China Strategy 14th Feb BNP

8/12/2019 China Strategy 14th Feb BNP

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PREPARED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES INDIA PVT LTDTHIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION ANDIMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 17

A time for bottom fishing

China valuations are at record lows, though macro-economic concerns persistChina is trading at its lowest one-year forward valuations relative to Asia ex-Japan for more than two

years. Some of the underperformance can be justified by concerns over growth (disappointing PMI),

asset quality, liquidity and reform implementation, with potential WMP failure an issue for the large

banks.

We see opportunities in fundamentally-sound stocks at rock bottom priceChinese equity valuations have been cheap for more than two years but with the relatively less risky

sectors of new China ie, technology, gaming and consumer staples appearing expensive and

over-owned. Were not recommending investors move out of these, but we note significantopportunity for stock picking among the under-owned and under-valued sectors. We have found

fundamentally-sound stocks trading at rock-bottom valuations, some with historically-high dividend

yields offering support.

Our China bottom-fishing basket: eight stocks from five diverse sectorsWe have screened for liquid stocks that have declined more than 20% from their 2013 peaks and are

trading at less than 2x PBV and 10x PE with at least 10% forecast earnings growth and

fundamentally-positive views from our analysts. This yields eight stocks: China Mobile, China Com

Service, China Life, Minsheng Bank, Chonqing Rural Commercial Bank, Great Wall Motor, CNBM and

Petrochina. Our basket comes from five diverse sectors and we feel is a mixture of safe and 'risky

names.

Stock valuations

--------------- P/E --------------- ---------- EV/EBIDTA ---------- --------------- P/BV ---------------

2014E 2015E 2014E 2015E 2014E 2015E

(x) (x) (x) (x) (x) (x)

China ComService 7.8 7.8 3.0 2.6 1.0 0.9

China Life 13.3 11.5 - - 1.9 1.7

China Mobile 9.3 9.0 2.8 2.5 1.3 1.2

Chongqing Rural Commercial Bank 3.5 3.5 - - 0.5

CNBM 4.8 5.0 7.1 7.1 0.8 0.7

Great Wall Motor 8.7 7.2 5.5 4.3 2.7 2.2Minsheng Bank 3.8 3.6 - - 0.8 0.7

PetroChina 7.6 6.8 4.1 3.9 0.9 0.8

Priced on 13 Feb 2014Sources: Bloomberg; BNP Paribas estimates

14 FEBRUARY 2014

CHINA STRATEGY

Manishi [email protected]

+91 22 3370 4346

Gautam [email protected]

+91 22 33704357

Rajan [email protected]

+91 22 6176 5624

Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson forauthorisation. Please see the important notice on the inside back cover.
http://equities.bnpparibas.com/


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China Strategy Manishi Raychaudhuri

BNP PARIBAS 14 FEBRUARY 2014

CONTENTS

Time to bottom fish in China ............................................................................................................................................... 3The macro-economic backdrop remains worrying ......................................................................................................... 3But bottom-fishing could be selectively profitable ........................................................................................................ 4Our bottom fishing methodology........................................................................................................................................ 6Our basket of China stocks .................................................................................................................................................. 6

Company reports ................................................................................................................................................................... 9

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EXHIBIT 5: China PMI EXHIBIT 6: China PMI New Orders

Source: Bloomberg Source: Bloomberg

Following news reports of potential defaults in certain wealth management products,

we believe investors concerns on the potential risks in the Chinese shadow banking

system have resurfaced. Despite the authorities attempts in 2013 to cool theissuance of wealth management products, the problem seems far from over. WMP

issuance actually accelerated in 2H13 (Exhibit 8).

EXHIBIT 7: China TSF EXHIBIT 8: China WMP issuance

Source: Bloomberg Source: Reuters Ecowin Pro

Ultimately, we believe the implementation of reform measures is key to the future of

Chinese equities. The reform rhetoric has clearly been stepped up and BNPP

economists believe the present Chinese leadership has stronger political capital toimplement reforms than previous ones. However, proof of the pudding shall be in the

eating, and we could get some indications of the timeline of reform implementation

during the upcoming National Peoples Congress (NPC) in early March.

But bottom-fishing could be selectively profitable

China has been trading at cheap valuations for more than two years so why are we

talking about bottom-fishing now? We have four reasons:

1 Several interesting and fundamentally sound stocks in China are trading at rock-

bottom valuations with historically-high dividend yields offering support.

2 The QE taper scare seems to be receding, and some macro-economic data

points from China (e.g. export growth) could abate growth concerns.

38

43

48

53

58

05 06 07 08 09 10 11 12 13

(index)

30

40

50

60

70

Jul-06 Aug-07 Sep-08 Oct-09 Nov-10 Dec-11 Jan-13

(index)

(500)

0

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3,000

Jan-03

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(RMB b)

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3 The upcoming National Peoples Congress (NPC) on 5 March should give

investors a sense of the governments growth and money supply targets, and

could even provide some roadmap of reform implementation. Historically, such

announcements have led to significant relief rallies in the market. BNPP China

Economist XD Chen believes that the government will immediately implement

reforms in areas such as administrative approval, enterprises registration,

relaxation of one-child policy, abolishment of re-education camps. We expect

reforms in local government finances, the financial sector and over land to be

gradually implemented through the year.

4 Earnings estimates in China seem to have bottomed out. The Factset consensus

2014 EPS estimate for China has been flat over the past f ive months. After a

false start towards upgrades in August 2013, it declined again and is effectively

flat today on levels in July/August. More encouraging is the fact that the breadth

of upward earnings revisions (ERI) have increased. China is the only market in

Asia which has a positive ERI today implying that there are more upgrades than

downgrades.

EXHIBIT 9: China EPS estimate progression (MSCI China) EXHIBIT 10: China ERI

Source: Factset Source: Factset

Ownership skew points the way

There is an extremely skewed ownership pattern across sectors in China, and

bottom-fishing almost by definition takes place in under-owned stocks and sectors.

Going by institutional ownership, materials, financials and industrials are the most

disliked sectors in China today (Exhibit 11). If we can find fundamentally-good

stocks in under-owned sectors, the probability of generating super-normal returns

could be all the more higher.

EXHIBIT 11: Sectorwise ownership in China

Sources: EPFR; Factset

5.0

5.2

5.4

5.6

5.8

6.0

6.2

6.4

6.66.8

M

ar-12

Jun-12

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Dec-12

M

ar-13

Jun-13

Sep-13

Dec-13

(index) 2013 2014

(0.8)

(0.6)

(0.4)

(0.2)

0.0

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0.60.8

Jun-04

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Dec-13

(index)

(30) (25) (20) (15) (10) (5) 0 5 10

IT

Telecom

Consumer Disc

Consumer Staples

Energy

Utilities

Healthcare

Industrials

Materials

Financials

(%)

5


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Thats not to say we are recommending investors switch out of the over-owned but

attractive sectors of China technology, consumer staples and gaming. However,

we note that their steep valuations and high ownership could mean they

underperform in the near term.

