Figure 1: PPOP ROAA (1Q15) 2.94% 2.50% 2.42% 2.23% 2.20%

Transcription

1 Financial Services Banks CHINA BANKS Notes from the Field Trevor KALCIC, CFA T (852) E [email protected] Eason YI T (852) E [email protected] Scott HONG T (852) E [email protected] Show Style "View Doc Map" SECTOR NOTE Continue buying despite short term volatility We stay positive on China banks despite the recent strong rally. We see 16% further upside from here, to a fair value of 1.2x FY15 P/BV from its current level of 1.0x. We think the sector will be driven by 1) monetary and fiscal support for the economy, 2) global and south-bound liquidity flows, 3) banking sector de-risking, and 4) structural reforms. Figure 1: PPOP ROAA (1Q15) 3% 2% 1% 2.94% 2.50% 2.42% 2.23% 2.20% Sector: 2.18% 2.01% 1.98% 1.94% 1.86% CMB CCB Minsheng ICBC ABC CQRCB CITIC BOC BOCOM SOURCES: COMPANY REPORTS The biggest short-term downside risk is policy action to cool the strong market, but we think this will be temporary and we would use significant weakness to aggressively buy the sector. At a stock level, we prefer names with a high PPOP ROAA and conservative risk management like CCB and CMB, or names with a policy angle, like BOC. Four catalysts We see four catalysts for the sector: 1) Monetary and fiscal support for the economy, especially through further interest rate cuts and injections of base money through asset pledges, but also through measures to stabilise the property market, as well as a possible mild depreciation of the Rmb. 2) Global and south-bound liquidity flows. We think global investors are still underweight China banks. We also see the potential for further south-bound liquidity flows as H-share banks are still at a 7.3% discount to their A-shares. 3) Banking sector de-risking through an acceleration of NPL recognition and write-offs, as well as some risk transfer to the central government, especially for LGFVs and perhaps some SOEs; and 4) Structural reforms of the economy and the broader financial system. The biggest short-term downside risk is policy action to cool the strong market, but we think this will be temporary and we would use significant weakness to aggressively buy the sector. Valuation still supportive While the sector has done well recently, we think valuation is still supportive. On an absolute basis, the sector is trading at 1.0x FY15 P/BV. On a relative historical basis, the sector is trading at 0.93x one-year forward rolling P/BV, which is only 1.1x s.d. above its mean. Our weighted average target P/BV multiple for the sector is 1.2x FY15 P/BV, which implies 16% upside from here. Which names to buy At a single stock level, we prefer two types of banks. On one hand, we prefer banks with a high PPOP ROAA and conservative risk management policies. A high ROAA means more cash generation to accelerate asset cleanup. CCB (2.5% PPOP ROAA) and CMB (2.94% PPOP ROAA) fit this profile well. On the other hand, we like banks with a policy angle. BOC fits this profile well given its low sensitivity to rate cuts and liberalisation, and gearing towards Rmb internationalisation and one-road, one-belt. IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

2 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Banks China Figure 2: 1yr forward P/BV 3yr Figure 3: 1yr forward P/BV 5yr 1.05x 1.85x 1.00x 1.65x 0.95x 0.90x +1 SD= 0.89x 0.93x 1.45x 0.85x Average= 0.82x 1.25x +1 SD= 1.24x 0.80x 0.75x - 1 SD= 0.75x 1.05x Average= 0.98x 0.93x 0.70x 0.85x 0.65x 0.65x - 1 SD= 0.73x SOURCE: BLOOMBERG SOURCE: BLOOMBERG Figure 4: China 1 yr benchmark loan rate (%) bp interest rate cut on 22 Nov Figure 5: China reserve requirement ratio (%) Title: bp RRR cut on Source: 5 Feb bp interest rate cut on 1 Mar 19.0 Please fill in the values above to have them entered in your report bp RRR cut on 20 Apr Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 SOURCES: CEIC 17.5 Feb-15 Mar-15 Apr-15 May-15 SOURCES: CEIC Calculations are performed using EFA Mon Figure 6: H to A discount/ Premium for China banks Figure 7: Stock connect daily quota usage rate 30% 20% 20.5% 16.1% 100 (%) 80 10% 0% 7.3% 60-10% 40-20% 20-30% 0 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Northbound Southbound SOURCES: CEIC SOURCES: CEIC 2

3 Banks China Figure 8: Sector NPL qoq growth and NPL ratio Non-performing loan qoq growth (%) Non-performing loan ratio (%) 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 ICBC CCB BOC ABC 1.4 (0.2) BOCOM CMB CITIC (3.3) Minsheng CRCB (0.6) 18.0 (10.1) 29.8 (1.1) (0.8) State owned Joint stock Sector SOURCES: COMPANY REPORTS Figure 9: Sector NPL qoq growth Figure 10: Sector NPL ratio 16% 1.6% 14% 12% 10% 1.4% 1.2% 1.0% 0.99% 0.97% 0.96% 0.96% 0.96% 0.97% 0.98% 1.01% 1.03%1.07% 1.14% 1.24% 1.35% 8% 0.8% 6% 0.6% 4% 0.4% 2% 0.2% 0% -2% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 0.0% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 SOURCES: COMPANY REPORTS SOURCES: COMPANY REPORTS Figure 11: Overdue but not impaired loan H14 2H14 ICBC 0.55% 0.58% 0.64% 0.44% 0.82% 0.71% 0.79% CCB 0.28% 0.22% 0.21% 0.17% 0.35% 0.35% 0.34% BOC 0.42% 0.42% 0.38% 0.34% 0.49% n.a n.a ABC 0.35% 0.39% 0.39% 0.34% 0.63% 0.44% 0.61% BOCOM 0.19% 0.20% 0.46% 0.44% 1.15% 0.78% 1.15% CMB 0.28% 0.35% 0.55% 0.71% 1.07% n.a n.a CITIC 0.25% 0.34% 0.60% 0.82% 2.25% 1.38% 2.18% Minsheng 0.25% 0.37% 0.66% 0.92% 1.58% 1.77% 1.58% CQRCB 1.57% 1.17% 0.76% 0.69% 0.94% 1.16% 0.88% Sector 0.38% 0.39% 0.45% 0.40% 0.77% 0.50% 0.75% State owned 0.39% 0.39% 0.42% 0.34% 0.63% 0.43% 0.62% Joint stock 0.31% 0.38% 0.60% 0.80% 1.58% 0.96% 1.54% SOURCES: COMPANY REPORTS Figure 12: Not overdue but impaired loan H14 2H14 ICBC 0.12% 0.13% 0.06% 0.04% 0.01% 0.03% 0.01% CCB 0.43% 0.44% 0.18% 0.16% 0.14% 0.08% 0.13% BOC 0.44% 0.35% 0.24% 0.15% 0.18% n.a n.a ABC 0.85% 0.64% 0.36% 0.17% 0.10% 0.11% 0.09% BOCOM 0.37% 0.20% 0.15% 0.08% 0.04% 0.09% 0.04% CMB 0.11% 0.08% 0.04% 0.04% 0.04% n.a n.a CITIC 0.09% 0.18% 0.05% 0.02% 0.01% 0.02% 0.00% Minsheng 0.48% 0.14% 0.06% 0.04% 0.01% 0.01% 0.01% CQRCB 0.21% 0.05% 0.08% 0.27% 0.45% 0.26% 0.42% Sector 0.40% 0.32% 0.17% 0.11% 0.09% 0.05% 0.08% State owned 0.43% 0.35% 0.19% 0.12% 0.09% 0.06% 0.09% Joint stock 0.21% 0.13% 0.05% 0.04% 0.03% 0.02% 0.02% SOURCES: COMPANY REPORTS 3

4 Banks China Figure 13: PPOP ROAA 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 ICBC 2.24% 2.12% 1.98% 1.75% 2.23% 2.15% 1.96% 1.76% 2.25% 2.16% 2.02% 1.90% 2.23% CCB 2.30% 2.38% 2.25% 1.84% 2.40% 2.31% 2.22% 1.81% 2.47% 2.34% 2.22% 1.82% 2.50% BOC 1.79% 1.58% 1.57% 1.58% 1.93% 1.86% 1.67% 1.60% 2.09% 1.92% 1.75% 1.62% 1.94% ABC 2.21% 1.88% 1.90% 1.63% 2.13% 1.93% 1.89% 1.57% 2.24% 2.07% 1.95% 1.45% 2.20% BOCOM 2.05% 1.83% 1.60% 1.66% 2.05% 1.80% 1.56% 1.53% 1.98% 1.81% 1.67% 1.40% 1.86% CMB 2.43% 2.22% 2.04% 1.67% 2.23% 2.24% 2.16% 1.82% 2.58% 2.49% 2.11% 1.92% 2.94% CITIC 2.04% 2.09% 2.01% 1.59% 1.96% 2.10% 1.98% 1.74% 2.02% 2.10% 1.89% 1.69% 1.98% Minsheng 2.69% 2.47% 2.18% 1.86% 2.33% 2.24% 1.91% 2.09% 2.55% 2.44% 2.28% 1.92% 2.42% CQRCB 2.14% 2.03% 1.85% 1.74% 1.98% 2.00% 1.87% 1.68% 2.05% 2.10% 1.91% 1.85% 2.01% State owned 2.14% 1.99% 1.91% 1.70% 2.17% 2.05% 1.91% 1.68% 2.24% 2.10% 1.96% 1.69% 2.19% Joint stock 2.36% 2.24% 2.06% 1.71% 2.17% 2.19% 2.02% 1.87% 2.37% 2.33% 2.08% 1.85% 2.44% Sector 2.16% 2.02% 1.93% 1.70% 2.17% 2.07% 1.93% 1.71% 2.26% 2.14% 1.98% 1.71% 2.23% SOURCES: COMPANY REPORTS Figure 14: Valuation comparison of Chinese banks H shares Target +/- P/BV(x) P/E(x) EPS growth Yield(%) ROE(%) HK$ Rec Price Price (%) 15F 16F 15F 16F 15F 16F 15F 16F 15F 16F ICBC Add CCB Add BOC Add ABC Hold BOCOM Add CMB Add CITIC Hold Minsheng Add CQRCB Hold Sector SOURCES: CIMB ESTIMATES, BLOOMBERG Figure 15: Valuation comparison of Chinese banks A shares Ticker Name Price A-shr Mkt Cap P/BV P/E ROE (%) EPS growth (%) Yield (%) (RMB) (RMB bn) 15E 16E 15E 16E 15E 16E 15E 16E 15E 16E SH ICBC , SH CCB SH BOC SH ABC , SH BoCOM SH CMB SH CITIC SH Minsheng SH SPDB SH INDB SH CEB SZ PAB SH HXB SH BOBJ SH BONJ SZ BONB A-share average SOURCES: WIND 4

5 Vol b Banks Hong Kong ICBC 1398 HK / 1398.HK Current HK$6.52 Market Cap Avg Daily Turnover Free Float Target HK$8.04 US$296,237m US$242.9m 24.3% Prev. Target HK$7.55 HK$2,296,136m HK$1,884m 353,495 m shares Up/Downside 23.3% Trevor KALCIC, CFA T (852) E [email protected] Eason YI T (852) E [email protected] Scott HONG T (852) E [email protected] Share price info CIMB Analyst(s) Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Huijin 33.8 MOF 33.8 SSF 3.0 Show Style "View Doc Map" Conviction Play on top down policy support We cut our FY15 NP assumption by 1.1% but raise FY16 by 0.4% and FY17 by 1.0%. These changes reflect a combination of lower net interest margin assumption, lower expense growth and higher NPL formation. We raise our GGM-derived target price from $7.55 to HK$8.04, on the back of a higher terminal ROA assumption. We reiterate ICBC as one of our top sector picks. Maintain Add. Catalysts include top-down policy support which should continue to boost asset prices, as well as an accelerating internal asset cleanup. Changes to estimates 1) We lower our FY15 FY17 NIM assumption modestly from 2.56% to 2.55%, mainly to reflect the low rate environment and management guidance. 2) We also lower expense growth to 10% p.a. from 11% before. We now think that expense control will be a main agenda item for most China banks. 3) We also modestly raise our NPL forecast for FY15 FY17 on the back of company guidance for a continued measured deterioration in asset quality. Investment view 1) High PPOP ROAA: ICBC has the second highest PPOP ROAA (2.23% at 1Q15) among China s state-owned banks. We prefer banks with a high PPOP ROAA as we think it allows for a more rapid asset cleanup using current cashflows. 2) Reform proxy: As the largest bank in China, we believe that ICBC serves as a proxy for the economic reforms that are underway. 3) Solid performance on asset quality: ICBC delivers the lowest net NPL ratio (1.29% at 1Q15) among state-owned banks, reflecting its traditionally conservative risk management policies. 4) Second best capitalised bank: ICBC enters the downturn in asset quality as the second best capitalised China bank, with a core tier 1 ratio of 12.24% as at end-1q15. Valuation ICBC is trading at 1.1x FY15 P/BV for 18% ROE and 6.5x FY15 P/E for 1.2% EPS growth, with yield of 4.6% Price Close Relative to HSI (RHS) May-14 Aug-14 Nov-14 Feb-15 Source: Bloomberg 52-week share price range Current Target Financial Summary Dec-13A Net Interest Income (Rmbm) 443, , , , ,075 Total Non-Interest Income (Rmbm) 135, , , , ,952 Operating Revenue (Rmbm) 579, , , , ,027 Total Provision Charges (Rmbm) (38,321) (56,729) (82,228) (89,072) (78,592) Net Profit (Rmbm) 262, , , , ,424 Core EPS (Rmb) Core EPS Growth 9.8% 4.7% 1.2% 13.5% 17.8% FD Core P/E (x) DPS (Rmb) Dividend Yield 5.01% 4.93% 4.56% 5.18% 6.10% BVPS (Rmb) P/BV (x) ROE 21.9% 19.9% 17.6% 17.7% 18.3% % Change In Core EPS Estimates (1.09%) 0.45% 1.04% CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

