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Morning News & Views-Asia:A Summary of Select Global Markets Research

野村证券


Morning News & Views - Asia A Summary of Select Global Markets Research Wednesday 11 January 2017 KEY FORECAST CHANGES RATING SECURITY / SECTOR TICKER OLD NEW CURR OLD NEW U/D% COMPANY RATING CHANGES Platinum Group PCL PLAT TB Not Rated Buy Buy Buy Neutral Neutral THB KRW KRW N/A 30000.00 8.35 28000.00 +20.1 +6.9 +0.5 THB KRW KRW N/A 4,368 8,884 25.64c 4,455 8,773 N/A 3,976 10,002 27.68c 3,350 9,424 TARGET PRICE CURR OLD NEW OLD NEW CUR YEAR EPS NEXT YEAR EPS
Hanwha Chemical Corp 009830 KS KT&G Corp 033780 KS
160000.00 100000.00
TARGET PRICE CHANGES Central Pattana China State Construction International Makalot CPN TB 3311 HK 1477 TT Buy Neutral Neutral THB HKD TWD 70.00 12.13 158.00 69.00 12.74 140.00 +22.1 +10.8 +14.3 THB HKD TWD 2.02 1.19 7.34 2.01 1.36 7.42 2.22 1.31 8.89 2.20 1.47 8.09
ESTIMATE CHANGES PetroChina 857 HK Buy HKD 8.80 +42.4 CNY 5.46c 4.87c 57.85c 58.53c
*U/D % = Potential Up/Downside %
HIGHLIGHTS FOR TODAY Anchor Report: Thailand shopping malls - 2017 outlook: Expansion drives future growth Peerawat Dentananan - CNS, Thailand We initiate on PLAT with a Buy rating; CPN remains our top pick Action: Bullish on Thailand shopping mall developers. We reiterate our positive outlook on Central Pattana (CPN TB; Thailand's largest shopping mall developer) and initiate coverage on Platinum Group (PLAT TB; a wholesaler specialist mall developer which boasts the highest retail rental rates in Bangkok) with a Buy rating. In 2017: 1) we believe that domestic demand growth for retail rental space will continue to outpace supply growth; 2) we estimate 34% rental price hikes given asset enhancements. In the longer term, our expectation is that shopping malls in Thailand will remain resilient to the e-commerce threat relative to other markets such as China, the US and Singapore. CPN: rebounding investment should drive 26% revenue growth in 2018F. Although we expect a relatively soft year for revenue growth in 2017F for CPN (estimate: 8%), given only one new mall in 2016, we believe this is largely priced in. q q
Central Pattana (CPN TB, Buy, TP THB 70→THB 69) Platinum Group PCL (PLAT TB, Not Rated→Buy, TP THB 8.35)
Production Complete: 2017-01-10 21:58 UTC
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Morning News & Views - Asia
11 January 2017
India healthcare - 3QFY17 preview Saion Mukherjee - NFASL / Ayan Deb - NFASL Result plays: Glenmark, Jubilant Life Sciences, Thyrocare For the Indian Pharmaceutical sector, the factors that we expect to have an impact on the earnings include: a) Demonetisation: Most companies expect a "moderate" impact from demonetisation in 3QFY17, with the slowdown visible in Dec 2016 (Fig 3). The companies have extended credit terms to the trade. However, our interaction with the industry suggests some drop in inventory levels in trade which will adversely impact primary sales. We project single- to low double-digit growth in domestic business. b) The US: The pricing environment is unlikely to change materially Q-Q. Companies may continue to guide for near-term mid- to high-single digit annual erosion in prices. US revenues are likely to rise the most for GNP (due to gZetia). We also expect positive seasonal impact for LPC and DRRD. SUNP benefits from the launch of AGs during the quarter. c) Emerging markets (EM): We expect strong growth in INR terms due to the low base and recovery in EM currencies. Singapore property - Five possible property surprises for 2017 Min Chow Sai - NSL / Royston Tan - NSL Expect a more volatile market; top picks = CAPL, CIT, MLT and SPHREIT 2017 surprises: expect a more volatile market. This is the sixth edition of our annual list of potential fat-tailed risks for the Singapore real estate market. We had an average hit-rate of 50% in 2016, with two and a half out of the five surprises coming to pass during the year (Singapore 10Y bond yield dipping below 2% and office REITs being the best performers; the one on S-REITs outperforming developers was directionally correct but the 15% gain in the SREIT index did not materialise and hence the half-right verdict). In terms of stock selection, CIT and CCT did well but CAPL, one of our top picks, turned out to be the worst performer in 2016. We expect increased market volatility in 2017 and our five possible surprises for this year are: A rebound in private home prices; A new record price for a GLS residential site; Further tightening of housing policies; Property stocks - a story of two halves (1H better than 2H); GLP stays listed. Hanwha Chemical Corp (009830 KS, Neutral) - Chemical resilience diluted by solar (Buy→Neutral, TP KRW 30,000→KRW 28,000) Cindy Park - NFIK / David Hwang - NFIK Downgrade to Neutral on grim solar outlook Action: Downgrade to Neutral, lower TP to KRW28,000. Hanwha Chemical Corp (HCC) share has outperformed the KOSPI by 4% in the past three months (trades at 0.7x FY17F PBR [BVPS: KRW36,169]) on a rebound in PVC margins and healthy earnings across various chemical products in 4Q16 (TDI, caustic soda, styrene monomer). We now believe HCC will become more aggressive in solar module prices, after its likely contract expiry with NextEra (NEE US, NR) - which could hurt HCC's operating profit margin. Even if HCC succeeds in renewing its contract, the renewal may come at the expense of reduced profitability, in our view. We lower our 2017/18F solar operating profit estimates by 49%/44% to reflect the recent price deterioration, less likelihood of NextEra contract renewal, and higher exposure to spot market sales (with lower profitability). Our preferred pick is LG Chem (051910 KS, Buy) for its defensive chemical product portfolio and EV battery earnings growth. KT&G Corp (033780 KS, Neutral) - Neutral on competition from e-cigarettes (Buy→Neutral, TP KRW 160,000→KRW 100,000) Cara Song - NFIK / Jiun Im - NFIK / Satoshi Fujiwara - NSC Lessons from Japan; e-cigarette concerns could linger for a while in Korea Action: Downgrade to Neutral as reflecting e-cigarette concerns. While an inflationary macro environment has triggered de-rating of global tobacco peers for the past months, electronic cigarette (e-cigarette) concerns in particular have widened KT&G's P/E discount to peers to an historical high of c.40%, vs average of 21% (KT&G at 11x FY17F P/E, vs peers' 18x). In our view, e-cigarette market growth could be slower in Korea than in the US, the UK or Japan, due to: 1) Korea's relatively cheap tobacco price; 2) tight regulation on e-cigarettes; 3) relatively younger demographic mix. Japan Tobacco's (JTI; 2914 JP, Buy) market share loss and late response to fast inroads by 'iQOS' in Japan were great lessons for KT&G, especially when Philip Morris' (PMI; PM US, NR) iQOS launch in Korea looks imminent (1H17F on Nomura forecast; PMI plans to launch iQOS globally in FY17F).
AROUND THE WORLD First Look - ABC-Mart (2670 JP) (Buy) - One-time profit fall in Q3, recovery in Dec (TP JPY 7,250) Masafumi Shoda - NSC 17/2 Q3 results: one-time decline in profits, growth in 17/2 broadly attainable. ABC-Mart released 17/2 Q3 results on 10 January. Operating profits moved into negative y-y territory, falling 2% y-y in Q1-3 and 10% in Q3 alone. Samestore sales slowed in Q3, falling 0.3% owing to unseasonably warm weather, and with advertising costs of ¥0.3bn arising that were expected to be posted at another time, operating profits in Japan fell 7%. Profits at the overseas business fell 34%, with unseasonably warm weather in South Korea and the stronger yen denting profits. Business in Japan, meanwhile, benefited from yen appreciation, while the weighting of original merchandise was unchanged
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Nomura | Morning News & Views - Asia
11 January 2017
y-y at 39.1%, and the gross margin rose, albeit by only 0.2ppt. We estimate same-store sales rose around 0.7% y-y in Sep-Dec, with same-store sales up 3.9% in December, recovering to a pace stronger than guidance for 17/2 H2 of a decline of 0.8%. Panasonic (6752 JP) (Buy) Still opportunities for proactive structural reforms (ADR:PCRFY US) (TP JPY 1,250→JPY 1,500) Yu Okazaki - NSC In addition to M&A activities, we expect clearer growth strategies from sales/spinoffs of businesses Investment stance: reaffirm our Buy rating; forecast recovery in 18/3. Although we forecast a profit decline at Panasonic in 17/3 as it raises fixed expenses in the interest of future growth, we expect a return to earnings expansion from 18/3 as the company reaps the fruits of its growth investments and benefits from the weaker yen. We calculate our target price of ¥1,500 by multiplying our 18/3 EPS forecast of ¥79.9 by a P/E multiple of 19x. We apply a 10-20% premium to the Russell/Nomura Large Cap (ex financials) P/E average of 16-17x as we expect sustained profit growth centered around consumer and automotive operations. Structural reforms moving into phase two. We think Panasonic essentially completed phase one of its structural reforms by 16/3 as it stanched the bleeding in its lossmaking businesses and reduced fixed expenses by cutting headcount. Japan electronic parts sector: data update - Focus on Chinese smartphone market Manabu Akizuki - NSC / Sharon Tseng - NSC 2017 outlook: focusing on internal changes for mid-range handsets, next iPhone models Shipments high in December, partly on Lunar New Year factors, 2016 ahead of our estimated range. The Chinese Ministry of Industry and Information Technology (MIIT) has released statistics for December 2016. Mobile phone handset shipments (sell-in basis) rose 11.8% y-y to 63.16mn units, of which smartphone shipments rose 18.8% to 60.44mn. With the Lunar New Year falling earlier than normal on 28 January this year, and given the way that MIIT figures are based on the number of licenses issued, we think December shipment statistics will have included some January shipments, and as a consequence we look to a sharp decline in January. For full-year 2016, smartphone shipments rose 14.0% to 521.62mn, giving a monthly average of 43.5mn, slightly ahead of the mid-point of our estimated range of 40-45mn. Chinese smartphone market in 2017: focusing on new functionality aimed at encouraging upgrades of mid-range phones. Japan consumer electronics - CES 2017 Yu Okazaki - NSC Show steadily becoming the place to announce next-generation technologies New product and technology announcements from Japanese consumer electronics companies. CES 2017, the world's biggest consumer technology show, was held in Las Vegas over 5-8 January, with announcements of new products and technologies from Japan's consumer electronics companies including Panasonic [6752] (Buy) and Sony [6758] (Buy). As before, there were major displays of audio-visual equipment, including OLED TVs and smartphones, particularly from Asian manufacturers. Meanwhile, many visitors were attracted to displays of nextgeneration technologies, including automotive equipment, wearables, virtual reality (VR)/augmented reality (AR), and artificial intelligence (AI). We get the impression that CES is gradually becoming the place to announce technologies that go beyond the bounds of consumer electronics. Machinery sector China data: Dec construction machinery, FA firm - Cons machinery op hours up 9%, demand up 78% Katsushi Saito - NSC / You Zhou - NSC / Caren Huang - NITB Sustained recovery in operating hours key for cons machinery, iPhone to underpin FA demand Construction machinery: operating hours up 9%, demand up 78%; FA: Airtac sales up 29% Chinese construction machinery and FA demand data released for December revealed a solid picture for both. Construction machinery operating hours (Komtrax) in China, published by Komatsu [6301] (Buy) on its website, rose 8.7% y-y in December (Figure 2). Elsewhere, data released by the China Construction Machinery Association (CCMA) showed hydraulic excavator sales volume in China up 78% y-y overall in December, up 67% at Komatsu, and up 73% at Hitachi Construction Machinery [6305] (Neutral; Figure 5). In factory automation (FA) equipment, overall sales at Taiwanese pneumatic equipment manufacturer Airtac International (90% of which are generated in China) rose 29% y-y in December (Figure 3). CES 2017: implications for Japanese telecoms carriers - Reaffirming Buy rating on Softbank Group, top pick Daisaku Masuno, CFA - NSC Focus on 4CA and C-V2X Positive implications for Softbank Group from CES 2017. We think the recently held CES 2017 consumer electronics and technology tradeshow had positive implications for Softbank Group [9984] among Japanese telecoms carriers. It is performing well across all segments and we reaffirm our Buy rating with a target price of ¥11,110 on the company, which is one of our two top picks in the sector. Expectations for four carrier aggregation using 80MHz of bandwidth on the downlink in 2017. On 3 January, Qualcomm said that it would start commercial shipments in 2017 H1 of its
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Nomura | Morning News & Views - Asia
11 January 2017
Snapdragon 835 processor, which it announced in November 2016. The chip can support LTE Category 16 download speeds and 4 Carrier Aggregation (4CA) using up to 80MHz bandwidth on the downlink. Sprint holds 160MHz of 2.5GHz spectrum in 100 markets across the US, and intends to roll out 3CA throughout the US in 2017, but we think the focus will now shift to 4CA. Japanese equities: BOJ's ETF purchases - The lesson from Hong Kong Hisao Matsuura - NSC / Masaki Motomura - NSC / Kiichi Fujita - NSC / Naoya Fuji - NSC / Wendy Liu - NIHK / Erin Zhang - NIHK ETF tapering, and what comes after that Focus points are March Tankan, Financial System Report, and media criticism. Our Japan equity strategy team thinks that the BOJ will decide at its April 2017 monetary policy meeting to reduce its ETF purchases for the first time, by ¥1-1.5trn from the current level of ¥6trn a year. We think the BOJ's March Tankan and its Financial System Report will be key factors affecting the likelihood of this. If it is concerned about a negative impact on the market, the BOJ should perhaps consider postponing this negative impact by specifying the timing of its sales. While the BOJ's ETF purchases have had an impact on the stock market, it would be difficult to argue that this amounts to excessive distortion. What we should regard as a problem, however, is the BOJ's excessive risk-taking. The BOJ's net assets totaled ¥7.6trn at end-2016. Chipotle Mexican Grill, Inc. - Lowering 2017-18 EPS Estimates (TP USD 333) Mark Kalinowski - ILLC / Ryan Kidd - ILLC But December Same-Store Sales Up Nicely This morning, Chipotle Mexican Grill pre-announced Q4 EPS of $0.50-0.58, below our $0.95 forecast and the Consensus Metrix number of $0.98. Fourth-quarter same-store sales declined by 4.8%, a little worse than our -4.0% projection and the consensus figure of -3.5%. We move our Q4 EPS estimate down by $0.40 to $0.55, which takes our full-year 2016 EPS estimate down to $1.05. We also lower our full-year 2017 and full-year 2018 EPS forecasts by $0.60 each, to $8.40 and $12.40, respectively. Margin issues - including promotional/advertising spend - could continue to pressure EPS. That said, the Street appears pleased with December same-store sales returning to positive territory (up 14.7%, albeit lapping a -30% number from December 2015). January same-store sales (lapping a -36% from January 2016) likely will be up double digits as well. We reiterate our Neutral rating on CMG.
