (i.e., Rail Transit System between Singapore and Johor by 2018), various incentives and the government's continued efforts to attract investments. Risks to the earnings outlook in 2014 Our FY14 core EPS growth estimate of 35% is largely locked in due to unbilled sales of M$3.3B as of 1H13. Key to watch is new property sales, which we expect to fall 9% Y/Y in 2014, to M$2.5B (with a 30% Y/Y fall for the Iskandar projects). We believe risk to consensus is on the downside (our FY14/15 forecast is 10-13% below market). Price target, and risks to our investment view Our Jun-14E PT of M$2.30 is based on a 30% discount to RNAV of M$3.50/share (in line with the sector mean). Key downside risks include changes in government policies (e.g., delays in transportation links (High Speed Rail)) to address fiscal deficits. Upside risks include stronger property sales and positive news flow on further large FDIs or investments into Iskandar, boosting asset values.
UEM Sunrise Bhd (Reuters: UMSB.KL, Bloomberg: UEMS MK) M$ in mn, year-end Dec FY11A FY12A FY13E Revenue (M$ mn) 1,703 1,940 2,391 Reported Net Profit (M$ mn) 302 447 589 Adjusted Diluted NP (M$ mn) 213 350 383 Reported EPS (M$) 0.07 0.10 0.14 Core FD EPS (M$) 0.05 0.08 0.09 DPS (M$) 0.00 0.03 0.04 Revenue growth (%) 261.5% 13.9% 23.3% Core EPS growth (%) 196.6% 64.6% 9.3% ROCE 6.8% 6.3% 7.8% ROE 5.7% 6.9% 7.0% Adjusted P/E 47.6 28.9 26.4 P/BV (x) 2.4 2.2 2.0 EV/EBITDA (x) 27.9 19.8 15.6 Dividend Yield 0.0% 1.3% 1.5% EPS growth (%) 30.7% 48.1% 31.6%
4,331 10,135 3,194 2.34 06 Nov 13 11.84 30.19 9.5 1807.47 3.17 Dec
FY14E 2,727 517 517 0.12 0.12 0.04 14.1% 34.9% 6.3% 8.9% 19.6 1.9 16.6 1.7% (12.2%)
FY15E 2,894 558 558 0.13 0.13 0.05 6.1% 8.0% 6.4% 9.1% 18.1 1.8 15.2 1.9% 8.0%
512
UEM Sunrise Bhd: Summary of Financials

Profit and Loss Statement M$ in millions, year end Dec Revenues % change Y/Y EBIT % change Y/Y Operating margin (%) Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Adjusted net profit % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet M$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets . LT investments Intangibles Investments in Associates Net fixed assets Other LT Assets Total Assets . Liabilities ST Loans Payables Others Total current liabilities FY11 1,703 261.5% 407 102.9% 21.4% (51) 355 72.9% (52) 14.7% 302 55.1% 213 252.1% 4,327 0.07 30.7%
FY11 632 1,016 124 1,343 3,115 3,263 621 370 162 262 7,794 52 516 157 725
Cash flow statement FY12 FY13E FY14E FY15E M$ in millions, year end Dec 1,940 2,391 2,727 2,894 EBIT 13.9% 23.3% 14.1% 6.1% Depreciation & amortization 576 763 679 735 Change in working capital 33.8% 45.9% (13.0%) 5.9% Taxes 25.1% 29.7% 22.7% 22.6% Other (41) (44) (54) (56) Cash flow from operations 535 719 625 679 . 50.6% 34.3% (13.0%) 8.6% Capex (87) (129) (106) (115) Disposal/(purchase) 16.3% 18.0% 17.0% 17.0% Net Interest 447 589 517 558 Free cash flow 48.3% 31.6% (12.2%) 8.0% . 350 383 517 558 Equity raised/(repaid) 64.8% 9.3% 34.9% 8.0% Debt raised/(repaid) 4,331 4,331 4,331 4,331 Other 0.10 0.14 0.12 0.13 Dividends paid 48.1% 31.6% (12.2%) 8.0% Beginning cash Ending cash DPS Ratio Analysis FY12 FY13E FY14E FY15E M$ in millions, year end Dec 1,060 1,151 1,552 1,556 EBIT Margin (%) 1,792 1,948 1,664 1,722 Net margin 123 151 172 183 . 1,110 1,091 1,072 1,054 Sales growth 4,084 4,340 4,460 4,515 Net profit growth EPS growth 3,616 3,920 4,155 4,407 Interest coverage (x) 621 621 621 621 Net debt to total capital 449 491 539 603 Net debt to equity 184 257 323 383 Sales/assets 131 131 131 131 Assets/equity 9,086 9,761 10,231 10,661 ROE ROCE 125 713 182 1,020 125 878 182 1,186 2,190 250 3,626 502 5,634 1.16 125 1,002 182 1,309 2,190 250 3,749 504 5,978 1.24
FY11 407 14 (428) (52) (89) (191) (2,372) (51) (2,520) 1,847 767 492 0 438 632 0.00
FY12 FY13E 576 763 20 25 (431) (19) (87) (129) (97) (205) (109) 382 (157) (41) (231) 162 540 51 (130) 632 1,060 0.03 (186) (44) 232 (119) 600 (409) (152) 1,060 1,151 0.04
FY14E FY15E 679 735 33 40 386 (7) (106) (115) 0 0 931 573 (322) (54) 653 0 0 0 (173) 1,151 1,552 0.04 (336) (56) 283 0 0 0 (195) 1,552 1,556 0.05
FY11 FY12 FY13E 21.4% 25.1% 29.7% 12.5% 18.1% 16.0% 261.5% 55.1% 30.7% 8.2 9.3% 10.2% 0.3 1.6 5.7% 6.8% 13.9% 48.3% 48.1% 14.4 10.1% 11.3% 0.2 1.7 6.9% 6.3%
FY14E FY15E 22.7% 22.6% 19.0% 19.3% 6.1% 8.0% 8.0% 13.9 10.0% 11.1% 0.3 1.7 9.1% 6.4%
23.3% 14.1% 31.6% (12.2%) 31.6% (12.2%) 17.8 13.3 15.9% 10.5% 19.0% 11.8% 0.3 0.3 1.7 1.7 7.0% 8.9% 7.8% 6.3%
. Long-term debt 1,123 1,590 Other liabilities 649 659 Total Liabilities 2,497 3,269 Minorities 460 501 Shareholders' equity 4,836 5,316 BVPS 0.97 1.08 Source: Company reports and J.P. Morgan estimates.
. 182 . 1,371 . .
1,063 2,190 250 3,811 509 6,341 1.32 . . . . . .
125
513
Unilever Indonesia Tbk

Underweight
www.unilever.com
UNVR.JK,UNVR IJ Price: Rp30,800 Price Target: Rp22,000
Indonesia Household Products Stevanus Juanda

AC
Price Performance
36,000 32,000 Rp 28,000 24,000 20,000
Company overview Unilever Indonesia is a leading FMCG company in Indonesia. It operates three divisions: Personal Care, Home Care, and Food. Personal care is its largest profit generator and UNVR is the clear leader in this segment. In the Home Care segment, Unilever is second in the market after Wings. Finally, the food division, currently the smallest of the three, generates the fastest growth. Going forward, Unilever will focus on expansion in the food division. Bolt-on acquisitions should be seen as part of UNVRs strategy. If a company is acquired, UNVR could push the products into its massive distribution channel (1.5MM sales points) to generate growth. Investment case We believe UNVR should underperform on: (1) Rupiah depreciation as 80% of its COGS are linked to USD. (2) Weakening in purchasing power. (3) Intensifying competition in skin care. (4) Expensive valuations at 40x FY14E PE. Resilience of the growth outlook The weakening of purchasing power and depreciation in Rp caused 3Q13 net income to decline 4.3%Y/Y and 9% Q/Q. We believe earnings are likely to be under pressure at least until 1H14.
12m 18.5% 15.4%
UNVR.JK share price (Rp) JCI (rebased)
Abs Rel
YTD 34.5% 38.5%
1m 0.3% -1.1%
3m 2.7% 5.9%
Risks to the earnings outlook in 2014 As purchasing power is still weak and Rp is still at depressed level, we believe that net income could grow by only 8.4% in FY14E. Besides the weak purchasing power, UNVR's competitor in skincare, LOreal, has actually benefited from Rp depreciation, which is not the case for UNVR. Price target, and risks to our investment view Our Dec- 14 PT of Rp22,000 is derived using the PE method, applying a 30x FY14E PE. The PE method is utilized as historical analysis indicates that UNVR historically has a tendency to derate to a more modest valuation when it is trading at 2 standard deviation above the mean. The DCF method assumes a risk free rate of 8.0%, equity risk premium of 8.0%, and terminal growth rate of 8.0%. Risks: (1) UNA NA announced a takeover of UNVR IJ a higher price. (2) Price increases expanded margin. (3) Unexpected strong sales growth.
7,630 235,004.00 20.69 30,800 06 Nov 13 2.10 64,969.91 5.7 4449.76 11,355.89 Dec
Unilever Indonesia Tbk (Reuters: UNVR.JK, Bloomberg: UNVR IJ) Rp in bn, year-end Dec FY11A FY12A FY13E Revenue (Rp bn) 23,469 27,303 30,853 Net Profit (Rp bn) 4,165 4,839 5,232 EPS (Rp) 545.90 634.24 685.75 DPS (Rp) 592.39 594.73 550.00 Revenue growth (%) 19.2% 16.3% 13.0% EPS growth (%) 23.0% 16.2% 8.1% ROCE 105.5% 127.2% 117.7% ROE 215.8% 253.2% 233.3% P/E (x) 56.4 48.6 44.9 P/BV (x) 63.9 59.2 47.0 EV/EBITDA (x) 40.1 33.7 31.0 Dividend Yield 1.9% 1.9% 1.8%
FY14E 35,172 5,673 743.51 582.89 14.0% 8.4% 101.6% 202.0% 41.4 37.7 28.5 1.9%
FY15E 39,393 5,616 735.98 631.98 12.0% (1.0%) 85.2% 169.5% 41.8 33.5 28.6 2.1%
514
Unilever Indonesia Tbk: Summary of Financials

Income Statement Rp in billions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rp in billions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets FY11 FY12 FY13E FY14E 23,469 27,303 30,853 35,172 19.2% 16.3% 13.0% 14.0% 5,703 6,784 7,354 7,974 19.6% 19.0% 8.4% 8.4% 5,455 6,498 7,060 7,631 20.1% 19.1% 8.6% 8.1% 23.2% 23.8% 22.9% 21.7% 119 (31) (57) (32) 5,575 6,467 7,004 7,598 22.8% 16.0% 8.3% 8.5% (1,410) (1,628) (1,765) (1,915) 25.3% 25.2% 25.2% 25.2% 4,165 4,839 5,232 5,673 23.0% 16.2% 8.1% 8.4% 7,630 7,630 7,630 7,630 545.90 634.24 685.75 743.51 23.0% 16.2% 8.1% 8.4% FY15E 39,393 12.0% 7,942 (0.4%) 7,548 (1.1%) 19.2% (16) 7,524 (1.0%) (1,896) 25.2% 5,616 (1.0%) 7,630 735.98 (1.0%) Cash flow statement Rp in billions, year end Dec EBIT Depr. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow FY11 5,455 247 5,458 (1,517) 83 119 179 3,852 509 0 (4,520) 318 336 592.39 FY11 24.3% 35.5% FY12 6,498 286 5,192 (1,096) 17 (31) 26 4,119 341 0 (4,538) 336 230 594.73 FY12 24.8% 35.4% FY13E 7,060 294 6,602 (1,815) 18 (57) 0 4,829 0 0 (4,197) 230 819 550.00 FY13E 23.8% 33.9% FY14E 7,631 342 6,879 (1,942) 19 (32) 0 4,960 0 0 (4,447) 819 1,309 582.89 FY14E 22.7% 32.3% FY15E 7,548 394 7,212 (2,078) 20 (16) 0 5,145 0 0 (4,822) 1,309 1,621 631.98 FY15E 20.2% 28.5%
FY11 336 2,188 1,813 109 4,446
FY12 FY13E 230 819 2,667 2,579 2,062 2,232 77 118 5,036 5,748
LT investments Net fixed assets 5,314 6,283 7,830 Total Assets 10,482 11,985 14,270 Liabilities Short-term loans Payables 2,886 3,283 3,196 3,746 4,237 Net debt to equity Others 3,616 4,253 5,770 5,823 6,282 Sales/assets Total current liabilities 6,502 7,536 8,966 9,569 10,519 Assets/equity Long-term debt 0 0 0 0 0 ROE Other liabilities 71 127 0 0 0 ROCE Total Liabilities 6,801 8,017 9,261 9,912 10,912 Shareholder's equity 3,677 3,968 5,004 6,230 7,023 BVPS (Rp) 481.86 520.10 655.85 816.47 920.47 Source: Company reports and J.P. Morgan estimates.
Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis FY14E FY15E Rp in billions, year end Dec 1,309 1,621 EBITDA margin 2,045 2,096 Net margin 2,526 2,251 133 143 6,012 6,111 Sales per share growth - Sales growth 9,490 11,234 Net profit growth 16,146 17,939 EPS growth Interest coverage (x)
19.2% 19.2% 23.0% 23.0% NM
16.3% 16.3% 16.2% 16.2% 216.5
13.0% 13.0% 8.1% 8.1% 128.1
14.0% 14.0% 8.4% 8.4% 249.6
12.0% 12.0% (1.0%) (1.0%) 505.2
(9.1%) (5.8%) (16.4%) (21.0%) (23.1%) 2.4 2.4 2.4 2.3 2.3 2.5 2.9 2.9 2.7 2.6 215.8% 253.2% 233.3% 202.0% 169.5% 105.5% 127.2% 117.7% 101.6% 85.2%
515
VTech Holdings
Underweight
www.vtech.com
China Consumer Electronics Leon Chik, CFA

AC
Company overview VTech was established more than 30 years ago and is one of the largest manufacturers of cordless telephones and electronic learning products (ELPs) in the world. More than 80% of its products are for VTech's brands (VTech and AT&T), and the company has a fast-growing OEM business. Products are sold through major distributors, with more than 90% of sales in the U.S. and EU. Investment case A mild recovery, but still sluggish sales for cordless phones. VTech saw a recovery in cordless phone sales in the U.S. in 1HFY14 compared to a 6.2% drop in FY13 sales. Sales to Europe are still falling despite a more positive translation benefit as the euro appreciates. It appears that demand for cordless phones is very reliant on the health of the economy. Resilience of the growth outlook ELPs holding up well, but growth decelerating. ELPs have always been an area of strength for VTech, and demand for these relatively cheap childrens learning toys is relatively economically insensitive. We expect only single-digit sales growth for ELPs in FY14 compared to 10%+ in FY13.
12m 20.4% 22.0%
Price Performance
130 110 HK$ 90 70
Abs Rel
YTD 28.0% 35.6%
1m 7.6% 7.2%
3m -5.8% -15.2%
Risks to the earnings outlook in 2014 Still a challenge on the economic front. The European recovery has probably not been as fast for VTech as for other industries. Demand for cordless phones continues to be weak, as much of the sales is going to cash-strapped telecom operators. Price target, and risks to our investment view Our DCF-derived (g: 3%; beta: 1.2) Dec-14 price target of HK$106 implies a forward P/BV of 5.6x and a forward P/E of 15.1x (CY14E). Key upside risks to our price target include the successful launch of new products in the ELP division and a recovery in demand for cordless phones in the U.S. as the housing market recovers.
Company Data Shares O/S (mn) Market Cap ($ mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily volume (mn) 3M - Avg daily value (HK$ mn) 3M - Avg daily value ($ mn) HSCEI Exchange Rate Fiscal Year End
249 3,572 3,572 111.20 06 Nov 13 64.3% 0.32 35.22 4.5 1,0637.15 7.75 Mar
VTech Holdings (Reuters: 0303.HK, Bloomberg: 303 HK) $ in mn, year-end Mar FY12A FY13A FY14E Revenue ($ mn) 1,785 1,858 1,966 Net Profit ($ mn) 191 202 215 EPS ($) 0.76 0.80 0.85 DPS ($) 0.76 0.80 0.81 Revenue growth (%) 4.2% 4.1% 5.8% EPS growth (%) (7.5%) 5.5% 6.6% ROCE 34.5% 35.6% 37.1% ROE 34.7% 35.7% 37.2% P/E (x) 18.9 17.9 16.8 P/BV (x) 6.4 6.2 6.1 EV/EBITDA (x) 13.6 12.7 12.0 Dividend Yield 5.3% 5.6% 5.7%
FY15E 2,093 224 0.89 0.85 6.4% 4.5% 38.0% 38.1% 16.1 6.0 11.6 5.9%
FY16E 2,219 226 0.90 0.85 6.0% 0.8% 37.6% 37.7% 15.9 5.9 11.5 6.0%
516
VTech Holdings: Summary of Financials

Income Statement $ in millions, year end Mar Revenues % change Y/Y Gross Profit % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet $ in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets
Cash flow statement FY12 FY13 FY14E FY15E FY16E $ in millions, year end Mar 1,785 1,858 1,966 2,093 2,219 EBIT 4.2% 4.1% 5.8% 6.4% 6.0% Depr. & amortization 571 598 635 672 700 Change in working capital 0.5% 4.7% 6.2% 5.9% 4.1% Taxes 238 257 271 283 286 Cash flow from operations (6.0%) 8.1% 5.6% 4.2% 1.2% 210 225 240 250 253 Capex (4.6%) 7.3% 6.6% 4.5% 0.8% Net Interest 11.7% 12.1% 12.2% 12.0% 11.4% Other 2 2 2 2 2 Free cash flow 212 226 241 252 254 (4.3%) 7.0% 6.5% 4.5% 0.8% Equity raised/(repaid) (20) (24) (26) (27) (27) Debt raised/(repaid) 9.3% 10.6% 10.6% 10.6% 10.6% Other 191 202 215 224 226 Dividends paid (5.1%) 5.5% 6.6% 4.5% 0.8% Beginning cash 251 251 251 251 251 Ending cash 0.76 0.80 0.85 0.89 0.90 DPS (7.5%) 5.5% 6.6% 4.5% 0.8% Ratio Analysis FY12 FY13 FY14E FY15E FY16E $ in millions, year end Mar 327 309 299 289 271 Gross margin 244 260 275 292 310 EBITDA margin 239 277 293 312 331 Operating margin 1 0 11 9 11 Net margin 811 845 879 903 923 Sales per share growth LT investments 11 9 9 9 10 Sales growth Net fixed assets 91 88 90 92 98 Net profit growth Total Assets 913 943 977 1,004 1,030 EPS growth Liabilities Interest coverage (x) Short-term loans 0 0 0 0 0 Payables 315 331 343 358 372 Others 36 35 44 45 45 Net debt to equity Total current liabilities 351 366 387 402 416 Working Capital to Sales Long-term debt 0 0 0 0 0 Sales/assets Other liabilities 0 0 0 0 0 Assets/equity Total Liabilities 357 372 393 408 422 ROE Shareholders' equity 556 572 584 596 608 ROCE BVPS 2.23 2.30 2.34 2.39 2.43 Source: Company reports and J.P. Morgan estimates.
FY12 210 28 (7) (21) 210 (29) 2 0 179 0 6 0 (195) 333 326 0.76 FY12 32.0% 13.3% 11.7% 10.7% 1.5% 4.2% (5.1%) (7.5%) NM (58.7%) 0.3 2.0 1.6 34.7% 34.5%
FY13 225 32 (42) (20) 195 (14) 2 0 179 0 8 0 (190) 327 309 0.80 FY13 32.2% 13.8% 12.1% 10.8% 4.1% 4.1% 5.5% 5.5% NM (53.9%) 0.3 2.0 1.6 35.7% 35.6%
FY14E 240 32 (24) (24) 223 (33) 2 0 189 0 1 0 (203) 309 299 0.81 FY14E 32.3% 13.8% 12.2% 10.9% 5.8% 5.8% 6.6% 6.6% NM (51.2%) 0.2 2.0 1.7 37.2% 37.1%
FY15E 250 32 (25) (26) 232 (35) 2 0 195 0 0 0 (209) 299 289 0.85 FY15E 32.1% 13.5% 12.0% 10.7% 6.4% 6.4% 4.5% 4.5% NM (48.5%) 0.2 2.1 1.7 38.1% 38.0%
FY16E 253 34 (25) (27) 234 (39) 2 0 193 0 0 0 (214) 289 271 0.85 FY16E 31.5% 12.9% 11.4% 10.2% 6.0% 6.0% 0.8% 0.8% NM (44.6%) 0.2 2.2 1.7 37.7% 37.6%
517
Yang Ming Marine

Neutral
www.yangming.com
Taiwan Shipping Caren Huang

AC
Company overview Yang Ming Marine ranks as the worlds 15th-largest container shipping company (source: Alphaliner) and controls 88 vessels with a total capacity of about 380,000 TEU. The company has a strategic alliance with K-Line, Cosco and Hanjin. It also provides bulk shipping services through 87%-owned subsidiary Kuang Ming Shipping and invested in Kao Ming Container Terminal in Kaohsiung Port. Investment case The supply-demand of the container shipping sector will likely reach balance in 2015, but sector dynamics will remain challenge to liners in 1H14, especially those with: (1) stretched balance sheets or potential funding needs for capacity expansion; and (2) high revenue exposure in FE-Europe trade, where rates are most vulnerable. Yang Ming's net debt-to-equity ratio will likely stay above the sector average of 146% in 2014; around 30% of its revenue is derived from FE-Europe trade, among the highest liners in the region. Resilience of the growth outlook We expect Yang Ming to deliver net profit of NT$2B in FY14 against a net loss in FY13E. The turnaround will most likely happen in 2H14 on the back of an 11% Y/Y hike in average freight rates and a mild increase in bunker fuel prices (+5% Y/Y).
12m 11.3% -3.1%
Price Performance
16 15 NT$ 14 13 12 11
Abs Rel
YTD -9.2% -15.7%
1m -6.9% -5.9%
3m 0.4% -2.6%
Risks to the earnings outlook in 2014 Our base case in 2014 is that the container shipping sector will pick up along with improvement in the macro economy in developed markets, at a gradual pace. However, if Europe recovers faster than our expectation and the P3 network effectively supports freight rates in FE-Europe trade, Yang Ming's earnings would likely surprise on the upside. Price target, and risks to our investment view We remain Neutral on Yang Ming with a Jun-14 price target of NT$16, based on 1.4x FY14E BVPS of NT$11.9, equivalent to one standard deviation above its historical average valuation. Because Yang Ming is a cyclical stock, we believe P/B is a relevant methodology. Upside risks to our price target include a better-thanexpected volume pickup for FE-Europe routes and a strong recovery in freight rates that drives Yang Ming to turn around earlier than expected. Downside risks include a larger-than-expected equity dilution and rising bunker fuel costs.
2,819 36,220 1,231 12.85 06 Nov 13 7.83 105.79 3.6 8281.97 29.43 Dec
Yang Ming Marine (Reuters: 2609.TW, Bloomberg: 2609 TT) NT$ in mn, year-end Dec FY11A FY12A FY13E Revenue (NT$ mn) 118,555 131,724 134,957 Net Profit (NT$ mn) (9,399) 51 (1,469) EPS (NT$) (3.33) 0.02 (0.52) DPS (NT$) 1.25 0.00 0.00 Revenue growth (%) (9.2%) 11.1% 2.5% EPS growth (%) (179.7%) (100.5%) (2956.0%) ROCE (8.8%) 1.5% (0.0%) ROE (25.7%) 0.2% (4.1%) P/E (x) NM 704.2 NM P/BV (x) 1.2 1.0 1.0 EV/EBITDA (x) NM 12.3 18.1 Dividend Yield 9.7% 0.0% 0.0%
FY14E 154,951 2,022 0.72 0.00 14.8% (237.7%) 3.6% 5.6% 17.9 1.0 8.8 0.0%
FY15E 173,520 4,989 1.77 0.22 12.0% 146.7% 6.3% 12.8% 7.3 0.9 6.5 1.7%
518
Yang Ming Marine: Summary of Financials

