China Cinda Asset Management Co., Ltd

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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17 January 2014

Asia Pacific/China

Equity Research

Asset Managers (Financials (Asia))

China Cinda Asset Management Co., Ltd (1359.HK / 1359 HK)

INITIATION

A distressed asset leader in the right cycle

■ Initiate with OUTPERFORM and HK$6.14 TP, implying 21.6% potential

upside; expect 37% 2012-15 profit CAGR: Cinda is one of China's leading

asset management companies (AMC). We expect Cinda's business volume

to meaningfully increase as the economy slows after massive credit growth

and the government's reform measures. Distressed asset management

(DAM) is Cinda's main division, accounting for 54%/64% of group

asset/profit at 2012. We estimate DAM to deliver 48% profit CAGR in 2012-

15 (2015E asset/profit contribution: 60%/82%), helping group profit CAGR to

reach 37% and ROE to rise from 16% to 20% in 2015.

■ Two possibilities (one positive and one negative): We believe Cinda can

potentially dispose its loss-making life business. If it can reinvest the

released assets into its profitable DAM division, such disposal can

potentially lift ROA by 0.9 pp and ROE by around 3.3 pp. Meanwhile, if

Cinda manages to get controlling stake of a bank, its investment theme as a

leading AMC will be diluted.

■ Catalysts and risks: We view banks' meaningful NPL increase and any

regulatory changes to allow quick distressed asset resolving as positive

catalysts. Meanwhile, a sharp GDP/asset price decline is the key risk as it

can meaningfully impact Cinda's return of distressed assets and the value of

its assets/property inventory.

■ Valuation: We use Gordon Growth Model to value Cinda's three business

divisions and sum them up to derive the total corporate value. Given Cinda's

business model has an inherent ability to neutralise macroeconomic volatility,

our key assumptions include 12.5% COE, 18.3% ROE and 3-6% LT growth

rate. Our HK$6.14 target price implies 2.0x 2014E P/B and 12x 2014E P/E.

Share price performance

80

90

100

110

120

4

4.5

5

5.5

6

Dec-13

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the

HANG SENG INDEX which closed at 22968.55 on 15/01/14

On 15/01/14 the spot exchange rate was HK$7.75/US$1

Performance over 1M 3M 12M Absolute (%) 8.1 — — Relative (%) 8.6 — —

Financial and valuation metrics

Year 12/13E 12/14E 12/15E 12/16E Revenue (Rmb mn) 40,688 52,933 65,423 77,683 EBITDA (Rmb mn) 11,550.8 19,786.5 25,117.9 30,400.6 EBIT (Rmb mn) 11,081.7 19,289.3 24,590.1 29,839.4 Net profit (Rmb mn) 8,459.1 14,635.8 18,635.1 22,603.0 EPS (CS adj.) (Rmb) 0.28 0.40 0.51 0.62 Change from previous EPS (%) n.a. Consensus EPS (Rmb) n.a. 0.38 0.45 — EPS growth (%) 10.6 46.0 27.3 21.3 P/E (x) 18.3 12.5 9.8 8.1 Dividend yield (%) 1.4 2.4 3.1 3.7 EV/EBITDA (x) 11.6 6.8 5.2 4.2 P/B (x) 1.86 1.63 1.42 1.23 ROE (%) 13.03 18.00 19.82 20.84 Net debt/equity (%) 4.2 4.4 4.6 4.7

Source: Company data, Thomson Reuters, Credit Suisse estimates

Rating OUTPERFORM* [V] Price (15 Jan 14, HK$) 5.05 Target price (HK$) 6.14¹ Upside/downside (%) 21.6 Mkt cap (HK$ mn) 183,096 (US$ 23,612) Enterprise value (HK$ mn) 133,961 Number of shares (mn) 36,256.69 Free float (%) 32.2 52-week price range 5.14 - 4.50 ADTO - 6M (US$ mn) 161.1

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Victor Wang

852 2101 6730

[email protected]

Sanjay Jain

852 2101 6088

[email protected]

Jiang, Claire

852 2101 6651

[email protected]

Vineet Thodge

852 2101 7466

[email protected]

17 January 2014

China Cinda Asset Management Co., Ltd (1359.HK / 1359 HK) 2

Focus charts and table Figure 1: Asset growth by business line (CAGR, %) Figure 2: Revenue growth by business line (CAGR, %)

29.4

21.4

33.2

28.8

24.9

15.0

19.622.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

DAM* FIAM* FS* Group

2010-1H13 2H13-2015E

21.1

6.0

16.915.4

36.5

10.2

20.0

26.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0


2010-2012 2012-2015E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 3: ROA** by business line (%) Figure 4: ROE*** by business line (%)

4.0

5.8

0.2

3.4

6.0

3.4

1.0

4.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0


'12 '13E '14E '15E

23.5

15.7

1.2

15.6

27.2

9.78.6

19.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0


'12 '13E '14E '15E


* DAM refers to distressed asset management, FIAM to financial investment and asset management, and

FS to financial services. These are the three business divisions of the company.

** Net profit is calculated by assuming 25% tax rate on the PBT reported by the company.

*** Equity for each business line calculated by allocating 70% of minority interests to FIAM and 30% to FS.

Figure 5: Cinda—Gordon growth model valuation, 2014E

ROA Gearing ROE Implied Equity

avg 2015E COE g P/B 2014E Value

13-15E (%) (x) (%) (%) (%) (x) (Rmb mn) (Rmb mn) % share

Distressed asset mgmt 5.7 4.5 25.8 12.5 6.0 3.0 50,471 153,907 89

Financial invt and asset mgmt 3.5 2.8 9.9 12.5 5.0 0.7 23,128 15,047 9

Financial services 0.9 7.6 6.5 12.5 3.0 0.4 12,648 4,708 3

Total group 4.2 4.4 18.3 12.5 5.12 1.98 87,516 173,662 100

Source: Credit Suisse estimates

17 January 2014


A distressed asset leader in the right cycle On the revenue side, Cinda as a theme is almost opposite to the Chinese bank sector, in

our view. Cinda faces strong growth prospects on account of an anticipated increase in

banking sector NPLs, corporate receivable restructuring as well as local government asset

optimisation. Aside from the asset quality deterioration, we believe the banking sector is

facing structurally slower growth following five years of huge credit injection (credit-to-GDP

ratio has jumped from 117% in 2008 to 178% in 1Q13 based on BIS data). Also, China's

recent administration change is most likely to carry out a lot far-reaching reforms, targeting

to reduce government participation in economic matters and likely to trigger large scale

state-owned assets restructuring and optimisation. Cinda's leading position in distressed

assets business, multi-license corporate structure (brokerage, investment banking, trust,

property, leasing, etc.) and enhanced capital base makes it best positioned to the cycle.

Expecting 37% 2012-15 profit CAGR…

Cinda's traditional DAM business, where it purchases NPLs at a discount, has been weak

in the past few years as bank NPLs have remained very low. Since June 2012, CBRC has

made it easy for banks to offload NPLs if they carry adequate provisioning, and we have

seen evidence in BCOM's sale of NPLs in 1H13 and again in 3Q13. MOF recently also

loosened NPL write-off and sale regulations, giving banks bigger flexibility to actively

manage their distressed assets. Cinda's other part of the DAM business, in which it buys

loans/receivables of debtors facing temporary cash flow difficulties, has been growing

manifold since its start in 2011 and should continue to outpace other businesses. Principal

investing and real estate come as an extension of the core activity and we expect single-

digit growth through 2015. Last but not the least, the financial services division has several

streams such as brokerage, investment banking, trust and leasing that have good growth

possibilities on the back of liberalisation of the financial sector.

We forecast Cinda to have 37% profit CAGR in 2012-15, thanks to strong DAM business.

Be aware of two possibilities

We see no synergy for Cinda to own a life insurance business—Happy Life. With capital

markets becoming more active and as Happy Life's business matures, we believe Cinda

can sell this stake. By spinning off the life assets, Cinda can potentially increase its ROA

by 0.9 pp and ROE by around 3.3 pp. This is a positive possibility.

We think Cinda can potentially acquire a banking licence, as the local governments need

to sell down a lot of the local state-owned assets including equity interests of local banks

(Cinda's competitor Huarong AMC has got a 52% stake in a local bank already). Though

owning a bank reduces its funding cost (every 50 bp funding cost reduction lifts 2014/15

earnings by around c5%), such a move could dilute Cinda's investment case. This is a

negative possibility.

Key risks

Aside from the key risk of economic growth which affects all parts of its business, we

believe Cinda runs the risk of: (1) exposure to equity, real estate and commodity markets;

(2) impairment in its leasing/trust businesses; and (3) over-paying for distressed assets.

Valuation

We use Gordon Growth Model (GGM) to value Cinda's three key divisions and sum them

up to get its group value. We use cost of equity of 12.5% and terminal growth of 3-6%. Our

TP is HK$6.14, implying 2.0x 2014E P/B or 12x 2014E P/E.

Cinda benefits from banking

sector NPL disposal and

state-owned assets

restructuring

Assets, revenues expected

to see a CAGR of more than

20% through 2015E

Profit CAGR high at 37%

Two potential events with

big impacts for Cinda's

profitability of investment

theme

Cinda is also exposed to

asset price volatility

Our valuation implies a P/B

of 2.0x and P/E of 12x

2014E

17 January 2014


Cinda: Financial snapshot Figure 6: Cinda—consolidated P&L

(Rmb mn, %) 2010 2011 2012 1H13 2H13E 2013E 2014E 2015E 11YoY 12YoY 13YoY 14YoY 15YoY

Income from distressed

assets (receivables) 0 181 3,518 4,245 5,637 9,882 15,283 20,134 n.a. 1844.9 180.9 54.7 31.7

Fair value changes on

distressed debt assets 5,851 4,463 3,878 1,968 2,120 4,088 5,303 7,067 -23.7 -13.1 5.4 29.7 33.3

Fair value changes on other

financial assets 426 41 399 322 188 510 543 591 -90.4 873.2 10.0 10.0 10.0

Investment income 4,835 5,779 6,529 3,909 2,588 6,497 7,955 9,122 19.5 13.0 -0.5 22.5 14.7

Net insurance premiums

earned 4,584 5,701 5,340 2,604 3,606 6,210 7,447 8,933 24.4 -6.3 16.3 19.9 20.0

Commission and fee income 2,135 1,947 2,308 1,129 1,259 2,388 2,808 3,411 -8.8 18.5 3.5 17.6 21.5

Revenue from sales of

inventories 4,148 3,237 3,924 1,377 2,744 4,120 4,946 5,738 -22.0 21.2 5.0 20.0 16.0

Interest income 850 1,537 2,586 1,934 2,588 4,522 5,753 7,158 80.8 68.3 74.8 27.2 24.4

Net gains on sale of

subsidiaries/associates 40 174 2,601 111 111 223 234 246 334.6 1391.5 -91.4 5.0 0.0

Other income and other net

gains or losses 1,390 1,322 1,251 1,072 1,176 2,248 2,660 3,024 -4.9 -5.4 79.7 18.3 13.7

Total revenue 24,260 24,382 32,335 18,669 22,018 40,688 52,933 65,423 0.5 32.6 25.8 30.1 23.6

Insurance costs -4,434 -5,337 -4,690 -2,177 -3,102 -5,278 -6,181 -7,325 20.4 -12.1 12.5 17.1 18.5

Commission and fee expense -734 -805 -901 -479 -484 -963 -1,109 -1,320 9.6 11.9 6.9 15.1 19.0

Purchases and changes in

inventories -2,655 -1,844 -2,392 -824 -1,607 -2,431 -2,968 -3,443 -30.5 29.7 1.6 22.1 16.0

Employee benefits -2,367 -2,672 -3,418 -1,699 -2,337 -4,037 -4,645 -5,278 12.9 27.9 18.1 15.1 13.6

Business tax and surcharges -504 -562 -786 -523 -565 -1,088 -1,318 -1,580 11.5 39.8 38.5 21.1 19.9

Depreciation and amortization

expenses -501 -430 -451 -211 -258 -469 -497 -528 -14.2 4.8 4.1 6.0 6.2

Impairment losses on assets -496 -536 -4,601 -3,476 -1,782 -5,258 -2,623 -2,891 8.2 757.7 14.3 -50.1 10.2

Interest expense -1,371 -1,909 -3,848 -3,155 -4,050 -7,205 -10,816 -14,404 39.3 101.5 87.2 50.1 33.2

Other expenses -1,742 -1,930 -2,114 -1,009 -1,868 -2,877 -3,488 -4,066 10.8 9.6 36.1 21.2 16.6

Total expenses 14,803 16,027 -23,200 -12,544 -14,185 -29,606 -33,644 -40,833 8.3 44.8 27.6 13.6 21.4

Profit before share of profit or

loss of associates and tax 9,451 8,405 8,983 5,909 7,850 10,882 19,071 24,353 -11.1 6.9 21.1 75.3 27.7

Share of results of associates 505 653 612 238 159 397 444 494 29.4 -6.2 -35.1 11.7 11.4

Profit before tax 9,955 9,058 9,596 6,146 8,009 11,279 19,514 24,847 -9.0 5.9 17.5 73.0 27.3

Income tax expense -2,454 -2,272 -2,379 -1,120 -1,699 -2,820 -4,879 -6,212 -7.4 4.7 18.5 73.0 27.3

Profit for the year 7,502 6,786 7,217 5,026 6,310 8,459 14,636 18,635 -9.5 6.4 17.2 73.0 27.3

Profit attributable to:

Non-controlling interests 103 23 -89 961 0 0 0 0 0.0 0.0 0.0 0.0 0.0

Equity holders of the

Company 7,399 6,763 7,306 4,065 4,394 8,459 14,636 18,635 -8.6 8.0 15.8 73.0 27.3

Weighted average number of

shares in issue 23,356 25,155 28,925 30,140 0 30,583 36,252 36,257 7.7 15.0 5.7 18.5 0.0

EoP number of shares 25,155 25,155 30,140 0 0 35,459 36,257 36,257 0.0 19.8 17.6 2.3 0.0

Payout ratio 0% 25% 25% 40% 21% 30% 30% 30% 0% 0% 0% 0% 0%

Dividends 0 1,712 1,806 1,613 925 2,538 4,391 5,591 0.0 5.5 40.5 73.0 27.3

Source: Company data, Credit Suisse estimates * Net profit calculated by assuming 25% tax rate on PBT reported by the company

17 January 2014


Figure 7: Cinda—consolidated balance sheet

(Rmb mn, %) 2010 2011 2012 1H13 2013E 2014E 2015E 11YoY 12YoY 13YoY 14YoY 15YoY

Traditional DA 8,030 7,919 8,022 8,469 9,373 14,195 18,674 -1.4 1.3 16.8 51.4 31.5

Restructuring DA 0 9,681 48,068 77,888 93,101 142,029 193,535 0.0 396.5 93.7 52.6 36.3

Debt-to-equity swap

assets 52,312 50,595 48,239 43,655 41,739 37,738 32,870 -3.3 -4.7 -13.5 -9.6 -12.9

DAM 84,476 91,551 140,328 160,921 183,764 229,559 280,675 8.4 53.3 31.0 24.9 22.3

Principal inv 10,173 11,178 13,871 15,230 16,090 18,665 21,651 9.9 24.1 16.0 16.0 16.0

Other assets 21,974 24,210 35,156 36,920 40,078 45,758 52,263 10.2 45.2 14.0 14.2 14.2

Financial Inv and Asset

mgt 32,147 35,388 49,027 52,150 56,168 64,422 73,914 10.1 38.5 14.6 14.7 14.7

Securities and Futures 18,318 16,253 14,838 16,558 17,806 19,586 21,545 -11.3 -8.7 20.0 10.0 10.0

Jingu Trust 1,410 1,760 2,386 2,594 2,863 3,293 3,787 24.8 35.6 20.0 15.0 15.0

Cinda Leasing 2,416 9,832 20,236 23,199 27,319 35,514 49,720 307.0 105.8 35.0 30.0 40.0

First State Cinda Fund 261 220 194 207 223 234 246 -15.7 -11.8 15.0 5.0 5.0

Cinda P&C 1,362 1,940 5,359 5,404 6,431 9,003 11,704 42.4 176.2 20.0 40.0 30.0

Happy Life 12,651 19,781 26,339 26,544 26,866 28,209 29,620 56.4 33.2 2.0 5.0 5.0

Financial services 36,418 49,786 69,352 74,503 81,507 95,839 116,621 36.7 39.3 17.5 17.6 21.7

DAM 3,258 3,583 3,317 3,381 3,550 3,728 3,914 10.0 -7.4 7.0 5.0 5.0

FIAM 2,713 3,130 4,159 4,516 4,741 5,121 5,530 15.4 32.9 14.0 8.0 8.0

FS

Includes interest in

associates 5,971 6,713 7,476 7,914 8,291 8,848 9,444 12.4 11.4 10.9 6.7 6.7

DAM 84,476 91,551 140,328 160,921 183,764 229,559 280,675 8.4 53.3 31.0 24.9 22.3

FIAM 32,147 35,388 49,027 52,150 56,168 64,422 73,914 10.1 38.5 14.6 14.7 14.7

FS 36,418 49,786 69,352 74,503 81,507 95,839 116,621 36.7 39.3 17.5 17.6 21.7

Total assets for the

group 150,701 173,124 254,614 283,553 316,938 384,869 465,763 14.9 47.1 24.5 21.4 21.0

DAM 67,126 76,561 115,550 136,796 143,243 179,088 219,565 14.1 50.9 24.0 25.0 22.6

FIAM 16,833 17,895 27,365 29,215 30,255 36,578 44,444 6.3 52.9 10.6 20.9 21.5

FS 27,731 40,151 55,550 59,457 67,373 81,170 101,172 44.8 38.4 21.3 20.5 24.6

Total liabilities 108,200 130,281 193,730 220,808 236,370 291,885 359,734 20.4 48.7 22.0 23.5 23.2

DAM 17,350 14,990 24,778 24,124 40,521 50,471 61,111 -13.6 65.3 63.5 24.6 21.1

FIAM 15,314 17,493 21,662 22,935 25,913 27,844 29,470 14.2 23.8 19.6 7.5 5.8

FS 8,687 9,635 13,802 15,047 14,134 14,670 15,448 10.9 43.2 2.4 3.8 5.3

Shareholders' equity (incl.

minorities) 42,502 42,843 60,885 62,745 80,568 92,984 106,029 0.8 42.1 32.3 15.4 14.0

DAM

FIAM 3,833 3,521 4,278 4,468 4,492 4,716 4,952

FS 1,643 1,509 1,833 1,915 1,925 2,021 2,122

Minority interests* 5,476 5,030 6,111 6,383 6,417 6,738 7,074 -8.2 21.5 5.0 5.0 5.0

DAM 17,350 14,990 24,778 24,124 40,521 50,471 61,111 -13.6 65.3 63.5 24.6 21.1

FIAM 11,481 13,972 17,384 18,467 21,421 23,128 24,518 21.7 24.4 23.2 8.0 6.0

FS 7,044 8,126 11,969 13,132 12,209 12,648 13,326 15.4 47.3 2.0 3.6 5.4

Shareholders' equity 37,025 37,813 54,774 56,363 75,100 87,516 100,560 2.1 44.9 37.1 16.5 14.9

Source: Company data, Credit Suisse estimates

*Minorities divided among the three business lines by allocating 70% to FIAM and 30% to FS.

