January 7, 2019

2019 Outlook: Greater China

The Year of Living Dangerously

No Longer a Bear but Still Selective Analysts

After spending much of 2018 as a contrarian bear, our strategist, Willie Mitchell Kim
Chan, upgraded China to Neutral from Underweight on 30 Nov 2018. (852) 2268 0634
Valuations have returned to more reasonable levels after the 21% mitchellkim@kimeng.com.hk
correction in 2018 and further policy easing is on the horizon in 1H19. Willie Chan
That said, growth has yet to bottom out, and Willie also notes that a (852) 2268 0631
weaker USD would provide greater scope to stimulate domestic liquidity, williechan@kimeng.com.hk
STRATEGY

at least in the near-term. (Please see “From Debacle to Miracle,” dated

30 Nov 2018.) In this report, we highlight where our bottom-up view is Jacqueline Ko, CFA
aligned with the top down view of our strategist, as well as the (852) 2268 0633
supporting secular themes across our sectors. jacquelineko@kimeng.com.hk

Bottom up view more constructive too Ricky WK Ng, CFA

(852) 2268 0689
At the margin, our bottom-up view is now more positive than it was in
rickyng@kimeng.com.hk
2018. For 2019, we remain positive on the internet and telecom sectors
after upgrading in the latter part of 2018. We are more positive on Stefan Chang, CFA
China/HK

telecom in 2019 than in 2018, not only for its defensive characteristics, (852) 2268 0675
but also because now priced in is the adverse regulatory impact of the stefanchang@kimeng.com.hk
unlimited local data usage elimination. China Unicom is our top pick in
Tony Ren, CFA
telecoms. We are also more positive on the Internet sector – more
(852) 2268 0640
specifically the eCommerce sub-sector – than in 2018 as we believe the
tonyren@kimeng.com.hk
market has factored in sharper decelerating online spending growth.
Alibaba is our top pick in China eCommerce as we believe its China Christopher Wong
retail marketplace margin remains solid and its loss making units will (852) 2268 0652
improve in 2019. christopherwong@kimeng.com.hk

Policy easing winners: Consumer Staples, China

Prop, Renewables
The three key sectors that should benefit from more favorable
government policies are China properties, consumer staples and
renewable energy. We recently upgraded China properties on 13 Dec
2018 to Neutral from Negative anticipating policy easing in 2Q19. Shimao
is our top pick in this sector. We remain POSITIVE on consumer staples
in light of continuing consumer premiumization and the likelihood of a
tax break stimulating higher spending in the low to mid-income market
segments. Tingyi and China Foods are our two top picks to benefit
from policy easing. Turning to the renewable energy sector, we expect
clarity regarding subsidy cuts and collection will improve market
sentiment and provide an upside catalyst in 1Q19. Datang Renewable is
our top pick followed by CGN Power.

If you want to fish on thin ice

We are Neutral on HK property and technology, where selective stock
picking is warranted. For HK property, rising mortgage rates and
unfavorable policy changes ahead will likely cap overall sector returns.
Despite our caution, we recommend Henderson Land for those
investors seeking exposure to the sector. For technology, the outlook is
bleak, but the industry already has been reducing supply to match
declining demand in order to preserve profit margins. We recommend
VIS for exposure to foundries and Largan for tech components for LT
exposure.

THIS REPORT HAS BEEN PREPARED BY KIM ENG SECURITIES (HK) LTD
SEE PAGE 26 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Strategy Research

No Longer a Bear, but Still Selective

After spending much of 2018 as a contrarian bear recommending a switch from
growth to value, our strategist, Willie Chan, upgraded China to Neutral from
Underweight on 30 Nov 2018. For 2019, his view remains unchanged, though
valuations have returned to more reasonable levels after the 21% correction for
MSCI China in 2018 and further policy easing is on the horizon in 1H19. Also, a
weaker USD should provide greater scope to stimulate domestic liquidity, at least
in the near-term. Despite this, he is by no means a bull in the Year of the Pig as
growth has yet to bottom out. (Please see our Year Ahead Macro Strategy Report
from 30 Nov 2018.)

Our bottom-up view parallels our top-down strategy view. At the margin, our
bottom-up view is now more positive than we it was in early 2018. The two
sectors we turned more positive on in the latter part of 2018 are Telecom and
Internet. For 2019, we are more positive on telecom than we were during most
of 2018, not only for its obvious defensive characteristics and attractive
valuations, but also because we believe priced in is the adverse regulatory
impact of the unlimited local data usage elimination (at least this is no longer a
negative catalyst). Similarly, we are also now more positive on the Internet
sector – more specifically the eCommerce sub-sector –than we were in the first
three quarters of 2018. Note that we upgraded Alibaba to BUY on 20 Sep 2018
and JD.com to HOLD on 17 Aug 2018. We believe the time is ripe for the market
to appreciate the value of the sector, even if its hyper-growth stage is now
history.

We believe two key beneficiary sectors from policy easing are China property
and consumer staples. On 13 Dec 2018, we upgraded China property to Neutral
from Negative as we anticipated policy relaxation in 2Q19 and much of the risks
we previously flagged appeared priced-in.

Consumer staples could be the most interesting sector in 2019 in light of its
defensiveness, continuing positive consumer premiumization trend, and the
likelihood of higher spending by the low to mid-income market segments which
are enjoying a tax break.

The renewable energy sector will finally have the wind at its back, in our
view. We expect more clarity about the Renewable Portfolio Standard Policy in
1Q19 to shed a positive light on the sector. Moreover, concerns over whether the
subsidies will be cut upon the introduction of green certificates will be quelled
by 1Q19 in favor of wind operators, in our view.

On the other hand, we are less sanguine on HK property, which we

downgraded to Neutral on 14 Sept 2018 and remain Neutral on technology,
where selective stock picking is warranted. Despite our cautious view, for
investors seeking exposure in the two sectors, we recommend the following
guidelines: 1) for HK property, be selective and look for value as farmland
conversion closes the NAV discount gap; 2) for tech, focus on structural margins
and dividends to compensate for the uncertain depth and duration of the
industry down cycle.

Our top long ideas are:

 Alibaba (BABA US, BUY, CP USD130.6, TP USD190)
 China Unicom (762 HK, BUY, CP HKD8.32, TP HKD11.50)
 Tingyi (322 HK, BUY, CP HKD9.54, TP HKD12.40) and China Foods (506
HK, BUY, CP HKD2.74, TP HKD5.0)
 Datang Renewable (1798 HK, BUY, CP HKD0.89, TP HKD1.40)
 Shimao (813 HK, BUY, CP HKD19.96, TP HKD26.0)
 Henderson Land (12 HK, BUY, CP HKD40.65, TP HKD59.36)
 VIS (5347 TT, BUY, CP TWD57.4, TP TWD80)

January 7, 2019 2
Strategy Research

1. Consumer Staples: More Spending Ahead

The Less Will Have More to Spend

We are optimistic on the domestic consumption outlook for 2019, despite

moderate growth in 3Q18 vs 1H18. While the broad macro slowdown and
weaker consumer confidence could persist into 2019, the recent personal
tax reform by the PRC government is likely to boost consumer spending,
especially for categories driven by the low to middle income classes. On 1
Oct 2018, the minimum monthly income threshold for a tax exemption
was raised from CNY3,500 to CNY5,000, implying personal taxes for
individuals whose monthly salaries range from CNY5,000 to CNY20,000 will
be eliminated or reduced by at least 50%, while for the higher income
group (CNY20,000-80,000 per month) it will be reduced by only 10-15%.

The impact of the tax cuts should gradually be felt, as tax payers have
already paid less based on government’s tax revenue record. According to
the State Administration of Taxation, personal income tax revenue
dropped 7% and 17% YoY in Oct and Nov 2018 (9%/26% MoM) implying
higher disposable income for the affected group. Moreover, additional
new tax perks will be effective Jan 2019 that will increase disposable
income for the affected group, including tax deductions for qualified
supplemental pensions, commercial health insurance, child education,
elderly care, healthcare and housing. Nearly 60m are subject to this new
tax benefit, according to government data. We expect higher spending
numbers afterwards accordingly.

Based on this theme, we prefer companies with a mass market focused

product portfolio that have greater exposure to the lower income Central
and Western regions. Because tax benefits are more concentrated on the
low to mid income groups, we expect companies with greater exposure to
these consumers to outperform.

We highlight Tingyi (322 HK, BUY, CP HKD9.54, TP HKD12.37) and China

Foods (506 HK, BUY, CP HKD2.74, TP HKD4.95) as our best ideas in the
sector. Tingyi is positioned to benefit from its large mass market based
product portfolio. China Foods has a proportionally higher exposure to the
central and western regions, which have an average wage below the
national average.

In general, we expect staples and low ticket discretionary items to

outperform luxury goods under our consumption slow down scenario. We
believe consumers in the low-income group with incremental income from
the tax break will be more likely to increase their purchases of quality
staple goods. For this reason, we also like Hengan (1044 HK, BUY, CP
HKD57.3, TP HKD99.7) and Nissin (1475 HK, BUY, CP HKD3.49, TP HKD5.3).

Fig 1: PRC monthly personal income tax revenue Fig 2: Lower tax bracket benefits low-mid income group
CNY100m YoY% tax redution vs before
Tax Revenue
CNY100m YoY(%) 120%
2,000 100.0
80.0 100%
1,500 60.0 80%
40.0 60%
1,000
20.0
40%
500 0.0
(20.0) 20%
0 (40.0) 0%
Jul 15

Jul 16

Jul 17

Jul 18
Jan 15
Apr 15

Jan 16
Apr 16

Jan 17
Apr 17

Jan 18
Apr 18
Oct 15

Oct 16

Oct 17

Oct 18

Salary group (Monthly Wage CNY)

Source: WIND Source: Xinhua news, Maybank Kim Eng Estimates

January 7, 2019 3
Strategy Research

Fig 3: Annual average wage by region (2017, CNY) Fig 4: Breakdown of urban household expenditures(2017)

Education, Others, 2.8%

74,318 cultural &
National recreational,
59,514 9.5%
average level Northeast F&B, 30.0%
Communication
&
transportation,
13.0%
68,323
Western
Healthcare &
61,193
medical Clothing, 8.2%
Central
services, 7.9%

Wages above national Home

average level
84,809
Eastern appliances &
Wages below national services, 6.1% Residence,
average level 22.6%

Source: WIND, National Statistic of Bureau Source: WIND, National Bureau of Statistics

New E-commerce Law to Benefit Brands Embracing Online Channels

We expect retail consumption to continue to shift in favor of online sales

from other offline sales channels. The new E-commerce law, effective on
1 Jan 2019 will accelerate the consumption shift to online shopping driven
by increasing consumer benefits and consumer rights and safety
protections. Increased regulations (and higher administrative expenses)
are likely to place more pressure on daigou’s (“meaning buying on behalf
of others”), but corporates that have embraced the cross-border E-
commerce (CBEC) development should benefit. We believe sales are likely
to shift more from daigou to brands and larger merchants selling through
e-commerce platforms.