ALSO INSIDE TODAY... REGIONAL / REGIONAL MARKET STRATEGY / REGIONAL SECTOR STRATEGY / REGIONAL ECONOMIC ANALYSIS First Insights - China: December PPI highlights risks of stagnation Yang Zhao - NIHK / Wendy Chen - NIHK We have revised up our PPI and CPI inflation forecasts for 2017. China's producer price index (PPI) continued to strengthen in December, rising to a much higher than expected 5.5% y-o-y from 3.3% in November (Consensus: 4.6%; Nomura: 4.8%). Inflation is not only evident in upstream industries but has also started to spread downstream, which points to a rising risk of PPI inflation passing through to CPI inflation. CPI inflation moderated slightly to 2.1% y-o-y in December from 2.3% in November (Consensus: 2.2%; Nomura: 2.0%), with food price inflation weaker than the historical average, while non-food price inflation picked up. Inflation in the residence and service components was resilient - a sign of high property prices passing through to the CPI, in our view.   Based on the higher-than-expected PPI reading, we revise up our 2017 PPI inflation forecast to 4.4% from 1.0%, and also our CPI inflation forecast to 2.6% from 2.4%.   We expect nominal GDP growth to rebound in 2017, mainly driven by higher inflation. Asia Insights - China: Rapid rise in PPI may complicate policy choices Yang Zhao - NIHK / Wendy Chen - NIHK Expect PPI inflation to peak in Q1 at around 7%. PPI jumped to 5.5% y-o-y in December and CPI inflation moderated slightly to 2.1% y-o-y.  We have revised up 2017 PPI forecast to 4.4% and CPI forecast up to 2.6%. Rapid PPI inflation is being driven mainly by inflation in upstream sectors. Price increases in downstream sectors also accelerated, albeit not by as much. The combination of rising inflation and headwinds to economic growth may further complicate macro policy with an increasing risk of monetary policy mismanagement.  We expect the PPI to peak at around 7.0% in Q1. PPI inflation jumped further to 5.5% y-o-y in December from 3.3% in November, higher than our already above-consensus forecast (Consensus: 4.6%; Nomura: 4.8%; Figure 1). On a month-on-month basis, PPI inflation rose to 1.6% from 1.5%. Upstream industries in the mining and the raw material sectors still lead PPI inflation (Figure 2), particularly the ferrous metal and energy-related industries. Asia Insights - Philippines: Second largest trade deficit on record
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Nomura | Morning News & Views - Asia
11 January 2017
Euben Paracuelles - NSL / Lavanya Venkateswaran - NSL … adding to the case for policy rate hikes. November imports rose by a solid 19.7% y-o-y from 5.9% in October, driving the trade deficit wider to a near recordhigh USD2.6bn from USD2.2bn in October. This underscores solid domestic demand, which we expect to continue in 2017 and supports our GDP growth forecast of 6.3% amid still-soft exports. We maintain our forecasts for the current account surplus to narrow to 0.5% of GDP in 2017 from 1.3% in 2016 and Bangko Sentral to hike rates by a total 50bp in H1 2017. The trade deficit widened by more than expected to USD2.6bn in November from USD2.2bn in October (Consensus: -USD2.1bn; Nomura:-USD2.3bn) driven by strong import growth (Figure 1). This was the second highest monthly deficit on record. Import growth surging November imports growth surpassed expectations, rising to 19.7% y-o-y from 5.9% in October (Consensus: 11.0%; Nomura: 16.5%). This was led by capital and consumer goods imports, which increased by 29.7% y-o-y and 32.6% y-o-y from 13.1% and 16.6% in October, respectively.
COUNTRY MARKET STRATEGY India equity strategy - December-quarter earnings preview Sanjay Kadam - NFASL Demonetization blues Demonetization-led slowdown to halt earnings momentum. Our analysts' forecasts for 3QFY17F earnings point to a significant loss of momentum, after a rather strong 2QFY17. The numbers for Nomura's ex-oil & gas PSUs and banks universe are showing the weakest sequential sales growth in the last four years. Our analysts forecast sales growth of 3.1% y-y, and 0.8% q-q. Despite favourable 2H base effects, sales growth of 3.1%y-y in 3QFY17 is a significant slowdown from the 5.3% y-y sales growth in 2QFY17. The decision of the Modi government to demonetize the currency disrupted the normal business cycle mid-way through 3QFY17. A massive contraction in money supply has meant demand destruction at the retail end as well as severe supply chain disruptions given that cash is a primary means of transaction in several sectors, either at the retail end or at the supply chain level.
HONG KONG / CHINA PetroChina (857 HK, Buy) - Our top Buy in the New Year (TP HKD 8.8) Gordon Kwan - NIHK / Bob Chen, CFA - NIHK / Jamie Wang - NITB Gas market reform and potential divestment could trigger outperformance Strengthening cash flow and balance sheet despite weak 2016. Owing to persistent oil price weakness, PetroChina's overall 2016 performance was unimpressive as upstream E&P losses offset gains from the downstream business. Based on USD45/bbl Brent crude price last year, we estimate 2016 profit fell 75% YoY, as average realised oil/gas prices declined 19% and 13% respectively. (See quarterly EBIT breakdown on pg. 3) More importantly, PetroChina has strengthened cash flow generation following numerous rounds of capex cuts and collaborative industry efforts to deflate costs across the whole value chain. The improved balance sheet could allow PetroChina to become more generous in rewarding investors this year as rebounding oil and gas prices could trigger outperformance for the stock. Quick Note - Hangzhou Robam (002508 CH, Buy) - Positive profit alert (TP CNY 55) Richard Huang - NIHK / Stella Xing, CFA - NIHK Company expects 2016 net profit growth of 40-50%. Hangzhou Robam published an Exchange release this morning, revising up its 2016 net profit growth guidance from 20-40% to 40-50%. That implies 2016 net profit of RMB1.16-1.25bn, which is 1-8% above consensus and 9-17% above Nomura estimates. The company indicated that the upward revision was underpinned by: 1) stronger-than-expected 4Q16 sales; and 2) RMB56mn government subsidy received in December 2016. Strong 4Q could mitigate concerns on slowing property market. The company's FY16 net profit guidance implies 4Q16 net profit of RMB461-544mn and net profit growth of 35-59%, as compared to 44% in 1Q-3Q16. The stellar earnings performance in 4Q should help mitigate investors' concern on a slowing property market affecting Range Hood sales, which is Robam's key revenue contributor. Maintain Buy with CNY55.0 TP. Robam's strong earnings delivery, in the past five years, has been key to sustaining its impressive share price returns. China State Construction International (3311 HK, Neutral) - P&L to turn strong (TP HKD 12.13→HKD 12.74) Patrick Xu, CFA - NIHK / Zhuoran Wang, CFA - NIHK Cash flows to turn weaker Action: Lifting FY16-18F EPS + TP by 5% (to HKD12.74); maintain Neutral. We maintain our Neutral rating, but raise FY16F/17F/18F EPS by 14%/12%/6% by raising our project execution assumptions. Hence, we lift our DCF-derived TP by 5% to HKD12.74, implying 9x FY17F P/E (EPS: HKD1.47). We are particularly concerned over the contract mix change towards capital-intensive public-private partnership (PPP) projects, which makes it extremely difficult for the company to generate positive FCFF in FY16-18F. We prefer CRRC (1766 HK, Buy) in the sector. New contracts 5
Nomura | Morning News & Views - Asia
11 January 2017
target slightly above our expectations. The company won HKD84bn of new contracts in FY16 vs. our HKD83bn forecast. It also announced FY17F target of HKD90bn, slightly above our HKD88bn estimate. The backlog was HKD154bn as of end-FY16, lower than our HKD158bn forecast, implying that more backlog was recognised as revenue in 2H16 than our earlier estimate, ie, faster-than-expected project execution in 2H16F. Cash flows to turn weaker.
INDIA Quick Note - Indusind Bank (IIB IN, Buy) - 3Q better than expected: Business as usual (TP INR 1,400) Adarsh Parasrampuria - NFASL / Amit Nanavati - NFASL IIB's 3QFY17 was strong, with almost no impact from demonetization, and reported PAT at INR7.5bn (Fig 2, +29% y/y) was better than our estimate of INR7.25bn. Unlike its larger retail bank peers, IIB's smaller size is helping it ride through the transitory slower growth phase of demonetization, and asset quality has also held up well with minimum use of RBI's asset quality dispensation. IIB's growth at ~25% CAGR will likely be best in industry and that should help offset slower fee intensity in the next 2 years. We maintain our BUY rating and TP of INR1,400 implying 3.3x Sep-18F book of INR423. Negligible demonetization impact: Asset quality was stable with improvement in most retail categories except for marginal increase in NPAs in LAP/Car portfolio. IIB indicated that they have used the RBI dispensation on asset quality in accounts amounting to only INR520mn (5bps of loans). India autos - 3QFY17F earnings preview Kapil Singh - NFASL / Siddhartha Bera - NFASL Higher commodity costs and weak operating leverage to impact margins 3QFY17F: EBITDA margins to decline largely across OEMs. Overall, we expect a modest ~4% y-y revenue growth for the domestic auto and auto parts companies under our coverage (ex-JLR), led by subdued volumes in twowheelers (2Ws) and MHCVs on account of demonetisation. The impact of demonetisation has been particularly lower for companies with long waiting periods like Maruti Suzuki (MSIL IN, Buy) and Eicher Motors (EIM IN, Buy). Also, auto parts companies with exposure to the replacement segment have been relatively less affected. Thus, Amara Raja (AMRJ IN, Buy) is likely to report strong 23% yoy growth in revenue led by both volumes and pricing. On the margins front, our commodity index for passenger vehicles has increased by ~90bps QoQ, indicating gross margins can come under pressure. Some original equipment manufacturers (OEMs) have taken price hikes from Jan-17, which should offset this impact in 4QFY17F. India IT services - Deep dive on US H-1B issues for Indian IT Ashwin Mehta - NFASL / Rishit Parikh - NFASL Tightening legal immigration and increases in H-1B salaries can significantly impact earnings Findings from our study of LCA (pre H-1B approvals) for FY16. Post the US elections, we regard moves to tighten legal immigration and/or increase in H-1B salaries as a real threat to Indian IT companies. In this report, we analyze the US LCA (Labor Condition Application) filing data for Oct'15-Sep'16, and look to answer the following key questions: What are the job profiles where Tier 1 IT companies apply for H-1B visas, and is there any significant variation across companies (Fig 1)? How do salaries differ across these job profiles, and what are the higher or lower paying jobs (Fig 3)? What is the salary increase across different job profiles as experience level changes? Level 3 (second highest mandated level) is considered to be the average salary by FLC (Foreign Labor Certification), and if there are any measures taken to raise the minimum level of salary for H-1B-dependent employers, this gives a picture of the likely wage hike impact (Fig 5).
