Fully positioned in fragmenting TV landscape; Buy. Oriental Pearl (OP) has established a universal pay-TV ecosystem, leveraging itsunique business resources, which makes it better positioned in thefragmenting pay-TV sector. OP has set fast-growing internet-TV as its strategicfocus. It benefits from its unique competitive advantages and solid IPTVfoundation. We forecast sustainable recurring profit growth of 15%/12%/21%in 16/17/18, after analyzing OP’s diverse growth drivers and subscriberleverage. Our DCF-derived target price of RMB46 implies 26% upside potential. SoTP analysis also suggests OP’s value is not fully discounted. Buy. Shifting growth drivers. After a major reorganization in 1H15, OP now commands leading positions inIPTV, TV-shopping, tourism, property, etc. These offer OP a diverse businessportfolio that generates stable growth. We expect OP’s core IPTV business(representing over 50% of recurring earnings) to deliver sustainable earningsgrowth. In addition, the lucrative tourism business and TV-shopping shouldalso contribute growth. On top of that, the monetization of legacy propertyprojects should drive near-term profit and support OP’s investment in internet-TV. In the longer term, we forecast shifted growth drivers to internet-TV whileOP should generate more synergies through technological investments. Internet-TV: differentiated competitive edges. OP covers all major internet-TV monetization models, ranging from B2B2C toB2C, which should allow faster subscriber accumulation than for peers. Oncontent, OP is well positioned to execute a differentiated strategy thanks to itsfirst-mover advantage and close bond with SMG (Shanghai Media Group). Moreover, OP demonstrates full regulatory compliance with a well-roundedlicense portfolio. We believe OP’s communication with the government will befurther enhanced thanks to SMG. OP’s existing IPTV business will be crucial togenerating leverage against growing (fixed) costs from content andinfrastructure investments. The solid IPTV foundation makes OP one of the fewinternet-TV operators with a cash-generating video business globally. DCF TP of RMB46; SoTP analysis suggests potential not fully discounted; risks. We value OP based on DCF methodology as we expect investors to focus onOP’s long-term monetization of business resources. We derive a WACC of9.6%, with a cost of equity of 10.1% (risk-free rate 3.9%, beta 1.12, market riskpremium 5.6%) and cost of debt (after tax) of 4.5%. Our SoTP analysissuggests the market is not fully pricing in OP’s business potential. Downsiderisks: weaker user acquisition and ARPU of internet-TV, more severe contentprice inflation, slower property monetization and regulatory loosening.

Leading TV drama maker - strong on content and channels We initiate coverage on Zhejiang Huace Film&TV with a Buy recommendationand a target price of RMB38. Huace is the leading TV drama producer in China.We believe the company's competitive advantage encompasses its richresources and pipeline of IP and its solid relationships with leading TVstations/video websites. In addition to the TV drama business, Huace is tryingto diversify its products, recently extending into film production andentertainment programs. Huace is our top pick in the media sector. TV drama is the trump card Huace has successfully maintained its leading position in Chinese TV dramawith 10% market share. We have seen a strong pipeline in TV drama for 2H15-2016 that already has a broadcasting license. Our channel checks support ourview that Huace is expanding from traditional TV to video websites such asiQiyi, Sohu and LeTV. Huace’s TV dramas are broadcast on both traditional andnew media channels. As a result, we believe TV drama will continue to be thecompany’s earnings driver over the next three years. Beyond TV drama - movies and entertainment programs Although movies and entertainment are new to Huace and account for only1% and 0.2% of 1H15 revenue, respectively, we expect synergies with the TVdrama segment. We believe that with a strong IP pipeline, TV dramas, moviesand entertainment programs can be manufactured as a one-stop productchain. This should help increase the efficiency and fully monetize Huace’s IP. Valuation and risks We value the company at RMB38 on a DCF-based valuation (WACC of 8.7%and terminal growth rate of 4%). The company trades at 43x our 2016E EPS,implying a PEG of 0.9x on two-year earnings CAGR. Key downside risksinclude 1) piracy issues, 2) tightening SARFT policies, 3) increasingcompetition from self-produced internet dramas, 4) delays in distribution, and5) uncertainty in new business segments.

