SECTOR REPORT ASIA TECHNOLOGY - BNP Paribas...We expect film-based displays (flexible AMOLED) to be the driving force for high-end phones into 2018, by when we expect all high-end

asia technology Peter Yu, CFA

THIS REPORT IS SOLELY FOR RECIPIENTS WHO ARE NON-CHINESE INVESTORS LOCATED OUTSIDE THE PEOPLE'S REPUBLIC OF CHINA ("PRC"). WITHOUT THE PRIOR WRITTEN CONSENT OF BNP PARIBAS, THE RECIPIENTS OF THIS REPORT SHALL NOT FURTHER DISTRIBUTE SUCH REPORT OR DISCLOSE ANY INFORMATION THEREIN TO ANY OTHER PERSON INCLUDING BUT NOT LIMITED TO ANY OTHER NON-CHINESE INVESTORS OR ANY PERSON IN PRC. 1 JULY 2016 SECTOR REPORT

ASIA TECHNOLOGY

Future mobile devices (2017-20) and enablers

Flexible, foldable and stretchable We expect film-based displays (flexible AMOLED) to be the driving force for high-end phones into

2018, by when we expect all high-end phones will have adopted flexible AMOLED. We then expect phones to become true ‘convergence devices’ as foldable screens are introduced in mass, enabling various form factors such as tri-fold devices wherein a 5” phone becomes a 9” tablet when its screen is unfolded. Then, as stretchable display technology is commercialized from around 2020, we think phones will more fully converge with watches and tablets.

Key enabling technologies for flexible displays

Replacing glass with thin film layers has been the greatest challenge with flexible displays. However, there have been numerous technology breakthroughs that will make flexible displays more affordable and widespread. For example, thin film encapsulation used to require 8-10 layers of stacked organic and inorganic layers, but is now just three inorganic layers: this has vastly improved productivity and costs. There has also been progress in protective window cover film, but we think the recent hybrid glass-plus-polymer material (hybrimer) will be the ultimate glass-like film for flexible displays.

Proliferation of 4K and 8K UHD content

We think 4K UHD displays in mobile devices will thrive thanks to VR (c2017) and tri-fold phones (c2018) that fully utilize large screens (c9”). Personal videos taken in 4K 60fps, and media content and powerful games that fully leverage large high resolution screens are likely to proliferate. This is likely to drive demand for higher-spec SoC, DRAM, NAND and high-speed RF. We believe Samsung is in a position to drive these disruptive changes. Many others may be left out in cold.

BNPP recommendations

Note: Priced at close of business 1/7/2016. Share prices and TPs are in listing currency. Sources: FactSet; BNP Paribas estimates

Our research is available on Thomson One, Bloomberg, S&P Global, FactSet and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for authorisation. Please see the important notice on the back page.

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CO LTD . THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 51

Peter Yu, CFA Laura Chen Masahiro Wakasugi [email protected] [email protected] [email protected]

+822 2125 0535 +886 2 8729 7052 +813 6377 2240

Jimmy Huang Jay Han [email protected] [email protected] +886 2 8729 7057 +822 2125 0546

Company BBG code Rating Share price Target price Upside/downside

Murata Manufacturing 6981 JP Buy 11,320.00 16,600.00 +46.6%

LG Electronics 066570 KS Buy 55,100.00 74,000.00 +34.3%

Luxshare 002475 CH Buy 19.15 24.00 +25.3%

Samsung Electronics 005930 KS Buy 1,466,000.00 1,700,000.00 +16.0%

TSMC 2330 TT Buy 166.00 190.00 +14.5%

LG Display 034220 KS Hold 26,650.00 24,000.00 -9.9%

Lenovo 992 HK Reduce 4.67 4.30 -7.9%

ASUSTeK Computer 2357 TT Reduce 268.50 242.00 -9.9%

Sharp Corp 6753 JP Reduce 110.00 95.00 -13.6%

mailto:[email protected]





ASIA TECHNOLOGY Peter Yu, CFA

Investment thesis

We think Samsung and Apple will be the only two smartphone makers to use flexible AMOLED for all their high-end products in 2017 distancing themselves from the rest of the smartphone makers. More disruptive change is likely to come with foldable AMOLED with mass commercial adoption from 2018-19 after a few models get tested in the market.

We believe foldable displays (and eventually stretchable displays) will further the convergence trend. Foldable/ stretchable displays will bring new breeds of convergence devices that may cannibalize standalone-function products. The rigid screen form factor smartphone is getting commoditized, and those which stay in rigid small screen device are likely to be left out in the cold.

There have been great efforts and progress made in enabling technologies for flexible displays (thin film encapsulation, protective cover film, and flexible base film technologies). Particularly exciting is the new nano-technology where glass and plastic can be married into new materials such as glass-like films. We believe Samsung is several years ahead of competition as most panel makers haven’t done sufficient deep research into new material science.

Components that are needed to power high resolution foldable screen and content delivery (SoC, DRAM, NAND, RF, type C connector) should benefit from this trend.

Catalyst

The success of new flexible AMOLED using smartphones in 2017 onward further accelerating the market transition from rigid AMOLED/LCD screen to flexible AMOLED.

Increased competitive pressure forcing notebook PC, and tablet makers to also embrace flexible AMOLED technology.

Technological breakthrough in nano-technology that accelerates the growth of foldable and stretchable display.

Risk to our call

Badly-prepared user interfaces, apps, content delivery eco systems of foldable phones leading to suboptimal user experience and resulting slow penetration.

Technology/manufacturing execution problems leading to suboptimal yield, cost over-run and insufficient volume to make a dent in the market.

Delays in foldable screen commercialization on unresolved technology issues, and/or Samsung complacently delaying the new technology adoption when the exiting smartphone model sales kept strong.

CONTENTS Smartphones in 2017-2020s ....................................................... 4

Enabling technologies for the flexible display ....................... 14

Impact of 4k UHD display on semiconductor chip evolution ........................................................................................ 22

RF technology evolution toward 2020 ..................................... 25

Winners and losers ..................................................................... 27

Event calendar

Date Event

7-Jul-16 2Q16 pre-result announcement (SEC)

27-Jul-16 2Q16 result announcement (LGD)

28-Jul-16 2Q16 result announcement (LGE, tentative)

28-Jul-16 2Q16 result announcement (SEC, tentative)

2-Aug-16 Samsung Galaxy Note 7 unveil

9-Aug-16 2Q16 result announcement (Asustek, tentative)

15-Aug-16 1Q17 result announcement (Lenovo, tentative)

Sep-16 Apple iPhone 7 series unveil (tentative)

2 BNP PARIBAS 1 JULY 2016


Exhibit 1: Related stocks valuation

Company BBG code Mkt. cap ------------- P/E ---------- ------- EPS growth ------ ---------- P/BV ---------- ----------- ROE ---------

2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E

(USD m) (x) (x) (%) (%) (x) (x) (%) (%)

Set device maker

*Samsung Electronics 005930 KS 182,576 10.5 9.5 22.4 10.4 1.3 1.1 12.5 12.3

LG Electronics 066570 KS 7,855 11.3 9.9 608.4 14.0 0.8 0.7 6.9 7.3

*Lenovo 992 HK 6,687 na 17.8 na na 0.3 0.4 (2.8) 9.6

*AsusTeK 2357 TT 6,191 11.0 10.5 5.2 4.5 1.1 1.1 10.3 10.5

Panel maker

*Samsung Electronics 005930 KS 182,576 10.5 9.5 22.4 10.4 1.3 1.1 12.5 12.3

*LG Display 034220 KS 8,307 110.3 56.1 (91.6) 96.6 0.8 0.8 0.7 1.3

Innolux 3481 TT 3,321 na na na na 0.5 0.5 (3.6) (2.0)

AUO 2409 TT 3,286 na 41.0 na na 0.6 0.6 (1.5) 0.8

*Sharp 6753 JP 1,823 na 25.4 na 1.9 2.2 2.1 8.7 8.5

JDI 6740 JP 937 23.8 10.4 na 128.7 0.3 0.2 1.0 2.1

Non-display components (semi, RF, connector)

*TSMC 2330 TT 133,620 13.6 11.5 1.4 18.4 3.1 2.7 24.0 25.0

*Murata 6981 JP 24,839 13.1 12.1 (13.8) 16.3 1.8 1.6 13.5 14.2

*Luxshare 002475 CH 5,427 24.9 19.2 36.2 29.1 5.3 4.3 23.8 24.6

OLED equipment

Applied Materials AMAT US 26,107 15.6 12.8 37.0 22.1 3.9 3.5 23.5 31.2

Tokyo Electron 8035 JP 13,967 16.3 15.3 15.6 6.7 2.3 2.2 15.1 15.1

JSW 5631 JT 1,712 18.5 18.3 na 1.3 1.4 1.3 6.3 5.9

EO Technics 039030 KS 1,058 22.9 13.7 118.1 67.7 3.5 2.8 16.1 22.4

Wonik IPS 240810 KS 823 27.6 13.9 na 98.4 4.5 3.4 17.4 28.1

SFA Engineering 056190 KS 815 12.9 10.1 127.8 28.2 1.6 1.4 13.2 15.1

KC Tech 029460 KS 433 9.9 8.3 12.6 19.4 1.5 1.3 18.2 19.0

AP system 054620 KS 393 16.0 11.6 167.3 37.3 3.0 2.4 22.4 23.9

Jusung Engineering 036930 KS 351 12.2 11.2 328.6 8.8 2.9 2.5 26.4 24.5

HB Technology 078150 KS 267 na na na na na na na na

Viatron 141000 KS 264 na na na na na na na na

Tera Semicon 123100 KS 216 13.8 8.5 617.5 62.2 2.9 2.2 23.8 29.3

ICD 040910 KS 198 na na na na na na na na

Dong A Eltek 088130 KS 174 9.2 4.5 109.7 104.2 1.8 1.3 21.4 33.4

Invenia 079950 KS 92 na na na na na na na na

YoungWoo DSP 143540 KS 73 na na na na na na na na

OLED material

Dow Chemical DOW US 55,963 14.2 12.4 (42.9) 13.8 2.3 2.2 16.4 18.0

*Samsung SDI 006400 KS 6,499 na 15.9 na na 0.7 0.6 (3.7) 4.0

Idemitsu Kosan 5019 JP 3,259 6.1 5.8 na 6.0 0.6 0.6 10.8 9.7

UDC OLED US 3,176 62.5 45.0 249.7 38.9 6.3 5.2 6.5 13.0

Duk San Neolux 213420 KS 255 na na na na na na na na

Priced 1 Jul 2016 Sources: BNP Paribas estimate for *; Bloomberg consensus for the rest



Smartphones in 2017-2020s

We expect all high-end Galaxy smartphones and all new iPhones to adopt flexible AMOLED from 2017 (see Flexible AMOLED – a disruptive force 15 Jan 2016).

Flexible AMOLED is likely to come in three stages. The first generation of flexible AMOLED using phones began to appear in 2014, but the mass adoption really started from 2015 with Samsung’s Galaxy S6. The bended screen was mainly a design statement, although Samsung tried to add functionality with advanced UI to the bended screen area.

The second generation of flexible AMOLED-using phones is likely to have a screen that runs from end to end (both horizontally and vertically). As most of the phone’s surface can be used as an active screen area without bezels, the effective screen area can rise further (by about 0.1–0.2”) even if the actual phone size itself is unchanged.

Third generation of flexible AMOLED is likely to be the foldable screen. We think foldable screen smartphone can start a disruptive new trend, thanks to the new design possibilities that foldable screens offer. The 5” size screen can become a 9” screen if it is unfolded (for tri-fold screen).

2nd generation of flexible AMOLED (c2017)

The first and second generation of flexible AMOLED screens will not be truly “flexible”, as there will still be a rigid protective cover glass (Corning’s Gorilla glass) even though the AMOLED panel itself is film based. However, it will still be an attractive screen of choice—unbreakable and thinner.

Also, we expect new smartphone design possibilities, because the screen can run from end to end on the phone without bezels, as the sides of the screen can be folded inside the phone.

In the rigid panel (both LTPS-LCD and AMOLED) panel, there is a spare glass area (contact ledge) that is used to place display driver IC (DDIC) and attach flex panel connector (FPC) that is a channel to main board. In this COG (chip on glass) module, the DDIC can also be integrated with touch driver IC and be called TDDI.

In flexible AMOLED, as the display substrate is a flexible plastic (polyimide; PI) instead of rigid glass, the contact ledge area of the PI can be bended inward as can be seen in below exhibit.

Exhibit 2: Smartphone screen evolution path forecast

Sources: BNP Paribas

2014-2016

Bended screen

2011-2014

Larger screenHigher resolution

2017

Full cover screen

2018

Foldable screen

2007-2010

Small screen


https://eqresearch.bnpparibas.com/researchfs/SRF__ebaee10bb1354983bd65121d4e62689f.pdf


On top of saving the contact ledge area, if handset makers eliminate the physical home button placed at the bottom of the phone, the space savings can be maximized and the screen area can further extend to the very bottom of the phone. As most high-end phones today use physical home button as a finger print sensor, the finger print sensor would have to be placed in the screen, if one wants to remove the home button. Below images from Apple’s patent filing shows the touch sensor embedded in the display area.

Exhibit 3: Flexible AMOLED can save space

Source: BNP Paribas

Exhibit 4: Display panel with driver IC and connection

Source: Synaptics

Active display area

Active display area

FPC

Connector

IC Contact ledge

Front view Side view Front view Side view

Glass

PI

Flexible AMOEDLTPS LCD



The finger print sensors can also be mounted on the back of the phone as the latest Samsung patent filing also indicated. The advantage of this design is larger active display area as the finger print sensor that used to be located inside the front button can be relocated to the rear side of the phone. The potentially larger space allocated to finger print sensor can also increase the accuracy of the finger print authentication.

Alternatively, the biometric authentication can also be performed by iris scan as iris has a unique pattern for each person just like finger print and does not change over the course of their life.

However, the conventional method of detecting the iris from the high-definition facial image in real-time was expensive and the adoption was limited to high-security area.

Smartphone makers introduced more economical and viable solutions for iris scan with improved algorithm that rapidly detects and scans iris for biometric authentication. The iris scanning front camera module obtains a Near-Infrared Ray (NIR) image reflected from the subject (NIR is emitted by NIR light emitting diodes (LED)).

Exhibit 5: Touch sensor embedded in the display area

Source: Patently Mobile

Exhibit 6: Samsung files patent for front and rear-mounted fingerprint scanners

Source: Patently Mobile; Samsung



Samsung introduced Galaxy Tab Iris equipped with iris recognition technology for government and enterprises in India in May 2016 (News link), and we expect Samsung to introduce iris scan feature in its forthcoming Galaxy Note 7 (see Opportunities in an evolving camera industry 14 Jun 2016.)

As the bezel areas in the phone can be eliminated through various measures exemplified above, the active display area can run end-to-end. The published patent application by US Patent & Trademark Office (USPTO) reveals some product concepts that are possible with flexible AMOLED as the chart below shows.

Exhibit 7: Iris scan

Source: Samsung; USPTO

Exhibit 8: Galaxy Tab Iris

Source: Samsung Electronics


https://news.samsung.com/global/samsung-introduces-galaxy-tab-iris-equipped-with-iris-recognition-technology-for-government-and-enterprises-in-india

https://eqresearch.bnpparibas.com/researchfs/SRF__f19f6cb1c4c34dc9a8b28d133c3d642f.pdf


The flexible AMOLED should also lead to large reduction in thickness over first generation rigid AMOLED, not to mention TFT-LCD. Smartphone makers spend enormous efforts to reduce the thickness of the components even by 0.1mm as it can lead to better design (thinner and lighter phone), or/and use the saved space to pack in more battery. The TFT-LCD is inherently thick due to the use of many layers of glasses and existence of backlight unit. Through the glass thinning process, phone makers reduced the glass thickness down to 0.2mm. The LGP (light guide plate) in the backlight unit would be about 0.4mm, in our estimate. Although the flexible AMOLED itself doesn’t have glass, the non-foldable ones (2nd generation AMOLED) would still have one layer of cover glass. But this flexible AMOLED should still be about 1mm thinner than TFT-LCD module, which is a significant difference for mobile device like smartphone. The foldable AMOLED, without any glasses whatsoever, will be markedly thinner than any other display.

