China

Consumer Discretionary

26 October 2016

China Autos – PV Weekly Monitor 1-21 October: sales volume steady  China PV average daily sales increased by 24% YoY for the 1-21 October period, down slightly from 28% YoY for September  Average daily SUV sales increased by 43% YoY for the same period, followed by sedans at 16% YoY and MPVs at 11% YoY

Kelvin Lau (852) 2848 4467 [email protected]

 Geely continued to record strong sales growth, while that for Dongfeng Motor decelerated

Brian Lam (852) 2532 4341 [email protected]

What's new: According to the China Auto Market (CAM) sales volume data for 1-21 October, average daily PV sales increased by 24% YoY, down from 28% YoY for September and but in line with 23% YoY for August. We ascribe this relative robust performance to strong customer sentiment to purchase PVs before 2017 as the customers suspect that the purchase taxcut policy might be cancelled in 2017. Moreover, we think the relative higher sales bases in November and December 2015 (up by 24% YoY and 20% YoY, respectively vs. 13% YoY for October 2015) are likely to result in slower sales growth over the next two months.

Key stock calls New Prev. BYD (1211 HK) Rating Buy Buy Target 65.00 65.00 Upside p 21.7% China Harmony New Energy Auto (3836 HK) Rating Buy Buy Target 5.50 5.50 Upside p 44.7% Source: Daiwa forecasts

What's the impact: Geely (175 HK, HKD8.80, Outperform [2]) achieved robust sales growth for 1-21 October, with average daily sales up by 138% YoY, compared to 80% YoY for September and 64% YoY for August. SUV models continued to be its main growth drivers, while sedan models also performed well. We anticipate the strong growth momentum to continue for the rest of 2016, bolstered by incremental sales volume on the capacity expansion at its two plants in Baoji and Shanxi starting from September and October, respectively. Average daily sales for Dongfeng Motor (DFM; 489 HK, HKD8.00, Outperform [2]) increased softly by 10% YoY for the same period, compared with 23% YoY for September. DF Nissan and DF Motor remained the main sales drivers, offsetting the sales decline of DF PSA. We remain positive on DFM, on its undemanding valuation and the potential turnaround of DF PSA on the company’s plan to launch more new models over the next year. What we recommend: We believe the deceleration trend is a result of the high base in 4Q15, which may affect investor sentiment in the near term. Moreover, we do not have a very positive sales-growth outlook for the China auto industry in 2017 as we think the front-end-loaded sales in 2016, from the tax-cut policy, may have a negative impact on sales in subsequent years. Among the H-share-listed China-auto OEMs, BYD (1211 HK, HKD52.70, Buy [1]) remains our top pick. Model of the week: Beijing Hyundai’s new Verna is our model of the week. The company released the new version of Verna on 18 October. The new compact model has two engine versions currently: the 1.4L and the 1.6L, and is priced at CNY72,800-105,800. Beijing Hyundai currently has only launched the sedan model, but plans to launch the hatchback model in January 2017. We expect the new Verna to compete with SAIC GM Sail, DF KIA K2, Geely New Emgrand and Changan Yuedong.

See important disclosures, including any required research certifications, beginning on page 11

China PV sales summary

Geely BAIC GWM GAC BMW Brilliance DongFeng Changan Auto SAIC FAW VW Market Total

1-21 Oct ADS YoY

2016 YTD sales YoY

138% 11% 23% 29% 9% 10% 41% 31% 32% 24%

35% 18% 17% 31% 5% 11% 10% 9% 17% 14%

Source: CAM, Daiwa forecasts Note :*ADS= Average Daily Sales

Beijing Hyundai: New Verna

Source: Company

2016E YoY 42% 11% 13% 20% 8% 6% 10%

China Autos – PV Weekly Monitor: 26 October 2016

Brand-by-brand performance Geely Geely’s average daily sales grew by 138% YoY during 1-21 October, thanks to robust SUV sales and resilient Sedan sales

Geely booked strong sales, achieving average daily sales growth of 138% YoY for 1-21 October, thanks to the strong performance of its SUV models. Combined sales of the Geely Boyue, Emgrand GS and Vision SUV amounted to 12,410 units for the same period, accounting for around 38% of the company’s total sales volume. The Geely Boyue, Emgrand GS and Vision SUV registered sales of 8,818 units, 5,971 units and 6,939 units, respectively. Geely’s sedan business also recorded strong sales during the same period, booking average daily sales growth of 62% YoY vs.14% YoY growth seen in September. The Vision and EC7 sedans collectively recorded a total sales volume of 25,229 units with average daily sales growth of 46%YoY during the period, accounting for 70% of the company’s total sedan sales in China. The new model, Emgrand GL sedan, contributed to the incremental sedan sales by recording sales of 4,369 units for 1-21 October. We anticipate the upward trend in Geely’s sales volume to continue for the rest of 2016 as we factor in the anticipated ramp-up of sales of the Boyue SUV and the Emgrand GS SUV, driven by capacity expansion at the company’s Baoji and Shanxi plants and also from the likely incremental contribution from its new models (the Vision SUV and Emgrand GL sedan). However, Geely’s share price has already rallied strongly YTD in 2016 (up by 80%) and we remain concerned over the auto sector outlook for 2017 (see our recent downgrade, Geely: We remain positive in the long term , published on 11 October 2016).

