Solid 1Q17 Online Game Revenue Contribution from Honor of Kings, Buy 2017 年第 1 季度在线游戏收入由王者荣耀驱动, 买入

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1 Internet Sector Equity Research 股票研究 Company Report: Ricky Lai 黎柏坚 公司报告 : 腾讯控股 (00700 HK) ricky.lai@gtjas.com.hk 公司报告证券研究报告互联网行业 Equity Research Report Company Report Solid 1Q17 Online Game Revenue Contribution from Honor of Kings, Buy 2017 年第 1 季度在线游戏收入由王者荣耀驱动, 买入 We expect Tencent to show decent growth in 1Q17, with an estimated growth of 39% yoy in net profit amid lower gross profit margin. Although gross profit margin will be affected by higher contributions from mobile platforms and content costs for their video platform, Tencent can maintain strong earnings growth, supported by its popular mobile applications platform. Honor of Kings has ranked first in China s ios online game chart and has achieved a record for the highest MAUs for the Company. We revise up FY17-FY18 online game revenue by 4.5%/ 6.1%, respectively, driven by the Company s successful game pipeline strategy, with games from self-developed titles, licensed game titles and investee companies. Honour of Kings surpassed the previous highest recorded DAU with 50 million DAU, which should help Tencent to consolidate its leading position in the sector. In April 2017, Tencent acquired a minority interest in Kingsoft s (03888 HK) subsidiary, Seasun, to improve its game portfolio. We cut FY17-FY18 online advertising revenue by 1.2%/ 2.1%, respectively, due to the brand advertising business, which is expected to be affected by a cannibalization effect from performance-based advertising and subscription services. Increased paying content users and limited smartphone display space will likely limit growth of pre-roll and in-feed advertising revenue. Maintain the investment rating of Buy and lift the TP from HK$ to HK$ We revise up FY17-FY18 EPS by 6.4%/ 8.1%, respectively. The new TP implies 42.6x FT17 PER, 35.3x FY18 PER and 31.3x FY19 PER. 腾讯有望在 2017 年第 1 季度显示出 39% 的良好净利润同比增长 即使毛利率将受移动平 台和视频平台的内容成本增加的影响, 腾讯可通过流行手游来支持盈利增长 王者荣耀在中国 ios 网络游戏榜上排名第一及达公司月度活跃用户数的历史新高 我们分 别上调 年在线游戏收入预测 4.5%/ 6.1%, 是由于采取自主开发的游戏 授权 游戏和投资公司的成功策略 王者荣耀超过了有纪录的 5 千万的日活跃用户数, 将可巩固 其在行业中领导地位 2017 年 4 月腾讯收购金山软件 (03888 HK) 的附属公司西山居的少 数股权, 以提高其游戏产品的组合 分别下调 年在线广告收入预测 1.2%/ 2.1%, 是由于品牌广告业务受按表现广 告和订阅服务的替代效应所影响 更多付费内容用户和有限的手机显示空间将限制预滚和 植入广告的收入增长 维持公司的投资评级为 买入 及目标价从 港元上调至 港元 我们分别上 调 年每股盈利预测 6.4%/ 8.1% 新目标价相当于 42.6 倍 2017 年市盈率 35.3 倍 2018 年市盈率及 31.3 倍 2019 年市盈率 Rating: Buy Maintained 评级 : 买入 ( 维持 ) 6-18m TP 目标价 : HK$ Revised from 原目标价 : HK$ Share price 股价 : Stock performance 股价表现 % of return HK$ (10) May-16 Jul-16 Oct-16 Jan-17 Apr-17 Change in Share Price 股价变动 HSI Index 1 M 1 个月 Tencent 3 M 3 个月 1 Y 1 年 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International. 腾讯控股 Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每股净利 每股净利变动 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 2015A 102,863 28, A 151,938 41, F 215,229 56, F 275,199 67, F 333,936 77, Shares in issue (m) 总股数 (m) 9,477.3 Major shareholder 大股东 Naspers Ltd 34.0% Market cap. (HK$ m) 市值 (HK$ m) 2,354,161.3 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 16,318.0 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Net cash 52 Weeks high/low (HK$) 52 周高 / 低 / FY16-19 PEG (x) 1.6 Source: the Company, Guotai Junan International. See the last page for disclaimer Page 1 of 9