TAIWAN Makalot (1477 TT, Neutral) - FY17F outlook (TP TWD 158→TWD 140) Caren Huang - NITB Returns to the growth path Action/ Valuation: Stay Neutral; cut TP to TWD140. We cut Makalot's FY17F earnings by 9% (Fig. 1); accordingly, we lower our DCF-derived TP to TWD140 (Fig. 5). Based on our discussion with management and the latest results from US apparel makers, we believe the general/casual wear supply chain should bottom in 1Q17 and recover from 2Q17. Nevertheless, with the overhang of a weak RMB (price competition) and uncertain end-demand, we still maintain our Neutral stance. We suggest investors revisit the stock after the Lunar New Year when Makalot has a better grasp on its 2Q17-onwards order visibility. Our top pick in the Taiwan retail supply chain is Eclat (1476 TT, Buy, TP: TWD405; CMP: TWD330; upside potential: 23%) for its improving operating efficiency. 1H17F guidance. Makalot expects 2017F sales to grow 5% y-y, largely driven by shipments growth. Quick Note - Taiwan chemicals - FPG's preliminary 4Q16/2016 results Jamie Wang - NITB / Cindy Park - NFIK Formosa Plastics Group (FPG) reported preliminary 4Q16/2016 results on 9 January 2017. Generally speaking, all
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11 January 2017
the four companies reported stronger 4Q16 results, primarily due to rising crude oil prices in 4Q16, which triggered strong petrochemical demand. Although the strong 2016 is within our and market's expectation, the earnings y-y trend still surprised us and the market to some extent. We thus expect positive share price movement for the group following the announcement of the preliminary results. 4Q16 results: Only FCFC reported q-q decline in operating profits. In terms of y-y trend, all the four companies reported positive operating profit growth. However, Formosa Chem & Fibre (FCFC; 1326 TT, Buy) saw 40% q-q decline in net profits, primarily due to maintenance shutdown at its PP (polypropylene) plant and the operational issue at a cogeneration plant.
THAILAND Quick Note - Central Plaza Hotel PCL (CENTEL TB, Buy) - Announcement of hotel JV in Dubai (TP THB 47) Marcin Spiewak, CFA - CNS, Thailand This morning, the Bangkok Post reported that CENTEL has announced a JV to build an upscale, 550-room beachside resort in Dubai, set to open in 2019. CENTEL's management had previously guided its intention for this JV, but the timing was uncertain. Although there are no changes to our current earnings estimates, given that the hotel is set to open after our forecast period, we believe it is significant for three key reasons: 1) in terms of size (total investment is guided at just under THB5bn); 2) it marks CENTEL's first investment outside of the Maldives and Thailand; and 3) we are now more confident about CENTEL's long-term growth potential (previously a key concern for us). Details of the project: The 'Centara Deira Island Beach Resort Dubai' will be an upscale 550?room resort with a water park, which will be developed on a beach on Dubai's Deira islands. This will mark CENTEL's first hotel investment outside of Thailand and the Maldives. Quick Note - PTT Exploration & Production (PTTEP TB, Neutral) - Sluggish production growth outlook (TP THB 96) Abhishek Nigam - NSL / Bineet Banka, CFA - NSFSPL PTTEP hosted a conference call today to outline its five year investment plan. We believe the key takeaways were the sluggish production growth outlook over the forecast period and Mozambique FID potentially being delayed to end-2017. We maintain a Neutral rating on PTTEP with target price of THB96 per share based on 0.9x FY17F P/B. Our preferred picks in Thailand are PTT Group (PTT TB, Buy) and PTT Global Chemical (PTTGC TB, Buy). Sales volume guidance cut sharply: PTTEP has guided for a sharp drop in sales volume (see fig 1) from 320 KBOED in FY16F to just 263 KBOED in FY21F. Most of the decline is due to the assumption of no extension to the Bongkot contract which contributes ~20% to PTTEP's total sales volume currently. Sales volume in FY17F is down due to divestment in Oman, and natural decline in Vietnam and Montara. FY20F volume forecast is cut steeply as the earlier forecast included sales contribution from Mozambique, which has now been delayed.
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UPCOMING EVENTS Date Jan 17-18 Feb 23-24 Jun 6-9 Location Jakarta Tokyo Singapore Event Indonesia All Access 2017 Nomura Global Real Estate Forum 2017 Nomura Investment Forum Asia 2017
http://www.nomura.com/corporate-access/#home
INDICES Last Price TOPIX Index (Tokyo) Dow Jones Industrial Average NASDAQ S&P 500 FTSE 100 CAC Xetra DAX Hang Seng Shanghai A shares CSI 300 HSCEI TWSE KOSPI SET Straits Times Kuala Lumpur Composite Jakarta Composite Index Philippines Stock Exchange PSEi Index ASX 200 SENSEX 30 Source: Bloomberg 1542.31 19890.89 5556.88 2272.18 7275.47 4888.23 11583.3 22744.85 3310.49 3358.27 9664.19 9349.64 2045.12 1572.1 3006.02 1672.05 5309.93 7364.34 5760.7 26899.56 1D% -0.7% 0.0% 0.5% 0.1% 0.5% 0.0% 0.2% 0.8% -0.3% -0.2% 0.6% 0.1% -0.2% 0.5% 0.8% 0.2% -0.1% 1.2% -0.8% 0.6% YTD 1.6% 0.7% 3.2% 1.5% 1.9% 0.5% 0.9% 3.4% 1.9% 1.5% 2.9% 1.0% 0.9% 1.9% 4.3% 1.8% 0.2% 7.7% 1.7% 1.0%
COMMODITY PRICES AND RISK INDEX Last Price Brent crude future Crude (Brent oil price) Gold spot price CBOE SPX Volatility REUTERS CRB Index US Generic Govt 10 Year Yield Source: Bloomberg 53.68 53.68 1187.03 11.58 191.14 2.38 1D% -2.3% -2.3% 0.5% 0.2% 0.3% 0.6% YTD -5.5% -5.5% 3.0% -17.5% -0.7% -2.7%
MAJOR CURRENCIES AGAINST US$ Last Price AUD* EURO* GBP* JPY KRW CNY 0.74 1.06 1.22 115.72 1194.57 6.92 1D% 0.2% -0.1% 0.0% -0.3% -1.1% -0.2% YTD 2.2% 0.4% -1.4% 1.1% 0.9% 0.3%
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CNH HKD SGD
6.91 7.75 1.44
0.4% 0.0% 0.0%
1.0% 0.0% 0.8%
* Per one US dollar, except GBP, EURO and AUD Source: Bloomberg Note: earnings changes refer to next year.
UPCOMING CORPORATE EARNINGS CALENDAR Company Formosa Chem & Fibre Formosa Petrochemical Nan Ya Plastics SPH REIT Tisco Financial Largan Precision Taiwan Semiconductor Manufacturing Corp. Tata Consultancy Services Bison Consolidated Berhad HKT Trust and HKT Ltd Infosys Pavilion REIT Caregen Far EasTone Telecom Feng Tay Nutribiotech Formosa Plastics New Oriental Source: Bloomberg *C- Confirmed, E- Expected, T -Tentative Ticker 1326 TT 6505 TT 1303 TT SPHREIT SP TISCO TB 3008 TT 2330 TT TCS IN BISON MK 6823 HK INFO IN PREIT MK 214370 KS 4904 TT 9910 TT 222040 KS 1301 TT EDU US Earnings Date Jan 11 Jan 11 Jan 11 Jan 11 Jan 11 Jan 12 Jan 12 Jan 12 Jan 13 Jan 13 Jan 13 Jan 13 Jan 15 Jan 16 Jan 16 Jan 16 Jan 17 Jan 17 C/E/T* E E E C E C C C E C C E E E E E E C
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Appendix A-1 Any Authors named on this report are Research Analysts unless otherwise indicated Analyst Certification Each research analyst identified herein certifies that all of the views expressed in this report by such analyst accurately reflect his or her personal views about the subject securities and issuers. In addition, each research analyst identified in this report hereby certifies that no part of his or her compensation was, is, or will be, directly or indirectly related to the specific recommendations or views that he or she has expressed in this research report, nor is it tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Important Disclosures The lists of issuers that are affiliates or subsidiaries of Nomura Holdings Inc., the parent company of Nomura Securities Co., Ltd., issuers that have officers who concurrently serve as officers of Nomura Securities Co., Ltd., issuers in which the Nomura Group holds 1% or more of any class of common equity securities and issuers for which Nomura Securities Co., Ltd. has lead managed a public offering of equity or equity linked securities in the past 12 months are available at http://www.nomuraholdings.com/report/. Please contact the Research Product Management Dept. of Nomura Securities Co., Ltd. for additional information.
  Online availability of research and conflict-of-interest disclosures Nomura Group research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne. Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested from Nomura Securities International, Inc., or Instinet, LLC on 1-877-865-5752. If you have any difficulties with the website, please email grpsupport@nomura.com for help.
  The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA rules, may not be associated persons of NSI or ILLC, and may not be subject to FINRA Rule 2241 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
Nomura Global Financial Products Inc. ("NGFP") Nomura Derivative Products Inc. ("NDPI") and Nomura International plc. ("NIplc") are registered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, and NIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.
  ADDITIONAL DISCLOSURES REQUIRED IN THE U.S. Principal Trading: Nomura Securities International, Inc and its affiliates will usually trade as principal in the fixed income securities (or in related derivatives) that are the subject of this research report. Analyst Interactions with other Nomura Securities International, Inc. Personnel: The fixed income research analysts of Nomura Securities International, Inc and its affiliates regularly interact with sales and trading desk personnel in connection with obtaining liquidity and pricing information for their respective coverage universe.
  Distribution of ratings (Nomura Group) The distribution of all ratings published by Nomura Group Global Equity Research is as follows:
50% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 39% of companies with this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA) with this rating were supplied material services** by the Nomura Group.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 52% of companies with this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA) with this rating were supplied material services by the Nomura Group
8% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 7% of companies with this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA) with this rating were supplied material services by the Nomura Group.
As at 31 December 2016. *The Nomura Group as defined in the Disclaimer section at the end of this report. ** As defined by the EU Market Abuse Regulation
 
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Definition of Nomura Group's equity research rating system and sectors The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock, subject to limited management discretion. An analyst's target price is an assessment of the current intrinsic fair value of the stock based on an appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated target price, defined as (target price - current price)/current price.
STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia ex-Japan : please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia) : MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.
SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as 'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.
  Target Price A Target Price, if discussed, indicates the analyst's forecast for the share price with a 12-month time horizon, reflecting in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
  Valuation methodology - Fixed Income
Nomura's Fixed Income Strategists express views on the price of securities and financial markets by providing trade recommendations. These can be relative value recommendations, directional trade recommendations, asset allocation recommendations, or a mixture of all three. The analysis which is embedded in a trade recommendation would include, but not be limited to: ? Fundamental analysis regarding whether a security's price deviates from its underlying macro- or micro-economic fundamentals. ? Quantitative analysis of price variations. ? Technical factors such as regulatory changes, changes to risk appetite in the market, unexpected rating actions, primary market activity and supply/ demand considerations. The timeframe for a trade recommendation is variable. Tactical ideas have a short timeframe, typically less than three months. Strategic trade ideas have a longer timeframe of typically more than three months.
For the purposes of the EU Market Abuse Regulation, the distribution of ratings published by Nomura Global Fixed Income Research is as follows:
58% have been assigned a Buy (or equivalent) rating; 82% of issuers with this rating were supplied material services* by the Nomura Group**.
0% have been assigned a Neutral (or equivalent) rating.
42% have been assigned a Sell (or equivalent) rating; 70% of issuers with this rating were supplied material services by the Nomura Group.
