rating company buy gree -...

Deutsche Bank Markets Research

Rating

Buy Asia

China

Consumer

Retail / Wholesale Trade

Company

Gree

Date

2 September 2016

Recommendation Change

Recovering core business and diversifying into electric buses; Buy

Reuters Bloomberg Exchange Ticker 000651.SZ 000651 CH SHZ 000651

Forecasts And Ratios

Year End Dec 31 2014A 2015A 2016E 2017E 2018E

Reported NPAT (CNYm) 14,155.2 12,532.4 14,452.4 17,028.9 19,869.2

DB EPS FD(CNY) 2.35 2.08 2.35 2.28 2.66

% Change 0.0% 0.0% 3.8% -8.5% -2.6%

PER (x) 5.9 10.3 7.5 7.8 6.7

Yield (net) (%) 10.9 7.0 8.0 7.7 9.0

Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses

the year end close

Air conditioners recovering in 2H16; upgrading to Buy

________________________________________________________________________________________________________________

Deutsche Bank AG/Hong Kong

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016.

Price at 1 Sep 2016 (CNY) 17.72

Price target - 12mth (CNY) 24.91

52-week range (CNY) 30.86 - 15.75

Shenzhen Index 2,127

Richard Rui-Huang, CFA

Research Analyst

(+852 ) 2203 6202

[email protected]

Anne Ling

Research Analyst

(+852 ) 2203 6177

[email protected]

Key changes

Rating Hold to Buy ↑

Price target 18.10 to 24.91 ↑ 37.6%

Sales (FYE) 105,334 to 105,377

↑ 0.0%

Op prof margin (FYE)

13.1 to 12.3 ↓ -5.9%

Net profit (FYE)

13,645.2 to 14,452.4

↑ 5.9%

Source: Deutsche Bank

Price/price relative

10

20

30

40

50

5/14 11/14 5/15 11/15

Gree

Shenzhen Index (Rebased)

Performance (%) 1m 3m 12m

Absolute 0.0 0.0 -24.4

Shenzhen Index -9.3 -4.0 -30.8

Source: Deutsche Bank

We are turning more positive on Gree, as its: 1) core air conditioner business is set to recover from 3% decline in 1H16 to 15% growth in 2H16 as the channel inventory issue is now resolved; 2) foray into a rapid growth business (electric vehicles), with the stock ownership scheme and net profit guarantee clause, which should partially ease market concerns about the private placement; and 3) focus on shareholder returns with a newly committed dividend payout ratio of 60% for FY17-18, above our projection (50-55%). We lift our sales/NP by 4-7%/14-21% for FY17-18E to reflect the recovering of AC and the consolidation of Yinlong. Our new TP of RMB24.91 implies 41% upside. Upgrading to Buy.

Air conditioners (AC) to recover in 2H with a healthy channel inventory level According to our proprietary channel check, Gree’s channel inventory had fallen to a healthy level of one to two months as of end-July. This is attributable to decisive output constraints since 2Q15 and robust market demand due to the hot weather and home improvements. Distributors should rebuild their inventories in August. We expect AC business NP to grow at a 13% CAGR in FY17-18E on a 12% CAGR in revenue.

Placement amount cut to RMB9.7bn (14.3% dilution) from RMB10bn (14.5%) We believe the market’s concerns about the potential dilution (14.3% in FY17E) from issuing new shares and diversifying into non-related business have eased due to: 1) the deal being relatively small (6% of Gree’s NP in FY17E); 2) a stock ownership scheme to help align management’s interests with shareholders’ and retain talent; and 3) an NP guarantee clause to motivate the target’s management team. This deal might not be perfect for Gree’s diversification strategy; however, we believe this should be a good start for Gree to enter the electric vehicle industry, given the rapid industry growth profile (Deutsche Bank estimate: 28% CAGR in 2015-20) and favorable government policies.

Raising target price to RMB24.91 from RMB18.1; risks We use SOTP to value the company with a new target price of RMB24.91 (old RMB18.1), to reflect the de-stocking of channel inventory, the newly acquired new energy bus business, and potential dilution. Our target price implies 11x/9x FY17/18 PE, which is at a premium to its historical valuation point during de-stocking of channel inventory, and dividend yield at 5.5% for FY17E. Downside risks include competition, subsidy policy, and M&A.

Distributed on: 09/01/2016 21:16:27GMT

2 September 2016


Gree


Model updated:01 September 2016

Running the numbers

Asia

China


Gree Reuters: 000651.SZ Bloomberg: 000651 CH

Buy Price (1 Sep 16) CNY 17.72

Target Price CNY 24.91

52 Week range CNY 15.75 - 30.86

Market Cap (m) CNYm 106,599

USDm 16,006

Company Profile

Gree is mainly engaged in the manufacture and distribution of household air conditioners and central air conditioners.

