"Goldman Sachs - Tactical Research Alpha in Style"
March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Equity Research Performance likely muted, yet opportunities abound in size/value 1Q13 in review: style rotation apart from size, earnings in focus A QUARTERLY PRODUCT The first quarter of 2013 has been characterized by (1) a reversal in the value This is the second issue of our quarterly “Alpha in rally, the rebound of high-return stocks, as well as the outperformance of Style” report, which aims to offer a concise analysis growth-blended styles; (2) the further outperformance of small-cap stocks of which investment styles are working in AEJ. We track close to 30 styles, including returns, growth, and (3) the strong performance of earnings-related styles, notably stocks value, size, earnings revisions, price momentum, poised to surprise at earnings. This, in our view, suggests that the market is balance sheet strength, M&A, among others. awaiting more evidence of growth realization, hence refocusing on earnings 1Q13 SAW STYLE ROTATION, BUT NOT FOR SIZE prospects as well as quality names. 110 108 Muted style performance, yet opportunities abound in size/value 106 Value 104 Our analysis on past cycles suggests that the performance for most key 102 styles tends to be muted during previous GLI ‘Slowdown’ phases, the 100 phase we are likely to be in currently. We attribute this to increased market 98 Returns uncertainty from decelerating growth momentum and limited market 96 returns. Yet, we increasingly see opportunities abound, especially for the 94 Size (large vs small cap) 92 size style. Additionally, muted style performance may dominate until we Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 see more macro clarity. Should the latter happen, value would likely be one BUY-RATED LARGE CAP LAGGARDS of the first styles to rebound. Mkt cap TP Company Ticker (US$mn) +/- Identifying large cap laggards; positioning for value with VARG Belle International 1880.HK 14,409 45% Anhui Conch Cement (H) 0914.HK 17,820 37% We identify large cap stocks which have underperformed, are trading at Dongfeng Motor 0489.HK 11,389 35% attractive valuations and offer earnings growth support. Top Buy ideas are ICICI Bank ICBK.BO 21,011 31% Larsen & Toubro LART.BO 15,080 28% highlighted on the right. To position for a value rebound, we highlight our Bharti Airtel BRTI.BO 20,804 28% value at reasonable growth (VARG) screen, which includes names with Zijin Mining (A) 601899.SS 12,222 26% Hutchison Whampoa 0013.HK 44,327 24% compelling valuations, while offering top-line / earnings growth potential. Sun Art Retail Group 6808.HK 13,053 22% Tencent Holdings 0700.HK 59,631 22% Style performance 1Q2013 vs. 4Q2012 Hon Hai Precision 2317.TW 33,126 22% Note: Buy ideas within our screen are included above. Source: Goldman Sachs Research, Gao Hua Securities Research, Datastream. Prices in this report are based on the close of March 22, 2013, unless otherwise mentioned. Source: Goldman Sachs Research, Gao Hua Securities Research, Datastream. Joy Nguyen Goldman Sachs does and seeks to do business with +852-2978-1106 firstname.lastname@example.org Goldman Sachs (Asia) L.L.C. Ricky Tsang companies covered in its research reports. As a result, +852-2978-6631 email@example.com Goldman Sachs (Asia) L.L.C. investors should be aware that the firm may have a conflict of Mike Warren interest that could affect the objectivity of this report. Investors +852-2978-1383 firstname.lastname@example.org Goldman Sachs (Asia) L.L.C. should consider this report as only a single factor in making Christopher Vilburn, CFA +81(3)6437-9897 email@example.com Goldman Sachs Japan Co., Ltd. their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non- US affiliates are not registered/qualified as research analysts with FINRA in the U.S. The Goldman Sachs Group, Inc. Global Investment Research March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style 1Q13 in review: Style rotation apart from size, earnings in focus The value rally ended, high-return companies outperformed In the January 2013 inaugural edition of this publication entitled Time for some style rotation, we argued that we might be close to the end of the value rally due to its length, the refocus on earnings and the increasingly low quality of the rally. In 1Q13, the performance of the value style reversed and value (buying stocks trading on low multiples, and selling the opposite) has been one of the worst performing styles generating -3.6% alpha YTD (-5.2% since mid-January). In the same report, we also highlighted the underperformance of the growth style for the better part of 2012 and expected it to pick up going forward, given the fact that growth has historically been a late performer and it had not outperformed significantly yet. This was conditioned on the stabilization and/or improvement of the earnings outlook. While growth has indeed performed better than other styles such as value and size, the absolute returns on a long-short basis year-to-date have remained muted at -0.5% (up 1.9% in January, but subsequently down 1.4% in February and down 0.5% in March). That said, some of our growth blended styles, incorporating a quality overlay, such as the high dividend yield and growth as well as value at reasonable growth (VARG) styles have generated notable alpha YTD (2.8% and 2.6% respectively). In our view, this goes hand in hand with the outperformance of the high return stocks since mid-January (4% long-short alpha), as well as the outperformance of the screen published in our January report that highlight high growth/quality laggards, which has yielded 6.1% alpha relative to MSCI AEJ since introduction. Yet small cap rally continued Small cap rally carried on – Size (buying stocks with large market caps, and selling the opposite) has generated a negative long-short return of -3.7% YTD (-8.4% since late November 2012) and has been one of the worst performing styles. The underperformance of the style comes across as a repeat of 1Q12 when the large caps stock underperformed the small caps (by -13.6% between late December 2011 and late February 2012). A refocus on earnings – the earnings season has served as a ’reality check’ In our February 2013 report entitled Top stock ideas during results season - passing the earnings “reality check”, we argued that this 4Q12 earnings season could be more important than previous quarters, as since June 2012 the MSCI AEJ rally had been driven by valuation expansion and investors sought evidence on the 2013 growth outlook and judged whether optimism on stocks had been misplaced. Currently, according to our strategists, 87% of the MSCI AEJ index has reported and results have been broadly in-line. Yet, some negative profit warnings (e.g. Belle, Li & Fung, ZTE, China Foods) have been announced. Earnings results have tended to meaningfully drive share price performance, with our stocks poised to surprise vs. disappoint at earnings being one of the best performing styles generating 3.0% alpha (long-short basis) YTD. Our high earnings quality style, consisting of stocks that we expect to deliver sustainable earnings growth, backed by robust cash generation and a healthy balance sheet, has generated significant outperformance (+7.6% relative to MSCI AEJ YTD). This is consistent with the refocus on quality we highlighted previously. (We would like to thank Anoop J for his valuable contribution to this report) Goldman Sachs Global Investment Research 2 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Among the various earnings revision styles, GS FY2 earnings performed the best generating 3.7% alpha (long-short basis), underpinning rightly the attention paid to FY2013 estimates by the market. This, in turn, supported our 11 top 2013 thematic ideas (see p.11 and 2013 – Themes to watch, stocks to own, November 29, 2012 for more details), which have outperformed the MSCI AEJ index by 2.1% YTD, as the majority reported above-expectation earnings and the earnings season reemphasized the opportunity offered by the secular growth theme we identified. Finally, in our January 2013 style report, we introduced an ’earnings risks’ screen including lower-growth companies for which our estimates were below consensus and had outperformed. This sell screen has underperformed the MSCI AEJ index by 2.8% since launch. Mild rotation within the quarter The 1-month price momentum style has been the best