affected by intensifying trade [table s war, sell...zte and huawei) due to risks to us national...

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[Table_Title] Company Report: ZTE (00763 HK)

Ricky Lai 黎柏坚

(852) 2509 2603

公司报告：中兴通讯 (00763 HK) [email protected]

7 May 2018

[Table_Summary] Affected by Intensifying Trade War, "Sell" 受到贸易战加剧的影响，“卖出”

ZTE’s 1Q18 results beat expectations, with 39% yoy growth in net profit,

thanks to margin improvement. 1Q18 revenue grew 12.2% yoy, driven by 4G

network expansion and fiber broadband coverage improvement.

Supply chain to be affected by intensifying trade war. On 16th April 2018,

the US Department of Commerce banned American companies from selling

products to ZTE for 7 years due to the failure in complying with an agreement

with the US government. On 27th April 2018, the Ministry of Economic Affairs

in Taiwan announced that Taiwanese companies need to obtain prior

permission before shipping to ZTE. There are many Taiwan based chip

manufacturers such as TSMC and MediaTek that may have difficulties in

shipping components to ZTE.

We cut FY18-FY20 revenue by 17.8%/ 21.6%/ 22.7%, respectively, due to

the impact of components shortage and blockage of smartphone

shipments in the US market. On 18th April 2018, the Federal

Communications Commission prohibited telecom operators from using

federal funds subsidies to buy devices from Chinese companies (including

ZTE and Huawei) due to risks to US national security.

Downgrade the Company’s investment rating to "Sell" and cut the TP

from HK$35.00 to HK$20.00. We lower FY18-FY20 EPS by 19.6%/ 28.4%/

29.9%, respectively, due to the adjustments of revenue forecasts. The new

TP represents 15.2x FY18 PER, 14.6x FY19 PER and 12.6x FY20 PER.

中兴通讯 2018 年第 1 季度业绩超预期，净利润同比增长 39%，因利润率的改善。受 4G

网络的扩容和光纤宽带覆盖的推动，2018 年第 1 季度收入同比增长 12.2%。

供应链受到激烈贸易战所影响。由于未能遵守与美国政府的协议，2018 年 4 月 16 日美国

商务部禁止美国公司向中兴通讯出售产品 7 年。2018 年 4 月 27 日台湾经济部宣布，台湾

企业产品在运往中兴之前需要事先获得许可。台积电和联发科等许多台湾芯片制造商可能

难以向中兴通讯运送元器件。

由于部件短缺和智能手机出货在美国市场受阻，我们分别下调 2018 至 2019 财年收入

17.8%/ 21.6%/ 22.7%。2018 年 4 月 18 日联邦通信委员会禁止电信运营商使用联邦基金

补贴购买中国公司（包括中兴通讯和华为）的产品，因产品可能会对美国国家安全构成风

险。

下调公司的投资评级为“卖出”及目标价从 35.00 港元下调至 20.00 港元。基于收入预测的

调整，我们分别下调 2018 至 2020 财年的每股净利润 19.6%/ 28.4%/ 29.9%。新目标价相

当于 15.2 倍 2018 年市盈率、14.6 倍 2019 年市盈率及 12.6 倍 2020 年市盈率。

[Table_Rank] Rating: Sell Downgraded

评级：卖出 (下调)

[Table_Price] 6-18m TP 目标价: HK$20.00

Revised from 原目标价: HK$35.00

Share price 股价： HK$25.600

Stock performance

股价表现

[Table_PriceChange] Change in Share Price

股价变动

1 M

1 个月

3 M

3 个月

1 Y

1 年

Abs. % 绝对变动 %

(1.3) (7.2) 73.2

Rel. % to HS Index 相对恒指变动 %

(1.8) (0.2) 50.5

Avg. share price（HK$）

平均股价（港元） 25.7 27.0 24.0

Source: Bloomberg, Guotai Junan International.

[Table_Profit] 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) (%) (%)

2016A 101,233 (2,357) (0.567) n.a. n.a. 6.347 4.0 0.000 0.0 (8.4)

2017A 108,815 4,568 1.090 n.a. 21.3 7.554 3.1 0.330 1.4 15.7

2018F 99,758 4,697 1.121 28.0 16.6 10.085 2.3 0.420 1.8 11.5

2019F 103,560 4,876 1.164 16.6 14.2 12.849 1.8 0.490 2.1 8.1

2020F 109,488 5,648 1.348 18.2 12.1 15.909 1.5 0.580 2.5 6.9

[Table_BaseData] Shares in issue (m) 总股数 (m) 4,192.7 Major shareholder 大股东 Zhongxingxin 30.4%

Market cap. (HK$ m) 市值 (HK$ m) 119,911.2 Free float (%) 自由流通比率 (%) 69.6

3 month average vol. 3 个月平均成交股数 (‘000) 13,626.0 FY18 Net gearing (%) FY18 净负债/股东资金 (%) Net Cash

52 Weeks high/low (HK$) 52 周高/低 (HK$) 33.200 / 13.560 FY18 Est. NAV (HK$) FY18 每股估值（港元） 22.0

Source: the Company, Guotai Junan International.

