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Asia Essentials

麦格理证券


Wednesday, 11 January 2017
PH: Pulse of the consumer Healthy underlying demand
3 Karisa Magpayo
We conducted the fifth edition of our semi-annual consumer survey in Nov/Dec 2016 to gauge sentiment and spending trends over the next six months and assess the competitive landscape in sectors relevant to our coverage.
China Property Revisiting Southbound: subtle change in taste, but key implications
4 Wilson Ho
Stock Connect Southbound (S/B) investors have successfully bottom-fished the China property sector in late-Dec, with S/B net-buy driving the recent sector rally.
E-mart (Outperform) Expect a stronger Q4
5 KJ Lee
E-mart's December SSSg in key operations leads us to believe that its Q4 earnings (early Feb) will be strong with 44% growth in consolidated OP. Expect Q4 OP to grow 44%.
Nintendo (Upgrade to Outperform) Switch/Pokemon/FX offset SMR concerns
6 David Gibson
We upgrade Nintendo from Neutral to Outperform as we raise our FY3/17-19 EPS estimates by 11%40% and our TP from Y25,400 to Y28,700, as we expect strong Pokemon revenues and weak FX to more than offset SMR concerns.
Contact lens sector A tough year ahead
7 Marcus Yang
We retain our bearish view on the contact lens ODM/OEM sector entering 2017, given the hard comps, tepid demand and keener competition. We believe strong Japanese market momentum in 2016 is unlikely to repeat, and we see more supply in the pipeline.
Ginko (Outperform) St Shine (Underperform) Puregold Price Club (Outperform) Robinsons Retail Holdings (Outperform) Universal Robina (Outperform) Emperador Inc (Neutral) Jollibee Foods (Underperform)
8 9 10 11 12 13 14
Please refer to page 39 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.

Brilliance China Automotive (Outperform) Central Pattana (Outperform) Central Plaza Hotel (Outperform) Charoen Pokphand Foods (Outperform) CTCI (Downgrade to Neutral) DeNA Co (Upgrade to Outperform) Fast Retailing (Underperform) Genting Malaysia (Neutral) Havells India (Upgrade to Outperform) IndusInd Bank (Outperform) Lens Tech (A-Share) (Outperform) MacVisit: Pegavision MediaTek (Outperform) NIKE (Outperform) PTT Exploration & Production (Neutral) Sakata Seed (Outperform) Xinjiang Goldwind (A-Share) (Neutral) ASEAN Plantations Confectionery Sector - Preview GC Tech Know v.17 Global Infrastructure Indonesian Banks Macquarie Commodities Comment Macquarie Commodities Comment
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
2

PHILIPPINES Inside Healthy underlying demand Slightly weaker outlook on income… …but not enough to deter spending Assessing the competitive landscape E-commerce – sustaining its momentum Appendix – Key macro data and charts Puregold Price Club Robinsons Retail Holdings Universal Robina Emperador Inc Jollibee Foods 2 3 4 13 20 21 25 30 36 42 48
PH: Pulse of the consumer Healthy underlying demand We conducted the fifth edition of our semi-annual consumer survey in Nov/Dec 2016 to gauge sentiment and spending trends over the next six months and assess the competitive landscape in sectors relevant to our coverage. The results are supportive of our positive view on the sector (more upbeat consumer sentiment) and top pick PGOLD (strengthening market leadership).
Upbeat on spending despite increased inflation ? Our survey shows that consumers have a slightly weaker outlook on income
in the next six months vs our previous survey (Apr/May 2016). One reason could be that consumers are coming from a ‘high’ of an election year, realizing a temporary boost in income on increased business/economic activity. ? Meanwhile, consumers are more optimistic on spending. While anticipating
700 survey respondents classified by income level Above P70,001 P100,000 - 100,000 4% P50,001 3% - 70,000 MH 6%
rising inflation, consumers may not be concerned about this (yet) as inflation of 1.8% in 2016 (vs 3.3% 2011-15 average) still appears manageable. ? One notable trend we have seen in this survey is increasing evidence of
premiumization. Another is the sustained momentum of e-commerce.
Leadership position unchanged, but being challenged L P5,000 and below 30%
? In grocery retailing, Puregold Price Club (PGOLD) has gained market share,
M
keeping its top spot followed by SM Retail and Robinsons Retail (RRHI). ? Amidst intense competition in snacks and beverages, Universal Robina (URC)
P20,001 - 50,000 15%
M L
brands—Jack ’n Jill (snacks) and C2 (RTD tea)—remain dominant. Its Great Taste coffee is ranked #2, but is inching closer to Nescafe (#1). ? In liquor, Emperador (EMP) is still ahead, but Tanduay is gaining ground. P5,001 20,000 42%
? In fast food, JFC’s Jollibee brand still holds a significant portion of the market,
Source: Macquarie Research, January 2017
but share of other players like McDonald’s and KFC have improved, based on results from our latest survey.
PGOLD (top pick) and RRHI trading at attractive valuations 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x 14% 12% 11% 10% 8% 6% 4% 2% 0% URC
Prefer retailers – PGOLD is our top pick The consumer sector is rated O/W on a country perspective on the faster growth of ~11% that we expect in 2017 vs the market expectation of consensus expectation of 9% (based on MQ estimates for stocks under our coverage and Bloomberg consensus estimates for index stocks that we don’t cover). While retailers’ SSSG should slow due to a high base from the elections, underlying demand should remain healthy. This, plus attractive growth from continued expansion, support our preference for retailers PGOLD (top pick) and RRHI. Our Outperform on URC is premised on an earnings recovery, which could be made possible by the more bullish sentiment on snacks and its ability to stave off competition. Rising competition in liquor and fast food, plus lower income groups’ weaker outlook on fast food, could create a more challenging operating environment for EMP and JFC.
13% 11%
13%
6%
EMP PEG
JFC PGOLD RRHI
2016E-18E EPS CAGR
Source: Macquarie Research, January 2017; Note: PEG is based on 2016E PE and 2016E-18E EPS CAGR; Priced as of 6 January 2017
PGOLD screens well in our survey and vs comparables TP Sh price TSR PE (x) EPS growth (%) PBV (x) ROE (%) Yield (%) P P % Risk Rec 2016E 2017E 2016E 2017E 2017E 2017E 2017E
Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
10 January 2017
Macquarie Capital Securities (Philippines) Inc.
PGOLD 50.00 RRHI 90.00 URC 200.00 EMP 7.35 JFC 186.00 Wtd ave
41.00 76.00 169.20 7.30 213
22.0 L/M 18.4 M 18.2 L 0.7 L/M -12.7 L
O O O N U
20.6 22.8 30.4 16.2 37.0 28.2
18.2 20.1 27.1 15.8 33.6 25.4
10.6 11.0 -5.2 4.1 6.3 2.5
13.3 13.4 12.4 2.5 10.3 10.9
2.3 2.0 4.7 2.0 5.8 4.1
13.6 10.6 18.0 13.0 18.4 16.1
0.7 0.9 2.3 2.4 1.0 1.7
Source: Macquarie Research, January 2017; Priced as of 6 January 2017
Please refer to page 25 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 3

CHINA Southbound inflow picked up again in Dec16, after a two-month slowdown 35%
China Property Revisiting Southbound: subtle change in taste, but key implications Conclusion ? Stock Connect Southbound (S/B) investors have successfully bottom-fished
30% 25% 20% 15% 10% 5%
Net change in S/B holding value as % of daily value traded 30-day MA impact on value traded
0% -5% -10%
Source: Bloomberg, HKEX, CCASS, Macquarie Research, January 2017
Soufun weekly volumes (units) 8 Jan 2017 Beijing Shanghai Guangzhou Shenzhen Tier 1 total Chengdu Chongqing Dalian Fuzhou Hangzhou Jinan Nanjing Ningbo Qingdao Shenyang Suzhou Tianjin Wuhan Xiamen Tier 2 total 2,481 3,832 1,633 1,032 8,978 1,490 6,838 420 130 631 2,250 1,643 197 4,007 1,430 851 960 5,509 2,002 28,358 WoW 15% 10% -44% 156% 0% 4% -7% -50% -56% 0% 4% 97% -91% -13% -62% 41% -59% -19% 191% -18% 4 wk total 9,163 12,650 8,870 2,405 33,088 5,889 26,670 3,033 1,014 2,231 9,911 4,084 6,213 18,135 13,254 3,007 8,260 26,581 3,921 132,203 4wk vs 4 wk vs 4wk 4wk prior last yr 27% 11% -22% -16% 1% -9% -18% -7% 22% 112% 15% -15% 42% 6% -20% 44% 3% -5% 214% -2% -23% -31% -7% -63% -28% -13% 29% 47% -58% -60% 12% -70% 73% 57% -31% -67% -30% 11% 32% -7%
the China property sector in late-Dec, with S/B net-buy driving the recent sector rally. We found that Dec 2016 (esp. in the last two weeks) saw more net inflow from S/B trading, which increased to 14% of the turnover, up from 9% in Nov 2016 and 8% in Oct 2016. We also noted some changes in taste amongst large- mid- caps. We believe our top picks CR Land and Longfor are good choices to ride on the S/B inflow, for investors who are more concerned on financial risks and leverage, while Country Garden, which saw aggressive purchases by S/B investors in Sep 2016, registered a net outflow over the past one month. Short-sellers should be alert to these subtle changes—they should (e.g. avoid S/B favourite) because new forces may reverse trade flow.
May-16
May-15
Jul-15
Jan-15
Nov-14
Nov-15
Jan-16
Jul-16
Sep-15
Sep-16
Nov-16
Mar-15
Mar-16
Impact ? Amongst large-caps (CRL > Vanke > China Overseas Land): We saw
stronger preference for CR Land vs COLI, with new money from S/B investors accounting for 7% of trading volume in Dec 2016, vs COLI at 1%. However, S/B investors’ stake in Vanke H (2202 HK) has not risen much since opening of SZ Connect, reflecting investors’ concerns on regulators’ step-in for the shareholding event. As on 6 Jan 2017, S/B investors owned 5.06% of Vanke H, up from 4.70% before the opening of the SZ Connect. ? Amongst mid-caps (EVER > LONF >>> GR&F > SHIM > CGAR): In Dec,
Source: CREIS, Macquarie Research, January 2017
S/B inflow had a larger impact on Longfor (5% of turnover) than Shimao (0%). Evergrande saw an increased inflow again after announcing its backdoor listing plan on the A-share market. However, Country Garden which was actively purchased by S/B investors in Sep 2016 registered net S/B outflow, while R&F also saw falling interests. ? Amongst small caps: Sunac remained the top favourite amongst S/B
Recent publications China Vanke (2202 HK) - Enhancing staff coinvestment schemes positive for equity shareholders... Longfor Properties - A good entry point China Property - Prices cooling down China Vanke (2202 HK) - Back to fundamentals... China Property - Entering a cooling cycle China Property - No risk of collapse Country Garden - Wait for a better entry point
investors, who owned 17.7% stake (as at 6 Jan 2017, or 20.1% if adjusting its share placement impact in Nov 2016), vs 6.7% about one year ago. Amongst the top 5 China property stocks with the largest impact from S/B inflow, three belong to SZ-Connect stocks with Future Land (1030 HK, not rated) receiving a strong inflow at 31% of the volume. China Jinamo, which is under SHConnect, also saw a strong inflow at nearly 30% of the volume in Dec 2016. ? The finding supports our earlier view of S/B preference: growth seekers, less
concerned on financial risks. However, yield-players have not significantly stood out, partly due to lack of insurers’ participation.
Analyst(s) Wilson Ho, CFA +852 3922 3248 David Ng, CFA +852 3922 1291 Catherine Li +852 3922 1161 Raymond Liu, CFA +852 3922 3629 wilson.ho@macquarie.com david.ng@macquarie.com catherine.li@macquarie.com raymond.liu@macquarie.com
Outlook ? We expect S/Bs’ rising influence to continue and dominate the trade of some
10 January 2017
Macquarie Capital Limited
of the stocks in 2017. We expect home sales to turn weak as we have entered off-season but the sector’s nearly three-year low valuation (6.1x PER and a 41% discount to NAV) and S/B new money should provide some support. Our top picks are CR Land (1109 HK, HK$18.28, Outperform, TP: HK$35.83), Longfor (newly added, 960 HK, HK$10.18, Outperform, TP: HK$15.48), Agile (3383 HK, HK$4.08, Outperform, TP: HK$5.85) and Yanlord (YLLG SP, S$1.37, Outperform, TP: S$1.75).
Please refer to page 14 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 4

KOREA
139480 KS Valuation - EV/EBITDA
Outperform Price (at 05:16, 10 Jan 2017 GMT) Won180,000 Won 230,000 12-month target Upside/Downside 12-month TSR Volatility Index GICS sector Market cap Market cap Free float 30-day avg turnover Number shares on issue Year end 31 Dec Revenue EBITDA EBITDA growth EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV
E-mart Expect a stronger Q4 Conclusion ? E-mart’s December SSSg in key operations leads us to believe that its Q4
Won 230,000 % +27.8 % +28.6 Low/Medium Food & Staples Retailing Wonbn 5,031 US$m 4,222 % 69 US$m 9.2 m 27.95
earnings (early Feb) will be strong with 44% growth in consolidated OP.
Impact ? Expect Q4 OP to grow 44%. We forecast E-mart’s consolidated OP will
improve 44% YoY to Won121bn (vs Won111bn Bloomberg consensus), marking positive profit growth for two consecutive quarters on the back of solid SSSg and cost controls in key operations. ? Good YoY improvement in hyper OPM. We forecast hyper OPM will improve to 5.2% in Q4, vs 4.8% in 4Q15, thanks to +0.5% SSSg, healthy 3.8% gross revenue growth, and broad-based SG&A control. SSSg was a bit short of our expectation of +1% due to the Saturday protests (all Saturdays since early Nov), but we think its negative impact on sales growth is subsiding with time (SSSg -4.2% in Nov but +1.3% in Dec) due to the sticky nature of staple demand. The +0.5% SSSg also marks outperformance vs competitors (c.-2% to -5%), as E-mart continues to gain market share (est 44% among the big 3 players), thereby improving GPM. We believe the improving GPM (via market share gains and rising PL penetration) will eventually lift OPM, thanks to better control in SG&A, especially labour, in the absence of new store openings. ? Traders: robust support for hypermarket. Traders registered 20% SSSg in Q4 and better performance of new stores boosted gross sales growth to 38%. We project a 47% CAGR in traders’ OP over 2017-18 based on a 36% sales CAGR and persistent margin improvement, as the existing stores already hit 5% OPM. This is comparable to Costco Korea, which has much stabilised operations with its new stores doing well. ? Strong online sales growth. We estimate online revenue grew 32% in Q4, accelerating from 24% in Q3 and 20% in Q2. We anticipate the online business will maintain mid-20% growth through 2018, as its scale and leadership in online fresh food acts as the moat against competitors. ? Start of the earnings recovery cycle. We continue to make a case for E-
Investment fundamentals 2015A 2016E 2017E 2018E bn 13,640 14,829 15,893 17,243 bn 938 994 1,101 1,240 % -5.9 6.0 10.7 12.7 bn 504 538 619 739 % -13.6 6.9 15.0 19.4 bn 456 354 403 476 bn 455 349 399 471 Won 16,360 12,711 14,478 17,076 % 56.2 -22.3 13.9 17.9 Won 16,318 12,521 14,334 16,905 % 56.8 -23.3 14.5 17.9 x 11.0 14.2 12.4 10.5 x 11.0 14.4 12.6 10.6 Won 1,500 1,600 1,500 1,700 % 0.8 0.9 0.8 0.9 % 3.6 3.6 4.0 4.6 % 6.5 4.8 5.1 5.8 x 8.9 8.4 7.6 6.8 % 55.8 49.8 48.6 45.1 x 0.7 0.7 0.6 0.6
139480 KS rel KOSPI performance, & rec history
mart that its earnings recovery cycle will be sustained into 2018, thanks to: 1) a rise in hyper OPM on GPM improvement (growing PL penetration, market share gain) and SG&A control, 2) improvement in trader/online margins on solid sales growth, and 3) a decline in losses at key subsidiaries. Hence, we project OP growth to accelerate to +15-19% in 2017-18 vs +7% in 2016. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in Won unless noted, TP in KRW)
Earnings and target price revision ? We fine-tune 2017-18E EPS by 1%. No change in TP.
Analyst(s) KJ Lee +82 2 3705 9935 Kwang Cho +82 2 3705 4953 kj.lee@macquarie.com kwang.cho@macquarie.com
Price catalyst ? 12-month price target: Won230,000 based on an EV/EBITDA methodology. ? Catalyst: monthly SSSg, fresh food CPI, news flows in ecommerce
10 January 2017
Action and recommendation ? Maintain Outperform.
Macquarie Securities Korea Limited
Please refer to page 10 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 5

JAPAN
7974 JP Price (at 06:00, 06 Jan 2017 GMT) Valuation - EV/EBITDA
Outperform ¥24,050 ¥ ¥ % % 14,00036,000
Nintendo Switch/Pokemon/FX offset SMR concerns Conclusion ? We upgrade Nintendo from Neutral to Outperform as we raise our FY3/17-19
28,700 +19.3 +21.1 Very High Software & Services Market cap ¥bn 2,888 Market cap US$m 24,797 Free float % 37 30-day avg turnover US$m 531.5 Foreign ownership % 51.33 Number shares on issue m 120.1 Investment fundamentals Year end 31 Mar Revenue EBIT EBIT growth Recurring profit Reported profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn ¥ % x ¥ % % % x % x 2016A 17CoE 2017E 2018E 504.5 32.9 32.7 28.8 16.5 137 -61.2 175.0 150 0.6 2.5 1.5 59.0 -49.1 2.5 470.0 30.0 0.0 10.0 50.0 416 202.9 210.0 0.9 na na na na na 473.4 41.4 25.9 65.7 91.4 761 453.9 31.6 380 1.6 3.0 4.7 48.6 -57.7 2.5 741.1 100.7 143.2 119.5 76.5 637 -16.4 37.8 320 1.3 6.7 6.4 21.4 -59.5 2.4
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
EPS estimates by 11%-40% and our TP from ¥25,400 to ¥28,700, as we expect strong Pokemon revenues and weak FX to more than offset SMR concerns. We think Switch launch details on Jan 13th could surprise positively with a strong launch line-up and new features. Revision up to guidance also looks likely at 3Q results.
Impact ? 3Q strong and revision to guidance: Driven by ongoing strong Pokemon
related sales and weak FX, we expect 3Q OP of ¥35bn ahead of consensus of ¥31.5bn. We have upgraded our 3DS FY3/17 unit sales by 1.1m and adjusted for current forex rates, which more than offsets weaker smartphone sales. We think it’s possible Nintendo revises up guidance because its forex is based on ¥100/USD and ¥115/EUR. ? Switch details Jan 13th: On 13th Jan we expect the company will confirm the
US$250 price point (as forecast), given recent press reports. But more importantly we think a strong launch line-up, new features and frequent 1st party launches that follow will could mean Switch has upside risk. We have forecast 1.8x software tie ratio (includes 1 game bundled) for FY3/18, which if it is 3.0x (Wii peaked at 4.9x), would add 33% to our OP forecasts. Our biggest concern is battery life which we think will remain an issue. ? Super Mario Run disappoints but: SMR hit 50m downloads as of 24 Dec,
7974 JP vs TOPIX, & rec history
just 10 days after launch, and we believe it hit 75m by 31st Dec. However, as we feared, the high price and online connection has limited pay rates to less than 10%, we estimate. SMR Google Play is in pre-registration, which suggests an early Feb release which is faster than our April assumption. We believe Nintendo will cut the price in FY3/18 to help drive better conversion of users. We don’t believe SMR is indicative of smartphone plans and look to Animal Crossing and Fire Emblem in Feb/Mar to confirm the company’s freeto-play monetisation focus. With another 3-4 mobile titles in FY3/18, we think there is still room for growth. ? Universal adds ¥1200/sh: We estimate that the Universal Park’s deal could
add 10%+ to OP in FY3/21 onwards and on a NPV basis is worth ¥1200/sh. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in JPY unless noted)
Earnings and target price revision ? EPS FY3/17E +40%, FY3/18E +16%, FY3/19E +11%. ? TP from ¥25,400 to ¥28,700 on higher EBITDA forecasts + ¥1200/sh for
Universal agreement. Analyst(s) David Gibson, CFA +81 3 3512 7880 david.gibson@macquarie.com Aya Haruyama +81 3 3512 7867 aya.haruyama@macquarie.com
Price catalyst ? 12-month price target: ¥28,700 based on an EV/EBITDA methodology. ? Catalyst: Switch details Jan 13th 1pm Tokyo time.
10 January 2017
Macquarie Capital Securities (Japan) Limited
Action and recommendation ? Upgrade to Outperform.
Please refer to page 15 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 6

TAIWAN Japan contact lens imports – 2016 momentum hard to repeat US$ m 1,400 1,200 1,000 20% 15% 10%
Contact lens sector A tough year ahead Conclusion ? We retain our bearish view on the contact lens ODM/OEM sector entering
800 600 400 200 0
5% 0% -5% -10% -15%
Import value
YoY
Source: CA, Macquarie Research, January 2017
Seed sees slowing sales, especially for colour lens 35% 30%
2017, given the hard comps, tepid demand and keener competition. We believe strong Japanese market momentum in 2016 is unlikely to repeat, and we see more supply in the pipeline. We expect the de-rating in the contract manufacturing segment to continue amid continuing capacity expansion from new tech entrants. We urge investors to switch to the leading brand in China, Ginko (8406 TT, NT$317.5, Outperform, TP: NT$356.0), from St Shine (1565 TT, NT$618.0, Underperform, TP: NT$555). We see Ginko’s valuation as undemanding at 16x 17E PER as a brand vs 17x as an OEM player. It also promises higher earnings growth (13% vs 1% 17-18E EPS CAGR) and greater exposure to a fast-growing market in China vs Japan, and fewer threats from tech entrants.
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
11M16
Impact ? Growth to decelerate on hard comps and tepid demand. Japan’s contact
25% 20% 15% 10% 5% 0% Pure type FY15 (ended Mar 2016) Colour lens FY16 (ended Mar 2017)
lens import market grew 15% YoY in 11M16 in value, vs a 1% CAGR in 201115, thanks to yen strength and a low base in 2015 on a rise in the consumption tax. We expect Japan demand growth to slow to a normal midsingle digit level in 2017. That should drive down St Shine’s earnings growth to 4% in 2017E from 24% in 2016. Meanwhile, we expect China demand to grow at a mid-teen percent, driven by a rise in myopic diagnosis and increasing disposable income. We think this can drive 12% earnings growth for Ginko, China’s leading brand in 2017. ? Competition never stops. Competition is particularly intense in the contract
Source: Seed, Macquarie Research, January 2017
Competition never stops Taiwan contact export market share 100% 80% 60%
40% 20% 0% 2012 2013 2014 St Shine Pegavision 2015 11M16 Others
manufacturing markets, which new tech entrants have their eyes on. We note new brands continue to spring up in Japan thanks to increasing product sourcing from Taiwan. A recent upstart is ReVIA (see product here), which is manufactured by Pegavision (6491 TT, Not rated). This brand was launched in September 2016 and has swiftly topped the rankings on Rakuten Japan, thanks to aggressive marketing through the hire of Namie Amuro, a popular Japanese singer, for branding. Pegavision’s 50% YoY sales growth in 4Q16 echoes the strong order momentum. In contrast, Seed, St Shine’s key client, has seen slower growth in colour lens sales, given the intensifying competition. ? FX the potential downside. Recent yen weakness is also unfavourable,
Source: Macquarie Research, January 2017
Analyst(s) Marcus Yang +886 2 2734 7532 Corinne Jian, CFA +886 2 2734 7522 Benson Pan +886 2 2734 7527 marcus.yang@macquarie.com corinne.jian@macquarie.com benson.pan@macquarie.com
especially for St Shine. Management said it has started to offer 2-5% discounts to Japanese clients, which will hurt its gross margin. Any further yen depreciation risks further earnings downside. Ginko also suffered from RMB depreciation in 2016. While RMB weakness might continue, the impact will be cushioned if the NTD also depreciates. Net, we believe the currency impact of US rate hikes should be relatively neutral to Ginko.
Outlook ? Avoid disruptive threats; prefer Ginko over St Shine. We continue to hold
10 January 2017
Macquarie Capital Limited, Taiwan Securities Branch
a cautious view on the contact lens ODM/OEM market, as competition from tech companies presents a structural threat and we expect a further de-rating. However, as the competitive threat to Ginko is relatively small, we believe its undemanding valuation and better growth prospects reinforce our view to switch from St Shine to Ginko.
Please refer to page 24 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 7

TAIWAN
8406 TT Price (at 06:46, 06 Jan 2017 GMT) Valuation - PER
Outperform NT$317.50 NT$ 350.00370.00
Ginko Steadier growth Event ? We retain our Outperform rating on Ginko, given the stable outlook and
12-month target NT$ 356.00 Upside/Downside % +12.1 12-month TSR % +14.7 Volatility Index Medium GICS sector Health Care Equipment & Services Market cap NT$m 29,432 Market cap US$m 923 Free float % 49 30-day avg turnover US$m 2.3 Number shares on issue m 92.70 Investment fundamentals Year end 31 Dec Revenue Reported profit Adjusted profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 6,098.9 6,533.2 7,276.2 8,205.8 m 1,567.0 1,633.8 1,826.2 2,069.0 m 1,569.6 1,646.4 1,826.2 2,069.0 NT$ 16.90 17.63 19.70 22.32 % 8.2 4.3 11.8 13.3 x 18.8 18.0 16.1 14.2 NT$ 7.15 7.45 8.33 9.44 % 2.3 2.3 2.6 3.0 % 13.1 12.3 12.7 13.8 % 16.3 15.7 15.9 17.1 x 13.2 12.8 11.8 10.7 % 23.4 14.9 9.7 9.7 x 2.9 2.7 2.4 2.4
attractive valuation. We continue to believe that the fast-growing China contact lens market bodes well for Ginko. Its position as a leading brand should secure robust earnings growth. We think it’s attractively priced at a PER of 16x on 2017E, vs the historical average of 26x.
Impact ? Stable 2017 outlook. We expect Ginko to register low-teen sales growth in
2017, along with the growing China market. Even though the gross margin may be under pressure on unfavourable product mix, we expect the OPM can still sustain on lower opex % for more daily products and more online sales. All taken, we forecast the Ginko will deliver 13% earnings CAGR over 2017-18E. ? Receivable days improving. We note that Ginko’s account receivable days
also showed signs of stabilizing from 2016, after the lengthening trend during 2011-15. Receivable days dropped slightly, to 315 days in 3Q16, from 317 days in 3Q15. We believe it will further improve onwards thanks to less SKUs (vs 2014-15 when the company pushed the sales of colour lens products) and increasing online sales. ? Capacity expansion on track. Ginko will add 4 lines in Taiwan to take its
8406 TT rel TAIEX performance, & rec history
total to 24 (12 lines in Taiwan; 12 lines in the PRC) in early 2017, and that will contribute from 2H17. The higher proportion of sales from Made in Taiwan products could also ease the margin pressure from product mix and competition. ? Growing with China market. According to Ginko, the contact lens
penetration rate in China was around 10% in 2015, far lower than some other Asian countries at 25% (Taiwan, Hong Kong and Japan) or ~20% (Thailand and Malaysia). We estimate the lower penetration and rising disposable income in China can translate to a 15% CAGR over 2016-20 for total contact lens market size in China. That for Ginko, as a leading local brand would be a solid growth driver, in our view. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Earnings and target price revision ? Earnings estimate largely unchanged. Introducing 2019 earnings forecast. No
Source: FactSet, Macquarie Research, January 2017 (all figures in NT$ unless noted, TP in TWD)
change in target price.
Price catalyst ? 12-month price target: NT$356.00 based on a PER methodology.
Analyst(s) Marcus Yang +886 2 2734 7532 Corinne Jian, CFA +886 2 2734 7522 Benson Pan +886 2 2734 7527 marcus.yang@macquarie.com corinne.jian@macquarie.com benson.pan@macquarie.com
? Catalyst: Monthly sales, 4Q16 results
Action and recommendation ? Retain Outperform. We ungraded Ginko on 19 Oct (see here) as we saw value
10 January 2017
emerging. Risks to our view: Further RMB depreciation against NTD, the pressure eased after NTD also joined the club of depreciation since late 2016. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Ginko scores in the second quartile of our current universe coverage.
Macquarie Capital Limited, Taiwan Securities Branch
Please refer to page 5 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 8

TAIWAN
Underperform Price (at 03:35, 10 Jan 2017 GMT) NT$618.00 Valuation - PER
1565 TT
St Shine New threat emerging Conclusion ? We reiterate our Underperform rating on St Shine with bearish view on 2017
NT$
550.00560.00
12-month target NT$ 555.00 Upside/Downside % -10.2 12-month TSR % -5.9 Volatility Index Medium GICS sector Health Care Equipment & Services Market cap NT$m 31,160 Market cap US$m 957 30-day avg turnover US$m 3.7 Number shares on issue m 50.42 Investment fundamentals Year end 31 Dec Revenue Reported profit Adjusted profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 5,860.2 6,458.5 6,692.4 6,750.2 m 1,456.0 1,813.7 1,884.9 1,848.8 m 1,456.1 1,813.7 1,884.9 1,848.8 NT$ 28.88 35.97 37.39 36.67 % -7.4 24.6 3.9 -1.9 x 21.4 17.2 16.5 16.9 NT$ 23.50 0.00 26.25 25.74 % 3.8 0.0 4.2 4.2 % 25.7 33.5 30.3 27.4 % 32.6 37.0 34.1 30.3 x 14.7 11.4 11.6 11.8 % -36.6 -45.1 -49.3 -55.2 x 6.8 6.0 5.3 4.9
outlook, given 1) demanding valuation (17x 17E PER) with a 1% earnings CAGR in 2017-18E; 2) a high base (+4% YoY in sales vs 10% in 2016); and 3) intensifying competition: We note ReVIA, a new contact lens brand in Japan, contract-manufactured by Pegavision, has swiftly topped the bestselling rankings on Rakuten after its launch in September 2016, thanks to strong marketing. This is the first time a local Japanese contact lens brand other than Seed has hired a top-tier entertainer as brand ambassador.
Impact ? Namie Amuro vs Kitagawa Keiko. We believe the competition in Japan’s
contact lens market will further intensify. New brands have sprung up from multi-product sources in Taiwan. A recent upstart is ReVIA, manufactured by Pegavision. It topped the daily contact lens product rankings on Rakuten, Japan’s largest online shopping channel, after its Sept 2016 launch. We believe the swift expansion of ReVIA is driven by its aggressive marketing. It hired Namie Amuro, a top-tier Japanese singer, as the brand ambassador. This is the first time a local Japanese brand other than Seed, which has Kitagawa Keiko, another top-tier female actress in Japan, splash out on marketing. And this echoes our view that contact lens is the business of marketing & distribution, not manufacturing or technology. ? Pegavision continues to outgrow. Pegavision registered 50% YoY growth
1565 TT rel TAIEX performance, & rec history
in 4Q16, outshining St Shine’s 3%. We believe this is in part driven by strong orders from new brands, such as ReVIA. Pegavision’s sales grew 27% YoY in 2016 vs St Shine’s 10%. ? Entering hard comps in 2017 and yen creates downside. We expect St
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Shine’s sales growth to decelerate to 4% YoY in 2017 after the strong rebound in 2016. We think it’s fair to expect a capacity expansion at St Shine, given the tight UT rate currently. However, we believe this will not contribute until 2H17 and the potentially lower UT rate impacts the GM. GM faces hard comps in 2017 as well, given a high UT rate and favourable currency in 2016. We expect GM to trend down from 43.3% in 2H16 to 41.1% in 2018, and any further yen depreciation would be a downside risk.
Source: FactSet, Macquarie Research, January 2017 (all figures in NT$ unless noted, TP in TWD)
Earnings and target price revision ? Earnings forecasts largely unchanged; introducing 2019 earnings estimates.
No change to TP of NT$555 (15x 17E PER).
Price catalyst ? 12-month price target: NT$555.00 based on a PER methodology.
Analyst(s) Marcus Yang +886 2 2734 7532 Corinne Jian, CFA +886 2 2734 7522 Benson Pan +886 2 2734 7527 marcus.yang@macquarie.com corinne.jian@macquarie.com benson.pan@macquarie.com
? Catalyst: Monthly sales, 4Q16 results.
Action and recommendation ? Reiterate Underperform. We maintain our structural bearish view on St Shine,
10 January 2017
given the competition issues (See our sector report: Contact lens sector Hunger game kicks off). While the foreign holding remains high at 61%, we urge investors to shift to Ginko, given valuation and China exposure. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score St Shine scores in the second quartile of our current universe coverage.
Macquarie Capital Limited, Taiwan Securities Branch
Please refer to page 8 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 9

PHILIPPINES
PGOLD PM Price (at 03:57, 09 Jan 2017 GMT) Valuation - DCF (WACC 9.2%)
Outperform P41.00 P 50.00
Puregold Price Club Value for money Conclusion ? PGOLD is our top pick in the Philippine consumer space and is among the 2017
P 50.00 % +22.0 % +22.7 Low/Medium Food & Staples Retailing Market cap Pm 113,381 Market cap US$m 2,275 Free float % 33 30-day avg turnover US$m 0.8 Number shares on issue m 2,765 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn P % P % x x P % % % x % x 2015A 2016E 2017E 2018E 97.2 7.1 10.4 5.0 5.0 1.81 10.6 1.80 10.7 22.7 22.8 0.30 0.7 12.7 13.7 13.9 -0.4 3.0 115.8 8.0 11.7 5.5 5.5 1.99 9.9 1.99 10.6 20.6 20.6 0.30 0.7 13.0 13.5 12.4 -7.0 2.6 130.1 9.0 13.1 6.2 6.2 2.25 13.3 2.25 13.3 18.2 18.2 0.30 0.7 13.4 13.6 10.9 -14.1 2.3 144.7 10.1 12.0 7.0 7.0 2.53 12.5 2.53 12.5 16.2 16.2 0.30 0.7 13.8 13.6 9.8 -22.1 2.1
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
top picks for the Philippine market (by Gilbert Lopez) and ASEAN Emerging Leaders (by Conrad Werner). We think it is well-positioned not only to benefit from improving consumer sentiment but also to weather challenges if sentiment reverses (due to political/macro uncertainties) or retail competition intensifies.
Impact ? Well-positioned consumer name. Consumer sentiment turning upbeat, as
gleaned from our latest consumer survey, could translate into healthy SSSG for retailers like PGOLD. But its relatively defensive business model (dominant grocery retailer that offers low-prices and sells staple items) could also provide some revenue protection and stability should sentiment go south. ? Expansion-driven growth. We project earnings to grow at a 2016E-18E
CAGR of 12.9% on an 11.8% sales CAGR, mainly driven by store network expansion (7.8% CAGR). ? We think there is significant scope for PGOLD to expand both its Puregold (low-priced hyper/supermarkets) and S&R (membership club selling imported items) formats especially in the provinces, given underpenetration of modern retail in the Philippines (~30%). We also think there is a growing market for S&R (accounts for 18% and 34% of PGOLD’s sales and net profit) as premiumization takes place. ? PGOLD has the ability to execute and compete amidst a stiff competitive environment, in our view, given its scale (country’s largest grocery retailer in terms of store count), strong brand equity (Puregold ranks #1 among grocery retailers based on our survey), differentiated market positioning and product offerings (Puregold largely caters to lowincome consumers and sari-sari stores, S&R offers imported products not commonly available in other stores) and proven track record. ? Attractively valued, with a potential catalyst in place. Stock trades at an
PGOLD PM rel PSEi performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in PHP unless noted)
18.2x 2017E PE vs PH consumer average of 25.4x and regional peer average of 20.5x; and at 1SD below historical PE mean. We think it could re-rate as we see better SSSG trends for S&R (an overhang after it shifted pricing models in Apr 2015 resulting in weak SSSG) following a successful 3-day sale from 30 Sep - 2 Oct, and as management’s proactive efforts to tweak its pricing and product portfolio start to bear fruit.
Price catalyst ? 12-month price target: P50.00 based on a DCF methodology. ? Catalyst: SSSG and margin trends, execution of growth strategy.
Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
Action and recommendation ? PGOLD is our top pick in the PH consumer sector. Reiterate Outperform. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Puregold Price Club scores in the second quartile of our current universe coverage.
10 January 2017
Macquarie Capital Securities (Philippines) Inc.
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 10

PHILIPPINES
RRHI PM Price (at 03:17, 09 Jan 2017 GMT) Valuation - DCF (WACC 9.6%)
Outperform P76.00 P P % % 90.00
Robinsons Retail Holdings Reaping the fruits of its labour Conclusion ? We have an Outperform on RRHI, which is among Gilbert’s top picks in the
90.00 +18.4 +19.3 Medium Food & Staples Retailing Market cap Pm 105,260 Market cap US$m 2,091 Free float % 35 30-day avg turnover US$m 1.1 Number shares on issue m 1,385 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn P % P % x x P % % % x % x 2015A 2016E 2017E 2018E 90.9 4.7 5.4 4.3 4.2 3.13 20.3 3.00 16.1 24.2 25.3 0.53 0.7 7.7 10.0 15.9 -15.2 2.4 103.2 5.4 14.3 4.6 4.6 3.33 6.3 3.33 11.0 22.8 22.8 0.62 0.8 7.8 10.2 13.7 -12.9 2.2 117.9 6.2 15.2 5.2 5.2 3.78 13.4 3.78 13.4 20.1 20.1 0.66 0.9 8.4 10.6 12.0 -18.5 2.0 131.7 7.0 12.0 5.9 5.9 4.25 12.4 4.25 12.4 17.9 17.9 0.75 1.0 8.8 10.9 10.7 -24.2 1.9
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
Philippines and Conrad’s ASEAN Emerging Leaders for 2017. Our latest consumer survey indicates the company would be a key beneficiary of an upswing in consumer sentiment, and also stands to gain from the store rationalization undertaken in 2015/16. We believe the stock is trading at undemanding valuations despite healthy growth prospects.
Impact ? Poised to benefit from improving consumer confidence… An upswing in
consumer sentiment should bode well for a large-scale retailer, such as RRHI. Its diversified business should also serve it well in a downturn in consumer sentiment – 64% of RRHI’s sales comprise non-discretionary retail formats, like supermarkets, drug stores and convenience stores. ? … and from management initiatives in the past ~2 years. RRHI took a
more disciplined approach starting in 2015, as it prioritised profitability over expansion. Management rationalised its store portfolio by: 1) closing 48 unprofitable / underperforming stores and brands (opening 227) in 2015 and closing 72 (opening 107) in 9M16; and, 2) becoming more selective in choosing sites for new stores. With the clean-up largely completed in 2016, we think RRHI will be in a position to: ? Accelerate store roll-out, which would be a key driver of RRHI’s topline. We forecast a net addition of 110 stores in 2017E vs 60 in 2016E. A wider store network could help boost its industry position – based on our latest survey, RRHI is #3 among PH grocery chains, based on consumer preference. ? Enhance margins. Stores that were a drag to overall profitability in the past have been weeded out. RRHI’s ability to ramp up store network expansion could also lead to better supplier support/discounts and economies of scale. ? Attractive growth profile and valuations
RRHI PM rel PSEi performance, & rec history
? We expect RRHI’s earnings to show a healthy 2016E-18E CAGR of 12.9%, driven by store network expansion (a 6.6% CAGR), steady SSSG (3.4% in 2017E-18E) and margin expansion. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
? The stock trades at 20.1x 2017E PE vs the PH consumer avg of 25.4x, the regional retail avg of 25.6x, and 1.4SD below its historical mean.
Source: FactSet, Macquarie Research, January 2017 (all figures in PHP unless noted)
Price catalyst ? 12-month price target: P90.00 based on a DCF methodology. ? Catalyst: Better SSSG and margins, execution of growth strategy, acquisitions
Action and recommendation Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
? We reiterate our Outperform on RRHI, which is among our preferred picks in
the PH consumer sector. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Robinsons Retail Holdings scores in the second quartile of our current universe coverage.
10 January 2017
Macquarie Capital Securities (Philippines) Inc.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 11

