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Asia Pacific Equity Research

27 September 2012

Windows 8 - Part 3
The rising threat from Samsung
In the final, Part 3 of our series on Windows 8, we look at the chances of Samsung expanding in the PC/ Tablet space and its impact on PC supply chain vendors. As expected, consumer PC brands would be most vulnerable, while ODMs may be relatively better off as some are already securing ODM business from Samsung. Stage is set for Samsung with PC/Tablet convergence and ARM support for Windows: With Windows being available on ARM platform and MSFT enabling the same OS across PC and Tablet, we believe that Samsung would be more aggressive in the Windows 8 space, especially with tablets. Samsung can control 54% of the bill of materials of a Win 8 tablet, as compared to only 22% of Win 8 based notebook PCs. A key watershed event would be MSFT enabling Samsungs own Application Processor for Windows 8 (we expect this in 2H13). Fervent activity in the supply chain suggests big moves afoot: Samsung has been hiring several key people in the PC space in last 12 months (HPQ PSG marketing VP, head of Asus China notebook biz etc) and has also been engaging with Taiwan ODMs much more aggressively. Windows 8 and Ultrabook product launch also appears to be more aggressive than in past product cycles. Apples diversification may make entry into Win 8 market a compulsion rather than choice for Samsung: Apple is clearly diversifying away from Samsung-made components, which would also include application processors. If Apple diversification causes utilization shortfall for Samsung, then the move into Windows 8 Tablets/ PCs would become a compulsion (to fill utilization at component facilities) rather than a choice, for Samsung. Enterprise/China relatively better off, Europe consumer the battleground for market share: Samsung has little presence in enterprise, while entering open market in China (tablets not sold through operator channel) is more difficult. However, we expect every aggressive push into consumer market, especially in Europe, where there are no strong incumbent players. Asustek/Acer likely worse affected, Lenovo and ODMs better positioned: If Samsung were to aggressively compete on Win 8 devices, we expect Acer and Asus to be hurt the most, given their consumer exposure in developed markets. Lenovo is likely to be better off due to high exposure to enterprise and China. Taiwan ODMs are starting to see some ODM business from Samsung (especially Compal) so could be relatively insulated from this move.
Table 1: Samsung's control over Bill of Materials (BOM) - Notebook vs. Tablet
Key components that can be internalized Notebook (x86 based) Display Battery Pack DRAM 88.5 22% Tablet (ARM based Win 8) Display + Touch CPU (application processor) Battery Pack NAND Flash + Mobile DRAM 191 54%

Computer Hardware Gokul Hariharan

AC

(852) 2800-8564 gokul.hariharan@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited

Alvin Kwock
(852) 2800-8533 alvin.yl.kwock@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited

JJ Park
(822) 758-5717 jj.park@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch

Rick Hsu
(886-2) 2725-9874 rick.ic.hsu@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited

Ashish Gupta
(91-22) 6157-3284 ashish.b.gupta@jpmorgan.com J.P. Morgan India Private Limited

Total BOM accounted for through vertical integration (US$) % of total BOM of device
Source: Company reports and J.P. Morgan estimates

See page 7 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.morganmarkets.com

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Asia Pacific Equity Research 27 September 2012

Stage set for Samsung to make a splash in Windows 8 space

PC/ Tablet convergence With Microsoft enabling ARM on Windows and making a meaningful push into the Tablet space with Window 8, we believe that PC/ Tablet convergence is finally happening, with an OS and ecosystem that works seamlessly across tablets and PCs. Until now, Samsung has not seen much success in the Android Tablet market (even though it is currently the biggest vendor in this market), but Microsoft should bring a second chance to break into the PC/ Tablet converged market. Strong activity in the supply chain suggests big moves afoot Samsung has been hiring experienced PC executives aggressively in past 12 months (high profile hires include former head of HP Consumer Notebook marketing, Asus head of China notebook business etc). In addition, it has also stepped up the engagement levels with Taiwan ODMs, especially Compal. Compal should ship ~2M notebooks to Samsung in 2H12, the first such engagement in several years. Samsung also dedicated a lot of resources during Computex 2012 to showcase its Windows 8 based ultrabooks and tablets, the first time that Samsung has participated in a meaningful manner at Computex. In addition, several vendors in the supply chain indicate that Samsung is gearing up for a meaningful push into Windows 8 Tablets and PCs. Qualification of Samsung's own application processors for Windows 8 would be a key watershed event We believe that Samsung would become more aggressive on Windows 8 once Microsoft qualifies Samsungs own application processor (based on ARM) for Windows 8. In the first wave of Windows RT, Microsoft has only qualified Qualcomm, NVIDIA and TI as chip partners. But now that TI has announced that they would slowly move OMAP processors away from the Smartphone and tablet market, the need to qualify an additional vendor like Samsung would increase. We believe that Samsung could be qualified as a chip partner for Windows RT in 2H13, which could mark the tipping point for Samsung to be more aggressive on tablets. Currently Samsung is using Qualcomm as the application processor for its Windows RT tablets. More control over Bill of Materials with the move to ARM and Tablets With the move to ARM based processors (which Samsung can manufacture inhouse) and Tablet form factor, Samsung will control a much bigger portion of the Bill of Materials for a Windows 8 Tablet, compared to a mainstream notebook. Hence, Samsung can follow the same strategy as in Smartphones (where it makes most of the key components) to gain share in Tablets / hybrids.