Price Performance

10

20

30

40

50

May 14Aug 14Nov 14Feb 15May 15Aug 15Nov 15Feb 16

Gree Shenzhen Index (Rebased)

Margin Trends

11

12

14

15

17

18

13 14 15 16E 17E 18E

EBITDA Margin EBIT Margin

Growth & Profitability

0

10

20

30

40

-40-30-20-10

0102030

13 14 15 16E 17E 18E

Sales growth (LHS) ROE (RHS)

Solvency

-200

-150

-100

-50

0

13 14 15 16E 17E 18E

Net debt/equity (LHS) Net interest cover (RHS)

Richard Rui-Huang, CFA

+852 2203 6202 [email protected]

Fiscal year end 31-Dec 2013 2014 2015 2016E 2017E 2018E

Financial Summary

DB EPS (CNY) 1.81 2.35 2.08 2.35 2.28 2.66

Reported EPS (CNY) 1.81 2.35 2.08 2.35 2.28 2.66

DPS (CNY) 0.75 1.50 1.50 1.41 1.37 1.60

BVPS (CNY) 11.5 14.7 7.9 10.2 11.1 12.1

Weighted average shares (m) 6,016 6,016 6,016 6,139 7,474 7,474

Average market cap (CNYm) 74,156 83,062 128,915 106,599 106,599 106,599

Enterprise value (CNYm) 42,243 28,595 38,315 -12,608 -25,179 -40,133

Valuation Metrics P/E (DB) (x) 6.8 5.9 10.3 7.5 7.8 6.7

P/E (Reported) (x) 6.8 5.9 10.3 7.5 7.8 6.7

P/BV (x) 1.29 1.20 2.83 1.74 1.60 1.46

FCF Yield (%) 12.5 20.2 34.2 16.0 17.2 20.3

Dividend Yield (%) 6.1 10.9 7.0 8.0 7.7 9.0

EV/Sales (x) 0.4 0.2 0.4 -0.1 -0.2 -0.3

EV/EBITDA (x) 3.0 1.7 2.7 -0.9 -1.2 -1.7

EV/EBIT (x) 3.3 1.8 3.0 -1.0 -1.4 -1.9

Income Statement (CNYm)

Sales revenue 119,087 138,643 99,813 105,377 127,523 143,273

Gross profit 38,834 50,609 33,861 38,981 48,696 55,446

EBITDA 13,985 17,171 14,315 14,633 20,297 23,586

Depreciation 1,230 1,357 1,338 1,630 2,111 2,484

Amortisation 0 0 0 0 0 0

EBIT 12,755 15,814 12,977 13,003 18,185 21,102

Net interest income(expense) 133 942 1,929 4,187 2,037 2,490

Associates/affiliates 3 -4 3 3 3 3

Exceptionals/extraordinaries 0 0 0 0 0 0

Other pre-tax income/(expense) 0 0 0 0 0 0

Profit before tax 12,891 16,752 14,909 17,194 20,226 23,595

Income tax expense 1,956 2,499 2,286 2,636 3,139 3,662

Minorities 65 98 91 105 58 64

Other post-tax income/(expense) 0 0 0 0 0 0

Net profit 10,870 14,155 12,532 14,452 17,029 19,869

DB adjustments (including dilution) 0 0 0 0 0 0

DB Net profit 10,870 14,155 12,532 14,452 17,029 19,869

Cash Flow (CNYm)

Cash flow from operations 11,707 18,556 46,954 19,151 28,880 33,200

Net Capex -2,461 -1,777 -2,885 -1,791 -6,036 -6,264

Free cash flow 9,246 16,779 44,070 17,360 22,844 26,936

Equity raised/(bought back) 0 0 0 9,700 0 0

Dividends paid -3,175 -4,676 -9,525 -8,672 -10,217 -11,922

Net inc/(dec) in borrowings -483 2,417 1,526 -781 0 0

Other investing/financing cash flows 4,010 1,483 -1,796 2,496 0 0

Net cash flow 9,598 16,004 34,274 20,103 12,626 15,014

Change in working capital 7,994 6,559 32,374 3,308 9,182 10,263

Balance Sheet (CNYm)

Cash and other liquid assets 38,542 54,546 88,820 108,922 121,549 136,563

Tangible fixed assets 16,950 17,948 18,588 24,572 28,497 32,277

Goodwill/intangible assets 0 0 0 0 0 0

Associates/investments 7,337 9,946 13,397 21,214 21,217 21,221

Other assets 70,891 73,791 40,894 47,150 61,088 67,267

Total assets 133,719 156,231 161,698 201,859 232,352 257,328

Interest bearing debt 6,628 9,046 10,572 9,790 9,790 9,790

Other liabilities 91,717 102,054 102,560 114,927 138,550 155,514

Total liabilities 98,346 111,099 113,131 124,717 148,340 165,304

Shareholders' equity 34,490 44,153 47,521 76,002 82,814 90,762

Minorities 884 979 1,045 1,140 1,198 1,262

Total shareholders' equity 35,374 45,131 48,567 77,142 84,012 92,023

Net debt -31,913 -45,500 -78,248 -99,132 -111,759 -126,773

Key Company Metrics

Sales growth (%) 19.7 16.4 -28.0 5.6 21.0 12.4

DB EPS growth (%) 46.5 30.2 -11.5 13.0 -3.2 16.7

EBITDA Margin (%) 11.7 12.4 14.3 13.9 15.9 16.5

EBIT Margin (%) 10.7 11.4 13.0 12.3 14.3 14.7

Payout ratio (%) 41.5 63.7 72.0 60.0 60.0 60.0

ROE (%) 35.5 36.0 27.3 23.4 21.4 22.9

Capex/sales (%) 2.1 1.3 2.9 1.7 4.7 4.4

Capex/depreciation (x) 2.0 1.3 2.2 1.1 2.9 2.5

Net debt/equity (%) -90.2 -100.8 -161.1 -128.5 -133.0 -137.8

Net interest cover (x) nm nm nm nm nm nm

Source: Company data, Deutsche Bank estimates

2 September 2016


Gree


Company update

Valuation and risks

We lift our NP by 14-21% for FY17-18E to reflect the successful de-stocking of

channel inventory (core business was lifted by 7-12%) and the consolidation of

Yinlong (Yinlong contributes 7-8%).

