company biostime international...

Deutsche Bank Markets Research

Asia

HY Corporate Credit Healthcare

Company

Biostime International Limited

Date 7 July 2016

Competition & regulations key to expected growth; Initiate with Hold

________________________________________________________________________________________________________________

Deutsche Bank AG/Hong Kong

DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016.

Vikash Agarwalla, CFA

Research Analyst

(+65 ) 6423 5718

[email protected]

Biostime (Ba2/BB; M/S) recently issued USD400 million of 5NC2 bonds at 7.25% ytm. Bonds have done well (up ~4pts since issuance) as it provided yield pick up over recently issued Degree 21 as well as other BB China HY Industrial names. We note strong technicals given current market sentiment as well as China HY industrial supply expected to be limited. That said, we don’t see significant upside from current levels and initiate on new 2021 with Hold. Looking regionally, Biostime 21 (ask price of 104.5; ask ytm of 6%) is trading flat to recently issued Degree 21 (ask price of 105.25; ask ytm of 5.9%). Both Biostime and Degree are similar rated (issuer level rating) and operate on an asset light model. Degree benefits from lower leverage and high cash balance. At the same time, Biostime has superior market position (#1 domestic player) and better product diversity, in our view. We also take comfort from Biostime more disciplined working capital. Overall we prefer Biostime 21 over Degree 21 (we initiated on Degree 21 with sell last month; please refer to our report for more details). Looking elsewhere, car rental companies are facing similar evolving regulatory risk. However, both car rental companies in our space are relatively more asset heavy with better shareholder backing (Enterprise and Ctrip for eHi and Legend Holdings for Car Inc), in our view. Similar rated and shorter dated eHi 18 is trading at ask ytm of 5.1% (104.75/105.25 ) while better rated Car Inc 21 continues to trade tight at ask ytm of 4.5% (105/105.5). Most international competitors, Nestle, Mead Johnson, Danone, etc., are much larger and IG rated and thus trades tight. Similar rated, US based dairy company, Whitewave (Ba2/BB) has USD 2022 bonds which is currently trading at ask ytm of 4% (ask price of 107.5). Comparatively, Biostime is bigger in size with higher margins and its bonds do look attractive. But one needs to account for US-China differential as well as recent press articles about potential acquisition of Whitewave by a bigger player. Looking at another VHMS player, GNC which is rated BB+ by S&P, it has 2020 bond which is trading at ask ytm of 6.1% (ask price of 83.5). Relatively Biostime 2021 looks fair to us.

Figure 1: RV comparison

Source: Deutsche Bank

Key risks: Key downside risks include

ongoing weakness in IMF market in China,

high competition, adverse regulatory

changes while key upside risk includes

better than expected demand for VHMS

products in China.

Distributed on: 07/07/2016 07:53:35GMT

7 July 2016

HY Corporate Credit,Healthcare



Company Background

About the company

Biostime is sixth largest IMF (infant milk formula) providers in China. It also manufactures and distributes probiotic supplements for children, dried baby food products and baby care products. Biostime and ADiMIL are its two principal brands primarily sold in China. It expanded into VHMS market in Sep, 2015 through its acquisition of Swisse Wellness Group. Swisse primarily sells its product in Australia and New Zealand as well as in select international markets through distribution agreement with PGT Healthcare (JV between P&G and Teva Pharmaceuticals). Company operates on an asset light model sourcing its premium IMF on a finished basis from three major suppliers in Europe – Laiterie de Montaigu and Isigny Sainte Mere in France and Arla in Denmark. Even VHMS products under Swisse brand are sourced through external manufacturers (Australia Government Department of Health Therapeutic Good Administration licensed suppliers). Its product offering is divided into three broad segments:

formulas for infants and children under seven years old as well as for expectant and nursing mothers (52% of FY15 PF revenue)

adult nutrition and care products (39% of FY15 PF revenue)

probiotic and other pediatric supplements, dried baby foods and baby care products (9% of FY15 PF revenue)

Listed on HKSE, company has current market cap of USD2.1 billion. Company is 71.4% by Biostime Pharmaceuticals (China) Limited which in turn is 47.7% controlled by two founders with remaining being controlled by management team. Remaining 28.6% of Biostime is held publicly.