3rd generation of flexible AMOLED (c2018)

When the foldable screen technology matures and panel makers achieve sufficient production yield and affordable cost structure, a lot more innovative products that are conceived could be put into actual commercial production.

The most basic form factor of foldable screen would be two-fold. The illustration from USPTO below shows the two-fold smartphone concept.

Exhibit 9: Apple’s wraparound display smartphone

Sources: USPTO; PatentlyApple.com.

Exhibit 10: Thickness comparison of TFT-LCD, and AMOLED

Source: BNP Paribas

TFT-LCD3 layers of glass + backlight unit

Blacklight unit

TFT backplane glass

Color Filter glass

Foldable AMOLED 0 layers of glass

Rigid AMOLED3 layers of glass

Encapsulation glass

TFT backplane glass

0.6mm

0.2mm

0.2mm

~0.4mm

Flexible AMOLED 1 layers of glass

Cover window glass

Cover window glass

Cover window glass



The two-fold smartphone above has problem with the screen-aspect ratio though. For example, if the user unfolds the 16:9 aspect ratio smartphone phone screen, the unfolded screen aspect ratio would be close to square or 4:3 instead of 16:9 aspect ratio that is widely used for most video content. Even though the unfolded screen is larger, there will be a lot of wasted area when viewing at 16:9 aspect ratio contents. As such, although technologically more challenging, we think the tri-fold smartphone as shown below would be a preferred path for smartphone makers.

The tri-fold smartphone can take various forms, including the two types shown above. The type-2 folded screen may not be practical for a phone as there is no outer display for the phone user. This type may be an interesting form for a pure tablet, but not for a hybrid phone-tablet. The type-1 folded screen would be more practical solution for a phone as part of the large screen (Screen area 3) acts as a phone-mode small screen, and becomes a full tablet size when the screen is unfolded.

Images from Samsung’s patent filing show the various types of tri-fold display devices. We believe the type-2 tri-fold display may be used for pure tablet or even notebook; whereas the type-1 tri-fold display may be better suited for a hybrid smartphone.

Exhibit 11: Samsung’s two-fold smartphone

Source: USPTO; Samsung

Exhibit 12: Tri-fold screen types

Source: BNP Paribas

Screen area2

Screen area3

Screen area1

Screen area2

Screen area3

Screen area1

Screen area2

Type2

Type1



We expect the fully-unfolded screen of tri-fold display will have 4K resolution (UHD; ultra-high definition), which has 4x higher pixels than FHD’s (full HD) 2m pixels (1920x1080). In this case, the folded screen area (Screen area 3) above would have about 20-25% less pixels than QHD (Galaxy S7), but 30–40% higher than FHD screen (iPhone 6S Plus).

The 4K screen can be either 4K UHD, or DCI 4K. In the movie projection industry, Digital Cinema Initiatives (DCI) is the dominant 4K standard; and in television and consumer media, 4K UHD is the dominant 4K standard. For a foldable phone with 5.1” size screen (Galaxy S7 screen size), the unfolded screen size can be either 8.9” in case for 4K UHD standard, or 9.2” in case for DCI 4K standard.

Exhibit 13: Tri-fold display example (Type-1)

Sources: Korea Intellectual Property Office (KIPO); Samsung Electronics

Exhibit 14: Concept image of tri-fold display device

Sources: Korea Intellectual Property Office (KIPO); Samsung



It is uncertain which 4K standard will be used for the full-size unfolded screen. Below table shows the relationship between the folded screen size and the unfolded screen size for tri-fold display by different 4K standard. Even small 4” folded display can become a tablet size 7-inch display when unfolded. Likewise, if the phablet size display such as 5.7” (Galaxy Note 5) screen can be unfolded to become a 10” display, it could be large enough to cannibalize full size tablets, and even some ultra-notebooks.

Exhibit 15: Display size of folded and unfolded screen

Source: BNP Paribas

Exhibit 16: Common display resolutions

X-axis pixels Y-axis pixels Aspect ratio

HD 1,280 720 16:9

FHD 1,920 1,080 16:9

DCI 2K 2,048 1,080 19:10

QHD 2,560 1,440 16:9

QHD+ 3,200 1,800 16:9

4K UHD 3,840 2,160 16:9

DCI 4K 4,096 2,160 19:10

5K/UHD+ 5,120 2,880 16:9

8K UHD 7,680 4,320 16:9

Source: Wikipedia

Exhibit 17: Screen size simulation of folded and unfolded 4K display

4K UHD --------------------- Folded --------------------- ------------------- Unfolded -------------------

Diagonal (inch) Aspect ratio Diagonal (inch) Aspect ratio

5.7 1.69 10.0 1.78

5.5 1.69 9.7 1.78

5.1 1.69 8.9 1.78

4.7 1.69 8.2 1.78

4 1.69 7.0 1.78

DCI 4K --------------------- Folded --------------------- ------------------- Unfolded -------------------

Diagonal (inch) Aspect ratio Diagonal (inch) Aspect ratio

5.7 1.58 10.3 1.90

5.5 1.58 10.0 1.90

5.1 1.58 9.2 1.90

4.7 1.58 8.5 1.90

4 1.58 7.2 1.90

Source: BNP Paribas estimates

2160

1280

2160

3840

2160

1365

2160

4096

4K UHD

DCI 4K



There could always be risks of foldable AMOLED adoption delays for various reasons. Samsung Mobile may complacently delay the new technology adoption, even when it is ready, when the exiting second generation flexible AMOLED (non-foldable) smartphone model sales are brisk. However, we believe Samsung Display may divert the foldable AMOLED supply to non-captive third party device makers instead, which would become a competitive threat to Samsung Mobile and force Samsung Mobile to accelerate the adoption when the technology is production ready at Samsung Display. Once foldable display smartphones start to cannibalize notebook PC and tablet market, increased competitive pressure may force notebook PC, and tablet makers to also embrace flexible AMOLED technology aggressively. Interestingly, Lenovo exhibited its foldable smartphone and tablet in June 2016.

Stretchable AMOLED (2020s)

The flexible AMOLED-based devices will be very easy to carry by bending, folding, or rolling the display. Flexible AMOLED will need to have stretchable characteristics at the bending portion of the device. Future mobile devices shown below make full use of the flexible AMOLED’s flexibility. As shown in the chart below, a tablet device is folded so it can be used as a mobile phone, and then the stretchable display is bent so it can be wound around the wrist of the user to be used as a watch.

We think such concept will take a long time to materialize as the non-display part (flexible board, chips, batteries etc.) design and materials have to also change, and be able to withstand the repeated stress from the bending.

However, when these devices begin to hit the market, they could truly prove to be very disruptive products that can reshape the IT industry. Flexible AMOLED can make this happen, in our view.

Exhibit 18: Lenovo’s foldable devices at 2016 Tech World

Source: Lenovo

Lenovo Folio tabletLenovo C Plus smartphone



Exhibit 19: Stretchable display devices

Sources: USPTO; Samsung Electronics



Enabling technologies for the flexible display

The flexible AMOLED manufacturing process is different from that of rigid AMOLED screen using glasses: Instead of glass encapsulation, the OLED materials are encapsulated by multiple layers of thin films. The display has to be protected by plastic window instead of cover glass. The base polyimide film, on which TFT circuits are fabricated and OLED materials are deposited, has to be taken off from the glass carrier at the end of manufacturing stage.

Despite the large advantage of the flexible AMOLED, the actual commercialization has been slow due to technological challenges and expensive process costs. The key enabling technology for flexible AMOLED are:

1 Thin film encapsulation

2 Protective cover film

3 Flexible base film

Thin film encapsulation

Encapsulation is very important in AMOLED. Exposing organic material in AMOLED to oxygen and moisture will kill the pixel. The rigid AMOLED does the encapsulation by putting an encapsulation glass on top of OLED and sealing the edges. However, when it comes to the flexible AMOLED, the use of glass is not an option, and the film based encapsulation is the norm. The thin film encapsulation (TFE) has been one of the most critical factors for flexible AMOLED production cost and yield.

Early efforts (2010-c2012)… mired with problems

Samsung’s original TFE technology came from Vitex System (acquired by Samsung in 2011), which was known as the pioneer of encapsulation with excellent barrier technology and core IP related to encapsulation process.

The TFE process works by coating a continuous TFE stack over the entire display area. The organic and inorganic layers are alternately stacked on the display unit on the substrate to encapsulate the display unit. The inorganic layer provides the primary barrier to oxygen and moisture protecting the OLED. The organic layer serves to planarize and smooth the display surface so that the next inorganic layer can be deposited onto a smooth, flat, clean surface. The organic layer allows for flexibility of a flat panel display device.

In Vitex’s “Barix Multilayer Deposition”, about 4-5 pairs (dyad) of inorganic (aluminium oxide; Al2O3), and organic (acrylate monomer) is deposited.

This TFE technology was a very expensive and slow production process. To make the TFE, the AMOLED panel had to go through 8-10 deposition chambers to deposit 4-5 pairs of organic/inorganic layers. Actually, there were more chambers to go through as each organic layer had to be heat cured under ultraviolet light to form each seal layer.

And the tools had a lot of issue. In the early days of TFE, Samsung used ULVAC’s sputtering tool (PVD) for Al2O3 deposition, and SNU Precision’s evaporation tool for

Exhibit 20: Glass encapsulation and thin film encapsulation


Inorganic layerOrganic layerSealant Getter

Glass encapsulation Thin film encapsulation



organic layer. The sputtering process damaged the OLED itself, leading to low yield problems (higher defect rate). Samsung tried to use ALD (atomic layer deposition) from Wonik IPS instead, but the ALD’s very slow deposition (low throughput) was not suited for high volume mass production. Likewise, using evaporation tool for organic material deposition was a very slow and expensive process. Samsung’s flexible AMOLED was mired with production issues until 2012. It was simply too expensive to produce, and the production process couldn’t scale to commercial volume.

Introducing Inkjet printing to TFE… improving throughput for organic layer

Samsung has been working with Kateeva, maker of inkjet printing manufacturing equipment solution for AMOLED, and has also made investment in Kateeva in 2014. The inkjet printing for organic material deposition is vastly more effective and inexpensive way to deposit organic material than evaporation method. Samsung introduced Kateeva’s inkjet printing for organic material deposition in TFE, which should have improved productivity of TFE process due to reduced production time and process costs.

We think the inorganic material deposition tool also changed to PECVD due to the problems of sputtering (high defect) and ALD (low throughput) method.

Introducing all inorganic layer TFE… high throughput system

The alternately stacking organic and inorganic layers process has been burdensome and complicated as the organic and inorganic layers are deposited in different chambers. The substrate is moved from or to the chambers for depositing an organic layer and an inorganic layer repeatedly.

To address this problem, Samsung proposed (US patent US8461760 B1) that a TFE structure may be formed using only an inorganic layer.

In this approach, the inorganic layers (silicon nitride; SiNx or silicon oxide; SiOx) act as barrier film that blocks water/oxygen penetration. And the HMDSO (hexamethyldisiloxane) layer is interposed between the inorganic layers to act as a buffer layer

The HMDSO layer has both organic and inorganic characteristics. It has a flexibility characteristic similar to that of an organic layer. Thus, the HMDSO layer may prevent (or reduce or resist) cracks by effectively absorbing stresses of the inorganic layers due to the flexibility (like that of an organic layer). The HDMSO layer can be deposited in the same chamber as the inorganic layers since the HMDSO layer is substantially an inorganic layer too.

As such, although the thin film encapsulation structure is a multi-layer structure, the inorganic layers and the HMDSO layer may all be formed in a single PECVD chamber, instead of moving through several chambers.

Exhibit 21: Vitex’s “Barix” thin film encapsulation – too many layers, too expensive

Source: Vitex



Interestingly, and not surprisingly, the largest equipment maker, Applied Material (AMAT US, not rated) followed up with similar patents on methods of depositing SiN and plasma-polymerized HMDSO (pp-HMDSO), and launched AKT 20K TFE PECVD system (for half 6G glass size) in Oct 2015. AKT 40K TFE PECVD was also launched for WOLED TV panel TFE (half 8G glass size).

Applied Material noted in 1Q16 earnings conference call that it got USD700m of display equipment orders, up from USD183m in prior period. We think Samsung’s large investment in flexible AMOLED A3 fab was main driving force. From the Applied Material’s display equipment order hike, we think Samsung has changed the TFE technology to SiN/HMDSO/SiN 3-layer stacks using AKT 20K PECVD. While the TV and rigid display applications use 5-layer stacks of SiN/SiCN structure as shown below, the flexible mobile applications use 3-layer stacks of SiN/HMDSO structure.

We think Samsung can achieve large boost in productivity (faster throughput, simpler structure, higher yield), and accordingly reduced cost of production. Below chart shows how the TFE layers reduced in number of stacked multilayer.

Exhibit 22: TFE by stacking inorganic layers

Sources: USPTO; Samsung

Exhibit 23: SiN/HMDSO/SiN 3-layer stacks

Source: Applied Materials



Protective window cover

The foldable AMOLED cannot use glass as a protective cover as the curvature radius of bending (R) is not enough to meet the foldable display’s requirement of near 1mm (1R).

Corning’s flexible Willow Glass has 90R for 100μm thickness glass, and 180R for 200μm thickness glass. Nippon Electric Glass showed that the very thin glass of 50μm thickness can achieve 40R. Thinning glass further below 50μm thickness can breach safety limit of breaking glass stress. However this is still way off from the 1 or 2R requirements of foldable display. Despite many merits of glass cover, it is not an option for a foldable AMOLED.

Therefore, the flexible plastic film layer has to replace glass as the protective window. The challenge of the window made of plastic is that it is susceptible to scratches on the surface with frequent contacts with sharp objects. In addition, the window made of plastic may undergo appearance deformation such as curling or waving.

The surface hardness of the plastic window may be measured by applying a load of 1 kg with a pencil hardness tester. With the surface hardness within the range, surface scratching may be prevented. Surface hardness scale, which is a manner of characterizing surface hardness by means of standard pencil grades, which are, from hardest to softest, 9H, 8H, 7H, 6H, 5H, 4H, 3H, 2H, H, F, HB, B, 2B, 3B, 4B, 5B, 6B, 7B, 8B, 9B.

Exhibit 24: TFE encapsulation evolution – reduced layers, simpler process

Sources: Vitex, Applied Material

Exhibit 25: Corning’s Willow Glass – not flexible enough for foldable display

Source: Corning



Samsung has been trying very hard to increase the surface hardness of the plastic window. We think Samsung is trying to increase the surface hardness to 9H from 7-8H level for its plastic protective window.

The surface hardness of the plastic window can be enhanced by adding hard coating layer. The chemical composition of hard coating layer can be diverse, but the most common chemical that is most often cited in Samsung’s patents is silsesquioxane. We think silsesquioxane is the key chemical candidate for hard coating layer due to its rigidity, and also versatility.

According to Wikipedia: A silsesquioxane is an organosilicon compound with the chemical formula [RSiO3/2]n (R = H, alkyl, aryl or alkoxyl). Silsesquioxanes are colourless solids that adopt cage-like or polymeric structures with Si-O-Si linkages and tetrahedral Si vertices. Silsesquioxanes are members of polyoctahedral silsesquioxanes ("POSS"), which have attracted attention as precursors to ceramic materials and nanocomposites. Diverse substituents (R) can be attached to the Si centers. The molecules are unusual because they feature an inorganic silicate core and an organic exterior. The silica core confers rigidity and thermal stability.

The basic structure of plastic window for foldable AMOLED would look as below as patented by Samsung (2014). The hard coating layer would be placed on the outer most surface and act as a protection sheet.