We consolidate Yinlong’s business, assuming that the deal will be completed

by the end of 2016. We believe that this deal is highly likely to be approved by

the special general meeting (in mid-September) and CSRC (likely in October-

November).

We expect Gree to grow the NP of its core business at a 14% CAGR in 2016-18

to RMB18bn by 2018, and we forecast Yinlong to grow at 46% to RMB1.4bn in

2018, which will account for 7% of Gree’s NP in 2018E.

Figure 1: Deutsche Bank current forecasts vs. previous forecasts vs. market consensus

Current forecast Previous forecast Market forecast % change vs. previous forecast

Diff from market forecast

RMBm FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E

Gross sales 106,412 120,957 134,483 106,370 116,747 126,155 107,661 114,406 124,654 0% 4% 7% -1% 6% 8%

EBIT 13,003 18,185 21,102 13,819 16,124 17,576 13,963 16,113 18,391 -6% 13% 20% -7% 13% 15%

Net profit 14,452 17,029 19,869 13,645 14,973 16,418 14,036 15,610 17,386 6% 14% 21% 3% 9% 14% Source: Deutsche Bank estimates, Bloomberg Finance LP

We use SOTP to value the company. Our new target price is RMB24.91 (old:

RMB18.1), implying 11x/9x FY17/18E. This is at a premium to its historical

valuation point (8-9x) during de-stocking of channel inventory. For reference,

its peers (Qingdao Haier and Midea) are trading at 10-11x FY17 PE, according

to Bloomberg Finance LP. Our target price implied a dividend yield at 5.5% for

FY17E.

For Gree’s air conditioner business, we use a 10x FY17 PE multiple,

which is in line with its historical average PE multiple (Figure 3).

For the electric bus business, we use a 13x FY17 PE multiple, which is

in line with the implied PE multiple (13x) during the acquisition. This is

a 45% discount to the 24x trading multiple of BYD (1211.HK, HKD51.2,

Buy), which has similar business scope of rechargeable battery and

electric vehicle as Yinlong. BYD has much bigger scale than Yinlong,

as Yinlong’s sales revenue was only 5% of that of BYD in 2015.

We add back the net cash. We use the most liquid cash and bank

deposit of RMB46bn to calculate its cash position.

We also apply a 15% discount given the non-relevant segment

diversification.

Downside risks include fierce competition, volatility in government subsidy

policy, and M&A.

2 September 2016


Gree


Figure 2: SOTP valuation

Key items Comments Amount (RMBm) % of total equity value

Gree's existing business 10x FY17E 159,878 73%

Yinlong 13x FY17E 13,534 6%

Net cash (cash and bank deposit only) As of FY16E 45,632 21%

Equity value before discount 219,044

Discount 15% discount (32,857)

Equity value post discount 186,188

# of shares outstanding Enlarged post the acquisition and placement 7,474

Equity value per share (RMB) 24.91 Source: Deutsche Bank estimates, Company data

Figure 3: Gree one-year forward PE band Figure 4: Gree one-year forward PE vs. historical average

0

5

10

15

20

25

30

35

40

45

50

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Gree 1-year forward PE band chartPrice

+2STD:18x

+1 STD:14x

Avg:10x

-1 STD:6x

-2 STD:2x

RMB

0

5

10

15

20

25

30

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Gree - 1yr forward PE vs historical avg

1yr forward PE

1-year avg

3-year avg

5-year avg

5 Yr avg: 7.9x3 Yr avg: 7.8x

1 Yr avg: 9.7x

Source: Deutsche Bank estimates, Bloomberg Finance LP


Figure 5: Valuation table for home appliance companies

Company Ticker Rec Target Rpt. Ccy current Mkt Cap

Price (lcy) price (lcy) (USDm) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E

China/HK

Qingdao Haier 600690.SS Buy 12.7 CNY 10.3 11,148.1 16.3 11.6 10.1 2.7 2.4 2.1 7.1 4.8 3.5 1.9 2.6 3.0 18.2 22.5 22.5

Haier Electronics 1169.HK Hold 12.4 CNY 13.6 6,530.3 14.5 13.8 12.7 2.4 1.9 1.7 9.7 6.1 5.1 0.7 0.8 0.9 21.2 16.8 15.7

Hefei Meiling 000521.SZ NR NA CNY 6.8 716.1 16.0 21.3 18.9 na 4.7 5.0 na na na na na na na 6.8 7.3

Hisense Kelong - A share 000921.SZ NR NA CNY 12.0 1,956.4 23.8 26.7 23.9 2.9 3.4 3.8 34.4 27.7 23.4 na na na na 14.9 14.7

Whirlpool China 600983.SS NR NA CNY 12.3 1,425.9 25.5 22.0 18.5 5.8 6.2 6.8 16.9 17.2 14.4 0.6 na na 8.5 9.4 10.2

Jiangsu Chunlan 600854.SS NR NA CNY 7.8 611.4 na na na na na na na na na na na na na na na

Little Sw an 000418.SZ NR NA CNY 37.0 3,144.5 25.6 19.9 16.4 8.0 9.5 11.3 17.7 13.4 10.2 1.8 1.4 1.6 18.2 19.7 20.1

Aucma 600336.SS NR NA CNY 7.8 798.6 na na na na na na na na na na na na na 4.7 5.5

Guangdong Homa 002668.SZ NR NA CNY 61.0 1,521.6 40.3 37.6 35.1 10.4 na na na na na na na na 15.4 na na