Use of proceeds and PF leverage

The net proceeds from notes will be deposited into the escrow account. About USD250 million will be used to repay the Company’s HKD 3.1 billion of zero coupon convertible bonds due 2019 tendered in the tender offer. The remainder in the Escrow Account will be released from time to time to repay the Convertible Bonds. As a result transaction is expected to be leverage neutral with no significant impact on total debt or leverage, but will lengthen Biostime’s debt maturity and thus improve short-term liquidity profile.

We look at the pro-forma capital structure and leverage in Figure 2. Considering full year 2015 EBITDA attribution from Swisse, pro-forma EBITDA comes to RMB1.5 billion and gross leverage shall stands at 5x.

Swisse acquisition

On 17 Sep 2015, Biostime announced to enter into an agreement to acquire 83% stakes in Swiss Wellness for an aggregate consideration of ~AUD1,386 million (~RMB6,276 million) via its wholly owned subsidiary Biostime Healthy Australia Investment Pty Ltd. The consideration was paid in the form of 1) AUD1,336 million in cash with cash on hand and USD450 million bridge loan and 2) AUD50 million by issuance of 20.5 million shares

Figure 2: PF capital structure

2015 (A) 2015 (PF)

Cash and cash equivalents 1,198 1,144

Swisse Acq. Secured Bridge Loan 2,901 -

Secured Bank Loan 1,804 1,804

Convertible Bonds 2,659 -

HSBC Unsecured Facility 35 35

Senior Secured Term Loan - 2,915

Notes - 2,591

Total Debt 7,400 7,346

Net Debt 6,201 6,201

Total Equity 4,269 4,269

Total Capitalization 11,669 11,615

EBITDA 732 1,477

Total Debt / EBITDA 10.1 5.0 Source: Deutsche Bank, company data. Note: Pro-forma debt numbers are after adjustment of the repayment of the Bridge Loan & Convertible bonds with the drawings under the Senior Facility Agreement & issuance of USD bonds. Pro-forma EBITDA number include full year contribution from Swisse in 2015. PF EBITDA is based on DB calculation

7 July 2016




(or 3.3% of the enlarged shares). On 24 Apr 2016, Biostime successfully refinanced USD450 million bridge loan with a USD450 million 3-year senior secured term loan facility.

Swisse sells VHMS, superfoods, sport nutrition and skincare products under the "Swisse" brand mainly in Australia and New Zealand. According to IRI data, Swisse made up 19% of total Australian VHMS market by scanned retail sales value as of March 2016. It has to obtain FDA license from government regulators before it can legally sell through offline channels, which takes about two years on an average. Currently it primarily relies on cross-border e-commerce channels and other passive methods for selling in China. Biostime consolidated Swisse from the 4Q15.

Company is looking to benefit from increasing demand of VHMS product in China and expects to use its existing distribution network to market Swisse brands of products. It is already the highest selling brand in the healthcare category on both Tmall and Taobao.

Key positives

Established brand within premium segment – Biostime has an established market position both in Chinese infant formula and probiotics markets as well as Australian VHMS market. It is the second largest player in the super-premium tier with a 16% market share by retail sales value and 6% market share by retail sales value of the overall infant formula market in China. Strong market position is primarily driven by its strategy of sourcing IMF on a finished basis from reputed suppliers in Europe, established distribution network and value added services such as membership program. VHMS market share is even higher at 19%, as per scanned retail sales value of the Australian VHMS market as of March 2016.

Favorable growth prospect – Favorable demographic development post abolishment of one-child policy is expected to be one of the key drivers for IMF market in China. Consumer preference for premium and super premium segment is further positive for Biostime though competition is also high from better known foreign brands within this segment. Growth outlook for VHMS segment is infact even more positive as growing middle class in China is expected to drive the demand on the back of easier access to foreign products.

