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Asia Pacific Credit Research

22 July 2013

Asia Credit Roundup


Weekly Review, Chinese Banks, SCB, KBank, Hana, KEB, Reliance, Hutch, MIE, Future Land
Weekly review July 19, Second consecutive week of gains Chinese Banks PBOC liberalizes lending rates SCB Solid earnings; bonds look fair KBank Decent earnings dont change our UW view Hana and KEB Diverging trends; bonds offer value Reliance Industries Stable 1QFY14 results; stay OW on credit Hutch Potential divestment of retail business in Hong Kong MIE Management reshuffled Future Land Issued profit warning for 1H13
Asia Corporate Research Soo Chong Lim
AC

(852) 2800-7931 soo.ch.lim@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited


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Daniel Fan

(852) 2800-8080 daniel.cc.fan@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited


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Varun Ahuja, CFA

(852) 2800 8030 varun.x.ahuja@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
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Matthew Hughart

(852) 2800-8029 matthew.hughart@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited


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Matt L Hildebrandt

Weekly review July 19, Second consecutive week of gains


The Asia credit market continued its upward march last week, chalking up 0.8% total return, driven by both lower UST yields and tighter credit spreads. Fed Chairman Bernankes Humphrey-Hawkins testimony was dovish and pushed UST yields lower by 10-12bp in the belly of the curve. Credit spreads also tightened by 5bps last week, bringing spreads down to 287bp, a level last seen in early June. The best performer was sovereigns, which turned in 1.8% total return last week. Besides being the main beneficiary of lower UST yields given its long duration of 7.65 years, the sector also saw credit spreads tighten by 16bp, which was almost on par with 17bp tightening for Asia HYs. The second-best performer was the HY sector, which chalked up 1.3% total return with double-B (+1.7% total return) outpacing single-B (+1.1% total return). Quasisovereigns were dragged along by sovereigns, reporting 0.8% total return, in line with the overall market, as credit spreads tightened by 6bp. IG corporates and financials lagged somewhat with 0.3% total return as their spreads widened by 5bp and 1bp, respectively, but benefited from lower UST yields. The JACIs performance last week somewhat lagged the other major EM credit indices, i.e. CEMBI Broad (+1.3% total return) and EMBIG (+2.5% total return). Within CEMBI, the Asia component (+0.6% total return) lagged the other two regions, i.e. Latam (+1.9%) and CEEMEA (+1.5%). In our view, the uptick in the market was largely technically driven as we continued to see marginal deterioration in the macro backdrop. In Indonesia, the IDR spot price broke above the 10,000 psychological level after the government announced some swap facilities. In China, slower GDP numbers could still have some credit implications for the market.

(65) 6882-2253 matt.l.hildebrandt@jpmorgan.com JPMorgan Chase Bank, N.A., Singapore Branch

See page 10 for analyst certification and important 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

Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

In our view, the liberalization of lending rates in China is positive in the longrun as part of the restructuring of the China banking system, but will have limited impact in the short term. The PBOC on Friday announced the liberalization of lending rates in China, effective as of Saturday. As noted by our China economist, Haibin Zhu, in a report entitled China: PBOC removed lending rate control, banks had previously only been allowed to lend at no less than 70% of the lending rate. Other steps were removing controls on pricing mechanisms of discounted bills, and removing lending caps on rural credit unions. We do not think the reforms will have a large impact on banks operations; only a very small portion of loans are priced below the lending rate. The act is significant, however, in that it is another indication of policymakers focus on moving forward with structural reforms. Our meetings in Hong Kong suggested that investors are cautious but not overly bearish. We met with 23 accounts in Hong Kong last week. This is the second leg of mid-year outlook marketing in Asia, following on our early July visit in Singapore, where we met with 22 accounts. The story line from the Hong Kong investor base is relatively similar to what we heard in Singapore. That said, we sense a slight improvement in tone, probably reflecting the modest improvement in recent weeks. There were more discussions on specific credits in Hong Kong, instead of pure focus on fund flows in Singapore. We read this slightly positively, suggesting that clients are reassessing credits, which is likely a step closer to pulling the trigger. On the buy camp are private bank clients and insurance, focusing on different market segments. Given their treatment of corporate bonds as annuity, the two investor bases are thus better placed to take the short-term swing in prices. Private bank clients are largely staying at the short-end of the HY space (in particular China property bonds), while insurance companies still favor singleA and above credits in the 10-year sector. Real money accounts are largely sitting on the sidelines, notwithstanding the fact that retail outflow has abated significantly from June levels. Their reasons for not getting involved include: i) outflows, albeit abated, are still ongoing; ii) lack of liquidity and wide bid-offer spreads; iii) difficulty reading UST yields; and iv) risk of re-pricing due to new issue premiums. A slight twist to the fast money story is that we heard more mixed views from Hong Kong fast money accounts, who are looking for both long and short ideas; unlike the overall bearish views of Singapore-based HFs that focus mostly on what to short. We are surprised to hear from several accounts complaining that they could not find bonds that they want to buy, suggesting that the market remains dysfunctional. It remains very crowded trades that most accounts are looking for similar bonds, of which the holders are not willing to let go. The new issue market saw the second print after a month hiatus, this time from a new HY issue from Indonesia. Multipolar managed to raise US$200m from the market. Overall, the weak open suggested that the primary market could remain challenging for HY. The fact that this first-time issuer (albeit the underlying assets are not new) managed to cross the finishing line showed that investors were willing to put some money to work. However, the close to 2 point drop on the break could mean that investors will ask for heftier new issue premiums as a buffer. This has led to some concerns that the build-up in the new issue pipeline could continue to put pressure on the secondary market. In our view, the supply risk will remain something to monitor, but would likely be limited to IG names for now. Several sectors that we expect to see new issues would be Indian corporates and banks, and China IG corporates.

Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

Results season kicked off for Asian financials, with reports from a few Thai and Indian issuers. The former group continued to report relatively strong results, with modest pressure on asset quality and margins, although we view the reports collectively as supporting strong fundamentals. We generally see better value in Korean commercial banks that have lagged and are trading at even spread to BBL. HDFC, Axis Bank, and IDBI in India reported results that were generally soft. The private sector names HDFC and Axis showed credit quality weakening from strong levels, and this impacted profitability. IDBIs report continued a trend of difficult results, with continuing asset quality weakness, challenges to profitability, and a shrinking balance sheet. We maintain our cautious view on Indian banks as we await results from other lenders. Not surprisingly, the shorter end of the Asian IG corporates curve performed relatively better in the stronger markets last week. Even as Asian IG corporate spreads widened slightly overall, it was mainly due to the 10yr and beyond part of the curve. In China, Bright Foods, CHCONS, CR Land 16s, Tingyi 17s and the 2017 bonds in Korea and Hong Kong all outperformed and were 25-50bps tighter over the week. On the other hand, 10yr bonds from China and HK were ~10-20bps wider over the week. Korean quasi-sovereign bonds continue to grind tighter during the week but remain wider than their 2013 tights and still wider than HK/China single-A credits. Results season kicks off with Reliance Industries announcing in-line results and balance sheet remaining strong, as expected. We believe Reliance 20s and 22s being ~40-45bps tighter to Indian quasi-sov corporates looks fair for now, given that it does price in some downgrade risk for the quasi-sovs, should sovereign ratings risk increase, although we think it is more of a next year story, if at all. However, we do see value in ONGC 18s over 23s as we think the curve looks flattish at ~20bps spreads differential vs. single- A oil & gas credits like CNOOC, Sinopecs 18/23s curve differential at 50bps, BBB-rated curve like China Overseas Land 17/22s or Yanzhou 17/22s is 60-80bps apart and even IOCLIN 15/21 or RILIN 16/22 are ~70bps apart. This week, we have results from CKI and Power Assets, amongst others, which shall dominate news flow. We expect stable results from both the credits. Also, Hutch was in the news on possible sale of its HK retail company ParknShop, and per WSJ, company can raise US$1-2B from the same. China HY bonds in general continued to experience a rebound as concerns over credit tightening onshore eased and tapering from the US. China property sector bonds saw a strong price recovery of 2 points on average. Higher house price in June, the fifth consecutive month that more than 90% of cities saw mom price increase, also helped sentiment. Long dated bonds such as Country Garden 23s (+4.3 pts), SOHO 22s (+3.3 pts) and Longfor 19s (+3.3 pts) benefited the most. Agile perps also gained 2.8 points. Shorter dated niche market players Gemdale 17s (+3 pts) and Franshion 17s (+3 pts) also played catch up. We also saw similar situation in the single-B space where longer dated bonds like Central China 20s (+3.8 pts), Fantasia 20s (+3.8 pts), Kaisa 20s (+3.8 pts) and Shimao 20s (+3.5 pts) had the strongest rebound. Industrial bonds had a weaker price rebound of 0.4 points on average and price performance was mixed as each individual industry still has its own issues. The coal mining industry continued to be the worst performer on continued concerns over weak coking coal prices. Mongolian Mining 17s (-2.5 pts), Hidili 15s (-2 pts) and Winsway 16s (-1 pt) were all lower. In the machinery sector, Zoomlion 22s (-2 pts) and Hyva (-0.6) were lower while Lonking 16s gained 1 point. Shanshui 16s lost 0.5 point on
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Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

