Interim P&C Insurance Operation Underperformed Life, Supportive Valuation, Maintain Accumulate

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1 GTJA Research 国 泰 君 安 研 究 Company Report: CPIC (02601 HK) Dayton Wang 王 庆 鲁 公 司 报 告 : 中 国 太 保 (02601 HK) wangqinglu010421@gtjas.com Interim P&C Insurance Operation Underperformed Life, Supportive Valuation, Maintain Accumulate 14 财 年 中 期 财 产 险 表 现 逊 于 寿 险, 但 估 值 仍 有 支 撑, 维 持 收 集 1H14 results were slightly below our expectation on increased auto insurance combined ratio. Attributable net profit for the period was RMB 6,848 million, notably up 25.4% yoy on greater earning contribution from CPIC Life. Underwriting profit from CPIC P&C experienced a 15.3% yoy decrease to RMB 1,474 million on rising expense ratio. CPIC Life delivered consistent agency channel focused business strategy and exhibited apparent bancassurance channel transition to improve the channel s NBV contribution, overall NBM improved by 3.0 ppt to 21.0%. The Management expects the growth in high cash value products sales to slow among major life insurers including CPIC Life. We see that this implies CPIC Life s NBM still has room for improvement in both agency and bancassurance channel. CPIC P&C s auto insurance combined ratio deteriorated to 100.0% on the back of increased expenses. However, the Management revealed some positive signals of lowered claim frequency and shortened payout period. The Company continued to see ample business opportunities in liabilities insurance, whose demand could be triggered by increased public attention to environmental protection and food safety. Rating: Accumulate Maintained 评 级 : 收 集 ( 维 持 ) 6-18m TP 目 标 价 : HK$31.50 Revised from 原 目 标 价 : HK$31.50 Share price 股 价 : Stock performance 股 价 表 现 % return HK$ Maintain current TP of HKD per share by applying an 8.3% discount to the SOTP based appraisal value of HKD per share. Better sector outlook in life insurance sector leads to an unchanged Accumulate investment rating. 14 财 年 中 期 业 绩 因 上 升 的 车 险 综 合 成 本 率 而 稍 低 于 预 期 中 期 归 属 母 公 司 股 东 净 利 润 为 人 民 币 6,848 百 万 元, 因 寿 险 贡 献 度 增 加 而 同 比 显 著 上 升 25.4% 财 产 险 承 保 利 润 同 比 下 跌 15.3% 至 人 民 币 1,474 百 万 元, 主 要 原 因 是 费 用 率 的 上 升 太 保 寿 险 聚 焦 个 险 的 策 略 得 到 维 持, 银 保 渠 道 因 新 业 务 利 润 率 改 善 而 转 型 明 显, 综 合 新 业 务 利 润 率 提 升 3 个 百 分 点 至 21.0% 管 理 层 预 期 高 现 金 价 值 产 品 增 速 在 主 要 寿 险 企 业 中 将 放 缓, 我 们 认 为 这 意 味 着 公 司 渠 道 新 业 务 利 润 率 仍 然 有 上 升 空 间 太 保 财 产 险 车 险 综 合 成 本 率 因 费 用 率 增 加 升 至 100.0%, 不 过 管 理 层 披 露 了 一 些 向 好 迹 象 包 括 降 低 的 赔 付 频 率 和 缩 短 的 偿 付 周 期 公 司 依 然 将 继 续 大 力 发 展 责 任 险 产 品 线, 并 且 认 为 由 于 公 众 对 于 环 保 和 食 品 安 全 的 持 续 关 注 将 产 生 更 多 的 责 任 险 需 求 维 持 港 元 的 目 标 价 ( 给 予 基 于 分 部 加 总 方 法 得 出 的 每 股 港 元 评 估 价 值 8.3% 的 折 让 ) 我 们 因 持 续 向 好 的 寿 险 行 业 前 景 而 维 持 收 集 的 投 资 评 级 (5.0) (10.0) (15.0) Aug-13 Oct-13 Nov-13 Jan-14 Feb-14 Apr-14 May-14 Jul-14 Aug-14 HSI Change in Share Price 股 价 变 动 1 M 1 个 月 CPIC 3 M 3 个 月 1 Y 1 年 Abs. % 绝 对 变 动 % (5.1) Rel. % to HS index 相 对 恒 指 变 动 % (5.9) 5.2 (1.5) Avg. share price(hk$) 平 均 股 价 ( 港 元 ) Source: Bloomberg, Guotai Junan International Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年 结 收 入 股 东 净 利 每 股 净 利 每 股 净 利 变 动 市 盈 率 每 股 净 资 产 市 净 率 每 股 股 息 股 息 率 净 资 产 收 益 率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 2012A 167,157 5, (39.2) A 192,217 9, E 201,851 10, E 222,821 11, E 248,015 12, Shares in issue (m) 总 股 数 (m) 9,062.0 Major shareholder 大 股 东 Bao Steel 14.9% Market cap. (HK$ m) 市 值 (HK$ m) 263,704.2 Free float (%) 自 由 流 通 比 率 (%) month average vol. 3 个 月 平 均 成 交 股 数 ( 000) 9,873.5 P/14 EV/ 14 年 P/EV ( 基 于 收 盘 价 ) 1.2 x 52 Weeks high/low (HK$) 52 周 高 / 低 / Est. FY14 NAV (HK$) 每 股 14 年 估 值 (HK$) 34.4 See the last page for disclaimer Page 1 of 10

2 1H14 results were slightly below our expectation on increased combined ratio. CPIC released its 1H14 unaudited financial results on August 22. Gross written premiums came in at RMB 108,413 million, with a yoy increase of 9.9%, accounting for 54.8% of our previous 2014 full-year forecast. Its attributable net profit for the period was RMB 6,848 million, notably up 25.4% yoy on greater earning contribution from CPIC Life (RMB 4,914 million standalone net profit, up 41.9% yoy). The disappointing part of the results lies in CPIC P&C, which its overall combined ratio increased unexpectedly to 99.5%, representing a yoy deterioration of 1.8 ppts and was at par comparing to 2013 year-end level. Underwriting profit from CPIC P&C experienced a 15.3% yoy decrease to RMB 1,474 million (RMB 1,740 million in 1H13) on rising expense ratio. On investment activity front, CPIC s position on alternative fixed-income instruments such as debt investment plans, commercial banks WMPs and trust products trended up during the period, whose outstanding balance in 1H14 carried approximately 7.8% weight in the total investment assets of RMB 756,454 million. CPIC s asset management business exhibited health growth, which was demonstrated by a 36.3% yoy increase in third-party AuM, reaching RMB 108,785 million by the end of 1H14. Figure-1: CPIC s interim life insurance gross written premiums Figure-2: CPIC s interim P&C insurance gross written premiums 70,000 Life insurance premiums 50,000 P&C insurance premiums 60,000 40,000 50,000 40,000 30,000 30,000 20,000 Figure-3: CPIC s interim investment income Figure-4: CPIC s interim embedded value 20,000 Investment income 160,000 Embedded value 150,000 15, , ,000 10, , ,000 5, ,000 1H10 1H11 1H12 1H13 1H14 CPIC Life delivered consistent agency channel focused business strategy and exhibited apparent bancassurance channel transition to improve the channel s NBV contribution; overall NBM improved by 3.0 ppt to 21.0%. Gross written premiums from CPIC Life s agency channel grew 21.3% yoy with a 6.7% yoy expansion in agent headcount and a 19.0% yoy improvement in agent productivity (FYPs per agent per month rose to RMB 5,656 in 1H14 comparing to RMB 4,754 in 1H13). This resulted CPIC Life s interim FYPs rose notably by 27.3% yoy to RMB 10,241 million. CPIC Life improved its bancassurance channel margin by 1.5 ppt, rising from 5.2% in 1H13 to 6.7% in 1H14 aided by placing more emphasis on selling high-margin regular premium products. Regarding the Company s NBM breakdown by channel, we see a slight decrease in agency channel NBM of 37.3% (40.0% in 1H13) on the back of high cash values in the product mix. NBV contribution of bancassurance slide to 11.0% on decreased bancassurance FYPs and slower than agency channel growth in See the last page for disclaimer Page 2 of 10

3 NBV. At the analyst briefing, the Management expects high cash value products sales to slow among major life insurers including CPIC Life. We see this implies CPIC Life s NBM still has room for improvement in both agency and bancassurance channel. Figure-5: CPIC Life s interim first-year premiums (FYP) Figure-6: CPIC Life s interim annual premiums equivalent (APE) 40,500 First-year premiums 15,500 Annual premiums equivalent 30,500 10,500 20,500 10,500 5, Figure-7: CPIC Life s interim premiums breakdown by product types Figure-8: CPIC Life s half-year new business value 100% Traditional Universal Participating ST Accident 6,500 6,000 New business value 5,500 50% 5,000 4,500 0% 4,000 1H13 1H14 Figure-9: Change analysis on CPIC Life s half-year new business value 5,400 5, (24) 98 5,230 5,000 4,800 4,600 4,400 4,254 4,200 4,000 1H13 Channel mix Business mix Chg in assumptions 1H14. CPIC P&C maintained growth momentum in premiums, auto insurance combined ratio deteriorated to 100.0% on the back of increased expenses. At premiums front, CPIC P&C registered a steady yoy increase of 13.7% and its gross written premiums reached RMB 48,165 million in 1H14. Apart from the main product of auto insurance, CPIC P&C managed to obtain the license for export credit insurance and successfully issued the first credit insurance policy. However, overall underwriting See the last page for disclaimer Page 3 of 10

4 profit margin experienced HoH decrease to 0.5% driven by 100.0% combined ratio in auto insurance line. The Management explained this deterioration due to sector competitive landscape and rising claims. Our analysis suggests auto insurance s expense ratio climbed to 43.0% in 1H14 from 2013 year end of 39.3%, implying intensifying competition on policy acquisition and struggling internal expense management. However, the Management revealed some positive signals of potential improvement in underwriting profit margin amid current deterioration including lowered claim frequency and shortened payout period. As for the near-term, CPIC P&C is determined to employ more careful management on each distribution channel, thus is hoping to bring down overall expenses in 2H14. On the impacts from upcoming pricing reform in commercial auto insurance front, at the analyst briefing, the Management expected neutral effects on the general price level of typical auto insurance policy as the initial liberalization phase will be supplementary part of the pricing equation. CPIC P&C sees itself having the advantage of possessing mass data comparing to other small / mid size players in the sector. In addition, we expect the potential effects on loss ratio from auto part price to be become more transparent as Insurance Association of China ( the IAC ) intends to publish auto part prices data more frequently. In April, the IAC published the first report on the ratio of auto part price to the whole car price, which outlined how expensive of the auto parts were relative to the price of a brand new car. On the non-auto product lines, the Management continued to see ample business opportunities in liabilities insurance, whose demand could be triggered by increased public attention to environmental protection and food safety. Despite given current challenging underwriting margin, CPIC P&C is still determined to further development this product line. Figure-10: CPIC P&C s interim expense and loss ratio Figure-11: CPIC P&C s interim underwriting profit 100.0% Expense ratio Loss ratio 2,500 2,000 Underwriting profit 1, % 1, % 0 Capital position for life and P&C operation is expected to improve after upcoming capital injection from the Group. The solvency margin of CPIC Life and CPIC P&C stood at 179% and 175%, respectively. On August 25, the Board of CPIC announced planned capital injection to its life and P&C operation, planning to raise RMB 4.6 billion and RMB 2.0 billion from existing shareholders of the two subsidiaries. We estimate that the solvency margin for CPIC Life and CPIC P&C will be statically improved to a yearend level of 186.9% and 215.0%, respectively. Figure-12: CPIC Life year-end solvency margin Figure-13: CPIC P&C s year-end solvency margin 250.0% Solvency margin: Life 250.0% Solvency margin: P&C 200.0% 200.0% 150.0% 150.0% 100.0% 100.0% 2011A 2012A 2013A 2014E 2015E 2016E 2011A 2012A 2013A 2014E 2015E 2016E See the last page for disclaimer Page 4 of 10

5 Earnings Revision, Valuation And Investment Recommendation We have made 1.4% upward adjustment on CPIC s 2014 year end earning per share on the back of improving earnings from life insurance operation. On the Company s P&C operation, we lifted the full-year combined ratio forecast at 99.7% to reflect the worse than expected interim combined ratio on underperformed auto insurance line. In our view, CPIC P&C needs time to conduct more stringent expense control and claims management, although some positive signs in the sector including antimonopoly against foreign auto car part markers may start creating a favorable condition for the Company to do so. Our revised EPS forecasts for 2014E, 2015E and 2016E now stands at RMB RMB and RMB 1.402, respectively. Table-1: Earning revision on CPIC in RMB mn New Previous % 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E Gross written premiums : Life 102, , , , , ,617 (1.5%) (1.3%) (1.3%) Net written premiums: P&C 70,891 81,154 93,149 70,495 81,106 93, % 0.1% (0.4%) Investment income 32,591 35,186 38,217 31,043 33,245 37, % 5.8% 3.2% Net profit for the year 10,521 11,171 12,900 10,372 11,222 13, % (0.5%) (6.4%) EPS basic (RMB) % (0.5%) (6.5%) Source: Guotai Junan International. Revising up 2014 full year NBV growth rate results in higher valuation for CPIC Life, but we have assigned lower valuation multiple on P&C insurance operation, leading to an unchanged target price of HKD per share. We have revised our 2014 full year NBV growth rate to 17.0% on the back of more protection oriented products in CPIC Life s product portfolio, we think the Company s agency focused approach will maintain overall new business margin and it shall have further room for improvement aided by changes its bancassurance channel. On the valuation of CPIC P&C, we have assigned a lowered fair P/B multiple of 1.38x, which was derived by applying the Gordon Growth Model with an assumed long-term ROE of 15.0%. We see CPIC P&C underwriting profit margin continued to be under pressure on fierce competition in the auto insurance lines and on the early development stage of some of the products in its non-auto lines. Our Sum-of-the-parts ( SOTP ) valuation yields an appraisal value per share of CPIC at HKD 34.36; our target price is maintained at HKD by granting an 8.3% discount on it. Since the current market valuation on CPIC shares still offers an absolute upside potential of 8.2% to our target price, plus we see CPIC possesses first mover benefits and location advantages respectively in the expected launch of personal tax deferral commercial pension products and rising demands for liabilities / cargo insurance lines stemming from rapid development of Shanghai FTZ, we maintain our investment rating of Accumulate on CPIC s shares. See the last page for disclaimer Page 5 of 10

6 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Table-2: Sum-of-the-parts valuation on CPIC in mn except per share data 2014E Embedded value of life (in RMB) A 114,760 New business value (in RMB) B 8,770 NBV multiplier C 6.00 x CPIC's shares in CPIC Life D 98.3% Valuation of life insurance business (in RMB) E = (A+B*C)*D 164,520 Net assets of P&C insurance business (in RMB) F 26,512 Assumed P/B multiple G 1.38 x Valuation of P&C insurance business (in RMB) H = F*G 36,460 Net assets of Corporate & Other (in RMB) I 38,748 Assumed P/B multiple J 1.00 x Valuation of Corporate & Other K = I*J 38,748 Aggregate value of CPIC group (in RMB) L = E+H+K 239,728 Assumed exchange rate M 0.77 Aggregate value of CPIC group (in HKD) N = L / M 311,335 Shares outstanding O 9,062 Value per share (in HKD) P = N / O Source: Guotai Junan International. Figure-14: CPIC s Historical P/B 3.0 (x) Historical P/B Avg +1 S.D. -1 S.D. Figure-15: CPIC s 12M Forward P/B 2.5 (x) Forward P/B Avg +1 S.D. -1 S.D Source: Bloomberg, Guotai Junan International. Note: Start period = Jul 2010 Price as of August 29, 2014 Source: Bloomberg, Guotai Junan International. Note: Start period = Jul 2010 Price as of August 29, 2014 See the last page for disclaimer Page 6 of 10

7 Table-3: Peers Comparison Company Stock Code Currency Last price PE (fiscal year) PB (fiscal year) Market Cap 13A 14E 15E 16E 13A 14E 15E 16E HKD mn HK - Listed companies China Life Insurance Co-H 2628 HK HKD ,474 Ping An Insurance Group Co-H 2318 HK HKD ,055 Aia Group Ltd 1299 HK HKD ,502 Prudential Plc 2378 HK HKD ,415 Manulife Financial Corp 945 HK HKD ,645 China Pacific Insurance Gr-H 2601 HK HKD ,319 People'S Insurance Co Grou-H 1339 HK HKD ,454 Picc Property & Casualty -H 2328 HK HKD ,949 New China Life Insurance C-H 1336 HK HKD ,377 China Taiping Insurance Hold 966 HK HKD ,830 Simple Average Weighted Average China - Listed companies China Life Insurance Co-A CH CNY ,802 China Pacific Insurance Gr-A CH CNY ,455 Ping An Insurance Group Co-A CH CNY ,321 New China Life Insurance C-A CH CNY ,377 Simple Average Weighted Average Other APAC - Listed companies Tokio Marine Holdings Inc 8766 JT JPY 3, ,820 Ms&Ad Insurance Group Holdin 8725 JT JPY 2, ,708 Dai-Ichi Life Insurance 8750 JT JPY 1, ,021 Samsung Life Insurance Co Lt KS KRW 106, ,568 Samsung Fire & Marine Ins KS KRW 277, ,338 Hanwha Life Insurance Co Ltd KS KRW 6, ,137 Dongbu Insurance Co Ltd KS KRW 61, n.a ,070 Cathay Financial Holding Co 2882 TT TWD n.a. n.a. n.a. 166,200 Shin Kong Financial Holding 2888 TT TWD n.a. n.a. n.a. 23,594 Great Eastern Holdings Ltd GE SP SGD ,527 Qbe Insurance Group Ltd QBE AU AUD n.a ,894 Amp Ltd AMP AU AUD ,878 Simple Average Weighted Average USA - Listed companies American International Group AIG US USD ,947 Simon Property Group Inc SPG US USD ,516 Metlife Inc MET US USD ,160 Travelers Cos Inc/The TRV US USD ,865 American Tower Corp AMT US USD ,721 Ace Ltd ACE US USD ,642 Public Storage PSA US USD ,390 Aflac Inc AFL US USD ,026 Simple Average Weighted Average Europe - Listed companies Axa Sa CS FP EUR ,060 Prudential Plc PRU LN GBp 1, ,305 Zurich Insurance Group Ag ZURN VX CHF ,627 Swiss Re Ag SREN VX CHF ,612 Legal & General Group Plc LGEN LN GBp ,461 Old Mutual Plc OML LN GBp ,410 Aviva Plc AV/ LN GBp ,383 Standard Life Plc SL/ LN GBp ,117 Simple Average Weighted Average Source: Bloomberg, Guotai Junan International. Price as of August 29, 2014 See the last page for disclaimer Page 7 of 10

8 Financial Statements and Key Ratios Income Statement Year end Dec 2012A 2013A 2014E 2015E 2016E Gross written premiums 163, , , , ,154 Less: Premiums ceded to reinsurers (11,795) (15,295) (24,743) (27,680) (31,492) Net written premiums 151, , , , ,662 Net change in unearned premium reserves (3,594) (2,003) (2,300) (2,800) (3,000) Net premiums earned 147, , , , ,662 Investment income 18,060 30,972 32,591 35,186 38,217 Other operating income 1,258 1, ,136 Other income 19,318 32,592 33,449 36,052 39,353 Total income 167, , , , ,015 Net policyholders benefit ts and claims: (118,817) (133,259) (133,447) (148,294) (164,301) Finance costs (2,288) (2,755) (3,259) (3,277) (3,260) Interest credited to investment contracts (1,715) (1,924) (2,152) (2,324) (2,524) Other operating and administrative expenses (38,224) (42,365) (48,963) (54,227) (60,956) Total benefits, claims and expenses (161,044) (180,303) (187,822) (208,122) (231,042) Profit before tax 6,113 11,914 14,028 14,699 16,973 Income tax (983) (2,519) (3,507) (3,528) (4,074) Net profit for the year 5,130 9,395 10,521 11,171 12,900 Attributable to: Equity holders of the parent 5,077 9,261 10,353 11,004 12,706 Minority interests EPS (Basic) Balance Sheet Year end Dec 2012A 2013A 2014E 2015E 2016E Fixed income investments 533, , , , ,052 Equity investment 62,715 75,129 79,949 86,531 98,304 Investment properties 6,349 6,795 6,541 8,850 11,610 Cash and cash equivalents 24,990 19,335 19,389 24,467 21,877 Total investment assets 627, , , , ,843 Other assets 54,174 56,734 41,040 28,892 23,416 Total assets 681, , , , ,259 Life insurance liabilities 387, , , , ,530 P&C insurance liabilities 51,213 57,775 65,826 74,206 83,473 Total insurance liabilities 438, , , , ,003 Investment contracts liabilities 41,754 34,443 36,062 37,865 40,137 Subordinated debts 15,500 15,500 19,570 19,570 19,570 Other liabilities 87,792 70,668 54,525 41,339 34,203 Total liabilities 583, , , , ,913 Equity Issued capital 9,062 9,062 9,062 9,062 9,062 Reserves 67,519 64,612 69,900 78,485 87,776 Retained profits 19,596 25,294 25,763 26,658 28,737 Shareholders' equity 96,177 98, , , ,575 Minority interests 1,392 1,418 1,522 1,639 1,771 Total Equity 97, , , , ,346 See the last page for disclaimer Page 8 of 10

9 Financial Statements and Key Ratios (Continued) Key Financial Ratios in RMB mn, unless stated otherwise 2012A 2013A 2014E 2015E 2016E Life Insurance Operation Gross written premiums 93,461 95, , , ,071 First-year premiums 37,333 33,939 36,850 38,772 42,515 Annual premiums equivalent 17,367 17,257 17,940 19,294 20,927 GWP yoy% 0.3% 1.8% 7.4% 8.4% 9.3% FYP yoy% (20.5%) (9.1%) 8.6% 5.2% 9.7% APE yoy % (10.0%) (0.6%) 4.0% 7.6% 8.5% NBV margin (FYP) 17.8% 20.7% 23.8% 25.0% 25.3% NBV margin (APE) 40.7% 43.5% 48.9% 50.2% 51.4% Solvency margin - Life 210.5% 191.4% 186.9% 161.3% 142.3% P&C Insurance Operation Net premiums earned 56,010 66,001 70,891 81,154 93,149 Claims incurred (34,276) (43,584) (45,299) (51,939) (59,615) NPE yoy% 20.5% 17.8% 7.4% 14.5% 14.8% Claims yoy % 25.9% 27.2% 3.9% 14.7% 14.8% Expense ratio 34.6% 33.5% 63.9% 64.0% 64.0% Loss ratio 61.2% 66.0% 35.9% 35.7% 35.7% Combined ratio 95.8% 99.5% 99.8% 99.7% 99.7% Solvency margin - P&C 188.3% 162.2% 215.0% 190.6% 182.6% Investment Interest income from fixed income investments 24,646 28,398 30,546 33,207 35,868 Dividend income from equity securities 1,852 2,554 2,714 2,664 2,957 Rental income from investment properties Net investment income 26,878 31,408 33,680 36,361 39,494 Cal. yield on debts 5.0% 5.2% 5.1% 5.0% 4.9% Cal. yield on equities 3.2% 3.7% 3.5% 3.2% 3.2% Cal. rental yield 5.9% 6.9% 6.3% 6.4% 6.5% Cal. Investment yield 4.8% 5.0% 4.9% 4.8% 4.7% Investment assets 627, , , , ,843 Investment assets yoy% 20.1% 6.3% 10.7% 10.5% 10.3% Other ratios ROAA 0.8% 1.3% 1.4% 1.4% 1.4% ROAE 5.8% 9.4% 10.0% 9.9% 10.4% Solvency margin - Group 311.7% 282.8% 259.3% 236.2% 237.4% Valuation Embedded value (group) 135, , , , ,204 Group EV yoy% 19.1% 6.7% 16.9% 19.3% 22.3% New Business Value 7,060 7,499 8,770 9,693 10,756 NBV yoy% 5.2% 6.2% 17.0% 10.5% 11.0% Group EV per share NBV per share BVPS DPS P / EPS 39.0 x 22.0 x 19.6 x 18.5 x 16.0 x P / EV (Group) 1.5 x 1.4 x 1.2 x 1.0 x 0.8 x P / B 2.2 x 2.1 x 1.9 x 1.8 x 1.6 x TP / EPS 42.2 x 23.8 x 21.2 x 20.0 x 17.3 x TP / EV (Group) 1.7 x 1.5 x 1.3 x 1.1 x 0.9 x TP / BVPS 2.3 x 2.2 x 2.1 x 1.9 x 1.8 x Price as of August 29, 2014 See the last page for disclaimer Page 9 of 10

10 Company Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable. Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for Shandong Chenming Paper Holdings Limited-H shares (01812), China All Access (Holdings) Limited (00633) and China U-Ton Holdings Limited (06168), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Ju nan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered i n research reports, including investment banking, investment services and etc. (for example, the placing agent, lead manager, s ponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its r elated risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 10 of 10