performing styles YTD, generating 17.5% long–short alpha, largely driven by the long leg. This implies that the stocks that outperformed the previous month continued to do so in the upcoming month. Interestingly, the relatively lower outperformance of the 3- month price momentum style (2.0% YTD) during the same period emphasizes that this is predominantly a short-term momentum and there has been some rotation compared to three months ago. Exhibit 1: Earnings styles, among the best performers Exhibit 2: Worst performing styles include value and size Top style performances in 1Q2013 Worst style performances in 1Q2013 1-month price momentum 17.5% (0.5%) High vs. low growth High IRRs with overlay 9.5% (0.9%) IBES cons FY1 earnings revision High earnings quality 7.6% China WC relief 7.5% (1.1%) Low vs. high EV/GCI to CROCI/WACC High IRRs 5.1% (1.2%) IBES cons FY2 earnings revision GS FY2 upgrades vs. downgrades 3.7% High vs. low CROCI and asset turn 3.5% (3.4%) Weak vs. strong balance sheet Stocks to surprise at earnings 3.0% (3.4%) High vs. low price volatility High vs. low CROCI 2.9% High dividend yield and growth 2.8% (3.6%) Low vs. high multiples Value at Reasonable Growth 2.6% (3.7%) Large vs. small market caps Structural buy thematic ideas for 2013 2.1% 3-month price momentum 2.0% (7.4%) China WC stress (Short) - Inverted 0% 5% 10% 15% 20% -9% -7% -5% -3% -1% 1% Source: Goldman Sachs Research, Datastream. Source: Goldman Sachs Research, Datastream. Exhibit 3: Some of our best performing styles in 1Q13 Exhibit 4: ...while by contrast, a number of styles broke a period of muted performance... reversed performance in 1Q13 12m performance of top performing style in 1Q2013 12m performance of the worst performing styles of 1Q2013 35% 20% 30% 25% 15% 25% 21% 10% 10% 20% 15% 5% 3% 10% 8% 0% 5% 7% -5% 0% (6%) -5% -10% Yield + Growth (Long) Stocks to surprise/disappoint Low vs. high multiples Large vs. small market caps High earnings quality (Long) GS FY2 Earnings revision Weak vs. strong balance sheet IBES FY2 Earnings revision Source: Goldman Sachs Research, Datastream. Source: Goldman Sachs Research, Datastream. Goldman Sachs Global Investment Research 3 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style What is next? Muted performance, yet opportunities abound Following a period of style rotation YTD, we update our views on style performance for the upcoming quarter. We have three main conclusions: (1) as the market awaits more evidence of the macro improvement and earnings upgrades, and our Global Leading Indicator (GLI) enters a phase of positive but decelerating momentum, style performance is likely to be relatively more muted. That said, we increasingly see two investment opportunities emerging; (2) the underperformance of large caps offers opportunities to pick some high-quality, high-growth, attractively-valued large cap stocks that might have underperformed unjustifiably; and (3) value is poised for a rebound, should signs of an improvement in the growth outlook materialize and/or valuation fall to a particularly attractive level, while risks to earnings appear limited. ‘Slowdown’ phase tends to be characterized by more muted style performance As highlighted by our strategists (see 2Q Outlook: Transition time, from ‘delivery’ to ‘recovery’, March 20, 2013), the markets expect more evidence that the cyclical improvement in growth - at both the macro and earnings levels - will in fact manifest. In their view, 2Q is likely to have a slow start and be influenced by the tension between where growth is in evidence and where growth will improve. Another way to look at this dynamic is to follow our Global Leading Indicator (GLI) which aims to provide a timely indication on the state of the global industrial cycle. Looking at past instances, we measure the performance of styles to assess which factor generated alpha in different GLI phases. Our key conclusions are as follow: Latest (preliminary) reading indicates that GLI has just entered the ‘Slowdown’ phase, characterized by still positive but decelerating momentum – The release of the latest Global Leading Indicator (GLI) reading (preliminary) for March 2013 shows tentative signs of deceleration in the global industrial cycle, and reinforces last month’s signal of a turning point in global activity (Exhibit 5). Our economists stress that the ‘Slowdown’ phase is still broadly positive for risky assets, but less so than ‘Expansion’, the prior phase. (See March Advanced GLI – A tentative move into Slowdown, March 21, 2013) Style performance has been muted during the ‘Slowdown’ phase – Comparing the performance of key styles in the four GLI phases, we find that style performance tends to be relatively more muted during the ‘Slowdown’ (positive GLI growth and negative acceleration) and ‘Recovery’ (negative GLI growth and positive acceleration) phases (Exhibit 6). This is somewhat unsurprising, as those two phases are based on an opposite direction between the mom GLI growth and its momentum, implying that they are mainly characterized by transition and/or uncertainty. In our view, the more muted style performance of the ‘Slowdown’ (our current phase) vs. the ‘Expansion’ phase (the phase we were previously in), is attributable to the fact that equity market returns tend to be limited during the ‘Slowdown’ phase. This is driven by a ‘normalization’ of valuation, which has offset earnings upgrades during the phase (see Asset allocation: enhanced framework; focus on 3m views, June 8, 2012, by our Asia Pacific Strategy team). In other words, post the ‘Expansion’ phase where equity returns were significant, driven by valuation expansion and earnings bottoming out, the ‘Slowdown’ phase is poised to see the realization of earnings growth expectations and valuations adjusting accordingly. While the moderation in terms of performance is particularly significant for the value style (11.6% median alpha in ‘Expansion’ phase and 2.4% in ‘Slowdown’), the performance of the growth and returns styles have also been muted during the ‘Slowdown’ phase (0.2% and 0.6% returns, respectively). Goldman Sachs Global Investment Research 4 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Exhibit 5: The GLI is on the border of the ‘Slowdown’ Exhibit 6: The ‘Slowdown’ phase is when we see the phase most muted style performance The GLI swirlogram Median performance of styles by GLI phase 0.15 4% Recovery Expansion 11.6% 0.10 3% Oct 12 2.4% Nov 12 Dec 12 2% 0.05 Jan 13 1.1% Feb 13 1% 0.7% 0.6% 0.00 GLI acceleration 0.2% 0% -0.05 Mar13 (1%) -0.10 (2%) The performance for key styles have -0.15 been more muted in the Slowdown (3%) phase vis a vis the Expansion phase -0.20 (4%) Contraction Slowdown (current) Value (Cheap vs, expensive) Growth (High vs. low) Returns (High vs. low) -0.25 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4 0.5 GLI growth Recovery Expansion Slowdown Contraction Source: Goldman Sachs ECS Research. Source: Goldman Sachs Research estimates, Datastream, Goldman Sachs ECS Research. Alongside the more muted performance, convergence in style performance also tends to characterize the ‘Slowdown’ phase – As shown in Exhibit 7, the dispersion in terms of style performance during the ‘Slowdown’ phase has been the lowest historically. Exhibit 7: Standard deviation in the style performances is the lowest during the GLI slowdown phase Style performances and standard deviation (2006 to date) Value Growth Returns Leverage Size GS FY1 GS FY2 Cons FY1 Cons FY2 Std dev of Phase (Cheap vs. (High vs. (High vs. (Weak vs. (Large vs. Earnings Earnings Earnings Earnings MSCI AEJ alpha of expensive) low) low) strong) small) revision revision revision revision all styles Recovery 1.2% (0.8%) 0.4% 1.7% 4.3% 7.5% 7.3% 7.0% 7.2% (3.6%) 3.4% Expansion 11.6% 1.1% 0.7% (1.9%) (2.8%) 4.4% 5.7% 1.8% 4.5% 16.3% 4.4% Slowdown 2.4% 0.2% 0.6% 1.9% (2.8%) (1.6%) (3.1%) (2.7%) (4.9%) 5.9% 2.5% Contraction 1.1% (3.3%) 3.3% (5.8%) 3.8% 3.4% 3.6% 5.2% 3.3% (8.4%) 3.7% Source: Goldman Sachs Research estimates, Datastream, Goldman Sachs ECS Research. We recognize that determining which phase we are in can be difficult and backward looking at times. Therefore, we note that regardless of the phase we are in, the strength of the cycle also matters to style performance. Exhibit 8 suggests that there is a high correlation between the magnitude of the style performance and the strength of the GLI growth during the ‘Expansion’ and ‘Contraction’ phases (with the notable exception of value in the ‘Expansion’ phase). This is consistent with the correlation that our strategists have found between the magnitude of the cycle and equity returns (see DM policy buffs dull Asian fundamentals, September 19, 2012). This implies that, with the exception of value, which tends to move ahead of the cycle, the stronger the industrial cycle is, the higher the outperformance of the high growth and high return styles. Goldman Sachs Global Investment Research 5 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Opportunities increasingly abound: Size and Value to rebound The next GLI ‘stop’ could be a return to the ‘Expansion’ phase, supportive of a value rebound – While flirting or potentially being in the ‘Slowdown’ phase is consistent with our economists’ near-term forecasts for a soft patch for global growth over the next few months, primarily led by a slowdown in the US owing to increased fiscal drag, they expect this to be temporary and to see growth reaccelerating in the later part of the year and into 2014. This could lead the GLI to re-enter the ‘Expansion’ phase, boding well for the value style. As shown in Exhibit 9 (see Global Economics Weekly: Life in the Slowdown phase, May 16, 2012), analysis of past transitions out of the ‘Slowdown’ phase shows that after three months, more than 60% of the time the cycle remains in the ‘Slowdown’ phase, but also with about an equal probability (20% each) that the cycle has reaccelerated into the ‘Expansion’ phase, or that growth has turned negative too and the cycle has entered the ‘Contraction’ phase. Exhibit 8: Style performance during macro cycles has Exhibit 9: The GLI is more likely to return to the correlated with the strength of the cycle ‘Expansion’ phase Correlation between style performance and GLI mom growth Business cycle phase transitions during phases 120% Acceleration positive Recovery Expansion Expansion Contraction (10%) (40% of the time) Correlation between GLI mom growth and 98% 9/9 100% 93% 88% monthly style perf ormance 0/11 80% 75% 18/18 64% 60% 7/18 Acceleration Negative In the slowdown phase, 40% 9/11 it is almost as likely to 30% turn back to expansion as it is to contraction 20% 11/18 Contraction Slowdown 0% (10%) (40%) Value Growth Return Growth Negative Growth Positive Source: Goldman Sachs ECS Research, Goldman Sachs Research estimates. Source: Goldman Sachs ECS Research. We have also looked back in time and identified periods where value as a style has underperformed since 2006. The median duration and alpha during such phases have been 74 days and -7.4% respectively (Exhibit 10), although we recognize that these medians hide a more nuanced picture and every phase has had its own specificities. We are currently 74 days/-5.4% alpha into value underperforming and, if history serves a guide, it suggests that we are getting closer to the end of this period. Further, size has underperformed significantly (- 2.5% over the period considered in Exhibit 10, -8.4% since late Nov 2012) and we believe it offers opportunities to pick some high-quality, high-growth large caps at attractive valuations. Finally, growth has only underperformed in the last instance of value underperformance and the current one, implying that ‘Growth’ has room to outperform, should growth expectations incrementally materialize. Goldman Sachs Global Investment Research 6 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Exhibit 10: The current value underperformance is the first time size has underperformed by this magnitude, and the second time when growth has also underperformed Performance of different styles in periods of value underperformance Value Leverage Size Duration Cheaps vs. Growth Return Weak vs. Large vs. From To (days) expensive High vs. low High vs. low strong small MSCI AEJ 1 23-Oct-06 20-Jan-07 89 (13.4%) 10.1% 1.6% (2.7%) 0.8% 11.7% 2 4-Mar-07 25-Jun-07 113 (9.5%) 4.0% 3.2% 1.4% 0.1% 19.4% 3 16-Jul-07 13-Jan-08 181 (20.9%) 16.2% 6.4% (2.4%) 16.3% 7.2% 4 12-Sep-08 8-Dec-08 87 (13.9%) 6.5% (3.3%) (8.0%) 9.1% (26.7%) 5 9-Jan-09 5-Mar-09 55 (7.8%) 1.5% 3.5% (4.7%) 4.9% (8.2%) 6 29-Sep-09 17-Nov-09 49 (3.3%) 1.8% 5.2% (5.7%) 2.1% 4.0% 7 18-Jul-10 16-Sep-10 60 (3.8%) 2.1% (1.2%) (1.5%) (1.5%) 7.3% 8 15-Jul-10 14-Sep-10 61 (4.7%) 2.2% (0.3%) (1.4%) (0.7%) 7.0% 7 25-Jan-11 25-Feb-11 31 (6.9%) 2.1% 1.9% (3.7%) 1.9% (4.6%) 8 22-Jun-11 26-Sep-11 96 (14.0%) 4.4% 2.5% (3.2%) (0.6%) (18.0%) 9 9-Feb-12 25-Jul-12 167 (6.3%) (5.3%) 9.3% (2.5%) 6.3% (7.5%) 10 7-Jan-13 22-Mar-13 74 (5.4%) (1.8%) 2.6% (4.7%) (2.6%) (2.5%) Average 87 (9.2%) 3.6% 2.6% (3.3%) 3.0% (0.9%) Median 74 (7.4%) 2.2% 2.6% (2.9%) 1.3% 0.7% Source: Goldman Sachs Research estimates, Datastream. Goldman Sachs Global Investment Research 7 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Identifying selective large cap opportunities We believe the underperformance of large caps offers selective opportunities for attractively valued, high-quality/growth large cap stocks. In our view, their recent underperformance might be overdone. We highlight 17 large cap ideas below, which have underperformed the MSCI AEJ index since December 2012, with valuations below historical median, and are expected to deliver double-digit earnings growth in 2013. Key Buy ideas with more than 20% upside potential include: Conch (H), Belle, Bharti, Dongfeng, Hon Hai, Hutchison Whampoa, ICICI Bank, L&T, Sun Art, Tencent and Zijin (A). Detailed screening criteria: Large cap: Non Sell-rated stocks with market cap more than US$10 bn; Recent underperformance: Underperformed the MXASJ index since December 2012; Attractive valuations: 2013E P/E levels are below historical five-year average. We also ensure the names have seen limited multiple expansion (less than 5%) since December 2012; Solid growth: Forecasted to deliver more than 10% EPS yoy growth in 2013E Exhibit 11: Large cap laggards screen Chg since Dec-12 Valuations Growth/returns ADTV Mkt Cap Rating Pricing Last TP Rel share P/E EPS P/E 5-yr EPS Ticker Company name Sector PE ROE (US$mn) (US$mn) (* CL) Ccy Price (+/-) (%) px perf change change median growth C2013E C2013E C2013E C2013E C2013E LART.BO Larsen & Toubro Capital Goods 42 15,080 Buy Rs 1,337 28% (21%) (18%) 1% 15x 19x 11% 16% COAL.BO Coal India Ltd. Energy 12 35,118 Neutral Rs 301 24% (21%) (17%) 1% 11x 13x 11% 35% 1880.HK Belle International Retailing 33 14,409 Buy HK$ 13.26 45% (20%) (13%) (5%) 17x 21x 20% 21% 2317.TW Hon Hai Precision Hardware 124 33,126 Buy NT$ 83.50 22% (14%) (19%) 11% 9x 12x 12% 15% 0762.HK China Unicom Teleco Services 46 32,239 Neutral HK$ 10.62 26% (14%) (13%) 2% 18x 37x 54% 5% 1128.HK Wynn Macau Consumer Services 22 13,534 Neutral HK$ 20.25 14% (14%) (6%) (5%) 14x 15x 13% 127% BRTI.BO Bharti Airtel Teleco Services 28 20,804 Buy Rs 297 28% (13%) (15%) 7% 22x 23x 85% 10% 6808.HK Sun Art Retail Group Retailing 9 13,053 Buy HK$ 10.62 22% (12%) (8%) (0%) 26x 29x 19% 17% 2628.HK China Life Insurance Insurance 95 75,562 Neutral HK$ 20.75 27% (11%) (8%) (0%) 14x 27x 127% 15% 0728.HK China Telecom Teleco Services 33 41,291 Neutral HK$ 3.96 21% (9%) 0% (6%) 14x 18x 23% 7% 0489.HK Dongfeng Motor Autos 32 11,389 Buy HK$ 10.26 35% (8%) (5%) 0% 8x 8x 22% 16% 601899.SS Zijin Mining (A) Materials 35 12,222 Buy Rmb 3.48 26% (7%) 3% (6%) 12x 17x 27% 21% 0700.HK Tencent Holdings Software & Services 117 59,631 Buy HK$ 248 22% (6%) 4% (6%) 22x 23x 14% 31% ICBK.BO ICICI Bank Banks 62 21,011 Buy Rs 1,021 31% (5%) (4%) 3% 13x 17x 15% 13% 0857.HK PetroChina (H) Energy 87 240,043 Neutral HK$ 10.18 11% (4%) 5% (5%) 10x 11x 22% 13% 0013.HK Hutchison Whampoa Capital Goods 66 44,327 Buy HK$ 80.70 24% (1%) 1% 1% 12x 15x 11% 7% 0914.HK Anhui Conch Cement (H) Materials 43 17,820 Buy* HK$ 26.10 37% (1%) (8%) 11% 11x 14x 69% 19% Pricing for the screen is based on March 26 close; sorted by relative share price performance vs. MXASJ since Dec 1 2012. Source: Datastream, I/B/E/S, Goldman Sachs Research estimates, Gao Hua Securities Research estimates. Goldman Sachs Global Investment Research 8 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Positioning for a potential value rally – VARG As aforementioned on page 4-6, we see the potential for a rebound in the value style, should we see more macro clarity. We continue to view our value at Reasonable Growth (VARG) screen as a preferred way for investors to gain exposure to value names while avoiding ‘value traps’. In the screen we