profit warning for 1H13 but the 17s gained 0.5 point. On the other end of the spectrum, Liansu 16s gained 3 points on lower raw material and fuel costs. Fufeng 16s (+2.3 pts) were also an outperformer, benefitting from lower corn and coal costs. Looking ahead into next week, we expect the market to continue its rebound especially for the property sector but at a slower pace ahead of results in August. In tandem with the positive tone for the market, Indonesian HY corporates gained between 0.5 and 1.75 points with the exception of the Bakrie complex. Bumi 16s and 17s were 6.5-7.5 points lower for the week, making them the worst performers in the sector. Berau 17s also closed the week about 1 point lower, and Bakrie Telecom ended 1.5 points lower. Outside of the Bakrie complex, laggards in the recent selloff turned into best performers last week. In the coal sector, Indika was the best performer. Indika '18s and 23s were up 0.5 and 1.75 points respectively. Adaro '19s closed flat for the week as its price was capped by digestion of a large block trade. The property sector also closed the week on higher ground. Lippo Karawaci 19s were the best performer gaining 1.75 points. Other issues were 1.0 to 1.25 points higher. Another sector that did well was the consumer plays, such as Bhakti Investama 18s (+1.5 points), Japfa 18s (+1.25 points) and Gajah Tunggal 18s (+1.0 points), Defensive sectors such as IPP and telco lagged somewhat. Cikarang 19s gained +0.75 points, while Star Energy 20s, Indosat '20s and Tower Bersama 18 were up 0.5 points. One positive note is that the secondary market spreads have not reacted too adversely to the poor performance of the new print Multipolar 18s. In our view, the sector would likely perform inline with the overall market in the coming week. We make several changes to our target yields. We are adjusting our target yield on Country Garden 18s to 5.25% from 6.5% after the recent price rebound on the sector. We are also changing our target yield on Star Energy to 6.25%, bringing them in line with the expectation on the broader market.

Chinese Banks PBOC liberalizes lending rates


The PBOC on Friday announced the liberalization of lending rates in China, effective as of Saturday. Previously, banks had only been allowed to lend at no less than 70% of the lending rate. We dont think this will have a large impact on banks operations. Only a very small portion of loans are priced below the lending rate at all, and no banks offer loans near the 30% discount to the benchmark lending rate (for more detail, please see the comment from our China economist, Haibin Zhu, titled, China: PBOC removed lending rate control). The act is significant, however, in that it is another indication of policymakers focus on moving forward with structural reforms. We believe that these reforms are likely to pressure profitability, and possibly asset quality. Future steps may include deposit rate liberalization, the implementation of a deposit insurance scheme, and a reduction in targeted lending requirements. We maintain a cautious view on Chinas banks, which we prefer to express through long CDS positions, possibly paired with short CDS on the sovereign. (Matt Hughart)

SCB Solid earnings; bonds look fair


Siam Commercial Bank reported solid 2Q earnings, with good loan and revenue growth. The bank also increased provision expense to maintain reserve coverage at comfortable levels. Basel 3 core capital levels, while solid at 11.1%, lag peers by 40-90bps. This may explain why the name tends to trade the widest of the Thai banks. SCBTB 3.375% 2017 bonds are offered at SOT+140bp (z-spread 155bp), which is around 15bp behind BBL. While we think the two names should
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Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

