BYD Co Ltd (1211 HK) ACCUMULATE. Poised to Gain from Strong Product Line-up. 17 June 股票报告网整理

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1 Equities Hong Kong/China Initial Coverage Company Report BYD Co Ltd (1211 HK) Poised to Gain from Strong Product Line-up BYD has recently announced its plan to do a private A-share placement so as to expand capacities for Li-ion ferrous power batteries and to invest more in the R&D of new energy vehicles (NEV). While the share issue is pending shareholders approval, BYD is poised to enjoy higher growth from the debut of its new NEVs this year. Four new NEV models to roll out in 215. The new plug-in hybrid vehicle Tang has been rolled out in June 215 and is priced at below Rmb3k. Subsequently, BYD will launch Song in 3Q15, and both Yuan and Shang in 4Q15. Including the existing model Qin, there would be five EV models in BYD s product mix to fuel future growth. S3 and S1 SUVs to launch in 2H15. For the traditional vehicle segment, the company s growth drivers in 215 were mainly the SUVs S7 and S6. In 2H15, BYD will roll out two new SUVs S3 and S1. With SUV being a relatively fast-growing segment in the industry, we expect a mild increase or single-digit y/y growth in the ASP in 215. Plans to raise Rmb15bn. BYD announced it plans to raise at most Rmb15bn from a private A-share placement in June. We believe the capital replenishment will help: a) strengthen the future NEV product pipeline as the company is still investing heavily in R&D; and b) relieve the company s financial burden given its net gearing as of end of 214 was 13%. We estimate the dilution effect on EPS would be around 8%. Valuation We estimate 215 earnings to grow 4% y/y to Rmb2,171m, after factoring in a disposal gain from the sale of Shenzhen BYD Electronic. Our target price of HK$56 is based on 215e EPS and 5x target PE multiple. The current share price of HK$5.85 suggests there is a potential upside of 1%. We initiate with an Accumulate rating on the stock. Investment Summary FY-end Dec E 216E 217E Turnover (Rmb m) 49,768 55,366 69,94 8,885 84,682 Growth (%) Net Profit (Rmb m) ,171 2,61 3,253 Growth (%) (21.6) EPS (RMB) Growth (%) (23.9) PER (x) OCF/Share (Rmb) P/B (x) EV/EBITDA (x) DPS (Rmb) Yield (%).1...., CER estimate 17 June 215 China / Automobile ACCUMULATE Share Price Target Price Upside HK$5.85 HK$56 1.1% (as of 16 June 215) Jeff Wong (852) Jeff.wong@ebscn.hk 52 Range (HK$) DVD yield %. Latest Key Data FF no of shares (m) -H share 689 FF (%) -H share FF market cap (HK$ m) 35,1 12M daily turnover (HK$ m) M volatility (%) M Hi/Lo (HK$) PEG FY15-17E (x) 2. RoAE FY14 (%) 1.6 P/B FY15E (x) 3.9 Net debt/equity FY14 (%) 13.3 Performance (%) 1M YTD 12M Absolute Relative to HSCEI (6.7) Major Shareholders (%) Wang Chuan Fu 23. Xiangyang LV 9.7 Price Chart (HK$) Turnover (HK$ m) BYD Co Ltd Jan-14 May-14 Sep-14 Jan-15 May-15 Source: Bloomberg, CER estimates HSI 7, 6, 5, 4, 3, 2, 1, China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page