highlight 22 companies which are not only at attractive valuation levels, but also offer decent top-line and earnings growth potential. We believe the value component will enable investors to enjoy the upside from potential multiple expansion, while the ‘growth’ overlay should: Help avoid ‘value traps’, as solid growth represents a sign of robust improvement in fundamentals; and Capture the additional leg of share price upside from delivering base case earnings growth and further surprise potential from positive operating leverage. Names on the screen trade on a median of 1.0X and 9X NTM P/B and P/E, respectively, versus coverage median levels of 1.8X and 15X. Meanwhile, on median the ideas on the VARG screen generate sales/earnings growth of 16%/35%, which is significantly higher than coverage median levels of 12%/17%. CL-Buy names on the screen include CNR and Hyundai Dev. For further details on the screen, please see Quality has run, value to follow? Introducing ‘value at reasonable growth’ screen, Sep 20, 2012. Detailed screening criteria are also available in Exhibit 15. Exhibit 12: Value at reasonable growth screen Valuation & return metrics Op leverage Gearing Tech indicators 5y 5y Price Rating Mkt Cap Latest TP +/- Sales EPS Net Debt / 14-day Company Name Ticker Sector PB trough PE trough ROE from 52- (* in CL) (US$ mn) Price (%) CAGR CAGR Equity RSI PB PE wk low NTM NTM 2013E 2013-14E 2013-14E 2013E Median (Screen) 1.0x 0.5x 9x 6x 11% 16% 35% 42% 14% 46 AirAsia Berhad AIRA.KL Airlines Buy 2,501 RM 2.78 55% 1.3x 0.8x 7x 4x 24% 16% 38% 106% 14% 58 Apollo Tyres APLO.BO Automobiles Buy 753 Rs 80.95 19% 1.2x 0.5x 6x 1x 19% 12% 26% 42% 9% 37 Career Technology 6153.TW Technology Neutral 415 NT$ 38.15 13% 1.5x 0.4x 9x 5x 16% 20% 21% (15%) 2% 61 Cheng Uei Precision 2392.TW Technology Neutral 941 NT$ 57.00 18% 1.2x 0.7x 12x 8x 9% 25% 37% 85% 6% 53 China CNR Corporation 601299.SS Machinery Buy* 7,045 Rmb 4.24 30% 1.2x 1.0x 9x 8x 13% 20% 35% 28% 28% 36 China Shanshui Cement 0691.HK Construction Neutral 1,683 HK$ 4.64 42% 1.2x 0.4x 5x 3x 23% 18% 29% 94% 14% 30 China Telecom 0728.HK Telecom Neutral 41,291 HK$ 3.96 21% 0.9x 0.8x 14x 13x 7% 11% 23% 41% 19% 43 COSCO Pacific 1199.HK Multi-Industry Buy 3,885 HK$ 11.12 39% 1.0x 0.5x 10x 8x 10% 11% 18% 50% 29% 30 Daewoo E&C 047040.KS Construction Neutral 3,315 W 8,860 2% 1.0x 0.8x 9x 9x 6% 16% 53% 36% 9% 45 Guangxi Liugong 000528.SZ Machinery Neutral 1,598 Rmb 8.82 4% 1.0x 0.9x 11x 5x 8% 20% 65% 30% 16% 37 Hyundai Development 012630.KS Construction Buy* 1,622 W 23,900 26% 0.7x 0.5x 10x 9x 5% 23% 578% 68% 29% 51 Hyundai E&C 000720.KS Construction Neutral 6,536 W 65,200 3% 1.4x 1.3x 11x 9x 13% 11% 28% (23%) 14% 46 Indofood Agri Resources IFAR.SI Chemicals Buy 1,431 S$ 1.23 18% 0.9x 0.5x 9x 3x 10% 13% 16% 3% 3% 54 Jiangsu Zhongnan 000961.SZ Real Estate Buy 1,965 Rmb 10.45 47% 1.5x 0.2x 7x 1x 22% 21% 31% 23% 20% 42 Neptune Orient Lines NEPS.SI Shipping Buy 2,788 S$ 1.21 7% 0.9x 0.4x 7x 6x 19% 11% -ve to +ve 126% 15% 56 Noble Group Limited NOBG.SI Chemicals Buy 6,088 S$ 1.19 27% 1.1x 0.6x 9x 3x 12% 12% 39% 80% 14% 52 Olam International OLAM.SI Chemicals Buy 3,378 S$ 1.73 19% 1.1x 0.9x 8x 6x 13% 20% 35% 200% 25% 60 Sinotruk (Hong Kong) 3808.HK Automobiles Neutral 1,547 HK$ 4.35 38% 0.5x 0.5x 11x 7x 5% 14% 185% 33% 9% 31 TCC International Holdings 1136.HK Construction Neutral 886 HK$ 2.06 4% 0.5x 0.2x 7x 5x 7% 26% 55% 64% 21% 28 United Microelectronics 2303.TW Technology Neutral 4,891 NT$ 11.25 10% 0.7x 0.5x 12x 9x 5% 16% 25% 4% 10% 50 West China Cement 2233.HK Construction Neutral 747 HK$ 1.36 29% 1.1x 1.0x 7x 7x 14% 17% 46% 65% 7% 48 Xingda International 1899.HK Automobiles Neutral 470 HK$ 2.39 53% 0.8x 0.3x 11x 1x 7% 10% 34% 11% 12% 20 Pricing for the screen is based on March 26 close. Source: Datastream, I/B/E/S, Goldman Sachs Research estimates, Gao Hua Securities Research estimates. Goldman Sachs Global Investment Research 9 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Update on our top 2013 thematic ideas post earnings season In our report entitled 2013 – Themes to watch, stocks to own published on November 29, 2012, we collected views from our AEJ sector analysts to identify 29 structural themes, driven by market evolution, innovation or restructuring/capital redeployment. We distilled the list to 8 top themes (and 11 Buy ideas) which, in our view: (1) have a 2013 catalyst, and (2) are underappreciated by the market. While the screen has outperformed the MSCI AEJ index by 1.2% since inception and 2.1% YTD, and seven out of the 11 stocks have outperformed the index since inception, we believe our top 2013 thematic Buy ideas remain particularly attractive, as (1) the 2013 catalysts/themes still remain to fully play out, (2) our analysts see 19% median potential upside to target prices, while the stocks are trading on median 13X 2013E P/E for a median 2013E/14E EPS growth of 12%/20% respectively, and (3) recent earnings season has been positive for most names, re-iterating the secular story behind the themes we identified. Exhibit 13: Valuation table for our best 2013 thematic ideas GSE valuations and returns GS rating Latest Upside to Mkt cap CROCI Rel perf vs Theme Company Ticker Crncy P/E P/B EPS growth (%) (* on CL) price target (USD mn) (%) MXASJ (%) C2013E C2013E C2013E C2013E C2014E 3 mth 12 mth Median 19% 9,592 12.7 1.3 11.7 11.8 20.1 3 0 TSMC 2330.TW Buy* TWD 99.00 16% 85,958 14.4 3.1 18.6 7.6 19.0 5 16 Smart spenders Reliance Ind RELI.BO Buy INR 783.40 37% 47,295 11.2 1.3 10.4 7.2 9.2 (4) 5 ChinaTrust 2891.TW Buy TWD 17.70 19% 8,158 13.4 1.2 9.9 (18.8) 22.0 3 (2) LCCs in N.Asia AirAsia AIRA.KL Buy MYR 2.78 55% 2,501 7.2 1.2 13.6 58.2 20.1 15 (17) Asean/China insurance AIA Group 1299.HK Buy* HKD 33.70 12% 52,293 17.8 2.0 11.7 7.6 14.8 13 20 Office decentralization Swire Properties 1972.HK Buy* HKD 26.60 9% 20,048 24.7 0.8 3.3 (66.4) 2.7 5 37 Big data Delta 2308.TW Buy TWD 121.50 10% 9,592 16.3 3.1 41.4 11.8 14.9 17 37 Autos product cycle Tata Motors TAMO.BO Buy INR 275.25 20% 16,123 6.5 1.7 16.5 17.7 20.3 (8) 0 Battery market growth Samsung SDI 006400.KS Buy KRW 140,000 43% 5,946 12.0 0.8 8.1 20.4 41.4 (7) 0 Daphne 0210.HK Buy HKD 9.73 17% 2,053 17.1 2.9 18.2 12.7 26.8 (8) (11) Turnaround efforts Noble Group NOBG.SI Buy SGD 1.19 27% 6,088 9.8 1.1 10.5 59.5 20.3 3 (16) Notes: (1) ROE is used for AIA, Chinatrust , Swire Properties instead of CROCI, as financials do not have CROCI estimates; (2) Samsung SDI‘s 2013E CROCI and EPS levels are adjusted to exclude exceptional disposal gains from the SMD merger; (4) All target prices are based on a 12-month period; (5) Prices as of March 26 close. Source: Goldman Sachs Research estimates, Bloomberg. Key takeaways from earnings season on our best 2013 thematic ideas TSMC (Buy, on CL, 2330.TW, 12-month target price NT$115, 16% potential upside, analyst: Donald Lu) – The below is an extract of the report entitled Above expectations: margin upside offsets FC and tax headwinds, January 17, 2013. TSMC reported 4Q12 revenue/EPS above our estimates and guided 1Q13 revenue/GPM/OPM of NT$127-129bn, 43.5%-45.5%, and 31.5%-33.5%, above our estimates of NT$123.9bn, 43.2%, and 29.5%, respectively. TSMC expects its structural profitability (GPM at 100% utilization) to improve 100bps yoy in 2013 as its 28nm GPM finally surpasses the corporate average in 1Q13 and 28nm shipment triples yoy in 2013, alleviating concerns over high capex and margin erosion. TSMC expects its 20nm wafer demand to surpass that of 28nm at similar stage partially due to the incremental Apple 20nm business, in our view. TSMC guided 2013 capex of US$9bn, slightly below GHe of $9.5bn, but we expect a light upside to TSMC capex guidance in 2013. Goldman Sachs Global Investment Research 10 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Reliance Industries (Buy, RELI.BO, 12-month target price INR1,070, 37% potential upside, analyst: Nilesh Banerjee) – The below is an extract of the report entitled Above expectations on strong GRMS; outlook on E&P better, Buy, January 21, 2013. In January 2013, RIL reported 3QFY13 earnings above expectations, driven by strong gross refining margin. Management remained positive on the gas pricing and E&P approvals front and said that the KG-D6 decline will be arrested by FY15 and volume ramp-up from R- Series/ other satellite fields will commence by FY16/17. Also, they added that all the core expansion projects are on schedule with the order of