Monday, January 25, 2016 China Merchants Securities (HK) Co., Ltd. Hong Kong Equity Research

Company Report

PAX Global (327 HK) Time for harvest: U.S. sales to double in FY16E ■ Ready to take on Verifone and Ingenico in U.S. market with newly rollout multilane terminals PX5/PX7 ■ Positive on FY16E overseas growth (CMS est. +27%YoY): U.S. sales to double, APAC to remain strong, Middle East leadership to maintain ■ Maintain BUY with TP HK$12.0, based on 15.5x FY16E ex-cash P/E plus HK$2.63 cash

Multilane products rollout marks a major breakthrough in U.S. PAX announced in analyst briefing held on 22 Jan that its high-end multilane terminals PX5/PX7 shipment will commence next week with first batch of 1,000 units per week to a tier-1 merchant in U.S. Management is confident to achieve triple-digit growth in sales (in U.S. market), backed by its salesforce expansion plan – doubling sales and marketing team size from 65 to 130 in FY16E. We believe the multilane terminals rollout marks a major breakthrough in the highlyconcentrated market (Verifone + Ingenico = 85% of market share in U.S.) and we are positive on PAX to gain shares from the top-2 players given PAX’s edges on 1) shorter time-to-market, 2) flexible web-based integrated platform for centralized terminal management 3) most cost-effective and secure payment solution resulting in better margins for acquirers. We estimate multilane ASP to range from US$300-500 with GPM at 50% or above (vs. CMS est. FY15E GPM of 38%). We expect U.S. sales contribution to be 4%/6%/8% in FY15E/16E/17E.

Alex Ng

Marley Ngan

852-3189 6125

852-31896635

[email protected] [email protected]

WHAT’S NEW N/A

BUY Previous

BUY

Price

HK$6.97

12-month Target Price (Potential upside)

HK$12.00 (+72%)

Previous

HK$12.00

Price Performance (%) 100

327

HSI Index

50

Robust overseas growth remains intact Apart from U.S., PAX believes sales growth in other overseas regions will remain strong in FY16E. For APAC region, although China market remains a concerns (CMS est. +9.6%YoY in FY16E), PAX sees sales picking up in other countries including Malaysia/Indonesia/India. While for Middle East, PAX is confident to maintain a leadership position with market share >15% (vs. No. 1 Verifone share at 16%). We estimate overseas sales growth of +27%YoY in FY16E with sales contribution of over 53%. For currency concerns, PAX expect benefits from USDdenominated overseas sales to offset sales weakness in China amid RMB depreciation, and thus overall impact will be minimal.

Maintain BUY with TP of HK$12.0 Trading at 7.2x ex-cash FY16E P/E, 54% discount vs. global peers, the stock is oversold and we maintain BUY with TP of HK$12.0, based on 15.5x ex-cash FY16E P/E plus HK$2.63 cash. Our TP implies 24% discount to global No. 1 Ingenico given higher sales exposure in China and lower recurring income. Downside risks include product launch delay and weak China sales.

Financials HK$ mn

2013

2014

2015E

2016E

2017E

Revenue Growth (%) Net profit Growth (%) EPS (HK$) DPS (HK$) Ex-cash P/E (x) P/B (x) ROE (%)

1,472 12% 227 24% 0.22 0.00 24.5 3.5 11%

2,373 61% 392 73% 0.36 0.00 14.3 3.0 15%

2,811 18% 569 45% 0.51 0.04 9.0 2.5 19%

3,310 18% 668 17% 0.60 0.06 7.2 2.1 18%

3,922 18% 791 18% 0.71 0.07 5.1 1.8 18%

0

-50 Jan/15

May/15

Sep/15

Dec/15

Source: Bigdata

% 327 HK HSI

1m (25.4) (14.9)

Industry: Hardware Technology Hang Seng Index HSCEI Key Data 52-week range (HK$) Market cap (HK$ mn) Avg. daily volume (mn) BVPS (HK$) Shareholdings Structure Hi Sun Technology (818 HK) FMR LLC No. of shares outstanding (mn) Free float

6m (51.6) (27.4)

12m (12.9) (23.9)