PHILIPPINES
URC PM Price (at 03:57, 09 Jan 2017 GMT) Valuation - DCF (WACC 8.0%)
Outperform P169.20 P P % % 200.00
Universal Robina On the path to recovery Conclusion ? URC is our pick among PH index consumer stocks. We expect better growth
200.00 +18.2 +20.5 Low Food, Beverage & Tobacco Market cap Pm 372,944 Market cap US$m 7,480 Free float % 44 30-day avg turnover US$m 5.1 Number shares on issue m 2,204 Investment fundamentals Year end 30 Sep Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn P % P % x x P % % % x % x 2015A 2016E 2017E 2018E 109.1 17.4 23.0 12.4 12.8 5.68 7.1 5.86 10.8 29.8 28.9 3.06 1.8 18.4 21.1 17.3 6.8 5.7 111.5 16.7 -3.7 15.1 12.1 6.94 22.3 5.56 -5.2 24.4 30.4 3.22 1.9 13.9 17.5 17.3 1.4 5.0 125.7 18.7 11.7 13.6 13.6 6.25 -10.0 6.25 12.4 27.1 27.1 3.94 2.3 13.9 18.0 15.5 23.4 4.7 134.0 20.0 7.3 15.0 15.0 6.86 9.7 6.86 9.7 24.7 24.7 3.54 2.1 14.1 18.2 14.3 10.2 4.3
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
prospects in FY17 arising from a recovery in organic branded consumer foods (BCF) sales and impact of new acquisition. URC remains the largest cap PH consumer name, with strong management and identifiable growth drivers.
Impact ? Better year ahead. We forecast URC’s earnings to grow 12.4% in FY17E,
much better than the decline in FY16 – a year marked by sluggish domestic sales growth, intense competition and challenges overseas. ? Faster growth domestically. We expect domestic BCF sales to grow 6.2% in FY17E (vs 4.0% in FY16) driven by 1) new product launches, especially in the affordable premium/premium segments (amidst growing trend of premiumization); 2) recovery in sales from Visayas/Mindanao regions (~25% of domestic BCF sales) as farm incomes improve post El Niño; and 3) healthy overall consumption – our latest consumer survey shows greater propensity to consume snacks in the next 6 months. Our survey also shows an improvement in URC’s market share in coffee, which could help support coffee sales (~30% of domestic BCF sales). ? Better performance overseas. We expect international BCF to grow sales 33.9% in FY17 mainly driven by the consolidation of newly acquired Snackbrands Australia (SBA). While we assume flat organic sales growth, this would still be better than the 5% decline recorded in FY16 as we anticipate better sales momentum in Vietnam and Griffin’s (New Zealand / Australia) vs previous quarters. URC is relaunching its products with new packaging in Vietnam to rebuild the brand while Griffin’s sales could improve in Australia as it leverages on the strength of SBA’s platform. ? Proactive steps to protect margins. We view positively management’s
URC PM rel PSEi performance, & rec history
efforts to address margin pressure (on increased competition, rising inflation and FX volatility), which include: 1) pricing action (2-3% price hike in Dec 2016), 2) product portfolio rationalization, 3) pushing higher-margin products, 4) realizing synergies from SBA and 5) focusing on turning around Vietnam. Additionally, URC’s extensive geographic presence gives it flexibility to source goods and produce where it is cheaper. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
? Scope for a re-rating. URC trades at 0.3SD above historical PE mean vs
Source: FactSet, Macquarie Research, January 2017 (all figures in PHP unless noted)
1.7SD above in Apr 2016. We think it could re-rate as sales improve, premiumization efforts gain traction and some overseas markets turn around.
Earnings and target price revision ? No change.
Price catalyst Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
? 12-month price target: P200.00 based on a DCF methodology. ? Catalyst: market share and sales trends, value-accretive acquisitions.
10 January 2017
Macquarie Capital Securities (Philippines) Inc.
Action and recommendation ? URC is our preferred PH consumer index name. Reiterate Outperform.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 12

PHILIPPINES
EMP PM Price (at 03:52, 09 Jan 2017 GMT) Valuation - DCF (WACC 8.6%)
Neutral P7.30 P 7.35
Emperador Inc Weighing the positives and negatives Conclusion ? EMP is the dominant liquor player in the Philippines, and continues to build its
P 7.35 % +0.7 % +3.1 Low/Medium Food, Beverage & Tobacco Market cap Pm 117,676 Market cap US$m 2,372 Free float % 12 30-day avg turnover US$m 0.1 Number shares on issue m 16,120 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 43,268 41,561 43,683 47,308 m 8,601 8,979 9,422 10,094 % 11.4 4.4 4.9 7.1 m 6,960 7,247 7,425 8,072 m 6,960 7,247 7,425 8,072 c 43.2 45.0 46.1 50.1 % 5.0 4.1 2.5 8.7 c 43.2 45.0 46.1 50.1 % 5.0 4.1 2.5 8.7 x 16.9 16.2 15.8 14.6 x 16.9 16.2 15.8 14.6 c 15.0 16.8 17.5 18.0 % 2.1 2.3 2.4 2.5 % 8.7 9.0 9.2 9.3 % 14.5 13.8 13.0 13.1 x 13.7 12.5 11.8 11.0 % 0.0 -1.9 -7.3 -10.2 x 2.3 2.2 2.0 1.8
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
global footprint. While growth opportunities lie ahead, challenges also remain.
Impact ? Looking forward to the positives. In our view, key opportunities include:
? Potential for better domestic sales as Filipinos appear to be inclined to consume more alcohol based on our latest survey, and as consumption in the rural areas could improve on increasing farm income post El Niño (weak agri output likely led to sluggish industry volumes of ~3% in 9M16). ? EMP’s Whyte & Mackay (W&M) business is gaining traction, with EMP indicating that sales (ex-Russian Standard Vodka as its distributorship contract was terminated in 2015) growing 21-22% YoY (GBP terms) in 9M16 on the back of a 24-25% YoY uptick branded liquor sales. W&M’s GP and EBIT margin also expanded YoY by ~9ppts and ~5ppts in 9M16. ? Accelerating roll-out of its premiumization strategy thanks to EMP’s wide spectrum of liquor products. EMP’s product portfolio comprises different types of liquor (brandy, whisky, vodka, sherry wine) catering to various segments of the market (low, middle and high-income segments). ? Watching out for the negatives. Challenges and potential risks for EMP are:
? Slipping market share. Competitive environment among the three big local players (EMP, Ginebra, Tanduay) is still intense, with EMP on the losing end with its market share falling to 43% in 9M16 from 48% in 2015. Our latest survey also shows Tanduay’s share trending higher. ? Weaker (and volatile) domestic margins. EMP’s domestic (ex-Fundador) GP and EBIT margin fell ~3ppts and ~4ppts YoY in 9M16, which EMP attributes to higher cost of new bottles for new products, use of fewer recycled bottles and unfavourable FX movement. There have also been swings in GPM QoQ in 2016: -4ppts in 1Q, +13ppts in 2Q, -10ppts in 3Q. ? Uncertainties on new acquisition. Details of EMP’s acquisition of Domecq brandies/wines from Pernod Ricard (in Dec 2016) is currently still lacking. ? Risk of additional excise taxes on liquor. The Dept of Finance is exploring the imposition of higher taxes on certain products including cigarettes and liquor to raise revenues to facilitate higher planned government spending.
EMP PM rel PSEi performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in PHP unless noted)
Price catalyst ? 12-month price target: P7.35 based on a DCF methodology. ? Catalyst: volume growth, market share and margin trends, acquisitions
Action and recommendation Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
? Maintain Neutral. MQ Quant holds strong negative view on EMP – while
undervalued at 16x 2017E PE vs peer avg of 21x, price momentum is weak. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Emperador Inc scores in the third quartile of our current universe coverage.
10 January 2017
Macquarie Capital Securities (Philippines) Inc.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 13

PHILIPPINES
JFC PM Valuation
Underperform Price (at 03:59, 09 Jan 2017 GMT) P213.00 P P % % 186.00 - DCF (WACC 8.6%)
Jollibee Foods Steep valuation tough to justify Conclusion ? While topline growth in 2017E could still be healthy on the back of positive
186.00 -12.7 -11.6 Low Consumer Services Market cap Pm 228,993 Market cap US$m 4,662 Free float % 41 30-day avg turnover US$m 2.4 Number shares on issue m 1,075 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn P % P % x x P % % % x % x 2015A 2016E 2017E 2018E 100.8 5.4 -12.7 4.9 5.8 4.62 -9.0 5.41 6.7 46.1 39.3 1.78 0.8 9.0 20.0 26.3 -4.7 7.5 115.0 6.9 29.3 6.2 6.2 5.75 24.6 5.75 6.3 37.0 37.0 1.86 0.9 10.4 18.9 21.0 -0.5 6.6 131.0 7.9 14.6 6.8 6.8 6.34 10.3 6.34 10.3 33.6 33.6 2.18 1.0 11.2 18.4 17.8 -10.7 5.8 145.4 8.8 11.0 7.6 7.6 7.08 11.6 7.08 11.6 30.1 30.1 2.43 1.1 11.6 18.2 16.3 -22.3 5.2
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
consumer sentiment, we expect margins to be under pressure. We think there could be downside to street earnings, which assume significant margin expansion in 2016/17. Maintain Underperform.
Impact ? Healthy topline growth…We expect sales to grow 14% YoY in 2017E driven
by store network expansion (6%) and healthy SSSG (6.6% domestic SSSG) as supported by improving consumer sentiment based on our latest survey. ? …but margin pressure may persist. 3Q16 was marked by margin
compression, with GPM falling 16bps YoY on higher store staff costs (rising headcount per store, shift to agency-based workers from direct contractual hires) and EBIT margin down 95bps YoY. Margin pressure could remain as: ? The shift to agency-based workers is still ongoing. ~60-70% of store personnel are hired by JFC directly as contractual workers (ie 5-month contracts), all of whom will be shifted to agency-based workers especially with the Dept of Labor and Employment’s (DOLE) proposal to put an end to contractualization (effectively banning employers from terminating the service of a worker after the expiration of his/her service agreement). So far, only one out of six local JFC brands – Greenwich – is fully compliant. ? Certain raw material prices could trend higher. Costs of certain raw materials like beef, dairy, potatoes are also inching up in recent months. A further weakening of the PHP vs USD could also push higher costs of imported raw materials (20-25% of JFC’s raw materials are imported). ? Pricing action may be limited. While JFC enjoys strong brand equity, it can only raise prices marginally and gradually because of its pricesensitive target market (ie low income). In 2014, JFC raised prices by 4.04.5%, short of the 5.4% average increase in raw material costs. The price hike also affected volumes in 1H15, with SSSG slowing to low single-digit (from mid-to-high single-digit). Additionally, our latest survey shows weaker outlook on eating fast food among the lower-income segments. ? Potential downside to street estimates. The street is still factoring in a
JFC PM rel PSEi performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
~100bps YoY increase in EBIT margin in 2016E (vs our assumed +70bps) and a further 23bps YoY expansion in 2017E (vs our expected +3bps).
Source: FactSet, Macquarie Research, January 2017 (all figures in PHP unless noted)
Earnings and target price revision ? No change.
Price catalyst Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
? 12-month price target: P186.00 based on a DCF methodology. ? Catalyst: SSSG and margin trends, acquisitions
10 January 2017
Action and recommendation ? Maintain Underperform. We think valuations are steep – 33.6x 2017E PE vs
Macquarie Capital Securities (Philippines) Inc.
PH consumer average of 25.4x; trades at 0.7SD above historical PE mean.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 14

HONG KONG
1114 HK Price (at 08:09, 10 Jan 2017 GMT) Valuation - PER
Outperform HK$10.78 HK$ HK$ % % 12.80
Brilliance China Automotive Ending 2016 on a strong note Event ? Brilliance China reported December wholesale shipment data for BMW-
12.80 +18.7 +22.0 High Automobiles & Components Market cap HK$m 54,330 Market cap US$m 7,187 30-day avg turnover US$m 12.7 Number shares on issue m 5,040 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV m m % m Rmb % x Rmb % % % x % x 2015A 2016E 2017E 2018E 4,862.9 4,464.0 4,352.0 4,380.8 -651.8 -704.3 -658.5 -641.4 -103.6 -8.1 6.5 2.6 3,494.7 3,741.9 4,611.4 6,468.8 0.70 0.74 0.91 1.28 -35.3 6.6 23.2 40.3 13.9 13.0 10.5 7.5 0.09 0.15 0.28 0.51 0.9 1.5 2.9 5.3 -2.6 -2.5 -2.1 -1.9 19.0 17.5 19.0 23.5 12.9 11.9 9.7 7.0 -7.8 -6.9 -3.3 -12.5 2.4 2.1 1.9 1.7
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
Brilliance (BBA) after the market close on 10 January, with total sales up 9% YoY at 26,437 units; retail deliveries jumped 13% YoY to 26,169 units, as reported by BMW (BMW GR, 89.83, Outperform, TP: 95.00, Christian Breitsprecher). For 2016, BBA reported 12% retail volume growth to 316.2k, on the back of 8% wholesale shipment growth to 310k. ? We view the sales as solid after a record-breaking month in November. We
reiterate Brilliance China as our top pick in 2017 due to its strong model cycle and expected cost savings from the new engine factory.
Impact ? BBA’s wholesale shipments up 9% on solid X1: BBA shipped 26,437
vehicles in November, up 9% YoY. The growth was mainly driven by the new X1 SUV, which posted sales of 6,582 units, up 68% YoY. Sales of the 5 Series edged down 2% YoY to 9,914 units, while the 3 Series remained weak with the sales volume down 20% YoY at 8,336 units. The 2 Series Active Tourer shipped 1,605 units. BMW reported retail deliveries for BBA jumped 13% YoY in December to 26,169 units. ? No inventory pressure: Wholesale shipments were 268 units higher than
1114 HK rel HSI performance, & rec history
retail sales in December, but for the full year retail sales exceeded wholesale shipments by 6k, despite the opening of new dealers, leaving inventory at a healthy level. Based on our proprietary ISE survey, the November dealer inventory for Brilliance China further declined to a 10-month low level of 1.66x, and inventory levels for key models were all below the 12-month average level. ? New product launches will support growth: BBA plans to launch the 1
Series sedan in February, and dealers have started to take orders for the new model with the presales price at Rmb205k. Furthermore, the brand will launch the new generation 5 Series in mid-2017. We believe the new models will help underpin growth in 2017 and beyond. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in Rmb unless noted, TP in HKD)
? Brilliance China is our top pick is 2017: We believe the BBA JV will have a
strong year ahead, considering its 1) solid product line-up, and 2) cost savings from the new engine factory, which should boost the BBA’s net profit margin by 1ppt, on our estimates.
Earnings and target price revision ? No change.
Price catalyst Analyst(s) Macquarie Capital Securities (Japan) Limited Janet Lewis, CFA +81 3 3512 7856 janet.lewis@macquarie.com Macquarie Capital Limited Allen Yuan +86 21 2412 9009 allen.yuan@macquarie.com
? 12-month price target: HK$12.80 based on a PER methodology. ? Catalyst: launch of the 1 Series in February, annual results in March
Action and recommendation ? Brilliance China is our top pick in 2017. Following its recent solid performance,
10 January 2017
however, investors may get a better entry point as 2H is likely to be much stronger than 1H.
Please refer to page 5 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 15

THAILAND
CPN TB Price (at 05:06, 10 Jan 2017 GMT) Valuation
Outperform Bt56.50 Bt 70.00
Central Pattana Expansion continues; REIT conversion next Conclusion ? CPN’s focus in 2017 will be on three mall launches (Korat, Mahachai and
- DCF (WACC 6.7%, beta 1.1, ERP 7.0%, RFR 3.0%, TGR 2.0%)
12-month target Bt 70.00 Upside/Downside % +23.9 12-month TSR % +25.6 Volatility Index Low GICS sector Real Estate Market cap Btm 253,572 Market cap US$m 6,999 Free float % 57 30-day avg turnover US$m 6.0 Number shares on issue m 4,488 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total DPS growth Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 24,283 28,590 31,177 35,561 m 7,618 9,498 10,486 11,917 % 8.5 24.7 10.4 13.6 m 7,880 9,577 10,736 12,354 m 7,880 9,577 10,736 12,354 Bt 1.76 2.13 2.39 2.75 % 7.8 21.5 12.1 15.1 Bt 1.76 2.13 2.39 2.75 % 7.8 21.5 12.1 15.1 x 32.2 26.5 23.6 20.5 x 32.2 26.5 23.6 20.5 Bt 0.70 0.85 0.96 1.10 % 9.7 21.9 12.1 15.1 % 1.2 1.5 1.7 1.9 % 7.9 8.4 8.5 9.2 % 18.1 19.5 19.2 19.5 x 21.1 16.8 15.6 14.3 % 39.1 48.3 27.2 6.0 x 5.5 4.8 4.3 3.8
Phuket) and two major asset enhancements (CentralWorld and Rama3). CPN expects its retail rental revenue to grow by a modest 6-8% in 2017 as there was only one project launched last year. By the end of 2Q17, CPN expects to complete its conversion of property funds into REITs as the reduction of the transfer fee is extended to end-2017. Upon the conversion, CPN will consider divesting one or two of its matured malls to the REITs, given its intention to keep gearing low. We maintain OP rating and TP of Bt70.
Impact ? Near-term business plan. In 2017, CPN plans to open three new malls in
Korat, Manachai and Phuket with a combined NLA of 147,850 sqm, up 9% from 1.6m sqm at end-2016. This year, the company plans for two major malls renovation, CentralWorld (4Q16 to 1Q18) and Rama3 (2017). After the renovation, CPN expects its rental rate to increase 10-15% for CentralWorld and about 10% for Rama3. For residential, CPN plans to launch 4 new residential condos in the provinces in 2017, up from 3 condos in 2016. In 2018, CPN plans to launch 3 new malls, including Central i-City, Malaysia. ? 5-year business plan; on-line competing. CPN plans to grow its rental
CPN TB rel SET performance, & rec history
revenue 14-15% per annum and raise the numbers of malls to 44 (up from 30 malls currently) with NLA of 2.22m sqm (+39% from end-2016). CPN plans to launch new residential condos through at least 3 projects a year. CPN will also adjust its business plan in keeping with changing consumer lifestyles in which social networks and on-line shopping are increasingly important. It plans to use its Central Online Shopping platform to attract potential shoppers to its malls. ? REIT conversion underway. CPN disclosed that the SEC has approved the
extension of the reduction of transfer fee (from 2% of NAV to Bt100,000 per transaction) by another year, to end-2017. At present, CPN is under the conversion process of its property funds to REITs. CPN expects the conversion to finish by the end of 2Q17 and will likely divest one of two matured malls of its portfolio into the new REIT. The process should be complete in 2017. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Earnings and target price revision ? No change.
Source: FactSet, Macquarie Research, January 2017 (all figures in THB unless noted)
Price catalyst ? 12-month price target: Bt70.00 based on a DCF methodology. ? Catalyst: Increasing new mall openings, higher rental rate growth and GMs.
Analyst(s) Patti Tomaitrichitr, CFA +66 2 694 7727 patti.tomaitrichitr@macquarie.com
Action and recommendation ? We continue to like CPN and rate it an Outperform with an unchanged target
10 January 2017
Macquarie Securities (Thailand) Limited
price of Bt70. Current valuation is at 23.6x 2017E PER, vs the long-term mean of 24.2x.
16

THAILAND
CENTEL TB Price (at 05:01, 10 Jan 2017 GMT) Valuation 12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
Outperform Bt38.25 Bt 44.48
Central Plaza Hotel Soft 4Q16 but Dubai project confirmed Conclusion ? We cut our 2016 & 2017 EPS forecasts on expectations of a softer
- DCF (WACC 7.3%, beta 1.0, ERP 7.0%, RFR 3.0%, TGR 3.0%)
Bt 44.00 % +15.0 % +16.9 Low/Medium Consumer Services Market cap Btm 51,300 Market cap US$m 1,435 Free float % 38 30-day avg turnover US$m 0.9 Number shares on issue m 1,341 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 19,291 19,877 21,132 22,520 m 2,679 2,691 2,958 3,300 % 36.9 0.5 9.9 11.6 m 1,676 1,880 2,136 2,459 m 1,809 1,913 2,136 2,459 Bt 1.24 1.39 1.58 1.82 % 54.4 12.2 13.6 15.1 Bt 1.34 1.42 1.58 1.82 % 84.1 5.8 11.6 15.1 x 30.8 27.5 24.2 21.0 x 28.5 27.0 24.2 21.0 Bt 0.50 0.60 0.70 0.80 % 1.3 1.6 1.8 2.1 % 10.1 11.1 11.8 12.7 % 17.9 19.4 19.2 19.6 x 12.2 12.6 12.3 11.7 % 82.9 59.6 46.7 35.9 x 5.6 4.9 4.4 3.9
4Q16/1Q17 peak tourist season, impacted by the royal mourning period in Thailand and some disruption from unusually poor weather in Thailand’s southern provinces. However, we maintain an Outperform rating and Bt44 target price. Looking beyond these near-term speed bumps, we continue to like CENTEL’s medium-term growth pipeline of ‘asset light’ management contracts in Asia and the Middle East. This has just grown with the signing of contracts for a 550-room JV hotel project in Dubai, targeted to open in 2020.
Impact ? Softness in 4Q16 confirmed. CENTEL has seen declines in RevPar in their
hotel portfolio overall in October/November 2016. This covered the peak initial mourning period for the late King, HM Rama IX, which resulted in cancellations of ‘MICE’ business particularly in Bangkok. In addition, the Centara Grand Hotel Phuket had to close for three weeks due to flooding. We believe the restaurant business also suffered during this period from lower mall traffic and the temporary embargo on advertising and promotional activity, resulting in negative SSSg in these two months. While we expected some weakness during this high season and we believe both businesses started to recover in December, we have cut our 4Q16 operating assumptions for both hotels and restaurants resulting in a 2% cut to 2016E net profits. ? Mixed recovery in early 1Q17. Early indications for 1Q17 are more
CENTEL TB rel SET performance, & rec history
encouraging, with growth in hotel RevPar in several resort locations, particularly amongst five star properties. However, Bangkok hotels have not yet seen full recovery in the MICE business and some four star resorts are seeing tough price competition. We assume some follow through from 4Q16 weakness into 2017 with an overall 2% cut to our net profit forecast. Our revised RevPar growth forecast of 3.4% and restaurant SSSg forecast of 6% are in line with the company’s guidance of 3-4% and 5-6%, respectively. ? Dubai JV added to official pipeline. With contracts now signed, CENTEL
will be adding a 550 room hotel and water park project in Dubai to their official new hotel pipeline. CENTEL is taking a 40% equity stake (implying an investment of c.Bt2.3bn, likely to be funded by debt) and will manage the property. Soft opening is targeted in late 2019, full opening in 2020. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Earnings and target price revision ? EPS forecasts cut by 2% for 2016 & 2017, 2018 unchanged. TP unchanged.
Source: FactSet, Macquarie Research, January 2017 (all figures in THB unless noted)
Price catalyst ? 12-month price target: Bt44.00 based on a DCF methodology.
Analyst(s) Alastair Macdonald, CFA +66 2 694 7753 alastair.macdonald@macquarie.com
Action and recommendation ? We maintain an Outperform rating and Bt44 end-2017 target price. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Central Plaza Hotel scores in the second quartile of our current universe coverage.
10 January 2017
Macquarie Securities (Thailand) Limited
17

THAILAND
CPF TB Price (at 05:06, 09 Jan 2017 GMT) Valuation - Sum of Parts
Outperform Bt30.25 Bt 38.00
Charoen Pokphand Foods Potential disruption from southern flooding Conclusion ? Thailand reported flooding in 10 southern provinces that together accounted
12-month target Bt 38.00 Upside/Downside % +25.6 12-month TSR % +28.7 Volatility Index Medium GICS sector Food, Beverage & Tobacco Market cap Btm 234,224 Market cap US$m 6,456 Free float % 49 30-day avg turnover US$m 17.5 Number shares on issue m 7,743 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn Bt % Bt % x x Bt % % % x % x 2015A 2016E 2017E 2018E 421.4 11.2 -22.7 10.3 2.2 1.32 0.3 0.29 -60.0 22.8 105.2 0.66 2.2 2.5 1.9 16.3 127.4 2.0 444.1 27.6 147.0 13.7 12.1 1.77 33.7 1.56 443.9 17.1 19.3 0.89 2.9 5.5 10.2 9.2 130.9 1.9 510.9 27.9 1.1 14.4 14.4 1.86 4.9 1.86 18.9 16.3 16.3 0.93 3.1 5.2 11.6 8.7 129.4 1.8 553.7 30.1 7.7 16.3 16.3 2.10 13.1 2.10 13.1 14.4 14.4 1.05 3.5 5.2 12.4 8.0 126.1 1.7
for c21% of Thailand’s total shrimp production in the first nine months of 2016. Assuming no output from southern provinces in Jan and Feb, we estimate Thailand’s shrimp supply to fall by a relatively mild 4% in 2017—as the first quarter’s production is typically low. Besides, high prices are an attractive incentive for shrimp farmers to raise production. We retain our Outperform on CPF with a price target of Bt38.
Impact ? Flooding affects up to 4% of Thailand’s shrimp production. According to
Thai Flood Information Center, there are ten provinces in the Southern region affected by major flooding. Of these 10 provinces, the biggest producers, Nakhonsithammarat and Suratthani (Figure 1), were severely affected by flooding. However, based on the 2016 shrimp output by month (Figure 2) and assuming no production from these two provinces—or at worst from all southern provinces in January and February 2017—we estimate the potential impact on shrimp output at 2% and 4% of the industry’s 2017 shrimp output estimate of 350K tons, respectively. ? First quarter is typically a lean one for Thai shrimp farming. As shrimp
CPF TB rel SET performance, & rec history
grow well in warm weather, the first quarter is typically a lean one for shrimp farming in Thailand (Figure 3). In addition, with major shrimp crops usually starting in February-March or July-August, we expect limited impact on shrimp production. As such, we maintain our view on CPF’s ability to turn around its shrimp business in 2017. See our initiation report ‘World’s Kitchen at a Bargain’, published on 4 January 2017. ? High shrimp price remains to be a strong incentive for shrimp farmers
(figure 4). Therefore, flooding may only lead to delay shrimp farming in the affected provinces. As a result, we believe demand for CPF’s feed and baby shrimp should remain there.
Earnings and target price revision ? No change Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Price catalyst ? 12-month price target: Bt38.00 based on a Sum of Parts methodology. ? Catalyst: Profit contribution from shrimp business and Bellisio; gains in CPALL
Source: FactSet, Macquarie Research, January 2017 (all figures in THB unless noted)
share price
Action and recommendation ? Given that we expect the impact from flooding to be limited, we maintain our
Analyst(s) Chalinee Congmuang +66 2 694 7993 chalinee.congmuang@macquarie.com
Outperform recommendation for CPF at a SOTP-TP of Bt38.
10 January 2017
Macquarie Securities (Thailand) Limited
18

TAIWAN
9933 TT Price (at 05:30, 10 Jan 2017 GMT) Valuation - Sum of Parts
Neutral NT$49.45 NT$ 45.0055.00
CTCI A repeat of 2014? Event ? We downgrade CTCI to Neutral from Outperform, after its share price went up
12-month target NT$ 50.00 Upside/Downside % +1.1 12-month TSR % +7.4 Volatility Index Low GICS sector Capital Goods Market cap NT$m 37,745 Market cap US$m 1,176 Free float % 84 30-day avg turnover US$m 1.4 Number shares on issue m 763.3 Investment fundamentals Year end 31 Dec Revenue Reported profit Adjusted profit EPS rep EPS rep growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 67,058 70,494 74,682 84,014 m 2,041 2,368 2,671 3,127 m 2,571 2,292 2,671 3,127 NT$ 2.68 3.10 3.50 4.10 % 7.5 15.6 12.8 17.1 x 18.4 15.9 14.1 12.1 x 14.6 16.5 14.1 12.1 NT$ 2.40 2.78 3.13 3.67 % 4.9 5.6 6.3 7.4 % 5.1 6.6 6.3 6.9 % 15.1 13.3 15.0 16.9 x 8.9 6.8 6.7 5.9 % 0.7 -33.9 -37.5 -39.5 x 2.2 2.1 2.1 2.0
36% in 2016 (vs Taiex +11%), and cut our TP to NT$50.0 from NT$59.0, as we cut our 2017-18E recurring EPS forecasts by 14-15% to reflect expected slower revenue bookings.
Impact ? Expect slower profit booking in 2017. CTCI’s new contract wins reached
NT$63bn for 8M16, similar to NT$65bn for full-year 2015, thanks to winning two water-treatment projects in Taiwan (NT$45-50bn in total). We expect CTCI to have NT$80-85bn in new contracts and year-end backlog at NT$200210bn, both record-high levels. However, construction time for the watertreatment projects is long at 17 to 35 years, compared with two-three years for typical petrochem projects. As such, we expect slower revenue and profit booking in 2017. ? Expect soft share price performance with slower profit booking. CTCI’s
share price performance tends to be soft when profit growth is slower. Looking at the experience in 2014, the majority of its backlog is from domestic power plant projects, which have construction times of 5-7 years. As such, earnings booking was slower, leading EPS to be under expectation. While we expect its new contract amounts to recover to NT$70-80bn in 2017E, as some project bidding was postponed from 2016 to 2017, more revenue contribution will be seen after 2018. ? Potential bad debt recovery. CTCI announced bad debt recovery of
9933 TT rel TAIEX performance, & rec history
NT$427m from Powertec Energy in 3Q16, thanks to Powertec’s successful fundraising via the issuance of new shares. Currently, CTCI still has NT$959m (NT$1.26/sh) bad debt write-off provision on its books. If Powertec can successfully apply for bank loans, further bad debt recovery would present an upside risk to our 2017E reported EPS forecast. We have not factored any potential gain into our model. (See detail in our Sep 2016 Flashnote.) ? Market’s expectation is high. Our EPS forecasts are now 4-6% below
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Bloomberg consensus in 2017-18E. We believe the slower profit booking is not fully reflected and expect consensus forecasts to be revised down in the coming quarters.
Source: FactSet, Macquarie Research, January 2017 (all figures in NT$ unless noted, TP in TWD)
Earnings and target price revision ? We are cutting our 2016-18E EPS by 7%, 14% and 15%, mainly to reflect
slower revenue booking. We are cutting our TP to NT$50 from NT$59. Analyst(s) Corinne Jian, CFA +886 2 2734 7522 Benson Pan +886 2 2734 7527 Marcus Yang +886 2 2734 7532 corinne.jian@macquarie.com benson.pan@macquarie.com marcus.yang@macquarie.com
Price catalyst ? 12-month price target: NT$50.00 based on a Sum of Parts methodology. ? Catalyst: 4Q16 results to be announced in mid March 2017.
Action and recommendation ? Downgrade to Neutral. CTCI is now trading at 14.1x 2017E recurring PER,
10 January 2017
Macquarie Capital Limited, Taiwan Securities Branch
compared with the 10-year historical average of 13.6x and peer average of 12.2x. Although we like CTCI’s attractive dividend yield (5-6% for 2016/17E), we suggest wait for cheaper valuations before revisiting.
Please refer to page 10 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 19

JAPAN
2432 JP Price (at 05:16, 10 Jan 2017 GMT) Valuation - PER
Outperform ¥2,721 ¥ ¥ % % 1,8004,400
DeNA Co Tempting but timing issues Conclusion ? We cut forecasts 3% to 20% to reflect 1) curation issues 2) Payments
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
3,300 +21.3 +22.7 High Software & Services Market cap ¥m 410,051 Market cap US$m 3,503 Free float % 68 30-day avg turnover US$m 115.8 Number shares on issue m 150.7 Investment fundamentals Year end 31 Mar Revenue EBIT EBIT growth Recurring profit Reported profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn ¥ % x ¥ % % % x % x 2016A 2017E 2018E 2019E 143.7 19.8 -20.0 20.9 11.3 78.5 -31.4 34.7 20.0 0.7 8.4 6.5 9.8 -30.4 2.1 144.3 25.9 30.6 26.4 17.5 120.4 53.4 22.6 40.0 1.5 9.8 8.8 8.6 -32.3 1.9 156.2 40.3 55.6 41.4 24.0 165.7 37.6 16.4 40.0 1.5 14.2 11.1 6.5 -29.8 1.8 170.0 53.6 33.2 54.8 32.2 222.0 33.9 12.3 45.0 1.7 17.5 13.5 5.1 -29.9 1.6
business sale and 3) lower Nintendo smartphone revenues. However we think the share price already reflects these issues and hence upgrade our recommendation from Neutral to Outperform (TP from ¥3500 to ¥3300). But we think positive catalysts to drive the price higher might take a quarter to materialise.
Impact ? 3Q ¥5.4bn OP and guidance worse: We expect DeNA to report 3Q OP of
¥5.4bn (down from ¥7.8bn prior, guidance ¥7.1bn, consensus ¥5.9bn) driven by soft games for browser, flat app games and higher costs. Note the company announced it didn’t expect the curation issues to impact 3Q guidance. We expect 4Q guidance to include the costs of curation +¥2bn/qtr and no Nintendo contribution and hence expect guidance to be < ¥5bn OP. But we assume significant Nintendo improvement QoQ from the launches of Fire Emblem and Animal Crossing and hence expect 4Q OP of around ¥5.2bn (consensus ¥5bn). We are concerned the market may take a negative approach to guidance down QoQ. ? Curation will take a while to fix: We are impressed with the speed the
2432 JP vs TOPIX, & rec history
company has put the independent review panel in place. However this panel is expected to take 3 months or more to conduct its review and provide a recommendation to the board. Hence we expect a slow start-up of this business again in 1Q FY3/18 onwards but losses to be sustained for some time. We believe the speed with which the panel was started will mean regulators are unlikely to prosecute management. Given that case we think the market has already included the negative impact from this issue and hence see little incremental downside. ? Little Less Nintendo: As per our Nintendo upgrade we have assumed
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in JPY unless noted)
slightly lower Nintendo revenues because of a soft start for Super Mario Run. We still think the business will grow as we expect the core 4 titles from FY3/17 and 3-4 in FY3/18 drive up sales and profits. However we still think that developers like GungHo Online Entertainment (3765 JP, ¥257, Outperform, TP: ¥290) could partner with Nintendo which would have a negative impact on DeNA. We currently assume DeNA does 100% of Nintendo mobile games in FY3/17 but falling to 75% in FY3/19.
Earnings and target price revision ? EPS FY3/17E -3%, FY3/18E -20% (Nintendo, Curation impact), FY3/19E -9% ? TP from ¥3500 (17x FY3/18E) to ¥3300 (17x FY3/18-19E).
Analyst(s) David Gibson, CFA +81 3 3512 7880 david.gibson@macquarie.com Aya Haruyama +81 3 3512 7867 aya.haruyama@macquarie.com
Price catalyst ? 12-month price target: ¥3,300 based on a PER methodology. ? Catalyst: Nintendo results 31st Jan, DeNA results Feb 8th
10 January 2017
Macquarie Capital Securities (Japan) Limited
Action and recommendation ? Upgrade to Outperform, but we prefer Nintendo (IP holder).
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 20

JAPAN
9983 JP Valuation - Price Cash Flow
Underperform Price (at 05:16, 10 Jan 2017 GMT) ¥39,720 ¥ 26,00030,000
Fast Retailing Damage assessment Conclusion ? Poor performance relative to peers in December eliminates one of the last
12-month target ¥ 28,100 Upside/Downside % -29.3 12-month TSR % -28.3 Volatility Index High GICS sector Retailing Market cap ¥bn 4,212 Market cap US$m 35,065 Free float % 50 30-day avg turnover US$m 174.1 Foreign ownership % 24 Number shares on issue m 106.0 Investment fundamentals Year end 31 Aug Revenue EBIT EBIT growth Recurring profit Reported profit EPS rep EPS rep growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2016A 2017E 2018E 2019E bn 1,786.5 1,925.4 2,120.0 2,332.8 bn 127.3 173.3 201.7 228.9 % -22.6 36.1 16.4 13.5 bn 90.2 172.1 198.8 225.9 bn 48.1 100.3 116.8 133.4 ¥ 471 983 1,144 1,307 % -56.3 108.7 16.4 14.2 x 84.4 40.4 34.7 30.4 x 84.4 40.4 34.7 30.4 ¥ 350 377 431 520 % 0.9 0.9 1.1 1.3 % 10.7 13.3 14.1 14.7 % 7.1 15.7 16.5 16.8 x 23.8 18.1 15.8 14.1 % -23.4 -23.7 -25.7 -27.1 x 6.7 6.0 5.4 4.8
remaining pillars of the bull case for Fast Retailing.
Impact ? Sales of the core brand were down 5% on a comparable store basis in
December versus the average apparel retailers’ 2.3% decline, even though Fast’s comps were down 11.9 % in the previous year, compared to a 1.5% average decline for peers. ? We had expressed some concerns in our previous report (First Mistake), but
we never imagined the damage would be so swift. We have lowered our Q2 EBIT forecast for the core segment by ¥5.1bn, or 17%, with a fairly high level of confidence. ? We believe, with slightly less confidence, the causes of this change extend to
all of Fast’s segments to varying degrees. These causes include: ? Excessive focus on cold-weather protection; ? Failure to persuade the consumer that there is anything substantially new on offer; and ? Telegraphing to the consumer that everything will eventually be on sale. ? We reduce our Q2 EBIT forecast for the other two segments by a combined
¥4.9bn in local currency terms, bringing the total reduction resulting from revenue and margin shortfalls to ¥10.0bn, or 18% of the previous forecast. ? We also update our forex assumptions to ¥112/USD from ¥102, which added
9983 JP vs TOPIX, & rec history
¥2.3bn in Q2 and ¥2.8bn for the year. We made other minor adjustments, but at this point we are assuming that most of the damage is isolated to Q2. ? Full-year EBIT forecast is lowered 6%, to ¥173.3bn, vs. consensus of ¥178.6.
Earnings and target price revision ? We lower FY8/17 EPS to ¥983 (from ¥1,047); FY8/18 to 1,144 (from 1,206),
and FY8/19 to ¥1,307, (from ¥1,360) forecasts. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Price catalyst ? 12-month price target: ¥28,100 based on a price cash flow methodology. ? Catalyst: Q1 Results announcement January 12
Source: FactSet, Macquarie Research, January 2017 (all figures in JPY unless noted)
Action and recommendation ? There is still significant downside risk to our forecasts if the company’s
Analyst(s) Mike Allen +81 3 3512 7859 mike.allen@macquarie.com
inability to sell at full price and the lack of freshness in the merchandise mix persists.
10 January 2017
Macquarie Capital Securities (Japan) Limited
Please refer to page 11 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 21