High cash flow conversion - Company sources most of its IMF on a finished basis from suppliers in Europe and VHMS production is also outsourced to contract manufacturers. Thus, ongoing capital expenditure requirement is expected to remain limited. Low capital expenditure along with moderately high profit margin and relatively disciplined working capital does translate to good cash flow conversion.

Diversified exposure – Swisse acquisition has helped Biostime to diversify its product portfolio within China and also diversify geographically away from China.

Key concerns

High competition – One of the key concerns for Biostime is competition from international brands. These brands are globally well-known and backed by large companies with greater financial and marketing resources. Foreign companies continue to dominate IMF market in China especially within premium and super premium segment. Thus, despite Biostime’s early mover advantage we do expect competitive pressure to remain

7 July 2016




intense and do not rule out possibility of customers switching to better known international brands.

Regulatory risks – Apart from high competition, changing regulations and product safety standard are key risks to IMF as well as VHMS industry in China. Evolving regulations around product registration, cross-border ecommerce and import tax changes will continue to cast uncertainty over company’s future performance specifically for VHMS. We also note past regulatory clampdown including anti monopoly and price fixing investigation in 2013.

Weakness in IMF could continue in near term – Given the new food safety law requiring manufacturer to be certified and produce only three series of formula we expect industry de-stocking to continue in near future which will continue to weigh on company’s IMF business. This was also evidenced in 1Q16 operational update where baby nutrition and care revenue dropped 13% YoY.

Asset light nature and subordinated bond structure – Biostime business is asset light with both IMF as well as VHMS products primarily sourced from third party suppliers. Consequently, their access to onshore funding might remain limited, in our view. Even the bond structure is weaker with bonds being subordinated to other offshore senior secured facility.

1Q16 operational update

Biostime reported revenue of RMB1.5 billion in 1Q16, up 5% yoy on pro-forma basis. The baby products (mainly IMF) sales dropped 13% yoy to RMB868 million primarily due to intensive market competition. Adult nutrition and care products reached RMB601 million, up 49% yoy on pro-forma basis but down 29% qoq given seasonality impact. Management expects the competitive environment for IMF market to remain intense in 2H16 but remains positive on the outlook for nutritional products.

Key bond covenants

Subsidiary Guarantees on a subordinated basis: Bonds are guaranteed by certain subsidiaries on a senior subordinated basis. As of Mar, 2016, the issuer and guarantors combined represented 76.4% of consolidated assets, and 37.2% of consolidated revenues. However, more importantly guarantee from Swisse subsidiaries is capped at USD450 million which is equivalent to the amount of senior secured debt.

Change of Control: Triggering Event requires occurrence of both CoC and rating downgrade by any of S&P, or Moody’s. CoC is defined when permitted holders cease to own 23% of, or the largest portion of, the total voting power, or the adoption of a plan relating to the liquidation or dissolution of Biostime. Permitted holders refer to Mr. Luo Fei, Mr. Luo Yun and their respective family members.

Other key covenants: Other key covenants include FCCR of minimum 2.5x and Consolidated Senior Leverage of maximum 2x. Permitted investment (general basket up to greater of USD 50 million and 2.5% Total Assets and other investments including JVs up to greater of USD 50 million and 2.5% Total Assets) and Permitted debt cave out are largely standard.

7 July 2016




Peer Comparison

Biostime is smaller in size compared to domestic listed players like Mengniu and Yili though it is bigger in size than Yashili, which is more direct comparable. Biostime has historically enjoyed superior margins than domestic peers given the focus on premium segment though its 2015 margins were impacted by one-off product discount as well as ongoing industry destocking. Its leverage has been historically been conservative though currently it is elevated post Swisse acquisition. We expect the leverage to normalize post full year contribution from Swisse. Biostime’s margin is superior even compared to global players such as GNC and Whitewave.