As mentioned earlier, we expect cross border e-commerce (CBEC)

spending to increase. Our view is based on the government’s relaxation of
the annual purchase quota from CNY20k to CNY26k and the 150% increase
in the tax free limit on single transactions to CNY5,000, in addition to an
expansion of the tariff-free list. Of note, goods exported to China via
CBEC will continue to be treated as personal items and therefore not
subject to local registration or approval requirements.

Fig 5: China’s CBEC transactions as a % of total trade volume Fig 6: % of online shoppers buying products through Haitao

CBEC transactions (trillion CNY)

40 40%
Total import & export trade volume (trillion CNY)
Percentage rate 30.2%
30 27.3% 30%
27.6%

22.0%
20 20%
15.9%
12.0% 27.8 29.8
24.5 24.3
10 10%
26.4 9.0
25.8 6.7 7.6
3.1 4.2 5.4
0 0%
2013 2014 2015 2016 2017 2018
Source: CECRC (China E-commerce Research Centre), NBS, www.asiabriefing.com Source: Frost & Sullivan, Azoya Consulting (Haitao – Cross Border e-Commerce)

January 7, 2019 4
Strategy Research

2. Telecom – When Defense Wins the Game

Challenges Well Known, but Still a Solid Defensive Option

We are constructive on the telecom sector for 2019 because the

adverse impact from the elimination of unlimited local data plans is now
well known and the sector valuation is near a historic low. While we
expect some operational erosion in 1H19 vs. 1H18 (before the elimination
of unlimited local data) we do not foresee new regulations having a
significant impact on the sector. However, one caveat is 5G investment.
With incremental revenue and return on investment from 5G unclear, we
believe slower and lower investment in 5G is more prudent.

Given this backdrop, our top pick in the sector is China Unicom, while
we see the highest 5G risk with China Mobile (941 HK, HOLD, CP
HKD76.8, TP HKD77.0). We upgraded Unicom back on 16 Aug 2018 based
on the company’s earnings recovery story and attractive valuation.
Arguably, Unicom is one of the cheapest telecom stocks in Asia based on
EV/EBITDA. We estimate Unicom’s net profit to grow by 39% in 2019E
after nearly quadrupling in 2018E YoY (based on our estimate for 2018).
We also have a BUY on China Telecom (728 HK, BUY, CP HKD3.91, TP
HKD4.50) as a stable earnings growth story with mobile subscriber market
share gains continuing, though we see less share price upside after it
outperformed peers in 2018.

On the other hand, we are more cautious on China Mobile, despite the
stock’s historical defensive status. With large cash holdings and tasked
with advancing China’s technological prowess, we believe it likely will be
encouraged to invest more in 5G than its peers. Judging by the 5G
spectrum allocation where CM was awarded 2.6GHz and 4.6GHz bands
(see Fig 7 for existing and new spectrum assignments), we believe CM is
more likely to have a larger 5G coverage than both CU and CT, despite the
uncertain returns on investment.

Fig 7: Chinese Telecom’s Spectrum Allocation

Uplink (MHz) Downlink (MHz) Width (MHz)
CT CDMA 825 835 870 880 20
CM GSM 889 909 934 854 40
CU GSM/LTE 909 915 954 960 12
CM GSM 1710 1735 1805 1830 50
CU GSM 1735 1745 1830 1840 20
CU FDD 1745 1765 1840 1860 40
CT FDD 1765 1780 1860 1875 30
CM TDS CDMA 1880 1900 1900 1915 35
CT FDD 1920 1940 2110 2130 40
CU WCDMA 1940 1955 2130 2145 30
CU FDD 1955 1965 2145 2155 20
CU FDD (Indoor) 2300 2320 20
CM TDD (Indoors) 2320 2370 50
CT FDD (Indoors) 2370 2390 20
Unallocated* 2390 2555 165
CU TDD (Indoors)* 2555 2575 20
CM TDD (Indoors)* 2575 2635 60
CT TDD (Indoors)* 2635 2655 20
CM 5G trial Spectrum 2515 2675 160
Unallocated** 2675 2690 15

Unallocated 3300 3400 100

CT 5G trial Spectrum 3400 3500 100
CU 5G trial Spectrum 3500 3600 100
CM 5G trial Spectrum 4800 4900 100
Unallocated 4900 5000 100
Source: MIIT, Maybank Kim Eng

January 7, 2019 5
Strategy Research

Fig 8: Unicom’s Earnings Recovery Underway Fig 9: Unicom’s Sharp Aggregate Growth in EBITDA
CNY m Net Profit % Chg YoY CNY m
16,000 500% 26,000
14,000 384% 24,000
400%
12,000
22,000
10,000 300%
20,000
8,000
6,000 200% 18,000

4,000 16,000
100%
2,000 39% 22% 14,000
- 0%
2017 2018E 2019E 2020E
Source: Company data, Maybank Kim Eng Source: Company data, Maybank Kim Eng

Fig 10: China Telecom’s Mobile Mkt Share Gain Story…. Fig 11: …..leading to Superior Mobile Revenue Growth
(bps)
China Mobile China Unicom China Telecom (CNY) Mobile service revenue (CNY m) YoY (%)
4.0 44,000 14%
3.0 Monthly Mobile Mkt Shr Change
12%
2.0 42,000
1.0 10%
0.0 40,000 8%
-1.0
-2.0 38,000 6%
-3.0 4%
-4.0 36,000
2%
-5.0
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep 34,000 0%
17 17 17 17 17 17 18 18 18 18 18 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Source: Company data Source: Company data

January 7, 2019 6
Strategy Research

Fig 12: Valuation Comparables for Asian Telecoms

Ticker Rating Last Target Mkt Cap P/E EV/EBITDA P/FCF Div Yield (%)
Price Price USD m 18E 19E 18E 19E 18E 19E 18E 19E
China
China Mobile 941 HK Hold HKD 78.00 HKD 77.00 203,647 14.5 14.7 3.9 3.7 18.3 20.2 3.3 3.2
China Unicom 762 HK Buy HKD 8.30 HKD 11.50 32,521 25.0 18.1 2.7 2.1 7.2 6.6 1.6 2.2
China Telecom 728 HK Buy HKD 4.00 HKD 4.50 40,996 13.9 11.7 3.4 3.0 11.4 10.2 2.9 2.8
Hong Kong
HK Telecom 6823 HK NR HKD 11.60 N/A 11,226 17.3 16.7 9.9 9.6 11.4 11.2 5.8 6.0
SmarTone 315 HK NR HKD 8.60 N/A 1,236 15.8 14.9 5.0 4.9 7.3 6.9 5.0 5.0
India
Bharti Airtel BHARTI IN Hold INR 325 INR 300.00 18,588 84.3 N/A 8.8 8.7 62.2 50.7 1.3 1.1
Idea Cellular IDEA IN Sell INR 37 INR 40.00 4,587 N/A N/A 14.1 13.3 N/A N/A 0.0 0.0
Tata Communications TCOM IN Buy INR 527 INR 650.00 2,152 N/A 80.0 11.0 8.7 192.2 N/A 0.7 0.8
Indonesia
Telekomunikasi
Indonesia TLKM IJ Buy IDR 3,770 IDR 5,000 26,500 14.6 12.9 5.2 4.7 25.6 23.5 3.6 4.1
XL Axiata EXCL IJ Hold IDR 2,120 IDR 3,000 1,608 58.8 37.8 5.0 4.2 50.9 20.5 1.5 0.0
Indosat ISAT IJ NR IDR 1,770 N/A 682 5.9 N/A 2.5 4.2 2.4 9.1 6.2 3.2
Malaysia
Axiata Group AXIATA MK Buy MYR 3.80 MYR 4.00 8,355 31.2 28.6 6.3 5.9 29.3 20.3 2.7 3.0
DiGi.com DIGI MK Hold MYR 4.50 MYR 4.80 8,446 23.1 22.2 12.5 12.1 20.5 19.6 4.3 4.5
Maxis Bhd MAXIS MK Hold MYR 5.50 MYR 5.90 10,486 21.5 21.3 12.2 11.9 19.5 18.5 3.6 3.6
Telekom Malaysia T MK Hold MYR 2.60 MYR 2.40 2,393 14.3 31.1 4.6 5.6 11.8 21.2 3.5 1.6
TIME dotCom TDC MK Hold MYR 8.20 MYR 8.10 1,167 18.5 19.5 11.8 11.4 27.7 22.3 1.4 1.3
Philippines
Globe Telecom GLO PM Sell PHP 1,860 PHP 1,730 4,722 13.6 12.6 5.9 5.7 49.0 28.2 4.4 6.1
PLDT TEL PM Sell PHP 1,148 PHP 1,070 4,733 10.7 11.3 5.3 5.3 9.6 27.5 6.7 7.5
Singapore
M1 M1 SP Sell SGD 2.10 SGD 1.63 1,405 15.2 20.7 7.9 9.3 13.2 N/A 5.3 3.8
Singtel ST SP Hold SGD 2.90 SGD 3.39 35,380 15.3 17.2 8.6 8.9 19.7 17.6 6.1 6.0
StarHub STH SP Buy SGD 1.80 SGD 2.21 2,245 13.4 13.0 6.5 6.8 32.8 N/A 9.2 5.8
Thailand
Advanced Info Service ADVANC TB Buy THB 177 THB 220 16,458 17.3 13.7 9.0 7.7 18.1 14.7 4.0 5.1
Total Access Comm DTAC TB Buy THB 45 THB 63 3,314 27.0 13.4 4.6 4.5 11.2 13.2 2.5 5.1
TRUE Corp TRUE TB Hold THB 5 THB 7.38 5,531 16.1 N/A 5.9 6.4 10.5 N/A 1.2 0.1
Korea
SK Telecom 017670 KS NR KRW 276,500 N/A 19,956 8.4 6.5 5.8 6.2 14.0 23.1 3.6 3.7
LG Uplus 032640 KS NR KRW 18,200 N/A 7,103 14.6 13.9 4.2 4.2 8.6 11.0 2.1 2.4
KT 030200 KS NR KRW 30,450 N/A 7,107 10.6 11.0 2.5 2.6 5.5 4.8 3.3 3.5
Taiwan
Chunghwa Telecom 2412 TT NR TWD 108 N/A 27,199 21.5 22.9 10.4 10.6 21.1 21.7 4.5 4.3
Taiwan Mobile 3045 TT NR TWD 108 N/A 11,994 19.9 21.7 12.7 13.1 19.4 21.1 5.2 5.2
Far EasTone 4904 TT NR TWD 74 N/A 7,796 21.7 23.2 9.4 9.8 15.3 16.1 5.1 5.1
Source: Bloomberg consensus for NR (Non-rated) stocks, FactSet, Maybank Kim Eng; Data as of Jan 6, 2019