Income Statement NT$ in millions, year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY11 118,555 (9.2%) (1,168) (105.4%) (8,211) (156.2%) (6.9%) (1,503) (9,854) (174.5%) 559 (5.7%) (9,399) (179.7%) 2,819 (3.33) (179.7%) FY12 131,724 11.1% 8,957 (866.8%) 1,685 (120.5%) 1.3% (1,637) (73) (99.3%) 138 (189.6%) 51 (100.5%) 2,819 0.02 (100.5%)
Cash flow statement FY13E FY14E FY15E NT$ in millions, year end Dec 134,957 154,951 173,520 EBIT 2.5% 14.8% 12.0% Depr. & amortization 6,403 12,939 15,445 Change in working capital (28.5%) 102.1% 19.4% Taxes (32) 4,418 7,820 Cash flow from operations (101.9%) (14098.8%) 77.0% (0.0%) 2.9% 4.5% Capex (1,931) (2,059) (2,077) Disposal/(purchase) (2,070) 2,261 5,578 Net Interest 2742.9% (209.2%) 146.7% Free cash flow 207 (226) (558) (10.0%) 10.0% 10.0% Equity raised/(repaid) (1,469) 2,022 4,989 Debt raised/(repaid) (2956.0%) (237.7%) 146.7% Other 2,819 2,819 2,819 Dividends paid (0.52) 0.72 1.77 Beginning cash (2956.0%) (237.7%) 146.7% Ending cash DPS Balance sheet Ratio Analysis NT$ in millions, year end Dec FY11 FY12 FY13E FY14E FY15E NT$ in millions, year end Dec Cash and cash equivalents 11,251 11,087 10,475 9,180 17,286 EBITDA margin Accounts receivable 2,716 3,506 3,081 3,523 3,946 Net margin Inventories 0 0 0 0 0 Others 8,257 7,863 7,863 7,863 7,863 Current assets 23,833 24,748 23,710 22,858 31,387 Sales per share growth LT investments 4,551 4,082 4,082 4,082 4,082 Sales growth Net fixed assets 80,550 88,375 92,280 93,322 84,197 Net profit growth Total Assets 129,596 139,213 142,081 142,269 141,674 EPS growth Liabilities Interest coverage (x) Short-term loans 3,011 210 210 210 210 Payables 7,328 7,140 6,871 7,525 8,267 Net debt to equity Others 19,845 16,660 16,660 16,660 16,660 Sales/assets Total current liabilities 30,184 24,010 23,741 24,395 25,137 Assets/equity Long-term debt 66,178 75,442 80,442 77,942 72,192 ROE Other liabilities 554 857 857 857 857 ROCE Total Liabilities 99,191 102,516 107,247 105,400 100,392 Shareholder's equity 30,405 36,697 34,834 36,869 41,282 BVPS (NT$) 10.79 13.02 12.36 13.08 14.65 Source: Company reports and J.P. Morgan estimates.
FY11 (8,211) 7,043 1,844 (559) (4,869)
FY12 1,685 7,272 (978) (138) 1,835
FY13E (32) 6,435 157 (207) 6,622 (10,340) 1,500 (1,931) (2,379) 0 5,000 0 0 11,087 10,475 0.00 FY13E 4.7% (1.1%)
FY14E FY15E 4,418 7,820 8,521 7,625 211 319 226 558 12,255 14,432 (9,563) 1,500 1,500 1,500 (2,059) (2,077) 4,656 17,870 0 0 (2,500) (5,750) 0 0 0 (607) 10,475 9,180 9,180 17,286 0.00 0.22 FY14E FY15E 8.4% 8.9% 1.3% 2.9%
(11,413) (16,302) 1,581 1,467 (1,503) (1,637) (14,667) (12,871) 0 8,300 (603) (3,324) 13,896 11,251 1.25 FY11 (1.0%) (7.9%) 0 10,917 6,070 (47) 11,251 11,087 0.00 FY12 6.8% 0.0%
(9.2%) 11.1% 2.5% 14.8% 12.0% (9.2%) 11.1% 2.5% 14.8% 12.0% (179.7%) (100.5%) (2956.0%) (237.7%) 146.7% (179.7%) (100.5%) (2956.0%) (237.7%) 146.7% NM 5.5 3.3 6.3 7.4 189.7% 173.5% 0.9 1.0 3.6 4.0 (25.7%) 0.2% (8.8%) 1.5% 198.9% 184.6% 131.3% 1.0 1.1 1.2 3.9 4.0 3.6 (4.1%) 5.6% 12.8% (0.0%) 3.6% 6.3%
519
520
Strategy Dashboards
521
Asia Pacific strategy dashboards

Summary: Regional, country and sector valuations
8-Nov-2013 MSCI Index Global* 425 USA* 1692 Europe* 1335 Asia Pacific* 117 Asia Pacific ex-Japan 471 Pacific ex-Japan 394 EMF Asia 669 Japan* 724 Australia 1106 China 61 Hong Kong 13013 India 796 Indonesia 5176 Korea 581 Malaysia 648 Philippines 1067 Singapore 368 Taiwan 291 Thailand 506 P/E (x) Hist.^ P/EPS Current 12m Trough (Trend) Trailing Fwd 9.4 14.2 15.3 13.9 11.6 15.5 16.5 15.1 9.7 11.6 14.7 13.3 12.5 9.8 14.6 13.0 11.4 9.8 13.3 11.8 5.2 10.2 16.0 14.8 10.3 12.8 12.2 10.9 11.5 28.1 17.3 13.8 14.1 14.0 18.3 15.4 7.2 6.8 9.8 9.0 10.8 16.6 16.8 15.7 9.6 14.6 17.5 15.1 4.8 13.1 14.9 13.5 7.7 9.2 9.5 8.5 10.2 17.1 17.3 16.0 8.8 29.2 20.4 18.6 9.2 10.1 14.7 13.4 11.8 13.9 15.6 13.7 7.7 8.2 14.2 12.2 Prospective 2012 2013E 2014E 16.1 15.1 13.7 17.5 16.4 14.9 14.4 14.8 13.1 16.4 14.3 12.8 14.5 13.1 11.6 16.4 15.9 14.6 13.4 12.1 10.7 27.5 24.6 14.5 20.2 18.0 15.1 10.6 9.7 8.9 17.4 16.7 15.6 18.9 17.2 14.7 15.7 14.8 13.3 10.5 9.3 8.4 16.9 17.4 15.8 21.9 20.1 18.4 14.4 14.8 13.2 20.0 15.0 13.5 15.7 14.0 12.0 Div. Yield (%) Hist.^ Current Prospective Peak Trailing 2013E 2014E 4.1 2.5 2.6 2.7 4.0 2.0 2.1 2.2 6.1 3.4 3.4 3.7 3.3 2.6 2.6 2.8 4.9 2.9 2.9 3.1 5.7 3.9 3.9 4.1 3.4 2.5 2.5 2.8 3.0 1.8 1.9 2.1 6.7 4.2 4.2 4.4 5.7 3.3 3.3 3.7 5.7 2.7 2.8 2.8 2.6 1.5 1.5 1.7 5.9 2.8 2.8 3.1 2.9 0.9 0.9 1.0 5.1 3.1 3.1 3.3 4.9 2.2 2.2 2.3 5.9 3.4 3.4 3.5 7.8 3.1 3.1 3.1 5.9 3.1 3.1 3.6 P/BV (x) Hist.^ Current Prospective Trough Trailing 2013E 2014E 1.3 1.9 1.9 1.8 1.4 2.4 2.3 2.2 1.1 1.7 1.7 1.6 1.2 1.5 1.5 1.4 1.2 1.6 1.6 1.5 1.3 1.7 1.7 1.6 1.0 1.6 1.6 1.4 0.8 1.3 1.3 1.2 1.3 2.1 2.1 2.0 0.5 1.5 1.5 1.3 0.9 1.3 1.3 1.3 1.4 2.6 2.6 2.2 0.9 3.1 3.0 2.6 0.5 1.3 1.2 1.1 0.6 2.3 2.3 2.1 0.9 3.1 3.0 2.8 0.9 1.5 1.5 1.4 1.2 1.8 1.7 1.6 0.6 1.8 1.8 1.6 2011 7.5 16.2 0.5 -6.9 2.9 6.0 -3.9 51.1 -2.3 10.9 23.7 8.1 19.8 -16.0 7.8 3.8 -2.3 -27.8 14.1
Rajiv Batra
AC
(91-22) 6157-3568, rajiv.j.batra@jpmorgan.com J.P. Morgan India Private Limited
Earnings growth (%) 2012 2013E 2014E 2.2 6.6 10.8 6.3 6.6 10.1 -3.2 -2.6 12.8 5.0 14.7 11.8 1.2 11.2 12.3 -3.8 3.3 9.2 4.9 10.7 12.9 -14.0 11.8 69.3 -4.0 11.9 19.7 1.0 9.6 9.3 -11.0 4.3 7.0 10.1 9.9 17.0 1.0 6.2 10.9 7.3 12.5 11.0 15.7 -2.8 9.9 14.1 8.7 9.6 7.0 -2.1 11.8 2.5 33.3 11.0 17.6 12.0 16.6 2012 12.7 15.0 12.1 9.8 12.3 10.8 13.1 NM 10.5 15.4 8.3 15.7 23.3 13.6 14.1 15.9 10.6 9.4 14.4
ROE (%) 2013E 12.8 14.8 11.6 10.6 13.0 10.8 13.5 5.4 11.8 15.7 8.2 15.7 21.6 14.1 13.3 15.9 10.2 12.1 13.5 2014E 13.3 15.2 12.6 11.1 13.4 11.4 13.9 8.6 13.5 15.5 8.3 16.1 20.9 13.8 13.7 15.8 10.8 12.4 14.4
Source: I/B/E/S, MSCI, J.P. Morgan. 8 November 2013.
Asia Pacific ex-Japan sector valuations

8-Nov-2013 MSCI Index 607 334 148 364 335 675 223 283 112 206 P/E (x) Hist.^ P/EPS Current 12m Trough (Trend) Trailing Fwd 6.1 5.3 11.7 10.6 7.9 7.2 18.5 13.5 11.6 15.1 17.4 14.6 7.4 14.8 11.1 9.8 14.9 17.0 22.6 19.8 18.6 21.0 25.1 21.6 9.3 11.8 12.2 11.2 10.3 15.0 11.3 10.4 10.5 15.1 14.6 13.7 9.9 16.0 15.9 13.7 Prospective 2012 2013E 2014E 10.9 11.9 10.4 21.1 18.1 12.7 16.9 17.5 14.1 11.5 11.0 9.6 23.8 22.4 19.4 28.2 24.6 21.1 13.1 12.1 11.1 14.4 10.8 10.4 15.5 14.5 13.6 19.6 15.3 13.5 Div. Yield (%) Hist.^ Current Prospective Peak Trailing 2013E 2014E 6.5 3.6 3.6 3.8 4.8 2.6 2.6 2.9 4.4 2.4 2.4 2.7 5.0 1.7 1.8 1.7 4.0 2.7 2.7 3.0 2.8 1.6 1.6 1.7 6.3 3.8 3.8 4.1 4.5 1.5 1.4 1.4 6.0 4.3 4.3 4.5 4.7 3.0 3.0 3.2 P/BV (x) Hist.^ Current Prospective Trough Trailing 2013E 2014E 1.0 1.3 1.3 1.2 1.0 1.6 1.6 1.5 0.9 1.4 1.4 1.3 1.1 2.0 1.9 1.7 1.9 2.8 2.7 2.6 1.7 4.5 4.5 4.1 0.9 1.4 1.4 1.3 1.4 1.9 1.9 1.6 2.0 2.2 2.2 2.1 0.9 1.5 1.5 1.4 Earnings growth (%) 2011 17.8 16.5 -9.3 -6.1 5.0 5.6 14.0 -28.7 -0.3 -23.0 2012 -11.7 -27.1 -17.7 7.2 -1.8 11.7 5.1 42.6 0.0 37.2 ROE (%) 2014E 12.3 12.3 9.5 18.9 13.7 20.2 12.2 16.6 15.6 10.8 2013E 2014E M 2012 2013E -7.9 13.8 12.9 11.3 16.7 42.4 8.1 9.4 -3.6 24.4 8.5 8.0 4.7 14.7 19.9 18.9 6.3 15.6 12.1 12.5 14.7 16.6 16.8 18.6 8.7 8.8 11.7 12.1 33.0 4.1 15.7 18.7 7.5 6.3 14.8 15.5 28.4 13.5 7.7 9.9
Energy Materials Industrials Cons Disc Cons Staples Healthcare Financials Info Tech Telecoms Utilities
Source: I/B/E/S, MSCI, J.P. Morgan. Estimates as of 8 November 2013 * Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. US trailing PE is calculated as per reported earnings For all other markets and sectors, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using JPM estimates for covered stocks and I/B/E/S estimates for the rest. Companies with different yearends are calendarised to December yearends and are free float adjusted for aggregation. Historical numbers are from MSCI. Hist.^ refers to the historically lowest valuation of the MSCI indices since Jan 1991. Trough PE represents the lowest 12 month trailing PE. For dividend yield the highest values are taken to represent the best multiple.. USA, Europe and Japan PE are I/B/E/S aggregate estimates. Japan Valuation estimates are for the financial year ending March P / EPS (Trend) uses the trend EPS for the indices calculated by the linear regression on the natural log of trailing EPS. For more, please refer to 'Mayday call for the shorts - Perspectives and Portfolios', 5 May 2009, Mowat et al. P / EPE (Trend)' is NM for indices where the modeled relationship is weak with a less than 0.50 R-square. The start dates China and Singapore models are modified to make them more relevant. Sector indices inputs have not been altered.
522
Market performance: MSCI AC performance by region, country and sector

Asia Pac exJapan Asia Pacific Hong Kong Last one week Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecommunication Services Utilities Regional benchmark Change vs dollar Philippines 2.5% -4.1% -3.4% -1.8% -5.3% -3.2% -1.3% Philippines 78.3% 5.2% 8.1% 20.7% -15.4% 10.1% -6.3%
523
Singapore
Pacific x J
-0.7% -0.3% -1.1% -0.4% 0.3% 0.3% 0.4% -0.8% -1.0% -0.8% -0.3%
-0.8% 0.0% -0.6% 0.5% 0.3% 0.6% 0.8% 0.2% -0.9% -0.8% 0.1%
-0.4% -0.2% -1.6% -0.2% 0.3% 0.2% 0.3% -1.4% -1.6% -0.2% -0.4%
-0.7% -0.9% -1.9% -1.4% 0.7% 0.0% -1.0% -0.3% -0.1% -1.2% -0.8%
-1.9% -1.7% -2.0% -2.4% -1.8% -1.4% -1.9% -1.5% -1.5% -1.7% -2.0%
-2.3% -1.0% -2.3% -2.5% -2.1% -1.4% -2.0% -1.3% -0.8% -1.2% -2.0%
-1.8% -2.2% -1.9% -2.1% -1.4% -1.4% -1.9% -1.6% -1.8% -2.2% -1.9%
1.0% 1.3% 0.3% 2.3% 3.0% 1.9% 2.1% 3.5% 2.8% 0.6% 1.9% -1.1%
-2.8% 0.9% -0.4% -1.7% -0.2% -0.1% 1.3% 0.7% 0.0% 0.3% -0.7% -2.2% Australia
0.5% -1.5% -2.7% -1.3% -1.1% 0.1% -1.5% 1.0% -2.3% 4.3% -0.6% -1.0%
-1.2%
-0.6% -1.2% -3.3% -3.1% -0.9% -0.9% 0.0% Hong Kong
-2.0% -1.0% 2.0% 0.1% -1.9% 0.1% -1.4% 0.8% 0.5% -0.7% -0.6%
-3.0% -0.3% -0.8% -0.2%
1.0% -0.6% -0.6% Singapore
-2.9% -1.8% -0.5% -0.7% -0.1% -1.2% -0.4% -2.9% -0.3% -3.2% -1.0% 0.1%
-4.8% -2.6% -5.6% -6.5% 1.6% -4.7% 1.8% -4.2% -6.1% -2.5% -3.2% -3.2%
-1.3% -1.0% 0.9% -0.3% 0.2% -0.1% -4.7% -1.0% -0.6% -0.7% -1.1%
-1.4% 7.5% 0.2% 0.5% -2.3% 2.5% -1.6% -4.9% 0.7% 0.1% -1.1%
2.3% 0.0% 7.1% -4.1% -0.8% 7.8% -3.8% -3.5% 2.0% -1.1% -2.1% Indonesia -14.7% 5.5% -24.5% 0.0% 21.7% -1.9% -14.5% 12.7% 9.8% -2.7% -15.6%
Asia Pac exJapan
Asia Pacific
Pacific x J
EMF Asia
Malaysia
YTD Performance Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecommunication Services Utilities Region / Country Change vs dollar
27.7% 14.7% 8.2% 15.3% 28.1% 21.2% 17.4% -4.9% 15.7% 7.2% 16.1%
33.3% 21.5% 15.2% 22.2% 34.0% 29.7% 19.7% -0.5% 8.0% 10.1% 22.2%
25.1% 12.6% 3.2% 18.4% 22.0% 20.6% 21.4% -2.2% 28.3% 8.2% 15.2%
20.8% 7.6% -10.3% 7.5% 14.2% 8.2% 9.1% -4.0% 17.5% 4.8% 8.1%
8.3% -0.1% -10.9% 2.3% 6.2% -1.1% 7.2% -10.0% -2.6% -1.2% 0.4%
20.9% 2.2% 4.8% 8.0% 8.2% 2.8% -13.2% -10.6% 7.6% -4.9% 4.3%
3.5% -1.8% -15.1% -4.7% 4.4% -4.0% 7.7% -9.3% -5.8% 2.3% -2.1%
48.3% 40.3% 9.0% 43.0% 36.3% 32.2% 29.9% 30.4% 87.2% 34.5% 40.1% -12.9%
25.5% 14.9% 16.7% 25.2% 20.6% 18.3% 21.2% -1.0% 17.6% 4.5% 16.8% -10.5%
12.0% -13.0% -21.8% 5.8% -4.8% 3.2% -6.7% 32.8% -4.4% 1.3% -0.7%
34.3%
2.3% 7.2% -32.2% -6.2% -4.4% 5.3% 0.0%
18.2% 15.4% -7.3% 18.3% 38.6% -0.2% 1.2% 2.7% -5.9% 4.7% -1.9%
-3.2% -3.1% 2.7% -2.5%
15.1% 2.1% -2.2%
1.3% 8.3% -15.7% -4.8% 1.9% -1.3% 54.3% -19.5% -9.9% 19.8% -2.5% 2.3%
1.2% 11.5% -2.2% -15.1% 24.5% -22.4% 52.1% -13.8% 27.1% -15.5% 2.5% -13.7%
8.2% 3.8% 23.8% 5.1% 23.4% 9.8% 4.2% -1.0% 20.0% 7.8% -4.7%
-20.8% -7.3% -6.2% -2.0% 14.1% 110.8% -1.0% 8.6% -7.7% -1.7% -3.3%
Source: Bloomberg, MSCI as of 12 November 2013 Notes: Country headings sorted left to right according to relative weight within the MSCI. Indices: Regions in US$ and countries in local currency. Local currency movements against the dollar: depreciation / (appreciation). Country and sector cross sections in italic blue have outperformed their indices by more than 2%. Red font figures have underperformed their indices by more than 2%.
Thailand
North America
Europe
Taiwan
Global
Japan
Korea
China
India
Indonesia
EMF Asia
Australia
Malaysia
Thailand
North America
Europe
Taiwan
Global
Japan
Korea
China
India
Equity markets liquidity monitor

Country Developed Markets US UK Japan Australia HK Singapore EM Asia China India Indonesia Korea Malaysia Philippines Taiwan Thailand EMEA Russia South Africa Turkey Poland Egypt LatAm Brazil Mexico Chile Colombia Peru Argentina Stock Exchange NYSE + NASDAQ + AMEX London Stk Exchange Tokyo Stk Exchange ASX HKSE SSE Shanghai & Shenzhen A BSE & NSE JSE KSE Bursa Malaysia PSE TWSE & OTC TSE RTS + MICEX + DR Johannesburg Stk Exchange Istanbul Stk Exchange Warsaw Stk Exchange Egyptian Exchange Bovespa + DR Mexico Stk Exchange + DR Santiago Stk Exchange Bogota Stk Exchange Lima Stk Exchange Argentina Stk Exchange FF Daily Trading Value (US$bn) Daily Velocity (US$ B) 1 Wk Avg 3 MMA 12 Avg 1 Wk Avg 3M Avg 12 Avg 19,718 3,581 3,419 1,416 2,215 350 1,632 351 159 765 206 71 633 135 296 607 94 102 32 523 271 108 60 33 18 42 6.5 21 3.7 4.7 0.7 17 2.5 0.4 3.4 0.6 0.3 3.4 1.1 1.2 1.4 1.5 0.7 0.07 4.7 1.2 0.13 0.16 0.02 0.14 39 6.4 20 3.9 5.7 1 24 2.3 0.5 3.7 0.6 0.2 3.2 1.2 1.5 1.5 1.4 0.7 0.05 4.5 1.5 0.15 0.09 0.03 0.15 36 6.4 14 4 5 1 15 2.6 0.5 4.3 0.5 0.2 3.3 1 1.9 1.7 1.3 0.7 0.06 5.3 1.3 0.19 0.11 0.03 0.11 0.21 0.18 0.63 0.26 0.21 0.21 1.02 0.7 0.27 0.43 0.29 0.36 0.53 0.82 0.41 0.23 1.62 0.67 0.23 0.88 0.43 0.12 0.26 0.06 0.82 0.2 0.18 0.59 0.29 0.26 0.29 1.45 0.68 0.32 0.51 0.28 0.33 0.52 0.93 0.49 0.25 1.55 0.72 0.16 0.88 0.53 0.14 0.15 0.08 0.92 0.23 0.22 0.52 0.33 0.26 0.32 1.03 0.69 0.29 0.63 0.29 0.3 0.6 0.9 0.5 0.29 1.49 0.89 0.19 0.86 0.47 0.17 0.17 0.06 0.95
Source: Bloomberg, J.P. Morgan. Notes: Market cap uses all exchanges covered by Bloomberg for a specific country and primary security of company only. The latest one week average is red (gray box in B&W, dark blue in blue scale) if less than 90% of the three month average or blue (solid black box in B&W, light blue in blue scale) if greater than 110% of the three month average. To calculate the free float we use the MSCI free float factor for all markets except for Hong Kong, Russia and South Africa where we calculate the free float for the Hong Kong Composite Index, MICEX, and JSE. Trading value calculation for Russia, Mexico and Brazil, includes value of depository receipts traded (DR) along with local stock exchange turnover. South Africa and Australia market capitalization and trading value includes only local listed portion of dual listed stocks. Velocity Ratio = (Trading Value / Free float market cap) * 100 Updated as of 8 November 2013
524
Monitoring Inflation: The real threat to EM equities