17 January 2014


Figure 8: Cinda—divisional breakdown of key financials

Rmb mn % share* YoY growth (%)

2010 2011 2012 2013E 2014E 2015E 2010 2011 2012 2013E 2014E 2015E 2011 2012 2013E 2014E 2015E

Revenue

DAM 9,813 9,957 14,392 20,090 28,406 36,617 40 41 45 49 54 56 1.5 44.5 39.6 41.4 28.9

FIAM 7,043 5,946 7,911 7,948 9,296 10,585 29 24 24 20 18 16 -15.6 33.0 0.5 17.0 13.9

FS 7,718 9,231 10,553 12,650 15,232 18,221 32 38 33 31 29 28 19.6 14.3 19.9 20.4 19.6

Group 24,260 24,382 32,335 40,688 52,933 65,423 100 100 100 100 100 100 0.5 32.6 25.8 30.1 23.6

Profit before tax

DAM 7,465 7,202 6,234 8,037 15,643 20,267 75 80 65 71 80 82 -3.5 -13.4 28.9 94.6 29.6

FIAM 2,333 2,488 3,285 2,609 2,851 3,097 23 27 34 23 15 12 6.7 32.0 -20.6 9.3 8.6

FS 180 -207 164 633 1,020 1,483 2 -2 2 6 5 6 -214.8 -179.4 285.3 61.1 45.4

Group 9,955 9,058 9,596 11,279 19,514 24,847 100 100 100 100 100 100 -9.0 5.9 17.5 73.0 27.3

Net profit**

DAM 5,599 5,401 4,675 6,027 11,732 15,200 75 80 65 71 80 82 -3.5 -13.4 28.9 94.6 29.6

FIAM 1,750 1,866 2,463 1,957 2,139 2,322 23 28 34 23 15 12 6.7 32.0 -20.6 9.3 8.6

FS 135 -155 123 475 765 1,113 2 -2 2 6 5 6 -214.8 -179.4 285.3 61.1 45.4

Group 7,502 6,786 7,217 8,459 14,636 18,635 100 100 100 100 100 100 -9.5 6.4 17.2 73.0 27.3

Assets

DAM 84,476 91,551 140,328 183,764 229,559 280,675 56 53 55 58 60 60 8.4 53.3 31.0 24.9 22.3

FIAM 32,147 35,388 49,027 56,168 64,422 73,914 21 20 19 18 17 16 10.1 38.5 14.6 14.7 14.7

FS 36,418 49,786 69,352 81,507 95,839 116,621 24 29 27 26 25 25 36.7 39.3 17.5 17.6 21.7

Group 150,701 173,124 254,614 316,938 384,869 465,763 100 100 100 100 100 100 14.9 47.1 24.5 21.4 21.0

Equity***

DAM 17,350 14,990 24,778 40,521 50,471 61,111 47 40 45 54 58 61 -13.6 65.3 63.5 24.6 21.1

FIAM 11,481 13,972 17,384 21,421 23,128 24,518 31 37 32 29 26 24 21.7 24.4 23.2 8.0 6.0

FS 7,044 8,126 11,969 12,209 12,648 13,326 19 21 22 16 14 13 15.4 47.3 2.0 3.6 5.4

Group 37,025 37,813 54,774 75,100 87,516 100,560 100 100 100 100 100 100 2.1 44.9 37.1 16.5 14.9

ROA (%)

DAM 6.6 6.1 4.0 3.7 5.7 6.0 -0.5 -2.1 -0.3 2.0 0.3

FIAM 5.4 5.5 5.8 3.7 3.5 3.4 0.1 0.3 -2.1 -0.2 -0.2

FS 0.4 -0.4 0.2 0.6 0.9 1.0 -0.7 0.6 0.4 0.2 0.2

Group 5.0 4.2 3.4 3.0 4.2 4.4 -0.8 -0.8 -0.4 1.2 0.2

Gearing (x)

DAM 4.9 6.1 5.7 4.5 4.5 4.6 1.2 -0.4 -1.1 0.0 0.0

FIAM 2.8 2.5 2.8 2.6 2.8 3.0 -0.3 0.3 -0.2 0.2 0.2

FS 5.2 6.1 5.8 6.7 7.6 8.8 1.0 -0.3 0.9 0.9 1.2

Group 4.1 4.6 4.6 4.2 4.4 4.6 0.5 0.1 -0.4 0.2 0.2

ROE (%)

DAM 32.3 33.4 23.5 18.5 25.8 27.2 1.1 -9.9 -5.1 7.3 1.5

FIAM 15.2 14.7 15.7 10.1 9.6 9.7 -0.6 1.0 -5.6 -0.5 0.1

FS 1.9 -2.0 1.2 3.9 6.2 8.6 -4.0 3.3 2.7 2.2 2.4

Group 20.3 18.1 15.6 13.0 18.0 19.8 -2.1 -2.5 -2.6 5.0 1.8

* The percentage share is before elimination.

** Net profit is calculated by assuming 25% tax rate on PBT reported by the company.

*** Shareholders' equity for each business line calculated by allocating 70% of minority interests to FIAM and 30% to FS.


17 January 2014


Expecting 37% 2012-15 profit CAGR… 1) Strong growth prospects…

Cinda's core business, distressed asset management (DAM), is likely to experience strong

growth over the next several years. We see two reasons for that: (1) massive amount of

credit has been injected into the economy since 2008, and the rising credit-to-GDP ratio

has been a cause of many a banking sector stress historically (see our report Asia – an

ominous slowdown); (2) the Chinese economy is transitioning towards structurally slower

growth, which raises some cash flow risks for companies, prompting creditors to sell; and

(3) the new administration appears very determined to carry out pro-market economic

reforms and targets to reduce the government's involvement in economic matters, likely

resulting in sizable state-owned assets restructuring and disposal. The principal investing,

private equity and real estate businesses are leveraging Cinda's DAM business and

should enjoy robust outlook as well. In financial services, Cinda has established decent

scale in the brokerage, trust and leasing businesses, which should all enjoy solid growth

as China liberalises the financial sector, and borrowers diversify from banks as the primary

source of financing.

Figure 9: Cinda—asset/revenue contribution and growth by business line

(%) Contribution to group Asset growth

Assets

(2012)

Revenue (2012)

Past 2Y CAGR

(2010-12)

Future 3Y CAGR

(2012-15E)

Distressed asset mgt 54.2 44.5 28.9 26.0

Traditional DA 7.7 30.2 0.0 32.5

Restructuring DA 46.1 26.8 n.a. 59.1

Debt-to-equity swap 46.2 43.0 -4.0 -12.0

Fin'l inv and asset mgt 19.0 24.5 23.5 14.7

Principal investing 28.3 0.0 16.8 16.0

Private equity 71.7 0.0 26.5 14.1

Financial services 26.8 32.6 38.0 18.9

Securities and futures 21.5 16.6 -10.0 13.2

Trust 3.5 9.2 30.1 16.6

Leasing 29.3 9.3 189.4 34.9

P&C insurance 7.7 n.a. 98.3 29.7

Life insurance 38.1 65.0 44.3 4.0

Cinda group 100.0 100.0 30.0 22.1

Note: Revenue data for Life insurance includes P&C Insurance.


Bank NPLs expected to increase

In the traditional distressed assets (TDA) part of the DAM business, Cinda purchases bad

loans from banks at a discount with the aim of earnings returns by the sale of assets.

Cinda is a pioneer in China's distressed asset management industry, ranking first among

the four AMCs in terms of both income and profit in 2012. It has acquired distressed

assets with an aggregate original value of Rmb1,106 bn as of 31 December 2012,

representing a market share of 35.5% among the four AMCs. In addition to obtaining

equity, real assets and other non-cash assets, Cinda had cumulatively recovered cash in

the amount of Rmb277 bn from the disposal of distressed assets as of 31 December 2012,

representing a market share of 38.3% among the four AMCs.

http://arg.credit-suisse.com/doc/Asia%20Banks%20Sector_Full%20version.pdf

http://arg.credit-suisse.com/doc/Asia%20Banks%20Sector_Full%20version.pdf

17 January 2014


The assets in this business have been stagnating for the past few years as banks were

reporting very benign asset quality with continuously declining NPLs in value. Also, the

rising asset price environment also allows banks to realize collateralized assets value

relatively easily.

Figure 10: Cinda—traditional distressed assets

outstanding and purchased (Rmb mn)

Figure 11: China banking system NPLs (Rmb bn) and NPL

ratio (%)

8,030 7,919 8,0228,469

3,532

2,867 2,942

2,113

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2010 2011 2012 1H13

Outstanding Purchased

1,244 1,053 1,075 1,166

2.44%

1.81%

1.60% 1.60%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300

2010 2011 2012 1H13

NPL (RMB bn) NPL ratio (RHS, %)

Source: Company data, Credit Suisse estimates Source: CEIC, Credit Suisse estimates

Bank NPLs have bottomed and reached an inflection point in 1H13. Through 2014 and

2015, we see TDA purchases taking off again in a big way. The main reason is the sharp

rise in credit-to-GDP ratio over the past five years, which has, in other markets, led to

banking sector stress historically.

Figure 12: China—nominal GDP growth vs loan growth and total credit growth (% YoY)

13.9

18.3

10.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

1Q04 4Q04 3Q05 2Q06 1Q07 4Q07 3Q08 2Q09 1Q10 3Q11 2Q12 1Q13 4Q13

Total loans Total credit Nominal GDP

Source: CEIC, Credit Suisse estimates

When the gap between credit-to-GDP ratio and its own long-term trend widens to more

than 10%, it significantly increases the risk of bad loans in the banking system as per the

Basel committee (refer to the link here) (source: Basel Committee on Banking Supervision:

Countercyclical capital buffer proposal, July 2010). In China, the differential is currently

running at 20%. The bigger concern is that there are no signs of credit-to-GDP ratio even

stabilising, let alone falling, since credit growth continues to outpace nominal GDP growth.

Credit growth is still running

at double the GDP growth,

which means credit-to-GDP

ratio will keep climbing

http://www.bis.org/publ/bcbs172.htm

17 January 2014


Figure 13: Credit-to-GDP ratio vs long-term trend line (%) Figure 14: Gap between credit-to-GDP and its trend (%)

178

158

80

100

120

140

160

180

200

Dec-93 Dec-96 Dec-99 Dec-02 Dec-05 Dec-08 Dec-11

CN Credit to GDP CN Credit to GDP trend

20

-25

-20

-15

-10

-5

0

5

10

15

20

25

Dec-93 Dec-96 Dec-99 Dec-02 Dec-05 Dec-08 Dec-11

CN credit to GDP gap

Source: BIS, CEIC, Credit Suisse estimates Source: BIS, CEIC, Credit Suisse estimates

Our analysis of the 2,425 A-share listed non-financial companies suggests that companies

with 4.7% of debt in the sample were unable to meet interest expense from their EBITDA

(in other words, their interest coverage was <1x). We call this CS Proxy NPL ratio and

compare it to the reported NPL ratio of the 9 H-share banks in our sample. There were

143 companies with negative EBITDA in 1H13, i.e., their revenue did not even cover

operating expenses, let alone interest expense, higher than the 142 in 2008 during the

global financial crisis.

Figure 15: CS proxy-NPL ratio vs bank-reported NPL ratio Figure 16: 143 companies had negative EBITDA in 1H13

0.7

8.1

5.2

1.0

3.9

7.5

4.7

2.62.2

1.71.2 1.0 1.0 1.0

0.0

2.0

4.0

6.0

8.0

10.0

2007 2008 2009 2010 2011 2012 1H13

Proxy NPL ratio Reported NPL ratio (CS coverage universe)

(%)

72

142

112

63

93

113

143

-

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011 2012 1H13

Source: Wind, Credit Suisse estimates Source: Wind, Credit Suisse estimates

As a result, we expect banking system NPLs to double in absolute value by 2015E, rising

from 1.6% of loans as of 1H13 to 2.2% of loans by 2015, and that banks will look to sell

just 3-5% of the outstanding NPLs every year. The latter is based on the regulation

change of June 2012 in which CBRC made it easier for banks to offload their NPLs on to

the four national level AMCs, as well as the AMCs being set up at the local provincial level.

We expect Cinda to maintain a market share of 38-42% in the NPL purchases in the

market through 2015E.

Another change worth noting comes from the Ministry of Finance (MoF). The MoF recently

issued a circular to banks and local MoF bureaus, reducing documentation requirement for

NPL write-off and disposal (see link from 21st Century Business Herald).

CBRC and MoF are

encouraging banks to

actively write-off or dispose

NPLs

http://finance.21cbh.com/2014/1-16/0MMDAzNzFfMTA0NTI0MA.html

17 January 2014


Figure 17: China—CS estimate of banking system NPLs

and NPL ratio (%)

Figure 18: Cinda—CS projection of TDA (traditional

distressed assets) purchased and YoY growth (%)

1,075 1,378 1,731 2,133

1.60%

1.80%

2.00%

2.20%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

500

1,000

1,500

2,000

2,500

2012 2013E 2014E 2015E

System NPL (RMB bn) NPL ratio (RHS, %)

2,942

4,549

8,997

11,145

3%

55%

98%

24%

0%

20%

40%

60%

80%

100%

120%

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013E 2014E 2015E

TDA purchased (RMB bn) YoY growth

Source: PBOC, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Restructuring distressed asset opportunities even

more substantial

Corporate sector sales in China (based on our sample of 2,425 A-share listed non-

financial companies) surged at a CAGR of 23% over the past decade until 2012, when the

nominal GDP was growing at 15.7%. With sales doubling every 3.5 years, the corporate

sector would plan for resources, capacity and working capital accordingly. In 2012 and in

1H13, however, sales growth plunged to 9% YoY. This is creating cash flow pressure in

the economy for some corporates who have probably over-extended themselves.

Figure 19: Nominal GDP growth versus corporate sector sales / profit growth (YoY, %) (2,425 A-share listed companies)

13

1816 17

23

18

9

18 18

10 9

32

37

25 26 26

19

4

36

23

9 9

55

47

12

28 28

-13

28

39

13

1

12

-20

-10

0

10

20

30

40

50

60

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 1H13

Nom GDP Sales Profit Nom GDP 10Y CAGR: 15.7%Sales 10Y CAGR : 23.3%Profit 10Y CAGR : 22.1%

Source: Wind, CEIC, Credit Suisse estimates

Amidst a slowing economy, the worrying trend is that corporate sector profitability is under

pressure. Our calculation shows that return on invested capital (ROIC) of China Inc. (using

a sample of 628 larger A-share listed non-financial companies from our HOLT® database)

declined to 8.0% in 2012 from 11.9% in 2007 pre-GFC. At the economy level, this is

17 January 2014


reflected in the incremental capital output ratio (ICOR) rising sharply, implying that more

capital has to be injected into the economy to produce one unit of GDP.

Figure 20: Corporate sector return on invested capital (%) Figure 21: China—incremental capital output ratio (x)

11.9

9.7 9.8

10.6

9.5

8.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

'07 '08 '09 '10 '11 '12

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

91 93 95 97 99 01 03 05 07 09 11

China - ICOR (Annual) China ICOR - 5Y moving average

Source: HOL®T, Credit Suisse estimates Source: World Bank, CEIC, Credit Suisse estimates

Its restructuring distressed asset model is a major innovation by Cinda in the Chinese

context. It involves buying receivables from both financial enterprises and non-financial

enterprises of debtors who are facing short-term cash flow difficulties (banks or other

financial institutions would typically sell a loan under restructuring category before it is

called an NPL but has been identified as troubled, say as Special Mention Loan).

As a proxy to the receivables in the country, we use the data from National Bureau of

Statistics, which aggregates information from over 300,000 industrial enterprises with

sales from principal business of more than Rmb20 mn (prior to 2011, the cut-off for

including industrial enterprises was sales of more than Rmb5 mn). Please note this data

leaves out other sectors in the economy such as financial institutions, services sector, as

well as smaller industrial companies. In other words, the catchment size of sourcing for

RDA would be far bigger than the data shown below.

Figure 22: Industrial enterprises' receivables (Rmb tn, YoY %)

1.8 2.3 2.7 3.2 4.0 4.5 5.3 6.5 7.1 8.2 8.9

16.9%15.6%

19.2%18.4% 18.8%

12.3%

14.0%

22.4%

19.5%

16.9%

13.8%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Jun-13

Recievables (Rmb tn) YoY growth (RHS)

Source: CEIC [National Bureau of Statistics], Credit Suisse estimates

17 January 2014


Cinda does not disclose the amount of RDAs it purchased from financial institutions or

non-financial enterprises. But the table below shows: (1) it bought Rmb2.1 bn of traditional

distressed assets in 1H13 and (2) it bought total distressed assets of Rmb18.1 bn from

financial institutions. If we assume that the entire traditional distressed assets were bought

from financial institutions, it implies the remaining Rmb16.0 bn purchased from FIs would

pertain to the RDA category.

Figure 23: Distressed asset purchased—(1) TDA vs RDA and (2) from FIs vs NFEs

(Rmb mn) 2010 2011 2012 1H 2013

Traditional distressed assets 3,532 2,867 2,942 2,113

Restructuring distressed assets - 9,593 49,249 40,535

Total acquisition cost 3,532 12,460 52,191 42,648

From financial institutions

Large commercial banks 3,071 1,390 8,533 5,494

Joint-stock commercial banks 599 3,989 2,925

City and rural commercial banks 2,058 1,620 2,278

Non-bank financial institutions 34 1,184 8,045 7,409

Other banks 590 335

Sub-total 3,104 5,822 22,521 18,107

From non-financial enterprises 428 6,638 29,670 24,542

Total acquisition cost 3,532 12,460 52,191 42,648

Source: Company data

The RDA business has grown exponentially in the past couple of years since its launch

and we see huge growth potential. We project Cinda to buy 0.09-0.13% of total social

financing NPLs (net of bank loans) under the RDA category and 0.6% of industrial sector

receivables every year, leading to RDA asset growth of 36-94% over 2013-15E.

Figure 24: Restructuring distressed assets (RDA) outstanding (Rmb bn) and YoY growth

0.09.7

48.1

93.1

142.0

193.5

397%

94%

53%36%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

0.0

50.0

100.0

150.0

200.0

250.0

'10 '11 '12 '13E '14E '15E

RDA assets outstanding (RMB bn) RDA assets YoY (RHS)


Principal investing, private equity, real estate

investment/development—riding on DAM

The distressed asset management operations of the group generate opportunities for

principal investment, private equity and real estate business. In principal investing, the

group invests in the equity or debt of a debtor company facing liquidity issues and has

restructuring/consolidation needs. As a natural extension, the group has launched third

party asset management business by way of private equity in which it invests some seed

money with the primary idea of earning fund management income. In real estate business,

In terms of Rmb40.5 bn

RDAs purchased in 1H13,

we estimate Cinda bought

40% (Rmb16 bn) from FIs

and 60% (Rmb24.5 bn) from

non-financial enterprises

A natural extension of DAM

business but we expect

relatively slow growth

17 January 2014


the group receives real properties in satisfaction of debt, many of which are sold directly

for cash but there are some where it tries to maximise returns by additional investment,

development and management of the properties.

Figure 25: Cinda—principal investment (Rmb mn) Figure 26: Cinda—real estate sales revenue (Rmb mn)

10,17311,178

13,871

16,090

18,665

21,651

10%

24%

16% 16% 16%

0%

5%

10%

15%

20%

25%

30%

0

5,000

10,000

15,000

20,000

25,000

'10 '11 '12 '13E '14E '15E

Principal invt (RMB mn) YoY growth (RHS)

4,148

3,237

3,924

4,120 4,946

5,738

-22%

21%

5%

20%

16%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

'10 '11 '12 '13E '14E '15E

Real estate sales revenue YoY growth (RHS)


Financial services

Based on PBOC data, banking system loan penetration in China is 136% of GDP but other

sources of corporate finance such as bond and equity markets are under-developed.

