1

Yum Cha 飲 茶 November 18, 2016

Source: Bloomberg

INDICES Closing DoD%

Hang Seng Index 22,262.9 (0.1)

HSCEI 9,326.5 (0.4)

Shanghai COMP 3,208.5 0.1

Shenzhen COMP 2,116.9 (0.4)

Gold 1,216.5 (0.7)

BDIY 1,231.0 7.5

Crude Oil, WTI(US$/BBL) 45.4 (0.3)

Crude Oil, BRENT(US$/BBL) 46.5 (0.3)

HIBOR, 3-M 0.7 (0.5)

SHIBOR, 3-M 2.9 0.7

RMB/USD 6.9 (0.03)

TALKING POINT - A-SHARES: INSURANCE ALSO A GOOD PROXY

DATA RELEASES DUE THIS WEEK

Nov 18 China October Property Prices

Conference Board China October

We discussed the rebound in trading velocity in the A-share market on Wednesday and sug-gested that stocks of securities companies would be major beneficiaries. We believe investors should also revisit insurance companies. They suffered a major de-rating after the collapse of the A-share market last year. However, the share price performance of insurance companies has a very high positive correlation with the CSI300 Index, especially Ping An Insurance (2318.HK) and China Taiping Insurance (0966.HK). Therefore, if we expect the A-share market is likely to perform well for at least one more month, there is still room for insurance companies to return to a higher valuation level. In terms of price/embedded value, Ping An and Taiping are trading at a 35% and 37% discount to their five-year average, respectively.

RESEARCH NOTES

TMT SECTOR UPDATE - Even though it is the world's largest IC consumer, with over 20% growth in output value for the domestic IC design sector, China still suffers from relatively low IC self-sufficiency, low competitiveness for local foundries and bottlenecks for local fabless firms in capability improvement. Based on the Chinese government’s target highlighted in three key documents, the China semiconductor industry is expected to grow at a CAGR of 20% in 2016-2020. To achieve the Chinese government's target, the China Semiconductor Industry Associa-tion estimates that total investment will reach close to RMB1trn, of which 70% will be invested in semiconductor manufacturing. We reiterate the view that domestic IC foundries such as Hua Hong [1347.HK] and SMIC [0981.HK] will be major beneficiaries of import substitution of up-stream components in the long run. There is no major A share-listed IC foundry, but SMIC and Hua Hong are treated as proxies for the theme of localization of IC supply. Shares of both Hua Hong and SMIC retreated recently, in our view, due to profit taking and limited recent news flow. However, given their leading position in China and their track record, the recent share price weakness offers a good revisit opportunity.

Source: Bloomberg

Analyst: Wong Chi-man, CFA

2

COMPANY / INDUSTRY NEWS

Analyst: Mark Po, CFA; Tel: (852) 3698 6318; markpo@chinastock.com.hk

TMT INDUSTRY UPDATE – Hua Hong and SMIC: Two major beneficiaries of increasing localization of upstream components

Chinese government to build up domestic supply chain. Even though it is the world's largest IC consumer, with over 20% growth

in output value for the domestic IC design sector, China still suffers from relatively low IC self-sufficiency, low competitiveness for

local foundries and bottlenecks for local fabless firms in capability improvement. China spends more money importing semiconductors

than it does oil. More than 90% of the semiconductors that China purchases are imported from the United States, South Korea, Ja-

pan, and Taiwan. The Chinese government is keen to develop a domestic semiconductor supply chain and technologies so that Chi-

na will be able to produce key components domestically, thus reducing reliance on imports and eliminating security risks. In this re-

gard, China has aggressively pushed for IC self-sufficiency through sustained policy and funding support for the overseas expansion

ambitions of domestic players. The Chinese government has released numerous related policies and guidelines. The three key docu-

ments related to developing the domestic semiconductor industry are (a) National IC Industry Development Guidelines, published in

Jul 2014, (b) Made in China 2025, published in May 2015, and (c) 13th Five-Year Plan Guidelines, published in Mar 2016. The Made

in China 2025 policy document clearly outlines China’s aim of raising its IC self-sufficiency rate to 40% in 2020 and 70% in 2025. The