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[Table_PageHeader] ZTE (00763 HK)

ZTE’s 1Q18 results beat expectations with 39.0% growth in net profit thanks to better product mix with margin expansion.

There was a significant improvement in 1Q18 results thanks to 4G equipment products, fixed-line network projects contributions

and margin improvement. Revenue improved by 12.2% yoy in 1Q18 driven by telecom operators’ 4G network expansion plan.

Due to the influence of shipment restrictions of US suppliers, the Company may re-state 1Q18 results in the future. We expect

that ZTE’s supply chain will be affected if the Company cannot purchase essential components such as chipsets, software and

components from US suppliers. In 2018, average CAPEX spending by Chinese telecom operators is expected to lower

compared to last year because the 5G telecom frequency spectrum has not yet been specified by the MIIT, but they may

increase CAPEX in 2019 after standardization.

Table-1: Major Events Relating to ZTE

Date Events

16 April 2018 The US Department of Commerce has banned American companies from selling products to ZTE for 7

years

18th

April 2018 The Federal Communications Commission banned federal funds buying equipments and products from

companies (including ZTE and Huawei) that could pose a risk to US national security

20th

April 2018 The US Congress released report stating that some Chinese companies (including Huawei, ZTE and

Lenovo) may involve spying in the US

27th

April 2018 The Ministry of Economic Affairs in Taiwan has announced that Taiwanese companies are required to

have prior permission before trading with ZTE

2th May 2018 The Defence Department of US banned service members from using ZTE and Huawei smartphones

Source: Guotai Junan International.

ZTE is expected to be hammered from the Intensifying trade war. On 16th

April 2018, the US Department of Commerce

banned American companies from selling products to ZTE for 7 years due to the failure in complying with an agreement with the

US government. ZTE pleaded guilty for trading products to Iran in 2016 and was fined USD890 million with the need to comply

with an agreement of terms. On 18th

April 2018, the Federal Communications Commission prohibited telecom operators from

using federal funds subsidies to buy devices from Chinese companies (including ZTE and Huawei) that could pose a risk to US

national security. The ban of using federal funds subsidies of buying ZTE is expected to affect ZTE’s smartphone shipments

because some US telecom operators are distributing ZTE smartphones due to lower selling price. On 20th April 2018, the US

Congress released a report stating that some Chinese companies (including Huawei, ZTE and Lenovo) may have been

involved in spying in the US. On 27th

April 2018, the Ministry of Economic Affairs in Taiwan announced that Taiwanese

companies need to obtain prior permission before shipping to ZTE. There are many Taiwan based chip manufacturers such as

TSMC and MediaTek that may have difficulties in shipping components to ZTE. We expect ZTE’s supply chain will be affected if

the Company cannot purchase chipsets, software and components from the US and Taiwan suppliers. Many of ZTE’s

smartphones are equipped with Qualcomm’s chips with Android as the operating system. A portion of electronic components

and software of ZTE’s carriers’ equipment products are also sourced from the US suppliers. The ban of trading with US

companies would affect ZTE’s supply chain with the difficulty to source important electronic components and software from the

US. The Chinese government is still negotiating with the US at the moment, trying to settle the trade dispute. We think that the

trade war between the US and China may intensify the restrictions of Chinese smartphone companies from trading with the US

companies. Many Chinese companies have been speeding up their chip making progress in a bid to launch the latest chipsets

to meet market demand for 5G telecom networks, base stations, IOT and others. We expect that ZTE can source these

essential components and chips from Chinese government in 2019 to meet their production needs and fill the inventory gap.