MALAYSIA
GENM MK Price (at 08:44, 06 Jan 2017 GMT) Valuation 12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
Neutral RM4.73 RM RM % % 4.80
Genting Malaysia Site visit: new capacity coming online Event ? We maintain our Neutral rating following a site visit to the new transportation
- DCF (WACC 10.8%, beta 1.1, ERP 6.5%, RFR 4.0%, TGR 4.0%)
4.80 +1.5 +3.6 Low Consumer Services Market cap RMm 28,087 Market cap US$m 6,280 Free float % 24 30-day avg turnover US$m 4.0 Number shares on issue m 5,938 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV m m % m m sen % sen % x x sen % % % x % x 2015A 2016E 2017E 2018E 8,395 1,626 -1.6 1,258 1,413 22.2 4.6 24.9 3.0 21.3 19.0 7.1 1.5 6.7 8.0 11.6 0.1 1.4 9,109 1,579 -2.9 1,503 1,503 26.5 19.5 26.5 6.4 17.8 17.8 8.1 1.7 5.7 7.7 11.4 -1.2 1.3 9,848 11,199 1,850 2,324 17.2 25.6 1,634 2,012 1,634 2,012 28.8 35.5 8.7 23.1 28.8 35.5 8.7 23.1 16.4 13.3 16.4 13.3 10.0 11.0 2.1 2.3 6.4 7.7 7.9 9.2 10.0 8.5 3.3 -3.5 1.3 1.2
(Awana Skyway) and retail (Sky Avenue) capacity at the Malaysian casinoresort (80-85% of group EBITDA), key elements of GENM’s RM10bn 10-year Genting Integrated Tourism Plan (GITP) unveiled Dec 2013. Whilst confirming expectations of a significant qualitative uplift for the resort, the launch delays appear set to continue and will push back forecast positive earnings impact to 2H17. Coupled with uncertainties re potential levies vis-à-vis stretched fiscal position/coming elections and pending evidence of a required sharp rise in arrivals to fill impending new capacity, we expect share price to continue to struggle to decisively break out of its tradeable 3-year “value trap” price range.
Impact ? Awana Skyway: Originally expected to be operational early 4Q, the Awana
Skyway cable car system opened 22 Dec and is a tangible improvement in speed (12 mins from mid-hill to the top) over the older Genting Skyway (now shut). The adjacent Genting Premium Outlets complex, targeted for a 4Q16 opening to build traffic ahead of Christmas/CNY, is still under construction. ? Sky Avenue: Awana Skyway docks on 4th floor of the new Sky Avenue retail
complex, passing over the theme park site (construction evident) on the way. Sky Avenue has 2 floors (retail and F&B) in operation currently with critical mass, including opening the Sky Casino space, seeming likely only into 2H17. ? Other observations: crowd moderate (post-Dec peak), and mixed – growing
importance of Chinese market is underpinned by plentiful Mandarin signage / menus. Broad security has upped, including scanning for Awana Skyway.
GENM MK rel KLCI performance, & rec history
Earnings and target price revision ? We revise earnings forecast as follows: i) FY16 earnings raised 17%, mainly
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
reflecting net tax write-back in 3Q16 which puts YTD 3QFY16 effective tax rate at 12% (2015: 24%) but also a resilient YTD showing by the UK casino operations – our FY16 forecast is 4% above consensus; and ii) a 6% cut to our FY17 earnings forecast but a 4% increase in our FY18 earnings forecast – the divergence is due to the factoring in of delays in aforementioned capacity introductions that pushes related earnings upswing into 2H17; our FY17 earnings forecast is in line with consensus whilst FY18 is 3% above. The flowthrough to our SOTP-based TP is an increase of 20 sen/share, to rM4.80. ? GENM completed the sale of its 16.9% stake in Genting (HK) in 4Q16 for
Source: FactSet, Macquarie Research, January 2017 (all figures in MYR unless noted)
USD415mn (c.RM1.7bn then). Whilst net cash position rises to RM800mn, we do not expect repatriation or dividend boost (forecast payout to remain around 30%) given ongoing capex in Malaysia and growth initiatives in the US.
Analyst(s) Anand Pathmakanthan +60 03 2059 8993 anand.pathmakanthan@macquarie.com
Price catalyst ? 12-month price target: RM4.80 based on a Sum of Parts methodology. ? Catalyst: seamless execution re new capacity introductions, substantial hike
10 January 2017
in dividend payout, rising foreign arrivals, less-volatile overseas operations.
Macquarie Capital Securities (Malaysia) Sdn. Bhd.
Action and recommendation ? Maintain Neutral rating. TP raised to RM4.80 (from RM4.60).
Please refer to page 11 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 22

INDIA
HAVL IN Price (at 08:32, 09 Jan 2017 GMT) Valuation
Outperform Rs360.55 Rs 404.33
Havells India Copper cushions volume hit Event ? We upgrade Havells to Outperform from Neutral with a price target of Rs404
- DCF (WACC 13.0%, beta 1.0, ERP 5.0%, RFR 8.0%)
12-month target Rs 404.00 Upside/Downside % +12.1 12-month TSR % +13.8 Volatility Index Low/Medium GICS sector Capital Goods Market cap Rsm 224,983 Market cap US$m 3,345 Free float % 33 30-day avg turnover US$m 6.1 Number shares on issue m 624.0 Investment fundamentals Year end 31 Mar Revenue EBIT EBIT growth Recurring profit Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2016A 2017E 2018E 2019E m 54,369 57,866 67,339 78,359 m 6,557 6,535 8,493 10,149 % 5.8 -0.3 30.0 19.5 m 7,118 7,565 9,618 11,447 m 7,154 5,485 6,925 8,242 m 5,130 5,485 6,925 8,242 Rs 11.46 8.79 11.09 13.20 % 53.9 -23.3 26.3 19.0 Rs 8.22 8.79 11.09 13.20 % 10.3 6.9 26.3 19.0 x 31.5 41.0 32.5 27.3 x 43.9 41.0 32.5 27.3 Rs 6.00 5.27 6.66 7.92 % 1.7 1.5 1.8 2.2 % 17.2 15.9 19.1 20.7 % 20.4 20.1 23.8 26.4 x 28.1 27.1 21.4 18.0 % -50.8 -53.9 -58.1 -61.4 x 8.5 8.0 7.5 6.9
(previously Rs418) as revenue growth going forward should be supported by higher copper prices and market share gains from the unorganised sector. Government initiatives on housing could add tailwinds in late FY18. We believe the recent correction builds in a near-term earnings hit.
Impact ? Industry checks hint at a limited impact of demonetisation: Based on
?
?
HAVL IN rel BSE Sensex performance, & rec history
?
?
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in INR unless noted)
discussions with multiple distributors, we believe Havells’ Q3 earnings are likely to be not be as bad as feared due to demonetisation. One of the key reasons is increased copper prices, which have led to a sharp improvement in performance of the cable & wire business. We believe there is some stocking up of cables by the channel. Another key factor is market share gains from un-organised players that witnessed disruptions in the supply chain post demonetisation. ? Margins to be impacted in the short term: Our industry checks suggest that the company has offered additional incentives to the trade on volumes and payments, which should impact margins in the near term. However, working capital should remain un-changed. Copper to be saviour for FY18 too: Copper prices have increased 15% in INR terms since the beginning of Q3. This segment has seen very slow growth of 1.5% in 1H despite sharp volume growth. The company has also taken price hikes in other key segments, like Fans, to factor in higher raw material costs. Housing revival possible in late FY18 on the back of lower interest rates: Banks have sharply reduced home loan rates in the last week or so. Our economist expects a further reduction of 50-75ps in interest rates. We expect the government to increase the tax deduction on home loans. It has also announced interest subvention schemes for very small ticket-size housing loans. All these measures may help semi-urban and rural housing. New product introductions continue: Havells will have a larger push of its air-cooler product in 2017. It has also introduced a home automation product range, which should start to have some impact only in 2018. Key call is on cash hoard: Havells is holding cash of Rs15.1bn after the sale of the Sylvania business. The company has indicated that it is willing to look at inorganic options. Entry into an un-related segment, where the company cannot leverage its distribution strength, and premium brand positioning would be deemed negative.
Earnings and target price revision ? We reduce our FY17 earnings by 14% due to a volume hit. Our FY18/19E
EPS is cut marginally by 6% /2%. We lower our target price by 3.4%. Analyst(s) Inderjeetsingh Bhatia +91 22 6720 4087 inderjeet.bhatia@macquarie.com Sumangal Nevatia, CFA +91 22 6720 4093 sumangal.nevatia@macquarie.com
Price catalyst ? 12-month price target: Rs404.00 based on a PER methodology. ? Catalyst: Higher sales growth for the domestic business
Action and recommendation ? Upgrade to Outperform: We believe the company’s core fundamentals
10 January 2017
Macquarie Capital Securities India (Pvt) Ltd
remain intact with its premium positioning, ability to expand its product portfolio and dealer network and lean working capital. We think the 18% correction over the last 3 months vs. Nifty at -5% builds in a short-term impact on earnings. Upgrade to Outperform.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 23

INDIA
IIB IN Price (at 08:35, 10 Jan 2017 GMT) Valuation - DDM
Outperform Rs1,153.10 Rs 1,290.00 1,290.00 +11.9 +12.5 Low Banks 688,553 10,091 81 18.6 597.1
IndusInd Bank 3QFY17 – Defying demonetization blues! Event ? IndusInd reported a robust set of 3QFY17 numbers, defying all potential
12-month target Rs Upside/Downside % 12-month TSR % Volatility Index GICS sector Market cap Rsm Market cap US$m Free float % 30-day avg turnover US$m Number shares on issue m Investment fundamentals Year end 31 Mar Net interest Inc Non interest Inc Underlying profit PBT PBT growth Recurring profit Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE P/BV bn bn bn bn % bn bn bn Rs % Rs % x x Rs % % % x
concerns with respect to demonetization. Margins held up well, loan growth was strong and so was asset quality. PAT was up 29% YoY at Rs7.5bn, beating our estimates of Rs7bn. ? We continue to like IndusInd for the high degree of predictability in its
earnings, diversified loan book/fee streams and best-in-class growth trajectory. Reiterate our Outperform rating on the stock with unchanged TP.
Impact 60.0 40.4 53.7 43.6 25.8 43.6 28.8 28.8 48.42 19.1 48.42 19.1 23.8 23.8 6.00 0.5 1.8 15.2 3.5 75.2 49.6 67.6 55.5 27.2 55.5 36.7 36.7 61.60 27.2 61.60 27.2 18.7 18.7 7.00 0.6 1.9 16.9 3.0 95.0 60.1 85.3 70.8 27.5 70.8 46.7 46.7 78.53 27.5 78.53 27.5 14.7 14.7 7.50 0.7 1.9 18.4 2.5
2016A 2017E 2018E 2019E 45.2 33.0 43.0 34.7 28.1 34.7 22.9 22.9 40.67 19.6 40.67 19.6 28.4 28.4 5.20 0.5 1.8 16.1 4.0
? What is the impact of demonetization? IndusInd witnessed a 38% YoY rise
in deposits, with CASA growing by 46% YoY (SA deposits up 56% YoY). What is commendable is the fact that IndusInd delivered 25% YoY loan growth when systemic growth is languishing at ~6% levels. Clearly, indicates the strong market share gains that are accruing. Over the medium term, the management sees multiple opportunities opening up: 1) access to segments which were hitherto dominated by cash (and hence tough for banks to grow, e.g. 2-wheelers); 2) large opportunity for distributors of financial assets even if a small proportion of the new deposit flow goes to other financial assets (e.g. MFs, insurance); and 3) refinancing of credit – from bonds to banks as lending rates are declining sharply. ? Asset quality – no concerns: GNPLs remained stable at 0.9% and
IIB IN rel BSE Sensex performance, & rec history
management indicated it has not seen any material changes to the overall asset quality outlook. Even in the MFI segment, collections have bounced back to almost normal levels (efficiency of >99%) and they remain quite confident on this segment medium term. Credit costs were low at 57bps and the slippage ratio stable at ~1.4%. ? NIMs hold up well, growth is diversified: In an environment of fluctuating
liquidity conditions, IndusInd has done a commendable job of protecting its NIMs at 4% level. Additionally, growth was well diversified with consumer (adj. for business banking) now at 49% of the mix. The vehicle portfolio was up 21% YoY, while the non-vehicle retail portfolio was up 42% YoY. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
? Qualitative aspects improving: Tier1 consumption has slowed with flat
Source: FactSet, Macquarie Research, January 2017 (all figures in INR unless noted)
CET1 QoQ (despite strong growth) and RWA/Total assets is now at 78.9%.
Earnings and target price revision ? We tweak our FY17E/FY18E earnings by ~1%. Our TP remains unchanged.
Analyst(s) Suresh Ganapathy, CFA +91 22 6720 4078 suresh.ganapathy@macquarie.com Sameer Bhise +91 22 6720 4099 sameer.bhise@macquarie.com
Price catalyst ? 12-month price target: Rs1,290.00 based on a DDM methodology. ? Catalyst: strong asset quality and robust earnings growth
10 January 2017
Macquarie Capital Securities India (Pvt) Ltd
Action and recommendation ? IndusInd remains one of our top picks in the Indian bank space. Maintain
Outperform.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 24

CHINA
300433 CH Price (at 07:00, 09 Jan 2017 GMT) Valuation - PER
Outperform Rmb25.12 Rmb 36.00
Lens Tech (A-Share) Shining future ahead Event ? We reaffirm the uptrend of glass casing/3D glass in China smartphones,
12-month target Rmb 36.00 Upside/Downside % +43.3 12-month TSR % +44.6 Volatility Index Very High GICS sector Technology Hardware & Equipment Market cap Rmb 54,812 m Market cap US$m 7,916 Free float % 9 30-day avg turnover US$m 11.8 Number shares on issue m 2,182 Investment fundamentals Year end 31 Dec Revenue EBITDA EBITDA growth EBIT EBIT growth Reported profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 17,227 16,006 24,430 34,869 m 3,929 3,988 5,350 7,122 % nmf 1.5 34.2 33.1 m 1,867 1,643 2,974 4,698 % nmf -12.0 81.0 58.0 m 1,543 1,376 2,554 4,092 Rmb 0.78 0.70 1.29 2.07 % nmf -10.8 85.6 60.2 x 32.2 36.1 19.5 12.1 Rmb 0.00 0.37 0.33 0.61 % 0.0 1.5 1.3 2.4 % 9.1 7.9 12.7 17.2 % 15.0 12.8 21.6 30.1 x 38.5 13.0 9.8 7.3 % 36.4 22.5 11.6 3.8 x 14.3 4.5 4.0 3.4
given our recent checks, in line with our in-depth theme report on glass/wireless charging (report link, November 25). We reiterate our Outperform rating on Lens Tech. The stock currently trades at 20x our 2017E EPS, which is below its historical trading average of 28x, and we believe we are still in the early stages of the product cycle.
Impact ? Increasing glass in China smartphones: In late 2016/early 2017, we have
continued to see new China smartphones featuring glass/ceramic/3D glass (Fig 1). For example, 3D cover glass can be seen in flagship models of Huawei, Vivo and Gionee, and glass/ceramic casings are seen in Huawei, Xiaomi, and Meizu. We believe glass features will continue to increase in smartphones, as it brings differentiation and new excitement to consumers and is also wireless chargeable and radio frequency transparent. ? 1Q17 preview – guide revenue up double digits YoY: Despite a slow
season in 1Q17, management is confident it can deliver over 30% YoY increase in revenues given increasing glass in China smartphones. The guidance is significantly stronger than that in 1Q16, which was down 36% YoY and is also largely in line with our estimates of +39% YoY. ? Leader to be the main beneficiary: Lens Tech is a leader in smartphone
300433 CH rel CSI 300 performance, & rec history
cover glass and glass casing and supplies to both leading global-tier brands and China smartphones, showing evidence of its product quality in mass production. The company enjoys dominant share in new smartphone models featuring glass and its shipment gap vs the second-tier suppliers widened to 4x in 3Q16 from 3x in 2Q16, in line with our view that market leaders should be the largest beneficiaries in the glass casing/3D glass uptrend. ? Ceramic casing, potential upside in the future: Lens Tech enjoys a leading
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
position in ceramic casing, witnessed by its market share in ceramic-casing smartphones. Ceramic is harder and more durable compared to glass, and thus we believe it enjoys a higher gross margin compared to glass casing. In addition, Lens Tech makes ceramic blanks in-house, further securing its leading position. Ceramic casing still has a small penetration rate and we have not yet factored it in our model.
Source: FactSet, Macquarie Research, January 2017 (all figures in Rmb unless noted, TP in CNY)
Earnings and target price revision ? No change.
Analyst(s) Verena Jeng +852 3922 3766 Allen Chang +852 3922 1136 Chris Yu +86 21 24129024 verena.jeng@macquarie.com allen.chang@macquarie.com chris.yu@macquarie.com
Price catalyst ? 12-month price target: Rmb36.00 based on a PER methodology. ? Catalyst: 4Q16 results.
Action and recommendation ? Remain Outperform.
10 January 2017
Macquarie Capital Limited
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 25

TAIWAN 6491 TT Not rated
MacVisit: Pegavision Mgmt sees solid order growth ? Pegavision is the contact lens subsidiary of Pegatron (4938 TT, NT$78.00,
Stock price as of 06/01/2017 NT$ 70.5 GICS sector Healthcare equipments & Service Market cap US$m 132 Avg Value Traded (3m) US$m 0.1 12m high/low NT$ 89.0/63.7 PER LTM1H16 x 28.9x P/BV 1H16 x 3.7x
Outperform, TP: NT$91.00) a leading EMS company. We talked to management regarding an update on the business outlook after our first MacVisit note published in February 2016 (see MacVisit: Pegavision - New contact lens player from Taiwan). ? About 45% of Pegavision’s sales are from the Taiwan OBM (retail brand)
Historical financials YE Dec (US$m) Revenue % growth EBITDA % growth EPS % growth EBIT Margin 2013A 589 157% 32 -165% 1.10 -188% 5.4% 2014A 921 56% 59 88% 1.29 17% 6.5% 2015A 1,308 42% 137 130% 2.12 64% 10.5% 1H16 776 30% 223 106% 1.22 28% 12.6%
market and the remaining ~55% from ODM (contract manufacturing) business, primarily in Japan, but also China and Europe. Daily lens account for around 90% of the company’s sales; colour lens also makes up the bulk of sales. Pegavision was founded in 2009 and floated on the Emerging board in 2014.
Event ? Management see solid orders ahead, especially from Japan. Pegavision’s
Source: Company data, FactSet, January 2017
Pegavision historical price NT$
120 110 100
sales growth accelerated to 50% YoY in 4Q16, from 19% in 9M16 and management continue to tone positive regarding the outlook. ReVIA, the new contact brand manufactured by Pegavision, was the best-selling daily contact lens product on Rakuten, the largest online shopping platform in Japan, after being launched in September 2016 (see details here). ReVIA hired Namie Amuro, a tier 1 Japanese singer as the brand ambassador. This reinforces our view that the contact lens is the business of marketing and distribution, not manufacturing or technology. ? Company confident in its technology. Management continue to show
90 80 70
6491 TT Equity
TWSE rebased
Source: Macquarie Research, January 2017
confidence regarding their technology. They use a ‘sandwich manufacturing process’ in their colour lens products, i.e. a coloured layer is embedded in between two non-coloured layers so that the coloured layer does not directly touch the eyes. The full manufacturing process is highly automated, with management citing the expertise of the parent company. This higher automation translates to better yield and lower production cost, it claims. Mgmt also believe that the products like theirs that manufactured based on better technology can gain shares amid the trend of stricter requirements from regulators. ? Company confident of new ODM/OEM client wins. Based on their claims of
Analyst(s) Marcus Yang +886 2 2734 7532 Corinne Jian, CFA +886 2 2734 7522 marcus.yang@macquarie.com corinne.jian@macquarie.com
better technology, mgmt are confident of continuing market share gains in the ODM/OEM business. According to the company, they have penetrated into ‘most Japanese brands’, especially the private labels of cosmetic stores, and will continue this strategy going forward. They deem the overall ODM/OEM business as the driver for the company following stabilization of the domestic OBM business. And they will continue to ramp new capacity to fulfil demand from new orders. We highlighted the competitive pressure of this industry in our sector report published in February 2016 (Contact lens sector - Hunger game kicks off).
Financials and valuation ? Pegavision’s 2016 sales grew by 27%. In 1H16, operating income rose 51%
YoY. The company was in a net cash position as of 1H16. ? The stock is now trading at 29x LTM2Q16 PER with 3.7x P/BV (1H16). There
10 January 2017
Macquarie Capital Limited, Taiwan Securities Branch
is a lack of broker coverage. For comparison, the Taiwan contact lens sector is trading at a 2016E PER of 18x and 4.4x P/BV.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 26

TAIWAN
2454 TT Price (at 13:10, 09 Jan 2017 GMT) Valuation - PER
Outperform NT$217.00 NT$ 280.00
MediaTek Pressure in telco channels, but margin recovery intact Event ? We believe MediaTek is currently in talks with China telco companies
12-month target NT$ 280.00 Upside/Downside % +29.0 12-month TSR % +35.1 Volatility Index Medium GICS sector Semiconductors & Semiconductor Equipment Market cap NT$m 343,294 Market cap US$m 10,733 30-day avg turnover US$m 27.0 Number shares on issue m 1,582 Investment fundamentals Year end 31 Dec Revenue Reported profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn NT$ % x NT$ % % % x % x 2015A 2016E 2017E 2018E 213.3 26.0 16.60 -44.8 13.1 11.00 5.1 7.4 10.6 8.1 -42.2 1.4 275.5 23.9 15.27 -8.0 14.2 10.69 4.9 6.8 10.1 8.2 -35.2 1.5 287.3 29.2 18.68 22.3 11.6 13.07 6.0 6.8 12.2 7.7 -34.9 1.4 301.1 36.3 23.24 24.4 9.3 16.27 7.5 8.7 14.3 6.1 -36.1 1.3
regarding 2017 product plans. However, we don’t expect to see meaningful progress in the near term, given the alternative of Qualcomm.
Impact ? Product line-up to improve in 2H17: Compared to the largest chip supplier,
Qualcomm, MediaTek’s current product line-up is only lightly Cat-7 but mostly below Cat-7. We believe MediaTek’s product line-up will improve dramatically in 2H17, and that in time the main product line up will feature Cat-7 and Cat12. We believe the China telco companies will be satisfied with MediaTek’s product plan in 2H17 but not now. ? Slight impact on margins but 2H17 recovery intact: We believe the
competition at China operator channels may cause some shipment and margin pressure. However, our thesis of a margin recovery in 2H17 is unchanged. We now model a gross margin bottom of 34.5% in 2Q17, followed by a recovery to 37% in 2H17. ? Samsung orders on track: We believe Samsung will start to bundle
2454 TT rel TAIEX performance, & rec history
MediaTek’s chips instead of Spreadtrum’s. Also, we believe gross margin should be above the corporate average, as Spreadtrum failed the product qualification, and MediaTek became the only company that participated.
Earnings and target price revision ? We factor in 4Q16 preliminary sales and reduce 2017/18 earnings by 8%/8%
on lower shipments and margin assumption. Accordingly, we adjust target price from NT$300 to NT$280 on unchanged 15x 2017E PE.
Price catalyst Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
? 12-month price target: NT$280.00 based on a PER methodology. ? Catalyst: monthly sales, earnings results/outlook, smartphone chip demand.
Source: FactSet, Macquarie Research, January 2017 (all figures in NT$ unless noted, TP in TWD)
Action and recommendation ? We believe MediaTek’s smartphone shipments will continue to grow, thanks
Analyst(s) Macquarie Capital Limited, Taiwan Securities Branch Patrick Liao +886 2 2734 7515 patrick.liao@macquarie.com Lynn Luo +886 2 2734 7534 lynn.luo@macquarie.com Jeffrey Ohlweiler +886 2 2734 7512 jeffrey.ohlweiler@macquarie.com Macquarie Capital Limited Allen Chang +852 3922 1136 allen.chang@macquarie.com
to new product launches and contribution from Samsung starting in 2017. We also expect MediaTek’s margins to gradually improve in 2017/18. We maintain an Outperform rating with a reduced target price of NT$280 (15x 2017E PE).
10 January 2017
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 27
GLOBAL
NKE US Price (at 21:02, 06 Jan 2017 GMT) Valuation - PER
Outperform US$53.91 US$ 75.00 75.00 +40.6
NIKE The Sun Clearing the Inventory Clouds Event ? Today we assess 2Q17 inventories by region from a Days-in-Inventory
12-month target US$ 12-month TSR % GICS sector Consumer Durables & Apparel Market cap US$m 30-day avg turnover US$m Number shares on issue m Investment fundamentals Year end 31 May Revenue EBIT Reported profit Adjusted profit EPS adj EPS adj growth PER adj
89,770 517.3 1,665
standpoint following the 10Q release Thursday night. In our two most recent inventory analyses, The Sun’s Gravitational Pull and The Sun’s Gravitational Fluctuation, we outlined that Nike’s sheer scale is having a gravitational pull on the US sportswear sector. Good news – the inventory clouds are clearing and we assess the situation has improved significantly detailed below.
Impact ? Section 1 – Takeaways on Gross Margin: On pages 2-3 we provide our
2016A 2017E 2018E 2019E m 32,376 34,809 38,531 42,895 m 4,502 4,833 5,951 7,244 m 3,760 4,083 4,716 5,750 m 3,760 4,083 4,716 5,750 US$ 2.16 2.42 2.88 3.59 % 16.5 12.1 19.0 24.8 x 25.0 22.3 18.7 15.0
NKE US vs S&P 500, & rec history
takeaways on Net Selling Prices, Product Costs, Off-Price, DTC and FX for the second quarter’s gross margin. The shift into COGS from SG&A is bucketed in the “other” gross margin line item. We estimate the shift in SG&A into COGS represents a 45bps drag to gross margins for FY17E. The six line items for the gross margin add up to 120bps of pressure versus the reported 140bps. The variance of 20bps relates to various discrete line item headwinds. In addition, the gross margin line items by region do not account for Nike’s hedging program. ? Section 1 – Revisiting North America Inventories: When the 2Q16 10Q came
out last year we estimated in Spring Cleaning that North America excess inventory was approximately $400MM out of the $2.389B. For 1Q17 we estimated in The Sun’s Gravitational Fluctuation that there was $200MM in excess inventory based on Days-in-Inventory. Today we estimate there is a $140MM in excess inventory out of the $2.290B in North America inventory detail on pages 3-5. ? Section 2 – How About Western Europe? With the 10K, we observed that 4Q16 Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Capital (USA), January 2017 (all figures in USD unless noted)
Analyst(s) Macquarie Capital (USA) Inc. Laurent Vasilescu +1 212 231 8046 laurent.vasilescu@macquarie.com Dan Isaacson, CFA +1 212 231 6195 dan.isaacson@macquarie.com Macquarie Capital Limited Linda Huang, CFA +852 3922 4068 linda.huang@macquarie.com Terence Chang +852 3922 3581 terence.chang@macquarie.com Macquarie Capital Limited, Taiwan Securities Branch Corinne Jian, CFA +886 2 2734 7522 corinne.jian@macquarie.com Benson Pan +886 2 2734 7527 benson.pan@macquarie.com
Western Europe inventories were at $929MM, up 33% YoY. Then for 1Q17, Western Europe inventories were up 40% YoY. Today inventories are up 32% YoY. After the 10Q came out Thursday night, we caught up with Nike on Friday and it is our understanding that two-thirds of the growth is F- related. We recommend investors take a look at FY12 Western European inventories when the Euro collapsed. Inventories increased over 40% YoY before they started decreasing YoY. Today we estimate on pages 6-8 that there is $71MM in FX-adjusted excess inventory out of the $994MM in total Western Europe inventory. ? Section 3 – Converse All Star! We estimated last quarter there was $70MM in
excess inventory at Converse. We do note that there was an inventory build for the recent launch of the Converse Modern Collection. Today we estimate there is $68MM in excess inventory out of the $313MM in Converse inventory.
Earnings and target price revision ? No change
Price catalyst ? 12-month price target: US$75.00 based on a PER methodology. ? Catalyst: Expected to report 3Q17 results in March
9 January 2017
Action and recommendation ? We anticipate with inventory improvement gross margins will improve as well.
Please refer to page 14 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 28

THAILAND
PTTEP TB Price (at 14:02, 10 Jan 2017 GMT) Valuation - NAV
Neutral Bt96.50 Bt 85.00 85.00 -11.9 -9.8 High Energy 382,140 10,716 34 22.8 3,960
PTT Exploration & Production Five-year capex & production guidance Event ? PTTEP announced its five-year investment plan for 2017-21. Compared to the
12-month target Bt Upside/Downside % 12-month TSR % Volatility Index GICS sector Market cap Btm Market cap US$m Free float % 30-day avg turnover US$m Number shares on issue m Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn Bt % Bt % x x Bt % % % x % x
previous guidance we note that there is a c.30% p.a. capex cut for 2017-19. The company also guided for a production decline of 4% CAGR over the next five years. In our view, the capex cut and the declining production outlook is partly a result of the delay in the resolution of the Bongkot concession issue as well as the challenges in the development of the LNG asset in Mozambique. We remain cautious on the company particularly because of the uncertainty around the concession issue. Maintain Neutral rating.
2015A 2016E 2017E 2018E 188.4 40.9 -56.2 -31.6 13.4 -7.96 nmf 3.39 -71.9 nmf 28.5 3.00 3.1 5.5 3.3 2.8 -2.2 0.9 150.8 28.4 -30.6 15.7 15.7 3.96 nmf 3.96 16.8 24.4 24.4 1.47 1.5 4.0 3.8 3.5 -3.4 0.9 188.5 41.1 44.7 19.6 19.7 4.95 25.1 4.95 25.2 19.5 19.5 1.98 2.1 5.8 4.7 2.9 -4.0 0.9 190.0 49.7 20.9 24.8 24.8 6.25 26.3 6.26 26.3 15.4 15.4 2.50 2.6 6.7 5.7 2.8 -5.4 0.9
Impact ? We see risk of declining reserves: The forecast for 2016 capex stands at
US$1.1bn which is 47% lower than the budget planned at the beginning of 2016 and 21% below the revised number in November. According to the company this was a result of the delay in investment of new projects including Mozambique LNG. In our view, this poses risk to the reserve replacement ratio and the company’s reserve life. As of the beginning of 2016, PTTEP proved reserves were ~6 years, which was already quite low. According to PTTEP the FID of Mozambique LNG, which is now expected at the end of 2017, would have added ~1.5 years of reserves to the company. ? Organic production declining slightly faster than previously expected:
PTTEP TB rel SET performance, & rec history
In the previous five-year plan, the company guided for a production decline rate of 2% five-year CAGR. In the latest guidance, the decline is estimated at 4% CAGR. We believe this is partly due to the fact that the company has assumed that it will not be awarded the Bongkot concession which results in a lower capex estimate as thus potentially lower production expectation. According to the company, if the Bongkot concession is extended, this will increase capex by ~US$200mn p.a. and lifts the production rate in 2021. ? Cost savings may have peaked: The OPEX guidance declined c.9% when
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
compared to the previous guidance. This reflects the success of the costsaving strategy seen in 2016. However, we note that based on the latest guidance, OPEX per barrel is increasing by 17% YoY from 2016 to 2017. This may result in the rise in cash cost of similar magnitude. ? Stock is inexpensive but outlook unclear: Currently PTTEP is trading at
Source: FactSet, Macquarie Research, January 2017 (all figures in THB unless noted)
2017E EV/EBITDA of 3x which is cheap when compared regional peers of 45x. However as mentioned above, the risks of declining reserves and production prevent us from being more bullish on the stock.
Earnings and target price revision ? No change.
Analyst(s) Duke Suttikulpanich +65 6601 0148 duke.suttikulpanich@macquarie.com
Price catalyst ? 12-month price target: Bt85.00 based on a NAV methodology. ? Catalyst: concession issue breakthrough, M&A to add reserves, oil price hike.
10 January 2017
Macquarie Capital Securities (Singapore) Pte. Limited
Action and recommendation ? Maintain Neutral rating.
Please refer to page 5 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 29

JAPAN
1377 JP Price (at 05:16, 10 Jan 2017 GMT) Valuation - DCF
Outperform ¥3,315 ¥ ¥ % % 3,2003,900
Sakata Seed 2H Plan Appears Conservative Conclusion ? Sakata Seed announced upward revisions to 1H and full-year guidance after
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
3,800 +14.6 +15.4 Medium Food, Beverage & Tobacco Market cap ¥m 160,482 Market cap US$m 1,382 30-day avg turnover US$m 4.0 Number shares on issue m 48.41 Investment fundamentals Year end 31 May Revenue EBIT EBIT growth Recurring profit Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield EV/EBITDA Net debt/equity P/BV 2016A 2017E 2018E 2019E m 58,773 57,500 60,100 63,000 m 7,317 8,000 9,500 11,500 % 53.1 9.3 18.8 21.1 m 7,554 8,200 10,000 12,000 m 5,215 5,700 7,000 8,400 m 5,267 5,700 7,000 8,400 ¥ 115.9 126.7 155.5 186.7 % 36.5 9.3 22.8 20.0 ¥ 117.0 126.7 155.5 186.7 % 27.7 8.2 22.8 20.0 x 28.6 26.2 21.3 17.8 x 28.3 26.2 21.3 17.8 ¥ 25.0 26.0 30.0 35.0 % 0.8 0.8 0.9 1.1 x 14.8 14.0 12.0 10.1 % -15.1 -17.5 -18.3 -19.9 x 1.7 1.6 1.5 1.4
the market close on 10 January. We think the 2H FY5/17 OP guidance (¥1.4bn vs. ¥2.3bn booked in 2H FY5/16) is conservative. ? Sakata Seed raised OP guidance from ¥3.9bn to ¥5.6bn for 1H and ¥6bn to
¥7bn for FY5/17 (vs. our ¥8bn forecast). It is scheduled to announce 1H results on 12 January.
Impact ? The ¥5.6bn in 1H OP is slightly below the ¥6bn estimate from Nikkei’s
forecast article on 3 December (2016). ? While the roughly ¥800mn in 2Q OP is about ¥300mn less than a year ago
(¥1.15bn), we think the difference can be largely explained by 1) removal of shipments of carrot seeds to China booked on accelerated basis in 1Q (about ¥500mn) from 2Q and 2) modest weakness in domestic wholesale and retail businesses. ? We believe Sakata Seed maintained sales gains on a local-currency basis for
major items in the overseas business, such as broccoli, and do not see change in the overseas growth story. ? New guidance effectively lowers the 2H OP target by ¥700mn, though we
think Sakata Seed uses conservative values for spending progress, inventory valuation, and other items.
1377 JP vs TOPIX, & rec history
Earnings and target price revision ? We maintain our earnings forecasts and ¥3,800 price target.
Price catalyst ? 12-month price target: ¥3,800 based on a Price to Book methodology. ? Catalyst: Manifestation of overseas growth potential at each results
announcement
Action and recommendation Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in JPY unless noted)
? We reiterate our Outperform rating.
Analyst(s) Satsuki Kawasaki +81 3 3512 7879 satsuki.kawasaki@macquarie.com Maiko Kutsuna +81 3 3512 7871 maiko.kutsuna@macquarie.com
10 January 2017
Macquarie Capital Securities (Japan) Limited
Please refer to page 5 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 30

CHINA
Xinjiang Goldwind (A-Share) Neutral Rmb16.79 Rmb 15.70
002202 CH Price (at 05:21, 09 Jan 2017 GMT) Valuation - DCF (WACC 7.6%)
Set to embrace the rising wind Event ? In contrast to market expectation of low-single-digit growth in wind
12-month target Rmb 15.80 Upside/Downside % -5.9 12-month TSR % -2.2 Volatility Index High GICS sector Capital Goods Market cap Rmbm 43,352 Market cap US$m 6,332 Free float % 57 30-day avg turnover US$m 32.7 Number shares on issue m 2,582 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 30,062 27,827 33,446 34,013 m 3,542 3,800 4,867 5,460 % 37.6 7.3 28.1 12.2 m 2,849 2,944 3,651 4,007 m 2,939 2,944 3,651 4,007 Rmb 1.05 1.08 1.33 1.46 % 55.1 2.2 24.0 9.8 Rmb 1.09 1.08 1.33 1.46 % 52.5 -0.9 24.0 9.8 x 15.9 15.6 12.6 11.5 x 15.5 15.6 12.6 11.5 Rmb 0.48 0.52 0.61 0.67 % 2.9 3.1 3.7 4.0 % 7.2 6.6 7.0 7.0 % 18.6 16.7 18.7 18.3 x 13.0 11.7 9.0 7.7 % 19.6 61.1 77.6 90.7 x 2.7 2.5 2.2 2.0
installations in 2016-2020, we expect installations to grow 18% YoY to 26GW in 2017, after a 33% YoY fall in 2016E. We believe Goldwind will use the market recovery and structural change (switch to low-wind regions) to increase its market share by 2ppts to 32% in 2017E. We raise our 3-year EPS CAGR estimate from 6% to 12%, and our TP from Rmb14.20 to Rmb15.80. We maintain Neutral as the stock is trading at 13x 2017E, in line with its historical median.
Impact ? China wind installations likely to recover, up 18% YoY to 26GW in 2017E.
Despite listed wind IPPs maintaining a flattish capex plan for 2017E, we expect rising demand from coal-fired IPP groups and unlisted private players. Our expectation is based on: a) strong recovery in public tender volume in 2016, up 51% YoY to a possible record high 28GW; b) part of demand in 2016 being carried forward to 2017 due to a longer construction cycle in tier-4 regions; and c) RPS (renewable portfolio standard) released in 2016, which may start to take effect in 2017: more private players are investing in wind/solar farms, not for holding, but for selling to large power SOEs, which should have non-hydro renewable power output >15% of its total power generation by 2020. ? China’s switch to low-wind regions should help Goldwind gain market
002202 CH rel CSI 300 performance, & rec history
share. We expect ~80% of new installations in 2017-18E will be located in tier-4 regions (vs ~40% in 2014-15) with low wind but without curtailment issue. This should aid Goldwind increase its market share further, from 25% in 2015 to 32% in 2017E, thanks to: 1) its 2.0MW product, launched as early as in 2015, considered a first mover into the low-wind market; and 2) its directdrive technology, which enables better low-wind capture than double-fed technology; and 3) 5% increase in power generation efficiency, which should improve returns for wind IPPs. We expect Goldwind’s wind turbine sales will increase 20% YoY to 7GW in 2017E, back to the record high hit in 2015. Meanwhile, we expect further economies of scale from 2.0MW to lead to a 0.5ppt pa increase in gross margin for the wind turbine business over 201518E. ? Potential overseas expansion. We expect more order intake from overseas
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in Rmb unless noted, TP in CNY)
markets following an exclusive letter of intent signed with Viridis in USA regarding 1.9GW wind turbine delivery over 2017-2022.
Earnings and target price revision ? We raise our 3-year EPS CAGR estimate from 6% to 12%, and raise TP to
Rmb15.80. We raise our TP to Rmb15.80 from Rmb14.20 based on unchanged target PE of 12x. Analyst(s) Patrick Dai +86 21 2412 9080 Yingying Tang +86 21 24129054 patrick.dai@macquarie.com yingying.tang@macquarie.com
Price catalyst ? 12-month price target: Rmb15.80 based on a Sum of Parts methodology. ? Catalyst: annual results, public tender volume, overseas expansion
10 January 2017
Macquarie Capital Limited
Action and recommendation ? Maintain Neutral. The stock is trading at 13x 2017E PE, in line with its
historical median of 13x.
Please refer to page 4 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 31