2 Growth Outlook Company overview BYD is primarily engaged in the following three businesses: Automobile segment (47% of 214 sales): the R&D and manufacturing of: a) traditional fuel-power vehicles (with Internal Combustion Engines or ICE); and b) new energy vehicles. In 214, the company focused on promoting its latest plug-in hybrid electric vehicle (PHEV) known as Qin. It also began receiving orders for DENZA, the pure electric vehicle (EV) jointly developed by BYD and Daimler. Around 29% of the segment sales is attributed to such NEVs. The company also promoted the use of electric buses and taxis both domestically and in the overseas and that accounts for 2% of segment sales. Aside from NEV, the traditional vehicle segment contributed half of the segment sales but is under intense competition and experienced decline in both sales volume and price levels. Currently, its best-selling model is a high-end SUV known as S7. Handset components and assembly segment (44% of 214 sales) BYD has a proprietary plastic metal hybrid (PMH) technology which has become more popular among the domestic and global handset manufacturers. The technology is versatile in meeting the needs of their high-end flagship models. Rechargeable batteries and photovoltaic (PV) segment (9% of 214 sales): BYD is actively developing new types of batteries with higher energy density, with an aim to extend the mileage of the NEVs it produces. One example is the lithium ferrous phosphate (LFP) batteries. The traditional lithium-ion and nickel batteries segment has somewhat deteriorated. The solar energy segment continues to book a significant loss due to intense price competition. Sales volume targets to reach 15k-2k units in 215, more than doubled y/y In 215, around 15k-2k of NEVs are expected to be sold in China, up 1% to 166% y/y, according to estimates from the China Association of Automobile Manufacturers (CAAM). Back in 214, China produced and sold 83.9k and 75k units, up 4x and 3.2x respectively; in particular, plug-in hybrid EV (PHEV) grew fastest at 8.8x y/y to around 3k units. We expect popularity for NEV to continue to rise driven by mainly policy incentives. China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 2

3 Figure 1: Production volume of NEV by type July 214 April 215 6, 5, 4, CV: Plug-in hybrid CV: Pure electric PV: Plug-in hybrid PV: Pure electric 3, 2, 1, Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 Figure 2: Sales volume of NEV by type , 7, 6, 5, 4, NEV sales volume in China 74,763 3, 2, 1, 8,159 12,791 17, National and local policy incentives to remain supportive In May 215 China's State Council announced the "China Manufacturing 225" plan, which is seen as the first 1-year plan to upgrade the country's manufacturing industries to among the ranks of the developed countries. NEV is one of the 1 targeted industries and its development will involve nearly all of the nine key strategic objectives including: break-through development in key areas, domestic brand building and green manufacturing. Thus we expect further policy incentives to be announced to support the growth of the NEV industry. On 21 July 214, the State Council announced the Guiding Opinions on Accelerating the Promotion and Application of New Energy Vehicles. The plan is to let the local governments take up the responsibilities to promote the use of NEV. More importantly, at least 3% of the local government s annual purchase in must include NEV. China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 3

4 In addition to national policy incentives like purchase tax exemption, financial subsidies and government procurement like the above, the local governments are working to encourage drivers to switch to NEV as well. For instance, in Beijing, the local traffic management bureau announced in May 215 that pure electric passenger vehicles will be exempted from the Weekday Peak Hour Traffic Restriction measures (temporarily from 1 Jun 215 to 1 Apr 216). Going forward, the public is also anticipating further exemptions on parking fees and toll fees. Increasingly, more drivers will be lured to owning a NEV. Another implication is that other first tier cities are likely to replicate the model being adopted by Beijing. For example, Tianjin, Hangzhou and Chengdu could grant to drivers similar privileges like peak hour access and fee exemptions, thus creating room for more future demand. although subsidy reduction in might hurt consumer sentiment Despite its supportive stance on NEV, the central government (MOF, MIIT, NDRC and MOST) announced its plan to reduce financial subsidy on 29 April 215 ( Notice on the Promotion and Application of Financial Supporting Policy on New Energy Vehicles ). For 216, pure electric passenger vehicles are entitled to the following subsidy and the size depends on the mileage: 1km mileage < 15km : Rmb 25, per vehicle 15km mileage < 25km : Rmb 45, per vehicle 25km mileage: Rmb 55, per vehicle For pure electric commercial vehicles, the subsidy amount depends not only on mileage but also on efficiency of energy consumption and it varies from Rmb12k to Rmb5k per vehicle. Furthermore, fuel-cell vehicles, mini-vans, medium-to-large buses & medium trucks are entitled to Rmb2k, 3k and 5k subsidy per vehicle. The key point from this notice is that the subsidy will be reduced by: a) 2% from the 216 basis in ; and b) by 4% from the 216 basis in Given the most popular NEV type is those with mileage between 15-25km, the reduction suggests the subsidy will be potentially cut from Rmb45, to Rmb27,. We believe it could somewhat hurt the consumer sentiment. We also note that the extent of the cut is deeper than it was last proposed in December 214. Four new NEV models to be introduced in 215 For 215, the new plug-in hybrid vehicle Tang ( 唐 ) has been rolled out in June 215 in the Shenzhen-Hong Kong-Macau International Auto Show. The selling price would be lower than Rmb3k. Shortly after, BYD will launch Song( 宋 ) in 3Q15, and both Yuan ( 元 ) and Shang ( 商 ) in 4Q15. Including the existing model Qin ( 秦 ), there would be five PHEV models in BYD s product mix. For the traditional ICE vehicle segment, the company s growth drivers in 215 were mainly the SUVs S7 and S6. In 2H15, BYD will roll out two new SUVs S3 and S1. With SUV being a relatively fast-growing segment in the industry, we expect a mild increase or single-digit y/y growth in the ASP in 215. China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 4