Figure 3: Peer comparison: Key financials

Period 2014 2015 2015 (PF) 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015

Currency RMB mn RMB mn RMB mn RMB mn RMB mn RMB mn RMB mn RMB mn RMB mn USD mn USD mn USD mn USD mn

Income statement

Revenue 4,732 4,819 6,457 53,959 59,863 50,049 49,027 3,554 2,762 2,613 2,639 3,437 3,866

Gross Profit 2,927 2,985 4,018 17,374 21,237 15,434 15,375 1,819 1,402 980 985 1,153 1,323

EBITDA 1,165 732 1,477 6,070 6,735 4,270 3,963 397 92 496 450 377 452

Interest expense (87) (154) (253) (183) (169) (327) (309) (11) (27) (47) (51) (37) (58)

NPAT 807 293 215 4,167 4,654 2,691 2,520 333 118 256 219 140 168

Cash flow statement

Operating cash flow 972 366 NA 2,436 9,536 3,080 1,909 437 243 304 355 285 315

Capex & Acquisition (148) (6,112) NA (3,946) (3,652) (3,227) (3,043) (713) (344) (77) (46) (292) (258)

Free cash flow 824 (5,746) NA (1,510) 5,884 (147) (1,134) (276) (101) 227 309 (8) 57

Dividends paid (493) (197) NA NA NA (491) (655) (131) (75) (57) (60) - -

Balance sheet

Cash 3,347 1,198 1,144 14,273 13,084 4,650 7,931 800 2,480 134 56 50 39

Total Assets 6,631 13,832 13,778 39,494 39,631 47,081 50,653 5,693 7,664 2,678 2,552 3,319 4,229

ST Debt - 4,740 1,840 8,072 6,190 4,479 6,125 141 462 5 5 21 51

LT Debt 2,411 2,659 5,506 710 0 5,464 4,970 621 - 1,338 1,448 1,472 2,079

Total Debt 2,411 7,400 7,346 8,782 6,190 9,943 11,094 763 462 1,342 1,452 1,493 2,130

Net Debt (937) 6,201 6,202 (5,491) (6,893) 5,293 3,163 (37) (2,018) 1,209 1,396 1,443 2,092

Total Capital 5,328 11,000 11,615 27,603 26,336 34,436 37,709 4,213 6,442 2,098 1,921 2,570 3,341

18,822 20,146 756 469 1,076 1,211

Key Ratios

Revenue growth yoy 3.7% 1.8% 34.0% 13.5% 10.9% 15.4% -2.0% -8.7% -22.3% -0.5% 1.0% 35.2% 12.5%

Gross margin 61.9% 61.9% 62.2% 32.2% 35.5% 30.8% 31.4% 51.2% 50.8% 37.5% 37.3% 33.6% 34.2%

EBITDA margin 24.6% 15.2% 22.9% 11.2% 11.2% 8.5% 8.1% 11.2% 3.3% 19.0% 17.1% 11.0% 11.7%

Total Debt/EBITDA 2.1 10.1 5.0 1.4 0.9 2.3 2.8 1.9 5.0 2.7 3.2 4.0 4.7

Net Debt/EBITDA net cash 8.5 4.2 net cash net cash 1.2 0.8 net cash net cash 2.4 3.1 3.8 4.6

EBITDA/Interest 13.4 4.8 5.8 33.1 39.8 13.1 12.8 37.7 3.4 10.6 8.8 10.2 7.8

YashiliBiostime GNCYili WhitewaveMengniu

Source: Deutsche Bank, company data, Bloomberg Finance LP

7 July 2016




Figure 4: Biostime: Financial summary

Income Statement 1H14 2H14 1H15 2H15 2014 2015

RMB mn RMB mn RMB mn RMB mn RMB mn RMB mn

Total Revenues 2,189 2,543 1,963 2,856 4,732 4,819

Gross Profit 1,346 1,581 1,143 1,842 2,927 2,985

SG&A (886) (877) (826) (1,430) (1,763) (2,256)