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Asia Pacific Equity Research 27 September 2012

Table 1: Percentage of Bill of materials accounted for by Samsung in Win 8 Tablet and Notebook
Mainstream NB PC Component CPU Motherboard Level Chipset + graphics unit PMIC PCB Connectors ( incl CPU socket) Thermal Components Passive components Other IC Others DRAM (average 4G per box) DVD-ROM Combo/RW Hard disk drive (250GB) Keyboard / pointing device Battery Pack Power adapter Casing Hinge (set) Camera WLAN Module Others Operating System LCD Panel (mainstream: 15.6'') Total Component level Costs % of BOM accounted by Samsung
Source: Company reports and J.P. Morgan estimates.

Done in-house by Samsung Cost (US$) end 2012 80.0 74.5 15.0 4.5 7.0 8.0 5.0 15.0 10.0 10.0 17.5 35.0 50.0 3.0 15.0 7.0 20.0 2.0 3.0 4.0 10.0 50.0 39.0 410.0 NO NO NO NO YES NO NO NO NO NO YES NO NO NO YES YES NO NO YES NO NO NO YES 7 7 18 15 7 3 39 88.5 22%

ARM-based Windows Tablet Component CPU Display (10" IPS) Touch Module Audio Codec/Amplifier Power management IC NAND Flash (32 G) Mobile DRAM (1GB) Camera (Dual) Casings HDI PCB Passives Connectors Adaptor WIFI + Bluetooth other electronics Battery Accelerometer Other IC Cost (US$) End 2012 25 61.0 35.0 1.5 4.5 20.0 10.0 8.0 20.0 8.0 5.0 5.5 4.0 7.0 10.0 20.0 1.0 10.0

Done in-house by Samsung YES YES YES NO NO YES YEs YEs NO YES NO NO YES NO NO YES NO NO 25 61 35 20 10 8 8 4 20 191 54%

Operating System Keyboard dock Total component costs

75 25 356

NO NO

Figure 2: Percentage of Bill of materials controlled by Samsung and their breakdown

55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Display Notebook (x86 based) DRAM Battery Pack PCB Power adaptor Camera ARM based Win 8 tablet NAND Flash CPU Touch

Source: Company reports and J.P. Morgan estimates.

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Asia Pacific Equity Research 27 September 2012

Apple diversification could force Samsungs hand with Windows 8

Apple is clearly moving away from Samsung made components in its new products like iPhone 5 and we expect this strategy to continue. For application processors also, Apple appears to be moving towards TSMC and Intel as supplementary sources to Samsung. If Samsung faces a shortfall in utilization for its own Fabs due to aggressive diversification from Apple, then the move to enter the Windows 8 Tablet / PC space may become a compulsion (to improve its utilization in own Fabs) rather than a choice. Component dependence on PC supply chain is much lower now. In the past, Samsung appeared to be hesitant to move into the PC market due to reliance on PC vendors like HPQ and Dell for component sales especially DRAM and TFT panels, in addition to batteries. But now, the biggest customer for its components is already Samsung brand products both in Smartphones, TVs and tablets. At the same time, many PC vendors (especially Acer and Lenovo) have already made a move to diversify away from Samsung actively in the last few years. As a result of this change, Samsung is able to move into the Windows 8 ecosystem and challenge PC brands without expecting any severe backlash in the form of termination of supply contracts. In 2012, we estimate that Samsung brand products consume 70% of AMOLED panels, 50% of NAND Flash, 45% of Application processors, 40% of DRAM production from Samsung's component divisions. In total, we believe that almost 50% of Samsungs component output is consumed by Samsung brand business.