As at 3 January 2017. *As defined by the EU Market Abuse Regulation **The Nomura Group as defined in the Disclaimer section at the end of this report
  Disclaimers This publication contains material that has been prepared by the Nomura Group entity identified on page 1 and, if applicable, with the contributions of one or more Nomura Group entities whose employees and their respective affiliations are specified on page 1 or identified elsewhere in the publication. The term "Nomura Group" used herein refers to Nomura Holdings, Inc. and its affiliates and subsidiaries including: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), UK; Nomura Securities International, Inc. ('NSI'), New York, US; Instinet, LLC ('ILLC'); Nomura International (Hong Kong) Ltd. ('NIHK'), Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. ('NFIK'), Korea (Information on Nomura analysts registered with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet
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at http://dis.kofia.or.kr); Nomura Singapore Ltd. ('NSL'), Singapore (Registration number 197201440E, regulated by the Monetary Authority of Singapore); Nomura Australia Ltd. ('NAL'), Australia (ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence number 246412; P.T. Nomura Indonesia ('PTNI'), Indonesia; Nomura Securities Malaysia Sdn. Bhd. ('NSM'), Malaysia; NIHK, Taipei Branch ('NITB'), Taiwan; Nomura Financial Advisory and Securities (India) Private Limited ('NFASL'), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037 4111; CIN No: U74140MH2007PTC169116, SEBI Registration No. for Stock Broking activities : BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034, MCX: INE261299034; SEBI Registration No. for Merchant Banking : INM000011419; SEBI Registration No. for Research: INH000001014 and NIplc, Madrid Branch ('NIplc, Madrid'). 'CNS Thailand' next to an analyst's name on the front page of a research report indicates that the analyst is employed by Capital Nomura Securities Public Company Limited ('CNS') to provide research assistance services to NSL under an agreement between CNS and NSL. 'NSFSPL' next to an employee's name on the front page of a research report indicates that the individual is employed by Nomura Structured Finance Services Private Limited to provide assistance to certain Nomura entities under inter-company agreements. 'BDO NS' next to an analyst's name on the front page of a research report indicates that the analyst is employed by BDO Unibank Inc. ('BDO') who has been assigned to BDO Nomura Securities Inc. (a Philippines securities dealer which is a joint venture between BDO and the Nomura Group), to provide research assistance services to NSL under an agreement between BDO, NSL and BDO Nomura Securities Inc. THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) OTHER THAN DISCLOSURES RELATING TO THE NOMURA GROUP, BASED UPON INFORMATION FROM SOURCES THAT WE CONSIDER RELIABLE, BUT HAS NOT BEEN INDEPENDENTLY VERIFIED BY NOMURA GROUP. Other than disclosures relating to the Nomura Group, the Nomura Group does not warrant or represent that the document is accurate, complete, reliable, fit for any particular purpose or merchantable and does not accept liability for any act (or decision not to act) resulting from use of this document and related data. To the maximum extent permissible all warranties and other assurances by the Nomura Group are hereby excluded and the Nomura Group shall have no liability for the use, misuse, or distribution of this information. Opinions or estimates expressed are current opinions as of the original publication date appearing on this material and the information, including the opinions and estimates contained herein, are subject to change without notice. The Nomura Group is under no duty to update this document. Any comments or statements made herein are those of the author(s) and may differ from views held by other parties within Nomura Group. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The Nomura Group does not provide tax advice. The Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as principal, agent, or otherwise, or have long or short positions in, or buy or sell, the securities, commodities or instruments, or options or other derivative instruments based thereon, of issuers or securities mentioned herein. The Nomura Group companies may also act as market maker or liquidity provider (within the meaning of applicable regulations in the UK) in the financial instruments of the issuer. Where the activity of market maker is carried out in accordance with the definition given to it by specific laws and regulations of the US or other jurisdictions, this will be separately disclosed within the specific issuer disclosures. This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor's. Reproduction and distribution of third-party content in any form is prohibited except with the prior written permission of the related third-party. Third-party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third-party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third-party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase hold or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice. Any MSCI sourced information in this document is the exclusive property of MSCI Inc. ('MSCI'). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated 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 and the MSCI indexes are services marks of MSCI and its affiliates. The intellectual property right and any other rights, in Russell/Nomura Japan Equity Index belong to Nomura Securities Co., Ltd. ("Nomura") and Frank Russell Company ("Russell"). Nomura and Russell do not guarantee accuracy, completeness, reliability, usefulness, marketability, merchantability or fitness of the Index, and do not account for business activities or services that any index user and/or its affiliates undertakes with the use of the Index. Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Nomura Group produces a number of different types of research product including, among others, fundamental analysis and quantitative analysis; recommendations contained in one type of research product may differ from recommendations contained in other types of research product, whether as a result of differing time horizons, methodologies or otherwise. The Nomura Group publishes research product in a number of different ways including the posting of product on the Nomura Group portals and/or distribution directly to clients. Different groups of clients may receive different products and services from the research department depending on their individual requirements. Figures presented herein may refer to past performance or simulations based on past performance which are not reliable indicators of future performance. Where the information contains an indication of future performance, such forecasts may not be a reliable indicator of future performance. Moreover, simulations are based on models and simplifying assumptions which may oversimplify and not reflect the future distribution of returns. Certain securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment. With respect to Fixed Income Research : Recommendations fall into two categories: tactical, which typically last up to three months; or strategic, which typically last from 6-12 months. However, trade recommendations may be reviewed at any time as circumstances change. 'Stop loss' levels for trades are also provided; which, if hit, closes the trade recommendation automatically. Prices and yields shown in recommendations are taken at the time of submission for publication and are based on either indicative Bloomberg, Reuters or Nomura prices and yields at that time. The prices and yields shown are not necessarily those at which the trade recommendation can be implemented. The securities described herein may not have been registered under the US Securities Act of 1933 (the '1933 Act'), and, in such case, may not be offered or sold in the US or to US persons unless they have been registered under the 1933 Act, or except in compliance with an exemption from the registration requirements of the 1933 Act. Unless governing law permits otherwise, any transaction should be executed via a Nomura entity in
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your home jurisdiction. This document has been approved for distribution in the UK and European Economic Area as investment research by NIplc. NIplc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. NIplc is a member of the London Stock Exchange. This document does not constitute a personal recommendation within the meaning of applicable regulations in the UK, or take into account the particular investment objectives, financial situations, or needs of individual investors. This document is intended only for investors who are 'eligible counterparties' or 'professional clients' for the purposes of applicable regulations in the UK, and may not, therefore, be redistributed to persons who are 'retail clients' for such purposes. This document has been approved by NIHK, which is regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This document has been approved for distribution in Australia by NAL, which is authorized and regulated in Australia by the ASIC. This document has also been approved for distribution in Malaysia by NSM. In Singapore, this document has been distributed by NSL. NSL accepts legal responsibility for the content of this document, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients who are not accredited, expert or institutional investors as defined by the Securities and Futures Act (Chapter 289). Recipients of this document in Singapore should contact NSL in respect of matters arising from, or in connection with, this document. Unless prohibited by the provisions of Regulation S of the 1933 Act, this material is distributed in the US, by NSI, a US-registered broker-dealer, which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934. 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Neither this document nor any copy thereof may be taken or transmitted or distributed, directly or indirectly, by any person other than those authorised to do so into Saudi Arabia or in the UAE or in Qatar or to any person other than 'Authorised Persons', 'Exempt Persons' or 'Institutions' located in Saudi Arabia or 'professional clients' in the UAE or a 'Market Counterparty' or 'Business Customers' in Qatar . By accepting to receive this document, you represent that you are not located in Saudi Arabia or that you are an 'Authorised Person', an 'Exempt Person' or an 'Institution' in Saudi Arabia or that you are a 'professional client' in the UAE or a 'Market Counterparty' or 'Business Customers' in Qatar and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of the UAE or Saudi Arabia or Qatar. For report with reference of TAIWAN public companies or authored by Taiwan based research analyst: THIS DOCUMENT IS SOLELY FOR REFERENCE ONLY. You should independently evaluate the investment risks and are solely responsible for your investment decisions. NO PORTION OF THE REPORT MAY BE REPRODUCED OR QUOTED BY THE PRESS OR ANY OTHER PERSON WITHOUT WRITTEN AUTHORIZATION FROM NOMURA GROUP. Pursuant to Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers and/or other applicable laws or regulations in Taiwan, you are prohibited to provide the reports to others (including but not limited to related parties, affiliated companies and any other third parties) or engage in any activities in connection with the reports which may involve conflicts of interests. INFORMATION ON SECURITIES / INSTRUMENTS NOT EXECUTABLE BY NOMURA INTERNATIONAL (HONG KONG) LTD., TAIPEI BRANCH IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT BE CONSTRUED AS A RECOMMENDATION OR A SOLICITATION TO TRADE IN SUCH SECURITIES / INSTRUMENTS. NO PART OF THIS MATERIAL MAY BE (I) COPIED, PHOTOCOPIED, OR DUPLICATED IN ANY FORM, BY ANY MEANS; OR (II) REDISTRIBUTED WITHOUT THE PRIOR WRITTEN CONSENT OF A MEMBER OF THE NOMURA GROUP. If this document has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this document, which may arise as a result of electronic transmission. If verification is required, please request a hard-copy version.
Disclaimers required in Japan Explanation on Ratings by Unregistered Rating Agencies From the perspective of obtaining fairness and transparency in the market, registration system for credit rating agencies has been introduced based on amended Financial Instruments and Exchange Act. In accordance with this, those financial instruments business operators utilizing ratings assigned by unregistered rating agencies ("Unregistered Ratings") upon soliciting clients are obligated to notify their clients that these ratings are Unregistered Ratings and to provide them with such other information necessary as the significance of registration.
○Significance of Registration Those credit rating agencies which have been registered under the system will be supervised by the Financial Services Agency (FSA) and will be subject to certain restrictions. Such restrictions include the following; duty of candor and good faith; obligation to maintain compliance system to prevent conflict of interest and to maintain fairness in the credit rating process; prohibited from assigning ratings on those securities which they are holders of; and obligation to prepare and disclose rating policies and other necessary documents and to make publicly available the explanation materials and other necessary documents. They will also be obligated to report to FSA upon its request, to accept on-site investigations, to receive business improvement order and will be under other forms of supervision by FSA. Unregistered rating agencies will not be subject to these restrictions and supervision by FSA.
○Rating Agencies Standard & Poor's -Name of the rating agency group and registration number Name of the rating agency group: S&P Global Ratings (S&P) Name of the registered credit rating agency within the group and its registration number: Standard & Poor's Ratings Japan K.K. (Financial Services Agency Commissioner 5) -The way of obtaining summary information on the policies and methods used for assigning credit ratings Please refer to the Japanese website of Standard & Poor's Ratings Japan K.K. at (http://www.standardandpoors.co.jp). Access「無登録格付け情 報」 (http://www.standardandpoors.co.jp/unregistered) under 「ライブラリ?規制関連」of the page. -Assumptions, Significance and Limitation of Credit Ratings Credit ratings assigned by Standard & Poor's are statements of opinion on the future credit quality of issuers or particular debts as of the date they are expressed, but such ratings are not indexes which show the probability of the default by issuers or on particular debts and do not
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constitute a guarantee creditworthiness. Credit ratings are not a recommendation to purchase, sell or hold any securities, or a statement of market liquidity or prices in the secondary market of any issues. Credit ratings may change depending on various factors, including issuers' performance, changes in external environment, performance of underlying assets, creditworthiness of counterparties and others. Standard & Poor's conducts rating analysis based on information from the reliable sources and it provides credit ratings only if such information is sufficient in quality and quantity to enable it to reach decisions credit ratings could be provided. However, Standard & Poor's does not perform an audit, due diligence or independent verification of any information provided by the issuer or any third party and it does not guarantee its accuracy, completeness or timeliness of the available information for credit ratings and the results gained from such information. Moreover it needs to be noted that there may be a potential risk resulting from the limitation of the historical data available for use depending on the rating. This information is based on information Nomura has received from sources it believes to be reliable as of May 18, 2016, but it does not guarantee accuracy or completeness of the information. For details, please refer to its website above.
Moody's -Name of the rating agency group and registration number Name of the rating agency group: Moody's Investors Service Inc. (Moody's) Name of the registered credit rating agency within the group and registration number: Moody's Japan K.K. (Financial Services Agency Commissioner 2) -The way of obtaining summary information on the policies and method used for assigning credit ratings Please refer to the Japanese website of Moody's Japan K.K. at ( https://www.moodys.com/pages/default_ja.aspx). Click 「信用格付事業」and access to 「無登録格付説明関連」in「無登録業者の格付の利用」. -Assumptions, Significance and Limitation of Credit Ratings Credit ratings are Moody's Investors Service, Inc.'s ("MIS") current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. MIS defines credit risk as the risk that an entity may not meet its contractual, financial obligations as they come due and any estimated financial loss in the event of default. Credit ratings do not address any other risk, including but not limited to: liquidity risk, market value risk, or price volatility. Credit ratings do not constitute investment or financial advice, and credit ratings are not recommendations to purchase, sell, or hold particular securities. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such rating or other opinion or information is given or made by MIS in any form or manner whatsoever. Based on the information received from issuers or from public sources, the credit risks of the issuers or obligations are assessed. MIS adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MIS considers to be reliable. However, MIS is not an auditor and cannot in every instance independently verify or validate information received in the rating process. This information is based on information Nomura has received from sources it believes to be reliable as of May 18, 2016, but it does not guarantee accuracy or completeness of the information. For details, please refer to its website above.