13th Five-Year Plan Guidelines highlight the Chinese government’s aim to develop strategic emerging industries, including the semi-

conductor industry to achieve 15% contribution to GDP. The Chinese government will also develop the Internet of Things (IoT) indus-

try and the related supply chain. The IoT industry is one of the growth drivers of the semiconductor industry. The Chinese government

also set up the National IC Industry Investment Fund to provide substantial investment (RMB120bn in 2014~2017), while provincial

governments will collaborate with private equity investors to invest ~RMB600bn in strategic overseas M&A. In Jul 2016, the Chinese

government formed a Chinese high-end IC Alliance, whose members include Tsinghua Unigroup, MIIT, SMIC, ZTE, Huawei, etc. Ac-

cording to the China Semiconductor Industry Association, China’s semiconductor sector revenue grew at a CAGR of 16.9% in 2011-

2015, faster than the single digit growth of the global semiconductor sector. The major applications in China’s semiconductor industry

are computing (30%), communication (29%), consumer (22%) and industrial, including automobile (15%). Based on the Chinese

government’s target highlighted in the key documents mentioned above, the China semiconductor industry is expected to grow at a

CAGR of 20% in 2016-2020. To achieve the Chinese government's target, the China Semiconductor Industry Association estimates

that total investment will reach close to RMB1trn, of which 70% will be invested in semiconductor manufacturing.

Focus on domestic development instead of overseas M&A. According to news flow, the US-China Economic and Security Review

Commission proposed that the US government blocks Chinese State-owned enterprise (SOEs) from buying US companies. Chinese

companies have been aggressively acquiring foreign business since 2015. The deals for technology companies have caused con-

cern. The US-China Economic and Security Review Commission, which provides non-binding recommendations to Congress, has

accused the Chinese government of using its SOEs as tools to advance national security goals. In its latest report, the US-China Eco-

nomic and Security Review Commission highlighted that there is an inherently high risk that whenever an SOE acquires or gains ef-

fective control of a U.S. company, it will use the technology, intelligence, and market power it gains in the service of the Chinese state

to the detriment of U.S. national security. Mergers, acquisitions, and partnerships in the semiconductor industry have been on the rise

globally, and Chinese companies have been particularly aggressive. Through overseas M&A, Chinese semiconductor companies can

acquire technology, IP, human resources and a client base, thus narrowing the gap between themselves and the leading global play-

ers. However, we note that some offers by Chinese companies have been cancelled to avoid a foreign investment review by the

Committee on Foreign Investment in the United States (CFIUS). A typical case was Tsinghua Unisplendour’s cancellation of a pro-

posal to acquire a 15% stake in Western Digital, as the deal had to go through a CFIUS investigation. Fairchild Semiconductor reject-

ed a US$2.46bn Chinese bid in favor of a lower offer from an American company, likely due to CFIUS concerns. Micron Technology

rejected an informal US$23bn offer from Tsinghua Unigroup on the presumption that it would be blocked by CFIUS due to national

security concerns. These failed deals, in our view, highlight the difficulties that Chinese companies may experience with foreign gov-

ernments unwilling to share technology essential for national security. Given the uncertainty in oversea M&A, there is discussion re-

garding whether the Chinese government should focus more on how to consolidate and restructure the existing semiconductor supply

chain in China instead of focusing on overseas M&A. Leading players such as SMIC [0981.HK] and Hua Hong [1347.HK] should

benefit from government’s strategy of consolidating existing resources, given their track record and technology leadership.

(more on next page)

November 18, 2016

3

COMPANY / INDUSTRY NEWS

Analyst: Mark Po, CFA; Tel: (852) 3698 6318; markpo@chinastock.com.hk

TMT INDUSTRY UPDATE – Hua Hong and SMIC: Two major beneficiaries of increasing localization of upstream components

Innovative way to support local semiconductor companies. In Aug 2015, The National IC Fund and SMIC set up Sino IC Leas-

ing, an equipment leasing company for facilitating the capacity expansion of companies in the semiconductor or strategic emerging

industries. Sino IC Leasing is treated as a financing platform, which supports the expansion of semiconductor-related companies and

offers flexible financing to semiconductor companies. According to news flow, Sino IC Leasing has secured over RMB100bn in capital

with various banks, and it is also considering an IPO, bond issuance and other capital sourcing possibilities to strengthen its financial

capability.