Impact: Consumer PC brands hurt the most, Europe likely to be market share battleground
Consumer PC brands get hurt the most Samsung has the most brand awareness and channel presence in the consumer space, especially in developed markets. Hence we expect consumer PC vendors to be affected the most due to the rise of Samsung in Windows ecosystem. Enterprise and China relatively insulated, Europe likely market share battleground Samsung has not had much success in the enterprise space, so that market is likely to be well insulated. In addition, China also may not be easy for Samsung to penetrate, especially for open-channel markets, since the PC distribution system is largely segregated from the consumer electronics distribution system. However in Europe, we see the risk of high competition from Samsung as most severe. Samsung already has strong brand presence in other products in Europe, while the distribution channels are also merging (IT and consumer electronics channels) in various Western European countries. In addition, there are no strong

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Asia Pacific Equity Research 27 September 2012

incumbent brands with local presence (Acer and Asus are the strongest consumer brands in Europe). In Europe and Latin America, Samsung has already gained significant market share even without Windows 8 in the last few quarters as shown in Figures 1-4
Figure 3: Samsung NB market share - GLOBAL
8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Samsung NB market share

Figure 4: Samsung NB market share - W Europe

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Samsung NB market share

Source: Gartner

Source: Gartner

Figure 5: Samsung NB market share - East Europe and Middle East

14.0 12.0 10.0 8.0 6.0 4.0 2.0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Samsung NB market share

Figure 6: Samsung NB market share - Latin America

16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Samsung NB market share

Source: Gartner

Source: Gartner

Taiwan ODMs slightly better placed as Samsung seems a bit more open to outsourcing, at least for Intel based products Historically, Samsung has been using its own plants to manufacture products like notebooks and tablets. However in the last 6 months, it has been more open to outsourcing to vendors like Compal in the notebook space. We believe that Samsung may continue to use outsourcing for Intel-based products, while for tablets, in-house manufacturing is likely to be the norm.

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Asia Pacific Equity Research 27 September 2012

Table 3: Valuation Comparison

Rating Hon Hai Quanta Lenovo Samsung LGD Ju Teng Wistron Delta Pegatron Asustek Acer Catcher Compal Wintek OW OW OW OW OW OW N N N N UW UW UW UW Price (LC) 9/27/2012 90.2 76.0 6.49 1338000 27800 3.10 34.85 111 37.3 319.5 28.25 141 26.1 15.65 Mkt Cap US$ mn 36,302 9,950 8,606 176,506 8,990 430 2,608 9,102 2,865 8,188 2,600 3,599 3,919 780 Target Price 110 90 8.1 1800000 36,000 5.0 33 100 37 300 20 120 24 12 EPS Growth 2012E 2013E 5.9% 25.0% 18.1% 22.7% 22.4% 25.6% 67.5% 26.4% NA 418.5% 113.6% 31.9% -23.4% 35.9% 41.8% 10.1% NA 24.5% 21.5% 4.0% -123.8% 206.9% -15.6% 6.7% -12.7% 19.9% NA NA P/E (x) 2012E 2013E 12.2 9.8 10.7 8.7 14.6 11.7 8.6 6.8 39.0 7.5 6.4 4.9 10.5 7.7 17.4 15.8 12.8 10.3 11.5 11.1 49.2 16.2 11.1 10.4 12.0 10.0 NA NA ROE (%) 2012E 2013E 12.2 13.6 20.2 22.5 25.8 31.8 20.2 21.3 2.5 12.1 8.8 10.7 10.7 13.1 17.3 18.0 6.9 7.9 16.8 15.9 2.0 6.2 15.5 14.4 8.5 9.6 -2.8 -1.5 P/B (x) 2012E 2013E 1.5 1.3 2.2 2.0 3.7 3.1 1.9 1.5 1.0 0.9 0.7 0.6 1.1 1.0 3.0 2.9 0.8 0.8 1.9 1.7 1.0 1.0 1.6 1.4 1.0 1.0 0.8 0.8

Source: Company reports and J.P. Morgan estimates.