Corporate bonds are only 13% of GDP, stock market capitalisation is only 45% of GDP,

while equity raised from the stock market over the past decade is only 1% of GDP.

Financial services—brokerage/investment banking

One of the key initiatives of the Chinese government is financial sector liberalisation, which

would include capital market reforms, allowing easier access to companies. That portends

well for future growth in the investment banking business (both debt and equity).

Figure 27: Shanghai + Shenzhen stock market average

daily turnover value (Rmb bn)

Figure 28: China—brokerage industry revenues (Rmb bn)

and growth (% YoY)

13

38

190

109

220 225

173

129

198

0

50

100

150

200

250

-56.6

66.8

-6.2

-29.4

-4.8

11.2

-80

-60

-40

-20

0

20

40

60

80

0

50

100

150

200

250

2008 2009 2010 2011 2012 1H13

Industry revenues (Rmb bn) YoY (RHS, %)

Source: Wind Source: Wind

17 January 2014


Financial services—trust

The trust industry in China has grown rapidly in the past few years and so has Cinda's

operations as its AUM crossed Rmb100 bn as of 1H13. Its growth may decelerate to more

normal rates as regulators clamp down on some of its products, but the market demand

remains solid.

Figure 29: Trust AUM—Industry vs Cinda (Rmb bn) Figure 30: Financial institution comparison (Rmb tn)

3,040

4,811

7,471

9,455

12 72 102 101

-

2,000

4,000

6,000

8,000

10,000

2010 2011 2012 1H13

Trust industry Cinda

1.9 2.7 2.5 2.2 3.6 3.7 0.7 1.1 1.7

4.6

7.1 9.1

1.8

4.1 5.0

6.0

6.9

7.9

1.5

2.7 3.5

4.6

6.9

8.2

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2008 2009 2010 2011 2012 1H13

Mutual fund AUM Bank WM products balance

Broker managed AUM Insurance premium

Corp bond

Source: Company, China Trust Association, Credit Suisse Source: WIND, CEIC, Credit Suisse

Financial services—leasing

The leasing industry is relatively new in China but has been growing rapidly. Cinda has

also advanced alongside.

Figure 31: Balance of financial leasing contracts (Rmb bn) Figure 32: Net lease receivables for Cinda (Rmb bn)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-

300

600

900

1,200

1,500

1,800

2,100

2010 2011 2012 1H13

Financial leasing industry (Rmb bn) YoY growth (RHS)

-

50

100

150

200

250

300

350

-

5

10

15

20

25

2010 2011 2012 1H13

Cinda YoY growth (RHS)

Source: China Leasing Alliance, Credit Suisse research Source: Company data, Credit Suisse research

Financial services—insurance

The insurance sector in China is under-penetrated compared to many other countries. Life

insurance premiums were growing very fast until 2010 when they were hit by the changes in

bancassurance regulations, and further suffered since, with the advent of wealth management

products paying higher interest rates vis-à-vis their saving products. The property and

casualty insurance industry has been doing well but margins have softened lately.

17 January 2014


Figure 33: Life Insurance industry premium (Rmb mn,

YoY)

Figure 34: P&C Insurance industry premium (Rmb mn,

YoY)

0%

10%

20%

30%

40%

50%

60%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Aug-04

Feb-05

Aug-05

Feb-06

Aug-06

Feb-07

Aug-07

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

Feb-12

Aug-12

Feb-13

Aug-13

Gro

wth

(%

pcp

)

Pre

miu

m (R

mb

mn

)

Premium (Rmb mn) Growth (%pcp)

-20%

0%

20%

40%

60%

80%

100%

0

20,000

40,000

60,000

80,000

100,000

120,000

Aug-04

Feb-05

Aug-05

Feb-06

Aug-06

Feb-07

Aug-07

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

Feb-12

Aug-12

Feb-13

Aug-13

Gro

wth

(%

pcp

)

Pre

miu

m (R

mb

mn

)

Premium (Rmb mn) Growth (%pcp)

Source: China Insurance Regulatory Commission (CIRC), Credit

Suisse research

Source: CIRC, Credit Suisse research

Cinda's life insurance business is sub-scale and likely dependent on banks (which is a

more expensive channel than agency, as the banks own the distribution channel) for

selling its products, hence suffers losses. It is expected to break even some time in 2015

but is likely to remain a drag on the overall group, from both profitability and capital

perspective. The P&C business also incurred losses in 1H13 but we expect it to break

even by the end of 2013 or in 2014.

Figure 35: Cinda—original insurance premium income

(Rmb mn)

Figure 36: Cinda—net insurance premium (Rmb mn) and

YoY growth (%)

4,4915,046

5,707

2,421

351

1,213

2,394

1,532

4,842

6,259

8,101

3,954

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2010 2011 2012 1H13

Cinda Life Cinda P&C Total

24.4

-6.3

16.3

19.9 20.0

-10

-5

0

5

10

15

20

25

30

0

2,000

4,000

6,000

8,000

10,000

2010 2011 2012 2013E 2014E 2015E

Net insurance premium YoY (RHS, %)

Source: Company data Source: Company data

17 January 2014


2) …and high profitability

Cinda group earned an ROE of 15.6% in 2012, in our estimate. Among the three divisions,

we estimate the distressed asset business returned 23.5%, financial investment and asset

management business 15.7% and financial services business 1.2%. Clearly, returns are

being dragged down by financial services, largely due to the insurance stream.

Figure 37: Cinda—ROE by business segment (%)

20.3

32.3

15.2

1.9

18.1

33.4

14.7

-2.7

15.6

23.5

15.7

1.2

12.6

22.8

7.7

3.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Group Distressed asset mgmt Financial Invt and Asset Mgmt Financial services

2010 2011 2012 1H13


Distressed asset management

Profitability of the distressed asset management business has suffered in 2012 and in

1H13 on account of large impairment losses taken on equity holdings. That part is largely

behind, and now the financial statements should be back to normal (unless, of course, the

stock market dips again and remains low for an extended period).

In a traditional distressed asset model, we estimate Cinda purchases NPLs of banks at 25-

30 cents to the dollar and aims to earn an IRR of 18-20%, i.e., double the purchase value,

within 3-4 years. In the first half of 2013, the company paid Rmb2.1 bn to buy NPLs and

based on BOCOM's transaction, we estimate Cinda would have paid around 25-30 cents

to the dollar. We assume the expenses here to be mainly the carrying cost (5-6%), legal

costs and expenses incurred in the process of selling the underlying assets.

In the restructuring distressed asset model, the loan yield has come under some pressure

(17.2% in 2011, 16.0% in 2012, 13.8% in 1H13) from the time that Cinda started this

business in 2011. This happened partly due to falling interest rates (PBOC cut the

benchmark lending rates by 50 bp in June-July 2012). We project yields to be 14.0% in 2013

given tight monetary environment, then falling to13% in 2014 and 12% afterwards. We

assume the expenses here to be funding cost (around 5-6%) and impairment costs (around

2%), so the net yield for the company would still hold around 4% or higher in our estimate.

The company had a debt-to-equity swap portfolio of Rmb43.6 bn as of 1H13, four-fifths of

which is unlisted shares and being carried at cost. We expect the portfolio to be monetised

gradually. So far, the company has at least doubled its book value while encashing its

investments (2.3x in 2010, 2.2x in 2011, 2.7x in 2012, 2.1x in 1H13), and we forecast it to

be in the region of 1.9x until 2015. An external appraisal firm, American Appraisal China

Limited, has valued (calculated value, not fair value) the top 20 unlisted stock holdings at

Rmb62.3 bn = 2.2x the book value of Rmb27.7 bn (which represents 80.5% of the total

unlisted portfolio).

17 January 2014


Overall, in the distressed asset management division, we estimate the company should

revert to earning ROAs of 5.7-6.0% during 2014-15E and ROEs of over 26-27% assuming

a gearing of around 4.6x through 2015.

Figure 38: Cinda DAM—post tax ROA* (%) Figure 39: Cinda DAM—post tax ROE** (%)

6.1

4.03.7

5.76.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

'11 '12 '13E '14E '15E

33.4

23.5

18.5

25.827.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

'11 '12 '13E '14E '15E


* Net profit calculated by assuming 25% tax rate on PBT reported by the company.

** Shareholders' equity calculated by allocating zero minorities to DAM.

Financial investment and asset management

The profitability in this segment was flattered in 2012 by the gains from the sale of

subsidiaries/associates. But otherwise it remains a 3% ROA (post-tax) business in our

estimate, which is not bad combined with a mid-teens asset and profit growth on an

underlying basis, although somewhat behind the distressed asset management division.

However, the group has invested more capital into this business, resulting in an estimated

gearing of only above 2.2x, which leads to weaker ROEs in reported terms. Gearing can

be boosted by up-streaming capital to the group level or by ramping up growth, a

combination of which is the more probable outcome.

Figure 40: Cinda FIAM—post tax ROA* (%) Figure 41: Cinda FIAM—post tax ROE** (%)

5.55.8

3.73.5

3.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

'11 '12 '13E '14E '15E

14.7

15.7

10.19.6 9.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

'11 '12 '13E '14E '15E



** Shareholders' equity calculated by allocating 70% of minorities to FIAM.

17 January 2014


Financial services

A conglomerate of seven business streams (securities brokerage/investment banking,

trust, leasing, fund management, life insurance and P&C insurance) housed in separate

entities, Cinda does not disclose the full P&L of each item. Hence we are limited to

forecasting the revenue in each income stream but expenses on an overall basis (in

insurance, the revenues are disclosed for life and non-life but expenses are clubbed).

Figure 42: Cinda FS—post tax ROA (%) Figure 43: Cinda FS—post tax ROE (%)

-0.5

0.2

0.6

0.9

1.0

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

'11 '12 '13E '14E '15E

-2.7

1.2

3.9

6.2

8.6

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

'11 '12 '13E '14E '15E



** Shareholders' equity calculated by allocating 30% of minorities to FS.

The financial services division contributes 28% of group revenues but only about 6% of

group PBT through 2015. Yes, revenues are projected to expand at 20% rate and profit

growth is even higher from very low base, but in our view the segment remains the

weakest link in Cinda's profitability.

Most of the business streams in financial services would benefit from scale economies,

none so more than insurance. We think the profitability of the securities, trust and leasing

businesses should be quite all right; it is insurance (in particular life insurance) which is

pulling down the overall profitability of the division.

The life insurance business raises another question in our mind. Yes, there is value in

every licence in China but life insurance per se does not have as much synergy as

principal investment, private equity or even trust/leasing and brokerage/investment

banking. Should Cinda exit life insurance? Based on the sketchy details available, our

reply to that question would be affirmative.

Should Cinda sell

insurance? Yes

17 January 2014


Be aware of two possibilities We believe Cinda's investment theme as a rightly-positioned distressed asset manager is

well communicated to the market. However, apart from the benefit from rising banking

sector NPLs and increasing corporate receivables, China's financial sector deregulation

and determined pro-market reforms are creating more opportunities for Cinda. We hereby

present two possibilities to investors—the potential impact assuming Cinda can sell its life

business or get a banking license.

These are not part of our base-case scenario estimate, but we do think the probability for

these events to happen is not low in the next three years.

Selling down Happy Life (positive possibility)

We believe Happy Life, Cinda's 62% owned life insurance subsidiary, does not bring much

synergy to Cinda's operation. Rather, we see Happy Life as a drag for Cinda's financial

performance as well as capital management. During 2010-1H13, Happy Life was loss-

making and we believe a 2015 break-even could prove an optimistic forecast. Given Cinda

needs to consolidate the B/S of Happy Life into its accounts while it was loss-making, a

potential disposal of Happy Life could meaningfully improve Cinda's profitability.

That said, with a potential capital market rebound (A-share has been weak for years), such

a life insurance license could appear attractive to other investors, especially those with

sizable distribution network like a middle-size bank. After all, Happy Life has built its

distribution network with c9,000 sales agents.

Figure 44: We view Happy Life as a drag to Cinda's profitability and capital management

(Rmb mn) 2010 2011 2012 1H13

Reserve sufficient

ratio

3.0% 105.0% 48.0% 120.0%

Gross underwritten

premium

4,491 5,046 5,707 2,421

Pre-tax profit -458 -737 -791 -380

Assets 12,651 19,781 26,339 26,544

Net assets 1,823 512 478 1,201

Bankassurance sales

contribution

92.30% 89.20% 88% 81.50%

Pre-tax ROAA -4% -5% -3% -3%

Pre-tax ROAE -25% -63% -160% -45%


We provide a scenario analysis to view the impact from a potential sale of its life business.

To make calculations simple, we assume Cinda sells its 62% at 1.0x P/B, hence no need

to book any realised profit or loss via income statement. Given the value of Cinda's equity

interest in Happy Life was only Rmb745 mn by 1H13 (1,201 mn * 62%), some variance of

the transaction multiple won't impact our analysis much. Also, paying Rmb1.2 bn to

acquire a seven-year operating history life license with stable agent force and mature

management team does not sound stretched to potential buyers.

The key difference for the following scenarios is how Cinda deals with the released assets.

If it just reduces asset size, i.e., not investing the released assets back into its profitable

business as shown in Scenario 1 in the table, based on 2014 forecasts, Cinda will lift its

ROA from 3.8% to 4.1% but ROE will remain the same (because the profitability and

capital base don't change given 1.0x P/B transaction price).

Cinda could have good

business opportunities in the

next few years, enabling it to

lift ROE further

Life business is a drag for

Cinda with little synergy

Capital market recovery

could make Happy Life

more attractive

Selling life business and

hence better utilizing assets

could lift Cinda's ROA and

ROE meaningfully

17 January 2014


A more likely scenario is that Cinda invested some, if not all, released assets into either its

DAM or FIAM division to further increase profitability. Scenario 2 and 3 demonstrate that

Cinda can potentially lift its ROA to 4.7% (from originally 3.8%) and ROE from 16.7% to

20.0%, which we view as meaningful improvements.

Figure 45: Cinda can potentially lift its ROE meaningfully by disposing Happy Life

2014e base-case forecasts Scenario 1 (conservative) Scenario 2 (most likely) Scenario 3 (blue-sky)

Key assumptions Spin off life assets only Spin off life assets and

invest half the release

assets with 8% return

Spin off life assets and

invest the same amount of

assets with 18% return

2014 adjusted profit 14,636 14,636 15,426 18,190

2014 adjusted assets 384,869 356,660 370,765 384,869

Adjusted ROA 3.8% 4.1% 4.2% 4.7%

Gearing 4.40 4.08 4.20 4.23

Adjusted ROE 16.7% 16.7% 17.5% 20.0%

Assets 384,869 356,660 370,765 384,869

Equity 87,516 87,516 88,306 91,070

*ROA and ROE are calculated by using period end assets or equity, hence could be lower than other tables where we use average assets or

equity to calculate. Source: Company data, Credit Suisse estimates

Obtaining a banking license (negative possibility)

Operation wise, to have a banking license can arguably help Cinda to smooth funding

volatility and also hopefully to reduce its overall funding cost. Currently, Cinda's competitor

Huarong AMC (unlisted) owns 52% equity interest of a regional bank, Huarong Xiangjiang

Bank. Our estimate suggests every 50 bp funding cost reduction could lift Cinda's profits

by c5%.

However, we believe investors will take it rather negatively if such an event happens as it

dilutes the overall investment theme. Our view is Cinda should focus on its core business,

i.e., DAM, and not to pursue banking license, however this is indeed a possible event.

In the recent few years, we have seen signs of China local governments proactively

restructuring their equity interests of local banks. As the next figure shows, we have seen

six new banks emerging in the past few years, all from the combination of around a dozen

local credit-cooperatives. We believe the reason behind these activities is because small

banks lack the necessary scale to compete when the market becomes more competitive.

The change could also be related to China's upcoming credit cycle as the local banks tend

to have weak corporate governance/shareholding structure and hence can be more

exposed to local government lending activities.

Figure 46: Recent local government-led local bank M&A

2012 Province 2012 Loan o/s (Rmb bn) NPL ratio

Bank of Hubei Hubei 117 0.87%

Bank of Guizhou Guizhou 41 0.78%

Bank of Gansu Gansu 25 0.72%

Bank of Jiangsu Jiangsu 529 1.04%

Huishang Bank Huishang 115 0.96%

Zhongyuan Bank Henan 120 0.91%


We also want to highlight that China has over 3,000 very small banking licenses and these

banks have a total market share of around 25%. We do believe China's macroeconomic

slowdown and continuous financial system reform will worsen their operating environment,

forcing more licenses to be sold into the market.

Its peer has banking license

already

We believe the market will

take it negatively if Cinda

gets a bank license

We see frequent bank

M&As; more will come

17 January 2014


Figure 47: A lot small banks in China; some will surely be put for sale

2012 assets (Rmb bn) Mkt share, % # of licenses

Policy bank 11,217 8.4 3

State-owned bank 60,040 44.9 5

Joint-stock bank 23,527 17.6 12

City commercial bank 12,347 9.2 144

Rural commercial bank 6,275 4.7 337

Rural cooperative bank 1,284 1.0 147

Rural credit-cooperative 7,954 6.0 1927

Non-bank financial institutions 3,230 2.4 267

Foreign financial institutions 2,380 1.8 41

New rural FIs and postal saving bank 5,351 4.0 864

Total 133,622 100.0 3747

Source: CBRC, Credit Suisse estimates

CBRC has also changed its tone, gradually allowing non-bank institutions or even private

capital to get banking license (link to Credit Suisse report on this topic). Regulation wise,

we see little reason why CBRC disapproves the application if Cinda plans to get a

meaningful or even controlling stake of a small-size bank in the next few years, given the

regulators approved a previous case. Cinda has sufficient capital to acquire such license.

Assuming Cinda holds a banking license in a few years, the bank still needs to follow

CBRC rules in terms of not having high counterparty concentration risk.

Figure 48: Operation wise, having a bank license can potentially reduce Cinda's funding

cost

(Rmb m) 2014e 2015e

Average IBL 205,058 254,927

Blended funding cost 5.24 5.62

Total interest expense -10,754 -14,316

P&L impact from 100bp lower funding cost 1,025 1,274

As a % of forecast full-year earnings 5.2% 5.1%


CBRC also turns more

supportive for banking

license application

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=emfromsendlink&format=PDF&document_id=1025450511&extdocid=1025450511_1_eng_pdf&serialid=4%2fmj7ypPiLNlN13SIxyicxhPNvm9mGnLXV%2b8aeebruY%3d

17 January 2014


Investment risks The most important over-riding risk in our view is macro-economic growth. Growth would

play into asset prices (Cinda's recovery depends on prices of real estate and equities),

cash flow of corporate sector in the economy (Cinda's restructuring distressed asset

business is based on customers facing short-term cash flow difficulties, but assumes a

recovery within a year or two), as well as credit quality in its lending and trust businesses.

We highlight some of the risks below that are worth consideration in our belief.

Heavy exposure to equity and real estate markets

The debt-to-equity swap portfolio was carried on books at Rmb43.6 bn as of 1H13, and its

actual market/disposal value was likely higher based on the track record of doubling on

disposal. In addition to that, the group had equity investments of Rmb9.4 bn in its principal

investment book. The total value of equity holdings (at book value itself) was Rmb53 bn,

which was 94% of the shareholders' capital of Rmb56.3 bn.