January 7, 2019 7
Strategy Research

3. Chinese e-Commerce: Value with Growth

Consumption Slow Down Known; Tax Break to Benefit Online Too

We are now a bull on the sector as we welcome in the New Year. We

reversed our contrarian bear position from early 2018 with our upgrades of
JD.com to HOLD and Alibaba to BUY on 17 Aug and 20 Sept 2018,
respectively. Our bullish stance is based on: 1) attractive valuations
compared to the historical trading range; and 2) attractive double digit
growth of its major online shopping platform as online continues to
expand its share of total retail sales vs. offline. Moreover, as we
highlighted in our Consumer Staples section, tax breaks and upcoming tax
reforms will likely stimulate consumption in 2019. Online shopping will be
a beneficiary of the government’s stimulus efforts, in our view.

The stock market remains cautious regarding the outlook for online
shopping after the surprising deceleration in 3Q18 that extended into
October. While November online sales growth data showed a strong
rebound of 25.3% YoY, the market remains unimpressed because online
spending growth for physical goods fell to a low last seen in September
2018. We believe that once market expectations have been acclimated to
lower growth, the value of these platforms relative to their growth will be
recognized. We estimate online shopping GMV will grow 19% in 2019 from
24% in 2018E, still double digit growth and superior to the majority of
other sectors. (See Fig. 43 in Appendix for revenue growth forecasts by
sector for 2019.)

Fig 13: Monthly Online Sales Spiked in Nov 2018 (YoY)… Fig 14: …but Online Physical Goods Sales were Weak (YoY)
Retail % Chg Online % Chg Retail % Chg (LHS)
40% 37.3% Retail Online Physical Goods (RHS)
35.6% Online
35% 32.2%
14% 32.5% 36%
27.7% 29.0%
30% 24.2% 24.7% 24.9% 25.3% 31%
25.8% 25.0%25.4%
21.5% 12% 22.6% 23.0%
25% 26%
18.9% 18.1% 17.8% 21%
20% 14.5% 10%
16%
15%
8% 11%
10%
6%
9.7% 10.1% 9.4% 8.5% 9.0% 8.8% 9.0% 9.2% 8.6% 6%
5% 8.1% 1%
0% 4% -4%
Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18
Source: National Bureau of Statistics (NBS) Source: NBS

Fig 15: Online Shopping Sales to Grow 19% in 2019 Fig 16: Online Expanded to 29% of Retail Spending
CNY b Online % of total retail sales (RHS)
Online Sales GMV Y/Y (%)
12,000 45% Retail % Chg
% of retail sales 12% Online % Chg (RHS) 40%
40%
10,000 35%
35% 10%
30%
8,000 30%
8%
25% 25%
6,000 26.3%
20% 6% 24.1% 22.7% 22.9% 20%
20.1% 22.7% 23.2% 15%
4,000 15% 4% 23.7% 28.8%
10% 21.8% 10%
2,000 2%
5% 5%
- 0% 0% 0%
2016 2017 2018E 2019E 2020E Feb-18 Apr-18 Jun-18 Aug-18 Oct-18
Source: NBS, Company Data, Maybank Kim Eng Estimates Source: NBS

January 7, 2019 8
Strategy Research

Alibaba is our top idea for the sector, and is attractive for three key
reasons:

 We believe its operating margin is positioned to rebound in FY20E

(March 2020) because negative margins will stabilize or improve
in new categories, such as New Retail driving overall margin
improvement. Structural margins for the core commerce
marketplace remain attractive and stable at about 62%. We also
estimate the cloud business will become profitable in FY20 from
near breakeven in FY19E.
 Risk reward is attractive with the stock’s 12M forward P/E at the
lowest level since 2015 when its China retail revenue growth was
just 34% vs. 37% for FY19E. We believe much of the risk is priced-
in and any notable signs of a consumption rebound will be a
catalyst.
 Values for its associates are heavily discounted if not completely
ignored. Alibaba has a 33% stake in Ant Financial and controlling
stakes in Ele.ma/Koubei, Youku and Cainiao, just to name a few.
These assets provide further upside potential, in our view.

Vipshop (VIPS US, BUY, CP USD5.28, TP USD8.50) is our deep value, high
risk high reward pick. We believe the company will refocus on fashion
categories to control costs and improve margins, which will be a catalyst.
While the market is concerned about the rapidly decelerating top line
growth, the stock trades at only 6x our 2019 non-GAAP earnings estimate.

Fig 17: Marketplace Adj. EBITA Margin at 62% Fig 18: Margin Rebound Possible as Other Losses Narrow

Source: Alibaba Source: Alibaba

Fig 19: BABA 12M FWD P/E at 1SD Below historical avg. Fig 20: BABA 12M FWD P/E at 2015 Level
PER (x) PE Average USD
40x
45 + std dev - std dev 250
35x
40 30x
200
35 25x
30 150 20x
25 100 15x
20
50
15
10 0
Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 Mar 17 Sep 17 Mar 18 Sep 18 Sep-14 Jul-15 May-16 Mar-17 Jan-18 Nov-18

Source: Bloomberg, Maybank Kim Eng Source: Bloomberg, Maybank Kim Eng

January 7, 2019 9
Strategy Research

Fig 21: Valuation Comparables for Select Internet Peers

Target Last Mkt Cap P/E (x) EV/EBITDA (x) P/S
Ticker Rating Price Price USD m 18E 19E 18E 19E 18E 19E
Alibaba BABA US Buy 190.00 USD 139.75 362,258 27 19 31 17 6.5 4.8
JD.com JD US Hold 24.00 USD 22.27 31,942 N/A N/A 104 95 0.5 0.4
Vipshop VIPS US Buy 8.50 USD 5.67 3,759 8 7 6 4 0.3 0.3
Tencent 700 HK NR / HKD 317.60 385,796 33 28 23 20 8.4 6.5
NetEase NTES US NR / USD 229.75 30,173 24 20 20 16 3.1 2.5
Baidu BIDU US NR / USD 160.95 56,101 17 15 14 13 3.8 3.3
Ctrip CTRP US NR / USD 28.55 15,566 24 25 30 24 3.5 2.9
Facebook FB US NR / USD 137.95 397,021 16 16 11 10 7.2 5.8
Amazon AMZN US NR / USD 1575.39 770,316 58 43 24 19 3.3 2.8
Alphabet GOOGL US NR / USD 1078.07 747,015 20 19 13 11 6.8 5.6
eBay EBAY US NR / USD 28.97 27,893 13 11 9 9 2.6 2.5
Weighted Avg 32 26 20 16 5.9 4.7
Median 22 19 20 16 3.5 2.9
Source: Bloomberg, FactSet, Maybank Kim Eng; Non-Rated (NR) stock data is from consensus estimates; US-listed data as of Jan 6, 2019

January 7, 2019 10
Strategy Research

4. China Property – Tread Carefully

While we believe 2019 will remain challenging for the property market,
risk of further downside has been reduced, in our view. We upgraded
the sector to NEUTRAL from NEGATIVE on 13 December 2018 for the
following reasons: 1) we expect policy easing in 2Q19 to act as a catalyst;
2) earnings visibility is high as developers already have on average locked
in ~70% of revenue in 2019E through pre- sales; and 3) most listed
developers will continue to gain market share from smaller unlisted ones.

The sector market value has fallen by over 50% from the peak in 1Q18 on
new curbs by the government, refinancing and FX risks, margin
compression, and slower sales growth. We think the market has priced in
most of the negatives and the sector valuation is now more reasonable.
The sector P/E is 4.8x 2019E, 1SD below the historical average for the
current cycle starting in Sept 2016 and also near par with the average P/E
of 4.7x for the two previous cycle downturns in 2010-12 and 2013-14. As
we head into 2019, we believe the risk reward is more balanced and that
selective long positions could generate positive returns.

We highlight three key requirements to generate/support share price

performance in 2019: 1) Strong balance sheet; 2) exposure to investment
properties; and 3) lower exposure to Tier 3 cities. We prefer developers
with a strong balance sheet in order to provide a sufficient war chest for
replenishing land bank. In general, developers with high net gearing will
be more adversely affected by falling residential prices. We also prefer
developers with high exposure to investment properties that generate
steady recurring rental income. In addition, we prefer developers with
less exposure to tier-3 cities as we expect the contribution from shanty
town redevelopment to trend lower.

Government policy on property maybe relaxed in 2Q19. We believe full-

scale policy relaxation is unlikely in the near term as the government
recently managed to cool the market and inventory remains low. Based on
previous experience, it will take at least six months for the government to
relax some of the curbs. As a result, we expect the central government to
only gradually start a selective relaxing in 2Q19 on a city-by-city basis.

This view echoes our initiation report dated Jul 18 2018 which pointed to
a tightening cycle of at least another 10 months. That said, local
governments may start to selectively relax some measures in 2Q19, such
as mortgage rates and down payment requirements for first-time buyers.
We also anticipate local governments may be more flexible on the price-
cap restriction for cities with weaker price performances. But we don’t
expect local governments to completely remove the ASP cap as this would
reignite property prices. To be clear, we do not anticipate sizable policy
easing unless economic growth decelerates sharply over a short period.
We also expect the NDRC to provide more flexibility in approving the
issuance of bonds to facilitate developer efforts to refinance their
maturing debts in 2019.

January 7, 2019 11
Strategy Research

Property market to remain challenging in 2019. Starting 3Q18, the

property market reversed course and went into a decline as a result of
policy tightening, the economic slowdown and resultant adverse changes
in consumer expectations. We forecast property sales to fall 10% YoY in
2019E on a 5% decline in price and transaction volume. Risks are most
apparent for tier-3 cities as the adjustment in shanty town
redevelopments policy (i.e. lower cash compensation) may drag down
core demand.