Exhibit 26: Pencil hardness scale

Source: Wikipedia

Exhibit 27: Silsesquioxane’s silica core confers rigidity and thermal stability

Source: Wikipedia

Silsesquioxane Silica (SiO2)



As a window made of a plastic material in general has a structure in which different plastic substrates are stacked, the plastic substrates have different properties, and may deform appearance of the window, especially if it is not flat (i.e. foldable). Samsung’s other patent shows stacking two separate layers of plastic substrates to form a light transmittance film. The buffer layer positioned between two plastic substrates would bond them together and also simultaneously absorb a deformation difference when the first and second plastic substrates have different deformation behaviours, and also absorb impact applied on the second plastic substrate. The second plastic substrate would have hard coating layer on the surface.

However, even if Samsung resolves all needed windows cover film technologies, the outer look and feel of the plastic surface wouldn’t match the glass cover experience to consumers. The foldable phone will be a very high-end expensive phone, but the look and feel of the plastic window cover may not give the high-end luxury product feelings. It is like plastic casing and metal casing of the phone—high-end plastic casing would still fall short of metal casing feel and look.

Exhibit 28: Cross section view of plastic window for a flexible AMOLED – (1)


Exhibit 29: Cross section view of plastic window for a flexible AMOLED – (2)


Hard coating layer

Binder layer

Polymer resin layer

Auxiliary layer Light transmittance film

Light transmittance film

1st plastic substratePolymer resin layer

Buffer layer2nd plastic substrate



Disruptive technology: marriage of glass and plastic—hybrimer

There is a way to have the merits of both glass (surface hardness, luxurious look/feel) and plastic (flexibility). This is thanks to the nano-technology, with the glass and plastic mixed at the molecular scale, leading to the formation of inorganic-organic hybrid materials (hybrimer).

Samsung has been working with Solip Tech, a spin-off of KAIST (Advanced Institute of Science & Technology) of Korea. According to Solip Tech, molecular design of Hybrimer of inorganic and organic species gives the improved characteristics tunable between glasses and polymers. Also, the process of the Hybrimer is very flexible and versatile, making easy and cheap fabrication of devices.

By embedding glass fabric into hybrimer matrix with same refractive index, Solip Tech obtained low thermal expansion coefficient (CTE) film with high transparency. The refractive index of hybrimer can be easily modified by tuning the functional group’s ratio. Solip Tech fabricated glass-fabric reinforced (GFR) hybrimer film with glass-woven fabrics, and a highly thermally stable siloxane hybrid resin as a matrix.

According to OLED Association, Samsung has tested various products from Sumitomo, Pakistan’s Gunj Glass, 3M and Corning’s Willow Glass, and after 100,000 folds to a 3mm radius, the Hybrimer material retained its original shape and had no structural or visual changes, while also maintaining a hardness rating of 9H+, similar to Corning’s Gorilla Glass. We think if the radius can be reduced down to 1mm (1R), it can replace all exiting thin film-based plastic covers.

Exhibit 30: Glass-fabric reinforced (GFR) Hybrimer films for flexible display substrate

Sources: KAIST; Solip Tech

Exhibit 31: New Siloxane Hybrid Materials (Hybrimers)

Sources: KAIST; Solip Tech



If the Hybrimer technology is commercialized, we think the new Hybrimer films can be used as the cover glass window for foldable AMOLED. We can also speculate this new material to be nano-coated on other films such as polarizer and polyimide instead of being used as a standalone film. We think the Hybrimer film can also be used for the encapsulation layer as it has glass characteristics too (blocks water/oxygen). The commercialization of Hybrimer has the potential of radically changing the foldable AMOLED structure and production process.

Plastic TFT backplane

The flexible substrate is used to replace conventional glass substrates, on which TFT fabrication and OLED material deposition process is performed. Polyimide (PI) film is the ideal material that can withstand high temperature (>500°C) during the manufacturing process, and has the right mix of hardness and flexibility.

However, just fixing PI film itself on the carrier glass cannot be used in the manufacturing process. Exact patterning of TFT/OLED would be difficult due to differential thermal expansion/contraction of PI and the carrier glass, as well as lack of adhesives that can strongly bind PI and carrier glass under high temperature manufacturing process.

Samsung and Ube introduced varnish type liquid PI that solved the above mentioned issues. The liquid PI can be slot coated on the carrier glass and heat cured to become a solid but flexible PI. The TFT/OLED patterning can be processed reliably as the PI is hard fixed to the carrier glass. Both companies worked long time finding the right mix of liquid PI, duration and temperature of curing.

The taking off the carrier glass from the hard attached PI is done by LLO (laser lift off), the short wave length (308nm) excimer laser.

Exhibit 32: Laser lift off – delaminating PI from the carrier glass

Source: Coherent



Impact of 4k UHD display on semiconductor chip evolution

We think 4K UHD display in mobile can thrive thanks to VR (c2017), and tri-fold phones (c2018) that can fully utilize large screen size (c9”).

VR (Virtual Reality)

For mobile VR, the screen resolution in smartphones may need to be bumped up to UHD from 2017, as even QHD resolution doesn’t seem enough when the screen is magnified by lenses.

As such, although the 4K UHD resolution in a 5” phone itself is an over-kill as most consumers won’t be able to tell the difference with QHD in their naked eyes, once the 4K UHD phone is mounted on a VR headset, there will be noticeable user experience differences.

The processing of high resolution 360-degree video in VR is very taxing on most hardware, and proper experience requires a strong CPU/GPU combo and large DRAM buffer. We think growing number of high-end phones to start to use 6GB DRAM as they migrate to 4K UHD display based VR.

4K tri-fold display

The 4K UHD is 4x the resolution of FHD with about 8MP (4K x 2K pixels)—8.29MP for 4K UHD, and 8.85MP for DCI 4K to be more exact. The higher spec SoC, DRAM, NAND, and high speed RF requirement should rise with the proliferation of 4K tri-fold display.

The high resolution camera modules mounted on the phone didn’t really make sense in the past as the 8, 10, 12, 13, and 16 mega pixel (MP) images exceeded the maximum screen resolution of phone, PC monitor and TV. However, we think screen resolution will now start to match the camera resolution from 4K UHD (8MP). If screen evolves to 5K (14.7M) and 8K (33.2M) in the future, the screen resolution will finally exceed the camera resolution offered today.

When the large size tri-fold display (about 9-inch when unfolded) with 4K resolution becomes available to consumers, we think personal videos taken in 4K 60fps, media content and powerful games that fully leverages on large high resolution screen will proliferate.

Mobile screen trend is a great indicator of how internal components will evolve as the size and resolution of the screen goes hand-in-hand with processing power and buffer memory (DRAM) needs. Greater multi-tasking capabilities with large screens further boost the processing power and memory requirement.

Back in 2009, the iPhone 3GS with tiny 3.5-inch low resolution HVGA screen (320 x 480, only 0.15MP) could work perfectly fine with a 600MHz single core processor made in 65nm design rule, and a 256MB DRAM buffer. It was the cutting edge hardware spec back then, Samsung’s first Android phone, I7500 Galaxy, used SoC made at 90nm design rule and 128MB DRAM.

Compare that to latest Galaxy S7 which has 5” QHD resolution (1440 x 2560, 3.7MP), powered by octa-core processor (Quad-core 2.3 GHz Mongoose + quad-core 1.6 GHz Cortex-A53 for Exynos version) fabricated with 14nm FinFET technology and supported by 4GB DRAM buffer. Screen resolution increased by 24x, processor speed by 30x (simple comparison of clock speeds), and DRAM size increased by 32x. The screen resolution, processor performance, and DRAM size generally moved in similar direction and magnitude.

We expect high-end smartphones (Apple, Samsung) to introduce 10nm FinFET processors from 2017. We expect Samsung to introduce 4K UHD screen (2.25x higher resolution than QHD), which could drive the DRAM size to 6GB.

We expect tri-fold smartphone to start to hit the market from 2018, which would bring the 4K resolution in a much larger 9-inch screen. When the unfolded 9-inch screen



starts to evolve to 8K resolution, there would have to be a large increase in processing power and DRAM buffer memory size as the 8K UHD has 4x more pixels than 4K UHD.

Interestingly, the battery size was the one that only increased by 2x to 3000mAh during 2009-2016 as the battery chemistry improvement speed is much slower than the other semiconductor based components (screen, processor, memory etc.). And this leads to the problem of controlling power consumption in the ever more powerful mobile devices.

The attempt to gain greater performance and reduce power needs had led to increased use of HKMG through the introduction of two new materials: high-k dielectric gate oxide and metal gate electrode, combining into HKMG from 32nm design rule. And when the trick started to lose effectiveness, despite the high cost of introducing 14nm/16nm FinFET technology in application processor (AP), smartphone makers started using FinFET from 2015 onward.

The embedded NAND storage size growth was relatively slow compared to DRAM. However, we expect the NAND storage growth can be accelerated with the 4K content proliferation. Our testing of video recording with the Galaxy S6 in various recording modes indicates that 4K recording in 60fps for 5min would need about

Exhibit 33: Performance increase from first Samsung Android phone to Galaxy S7


Exhibit 34: Display resolution, processor, DRAM and camera trend

Display resolution Denotation AP design rule Application processor clock speed DRAM Camera Video recording Smartphone model

480 x 320 HVGA 90nm 528MHz single core Qualcomm 128MB 5MP Samsung I7500 Galaxy

800 x 480 WVGA 45nm 1GH single core 512MB 5MP 720p@30fps Samsung Galaxy S1

800 x 480 WVGA 45nm 1.2GH dual core 1GB 8MP 1080p@30fps Samsung Galaxy S2

1280 x 720 HD/ (WXGA) 32nm HKMG 1.4GHz quad core 1GB 8MP 1080p@30fps Samsung Galaxy S3

1920 x 1080 FHD 28nm HKMG 1.6GHz quad + 1.2GHz quad 2GB 13MP 1080p@30fps, dual-video rec Samsung Galaxy S4

1920 x 1080 FHD 28nm HKMG 2.5GHz quad Qualcomm 2GB 16MP 2160p@30fps, 1080p@60fps, 720p@240fps, HDR, dual-video rec.

Samsung Galaxy S5

2560 x 1440 WQHD 14nm FinFET 2.1GHz quad + 1.5GHz quad 3GB 16MP 2160p@30fps, 1080p@60fps, 720p@120fps, HDR, dual-video rec

Samsung Galaxy S6


Samsung Galaxy S7


Samsung Galaxy Note 7

3840 x 2160 4K UHD 10nm FinFET 6GB 12MP 2160p@60fps, 1080p@120fps, HDR, dual-video rec.

Samsung Galaxy S8

3840 x 2160 4K UHD 7/10nm FinFET 6-8GB 12MP dual?

2160p@120fps, 1080p@240fps, HDR, dual-video rec.

Tri-fold phone ?

7681 x 4320 8K UHD 7nm FinFET 8-12GB 32MP? 4320p@60fps, 2160p@120fps, HDR, dual-video rec.

Tri-fold phone ?

Note: Italics are BNP Paribas expectations Sources: Samsung; Display Search; Wikipedia; GSM Arena; BNP Paribas

24

30 32

8

2

0

5

10

15

20

25

30

35

Screen resolution Processor clockspeed

DRAM size NAND size Battery size

(x) Galaxy phone change from 2009 to 2016



3GB of NAND storage. We expect high-end phones to start offering 256GB NAND storage from 2H16. The NAND storage growth would finally catch up with processor, and DRAM growth path of 2009-2016, in our view.

The data communication speed has vastly increased from 2009 to 2016 by about 63x. The first Samsung Android phone and iPhone 3GS had 7.2Mbps download speed (HSPA), which looks extremely slow when compared to Galaxy S7 which has 450Mbps download speed (LTE Cat9). The speed will further move up to 1Gbps with the introduction of 5G service in 2020.

Exhibit 35: File size with 1min video recording (MP4 file size (MB))

Note: recording data with Galaxy S6 Source: BNP Paribas

0

50

100

150

200

250

300

350

400

HD 30fps FHD 30fps FHD 60fps QHD 30fps 4K UHD 30fps

(MB)



RF technology evolution toward 2020

Targeting 1Gbps

The basic direction of wireless communication technology advances is toward a marked improvement in communication speed from the current best speed of some 250Mbps to 1Gbps (1000Mbps), at the earliest in 2018 and at the latest by 2020, in our view. Some people think that current speeds are sufficient but in highly densely populated areas (railway terminals etc.) and at busy times (when people are commuting to work or school) the telecom environment is not satisfactory. Also, from here, there will be demand for stress-free sending and receiving of 4K and 8K content.

Three arrows: CA, high-frequency bands, MIMO

Advances in wireless communication technology are focused on three areas (1) carrier aggregation (CA), (2) use of high-frequency bands (ultra-high bands) and (3) Multiple Input Multiple Output (MIMO). (1) and (2), and particularly ultra-high band usage, will be introduced through small cells; small cells can be interpreted as a new technology. To ensure that electromagnetic waves use high-frequency bands, several small base stations are installed, and high frequency bands are used within the small cells.

All these technologies are vital to make it possible to achieve 4K and 8K data and in future 1Gbps. Sometimes the general term “LTE-Advanced” is used for these three technologies (that said, LTE-Advanced does not consist of these three technologies only).

Exhibit 36: Changes in wireless technology: CA + high-frequency bands +MIMO = achieving 1Gbps

Sources: Anritsu; Nikkei BP; BNP Paribas estimates

2016: TDD/FDD CA using the 3.5GHz band starting in June

At Wireless Technology Park 2016 (WTP 2016), NTT DoCoMo introduced carrier aggregation with a three-component carrier (3CC CA; as below) format using the 3.5GHz band at its booth (it plans to begin provision from late June). The 3.5GHz band adopted TDD (time division duplex), rather than FDD (frequency division duplex). The new 3CC CA uses three waves, with two waves from the 3.5GHz band (TDD, Band 42) and one from the 1.7GHz band (FDD, Band 3), and aims to support a maximum of 370Mbps for reception.



During June, NTT DoCoMo will likely be implementing use of the A) 3.5GHz band and B) TDD/FDD CA that we discussed in our “Is visibility really increasing?” report issued on 9 February. The company initially plans to restrict use of the 3.5GHz band to Wi-Fi routers, but we expect this could be expanded to include smartphones. According to Ministry of Internal Affairs and Communications' report, KDDI intends to begin use of the 3.5GHz band from June, similar to NTT Docomo, and Softbank plans to start usage from December.

We explained the impact of using the A) 3.5GHz band and B) TDD/FDD CA on the high frequency (RF) circuit in our report “Start of 3.5GHz and TDD/FDD CA”. Also, please refer to our “Is visibility really increasing?” report for more information on changes in the RF circuitry.

From 2017: Adoption of new high-speed technology

The NTT DoCoMo booth disclosed new high-speed technology for deployment from 2017, besides the adoption of 3.5GHz. Specifically, it covered three technologies for even faster speeds – A) expanded CA, B) expanded MIMO, and C) multi-level modulation (Exhibit 38). NTT DoCoMo said it plans to apply these three new high-speed technologies from 2017 and is aiming for a peak communications speed of over 500Mbps. We have also discussed how the RF circuitry will change going forward in our report “Start of 3.5GHz and TDD/FDD CA”.

Exhibit 37: TDD/FDD 3CC CA using the 3.5GHz band Exhibit 38: 3.5GHz band newly added

Source: Created by BNP Paribas based on NTT DoCoMo’s information Source: Created by BNP Paribas based on NTT DoCoMo’s information

Exhibit 39: Use of even faster technologies from FY2017 – Aiming for over 500bps

Source: Created by BNP Paribas based on NTT DoCoMo’s information


https://eqresearch.bnpparibas.com/researchfs/CR__4377fbb075904daeb4afcaa00c54e85b.pdf

https://eqresearch.bnpparibas.com/researchfs/CR__881065705a3f4390ad489829d867cf1b.pdf

https://eqresearch.bnpparibas.com/researchfs/CR__4377fbb075904daeb4afcaa00c54e85b.pdf

https://eqresearch.bnpparibas.com/researchfs/CR__881065705a3f4390ad489829d867cf1b.pdf


Winners and losers

The tech industry has fundamentally transformed since 2009 with demand shifting to smartphones/tablets from traditional tech products. Consumer demand shifted away from traditional tech products and towards convergence device – smartphone.