Our bottom fishing methodology

Post the recent market correction, we conducted a bottom fishing screen for China

stocks on the following criteria:

1 Market cap of greater than USD2b and average daily turnover of more than

USD5m;

2 Stock price decline of at least 20% from 2013 peak;

3 2014E P/BV of below 2.0x (on BNPP estimates);

4 2014E P/E of below 10.0x (on BNPP estimates);

5 2014E EPS growth of more than 10% and BNPP EPS estimate above Bloomberg

consensus estimate; and

6 Dividend yield of more than 3%.

From among the stocks that were screened using the quantitative screener, we

choose ones that were BUY rated by BNPP analysts and where analysts are

confident of positive catalysts emerging in the medium term. This last criterion

addresses the problem of finding good stocks in disliked sectors.

Our basket of China stocks

Our bottom-fishing basket of Chinese stocks is quite diverse across five sectors;

banks, autos, insurance, telecommunication and commodities (cement and oil). This

implies that the recent correction in China and the availability of cheap stocks is quitebroad based. Only new China sectors technology, gaming, consumer staples

are not in our list.

EXHIBIT 12: Our basket of China stocks

BBG code Rec Price Target Mkt cap Turnover Decline from 2013 peak 2014E Dividend yield

(LC) (LC) (USD m) (USD m) (%) (%)

China ComService 552 HK BUY 4.17 5.60 3,724 6 (36) 5.8

China Life 2628 HK BUY 21.50 26.50 78,354 94 (25) 2.6

China Mobile 941 HK BUY 73.05 90.00 189,053 176 (20) 4.7

Chongqing Rural Commercial Bank 3618 HK BUY 3.44 4.12 4,125 8 (35) 8.3

CNBM 3323 HK BUY 7.80 10.00 5,430 43 (39) 3.0

Great Wall Motor 2333 HK BUY 37.25 56.20 14,612 40 (33) 4.2

Minsheng Bank 1988 HK BUY 7.87 10.30 29,408 66 (37) 5.6

PetroChina 857 HK BUY 7.81 10.50 184,300 95 (33) 6.6


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EXHIBIT 13: Stock valuations

--------- P/E --------- ---- EV/EBIDTA ---- --------- P/BV --------

2014E 2015E 2014E 2015E 2014E 2015E

(x) (x) (x) (x) (x) (x)

China ComService 7.8 7.8 3.0 2.6 1.0 0.9

China Life 13.3 11.5 - - 1.9 1.7

China Mobile 9.3 9.0 2.8 2.5 1.3 1.2

Chongqing Rural Commercial Bank 3.5 3.5 - - 0.5

CNBM 4.8 5.0 7.1 7.1 0.8 0.7

Great Wall Motor 8.7 7.2 5.5 4.3 2.7 2.2

Minsheng Bank 3.8 3.6 - - 0.8 0.7

PetroChina 7.6 6.8 4.1 3.9 0.9 0.8


For some companies in our basket, support to share price comes from high dividend

yield. We point out that for, say, Petro China, a dividend yield of 5.5% has historically

been a strong support level. It is trading at close to these levels of dividend yield

now. Several other stocks notably China Mobile, China Life, Minsheng Bank,

CRCB and China Comm Services are also trading at close to their all-time highest

dividend yields.

EXHIBIT 14: China Mobile Div yield EXHIBIT 15: Petrochina Div yield


EXHIBIT 16: China Life Div yield EXHIBIT 17: Minsheng Bank Div yield


0

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(%)

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7


8/20



EXHIBIT 18: Great Wall Motor Div yield EXHIBIT 19: CNBM Div yield


EXHIBIT 20: CRCB Div yield EXHIBIT 21: China Comservice Div yield


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Avg.

8


9/20

Riding the rising capex cycle

Negatives appear priced in

CCSs share price has fallen more than 20% from its peak in August

2013 on weaker than expected 2013 earnings and negative

sentiment towards the China telecom sector. The current price

implies 2014E/15E P/Es of 7.8x and 6.8x, well below its five year

average of 13.5x.

Revenue momentum to kick in during 2014-15E

With more clarity around 4G plans in China, we expect industry 4G

capex to accelerate as operators execute on their 4G upgrade plans.

Given the historically high contribution from China Telecom (41% of

1H13 revenue), we believe an accelerated 4G upgrade plan by China

Telecom would be particularly significant for CCS.

Upside potential from China Telecoms rising capex

We recently raised our China Telecom (728 HK; BUY) capex

estimate for 2014 by 18% to RMB97.5b, from RMB80b in 2013, as

we expect it to accelerate its deployment to close the gap with China

Mobile (941 HK; BUY). We believe CCS will be the key beneficiary of

China Telecoms rising capex.

Value has emerged; BUY with HKD5.60 TP

We believe the recent share price decline largely reflects the weak

2013. With earnings growth set to return this year, we believe the

current price offers a good entry point. Key downside risks to our call

include delays in operators' 4G-related capex.

Revenue by customer y-y growth

Sources: Bloomberg; BNP Paribas estimates

0

10

20

0

20,000

40,000

60,000

80,000100,000

2011 2012 2013E 2014E 2015E

(y-y %)(RMB m) TIS (LHS) BPO (LHS)

ACO (LHS) Revenue growth (RHS)

14 FEBRUARY 2014

CHINA/DIVERSIFIED TELECOMMUNICATION

CHINA COMSERVICE 552 HK

BUYUNCHANGED

TARGET PRICE HKD5.60

CLOSE HKD4.17

UP/DOWNSIDE +34.3%

PRIOR TP HKD5.60

CHANGE IN TP UNCHANGED

HOW WE DIFFER FROM CONSENSUS MARKET RECS

TARGET PRICE (%) (4) POSITIVE 18

EPS 2013 (%) (3) NEUTRAL 3

EPS 2014 (%) (1) NEGATIVE 0

Alen [email protected]

+852 2825 1801

Zoe [email protected]

+852 2825 1120

KEY STOCK DATA

YE Dec (RMB m) 2012A 2013E 2014E 2015E

Revenue 61,517 68,257 79,418 92,429

Rec. net profit 2,407 2,428 2,905 3,301

Recurring EPS (RMB) 0.35 0.35 0.42 0.48

Prior rec. EPS (RMB) 0.35 0.35 0.42 0.48

Chg. In EPS est. (%) 0.0 0.0 0.0 0.0

EPS growth (%) (4.4) (0.6) 19.7 13.6

Recurring P/E (x) 9.2 9.3 7.8 6.8

Dividend yield (%) 4.3 4.3 5.1 5.8

EV/EBITDA (x) 3.6 3.6 3.0 2.6

Price/book (x) 1.1 1.1 1.0 0.9

Net debt/Equity (%) (46.9) (45.6) (44.2) (43.0)

ROE (%) 13.3 11.7 13.3 14.2

Share price performance 1 Month 3 Month 12 Month

Absolute (%) (6.7) (8.8) (14.4)

Relative to country (%) (4.2) (7.8) (7.3)

Next results March, 2014

Mkt cap (USD m) 3,723

3m avg daily turnover (USD m) 5.2

Free float (%) 35

Major shareholder China Telecom Corp. (53%)

12m high/low (HKD) 5.73/4.11

3m historic vol. (%) 28.0

ADR ticker -

ADR closing price (USD) -

Issued shares (m) 6,926

Sources: Bloomberg consensus; BNP Paribas estimates

(4)

6

16

26

4.45

4.95

5.45

5.95

Feb-13 May-13 Aug-13 Nov-13 Feb-14

(%)(HKD) China ComServi ce Rel to MSCI China

9


10/20

Long term beneficiary of urbanization

Favourable environment lifts insurers investment/product yield

Under financial reforms to control shadow banking and manage

funding costs, insurers have more opportunity to participate in high-

yield investment projects (infrastructure debt plans, ABS) and mid-

term bond market development benefits (long duration). This will

improve profitability and lift product yields, attracting customers

China Life to be affected less by potential regulation changes

While the asset side is expected to improve, the regulator is planning

to push marketization on the liability side. We expect the negative

impact will be limited for China Life. Since price liberalization on

traditional products in Aug 2013, insurers are still cautious on price

competition. As China Life has a higher weight of VNB from

traditional products it is less affected by scope expansion

Long-term urbanization will drive growth

While Chinas urbanization is in progress, we believe China Life will

benefit on its large exposure in tier 2 and below cities. In 2012,

China Life only had 6% GWP from BJ/SH/SZ while Ping An had 22%.