Our channel checks also confirm weak across the board market sentiment
and a falling sell-through rate trend despite developers offering 5-10%
discounts, on average. Homebuyers are now very sensitive to prices, and
most still hold a “wait-and-see” approach now more convinced that home
prices will not rise as sharply as before. More importantly, investment
demand has slowed sharply.

Sector interest-rate and funding risks remain, but they are largely
priced-in. We continue to expect China property sector fundamentals to
weaken further in 2019E as maturing debt of Chinese developer’s peaks.
Rising dollar interest rates, margin compression and weakening sentiment
in the home-sales market will add to the risks, particularly with regard to
debt servicing. We estimate the short-term coverage of the 24 key HK-
listed developers dropped a significant 60ppt to 180% in 1H18 from the
end of 2017, the weakest in three years. The average finance costs for the
24 key developers increased by ~20bps to 5.9% in 1H18 amid the severe
credit tightening in the real estate market. The majority of developers
are seeing a ~150bps increase in their marginal finance cost and expect
their average interest expense to increase by another 50bps by end-2018E
and another 100bps in 1H2019E. With rising funding costs, this would
suggest the profit margins of developers will be at risk in 2019E.

Our Top BUY is Shimao (813 HK, BUY, CP HKD19.96, TP HKD26) as it

meets all the above three criteria. Shimao is one of the few developers
to beat its FY18 contracted sales target by 20% or more. Given its large
landbank assets of CNY880b for future development, solid execution and
high asset turnover, we expect contracted sales to grow 30%/25% in
FY19/20E, above the 20% average for peers. The shares are trading at a
62% discount to 2019E NAV or 1.8SD greater than the 8-year 45% average.
With consistent 30-40% dividend payouts in the past three years,
prospective yields are 6.3-7.5% for FY19-20E. Alongside potential share
buybacks, we see upside catalysts for Shimao in the next 12 months.

On the short side, we reiterate SELL on Guangzhou R&F (2777 HK, SELL,
CP HKD11.64, TP HKD9.0) Negative catalysts are a potential miss to its
contracted sales target and dilution from a potential H-share offering.
R&F’s refinancing risk and cost remain elevated due to high net gearing
and significant short term debt, despite our expectation for a less
restrictive government rate policy in mid-2019. We think the EGM to
discuss the mandate about the issuance of new H shares points to
refinancing pressure.

January 7, 2019 12
Strategy Research

Fig 22: Softening home prices Fig 23: Land transaction value also softening
%Chg 70-city Price index, Primary ASP %MoM 150% Land transacted value
70-city Price index, Secondary ASP %MoM
2.0
100%
1.5
1.0 50%
0.5
0.0 0%
-0.5
-50%
-1.0
-1.5 -100%
Apr 12

Apr 13

Apr 14

Apr 15

Apr 16

Apr 17

Apr 18
Oct 11

Oct 12

Oct 13

Oct 14

Oct 15

Oct 16

Oct 17

Oct 18

Apr 11

Apr 12

Apr 13

Apr 14

Apr 15

Apr 16

Apr 17

Apr 18
Oct 10

Oct 11

Oct 12

Oct 13

Oct 14

Oct 15

Oct 16

Oct 17

Oct 18
Source: NBS Source: WIND

Fig 24: China developers’ bonds outstanding Fig 25: Sector financing costs are rising…
USD b Sector average funding cost
140 8.0%
120 7.5%
100
7.0%
80
60 6.5%
40 6.0%
20 5.5%
0
5.0%
Q4 2018

2019

2020

2021

2022

2023

2024

2025

2026

2013

2016

2019E
2011

2012

2014

2015

2017

2018E
Source: Bloomberg Source: Company, Maybank Kim Eng

January 7, 2019 13
Strategy Research

5. HK Property - Rate hike to cap demand

We believe the sector performance for HK Property in 2019 will be capped
due to two major factors: (1) Lower property investment demand due to
anticipated rate hikes and waning mainland demand on further CNY
depreciation; and (2) Government policies adversely affecting the sales
strategies of developers. For this reason, we are Neutral on the sector.
We are not Negative the sector because farmland conversion news flow
will act as a catalyst to neutralize the adverse macro factors, in our view.
For investors who want exposure to the HK property sector, our top BUY
idea is Henderson Land (12 HK, BUY, CP HKD40.65, TP HKD59.36)
because it owns the largest amount of farmland (~45m sqft); alternatively,
we highlight New World Development (17 HK, BUY, CP HKD10.68, TP
HKD14) for its farmland conversion potential and its Greater Bay area
strategy.

Lower investment demand

We expect investment demand to wane in 2019 as further mortgage rate

hikes likely reverse the positive carry benefits. There is a risk that
monthly rental income will fall below mortgage payments in 2019. Already
by the end of September 2018, major banks had increased the mortgage
rate by 12.5bps over the HK prime rate to around 2.275%. We expect HK
prime and mortgage rates to rise in 2019, even though these rates have
remained unchanged since the Dec 2018 US Federal Reserve Bank (FRB)
rate hike of 0.25%,. With higher fix-deposit rates (more than 2% for
some banks) competing as an investment option, we believe negative
carry potential will lower property investment demand in 2019.
Already, the rental yield has dropped to ~2.9% in 3Q18.

Depreciation of CNY is another factor that will likely suppress mainland

Chinese demand for HK property. Back in 2Q15, the transactions from
mainlanders dropped to 4% of the total transaction volume compared to
the average level of around 8% due to a ~10% CNY depreciation against the
USD.

Fig 26: Narrowing gap for positive carry

Mortgage rate Overall rental yield

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%
Dec 96

Dec 98

Dec 00

Dec 02

Dec 04

Dec 06

Dec 08

Dec 10

Dec 12

Dec 14

Dec 16

Dec 18

Source: Centaline, HKMA, Maybank Kim Eng

January 7, 2019 14
Strategy Research

Fig 27: Weakening CNY against the USD Fig 28: Still weak demand from Mainland buyers
CNY/USD Mainland buyers % of total residential transaction volume
7.2 16%
7.0 14%
6.8 12%
6.6 10%
6.4 8%
6.2 6%
6.0 4%
5.8 2%
5.6 0%

Sep 07

Sep 08

Sep 09

Sep 10

Sep 11

Sep 12

Sep 13

Sep 14

Sep 15

Sep 16

Sep 17

Sep 18
Mar 08

Mar 09

Mar 10

Mar 11

Mar 12

Mar 13

Mar 14

Mar 15

Mar 16

Mar 17

Mar 18
Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec
14 15 15 15 16 16 16 17 17 17 18 18 18

Source: CEIC Source: Centaline

Government policy affecting the sales strategies of developers

We believe 2019 will be a challenging year as developers alter their

sales strategy to mitigate the impact of Carrie Lam’s new housing
policies in two ways: 1) They will likely clear completed inventory to
avoid the potential vacancy tax; and 2) Will be incentivized to lower
prices to increase the sell through rate given the 20% presales rule that
requires the sale of at least 20% of the total number of units for every
round of sales. Larger projects will face greater challenges to meet these
requirements. In November 2018, presales totaling 4,757 units were
approved, the highest level in over 16 years.

In addition, we expect the secondary market transaction volume to

diminish as marginal demand shifts from the secondary to primary
market as developers lower primary property prices.

As a result, for 2019, we estimate a property price decline of 5%, and

there could be more downside if economic conditions are worse than we
expect. However, we are not Negative on the sector because we think
supply and demand are relatively balanced heading into 2019, particularly
with strong property demand from newlyweds, whose numbers have been
rising over the last several years.

Fig 29: Presale consent approved residential units

Unit
5,000 4,757

4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18
Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18
Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Nov-18

Source: CEIC

January 7, 2019 15
Strategy Research

We forecast a 5% average drop in 2019 residential

property prices

Fig 30: Housing demand and supply in Hong Kong – more balanced in 2019
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E
Population
Mid-Year ('000 person) 6,857 6,916 6,958 6,973 7,024 7,072 7,150 7,179 7,230 7,291 7,337 7,390 7,451 7,503
Increase in population
('000 person) 43.9 59.2 41.5 15.0 51.4 47.4 78.5 28.8 50.6 61.8 45.3 52.9 61.0 52.1
Natural increase
('000 person) 23.4 28.6 33.8 40.8 42.6 52.6 50.1 33.4 13.3 18.1 13.2 14.3 11.6 10.4
Net movement
('000 person) 20.5 30.6 7.7 (25.8) 8.8 (5.2) 28.4 (4.6) 37.3 43.7 32.1 38.6 49.4 41.7
Population in housing
('000 person) 6,663 6,727 6,769 6,777 6,836 6,866 6,915 6,947 7,164 7,138 7,168 7,242 7,333 7,411
Average household size
(person) 3.00 2.99 2.97 2.95 2.94 2.91 2.90 2.89 2.87 2.86 2.85 2.84 2.83 2.82
Domestic households
('000 person) 2,221 2,250 2,279 2,297 2,325 2,359 2,386 2,407 2,432 2,471 2,510 2,548 2,591 2,628
New housing demand
(units) 23,800 29,000 29,200 18,100 27,900 34,200 26,900 21,100 25,100 38,700 38,600 38,300 43,089 36,949
Annual new housing supply
(units) 21,009 17,276 33,735 26,548 20,900 27,236 19,928 29,152 21,353 22,753 36,578 35,571 41,953 39,146
Net supply
(units) (2,791) (11,724) 4,535 8,448 (7,000) (6,964) (6,972) 8,052 (3,747) (15,947) (2,022) (2,730) (1,136) 2,197
Source: Rating & Valuation Department, Census & Statistic Department, Maybank Kim Eng

Fig 31: Pent-up demand based on new households formed vs. first marriages
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
No. of first marriages 33,352 32,288 32,765 35,338 35,826 39,979 40,841 35,703 37,217 34,046 32,673 34,263
No. of new households 23,800 29,000 29,200 18,100 27,900 34,200 26,900 21,100 25,100 38,700 38,600 38,300
Pent-up demand 9,552 3,288 3,565 17,238 7,926 5,779 13,941 14,603 12,117 -4,654 -5,927 -4,037
Cumulative pent-up demand 9,552 12,840 16,405 33,643 41,569 47,348 61,289 75,892 88,009 83,355 77,428 73,391
Source: Census, Maybank Kim Eng

Farmland conversion is a potential positive catalyst for

developers

In Oct 2018, Carrie Lam in her policy address said the government will
introduce a Land Sharing Pilot Scheme and utilise private brownfield sites
in the New Territories through a fair and highly transparent mechanism.
We expect there will be more details about and examples of farmland
conversion in 2019E. We think this could be a potential positive catalyst
for developers that own farmland, such as Henderson Land (12 HK, BUY,
CP HKD40.65, TP HKD59.36) as we expect it could unlock the their
farmland value and boost their NAV.