Inflation Country Rate Developed Markets United States Chained CPI US core PPI Core PPI SA US Unit Labor Cost LC Nonfarm Euro Area CPI Japan CPI Australia CPI Hong Kong CPI Singapore CPI EM Asia China CPI Korea CPI Indonesia CPI India WPI India (CPI) CPI Ind. Workers Malaysia CPI Philippines CPI Thailand CPI Taiwan CPI Latin America Argentina CPI Brazil CPI IPCA Colombia CPI Mexico CPI Peru CPI Chile CPI NSA Europe, Middle East and Africa Czech Republic CPI Hungary CPI Poland CPI Russia CPI South Africa CPI Turkey CPI CPI (YoY) Food CPI (YoY) CB Inflation JPM f'cast CPI (YoY) Target (%) CY2013 Date Previous Latest Previous Latest na na na Under 2% na 2-3 na na 3.5% 3.0 (1) 4.5 (1) 7.0% na na 4.0 (1) 0.5 - 3.0 na na 4.5 (2) 3.0 (1) 3.0 (1) 2.0 (1) 3.0 (1) 2.0 (1) 3% 1.5 - 3.5% 5-6% 3-6% 5.0 (2) 1.5 na na 1.4 0.2 2.2 4.4 2.4 2.7 1.2 6.9 9.6 8.9 2.1 2.9 2.3 1.0 11.2 6.2 2.2 3.7 2.8 1.7 1.8 1.8 1.0 6.6 5.8 7.6 Sep-13 Sep-13 Jun-13 Oct-13 Sep-13 Sep-13 Sep-13 Sep-13 Oct-13 Oct-13 Oct-13 Sep-13 Sep-13 Sep-13 Oct-13 Oct-13 Oct-13 Sep-13 Oct-13 Oct-13 Oct-13 Oct-13 Oct-13 Sep-13 Sep-13 Sep-13 Oct-13 Sep-13 Oct-13 1.5 1.2 1.6 1.1 0.9 2.4 4.5 2.0 3.1 0.8 8.4 6.1 10.7 1.9 2.7 1.4 0.8 10.5 5.9 2.3 3.4 2.8 2.0 1.3 1.3 1.1 6.1 6.4 7.9 1.2 1.2 1.5 0.7 1.1 2.2 4.6 1.6 3.2 0.7 8.3 6.5 10.7 2.6 2.9 1.5 0.6 10.5 5.8 1.8 3.4 3.0 1.5 0.9 0.9 1.0 6.3 6.0 7.7 0.2 0.1 NA (0.1) 0.3 NA 0.4 0.2 (0.6) (0.3) 0.1 1.2 0.4 0.8 0.1 0.2 (0.3) 0.8 0.6 (0.3) 0.5 0.0 0.1 (1.6) (1.3) 0.2 1.9 0.5 1.8 1.7 0.4 0.0 2.0 3.2 4.8 (5.1) 5.3 (0.5) 0.7 3.5 15.9 12.7 4.6 3.9 1.3 4.6 10.9 4.7 0.5 4.6 2.8 3.7 (6.9) (6.1) 2.0 8.3 7.6 10.3 CPI (%) MoM 3M ann 1.3 3.0 0.5 1.1 4.4 2.3 6.1 (1.2) 12.8 18.2 na 3.6 4.6 0.1 2.4 7.4 9.2 2.1 3.0 2.9 3.2 5.7 2.8 2.6 6.6 7.4 8.7 1.3 2.2 1.6 (0.6) 5.3 2.3 6.5 (1.8) 12.6 18.4 na 3.9 4.0 0.9 2.9 7.1 8.9 0.7 2.7 3.3 2.8 4.7 1.8 2.7 7.2 6.0 11.1 YoY 1.7 0.8 0.0 na 4.2 1.7 1.8 1.6 4.9 1.4 na 1.2 2.5 0.3 1.1 na 5.9 na 2.5 2.6 1.7 0.1 3.5 1.3 0.7 2.0 7.5 FX (%) 3M ann 1.6 4.0 0.8 na 5.4 2.5 2.6 1.5 6.4 7.3 na 0.2 1.2 1.1 3.1 na 6.6 na 2.5 2.4 3.8 (1.1) 5.6 2.7 (2.1) 2.0 10.1 Policy Rate Policy Rate Current Last Change 0.13 0.25 0.05 2.50 0.50 6.00 2.50 7.25 7.75 3.00 3.50 2.50 1.88 9.50 4.50 3.50 4.00 4.75 0.05 3.40 2.50 5.50 5.00 6.24 16 Dec 08 (-87.5bp) 7 Nov 13 (-25bp) 5 Oct 10 (-5bp) 6 Aug 13 (-25bp) 17 Dec 08 (-100bp) 7 Jul 12 (-31bp) 9 May 13 (-25bp) 12 Sep 13 (+25bp) 29 Oct 13 (+25bp) 5 May 11 (+25bp) 25 Oct 12 (-25bp) 29 May 13 (-25bp) 30 Jun 11 (+12.5bp) 10 Oct 13 (+50bp) 22 Mar 13 (-50bp) 25 Oct 13 (-25bp) 7 Nov 13 (-25bp) 17 Oct 13 (-25bp) 1 Nov 12 (-20bp) 29 Oct 13 (-20bp) 3 Jul 13 (-25bp) 13 Sep 12 (+25bp) 19 Jul 12 (-50bp) Policy Rate Next Change On hold On hold On hold Mar 14 (-25bp) On hold On hold 4Q 14 (+25bp) 12 Nov 13 (+25bp) 1Q 14 (+25bp) On hold On hold On hold 4Q 14 (+12.5bp) 27 Nov 13 (+50bp) Jul 14 (+25bp) On hold On hold Dec 14 (-25bp) On hold 26 Nov 13 (-20bp) 4Q 14 (+25bp) 1Q 14 (-25bp) Sep 14 (+50bp) -
Source: J.P. Morgan Economics, Bloomberg. Note: Current inflation data for countries which outside/above target range is highlighted. MoM and 3 month annualized data is calculated from inflation indices. # Countries where central banks target is not available. We have given J.P. Morgan Economic estimates. No target is available for China, but general expectation is that the Central Bank would continue raising rates when the headline CPI rises above 4.0 % In case of Taiwan, Estimate by DGBAS, CB targets M2 growth (2.5-6.5% for 2010) Russia's CBR is not yet in a full-fledged inflation targeting, so they can change the target during the year. Updated as of 8 November 2013
525
Outlook: Market drivers

Global and developed market drivers Country Positive Global 2H13 acceleration in DM growth US Recovering housing market, fiscal drag easing into 2H13 Europe ECB turning more accommodative, signs of economic recovery exiting recession, peripheral spreads UK Strong domestic recovery and still supportive BoE Asia Pacific Market Drivers Country Positive Japan New PMs pro-growth policy of fiscal boost and inflation targeting, more competitive Yen, QQE Australia Low sovereign debt, monetary policy flexibility, high dividend yield market attracting local and global flows. Negative Bond yields grinding higher Higher bond yields. higher mortgage rates, declining NIMs Banks deleveraging, need for more restructuring in peripheral Europe High commodity exposure
Negative Rising energy costs and fiscal sustainability worries Rising risk to growth from capex/terms of trade downturn, currency fragility, high household debt levels, continued dependence on wholesale funding of banks. Singapore We expect a modest rebound in 2014 GDP growth expectations with general economic conditions starting to Ongoing foreign labor tightening is expected to structurally impact corporate earnings and GDP growth, with rebound against 2Q13 lows. General economic growth for 2014 is expected to benefit from low-base effects in long-term GDP growth to moderate from a 10-year historical CAGR of 6.2% to 4.1% on our estimates. We also 2013 (note that Street has lowered GDP forecasts seven times since January 2013). estimate Singapore to transition up to 172,000 jobs away from Manufacturing into Services while progressing into a productivity-led growth model, which would create long-term structural drag. Hong Kong Stabilizing property price, slower land sales. DM economic recovery drives HK exports. Closer integration to Vulnerable to the Feds policy normalization. Economic fundamentals remain weak with slowly recovering GDP. Pearl River Delta is positive in the long run. Credit risk from trade financing for banks. Less policy flexibility, growth sectors expensive, excessive leverage China Stabilizing growth prospect; valuations partly discounting fundamental weakness Korea Recovery in domestic demand, benefitting from DM economic growth Weakening of the JPY Taiwan Recovery in the US and the strengthening purchasing power in the developed market should support the export Taiwan is vulnerable to the external environment. Domestic consumption and employment are showing sluggish sector. PMI has stayed above 50 for 3 consecutive months. We are positive on the upstream tech supported by momentum Apple production shift and normalizing inventory level. Selective non-tech sectors provide resilient earnings growth, i.e. textile, contact lens, and bicycle. On the other hand, macro environment and policy support the financial sector. India Reduced trade deficit, RBIs policy normalization, Good monsoon and consumption boost, Pre-election spending Risk of early QE tapering , Sticky inflation, Limited signs of revival in investment cycle, Lack of domestic investor Diminishing current account surplus, government fiscal consolidation suggests lower overall government capex, Malaysia UMNO general assembly concluded, more policy certainty; government addresses fiscal position, oil and gas/railway-related capex fueling domestic growth, CPO price rise on supply tightness/bio fuel blending property demand slowdown on cooling measures, moderating consumption growth on the back of subsidy cuts, requirements, increased tourist arrivals on the back of Visit Malaysia Year 2014. 3-year peak in foreign ownership. Indonesia Healthy transmission of nominal GDP growth to EPS growth, reform thrust picked up with fuel price increases Infrastructure bottlenecks, financing persistent CA deficit, Entering 2014 election cycle, decelerating economic growth and recent BI actions, underweight investor positioning Thailand Flexible monetary condition, healthy corporate balance sheet, strong FDI, increase in public spending Political uncertainties, high household debt, weaker-than-expected external demand, negative EPS revision Philippines Rising investment spending, improving consumption driven by steady remittances flow, greatly improved fiscal Increase in interest rates, government execution on infrastructure projects, upward inflation pressure from position, positive CA position, ample domestic liquidity weather-related disturbances Other emerging market drivers Country Positive Negative Brazil Large and liquid market offering many bottom up options, large infrastructure investment program, labor market Large share of commodity stocks in the index, government interventionism, high inflation, consensus earnings still sturdy are too high Policy paralysis. Growth remains sluggish. Consumer credit growth remains weak. Weak and volatile ZAR South Africa Cheap ZAR could bounce back. Pick up in commodity prices. Labor relations could beat rock-bottom expectations Russia Global value rally into Q4 helps Russia, the least expensive EM. Government delivers on dividend hopes in Governance. Policy risk. Sluggish macro with slow GDP growth, decelerating consumption and high inflation. state-owned big caps Mexico High correlation to US manufacturing recovery, undervalued FX, underpenetrated credit sector, internal High valuations, earnings disappointment, no room for disappointment on reforms or economic growth, depth of economy picking up from government spending & manufacturing activity, reform agenda to boost growth, low market. inflation allows easing monetary policy from Central Bank. High CAD. CBRT looking to keep rates steady but let FX take the brunt of adjustment. Turkey Best long-term story in CEEMEA. Pause in Fed tapering. Worlds best demographics. Consensus well below guidance on banks Poland Further upside from European recovery. Negative EPS revisions turn up again Pension fund reform cut inflows and mid-cap valuations. Expensive stocks come back to earth Czech Republic Weathered EM bond sell-off like a DM. Faster eurozone growth should mean faster 2H13 & 2014 growth. Low-beta market in an EM rally Hungary Eurozone recovery PM Orbans long and consistent track record of high effective taxation. Low growth hurts.
Source: J.P. Morgan. 526
Monitoring the trend in country EPS forecasts (2013 and 2014)

US Asia Pacific ex-Japan Australia Singapore
120
110
115 2014 105 95 85 Feb 12

120 2014 110 2013
115
110 2014 100
100
2014
105 95 85 Feb 12 120 110 2013
2014
2013
90 80 Feb 12
2013
90
2013
Aug 12
Jan 13
Hong Kong
Jun 13
Nov 13
Aug 12
Jan 13 China
Jun 13
Nov 13
80 Feb 12
Aug 12
Jan 13 Taiwan
Jun 13
Nov 13
Aug 12
Jan 13 Korea
Jun 13
Nov 13
115
120 110
2014 2013
105
2014 100
2014 2013
100 90 80 Feb 12
100
95
2013
90 80 Feb 12
120
90 Feb 12
Aug 12
Jan 13 Jun 13 Thailand
Nov 13
85 Feb 12
Aug 12
Jan 13 Jun 13 Indonesia
Nov 13
Aug 12
Jan 13 Malaysia
Jun 13
Nov 13
Aug 12
Jan 13 India
Jun 13
Nov 13
120
120
115
110 100 2013 90 80 Feb 12 2014
105 95 85 75 Feb 12 2013
2014
110 100 90 80 Feb 12
2014
2014 110 100 90 80 Feb 12 2013
2013
Aug 12
Jan 13
Jun 13
Nov 13
Aug 12
Jan 13
Jun 13
Nov 13
Aug 12
Jan 13
Jun 13
Nov 13
Aug 12
Jan 13
Jun 13
Nov 13
Source: I/B/E/S. 1 November 2013 Notes: All yearends are for December except Australia which is for June. EPS figures are normalized, starting at 100 on base date Feb 2012 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where changes are made for exceptional items. This dashboard aims to show changes in earnings expectations. Countries earnings revisions are in local currencies term whereas APxJ regions earnings revisions is in US $ term
527
Monitoring the trend in sector EPS forecasts (2013 and 2014)

Asia Pacific ex-Japan Consumer Discretionary Consumer Staples Energy
120
110 100 2013 90 80 Feb 12

120 110 100 90 80 Feb 12 2013
115
2014
105 95 85 75 Feb 12
120 110 100 90 80 Feb 12
2014 2013
110 100 90 80 70 Feb 12 2013 2014
105 95 85 75 65 Feb 12
140 130 2014 2013
2014 2013
Aug 12
Jan 13 Jun 13 Financials
Nov 13
Aug 12
Jan 13 Jun 13 Health Care

2014
Nov 13
Aug 12
Jan 13 Jun 13 Industrials
Nov 13
Aug 12 Jan 13 Jun 13 Information Technology
Nov 13
110 100
2014
2013
90 80 70
2014 2013
120 110 100 90 Feb 12
Aug 12
Jan 13 Jun 13 Materials
Nov 13
Aug 12
Jan 13 Jun 13 Telecom
Nov 13
60 Feb 12
Aug 12
Jan 13 Utilities
Jun 13
Nov 13
Aug 12
Jan 13
Jun 13
Nov 13
120 100 2014 80 2013 60 40 Feb 12
110 2014 2013
120 2014
100
110 2013
90
100
Aug 12
Jan 13
Jun 13
Nov 13
80 Feb 12
Aug 12
Jan 13
Jun 13
Nov 13
90 Feb 12
Aug 12
Jan 13
Jun 13
Nov 13
Source: I/B/E/S. 1 November 2013 Notes: All yearends are for December. EPS figures are normalized, starting at 100 on base date Feb 2012 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where changes are made for exceptional items. This dashboard aims to show changes in earnings expectations. Countries earnings revisions are in local currencies term whereas APxJ regions earnings revisions is in US $ term
528
Profit outlook: Earnings forecast matrix for countries and sectors

Weight Asia Pacific ex-Japan
Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Australia Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Hong Kong Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Singapore Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities (%) 100 8.1 6.3 6.1 37.3 2.0 7.8 14.5 9.5 5.2 3.1 Weight (%) 100 1.8 8.9 5.8 51.6 4.3 5.1 0.5 18.6 2.0 1.4 Weight (%) 100 16.4 0.0 0.0 59.1 0.0 10.6 1.4 0.0 1.0 11.5 Weight (%) 100 7.9 5.2 0.0 52.7 0.0 21.0 0.0 0.0 13.3 0.0
J.P. Morgan
Median 9.9 10.6 8.8 2.1 11.0 15.5 5.6 20.6 4.6 9.6 8.6 2013 11.2 4.7 6.3 -7.9 8.7 14.7 -3.6 33.0 16.7 7.5 28.4 2014 12.3 14.7 15.6 13.8 8.8 16.6 24.4 4.1 42.4 6.3 13.5 2014 19.7 NM 9.8 26.8 9.7 13.2 7.3 34.4 64.9 15.4 0.0 2014 7.0 20.5 NA NA 2.6 NA 16.7 33.8 NA 1.0 4.4 2014 11.8 30.7 23.7 NA 6.4 NA 17.5 NA NA 11.6 NA
Consensus
Median 8.0 9.1 5.7 2.8 9.5 15.1 5.8 15.1 0.6 7.8 3.8 2013 8.6 6.5 3.6 -0.2 7.0 13.8 -7.1 33.2 -1.2 5.9 26.6 2014 11.9 13.8 13.1 10.5 8.7 16.2 27.7 11.3 19.1 5.0 14.9 2014 9.3 11.5 7.6 16.7 6.5 12.7 9.4 7.6 15.9 5.4 5.2 2014 9.1 20.8 NA NA 5.6 NA 18.9 NM NA 10.0 4.4 2014 8.6 5.1 15.2 NA 7.6 NA 11.7 NA NA 6.9 NA
Korea Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Taiwan Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities China Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities India Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities
Weight
(%) 100 18.2 4.7 2.3 13.5 0.6 11.9 36.9 9.7 0.9 1.4 Weight (%) 100 4.9 3.0 0.7 17.9 0.1 3.3 53.0 12.2 4.9 0.0 Weight (%) 100 5.7 6.0 14.8 39.2 1.3 6.3 9.2 3.3 11.0 3.3 Weight (%) 100 7.1 10.9 12.4 23.9 7.0 4.1 21.3 6.9 2.7 3.8
J.P. Morgan
Median 6.8 5.7 3.1 13.1 -4.2 0.6 12.4 28.1 0.5 20.5 12.5 2013 12.5 2.8 -1.4 12.4 -18.6 -6.9 -20.8 NM -7.8 100.0 NM 2014 11.0 13.0 15.0 20.6 22.7 37.8 67.2 NM 30.3 25.0 NM
Consensus
Median 3.7 4.6 0.0 5.8 -18.5 0.6 10.3 14.2 1.8 2.4 -33.7 2013 7.9 4.7 -1.6 4.1 -34.0 -6.9 -37.5 33.9 -13.7 80.7 NM 2014 20.0 12.2 14.0 35.1 24.4 37.8 94.8 8.8 39.3 28.3 NM 2014 10.8 12.5 10.0 16.2 5.2 14.4 34.6 11.7 14.5 2.6 NA 2014 9.3 18.6 20.2 5.5 8.9 18.4 14.2 33.5 15.8 0.3 NM 2014 14.8 16.1 21.8 9.1 17.2 18.7 4.3 17.7 16.1 50.8 3.5 Thailand Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Malaysia Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Indonesia Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Philippines Total Market Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities
Weight
(%) 100 4.4 8.3 20.7 39.2 1.4 2.9 0.0 12.1 9.7 1.3 Weight (%) 100 11.0 10.8 5.7 29.2 2.2 12.1 0.0 5.1 12.2 11.5 Weight (%) 100 16.6 13.4 4.1 35.6 2.9 4.1 0.0 6.7 11.4 5.2 Weight (%) 100 5.1 7.3 0.0 42.3 0.0 26.3 0.0 0.0 11.9 7.1
J.P. Morgan
Median 12.2 18.1 1.6 -3.9 19.6 4.5 53.0 NA 15.9 6.2 46.6 2013 12.0 16.6 0.3 7.3 15.4 4.5 53.0 NA 10.0 9.9 46.6 2014 16.6 15.6 58.5 11.3 13.9 15.6 18.0 NA 14.8 47.9 0.4
Consensus
Median 12.2 17.6 2.4 -0.9 15.1 4.5 53.0 NA 21.5 7.3 58.6 2013 12.0 16.5 1.3 2.5 16.3 4.5 53.0 NA 16.5 11.2 58.6 2014 13.6 14.8 51.7 8.0 12.5 15.6 18.0 NA 13.3 29.1 11.5 2014 8.4 11.5 10.0 27.7 7.6 26.3 12.3 NA 3.7 8.3 -0.2
J.P. Morgan Median 2013 10.4 11.9 12.3 -7.0 16.2 13.6 -1.1 -22.9 6.1 12.0 15.6 17.1 7.8 12.9 30.4 30.4 12.7 27.6 11.9 11.9 5.5 35.0 J.P. Morgan Median 2013 5.2 4.3 11.0 19.1 NA NA NA NA 2.2 1.1 NA NA -3.3 4.9 24.0 25.8 NA NA 15.4 12.3 5.7 5.2 J.P. Morgan Median 2013 1.1 -2.1 -0.4 25.6 2.6 -6.9 NA NA 1.0 -0.1 NA NA -3.5 -16.9 NA NA NA NA 4.5 5.0 NA NA
Consensus Median 2013 5.1 2.7 8.7 -5.8 5.3 4.8 1.4 -5.9 5.4 6.7 13.1 14.7 8.3 7.7 8.6 8.6 -2.9 -7.8 9.1 9.1 0.7 2.9 Consensus Median 2013 5.7 10.0 12.6 19.1 NA NA NA NA 4.7 9.7 NA NA -3.3 7.8 28.8 NM NA NA 15.6 12.0 6.7 3.6 Consensus Median 2013 1.7 -2.8 -8.9 -4.7 4.6 -0.4 NA NA 2.2 -0.6 NA NA 0.0 -11.0 NA NA NA NA 2.8 2.7 NA NA
J.P. Morgan Median 2013 2014 18.1 33.3 11.0 23.1 5.0 11.9 14.5 7.4 11.7 863.5 863.5 16.2 25.4 26.2 6.1 33.2 33.2 14.4 7.4 65.0 37.2 16.0 35.7 11.0 26.7 85.3 16.9 7.1 2.9 6.2 NA NA NA J.P. Morgan Median 2013 2014 12.1 9.6 9.3 12.1 24.8 18.6 9.5 0.4 24.7 -4.5 -9.3 9.9 16.3 13.7 8.2 17.2 18.1 15.7 9.4 15.2 8.1 25.1 61.8 27.3 -8.5 2.3 28.1 14.8 3.3 -2.5 NM NM NM J.P. Morgan Median 2013 2014 9.6 9.9 17.0 6.0 3.7 16.4 18.4 25.4 21.0 2.1 2.6 5.6 8.6 9.2 20.7 15.8 17.1 21.0 -0.4 -11.5 5.7 20.0 16.0 15.1 -3.0 13.9 30.0 89.1 56.6 38.3 2.2 7.8 16.1
Consensus Median 2013 16.5 29.4 17.0 3.3 14.5 11.1 863.5 863.5 20.5 17.4 33.2 33.2 7.7 55.9 12.9 31.2 26.7 94.8 7.8 3.5 NA NA Consensus Median 2013 9.9 10.4 9.0 26.0 8.4 1.1 0.1 -1.0 10.9 12.7 24.4 18.7 8.1 9.3 23.6 61.6 -4.6 4.3 16.2 1.7 NM NM Consensus Median 2013 12.3 8.6 11.6 7.9 19.8 24.6 5.1 4.0 13.1 11.7 15.8 18.2 -0.1 -6.8 23.6 19.6 -4.4 -4.2 37.1 39.0 0.4 -4.4
J.P. Morgan Median 2013 2014 4.8 -2.8 9.9 4.4 -16.1 15.0 -5.1 -9.9 5.1 21.8 31.4 26.5 6.6 4.2 8.4 -18.4 -18.4 26.3 11.1 -17.0 17.7 NA NA NA 3.3 6.4 3.0 4.6 4.5 8.8 7.9 11.6 3.6 J.P. Morgan Median 2013 2014 9.6 6.2 10.9 6.7 -7.1 14.7 14.9 11.1 23.9 -35.9 16.9 60.4 18.8 13.3 -3.9 12.8 12.8 19.7 -14.4 -21.8 40.9 NA NA NA 10.4 10.7 11.3 13.8 8.6 17.8 -6.4 -6.4 5.5 J.P. Morgan Median 2013 2014 13.9 8.7 9.6 27.4 27.4 27.5 17.7 17.7 12.1 NA NA NA 21.2 22.4 6.4 NA NA NA 8.7 0.8 9.7 NA NA NA NA NA NA -2.1 7.6 23.8 -12.6 -14.7 -0.6
Consensus Median 2013 3.7 -1.2 4.5 -16.6 -1.2 -7.8 21.2 30.3 6.6 3.2 -18.4 -18.4 -5.9 -5.3 NA NA 5.0 9.4 6.3 11.3 2.3 5.6
Consensus Median 2013 2014 7.2 7.5 14.5 6.7 -7.3 15.8 11.4 8.0 16.7 -33.1 -257.0 105.8 13.8 11.1 11.7 12.8 12.8 19.7 -11.0 -16.2 18.7 NA NA NA 10.4 10.7 11.3 -9.6 12.0 10.4 -15.0 -15.0 8.8 Consensus Median 2013 17.1 10.5 25.0 25.0 17.7 17.7 NA NA 21.4 25.2 NA NA 16.5 4.9 NA NA NA NA 2.0 3.6 -9.8 -13.2 2014 5.9 16.2 12.1 NA 4.5 NA 5.5 NA NA 10.3 1.1
Source: I/B/E/S, MSCI, J.P. Morgan. 8 November 2013. Note: Average earnings growth calculated based on earnings aggregate of MSCI constituents. Consensus numbers are used for stocks not covered by J.P. Morgan under J.P. Morgan forecasts calculation. Median numbers are for the year 2013.
529
Value: Market implied growth rates