6 ICBC Hong Kong Profit & Loss (Rmbm) Net Interest Income 493, , , ,075 Total Non-Interest Income 141, , , ,952 Operating Revenue 634, , , ,027 Total Non-Interest Expenses (218,674) (240,661) (263,831) (289,197) Pre-provision Operating Profit 416, , , ,830 Total Provision Charges (56,729) (82,228) (89,072) (78,592) Operating Profit After Provisions 359, , , ,238 Pretax Income/(Loss) from Assoc. 2,157 2,157 2,157 2,157 Operating EBIT (incl Associates) 361, , , ,395 Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 361, , , ,395 Exceptional Items Pre-tax Profit 361, , , ,395 Taxation (85,326) (86,183) (97,856) (115,249) Consolidation Adjustments & Others Exceptional Income - post-tax Profit After Tax 276, , , ,147 Minority Interests (475) (546) (628) (722) Pref. & Special Div FX And Other Adj Net Profit 275, , , ,424 Recurring Net Profit 275, , , ,424 Balance Sheet (Rmbm) Total Gross Loans 12,277,569 13,631,582 15,138,060 16,814,339 Liquid Assets & Invst. (Current) 4,433,237 7,174,376 7,999,889 8,905,260 Other Int. Earning Assets 3,434,908 1,734,561 1,934,036 2,156,450 Total Gross Int. Earning Assets 20,145,714 22,540,519 25,071,984 27,876,048 Total Provisions/Loan Loss Reserve (257,581) (317,125) (379,752) (427,457) Total Net Interest Earning Assets 19,888,133 22,223,394 24,692,232 27,448,592 Intangible Assets Other Non-Interest Earning Assets 633, , , ,089 Total Non-Interest Earning Assets 633, , , ,089 Cash And Marketable Securities 88,714 92,641 92,641 92,641 Long-term Investments Total Assets 20,609,953 22,869,626 25,383,090 28,188,322 Customer Interest-Bearing Liabilities 16,322,234 18,187,806 20,266,771 22,583,554 Bank Deposits 1,920,827 2,035,254 2,157,969 2,288,915 Interest Bearing Liabilities: Others 279, , , ,590 Total Interest-Bearing Liabilities 18,522,651 20,528,650 22,756,330 25,230,059 Bank's Liabilities Under Acceptances Total Non-Interest Bearing Liabilities 549, , , ,047 Total Liabilities 19,072,649 21,133,648 23,421,828 25,962,106 Shareholders' Equity 1,530,859 1,727,376 1,950,503 2,213,300 Minority Interests 6,445 8,602 10,759 12,916 Total Equity 1,537,304 1,735,978 1,961,262 2,226,216 Balance Sheet Employment Gross Loans/Cust Deposits 70.9% 70.9% 70.9% 70.9% Avg Loans/Avg Deposits 69.4% 70.9% 70.9% 70.9% Avg Liquid Assets/Avg Assets 45.2% 45.0% 45.2% 45.1% Avg Liquid Assets/Avg IEAs 48.1% 47.3% 47.3% 47.0% Net Cust Loans/Assets 52.3% 52.4% 52.5% 52.7% Net Cust Loans/Broad Deposits 59.0% 59.2% 59.4% 59.7% Equity & Provns/Gross Cust Loans 16.2% 16.6% 17.0% 17.3% Asset Risk Weighting 60.5% 60.8% 61.1% 61.4% Provision Charge/Avg Cust Loans 0.54% 0.71% 0.69% 0.54% Provision Charge/Avg Assets 0.287% 0.378% 0.369% 0.293% Total Write Offs/Average Assets 0.203% 0.104% 0.110% 0.115% Key Ratios Total Income Growth 9.6% 8.4% 11.6% 11.6% Operating Profit Growth 11.0% 7.5% 12.7% 12.6% Pretax Profit Growth 6.9% 1.6% 13.5% 17.8% Net Interest To Total Income 77.7% 76.6% 76.5% 76.4% Cost Of Funds 2.12% 2.27% 2.29% 2.31% Return On Interest Earning Assets 4.58% 4.70% 4.71% 4.71% Net Interest Spread 2.46% 2.42% 2.41% 2.40% Net Interest Margin (Avg Deposits) 3.27% 3.20% 3.20% 3.20% Net Interest Margin (Avg RWA) 4.04% 3.99% 3.99% 3.99% Provisions to Pre Prov. Operating Profit 13.6% 18.4% 17.7% 13.8% Interest Return On Average Assets 2.50% 2.42% 2.44% 2.45% Effective Tax Rate 23.6% 23.5% 23.5% 23.5% Net Dividend Payout Ratio 33.0% 30.0% 30.0% 30.0% 12-month Forward Rolling FD P/E (x) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 ICBC Key Drivers Loan Growth (%) 11.1% 11.5% 11.5% 11.5% Net Interest Margin (%) 2.7% 2.6% 2.6% 2.6% Non Interest Income Growth (%) 4.1% 14.1% 11.9% 11.9% Cost-income Ratio (%) 34.4% 35.0% 34.4% 33.7% Net NPL Ratio (%) 1.1% 1.3% 1.3% 1.3% Loan Loss Reserve (%) 206.9% 196.9% 211.7% 216.0% GP Ratio (%) 2.0% 1.5% 1.6% 1.6% Tier 1 Ratio (%) 12.2% 14.3% 14.3% 14.3% Total CAR (%) 14.5% 14.6% 15.0% 15.3% Deposit Growth (%) 6.4% 11.5% 11.5% 11.5% Loan-deposit Ratio (%) 69.2% 69.1% 68.9% 68.9% Gross NPL Ratio (%) 1.1% 1.3% 1.3% 1.3% Fee Income Growth (%) 8.3% 12.0% 12.0% 12.0% 6

7 Vol b Banks Hong Kong China Construction Bank 939 HK / 0939.HK Current HK$7.40 Market Cap Avg Daily Turnover Free Float Target HK$9.09 US$239,652m US$288.7m 34.9% Prev. Target HK$9.02 HK$1,857,545m HK$2,238m 250,011 m shares Up/Downside 22.8% Trevor KALCIC, CFA T (852) E [email protected] Eason YI T (852) E [email protected] Scott HONG T (852) E [email protected] Share price info CIMB Analyst(s) Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Huijin 57.2 Temasek 7.2 Show Style "View Doc Map" Conviction Top pick on high returns We cut our FY15 earnings forecast by 0.5% and raise FY16 and FY17 numbers by 0.2% and 0.9%, respectively, mainly reflecting a lowering of our cost growth assumptions. We raise our GGM-derived target price to HK$9.09 from HK$9.02 and reiterate our Add rating. CCB remains one of our top China bank picks. Key catalysts include supportive policy action from the central government as well as an aggressive bad asset clean-up. Changes to estimates The main change to our estimates is a reduction in our operating expense growth assumptions for FY15-17 to 9.0% p.a. from 10.0% p.a. on the back of strong cost control. Its 1Q15 CIR was only 28.3%, well below its recent run rate of above 35%. We think strong cost control will remain a theme for most China banks in the face of lower earnings growth. Investment view 1. Highest PPOP ROAA in the sector: CCB has consistently been the most profitable China bank, based on both ROAA (1.57% as at 1Q15) as well as our preferred measure of PPOP ROAA (2.50% as at 1Q15). We think a high PPOP ROAA allows CCB to accelerate its asset quality clean-up using internally-generated cash. 2. Conservative risk management: We think CCB has one of the most conservative risk management policies among China banks. We measure this by looking at both its ratio for not overdue but impaired loans (0.14% as at FY14, the second-highest among state-owned banks) as well as that for its overdue but not impaired loans (0.35% as at FY14, the lowest among all China banks). 3. Sector-beating capital: CCB has, by far, the strongest capital position in the sector, with a core tier 1 ratio of 12.51% as at 1Q15. Valuation CCB is trading at 1.0x FY15 P/BV for 19% ROE and 6x FY15 P/E for 8.3% EPS growth, with yield of 5% Price Close Relative to HSI (RHS) May-14 Aug-14 Nov-14 Feb-15 Source: Bloomberg 52-week share price range Current Target Financial Summary Dec-13A Net Interest Income (Rmbm) 389, , , , ,471 Total Non-Interest Income (Rmbm) 121, , , , ,614 Operating Revenue (Rmbm) 510, , , , ,085 Total Provision Charges (Rmbm) (42,666) (59,264) (58,801) (63,781) (70,067) Net Profit (Rmbm) 214, , , , ,909 Core EPS (Rmb) Core EPS Growth 11.1% 6.1% 8.3% 13.3% 13.0% FD Core P/E (x) DPS (Rmb) Dividend Yield 5.06% 5.08% 5.00% 5.66% 6.40% BVPS (Rmb) P/BV (x) ROE 21.4% 19.7% 18.6% 18.4% 18.2% % Change In Core EPS Estimates (0.49%) 0.24% 0.92% CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