Figure 49: Total value of equity holdings is 94% of shareholders' capital

(Rmb mn) 2010 2011 2012 1H13

Debt-to-equity swap portfolio 52,312 50,595 48,239 43,655

Equity investments in principal invt book 6,792 7,339 8,691 9,434

Total equity holdings 59,105 57,934 56,929 53,089

% of group equity 159.6 153.2 103.9 94.2

Total equity*–group level 37,025 37,813 54,774 56,363

* Shareholders' equity attributable to equity holders, net of minorities.


As for exposure to real estate, not only has the group received properties in satisfaction of

traditional distressed debt, it has created further exposure through the purchase of

restructuring distressed assets, principal investment, leasing, and trust business.

Figure 50: Restructuring distressed assets + loans and advances—Industry distribution

(Rmb mn, %) 2011 2012 1H13 '12 YoY 1H13 YTD 2012 % 1H13 %

Company only*

Real estate 7,526 33,923 48,333 350.8 42.5 68 60

Manufacturing 573 1,839 5,118 221.2 178.3 4 6

Water, environment and utilities 95 3,266 4,825 3330.3 47.8 7 6

Leasing and commercial services 6,672 0 8

Construction 245 2,466 3,624 906.0 47.0 5 5

Transportation, logistics and postal 509 1,368 2,924 168.7 113.7 3 4

Mining 213 652 381 206.5 -41.5 1 0

Others 541 6,037 8,208 1016.4 36.0 12 10

Total 9,701 49,550 80,086 410.8 61.6 100 100

Group

Real estate 8,286 39,666 55,588 378.7 40.1 53 49

Manufacturing 7,412 10,139 12,916 36.8 27.4 14 11

Water, environment and utilities 329 7,057 10,508 2046.0 48.9 9 9

Leasing and commercial services 0 0 7,735 0 7

Construction 446 3,983 5,066 792.0 27.2 5 4

Transportation, logistics and postal 1,267 2,693 5,385 112.5 100.0 4 5

Mining 458 2,539 3,735 454.0 47.1 3 3

Others 1,122 8,954 11,793 697.9 31.7 12 10

Total 19,321 75,030 112,726 288.3 50.2 100 100

* Company-only data relates to restructuring distressed assets.


Three-fifths of company's

and half of group's credit

exposure is to real estate

sector

17 January 2014


In addition to above, Jingu Trust has structured trust products worth Rmb16.3 bn with real

estate as underlying = 16% of its AUM as of 2012. Of course, these products have been

sold, i.e. are not on the books of Jingu Trust and it should not be held liable in case of

default. But we observe that trust companies typically try to work with their customers to

arrive at a restructuring package and resolve the problems.

Figure 51: Cinda—Trust fund AUM distribution by industry

(Rmb mn, %) 2010 2011 2012 '11 YoY '12 YoY 2010 % 2011 % 2012 %

Infrastructure 6,178 11,613 41,619 88.0 258.4 53 16 41

Real estate 2,514 9,427 16,272 275.0 72.6 21 13 16

Industry and commerce 1,210 12,552 21,906 937.4 74.5 10 17 22

Financial institutions 1,422 35,766 672 2415.2 -98.1 12 49 1

Others 419 3,047 21,365 627.2 601.2 4 4 21

Total 11,743 72,406 101,835 516.6 40.6 100 100 100


Commodity prices, esp. coal, might affect DES value

Of the DES portfolio of Rmb43.6 bn as of 1H13, about three-fifths (62%) was in coal

companies, another 16% in chemical companies and 9% in metals (13% others). This

makes the portfolio value sensitive to the movement in stock prices of coal/chemical/metal

stocks, which have a linkage to the physical prices of their products. Both commodity

prices and the share prices of commodity companies are relatively volatile, and we show

the coal sector below as an example. It is interesting that coal prices in China have

softened since the mid-year (represented by the dotted line in charts below) but the coal

stocks have held up.

Figure 52: China coal price (QHD, US$/tonne) Figure 53: CS China coal companies Index* (A-share)

60

70

80

90

100

110

120

130

140

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

China coal price (QHD, US$/t)

0

50

100

150

200

250

300

350

400

450

Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

A-share China Coal Companies Index

Note: dotted vertical line in both charts denotes 30 June 2013

Source: CCTD, Credit Suisse research

* Index created by Credit Suisse


Banks may not sell their bad loans

In the traditional distressed asset model, we estimate Cinda purchases bad loans from

banks at around 25-30 cents to the USD and recovers it in 3-4 years, equating to an IRR

of 18-20% or effectively doubling the value in 3-4 years. If we see this transaction from a

bank's perspective, it precipitates a loss of 70-75 cents (on each dollar) upfront and does

not have any upside potential if the recovery value exceeds the original estimate. On the

other hand, the funding cost of the banking sector is around 2.0% (it was 2.08% for the

nine H-share listed banks in 1H13). Such carrying cost would allow the banks more than a

decade to build up to 25-30% of the NPL value. In other words, if the recovery value is 50-

17 January 2014


60 cents, banks will have more than a decade to recover it as opposed to foregoing that

value upfront (i.e., letting the distressed asset buyer capture that same upside). And if bad

loans spike sharply, i.e., the stock of NPLs becomes large enough, it might incentivise the

banks to create their own "bad bank", transfer their NPLs there and get a specialist team

to focus on managing that portfolio. This was what happened in Thai banks following the

Asian Financial Crisis and is the case in many banks in Europe that have been

nationalised in the past few years.

However, we see five reasons why banks would still look to dispose of at least some of

their NPLs:

(1) Opportunity cost: Banks can expand their new lending (especially if they are subject

to a loan quota) to the extent they exit NPLs.

(2) Huge loan loss reserves: Banks need at least 150% loan loss coverage on NPLs

(and 2.5% of total loans), which provides a cushion if they can exit NPLs at any price

higher than zero.

(3) 'Peer pressure': We think no bank would like to stand out by showing a big jump in

NPLs, hence will manage their reported asset quality through disposal of some NPLs.

(4) Management distraction: Keeping the bad loans on their books and managing it

themselves consumes management time, which might be better spent on planning/

executing for the future. Banks face many challenges, which management needs to

focus on responding to, such as the entry of new private banks, Internet finance

companies, interest rate liberalisation and capital market reforms,

(5) Inferior recovery rates: A specialised distressed asset manager will likely have better

systems and potentially also greater bargaining power over a recalcitrant borrower

than a bank that still has relationship with that borrower from lending days.

Please note we expect banks to sell only 3-5% of their outstanding NPLs by 2015E, which

does not appear to be a very optimistic or ambitious target to us.

Pro-cyclicality introduced by RDA

We believe Cinda's traditional distressed asset business benefits at the expense of banks

(i.e., when bank NPLs are rising), which typically happens when the economy has lost

momentum, and makes TDA counter-cyclical to that extent. However, the loans purchased

under the restructuring distressed asset category rely on cash flow of the borrower for

repayment, which could be at risk if the economy has decelerated, exposing Cinda to pro-

cyclical risk, in our view.

Figure 54: RDA revenues as % of group revenues Figure 55: RDA assets as % of group total assets

0.0 0.7

10.9

22.724.3

28.930.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

'10 '11 '12 1H13 '13E '14E '15E

0.0

5.6

18.9

27.529.4

36.9

41.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

'10 '11 '12 1H13 '13E '14E '15E


17 January 2014


However, we still feel more comfortable with Cinda's RDA loans compared to banks' loans

because: (1) Cinda purchases loans at higher yields of 12-13% (which is double the

average loan yield of banks), and (2) it obtains extra collateral while buying that loan,

which makes it safer.

Basically, in our view the difference arises from the initiation of the transaction—bank

lending assumes the borrower to be solvent and able to pay back its debt in time, hence

does not carry as much collateral. On the other hand, Cinda would buy a loan when the

borrower is already facing temporary cash flow difficulty, hence can insist on further credit

enhancement. Please note that Cinda also earns higher interest yield (low-teens, double

that of banks), which is more commensurate with the riskiness of the loan and which

would help cover the losses from some future defaults in the RDA book.

Impairment in trust and leasing exposures

While Cinda is buying distressed loans from other financial institutions, it runs the risk of

some of its own lending in the leasing business turning bad—the leasing business is

growing quite rapidly as shown in the table below. Also, as mentioned earlier, trust

business AUMs have crossed Rmb100 bn and although a default may not be Cinda's

responsibility legally, it will still get fully involved in resolving it. However, we note that the

company is carrying sufficient loan loss reserves on these exposures as per the

accounting requirement.

Figure 56: Cinda Leasing—loans and advances

(Rmb mn, %) 2010 2011 2012 '11 YoY '12 YoY 2010 % 2011 % 2012 %

Manufacturing 1,284 6,770 8,239 427.2 21.7 82 80 46

Mining 0 246 1,888 n.a. 668.0 0 3 10

Water, env. and utilities 0 234 3,791 n.a. 1523.0 0 3 21

Construction 0 201 1,517 n.a. 653.1 0 2 8

Transportation, logistics 190 647 1,325 240.4 104.8 12 8 7

Others 91 344 1,244 278.0 262.0 6 4 7

Total 1,565 8,441 18,003 439.3 113.3 100 100 100


Market share focus = risk of over-paying

Cinda is the leader of China's distressed asset management industry, ranking first among

the four AMCs in terms of both total income and net profit in 2012. In its quest to maintain

market share in the face of rising competition, it is possible Cinda may be tempted to buy

distressed assets at inflated prices, thereby compromising its future returns. However,

Cinda's track record of past few years suggests they have priced their purchases on a

commercial basis.

Asset liability mismatch

Cinda's distressed asset management division carries TDA, which we believe are

recovered in 3-4 years; RDA, which are recovered in 1-2 years; and DES assets, which

are long-term and being sold gradually. On the liabilities side, as of 1H13 almost half were

accounted for by bank borrowings, which we believe are typically renewed every year;

15% were from the Ministry of Finance, which are being paid back as per schedule; and

less than 10% were from bonds that are typically longer than one year in maturity. This

mismatch in assets and liabilities exposes Cinda to interest rate risk (Cinda may have to

pay higher interest rates on short-term borrowings), as well as liquidity risk (some of the

borrowings may not be renewed or Cinda may not be able to raise funding from other

sources). However, given Cinda is a large company with a very high capital ratio, we do

not see these risks as being significant until 2015.

17 January 2014


Potential accounting change in DES

Of the debt-to-equity swap book of Rmb43.6 bn, about four-fifths (79% or Rmb34.4 bn) is

unlisted stocks being carried at cost. There may be an accounting change that may

require Cinda to value them at fair value under IFRS in 2016. In theory, the fair value could

be higher or lower than cost, but we believe it will more likely be higher, given: (1) so far

the unlisted stocks sold have fetched more than double the carrying cost and (2) an

external appraisal firm, American Appraisal China Limited, has valued the top 20 unlisted

stocks (which account for four-fifths of the unlisted portfolio) at Rmb62.3 bn vis-à-vis the

carrying cost of Rmb27.7 bn = 2.2x multiple (we must clarify here that this is their

calculated value and should not be construed as fair value). If the accounting change does

happen, then we believe the unrealised gain/loss would be reflected in shareholders'

equity, which means the book value would rise/fall with a corresponding effect on ROEs.

But frankly, all this would simply be an accounting change whereas the economic value of

the portfolio would remain the same.

17 January 2014


Valuation Cinda has a unique business model and is operating in a very different environment,

hence using a peer comparison methodology may not present a correct picture. Hence,

we value Cinda's three divisions separately (similar to our approach in earnings forecast)

using Gordon growth model. Then, we compare it with peers where we find alternative

asset managers that are closest to Cinda, given four-fifths of Cinda's profits are derived

from distressed assets. We also look at the implied P/B and P/E multiples.

In GGM, we use 12.5% cost of equity, slightly lower than the 12.8-14.2% COE range we

used for Chinese banks. We believe Cinda's business model has inherent capability to

neutralize macro volatilities, hence its COE should also be slightly lower. And we use

3-6% as the growth rate for its 3 divisions, depending on the business nature.

Gordon growth model

For the Gordon growth model, we use the average of 2014E ROA as the normalised ROA

and apply 2014E gearing to get to a sustainable ROE for each of the business lines. We

then use a cost of equity of 12.5% for each of the business lines and a 'g' (growth in

internal equity, or long-term growth) of 3-6% to arrive at the fair value P/B multiple.

We derive a corporate value of Rmb174 bn for Cinda, translating to HK$6.14 target price.

Figure 57: Cinda—Gordon growth model valuation, 2014E

ROA Gearing ROE Implied Equity

avg 2015E COE g P/B 2014E Value

13-15E (%) (x) (%) (%) (%) (x) (Rmb mn) (Rmb mn) % share

Distressed asset mgmt 5.7 4.5 25.8 12.5 6.0 3.0 50,471 153,907 89

Financial invt and asset mgmt 3.5 2.8 9.9 12.5 5.0 0.7 23,128 15,047 9

Financial services 0.9 7.6 6.5 12.5 3.0 0.4 12,648 4,708 3

Total group 4.2 4.4 18.3 12.5 5.12 1.98 87,516 173,662 100


We show the sensitivity of the valuation to cost of equity and growth in internal equity below.

Our base case assumption is cost of equity of 12.5% and growth in internal equity 3-6%.

Figure 58: 2014E GGM-based TP—sensitivity to COE and long-term growth

(HK$) Cost of equity (%)

11.5 12.0 12.5 13.0 13.5

Long-term

growth rate

for each

division (%)

2% slower 6.09 5.72 5.39 5.10 4.83

1% slower 6.57 6.11 5.71 5.36 5.05

Base 7.23 6.64 6.14 5.71 5.34

1% faster 8.19 7.39 6.73 6.18 5.71

2% faster 9.72 8.52 7.59 6.84 6.23


Sanity check

Our estimates of valuation imply a 2014E P/B multiple of 3.0x (13x PE) for the distressed

asset management business (ROE of 26%), while we are valuing the other two

businesses—financial investment and asset management and financial services—below

book. For FIAM, our estimate of valuation implies a P/B multiple of 0.7x (7x PE) for an

ROE of 10%, and for FS, our estimate of valuation implies a P/B multiple of 0.4x (6x PE)

for an ROE of 6%.

17 January 2014


Figure 59: Estimates of valuation from DDM and GGM and sanity check

ROA (%) ROE (%) Gordon growth model

(Rmb mn) % 14E P/B 14E P/E

2014E 2015E 2014E 2015E share at est at est

Distressed asset mgmt 5.7 6.0 25.8 27.2 153,907 89 3.0x 13.1x

Fin'l invt and asset mgmt 3.5 3.4 9.6 9.7 15,047 9 0.7x 7.0x

Financial services 0.9 1.0 6.2 8.6 4,708 3 0.4x 6.2x

Total group 4.2 4.4 18.0 19.8 173,662 100 1.98x 12x


Peer comparison

There is no directly comparable peer for Cinda as it is a unique business model, but the

closest would be alternative asset managers, in our view, given roughly four-fifths of

Cinda's profits come from distressed asset management. The median P/B and P/E in

alternative asset managers are 2.7x and 11.4x, respectively. The full list of names in each

type of business is provided in the Appendix.

Figure 60: Selected comparable peer multiples (2014E)

Type of # of P/E ratio P/B ratio

industry companies Mean Median Max Min Mean Median Max Min

Banks 9 4.5 4.7 5.2 3.8 0.8 0.8 0.9 0.6

Alternative AM 13 12.0 11.6 19.1 8.6 2.7 2.3 6.3 1.0

Financial leasing 10 14.5 13.7 22.4 9.0 1.4 1.3 2.3 1.1

Trusts 2 12.2 12.2 12.2 12.2 1.3 1.3 1.3 1.3

Insurance 6 13.0 13.3 16.4 10.2 1.6 1.6 2.0 1.3

Securities 5 16.7 15.9 22.3 12.8 1.5 1.5 1.7 1.2

Note: BDC: Business Development Company, FHC: Financial Holding Companies

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates Data priced as of 15 Jan 2012

The table below shows the details of alternative asset managers we have used in the

above peer comparison.

Figure 61: Peer comparison: Alternative asset managers

Country Mkt Cap ROE (%) PE (x) PB (x) DY (%)

Company Name (USD mn) F2014E F2014E F2014E F2014E

The Blackstone Group US 36,125 33.2 10.8 3.6 5.3

KKR & Co. US 18,028 20.4 10.6 1.9 5.4

Apollo Global Management US 13,404 37.9 11.7 2.8 7.2

The Carlyle Group US 11,519 44.4 11.3 1.2 5.3

Oaktree Capital Group US 9,071 10.9 12.4 5.7 6.3

Fortress Investment Group US 4,426 17.7 11.6 2.8 5.8

Och-Ziff Capital US 7,135 0.0 11.1 8.5

Partners Group SZ 6,920 35.2 19.1 6.3 3.3

3i Group GB 6,417 15.5 8.6 1.2 3.7

Ashmore GB 4,125 27.3 13.9 3.5 4.7

Intermediate Capital GB 2,816 9.3 9.1 1.0 4.9

GAM SZ 3,136 10.9 12.4 1.3 4.3

Man Group GB 2,669 8.1 13.4 1.2 4.9

Polar Capital GB 1,036 n.a. n.a. 0.0

Mean 9,676 20.83 12.00 2.70 5.36

Median 6,920 17.70 11.59 2.32 5.31

Max 36,125 44.38 19.09 6.28 8.52

Min 2,669 0.00 8.58 1.04 3.35

Note: Data priced as of 15 Jan 2014

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

Cinda's closest peers would

be alternative asset

managers, in our view

17 January 2014


Earnings forecasts We have opted for projecting along the lines of the three divisions. While more intuitive, it

creates challenges in matching the forecasts with the reported financial statements, which

are more along the legal entities.

We have a relatively more detailed calculation of revenues in each income stream

compared to expenses. And the interest expense has been estimated for the group as a

whole and then allocated to the three divisions.

Distressed asset management division

On the revenue front, we estimate it separately for the three operational lines.

Traditional distressed asset business

In TDA, we estimate Cinda buys NPLs from banks at discounted pricing of 25-30 cents to

a dollar, aims for an IRR of 18-20% and recovers the investment in 3-4 years by selling the

underlying assets (equity/real estate) in cash.

The key assumptions are (in the table, rows shaded in grey):

■ Banking system NPLs will rise from 1.6% of loans as of 2012 to 2.2% by 2015.

■ Banks would end up selling 3% of their NPLs in 2013E and 5% in 2015E.

■ Pricing of sale would be 27.5 cents to a dollar.

■ Cinda would buy 40% of NPLs sold in 2013E, 42% in 2014E given newly raised capital

and 38% in 2015E.

■ Realised fair value change (i.e., actual proceeds in cash) would be around 90% of the

total fair value change in TDA income stream.

Figure 62: Traditional distressed asset business—Revenue model

Balance Sheet 2010 2011 2012 2013 2014 2015

Banking system loans (RMB+FC) (bn) 50,923 58,189 67,287 76,708 86,680 97,081

Growth rate 14% 16% 14% 13% 12%

Of which, reported as NPLs (bn) 1,244 1,053 1,075 1,378 1,731 2,133

% of loans 2.44 1.81 1.60 1.8 2.0 2.2

% of NPLs sold 3.0 4.5 5.0

Amount of NPLs sold (bn) 41 78 107

Pricing of sale 27.5% 27.5% 27.5%

Sale proceeds (bn) 11 21 29

Cinda market share 40% 42% 38%

Purchased by Cinda (mn) 3,532 2,867 2,942 4,549 8,997 11,145

Settled during the year (mn) 3,198 4,175 6,666

Traditional DA 8,030 7,919 8,022 9,373 14,195 18,674


17 January 2014


Restructuring distressed assets

Here the idea is to buy receivables from financial institutions (FIs) or non-financial

enterprises (NFEs) of a debtor who is facing temporary cash flow difficulties, and charge

an interest yield of low-to-mid-teens, aiming to recover the entire principal in 1-2 years

using the cash flow of the borrower.