EBITDA 462 703 305 427 1,165 732

Gross Interest Expense (40) (46) (48) (106) (87) (154)

Pretax Income 433 685 280 224 1,118 504

Income Taxes (121) (190) (75) (135) (312) (211)

Net Income 312 495 205 88 807 293

Cash Flow 1H14 2H14 1H15 2H15 2014 2015


Funds from Operations(FFO) 159 662 104 257 821 361

Change in Working Capital (352) 503 43 (39) 151 5

Operating Cash Flow(CFFO) (193) 1,165 147 218 972 366

Capex (58) (91) (63) (49) (148) (113)

Acqusition 0 0 (61) (5,938) 0 (5,999)

Free Cash Flow(FCF) (251) 1,074 23 (5,769) 824 (5,746)

Dividends (368) (124) (196) (1) (493) (197)

Balance Sheet 1H14 2H14 1H15 2H15 2014 2015


Cash 2,748 3,347 3,998 1,198 3,347 1,198

Restricted cash and other deposits 0 0 0 1,927 0 1,927

Total Assets 6,433 6,631 6,614 13,832 6,631 13,832

Short Term Debt 540 0 135 4,740 0 4,740

Long Term Debt 2,380 2,411 2,456 2,659 2,411 2,659

Total Debt 2,919 2,411 2,590 7,400 2,411 7,400

Total Equity 2,540 2,917 2,958 3,601 2,917 3,601

Total Capitalization 5,459 5,328 5,548 11,000 5,328 11,000

Key Ratios 1H14 2H14 1H15 2H15 2014 2015

Gross Margin 61.5% 62.2% 58.2% 64.5% 61.9% 61.9%

EBITDA Margin 21.1% 27.6% 15.5% 15.0% 24.6% 15.2%

SG&A/Sales 40.5% 34.5% 42.1% 50.1% 37.3% 46.8%

EBITDA/Gross Interest Expense 11.5x 15.2x 6.4x 4.0x 13.4x 4.8x

FFO/Interest Expense 3.9x 14.3x 2.2x 2.4x 9.5x 2.3x

Total Debt/EBITDA 2.1x 2.6x 10.1x 2.1x 10.1x

Net Debt/EBITDA -0.8x -1.4x 8.5x -0.8x 8.5x Source: Deutsche Bank

The author of this report wishes to acknowledge the contribution made by Xiang Gao of CRISIL, a third-party provider to Deutsche Bank of offshore research support services.

7 July 2016




Appendix 1

Important Disclosures

Additional information available upon request

Disclosure checklist

Institution Disclosure

Biostime

BTSDF 7.25% 2021 1,6,7,9,14,15,17 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.

Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes.

1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.

6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law.

7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.

14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year.

15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services.

Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.

1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.

6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law.

7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.

9. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by India law.

17. Deutsche Bank and or/its affiliate(s) has a significant Non-Equity financial interest (this can include Bonds, Convertible Bonds, Credit Derivatives and Traded Loans) where the aggregate net exposure to the following issuer(s), or issuer(s) group, is more than 25m Euros.

For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

7 July 2016




Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Vikash Agarwalla

Deutsche Bank debt rating key Bond rating dispersion and banking relationships

CreditBuy (“C-B”): The total return of the Reference Credit Instrument (bond or CDS) is expected to outperform the credit spread of bonds / CDS of other issuers operating in similar sectors or rating categories over the next six months.

CreditHold (“C-H”): The credit spread of the Reference Credit Instrument (bond or CDS) is expected to perform in line with the credit spread of bonds / CDS of other issuers operating in similar sectors or rating categories over the next six months.

CreditSell (“C-S”): The credit spread of the Reference Credit Instrument (bond or CDS) is expected to underperform the credit spread of bonds / CDS of other issuers operating in similar sectors or rating categories over the next six months.

CreditNoRec (“C-NR”): We have not assigned a recommendation to this issuer. Any references to valuation are based on an issuer’s credit rating.