2 We revise up FY17-FY18 online game revenue by 4.5%/ 6.1%, respectively. Online game revenue was RMB70.8 billion (up 25% yoy) in FY16, which was 2.0% better than expected, driven by strong demand for PVP and RPG mobile games. Tencent s PVP game titles include Honour of Kings and Freestyle Basketball. Tencent has recenty launched some popular RPG game titles which include JX Mobile, Fantasy Zhu Xian Mobile, and Dragon Nest Mobile and RPG games which include Fantasy Zhu Xian Mobile, JX Mobile, ZhengTu Mobile and Legend of YuLong Mobile. Tencent has introduced a number of popular self-developed game titles such as Honour of Kings, Legend of YuLong Mobile and Naruto Mobile, which signaled the Company s strong developing ability in online games. Honour of Kings has become China s most popular mobile game and has surpassed Tencent s previous DAU record, reaching 50 million DAU in Tencent can enjoy better profit margin through its self-developed game titles compared to licensed game titles. There are three major drivers for Tencent s online game business which include (1) self-developed games, (2) licensed games and (3) investments such as Supercell and Paradox. Tencent is shifting its focus from casual gamers to the mid-core and hard-core segments. The management expects that there will be no significant impact to the Company s online game business if its Korean games titles are banned because Tencent has a large game inventory to fuel revenue growth. Tencent is expected to leverage its advantage in the online game segment in 2017 through its investments and partnerships. Tencent has a number of mobile games ranked within China s top 10 ios Online Grossing Games list, which includes Honor of Kings, JX Mobile, Fantasy Zhu Xian Mobile and Dragon Nest Mobile. Tencent will launch a number of popular game titles such as NBA, Contra, TLBB, etc. In April 2017, Tencent acquired a 4.3% stake in Kingsoft s (03888 HK) subsidiary game title, Seasun, for a consideration of USD62.6 million. We expect the introduction of more variety game genres; titles can help to improve Tencent s game portfolio and attract new game players. With the present popular game titles and the new game pipeline in 2017, we revise up FY17-FY18 online game revenue by 4.5%/ 6.1%, respectively. Figure-1: Tencent s Quarterly Online Game Revenue and YoY Growth Figure-2: Tencent s Annual Online Game Revenue and YoY Growth RMB(Million) 19,000 16, % 15,971.0 Online game revenue (LHS) 17, , % 28.3% YoY growth (RHS) 18, , % 40% 20% RMB (Billion) Online game revenue (LHS) % 25.2% % % YoY growth (RHS) 30% % 18.7% 13, % 40 10% 20 10,000 4Q15 1Q16 2Q16 3Q16 4Q16 0% 0 FY15A FY16A FY17F FY18F FY19F 0% Source: the Company. Source: the Company, Guotai Junan International. Table-1: China s ios Top 10 Online Grossing Games Chart in April 2017 Ranking Grossing Games Developers 1 Honor of Kings ( 王者荣耀 ) Tencent 2 Onmyouji ( 阴阳师 ) Netease 3 Fantasy Westward Journey ( 梦幻西游 ) Netease 4 Dragon Nest ( 龙之谷 ) Tencent 5 We Fly ( 全民飞机大战 ) Tencent 6 Yulang Online( 热血江湖 ) Mgame 7 Yong Zhe Da Zuo Zhan ( 勇者大作战 ) Hoolai Games 8 New Ghost( 新倩女幽魂 ) Netease 9 Cross Fire ( 穿越火线 ) Tencent 10 Beng Huai3 ( 崩坏 3) mihoyo Source: App Annie. See the last page for disclaimer Page 2 of 9