BMW Brilliance BMW Brilliance achieved muted sales growth during the period, partly resulting from the weak performance of its 3 Series and 5 Series models

The average daily sales growth for BMW Brilliance came in at 9% YoY for the 1-21 October period, down from 19% YoY for September and 17% YoY for August. Its X1 SUV model remained the major sales driver, achieving average daily sales growth of 70% YoY during the period, up from 63% YoY in September. Average sales volume for the BMW 3 Series sedan declined by 11% YoY, while that for the 5 Series sedan dropped by 7% YoY. From our perspective, the new version of the X1 SUV (launched in May 2016) should support BMW Brilliance’s overall sales growth for the rest of 2016. However, we are a bit concerned about the performance of the 5 Series, which has been the main volume driver for the company in 2016 YTD, as a result of the challenge from the new version of the long-wheelbase Benz E-Class. As we indicated in our recent downgrade (see, Brilliance China: Positives look already priced in, published on 26 August 2016), we believe the market has already factored in positive sentiment for the company’s new model pipeline and its likely earnings recovery in 2017, and as such see limited near-term share-price catalysts.

Dongfeng Motor (DFM) DFM saw sales growth deceleration, due mainly to the relatively weak performance of DF PSA

DFM registered average daily sales growth of 10% YoY for 1-21 October, down from 23% YoY in September but in line with 10% YoY for August. DF Nissan’s average daily sales recorded strong growth of 22% YoY during the period, compared to the 34% YoY for August and 12% YoY for July. Its sedan segment achieved stable average daily sales growth of 8% YoY. On the other hand, its SUV segment remained strong, posting average daily sales growth of 57% YoY during the period, due mainly to strong sales of X-trail SUV and Qashqai SUV. The average daily sales for DF Honda grew mildly by 2% YoY for 1-21 October, down from 41% YoY growth for September and 23% YoY growth for August. The deceleration was

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China Autos – PV Weekly Monitor: 26 October 2016

mainly driven by the sales decline of CR-V (down 42%YoY) and Jade MPV (down 57% YoY), which was offset by the sales growth of CIVIC sedan (up 272%YoY) and Elysion MPV (up 140%YoY) DF PSA’s average daily sales declined by 19% YoY during the period, a continuation of the sales decline trend that we saw in September and August (down 18% YoY and 17% YoY, respectively). We attribute the decline in overall sales mainly to the weak sales of its Peugeot 3008 SUV (down 30% YoY), C3 XR SUV (down 30% YoY) and Peugeot 308 (down 16% YoY). DFM posted average daily sales growth of 85% YoY, up from the 74% YoY growth seen in September and 72% YoY growth in August. AX7 SUV and AX3 SUV remained the key volume drivers during the period, collectively accounting for 75% of DFM’s total sales volume for 1-21 October.

Guangzhou Automobile (GAC) GAC booked solid sales growth during the period, but decelerated compared to the previous two months due to the high base in October 2015

GAC saw steady average daily sales growth of 29% YoY for 1-21 October, but was down from 38% YoY for September and 31% YoY for August, owing to the relative high base in October 2015. GAC Honda’s average daily sales rose strongly by 79% YoY for 1-21 October, benefiting from the robust sales volume of its Fit sedan, Accord sedan and Vezel SUV. They booked average daily sales growth of 301% YoY, 149% YoY and 83% YoY, respectively. GAC Toyota’s average daily sales growth dropped by 20% YoY for 1-21 October, compared to 5% YoY growth registered for September. Its sales decline was mainly driven by average daily sales decline of 19% YoY for the Levin sedan, 32% YoY for the Camry sedan and 27% YoY for Highlander SUV. GAC Motor booked average daily sales growth of 44% YoY for 1-21 October. The main driver, Trumpchi GS4, continued its strong performance and booked average daily sales growth of 51% YoY during the same period. As we pointed out in our recent report (see, GAC: Downgrading: time to take profit, published on 20 July), we expect the sales volume growth of GAC’s Japanese JV to slow in 4Q16, due mainly to intensified competition and the high base effect, while sales of its self-brand models could suffer as well.

BAIC Due to the soft sales growth of BAIC Hyundai, BAIC saw a decline in average daily sales growth compared to previous months

BAIC registered average daily sales growth of 11% YoY for 1-21 October, decelerating from 28% YoY for September and 27% YoY for August. Beijing Motor’s average daily sales achieved 23% YoY growth during the period, down from 77%YoY in September and 78%YoY in August, due mainly to a relatively higher base in October 2015. The SUV segment was the main volume driver, recording total sales of 10,704 units, driven by the sales contribution from the steady performance of the Senova X35 and X25 and the new model BJ20 SUV. Beijing Hyundai’s average daily sales grew only by 1% YoY for 1-21 October, decelerating from 16% YoY for September and 17% YoY for August. Its SUV average daily sales declined by 7% YoY during the period as a result of the high base in October 2015. The average daily sales growth of Tuscon SUV (+104% YoY) was offset by the decline in the sales of the IX25 SUV (down 12% YoY), the IX35 SUV (down 63% YoY) and the Santafe (down 65% YoY). Meanwhile, the average sales volume for its sedan segment achieved soft growth of 5% YoY, down from 16% YoY for September. Beijing Benz’s average daily sales rose by 48% YoY for 1-21 October, up from 21% YoY growth booked in September. The new E Class sedan (launched in late August 2016) recorded strong sales volume of 6,067 units, resulting in average daily sales growth of 3

China Autos – PV Weekly Monitor: 26 October 2016

80% YoY during the period. SUV model sales (combined sales of the GLA Class and GLC Class) remained solid, recording daily average sales growth of 46% YoY over the period. The C Class sedan saw strong average daily sales growth of 31% YoY during the period. As shown in our recent report (see, BAIC: Why we remain contrarian sellers, published on 26 September 2016), we remain cautious on the impact of margin erosion for Beijing Hyundai and Beijing Motor in 2H16, and believe the strong outlook for Beijing Benz for this period has been priced in already.