SMIC reported solid Q3 2016 results, and its guided outlook for Q4 2016 remains positive. SMIC’s Q3 2016 sales grew 12% QoQ,

and GPM was 30%, at the high end of previous guidance. SMIC stated that its utilization was 101% in Q3 2016, as CMOS sensors,

fingerprint IC sensors and embedded flash reported strong growth. SMIC management guided 5-7% QoQ growth in Q4 2016 and

increased production of 28nm products. GPM in Q4 2016 will remain in the range of 28-30%. SMIC expects growth to continue in Q1

2017, given tight capacity. SMIC is expected to continue to report good operating performance in the near term. Despite trading at a

higher valuation, SMIC offers a multi-year growth story and is expected to become the second largest foundry in the long term. SMIC

is also one of the major beneficiaries of Chinese government’s policy of support for the domestic IC industry (as such as financial

support from the China IC Fund and local governments).

Hua Hong also reported solid Q3 2016 results. The Company achieved a utilization rate of 100.7% in Q3 2016, up from 95.5% in Q2

2016 and 90.4% in Q3 2015. Hua Hong also achieved a gross margin of 31.1% in Q3 2016, up from 30.8% in Q2 2016. Hua Hong

highlighted that the Company will focus on a niche market strategy, which will allow it to become a leader in several specialty applica-

tions with huge growth potential, such as bank IC cards, LED power management, fingerprint IC sensors and EV charging. Despite

limited new capacity in the near term, Hua Hong is trying to raise its ASP and gross margin through improvement in its product mix.

Major beneficiaries. We reiterate the view that domestic IC foundries such as Hua Hong and SMIC will be major beneficiaries of

import substitution of upstream components in the long run. There is no major A share-listed IC foundry, but SMIC and Hua Hong are

treated as proxies for the theme of localization of IC supply. There is concern that the new capacity ramp up may affect their operat-

ing margins, but management of both Companies highlighted that the impact is manageable and they don’t see much negative impact

at the margin. Shares of both Hua Hong and SMIC retreated recently, in our view, due to profit taking and limited recent news flow.

However, given their leading position in China and their track record, the recent share price weakness offers a good revisit opportuni-

ty. Apart from Hua Hong and SMIC, we believe that other upstream names, especially IC design houses, such as CEC [85.HK],

Shanghai Fudan [1358.HK], will benefit from the mega trend. CEC is transforming into an IC design house, making it one of the bene-

ficiaries of the government’s supportive policies, and the Company serves as major platform for IC chips under the CEC group, focus-

ing mainly on overseas M&A. Shanghai Fudan is a leading IC design house for the financial and infrastructure sectors. Upstream

suppliers such as Hua Hong and Times Electric [3898.HK] are likely to benefit from increasing demand for high-end components,

including IGBT and MOSFET.

November 18, 2016

4

COMPANY / INDUSTRY NEWS

Figure 1: China’s import of semiconductors vs crude oil

Sources: WIND, CGIS Research

Figure 3: China IC supply chain

Sources: Internet , CGIS Research

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014 2015

Imports of semiconductors Imports of crude oil

0

20

40

60

80

100

120

140

160

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

IC design IC manufacturing Packaging & testingRMB bn

Figure 2: China semiconductor industry

Sources: WIND, CGIS Research

Downstream

Lenovo [992.HK]

ZTE [763.HK]

TCLM [1070.HK]

Coolpad [2369.HK]

Skyworth [751.HK]

TPV

[903.HK]

Goldpac [3315.HK]

Huawei

Foundry

Hua Hong [1347.HK] SMIC [981 HK] ASMC [3355 HK]

FablessSPRD/RDA (Under Qinghua Unigroup)

Hisilicon (Under

Huawei)ZTE [763.HK]

Fudan Micro [1385.HK]

Nationz [300077.CH]

Solmon Systech

[2878.CH]

San’an Optoelec

[600703 CH]

Equipment

ASM Pacific [522.HK]Grinm Semi Material [600206.CH]Shanghai Sinyang [300236.CH]

5

COMPANY / INDUSTRY NEWS

Figure 4: China IC industry development target

Sources: www.semi.org, CGIS Research

Figure 5: China IC output

Sources: WIND , CGIS Research

2015 2020

Total Revenue > RMB350 bn > RMB870 bn (CAGR > 20%)

IC Manufacture 32/28nm mass production 16/14nm mass production

IC Design

Part of key area technologies approach international

first class level

(e.g. mobile smart terminal, network communication)

Key area technologies achieve international leading edge.