3 Table-2: Tencent s Online Game Pipeline in 2017 English Name Chinese Name Charging Model Developers PC Games Lost Saga 王牌对决 2D MMOG Licensed Master of Meteor Blades 新流星搜剑录 MMORPG Licensed Path of Exile 流放之路 3D Action RPG Licensed Mobile Games Stone Age 石器时代 RPG Licensed DnF Mobile (2D) 地下城与勇士 TBC Licensed Contra Mobile 魂斗罗 TPS Licensed Legacy TLBB 3D 天龙八部 RPG Licensed The Legend of Sword and Fairy 仙剑奇侠传 online RPG Licensed DDTank Mobile 弹弹堂 Action Licensed Lineage II Revolution 天堂 II: 革命 Action Licensed Xuan Yuan Mobile 轩辕剑手游 RPG Licensed Source: the Company. We revise up FY17-FY18 social networks revenue by 9.5%/ 12.3%, respectively. The growth rate of social networks revenue improved by 23.7 ppt yoy to 53.5% in FY16, driven by better sales of virtual items and content subscription services contribution. We have noticed that, starting in 3Q16, users have been more willing to pay for subscription services for content in order to skip in-feed and pre-roll video advertising. We think that subscription services will continuously cannibalize brand advertising business, with better content, an easy payment system and increasing IP awareness in China. In the coming years, Tencent will be injecting new services such as WeSing (Karaoke app) to improve its large portfolio of content services ranging from online music streaming, video, literature, news and sports channels. With more diversified services and quality content, users are more willing to pay for IP content. We expect Tencent s subscription services to benefit from the top five categories of customers from the brand advertising business, which includes sectors such as e-commerce, automobiles, food and beverage, personal care, and consumer electronics. YingYongBao and app stores have also been doing well in recent years with the introduction of more applications and benefitting from traffic from Tencent s other platforms. We revise up FY17-FY18 social networks revenue by 9.5%/ 12.3%, respectively. Due to the revisions in online game and advertising revenue forecasts, we revise up FY17-FY18 VAS revenue by 7.1%/ 9.3%, respectively. Figure-3: Tencent s Quarterly Social Networks Revenue and YoY Growth Figure-4: Tencent s Annual Social Networks Revenue and YoY Growth RMB(Million) 12,000 10, % 8,000 7, ,000 Social networks revenue (LHS) YoY growth (RHS) 60% 56.8% 57.9% 10, , % 8, % 7, % RMB (Billion) % 40 Social Networks Revenue (LHS) 53.5% % YoY Growth (RHS) 60% % 40% 30% 4,000 2, % 4Q15 1Q16 2Q16 3Q16 4Q16 0% -20% % 17.5% FY15A FY16A FY17F FY18F FY19F 20% 10% 0% Source: the Company. Source: the Company, Guotai Junan International. We cut FY17-FY18 online advertising revenue by 1.2%/ 2.1%, respectively. The growth rate of online advertising revenue declined significantly in FY16 to only 54.4%, in line with expectations but lower than the growth rate in FY15 of 110.3% due to the cannibalization effect from subscription services. Performance based advertising revenue surged 81% yoy thanks to See the last page for disclaimer Page 3 of 9

4 stronger contributions from Weixin Moments, news apps and Weixin Official Accounts. Tencent has over 880 million Weixin MAU users which can further propel performance based advertising revenue growth by launching more titles. Short video is expected to be a powerful tool for Tencent to monetize advertising in Weixin Moments because users have adapted to expect pre-roll short videos in news apps and social network platforms. Other players in the social network sector such as Weibo (WB US) also launched a similar strategy for monetization. Performance based advertising is expected to be propelled with Weixin Moments and Weixin Official Accounts in FY17. We revise up FY17-FY18 performance based advertising revenue by 3.4%/ 4.1%, respectively. Compared to performance based advertising business, Tencent s brand advertising business showed lackluster growth in FY16 of 28% due to the cannibalization effect from subscription services and performance-based advertising business. Due to limited viewing space