19081 8105 5.79-14.2 7751 7.76 2.59 32.9% 6.2% 1,112 60.9%

Related Research 1. PAX Global (327 HK) – Implications of Heartland Payment acquired by Global Payments (18/12/2015) 2. PAX Global (327 HK) – Positives in China: Smart POS and stringent mPOS policy (10/12/2015)

Sources: Company data, CMS (HK) estimates Please see penultimate page for additional important disclosures. China Merchants Securities (CMS) is a foreign broker-dealer unregistered in the USA. CMS research is prepared by research analysts who are not registered in the USA. CMS research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer. 1

Monday, January 25, 2016

Focus charts Figure 1: FY15E-17E revenue CAGR: 18% with increasing overseas exposure HKD mn

Figure 2: We expect U.S. market sales contribution to reach 8% by FY17E 100%

5,000

1% 4% 2% 8%

70% 60%

4,000

80%

17%

50% 60%

3,000

59%

13% 3% 2% 13%

13%

14%

15%

3% 4% 12%

4% 6%

5% 8%

14%

12%

11%

10%

55%

56%

54%

53%

2014

2015E

2016E

2017E

11%

10%

40%

55% 2,000 1,000

52%

42%

30%

40% 67%

20%

29% 71%

58%

48%

45%

2014

2015E

2016E

41%

2017E

0

20%

10% 0%

2013

China

Overseas

0% 2013 China US

Total revenue YoY

APAC ex China Europe

Middle East/ Africa Latin America

Source: Company, CMS(HK) estimates

Source: Company, CMS(HK) estimates

Figure 3: U.S. POS shipment market share

Figure 4: Top 3 players POS shipment globally Unit mn 20

100% 80% 60%

29%

26%

29%

0% 11%

2% 12%

2% 17%

65%

21% 3.0

3%

15

60%

27% 10

40% 61%

20%

51%

5

49%

2.1

5.2

4.2

6.7

2013

5.5 55%

0.9 0.5

60%

1.3

4.4

3.2 9.1 4.1

4.8

5.7

2010

2011

2012

0

0% 2011 2012 2013 VeriFone Ingenico PAX

2014 Others

Figure 5: PAX’s multilane terminal PX7 showcased in Retail’s Big Show 2016 in NYC

Source: Company CMS(HK)

45%

Ingenico (France) PAX Technology (China)

Source: Nilson report, CMS(HK)

50%

2014

VeriFone (U.S.) Top 3 market share

Source: Nilson report, CMS(HK)

was

Figure 6: PAX provides retailers with a web-based app for centralized terminal management such that performance of each terminal can be monitored

Source: Company, CMS(HK)

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Monday, January 25, 2016

Multilane PX5/PX7, major breakthrough in mature U.S. market We attended PAX’s analyst briefing held on 22 Jan related to U.S. market updates, below are the key takeaways: 1. Multilane products rollout in U.S. marks a major breakthrough in mature market Management announced the first batch of multilane terminal shipment will commence next week with 1,000 units shipment per week to a tier-one merchant. Given a market size of 2mn POS terminal shipment per year with 40% being high-end multilane products in the U.S., we believe the multilane products mark a major breakthrough in the mature market, dominated by Ingenico and Verifone with combined market share of 85% in U.S. We estimate ASP per multilane terminal to range from US$300-500 with GPM at least 30% higher than Group’s average (CMS est. FY15E GPM: 38%). As there are still several pilot programs for tier-one merchants in the pipeline, according to management, we are positive that PAX will continue to gain shares from Verifone amid EMV migration. 2. Robust overseas growth intact in FY16E with U.S. sales growing at >100% PAX believes overseas sales will remain strong in FY16E. Especially in U.S., management targeted to achieve triple-digit sales growth and sales team size will be doubled from 65 to 130 in FY16E. For APAC regions, although China market remains a concern (CMS est. sales growth: +9.6%YoY in FY16E), management are positive on increasing demand from South-East Asia especially Malaysia (govt. targeted to triple POS terminal install base) and Indonesia (PAX has partnered with major bank BRI since 2015). For Middle East, PAX is confident to maintain a leadership position with market share >15% (vs. No. 1 Verifone 16%). 3. Limited impact on RMB/BRL depreciation Regarding concerns on currency depreciation impact given PAX’s exposure in emerging market like Brazil, as all overseas sales are booked in USD while 60% of COGS is in RMB, RMB depreciation is an advantage for overseas business. Although China sales may be affected as the company’s reporting currency is HKD, management believes the combined currency impact will be minimal. Figure 7: Multilane terminals specs comparison PAX Global (327 HK)