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11 January 2017
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Nomura | Morning News & Views - Asia
11 January 2017
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Morning News & Views-Asia:A Summary of Select Global Markets Research

发布机构:野村证券
报告类型:外行报告 发布日期:2017/1/11
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Morning News & Views - Asia A Summary of Select Global Markets Research Wednesday 11 January 2017 KEY FORECAST CHANGES RATING SECURITY / SECTOR TICKER OLD NEW CURR OLD NEW U/D% COMPANY RATING CHANGES Platinum Group PCL PLAT TB Not Rated Buy Buy Buy Neutral Neutral THB KRW KRW N/A 30000.00 8.35 28000.00 +20.1 +6.9 +0.5 THB KRW KRW N/A 4,368 8,884 25.64c 4,455 8,773 N/A 3,976 10,002 27.68c 3,350 9,424 TARGET PRICE CURR OLD NEW OLD NEW CUR YEAR EPS NEXT YEAR EPS
Hanwha Chemical Corp 009830 KS KT&G Corp 033780 KS
160000.00 100000.00
TARGET PRICE CHANGES Central Pattana China State Construction International Makalot CPN TB 3311 HK 1477 TT Buy Neutral Neutral THB HKD TWD 70.00 12.13 158.00 69.00 12.74 140.00 +22.1 +10.8 +14.3 THB HKD TWD 2.02 1.19 7.34 2.01 1.36 7.42 2.22 1.31 8.89 2.20 1.47 8.09
ESTIMATE CHANGES PetroChina 857 HK Buy HKD 8.80 +42.4 CNY 5.46c 4.87c 57.85c 58.53c
*U/D % = Potential Up/Downside %
HIGHLIGHTS FOR TODAY Anchor Report: Thailand shopping malls - 2017 outlook: Expansion drives future growth Peerawat Dentananan - CNS, Thailand We initiate on PLAT with a Buy rating; CPN remains our top pick Action: Bullish on Thailand shopping mall developers. We reiterate our positive outlook on Central Pattana (CPN TB; Thailand's largest shopping mall developer) and initiate coverage on Platinum Group (PLAT TB; a wholesaler specialist mall developer which boasts the highest retail rental rates in Bangkok) with a Buy rating. In 2017: 1) we believe that domestic demand growth for retail rental space will continue to outpace supply growth; 2) we estimate 34% rental price hikes given asset enhancements. In the longer term, our expectation is that shopping malls in Thailand will remain resilient to the e-commerce threat relative to other markets such as China, the US and Singapore. CPN: rebounding investment should drive 26% revenue growth in 2018F. Although we expect a relatively soft year for revenue growth in 2017F for CPN (estimate: 8%), given only one new mall in 2016, we believe this is largely priced in. q q
Central Pattana (CPN TB, Buy, TP THB 70→THB 69) Platinum Group PCL (PLAT TB, Not Rated→Buy, TP THB 8.35)
Production Complete: 2017-01-10 21:58 UTC
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Morning News & Views - Asia
11 January 2017
India healthcare - 3QFY17 preview Saion Mukherjee - NFASL / Ayan Deb - NFASL Result plays: Glenmark, Jubilant Life Sciences, Thyrocare For the Indian Pharmaceutical sector, the factors that we expect to have an impact on the earnings include: a) Demonetisation: Most companies expect a "moderate" impact from demonetisation in 3QFY17, with the slowdown visible in Dec 2016 (Fig 3). The companies have extended credit terms to the trade. However, our interaction with the industry suggests some drop in inventory levels in trade which will adversely impact primary sales. We project single- to low double-digit growth in domestic business. b) The US: The pricing environment is unlikely to change materially Q-Q. Companies may continue to guide for near-term mid- to high-single digit annual erosion in prices. US revenues are likely to rise the most for GNP (due to gZetia). We also expect positive seasonal impact for LPC and DRRD. SUNP benefits from the launch of AGs during the quarter. c) Emerging markets (EM): We expect strong growth in INR terms due to the low base and recovery in EM currencies. Singapore property - Five possible property surprises for 2017 Min Chow Sai - NSL / Royston Tan - NSL Expect a more volatile market; top picks = CAPL, CIT, MLT and SPHREIT 2017 surprises: expect a more volatile market. This is the sixth edition of our annual list of potential fat-tailed risks for the Singapore real estate market. We had an average hit-rate of 50% in 2016, with two and a half out of the five surprises coming to pass during the year (Singapore 10Y bond yield dipping below 2% and office REITs being the best performers; the one on S-REITs outperforming developers was directionally correct but the 15% gain in the SREIT index did not materialise and hence the half-right verdict). In terms of stock selection, CIT and CCT did well but CAPL, one of our top picks, turned out to be the worst performer in 2016. We expect increased market volatility in 2017 and our five possible surprises for this year are: A rebound in private home prices; A new record price for a GLS residential site; Further tightening of housing policies; Property stocks - a story of two halves (1H better than 2H); GLP stays listed. Hanwha Chemical Corp (009830 KS, Neutral) - Chemical resilience diluted by solar (Buy→Neutral, TP KRW 30,000→KRW 28,000) Cindy Park - NFIK / David Hwang - NFIK Downgrade to Neutral on grim solar outlook Action: Downgrade to Neutral, lower TP to KRW28,000. Hanwha Chemical Corp (HCC) share has outperformed the KOSPI by 4% in the past three months (trades at 0.7x FY17F PBR [BVPS: KRW36,169]) on a rebound in PVC margins and healthy earnings across various chemical products in 4Q16 (TDI, caustic soda, styrene monomer). We now believe HCC will become more aggressive in solar module prices, after its likely contract expiry with NextEra (NEE US, NR) - which could hurt HCC's operating profit margin. Even if HCC succeeds in renewing its contract, the renewal may come at the expense of reduced profitability, in our view. We lower our 2017/18F solar operating profit estimates by 49%/44% to reflect the recent price deterioration, less likelihood of NextEra contract renewal, and higher exposure to spot market sales (with lower profitability). Our preferred pick is LG Chem (051910 KS, Buy) for its defensive chemical product portfolio and EV battery earnings growth. KT&G Corp (033780 KS, Neutral) - Neutral on competition from e-cigarettes (Buy→Neutral, TP KRW 160,000→KRW 100,000) Cara Song - NFIK / Jiun Im - NFIK / Satoshi Fujiwara - NSC Lessons from Japan; e-cigarette concerns could linger for a while in Korea Action: Downgrade to Neutral as reflecting e-cigarette concerns. While an inflationary macro environment has triggered de-rating of global tobacco peers for the past months, electronic cigarette (e-cigarette) concerns in particular have widened KT&G's P/E discount to peers to an historical high of c.40%, vs average of 21% (KT&G at 11x FY17F P/E, vs peers' 18x). In our view, e-cigarette market growth could be slower in Korea than in the US, the UK or Japan, due to: 1) Korea's relatively cheap tobacco price; 2) tight regulation on e-cigarettes; 3) relatively younger demographic mix. Japan Tobacco's (JTI; 2914 JP, Buy) market share loss and late response to fast inroads by 'iQOS' in Japan were great lessons for KT&G, especially when Philip Morris' (PMI; PM US, NR) iQOS launch in Korea looks imminent (1H17F on Nomura forecast; PMI plans to launch iQOS globally in FY17F).
AROUND THE WORLD First Look - ABC-Mart (2670 JP) (Buy) - One-time profit fall in Q3, recovery in Dec (TP JPY 7,250) Masafumi Shoda - NSC 17/2 Q3 results: one-time decline in profits, growth in 17/2 broadly attainable. ABC-Mart released 17/2 Q3 results on 10 January. Operating profits moved into negative y-y territory, falling 2% y-y in Q1-3 and 10% in Q3 alone. Samestore sales slowed in Q3, falling 0.3% owing to unseasonably warm weather, and with advertising costs of ¥0.3bn arising that were expected to be posted at another time, operating profits in Japan fell 7%. Profits at the overseas business fell 34%, with unseasonably warm weather in South Korea and the stronger yen denting profits. Business in Japan, meanwhile, benefited from yen appreciation, while the weighting of original merchandise was unchanged
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Nomura | Morning News & Views - Asia
11 January 2017
y-y at 39.1%, and the gross margin rose, albeit by only 0.2ppt. We estimate same-store sales rose around 0.7% y-y in Sep-Dec, with same-store sales up 3.9% in December, recovering to a pace stronger than guidance for 17/2 H2 of a decline of 0.8%. Panasonic (6752 JP) (Buy) Still opportunities for proactive structural reforms (ADR:PCRFY US) (TP JPY 1,250→JPY 1,500) Yu Okazaki - NSC In addition to M&A activities, we expect clearer growth strategies from sales/spinoffs of businesses Investment stance: reaffirm our Buy rating; forecast recovery in 18/3. Although we forecast a profit decline at Panasonic in 17/3 as it raises fixed expenses in the interest of future growth, we expect a return to earnings expansion from 18/3 as the company reaps the fruits of its growth investments and benefits from the weaker yen. We calculate our target price of ¥1,500 by multiplying our 18/3 EPS forecast of ¥79.9 by a P/E multiple of 19x. We apply a 10-20% premium to the Russell/Nomura Large Cap (ex financials) P/E average of 16-17x as we expect sustained profit growth centered around consumer and automotive operations. Structural reforms moving into phase two. We think Panasonic essentially completed phase one of its structural reforms by 16/3 as it stanched the bleeding in its lossmaking businesses and reduced fixed expenses by cutting headcount. Japan electronic parts sector: data update - Focus on Chinese smartphone market Manabu Akizuki - NSC / Sharon Tseng - NSC 2017 outlook: focusing on internal changes for mid-range handsets, next iPhone models Shipments high in December, partly on Lunar New Year factors, 2016 ahead of our estimated range. The Chinese Ministry of Industry and Information Technology (MIIT) has released statistics for December 2016. Mobile phone handset shipments (sell-in basis) rose 11.8% y-y to 63.16mn units, of which smartphone shipments rose 18.8% to 60.44mn. With the Lunar New Year falling earlier than normal on 28 January this year, and given the way that MIIT figures are based on the number of licenses issued, we think December shipment statistics will have included some January shipments, and as a consequence we look to a sharp decline in January. For full-year 2016, smartphone shipments rose 14.0% to 521.62mn, giving a monthly average of 43.5mn, slightly ahead of the mid-point of our estimated range of 40-45mn. Chinese smartphone market in 2017: focusing on new functionality aimed at encouraging upgrades of mid-range phones. Japan consumer electronics - CES 2017 Yu Okazaki - NSC Show steadily becoming the place to announce next-generation technologies New product and technology announcements from Japanese consumer electronics companies. CES 2017, the world's biggest consumer technology show, was held in Las Vegas over 5-8 January, with announcements of new products and technologies from Japan's consumer electronics companies including Panasonic [6752] (Buy) and Sony [6758] (Buy). As before, there were major displays of audio-visual equipment, including OLED TVs and smartphones, particularly from Asian manufacturers. Meanwhile, many visitors were attracted to displays of nextgeneration technologies, including automotive equipment, wearables, virtual reality (VR)/augmented reality (AR), and artificial intelligence (AI). We get the impression that CES is gradually becoming the place to announce technologies that go beyond the bounds of consumer electronics. Machinery sector China data: Dec construction machinery, FA firm - Cons machinery op hours up 9%, demand up 78% Katsushi Saito - NSC / You Zhou - NSC / Caren Huang - NITB Sustained recovery in operating hours key for cons machinery, iPhone to underpin FA demand Construction machinery: operating hours up 9%, demand up 78%; FA: Airtac sales up 29% Chinese construction machinery and FA demand data released for December revealed a solid picture for both. Construction machinery operating hours (Komtrax) in China, published by Komatsu [6301] (Buy) on its website, rose 8.7% y-y in December (Figure 2). Elsewhere, data released by the China Construction Machinery Association (CCMA) showed hydraulic excavator sales volume in China up 78% y-y overall in December, up 67% at Komatsu, and up 73% at Hitachi Construction Machinery [6305] (Neutral; Figure 5). In factory automation (FA) equipment, overall sales at Taiwanese pneumatic equipment manufacturer Airtac International (90% of which are generated in China) rose 29% y-y in December (Figure 3). CES 2017: implications for Japanese telecoms carriers - Reaffirming Buy rating on Softbank Group, top pick Daisaku Masuno, CFA - NSC Focus on 4CA and C-V2X Positive implications for Softbank Group from CES 2017. We think the recently held CES 2017 consumer electronics and technology tradeshow had positive implications for Softbank Group [9984] among Japanese telecoms carriers. It is performing well across all segments and we reaffirm our Buy rating with a target price of ¥11,110 on the company, which is one of our two top picks in the sector. Expectations for four carrier aggregation using 80MHz of bandwidth on the downlink in 2017. On 3 January, Qualcomm said that it would start commercial shipments in 2017 H1 of its
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Nomura | Morning News & Views - Asia
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Snapdragon 835 processor, which it announced in November 2016. The chip can support LTE Category 16 download speeds and 4 Carrier Aggregation (4CA) using up to 80MHz bandwidth on the downlink. Sprint holds 160MHz of 2.5GHz spectrum in 100 markets across the US, and intends to roll out 3CA throughout the US in 2017, but we think the focus will now shift to 4CA. Japanese equities: BOJ's ETF purchases - The lesson from Hong Kong Hisao Matsuura - NSC / Masaki Motomura - NSC / Kiichi Fujita - NSC / Naoya Fuji - NSC / Wendy Liu - NIHK / Erin Zhang - NIHK ETF tapering, and what comes after that Focus points are March Tankan, Financial System Report, and media criticism. Our Japan equity strategy team thinks that the BOJ will decide at its April 2017 monetary policy meeting to reduce its ETF purchases for the first time, by ¥1-1.5trn from the current level of ¥6trn a year. We think the BOJ's March Tankan and its Financial System Report will be key factors affecting the likelihood of this. If it is concerned about a negative impact on the market, the BOJ should perhaps consider postponing this negative impact by specifying the timing of its sales. While the BOJ's ETF purchases have had an impact on the stock market, it would be difficult to argue that this amounts to excessive distortion. What we should regard as a problem, however, is the BOJ's excessive risk-taking. The BOJ's net assets totaled ¥7.6trn at end-2016. Chipotle Mexican Grill, Inc. - Lowering 2017-18 EPS Estimates (TP USD 333) Mark Kalinowski - ILLC / Ryan Kidd - ILLC But December Same-Store Sales Up Nicely This morning, Chipotle Mexican Grill pre-announced Q4 EPS of $0.50-0.58, below our $0.95 forecast and the Consensus Metrix number of $0.98. Fourth-quarter same-store sales declined by 4.8%, a little worse than our -4.0% projection and the consensus figure of -3.5%. We move our Q4 EPS estimate down by $0.40 to $0.55, which takes our full-year 2016 EPS estimate down to $1.05. We also lower our full-year 2017 and full-year 2018 EPS forecasts by $0.60 each, to $8.40 and $12.40, respectively. Margin issues - including promotional/advertising spend - could continue to pressure EPS. That said, the Street appears pleased with December same-store sales returning to positive territory (up 14.7%, albeit lapping a -30% number from December 2015). January same-store sales (lapping a -36% from January 2016) likely will be up double digits as well. We reiterate our Neutral rating on CMG.