ASEAN ASEAN plantations Company Wilmar (S$) Golden Agri (S$) First Resources (S$) Indofood Agri (S$) Sime Darby (RM) IOI Corp (RM) KLK (RM) Genting Plant. (RM) Share Rec price N O O O O N N N 3.64 0.43 1.92 0.54 8.44 4.47 24.10 10.94 Price target 3.30 0.42 2.25 0.53 9.45 4.45 25.20 11.10 PER PER TSR +1FY +2FY -8% -1% 19% -2% 14% 2% 7% 3% 23.5 12.7 15.9 23.4 21.9 13.4 20.6 8.4 23.9 20.7 28.1 23.5 19.1 17.5 43.1 23.2
ASEAN Plantations Mediocre stats; tightened discount to SBO should cap price upside Event ? Malaysia’s Dec-16 palm oil inventory was unchanged mom at 1.66mt as both
Share price data as of 09 January 2017 Source: FactSet, Macquarie Research, January 2017
output and exports came in lower at 1.47mt (-6% mom) and 1.27mt (-7% mom), respectively. Notably, Dec-16 production was 5% above the Dec-15 level – the first yoy rise in 12 months. Overall, the MPOB stats were slightly below market expectations. This, coupled with a tightened discount to soybean oil (SBO) prices, should cap CPO price upside. OPur top picks are First Resources (OP, TP S$2.25) and Sime Darby (OP, TP RM9.45).
CPO price assumptions FOB Price US$/T RM/T CY15A 557 2,160 CY16A 639 2,649 CY17E 675 2,766 Long Term 766 3,141
Impact ? Dec-16 stats show an uptick in monthly production (on yoy basis).
Source: Macquarie Research, January 2017
December MPOB stats MOM In ‘000 tons Production Export Inventory Dec16 Nov16 1,474 1,575 1,268 1,370 1,665 1,663 Chg YTD16 YTD15 YOY Chg
Malaysia’s Dec-16 production fell by 6% mom (Fig 1), in line with the palm trees’ seasonal production pattern. On a yoy basis, we saw the first uptick (+5%) in 12 months on higher Dec-16 production from Peninsular (+15%) and Sarawak (+7%), which more than offset an 11% decline in Sabah output. For 12M16, Peninsular and Sabah production fell by 15%,16% while Sarawak’s output declined by a milder 3% due to expansion in the harvest area. ? Exports fell by 7% mom (-15% yoy) due to lower exports to China (-59kt),
-6% 17,320 19,962 -13% -7% 16,026 17,428 -8% 0% 1,665 2,634 -37%
Source: MPOB, Macquarie Research, January 2017
Palm oil stock stays tight but tightened price spread (to soybean oil) should cap CPO price upside
partly offset by higher demand from India (+33kt) and Turkey (+19kt). On a full year basis, India (2.83mt), EU (2.06mt) and China (1.88mt) were the biggest consumers, accounting for 42% of Malaysia’s palm oil exports. Meanwhile, Turkey, Bangladesh and Pakistan were the highest growth markets where 2016 CPO exports grew by over 150kt yoy. ? Palm oil inventory was unchanged mom at 1.66mt, a significant 970kt
drawdown from 2.63mt at end-Dec15. The inventory / supply balance remains tight – Dec-16 inventory was the lowest for December since 2010 while the current stock-usage ratio of 8.9% is still below trend (Fig 4). ? Elsewhere, cargo surveyor Intertek reported that Malaysia’s 1-10 Jan-17 palm
oil exports grew 8% mom to 352kt.
Outlook ? Overall, the MPOB stats are mildly bearish to CPO prices, given that: (i)
Source: MPOB, Macquarie Research, January 2017
the stats are below market expectation. Production exceeds Bloomberg survey by 3% while exports disappointed by 3%, resulting in a flattish closing inventory, versus consensus forecast for a 3% decline; and (ii) we see the first uptick in yoy production growth. This, coupled with a tightened discount to soybean oil prices (Fig 5), should cap the upside for CPO prices. ? No change to our CPO price forecasts. For exposure, First Resources (OP,
Analyst(s) Macquarie Capital Securities (Malaysia) Sdn. Bhd. Isaac Chow +60 3 2059 8982 isaac.chow6@macquarie.com Macquarie Capital Securities (Singapore) Pte. Limited Conrad Werner +65 6601 0182 conrad.werner@macquarie.com
TP S$2.25) is our top pick. It prices in the lowest CPO price within the plantation companies and offers the sector’s best operational metrics, in our view. We also like Sime Darby (OP, TP RM9.45) for its earnings recovery (driven by higher CPO prices) and the undertaking of a restructuring exercise to improve operational / capital efficiencies and unlock value.
10 January 2017
Please refer to page 4 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 32

JAPAN Our 3Q expectations
Confectionery Sector Preview Still Bearish on Calbee Conclusion ? We maintain our bearish stance toward Calbee and bullish view of Morinaga
as stock picks in the confectionery sector heading into 3Q (Oct-Dec 2016) announcements. Source: Company data, Macquarie Research, January 2017
? We update our Calbee forecasts with OP projections at ¥29.6bn for FY3/17
(vs. ¥30.5bn previously and ¥31bn guidance) and ¥31.3bn for FY3/18 (vs. ¥32.5bn) (Figure 1). We lower our price target from ¥3,200 to ¥3,100 due to the revisions and we reiterate our Underperform rating.
Impact ? Calbee (2229 JP, ¥3,770, Underperform, TP: ¥3,100): We expect ¥8.8bn in
Oct-Dec (3Q) OP (-3%YoY). Our sales forecast assumes a 4% decline in potato chips and a 15% rise in cereal for 3Q. ? Cereal products performed very well in Jul-Sep (2Q) with a 37% gain. Yet we
think this steep gain relied heavily on inventory expansion by brokers ahead of China’s Internet commerce sales held on 11 November 2016. We expect sales growth of its cereal products will slow to +15% yoy (Figure 2). ? We believe that expectations are running high for a rebound in the sluggish
North American business in 3Q from a bottom in 2Q. However, it might take some time for Calbee’s organizational reforms to actually boost earnings and we only use a 3% increase in 3Q sales for North America in our forecast (at 10% operating margin, Figure 3). ? Morinaga (2201 JP, ¥4,850, Outperform, TP: ¥6,500): We project ¥5.3bn in
Oct-Dec (3Q) OP (+26% YoY). We expect continuation of upbeat sales of higher-priced products and ongoing double-digit sales growth for highly profitable Weider in Jelly in the confectioneries & foods business. We forecast ¥16.5bn in 1H FY3/17 OP and think Morinaga should be capable of attaining full-year OP guidance. ? Meiji HD (2269 JP, ¥9,310, Outperform, TP: ¥12,000): We expect ¥30bn in
Oct-Dec (3Q) OP (+16% YoY). Probiotic yogurt sales were upbeat with increases of 14% YoY in October and 30% in November. Chocolate sales remained healthy too at gains of 5% in October and 9% in November. We think robust sales are more likely to appear as profits in 3Q, in contrast to 2Q when Meiji HD booked one-time costs of just over ¥1bn, including headquarter moving costs. ? Ezaki Glico (2206 JP, ¥5,580, Neutral, TP: ¥5,800): We forecast ¥4.8bn in
Analyst(s) Satsuki Kawasaki +81 3 3512 7879 satsuki.kawasaki@macquarie.com Maiko Kutsuna +81 3 3512 7871 maiko.kutsuna@macquarie.com
10 January 2017
Macquarie Capital Securities (Japan) Limited
Oct-Dec (3Q) OP (+12% YoY). We think biscuit sales remained somewhat weak but backlash decline from the previous year’s Pocky price hike – which caused a negative surprise in 2Q – disappeared in 3Q for the domestic confectionery business. We assume a 3% YoY decline in 3Q sales in the Chinese business because it is likely to take some time until sales momentum recovers. We expect focus on the size of the increase in marketing costs for the Chinese business. We project ¥3.2bn in 3Q OP for the confectionery segment (vs. ¥3bn a year ago), including a ¥300mn drop in Chinese profit.
Please refer to page 4 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 33

GREATER CHINA
GC Tech Know v.17 Outperformers emerged in December December revenue/ shipment results were strong in general with our Outperform-rated companies being outperformers such as TSMC, SunnyOptical, Asustek, Inventec, ZDT (link, by Kaylin Tsai, Dec 23), and GIS. CES (Tomorrow’s world v.4 - VR/ AR coming into its own, Jan 06) opened the year with sentiment of AR/VR, AI, and ADAS, and we expect to see semiconductors and camera solution providers continue to enjoy an uptrend. We expect January momentum to be soft due to the CNY season, which leads to our recommendation for investors to focus on either defensive yield plays (Fig 3) or outperformers (instead of existing struggling leaders).
Key reports this month Greater China Semi - I C stronger growth JCET - A long way to go Taiwan FPCB - Set for a comeback Tianma Microelectronics - The Pegasus too expensive to chase GC Tech Know v.15 - Top Five Gifts GC Tech Know v.16 - 1Q17 outlook Display Tracker v.2 - Rise of an empire Tomorrow’s world v.4 - VR/ AR coming into its own
Smartphones: OPPO/ Vivo strong, SunnyOptical beats SunnyOptical’s triple-digit shipment growth (+106% YoY on Handset Lens) beat the street’s sentiment on inventory/slow China smartphones. We attribute the beat to a miscalculation by the Street on what companies were performing well and those that were not. We have been cautious on smartphone shipment growth, at 0.3%/+2.5%/-0.4% in 2016-18E, but we believe Chinese premium brands like OPPO, Vivo, Huawei, and Gionee to further grow in new markets like India, Brazil, and ASEAN; Xiaomi and Lenovo to recover; and Coolpad, ZTE, LeEco to decline.
Semiconductors: TSMC beats 4Q16 revenue guidance TSMC’s 4Q16 sales beat high-end guidance by 1.6%, which we attribute to a favourable currency move and solid demand. Other upstream companies’ 4Q16 sales came out largely in-line with our and the street’s expectation. For 1Q17, we expect foundries’ sales growth to be -6% to +2% QoQ, followed by OSAT: -11% to -5%, and fabless: -22% to -9%. This is in line with normal seasonality, and we see that foundries are more defensive during low season. Also, we expect a solid growth recovery in 2Q17 for all the sub-sectors, driven by new product cycles.
Transforming winners: Inventec and Asustek PC ODMs’ 4Q16 sales tracked above MQ/street in general, except for Pegatron (weak non-computing and also lower than expected NB shipments). Inventec is our top pick for the sector given a combination of solid 2017/18 growth (driven by server/handheld), attractive valuation, and high dividend yield. Asustek 4Q16 sales beat (link, by Jeff Ohlweiler Jan 10) on better shipments of new smartphone and NB products. At the recent CES, it announced new ZenFone AR (world’s first Tango/Daydream smartphone for AR/VR), ZenFone 3 Zoom, and a new line-up of Republic of Gamers (ROG) gaming, the new Zenbo robot.
Analyst(s) Macquarie Capital Limited Allen Chang +852 3922 1136 allen.chang@macquarie.com Chris Yu +86 21 24129024 chris.yu@macquarie.com Verena Jeng +852 3922 3766 verena.jeng@macquarie.com Macquarie Capital Limited, Taiwan Securities Branch Jeffrey Ohlweiler +886 2 2734 7512 jeffrey.ohlweiler@macquarie.com Patrick Liao +886 2 2734 7515 patrick.liao@macquarie.com Louis Cheng, CFA +886 2 2734 7526 louis.cheng@macquarie.com Kaylin Tsai +886 2 2734 7523 kaylin.tsai@macquarie.com Lynn Luo +88 6227347534 lynn.luo@macquarie.com
Emerging OLED – HonHai/ GIS/ Innolux/ Sharp/ SDP Following our industry checks (Display Tracker v.2 - Rise of an empire), we have increasing confidence that HH group will integrate its display resources (Foxconn, SDP, Innolux, Sharp, GIS) to further ramp up its OLED capacity in Henan, China. In addition to key US customers’ supply chain management perspectives, GIS’ vertical integration services and production lines in China reaffirm our view. As for LED, we suggest investors to switch to downstream from upstream (recently initiated Sanan with a Neutral), and recently upgraded Everlight to Outperform from Neutral given the value chain shifting. Our 2017 top picks: TSMC, HonHai, Powertech (memory on strong revenue growth and margin expansion), ASMPT, CUB, King Slide, Chroma (strong semi tester momentum in 2017), ZDT, AirTAC (continued market share gains), SMIC, SunnyOptical, Hikvision, LensTech, Sunway.
10 January 2017
Please refer to page 13 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 34
GLOBAL What’s new in this edition: ? Investors’ sentiment toward
Global Infrastructure 1Q17 guide to yield investing The fundamental view Macro: The US 10yrT yield ended 4Q16 at 2.4%, up significantly from 1.6% three months ago and above 2.3% at the end of 2015. On global growth, country inputs show us to be beneath consensus on Canada, Australia and Japan, and above consensus on the US and most of Asia. Our economics team anticipates global real GDP growth in 2017 will improve 30 bps to 2.9% and also projects this level will be sustained in 2018. Our global outlook is modestly above consensus on aggregate with signification variation at the national level, as mentioned. Our strategy team’s country allocations (Asia ex) continue to highlight local and liquid vs global and illiquid. Hence, our largest O/Ws are in India, China and Phil whilst our largest U/Ws are in Indo, Mal, Thai and Sing. In ‘healthy reflation’, these choices would need to be swapped. As for the US Fed, the key question remains whether the US is already suffering from ‘stagflation lite’ (low and volatile real GDP and rising inflation).” Stock specific: (1) Among US telecoms, in what is shaping up to be a favorable regulatory backdrop that will likely preserve the pricing power of cable and bode well for M&A, we believe yield names will have to work harder to preserve their premium. Of our coverage universe, our top picks are AT&T and Crown Castle. Our least favorite yield pick continues to be Frontier; (2) in transportation infrastructure, we believe SATS is well-positioned to capture the continent’s secular growth story as a dominant in-flight caterer and airport gateway services provider across 45 airports in Asia. AIA looks well positioned to leverage the likely decade-long international passenger growth potential out of Asia, while also enjoying sustained growth from its core and defensive NZ resident travelers; (3) in European utilities, we continue to see growth in infrastructure and renewable generation. Within these areas the lowvoltage distribution grid appears best positioned (SSE, Innogy, Enel, and Endesa). Changes to sentiment: Comments on sentiment reported a widespread decline in investors’ bullishness towards low-growth yield due to rising interest rate environments around the world. Following the U.S. election, ‘risk-on’ has become a common refrain, and we expect to see higher-growth stocks outperform their slowergrowing peers. Look to higher DPS CAGRs for defensive opportunities to weather the storm while collecting current income.
infrastructure stocks continues to weaken across the board in some cases due to concerns over rising interest rates and rich valuations (p1). ? Our analysts saw opportunities in 4Q16,
with 14 infrastructure stock upgrades vs 12 downgrades. ? The quant team provides additional
depth on which factors cause a featured infrastructure yield stock to be preferred or disliked by the Macquarie Alpha Model. ? Please see p7 for a list of Macquarie’s
planned infrastructure conferences in 2017.
Analyst(s) Macquarie Capital (USA) Inc. Andrew Weisel, CFA +1 212 231 1159 andrew.weisel@macquarie.com James Ward, CFA +1 212 231 0707 james.ward@macquarie.com Angie Storozynski +1 212 231 2569 angie.storozynski@macquarie.com Macquarie Capital (Europe) Limited Steve Gao, PhD +44 20 3037 2765 steve.gao@macquarie.com Macquarie Capital Securities (Japan) Limited Peter Eadon-Clarke +81 3 3512 7850 peter.eadon-clarke@macquarie.com Macquarie Capital Limited Viktor Shvets +852 3922 3883 viktor.shvets@macquarie.com Macquarie Capital Markets Canada Ltd. David Doyle, CFA +1 416 848 3663 david.doyle@macquarie.com
The quant view Telecoms dominated the quant team’s top picks, with utilities filling out the rest. The top quant pick goes to Enel (ENEL IM) with an alpha score of 2.10, followed by NTT (9432 JP), NTT DoCoMo (9437 JP), Century Link (CTL US) and Exelon (EXC US). More details on starting on p66.
Our top global stock calls Where fundamentals and quant overlap: Enel, Nippon Telegraph and Telephone, and Exelon have OP ratings and top-5 scores from our quant team, while The Chugoku Electric Power Company, Towngas China, and Tower Bersama Infrastructure have dual negative conviction (p71). Where growth and yield overlap: US yieldcos (ABY, NYLD, PEGI, and NEP), John Laing Infrastructure Fund, and Fortress Income Fund are stocks offering a strong combination of both NTM yields (5-9%) and DPS growth (10-25%+ pa) (p64).
9 January 2017
Please refer to page 87 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 35

INDONESIA Indonesian banks coverage Bank BCA BRI Mandiri BNI Danamon BTN BJB Ticker BBCA BBRI BMRI BBNI BDMN BBTN BJBR Mkt cap (US$m) 28,034 21,471 19,488 7,667 2,591 1,428 2,018 Rec O-PF O-PF N N O-PF O-PF U-PF Target (IDR/sh) 17,500 15,000 9,500 5,350 4,800 2,200 1,200 TSR (%) 15.1 31.3 (13.3) (1.2) 35.1 23.8 (53.8)
Indonesian Banks Dividend Season Conclusion ? We anticipate higher dividend payout ratios from BRI and Mandiri to be
declared during 1Q17 against FY16 profits at 40% vs 30% last year. Fellow state banks BNI and BTN with higher loan growth targets are likely to pay closer to 20%, conserving capital for growth. ? After adjustment to the payout ratios for these banks at 40%, we estimate a
TSR = 12month total share return estimate Source: Macquarie Research, January 2017
3.7% yield for BRI and 2.5% for Mandiri in FY17e. We make no changes to our earnings estimates. FY17e dividend yields % 4 3 2 1.1 1 0 3.7 3.6 3.5
Impact ? State budget dividends up. The state budget for FY17 calls for a total Rp41t
2.9 2.5
2.4
(US$3.1b) in dividends from SOEs, up from Rp34t in FY16. Initially the Gov’t indicated only non-bank SOEs would lift dividends; however, we understand from recent discussion with the large state banks that the Gov’t is proposing higher dividends for them also. This is consistent with the lower than expected tax revenue the Gov’t has been receiving. The banks and Gov’t propose payout ratios, with the final say the prerogative of the SOE Ministry in fulfilling its aggregate annual budget revenue obligation. ? Plenty of capacity. We argued in our re-initiation report that the major banks,
Source: Macquarie Research, January 2017
in particular BRI and BCA, have plenty of capacity to lift dividends as capital levels in the sector approach inefficient levels. We anticipate this to be a recurring theme over FY17-18e as loan growth remains tepid (11% average forecast), leverage continues to decline amongst the major banks and tier 1 capital accrues. ? For Mandiri, absolute dividends likely flat. Declining FY16 profits are offset
by the higher payout ratio at 40%. The yield by contrast on BRI is highest of our coverage at 3.7% in FY17e. Shareholders should expect payment early in 2Q17 based on prior-year cycles. ? BCA has the most potential. Given its sector leading provisioning, which
already covers all restructured current/special mention loans, and cautious loan growth stance, we think dividends of 40-50% are apt for BCA. Commentary from the bank, however, suggests a modest 20-25% payout ratio for FY16.
Outlook ? We are overweight Indonesian banks in a local market and regional sector
context. Preferred stocks are BRI, BCA and Danamon, for which we have generally most upside. ? Smaller banks outperformed the top 4 in FY16, and we see that reversing in
Analyst(s) Jayden Vantarakis +6221 25988310 jayden.vantarakis@macquarie.com Nathania Nurhalim +62 21 2598 8365 nathania.nurhalim@macquarie.com
FY17e given the outlook for rates, for which we see upside risk to our flat base case.
10 January 2017
PT Macquarie Capital Securities Indonesia
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 36

GLOBAL LME cash price US$/tonne 1,758 5,736 2,173 10,562 21,175 2,701 32,993 14,890 % change day on day 1.3 3.0 3.9 2.2 0.1 2.0 0.8 0.0
Commodities Comment Met coal prices plunge to below $185/t ? Spot met coal prices have endured a rollercoaster ride over the last 12
Aluminium Copper Lead Nickel Tin Zinc Cobalt Molybdenum Other prices
months, from lows of only $74/t FOB Aus in February 2016 to highs above $310/t in November for premium HCC. Since December prices have eased, and with a lack of buying interest in the new year due to greater supply availability, prices have now plunged below $185/t for the first time since September 2016. Moreover, with prices now $100/t below the 1Q17 contract price of $285/t, this raises the risk of mills looking to defer deliveries into 2Q. ? While met coal prices have been in freefall in recent weeks, we believe prices
Gold (US$/oz) Silver (US$/oz) Platinum (US$/oz) Palladium (US$/oz) Oil WTI USD:EUR exchange rate AUD:USD exchange rate LME/COMEX stocks Aluminium LME copper Comex copper Lead Nickel Tin Zinc
1,190 16.67 976 760 51.49 1.057 0.737
% change day on day 0.9 1.3 0.9 0.3 -1.8 0.0 0.0
Tonnes 2,232,725 293,400 83,112 193,300 371,964 3,815 426,425
Change 16,800 -1,500 273 0 -48 -70 -800
are nearing a level at which they will begin to find support from increased steel mill buying, especially in China, where seaborne imports are now once again competitive versus domestic sources. As Chinese policy making regarding the ‘276 days’ policy becomes clearer towards the end of 1Q, mills could begin to become nervous again about potential production constraints in China, which may result in a further increase in buying appetite. Nonetheless, met coal prices clearly remain well above marginal cost, and with supply responding accordingly in marginal producing countries such as Mongolia and the USA, the medium-term trajectory in met coal prices will remain negative.
Latest news ? Various Chinese media sources have reported the central government has
Source: LME, Comex, Nymex, SHFE, Metal Bulletin, Reuters, LBMA, Macquarie Research, January 2017
decided to remove substandard small steel plants by the end of June this year, and 12 inspection teams have been sent to local provinces to supervise the work. There is no clear definition on what type of steel mills belong to this category, but it is generally viewed that small scrap feeding steel producers using “medium frequency induction” furnaces will be the main target for this round of closure. According to Mysteel, total steelmaking capacity from these producers was 110~120mtpa at the end of 2015, and their production in 2016 was about 40mt, based on its surveyed capacity utilisation rate. China is targeting to close more than 45mtpa of steelmaking capacity in 2017, and if the closure is focused on small scrap feeding steel makers, it should have positive impact on the construction steel market given 90% of such steel makers are making long products like rebar and wire rod. ? Latest data on Chinese stainless steel shows that despite previous reports of
Analyst(s) Macquarie Capital Securities (Singapore) Pte. Limited Ian Roper +65 66010698 ian.roper@macquarie.com Macquarie Capital Limited Lynn Zhao +86 21 2412 9035 lynn.zhao@macquarie.com Macquarie Capital (Europe) Limited Colin Hamilton +44 20 3037 4061 colin.hamilton@macquarie.com Jim Lennon, Senior Commodities Consultant +44 20 3037 4271 jim.lennon@macquarie.com Matthew Turner +44 20 3037 4340 matt.turner@macquarie.com Vivienne Lloyd +44 20 3037 4530 vivienne.lloyd@macquarie.com
cuts (Tsingshan announced 200kt cut and closure of Delong in December), fourth-quarter production soared to an all-time high of 6.7mt, up 6.3% QoQ and 24.9% YoY. In December alone, production rose 28% YoY to an all-time high. Of interest, 200-series (low nickel) rose an estimated 40% YoY in 4Q, while 300-series rose by only 13%. Stainless production in China for 2016 as a whole was up 12.8% YoY, according to our estimates, and global stainless steel production rose to an estimated 8.3% YoY to 45.7mt, with 4Q16 production up 16.7% YoY. These numbers suggest significant overstocking by stainless buyers, probably in anticipation of cost-driven (Cr and Ni) rises in stainless steel prices. ? Latest indications from Indonesia is that the government has decided not to
10 January 2017
relax the ban on nickel and bauxite exports that has been in place since January 2014. A relaxation in the ban would have been extremely negative for nickel prices. Attention is now likely to refocus on the tightening nickel ore supply position in China, as imports of ore have collapsed during the rainy season in the Philippines, making it likely that Chinese nickel pig iron producers may be forced to slash production in the coming months.
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 37

GLOBAL LME cash price US$/tonne 1,735 5,570 2,092 10,338 21,160 2,647 32,742 14,890 % change day on day 0.8 0.0 2.5 1.4 0.4 1.8 0.0 0.0
Commodities Comment The influence of Chinese supply flexibility across metals and bulks Feature article ? Over the past decade, supply-demand modelling in industrial metals and bulk
Aluminium Copper Lead Nickel Tin Zinc Cobalt Molybdenum Other prices
Gold (US$/oz) Silver (US$/oz) Platinum (US$/oz) Palladium (US$/oz) Oil WTI USD:EUR exchange rate AUD:USD exchange rate LME/COMEX stocks Aluminium LME copper Comex copper Lead Nickel Tin Zinc
1,179 16.45 967 758 52.42 1.057 0.737
% change day on day 0.2 0.0 0.6 0.8 -3.2 0.3 1.0
commodities has had to incorporate a major balancing factor – flexible Chinese supply which reacts to price prompts. This supply is generally low capex, high opex and operates on a short time horizon for decision making. Or to put this another way, rather than 20-year asset lives, if it makes money on a 10-week time horizon output will increase, and if it doesn’t it will exit the market. Such cycles in and out have become an important aspect of supply. ? In 2017, given many commodity prices are trading out of their cost curves, we
Tonnes 2,215,925 294,900 82,839 193,300 372,012 3,885 427,225
Change -1,100 -225 844 -400 1,092 5 -375
are again modelling a response from this supply. However, it is fair to say that we were underwhelmed by the flexible reaction in 2016, as a combination of environmental pressures, a lack of willingness to lend to commodity sectors and alternative high-return investment options made restarts less attractive. Thus, in this report we look at what would happen if Chinese supply in inflexible, and doesn’t grow from 2016 exit levels.
Latest news ? Preliminary port data suggests Australian iron ore shipments have seen a
Source: LME, Comex, Nymex, SHFE, Metal Bulletin, Reuters, LBMA, Macquarie Research
strong start to 2017, with volumes last week up 10% over the equivalent period last year and in line with December averages in what is seasonally a weak quarter. Meanwhile, Brazilian volumes were up 15% over the first week of 2016, though sequentially volumes were well down on the prior fortnight. Meanwhile, the inclement weather on the Australian East Coast saw coal export volumes at the lowest level since June 2016, with the temporary closures of Hay Point and Dalrymple Bay terminals meaning met coal volumes were disproportionally hit, though of course the spot price still continues to trend lower. ? Reuters has reported that the Australian government is offering financial
Analyst(s) Macquarie Capital (Europe) Limited Colin Hamilton +44 20 3037 4061 colin.hamilton@macquarie.com Jim Lennon, Senior Commodities Consultant +44 20 3037 4271 jim.lennon@macquarie.com Matthew Turner +44 20 3037 4340 matt.turner@macquarie.com Vivienne Lloyd +44 20 3037 4530 vivienne.lloyd@macquarie.com Macquarie Capital Securities (Singapore) Pte. Limited Ian Roper +65 66010698 ian.roper@macquarie.com Macquarie Capital Limited Lynn Zhao +86 21 2412 9035 lynn.zhao@macquarie.com
support to help repair Alcoa’s 325ktpa Portland aluminium smelter in Victoria State, which suffered damaged potlines in a December electricity outage, while discussions on future power costs are ongoing. This concerted effort to prevent closure is the latest example of governments back-stopping under pressure processing assets in their economies. We currently have the smelter’s final production being this year in our model, so a full recovery would add incremental supply to future years in an already oversupplied market. The likelihood of a lower power cost does, however, highlight the ongoing deflationary cost structure of the global aluminium industry. ? Macquarie’s China economist Larry Hu has published his 2017 outlook for the
9 January 2017
Chinese economy, covering views on the political transition, RMB, property, liquidity and inflation. Real GDP is expected to be stable at 6.5-6.6% each quarter, with headwinds from property (-10% YoY GFA sales) offset by a further acceleration in infrastructure investment to +20% YoY. PPI inflation is expected to peak in the current quarter at +5%, while CPI is expected to be +2.4% YoY for 2017 as a whole. Monetary policy is expected to remain neutral in H1 but ease again in H2. We expect commodity demand to continue benefitting from last year’s liquidity push over the coming months, before slowing into mid-year as property headwinds increase.
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 38
Macquarie Research Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return


Volatility index definition* This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendation proportions – For quarter ending 30 September 2016 Outperform Neutral Underperform AU/NZ 47.26% 38.01% 14.73% Asia 55.50% 29.31% 15.19% RSA 38.46% 42.86% 18.68% USA 45.47% 48.77% 5.76% CA 59.09% 37.88% 3.03% EUR 48.21% (for US coverage by MCUSA, 8.20% of stocks followed are investment banking clients ) 36.79% (for US coverage by MCUSA, 8.25% of stocks followed are investment banking clients ) 15.00% (for US coverage by MCUSA, 8.00% of stocks followed are investment banking clients )
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Asia Research Head of Equity Research Peter Redhead (Global – Head) Jake Lynch (Asia – Head) David Gibson (Japan – Head) Conrad Werner (ASEAN – Head) (852) 3922 4836 (852) 3922 3583 (813) 3512 7880 (65) 6601 0182
Industrials Janet Lewis (Asia) Patrick Dai (China) Kunio Sakaida (Japan) William Montgomery (Japan) James Hong (Korea) Benson Pan (Taiwan) Inderjeetsingh Bhatia (India) Justin Chiam (Singapore) (813) 3512 7856 (8621) 2412 9082 (813) 3512 7873 (813) 3512 7864 (822) 3705 8661 (8862) 2734 7527 (9122) 6720 4087 (65) 6601 0560
Telecoms Nathan Ramler (Asia, Japan) Danny Chu (Greater China) Soyun Shin (Korea) Prem Jearajasingam (ASEAN) Kervin Sisayan (Philippines) (813) 3512 7875 (852) 3922 4762 (822) 3705 8659 (603) 2059 8989 (632) 857 0893
Automobiles/Auto Parts Janet Lewis (China, Japan) Takuo Katayama (Japan) James Hong (Korea) Amit Mishra (India) (813) 3512 7856 (1 212) 231 1757 (822) 3705 8661 (9122) 6720 4084
Transport & Infrastructure Janet Lewis (Asia) Corinne Jian (Taiwan) Azita Nazrene (ASEAN) (852) 3922 5417 (8862) 2734 7522 (603) 2059 8980
Internet, Media and Software Wendy Huang (Asia, China) David Gibson (Asia, Japan) Hillman Chan (China, Hong Kong) Nathan Ramler (Japan) Soyun Shin (Korea) Abhishek Bhandari (India) (852) 3922 3378 (813) 3512 7880 (852) 3922 3716 (813) 3512 7875 (822) 3705 8659 (9122) 6720 4088
Financials Scott Russell (Asia) Dexter Hsu (China, Taiwan) Elaine Zhou (Hong Kong) Keisuke Moriyama (Japan) Chan Hwang (Korea) Suresh Ganapathy (India) Sameer Bhise (India) Gilbert Lopez (Philippines) Ken Ang (Singapore) Passakorn Linmaneechote (Thailand) (852) 3922 3567 (8862) 2734 7530 (852) 3922 3278 (813) 3512 7476 (822) 3705 8643 (9122) 6720 4078 (9122) 6720 4099 (632) 857 0892 (65) 6601 0836 (662) 694 7728
Utilities & Renewables Patrick Dai (China) Candice Chen (China) Alan Hon (Hong Kong) Inderjeetsingh Bhatia (India) Prem Jearajasingam (Malaysia) Karisa Magpayo (Philippines) (8621) 2412 9082 (8621) 2412 9087 (852) 3922 3589 (9122) 6720 4087 (603) 2059 8989 (632) 857 0899
Oil, Gas and Petrochemicals Polina Diyachkina (Asia, Japan) Aditya Suresh (Asia, China, India) Anna Park (Korea) Duke Suttikulpanich (ASEAN) Isaac Chow (Malaysia) (813) 3512 7886 (852) 3922 1265 (822) 3705 8669 (65) 6601 0148 (603) 2059 8982
Commodities Colin Hamilton (Global) Ian Roper Jim Lennon Lynn Zhao Matthew Turner (44 20) 3037 4061 (65) 6601 0698 (44 20) 3037 4271 (8621) 2412 9035 (44 20) 3037 4340
Conglomerates David Ng (China, Hong Kong) Conrad Werner (Singapore) Gilbert Lopez (Philippines) (852) 3922 1291 (65) 6601 0182 (632) 857 0892
Pharmaceuticals and Healthcare Abhishek Singhal (India) Wei Li (China, Hong Kong) (9122) 6720 4086 (852) 3922 5494
Economics Peter Eadon-Clarke (Global) Larry Hu (China, Hong Kong) Tanvee Gupta Jain (India) (813) 3512 7850 (852) 3922 3778 (9122) 6720 4355
Consumer and Gaming Linda Huang (Asia, China, Hong Kong) Zibo Chen (China, Hong Kong) Terence Chang (China, Hong Kong) Sunny Chow (China, Hong Kong) Satsuki Kawasaki (Japan) Mike Allen (Japan) Kwang Cho (Korea) KJ Lee (Korea) Stella Li (Taiwan) Amit Sinha (India) Fransisca Widjaja (Indonesia, Singapore) Karisa Magpayo (Philippines) Chalinee Congmuang (Thailand) (852) 3922 4068 (852) 3922 1130 (852) 3922 3581 (852) 3922 3768 (813) 3512 7870 (813) 3512 7859 (822) 3705 4953 (822) 3705 9935 (8862) 2734 7514 (9122) 6720 4085 (65) 6601 0847 (632) 857 0899 (662) 694 7993
Property Tuck Yin Soong (Asia, Singapore) David Ng (China, Hong Kong) Raymond Liu (China, Hong Kong) Wilson Ho (China) William Montgomery (Japan) Corinne Jian (Taiwan) Abhishek Bhandari (India) Aiman Mohamad (Malaysia) Kervin Sisayan (Philippines) Patti Tomaitrichitr (Thailand) (65) 6601 0838 (852) 3922 1291 (852) 3922 3629 (852) 3922 3248 (813) 3512 7864 (8862) 2734 7522 (9122) 6720 4088 (603) 2059 8986 (632) 857 0893 (662) 694 7727
Quantitative / CPG Gurvinder Brar (Global) Woei Chan (Asia) Danny Deng (Asia) Per Gullberg (Asia) (44 20) 3037 4036 (852) 3922 1421 (852) 3922 4646 (852) 3922 1478
Strategy/Country Viktor Shvets (Asia, Global) Chetan Seth (Asia) David Ng (China, Hong Kong) Erwin Sanft (China, Hong Kong) Peter Eadon-Clarke (Japan) Chan Hwang (Korea) Jeffrey Ohlweiler (Taiwan) Inderjeetsingh Bhatia (India) Jayden Vantarakis (Indonesia) Anand Pathmakanthan (Malaysia) Gilbert Lopez (Philippines) Conrad Werner (Singapore) Alastair Macdonald (Thailand) (852) 3922 3883 (852) 3922 4769 (852) 3922 1291 (852) 3922 1516 (813) 3512 7850 (822) 3705 8643 (8862) 2734 7512 (9122) 6720 4087 (6221) 2598 8310 (603) 2059 8833 (632) 857 0892 (65) 6601 0182 (662) 694 7753
Resources / Metals and Mining Polina Diyachkina (Asia, Japan) Coria Chow (China) Anna Park (Korea) Sumangal Nevatia (India) (813) 3512 7886 (852) 3922 1181 (822) 3705 8669 (9122) 6720 4093
Emerging Leaders Jake Lynch (Asia) Aditya Suresh (Asia) Timothy Lam (China, Hong Kong) Mike Allen (Japan) Kwang Cho (Korea) Corinne Jian (Taiwan) Marcus Yang (Taiwan) Conrad Werner (ASEAN) (852) 3922 3583 (852) 3922 1265 (852) 3922 1086 (813) 3512 7859 (822) 3705 4953 (8862) 2734 7522 (8862) 2734 7532 (65) 6601 0182
Technology Damian Thong (Asia, Japan) George Chang (Japan) Daniel Kim (Korea) Allen Chang (Greater China) Jeffrey Ohlweiler (Greater China) Patrick Liao (Greater China) Louis Cheng (Greater China) Kaylin Tsai (Greater China) (813) 3512 7877 (813) 3512 7854 (822) 3705 8641 (852) 3922 1136 (8862) 2734 7512 (8862) 2734 7515 (8862) 2734 7526 (8862) 2734 7523
Find our research at Macquarie: www.macquarieresearch.com/ideas/ Thomson: www.thomson.com/financial Reuters: www.knowledge.reuters.com Bloomberg: MAC GO Factset: http://www.factset.com/home.aspx CapitalIQ www.capitaliq.com Email macresearch@macquarie.com for access
Asia Sales Regional Heads of Sales Miki Edelman (Global) Jeff Evans (Boston) Jeffrey Shiu (China, Hong Kong) Sandeep Bhatia (India) Thomas Renz (Geneva) Riaz Hyder (Indonesia) Nick Cant (Japan) John Jay Lee (Korea) Nik Hadi (Malaysia) Eric Roles (New York) Gino C Rojas (Philippines) (1 212) 231 6121 (1 617) 598 2508 (852) 3922 2061 (9122) 6720 4101 (41 22) 818 7712 (6221) 2598 8486 (65) 6601 0210 (822) 3705 9988 (603) 2059 8888 (1 212) 231 2559 (632) 857 0861
Regional Heads of Sales cont’d Paul Colaco (San Francisco) Amelia Mehta (Singapore) Angus Kent (Thailand) Ben Musgrave (UK/Europe) Christina Lee (UK/Europe) (1 415) 762 5003 (65) 6601 0211 (662) 694 7601 (44 20) 3037 4882 (44 20) 3037 4873
Sales Trading cont’d Suhaida Samsudin (Malaysia) Michael Santos (Philippines) Chris Reale (New York) Marc Rosa (New York) Justin Morrison (Singapore) Daniel Clarke (Taiwan) Brendan Rake (Thailand) Mike Keen (UK/Europe) (603) 2059 8888 (632) 857 0813 (1 212) 231 2555 (1 212) 231 2555 (65) 6601 0288 (8862) 2734 7580 (662) 694 7707 (44 20) 3037 4905
Sales Trading Adam Zaki (Asia) Stanley Dunda (Indonesia) (852) 3922 2002 (6221) 515 1555
This publication was disseminated on 10 January 2017 at 18:36 UTC. 41

Asia Essentials

发布机构:麦格理证券
报告类型:外行报告 发布日期:2017/1/11
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内容简介


Wednesday, 11 January 2017
PH: Pulse of the consumer Healthy underlying demand
3 Karisa Magpayo
We conducted the fifth edition of our semi-annual consumer survey in Nov/Dec 2016 to gauge sentiment and spending trends over the next six months and assess the competitive landscape in sectors relevant to our coverage.
China Property Revisiting Southbound: subtle change in taste, but key implications
4 Wilson Ho
Stock Connect Southbound (S/B) investors have successfully bottom-fished the China property sector in late-Dec, with S/B net-buy driving the recent sector rally.
E-mart (Outperform) Expect a stronger Q4
5 KJ Lee
E-mart's December SSSg in key operations leads us to believe that its Q4 earnings (early Feb) will be strong with 44% growth in consolidated OP. Expect Q4 OP to grow 44%.
Nintendo (Upgrade to Outperform) Switch/Pokemon/FX offset SMR concerns
6 David Gibson
We upgrade Nintendo from Neutral to Outperform as we raise our FY3/17-19 EPS estimates by 11%40% and our TP from Y25,400 to Y28,700, as we expect strong Pokemon revenues and weak FX to more than offset SMR concerns.
Contact lens sector A tough year ahead
7 Marcus Yang
We retain our bearish view on the contact lens ODM/OEM sector entering 2017, given the hard comps, tepid demand and keener competition. We believe strong Japanese market momentum in 2016 is unlikely to repeat, and we see more supply in the pipeline.
Ginko (Outperform) St Shine (Underperform) Puregold Price Club (Outperform) Robinsons Retail Holdings (Outperform) Universal Robina (Outperform) Emperador Inc (Neutral) Jollibee Foods (Underperform)
8 9 10 11 12 13 14
Please refer to page 39 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.