5 One-off gain from disposal of Shenzhen BYD Electronic Components On 12 February 215, BYD announced it would dispose its 1% interest in Shenzhen BYD Electronic Components to Holitech (2217.CH), which is engaged in the making of LCD/camera/flexible printed circuits (FPC). Subsequently, the consideration was determined to be Rmb2.3 bn, of which 25% or Rmb575m will be paid in cash and 75% will be satisfied by 178.9m new Holitech shares at an issue price of Rmb9.64 per share. The disposal was priced at 3-4x PB and that BYD is expected to book a one-off gain of around Rmb1.6bn in 2H15 under investment income on the P&L. Capital replenishment to support capacity expansion for batteries and R&D of new vehicles BYD announced it plans to raise at most Rmb15bn from a private A-share placement (consisting of fewer than 1 financial investors) on 4 June 215. The issue price would be at least Rmb57.4. Accordingly, the number of new A shares to be issued would be at most m, accounting for 1.55% of the existing or 9.55% of the enlarged issued share capital. The proceeds will be used in: a) capacity expansion for Li-ion ferrous power batteries (Rmb6bn); b) R&D of new energy vehicles (NEV) (Rmb5bn); and c) additional working capital and loan repayment (Rmb4bn). We believe that the capital replenishment will help: a) strengthen the future NEV product pipeline as the company is still investing heavily in the R&D; and b) relieve the company s financial burden given its net gearing as of end of 214 was 13%. We also note that the circular will be out on 3 July 215 and the EGM will be held on 21 July 215. Assuming m new shares were issued at Rmb57.4, we estimate that the dilution effect on 215 EPS would be around 8%, without accounting for the potential earnings accretive effect from the proceeds to be raised. Overseas expansion: extending its reach to Brazil BYD is also diversifying its business and has quickly established its foothold in South America. On 15 July 214, BYD announced its first South American production facility in Campinas, Brazil. The facility will serve as a manufacturing base for the long range pure electric transit bus, as well as the first fire-safe and recyclable iron-phosphate battery. During the initial stage, the maximum production capacity reaches 1, electric buses, including all of the batteries. Initial contributions to earnings is expected to be seen in 216, although such contributions are likely to be small in the early stage. On 23 May 215, BYD announced further to establish another production facility for manufacturing solar panels and energy storage systems, which can help achieve zero emission goals in Campinas. In the second phase of the development, BYD plans to build a R&D centre for the photovoltaic, smart-grid and LED lighting business. Overseas expansion: single largest overseas orders from the U.S. On 29 April 215. BYD announced that California s Long Beach Transit will purchase up to 6 electric buses from them and it is the company s biggest overseas order to date. More importantly, winning a sizeable order in the U.S. will make future overseas buyers more convinced of the quality because of the high China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 5