ALSO INSIDE TODAY... REGIONAL / REGIONAL MARKET STRATEGY / REGIONAL SECTOR STRATEGY / REGIONAL ECONOMIC ANALYSIS First Insights - China: December PPI highlights risks of stagnation Yang Zhao - NIHK / Wendy Chen - NIHK We have revised up our PPI and CPI inflation forecasts for 2017. China's producer price index (PPI) continued to strengthen in December, rising to a much higher than expected 5.5% y-o-y from 3.3% in November (Consensus: 4.6%; Nomura: 4.8%). Inflation is not only evident in upstream industries but has also started to spread downstream, which points to a rising risk of PPI inflation passing through to CPI inflation. CPI inflation moderated slightly to 2.1% y-o-y in December from 2.3% in November (Consensus: 2.2%; Nomura: 2.0%), with food price inflation weaker than the historical average, while non-food price inflation picked up. Inflation in the residence and service components was resilient - a sign of high property prices passing through to the CPI, in our view.   Based on the higher-than-expected PPI reading, we revise up our 2017 PPI inflation forecast to 4.4% from 1.0%, and also our CPI inflation forecast to 2.6% from 2.4%.   We expect nominal GDP growth to rebound in 2017, mainly driven by higher inflation. Asia Insights - China: Rapid rise in PPI may complicate policy choices Yang Zhao - NIHK / Wendy Chen - NIHK Expect PPI inflation to peak in Q1 at around 7%. PPI jumped to 5.5% y-o-y in December and CPI inflation moderated slightly to 2.1% y-o-y.  We have revised up 2017 PPI forecast to 4.4% and CPI forecast up to 2.6%. Rapid PPI inflation is being driven mainly by inflation in upstream sectors. Price increases in downstream sectors also accelerated, albeit not by as much. The combination of rising inflation and headwinds to economic growth may further complicate macro policy with an increasing risk of monetary policy mismanagement.  We expect the PPI to peak at around 7.0% in Q1. PPI inflation jumped further to 5.5% y-o-y in December from 3.3% in November, higher than our already above-consensus forecast (Consensus: 4.6%; Nomura: 4.8%; Figure 1). On a month-on-month basis, PPI inflation rose to 1.6% from 1.5%. Upstream industries in the mining and the raw material sectors still lead PPI inflation (Figure 2), particularly the ferrous metal and energy-related industries. Asia Insights - Philippines: Second largest trade deficit on record
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Euben Paracuelles - NSL / Lavanya Venkateswaran - NSL … adding to the case for policy rate hikes. November imports rose by a solid 19.7% y-o-y from 5.9% in October, driving the trade deficit wider to a near recordhigh USD2.6bn from USD2.2bn in October. This underscores solid domestic demand, which we expect to continue in 2017 and supports our GDP growth forecast of 6.3% amid still-soft exports. We maintain our forecasts for the current account surplus to narrow to 0.5% of GDP in 2017 from 1.3% in 2016 and Bangko Sentral to hike rates by a total 50bp in H1 2017. The trade deficit widened by more than expected to USD2.6bn in November from USD2.2bn in October (Consensus: -USD2.1bn; Nomura:-USD2.3bn) driven by strong import growth (Figure 1). This was the second highest monthly deficit on record. Import growth surging November imports growth surpassed expectations, rising to 19.7% y-o-y from 5.9% in October (Consensus: 11.0%; Nomura: 16.5%). This was led by capital and consumer goods imports, which increased by 29.7% y-o-y and 32.6% y-o-y from 13.1% and 16.6% in October, respectively.
COUNTRY MARKET STRATEGY India equity strategy - December-quarter earnings preview Sanjay Kadam - NFASL Demonetization blues Demonetization-led slowdown to halt earnings momentum. Our analysts' forecasts for 3QFY17F earnings point to a significant loss of momentum, after a rather strong 2QFY17. The numbers for Nomura's ex-oil & gas PSUs and banks universe are showing the weakest sequential sales growth in the last four years. Our analysts forecast sales growth of 3.1% y-y, and 0.8% q-q. Despite favourable 2H base effects, sales growth of 3.1%y-y in 3QFY17 is a significant slowdown from the 5.3% y-y sales growth in 2QFY17. The decision of the Modi government to demonetize the currency disrupted the normal business cycle mid-way through 3QFY17. A massive contraction in money supply has meant demand destruction at the retail end as well as severe supply chain disruptions given that cash is a primary means of transaction in several sectors, either at the retail end or at the supply chain level.
HONG KONG / CHINA PetroChina (857 HK, Buy) - Our top Buy in the New Year (TP HKD 8.8) Gordon Kwan - NIHK / Bob Chen, CFA - NIHK / Jamie Wang - NITB Gas market reform and potential divestment could trigger outperformance Strengthening cash flow and balance sheet despite weak 2016. Owing to persistent oil price weakness, PetroChina's overall 2016 performance was unimpressive as upstream E&P losses offset gains from the downstream business. Based on USD45/bbl Brent crude price last year, we estimate 2016 profit fell 75% YoY, as average realised oil/gas prices declined 19% and 13% respectively. (See quarterly EBIT breakdown on pg. 3) More importantly, PetroChina has strengthened cash flow generation following numerous rounds of capex cuts and collaborative industry efforts to deflate costs across the whole value chain. The improved balance sheet could allow PetroChina to become more generous in rewarding investors this year as rebounding oil and gas prices could trigger outperformance for the stock. Quick Note - Hangzhou Robam (002508 CH, Buy) - Positive profit alert (TP CNY 55) Richard Huang - NIHK / Stella Xing, CFA - NIHK Company expects 2016 net profit growth of 40-50%. Hangzhou Robam published an Exchange release this morning, revising up its 2016 net profit growth guidance from 20-40% to 40-50%. That implies 2016 net profit of RMB1.16-1.25bn, which is 1-8% above consensus and 9-17% above Nomura estimates. The company indicated that the upward revision was underpinned by: 1) stronger-than-expected 4Q16 sales; and 2) RMB56mn government subsidy received in December 2016. Strong 4Q could mitigate concerns on slowing property market. The company's FY16 net profit guidance implies 4Q16 net profit of RMB461-544mn and net profit growth of 35-59%, as compared to 44% in 1Q-3Q16. The stellar earnings performance in 4Q should help mitigate investors' concern on a slowing property market affecting Range Hood sales, which is Robam's key revenue contributor. Maintain Buy with CNY55.0 TP. Robam's strong earnings delivery, in the past five years, has been key to sustaining its impressive share price returns. China State Construction International (3311 HK, Neutral) - P&L to turn strong (TP HKD 12.13→HKD 12.74) Patrick Xu, CFA - NIHK / Zhuoran Wang, CFA - NIHK Cash flows to turn weaker Action: Lifting FY16-18F EPS + TP by 5% (to HKD12.74); maintain Neutral. We maintain our Neutral rating, but raise FY16F/17F/18F EPS by 14%/12%/6% by raising our project execution assumptions. Hence, we lift our DCF-derived TP by 5% to HKD12.74, implying 9x FY17F P/E (EPS: HKD1.47). We are particularly concerned over the contract mix change towards capital-intensive public-private partnership (PPP) projects, which makes it extremely difficult for the company to generate positive FCFF in FY16-18F. We prefer CRRC (1766 HK, Buy) in the sector. New contracts 5
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target slightly above our expectations. The company won HKD84bn of new contracts in FY16 vs. our HKD83bn forecast. It also announced FY17F target of HKD90bn, slightly above our HKD88bn estimate. The backlog was HKD154bn as of end-FY16, lower than our HKD158bn forecast, implying that more backlog was recognised as revenue in 2H16 than our earlier estimate, ie, faster-than-expected project execution in 2H16F. Cash flows to turn weaker.
INDIA Quick Note - Indusind Bank (IIB IN, Buy) - 3Q better than expected: Business as usual (TP INR 1,400) Adarsh Parasrampuria - NFASL / Amit Nanavati - NFASL IIB's 3QFY17 was strong, with almost no impact from demonetization, and reported PAT at INR7.5bn (Fig 2, +29% y/y) was better than our estimate of INR7.25bn. Unlike its larger retail bank peers, IIB's smaller size is helping it ride through the transitory slower growth phase of demonetization, and asset quality has also held up well with minimum use of RBI's asset quality dispensation. IIB's growth at ~25% CAGR will likely be best in industry and that should help offset slower fee intensity in the next 2 years. We maintain our BUY rating and TP of INR1,400 implying 3.3x Sep-18F book of INR423. Negligible demonetization impact: Asset quality was stable with improvement in most retail categories except for marginal increase in NPAs in LAP/Car portfolio. IIB indicated that they have used the RBI dispensation on asset quality in accounts amounting to only INR520mn (5bps of loans). India autos - 3QFY17F earnings preview Kapil Singh - NFASL / Siddhartha Bera - NFASL Higher commodity costs and weak operating leverage to impact margins 3QFY17F: EBITDA margins to decline largely across OEMs. Overall, we expect a modest ~4% y-y revenue growth for the domestic auto and auto parts companies under our coverage (ex-JLR), led by subdued volumes in twowheelers (2Ws) and MHCVs on account of demonetisation. The impact of demonetisation has been particularly lower for companies with long waiting periods like Maruti Suzuki (MSIL IN, Buy) and Eicher Motors (EIM IN, Buy). Also, auto parts companies with exposure to the replacement segment have been relatively less affected. Thus, Amara Raja (AMRJ IN, Buy) is likely to report strong 23% yoy growth in revenue led by both volumes and pricing. On the margins front, our commodity index for passenger vehicles has increased by ~90bps QoQ, indicating gross margins can come under pressure. Some original equipment manufacturers (OEMs) have taken price hikes from Jan-17, which should offset this impact in 4QFY17F. India IT services - Deep dive on US H-1B issues for Indian IT Ashwin Mehta - NFASL / Rishit Parikh - NFASL Tightening legal immigration and increases in H-1B salaries can significantly impact earnings Findings from our study of LCA (pre H-1B approvals) for FY16. Post the US elections, we regard moves to tighten legal immigration and/or increase in H-1B salaries as a real threat to Indian IT companies. In this report, we analyze the US LCA (Labor Condition Application) filing data for Oct'15-Sep'16, and look to answer the following key questions: What are the job profiles where Tier 1 IT companies apply for H-1B visas, and is there any significant variation across companies (Fig 1)? How do salaries differ across these job profiles, and what are the higher or lower paying jobs (Fig 3)? What is the salary increase across different job profiles as experience level changes? Level 3 (second highest mandated level) is considered to be the average salary by FLC (Foreign Labor Certification), and if there are any measures taken to raise the minimum level of salary for H-1B-dependent employers, this gives a picture of the likely wage hike impact (Fig 5).
TAIWAN Makalot (1477 TT, Neutral) - FY17F outlook (TP TWD 158→TWD 140) Caren Huang - NITB Returns to the growth path Action/ Valuation: Stay Neutral; cut TP to TWD140. We cut Makalot's FY17F earnings by 9% (Fig. 1); accordingly, we lower our DCF-derived TP to TWD140 (Fig. 5). Based on our discussion with management and the latest results from US apparel makers, we believe the general/casual wear supply chain should bottom in 1Q17 and recover from 2Q17. Nevertheless, with the overhang of a weak RMB (price competition) and uncertain end-demand, we still maintain our Neutral stance. We suggest investors revisit the stock after the Lunar New Year when Makalot has a better grasp on its 2Q17-onwards order visibility. Our top pick in the Taiwan retail supply chain is Eclat (1476 TT, Buy, TP: TWD405; CMP: TWD330; upside potential: 23%) for its improving operating efficiency. 1H17F guidance. Makalot expects 2017F sales to grow 5% y-y, largely driven by shipments growth. Quick Note - Taiwan chemicals - FPG's preliminary 4Q16/2016 results Jamie Wang - NITB / Cindy Park - NFIK Formosa Plastics Group (FPG) reported preliminary 4Q16/2016 results on 9 January 2017. Generally speaking, all
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the four companies reported stronger 4Q16 results, primarily due to rising crude oil prices in 4Q16, which triggered strong petrochemical demand. Although the strong 2016 is within our and market's expectation, the earnings y-y trend still surprised us and the market to some extent. We thus expect positive share price movement for the group following the announcement of the preliminary results. 4Q16 results: Only FCFC reported q-q decline in operating profits. In terms of y-y trend, all the four companies reported positive operating profit growth. However, Formosa Chem & Fibre (FCFC; 1326 TT, Buy) saw 40% q-q decline in net profits, primarily due to maintenance shutdown at its PP (polypropylene) plant and the operational issue at a cogeneration plant.