(e.g. mobile smart terminal, network communication, cloud

computing, IOT, big data, etc)

Packaging & Test Mid- to high-end revenue > 30% revenue Technology to achieve international leading edge

Material 12 inch silicon wafer into production line. Enter global supply chain

Equipment 65-45nm key equipment into production line. Enter global supply chain

-30

-20

-10

0

10

20

30

40

50

60

70

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

20

12

-01

20

12

-04

20

12

-07

20

12

-10

20

13

-01

20

13

-04

20

13

-07

20

13

-10

20

14

-02

20

14

-05

20

14

-08

20

14

-11

20

15

-03

20

15

-06

20

15

-09

20

15

-12

20

16

-04

20

16

-07

20

16

-10

Monthly IC ouput YoY (%)

6

COMPANY / INDUSTRY NEWS

Figure 6: Peer comparison

Sources: Bloomberg , CGIS Research

Ticker Company

Price Market Cap 2016F 2017F 2018F 2016F 2017F 2018F 2015 2016F 2015 2016F 2015 2016F 2015 2016F 1M 3M 6M 12M

Lcy US$m x x x x x x x x % % % % % % % % % %

HK listed names

85 HK China Electronics Corp Holdi 1.84 482 n.a. n.a. n.a. n.a. n.a. n.a. 2.2 n.a. 29.3 n.a. 17.8 n.a. 0.2 n.a. 0.0 -11.5 -8.5 -34.8

2878 HK Solomon Systech (Intl) Ltd 0.35 110 n.a. n.a. n.a. n.a. n.a. n.a. 1.1 n.a. 1.1 n.a. -11.1 n.a. 0.0 n.a. 9.5 11.3 9.5 -30.3

981 HK Semiconductor Manufacturing 1.02 5,571 14.6 13.1 12.0 7.5 6.1 5.1 1.4 1.3 7.3 9.2 3.8 4.5 0.0 0.0 8.5 32.5 54.5 22.9

3355 HK Advanced Semiconductor Man-H 0.56 111 n.a. n.a. n.a. n.a. n.a. n.a. 0.8 n.a. 1.5 n.a. -0.3 n.a. 0.0 n.a. -24.3 -6.7 -16.4 -42.3

1328 HK International Elite Ltd 0.23 272 n.a. n.a. n.a. n.a. n.a. n.a. 1.2 n.a. 6.0 n.a. 7.1 n.a. 0.0 n.a. -6.1 5.0 -3.7 -21.4

3315 HK Goldpac Group Ltd 2.25 242 7.8 7.1 6.8 2.6 2.5 2.3 0.9 0.9 17.5 11.3 8.7 6.9 7.2 4.5 -8.9 -8.9 -24.0 -39.0

327 HK Pax Global Technology Ltd 4.74 680 8.5 7.5 6.5 4.6 4.0 3.4 1.6 1.5 11.6 18.5 16.0 14.3 1.3 1.5 -14.0 -23.7 -26.3 -52.9

1347 HK Hua Hong Semiconductor Ltd 8.91 1,188 10.2 9.9 9.4 4.5 4.0 3.5 0.8 0.7 6.1 7.5 5.8 7.6 3.0 1.9 -3.2 12.2 31.4 25.0

522 HK Asm Pacific Technology 73.85 3,866 21.7 17.7 16.2 11.9 10.3 9.8 n.a. 3.4 8.2 16.3 n.a. 9.8 n.a. 2.4 12.1 20.7 39.1 19.9

1385 HK Shanghai Fudan Microelect-H 6.51 518 14.4 12.8 n.a. 10.5 9.2 n.a. 3.3 2.8 24.1 21.0 12.3 16.1 0.0 2.1 1.1 -2.1 2.2 10.5

161 HK Avic International Holding-H 4.32 649 n.a. n.a. n.a. n.a. n.a. n.a. 0.5 n.a. 15.2 n.a. 2.3 n.a. 5.2 n.a. -1.6 -7.9 18.4 -3.8

2018 HK Aac Technologies Holdings In 72.05 11,407 20.3 16.3 14.0 15.8 12.6 10.9 n.a. 5.6 36.9 29.9 n.a. 20.8 n.a. 1.8 -6.2 -9.4 18.8 30.9

2382 HK Sunny Optical Tech 39.00 5,516 31.9 24.5 19.5 22.9 17.5 14.1 9.3 7.8 18.5 27.2 11.9 14.2 0.6 0.9 1.3 5.8 56.3 114.8