6 safety and quality standards in the U.S. The first 1 of these buses will be delivered as early as this year. We also note that BYD also won a contract to supply five electric buses to Kyoto back in February 215. Currently, BYD is also negotiating with Uber over the sale of a few hundred electric taxis for New York and Chicago. Earnings outlook of BYD Electronic remains robust BYD s 65.76%-owned, HK-listed subsidiary BYD Electronic (285.HK) is mainly engaged in the manufacturing of handset components such as casings, keypads and modules for handset manufacturers. The company also provides assembly service (including PCB assembly) to global handset manufacturers. The rising popularity of metallic handset casings and their price levels are causing the company s profit margins to improve. The growing complexity and variety in design also demand higher price levels in 215. BYD Electronic has received strong orders and we expect supplies to Galaxy S6 alone would account for 1-2% of total sales in 215. Overall, metallic handset casings are expected to account for 5% of BYD Electronic earnings in 215, as opposed to only 4% in 214. In terms of the tablet ODM business, the one-stop service (involving whole-tablet design, component manufacturing and assembly service) is also growing with momentum and gross margin in 215 is expected to see mild improvement, too. Earnings outlook With four new models coming out this year, we expect sales volume of plug-in hybrid EV (PHEV) to rise around 24% y/y to 5, units. Based on strong order flow domestic and abroad, sales volume of EV taxis and buses are estimated to increase by around one fold as well. Sales volume of the NEV segment are likely to increase by 22% y/y to 63, units. As BYD focuses on the high-growth SUV segment, we expect the traditional vehicle segment to see 12% growth y/y in 215. Total revenue in 215 is estimated to grow 26% y/y to Rmb7bn, of which 57% is attributed to the automobile segment, 36% to the handset components and assembly segment, and 7% to rechargeable batteries and photovoltaic segment. We expect to see greater gross margin improvement in the NEVs than in the traditional automobiles. With higher prices anticipated for the metal casings, the handset business should see margin improvement in 215 as well; margin for the tablet ODM business, on the other hand, is likely to remain stable. Although the solar business was loss making in 214 and a potential turnaround is still uncertain, it accounts for a small portion of the total sales. Overall, gross margin is expected to rise by 2.2%-pt and 1%-pt to 16% and 17% in respectively. Government subsidy is a key item in that it accounts for 33% of the company s EBIT in 215. We expect it to grow 8% y/y to Rmb862m in 215. We also expect R&D expense per sales to rise from 3.4% to 3.8% as the company enters a high-growth phase. As discussed previously, the company will book a disposal gain of Rmb1.6bn in 2H15 as other income of the P&L. As a result, we expect earnings to rise substantially by 41% y/y to Rmb2,171m in 215 and by 2% y/y to Rmb2,61m in 216. China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 6

7 Table 3: Major assumptions Year end Dec e 216e 217e Sales volume (units) New energy vehicles (NEV) 2,84 63, 18, 131,9 Plug-in Hybrid EV 14,747 5, 9, 115, EV taxi 3,56 8, 11, 1, EV bus 2,533 5, 7, 6,9 Traditional vehicles 352,16 395, 39, 38, Total 373, 458, 498, 511,9 Sales volume - y/y growth New energy vehicles (NEV) NA 22% 71% 22% Plug-in Hybrid EV NA 239% 8% 28% EV taxi NA 125% 38% -9% EV bus NA 97% 4% -1% Traditional vehicles NA 12% -1% -3% Total NA 23% 9% 3% Revenue by segment (Rmb m) Automobiles 25,291 26,27 39,63 52,425 53,753 NEV Plug-in hybrid EV 415 3,227 11,16 19,485 22,48 NEV - Buses and taxis 81 4,13 7,63 11,593 1,337 Traditional vehicles 24,66 19,85 21,47 21,347 21,8 Rechargeable batteries and PV 5,18 4,98 5,229 5,386 5,548 Handset components and assembly 19,459 24,116 25,81 23,74 25,382 Total 49,768 55,366 69,94 8,885 84,682 Revenue by segment - as % of total Automobiles 51% 47% 57% 65% 63% NEV Plug-in hybrid EV 2% 12% 28% 37% 42% NEV - Buses and taxis 3% 16% 18% 22% 19% Traditional vehicles 95% 73% 54% 41% 39% Rechargeable batteries and PV 1% 9% 7% 7% 7% Handset components and assembly 39% 44% 36% 29% 3% Total 1% 1% 1% 1% 1% Overall gross margin 13.1% 13.8% 16.% 17.% 16.5% China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 7