Multilane

Ingenico (ING FP)

Verifone (PAY US)

Flagship model

Payment solution

Speical features

PX7 Mag-stripe/ EMV/ Pin debit/ NFC/ contactless/ mobile wallets

iSC Touch 480 Mag-stripe/ EMV/ Pin debit/ NFC/ contactless/ mobile wallets/ QR codes

MX925 Mag-stripe/ EMV/ Pin debit/ NFC/ contactless/ mobile wallets

•

Finger signing is supported and thus stylus pen is optional

•

•

•

Instant alert will be sent if privacy shield or stylus pen is removed Visible contactless logo Business controls are separated from security logic: Applications do not have to be separately certified

•

Biometric measurement includeing signature speed and pressure detection Privacy shield is optional

•

Visible contactless logo

• •

Multi-use screen shows transactions and offers and the same time

Source: Company CMS(HK)

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Monday, January 25, 2016

Figure 8: PAX revenue assumptions HK$m, Dec-YE Sales of electronic payment products YoY POS terminals mPOS Consumer activated devices (PIN pads) Contactless devices Services YoY Others YoY Total revenue YoY

2013

2014

2015E

2016E

2017E

1,431 11.2% 1,367 48 16 21 12.1% 20 167.6% 1,472 12%

2,547 62.4% 2,222 222 92 12 26 27.8% 22 7.3% 2,595 61%

2,759 18.7% 2,407 263 83 6 29 9.0% 23 5.0% 2,811 18%

3,254 17.9% 2,874 293 82 5 32 10.0% 24 5.0% 3,310 18%

3,862 18.7% 3,426 349 81 5 35 10.0% 25 5.0% 3,922 18%

Sources: Company, CMS(HK) estimates

Figure 9: Development overview (EFT-POS/mPOS terminals) Region EM APAC

FY15E Vol YoY Country 28% China

HK Indonesia India N.Zealand Korea Vietnam Latin America

19% Brazil Argentina Venezuela Ecuador

Middle East/ Africa

5% Iran Saudi Arabia Kuwait Egypt Iran Jordan

DM Europe

13% U.K. Russia

Portugal Turkey Germany Bulgaria Poland U.S./ Canada

2012 2014 2015 2003 2014 2015 2013 2014 2001 2001

Developments Selected as UnionPay POS solutions providers Shipment over 1.3m in 40+ cities Selected by Postal Savings Bank of China to supply full range of POS terminals Products certified by EPS network and won HSBC bid Partnered with 3 major banks with market share >50% of total merchant transaction volume Selected by Bank Rakyat Indonesia (>10,000 merchants) Shipped 10,000 contactless Selected as mPOS solutions provider of ASB Bank Won first overseas deal in Korea Entered the market

2013 2014 2014 2015 2015 2015

Partnered with no. 1 acquirer Cielo (CIEL3 BZ) Partnered with UOL ( >40,000 retail POS software customers) Partnered with no. 1 acquirer LAPOS (set up by Visa Argentina 80% mkt share) & First Systems Partnered with PagSeguro (>80k online stores network) Received certificates from Banesco, one of the largest bank in Venezuela Partnered with Banco Pichincha, largest bank in Ecuador

2011 2011 2010 2013 2014 2011 2015

Partnered with Tosan (>150,000 POS shipped) Partnered with STC mobile (30,000 shipment) Partnered with KNET, with connections to all local banks, as exclusive agent for PAX POS deployment Partnered with EBE targeting at govt/ acquiring banks Chosen by the Egyptian govt to deploy 20,000 mobile terminals Partnered with Tosan (>150,000 POS shipped) Partnered with EMP (>14,000 merchants)

