Kingdee (268 HK) Cloud services driving growth; initiate at Buy. YoY (%) Turnover (Rmb m) Net profit (Rmb m) YoY (%)

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1 Equity Research Information Technology Nov 6, 214 Kingdee (268 HK) Buy (Initiation) Target price: HK$2.9 Ryan Zhu SFC CE No. BDK Joseph Ho, CFA SFC CE No. AFP GF Securities (Hong Kong)Brokerage Limited 29-3/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Stock performance 4% 3% 2% 1% % -1% -2% -3% Source: Bloomberg Key data Source: Bloomberg Kingdee HSI.HI HSI Nov 5 close (HK$) 2.54 Shares in issue (m) 2,568 Major shareholder Xu Shaochun 3.75% Market cap (HK$ bn) M avg. vol. (m) 14 52W high/low (HK$) 3.69/1.8 Cloud services driving growth; initiate at Buy Potential re-rating on cloud services momentum Kingdee is shifting its focus from traditional ERP software to cloud services. Thanks to its first-mover advantage, cloud revenue surged 125% YoY to Rmb45m in 1H14, on top of 16% YoY growth in FY13. Revenue contribution from cloud services rose from 1.2% in FY12 to 3.5% in FY13, and then further to 6% in 1H14. Management has set an ambitious target of cloud services accounting for 5% of group sales by 218. We think this will be challenging, but we do expect revenue from cloud services to grow at a rapid CAGR of 81% during , and account for around 33% of total revenue by 218. Given the example of Salesforce, a USlisted leading cloud services company, we see re-rating potential for Kingdee given its first-mover advantage and the significant opportunities in the Chinese cloud services and enterprise mobile internet market. Profitability improvements to continue Kingdee saw heavy losses in 212 as a result of a sharp increase in operating expenses following management s decision in 21 to move into the IBM-style consultancy business. The company has made significant progress in improving profitability through a shift to high-margin indirect sales channels and effective opex control since 213. Revenue contribution from indirect sales channels surged from 21% in FY12 to 28% in FY13 and further to 39% in 1H14. The company has gone from making a loss to net profit of Rmb126m in 213 and Rmb81m in 1H14. Gross margin and net margin recovered from 65% and -7.9% in 212 to 75.3% and 7.9% in 213, and rose further to 8.9% and 1.9% in 1H14. We still see room for further profitability improvements in 2H14 and FY15, mainly driven by ongoing channel optimization and revenue expansion. Partnership with leading internet companies Kingdee entered into a cooperation with Alibaba in Dec 213 to co-launch e-commerce financial software. Based on around 8 million online stores on Taobao and Tmall, this cooperation may lead to an extra 8, SME customers for Kingdee. The company has also cooperated with Tencent to combine its QQ service with Kingdee s KIS in a new SME solution launched in Jul 214. We believe such partnerships with big internet names will significantly benefit KIS product and cloud services sales given Kingdee s strong proven track record in providing financial software to SMEs. Initiate at Buy with SOTP-based TP of HK$2.9 We expect net profit to post solid growth from Rmb126m in 213 to Rmb396m in 216, representing a CAGR of 46% during Excluding gains from properties, adjusted net profit is forecasted to surge by 13% YoY and 43% to Rmb176m and Rmb251m in 214 and 215, mainly driven by strong momentum in cloud services business and ongoing profitability improvements. Kingdee currently owns three software parks, in Shenzhen, Shanghai and Beijing, which are worth around Rmb3.5bn using rather conservative price assumptions. We initiate our coverage with a Buy rating and a SOTP-based TP of HK$2.9. Our target price represents 14x 215E P/E for its software business after stripping out Kingdee's property items, 21% below the sector average P/E of 17.8x. Key risks 1) Faster-than-expected increase in staff cost; 2) Below-expectation gains in cloud services; 3) Macro economic slowdown. Stock valuation Turnover (Rmb m) YoY (%) Net profit (Rmb m) YoY (%) Note:* Calculated based on diluted shares. Consensus net profit (Rmb m) * EPS (Rmb cents) YoY (%) P/E P/B ROE (%) Net gearing (%) 212 1, (197) , N/A N/A E 1, E 1, E 2, cash