January 7, 2019 16
Strategy Research

Fig 32: Farmland reserves (site area)

Sq ft (m)
50
45
45
40
35 32
30
25
20 17
15
10
10
5
0
0
HLD SHKP NWD CK Asset Sino Land
Source: Various news outlets, Maybank Kim Eng. Data as of Sep 2018

Fig 33: Sector fairly valued, trading around 1.8x SD below historical average NAV discount
40%

20%

0%

-20%
Long term average discount of -23%

-40% -1 Std dev

-2 Std dev
-60%

-80%
Dec 95

Dec 96

Dec 97

Dec 98

Dec 99

Dec 00

Dec 01

Dec 02

Dec 03

Dec 04

Dec 05

Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

Dec 13

Dec 14

Dec 15

Dec 16

Dec 17

Dec 18
Source: Bloomberg; Maybank Kim Eng

Fig 34: Valuation comparison

Up/ Dividend
Market Down- Target Target Current Core P/E P/BV Yield Core ROE Net
Company BBG Cap. Price Rating TP side NAV NAV (LC) Discount (x) (x) (%) (%) Gearing (%)
Name code (USDm) (LC) (LC) (%) disc. FY18E to NAV FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E
CK Asset 1113 HK 27,752 58.85 Hold 62.8 6.7 45% 114.5 52% 5.6 8.2 0.7 0.7 3.5% 3.8% 12.3% 8.0% 1.1% -2.1%
Henderson 12 HK 22,843 40.65 Buy 59.4 46.1 30% 91.1 58% 8.9 11.3 0.6 0.5 4.5% 4.6% 6.2% 4.8% 17.1% 14.4%
NWD 17 HK 13,912 10.68 Buy 14.0 31.1 45% 26.5 62% 13.8 10.7 0.5 0.5 4.3% 5.0% 10.8% 4.3% 30.3% 25.6%
Sino Land 83 HK 12,325 14.28 Hold 13.4 (6.2) 30% 24.8 47% 7.4 16.8 0.6 0.6 7.7% 3.9% 10.0% 3.5% -13.9% -10.6%
SHKP 16 HK 43,426 117.40 Hold 122.0 3.9 30% 224.4 52% 11.3 9.7 0.6 0.6 3.9% 4.5% 9.3% 5.8% 11.9% 10.9%
Source: FactSet, Maybank Kim Eng, as of 4 Jan 2019

January 7, 2019 17
Strategy Research

6. Chinese Renewables: Value investing to

support the “Blue Sky”
We are positive on the renewable energy sector with a marginal
preference for wind power over nuclear power in China. We believe the
Chinese government remains committed to reducing pollution, and
therefore will launch further favorable policies benefitting wind and
nuclear power, as well as other clean energy sources. While we have not
seen significant progress, and in fact the lack of action has led to the
disappointing sector performance, we believe the time has come for the
government to take more decisive action, likely as early as 1Q19. We like
Datang Renewable (1798 HK, BUY, CP HKD0.89, TP HKD1.40) and CGN
Power (1816 HK, BUY, CP HKD1.83, TP HKD2.60), which are our dual
BUYs for the renewables sector.

Wind power

Less sensitive to a potential consumption downturn

Wind power will be less sensitive to potential adverse economic conditions
or a consumption downturn as it has higher priority as a power source to
the power grid than coal-fired generators.

We forecast improving fundamentals in 2019E

From Jan-Nov 2018, wind power generation in China increased 20% YoY,
supported by 1,891 utilization hours, up 7.9% or 139 hrs YoY; And as of
9M18, the curtailment rate dropped to 7.7%. Going forward, we expect
overall utilization hours will maintain a high level of 2,200 hrs in 2019E,
supported by a further improvement in curtailments. We also look for
over-capacity issues to further ease from slower installations.
Furthermore, interprovincial power transmission development will also
help utilization hours and also ease the curtailment problem. We forecast
a further drop in the curtailment ratio to between 5% and 7% in 2019E.

Fig 35: Wind power utilization hours in China Fig 36: Wind curtailment forecast 5-7% in 2019E

Hours
2,500 18%
16%
2,000 14%
12%
1,500 10%
8% 16.2% 17.1%
1,000 15.4%
6% 12.1% 12.4%
10.7%
500 4% 8.0% 7.7%
2% 5.0%
0 0%

Source: NDRC, NEA, Maybank Kim Eng Source: NDRC, NEA, Maybank Kim Eng

January 7, 2019 18
Strategy Research

Fig 37: Wind power utilization hours YTD Fig 38: Interprovincial total power transmission YTD

Hours YoY %YoY

Interprovincial power transmission YTD, %YoY
Utilisation hours ytd YoY Chg 30%
300 30%
Utilisation hours ytd %YoY [RHS] 25%
200 20%
20%
100
10%
0 15%
0% 10%
(100)
(200) -10% 5%
(300) -20% 0%

Feb 15

Feb 16

Feb 17

Feb 18
Nov 14

Nov 15

Nov 16

Nov 17

Nov 18
May 14
Aug 14

May 15
Aug 15

May 16
Aug 16

May 17
Aug 17

May 18
Aug 18
Feb 15

Feb 16

Feb 17

Feb 18
Nov 14

Nov 15

Nov 16

Nov 17

Nov 18
Aug 14

May 15
Aug 15

May 16
Aug 16

May 17
Aug 17

May 18
Aug 18
Source: NDRC, NEA, Maybank Kim Eng Source: NDRC, NEA

We expect the policy overhang to be removed in 2019E

During 2018, the government conducted several rounds of consultation on
the Renewable Portfolio Standard (RPS) policy. Its latest draft suggests
the government may not only introduce “compulsory” targets, but also
“incentive” targets that could be around 10% higher than the compulsory
ones for renewable energy (RE) for different provinces. Moreover, the
2019E targets will be released by end-Mar 2019.

In our view, wind power stocks are trading at low valuation multiples due
to worries over subsidy cuts and delays in subsidy collection. For subsidy
cuts, we expect that once the RPS policy is confirmed, the market
overhang will be removed. We believe confirmation of this will happen in
1Q19E. Based on the latest consultation draft, we expect subsidies will
remain in place, despite the introduction of green certificates. In fact,
the “incentive” targets and RE surplus-quota sales mentioned in the latest
draft should entice local governments and power companies into
consuming more RE, given the potential economic upside, in our view.
For the collection of subsidies, we believe there were fewer delays for
some companies in 3Q18, such as for Datang Renewable.

Reiterate positive view on the Chinese wind power sector.

The sector trades at a P/E of ~5.2x and P/B of ~0.6x FY19E, which is at
the low end of the historical band. Our top pick is Datang Renewable
(1798 HK, BUY, CP HKD0.89, TP HKD1.40), as we believe its higher
curtailment ratios and lower utilisation hours than peers could offer larger
room for improvement from the RPS policy. We believe the sector looks
good for value investing.

Nuclear power:
Nuclear power is an alternative to replace coal-fired generation as part of
the government’s “Blue Sky” plan to reduce pollution in China. We expect
nuclear power generation growth of 10.9% YoY in 2019E as more new units
start operation. For example, CGN recently announced that its Taishan
Unit 1 (Generation III) has been qualified for commercial operation. We
also forecast CGN’s operating cash flow will increase 11.5% YoY in 2019E
and free cash flow yield to rise to ~6.2% in FY19E from ~3.8% in FY18E and
support the attractive 5.1% dividend yield. We rate CGN BUY and consider
it suitable for value investing. A potential catalyst is the proposed
issuance of A shares because it could help strengthen the balance sheet
through lower net gearing, in our view.

January 7, 2019 19
Strategy Research

Fig 39: CGN’s free cash flows Fig 40: CGN’s Dividend yield vs FCF yield

CNY m CNY
FCF DPS [RHS] 12.0% Div yield FCF yield
8,000 0.09
10.0%
4,000 0.08
0.07 8.0%
0
0.06 6.0%
-4,000
0.05
4.0%
-8,000
0.04
-12,000 2.0%
0.03
-16,000 0.02 0.0%
2015 2016 2017 2018E 2019E 2016 2017 2018E 2019E 2020E

Source: Company, Maybank Kim Eng Source: Company, Maybank Kim Eng

Fig 41: Clean Energy coverage

BBG Mkt cap Rating Price TP Upside PE (x) PB (x) Div yld (%) ROE (%) EPS growth (%)
Stock ticker USD m HKD HKD % 18E 19E 18E 19E 18E 19E 18E 19E 18E 19E
CGN 1816 HK 10,620 Buy 1.83 2.60 42.1 7.6 6.7 1.0 0.8 4.5 5.1 13.1 12.5 0.8 13.3
LY 916 HK 2,209 Buy 5.18 7.40 42.8 7.9 6.9 0.8 0.7 2.5 2.9 10.5 10.4 25.4 15.0
HNR 958 HK 1,272 Buy 1.98 3.00 51.5 5.2 4.6 0.7 0.6 2.8 3.2 13.2 12.8 13.2 13.7
DTR 1798 HK 284 Buy 0.89 1.40 57.3 4.5 3.8 0.5 0.4 4.2 5.0 11.8 11.8 72.4 20.1
Source: FactSet, Maybank Kim Eng, as of 4 Jan 2019

January 7, 2019 20
Strategy Research

7. Technology: 2019 to start on a soft note

2018 was already a tough year for the tech sector, but we now see that
2019 could be even more challenging – at least in 1H19. Upstream
semiconductor companies are suffering from low utilization rates for
mature 300mm chips, which are used for multiple applications, while
there is no longer excess demand for advance node 7nm and legacy
200mm foundries in 1Q19F. DRAM makers are aggressively cutting back
their bit growth outlook for 2019F amid soft demand, and are waiting for
industry dynamics to improve in 2H19. Apple just officially cut its Dec-18
qtr. guidance, suggesting excess inventory for the 8-9m units. The only
question now is when – not if – Apple will pressure the supply chain again.
Demand from Android phones is equally weak. DRAM makers are
aggressively cutting back their bit growth outlook for 2019F amid soft
demand, and only expect a healthier industry dynamic in 2H19. Apple’s
order cuts for iPhone suppliers due to weaker-than-expected demand is
already not new news, and the only question is whether Apple will cut
further. Android smartphones are also not doing better.