The key assumptions are (in the table below, rows shaded in grey):

■ The total pool of assets from FIs would be Total Social Financing (TSF) net of banking

loans and from NFEs the accounts receivables. In absence of economy-wide data on

receivables, we use the data on industrial enterprises from National Bureau of

Statistics.

■ We assume non-bank loan TSF credit will have problem loans worth 3.5-4.2% in

2013-15. Of that, they will sell up to 10% and Cinda will end up buying about 30%. As

for NFEs, 6.5-7.0% of their receivables will face some difficulty, they will sell 30% and

Cinda will buy 30%.

■ An average 2.5-year period for the settlement of the loans after they are purchased.

■ We assume the interest yield will soften to around 14.0% in 2H13E due to tight

liquidity, 13.0% in 2014 and 12.0% afterwards.

Figure 63: Restructuring distressed asset business—Revenue and impairment expense

calculation

Distressed Asset Mgmt. (B/S) 2010 2011 2012 2013 2014 2015

TSF growth 18.2 20.1 15.0 13.9 12.9

TSF - bank loan growth rate 31.4 33.1 17.5 16.0 15.0

TSF minus bank loans (bn) 15,263 20,050 26,693 31,369 36,388 41,847

% problematic 3.0 3.5 4.0 4.2

% problematic sold 8.5 8.5 9.0 10.0

Cinda mkt share 29 30 30 30

Purchased from FI (est.) 2,955 19,579 27,997 39,299 52,727

Account receivable growth 14.7 16.6 15.0 15.9 14.4

Accounts receivable (Ind'l Ent., NBS) (bn) 6,144 7,050 8,219 9,452 10,952 12,528

% of total receivables problematic 5.0 6.5 7.0 6.5

Of which, Potentially problematic (bn) 411 614 767 814

% problematic sold 30 30 30 30

Cinda mkt share 24 30 30 30

Purchased from NFE 6,638 29,670 55,293 68,997 73,286

Total Purchased 9,593 49,250 83,290 108,297 126,013

Settled 88 -10,862 -36,358 -54,975 -68,521

Impaired RDA ratio 0.8 1.2 1.2 1.3 1.4

Coverage ratio 27 245 200 200 200

Reserve balance 20 1,462 2,234 3,693 5,419

Restructuring DA 0 9,681 48,068 93,101 142,029 193,535

Source: Company data, National Bureau of Statistics, Credit Suisse estimates

Please note we also assume impairment reserves to remain at 3.0% of gross loans and

NPLs within the net balance outstanding to be 1.5% of loans.

17 January 2014


Debt-to-equity swap assets

This portfolio consists largely of equity shares obtained from the original policy NPLs

bought in the first phase of Cinda. We assume Cinda will monetise the investments

gradually depending on market conditions. About four-fifths (79%) of the Rmb43.6 bn

value as of 1H13 is made up of unlisted shares, which are being carried at book value. Of

those unlisted, 80.5% of value is coming from top 20 holdings, which have been valued at

Rmb62.3 bn (calculate value) by American Appraisal China Limited = 2.2x the book value.

Cinda receives some new shares from NPLs but that proportion is relatively small.

The key assumptions are (in the table below, rows shaded in grey):

■ Cinda will sell investments (in book value terms) worth Rmb4 bn in 2013E, Rmb5 bn in

2014E and Rmb6 bn in 2015E. Please note the sale could be bigger if the A-share

market turns more conducive, especially if the IPO market takes off and more of the

unlisted companies could list themselves on the exchanges.

■ The exit multiple on the book value is expected to be 2.0x on unlisted shares and 1.5-

1.0x on listed shares. That is consistent with the valuations achieved so far.

■ We assume dividend yield of 2.5% on unlisted and 1.0-1.5% on listed shares.

Figure 64: Debt-to-equity swap asset business—revenue model

(RMB mn) 2010 2011 2012 2013 2014 2015

Acquisition cost 2,458 2,227 2,827 4,000 5,000 6,000

% of Opening book value 4.30 5.60 8.3 12.0 15.9

Unlisted 1,373 2,149 2,499 3,646 4,578 5,359


Listed 1,086 77 328 354 422 641


Exit multiple on disposal 2.27 2.16 2.66 1.93 1.93 1.91

Unlisted 2.73 2.12 2.86 2.0 2.0 2.0

Listed 1.68 3.44 1.10 1.2 1.2 1.2

Disposal value 5,570 4,816 7,510 7,717 9,663 11,487

Unlisted 3,742 4,551 7,149 7,293 9,156 10,718

Listed 1,828 265 361 424 506 769

Change in value 509 471 -2,500 999 1,132

Unlisted 1,983 109 500 999 892

Listed -1,473 362 -3,000 0 240

Unlisted 39,007 38,840 36,449 33,303 29,724 25,256

Listed 13,306 11,755 11,789 8,435 8,014 7,613

Debt-to-equity swap assets 52,312 50,595 48,239 41,739 37,738 32,870


17 January 2014


Overall distressed asset management division financial projection

Figure 65: Overall we expect strong growth of DAM division in 2013-15

Distressed Asset Mgmt. (P&L) 2010 2011 2012 2013E 2014E 2015E

Income from DDA classified as receivables - 181 3,518 9,882 15,283 20,134

Fair value change on DDA (FV chg of TDA) 5,851 4,463 3,878 4,088 5,303 7,067

Fair value change on other financial assets (diff.) (455) 388 105 111 144 191

Fair value changes on distressed debt assets 5,396 4,851 3,983 4,199 5,447 7,258

Investment income 4,039 4,118 5,108 4,690 5,574 6,292

Interest income 365 425 447 1,059 1,763 2,517

Revenue from sales of inventories

Commission and fee income 173 205 88 97 106 117

Net gains on disposal of subsidiaries and associates 28 - 999 - - -

Other income and other net gains or losses (188) 176 248 164 232 299

DAM total revenue 9,813 9,957 14,392 20,090 28,406 36,617

Interest expense -914 -1,245 -2,704 -5,374 -8,066 -10,737

Employee benefits -593 -744 -815 -979 -1,155 -1,363

Biz tax and surcharges -17 -35 -89 -240 -340 -438

Depreciation and amortization expense -43 -57 -70 -77 -89 -102

Other expense -563 -626 -692 -966 -1,366 -1,761

Impairment losses on assets -462 -319 -4,014 -4,508 -1,856 -2,079

Total expenses and impairment charge -2,592 -3,026 -8,385 -12,144 -12,871 -16,480

Profit before share of results of associates and tax 7,221 6,930 6,007 7,946 15,534 20,137

Share of results of associates 244 271 227 91 109 130

Profit before tax 7,465 7,202 6,234 8,037 15,643 20,267

Income tax expense - - -

Estimated tax -1,866 -1,800 -1,558 -2,009 -3,911 -5,067

Est. post-tax earnings 5,599 5,401 4,675 6,027 11,732 15,200

Capital expenditure 46 123 100

Distressed Asset Mgmt. (B/S) 2010 2011 2012 2013e 2014e 2015e

Traditional DA 8,030 7,919 8,022 9,373 14,195 18,674

Restructuring DA 0 9,681 48,068 93,101 142,029 193,535

Debt-to-equity swap assets 52,312 50,595 48,239 41,739 37,738 32,870

Segment assets 84,476 91,551 140,328 183,764 229,559 280,675

Including: interest in associates 3,258 3,583 3,317 3,550 3,728 3,914

Net assets 17,350 14,990 24,778 40,521 50,471 61,111

Segment liabilities 67,126 76,561 115,550 143,243 179,088 219,565


17 January 2014


Financial investment and asset management

We found it quite difficult to forecast P&L items in terms of the three sub-segments of

principal investment, private equity and real estate. Grey shaded areas show assumptions.

We project revenues to grow at mid-teens rate although at the reported level, they might

suffer in 2013E due to an extraordinary gain of Rmb1.6 bn capital gain last year.

Figure 66: FIAM business—Overall projected financial picture

Financial Inv't & Asset Mgmt. (P&L) 2010 2011 2012 2013e 2014e 2015e

Investment income 535 643 407 524 608 706

Interest income 114 105 297 995 1,064 1,136

Revenue from sales of inventories 4,148 3,237 3,924 4,120 4,946 5,738

Commission and fee income 89 112 319 58 75 98

Other income and other net gains or losses 1,854 1,423 1,372 2,109 2,368 2,663

Sub-total 6,741 5,519 6,320 7,807 9,062 10,340

Net gains on disposal of subsidiaries and associates 12 174 1,602 223 234 246

FIAM revenue 7,043 5,946 7,911 7,948 9,296 10,585

Interest expense -394 -341 -359 -586 -880 -1,174

Employee benefits -575 -466 -573 -690 -790 -868

Purchases and changes in inventories -2,655 -1,844 -2,392 -2,431 -2,968 -3,443

Commission and fee expense -23 -20 -23 -21 -28 -36



Other expense -612 -635 -766 -765 -895 -1,019

Impairment losses on assets -2 -10 -139 -276 -266 -262

Total expense -4,965 -3,889 -4,861 -5,445 -6,561 -7,615

Minorities -6 50 -152 -200 -219 -237

Profit before share of results of associates and tax 2,072 2,107 2,899 2,303 2,517 2,733

Share of results of associates 261 381 386 306 335 364

Profit before tax 2,333 2,488 3,285 2,609 2,851 3,097

Est. income tax expense -583 -622 -821 -652 -713 -774

Est. post-tax profit 1,750 1,866 2,463 1,957 2,139 2,322

Financial Inv't & Asset Mgmt. (B/S) 2010 2011 2012 2013e 2014e 2015e

Total principal inv in FIAM 10,173 11,178 13,871 16,090 18,665 21,651

Other assets 19,261 21,080 30,997 35,337 40,637 46,733

Interests in associates 2,713 3,130 4,159 4,741 5,121 5,530

Segment assets 32,147 35,388 49,027 56,168 64,422 73,914

Net assets 15,314 17,493 21,662 25,913 27,844 29,470

Segment liabilities 16,833 17,895 27,365 30,255 36,578 44,444


17 January 2014


Financial services

This division has business streams neatly housed in separate companies, hence should

be easy to forecast. However, separate P&L and B/S for each is not available, so we are

forecasting on an overall basis (although as you will notice, one can identify the revenue

items with the individual business stream). Assumptions are shaded in grey.

Figure 67: Financial services division—overall financial projection

Financial Services (P&L) 2010 2011 2012 2013e 2014e 2015e

Fair value change on other financial assets 0 -60 399 399 399 399

Investment income 756 945 1,017 1,282 1,773 2,125

Net insurance premiums earned 4,584 5,701 5,340 6,210 7,447 8,933

Interest income 371 1,007 1,842 2,468 2,926 3,506

Commission and fee income 1,873 1,629 1,901 2,234 2,627 3,196

Other income and other net gains or losses 20 8 54 56 59 62

FS total revenue 7,718 9,231 10,553 12,650 15,232 18,221

Interest expense -64 -323 -786 -1,245 -1,870 -2,494

Insurance costs -4,434 -5,337 -4,690 -5,278 -6,181 -7,325

Employee benefits -1,199 -1,462 -2,029 -2,369 -2,700 -3,047

Commission and fee expense -712 -785 -878 -942 -1,081 -1,283



Other expense -858 -995 -1,090 -1,145 -1,227 -1,285

Impairment losses on assets -32 -207 -448 -474 -501 -549

FS total expenses -7,538 -9,438 -10,388 -12,017 -14,212 -16,738

Profit before tax 180 -207 164 633 1,020 1,483

Est. tax expense -45 52 -41 -158 -255 -371

Est. post-tax profit 135 -155 123 475 765 1,113

Financial Services (B/S) 2010 2011 2012 2013e 2014e 2015e

Securities and Futures 18,318 16,253 14,838 17,806 19,586 21,545

Jingu Trust 1,410 1,760 2,386 2,863 3,293 3,787

Cinda Leasing 2,416 9,832 20,236 27,319 35,514 49,720

First State Cinda Fund 261 220 194 223 234 246

Cinda P&C 1,362 1,940 5,359 6,431 9,003 11,704

Happy Life 12,651 19,781 26,339 26,866 28,209 29,620

FS assets 36,418 49,786 69,352 81,507 95,839 116,621

FS liabilities 27,731 40,151 55,550 67,373 81,170 101,172

FS net assets 8,687 9,635 13,802 14,134 14,670 15,448


Reconciling segment-based results with group-level

This was a tough task based on the way Cinda reports its financials, which does not lend

itself easily to such reconciliation, leaving possibility of some errors. Add to that the fact

that there is an element of "elimination items" to begin with. However, we feel confident

about our projections and consider segmental projections to be portraying a better/clearer

picture for investors. We do provide the P&L in the format of the audited financial

statements, but as you will notice, there are small differences (which, as per normal

"elimination" items, were there in the periods of actual results as well).

17 January 2014


Figure 68: Snapshot of divisional projections and differences from group level

(Rmb mn) 2010 2011 2012 1H12 2H12 1H13 2H13E 2013E 2014E 2015E 11 YoY 12 YoY 13 YoY 14 YoY 15 YoY

Revenues

DAM 9,813 9,957 14,392 5,357 9,035 10,049 10,041 20,090 28,406 36,617 1.5 44.5 39.6 41.4 28.9

FIAM 7,043 5,946 7,911 2,407 5,504 3,304 4,643 7,948 9,296 10,585 -15.6 33.0 0.5 17.0 13.9

FS 7,718 9,231 10,553 4,643 5,910 5,512 7,138 12,650 15,232 18,221 19.6 14.3 19.9 20.4 19.6

sub-total 24,574 25,134 32,856 12,406 20,449 18,865 21,822 40,688 52,933 65,423 2.3 30.7 23.8 30.1 23.6

Diff. from group 314 752 521 197 324 196 -196 0 0 0

Profit before tax

DAM 7,465 7,202 6,234 2,999 3,235 3,711 4,326 8,037 15,643 20,267 -3.5 -13.4 28.9 94.6 29.6

FIAM 2,333 2,488 3,285 801 2,484 1,147 1,462 2,609 2,851 3,097 6.7 32.0 -20.6 9.3 8.6

FS 180 -207 164 89 75 284 349 633 1,020 1,483 -214.8 -179.4 285.3 61.1 45.4

sub-total 9,978 9,483 9,683 3,889 5,794 5,142 6,137 11,279 19,514 24,847 -5.0 2.1 16.5 73.0 27.3

Diff. from group 23 425 87 -892 979 -1,005 -1,872 0 0 0

Net profit*

DAM 5,599 5,401 4,675 6,027 11,732 15,200 -3.5 -13.4 28.9 94.6 29.6

FIAM 1,750 1,866 2,463 1,957 2,139 2,322 6.7 32.0 -20.6 9.3 8.6

FS 135 -155 123 475 765 1,113 -214.8 -179.4 285.3 61.1 45.4

sub-total 7,484 7,112 7,262 8,459 14,636 18,635 -5.0 2.1 16.5 73.0 27.3

Diff. from group -18 326 45 0 0 0



Allocation of minority interests in B/S

The figure for minorities as of 1H13 in the group-level balance sheet is Rmb6.38 bn =

10.2% of total shareholders' funds of Rmb62.75 bn (and 11.3% of net equity attributable to

ordinary shareholders of Rmb56.36 bn). However, its breakdown by business segments is

not available. Hence, we have assumed the distressed asset management division, which

is housed in the parent company, to have zero; allocated 70% to the FIAM division based

on the fact that there are minority shareholders in Cinda Real Estate and Well Kent

International; and allocated 30% to financial services division based on the external

shareholdings in most of those operating companies. We acknowledge this is a rough

estimate and could introduce an error in our projected ROEs (has no impact on ROAs).

Dividends and their allocation

While Cinda is committing to a minimum payout ratio of 10%, it has been paying 25% of its

net profits in 2011 and 2012. Therefore, we have assumed a dividend payout ratio of 30%

for the forecast period. Since our projections are based on the three divisions, the next

logical question is whether the dividend will be paid only by the parent company (which is

being listed) or should we assume every division to pay 30% of its profits. In reality, it is

quite likely that the entire dividend will be shouldered by the parent company, especially

given that it is most and highly profitable, while the other businesses are less established

and may need capital support for some time. However, for the purposes of our projections,

we have assumed that each division will share the burden to the extent of its profits, i.e. a

30% dividend payout ratio for each.

Capital and leverage ratios

CBRC imposes a minimum leverage ratio of 6% and a minimum capital ratio of 12.5% for

Cinda on a consolidated basis (risk weighted assets include off-balance sheet items and

the risk weights are prescribed by CBRC). At the parent company level, the leverage ratio

should not fall below 6% and liquidity ratio below 15%. In addition to that, there are

specific and separate capital requirements imposed on the securities business by CSRC

17 January 2014


(net capital to net assets of Cinda Securities should not fall below 40%, net capital to total

liabilities should not fall below 8% and net assets to total liabilities should not fall below

20%). In the Trust business, CBRC requires that the net capital of Jingu Trust should not

fall below 100% of risk capital or 40% of net assets. In the leasing business, CBRC

requires minimum capital of 8% of risk weighted assets. In the insurance business, CIRC

requires Happy Life and Cinda P&C to maintain a solvency margin of at least 100%.

Figure 69: Cinda—CS estimate of core capital adequacy

ratio (%)

Figure 70: Cinda—CS estimate of leverage ratio (%)

25.4

19.820.2

20.8

19.4 19.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

26.0

28.0

'10 '11 '12 '13E '14E '15E

19.7

16.7 16.8

18.1

17.2 17.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

'10 '11 '12 '13E '14E '15E

Source: Credit Suisse estimates Source: Credit Suisse estimates

We do not see any problem for the group in meeting the regulatory requirements through

2015E, as visible in charts above. For the capital adequacy ratio, we estimate the

numerator by deducting the investment in financial services from the shareholders' equity,

and denominator by deducting cash from total assets. Then we assume the entire asset

amount to be carrying 100% risk weight. For leverage ratio, we use the same numerator

as that in capital adequacy ratio while using total assets as the denominator.

Recent HK public listing

Cinda made its HK IPO during 4Q13. The company sold a total 6,117 mn new shares

including 798 mn shares during the over allotment period. The IPO was priced at HK$3.58

per share, helping Cinda to get HK$21.3 mn fresh capital net of expenses (Rmb16.6 bn).

The Hong Kong market showed high enthusiasm for Cinda's IPO and achieved 116x over

subscription for the HK public portion, i.e., the portion prepared for HK retail investors. By

16 January 2014, Cinda closed at HK$5.04, or 41% higher than its IPO price.

Figure 71: Cinda's shareholding structure post HK IPO

# of shares, mn % of total

A-share

MoF 24,597 67.8

H-share

Social Security Fund 2,969 8.2

UBS 1,504 4.1

Citic Capital Financial Hold. 611 1.7

Standard Chartered Financial Hold. 458 1.3

Other H-share holders 6,117 16.9

Total 36,257 100.0

Source: HKEx filing, Credit Suisse estimates

17 January 2014


The following table lays out the key cornerstone institutional investors during Cinda's H-

share IPO.