trade flat to each other, the latter tends to be better supported, and spreads may not compress significantly from here. We maintain our neutral view on the bonds. More generally, we think there is better value in select Korean names. Operating revenues grew 1% q/q and by 19% y/y. A 3.5% q/q decline in noninterest income was more than offset by a 3.9% improvement in net interest income. The latter item was helped by loan growth of 3.6%, and 1bp of NIM expansion, to 3.14%. Operating expenses grew slightly faster than revenues, at 3.7% in the quarter, and the cost / income ratio increased somewhat to 40.5%, from 39.3%. Loan loss provisions were 2.7% higher than in the prior quarter, on the back of a larger loan portfolio, and the provision / average loan ratio grew 2bp, to 0.65%. NPLs increased in line with loan portfolio growth, by 3.6%, while the related ratio increased 1bp to 2.32%. Capital continues to modestly lag peers, with the Basel 3 Tier 1 ratio at 11.1%, and the CAR at 14.5%. Liquidity, as measured by the loan / deposit ratio, improved to 91.9%, a 1.4% pt decline. (Matt Hughart)

KBank Decent earnings dont change our UW view


Kasikornbank reported good earnings that were largely uneventful. The bank's bond spreads tend to trade in between BBL and SCB, although we generally prefer to own SCB. With KBANK 3% 2018 bonds offered at SOT+148bp (zspread 144bp), we think upside is limited, at only a few bp behind BBL. More broadly, throughout the high-BBB / Single A space, we prefer to own Korean banks, some of which are trading at flat z-spreads to KBank. We maintain our underweight view at this juncture. Operating revenues grew 6.5% q/q, and 18.1% y/y. Non-interest income was a big driver, increasing 9.9% sequentially, while net interest income was up 4.2%. This latter line was supported by 3bp of margin expansion, to 3.53%, while loan balances grew 2.6% q/q. Expenses jumped however, pushing the cost / income ratio up by 2.6% pts, to 42.6%. Provision expense declined and supported the bottom line, falling 38% sequentially. This weakened reserve coverage by 5% pts, and it is now at 133%. NPLs grew 3.7% in the quarter, while the related ratio increased 2bp to 2.49%. Restructured loans grew 3.0%. Basel 3 capital ratios remain strong, with the core Tier 1 ratio at 12%, a 50bp increase, and the CAR 16.2%. This is 41bp higher than the prior quarter. The loan /deposit ratio was flat at 92%. (Matt Hughart)

Hana and KEB Diverging trends; bonds offer value


Hana Bank and KEB's 2Q results reflected some divergences, with trends at KEB strengthening. Overall, we think the two names offer value at current spreads, with spreads roughly 20bp behind Shinhan, which has already moved to the recent tights. Hana Bank 3.5% 2017 bonds are offered at SOT+125bp (zspread 136bp), while the KEB 3.125% 2017 bonds are offered at SOT+120bp (zspread 142bp). These z-spreads are roughly 20bp behind Shinhan, suggesting some upside from current levels, despite relatively weak 2Q earnings reports. Net income at Hana Bank declined by nearly 50% q/q and by 26% y/y. This was partly due to compression in the net interest margin, which declined 3bp to 1.55%. On the other hand, loan balances increased 2.2% q/q. The cost / income ratio weakened by nearly 5% pts, to 53.0%. Credit quality also weakened, with delinquencies ticking up 7bp to 0.50%, driven by a 14bp spike in corporate delinquencies. The NPL ratio increased 5bp to 1.13%. Core capital was better in 2Q, growing 5bp to 9.76% from the prior quarter. The CAR weakened by 21bp to 13.60%.
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Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

Earnings for KEB showed sequential strength, growing to KRW126 billion, up from KRW 30 billion in the prior period. The NIM contracted by 3bp, which we think is understandable in the current rate environment. Loan balances increased 1.1% from the prior period. In contrast to Hana Bank, the movement in credit metrics was favorable, although the absolute levels are relatively weaker. The NPL ratio fell 5bp to 1.16%, while delinquencies declined 11bp to 0.82%, reflecting improvement in both corporate and household lending. The Tier 1 ratio improved by 5bp in the quarter, to 10.58%, while the CAR slipped 20bp to 12.51%. (Matt Hughart)