Great Wall Motor GWM saw sales growth deceleration during 1-21 October, due partly to the high base effect

GWM’s average daily sales volume recorded growth of 23% YoY during 1-21 October, down from the 53% YoY for September and 26% YoY for August. The company’s SUV segment recorded average daily sales growth of 28% YoY for 1-21 October. The main volume driver, Haval H6 SUV, saw average daily sales growth of 29% YoY, lower than the 74% YoY growth for September. The performance of its other SUV models remained steady, namely the Haval H2 (+22%YoY) and Haval H9 (+24%YoY). The new model, Haval H7, booked sales volume of 4,219 units during the period, contributing to the incremental sales. Nevertheless, GWM’s sedan sales remained weak, with average daily sales volume down by 53% YoY.

Changan Changan continued to book solid average daily sales growth for 1-21 October, benefiting from Changan Mazda and Changan Motor

Changan’s average daily sales grew by 41% YoY for 1-21 October, up from 36% YoY for September and 29% YoY for August, supported mainly by the Changan Mazda and Changan Motor. Changan Ford registered average daily sales growth of 24% YoY during the period, down from 48% YoY for September and 34% YoY for August, due partly to the high base in October 2015. The increase was due to solid average daily sales growth for the Edge SUV (+112% YoY) and Escort Sedan (+70% YoY). However, sales volume of the Ecosport SUV and the Mondeo SUV dropped by 22% YoY and 36% YoY, respectively. Changan Mazda recorded average daily sales growth of 38% YoY during the period, down from 45% YoY for September. The Axela sedan remained the major sales volume player, delivering average daily sales growth of 47% YoY during the period while CX-5 SUV also performed well by registering average daily sales growth of 22% YoY. Changan Motor, the self-brand of Changan, registered average daily sales growth of 64% YoY during 1-21 October. Its SUV segment, sedan segment and MPV segment achieved strong growth of 54% YoY, 44% YoY and 153% YoY, respectively.

SAIC SAIC Motor continued to lead sales growth, contributing to SAIC’s overall strong sales volume

SAIC’s average daily sales expanded by 31% YoY for the 1-21 October period. SAIC Motor, the company's proprietary brand, recorded average daily sales growth of 263% YoY for the period, achieving total sales of 29,265 units during the period. The surging sales growth was mainly due to its new model, the Roewe RX5 SUV, which recorded sales volume of 14,272 units, accounting for 49% of SAIC’s total sales volume for 1-21 October. We expect the RX5 SUV to emerge as another competitive model amid the tough domestic SUV market. SAIC VW posted average daily sales growth of 16% YoY. The strong performance was bolstered by an 18% YoY increase in sedan sales. However, the sales volume of its SUV models was flat compared to the corresponding period in 2015, dragging down the overall sales growth.

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China Autos – PV Weekly Monitor: 26 October 2016

SAIC GM’s average daily sales rose by 36% YoY, up from 8% YoY for September and 22% YoY for August, on the rising sales of Excelle GT sedan (+68% YoY), Verano sedan (+189%YoY), Envision SUV (+68%YoY) and Malibu sedan (+89%YoY). China PV sales volume summary: 1-21 October 2016 Geely BAIC - Beijing Brand - Beijing Benz - Beijing Hyundai GWM GAC* - GAC Honda - GAC Toyota - GAC Motor Brilliance BMW DongFeng - DongFeng Nissan - DongFeng Honda - DongFeng PSA - DongFeng Renault - DongFeng Motor - DongFeng Liuzhou Changan Auto - Changan Ford - Changan Mazda - Changan Suzuki - Changan Motor - Jiangling SAIC - SAIC Volkswagen - SAIC GM - SAIC PV - SAIC GM Wuling FAW VW Market Total**

1-21 Oct Sales 57,606 99,277 10,790 22,538 65,949 61,089 77,261 38,304 20,345 18,612 16,329 143,168 70,585 25,616 25,133 2,592 9,141 10,101 160,428 56,846 10,967 6,739 82,976 2,900 352,780 119,646 115,133 29,265 88,736 100,121 1,202,773

Average Daily Sales YoY 138% 11% 23% 48% 1% 23% 29% 79% -20% 44% 9% 10% 22% 2% -19% n.a 85% -9% 41% 24% 38% 5% 64% 3% 31% 16% 36% 263% 19% 32% 24%

2016 YTD Sales 516,647 1,414,669 320,387 249,333 844,949 751,081 1,226,309 476,988 333,607 276,084 212,783 2,047,938 838,165 423,290 433,890 17,058 110,419 225,116 2,012,098 714,659 146,370 88,691 973,096 77,332 4,494,744 1,545,474 1,397,742 221,407 1,330,121 1,476,203 17,820,125

2016 YTD YoY 35% 18% 49% 30% 6% 17% 31% 18% 4% 115% 5% 11% 15% 42% -19% n.a 49% 7% 10% 10% 24% -7% 8% 85% 9% 9% 11% 87% -1% 17% 14%

