Initiation: in the driver’s seatasiaresearch.daiwacm.com/eg/cgi-bin/files/Tong_Yang_Industry_140… · Consumer Discretionary / Taiwan 1319 TT 21 April 2014 - 5 - Balance sheet

See important disclosures, including any required research certifications, beginning on page 20

■ Investment case Tong Yang Industry (Tong Yang) is the world’s leading manufacturer of after-market (AM) collision auto parts and a major OEM of interior and exterior auto parts. We expect a strong earnings contribution from the company’s profitable China OEM business and organic sales growth for its AM and Taiwan OEM businesses over 2014-16. We initiate coverage with a Buy (1) rating. ■ Catalysts Strong relationships with major China automakers bearing fruit. Tong Yang’s China OEM business (comprised of joint ventures with leading local automakers since 1994) contributed 11% to 2012-13 group net profit. We forecast this proportion to rise to 18% in 2014 and 21% in 2015 on strong earnings growth, backed by improving operating efficiency and

client mix (customers include 5 of the top-6 automakers in China). Big and getting bigger. Given its leadership in AM collision parts and one-stop-shop service (it is the global collision auto parts supplier for about 80% of cars manufactured after the 1970s), we believe Tong Yang stands to benefit from favourable industry trends and the ongoing consolidation of collision parts distributors. As such, we forecast its AM business to see revenue growth of 11% YoY for each of 2014-16. Margin expansion. We forecast gross and operating margin expansion for 2014-16, driven by its China OEM business due to a rising utilisation rate (85% for 2014E, up from 75% for 2013), economies of scale, better operating efficiency and a slight increase in AM business margins. Reflecting the above factors, we forecast group CAGRs of 13% for revenue and 20% for net profit over 2014-16. ■ Valuation Our 6-month target price is TWD53, based on 20x our 2014E EPS, which translates into a 2014-16E PEG of 1x. We believe Tong Yang deserves to trade at a 20x PER (from 16.3x currently) given expected strong earnings growth in its China OEM business.

■ Risks The main risks to our call would be worse-than-expected performance in terms of sales growth and margin improvement for the China OEM business.

Consumer Discretionary / Taiwan1319 TT

21 April 2014

Tong Yang Industry

Initiation: in the driver’s seat

• We expect strong earnings growth in 2014-16, fuelled by the company’s China OEM auto parts business

• Its after-market collision parts business and Taiwan OEM business should deliver steady sales growth over the next 3 years

• Initiating with a Buy and PER-based target price of TWD53

Source: FactSet, Daiwa forecasts

Consumer Discretionary / Taiwan

Tong Yang Industry1319 TT

Target (TWD): 53.00Upside: 22.5%21 Apr price (TWD): 43.25

Buy (initiation)

OutperformHoldUnderperformSell

1

2

3

4

5

90

106

123

139

155

28

33

38

43

49

Apr-13 Jul-13 Oct-13 Jan-14

Share price performance

Tong Yang (LHS)Relative to TWSE Index (RHS)

(TWD) (%)

12-month range 29.90-48.30Market cap (USDbn) 0.853m avg daily turnover (USDm) 4.32Shares outstanding (m) 591Major shareholder Yung-Feng Wu(Chairman) (8.9%)

Financial summary (TWD)Year to 31 Dec 14E 15E 16ERevenue (m) 22,331 25,313 28,667Operating profit (m) 1,683 2,050 2,454Net profit (m) 1,620 1,952 2,327Core EPS (fully-diluted) 2.645 3.187 3.800EPS change (%) 18.7 20.5 19.2Daiwa vs Cons. EPS (%) (7.5) (8.6) n.a.PER (x) 16.3 13.6 11.4Dividend yield (%) 3.2 3.8 4.6DPS 1.4 1.7 2.0PBR (x) 1.5 1.4 1.3EV/EBITDA (x) 7.7 6.7 5.8ROE (%) 9.5 10.9 12.1

Helen Chien(886) 2 8758 6254

[email protected]

Mark Chang, CFA(886) 2 8758 [email protected]

How do we justify our view?How do we justify our view?

Consumer Discretionary / Taiwan 1319 TT

21 April 2014

- 2 -

In the driver’s seat .......................................................................................................................... 6

Leading global after-market collision-parts maker .................................................................... 6

AM business: a major and stable revenue contributor .............................................................. 8

OEM business: earnings driver ................................................................................................. 10

Company background ................................................................................................................ 13

Financial analysis ....................................................................................................................... 13

Valuation .................................................................................................................................... 15

Risks ........................................................................................................................................... 16

Appendix .................................................................................................................................... 17

Contents


21 April 2014

- 3 -

Growth outlook Tong Yang: net profit

We see good potential for Tong Yang’s China OEM business to increase its contribution to group earnings, and expect healthy revenue and earnings growth for its AM and Taiwan OEM businesses over the next 3 years. Reflecting this outlook, we forecast group revenue and net-profit CAGRs of 13% and 20%, respectively, for 2014-16. We forecast the company’s gross margin and operating margin to improve to 23.5% and 7.5%, respectively, for 2014 (from 23.1% and 7.1%, respectively, for 2013), driven by its China OEM business, for which we expect a higher utilisation rate, economies of scale and better operating efficiency.

Source: Company, Daiwa forecasts

Valuation Tong Yang: 1-year forward PER bands

Our 6-month target price of TWD53 is based on a 2014 PER of 20x, derived by applying a 1x PEG to our 2014-16E EPS. Our target PER is near the mid-to-high end of the stock’s past 3-year range of 10-25x. Our target price is supported by our fair value per share of TWD54 derived from our DCF analysis, in which we assume a WACC of 10.3% and a terminal growth rate of 3%.

Source: Bloomberg, Daiwa forecasts

Note: data as at 21 April 2014

Earnings revisions Tong Yang: consensus 2014-15E EPS revisions

The Bloomberg consensus has raised its 2014-15 EPS forecasts for Tong Yang since early 2013, driven by recoveries in the North America and China auto industries (to which Tong Yang has high exposure) and expectations of a better profit outlook for the company’s China operations. Our 2014-15 EPS forecasts are 8-9% lower than those of the consensus, which we attribute to our lower gross margin assumptions.

Source: Bloomberg

How do we justify our view?

Growth outlook

Valuation

Earnings revisions

0.0

0.5

1.0

1.5

2.0

2.5

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

(TWDbn)

0

10

20

30

40

50

60

70

80

May

-11

Aug-

11

Nov-

11

Feb-

12

May

-12

Aug-

12

Nov-

12

Feb-

13

May

-13

Aug-

13

Nov-

13

Feb-

14

(TWD)

21x

17x

13x

9x

25x

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14

(TWD)

2014E EPS 2015E EPS

Buy (initiation)

OutperformHoldUnderperformSell

1

2

3

4

5


21 April 2014

- 4 -

Key assumptions

Profit and loss (TWDm)

Cash flow (TWDm)


Year to 31 Dec 2009 2010 2011 2012 2013 2014E 2015E 2016ESales growth of OEM business (%) 70.25 1.25 (34.63) (19.87) 26.32 20.30 17.98 17.03Sales growth of AM business (%) (2.08) 4.49 4.75 (0.59) 10.98 10.90 11.07 11.28Consolidated gross margin (%) 26.65 24.34 22.61 21.96 23.05 23.49 23.90 24.36