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Asia Pacific Equity Research 27 September 2012

Companies Recommended in This Report (all prices in this report as of market close on 27 September 2012) ASUSTek Computer (2357.TW/NT$319.50/Neutral), Acer Inc (2353.TW/NT$28.25/Underweight), Compal Electronics, Inc. (2324.TW/NT$26.10/Underweight), Lenovo Group Limited (0992.HK/HK$6.49/Overweight)
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Acer Inc, ASUSTek Computer, Compal Electronics, Inc., Lenovo Group Limited. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Acer Inc, Compal Electronics, Inc., Lenovo Group Limited. Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Compal Electronics, Inc.. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Acer Inc. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Acer Inc, Compal Electronics, Inc., Lenovo Group Limited. Gartner: All statements in this report attributable to Gartner represent J.P. Morgan's interpretation of data opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publication speaks as of its original publication date (and not as of the date of this report). The opinions expressed in Gartner publications are not representations of fact, and are subject to change without notice. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailing research.disclosure.inquiries@jpmorgan.com with your request.
Date
Acer Inc (2353.TW, 2353 TT) Price Chart
174

Rating Share Price (NT$) 60.55 76.18 52.19 64.09 57.62 39.85 42.52 41.78 42.57 44.55 52.48 68.00 78.00 95.00 79.50 88.90 76.90 72.80 52.50 44.30 33.45 N N UW N N OW OW OW N OW OW OW OW OW OW N N UW N N

Price Target (NT$) 67.00 70.00 55.00 52.00 56.00 43.00 55.00 50.00 48.00 48.00 63.00 83.00 92.00 110.00 95.00 105.00 72.00 64.00 40.00 40.00 36.00

16-May-07 N 28-Oct-07 21-Mar-08 20-Apr-08 17-Jul-08 28-Oct-08 02-Nov-08 28-Nov-08 06-Feb-09 01-Mar-09 02-Apr-09 20-Aug-09 03-Sep-09 05-Mar-10 03-Oct-10

N NT$56 NT$50 OW OW NT$63

UW NT$40

N NT$33

145

UW NT$52 NT$55 OW NT$92 OW N NT$48

OW NT$105 N NT$64

N NT$36NT$20 UW N NT$40 NT$28 N

116 Price(NT$)

N NT$67 NT$70 NT$55 N NT$43 N N OW NT$48 NT$83 NT$110 NT$95 OW OW OW N NT$72

87

58

29

0 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12

Oct 12 17-Feb-11

01-Nov-10 27-Mar-11 20-Apr-11 16-Feb-12 27-Apr-12

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage May 16, 2007.

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Asia Pacific Equity Research 27 September 2012

07-Jun-12 15-Aug-12 19-Aug-12 Date 02-Jul-07 04-Sep-07

ASUSTek Computer (2357.TW, 2357 TT) Price Chart

N N UW

31.45 26.45 26.80

33.00 28.00 20.00 Price Target (NT$) 354.16 410.08 410.08 466.00 279.60 219.02 139.80 177.08 246.98 326.20 354.16 326.20 276.00 227.00 300.00 244.00 251.00 250.00 260.00 220.00 210.00 235.00 365.00 350.00 300.00

Rating Share Price (NT$) UW UW N OW OW OW UW UW N OW OW OW OW N N N N N N N OW N 376.73 412.81 344.71 349.36 210.24 176.52 155.35 211.40 246.98 284.29 304.34 265.65 240.50 238.50 265.50 247.50 263.00 264.00 244.00 210.50 201.50 276.00 295.00 291.00 290.00

29-Jan-08 29-Jun-08 28-Oct-08 28-Nov-08 09-Jan-09 07-Jul-09 16-Aug-09 30-Oct-09 08-Jan-10 12-Apr-10 24-Jun-10 15-Aug-10 14-Feb-11 02-Aug-11 01-Nov-11 30-Nov-11 27-Feb-12 07-Jun-12 23-Aug-12

726 UW NT$410.08 605

UW NT$139.8 OW NT$326.2 OW NT$276 OW NT$219.02N NT$246.98 W NT$326.2 O

N NT$251N NT$220 NT$365 OW N NT$244N NT$260N NT$235 NT$300 N N NT$250 N NT$210 W NT$350 O

UW NT$354.16 OW NT$466 N NT$410.08 OW NT$279.6 W NT$177.08 U OW NT$354.16 NT$227 N N NT$300 484 Price(NT$) 363 242 121 0 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10

01-Dec-10 N 02-May-11 N
Apr 11 Jan 12 Oct 12 29-Aug-11

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Jul 02, 2007.