Daiwa forecast, 2016E YoY 42.0% (incl. domestic and export) 11.3% 25.5% 27.2% 3.1% 12.5% (incl. domestic and export) 20.2% (incl. all JVs) 6.9% 3.7% 62.2% 8.1% 5.8% (PV only, incl all JVs) 5.8% (incl. Infiniti) 6.2% 0.3% 9.0% 5.3% 9.7%

Source: CAM, Daiwa forecasts Note: * indicates that the weekly number may not reconcile with the monthly number due to a difference in the panel coverage between the weekly and monthly data; GAC total sales volume accounts only for its 4 major brands, instead of all brands, which booked YoY sales growth of 45% ** China PV market sales is based on CAM data and is adjusted by us by excluding the minivan sales due to the instability of its data

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China Autos – PV Weekly Monitor: 26 October 2016

Selected China auto OEMs: monthly sales YoY growth Geely BYD Great Wall Motor GAC Total GAC Honda GAC Toyota GAC Motor GAC Fiat GAC Mitsubishi BAIC Total BAIC Motor Beijing Benz Automotive Beijing Hyundai Brilliance BMW Dongfeng Motor Group Dongfeng Nissan Dongfeng Infiniti Dongfeng Honda Dongfeng PSA Zhengzhou Nissan Dongfeng Passenger Vehicle Company Dongfeng Liuzhou SAIC Shanghai VW Shanghai GM SAIC Motor Shanghai GM Wuling Changan Changan Ford Changan Mazda Changan Suzuki Changan PSA Changan Jiangling Motor FAW Car Total FAW Car FAW Mazda FAW Xiali Tianjin FAW Xiali FAW Toyota Total

Nov-15 25.9% 5.2% 22.3% 9.4% 5.6% 8.5% 129.2% -38.5% -16.5% 21.0% 19.0% 111.6% 11.2% 17.8% 27.0% 22.6% 137.9% 98.7% 11.7% -16.1% 27.9% 18.1% 31.0% 49.9% 19.8% 35.6% 26.3% 21.6% 29.5% 17.7% -24.3% -64.5% 23.1% 82.9% -25.1% -27.1% -20.8% 13.6% -56.2% 24.6%

Dec-15 10.5% 1.7% 25.1% -4.3% -3.8% -5.9% 34.0% -2.0% 3.5% 30.8% 77.1% 97.3% 10.2% 9.7% 28.8% 37.5% 98.6% 36.3% 19.7% -16.5% -34.1% 39.5% 26.6% 39.8% 8.7% 9.7% 41.8% 20.9% 34.5% -3.7% -18.9% -42.1% 14.9% 114.1% -13.9% -13.9% -13.9% -6.8% -39.3% -3.8%

Jan-16 2.0% 2.9% 3.4% 41.3% 25.0% 36.3% 200.8% 191.7% -73.3% -4.6% 37.9% 52.3% -27.2% -7.2% 9.5% 1.5% 98.3% 70.9% -12.0% 1.6% 36.9% 14.3% 9.8% 1.3% 6.6% 96.2% 17.4% 5.0% 16.2% 19.0% -19.0% 42.6% -4.3% 116.2% -31.1% -36.1% -15.7% 38.1% -76.9% 76.0%

Feb-16 0.5% -50.5% 17.4% 22.8% 20.0% -7.1% 115.5% 263.3% -57.3% -12.5% 16.8% 40.4% -28.1% -30.7% 3.9% -6.4% 50.8% 81.3% -23.0% 10.1% 11.4% 21.6% -8.2% -14.8% -10.8% 43.9% -1.7% 0.3% 5.3% 4.6% -13.0% -15.8% -4.9% 79.5% -42.3% -40.0% -46.2% 10.0% -69.4% 23.7%

Mar-16 1.2% -11.3% 4.0% 40.9% 32.4% 24.4% 179.1% 178.9% -56.3% 1.4% -4.2% 33.8% -2.0% 11.9% 9.3% 28.9% 23.9% 38.7% -21.8% -31.0% 9.1% -6.1% 6.7% 16.5% -4.4% 69.1% 3.2% 10.7% 20.6% 38.4% -19.9% 18.7% -0.3% 145.7% -23.9% -22.2% -27.0% 23.1% -69.6% 36.1%

Apr-16 11.9% 10.5% 3.1% 21.3% 1.4% -2.8% 226.6% 235.4% -35.6% 13.2% 18.5% 42.2% 6.7% 5.1% -0.3% 2.7% -76.9% 56.6% -22.4% -63.4% 13.1% -14.6% 6.0% 3.7% 16.7% 53.5% -3.1% -4.0% -16.3% 2.4% -11.6% -38.7% 2.1% 107.9% -37.8% -27.2% -56.3% -4.9% -69.6% 3.8%

May-16 17.6% 12.2% 10.0% 21.7% 2.1% 4.7% 181.9% 238.8% -37.2% 31.3% 36.6% 53.0% 25.4% 15.5% 4.0% 11.2% -0.5% 38.0% -22.1% -52.8% 22.5% -6.4% 7.0% 3.7% 14.6% 44.1% -0.5% -4.9% -17.3% 54.7% -15.2% -45.8% -5.1% 97.0% -47.4% -38.6% -61.5% 0.1% -64.1% 6.3%