8 China Construction Bank Hong Kong Profit & Loss (Rmbm) Net Interest Income 437, , , ,471 Total Non-Interest Income 116, , , ,614 Operating Revenue 554, , , ,085 Total Non-Interest Expenses (195,988) (213,805) (234,822) (257,846) Pre-provision Operating Profit 358, , , ,239 Total Provision Charges (59,264) (58,801) (63,781) (70,067) Operating Profit After Provisions 298, , , ,172 Pretax Income/(Loss) from Assoc Operating EBIT (incl Associates) 299, , , ,207 Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 299, , , ,207 Exceptional Items Pre-tax Profit 299, , , ,207 Taxation (70,839) (73,877) (83,692) (94,578) Consolidation Adjustments & Others Exceptional Income - post-tax Profit After Tax 228, , , ,629 Minority Interests (417) (500) (600) (721) Pref. & Special Div FX And Other Adj Net Profit 227, , , ,909 Recurring Net Profit 227, , , ,909 Balance Sheet (Rmbm) Total Gross Loans 10,263,260 11,392,267 12,648,546 14,046,606 Liquid Assets & Invst. (Current) 3,727,869 3,621,658 3,975,215 4,368,724 Other Int. Earning Assets 2,538,128 2,855,160 3,183,504 3,549,607 Total Gross Int. Earning Assets 16,529,257 17,869,085 19,807,265 21,964,937 Total Provisions/Loan Loss Reserve (251,613) (298,926) (348,986) (402,630) Total Net Interest Earning Assets 16,277,644 17,570,158 19,458,278 21,562,307 Intangible Assets 2,696 2,966 3,262 3,588 Other Non-Interest Earning Assets 391, , , ,839 Total Non-Interest Earning Assets 393, , , ,427 Cash And Marketable Securities 72,653 72,653 72,653 72,653 Long-term Investments Total Assets 16,744,130 18,083,813 20,025,193 22,189,387 Customer Interest-Bearing Liabilities 12,898,675 14,275,802 15,917,519 17,748,033 Bank Deposits 1,479,264 1,528,915 1,581,966 1,638,432 Interest Bearing Liabilities: Others 727, , , ,652 Total Interest-Bearing Liabilities 15,105,600 16,236,368 17,931,137 19,818,117 Bank's Liabilities Under Acceptances Total Non-Interest Bearing Liabilities 386, , , ,760 Total Liabilities 15,491,767 16,659,874 18,395,716 20,327,878 Shareholders' Equity 1,242,179 1,413,754 1,619,292 1,851,325 Minority Interests 10,184 10,184 10,184 10,184 Total Equity 1,252,363 1,423,938 1,629,476 1,861,509 Balance Sheet Employment Gross Loans/Cust Deposits 73.5% 74.0% 74.0% 74.0% Avg Loans/Avg Deposits 71.9% 73.7% 74.0% 74.0% Avg Liquid Assets/Avg Assets 42.9% 41.6% 40.6% 40.3% Avg Liquid Assets/Avg IEAs 44.0% 41.8% 40.0% 39.4% Net Cust Loans/Assets 55.1% 56.8% 57.1% 57.4% Net Cust Loans/Broad Deposits 64.1% 65.0% 65.3% 65.7% Equity & Provns/Gross Cust Loans 15.8% 16.2% 16.7% 17.2% Asset Risk Weighting 60.9% 61.0% 61.0% 61.0% Provision Charge/Avg Cust Loans 0.66% 0.59% 0.57% 0.56% Provision Charge/Avg Assets 0.369% 0.338% 0.335% 0.332% Total Write Offs/Average Assets 0.226% 0.066% 0.072% 0.078% Key Ratios Total Income Growth 8.5% 7.2% 11.6% 11.6% Operating Profit Growth 11.1% 6.1% 12.5% 12.5% Pretax Profit Growth 6.9% 7.4% 13.3% 13.0% Net Interest To Total Income 78.9% 78.9% 78.9% 78.8% Cost Of Funds 2.11% 2.21% 2.27% 2.29% Return On Interest Earning Assets 4.72% 4.70% 4.71% 4.71% Net Interest Spread 2.62% 2.49% 2.43% 2.41% Net Interest Margin (Avg Deposits) 3.48% 3.45% 3.46% 3.46% Net Interest Margin (Avg RWA) 4.36% 4.41% 4.49% 4.52% Provisions to Pre Prov. Operating Profit 16.5% 15.5% 14.9% 14.6% Interest Return On Average Assets 2.72% 2.69% 2.74% 2.76% Effective Tax Rate 23.7% 23.0% 23.0% 23.0% Net Dividend Payout Ratio 33.0% 30.0% 30.0% 30.0% 12-month Forward Rolling FD P/E (x) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 China Construction Bank Key Drivers Loan Growth (%) 10.3% 11.5% 11.5% 11.5% Net Interest Margin (%) 2.8% 2.7% 2.7% 2.7% Non Interest Income Growth (%) -3.6% 7.3% 11.8% 11.8% Cost-income Ratio (%) 35.4% 36.0% 35.4% 34.9% Net NPL Ratio (%) 1.2% 1.4% 1.4% 1.4% Loan Loss Reserve (%) 222.3% 196.4% 205.8% 217.5% GP Ratio (%) 2.0% 2.0% 2.0% 2.0% Tier 1 Ratio (%) 12.1% 12.8% 13.2% 13.6% Total CAR (%) 14.9% 15.7% 15.9% 16.1% Deposit Growth (%) 5.5% 10.7% 11.5% 11.5% Loan-deposit Ratio (%) 71.5% 71.9% 71.8% 71.7% Gross NPL Ratio (%) 1.2% 1.4% 1.4% 1.4% Fee Income Growth (%) 4.1% 12.0% 12.0% 12.0% 8

9 Vol b Banks Hong Kong Bank of China 3988 HK / 3988.HK Current HK$5.12 Market Cap Avg Daily Turnover Free Float Target HK$6.59 US$211,070m US$213.0m 28.4% Prev. Target HK$6.17 HK$1,636,003m HK$1,652m 288,731 m shares Up/Downside 28.7% Trevor KALCIC, CFA T (852) E [email protected] Eason YI T (852) E [email protected] Scott HONG T (852) E [email protected] Share price info CIMB Analyst(s) Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Huijin 67.8 SSF 2.7 Show Style "View Doc Map" Policy play Minor adjustments to our asset quality assumptions result in sub-1% cut in our FY15 FY17 estimates. In spite of the modest earnings cut, we raise our GGM-derived target price from HK$6.17 to HK$6.59, reflecting a higher terminal ROA assumption. We reiterate our Add rating. BOC remains our top pick among China banks. Catalysts include the deep valuation discount of its China business, as well as its relative insulation from further rate cuts and rate liberalisation. Investment view 1) Deep valuation discount: Stripping out BOC Hong Kong from the larger BOC group, leaves the rump China business trading at a 9.0% P/BV discount to the other three large state-owned banks. In our estimation, BOC s China business is trading at 0.91x FY15 P/BV compared to 1.0x for the ICBC-CCB-ABC peer group. Benchmarking BOC s China business against this peer group suggests that this discount is not justified. 2) Catalysts from easing and rate liberalisation: Further easing and asymmetric rate cuts will be a drag on sector earnings, but BOC is less Conviction sensitive than most of its peers by virtue of its large ex-china business (23% of FY14 assets; 23% of FY14 net profit). By our estimates and assuming no offsetting factors, every 10bp cut in rates hits BOC's FY16 earnings by 2.9% vs. 3.2% for the sector. 3) The most international bank: We also think BOC could benefit from the internationalisation of Chinese companies (overseas M&A; one road, one belt ), as well as the rapid internationalisation of the Rmb. BOC already has the largest overseas loan book (22% of FY14 total loans) among its peers and is the biggest player in the offshore Rmb market. Valuation BOC is trading at 1.0x FY15 P/BV for 15% ROE and 6.7x FY15 P/E for 1% EPS growth, with yield of 4.5% Price Close Relative to HSI (RHS) May-14 Aug-14 Nov-14 Feb-15 Source: Bloomberg 52-week share price range Current Target Financial Summary Dec-13A Net Interest Income (Rmbm) 283, , , , ,202 Total Non-Interest Income (Rmbm) 123, , , , ,884 Operating Revenue (Rmbm) 406, , , , ,086 Total Provision Charges (Rmbm) (22,938) (46,606) (60,167) (58,966) (62,564) Net Profit (Rmbm) 156, , , , ,928 Core EPS (Rmb) Core EPS Growth 12.5% 7.8% 0.8% 14.8% 12.7% FD Core P/E (x) DPS (Rmb) Dividend Yield 4.78% 4.63% 4.47% 5.13% 5.78% BVPS (Rmb) P/BV (x) ROE 17.9% 16.4% 15.1% 16.0% 16.1% % Change In Core EPS Estimates (2.36%) (0.73%) (0.75%) CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

10 Bank of China Hong Kong Profit & Loss (Rmbm) Net Interest Income 321, , , ,202 Total Non-Interest Income 133, , , ,884 Operating Revenue 454, , , ,086 Total Non-Interest Expenses (177,788) (208,037) (231,954) (258,745) Pre-provision Operating Profit 276, , , ,341 Total Provision Charges (46,606) (60,167) (58,966) (62,564) Operating Profit After Provisions 230, , , ,777 Pretax Income/(Loss) from Assoc. 1,319 1,319 1,319 1,319 Operating EBIT (incl Associates) 231, , , ,096 Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 231, , , ,096 Exceptional Items Pre-tax Profit 231, , , ,096 Taxation (54,280) (56,401) (64,753) (72,950) Consolidation Adjustments & Others Exceptional Income - post-tax Profit After Tax 177, , , ,146 Minority Interests (7,603) (7,900) (9,070) (10,218) Pref. & Special Div FX And Other Adj Net Profit 169, , , ,928 Recurring Net Profit 169, , , ,928 Balance Sheet (Rmbm) Total Gross Loans 8,885,555 9,858,943 10,939,002 12,137,425 Liquid Assets & Invst. (Current) 2,710,375 3,272,524 3,736,630 4,269,165 Other Int. Earning Assets 2,306,088 2,487,789 2,691,057 2,917,287 Total Gross Int. Earning Assets 13,902,018 15,619,257 17,366,689 19,323,876 Total Provisions/Loan Loss Reserve (188,531) (249,391) (309,362) (373,038) Total Net Interest Earning Assets 13,713,487 15,369,865 17,057,327 18,950,838 Intangible Assets 6,607 6,607 6,607 6,607 Other Non-Interest Earning Assets 718, , , ,234 Total Non-Interest Earning Assets 724, , , ,841 Cash And Marketable Securities 813, , ,795 1,082,175 Long-term Investments Total Assets 15,251,382 16,989,066 18,765,964 20,757,854 Customer Interest-Bearing Liabilities 11,110,553 12,436,786 13,749,217 15,219,514 Bank Deposits 2,128,518 2,341,370 2,575,507 2,833,057 Interest Bearing Liabilities: Others 308, , , ,909 Total Interest-Bearing Liabilities 13,547,563 15,142,257 16,755,556 18,563,480 Bank's Liabilities Under Acceptances Total Non-Interest Bearing Liabilities 520, , , ,231 Total Liabilities 14,067,954 15,674,382 17,300,589 19,122,711 Shareholders' Equity 1,140,859 1,264,214 1,405,836 1,565,386 Minority Interests 42,569 50,469 59,539 69,757 Total Equity 1,183,428 1,314,683 1,465,375 1,635,143 Balance Sheet Employment Gross Loans/Cust Deposits 77.9% 77.3% 77.6% 77.8% Avg Loans/Avg Deposits 76.7% 77.6% 77.4% 77.7% Avg Liquid Assets/Avg Assets 41.1% 41.3% 41.9% 42.3% Avg Liquid Assets/Avg IEAs 42.0% 42.0% 42.5% 42.7% Net Cust Loans/Assets 54.4% 54.0% 54.0% 54.1% Net Cust Loans/Broad Deposits 62.7% 62.0% 62.1% 62.2% Equity & Provns/Gross Cust Loans 15.7% 16.1% 16.4% 16.7% Asset Risk Weighting 65.1% 64.6% 64.7% 64.8% Provision Charge/Avg Cust Loans 0.58% 0.67% 0.59% 0.57% Provision Charge/Avg Assets 0.320% 0.373% 0.330% 0.317% Total Write Offs/Average Assets 0.179% (0.004%) (0.006%) (0.006%) Key Ratios Total Income Growth 11.7% 11.6% 11.5% 11.6% Operating Profit Growth 18.0% 8.2% 11.5% 11.6% Pretax Profit Growth 8.8% 3.9% 14.8% 12.7% Net Interest To Total Income 70.6% 70.4% 70.1% 69.8% Cost Of Funds 2.10% 2.14% 2.14% 2.15% Return On Interest Earning Assets 4.22% 4.18% 4.19% 4.19% Net Interest Spread 2.13% 2.04% 2.05% 2.04% Net Interest Margin (Avg Deposits) 3.06% 3.10% 3.09% 3.10% Net Interest Margin (Avg RWA) 3.32% 3.42% 3.43% 3.44% Provisions to Pre Prov. Operating Profit 16.8% 20.1% 17.7% 16.8% Interest Return On Average Assets 2.20% 2.22% 2.22% 2.23% Effective Tax Rate 23.4% 23.4% 23.4% 23.4% Net Dividend Payout Ratio 32.3% 30.0% 30.0% 30.0% 12-month Forward Rolling FD P/E (x) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Bank of China Key Drivers Loan Growth (%) 11.5% 11.0% 11.0% 11.0% Net Interest Margin (%) 2.2% 2.3% 2.3% 2.3% Non Interest Income Growth (%) 8.2% 12.5% 12.7% 12.8% Cost-income Ratio (%) 39.1% 41.0% 41.0% 41.0% Net NPL Ratio (%) 1.2% 1.4% 1.4% 1.4% Loan Loss Reserve (%) 188.9% 185.9% 208.0% 226.1% GP Ratio (%) 1.5% 1.6% 1.8% 1.9% Tier 1 Ratio (%) 10.6% 10.7% 10.9% 11.1% Total CAR (%) 13.1% 13.3% 13.7% 14.1% Deposit Growth (%) 7.8% 12.0% 10.6% 10.7% Loan-deposit Ratio (%) 76.2% 75.2% 75.3% 75.3% Gross NPL Ratio (%) 1.2% 1.4% 1.4% 1.4% Fee Income Growth (%) 11.1% 15.0% 15.0% 15.0% 10