2012 2014 2013 2014 2015 2014 2010 2014 2015 2015 2015

Opened office in London Launched new POS with Optomany for acquiring banks Won tender to provide 15,000 POS devices to largest bank Launched a fiscal e-payment terminal integrated with tax modules at lowest cost among competitors Became major supplier to Sberbank, largest bank in Russia (>250mn merchants) Passed SIBS certification and partnered with Petrotec Partnered with Verisoft to deliver POS solutions to banks Partnered with Derpos Partnered with CCV Germany (>200k clients, 500k terminals) Teamed with Intercard Finance to supply mPOS targeting individual payment market Partnered with Novelpay to supply mPOS to LOT Polish Airlines

100% U.S.

2008 Entered the market 2013 Received product certifications from one of the top 5 acquirers, Heartland Payment System (HPY US) 2014 Partnered with KinPOS to capture Central America mkt FY15E total EFT-POS/ mPOS terminal shipment: 3.5m units (+16% YoY) / 560k units (+40% YoY) Sources: Nilson report, Company data, CMS(HK) estimates

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Monday, January 25, 2016

Valuation Maintain BUY with TP of HK$12.0 We derive our TP based on target 15.5x ex-cash FY16E P/E plus HK$2.63 cash. Our TP valuation implies 24% discount to Global No. 1 Ingenico given PAX’s lower recurring revenue and China’s economic uncertainties. Key catalysts include M&A, increasing multilane order visibility in the U.S., new products launch in China (smart POS and Cloud POS) and wide adoption of NFC (mobile) payment. Downside risks include 1) product launch delays, 2) weaker China market and 3) M&A failure. Figure 10: PAX 1-yr fwd P/E chart

Figure 11: Industry 1-yr fwd P/E comparison 40

21 19

35

17

30

15

25 13

20

11 9

15

7

10

5 3 Dec-10

Dec-11

Dec-12

1-yr Forward P/E

Dec-13

Mean

Dec-14

Mean+1SD

5 Jan/14

Dec-15 Mean-1SD

Apr/14

Jul/14

Oct/14

Jan/15

PAX 327 HK

Sources: Bloomberg, CMS(HK) estimates

Apr/15

Jul/15

ING FP

Oct/15

Jan/16

PAY US

Sources: Bloomberg, CMS(HK) estimates

Figure 12: Peers comparison Company PAX Global

Ticker 327 HK

Rating

Market Current Cap Price (US$ mn) (LC$)

TP (LC$)

Upside

P/E (x) FY15E

BUY

940

6.95

12.00

72%

9.0*

P/B (x)

FY16E

FY15E

ROE (%)

FY16E

7.2*

2.5

2.1

FY15E 19%

FY16E 18%

China SZZT Electronics

002197 CH

NR

1,346

19.65

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Fujian Newland

000997 CH

NR

2,718

18.01

N/A

N/A

42.4

33.4

7.5

6.4

19%

21%

Xinguodu

300130 CH

NR

985

26.81

N/A

N/A

69.7

54.3

N/A

N/A

7%

8%

56.1

43.8

7.5

6.4

13%

15%

Simple Avg Overseas Ingenico

ING FP

NR

7,383

104.10

N/A

N/A

23.0

20.4

4.5

3.8

22%

21%

VeriFone

PAY US

NR

2,579

23.09

N/A

N/A

12.7

10.6

2.7

2.4

17%

26%

17.8

15.5

3.6

3.1

19%

23%

Simple Avg

Sources: Bloomberg, CMS(HK) estimates, *ex-cash P/E

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Monday, January 25, 2016

Financial Summary Balance Sheet

Profit & Loss Statement

HK$ million

2013

2014 2015E 2016E 2017E

HK$ million

Current assets Cash & equivalents Account receivables Inventories Restricted cash Other current assets Non-current assets Property, plant and equipment Leasehold land Other non-current assets Total assets Current liabilities ST borrowings Account payables Other payables Tax payables Other current liabilities Non-current liabilities LT borrowings Other non-current liabilities