Market Implied Earnings Growth 100% Payout Ratio Perpetual 10 year -0.3 -3.5 0.6 -3.4 -1.0 -13.6 -0.3 -2.8 -0.2 -2.2 1.0 -0.5 -0.7 -2.2 0.5 -0.3 2.5 -1.3 -2.8 -5.4 -0.2 0.5 5.6 4.4 3.1 6.0 -3.2 -4.3 1.7 2.0 4.5 5.4 -0.6 -2.8 -1.4 -5.4 0.3 -2.7
Long Term 2012
Global USA Europe Asia Pacific Asia Pacific ex-Japan Pacific x J EMF Asia Japan Australia China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand
Historic Payout Ratio Perpetual 10 year 3.7 3.7 4.7 4.9 2.4 -2.9 4.0 4.2 4.6 4.5 3.4 4.5 5.1 5.3 2.7 3.9 3.8 3.4 4.2 2.7 3.0 6.1 9.9 12.5 7.0 11.9 6.5 6.0 4.4 7.0 7.3 10.7 2.8 2.6 2.2 -0.5 4.4 3.7
2013E 2014E
10 Year Historic Nominal CAGR ( %) EPS GDP 9.2 7.2 8.8 4.3 8.4 5.2 12.7 11.6 9.9 15.7 7.0 13.7 10.8 16.4 16.0 5.0 5.4 14.2 15.3 20.5 8.0 5.5 13.3 15.2 13.4 17.2 10.9 7.9 9.3 13.2 26.7 14.0 10.9 12.8 7.5 5.2 12.2 12.7 P/E Ratio (IBES)
2012 2013E
J.P. Morgan Forecast of 10-year Potential Growth Range EPS (%) Nominal GDP (%) Min Max JPM Consensus 5 10 NA 4.6 4 10 5.4 5.1 5 13 NA 3.0 9 17 5.4 4.2 4 14 9.2 8.5 4 10 6.0 5.7 8 15 9.9 9.2 0 10 2.5 0.8 5 7 6.0 6.0 8 16 11.3 9.4 3 9 6.2 4.6 8 15 11.3 11.8 8 15 12.0 12.4 5 15 7.5 8.0 8 15 7.0 7.8 5 25 10.1 5.7 4 10 5.3 6.5 5 15 6.3 6.0 5 15 8.9 7.8
2014E
10 Year Risk Free Rate (%) 2.3 2.7 1.8 2.6 3.5 3.3 3.6 0.6 4.0 3.6 1.8 7.4 5.8 3.5 3.5 5 2.2 1.3 3.5
Payout Ratio 2012E (%) 39 34 51 37 38 62 30 77 77 32 46 26 41 9 54 45 50 47 43
EPS Growth Forecasts (IBES) Global USA* Europe* Asia Pacific* Asia Pacific ex-Japan Pacific x J EMF Asia Japan* Australia China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand 10.7 11.2 9.2 12.8 11.5 11.2 13.4 15.1 7.8 12.7 11.1 15.7 10.8 14.2 9.2 15.4 9.4 14.3 11.5 2.2 6.3 -3.2 5.0 1.2 -3.8 4.9 -14.0 -4.0 1.0 -11.0 10.1 1.0 7.3 15.7 14.1 7.0 2.5 17.6 6.6 6.6 -2.6 14.7 11.2 3.3 10.7 11.8 11.9 9.6 4.3 9.9 6.2 12.5 -2.8 8.7 -2.1 33.3 12.0 10.8 10.1 12.8 11.8 12.3 9.2 12.9 69.3 19.7 9.3 7.0 17.0 10.9 11.0 9.9 9.6 11.8 11.0 16.6 16.1 17.5 14.4 16.4 14.5 16.4 13.4 27.5 20.2 10.6 17.4 18.9 15.7 10.5 16.9 21.9 14.4 20.0 15.7
15.1 16.4 14.8 14.3 13.1 15.9 12.1 24.6 18.0 9.7 16.7 17.2 14.8 9.3 17.4 20.1 14.8 15.0 14.0
13.7 14.9 13.1 12.8 11.6 14.6 10.7 14.5 15.1 8.9 15.6 14.7 13.3 8.4 15.8 18.4 13.2 13.5 12.0
The objective of this table is to compare current market implied growth with: historical earnings and nominal GDP growth, the long term risk free rate, forecast earnings and nominal GDP growth. We use a dividend discount model based on expected payout ratios for 2011 as well as a modified one, which assumes a 100% payout ratio, compensating for different attitudes towards dividend distribution within Asia. Perpetual Implied Growth Rates based on the Gordon Growth Model: g = r - d/v. Key assumptions: Equity risk premium of 4% Expected payout ratios for 2010 sustained for dividend discount model Terminal PE of 12 for all markets after 10 years Note: Risk free rates are 10-year benchmark or nearest equivalent. EPS historic growth rates based on MSCI data from 2001 to 2011.
Source : Bloomberg, Consensus Economics Inc, Datastream, I/B/E/S, MSCI, J.P. Morgan. Notes: 1. Nominal GDP growth forecast is based on the range of real GDP and inflation rate forecast over the next 10 years provided by Consensus Economics Inc and EIU for Phils, Global, US and Europe. Notes to Earnings growth forecasts:* Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. For all other markets and sectors, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using JPM estimates for covered stocks and I/B/E/S estimates for the rest. Companies with different year ends are calendarized to December yearends and are free float adjusted for aggregation. 10-year CAGR from 20022012. Long term EPS Growth forecast is next 3-5 years IBES EPS growth expectation. 8 November 2013.
530
Value: P/E matrix for countries and sectors and change in key sectors' forward P/E in the past 12 months
New Zealand Asia Pacific ex-Japan Hong Kong 12-month forward PE Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities Market Aggregate Sector Neutral* Philippines 33.3 NA NA 20.1 NA 16.8 NA NA 16.1 13.6 18.6 16.2
China Korea IT China Telecom
Singapore
Indonesia
Australia
Malaysia
9.8 19.8 10.6 11.2 21.6 14.6 10.4 13.5 13.7 13.7 11.8 11.8
19.4 18.2 16.5 14.9 21.9 20.9 22.0 13.7 14.4 15.9 15.4 16.6
19.3 NA NA 15.4 NA 13.6 14.2 NA 18.2 15.7 15.7 15.1
12.3 12.2 NA 13.0 NA 14.5 NA NA 15.2 NA 13.4 12.6
6.6 16.7 9.2 10.0 NA 13.1 8.0 12.2 10.1 NM 8.5 10.0
NM 21.6 27.5 11.4 NA 17.6 12.7 19.3 17.4 NA 13.7 13.7
12.4 24.0 8.9 6.3 17.1 11.7 26.7 10.1 11.3 12.0 9.0 9.5
22.3 31.2 11.0 13.1 21.2 14.6 18.2 10.3 13.2 10.3 15.1 14.3
15.7 21.8 21.2 12.7 NA 15.1 NA 16.0 22.9 15.2 16.0 14.2
14.0 18.1 7.2 13.0 NA 13.4 NA 13.4 13.9 12.4 13.5 12.4
21.1 22.8 9.2 10.8 NA NA NA 12.3 20.4 13.4 12.2 12.4
Thailand
Taiwan
Korea
China
India
15.7 NA NA NA NA 27.1 NA 16.1 12.7 17.6 15.0 13.0
Source: IBES, MSCI, J.P. Morgan. Note: P/Es are derived from bottom-up calculations of each individual MSCI constituents using J.P. Morgan estimates for covered stocks and IBES estimates for the rest..
Re/De-rating for Asia Pacific ex-Japan hindsight sectors

4
-2
Korea Cons Discr
Hong Kong Cons Discr
Australia
Malaysia
Taiwan
China Cons Discr
China IT
Thailand
India IT
India
Indonesia
Taiwan IT
Australia Financials
China Cons Staples
Australia Cons Staples
Hong Kong Financials
Singapore Financials
Australia Industrials
Malaysia Financials
Hong Kong Utilities
Philippines
Taiwan Financials
Taiwan Materials
Korea Materials
Korea
China Industrials
Korea Financials
New Zealand
Australia Materials
Australia Energy
Korea Industrials
Hong Kong
Singapore
Hong Kong Industrials
Singapore Industrials
China Financials
India Financials
Source: IBES, MSCI. Note: Above chart shows change in 12-month forward P/E estimates in past one year, positive change indicates rerating and negative change indicates de-rating of PE. *Sector neutral P/Es are calculated by using sector weights of MSCI APXJ and sector P/E of respective markets (MSCI APXJ sector P/E used where country sector does not exist) 8 November 2013.
China Energy
India Energy
531
Value: Distribution tables for P/E, P/BV, DY and RoE

2013E: Price to Earnings Ratio (x) Weighted Average 15.1 16.4 14.8 24.6 13.1 18.0 9.7 16.7 17.2 14.8 9.3 17.4 20.1 14.8 15.0 14.0 Min 2.1 2.1 5.9 6.2 3.5 7.0 3.5 8.8 4.1 6.5 6.3 10.8 9.9 9.4 4.8 8.3 Lower 12.8 14.1 13.2 13.8 11.6 15.8 8.7 13.3 9.8 13.2 10.3 14.4 14.4 12.7 12.1 12.0 Quartiles Median 16.8 17.9 16.6 18.1 15.6 18.7 12.4 17.0 17.6 15.3 13.7 18.8 17.9 15.0 15.1 16.4 Higher 21.8 22.7 20.5 23.3 21.8 22.7 17.7 22.2 28.6 20.7 19.4 24.2 27.3 20.6 21.6 28.0 Max 470 470 328 226 255 101 94.4 140 255 42.4 54.9 51.9 42.0 35.9 67.3 39.8 2013E: Price to Book Value Ratio (x) Average 1.8 2.2 1.6 1.2 1.6 2.1 1.5 1.3 2.6 3.0 1.2 2.3 3.0 1.5 1.7 1.8 Min 0.1 0.4 0.4 0.5 0.1 0.5 0.5 0.5 0.4 0.6 0.4 1.0 1.3 0.6 0.5 0.1 Lower 1.1 1.6 1.2 1.0 1.1 1.2 1.0 0.7 1.0 2.3 0.8 1.6 2.6 1.1 1.2 1.5 Quartiles Median 1.9 2.5 1.9 1.4 1.6 1.9 1.4 1.1 2.4 3.0 1.2 2.1 2.9 1.3 1.6 2.1 Higher 3.2 4.2 3.2 1.8 2.8 2.8 2.1 2.4 4.8 4.0 1.6 2.9 4.1 2.0 2.6 4.8 Max 45 42 29 15.7 45 13.4 10.9 19.8 35.9 42.2 12.1 45.5 8.1 8.5 11.8 25.0
Global USA Europe Japan Asia Pacific ex-Japan Australia China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand
2013E: Dividend Yield (%) Weighted Average 2.7 2.2 3.7 2.1 2.9 4.2 3.3 2.8 1.5 2.8 0.9 3.1 2.2 3.4 3.1 3.1 Min 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.0 0.0 0.5 0.7 0.0 0.0 Quartiles Lower Median 1.2 2.1 0.5 1.7 1.9 2.9 1.1 1.6 1.3 2.4 2.8 4.1 1.2 2.3 2.5 3.2 0.7 1.3 1.6 2.4 0.6 1.1 1.9 2.6 1.2 1.7 2.2 3.2 2.1 3.2 1.7 2.8 Higher 3.5 2.8 4.3 2.2 3.8 5.0 3.8 3.9 2.4 3.0 1.8 3.7 2.3 4.0 4.6 3.6 Max 17.7 17.7 15.2 4.9 11.1 7.4 7.8 6.1 5.5 11.1 5.8 6.7 6.4 8.2 10.7 5.3
2013E: Return on Equity (%) Average 12.8 14.8 11.6 5.4 13.0 11.8 15.7 8.2 15.7 21.6 14.1 13.3 15.9 10.2 12.1 13.5 Min -113 0.5 0.6 0.4 -113 -26 -8.0 0.5 -0.9 2.6 -61.7 3.7 8.6 2.5 -4.2 -112.6 Lower 7.5 9.3 8.0 5.1 7.0 6.5 8.5 4.6 10.2 13.4 5.4 9.8 11.7 5.8 7.8 11.7 Quartiles Median 12.0 14.6 12.7 7.6 12.1 9.3 12.9 8.4 15.8 19.8 7.8 12.6 15.5 8.8 11.6 16.2 Higher 18.2 21.1 18.5 10.2 17.7 16.2 17.0 16.3 21.6 24.4 12.6 15.0 19.6 15.0 18.0 19.3 Max 297 297 175 95 185 93 37 89 98 104 31 185 25 40 43 128
Source: Datastream, IBES, MSCI, J.P. Morgan. 8 November 2013. Note: Weighted average numbers based on aggregate of MSCI constituents. Consensus numbers are used for stocks not covered by J.P. Morgan.
532
Demand classification: MSCI Asia Pacific ex-Japan Index Composition by country

New Zealand Hong Kong Philippines Singapore Indonesia Australia Malaysia Korea China MSCI AC Asia Pacific ex-Japan Weightings (%) Thailand Taiwan Total 63.4 8.8 10.4 17.5 100.0 India 3.2 1.2 0.0 1.3 5.8
Domestic Demand Global Capex Global Consumer Global Price Takers TOTAL
18.3 0.2 0.2 7.6 26.3
14.6 0.3 0.3 2.8 18.0
6.7 0.1 1.8 0.8 9.4
2.2 0.0 0.1 0.1 2.3
5.5 3.1 4.9 1.6 15.1
2.7 0.2 0.1 0.7 3.7
0.3 0.0 0.0 0.1 0.4
0.8 0.0 0.0 0.1 0.9
3.6 0.9 0.0 0.6 5.0
3.8 2.9 2.9 1.2 10.9
1.8 0.0 0.0 0.5 2.4
APXJ Domestic Demand Sector Absolute and relative (vs APxJ) Index
450 400 350 300 250 200 150 100 50 0 Jan 90 Oct 96 Jul 03 Apr 10
APXJ Global Capex Sector Absolute and relative (vs APxJ) Index
115 105 95 85
1200 1000 800 600 400 500 450 400 350 300 250 200 150 100 50 Sep 96 May 03 Jan 10 0
Relative to APxJ (rhs)
Absolute (lhs)
75 65 55 45
200 0 Jan 90
Absolute (lhs)
APxJ Global Consumer Sector Absolute and relative (vs APxJ) Index
900 800 700 600 500 400 300 200 100 0 Jan 90 Nov 96 Sep 03 Jul 10 325 300 275 250 225 200 175 150 125 100 75 50 25
800 700 600 500 400 300 200 100 0 Jan 90
APxJ Global Price Taker Sector Absolute and relative (vs APxJ) Index
Relative to APxJ (rhs)
200 175 150 125 100 75
Absolute (lhs)
Absolute (lhs)
50 25
Sep 96
May 03
Jan 10
Source: MSCI, J.P. Morgan. 8 November 2013. Datastream, MSCI. J.P. Morgan. MSCI Asia Pacific ex Japan companies has been classified in five categories, Global Price takers, Global Capex, Global Consumer, Global Consumer/Capex and Domestic Demand. Of the five
categories, In Global Consumer/Capex (Tech-Hardware) weighting is equally divided between Global consumer and Global Capex. The above table contains MSCI free float market capitalization as a percentage of MSCI APxJ market cap. Charts show the absolute and relative performance of Asia Pacific ex Japan sectors by demand classification.
533
Economic forecasts: Changes in real GDP forecasts

Real GDP Growth (% Y/Y) J.P. Morgan Consensus 2013E 2014E 2013E 2014E 1.6 2.4 1.6 2.6 (0.4) 1.2 (0.3) 1.0 1.8 1.5 1.9 1.6 2.4 2.7 2.5 2.7 2.6 2.8 2.7 3.0 7.6 7.4 7.6 7.4 3.1 3.3 3.0 3.5 4.1 5.0 5.1 4.7 5.5 4.9 5.7 5.7 2.8 3.7 2.7 3.5 3.3 5.7 4.5 5.0 7.1 5.6 7.0 6.0 3.4 3.8 2.7 3.7 1.8 3.1 2.3 3.5 2.6 3.0 4.0 4.5 Change in Forecasts Past 3 months (%) J.P. Morgan Consensus 2013E 2014E 2013E 2014E 0.1 0.0 (0.2) (0.1) 0.2 0.0 0.3 0.0 (0.4) 0.1 0.1 0.2 (0.1) (0.0) (0.0) (0.1) 0.1 (0.0) 0.1 0.1 0.2 0.2 0.2 (0.1) (0.2) (0.3) 0.0 (0.0) (1.0) (0.8) (0.6) (1.0) (0.1) (0.5) (0.3) (0.5) 0.1 0.0 0.2 0.0 (1.8) 0.4 (0.5) (0.2) (0.1) (0.2) 0.8 0.2 (0.4) (0.7) 0.4 (0.3) (0.2) (0.5) (0.5) (0.4) (1.0) (1.6) (0.6) (0.5) Economic Momentum GDP SAAR 2Q13E 3Q13E 4Q13E 2.5 2.8 1.5 1.1 0.4 1.0 3.8 1.5 3.8 2.4 1.9 1.7 0.7 3.6 3.0 6.9 9.1 7.8 3.2 3.8 4.0 3.1 3.0 4.5 5.5 5.0 4.5 4.5 4.3 3.8 7.1 5.5 5.5 5.7 4.9 5.7 15.5 (0.8) 4.5 2.3 0.4 3.5 (1.4) 2.6 3.5 US Consensus Economic Forecasts
3.5
2013E 2014E
Inflation (% Y/Y) 2013E 1.5 1.4 0.2 2.2 1.1 2.7 4.4 9.6 6.9 1.2 2.1 2.9 2.4 1.0 2.3 2014E 1.5 0.9 2.5 2.3 2.2 3.5 3.7 8.4 6.0 2.2 2.5 3.4 2.6 2.1 2.8
US Euro Japan Australia New Zealand China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand
Change in Consensus Forecasts for 2013 GDP over last 3 months (%)
Philippines Singapore Euro China Korea New Zealand Japan Hong Kong Australia US Indonesia Taiwan Malaysia India Thailand -1.0 -0.5 0.0 0.5 1.0
Current J.P. Morgan vs. Consensus Forecasts for 2013 GDP (%)
Singapore Korea Hong Kong Philippines US China New Zealand Japan Australia Euro Indonesia Taiwan India Malaysia Thailand -1.4 -1.0 -0.6 -0.2 0.2 0.6 1.0
3.0
2.5
2.0
1.5 Mar 12
Sep 12
Apr 13
Nov 13
Source: Datastream, Bloomberg, J.P. Morgan estimates. 8 November 2013.
534
Economic forecasts: Currency movements and forecasts

Euro (EUR)
1.66 1.56 1.46 J.P. Morgan 1.36 1.26 1.16 Sep 04 Consensus Forward Sep 06 Sep 08 Sep 10 Sep 12 Sep 14
Japanese Yen (JPY)

125 120 115 110 105 100 95 J.P. Morgan forecast: end Dec 13: 100 90 end Mar 14: 102 85 end Jun 14: 102 80 75 70 65 Sep-04 Sep-06 Sep-08
1.15
Australian Dollar (AUD)

J.P. Morgan
Singapore Dollar (SGD)

J.P. Morgan
J.P. Morgan forecast: end Dec 13: 1.37 end Mar 14: 1.33 end Jun 14: 1.32
1.05 0.95 0.85
1.70 1.60
Consensus Forward
1.50 1.40 1.30 1.20 J.P. Morgan Sep 06 Sep 08 Sep 10 Sep 12 Sep 14 Forward Consensus
Consensus Forward
0.75 0.65 0.55 Sep 04 Sep 06 Sep 08 Sep 10 Sep 12
Sep-10
Sep-12
Sep-14
Sep 14
1.10 Sep 04
Taiwan NT$ (NTD)

37 36 35 34 33 32 31 30 29 28 27 Sep 04 Sep 06 Sep 08 Sep 10 Sep 12 Consensus Sep 14 Forward
South Korea Won (KRW)

1,600 1,500 1,400 J.P. Morgan 1,300 1,200 1,100 1,000 900 Sep 04 Sep 06 Sep 08 Sep 10 Sep 12 Consensus
Thai Baht (THB)

43 41 39
Indian Rupee (INR)

64 61 58 55 52
J.P. Morgan Forward
J.P. Morgan forecast: eend Dec 13: 29.50 end Mar 14: 29.40 end Jun 14: 29.40
J. P. Morgan forecast: end Dec 13: 1060 end Mar 14: 1055 end Jun 14: 1050
J.P. Morgan forecast: end Dec 13: 30.80 end Mar 14: 32.00 end Jun14: 32.50
Forward
J.P. Morgan
37 35
Consensus J.P. Morgan
Forward
33 31 29 27 Sep 04 Sep 06 Sep 08 Sep 10
49 46 43 40 37 Sep 04
Consensus Sep 12 Sep 14
Sep 14
Sep 06
Sep 08
Sep 10
Sep 12
Sep 14
Malaysian Ringgit (MYR)

3.75
8.3 7.9
Chinese Yuan (CNY)

14,000 13,000 12,000
Indonesian Rupiah (IDR)

57
Philippine Peso (PHP)

54
Forward
3.50
J.P. Morgan
7.5 7.1 6.7
J.P. Morgan forecast: end Dec 13: 11200 end Mar 14: 11800 end Jun 14: 11800
51 48
3.25
3.00
J.P. Morgan forecast: end Dec 13: 6.10 end Mar 14: 6.08 end Jun14: 6.05
11,000
J.P. Morgan Forward Consensus

10,000 9,000 8,000 Sep 04
J.P. Morgan Consensus
45 42 39
Forward
Consensus Forward Sep 08 Sep 10 Sep 12 Sep 14
6.3 5.9 Sep 04
2.75 Sep 04
Consensus J.P. Morgan Sep 08 Sep 10 Sep 12 Sep 14
Sep 06
Sep 06
Sep 08
Sep 10
Sep 12
Sep 14
Sep 06
Sep 08
Sep 10
Sep 12
Sep 14
36 Sep 04
Sep 06
Expected gains vs. USD from 12-month forwards

JAPAYE$ MYR THABAH$ AUSTDO$ TAIWDO$ HKD SINGDO$ CNY PHILPE$ KORSWO$ INDORU$ INDRUP$ J.P. Morgan Consensus
-8%
-4%
0%
4%
8%
12%
Source: Bloomberg, Datastream, J.P. Morgan estimates. 8 November 2013.
535
Economic forecasts: Interest rate trend and forecasts