ZTE’s FY18-FY20 revenue has been revised down by 17.8%/ 21.6%/ 22.7%, respectively. Average CAPEX spending by

Chinese telecom operators in 2018 was lower compared to last year. Chinese telecom operators have plans to lower their

CAPEX in 2018 because 5G frequency bands are not yet specified from the MIIT. In 2018, China Mobile/ China Unicom/ China

Telecom are expected to spend RMB166.1 billion (down 6.4% yoy)/ RMB50.0 billion (up 18.8% yoy)/ RMB75.0 billion (down

15.5% yoy) for CAPEX, respectively. Most of the telecom operators are allocated 4G network expansion and fiber broadband

coverage improvement. We cut FY18-FY20 carriers’ networks equipment revenue by 17.7%/ 23.6%/ 25.0%, respectively, in

light of components shortage. ZTE’s carriers’ networks equipment revenue is expected to lower by 7.0% yoy in 2018 due to the

impact of components shortage. Due to the influence of lower demand from US telecom operator’s distribution of ZTE

smartphones and the electronic components shortage, we lower FY18-FY20 consumer business revenue by 21.3%/ 21.3%/

21.3%, respectively.

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Figure-1: ZTE’s Carrier Network Revenue and YoY Growth Figure-2: ZTE’s Consumer Business Revenue and YoY Growth

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Figure-3: ZTE’s Government & Corporate Business

Revenue and YoY Growth

Figure-4: Chinese Telecom Operator’s CAPEX in 2018

and YoY Growth

Source: the Company, Guotai Junan International. Source: the Companies.

Profit Revisions

We trim FY18-FY20 EPS by 19.6%/ 28.4%/ 29.9%, respectively. We cut ZTE’s FY18-FY20 carriers’ networks revenue by

17.7%/ 23.6%/ 25.0%, respectively, to reflect impact of components shortage and lower CAPEX spending by Chinese telecom

operators in 2018. We trim ZTE’s FY18-FY20 consumer business revenue by 21.3%/ 21.3%/ 21.3%, respectively, due to

intensifying trade war impact and chipsets supply shortage.

Table-2: Financial Estimations Revisions

RMB (Million) 2018F

OLD

2019F 2020F 2018F

NEW

2019F 2020F 2018F

CHANGE

2019F

2020F

Total revenue 121,299 132,025 141,628 99,758 103,560 109,488 (17.8%) (21.6%) (22.7%)

Carriers’ networks 72,074 80,002 87,202 59,318 61,097 65,374 (17.7%) (23.6%) (25.0%)

Government & corporate 11,207 12,103 12,830 10,519 11,045 11,376 (6.1%) (8.7%) (11.3%)

Consumer 38,019 39,920 41,596 29,922 31,418 32,738 (21.3%) (21.3%) (21.3%)

Net profit 5,844 6,810 8,051 4,697 4,876 5,648 (19.6%) (28.4%) (29.8%)

EPS (RMB) 1.395 1.626 1.922 1.121 1.164 1.348 (19.6%) (28.4%) (29.9%) Source: Guotai Junan International.

58.9 63.8

59.3

61.1

65.4

2.9%

8.3%

-7.0%

3.0%

7.0%

-9%

-6%

-3%

0%

3%

6%

9%

12%

40

50

60

70

2016A 2017A 2018F 2019F 2020F

Carriers' networks revenue (LHS)

YoY growth (RHS)

RMB (Billion)

33.4

35.2

29.9

31.4

32.7

3.0%

5.2%

-15.0%

5.0% 4.2%

-20%

-10%

0%

10%

27

28

29

30

31

32

33

34

35

36

2016A 2017A 2018F 2019F 2020F

Consumer business revenue (LHS)

YoY growth (RHS)

RMB (Billion)

8.9

9.8 10.5

11.0 11.4

-15.2%

10.4%7.0%

5.0%

3.0%

-20%

-10%

0%

10%

20%

0

2

4

6

8

10

12

2016A 2017A 2018F 2019F 2020F

Governemt & corporate business (LHS) YoY growth (RHS)RMB (Billion)

166.1

50.0

75.0

-6.4%

18.8%

-15.5%

-20%

-10%

0%

10%

20%

30%

0

50

100

150

200

China Mobile China Unicom China Telecom

FY18 CAPEX YoY growth

RMB (Billion)

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Valuation

Downgrade the Company’s investment rating to "Sell" and lower the TP from HK$35.00 to HK$20.00. We expect ZTE to

face headwinds from the intensifying trade war between the US and China with impact on supply chain and products shipments.

More Chinese companies are increasing investments for chips innovation and development to fill the supply gap in China; we

believe that ZTE can source Chinese manufactured chipsets in 2019. The new TP represents 15.2x FY18 PER, 14.6x FY19

PER and 12.6x FY20 PER.