Jun-16 37.2% 10.4% 31.5% 20.2% 3.5% -7.7% 121.1% 658.9% 21.4% 74.2% 212.8% 19.2% 61.6% 13.1% 12.0% 16.9% 4.6% 26.7% -12.4% -42.1% 74.0% 4.5% 5.6% 11.2% 5.8% 55.0% -5.6% -1.8% -20.8% 9.4% 3.5% -43.8% 9.9% 121.4% -19.3% -46.1% 13.7% -10.4% -54.0% -7.4%

Jul-16 62.4% 48.6% 46.6% 30.8% 20.9% -2.3% 120.0% 405.5% -60.6% 35.1% 106.3% 4.7% 29.3% 18.6% 26.7% 19.6% 5.2% 79.0% -7.6% 21.4% 107.8% 0.1% 23.6% 32.4% 37.4% 65.6% -1.4% 16.6% 27.5% 2.3% 13.8% -62.5% 9.3% 88.1% -30.1% -60.8% -0.8% -20.3% -63.2% -18.2%

Aug-16 64.2% 53.7% 26.1% 31.2% 17.0% 1.0% 87.6% 468.1% 49.3% 26.5% 77.5% 20.1% 16.9% 17.0% 10.3% 12.5% 5.7% 23.2% -16.6% -12.8% 71.7% 21.7% 6.4% 16.9% 21.8% 100.8% -29.0% 28.7% 34.1% 45.1% 12.1% -34.8% 22.9% 60.5% 21.9% -9.2% 69.8% 72.5% -47.8% 84.1%

Sep-16 80.2% 31.0% 52.7% 38.2% 21.8% 21.0% 69.2% 549.1% 45.7% 27.9% 76.5% 20.6% 15.6% 19.0% 23.3% 33.8% -6.7% 40.5% -18.1% 7.6% 73.5% 36.2% 15.2% 22.4% 8.4% 120.7% 3.6% 35.8% 47.7% 45.4% 22.9% -33.9% 28.2% 44.9% 2.7% -23.5% 55.2% -5.0% -25.6% -3.5%

23.6%

20.1%

9.3%

-2.0%

9.3%

6.5%

10.8%

17.7%

26.5%

22.9%

28.1%

Source: CAM, compiled by Daiwa

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China Autos – PV Weekly Monitor: 26 October 2016