Konka 000016.SZ NR NA CNY 5.4 1,637.0 na na na na na na na na na na na na na na na

TCL 000100.SZ NR NA CNY 3.4 6,302.6 14.3 17.8 13.7 2.0 2.1 2.3 13.2 13.5 9.9 1.8 1.7 2.0 12.3 8.8 11.3

Hisense 600060.SS NR NA CNY 18.3 3,613.0 16.8 14.1 12.6 9.0 10.1 11.3 13.2 10.8 9.4 1.8 2.1 2.4 12.3 13.1 13.3

Hisense Kelong - H share 0921.HK NR NA CNY 5.4 1,956.4 13.5 14.7 12.4 3.3 3.9 4.4 34.4 na 23.4 0.0 1.1 1.4 na na na

TCL Multimedia 1070.HK NR NA HKD 4.3 951.7 nm 27.4 18.3 3.3 3.4 3.6 18.3 9.3 7.1 0.1 0.9 1.2 nm 5.2 7.0

Skyw orth 0751.HK NR NA HKD 6.0 2,260.5 11.0 8.8 7.4 4.5 5.4 6.1 6.9 6.1 4.6 3.8 3.3 4.3 17.0 12.5 13.7

Chigo 0449.HK NR NA CNY 0.1 129.4 na na na na na na na na na na na na na na na

Average 18.6 18.3 15.6 5.0 4.9 5.4 15.5 11.0 10.1 2.0 2.5 2.8 17.7 14.4 14.8

PE (x) ROE (%)PB (x) EV/EBITDA (x) Div yield (%)


2 September 2016


Gree


Figure 6: Valuation table for commercial vehicle manufacturers

Company Ticker Rec Target Rpt. Ccy current Mkt Cap

Price (lcy) price (lcy) (USDm) 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017

Yutong Bus 600066.SS Buy 24.9 CNY 22.0 7,012 15.0 13.7 12.4 3.9 3.7 3.1 7.7 7.7 7.7 7.5 3.8 4.3 29.9 28.6 29.3

Zhongtong Bus 000957.SZ NR NA CNY 20.9 1,868 30.3 18.8 14.2 na na na na na na 0.5 0.5 0.5 28.6 24.3 24.7

Xiamen King Long 600686.SS NR NA CNY 13.6 1,245 16.6 13.0 10.2 6.3 7.1 6.2 12.9 12.0 12.0 1.0 1.2 1.8 15.0 14.7 17.9

DFMC Limited 600006.SS NR NA CNY 8.4 2,538 36.6 36.6 29.0 nm 3.4 3.7 na na na na na na 14.0 6.6 7.9

Beiqi Foton 600166.SS NR NA CNY 2.8 2,828 70.3 56.2 40.1 2.8 2.8 2.9 35.2 22.5 22.5 0.4 0.5 0.7 4.2 1.8 2.4

Weichai Pow er-A 000338.SZ Sell 5.5 CNY 9.0 13,883 25.9 20.0 18.0 1.2 1.1 1.0 10.6 4.7 4.7 0.5 0.5 0.6 4.3 5.6 5.9

BYD 1211.HK Buy 58.8 CNY 51.2 12,879 44.9 31.4 23.6 2.7 2.3 2.1 12.1 10.4 10.4 0.0 0.0 0.0 9.8 10.1 10.9

BYD-A 002594.SZ Sell 50.3 CNY 59.9 22,624 52.5 36.8 27.6 4.9 3.2 2.9 18.5 13.7 13.7 0.0 0.0 0.0 9.8 10.1 10.9

SG Automotive 600303.SS NR NA CNY 11.9 1,113 66.1 15.9 14.2 na na na na na na na na na 2.0 17.5 17.1

Average 39.8 26.9 21.0 3.6 3.4 3.1 16.2 11.8 11.8 1.4 0.9 1.1 13.1 13.3 14.1

PE (x) PB (x) EV/EBITDA (x) Div yield (%) ROE (%)


Core business outlook – back on positive growth track

Restocking from 2H16, air conditioner revenue to grow at 11-13% in 2017-18E

We believe that distributors should start restocking in the new air conditioner

year starting in early August. This should drive Gree’s output volume growth in

2H on a low base last year. In our view, management should be cautious in

planning production volume to avoid over-pushing the stock into the channel

again.

We expect air conditioner revenue to grow 16% in 2H16 on channel restocking

and a low base in 4Q15. For 2017-18, we expect modest 11-13% yoy growth,

mainly driven by replacements, consumption upgrades, and new home sales

(Figure 7).

Figure 7: New home sales volume yoy growth in 30 big

cities

Figure 8: Air conditioner sales growth to recover to 11-

13% in 2017-18E

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Overall T1 cities T2 cities T3 cities

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Source: Deutsche Bank, Wind

Source: Deutsche Bank estimates, Company data

Stronger-than-expected retail demand for air conditioners this summer

We believe that retail volume grew by 8% yoy in the air conditioner year 2016

(ending at the end of July), mainly driven by the hot summer, rising new home

sales last year, and replacement demand. This is better than our and the

market’s expectations.

According to our recent channel check, several key provinces (Sichuan,

Guangdong, Guangxi, and Henan) had achieved their sales target for the full air

conditioner year by the end of June, which is one month ahead of schedule.

We believe that the hot weather in the second half of July in most of south

China’s cities boosted retail demand.