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Table-3: Peers Comparison

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

Company Ticker Currency Price 18F 19F 20F 18F 19F 20F 18F 18F 18F

HK Listed Companies

Lenovo Group Ltd 992 HK HKD 3.720 n.a. 8.4 7.2 1.5 1.4 1.1 (1.6) 4.5 2.0

ZTE Corp-H 763 HK HKD 25.600 20.6 15.7 12.7 2.0 1.8 1.6 12.0 11.9 3.8

Comba Telecom Systems 2342 HK HKD 1.190 18.0 14.9 15.3 0.7 0.7 n.a. 3.0 11.2 1.7

Mobi Development 947 HK HKD 0.900 9.6 8.5 n.a. n.a. n.a. n.a. 5.2 n.a. 2.9

Simple Average 16.1 11.9 11.7 1.4 1.3 1.3 4.6 9.2 2.6

Weighted Average 20.5 14.0 11.5 1.9 1.7 1.5 8.8 10.2 3.3

Japan Listed Companies

Toshiba 6502 JP JPY 295.000 3.5 7.3 12.5 3.5 1.0 0.9 n.a. 5.3 1.7

NEC 6701 JP JPY 3005.000 17.0 23.5 13.6 0.9 0.9 0.8 5.3 6.4 1.3

Fujitsu 6702 JP JPY 666.100 8.1 11.0 9.9 1.3 1.2 1.1 17.2 4.3 4.4

Simple Average 9.5 13.9 12.0 1.9 1.0 0.9 11.2 5.3 2.5


Taiwan Listed Companies

Acer Inc 2353 TT TWD 22.050 16.5 16.1 19.2 1.1 1.1 n.a. 6.7 4.7 2.8

Asusteck Computer Inc. 2357 TT TWD 276.000 12.4 11.9 11.6 1.1 1.1 1.0 8.9 7.3 4.9

Simple Average 14.5 14.0 15.4 1.1 1.1 1.0 7.8 6.0 3.9


US Listed Companies

Motorola Solutions Inc MSI US USD 108.030 15.9 14.6 13.8 n.a. n.a. n.a. n.a. 9.2 12.4

Cisco Systems Inc CSCO US USD 45.300 17.5 15.8 14.7 5.1 6.8 5.7 18.9 11.7 11.2

Juniper Networks Inc JNPR US USD 25.660 14.1 12.1 11.2 2.1 1.6 0.9 14.0 7.1 7.0

Simple Average 15.8 14.2 13.3 3.6 4.2 3.3 16.4 9.3 10.2


PRC Listed Companies

Fiberhome Telecom 600498 CH CNY 26.270 26.0 20.8 17.9 2.9 2.6 2.3 10.9 11.3 3.9

Datang Telecom 600198 CH CNY 7.320 22.2 12.6 n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Simple Average 24.1 16.7 17.9 2.9 2.6 2.3 10.9 11.3 3.9


Overall Simple Average 16.0 14.1 14.0 2.2 2.0 1.8 10.2 8.2 4.6

Overall Weighted Average 16.8 14.7 13.8 2.6 2.6 2.3 11.9 8.9 5.0

Source: Bloomberg.

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Financial Statements and Ratios

[Table_IncomeStatement] Income Statement

Year end 31 Dec (RMB m) 2016A 2017A 2018F 2019F 2020F

Carriers' networks 58,881 63,782 59,318 61,097 65,374

Government & Corporate business 8,904 9,831 10,519 11,045 11,376

Consumer business 33,449 35,202 29,922 31,418 32,738

Total Revenue 101,233 108,815 99,758 103,560 109,488

Cost of sales (71,313) (76,117) (68,806) (71,273) (74,891)

Gross profit 29,921 32,699 30,952 32,286 34,596

Other income 6,116 6,951 6,572 7,029 7,541

R&D costs (11,689) (12,962) (11,971) (12,531) (13,467)

Selling & distribution costs (12,622) (12,260) (11,372) (11,909) (12,482)

Admin costs (2,731) (3,238) (3,093) (3,417) (3,504)

Other expenses (8,651) (3,185) (2,920) (3,031) (3,205)

Operating Profit 343 8,005 8,168 8,427 9,481

Finance costs (1,156) (1,158) (1,176) (1,203) (1,238)

Profit from associates 45 (128) (103) (97) (93)

Profit Before Tax (768) 6,719 6,889 7,126 8,150

Income Tax (640) (1,333) (1,366) (1,413) (1,617)

Profit After Tax (1,408) 5,386 5,523 5,713 6,534

Non-controlling Interest (950) (818) (826) (837) (886)