Brilliance China Automotive (Outperform) Central Pattana (Outperform) Central Plaza Hotel (Outperform) Charoen Pokphand Foods (Outperform) CTCI (Downgrade to Neutral) DeNA Co (Upgrade to Outperform) Fast Retailing (Underperform) Genting Malaysia (Neutral) Havells India (Upgrade to Outperform) IndusInd Bank (Outperform) Lens Tech (A-Share) (Outperform) MacVisit: Pegavision MediaTek (Outperform) NIKE (Outperform) PTT Exploration & Production (Neutral) Sakata Seed (Outperform) Xinjiang Goldwind (A-Share) (Neutral) ASEAN Plantations Confectionery Sector - Preview GC Tech Know v.17 Global Infrastructure Indonesian Banks Macquarie Commodities Comment Macquarie Commodities Comment
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
2

PHILIPPINES Inside Healthy underlying demand Slightly weaker outlook on income… …but not enough to deter spending Assessing the competitive landscape E-commerce – sustaining its momentum Appendix – Key macro data and charts Puregold Price Club Robinsons Retail Holdings Universal Robina Emperador Inc Jollibee Foods 2 3 4 13 20 21 25 30 36 42 48
PH: Pulse of the consumer Healthy underlying demand We conducted the fifth edition of our semi-annual consumer survey in Nov/Dec 2016 to gauge sentiment and spending trends over the next six months and assess the competitive landscape in sectors relevant to our coverage. The results are supportive of our positive view on the sector (more upbeat consumer sentiment) and top pick PGOLD (strengthening market leadership).
Upbeat on spending despite increased inflation ? Our survey shows that consumers have a slightly weaker outlook on income
in the next six months vs our previous survey (Apr/May 2016). One reason could be that consumers are coming from a ‘high’ of an election year, realizing a temporary boost in income on increased business/economic activity. ? Meanwhile, consumers are more optimistic on spending. While anticipating
700 survey respondents classified by income level Above P70,001 P100,000 - 100,000 4% P50,001 3% - 70,000 MH 6%
rising inflation, consumers may not be concerned about this (yet) as inflation of 1.8% in 2016 (vs 3.3% 2011-15 average) still appears manageable. ? One notable trend we have seen in this survey is increasing evidence of
premiumization. Another is the sustained momentum of e-commerce.
Leadership position unchanged, but being challenged L P5,000 and below 30%
? In grocery retailing, Puregold Price Club (PGOLD) has gained market share,
M
keeping its top spot followed by SM Retail and Robinsons Retail (RRHI). ? Amidst intense competition in snacks and beverages, Universal Robina (URC)
P20,001 - 50,000 15%
M L
brands—Jack ’n Jill (snacks) and C2 (RTD tea)—remain dominant. Its Great Taste coffee is ranked #2, but is inching closer to Nescafe (#1). ? In liquor, Emperador (EMP) is still ahead, but Tanduay is gaining ground. P5,001 20,000 42%
? In fast food, JFC’s Jollibee brand still holds a significant portion of the market,
Source: Macquarie Research, January 2017
but share of other players like McDonald’s and KFC have improved, based on results from our latest survey.
PGOLD (top pick) and RRHI trading at attractive valuations 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x 14% 12% 11% 10% 8% 6% 4% 2% 0% URC
Prefer retailers – PGOLD is our top pick The consumer sector is rated O/W on a country perspective on the faster growth of ~11% that we expect in 2017 vs the market expectation of consensus expectation of 9% (based on MQ estimates for stocks under our coverage and Bloomberg consensus estimates for index stocks that we don’t cover). While retailers’ SSSG should slow due to a high base from the elections, underlying demand should remain healthy. This, plus attractive growth from continued expansion, support our preference for retailers PGOLD (top pick) and RRHI. Our Outperform on URC is premised on an earnings recovery, which could be made possible by the more bullish sentiment on snacks and its ability to stave off competition. Rising competition in liquor and fast food, plus lower income groups’ weaker outlook on fast food, could create a more challenging operating environment for EMP and JFC.
13% 11%
13%
6%
EMP PEG
JFC PGOLD RRHI
2016E-18E EPS CAGR
Source: Macquarie Research, January 2017; Note: PEG is based on 2016E PE and 2016E-18E EPS CAGR; Priced as of 6 January 2017
PGOLD screens well in our survey and vs comparables TP Sh price TSR PE (x) EPS growth (%) PBV (x) ROE (%) Yield (%) P P % Risk Rec 2016E 2017E 2016E 2017E 2017E 2017E 2017E
Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
10 January 2017
Macquarie Capital Securities (Philippines) Inc.
PGOLD 50.00 RRHI 90.00 URC 200.00 EMP 7.35 JFC 186.00 Wtd ave
41.00 76.00 169.20 7.30 213
22.0 L/M 18.4 M 18.2 L 0.7 L/M -12.7 L
O O O N U
20.6 22.8 30.4 16.2 37.0 28.2
18.2 20.1 27.1 15.8 33.6 25.4
10.6 11.0 -5.2 4.1 6.3 2.5
13.3 13.4 12.4 2.5 10.3 10.9
2.3 2.0 4.7 2.0 5.8 4.1
13.6 10.6 18.0 13.0 18.4 16.1
0.7 0.9 2.3 2.4 1.0 1.7
Source: Macquarie Research, January 2017; Priced as of 6 January 2017
Please refer to page 25 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 3

CHINA Southbound inflow picked up again in Dec16, after a two-month slowdown 35%
China Property Revisiting Southbound: subtle change in taste, but key implications Conclusion ? Stock Connect Southbound (S/B) investors have successfully bottom-fished
30% 25% 20% 15% 10% 5%
Net change in S/B holding value as % of daily value traded 30-day MA impact on value traded
0% -5% -10%
Source: Bloomberg, HKEX, CCASS, Macquarie Research, January 2017
Soufun weekly volumes (units) 8 Jan 2017 Beijing Shanghai Guangzhou Shenzhen Tier 1 total Chengdu Chongqing Dalian Fuzhou Hangzhou Jinan Nanjing Ningbo Qingdao Shenyang Suzhou Tianjin Wuhan Xiamen Tier 2 total 2,481 3,832 1,633 1,032 8,978 1,490 6,838 420 130 631 2,250 1,643 197 4,007 1,430 851 960 5,509 2,002 28,358 WoW 15% 10% -44% 156% 0% 4% -7% -50% -56% 0% 4% 97% -91% -13% -62% 41% -59% -19% 191% -18% 4 wk total 9,163 12,650 8,870 2,405 33,088 5,889 26,670 3,033 1,014 2,231 9,911 4,084 6,213 18,135 13,254 3,007 8,260 26,581 3,921 132,203 4wk vs 4 wk vs 4wk 4wk prior last yr 27% 11% -22% -16% 1% -9% -18% -7% 22% 112% 15% -15% 42% 6% -20% 44% 3% -5% 214% -2% -23% -31% -7% -63% -28% -13% 29% 47% -58% -60% 12% -70% 73% 57% -31% -67% -30% 11% 32% -7%
the China property sector in late-Dec, with S/B net-buy driving the recent sector rally. We found that Dec 2016 (esp. in the last two weeks) saw more net inflow from S/B trading, which increased to 14% of the turnover, up from 9% in Nov 2016 and 8% in Oct 2016. We also noted some changes in taste amongst large- mid- caps. We believe our top picks CR Land and Longfor are good choices to ride on the S/B inflow, for investors who are more concerned on financial risks and leverage, while Country Garden, which saw aggressive purchases by S/B investors in Sep 2016, registered a net outflow over the past one month. Short-sellers should be alert to these subtle changes—they should (e.g. avoid S/B favourite) because new forces may reverse trade flow.
May-16
May-15
Jul-15
Jan-15
Nov-14
Nov-15
Jan-16
Jul-16
Sep-15
Sep-16
Nov-16
Mar-15
Mar-16
Impact ? Amongst large-caps (CRL > Vanke > China Overseas Land): We saw
stronger preference for CR Land vs COLI, with new money from S/B investors accounting for 7% of trading volume in Dec 2016, vs COLI at 1%. However, S/B investors’ stake in Vanke H (2202 HK) has not risen much since opening of SZ Connect, reflecting investors’ concerns on regulators’ step-in for the shareholding event. As on 6 Jan 2017, S/B investors owned 5.06% of Vanke H, up from 4.70% before the opening of the SZ Connect. ? Amongst mid-caps (EVER > LONF >>> GR&F > SHIM > CGAR): In Dec,
Source: CREIS, Macquarie Research, January 2017
S/B inflow had a larger impact on Longfor (5% of turnover) than Shimao (0%). Evergrande saw an increased inflow again after announcing its backdoor listing plan on the A-share market. However, Country Garden which was actively purchased by S/B investors in Sep 2016 registered net S/B outflow, while R&F also saw falling interests. ? Amongst small caps: Sunac remained the top favourite amongst S/B
Recent publications China Vanke (2202 HK) - Enhancing staff coinvestment schemes positive for equity shareholders... Longfor Properties - A good entry point China Property - Prices cooling down China Vanke (2202 HK) - Back to fundamentals... China Property - Entering a cooling cycle China Property - No risk of collapse Country Garden - Wait for a better entry point
investors, who owned 17.7% stake (as at 6 Jan 2017, or 20.1% if adjusting its share placement impact in Nov 2016), vs 6.7% about one year ago. Amongst the top 5 China property stocks with the largest impact from S/B inflow, three belong to SZ-Connect stocks with Future Land (1030 HK, not rated) receiving a strong inflow at 31% of the volume. China Jinamo, which is under SHConnect, also saw a strong inflow at nearly 30% of the volume in Dec 2016. ? The finding supports our earlier view of S/B preference: growth seekers, less
concerned on financial risks. However, yield-players have not significantly stood out, partly due to lack of insurers’ participation.
Analyst(s) Wilson Ho, CFA +852 3922 3248 David Ng, CFA +852 3922 1291 Catherine Li +852 3922 1161 Raymond Liu, CFA +852 3922 3629 wilson.ho@macquarie.com david.ng@macquarie.com catherine.li@macquarie.com raymond.liu@macquarie.com
Outlook ? We expect S/Bs’ rising influence to continue and dominate the trade of some
10 January 2017
Macquarie Capital Limited
of the stocks in 2017. We expect home sales to turn weak as we have entered off-season but the sector’s nearly three-year low valuation (6.1x PER and a 41% discount to NAV) and S/B new money should provide some support. Our top picks are CR Land (1109 HK, HK$18.28, Outperform, TP: HK$35.83), Longfor (newly added, 960 HK, HK$10.18, Outperform, TP: HK$15.48), Agile (3383 HK, HK$4.08, Outperform, TP: HK$5.85) and Yanlord (YLLG SP, S$1.37, Outperform, TP: S$1.75).
Please refer to page 14 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 4

KOREA
139480 KS Valuation - EV/EBITDA
Outperform Price (at 05:16, 10 Jan 2017 GMT) Won180,000 Won 230,000 12-month target Upside/Downside 12-month TSR Volatility Index GICS sector Market cap Market cap Free float 30-day avg turnover Number shares on issue Year end 31 Dec Revenue EBITDA EBITDA growth EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV
E-mart Expect a stronger Q4 Conclusion ? E-mart’s December SSSg in key operations leads us to believe that its Q4
Won 230,000 % +27.8 % +28.6 Low/Medium Food & Staples Retailing Wonbn 5,031 US$m 4,222 % 69 US$m 9.2 m 27.95
earnings (early Feb) will be strong with 44% growth in consolidated OP.
Impact ? Expect Q4 OP to grow 44%. We forecast E-mart’s consolidated OP will
improve 44% YoY to Won121bn (vs Won111bn Bloomberg consensus), marking positive profit growth for two consecutive quarters on the back of solid SSSg and cost controls in key operations. ? Good YoY improvement in hyper OPM. We forecast hyper OPM will improve to 5.2% in Q4, vs 4.8% in 4Q15, thanks to +0.5% SSSg, healthy 3.8% gross revenue growth, and broad-based SG&A control. SSSg was a bit short of our expectation of +1% due to the Saturday protests (all Saturdays since early Nov), but we think its negative impact on sales growth is subsiding with time (SSSg -4.2% in Nov but +1.3% in Dec) due to the sticky nature of staple demand. The +0.5% SSSg also marks outperformance vs competitors (c.-2% to -5%), as E-mart continues to gain market share (est 44% among the big 3 players), thereby improving GPM. We believe the improving GPM (via market share gains and rising PL penetration) will eventually lift OPM, thanks to better control in SG&A, especially labour, in the absence of new store openings. ? Traders: robust support for hypermarket. Traders registered 20% SSSg in Q4 and better performance of new stores boosted gross sales growth to 38%. We project a 47% CAGR in traders’ OP over 2017-18 based on a 36% sales CAGR and persistent margin improvement, as the existing stores already hit 5% OPM. This is comparable to Costco Korea, which has much stabilised operations with its new stores doing well. ? Strong online sales growth. We estimate online revenue grew 32% in Q4, accelerating from 24% in Q3 and 20% in Q2. We anticipate the online business will maintain mid-20% growth through 2018, as its scale and leadership in online fresh food acts as the moat against competitors. ? Start of the earnings recovery cycle. We continue to make a case for E-
Investment fundamentals 2015A 2016E 2017E 2018E bn 13,640 14,829 15,893 17,243 bn 938 994 1,101 1,240 % -5.9 6.0 10.7 12.7 bn 504 538 619 739 % -13.6 6.9 15.0 19.4 bn 456 354 403 476 bn 455 349 399 471 Won 16,360 12,711 14,478 17,076 % 56.2 -22.3 13.9 17.9 Won 16,318 12,521 14,334 16,905 % 56.8 -23.3 14.5 17.9 x 11.0 14.2 12.4 10.5 x 11.0 14.4 12.6 10.6 Won 1,500 1,600 1,500 1,700 % 0.8 0.9 0.8 0.9 % 3.6 3.6 4.0 4.6 % 6.5 4.8 5.1 5.8 x 8.9 8.4 7.6 6.8 % 55.8 49.8 48.6 45.1 x 0.7 0.7 0.6 0.6
139480 KS rel KOSPI performance, & rec history
mart that its earnings recovery cycle will be sustained into 2018, thanks to: 1) a rise in hyper OPM on GPM improvement (growing PL penetration, market share gain) and SG&A control, 2) improvement in trader/online margins on solid sales growth, and 3) a decline in losses at key subsidiaries. Hence, we project OP growth to accelerate to +15-19% in 2017-18 vs +7% in 2016. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in Won unless noted, TP in KRW)
Earnings and target price revision ? We fine-tune 2017-18E EPS by 1%. No change in TP.
Analyst(s) KJ Lee +82 2 3705 9935 Kwang Cho +82 2 3705 4953 kj.lee@macquarie.com kwang.cho@macquarie.com
Price catalyst ? 12-month price target: Won230,000 based on an EV/EBITDA methodology. ? Catalyst: monthly SSSg, fresh food CPI, news flows in ecommerce
10 January 2017
Action and recommendation ? Maintain Outperform.
Macquarie Securities Korea Limited
Please refer to page 10 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 5

JAPAN
7974 JP Price (at 06:00, 06 Jan 2017 GMT) Valuation - EV/EBITDA
Outperform ¥24,050 ¥ ¥ % % 14,00036,000
Nintendo Switch/Pokemon/FX offset SMR concerns Conclusion ? We upgrade Nintendo from Neutral to Outperform as we raise our FY3/17-19
28,700 +19.3 +21.1 Very High Software & Services Market cap ¥bn 2,888 Market cap US$m 24,797 Free float % 37 30-day avg turnover US$m 531.5 Foreign ownership % 51.33 Number shares on issue m 120.1 Investment fundamentals Year end 31 Mar Revenue EBIT EBIT growth Recurring profit Reported profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn ¥ % x ¥ % % % x % x 2016A 17CoE 2017E 2018E 504.5 32.9 32.7 28.8 16.5 137 -61.2 175.0 150 0.6 2.5 1.5 59.0 -49.1 2.5 470.0 30.0 0.0 10.0 50.0 416 202.9 210.0 0.9 na na na na na 473.4 41.4 25.9 65.7 91.4 761 453.9 31.6 380 1.6 3.0 4.7 48.6 -57.7 2.5 741.1 100.7 143.2 119.5 76.5 637 -16.4 37.8 320 1.3 6.7 6.4 21.4 -59.5 2.4
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
EPS estimates by 11%-40% and our TP from ¥25,400 to ¥28,700, as we expect strong Pokemon revenues and weak FX to more than offset SMR concerns. We think Switch launch details on Jan 13th could surprise positively with a strong launch line-up and new features. Revision up to guidance also looks likely at 3Q results.
Impact ? 3Q strong and revision to guidance: Driven by ongoing strong Pokemon
related sales and weak FX, we expect 3Q OP of ¥35bn ahead of consensus of ¥31.5bn. We have upgraded our 3DS FY3/17 unit sales by 1.1m and adjusted for current forex rates, which more than offsets weaker smartphone sales. We think it’s possible Nintendo revises up guidance because its forex is based on ¥100/USD and ¥115/EUR. ? Switch details Jan 13th: On 13th Jan we expect the company will confirm the
US$250 price point (as forecast), given recent press reports. But more importantly we think a strong launch line-up, new features and frequent 1st party launches that follow will could mean Switch has upside risk. We have forecast 1.8x software tie ratio (includes 1 game bundled) for FY3/18, which if it is 3.0x (Wii peaked at 4.9x), would add 33% to our OP forecasts. Our biggest concern is battery life which we think will remain an issue. ? Super Mario Run disappoints but: SMR hit 50m downloads as of 24 Dec,
7974 JP vs TOPIX, & rec history
just 10 days after launch, and we believe it hit 75m by 31st Dec. However, as we feared, the high price and online connection has limited pay rates to less than 10%, we estimate. SMR Google Play is in pre-registration, which suggests an early Feb release which is faster than our April assumption. We believe Nintendo will cut the price in FY3/18 to help drive better conversion of users. We don’t believe SMR is indicative of smartphone plans and look to Animal Crossing and Fire Emblem in Feb/Mar to confirm the company’s freeto-play monetisation focus. With another 3-4 mobile titles in FY3/18, we think there is still room for growth. ? Universal adds ¥1200/sh: We estimate that the Universal Park’s deal could
add 10%+ to OP in FY3/21 onwards and on a NPV basis is worth ¥1200/sh. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in JPY unless noted)
Earnings and target price revision ? EPS FY3/17E +40%, FY3/18E +16%, FY3/19E +11%. ? TP from ¥25,400 to ¥28,700 on higher EBITDA forecasts + ¥1200/sh for
Universal agreement. Analyst(s) David Gibson, CFA +81 3 3512 7880 david.gibson@macquarie.com Aya Haruyama +81 3 3512 7867 aya.haruyama@macquarie.com
Price catalyst ? 12-month price target: ¥28,700 based on an EV/EBITDA methodology. ? Catalyst: Switch details Jan 13th 1pm Tokyo time.
10 January 2017
Macquarie Capital Securities (Japan) Limited
Action and recommendation ? Upgrade to Outperform.
Please refer to page 15 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 6

TAIWAN Japan contact lens imports – 2016 momentum hard to repeat US$ m 1,400 1,200 1,000 20% 15% 10%
Contact lens sector A tough year ahead Conclusion ? We retain our bearish view on the contact lens ODM/OEM sector entering
800 600 400 200 0
5% 0% -5% -10% -15%
Import value
YoY
Source: CA, Macquarie Research, January 2017
Seed sees slowing sales, especially for colour lens 35% 30%
2017, given the hard comps, tepid demand and keener competition. We believe strong Japanese market momentum in 2016 is unlikely to repeat, and we see more supply in the pipeline. We expect the de-rating in the contract manufacturing segment to continue amid continuing capacity expansion from new tech entrants. We urge investors to switch to the leading brand in China, Ginko (8406 TT, NT$317.5, Outperform, TP: NT$356.0), from St Shine (1565 TT, NT$618.0, Underperform, TP: NT$555). We see Ginko’s valuation as undemanding at 16x 17E PER as a brand vs 17x as an OEM player. It also promises higher earnings growth (13% vs 1% 17-18E EPS CAGR) and greater exposure to a fast-growing market in China vs Japan, and fewer threats from tech entrants.
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
11M16
Impact ? Growth to decelerate on hard comps and tepid demand. Japan’s contact
25% 20% 15% 10% 5% 0% Pure type FY15 (ended Mar 2016) Colour lens FY16 (ended Mar 2017)
lens import market grew 15% YoY in 11M16 in value, vs a 1% CAGR in 201115, thanks to yen strength and a low base in 2015 on a rise in the consumption tax. We expect Japan demand growth to slow to a normal midsingle digit level in 2017. That should drive down St Shine’s earnings growth to 4% in 2017E from 24% in 2016. Meanwhile, we expect China demand to grow at a mid-teen percent, driven by a rise in myopic diagnosis and increasing disposable income. We think this can drive 12% earnings growth for Ginko, China’s leading brand in 2017. ? Competition never stops. Competition is particularly intense in the contract
Source: Seed, Macquarie Research, January 2017
Competition never stops Taiwan contact export market share 100% 80% 60%
40% 20% 0% 2012 2013 2014 St Shine Pegavision 2015 11M16 Others
manufacturing markets, which new tech entrants have their eyes on. We note new brands continue to spring up in Japan thanks to increasing product sourcing from Taiwan. A recent upstart is ReVIA (see product here), which is manufactured by Pegavision (6491 TT, Not rated). This brand was launched in September 2016 and has swiftly topped the rankings on Rakuten Japan, thanks to aggressive marketing through the hire of Namie Amuro, a popular Japanese singer, for branding. Pegavision’s 50% YoY sales growth in 4Q16 echoes the strong order momentum. In contrast, Seed, St Shine’s key client, has seen slower growth in colour lens sales, given the intensifying competition. ? FX the potential downside. Recent yen weakness is also unfavourable,
Source: Macquarie Research, January 2017
Analyst(s) Marcus Yang +886 2 2734 7532 Corinne Jian, CFA +886 2 2734 7522 Benson Pan +886 2 2734 7527 marcus.yang@macquarie.com corinne.jian@macquarie.com benson.pan@macquarie.com
especially for St Shine. Management said it has started to offer 2-5% discounts to Japanese clients, which will hurt its gross margin. Any further yen depreciation risks further earnings downside. Ginko also suffered from RMB depreciation in 2016. While RMB weakness might continue, the impact will be cushioned if the NTD also depreciates. Net, we believe the currency impact of US rate hikes should be relatively neutral to Ginko.
Outlook ? Avoid disruptive threats; prefer Ginko over St Shine. We continue to hold
10 January 2017
Macquarie Capital Limited, Taiwan Securities Branch
a cautious view on the contact lens ODM/OEM market, as competition from tech companies presents a structural threat and we expect a further de-rating. However, as the competitive threat to Ginko is relatively small, we believe its undemanding valuation and better growth prospects reinforce our view to switch from St Shine to Ginko.
Please refer to page 24 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 7

TAIWAN
8406 TT Price (at 06:46, 06 Jan 2017 GMT) Valuation - PER
Outperform NT$317.50 NT$ 350.00370.00
Ginko Steadier growth Event ? We retain our Outperform rating on Ginko, given the stable outlook and
12-month target NT$ 356.00 Upside/Downside % +12.1 12-month TSR % +14.7 Volatility Index Medium GICS sector Health Care Equipment & Services Market cap NT$m 29,432 Market cap US$m 923 Free float % 49 30-day avg turnover US$m 2.3 Number shares on issue m 92.70 Investment fundamentals Year end 31 Dec Revenue Reported profit Adjusted profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 6,098.9 6,533.2 7,276.2 8,205.8 m 1,567.0 1,633.8 1,826.2 2,069.0 m 1,569.6 1,646.4 1,826.2 2,069.0 NT$ 16.90 17.63 19.70 22.32 % 8.2 4.3 11.8 13.3 x 18.8 18.0 16.1 14.2 NT$ 7.15 7.45 8.33 9.44 % 2.3 2.3 2.6 3.0 % 13.1 12.3 12.7 13.8 % 16.3 15.7 15.9 17.1 x 13.2 12.8 11.8 10.7 % 23.4 14.9 9.7 9.7 x 2.9 2.7 2.4 2.4
attractive valuation. We continue to believe that the fast-growing China contact lens market bodes well for Ginko. Its position as a leading brand should secure robust earnings growth. We think it’s attractively priced at a PER of 16x on 2017E, vs the historical average of 26x.
Impact ? Stable 2017 outlook. We expect Ginko to register low-teen sales growth in
2017, along with the growing China market. Even though the gross margin may be under pressure on unfavourable product mix, we expect the OPM can still sustain on lower opex % for more daily products and more online sales. All taken, we forecast the Ginko will deliver 13% earnings CAGR over 2017-18E. ? Receivable days improving. We note that Ginko’s account receivable days
also showed signs of stabilizing from 2016, after the lengthening trend during 2011-15. Receivable days dropped slightly, to 315 days in 3Q16, from 317 days in 3Q15. We believe it will further improve onwards thanks to less SKUs (vs 2014-15 when the company pushed the sales of colour lens products) and increasing online sales. ? Capacity expansion on track. Ginko will add 4 lines in Taiwan to take its
8406 TT rel TAIEX performance, & rec history
total to 24 (12 lines in Taiwan; 12 lines in the PRC) in early 2017, and that will contribute from 2H17. The higher proportion of sales from Made in Taiwan products could also ease the margin pressure from product mix and competition. ? Growing with China market. According to Ginko, the contact lens
penetration rate in China was around 10% in 2015, far lower than some other Asian countries at 25% (Taiwan, Hong Kong and Japan) or ~20% (Thailand and Malaysia). We estimate the lower penetration and rising disposable income in China can translate to a 15% CAGR over 2016-20 for total contact lens market size in China. That for Ginko, as a leading local brand would be a solid growth driver, in our view. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Earnings and target price revision ? Earnings estimate largely unchanged. Introducing 2019 earnings forecast. No
Source: FactSet, Macquarie Research, January 2017 (all figures in NT$ unless noted, TP in TWD)
change in target price.
Price catalyst ? 12-month price target: NT$356.00 based on a PER methodology.
Analyst(s) Marcus Yang +886 2 2734 7532 Corinne Jian, CFA +886 2 2734 7522 Benson Pan +886 2 2734 7527 marcus.yang@macquarie.com corinne.jian@macquarie.com benson.pan@macquarie.com
? Catalyst: Monthly sales, 4Q16 results
Action and recommendation ? Retain Outperform. We ungraded Ginko on 19 Oct (see here) as we saw value
10 January 2017
emerging. Risks to our view: Further RMB depreciation against NTD, the pressure eased after NTD also joined the club of depreciation since late 2016. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Ginko scores in the second quartile of our current universe coverage.
Macquarie Capital Limited, Taiwan Securities Branch
Please refer to page 5 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 8

TAIWAN
Underperform Price (at 03:35, 10 Jan 2017 GMT) NT$618.00 Valuation - PER
1565 TT
St Shine New threat emerging Conclusion ? We reiterate our Underperform rating on St Shine with bearish view on 2017
NT$
550.00560.00
12-month target NT$ 555.00 Upside/Downside % -10.2 12-month TSR % -5.9 Volatility Index Medium GICS sector Health Care Equipment & Services Market cap NT$m 31,160 Market cap US$m 957 30-day avg turnover US$m 3.7 Number shares on issue m 50.42 Investment fundamentals Year end 31 Dec Revenue Reported profit Adjusted profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 5,860.2 6,458.5 6,692.4 6,750.2 m 1,456.0 1,813.7 1,884.9 1,848.8 m 1,456.1 1,813.7 1,884.9 1,848.8 NT$ 28.88 35.97 37.39 36.67 % -7.4 24.6 3.9 -1.9 x 21.4 17.2 16.5 16.9 NT$ 23.50 0.00 26.25 25.74 % 3.8 0.0 4.2 4.2 % 25.7 33.5 30.3 27.4 % 32.6 37.0 34.1 30.3 x 14.7 11.4 11.6 11.8 % -36.6 -45.1 -49.3 -55.2 x 6.8 6.0 5.3 4.9
outlook, given 1) demanding valuation (17x 17E PER) with a 1% earnings CAGR in 2017-18E; 2) a high base (+4% YoY in sales vs 10% in 2016); and 3) intensifying competition: We note ReVIA, a new contact lens brand in Japan, contract-manufactured by Pegavision, has swiftly topped the bestselling rankings on Rakuten after its launch in September 2016, thanks to strong marketing. This is the first time a local Japanese contact lens brand other than Seed has hired a top-tier entertainer as brand ambassador.
Impact ? Namie Amuro vs Kitagawa Keiko. We believe the competition in Japan’s
contact lens market will further intensify. New brands have sprung up from multi-product sources in Taiwan. A recent upstart is ReVIA, manufactured by Pegavision. It topped the daily contact lens product rankings on Rakuten, Japan’s largest online shopping channel, after its Sept 2016 launch. We believe the swift expansion of ReVIA is driven by its aggressive marketing. It hired Namie Amuro, a top-tier Japanese singer, as the brand ambassador. This is the first time a local Japanese brand other than Seed, which has Kitagawa Keiko, another top-tier female actress in Japan, splash out on marketing. And this echoes our view that contact lens is the business of marketing & distribution, not manufacturing or technology. ? Pegavision continues to outgrow. Pegavision registered 50% YoY growth
1565 TT rel TAIEX performance, & rec history
in 4Q16, outshining St Shine’s 3%. We believe this is in part driven by strong orders from new brands, such as ReVIA. Pegavision’s sales grew 27% YoY in 2016 vs St Shine’s 10%. ? Entering hard comps in 2017 and yen creates downside. We expect St
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Shine’s sales growth to decelerate to 4% YoY in 2017 after the strong rebound in 2016. We think it’s fair to expect a capacity expansion at St Shine, given the tight UT rate currently. However, we believe this will not contribute until 2H17 and the potentially lower UT rate impacts the GM. GM faces hard comps in 2017 as well, given a high UT rate and favourable currency in 2016. We expect GM to trend down from 43.3% in 2H16 to 41.1% in 2018, and any further yen depreciation would be a downside risk.
Source: FactSet, Macquarie Research, January 2017 (all figures in NT$ unless noted, TP in TWD)
Earnings and target price revision ? Earnings forecasts largely unchanged; introducing 2019 earnings estimates.
No change to TP of NT$555 (15x 17E PER).
Price catalyst ? 12-month price target: NT$555.00 based on a PER methodology.
Analyst(s) Marcus Yang +886 2 2734 7532 Corinne Jian, CFA +886 2 2734 7522 Benson Pan +886 2 2734 7527 marcus.yang@macquarie.com corinne.jian@macquarie.com benson.pan@macquarie.com
? Catalyst: Monthly sales, 4Q16 results.
Action and recommendation ? Reiterate Underperform. We maintain our structural bearish view on St Shine,
10 January 2017
given the competition issues (See our sector report: Contact lens sector Hunger game kicks off). While the foreign holding remains high at 61%, we urge investors to shift to Ginko, given valuation and China exposure. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score St Shine scores in the second quartile of our current universe coverage.
Macquarie Capital Limited, Taiwan Securities Branch
Please refer to page 8 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 9

PHILIPPINES
PGOLD PM Price (at 03:57, 09 Jan 2017 GMT) Valuation - DCF (WACC 9.2%)
Outperform P41.00 P 50.00
Puregold Price Club Value for money Conclusion ? PGOLD is our top pick in the Philippine consumer space and is among the 2017
P 50.00 % +22.0 % +22.7 Low/Medium Food & Staples Retailing Market cap Pm 113,381 Market cap US$m 2,275 Free float % 33 30-day avg turnover US$m 0.8 Number shares on issue m 2,765 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn P % P % x x P % % % x % x 2015A 2016E 2017E 2018E 97.2 7.1 10.4 5.0 5.0 1.81 10.6 1.80 10.7 22.7 22.8 0.30 0.7 12.7 13.7 13.9 -0.4 3.0 115.8 8.0 11.7 5.5 5.5 1.99 9.9 1.99 10.6 20.6 20.6 0.30 0.7 13.0 13.5 12.4 -7.0 2.6 130.1 9.0 13.1 6.2 6.2 2.25 13.3 2.25 13.3 18.2 18.2 0.30 0.7 13.4 13.6 10.9 -14.1 2.3 144.7 10.1 12.0 7.0 7.0 2.53 12.5 2.53 12.5 16.2 16.2 0.30 0.7 13.8 13.6 9.8 -22.1 2.1
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
top picks for the Philippine market (by Gilbert Lopez) and ASEAN Emerging Leaders (by Conrad Werner). We think it is well-positioned not only to benefit from improving consumer sentiment but also to weather challenges if sentiment reverses (due to political/macro uncertainties) or retail competition intensifies.
Impact ? Well-positioned consumer name. Consumer sentiment turning upbeat, as
gleaned from our latest consumer survey, could translate into healthy SSSG for retailers like PGOLD. But its relatively defensive business model (dominant grocery retailer that offers low-prices and sells staple items) could also provide some revenue protection and stability should sentiment go south. ? Expansion-driven growth. We project earnings to grow at a 2016E-18E
CAGR of 12.9% on an 11.8% sales CAGR, mainly driven by store network expansion (7.8% CAGR). ? We think there is significant scope for PGOLD to expand both its Puregold (low-priced hyper/supermarkets) and S&R (membership club selling imported items) formats especially in the provinces, given underpenetration of modern retail in the Philippines (~30%). We also think there is a growing market for S&R (accounts for 18% and 34% of PGOLD’s sales and net profit) as premiumization takes place. ? PGOLD has the ability to execute and compete amidst a stiff competitive environment, in our view, given its scale (country’s largest grocery retailer in terms of store count), strong brand equity (Puregold ranks #1 among grocery retailers based on our survey), differentiated market positioning and product offerings (Puregold largely caters to lowincome consumers and sari-sari stores, S&R offers imported products not commonly available in other stores) and proven track record. ? Attractively valued, with a potential catalyst in place. Stock trades at an
PGOLD PM rel PSEi performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in PHP unless noted)
18.2x 2017E PE vs PH consumer average of 25.4x and regional peer average of 20.5x; and at 1SD below historical PE mean. We think it could re-rate as we see better SSSG trends for S&R (an overhang after it shifted pricing models in Apr 2015 resulting in weak SSSG) following a successful 3-day sale from 30 Sep - 2 Oct, and as management’s proactive efforts to tweak its pricing and product portfolio start to bear fruit.
Price catalyst ? 12-month price target: P50.00 based on a DCF methodology. ? Catalyst: SSSG and margin trends, execution of growth strategy.
Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
Action and recommendation ? PGOLD is our top pick in the PH consumer sector. Reiterate Outperform. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Puregold Price Club scores in the second quartile of our current universe coverage.
10 January 2017
Macquarie Capital Securities (Philippines) Inc.
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 10

PHILIPPINES
RRHI PM Price (at 03:17, 09 Jan 2017 GMT) Valuation - DCF (WACC 9.6%)
Outperform P76.00 P P % % 90.00
Robinsons Retail Holdings Reaping the fruits of its labour Conclusion ? We have an Outperform on RRHI, which is among Gilbert’s top picks in the
90.00 +18.4 +19.3 Medium Food & Staples Retailing Market cap Pm 105,260 Market cap US$m 2,091 Free float % 35 30-day avg turnover US$m 1.1 Number shares on issue m 1,385 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn P % P % x x P % % % x % x 2015A 2016E 2017E 2018E 90.9 4.7 5.4 4.3 4.2 3.13 20.3 3.00 16.1 24.2 25.3 0.53 0.7 7.7 10.0 15.9 -15.2 2.4 103.2 5.4 14.3 4.6 4.6 3.33 6.3 3.33 11.0 22.8 22.8 0.62 0.8 7.8 10.2 13.7 -12.9 2.2 117.9 6.2 15.2 5.2 5.2 3.78 13.4 3.78 13.4 20.1 20.1 0.66 0.9 8.4 10.6 12.0 -18.5 2.0 131.7 7.0 12.0 5.9 5.9 4.25 12.4 4.25 12.4 17.9 17.9 0.75 1.0 8.8 10.9 10.7 -24.2 1.9
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
Philippines and Conrad’s ASEAN Emerging Leaders for 2017. Our latest consumer survey indicates the company would be a key beneficiary of an upswing in consumer sentiment, and also stands to gain from the store rationalization undertaken in 2015/16. We believe the stock is trading at undemanding valuations despite healthy growth prospects.
Impact ? Poised to benefit from improving consumer confidence… An upswing in
consumer sentiment should bode well for a large-scale retailer, such as RRHI. Its diversified business should also serve it well in a downturn in consumer sentiment – 64% of RRHI’s sales comprise non-discretionary retail formats, like supermarkets, drug stores and convenience stores. ? … and from management initiatives in the past ~2 years. RRHI took a
more disciplined approach starting in 2015, as it prioritised profitability over expansion. Management rationalised its store portfolio by: 1) closing 48 unprofitable / underperforming stores and brands (opening 227) in 2015 and closing 72 (opening 107) in 9M16; and, 2) becoming more selective in choosing sites for new stores. With the clean-up largely completed in 2016, we think RRHI will be in a position to: ? Accelerate store roll-out, which would be a key driver of RRHI’s topline. We forecast a net addition of 110 stores in 2017E vs 60 in 2016E. A wider store network could help boost its industry position – based on our latest survey, RRHI is #3 among PH grocery chains, based on consumer preference. ? Enhance margins. Stores that were a drag to overall profitability in the past have been weeded out. RRHI’s ability to ramp up store network expansion could also lead to better supplier support/discounts and economies of scale. ? Attractive growth profile and valuations
RRHI PM rel PSEi performance, & rec history
? We expect RRHI’s earnings to show a healthy 2016E-18E CAGR of 12.9%, driven by store network expansion (a 6.6% CAGR), steady SSSG (3.4% in 2017E-18E) and margin expansion. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
? The stock trades at 20.1x 2017E PE vs the PH consumer avg of 25.4x, the regional retail avg of 25.6x, and 1.4SD below its historical mean.
Source: FactSet, Macquarie Research, January 2017 (all figures in PHP unless noted)
Price catalyst ? 12-month price target: P90.00 based on a DCF methodology. ? Catalyst: Better SSSG and margins, execution of growth strategy, acquisitions
Action and recommendation Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
? We reiterate our Outperform on RRHI, which is among our preferred picks in
the PH consumer sector. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Robinsons Retail Holdings scores in the second quartile of our current universe coverage.
10 January 2017
Macquarie Capital Securities (Philippines) Inc.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 11