China PV: 4S shops’ pricing of representative models Brand Geely

Key Model (mid-spec) Sep-2015 Oct-2015 Nov-2015 Dec-2015 Jan-2016 Feb-2016 Mar-2016 Apr-2016 May-2016 Jun-2016 Jul-2016 Aug-2016 Sep-2016 EC7 (1.5 MT) 67,800 67,775 67,750 67,210 68,110 67,725 66,665 66,040 65,940 65,280 64,575 64,160 64,050 MoM 0.0% 0.0% -0.1% -0.8% 0.5% 0.8% -2.1% -2.5% -1.1% -1.2% -2.1% -1.7% -0.8% YoY on a like-for-like basis -9.7% -7.3% -7.3% -7.9% -5.0% -5.3% -6.5% -7.6% -7.6% -8.3% -7.8% -6.5% -5.5% GWM H6 (1.5T MT 4WD) 114,200 114,075 114,075 114,150 114,200 114,250 109,800 109,800 108,175 106,575 106,600 106,125 105,900 MoM 0.1% -0.1% 0.0% 0.1% 0.0% 0.0% -3.9% 0.0% -1.5% -1.5% 0.0% -0.4% -0.2% YoY on a like-for-like basis -6.2% -3.1% -3.1% -3.0% -2.9% -2.9% -6.6% -6.6% -7.4% -7.5% -6.4% -7.0% -7.3% Beijing Benz C-class (C200L) 332,050 331,540 331,040 327,380 328,130 325,760 323,490 320,970 318,430 317,050 316,400 317,200 317,150 MoM -0.2% -0.2% -0.2% -1.1% 0.2% -0.7% -0.7% -0.8% -0.8% -0.4% -0.2% 0.3% 0.0% YoY on a like-for-like basis -7.5% -5.8% -4.0% -4.8% -4.3% -5.0% -6.1% -6.1% -7.2% -7.2% -6.1% -4.7% -4.5% Beijing Benz E-class (E260L) 450,050 449,800 449,500 447,200 444,200 440,450 436,300 435,250 433,900 433,500 433,500 432,700 499,800 MoM -1.2% -0.1% -0.1% -0.5% -0.7% -0.8% -0.9% -0.2% -0.3% -0.1% 0.0% -0.2% 15.5% YoY on a like-for-like basis -3.0% 0.1% -0.1% -1.6% -3.4% -4.7% -6.4% -6.1% -6.1% -6.1% -5.7% -5.0% 11.1% Beijing Hyundai Sonata (1.6T DLX ver.) 199,800 197,800 192,600 190,200 191,600 192,050 191,850 191,500 191,250 190,800 189,900 189,000 188,825 MoM -0.8% -1.0% -2.6% -1.2% 0.7% 0.2% -0.1% -0.2% -0.1% -0.2% -0.5% -0.5% -0.1% YoY on a like-for-like basis 23.3% 22.1% 19.1% 17.8% 17.3% 17.8% -11.9% -11.5% -10.8% -8.2% -7.9% -6.2% -5.5% Beijing Hyundai ix35 (2.0 GLX 2WD) 179,600 176,750 175,250 174,200 174,050 174,100 173,550 173,350 172,630 170,185 167,375 165,525 165,275 MoM -0.6% -1.6% -0.8% -0.6% -0.1% 0.0% -0.3% -0.1% -0.4% -1.4% -1.7% -1.1% -0.2% YoY on a like-for-like basis -2.0% -3.0% -3.4% -3.8% -4.2% -8.6% -8.8% -7.5% -6.3% -7.2% -7.9% -8.4% -8.0% GAC Honda Accord (2.4 CVT EX) 199,900 199,700 199,400 199,100 202,150 204,050 203,800 217,950 213,150 210,985 209,570 208,795 208,520 MoM 0.0% -0.1% -0.2% -0.2% 1.5% 0.9% -0.1% 6.9% -2.2% -1.0% -0.7% -0.4% -0.1% YoY on a like-for-like basis -3.7% -3.1% -2.1% -1.5% -0.2% 0.4% 0.7% 6.0% 4.8% 4.9% 4.5% 4.4% 4.3% GAC Honda Odyssey (2.4 CVT) 253,300 252,550 251,850 251,600 251,450 251,150 250,700 249,400 248,900 248,335 247,595 247,345 247,120 MoM -0.2% -0.3% -0.3% -0.1% -0.1% -0.1% -0.2% -0.5% -0.2% -0.2% -0.3% -0.1% -0.1% YoY on a like-for-like basis -4.6% -4.8% -4.8% -4.7% -4.8% -4.8% -4.7% -4.7% -3.7% -3.5% -4.0% -2.5% -2.4% GAC Honda City (1.5 AT) 89,650 87,275 86,050 85,000 84,550 84,550 83,150 82,350 82,300 81,785 81,420 81,420 81,420 MoM 4.4% -2.6% -1.4% -1.2% -0.5% 0.0% -1.7% -1.0% -0.1% -0.6% -0.4% 0.0% 0.0% YoY on a like-for-like basis -6.0% -7.6% -8.5% -8.8% -9.4% -9.5% -8.8% -9.0% -8.5% -7.8% -6.6% -5.2% -9.2% GAC Toyota Camry (2.5 luxury version) 189,420 188,320 188,120 190,160 192,000 191,875 191,600 190,900 190,300 190,300 190,250 191,650 191,400 MoM -0.6% -0.6% -0.1% 1.1% 1.0% -0.1% -0.1% -0.4% -0.3% 0.0% 0.0% 0.7% -0.1% YoY on a like-for-like basis 7.0% 7.0% 6.1% 7.2% -9.4% -7.6% -6.3% -4.5% -2.5% -1.7% -0.5% 0.5% 1.0% GAC Toyota Highlander 379,800 379,800 379,800 379,800 379,800 379,800 379,800 379,800 379,800 379,800 379,800 379,800 379,800 (3.5 AT 4WD luxury version) MoM 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% YoY on a like-for-like basis 6.4% 6.9% 7.3% 7.4% 7.4% 7.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Brilliance BMW 3-Series (320 Li) 281,950 301,940 295,700 289,950 290,000 289,700 287,150 285,600 282,500 281,200 281,250 282,200 283,200 MoM -1.2% 7.1% -2.1% -1.9% 0.0% -0.1% -0.9% -0.5% -1.1% -0.5% 0.0% 0.3% 0.4% YoY on a like-for-like basis -8.2% -0.1% -7.3% -5.6% -5.6% -6.7% -6.6% -5.8% -5.8% -4.5% -2.4% -1.1% 0.4% Brilliance BMW 5-Series (525 Li) 385,050 383,500 380,800 378,850 383,800 384,100 382,800 381,850 380,050 377,950 406,230 376,950 375,900 MoM -0.8% -0.4% -0.7% -0.5% 1.3% 0.1% -0.3% -0.2% -0.5% -0.6% 7.5% -7.2% -0.3% YoY on a like-for-like basis -6.9% -6.1% -6.7% -7.3% -6.2% -6.5% -6.8% -6.2% -6.2% -5.6% 3.5% -2.9% -2.4% Source: CAM

7

China Autos – PV Weekly Monitor: 26 October 2016

Global auto manufacturers: valuation comparison Name China H-share listed Geely Automobile Holdings Lt BYD Co Ltd-H Brilliance China Automotive Dongfeng Motor Grp Co Ltd-H Great Wall Motor Company-H Guangzhou Automobile Group-H BAIC Motor Corp Ltd-H China A-share listed Byd Co Ltd -A Guangzhou Automobile Group-A Great Wall Motor Co Ltd-A Saic Motor Corp Ltd-A Chongqing Changan Automobi-B Faw Car Company Limited-A Anhui Jianghuai Auto Co-A Jiangsu Yueda Investment C-A Tianjin Faw Xiali Automobi-A Lifan Industry Group Co Lt-A Haima Automobile Group Co-A Shenyang Jinbei Automotive-A US Tesla Motors Inc Ford Motor Co General Motors Co Europe Daimler Ag-Registered Shares Bayerische Motoren Werke AG Volkswagen AG Fiat Chrysler Automobiles NV Peugeot SA Renault SA Japan Honda Motor Co Ltd Nissan Motor Co Ltd Toyota Motor Corp Korea Hyundai Motor Co Kia Motors Corp India Tata Motors Ltd Mahindra & Mahindra Ltd Total