Reference Credit Instrument (“RCI”): The Reference Credit Instrument for each issuer is selected by the analyst as the most appropriate valuation benchmark (whether bonds or Credit Default Swaps) and is detailed in this report. Recommendations on other credit instruments of an issuer may differ from the recommendation on the Reference Credit Instrument based on an assessment of value relative to the Reference Credit Instrument which might take into account other factors such as differing covenant language, coupon steps, liquidity and maturity. The Reference Credit Instrument is subject to change, at the discretion of the analyst.

DB Credit Opinion Definition : The DB Credit Opinion follows the same scale as S & P's credit ratings ranging from AAA for the Highest credit quality to C for the Weakest credit quality. It reflects our opinion on the creditworthiness of a company. We derive our Credit Opinion from fundamental credit analysis of the company, comparable analysis, benchmarking against rating agencies and qualitative judgement.

9 %

80 %

11 %42 %

28 %

42 %

050

100150200250300350400450500

Buy Hold Sell

Asia-Pacific Universe

Companies Covered Cos. w/ Banking Relationship

(a) Regulatory Disclosures

(b) 1.Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

(c) 2.Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

7 July 2016




(d) Additional Information

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively

"Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources

believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness.

If you use the services of Deutsche Bank in connection with a purchase or sale of a security that is discussed in this

report, or is included or discussed in another communication (oral or written) from a Deutsche Bank analyst, Deutsche

Bank may act as principal for its own account or as agent for another person.

Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own

account or with customers, in a manner inconsistent with the views taken in this research report. Others within

Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those

taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis,

equity-linked analysis, quantitative analysis and trade ideas. Recommendations contained in one type of communication

may differ from recommendations contained in others, whether as a result of differing time horizons, methodologies or

otherwise. Deutsche Bank and/or its affiliates may also be holding debt securities of the issuers it writes on.

Analysts are paid in part based on the profitability of Deutsche Bank AG and its affiliates, which includes investment

banking revenues.

Opinions, estimates and projections constitute the current judgment of the author as of the date of this report. They do

not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no

obligation to update, modify or amend this report or to otherwise notify a recipient thereof if any opinion, forecast or

estimate contained herein changes or subsequently becomes inaccurate. This report is provided for informational

purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any

particular trading strategy. Target prices are inherently imprecise and a product of the analyst’s judgment. The financial

instruments discussed in this report may not be suitable for all investors and investors must make their own informed

investment decisions. Prices and availability of financial instruments are subject to change without notice and

investment transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is

denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the

investment. Past performance is not necessarily indicative of future results. Unless otherwise indicated, prices are

current as of the end of the previous trading session, and are sourced from local exchanges via Reuters, Bloomberg and

other vendors. Data is sourced from Deutsche Bank, subject companies, and in some cases, other parties.

Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise

to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash

flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a

loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the

loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse

macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation

(including changes in assets holding limits for different types of investors), changes in tax policies, currency

convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and

settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed

income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to

FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the

index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended

to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon

rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is

also important to acknowledge that funding in a currency that differs from the currency in which coupons are

denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to

the risks related to rates movements.

7 July 2016




Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk.

The appropriateness or otherwise of these products for use by investors is dependent on the investors' own

circumstances including their tax position, their regulatory environment and the nature of their other assets and

liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar

to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can

be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be

incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable

for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized

Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the

website please contact your Deutsche Bank representative for a copy of this important document.

Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i)

exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by

numerous market factors, including world and national economic, political and regulatory events, events in equity and

debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed

exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are

affected by the currency of an underlying security, effectively assume currency risk.

Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the

investor's home jurisdiction.

United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and

SIPC. Analysts employed by non-US affiliates may not be associated persons of Deutsche Bank Securities Incorporated

and therefore not subject to FINRA regulations concerning communications with subject companies, public appearances

and securities held by analysts.

Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporated

in the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized under

German Banking Law and is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal

Financial Supervisory Authority.