on mobile platforms, Tencent has replaced some brand advertising inventory with performance-based advertising inventory. More and more brand-oriented advertisers have shifted towards performance-based advertising to better deliver their marketing messages to target customers. There has been increasing willingness of users to pay for content services which has resulted in fewer opportunities for pre-roll and mid-roll advertising before video content to reach viewers. We lower FY17-FY18 brand advertising revenue by 2.8%/ 3.1%, respectively. Due to the revisions of performance-based revenue and brand advertising revenue forecasts, we cut FY17-FY18 online advertising revenue by 1.2%/ 2.1%, respectively. Others revenue surged by 263.1% yoy in F16 driven by cloud and payment services. Mobile payment MAU reached over 600 million, contributing to Tencent s extensive O2O services, premium subscription content and cooperation with brands. Tencent s paying users can enjoy well established services and efficient transactions systems such as taxi hailing, food delivery, restaurants, retail and transfers among users. Tencent has teamed up with companies such as Starbucks on a number of well known commercials. Tencent has a good relationship with its cloud platform corporate customers thanks to its leadership in online games, video systems and social network platforms. We expect cloud demand in China to remain robust in 2017 on the back of more O2O services and the trimming of mobile data tariffs by Chinese telecom operators. The lowering of mobile data tariffs is expected to benefit Tencent and its users with lower data access costs. We revise up FY17-FY18 others revenue by 13.5%/ 18.0%, respectively. Profit Revision We revise up FY17-FY18 EPS by 6.4%/ 8.1%, respectively. FY17-FY18 VAS revenue is raised by 7.1%/ 9.3%, respectively, due to revisions in online game and social network revenue estimations. We cut online advertising revenue by 1.2%/ 2.1%, respectively, due to the brand advertising business affected by a cannibalization effect from subscription services business. Others revenue is revised up by 13.5%/ 18.0%, respectively, on the back of higher payment and cloud platform adoption. FY17-FY18 EPS is revised up by 6.4%/ 8.1%, respectively. Table-3: Financial Estimation Revisions OLD RMB (Million) 2017F 2018F 2019F 2017F NEW 2018F 2019F 2017F CHANGE 2018F Total revenue 204, ,406 N.A. 215, , , % 8.6% N.A. -VAS revenue 129, ,358 N.A. 138, , , % 9.3% N.A. -Advertising revenue 37,943 46,104 N.A. 37,488 45,136 51,229 (1.2%) (2.1%) N.A. -Others revenue 34,769 53,844 N.A. 39,463 63,536 85, % 18.0% N.A. Net profit 52,771 62,832 N.A. 56,148 67,921 77, % 8.1% N.A. EPS (RMB) N.A % 8.1% N.A. Source: Guotai Junan International. 2019F Valuation Maintain the investment rating of Buy and revise up the TP from HK$ to HK$ Tencent s leading position in China s online game sector is expected to be consolidated by self-developed game titles, licensed game titles and investee companies. We expect to see more game titles which like Honor of Kings to be well accepted by China s online gamers in The Company is also leveraging its online game advantage by exploring the overseas market through its powerful R&D team and investee companies. With over 880 million Weixin users, we expect that Tencent can continue to fuel its growing momentum in online advertising and games businesses. We lift the TP from HK$ to HK$ The new TP represents 42.6x FT17 PER, 35.3x FY18 PER and 31.3x FY19 PER. See the last page for disclaimer Page 4 of 9