Nevertheless, we see some silver lining at the edge of the cloud. 200mm
foundry wafer demand supply dynamic remains healthy though no longer
in shortage; aggressive capex cuts by DRAM makers suggests the current
down-cycle could be shorter than ever; and camera content value per
phone is still growing rapidly, which we believe can offset the unit
weakness. As such, we believe investors could still make money in tech
but must be selective. Our best long ideas for 2019 are VIS (5347 TT,
BUY, CP TWD57.4, TP TWD80), Nanya Tech, and Largan (note the latter
two face near-term headwinds).

Logic semi: mature 300mm weak; 200mm still healthy

TSMC’s mature 300mm nodes are already under-utilised at a loading rate

of only 80% or lower, and the worst of all is 28nm. These are technologies
for all kinds of applications, and we expect the weakness will continue
into 1Q-2Q19. 7nm is also no longer full due to smartphone weakness, and
we don’t expect a recovery before late-2Q19 when A13 production kicks
off. As a result, we expect TSMC’s 2019F sales to be flat YoY in USD (+2%
YoY in TWD), below its long-term CAGR target of 5-10%, while second-tier
foundries may even see declines YoY. Nevertheless, 200mm foundry
demand/supply remains good, and the key drivers include power semi,
display driver for larger-size TV, etc. Though it is no longer in supply
shortage, VIS has suggested its utilisation rate will stay in the high-90’s%
going into 1Q19. TSMC also indicated it will expand its 200mm capacity,
despite the weakness in other nodes, which is also some encouraging
proof.

DRAM: suppliers are reacting aggressively

4Q18 DRAM prices are now below quarter-beginning expectations, and

1Q19 could drop even more amid inventory corrections at customers.
Nevertheless, suppliers are cutting back aggressively. Samsung and Nanya
Tech have both cut, while Hynix also suggested it will slow down its 2019
bit growth. Micron in its latest result conference (18 Dec) also cut its
FY19F equipment capex to negative YoY, and reduced its bit growth to
15% from the previous 20%.

In previous cycles, DRAM makers never cut capex as early as they have this
time (the 1st quarter after the peak). Both Micron and Nanya Tech
indicated they expect a recovery in CY3Q19 as a result of cuts by suppliers,
January 7, 2019 21
Strategy Research

end of inventory correction, and from seasonal demand growth. If their

expectation is validated, this downcycle will be the shortest-ever in
history, and could potentially lift the valuations of DRAM shares.

Smartphone: no one is immune; lens value still growing

Apple has just cut its CY4Q18 sales guidance by USD7b, suggesting an
iPhone inventory of 8-9m units. This is after Apple cut its CY4Q18 iPhone
production volume in early Nov, and several Apple suppliers followed and
cut their quarterly guidance. Thus, the question now is when, rather than
if Apple will pressure its suppliers again. We are expecting 1Q19F
production volume to decline by 24% YoY, and CY2019F production volume
to decline by 16% YoY, followed by a 10% YoY decline in 2018. Both are
historic cuts.

The two key reasons attributed to the weakness are limited innovation
and high prices. Nevertheless, the battery replacement discount for old
iPhones offered by Apple in 2018 could add more pressure to new iPhone
shipments. Our checks suggest battery replacement bookings this month
by consumers are surging in Hong Kong and Taiwan, and we believe
consumers are doing the same all over the world before the discount
program ends by 31 Dec. This will further extend the replacement cycle.
We already expect iPhone shipments to decline by 4% YoY in 2019F
followed by a 10% YoY decline in 2018, but the risk should be still to the
downside given the latest impact from battery replacements.

Fig 42: Total/new iPhone production this year will drop YoY (millions)

Source: Company data, Maybank Kim Eng

Elsewhere, Android is not doing any better. Qualcomm and MediaTek’s

shipment guidance already suggested around a 10% YoY decline for the
Android camp in CY4Q18, while we also sees no sign of recovery in 1Q-
2Q19. We have already cut MediaTek’s 2019F shipments to -7% YoY.

Nevertheless, we remain positive for the smartphone camera segment

driven by the multiple camera trends. For instance, we believe the three
new iPhones released in 2019 will be equipped with 3/2/2 or 3/3/2
cameras on their rear-side, from 2/2/1 this year. This means 40-60% lens
growth cycle-to-cycle. Samsung’s Galaxy S10 families will also upgrade to
3/2 lenses from 2/1 for S9+/S9, a 67% cycle-to-cycle growth. In our view,
other Android makers will make similar upgrades to Samsung, and the
growth in cameras per phone should offset the smartphone unit decline
for camera lens suppliers. As such, we are positive on Largan – though
4Q18 to 1Q19 will be quite tough given Apple’s recent cut.
January 7, 2019 22
Strategy Research

Impact from trade dispute is already being felt

PCs are already included in the 10% tariff list by the US for products
manufactured in China, and several PC contract manufacturers are
already adjusting their production plans by mainly leveraging their
existing capacity in Taiwan for those products being shipped to the US, ;
and they are also considering expanding further. Nevertheless, the real
big impact is still on smartphones. Apple is now literally 100% produced
inside China (only a small capacity in India for domestic demand), and it is
hard to rapidly relocate the iPhone production site given its scale. If the
iPhone is going to be charged a 10% tariff after 1 Mar, Apple either needs
to pass through the cost to consumers – which will adversely affect the
demand – or cut its component price more aggressively to sustain its own
profitability. North America contributed 42% of Apple’s FY2018 sales and
the company has a great reason to try and protect its profitability in the
US. Either way, the tariff will be extremely negative to Apple’s
component suppliers.

January 7, 2019 23
Strategy Research

8. Appendix
Fig 43: MKE Greater China Coverage Universe Valuations and Growth Forecasts
Blbg Mkt Cap Target PE (x) DY (%) EPS Gr (%) Sales Gr (%)
Code Name Sector (USDm) Price Rating Price FY18e FY19e FY18e FY19e FY19e FY19e
293 HK Cathay Pacific Airlines 5,612 11.0 Hold 12.1 29.4 15.1 1.2 2.5 94.8 0.8
2020 HK ANTA Sports Products Consumer Disc. 11,802 34.7 Buy 49.2 22.0 17.4 3.2 4.0 26.9 20.1
1086 HK Goodbaby International Consumer Disc. 504 2.4 Buy 3.2 11.9 9.2 2.1 2.1 29.0 18.5
506 HK China Foods Consumer Staples 964 2.7 Buy 5.0 16.6 12.9 2.4 3.1 28.6 9.1
2319 HK China Mengniu Dairy Consumer Staples 11,501 23.5 Buy 26.8 23.8 21.2 1.0 1.1 12.2 12.1
291 HK China Resources Beer Consumer Staples 10,100 24.4 Hold 29.3 26.5 22.8 0.9 1.2 16.3 5.8
1112 HK Health & Happiness Int'l Consumer Staples 3,350 41.4 Buy 69.4 15.5 11.5 0.0 0.0 35.3 28.1
1044 HK Hengan International Consumer Staples 8,764 57.3 Buy 99.7 14.5 12.9 4.6 5.2 12.5 7.7
322 HK Tingyi Consumer Staples 6,874 9.5 Buy 12.4 20.8 21.0 2.4 2.4 (1.0) 7.5
220 HK Uni-President China Consumer Staples 3,450 6.3 Buy 10.2 19.7 17.1 3.5 4.1 15.4 6.5
3331 HK Vinda International Consumer Staples 2,006 12.6 Hold 15.6 18.7 15.5 2.0 2.6 20.8 9.4
151 HK Want Want China Consumer Staples 9,293 5.7 Buy 8.2 20.2 16.7 3.9 2.4 19.7 7.8
1230 HK Yashili International Consumer Staples 836 1.4 Hold 1.6 130.8 26.7 0.2 1.1 390.6 20.0
1475 HK Nissin Foods Consumer Staples 476 3.5 Buy 5.3 17.6 14.6 2.3 2.7 20.1 9.2
1798 HK China Datang Renewable Energy 854 0.9 Buy 1.4 4.5 3.8 4.2 5.0 20.1 8.4
916 HK China Longyuan Power Energy 5,373 5.2 Buy 7.4 7.9 6.9 2.5 2.9 15.0 7.5
958 HK Huaneng Renewables Corp Energy 2,804 2.0 Buy 3.0 5.2 4.6 2.8 3.2 13.7 8.5
3613 HK Beijing Tong Ren Tang CM Health Care 1,282 11.8 Buy 17.8 16.8 14.5 2.0 2.3 15.5 14.7
CBPO US China Biologic Products Health Care 2,946 74.8 Hold 83.0 21.1 20.3 0.0 0.0 4.0 5.6
002007 CH Hualan Biological Engin. Health Care 4,233 31.3 Hold 38.0 30.1 25.9 1.3 1.5 16.4 18.6
HCM US Hutchison China MediTech Health Care 2,860 21.5 Buy 38.0 na na 0.0 0.0 55.3 23.2
300294 CH Jiangxi Boya Bio-Pharma Health Care 1,637 25.5 Sell 28.0 27.7 22.9 0.0 0.0 20.8 na
002252 CH Shanghai RAAS Blood Prod. Health Care 5,649 7.9 Sell 9.0 37.3 31.3 0.6 0.6 19.0 na
BABA US Alibaba Group Internet 362,258 139.8 Buy 190.0 26.3 18.8 0.0 0.0 39.8 33.8
JD US JD.com, Inc Internet 31,942 22.3 Hold 24.0 na na 0.0 0.0 82.6 17.0
VIPS US Vipshop Holdings Internet 3,759 5.7 Buy 8.5 7.8 6.1 0.0 0.0 27.7 10.0
884 HK CIFI Holdings Real Estate 4,121 4.1 Buy 5.0 4.8 3.8 7.1 8.9 24.5 26.5
3900 HK Greentown China Real Estate 1,629 5.8 Hold 6.5 4.6 4.1 3.3 3.7 12.4 20.0
2777 HK Guangzhou R&F Properties Real Estate 5,024 11.6 Sell 9.0 3.7 3.3 10.7 12.2 13.9 19.3
1813 HK KWG Property Real Estate 2,884 6.7 Hold 7.0 4.2 3.2 8.6 11.3 31.3 39.0
813 HK Shimao Property Real Estate 8,551 20.0 Buy 26.0 6.7 5.4 5.4 6.4 25.0 22.7
1113 HK CK Asset Holdings Real Estate 28,511 58.9 Hold 62.8 6.0 8.7 3.3 3.6 (31.5) 7.8
12 HK Henderson Land Development Real Estate 23,137 40.7 Buy 59.4 9.5 12.0 4.2 4.3 (21.1) (2.2)
17 HK New World Development Real Estate 14,111 10.7 Buy 14.0 13.8 11.3 4.3 4.7 18.5 6.3
83 HK Sino Land Company Real Estate 12,352 14.3 Hold 13.4 7.4 18.3 7.7 3.6 (54.6) 27.5
16 HK Sun Hung Kai Properties Real Estate 43,694 117.4 Hold 122.0 11.3 10.5 3.9 4.2 6.3 5.5
2018 HK AAC Technologies Technology 6,325 40.8 Sell 36.0 10.7 11.4 3.0 2.9 (5.8) 7.8
522 HK ASM Pacific Technology Technology 3,772 71.2 Buy 130.0 9.6 8.1 2.6 3.0 17.8 4.7
981 HK Semiconductor Mfg Int'l Corp. Technology 4,071 6.3 Sell 5.5 42.5 na 0.0 0.0 (138.9) 9.0
2474 TT Catcher Technology Technology 5,291 199.5 Sell 295.0 7.1 7.0 5.6 5.7 2.1 na
3008 TT Largan Precision Technology 13,524 2,905.0 Buy 3,800.0 17.0 14.7 2.2 2.6 15.7 27.2
2454 TT MediaTek Technology 11,317 217.0 Hold 220.0 16.5 18.8 3.8 3.4 (12.4) 5.2
2408 TT Nanya Technology Corp Technology 5,219 51.6 Buy 100.0 3.7 4.1 6.8 13.6 (8.9) 9.4
2330 TT TSMC Technology 179,335 208.0 Hold 220.0 15.6 15.9 4.2 4.7 (1.5) 14.2
5347 TT Vanguard Int'l Semiconductor Technology 3,113 57.4 Buy 80.0 15.8 12.9 5.8 7.7 22.7 5.5
941 HK China Mobile Telcos 203,650 76.8 Hold 77.0 14.3 14.5 3.4 3.2 (1.5) 2.0
728 HK China Telecom Corporation Telcos 40,996 3.9 Buy 4.5 13.7 11.6 2.9 2.8 18.1 3.1
762 HK China Unicom Telcos 32,522 8.3 Buy 11.5 24.9 18.1 1.6 2.2 37.9 3.6
1816 HK CGN Power Utilities 10,844 1.8 Buy 2.6 7.6 6.7 4.5 5.1 13.3 9.3
1038 HK CK Infrastructure Utilities 20,276 59.5 Buy 80.6 12.2 11.2 4.4 4.8 9.3 3.3
6 HK Power Assets Holdings Utilities 14,937 54.9 Hold 63.0 14.1 14.1 5.1 5.1 (0.4) 0.3
Median 14.5 12.9 2.9 3.0 16.3 9.1
Average 17.8 13.3 3.1 3.5 20.5 12.2
Based on 7 Jan 2019 share prices (US listed stocks based on 4 January 2018).
Source: FactSet, Maybank Kim Eng