EV/EBITDA(x) FY16E FY17E

Div yield (%) FY16E FY17E

ROE (%) FY16E FY17E

175 HK 1211 HK 1114 HK 489 HK 2333 HK 2238 HK 1958 HK

HKD HKD HKD HKD HKD HKD HKD

8.09 51.95 9.56 8.18 8.99 10.80 7.98

Outperform Buy Hold Outperform Hold Sell Sell

14.0 23.3 12.0 5.1 9.9 10.7 13.3

9.1 19.5 9.7 4.9 9.7 9.9 11.7

2.6 2.4 1.8 0.6 1.7 1.4 1.4

2.1 2.1 1.6 0.6 1.5 1.3 1.3

7.0 10.3 n.a. 6.6 6.6 14.2 5.5

4.1 9.0 n.a. 4.8 6.3 11.7 3.8

0.9 n.a. 1.0 2.9 3.1 3.0 2.6

1.4 n.a. 1.2 3.1 3.2 3.3 2.9

20.4 11.9 16.2 13.3 17.6 13.8 10.8

25.2 10.9 17.4 12.5 16.1 13.6 11.5

002594 CH 601238 CH 601633 CH 600104 CH 200625 CH 000800 CH 600418 CH 600805 CH 000927 CH 601777 CH 000572 CH 600609 CH

CNY CNY CNY CNY HKD CNY CNY CNY CNY CNY CNY CNY

57.35 22.44 11.28 22.58 12.59 11.87 13.57 8.81 5.50 9.65 5.19 6.56

NR NR NR NR NR NR NR NR NR NR NR NR

29.9 17.7 11.0 7.9 4.5 349.1 19.3 n.a. n.a. 14.4 n.a. n.a.

25.3 15.2 10.1 7.5 4.3 516.1 15.9 n.a. n.a. 11.2 n.a. n.a.

3.2 3.2 2.3 1.3 1.2 2.2 1.9 n.a. n.a. n.a. n.a. n.a.

2.9 2.8 2.0 1.2 1.0 2.1 1.8 n.a. n.a. n.a. n.a. n.a.

15.2 19.1 7.1 9.6 28.8 24.3 16.1 n.a. n.a. n.a. n.a. n.a.

13.3 14.5 6.6 8.4 12.6 19.8 14.7 n.a. n.a. n.a. n.a. n.a.

0.0 0.0 0.0 0.1 0.1 n.a. 0.0 n.a. n.a. n.a. n.a. n.a.

0.0 0.0 0.0 0.1 0.1 n.a. 0.0 n.a. n.a. n.a. n.a. n.a.

12.0 17.2 22.4 17.1 29.2 3.8 10.8 n.a. n.a. n.a. n.a. n.a.

12.6 18.1 20.5 16.7 26.0 3.6 12.2 n.a. n.a. n.a. n.a. n.a.

TSLA US F US GM US

USD USD USD

193.96 NR 11.88 Underperform 31.56 Hold

n.a. 6.6 5.4

126.0 6.9 5.5

10.8 1.5 1.1

10.4 1.3 0.9

50.7 2.5 2.4

21.4 2.7 2.4

n.a. 0.1 0.0

n.a. 0.1 0.0

n.a 23.6 20.7

4.0 19.8 17.9

DAI GR BMW GR VoW GR FCA IM UG FP RNO FP

EUR EUR EUR EUR EUR EUR

64.42 76.79 131.60 5.76 13.28 76.63

NR NR NR NR NR NR

8.0 7.8 8.1 4.0 6.5 6.4

7.6 7.8 6.3 3.3 6.3 5.8

1.2 1.1 0.7 0.5 1.0 0.7

1.1 1.0 0.7 0.4 0.8 0.6

2.7 6.4 1.4 1.3 1.3 3.4

2.5 6.5 1.2 1.2 1.3 3.2

0.1 0.0 0.0 n.a. 0.0 0.0

0.1 0.0 0.0 0.0 0.0 0.0

15.6 14.6 9.8 12.4 14.7 11.3

15.1 13.3 11.2 14.3 14.3 11.8

*, ** 7267 JP *, ** 7201 JP *, ** 7203 JP

JPY JPY JPY

3089.00 999.30 5990.00

Hold Hold Outperform

10.2 7.5 8.0

11.3 7.6 11.0

0.8 0.8 1.0

0.8 0.8 1.0

6.4 2.5 8.1

7.1 2.6 11.1

0.0 0.0 0.0

0.0 0.0 0.0

7.7 11.2 13.4

7.4 11.1 9.6

* *

005380 KS 000270 KS

KRW KRW

134500.00 41650.00

Buy Outperform

6.4 5.9

5.6 5.6

0.4 0.6

0.4 0.6

4.7 3.3

4.0 3.0

3.4 2.9

3.9 3.1

8.7 11.2

9.2 10.7

** **

TTMT IN INR MM IN INR Weighted average High Low Median

15.8 23.2 10.1 349.1 4.0 8.1

11.8 18.4 14.4 516.1 3.3 9.4

2.5 2.9 1.5 10.8 0.4 1.3

2.0 2.6 1.4 10.4 0.4 1.2

n.a. 13.8 7.5 50.7 1.3 6.6

n.a. 11.1 6.7 21.4 1.2 6.5

0.0 0.0 0.3 3.4 0.0 0.0

0.0 0.0 0.3 3.9 0.0 0.0

16.4 12.4 13.7 29.2 3.8 13.6

17.5 13.9 12.7 26.0 3.6 13.6

* *

554.25 1333.35

Rating

PBR (x) FY16E FY17E

Trading Currency

* * * * * * *

Share price 18-Oct-16

PER (x) FY16E FY17E

Bloomberg Code

NR NR

Source: Bloomberg, *Daiwa forecasts Note: **March year-end Pricing as at 26-Oct-2016, except for US and European stocks (25-Oct-2016)