5 Figure-5: Tencent s PE Graph SD 25 Average 20-1 SD 15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Source: Bloomberg. See the last page for disclaimer Page 5 of 9

6 Table-4: Peers Comparison Market PER (x) PBR (x) ROE(%) ROA(%) Company Ticker Currency Price Cap 16A 17F 18F 16A 17F 18F 17F 17F US Online Game Companies Changyou CYOU US USD , Electronic Arts Inc EA US USD , Activision Blizzard Inc ATVI US USD , Netease NTES US USD , Simple Average Weighted Average HK Online Game Companies Tencent HK HKD ,354, Boyaa Interactive Int HK HKD , IGG HK HKD , Netdragon HK HKD ,332 n.a. n.a n.a. n.a. Simple Average Weighted Average Advertising Companies Sohu.Com Inc SOHU US USD ,530 n.a. n.a. n.a n.a. (8.0) Weibo WB US USD , Bitauto Holdings BITA US USD ,001 n.a n.a. n.a. Cheetah Mobile CMCM US USD ,594 n.a n.a. n.a. 58.com WUBA US USD ,922 n.a n.a. n.a. Soufun SFUN US USD ,588 n.a n.a. n.a. Phoenix New Media FENG US USD Sina SINA US USD , Facebook FB US USD , Simple Average Weighted Average E-commerce Companies Alibaba BABA US USD ,667 n.a VIPSHOP VIPS US USD ,179 n.a Jumei JUMEI US USD n.a n.a. n.a. n.a EBay EBAY US USD ,269 n.a JD.com JD US USD , n.a. n.a. AMAZON MZN US USD , Gome Electrical Appliances HK HKD ,741 n.a Simple Average Weighted Average Search Engine Companies Alphabet Inc GOOG US USD , Baidu Inc - Spon Adr BIDU US USD , Simple Average Weighted Average Overall Average Overall Weighted Average Source: Bloomberg. See the last page for disclaimer Page 6 of 9

7 Table-5: Technical Terms Glossary Abbreviation Definitions 定义 IVAS Internet Value-Added Services 互联网増値服务 MVAS Mobile and Telecommunication Value-Added Services 移动及电讯増値服务 VAS Value-Added Services 増値服务 LOL League of Legends 英雄联盟 DNF Dungeon and Fighter 地下城与勇士 ACU Average Concurrent User Accounts 平均同时在线用戸数 PCU Peak Concurrent User Accounts 最高同时在线用戸数 TAC Traffic Acquisition Cost 流量获得成本 ACG Advanced Casual Game 高级休闲游戏 MCG Mini Casual Game 小型休闲游戏 ARPU Average Revenue Per User 平均每月用户收入 DAU Daily Active User Accounts 日活跃用户数 FPS First Person Shooting 第一人称射击游戏 MMO Racing Massive Multiplayer Online Racing 大型多人在线赛车游戏 MMOFPS Massive Multiplayer Online First-Person Shoot 大型多人在线第一人称射击游戏 MMOG Massive Multiplayer Online Game 大型多人在线音乐游戏 MM ORGS Massive Multiplayer Online Role-Playing Game 大型多人在线角色扮演游戏 MMORTS Massive Multiplayer Online Real-Time Strategy 大型多人在线实时战略游戏 SNS Social Network Site 社交网站 Source: the Company. See the last page for disclaimer Page 7 of 9

8 Financial Statements and Ratios Income Statement Balance Sheet Year end Dec, RMB m 2015A 2016A 2017F 2018F 2019F Year end Dec, RMB m 2015A 2016A 2017F 2018F 2019F Total Revenue 102, , , , ,936 PPE 9,973 13,900 24,104 33,151 42,110 VAS 80, , , , ,932 Intangible assets 13,439 36,467 41,937 60,809 85,132 Online advertising 17,468 26,970 37,488 45,136 51,229 Investment in JCE & associates 60,715 70,672 90, , ,703 Others 4,726 17,158 39,463 63,536 85,775 Others 67, , , , ,739 Cost of revenues (41,631) (67,439) (101,588) (134,848) (168,638) Total non-current assets 151, , , , ,684 Gross profit 61,232 84, , , ,298 Accounts receivable 7,061 10,152 11,269 12,508 14,885 Interest Income 2,327 2,619 2,008 2,154 2,530 Other receivables 11,397 14,118 15,671 17,551 20,535 Other gains, net 1,886 3,594 2,550 2,828 3,026 Cash and cash equivalents 43,438 71,902 48,721 60,680 68,769 S&M (7,993) (12,136) (16,573) (20,640) (25,045) Others 93,482 52,982 88,723 95, ,977 G&A (16,825) (22,459) (30,347) (38,253) (46,250) Total current assets 155, , , , ,166 Operating profit 40,627 56,117 71,279 86,440 99,558 Total