2 September 2016


Gree


Channel inventory of air conditioners has fallen to a healthy level

We believe that the channel inventory had fallen to one to two months of full-

year sales by the end of July, helped by output constraints and strong retail

demand (Figure 11). According to our recent channel check, the channel

inventory of Gree’s air conditioners was 150,000-170,000 units by the end of

June in one south China province, or less than two months of its full-year sales

volume (a million units). For reference, it was 300,000-400,000 units by the end

of June last year, or four-plus months’ inventory for the same period in 2015.

For 2017-18, we expect the retail volume of home air conditioners to grow

mildly at 4% yoy. Manufacturers should cautiously plan their output volume by

matching retail end demand.

We expect Gree’s sales in air conditioner to grow at 14% yoy in 2017E, as we

believe its channel inventory has lowered to one to two months. Our sensitivity

analysis shows that Gree’s earnings would increase by 8% (bull case) should

its channel inventory be zero to one month, while its earnings would decrease

by 8% should its channel inventory reach three to four months by July.

Figure 9: Sensitivity analysis on channel inventory level

Channel inventory level as of July 2016 (months)

Gree's sales growth in 2017

Impact to Gree’s Earning (FY17E)

Bull case 0-1 +20% +8%

Base case 1-2 +14% 0%

Bear case 3-4 +6% -8% Source: Deutsche Bank estimates

Figure 10: China air conditioner channel inventory Figure 11: Gree’s channel inventory lowered to one to

two months by the end of July

0

2

4

6

8

10

40

45

50

55

60

65

70

75

Jul 2012 Jul 2013 Jul 2014 Jul 2015 Jul 2016 Jul 2017E Jul 2018E

Channel inventory turnover (RHS, months)

Sell in (LHS, m units)

Sell out (LHS, m units)

4-5

7-8

4-5

1-2

0

1

2

3

4

5

6

7

8

Jul 2015 Nov 2015 Apr 2016 Jul 2016

Source: Deutsche Bank estimates, China IOL

Source: Deutsche Bank estimates

2 September 2016


Gree


Business diversification – the acquisition of Zhuhai Yinlong

Gree announced the acquisition proposal on 18 August and has released the

revised proposal on 1 September after the enquiry by the Shenzhen Stock

Exchange. The key change is mainly on the reduction of the placement amount

to RMB9.7bn from RMB10bn. the number of new share issuing for the

placement is lowered to 623m from 642m.

The detailed deal structure is as below.

Acquisition of Yinlong by issuing new shares at RMB13bn. Gree plans

to issue 835m new shares to the entire shareholders of Zhuhai Yinlong

(an electric vehicle company) for a consideration of RMB13bn, which

implies 28x/17x FY15/16 PE (Deutsche Bank estimates). The issue

price (RMB15.57) is set at 90% of the closing price of the average

trading price during the 20 days before the suspension.

Private placement of RMB9.7bn to finance the EV business. It plans to

issue 623m new shares to eight investors including Gree Group

(Gree’s controlling shareholder), Yintong (the controlling shareholder

of Yinlong), Gree’s employee stock ownership plan, and other

shareholders of Yinlong to raise RMB9.7bn to develop the EV

business. The sales proceeds will mainly be used to build up the

lithium battery production line, the energy storage production base,

the electric vehicle manufacturing base, and the R&D center.

Net profit guarantee clause. The owners of Yinlong guarantee a net

profit for Yinlong of RMB720m/RMB1bn/RMB1.4bn in 2016/17/18.

Should the NP of Yinlong be below the guaranteed NP in each year,

Yinlong’s owners will compensate for the difference using cash or

their stocks in Gree (a clawback clause).

Next steps

SGM and regulatory approval in September. The acquisition and the placement

are pending approval by the special general shareholder meeting (SGM), which

will be held in the middle of September. It also needs approval by the State-

owned Assets Supervision and Administration Commission of the State

Council (SASAC) and China Securities Regulatory Commission (CSRC).

Impact on Gree – 14% EPS dilution for 2017E

The issue of 1.5m new shares will enlarge Gree’s shares outstanding by 24%

to 7.5bn shares.

After the acquisition (835m new shares) and following the placement (623m

new shares), the largest shareholder in Gree Group will maintain its controlling

shareholder position with an unchanged 18.2% stake in the company.

Yinlong’s original shareholders will take 13.9% stakes in Gree (14.1% before

the revised proposal). We believe that Gree’s EPS will be diluted by 14% for

2017 on the enlarged number of shares outstanding.

Figure 12: EPS dilution (2017E)

Before the deal Post the deal change

Gree NP (RMBm) 15,988 17,029 7%

# of shares (m) 6,016 7,474 24%

EPS (RMB/share) 2.66 2.28 -14% Source: Deutsche Bank estimates, Company data

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Figure 13: Shareholding structure change (million shares)

Before the deal Post the acquisition before the placement

Post the acquisition and post the placement

# of shares % of stakes New shares # of shares % of stakes New shares # of shares % of stakes

Gree Group 1,096 18.2% 0 1,096 16.0% 269 1,365 18.3%

Hebei Jinghai 536 8.9% 0 536 7.8% 0 536 7.2%

Yintong (controlling shareholder of Yinlong) 0 0.0% 196 196 2.9% 58 255 3.4%

Other shareholders of Yinlong 0 0.0% 639 639 9.3% 143 781 10.5%

Employee ownership scheme 0 0.0% 0 0 0.0% 153 153 2.0%

Others 4,384 72.9% 0 4,384 64.0% 0 4,384 58.7%

Total 6,016 100.0% 835 6,851 100.0% 623 7,474 100.0% Source: Deutsche Bank, Company data,

Figure 14: Gree + Yinlong P&L forecasts (assuming consolidation from 1 January 2016)