Carlyle withdraws bid for stake in Coway; good news for Haier Trading of Qingdao Haier has been suspended since 19 October due topossible M&A, with no update or timetable on its suspension. However,according to Bloomberg news on 11 Nov, Carlyle Group has withdrawn its bidfor the Coway stake due to the high price. To recap, Haier Group (parent ofQingdao Haier) formed a consortium with CJ Group in Oct to bid for a 31%stake in Coway (021240.KS, NR). Affinity Equity Partners and Carlyle Group arethe other bidders, according to the local press (pulsenews.co.kr). Coway – a market leader in Korean home wellness appliances Coway is a market leader in Korean home wellness appliances, its main focusbeing on health and well-being. It recorded sales of KRW2.2tr (USD2bn) in2014. According to the company’s website, its key products are water filtersand air purifiers, in which it has a 55%/44% market share in South Korea. MBKPartners acquired a 31% stake in Coway for KRW1.2tr in Aug 2012. Deutsche Bank comments We have not been able to confirm the news with Qingdao Haier. Based on pastexperiences with Sanyo and FPA, Haier normally acquires the overseas brandsthrough its parent company (Haier Group) and then injects them into the listco. We believe Haier’s water purifier business is in the Haier Group, but we don’tknow how Haier allocates the air/water purifier business among its three listedvehicles: Qingdao Haier, Haier Elec (1169.HK, Hold, HKD 14.22) and HaierHealthwise (348.HK, NR). In July 2014, Haier Elec and Haier Healthwise (27%stakes held by Haier Group) established a 51%/49% JV (Goodaymart Water) todistribute water purification products. According to the press, the consideration for the Coway stake is KRW3tr orUS$2.6bn, implying 39x FY14 PE. This is higher than Coway’s trading multipleof 26x FY14 PE as of 11 Nov. We believe this potential deal underpins Haier’s strategy of becoming a globalleading white goods brand with a diversified product portfolio. We seepotential synergy in Coway’s plans to grow its air/water purifier business inChina, while Haier has a strong local manufacturing capability and distributionnetwork and is eager to learn technical skills in manufacturing air/waterpurifiers. Qingdao Haier had net cash of RMB23bn as of 30 Sept. AssumingQingdao Haier acquires a 15.5% stake in Coway (half of the consortium’spotential stake), we estimate the acquisition would enhance its net profit by4% in FY14, given Coway’s net profit of KWR250bn in 2014. Qingdao Haier’sshares are still suspended but we maintain our Buy recommendation.

RMB15bn placement plan laid out; trading to resume on 6 November. SAIC Motor made a detailed announcement on 5 November regarding thepotential private share placement. The company plans to issue not more than964.0m new A-shares at not less than RMB15.56/share to not more than 10domestic institutional investors, including parent SAIC Group and employeestock incentive scheme, for RMB15bn capital, pending regulatory approvals. Within the new capital, SAIC Group will commit not more than RMB3bn andthe employee stock incentive scheme will contribute not more than RMB1.2bn. The pricing of the new A-shares, subject to a 12-month lock-up (36 months forSAIC parties), is at a 12.4% discount to SAIC's share price of RMB17.77 beforeshare trading suspension. According to the company, the placement proceedswill mainly be used for new energy vehicle (NEV), intelligent car and autofinancing projects. Shares will resume trading on 6 November. Conference call takeaway – A comprehensive NEV 2020 plan revealed. Management hosted a conference call today after the announcement. Withmonthly sales of about 1,500 units for the popular Roewe 550 plug-in hybridelectric vehicle (PHEV), management targets to sell about 13,000 units of NEVsthis year and expects annual NEV sales (Shanghai-Volkswagen (SVW), SAICGM(SGM) and own-brand combined) to reach 600,000 units by 2020 with 30available models. The company has confidence in its NEV technologies, suchas battery management system, and believes it can beat competition. SAIC’sNEV business is making profit with government subsidy and managementthinks, with economies of scale and savings on parts, it will continue to recordprofit even considering the decline in subsidy in future years. Regarding NEVnew models, SAIC will launch Roewe 750 PHEV, Roewe 950 PHEV and somepure-electric vehicles (with driving range of 250-500km) in the next 2-3 years. Despite the large scale investment in NEV, the company expects itsconventional passenger vehicle operations (i.e. new product cycle for SVW andSGM in 2016-18E) will sustain a stable dividend payout ratio. Deutsche Bank view – EPS dilution inevitable given a lack of near-term profit. Assuming a successful new share issuance and with a 9% increase in thenumber of outstanding shares, we estimate that SAIC’s FY16E EPS dilutionwould be about 8%, as we only see limited, if any, investment return inforeseeable future. Given similar fund raising plans by other A share peers, wewere not surprised by SAIC’s rationale even though the company is not cashtight(c.RMB49.3bn net cash, excluding consolidation of the sales and financecompanies, as of 3Q15). Our forecast have not yet factor in the potential shareplacement as there is still uncertainty on the final size/timing of the equityraising. We maintain Buy rating given attractive FY16E P/E valuation of 6.5x onthe back of 9% FY15-17E two-year EPS CAGR and attractive 7.7% FY16E yield. In October, SAIC achieved 13.0% YoY (3.5% MoM) vehicle sales growth.