Shareholders' Profit / Loss (2,357) 4,568 4,697 4,876 5,648

Basic EPS (RMB) (0.567) 1.090 1.121 1.164 1.348

[Table_CashFlowStatement] Cash Flow Statement


Profit before tax (768) 6,719 6,889 7,126 8,150

D&A 2,434 2,575 16,137 19,356 22,913

Other non-cash items 1,814 1,172 5,106 4,933 4,954

Working capital change 2,642 (3,189) (5,104) (5,294) (5,496)

Interest paid, net (1,115) (1,234) (2,626) (2,698) (2,935)

Tax paid (714) (1,200) (2,458) (2,469) (2,638)

Dividend paid (1,201) (382) (1,800) (1,863) (1,958)

Cash from Operating Activities 3,093 4,460 16,145 19,091 22,991

CAPEX (2,075) (2,340) (2,551) (2,781) (3,031)

Others (1,579) (1,711) (3,388) (3,283) (3,206)

Cash from Investing Activities (3,654) (4,052) (5,939) (6,064) (6,237)

Bank loan change 709 (274) 1,052 1,120 1,192

Others 3,321 391 (32) (24) (15)

Cash from Financing Activities 4,029 117 1,021 1,097 1,177

Net Changes in Cash 3,468 526 11,227 14,124 17,931

Cash at Beg of Year 26,617 30,050 30,109 40,963 54,788

FX change (35) (466) (373) (298) (239)

Cash at End of Year 30,050 30,109 40,963 54,788 72,480

Source: the Company, Guotai Junan International.

[Table_BalanceSheet] Balance Sheet


Fixed assets 9,281 10,202 10,625 11,189 11,886

Intangible assets 4,454 5,363 6,967 8,507 10,003

Factored long-term trade receivables 1,392 2,608 2,321 2,066 1,839

Investment properties 2,016 2,024 2,085 2,147 2,211

Other non-current assets 11,617 15,505 15,153 14,366 14,151

Total Non-current Assets 28,760 35,703 37,151 38,275 40,091

Bills & trade receivables 2,261 1,080 929 799 687

Inventories 26,811 26,234 27,546 28,923 30,369

Cash & Cash Equivalents 30,050 30,109 40,963 54,788 72,480

Other current assets 53,526 50,836 53,910 57,176 60,646

Total Current Assets 112,648 108,260 123,348 141,686 164,182

Total Assets 141,408 143,962 160,499 179,961 204,273

Short term loans 17,064 18,536 19,648 20,827 22,077

Bills and trade payables 36,934 34,463 32,740 31,103 29,548

Other payables 575 584 608 632 657

Other current liabilities 36,941 34,012 31,906 30,068 28,474

Total Current Liabilities 91,514 87,595 84,902 82,630 80,755

Long term loans 5,018 3,002 2,942 2,883 2,826

Other non-current liabilities 3,990 7,985 7,652 7,448 7,348

Total Non-current Liabilities 9,009 10,987 10,594 10,331 10,174

Total Liabilities 100,523 98,582 95,496 92,960 90,929

Share capital 4,185 4,193 4,193 4,193 4,193

Reserves 22,217 27,454 45,825 65,833 89,281

Total Shareholders' Equity 26,401 31,647 50,018 70,026 93,474

Minority Interest 14,484 13,733 14,985 16,975 19,871

Total Equity 40,885 45,380 65,003 87,001 113,345

[Table_FinancialRatio] Financial Ratios

2016A 2017A 2018F 2019F 2020F

Gross margin 29.6 30.0 31.0 31.2 31.6

Operating margin (0.8) 6.2 6.9 6.9 7.4

Net margin (2.3) 4.2 4.7 4.7 5.2

ROA (1.8) 3.2 3.1 2.9 2.9

ROE (8.4) 15.7 11.5 8.1 6.9

Current ratio (x) 1.2 1.2 1.5 1.7 2.0

Quick ratio (x) 0.9 0.9 1.1 1.4 1.6

Net gearing Net cash Net cash Net cash Net cash Net cash

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[Table_CompanyRatingDefinition] Company Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

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

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

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

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

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

[Table_IndustryRatingDefinition] Sector Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

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

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

Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[Table_DISCLOSUREOFINTERESTS] 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 GREENLAND BROAD (01253 HK),KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),BINHAI INVESTMENT (02886

HK),GFI MSCI A I (03156 HK),CAM SCSMALLCAP (03157 HK),ZHENRO PPT (06158 HK),LINK HOLDINGS (08237 HK),GFI MSCI A I-R (CNY) (83156 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. © 2018 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong. Tel.: (852) 2509-9118 Fax: (852) 2509-7793 Website: www.gtja.com.hk

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