The demand for specialized portables (portable media players, digital still camera, camcorders, game consoles, GPS navigation devices) has been shrinking since its 2008 peak as the functions of these products are incorporated into smartphones. PC and TV shipments both peaked in 2011 and then started to decline. On top of uncertainty in the macroeconomic environment, which stifled consumer demand for large-ticket items, the cannibalization of PCs/TVs by tablets/smartphones intensified. Consumers increasingly spent more time on tablets/smartphones over traditional infotainment devices. Instead of having multiple PCs and TVs in the household, consumers moved away from them. Even tablet, the relatively new product category, is now being cannibalized by large-screen sized smartphone (phablet).

We believe the foldable display (and eventually stretchable display) will further the convergence trend. The foldable/stretchable will bring new breeds of convergence devices that would cannibalize the standalone function products. The rigid screen form factor smartphone is getting commoditized, and those who stay in rigid small screen device are likely to be left out in the cold.

We think there will be clear winners and losers in the mid to long term in the tech industry.

The winners

Flexible AMOLED makers and supply chain (AMOLED equipment, material suppliers).

Mobile device makers that have access to flexible AMOLED supply.

Components that are needed to power high resolution foldable screen and content delivery (SoC, DRAM, NAND, RF)

The losers

LCD panel makers and supply chain (glass, backlight unit, polarizer, liquid crystal etc.)

Mobile device makers that have limited access to flexible AMOLED supply.

TV, PC and tablet makers whose market could further get cannibalized by foldable mobile devices

Then why doesn’t everyone move to flexible AMOLED production and use it in their convergence devices, like they did with LCD? Flexible AMOLED technology has very high entry barrier and is very difficult to copy when compared to LCD, in our view, because:

1 AMOLED image driving circuits has analogue characteristics

2 AMOLED organic material chemistry structure is closely guarded

3 Flexible AMOLED involves deep research into material science

4 Manufacturing challenges (low yield can be a business killer)



AMOLED image driving circuits has analogue characteristics

AMOLED is not a pure digital technology like TFT-LCD, where each pixel is turned on/off by voltages, which has large engineering margin. In AMOLED, the pixel brightness is proportional to the current, and the current flow is proportional to voltage (controlled by the gate voltage relative to both the source and drain voltages). As such, any variation in the threshold voltage of the current drive TFT shows up as a variation in pixel brightness. The engineering margin of AMOLED is much tighter than LCD in terms of TFT driving (200-400x). We estimate the allowed threshold voltage shift margin is 4V for LCD, but 0.01V for AMOLED (0.3V for AMOLED with compensation circuit).

OLED material chemistry structure improvement and optimization

As AMOLED devices are structurally dependent on light generation mechanisms in organic material layers, as well as optimum device architecture and process methods—many of which are patent protected and process dependent—it is a business that has high-entry barriers. Panel makers have to closely work with their material and equipment suppliers.

Samsung has been diligently improving on many generations of OLED material structure from M1 to M8, where it has keep improved on OLED material efficiency, lifespan, power consumption and cost. Improving each individual layers of OLED material over generations of M1 to M8 is important, but it is critical that each material is optimized with overall OLED material structures.

Exhibit 40: The Vth variation margin is very tight for AMOLED

Sources: Companies; BNP Paribas

Exhibit 41: Samsung’s OLED material structure evolution Samsung Display

Material M2 M3 M4 M5 M6 M7 M8

HIL Duksan Neolux, LG Chem

Duksan Neolux, LG Chem






*P+ Samsung SDI Samsung SDI Samsung SDI Samsung SDI Samsung SDI Samsung SDI Samsung SDI

HTL Duksan Neolux, Doosan

Duksan Neolux, Doosan






ETL LG Chem LG Chem Samsung SDI Samsung SDI Samsung SDI Samsung SDI Samsung SDI

Red (Host) Dow Chem Dow Chem Dow Chem Dow Chem Duksan Neolux Dow Chem Duksan Neolux

Red (Dopant) UDC UDC UDC UDC UDC UDC UDC

Green (Host) Doosan Nippon Steel Nippon Steel Nippon Steel, UDC Samsung SDI Samsung SDI Nippon Steel, UDC

Green (Dopant) UDC UDC UDC UDC UDC UDC UDC

Blue (Host) SFC SFC Dow Idemitsu Kosan Idemitsu Kosan Idemitsu Kosan Idemitsu Kosan

Blue (Dopant) SFC SFC Chisso Idemitsu Kosan Idemitsu Kosan Idemitsu Kosan Idemitsu Kosan

Note: Samsung SDI (pre. Cheil industries before merger with SDI) acquired Novaled (P+ maker) in Sep 2013 Sources: UBI Research; Companies; BNP Paribas estimates

TFT- LCD AMOLED with compensation circuit

AMOLED without compensation

circuit

Ids Ids Ids

VDS VGS VGS

~4V0.3V

0.01V



Material Science: Flexible AMOLED involves deep research into material science

To produce commercially viable flexible AMOLED, one has to research extensively into new enabling material science, which usually take years to bring results. The foldable display has to have a very low curvature radius bending (about 1R-3R), and has to withstand 100,000 times of repeated folding and unfolding without any cracks, whitening, delamination, and circuit breakdowns. As discussed on the “enabling technologies for the flexible display”, there have been great efforts and progress made in thin film encapsulation, protective cover film, and flexible base film technologies. Particularly exciting is the new nano-technology where glass and plastic can be married into new materials such as glass-like films. We believe Samsung is several years ahead of competition as most panel makers haven’t done enough deep research into new material science.

The LCD industry has been a level playing field. Korean and Taiwan LCD panel makers got TFT-LCD technology licenses from Japan and bought equipment from Japan. The panels produced were more or less identical and LCD became a commodity business, where even Chinese makers have jumped in. However, when it comes to AMOLED, the design and manufacturing recipe is a closely guarded secret, which makes AMOLED a very high entry barrier technology. We believe the transition from LCD to AMOLED technology will lead to differentiation and divergence of panel makers’ fortunes.

Manufacturing challenges: Low yield can be a business killer

Although flexible AMOLED market is set to grow fast, there is a high operational risk with the flexible AMOLED production, in our view. We estimate LGD is making large losses in both POLED (plastic OLED) for Apple Watch, and WOLED TV panels. Acutely aware of its technology status, equipment bottleneck and operational risks in POLED, LGD is not stretching itself to build its POLED capacity aggressively to compete with Samsung for new iPhone flexible screen project.

Most prototypes of flexible AMOLEDs showcased by non-Samsung panel makers have extremely low yield (less than 1%) and don’t usually last more than one day, in our understanding. We believe it would take 4-5 years for non-Samsung panel makers to develop commercially viable flexible AMOLED. No matter how financially strong, companies in semiconductor and display industry cannot push on production with very low yields.

Samsung to drive disruptive changes

We believe Samsung is in a position to drive these disruptive changes. Many others may be left out in cold. In terms of hardware and design, we think Samsung and Apple will be the only two smartphone makers to use flexible AMOLED for all their high-end products in 2017 distancing themselves from the rest of the smartphone makers. More disruptive change is likely to come with foldable AMOLED. We expect the first foldable AMOLDED model from Samsung (that essentially tests the market) to be introduced in 2017 with mass commercial adoption from 2018-19. We think these foldable smartphones will increasingly replace tablets first, then notebook PCs later. The current screen used in Galaxy Note 5 can become a 10-inch screen if it is unfolded (tri-fold screen). It would be large enough to replace tablets, and even notebook PCs. When successfully executed, we believe foldable AMOLED will insulate Samsung from smartphone commoditization until competition starts to offer foldable AMOLED, which we think is at least four to five years behind Samsung.

Tier-two brands: need to exit or cut loss by further slimming down

We expect tier-two brands’ mid- to high-end smartphones to come under more pressure as they have to compete with one-year old iPhone and Galaxy phones that are re-supplied to the market through trade-in and early upgrade programmes (see Used phones leading to further bipolarization 8 Jun 2016. In the price-sensitive low- to mid-end segment, we believe Chinese smartphone makers will increasingly dominate leveraging their Shenzhen eco-system economies of scale and near-cost pricing practice.


https://eqresearch.bnpparibas.com/researchfs/SRF__93114e3e47d947c5aee314e9a75ad8e8.pdf


We think LGE lacks brand loyalty and differentiated technology, and as such will remain fully exposed to the strong competition that most Android smartphone makers are suffering from. And we see slow growth prospects for the smartphone market. We think LGE and other tier-two smartphone makers need to re-evaluate their phone businesses. For LGE in particular, after lacklustre sales of flagship smartphones two years in a row, we believe it will have to further restructure the smartphone business but that the strength of its other businesses (appliances and TVs) should mitigate the pain with record high profit in 2016 (our expectation).

Chinese phone makers: may suffer from weak bargaining power

Given the trend of flexible or foldable smartphone, we see unfavorable position for selective smartphone brands in Greater China due to their less bargaining power with key component (panel) suppliers (though OPPO/BBK or even Huawei have larger scale which could help them in this regard). We hold conservative view on Lenovo as we think it takes time for the company to define its smartphone product portfolio. Its weak capability in product development and distribution channel could continue weighing its smartphone business. We thus think it will continue struggling if the design norm changes to flexible/foldable. We also see Asustek’s challenge may get bigger due to its insufficient scale when competing with global big guys in the smartphone market.

Mobile LTPS LCD panel makers: severe flexible OLED headwinds

We believe all high-end smartphone will migrate to flexible AMOLED from 2017. We expect the overall market to shift towards AMOLED as Chinese smartphone makers tend to follow tier-1 brands’ lead. Chinese smartphone makers are currently aggressively adopting AMOLED as well. As the above scenario unfolds, we think LCD makers’ LTPS LCD capacity may become an operational burden and become a major drag on earnings during 2H17-2018 as:

When the new flexible AMOLED capacities are added to the mobile screen supply base, we believe the chronic oversupply problem of mobile LCD panel is likely to become serious. The Apple-dedicated LTPS LCD capacity of JDI, Sharp and LGD will, in our view, become a significant concern. Thus, we think the fab utilization rate could potentially drop.

Although LCD makers is likely try to divert LTPS LCD supply to Chinese smartphone makers, LTPS LCD panel price may also fall sharply in panel makers’ effort to sell the surplus panels to Chinese smartphone makers. To make matters worse, Chinese panel makers are currently building 5.5G/6G LTPS LCD capacity.

Switching LTPS LCD fab for production of AMOLED can relieve LTPS LCD over-supply, but costs money and time. LTPS TFT backplane capacity can be re-used to make LTPS TFT backplane for AMOLED (some equipment need to be upgraded as the performance specifications for AMOLED are far higher). However, the organic material deposition (evaporation tools), and encapsulation tools needs to be newly invested.

Semiconductor chips: high performance, low power chip to thrive

Proliferation of 4K display in mobile devices requires semiconductor chips that are more powerful (speed, density) while reducing power consumption (4K display will consume more power than QHD, FHD).

In memory space, those who make faster migration to 1xnm technology in DRAM, and migration to 3D NAND will achieve the most power consumption reduction, higher speed, and higher density offering. Samsung leads mobile memory evolution in the memory industry, in our view.

With increasing demand for multimedia, such as gaming and VR, we believe smartphone SoC need further upgrade. We expect N10 will be the majority node for smartphone SoC as key players like Apple, Qualcomm, Samsung and Mediatek will all move to 10nm in 2017. In order to provide seamless video streaming experience, we believe faster data transmission is also needed. We see Qualcomm’s baseband modem can already support Cat 12 download and 4*4 MIMO. This will also boost



demand for transmitter/PA component. While the smartphone growth is decelerating, we see silicon content is still increasing, thus will benefit advanced key foundry players like TSMC.

Enabler of high speed data transmission: RF and Type C connector

In RF space, we think that Murata will be able to benefit from the technology evolution of wireless communication toward 2020. Murata is already a leading supplier of antenna switches and SAW devices. We believe that Murata will successfully expand Power Amplifier (PA) related business, including All-in-one module that is called PAMiD, going forward.

We think the proliferation of 4K and 8K UHD contents will also stimulate the type C connector demand, in both PC and mobile device area. High resolution content also implies big data transmission among devices, which requires the support from an advanced cable and connector. We have seen in 2016 COMPUTEX that many new products, such as smartphone and NB models, are equipped with the type C connectors (click here). Type C connector with USB 3.0/3.1 platform can significantly enhance user experience, in terms of the speed of data transmission, power delivery, and the advantages of reversible-plug and smaller physical size. Among the cable and connector assembly supply chain, we like Luxshare on its share gain story at major customers and a solid position in the type C connector industry with more than 50% global market share today.

OLED equipment & material makers: Big opportunity to Samsung supply chain

Contrary to semiconductor equipment and material space where US & Japan companies dominate, the influence of Korean supply chain in AMOLED is relatively more notable as only Samsung and LGD are producing AMOLED panels at mass production level at the moment.

Each company has built its own AMOLED eco system and nurtured domestic supply chain due to 1) better proximity; 2) prevent from potential OLED technology leakage and 3) better pricing power. Panel makers also invested in their core suppliers. For example, Samsung owns 9.0%/10.1% stakes of WonikIPS/SFA Engineering while LG has 18.7% stakes of Invenia.

We believe flexible AMOLED iPhones (expected to be launched in 2017) will spur AMOLED capex cycle during 2016-17, which will be a major cycle to AMOLED equipment makers. For AMOLED material suppliers, the iPhone driven cycle should begin from 2017 as material is consumable and is correlated to panel maker’s production capacity and fab utilization rate.

The foldable AMOLED could trigger the next round of major AMOLED capex cycle as required glass area capacity of foldable AMOLED is significantly higher. For example, 9-inch panels consume 3x more glass area than 5-inch panels, and as such the unit output is only one third of 5-inch panel output from one 6G substrate.

We think Chinese panel makers are mulling AMOLED investment rather than LCD as market demand is fast moving toward AMOLED. Although no Chinese panel makers have succeeded in AMOLED mass commercial production yet, Chinese panel makers could become major customers to AMOLED supply chain. Based on our discussion with domestic supply chains, BOE seems to be most aggressively investing in OLED among Chinese panel makers. While Samsung and LGD normally claim exclusivity with their equipment suppliers, they are allowing their equipment makers to supply AMOLED equipment to Chinese panel makers. We think this is because Samsung and LGD do not regard Chinese panel makers as a potential threat yet, given the large technology gap, and because they want their equipment makers to become financially strong. This opens the door for Korean equipment makers to grow beyond the Korean panel makers market.


https://eqresearch.bnpparibas.com/researchfs/FS__f057a252ecd840d89cb3eac5529a839a.pdf


Exhibit 42: OLED equipment supply chain

LTPS TFT

Process Equipment Samsung Display LG Display

Deposition PECVD Applied Materials Applied Materials

Crystallisation ELA AP System JSW

Litho Scanner Canon, Nikkon Canon, Nikkon

Coater Tokyo Electron Tokyo Electron

Etching Wet etcher SEMES KC Tech, DMS

Dry etcher ICD, Wonik IPS Invenia

Annealing In-line RTA Viatron Viatron

Batch Furnace Tera Semicon, Viatron Viatron

Back-end Inspection HB Technology, YoungWoo DSP Dong A Eltek

Logistics SFA Zeus

Module SFA Top Engineering

Oxide TFT


Deposition PECVD Applied Materials Applied Materials

Litho Scanner Canon, Nikkon Canon, Nikkon

Coater Tokyo Electron Tokyo Electron

Etching Wet etcher SEMES KC Tech, DMS

Dry etcher ICD, Wonik IPS Invenia

Annealing Batch Furnace Tera Semicon, Viatron Viatron

Back-end Inspection HB Technology, YoungWoo DSP Dong A Eltek

Logistics SFA Zeus

Module SFA Top Engineering

RGB OLED Cell (small panel)


Evaporation Evaporator Tokki Tokki, Sunic

Encapsulation Glass encap. AP System Jusung Engineering

Thin-film encap. AMAT, Kateeva Jusung Engineering

WOLED OLED cell (large panel)


Evaporation PECVD Tokki, SFA YAS

Encapsulation Glass encap. AP System Jusung Engineering

Flexible OLED display process (small panel)