Figure 72: Cinda's key cornerstone investors during HK IPO

# of shares (mn) % of total shares % of non SOE shares*

China Life Group 433 1.2 5.0

Och-Ziff Capital 433 1.2 5.0

Norges Bank 325 0.9 3.7

Farallon Capital 217 0.6 2.5

Gatherspring 214 0.6 2.5

Shen Zhen Rongtong Capital 214 0.6 2.5

Ping An Asset Mgmt (HK) 162 0.4 1.9

Shandong SASAC 130 0.4 1.5

Oaktree Capital I, L.P. and 115 0.3 1.3

Upper Horn Investments Limited 108 0.3 1.2

Total 2,352 6.5 27.1

* Net of the shares owned by MoF and Social Security Fund. Source: HKEx filing, Credit Suisse estimates

17 January 2014


Company profile Overview of the business

Cinda is the leading asset management company (AMC) in China. It focuses on distressed

asset management and provides customised financial solutions and asset management

services to its clients through a diversified business platform, which incorporates

distressed asset management, restructuring services, principal investment, asset

management, securities and futures, trusts, financial leasing, private equity and insurance.

Cinda is headquartered in Beijing with 31 branches nationwide and 18,259 employees as

of 30 June 2013. There are nine tier 1 subsidiaries to the group (including Cinda

Securities, Jingu Trust, Cinda Leasing, First State Cinda Fund, Cinda Property Insurance,

Happy Life, Cinda Investment, Well Kent International and Zhongrun Development). The

firm was founded in 1999, when the PRC government decided to establish AMCs to

acquire, manage and dispose NPLs from state-owned commercial banks in order to deal

with the impact of the Asian financial crisis. Since Cinda's establishment in 1999, it has

achieved industry milestones such as:

Among the four AMCs, Cinda was the first to: (1) meet the MOF's (Ministry of Finance)

performance evaluation benchmarks in 2005, achieved the highest cash recovery ratio

and lowest expense ratio, (2) diversified equity capital sources by introducing strategic

investors (NSSF, UBS, CITIC Capital and Standard Chartered); and (3) expanded by

becoming the first and only AMC to acquire NFE (non-financial enterprises) assets.

The table below sets forth a breakdown of the major business lines, sources of income

and operating entities of each principal business segment.

Figure 73: Breakdown of major business lines, sources of income and operating entities

Distressed Asset ManagementFinancial Investment and Asset

ManagementFinancial Services

Business Lines • Distressed debt asset management • Principal investment • Securities and futures

• Management of DES Assets • Asset management • Trust

• Custody, liquidation and restructuring (Private equity fund) • Financial leasing

services for Distressed • Others • Fund management

Entities • Insurance

Sources of Income • Income from distressed debt assets • Investment income • Fee and commission income

• Investment income • Income from sales of • Interest income from financial

• Fee and commission income from (i) real properties leasing

management and disposal of entrusted • Fund management fee • Investment income

distressed assets and income • Fund management fee income

(ii) custody, liquidity and restructuring • Insurance premium income

services for Distressed Entities

Operating Entities • Company • Company • Cinda Securities

• Cinda Investment (Cinda Capital) • Cinda International

• Well Kent International • Jingu Trust

• Zhongrun Development • Cinda Leasing

• First State Cinda Fund

• Cinda P&C

• Happy Life Source: Company data

Figure 74: Cinda—business snapshot (1H13)

Distressed Financial

asset investment and Financial

(Rmb bn) management asset management services

Contribution to group, total assets 161, 56% 52, 18% 75, 26%

Contribution to group, net assets 24, 39% 23, 37% 15, 24%

Contribution to group, operating income 10, 53% 3, 18% 6, 29%

Contribution to group, PBT 4, 72% 1, 22% 0.28, 6%


17 January 2014


Corporate strategy

At the core, Cinda Asset Management's strategy is driven by the firm's focus on achieving

competitive returns in the distressed asset management sector, and at the same time,

developing its diversified business platforms to achieve sustainable long-term growth. The

firm has had 14 years of industry experience, and it will leverage on its expertise in

product, risk management, extensive client base and professional talents pool to achieve

this goal. It is also worth noting that Cinda's three principal business segments

complement one another and generate synergies. For example, its principal investment

and investment through managed funds will allow it to seize value-appreciation

opportunities and enhance total return from disposal of distressed assets.

Figure 75: Cinda—principal operating strategies


Business lines

1. Distressed asset management (DAM)

Distressed asset management is Cinda's core business and is its primary source of

income and profit. The company carries out its distressed asset management business

through its head office as well as branch offices. The scope of Cinda’s distressed asset

management business includes: (1) the management and disposal of distressed debt

assets acquired from or entrusted by financial institutions and non-financial enterprises, (2)

the management and disposal of Cinda's DES assets, and (3) custody, liquidation and

restructuring of distressed financial institutions and non-financial enterprises.

17 January 2014


Figure 76: Business lines within distressed asset management, 1H13

Distressed asset management

Distressed asset Distressed entity

1.1 Management of acquired or entrusted

distressed debt assets

1.2 DES asset

management

1.3 Custody, liquidation and

restructuring of distressed

entities

Business model Traditional model Restructuring model Debt-to-equity swap Commissioned by government

agencies and corp clients

Primary activities Acquire distressed debt

assets, manage and

dispose of such assets

through a variety of

means and ultimately

realise cash recovery

Enter into restructuring

agreements with detailed

repayments schedule,

repayment amount,

repayment method, with the

ultimate goal of recovering the

debt in full

Including DES assets of

leading enterprises in

coal, chemicals and

metals industries

(1) Commissioned by government:

conduct the custody, liquidation and

restructuring of eight distressed non-

banks; (2) commissioned by a large

commercial bank to provide service

to 2,400 enterprises

Contribution to DAM,

revenue (%)

Rmb2.0 bn, 21% Rmb4.2 bn, 45% Rmb3.2 bn*, 34% Rmb0.9 mn**, 0%

* DES revenue to DAM is calculated on a total return basis by adding net gain on DES assets disposed and dividend income reported by the

company.

** Zhongrun Development reported by company.


Distressed debt asset management

Cinda acquires distressed debt assets from financial institutions and non-financial

enterprises, and conducts management and disposal of such assets in order to realise

value appreciation of the assets and maximise cash recovery. There are two primary

business models that the company employs to conduct distressed asset management: (1)

the traditional model; and (2) the restructuring model.

1.1.1. Traditional model

Acquiring distressed assets at a discount to original value and subsequently disposing

them for cash model. This model primarily focuses on assets from banks through their

packaged sale of NPLs and other distressed assets. These packages typically include: (i)

distressed debt assets and (ii) equity and real estate in satisfaction of debt. Cinda normally

acquires them at a discount to original value and disposes them through various means for

cash and makes a profit through price differences between purchase and sale; the return

is unknown at the time of acquisition. Such assets are designated as "at fair value through

profit and loss"; income from such business is designated as "fair value changes on

distressed debt assets".

Figure 77: Traditional distressed asset management (TDA) business model


17 January 2014


As at 30 June 2013, Cinda had strategic cooperative relationships with 101 bank

headquarters, branches and non-bank financial institutions. Since 2010, it has acquired

Financial Institution Distressed Assets from 194 counterparties.

Figure 78: Financial details of acquisition and disposal of TDA

(Rmb mn) 2010 2011 2012 1H 2013

Net balance of traditional distressed assets 8,030 7,919 8,022 8,469

Acquisition cost of traditional distressed assets 3,532 2,867 2,942 2,113

Carrying amount of traditional distressed assets disposed 4,261 3,189 3,206 2,090

Unrealised fair value change 116 211 368 424

Income from traditional distressed assets 5,396 4,851 3,974 1,994

Return on disposal 123.9% 145.5% 112.5% 75.1%


Cinda has developed a quantitative-driven Debt Assets Due Diligence and Valuation

System, which went online in 2007, equipping itself with a comprehensive due diligence

database with more than 60,000 distressed debt assets and many case studies on the

disposal of distressed assets.

1.1.2. Restructuring model

Restructured distressed assets primarily include the accounts receivable and other

receivables from non-financial enterprises and the distressed debt assets from financial

institutions such as banks and trust companies. This business has expanded quickly since

2011. How it works is that Cinda, debtor companies and related parties enter into a

restructuring agreement to ensure a fixed return with an ultimate goal to recover the debt

in full at the time of acquiring distressed assets. Such assets are classified as

"receivables"; income from the restructuring model is classified as "income from distressed

debt assets receivables". Cinda acquires restructured distressed assets primarily through

negotiated purchases.

Figure 79: Restructuring distressed asset management (RDA) business model


Debt repayment periods following restructuring are generally between one and two years.

17 January 2014


Figure 80: Financial details of acquisition and disposal of RDA

(Rmb mn) 2011 2012 1H 2013

Net balance of restructured distressed assets 9,681 48,068 77,888

Acquisition cost of restructured distressed assets 9,593 49,250 40,535

Income from restructured distressed assets 181 3,518 4,245

Annualised return on monthly average balance 17.2% 16.0% 13.8%

Impaired restructured distressed assets 73 597 473

Impaired restructured distressed assets ratio 0.8% 1.2% 0.6%

Allowance for impairment losses 20 1,482 2,198

Impaired restructured distressed assets coverage ratios 27.4% 248.4% 464.7%


1.1.3. Entrusted distressed asset management

In addition to acquiring and disposing of distressed assets, Cinda also manages and

disposes of distressed assets entrusted to the company by financial institutions, non-

financial enterprises and local government authorities. This line of business does not

require Cinda to incur indebtedness. Its income from this business is primarily derived

from commissions.

1.1. Management of DES assets

Cinda has obtained a significant amount of DES assets primarily through debt-to-equity

swap, receipt of equity in satisfaction of debt and other distressed assets related

transactions. Its equity holdings are concentrated in the industry-leading companies in the

coal, chemicals and metals industries. These industry-leading companies typically

possess large amounts of assets, multiple business lines, extensive industrial chains and

substantial market influence either locally or nationally.

Figure 81: DES assets distribution by

industry (1H13, %)

Figure 82: DES assets distribution listing

status (1H13, %)


The majority of Cinda's DES portfolio includes the DES assets that were converted under

government guidance from the distressed debt assets of a number of medium and large

SOEs prior to Cinda's restructuring. The rest of DES assets are additional equities of the

aforementioned enterprises, which Cinda subsequently acquired as part of an asset

package and additional investments made by Cinda, etc.

DES assets can be classified as: (1) unlisted DES assets and (2) listed DES assets. The

following table provides information on the number of DES companies in Cinda's portfolio

and their total book value.

17 January 2014


Figure 83: Details of unlisted and listed DES assets

(Rmb mn) 2010 2011 2012 1H 2013

Number of DES companies 240 274 255 249

Unlisted 215 204 186 182

Listed 25 70 69 67

Total book value 52,312 50,595 48,239 43,655

Unlisted 39,007 38,840 36,449 34,378

Listed 13,306 11,755 11,789 9,277


Figure 84: Top 20 listed DES assets ranked by book value, 1H13

Industry Investee company Shareholding %

Chemicals Qinghai Salt Lake Industry Co., Ltd. 7.27%

Metals Aluminum Corporation of China Limited 5.92%

Coal Henan Dayou Energy Co., Ltd. 4.01%

Coal Jizhong Energy Resources Co., Ltd. 2.82%

Chemicals Yangmei Chemical Co., Ltd. 2.48%

Chemicals Yunnan Yuntianhua Co., Ltd. 2.29%

Metals Yunnan Copper Co., Ltd. 2.20%

Coal Zhengzhou Coal Industry & Electric Power Co., Ltd. 4.81%

Coal Guizhou Panjiang Refined Coal Co., Ltd. 1.44%

Transportation Jiangsu Lianyungang Port Co., Ltd. 5.75%

Transportation China Erzhong Group (Deyang) Heavy Industry 1.24%

Finance Bank of Communications Co., Ltd. 0.04%

Manufacturing Fujian Qingshan Paper Industry Co., Ltd. 5.02%

Chemicals Kailuan Energy Chemical Co., Ltd. 1.61%

Construction China Gezhouba Group Co., Ltd. 0.80%

Manufacturing CITIC Heavy Industries Co., Ltd. 0.73%

IT Shandong Inspur Software Co., Ltd. 1.36%

Manufacturing FAWER Automotive Parts Limited Company 1.79%

Coal Anyuan Coal Industry Group Co., Ltd. 0.64%

IT China National Software & Service Co., Ltd. 1.08%


Figure 85: Top 20 unlisted DES assets ranked by book value,1H 2013

Industry Investee company Shareholding %

Coal Shenhua Group Zhungeer Energy Co., Ltd. 42.24%

Coal Datong Coal Mine Group Co., Ltd. 30.12%

Coal Huainan Mining Industry (Group) Co., Ltd. 24.84%

Coal Xishan Coal Electricity Group Co., Ltd. 35.47%

Coal Yangquan Coal Industry (Group) Co., Ltd. 40.42%

Chemicals Wengfu (Group) Co., Ltd. 47.16%

Coal Shanxi Jincheng Anthracite Mining Group Co., Ltd. 16.45%

Coal Tiefa Coal Industry (Group) Co., Ltd. 30.46%

Coal Huozhou Coal Electricity Group Co., Ltd. 36.97%

Coal Shanxi Fenxi Mining Industry (Group) Co., Ltd. 36.02%

Manufacturing China National Materials Co., Ltd. 8.96%

Coal Shandong Zhongxing Energy Co., Ltd. 20.74%

Transportation Ningxia Ningdong Railway Corporation Limited. 25.90%

Metals Baiyin Nonferrous Metal Group Co., Ltd. 5.97%

Coal Ningxia Lingxin Coal Industry Co., Ltd. 52.46%

Manufacturing Tianjin Pipe (Group) Corporation 6.11%

Chemicals Shanghai Coking & Chemical Corporation 26.58%

Construction China Nuclear Engineering Corporation Limited 14.85%

Coal Guizhou Shuicheng Coal Mining (Group) Co. Ltd. 20.23%

Coal Huaibei Mining Co., Ltd. 6.79%


17 January 2014


1.3 Custody, liquidation and restructuring services for distressed entities

Cinda is commissioned by government agencies and corporate clients to provide custody,

liquidation and restructuring services for distressed financial institutions and non-financial

enterprises.

2. Financial investment and asset management

Cinda's financial investment and asset management (FIAM) business is a natural

extension of its distressed asset management (DAM) business because FIAM helps

improve disposal of distressed asset and total return. Cinda's financial investment and

asset management business is conducted together by the company, Cinda Investment,

Well Kent International, Zhongrun Development and Cinda Capital and their subsidiaries.

Their financial investment and asset management business primarily includes: (1) principal

investment, (2) asset management (including private equity), and (3) other businesses.

Figure 86: Business lines within second segment—FIAM

1H 2013 Financial investment and asset management

Principal investment Asset management

Parent Co Cinda Investment Well Kent

International

Zhongrun

Development

Private Equity Fund

Primary activities

Minority financial

investments of the

subject company with

usually no more than

20% equity interests

and 3-5 years of

investment period

PE investments and real

estate related

investments, including

equity investments in

real estate project

companies and

upstream and

downstream companies

Overseas business

platform: collaborates

with the Head Office,

Company Branch and

other subsidiaries

Distressed asset

management

operations as well

as custody and

liquidation

PE fund is regarded as the

key in asset management

activities by the Group. As of

1H2013, 15 funds have

been launched. Cinda also

covers various types of high-

yield, M&A, growth capital

and industrial funds.

Balance outstanding,

% of principal inv *

Rmb6.7 bn ,44% Rmb6.9 bn, 46% Rmb2.8 bn, 19% Rmb0.5 bn, 3%

* Including Rmb1.75 bn elimination.


Cinda Investment is the largest revenue contributor in FIAM and accounts for 74% of the

segment's pre-tax profits for 1H2013.

Figure 87: Business lines within Cinda Investment

Parent company

Cinda Investment

↓

Cinda Capital Cinda Real Estate Other 10+ tier-1 subsidiaries

Specialized PE fund

management

platform of the Group

Real estate development

platform of the group

Commercial real estate; hotel;

investment oriented

enterprises

↓ 60% shareholding

↓ 100% shareholding

↓ 58.5% shareholding

Cinda Investment Organization Structure


2.1. Principal investment

Principal investment primarily includes: (1) equity investments business, (2) real estate

investment and development, and (3) other investments, including investments in fund

products, debt securities, trust products and wealth management products. Cinda's real

estate investment and development business is primarily handled by Cinda Investment

and Cinda Real Estate, while the company, Well Kent International and Zhongrun

Development are primarily involved in equity investments outside of their real estate

business. The table below sets forth details of Cinda's principal investment.

17 January 2014


Figure 88: Balance of principal investment by investment type

(Rmb mn) 2010 2011 2012 1H13

Equity investments (1) 6,792 7,339 8,691 9,434

Real estate investments (2) 2,364 2,339 2,100 1,935

Other investments (3) 1,016 1,499 3,081 3,861

Total 10,173 11,178 13,871 15,230

Figure 89: Balance of principal investments by investment entities

(Rmb mn) 2010 2011 2012 1H13

The Company 2,515 3,947 6,003 6,678

Cinda Investment (3) 6,042 5,400 6,680 6,938

Well Kent International 2,570 2,846 2,590 2,846

Zhongrun Development 676 602 664 520

(Elimination) (1,630) (1,617) (2,067) (1,752)

Total 10,173 11,178 13,871 15,230

(1) Equivalent to equity instruments classified under “Financial assets at fair value through profit or loss”,

“Available-for-sale financial assets” and “Interests in associates” attributable to the financial investment and

asset management segment.

(2) Equivalent to investment properties.

(3) Other investments primarily include investments in (i) fund products (ii) debt securities (iii) trust products

(iv) wealth management products

Source for both the tables above: Company data

2.2 Equity investment

The company, Cinda Investment, Well Kent International and Zhongrun Development all

engage in equity investments related to distressed assets, although with a separate focus.

The company primarily focuses on minority financial investments of the subject company,

and mainly invests in industries of which it has substantial experience such as the mining,

energy, construction and environmental protection industries. Cinda Investment invests

primarily in projects related to the company’s distressed asset management business.

Well Kent International mainly handles equity investments outside of the PRC in relation to

the company’s distressed asset management business. Zhongrun Development’s equity

investments are closely related to its custody, liquidation and restructuring business.

2.2.1. Real estate investment and development

There are two parts to Cinda's real estate business: (1) the real estate investment

segment; and (2) real estate development business. Cinda Investment, together with its 17

subsidiaries, serves as the group's primary platform for real estate investment and

development. The firm's investment focus is commercial and hotel properties. Cinda

Investment mainly conducts investments and other services related to its real estate

finance business, such as equity investments, debt investments, debt restructuring and

asset management services. Cinda Investment collaborates with the company's distressed

asset management business and promotes the value appreciation of investment projects

by providing additional equity or debt investments, which helps the company's disposal of

distressed assets. On the other hand, Cinda receives most of its commercial and hotel

properties through its distressed asset management business.

In terms of real estate development, it is mainly carried out by Cinda Real Estate, an A-

share listed subsidiary controlled by Cinda Investment. In addition to acquiring real estate

development projects through competitive bidding, public auctions and sales listing, Cinda

Real Estate extract business opportunities through collaboration with the group's

distressed asset management business. Cinda Real Estate currently has 16 first-tier real

estate development and investment subsidiaries with A-level development qualifications.