Update 1) No further circular will be released by the company, as it is not required. TheRMB40/share price tag and the taking of an additional 31% stake by aseparate entity are Ping An’s decisions, and thus there is no comment frommanagement. However, management added that the increase in stake showsPing An’s confidence in Jahwa’s long-term outlook. 2) In 30 effective days, if the registered shares are fewer than the targetednumber of shares that Ping An intends to purchase, then Ping An willpurchase all the registered shares. If the number exceeds the target, Ping Anwill purchase shares proportionately. 3) For the new entity, Tai Fu Xiang Er, all the financed capital from the trust planhas been put in place. But management did not comment as to whether thisfinancing came from Ping An or an external source. Deutsche Bank’s view In the short term, the share price is likely to be supported by the RMB40 pricetag offered by Ping An, despite the earnings miss in 3Q15. Taking a sizableadditional 31% stake has also prompted market speculation that the stakecould be sold to a strategic partner in the future.

Pinggao Electric reported in-line 3Q15 results and announced to acquire assetsfrom parentco and invest in overseas plants along with a no-more-thanRmb4.9bn share placement. Without asset injection/share placement, weforecast a strong earnings growth in 2015-16 (+40/38%) backed by UHV ordersreceived YTD. The announced acquisition, fairly priced at 15x FY16E P/E, is tofurther strengthen its low-mid voltage and export capability, even EPS impactis likely to be neutral due to share placement. The stock has resumed tradingtoday after four-month suspension during which the market has corrected by27%. However, we think its strong fundamentals will prevent the stock fromfalling as much as the index. Reiterate Buy with a target price of Rmb27.1. 3Q15 results in line; growth to remain strong into next year Pinggao Electric’s 3Q15 revenue was up 39% yoy, driven by 1) more UHV GISdelivery (4 vs. 2 in 3Q14) and 2) consolidation of Pinggao Toshiba. On higherUHV product contribution, GPM jumped by 10ppt to 36.4% and thus GP/NPgrew by 89%/28%. 9M15 NP accounted for 52% of our full-year forecast, inline with avg. of 57% in 2013-14. We believe the company is on track toachieve our FY15 estimate, with full-year UHV GIS delivery schedule intact(total 20 units, 10 in 4Q15). Backed by a record UHV order intake (Rmb3.4bn)YTD, we also expect the earnings growth to remain strong into 2016 (+38%). Asset acquisition and share placement Pinggao Electric announced to acquire assets from parentco and set up a GISplant in India, funded by share issuance of >= Rmb4.9bn. Accordingly, itproposed to place <=219m shares (16.2% of total share capital) to 10 investorsat a price >= Rmb22.33/share. Among the total gross proceeds of Rmb4.9bn,Rmb3bn is planned for asset acquisition from parentco, Rmb799m for sharecapital increase in five companies while Rmb676m for Indian plant. Theparentco guaranteed the NP of acquired assets at >Rmb213m/>Rmb271m in2016E/17E (up from Rmb109m/Rmb145m in 2014/15E) with a specifiedpenalty scheme, implying a 15x FY16E P/E and a 16% FY16e earnings upside.After factoring in a max. share dilution of 16%, the EPS impact seems neutral. A move to strengthen low-mid voltage and export capability The planned acquired assets include five companies: 1) Shanghai Tianling(90% stake, low-mid voltage GIS cabinets, 2014 NP: Rmb35m), 2) PinggaoWeihai (100%, low-high voltage GIS, 2014 NP: Rmb17m), 3) PinggaoTongyong (100%, low-mid voltage switch cabinets, 2014 NP: Rmb43m), 4)International Engineering Co. (100%, export & EPC, 2014 loss: Rmb2m),Langfang Toshiba (50%, arrestors, 2014 NP: Rmb15m). We consider theinjection/investment, as a move to 1) strengthen its low-mid voltage productoffering to benefit from distribution grid investment tailwinds; and 2) to betterposition for L-T growth with enhanced export capability (InternationalEngineering Co.’s order intake in 2014 at Rmb2.6bn).