Reliance Industries Stable 1QFY14 results; stay OW on credit


Reliance Industries reported stable 1QFY14 results on Friday. The companys EBITDA grew 5%yoy but lower 10%qoq which is not surprising given weaker refining GRMs. Petchem segment contributed stable earnings and would remain the mainstay driver of companys earnings in the near to medium term, in our view. E&P segment remains a laggard on falling production although company could look to increase capex in the coming years, to reverse the falling trend. Positive news flow in the E&P segment pertaining to increase in gas prices should not only help improve sentiment but also incentivize the company to increase capex in its Indian oil & gas fields. US shale gas business continues to grow with revenues at US$214 million (+84%yoy). Balance sheet remains strong with company in net cash position on standalone basis and less than 1x net leverage on consolidated basis. In terms of capex, it is looking to grow organically (such as petchem expansion project due to commence in 2015) along with investments in E&P in India (approvals for investments of US$1.2B) and US shale gas business. We also expect capex in telecom business to continue as it looks to roll out services in that segment but being asset light model, it is likely to be manageable. In terms of valuations, we think Reliance bonds looks fair at 40-50bps inside other Indian quasi-sov bonds to account for better ratings and higher linkage of the latters ratings with the sovereign. Nevertheless, the bonds still offer slight value to Thai oil & gas bonds which still look on relatively tight. (Varun)

Hutch Potential divestment of retail business in Hong Kong


Hutch announced that it is looking to conduct strategic review of its Hong Kong super market retail business to optimize value for its shareholders. This was in response to media reports (such as on Bloomberg and WSJ) that the company could be looking to sell its ParknShop super market chain in the city and could raise ~US$1-2B from the sale. We take the announcement as small positive given the potential cash coming in and would help raise funding in other investments it is looking to make, especially in Europe, where it has got more active recently, especially in utility as well as telecom businesses. We see better value in the Hutch perps as defensive trade with potentially short duration, limited interest rate risk and decent yields. We think Hutch 22s looks bit tight at flat spreads to high quality China SOE credits such as CNOOC, CNPC and Sinopec 22s and prefer the latter space at these relative valuations. (Varun)

Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

MIE Management reshuffled


MIE announced that Allen Mak has resigned as CFO and joint company secretary and Executive Director Forrest Dietrich has resigned as Executive Director both will remain VPs with the company. The company has appointed ex-investment banker Dexter Tao as the new CFO and its chief geologist Andrew Harper to take up Forrest Dietrichs position. In our view, MIEs management reshuffle is credit neutral as both Allen and Forrest are staying with the company. That said, the hiring of an ex-investment banker as CFO may indicate that the company is aggressively looking to for opportunities in capital market and/or acquisitions. We are maintaining our Neutral recommendation in MIE 16s (NR/B+/B, 106.25offer, 7.2%ytw) and 18s (NR/B+/B, 96.75offer, 7.7%ytw) from a relative value perspective. (Daniel)

Future Land Issued profit warning for 1H13


Future Land issued a profit warning for 1H13 results due to 1) an increase in finance costs after the issuance of 10.25% US$200 million 18s and 9.75% RMB1.5 million 16s and 2) a decrease in gross profit margin as a result of changes in product mix and geographic breakdown of deliveries. In 1H12, the company reported a net profit of RMB152 million. Total interest cost from the issuance of the bonds in 1H13 is calculated to be around RMB80 million. (Daniel)

Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

Table 1: Global Credit Indices Performance


Index As of Jul 19, 2013 Asia JACI JACI Sovereign JACI Sovereign IG JACI Sovereign HY JACI Quasi-sov JACI Quasi-sov IG JACI Quasi-sov HY JACI Financials JACI Corporate (exfin) JACI Corporate (exfin) IG JACI Corporate (exfin) Single A JACI Corporate (exfin) BBB JACI Corporate (exfin) HY JACI Corporate (exfin) BB JACI Corporate (exfin) B EM comparables CEMBI Broad CEMBI Broad IG CEMBI Broad HY CEMBI Broad Asia CEMBI Broad Asia IG CEMBI Broad Asia HY CEMBI Broad CEEMEA CEMBI Broad LATAM CEMBI Broad LATAM IG CEMBI Broad LATAM HY IG EMBIG EMBIG IG EMBIG HY US comparables JULI JULI A JULI BBB JULI Financials US HY US HY BB US HY B
Source: J.P. Morgan.