In 1H13, Cinda Real Estate generated roughly Rmb1.3 bn revenue with total planned area

of 2.13 mn sq m.

17 January 2014


2.2.2 Other investments

Other principal investments Cinda conducts include investments in fund products, debt

securities, trust products and wealth management products.

2.3 Asset management (private equity fund)

Cinda has established a multi-strategy asset management platform that incorporates: (1)

the private equity business; and (2) the securities investment management, trust and

mutual fund business. Developing the private equity business is a core focus of Cinda's

asset management strategy. As of July 2013, Cinda has established 15 private equity

funds that raised third-party capital and for which its subsidiaries act as a general partner.

Figure 90: Cinda's private equity business

2012 1H13

Number of funds (1) 9 15

Total committed capital (AUM) (in Rmb bn) 11.5 16.1

Total paid-in capital (in Rmb bn) 4.78 9.3

Paid-in capital from third parties (in Rmb bn) (2) 3.89 7.47

Fund management income (in Rmb mn) 18 41.1

Accumulated number of projects invested 20 27

Number of third-party investors 79 89

(1) Including funds that raised third-party capital and Cinda acts as a general partner (or manager)

(2) Paid-in capital contributed by investors not affiliated with group


2.3 Others (mainly the consulting and financial services of the company, Cinda

Investment and Well Kent International)

The company, Cinda Investment and Well Kent International also offer consulting and

advisory services.

Financial services

Cinda builds its asset management platform centred around its parent company's core

business—distressed assets management. Cinda offers a comprehensive basket of third-

party asset management services.

Figure 91: Business lines within the third segment—financial services, 2012

Financial services

3.1 Securities & Futures 3.2 Trust 3.3 Financial

Leasing

3.4 Fund

Management

3.5 Insurance*

Entities Cinda Securities Cinda

International

Jingu Trust Cinda Leasing First State

Cinda fund

Cinda P&C Happy Life

% held by group 99.32% 63.87%** 92.29% 99.56% 54% 51% 61.59%

Primary activities Chinese and international IB, AM,

brokerage and future activities

Fund and

property trust

service

Direct financing

lease and after-

sale re-leasing

service

Public fund and

customised

accounts and

AM services

Motor, P&C, engineering, life,

health and accident insurance

Contribution to FS,

total assets (%)

Rmb16.6 bn, 22% Rmb2.6 bn, 4% Rmb23.2 bn,

31%

Rmb207 mn,

0.3%

Rmb31.9 bn, 43%

Contribution to FS,

net assets (%)

Rmb6.1 bn, 41% Rmb2.3 bn, 15% Rmb2.5 bn,

17%

Rmb188 mn,

1%

Rmb4 bn, 26%

Contribution to FS,

PBT

Rmb219 mn Rmb403 mn Rmb71 mn Rmb4.1 mn Rmb414 mn

* Insurance total assets, net assets and PBT are calculated as the sum of P&C and Happy Life.


17 January 2014


Asset under management by Cinda Securities, Jingu Trust and First State Cinda Fund

were growing at a CAGR of 144.9%, with Rmb131 bn outstanding as of June 2013.

3.1 Securities and futures

Cinda conducts securities brokerage and investment banking business in China though

Cinda Securities, and futures business through Cinda Futures (which is a wholly-owned

subsidiary of Cinda Securities). Cinda International is a financial service company listed on

the Hong Kong Stock Exchange (HKSE: 0111) and its businesses include corporate

finance, securities broking, asset management and other financial services. It serves as

the firm's primary platform for developing overseas investment banking business. Cinda

International was established in 2008 and headquartered in HK.

3.2. Trust

The trust business is conducted through Jingu Trust. Jingu Trust is headquartered in

Beijing. As of 1H 2013, Jingu Trust had a client base of 8,633 individuals and 578

institutions. The number of clients acquired in Beijing accounts for half of the total clients.

It cooperates with 21 of their company branches and subsidiaries.

Figure 92: Trust products breakdown by

type (1H13, %)

Figure 93: Trust products breakdown by

industry (1H13, %)


3.3 Financial leasing

The financial leasing business is conducted through Cinda Leasing, providing clients with

customised financial solutions including direct financial leasing and sale-leaseback. Cinda

Leasing’s products can be divided into two types based on the nature of the leased objects,

namely, specialised and non-specialised products. Specialised products include aircraft

leasing, vessel leasing and equipment leasing in collaboration with machinery

manufacturers. Non-specialised products include leases of fixed assets of industrial

enterprises, including equipment for industrial production, mining and environmental

protection, as well as urban water and gas supplies.

17 January 2014


Figure 94: Financial leasing receivables

breakdown by industry (1H13, %)

Figure 95: Operating revenue by product

types (1H13, %)


3.4 Fund management

Cinda conducts fund management business and other asset management business

through First State Cinda Fund. First State Cinda Fund is a business platform for PE fund

and wealth management via separately managed accounts. It is a joint venture

established in 2006 between Cinda and Colonial First State Group Limited, a wholly

owned subsidiary of Commonwealth Bank of Australia. As of 1H 2013, the total AUM of

the public fund amounted to Rmb5.82 bn, and AUM under separately managed accounts

totalled Rmb240 mn. It provides services across asset management plans, public funds

and special asset management plans. There are nine public funds and seven asset

management plans for specific clients at the end of 1H13.

3.5 Insurance

Cinda conducts its P&C insurance business through Cinda P&C and its life and health

insurance through Happy Life. Happy Life was established in 2007 and is headquartered

in Beijing, with 206 branches and outlets. The insurance business is still in the preliminary

stage of development and was operating at a loss until 1H13.

Figure 96: 1H13 premium income of life

insurance products breakdown by type

Figure 97: 1H13 Insurance PBT (Rmb mn)


17 January 2014


Appendix: Peer companies for valuation comparison Alternative asset managers

Figure 98: Alternative asset management companies' comparable valuation multiples

Country Mkt Cap (USD mn) ROE, % PE (x) PB (x) DY (%)

Company Name F2014E F2014E F2014E F2014E

The Blackstone Group US 30,694 32.8 9.4 3.0 6.4

KKR & Co. US 16,011 22.0 9.4 1.8 5.9

Apollo Global Management US 12,407 37.9 11.0 2.6 7.8

The Carlyle Group US 9,650 23.9 9.7 0.9 6.2

Oaktree Capital Group US 8,634 10.8 12.1 5.5 6.6

Fortress Investment Group US 4,089 17.5 10.8 2.5 6.2

Och-Ziff Capital US 5,742 35.6 9.5 3.2 9.9

Partners Group SZ 6,798 37.4 18.5 6.3 3.4

3i Group GB 5,824 13.9 7.5 1.1 4.0

Ashmore GB 4,569 29.0 14.6 3.9 4.2

Intermediate Capital GB 3,031 8.8 9.5 1.1 4.5

GAM SZ 3,301 11.1 13.1 1.4 4.1

Man Group GB 2,582 8.1 13.1 1.1 5.0

Polar Capital GB 966 Note: Data priced as of 4 November 2013.


Business development companies

Figure 99: Business development companies' comparable valuation multiples Business Development Companies Country Currency Mkt Cap (USD mn) ROE, % ROA,% Pex PBx DY, %

Company Name F2014E F2014E F2014E F2014E F2014E

Ares Capital US USD 4,848 9.9 5.8 10.6 1.0 9.3

American Capital Strategies US USD 4,253 5.7 5.9 15.1 0.6

Prospect Capital US USD 3,248 9.5 8.3 1.1 11.6

Apollo Investment US USD 1,922 9.9 6.7 9.8 1.0 9.4

Fifth Street Finance US USD 1,423 11.3 8.4 9.2 1.0 11.2

Main Street Capital US USD 1,213 11.2 6.4 13.4 6.2

Solar Capital US USD 987 9.0 5.8 12.6 1.0 7.5

Hercules Tech Growth Cap US USD 954 12.8 6.9 12.0 1.4 7.9

Triangle Capital US USD 814 15.1 8.1 12.3 1.7 7.7

PennantPark Investment US USD 751 10.5 6.2 10.2 1.1 9.9

BlackRock Kelso Capital US USD 699 10.5 6.3 10.2 1.0 11.0

Golub Capital US USD 749 8.9 12.6 1.1 7.7

New Mountain Finance US USD 643 9.6 5.7 10.3 1.0 9.6

THL Credit US USD 561 10.5 7.4 11.3 1.2 8.5

TICC Capital US USD 535 11.2 6.0 9.0 1.0 11.2

Medley Capital US USD 558 12.7 6.6 8.8 1.1 11.1

TCP Capital US USD 518 10.7 0.0 10.4 1.1 8.9

MCG Capital US USD 343 10.9 7.6 9.5 0.9 10.5

Medallion Financial US USD 342 0.0 14.0 1.4 5.6

MVC Capital US USD 314 3.7 0.0 18.5 0.8 5.5

Kohlberg Capital US USD 274 12.6 0.0 7.9 1.0 12.7

Fidus Investment US USD 278 10.8 6.5 11.3 8.5

WhiteHorse Finance US USD 229 10.5 6.7 10.4 1.0 9.6

Solar Senior Capital US USD 208 7.7 6.2 13.4 1.0 7.8

PennantPark Floating Rate Capital US USD 194 12.1 0.9 8.1

Gladstone Capital US USD 184 9.7 5.7 10.4 1.0 9.6

Gladstone Investment US USD 187 7.8 4.7 14.8 8.5

Stellus Capital Investment US USD 179 9.9 5.3 10.2 1.0 9.5

NGP Capital Resources US USD 152 6.8 5.4 11.3 0.8 8.6

Monroe Capital US USD 127 8.7 5.9 9.5 0.9 10.8

Horizon Technology US USD 130 9.2 0.0 9.3 0.9 10.5

OFS Capital US USD 115 0.0 11.0 0.7 11.8

Harris & Harris Group US USD 96 0.0 12.3

Saratoga Investment US USD 92 0.0

Full Circle Capital US USD 59 11.9 9.9 1.0 11.8 Note: Data priced as of 4 November 2013.


17 January 2014


Financial holding companies

Figure 100: Financial holding companies' comparable valuation multiples Financial Holding Companies Country Currency Mkt Cap (USD mn) ROE, % ROA,% Pex PBx DY, %


Mitsubishi UFJ Financial Group JN JPY 88,659 7.2 0.4 10.6 0.7 2.3

Sumitomo Mitsui Financial Group JN JPY 67,422 8.7 0.4 9.3 0.9 2.5

Ping An CH HKD 52,997 15.9 1.0 11.4 1.7 1.4

Cathay Financial TA TWD 17,620 10.0 0.5 16.8 1.6 2.0

Fubon Financial TA TWD 14,374 11.2 0.8 11.7 1.1 2.8

Chinatrust Financial TA TWD 9,457 11.1 1.1 11.2 1.2 3.9

Mega Financial TA TWD 10,374 0.8 11.8 1.2 4.4

Sony Financial JN JPY 7,964 8.9 0.5 19.4 1.8 1.6

Hua Nan Financial TA TWD 5,282 7.1 0.5 14.6 1.1 2.8

First Financial TA TWD 5,283 0.6 13.0 1.0 2.5

Yuanta Financial TA TWD 5,297 4.7 1.1 18.2 1.0 3.1

Sinopac Financial TA TWD 4,089 9.9 0.7 11.3 2.5

E.Sun Financial TA TWD 3,673 10.6 0.7 11.4 1.1 2.1

Taishin Holdings TA TWD 3,701 0.5 10.3 1.0 1.8

Shin Kong Financial TA TWD 3,203 8.5 0.3 12.0 0.8 0.5

Dah Sing Financial HK HKD 1,827 7.9 0.7 10.1 0.8 3.0

CPIC HK HKD 1,088 17.0 2.9 14.5 2.8 2.1

Public Financial HK HKD 571 Note: Data priced as of 4 November 2013.


Real estate companies

Figure 101: Real estate comparable valuation multiples Real Estate Companies Country Currency Mkt Cap (USD mn) ROE, % ROA,% Pex PBx DY, %


China Overseas Land & Investment Ltd. HK HKD 24,566 21.0 8.4 8.2 1.6 2.4

China Resources Land Ltd. HK HKD 16,281 14.3 4.6 11.0 1.4 2.3

Country Garden Holdings Co. Ltd. CH HKD 12,549 21.0 5.8 7.4 1.5 4.9

Longfor Properties Co. Ltd. CH HKD 8,789 18.3 5.4 7.4 1.3 2.7

Shimao Property Holdings Ltd. HK HKD 8,422 18.4 5.2 6.4 1.1 4.7

Evergrande Real Estate Group Ltd. CH HKD 6,703 18.3 3.9 4.1 0.7 5.2

Guangzhou R&F Properties Co. Ltd. CH HKD 5,462 19.5 5.8 5.2 1.0 7.2

New World China Land Ltd. HK HKD 4,764 9.6 5.0 9.7 0.6 1.8

Soho China Ltd. CH HKD 4,220 7.0 2.9 12.5 0.7 4.5

Greentown China Holdings Ltd. CH HKD 4,141 22.1 5.3 3.9 0.8 5.0

Agile Property Holdings Ltd. CH HKD 4,060 16.0 5.1 4.7 0.7 5.1

Sino-Ocean Land Holdings Ltd. CH HKD 3,810 8.9 2.8 7.3 0.6 5.1

Franshion Properties (China) Ltd. HK HKD 3,179 11.4 4.1 7.0 0.7 3.7

China Overseas Grand Oceans Group Ltd. HK HKD 2,635 28.7 9.4 5.8 1.5 2.0

Shui On Land Ltd. CH HKD 2,684 4.4 2.1 12.5 0.4 2.9

Yuexiu Property Co. Ltd. HK HKD 2,559 9.2 3.5 7.0 0.6 5.1

Poly Property Group Co Ltd HK HKD 2,224 10.6 2.8 5.2 0.5 5.4

Sunac China Holdings Ltd. CH HKD 2,248 27.6 5.1 2.9 0.8 3.7

Shenzhen Investment Ltd. HK HKD 2,087 10.8 4.1 5.8 0.6 5.5

Hopson Development Holdings Ltd. HK HKD 2,694 6.4 2.2 6.1 0.3 0.8

China South City Holdings Ltd. HK HKD 1,871 22.0 8.4 5.5 0.8 5.1

Yanlord Land Group Ltd. SI SGD 1,953 7.2 2.4 9.2 0.6 1.1

KWG Property Holding Ltd. HK HKD 1,792 15.1 5.2 3.9 0.6 5.9

Mingfa Group (International) Co. Ltd. HK HKD 1,619

Kaisa Group Holdings Ltd. CH HKD 1,519 16.5 4.5 3.3 0.5 1.3

Shanghai Industrial Urban Development Group Ltd. HK HKD 1,148 8.2 2.4 8.0 0.7 4.2

Renhe Commercial Holdings Co. Ltd. CH HKD 1,132

Glorious Property Holdings Ltd. HK HKD 1,247 5.2 1.8 7.0 0.4 0.0

CIFI Holdings (Group) Co. Ltd. HK HKD 1,236 22.3 5.1 3.7 0.7 5.6

SPG Land Holdings Ltd. CH HKD 788 15.3 4.0 1.8 0.3

Powerlong Real Estate Holdings Ltd. CH HKD 841 7.2 2.5 3.8 0.3 6.7

Yuzhou Properties Co. Ltd. CH HKD 865 19.5 5.6 3.4 0.6 7.4

China SCE Property Holdings Ltd CH HKD 795 9.0 5.2 0.8 6.4

Central China Real Estate Ltd. CH HKD 816 23.8 6.1 3.4 0.7 8.0

Beijing Capital Land Ltd. CH HKD 738 16.6 2.7 2.7 0.4 12.9

CC Land Holdings Ltd. HK HKD 691 6.1 2.1 5.5 0.4 2.8

Future Land Development Holdings Ltd. CH HKD 636 16.5 2.1 3.3 0.6 9.4

China Aoyuan Property Group Ltd. CH HKD 581

Minmetals Land Ltd. HK HKD 465 11.1 3.8 4.0 0.4 1.9

Top Spring International Holdings Ltd. HK HKD 472 14.3 2.0 3.2 0.8 5.5 Note: Data priced as of 4 November 2013.


17 January 2014


Chinese banks

Figure 102: Banks' comparable valuation multiples Chinese Banks Country Currency Mkt Cap (USD mn) ROE, % ROA,% Pex PBx DY, %


ICBC CH HKD 225,074 20.1 1.4 5.3 1.0 6.5

CCB CH HKD 192,827 19.5 1.3 5.3 1.0 6.4

ABC CH HKD 137,255 19.3 1.1 5.5 1.0 6.1

BOC CH HKD 128,414 16.1 1.1 5.0 0.8 6.7

BoComm CH HKD 52,023 14.4 1.0 5.0 0.7 5.3

CMB CH HKD 45,122 19.4 1.3 5.4 1.0 5.1

Minsheng CH HKD 39,873 21.2 1.2 4.3 0.9 4.9

CITIC Bank CH HKD 28,997 15.2 1.0 4.3 0.6 5.3

CQRC CH HKD 4,715 16.4 1.2 4.3 0.7 6.4 Note: Data priced as of 4 November 2013.


Financial leasing companies

Figure 103: Financial leasing companies' comparable valuation multiples Financial Leasing Companies Country Currency Mkt Cap (USD mn) ROE, % ROA,% Pex PBx DY, %


Century Tokyo Leasing JN JPY 3,304 13.4 1.2 10.5 1.3 1.7

Chailease Holding TA TWD 2,398 22.8 2.8 11.1 2.1 3.5

Far East Horizon HK HKD 2,379 14.3 2.4 6.8 1.0 4.5

Bohai Leasing CH CNY 1,515 9.9 1.9 12.7 1.1 0.8

Fuyo General Lease JN JPY 1,264

IBJ Leasing JN JPY 1,163 10.8 1.1 1.9

Kanamoto JN JPY 938 12.4 14.1 1.6 0.9

Ricoh Leasing JN JPY 885

Aviation Lease & Finance KU KWd 758

Berjaya Philippines PH PHP 437 20.0 Note: Data priced as of 4 November 2013.


Trusts

Figure 104: Trust companies' comparable valuation multiples Trust Companies Country Currency Mkt Cap (USD mn) ROE, % ROA,% Pex PBx DY, %


Shaanxi International Trust CH CNY 1,614 12.6 10.0 13.9 1.5 1.7

Anxin Trust & Investment CH CNY 1,071 31.2 7.6 Note: Data priced as of 4 November 2013.


Insurance

Figure 105: Insurance companies' comparable valuation multiples Insurance Companies Country Currency Mkt Cap (USD mn) ROE, % ROA,% Pex PBx DY, %


China Life CH HKD 67,356 13.0 1.5 13.8 1.7 2.3

Ping An CH HKD 52,997 15.9 0.0 11.4 1.7 1.4

CPIC CH HKD 27,137 10.7 1.5 16.4 1.7 2.0

PICC Group CH HKD 19,922 14.1 1.6 10.6 1.4 1.1

NCI CH HKD 10,605 11.8 0.9 10.2 1.2 1.5

China Taiping HK HKD 2,927 10.4 0.7 13.1 1.3 0.3 Note: Data priced as of 4 November 2013.