critical project equipments being commenced. As discussed in our August 16, 2012 report titled “Core capex to lift returns, rerate stock; roadmap to US$100bn mkt cap. Buy”, we continue to believe that RIL’s major capex in core segments will lead to a structural improvement in its margins and cash returns over medium term. Moreover any positive update on shale, telecom launch or value-accretive inorganic growth in core business could re-rate the stock, in our view. Chinatrust (Buy, 2891.TW, 12-month target price TW$21.00, 19% potential upside, analyst: Vincent Chang) – The below is an extract of the reports entitled 2013 Outlook: 2H recovery likely; below-trend credit cost continues, January 25, 2013 and Strong earnings in January; upside surprise on macro data, February 17, 2013. Taiwan FHCs delivered robust earnings in January, on average more than +60% yoy, 52% above the run rate of Bloomberg consensus full-year 2013 EPS forecasts. We attribute the strong earnings delivery to improved import/export activities (+22% yoy), rising FX hedging needs from corporates, year-end strong FYP sales on bancassurance policies, favorable equity/FX market conditions, and still benign asset quality. Chinatrust remains our top pick in the sector – its solid franchise allows Chinatrust’s core business to continuously deliver above-peers ROE (c.13%), ROA (c.1%), and tier 1 ratio (+10%). In our view, it is one of the most sophisticated banks in Taiwan in terms of capital allocation, and has been disciplined in M&A bidding offers. AirAsia (Buy, AIRA.KL, 12-month target price MYR4.30, 55% potential upside, analyst: Hino Lam) – The below is an extract of the report entitled Below expectations on soft ancillary income; focus on 2013 outlook, February 27, 2013. On February 26 after market close, AirAsia reported 4Q12 pre-exceptional net profit came below our expectations, due to weaker-than-expected traffic and ancillary income per passenger growth. AIRA recognized profits of RM13.4mn from its associates, slightly below our expectations. AIRA announced a special dividend of RM0.18 per share and an ordinary final dividend of RM0.06 per share. Going into 2013, we expect a rebound in AIRA’s associate income due to higher earnings contribution from AirAsia Japan (AAJ) and improving margins from Thai AirAsia (TAA) as the company relocates operations to Don Mueang Airport. We also expect ancillary income growth to accelerate owing to the company’s new initiatives including the launch of a duty free business and Wi-Fi service in 2013. Goldman Sachs Global Investment Research 11 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style AIA Group (Buy, on CL, 1299.HK, 12-month target price HK$37.80, 12% potential upside, analyst: Mancy Sun) – The below is an extract of the report entitled First Take: 9th solid broad beat; VONB doubled in less than 3 years, February 27, 2013. AIA reported 4Q/FY12 VONB up 31%/27% yoy, beating our estimates and consensus. AIA’s VONB has doubled in less than 3 years, with 2H12 VONB larger than the full year of 2011’s. New business margin was up 6.6pp/6.4pp yoy, in line with our estimates. Impact of assumption changes has been many investors’ concern in the past few weeks. AIA revised down 10-year government bond assumptions in major countries, which resulted in only 2% negative impact on FY12 VONB, and was more than made up by solid growth across the board. VONB: All markets posted strong VONB growth (bar Korea at -8%, which in line with our estimates), with the beat mainly coming from smaller ASEAN markets (+41% yoy in 2H12), Thailand (+24% yoy), Hong Kong (+24% yoy) and Singapore (+48% yoy). New business margin was up in every market, and particularly strong in smaller ASEAN market (+9.4pp), Singapore (+8.2pp) and China (+5.1pp) in 2H12. Capital structure: AIA also intends to establish a Medium Term Note program, which will allow AIA to seek debt issuance in the future, either to refinance the ING Malaysia transaction in late 2012, or further optimize the capital structure. Solvency ratio was 353% in 2012 (311% in 2011). Swire Properties (Buy, on CL, 1972.HK, 12-month target price HK$29.00, 9% potential upside, analyst: Anthony Wu) – The below is an extract of the report In line with expectations – HK East remains the bright spot, March 14, 2013. FY12 underlying profit was in line with our forecast but above Bloomberg consensus, down 46% yoy from HK$12.9bn, but adjusted underlying profit before asset disposal gains (Festival Walk in FY11) and impairment loss was up 59% yoy to HK$6,932mn, thanks to an increase in property trading profits of HK$1.9bn (mainly from AZURA). Profits from property investment rose by 5.4% yoy, due to the first full year contribution from Taikoo Hui in Guangzhou, increased occupancy/rental of Sanlitun Village in Beijing, and continued positive rental reversion at its HK portfolio. Looking forward, except for Central office leasing and luxury residential sales which management thinks will remain challenging this year, they said demand for their retail premises has been stable in general and HK East offices are very robust. They also expect China’s contribution to grow steadily on improving performance at newly opened commercial premises (e.g. INDIGO in Beijing, Taikoo Hui office in Guangzhou) and a lower earnings base due to one-off pre-operating expenses incurred by a few new hotels. We see the key opportunity remains in its non-core commercial portfolio which is set to see strong organic growth on the back of favorable supply and robust demand. Goldman Sachs Global Investment Research 12 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Delta Electronics (Buy, 2308.TW, 12-month target price NT$134, 10% potential upside, analyst: Robert Yen) – The below is an extract of the report entitled Above expectations: from mix improvement to secular growth; Buy, March 12, 2013. Delta reported 4Q12 EPS NT$1.56, +32% vs. GSe NT$1.18 and +5% vs. Bloomberg consensus of NT$1.48, driven by another record high GPM (25.9% vs. GSe 24.3%), operating leverage, and lower minority interest. OPM expanded to 10.3% (vs. GSe 9.7% on a pro forma basis excluding Delsolar), the highest ever in a 4Q. We believe the 4Q12 result was another solid quarter to support our bullish thesis that Delta has the right products (mostly “Big Data” related and, to a less extent, in IA) and right execution (driving down PC exposure and labour cost) to deliver accelerating EBIT growth (+56% yoy in 4Q12 on pro forma basis, vs. +33% yoy on average in the past 3 quarters), and we expect such trend to continue in the next couple of quarters. It seems to us that Delta’s growth, along with improvement in product mix, should continue to be less cyclical and more secular on the back of the convergence devices trend, resulting in possible multiyear EBIT growth to drive share price higher. Tata Motors (Buy, TAMO.BO, 12-month target price INR331, 20% potential upside, analyst: Sandeep Pandya) – The below is an extract of the reports entitled First take: Below expectations on higher cyclical pressures in India, February 14, 2013 and Below expectations: JLR product thesis intact, India weak; Buy, February 15, 2013. Tata Motors reported 3QFY13 consolidated adjusted net PAT down 50% yoy, 14% qoq and 21% below our estimates. Jaguar Land Rover reported adjusted net income down 25% yoy, 3% qoq and 6% below our estimates. JLR revenue was 3% below our estimate, driven potentially by weaker mix, with EBITDA margin in line with our estimate of 14%. The main driver of negative surprise was the stand-alone (India) business, which reported a net loss of Rs4.6bn vs. our estimate of a Rs3.3bn loss. EBITDA margin was at 2.2% at the stand-alone level vs. 6.8% in 3QFY12 and 5.9% in 2QFY12. The stand-alone EBITDA margin is one of the lowest relative to the company’s history since the Dec 08 quarter (1.9%). We believe the outlook for Jaguar Land Rover, which is the key driver for Tata Motors consolidated earnings and cash flow remains positive with the full impact of new launches such as the new Range Rover and new Jaguar variants likely to flow through into earnings from the Mar’13 quarter in our view. India business continues to face significant cyclical pressures from weak industrial production and infrastructure capex in the economy, in our view. We believe the outlook going forward would depend upon the direction of the interest rates cycle and the macro environment. We