01-May-12 OW

Compal Electronics, Inc. (2324.TW, 2324 TT) Price Chart

Date
UW NT$14 UW NT$31 75 N NT$16 60 UW NT$21 N NT$33 N NT$35 OW NT$40 OW NT$36 Price(NT$) 45 UW NT$27 UW NT$32 NT$28 UW UW NT$23 NT$25 UW UW NT$32 UW NT$24

Rating Share Price (NT$) UW N N OW OW UW UW UW UW UW UW UW UW UW 28.91 37.83 36.88 32.23 22.29 18.31 15.97 37.05 39.10 40.50 35.60 32.70 27.80 33.20 28.30

Price Target (NT$) 21.00 33.00 35.00 40.00 36.00 16.00 14.00 27.00 32.00 31.00 32.00 28.00 23.00 25.00 24.00

23-Oct-06 23-Jul-07 30-Nov-07 20-Jun-08 13-Oct-08 11-Jan-09

08-Dec-08 N 25-Sep-09 05-Oct-09 12-Oct-09 09-Sep-10 27-Mar-11

Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12 01-Apr-12

30

15

01-Nov-11 22-Jun-12

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Oct 23, 2006.

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Asia Pacific Equity Research 27 September 2012

Date 24-Oct-06 12-Nov-06 01-Feb-07

Lenovo Group Limited (0992.HK, 992 HK) Price Chart
18 N HK$3.2 HK$6.2N HK$7 N N HK$1.95 UW HK$4.2 HK$4.9 N OW HK$8.5

Rating Share Price (HK$) N N N N N N N N N N N UW UW UW UW UW N N OW OW OW OW OW 3.45 3.13 3.17 3.21 4.63 5.10 8.74 5.88 4.77 5.30 2.54 1.92 1.79 1.62 3.88 4.38 5.23 5.60 5.19 4.75 5.21 4.18 4.64 5.60 6.49 6.61 6.53

Price Target (HK$) 3.50 3.00 3.20 4.00 5.40 6.20 9.50 9.00 7.00 6.10 2.35 1.95 1.45 1.19 3.20 3.40 4.20 6.00 5.50 4.90 6.30 5.80 5.80 6.60 7.20 8.50 8.10

24-May-07 N 27-Jul-07 03-Aug-07 05-Nov-07 10-Jan-08 31-Jan-08 22-Jul-08 28-Oct-08

N HK$3 12 Price(HK$)

N HK$5.4 HK$9 N

N HK$2.35 UW HK$1.19 UW HK$3.4 N HK$5.5

OW HK$7.2

N HK$3.5N HK$4 HK$9.5 N HK$6.1 N UW HK$1.45UW HK$3.2

N HK$6OW HK$6.3 HK$5.8 OW HK$5.8 HK$6.6 HK$8.1 OW OW OW

10-Nov-08 28-Nov-08 06-Feb-09 09-Aug-09 05-Nov-09 09-Feb-10

0 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12

05-May-10 N
Oct 12 20-Aug-10

05-Aug-10

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Oct 24, 2006.

01-Dec-10 OW 21-Mar-11 05-Jul-11 03-Nov-11 10-Feb-12 07-Jun-12

18-May-12 OW

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.morganmarkets.com. Coverage Universe: Hariharan, Gokul: ASUSTek Computer (2357.TW), Acer Inc (2353.TW), Catcher Technology (2474.TW), Compal Electronics, Inc. (2324.TW), Delta Electronics, Inc. (2308.TW), Foxconn Technology (2354.TW), Hon Hai Precision (2317.TW), Lenovo Group Limited (0992.HK), Lite-On Technology Corporation (2301.TW), Pegatron Corp (4938.TW), Quanta Computer Inc. (2382.TW)

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Asia Pacific Equity Research 27 September 2012

J.P. Morgan Equity Research Ratings Distribution, as of July 6, 2012

J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients* Overweight (buy) 45% 51% 44% 70% Neutral (hold) 43% 47% 48% 62% Underweight (sell) 11% 34% 8% 51%

*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.morganmarkets.com , contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com. Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

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This document is being provided for the exclusive use of BRUNO LE BARBER at VORTEX CAPITAL LIMITED

Gokul Hariharan (852) 2800-8564 gokul.hariharan@jpmorgan.com

Asia Pacific Equity Research 27 September 2012

publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. JPMSAL does not issue or distribute this material to "retail clients". 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Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised August 25, 2012.

Copyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P

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