January 7, 2019 24
Strategy Research

Research Offices
REGIONAL MALAYSIA HONG KONG / CHINA THAILAND
Sadiq CURRIMBHOY WONG Chew Hann, CA Head of Research Mitchell KIM Head of Research Maria LAPIZ Head of Institutional Research
Regional Head, Research & Economics (603) 2297 8686 wchewh@maybank-ib.com (852) 2268 0634 mitchellkim@kimeng.com.hk Dir (66) 2257 0250 | (66) 2658 6300 ext 1399
(65) 6231 5836 • Strategy • Internet & Telcos Maria.L@maybank-ke.co.th
sadiq@maybank-ke.com.sg • Strategy • Consumer • Materials • Services
Desmond CH’NG, ACA Christopher WONG
Teerapol Udomvej, CFA
WONG Chew Hann, CA (603) 2297 8680 (852) 2268 0652
(66) 2658 6300 ext 1394
Regional Head of Institutional Research desmond.chng@maybank-ib.com christopherwong@kimeng.com.hk
teerapol.U@maybank-ke.co.th
(603) 2297 8686 • Banking & Finance • HK & China Properties
• Healthcare
wchewh@maybank-ib.com
LIAW Thong Jung Jacqueline KO, CFA Surachai PRAMUALCHAROENKIT
(603) 2297 8688 tjliaw@maybank-ib.com (852) 2268 0633 jacquelineko@kimeng.com.hk Head of Retail Research
ONG Seng Yeow
• Oil & Gas Services- Regional • Consumer Staples & Durables (66) 2658 5000 ext 1470
Regional Head of Retail Research
Surachai.p@maybank-ke.co.th
(65) 6231 5839 ONG Chee Ting, CA Ricky NG, CFA • Auto • Conmat • Contractor • Steel
ongsengyeow@maybank-ke.com.sg (603) 2297 8678 ct.ong@maybank-ib.com (852) 2268 0689 rickyng@kimeng.com.hk
• Regional Renewables Ekachai TARAPORNTIP Deputy Head
• Plantations - Regional (66) 2658 5000 ext 1530
ECONOMICS • HK & China Properties
Ekachai.t@maybank-ke.co.th
Mohshin AZIZ
Suhaimi ILIAS Stefan CHANG, CFA Sutthichai KUMWORACHAI Deputy Head
(603) 2297 8692 mohshin.aziz@maybank-ib.com
Chief Economist (852) 2268 0675 stefanchang@kimeng.com.hk (66) 2658 5000 ext 1400
• Aviation - Regional • Petrochem
Malaysia | Philippines | China • Technology – Regional sutthichai.k@maybank-ke.co.th
(603) 2297 8682 YIN Shao Yang, CPA • Energy • Petrochem
suhaimi_ilias@maybank-ib.com Tony REN, CFA
(603) 2297 8916 samuel.y@maybank-ib.com Suttatip PEERASUB
(852) 2268 0640 tonyren@kimeng.com.hk (66) 2658 5000 ext 1430
• Gaming – Regional • Media • Healthcare & Pharmaceutical
CHUA Hak Bin suttatip.p@maybank-ke.co.th
Regional Thematic Macroeconomist TAN Chi Wei, CFA • Media • Commerce
(65) 6231 5830 Wendy LI
(603) 2297 8690 chiwei.t@maybank-ib.com (852) 2268 0647 wendyli@kimeng.com.hk Termporn TANTIVIVAT
chuahb@maybank-ke.com.sg • Power • Telcos • Consumer & Auto (66) 2658 5000 ext 1520
LEE Ju Ye termporn.t@maybank-ke.co.th
WONG Wei Sum, CFA INDIA • Property
Singapore (603) 2297 8679 weisum@maybank-ib.com
(65) 6231 5844 Jaroonpan WATTANAWONG
• Property Jigar SHAH Head of Research
leejuye@maybank-ke.com.sg (66) 2658 5000 ext 1404
(91) 22 6623 2632 jigar@maybank-ke.co.in jaroonpan.w@maybank-ke.co.th
LEE Yen Ling
Dr Zamros DZULKAFLI • Strategy • Oil & Gas • Automobile • Cement • Transportation • Small cap
(603) 2297 8691 lee.yl@maybank-ib.com
(603) 2082 6818 • Glove • Ports • Shipping • Healthcare Sorrabhol VIRAMETEEKUL
zamros.d@maybank-ib.com Neerav DALAL
Head of Digital Research
Ivan YAP (91) 22 6623 2606 neerav@maybank-ke.co.in (66) 2658 5000 ext 1550
Ramesh LANKANATHAN (603) 2297 8612 ivan.yap@maybank-ib.com • Software Technology • Telcos sorrabhol.V@maybank-ke.co.th
(603) 2297 8685 • Automotive • Semiconductor • Technology • Food, Transportation
ramesh@maybank-ib.com Vishal PERIWAL
Wijit ARAYAPISIT
Kevin WONG (91) 22 6623 2605 (66) 2658 5000 ext 1450
FX (603) 2082 6824 kevin.wong@maybank-ib.com vishalperiwal@maybank-ke.co.in wijit.a@maybank-ke.co.th
• REITs • Consumer Discretionary • Infrastructure • Strategist
Saktiandi SUPAAT
Head, FX Research Adrian WONG, CFA Kritsapong PATAN
(65) 6320 1379 INDONESIA (66) 2658 5000 ext 1310
saktiandi@maybank.com.sg (603) 2297 8675 adrian.wkj@maybank-ib.com
• Constructions Isnaputra ISKANDAR Head of Research kritsapong.p@maybank-ke.co.th
• Chartist
Christopher WONG (62) 21 8066 8680
Jade TAM isnaputra.iskandar@maybank-ke.co.id Apisit PATTARASAKOLKIAT
(65) 6320 1347
(603) 2297 8687 jade.tam@maybank-ib.com • Strategy • Metals & Mining • Cement (66) 2658 5000 ext 1405
wongkl@maybank.com.sg
• Consumer Staples Apisit.p@maybank-ke.co.th
Rahmi MARINA • Chartist
Leslie TANG (62) 21 8066 8689
(65) 6320 1378 Mohd Hafiz HASSAN rahmi.marina@maybank-ke.co.id
(603) 2082 6819 mohdhafiz.ha@maybank-ib.com VIETNAM
leslietang@maybank.com.sg • Banking & Finance
• Building Materials • Small & Mid Caps LE Hong Lien, ACCA
Fiona LIM Aurellia SETIABUDI
Head of Institutional Research
(65) 6320 1374 Amirah AZMI (62) 21 8066 8691
(84 28) 44 555 888 x 8181
fionalim@maybank.com.sg (603) 2082 8769 amirah.azmi@maybank-ib.com aurellia.setiabudi@maybank-ke.co.id
lien.le@maybank-kimeng.com.vn
• Media • Plantations • Property
• Strategy • Consumer • Diversified
STRATEGY Janni ASMAN
TEE Sze Chiah Head of Retail Research THAI Quang Trung, CFA,
(62) 21 8066 8687
Sadiq CURRIMBHOY (603) 2082 6858 szechiah.t@maybank-ib.com Deputy Head, Institutional Research
janni.asman@maybank-ke.co.id
Global Strategist • Cigarette • Healthcare • Retail (84 28) 44 555 888 x 8180
(65) 6231 5836 Nik Ihsan RAJA ABDULLAH, MSTA, CFTe trung.thai@maybank-kimeng.com.vn
sadiq@maybank-ke.com.sg (603) 2297 8694 • Real Estate • Construction • Materials
nikmohdihsan.ra@maybank-ib.com PHILIPPINES
LE Nguyen Nhat Chuyen
Willie CHAN Minda OLONAN Head of Research
SINGAPORE (84 28) 44 555 888 x 8082
Hong Kong / Regional (63) 2 849 8840 chuyen.le@maybank-kimeng.com.vn
(852) 2268 0631 minda_olonan@maybank-atrke.com • Oil & Gas
Neel SINHA Head of Research
williechan@kimeng.com.hk • Strategy • Conglomerates
(65) 6231 5838 neelsinha@maybank-ke.com.sg
• Strategy • Industrials Katherine TAN NGUYEN Thi Ngan Tuyen,
FIXED INCOME • SMID Caps – Regional (63) 2 849 8843 Head of Retail Research
kat_tan@maybank-atrke.com (84 28) 44 555 888 x 8081
Winson PHOON, ACA CHUA Su Tye tuyen.nguyen@maybank-kimeng.com.vn
• Banks • Conglomerates • Ports
(65) 6231 5831 (65) 6231 5842 chuasutye@maybank-ke.com.sg • Food & Beverage • Oil&Gas • Banking
winsonphoon@maybank-ke.com.sg • REITs Luis HILADO
TRUONG Quang Binh,
(65) 6231 5848 luishilado@maybank-ke.com.sg Deputy Head, Retail Research
Se Tho Mun Yi Luis HILADO • Telcos
(603) 2074 7606 (65) 6231 5848 luishilado@maybank-ke.com.sg (84 28) 44 555 888 x 8087
munyi.st@maybank-ib.com • Telcos Romel LIBO-ON binh.truong@maybank-kimeng.com.vn
(63) 2 849 8844 • Rubber Plantation • Tyres & Tubes • Oil & Gas
LAI Gene Lih, CFA romel_libo-on@maybank-atrke.com TRINH Thi Ngoc Diep
(65) 6231 5832 laigenelih@maybank-ke.com.sg • Property (84 28) 44 555 888 x 8208
• Technology
diep.trinh@maybank-kimeng.com.vn
Kayzer LLANDA
• Technology • Utilities • Construction
(63) 2 849 8839
Kayzer_llanda@maybank-atrke.com NGUYEN Thi Sony Tra Mi
• Utilities (84 28) 44 555 888 x 8084
mi.nguyen@maybank-kimeng.com.vn
• Port Operation • Pharmaceutical
• Food & Beverage
NGUYEN Thanh Lam
(84 28) 44 555 888 x 8086
thanhlam.nguyen@maybank-kimeng.com.vn
• Technical Analysis