Policy Rate Country USA UK EU Japan Australia China Hong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Fed Funds 3-month 10-year Repo rate 3-month 10-year Refi rate 3-month 10-year O/n call rate 3-month 10-year Cash Rate 3-month 10-year 1-yr working capital 7-day repo 10-year Discount window 3-month 10-year Repo rate 3-month 10-year BI rate 3-month 10-year O/n call rate 3-month 10-year O/N call rate 3-month 10-year Reverse repo rate 3-month 10-year No policy rate 3-month 10-year Official discount rate 3-month 10-year 1-day repo rate 3-month 10-year 4Q'12 0.125 0.26 1.80 0.50 0.52 2.00 0.75 0.18 1.55 0.05 0.10 0.75 3.00 3.24 2.90 6.00 2.75 3.10 0.50 0.30 0.75 8.00 7.75 7.75 5.75 5.80 2.75 3.00 3.15 3.00 3.10 3.25 3.50 2.00 4.75 n.a. 0.60 0.90 1.88 0.80 1.00 2.75 2.90 3.00 1Q'13 0.125 0.28 1.85 0.50 0.51 1.76 0.75 0.22 1.29 0.05 0.16 0.56 3.00 3.18 3.52 6.00 3.02 3.59 0.50 0.14 1.12 7.50 7.96 7.96 5.75 6.37 5.58 2.75 2.81 2.58 3.00 3.16 3.45 3.50 0.41 3.29 n.a. 0.32 1.54 1.88 0.88 1.31 2.75 2.86 3.51 2Q'13 0.125 0.27 2.51 0.50 0.51 2.41 0.50 0.20 1.74 0.05 0.15 0.87 2.75 2.51 3.64 6.00 3.02 3.61 0.50 0.13 1.93 7.25 7.58 7.40 6.00 6.37 7.16 2.50 2.70 3.32 3.00 3.17 3.58 3.50 0.65 4.25 n.a. 0.32 2.43 1.88 0.88 1.42 2.50 2.60 3.73 3Q'13 0.125 0.25 2.62 0.50 0.52 2.72 0.50 0.22 1.76 0.05 0.15 0.69 2.50 2.15 3.86 6.00 3.02 4.07 0.50 0.17 2.15 7.50 10.17 7.40 7.25 6.37 8.54 2.50 2.66 3.06 3.00 3.16 3.75 3.50 0.21 3.84 n.a. 0.32 2.36 1.88 0.88 1.71 2.50 2.61 3.89 Current 0.125 0.24 2.74 0.50 0.52 2.77 0.25 0.23 1.74 0.05 0.14 0.60 2.50 2.44 4.04 6.00 3.02 4.25 0.50 0.17 1.79 7.75 8.89 7.40 7.25 6.37 8.26 2.50 2.65 3.14 3.00 3.16 3.71 3.50 0.09 3.65 n.a. 0.34 2.21 1.88 0.88 1.70 2.50 2.61 3.94 4Q'13F 0.125 0.25 2.60 0.50 0.50 2.90 0.25 0.20 1.60 0.05 0.11 0.70 2.50 n.a. 4.05 6.00 3.50 3.60 0.50 0.25 0.65 7.75 8.15 8.75 7.50 9.00 2.50 2.65 3.60 3.00 3.21 4.15 3.50 0.00 3.90 n.a. 2.60 1.88 1.00 2.75 2.50 2.60 4.20 1Q'14F 0.125 0.25 2.85 0.50 0.50 3.00 0.25 0.20 1.70 0.05 0.12 0.75 2.25 n.a. 4.20 6.00 3.50 3.60 0.50 0.25 0.65 8.00 8.15 8.75 7.75 9.00 2.50 2.65 3.60 3.00 3.21 4.15 3.50 0.00 3.90 n.a. 2.60 1.88 1.00 2.75 2.50 2.60 4.20 2Q'14F 0.125 0.30 3.10 0.50 0.60 3.15 0.25 0.22 1.90 0.05 0.14 0.80 2.25 n.a. 4.40 6.00 3.75 3.65 0.50 0.25 0.70 8.00 8.15 8.60 8.00 9.25 2.50 2.65 3.70 3.00 3.21 4.25 3.50 0.00 4.20 n.a. 2.90 1.88 1.25 2.75 2.50 2.60 4.30 3Q'14F 0.125 0.40 3.30 0.50 0.60 3.35 0.25 0.22 2.10 0.05 0.14 0.90 2.25 n.a. 4.50 6.00 3.75 3.70 0.50 0.25 0.75 8.00 8.15 8.40 8.00 9.50 2.50 2.65 3.80 3.00 3.21 4.35 3.50 0.00 4.30 n.a. 3.20 1.88 1.25 3.00 2.50 2.60 4.40 Last Change 16 Dec 08 (-87.5bp) 5 Mar 09 (-50bp) 7 Nov 13 (-25bp) 5 Oct 10 (-5bp) 6 Aug 13 (-25bp) 7 Jul 12 (-31bp) 17 Dec 08 (-100bp) 29 Oct 13 (+25bp) 12 Sep 13 (+25bp) 9 May 13 (-25bp) 5 May 11 (+25bp) 25 Oct 12 (-25bp) n.a. 30 Jun 11 (+12.5bp) 29 May 13 (-25bp) Next Change On hold On hold On hold On hold Mar 14 (-25bp) On hold On hold
Change in policy rates

India China Japan HK Malaysia Taiwan Thailand Korea UK Indonesia EU Australia Philippines USA -500
Change from 05-07 avg Forecast change till 4Q13
-400
-300
-200
-100
100
200
Asia ex Japan policy rate

1Q 14 (+25bp) 12 Nov 13 (+25bp) 4Q 14 (+25bp) On hold On hold n.a. 4Q 14 (+12.5bp) On hold
14 12 10 8 6 4 2 0 -2 98 02 07 12 Real Rate Nominal rate
Source: Datastream, Bloomberg, J.P. Morgan Economics. Bold figures on next change column indicate tightening. *. 8 November 2013.
536
Perspective: Asian balance sheets

Japan Australia China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Debt/Equity 0.90 0.49 0.59 0.35 0.80 0.38 0.29 0.61 0.82 0.48 0.30 0.79 Debt/Assets 0.32 0.24 0.26 0.23 0.32 0.22 0.17 0.30 0.36 0.26 0.17 0.35 Debt/Mkt. Cap 0.85 0.29 0.75 0.30 0.30 0.08 0.25 0.31 0.23 0.48 0.15 0.26 Asset Turnover 0.75 0.62 0.87 0.20 0.76 0.90 0.94 0.50 0.43 0.47 1.07 1.23 Current Ratio 1.33 1.10 1.05 1.95 1.30 1.54 1.25 1.75 1.49 1.62 1.21 1.27 Interest Coverage 9.02 10.72 9.94 6.40 6.46 14.01 11.35 6.83 4.42 6.44 15.97 9.37 Altman Z Score 3.3 3.3 2.8 3.3 5.1 8.3 4.4 5.2 3.2 2.7 4.7 6.1
Debt to Equity Ratios Distribution Chart (x)

4.0
Altman Z-Score Bankruptcy-Predictor Distribution Chart

8 7
3.0
6 5
2.0
4 3
1.0
2 1
0.0
0 -1
Source: Datastream, Bloomberg, J.P. Morgan. Data as of 31 January 2013 Note: All ratios are calculated from latest financial reports available ex Banks, Diversified financials and Insurance sectors and calculations are based on weighted average of companies in MSCI Asia Pacific universe. Each box indicates quartile levels and markets with values exceeding the scale are indicated by the open-ended top box. The diamond indicates weighted average for each market. The 3 horizontal lines on the Altman z-score chart are at 1.8, 2.7 and 3.0. Companies with scores of less than 1.8 indicates bankruptcy likely, between 1.8-2.7 bankruptcy likely within 2 years and more than 3 most likely safe from bankruptcy.
537
Perspective: Demographic and key economic statistics

Population and demographics Population*** Gross Age Secondary Dependency Growth School 2012 Ratio %YoY Enrollment (%)2 million 127 -0.4 0.5 102 1,354 0.5 0.4 73 1,249 1.4 0.6 54 23 1.2 0.5 149 49 0.1 0.4 91 245 1.2 0.5 64 23 0.3 0.4 na 69 0.6 0.4 77 29 2.0 0.6 76 7 0.7 0.4 85 5 1.0 0.3 74 97 1.8 0.6 86 4 1.1 0.5 118 3,155 1.0 External (2012) Foreign reserves * (US$bil) Japan Australia New Zealand China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand 1210 28 14 3663 310 254 97 343 132 83 272 416 163 Current account %GDP 1.1 -3.7 -4.8 2.4 1.3 -4.8 -2.6 3.7 6.1 2.8 18.8 10.5 0.8 External debt (US$bil) na na na 800 na 390 253 422 65 67 na 94 90 % GDP na na na 9.7 na 21.0 28.8 36.9 21.2 26.9 na 19.8 24.7 Fiscal deficit 2012 %GDP -9.1 -1.4 -5.5 -2.0 -0.2 -5.5 -1.8 1.5 -4.7 -2.5 5.0 -2.0 -3.5 2013E %GDP -7.8 0.4 -2.8 -1.7 1.2 -5.4 -1.9 1.9 -5.2 -1.8 5.0 -1.3 -4.1 Nominal GDP 2012 US$ billion 6,395 9,358 2,090 1,605 1,234 955 501 414 329 280 301 286 157 17,509 Per capita ($) (US$) 50,226 6,911 1,673 69,726 25,206 3,895 21,478 5,997 11,165 38,851 57,507 2,960 35,156 5,549 10 year CAGR** Total (%) 5.0 20.5 15.2 14.2 7.9 17.2 5.2 12.7 13.2 5.5 12.8 14.0 10.0 15.7 Per capita (%) 5.0 19.8 13.5 12.5 7.6 15.9 4.8 12.0 11.1 4.8 9.8 12.0 8.7 14.6 10 year CAGR** Total (%) 0.8 10.4 8.1 3.0 3.6 5.7 4.0 4.2 5.1 4.5 6.0 5.1 2.0 Real GDP Personal Disposable Income 10 year (%) 0.0 12.6 12.8 5.7 8.7 na 4.4 na 8.4 na na 11.5 2.4 YoY % (%) -0.2 10.0 12.0 4.7 7.9 na 2.8 na 13.0 4.4 na 12.0 2.7 Per capita (%) 0.8 9.9 6.5 1.5 3.3 4.5 3.7 3.5 3.2 3.8 3.3 3.3 0.8
Japan China India Australia Korea Indonesia Taiwan Thailand Malaysia Hong Kong Singapore Philippines New Zealand MSCI APxJ
Fiscal Position Public sector Debt 2012 %GDP 219 30.9 52.0 18.6 na 46.1 28.1 33.9 54.1 45.6 na na 37.4 2013E %GDP 224 30.1 51.4 15.9 na 45.3 25.9 31.8 55.0 44.1 na na 39.3 Public sector debt Region North America Developed Europe Asia Australia China Japan CEEMEA LatAm Others Global
Asia in the World 2012 Population GDP % total % total 5.0% 7.5% 49.4% 0.3% 19.5% 1.8% 4.9% 6.9% 26.2% 100.0% 24.5% 24.9% 31.4% 2.0% 12.2% 8.4% 6.9% 7.0% 5.0% 100.0% Nov 2013 Market Cap. % MSCI 51.0% 23.6% 20.2% 3.0% 2.1% 7.7% 2.3% 2.9% 0.0% 100%
Source: CEIC, Datastream, MSCI, World Bank, UNESCO, CIA, US Bureau of Statistics, IMF, J.P. Morgan estimates. 8 November 2013. Notes: Age dependency ratio defined as dependents to working-age population. Data for Gross secondary enrollment as of 2004 except for Singapore, Malaysia (2003) *Foreign reserves as of October 2013 or as of latest data available. **10-year CAGR for period 2002-2012, in local currency. *** Population data based on IMF
538
Perspective: MSCI Asia Pacific ex-Japan Index Composition by country and sector681 Companies, US$6,795 billion total market capitalization
New Zealand Hong Kong Philippines Singapore Indonesia Australia Malaysia Thailand Taiwan Korea China Total 8.1 6.3 6.1 37.4 2.1 7.8 14.4 9.4 5.2 3.2 100.0 8.0 5.0 6.4 39.1 2.0 6.3 15.4 9.9 5.6 2.3 100.0 Total
539
MSCI AC Asia Pacific ex-Japan Weightings (%) Consumer Discretionary Consumer Staples Energy Financials Health care Industrials Information Technology Materials Telecommunication Services Utilities TOTAL
0.5 2.4 1.5 13.6 1.1 1.3 0.1 4.9 0.5 0.4 26.3
1.0 1.1 2.7 7.1 0.2 1.1 1.7 0.6 2.0 0.6 18.0
2.8 0.7 0.3 2.1 0.1 1.8 5.5 1.5 0.1 0.2 15.1
0.5 0.3 0.1 2.0 0.0 0.4 5.7 1.3 0.5 10.9
1.5
India 0.4 0.6 0.7 1.4 0.4 0.2 1.2 0.4 0.2 0.2 5.8
0.4 0.3 2.6 1.0
5.5 1.0 0.1 0.1 1.1 9.4
0.4 0.4 0.2 1.1 0.1 0.4 0.2 0.4 0.4 3.7
0.4 0.3 0.1 0.8 0.1 0.1 0.2 0.3 0.1 2.3
0.1 0.2 0.5 0.9 0.0 0.1 0.3 0.2 0.0 2.4
0.0
0.0 0.1 0.4
0.1 0.1 0.1 0.0 0.4
0.2
0.7 5.0
0.1 0.1 0.9
Composition by country and sector - Daily turnover > US$5 million