1415 HK Cowell E Holdings Inc 2.20 236 5.1 4.4 3.9 2.4 2.1 2.1 0.8 0.7 44.4 13.6 12.7 7.8 0.0 0.7 -20.6 -26.4 -19.1 -40.5

1478 HK Q Technology Group Co Ltd 3.82 513 16.2 10.9 9.2 12.1 8.1 6.7 2.7 2.5 88.2 15.4 5.4 8.1 0.0 1.3 -1.5 93.9 153.0 108.7

732 HK Truly International Holdings 3.02 1,132 10.3 8.5 7.2 5.6 5.1 4.4 1.2 1.1 27.3 11.3 4.0 5.0 3.3 3.2 -6.5 -24.9 3.8 66.9

710 HK Varitronix International Ltd 3.19 302 n.a. n.a. n.a. n.a. n.a. n.a. 0.9 n.a. 14.8 n.a. 0.8 n.a. 9.6 n.a. 3.9 -10.6 -30.4 -23.4

763 HK Zte Corp-H 11.74 9,355 11.6 10.4 10.2 10.2 9.6 9.6 1.1 1.1 6.2 10.5 3.2 2.8 n.a. 2.2 10.1 1.2 16.0 -32.5

992 HK Lenovo Group Ltd 4.72 6,760 9.7 8.8 7.9 4.5 4.1 3.7 2.1 1.9 25.3 19.1 3.0 2.6 n.a. 4.4 -7.5 -11.8 -8.5 -44.6

2369 HK Coolpad Group Ltd 1.01 655 n.a. 15.8 12.3 27.3 13.1 10.9 0.8 0.8 13.5 -12.0 -18.6 -6.4 0.0 0.2 -28.9 -36.9 -21.1 -23.3

1070 HK Tcl Multimedia Technology 3.90 873 25.3 17.3 13.4 10.0 7.5 6.4 1.0 1.1 -1.1 4.9 2.3 1.3 0.0 0.8 -4.4 -7.1 -21.4 0.5

751 HK Skyworth Digital Hldgs Ltd 5.24 2,023 6.6 6.1 5.8 4.2 3.9 4.4 1.0 0.9 16.3 13.5 5.8 5.4 4.6 4.8 -2.1 -10.1 6.7 8.0

259 HK Yeebo International Hldgs 3.05 393 n.a. n.a. n.a. n.a. n.a. n.a. 2.3 n.a. 9.8 n.a. 12.7 n.a. 1.6 n.a. 0.0 27.5 97.0 67.3

Average 14.3 11.9 10.3 9.8 7.5 6.5 1.8 2.1 18.6 13.6 5.0 7.5 1.9 2.1 -3.9 0.5 14.2 3.8

A share listed names

300077 CH Nationz Technologies Inc-A 19.89 1,632 72.3 50.6 32.3 95.9 50.7 70.9 3.9 3.9 0.2 3.7 2.2 3.6 n.a. 0.6 14.3 11.3 20.8 -1.1

002049 CH Unigroup Guoxin Co Ltd-A 35.71 3,154 52.0 37.2 38.4 47.5 34.6 34.8 6.9 6.7 12.6 12.2 8.4 8.8 n.a. 0.3 -3.4 -10.1 4.2 -46.6

002104 CH Hengbao Co Ltd-A 13.93 1,447 n.a. n.a. n.a. n.a. n.a. n.a. 6.1 n.a. 22.6 n.a. 14.1 n.a. n.a. n.a. -0.1 -5.7 -8.3 -30.0

300205 CH Wuhan Tianyu Information -A 15.40 964 n.a. n.a. n.a. n.a. n.a. n.a. 5.9 n.a. 8.3 n.a. 1.7 n.a. n.a. n.a. 3.3 1.0 18.5 -20.6

600206 CH Grinm Advanced Material Co-A 11.34 1,384 189.0 126.0 87.2 n.a. n.a. n.a. 3.4 3.4 2.9 1.7 1.5 n.a. n.a. n.a. 6.4 -2.9 16.5 -17.6

300236 CH Shanghai Sinyang Semicondu-A 41.50 1,170 114.3 71.2 52.9 83.0 55.4 39.0 6.5 7.2 7.5 6.5 3.8 4.0 n.a. 0.2 13.1 -10.1 38.8 33.8