LLO (Carrier-glass detaching) AP System EO Technics

Panel cutting/scribing PI cutter EO Technics, Philoptics NA

PI scriber NA EO Technics, Philoptics

PI curing PI batch furnace Tera Semicon, Viatron Viatron

Sources: Companies; BNP Paribas

Exhibit 43: OLED material supply chain

Panel Makers

Layer Samsung Display LG Display

ETL LG Chemical, SDI (Novaled), Tosoh Idemitsu Kosan, LG Chemical

EML Red Dow Chemical, DukSan Neolux Dow Chemical, LG Chemical

EML Green Doosan, UDC, Nippon Steel, SDI Idemitsu Kosan, Merck, Dow Chemical, Doosan

EML Blue Idemitsu Kosan, SFC, Dow Chemical Idemitsu Kosan

HTL DukSan Neolux, Doosan Idemitsu Kosan

Sources: IHS; Companies; BNP Paribas



Financial statementsSamsung Electronics

Profit and Loss (KRW b) Year Ending Dec 2014A 2015A 2016E 2017E 2018E

Revenue 206,206 200,653 212,387 217,631 223,691

Cost of sales ex depreciation (111,369) (103,820) (107,313) (107,789) (107,626)

Gross profit ex depreciation 94,837 96,834 105,074 109,842 116,065Other operating income 0 0 0 0 0

Operating costs (52,902) (50,758) (53,726) (55,053) (56,585)

Operating EBITDA 41,935 46,076 51,348 54,789 59,479Depreciation (16,910) (19,663) (22,788) (24,305) (25,166)

Goodwill amortisation 0 0 0 0 0

Operating EBIT 25,025 26,413 28,560 30,485 34,313Net financing costs 990 475 889 895 895

Associates 343 1,102 985 985 985

Recurring non operating income 1,860 (927) 1,131 1,131 1,131

Non recurring items (947) (162) (162) (162) (162)

Profit before tax 26,928 25,799 30,418 32,349 36,178Tax (4,481) (6,901) (7,951) (8,453) (9,448)

Profit after tax 22,448 18,899 22,467 23,896 26,729Minority interests 0 0 0 0 0

Preferred dividends 0 0 0 0 0

Other items 0 0 0 0 0

Reported net profit 22,448 18,899 22,467 23,896 26,729Non recurring items & goodwill (net) 947 162 162 162 162

Recurring net profit 23,394 19,060 22,629 24,058 26,891

Per share (KRW)

Recurring EPS * 137,506 114,364 140,020 154,623 181,153

Reported EPS 131,942 113,394 139,021 153,585 180,065

DPS 13,130 18,778 19,597 36,099 36,214

Growth

Revenue (%) (9.8) (2.7) 5.8 2.5 2.8

Operating EBITDA (%) (19.7) 9.9 11.4 6.7 8.6

Operating EBIT (%) (32.0) 5.5 8.1 6.7 12.6

Recurring EPS (%) (21.6) (16.8) 22.4 10.4 17.2

Reported EPS (%) (24.2) (14.1) 22.6 10.5 17.2

Operating performance

Gross margin inc depreciation (%) 37.8 38.5 38.7 39.3 40.6

Operating EBITDA margin (%) 20.3 23.0 24.2 25.2 26.6

Operating EBIT margin (%) 12.1 13.2 13.4 14.0 15.3

Net margin (%) 11.3 9.5 10.7 11.1 12.0

Effective tax rate (%) 0.0 0.0 0.0 0.0 100.0

Dividend payout on recurring profit (%) 9.5 16.4 14.0 23.3 20.0

Interest cover (x) n/a n/a n/a n/a n/a

Inventory days 59.7 63.5 65.9 68.3 70.2

Debtor days 49.7 51.6 50.4 51.3 51.2

Creditor days 102.3 105.4 96.9 100.4 103.2

Operating ROIC (%) 27.6 27.4 28.2 29.5 32.8

ROIC (%) 22.1 19.8 22.2 23.0 25.2

ROE (%) 15.3 11.4 12.5 12.3 12.8

ROA (%) 10.1 7.9 8.7 8.6 9.0*Pre exceptional pre-goodwill and fully diluted

Source: Samsung Electronics, BNP Paribas estimates



Financial statementsSamsung Electronics

Cash Flow (KRW b) Year Ending Dec 2014A 2015A 2016E 2017E 2018E


Depreciation 16,910 19,663 22,788 24,305 25,166

Associates & minorities (343) (1,102) (985) (985) (985)

Other non-cash items 4,810 10,889 2,678 2,820 2,862

Recurring cash flow 44,771 48,510 47,110 50,196 53,934Change in working capital (3,837) (4,682) (975) (415) (444)

Capex - maintenance (21,657) (25,523) (23,737) (26,246) (25,505)

Capex - new investment 0 0 0 0 0

Free cash flow to equity 19,277 18,305 22,398 23,535 27,985Net acquisitions & disposals (11,149) (1,645) (736) (347) (411)

Dividends paid (2,234) (3,130) (3,167) (5,617) (5,376)

Non recurring cash flows (4,906) (3,927) 0 0 0

Net cash flow 988 9,603 18,495 17,571 22,198Equity finance 0 0 (7,977) (3,407) (6,472)

Debt finance (823) (3,444) 208 (30) (0)

Movement in cash 165 6,159 10,726 14,134 15,726

Per share (KRW)

Recurring cash flow per share 263,156 291,064 291,499 322,620 363,330

FCF to equity per share 113,305 109,830 138,592 151,262 188,523

Balance Sheet (KRW b) Year Ending Dec 2014A 2015A 2016E 2017E 2018E

Working capital assets 53,329 53,322 56,248 57,532 58,978

Working capital liabilities (42,206) (39,126) (41,078) (41,947) (42,949)

Net working capital 11,123 14,196 15,170 15,586 16,030Tangible fixed assets 80,873 86,477 86,991 88,691 88,790

Operating invested capital 91,996 100,673 102,161 104,277 104,819Goodwill 0 0 0 0 0

Other intangible assets 9,312 10,985 11,582 11,984 12,387

Investments 17,900 13,609 14,594 15,579 16,565

Other assets 7,192 6,293 7,029 7,377 7,787

Invested capital 126,400 131,561 135,366 139,217 141,558Cash & equivalents (61,817) (71,493) (82,381) (96,814) (112,858)

Short term debt 9,808 11,377 11,377 11,515 11,672

Long term debt * 4,020 4,539 4,317 4,096 3,874

Net debt (47,990) (55,577) (66,686) (81,203) (97,312)Deferred tax 0 0 0 0 0

Other liabilities 6,100 7,719 8,149 8,341 8,562

Total equity 162,182 172,877 187,953 202,987 218,030

Minority interests 5,906 6,183 5,571 8,704 11,878

Invested capital 126,400 131,561 135,366 139,217 141,558

Per share (KRW)

Book value per share 953,266 1,037,285 1,162,996 1,304,628 1,468,772

Tangible book value per share 898,532 971,371 1,091,330 1,227,603 1,385,328

Financial strength

Net debt/equity (%) (28.6) (31.0) (34.5) (38.4) (42.3)

Net debt/total assets (%) (20.8) (22.9) (25.8) (29.2) (32.7)

Current ratio (x) 2.2 2.5 2.6 2.9 3.1

Valuation 2014A 2015A 2016E 2017E 2018E

Recurring P/E (x) * 10.7 12.8 10.5 9.5 8.1

Recurring P/E @ target price (x) * 12.4 14.9 12.1 11.0 9.4

Reported P/E (x) 11.1 12.9 10.5 9.5 8.1

Dividend yield (%) 0.9 1.3 1.3 2.5 2.5

P/CF (x) 5.6 5.0 5.0 4.5 4.0

P/FCF (x) 12.9 13.3 10.6 9.7 7.8

Price/book (x) 1.5 1.4 1.3 1.1 1.0

Price/tangible book (x) 1.6 1.5 1.3 1.2 1.1

EV/EBITDA (x) ** 4.8 4.6 3.6 3.0 2.4

EV/EBITDA @ target price (x) ** 6.7 6.5 5.4 4.9 4.3

EV/invested capital (x) 1.6 1.5 1.3 1.1 0.9* Pre exceptional & pre-goodwill and fully diluted

Source: Samsung Electronics, BNP Paribas estimates

* includes convertables and preferred stock which is being treated as debt

** EBITDA includes associate income and recurring non operating income



Financial statementsLG Electronics


Revenue 58,140 59,041 56,509 57,637 59,354



Operating costs (12,135) (11,913) (11,682) (12,210) (12,510)



Operating EBIT 1,285 1,829 1,192 1,926 1,999Net financing costs (686) (796) (959) (440) (440)

Associates 126 304 359 (16) 138

Recurring non operating income (22) 186 241 (134) 20

Non recurring items 0 0 0 0 0

Profit before tax 577 1,218 475 1,352 1,578Tax (354) (540) (340) (559) (594)

Profit after tax 223 679 134 793 985Minority interests (46) (102) (124) (100) (100)


Other items 0 (177) (4) 0 0

Reported net profit 177 399 6 693 885Non recurring items & goodwill (net) 0 0 0 0 0

Recurring net profit 177 399 6 693 885

Per share (KRW)

Recurring EPS * 978 2,208 35 3,833 4,891

Reported EPS 978 2,208 35 3,833 4,891

DPS 324 406 406 406 406

Growth

Revenue (%) 5.5 1.5 (4.3) 2.0 3.0

Operating EBITDA (%) 8.3 19.5 (14.3) 31.0 6.7

Operating EBIT (%) 5.6 42.3 (34.8) 61.6 3.8

Recurring EPS (%) 91.3 125.9 (98.4) 11,007.4 27.6

Reported EPS (%) 91.3 125.9 (98.4) 11,007.4 27.6





Net margin (%) 0.3 0.7 0.0 1.2 1.5


Dividend payout on recurring profit (%) 33.1 18.4 1,177.2 10.6 8.3

Interest cover (x) 1.8 2.5 1.5 4.1 4.6

Inventory days 41.9 44.0 48.6 48.4 48.3

Debtor days 48.7 49.5 52.5 50.8 50.6

Creditor days 90.2 95.4 102.7 102.2 101.9

Operating ROIC (%) 10.7 14.9 16.5 100.2 101.5

ROIC (%) 6.1 9.4 6.5 8.1 9.1

ROE (%) 1.4 3.0 0.0 5.0 6.0


Source: LG Electronics, BNP Paribas estimates



Financial statementsLG Electronics


Recurring net profit 177 399 6 693 885

Depreciation 1,544 1,552 1,704 1,868 2,050

Associates & minorities 0 0 0 0 0

Other non-cash items 2,921 3,319 405 811 635

Recurring cash flow 4,642 5,271 2,115 3,372 3,569Change in working capital (1,731) (2,469) 84 (38) (57)



Free cash flow to equity 794 635 127 1,220 1,336Net acquisitions & disposals (336) (331) 48 (22) (33)

Dividends paid (59) (73) (73) (73) (73)

Non recurring cash flows 36 3 0 0 0

Net cash flow 435 233 102 1,125 1,229Equity finance 0 0 0 0 0

Debt finance 725 138 0 0 0

Movement in cash 1,160 371 102 1,125 1,229

Per share (KRW)


FCF to equity per share 4,388 3,513 701 6,746 7,386




Net working capital 1,614 1,987 1,903 1,940 1,998Tangible fixed assets 10,342 10,597 0 0 0


Other intangible assets 2,983 2,968 3,217 2,937 2,937

Investments 4,482 4,740 4,740 4,740 4,740

Other assets 1,396 1,281 1,232 1,254 1,287


Short term debt 3,034 2,582 2,532 3,037 3,662

Long term debt * 6,199 6,489 6,489 6,489 6,489

Net debt 6,502 6,748 6,404 5,544 4,688Deferred tax 0 0 0 0 0

Other liabilities 1,045 1,035 991 1,010 1,041

Total equity 12,689 13,508 13,473 14,279 15,261

Minority interests 0 0 0 0 0


Per share (KRW)

Book value per share 70,171 74,699 74,502 78,965 84,392

Tangible book value per share 53,674 58,288 56,713 62,723 68,150

Financial strength

Net debt/equity (%) 51.2 50.0 47.5 38.8 30.7

Net debt/total assets (%) 18.3 18.2 24.3 20.0 15.8

Current ratio (x) 1.1 1.1 1.1 1.2 1.2

Valuation 2013A 2014A 2015E 2016E 2017E

Recurring P/E (x) * 56.4 25.0 n/a 14.4 11.3

Recurring P/E @ target price (x) * 75.7 33.5 2,144.5 19.3 15.1

Reported P/E (x) 56.4 25.0 1,596.8 14.4 11.3

Dividend yield (%) 0.6 0.7 0.7 0.7 0.7

P/CF (x) 2.1 1.9 4.7 3.0 2.8

P/FCF (x) 12.6 15.7 78.7 8.2 7.5

Price/book (x) 0.8 0.7 0.7 0.7 0.7


EV/EBITDA (x) ** 6.1 5.1 6.0 4.3 3.8



Source: LG Electronics, BNP Paribas estimates





Financial statementsLenovo

Profit and Loss (USD m) Year Ending Mar 2014A 2015A 2016E 2017E 2018E

Revenue 38,707 46,296 46,328 44,827 46,551



Operating costs (4,012) (5,573) (6,746) (5,640) (5,680)

Operating EBITDA 1,307 1,317 422 1,133 1,238Depreciation (255) (208) (451) (465) (488)


Operating EBIT 1,052 1,109 (28) 668 750Net financing costs (47) (155) (219) (260) (258)

Associates 9 17 (5) 0 0

Recurring non operating income 9 17 (5) 0 0


Profit before tax 1,014 971 (253) 408 493Tax (197) (134) 132 (33) (40)

Profit after tax 817 837 (121) 375 452Minority interests (0) (8) 12 0 0



Reported net profit 817 829 (108) 375 452Non recurring items & goodwill (net) 0 0 0 0 0

Recurring net profit 817 829 (108) 375 452

Per share (USD)

Recurring EPS * 0.08 0.08 (0.0097) 0.03 0.04

Reported EPS 0.08 0.08 (0.0097) 0.03 0.04

DPS 0.03 0.04 0.02 0 0.01

Growth

Revenue (%) 14.3 19.6 0.1 (3.2) 3.8

Operating EBITDA (%) 29.5 0.7 (67.9) 168.1 9.3

Operating EBIT (%) 31.5 5.4 n/m n/m 12.3

Recurring EPS (%) 28.1 (1.4) n/m n/m 20.6

Reported EPS (%) 28.1 (1.4) n/m n/m 20.6




Operating EBIT margin (%) 2.7 2.4 (0.1) 1.5 1.6

Net margin (%) 2.1 1.8 (0.2) 0.8 1.0

Effective tax rate (%) 19.4 13.8 - 8.1 8.1

Dividend payout on recurring profit (%) 39.4 45.8 (244.3) 0.0 26.5

Interest cover (x) 22.5 7.3 n/a 2.6 2.9

Inventory days 25.5 26.2 27.5 27.9 27.0

Debtor days 33.4 36.2 43.8 44.5 43.0

Creditor days 46.9 44.9 45.1 45.7 44.2

Operating ROIC (%) (39.8) (85.0) 18.8 (9,468.4) 2,186.8

ROIC (%) 51.6 16.9 (0.2) 6.3 7.0

ROE (%) 28.7 23.2 (2.8) 9.6 10.6

ROA (%) 4.9 4.4 (0.1) 2.4 2.7*Pre exceptional pre-goodwill and fully diluted

Revenue By Division (USD m) 2014A 2015A 2016E 2017E 2018E

DT 11,051 11,625 10,795 9,753 10,005

NB 19,702 21,459 18,952 19,105 20,172

Handset 5,660 9,111 6,585 5,969 6,373

Others 2,295 4,102 9,996 10,000 10,000

Source: Lenovo, BNP Paribas estimates



Financial statementsLenovo

Cash Flow (USD m) Year Ending Mar 2014A 2015A 2016E 2017E 2018E

Recurring net profit 817 829 (108) 375 452

Depreciation 255 208 451 465 488

Associates & minorities (9) (9) (7) 0 0

Other non-cash items 0 0 0 0 0

Recurring cash flow 1,063 1,028 335 840 940Change in working capital 411 (1,338) (0) (51) 75