Total return, % 1wk chg YTD Index Index 0.8% 1.8% 1.9% 1.0% 0.8% 0.8% 0.8% 0.3% 0.7% 0.3% 0.2% 0.4% 1.3% 1.7% 1.1% 1.3% 1.3% 1.3% 0.6% 0.4% 1.2% 1.5% 1.9% 2.2% 1.1% 2.5% 2.5% 2.8% 1.0% 0.9% 1.1% 0.9% 1.2% 1.2% 1.2% -2.7% -6.9% -7.8% -4.3% -3.7% -3.7% -2.4% 0.1% -1.6% -2.9% -2.4% -2.1% 0.2% 0.8% -1.2% -2.8% -3.1% -1.7% -1.4% -1.9% -0.2% -1.4% -5.2% -5.0% -5.6% -5.9% -6.8% -4.6% -1.8% -2.0% -1.6% -0.4% 4.3% 1.9% 4.8%

Cur SOT 287 210 192 427 208 204 402 255 356 222 174 282 557 511 894 353 269 555 321 231 515 353 377 294 638 310 200 654 142 109 184 151 482 328 496

SOT, bp 1wk chg SOT -5 -16 -16 -10 -6 -6 -14 1 -3 5 6 3 -17 -28 -18 -8 -7 -11 3 8 -9 -13 -16 -19 -4 -22 -18 -33 -4 -3 -6 -5 -21 -16 -26

YTD SOT 24 35 21 250 27 23 208 -8 12 -7 -14 -4 -8 -25 -2 27 16 8 26 3 32 14 42 30 8 46 42 208 2 0 5 -3 -66 -32 -59

z-spread, bp 1wk Cur chg YTD z-sprd z-sprd z-sprd 274 194 172 404 184 179 384 229 352 206 144 277 572 494 878 344 252 567 309 207 531 331 385 294 658 307 188 658 129 96 172 137 -7 -17 -18 -10 -8 -8 -15 0 -4 4 6 1 -19 -30 -19 -9 -8 -11 2 7 -10 -15 -17 -20 -4 -24 -19 -34 -3 -2 -5 -4 35 36 23 240 39 36 215 -8 24 0 -5 -3 7 -23 0 32 17 15 35 8 39 18 44 31 20 47 40 210 -8 -10 -5 -11

YTM Cur Yield 5.1% 4.7% 4.6% 6.1% 4.2% 4.2% 5.0% 4.4% 5.9% 4.6% 3.7% 5.3% 7.8% 6.7% 10.1% 5.7% 4.9% 7.7% 5.4% 4.4% 7.4% 5.4% 6.2% 5.4% 8.7% 5.7% 4.6% 8.9% 4.1% 3.8% 4.4% 3.8% 6.0% 4.8% 5.9%

Dur Cur Dur 5.44 7.65 8.02 5.03 5.49 5.55 3.51 3.60 5.40 6.01 5.72 5.25 4.59 4.39 3.50 5.42 5.68 4.80 5.02 5.22 4.58 4.94 6.24 6.57 5.35 7.11 7.74 5.40 6.94 7.15 6.87 5.40 3.77 4.83 3.29

Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

Table 2: Top Picks and Pans


Current Cur YTW 3.24 2.56 3.42 3.34 2.92 2.93 2.98 5.65 5.51 6.40 4.05 2.33 10.07 zspread 209 137 209 215 239 202 166 513 423 448 154 123 868 Target zspread 145 95 145 145 183 200 110 481 385 421 225 160 704 Inv. horizon 12/13 09/13 12/13 12/13 12/13 12/13 12/13 12/13 12/13 12/13 12/13 09/13 12/13

Issuer Top Picks DBS Hana Bank OCBC UOB Hutchison 6%old Lifestyle Tencent Country Garden Cikarang Star Energy Top Pans Bangkok Bank CIMB Agile

Bond 3.625% '22 (c17) 3.5% '17 3.15% '23 (c18) 2.875% '22 (c17) 6% Perps 5.25% '17 3.375% '18 11.125% 18 6.95% '19 6.125% '20 3.875% 22 2.375% '17 8.25% Perps

Ratings Aa2 /*-/A+/A+ A1/A/WD Aa2 /*-/A+/A+ Aa2 /*-/A+/A+ Baa2/BBB/BBB Baa3/NR/BBBBaa1/A-/NR Ba3/BB-/NR Ba2/BB-/NR B2/NR/B+ A3/BBB+/BBB+ A3/A-/NR NR/NR/NR

Price 102.03 103.76 99.74 99.11 106.50 107.67 101.69 113.25 105.75 98.50 98.67 100.17 93.75

Price 104.16 105.08 102.11 101.43 106.50 106.55 103.28 111.69 106.25 99.35 92.81 98.65 85.35