It resumes trading on 2 Nov 2015; the price was limited up at HK$37.91. Deutsche Bank’s view. We are neutral on this announcement at this stage aswe have yet to understand the rationale behind the pricing and the stakeinvolved (which involves an exemption of a general offer). That said, the majorshareholder’s move to increase its stake is a positive move. To gain moreclarity, we would require the following information from management. Pricing and procedure. Will there be a circular detailing how the offer ispriced (which deals are the benchmarks)? and the timing and procedure ofthe offer (a pro rata basis of every 3.2 shares to 1, for instance)Anychance that Ping An will raise the price? Under what conditions will PingAn get an exemption from the stock exchange to avoid a general offer Ping An’s stake in Jahwa. After the deal, Ping An will own 58.87% ofJahwa, relative to only 5-15% of its other investments, according to theannouncement. What is the rationale behind owing a controlling stake?And why 31%? What are Ping An’s plans for the cosmetic segment The new entity. Is the set-up of Tia Fu Xiang Er just for the sake of holding31% of Jahwa? Will there be any expiry date on the fund? What is thefund-raising process for this company?

Long-term growth story retained; maintaining Buy We lower our FY16-17 forecasts by 2-3% to reflect the weaker-than-expected3Q15 sales growth and management’s revised guidance for FY16-17 top-linesales growth (mid to high single digits). Air conditioner sales declined by 20%yoy in 3Q15, and management plans to continue with the reduction of outputuntil channel inventory returns to a normal level ? by 1Q/2Q16. To recap,channel inventory fell by 20% in September versus June. We believe Midea’slong-term growth story is retained. Maintaining Buy. Top-line target cut to mid to high single digits for FY16-17 Management cut its top-line growth guidance to mid to high single digits (fromlow teens) for FY16-17 in its 3Q15 analyst conference call. We believe this is tomaintain a balance between its profitability and market share gain, withprofitability as the priority. We expect washing machines/refrigerators/smallappliances to post FY15-17 CAGRs of 13%/13%/9%, driven by the launch ofdifferentiated products and the expansion of the flagship store coverage. Weestimate a 12% net profit CAGR over FY15-17, on a sales revenue CAGR of 7%. 3Q15: sales down 9% yoy, with core net profit down 1% yoy Midea reported a 3Q15 net profit increase of 14.7% yoy, to RMB2.7bn (corenet profit down 1% yoy), owing mainly to government subsidies. Sales revenuedeclined 9% yoy, owing to a 20% yoy sales decline in air conditioners. Channelinventory fell 20% in September versus June; however, this was still high, andmanagement expects a healthy level to be reached by 1Q/2Q16, which is inline with our expectation. The GP margin declined 0.8ppt, to 23.3%, onreduced output volume and a price discount on AC. Target price fine-tuned to RMB34.09, from RMB34.79, on 12x FY16E PE; risks We lower our target price by 2% to reflect the lower-than-expected top-linegrowth. Our DCF (9.5% COE, 1.0 beta, 2% TGR) yields RMB34.09/share (old:RMB34.79), implying 13x/12x FY15/16E PE, or 1.0x PEG, which is in line withthe 0.9-1.1x PEG for the sector. Downside risks: global expansion; slower-thanexpectedde-stocking of air conditioners; fierce competition.