2 Nov 6, 214 Company introduction Kingdee was founded in 1993, is headquartered in Shenzhen, and has been listed on the Main Board of the HKSE since 25. It is a leading provider of enterprise resource planning (ERP) software and enterprise cloud solutions in China, with over 1 million ERP customers and over 3 million cloud services customers. Its best-selling ERP products are KIS (entry-level software for SMEs), K/3 (professional ERP system for SMEs), and EAS (Enterprise Application Suite for large businesses). IDC has ranked the company as the leader in China s ERP market for SMEs, in terms of market share, for the last ten consecutive years. Its other products include middleware, e- commence services and various cloud service products such as K/3 cloud, Cloud Hub, Youshang.com, Kuaidi1.com and Wise Note. Industry background The software and IT services industry plays a significant role in China s economic development. The MIIT expects the industry s overall size to increase to Rmb4trn in 215 from Rmb3,59bn in 213. The enterprise software sector and ERP subsector in China are expected to expand to US$14bn and US$1.6bn respectively in 216, meaning CAGRs of 13.9% and 18% respectively during , according to Gartner. We believe cloud computing and mobile internet are the future trends for enterprise management solutions, especially for SMEs, given the flexibility and low cost of cloud technology and significant number of mobile internet users in China. The executive meeting of the State Council in Sep 214 emphasized further supportive policies for SMEs relating to taxation and financing. Given the improving outlook for SMEs on the back of favorable policies and technical advances in cloud computing, the market size of SME cloud services is expected to surge from Rmb1.39bn in 213 to Rmb5.59bn in 218 at a CAGR of 32.1%, according to CCW Research. Figure 1: China software and IT services industry Figure 2: China enterprise software industry 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 4, 3,59 2,479 1,885 1, E % % % 13.9% 13.8% % 14.5% E 215E 216E 25% 2% 15% 1% 5% % Software and information services industry(rmb bn) China enterprise software industry (US$ bn) YoY growth (%) Sources: MIIT, GF Securities (HK) Research Sources: Gartner, GF Securities (HK) Research Figure 3: China ERP market size Figure 4: China SME public cloud services mkt size % % 14.3% % 1 2.% % 14.3% E 215E 216E China ERP market size (US$ bn) YoY growth (%) 3% 25% 2% 15% 1% 5% % Market Size (Rmb bn) CAGR of 32.1% during E 215E 216E 217E 218E Sources: Gartner, GF Securities (HK) Research Sources: CCW Research, GF Securities (HK) Research Page 2

3 Nov 6, 214 Potential re-rating on shift in focus to cloud services Cloud services momentum Kingdee is shifting its focus from traditional ERP software to cloud management services to take advantage of the significant opportunities in cloud services and mobile internet in China. The company operates a series of cloud products including K/3 cloud, Cloud Hub, Youshang.com, Kuaidi1.com and Wise Note. It has seen strong momentum in its cloud services business on the back of its first-mover advantage. As of end-1h14, the company had accumulated over 3m cloud services users. Cloud revenue surged 125% YoY to Rmb45m in 1H14, on top of 16% YoY growth to Rmb57m in FY13, revenue contribution from cloud services rose from 1.2% in FY12 to 3.5% in FY13, and then further to 6% in 1H14. Figure 5: Rapid growth in cloud service revenue Figure 6: Cloud service revenue breakdown (1H14) Wise note 2% Others 2% % YoY growth % YoY growth 2. Kuaidi1.com 16% Youshang.com 16% K/3 Cloud 49% H13 1H14 Cloud revenue (Rmb m) cloud hub 15% K/3 cloud, developed by Kingdee in 211, is an on-demand rentable ERP system which provides ERP cloud services for medium-sized enterprises using both public cloud and private cloud models. The company gains recurring revenue