YE Dec, RMBm 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E

Net sales 6,072 7,743 10,099 105,377 119,780 133,174 111,449 127,523 143,273

yoy change 57.7% 27.5% 30.4% 5.6% 13.7% 11.2% 14.4% 12.4%

COGS (3,898) (4,885) (6,211) (66,396) (73,942) (81,616) (70,294) (78,827) (87,827)

GP 2,174 2,858 3,888 38,981 45,838 51,558 41,155 48,696 55,446

Sales expense (360) (443) (558) (20,664) (23,489) (26,116) (21,024) (23,932) (26,674)

Admin expense (519) (646) (823) (5,874) (6,677) (7,424) (6,393) (7,324) (8,247)

Other income/expense (76) (252) (532) 561 998 1,109 485 746 577

EBIT 1,219 1,516 1,975 13,003 16,669 19,127 14,222 18,185 21,102

- - - - - - - - -

Interest income 25 25 25 4,441 2,601 3,054 4,466 2,627 3,079

Interest expense (336) (336) (336) (254) (254) (254) (589) (589) (589)

Associates - - - 3 3 3 3 3 3

PBT 909 1,206 1,665 17,194 19,020 21,930 18,102 20,226 23,595

Income tax (173) (223) (300) (2,636) (2,916) (3,362) (2,808) (3,139) (3,662)

PAT 736 983 1,365 14,558 16,104 18,568 15,294 17,087 19,933

MI 49 59 70 (105) (116) (134) (56) (58) (64)

NP 785 1,041 1,435 14,452 15,988 18,434 15,237 17,029 19,869

yoy change 71.8% 32.7% 37.9% 15.3% 10.6% 15.3% 11.8% 16.7%

Guaranteed NP 720 1,000 1,400

EBITDA 1,416 1,923 2,709 14,633 18,374 20,877 16,049 20,297 23,586

Depreciation (197) (407) (734) (1,630) (1,704) (1,750) (1,827) (2,111) (2,484)

Common size

GPM 35.8% 36.9% 38.5% 37.0% 38.3% 38.7% 36.9% 38.2% 38.7%

Sales expense -5.9% -5.7% -5.5% -19.6% -19.6% -19.6% -18.9% -18.8% -18.6%

Admin expense -8.5% -8.3% -8.1% -5.6% -5.6% -5.6% -5.7% -5.7% -5.8%

ETR -19.0% -18.5% -18.0% -15.3% -15.3% -15.3% -15.5% -15.5% -15.5%

EBITM 20.1% 19.6% 19.6% 12.3% 13.9% 14.4% 12.8% 14.3% 14.7%

EBITDAM 23.3% 24.8% 26.8% 13.9% 15.3% 15.7% 14.4% 15.9% 16.5%

Yinlong Gree Gree + Yinlong

Source: Deutsche Bank estimates, Company data

Long-term positive – foray into a rapid growth industry, although short-term

pain on dilution

We believe that the market’s concerns about the non-relevant industry

diversification and the share placement have eased after six months of

suspension. This is mainly due to:

The deal is relatively small, accounting for only 6%/7% of Gree’s

revenue/NP in FY17E.

The stock ownership scheme helps align the interests of management

with those of shareholders and retain talent. Ms. Dong’s stake in the

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company will increase from 0.7% to 1.4% after the deal via the stock

ownership scheme, which is likely to strengthen investor confidence in

the company.

The NP guarantee clause ensures the target’s profitability and

motivates the target’s management team to grow the business.

A newly committed dividend payout ratio of 60% in FY16-18 will bring

in a decent dividend yield. Our new target price of RMB24.91 implies a

5.5% dividend yield for FY17E.

We have to say that we believe this deal is not ideal, as the issue of new

shares brings 14% earnings dilution for FY17E, and the placement is for

specific investors only and not all investors. However, we believe that this is a

rapidly growing industry with a favorable supporting policy. We expect Yinlong

to grow revenue/NP at a 38%/46% CAGR in 2016-18, mainly driven by the

strong market demand and the government’s supportive policies.

Sensitivity analysis of the issue price. During Gree’s share suspension (22

February 2016 to 31 August 2016), the share prices of its peers (Qingdao Haier

and Midea) outperformed the index (SSEC) by 17-42%, according to

Bloomberg Finance LP. For reference, Qingdao Haier had 18% exposure in air

conditioners, while Gree had 83% of revenue from air conditioners in 2015.

Considering the potential share price rally after the resumption of trading, Gree

is likely to adjust the issue price for acquisition and placement to ease the

concerns of minority shareholders. We assume the acquisition consideration

and the placement amount remains unchanged, then the change of the issue

price will alter the number of new shares.

Our base case for the placement price is RMB15.57/share, as stated in the

acquisition proposal. Based on our sensitivity analysis, should the issue price

for acquisition and the placement price rise by 20%/40%, the dilution from the

acquisition and placement would narrow to 12.6%/11.4% from 14.3% in our

base case.

Figure 15: Sensitivity analysis on placement price

Issue price for acquisition &

placement price (RMB)

New shares for acquisition (m)

Acquisition consideration

(RMBbn)

New shares for placement

Placement amount (RMBbn)

Dilution effect in FY17

40% discount of placement price 9.34 1,392 13.0 1,039 9.7 20.2%

20% discount of placement price 12.46 1,044 13.0 779 9.7 16.6%

base case 15.57 835 13.0 623 9.7 14.3%

20% premium of placement price 18.68 696 13.0 519 9.7 12.6%

40% premium of placement price 21.80 596 13.0 445 9.7 11.4% Source: Deutsche Bank estimates

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1H16 review – net profit up 12% yoy in line with Deutsche Bank estimate

Net profit up 12% yoy to RMB6.4bn, in line with our expectations

1H16 NP rose 12% to RMB6.4bn on the back of a 3% decline in revenue to

RMB50bn. Revenue and NP were in line with our and market expectations.