BUY with TP of HKD26.5

We have a BUY and a TP of HKD26.5. The industry is experiencing

an upward trend with limited negative impact from regulation

changes. We expect China Life could deliver 2%, 3% VNB in 2013,

2014, respectively. Currently, China Life trades at 6.2x 2014E

adjusted VNB, lower end of its five year range of 4.7x-40.4x. Key

downside risk is a worse investment environment than we expect.

Historical P/BV and VNB multiple


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(x) (x)P/BV forward (LHS) VNBM (RHS)

14 FEBRUARY 2014

CHINA/INSURANCE

CHINA LIFE 2628 HK

BUYUNCHANGED


CLOSE HKD21.50

UP/DOWNSIDE +23.3%

PRIOR TP HKD26.50



TARGET PRICE (%) 0.3 POSITIVE 15

EPS 2013 (%) (3.9) NEUTRAL 13

EPS 2014 (%) (0.1) NEGATIVE 3

Ling [email protected]

+852 2825 1135

KEY STOCK DATA

YE Dec (RMB m) 2012A 2013E 2014E 2015E

Operating Profit 7,931 30,721 41,030 47,824

Rec. net profit 11,061 27,313 35,860 41,608


Prior rec. EPS (RMB) 0.39 0.97 1.27 1.47

Chg. In EPS est. (%) 0.0 0.0 0.0 0.0

EPS growth (%) (39.7) 146.9 31.3 16.0

EV growth (%) 14.2 9.7 10.7 12.1

VNB growth (%) 3 2 3 5

Recurring P/E (x) 42.9 17.4 13.2 11.4

Dividend yield (%) 0.8 1.7 2.3 2.6

Price/EV (x) 1.4 1.2 1.1 1.0

Price/book (x) 2.1 2.1 1.9 1.7

ROE (%) 5.4 12.1 14.7 15.4


Absolute (%) (2.5) 5.4 (12.2)

Relative to country (%) 0.0 6.3 (5.1)

Next results March 2014



Free float (%) 32

Major shareholder China Life Insurance Group (68%)

12m high/low (HKD) 25.70/17.50


ADR ticker LFC

ADR closing price (USD; 12, Feb 2014) 41.8



(20)

(15)

(10)

(5)

0

5

15

20

25


(%)(HKD) China Life Rel to MSCI China

10


11/20

Staying ahead with 4G expansion

Taking the 4G leadership

With TD-LTE licences issued in Dec 2013, China Mobile officially

launched its 4G service in a number of markets in January. While

China Telecom completed its initial equipment tender for 60k base

stations, China Unicom has yet to announce the scale of its 4G trial;

as they will require FDD-LTE licences before commercial launches,they will likely lag behind China Mobile by 6-12 months.

4G service will expand China Mobiles addressable market

We think its 4G service will enable China Mobile to address the

premium mobile broadband market it failed to during the 3G era. We

expect its ARPU to flatten out in 2014, and start to grow in 2015. We

estimate China Mobiles 4G coverage will exceed 300 cities by end-

2014, far larger than its competitors.

Launching commercial services with 24 handsets certified

We believe China Mobiles 4G handset readiness is better than the

3G cycle; our latest check (12 Feb) indicates that 24 smartphones

have been officially certified by the MIIT including handsets fromHuawei, ZTE, Apple, Samsung, Coolpad, LG, HTC and Sony.

Attractive valuations with upside potential; BUY

We believe China Mobile will be the top performer relative to its

peers in the new multi-year cycle, it remains our top pick in the China

telecoms sector. We believe it recent share price fall offers investors

a good entry at 2014E/2015E PEs of 9.3x/9.0x. Key downside risks

to our call include higher than expected capex in 2014E/15E.

ARPU reversal on the horizon

Sources: China Mobile; BNP Paribas estimates

0

20

40

60

0

20

40

60

80

2010 2011 2012 2013E 2014E 2015E

(%)(RMB)

Voice ARPU VAS ARPU VAS/overall ARPU (RHS)

14 FEBRUARY 2014

CHINA/WIRELESS TELECOMMUNICATION SERVICES

CHINA MOBILE 941 HK

BUYUNCHANGED


CLOSE HKD73.85

UP/DOWNSIDE +21.9%

PRIOR TP HKD90.00

CHANGE IN TP -6.2%


TARGET PRICE (%) 7 POSITIVE 12

EPS 2013 (%) 2 NEUTRAL 19

EPS 2014 (%) 8 NEGATIVE 7

Alen [email protected]

+852 2825 1801

Zoe [email protected]

+852 2825 1120

KEY STOCK DATA

YE Dec (RMB m) 2012A 2013E 2014E 2015E

Revenue 560,413 636,448 673,724 725,202

Rec. net profit 129,274 128,308 124,731 128,800


Prior rec. EPS (RMB) 6.36 6.31 6.14 6.34

Chg. In EPS est. (%) N/A N/A N/A N/A

EPS growth (%) 2.6 (0.7) (2.8) 3.3

Recurring P/E (x) 9.1 9.1 9.4 9.1

Dividend yield (%) 4.8 4.8 4.6 4.8

EV/EBITDA (x) 3.2 3.0 2.8 2.5

Price/book (x) 1.6 1.5 1.3 1.2

Net debt/Equity (%) (51.6) (49.2) (47.3) (49.0)

ROE (%) 18.8 16.9 15.0 14.3


Absolute (%) (4.8) (7.9) (13.9)





Free float (%) 26

Major shareholder China Mobile HK (BVI) Ltd (74%)

12m high/low (HKD) 88.30/72.00


ADR ticker -




(7)

(2)

3

8

78

83

88

93


(%)(HKD) China Mobile Rel to MSCI China

11


12/20

Beneficiary of urbanization

Primed to deliver above peers NPAT

We value CRCB on an EVA model. Our TP of HKD4.12 implies a

target 2014E P/BV of 0.7x and 20% upside potential. We expect it to

deliver above-peer NPAT CAGR of 9.7% in the next three years

compared with a sector average of 7.3%.

Key beneficiary of favourable urbanization policies

The launch of rural land circulation could increase loan demand and

increase the collateral value of rural land use rights. We believe

CRCB is a key beneficiary of favourable policies on the urbanization

and industrialization of the rural area in Chongqing.

Earnings outlook

For 2013-15: We forecast 13.4%, 10.4%, 5.5% net income growth on

asset growth of 19.6%, 11.1%, 7.6%. NIM contraction of 7bp, 12bp,

11bp with rising credit costs to 51bp, 57bp, 56bp. We forecast ROE

of 17.8%, 17.4%, 16.3%, and ROA of 1.33%, 1.27%, 1.23%.

A dominant player in Chongqing

A dominant player with the broadest branch network in rural areas,

the bank has the lowest LDR among all H-share banks, making it

less vulnerable to interest rate liberalization. Large excess provisions

also cushion any potential asset quality deterioration. Key downside

risk is asset quality on LGFP loans.

Key financials

2010 2011 2012 2013E 2014E 2015E

NPAT (RMB m) 3,064 4,247 5,361 6,077 6,710 7,078

NPAT Growth (y-y %) 62.3 38.6 26.2 13.4 10.4 5.5ROE (%) 19.3 16.9 17.9 17.8 17.4 16.3

ROA (%) 1.26 1.35 1.38 1.28 1.22 1.18

P/E (x) 6.4 5.7 4.6 4.0 3.6 3.5

P/BV (x) 1.1 0.9 0.8 0.7 0.6 0.5

Sources: CRCB; CRCB; BNP Paribas estimates

14 FEBRUARY 2014

CHINA/BANKS

CHONGQING RURAL COMMERCIAL BANK 3618

BUYUNCHANGED


CLOSE HKD3.44

UP/DOWNSIDE +19.6%

PRIOR TP HKD4.12



TARGET PRICE (%) (2.2) POSITIVE 18

EPS 2013 (%) 0.2 NEUTRAL 5

EPS 2014 (%) 0.5 NEGATIVE 4

Judy [email protected]

+852 2825 1810

KEY STOCK DATA

YE Dec (RMB m) 2012A 2013E 2014E 2015E


Rec. net profit 5,361 6,077 6,710 7,078


Prior rec. EPS (RMB) 0.58 0.65 0.72 0.76

Chg. In EPS est. (%) 0.0 0.0 0.0 0.0

EPS growth (%) 26.2 13.4 10.4 5.5

Recurring P/E (x) 4.7 4.1 3.7 3.5

Dividend yield (%) 6.3 7.2 7.9 8.3

Price/book (x) 0.8 0.7 0.6 0.5

ROE (%) 17.9 17.8 17.4 16.3

ROA (%) 1.38 1.33 1.27 1.23


Absolute (%) (2.0) (9.5) (23.6)

Relative to country (%) 0.5 (8.6) (16.4)




Free float (%) 16

Major shareholder MOF and Huijin (71%)

12m high/low (HKD) 4.66/3.03


ADR ticker -




(31)

(21)

(11)

(1)

2.56

3.06

3.56

4.06

4.56

5.06


(%)(HKD) Chongqing Rural Commercial Bank

12


13/20

Quality laggard

Beneficiary of policy catalysts in 2014

The effective day of tighter emission standards for new lines and the

cancellation of PC 32.5 will be from March 1 and July 1, respectively.

These policies will delay capacity expansion, increase the bargaining

power of top cement companies and speed up the closure of grinding

stations. CNBM can accommodate product mix changes easily.

Company specific catalysts: deleveraging and cost reductions

Management has stressed two strategies of deleveraging and cost

cutting since 2H13. We note net gearing improved to 331% in Sep-13

from 334% in Jun-13. We expect CNBMs free cash flow to turn

positive from negative in 2014 after years of aggressive M&As.

2013 earnings are solid with consensus revising up

We believe CNBMs 4Q13 GP/tonne to be around RMB90-93 which

is close to our estimated RMB92/tonne. We maintain our 2013E net

earnings at RMB6b, while noting Bloomberg consensus estimates

being revised up recently.

CNBM is a quality laggard in the cement sector

Investor concern over potential share placement at 1x PB made

CNBM a laggard to Anhui Conch. However, we see upside: 1) Trades

at 0.8x 2014E PB; 2) management will only do the placement when

its share price is consistently up for shareholders benefit, and 3)

CNMB has one of the highest betas to policy catalysts. BUY. Risks

include higher gearing, higher costs and worse GP/tonne than

expected.

Average Conch-CNBM PB Gap was 0.67x but now at 1.36x


(4)

(2)

0

2

4

6

8

10

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

(x) P/BV premium: Conch - CNBMConch P/BVCNBM P/BV

Average P/BV premium

14 FEBRUARY 2014

CHINA/BUILDING MATERIALS

CNBM 3323 HK

BUYUNCHANGED


CLOSE HKD7.80

UP/DOWNSIDE +28.2%

PRIOR TP HKD10.00




EPS 2013 (%) 6.8 NEUTRAL 8


Rachel [email protected]

+852 2825 1824

KEY STOCK DATA

YE Dec (RMB m) 2012A 2013E 2014E 2015E

Revenue 87,218 118,131 126,104 127,451

Rec. net profit 5,580 6,094 6,843 6,633


Prior rec. EPS (RMB) 1.03 1.13 1.27 1.23

Chg. In EPS est. (%) 0.0 0.0 0.0 0.0

EPS growth (%) (47.8) 9.2 12.3 (3.1)

Recurring P/E (x) 5.9 5.4 4.8 5.0

Dividend yield (%) 2.5 2.8 3.1 3.0

EV/EBITDA (x) 7.2 7.4 7.1 7.1

Price/book (x) 1.1 0.9 0.8 0.7

Net debt/Equity (%) 300.5 299.7 253.6 214.6

ROE (%) 19.6 18.4 17.7 15.0


Absolute (%) 2.0 6.0 (36.0)

Relative to country (%) 4.4 6.9 (28.9)




Free float (%) 46

Major shareholder CNBM Group (59%)

12m high/low (HKD) 12.46/6.19


ADR ticker -




(50)

(40)

(30)

(20)

(10)

0

5

7

9

11

13


(%)(HKD) CNBM Rel to MSCI China

13


14/20

Disappointment priced in

Delayed H8 launch disappointment is priced in

The stock declined 30% since its peak last October (vs. the HSCEI

down 17%). In January, GWM disappointed with the H8 launch delay.

We believe this disappointment is priced in and that the market

believes the H6 is capable of meeting the RMB10.1b Bloomberg

consensus earnings forecast in 2014 (our estimate: RMB10.4b).

Still positive on the PV sector and SUV theme

We maintain our positive China PV sector view in 2014, with strong

January sales supporting this. We forecast the China SUV segment

to grow 25% y-y in 2014, vs. 15-20% for the luxury segment. SUV

and luxury are the two major investment themes in 2014.

H6 will still be very competitive until 2015

The market is concerned over H6 margin pressure given the increase

in new entrants. However, we believe the threat is minimal in 2014 as

most JVs will focus on A-class sedans with their A-SUVs out at year-

end 2014 or in 2015. We also expect GWMs recently-hired ex-BMW

designer to help lift the brand image of Haval SUVs.

We view GWM as the best SUV play: BUY

We still believe GWM is the best SUV play due to its highest SUV

exposure and H6 competitiveness. GWM trades at 8.5x FY14E P/E;

we have a BUY with an HKD56.2 PE-based TP. We expect continued

strong growth of H6 sales and any breakthrough in the H8 to be

positive catalysts. Risks include weaker-than-expected SUV sales

and a further delay in the H8 re-launch.

SUV sales volume growth will be higher than sedan in China


0

50

100

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014E

2015E

(%) Sedan SUV

14 FEBRUARY 2014

CHINA/AUTOMOBILES &COMPONENTS

GREAT WALL MOTOR 2333 HK

BUYUNCHANGED


CLOSE HKD37.25

UP/DOWNSIDE +50.9%

PRIOR TP HKD56.20




EPS 2013 (%) 2.7 NEUTRAL 7


Tina Li, [email protected]

+852 2825 1897

KEY STOCK DATA

YE Dec (RMB m) 2012A 2013E 2014E 2015E

Revenue 41,565 55,133 67,259 77,281

Rec. net profit 5,692 8,446 10,386 12,418


Prior rec. EPS (RMB) 1.87 2.78 3.41 4.08

Chg. In EPS est. (%) 0.0 0.0 0.0 0.0

EPS growth (%) 53.7 48.4 23.0 19.6

Recurring P/E (x) 15.6 10.5 8.5 7.1

Dividend yield (%) 2.0 2.9 3.5 4.2

EV/EBITDA (x) 10.2 7.2 5.5 4.2

Price/book (x) 4.5 3.4 2.7 2.1

Net debt/Equity (%) (31.8) (38.3) (52.5) (59.6)

ROE (%) 32.0 37.1 35.4 33.3


Absolute (%) (5.1) (13.8) 20.2

Relative to country (%) (2.6) (12.9) 27.3




Free float (%) 44

Major shareholderBaoding Innovation Great Wall Asset

Management Company Limited (56%)12m high/low (HKD) 50.75/25.25


ADR ticker -




(10)

10

30

50

70

27

32

37

42

47

52


(%)(HKD) Great Wall Motor Rel to MSCI China

14


15/20

Minsheng: a pure commercial bank

A market-driven bank with the right strategy

We value Minsheng on an EVA model. Our TP of HKD10.3 implies a

target 2014E P/BV of 1.0x and 31% upside potential. We expect it to

deliver above-peer NPAT CAGR of 10.1% in the next three years

compared with a sector average of 7.3%.

We see multiple catalysts for Minsheng shares

Catalysts: We believe it is a key beneficiary of an economic recovery

in China; the potential introduction of preferred shares; better

managed interbank assets growth; its retail franchise improvement

as evidenced by rising retail deposits contribution and its highest

retail loan contribution to loan mix in 1H13; and developments on the

strategic partnership with Alibaba. (1688 HK; Not rated).

Earnings outlook

Our 2013-15 forecasts: 13.1%, 10.5%, and 6.8% net income growth

on asset growth of 7.9%, 5.9%, and 4.8%. 33bp, 7bp, and 7bp NIM

contraction in 2013-15 with rising credit cost to 73bp, 80bp and 85bp.

ROE of 23.6%, 21.7% and 19.6%, ROA of 1.3%, 1.34% and 1.35%.

A pure private bank: deserves a market premium

We believe Minsheng, a market-driven private bank with a good long-

term strategy, deserves a valuation premium to its peers. We believe

the banks corporate banking business reforms and focus on micro

lending are the correct strategies for long-term growth, making it less

vulnerable to interest rate liberalization and bank disintermediation.

Key risk is asset quality on LGFP loans.

Key financials

2010 2011 2012 2013E 2014E 2015E

NPAT (RMB m) 17,581 27,920 37,563 42,468 46,908 50,104

NPAT Growth (y-y %) 45.2 58.8 34.5 13.1 10.5 6.8

ROE (%) 18.3 23.9 25.7 23.6 21.7 19.6

ROA (%) 1.08 1.38 1.38 1.27 1.31 1.33

P/E (x) 9.2 5.7 4.5 4.0 3.7 3.5

P/BV (x) 1.6 1.3 1.1 0.9 0.8 0.6

Sources: Minsheng Bank 'H'; BNP Paribas estimates

14 FEBRUARY 2014

CHINA/BANKS

MINSHENG BANK 'H' 1988 HK

BUYUNCHANGED


CLOSE HKD7.87

UP/DOWNSIDE +30.9%

PRIOR TP HKD10.30




EPS 2013 (%) 3.6 NEUTRAL 7


Judy [email protected]

+852 2825 1810

KEY STOCK DATA

YE Dec (RMB m) 2012A 2013E 2014E 2015E


Rec. net profit 37,563 42,468 46,906 50,104


Prior rec. EPS (RMB) 1.34 1.50 1.64 1.73

Chg. In EPS est. (%) 0.0 0.0 0.0 0.0

EPS growth (%) 28.6 11.4 9.3 5.7

Recurring P/E (x) 4.6 4.1 3.8 3.6

Dividend yield (%) 2.4 4.9 5.3 5.6

Price/book (x) 1.1 0.9 0.8 0.6

ROE (%) 25.7 23.6 21.7 19.6

ROA (%) 1.41 1.30 1.34 1.35


Absolute (%) (2.6) (6.9) (26.6)





Free float (%) 93

Major shareholder New Hope Group (7%)

12m high/low (HKD) 11.34/7.21


ADR ticker -




(38)

(28)

(18)

(8)

2

6

8

10

12


(%)(HKD) Minsheng Bank 'H' Rel to MSCI China

15


16/20

Cloudy outlook to pass

Three key catalysts this year

We identify three potential positive catalysts: 1) Lower capex

guidance during FY13 results in late-March 2014; 2) next round of

gas price hikes of around RMB0.30/cum, potentially during mid-2014;

and 3) the resolution of the investigation of executives, which we

hope will occur later this year.

Strong earnings outlook

We forecast strong earnings growth in 2014 based on 1) stronger

E&P earnings due to higher well-head prices and volume increase, 2)

reduced refining losses as refining margins improve due to higher

Euro IV gasoline prices, and 3) improving natural gas division

earnings as a further gas price hike should reduce import losses.

Good news not priced in

PetroChina is currently trading at 0.9x 2014E PBV, a level last seen

during the financial crisis, which we believe is unjustified given the

improving regulatory outlook. PetroChinas share price has fallen to

pre-gas reform levels, indicating that the market does not believe

future gas price hikes will take place, which we believe is too bearish.

BUY with TP of HKD10.50

Our TP of HKD10.50 is based on a target EV/CE multiple of 1.3x that

assumes a ROCE of 9.4% and WACC of 8%. Key downside risks are

a sharp fall in crude prices or a failure to increase natural gas prices.

PetroChina forward P/BV band


0

4

8

12

16

20

00 01 02 03 04 05 06 07 08 09 10 11 12 13

(HKD)

1.0x

1.3x

1.7x

2.0x

14 FEBRUARY 2014

CHINA/OIL &GAS

PETROCHINA 857 HK

BUYUNCHANGED


CLOSE HKD7.81

UP/DOWNSIDE +34.4%

PRIOR TP HKD10.50




EPS 2013 (%) (8.2) NEUTRAL 9


Yong Liang [email protected]

+852 28251877

KEY STOCK DATA

YE Dec (RMB m) 2012A 2013E 2014E 2015E

Revenue 2,195,296 2,462,978 2,643,576 2,749,531

Rec. net profit 115,326 114,828 146,388 164,729


Prior rec. EPS (RMB) 0.63 0.63 0.80 0.90

Chg. In EPS est. (%) 0.0 0.0 0.0 0.0

EPS growth (%) (13.3) (0.4) 27.5 12.5

Recurring P/E (x) 9.7 9.7 7.6 6.8

Dividend yield (%) 4.6 5.3 5.9 6.6

EV/EBITDA (x) 4.6 4.4 4.1 3.9

Price/book (x) 1.0 1.0 0.9 0.8

Net debt/Equity (%) 33.8 39.7 38.3 38.2

ROE (%) 11.2 10.4 12.4 13.0


Absolute (%) (2.7) (8.1) (26.2)





Free float (%) 14

Major shareholder CNPC (86%)

12m high/low (HKD) 10.88/7.33


ADR ticker PTR US

ADR closing price (USD; 11 Feb 2014) 101.95



(29)

(19)

(9)

1

7

8

9

10

11

12


(%)(HKD) PetroChina Rel to MSCI China

16


17/20



Disclaimers and Disclosures

APPENDIX

DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S) (BNP Paribas Securities India Pvt Ltd)

ANALYST(S) CERTIFICATION

Manishi Raychaudhuri, BNP Paribas Securities India Pvt Ltd, +91 22 33704346, [email protected].

Gautam Mehta, BNP Paribas Securities India Pvt Ltd, +91 22 33704357, [email protected].

Rajan Jain, BNP Paribas Securities India Pvt Ltd, +91 22 6176 5624, [email protected].

The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certify(ies) that (i) all views expressed in this report accuratelyreflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; and (ii) no partof the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the researchanalyst herein.Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSEand/or FINRA regulations.

IMPORTANT DISCLOSURES REQUIRED IN THE UNITED STATES BY FINRA RULES AND OTHER JURISDICTIONS"BNP Paribas is the marketing name for the global banking and markets business of BNP Paribas Group. No portion of this report was prepared by BNPParibas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate torelationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and otherentities within the BNP Paribas Group (collectively, "BNP Paribas").

The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this

report:

Company Ticker Disclosure (as applicable)

N.A N/A N/A

BNP Paribas represents that:1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees.2. It had an investment banking relationship with this company in the last 12 months.3. It received compensation for investment banking services from this company in the last 12 months.4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months.5. It beneficially owns 1% or more of any class of common equity securities of the subject company.6. It makes a market in securities in respect of this company.7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in

securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted.

8. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company or has received compensation from thecompany.

IMPORTANT DISCLOSURES REQUIRED IN KOREAThe disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/orrecommended in this report:

Company Ticker Price (as of 14-Feb-2014 closing price) Interest

N/A N/A N/A N/A

1. The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (BNPPSK) by means ofpayment guarantees, endorsements, and provision of collaterals and/or taking over the obligations.

2. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company.3. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act.4. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the

transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares.5. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year.6. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act,

BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provisionshall apply only where tender offer has not expired.

7. the listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of enteringinto arrangement for public offering or underwriting-related agreement for issuance of stocks

8. The Company is recognized as having considerable interests with BNPPSK.9. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the

following securities or rights (hereinafter referred to as Securities, etc. in this Article) regardless of whose name is used in the trading.1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited.2) Stock options of the Company whose securities dealings are being solicited.3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.

GENERAL DISCLAIMERThis report was produced by BNP Paribas Securities India Pvt Ltd, member company(ies) of the BNP Paribas Group.

This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person withoutour prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set forth herein.This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs ofindividual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in anytrading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or otherinvestments. This report is not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report.Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the

17


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recipients own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in thisreport may not be available for sale in certain jurisdictions.As an investment bank with a wide range of activities, BNP Paribas may face conflicts of interest, which are resolved under applicable legal provisions andinternal guidelines. You should be aware, however, that BNP Paribas may engage in transactions in a manner inconsistent with the views expressed in thisdocument, either for its own account or for the account of its clients.

Australia: This report is being distributed in Australia by BNP Paribas Sydney Branch, registered in Australia as ABN 23 000 000 117 at 60 Castlereagh StreetSydney NSW 2000. BNP Paribas Sydney Branch is licensed under the Banking Act 1959 and the holder of Australian Financial Services Licence no. 238043 andtherefore subject to regulation by the Australian Securities & Investments Commission in relation to delivery of financial services. By accepting this documentyou agree to be bound by the foregoing limitations, and acknowledge that information and opinions in this document relate to financial products or financialservices which are delivered solely to wholesale clients (in terms of the Corporations Act 2001, sections 761G and 761GA; Corporations Regulations 2001,division 2, reg. 7.1.18 & 7.1.19) and/or professional investors (as defined in section 9 of the Corporations Act 2001).

Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, anoffer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offeror sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevantCanadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from thedealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is underno circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extentthat the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territoryof Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority inCanada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein,and any representation to the contrary is an offence.

Hong Kong:This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whosebusiness involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, a subsidiary of BNPParibas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities, providing automated tradingservices, dealing in futures contacts and advising on corporate finance. For professional investors in Hong Kong, please contact BNP Paribas Securities (Asia)Limited for all matters and queries relating to this report.

India: In India, this document is being distributed by BNP Paribas Securities India Pvt. Ltd. ("BNPPSIPL"), having its registered office at 5th floor, BNP Paribas

House, 1 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 (Tel. no. +91 22 3370 4000 / 6196 4000). BNPPSIPL is registeredwith the Securities and Exchange Board of India (SEBI) as a stockbroker in the Equities and the Futures & Options segments of National Stock Exchange ofIndia Ltd. and Bombay Stock Exchange Ltd. (SEBI regn. nos. INB/INF231474835, INB/INF011474831).

Indonesia: This report is being distributed by PT BNP Paribas Securities Indonesia and is delivered by licensed employee(s) to its clients. PT BNP ParibasSecurities Indonesia, having its registered office at Menara BCA, 35th Floor, Grand Indonesia, Jl. M.H.Thamrin No.1, Jakarta, 10310, Indonesia, is a fullysubsidiaries company of BNP Paribas SA and is licensed under Capital Market Law No. 8 of 1995 and the holder of broker-dealer and underwriter licensesissued by the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK). PT BNP Paribas Securities Indonesia is also a member of IndonesiaStock Exchange. Neither this research publication nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens except in compliancewith applicable Indonesian capital market laws and regulations. This research publication is not an offer of securities in Indonesia. Some of the securitiesreferred to in this research publication have not been registered with the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK)pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesiancitizens through a public offering or in circumstance which constitute an offer within the meaning of Indonesian capital market laws and regulations.

Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited or by a subsidiary or affiliate of BNP Paribas notregistered as a financial instruments firm in Japan, to certain financial institutions defined by article 17-3, item 1 of the Financial Instruments and ExchangeLaw Enforcement Order. BNP Paribas Securities (Japan) Limited is a financial instruments firm registered according to the Financial Instruments andExchange Law of Japan and a member of the Japan Securities Dealers Association, the Financial Futures Association of Japan and the Type II Financial

Instruments Firms Association. BNP Paribas Securities (Japan) Limited accepts responsibility for the content of a report prepared by another non-Japanaffiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited. Some of the foreign securities stated on this report are notdisclosed according to the Financial Instruments and Exchange Law of Japan.

Malaysia: This report is issued and distributed by BNP Paribas Capital (Malaysia) Sdn Bhd. The views and opinions in this research report are our own as ofthe date hereof and are subject to change. BNP Paribas Capital (Malaysia) Sdn Bhd has no obligation to update its opinion or the information in this researchreport. This publication is strictly confidential and is for private circulation only to clients of BNP Paribas Capital (Malaysia) Sdn Bhd. This publication isbeing provided to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored orreproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purposewithout the prior written consent of BNP Paribas Capital (Malaysia) Sdn Bhd.

Philippines:This report is being distributed in the Philippines by BNP Paribas Manila Branch, an Offshore Banking Unit (OBU) of BNP Paribas whose headoffice is in Paris, France. BNP Paribas Manila OBU is registered as an offshore banking unit under Presidential Decree No. 1034 (PD 1034), and regulated bythe Bangko Sentral ng Pilipinas. This report is being distributed in the Philippines to qualified clients of OBUs as allowed under PD 1034, and is qualified in itsentirety to the products and services allowed under PD 1034.

Singapore: This report is distributed in Singapore by BNP Paribas Securities (Singapore) Pte Ltd ("BNPPSSL") and may be distributed in Singapore only to anAccredited or Institutional Investor, each as defined under the Financial Advisers Regulations ("FAR") and the Securities and Futures Act (Chapter 289) of

Singapore, as amended from time to time. In relation to the distribution to such categories of investors, BNPPSSL and its representatives are exempted underRegulation 35 of the FAR from the requirements in Section 36 of the Financial Advisers Act of Singapore, regarding the disclosure of certain interests in, orcertain interests in the acquisition or disposal of, securities referred to in this report. For Institutional and Accredited Investors in Singapore, please contactBNP Paribas Securities (Singapore) Ptd Ltd for all matters and queries relating to this report.

South Africa: In South Africa, BNP Paribas Cadiz Securities (Pty) Ltd and BNP Paribas Cadiz Stock Broking (Pty) Ltd (hereinafter referred to as BNPP Cadiz)are licensed members of Johannesburg Stock Exchange and are authorised Financial Services Providers and subject to regulation by the Financial ServicesBoard. BNPP Cadiz does not expressly or by implication represent, recommend or propose that the financial products referred to in this report areappropriate to the particular investment objectives, financial situation or particular needs of the recipient.

Switzerland:This report is intended solely for customers who are Qualified Investors as defined in article 10 paragraphs 3 and 4 of the Swiss Federal Acton Collective Investment Schemes of 23 June 2006 (CISA) and the relevant provisions of the Swiss Federal Ordinance on Collective Investment Schemes of 22November 2006 (CISO). Qualified Investors includes, among others, regulated financial intermediaries such as banks, securities dealers, fund managementcompanies and asset managers of collective investment schemes, regulated insurance companies as well as pension funds and companies with professionaltreasury operations. This document may not be suitable for customers who are not Qualified Investors and should only be used and passed on to QualifiedInvestors. For specification purposes, a Swiss Corporate Customer is a Client which is a corporate entity, incorporated and existing under the laws ofSwitzerland and which qualifies as Qualified Investor as defined above." BNP Paribas (Suisse) SA is authorised as bank and as securities dealer by the SwissFederal Market Supervisory Authority FINMA. BNP Paribas (Suisse) SA is registered at the Geneva commercial register under No. CH-270-3000542-1. BNP

Paribas (Suisse) SA is incorporated in Switzerland with limited liability. Registered Office: 2 place de Hollande, CH-1204 Geneva.Taiwan: Information on securities that trade in Taiwan is distributed by BNP Paribas Securities (Taiwan) Co., Ltd. Such information is for your reference only.The reader should independently evaluate the investment risks and is solely responsible for their investment decision. Information on securities that do nottrade in Taiwan is for informational purposes onlyand is not to be construed as a recommendation or a solicitation to trade in such securities. BNP ParibasSecurities (Taiwan) Co., Ltd. may not execute transactions for clients in these securities. This publication may not be distributed to the public media orquoted or used by the public media without the express written consent of BNP Paribas.

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Thailand: Research relating to Thailand and Thailand based issuers is produced pursuant to an arrangement between BNP PARIBAS (BNPP) and FinansiaSyrus Securities Public Company Limited (FSS). The International Investment Advisory Team at FSS prepares and distributes research under the brandname BNP PARIBAS/FSS. FSS is not an affiliate of BNPP. FSS also publishes a different research product under the brand name FINANSIA SYRUS, which isprepared by research analysts who are not part of the International Investment Advisory Team and who may cover the same securities, issuers, or industriesthat are the subject of this report. The ratings, recommendations, and views expressed in this report may differ from the ratings, recommendations, andviews expressed by other research analysts or research teams employed by FSS. This report is being distributed outside Thailand by members of BNPParibas.

Turkey:This report is being distributed in Turkey by TEB Investment (TEB YATIRIM MENKUL DEGERLER A.S., Teb Kampus D Blok Saray Mah. Kucuksu Cad.Sokullu Sok., No:7 34768 Umraniye, Istanbul, Turkey, Trade register number: 358354, www.tebyatirim.com.tr) and outside Turkey jointly by TEB Investmentand BNP Paribas.Notice Published in accordance with Communiqu Regarding the Principles on Investment Consultancy Activities and the InvestmentConsultancy Institutions Series: V, No: 55 issued by the Capital Markets Board. The investment related information, commentary and recommendationscontained herein do not constitute investment consultancy services. Investment consultancy services are provided in accordance with investmentconsultancy agreements executed between investors and brokerage companies or portfolio management companies or non-deposit accepting banks. Thecommentary and recommendations contained herein are based on the personal views of the persons who have made such commentary andrecommendations. These views may not conform to your financial standing or to your risk and return preferences. Therefore, investment decisions basedsolely on the information provided herein may fail to produce results in accordance with your expectations.

United States: This report may be distributed in the United States only to U.S. Persons who are major U.S. institutional investors (as such term is defined inRule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a major U.S.institutional investor. U.S persons who wish to effect transactions in securities discussed herein must do so through BNP Paribas Securities Corp., a US-registered broker dealer and member of FINRA, SIPC, NFA, NYSE and other principal exchanges.

Certain countries within the European Economic Area: This document may only be distributed in the United Kingdom to eligible counterparties andprofessional clients and is not intended for, and should not be circulated to, retail clients (as such terms are defined in the Markets in Financial InstrumentsDirective 2004/39/EC (MiFID)). This document will have been approved for publication and distribution in the United Kingdom by BNP Paribas LondonBranch, a branch of BNP Paribas SA whose head office is in Paris, France. BNP Paribas SA is incorporated in France with limited liability with its registeredoffice at 16 boulevard des Italiens, 75009 Paris. BNP Paribas London Branch (registered office: 10 Harewood Avenue, London NW1 6AA; tel: [44 20] 7595 2000;fax: [44 20] 7595 2555) is authorised by the Autorit de Contrle Prudentiel and the Prudential Regulation Authority and subject to limited regulation by theFinancial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation

Authority, and regulation by the Financial Conduct Authority are available from us on request.This report has been approved for publication in France by BNPParibas, a credit institution licensed as an investment services provider by the Autorit de Contrle Prudentiel whose head office is 16, Boulevard des Italiens75009 Paris, France. This report is being distributed in Germany either by BNP Paribas London Branch or by BNP Paribas Niederlassung Frankfurt am Main,regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht (BaFin).

Other Jurisdictions: The distribution of this report in other jurisdictions or to residents of other jurisdictions may also be restricted by law, and persons intowhose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound bythe foregoing instructions. This report is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of orlocated in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

All research reports are disseminated and available to all clients simultaneously through our internal client websites. For all research available on aparticular stock, please contact the relevant BNP Paribas research team or the author(s) of this report.

Additional DisclosuresTarget price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available inour most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of thisnote or your BNP Paribas representative.

All share prices are as at market close on 14 February 2014 unless otherwise stated.RECOMMENDATION STRUCTURE

Stock RatingsStock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price.BUY (B). The upside is 10% or more.HOLD (H). The upside or downside is less than 10%.REDUCE (R). The downside is 10% or more.Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause atemporary mismatch between upside/downside for a stock based on market price and the formal recommendation.* In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market willreassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, ourrecommendation is an assessment of the mismatch between current market price and our assessment of current fair value.

Industry RecommendationsImproving(): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months.Stable (previously known as Neutral)(): The analyst expects the fundamental conditions of the sector to be maintained over the next 12months.Deteriorating(): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months.Country (Strategy) RecommendationsOverweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determinemarket recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and indexreturns relative to the market cost of equity.Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine marketrecommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returnsrelative to the market cost of equity.Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determinemarket recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and indexreturns relative to the market cost of equity.

RATING DISTRIBUTION (as at 14 February 2014)

Total BNP Paribas coverage universe 656 Investment Banking Relationship (%)

Buy 338 Buy 4.7

Hold 210 Hold 3.3

Reduce 108 Reduce 2.8

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report.

2014 BNP Paribas Group

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HONG KONG

BNP Paribas Securities (Asia) Ltd63/F, Two International Finance Centre8 Finance Street, CentralHong Kong SARChinaTel (852) 2825 1888Fax (852) 2845 9411

SHANGHAI

KUALA LUMPUR

Malaysia

SEOUL

BNP Paribas Securities Korea Co Ltd22/F, Taepyeongno Building310 Taepyeongno 2-gaJung-gu, Seoul 100-767KoreaTel (82 2) 2125 0500Fax (82 2) 2125 0593

NEW YORK

BNP ParibasThe Equitable Tower787 Seventh AvenueNew YorkNY 10019, USATel (1 212) 841 3800Fax (1 212) 841 3810

BASEL

BNP ParibasAeschengraben 26CH 4002 BaselSwitzerlandTel (41 61) 276 5555Fax (41 61) 276 5514

FRANKFURT

BNP ParibasMainzer Landstrasse 1660325 FrankfurtGermanyTel (49 69) 7193 6637Fax (49 69) 7193 2520

GENEVA

BNP Paribas2 Place de Hollande1211 Geneva 11SwitzerlandTel (41 22) 787 7377Fax (41 22) 787 8020

LONDON

BNP Paribas10 Harewood AvenueLondon NW1 6AAUKTel (44 20) 7595 2000Fax (44 20) 7595 2555

MADRID

BNP Paribas SA, sucursal en EspanaHermanos Becquer 3PO Box 5078428006 MadridSpainTel (34 91) 745 9000Fax (34 91) 745 8888

MILAN

BNP Paribas Equities Italia SIM SpA

Piazza San Fedele, 220121 MilanItalyTel (39 02) 72 47 1Fax (39 02) 72 47 6562

PARIS

BNP Paribas Equities FranceSocit de Bourse20 boulevard des Italiens75009 ParisFranceTel (33 1) 4014 9673Fax (33 1) 4014 0066

ZURICH

BNP ParibasTalstrasse 418022 ZurichSwitzerlandTel (41 1) 229 6891Fax (41 1) 267 6813

MANAMA

BNP Paribas BahrainPO Box 5253ManamaBahrainTel (973) 53 3978Fax (973) 53 1237

TOKYO

BNP Paribas Securities (Japan) LtdGranTokyo North Tower1-9-1 Marunouchi, Chiyoda-KuTokyo 100-6740JapanTel (81 3) 6377 2000Fax (81 3) 5218 5970

MUMBAI

BNP Paribas Equities (Asia) LtdShanghai Representative OfficeRoom 2630, 26/FShanghai World Financial Center100 Century AvenueShanghai 200120, ChinaTel (86 21) 6096 9000Fax (86 21) 6096 9018

JAKARTA

PT BNP Paribas Securities IndonesiaGrand Indonesia, Menara BCA,JI. M.H. Thamrin No. 1Jakarta 10 0IndonesiaTel (62 21) 2358 6586Fax (62 21) 2358 7587

35/F

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TAIPEI

BNP Paribas Securities(Taiwan) Co Ltd72 F, Taipei 101No. 7 Xin Yi Road, Sec. 5Taipei, Taiwan

(886 2) 8729 7000Fax (886 2) 8101 2168

Tel

/Vista Tower, Level 48CThe Intermark, 182 Jalan Tun Razak50400 Kuala Lumpur

Tel (60 3) 2179 6222Fax (60 3) 2179 6226

BNP Paribas Capital (Malaysia) Sdn Bhd BNP Paribas Securities India Pvt LtdBNP Paribas House1 North Avenue, Maker MaxityBandra Kurla ComplexBandra EastMumbai 400 051Tel (9122) 3370 4000Fax (91 22) 33704386

https://eqresearch.bnpparibas.com

TEB Investment(A JV between TEB Bank and BNP Paribas)TEB Kampus D7 Saray Mahallesi

Sokullu Sok No 7Umraniye 34768 IstanbulTurkey

Tel: (90 216) 636 44 44Fax: (90 216) 631 44 00

SINGAPORE

BNP Paribas Securities(Singapore) Pte Ltd(Co. Reg. No. 199801966C)

Tel (65) 6210 1288Fax (65) 6210 1980

10 Collyer Quay

Singapore 04931534/F Ocean Financial Centre

ISTANBULCAPE TOWNGround floor, Fernwood HouseThe Oval, 1 Oakdale Road, NewlandsCape TownSouth Africa 7700Tel (27 21) 657 8300Fax (27 21) 657 8301

BNP Paribas Cadiz Securities (Pty) Ltd

BEIJING

BNP Paribas (China) LtdBeijing BranchRoom 2001, 20/FChina World Tower1 Jianguomenwai AvenueBeijing, ChinaTel: +86-10-6535 0888Fax: +86-10-6535 0883

BANGKOK

(In cooperation with BNP Paribas)FSS International Investment AdvisorySecurities Co., Ltd990 Abdulrahim Place, 12/F, Room 1210Rama IV Road, BangrakBangkok 10500ThailandTel (66 2) 611 3500Fax (66 2) 611 3551

Documents

China Strategy 14th Feb BNP