Hong Kong Singapore Australia Malaysia Taiwan Korea China India
525 Companies, US$6203 billion total market capitalization
New Zealand
MSCI AC Asia Pacific ex-Japan Weightings (%) Consumer Discretionary Consumer Staples Energy Financials Health care Industrials Information Technology Materials Telecommunication Services Utilities TOTAL
0.5 1.5 1.7 14.8 1.2 1.5 0.1 5.3 0.6 0.4 27.6
1.0 1.1 2.9 7.4 0.2 1.0 1.8 0.5 2.2 18.0
3.0 0.7 0.4 2.0 0.1 1.9 6.0 1.6 0.1 0.2 16.1
0.3 0.3 1.7 0.0 0.2 6.1 1.4 0.6 10.7
1.5
5.9 1.0 0.1 0.0 1.2 9.7
0.4 0.6 0.7 1.4 0.4 0.2 1.3 0.4 0.2 0.2 5.9
0.4 0.3 2.7
0.2 0.1 0.1 1.0 0.3 0.2 0.5 0.3 2.7
0.4 0.2 0.0 0.8 0.1
0.1 0.2 0.5 1.0 0.0 0.1 0.2 0.2 2.4
0.1
0.7 4.2
0.2 0.2 0.1 2.1
0.2 0.1 0.3
Source: MSCI, J.P. Morgan. Note: Overweight (green shading/ light shading in B&W) and underweight (red shading/ dark shading in B&W) sectors in countries is from the perspective of the regional strategy team, not country. The country recommendation is also
shown with green and red shading. 12 November 2013
Philippines 0.3 0.1 0.1 0.4
Indonesia
Thailand
Top Picks
21Vianet Group Inc..................................................................................................172 AIA Group Ltd.........................................................................................................174 Air China H ...........................................................................................................176 Anton Oilfield Services Group ................................................................................178 Anxin-China Holdings .............................................................................................180 ASE ..........................................................................................................................182 Ayala Corporation....................................................................................................184 Ayala Land ...............................................................................................................186 BEC World Public Co Ltd .......................................................................................188 Beijing Enterprises Water ........................................................................................190 Brambles Limited ....................................................................................................192 Brilliance China Automotive ...................................................................................196 Buru Energy .............................................................................................................198 Cairn India Limited ..................................................................................................200 Cathay Financial Holdings .......................................................................................202 Cheung Kong Holdings............................................................................................204 China Construction Bank .........................................................................................208 China Longyuan Power Group Corp. ......................................................................210 China Mengniu Dairy Co. Ltd. ................................................................................212 China Overseas Land & Investment ........................................................................214 China Resources Power Holdings ............................................................................216 China Shenhua Energy - H ......................................................................................218 China State Construction .........................................................................................220 Chow Tai Fook Jewellery Company Ltd. ................................................................222 CJ O Shopping .........................................................................................................224 Coca-Cola Amatil ....................................................................................................226 CP All Pcl ................................................................................................................230 Crown Limited .........................................................................................................232 CSPC Pharmaceutical ..............................................................................................236 DLF Limited ............................................................................................................238 Dr. Reddy's Laboratories Limited ............................................................................240 Evergreen Marine Corp Taiwan Ltd ........................................................................242 Ezion Holdings Ltd ..................................................................................................244 Fortescue Metals Group Ltd ....................................................................................246 Fosun Pharmaceutical-H ..........................................................................................248 Gamuda ....................................................................................................................250 Geely Automobile Holdings Ltd. .............................................................................252 Genting Plantations ..................................................................................................254 Global Logistic Properties Ltd .................................................................................256 Golden Agri-Resources Ltd .....................................................................................258 Guangzhou Automobile Group Co. Ltd. ..................................................................260 HCL-Technologies ...................................................................................................262 Hiwin .......................................................................................................................264 Hollysys Automation Technologies Ltd. .................................................................266
540
HSBC Holdings plc .................................................................................................268 Hyundai Development Company .............................................................................270 Hyundai Mipo Dockyard .........................................................................................272 Hyundai Motor Company ........................................................................................274 ICICI Bank ...............................................................................................................276 Indofood ...................................................................................................................278 Infosys......................................................................................................................280 Jardine Cycle & Carriage Ltd ..................................................................................282 Jiangxi Copper - H ...................................................................................................284 KASIKORNBANK .................................................................................................286 KB Financial Group .................................................................................................288 Keppel Corporation..................................................................................................290 Krung Thai Bank .....................................................................................................292 M1 ............................................................................................................................294 Makalot Industrial Co. Ltd. ......................................................................................296 Metro Pacific Investments Corp. .............................................................................298 MGM China Holdings Ltd .......................................................................................300 MNC Sky Vision tbk ...............................................................................................302 Naver........................................................................................................................304 Nidec (6594) ............................................................................................................306 Pacific Basin Shipping .............................................................................................308 PCCW Limited ........................................................................................................310 PetroChina ...............................................................................................................312 Ping An Insurance Group - H ..................................................................................314 PT Aneka Tambang Tbk ..........................................................................................316 PT Telekomunikasi Indonesia Tbk ..........................................................................318 Puregold Price Club .................................................................................................320 Qihoo 360 Technology Co. Ltd ...............................................................................322 Reliance Industries Ltd ............................................................................................324 ResMed Inc ..............................................................................................................326 Rio Tinto Limited ....................................................................................................328 Sa Sa International Holdings Limited ......................................................................330 Samsung Card ..........................................................................................................332 Samsung Fire & Marine Insurance ..........................................................................334 Sands China Ltd .......................................................................................................336 Sapphire Technology ...............................................................................................340 SapuraKencana Petroleum Bhd ...............................................................................342 Seoul Semiconductor ...............................................................................................344 Sesa Sterlite..............................................................................................................346 Siam Cement ............................................................................................................348 Siam Commercial Bank ...........................................................................................350 Sims Metal Management Ltd ...................................................................................352 Singapore Airlines ...................................................................................................354 Sinopec Corp - H .....................................................................................................356 Sinopec Engineering Group .....................................................................................358 Sinopec Shanghai Petrochemical .............................................................................360
541
SK Hynix .................................................................................................................362 SK Innovation Co Ltd ..............................................................................................364 Tata Motors ..............................................................................................................366 Tata Steel Ltd ...........................................................................................................368 TCL Communication Technology ...........................................................................370 Techtronic Industries ...............................................................................................372 Tenaga Nasional Bhd ...............................................................................................374 Tencent ....................................................................................................................376 Thai Union Frozen Products ....................................................................................378 Top Glove Corporation ............................................................................................380 TSMC ......................................................................................................................382 United Tractors ........................................................................................................384 Weichai Power .........................................................................................................386 Wipro Ltd.................................................................................................................388 Xinyi Glass ..............................................................................................................390
542
Stocks to Avoid
AAC Technologies Holdings ...................................................................................394 Aboitiz Power ..........................................................................................................396 Adani Power ............................................................................................................398 ALS Limited ............................................................................................................400 Aluminum Corporation of China - H .......................................................................402 Aquila Resources Ltd ...............................................................................................404 Bank of East Asia ....................................................................................................406 Beach Energy Ltd. ...................................................................................................408 Belle International Holdings Ltd..............................................................................410 Big C Supercenter Pcl ..............................................................................................412 Chailease Holding ....................................................................................................414 Cheng Shin Rubber Industry Co., Ltd......................................................................416 China Coal Energy - H .............................................................................................418 China Rongsheng Heavy Industries Group Holdings Ltd ........................................420 China Shineway Pharmaceutical Group Limited .....................................................422 China Vanke ............................................................................................................424 CJ Cheiljedang .........................................................................................................426 CLP Holdings ..........................................................................................................428 Coal India.................................................................................................................430 Cochlear Limited .....................................................................................................432 Colgate-Palmolive (India) Limited ..........................................................................434 Dongbu Insurance ....................................................................................................436 DongFeng Motor Co., Ltd. ......................................................................................438 Far East Hospitality Trust ........................................................................................440 Far EasTone Telecom ..............................................................................................442 Fletcher Building Ltd ...............................................................................................444 Franshion Properties (China) Ltd. ............................................................................448 Genting Singapore ...................................................................................................450 Hang Lung Properties ..............................................................................................452 Hanjin Shipping Co Ltd ...........................................................................................454 Havells India Ltd .....................................................................................................456 Hindustan Unilever Limited ....................................................................................458 HTC Corp ................................................................................................................460 Indian Oil Corporation .............................................................................................462 Indika Energy ...........................................................................................................464 Indofood Agri Resources Ltd ...................................................................................466 Innolux Corporation .................................................................................................468 Kerry Properties .......................................................................................................470 Lite-On Technology Corporation.............................................................................472 Lonking Holdings Ltd ..............................................................................................474 Lotte Chemical Corp ................................................................................................476 Maruti Suzuki India Ltd ...........................................................................................478 Maxis Berhad ...........................................................................................................480 New China Life Insurance Company Ltd - H ..........................................................482
543
OCBC Bank .............................................................................................................484 Oil and Natural Gas Corporation .............................................................................486 Oil Search ................................................................................................................488 Pegatron Corp ..........................................................................................................490 PT Bank Mandiri Tbk. .............................................................................................492 PT Indosat Tbk.........................................................................................................494 PT XL Axiata Tbk ...................................................................................................496 Punjab National Bank ..............................................................................................498 Samsung Engineering ..............................................................................................500 Shanghai Electric Group Company Limited ............................................................502 Shinko Electric Industries (6967) ............................................................................504 Thanachart Capital ...................................................................................................506 Total Access Communication ..................................................................................508 TSRC Corp ..............................................................................................................510 UEM Sunrise Bhd ....................................................................................................512 Unilever Indonesia Tbk............................................................................................514 VTech Holdings .......................................................................................................516 Yang Ming Marine ...................................................................................................518
544
Analysts by Market
Listed alphabetically by markets.
Australia Rob Stanton Country Head Anthony Passe-de Silva Armina Soemino Ben Jarman Ben Wilson Berowne Hlavaty Bharat Anand Brook Campbell-Crawford, CFA Carolyn Holmes Cheryl Ng Christopher Laybutt Daniel Butcher Garry Sherriff Ismar Tuzovic Jarrod McDonald Jason Steed Joseph Kim Keith Chau Luke Nelson Lyndon Fagan Mark Busuttil Matthew Ryan Olivia Bible Paul Brunker Peter Kopinsky Quinn Pierson Richard Jones, CFA Richard Szabo Russell Gill Scott Manning Scott Molloy Shaun Cousins Siddharth Parameswaran Stephen Blagg Stephen Walters Steven Wheen Stuart Jackson, CFA Thomas Beadle Tom Kennedy Hong Kong/China Michael Yu, CFA Country Head (China) Cusson Leung Country Head (HK) Ajay Mirchandani Alex Yao Alvin Kwock Amy Luk, CFA Andrew Hsu Boris Kan Chapman Deng, CFA Chi Chu Tschang Christopher Ma Corrine Png Daisy Lu Daniel Kang Ebru Sener Kurumlu Elaine Wu Gokul Hariharan Grace Ng Haibin Zhu Haoshun Liu Harsh Modi Australian REITs Property Developers & Contractors Emerging Companies Economy Energy Quantitative Research Banks Equity Strategy Transport, Infrastructure & ESG Health Care Utilities, Building Materials & Steel Energy Emerging Companies Diversified Financials / Insurance Media Utilities, Building Materials & Steel Resources Utilities, Building Materials & Steel Resources Resources Resources Gaming Transport, Infrastructure & ESG Equity Strategy / Telecommunications Property Trusts Retailing Australian REITs Food & Bev, Paper & Packaging, Chemicals Emerging Companies / Diversified Financials Banks Australian REITs Retailing Insurance / Diversified Financials Database Manager Economics Health Care Food & Bev, Paper & Packaging, Chemicals Telecommunications / Media Economy (61 2) 9003 8638 (61 2) 9003 8614 (61 2) 9003 8620 (61 2) 9003 7982 (61 2) 9003 8612 (61 2) 9003 8602 (61 2) 9003 8642 (61 2) 9003 6101 (61 2) 9003 8647 (61 2) 9003 8640 (61 2) 9003 8608 (61 2) 9003 8611 (61 2) 9003 8621 (61 2) 9003 8624 (61 2) 9003 8604 (61 2) 9003 8609 (61 2) 9003 8615 (61 2) 9003 8607 (61 2) 9003 8618 (61 2) 9003 8648 (61 2) 9003 8619 (61 2) 9003 8634 (61 2) 9003 8610 (61 2) 9003 8641 (61 2) 9003 8636 (61 2) 9003 8628 (61 3) 9633 4038 (61 2) 9003 8630 (61 2) 9003 8625 (61 2) 9003 8643 (61 2) 9003 8635 (61 2) 9003 8623 (61 2) 9003 8629 (61 2) 9003 8637 (61 2) 9003 7980 (61 2) 9003 8627 (61 2) 9003 8631 (61 2) 9003 8603 (61 2) 9003 7981 rob.a.stanton@jpmorgan.com anthony.g.passede.silva@jpmorgan.com armina.x.soemino@jpmorgan.com ben.k.jarman@jpmorgan.com benjamin.x.wilson@jpmorgan.com berowne.d.hlavaty@jpmorgan.com bharat.k.anand@jpmorgan.com brook.j.campbell-crawford@jpmorgan.com carolyn.j.holmes@jpmorgan.com cheryl.ng@jpmorgan.com christopher.r.laybutt@jpmorgan.com daniel.butcher@jpmorgan.com garry.sherriff@jpmorgan.com ismar.tuzovic@jpmorgan.com jarrod.mcdonald@jpmorgan.com jason.h.steed@jpmorgan.com joseph.x.kim@jpmorgan.com keith.chau@jpmorgan.com luke.nelson@jpmorgan.com lyndon.fagan@jpmorgan.com mark.busuttil@jpmorgan.com matthew.h.ryan@jpmorgan.com olivia.bible@jpmorgan.com paul.m.brunker@jpmorgan.com peter.l.kopinsky@jpmorgan.com quinn.m.pierson@jpmorgan.com richard.b.jones@jpmorgan.com richard.x.szabo@jpmorgan.com russell.j.gill@jpmorgan.com scott.r.manning@jpmorgan.com scott.x.molloy@jpmorgan.com shaun.r.cousins@jpmorgan.com siddharth.x.parameswaran@jpmorgan.com stephen.j.blagg@jpmorgan.com stephen.b.walters@jpmorgan.com steven.d.wheen@jpmorgan.com stuart.a.jackson@jpmorgan.com thomas.g.beadle@jpmorgan.com tom.kennedy@jpmorgan.com
Strategy Conglomerates and Property, Strategy Energy, Oil Services & Utilities Internet Technology (HK, Taiwan) Real Estate Small Caps Utilities Utilities and Infrastructure Technology - Hardware Quantitative Research Transport, Logistics & Aerospace Conglomerates & Multi-Industry Metals and Mining Consumer Utilities Technology DRAM/ODM/Components/Semiconductors Senior Economist Chief China Economist Equity Derivatives (Asia) Banks
(852) 2800 8511 (852) 2800-8526 (65) 6882 2419 (852) 2800 8535 (852) 2800 8533 (852) 2800 8524 (852) 2800 8572 (852) 2800 8573 (852) 2800 8577 (852) 2800-8537 (852) 2800 8530 (65) 6882 1514 (852) 2800-8593 (852) 2800 8570 (852) 2800 8521 (852) 2800 8575 (852) 2800-8564 (852) 2800 7002 (852) 2800 7039 (852) 2800 7736 (65) 6882 2450
michael.yu@jpmorgan.com cusson.leung@jpmorgan.com ajay.mirchandani@jpmorgan.com alex.c.yao@jpmorgan.com alvin.yl.kwock@jpmorgan.com amy.kp.luk@jpmorgan.com andrew.tj.hsu@jpmorgan.com boris.cw.kan@jpmorgan.com chapman.zw.deng@jpmorgan.com chi-chu.tschang@jpmorgan.com christopher.x.ma@jpmorgan.com corrine.ht.png@jpmorgan.com daisy.y.lu@jpmorgan.com Daniel.kang@jpmorgan.com ebru.sener@jpmorgan.com elaine.wu@jpmorgan.com gokul.hariharan@jpmorgan.com grace.h.ng@jpmorgan.com haibin.zhu@jpmorgan.com haoshun.liu@jpmorgan.com harsh.w.modi@jpmorgan.com
545
Hong Kong/China Helen Ye Henry Tan James Sullivan, CFA Jesse Leiter Joanne Cheung Josh Klaczek Joy Wu Karen Li, CFA Katherine Lei Kenneth Fong, CFA Leo Ng Leon Chik, CFA Lu Jiang Lucy Liu Lu Lu Michael Stansfield Michelle Wei, CFA MW Kim Nick Lai Qin Zhang, CFA Rebecca Y Wen Robert Smith Ryan Li, CFA Scott Darling Sean Wu Shen Li, CFA Sophie Tan Sue Lee Tony Lee Waiyin Karen Li, CFA William Chen Zhen Wei India Bharat Iyer Country Head Aditya Makharia Bijay Kumar, CFA Deepika Mundra Dinesh Harchandani, CFA Gunjan Prithyani Haoshun Liu Jahangir Aziz Latika Chopra, CFA Neha Manpuria Neil Gupte Pankaj Gupta Pinakin Parekh, CFA Rajiv Batra Sajjid Chinoy Samuel Lee, CFA Sanaya Tavaria Saurabh Kumar Seshadri Sen, CFA Sue Lee Sumit Kishore Tony Lee Viju George Indonesia Aditya Srinath, CFA Country Head Ajay Mirchandani Indra Cahya Haoshun Liu Harsh Modi James Sullivan, CFA Jovent Giovanny
Conglomerates Consumer Head of ASEAN Asia Equity Research Merchandising Strategy Banks & Finance Banks & Finance Utilities and Infrastructure Banks & Financial Services Conglomerates Property SMID Caps Economics Telecoms Financials Oil & Gas Telecoms Insurance Autos Technology - Hardware Autos Quantitative Research (Asia) Real Estate Oil & Gas Health Care Consumer Oil & Gas Equity Derivatives (Asia) Equity Derivatives (Asia) Metals and Mining Technology - Hardware Quantitative and Derivatives Strategy (Global) Equity Strategy, Autos Autos, Logistics and Transport Strategy Industrials, Power Utilities, Infrastructure Metals, Building Materials Financials, Real Estate, NBFCs, SMID Caps Equity Derivatives (Asia) Economics Consumer, Retail, Media Health Care, Metals & Mining Energy, Chemicals Equity Derivatives (Asia) Metals, Building Materials Regional Strategy Economics Petrochemicals (Regional, India, Korea and Taiwan) Regional Strategy Financials, Real Estate, NBFCs, SMID Caps Financials Equity Derivatives (Asia) Industrials, Power Utilities, Infrastructure Equity Derivatives (Asia) Technology, Software & IT services
(852) 2800 8513 (852) 2800-8559 (65) 6882 2374 (852) 2800 8519 (852) 2800 8596 (852) 2800-8534 (852) 2800 8557 (852) 2800 8589 (852) 2800-8552 (852) 2800 8597 (852) 2800-8522 (852) 2800 8590 (852) 2800-7053 (852) 2800 8566 (852) 2800 8592 (852) 2800-8563 (852) 2800 8562 (852) 2800-8517 (852) 2800-8543 (852) 2800 8532 (852) 2800-8505 (852) 2800 8569 (852) 2800 8529 (852) 2800 8578 (852) 2800-8538 (852) 2800 8523 (852) 2800 8531 (852) 2800 7898 (852) 2800 8857 (852) 2800-8561 (886 2) 2725 9871 (852) 2800-7749 (91 22) 6157 3600 (91 22) 6157 3596 (91 22) 6157 3586 (91 22) 6157 3582 (91 22) 6157 3583 (91 22) 6157 3593 (852) 2800 7736 (1-202) 585-1254 (91 22) 6157 3584 (91 22) 6157 3589 (91 22) 6157 3592 (91 22) 6157-3296 (91 22) 6157 3588 (91 22) 6157 3568 (91 22) 6157 3386 (852) 2800 8536 (1212) 622 5469 (91 22) 6157 3590 (91 22) 6157 3575 (852) 2800 7898 (91 22) 6157 3581 (852) 2800 8857 (91 22) 6157 3597
helen.zj.ye@jpmorgan.com henry.wd.tan@jpmorgan.com james.r.sullivan@jpmorgan.com jesse.leiter@jpmorgan.com joanne.cy.cheung@jpmorgan.com josh.klaczek@jpmorgan.com joy.wu@jpmorgan.com karen.yy.li@jpmorgan.com katherine.lei@jpmorgan.com kenneth.kc.fong@jpmorgan.com leo.ng@jpmorgan.com leon.hk.chik@jpmorgan.com lu.l.jiang@jpmorgan.com lucy.y.liu@jpmorgan.com lu.lu@jpmorgan.com michael.stansfield@jpmorgan.com michelle.z.wei@jpmorgan.com mw.kim@jpmorgan.com nick.yc.lai@jpmorgan.com qin.zhang@jpmorgan.com rebecca.y.wen@jpmorgan.com robert.z.smith@jpmorgan.com ryan.lh.li@jpmorgan.com scott.l.darling@jpmorgan.com sean.wu@jpmorgan.com shen.w.li@jpmorgan.com sophie.lm.tan@jpmorgan.com sue.sj.lee@jpmorgan.com tony.sk.lee@jpmorgan.com waiyin.karen.li@jpmorgan.com william.chen@jpmorgan.com zhen.wei@jpmorgan.com bharat.x.iyer@jpmorgan.com aditya.s.makharia@jpmorgan.com bijay.kumar@jpmorgan.com deepika.mundra@jpmorgan.com dinesh.x.harchandani@jpmorgan.com gunjan.x.prithyani@jpmorgan.com haoshun.liu@jpmorgan.com jahangir.x.aziz@jpmorgan.com latika.chopra@jpmorgan.com neha.x.manpuria@jpmorgan.com neil.x.gupte@jpmorgan.com pankaj.gupta2@jpmorgan.com pinakin.m.parekh@jpmorgan.com rajiv.j.batra@jpmorgan.com sajjid.z.chinoy@jpmorgan.com samuel.sw.lee@jpmorgan.com sanaya.x.tavaria@jpmorgan.com saurabh.s.kumar@jpmorgan.com seshadri.k.sen@jpmorgan.com sue.sj.lee@jpmorgan.com sumit.x.kishore@jpmorgan.com tony.sk.lee@jpmorgan.com viju.k.george@jpmorgan.com
Banks, Conglomerates, Equity Strategy Energy, Oil Services & Utilities Strategy, Financials and Autos Equity Derivatives (Asia) Banks Head of ASEAN Banks
(62 21) 5291 8573 (65) 6882 2419 (62 21) 5291-8575 (852) 2800 7736 (65) 6882 2450 (65) 6882 2374 (62-21) 5291-8584
aditya.s.srinath@jpmorgan.com ajay.mirchandani@jpmorgan.com indra.cahya@jpmorgan.com haoshun.liu@jpmorgan.com harsh.w.modi@jpmorgan.com james.r.sullivan@jpmorgan.com jovent.giovanny@jpmorgan.com
546
Indonesia Corrine Png Joy Wang Princy Singh Sin Beng Ong Stevanus Juanda Sue Lee Tony Lee Ying-Jian Chan, CFA Japan Jesper Koll Country Head Akira Kishimoto Dairo Murata Dan Lu Haruka Mori Hideshiro Kagita Hirokazu Anai Hisashi Moriyama Jun Tanabe Ken Starling Kunal Sethi Makoto Kuroda Masaaki Kanno Masamichi Adachi Masashi Itaya Masayuki Onozuka Michiro Naito Miwako Nakamura Natsumu Tsujino, CFA Ritsuko Tsunoda Toru Nakahashi Yuji Nishiyama Yumi Tanaka Yusuke Maeda Malaysia Hoy Kit Mak Country Head Aditya Srinath, CFA Ajay Mirchandani Corrine Png Harsh Modi Haoshun Liu James Sullivan, CFA Simone Yeoh Sin Beng Ong Sin Fee Wong Princy Singh Stephanie Kar Mun Tan Sue Lee Tony Lee Ying-Jian Chan, CFA Vanice Siew Philippines Jeanette Yutan Country Head Aditya Srinath, CFA Ajay Mirchandani Bettina R Martinez Corrine Png Daniel Andrew O Tan Haoshun Liu Harsh Modi James Sullivan, CFA Joy Wang Matt Hildebrandt Princy Singh Sue Lee Tony Lee
Transport, Logistics & Aerospace Property Telecommunication and Consumer Economics Consumer, Retailing, Metals & mining Equity Derivatives (Asia) Equity Derivatives (Asia) Upstream Agriculture, Food, and Beverage Director of Japan Equity Research Metal & Mining, Trading Companies Retailing Machinery Media, Games & Leisure Insurance, Brokers & Specialty Finance Construction/Housing, Real Estate/JREIT Precision Instruments Technology Auto & Auto Parts Metal & Mining, Trading Companies Banks Economics Economics Components Pharmaceuticals & Health care Equity Derivatives Strategy Economics Banks, Insurance, Brokers & Specialty Finance Food, Toiletry Machinery Chemicals, Energy Components Media, Games & Leisure Construction/Infrastructure, Equity Strategy, Oil services & equipment Equity Strategy Energy, Oil Services & Utilities Transport, Logistics & Aerospace Banks Equity Derivatives (Asia) Head of ASEAN Property, Utilities and Transportation Economics Plantations and Property Telecommunication and Consumer Energy Equity Derivatives (Asia) Equity Derivatives (Asia) Upstream Agriculture, Food, and Beverage Banks Consumer, Conglomerates, Infrastructure, Property, Strategy Equity Strategy Energy, Oil Services & Utilities Utilities, Property, Strategy Transport, Logistics & Aerospace Banks, Conglomerates, Consumer, Strategy Equity Derivatives (Asia) Banks Head of ASEAN Property Economics Telecommunication and Consumer Equity Derivatives (Asia) Equity Derivatives (Asia)
(65) 6882 1514 (65) 6882 2312 (65) 6882 2746 (65) 6882 1623 (62 21) 5291 8574 (852) 2800 7898 (852) 2800 8857 (65) 6882 2378 (813) 6736 8600 (813) 6736 8646 (813) 6736 8620 (813) 6736 8628 (81-3) 6736-8632 (81-3) 6736-8619 (813) 6736 8662 (813) 6736 8601 (81-3) 6736 8640 (813) 6736 8625 (813) 6736 8634 (813) 6736 8643 (813) 6736 1166 (813) 6736 1172 (813) 6736 8633 (813) 6736 8615 (813) 6736 1352 (813) 6736 1167 (813) 6736 8618 (813) 6736-8627 (813) 6736-8644 (81-3) 6736-8617 (813) 6736 8603 (813) 6736 8654
corrine.ht.png@jpmorgan.com joy.qq.wang@jpmorgan.com princy.singh@jpmorgan.com sinbeng.ong@jpmorgan.com stevanus.x.juanda@jpmorgan.com sue.sj.lee@jpmorgan.com tony.sk.lee@jpmorgan.com ying.jian.yj.chan@jpmorgan.com jesper.j.koll@jpmorgan.com akira.x.kishimoto@jpmorgan.com dairo.murata@jpmorgan.com dan.lu@jpmorgan.com haruka.mori@jpmorgan.com hideshiro.kagita@jpmorgan.com hirokazu.x.anai@jpmorgan.com hisashi.moriyama@jpmorgan.com jun.tanabe@jpmorgan.com ken.starling@jpmorgan.com kunal.sethi@jpmorgan.com makoto.kuroda@jpmorgan.com masaaki.kanno@jpmorgan.com masamichi.x.adachi@jpmorgan.com masashi.itaya@jpmorgan.com masayuki.x.onozuka@jpmorgan.com michiro.naito@jpmorgan.com miwako.nakamura@jpmorgan.com natsumu.tsujino@jpmorgan.com ritsuko.tsunoda@jpmorgan.com toru.nakahashi@jpmorgan.com yuji.nishiyama@jpmorgan.com yumi.tanaka@jpmorgan.com yusuke.x.maeda@jpmorgan.com
(603) 2270 4728 (62 21) 5291 8573 (65) 6882 2419 (65) 6882 1514 (65) 6882 2450 (852) 2800 7736 (65) 6882 2374 (603) 2270 4710 (65) 6882 1623 (60-3) 2270-4749 (65) 6882 2746 (603) 2718 0707 (852) 2800 7898 (852) 2800 8857 (65) 6882 2378 (603) 2718 0708 (63-2) 878-1131 (62 21) 5291 8573 (65) 6882 2419 (63-2) 878 1131 (65) 6882 1514 (63-2) 575-1199 (852) 2800 7736 (65) 6882 2450 (65) 6882 2374 (65) 6882 2312 (65) 6882 2253 (65) 6882 2746 (852) 2800 7898 (852) 2800 8857
hoykit.mak@jpmorgan.com aditya.s.srinath@jpmorgan.com ajay.mirchandani@jpmorgan.com corrine.ht.png@jpmorgan.com harsh.w.modi@jpmorgan.com haoshun.liu@jpmorgan.com james.r.sullivan@jpmorgan.com simone.x.yeoh@jpmorgan.com sinbeng.ong@jpmorgan.com sin.f.wong@jpmorgan.com princy.singh@jpmorgan.com kar.m.tan@jpmorgan.com sue.sj.lee@jpmorgan.com tony.sk.lee@jpmorgan.com ying.jian.yj.chan@jpmorgan.com vanice.siew@jpmorgan.com jeanette.g.yutan@jpmorgan.com aditya.s.srinath@jpmorgan.com ajay.mirchandani@jpmorgan.com bettinamaree.r.martinez@jpmorgan.com corrine.ht.png@jpmorgan.com danielandrew.o.tan@jpmorgan.com haoshun.liu@jpmorgan.com harsh.w.modi@jpmorgan.com james.r.sullivan@jpmorgan.com joy.qq.wang@jpmorgan.com matt.l.hildebrandt@jpmorgan.com princy.singh@jpmorgan.com sue.sj.lee@jpmorgan.com tony.sk.lee@jpmorgan.com
547
Singapore James Sullivan, CFA Country Head Ajay Mirchandani Choon Keong Ong Corrine Png Haoshun Liu Harsh Modi Joy Wang Matt Hildebrandt Princy Singh Sue Lee Tony Lee Ying-Jian Chan, CFA South Korea Scott Seo Country Head Akira Kishimoto Corrine Png Gonsuk Lee Jay Kwon Haoshun Liu Jiwon Lim JJ Park Min Joo Kang Minsung Lee MW Kim Sally Yoo Samuel Lee, CFA Sokje Lee Stanley Yang Sue Lee Tony Lee Wan Sun Park Youna Kim YK Kim Taiwan Alvin Kwock Country Head Caren Huang Corrine Png Haoshun Liu James Wang Jemmy Huang JJ Park Narci Chang Rahul Chadha Samuel Lee, CFA Sophie Chiu Sue Lee Tony Lee Thailand Anne Jirajariyavech, CFA Country Head Aditya Srinath, CFA Ajay Mirchandani Avin Sony Benjamin Shatil Corrine Png Haoshun Liu James Sullivan, CFA Kae Pornpunnarath, CFA Kositsrikunakorn Kanlaya Princy Singh Sue Lee Tony Lee
Head of ASEAN Energy, Oil Services & Utilities Strategy & Property Transport, Logistics & Aerospace Equity Derivatives (Asia) Banks Property Economics Telecommunication and Consumer Equity Derivatives (Asia) Equity Derivatives (Asia) Upstream Agriculture, Food, and Beverage Equity Strategy, Banks Metal & Mining, Trading Companies Transport, Logistics & Aerospace Autos and Machinery Technology Semiconductors Equity Derivatives (Asia) Economics Technology Semiconductors Economics Korean shipbuilding & NE Asian E&C Insurance Consumer Petrochemicals (Regional, India, Korea and Taiwan) Korean shipbuilding & NE Asian E&C Telco, Internet, Media Equity Derivatives (Asia) Equity Derivatives (Asia) Automobiles, Steel & Machinery Conglomerates & Multi-industry, Consumer, Retailing Small Cap Banks & Diversified Financials Technology IC Design/NB Consumer, Conglomerate & Multi-industry, Health Care, Small Caps, Transportation Transport, Logistics & Aerospace Equity Derivatives (Asia) Technology Hardware Banks Technology Semiconductors Technology Semiconductors s Technology Semiconductors Petrochemicals (Regional, India, Korea and Taiwan) Insurance Equity Derivatives (Asia) Equity Derivatives (Asia)
(65) 6882 2374 (65) 6882 2419 (65) 6882 2354 (65) 6882 1514 (852) 2800 7736 (65) 6882 2450 (65) 6882 2312 (65) 6882 2253 (65) 6882 2746 (852) 2800 7898 (852) 2800 8857 (65) 6882 2378 (822) 758 5759 (813) 6736 8646 (65) 6882 1514 (82 2) 758 5710 (822) 758 5725 (852) 2800 7736 (822) 758 5509 (822) 758 5717 (822) 758-5512 (822) 758 5728 (852) 2800-8517 (82-2) 758-5383 (852) 2800 8536 (822) 758 5729 (82-2) 758-5712 (852) 2800 7898 (852) 2800 8857 (822) 758 5722 (822) 758 5715 (82-2) 758 5733 (852) 2800 8533 (886 2) 2725 9872 (65) 6882 1514 (852) 2800 7736 (886-2) 2725-9875 (886-2) 2725-9870 (822) 758 5717 (886 2) 2725 9899 (886-2) 2725 9898 (852) 2800 8536 (886-2) 2725-9877 (852) 2800 7898 (852) 2800 8857
james.r.sullivan@jpmorgan.com ajay.mirchandani@jpmorgan.com choonkeong.ong@jpmorgan.com corrine.ht.png@jpmorgan.com haoshun.liu@jpmorgan.com harsh.w.modi@jpmorgan.com joy.qq.wang@jpmorgan.com matt.l.hildebrandt@jpmorgan.com princy.singh@jpmorgan.com sue.sj.lee@jpmorgan.com tony.sk.lee@jpmorgan.com ying.jian.yj.chan@jpmorgan.com scott.seo@jpmorgan.com akira.x.kishimoto@jpmorgan.com corrine.ht.png@jpmorgan.com gonsuk.lee@jpmorgan.com jay.h.kwon@jpmorgan.com haoshun.liu@jpmorgan.com jiwon.c.lim@jpmorgan.com jj.park@jpmorgan.com minjoo.kang@jpmorgan.com minsung.lee@jpmorgan.com mw.kim@jpmorgan.com sally.yoo@jpmorgan.com samuel.sw.lee@jpmorgan.com sokje.lee@jpmorgan.com stanley.yang@jpmorgan.com sue.sj.lee@jpmorgan.com tony.sk.lee@jpmorgan.com wansun.c.park@jpmorgan.com youna.kim@jpmorgan.com yk.kim@jpmorgan.com alvin.yl.kwock@jpmorgan.com caren.huang@jpmorgan.com corrine.ht.png@jpmorgan.com haoshun.liu@jpmorgan.com james.p.wang@jpmorgan.com jemmy.s.huang@jpmorgan.com jj.park@jpmorgan.com narci.h.chang@jpmorgan.com rahul.z.chadha@jpmorgan.com samuel.sw.lee@jpmorgan.com sophie.chiu@jpmorgan.com sue.sj.lee@jpmorgan.com tony.sk.lee@jpmorgan.com
Banks, Equity Strategy, Real Estate Equity Strategy Energy, Oil Services & Utilities Oil & Gas, Petrochemicals, Utilities Economics Transport, Logistics & Aerospace Equity Derivatives (Asia) Head of ASEAN SMID / Consumers Equity Strategy Telecommunication and Consumer Equity Derivatives (Asia) Equity Derivatives (Asia)
(662) 684 2684 (62 21) 5291 8573 (65) 6882 2419 (662) 684-2683 (65) 6882-2311 (65) 6882 1514 (852) 2800 7736 (65) 6882 2374 (66-2) 684-2679 (662) 684 2676 (65) 6882 2746 (852) 2800 7898 (852) 2800 8857
anne.x.jirajariyavech@jpmorgan.com aditya.s.srinath@jpmorgan.com ajay.mirchandani@jpmorgan.com avin.sony@jpmorgan.com benjamin.shatil@jpmorgan.com corrine.ht.png@jpmorgan.com haoshun.liu@jpmorgan.com james.r.sullivan@jpmorgan.com kae.pornpunnarath@jpmorgan.com kositsrikunakorn.kanlaya@jpmorgan.com princy.singh@jpmorgan.com sue.sj.lee@jpmorgan.com tony.sk.lee@jpmorgan.com
548
Analysts by Sector
Listed alphabetically by sectors.
Asia Equity Research Merchandising Jesse Leiter Autos & Auto Parts Nick Lai Team Head Aditya Makharia Aditya Srinath, CFA Gonsuk Lee Indra Cahya Ken Starling Rebecca Y Wen Wan Sun Park Conglomerates & Multi-Industry Aditya Srinath, CFA Ajay Mirchandani Anthony Passe-de Silva Caren Huang Cusson Leung Daisy Lu Daniel Andrew O Tan Helen Ye Jeanette Yutan Karen Li, CFA Kenneth Fong, CFA Leon Chik, CFA Simone Yeoh Sokje Lee Youna Kim Asia Pacific China, Hong Kong India Indonesia South Korea Indonesia Japan Hong Kong South Korea Indonesia Hong Kong/China, ASEAN Australia Taiwan Hong Kong China, Hong Kong Philippines Hong Kong/China Philippines China, Hong Kong Hong Kong China, Hong Kong Malaysia South Korea South Korea (852) 2800 8519 (852) 2800-8543 (91 22) 6157 3596 (62 21) 5291 8573 (82 2) 758 5710 (62-21) 5291-8575 (813) 6736 8625 (852) 2800-8505 (822) 758 5722 (62 21) 5291 8573 (65) 6882 2419 (61 2) 9003 8614 (886 2) 2725 9872 (852) 2800-8526 (852) 2800-8593 (63-2) 575-1199 (852) 2800 8513 (63-2) 878-1131 (852) 2800 8589 (852) 2800 8597 (852) 2800 8590 (603) 2270 4710 (822) 758 5729 (822) 758 5715 (852) 2800 8521 (886 2) 2725 9872 (813) 6736 8620 (63-2) 575-1199 (852) 2800-8559 (63-2) 878-1131 (66-2) 684-2679 (91 22) 6157 3584 (65) 6882 2746 (61 2) 9003 8628 (61 2) 9003 8630 (813) 6736-8627 (82-2) 758-5383 (61 2) 9003 8623 (852) 2800 8523 (622 1) 5291 8574 (61 2) 9003 8631 (65) 6882 2378 (822) 758 5715 (1-202) 585-1254 (61 2) 9003 7982 (65) 6882-2311 (852) 2800 7002 (852) 2800 7039 (822) 758 5509 (852) 2800-7053 (813) 6736 1166 (813) 6736 1172 (65) 6882 2253 (822) 758-5512 jesse.leiter@jpmorgan.com nick.yc.lai@jpmorgan.com aditya.s.makharia@jpmorgan.com aditya.s.srinath@jpmorgan.com gonsuk.lee@jpmorgan.com indra.cahya@jpmorgan.com ken.starling@jpmorgan.com rebecca.y.wen@jpmorgan.com wansun.c.park@jpmorgan.com aditya.s.srinath@jpmorgan.com ajay.mirchandani@jpmorgan.com anthony.g.passede.silva@jpmorgan.com caren.huang@jpmorgan.com cusson.leung@jpmorgan.com daisy.y.lu@jpmorgan.com danielandrew.o.tan@jpmorgan.com helen.zj.ye@jpmorgan.com jeanette.g.yutan@jpmorgan.com karen.yy.li@jpmorgan.com kenneth.kc.fong@jpmorgan.com leon.hk.chik@jpmorgan.com simone.x.yeoh@jpmorgan.com sokje.lee@jpmorgan.com youna.kim@jpmorgan.com ebru.sener@jpmorgan.com caren.huang@jpmorgan.com dairo.murata@jpmorgan.com danielandrew.o.tan@jpmorgan.com henry.wd.tan@jpmorgan.com jeanette.g.yutan@jpmorgan.com kae.pornpunnarath@jpmorgan.com latika.chopra@jpmorgan.com princy.singh@jpmorgan.com quinn.m.pierson@jpmorgan.com richard.x.szabo@jpmorgan.com ritsuko.tsunoda@jpmorgan.com sally.yoo@jpmorgan.com shaun.r.cousins@jpmorgan.com shen.w.li@jpmorgan.com stevanus.x.juanda@jpmorgan.com stuart.a.jackson@jpmorgan.com ying.jian.yj.chan@jpmorgan.com youna.kim@jpmorgan.com jahangir.x.aziz@jpmorgan.com ben.k.jarman@jpmorgan.com benjamin.shatil@jpmorgan.com grace.h.ng@jpmorgan.com Haibin.zhu@jpmorgan.com jiwon.c.lim@jpmorgan.com lu.l.jiang@jpmorgan.com masaaki.kanno@jpmorgan.com masamichi.x.adachi@jpmorgan.com matt.l.hildebrandt@jpmorgan.com minjoo.kang@jpmorgan.com
Consumer Goods, Food, Beverage, and Tobacco Ebru Sener Kurumlu Team Head Regional and China/Hong Kong Caren Huang Taiwan Dairo Murata Japan Daniel Andrew O Tan Philippines Henry Tan China, Hong Kong Jeanette Yutan Philippines Kae Pornpunnarath, CFA Thailand Latika Chopra, CFA India Princy Singh ASEAN Quinn Pierson Australia Richard Szabo Australia Ritsuko Tsunoda Japan Sally Yoo South Korea Shaun Cousins Australia Shen Li, CFA China, Hong Kong Stevanus Juanda Indonesia Stuart Jackson, CFA Australia Ying-Jian Chan, CFA ASEAN Youna Kim South Korea Economy Jahangir Aziz Team Head Ben Jarman Benjamin Shatil Grace Ng Haibin Zhu Jiwon Lim Lu Jiang Masaaki Kanno Masamichi Adachi Matt Hildebrandt Min Joo Kang Head of Emerging Asia Economist for Australia, NZ Thailand/Myanmar Senior Economist for Greater China Chief China Economist Senior Economist for Korea Hong Kong Chief Economist for Japan Economist, Japan Mongolia, Singapore, Philippines, Vietnam South Korea
549
Economy Miwako Nakamura Sajjid Chinoy Sin Beng Ong Stephen Walters Tom Kennedy
Economist, Japan Economist for India, Pakistan, Sri Lanka Senior Economist for Indo, Mal, Thai Economist, Australia Economist for Australia, NZ
(813) 6736 1167 (91 22) 6157 3386 (65) 6882 1623 (61 2) 9003 7980 (61 2) 9003 7981 (852) 2800 8857 (852) 2800 7736 (1 212) 272 1438 (813) 6736 1352 (91 22) 61573296 (852) 2800 7898 (852) 2800-7749 (852) 2800 8599 (62 21) 5291 8573 (662) 684 2684 (63-2) 878 1131 (91 22) 6157 3600 (91 22) 6157 3586 (61 2) 9003 6101 (65) 6882 2354 (63-2) 575-1199 (91 22) 6157 3593 (852) 2800 7736 (603) 2270 4728 (62 21) 5291-8575 (65) 6882 2374 (63-2) 878-1131 (813) 6736 8600 (852) 2800 8596 (662) 684 2676 (1 212) 272 1438 (852) 2800 8511 (61 2) 9003 8641 (91 22) 6157 3568 (1212) 622 5469 (822) 758 5759 (852) 2800 7898 (852) 2800 8857 (852) 2800-8534 (91-22) 6157-3012 (662) 684 2684 (61 2) 9003 8642 (63-2) 575-1199 (91 22) 6157 3593 (65) 6882 2450 (81-3) 6736-8619 (62 21) 5291-8575 (61 2) 9003 8624 (886-2) 2725-9870 (62-21) 5291-8584 (852) 2800 8557 (852) 2800-8552 (852) 2800 8592 (813) 6736 8643 (813) 6736 8618 (61 2) 9003 8625 (91 22) 6157 3590 (61 2) 9003 8643 (822) 758 5759 (91 22) 6157 3575 (61 2) 9003 8629 (82-2) 758 5733 (603) 2718 0708
miwako.nakamura@jpmorgan.com sajjid.z.chinoy@jpmorgan.com sinbeng.ong@jpmorgan.com stephen.b.walters@jpmorgan.com tom.kennedy@jpmorgan.com tony.sk.lee@jpmorgan.com haoshun.liu@jpmorgan.com marko.kolanovic@Jpmorgan.com michiro.naito@jpmorgan.com pankaj.gupta2@jpmorgan.com sue.sj.lee@jpmorgan.com zhen.wei@jpmorgan.com adrian.mowat@jpmorgan.com aditya.s.srinath@jpmorgan.com anne.x.jirajariyavech@jpmorgan.com bettinamaree.r.martinez@jpmorgan.com bharat.x.iyer@jpmorgan.com bijay.kumar@jpmorgan.com brook.j.campbell-crawford@jpmorgan.com choonkeong.ong@jpmorgan.com danielandrew.o.tan@jpmorgan.com gunjan.x.prithyani@jpmorgan.com haoshun.liu@jpmorgan.com hoykit.mak@jpmorgan.com indra.cahya@jpmorgan.com james.r.sullivan@jpmorgan.com jeanette.g.yutan@jpmorgan.com jesper.j.koll@jpmorgan.com joanne.cy.cheung@jpmorgan.com kositsrikunakorn.kanlaya@jpmorgan.com marko.kolanovic@Jpmorgan.com michael.yu@jpmorgan.com paul.m.brunker@jpmorgan.com rajiv.j.batra@jpmorgan.com sanaya.x.tavaria@jpmorgan.com scott.seo@jpmorgan.com sue.sj.lee@jpmorgan.com tony.sk.lee@jpmorgan.com josh.klaczek@jpmorgan.com ankita.gupta@jpmorgan.com anne.x.jirajariyavech@jpmorgan.com bharat.k.anand@jpmorgan.com danielandrew.o.tan@jpmorgan.com gunjan.x.prithyani@jpmorgan.com harsh.w.modi@jpmorgan.com hideshiro.kagita@jpmorgan.com indra.cahya@jpmorgan.com ismar.tuzovic@jpmorgan.com jemmy.s.huang@jpmorgan.com jovent.giovanny@jpmorgan.com joy.wu@jpmorgan.com katherine.lei@jpmorgan.com lu.lu@jpmorgan.com makoto.kuroda@jpmorgan.com natsumu.tsujino@jpmorgan.com russell.j.gill@jpmorgan.com saurabh.s.kumar@jpmorgan.com scott.r.manning@jpmorgan.com scott.seo@jpmorgan.com seshadri.k.sen@jpmorgan.com siddharth.x.parameswaran@jpmorgan.com yk.kim@jpmorgan.com vanice.siew@jpmorgan.com
Equity Derivatives Research and Delta One Strategy Asia Tony Lee Team Head Haoshun Liu Asia Marko Kolanovic Global Michiro Naito Japan Pankaj Gupta Asia Sue Lee Asia Zhen Wei Global Equity Market Strategy Adrian Mowat Team Head Aditya Srinath, CFA Anne Jirajariyavech, CFA Bettina R Martinez Bharat Iyer Bijay Kumar, CFA Brook Campbell-Crawford, CFA Choon Keong Ong Daniel Andrew O Tan Gunjan Prithyani Haoshun Liu Hoy Kit Mak Indra Cahya James Sullivan, CFA Jeanette Yutan Jesper Koll Joanne Cheung Kositsrikunakorn Kanlaya Marko Kolanovic Michael Yu, CFA Paul Brunker Rajiv Batra Sanaya Tavaria Scott Seo Sue Lee Tony Lee Financial Services Josh Klaczek Team Head Ankita Gupta Anne Jirajariyavech, CFA Bharat Anand Daniel Andrew O Tan Gunjan Prithyani Harsh Modi Hideshiro Kagita Indra Cahya Ismar Tuzovic Jemmy Huang Jovent Giovanny Joy Wu Katherine Lei Lu Lu Makoto Kuroda Natsumu Tsujino, CFA Russell Gill Saurabh Kumar Scott Manning Scott Seo Seshadri Sen, CFA Siddharth Parameswaran YK Kim Vanice Siew Regional ASEAN Thailand Philippines India India Australia Singapore Philippines India Asia Malaysia Indonesia ASEAN Philippines Japan Hong Kong Thailand Global China Australia Regional India South Korea Asia Asia Regional Australia Thailand Australia Philippines India Hong Kong/China, ASEAN Japan Indonesia Australia Taiwan Indonesia Hong Kong Hong Kong Hong Kong/China Japan Japan Australia India Australia South Korea India Australia South Korea Malaysia
550
Health Care, Pharmaceuticals Sean Wu Team Head Caren Huang Cheryl Ng Masayuki Onozuka Neha Manpuria Stevanus Juanda Steven Wheen Youna Kim Industrials and Machinery Aditya Srinath, CFA Ajay Mirchandani Anthony Passe-de Silva Boris Kan Chapman Deng, CFA Dan Lu Deepika Mundra Karen Li, CFA Minsung Lee Nick Lai Sokje Lee Sumit Kishore Toru Nakahashi Ying-Jian Chan, CFA Infrastructure Karen Li, CFA Team Head Boris Kan Carolyn Holmes Deepika Mundra Hideshiro Kagita Hirokazu Anai Hoy Kit Mak Jeanette Yutan Leon Chik, CFA Nick Lai Olivia Bible Saurabh Kumar Sumit Kishore Insurance Ankita Gupta Ismar Tuzovic MW Kim Natsumu Tsujino, CFA Siddharth Parameswaran Sophie Chiu Internet Alex Yao James Wang Stanley Yang Viju George Yusuke Maeda Leisure and Gaming Kenneth Fong, CFA Team Head Haruka Mori Daisy Lu Matthew Ryan Metals & Mining Daniel Kang Team Head Akira Kishimoto Avin Sony Dinesh Harchandani, CFA Joseph Kim Luke Nelson Lyndon Fagan Kunal Sethi
China, Hong Kong Taiwan Australia Japan India Indonesia Australia South Korea Indonesia Hong Kong/China, ASEAN Australia China Hong Kong Japan India China, Hong Kong South Korea Taiwan South Korea India Japan ASEAN China, Hong Kong China Australia India Japan Japan Malaysia Philippines China, Hong Kong Taiwan Australia India India Australia Australia South Korea, Hong Kong Japan Australia Taiwan China, Hong Kong Taiwan South Korea India Japan Hong Kong Japan Hong Kong Australia China, Hong Kong, Regional Japan Thailand India Australia Australia Australia Japan
(852) 2800-8538 (886 2) 2725 9872 (61 2) 9003 8640 (813) 6736 8615 (91 22) 6157 3589 (62 21) 5291 8574 (61 2) 9003 8627 (822) 758 5715 (62 21) 5291 8573 (65) 6882 2419 (61 2) 9003 8614 (852) 2800 8573 (852) 2800 8577 (813) 6736 8628 (91 22) 6157 3582 (852) 2800 8589 (822) 758 5728 (852) 2800 8543 (822) 758 5729 (91 22) 6157 3581 (813) 6736-8644 (65) 6882 2378 (852) 2800 8589 (852) 2800 8573 (61 2) 9003 8647 (91 22) 6157 3582 (81-3) 6736-8619 (813) 6736 8662 (60 3) 2270 4728 (63-2) 878-1131 (852) 2800 8590 (852) 2800 8543 (61 2) 9003 8610 (91 22) 6157 3590 (91 22) 6157 3581 (91-22) 6157-3012 (61 2) 9003 8624 ((852) 2800-8517 (813) 6736 8618 (61 2) 9003 8629 (886-2) 2725-9877 (852) 2800 8535 (886-2) 2725-9875 (82-2) 758-5712 (91 22) 6157 3597 (813) 6736 8654 (852) 2800 8597 (81-3) 6736-8632 (852) 2800 8593 (61 2) 9003 8634 (852) 2800 8570 (813) 6736 8646 (662) 684-2683 (91 22) 6157 3583 (61 2) 9003 8615 (61 2) 9003 8618 (61 2) 9003 8648 (813) 6736 8634
sean.wu@jpmorgan.com caren.huang@jpmorgan.com cheryl.ng@jpmorgan.com masayuki.x.onozuka@jpmorgan.com neha.x.manpuria@jpmorgan.com stevanus.x.juanda@jpmorgan.com steven.d.wheen@jpmorgan.com youna.kim@jpmorgan.com aditya.s.srinath@jpmorgan.com ajay.mirchandani@jpmorgan.com anthony.g.passede.silva@jpmorgan.com boris.cw.kan@jpmorgan.com chapman.zw.deng@jpmorgan.com dan.lu@jpmorgan.com deepika.mundra@jpmorgan.com karen.yy.li@jpmorgan.com minsung.lee@jpmorgan.com nick.yc.lai@jpmorgan.com sokje.lee@jpmorgan.com sumit.x.kishore@jpmorgan.com toru.nakahashi@jpmorgan.com ying.jian.yj.chan@jpmorgan.com karen.yy.li@jpmorgan.com boris.cw.kan@jpmorgan.com carolyn.j.holmes@jpmorgan.com deepika.mundra@jpmorgan.com hideshiro.kagita@jpmorgan.com hirokazu.x.anai@jpmorgan.com hoykit.mak@jpmorgan.com jeanette.g.yutan@jpmorgan.com leon.hk.chik@jpmorgan.com nick.yc.lai@jpmorgan.com olivia.bible@jpmorgan.com saurabh.s.kumar@jpmorgan.com sumit.x.kishore@jpmorgan.com ankita.gupta@jpmorgan.com ismar.tuzovic@jpmorgan.com mw.kim@jpmorgan.com natsumu.tsujino@jpmorgan.com siddharth.x.parameswaran@jpmorgan.com sophie.chiu@jpmorgan.com alex.c.yao@jpmorgan.com james.p.wang@jpmorgan.com stanley.yang@jpmorgan.com viju.k.george@jpmorgan.com yusuk.maeda@jpmorgan.com kenneth.kc.fong@jpmorgan.com haruka.mori@jpmorgan.com daisy.y.lu@jpmorgan.com matthew.h.ryan@jpmorgan.com Daniel.kang@jpmorgan.com akira.x.kishimoto@jpmorgan.com avin.sony@jpmorgan.com dinesh.x.harchandani@jpmorgan.com joseph.x.kim@jpmorgan.com luke.nelson@jpmorgan.com lyndon.fagan@jpmorgan.com kunal.sethi@jpmorgan.com
551
Metals & Mining Mark Busuttil Neha Manpuria Nick Lai Pinakin Parekh, CFA Stevanus Juanda Waiyin Karen Li, CFA Wan Sun Park Oil & Gas and Petrochemicals Samuel Lee, CFA Team Head Petrochemicals Scott Darling Team Head Oil & Gas Ajay Mirchandani Avin Sony Ben Wilson Daniel Butcher Hoy Kit Mak Neil Gupte Michael Stansfield Sophie Tan Stephanie Kar Mun Tan Stevanus Juanda Yuji Nishiyama Real Estate Amy Luk, CFA Anne Jirajariyavech, CFA Bettina R Martinez Choon Keong Ong Cusson Leung Gunjan Prithyani Hirokazu Anai Jeanette Yutan Joy Wang Leo Ng Peter Kopinsky Richard Jones, CFA Rob Stanton Ryan Li, CFA Saurabh Kumar Scott Molloy Simone Yeoh Sin Fee Wong Small Caps/Emerging Growth Leon Chik, CFA Team Head Andrew Hsu Armina Soemino Caren Huang Garry Sherriff Gunjan Prithyani Kae Pornpunnarath, CFA Nick Lai Russell Gill Saurabh Kumar Technology - Hardware Alvin Kwock Team Head Chi Chu Tschang Gokul Hariharan Hisashi Moriyama James Wang Jun Tanabe Masashi Itaya Qin Zhang, CFA William Chen
Australia India Taiwan India Indonesia Hong Kong South Korea
(61 2) 9003 8619 (91 22) 6157 3589 (852) 2800 8543 (91 22) 6157 3588 (62 21) 5291 8574 (852) 2800-8561 (822) 758 5722
mark.busuttil@jpmorgan.com neha.x.manpuria@jpmorgan.com nick.yc.lai@jpmorgan.com pinakin.m.parekh@jpmorgan.com stevanus.x.juanda@jpmorgan.com waiyin.karen.li@jpmorgan.com wansun.c.park@jpmorgan.com
Regional, India, Korea and Taiwan China, Hong Kong Hong Kong/China, ASEAN Thailand Australia Australia Malaysia India Hong Kong/China China Malaysia Indonesia Japan Hong Kong Thailand Philippines Singapore Hong Kong India Japan Philippines Singapore, Indonesia and Philippines China, Hong Kong Australia Australia Australia Hong Kong, China India Australia Malaysia Malaysia China, Hong Kong Hong Kong, China Australia Taiwan Australia India Thailand Taiwan Australia India Taiwan, Hong Kong China, Hong Kong Taiwan Japan Taiwan Japan Japan China, Hong Kong Taiwan
(852) 2800 8536 (852) 2800 8578 (65) 6882 2419 (662) 684-2683 (61 2) 9003 8612 (61 2) 9003 8611 (60 3) 2270 4728 (91 22) 6157 3592 (852) 2800-8563 (852) 2800 8531 (603) 2718 0707 (62 21) 5291 8574 (81-3) 6736-8617 (852) 2800 8524 (662) 684 2684 (63-2) 878 1131 (65) 6882 2354 (852) 2800-8526 (91 22) 6157 3593 (813) 6736 8662 (63-2) 878-1131 (65) 6882 2312 (852) 2800-8522 (61 2) 9003 8636 (613) 9633 4038 (61 2) 9003 8638 (852) 2800 8529 (91 22) 6157 3590 (61 2) 9003 8635 (603) 2270 4710 (60-3) 2270-4749 (852) 2800 8590 (852) 2800 8572 (61 2) 9003 8620 (886 2) 2725 9872 (61 2) 9003 8621 (91 22) 6157 3593 (66-2) 684-2679 (852) 2800 8543 (61 2) 9003 8625 (91 22) 6157 3590 (852) 2800 8533 (852) 2800-8537 (852) 2800-8564 (813) 6736 8601 (886-2) 2725-9875 (81-3) 6736 8640 (813) 6736 8633 (852) 2800 8532 (886 2) 2725 9871
samuel.sw.lee@jpmorgan.com scott.l.darling@jpmorgan.com ajay.mirchandani@jpmorgan.com avin.sony@jpmorgan.com benjamin.x.wilson@jpmorgan.com daniel.butcher@jpmorgan.com hoykit.mak@jpmorgan.com neil.x.gupte@jpmorgan.com michael.stansfield@jpmorgan.com sophie.lm.tan@jpmorgan.com kar.m.tan@jpmorgan.com stevanus.x.juanda@jpmorgan.com yuji.nishiyama@jpmorgan.com amy.kp.luk@jpmorgan.com anne.x.jirajariyavech@jpmorgan.com bettinamaree.r.martinez@jpmorgan.com choonkeong.ong@jpmorgan.com cusson.leung@jpmorgan.com gunjan.x.prithyani@jpmorgan.com hirokazu.x.anai@jpmorgan.com jeanette.g.yutan@jpmorgan.com joy.qq.wang@jpmorgan.com leo.ng@jpmorgan.com peter.l.kopinsky@jpmorgan.com richard.b.jones@jpmorgan.com rob.a.stanton@jpmorgan.com ryan.lh.li@jpmorgan.com saurabh.s.kumar@jpmorgan.com scott.x.molloy@jpmorgan.com simone.x.yeoh@jpmorgan.com sin.f.wong@jpmorgan.com leon.hk.chik@jpmorgan.com andrew.tj.hsu@jpmorgan.com armina.x.soemino@jpmorgan.com caren.huang@jpmorgan.com garry.sherriff@jpmorgan.com gunjan.x.prithyani@jpmorgan.com kae.pornpunnarath@jpmorgan.com nick.yc.lai@jpmorgan.com russell.j.gill@jpmorgan.com saurabh.s.kumar@jpmorgan.com alvin.yl.kwock@jpmorgan.com chi-chu.tschang@jpmorgan.com gokul.hariharan@jpmorgan.com hisashi.moriyama@jpmorgan.com james.p.wang@jpmorgan.com jun.tanabe@jpmorgan.com masashi.itaya@jpmorgan.com qin.zhang@jpmorgan.com william.chen@jpmorgan.com
552
Technology, Semiconductors & memory JJ Park Team Head Gokul Hariharan Hisashi Moriyama Jay Kwon Masashi Itaya Narci Chang Rahul Chadha Yumi Tanaka Technology, Software & IT services Viju George Team Head Yusuke Maeda Telecommunications James Sullivan, CFA Team Head Lucy Liu Michelle Wei, CFA Paul Brunker Princy Singh Stanley Yang Thomas Beadle Transport, Logistics & Aerospace Corrine Png Team Head Aditya Makharia Caren Huang Carolyn Holmes Olivia Bible Simone Yeoh Utilities Boris Kan Team Head Ajay Mirchandani Avin Sony Bettina R Martinez Chapman Deng, CFA Christopher Laybutt Deepika Mundra Elaine Wu Jason Steed Keith Chau Simone Yeoh Stevanus Juanda Sumit Kishore Quantitative Robert Smith Team Head Berowne Hlavaty Christopher Ma Database Stephen Blagg
South Korea Taiwan Japan South Korea Japan Taiwan Taiwan Japan India Japan ASEAN Hong Kong China/Hong Kong/Taiwan Australia ASEAN South Korea Australia Regional India Taiwan Australia Australia Malaysia China Hong Kong/China, ASEAN Thailand Philippines Hong Kong Australia India Hong Kong / China Australia Australia Malaysia Indonesia India Asia Pacific Australia Hong Kong Australia
(822) 758 5717 (852) 2800-8564 (813) 6736 8601 (822) 758 5725 (813) 6736 8633 (886 2) 2725 9899 (886-2) 2725 9898 (813) 6736 8603 (91 22) 6157 3597 (813) 6736 8654 (65) 6882 2374 (852) 2800 8566 (852) 2800 8562 (61 2) 9003 8641 (65) 6882 2746 (82-2) 758-5712 (61 2) 9003 8603 (65) 6882 1514 (91 22) 6157 3596 (886 2) 2725 9872 (61 2) 9003 8647 (61 2) 9003 8610 (603) 2270 4710 (852) 2800 8573 (65) 6882 2419 (662) 684-2683 (63-2) 878 1131 (852) 2800 8577 (61 2) 9003 8608 (91 22) 6157 3582 (852) 2800 8575 (61 2) 9003 8609 (61 2) 9003 8607 (603) 2270 4710 (62 21) 5291 8574 (91 22) 6157 3581 (852) 2800 8569 (61 2) 9003 8602 (852) 2800 8530 (61 2) 9003 8637
jj.park@jpmorgan.com gokul.hariharan@jpmorgan.com hisashi.moriyama@jpmorgan.com jay.h.kwon@jpmorgan.com masashi.itaya@jpmorgan.com Narci.h.chang@jpmorgan.com rahul.z.chadha@jpmorgan.com yumi.tanaka@jpmorgan.com viju.k.george@jpmorgan.com yusuk.maeda@jpmorgan.com james.r.sullivan@jpmorgan.com lucy.y.liu@jpmorgan.com michelle.z.wei@jpmorgan.com paul.m.brunker@jpmorgan.com princy.singh@jpmorgan.com stanley.yang@jpmorgan.com thomas.g.beadle@jpmorgan.com corrine.ht.png@jpmorgan.com aditya.s.makharia@jpmorgan.com caren.huang@jpmorgan.com carolyn.j.holmes@jpmorgan.com olivia.bible@jpmorgan.com simone.x.yeoh@jpmorgan.com boris.cw.kan@jpmorgan.com ajay.mirchandani@jpmorgan.com avin.sony@jpmorgan.com bettinamaree.r.martinez@jpmorgan.com chapman.zw.deng@jpmorgan.com christopher.r.laybutt@jpmorgan.com deepika.mundra@jpmorgan.com elaine.wu@jpmorgan.com jason.h.steed@jpmorgan.com keith.chau@jpmorgan.com simone.x.yeoh@jpmorgan.com stevanus.x.juanda@jpmorgan.com sumit.x.kishore@jpmorgan.com robert.z.smith@jpmorgan.com berowne.d.hlavaty@jpmorgan.com christopher.x.ma@jpmorgan.com stephen.j.blagg@jpmorgan.com
553
Africa Equity Research 18 November 2013
Companies Discussed in This Report (all prices in this report as of market close on 15 November 2013, unless otherwise indicated) CJ Cheiljedang (097950.KS/W251000/Underweight), CJ O Shopping (035760.KQ/W365100/Overweight), DeNA (2432) (2432.T/1844/Overweight), Dongbu Insurance (005830.KS/W49600/Underweight), Genting Berhad (GENT.KL/M$10.36/Neutral), Great Wall Motor Company Limited (2333.HK/HK$45.25/Overweight), Hanjin Shipping Co Ltd (117930.KS/W6990/Neutral), Hyundai Development Company (012630.KS/W24000/Overweight), Hyundai Mipo Dockyard (010620.KS/W185500/Overweight), Hyundai Motor Company (005380.KS/W249000/Overweight), KB Financial Group (105560.KS/W39950/Overweight), Lotte Chemical Corp (011170.KS/W213500/Underweight), MGM Resorts International (MGM/$19.56[14 November 2013]/Overweight), Naver (035420.KS/W627000/Overweight), Nidec (6594) (6594.T/9270/Overweight), S-Oil Corp (010950.KS/W73300/Underweight), SK Hynix (000660.KS/W33700/Overweight), SK Innovation Co Ltd (096770.KS/W137500/Overweight), Samsung Card (029780.KS/W37650/Overweight), Samsung Engineering (028050.KS/W65400/Underweight), Samsung Fire & Marine Insurance (000810.KS/W260000/Overweight), Sapphire Technology (123260.KQ/W36800/Overweight), Seoul Semiconductor (046890.KQ/W41450/Overweight), Shinko Electric Industries (6967) (6967.T/843/Neutral)
Disclosures This report is a product of the research department's Global Equity Derivatives and Quantitative Strategy group. Views expressed may differ from the views of the research analysts covering stocks or sectors mentioned in this report. Structured securities, options, futures and other derivatives are complex instruments, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Because of the importance of tax considerations to many option transactions, the investor considering options should consult with his/her tax advisor as to how taxes affect the outcome of contemplated option transactions. Conflict of Interest This research contains the views, opinions and recommendations of J.P. Morgan research analysts. J.P. Morgan has adopted research conflict of interest policies, including prohibitions on non-research personnel influencing the content of research. Research analysts still may speak to J.P. Morgan trading desk personnel in formulating views, opinions and recommendations. Trading desks may trade, or have traded, as principal on the basis of the research analysts views and research. Therefore, this research may not be independent from the proprietary interests of J.P. Morgan trading desks which may conflict with your interests. As a general matter, J.P. Morgan and/or its affiliates trade as principal in connection with making markets in fixed income securities discussed in research reports. Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for CJ O Shopping, Hyundai Motor Company, MGM Resorts International, Kaisa Group Holdings within the past 12 months.
Analyst Position: The following analysts (and/or their associates or household members) own a long position in the shares of Agile Property Holdings Ltd: Robert Smith.
Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Nidec (6594), Shinko Electric Industries (6967), CJ Cheiljedang, CJ O Shopping, Dongbu Insurance, Hanjin Shipping Co Ltd, Hyundai Mipo Dockyard, Hyundai Motor Company, KB Financial Group, Lotte Chemical Corp, Naver, Samsung Card, Samsung Engineering, Samsung Fire & Marine Insurance, SK Hynix, SK Innovation Co Ltd, Genting Berhad, Great Wall Motor Company Limited, MGM Resorts International, S-Oil Corp. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: CJ O Shopping, Hyundai Motor Company, Naver, MGM Resorts International. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Shinko Electric Industries (6967), CJ
554
Cheiljedang, Dongbu Insurance, Hyundai Mipo Dockyard, Hyundai Motor Company, Lotte Chemical Corp, Samsung Engineering, Samsung Fire & Marine Insurance, SK Innovation Co Ltd, MGM Resorts International, S-Oil Corp.
Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Nidec (6594), Hyundai Motor Company, KB Financial Group, SK Innovation Co Ltd, MGM Resorts International. Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking CJ O Shopping, Hyundai Motor Company, Naver, MGM Resorts International.
Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Nidec (6594), CJ O Shopping, Hyundai Motor Company, KB Financial Group, Naver, MGM Resorts International.
Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Shinko Electric Industries (6967), CJ Cheiljedang, Dongbu Insurance, Hyundai Mipo Dockyard, Hyundai Motor Company, Lotte Chemical Corp, Samsung Engineering, Samsung Fire & Marine Insurance, SK Innovation Co Ltd, MGM Resorts International, S-Oil Corp. MSCI: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an 'as is' basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. Gartner: All statements in this report attributable to Gartner represent J.P. Morgan's interpretation of data opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publication speaks as of its original publication date (and not as of the date of this report). The opinions expressed in Gartner publications are not representations of fact, and are subject to change without notice.
Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail research.disclosure.inquiries@jpmorgan.com. Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.jpmorganmarkets.com. J.P. Morgan Equity Research Ratings Distribution, as of September 30, 2013
Overweight (buy) 43% 57% 42% 76% Neutral (hold) 44% 49% 50% 65% Underweight (sell) 12% 39% 8% 57%
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
555
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com. Company-Specific Disclosures: J.P. Morgans Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail research.disclosure.inquiries@jpmorgan.com.
Hutchison Whampoa Limited - J.P. Morgan Recommendation History Date 04 May 09 Issuer Rating Overweight Primary Indicative Instrument -
Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Note: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System. Tencent - J.P. Morgan Recommendation History Date 14 Aug 12 Issuer Rating Overweight Primary Indicative Instrument -
Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Note: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System. Agile Property Holdings Ltd - J.P. Morgan Recommendation History Date 09 Dec 11 Issuer Rating Neutral Primary Indicative Instrument -
Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Note: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System. Kaisa Group Holdings - J.P. Morgan Recommendation History Date 05 Dec 12 Issuer Rating Overweight Primary Indicative Instrument -
Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Note: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System. China Shanshui Cement - J.P. Morgan Recommendation History Date 29 Apr 13 01 Aug 13 Issuer Rating Neutral Overweight Primary Indicative Instrument -
Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Note: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System.
556
Anton Oilfield Services Group - J.P. Morgan Recommendation History Date 31 Oct 13 01 Nov 13 Issuer Rating Overweight Not Covered Primary Indicative Instrument -
Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Note: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System. Star Energy Geothermal - J.P. Morgan Recommendation History Date 09 May 12 Issuer Rating Neutral Primary Indicative Instrument
Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Note: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System. Cikarang Listrindo - J.P. Morgan Recommendation History Date 25 Jan 10 Issuer Rating Neutral Primary Indicative Instrument
Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Note: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System. Indika Energy - J.P. Morgan Recommendation History Date 22 May 09 Issuer Rating Neutral Primary Indicative Instrument
Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Note: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System. Gajah Tunggal - J.P. Morgan Recommendation History Date 24 Jan 13 25 Oct 13 Issuer Rating Overweight Neutral Primary Indicative Instrument -
Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Note: Effective September 30, 2013, J.P. Morgan changed its Credit Research Ratings System.
Explanation of Credit Research Ratings: Ratings System: J.P. Morgan uses the following issuer portfolio weightings: Overweight (over the next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark), Neutral (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or benchmark), and Underweight (over the next three months, the recommended risk position is expected to underperform the relevant index, sector, or benchmark). J.P. Morgan Emerging Markets Sovereign Research uses Marketweight, which is equivalent to Neutral. NR is Not Rated. In this case, J.P. Morgan has removed the rating for this security because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating no longer should be relied upon. An NR designation is not a recommendation or a rating. NC is Not Covered. An NC designation is not a rating or a recommendation. Analysts can rate the issuer, the individual bonds of the issuer, or both. An issuer recommendation applies to all of the bonds at the same level of the issuers capital structure, unless we specify a different recommendation for the individual security.
557
For CDS, we use the following rating system: Long Risk (over the next three months, the credit return on the recommended position is expected to exceed the relevant index, sector or benchmark), Neutral (over the next three months, the credit return on the recommended position is expected to match the relevant index, sector or benchmark), and Short Risk (over the next three months, the credit return on the recommended position is expected to underperform the relevant index, sector or benchmark). Valuation & Methodology: In J.P. Morgan's credit research, we assign a rating to each issuer (Overweight, Underweight or Neutral) based on our credit view of the issuer and the relative value of its securities, taking into account the ratings assigned to the issuer by credit rating agencies and the market prices for the issuer's securities. Our credit view of an issuer is based upon our opinion as to whether the issuer will be able service its debt obligations when they become due and payable. We assess this by analyzing, among other things, the issuer's credit position using standard credit ratios such as cash flow to debt and fixed charge coverage (including and excluding capital investment). We also analyze the issuer's ability to generate cash flow by reviewing standard operational measures for comparable companies in the sector, such as revenue and earnings growth rates, margins, and the composition of the issuer's balance sheet relative to the operational leverage in its business. J.P. Morgan Credit Research Ratings Distribution, as of September 30, 2013
Global Credit Research Universe IB clients* Overweight 27% 61% Neutral 55% 58% Underweight 18% 54%
Note: The Credit Research Rating Distribution is at the issuer level. Please note that issuers with an NR or an NC designation are not included in the table above. *Percentage of investment banking clients in each rating category.
Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Conflict of Interest This research contains the views, opinions and recommendations of J.P. Morgan research analysts. J.P. Morgan has adopted research conflict of interest policies, including prohibitions on non-research personnel influencing the content of research. Research analysts still may speak to J.P. Morgan trading desk personnel in formulating views, opinions and recommendations. Trading desks may trade, or have traded, as principal on the basis of the research analysts views and research. Therefore, this research may not be independent from the proprietary interests of J.P. Morgan trading desks which may conflict with your interests. As a general matter, J.P. Morgan and/or its affiliates trade as principal in connection with making markets in fixed income securities, commodities and other investment instruments discussed in research reports. Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.
Other Disclosures
Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Principal Trading: JPMorgan and/or its affiliates normally make a market and trade as principal in fixed income securities discussed in this report. Legal Entities: J.P. Morgan is the global brand name for J.P. Morgan Securities LLC (JPMS) and its non-US affiliates worldwide. J.P. Morgan Cazenove is a brand name for equity research produced by J.P. Morgan Securities plc; J.P. Morgan Equities South Africa Proprietary Limited; JPMorgan Chase Bank, N.A., Dubai Branch; and J.P. Morgan Bank International LLC. J.P.Morgan Securities Inc. is a member of NYSE and SIPC. JPMorgan Chase Bank, N.A. is a member of FDIC. U.K.: JPMorgan Chase N.A., London Branch, is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from J.P. Morgan on request. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities Exchange and is regulated by the Financial Services Board. J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority. JPMorgan Chase Bank, N.A., Singapore branch and J.P. Morgan Securities Singapore Private Limited are regulated by the Monetary Authority of Singapore. JPMorgan Securities Japan Co., Ltd. is regulated by the Financial Services Agency in Japan. J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. J.P.Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA), licence number 35-07079. General: Information has been obtained from sources believed to be reliable but JPMorgan does not warrant its completeness or accuracy except with respect to disclosures relative to JPMS and/or its affiliates and the analysts involvement with the issuer. Opinions and estimates constitute our judgment at the date of this material and are subject to change without notice. Past performance is not indicative of future results. The investments and strategies discussed may not be suitable for all investors; if you have any doubts you should consult your investment advisor. The investments discussed may fluctuate in price or value. Changes in rates of exchange may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. JPMorgan and/or its affiliates and employees may act as placement agent, advisor or lender with respect to securities or issuers referenced in this report.. Clients should contact analysts at and execute transactions through a JPMorgan entity in their home jurisdiction unless governing law permits otherwise. This report should not be distributed to others or replicated in any form without prior consent of JPMorgan. U.K. and European Economic Area (EEA): Investment research issued by JPMS plc has been prepared in accordance with JPMS plcs Policies for Managing Conflicts of Interest in Connection with Investment Research. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (all such persons being referred to as relevant persons). This document must not be acted on or relied on by persons who are not relevant. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with these persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan
558
Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Australia: This material is issued and distributed by JPMSAL in Australia to wholesale clients only. This material does not take into account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term wholesale client has the meaning given in section 761G of the Corporations Act 2001. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offense. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul branch. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / ouvidoria.jp.morgan@jpmorgan.com. Revised September 28, 2013. Copyright 2013 JPMorgan Chase Co. All rights reserved. Additional information available upon request. J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its
affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries. QIB Only All research reports made available to clients are simultaneously available on our client website, J.P. Morgan Markets. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your sales representative. Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf Legal Entities Disclosures U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC. U.K.: JPMorgan Chase N.A., London Branch, is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from J.P. Morgan on request. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England & Wales No. 2711006. Registered Office 25 Bank Street, London, E14 5JP. South Africa: J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities Exchange and is regulated by the Financial Services Board. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited, having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz East, Mumbai - 400098, is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 010675237/INF 010675237) and is regulated by Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the Philippines and the Securities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MIC (P) 049/04/2013 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Japan: JPMorgan Securities Japan Co., Ltd. is regulated by the Financial Services Agency in Japan. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE. Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc. Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. This material does not take into account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to
559
any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has the meaning given in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / ouvidoria.jp.morgan@jpmorgan.com. General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised September 28, 2013.
Copyright 2013 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P
560
Year of the Horse