Capex - maintenance (183) (283) (144) (154) (161)

Capex - new investment (427) (661) (336) (360) (377)

Free cash flow to equity 864 (1,254) (146) 275 477Net acquisitions & disposals (9) (8) 38 0 0

Dividends paid (322) (380) (265) 0 (120)

Non recurring cash flows (121) (5,950) 0 0 0

Net cash flow 412 (7,591) (373) 275 357Equity finance (151) 624 12 0 0

Debt finance 46 4,978 (365) (67) 0

Movement in cash 307 (1,989) (725) 208 357

Per share (USD)

Recurring cash flow per share 0.10 0.10 0.03 0.08 0.08

FCF to equity per share 0.08 (0.12) (0.01) 0.02 0.04

Balance Sheet (USD m) Year Ending Mar 2014A 2015A 2016E 2017E 2018E



Net working capital (3,179) (1,842) (1,842) (1,791) (1,866)Tangible fixed assets 1,019 1,755 1,785 1,835 1,885

Operating invested capital (2,160) (87) (57) 44 19Goodwill 0 0 0 0 0

Other intangible assets 0 0 0 0 0

Investments 21 46 3 3 3

Other assets 3,840 9,790 9,790 9,790 9,790


Short term debt 856 1,862 1,862 1,862 1,862

Long term debt * 1,870 5,842 5,842 5,842 5,842

Net debt (1,324) 5,643 6,378 6,168 5,804Deferred tax 0 0 0 0 0

Other liabilities 0 0 (365) (432) (432)

Total equity 3,025 4,106 3,733 4,108 4,441



Per share (USD)

Book value per share 0.29 0.38 0.34 0.37 0.40

Tangible book value per share 0.29 0.38 0.34 0.37 0.40

Financial strength

Net debt/equity (%) (43.8) 137.4 170.8 150.1 130.6

Net debt/total assets (%) (7.2) 21.6 25.1 24.4 22.2

Current ratio (x) 1.0 0.9 0.9 0.9 0.9

Valuation 2014A 2015A 2016E 2017E 2018E

Recurring P/E (x) * 7.6 7.8 n/a 17.8 14.8

Recurring P/E @ target price (x) * 7.0 7.1 (56.9) 16.4 13.6

Reported P/E (x) 7.6 7.8 n/a 17.8 14.8

Dividend yield (%) 5.2 5.9 4.0 0.0 1.8

P/CF (x) 5.9 6.2 20.0 8.0 7.1

P/FCF (x) 7.2 (5.1) (45.9) 24.3 14.0

Price/book (x) 2.1 1.6 1.8 1.6 1.5


EV/EBITDA (x) ** 3.9 6.4 29.8 11.4 10.2



Source: Lenovo, BNP Paribas estimates





Financial statementsASUSTeK Computer

Profit and Loss (TWD m) Year Ending Dec 2013A 2014A 2015E 2016E 2017E

Revenue 421,380 436,264 436,520 434,116 440,472



Operating costs (34,629) (38,129) (40,356) (39,749) (39,642)

Operating EBITDA 21,021 23,388 20,046 18,847 18,965Depreciation (1,345) (3,098) 0 0 0


Operating EBIT 19,676 20,290 20,046 18,847 18,965Net financing costs 0 0 0 0 0

Associates 0 0 0 0 0

Recurring non operating income 7,101 4,490 1,853 3,546 4,421








Per share (TWD)

Recurring EPS * 28.68 26.21 23.02 24.22 25.32

Reported EPS 28.68 26.21 23.02 24.22 25.32

DPS 19.37 17.00 14.93 15.71 16.42

Growth

Revenue (%) 2.0 3.5 0.1 (0.6) 1.5

Operating EBITDA (%) (8.7) 11.3 (14.3) (6.0) 0.6

Operating EBIT (%) (10.6) 3.1 (1.2) (6.0) 0.6

Recurring EPS (%) (3.7) (8.6) (12.2) 5.2 4.5

Reported EPS (%) (3.7) (8.6) (12.2) 5.2 4.5





Net margin (%) 5.1 4.5 3.9 4.1 4.3




Inventory days 73.3 81.0 91.7 91.6 90.7

Debtor days 54.8 57.7 59.7 59.9 59.3

Creditor days 56.5 64.7 75.0 74.9 74.2

Operating ROIC (%) 66.9 97.8 135.2 158.7 144.7

ROIC (%) 26.6 21.9 17.9 19.2 19.9

ROE (%) 16.4 13.0 10.3 10.5 10.5


Revenue By Division (TWD m) 2013A 2014A 2015E 2016E 2017E

MB & VGA 54,092 56,020 58,991 58,854 56,456

NB 270,829 268,323 239,097 222,076 209,295

Tablet 78,780 64,673 48,523 39,601 35,571

Others 17,678 47,248 89,909 113,586 139,150

Source: ASUSTeK Computer, BNP Paribas estimates



Financial statementsASUSTeK Computer

Cash Flow (TWD m) Year Ending Dec 2013A 2014A 2015E 2016E 2017E


Depreciation 1,345 3,098 0 0 0



Recurring cash flow 22,816 22,590 17,097 17,989 18,807Change in working capital 10,254 3,142 83 (10) (191)

Capex - maintenance (354) (472) 1,526 (326) (216)

Capex - new investment (825) (1,101) 3,560 (760) (505)

Free cash flow to equity 31,891 24,160 22,266 16,893 17,895Net acquisitions & disposals (2,132) (21,695) 0 0 0

Dividends paid (14,302) (14,484) (12,627) (11,088) (11,667)

Non recurring cash flows (6,203) (1,702) 0 0 0

Net cash flow 9,254 (13,721) 9,639 5,805 6,228Equity finance 1,990 23,455 0 0 0

Debt finance 2,200 570 (2,681) (507) 1

Movement in cash 13,444 10,304 6,958 5,298 6,229

Per share (TWD)


FCF to equity per share 42.65 32.53 29.98 22.74 24.09

Balance Sheet (TWD m) Year Ending Dec 2013A 2014A 2015E 2016E 2017E



Net working capital 13,605 10,463 10,380 10,390 10,581Tangible fixed assets 4,850 3,697 (1,389) (303) 418



Investments 53,057 74,731 74,731 74,731 74,731

Other assets 8,137 9,466 9,466 9,466 9,466


Short term debt 0 0 0 0 0

Long term debt * 6,618 7,188 4,500 4,000 4,000


Other liabilities 0 0 7 0 1

Total equity 135,200 163,643 168,113 175,013 182,154



Per share (TWD)



Financial strength

Net debt/equity (%) (41.1) (39.9) (44.6) (46.1) (47.7)


Current ratio (x) 1.6 1.5 1.5 1.6 1.6

Valuation 2013A 2014A 2015E 2016E 2017E

Recurring P/E (x) * 9.4 10.2 11.7 11.1 10.6


Reported P/E (x) 9.4 10.2 11.7 11.1 10.6

Dividend yield (%) 7.2 6.3 5.6 5.8 6.1

P/CF (x) 8.8 8.8 11.7 11.1 10.6

P/FCF (x) 6.3 8.3 9.0 11.8 11.1

Price/book (x) 1.5 1.2 1.2 1.1 1.1


EV/EBITDA (x) ** 5.4 5.0 5.9 5.4 4.9



Source: ASUSTeK Computer, BNP Paribas estimates





Financial statementsLG Display


Revenue 26,456 28,384 24,055 23,407 23,227



Operating costs (2,431) (2,689) (2,272) (2,215) (2,194)



Operating EBIT 1,357 1,626 325 451 332Net financing costs (85) (114) (103) (117) (191)


Recurring non operating income (31) (78) (106) (100) (109)


Profit before tax 1,242 1,434 115 233 32Tax (325) (411) (29) (63) (27)

Profit after tax 917 1,023 86 170 5Minority interests 0 0 0 0 0



Reported net profit 917 1,023 86 170 5Non recurring items & goodwill (net) 0 0 0 0 0

Recurring net profit 917 1,023 86 170 5

Per share (KRW)

Recurring EPS * 2,564 2,860 242 475 13

Reported EPS 2,564 2,860 242 475 13

DPS 0 500 500 500 500

Growth

Revenue (%) (2.1) 7.3 (15.3) (2.7) (0.8)

Operating EBITDA (%) (3.0) 3.1 (28.9) 11.2 1.0

Operating EBIT (%) 16.7 19.8 (80.0) 38.8 (26.4)

Recurring EPS (%) 119.0 11.6 (91.6) 96.6 (97.2)

Reported EPS (%) 119.0 11.6 (91.6) 96.6 (97.2)





Net margin (%) 3.5 3.6 0.4 0.7 0.0


Dividend payout on recurring profit (%) 0.0 17.5 207.0 105.3 3,751.5

Interest cover (x) 15.7 13.6 2.1 3.0 1.2

Inventory days 44.6 45.0 54.4 66.2 70.0

Debtor days 46.8 49.9 61.4 60.1 60.1

Creditor days 101.2 93.4 94.9 95.7 96.0

Operating ROIC (%) 11.8 13.5 2.4 3.1 2.1

ROIC (%) 9.7 10.7 1.4 2.1 1.2

ROE (%) 8.1 8.4 0.7 1.3 0.0


Source: LG Display, BNP Paribas estimates



Financial statementsLG Display


Recurring net profit 917 1,023 86 170 5

Depreciation 3,492 3,376 3,231 3,504 3,661

Associates & minorities - - - - -


Recurring cash flow 5,296 5,385 3,484 3,851 3,854Change in working capital (2,193) (2,166) (582) 85 (19)



Free cash flow to equity (193) 1,008 (1,140) (453) (562)Net acquisitions & disposals 0 0 0 0 1

Dividends paid 0 (179) (179) (179) (179)

Non recurring cash flows (155) (521) 199 45 24

Net cash flow (348) 308 (1,120) (586) (716)Equity finance 0 0 0 0 0

Debt finance 259 (93) 584 779 543

Movement in cash (90) 215 (536) 193 (173)

Per share (KRW)


FCF to equity per share (540) 2,816 (3,186) (1,265) (1,571)




Net working capital 239 1,812 2,394 2,308 2,327Tangible fixed assets 11,403 10,546 11,848 12,936 13,874



Investments 423 396 365 361 359

Other assets 1,324 1,265 1,248 1,245 1,244


Short term debt 968 1,416 721 957 1,014

Long term debt * 3,279 2,808 3,392 4,171 4,714

Net debt 1,828 1,698 2,351 3,195 3,976Deferred tax 0 0 0 0 0


Total equity 11,783 12,705 12,612 12,604 12,429



Per share (KRW)

Book value per share 32,932 35,507 35,249 35,223 34,737

Tangible book value per share 31,320 33,163 33,614 33,495 32,914

Financial strength

Net debt/equity (%) 15.5 13.4 18.6 25.4 32.0


Current ratio (x) 1.2 1.4 1.6 1.5 1.5

Valuation 2014A 2015A 2016E 2017E 2018E

Recurring P/E (x) * 10.4 9.3 110.3 56.1 n/a

Recurring P/E @ target price (x) * 9.4 8.4 99.4 50.5 1,800.7

Reported P/E (x) 10.4 9.3 110.3 56.1 1,999.6

Dividend yield (%) 0.0 1.9 1.9 1.9 1.9

P/CF (x) 1.8 1.8 2.7 2.5 2.5

P/FCF (x) (49.3) 9.5 (8.4) (21.1) (17.0)

Price/book (x) 0.8 0.8 0.8 0.8 0.8


EV/EBITDA (x) ** 2.3 2.3 3.4 3.2 3.4



Source: LG Display, BNP Paribas estimates





Financial statementsMurata Manufacturing

Profit and Loss (JPY b) Year Ending Mar 2015A 2016A 2017E 2018E 2019E

Revenue 1,043.5 1,210.8 1,211.9 1,304.4 1,384.7

Cost of sales (incl depreciation) (629.2) (712.1) (756.9) (794.4) (831.4)

Gross profit 414.3 498.8 455.0 510.0 553.3

SG&A (199.8) (223.4) (220.0) (236.9) (251.2)

R&D 0.0 0.0 0.0 0.0 0.0

Operating profit 214.5 275.4 235.0 273.1 302.1

Interest and dividends received 3.4 2.4 2.5 3.0 3.8

Associates 0.0 0.0 0.0 0.0 0.0

Other non-operating income 20.9 1.5 0.0 0.0 0.0

Interest paid (0.4) (0.1) (0.1) (0.1) (0.1)

Other non-operating expenses 0.0 0.0 (0.0) (0.0) 0.0

Extraordinary gains 0.0 0.0 0.0 0.0 0.0

Extraordinary losses 0.0 0.0 0.0 0.0 0.0

Pre-tax profit 238.4 279.2 237.3 275.9 305.8

Tax (71.1) (75.0) (61.7) (71.8) (79.5)

Minorities* (0.4) 0.4 0.0 0.0 0.0

Net profit 167.7 203.8 175.6 204.2 226.3

EBITDA (operating profit + depreciation) 299.5 374.5 353.0 397.4 424.9

Per share (JPY)

Reported EPS 792.2 962.6 829.5 964.6 1,068.9

DPS 180.0 210.0 250.0 290.0 330.0

Growth

Revenue (%) 23.2 16.0 0.1 7.6 6.2

EBITDA (%) 47.7 25.1 (5.7) 12.6 6.9

Operating profit (%) 70.4 28.4 (14.7) 16.2 10.6

Recurring profit (%) - - - - -

EPS (%) 79.8 21.5 (13.8) 16.3 10.8



EBITDA margin (%) 28.7 30.9 29.1 30.5 30.7

Operating profit margin (%) 20.6 22.7 19.4 20.9 21.8

Net margin (%) 16.1 16.8 14.5 15.7 16.3


Dividend payout on net profit (%) 22.7 21.8 30.1 30.1 30.9


Inventory days 103.5 103.5 104.9 103.8 106.0

Debtor days 73.9 64.6 58.7 56.7 57.1

Creditor days 28.4 28.4 27.2 26.9 27.5

Operating ROIC (%) 23.9 - 22.8 25.4 27.2

ROIC (%) 17.6 - 17.6 19.8 21.3

ROE (%) 15.9 17.1 13.5 14.2 14.3

ROA (%) 11.3 13.6 11.0 11.8 12.0

*Pre exceptional pre-goodwill and fully diluted

Revenue By Division (JPY b) 2015A 2016A 2017E 2018E 2019E

Capacitors 334.3 367.3 376.4 393.2 403.4

Piezoelectric 121.9 161.9 184.0 194.3 201.2

Other components 222.9 231.0 237.1 244.8 257.5

Comm. Modules 308.0 395.2 360.0 416.3 465.8

Power Sources & Other Modules 53.0 51.7 50.5 51.7 52.6

Others 3.6 3.8 3.9 4.0 4.1

* Net profit for US GAAP. Source: Murata Manufacturing, BNP Paribas estimates



Financial statementsMurata Manufacturing

Cash Flow (JPY b) Year Ending Mar 2015A 2016A 2017E 2018E 2019EPre-tax profit* 238.4 279.2 237.3 275.9 305.8Tax paid 71.1 75.0 61.7 71.8 79.5Depreciation 84.9 99.1 118.0 124.3 122.8Working capital 0.0 0.0 0.0 0.0 0.0Other (85.1) (210.2) (123.4) (143.5) (159.0)Operating cash flow 259.9 252.5 293.3 301.3 325.5Capital expenditure (101.2) (172.5) (160.0) (120.0) (130.0)Other 9.8 (32.8) 0.0 0.0 0.0Investing cash flow (91.4) (205.3) (160.0) (120.0) (130.0)Free cash flow 168.6 47.1 133.3 181.3 195.5Change in debt 0.0 0.0 0.0 0.0 0.0Dividends paid (31.8) (42.3) (52.9) (61.4) (69.9)Net buybacks 0.0 0.0 0.0 0.0 0.0Equity issued 0.0 0.0 0.0 0.0 0.0Other (35.2) (14.3) 0.0 0.0 0.0Financing cash flow (67.0) (56.6) (52.9) (61.4) (69.9)Gross change in cash 94.1 (0.4) 80.4 119.9 125.6Other adjustments (18.2) 12.1 0.0 0.0 0.0Change in cash 75.9 11.7 80.4 119.9 125.6