from an annual rental charge based on the concurrent user number and functions (currently including marketing solutions, supply chain solutions and financial solutions). Kingdee accelerated investment in this flagship product and released two upgrade versions (K/3 cloud V2. and V3.) in FY13. The fifth generation of K/3 cloud is also expected to be released in 2H14. By the end of 1H14, K/3 cloud had won contracts with renowned enterprises including Filtronic China, Joyou, Yinlu Food Company, Jindi and Da Ming Int l. During the period, the K/3 cloud user number increased 3% YoY to 22,, and revenue jumped 287% YoY to Rmb22m, accounting for 49% of total cloud revenue. Cloud Hub is a mobile social platform for enterprises comparable to enterprise WeChat. Besides internal daily communication and sharing, Cloud Hub also serves as an open mobile work platform to connect mobile ERP modules developed by both Kingdee and third parties. The company generates revenue from subscription charges for its mobile ERP services in the public cloud model, and from implementation and support fees in the private cloud model. Cloud Hub gained customers such as Haier, Vanke, and New World Development in 213. The contract sums for Vanke and Haier were over Rmb1m, with related cloud services generating a gross profit margin of about 8%, according to management. As of end-1h14, Cloud Hub had 1, enterprise customers and 2m end users, both figures up about 3% YoY. Revenue from Cloud Hub increased 23% YoY to Rmb7m in 1H14. Youshang.com, Kingdee s financial cloud service, achieved 72% YoY revenue growth to Rmb7m in 1H14. Its paying user number continued to grow to 37, as of end-1h14, from 35, at end Figure 7: Reference price list for K/3 cloud from Kingdee s website Product Finance Cloud Finance and Supply Chain Cloud E-commerce cloud Charge unit User number User number Effective register user number Least rent user Charge per user (Rmb) * 5,8/per year 9,8/per year 7/per year (below 2 users) 3/per year(more than 2 users) ; Note that the actual sales price may be discounted Page 3

4 Nov 6, 214 Figure 8: Cloud Hub interface Figure 9: Cloud Hub ERP module connection interface Sources: Company data Sources: Company data Re-rating potential High growth expected in cloud services Management has set an ambitious target of cloud services accounting for 5% of group sales by 218. Although we believe this will be challenging, we see a bright outlook for its cloud strategy, given strong demand in the enterprise cloud and mobile internet solutions market as well as the company s first-mover advantage and mass crossselling opportunities with its existing enterprise customers. We expect revenue from K/3 cloud and other cloud services to grow at CAGRs of 68% and 85% respectively during FY We expect overall cloud service revenue to reach Rmb11m in 214 and rise to Rmb1,93m in 218, representing a CAGR of 78% during FY15-18 and 33% of total sales in 218. Figure 1: Cloud service users and revenue forecasts for Kingdee 1H14 214E 215E 216E 217E 218E Total Cloud revenue (Rmb m) YoY growth (%) 94% 87% 7% 62% K/3 cloud revenue (Rmb m) YoY growth (%) 8% 8% 56% 56% No. of users (k) YoY growth (%) 5% 5% 3% 3% Yearly ARPU (Rmb k) YoY growth (%) 2% 2% 2% 2% Other cloud service revenue (Rmb m) YoY growth (%) 16% 92% 79% 65% No of users (m) YoY growth (%) 7% 6% 5% 5% Paying users (m) Paying rate (%) 1% 1% 11% 12% 13% 13% Yearly ARPPU YoY growth (%) 1% 1% 1% 1% Page 4