11 Vol m Banks Hong Kong Agricultural Bank of China 1288 HK / 1288.HK Current HK$4.23 Market Cap Avg Daily Turnover Free Float Target HK$4.34 US$195,348m US$93.93m 17.2% Prev. Target HK$4.10 HK$1,514,145m HK$728.2m 324,794 m shares Up/Downside 2.6% Trevor KALCIC, CFA T (852) E [email protected] Eason YI T (852) E [email protected] Scott HONG T (852) E [email protected] Share price info CIMB Analyst(s) Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held Huijin 40.3 MOF 39.2 SSF 3.0 Show Style "View Doc Map" Conviction Least preferred big bank ABC is our least preferred state-owned bank, partly because we are concerned about its large county business, which is likely to face increased competition from Postal Savings Bank (PSB). We raise our FY15, FY16 and FY17 EPS estimates by 1.1%, 2.2% and 3.2% respectively. These changes reflect a combination of a slightly more robust fee income growth and better expense control. We raise our GGM-derived target price to HK$4.34 from HK$4.10, but keep our Hold rating. Changes to estimates 1) We lift our annual fee income growth forecast to 12% from 10.0%. 2) We cut our annual expense growth forecast to 9% from 10%. ABC is generally less efficient than its peers (reflecting its large footprint in rural areas). However, due to strong cost discipline, its 1Q15 cost income ratio dropped to 35.8%, well below its recent run rate of above 40%. Investment view ABC is our least preferred name among China state-owned banks. 1) Pressure on county banking business: We think ABC s large and important county area banking business (36.6% of assets, 42.4% of deposit and 33.1% of profits) will face significantly greater competition going forward, as Postal Savings Bank (PSB) prepares to list (this is expected in 2016). 2) Weak asset quality: Due to an incomplete carve-out of legacy NPLs ahead of its IPO, ABC has been saddled by the highest NPL ratio in the sector (1.65% as at end-1q15). This is not a problem per se. However, we are concerned about the rapid pace of net NPL accumulation. NPLs are up 52.1% over the past 12 months (44.8% for the sector). This in spite of the fact that ABC has the highest credit cost among state-owned banks (96bp as at end-1q15). On the other hand, these NPLs are well provisioned for, with ABC reporting a coverage ratio of 268%, the second highest in the sector after CQRCB. 3) Lagging write-offs: Part of the reason for ABC s weak NPL performance is that write-offs have lagged those of its state-owned peers. For example, ABC wrote off only 33.3% of its NPLs in FY14 against 44.7% for the sector. 4) Improving capital adequacy: ABC has the weakest NPL capital ratio among state-owned banks (9.38% as at end-1q15), partly reflecting penalties to capital from its high reserves. New rules for calculating capital adequacy will likely eliminate this penalty and improve ABC s capital position vis-a-vis its peers Source: Bloomberg Price Close Relative to HSI (RHS) May-14 Aug-14 Nov-14 Feb week share price range Current Target 4.34 Financial Summary Dec-13A Net Interest Income (Rmbm) 376, , , , ,876 Total Non-Interest Income (Rmbm) 89,569 94, , , ,844 Operating Revenue (Rmbm) 465, , , , ,720 Total Provision Charges (Rmbm) (52,126) (65,063) (75,126) (78,225) (88,346) Net Profit (Rmbm) 166, , , , ,033 Core EPS (Rmb) Core EPS Growth 14.6% 7.9% 3.3% 14.0% 11.3% FD Core P/E (x) DPS (Rmb) Dividend Yield 5.23% 5.37% 5.05% 5.76% 6.41% BVPS (Rmb) P/BV (x) ROE 20.9% 19.2% 16.9% 17.1% 16.8% % Change In Core EPS Estimates 1.10% 2.15% 3.24% CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

12 Agricultural Bank of China Hong Kong Profit & Loss (Rmbm) Net Interest Income 429, , , ,876 Total Non-Interest Income 94, , , ,844 Operating Revenue 524, , , ,720 Total Non-Interest Expenses (223,898) (246,672) (274,248) (305,120) Pre-provision Operating Profit 300, , , ,600 Total Provision Charges (65,063) (75,126) (78,225) (88,346) Operating Profit After Provisions 235, , , ,254 Pretax Income/(Loss) from Assoc Operating EBIT (incl Associates) 235, , , ,254 Non-Operating Income/(Expense) (2,908) Profit Before Tax (pre-ei) 232, , , ,254 Exceptional Items Pre-tax Profit 232, , , ,254 Taxation (52,747) (57,588) (65,656) (73,056) Consolidation Adjustments & Others Exceptional Income - post-tax Profit After Tax 179, , , ,198 Minority Interests (49) (74) (110) (165) Pref. & Special Div FX And Other Adj Net Profit 179, , , ,033 Recurring Net Profit 179, , , ,033 Balance Sheet (Rmbm) Total Gross Loans 9,587,352 10,644,036 11,821,728 13,134,587 Liquid Assets & Invst. (Current) 3,575,630 4,634,031 5,207,251 5,839,769 Other Int. Earning Assets 2,631,103 2,794,948 3,116,366 3,474,749 Total Gross Int. Earning Assets 15,794,085 18,073,014 20,145,345 22,449,104 Total Provisions/Loan Loss Reserve (358,071) (432,190) (509,186) (596,033) Total Net Interest Earning Assets 15,436,014 17,640,824 19,636,159 21,853,072 Intangible Assets 3,974 3,371 4,382 5,697 Other Non-Interest Earning Assets 422, Total Non-Interest Earning Assets 426,176 3,371 4,382 5,697 Cash And Marketable Securities 111, , , ,021 Long-term Investments Total Assets 15,974,152 17,767,353 19,776,015 22,007,790 Customer Interest-Bearing Liabilities 12,533,397 13,974,738 15,581,832 17,373,743 Bank Deposits 1,267,206 1,393,927 1,533,319 1,686,651 Interest Bearing Liabilities: Others 372, , , ,575 Total Interest-Bearing Liabilities 14,173,096 15,779,667 17,568,705 19,560,970 Bank's Liabilities Under Acceptances Total Non-Interest Bearing Liabilities 768, , , ,671 Total Liabilities 14,941,533 16,608,522 18,461,520 20,521,640 Shareholders' Equity 1,031,066 1,157,278 1,312,943 1,484,597 Minority Interests 1,553 1,553 1,553 1,553 Total Equity 1,032,619 1,158,831 1,314,496 1,486,150 Balance Sheet Employment Gross Loans/Cust Deposits 64.6% 64.6% 64.6% 64.6% Avg Loans/Avg Deposits 62.9% 64.6% 64.6% 64.6% Avg Liquid Assets/Avg Assets 49.4% 50.3% 51.6% 51.7% Avg Liquid Assets/Avg IEAs 51.3% 51.7% 52.9% 52.8% Net Cust Loans/Assets 48.5% 48.4% 48.3% 48.3% Net Cust Loans/Broad Deposits 56.1% 55.9% 55.8% 55.8% Equity & Provns/Gross Cust Loans 17.2% 17.6% 18.1% 18.5% Asset Risk Weighting 67.9% 68.1% 68.2% 68.4% Provision Charge/Avg Cust Loans 0.85% 0.88% 0.82% 0.83% Provision Charge/Avg Assets 0.426% 0.445% 0.417% 0.423% Total Write Offs/Average Assets 0.191% 0.006% 0.007% 0.007% Key Ratios Total Income Growth 12.5% 7.8% 11.5% 11.5% Operating Profit Growth 12.4% 6.0% 11.7% 11.6% Pretax Profit Growth 8.4% 4.6% 14.0% 11.3% Net Interest To Total Income 82.0% 81.4% 81.5% 81.5% Cost Of Funds 2.00% 2.08% 2.07% 2.07% Return On Interest Earning Assets 4.76% 4.69% 4.69% 4.69% Net Interest Spread 2.76% 2.62% 2.61% 2.61% Net Interest Margin (Avg Deposits) 3.53% 3.47% 3.47% 3.47% Net Interest Margin (Avg RWA) 4.32% 4.01% 4.01% 4.01% Provisions to Pre Prov. Operating Profit 21.7% 23.6% 22.0% 22.3% Interest Return On Average Assets 2.82% 2.73% 2.73% 2.74% Effective Tax Rate 22.7% 23.7% 23.7% 23.7% Net Dividend Payout Ratio 32.9% 30.0% 30.0% 30.0% 12-month Forward Rolling FD P/E (x) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Agricultural Bank of China Key Drivers Loan Growth (%) 12.1% 11.5% 11.5% 11.5% Net Interest Margin (%) 2.9% 2.8% 2.8% 2.8% Non Interest Income Growth (%) 5.2% 11.2% 11.3% 11.4% Cost-income Ratio (%) 42.7% 43.7% 43.6% 43.5% Net NPL Ratio (%) 1.5% 1.7% 1.7% 1.7% Loan Loss Reserve (%) 286.5% 281.3% 292.3% 305.5% GP Ratio (%) 3.7% 3.3% 3.3% 3.3% Tier 1 Ratio (%) 9.5% 9.5% 9.7% 9.8% Total CAR (%) 13.2% 12.7% 12.7% 12.8% Deposit Growth (%) 6.1% 11.5% 11.5% 11.5% Loan-deposit Ratio (%) 61.8% 61.5% 61.3% 61.2% Gross NPL Ratio (%) 1.5% 1.7% 1.7% 1.7% Fee Income Growth (%) -3.7% 12.0% 12.0% 12.0% 12

13 Vol m Banks Hong Kong Bank of Communications 3328 HK / 3328.HK Current HK$7.73 Market Cap Avg Daily Turnover Free Float Target HK$8.52 US$77,215m US$35.76m 43.1% Prev. Target HK$7.41 HK$598,494m HK$277.3m 74,263 m shares Up/Downside 10.2% Trevor KALCIC, CFA T (852) E [email protected] Eason YI T (852) E [email protected] Scott HONG T (852) E [email protected] Share price info CIMB Analyst(s) Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held MOF 26.5 HSBC 19.0 SSF 13.9 Show Style "View Doc Map" Conviction Aggressive bad asset clean-up We raise our FY15-17 EPS estimates by %, mainly to reflect a combination of a modestly higher NIM assumption and a higher fee growth assumption. Our GGM-derived target price rises to HK$8.52. We reiterate our Add rating, with an aggressive bad asset clean-up being a key re-rating catalyst. Changes to estimates 1. We tweak our NIM assumption from 2.26% to 2.27%. 2. We raise our fee income growth estimate to 16.0% from 13.0%. Investment view 1. Aggressive asset clean-up: Among the state-owned banks, BOCOM is the most aggressive in cleaning up bad assets. The bank consistently outperformed its peers on NPL write-offs over the past three years, writing off 0.38% of its loans and 46.1% of its NPLs in FY14 alone. 2. Low PPOP ROAA: On the negative side, BOCOM has the lowest PPOP ROAA in the sector (1.86% in 1Q15). We regard a high PPOP ROAA as important because it allows banks to accelerate NPL recognition and write-offs by paying for it through current cashflows. 3. Strong capital position: BOCOM is entering the downturn in China s asset quality cycle with a very strong capital position. Its core tier 1 ratio of 11.21% (1Q15) is the third highest in the sector. 4. High reliance on interbank funding: BOCOM has a very high and growing reliance on interbank funding, reflecting its relatively weak funding base. Interbank liabilities accounted for 23.8% of total liabilities in 1Q15. This partly explains BOCOM s relatively low NIM and ROAA. Valuation BOCOM is trading at 0.9x FY15 P/BV for 12% ROE and 7.5x FY15 P/E for -7% EPS growth, with yield of 4% Price Close Relative to HSI (RHS) May-14 Aug-14 Nov-14 Feb-15 Source: Bloomberg 52-week share price range Current Target Financial Summary Dec-13A Net Interest Income (Rmbm) 130, , , , ,053 Total Non-Interest Income (Rmbm) 34,370 43,760 47,162 52,971 53,302 Operating Revenue (Rmbm) 165, , , , ,355 Total Provision Charges (Rmbm) (18,410) (20,439) (30,378) (29,472) (30,268) Net Profit (Rmbm) 62,295 65,850 60,771 69,722 73,497 Core EPS (Rmb) Core EPS Growth (5.1%) 5.7% (7.7%) 14.7% 5.4% FD Core P/E (x) DPS (Rmb) Dividend Yield 4.20% 4.36% 3.70% 4.25% 4.48% BVPS (Rmb) P/BV (x) ROE 15.6% 14.8% 12.4% 13.0% 12.4% % Change In Core EPS Estimates 1.92% 3.03% 2.94% CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