600198 CH Datang Telecom Tech Co-A 18.52 2,378 123.5 68.6 n.a. n.a. n.a. n.a. 4.7 n.a. 7.0 6.9 -1.3 2.4 0.0 n.a. -5.5 -9.8 19.4 -19.1

600703 CH Sanan Optoelectronics Co L-A 12.29 7,295 23.5 19.3 14.3 15.7 12.8 9.6 3.0 2.7 15.9 13.2 8.7 8.4 n.a. 1.8 1.2 0.6 5.9 -17.8

600584 CH Jiangsu Changjiang Electro-A 19.01 2,866 111.2 41.1 26.0 12.7 9.2 8.0 4.4 3.7 0.5 3.7 -0.2 0.7 n.a. 0.2 -5.1 4.7 20.1 4.6

300205 CH Wuhan Tianyu Information -A 15.40 964 n.a. n.a. n.a. n.a. n.a. n.a. 5.9 n.a. 8.3 n.a. 1.7 n.a. n.a. n.a. 3.3 1.0 18.5 -20.6

300046 CH Hubei Tech Semiconductors-A 26.84 555 n.a. n.a. n.a. n.a. n.a. n.a. 4.9 n.a. 4.8 n.a. 4.1 n.a. n.a. n.a. 13.6 50.4 50.4 23.1

002512 CH Tatwah Smartech Co Ltd-A 18.94 3,020 63.1 35.7 n.a. n.a. n.a. n.a. 7.7 n.a. 7.4 n.a. 3.5 n.a. n.a. n.a. 8.9 5.1 -4.3 -18.7

002017 CH Eastcompeace Technology Co-A 15.67 790 74.6 52.2 41.2 n.a. n.a. n.a. 6.3 5.9 6.3 7.9 4.1 n.a. n.a. n.a. 3.2 3.2 21.5 -5.1

Average 91.5 55.8 41.8 50.9 32.5 32.5 5.4 4.8 8.0 7.0 4.0 4.6 0.0 0.6 4.1 3.0 17.1 -10.4

Overseas listed names

2330 TT Taiwan Semiconductor Manufac 181.50 147,897 14.3 13.1 11.9 7.3 6.7 6.0 3.7 3.4 24.0 25.3 18.6 18.8 n.a. 3.5 -2.7 2.5 23.5 31.0

2303 TT United Microelectronics Corp 11.35 4,503 17.0 15.5 13.6 3.0 2.8 2.6 0.6 0.6 6.2 3.7 2.5 2.3 n.a. 4.2 -1.7 -3.4 -1.7 -7.0

3034 TT Novatek Microelectronics Cor 106.00 2,027 12.7 11.8 10.9 8.1 7.4 6.9 2.4 2.3 19.8 18.1 13.5 12.3 n.a. 7.3 -10.2 -1.9 0.5 -9.0

5347 TT Vanguard International Semi 56.80 2,925 16.9 15.7 14.1 9.2 8.7 8.1 3.4 3.2 19.3 19.7 15.8 16.5 n.a. 4.9 -6.4 2.0 8.2 42.0

2449 TT King Yuan Electronics Co Ltd 26.60 976 10.4 9.1 8.0 4.4 4.1 3.8 1.3 1.3 8.5 13.5 6.6 7.6 n.a. 6.8 -4.0 -8.0 -2.5 32.2

6147 TT Chipbond Technology Corp 43.30 883 15.0 11.6 10.5 6.1 5.5 5.0 1.2 1.2 12.7 8.0 4.2 5.2 n.a. 4.8 -4.7 6.8 8.7 -13.0

2311 TT Advanced Semiconductor Engr 34.10 8,505 13.2 11.5 10.1 6.9 6.5 6.0 1.7 1.7 13.6 12.4 5.3 5.8 n.a. 4.9 -10.8 -8.7 16.6 -5.9

2325 TT Siliconware Precision Inds 46.30 4,534 15.0 13.9 13.1 6.4 5.9 5.7 2.2 2.1 9.7 14.5 5.7 8.1 n.a. 6.3 -2.7 -3.7 1.8 6.8

2379 TT Realtek Semiconductor Corp 103.50 1,642 16.2 13.8 13.0 6.8 7.0 6.3 2.4 2.3 16.3 14.3 6.3 6.6 n.a. 4.6 -5.9 -18.2 15.4 45.7

6462 TT Egis Technology Inc 239.00 517 178.4 13.1 8.2 87.2 10.2 6.8 12.8 11.3 -28.3 9.3 -9.2 6.9 n.a. 0.8 8.6 12.7 83.8 100.0