Year to 31 Dec 2009 2010 2011 2012 2013 2014E 2015E 2016EAM 11,173 11,674 12,229 12,157 13,492 14,963 16,621 18,495OEM-China 7,719 7,421 4,254 3,124 4,090 5,130 6,320 7,658Other Revenue 1,422 1,835 1,796 1,724 2,034 2,238 2,372 2,514Total Revenue 20,314 20,930 18,279 17,005 19,616 22,331 25,313 28,667Other income 0 0 0 0 0 0 0 0COGS (14,902) (15,840) (14,152) (13,274) (15,095) (17,085) (19,263) (21,683)SG&A (2,486) (2,739) (2,621) (2,527) (2,679) (3,049) (3,417) (3,870)Other op.expenses (480) (417) (430) (406) (451) (514) (582) (659)Operating profit 2,449 1,938 1,082 801 1,392 1,683 2,050 2,454Net-interest inc./(exp.) (261) (161) (124) (100) (92) (97) (101) (101)Assoc/forex/extraord./others 240 148 656 361 398 465 524 593Pre-tax profit 2,427 1,925 1,615 1,062 1,698 2,052 2,472 2,947Tax (405) (370) (249) (204) (300) (369) (445) (530)Min. int./pref. div./others (457) (369) (184) (48) (52) (62) (75) (89)Net profit (reported) 1,565 1,186 1,181 811 1,347 1,620 1,952 2,327Net profit (adjusted) 1,565 1,186 1,181 811 1,347 1,620 1,952 2,327EPS (reported)(TWD) 3.476 2.349 2.057 1.412 2.283 2.746 3.309 3.944EPS (adjusted)(TWD) 3.476 2.349 2.057 1.412 2.283 2.746 3.309 3.944EPS (adjusted fully-diluted)(TWD) 3.475 2.348 1.981 1.360 2.229 2.645 3.187 3.800DPS (TWD) 1.498 1.129 0.677 0.603 1.100 1.373 1.654 1.972EBIT 2,449 1,938 1,082 801 1,392 1,683 2,050 2,454EBITDA 4,502 4,036 3,321 3,017 3,793 4,400 5,116 5,804

Year to 31 Dec 2009 2010 2011 2012 2013 2014E 2015E 2016EProfit before tax 2,427 1,925 1,615 1,062 1,698 2,052 2,472 2,947Depreciation and amortisation 2,054 2,098 2,239 2,215 2,401 2,717 3,066 3,349Tax paid (405) (370) (249) (204) (181) (369) (445) (530)Change in working capital (44) (70) (636) 277 (905) (235) (601) (640)Other operational CF items 373 169 (19) (25) 20 (23) (76) (146)Cash flow from operations 4,405 3,753 2,948 3,325 3,034 4,142 4,416 4,980Capex (2,209) (3,161) (3,667) (2,336) (2,553) (3,550) (3,500) (3,500)Net (acquisitions)/disposals 361 (11) 22 469 (49) (252) (2) (2)Other investing CF items (52) (328) (219) (182) (638) 0 0 0Cash flow from investing (1,899) (3,500) (3,863) (2,050) (3,240) (3,802) (3,502) (3,502)Change in debt (471) (280) 675 1,180 0 0 0 0Net share issues/(repurchases) 0 0 0 0 0 0 0 0Dividends paid (131) (653) (206) (166) (202) (810) (976) (1,164)Other financing CF items (1,272) 1,259 534 (2,104) 242 201 200 0Cash flow from financing (1,874) 326 1,002 (1,089) 40 (609) (776) (1,164)Forex effect/others 0 (129) 0 (83) (8) 0 0 0Change in cash 631 450 87 103 (174) (270) 138 315Free cash flow 2,196 591 (719) 989 481 592 916 1,480

Financial summary


21 April 2014

- 5 -

Balance sheet (TWDm)

Key ratios (%)


Company profile

Founded in 1967, Tong Yang Industry is the world's leading after-market (AM) collision-parts manufacturer, with 2013 global revenue market shares of 70% for plastic parts and 33% for sheet-metal parts. The company is also a major OEM auto parts supplier to China and international automakers.

As at 31 Dec 2009 2010 2011 2012 2013 2014E 2015E 2016ECash & short-term investment 1,723 1,753 1,423 1,398 1,072 802 940 1,255Inventory 1,904 2,278 2,553 2,269 2,627 3,007 3,390 3,860Accounts receivable 4,875 3,431 4,288 3,758 4,541 4,913 5,847 6,364Other current assets 858 575 606 462 622 622 622 622Total current assets 9,361 8,037 8,870 7,887 8,862 9,344 10,800 12,100Fixed assets 15,861 15,452 17,108 16,323 15,670 16,679 17,313 17,664Goodwill & intangibles 461 802 820 747 868 868 868 868Other non-current assets 2,673 3,636 3,702 3,444 5,838 6,188 6,288 6,388Total assets 28,355 27,927 30,500 28,401 31,238 33,078 35,268 37,020Short-term debt 3,676 2,964 2,666 1,543 2,611 2,707 2,807 2,807Accounts payable 3,565 2,730 2,933 2,698 2,389 2,904 3,622 3,968Other current liabilities 2,097 1,937 2,017 1,592 1,958 2,543 2,599 2,564Total current liabilities 9,338 7,631 7,616 5,833 6,958 8,155 9,028 9,339Long-term debt 3,583 4,007 4,993 5,005 5,095 5,200 5,300 5,300Other non-current liabilities 1,097 1,102 1,359 843 1,341 1,020 1,020 1,020Total liabilities 14,018 12,739 13,968 11,681 13,394 14,375 15,348 15,658Share capital 4,650 5,186 5,549 5,771 5,915 5,915 5,915 5,915Reserves/R.E./others 5,553 8,605 9,409 9,509 10,656 11,453 12,596 13,946Shareholders' equity 10,204 13,791 14,958 15,280 16,570 17,368 18,510 19,861Minority interests 4,134 1,397 1,575 1,441 1,273 1,335 1,410 1,500Total equity & liabilities 28,355 27,927 30,500 28,401 31,238 33,078 35,268 37,020EV 35,250 32,196 33,392 32,172 33,489 34,021 34,158 33,933Net debt/(cash) 5,535 5,218 6,236 5,150 6,634 7,105 7,167 6,852BVPS (TWD) 21.941 26.594 26.958 26.479 28.015 29.364 31.295 33.579

Year to 31 Dec 2009 2010 2011 2012 2013 2014E 2015E 2016ESales (YoY) 21.1 3.0 (12.7) (7.0) 15.4 13.8 13.4 13.3EBITDA (YoY) 66.9 (10.4) (17.7) (9.2) 25.8 16.0 16.3 13.5Operating profit (YoY) 174.5 (20.8) (44.2) (25.9) 73.7 20.9 21.8 19.7Net profit (YoY) 191.8 (24.2) (0.4) (31.4) 66.2 20.3 20.5 19.2Core EPS (fully-diluted) (YoY) 191.9 (32.4) (15.6) (31.4) 63.9 18.7 20.5 19.2Gross-profit margin 26.7 24.3 22.6 22.0 23.1 23.5 23.9 24.4EBITDA margin 22.2 19.3 18.2 17.7 19.3 19.7 20.2 20.2Operating-profit margin 12.1 9.3 5.9 4.7 7.1 7.5 8.1 8.6Net profit margin 7.7 5.7 6.5 4.8 6.9 7.3 7.7 8.1ROAE 16.4 9.9 8.2 5.4 8.5 9.5 10.9 12.1ROAA 5.7 4.2 4.0 2.8 4.5 5.0 5.7 6.4ROCE 11.2 8.9 4.7 3.4 5.7 6.5 7.5 8.5ROIC 10.1 7.8 4.2 2.9 4.9 5.5 6.4 7.3Net debt to equity 54.2 37.8 41.7 33.7 40.0 40.9 38.7 34.5Effective tax rate 16.7 19.2 15.5 19.2 17.7 18.0 18.0 18.0Accounts receivable (days) 74.1 72.4 77.1 86.3 77.2 77.3 77.6 77.7Current ratio (x) 1.0 1.1 1.2 1.4 1.3 1.1 1.2 1.3Net interest cover (x) 9.4 12.0 8.7 8.0 15.2 17.4 20.2 24.3Net dividend payout 43.1 48.1 32.9 42.7 48.2 50.0 50.0 50.0Free cash flow yield 8.6 2.3 n.a. 3.9 1.9 2.3 3.6 5.8

Financial summary continued …


21 April 2014

- 6 -

In the driver’s seat

We initiate coverage on Tong Yang with a Buy (1) rating. We expect its China OEM earnings to increase and its AM business to continue to generate steady growth over 2014-16.