5 1-Jan-5 1-Sep-5 1-May-6 1-Jan-7 1-Sep-7 1-May-8 1-Jan-9 1-Sep-9 1-May-1 1-Jan-11 1-Sep-11 1-May-12 1-Jan-13 1-Sep-13 1-May-14 Company report Nov 6, 214 Figure 11: Cloud services revenue (212-18E) Figure 12: Revenue contribution from cloud services (212-18E) 1,2 1, % 1,93 18% 16% 14% 94% 94% 12% % 1% 7% % 8% 6% 213 4% % % E 215E 216E 217E 218E Cloud service revenue(rmb m) YoY growth (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 33% 25% 18% 1% 4% 7% 11% E 215E 216E 217E 218E Cloud services (%) Existing business (%) Salesforce example suggests re-rating potential for Kingdee Salesforce is a leading software services provider in the US, mainly providing online cloud-based CRM services to global customers via the internet. Most of its revenue comes from software service subscriptions and technical support under the software-as-a-service (SaaS) business model. On the back of the rapid growth in demand for cloud services, Salesforce s revenue has increased from US$31m in 25 to US$4,71m in 213, a CAGR of 38%. This growth is much higher than that seen at traditional ERP software providers SAP and Oracle, whose CAGRs were just 9% and 13% during the period. In addition, Salesforce s share price has risen 17x since the beginning of 25. Given this example, we see re-rating potential for Kingdee given its leading position in cloud services and the significant market opportunities in China. Figure 13: Salesforce s revenue growth (25-13) Figure 14: Share price performance for Oracle, SAP and Salesforce, Jan 25 to Aug 213 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 6% 51% 44% 21% 27% 37% 35% 33% 7% 6% 5% 4% 3% 2% 1% 2% 18% 16% 14% 12% 1% 8% 6% 4% 2% % -2% FY5 FY6 FY7 FY8 FY9 FY1 FY11 FY12 FY13 % Salesforce's revenue(us$ m) YoY growth(%) Oracle SAP Salesforce Sources: GF Securities (HK) Research Sources: GF Securities (HK) Research Profitability improvement to continue Loss in 212 Kingdee saw heavy losses in 212 as a result of a sharp increase in operating expenses following the management s decision in 21 to move into the IBM-style consultancy business. The attempt was unsuccessful due to the macroeconomic slowdown and excessive staff costs. Profitability improvement measures To turn the situation around, in 213 Kingdee decided to scale back its consultancy ambitions and shift the focus of its strategy to product sales and its cloud services business. Given the low margins for implementation and consulting services and the high operating cost in its direct sales channel, the company tried to improve profitability through measures including: 1) reducing its reliance on direct sales and enhancing cooperation with a greater number of partners; 2) optimization of its business structure with more focus on product sales; 3) strictly controlling operating expenses. Page 5

6 Nov 6, 214 The company has made significant progress in the execution of these measures in both 213 and 1H14. The number of branches has been cut from 17 at end-211 to 61 at end-213. Total staff number has dropped from 1,3 at the end of 211 to 6,312 at the end of 213, and further to 5,58 at the end of 1H14. Revenue contribution from its indirect sales channel surged from 21% in FY12 to 28% in FY13 and further to 39% in 1H14. At end-1h14, the company has fully realized indirect sales for K/3, and started to adopt indirect channel selling for EAS. The company has also decided to abandon its unprofitable consulting services business gradually going forward. Earnings recovery The company has gone from making a loss in 212 to net profit of Rmb126m in 213 and Rmb81m in 1H14, thanks to the management s strong execution. We have seen ongoing improvements in the company s profitability as gross margin and net margin have recovered from 65% and -8% in 212 to 75% and 8% in 213, and then to 81% and 11% in 1H14. Management targets around 5% of sales coming from indirect channels. Compared to historical net margin levels, we still see room for improvements in profitability in 2H14 and FY15, mainly driven by ongoing channel optimization and revenue expansion. As such, we expect net margin of 14.1% and 16.2% in 214 and 215. Excluding gains from properties, adjusted net margin for its core software business should come in at 1.8% and 13.3% for 214 and 215 respectively. Figure 15: Revenue breakdown by sales channel Figure 16: Opex-to-sales ratio forecast 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 22% 21% 28% 39% 78% 79% 72% 61% H14 Direct sales Indirect sales E 215E 216E R&D exp, Distribution exp. Admin exp. OPEX-to-sales Cooperation with leading internet companies Cooperation with Alibaba in launching e-commerce financial software Kingdee began its cooperation with Alibaba in Dec 213, to provide financial software and services to the around 8 million online stores on its leading Taobao and Tmall platforms. The SMEs running these online stores have significant demand for IT services driven by the boom in e-commerce and the increasing popularity of O2O (online to offline). Assuming 5% of the online stores need management software and a 2% market share for Kingdee, we believe the cooperation could mean an additional 8, SME customers for Kingdee, a significant opportunity considering it currently has 1m enterprise customers. The company also plans to cooperate with other large e- commerce platforms such as Tencent, DangDang and SuNing. Given its strong proven track record in providing financial software to SMEs, we believe such partnerships will significantly benefit its KIS product and cloud services sales. Combination of Kingdee s KIS with Tencent s enterprise QQ In Jul 214, Kingdee launched a new SME solution, bringing together Tencent s enterprise QQ with its own KIS. Leveraging on the huge popularity of Tencent QQ in immediate enterprise communication, this cooperation is expected to improve the communication function and support services, and increase sales opportunities for the KIS product in the SME market. Investment risks 1) Faster-than-expected increase in staff costs; 2) Below-expectation gains in cloud services; 3) Macro economic slowdown. Page 6

7 Nov 6, 214 Earnings and valuation Earnings forecast We expect revenue of Rmb1,626m in 214, which would be broadly flat with revenue in 213, mainly due to the strong growth in emerging cloud services being offset by a revenue decline in its traditional software and services business as a result of channel restructuring. Given sustainable momentum in cloud services and the growth recovery in its traditional business following channel restructuring, we expect overall revenue to surge to Rmb2,235m in 216, growing at a three-year CAGR of 12% in Revenue contribution from cloud services should reach 18% in FY16 and rise further to 33% in 218. Excluding gains from properties, we forecast adjusted net profit will surge by 13% YoY to Rmb176m in 214 and continue to increase to Rmb342m in 216, at a three-year CAGR of 58% during , mainly driven by overall revenue expansion and ongoing improvements in profitability. Valuation of its three properties Kingdee currently owns three software parks, in Shenzhen, Shanghai and Beijing. These three properties are worth around Rmb3.5bn using rather conservative price assumptions. Management plans to sell the newly completed Beijing software park, while the other two will continue to be used by Kingdee and rented out. Initiate at Buy with SOTP-based TP of HK$2.9 We initiate our coverage with a Buy rating and a SOTP-based TP of HK$2.9 Our target price represents 14x 215E P/E for its software business after stripping out Kingdee's properties, 21% below the sector average P/E of 17.8x. Figure 17: Revenue breakdown forecast Figure 18: Revenue and growth forecast 2,5 2, 1,5 1, , , E 215E 216E Cloud services Software services Software product Hardware 4, 3,5 3, 2,5 2, 1,5 1, 5 3,357 41% 2,73 2,235 2,22 1,88 24% 1,765 21% 1,62 1,626 19% 16% 1% -9% -13% E 215E 216E 217E 218E Revenue (Rmb m) YoY growth (%) 5% 4% 3% 2% 1% % -1% -2% Figure 19: Gross margin and net margin forecast Figure 2: Adjusted net profit and growth forecast (2) (.7) (7.9) E 215E 216E (12.9) Gross margin (%) Net margin (%) Adjusted net margin for core software business (%) (1) (2) (3) 1412% (15) E 215E 216E 43% 36% 13% -17% (228) Adjusted net profit (Rmb m) YoY Growth (%) 16% 14% 12% 1% 8% 6% 4% 2% % -2% Figure 21: Sum-of-the-parts valuation Sum-of-the-parts Rmb bn % of total Remarks Shenzhen software park % 6, sq Rmb2, per sq m; completed in 29 (Nanshan district) Shanghai software park.4 6% 27, sq Rmb15, per sq m; completed in 28 (Zhangjiang district) Beijing software park % 16, sq Rmb12, per sq m; completed in 213 (Shunyi district) Software business (valuation) 3.5 5% Implied 215 forward PER of 14x based on our net profit estimate Subtotal 7. 1% Less debt*(rmb bn) (1.9) Add cash* (Rmb bn) 1.4 Valuation (Rmb bn) 6.5 Valuation (HK$bn) 8.2 Target share price (HK$) bn full diluted ordinary share *As end of 1H14 Page 7