PHILIPPINES
URC PM Price (at 03:57, 09 Jan 2017 GMT) Valuation - DCF (WACC 8.0%)
Outperform P169.20 P P % % 200.00
Universal Robina On the path to recovery Conclusion ? URC is our pick among PH index consumer stocks. We expect better growth
200.00 +18.2 +20.5 Low Food, Beverage & Tobacco Market cap Pm 372,944 Market cap US$m 7,480 Free float % 44 30-day avg turnover US$m 5.1 Number shares on issue m 2,204 Investment fundamentals Year end 30 Sep Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn P % P % x x P % % % x % x 2015A 2016E 2017E 2018E 109.1 17.4 23.0 12.4 12.8 5.68 7.1 5.86 10.8 29.8 28.9 3.06 1.8 18.4 21.1 17.3 6.8 5.7 111.5 16.7 -3.7 15.1 12.1 6.94 22.3 5.56 -5.2 24.4 30.4 3.22 1.9 13.9 17.5 17.3 1.4 5.0 125.7 18.7 11.7 13.6 13.6 6.25 -10.0 6.25 12.4 27.1 27.1 3.94 2.3 13.9 18.0 15.5 23.4 4.7 134.0 20.0 7.3 15.0 15.0 6.86 9.7 6.86 9.7 24.7 24.7 3.54 2.1 14.1 18.2 14.3 10.2 4.3
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
prospects in FY17 arising from a recovery in organic branded consumer foods (BCF) sales and impact of new acquisition. URC remains the largest cap PH consumer name, with strong management and identifiable growth drivers.
Impact ? Better year ahead. We forecast URC’s earnings to grow 12.4% in FY17E,
much better than the decline in FY16 – a year marked by sluggish domestic sales growth, intense competition and challenges overseas. ? Faster growth domestically. We expect domestic BCF sales to grow 6.2% in FY17E (vs 4.0% in FY16) driven by 1) new product launches, especially in the affordable premium/premium segments (amidst growing trend of premiumization); 2) recovery in sales from Visayas/Mindanao regions (~25% of domestic BCF sales) as farm incomes improve post El Niño; and 3) healthy overall consumption – our latest consumer survey shows greater propensity to consume snacks in the next 6 months. Our survey also shows an improvement in URC’s market share in coffee, which could help support coffee sales (~30% of domestic BCF sales). ? Better performance overseas. We expect international BCF to grow sales 33.9% in FY17 mainly driven by the consolidation of newly acquired Snackbrands Australia (SBA). While we assume flat organic sales growth, this would still be better than the 5% decline recorded in FY16 as we anticipate better sales momentum in Vietnam and Griffin’s (New Zealand / Australia) vs previous quarters. URC is relaunching its products with new packaging in Vietnam to rebuild the brand while Griffin’s sales could improve in Australia as it leverages on the strength of SBA’s platform. ? Proactive steps to protect margins. We view positively management’s
URC PM rel PSEi performance, & rec history
efforts to address margin pressure (on increased competition, rising inflation and FX volatility), which include: 1) pricing action (2-3% price hike in Dec 2016), 2) product portfolio rationalization, 3) pushing higher-margin products, 4) realizing synergies from SBA and 5) focusing on turning around Vietnam. Additionally, URC’s extensive geographic presence gives it flexibility to source goods and produce where it is cheaper. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
? Scope for a re-rating. URC trades at 0.3SD above historical PE mean vs
Source: FactSet, Macquarie Research, January 2017 (all figures in PHP unless noted)
1.7SD above in Apr 2016. We think it could re-rate as sales improve, premiumization efforts gain traction and some overseas markets turn around.
Earnings and target price revision ? No change.
Price catalyst Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
? 12-month price target: P200.00 based on a DCF methodology. ? Catalyst: market share and sales trends, value-accretive acquisitions.
10 January 2017
Macquarie Capital Securities (Philippines) Inc.
Action and recommendation ? URC is our preferred PH consumer index name. Reiterate Outperform.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 12

PHILIPPINES
EMP PM Price (at 03:52, 09 Jan 2017 GMT) Valuation - DCF (WACC 8.6%)
Neutral P7.30 P 7.35
Emperador Inc Weighing the positives and negatives Conclusion ? EMP is the dominant liquor player in the Philippines, and continues to build its
P 7.35 % +0.7 % +3.1 Low/Medium Food, Beverage & Tobacco Market cap Pm 117,676 Market cap US$m 2,372 Free float % 12 30-day avg turnover US$m 0.1 Number shares on issue m 16,120 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 43,268 41,561 43,683 47,308 m 8,601 8,979 9,422 10,094 % 11.4 4.4 4.9 7.1 m 6,960 7,247 7,425 8,072 m 6,960 7,247 7,425 8,072 c 43.2 45.0 46.1 50.1 % 5.0 4.1 2.5 8.7 c 43.2 45.0 46.1 50.1 % 5.0 4.1 2.5 8.7 x 16.9 16.2 15.8 14.6 x 16.9 16.2 15.8 14.6 c 15.0 16.8 17.5 18.0 % 2.1 2.3 2.4 2.5 % 8.7 9.0 9.2 9.3 % 14.5 13.8 13.0 13.1 x 13.7 12.5 11.8 11.0 % 0.0 -1.9 -7.3 -10.2 x 2.3 2.2 2.0 1.8
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
global footprint. While growth opportunities lie ahead, challenges also remain.
Impact ? Looking forward to the positives. In our view, key opportunities include:
? Potential for better domestic sales as Filipinos appear to be inclined to consume more alcohol based on our latest survey, and as consumption in the rural areas could improve on increasing farm income post El Niño (weak agri output likely led to sluggish industry volumes of ~3% in 9M16). ? EMP’s Whyte & Mackay (W&M) business is gaining traction, with EMP indicating that sales (ex-Russian Standard Vodka as its distributorship contract was terminated in 2015) growing 21-22% YoY (GBP terms) in 9M16 on the back of a 24-25% YoY uptick branded liquor sales. W&M’s GP and EBIT margin also expanded YoY by ~9ppts and ~5ppts in 9M16. ? Accelerating roll-out of its premiumization strategy thanks to EMP’s wide spectrum of liquor products. EMP’s product portfolio comprises different types of liquor (brandy, whisky, vodka, sherry wine) catering to various segments of the market (low, middle and high-income segments). ? Watching out for the negatives. Challenges and potential risks for EMP are:
? Slipping market share. Competitive environment among the three big local players (EMP, Ginebra, Tanduay) is still intense, with EMP on the losing end with its market share falling to 43% in 9M16 from 48% in 2015. Our latest survey also shows Tanduay’s share trending higher. ? Weaker (and volatile) domestic margins. EMP’s domestic (ex-Fundador) GP and EBIT margin fell ~3ppts and ~4ppts YoY in 9M16, which EMP attributes to higher cost of new bottles for new products, use of fewer recycled bottles and unfavourable FX movement. There have also been swings in GPM QoQ in 2016: -4ppts in 1Q, +13ppts in 2Q, -10ppts in 3Q. ? Uncertainties on new acquisition. Details of EMP’s acquisition of Domecq brandies/wines from Pernod Ricard (in Dec 2016) is currently still lacking. ? Risk of additional excise taxes on liquor. The Dept of Finance is exploring the imposition of higher taxes on certain products including cigarettes and liquor to raise revenues to facilitate higher planned government spending.
EMP PM rel PSEi performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in PHP unless noted)
Price catalyst ? 12-month price target: P7.35 based on a DCF methodology. ? Catalyst: volume growth, market share and margin trends, acquisitions
Action and recommendation Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
? Maintain Neutral. MQ Quant holds strong negative view on EMP – while
undervalued at 16x 2017E PE vs peer avg of 21x, price momentum is weak. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Emperador Inc scores in the third quartile of our current universe coverage.
10 January 2017
Macquarie Capital Securities (Philippines) Inc.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 13

PHILIPPINES
JFC PM Valuation
Underperform Price (at 03:59, 09 Jan 2017 GMT) P213.00 P P % % 186.00 - DCF (WACC 8.6%)
Jollibee Foods Steep valuation tough to justify Conclusion ? While topline growth in 2017E could still be healthy on the back of positive
186.00 -12.7 -11.6 Low Consumer Services Market cap Pm 228,993 Market cap US$m 4,662 Free float % 41 30-day avg turnover US$m 2.4 Number shares on issue m 1,075 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn P % P % x x P % % % x % x 2015A 2016E 2017E 2018E 100.8 5.4 -12.7 4.9 5.8 4.62 -9.0 5.41 6.7 46.1 39.3 1.78 0.8 9.0 20.0 26.3 -4.7 7.5 115.0 6.9 29.3 6.2 6.2 5.75 24.6 5.75 6.3 37.0 37.0 1.86 0.9 10.4 18.9 21.0 -0.5 6.6 131.0 7.9 14.6 6.8 6.8 6.34 10.3 6.34 10.3 33.6 33.6 2.18 1.0 11.2 18.4 17.8 -10.7 5.8 145.4 8.8 11.0 7.6 7.6 7.08 11.6 7.08 11.6 30.1 30.1 2.43 1.1 11.6 18.2 16.3 -22.3 5.2
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
consumer sentiment, we expect margins to be under pressure. We think there could be downside to street earnings, which assume significant margin expansion in 2016/17. Maintain Underperform.
Impact ? Healthy topline growth…We expect sales to grow 14% YoY in 2017E driven
by store network expansion (6%) and healthy SSSG (6.6% domestic SSSG) as supported by improving consumer sentiment based on our latest survey. ? …but margin pressure may persist. 3Q16 was marked by margin
compression, with GPM falling 16bps YoY on higher store staff costs (rising headcount per store, shift to agency-based workers from direct contractual hires) and EBIT margin down 95bps YoY. Margin pressure could remain as: ? The shift to agency-based workers is still ongoing. ~60-70% of store personnel are hired by JFC directly as contractual workers (ie 5-month contracts), all of whom will be shifted to agency-based workers especially with the Dept of Labor and Employment’s (DOLE) proposal to put an end to contractualization (effectively banning employers from terminating the service of a worker after the expiration of his/her service agreement). So far, only one out of six local JFC brands – Greenwich – is fully compliant. ? Certain raw material prices could trend higher. Costs of certain raw materials like beef, dairy, potatoes are also inching up in recent months. A further weakening of the PHP vs USD could also push higher costs of imported raw materials (20-25% of JFC’s raw materials are imported). ? Pricing action may be limited. While JFC enjoys strong brand equity, it can only raise prices marginally and gradually because of its pricesensitive target market (ie low income). In 2014, JFC raised prices by 4.04.5%, short of the 5.4% average increase in raw material costs. The price hike also affected volumes in 1H15, with SSSG slowing to low single-digit (from mid-to-high single-digit). Additionally, our latest survey shows weaker outlook on eating fast food among the lower-income segments. ? Potential downside to street estimates. The street is still factoring in a
JFC PM rel PSEi performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
~100bps YoY increase in EBIT margin in 2016E (vs our assumed +70bps) and a further 23bps YoY expansion in 2017E (vs our expected +3bps).
Source: FactSet, Macquarie Research, January 2017 (all figures in PHP unless noted)
Earnings and target price revision ? No change.
Price catalyst Analyst(s) Karisa Magpayo +63 2 857 0899 karisa.magpayo@macquarie.com
? 12-month price target: P186.00 based on a DCF methodology. ? Catalyst: SSSG and margin trends, acquisitions
10 January 2017
Action and recommendation ? Maintain Underperform. We think valuations are steep – 33.6x 2017E PE vs
Macquarie Capital Securities (Philippines) Inc.
PH consumer average of 25.4x; trades at 0.7SD above historical PE mean.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 14

HONG KONG
1114 HK Price (at 08:09, 10 Jan 2017 GMT) Valuation - PER
Outperform HK$10.78 HK$ HK$ % % 12.80
Brilliance China Automotive Ending 2016 on a strong note Event ? Brilliance China reported December wholesale shipment data for BMW-
12.80 +18.7 +22.0 High Automobiles & Components Market cap HK$m 54,330 Market cap US$m 7,187 30-day avg turnover US$m 12.7 Number shares on issue m 5,040 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV m m % m Rmb % x Rmb % % % x % x 2015A 2016E 2017E 2018E 4,862.9 4,464.0 4,352.0 4,380.8 -651.8 -704.3 -658.5 -641.4 -103.6 -8.1 6.5 2.6 3,494.7 3,741.9 4,611.4 6,468.8 0.70 0.74 0.91 1.28 -35.3 6.6 23.2 40.3 13.9 13.0 10.5 7.5 0.09 0.15 0.28 0.51 0.9 1.5 2.9 5.3 -2.6 -2.5 -2.1 -1.9 19.0 17.5 19.0 23.5 12.9 11.9 9.7 7.0 -7.8 -6.9 -3.3 -12.5 2.4 2.1 1.9 1.7
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
Brilliance (BBA) after the market close on 10 January, with total sales up 9% YoY at 26,437 units; retail deliveries jumped 13% YoY to 26,169 units, as reported by BMW (BMW GR, 89.83, Outperform, TP: 95.00, Christian Breitsprecher). For 2016, BBA reported 12% retail volume growth to 316.2k, on the back of 8% wholesale shipment growth to 310k. ? We view the sales as solid after a record-breaking month in November. We
reiterate Brilliance China as our top pick in 2017 due to its strong model cycle and expected cost savings from the new engine factory.
Impact ? BBA’s wholesale shipments up 9% on solid X1: BBA shipped 26,437
vehicles in November, up 9% YoY. The growth was mainly driven by the new X1 SUV, which posted sales of 6,582 units, up 68% YoY. Sales of the 5 Series edged down 2% YoY to 9,914 units, while the 3 Series remained weak with the sales volume down 20% YoY at 8,336 units. The 2 Series Active Tourer shipped 1,605 units. BMW reported retail deliveries for BBA jumped 13% YoY in December to 26,169 units. ? No inventory pressure: Wholesale shipments were 268 units higher than
1114 HK rel HSI performance, & rec history
retail sales in December, but for the full year retail sales exceeded wholesale shipments by 6k, despite the opening of new dealers, leaving inventory at a healthy level. Based on our proprietary ISE survey, the November dealer inventory for Brilliance China further declined to a 10-month low level of 1.66x, and inventory levels for key models were all below the 12-month average level. ? New product launches will support growth: BBA plans to launch the 1
Series sedan in February, and dealers have started to take orders for the new model with the presales price at Rmb205k. Furthermore, the brand will launch the new generation 5 Series in mid-2017. We believe the new models will help underpin growth in 2017 and beyond. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in Rmb unless noted, TP in HKD)
? Brilliance China is our top pick is 2017: We believe the BBA JV will have a
strong year ahead, considering its 1) solid product line-up, and 2) cost savings from the new engine factory, which should boost the BBA’s net profit margin by 1ppt, on our estimates.
Earnings and target price revision ? No change.
Price catalyst Analyst(s) Macquarie Capital Securities (Japan) Limited Janet Lewis, CFA +81 3 3512 7856 janet.lewis@macquarie.com Macquarie Capital Limited Allen Yuan +86 21 2412 9009 allen.yuan@macquarie.com
? 12-month price target: HK$12.80 based on a PER methodology. ? Catalyst: launch of the 1 Series in February, annual results in March
Action and recommendation ? Brilliance China is our top pick in 2017. Following its recent solid performance,
10 January 2017
however, investors may get a better entry point as 2H is likely to be much stronger than 1H.
Please refer to page 5 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 15

THAILAND
CPN TB Price (at 05:06, 10 Jan 2017 GMT) Valuation
Outperform Bt56.50 Bt 70.00
Central Pattana Expansion continues; REIT conversion next Conclusion ? CPN’s focus in 2017 will be on three mall launches (Korat, Mahachai and
- DCF (WACC 6.7%, beta 1.1, ERP 7.0%, RFR 3.0%, TGR 2.0%)
12-month target Bt 70.00 Upside/Downside % +23.9 12-month TSR % +25.6 Volatility Index Low GICS sector Real Estate Market cap Btm 253,572 Market cap US$m 6,999 Free float % 57 30-day avg turnover US$m 6.0 Number shares on issue m 4,488 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total DPS growth Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 24,283 28,590 31,177 35,561 m 7,618 9,498 10,486 11,917 % 8.5 24.7 10.4 13.6 m 7,880 9,577 10,736 12,354 m 7,880 9,577 10,736 12,354 Bt 1.76 2.13 2.39 2.75 % 7.8 21.5 12.1 15.1 Bt 1.76 2.13 2.39 2.75 % 7.8 21.5 12.1 15.1 x 32.2 26.5 23.6 20.5 x 32.2 26.5 23.6 20.5 Bt 0.70 0.85 0.96 1.10 % 9.7 21.9 12.1 15.1 % 1.2 1.5 1.7 1.9 % 7.9 8.4 8.5 9.2 % 18.1 19.5 19.2 19.5 x 21.1 16.8 15.6 14.3 % 39.1 48.3 27.2 6.0 x 5.5 4.8 4.3 3.8
Phuket) and two major asset enhancements (CentralWorld and Rama3). CPN expects its retail rental revenue to grow by a modest 6-8% in 2017 as there was only one project launched last year. By the end of 2Q17, CPN expects to complete its conversion of property funds into REITs as the reduction of the transfer fee is extended to end-2017. Upon the conversion, CPN will consider divesting one or two of its matured malls to the REITs, given its intention to keep gearing low. We maintain OP rating and TP of Bt70.
Impact ? Near-term business plan. In 2017, CPN plans to open three new malls in
Korat, Manachai and Phuket with a combined NLA of 147,850 sqm, up 9% from 1.6m sqm at end-2016. This year, the company plans for two major malls renovation, CentralWorld (4Q16 to 1Q18) and Rama3 (2017). After the renovation, CPN expects its rental rate to increase 10-15% for CentralWorld and about 10% for Rama3. For residential, CPN plans to launch 4 new residential condos in the provinces in 2017, up from 3 condos in 2016. In 2018, CPN plans to launch 3 new malls, including Central i-City, Malaysia. ? 5-year business plan; on-line competing. CPN plans to grow its rental
CPN TB rel SET performance, & rec history
revenue 14-15% per annum and raise the numbers of malls to 44 (up from 30 malls currently) with NLA of 2.22m sqm (+39% from end-2016). CPN plans to launch new residential condos through at least 3 projects a year. CPN will also adjust its business plan in keeping with changing consumer lifestyles in which social networks and on-line shopping are increasingly important. It plans to use its Central Online Shopping platform to attract potential shoppers to its malls. ? REIT conversion underway. CPN disclosed that the SEC has approved the
extension of the reduction of transfer fee (from 2% of NAV to Bt100,000 per transaction) by another year, to end-2017. At present, CPN is under the conversion process of its property funds to REITs. CPN expects the conversion to finish by the end of 2Q17 and will likely divest one of two matured malls of its portfolio into the new REIT. The process should be complete in 2017. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Earnings and target price revision ? No change.
Source: FactSet, Macquarie Research, January 2017 (all figures in THB unless noted)
Price catalyst ? 12-month price target: Bt70.00 based on a DCF methodology. ? Catalyst: Increasing new mall openings, higher rental rate growth and GMs.
Analyst(s) Patti Tomaitrichitr, CFA +66 2 694 7727 patti.tomaitrichitr@macquarie.com
Action and recommendation ? We continue to like CPN and rate it an Outperform with an unchanged target
10 January 2017
Macquarie Securities (Thailand) Limited
price of Bt70. Current valuation is at 23.6x 2017E PER, vs the long-term mean of 24.2x.
16

THAILAND
CENTEL TB Price (at 05:01, 10 Jan 2017 GMT) Valuation 12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
Outperform Bt38.25 Bt 44.48
Central Plaza Hotel Soft 4Q16 but Dubai project confirmed Conclusion ? We cut our 2016 & 2017 EPS forecasts on expectations of a softer
- DCF (WACC 7.3%, beta 1.0, ERP 7.0%, RFR 3.0%, TGR 3.0%)
Bt 44.00 % +15.0 % +16.9 Low/Medium Consumer Services Market cap Btm 51,300 Market cap US$m 1,435 Free float % 38 30-day avg turnover US$m 0.9 Number shares on issue m 1,341 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 19,291 19,877 21,132 22,520 m 2,679 2,691 2,958 3,300 % 36.9 0.5 9.9 11.6 m 1,676 1,880 2,136 2,459 m 1,809 1,913 2,136 2,459 Bt 1.24 1.39 1.58 1.82 % 54.4 12.2 13.6 15.1 Bt 1.34 1.42 1.58 1.82 % 84.1 5.8 11.6 15.1 x 30.8 27.5 24.2 21.0 x 28.5 27.0 24.2 21.0 Bt 0.50 0.60 0.70 0.80 % 1.3 1.6 1.8 2.1 % 10.1 11.1 11.8 12.7 % 17.9 19.4 19.2 19.6 x 12.2 12.6 12.3 11.7 % 82.9 59.6 46.7 35.9 x 5.6 4.9 4.4 3.9
4Q16/1Q17 peak tourist season, impacted by the royal mourning period in Thailand and some disruption from unusually poor weather in Thailand’s southern provinces. However, we maintain an Outperform rating and Bt44 target price. Looking beyond these near-term speed bumps, we continue to like CENTEL’s medium-term growth pipeline of ‘asset light’ management contracts in Asia and the Middle East. This has just grown with the signing of contracts for a 550-room JV hotel project in Dubai, targeted to open in 2020.
Impact ? Softness in 4Q16 confirmed. CENTEL has seen declines in RevPar in their
hotel portfolio overall in October/November 2016. This covered the peak initial mourning period for the late King, HM Rama IX, which resulted in cancellations of ‘MICE’ business particularly in Bangkok. In addition, the Centara Grand Hotel Phuket had to close for three weeks due to flooding. We believe the restaurant business also suffered during this period from lower mall traffic and the temporary embargo on advertising and promotional activity, resulting in negative SSSg in these two months. While we expected some weakness during this high season and we believe both businesses started to recover in December, we have cut our 4Q16 operating assumptions for both hotels and restaurants resulting in a 2% cut to 2016E net profits. ? Mixed recovery in early 1Q17. Early indications for 1Q17 are more
CENTEL TB rel SET performance, & rec history
encouraging, with growth in hotel RevPar in several resort locations, particularly amongst five star properties. However, Bangkok hotels have not yet seen full recovery in the MICE business and some four star resorts are seeing tough price competition. We assume some follow through from 4Q16 weakness into 2017 with an overall 2% cut to our net profit forecast. Our revised RevPar growth forecast of 3.4% and restaurant SSSg forecast of 6% are in line with the company’s guidance of 3-4% and 5-6%, respectively. ? Dubai JV added to official pipeline. With contracts now signed, CENTEL
will be adding a 550 room hotel and water park project in Dubai to their official new hotel pipeline. CENTEL is taking a 40% equity stake (implying an investment of c.Bt2.3bn, likely to be funded by debt) and will manage the property. Soft opening is targeted in late 2019, full opening in 2020. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Earnings and target price revision ? EPS forecasts cut by 2% for 2016 & 2017, 2018 unchanged. TP unchanged.
Source: FactSet, Macquarie Research, January 2017 (all figures in THB unless noted)
Price catalyst ? 12-month price target: Bt44.00 based on a DCF methodology.
Analyst(s) Alastair Macdonald, CFA +66 2 694 7753 alastair.macdonald@macquarie.com
Action and recommendation ? We maintain an Outperform rating and Bt44 end-2017 target price. Macquarie Governance and Risk Score (MGRS) On our proprietary Governance and Risk Score Central Plaza Hotel scores in the second quartile of our current universe coverage.
10 January 2017
Macquarie Securities (Thailand) Limited
17

THAILAND
CPF TB Price (at 05:06, 09 Jan 2017 GMT) Valuation - Sum of Parts
Outperform Bt30.25 Bt 38.00
Charoen Pokphand Foods Potential disruption from southern flooding Conclusion ? Thailand reported flooding in 10 southern provinces that together accounted
12-month target Bt 38.00 Upside/Downside % +25.6 12-month TSR % +28.7 Volatility Index Medium GICS sector Food, Beverage & Tobacco Market cap Btm 234,224 Market cap US$m 6,456 Free float % 49 30-day avg turnover US$m 17.5 Number shares on issue m 7,743 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn Bt % Bt % x x Bt % % % x % x 2015A 2016E 2017E 2018E 421.4 11.2 -22.7 10.3 2.2 1.32 0.3 0.29 -60.0 22.8 105.2 0.66 2.2 2.5 1.9 16.3 127.4 2.0 444.1 27.6 147.0 13.7 12.1 1.77 33.7 1.56 443.9 17.1 19.3 0.89 2.9 5.5 10.2 9.2 130.9 1.9 510.9 27.9 1.1 14.4 14.4 1.86 4.9 1.86 18.9 16.3 16.3 0.93 3.1 5.2 11.6 8.7 129.4 1.8 553.7 30.1 7.7 16.3 16.3 2.10 13.1 2.10 13.1 14.4 14.4 1.05 3.5 5.2 12.4 8.0 126.1 1.7
for c21% of Thailand’s total shrimp production in the first nine months of 2016. Assuming no output from southern provinces in Jan and Feb, we estimate Thailand’s shrimp supply to fall by a relatively mild 4% in 2017—as the first quarter’s production is typically low. Besides, high prices are an attractive incentive for shrimp farmers to raise production. We retain our Outperform on CPF with a price target of Bt38.
Impact ? Flooding affects up to 4% of Thailand’s shrimp production. According to
Thai Flood Information Center, there are ten provinces in the Southern region affected by major flooding. Of these 10 provinces, the biggest producers, Nakhonsithammarat and Suratthani (Figure 1), were severely affected by flooding. However, based on the 2016 shrimp output by month (Figure 2) and assuming no production from these two provinces—or at worst from all southern provinces in January and February 2017—we estimate the potential impact on shrimp output at 2% and 4% of the industry’s 2017 shrimp output estimate of 350K tons, respectively. ? First quarter is typically a lean one for Thai shrimp farming. As shrimp
CPF TB rel SET performance, & rec history
grow well in warm weather, the first quarter is typically a lean one for shrimp farming in Thailand (Figure 3). In addition, with major shrimp crops usually starting in February-March or July-August, we expect limited impact on shrimp production. As such, we maintain our view on CPF’s ability to turn around its shrimp business in 2017. See our initiation report ‘World’s Kitchen at a Bargain’, published on 4 January 2017. ? High shrimp price remains to be a strong incentive for shrimp farmers
(figure 4). Therefore, flooding may only lead to delay shrimp farming in the affected provinces. As a result, we believe demand for CPF’s feed and baby shrimp should remain there.
Earnings and target price revision ? No change Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Price catalyst ? 12-month price target: Bt38.00 based on a Sum of Parts methodology. ? Catalyst: Profit contribution from shrimp business and Bellisio; gains in CPALL
Source: FactSet, Macquarie Research, January 2017 (all figures in THB unless noted)
share price
Action and recommendation ? Given that we expect the impact from flooding to be limited, we maintain our
Analyst(s) Chalinee Congmuang +66 2 694 7993 chalinee.congmuang@macquarie.com
Outperform recommendation for CPF at a SOTP-TP of Bt38.
10 January 2017
Macquarie Securities (Thailand) Limited
18

TAIWAN
9933 TT Price (at 05:30, 10 Jan 2017 GMT) Valuation - Sum of Parts
Neutral NT$49.45 NT$ 45.0055.00
CTCI A repeat of 2014? Event ? We downgrade CTCI to Neutral from Outperform, after its share price went up
12-month target NT$ 50.00 Upside/Downside % +1.1 12-month TSR % +7.4 Volatility Index Low GICS sector Capital Goods Market cap NT$m 37,745 Market cap US$m 1,176 Free float % 84 30-day avg turnover US$m 1.4 Number shares on issue m 763.3 Investment fundamentals Year end 31 Dec Revenue Reported profit Adjusted profit EPS rep EPS rep growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 67,058 70,494 74,682 84,014 m 2,041 2,368 2,671 3,127 m 2,571 2,292 2,671 3,127 NT$ 2.68 3.10 3.50 4.10 % 7.5 15.6 12.8 17.1 x 18.4 15.9 14.1 12.1 x 14.6 16.5 14.1 12.1 NT$ 2.40 2.78 3.13 3.67 % 4.9 5.6 6.3 7.4 % 5.1 6.6 6.3 6.9 % 15.1 13.3 15.0 16.9 x 8.9 6.8 6.7 5.9 % 0.7 -33.9 -37.5 -39.5 x 2.2 2.1 2.1 2.0
36% in 2016 (vs Taiex +11%), and cut our TP to NT$50.0 from NT$59.0, as we cut our 2017-18E recurring EPS forecasts by 14-15% to reflect expected slower revenue bookings.
Impact ? Expect slower profit booking in 2017. CTCI’s new contract wins reached
NT$63bn for 8M16, similar to NT$65bn for full-year 2015, thanks to winning two water-treatment projects in Taiwan (NT$45-50bn in total). We expect CTCI to have NT$80-85bn in new contracts and year-end backlog at NT$200210bn, both record-high levels. However, construction time for the watertreatment projects is long at 17 to 35 years, compared with two-three years for typical petrochem projects. As such, we expect slower revenue and profit booking in 2017. ? Expect soft share price performance with slower profit booking. CTCI’s
share price performance tends to be soft when profit growth is slower. Looking at the experience in 2014, the majority of its backlog is from domestic power plant projects, which have construction times of 5-7 years. As such, earnings booking was slower, leading EPS to be under expectation. While we expect its new contract amounts to recover to NT$70-80bn in 2017E, as some project bidding was postponed from 2016 to 2017, more revenue contribution will be seen after 2018. ? Potential bad debt recovery. CTCI announced bad debt recovery of
9933 TT rel TAIEX performance, & rec history
NT$427m from Powertec Energy in 3Q16, thanks to Powertec’s successful fundraising via the issuance of new shares. Currently, CTCI still has NT$959m (NT$1.26/sh) bad debt write-off provision on its books. If Powertec can successfully apply for bank loans, further bad debt recovery would present an upside risk to our 2017E reported EPS forecast. We have not factored any potential gain into our model. (See detail in our Sep 2016 Flashnote.) ? Market’s expectation is high. Our EPS forecasts are now 4-6% below
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Bloomberg consensus in 2017-18E. We believe the slower profit booking is not fully reflected and expect consensus forecasts to be revised down in the coming quarters.
Source: FactSet, Macquarie Research, January 2017 (all figures in NT$ unless noted, TP in TWD)
Earnings and target price revision ? We are cutting our 2016-18E EPS by 7%, 14% and 15%, mainly to reflect
slower revenue booking. We are cutting our TP to NT$50 from NT$59. Analyst(s) Corinne Jian, CFA +886 2 2734 7522 Benson Pan +886 2 2734 7527 Marcus Yang +886 2 2734 7532 corinne.jian@macquarie.com benson.pan@macquarie.com marcus.yang@macquarie.com
Price catalyst ? 12-month price target: NT$50.00 based on a Sum of Parts methodology. ? Catalyst: 4Q16 results to be announced in mid March 2017.
Action and recommendation ? Downgrade to Neutral. CTCI is now trading at 14.1x 2017E recurring PER,
10 January 2017
Macquarie Capital Limited, Taiwan Securities Branch
compared with the 10-year historical average of 13.6x and peer average of 12.2x. Although we like CTCI’s attractive dividend yield (5-6% for 2016/17E), we suggest wait for cheaper valuations before revisiting.
Please refer to page 10 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 19

JAPAN
2432 JP Price (at 05:16, 10 Jan 2017 GMT) Valuation - PER
Outperform ¥2,721 ¥ ¥ % % 1,8004,400
DeNA Co Tempting but timing issues Conclusion ? We cut forecasts 3% to 20% to reflect 1) curation issues 2) Payments
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
3,300 +21.3 +22.7 High Software & Services Market cap ¥m 410,051 Market cap US$m 3,503 Free float % 68 30-day avg turnover US$m 115.8 Number shares on issue m 150.7 Investment fundamentals Year end 31 Mar Revenue EBIT EBIT growth Recurring profit Reported profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn ¥ % x ¥ % % % x % x 2016A 2017E 2018E 2019E 143.7 19.8 -20.0 20.9 11.3 78.5 -31.4 34.7 20.0 0.7 8.4 6.5 9.8 -30.4 2.1 144.3 25.9 30.6 26.4 17.5 120.4 53.4 22.6 40.0 1.5 9.8 8.8 8.6 -32.3 1.9 156.2 40.3 55.6 41.4 24.0 165.7 37.6 16.4 40.0 1.5 14.2 11.1 6.5 -29.8 1.8 170.0 53.6 33.2 54.8 32.2 222.0 33.9 12.3 45.0 1.7 17.5 13.5 5.1 -29.9 1.6
business sale and 3) lower Nintendo smartphone revenues. However we think the share price already reflects these issues and hence upgrade our recommendation from Neutral to Outperform (TP from ¥3500 to ¥3300). But we think positive catalysts to drive the price higher might take a quarter to materialise.
Impact ? 3Q ¥5.4bn OP and guidance worse: We expect DeNA to report 3Q OP of
¥5.4bn (down from ¥7.8bn prior, guidance ¥7.1bn, consensus ¥5.9bn) driven by soft games for browser, flat app games and higher costs. Note the company announced it didn’t expect the curation issues to impact 3Q guidance. We expect 4Q guidance to include the costs of curation +¥2bn/qtr and no Nintendo contribution and hence expect guidance to be < ¥5bn OP. But we assume significant Nintendo improvement QoQ from the launches of Fire Emblem and Animal Crossing and hence expect 4Q OP of around ¥5.2bn (consensus ¥5bn). We are concerned the market may take a negative approach to guidance down QoQ. ? Curation will take a while to fix: We are impressed with the speed the
2432 JP vs TOPIX, & rec history
company has put the independent review panel in place. However this panel is expected to take 3 months or more to conduct its review and provide a recommendation to the board. Hence we expect a slow start-up of this business again in 1Q FY3/18 onwards but losses to be sustained for some time. We believe the speed with which the panel was started will mean regulators are unlikely to prosecute management. Given that case we think the market has already included the negative impact from this issue and hence see little incremental downside. ? Little Less Nintendo: As per our Nintendo upgrade we have assumed
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in JPY unless noted)
slightly lower Nintendo revenues because of a soft start for Super Mario Run. We still think the business will grow as we expect the core 4 titles from FY3/17 and 3-4 in FY3/18 drive up sales and profits. However we still think that developers like GungHo Online Entertainment (3765 JP, ¥257, Outperform, TP: ¥290) could partner with Nintendo which would have a negative impact on DeNA. We currently assume DeNA does 100% of Nintendo mobile games in FY3/17 but falling to 75% in FY3/19.
Earnings and target price revision ? EPS FY3/17E -3%, FY3/18E -20% (Nintendo, Curation impact), FY3/19E -9% ? TP from ¥3500 (17x FY3/18E) to ¥3300 (17x FY3/18-19E).
Analyst(s) David Gibson, CFA +81 3 3512 7880 david.gibson@macquarie.com Aya Haruyama +81 3 3512 7867 aya.haruyama@macquarie.com
Price catalyst ? 12-month price target: ¥3,300 based on a PER methodology. ? Catalyst: Nintendo results 31st Jan, DeNA results Feb 8th
10 January 2017
Macquarie Capital Securities (Japan) Limited
Action and recommendation ? Upgrade to Outperform, but we prefer Nintendo (IP holder).
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 20

JAPAN
9983 JP Valuation - Price Cash Flow
Underperform Price (at 05:16, 10 Jan 2017 GMT) ¥39,720 ¥ 26,00030,000
Fast Retailing Damage assessment Conclusion ? Poor performance relative to peers in December eliminates one of the last
12-month target ¥ 28,100 Upside/Downside % -29.3 12-month TSR % -28.3 Volatility Index High GICS sector Retailing Market cap ¥bn 4,212 Market cap US$m 35,065 Free float % 50 30-day avg turnover US$m 174.1 Foreign ownership % 24 Number shares on issue m 106.0 Investment fundamentals Year end 31 Aug Revenue EBIT EBIT growth Recurring profit Reported profit EPS rep EPS rep growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2016A 2017E 2018E 2019E bn 1,786.5 1,925.4 2,120.0 2,332.8 bn 127.3 173.3 201.7 228.9 % -22.6 36.1 16.4 13.5 bn 90.2 172.1 198.8 225.9 bn 48.1 100.3 116.8 133.4 ¥ 471 983 1,144 1,307 % -56.3 108.7 16.4 14.2 x 84.4 40.4 34.7 30.4 x 84.4 40.4 34.7 30.4 ¥ 350 377 431 520 % 0.9 0.9 1.1 1.3 % 10.7 13.3 14.1 14.7 % 7.1 15.7 16.5 16.8 x 23.8 18.1 15.8 14.1 % -23.4 -23.7 -25.7 -27.1 x 6.7 6.0 5.4 4.8
remaining pillars of the bull case for Fast Retailing.
Impact ? Sales of the core brand were down 5% on a comparable store basis in
December versus the average apparel retailers’ 2.3% decline, even though Fast’s comps were down 11.9 % in the previous year, compared to a 1.5% average decline for peers. ? We had expressed some concerns in our previous report (First Mistake), but
we never imagined the damage would be so swift. We have lowered our Q2 EBIT forecast for the core segment by ¥5.1bn, or 17%, with a fairly high level of confidence. ? We believe, with slightly less confidence, the causes of this change extend to
all of Fast’s segments to varying degrees. These causes include: ? Excessive focus on cold-weather protection; ? Failure to persuade the consumer that there is anything substantially new on offer; and ? Telegraphing to the consumer that everything will eventually be on sale. ? We reduce our Q2 EBIT forecast for the other two segments by a combined
¥4.9bn in local currency terms, bringing the total reduction resulting from revenue and margin shortfalls to ¥10.0bn, or 18% of the previous forecast. ? We also update our forex assumptions to ¥112/USD from ¥102, which added
9983 JP vs TOPIX, & rec history
¥2.3bn in Q2 and ¥2.8bn for the year. We made other minor adjustments, but at this point we are assuming that most of the damage is isolated to Q2. ? Full-year EBIT forecast is lowered 6%, to ¥173.3bn, vs. consensus of ¥178.6.
Earnings and target price revision ? We lower FY8/17 EPS to ¥983 (from ¥1,047); FY8/18 to 1,144 (from 1,206),
and FY8/19 to ¥1,307, (from ¥1,360) forecasts. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Price catalyst ? 12-month price target: ¥28,100 based on a price cash flow methodology. ? Catalyst: Q1 Results announcement January 12
Source: FactSet, Macquarie Research, January 2017 (all figures in JPY unless noted)
Action and recommendation ? There is still significant downside risk to our forecasts if the company’s
Analyst(s) Mike Allen +81 3 3512 7859 mike.allen@macquarie.com
inability to sell at full price and the lack of freshness in the merchandise mix persists.
10 January 2017
Macquarie Capital Securities (Japan) Limited
Please refer to page 11 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 21