Leading global after-market collision-parts maker

Founded in 1967 and based in Taiwan, Tong Yang is the world’s leading AM collision parts manufacturer (69% of 2013 sales) and a major OEM (31% of 2013 sales) of exterior and interior auto parts. Tong Yang’s major products include bumpers, hoods, fenders and grilles. The company’s product lines are displayed in the chart on the following page. According to Tong Yang, Taiwanese manufacturers, including itself, supply 85-90% of AM collision parts globally (including plastic parts, sheet-metal parts and lamps), based on the data for 2013. Within the AM collision parts segment, Tong Yang is the world’s largest AM supplier of plastic auto parts (70% market share in terms of 2013 revenue) and sheet-metal auto parts (33% revenue market share).

Global market shares in AM plastic auto parts (2013)

Source: Company

Note: Tong Yang currently has a 19.24% stake in Pro Fortune

Global market shares in AM sheet-metal auto parts (2013)

Source: Company

Note: Auto Parts Industrial (API)

Tong Yang: revenue breakdown by business (2013)

Source: Company

Tong Yang70.0%

Pro Fortune(not listed)

5.0%

YCC (1339 TT)15.0%

Others10.0%

Tong Yang33.0%

Gordon(1524 TT)

20.0%

API (not listed)15.0%

Jui Li (1512 TT)12.0%

Others20.0%

AM – Taiwan (exports)61.7%

AM – China1.2%

AM – US & EU5.9%

OEM – Taiwan10.4%

OEM – China20.9%


21 April 2014

- 7 -

Tong Yang: pre-tax profit contributions by business (2008-13)

Source: Company

All of Tong Yang’s main business segments delivered YoY pre-tax profit growth for 2013, as the preceding chart shows. We believe Tong Yang will continue to generate solid earnings growth for all of its major business segments over the next 3 years, due to its market leadership and high client loyalty.

Offers a one-stop-shop service Tong Yang offers a comprehensive collision parts product line in the AM segment, providing distributors/importers/wholesalers with a one-stop shop service. The company owns more than 16,000 moulds, enabling it to supply AM collision parts for around 80% of cars manufactured since the 1970s. As such, Tong Yang is well placed to benefit from distributor consolidation. Strong relationships with leading China automakers Tong Yang was an early mover into the China OEM auto-parts industry, which it entered in 1994. The company has since tapped into the supply chain of major local automakers by forming joint ventures with Changan Auto Group, First Auto Group’s subsidiary, Changchun Faway Automobile Components, and Guangzhou Automobile. Tong Yang’s major OEM customers in the country include First Auto Group, Changan Auto Group, Dongfeng Motor Group, and Guangzhou Automobile (detailed later in this report).

Tong Yang: OEM and AM product lines

Source: Company

(200)0

200400600800

1,0001,2001,4001,600

AM Taiwan(exports) OEM China OEM Taiwan AM overseas plants

(TWDm )

2008 2009 2010 2011 2012 2013


21 April 2014

- 8 -

Investing to enhance its range of products Since 2013, Tong Yang has increased its investment in developing new moulds, now spending at least TWD1.5bn a year to provide a complete range of products for its clients. Tong Yang has been certified by the Certified Automotive Parts Association (CAPA), NSF International (National Sanitation Foundation), Assured Quality Replacement Parts (AQRP), Technischer Überwachungsverein (TÜV) and Thatcham standards, which testifies to the quality of its AM products.

AM business: a major and stable revenue contributor

Tong Yang’s AM business accounted for 69% of its total 2013 revenue. Its main product lines include plastic parts (such as bumpers and grilles) and sheet-metal parts (such as hoods and fenders). Bumpers accounted for about 41% of its 2013 AM sales, hoods 15%, fenders 11%, grilles 9%, and others 24%. The company’s AM parts are mostly manufactured at its Taiwan plants, which accounted for about 90% of Tong Yang’s total AM manufacturing capacity in 2013. The company also has AM manufacturing plants in the US (7% of 2013 AM manufacturing capacity), China (2%) and Europe (1%). Tong Yang: AM revenue breakdown by region (2013)

Source: Company The majority of Tong Yang’s AM parts are exported to North America, which accounted for 59.4% of the company’s total AM parts sales in 2013. Tong Yang sells its AM products to the North America market through LKQ Corporation (LKQ, not rated), which is the region’s largest provider of collision replacement parts, and through other regional distributors.

Tong Yang achieved strong AM sales growth of 18% YoY in North America for 2013. We expect this strong momentum to continue over the next few years, as Tong Yang’s AM products are cheaper than those from the original equipment suppliers (OES) (on average 40-50% cheaper. Furthermore, based on our market research, more insurance companies are endorsing AM products. Our positive outlook for the sales-growth potential of Tong Yang’s AM parts in North America, as well as globally, is supported by a rising trend in the size of the global car fleet and US new car sales, along with an increase in the average number of years that US cars are used for, as the next charts show. These drivers should support rising demand for Tong Yang’s AM parts over the next few years. Global car market: number of vehicles in operation

Source: Ward’s, IEA

US car market: new car sales volume

Source: Ward’s, Daiwa forecasts

North America59.4%

Central & South America

9.0%

Europe14.7%

Asia6.2%

Middle East5.4%

Africa3.6%

Australia1.8%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2006 2007 2008 2009 2010 2011 2012 2013 2035E

(m vehicles)

CAGR:2%

0

2

46

8

10

1214

16

18

20

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

E

2015

E(m vehicles)

CAGR: 3%


21 April 2014

- 9 -

US market: average age of car fleet

Source: Bloomberg

Revenue of US auto-parts after-market (2008-15E)

Source: Statista

In addition, Tong Yang looks well positioned to take more share from the branded parts market. In 2013, Tong Yang derived 60-70% of its North America sales as result of recommendations made by local insurance companies to use AM products (vs. 45% in 2012 and 30% in 2011). We believe this illustrates increasing acceptance of the company’s AM products by consumers in the region and the effectiveness of insurance companies advocating its products. According to Tong Yang, the markets for AM auto-parts of Europe, the US and China are expected to increase by 1% a year in terms of revenue for the next 10 years, at the expense of the branded-parts market. Also, data from the company in the following table shows that AM revenue penetration rates of the total auto-parts industry in Europe, the US and China are currently low. We expect AM penetration in these areas to increase over the next 3-5 years, as AM auto-parts suppliers like Tong Yang are increasingly taking market share from the branded-parts makers, further supporting Tong Yang’s AM business growth.