United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at Winchester

House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by the

Prudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and Financial

Conduct Authority. Details about the extent of our authorisation and regulation are available on request.

Hong Kong: Distributed by Deutsche Bank AG, Hong Kong Branch.

India: Prepared by Deutsche Equities India Pvt Ltd, which is registered by the Securities and Exchange Board of India

(SEBI) as a stock broker. Research Analyst SEBI Registration Number is INH000001741. DEIPL may have received

administrative warnings from the SEBI for breaches of Indian regulations.

Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financial

instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA,

Type II Financial Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks

involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by

multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to

losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional

losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for certain categories

of investment advice, products and services. Recommended investment strategies, products and services carry the risk

of losses to principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in

market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the

relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in

this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the

name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank

7 July 2016




Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are

not disclosed according to the Financial Instruments and Exchange Law of Japan.

Korea: Distributed by Deutsche Securities Korea Co.

South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register

Number in South Africa: 1998/003298/10).

Singapore: by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles

Quay #18-00 South Tower Singapore 048583, +65 6423 8001), which may be contacted in respect of any matters

arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who

is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and

regulations), they accept legal responsibility to such person for its contents.

Taiwan: Information on securities/investments that trade in Taiwan is for your reference only. Readers should

independently evaluate investment risks and are solely responsible for their investment decisions. Deutsche Bank

research may not be distributed to the Taiwan public media or quoted or used by the Taiwan public media without

written consent. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and

is not to be construed as a recommendation to trade in such securities/instruments. Deutsche Securities Asia Limited,

Taipei Branch may not execute transactions for clients in these securities/instruments.

Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre

Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall

within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower,

West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related

financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre

Regulatory Authority.

Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute,

any appraisal or evaluation activity requiring a license in the Russian Federation.

Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the

Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall

within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya

District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia.

United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated

by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services

activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai

International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been

distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as

defined by the Dubai Financial Services Authority.

Australia: Retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product

referred to in this report and consider the PDS before making any decision about whether to acquire the product. Please

refer to Australian specific research disclosures and related information at

https://australia.db.com/australia/content/research-information.html

Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the

meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

Additional information relative to securities, other financial products or issuers discussed in this report is available upon

request. This report may not be reproduced, distributed or published without Deutsche Bank's prior written consent.

Copyright © 2016 Deutsche Bank AG

David Folkerts-Landau Group Chief Economist and Global Head of Research

Raj Hindocha Global Chief Operating Officer

Research

Michael Spencer Head of APAC Research

Global Head of Economics

Steve Pollard Head of Americas Research

Global Head of Equity Research

Anthony Klarman Global Head of Debt Research

Paul Reynolds Head of EMEA

Equity Research

Dave Clark Head of APAC

Equity Research

Pam Finelli Global Head of

Equity Derivatives Research

Andreas Neubauer Head of Research - Germany

Stuart Kirk Head of Thematic Research

International Locations

Deutsche Bank AG

Deutsche Bank Place

Level 16

Corner of Hunter & Phillip Streets

Sydney, NSW 2000

Australia

Tel: (61) 2 8258 1234

Deutsche Bank AG

Große Gallusstraße 10-14

60272 Frankfurt am Main

Germany

Tel: (49) 69 910 00

Deutsche Bank AG

Filiale Hongkong

International Commerce Centre,

1 Austin Road West,Kowloon,

Hong Kong

Tel: (852) 2203 8888

Deutsche Securities Inc.

2-11-1 Nagatacho

Sanno Park Tower

Chiyoda-ku, Tokyo 100-6171

Japan

Tel: (81) 3 5156 6770

Deutsche Bank AG London

1 Great Winchester Street

London EC2N 2EQ

United Kingdom

Tel: (44) 20 7545 8000

Deutsche Bank Securities Inc.

60 Wall Street

New York, NY 10005

United States of America

Tel: (1) 212 250 2500

company biostime international...

Documents