January 7, 2019 25
Strategy Research

APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS
This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation
of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions
or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different
methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns
may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does
not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek
financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.
The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its
subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such.
Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential
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This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”,
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forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to
differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims
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MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to time participate or
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permitted by law.
This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or
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This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where
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The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional
disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this report.
Malaysia
Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations
apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.
Singapore
This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no
obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising
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Thailand
Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of Maybank Kim Eng Securities (Thailand)
Public Company Limited. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) accepts no liability whatsoever for the actions of third parties in this respect.
Due to different characteristics, objectives and strategies of institutional and retail investors, the research reports of MBKET Institutional and Retail Research Department may differ in
either recommendation or target price, or both. MBKET Retail Research is intended for retail investors (http://kelive.maybank-ke.co.th) while Maybank Kim Eng Institutional Research is
intended only for institutional investors based outside Thailand only.
The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and
Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the
public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside
information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. MBKET does
not confirm nor certify the accuracy of such survey result.
The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by Thaipat Institute, is made in order to comply with the
policy and sustainable development plan for the listed companies of the Office of the Securities and Exchange Commission. Thaipat Institute made this assessment based on the information
received from the listed company, as stipulated in the form for the assessment of Anti-corruption which refers to the Annual Registration Statement (Form 56-1), Annual Report (Form 56-2),
or other relevant documents or reports of such listed company. The assessment result is therefore made from the perspective of Thaipat Institute that is a third party. It is not an assessment
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date or when there is any change to the relevant information. Nevertheless, MBKET does not confirm, verify, or certify the accuracy and completeness of the assessment result.
US
This third-party research report is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended)
only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All
responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. This report is not directed at you if MKE is prohibited or restricted by any
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within must do so with: Maybank Kim Eng Securities USA Inc. 400 Park Avenue, 11th Floor, New York, New York 10022, 1-(212) 688-8886 and not with, the issuer of this report.

January 7, 2019 26
Strategy Research

UK
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Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any
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individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own
independent tax advisers.
DISCLOSURES

Legal Entities Disclosures

Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938- H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of
Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This report is distributed in Singapore by Maybank KERPL (Co. Reg No 198700034E) which is
regulated by the Monetary Authority of Singapore. Indonesia: PT Maybank Kim Eng Securities (“PTMKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is
regulated by the Financial Services Authority (Indonesia). Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of
Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities
and Exchange Commission. Vietnam: Maybank Kim Eng Securities Limited (License Number: 117/GP-UBCK) is licensed under the State Securities Commission of Vietnam. Hong Kong: KESHK
(Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of
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27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Conduct Authority.

Disclosure of Interest
Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may
have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to
those companies.

Singapore: As of 7 January 2019, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore,
Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have
interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong: As of 7 January 2019, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

India: As of 7 January 2019, and at the end of the month immediately preceding the date of publication of the research report, KESI, authoring analyst or their associate / relative does not
hold any financial interest or any actual or beneficial ownership in any shares or having any conflict of interest in the subject companies except as otherwise disclosed in the research
report.
In the past twelve months KESI and authoring analyst or their associate did not receive any compensation or other benefits from the subject companies or third party in connection with the
research report on any account what so ever except as otherwise disclosed in the research report.
MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the
entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned
or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s
compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
Reminder
Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and
assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and
forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a
structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.
No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Definition of Ratings
Maybank Kim Eng Research uses the following rating system
BUY Return is expected to be above 10% in the next 12 months (excluding dividends)
HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends)
SELL Return is expected to be below -10% in the next 12 months (excluding dividends)
Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only
applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment
ratings as we do not actively follow developments in these companies.

January 7, 2019 27
Strategy Research
 Malaysia
Maybank Investment Bank Berhad
(A Participating Organisation of
Bursa Malaysia Securities Berhad)
33rd Floor, Menara Maybank,
100 Jalan Tun Perak,
50050 Kuala Lumpur
Tel: (603) 2059 1888;
Fax: (603) 2078 4194
Stockbroking Business:
Level 8, Tower C, Dataran Maybank,
No.1, Jalan Maarof
59000 Kuala Lumpur
Tel: (603) 2297 8888
Fax: (603) 2282 5136
 Philippines
Maybank ATR Kim Eng Securities Inc.
17/F, Tower One & Exchange Plaza
Ayala Triangle, Ayala Avenue
Makati City, Philippines 1200
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 South Asia Sales Trading
Kevin Foy
Regional Head Sales Trading
kevinfoy@maybank-ke.com.sg
Tel: (65) 6636-3620
US Toll Free: 1-866-406-7447
Indonesia
Harianto Liong
harianto.liong@maybank-ke.co.id
Tel: (62) 21 2557 1177
New York
James Lynch
jlynch@maybank-keusa.com
Tel: (212) 688 8886
Philippines
Keith Roy
keith_roy@maybank-atrke.com
Tel: (63) 2 848-5288
January 7, 2019
 Singapore
Maybank Kim Eng Securities Pte Ltd
Maybank Kim Eng Research Pte Ltd
50 North Canal Road
Singapore 059304
Tel: (65) 6336 9090
 Hong Kong
Kim Eng Securities (HK) Ltd
28/F, Lee Garden Three,
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Fax: (852) 2877 0104
 Thailand
Maybank Kim Eng Securities
(Thailand) Public Company Limited
999/9 The Offices at Central World,
20th - 21st Floor,
Rama 1 Road Pathumwan,
Bangkok 10330, Thailand
Tel: (66) 2 658 6817 (sales)
Tel: (66) 2 658 6801 (research)
 North Asia Sales Trading
Andrew Lee
andrewlee@kimeng.com.hk
Tel: (852) 2268 0283
US Toll Free: 1 877 837 7635
London
Mark Howe
mhowe@maybank-ke.co.uk
Tel: (44) 207-332-0221
India
Sanjay Makhija
sanjaymakhija@maybank-ke.co.in
Tel: (91)-22-6623-2629
 London
Maybank Kim Eng Securities
(London) Ltd
PNB House
77 Queen Victoria Street
London EC4V 4AY, UK
Tel: (44) 20 7332 0221
Fax: (44) 20 7332 0302
 Indonesia
PT Maybank Kim Eng Securities
Sentral Senayan III, 22nd Floor
Jl. Asia Afrika No. 8
Gelora Bung Karno, Senayan
Jakarta 10270, Indonesia
Tel: (62) 21 2557 1188
Fax: (62) 21 2557 1189
 Vietnam
Maybank Kim Eng Securities Limited
4A-15+16 Floor Vincom Center Dong
Khoi, 72 Le Thanh Ton St. District 1
Ho Chi Minh City, Vietnam
Tel : (84) 844 555 888
Fax : (84) 8 38 271 030
www.maybank-ke.com | www.maybank-keresearch.com
 New York
Maybank Kim Eng Securities USA
Inc
400 Park Avenue, 11th Floor
New York, New York 10022,
U.S.A.
Tel: (212) 688 8886
Fax: (212) 688 3500
 India
Kim Eng Securities India Pvt Ltd
2nd Floor, The International,
16, Maharishi Karve Road,
Churchgate Station,
Mumbai City - 400 020, India
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 Saudi Arabia
In association with
Anfaal Capital
Villa 47, Tujjar Jeddah
Prince Mohammed bin Abdulaziz
Street P.O. Box 126575
Jeddah 21352
Tel: (966) 2 6068686
Fax: (966) 26068787
28