MALAYSIA
GENM MK Price (at 08:44, 06 Jan 2017 GMT) Valuation 12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
Neutral RM4.73 RM RM % % 4.80
Genting Malaysia Site visit: new capacity coming online Event ? We maintain our Neutral rating following a site visit to the new transportation
- DCF (WACC 10.8%, beta 1.1, ERP 6.5%, RFR 4.0%, TGR 4.0%)
4.80 +1.5 +3.6 Low Consumer Services Market cap RMm 28,087 Market cap US$m 6,280 Free float % 24 30-day avg turnover US$m 4.0 Number shares on issue m 5,938 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV m m % m m sen % sen % x x sen % % % x % x 2015A 2016E 2017E 2018E 8,395 1,626 -1.6 1,258 1,413 22.2 4.6 24.9 3.0 21.3 19.0 7.1 1.5 6.7 8.0 11.6 0.1 1.4 9,109 1,579 -2.9 1,503 1,503 26.5 19.5 26.5 6.4 17.8 17.8 8.1 1.7 5.7 7.7 11.4 -1.2 1.3 9,848 11,199 1,850 2,324 17.2 25.6 1,634 2,012 1,634 2,012 28.8 35.5 8.7 23.1 28.8 35.5 8.7 23.1 16.4 13.3 16.4 13.3 10.0 11.0 2.1 2.3 6.4 7.7 7.9 9.2 10.0 8.5 3.3 -3.5 1.3 1.2
(Awana Skyway) and retail (Sky Avenue) capacity at the Malaysian casinoresort (80-85% of group EBITDA), key elements of GENM’s RM10bn 10-year Genting Integrated Tourism Plan (GITP) unveiled Dec 2013. Whilst confirming expectations of a significant qualitative uplift for the resort, the launch delays appear set to continue and will push back forecast positive earnings impact to 2H17. Coupled with uncertainties re potential levies vis-à-vis stretched fiscal position/coming elections and pending evidence of a required sharp rise in arrivals to fill impending new capacity, we expect share price to continue to struggle to decisively break out of its tradeable 3-year “value trap” price range.
Impact ? Awana Skyway: Originally expected to be operational early 4Q, the Awana
Skyway cable car system opened 22 Dec and is a tangible improvement in speed (12 mins from mid-hill to the top) over the older Genting Skyway (now shut). The adjacent Genting Premium Outlets complex, targeted for a 4Q16 opening to build traffic ahead of Christmas/CNY, is still under construction. ? Sky Avenue: Awana Skyway docks on 4th floor of the new Sky Avenue retail
complex, passing over the theme park site (construction evident) on the way. Sky Avenue has 2 floors (retail and F&B) in operation currently with critical mass, including opening the Sky Casino space, seeming likely only into 2H17. ? Other observations: crowd moderate (post-Dec peak), and mixed – growing
importance of Chinese market is underpinned by plentiful Mandarin signage / menus. Broad security has upped, including scanning for Awana Skyway.
GENM MK rel KLCI performance, & rec history
Earnings and target price revision ? We revise earnings forecast as follows: i) FY16 earnings raised 17%, mainly
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
reflecting net tax write-back in 3Q16 which puts YTD 3QFY16 effective tax rate at 12% (2015: 24%) but also a resilient YTD showing by the UK casino operations – our FY16 forecast is 4% above consensus; and ii) a 6% cut to our FY17 earnings forecast but a 4% increase in our FY18 earnings forecast – the divergence is due to the factoring in of delays in aforementioned capacity introductions that pushes related earnings upswing into 2H17; our FY17 earnings forecast is in line with consensus whilst FY18 is 3% above. The flowthrough to our SOTP-based TP is an increase of 20 sen/share, to rM4.80. ? GENM completed the sale of its 16.9% stake in Genting (HK) in 4Q16 for
Source: FactSet, Macquarie Research, January 2017 (all figures in MYR unless noted)
USD415mn (c.RM1.7bn then). Whilst net cash position rises to RM800mn, we do not expect repatriation or dividend boost (forecast payout to remain around 30%) given ongoing capex in Malaysia and growth initiatives in the US.
Analyst(s) Anand Pathmakanthan +60 03 2059 8993 anand.pathmakanthan@macquarie.com
Price catalyst ? 12-month price target: RM4.80 based on a Sum of Parts methodology. ? Catalyst: seamless execution re new capacity introductions, substantial hike
10 January 2017
in dividend payout, rising foreign arrivals, less-volatile overseas operations.
Macquarie Capital Securities (Malaysia) Sdn. Bhd.
Action and recommendation ? Maintain Neutral rating. TP raised to RM4.80 (from RM4.60).
Please refer to page 11 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 22

INDIA
HAVL IN Price (at 08:32, 09 Jan 2017 GMT) Valuation
Outperform Rs360.55 Rs 404.33
Havells India Copper cushions volume hit Event ? We upgrade Havells to Outperform from Neutral with a price target of Rs404
- DCF (WACC 13.0%, beta 1.0, ERP 5.0%, RFR 8.0%)
12-month target Rs 404.00 Upside/Downside % +12.1 12-month TSR % +13.8 Volatility Index Low/Medium GICS sector Capital Goods Market cap Rsm 224,983 Market cap US$m 3,345 Free float % 33 30-day avg turnover US$m 6.1 Number shares on issue m 624.0 Investment fundamentals Year end 31 Mar Revenue EBIT EBIT growth Recurring profit Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2016A 2017E 2018E 2019E m 54,369 57,866 67,339 78,359 m 6,557 6,535 8,493 10,149 % 5.8 -0.3 30.0 19.5 m 7,118 7,565 9,618 11,447 m 7,154 5,485 6,925 8,242 m 5,130 5,485 6,925 8,242 Rs 11.46 8.79 11.09 13.20 % 53.9 -23.3 26.3 19.0 Rs 8.22 8.79 11.09 13.20 % 10.3 6.9 26.3 19.0 x 31.5 41.0 32.5 27.3 x 43.9 41.0 32.5 27.3 Rs 6.00 5.27 6.66 7.92 % 1.7 1.5 1.8 2.2 % 17.2 15.9 19.1 20.7 % 20.4 20.1 23.8 26.4 x 28.1 27.1 21.4 18.0 % -50.8 -53.9 -58.1 -61.4 x 8.5 8.0 7.5 6.9
(previously Rs418) as revenue growth going forward should be supported by higher copper prices and market share gains from the unorganised sector. Government initiatives on housing could add tailwinds in late FY18. We believe the recent correction builds in a near-term earnings hit.
Impact ? Industry checks hint at a limited impact of demonetisation: Based on
?
?
HAVL IN rel BSE Sensex performance, & rec history
?
?
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in INR unless noted)
discussions with multiple distributors, we believe Havells’ Q3 earnings are likely to be not be as bad as feared due to demonetisation. One of the key reasons is increased copper prices, which have led to a sharp improvement in performance of the cable & wire business. We believe there is some stocking up of cables by the channel. Another key factor is market share gains from un-organised players that witnessed disruptions in the supply chain post demonetisation. ? Margins to be impacted in the short term: Our industry checks suggest that the company has offered additional incentives to the trade on volumes and payments, which should impact margins in the near term. However, working capital should remain un-changed. Copper to be saviour for FY18 too: Copper prices have increased 15% in INR terms since the beginning of Q3. This segment has seen very slow growth of 1.5% in 1H despite sharp volume growth. The company has also taken price hikes in other key segments, like Fans, to factor in higher raw material costs. Housing revival possible in late FY18 on the back of lower interest rates: Banks have sharply reduced home loan rates in the last week or so. Our economist expects a further reduction of 50-75ps in interest rates. We expect the government to increase the tax deduction on home loans. It has also announced interest subvention schemes for very small ticket-size housing loans. All these measures may help semi-urban and rural housing. New product introductions continue: Havells will have a larger push of its air-cooler product in 2017. It has also introduced a home automation product range, which should start to have some impact only in 2018. Key call is on cash hoard: Havells is holding cash of Rs15.1bn after the sale of the Sylvania business. The company has indicated that it is willing to look at inorganic options. Entry into an un-related segment, where the company cannot leverage its distribution strength, and premium brand positioning would be deemed negative.
Earnings and target price revision ? We reduce our FY17 earnings by 14% due to a volume hit. Our FY18/19E
EPS is cut marginally by 6% /2%. We lower our target price by 3.4%. Analyst(s) Inderjeetsingh Bhatia +91 22 6720 4087 inderjeet.bhatia@macquarie.com Sumangal Nevatia, CFA +91 22 6720 4093 sumangal.nevatia@macquarie.com
Price catalyst ? 12-month price target: Rs404.00 based on a PER methodology. ? Catalyst: Higher sales growth for the domestic business
Action and recommendation ? Upgrade to Outperform: We believe the company’s core fundamentals
10 January 2017
Macquarie Capital Securities India (Pvt) Ltd
remain intact with its premium positioning, ability to expand its product portfolio and dealer network and lean working capital. We think the 18% correction over the last 3 months vs. Nifty at -5% builds in a short-term impact on earnings. Upgrade to Outperform.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 23

INDIA
IIB IN Price (at 08:35, 10 Jan 2017 GMT) Valuation - DDM
Outperform Rs1,153.10 Rs 1,290.00 1,290.00 +11.9 +12.5 Low Banks 688,553 10,091 81 18.6 597.1
IndusInd Bank 3QFY17 – Defying demonetization blues! Event ? IndusInd reported a robust set of 3QFY17 numbers, defying all potential
12-month target Rs Upside/Downside % 12-month TSR % Volatility Index GICS sector Market cap Rsm Market cap US$m Free float % 30-day avg turnover US$m Number shares on issue m Investment fundamentals Year end 31 Mar Net interest Inc Non interest Inc Underlying profit PBT PBT growth Recurring profit Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE P/BV bn bn bn bn % bn bn bn Rs % Rs % x x Rs % % % x
concerns with respect to demonetization. Margins held up well, loan growth was strong and so was asset quality. PAT was up 29% YoY at Rs7.5bn, beating our estimates of Rs7bn. ? We continue to like IndusInd for the high degree of predictability in its
earnings, diversified loan book/fee streams and best-in-class growth trajectory. Reiterate our Outperform rating on the stock with unchanged TP.
Impact 60.0 40.4 53.7 43.6 25.8 43.6 28.8 28.8 48.42 19.1 48.42 19.1 23.8 23.8 6.00 0.5 1.8 15.2 3.5 75.2 49.6 67.6 55.5 27.2 55.5 36.7 36.7 61.60 27.2 61.60 27.2 18.7 18.7 7.00 0.6 1.9 16.9 3.0 95.0 60.1 85.3 70.8 27.5 70.8 46.7 46.7 78.53 27.5 78.53 27.5 14.7 14.7 7.50 0.7 1.9 18.4 2.5
2016A 2017E 2018E 2019E 45.2 33.0 43.0 34.7 28.1 34.7 22.9 22.9 40.67 19.6 40.67 19.6 28.4 28.4 5.20 0.5 1.8 16.1 4.0
? What is the impact of demonetization? IndusInd witnessed a 38% YoY rise
in deposits, with CASA growing by 46% YoY (SA deposits up 56% YoY). What is commendable is the fact that IndusInd delivered 25% YoY loan growth when systemic growth is languishing at ~6% levels. Clearly, indicates the strong market share gains that are accruing. Over the medium term, the management sees multiple opportunities opening up: 1) access to segments which were hitherto dominated by cash (and hence tough for banks to grow, e.g. 2-wheelers); 2) large opportunity for distributors of financial assets even if a small proportion of the new deposit flow goes to other financial assets (e.g. MFs, insurance); and 3) refinancing of credit – from bonds to banks as lending rates are declining sharply. ? Asset quality – no concerns: GNPLs remained stable at 0.9% and
IIB IN rel BSE Sensex performance, & rec history
management indicated it has not seen any material changes to the overall asset quality outlook. Even in the MFI segment, collections have bounced back to almost normal levels (efficiency of >99%) and they remain quite confident on this segment medium term. Credit costs were low at 57bps and the slippage ratio stable at ~1.4%. ? NIMs hold up well, growth is diversified: In an environment of fluctuating
liquidity conditions, IndusInd has done a commendable job of protecting its NIMs at 4% level. Additionally, growth was well diversified with consumer (adj. for business banking) now at 49% of the mix. The vehicle portfolio was up 21% YoY, while the non-vehicle retail portfolio was up 42% YoY. Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
? Qualitative aspects improving: Tier1 consumption has slowed with flat
Source: FactSet, Macquarie Research, January 2017 (all figures in INR unless noted)
CET1 QoQ (despite strong growth) and RWA/Total assets is now at 78.9%.
Earnings and target price revision ? We tweak our FY17E/FY18E earnings by ~1%. Our TP remains unchanged.
Analyst(s) Suresh Ganapathy, CFA +91 22 6720 4078 suresh.ganapathy@macquarie.com Sameer Bhise +91 22 6720 4099 sameer.bhise@macquarie.com
Price catalyst ? 12-month price target: Rs1,290.00 based on a DDM methodology. ? Catalyst: strong asset quality and robust earnings growth
10 January 2017
Macquarie Capital Securities India (Pvt) Ltd
Action and recommendation ? IndusInd remains one of our top picks in the Indian bank space. Maintain
Outperform.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 24

CHINA
300433 CH Price (at 07:00, 09 Jan 2017 GMT) Valuation - PER
Outperform Rmb25.12 Rmb 36.00
Lens Tech (A-Share) Shining future ahead Event ? We reaffirm the uptrend of glass casing/3D glass in China smartphones,
12-month target Rmb 36.00 Upside/Downside % +43.3 12-month TSR % +44.6 Volatility Index Very High GICS sector Technology Hardware & Equipment Market cap Rmb 54,812 m Market cap US$m 7,916 Free float % 9 30-day avg turnover US$m 11.8 Number shares on issue m 2,182 Investment fundamentals Year end 31 Dec Revenue EBITDA EBITDA growth EBIT EBIT growth Reported profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 17,227 16,006 24,430 34,869 m 3,929 3,988 5,350 7,122 % nmf 1.5 34.2 33.1 m 1,867 1,643 2,974 4,698 % nmf -12.0 81.0 58.0 m 1,543 1,376 2,554 4,092 Rmb 0.78 0.70 1.29 2.07 % nmf -10.8 85.6 60.2 x 32.2 36.1 19.5 12.1 Rmb 0.00 0.37 0.33 0.61 % 0.0 1.5 1.3 2.4 % 9.1 7.9 12.7 17.2 % 15.0 12.8 21.6 30.1 x 38.5 13.0 9.8 7.3 % 36.4 22.5 11.6 3.8 x 14.3 4.5 4.0 3.4
given our recent checks, in line with our in-depth theme report on glass/wireless charging (report link, November 25). We reiterate our Outperform rating on Lens Tech. The stock currently trades at 20x our 2017E EPS, which is below its historical trading average of 28x, and we believe we are still in the early stages of the product cycle.
Impact ? Increasing glass in China smartphones: In late 2016/early 2017, we have
continued to see new China smartphones featuring glass/ceramic/3D glass (Fig 1). For example, 3D cover glass can be seen in flagship models of Huawei, Vivo and Gionee, and glass/ceramic casings are seen in Huawei, Xiaomi, and Meizu. We believe glass features will continue to increase in smartphones, as it brings differentiation and new excitement to consumers and is also wireless chargeable and radio frequency transparent. ? 1Q17 preview – guide revenue up double digits YoY: Despite a slow
season in 1Q17, management is confident it can deliver over 30% YoY increase in revenues given increasing glass in China smartphones. The guidance is significantly stronger than that in 1Q16, which was down 36% YoY and is also largely in line with our estimates of +39% YoY. ? Leader to be the main beneficiary: Lens Tech is a leader in smartphone
300433 CH rel CSI 300 performance, & rec history
cover glass and glass casing and supplies to both leading global-tier brands and China smartphones, showing evidence of its product quality in mass production. The company enjoys dominant share in new smartphone models featuring glass and its shipment gap vs the second-tier suppliers widened to 4x in 3Q16 from 3x in 2Q16, in line with our view that market leaders should be the largest beneficiaries in the glass casing/3D glass uptrend. ? Ceramic casing, potential upside in the future: Lens Tech enjoys a leading
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
position in ceramic casing, witnessed by its market share in ceramic-casing smartphones. Ceramic is harder and more durable compared to glass, and thus we believe it enjoys a higher gross margin compared to glass casing. In addition, Lens Tech makes ceramic blanks in-house, further securing its leading position. Ceramic casing still has a small penetration rate and we have not yet factored it in our model.
Source: FactSet, Macquarie Research, January 2017 (all figures in Rmb unless noted, TP in CNY)
Earnings and target price revision ? No change.
Analyst(s) Verena Jeng +852 3922 3766 Allen Chang +852 3922 1136 Chris Yu +86 21 24129024 verena.jeng@macquarie.com allen.chang@macquarie.com chris.yu@macquarie.com
Price catalyst ? 12-month price target: Rmb36.00 based on a PER methodology. ? Catalyst: 4Q16 results.
Action and recommendation ? Remain Outperform.
10 January 2017
Macquarie Capital Limited
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 25

TAIWAN 6491 TT Not rated
MacVisit: Pegavision Mgmt sees solid order growth ? Pegavision is the contact lens subsidiary of Pegatron (4938 TT, NT$78.00,
Stock price as of 06/01/2017 NT$ 70.5 GICS sector Healthcare equipments & Service Market cap US$m 132 Avg Value Traded (3m) US$m 0.1 12m high/low NT$ 89.0/63.7 PER LTM1H16 x 28.9x P/BV 1H16 x 3.7x
Outperform, TP: NT$91.00) a leading EMS company. We talked to management regarding an update on the business outlook after our first MacVisit note published in February 2016 (see MacVisit: Pegavision - New contact lens player from Taiwan). ? About 45% of Pegavision’s sales are from the Taiwan OBM (retail brand)
Historical financials YE Dec (US$m) Revenue % growth EBITDA % growth EPS % growth EBIT Margin 2013A 589 157% 32 -165% 1.10 -188% 5.4% 2014A 921 56% 59 88% 1.29 17% 6.5% 2015A 1,308 42% 137 130% 2.12 64% 10.5% 1H16 776 30% 223 106% 1.22 28% 12.6%
market and the remaining ~55% from ODM (contract manufacturing) business, primarily in Japan, but also China and Europe. Daily lens account for around 90% of the company’s sales; colour lens also makes up the bulk of sales. Pegavision was founded in 2009 and floated on the Emerging board in 2014.
Event ? Management see solid orders ahead, especially from Japan. Pegavision’s
Source: Company data, FactSet, January 2017
Pegavision historical price NT$
120 110 100
sales growth accelerated to 50% YoY in 4Q16, from 19% in 9M16 and management continue to tone positive regarding the outlook. ReVIA, the new contact brand manufactured by Pegavision, was the best-selling daily contact lens product on Rakuten, the largest online shopping platform in Japan, after being launched in September 2016 (see details here). ReVIA hired Namie Amuro, a tier 1 Japanese singer as the brand ambassador. This reinforces our view that the contact lens is the business of marketing and distribution, not manufacturing or technology. ? Company confident in its technology. Management continue to show
90 80 70
6491 TT Equity
TWSE rebased
Source: Macquarie Research, January 2017
confidence regarding their technology. They use a ‘sandwich manufacturing process’ in their colour lens products, i.e. a coloured layer is embedded in between two non-coloured layers so that the coloured layer does not directly touch the eyes. The full manufacturing process is highly automated, with management citing the expertise of the parent company. This higher automation translates to better yield and lower production cost, it claims. Mgmt also believe that the products like theirs that manufactured based on better technology can gain shares amid the trend of stricter requirements from regulators. ? Company confident of new ODM/OEM client wins. Based on their claims of
Analyst(s) Marcus Yang +886 2 2734 7532 Corinne Jian, CFA +886 2 2734 7522 marcus.yang@macquarie.com corinne.jian@macquarie.com
better technology, mgmt are confident of continuing market share gains in the ODM/OEM business. According to the company, they have penetrated into ‘most Japanese brands’, especially the private labels of cosmetic stores, and will continue this strategy going forward. They deem the overall ODM/OEM business as the driver for the company following stabilization of the domestic OBM business. And they will continue to ramp new capacity to fulfil demand from new orders. We highlighted the competitive pressure of this industry in our sector report published in February 2016 (Contact lens sector - Hunger game kicks off).
Financials and valuation ? Pegavision’s 2016 sales grew by 27%. In 1H16, operating income rose 51%
YoY. The company was in a net cash position as of 1H16. ? The stock is now trading at 29x LTM2Q16 PER with 3.7x P/BV (1H16). There
10 January 2017
Macquarie Capital Limited, Taiwan Securities Branch
is a lack of broker coverage. For comparison, the Taiwan contact lens sector is trading at a 2016E PER of 18x and 4.4x P/BV.
Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 26

TAIWAN
2454 TT Price (at 13:10, 09 Jan 2017 GMT) Valuation - PER
Outperform NT$217.00 NT$ 280.00
MediaTek Pressure in telco channels, but margin recovery intact Event ? We believe MediaTek is currently in talks with China telco companies
12-month target NT$ 280.00 Upside/Downside % +29.0 12-month TSR % +35.1 Volatility Index Medium GICS sector Semiconductors & Semiconductor Equipment Market cap NT$m 343,294 Market cap US$m 10,733 30-day avg turnover US$m 27.0 Number shares on issue m 1,582 Investment fundamentals Year end 31 Dec Revenue Reported profit EPS rep EPS rep growth PER rep Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn NT$ % x NT$ % % % x % x 2015A 2016E 2017E 2018E 213.3 26.0 16.60 -44.8 13.1 11.00 5.1 7.4 10.6 8.1 -42.2 1.4 275.5 23.9 15.27 -8.0 14.2 10.69 4.9 6.8 10.1 8.2 -35.2 1.5 287.3 29.2 18.68 22.3 11.6 13.07 6.0 6.8 12.2 7.7 -34.9 1.4 301.1 36.3 23.24 24.4 9.3 16.27 7.5 8.7 14.3 6.1 -36.1 1.3
regarding 2017 product plans. However, we don’t expect to see meaningful progress in the near term, given the alternative of Qualcomm.
Impact ? Product line-up to improve in 2H17: Compared to the largest chip supplier,
Qualcomm, MediaTek’s current product line-up is only lightly Cat-7 but mostly below Cat-7. We believe MediaTek’s product line-up will improve dramatically in 2H17, and that in time the main product line up will feature Cat-7 and Cat12. We believe the China telco companies will be satisfied with MediaTek’s product plan in 2H17 but not now. ? Slight impact on margins but 2H17 recovery intact: We believe the
competition at China operator channels may cause some shipment and margin pressure. However, our thesis of a margin recovery in 2H17 is unchanged. We now model a gross margin bottom of 34.5% in 2Q17, followed by a recovery to 37% in 2H17. ? Samsung orders on track: We believe Samsung will start to bundle
2454 TT rel TAIEX performance, & rec history
MediaTek’s chips instead of Spreadtrum’s. Also, we believe gross margin should be above the corporate average, as Spreadtrum failed the product qualification, and MediaTek became the only company that participated.
Earnings and target price revision ? We factor in 4Q16 preliminary sales and reduce 2017/18 earnings by 8%/8%
on lower shipments and margin assumption. Accordingly, we adjust target price from NT$300 to NT$280 on unchanged 15x 2017E PE.
Price catalyst Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
? 12-month price target: NT$280.00 based on a PER methodology. ? Catalyst: monthly sales, earnings results/outlook, smartphone chip demand.
Source: FactSet, Macquarie Research, January 2017 (all figures in NT$ unless noted, TP in TWD)
Action and recommendation ? We believe MediaTek’s smartphone shipments will continue to grow, thanks
Analyst(s) Macquarie Capital Limited, Taiwan Securities Branch Patrick Liao +886 2 2734 7515 patrick.liao@macquarie.com Lynn Luo +886 2 2734 7534 lynn.luo@macquarie.com Jeffrey Ohlweiler +886 2 2734 7512 jeffrey.ohlweiler@macquarie.com Macquarie Capital Limited Allen Chang +852 3922 1136 allen.chang@macquarie.com
to new product launches and contribution from Samsung starting in 2017. We also expect MediaTek’s margins to gradually improve in 2017/18. We maintain an Outperform rating with a reduced target price of NT$280 (15x 2017E PE).
10 January 2017
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 27
GLOBAL
NKE US Price (at 21:02, 06 Jan 2017 GMT) Valuation - PER
Outperform US$53.91 US$ 75.00 75.00 +40.6
NIKE The Sun Clearing the Inventory Clouds Event ? Today we assess 2Q17 inventories by region from a Days-in-Inventory
12-month target US$ 12-month TSR % GICS sector Consumer Durables & Apparel Market cap US$m 30-day avg turnover US$m Number shares on issue m Investment fundamentals Year end 31 May Revenue EBIT Reported profit Adjusted profit EPS adj EPS adj growth PER adj
89,770 517.3 1,665
standpoint following the 10Q release Thursday night. In our two most recent inventory analyses, The Sun’s Gravitational Pull and The Sun’s Gravitational Fluctuation, we outlined that Nike’s sheer scale is having a gravitational pull on the US sportswear sector. Good news – the inventory clouds are clearing and we assess the situation has improved significantly detailed below.
Impact ? Section 1 – Takeaways on Gross Margin: On pages 2-3 we provide our
2016A 2017E 2018E 2019E m 32,376 34,809 38,531 42,895 m 4,502 4,833 5,951 7,244 m 3,760 4,083 4,716 5,750 m 3,760 4,083 4,716 5,750 US$ 2.16 2.42 2.88 3.59 % 16.5 12.1 19.0 24.8 x 25.0 22.3 18.7 15.0
NKE US vs S&P 500, & rec history
takeaways on Net Selling Prices, Product Costs, Off-Price, DTC and FX for the second quarter’s gross margin. The shift into COGS from SG&A is bucketed in the “other” gross margin line item. We estimate the shift in SG&A into COGS represents a 45bps drag to gross margins for FY17E. The six line items for the gross margin add up to 120bps of pressure versus the reported 140bps. The variance of 20bps relates to various discrete line item headwinds. In addition, the gross margin line items by region do not account for Nike’s hedging program. ? Section 1 – Revisiting North America Inventories: When the 2Q16 10Q came
out last year we estimated in Spring Cleaning that North America excess inventory was approximately $400MM out of the $2.389B. For 1Q17 we estimated in The Sun’s Gravitational Fluctuation that there was $200MM in excess inventory based on Days-in-Inventory. Today we estimate there is a $140MM in excess inventory out of the $2.290B in North America inventory detail on pages 3-5. ? Section 2 – How About Western Europe? With the 10K, we observed that 4Q16 Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Capital (USA), January 2017 (all figures in USD unless noted)
Analyst(s) Macquarie Capital (USA) Inc. Laurent Vasilescu +1 212 231 8046 laurent.vasilescu@macquarie.com Dan Isaacson, CFA +1 212 231 6195 dan.isaacson@macquarie.com Macquarie Capital Limited Linda Huang, CFA +852 3922 4068 linda.huang@macquarie.com Terence Chang +852 3922 3581 terence.chang@macquarie.com Macquarie Capital Limited, Taiwan Securities Branch Corinne Jian, CFA +886 2 2734 7522 corinne.jian@macquarie.com Benson Pan +886 2 2734 7527 benson.pan@macquarie.com
Western Europe inventories were at $929MM, up 33% YoY. Then for 1Q17, Western Europe inventories were up 40% YoY. Today inventories are up 32% YoY. After the 10Q came out Thursday night, we caught up with Nike on Friday and it is our understanding that two-thirds of the growth is F- related. We recommend investors take a look at FY12 Western European inventories when the Euro collapsed. Inventories increased over 40% YoY before they started decreasing YoY. Today we estimate on pages 6-8 that there is $71MM in FX-adjusted excess inventory out of the $994MM in total Western Europe inventory. ? Section 3 – Converse All Star! We estimated last quarter there was $70MM in
excess inventory at Converse. We do note that there was an inventory build for the recent launch of the Converse Modern Collection. Today we estimate there is $68MM in excess inventory out of the $313MM in Converse inventory.
Earnings and target price revision ? No change
Price catalyst ? 12-month price target: US$75.00 based on a PER methodology. ? Catalyst: Expected to report 3Q17 results in March
9 January 2017
Action and recommendation ? We anticipate with inventory improvement gross margins will improve as well.
Please refer to page 14 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 28

THAILAND
PTTEP TB Price (at 14:02, 10 Jan 2017 GMT) Valuation - NAV
Neutral Bt96.50 Bt 85.00 85.00 -11.9 -9.8 High Energy 382,140 10,716 34 22.8 3,960
PTT Exploration & Production Five-year capex & production guidance Event ? PTTEP announced its five-year investment plan for 2017-21. Compared to the
12-month target Bt Upside/Downside % 12-month TSR % Volatility Index GICS sector Market cap Btm Market cap US$m Free float % 30-day avg turnover US$m Number shares on issue m Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV bn bn % bn bn Bt % Bt % x x Bt % % % x % x
previous guidance we note that there is a c.30% p.a. capex cut for 2017-19. The company also guided for a production decline of 4% CAGR over the next five years. In our view, the capex cut and the declining production outlook is partly a result of the delay in the resolution of the Bongkot concession issue as well as the challenges in the development of the LNG asset in Mozambique. We remain cautious on the company particularly because of the uncertainty around the concession issue. Maintain Neutral rating.
2015A 2016E 2017E 2018E 188.4 40.9 -56.2 -31.6 13.4 -7.96 nmf 3.39 -71.9 nmf 28.5 3.00 3.1 5.5 3.3 2.8 -2.2 0.9 150.8 28.4 -30.6 15.7 15.7 3.96 nmf 3.96 16.8 24.4 24.4 1.47 1.5 4.0 3.8 3.5 -3.4 0.9 188.5 41.1 44.7 19.6 19.7 4.95 25.1 4.95 25.2 19.5 19.5 1.98 2.1 5.8 4.7 2.9 -4.0 0.9 190.0 49.7 20.9 24.8 24.8 6.25 26.3 6.26 26.3 15.4 15.4 2.50 2.6 6.7 5.7 2.8 -5.4 0.9
Impact ? We see risk of declining reserves: The forecast for 2016 capex stands at
US$1.1bn which is 47% lower than the budget planned at the beginning of 2016 and 21% below the revised number in November. According to the company this was a result of the delay in investment of new projects including Mozambique LNG. In our view, this poses risk to the reserve replacement ratio and the company’s reserve life. As of the beginning of 2016, PTTEP proved reserves were ~6 years, which was already quite low. According to PTTEP the FID of Mozambique LNG, which is now expected at the end of 2017, would have added ~1.5 years of reserves to the company. ? Organic production declining slightly faster than previously expected:
PTTEP TB rel SET performance, & rec history
In the previous five-year plan, the company guided for a production decline rate of 2% five-year CAGR. In the latest guidance, the decline is estimated at 4% CAGR. We believe this is partly due to the fact that the company has assumed that it will not be awarded the Bongkot concession which results in a lower capex estimate as thus potentially lower production expectation. According to the company, if the Bongkot concession is extended, this will increase capex by ~US$200mn p.a. and lifts the production rate in 2021. ? Cost savings may have peaked: The OPEX guidance declined c.9% when
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
compared to the previous guidance. This reflects the success of the costsaving strategy seen in 2016. However, we note that based on the latest guidance, OPEX per barrel is increasing by 17% YoY from 2016 to 2017. This may result in the rise in cash cost of similar magnitude. ? Stock is inexpensive but outlook unclear: Currently PTTEP is trading at
Source: FactSet, Macquarie Research, January 2017 (all figures in THB unless noted)
2017E EV/EBITDA of 3x which is cheap when compared regional peers of 45x. However as mentioned above, the risks of declining reserves and production prevent us from being more bullish on the stock.
Earnings and target price revision ? No change.
Analyst(s) Duke Suttikulpanich +65 6601 0148 duke.suttikulpanich@macquarie.com
Price catalyst ? 12-month price target: Bt85.00 based on a NAV methodology. ? Catalyst: concession issue breakthrough, M&A to add reserves, oil price hike.
10 January 2017
Macquarie Capital Securities (Singapore) Pte. Limited
Action and recommendation ? Maintain Neutral rating.
Please refer to page 5 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 29

JAPAN
1377 JP Price (at 05:16, 10 Jan 2017 GMT) Valuation - DCF
Outperform ¥3,315 ¥ ¥ % % 3,2003,900
Sakata Seed 2H Plan Appears Conservative Conclusion ? Sakata Seed announced upward revisions to 1H and full-year guidance after
12-month target Upside/Downside 12-month TSR Volatility Index GICS sector
3,800 +14.6 +15.4 Medium Food, Beverage & Tobacco Market cap ¥m 160,482 Market cap US$m 1,382 30-day avg turnover US$m 4.0 Number shares on issue m 48.41 Investment fundamentals Year end 31 May Revenue EBIT EBIT growth Recurring profit Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield EV/EBITDA Net debt/equity P/BV 2016A 2017E 2018E 2019E m 58,773 57,500 60,100 63,000 m 7,317 8,000 9,500 11,500 % 53.1 9.3 18.8 21.1 m 7,554 8,200 10,000 12,000 m 5,215 5,700 7,000 8,400 m 5,267 5,700 7,000 8,400 ¥ 115.9 126.7 155.5 186.7 % 36.5 9.3 22.8 20.0 ¥ 117.0 126.7 155.5 186.7 % 27.7 8.2 22.8 20.0 x 28.6 26.2 21.3 17.8 x 28.3 26.2 21.3 17.8 ¥ 25.0 26.0 30.0 35.0 % 0.8 0.8 0.9 1.1 x 14.8 14.0 12.0 10.1 % -15.1 -17.5 -18.3 -19.9 x 1.7 1.6 1.5 1.4
the market close on 10 January. We think the 2H FY5/17 OP guidance (¥1.4bn vs. ¥2.3bn booked in 2H FY5/16) is conservative. ? Sakata Seed raised OP guidance from ¥3.9bn to ¥5.6bn for 1H and ¥6bn to
¥7bn for FY5/17 (vs. our ¥8bn forecast). It is scheduled to announce 1H results on 12 January.
Impact ? The ¥5.6bn in 1H OP is slightly below the ¥6bn estimate from Nikkei’s
forecast article on 3 December (2016). ? While the roughly ¥800mn in 2Q OP is about ¥300mn less than a year ago
(¥1.15bn), we think the difference can be largely explained by 1) removal of shipments of carrot seeds to China booked on accelerated basis in 1Q (about ¥500mn) from 2Q and 2) modest weakness in domestic wholesale and retail businesses. ? We believe Sakata Seed maintained sales gains on a local-currency basis for
major items in the overseas business, such as broccoli, and do not see change in the overseas growth story. ? New guidance effectively lowers the 2H OP target by ¥700mn, though we
think Sakata Seed uses conservative values for spending progress, inventory valuation, and other items.
1377 JP vs TOPIX, & rec history
Earnings and target price revision ? We maintain our earnings forecasts and ¥3,800 price target.
Price catalyst ? 12-month price target: ¥3,800 based on a Price to Book methodology. ? Catalyst: Manifestation of overseas growth potential at each results
announcement
Action and recommendation Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in JPY unless noted)
? We reiterate our Outperform rating.
Analyst(s) Satsuki Kawasaki +81 3 3512 7879 satsuki.kawasaki@macquarie.com Maiko Kutsuna +81 3 3512 7871 maiko.kutsuna@macquarie.com
10 January 2017
Macquarie Capital Securities (Japan) Limited
Please refer to page 5 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 30

CHINA
Xinjiang Goldwind (A-Share) Neutral Rmb16.79 Rmb 15.70
002202 CH Price (at 05:21, 09 Jan 2017 GMT) Valuation - DCF (WACC 7.6%)
Set to embrace the rising wind Event ? In contrast to market expectation of low-single-digit growth in wind
12-month target Rmb 15.80 Upside/Downside % -5.9 12-month TSR % -2.2 Volatility Index High GICS sector Capital Goods Market cap Rmbm 43,352 Market cap US$m 6,332 Free float % 57 30-day avg turnover US$m 32.7 Number shares on issue m 2,582 Investment fundamentals Year end 31 Dec Revenue EBIT EBIT growth Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER rep PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2015A 2016E 2017E 2018E m 30,062 27,827 33,446 34,013 m 3,542 3,800 4,867 5,460 % 37.6 7.3 28.1 12.2 m 2,849 2,944 3,651 4,007 m 2,939 2,944 3,651 4,007 Rmb 1.05 1.08 1.33 1.46 % 55.1 2.2 24.0 9.8 Rmb 1.09 1.08 1.33 1.46 % 52.5 -0.9 24.0 9.8 x 15.9 15.6 12.6 11.5 x 15.5 15.6 12.6 11.5 Rmb 0.48 0.52 0.61 0.67 % 2.9 3.1 3.7 4.0 % 7.2 6.6 7.0 7.0 % 18.6 16.7 18.7 18.3 x 13.0 11.7 9.0 7.7 % 19.6 61.1 77.6 90.7 x 2.7 2.5 2.2 2.0
installations in 2016-2020, we expect installations to grow 18% YoY to 26GW in 2017, after a 33% YoY fall in 2016E. We believe Goldwind will use the market recovery and structural change (switch to low-wind regions) to increase its market share by 2ppts to 32% in 2017E. We raise our 3-year EPS CAGR estimate from 6% to 12%, and our TP from Rmb14.20 to Rmb15.80. We maintain Neutral as the stock is trading at 13x 2017E, in line with its historical median.
Impact ? China wind installations likely to recover, up 18% YoY to 26GW in 2017E.
Despite listed wind IPPs maintaining a flattish capex plan for 2017E, we expect rising demand from coal-fired IPP groups and unlisted private players. Our expectation is based on: a) strong recovery in public tender volume in 2016, up 51% YoY to a possible record high 28GW; b) part of demand in 2016 being carried forward to 2017 due to a longer construction cycle in tier-4 regions; and c) RPS (renewable portfolio standard) released in 2016, which may start to take effect in 2017: more private players are investing in wind/solar farms, not for holding, but for selling to large power SOEs, which should have non-hydro renewable power output >15% of its total power generation by 2020. ? China’s switch to low-wind regions should help Goldwind gain market
002202 CH rel CSI 300 performance, & rec history
share. We expect ~80% of new installations in 2017-18E will be located in tier-4 regions (vs ~40% in 2014-15) with low wind but without curtailment issue. This should aid Goldwind increase its market share further, from 25% in 2015 to 32% in 2017E, thanks to: 1) its 2.0MW product, launched as early as in 2015, considered a first mover into the low-wind market; and 2) its directdrive technology, which enables better low-wind capture than double-fed technology; and 3) 5% increase in power generation efficiency, which should improve returns for wind IPPs. We expect Goldwind’s wind turbine sales will increase 20% YoY to 7GW in 2017E, back to the record high hit in 2015. Meanwhile, we expect further economies of scale from 2.0MW to lead to a 0.5ppt pa increase in gross margin for the wind turbine business over 201518E. ? Potential overseas expansion. We expect more order intake from overseas
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, January 2017 (all figures in Rmb unless noted, TP in CNY)
markets following an exclusive letter of intent signed with Viridis in USA regarding 1.9GW wind turbine delivery over 2017-2022.
Earnings and target price revision ? We raise our 3-year EPS CAGR estimate from 6% to 12%, and raise TP to
Rmb15.80. We raise our TP to Rmb15.80 from Rmb14.20 based on unchanged target PE of 12x. Analyst(s) Patrick Dai +86 21 2412 9080 Yingying Tang +86 21 24129054 patrick.dai@macquarie.com yingying.tang@macquarie.com
Price catalyst ? 12-month price target: Rmb15.80 based on a Sum of Parts methodology. ? Catalyst: annual results, public tender volume, overseas expansion
10 January 2017
Macquarie Capital Limited
Action and recommendation ? Maintain Neutral. The stock is trading at 13x 2017E PE, in line with its
historical median of 13x.
Please refer to page 4 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 31