Securities companies

Figure 106: Securities companies' comparable valuation multiples Securities Companies Country Currency Mkt Cap (USD mn) ROE, % ROA,% Pex PBx DY, %


Citic Securities CH HKD 21,446 7.5 3.2 20.3 1.5 2.1

Haitong Securities CH HKD 17,509 8.5 3.4 16.1 1.3 2.3

Galaxy Securities CH HKD 5,066 10.1 3.0 11.3 1.1 2.5

Guotai Juan International HK HKD 715 11.0 3.1 12.7 1.4 3.4

Shenyin Wanguo HK HKD 179 23.9 Note: Data priced as of 4 Nov 2013. Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

17 January 2014


Companies Mentioned (Price as of 15-Jan-2014)

'China Cinda Asset Management Co., Ltd (1359.HK, HK$5.05, OUTPERFORM[V], TP HK$6.14) 3I Group (III.L, 404.1p) ALAFCO (ALAF.KW, fils270.0) AXXT (600816.SS, Rmb14.96) Agile Property (3383.HK, HK$7.76) Agricultural Bank of China (1288.HK, HK$3.52) Aluminum Corporation of China (2600.HK, HK$2.72) Anyuan Coal (600397.SS, Rmb3.88) Apollo Global Management LLC (APO.N, $35.75) Ares Capital (ARCC.OQ, $17.99) Ashmore Group (ASHM.L, 356.8p) BJ Capital Land (2868.HK, HK$2.66) Bank of Beijing (601169.SS, Rmb7.07) Bank of China Ltd (3988.HK, HK$3.42) Bank of Communications (3328.HK, HK$5.23) Bank of Nanjing (601009.SS, Rmb7.93) Bank of Ningbo (002142.SZ, Rmb8.74) Berjaya (BCOR.PS, P27.5) BlackRock Kelso Capital (BKCC.OQ, $9.41) Blackstone Group (BX.N, $32.35) Bohai Leasing (000415.SZ, Rmb7.5) C C Land (1224.HK, HK$1.82) CHIC (601608.SS, Rmb3.18) CIFI Hldg Grp (0884.HK, HK$1.6) CS&S (600536.SS, Rmb39.39) CTBC Holding (2891.TW, NT$20.0) Cathay Financial Holding (2882.TW, NT$46.6) Central Real (0832.HK, HK$2.5) Century Tokyo Le (8439.T, ¥3,280) Chailease (5871.TW, NT$79.3) Charlemagne (CHAR.L, 15.75p) China Aoyuan Property Group Limited (3883.HK, HK$1.58) China Citic Bank (0998.HK, HK$3.93) China Construction Bank (0939.HK, HK$5.54) China Galaxy Securities Co.,Ltd. (6881.HK, HK$6.04) China Life (2628.HK, HK$22.75) China Life (601628.SS, Rmb14.26) China Merchants Bank - H (3968.HK, HK$14.86) China Minsheng Banking Corporation (1988.HK, HK$8.08) China Overseas Grand Oceans Group Ltd. (0081.HK, HK$7.18) China Overseas Land & Investment (0688.HK, HK$21.85) China Pacific (2601.HK, HK$28.65) China Pacific (601601.SS, Rmb17.11) China Resources Land Ltd (1109.HK, HK$19.72) China SCE (1966.HK, HK$1.73) China South City (1668.HK, HK$2.17) China Taiping (0966.HK, HK$14.4) Chongqing Rural Commercial Bank (3618.HK, HK$3.41) Citic Securities (6030.HK, HK$18.54) Country Garden Holdings Company Limited (2007.HK, HK$4.61) DYEC (600403.SS, Rmb6.62) Dah Sing Financial (0440.HK, HK$41.35) E.Sun Financial Holding Co. (2884.TW, NT$18.9) Erzhong Heavy (601268.SS, Rmb2.2) Everbright Bank (601818.SS, Rmb2.54) Evergrande Real Estate Group Ltd (3333.HK, HK$2.82) Far East Horizon (3360.HK, HK$6.15) Fidus Investment (FDUS.OQ, $21.13) Fifth Street Finance Corp (FSC.OQ, $9.34) First Financial Holding Co Ltd (2892.TW, NT$18.35) Fortress Investment Group (FIG.N, $9.05) Ftre Lnd Dvlpmnt (1030.HK, HK$0.89) Fubon Financial Holding (2881.TW, NT$43.05) GAM Holding (GAMH.S, SFr16.45) GW Tiandi (1232.HK, HK$0.89) Gezhouba (600068.SS, Rmb3.82) Glorious Property Holdings Limited (0845.HK, HK$1.71) Golub Capital (GBDC.OQ, $18.89) Greenland HK (0337.HK, HK$5.26) Greentown China Holdings Ltd (3900.HK, HK$11.32) Guangzhou R&F Properties Co Ltd (2777.HK, HK$11.04) Guotai JunAn (1788.HK, HK$3.99) Haitong Securities (6837.HK, HK$12.16) Harris & Harris (TINY.OQ, $3.07) Hercules Technology Growth Capital (HTGC.N, $16.38) Hopson Development Holdings (0754.HK, HK$8.41) Horizon Tech Fin (HRZN.OQ, $14.38) Hua Nan Financial Holding (2880.TW, NT$17.45) Hua Xia Bank (600015.SS, Rmb8.01) IBJ Leasing (8425.T, ¥3,080) Industrial & Commercial Bank of China (1398.HK, HK$4.94) Industrial Bank (601166.SS, Rmb9.63)

17 January 2014


Inspur Software (600756.SS, Rmb13.18) Intermediate Capital Group (ICP.L, 428.3p) JWTM (000666.SZ, Rmb9.76) Jizhong Energy (000937.SZ, Rmb6.67) KCAP Financial (KCAP.OQ, $7.94) KKR and Co LP (KKR.N, $25.75) KL Energy Chem (600997.SS, Rmb4.84) KWG Property Holding Limited (1813.HK, HK$4.36) Kaisa Group (1638.HK, HK$2.34) Kanamoto (9678.T, ¥2,707) Lianyungang Port (601008.SS, Rmb3.3) Longfor (0960.HK, HK$11.32) MCG Capital (MCGC.OQ, $4.68) Mainfreight (MFT.NZ, NZ$12.5) Man Group (EMG.L, 89.55p) McCormick & Company (MKC.N, $69.75) Mega Financial Holding Co Ltd (2886.TW, NT$24.8) Minmetals (0230.HK, HK$0.97) Mitsubishi UFJ Financial Group (8306.T, ¥675) Monroe Capital (MRCC.OQ, $12.7) NGP Cap Res (NGPC.OQ, $7.7) New China Life (1336.HK, HK$24.5) New China Life (601336.SS, Rmb21.78) New Mountain (NMFC.N, $15.01) New World China (0917.HK, HK$4.09) OFS Capital (OFS.OQ, $13.14) Oaktree Capital Group, LLC (OAK.N, $60.05) Och-Ziff Capital Management (OZM.N, $15.78) PICC Group (1339.HK, HK$3.61) PJRC (600395.SS, Rmb6.35) Partners Group (PGHN.S, SFr235.5) PennantPark (PFLT.OQ, $13.67) PennantPark Investment Corp. (PNNT.OQ, $11.33) Ping An (601318.SS, Rmb39.72) Ping An (2318.HK, HK$68.65) Ping An Bank (000001.SZ, Rmb11.67) Polar Capital (PCT.L, 491.5p) Poly Property Group Co., Ltd (0119.HK, HK$4.04) Powerlong (1238.HK, HK$1.57) Prospect Cap (PSEC.OQ, $11.26) Public Financial (0626.HK, HK$4.05) Qingshan Paper (600103.SS, Rmb2.23) Renhe (1387.HK, HK$0.41) Ricoh Leasing (8566.T, ¥2,977) SITI (000563.SZ, Rmb7.07) SIUD (0563.HK, HK$1.82) SOHO China Ltd (0410.HK, HK$6.39) SWS (0218.HK, HK$2.68) Salt Lake Indust (000792.SZ, Rmb14.83) Shanghai Pudong Development Bank (600000.SS, Rmb9.23) Shenzhen Invest (0604.HK, HK$2.78) Shimao Property Holdings Ltd (0813.HK, HK$17.86) Shin Kong Financial Holding (2888.TW, NT$10.4) Shui On Land (0272.HK, HK$2.4) Sino-Ocean Land Holdings Ltd (3377.HK, HK$4.78) Sinopac Holdings (2890.TW, NT$14.5) Solar Capita (SLRC.OQ, $22.67) Sony Financial Holdings (8729.T, ¥1,939) Sumitomo Mitsui Financial Group (8316.T, ¥5,395) Sunac China Holdings Ltd. (1918.HK, HK$4.93) TCL Comm (2618.HK, HK$8.41) TCP Capital (TCPC.OQ, $17.15) THL Credit Inc (TCRD.OQ, $16.36) TICC Capital (TICC.OQ, $10.43) Taishin Financial Holding (2887.TW, NT$14.55) Thanachart Capital Public Co Ltd (TCAP.BK, Bt32.5) The Carlyle Group L.P. (CG.OQ, $36.99) Top Spring (3688.HK, HK$3.17) Value Partners (0806.HK, HK$5.52) Yangmei Chemical (600691.SS, Rmb6.02) Yanlord Land Group (YNLG.SI, S$1.195) Yuanta Financial Holding Co Ltd (2885.TW, NT$17.4) Yuexiu Property (0123.HK, HK$1.82) Yunnan Copper (000878.SZ, Rmb7.35) Yuntianhua (600096.SS, Rmb8.26) Yuzhou Ppty (1628.HK, HK$1.85) Zhengzhou Pwr (600121.SS, Rmb4.78)

17 January 2014


Disclosure Appendix

Important Global Disclosures

Victor Wang and Sanjay Jain, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese rat ings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratin gs are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are , and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its curren t share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 42% (53% banking clients)

Neutral/Hold* 40% (49% banking clients)

Underperform/Sell* 15% (42% banking clients)

Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

17 January 2014


Price Target: (12 months) for 'China Cinda Asset Management Co., Ltd (1359.HK)

Method: We assign a SOTP (sum of the parts)-based target price of HK$6.14 to China Cinda Asset Management Co., Ltd. Given Cinda's business model has inherent ability to neutralize macro volatility, we use 12.5% COE (cost of equity), 18.3% ROE (return on equity) and 3-6% long-term growth rate (different division) to value it.

Risk: Risks that could impede achievement of our HK$6.14 target price for China Cinda Asset Management Co., Ltd include: (1) exposure to equity, real estate and commodity markets, (2) impairment in its leasing/trust businesses and (3) over-paying for distressed assets. The key risk is that a sharp GDP/asset price decline could meaningfuly impact Cinda's return of distressed assets and the value of its assets/property inventory.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (1359.HK, 600000.SS, 2600.HK, 2890.TW, 0845.HK, FIG.N, 601169.SS, 2628.HK, 1336.HK, 601318.SS, TCRD.OQ, TCAP.BK, 2887.TW, 0998.HK, 1638.HK, MKC.N, CG.OQ, 2886.TW, 3383.HK, 601628.SS, 1398.HK, 2892.TW, 000001.SZ, 2880.TW, PNNT.OQ, 601166.SS, 1109.HK, 6881.HK, 2777.HK, 6837.HK, 2882.TW, 3968.HK, OAK.N, 2888.TW, 8306.T, HTGC.N, 6030.HK, BKCC.OQ, 3988.HK, 3328.HK, 3333.HK, 0966.HK, EMG.L, 0688.HK, KKR.N, 0939.HK, 601009.SS, 8316.T, APO.N, FSC.OQ, PGHN.S, 601601.SS, 0440.HK, 002142.SZ, 2891.TW, 1988.HK, 1288.HK, 3618.HK, 2881.TW, 8729.T, BX.N, 0119.HK, OZM.N, 0806.HK, 2318.HK, 600015.SS) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (1359.HK, FIG.N, 601169.SS, 601318.SS, TCRD.OQ, 1638.HK, CG.OQ, 1398.HK, 000001.SZ, PNNT.OQ, 6881.HK, 6837.HK, OAK.N, 8306.T, HTGC.N, BKCC.OQ, 3328.HK, 3333.HK, 0966.HK, 0688.HK, KKR.N, 8316.T, APO.N, FSC.OQ, PGHN.S, 601601.SS, BX.N, 0119.HK, OZM.N, 2318.HK) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (2890.TW, FIG.N, 2628.HK, 601318.SS, TCRD.OQ, 2887.TW, 0998.HK, 1638.HK, 2886.TW, 601628.SS, 1398.HK, 2892.TW, 000001.SZ, 2880.TW, 601166.SS, 2777.HK, 2882.TW, 3968.HK, OAK.N, 2888.TW, 8306.T, 6030.HK, BKCC.OQ, 3988.HK, 3328.HK, 0966.HK, EMG.L, 0939.HK, 601009.SS, 8316.T, APO.N, FSC.OQ, PGHN.S, 0440.HK, 002142.SZ, 2891.TW, 1288.HK, 2881.TW, BX.N, OZM.N, 0806.HK, 2318.HK) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (1359.HK, FIG.N, 601318.SS, TCRD.OQ, 1638.HK, CG.OQ, 1398.HK, 000001.SZ, PNNT.OQ, 6881.HK, 6837.HK, OAK.N, 8306.T, 3333.HK, 0966.HK, 0688.HK, KKR.N, APO.N, BX.N, 2318.HK) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (1359.HK, FIG.N, 601169.SS, 601318.SS, TCRD.OQ, 1638.HK, CG.OQ, 1398.HK, 000001.SZ, PNNT.OQ, 6881.HK, 6837.HK, OAK.N, 8306.T, HTGC.N, BKCC.OQ, 3328.HK, 3333.HK, 0966.HK, 0688.HK, KKR.N, 8316.T, APO.N, FSC.OQ, PGHN.S, 601601.SS, BX.N, 0119.HK, OZM.N, 2318.HK) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (1359.HK, 600000.SS, 2600.HK, 2890.TW, 0845.HK, FIG.N, 601169.SS, 2628.HK, 1336.HK, 601318.SS, TCRD.OQ, TCAP.BK, 2887.TW, 1638.HK, MKC.N, CG.OQ, 3383.HK, 1398.HK, 000001.SZ, PNNT.OQ, 601166.SS, 1109.HK, 6881.HK, 6837.HK, 2882.TW, OAK.N, 8306.T, HTGC.N, BKCC.OQ, 3988.HK, 3328.HK, 3333.HK, 0966.HK, 0688.HK, KKR.N, 0939.HK, 8316.T, APO.N, FSC.OQ, PGHN.S, 601601.SS, 2891.TW, 1288.HK, 3377.HK, 2881.TW, 8729.T, BX.N, 0119.HK, OZM.N, 1918.HK, 2318.HK, 600015.SS) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (2890.TW, FIG.N, 2628.HK, 601318.SS, TCRD.OQ, 2887.TW, 0998.HK, 1638.HK, 2886.TW, 601628.SS, 1398.HK, 2892.TW, 000001.SZ, 2880.TW, 601166.SS, 2777.HK, 2882.TW, 3968.HK, OAK.N, 2888.TW, 8306.T, 6030.HK, BKCC.OQ, 3988.HK, 3328.HK, 0966.HK, EMG.L, 0939.HK, 601009.SS, 8316.T, APO.N, FSC.OQ, PGHN.S, 0440.HK, 002142.SZ, 2891.TW, 1288.HK, 2881.TW, BX.N, OZM.N, 0806.HK, 2318.HK) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (FIG.N, TCRD.OQ, MKC.N, CG.OQ, PNNT.OQ, OAK.N, 8306.T, HTGC.N, BKCC.OQ, KKR.N, APO.N, FSC.OQ, BX.N, OZM.N).

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (FIG.N, 2601.HK, 2628.HK, 1336.HK, 2887.TW, 0998.HK, 1638.HK, CG.OQ, 2886.TW, 2884.TW, 1398.HK, 6837.HK, 2882.TW, 3968.HK, 0081.HK, 2888.TW, 3988.HK, KKR.N, PGHN.S, 2891.TW, 1988.HK, 1288.HK, 3377.HK, 2881.TW, 2318.HK).

Credit Suisse has a material conflict of interest with the subject company (000001.SZ) . Credit Suisse is acting as International Advisor to the Special Committee of the Board of Directors of Shenzhen Development Bank ("Special Committee"). Credit Suisse Founder Securities is acting in the role of Independent Financial Advisor to the Special Committee.

Credit Suisse has a material conflict of interest with the subject company (6837.HK) . Credit Suisse is acting as financial advisor to Haitong Securities for its proposed acquisition of UT Capital Group from TPG Capital.

Credit Suisse has a material conflict of interest with the subject company (6030.HK) . Credit Suisse is the financial advisor to Citic Securities regarding the proposed acquisition of Credit Agricole SA?s CLSA unit.

17 January 2014


Credit Suisse has a material conflict of interest with the subject company (0966.HK) . Credit Suisse is acting as the financial advisor to China Taiping Insurance Holdings for the major acquisition and connected transaction acquisition of assets from controlling shareholder and issue of consideration share.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (1359.HK, 2885.TW, 600000.SS, 2600.HK, 2890.TW, GAMH.S, 0845.HK, FIG.N, 601169.SS, 2601.HK, 2628.HK, 1336.HK, 601318.SS, TCRD.OQ, TCAP.BK, 2887.TW, 0998.HK, 1638.HK, MKC.N, 0813.HK, CG.OQ, 2886.TW, 3383.HK, 2884.TW, 601628.SS, 1398.HK, 2892.TW, 000001.SZ, 2880.TW, PNNT.OQ, 601166.SS, 1109.HK, 6881.HK, 1339.HK, 2777.HK, 6837.HK, 2882.TW, 3968.HK, 1813.HK, OAK.N, 0081.HK, 2888.TW, 8306.T, HTGC.N, 6030.HK, 0410.HK, BKCC.OQ, ASHM.L, 3988.HK, 3328.HK, 3333.HK, 0966.HK, EMG.L, 0688.HK, KKR.N, 0939.HK, 601009.SS, 8316.T, APO.N, FSC.OQ, PGHN.S, 601601.SS, 0440.HK, 002142.SZ, 601336.SS, 2007.HK, 2891.TW, 1988.HK, 1288.HK, 3618.HK, 3377.HK, 2881.TW, 8729.T, 3900.HK, MFT.NZ, BX.N, 0119.HK, OZM.N, 0806.HK, 1918.HK, 2318.HK, 600015.SS) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (EMG.L).

The following disclosed European company/ies have estimates that comply with IFRS: (ASHM.L, EMG.L, PGHN.S).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (1359.HK, FIG.N, 2601.HK, 2628.HK, 601318.SS, TCRD.OQ, 1638.HK, CG.OQ, 601628.SS, 1398.HK, 000001.SZ, PNNT.OQ, 601166.SS, 6881.HK, 1339.HK, 2777.HK, 6837.HK, 3968.HK, OAK.N, 8306.T, HTGC.N, 3328.HK, 3333.HK, 0966.HK, 0688.HK, KKR.N, 0939.HK, 8316.T, APO.N, FSC.OQ, PGHN.S, 601601.SS, 1288.HK, BX.N, OZM.N, 2318.HK) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

For Thai listed companies mentioned in this report, the independent 2013 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Thanachart Capital Public Co Ltd (Excellent)

Credit Suisse has entered into a strategic partnership with First NZ Capital ("FNZC"). Pursuant to this agreement, (MFT.NZ) is jointly covered by Credit Suisse and First NZ Capital.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse (Hong Kong) Limited ................................................................................ Victor Wang ; Jiang, Claire ; Sanjay Jain ; Vineet Thodge

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

17 January 2014


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