8 Figure 4: Sales volume breakdown by NEV and ICE vehicles E Figure 5: Breakdown of EV sales volume by vehicle type E 6 5 New energy vehicles ICE (Internal Combustion Engine) vehicles 475k 498k k 1% 8% Plug-in hybrid EV EV taxi EV bus 4 373k 6% 3 2 4% 1 2% E 216E 217E % E 216E 217E Figure 6: Sales breakdown by business segment E Figure 7: Breakdown of automobile sales by vehicle type E (Rmb bn) Handset components & assembly Rechargeable batteries & PV Automobiles E 216E 217E 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Plug-in hybrid EV EV taxis and buses ICE vehicles E 216E 217E Figure 8: Profit margins E 18% 16% 14% 12% 1% 8% 6% 4% 2% % Gross margin EBIT margin Net margin E 216E 217E Figure 9: Government subsidy and R&D expense E (Rmb m) 1,5 1, , -1,5-2, -2,5-3, ,279 Government grants -1,865 R&D expense -2,658-2,75-2, E 216E 217E China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 8

9 Valuation and Risks Valuation Similar to its global peer Tesla Motors, BYD currently trades at much higher price multiples relative to its peers making traditional ICE vehicles (with internal combustion engines). In particular, BYD trades at 49x 215 and 41x 216 PE respectively, relative to only 8.9x and 7.4x PE of its peers. In fact, since 25, BYD has been trading at a historical average PE of 62x and average PB of 2.8x. Our target price of HK$56 is based on 215e EPS and 5x target PE multiple, which is arrived at after applying a 2% discount to the historical average PE of 62x (25 now). The current share price of HK$5.85 suggests there is a potential upside of 1%. We initiate with an Accumulate rating on the stock. Risks Fierce competition from other global auto makers that are also expanding its share in the EV market in China Subsidy reduction to take place in might potentially hurt consumer sentiment and weaken demand for NEV. The impact however is immaterial over the medium term and there could be other supportive policies on the consumer end. Potential product recall or unexpected batteries issues. China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 9

10 Table 1: Valuation summary Company Code Rating Curr Price* TP PER (x) Net PEG P/B Yield ROE gearing (x) (x) (%) (%) (%) (HK$) 14A 15E 16E 15-17E 15E 15E 14A 14A PRC peers (HK-listed) BYD Company 1211 HK Acc HKD NA Great Wall Motor - H 2333 HK Acc HKD Geely Auto 175 HK Acc HKD GAC Group - H 2238 HK Hold HKD Brilliance China 1114 HK Acc HKD Dongfeng Group 489 HK Buy HKD BAIC Motor 1958 HK Acc HKD Weighted-average* PRC peers (A-share listed) Great Wall Motor - A CH NR Rmb SAIC Motor Group 614 CH NR Rmb Chongqing Changan Auto 625 CH NR Rmb FAW Car Co. Ltd 8 CH NR Rmb NA GAC Group - A CH NR Rmb Weighted-average Asian peers Honda Motor 7267 JP NR JPY Nissan Motor 721 JP NR JPY Suzuki Motor 7269 JP NR JPY Toyota Motor 723 JP NR JPY Hyundai Motor 538 KS NR KRW NA 4.6 NA Kia Motors 27 KS NR KRW Weighted-average Global peers BMW AG BMW GR NR EUR Daimler AG DAI GR NR EUR Volkswagen AG VOW GR NR EUR Volvo AB VOLVB SS NR SEK NA Tesla Motors TSLA US NR USD NA NA 78.1 NA NA 63.9 Weighted-average** Source: Bloomberg, Companies, CER estimates. Exclude: negative ratios, PE > 5x, growth rates over 5% is taken as 5%, PEG > 2.5 is taken as 2.5. *Excludes BYD. **Excludes Tesla Motors China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 1