Auto-parts market: OES vs. AM revenue percentage by region (2013)

Europe US China Taiwan

OES 70% 80% 70% 20%AM 30% 20% 30% 80%

Source: Company

Tong Yang entered into the China AM market in 2007, in order to expand the scope of its overall AM business. The company’s China AM sales only accounted for 1.2% of its total sales for 2013, but we expect this proportion to increase to 2.3% in 2016 on strong new car sales growth in China. The total number of cars in China increased by a CAGR of 25% over 2008-13, and Daiwa forecasts a new car-shipment CAGR of 12% over 2014-16. This should bring about increasing demand for AM parts in the country, thus benefitting Tong Yang’s AM business there. Additionally, according to data from the National Bureau of Statistics of China, the car fleet in China totalled 89m vehicles as at the end of 2012, up 21% YoY, and Daiwa estimates this number was 105m vehicles as at the end of 2013, up 18% YoY. Daiwa forecasts the size of the country’s car fleet to rise at a 14% CAGR for 2014-16, which should also support Tong Yang’s AM business in the country. China: total number of cars

Source: National Bureau of Statistics of China, Daiwa forecasts

Tong Yang’s overall AM business delivered a weak sales CAGR of 1.6% over 2008-12 (vs. a 9.3% CAGR from 2000-07), due to sluggish demand after the global financial crisis and during the Eurozone sovereign debt crisis. However, this business saw sales growth rebound to 11% YoY for 2013 as demand recovered. We forecast a robust 11% CAGR over 2014-16 on further structural growth for the global auto-parts AM industry and the market-share gains from the auto-parts OES market. We believe Tong Yang will be able to maintain its global market leadership in AM collision parts in the next few years due to its established position, comprehensive product offering, and given high entry barriers.

9.0

9.5

10.0

10.5

11.0

11.5

12.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(No. of years)

0%

1%

2%

3%

4%

5%

6%

0

20

40

60

80

100

120

140

160

2008 2009 2010 2011 2012 2013 2014 E 2015 E

(USDbn)

Market size (LHS) YoY (RHS)

0%

5%

10%

15%

20%

25%

30%

35%

0

50

100

150

200

250

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

E

2014

E

2015

E

2016

E

Car shipments (LHS) growth YoY (RHS)

CAGR: 14%

(Shipments in millions)


21 April 2014

- 10 -

OEM business: earnings driver

Tong Yang started its OEM business in 1976. The company now owns 15 production sites in China (which accounted for 67% of the company’s OEM sales for 2013) and 2 in Taiwan (33%). It does not have any OEM production sites elsewhere. Tong Yang produces plastic parts for automakers, including bumpers (28% of its 2013 OEM sales), moulds (14%), instrument panels (10%), grilles (4%), and others (44%). China OEM business: major revenue and earnings-growth driver in 2014-16E Tong Yang has built up a presence in China’s OEM auto-parts market since 1994 and has formed joint ventures with leading automakers there (listed earlier in this report). The company’s China OEM customers include half of China’s top-12 automakers (ranked by 2013 sales volume). These customers are Dongfeng Motor Group, First Auto Group, Changan Auto Group, Beijing Automotive Group, Guangzhou Automobile Group and Chery Auto. We show the company’s client sales breakdown in the following chart and the respective market positions of these China automakers in the table on the following page. Tong Yang: China OEM revenue breakdown by customer (2013)

Source: Company

Tong Yang’s China OEM business delivered a strong sales CAGR of 20% for 2008-13. We forecast this business to generate sales growth of 25% YoY in 2014, 23% YoY in 2015 and 21% YoY in 2016, driven by its main customers. This would outpace Daiwa’s forecast for China’s new-car sales volume to rise at a 12% CAGR over 2014-16. China new-car sales volume: YoY growth

Source: CEIC, Daiwa forecasts

Tong Yang started production at its OEM plant in Xiangyang city in March (and Foshan city should start in June 2014). These plants should boost the company’s production capacity and thus help drive sales growth for its China OEM business over the next 3 years. Tong Yang: China OEM revenue (1998-2016E)

Source: Company

First Auto Group44.9%

ChanganAuto Group

24.6%

Dongfeng Moter Group

13.4%

Guangzhou Automobile

7.2%

Southeast Auto4.8%

Others5.2%

33.3%

5.4%

6.9%

14.4%12.8% 12.3% 12.0%

0%

5%

10%

15%

20%

25%

30%

35%

2010 2011 2012 2013E 2014E 2015E 2016E

0

5,000

10,000

15,000

20,000

25,000

30,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

E

2015

E

2016

E

(TWDm)

CAGR: 20%

Sold Wuhu YouthTong Yang in Mar-11

Sold Hafei Kaiyihin Apr-12


21 April 2014

- 11 -

Tong Yang: details of China OEM plants Sales (TWDm) Sales chg. YoY

Plant 2011 2012 2013 2012 2013 Established JV partner Customers 1 Dajiang YuChyang 1,060.89 682.66 635.38 -36% -7% Apr-94 Changan Auto Group Changan Suzuki,Changan Motor, Chengdu

Toyata, Beijing Auto 2 Fuzhou Tong Yang 1,187.13 1,140.91 1,286.06 -4% 13% Dec-95 South East Motor, Daimler, Dongfeng Nissan,

GuangZhou Honda, GuangZhou Toyota 3 Changchun First Auto Fawer Tong Yang 6,004.68 5,589.19 5,993.65 -7% 7% Jan-03 & 2012 First Auto Group First Auto Group, First Auto Faw-Volkswagen 4 Dajiang Tong Yang 935.08 995.33 1,680.92 6% 69% Arr-04 Changan Auto Group Changan Ford, Chengdu Toyota 5 Daikyo Nishikawa Kaiyang 1,006.79 858.33 904.13 -15% 5% 2005 Daikyo Nishikawa Changan Mazda 6 Wuhan Xiang Xing 980.42 670.55 995.3 -32% 48% 2007 Mitsuboshi Belting Kaseihin Dongfeng Nissan, Dongfeng Honda 7 Changsha GZ Auto Tong Yang - 146.24 696.67 n.a. 376% Mar-11 Guangzhou Auto Guangzhou Fiat, Guangzhou Mitsubishi 8 Xiangyang TongYang - - - n.a. n.a. Nov-11 Dongfeng Nissan, Guangzhou Mitsubishi,

Zhengzhou Nissan 9 Foshan TongYang - - - n.a. n.a. Sep-12 First Auto Faw-Volkswagen, Dongfeng Nissan 10 Nippon Bee Corporation (NBC) Guangchun 626.4 621.14 749.98 -1% 21% Oct-99 Nippon Bee Guangzhou Honda, Guangzhou Toyota 11 NBC Changchun 2.8 4.01 25.58 43% 538% May-00 Nippon Bee First Auto Group 12 NBC Tianjin 482.81 480.8 459.7 0% -4% Nov-01 Nippon Bee Tianjin Toyota, Tianjin Auto 13 NBC Wuhan 310.22 348.15 413.57 12% 19% Sep-04 Nippon Bee Wuhan Honda, Xiangfan Nissan 14 NBC Nanjing 364.77 308.51 323.61 -15% 5% 2005 Nippon Bee Nanjing Ford, Chery Auto 15 Guangzhou Tong Yang Tatematsu Mold 142.53 218.41 258.02 53% 18% May-05 Tatematsu Mold Works Japanese & local automakers OEM China Total 13,104.52 12,064.23 14,422.57 -8% 20%