Key highlights of the 2Q16 results 2Q NP increased 10% yoy to RMB3.2bn, mainly driven by margin

improvement. Revenue declined 6% yoy, or was flattish qoq, to

RMB25bn, which was helped by recovering retail demand.

The GP margin was up 13 ppts yoy to 39%, and the selling expense

ratio was up 10 ppts to 20%. This was mainly due to more sales

rebates paid during the downturn cycle in 2Q15. We believe that

distributors are likely to claim their sales rebates (in merchandise)

rather than place new orders when they are not likely to achieve their

sales targets.

The EBIT margin improved marginally by 0.4 ppts yoy to 11.7%.

Finance costs increased by RMB1.6bn from 2Q15, mainly attributable

to foreign exchange gains. The company ceased hedging USD at the

end of 2015, when management projected a strong USD for 2016. As

of the end of 2Q16, it had RMB27bn cash in USD and RMB5bn

borrowings in USD.

Sales rebates payable increased to RMB59bn from RMB53bn as of the

end of 2015.

Figure 16: Gree’s interim P&L (core business only, not including Yinlong)

Year End 31 Dec 1H14 2H14 2014 1H15 2H15 2015 1H16 2H16E 2016E 2017E 2018E

RMB m

Turnover 58,507 80,136 138,643 51,271 48,542 99,813 49,679 55,697 105,377 119,780 133,174

YOY % Growth 10% 22% 16% -12% -39% -28% -3% 15% 6% 14% 11%

Sales Split % 42% 58% 100% 51% 49% 100% 47% 53% 100% 100% 100%

GrossProfit 19,866 30,743 50,609 15,175 18,686 33,861 17,989 20,992 38,981 45,838 51,558

YOY % Growth 33% 29% 30% -24% -39% -33% 19% 12% 15% 18% 12%

GP Split % 39% 61% 100% 45% 55% 100% 46% 54% 100% 100% 100%

GPM 34.0% 38.4% 36.5% 29.6% 38.5% 33.9% 36.2% 37.7% 37.0% 38.3% 38.7%

Other income (965) 576 (389) 471 (81) 390 (965) 2,057 1,092 1,601 1,779

Operating Cost (12,583) (21,824) (34,406) (9,059) (12,214) (21,273) (12,248) (14,822) (27,070) (30,770) (34,210)

opec cost ratio -22% -27% -25% -18% -25% -21% -25% -27% -26% -26% -26%

EBIT 6,319 9,495 15,814 6,586 6,391 12,977 4,776 8,227 13,003 16,669 19,127

YOY % Growth 28% 21% 24% 4% -33% -18% -27% 29% 0% 28% 15%

EBIT Split % 40% 60% 100% 51% 49% 100% 37% 63% 100% 100% 100%

EBITM 11% 12% 11% 13% 13% 13% 10% 15% 12% 14% 14%

Interest income/Expense 672 271 942 239 1,689 1,929 2,970 1,217 4,187 2,037 2,490

Profit Before Tax 6,982 9,770 16,752 6,823 8,086 14,909 7,747 9,446 17,194 18,710 21,620

Tax (1,209) (1,290) (2,499) (1,055) (1,230) (2,286) (1,301) (1,335) (2,636) (2,868) (3,314)

ETR % -17% -13% -15% -15% -15% -15% -17% -14% -15% -15% -15%

Minority Interest (55) (43) (98) (47) (44) (91) (44) (61) (105) (58) (64)

Net Profit 5,718 8,437 14,155 5,721 6,812 12,532 6,402 8,050 14,452 15,784 18,241

YOY % Growth 42% 23% 30% 0% -19% -11% 12% 18% 15% 9% 16%

Profit Split % 40% 60% 100% 46% 54% 100% 44% 56% 100% 100% 100%

Net Profit margin 10% 11% 10% 11% 14% 13% 13% 14% 14% 13% 14% Source: Deutsche Bank estimates, Company data

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Appendix – about Zhuhai Yinlong

Company background

Company description. Zhuhai Yinlong is primarily engaged in the R&D,

manufacture, and sales of electric vehicles (96% of revenue in 2015); lithium

titanium oxide (LTO) batteries and energy storage systems; as well as ancillary

recharging facilities. It sold c.3,000 units of electric buses under the brand

Granton Bus in 2015, ranking seventh in China (Figure 17). The length of its

buses ranges from to 6.6 meters to18 meters.

Lithium titanium oxide (LTO) batteries use lithium-titanate nano-crystals on the

surface of their anode instead of carbon. This allows electrons to enter and

leave the anode quickly. This makes fast recharging possible and provides high

currents when needed. The advantages of LTO batteries include: 1) a long life

span; 2) fast charging; 3) a wide range of working temperatures; and 4) safety.

Their disadvantages are low energy density and high production costs.

Brief history. Zhuhai Yinlong was established in December 2009 in Zhuhai. In

2010, Yintong acquired 53.6% of the equity of Nasdaq-listed Altair

Nanotechnologies (delisted) to penetrate the production of lithium titanate

materials. In 2012, Yintong acquired the whole ownership of Zhuhai Guangton

Automobile to enter the electric bus manufacturing business.