14 Bank of Communications Hong Kong Profit & Loss (Rmbm) Net Interest Income 134, , , ,053 Total Non-Interest Income 43,760 47,162 52,971 53,302 Operating Revenue 178, , , ,355 Total Non-Interest Expenses (73,170) (78,066) (87,200) (97,201) Pre-provision Operating Profit 105, , , ,154 Total Provision Charges (20,439) (30,378) (29,472) (30,268) Operating Profit After Provisions 84,927 78,430 89,984 94,886 Pretax Income/(Loss) from Assoc Operating EBIT (incl Associates) 84,927 78,430 89,984 94,886 Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 84,927 78,430 89,984 94,886 Exceptional Items Pre-tax Profit 84,927 78,430 89,984 94,886 Taxation (18,892) (17,447) (20,017) (21,107) Consolidation Adjustments & Others Exceptional Income - post-tax Profit After Tax 66,035 60,983 69,967 73,779 Minority Interests (185) (213) (245) (281) Pref. & Special Div FX And Other Adj Net Profit 65,850 60,771 69,722 73,497 Recurring Net Profit 65,850 60,771 69,722 73,497 Balance Sheet (Rmbm) Total Gross Loans 3,956,768 4,374,728 4,807,417 5,300,567 Liquid Assets & Invst. (Current) 1,173,532 1,309,119 1,474,174 1,626,747 Other Int. Earning Assets 918, ,520 1,018,946 1,091,621 Total Gross Int. Earning Assets 6,049,094 6,643,367 7,300,537 8,018,934 Total Provisions/Loan Loss Reserve (76,948) (94,480) (108,106) (121,055) Total Net Interest Earning Assets 5,972,146 6,548,887 7,192,432 7,897,880 Intangible Assets Other Non-Interest Earning Assets 276, , , ,118 Total Non-Interest Earning Assets 276, , , ,118 Cash And Marketable Securities 19,261 22,150 25,473 29,294 Long-term Investments Total Assets 6,268,299 6,889,462 7,584,094 8,348,291 Customer Interest-Bearing Liabilities 4,029,668 4,432,635 4,875,898 5,363,488 Bank Deposits 1,408,275 1,549,103 1,704,013 1,874,414 Interest Bearing Liabilities: Others 196, , , ,984 Total Interest-Bearing Liabilities 5,634,914 6,183,032 6,786,177 7,449,886 Bank's Liabilities Under Acceptances Total Non-Interest Bearing Liabilities 159, , , ,077 Total Liabilities 5,794,694 6,374,761 7,016,247 7,725,963 Shareholders' Equity 471, , , ,450 Minority Interests 2,550 2,933 3,372 3,878 Total Equity 473, , , ,328 Balance Sheet Employment Gross Loans/Cust Deposits 85.2% 85.2% 85.2% 85.2% Avg Loans/Avg Deposits 81.8% 85.2% 85.2% 85.2% Avg Liquid Assets/Avg Assets 42.4% 42.0% 41.9% 41.8% Avg Liquid Assets/Avg IEAs 45.3% 44.9% 44.8% 44.7% Net Cust Loans/Assets 53.5% 53.4% 53.3% 53.3% Net Cust Loans/Broad Deposits 61.7% 61.5% 61.5% 61.4% Equity & Provns/Gross Cust Loans 16.0% 16.1% 16.2% 16.2% Asset Risk Weighting 66.4% 60.0% 60.0% 59.9% Provision Charge/Avg Cust Loans 0.61% 0.84% 0.74% 0.69% Provision Charge/Avg Assets 0.334% 0.462% 0.407% 0.380% Total Write Offs/Average Assets 0.275% 0.195% 0.219% 0.217% Key Ratios Total Income Growth 8.2% 4.7% 10.6% 7.6% Operating Profit Growth 7.17% 3.27% 9.79% 4.77% Pretax Profit Growth 6.3% (7.6%) 14.7% 5.4% Net Interest To Total Income 75.5% 74.8% 74.4% 76.0% Cost Of Funds 2.83% 2.63% 2.63% 2.63% Return On Interest Earning Assets 5.04% 4.79% 4.79% 4.79% Net Interest Spread 2.21% 2.17% 2.16% 2.15% Net Interest Margin (Avg Deposits) 3.29% 3.30% 3.30% 3.30% Net Interest Margin (Avg RWA) 3.19% 3.37% 3.54% 3.54% Provisions to Pre Prov. Operating Profit 19.4% 27.9% 24.7% 24.2% Interest Return On Average Assets 2.20% 2.12% 2.12% 2.12% Effective Tax Rate 22.2% 22.2% 22.2% 22.2% Net Dividend Payout Ratio 30.5% 28.0% 28.0% 28.0% 12-month Forward Rolling FD P/E (x) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Bank of Communications Key Drivers Loan Growth (%) 5.1% 10.0% 10.0% 10.0% Net Interest Margin (%) 2.4% 2.3% 2.3% 2.3% Non Interest Income Growth (%) 27.3% 7.8% 12.3% 0.6% Cost-income Ratio (%) 41.0% 41.8% 42.2% 43.7% Net NPL Ratio (%) 1.2% 1.4% 1.4% 1.4% Loan Loss Reserve (%) 179.7% 178.9% 187.3% 191.0% GP Ratio (%) 1.8% 1.8% 1.8% 1.8% Tier 1 Ratio (%) 11.3% 12.4% 12.3% 12.2% Total CAR (%) 14.0% 14.6% 14.5% 14.4% Deposit Growth (%) -3.1% 10.0% 10.0% 10.0% Loan-deposit Ratio (%) 83.3% 83.0% 82.9% 82.9% Gross NPL Ratio (%) 1.2% 1.4% 1.4% 1.4% Fee Income Growth (%) 14.0% 16.0% 16.0% 0.0% 14

15 Vol m Banks Hong Kong China Merchants Bank 3968 HK / 3968.HK Current HK$22.50 Market Cap Avg Daily Turnover Free Float Target HK$26.36 US$71,312m US$64.55m 81.9% Prev. Target HK$22.86 HK$552,739m HK$500.5m 25,220 m shares Up/Downside 17.2% Trevor KALCIC, CFA T (852) E [email protected] Eason YI T (852) E [email protected] Scott HONG T (852) E [email protected] Share price info CIMB Analyst(s) Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held China Merchants Group 12.4 China Ocean Shipping 6.2 Show Style "View Doc Map" Conviction Top small bank pick We raise our FY15, FY16 and FY17 estimates by 2.9%, 3.9% and 5.1%, respectively, mainly to reflect a combination of higher net interest margin and higher fee growth assumptions. We raise our GGM-based target price to HK$26.36 from HK$22.86 and reiterate our Add call. We increase our NIM assumption to 2.45% from 2.42% on the back of the aggressive management of CMB s interbank business. We also raise our fee growth assumption to 27% p.a. from 25%. Key catalysts include an aggressive bad asset clean-up, and continued de-risking of CMB s balance sheet. Investment view 1. Rapid asset clean-up: CMB has had the worst performance on asset quality among China s banks. Net NPLs rose 64.0% over the last 12 months. Yet CMB has also been one of the most aggressive banks in terms of cleaning up its NPLs. The bank wrote off 0.63% of its loan book or 81.4% of its NPLs in FY Highest PPOP ROAA in the sector: CMB has the highest PPOP ROAA in the sector (2.94% at 1Q15). We regard a high PPOP ROAA as important because it allows banks to use internally generated cash to clean up their balance sheets. 3. Rapid de-risking of non-standard credit assets: CMB has been rapidly shrinking its non-standard credit assets, as reflected in the shrinking proportion of interbank reverse repos as a share of total assets (5.5% at 1Q15, down from a high of 13.3% at 2Q14). 4. Rapidly improving capital position: CMB s core tier 1 capital ratio is rapidly improving through a combination of the implementation of the advanced IRB approach (saves RWAs), as well as internal cash preservation through a dividend cut (we assume a 20% payout vs. 30% for FY14). Valuation CMB is trading at 1.2x FY15 P/BV for 20% ROE and 6.7x FY15 P/E for 19% EPS growth, with yield of 3% Source: Bloomberg Price Close Relative to HSI (RHS) May-14 Aug-14 Nov-14 Feb week share price range Current Target Financial Summary Dec-13A Net Interest Income (Rmbm) 98, , , , ,656 Total Non-Interest Income (Rmbm) 33,786 54,035 66,873 83, ,250 Operating Revenue (Rmbm) 132, , , , ,906 Total Provision Charges (Rmbm) (10,196) (31,254) (36,188) (39,949) (44,543) Net Profit (Rmbm) 51,743 55,911 66,487 80,759 98,093 Core EPS (Rmb) Core EPS Growth 9.7% (3.7%) 18.9% 21.5% 21.5% FD Core P/E (x) DPS (Rmb) Dividend Yield 3.44% 3.72% 2.93% 3.55% 4.32% BVPS (Rmb) P/BV (x) ROE 22.2% 19.3% 19.5% 20.2% 20.8% % Change In Core EPS Estimates 2.89% 3.94% 5.12% CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

16 China Merchants Bank Hong Kong Profit & Loss (Rmbm) Net Interest Income 112, , , ,656 Total Non-Interest Income 54,035 66,873 83, ,250 Operating Revenue 166, , , ,906 Total Non-Interest Expenses (61,081) (68,411) (76,620) (85,814) Pre-provision Operating Profit 104, , , ,092 Total Provision Charges (31,254) (36,188) (39,949) (44,543) Operating Profit After Provisions 73,700 85, , ,548 Pretax Income/(Loss) from Assoc Operating EBIT (incl Associates) 73,858 85, , ,759 Non-Operating Income/(Expense) (427) Profit Before Tax (pre-ei) 73,431 85, , ,760 Exceptional Items Pre-tax Profit 73,431 85, , ,760 Taxation (17,382) (18,753) (22,778) (27,667) Consolidation Adjustments & Others Exceptional Income - post-tax Profit After Tax 56,049 66,487 80,759 98,093 Minority Interests (138) Pref. & Special Div FX And Other Adj Net Profit 55,911 66,487 80,759 98,093 Recurring Net Profit 55,911 66,487 80,759 98,093 Balance Sheet (Rmbm) Total Gross Loans 3,068,985 3,385,839 3,737,327 4,127,342 Liquid Assets & Invst. (Current) 996,217 1,312,562 1,676,240 2,113,157 Other Int. Earning Assets 639, , , ,650 Total Gross Int. Earning Assets 4,705,194 5,380,216 6,173,792 7,088,150 Total Provisions/Loan Loss Reserve (65,165) (93,951) (125,695) (161,325) Total Net Interest Earning Assets 4,640,029 5,286,265 6,048,097 6,926,825 Intangible Assets 9,953 9,953 9,953 9,953 Other Non-Interest Earning Assets 81,847 90,032 99, ,938 Total Non-Interest Earning Assets 91,800 99, , ,891 Cash And Marketable Securities Long-term Investments Total Assets 4,731,829 5,386,250 6,157,085 7,045,716 Customer Interest-Bearing Liabilities 3,325,729 3,787,864 4,223,469 4,709,168 Bank Deposits 879,039 1,048,028 1,278,594 1,559,884 Interest Bearing Liabilities: Others 98,233 52,397 72,397 92,397 Total Interest-Bearing Liabilities 4,303,001 4,888,289 5,574,459 6,361,449 Bank's Liabilities Under Acceptances Total Non-Interest Bearing Liabilities 113, , , ,591 Total Liabilities 4,416,769 5,018,655 5,724,883 6,535,040 Shareholders' Equity 314, , , ,675 Minority Interests Total Equity 315, , , ,676 Balance Sheet Employment Gross Loans/Cust Deposits 76.1% 74.0% 74.0% 74.0% Avg Loans/Avg Deposits 77.5% 75.0% 74.0% 74.0% Avg Liquid Assets/Avg Assets 45.5% 47.1% 48.7% 50.4% Avg Liquid Assets/Avg IEAs 44.9% 47.6% 50.3% 53.4% Net Cust Loans/Assets 51.8% 50.3% 48.7% 47.2% Net Cust Loans/Broad Deposits 58.2% 56.0% 54.5% 53.0% Equity & Provns/Gross Cust Loans 15.1% 16.5% 17.9% 19.3% Asset Risk Weighting 66.5% 60.0% 60.0% 60.0% Provision Charge/Avg Cust Loans 1.33% 1.36% 1.35% 1.35% Provision Charge/Avg Assets 0.71% 0.72% 0.69% 0.67% Total Write Offs/Average Assets 0.340% 0.146% 0.142% 0.135% Key Ratios Total Income Growth 25.1% 14.2% 15.9% 16.4% Operating Profit Growth 33.6% 15.5% 18.2% 18.7% Pretax Profit Growth 7.3% 16.1% 21.5% 21.5% Net Interest To Total Income 67.5% 64.7% 62.3% 59.7% Cost Of Funds 2.69% 2.67% 2.65% 2.65% Return On Interest Earning Assets 5.02% 4.92% 4.91% 4.91% Net Interest Spread 2.32% 2.25% 2.25% 2.25% Net Interest Margin (Avg Deposits) 3.68% 3.46% 3.42% 3.42% Net Interest Margin (Avg RWA) 3.80% 3.85% 3.95% 3.85% Provisions to Pre Prov. Operating Profit 29.8% 29.8% 27.9% 26.2% Interest Return On Average Assets 2.56% 2.43% 2.37% 2.31% Effective Tax Rate 23.7% 22.0% 22.0% 22.0% Net Dividend Payout Ratio 30.2% 20.0% 20.0% 20.0% 12-month Forward Rolling FD P/E (x) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 China Merchants Bank Key Drivers Loan Growth (%) 14.4% 11.5% 11.5% 11.5% Net Interest Margin (%) 2.5% 2.5% 2.5% 2.5% Non Interest Income Growth (%) 59.9% 23.8% 24.1% 24.4% Cost-income Ratio (%) 36.8% 36.1% 34.8% 33.5% Net NPL Ratio (%) 1.1% 1.5% 1.5% 1.5% Loan Loss Reserve (%) 233.4% 228.0% 271.8% 311.0% GP Ratio (%) 2.3% 2.8% 3.5% 4.1% Tier 1 Ratio (%) 9.6% 10.4% 10.8% 11.2% Total CAR (%) 11.7% 12.7% 13.6% 14.4% Deposit Growth (%) 19.1% 14.6% 11.5% 11.5% Loan-deposit Ratio (%) 74.1% 71.5% 71.0% 70.6% Gross NPL Ratio (%) 1.1% 1.5% 1.5% 1.5% Fee Income Growth (%) 53.2% 27.0% 27.0% 27.0% 16

17 Vol m Banks Hong Kong China CITIC Bank 998 HK / 0998.HK Current HK$6.83 Market Cap Avg Daily Turnover Free Float Target HK$6.54 US$51,710m US$61.03m 33.3% Prev. Target HK$5.28 HK$400,806m HK$473.1m 46,787 m shares Up/Downside -4.2% Trevor KALCIC, CFA T (852) E [email protected] Eason YI T (852) E [email protected] Scott HONG T (852) E [email protected] Share price info CIMB Analyst(s) Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held CITIC Group 61.9 BBVA 15.0 Show Style "View Doc Map" Conviction Asset quality and funding concerns We raise our FY15-17 EPS estimates by %, largely to reflect a combination of lower net interest margin assumption (due to high reliance on interbank funding), higher fee growth assumption and a lower cost growth assumption. Our GGM-derived target price is increased to HK$6.54 from HK$5.28. We reiterate our Hold rating. Main changes to estimates: 1. We cut our net interest margin assumption from 2.30% to 2.28%. 2. We raise our fee income growth estimate to 27.0% p.a. from 25.0%. 3. We cut the operating expense projection to 14.0% growth p.a. from 17.9%. Investment view 1. High reliance on interbank funding: CITIC has a very high and growing reliance on interbank funding, reflecting its relatively weak funding base (77.3% LDR in 1Q15). Interbank liabilities accounted for 22.8% of total liabilities in 1Q15 and were up 26.8% qoq. This partly explains CITIC s relatively low NIM (2.32% in 1Q15) and ROAA (1.02% in 1Q15, the lowest in the sector). 2. Weak performance on asset quality: On the surface, CITIC seems to be delivering a solid performance in terms of asset quality. Its NPL ratio has been relatively stable at 1.35% in 1Q15 while its net NPLs are up only 28.2% over the past 12 months (best performance in the sector). However, we believe this reflects a relatively liberal NPL recognition regime. CITIC s overdue but not impaired loan ratio stood at 2.25% in FY14, very significantly higher than all its peers. 3. Relatively low PPOP ROAA: CITIC s PPOP ROAA is among the lowest in the sector, at 1.98% in 1Q15. We regard a high PPOP ROAA as important because it allows banks to use internally generated cash to clean up their balance sheets. Valuation CITIC is trading at 0.8x FY15 P/BV for 14% ROE and 6.4x FY15 P/E for -5% EPS growth, with yield of 4% Source: Bloomberg Price Close Relative to HSI (RHS) May-14 Aug-14 Nov-14 Feb week share price range Current Target 6.54 Financial Summary Dec-13A Net Interest Income (Rmbm) 85,688 94, , , ,281 Total Non-Interest Income (Rmbm) 18,623 28,701 31,932 40,436 51,265 Operating Revenue (Rmbm) 104, , , , ,546 Total Provision Charges (Rmbm) (11,327) (22,074) (27,651) (30,849) (34,450) Net Profit (Rmbm) 39,717 41,452 39,273 46,433 55,272 Core EPS (Rmb) Core EPS Growth 26.5% 4.4% (5.3%) 18.2% 19.0% FD Core P/E (x) DPS (Rmb) Dividend Yield 4.61% 0.00% 3.84% 4.54% 5.40% BVPS (Rmb) P/BV (x) ROE 18.7% 17.1% 14.1% 14.6% 15.5% % Change In Core EPS Estimates 2.87% 3.98% 5.16% CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

18 China CITIC Bank Hong Kong Profit & Loss (Rmbm) Net Interest Income 94, , , ,281 Total Non-Interest Income 28,701 31,932 40,436 51,265 Operating Revenue 123, , , ,546 Total Non-Interest Expenses (46,796) (53,347) (60,816) (69,330) Pre-provision Operating Profit 76,646 79,355 91, ,216 Total Provision Charges (22,074) (27,651) (30,849) (34,450) Operating Profit After Provisions 54,572 51,704 61,130 72,766 Pretax Income/(Loss) from Assoc Operating EBIT (incl Associates) 54,572 51,704 61,130 72,766 Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 54,572 51,704 61,130 72,766 Exceptional Items Pre-tax Profit 54,572 51,704 61,130 72,766 Taxation (13,120) (12,430) (14,697) (17,494) Consolidation Adjustments & Others Exceptional Income - post-tax Profit After Tax 41,452 39,273 46,433 55,272 Minority Interests Pref. & Special Div FX And Other Adj Net Profit 41,452 39,273 46,433 55,272 Recurring Net Profit 41,452 39,273 46,433 55,272 Balance Sheet (Rmbm) Total Gross Loans 2,485,844 2,767,247 3,080,564 3,429,422 Liquid Assets & Invst. (Current) 414, , , ,805 Other Int. Earning Assets 538, , , ,568 Total Gross Int. Earning Assets 3,439,200 3,866,497 4,331,929 4,850,795 Total Provisions/Loan Loss Reserve (51,576) (73,129) (97,177) (124,045) Total Net Interest Earning Assets 3,387,624 3,793,368 4,234,751 4,726,750 Intangible Assets 1,283 1,283 1,283 1,283 Other Non-Interest Earning Assets 749, , , ,069 Total Non-Interest Earning Assets 751, , , ,352 Cash And Marketable Securities Long-term Investments Total Assets 4,138,815 4,618,676 5,142,461 5,725,102 Customer Interest-Bearing Liabilities 2,850,147 3,177,951 3,543,459 3,951,009 Bank Deposits 799, , ,515 1,064,266 Interest Bearing Liabilities: Others 133, , , ,488 Total Interest-Bearing Liabilities 3,783,234 4,214,998 4,692,462 5,220,763 Bank's Liabilities Under Acceptances Total Non-Interest Bearing Liabilities 88,235 97, , ,441 Total Liabilities 3,871,469 4,312,057 4,799,227 5,338,204 Shareholders' Equity 259, , , ,229 Minority Interests 7,669 7,669 7,669 7,669 Total Equity 267, , , ,898 Balance Sheet Employment Gross Loans/Cust Deposits 76.8% 76.8% 76.8% 76.8% Avg Loans/Avg Deposits 75.1% 76.8% 76.8% 76.8% Avg Liquid Assets/Avg Assets 33.8% 30.6% 31.1% 31.6% Avg Liquid Assets/Avg IEAs 33.4% 30.3% 30.8% 31.2% Net Cust Loans/Assets 51.6% 51.2% 51.0% 50.8% Net Cust Loans/Broad Deposits 58.5% 58.3% 58.1% 58.0% Equity & Provns/Gross Cust Loans 14.2% 15.3% 15.9% 16.6% Asset Risk Weighting 71.1% 70.8% 70.7% 70.6% Provision Charge/Avg Cust Loans 1.07% 1.20% 1.20% 1.20% Provision Charge/Avg Assets 0.57% 0.63% 0.63% 0.63% Total Write Offs/Average Assets 0.302% 0.139% 0.139% 0.140% Key Ratios Total Income Growth 18.3% 7.5% 15.1% 15.5% Operating Profit Growth 20.0% 3.5% 15.9% 16.6% Pretax Profit Growth 3.8% (5.3%) 18.2% 19.0% Net Interest To Total Income 76.7% 75.9% 73.5% 71.0% Cost Of Funds 3.03% 3.10% 3.13% 3.14% Return On Interest Earning Assets 5.21% 5.08% 5.11% 5.11% Net Interest Spread 2.19% 1.99% 1.98% 1.97% Net Interest Margin (Avg Deposits) 3.44% 3.34% 3.34% 3.34% Net Interest Margin (Avg RWA) 3.42% 3.25% 3.26% 3.26% Provisions to Pre Prov. Operating Profit 28.8% 34.8% 33.5% 32.1% Interest Return On Average Assets 2.44% 2.30% 2.30% 2.31% Effective Tax Rate 24.0% 24.0% 24.0% 24.0% Net Dividend Payout Ratio NA 25.0% 25.0% 25.0% 12-month Forward Rolling FD P/E (x) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 China CITIC Bank Key Drivers Loan Growth (%) 12.7% 11.5% 11.5% 11.5% Net Interest Margin (%) 2.4% 2.3% 2.3% 2.3% Non Interest Income Growth (%) 54.1% 11.3% 26.6% 26.8% Cost-income Ratio (%) 37.9% 40.2% 39.8% 39.3% Net NPL Ratio (%) 1.3% 1.7% 1.7% 1.7% Loan Loss Reserve (%) 181.3% 181.2% 215.1% 245.3% GP Ratio (%) 1.7% 4.1% 7.3% 7.3% Tier 1 Ratio (%) 9.0% 9.3% 9.4% 9.5% Total CAR (%) 12.4% 13.6% 15.4% 15.3% Deposit Growth (%) 7.5% 11.5% 11.5% 11.5% Loan-deposit Ratio (%) 75.0% 74.5% 74.0% 73.6% Gross NPL Ratio (%) 1.3% 1.7% 1.7% 1.7% Fee Income Growth (%) 50.6% 27.0% 27.0% 27.0% 18

19 Vol m Banks Hong Kong China Minsheng Bank 1988 HK / 1988.HK Current HK$11.00 Market Cap Avg Daily Turnover Free Float Target HK$12.60 US$57,523m US$61.21m 82.8% Prev. Target HK$11.11 HK$445,861m HK$474.1m 34,153 m shares Up/Downside 14.5% Trevor KALCIC, CFA T (852) E [email protected] Eason YI T (852) E [email protected] Scott HONG T (852) E [email protected] Share price info CIMB Analyst(s) Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders % held New Hope Investment Co., Ltd. 4.7 China Life 4.1 China Shipowers Mutual Assurance 3.2 Show Style "View Doc Map" Conviction Bad asset clean-up story We raise our GGM-derived target price on Minsheng to HK$12.6 from HK$11.11 and retain our Add call. Key catalysts include an aggressive bad asset clean-up and ongoing de-risking of its balance sheet. We cut our FY15 EPS estimates by 1.25% but raise our FY16 and FY17 estimates by 0.4% and 2.1% respectively. These changes mainly reflect a lower net interest margin assumption, as well as lower expense growth. Main changes to estimates 1) We lower our net interest margin assumption from 2.47% to 2.45% p.a. on the back of a weak 1Q15 margin performance. 2) We reduce our expense growth assumption to 11% from 13% p.a. on the back of very tight 1Q15 expenses. Minsheng s 1Q15 CIR dropped to 32.7% from a normal range of range of 38-40%. Investment view 1) Aggressive write-off policy: Minsheng has the most aggressive write-off policy among its peers. It wrote off 1.01% of its loan book or 128.1% of its FY14 NPL balance during the year. 2) High PPOP ROAA: Minsheng has the highest PPOP ROAA in the sector (2.42% as at end-1q15). We think that a high PPOP ROAA is important as it allows banks to use internally generated cash to clean up their balance sheets. 3) De-risking: Minsheng is rapidly de-risking its balance sheet, as reflected in a shrinking balance of interbank reverse repo assets. Interbank reverse repos now account for 12.7% of total assets, down from a peak of 17.4% in 3Q14. 4) Weak capital position: We remain concerned about Minsheng's weak capital position. With a core tier 1 ratio of 8.8% (as at end-1q15), Minsheng has the weakest capital position in the sector. We note that this could be boosted somewhat by the conversion of outstanding CBs. Valuation Minsheng is trading at 1.1x FY15 P/BV for 18% ROE and 6.3x FY15 P/E for 7.4% EPS growth, with yield of 1.6% Source: Bloomberg Price Close Relative to HSI (RHS) May-14 Aug-14 Nov-14 Feb week share price range Current Target Financial Summary Dec-13A Net Interest Income (Rmbm) 83,033 92,136 98, , ,149 Total Non-Interest Income (Rmbm) 33,027 41,667 49,661 61,610 76,549 Operating Revenue (Rmbm) 116, , , , ,698 Total Provision Charges (Rmbm) (12,947) (19,928) (23,572) (26,361) (26,349) Net Profit (Rmbm) 42,278 44,546 47,983 58,283 68,355 Core EPS (Rmb) Core EPS Growth (7.6%) 5.4% 7.4% 21.5% 17.3% FD Core P/E (x) DPS (Rmb) Dividend Yield 2.93% 2.10% 1.60% 1.94% 2.27% BVPS (Rmb) P/BV (x) ROE 23.4% 20.3% 18.4% 18.9% 18.6% % Change In Core EPS Estimates (1.25%) 0.43% 2.08% CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