9M15 recap Chalco reported a 3Q15 net loss of RMB930mn, compared to net profit ofRMB117mn and RMB88mn in 2Q15 and 1Q15, and net loss of RMB1.2bn in3Q14) under PRC GAAP. Total revenue fell to RMB29.2bn (-16% yoy/-25% qoq)on lower ASPs, softer demand and prevalent overcapacity. In terms of YTDperformance, Chalco posted a narrower net loss of RMB725mn in 9M15 vs netloss of RMB5.5bn in 9M14. Non-operating income rose to RMB1.4bn in 9M15,vs RMB686bn in 9M14, mainly due to the increase in government subsidies. Aluminium LME 3-month forward dropped to USD1,623/t (-19% yoy/-9% qoq)in 3Q15. Chalco’s free cash flow (as calculated by OCF less ICF) improved to RMB5.1bnin 9M15, compared to RMB3.0bn in 9M14, thanks to lower capex/investments. Investing cash flow in 9M15 was an inflow of RMB2.0bn, vs outflow ofRMB2.3bn in 9M14. Operating cash flow was down 42% yoy to RMB3.1 in9M15 due to an increase in receivables and inventories. Gross debt finished 9M15 at RMB109.2bn, vs RMB116.8bn at Jun’15 andRMB124.0bn at the beginning of this year. This was partly helped by theprivate placement of ~1.4bn A shares with net proceeds of RMB7.9bn in June. Gross gearing fell to 72% from 78% at YE14. Debt maturity profile alsolengthened with ST debt as % of gross debt down to 44% at Sep’15 from 61%at YE14. Bond view We maintain our CreditBuy on the CHALUM 6.25% perps. The perps are nowbeing marked at around $102.5 which is about 4pts off the lows in late August. Our call is underpinned by the perp’s strong structural feature (senior ranked,500bps step up upon 2017 call) and still attractive valuations (4.1% or 360bp to2017 call) even though we believe performance from here will be largely drivenby carry. We believe the likelihood of call is high given the punitive marginstep-up and Chalco (being a large Central SOE) can raise cheaper seniorfunding onshore. Despite still challenging sector headwinds, credit metrics areshowing signs of modest improvement. Our Buy call is also consistent with ourbroader China IG strategy in preferring with large, central SOEsover regional/local SOEs.

Sales increased 15% yoy, while NP was down 64% yoy. Yonghui announced its 3Q15 results after the market closed on 29 October2015. NP dropped 64% yoy to RMB71m due to the operating deleverage. Salesgrew 14.8% yoy to RMB11bn. For 9M15, sales increased 17% yoy, aslowdown from 18% yoy growth in 1H15. Gross margin edged up slightly by0.3 ppts to 19.3%. Opex as a percentage of sales increased 1.5 ppts to 17.7%,with selling expenses and administration expenses increasing 24%/32%,respectively, which led to an EBIT decline of 72% yoy to RMB82m in 3Q15. Balance sheet remains healthy. Accounts payable increased 47.5% yoy to RMB5.95bn. Net cash increased toRMB6.46bn as of end-3Q15 from RMB661m as of end-3Q14. Operating cashflow was RMB1.59bn as of end-September 2015, vs. RMB1.28bn as of end-September 2014. 21 stores added, while SSSg declined 1-2% yoy. The company has opened 21 new stores in 10 regions including Shanghai,Beijing, Sichuan, and Anhui in 2015, bringing the total number of stores to 372by end-September 2015. GFA increased 15.7% yoy. SSSg in 3Q15 declined 1-2% yoy. To recap, SSSg was 3-4% in 1Q15 and 0.4% for 1H15. 3Q results below our expectation. 3Q sales were 23% of our full-year estimation, which is lower than 25%/25% inFY13/14. For the strategic partnership with JD, management has not revealedthe detailed action plan. We expect the plan to include joint procurement andO2O initiatives.