11 Figure 11: 12-month Forward PE band 26 - Now Price (HKD) x 7x 6x 5x 4x Source: Bloomberg, CER estimates Figure 32: 12-month Forward PB band 26 - Now Price (HKD) HKD x 4x 3x 2x 1x Source: Bloomberg, CER estimates China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 11

12 Company Description BYD Company Limited is primarily engaged in the manufacturing and sale of traditional and new energy vehicles. The company also researches, develops, produces and sells batteries, which are used in mobile phones, cordless phones, power tools and other portable electronic products. Profit & Loss (Consolidated) FY-end 31 Dec (Rmb m) E 216E 217E Sales 49,768 55,366 69,94 8,885 84,682 Cost of sales (43,252) (47,743) (58,75) (67,135) (7,71) Gross profit 6,516 7,623 11,19 13,751 13,973 Other income , Operating expenses (5,752) (6,951) (9,652) (1,3) (9,484) Operating profit 1,898 2,393 4,683 5,33 6,111 Finance cost, net (793) (1,292) (1,465) (1,488) (1,55) Share of P/L of assoc. & JCE (48) (122) (12) (1) (1) Pre-tax profit ,5 3,571 4,348 Tax (56) (134) (451) (536) (652) Minorities (223) (36) (383) (425) (444) Net profit ,171 2,61 3,253 EBITDA 5,43 6,65 9,167 9,939 1,82 EBIT 1,898 2,393 4,683 5,33 6,111 EPS (Rmb) DPS (Rmb) Source: Company, CER estimates Cash Flow (Consolidated) FY-end 31 Dec (Rmb m) E 216E 217E Operating cash flow 2, ,298 3,332 16,343 Net profit ,171 2,61 3,253 Depreciation & amortization 3,533 4,212 4,484 4,636 4,79 Change in working capital (2,913) (6,16) 3,866 (5,76) 6,495 Others 1,263 1,499 1,776 1,847 1,886 Investment cash flow (5,851) (7,91) (7,53) (6,649) (6,265) Net Capex (3,534) (1,34) (5,) (4,5) (4,) Disposal 186 Change in LT investment (192) (52) Change in other assets (2,126) (6,244) (2,53) (2,149) (2,265) Free cash Flow (3,415) (7,863) 4,768 (3,317) 1,78 Financing cash flow 4,58 7, (633) (1,463) Change in share capital 3,395 Net change in debt 6,22 5,314 2, 1, 2 Dividend paid (146) Net impact of exchange fluctuation (68) 31 Net cash flow 1,93 (592) 5,211 (3,95) 8,615 Source: Company, CER estimates Balance Sheet (Consolidated) FY-end 31 Dec (Rmb m) E 216E 217E Total assets 78,15 94,9 16, , ,591 Current assets 29,966 4,834 5,618 53,87 58,13 Cash & ST investments 4,511 3,95 9,161 5,211 13,826 Marketable securities & ST inv Account & notes receivable 13,135 22,435 23,553 29,632 25,121 Inventories 8,221 9,978 13,2 13,286 13,835 Others 3,231 3,968 4,22 4,454 4,727 Non-current assets 48,49 53,175 56,27 58,31 59,578 LT investments 1,93 1,449 1,731 2,71 2,478 Net fixed assets 34,147 36,379 37,24 37,466 37,224 Others 12,89 15,347 17,92 18,495 19,877 Total liabilities 53,158 65,114 75,579 77,265 8,3 Current liabilities 43,344 53,22 62,487 63,673 66,68 Account payable 22,293 25,851 34,25 34,397 36,894 ST borrowings 16,172 19,173 2,173 2,673 2,773 Others 4,879 7,998 8,289 8,63 8,942 Non-current liabilities 9,814 12,92 13,92 13,592 13,692 Long-term debts 8,652 1,979 11,979 12,479 12,579 Others 1,162 1,113 1,113 1,113 1,113 Total equities 24,856 28,894 31,66 33,852 37,29 Shareholders' equity 21,71 25,366 27,537 3,147 33,4 Minority shareholders 3,147 3,529 3,529 3,75 3,891 Total liabilities + SH equities 78,15 94,9 16, , ,591 Net cash / (debt) (2,313) (26,22) (22,991) (27,941) (19,525) Working capital (2,585) 2,532 (1,36) 4,373 (2,152) Total capital employed 49,681 59,46 63,218 67,4 7,642 Shareholders' equity + Minorities 24,856 28,894 31,66 33,852 37,29 Net gearing (%) Source: Company, CER estimates Financial Summary FY-end 31 Dec E 216E 217E Growth (%) Revenue EBITDA NA EBIT Net profit EPS Margins (%) Gross EBITDA EBIT Net Others (%) Effective tax rate Payout ratio RoCE Average RoE Average RoA Interest cover (x) Source: Company, CER estimates China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 12