8 IBM ORACLE CORP SINOSOFT TECHNOL SAP SE-SPONS ADR MICROSOFT CORP CHINASOFT INTL SAGE GROUP KINGDEE INTL SFT INTUIT INC YONYOU SOFTWAR-A NEUSOFT CORP-A Company report Nov 6, 214 Peer comparison Figure 22: Peer comparison Software players Stock Mkt Cap Price P/E (x) P/B (x) ROE (%) Earnings CAGR (%) PEG code (HK$ mn) 214/11/5 FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13-15 FY13-15 MICROSOFT CORP MSFT US 3,58, ORACLE CORP ORCL US 1,349, IBM IBM US 1,241, SAP SE-SPONS ADR SAP US 64, N/A N/A N/A N/A N/A SALESFORCE.COM CRM US 297, N/A N/A N/A INTUIT INC INTU US 196, SAGE GROUP SGE LN 48, YONYOU SOFTWAR-A 6588 CH 27, NEUSOFT CORP-A 6718 CH 21, KINGDEE INTL SFT 268 HK 6, CHINASOFT INTL 354 HK 4, SINOSOFT TECHNOL 1297 HK 2, * Average Sources: Bloomberg, GF Securities (HK) Research; Note: * excluding the highest variable for average FY14 and FY15 P/E Figure 23: FY15E PER comparison FY15E PER * Average * Average PER= Sources: Bloomberg, GF Securities (HK) Research Page 8

9 Nov 6, 214 Figure 24: Financial summary Income Statement Balance Sheet Year ended Dec (Rmb m) E 215E 216E Year ended Dec (Rmb m) E 215E 216E Sales of software ,19 Cash/ST Investments ,57 1,77 2,139 Implementation services Account receivables Consulting and support services Inventory Others Other Current Assets Turnover 1,765 1,62 1,626 1,88 2,235 Total current assets 1,563 1,58 2,158 2,449 2,946 YoY (%) (13) (9) Property, plant &equipment Intangible assets Cost of sales (619) (396) (333) (376) (436) Other LT Assets , 1,1 1,1 Gross profit 1,147 1,26 1,293 1,54 1,799 Total non-current assents 2,419 2,348 2,33 2,348 2,293 Selling&marketing exp. (1,154) (828) (85) (921) (1,73) Total Assets 3,981 3,928 4,461 4,797 5,238 Admin exp. (217) (25) (179) (27) (235) R&D costs (2) (233) (244) (282) (335) ST Debt Fair value on inv properties Trade payables Other gains Other Current Liabilities Operating profit (13) Total current liabilities Finance income LT Debt 1,364 1,155 1,73 1,73 1,73 Finance costs (66) (111) (1) (8) (8) Other LT Liab Share in associates - () Total non-current liabilities 1,433 1,221 1,769 1,769 1,769 Pre-tax income (162) Taxation (2) (17) (2) (26) (34) Minority Interests MI (24) (7) Shareholders' Equity 1,579 1,75 1,954 2,221 2,565 Net profit (14) Total Equity & liabilities 3,981 3,928 4,461 4,797 5,238 YoY (%) (197) n/a * Adjusted net profit (228) BPS (RMB) YoY (%) 1,412 n/a YoY (%) EPS (Rmb cents) (5.6) YoY (%) (23) N/A Adjusted EPS(Rmb cents) (9.1) YoY (%) 158 N/A Cash Flow Statement Financial Ratio Year ended Dec (Rmb m) E 215E 216E Year ended Dec E 215E 216E Margins Pretax profit (162) Gross margin (%) Tax Paid (6) (1) (2) (26) (34) EBITDA margin (%) Depr/Amort Operating margin (%) Change in working capital (17) (8) (1) (22) (31) Net margin (%) Others (43) (7) Operational cash flow Returns and profitability ROE (%) (8.9) Capex (571) (339) (2) (2) (2) ROA (%) (4.) Assoc, MI, Invsmt (151) 11 (1) (1) - Investment cash flow (722) (328) (21) (3) (2) Working capital Receivables (days) Net Change in Debt 973 (17) Inventory (days) New Capital Payable (days) Dividend - - (26) (38) (51) Others (3) Financial health Financing cash flow 973 (1) 298 (38) (51) Current ratio (x) Net gearing (%) cash FX and others - - () () () Chg in Cash Others Beginning cash ,569 1,769 Dividend payout ratio(%) Ending cash ,57 1,77 2,139 Effective tax ratio(%) (1.2) Page 9