NP down 3.2% on sales growth slowdown Shanghai Jahwa (SJ) announced its 3Q results after market close today. NPdeclined 3.2% to RMB150m, with sales growth slowing to 4% (3Q salesRMB1.4bn). Excluding one-off items, NP was down 14.2% yoy to RMB139m.GPM remained at 58.2%, same as 3Q14. EBIT margin signicantly eroded 5 pptto 9.3%, mainly due to opex growth of 10% (above sales growth). Sellingexpense as % sales was up 3ppt to 40% and admin costs also up 1 ppt to 10%. By the end of September, the company’s inventory level had increased 42.0%yoy to RMB703m. AR significantly increased 53% vs end-Sep 2014. Thedisposal of Jaing Yin Tian Jiang (an associate company of SJ) was approved bythe board in October, but has yet to be reflected in the P&L. Trading in the share has been suspended since 23 Sep 2015 because thecontrolling shareholder offered to increase its stake in the company. SJ is tohold an analyst meeting at 2:00pm on 29 Oct (Thursday) when more detailsshould be disclosed.。 Deutsche Bank views – 3Q results slightly lower than our expectation Sales and core NP for 9M15 represented 75.2% and 82.5% of our full yearforecast. For reference, in 2013/2014, 9M sales accounted for 78.2% /80.1% ofannual sales. 9M NP accounted for 81% and 77.8% of total NP in 2013 and2014 respectively.

Another strong quarter driven by export business. Hengrui reported sales/core EPS of RMB2.5bn/RMB0.26 in 3Q15, representing26%/42% YoY growth respectively. With an approximately RMB100m profitcontribution, the export business represented over two-thirds of the profitgrowth. During a call we hosted this afternoon, management highlighted that1) export business is likely to deliver 20-30% sales growth in 2016; 2) Apatinibis on track to reach the sales target of RMB250-300m; 3) approval for 19K anda manufacturing inspection for Retagliptin are expected in 1H16; 4) growth inthe existing business might decelerate in 2016 due to pricing pressure. More color on 3Q15; growth outlook for 2016. In 3Q15, we believe growth for oncology, anesthetic, and contrast agentsreached 10%/20%/30% respectively. Export revenues were approximatelyRMB110m in 3Q15, similar to 2Q15. Management reiterated 20-30% growthguidance for the export business, with a 50% contribution from existingproducts and 50% from two to three product launches. For Cyclophosphamide,the company expects a 50% market share in the US in a bull-case scenario. Additionally, the upfront payment of USD25m from Incyte was received in Oct2015. Management expects Apatinib/Imrecoxib to enter the Jiangsu RDL in2016/1H16 respectively. For Imrecoxib, the opportunity in Jiangsu alone mightbe as large as the current total sales. Updates on pipeline and existing products. The company expects the launch of 19K and Retagliptin in 2016. Additionally,we expect 5-6 first-to-market generics launches in 2016, including threecontrast agents. For existing products, the company expects growth todecelerate in 2016 as drug tenders remain the largest uncertainty. Additionally,old products such as Oxaliplatin might face pricing pressure in drug tenders. However, there is upside for drugs that did not win tenders in the last round,including Capecitabine and Imrecoxib. Increasing price target to RMB60 from RMB55; risks. We increase our price target to RMB60 from RMB55, based on 42x 2016E EPSof RMB1.4 vs. the 40x we used previously. We increased our EPS estimate by4%. We believe 42x is justified as A-share peers are trading at 27x with 25%EPS growth in 2017 (vs. the 32% we model for Hengrui). Key risks: delays inproduct launches, uncertainties in export, pricing pressure, and competition.