8

China Autos – PV Weekly Monitor: 26 October 2016

Daiwa’s Asia Pacific Research Directory HONG KONG

SOUTH KOREA

Takashi FUJIKURA (852) 2848 4051 Regional Research Head

[email protected]

Jiro IOKIBE (852) 2773 8702 Co-head of Asia Pacific Research

[email protected]

Sung Yop CHUNG (82) 2 787 9157 [email protected] Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel

John HETHERINGTON (852) 2773 8787 Co-head of Asia Pacific Research

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Mike OH (82) 2 787 9179 [email protected] Banking; Capital Goods (Construction and Machinery) Iris PARK Consumer/Retail

Rohan DALZIELL (852) 2848 4938 [email protected] Regional Head of Asia Pacific Product Management

[email protected]

SK KIM (82) 2 787 9173 [email protected] IT/Electronics – Semiconductor/Display and Tech Hardware

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(82) 2 787 9165

Thomas Y KWON (82) 2 787 9181 [email protected] Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Games

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Kevin JIN Small/Mid Cap

Kelvin LAU (852) 2848 4467 [email protected] Head of Automobiles; Transportation and Industrial (Hong Kong/China)

(82) 2 787 9168

[email protected]

TAIWAN

Brian LAM (852) 2532 4341 [email protected] Auto Components; Transportation – Railway; Construction and Engineering (China) Leon QI (852) 2532 4381 [email protected] Banking; Diversified financials; Insurance (Hong Kong/China)

Rick HSU (886) 2 8758 6261 [email protected] Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design (Regional)

Yan LI Banking (China)

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Christie CHIEN (886) 2 8758 6257 [email protected] Banking; Insurance (Taiwan); Macro Economics (Regional)

Anson CHAN (852) 2532 4350 Consumer (Hong Kong/China)

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Steven TSENG (886) 2 8758 6252 IT/Technology Hardware (PC Hardware)

Adrian CHAN (852) 2848 4427 Consumer (Hong Kong/China)

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Kylie HUANG (886) 2 8758 6248 [email protected] IT/Technology Hardware (Handsets and Components)

Jamie SOO (852) 2773 8529 Gaming and Leisure (Hong Kong/China)

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Helen CHIEN Small/Mid Cap

(852) 2773 8822

John CHOI (852) 2773 8730 [email protected] Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap Carlton LAI (852) 2532 4349 Small/Mid Cap (Hong Kong/China)

(886) 2 8758 6254

[email protected]

[email protected]

INDIA Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Head of India Research; Strategy; Banking/Finance

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Dennis IP (852) 2848 4068 [email protected] Power; Utilities; Renewables and Environment (Hong Kong/China)

Saurabh MEHTA Capital Goods; Utilities

Jonas KAN (852) 2848 4439 Head of Hong Kong and China Property

[email protected] SINGAPORE

Cynthia CHAN Property (China)

(852) 2773 8243

[email protected]

Ramakrishna MARUVADA (65) 6499 6543 [email protected] Head of Singapore Research; Telecommunications (China/ASEAN/India)

Thomas HO Custom Products Group

(852) 2773 8716

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David LUM (65) 6329 2102 Banking; Property and REITs

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Royston TAN (65) 6321 3086 Oil and Gas; Capital Goods

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PHILIPPINES Patricia TAMASE Banking

(63) 2 797 3024

(91) 22 6622 1009

[email protected]

Shane GOH (65) 64996546 [email protected] Property and REITs; Small/Mid Cap (Singapore)

[email protected]

Jame OSMAN (65) 6321 3092 [email protected] Transportation – Road and Rail; Pharmaceuticals and Healthcare; Consumer (Singapore)

9

China Autos – PV Weekly Monitor: 26 October 2016

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10

China Autos – PV Weekly Monitor: 26 October 2016

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Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE links at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively. Thailand This research is distributed to only institutional investors in Thailand primarily by Thanachart Securities Public Company Limited (“TNS”). This report is prepared by analysts who are employed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates. This report is provided to you for informational purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities. Neither Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees accept any liability whatsoever for any direct or consequential loss arising from any use of this research or its contents. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable. However, Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in this report shall be at the sole discretion and risk of the user. Daiwa Securities Group Inc. and/or its non-U.S. affiliates perform and seek to perform business with companies covered in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates, their respective directors, officers, servants and employees may have positions and financial interest in securities mentioned in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this research. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this research. United Kingdom This research report is produced by Daiwa Securities Co. Ltd. and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange and Eurex. This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

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China Autos – PV Weekly Monitor: 26 October 2016

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory. Germany This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany. Bahrain This research material is distributed in Bahrain by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113 United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (Tel no. 212-612-7000). Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationships For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. DCMA Market Making For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months. Disclosure of investment ratings Rating Percentage of total Buy* 64.0% Hold** 21.2% Sell*** 14.8% Source: Daiwa Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 September 2016. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items.  In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction.  In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan.  For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.  There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.  There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.  Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc. When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association

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