20 China Minsheng Bank Hong Kong Profit & Loss (Rmbm) Net Interest Income 92,136 98, , ,149 Total Non-Interest Income 41,667 49,661 61,610 76,549 Operating Revenue 133, , , ,698 Total Non-Interest Expenses (54,082) (60,031) (66,634) (73,964) Pre-provision Operating Profit 79,721 88, , ,734 Total Provision Charges (19,928) (23,572) (26,361) (26,349) Operating Profit After Provisions 59,793 64,856 78,774 92,384 Pretax Income/(Loss) from Assoc Operating EBIT (incl Associates) 59,793 64,856 78,774 92,384 Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 59,793 64,856 78,774 92,384 Exceptional Items Pre-tax Profit 59,793 64,856 78,774 92,384 Taxation (14,226) (16,862) (20,481) (24,020) Consolidation Adjustments & Others Exceptional Income - post-tax Profit After Tax 45,567 47,993 58,293 68,364 Minority Interests (1,021) (10) (10) (9) Pref. & Special Div FX And Other Adj Net Profit 44,546 47,983 58,283 68,355 Recurring Net Profit 44,546 47,983 58,283 68,355 Balance Sheet (Rmbm) Total Gross Loans 2,743,653 3,084,030 3,434,995 3,457,549 Liquid Assets & Invst. (Current) 598, , , ,778 Other Int. Earning Assets 461, , , ,053 Total Gross Int. Earning Assets 3,803,484 4,262,097 4,737,827 4,760,381 Total Provisions/Loan Loss Reserve (38,507) (56,518) (76,606) (96,197) Total Net Interest Earning Assets 3,764,977 4,205,579 4,661,222 4,664,184 Intangible Assets Other Non-Interest Earning Assets 240, , , ,866 Total Non-Interest Earning Assets 240, , , ,866 Cash And Marketable Securities 9,965 10,962 12,058 12,058 Long-term Investments Total Assets 4,015,136 4,506,175 5,022,581 5,085,107 Customer Interest-Bearing Liabilities 2,433,810 2,749,827 3,066,057 3,066,057 Bank Deposits 1,124,602 1,237,062 1,360,768 1,360,768 Interest Bearing Liabilities: Others 129, , , ,428 Total Interest-Bearing Liabilities 3,687,691 4,129,096 4,583,253 4,583,253 Bank's Liabilities Under Acceptances Total Non-Interest Bearing Liabilities 79,689 87,658 96,424 96,424 Total Liabilities 3,767,380 4,216,754 4,679,676 4,679,676 Shareholders' Equity 240, , , ,817 Minority Interests 7,614 7,614 7,614 7,614 Total Equity 247, , , ,431 Balance Sheet Employment Gross Loans/Cust Deposits 74.5% 73.5% 73.5% 73.5% Avg Loans/Avg Deposits 73.9% 74.0% 73.5% 73.5% Avg Liquid Assets/Avg Assets 48.5% 49.9% 49.8% 49.6% Avg Liquid Assets/Avg IEAs 49.2% 52.7% 52.8% 52.9% Net Cust Loans/Assets 44.2% 43.6% 43.3% 42.4% Net Cust Loans/Broad Deposits 49.9% 49.3% 49.2% 48.7% Equity & Provns/Gross Cust Loans 15.4% 16.7% 18.3% 21.9% Asset Risk Weighting 71.3% 70.0% 71.0% 72.0% Provision Charge/Avg Cust Loans 1.18% 1.23% 1.23% 1.17% Provision Charge/Avg Assets 0.55% 0.55% 0.55% 0.52% Total Write Offs/Average Assets 0.448% 0.131% 0.132% 0.134% Key Ratios Total Income Growth 15.3% 11.0% 15.7% 12.2% Operating Profit Growth 13.7% 10.9% 18.9% 12.9% Pretax Profit Growth 4.6% 8.5% 21.5% 17.3% Net Interest To Total Income 68.9% 66.5% 64.1% 60.3% Cost Of Funds 3.18% 3.09% 3.07% 3.08% Return On Interest Earning Assets 5.59% 5.44% 5.43% 5.43% Net Interest Spread 2.41% 2.35% 2.35% 2.35% Net Interest Margin (Avg Deposits) 4.02% 3.81% 3.79% 3.79% Net Interest Margin (Avg RWA) 3.55% 3.28% 3.28% 3.21% Provisions to Pre Prov. Operating Profit 25.0% 26.7% 25.1% 22.2% Interest Return On Average Assets 2.54% 2.32% 2.31% 2.30% Effective Tax Rate 23.8% 26.0% 26.0% 26.0% Net Dividend Payout Ratio 14.2% 10.0% 10.0% 10.0% 12-month Forward Rolling FD P/E (x) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 China Minsheng Bank Key Drivers Loan Growth (%) 15.1% 11.5% 11.5% 0.0% Net Interest Margin (%) 2.6% 2.5% 2.5% 2.5% Non Interest Income Growth (%) 26.2% 19.2% 24.1% 24.2% Cost-income Ratio (%) 40.4% 40.4% 38.8% 38.4% Net NPL Ratio (%) 1.2% 1.4% 1.4% 1.6% Loan Loss Reserve (%) 182.2% 193.8% 236.5% 272.6% GP Ratio (%) 1.8% 2.3% 3.1% 4.2% Tier 1 Ratio (%) 8.6% 8.9% 9.0% 10.2% Total CAR (%) 10.7% 11.2% 11.5% 12.5% Deposit Growth (%) 13.4% 13.0% 11.5% 0.0% Loan-deposit Ratio (%) 72.9% 71.4% 71.0% 70.4% Gross NPL Ratio (%) 1.2% 1.4% 1.4% 1.6% Fee Income Growth (%) 27.7% 25.0% 25.0% 25.0% 20

21 Vol m Banks Hong Kong Chongqing Rural Comm Bank 3618 HK / 3618.HK Current HK$6.37 Market Cap Avg Daily Turnover Free Float Target HK$6.29 US$7,643m US$10.25m 27.0% Prev. Target HK$4.48 HK$59,241m HK$80.31m 9,300 m shares Up/Downside -1.3% Trevor KALCIC, CFA T (852) E [email protected] Eason YI T (852) E [email protected] Scott HONG T (852) E [email protected] Share price info CIMB Analyst(s) Share price perf. (%) 1M 3M 12M Relative Absolute Major shareholders Chongqing Yufu Assets Management Group Co. Ltd % held 6.8 Chongqing City Construction Investment Co. Ltd 6.7 Show Style "View Doc Map" Conviction Improving on various fronts We keep our FY15-17 earnings estimates unchanged but raise our GGM-derived target price to HK$6.29 from HK$4.48 on the back of a higher terminal ROAA assumption. Nevertheless, we reiterate our Hold rating. Investment view 1. High provisioning levels: The bank s loan loss reserve to total assets (3.54% as at 1Q15) and a 475% coverage ratio are by far the highest in the sector. At the same time, CQRCB s asset quality appears to be under control, with NPLs up only 27.7% over the past 12 months (best performance in the sector). 2. Shrinking exposure to non-standard credit assets: Interbank reverse repo assets shrunk from a high of 14.1% of total assets as at 4Q13 to 7.7% as at 1Q15. This de-risking has, however, been accompanied by higher capital consumption. The bank s core tier 1 ratio dropped to 9.95% in 1Q15 from 11.85% in 4Q Sector-high NIM: The bank s solid funding franchise and large SME exposure should continue to support its sector-high NIM (3.28% in 1Q15 vs. 2.53% for the sector). Given that it has the most extensive branch network in Chongqing, we expect the bank to maintain a low loan-to-deposit ratio (57.6% as at end-1q15) and, hence, enjoy low funding costs. CQRCB s SME lending portfolio accounted for 48% of the total loan book, one of the highest in the sector. Valuation CQRCB is trading at 1x FY15 P/BV for 18% ROE and 6x FY15 P/E for 15% EPS growth, with yield of 4% Price Close Relative to HSI (RHS) May-14 Aug-14 Nov-14 Feb-15 Source: Bloomberg EFAPChartPriceVolRelDaily 52-week share price range Current Target Financial Summary Dec-13A Net Interest Income (Rmbm) 15,703 18,349 20,693 23,693 27,128 Total Non-Interest Income (Rmbm) 603 1,459 1,859 2,336 2,949 Operating Revenue (Rmbm) 16,306 19,808 22,552 26,028 30,078 Total Provision Charges (Rmbm) (1,181) (2,297) (2,556) (2,470) (2,769) Net Profit (Rmbm) 5,991 6,828 7,883 9,447 10,889 Core EPS (Rmb) Core EPS Growth 11.7% 14.0% 15.4% 19.8% 15.3% FD Core P/E (x) DPS (Rmb) Dividend Yield 3.73% 3.92% 4.15% 4.98% 5.74% BVPS (Rmb) P/BV (x) ROE 17.6% 17.6% 17.7% 18.5% 18.4% % Change In Core EPS Estimates 0% 0% 0% CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