Per share (JPY)Operating cash flow per share 1,210.7 1,178.3 1,370.3 1,409.2 1,523.8FCF per share 796.2 222.6 629.6 856.6 923.3

Balance Sheet (JPY b) 2015A 2016A 2017E 2018E 2019ECash & equivalents 358.3 370.0 450.4 570.3 695.9A/c receivable 233.7 194.9 195.1 210.0 222.9Inventories 186.3 217.5 217.7 234.3 248.7Other 37.6 52.9 52.9 52.9 52.9Current assets 815.8 835.4 916.1 1,067.5 1,220.5Tangible fixed assets 386.0 455.9 497.9 493.6 500.8Intangible fixed assets 0.0 0.0 0.0 0.0 0.0Investments and other assets 229.5 226.6 226.6 226.6 226.6Total assets 1,431.3 1,517.8 1,640.5 1,787.6 1,947.8A/c payable 54.5 56.4 56.4 60.7 64.5Short term debt 11.2 6.4 6.4 6.4 6.4Other (132.8) (122.8) (122.8) (122.8) (122.8)Current liabilities 198.5 185.6 185.7 190.0 193.7Long term debt 9.7 3.3 3.3 3.3 3.3Other 84.2 84.9 84.9 84.9 84.9Long-term liabilities 93.8 88.2 88.2 88.2 88.2Total liabilities 292.4 273.8 273.9 278.2 281.9Common equity 1,138.9 1,244.0 1,366.7 1,509.5 1,665.9Preferred equity 0.0 0.0 0.0 0.0 0.0Minorities etc 0.0 0.0 0.0 0.0 0.0Net Assets 1,138.9 1,244.0 1,366.7 1,509.5 1,665.9Liabilities & net assets 1,431.3 1,517.8 1,640.5 1,787.6 1,947.8*includes convertibles and preferred stock which is being treated as debt

Per share (JPY)Book value per share 5,305 5,806 6,385 7,060 7,799Tangible book value per share 5,305 5,806 6,385 7,060 7,799

Financial strengthNet debt/equity (%) (29.6) (29.0) (32.2) (37.1) (41.2)Net debt/total assets (%) (23.6) (23.7) (26.9) (31.4) (35.2)Current ratio (x) 4.1 4.5 4.9 5.6 6.3CF interest cover (x) n/a n/a n/a n/a n/a

Valuation 2015A 2016A 2017E 2018E 2019EP/E (x) * 14.3 11.8 13.6 11.7 10.6P/E @ target price (x) * 21.0 17.2 20.0 17.2 15.5Reported P/E (x) 14.3 11.8 13.6 11.7 10.6Dividend yield (%) 1.6 1.9 2.2 2.6 2.9P/CF (x) 7.7 9.9 8.2 7.3 6.9P/FCF (x) 14.2 50.8 18.0 13.2 12.3Price/book (x) 2.1 1.9 1.8 1.6 1.5Price/tangible book (x) 2.1 1.9 1.8 1.6 1.5EV/EBITDA (x) ** 7.2 5.6 5.7 4.8 4.2EV/EBITDA @ target price (x) ** 11.9 9.5 10.1 8.9 8.3EV/invested capital (x) 2.4 2.1 2.0 1.8 1.6

** Pre exceptional & pre-goodwill and fully diluted

* Net profit for US GAAP. Source: Murata Manufacturing, BNP Paribas estimates

**EBITDA includes associate income and recurring non-operating income



Sources: TSMC; BNP Paribas estimates

Financial statementsTSMC

Profit and Loss (TWD m) Year Ending Dec 2014A 2015A 2016E 2017E 2018E

Revenue 762,806 843,497 922,666 1,084,265 1,170,705



Operating costs (81,844) (90,347) (99,874) (119,889) (122,197)



Operating EBIT 295,890 320,048 353,405 417,392 454,558Net financing costs (499) 939 1,527 2,264 3,498

Associates 4,593 4,754 3,841 3,880 4,250

Recurring non operating income 6,707 29,442 6,105 6,591 6,591








Per share (TWD)

Recurring EPS * 10.18 11.82 11.98 14.18 15.49

Reported EPS 10.18 11.82 11.98 14.18 15.49

DPS 3.00 4.50 6.00 6.39 7.54

Growth

Revenue (%) 27.8 10.6 9.4 17.5 8.0

Operating EBITDA (%) 36.8 9.4 9.8 16.5 10.3

Operating EBIT (%) 41.3 8.2 10.4 18.1 8.9

Recurring EPS (%) 40.3 16.2 1.3 18.4 9.2

Reported EPS (%) 40.3 16.2 1.3 18.4 9.2





Net margin (%) 34.6 36.3 33.7 33.9 34.3



Interest cover (x) 605.9 n/a n/a n/a n/a

Inventory days 94.8 107.4 107.7 104.4 111.1

Debtor days 44.7 43.4 40.7 43.5 45.6

Creditor days 36.3 34.7 32.9 34.1 36.6

Operating ROIC (%) 43.3 39.8 41.3 42.7 41.7

ROIC (%) 30.4 33.7 31.1 32.8 32.6

ROE (%) 27.9 27.0 24.0 25.0 24.0




Financial statementsTSMC

Cash Flow (TWD m) Year Ending Dec 2014A 2015A 2016E 2017E 2018E


Depreciation 185,105 206,351 224,500 255,675 288,043

Associates & minorities (118) (18) 0 0 0


Recurring cash flow 448,886 512,907 535,134 623,389 689,700Change in working capital (85,775) 13,442 (20,020) (2,840) (7,778)

Capex - maintenance 0 0 0 0 0

Capex - new investment (210,638) (241,622) (330,356) (341,906) (389,100)

Free cash flow to equity 152,473 284,727 184,758 278,642 292,822Net acquisitions & disposals 0 0 0 0 0

Dividends paid (77,786) (116,683) (155,582) (165,568) (195,624)

Non recurring cash flows 81,543 (10,205) (20,548) (7,760) (8,500)

Net cash flow 156,230 157,838 8,628 105,314 88,699Equity finance 30,396 13,568 (11,747) 0 0

Debt finance 4,955 (22,167) 6,217 (23,291) (40,562)

Movement in cash 191,582 149,238 3,099 82,024 48,136

Per share (TWD)


FCF to equity per share 5.88 10.98 7.13 10.75 11.29

Balance Sheet (TWD m) Year Ending Dec 2014A 2015A 2016E 2017E 2018E






Investments 30,052 34,994 52,335 60,095 68,595

Other assets 129,651 214,422 215,507 215,507 215,507

Invested capital 893,353 922,119 1,066,421 1,163,252 1,280,588Cash & equivalents (436,924) (586,163) (589,261) (671,285) (719,421)

Short term debt 36,159 62,992 63,985 58,163 38,418

Long term debt * 214,516 191,998 191,956 174,488 153,671


Other liabilities 33,927 30,658 28,536 28,536 28,536

Total equity 1,045,676 1,222,634 1,371,205 1,573,350 1,779,385


Invested capital 893,353 922,119 1,066,421 1,163,252 1,280,588

Per share (TWD)



Financial strength

Net debt/equity (%) (17.8) (27.1) (24.3) (27.9) (29.6)


Current ratio (x) 3.1 3.5 3.3 3.5 3.8

Valuation 2014A 2015A 2016E 2017E 2018E

Recurring P/E (x) * 16.3 14.0 13.9 11.7 10.7


Reported P/E (x) 16.3 14.0 13.9 11.7 10.7

Dividend yield (%) 1.8 2.7 3.6 3.8 4.5

P/CF (x) 9.6 8.4 8.0 6.9 6.2

P/FCF (x) 28.2 15.1 23.3 15.4 14.7

Price/book (x) 4.1 3.5 3.1 2.7 2.4


EV/EBITDA (x) ** 8.7 7.3 6.8 5.8 5.1



Source: TSMC, BNP Paribas estimates





Financial statementsLuxshare

Profit and Loss (RMB m) Year Ending Dec 2013A 2014A 2015E 2016E 2017E

Revenue 4,592 7,296 9,912 13,789 18,066


Gross profit ex depreciation 1,058 1,902 2,506 3,426 4,409Other operating income - - - - -

Operating costs (423) (785) (1,075) (1,436) (1,831)

Operating EBITDA 634 1,117 1,431 1,991 2,578Depreciation (113) (203) (220) (240) (250)


Operating EBIT 521 915 1,211 1,751 2,328Net financing costs (63) (52) 30 (40) (60)


Recurring non operating income 84 1 86 75 40


Profit before tax 543 864 1,327 1,786 2,308Tax (81) (125) (192) (260) (337)

Profit after tax 462 739 1,136 1,525 1,971Minority interests (122) (109) (58) (48) (60)



Reported net profit 340 630 1,077 1,478 1,911Non recurring items & goodwill (net) 0 0 0 0 0

Recurring net profit 340 630 1,077 1,478 1,911

Per share (RMB)

Recurring EPS * 0.41 0.50 0.58 0.79 1.02

Reported EPS 0.41 0.50 0.58 0.79 1.02

DPS 0.07 0.08 0.08 0.06 0.08

Growth

Revenue (%) 45.9 58.9 35.9 39.1 31.0

Operating EBITDA (%) 31.3 76.2 28.1 39.1 29.5

Operating EBIT (%) 25.5 75.4 32.4 44.6 33.0

Recurring EPS (%) (13.9) 22.0 14.0 37.2 29.3

Reported EPS (%) (13.9) 22.0 14.0 37.2 29.3





Net margin (%) 7.4 8.6 10.9 10.7 10.6



Interest cover (x) 9.7 17.7 n/a 45.6 39.5

Inventory days 56.4 62.2 67.2 66.0 67.3

Debtor days 117.2 101.1 98.1 95.3 94.5

Creditor days 106.4 102.0 89.6 79.2 80.8

Operating ROIC (%) 23.0 27.3 25.2 26.6 28.1

ROIC (%) 19.1 20.4 21.3 23.2 24.7

ROE (%) 15.6 18.2 21.3 23.8 24.6


Revenue By Division (RMB m) 2013A 2014A 2015E 2016E 2017E

Apple products 1,371 2,689 4,364 5,378 7,159

PC (non-Apple) 2,461 2,533 3,253 4,784 5,976

Consumer electronics (non-Apple) 201 761 432 629 828

Automotive 290 704 907 1,278 1,727

Communication 216 438 776 1,431 2,028

Others 52 172 180 290 348

Source: Luxshare, BNP Paribas estimates



Financial statementsLuxshare

Cash Flow (RMB m) Year Ending Dec 2013A 2014A 2015E 2016E 2017E

Recurring net profit 340 630 1,077 1,478 1,911

Depreciation 113 203 220 240 250



Recurring cash flow 663 840 1,297 1,718 2,161Change in working capital (368) (519) (1,035) (992) (906)

Capex - maintenance 0 0 0 0 0

Capex - new investment (674) (983) (1,000) (1,000) (1,000)

Free cash flow to equity (380) (662) (738) (274) 256Net acquisitions & disposals 0 0 0 0 0

Dividends paid (54) (102) (153) (108) (148)

Non recurring cash flows (90) (786) 0 0 0

Net cash flow (524) (1,550) (890) (382) 108Equity finance 19 2,011 0 0 0

Debt finance 781 998 0 0 0

Movement in cash 276 1,458 (890) (382) 108

Per share (RMB)


FCF to equity per share (0.46) (0.53) (0.39) (0.15) 0.14

Balance Sheet (RMB m) Year Ending Dec 2013A 2014A 2015E 2016E 2017E






Investments 33 113 113 113 113

Other assets 628 844 844 844 844

Invested capital 3,791 5,181 6,996 8,748 10,403Cash & equivalents (737) (2,242) (1,352) (970) (1,078)

Short term debt 1,091 2,139 2,139 2,139 2,139

Long term debt * 271 284 284 284 284

Net debt 625 181 1,071 1,453 1,345Deferred tax 0 0 0 0 0


Total equity 2,318 4,592 5,517 6,887 8,651



Per share (RMB)



Financial strength

Net debt/equity (%) 19.9 3.6 18.2 20.0 14.9


Current ratio (x) 1.3 1.4 1.4 1.4 1.5

Valuation 2013A 2014A 2015E 2016E 2017E

Recurring P/E (x) * 46.3 37.9 33.3 24.3 18.8


Reported P/E (x) 46.3 37.9 33.3 24.3 18.8

Dividend yield (%) 0.3 0.4 0.4 0.3 0.4

P/CF (x) 23.7 28.5 27.6 20.9 16.6

P/FCF (x) (41.4) (36.1) (48.6) (130.9) 140.2

Price/book (x) 6.8 5.2 6.5 5.2 4.1


EV/EBITDA (x) ** 14.4 12.9 13.9 12.5 9.8



Source: Luxshare, BNP Paribas estimates





Financial statementsSharp Corp

Profit and Loss (JPY b) Year Ending Mar 2014A 2015A 2016E 2017E 2018E

Revenue 2,927.2 2,786.3 2,592.0 2,544.3 2,510.6

Cost of sales (incl depreciation) (2,396.3) (2,397.7) (2,220.6) (2,129.2) (2,101.7)

Gross profit 530.8 388.5 371.4 415.1 408.9

SG&A (422.3) (436.6) (382.7) (375.7) (370.8)

R&D 0.0 0.0 0.0 0.0 0.0

Operating profit 108.6 (48.1) (11.3) 39.4 38.1

Interest and dividends received 1.3 1.7 1.4 1.1 1.2

Associates 0.0 0.0 0.0 0.0 0.0

Other non-operating income 0.0 0.0 0.0 0.0 0.0

Interest paid (20.7) (23.2) (18.8) (17.5) (17.5)

Other non-operating expenses (35.9) (26.9) - (2.0) (1.6)

Recurring profit 53.3 (96.5) (43.7) 21.0 20.2

Extraordinary gains - - - - -

Extraordinary losses - - - - -

Pre-tax profit 46.0 (188.8) (81.8) 21.0 20.2

Tax (33.0) (31.4) (12.7) (5.3) (4.0)

Minorities* (1.4) (1.5) (2.2) (2.3) (2.6)

Net profit 11.6 (222.3) (96.8) 13.4 13.7

EBITDA (operating profit + depreciation) 232.3 61.3 68.7 113.2 108.4

Per share (JPY)

Reported EPS 7.9 (131.5) (30.7) 4.3 4.3

DPS 0.0 0.0 0.0 0.0 0.0

Growth

Revenue (%) 18.1 (4.8) (7.0) (1.8) (1.3)

EBITDA (%) 637.6 (73.6) 12.2 64.7 (4.2)

Operating profit (%) n/m n/m n/m n/m (3.3)

Recurring profit (%) n/m n/m n/m n/m (3.8)