The behavior of the Green Horse is neither stable nor permanent, so be prepared to maneuver between traps and look for the stream that will carry you in the right direction Debate over the tapering-time-out will carry on in 2014. Our base case is that tapering starts in 2Q14. The destination is neutral policy. The challenge is minimizing interest rate volatility. It is possible that the journey to neutral policy is characterized by periods of interest rate stability punctuated by volatility driven by good economic data. Equities, particularly EM equities, are likely to decline during periods of interest rate volatility. The year of the Horse is not going to hold back on life-changing eventsevery little thing in our life this year will prove to be a pretext of a much more significant event. Such statement can be regarded both as a warning and a piece of advice. In any case, quick-witted people will be able to benefit from it Current account deficit countries that use the tapering-time-out to promote pro-FDI policies and narrow their CAD will be less vulnerable when the time-out ends. The rest are likely to suffer from weaker currencies and asset prices. Be prepared to move ahead of the herd. Year of the green wooden Horse is predicted to be a time for enthusiastic readjustments and steady progression Chinas golden days with rapid economic growth has come to an end. Policymakers set out a reform blueprint to address various structural issues. It is challenging with debt to GDP at c200% and augmented fiscal deficit at 10% of GDP. The economic growth model needs to change in order to sustain LT growth. But it will be a long progression with lots of uncertainties. Be ready to tolerate a slower growth rate in the coming years. The temperamental Horse will force us to run where we first walked at a leisurely pace, and sing in a loud voice when we would have barely whispered
J.P. Morgans equity strategy team takes no responsibility for investment decisions based on this page.
Animal Returns (%)