ASEAN ASEAN plantations Company Wilmar (S$) Golden Agri (S$) First Resources (S$) Indofood Agri (S$) Sime Darby (RM) IOI Corp (RM) KLK (RM) Genting Plant. (RM) Share Rec price N O O O O N N N 3.64 0.43 1.92 0.54 8.44 4.47 24.10 10.94 Price target 3.30 0.42 2.25 0.53 9.45 4.45 25.20 11.10 PER PER TSR +1FY +2FY -8% -1% 19% -2% 14% 2% 7% 3% 23.5 12.7 15.9 23.4 21.9 13.4 20.6 8.4 23.9 20.7 28.1 23.5 19.1 17.5 43.1 23.2
ASEAN Plantations Mediocre stats; tightened discount to SBO should cap price upside Event ? Malaysia’s Dec-16 palm oil inventory was unchanged mom at 1.66mt as both
Share price data as of 09 January 2017 Source: FactSet, Macquarie Research, January 2017
output and exports came in lower at 1.47mt (-6% mom) and 1.27mt (-7% mom), respectively. Notably, Dec-16 production was 5% above the Dec-15 level – the first yoy rise in 12 months. Overall, the MPOB stats were slightly below market expectations. This, coupled with a tightened discount to soybean oil (SBO) prices, should cap CPO price upside. OPur top picks are First Resources (OP, TP S$2.25) and Sime Darby (OP, TP RM9.45).
CPO price assumptions FOB Price US$/T RM/T CY15A 557 2,160 CY16A 639 2,649 CY17E 675 2,766 Long Term 766 3,141
Impact ? Dec-16 stats show an uptick in monthly production (on yoy basis).
Source: Macquarie Research, January 2017
December MPOB stats MOM In ‘000 tons Production Export Inventory Dec16 Nov16 1,474 1,575 1,268 1,370 1,665 1,663 Chg YTD16 YTD15 YOY Chg
Malaysia’s Dec-16 production fell by 6% mom (Fig 1), in line with the palm trees’ seasonal production pattern. On a yoy basis, we saw the first uptick (+5%) in 12 months on higher Dec-16 production from Peninsular (+15%) and Sarawak (+7%), which more than offset an 11% decline in Sabah output. For 12M16, Peninsular and Sabah production fell by 15%,16% while Sarawak’s output declined by a milder 3% due to expansion in the harvest area. ? Exports fell by 7% mom (-15% yoy) due to lower exports to China (-59kt),
-6% 17,320 19,962 -13% -7% 16,026 17,428 -8% 0% 1,665 2,634 -37%
Source: MPOB, Macquarie Research, January 2017
Palm oil stock stays tight but tightened price spread (to soybean oil) should cap CPO price upside
partly offset by higher demand from India (+33kt) and Turkey (+19kt). On a full year basis, India (2.83mt), EU (2.06mt) and China (1.88mt) were the biggest consumers, accounting for 42% of Malaysia’s palm oil exports. Meanwhile, Turkey, Bangladesh and Pakistan were the highest growth markets where 2016 CPO exports grew by over 150kt yoy. ? Palm oil inventory was unchanged mom at 1.66mt, a significant 970kt
drawdown from 2.63mt at end-Dec15. The inventory / supply balance remains tight – Dec-16 inventory was the lowest for December since 2010 while the current stock-usage ratio of 8.9% is still below trend (Fig 4). ? Elsewhere, cargo surveyor Intertek reported that Malaysia’s 1-10 Jan-17 palm
oil exports grew 8% mom to 352kt.
Outlook ? Overall, the MPOB stats are mildly bearish to CPO prices, given that: (i)
Source: MPOB, Macquarie Research, January 2017
the stats are below market expectation. Production exceeds Bloomberg survey by 3% while exports disappointed by 3%, resulting in a flattish closing inventory, versus consensus forecast for a 3% decline; and (ii) we see the first uptick in yoy production growth. This, coupled with a tightened discount to soybean oil prices (Fig 5), should cap the upside for CPO prices. ? No change to our CPO price forecasts. For exposure, First Resources (OP,
Analyst(s) Macquarie Capital Securities (Malaysia) Sdn. Bhd. Isaac Chow +60 3 2059 8982 isaac.chow6@macquarie.com Macquarie Capital Securities (Singapore) Pte. Limited Conrad Werner +65 6601 0182 conrad.werner@macquarie.com
TP S$2.25) is our top pick. It prices in the lowest CPO price within the plantation companies and offers the sector’s best operational metrics, in our view. We also like Sime Darby (OP, TP RM9.45) for its earnings recovery (driven by higher CPO prices) and the undertaking of a restructuring exercise to improve operational / capital efficiencies and unlock value.
10 January 2017
Please refer to page 4 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 32

JAPAN Our 3Q expectations
Confectionery Sector Preview Still Bearish on Calbee Conclusion ? We maintain our bearish stance toward Calbee and bullish view of Morinaga
as stock picks in the confectionery sector heading into 3Q (Oct-Dec 2016) announcements. Source: Company data, Macquarie Research, January 2017
? We update our Calbee forecasts with OP projections at ¥29.6bn for FY3/17
(vs. ¥30.5bn previously and ¥31bn guidance) and ¥31.3bn for FY3/18 (vs. ¥32.5bn) (Figure 1). We lower our price target from ¥3,200 to ¥3,100 due to the revisions and we reiterate our Underperform rating.
Impact ? Calbee (2229 JP, ¥3,770, Underperform, TP: ¥3,100): We expect ¥8.8bn in
Oct-Dec (3Q) OP (-3%YoY). Our sales forecast assumes a 4% decline in potato chips and a 15% rise in cereal for 3Q. ? Cereal products performed very well in Jul-Sep (2Q) with a 37% gain. Yet we
think this steep gain relied heavily on inventory expansion by brokers ahead of China’s Internet commerce sales held on 11 November 2016. We expect sales growth of its cereal products will slow to +15% yoy (Figure 2). ? We believe that expectations are running high for a rebound in the sluggish
North American business in 3Q from a bottom in 2Q. However, it might take some time for Calbee’s organizational reforms to actually boost earnings and we only use a 3% increase in 3Q sales for North America in our forecast (at 10% operating margin, Figure 3). ? Morinaga (2201 JP, ¥4,850, Outperform, TP: ¥6,500): We project ¥5.3bn in
Oct-Dec (3Q) OP (+26% YoY). We expect continuation of upbeat sales of higher-priced products and ongoing double-digit sales growth for highly profitable Weider in Jelly in the confectioneries & foods business. We forecast ¥16.5bn in 1H FY3/17 OP and think Morinaga should be capable of attaining full-year OP guidance. ? Meiji HD (2269 JP, ¥9,310, Outperform, TP: ¥12,000): We expect ¥30bn in
Oct-Dec (3Q) OP (+16% YoY). Probiotic yogurt sales were upbeat with increases of 14% YoY in October and 30% in November. Chocolate sales remained healthy too at gains of 5% in October and 9% in November. We think robust sales are more likely to appear as profits in 3Q, in contrast to 2Q when Meiji HD booked one-time costs of just over ¥1bn, including headquarter moving costs. ? Ezaki Glico (2206 JP, ¥5,580, Neutral, TP: ¥5,800): We forecast ¥4.8bn in
Analyst(s) Satsuki Kawasaki +81 3 3512 7879 satsuki.kawasaki@macquarie.com Maiko Kutsuna +81 3 3512 7871 maiko.kutsuna@macquarie.com
10 January 2017
Macquarie Capital Securities (Japan) Limited
Oct-Dec (3Q) OP (+12% YoY). We think biscuit sales remained somewhat weak but backlash decline from the previous year’s Pocky price hike – which caused a negative surprise in 2Q – disappeared in 3Q for the domestic confectionery business. We assume a 3% YoY decline in 3Q sales in the Chinese business because it is likely to take some time until sales momentum recovers. We expect focus on the size of the increase in marketing costs for the Chinese business. We project ¥3.2bn in 3Q OP for the confectionery segment (vs. ¥3bn a year ago), including a ¥300mn drop in Chinese profit.
Please refer to page 4 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 33

GREATER CHINA
GC Tech Know v.17 Outperformers emerged in December December revenue/ shipment results were strong in general with our Outperform-rated companies being outperformers such as TSMC, SunnyOptical, Asustek, Inventec, ZDT (link, by Kaylin Tsai, Dec 23), and GIS. CES (Tomorrow’s world v.4 - VR/ AR coming into its own, Jan 06) opened the year with sentiment of AR/VR, AI, and ADAS, and we expect to see semiconductors and camera solution providers continue to enjoy an uptrend. We expect January momentum to be soft due to the CNY season, which leads to our recommendation for investors to focus on either defensive yield plays (Fig 3) or outperformers (instead of existing struggling leaders).
Key reports this month Greater China Semi - I C stronger growth JCET - A long way to go Taiwan FPCB - Set for a comeback Tianma Microelectronics - The Pegasus too expensive to chase GC Tech Know v.15 - Top Five Gifts GC Tech Know v.16 - 1Q17 outlook Display Tracker v.2 - Rise of an empire Tomorrow’s world v.4 - VR/ AR coming into its own
Smartphones: OPPO/ Vivo strong, SunnyOptical beats SunnyOptical’s triple-digit shipment growth (+106% YoY on Handset Lens) beat the street’s sentiment on inventory/slow China smartphones. We attribute the beat to a miscalculation by the Street on what companies were performing well and those that were not. We have been cautious on smartphone shipment growth, at 0.3%/+2.5%/-0.4% in 2016-18E, but we believe Chinese premium brands like OPPO, Vivo, Huawei, and Gionee to further grow in new markets like India, Brazil, and ASEAN; Xiaomi and Lenovo to recover; and Coolpad, ZTE, LeEco to decline.
Semiconductors: TSMC beats 4Q16 revenue guidance TSMC’s 4Q16 sales beat high-end guidance by 1.6%, which we attribute to a favourable currency move and solid demand. Other upstream companies’ 4Q16 sales came out largely in-line with our and the street’s expectation. For 1Q17, we expect foundries’ sales growth to be -6% to +2% QoQ, followed by OSAT: -11% to -5%, and fabless: -22% to -9%. This is in line with normal seasonality, and we see that foundries are more defensive during low season. Also, we expect a solid growth recovery in 2Q17 for all the sub-sectors, driven by new product cycles.
Transforming winners: Inventec and Asustek PC ODMs’ 4Q16 sales tracked above MQ/street in general, except for Pegatron (weak non-computing and also lower than expected NB shipments). Inventec is our top pick for the sector given a combination of solid 2017/18 growth (driven by server/handheld), attractive valuation, and high dividend yield. Asustek 4Q16 sales beat (link, by Jeff Ohlweiler Jan 10) on better shipments of new smartphone and NB products. At the recent CES, it announced new ZenFone AR (world’s first Tango/Daydream smartphone for AR/VR), ZenFone 3 Zoom, and a new line-up of Republic of Gamers (ROG) gaming, the new Zenbo robot.
Analyst(s) Macquarie Capital Limited Allen Chang +852 3922 1136 allen.chang@macquarie.com Chris Yu +86 21 24129024 chris.yu@macquarie.com Verena Jeng +852 3922 3766 verena.jeng@macquarie.com Macquarie Capital Limited, Taiwan Securities Branch Jeffrey Ohlweiler +886 2 2734 7512 jeffrey.ohlweiler@macquarie.com Patrick Liao +886 2 2734 7515 patrick.liao@macquarie.com Louis Cheng, CFA +886 2 2734 7526 louis.cheng@macquarie.com Kaylin Tsai +886 2 2734 7523 kaylin.tsai@macquarie.com Lynn Luo +88 6227347534 lynn.luo@macquarie.com
Emerging OLED – HonHai/ GIS/ Innolux/ Sharp/ SDP Following our industry checks (Display Tracker v.2 - Rise of an empire), we have increasing confidence that HH group will integrate its display resources (Foxconn, SDP, Innolux, Sharp, GIS) to further ramp up its OLED capacity in Henan, China. In addition to key US customers’ supply chain management perspectives, GIS’ vertical integration services and production lines in China reaffirm our view. As for LED, we suggest investors to switch to downstream from upstream (recently initiated Sanan with a Neutral), and recently upgraded Everlight to Outperform from Neutral given the value chain shifting. Our 2017 top picks: TSMC, HonHai, Powertech (memory on strong revenue growth and margin expansion), ASMPT, CUB, King Slide, Chroma (strong semi tester momentum in 2017), ZDT, AirTAC (continued market share gains), SMIC, SunnyOptical, Hikvision, LensTech, Sunway.
10 January 2017
Please refer to page 13 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 34
GLOBAL What’s new in this edition: ? Investors’ sentiment toward
Global Infrastructure 1Q17 guide to yield investing The fundamental view Macro: The US 10yrT yield ended 4Q16 at 2.4%, up significantly from 1.6% three months ago and above 2.3% at the end of 2015. On global growth, country inputs show us to be beneath consensus on Canada, Australia and Japan, and above consensus on the US and most of Asia. Our economics team anticipates global real GDP growth in 2017 will improve 30 bps to 2.9% and also projects this level will be sustained in 2018. Our global outlook is modestly above consensus on aggregate with signification variation at the national level, as mentioned. Our strategy team’s country allocations (Asia ex) continue to highlight local and liquid vs global and illiquid. Hence, our largest O/Ws are in India, China and Phil whilst our largest U/Ws are in Indo, Mal, Thai and Sing. In ‘healthy reflation’, these choices would need to be swapped. As for the US Fed, the key question remains whether the US is already suffering from ‘stagflation lite’ (low and volatile real GDP and rising inflation).” Stock specific: (1) Among US telecoms, in what is shaping up to be a favorable regulatory backdrop that will likely preserve the pricing power of cable and bode well for M&A, we believe yield names will have to work harder to preserve their premium. Of our coverage universe, our top picks are AT&T and Crown Castle. Our least favorite yield pick continues to be Frontier; (2) in transportation infrastructure, we believe SATS is well-positioned to capture the continent’s secular growth story as a dominant in-flight caterer and airport gateway services provider across 45 airports in Asia. AIA looks well positioned to leverage the likely decade-long international passenger growth potential out of Asia, while also enjoying sustained growth from its core and defensive NZ resident travelers; (3) in European utilities, we continue to see growth in infrastructure and renewable generation. Within these areas the lowvoltage distribution grid appears best positioned (SSE, Innogy, Enel, and Endesa). Changes to sentiment: Comments on sentiment reported a widespread decline in investors’ bullishness towards low-growth yield due to rising interest rate environments around the world. Following the U.S. election, ‘risk-on’ has become a common refrain, and we expect to see higher-growth stocks outperform their slowergrowing peers. Look to higher DPS CAGRs for defensive opportunities to weather the storm while collecting current income.
infrastructure stocks continues to weaken across the board in some cases due to concerns over rising interest rates and rich valuations (p1). ? Our analysts saw opportunities in 4Q16,
with 14 infrastructure stock upgrades vs 12 downgrades. ? The quant team provides additional
depth on which factors cause a featured infrastructure yield stock to be preferred or disliked by the Macquarie Alpha Model. ? Please see p7 for a list of Macquarie’s
planned infrastructure conferences in 2017.
Analyst(s) Macquarie Capital (USA) Inc. Andrew Weisel, CFA +1 212 231 1159 andrew.weisel@macquarie.com James Ward, CFA +1 212 231 0707 james.ward@macquarie.com Angie Storozynski +1 212 231 2569 angie.storozynski@macquarie.com Macquarie Capital (Europe) Limited Steve Gao, PhD +44 20 3037 2765 steve.gao@macquarie.com Macquarie Capital Securities (Japan) Limited Peter Eadon-Clarke +81 3 3512 7850 peter.eadon-clarke@macquarie.com Macquarie Capital Limited Viktor Shvets +852 3922 3883 viktor.shvets@macquarie.com Macquarie Capital Markets Canada Ltd. David Doyle, CFA +1 416 848 3663 david.doyle@macquarie.com
The quant view Telecoms dominated the quant team’s top picks, with utilities filling out the rest. The top quant pick goes to Enel (ENEL IM) with an alpha score of 2.10, followed by NTT (9432 JP), NTT DoCoMo (9437 JP), Century Link (CTL US) and Exelon (EXC US). More details on starting on p66.
Our top global stock calls Where fundamentals and quant overlap: Enel, Nippon Telegraph and Telephone, and Exelon have OP ratings and top-5 scores from our quant team, while The Chugoku Electric Power Company, Towngas China, and Tower Bersama Infrastructure have dual negative conviction (p71). Where growth and yield overlap: US yieldcos (ABY, NYLD, PEGI, and NEP), John Laing Infrastructure Fund, and Fortress Income Fund are stocks offering a strong combination of both NTM yields (5-9%) and DPS growth (10-25%+ pa) (p64).
9 January 2017
Please refer to page 87 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 35

INDONESIA Indonesian banks coverage Bank BCA BRI Mandiri BNI Danamon BTN BJB Ticker BBCA BBRI BMRI BBNI BDMN BBTN BJBR Mkt cap (US$m) 28,034 21,471 19,488 7,667 2,591 1,428 2,018 Rec O-PF O-PF N N O-PF O-PF U-PF Target (IDR/sh) 17,500 15,000 9,500 5,350 4,800 2,200 1,200 TSR (%) 15.1 31.3 (13.3) (1.2) 35.1 23.8 (53.8)
Indonesian Banks Dividend Season Conclusion ? We anticipate higher dividend payout ratios from BRI and Mandiri to be
declared during 1Q17 against FY16 profits at 40% vs 30% last year. Fellow state banks BNI and BTN with higher loan growth targets are likely to pay closer to 20%, conserving capital for growth. ? After adjustment to the payout ratios for these banks at 40%, we estimate a
TSR = 12month total share return estimate Source: Macquarie Research, January 2017
3.7% yield for BRI and 2.5% for Mandiri in FY17e. We make no changes to our earnings estimates. FY17e dividend yields % 4 3 2 1.1 1 0 3.7 3.6 3.5
Impact ? State budget dividends up. The state budget for FY17 calls for a total Rp41t
2.9 2.5
2.4
(US$3.1b) in dividends from SOEs, up from Rp34t in FY16. Initially the Gov’t indicated only non-bank SOEs would lift dividends; however, we understand from recent discussion with the large state banks that the Gov’t is proposing higher dividends for them also. This is consistent with the lower than expected tax revenue the Gov’t has been receiving. The banks and Gov’t propose payout ratios, with the final say the prerogative of the SOE Ministry in fulfilling its aggregate annual budget revenue obligation. ? Plenty of capacity. We argued in our re-initiation report that the major banks,
Source: Macquarie Research, January 2017
in particular BRI and BCA, have plenty of capacity to lift dividends as capital levels in the sector approach inefficient levels. We anticipate this to be a recurring theme over FY17-18e as loan growth remains tepid (11% average forecast), leverage continues to decline amongst the major banks and tier 1 capital accrues. ? For Mandiri, absolute dividends likely flat. Declining FY16 profits are offset
by the higher payout ratio at 40%. The yield by contrast on BRI is highest of our coverage at 3.7% in FY17e. Shareholders should expect payment early in 2Q17 based on prior-year cycles. ? BCA has the most potential. Given its sector leading provisioning, which
already covers all restructured current/special mention loans, and cautious loan growth stance, we think dividends of 40-50% are apt for BCA. Commentary from the bank, however, suggests a modest 20-25% payout ratio for FY16.
Outlook ? We are overweight Indonesian banks in a local market and regional sector
context. Preferred stocks are BRI, BCA and Danamon, for which we have generally most upside. ? Smaller banks outperformed the top 4 in FY16, and we see that reversing in
Analyst(s) Jayden Vantarakis +6221 25988310 jayden.vantarakis@macquarie.com Nathania Nurhalim +62 21 2598 8365 nathania.nurhalim@macquarie.com
FY17e given the outlook for rates, for which we see upside risk to our flat base case.
10 January 2017
PT Macquarie Capital Securities Indonesia
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 36

GLOBAL LME cash price US$/tonne 1,758 5,736 2,173 10,562 21,175 2,701 32,993 14,890 % change day on day 1.3 3.0 3.9 2.2 0.1 2.0 0.8 0.0
Commodities Comment Met coal prices plunge to below $185/t ? Spot met coal prices have endured a rollercoaster ride over the last 12
Aluminium Copper Lead Nickel Tin Zinc Cobalt Molybdenum Other prices
months, from lows of only $74/t FOB Aus in February 2016 to highs above $310/t in November for premium HCC. Since December prices have eased, and with a lack of buying interest in the new year due to greater supply availability, prices have now plunged below $185/t for the first time since September 2016. Moreover, with prices now $100/t below the 1Q17 contract price of $285/t, this raises the risk of mills looking to defer deliveries into 2Q. ? While met coal prices have been in freefall in recent weeks, we believe prices
Gold (US$/oz) Silver (US$/oz) Platinum (US$/oz) Palladium (US$/oz) Oil WTI USD:EUR exchange rate AUD:USD exchange rate LME/COMEX stocks Aluminium LME copper Comex copper Lead Nickel Tin Zinc
1,190 16.67 976 760 51.49 1.057 0.737
% change day on day 0.9 1.3 0.9 0.3 -1.8 0.0 0.0
Tonnes 2,232,725 293,400 83,112 193,300 371,964 3,815 426,425
Change 16,800 -1,500 273 0 -48 -70 -800
are nearing a level at which they will begin to find support from increased steel mill buying, especially in China, where seaborne imports are now once again competitive versus domestic sources. As Chinese policy making regarding the ‘276 days’ policy becomes clearer towards the end of 1Q, mills could begin to become nervous again about potential production constraints in China, which may result in a further increase in buying appetite. Nonetheless, met coal prices clearly remain well above marginal cost, and with supply responding accordingly in marginal producing countries such as Mongolia and the USA, the medium-term trajectory in met coal prices will remain negative.
Latest news ? Various Chinese media sources have reported the central government has
Source: LME, Comex, Nymex, SHFE, Metal Bulletin, Reuters, LBMA, Macquarie Research, January 2017
decided to remove substandard small steel plants by the end of June this year, and 12 inspection teams have been sent to local provinces to supervise the work. There is no clear definition on what type of steel mills belong to this category, but it is generally viewed that small scrap feeding steel producers using “medium frequency induction” furnaces will be the main target for this round of closure. According to Mysteel, total steelmaking capacity from these producers was 110~120mtpa at the end of 2015, and their production in 2016 was about 40mt, based on its surveyed capacity utilisation rate. China is targeting to close more than 45mtpa of steelmaking capacity in 2017, and if the closure is focused on small scrap feeding steel makers, it should have positive impact on the construction steel market given 90% of such steel makers are making long products like rebar and wire rod. ? Latest data on Chinese stainless steel shows that despite previous reports of
Analyst(s) Macquarie Capital Securities (Singapore) Pte. Limited Ian Roper +65 66010698 ian.roper@macquarie.com Macquarie Capital Limited Lynn Zhao +86 21 2412 9035 lynn.zhao@macquarie.com Macquarie Capital (Europe) Limited Colin Hamilton +44 20 3037 4061 colin.hamilton@macquarie.com Jim Lennon, Senior Commodities Consultant +44 20 3037 4271 jim.lennon@macquarie.com Matthew Turner +44 20 3037 4340 matt.turner@macquarie.com Vivienne Lloyd +44 20 3037 4530 vivienne.lloyd@macquarie.com
cuts (Tsingshan announced 200kt cut and closure of Delong in December), fourth-quarter production soared to an all-time high of 6.7mt, up 6.3% QoQ and 24.9% YoY. In December alone, production rose 28% YoY to an all-time high. Of interest, 200-series (low nickel) rose an estimated 40% YoY in 4Q, while 300-series rose by only 13%. Stainless production in China for 2016 as a whole was up 12.8% YoY, according to our estimates, and global stainless steel production rose to an estimated 8.3% YoY to 45.7mt, with 4Q16 production up 16.7% YoY. These numbers suggest significant overstocking by stainless buyers, probably in anticipation of cost-driven (Cr and Ni) rises in stainless steel prices. ? Latest indications from Indonesia is that the government has decided not to
10 January 2017
relax the ban on nickel and bauxite exports that has been in place since January 2014. A relaxation in the ban would have been extremely negative for nickel prices. Attention is now likely to refocus on the tightening nickel ore supply position in China, as imports of ore have collapsed during the rainy season in the Philippines, making it likely that Chinese nickel pig iron producers may be forced to slash production in the coming months.
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 37

GLOBAL LME cash price US$/tonne 1,735 5,570 2,092 10,338 21,160 2,647 32,742 14,890 % change day on day 0.8 0.0 2.5 1.4 0.4 1.8 0.0 0.0
Commodities Comment The influence of Chinese supply flexibility across metals and bulks Feature article ? Over the past decade, supply-demand modelling in industrial metals and bulk
Aluminium Copper Lead Nickel Tin Zinc Cobalt Molybdenum Other prices
Gold (US$/oz) Silver (US$/oz) Platinum (US$/oz) Palladium (US$/oz) Oil WTI USD:EUR exchange rate AUD:USD exchange rate LME/COMEX stocks Aluminium LME copper Comex copper Lead Nickel Tin Zinc
1,179 16.45 967 758 52.42 1.057 0.737
% change day on day 0.2 0.0 0.6 0.8 -3.2 0.3 1.0
commodities has had to incorporate a major balancing factor – flexible Chinese supply which reacts to price prompts. This supply is generally low capex, high opex and operates on a short time horizon for decision making. Or to put this another way, rather than 20-year asset lives, if it makes money on a 10-week time horizon output will increase, and if it doesn’t it will exit the market. Such cycles in and out have become an important aspect of supply. ? In 2017, given many commodity prices are trading out of their cost curves, we
Tonnes 2,215,925 294,900 82,839 193,300 372,012 3,885 427,225
Change -1,100 -225 844 -400 1,092 5 -375
are again modelling a response from this supply. However, it is fair to say that we were underwhelmed by the flexible reaction in 2016, as a combination of environmental pressures, a lack of willingness to lend to commodity sectors and alternative high-return investment options made restarts less attractive. Thus, in this report we look at what would happen if Chinese supply in inflexible, and doesn’t grow from 2016 exit levels.
Latest news ? Preliminary port data suggests Australian iron ore shipments have seen a
Source: LME, Comex, Nymex, SHFE, Metal Bulletin, Reuters, LBMA, Macquarie Research
strong start to 2017, with volumes last week up 10% over the equivalent period last year and in line with December averages in what is seasonally a weak quarter. Meanwhile, Brazilian volumes were up 15% over the first week of 2016, though sequentially volumes were well down on the prior fortnight. Meanwhile, the inclement weather on the Australian East Coast saw coal export volumes at the lowest level since June 2016, with the temporary closures of Hay Point and Dalrymple Bay terminals meaning met coal volumes were disproportionally hit, though of course the spot price still continues to trend lower. ? Reuters has reported that the Australian government is offering financial
Analyst(s) Macquarie Capital (Europe) Limited Colin Hamilton +44 20 3037 4061 colin.hamilton@macquarie.com Jim Lennon, Senior Commodities Consultant +44 20 3037 4271 jim.lennon@macquarie.com Matthew Turner +44 20 3037 4340 matt.turner@macquarie.com Vivienne Lloyd +44 20 3037 4530 vivienne.lloyd@macquarie.com Macquarie Capital Securities (Singapore) Pte. Limited Ian Roper +65 66010698 ian.roper@macquarie.com Macquarie Capital Limited Lynn Zhao +86 21 2412 9035 lynn.zhao@macquarie.com
support to help repair Alcoa’s 325ktpa Portland aluminium smelter in Victoria State, which suffered damaged potlines in a December electricity outage, while discussions on future power costs are ongoing. This concerted effort to prevent closure is the latest example of governments back-stopping under pressure processing assets in their economies. We currently have the smelter’s final production being this year in our model, so a full recovery would add incremental supply to future years in an already oversupplied market. The likelihood of a lower power cost does, however, highlight the ongoing deflationary cost structure of the global aluminium industry. ? Macquarie’s China economist Larry Hu has published his 2017 outlook for the
9 January 2017
Chinese economy, covering views on the political transition, RMB, property, liquidity and inflation. Real GDP is expected to be stable at 6.5-6.6% each quarter, with headwinds from property (-10% YoY GFA sales) offset by a further acceleration in infrastructure investment to +20% YoY. PPI inflation is expected to peak in the current quarter at +5%, while CPI is expected to be +2.4% YoY for 2017 as a whole. Monetary policy is expected to remain neutral in H1 but ease again in H2. We expect commodity demand to continue benefitting from last year’s liquidity push over the coming months, before slowing into mid-year as property headwinds increase.
Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. 38
Macquarie Research Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return


Volatility index definition* This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendation proportions – For quarter ending 30 September 2016 Outperform Neutral Underperform AU/NZ 47.26% 38.01% 14.73% Asia 55.50% 29.31% 15.19% RSA 38.46% 42.86% 18.68% USA 45.47% 48.77% 5.76% CA 59.09% 37.88% 3.03% EUR 48.21% (for US coverage by MCUSA, 8.20% of stocks followed are investment banking clients ) 36.79% (for US coverage by MCUSA, 8.25% of stocks followed are investment banking clients ) 15.00% (for US coverage by MCUSA, 8.00% of stocks followed are investment banking clients )
Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Ltd total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities. 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Asia Research Head of Equity Research Peter Redhead (Global – Head) Jake Lynch (Asia – Head) David Gibson (Japan – Head) Conrad Werner (ASEAN – Head) (852) 3922 4836 (852) 3922 3583 (813) 3512 7880 (65) 6601 0182
Industrials Janet Lewis (Asia) Patrick Dai (China) Kunio Sakaida (Japan) William Montgomery (Japan) James Hong (Korea) Benson Pan (Taiwan) Inderjeetsingh Bhatia (India) Justin Chiam (Singapore) (813) 3512 7856 (8621) 2412 9082 (813) 3512 7873 (813) 3512 7864 (822) 3705 8661 (8862) 2734 7527 (9122) 6720 4087 (65) 6601 0560
Telecoms Nathan Ramler (Asia, Japan) Danny Chu (Greater China) Soyun Shin (Korea) Prem Jearajasingam (ASEAN) Kervin Sisayan (Philippines) (813) 3512 7875 (852) 3922 4762 (822) 3705 8659 (603) 2059 8989 (632) 857 0893
Automobiles/Auto Parts Janet Lewis (China, Japan) Takuo Katayama (Japan) James Hong (Korea) Amit Mishra (India) (813) 3512 7856 (1 212) 231 1757 (822) 3705 8661 (9122) 6720 4084
Transport & Infrastructure Janet Lewis (Asia) Corinne Jian (Taiwan) Azita Nazrene (ASEAN) (852) 3922 5417 (8862) 2734 7522 (603) 2059 8980
Internet, Media and Software Wendy Huang (Asia, China) David Gibson (Asia, Japan) Hillman Chan (China, Hong Kong) Nathan Ramler (Japan) Soyun Shin (Korea) Abhishek Bhandari (India) (852) 3922 3378 (813) 3512 7880 (852) 3922 3716 (813) 3512 7875 (822) 3705 8659 (9122) 6720 4088
Financials Scott Russell (Asia) Dexter Hsu (China, Taiwan) Elaine Zhou (Hong Kong) Keisuke Moriyama (Japan) Chan Hwang (Korea) Suresh Ganapathy (India) Sameer Bhise (India) Gilbert Lopez (Philippines) Ken Ang (Singapore) Passakorn Linmaneechote (Thailand) (852) 3922 3567 (8862) 2734 7530 (852) 3922 3278 (813) 3512 7476 (822) 3705 8643 (9122) 6720 4078 (9122) 6720 4099 (632) 857 0892 (65) 6601 0836 (662) 694 7728
Utilities & Renewables Patrick Dai (China) Candice Chen (China) Alan Hon (Hong Kong) Inderjeetsingh Bhatia (India) Prem Jearajasingam (Malaysia) Karisa Magpayo (Philippines) (8621) 2412 9082 (8621) 2412 9087 (852) 3922 3589 (9122) 6720 4087 (603) 2059 8989 (632) 857 0899
Oil, Gas and Petrochemicals Polina Diyachkina (Asia, Japan) Aditya Suresh (Asia, China, India) Anna Park (Korea) Duke Suttikulpanich (ASEAN) Isaac Chow (Malaysia) (813) 3512 7886 (852) 3922 1265 (822) 3705 8669 (65) 6601 0148 (603) 2059 8982
Commodities Colin Hamilton (Global) Ian Roper Jim Lennon Lynn Zhao Matthew Turner (44 20) 3037 4061 (65) 6601 0698 (44 20) 3037 4271 (8621) 2412 9035 (44 20) 3037 4340
Conglomerates David Ng (China, Hong Kong) Conrad Werner (Singapore) Gilbert Lopez (Philippines) (852) 3922 1291 (65) 6601 0182 (632) 857 0892
Pharmaceuticals and Healthcare Abhishek Singhal (India) Wei Li (China, Hong Kong) (9122) 6720 4086 (852) 3922 5494
Economics Peter Eadon-Clarke (Global) Larry Hu (China, Hong Kong) Tanvee Gupta Jain (India) (813) 3512 7850 (852) 3922 3778 (9122) 6720 4355
Consumer and Gaming Linda Huang (Asia, China, Hong Kong) Zibo Chen (China, Hong Kong) Terence Chang (China, Hong Kong) Sunny Chow (China, Hong Kong) Satsuki Kawasaki (Japan) Mike Allen (Japan) Kwang Cho (Korea) KJ Lee (Korea) Stella Li (Taiwan) Amit Sinha (India) Fransisca Widjaja (Indonesia, Singapore) Karisa Magpayo (Philippines) Chalinee Congmuang (Thailand) (852) 3922 4068 (852) 3922 1130 (852) 3922 3581 (852) 3922 3768 (813) 3512 7870 (813) 3512 7859 (822) 3705 4953 (822) 3705 9935 (8862) 2734 7514 (9122) 6720 4085 (65) 6601 0847 (632) 857 0899 (662) 694 7993
Property Tuck Yin Soong (Asia, Singapore) David Ng (China, Hong Kong) Raymond Liu (China, Hong Kong) Wilson Ho (China) William Montgomery (Japan) Corinne Jian (Taiwan) Abhishek Bhandari (India) Aiman Mohamad (Malaysia) Kervin Sisayan (Philippines) Patti Tomaitrichitr (Thailand) (65) 6601 0838 (852) 3922 1291 (852) 3922 3629 (852) 3922 3248 (813) 3512 7864 (8862) 2734 7522 (9122) 6720 4088 (603) 2059 8986 (632) 857 0893 (662) 694 7727
Quantitative / CPG Gurvinder Brar (Global) Woei Chan (Asia) Danny Deng (Asia) Per Gullberg (Asia) (44 20) 3037 4036 (852) 3922 1421 (852) 3922 4646 (852) 3922 1478
Strategy/Country Viktor Shvets (Asia, Global) Chetan Seth (Asia) David Ng (China, Hong Kong) Erwin Sanft (China, Hong Kong) Peter Eadon-Clarke (Japan) Chan Hwang (Korea) Jeffrey Ohlweiler (Taiwan) Inderjeetsingh Bhatia (India) Jayden Vantarakis (Indonesia) Anand Pathmakanthan (Malaysia) Gilbert Lopez (Philippines) Conrad Werner (Singapore) Alastair Macdonald (Thailand) (852) 3922 3883 (852) 3922 4769 (852) 3922 1291 (852) 3922 1516 (813) 3512 7850 (822) 3705 8643 (8862) 2734 7512 (9122) 6720 4087 (6221) 2598 8310 (603) 2059 8833 (632) 857 0892 (65) 6601 0182 (662) 694 7753
Resources / Metals and Mining Polina Diyachkina (Asia, Japan) Coria Chow (China) Anna Park (Korea) Sumangal Nevatia (India) (813) 3512 7886 (852) 3922 1181 (822) 3705 8669 (9122) 6720 4093
Emerging Leaders Jake Lynch (Asia) Aditya Suresh (Asia) Timothy Lam (China, Hong Kong) Mike Allen (Japan) Kwang Cho (Korea) Corinne Jian (Taiwan) Marcus Yang (Taiwan) Conrad Werner (ASEAN) (852) 3922 3583 (852) 3922 1265 (852) 3922 1086 (813) 3512 7859 (822) 3705 4953 (8862) 2734 7522 (8862) 2734 7532 (65) 6601 0182
Technology Damian Thong (Asia, Japan) George Chang (Japan) Daniel Kim (Korea) Allen Chang (Greater China) Jeffrey Ohlweiler (Greater China) Patrick Liao (Greater China) Louis Cheng (Greater China) Kaylin Tsai (Greater China) (813) 3512 7877 (813) 3512 7854 (822) 3705 8641 (852) 3922 1136 (8862) 2734 7512 (8862) 2734 7515 (8862) 2734 7526 (8862) 2734 7523
Find our research at Macquarie: www.macquarieresearch.com/ideas/ Thomson: www.thomson.com/financial Reuters: www.knowledge.reuters.com Bloomberg: MAC GO Factset: http://www.factset.com/home.aspx CapitalIQ www.capitaliq.com Email macresearch@macquarie.com for access
Asia Sales Regional Heads of Sales Miki Edelman (Global) Jeff Evans (Boston) Jeffrey Shiu (China, Hong Kong) Sandeep Bhatia (India) Thomas Renz (Geneva) Riaz Hyder (Indonesia) Nick Cant (Japan) John Jay Lee (Korea) Nik Hadi (Malaysia) Eric Roles (New York) Gino C Rojas (Philippines) (1 212) 231 6121 (1 617) 598 2508 (852) 3922 2061 (9122) 6720 4101 (41 22) 818 7712 (6221) 2598 8486 (65) 6601 0210 (822) 3705 9988 (603) 2059 8888 (1 212) 231 2559 (632) 857 0861
Regional Heads of Sales cont’d Paul Colaco (San Francisco) Amelia Mehta (Singapore) Angus Kent (Thailand) Ben Musgrave (UK/Europe) Christina Lee (UK/Europe) (1 415) 762 5003 (65) 6601 0211 (662) 694 7601 (44 20) 3037 4882 (44 20) 3037 4873
Sales Trading cont’d Suhaida Samsudin (Malaysia) Michael Santos (Philippines) Chris Reale (New York) Marc Rosa (New York) Justin Morrison (Singapore) Daniel Clarke (Taiwan) Brendan Rake (Thailand) Mike Keen (UK/Europe) (603) 2059 8888 (632) 857 0813 (1 212) 231 2555 (1 212) 231 2555 (65) 6601 0288 (8862) 2734 7580 (662) 694 7707 (44 20) 3037 4905
Sales Trading Adam Zaki (Asia) Stanley Dunda (Indonesia) (852) 3922 2002 (6221) 515 1555
This publication was disseminated on 10 January 2017 at 18:36 UTC. 41
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