assets 306, , , , ,850 Finance cost, net (1,618) (1,955) (2,294) (2,943) (4,263) Note payable 37,092 36,204 41,635 51,211 62,989 Share of associate / JC (2,793) (2,522) 1,570 1,853 2,049 Long term borrowings 12,922 57,549 66,181 86, ,054 Profit before income tax 36,216 51,640 70,555 85,350 97,345 Others 10,298 14,702 18,214 21,187 12,278 Income tax (7,108) (10,193) (13,927) (16,847) (19,214) Total non-current liabilities 60, , , , ,320 Minority interests (302) (352) (481) (582) (664) Net profit 28,806 41,095 56,148 67,921 77,467 Accounts payable 15,700 27,413 28,784 30,223 31,734 Basic EPS (RMB) Other payables and accruals 70,199 20,873 22,960 24,797 25,789 Short term borrowings 11,429 12,278 16,575 22,377 39,159 Cash Flow Statement Note payable 3,886 3,466 3,986 5,062 6,429 Year end Dec, RMB m 2015A 2016A 2017F 2018F 2019F Others 23,192 37,167 42,661 49,985 58,588 Profit before taxation 36,216 51,640 70,555 85,350 97,345 Total current liabilities 124, , , , ,699 Depreciation & Amortization of intangible assets 6,674 12,741 13,723 14,781 15,921 Total liabilities 184, , , , ,019 Changes in working capital 6,389 10,967 (7,669) (5,483) (43,335) Income tax paid (5,047) (10,516) (13,273) (15,223) (17,322) Shareholders' equity 120, , , , ,296 Others 1, (12,855) 1, Share capital & Share premium 12,167 17,324 18,710 20,207 21,823 Net cash generated from operating activities 45,431 65,518 50,481 80,525 53,002 Shares held for share award scheme (1,817) (3,136) (3,387) (3,556) (3,698) Other reserves 9,673 23,693 26,062 28,669 31,535 CAPEX (5,440) (8,399) (7,475) (6,653) (5,921) Retained earnings 100, , , , ,635 Financial assets purchases (13,001) (33,556) (34,898) (36,294) (37,746) MI 2,065 11,623 12,489 13,536 13,536 Associates & JV investments (11,923) (8,996) (10,550) (8,440) (6,752) Total equity 122, , , , ,831 Financial for sale investments (13,001) (33,556) (34,898) (36,294) (37,746) BPS (RMB) Others (20,240) 13,584 (1,783) (13,000) (24,544) Net cash used in investing activities (63,605) (70,923) (89,604) (100,680) (112,708) Payments for repurchase of shares (652) (1,936) (2,130) (2,279) (2,438) Dividends paid to the Company's shareholders (2,640) (3,699) (3,699) (5,054) (6,114) Financial Ratios Change in borrowings 28,565 43,824 12,930 25,656 59,800 Year end Dec 2015A 2016A 2017F 2018F 2019F Others (6,745) (6,746) 6,318 11,168 13,818 Net cash generated from financing activities 18,528 31,443 13,419 29,492 65,066 Gross margin (%) Operating margin (%) Net increase in cash and equivalents ,038 (25,704) 9,336 5,360 Net margin (%) Cash at beginning of year 42,713 43,438 71,902 48,721 60,680 ROE (%) Exchange losses 371 2,426 2,523 2,624 2,729 ROA (%) Cash at end of year 43,438 71,902 48,721 60,680 68,769 Net gearing (%) Net cash Net cash Net cash 2.2% 18.6% Source: the Company, Guotai Junan International. See the last page for disclaimer Page 8 of 9

9 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 SMI Holdings Group Limited (00198 HK), Guotai Junan International Holdings Limited (01788 HK), Binhai Investment Company Limited (02886 HK), Link Holdings Limited (08237 HK), GFI MSCI A I-R (CNY) (83156 HK), GFI MSCI A I (03156 HK), CAM SCSMALLCAP (03157 HK) and GTJA (02611 HK), 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. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. 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, 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 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) Fax: (852) Website: See the last page for disclaimer Page 9 of 9