22 Chongqing Rural Comm Bank Hong Kong Profit & Loss (Rmbm) Net Interest Income 18,349 20,693 23,693 27,128 Total Non-Interest Income 1,459 1,859 2,336 2,949 Operating Revenue 19,808 22,552 26,028 30,078 Total Non-Interest Expenses (8,401) (9,802) (11,430) (13,337) Pre-provision Operating Profit 11,407 12,749 14,599 16,741 Total Provision Charges (2,297) (2,556) (2,470) (2,769) Operating Profit After Provisions 9,110 10,193 12,128 13,972 Pretax Income/(Loss) from Assoc Operating EBIT (incl Associates) 9,110 10,193 12,128 13,972 Non-Operating Income/(Expense) Profit Before Tax (pre-ei) 9,110 10,193 12,128 13,972 Exceptional Items Pre-tax Profit 9,110 10,193 12,128 13,972 Taxation (2,297) (2,344) (2,790) (3,214) Consolidation Adjustments & Others Exceptional Income - post-tax Profit After Tax 6,813 7,849 9,339 10,759 Minority Interests Pref. & Special Div FX And Other Adj Net Profit 6,828 7,883 9,447 10,889 Recurring Net Profit 6,828 7,883 9,447 10,889 Balance Sheet (Rmbm) Total Gross Loans 401, , , ,021 Liquid Assets & Invst. (Current) 134, , , ,922 Other Int. Earning Assets 75,807 87, , ,524 Total Gross Int. Earning Assets 611, , , ,467 Total Provisions/Loan Loss Reserve (8,678) (10,667) (12,481) (14,507) Total Net Interest Earning Assets 602, , , ,960 Intangible Assets Other Non-Interest Earning Assets 12,170 14,184 17,739 19,934 Total Non-Interest Earning Assets 12,610 14,624 18,179 20,418 Cash And Marketable Securities 3,527 3,607 3,782 3,867 Long-term Investments Total Assets 618, , , ,246 Customer Interest-Bearing Liabilities 409, , , ,948 Bank Deposits 149, , , ,181 Interest Bearing Liabilities: Others 5,500 5,500 5,500 5,500 Total Interest-Bearing Liabilities 564, , , ,629 Bank's Liabilities Under Acceptances Total Non-Interest Bearing Liabilities 11,742 11,742 11,742 11,742 Total Liabilities 576, , , ,371 Shareholders' Equity 41,426 47,449 54,925 63,452 Minority Interests 1,422 1,422 1,422 1,422 Total Equity 42,848 48,871 56,348 64,875 Balance Sheet Employment Gross Loans/Cust Deposits 59.1% 60.0% 60.0% 60.0% Avg Loans/Avg Deposits 59.1% 59.6% 60.0% 60.0% Avg Liquid Assets/Avg Assets 59.2% 59.8% 59.0% 58.4% Avg Liquid Assets/Avg IEAs 60.9% 61.9% 60.0% 58.7% Net Cust Loans/Assets 37.7% 38.6% 39.0% 39.5% Net Cust Loans/Broad Deposits 41.8% 42.6% 43.1% 43.5% Equity & Provns/Gross Cust Loans 20.7% 21.0% 21.2% 21.4% Asset Risk Weighting 66.8% 66.0% 66.0% 66.0% Provision Charge/Avg Cust Loans 0.82% 0.89% 0.74% 0.74% Provision Charge/Avg Assets 0.328% 0.353% 0.300% 0.301% Total Write Offs/Average Assets 0.047% 0.050% 0.054% 0.058% Key Ratios Total Income Growth 21.5% 13.9% 15.4% 15.6% Operating Profit Growth 25.4% 11.8% 14.5% 14.7% Pretax Profit Growth 15.1% 11.9% 19.0% 15.2% Net Interest To Total Income 92.6% 91.8% 91.0% 90.2% Cost Of Funds 2.94% 2.67% 2.69% 2.72% Return On Interest Earning Assets 6.07% 5.79% 5.76% 5.76% Net Interest Spread 3.13% 3.12% 3.08% 3.04% Net Interest Margin (Avg Deposits) 4.84% 4.75% 4.78% 4.78% Net Interest Margin (Avg RWA) 5.10% 4.76% 4.87% 4.93% Provisions to Pre Prov. Operating Profit 20.1% 20.0% 16.9% 16.5% Interest Return On Average Assets 3.27% 3.16% 3.22% 3.26% Effective Tax Rate 25.2% 23.0% 23.0% 23.0% Net Dividend Payout Ratio 27.2% 25.0% 25.0% 25.0% 12-month Forward Rolling FD P/E (x) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Chongqing Rural Comm Bank Key Drivers Loan Growth (%) 18.0% 14.5% 14.5% 14.5% Net Interest Margin (%) 3.4% 3.3% 3.3% 3.3% Non Interest Income Growth (%) 142.1% 27.4% 25.6% 26.3% Cost-income Ratio (%) 42.4% 43.5% 43.9% 44.3% Net NPL Ratio (%) 0.8% 1.0% 1.0% 1.0% Loan Loss Reserve (%) 459.8% 396.7% 385.5% 381.6% GP Ratio (%) 3.2% 3.4% 3.5% 3.6% Tier 1 Ratio (%) 10.1% 10.6% 10.8% 11.0% Total CAR (%) 12.4% 13.0% 13.0% 12.9% Deposit Growth (%) 17.8% 12.8% 14.5% 14.5% Loan-deposit Ratio (%) 57.0% 57.7% 57.6% 57.6% Gross NPL Ratio (%) 0.8% 1.0% 1.0% 1.0% Fee Income Growth (%) 57.4% 25.0% 25.0% 25.0% 22

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Securities and Exchange Commission Thailand (i) As of May 5, 2015, CIMB has a proprietary position in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report: (a) Affin Holdings, Agricultural Bank of China, Alliance Financial Group, AMMB Holdings, ANZ Banking Group, Axis Bank, Bank Central Asia, Bank Danamon, Bank Mandiri, Bank of Baroda, Bank of China, Bank Rakyat Indonesia, BIMB Holdings, BS Financial Group, China Construction Bank, China Development Financial, China Merchants Bank, CIMB Group Holdings Berhad, CTBC Financial, DBS Group, E.Sun Financial, Federal Bank, First Financial, Hana Financial Group, Hong Leong Bank, ICBC, ICICI Bank, Industrial Bank of Korea, KB Financial Group, Krung Thai Bank, Malayan Banking Bhd, Mega Financial, National Australia Bank, OCBC, Public Bank Bhd, RHB Capital Bhd, Shinhan Financial Group, SinoPac Financial, State Bank of India, Taishin Financial, Taiwan Cooperative Financial, United Overseas Bank, Woori Bank 23

24 Banks China (ii) As of, the analyst(s) who prepared this report, and the associate(s), has / have an interest in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report: (a) - The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB may or may not issue regular reports on the subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. CIMB is under no obligation to update this report in the event of a material change to the information contained in this report. This report does not purport to contain all the information that a prospective investor may require. CIMB or any of its affiliates does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Neither CIMB nor any of its affiliates nor its related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments thereof. Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors. Australia: Despite anything in this report to the contrary, this research is provided in Australia by CIMB Securities (Australia) Limited ( CSAL ) (ABN , AFS Licence number ). CSAL is a Market Participant of ASX Ltd, a Clearing Participant of ASX Clear Pty Ltd, a Settlement Participant of ASX Settlement Pty Ltd, and, a participant of Chi X Australia Pty Ltd. This research is only available in Australia to persons who are wholesale clients (within the meaning of the Corporations Act 2001 (Cth)) and is supplied solely for the use of such wholesale clients and shall not be distributed or passed on to any other person. This research has been prepared without taking into account the objectives, financial situation or needs of the individual recipient. France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument. Hong Kong: This report is issued and distributed in Hong Kong by CIMB Securities Limited ( CHK ) which is licensed in Hong Kong by the Securities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB Securities Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK 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 CHK. This publication is being supplied 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 CHK. Unless permitted to do so by the securities laws of Hong Kong, no person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the securities covered in this report, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong). CIMB Securities Limited does not make a market on the securities mentioned in the report. None of the analyst(s) or the associates serve as an officer of the listed corporation mentioned in this report. CIMB does not have an officer serving in any of the listed corporation mentioned in this report CIMB does not receive any compensation or other benefits from any of the listed corporation mentioned, relating to the production of research reports. India: This report is issued and distributed in India by CIMB Securities (India) Private Limited ( CIMB India ) which is registered with SEBI as a stock-broker under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 and in accordance with the provisions of Regulation 4 (g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CIMB India is not required to seek registration with SEBI as an Investment Adviser. The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other activities of CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CIMB India or its affiliates. Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia ( CIMBI ). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI 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 CIMBI. This publication is being supplied 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 24

25 Banks China 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 CIMBI. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesia residents except in compliance with applicable Indonesian capital market laws and regulations. Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad ( CIMB ). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB 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 CIMB. This publication is being supplied 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 CIMB. New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act Singapore: This report is issued and distributed by CIMB Research Pte Ltd ( CIMBR ). Recipients of this report are to contact CIMBR in Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR 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. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied 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 CIMBR. As of May 5, 2015, CIMBR does not have a proprietary position in the recommended securities in this report. CIMB Securities Singapore Pte Ltd and/or CIMB Bank does not make a market on the securities mentioned in the report. South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch ("CIMB Korea") which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. The views and opinions in this research report are our own as of the date hereof and are subject to change, and this report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial investment instruments and it is not intended as a solicitation for the purchase of any financial investment instrument. This publication is strictly confidential and is for private circulation only, and 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 CIMB Korea. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden. Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China. Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS 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 CIMBS. This publication is being supplied 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 CIMBS. CIMB Securities (Thailand) Co., Ltd. may act or acts as Market Maker and issuer including offering of Derivative Warrants Underlying securities of the following securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions. AAV, ADVANC, AIT, AMATA, ANAN, AOT, AP, ASP, BANPU, BAY, BBL, BCH, BCP, BEC, BECL, BGH, BH, BIGC, BJC, BJCHI, BLAND, BMCL, BTS, CENTEL, CK, CPALL, CPF, CPN, DELTA, DEMCO, DTAC, EARTH, EGCO, ERW, GFPT, GLOBAL, GLOW, GUNKUL, HANA, HEMRAJ, HMPRO, ICHI, IFEC, INTUCH, IRPC, ITD, IVL, JAS, KBANK, KCE, KKP, KTB, KTC, KTIS, LH, LOXLEY, LPN, M, MAJOR, MC, MEGA, MINT, NOK, PS, PSL, PTG, PTT, PTTEP, PTTGC, QH, RATCH, RML, ROBINS, SAMART, SAWAD, SCB, SCC, SCCC, SF, SGP, SIM, SIRI, SPALI, SPCG, SRICHA, STA, STEC, STPI, SVI, TCAP, THAI, THCOM, THREL, TICON, TISCO, TMB, TOP, TPIPL, TTA, TTCL, TTW, TUF, UV, VGI, TRUE. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association ( IOD ) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the 25

26 Banks China Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result. Score Range: Below 70 or No Survey Result Description: Excellent Very Good Good N/A United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates. United Kingdom and Europe: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited ( CIMB UK ). CIMB UK is authorised and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Order ); (c) are persons falling within Article 49 (2) (a) to (d) ( high net worth companies, unincorporated associations etc ) of the Order; (d) are outside the United Kingdom; or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as relevant persons ). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons. Only where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent "investment research" under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (Australia) Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as "U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. CIMB Securities (USA) Inc does not make a market on the securities mentioned in the report. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. Distribution of stock ratings and investment banking clients for quarter ended on 31 March companies under coverage for quarter ended on 31 March 2015 Rating Distribution (%) Investment Banking clients (%) Add 55.4% 6.6% Hold 31.3% 3.8% Reduce 13.2% 1.3% 26

27 Banks China Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in AAV Very Good, ADVANC Very Good, AEONTS not available, AMATA - Good, ANAN Very Good, AOT Very Good, AP - Good, ASK Very Good, ASP Very Good, BANPU Very Good, BAY Very Good, BBL Very Good, BCH not available, BCP - Excellent, BEAUTY Good, BEC - Good, BECL Very Good, BGH - not available, BH - Good, BIGC - Very Good, BJC Good, BLA Very Good, BMCL - Very Good, BTS - Excellent, CCET Good, CENTEL Very Good, CHG not available, CK Very Good, CPALL not available, CPF Very Good, CPN - Excellent, DELTA - Very Good, DEMCO Good, DTAC Very Good, EA - Good, ECL not available, EGCO - Excellent, GFPT - Very Good, GLOBAL - Good, GLOW - Good, GRAMMY - Excellent, HANA - Excellent, HEMRAJ Very Good, HMPRO - Very Good, ICHI - not available, INTUCH - Excellent, ITD Good, IVL - Excellent, JAS not available, JUBILE not available, KAMART not available, KBANK - Excellent, KCE - Very Good, KGI Good, KKP Excellent, KTB - Excellent, KTC Good, LH - Very Good, LPN Very Good, M - not available, MAJOR - Good, MAKRO Good, MBKET Good, MC Very Good, MCOT Very Good, MEGA Good, MINT - Excellent, OFM Very Good, OISHI Good, PS Very Good, PSL - Excellent, PTT - Excellent, PTTEP - Excellent, PTTGC - Excellent, QH Very Good, RATCH Very Good, ROBINS Very Good, RS Very Good, SAMART - Excellent, SAPPE - not available, SAT Excellent, SAWAD not available, SC Excellent, SCB - Excellent, SCBLIF Good, SCC Very Good, SCCC - Good, SIM - Excellent, SIRI - Good, SPALI - Excellent, STA Very Good, STEC - Good, SVI Very Good, TASCO Good, TCAP Very Good, THAI Very Good, THANI Very Good, THCOM Very Good, THRE not available, THREL Good, TICON Good, TISCO - Excellent, TK Very Good, TMB - Excellent, TOP - Excellent, TRUE Very Good, TTW Very Good, TUF - Good, VGI Very Good, WORK not available. CIMB Recommendation Framework Stock Ratings Definition: Add The stock s total return is expected to exceed 10% over the next 12 months. Hold The stock s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months. Sector Ratings Overweight Neutral Underweight Country Ratings Overweight Neutral Underweight Definition: An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation. Definition: An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark. *Prior to December 2013 CIMB recommendation framework for stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange were based on a stock s total return relative to the relevant benchmarks total return. Outperform: expected to exceed by 5% or more over the next 12 months. Neutral: expected to be within +/-5% over the next 12 months. Underperform: expected to be below by 5% or more over the next 12 months. Trading Buy: expected to exceed by 3% or more over the next 3 months. Trading Sell: expected to be below by 3% or more over the next 3 months. For stocks listed on Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Outperform: Expected positive total returns of 10% or more over the next 12 months. Neutral: Expected total returns of between -10% and +10% over the next 12 months. Underperform: Expected negative total returns of 10% or more over the next 12 months. Trading Buy: Expected positive total returns of 10% or more over the next 3 months. Trading Sell: Expected negative total returns of 10% or more over the next 3 months. 27