Yield 2.45 2.19 2.62 2.48 2.34 3.00 2.54 5.25 5.25 6.25 4.89 2.75 12.04

Return 3.7% 1.9% 3.8% 3.6% 2.5% 1.1% 3.0% 2.9% 3.3% 3.6% -4.1% -1.0% -5.0%

Source: Source: J.P. Morgan. Prices, yields and spreads as of 07/19/2013. Note: Except when noted otherwise, spreads and yields shown are to worst call date. Target prices/spreads shown in bold indicate price targets adjusted this week. * Indicates new trade. ** Indicates yields shown are to maturity, not to worst

Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

Disclosures Conflict of Interest This research contains the views, opinions and recommendations of J.P. Morgan research analysts. J.P. Morgan has adopted research conflict of interest policies, including prohibitions on non-research personnel influencing the content of research. Research analysts still may speak to J.P. Morgan trading desk personnel in formulating views, opinions and recommendations. Trading desks may trade, or have traded, as principal on the basis of the research analysts views and research. Therefore, this research may not be independent from the proprietary interests of J.P. Morgan trading desks which may conflict with your interests. As a general matter, J.P. Morgan and/or its affiliates trade as principal in connection with making markets in fixed income securities discussed in research reports. Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Axis Bank Ltd, HDFC (Housing Development Finance Corporation), China Construction Bank, China Resources Land, Reliance Industries Ltd, CNOOC, Sinopec Corp - H, Cheung Kong Infrastructure, Country Garden Holdings, Gemdale, Franshion Properties (China) Ltd., Central China, Kaisa Group Holdings, Shimao Property Holdings, Bhakti Investama, Hana Bank, Shinhan Bank, Shinhan Financial Group, Power Assets Holdings Ltd within the past 12 months.

Analyst Position: The following analysts (and/or their associates or household members) own a long position in the shares of Reliance Industries Ltd: Varun Ahuja. The following analysts (and/or their associates or household members) own a long position in the shares of Cheung Kong Infrastructure: Soo Lim. The following analysts (and/or their associates or household members) own a long position in the shares of Country Garden Holdings: Soo Lim. The following analysts (and/or their associates or household members) own a long position in the shares of Mongolian Mining Corporation: Varun Ahuja. The following analysts (and/or their associates or household members) own a long position in the shares of Bakrie Telecom: Daniel Fan. The following analysts (and/or their associates or household members) own a long position in the shares of MIE Holdings Corporation: Varun Ahuja.

An affiliate of JPMS owns a significant stake in HDFC Securities Limited, a privately held subsidiary of HDFC.

J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Shinhan Financial Group and owns 21,715,200 as of 19-Jul-13. 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 e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail research.disclosure.inquiries@jpmorgan.com. Company-Specific Disclosures: J.P. Morgans Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail research.disclosure.inquiries@jpmorgan.com. Explanation of Credit Research Ratings: Ratings System: J.P. Morgan uses the following sector/issuer portfolio weightings: Overweight (over the next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark), Neutral (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or benchmark), and Underweight (over the next three months, the recommended risk position is expected to underperform the relevant index, sector, or benchmark). J.P. Morgan's Emerging Market research uses a rating of Marketweight, which is equivalent to a Neutral rating. NR is Not Rated. In this case, J.P. Morgan has removed the rating for this security because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating no longer should be relied upon. An NR designation is not a recommendation or a rating. Valuation & Methodology: In J.P. Morgan's credit research, we assign a rating to each issuer (Overweight, Underweight or Neutral) based on our credit view of the issuer and the relative value of its securities, taking into account the ratings assigned to the issuer by credit rating agencies and the market prices for the issuer's securities. Our credit view of an issuer is based upon our opinion as to whether the issuer will be able service its debt obligations when they become due and payable. We assess this by analyzing, among other things, the
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Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

issuer's credit position using standard credit ratios such as cash flow to debt and fixed charge coverage (including and excluding capital investment). We also analyze the issuer's ability to generate cash flow by reviewing standard operational measures for comparable companies in the sector, such as revenue and earnings growth rates, margins, and the composition of the issuer's balance sheet relative to the operational leverage in its business. Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.

Other Disclosures
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Soo Chong Lim (852) 2800-7931 soo.ch.lim@jpmorgan.com

Asia Pacific Credit Research 22 July 2013

that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. 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Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised May 4, 2013.

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