3105 TT Win Semiconductors Corp 82.40 1,056 10.9 10.1 8.5 6.3 5.7 4.7 1.9 1.8 12.4 17.4 13.7 12.5 n.a. 2.6 -9.5 -4.8 -6.2 21.5

3152 TT Advanced Ceramic X Corp 245.00 531 21.1 17.2 14.5 14.1 12.1 9.6 5.7 5.3 17.9 25.4 23.4 22.0 n.a. 4.3 16.9 31.4 59.6 21.3

3658 TT Hermes Microvision Inc 1400.00 3,124 35.8 28.0 22.8 27.5 21.0 16.5 8.1 6.8 34.6 20.4 9.8 15.8 n.a. 1.4 1.1 2.9 30.8 12.0

3474 TT Inotera Memories Inc 29.75 6,158 36.6 13.3 21.1 7.8 7.3 6.1 1.5 1.5 59.6 -1.7 -1.4 0.0 n.a. 0.0 0.7 12.3 1.0 26.1

2408 TT Nanya Technology Corp 39.00 3,369 17.1 14.6 13.4 8.1 7.7 6.9 1.7 1.4 140.0 30.2 5.0 16.8 n.a. 5.2 -1.0 6.1 -1.0 6.1

2451 TT Transcend Information Inc 79.50 1,076 10.9 10.8 10.2 9.6 10.4 8.5 1.8 1.7 16.4 14.3 12.0 13.6 n.a. 7.4 -10.7 -17.0 -7.9 -3.3

2344 TT Winbond Electronics Corp 9.53 1,072 11.6 10.0 7.8 3.6 3.1 2.8 0.8 0.8 0.6 6.8 4.5 4.2 n.a. 2.4 -4.7 -4.0 12.4 26.2

2337 TT Macronix International 4.11 467 n.a. n.a. n.a. n.a. n.a. n.a. 0.8 n.a. -19.8 n.a. -7.0 n.a. n.a. n.a. -4.0 -3.5 36.1 -8.9

000660 KS Sk Hynix Inc 41900.00 25,995 13.7 9.1 8.4 4.2 3.4 3.2 1.4 1.3 25.2 10.0 7.5 7.4 n.a. 1.3 -0.9 24.9 61.8 36.9

MU US Micron Technology Inc 18.24 18,998 15.6 10.5 10.4 5.0 4.1 4.0 1.7 1.4 14.1 8.4 -1.1 3.5 0.0 0.0 7.4 17.5 88.6 19.4

WDC US Western Digital Corp 59.53 16,994 9.4 7.7 6.8 5.6 5.2 5.3 1.6 1.5 12.6 13.0 -1.8 4.5 3.4 3.4 11.9 33.1 62.0 -4.7

ISIL US Intersil Corp-A 22.04 3,017 30.8 27.2 25.3 22.0 18.6 17.4 3.1 3.0 0.3 8.4 4.4 6.8 2.2 2.2 0.0 45.5 85.1 63.0

SNDK US Sandisk Corp n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 14.7 13.2 4.5 7.6 n.a. n.a. n.a. n.a. n.a. n.a.

IFX GR Infineon Technologies Ag 15.55 18,905 21.9 19.4 17.1 10.5 9.5 8.6 3.6 3.4 7.4 15.2 9.8 8.0 n.a. 1.4 -1.3 3.0 30.0 37.9

Average 24.7 13.9 12.7 12.3 7.9 6.9 2.8 2.7 18.2 13.9 6.4 9.2 1.8 3.6 -1.5 5.5 26.4 20.7

Share Price PerformancePE EV/EBITDA P/B ROE ROA Div yield

7

COMPANY / INDUSTRY NEWS

Figure 7: PBR of SMIC

Sources: Capital IQ , CGIS Research

0.00x

0.20x

0.40x

0.60x

0.80x

1.00x

1.20x

1.40x

1.60x

1.80x

2.00x

Semiconductor Manufacturing International Corp. (SEHK:981) - P/BV

0.00x

0.20x

0.40x

0.60x

0.80x

1.00x

1.20x

1.40x

1.60x

1.80x

2.00x

Hua Hong Semiconductor Limited (SEHK:1347) - P/BV

Figure 8: PBR of Huahong Semiconductor

Sources: Capital IQ , CGIS Research

8

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BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :