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Company Report: Lenovo Group (00992 HK) Ricky Lai 黎柏坚

公司报告：联想集团 (00992 HK) +852 2509 2603

ricky.lai@gtjas.com.hk

14 November 2013

Better than Expected PC Shipments and ASP, Maintain “Buy” 好于预期的电脑出货量及平均售价，维持“买入”

2QFY14 results were better than expected, due to (1) better than expected

PC shipments and ASP; and (2) good cost control strategy.

Maintained top position in PC market share in 2QFY14, due to better than

expected demand in US market and the Company’s effort to expand

distribution channels. FY14-16 PC shipments are adjusted upwards by

0.6%/0.6%/0.7%. We revise upwards FY14-16 PC ASP by 0.5%/1.0%/1.1%

based on the better than expected results and the launch of high end

products.

Maintained fourth place in smartphone and tablet market share in

2QFY14, due to the robust demand in domestic market and improving brand

recognition by users. We maintain FY14-16 smartphone and tablet shipment

estimations due to the in-line shipment results.

Maintain the investment rating of “Buy” and revise upwards the TP from

HK$9.70 to HK$10.20. Due to the adjustments to ASP and shipments

forecasts, FY14-16 net profit is adjusted upwards by 0.7%/0.8%/0.4%. The

new TP represents 16.1xFY14 PER, 14.3xFY15 PER, 13.4xFY16 PER and

5.1xFY14 PBR. We maintain the Company’s investment rating of “Buy”,

based on outperformance of product market share, and business growth to be

supported by strong demand of smart devices.

14 财年第 2 季度业绩好于预期，是由于(1)好于预期的电脑出货量及平均售价;及(2)良好的

成本控制策略。

14 财年第 2 季度維持排名第一的电脑市佔率，是由于自美國好于预期的需求及公司拓展銷

售渠道的努力。上調 14-16 财年电脑出貨量 0.6%/0.6%/0.7%。我们上调 14-16 财年电脑

平均售价 0.5%/1.0%/1.1%，是由于好于预期的业绩及推出高端产品。

14 财年第 2 季度分别维持排名第四的智能手机及平板电脑市占率，由于国内强劲的需求及

用户对品牌认受性増强。上调 14-16 财年智能手机及平板电脑出货量的预测。

维持公司的投资评级为“买入”及目标价从 9.70 港元上调至 10.20 港元。基于调整的电脑平

均售价及出货量的预测，14-16 财年的预测盈利分别上调 0.7%/0.8%/0.4%.。新目标价相

当于 16.1 倍 14 财年市盈率、14.3 倍 15 财年市盈率、13.4 倍 16 财年市盈率及 5.1 倍 14

财年市净率。我们维持公司的投资评级为“买入”，是基于表现优秀的产品市占率及业务增

长受强劲的智能产品需求所支持。

Rating: Buy

Maintained

评级： 买入 (维持)

6-18m TP 目标价: HK$10.20 Revised from 原目标价: HK$9.70

Share price 股价： HK$8.750

Stock performance 股价表现

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Nov-12 Feb-13 May-13 Aug-13 Nov-13

% of return

HSI Index Lenovo

Change in Share Price 股价变动

1 M 1 个月

3 M 3 个月

1 Y 1 年

Abs. % 绝对变动 %

4.2 15.1 29.6

Rel. % to HS index 相对恒指变动 %

6.0 10.0 24.2

Avg. share price(HK$) 平均股价（港元）

8.3 8.0 7.6

Source: Bloomberg, Guotai Junan Internat ional.

Year End 年结

Turnover 收入

Net Profit 股东净利

EPS 每股净利

EPS 每股净利变动

PER 市盈率

BPS 每股净资产

PBR 市净率

DPS 每股股息

Yield 股息率

ROE 净资产收益率

03/31 (USD m) (USD m) (US cent) (△%) (x) (US cent) (x) (US cent) (%) (%)

2012A 29,574 473 4.668 64.6 24.1 19.043 5.9 1.808 1.6 22.5

2013A 33,873 635 6.161 32.0 18.3 23.302 4.8 2.402 2.1 25.3

2014F 38,035 853 8.171 32.6 13.8 25.865 4.4 3.203 2.8 30.3

2015F 42,438 964 9.194 12.5 12.3 28.377 4.0 3.622 3.2 30.6

2016F 44,458 1,064 9.852 7.2 11.5 34.531 3.3 3.901 3.5 30.1

Shares in issue (m) 总股数 (m) 10,396.6 Major shareholder 大股东 Legend Holdings Limited 33.8%

Market cap. (HK$ m) 市值 (HK$ m) 90,970.3 Free float (%) 自由流通比率 (%) 66.2

3 month average vol. 3 个月平均成交股数 (‘000) 48,256.7 FY14 Net gearing (%) FY14 净负债/股东资金 (%) 68.0

52 Weeks high/low (HK$) 52 周高/低 9.000/6.450 FY14 Est. NAV (HK$) FY14 每股估值（港元） 10.5

Source: the Company, Guotai Junan International.

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2QFY14 Results Review

2QFY14 results were 4.1% better than market and our expectations. The better than expected results were due to (1)

better than expected PC shipments and ASP; and (2) good cost control strategy.

Table-1: Lenovo’s 2QFY14 Financial Statement

USD (Million) 2QFY14 2QFY13 YoY Comments

Revenue 9,773.8 8,672.6 12.7%

-Desktop 2702.5 2789.3 (3.1%) YoY declined due to the substitution effect from tablets

-Notebook 4992.2 4611.5 8.3% Moderate growth in notebook thanks to the picking up of US economy

-MIDH 1475.8 717.6 105.7% Strong YoY growth because of the sustainable growing demand for smartphones and tablets

-Others 280.4 291.3 (3.7%)

-Sale of other goods & services 322.6 262.9 22.7%

Cost of sales (8,509.1) (7,533.2) 13.0%

Gross profit 1,264.6 1,139.4 11.0%

Selling and distribution expenses (475.5) (489.3) (2.8%)

Administrative expense (317.0) (287.6) 10.2%

Research and development (189.4) (152.8) 24.0%

Other operating expenses-net 0.7 (4.3) (116.3%)

Operating profit 283.9 205.6 38.1%

Finance income/(loss) (13.4) (1.2) 1,016.7%

Share of profit of associates (5.3) (0.7) 657.1%

Net profit 219.7 162.0 35.6% Strong YoY growth with good cost control strategy and outperformed products shipments

EPS (USD cents) 2.12 1.58 34.2%

Gross profit margin (%) 12.9 13.1 (0.2ppt) YoY declined was due to the dilution effect with more revenue contributions from relative lower gross profit margin from MIDH

Operating profit margin (%) 2.9 2.4 0.5ppt

Net profit margin (%) 2.2 1.9 0.4ppt Net profit margin improved due to moderate growth in operating expense

Source: the Company.

Net profit margin improved. Net profit margin in 2QFY14 was 2.2%, up 0.4ppt yoy, better than expected. The improved net

profit margin was due to the moderate growth in operating expense with the Company’s effort of trimming down its selling

and distribution expense. We think Lenovo could further improve its net profit margin in FY14-16, due to Company’s good

cost control strategy and also benefited from economies of scale effect. Gross profit margin in 2QFY14 was 12.9%, down

0.2ppt yoy, due to more revenue contributions from relative lower gross profit margin from MIDH. We expect there is

downward pressure to the Company’s gross profit margin in FY14-16 with higher tablet and smartphone shipments.

Maintained the top place in PC shipments in 2QFY14. Lenovo’s PC shipments in 2QFY14 were 14.1 million, up 2.2% yoy,

better than the global market average yoy growth with -7.6%. Lenovo maintained its top market share in global PC market

with 17% in 3Q13. The better than average results were due to (1) stronger than average demand from emerging markets; (2)

the Company’s effort of expanding distribution channels; and (3) better than expected shipments demand from US market.

Lenovo’s PC shipments in US in 2QFY14 were 1.7 million, up 25.8% yoy, better than the overall market yoy growth in US

with -0.2%. We expect Lenovo would be able to maintain its top position in PC shipments in 3QFY14 thanks to the (1) picking

up of US economy; (2) the launch of win 8.1 to improve the defect of win 8 by Microsoft (MSFT US); and (3) the Company’s

effort of expanding distribution channels. Although the overall PC market demand is expected to shrink due to the

cannibalization effect from tablets and smartphones, we expect Lenovo could maintain its outperforming shipments results.

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We adjust upwards FY14-16 PC shipments by 0.6%/0.6%0.7%, respectively. PC ASP in 2QFY14 was USD545.7, up 1.8%

yoy, better than expected. The better than expected PC ASP was due to the launch of high end products to capture the

growing demand of the high end segment. We adjust upwards FY14-16 PC ASP by 0.5%/1.0%/1.1%, respectively, in light of

the higher than expected ASP in 2QFY14 and the launch of innovative products such as Lenovo Yoga to improve the

blended ASP.

Figure-1: PC Shipments and YoY Growth in 3Q13 Figure-2: PC Shipment Market Share in 3Q13

14.1 14.0

9.5

5.5

4.23.4

2.2%0.4%

0.3%

-34.5% -34.1%

-5.6%

-40%

-30%

-20%

-10%

0%

10%

0

2

4

6

8

10

12

14

16

Lenovo HP Dell Acer ASUS Others

PC Shipments (LHS) YoY Growth (RHS)

Million

Lenovo17.3%

HP17.1%

Dell11.7%

Acer6.7%

Asus5.2%

Others42.0%

Source: IDC. Source: IDC.

Maintained the fourth position in market share of tablets in 2QFY14. Lenovo’s tablet shipments in 2QFY14 were 2.3

million, up 420.7% yoy, better than the average growth of 36.7%. The in-line tablet shipments were due to the robust demand

for low end tablets in domestic market and improving brand recognition by users. We expect Lenovo’s tablet shipments

would maintain robust in 3QFY14 and able to further improve its market share, thanks to the growing demand from domestic

market as more users are more willing to shift from using PC to tablets in China. Based on the in-line shipment results in

2QFY14, we maintain the FY14-16 tablet shipment estimations with 10.0 million/40.0 million/140.0 million, respectively.

Figure-3: Tablet Shipments and YoY Growth in 3Q13 Figure-4: Tablet Shipment Market Share in 3Q13

14.1

9.7

3.5

2.31.2

16.8

0.6%

123.0%

53.9%

420.7%

346.3%

25.0%

0%

100%

200%

300%

400%

500%

0

4

8

12

16

20

Apple Samsung Asus Lenovo Acer Others

Tablet Shipments (LHS) YoY Growth (RHS)Million

Apple29.6%

SAmsung20.4%

Asus7.4%

Lenvo4.8%

Acer2.5%

Others35.3%

Source: IDC. Source: IDC.

Maintained the fourth position in market share of smartphones in 2QFY14. Lenovo’s global smartphone shipments in

2QFY14 were 12.3 million, up 77.6% yoy, better than the market average of 38.8% and in-line with expectations. The market

share of Lenovo maintained the fourth position in 2QFY14 with 4.7%. The robust yoy smartphone growth was due to the

strong demand in domestic market. We expect Lenovo could benefit from China’s robust demand due to the increasing pace

of migrations of 2G subscribers to the 3G platform, and with the Company’s strategy of approaching overseas. We maintain

FY14-16 smartphone shipment estimations with 50.0 million/87.5 million/157.5 million, respectively.

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Figure-5: Global Smartphone Shipments and YoY

Growth in 3Q13

Figure-6: Smartphone Shipment Market Share in 3Q13

81.2

33.8

12.5 12.3 12

106.6

40.5%

25.7%

76.5% 77.6%

71.4%

32.4%

0%

20%

40%

60%

80%

100%

0

20

40

60

80

100

120

Samsung Apple Huawei Lenovo LG Others

Smartphone Shipments (LHS) YoY Growth (RHS)

Million

Samsung31.4%

Apple13.1%

Huawei4.8%

Lenvo4.7%

LG4.6%

Others42.3%

Source: IDC. Source: IDC.

Profit Revisions:

FY14-16 net profit is revised up by 0.7%/0.8%/0.4%, respectively. Due to the better than expected PC shipments in

2QFY14 and the growing demand from US, we adjust upwards FY14-16 PC shipments by 0.6%/0.6%/0.7%. FY14-16 PC

ASP is revised upwards by 0.5%/1.0%/1.1%, in light of the better than expected PC shipments in 2QFY14 and the launch of

high end products in coming quarters. FY14-15 net profit is adjusted upwards by 0.7%/0.8%/0.4%, accordingly.

Table-2: Operational Metrics Revisions

Million 2014F OLD

2015F 2016F 2014F NEW

2015F 2016F

2014F CHANGE

2015F

2016F

PC Shipments 51.7 47.8 41.1 52.0 48.1 41.4 0.6% 0.6% 0.7%

PC ASP (USD) 559.5 572.0 579.0 562.2 577.9 585.4 0.5% 1.0% 1.1%

Smartphone Shipments 50.0 87.5 157.5 50.0 87.5 157.5 0.0% 0.0% 0.0%

Tablet Shipments 10.0 40.0 140.0 10.0 40.0 140.0 0.0% 0.0% 0.0% Source: Guotai Junan International.

Table-3: Financial Estimation Revisions

USD (Million) 2014F OLD

2015F 2016F 2014F NEW 2015F 2016F

2014F

CHANGE 2015F

2016F

Total Revenue 37,691 41,990 44,022 38,035 42,438 44,458 0.9% 1.1% 1.0%

-Desktop 10,116 9,430 8,090 10,237 9,585 8,239 1.2% 1.6% 1.8%

-Notebook 18,787 17,903 15,704 19,011 18,197 15,992 1.2% 1.6% 1.8%

-MIDH 6,231 11,901 17,256 6,231 11,901 17,256 0.0% 0.0% 0.0%

-Others 1,418 1,559 1,715 1,418 1,559 1,715 0.0% 0.0% 0.0%

-Sales of other goods & services 1,139 1,196 1,256 1,139 1,196 1,256 0.0% 0.0% 0.0%

Net profit 847 956 1,060 853 964 1,064 0.7% 0.8% 0.4%

EPS (USD cents) 8.115 9.130 9.861 8.171 9.194 9.852 0.7% 0.7% 0.4%

Gross profit margin (%) 13.5 13.7 13.8 12.8 12.7 12.6 (0.7ppt) (1.0ppt) (1.2ppt)

Operating profit margin (%) 2.7 2.7 2.9 2.9 2.9 3.1 0.2ppt 0.2ppt 0.2ppt

Net profit margin (%) 2.2 2.3 2.4 2.2 2.3 2.4 0.0ppt 0.0ppt 0.0ppt Source: Guotai Junan International.

Valuation:

Maintain the Company’s investment rating of “Buy” and revise up TP from HK$9.70 to HK$10.20. Due to adjustments

to PC ASP and shipment estimations, we revise upwards the TP from HK$9.70 to HK$10.20. The new TP represents

16.1xFY14 PER, 14.3xFY15 PER, 13.4xFY16 PER, and 5.1xFY14 PBR. We maintain the Company’s investment rating of

“Buy” due to the outperformance of product market share and business growth to be supported by the robust demand of

smart devices.

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Table-4: Peer Comparisons:

PER PB ROE (%) EV/EBITDA ROA (%)

Company Ticker Currency Price 13F 14F 15F 13F 14F 15F 13F 13F 13F

US Listed Companies

APPLE INC AAPL US USD 520.634 13.2 12.0 10.9 3.8 3.4 3.0 40.4 5.9 27.3

HEWLETT-PACKARD CO HPQ US USD 26.490 7.4 7.3 7.1 2.0 1.7 1.4 22.5 4.3 6.6

DELL INC DELL US USD 13.860 8.1 14.8 13.1 2.3 2.2 2.0 44.8 2.7 9.7

Simple Average

9.6 11.3 10.4 2.7 2.4 2.1 35.9 4.3 14.5

Weighted Average

12.4 11.7 10.7 3.6 3.2 2.8 38.9 5.6 24.5

Taiwan Listed Companies

ASUSTEK COMPUTER INC 2357 TT TWD 223.000 8.2 9.1 8.9 1.3 1.2 n.a. 17.5 4.7 10.2

ACER INC 2353 TT TWD 16.050 n.a. n.a. 176.4 0.6 0.8 n.a. 2.4 n.a. n.a.

HTC CORP 2498 TT TWD 154.000 n.a. 22.9 n.a. 1.7 1.7 n.a. 19.1 3.2 7.4

Simple Average

8.2 16.0 92.7 1.2 1.2 n.a. 14.1 4.2 8.8

Weighted Average

8.2 16.1 92.8 1.3 1.3 n.a. 14.2 4.3 8.9

HK Listed Companies

LENOVO GROUP LTD. 992 HK HKD 8.750 18.8 12.4 10.9 4.3 3.7 3.1 23.0 11.4 4.0

ZTE CORP-H 763 HK HKD 16.120 24.9 16.7 14.1 1.9 1.7 1.5 (9.6) n.a. (2.0)

TCL COMMUNICATION HLDINGS 2618 HK HKD 7.190 37.8 11.4 8.5 3.3 2.6 2.1 (0.5) n.a. 0.4

CHINA WIRELESS TECH LTD. 2369 HK HKD 2.800 12.7 9.8 7.7 2.1 1.8 1.5 15.0 13.1 4.4

Simple Average

23.6 12.6 10.3 2.9 2.4 2.1 7.0 12.3 1.7

Weighted Average

21.8 13.9 11.8 3.3 2.8 2.4 9.5 6.6 1.6

JP Listed Companies

TOSHIBA CORP 6502 JP JPY 408.000 15.3 13.2 10.0 1.7 1.5 1.3 7.4 6.9 1.4

NEC CORP 6701 JP JPY 222.000 14.6 20.5 12.8 0.8 0.9 0.8 0.0 7.7 n.a.

FUJITSU LTD 6702 JP JPY 447.000 n.a. 19.3 11.8 1.3 1.6 1.5 4.6 4.3 1.3

Simple Average

15.0 17.7 11.5 1.3 1.3 1.2 4.0 6.3 1.3

Weighted Average

10.8 16.3 11.0 1.4 1.4 1.3 4.1 6.3 1.1

Overall Average

14.1 14.4 31.2 2.0 1.9 1.4 15.2 6.8 6.6

Overall Weighted Average

13.3 14.5 31.6 2.4 2.2 1.6 16.7 5.7 9.0

Source: Bloomberg.

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Financial Statements and Ratios:

Income Statement Balance Sheet

Year end Mar, USD m 2012A 2013A 2014F 2015F 2016F Year end Mar, USD m 2012A 2013A 2014F 2015F 2016F

Turnover 29,574 33,873 38,035 42,438 44,458 PP&E 392 480 588 668 738

Desktop 9,884 10,525 10,237 9,585 8,239 Prepaid land least payment 14 37 36 36 35

Notebook 16,697 17,936 19,011 18,197 15,992 Intangible assets 3,091 3,326 3,643 3,925 4,219

Mobile Internet and Digital Home 1,484 3,039 6,231 11,901 17,256 Other non-current assets 543 650 793 898 1,037

Others 611 1,289 1,418 1,559 1,715 Total non-current assets 4,040 4,492 5,060 5,527 6,029

Sales of other goods & services 899 1,085 1,139 1,196 1,256

Cost of sales (26,128) (29,800) (33,167) (37,031) (38,839) Inventory 1,218 1,965 2,233 2,677 2,878

Trade & note receivables 2,994 3,458 3,964 4,551 4,916

Gross profit 3,446 4,074 4,869 5,407 5,620 Deposits, prepayments & other receivables 3,303 3,235 3,462 3,704 3,964

Sell & Distribution costs (1,691) (1,888) (2,282) (2,504) (2,534) Cash & cash equivalents 3,758 3,454 2,751 2,366 2,680

Admin costs (730) (847) (951) (1,061) (1,111) Other current assets 547 277 324 383 456

R&D costs (453) (624) (647) (721) (734) Total current assets 11,820 12,390 12,734 13,681 14,894

Others 12 85 98 110 119 Total assets 15,861 16,882 17,794 19,208 20,923

Operating profit 584 800 1,087 1,230 1,359 Warranty provision 291 279 265 252 239

Finance Income 43 45 48 51 56 Deferred revenue 382 404 420 432 450

Finance costs (43) (43) (56) (61) (65) Retirement benefit obligations 205 164 169 172 177

Profit from associates & JCE (1) (1) 21 21 22 Bank borrowings 0 303 373 746 1491

Other non-current liabilities 726 961 1,032 1,053 1,076

Profit before tax 582 801 1,099 1,242 1,372 Total non-current liabilities 1,603 2,110 2,259 2,655 3,433

Income tax (107) (170) (230) (260) (287)

Profit after tax 475 632 869 983 1,085 Trade & note payables 4,178 3,724 3,624 3,379 2,971

Minority interests (2) 4 (17) (19) (21) Provisions, accruals & other payables 7,074 7,629 8,092 8,739 9,222

Bank borrowings 63 176 246 468 889

Net profit 473 635 853 964 1,064 Other current liabilities 495 563 582 580 608

EPS (US cents) 4.668 6.161 8.171 9.194 9.852 Total current liabilities 11,810 12,091 12,544 13,166 13,690

DPS (US cents) 1.808 2.402 3.203 3.622 3.901 Shareholder's equity 2,361 2,667 2,961 3,338 3,731

MI 87 226 243 262 282

Put option written on non-controlling interest 0 (213) (213) (213) (213)

Cash Flow Statement Total equity 2,448 2,680 2,991 3,387 3,800

Year end Mar, USD m 2012A 2013A 2014F 2015F 2016F

Profit before tax 582 801 1,099 1,242 1,372 Financial Ratios

D&A 242 287 301 320 336 Year end Mar, USD m 2012A 2013A 2014F 2015F 2016F

Finance income, net 1 (2) 9 9 9 Growth (%)

Other non-cash items (87) (18) (18) (19) (19) Revenue 37.0 14.5 12.3 11.6 4.8 Operating profit before working capital changes 738 1,068 1,390 1,553 1,698 Operating profit 52.8 37.0 35.9 13.2 10.5

Change in working capital 1,389 (823) (632) (869) (746) Net profit 73.1 34.3 34.2 13.1 10.4

Interest paid (38) (33) (56) (61) (65)

Tax paid (148) (192) (230) (260) (287) Profitability (%)

Net cash flow from operation 1,940 20 472 363 600 Gross margin 11.7 12.0 12.8 12.7 12.6

Operating margin 2.0 2.4 2.9 2.9 3.1

CAPEX (329) (441) (732) (687) (721) Net margin 1.6 1.9 2.2 2.3 2.4

Change in bank deposits (372) 295 (24) (29) (34) ROA 3.6 3.9 4.9 5.2 5.3

Others (136) (99) (70) (43) (21) ROE 22.5 25.3 30.3 30.6 30.1

Cash flow from investment (837) (245) (826) (759) (776)

Liquidity & Solvency

Dividends paid (115) (195) (334) (380) (422) Current ratio (x) 1.0 1.0 1.0 1.0 1.1

Bank borrowings change (212) 229 140 594 1,167 Quick ratio (x) 0.9 0.9 0.8 0.8 0.9

Others 11 (103) (145) (192) (243) Debt to equity ratio (x) 5.7 5.3 32.0 35.0 4.6

Cash flow from financing (316) (68) (339) 23 502 Net gearing (%) Net cash Net cash

68.0 64.0 Net cash

Cash and cash equivalent change 787 (294) (693) (373) 327 AR Days 32 35 36 37 39

Cash balance at year begin 2,954 3,758 3,454 2,751 2,366 Inventory Days 17 21 21 22 23

Effect of FX change 16 (10) (10) (12) (13) AP Days 68 64 62 60 58

Cash balance at year end 3,758 3,454 2,751 2,366 2,680 Cash conversion cycle -19 -8 -5 -1 4

Source: the Company, Guotai Junan International.

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Company Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable.

Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable.

Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral.

Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable.

Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral.

Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable.

DISCLOSURE OF INTERESTS

(1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for Shandong Chenming Paper Holdings Limited-H shares (01812) and China City Railway Transportation Technology Holdings

Company Limited (08240), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report.

(4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months.

DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services and etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction. © 2013 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong. Tel.: (852) 2509-9118 Fax: (852) 2509-7793 Website: www.gtja.com.hk