Strong PPOP growth to offset higher provisions; Buy maintained. Ping An Bank (PAB) reported 9M15 NPAT of Rmb17.7bn, up 13.0% yoy,accounting for 81% of our 2015 full-year forecasts. Its 3Q15 NPAT ofRmb6.2bn (up 9.5% yoy) was mainly driven by robust PPOP growth of 31%yoy, offset by elevated credit costs of 234bps. We estimate the bank recordeda higher NPL formation rate of 313bps in 3Q15 (2Q15: 215bps), partly due totighter NPL classification during the quarter, as evidenced by falling specialmention loan balance and less overdue loans beyond 90 days as a percentageof NPL balance. Reflecting strong growth momentum on product innovationand group synergy to offset credit risk, we maintain our Buy rating on PAB. 3Q15 – running the numbers. PAB’s NIM expanded by 16bps yoy (or up 7bps qoq) to 2.76%, together withAIEA up 16% yoy, leading to a strong growth in net interest income of 23%yoy. Its NIM expansion was mainly due to 1) falling cost in deposits andcertificates of deposits issued on policy easing; 2) rising portion of higheryieldingpersonal loans, e.g. Dai Dai Ping An. Fee income growth softened to29% yoy in 3Q15 (2Q15: up 83% yoy) due mainly to stock market consolidationand seasonality of advisory fee income. With 3Q15 Opex growing only by12.8% yoy against 23.4% yoy for total revenue, its cost-to-income ratio dippedby 3.6% yoy to 38.8%. With loan growth of 22% yoy exceeding deposit growthof 14% yoy, PAB’s LDR rose by 4.3% yoy to 70%. Rising NPL formation on tighter bad loan classification – a positive sign. Despite a stable NPL ratio at 1.34% as of 3Q15, if incorporating the gross NPLwrite-off of Rmb8.9bn, we estimate the bank recorded a higher gross NPLformation rate of 313bps, compared with 215bps in 2Q15. We believe PABmay have started to strengthen NPL classification, as we note its SML ratiohas dropped by 16bps qoq to 4.30% in 3Q15. Meanwhile, the bank’s overduebalance fell by 9% qoq to 4.56% of loan book (down 54bps qoq). As a result,overdue loans beyond 90 days accounted for 235% of NPLs, down from 270%in 2Q15. PAB’s NPLs are more concentrated in retail loans with an NPL ratio of2.61%, while corporate loan book only recorded an NPL ratio of 0.64%. Withcredit costs of 234bps in 3Q15 (3Q14: 168bps), NPL coverage and provision-toloanratio dropped to 167% and 2.24%, respectively. Strengthened capital positions, with strong liquidity ratio. PAB’s CET-1 ratio, tier-1 ratio and total CAR improved to 9.14%, 9.14% and11.08% as of 3Q15, up by 29bps, 29bps and 12bos qoq, respectively. The bankreported liquidity ratio of 67% and liquidity coverage ratio of 125% at Sept-end,well above the regulatory floor of 25% and 70%. During 9M15, PAB hasobtained 3.03mn customers by migration through intra-group cross-selling,which contributed 49% of total new customers and 78% of deposit growth.

Duty free sales up 67.4% yoy in August. Sanya duty free sales increased 67.4% yoy in August to RMB293m, higherthan the growth of 41.5% yoy in July and beat our estimate. YTD August salesreached RMB3bn, up 57% yoy. …but be cautious on September performance. As Haitang Bay Duty Free Shopping Mall celebrated its first-year anniversary,we remind investor to be cautious on Haitang Bay’s September performance,given the high base last year. In Sep-14, the opening month of Haitang Bay(which is 10x larger than the old downtown duty free store Dadonghai,)downtown duty free sales surged 118% yoy to RMB320m. We believe thesurge in sales was a one-off event stimulated by a lot of marketing andpromotional effort, as well as accumulated demand. In our view, given thehigh base in Sep-14, Haitang Bay may see a slight decline in duty free sales ona yoy basis, compared to 57% yoy YTD Aug-15. Nonetheless, we believe salesgrowth should return to a healthy level in 4Q15E.

Controlling shareholder offered to increase SJ’ equity Shanghai Jahwa (SJ)’s share has been suspended since this morning. Thecompany made an announcement after the market close that its controllingshareholder, Ping An Life Insurance has offered to increase its stake of SJ’sshare. Further details will be disclosed and trading will resume in five workingdays. Deutsche Bank View To recap, on 28 July SJ announced that Ping An New Capital transferred 100%of Shanghai Ping Pu Investment (wholly owns Shanghai Jahwa Group, whichin turn owns 28% of Shanghai Jahwa United (listed company)) to Ping An LifeInsurance Co. We believe that the controlling shareholder share increasereveals its confidence about SJ’ long term perspective.