10 Nov 6, 214 Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between -5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 1% Neutral Expected sector relative performance ranges between -1% and 1% Cautious Sector expected to underperform benchmark by more than 1% Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. Disclosure of Interests (1) The proprietary trading division of GF Securities (Hong Kong) Brokerage Limited ( GF Securities (Hong Kong) )and/or its affiliated or associated companies do not hold any shares of the securities mentioned in this research report. (2)GF Securities (Hong Kong) and/or its affiliated or associated companies did not have any investment banking relationships with the companies mentioned in this research report in the past 12 months. (3)All of the views expressed in this research report accurately reflect the independent views of the analyst(s). Neither the analyst(s) preparing this report nor his/her associate(s) serves as an officer of the companies mentioned in this report,or has any financial interests in or holds any shares of the securities mentioned in this report. Disclaimer This report is prepared by GF Securities (Hong Kong). It is published solely for information purpose and does not constitute an offer to buy or sell any securities or a solicitation of an offer to buy, or a recommendation for investing in, any securities. This research report is intended solely for use by the clients of GF Securities (Hong Kong). The securities mentioned in this research report may not be allowed to be sold in certain jurisdictions. No action has been taken to permit the distribution of this research report to any persons in any jurisdictions that the circulation or distribution of such research report is unlawful. The information contained in this research report has been compiled or arrived at from publically available sources believed to be reliable in good faith, and no representation or warranty, either express or implied, is made by GF Securities (Hong Kong) as to their accuracy and completeness. GF Securities (Hong Kong) accepts no liability for any losses arising from the use of the materials presented in this research report, unless otherwise required by applicable laws or regulations. Please be aware of the fact that investments involve risks and that the prices of securities may fluctuate and therefore returns may vary. Past results do not guarantee future performance. Any recommendations contained in this research report do not have regard to the specific investment objectives, financial situation and the particular needs of any individuals. This report is not to be taken in substitution for the exercise of judgment by the respective recipients of this report. Where necessary, the recipients should obtain professional advice before making investment decisions. GF Securities (Hong Kong) may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this research report. The points of view, opinions and analytical methods adopted in this research report are solely expressed by the analyst(s) but not GF Securities (Hong Kong) or its subsidiaries. The information, opinions and forecasts presented in this research report are the current opinions of the analyst(s) as of the date appearing on this material and are subject to changes at any time without notice. The salespersons, dealers or other professionals of GF Securities (Hong Kong) may deliver opposite points of view to their clients and the proprietary trading division with respect to market commentaries and dealing strategies either in writing or verbally. The proprietary trading division of GF Securities (Hong Kong) may have investment decisions which are contrary to the opinions expressed in this research report. GF Securities (Hong Kong) or its affiliates or respective directors, officers, analysts and employees may have rights and interests in the securities mentioned in this research report. The recipients should be aware of relevant disclosures of interests (if any) when reading this report. Copyright GF Securities (Hong Kong) Brokerage Limited. Without the prior written consent obtained from GF Securities (Hong Kong) Brokerage Limited, any part of the materials contained herein should not (i) in any forms be copied or reproduced or (ii) be re-disseminated. GF Securities (Hong Kong) Brokerage Limited. All rights reserved. 29-3/F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong Tel: Fax: Website: Page 1

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