Figure 18: EV bus market share by production in 2015 Figure 19: China new energy bus sales volume and

growth trend

Yutong Bus15%

Skywell Bus10%

Zhongtong Bus9%

Higer8%BYD

6%

DFMC6%

Granton Bus4%

Golden Dragon3%

Beiqi Foton3%

King Long3%

Others33%

17,321

78,409

104,400

140,400

184,800

224,400

268,800

353%

33% 35% 32% 21% 20%0%

50%

100%

150%

200%

250%

300%

350%

400%

0

50,000

100,000

150,000

200,000

250,000

300,000

2014 2015 2016E 2017E 2018E 2019E 2020E

New energy bus sales volume (units) YoY% (RHS)

Source: Deutsche Bank, Company data, MIIT

Source: Deutsche Bank estimates, CAAM, please refer to page 63 of DB report: China Autos - What you should know about China's new energy vehicle (NEV) market published on 18 May 2016

Industry outlook – Deutsche Bank expects new energy bus sales to expand at a 28% CAGR in 2015-20

According to Deutsche Bank’s Asia auto team (Vincent Ha and Fei Sun), new

energy bus sales are expected to expand at a 28% five-year CAGR in 2015-20.

Please refer to pages 63-65 of China Autos – What you should know about

China's new energy vehicle (NEV) market, published on 18 May 2016. This will

Figure 17: Portion of Yinlong’s

electric bus portfolio

Source: Deutsche Bank, , company data

2 September 2016


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be front-end loaded, with a faster sales growth rate of 32-34% in 2016/17/18E

before slowing to 20-21% in 2019-20E.

According to Deutsche Bank’s Asia auto team’s bus sales forecast model,

China’s new energy bus sales are expected to contribute 17-40% to total bus

sales in 2016-20. By the end of 2020, the new energy bus fleet is estimated to

account for 33% of the total bus fleet in China. We believe that above 30%

new energy bus penetration by 2020 is realistic, as China aims to electrify a

large portion of its public bus fleet (as high as 80% in eastern provinces) and

due to government vehicle procurement.

Earnings growth outlook of Yinlong

We expect Yinlong to grow NP by a 46% CAGR in 2015-18 as a result of a 38%

increase in sales revenue during the period. Our number is 3-9% higher than

the guaranteed net profit of (RMB720m/RMB1bn/RMB1.4bn) for FY16-18, as

we are more positive on its sales volume growth backed by the 2,500 units of

secured orders, according to the acquisition proposal.

We expect Yinlong to grow its sales volume by 40-44% in 2016-18, which is

higher than industry growth of 32-33%, as we are positive on Yinlong’s sales

strategy to offer financial lease services to clients. We believe its market share

is likely to increase from 3.8% in 2015 to 4.7% by 2018. This is mainly driven

by bus fleet replacement demand and the government’s supportive policy on

the commercial bus industry.

The government has released policies to support electric vehicles in the past

five years. The two recent policies that are most important, in our view, are:

In February 2015, the State Council released a supportive policy to

increase government procurement of electric vehicles for the public

bus, taxi, environmental sanitation, and logistics sectors. The policy

requires that 50% of government vehicles procured are electric

vehicles.

In November 2015, the Ministry of Transport stipulated a new energy

bus percentage for local government’s purchase of public buses. To

elaborate, 15-50% of local government’s public bus procurement has

to be of new energy buses in 2016, and the number increases

progressively to 30-80% in 2019.

Figure 20: key assumptions for Yinlong

Electric vehicle (units) 2014 2015 2016E 2017E 2018E

Production capacity 1,500 3,000 5,000 8,000 10,000

Production volume 472 2,640 4,314 6,169 8,637

Sales volume 111 2,996 4,314 6,169 8,637

Utilization 31% 88% 86% 77% 86%

Sales/production 24% 113% 100% 100% 100%

ASP (RMBm) 1.65 1.24 1.33 1.19 1.12

yoy change

Sales volume 2599% 44% 43% 40%

ASP (RMBm) -25% 7% -10% -6%

Yinlong’s market share in EV bus 0.6% 3.8% 4.1% 4.4% 4.7% Source: Deutsche Bank estimates, Company data

2 September 2016


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Appendix 1

Important Disclosures

Additional information available upon request

Disclosure checklist

Company Ticker Recent price* Disclosure

Gree 000651.SZ 19.22 (CNY) 5 Apr 16 14 *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.

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

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/Disclosure.eqsr?ricCode=000651.SZ

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. Richard Rui-Huang

2 September 2016


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Historical recommendations and target price: Gree (000651.SZ) (as of 5/4/2016)

12 3

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16

Secu

rity

Pri

ce

Date

Previous Recommendations

Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating

Current Recommendations

Buy Hold Sell Not Rated Suspended Rating

*New Recommendation Structure as of September 9,2002

**Analyst is no longer at Deutsche Bank

1. 07/10/2015: Upgrade to Hold, Target Price Change CNY17.27 Richard Rui-Huang

3. 04/05/2016: Hold, Target Price Change CNY18.10 Richard Rui-Huang

2. 15/02/2016: Hold, Target Price Change CNY16.29 Richard Rui-Huang

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.

Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock

Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.

Newly issued research recommendations and target prices supersede previously published research.

52 %

38 %

10 %15 % 15 % 21 %

050

100150200250300350400450500

Buy Hold Sell

Asia-Pacific Universe

Companies Covered Cos. w/ Banking Relationship

Regulatory Disclosures

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.

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.

2 September 2016


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2 September 2016


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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

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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

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

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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

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