EPS (%) n/m n/m n/m n/m 1.8



EBITDA margin (%) 7.9 2.2 2.7 4.4 4.3

Operating profit margin (%) 3.7 (1.7) (0.4) 1.5 1.5

Net margin (%) 0.6 (4.7) (2.3) 0.5 0.5

Effective tax rate (%) 71.7 - - 25.1 19.6

Dividend payout on net profit (%) 0.0 0.0 0.0 0.0 0.0

Interest cover (x) 2.0 n/a n/a 2.1 2.1

Inventory days 46.1 48.2 53.7 53.5 53.3

Debtor days 53.4 55.5 56.3 54.7 54.6

Creditor days 35.9 47.7 53.1 52.9 52.7

Operating ROIC (%) 3.9 (8.4) (2.3) 5.5 5.9

ROIC (%) 2.8 (5.9) (1.6) 3.7 3.9

ROE (%) 11.8 (115.4) (64.7) 8.7 8.5

ROA (%) 1.7 (3.5) (1.0) 1.6 1.7

*Pre exceptional pre-goodwill and fully diluted

* Net profit for US GAAP. Source: Sharp Corp, BNP Paribas estimates



Financial statementsSharp Corp

Cash Flow (JPY b) Year Ending Mar 2014A 2015A 2016E 2017E 2018EPre-tax profit* 46.0 (188.8) (81.8) 21.0 20.2Tax paid 33.0 31.4 12.7 5.3 4.0Depreciation 123.8 109.3 80.0 73.8 70.3Working capital 0.0 0.0 0.0 0.0 0.0Other (3.7) 65.4 3.7 (3.4) (2.9)Operating cash flow 199.0 17.3 14.6 96.7 91.6Capital expenditure 49.4 62.6 60.0 61.1 60.3Other - - - - -Investing cash flow (84.9) (16.0) (60.0) (61.1) (60.3)Free cash flow 114.0 1.3 (45.4) 35.6 31.3Change in debt 0.0 0.0 0.0 0.0 0.0Dividends paid (0.0) 0.0 0.0 0.0 0.0Net buybacks - - - - -Equity issued 0.0 0.0 0.0 0.0 0.0Other 32.8 (136.1) (7.2) (7.2) (7.2)Financing cash flow 32.8 (136.1) (7.2) (7.2) (7.2)Gross change in cash 162.8 (118.4) (52.6) 28.4 24.2Other adjustments 24.9 (2.7) 0.0 0.0 0.0Change in cash 187.7 (121.1) (52.6) 28.4 24.2

Per share (JPY)Operating cash flow per share 139.3 10.3 4.6 30.6 29.0FCF per share 77.6 0.8 (14.4) 11.3 9.9

Balance Sheet (JPY b) 2014A 2015A 2016E 2017E 2018ECash & equivalents 379.6 258.5 205.9 234.4 258.6A/c receivable 432.7 414.0 385.2 378.1 373.1Inventories 295.1 338.3 314.7 308.9 304.8Other 266.8 288.4 288.4 288.4 288.4Current assets 1,374.2 1,299.2 1,194.2 1,209.8 1,224.8Tangible fixed assets 519.7 400.6 380.6 367.9 357.8Intangible fixed assets 46.2 42.6 42.6 42.6 42.6Investments and other assets 241.6 219.6 219.6 219.6 219.6Total assets 2,181.7 1,961.9 1,836.9 1,839.7 1,844.8A/c payable 292.5 334.5 311.2 305.5 301.4Short term debt 781.9 840.0 615.0 615.0 615.0Other (477.2) (512.4) (512.4) (512.4) (512.4)Current liabilities 1,551.6 1,687.0 1,438.6 1,432.9 1,428.9Long term debt 229.5 53.5 53.5 53.5 53.5Other 193.3 177.0 177.0 177.0 177.0Long-term liabilities 422.8 230.4 230.4 230.4 230.4Total liabilities 1,974.4 1,917.4 1,669.1 1,663.3 1,659.3Common equity 195.2 30.2 151.3 157.6 164.1Preferred equity 0.0 0.0 0.0 0.0 0.0Minorities etc 12.0 14.3 16.6 18.8 21.4Net Assets 207.2 44.5 167.8 176.4 185.5Liabilities & net assets 2,181.7 1,961.9 1,836.9 1,839.7 1,844.8*includes convertibles and preferred stock which is being treated as debt

Per share (JPY)Book value per share 137 18 48 50 52Tangible book value per share 104 (7) 34 36 39

Financial strengthNet debt/equity (%) 304.9 1,426.5 275.6 246.1 221.0Net debt/total assets (%) 29.0 32.4 25.2 23.6 22.2Current ratio (x) 0.9 0.8 0.8 0.8 0.9CF interest cover (x) 3.1 1.0 n/a 2.9 2.8

Valuation 2014A 2015A 2016E 2017E 2018EP/E (x) * 8.6 n/a n/a 25.8 25.4P/E @ target price (x) * 7.4 (1.2) (5.1) 22.3 21.9Reported P/E (x) 14.0 n/a n/a 25.8 25.4Dividend yield (%) 0.0 0.0 0.0 0.0 0.0P/CF (x) 0.8 10.7 23.8 3.6 3.8P/FCF (x) 1.4 143.5 (7.6) 9.7 11.1Price/book (x) 0.8 6.2 2.3 2.2 2.1Price/tangible book (x) 1.1 (15.0) 3.2 3.0 2.9EV/EBITDA (x) ** 3.7 13.4 12.1 7.2 7.3EV/EBITDA @ target price (x) ** 0.5 2.4 3.4 2.7 2.8EV/invested capital (x) 0.8 1.0 1.0 1.0 1.0

** Pre exceptional & pre-goodwill and fully diluted

* Net profit for US GAAP. Source: Sharp Corp, BNP Paribas estimates

**EBITDA includes associate income and recurring non-operating income



Disclaimers and Disclosures

APPENDIX

DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (JAPAN) LTD, BNP PARIBAS SECURITIES (TAIWAN) CO LTD, BNP PARIBAS SECURITIES KOREA CO LTD

ANALYST(S) CERTIFICATION

Peter Yu, CFA, BNP Paribas Securities Korea Co Ltd , +822 2125 0535, [email protected] Laura Chen, BNP Paribas Securities (Taiwan) Co Ltd, +886 2 8729 7052, [email protected] Masahiro Wakasugi, BNP Paribas Securities (Japan) Ltd, +813 6377 2240, [email protected] Jimmy Huang, BNP Paribas Securities (Taiwan) Co Ltd, +886 2 8729 7057, [email protected] Jay Han, BNP Paribas Securities Korea Co Ltd , +822 2125 0546, [email protected] The BNP Paribas Securities (Japan) Ltd, BNP Paribas Securities (Taiwan) Co Ltd, BNP Paribas Securities Korea Co Ltd Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE and/or FINRA regulations

The individual(s) identified above certify(ies) that (i) all views expressed in this report accurately reflect 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 part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed herein.

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 BNP Paribas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate to relationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and other entities 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:

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 the

company.

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

1. The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (“BNPPSK”) by means of payment 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 provision shall 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 entering into arrangement for public offering or underwriting-related agreement for issuance of stocks

8. The Company that has signed a nominated advisor contract with BNPPSK as defined in Item 2 of Article 8 of the KONEX Market Listing Regulation. 9. The Company is recognized as having considerable interests with BNPPSK in relation to No.1 to No. 8.

Company Ticker Disclosure (as applicable)

Lenovo 992 HK 2, 3, 4, 6

LG Display 034220 KS 2, 3, 4

LG Electronics 066570 KS 2, 3, 4

Murata Manufacturing 6981 JP 2, 3, 4

TSMC 2330 TT 2, 3, 4, 6

Company Ticker Price (as of 01-Jul-2016 closing price) InterestLG Display 034220 KS KRW26,650 N/A

LG Electronics 066570 KS KRW55,100 N/ASamsung Electronics 005930 KS KRW1,466,000 N/A



10. 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 DISCLAIMER

This report was produced by BNP Paribas Securities (Japan) Ltd, BNP Paribas Securities (Taiwan) Co Ltd, BNP Paribas Securities Korea Co 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 without our 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 of individual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in any trading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investments. 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 recipient’s own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in this report 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 and internal guidelines. You should be aware, however, that BNP Paribas may engage in transactions in a manner inconsistent with the views expressed in this document, 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 Street Sydney NSW 2000. BNP Paribas Sydney Branch is licensed under the Banking Act 1959 and the holder of Australian Financial Services Licence no. 238043 and therefore subject to regulation by the Australian Securities & Investments Commission in relation to delivery of financial services. By accepting this document you agree to be bound by the foregoing limitations, and acknowledge that information and opinions in this document relate to financial products or financial services 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, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no 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 extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada 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 whose business involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, a subsidiary of BNP Paribas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities, dealing in futures contracts and advising on corporate finance. For professional investors in Hong Kong, please contact BNP Paribas Securities (Asia) Limited (address: 63/F Two International Finance Centre, 8 Finance Street, Central, Hong Kong; tel:2909 8888; fax: 2845 2232) 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, INDIA (Tel. no. +91 22 3370 4000 / 6196 4000, Fax no. +91 22 6196 4363). BNPPSIPL is registered with the Securities and Exchange Board of India (“SEBI”) as a research analyst (Regn. No. INH000000792) and as a stockbroker in the Equities and the Futures & Options segments of National Stock Exchange of India Ltd. (“NSE”) and BSE Ltd. and in the Currency Derivatives segment of NSE (SEBI Regn. Nos.: INB/INF/NSF/NSE231474835, INB/INF011474831; CIN: U74920MH2008FTC182807; Website: www.bnpparibas.co.in). No material disciplinary action has been taken against BNPPSIPL by any regulatory or government authority. Indonesia: This report is being distributed by PT BNP Paribas Securities Indonesia and is delivered by its licensed employee(s), including marketing/sales person, to its client. PT BNP Paribas Securities Indonesia, having its registered office at Menara BCA, 35th floor, Grand Indonesia, JL. M.H. Thamrin No.1, Jakarta 10310, Indonesia, is a subsidiary company of BNP Paribas SA and licensed under Capital Market Law no. 8 year 1995, a holder of broker-dealer and underwriter licenses issued by the Capital Market and Financial Institution Supervisory Agency (now Otoritas Jasa Keuangan/OJK). PT BNP Paribas Securities Indonesia is also a member of Indonesia Stock Exchange and supervised by Otoritas Jasa Keuangan (OJK). Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens except in compliance with applicable Indonesian capital market laws and regulations. This report is not an offer of securities in Indonesia and may not be distributed within the territory of the Republic of Indonesia or to Indonesian citizens in circumstance which constitutes an offering 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 not registered as a financial instruments firm in Japan, to certain financial institutions defined by article 17-3, item 1 of the Financial Instruments and Exchange Law Enforcement Order. BNP Paribas Securities (Japan) Limited is a financial instruments firm registered according to the Financial Instruments and Exchange 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-Japan affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited. Some of the foreign securities stated on this report are not disclosed 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 of the 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 research report. This publication is strictly confidential and is for private circulation only to clients of BNP Paribas Capital (Malaysia) Sdn Bhd. This publication is being provided to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced 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 purpose without 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 head office is in Paris, France. BNP Paribas Manila OBU is registered as an offshore banking unit under Presidential Decree No. 1034 (PD 1034), and regulated by the 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 its entirety 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 an Accredited 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 under Regulation 35 of the FAR from the requirements in Section 36 of the Financial Advisers Act of Singapore, regarding the disclosure of certain interests in, or certain interests in the acquisition or disposal of, securities referred to in this report. For Institutional and Accredited Investors in Singapore, please contact BNP Paribas Securities (Singapore) Ptd Ltd (company registration number: 199801966C; address: 10 Collyer Quay, 34/F Ocean Financial Centre, Singapore 049315; tel: (65) 6210 1288; fax: (65) 6210 1980) for all matters and queries relating to this report. South Africa: In South Africa, BNP Paribas Securities South Africa (Pty) Ltd is a licensed member of the Johannesburg Stock Exchange and an authorised



Financial Services Providers and subject to regulation by the Financial Services Board. BNP Paribas Securities South Africa (Pty) Ltd does not expressly or by implication represent, recommend or propose that the financial products referred to in this report are appropriate to the particular investment objectives, financial situation or particular needs of the recipient. This document does not constitute advice as contemplated in the Financial Advisory and Intermediary Services Act, 2002. South Korea: BNP Paribas Securities Korea is registered as a Licensed Financial Investment Business Entity under the FINANCIAL INVESTMENT SERVICES AND CAPITAL MARKETS ACT and regulated by the Financial Supervisory Service and Financial Services Commission. This document does not constitute an offer to sell to or the solicitation of an offer to buy from any person any financial products where it is unlawful to make the offer or solicitation in South Korea. 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 Act on Collective Investment Schemes of 23 June 2006 (CISA) and the relevant provisions of the Swiss Federal Ordinance on Collective Investment Schemes of 22 November 2006 (CISO). “Qualified Investors” includes, among others, regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes, regulated insurance companies as well as pension funds and companies with professional treasury operations. This document may not be suitable for customers who are not Qualified Investors and should only be used and passed on to Qualified Investors. For specification purposes, a “Swiss Corporate Customer” is a Client which is a corporate entity, incorporated and existing under the laws of Switzerland and which qualifies as “Qualified Investor” as defined above." BNP Paribas (Suisse) SA is authorised as bank and as securities dealer by the Swiss Federal 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: This report is being distributed to Taiwan based clients by BNP Paribas Securities (Taiwan) Co., Ltd or by a subsidiary or affiliate of BNP Paribas. 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 not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities. BNP Paribas Securities (Taiwan) Co., Ltd. may not execute transactions for clients in these securities. This publication may not be distributed to the public media or quoted or used by the public media without the express written consent of BNP Paribas.

Thailand: Research relating to Thailand and Thailand based issuers is produced pursuant to an arrangement between BNP PARIBAS (“BNPP”) and Finansia Syrus Securities Public Company Limited (“FSS”). FSS International Investment Advisory Securities Co Ltd (“FSSIA”) prepares and distributes research under the brand name “BNP PARIBAS/FSS”. BNPP is not an affiliate of FSSIA or FSS. FSS also publishes a different research product under the brand name “FINANSIA SYRUS,” which is prepared by research analysts who are not part of FSSIA and who may cover the same securities, issuers, or industries that are the subject of this report. The ratings, recommendations, and views expressed in this report may differ from the ratings, recommendations, and views expressed by other research analysts or research teams employed by FSS. This report is being distributed outside Thailand by members of BNP Paribas. 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 Investment and BNP Paribas. Information, comments and suggestions on investment given in this material are not within the scope of investment consulting. The investment consulting services are rendered tailor made for individuals by competent authorities considering the individuals’ risk and return preferences. However the comments and recommendations herein are based on general principles. These opinions may not be consistent with your financial status as well as your risk and return preferences. Therefore, making an investment decision only based on the information provided herein may not bear consequences in parallel with your expectations. This material issued by TEB Yatırım Menkul Değerler A.Ş. for information purposes only and may be changed without any prior notification. All rights reserved. No part of this material may be copied or reproduced in any manner without the written consent of TEB Yatırım Menkul Değerler A.Ş. Although TEB Yatırım Menkul Değerler A.Ş. gathers the presented material that is current as possible, it does not undertake that all the information is accurate or complete, nor should it be relied upon as such. TEB Yatırım Menkul Değerler A.Ş. assumes no responsibility whatsoever in respect of or arising out or in connection with the content of this material to third parties. If any third party chooses to use the content of this material as reference, he/she accepts and approves to do so entirely at his/her own risk.

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 in Rule 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 and professional clients and is not intended for, and should not be circulated to, retail clients (as such terms are defined in the Markets in Financial Instruments Directive 2004/39/EC (“MiFID”)). This document will have been approved for publication and distribution in the United Kingdom by BNP Paribas London Branch, 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 registered office 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 lead supervised by the European Central Bank (ECB) and the Autorité de Contrôle Prudentiel et de Résolution (ACPR). BNP Paribas London Branch is authorised by the ACPR and the Prudential Regulation Authority (PRA) and subject to limited regulation by the Financial Conduct Authority and PRA. Details about the extent of our authorisation and regulation by the PRA, and regulation by the Financial Conduct Authority are available from us on request. This report has been approved for publication in France by BNP Paribas, a credit institution licensed as an investment services provider by the ACPR whose head office is 16, Boulevard des Italiens 75009 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 für 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 into whose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound by the 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 or located 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 a particular stock, please contact the relevant BNP Paribas research team or the author(s) of this report.

Additional Disclosures Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative. All share prices are as at market close on 1 July 2016 unless otherwise stated.



RECOMMENDATION STRUCTURE

Stock Ratings Stock 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 a temporary 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 will reassess 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, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value. Industry Recommendations Improving (): 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 12 months. Deteriorating (): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months. Country (Strategy) Recommendations Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns 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 market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative 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 determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.

RATING DISTRIBUTION (as at 1 July 2016)

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report. © 2016 BNP Paribas Group

Total BNP Paribas coverage universe 555 Investment Banking Relationship (%)

Buy 325 (58.6%) Buy 29.23

Hold 153 (27.6%) Hold 39.22

Reduce 77 (13.9%) Reduce 28.57


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