currently expect gradual recovery in truck demand growth from FY14E. Samsung SDI (Buy, 006400.KS, 12-month target price W200,000, 43% potential upside, analyst: Marcus Shin) – The below is an extract of the report entitled Below expectations. Focus on secular battery growth outlook; Buy, January 30, 2013. Samsung SDI reported operating profits of W0.7bn in 4Q12, lower than GSE of W33bn and Bloomberg consensus of W31bn, largely owing to: (1) one-off expenses of around W15bn mostly related to increase in provisions for PS (profit Goldman Sachs Global Investment Research 13 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style sharing) incentives, and (2) a sharp drop in cylindrical battery shipments along with weaker NBPC demand. Management delivers solid polymer growth outlook: During the earnings conference, management indicated that its polymer will significantly outgrow the market in 2013, in line with our view. As we believe that customization plays a pivotal role in the polymer business, we continue to expect that: (1) SDI’s solid customer base in tablets should lead to substantial market share gains in polymer, and (2) overcapacity may not translate into oversupply for the polymer market. Strong OP expansion in 2013 despite burden from xEV battery: Despite incremental cost burden from the xEV battery business, we expect SDI’s OP to rise 43% yoy in FY13 on strong shipment growth in both prismatic and polymer coupled with margin expansion on an improving product mix. Given weaker 4Q12 earnings as well as recovering cylindrical utilization, we expect earning momentums to resume from 1Q13. Daphne (Buy, 0210.HK, 12-month target price HK$11.40, 17% potential upside, analyst: Caroline Li) – The below is an extract of a report entitled In-line with expectations: Focus on 2H13 recovery; reiterate Buy, March 22, 2013. Daphne’s 2H12 net income of HK$473mn was in line with our expectations. We believe there are signs of retail stabilization, and Daphne could benefit from easier comps starting 2H13 (SSS 2%-5%). During 2012, ASP was down 10%, hurting both SSS and GM. We forecast modest ASP recovery and continued volume growth to lift 2H13 SSS to 8%. We believe operational improvement could continue to extract value, but admit the lowest hanging fruits may have been picked in 2011, and incremental improvement will likely be slower to materialize. Nevertheless, Daphne has a leading position in China’s large and fast-growing mass footwear market. We forecast 2012-15E operating profit CAGR of 21% driven by 15% sales growth and 1.8ppts OPM expansion to 13.9% by 2015E. Noble Group (Buy, NOBG.SI, 12-month target price SGD1.50, 27% potential upside, analyst: Patrick Tiah) – The below is an extract of the report entitled Below expectations: Agriculture weak, boost from tax writebacks, March 4, 2013. On an adjusted basis (excluding US$76.8mn of deferred tax write-backs, and other non-recurrent items), 2012 core net profit was 12% below GSe and 11% below Bloomberg consensus. Agriculture margins were weak, as strong sugar performance (crush volumes up 27% yoy) was offset by weak Grains and Oilseeds earnings (Argentina drought, negative crush margins in China). The Energy division performed in line with expectations (despite weak coal prices) and so did the MMO (metals, minerals, ores) segment. 2012 SG&A declined 2% yoy, and the company is targeting more cost savings. Noble also indicated its intention to be more “asset light”, by reducing its ownership of physical assets (e.g. partial sales or joint ventures) and actively recycling capital. We expect Agriculture earnings to improve in 2013 on our forecast for a stronger South America soybean crop and increasing sugar cane utilization rates. Goldman Sachs Global Investment Research 14 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Style performance In Exhibit 14 below, we present a summary of the performances of the various styles that we track across different time periods. The styles have been categorized into different groups based on their characteristics. Exhibit 14: Performance of AEJ tracked styles Quarterly Performance Annual Performance updated till 22-03-13 Mar-13 Dec-12 Sep-12 Jun-12 MTD YTD LTD Feb-13 Jan-13 Dec-12 Start date 2012 2011 2010 2009 MSCI AEJ (1.1%) 5.1% 7.3% (5.3%) (3.1%) (1.1%) 125.0% (0.0%) 2.1% 3.0% 03-Jan-05 19.7% (14.6%) 15.6% 67.2% Value Low multiples 0.2% 8.6% (3.6%) (2.5%) (0.1%) 0.2% 44.1% (2.2%) 2.5% 8.3% 05-Jan-10 4.5% 2.4% 2.3% 36.5% High multiples 3.9% (0.9%) (6.6%) (2.3%) 2.5% 3.9% (17.5%) (0.9%) 2.3% 3.5% 05-Jan-10 (12.5%) (3.3%) (8.3%) 3.0% Low vs. high multiples (3.6%) 9.8% 3.3% (0.1%) (2.5%) (3.6%) 77.2% (1.3%) 0.2% 4.9% 05-Jan-10 20.5% 7.2% 11.6% 34.6% Low EV/GCI vs. CROCI/WACC (1.0%) 3.7% 0.2% (0.5%) (1.2%) (1.0%) 10.7% (1.0%) 1.2% 0.5% 01-Aug-09 6.1% (0.4%) 2.2% 3.5% High EV/GCI vs. CROCI/WACC - Short (Inverted) (0.0%) 5.7% (2.5%) 0.3% (1.3%) (0.0%) 22.2% (0.0%) 1.4% 2.1% 01-Aug-09 9.1% 2.5% 7.5% 1.6% Low vs. high EV/GCI vs. CROCI/WACC (1.1%) 9.5% (2.3%) (0.2%) (2.5%) (1.1%) 34.2% (1.1%) 2.6% 2.7% 01-Aug-09 15.4% 1.9% 9.8% 5.1% Value at Reasonable Growth 2.6% 1.6% 1.4% n.a. (0.2%) 2.6% 5.7% 0.9% 1.9% 5.1% 20-Sep-12 3.0% n.a. n.a. n.a. Returns High CROCI 4.0% 1.4% (5.2%) 1.1% 2.5% 4.0% (5.2%) (0.6%) 2.0% 3.5% 05-Jan-10 (2.2%) (6.4%) (0.4%) n.a. Low CROCI 1.2% 0.1% (2.4%) (3.5%) 0.4% 1.2% (9.2%) (1.7%) 2.6% 2.7% 05-Jan-10 (3.1%) (9.8%) 2.7% n.a. High vs. low CROCI 2.9% 1.3% (2.7%) 4.6% 2.1% 2.9% 4.7% 1.3% (0.5%) 0.9% 05-Jan-10 1.2% 4.3% (3.5%) n.a. High CROCI and asset turn leaders 3.5% 4.2% (4.3%) (0.3%) 2.0% 3.5% 1.8% (1.1%) 2.6% 4.2% 12-Feb-10 2.1% (9.7%) 6.8% n.a. Low CROCI and asset turn laggards 0.5% (0.9%) 0.1% (1.7%) 0.5% 0.5% (4.9%) (0.8%) 0.8% 1.6% 12-Feb-10 (1.2%) (4.9%) 0.8% n.a. High vs. low CROCI and asset turn 3.5% 6.2% (4.7%) 1.4% 1.6% 3.5% 8.3% (0.3%) 2.2% 3.2% 12-Feb-10 4.1% (6.4%) 7.4% n.a. High returns 1.9% 4.3% (3.2%) 1.7% 1.2% 1.9% 29.2% (1.2%) 1.9% 4.5% 05-Jan-10 1.6% 6.4% (2.8%) 20.2% Low returns 1.2% 1.4% (4.5%) (4.4%) 0.0% 1.2% 18.8% (1.9%) 3.2% 5.5% 05-Jan-10 (4.5%) 1.1% (0.1%) 18.2% High vs. low returns 0.6% 2.8% 1.3% 6.0% 1.1% 0.6% 5.2% 0.8% (1.3%) (1.0%) 05-Jan-10 5.0% 4.7% (2.9%) (0.2%) Use of cash High dividend yield and growth 2.8% 5.3% (3.4%) 3.9% (0.7%) 2.8% 6.5% (0.6%) 4.2% 2.7% 06-Mar-12 3.5% n.a. n.a. n.a. M&A High IRRs 5.1% 7.9% (9.2%) 3.8% 2.6% 5.1% (11.6%) 1.2% 1.2% 7.7% 01-Mar-10 30.8% (22.7%) (4.8%) (4.8%) High IRRs, returns, growth, low multiples & Buy rated 9.5% 6.1% (6.4%) (1.8%) 3.9% 9.5% (7.5%) 3.8% 1.5% 8.7% 01-Mar-10 (3.0%) (7.0%) (3.9%) (3.9%) Potential M&A acquirers 2.5% n.a. n.a. n.a. 2.5% 2.5% 2.5% n.a. n.a. n.a. 06-Mar-12 n.a. n.a. n.a. n.a. Potential M&A targets 1.5% n.a. n.a. n.a. 1.5% 1.5% 1.5% n.a. n.a. n.a. 06-Mar-12 n.a. n.a. n.a. n.a. Balance Sheet Strength Weak balance sheet 1.4% 1.0% (6.2%) (3.2%) 0.7% 1.4% 2.3% (1.9%) 2.5% 3.8% 05-Jan-10 (6.3%) (1.4%) (1.6%) 11.2% Strong balance sheet 4.9% 1.0% (4.1%) (1.8%) 1.5% 4.9% 21.8% (0.1%) 3.3% 7.8% 05-Jan-10 (6.9%) 2.8% (1.1%) 17.9% Weak vs. strong balance sheet (3.4%) (0.3%) (2.1%) (1.5%) (0.8%) (3.4%) (14.6%) (1.8%) (0.8%) (3.9%) 05-Jan-10 0.3% (3.6%) (0.6%) (5.9%) Chinese companies suffering most from potential WC stress 7.4% 6.8% (3.7%) (4.6%) (0.6%) 7.4% (6.5%) 2.7% 5.2% 9.6% 02-Dec-11 (8.3%) (5.1%) n.a. n.a. Chinese companies benefiting most from potential WC relief 7.5% 2.5% (14.9%) (0.5%) 2.4% 7.5% (6.7%) 1.9% 3.1% 13.5% 02-May-12 (13.2%) n.a. n.a. n.a. Earnings Related GS FY1 upgrades 3.5% 0.2% 4.1% 6.2% 1.8% 3.5% 14.8% 0.5% 1.2% 0.4% 01-Feb-11 12.8% (1.6%) GS FY1 downgrades 2.9% 1.1% (10.3%) (2.3%) 0.5% 2.9% (18.1%) (1.9%) 4.4% 6.1% 01-Feb-11 (5.9%) (15.4%) GS FY1 upgrades vs. downgrades 1.0% 0.7% 12.3% 6.4% 0.5% 1.0% 33.6% 1.7% (1.2%) (2.3%) 01-Feb-11 18.3% 11.9% GS FY2 upgrades 5.6% 1.4% 2.0% 2.9% 1.9% 5.6% 18.4% 0.8% 2.9% 1.8% 01-Feb-11 6.7% 5.1% GS FY2 downgrades 1.5% 2.1% (11.3%) (1.5%) 0.2% 1.5% (18.8%) (1.6%) 2.9% 5.5% 01-Feb-11 (3.9%) (16.7%) GS FY2 upgrades vs. downgrades 3.7% 1.1% 11.2% 2.8% 0.6% 3.7% 37.9% 1.8% 1.2% (0.9%) 01-Feb-11 12.0% 18.7% IBES consensus FY1 upgrades 1.2% 2.3% 0.4% 0.7% 0.4% 1.2% 12.7% (0.5%) 1.4% 2.4% 01-Feb-11 4.3% 6.8% IBES consensus FY1 downgrades 2.7% 4.6% (5.1%) (7.4%) (0.3%) 2.7% (19.3%) (1.6%) 4.7% 8.3% 01-Feb-11 0.7% (22.0%) IBES consensus FY1 upgrades vs. downgrades (0.9%) 0.5% 5.0% 4.5% (0.2%) (0.9%) 32.6% 0.6% (1.2%) (1.8%) 01-Feb-11 7.2% 24.8% IBES consensus FY2 upgrades 1.6% 3.7% 0.3% 0.3% 0.6% 1.6% 10.4% (1.1%) 2.2% 2.6% 01-Feb-11 1.6% 6.9% IBES consensus FY2 downgrades 3.7% 6.8% (7.0%) (6.3%) 0.8% 3.7% (17.5%) (1.2%) 4.1% 9.5% 01-Feb-11 0.6% (20.9%) IBES consensus FY2 upgrades vs. downgrades (1.2%) 0.2% 6.1% 3.7% (0.7%) (1.2%) 28.4% (0.3%) (0.2%) (2.5%) 01-Feb-11 4.8% 24.0% Stocks to surprise at earnings results 6.5% 2.4% (0.4%) 2.4% 2.3% 6.5% 28.5% (2.6%) 6.9% 5.3% 06-Jul-10 (0.5%) 22.9% (1.3%) n.a. Stocks to disappoint at earnings results 4.8% (0.8%) (11.5%) (10.7%) 1.6% 4.8% (36.4%) 2.1% 1.0% 7.9% 06-Jul-10 (21.8%) (15.7%) (7.9%) n.a. Stocks to surprise vs. disappoint at earnings results 3.0% 4.4% 8.2% 6.7% (0.1%) 3.0% 78.0% (3.1%) 6.4% 2.4% 06-Jul-10 19.7% 33.9% 7.8% n.a. High earnings quality 7.6% 1.0% 1.0% (1.9%) 3.2% 7.6% 7.7% 0.0% 4.2% (1.9%) 06-Jun-12 0.1% n.a. n.a. n.a. Note: 1. Alpha for short strategies are not inverted unless mentioned otherwise i.e., a negative number is good and indicates that the short style has underperformed the MSCI AEJ index during the given period. 2. EV/GCI vs. CROCI/WACC performance is calculated relative to the coverage universe. All other performances (except Long-Short) are relative to MSCI AEJ. Source: Goldman Sachs Research, Gao Hua Securities Research, Datastream, Bloomberg. Goldman Sachs Global Investment Research 15 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Exhibit 14 cont'd: Performance of AEJ tracked styles Quarterly Performance Annual Performance updated till 22-03-13 Mar-13 Dec-12 Sep-12 Jun-12 MTD YTD LTD Feb-13 Jan-13 Dec-12 Start date 2012 2011 2010 2009 Growth High growth 0.2% 2.3% (6.2%) (4.0%) 0.0% 0.2% 8.7% (2.4%) 2.6% 6.5% 05-Jan-10 (6.0%) (1.8%) (0.4%) 21.2% Low growth 0.8% 3.2% (5.5%) (0.2%) 1.0% 0.8% 2.2% (1.0%) 0.7% 4.2% 05-Jan-10 (0.8%) 2.5% 2.5% 6.7% High vs. low growth (0.5%) (0.7%) (0.7%) (3.7%) (0.9%) (0.5%) 12.4% (1.4%) 1.9% 2.3% 05-Jan-10 (4.8%) (4.3%) (3.0%) 15.0% Size Large market caps (1.0%) 1.4% (2.9%) (1.0%) (0.3%) (1.0%) 6.6% (2.2%) 1.5% 1.6% 05-Jan-10 (5.0%) 5.4% (6.8%) 2.9% Small market caps 2.8% 1.1% (6.2%) (3.4%) 1.2% 2.8% 31.4% (1.9%) 3.5% 5.7% 05-Jan-10 (1.7%) (9.8%) 0.6% 33.2% Large vs. small market caps (3.7%) (0.1%) 3.2% 2.5% (1.4%) (3.7%) (31.6%) (0.3%) (2.0%) (4.1%) 05-Jan-10 (5.3%) 15.4% (7.7%) (27.6%) Volatility High price volatility (1.5%) 7.5% (5.0%) (6.8%) (0.2%) (1.5%) 37.0% (4.1%) 2.9% 6.4% 05-Jan-10 (0.7%) 7.9% (2.1%) 27.0% Low price volatility 2.1% (0.7%) (6.1%) 3.8% 2.0% 2.1% (1.0%) (0.6%) 0.7% 3.2% 05-Jan-10 (7.4%) 3.4% 1.6% 1.2% High vs. low price volatility (3.4%) 8.4% 1.3% (10.1%) (2.1%) (3.4%) 59.4% (3.5%) 2.3% 3.4% 05-Jan-10 8.5% 6.0% (3.0%) 29.7% Growth and returns at reasonable price High returns, high growth and low multiples 2.6% 3.6% (3.8%) (1.5%) 1.3% 2.6% 44.1% (1.9%) 3.3% 5.4% 05-Jan-10 0.7% 2.6% 0.5% 33.9% Low returns, low growth and high multiples 2.0% 0.9% (4.3%) (1.7%) 1.2% 2.0% (1.9%) (1.4%) 2.2% 3.6% 05-Jan-10 (5.8%) (0.2%) (2.5%) 4.9% Returns, growth and multiples - Long vs. Short 0.6% 2.8% 0.6% 0.2% 0.0% 0.6% 56.4% (0.5%) 1.1% 1.9% 05-Jan-10 7.4% 3.9% 3.3% 29.4% Price momentum 1-month upward price momentum 11.5% 1.1% n.a. n.a. 5.8% 11.5% 12.8% 1.2% 4.2% 1.1% 01-Dec-12 1.1% n.a. n.a. n.a. 1-month downward price momentum (3.0%) 12.3% n.a. n.a. (1.0%) (3.0%) 8.9% (3.1%) 1.2% 12.3% 01-Dec-12 12.3% n.a. n.a. n.a. 1-month upward vs. downward price momentum 17.5% (11.5%) n.a. n.a. 7.9% 17.5% 3.9% 5.6% 3.2% (11.5%) 01-Dec-12 (11.5%) n.a. n.a. n.a. 3-month upward price momentum 4.8% 2.4% n.a. n.a. 3.7% 4.8% 7.2% (1.2%) 2.2% 2.4% 01-Dec-12 2.4% n.a. n.a. n.a. 3-month downward price momentum 2.9% 11.1% n.a. n.a. 0.7% 2.9% 14.3% (0.4%) 2.6% 11.1% 01-Dec-12 11.1% n.a. n.a. n.a. 3-month upward vs. downward price momentum 2.0% (9.0%) n.a. n.a. 3.9% 2.0% (7.2%) (1.0%) (0.9%) (9.0%) 01-Dec-12 (9.0%) n.a. n.a. n.a. Structural ideas Structural buy thematic ideas for 2013 2.1% (0.9%) n.a. n.a. 2.6% 2.1% 1.2% 0.4% (0.9%) (0.4%) 29-Nov-12 (0.9%) n.a. n.a. n.a. Sales geographical exposure US exposed 5.2% (3.4%) (4.6%) (0.7%) 2.7% 5.2% 2.5% 0.2% 2.2% 0.6% 01-Jan-10 (6.4%) (7.1%) 12.1% n.a. Europe exposed 6.5% (3.0%) (3.9%) (3.8%) 2.6% 6.5% (3.2%) 1.3% 2.4% (0.7%) 01-Jan-10 (7.6%) (14.9%) 15.5% n.a. China exposed (for non-Chinese stocks) (1.0%) (6.3%) (2.7%) (1.7%) 1.3% (1.0%) (0.4%) (0.5%) (1.7%) (0.3%) 01-Jan-10 (7.1%) (2.7%) 11.3% n.a. Japan exposed 0.7% (2.7%) (4.2%) 1.0% 1.5% 0.7% 16.8% (2.4%) 1.7% 1.1% 01-Jan-10 (4.8%) (1.7%) 24.0% n.a. Note: 1. Alpha for short strategies are not inverted unless mentioned otherwise i.e., a negative number is good and indicates that the short style has underperformed the MSCI AEJ index during the given period. 2. EV/GCI vs. CROCI/WACC performance is calculated relative to the coverage universe. All other performances (except Long-Short) are relative to MSCI AEJ. Source: Goldman Sachs Research, Gao Hua Securities Research, Datastream, Bloomberg. Goldman Sachs Global Investment Research 16 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Appendix 1: Tracked style methodology Exhibit 15 below provides details on the screening criteria for each of our tracked styles. Exhibit 15: Screening criteria applied for AEJ tracked styles Style name Description Rebalance Frequency Long Short Value Top 20% (cheap) vs Bottom 20% (expensive) multiples (Relative to AEJ sector peers) Low vs. high multiples Monthly Components: PE, PB, DY, EVEBITDA, EVDACF & FCFY Top 20% (cheap) vs Bottom 20% (expensive) stocks based on the ratio EV/GCI/ CROCI/WACC on a sector Low vs. high EV/GCI vs. CROCI/WACC Monthly relative basis Screening criteria on valuations Attractive valuations: We screen for stocks which trade at a NTM P/B of below 1.5X and a NTM P/E lower than 15X. Share price close to trough levels: All stocks within the screen have share prices within 30% of their 52- week lows. Screening criteria to avoid value traps Expected growth: Ideas on the screen all have double-digit sales and >15% EPS 2013-14E CAGR, Value at Reasonable Growth suggesting robust growth potential in the coming two years. Report Operating leverage: We also require these names to enjoy a degree of operating and/or financial leverage by having faster EPS CAGR relative to sales growth. In our view, operating leverage bodes well for further upside in the case of an improvement in macro data points, on the back of the multiplier effect it has on EPS expansion from incremental sales growth. Analyst overlay: Stocks included are non-Sell rated, and all offer potential upside to target prices. We believe this serves as an additional overlay to avoid value traps, as it incorporates our analysts’ fundamental views on the stocks. We have also excluded financials and property stocks from the screen. Returns High vs. low CROCI Top vs Bottom quartile (sector relative) CROCI stocks - rolling 12m-fwd basis Monthly Long: 1st Quartile CROCI + 1st Quintile Sales/GCI High vs. low CROCI and asset turn Monthly Short: 4th Quartile CROCI + 5th Quintile Sales/GCI Top 20% vs Bottom 20% returns (Relative to AEJ sector peers) High vs. low returns Monthly Components: ROE, ROCE & CROCI Use of cash Solid yields: Dividend yield (both GS and Bloomberg consensus) > 3.0% (coverage median) (2013E-2014E); Free cash flow yield > 3.5% (coverage median) (2013E); Payout ratio below 80% (2013E). High dividend yield and growth Robust growth: EPS 2013E-2014E CAGR > 10%; Positive growth in DPS (2013E). Monthly Undemanding valuations: P/E ratio below 15X (2013E). Market cap and liquidity: Market cap > US$2bn, ADTV > US$5mn. Balance Sheet strength Weak vs. strong balance sheet Top 20% (high) vs Bottom 20% (low) net debt / EBITDA (Relative to AEJ sector peers) Monthly Working capital squeeze in 1H11: 1H11 cash conversion days are at least 20% higher than that of 2007-2010 Chinese companies suffering most from potential average; Report WC stress Significant cash flow risk: Total 2011E cash flows are negative under stress test assumptions; Unfavorable risk reward: Cash drain from stress case is larger than cash inflow under blue sky assumptions; cash drain from stress case as percentage of market cap is above coverage median (1%); Chinese companies benefiting most from potential 2012 cash conversion days not negative: We exclude companies with negative working capital, as we Report WC relief believe their advantage with customers and suppliers is such that stressing working capital conditions for those names might appear less relevant; Analyst rating overlay: No CL