2,824 1,698 638 465 17 6 8 8 0 0 2,833 746 0 446 275 25 0 0 0 0

3,323 1,919 898 475 16 14 12 11 0 0 3,334 786 0 424 285 78 0 0 0 0

4,161 2,581 921 615 16 28 9 9 0 0 4,170 1,134 0 553 534 48 0 0 0 0

4,871 2,906 1,221 695 16 33 6 6 0 0 4,877 1,242 0 557 629 56 0 0 0 0

5,911 3,658 1,317 880 16 39 3 2 0 0 5,913 1,567 0 755 745 67 0 0 0 0

Revenues Cost of sales Gross profit Selling expense R&D expense Other admin expense Operating profit Interest income Interest expense Other non-op items Pre-tax profit Income tax expense After-tax profit Non-controlling interests Net profit Basic EPS (HKD)

Total liabilities Share capital Reserves Minority interest Shareholders' equity Total equity and liabilities

746 104 1,983 0 2,087 2,833

786 110 2,438 0 2,548 3,334

1,134 110 2,959 0 3,069 4,204

1,242 110 3,561 0 3,671 4,913

1,567 110 4,272 0 4,382 5,949

2013 292 266 4 14 (15) 11 54 (42) 23 (1) 10 15 0 8 0 0 0 8 323 1,698

2014 2015E 2016E 2017E 154 723 357 790 463 636 768 909 4 5 5 5 29 0 0 0 (23) (23) (39) (44) 19 0 0 0 (320) 202 (286) 27 (18) (96) (91) (108) 16 (13) 35 42 (7) (2) (2) (2) 0 0 0 0 24 23 39 44 0 (34) (2) 0 74 (48) (67) (79) 0 0 0 0 0 0 0 0 0 (48) (67) (79) 74 0 0 0 245 662 325 752 1,919 2,581 2,906 3,658

Cashflow Statement HK$ million Operating cashflow Net income before tax Depreciation and amortization Share-based payments Interest income Provision of obsolete inventories Other operating cash flow Change in working capital Investing cashflow Capital expenditure Financial assets (net) Interest income Other investments Financing cashflow Net proceeds from borrowings Net proceeds from share issue Dividend paid Other financing cashflow Net change in cash Cash at year end

2013 2014 2015E 2016E 2017E 1,472 2,373 2,811 3,310 3,922 (931) (1,508) (1,730) (2,025) (2,395) 541 865 1,081 1,285 1,527 (131) (219) (246) (287) (341) (94) (114) (134) (163) (191) (100) (140) (152) (179) (212) 216 393 549 656 783 15 23 23 39 44 0 0 0 0 0 36 47 64 73 83 266 463 636 768 909 (40) (71) (66) (100) (118) 227 392 569 668 791 0 0 0 0 0 227 392 569 668 791 0.22 0.36 0.51 0.60 0.71

Financial Ratios YoY growth rate Revenue Operating profit Net profit Profitability Gross margin Operating margin Net margin ROE ROA Liquidity D/A ND/A Current ratio Quick ratio Operating efficiency Asset turnover Inventory turnover AR turnover AP turnover Per share ratios (HKD) EPS CFPS BPS DPS Valuation ratios Ex-cash PE PE PB EV/EBITDA

2013

2014 2015E 2016E 2017E

12% 12% 24%

61% 82% 73%

18% 40% 45%

18% 20% 17%

18% 19% 18%

37% 15% 15% 11% 8%

36% 17% 17% 15% 12%

38% 20% 20% 19% 14%

39% 20% 20% 18% 14%

39% 20% 20% 18% 13%

0 -60% 3.8 2.3

0 -58% 4.2 2.5

0 -62% 3.7 2.3

0 -60% 3.9 2.4

0 -62% 3.8 2.4

0.52 2.00 2.31 2.09

0.71 3.17 2.64 3.56

0.67 2.81 3.05 3.13

0.68 2.91 2.71 3.63

0.66 2.72 2.98 3.17

0.22 0.28 2.01 0.00

0.36 0.14 2.36 0.00

0.51 0.65 2.78 0.04

0.60 0.32 3.32 0.06

0.71 0.71 3.96 0.07

24.5 32.0 3.5 25.3

14.3 19.2 3.0 14.1

9.0 13.5 2.5 9.3

7.2 11.5 2.1 7.3

5.1 9.7 1.8 5.1

Source: Company data, CMS (HK) estimates

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Investment Ratings Industry Rating

Definition

OVERWEIGHT

Expect sector to outperform the market over the next 12 months

NEUTRAL

Expect sector to perform in-line with the market over the next 12 months

UNDERWEIGHT

Expect sector to underperform the market over the next 12 months

Company Rating

Definition

BUY

Expect stock to generate 10%+ return over the next 12 months

NEUTRAL

Expect stock to generate +10% to -10% over the next 12 months

SELL

Expect stock to generate loss of 10%+ over the next 12 months

Analyst Disclosure The analysts primarily responsible for the preparation of all or part of the research report contained herein hereby certify that: (i) the views expressed in this research report accurately reflect the personal views of each such analyst about the subject securities and issuers; and (ii) no part of the analyst’s compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed in this research report.

Regulatory Disclosure Please refer to the important disclosures on our website http://www.newone.com.hk/cmshk/en/disclosure.html.

Disclaimer This document is prepared by China Merchants Securities (HK) Co., Limited (“CMS HK”). CMS HK is a licensed corporation to carry on Type 1 (dealing in securities), Type 2 (dealing in futures), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571). This document is for information purpose only. Neither the information nor opinion expressed shall be construed, expressly or impliedly, as an advice, offer or solicitation of an offer, invitation, advertisement, inducement, recommendation or representation of any kind or form whatsoever to buy or sell any security, financial instrument or any investment or other specific product. The securities, instruments or strategies discussed in this document may not be suitable for all investors, and certain investors may not be eligible to participate in some or all of them. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. CMS HK is not registered as a broker-dealer in the United States and its products and services are not available to U.S. persons except as permitted under SEC Rule 15a-6. The information and opinions, and associated estimates and forecasts, contained herein have been obtained from or are based on sources believed to be reliable. CMS HK, its holding or affiliated companies, or any of its or their directors, officers or employees (“CMS Group”) do not represent or warrant, expressly or impliedly, that it is accurate, correct or complete and it should not be relied upon. CMS Group will not accept any responsibility or liability whatsoever for any use of or reliance upon this document or any of the content thereof. The contents and information in this document are only current as of the date of their publication and will be subject to change without prior notice. Past performance is not indicative of future performance. Estimates of future performance are based on assumptions that may not be realized. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Opinions expressed herein may differ or be contrary to those expressed by other business divisions or other members of CMS Group as a result of using different assumptions and/or criteria. This document has been prepared without regard to the individual financial circumstances and investment objectives of the persons who receive it. Use of any information herein shall be at the sole discretion and risk of the user. Investors are advised to independently evaluate particular investments and strategies, take financial and/or tax advice as to the implications (including tax) of investing in any of the securities or products mentioned in this document, and make their own investment decisions without relying on this publication. CMS Group may have a long or short position, make markets, act as principal or agent, or engage in transactions in securities of companies referred to in this document and may also perform or seek to perform investment banking services or provide advisory or other services for those companies. This document is for the use of intended recipients only and this document may not be reproduced, distributed or published in whole or in part for any purpose without the prior consent of CMS Group. CMS Group will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This document is for distribution only under such circumstances as may be permitted by applicable law. This document is not directed at you if CMS Group is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. In particular, this document is only made available to certain US persons to whom CMS Group is permitted to make available according to US securities laws, but cannot otherwise be made available, distributed or transmitted, whether directly or indirectly, into the US or to any US person. This document also cannot be distributed or transmitted, whether directly or indirectly, into Japan and Canada and not to the general public in the People’s Republic of China (for the purpose of this document, excluding Hong Kong, Macau and Taiwan).

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Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication.

Compensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months.

Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither CMS HK nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report. CMS HK may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of CMS HK. Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States. The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments. Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by CMS HK with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or i ndirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the i ssuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior consent of CMS HK and CMS HK accepts no liability whatsoever for the actions of third parties in this respect.

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