THAILAND Quick Note - Central Plaza Hotel PCL (CENTEL TB, Buy) - Announcement of hotel JV in Dubai (TP THB 47) Marcin Spiewak, CFA - CNS, Thailand This morning, the Bangkok Post reported that CENTEL has announced a JV to build an upscale, 550-room beachside resort in Dubai, set to open in 2019. CENTEL's management had previously guided its intention for this JV, but the timing was uncertain. Although there are no changes to our current earnings estimates, given that the hotel is set to open after our forecast period, we believe it is significant for three key reasons: 1) in terms of size (total investment is guided at just under THB5bn); 2) it marks CENTEL's first investment outside of the Maldives and Thailand; and 3) we are now more confident about CENTEL's long-term growth potential (previously a key concern for us). Details of the project: The 'Centara Deira Island Beach Resort Dubai' will be an upscale 550?room resort with a water park, which will be developed on a beach on Dubai's Deira islands. This will mark CENTEL's first hotel investment outside of Thailand and the Maldives. Quick Note - PTT Exploration & Production (PTTEP TB, Neutral) - Sluggish production growth outlook (TP THB 96) Abhishek Nigam - NSL / Bineet Banka, CFA - NSFSPL PTTEP hosted a conference call today to outline its five year investment plan. We believe the key takeaways were the sluggish production growth outlook over the forecast period and Mozambique FID potentially being delayed to end-2017. We maintain a Neutral rating on PTTEP with target price of THB96 per share based on 0.9x FY17F P/B. Our preferred picks in Thailand are PTT Group (PTT TB, Buy) and PTT Global Chemical (PTTGC TB, Buy). Sales volume guidance cut sharply: PTTEP has guided for a sharp drop in sales volume (see fig 1) from 320 KBOED in FY16F to just 263 KBOED in FY21F. Most of the decline is due to the assumption of no extension to the Bongkot contract which contributes ~20% to PTTEP's total sales volume currently. Sales volume in FY17F is down due to divestment in Oman, and natural decline in Vietnam and Montara. FY20F volume forecast is cut steeply as the earlier forecast included sales contribution from Mozambique, which has now been delayed.
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UPCOMING EVENTS Date Jan 17-18 Feb 23-24 Jun 6-9 Location Jakarta Tokyo Singapore Event Indonesia All Access 2017 Nomura Global Real Estate Forum 2017 Nomura Investment Forum Asia 2017
http://www.nomura.com/corporate-access/#home
INDICES Last Price TOPIX Index (Tokyo) Dow Jones Industrial Average NASDAQ S&P 500 FTSE 100 CAC Xetra DAX Hang Seng Shanghai A shares CSI 300 HSCEI TWSE KOSPI SET Straits Times Kuala Lumpur Composite Jakarta Composite Index Philippines Stock Exchange PSEi Index ASX 200 SENSEX 30 Source: Bloomberg 1542.31 19890.89 5556.88 2272.18 7275.47 4888.23 11583.3 22744.85 3310.49 3358.27 9664.19 9349.64 2045.12 1572.1 3006.02 1672.05 5309.93 7364.34 5760.7 26899.56 1D% -0.7% 0.0% 0.5% 0.1% 0.5% 0.0% 0.2% 0.8% -0.3% -0.2% 0.6% 0.1% -0.2% 0.5% 0.8% 0.2% -0.1% 1.2% -0.8% 0.6% YTD 1.6% 0.7% 3.2% 1.5% 1.9% 0.5% 0.9% 3.4% 1.9% 1.5% 2.9% 1.0% 0.9% 1.9% 4.3% 1.8% 0.2% 7.7% 1.7% 1.0%
COMMODITY PRICES AND RISK INDEX Last Price Brent crude future Crude (Brent oil price) Gold spot price CBOE SPX Volatility REUTERS CRB Index US Generic Govt 10 Year Yield Source: Bloomberg 53.68 53.68 1187.03 11.58 191.14 2.38 1D% -2.3% -2.3% 0.5% 0.2% 0.3% 0.6% YTD -5.5% -5.5% 3.0% -17.5% -0.7% -2.7%
MAJOR CURRENCIES AGAINST US$ Last Price AUD* EURO* GBP* JPY KRW CNY 0.74 1.06 1.22 115.72 1194.57 6.92 1D% 0.2% -0.1% 0.0% -0.3% -1.1% -0.2% YTD 2.2% 0.4% -1.4% 1.1% 0.9% 0.3%
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CNH HKD SGD
6.91 7.75 1.44
0.4% 0.0% 0.0%
1.0% 0.0% 0.8%
* Per one US dollar, except GBP, EURO and AUD Source: Bloomberg Note: earnings changes refer to next year.
UPCOMING CORPORATE EARNINGS CALENDAR Company Formosa Chem & Fibre Formosa Petrochemical Nan Ya Plastics SPH REIT Tisco Financial Largan Precision Taiwan Semiconductor Manufacturing Corp. Tata Consultancy Services Bison Consolidated Berhad HKT Trust and HKT Ltd Infosys Pavilion REIT Caregen Far EasTone Telecom Feng Tay Nutribiotech Formosa Plastics New Oriental Source: Bloomberg *C- Confirmed, E- Expected, T -Tentative Ticker 1326 TT 6505 TT 1303 TT SPHREIT SP TISCO TB 3008 TT 2330 TT TCS IN BISON MK 6823 HK INFO IN PREIT MK 214370 KS 4904 TT 9910 TT 222040 KS 1301 TT EDU US Earnings Date Jan 11 Jan 11 Jan 11 Jan 11 Jan 11 Jan 12 Jan 12 Jan 12 Jan 13 Jan 13 Jan 13 Jan 13 Jan 15 Jan 16 Jan 16 Jan 16 Jan 17 Jan 17 C/E/T* E E E C E C C C E C C E E E E E E C
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Appendix A-1 Any Authors named on this report are Research Analysts unless otherwise indicated Analyst Certification Each research analyst identified herein certifies that all of the views expressed in this report by such analyst accurately reflect his or her personal views about the subject securities and issuers. In addition, each research analyst identified in this report hereby certifies that no part of his or her compensation was, is, or will be, directly or indirectly related to the specific recommendations or views that he or she has expressed in this research report, nor is it tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Important Disclosures The lists of issuers that are affiliates or subsidiaries of Nomura Holdings Inc., the parent company of Nomura Securities Co., Ltd., issuers that have officers who concurrently serve as officers of Nomura Securities Co., Ltd., issuers in which the Nomura Group holds 1% or more of any class of common equity securities and issuers for which Nomura Securities Co., Ltd. has lead managed a public offering of equity or equity linked securities in the past 12 months are available at http://www.nomuraholdings.com/report/. Please contact the Research Product Management Dept. of Nomura Securities Co., Ltd. for additional information.
  Online availability of research and conflict-of-interest disclosures Nomura Group research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne. Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested from Nomura Securities International, Inc., or Instinet, LLC on 1-877-865-5752. If you have any difficulties with the website, please email grpsupport@nomura.com for help.
  The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA rules, may not be associated persons of NSI or ILLC, and may not be subject to FINRA Rule 2241 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
Nomura Global Financial Products Inc. ("NGFP") Nomura Derivative Products Inc. ("NDPI") and Nomura International plc. ("NIplc") are registered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, and NIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.
  ADDITIONAL DISCLOSURES REQUIRED IN THE U.S. Principal Trading: Nomura Securities International, Inc and its affiliates will usually trade as principal in the fixed income securities (or in related derivatives) that are the subject of this research report. Analyst Interactions with other Nomura Securities International, Inc. Personnel: The fixed income research analysts of Nomura Securities International, Inc and its affiliates regularly interact with sales and trading desk personnel in connection with obtaining liquidity and pricing information for their respective coverage universe.
  Distribution of ratings (Nomura Group) The distribution of all ratings published by Nomura Group Global Equity Research is as follows:
50% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 39% of companies with this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA) with this rating were supplied material services** by the Nomura Group.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 52% of companies with this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA) with this rating were supplied material services by the Nomura Group
8% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 7% of companies with this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA) with this rating were supplied material services by the Nomura Group.
As at 31 December 2016. *The Nomura Group as defined in the Disclaimer section at the end of this report. ** As defined by the EU Market Abuse Regulation
 
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Definition of Nomura Group's equity research rating system and sectors The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock, subject to limited management discretion. An analyst's target price is an assessment of the current intrinsic fair value of the stock based on an appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated target price, defined as (target price - current price)/current price.
STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia ex-Japan : please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia) : MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.
SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as 'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.
  Target Price A Target Price, if discussed, indicates the analyst's forecast for the share price with a 12-month time horizon, reflecting in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
  Valuation methodology - Fixed Income
Nomura's Fixed Income Strategists express views on the price of securities and financial markets by providing trade recommendations. These can be relative value recommendations, directional trade recommendations, asset allocation recommendations, or a mixture of all three. The analysis which is embedded in a trade recommendation would include, but not be limited to: ? Fundamental analysis regarding whether a security's price deviates from its underlying macro- or micro-economic fundamentals. ? Quantitative analysis of price variations. ? Technical factors such as regulatory changes, changes to risk appetite in the market, unexpected rating actions, primary market activity and supply/ demand considerations. The timeframe for a trade recommendation is variable. Tactical ideas have a short timeframe, typically less than three months. Strategic trade ideas have a longer timeframe of typically more than three months.
For the purposes of the EU Market Abuse Regulation, the distribution of ratings published by Nomura Global Fixed Income Research is as follows:
58% have been assigned a Buy (or equivalent) rating; 82% of issuers with this rating were supplied material services* by the Nomura Group**.
0% have been assigned a Neutral (or equivalent) rating.
42% have been assigned a Sell (or equivalent) rating; 70% of issuers with this rating were supplied material services by the Nomura Group.
As at 3 January 2017. *As defined by the EU Market Abuse Regulation **The Nomura Group as defined in the Disclaimer section at the end of this report
  Disclaimers This publication contains material that has been prepared by the Nomura Group entity identified on page 1 and, if applicable, with the contributions of one or more Nomura Group entities whose employees and their respective affiliations are specified on page 1 or identified elsewhere in the publication. The term "Nomura Group" used herein refers to Nomura Holdings, Inc. and its affiliates and subsidiaries including: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), UK; Nomura Securities International, Inc. ('NSI'), New York, US; Instinet, LLC ('ILLC'); Nomura International (Hong Kong) Ltd. ('NIHK'), Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. ('NFIK'), Korea (Information on Nomura analysts registered with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet
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at http://dis.kofia.or.kr); Nomura Singapore Ltd. ('NSL'), Singapore (Registration number 197201440E, regulated by the Monetary Authority of Singapore); Nomura Australia Ltd. ('NAL'), Australia (ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence number 246412; P.T. Nomura Indonesia ('PTNI'), Indonesia; Nomura Securities Malaysia Sdn. Bhd. ('NSM'), Malaysia; NIHK, Taipei Branch ('NITB'), Taiwan; Nomura Financial Advisory and Securities (India) Private Limited ('NFASL'), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037 4111; CIN No: U74140MH2007PTC169116, SEBI Registration No. for Stock Broking activities : BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034, MCX: INE261299034; SEBI Registration No. for Merchant Banking : INM000011419; SEBI Registration No. for Research: INH000001014 and NIplc, Madrid Branch ('NIplc, Madrid'). 'CNS Thailand' next to an analyst's name on the front page of a research report indicates that the analyst is employed by Capital Nomura Securities Public Company Limited ('CNS') to provide research assistance services to NSL under an agreement between CNS and NSL. 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Prices and yields shown in recommendations are taken at the time of submission for publication and are based on either indicative Bloomberg, Reuters or Nomura prices and yields at that time. The prices and yields shown are not necessarily those at which the trade recommendation can be implemented. The securities described herein may not have been registered under the US Securities Act of 1933 (the '1933 Act'), and, in such case, may not be offered or sold in the US or to US persons unless they have been registered under the 1933 Act, or except in compliance with an exemption from the registration requirements of the 1933 Act. Unless governing law permits otherwise, any transaction should be executed via a Nomura entity in
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your home jurisdiction. This document has been approved for distribution in the UK and European Economic Area as investment research by NIplc. NIplc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. NIplc is a member of the London Stock Exchange. This document does not constitute a personal recommendation within the meaning of applicable regulations in the UK, or take into account the particular investment objectives, financial situations, or needs of individual investors. This document is intended only for investors who are 'eligible counterparties' or 'professional clients' for the purposes of applicable regulations in the UK, and may not, therefore, be redistributed to persons who are 'retail clients' for such purposes. This document has been approved by NIHK, which is regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. 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Disclaimers required in Japan Explanation on Ratings by Unregistered Rating Agencies From the perspective of obtaining fairness and transparency in the market, registration system for credit rating agencies has been introduced based on amended Financial Instruments and Exchange Act. In accordance with this, those financial instruments business operators utilizing ratings assigned by unregistered rating agencies ("Unregistered Ratings") upon soliciting clients are obligated to notify their clients that these ratings are Unregistered Ratings and to provide them with such other information necessary as the significance of registration.
○Significance of Registration Those credit rating agencies which have been registered under the system will be supervised by the Financial Services Agency (FSA) and will be subject to certain restrictions. Such restrictions include the following; duty of candor and good faith; obligation to maintain compliance system to prevent conflict of interest and to maintain fairness in the credit rating process; prohibited from assigning ratings on those securities which they are holders of; and obligation to prepare and disclose rating policies and other necessary documents and to make publicly available the explanation materials and other necessary documents. They will also be obligated to report to FSA upon its request, to accept on-site investigations, to receive business improvement order and will be under other forms of supervision by FSA. Unregistered rating agencies will not be subject to these restrictions and supervision by FSA.