Source: Company

Rankings of China automakers in 2013

No. of vehicles sold

Rank Group/company 2012 2013 YoY (%) Market share for 2013 Tong Yang's clients1 Shanghai Auto Group 4,461,393 5,073,338 13.7% 23.08% 2 Dongfeng Motor Group 3,078,494 3,534,946 14.8% 16.08% Yes3 First Auto Group 2,645,924 2,908,399 9.9% 13.23% Yes4 Changan Auto Group 1,956,391 2,203,307 12.6% 10.02% Yes5 Beijing Automotive Group 1,691,117 2,111,115 24.8% 9.60% Yes6 Guangzhou Automobile Group 712,164 1,004,203 41.0% 4.57% Yes7 Brilliance China Automotive 637,979 777,379 21.9% 3.54% 8 Greatwall Motors 624,602 754,242 20.8% 3.43% 9 Anhui Jianghuai Automobile 491,444 549,393 11.8% 2.50% 10 Zhejiang Geely Group 486,760 514,282 5.7% 2.34% 11 BYD Auto 456,056 506,190 11.0% 2.30% 12 Chery Auto 563,305 469,390 -16.7% 2.14% Yes13 Chongqing LiFan 270,303 248,288 -8.1% 1.13% 14 China Heavy Duty Truck 137,802 165,238 19.9% 0.75% 15 Huna Jiangnan Auto 122,194 134,263 9.9% 0.61%

Top-15 total 18,335,928 20,953,973 14.3% 95.31% Others 970,477 1,030,093 6.1% 4.69% Total market 19,306,405 21,984,066 13.9% 100%

Source: Company


21 April 2014

- 12 -

China OEM business should increase net profit contribution in 2014-16 The company’s China OEM business has been a meaningful contributor to earnings since 2009, and accounted for 11% of net profit for both 2012 and 2013. The China OEM business saw net profit decline to TWD403m for 2011 (from TWD607m for 2010), due to interruptions in the supply chain following the earthquake in Japan. Its net profit fell further to TWD91m for 2012, which was a weak year for sales of China local car brands and saw Japanese car sales in China decline sharply (affected by the territorial dispute over the Diaoyu Islands), and compelled Japanese automakers in China to close their factories temporarily. For 2013, on the back of a recovery in China’s auto industry, Tong Yang’s China OEM business generated a 60% YoY net-profit rebound to TWD145m, largely surpassing its 20% YoY sales growth. In addition to secular growth in China new car sales, we expect the strong earnings momentum in the China operation to continue over the next 3 years, due to this business’s high operating leverage and improving demand from the leading domestic automakers. Tong Yang: China OEM net-profit contribution


Tong Yang: China OEM monthly profit contribution since 2013

Source: Company

Taiwan OEM business: back on track In 2008-13, the Taiwan OEM business achieved a sales CAGR of 12%. Taiwan OEM sales declined by 2% YoY in 2011 and 4% YoY in 2012, due to supply issues following the 11 March 2011 earthquake in Japan, a fall in demand from the Taiwan automobile industry, and Eurozone debt crisis in 2012. Sales growth in the Taiwan OEM business returned in 2013, rising by 18% YoY, fuelled mainly by strong orders from overseas buyers. According to the company, its top-2 export customers are leading Japan automakers that together accounted for 33% of Taiwan OEM sales in 2013. We forecast sales for the Taiwan OEM business to increase by 10% YoY in 2014, 6% YoY in 2015, and 6% YoY in 2016. Tong Yang: Taiwan OEM revenue breakdown by customer (2013)

Source: Company

Tong Yang: Taiwan OEM revenue (2008-16E)


(200)

(100)

0

100

200

300

400

500

600

700

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

E

2015

E

2016

E

(TWDm)

(15,000)(10,000)

(5,000)0

5,00010,00015,00020,00025,00030,00035,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

(TWD '000)

2013 2014

China Motor(Mitsubishi)

13.4%

Ford12.5%

Yulon(Nissan)

6.9%

Honda9.5%

Fengyue (Toyata)

4.1%Others1.4%

OEM Export52.2%

0

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012 2013 2014 E 2015E 2016 E

(TWDm)

CAGR:11%


21 April 2014

- 13 -

Company background

Tong Yang was established by Kao Wu in 1967 (the father of the current chairman, Yung-Feng Wu). The company produced plastic bike and motorcycle parts. In 1976, the company entered the plastic auto-component field for OEM clients in Taiwan, and began developing its AM business in the Middle East, the US, and Europe in the late 1970s. AM plants were established in North America, Europe, and Thailand in the late 1990s. In 2001, the company started its Taiwan OEM export business. Tong Yang set up its first joint-venture company in China with the Changan auto group in 1994 to expand its OEM business. In 2007, the company aimed to develop its China AM business, and set up its production plant. Currently, Tong Yang has 15 OEM plants and 1 AM plant in China, 2 OEM plants and 1 AM plant in Taiwan, and 1 AM plant each in the US and Europe. In September, 2010, the company merged with Taiwan KaiYih Company to expand its sheet-metal auto-parts business.

Tong Yang was listed on the Taiwan Stock Exchange in December 1994. Tong Yang: management team (April 2014) Management Position Background and experience Yung-Feng Wu Chairman Mr. Wu has more than 45 years of experience in the auto-

parts industry. Mr. Wu is responsible for the company’s strategy.

Yung-Mao Wu Vice chairman A younger brother of the chairman. Mr. Wu is responsible for the company’s strategy and has more than 40 years of experience in the auto-parts industry.

Yung-Hsiang Wu CEO A younger brother of the chairman. Mr. Wu is responsible for the company’s strategy and has more than 30 years of experience in the auto-parts industry.

Tsu-Hsiung Chen General manager of the AM business

Mr. Chen is responsible for the management of the AM business and has more than 30 years of experience in the auto-parts industry.

Ming-Tsung Wu General manager of the OEM business

The son of the chairman. Mr. Wu is responsible for the management of the OEM business and has more than 20 years of experience in the auto-parts industry.

Chi-Bin Wang CFO Mr. Wang is responsible for the company’s financial management, and has more than 30 years of experience in the auto-parts industry.

Source: Company

Tong Yang: major shareholders (as at 21 April 2014) Holder Name Share (%)YUNG-FENG WU 8.86YUNG-MAO WU 8.81YUNG-HSIANG WU 8.08HUNG YANG INVESTMENT CO LT 5.08HSIN YANG INVEST LTD 4.59SHIN KONG LIFE INSURANCE CO LTD 4.4DAIWA CAPITAL MARKETS HONG KONG 3.33JUI CHENG INVESTMENT CO LT 2.66CHANG SHENG INVE 2.08

Source: Bloomberg

Financial analysis

2013 results In 2013, Tong Yang’s revenue was TWD19.6bn (up 15.4% YoY) and its net profit was TWD1.35bn (up 66% YoY). The greater rate of increase in earnings than sales was due mainly to an improved gross margin and better operating leverage (a utilisation rate of 75% in 2013 compared with 70% in 2012). Tong Yang: quarterly sales

Source: Company

Outlook For 2014, we see the robust sales growth in the China auto industry continuing on from 2013. We expect Tong Yang’s China OEM business to be the main sales and earnings driver. In 1Q14, sales amounted to TWD5.2bn (up 12.6% YoY) and net income before tax was TWD482m (up 21% YoY), according to the company’s unaudited accounts. The AM and OEM businesses achieved sales growth of 11.1% YoY and 16.7% YoY, respectively. We expect the AM and Taiwan OEM businesses to see organic sales growth over the next few years. For 2014-16, we forecast an earnings CAGR of 20% on a 13% sales CAGR, and a rise in the gross-profit margin to 23.5% for 2014, from 23% for 2013. For 2014, we forecast revenue to increase by 14% YoY to TWD22bn and net earnings to rise by 20% YoY to TWD1.62bn.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2008 2009 2010 2011 2012 2013 2014

(TWDm)

1Q 2Q 3Q 4Q


21 April 2014

- 14 -

Tong Yang: revenue


Tong Yang: earnings


Improving profit margin from low in 2012 We expect the gross margin for Tong Yang’s OEM business to recover over the next few years on an improving utilisation rate in the China OEM business (85% in 2014E, 87% in 2014E, and 88% in 2015E, up from 75% in 2013 and 70% in 2012), stable raw-material prices (44% of the cost of goods sold in 2013), and its operating-leverage model. In addition, we expect the gross margin for the AM business to increase only slightly over 2014-16, due to improved economies of scale. Tong Yang: gross margin for the OEM business


Tong Yang: utilisation rate of China OEM business (2010-16E)


Tong Yang: price of main raw material (crude oil)

Source: Company

Tong Yang: gross, operating, and net-profit margins


In 2013, Tong Yang recorded higher gross-profit, operating-profit, and net-profit margins than most of the other Taiwan plastic and sheet-metal auto-parts manufacturers.