13 Everbright Research Limited Rating System Buy Expected to outperform the benchmark index by >15% over the next six months Accumulate Expected to outperform the benchmark index by 5-15% over the next six months Hold Expected to outperform or underperform the benchmark index by <5% over the next six months Reduce Expected to underperform the benchmark index by 5-15% over the next six months Sell Expected to underperform the benchmark index by >15% over the next six months Analyst Certification The research analyst(s) primarily responsible for the preparation of this report hereby certify that (1) All of the views expressed in this report accurately reflect his or her or their personal views about the subject company or companies and its/theirs securities; (2) No part of his or her or their compensation was/were, is/are or will be directly or indirectly, related to the specific recommendations or views expressed in this report or any specific investment banking function; (3) He/she/they are not directly supervised by, and do not directly report to, investment banking functions; (4) He/she/they has/have not breach the quiet period restriction of dealing in the securities covered in this report; (5) He/she/they is/are not an officer and do(es) not hold any directorship in the company or companies this report covered. Disclosure Our firm does not have financial interests (including stock holding) that equal 1% or more of the market capitalization of the listed company under review at the date this report is published; does not have investment banking relationship with the listed company under review within the past 12 months; and does not have market-making activities in the stock. None of our staff is an officer of the listed company. Disclaimer This report has been prepared by China Everbright Research Ltd. China Everbright Research Limited does not guarantee, either expressed or implied, the completeness, reliability and accuracy of the materials contained in the report. This report has been prepared for general reference and no part of this report is to be constructed as an offer, invitation, advertisement or inducement whatsoever, or form to buy or sell any securities or financial instruments whether referred to herein or otherwise. Opinions in this report are subject to change by the original writer without notice. China Everbright Research Limited does not accept any liability whatsoever, directly, indirectly, consequential or incidental that may arise from the use of or reliance on the contents of this report. China Everbright Research Limited and its affiliates and their respective associates, directors, employees or officers may from time to time have long or short positions in securities, warrants, futures, options, derivatives or any other interests and/or underwriting commitments in the securities or financial instruments referred to in this report. Reports by China Everbright Research Limited do not have regard to the specific investment objectives, financial situation, risk tolerance or the particular needs of any investor. Before enter into any investment contract, individual should exercise judgment or seek for professional advice when necessary. The information contained herein is believed to be reliable. Its completeness and accuracy are, however, not guaranteed. All copyrights are reserved by China Everbright Research Limited, this report or any part of its contents must not be reproduced in whole or in part without the prior written approval of China Everbright Research Limited. China Everbright Research Limited is licensed by the Securities and Futures Commission (SFC) and is governed under the rules and regulations of the SFC and the Securities and Futures Ordinances and its subsidiary legislation. Address: 17/F., Far East Finance Center, No. 16 Harcourt Road, Hong Kong. Contact No.: (852) China Everbright Research Limited