○Rating Agencies Standard & Poor's -Name of the rating agency group and registration number Name of the rating agency group: S&P Global Ratings (S&P) Name of the registered credit rating agency within the group and its registration number: Standard & Poor's Ratings Japan K.K. (Financial Services Agency Commissioner 5) -The way of obtaining summary information on the policies and methods used for assigning credit ratings Please refer to the Japanese website of Standard & Poor's Ratings Japan K.K. at (http://www.standardandpoors.co.jp). Access「無登録格付け情 報」 (http://www.standardandpoors.co.jp/unregistered) under 「ライブラリ?規制関連」of the page. -Assumptions, Significance and Limitation of Credit Ratings Credit ratings assigned by Standard & Poor's are statements of opinion on the future credit quality of issuers or particular debts as of the date they are expressed, but such ratings are not indexes which show the probability of the default by issuers or on particular debts and do not
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constitute a guarantee creditworthiness. Credit ratings are not a recommendation to purchase, sell or hold any securities, or a statement of market liquidity or prices in the secondary market of any issues. Credit ratings may change depending on various factors, including issuers' performance, changes in external environment, performance of underlying assets, creditworthiness of counterparties and others. Standard & Poor's conducts rating analysis based on information from the reliable sources and it provides credit ratings only if such information is sufficient in quality and quantity to enable it to reach decisions credit ratings could be provided. However, Standard & Poor's does not perform an audit, due diligence or independent verification of any information provided by the issuer or any third party and it does not guarantee its accuracy, completeness or timeliness of the available information for credit ratings and the results gained from such information. Moreover it needs to be noted that there may be a potential risk resulting from the limitation of the historical data available for use depending on the rating. This information is based on information Nomura has received from sources it believes to be reliable as of May 18, 2016, but it does not guarantee accuracy or completeness of the information. For details, please refer to its website above.
Moody's -Name of the rating agency group and registration number Name of the rating agency group: Moody's Investors Service Inc. (Moody's) Name of the registered credit rating agency within the group and registration number: Moody's Japan K.K. (Financial Services Agency Commissioner 2) -The way of obtaining summary information on the policies and method used for assigning credit ratings Please refer to the Japanese website of Moody's Japan K.K. at ( https://www.moodys.com/pages/default_ja.aspx). Click 「信用格付事業」and access to 「無登録格付説明関連」in「無登録業者の格付の利用」. -Assumptions, Significance and Limitation of Credit Ratings Credit ratings are Moody's Investors Service, Inc.'s ("MIS") current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. MIS defines credit risk as the risk that an entity may not meet its contractual, financial obligations as they come due and any estimated financial loss in the event of default. Credit ratings do not address any other risk, including but not limited to: liquidity risk, market value risk, or price volatility. Credit ratings do not constitute investment or financial advice, and credit ratings are not recommendations to purchase, sell, or hold particular securities. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such rating or other opinion or information is given or made by MIS in any form or manner whatsoever. Based on the information received from issuers or from public sources, the credit risks of the issuers or obligations are assessed. MIS adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MIS considers to be reliable. However, MIS is not an auditor and cannot in every instance independently verify or validate information received in the rating process. This information is based on information Nomura has received from sources it believes to be reliable as of May 18, 2016, but it does not guarantee accuracy or completeness of the information. For details, please refer to its website above.
Fitch -Name of the rating agency group and registration number Name of the rating agency group: Fitch Ratings (Fitch) Name of the registered credit rating agency within the group and registration number: Fitch Ratings Japan Limited. (Financial Services Agency Commissioner 7) -The way of obtaining summary information on the policies and method used for assigning credit ratings Please refer to the Japanese website of Fitch Ratings Japan Limited at ( https://www.fitchratings.co.jp/web/) and access 「格付方針等の概要」in the section「規制関連」. -Assumptions, Significance and Limitation of Credit Ratings Ratings assigned by Fitch are opinions based on established criteria and methodologies. Ratings are not facts, and therefore cannot be described as being "accurate" or "inaccurate". Credit ratings do not directly address any risk other than credit risk. Credit ratings do not comment on the adequacy of market price or market liquidity for rated instruments. Ratings are relative measures of risk; as a result, the assignment of ratings in the same category to entities and obligations may not fully reflect small differences in the degrees of risk. Credit ratings, as opinions on relative ranking of vulnerability to default, do not imply or convey a specific statistical probability of default. In issuing and maintaining its ratings, Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The assignment of a rating to any issuer or any security should not be viewed as a guarantee of the accuracy, completeness, or timeliness of the information relied on in connection with the rating or the results obtained from the use of such information. If any such information should turn out to contain misrepresentations or to be otherwise misleading, the rating associated with that information may not be appropriate. Despite any verification of current facts, ratings can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. Please refer to "Definitions of Ratings and Other Forms of Opinion" on Fitch's Japanese website for the explanation covering the details of the assumptions, significance and limitation of credit ratings. This information is based on information Nomura has received from sources it believes to be reliable as of May 18, 2016, but it does not guarantee accuracy or completeness of the information. For details, please refer to its website above.
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Disclaimers required in Japan Credit ratings in the text that are marked with an asterisk (*) are issued by a rating agency not registered under Japan's Financial Instruments and Exchange Act ("Unregistered Ratings"). For details on Unregistered Ratings, please contact the Research Product Management Dept. of Nomura Securities Co., Ltd. Investors in the financial products offered by Nomura Securities may incur fees and commissions specific to those products (for example, transactions involving Japanese equities are subject to a sales commission of up to 1.404% on a tax-inclusive basis of the transaction amount or a commission of ¥2,808 for transactions of ¥200,000 or less, while transactions involving investment trusts are subject to various fees, such as commissions at the time of purchase and asset management fees (trust fees), specific to each investment trust). In addition, all products carry the risk of losses owing to price fluctuations or other factors. Fees and risks vary by product. Please thoroughly read the written materials provided, such as documents delivered before making a contract, listed securities documents, or prospectuses.
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-----Transactions involving Japanese equities (including Japanese REITs, Japanese ETFs, and Japanese ETNs) are subject to a sales commission of up to 1.404% of the transaction amount (or a commission of ¥2,808 for transactions of ¥200,000 or less). When Japanese equities are purchased via OTC transactions (including offerings), only the purchase price shall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for OTC transactions, as agreed with the customer. Japanese equities carry the risk of losses owing to price fluctuations. Japanese REITs carry the risk of losses owing to fluctuations in price and/or earnings of underlying real estate. Japanese ETFs carry the risk of losses owing to fluctuations in the underlying indexes or other benchmarks. Transactions involving foreign equities are subject to a domestic sales commission of up to 1.026% of the transaction amount (which equals the local transaction amount plus local fees and taxes in the case of a purchase or the local transaction amount minus local fees and taxes in the case of a sale) (for transaction amounts of ¥750,000 and below, maximum domestic sales commission is ¥7,668). Local fees and taxes in foreign financial instruments markets vary by country/territory. When foreign equities are purchased via OTC transactions (including offerings), only the purchase price shall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for OTC transactions, as agreed with the customer. Foreign equities carry the risk of losses owing to factors such as price fluctuations and foreign exchange rate fluctuations. Margin transactions are subject to a sales commission of up to 1.404% of the transaction amount (or a commission of ¥2,808 for transactions of ¥200,000 or less), as well as management fees and rights handling fees. In addition, long margin transactions are subject to interest on the purchase amount, while short margin transactions are subject to fees for the lending of the shares borrowed. A margin equal to at least 30% of the transaction amount and at least ¥300,000 is required. With margin transactions, an amount up to roughly 3.3x the margin may be traded. Margin transactions therefore carry the risk of losses in excess of the margin owing to share price fluctuations. For details, please thoroughly read the written materials provided, such as listed securities documents or documents delivered before making a contract. Transactions involving convertible bonds are subject to a sales commission of up to 1.08% of the transaction amount (or a commission of ¥4,320 if this would be less than ¥4,320). When convertible bonds are purchased via OTC transactions (including offerings), only the purchase price shall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for OTC transactions, as agreed with the customer. Convertible bonds carry the risk of losses owing to factors such as interest rate fluctuations and price fluctuations in the underlying stock. In addition, convertible bonds denominated in foreign currencies also carry the risk of losses owing to factors such as foreign exchange rate fluctuations. When bonds are purchased via public offerings, secondary distributions, or other OTC transactions with Nomura Securities, only the purchase price shall be paid, with no sales commission charged. Bonds carry the risk of losses, as prices fluctuate in line with changes in market interest rates. Bond prices may also fall below the invested principal as a result of such factors as changes in the management and financial circumstances of the issuer, or changes in third-party valuations of the bond in question. In addition, foreign currency-denominated bonds also carry the risk of losses owing to factors such as foreign exchange rate fluctuations. When Japanese government bonds (JGBs) for individual investors are purchased via public offerings, only the purchase price shall be paid, with no sales commission charged. As a rule, JGBs for individual investors may not be sold in the first 12 months after issuance. When JGBs for individual investors are sold before maturity, an amount calculated via the following formula will be subtracted from the par value of the bond plus accrued interest: (1) for 10-year variable rate bonds, an amount equal to the two preceding coupon payments (before tax) x 0.79685 will be used, (2) for 5-year and 3-year fixed rate bonds, an amount equal to the two preceding coupon payments (before tax) x 0.79685 will be used. When inflation-indexed JGBs are purchased via public offerings, secondary distributions (uridashi deals), or other OTC transactions with Nomura Securities, only the purchase price shall be paid, with no sales commission charged. Inflation-indexed JGBs carry the risk of losses, as prices fluctuate in line with changes in market interest rates and fluctuations in the nationwide consumer price index.The notional principal of inflationindexed JGBs changes in line with the rate of change in nationwide CPI inflation from the time of its issuance. The amount of the coupon payment is calculated by multiplying the coupon rate by the notional principal at the time of payment. The maturity value is the amount of the notional principal when the issue becomes due. For JI17 and subsequent issues, the maturity value shall not undercut the face amount. Purchases of investment trusts (and sales of some investment trusts) are subject to a purchase or sales fee of up to 5.4% of the transaction amount. Also, a direct cost that may be incurred when selling investment trusts is a fee of up to 2.0% of the unit price at the time of redemption. Indirect costs that may be incurred during the course of holding investment trusts include, for domestic investment trusts, an asset management fee (trust fee) of up to 5.4% (annualized basis) of the net assets in trust, as well as fees based on investment performance. Other indirect costs may also be incurred. For foreign investment trusts, indirect fees may be incurred during the course of holding such as investment company compensation. Investment trusts invest mainly in securities such as Japanese and foreign equities and bonds, whose prices fluctuate. Investment trust unit prices fluctuate owing to price fluctuations in the underlying assets and to foreign exchange rate fluctuations. As such, investment trusts carry the risk of losses. Fees and risks vary by investment trust. Maximum applicable fees are subject to change; please thoroughly read the written materials provided, such as prospectuses or documents delivered before making a contract. In interest rate swap transactions and USD/JPY basis swap transactions ("interest rate swap transactions, etc."), only the agreed transaction payments shall be made on the settlement dates. Some interest rate swap transactions, etc. may require pledging of margin collateral. In some of these cases, transaction payments may exceed the amount of collateral. There shall be no advance notification of required collateral value or collateral ratios as they vary depending on the transaction. Interest rate swap transactions, etc. carry the risk of losses owing to fluctuations in market prices in the interest rate, currency and other markets, as well as reference indices. Losses incurred as such may exceed the value of margin collateral, in which case margin calls may be triggered. In the event that both parties agree to enter a replacement (or termination) transaction, the interest rates received (paid) under the new arrangement may differ from those in the original arrangement, even if terms other than the interest rates are identical to those in the original transaction. Risks vary by transaction. Please thoroughly read the written materials provided, such as documents delivered before making a contract and disclosure statements. In OTC transactions of credit default swaps (CDS), no sales commission will be charged. When entering into CDS transactions, the protection buyer will be required to pledge or entrust an agreed amount of margin collateral. In some of these cases, the transaction payments may exceed the amount of margin collateral. There shall be no advance notification of required collateral value or collateral ratios as they vary depending on the financial position of the protection buyer. CDS transactions carry the risk of losses owing to changes in the credit position of some or all of the referenced entities, and/or fluctuations of the interest rate market. The amount the protection buyer receives in the event that the CDS is triggered by a credit event may undercut the total amount of premiums that he/she has paid in the course of the transaction. Similarly, the amount the protection seller pays in the event of a credit event may exceed the total amount of premiums that he/she has received in the transaction. All other conditions being equal, the amount of premiums that the protection buyer pays and that received by the protection seller shall differ. In principle, CDS transactions will be limited to financial instruments business operators and qualified institutional investors. No account fee will be charged for marketable securities or monies deposited. Transfers of equities to another securities company via the Japan Securities Depository Center are subject to a transfer fee of up to ¥10,800 per issue transferred depending on volume.
Nomura Securities Co., Ltd. Financial instruments firm registered with the Kanto Local Finance Bureau (registration No. 142)
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Member associations: Japan Securities Dealers Association; Japan Investment Advisers Association; The Financial Futures Association of Japan; and Type II Financial Instruments Firms Association. The Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but not limited to, Conflicts of Interest, Chinese Wall and Confidentiality policies) as well as through the maintenance of Chinese walls and employee training. Additional information regarding the methodologies or models used in the production of any investment recommendations contained within this document is available upon request by contacting the Research Analysts listed on the front page. Disclosures information is available upon request and disclosure information is available at the Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx Copyright © 2017 Nomura Securities International, Inc. All rights reserved.
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