Goat Rabbit Monkey Rooster Boar Dragon Tiger Snake Horse Ox Dog Rat
-25%
0%
25%
50%
Source: Datastream, J.P. Morgan calculations. Average performance for Datastream Total Market Asia ex-Japan Index, 1973-2013
Zero interest rates generated asset bubbles in Hong Kong and Singapore. Domestic economies, in particular the consumption space, benefited from this easy money. We forecast asset deflation amid potential interest rate hikes during the taper-time-out. Losing competiveness, along with structural economic issues like aging populations will force governments to think of a new growth model. Nothing is fixed in the world, so what may currently seem like dirt underfoot, can tomorrow turn out to be the gold-bearing sand Asia ex Japan was a range-bound market in the year of the Snake, underperforming the developed world by 17%. For the year of the Horse, we believe a cyclical lift driven by exports, particularly to Europe will support regional growth. Disappointing US macro data will also benefit emerging economics. Stay long on export cyclical and policy beneficiaries. Look for companies with resilient earnings growth outlook, undemanding valuations (low PE/PB), and high Q-scores.
Our source for the material in the quotes is: www.gotohoroscope.com/2014horoscope
561
Management
Director of Asia Pacific Equity Research Director of ASEAN Equity Research Director of Australia Equity Research Director of Japan Equity Research
Sunil Garg
James Sullivan
Rob Stanton
Jesper Koll
Macro Team
Chief Asian and Emerging Market Equity Strategist ASEAN Equity Strategy Australia Equity Strategy Head of EM Markets Asia, Economics Research Equity Derivatives and Delta One Strategy Asia Pacific Quantitative Strategy
Adrian Mowat
Aditya Srinath, CFA
Paul Brunker
Jahangir Aziz
Tony Lee
Robert Smith
Country Heads
China Hong Kong India Indonesia
Michael Yu, CFA Malaysia Philippines
Cusson Leung Singapore
Bharat Iyer
Aditya Srinath Taiwan Thailand
South Korea
Hoy Kit Mak
Jeanette Yutan
James Sullivan
Scott Seo
Alvin Kwock
Anne Jirajariyavech, CFA
Infrastructure and Capex Ecosystem

Infrastructure
Transportation and Logistics Ecosystem

Transport
Asian Content Ecosystem

Telecommunications Internet
Financial Strategy
Banks Insurance
Karen Li
Corrine Png
James Sullivan
Alex Yao
Josh Klaczek
MW Kim
Energy Ecosystem
Oil & Gas Chemicals & Refining Power Utilities Thermal Coal India IT Services
Technology
Technology and Semiconductors Emerging Technology
Scott Darling
Samuel Lee, CFA
Boris Kan
Daniel Kang
Viju George
JJ Park
Alvin Kwok
Domestic Demand
Metals and Mining Auto and Auto Parts Consumer
Gaming
Real Estate
Healthcare
SMID Caps
Daniel Kang
Nick Lai
Ebru Sener Kurumlu
Kenneth Fong , CFA
Cusson Leung
Sean Wu
Leon Chik, CFA

Asian Year Ahead 2014

Uploaded by

Copyright:

Available Formats

Asian Year Ahead 2014

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Asian Year Ahead 2014

Uploaded by

Copyright:

Available Formats

What are the main themes that JPMorgan analysts will focus on for 2014?

What are the main themes that JPMorgan analysts will focus on for 2014?

What economic factors could impact Asian markets in 2014 according to the report?

What economic factors could impact Asian markets in 2014 according to the report?

Asia Pacific Equity Research

Asian Year Ahead 2014

(852) 2800-8599 adrian.mowat@jpmorgan.com Bloomberg JPMA MOWAT <GO>

Director of Asia Pacific Equity Research Sunil Garg

(852) 2800-8518 sunil.garg@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited

Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com

Asia Pacific Equity Research 18 November 2013

Asian Year AheadStocks for the Year of the Horse

Life Chems Chems Coal Gaming

Iron Ore Macau

Coal, Ni & Al SUV/OEM Internet E&C Wind, Pol, IPPs

105 top picks

Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com

Asia Pacific Equity Research 18 November 2013

Year of the Horse: Challenging steeplechase

Key issues for Horse briefing notes

Figure 1: MSCI PxJ and EM Asia index performance

Current: PxJ: 500 EM Asia: 438 99 02 04 06 09 11 13

Source: Bloomberg, 13 November 2013 3

Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com

Asia Pacific Equity Research 18 November 2013

Equity Strategy: Challenging steeplechase

Source: Bloomberg, 11 November 2013.

Table 2: Economic growth below potential in most countries

Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com

Asia Pacific Equity Research 18 November 2013

Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com

Asia Pacific Equity Research 18 November 2013

Figure 4: Rising investment share of GDP growth in China

Source: J.P. Morgan economics, Data until 3Q13

Figure 5: Chinese IT and staples performance relative to MSCI China

Source: Bloomberg, 11 November 2013.

Figure 6: China: Higher CPI and lower wage growth

Source: Bloomberg, 31 October 2013, Wage inflation data till 2Q13

Figure 7: Indian IP growth and market performance

Source: Bloomberg, 31 October 2013.

Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com

Asia Pacific Equity Research 18 November 2013

Source: Bloomberg, J.P Morgan, 12 November 2013.

Table 4: Impact of FX on dollar returns in APxJ markets

Source: MSCI, Datastream, Bloomberg, 12 November 2013

Figure 9: Bubble about to burst? HK property price index

Source: HEOSA, June 2013.

Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com

Asia Pacific Equity Research 18 November 2013

Politics: Horse race

Table 6: Parties currently governing the states in India

Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com

Asia Pacific Equity Research 18 November 2013

May India General election Colombia Presidential election

Aug Turkey Presidential election Nov Poland Local election

Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com

Asia Pacific Equity Research 18 November 2013

The uncomfortable journey to neutral monetary policy

Source: Bloomberg, 30 October 2013

Table 8: US interest rate forecasts