Buy names M&A High IRRs Top 20 stocks by IRR. IRRs are calculated based on our proprietary LBO model Monthly Top 20 stocks by IRR that have a Buy rating as well as in the top 20% of the stocks based on Integrated High IRRs, returns, growth, low multiples & Buy investment profiling score. Monthly rated IRRs are calculated based on our proprietary LBO model. Integrated investment profiling score is a composite score based on growth, valuation and returns Potential acquirers list (as identified by our sector analysts) meeting our criteria Potential M&A acquirers (overlaid) (1) 2013-14E CROCI > 15%; (2) 2013-14E FCF yield > 2.5%; (3) 2013E net debt to equity levels <50%; and (4) Report/Monthly not Sell rated Potential M&A targets Potential M&A targets as identified by our sector analysts. Report Earnings related GS FY1 upgrades vs. downgrades Top/Bottom 10% of stocks based on 1-month GS FY1 EPS revision Monthly GS FY2 upgrades vs. downgrades Top/Bottom 10% of stocks based on 1-month GS FY2 EPS revision Monthly IBES consensus FY1 upgrades vs. downgrades Top/Bottom 10% of stocks based on 1-month I/B/E/S Consensus FY1 EPS revision Monthly IBES consensus FY1 upgraes vs. downgrades Top/Bottom 10% of stocks based on 1-month I/B/E/S Consensus FY2 EPS revision Monthly Source: Goldman Sachs Research, Gao Hua Securities Research. Goldman Sachs Global Investment Research 17 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Exhibit 15 cont'd: Screening criteria applied for AEJ tracked styles Style name Description Rebalance Frequency Long Short Long: Stocks where our analysts have upgraded their current and next year's estimates over the last 3 months (by at least 0%) and are above IBES consensus (by at least 3%). Stocks to surprise vs. disappoint at earnings results Report / Quarterly Short: Stocks where our analysts have cut their current and next year's estimates over the last 3 months (by at least 0%) and are below IBES consensus (by at least -5%). 1) Sustainability EPS track record: Have not missed EPS by more than 10% in the past four years (2009-2012 (only if reported)). Consensus earnings resilience: Less than 10% year-to-date I/B/E/S downward revision in 2013 and 2014 EPS estimates. Stable earnings growth: Relatively low volatility in earnings growth (2007-2013E). (2) Cash generation High earnings quality High cash returns: CROCI above coverage median – both historically (2009-2012 average) and in GS Monthly forecasts (2013E-2014E average). High cash conversion: Receivables growth/sales growth ratio which is not excessively high, suggesting that the company is able to grow sales not just by expanding credit terms. CFO/EBITDA levels are also expected to be above bottom-quartile of coverage, which is a reflection of a high conversion of accounting profit to cash earnings. (3) Balance sheet support Healthy gearing: Net debt-to-equity levels below 50% (2009-2013E average). Growth Top 20% vs Bottom 20% Growth (Relative to AEJ sector peers) High vs. low growth Monthly Components: Net Earning growth, EBITDA growth & Sales growth Size Large vs. small market caps Top 20% (large cap) vs Bottom 20% (small cap) market cap (Relative to AEJ sector peers) Monthly Volatility Top 20% (high) vs Bottom 20% (low) volatility (Relative to AEJ sector peers) High vs. low price volatility Monthly Based on 12 month historic price volatility Growth and returns at reasonable price Top 20% vs Bottom 20% Integrated IP score (Relative to AEJ sector peers) Returns, growth and multiples - Long vs. Short Monthly Composite score based on growth, valuation and returns Price momentum Long: Top 20% stocks based on 1m price returns (highest) 1-month upward vs. downward price momentum Monthly Short: Bottom 20% stocks based on 1m price returns (lowest) Long: Top 20% stocks based on 3m price returns (highest) 3-month upward vs. downward price momentum Monthly Short: Bottom 20% stocks based on 3m price returns (lowest) Structural ideas Key buy ideas in the 29 structural themes that we have identified across our AEJ coverage for 2013. The selection of our “top themes” stem from the following criteria: 2013 catalyst: All top themes highlighted have a catalyst in 2013, which we forecast would prompt an Structural buy thematic ideas for 2013 improvement in cash returns (on an absolute basis and/or relative to peers). Report Underappreciated by the market: Our analysts believe these top themes to be underappreciated by the market. We expect positive share price performance, underpinned by an increase in returns/growth, multiple rerating and/or upward revisions from consensus as the theme gradually plays out. Sales geographical exposure US exposed AEJ stocks with atleast 10% sales exposure to US (FY1) Monthly Europe exposed AEJ stocks with atleast 10% sales exposure to Europe (FY1) Monthly China exposed (for non-Chinese stocks) AEJ (ex-China) stocks with atleast 5% sales exposure to China (FY1) Monthly Japan exposed AEJ stocks with atleast 5% sales exposure to Japan (FY1) Monthly Source: Goldman Sachs Research, Gao Hua Securities Research. Goldman Sachs Global Investment Research 18 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Appendix 2: The GLI, a proxy for industrial production The Global Leading Indicator (GLI) is a Goldman Sachs proprietary indicator that is meant to provide an early signal of the global industrial cycle on a monthly basis. There is an Advanced reading for each month, released mid-month, followed by the Final reading, released on the first business day of the following month. The GLI was introduced in 2002 and has been revised twice since then, in 2006 and 2010. In Global Economics Paper: 214 – Acceleration matters: Asset returns and the business cycle, May 16, 2012, our global macro team used changes in the near-term growth and acceleration of our GLI to define four phases of the business cycle. Exhibit 16: The 4 GLI phases: Expansion, Slowdown, Exhibit 17: Historical GLI trends Contraction & Recovery GLI momentum along with various phases Explanation of the 4 different phases 2% GLI growth (mom) 2.0% Expansion (current): Positive growth 1.5% and positive acceleration 1% 1.0% Recovery: Negative growth and positive acceleration 0.5% 1% 0.0% 0% -0.5% Slowdown: Positive growth and negative acceleration -1.0% -1% -1.5% Expansion Contratcion: Negative growth Slowdown and negative acceleration Recovery -1% -2.0% Contraction GLI growth (mom) -2.5% -2% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: Global ECS Research. Source: Global ECS Research. Exhibit 18: GLI headline is closely correlated with G7 Exhibit 19: Three our of seven advanced GLI components Industrial Production have improved mom GLI headline vs. Industrial Production Mom change in the GLI components in March 20% Correlation: 86% Improved Baltic Dry Index 15% Global PMI (Philadelphia Fed Survey) 10% US Initial Jobless Claims GLI (yoy) Worsened 5% Consumer Confidence Aggregate Global New Orders Less Inventories 0% GS Australian and Canadian Dollar Trade Weighted Index G7 industrial production (yoy) S&P GSCI Industrial Metals Index -5% Excluded (No New Data Until Final Reading) -10% Belgian and Netherlands Manufacturing Survey Japan IP Inventory/Sales Ratio -15% Korean Exports -20% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: Global ECS Research. Source: Haver Analytics, National Sources, GS Global ECS Research. Goldman Sachs Global Investment Research 19 March 27, 2013 Tactical Research: Asia Ex. Japan: Alpha in Style Disclosure Appendix Reg AC We, Joy Nguyen and Ricky Tsang, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Investment Profile The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends. Quantum Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets. GS SUSTAIN GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. 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Disclosures applicable to the companies included in this compendium can be found in the latest relevant published research Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global coverage universe Rating Distribution Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 31% 55% 14% 48% 41% 36% As of January 1, 2013, Goldman Sachs Global Investment Research had investment ratings on 3,523 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below. Price target and rating history chart(s) Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. 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