0

5

10

15

20

25

30

35

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

(TWDbn)

Sold Wuhu YouthTong Yang in Mar-11

1. Sold Hafei Kaiyih in Apr-122. Daikyo Niishikawa Kaiyang did notaccount into consolidated statement.

0.0

0.5

1.0

1.5

2.0

2.5

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

(TWDbn)

0%

5%

10%

15%

20%

25%

30%

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

60%

65%

70%

75%

80%

85%

90%

2010 2011 2012 2013 2014E 2015E 2016E

50

60

70

80

90

100

110

Jan-

13

Jan-

13

Mar

-13

A pr-1

3

Apr-1

3

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Oct

-13

Nov-

13

Dec-

13

Jan-

14

Feb-

14

Mar

-14

Apr-1

4

(USD/bbl)

0%

5%

10%

15%

20%

25%

30%

2008 2009 2010 2011 2012 2013 2014E 2015E

Gross margin Operating margin Net margin


21 April 2014

- 15 -

Tong Yang: gross- and operating-profit margin comparison (2013)

Bloomberg code Company Product

Gross margin

(%)

Operating margin

(%)

Netmargin

(%)1319 TT Tong Yang Plastic/sheet metal parts 23.05 7.10 6.871339 TT YCC Plastic parts 33.68 19.22 17.951512 TT JUI LI Sheet metal parts 13.66 -1.11 -3.311524 TT GORDON Sheet metal parts 11.79 -1.20 -1.99

Source: Company

Note: Generally, the gross margin on plastic parts is higher than that of sheet-metal parts. For example, Tong Yang’s 2013 gross margins were 46% for plastic parts and 10% for metal-sheet parts. YCC has higher gross margins as it is a pure auto plastic parts company.

Balance sheet and cash flow Tong Yang’s capex has remained above TWD2bn a year since 2005 as it has developed new moulds (about TWD1.5bn a year) and expanded the capacity at its China and Taiwan plants. At the end of 2013, the company had net debt of TWD6.6bn and current and quick ratios of 1.3x (from 0.9x at the end of 2005) and 0.8x (from 0.6x at the end of 2005), respectively. However, the net-debt position is narrowing and free cash flow is increasing. We expect the company to reduce its net-debt position to increase its current/quick ratios and to still generate positive free cash flow over the next few years. Tong Yang: free cash flow and net debt

Source: Company

Aiming to raise its dividend-payout ratio, and dividends should be paid fully in cash Tong Yang aims to increase its dividend-payout ratio to more than 50% in the next three years from 48% in 2013. We forecast the dividend yield to rise from 3.2% in 2014 to 4.6% in 2016. In addition, the dividend should be paid fully in cash.

Valuation

Our 6-month target price of TWD53 is based on a 2014 PER of 20x, derived by applying a 1x PEG to our 2014-16E EPS growth. Our target PER is near the mid-to-high end of the stock’s past 3-year trading range of 10-25x. We believe our target basis of a 2014-16E PEG of 1x is fair as we forecast a 20% earnings CAGR over 2014-16. Our TWD53 target price is supported by our DCF-derived fair-value estimate of TWD54/share. Tong Yang: net income before tax for China business and PER

Source: Company and Bloomberg

Note: China net income before tax is non-consolidated data

Tong Yang: DCF assumptions Cost of equity (%) Risk-free rate (%) 1.5Beta 1.1Equity risk premium (%) 10.0CAPM unleveraged discount rate 12.4 Cost of debt (%) Average spread over risk-free rate (%) 2.0 Pre-tax cost of debt (%) 2.4Average corporate tax rate for company (%) 18.0 Post-tax cost of debt (%) 2.0 Estimated target gearing (net debt/EV) (%) 20.0 WACC (%) 10.3

Source: Daiwa estimates

Tong Yang: DCF assumptions (cont’d) Middle period assumptions Growth rate (%) +10.0 Operating-profit margin (%) 10.0 Capex/depreciation ratio (x) 1.1 Working capital/ turnover ratio (%) 18.0 Tax rate (%) 22.0 Terminal period assumptions Growth rate (%) +3.0 Operating margin (%) 7.5Capex/depreciation ratio (x) 1.0 Working capital/ turnover ratio (%) 15.0 Tax rate (%) 25.0

Source: Daiwa estimates

(2,000)

0

2,000

4,000

6,000

8,000

10,000

2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

(TWDm)

Free Cash Flow Net debt

0

5

10

15

20

25

30

(200)(100)

0100200300400500600700

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

(TWDm)

NIBT-China (LHS) PER (RHS)


21 April 2014

- 16 -

Tong Yang: 1-year forward PER bands

Source: Daiwa forecast

Note: Data as at 21 April 2014

Risks

We highlight the following factors as risks to our rating, target price, and forecasts for Tong Yang:

1) An economic recession or political conflict (for example, the Diaoyu Islands dispute between China and Japan had a negative impact on Tong Yang’s China OEM sales in late-2012).

2) A slowdown in demand globally for new cars.

3) A decline in the usage of cars due to a rise in the oil price.

4) A worse-than-expected performance by the China OEM business.

5) A lower-than expected gross margin.

Tong Yang: valuation comparison with peers

Companies Bloomberg code Rating Market cap

(USDm)Share price

(local curr.)

PER (x) PBR (x) ROE (%) Dividend yield (%)

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015EAM TONG YANG INDUSTRY* 1319 TT Equity Buy 846 43.25 16.3 13.6 1.5 1.4 9.5 10.9 3.2 3.8YCC PARTS MANUFACTURING CO L 1339 TT Equity Not rated 111 51 NA NA NA NA NA NA NA NAGORDON AUTO BODY PARTS CO 1524 TT Equity Not rated 52 8.86 NA NA NA NA NA NA NA NATYC BROTHER INDUSTRIAL CO 1522 TT Equity Not rated 215 20.8 11.0 NA NA NA NA NA NA NADEPO AUTO PARTS IND CO LTD 6605 TT Equity Not rated 669 122 NA NA NA NA NA NA NA NAMOBILETRON ELECTRONICS CO LT 1533 TT Equity Not rated 151 47.35 17.3 NA 2.2 NA NA NA NA NACUB ELECPARTS INC 2231 TT Equity Not rated 451 225 29.5 NA NA NA NA NA NA NAAverage 18.5 13.6 1.9 1.4 9.5 10.9 3.2 3.8OEM/ODM JUI LI ENTERPRISE CO LTD 1512 TT Equity Not rated 63 10.4 13.9 9.8 1.0 NA 6.5 NA NA NATA YIH INDUSTRIAL CO LTD 1521 TT Equity Not rated 191 75.6 14.1 NA 3.3 NA 24.2 NA NA NAHU LANE ASSOCIATE INC 6279 TT Equity Not rated 358 111.5 16.4 15.1 3.2 NA 20.6 18.7 2.6 3.8E-LEAD ELECTRONIC CO LTD 2497 TT Equity Not rated 301 76.5 18.4 15.8 3.9 NA 23.8 25.7 2.9 3.0ACTRON TECHNOLOGY CORP 8255 TT Equity Not rated 328 132.5 17.9 15.6 3.4 3.3 20.0 21.0 4.1 4.2TUNG THIH ELECTRONIC CO LTD 3552 TT Equity Not rated 365 136 23.3 16.5 4.2 3.4 19.3 23.5 2.0 2.5HIROCA HOLDINGS LTD 1338 TT Equity Not rated 317 122.5 18.0 13.3 1.9 1.8 11.0 13.4 2.5 4.9FINE BLANKING & TOOL CO LTD 4535 TT Equity Not rated 125 50.1 NA NA NA NA NA NA NA NASUPERALLOY INDUSTRIAL CO LTD 1563 TT Equity Not rated 450 69.59 NA NA NA NA NA NA NA NAKIAN SHEN CORPORATION 1525 TT Equity Not rated 170 74 14.4 14.6 1.7 1.5 12.7 10.8 1.8 2.4KS TERMINALS INC 3003 TT Equlity Not rated 241 52 16.5 12.9 NA NA 13.5 16.1 3.9 4.8Average 17.0 14.2 2.8 2.5 16.8 18.5 2.8 3.7 China story TONG YANG INDUSTRY* 1319 TT Equity Buy 846 43.25 16.3 13.6 1.5 1.4 9.5 10.9 3.2 3.8JUI LI ENTERPRISE CO LTD 1512 TT Equity Not rated 63 10.4 13.9 9.8 1.0 NA 6.48 NA NA NAHU LANE ASSOCIATE INC 6279 TT Equity Not rated 358 111.5 16.4 15.1 3.2 NA 20.6 18.7 2.6 3.8E-LEAD ELECTRONIC CO LTD 2497 TT Equity Not rated 301 76.5 18.4 15.8 3.9 NA 23.8 25.7 2.9 3.0TUNG THIH ELECTRONIC CO LTD 3552 TT Equity Not rated 365 136 23.3 16.5 4.2 3.4 19.3 23.5 2.0 2.5HIROCA HOLDINGS LTD 1338 TT Equity Not rated 317 122.5 18.0 13.3 1.9 1.8 11.0 13.4 2.5 4.9Average 17.7 14.0 2.6 2.2 15.1 18.4 2.6 3.6

Regional peers MINTH GROUP LTD 425 HK Equity Not rated 1,812 12.86 9.8 8.4 1.4 1.2 14.4 15.0 3.6 4.2WANXIANG QIANCHAO CO LTD-A 000559 CH Equity Not rated 2,853 11.16 26.6 23.7 NA NA 14.9 14.9 1.2 1.3NINGBO HUAXIANG ELECTRONIC-A 002048 CH Equity Not rated 1,076 12.65 15.5 12.5 2.2 2.0 13.9 16.4 0.8 1.0LINGYUN INDUSTRIAL CORP-A 600480 CH Equity Not rated 487 8.39 NA NA NA NA NA NA NA NAJIANGNAN MOULD AND PLASTIC-A 000700 CH Equity Not rated 601 12.13 13.5 10.9 2.3 2.0 17.3 17.9 1.1 1.1Average 16.4 13.9 2.0 1.7 15.1 16.1 1.7 1.9Source: Bloomberg;*Daiwa forecasts

Note: Data is based on share prices as at 21 April 2014; NA = no Bloomberg-consensus forecasts

0

10

20

30

40

50

60

70

80

May

-11

Aug-

11

Nov-

11

Feb-

12

May

-12

Aug-

12

Nov-

12

Feb-

13

May

-13

Aug-

13

Nov-

13

Feb-

14

(TWD)

21x

17x

13x

9x

25x


21 April 2014

- 17 -

Appendix

Tong Yang: company structure

Source: Company

51%

40%

19.26%

100%

100%

100%

100%

CHINA

Dajiang Yuchyang Plastics Co., Ltd.

Fuzhou Tong Yang Plastics Co., Ltd.

Changchun First Auto Fawer Tong Yang Plastics Co., Ltd.

Dajiang Tong Yang Plastics Co., Ltd.

Daikyo Nishikawa Kaiyang Auto Plastics Co., Ltd.

Wuhan Xiang Xing Auto Parts Co., Ltd.

Changsha GZ Auto Tong Yang Plastics Co., Ltd.

Xiangyang TongYang Auto Parts Co., Ltd

Foshan TongYang Auto Parts Co., Ltd

Guangzhou NBC Co., Ltd.

Changchun NBC Co., Ltd.

Tianjin NBC Co., Ltd.

Wuhan NBC Co., Ltd.

Nanjing NBC Co., Ltd.

GZ TongYang Tatematsu Mold Maf. Co., Ltd.

Nanjing Tong Yang Auto Parts Co., Ltd.

55%

100%

49%

55%

45%

25%

49%

100%

100%

40%

40%

40%

40%

40%

90%

100%

Tong YangIndustry Co., Ltd.

(1319.TT/TW)

TAIWAN

Ru Yang Industry Co., Ltd.

Tung Yang Chemical Plastics Co., Ltd.

Pro Fortune

Tong Yang Holding Corporation(Cayman Islands)

USA

How Bond Investment

THAILAND

Tong Yang (IKI)

ITALY

TYG Europe


21 April 2014

- 18 -

Daiwa’s Asia Pacific Research Directory

HONG KONG

Hiroaki KATO (852) 2532 4121 [email protected] Regional Research Head

John HETHERINGTON (852) 2773 8787 [email protected] Regional Deputy Head of Asia Pacific Research

Rohan DALZIELL (852) 2848 4938 [email protected] Regional Head of Product Management

Kevin LAI (852) 2848 4926 [email protected] Deputy Head of Regional Economics; Macro Economics (Regional)

Christie CHIEN (852) 2848 4482 [email protected] Macro Economics (Taiwan)

Jonas KAN (852) 2848 4439 [email protected] Head of Hong Kong Research; Head of Hong Kong and China Property

Grace WU (852) 2532 4383 [email protected] Head of Greater China FIG; Banking (Hong Kong, China)

Jerry YANG (852) 2773 8842 [email protected] Banking (Taiwan); Insurance (Taiwan and China)

Leon QI (852) 2532 4381 [email protected] Banking (Hong Kong, China); Broker (China)

Winston CAO (852) 2848 4469 [email protected] Capital Goods – Machinery (China)

Alison LAW (852) 2532 4308 [email protected] Head of Regional Consumer; Consumer (Hong Kong/China); Gaming and Leisure (Hong Kong, China)

Jamie SOO (852) 2773 8529 [email protected]

Consumer (Hong Kong/China)

Anson CHAN (852) 2532 4350 [email protected]

Consumer (Hong Kong/China)

Eric CHEN (852) 2773 8702 [email protected] Pan-Asia/Regional Head of IT/Electronics; Semiconductor/IC Design (Regional)

Lynn CHENG (852) 2773 8822 [email protected]

IT/Electronics (Semiconductor)

Felix LAM (852) 2532 4341 [email protected] Head of Materials (Hong Kong, China); Cement and Building Materials (China, Taiwan); Property (China)

Dennis IP (852) 2848 4068 [email protected] Power; Utilities; Renewables and Environment (Hong Kong/China)

John CHOI (852) 2773 8730 [email protected] Regional Head of Small/Mid Cap; Small/Mid Cap (Regional); Internet (China)

Jackson YU (852) 2848 4976 [email protected]

Small/Mid Cap (Regional)

Joey CHEN (852) 2848 4483 [email protected] Steel (China)

Kelvin LAU (852) 2848 4467 [email protected] Head of Transportation (Hong Kong, China); Transportation (Regional)

Jibo MA (852) 2848 4489 [email protected] Head of Custom Products Group; Custom Products Group

Thomas HO (852) 2773 8716 [email protected] Custom Products Group

PHILIPPINES

Norman H PENA (63) 2 737 3021 [email protected] Banking/Property

Michael David MONTEMAYOR

(63) 2 737 3023 [email protected]

Consumer/Retail

Patricia PALANCA (63) 2 737 3024 [email protected] Utilities/Mining

SOUTH KOREA

Chang H LEE (82) 2 787 9177 [email protected] Head of Korea Research; Strategy; Banking

Sung Yop CHUNG (82) 2 787 9157 [email protected] Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel

Jun Yong BANG (82) 2 787 9168 [email protected] Tyres; Chemicals

Mike OH (82) 2 787 9179 [email protected] Capital Goods (Construction and Machinery)

Sang Hee PARK (82) 2 787 9165 [email protected] Consumer/Retail

Joshua OH (82) 2 787 9176 [email protected] IT/Electronics (Handset Components)

Thomas Y KWON (82) 2 787 9181 [email protected] Pan-Asia Head of Internet & Telecommunications; Software (Korea) – Internet/On-line Game

TAIWAN

Mark CHANG (886) 2 8758 6245 [email protected] Head of Taiwan Research

Steven TSENG (886) 2 8758 6252 [email protected]

IT/Technology Hardware (PC Hardware)

Christine WANG (886) 2 8758 6249 [email protected] IT/Technology Hardware (Automation); Cement; Consumer

Kylie HUANG (886) 2 8758 6248 [email protected] IT/Technology Hardware (Handsets and Components)

INDIA

Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Head of India Research; Strategy; Banking/Finance

Saurabh MEHTA (91) 22 6622 1009 [email protected] Capital Goods; Utilities

SINGAPORE

Adrian LOH (65) 6499 6548 [email protected] Head of Singapore Research, Regional Head of Oil and Gas; Oil and Gas (ASEAN and China); Capital Goods (Singapore)

Benjamin LIM (65) 6321 3086 [email protected]

Oil and Gas (ASEAN and China); Capital Goods (Singapore)

Angeline LOH (65) 6499 6570 [email protected] Banking/Finance, Consumer/Retail

David LUM (65) 6329 2102 [email protected] Property and REITs

Evon TAN (65) 6499 6546 [email protected] Property and REITs

Ramakrishna MARUVADA (65) 6499 6543 [email protected] Head of ASEAN & India Telecommunications; Telecommunications (China, ASEAN & India)

Jame OSMAN (65) 6321 3092 [email protected] Telecom (ASEAN & India); Pharmaceuticals and Healthcare (Singapore)


21 April 2014

- 19 -

Daiwa’s Offices

Office / Branch / Affiliate Address Tel Fax

DAIWA SECURITIES GROUP INC

HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661

Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726

Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129

Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469

Daiwa Capital Markets America Inc Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100

Daiwa Capital Markets America Inc. San Francisco Branch 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. (1) 415 955 8100 (1) 415 956 1935

Daiwa Capital Markets Europe Limited 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600

Daiwa Capital Markets Europe Limited, Frankfurt Branch Trianon Building, Mainzer Landstrasse 16, 60325 Frankfurt am Main, Federal Republic of Germany

(49) 69 717 080 (49) 69 723 340

Daiwa Capital Markets Europe Limited, Paris Representative Office 36, rue de Naples, 75008 Paris, France (33) 1 56 262 200 (33) 1 47 550 808

Daiwa Capital Markets Europe Limited, London, Geneva Branch 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441

Daiwa Capital Markets Europe Limited, Moscow Representative Office

Midland Plaza 7th Floor, 10 Arbat Street, Moscow 119002, Russian Federation

(7) 495 641 3416 (7) 495 775 6238

Daiwa Capital Markets Europe Limited, Bahrain Branch 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, Manama, Bahrain

(973) 17 534 452 (973) 17 535 113

Daiwa Capital Markets Hong Kong Limited Level 28, One Pacific Place, 88 Queensway, Hong Kong (852) 2525 0121 (852) 2845 1621

Daiwa Capital Markets Singapore Limited 6 Shenton Way #26-08, DBS Building Tower Two, Singapore 068809, Republic of Singapore

(65) 6220 3666 (65) 6223 6198

Daiwa Capital Markets Australia Limited Level 34, Rialto North Tower, 525 Collins Street, Melbourne, Victoria 3000, Australia

(61) 3 9916 1300 (61) 3 9916 1330

DBP-Daiwa Capital Markets Philippines, Inc 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, Makati City, Republic of the Philippines

(632) 813 7344 (632) 848 0105

Daiwa-Cathay Capital Markets Co Ltd 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. (886) 2 2723 9698 (886) 2 2345 3638

Daiwa Securities Capital Markets Korea Co., Ltd. One IFC, 10 Gukjegeumyung-Ro, Yeouido-dong, Yeongdeungpo-gu, Seoul, 150-876, Korea

(82) 2 787 9100 (82) 2 787 9191

Daiwa Securities Capital Markets Co Ltd, Beijing Representative Office

Room 301/302，Kerry Center， 1 Guanghua Road，Chaoyang District， Beijing 100020, People’s Republic of China

(86) 10 6500 6688 (86) 10 6500 3594

Daiwa SSC Securities Co Ltd 45/F, Hang Seng Tower, 1000 Lujiazui Ring Road, Pudong, Shanghai 200120, People’s Republic of China

(86) 21 3858 2000 (86) 21 3858 2111

Daiwa Securities Capital Markets Co. Ltd, Bangkok Representative Office

18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road, Lumpini, Pathumwan, Bangkok 10330, Thailand

(66) 2 252 5650 (66) 2 252 5665

Daiwa Capital Markets India Private Ltd 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra East, Mumbai – 400051, India

(91) 22 6622 1000 (91) 22 6622 1019

Daiwa Securities Capital Markets Co. Ltd, Hanoi Representative Office

Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam

(84) 4 3946 0460 (84) 4 3946 0461

DAIWA INSTITUTE OF RESEARCH LTD

HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603

MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021

New York Research Center 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 8417

London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550


21 April 2014

- 20 -

Disclaimer

This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Capital Markets Co. Ltd., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Japan Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc. Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc. Investment Banking Relationship

Within the preceding 12 months, The subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Blackgold International Holdings Ltd (BGG AU); Tosei Corporation (8923 JP); Modern Land (China) Co. Ltd (1107 HK); China Everbright Bank Company Limited (6818 HK); econtext Asia Ltd (1390 HK); Lotte Shopping Co (023530 KS).

*Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司), Daiwa Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd. Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. DHK market making DHK may from time to time make a market in securities covered by this research.

Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research. Australia This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. India This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of or reliance on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and analysis, in evaluating the information in this document. The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to, or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited. Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research. Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively. United Kingdom This research report is produced by Daiwa Capital Markets Europe Limited and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and/or its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and/or its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.


21 April 2014

- 21 -

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available. Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory . Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Germany This document has been approved by Daiwa Capital Markets Europe Limited and is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany. Bahrain

This research material is issued/compiled by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113

This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent. United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000). Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationships For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. DCMA Market Making For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next six months. "2": the security is expected to outperform the local index by 5-15% over the next six months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next six months. "4": the security is expected to underperform the local index by 5-15% over the next six months. "5": the security could underperform the local index by more than 15% over the next six months. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in

the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the

amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices,

real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants.

*The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association

Documents

Initiation: in the driver’s seatasiaresearch.daiwacm.com/eg/cgi-bin/files/Tong_Yang_Industry_140… · Consumer Discretionary / Taiwan 1319 TT 21 April 2014 - 5 - Balance sheet