Asia's Evolving Identity - Asia Business Conference 2015 at Harvard Business School

28 February 2015Please refer to important disclaimer and disclosures at the end of the report
By: Andrew Stotz, CFA and Sornsak Kongcharoenpanich
Post-Crisis Investing in Asia:
Opportunities and Challenges
Presentation for
Asia Business Conference 2015
at Harvard Business School

28 February 2015 2
 All countries in Asia ex-Japan have a combined market capitalization amounting to about 80% of that of the US
 China A shares cannot be ignored, as they are highly liquid and domestic investors love trading
 Asia ex-Japan has had high sales growth in the past decade, but EPS growth has only tracked US’ EPS growth
 Branding and innovation have boosted US company net margins. Asia is in a transition phase of being a production
hub, earning lower margins
 By 2020, a surge of youth will enter the labor force; 85% of the current Asian population will be in the workforce
 Most of the consumers in Asia are free of debt (except in Korea)
 Opportunity for consumption growth in the long run in Indonesia, India, and Philippines due to low household debt
 China is now no longer a net exporter, and at 7-8% fall in growth, is nearing an end
Key takeaways

28 February 2015 3
 Asia ex-Japan had a high
correlation of 76% to the west
 China stocks listed in HK
(China H-shares) have
dominated Asia ex-Japan
 Mainland China stocks had
only a mild correlation to
China H-shares, because of
low foreign-investor
participation
 Equity markets tumbled
about 40% during the global
crisis in 2008. China, the
production hub, was the
hardest hit, -70% in both
China A and H-shares
 Shanghai-Hong Kong
Stock Connect has boosted
the China A and H-shares
overnight, a powerful policy
Unseen Asia decoupling from the west, mainland China stocks
have low correlation to China H-shares – avoid the crisis if you can
Sources: A. Stotz Investment Research, Thomson Reuters
Oct-07, 452
Oct-08, 155
-
50
100
150
200
250
300
350
400
450
500
Dec-00 Oct-03 Aug-06 Jun-09 Apr-12 Feb-15
China H-shares
Asia ex-Japan
China A-shares
USA
Japan
Developed Europe
MSCI indices, rebased to 100

28 February 2015 4
 Strong fundamentals and
interest rate cuts have
boosted the US market to an
all-time high
 Unlike Asia ex-Japan,
which, as it is dominated by
China, is still far from its peak
in 2007 due to concerns
about the cooling of the
Chinese economy
 Noteworthy also is that
Abenomics startedin 2012, to
depreciate the yen, seems to
have worked well in terms of
stock market gains
US has shown a strong recovery ahead of its position before
the global crisis, unlike Asia ex-Japan and China
70
90
110
130
150
170
190
210
230
Oct-08 May-10 Dec-11 Jul-13 Feb-15
China H-shares
Asia ex-Japan
China A-shares
USA
Japan
Developed Europe
MSCI indices, rebased to 100

28 February 2015 5
Source: A. Stotz Investment Research, Thomson Reuters
4,700 stocks make up our investable universe in Asia

28 February 2015 6
Source: A. Stotz Investment Research, Thomson Reuters, United Nations, World Bank.
Note: *Population growth per annum since 2008.
450m people in these five countries; 640 stocks make up
our investable universe in ASEAN 5

28 February 2015 7
Source: A. Stotz Investment Research, Thomson Reuters, United Nations, World Bank.
Note: *Population growth per annum since 2008.
2.7bn people in these five countries, 4,060 stocks make up
our investable universe in East Asia and India

28 February 2015 8
Market capitalization: Asia is 0.8x to US market Trading value*: China A-shares are traded more than all US
Note: *Aggregate of three-month average daily trading value of all stocks, **Hong Kong, South Korea, and Taiwan
Asian stock markets’ combined size is about 80% of the US but
Chinese trading volume alone outpaces that of the US
19,445
6,905
4,706
3,922
-
5,000
10,000
15,000
20,000
25,000
USA China A-
shares
East Asia** ASEAN +
India
Non-financials
Financials
(US$ bn)
100
110
17
7
-
20
40
60
80
100
120
USA China A-
shares
East Asia** ASEAN +
India
Non-financials
Financials
(US$ bn)

28 February 2015 9
 The two charts above present the share of the total number of investable stocks by sector
 The US has 2,080 investable stocks versus Asia ex-Japan’s 4,700 investable stocks (more than double)
 Both have limited number of stocks in Telecom and Utilities
 Similar opportunities to diversify across sectors
Largest number of Asian investable stocks is in Industrials,
Consumer and Materials. US, in Financials and Info Tech
US: Major sectors are Financials and Info. Tech Asia ex-Japan: Major sectors are Industrials and Cons. Disc.
Cons. Disc.
17% Cons.
Staples 7%
Energy 3%
Financials
13%
Health
Care 7%
Industrials
21%
Info. Tech.
13%
Materials
14%
Telecom
1%
Utilities
4%
Cons. Disc.
15%
Cons.
Staples 4%
Energy 9%
Financials
19%
Health
Care 12%
Industrials
15%
Info. Tech.
17%
Materials
6%
Telecom
1%
Utilities
2%
The number of
investable stocks in
each sector as a
percentage of the
total number of
stocks in the markets

28 February 2015 10
 The two charts above display each sector’s market capitalization weighting in US and Asia ex-Japan
 US has heavy weighting in Info. Tech. and Financials is the most dominant sector in Asia ex-Japan
 The diversification opportunities change when considering market capitalization
 Note that in the Dot com bubble, Info. Tech. was about +48% weight in the US market!
Largest sectors in Asia are Financials and Industrials; in the US,
the largest are Info Tech and Financials
US: Tech companies account for one-fourth of market Asia ex-Japan: Financials represents more than one-fourth
Cons. Disc.
14%
Cons.
Staples
8%
Energy 6%
Financials
16%
Health
Care 11%Industrials
12%
Info. Tech.
24%
Materials
4%
Telecom
3%
Utilities
2% Cons. Disc.
12% Cons.
Staples
6%
Energy 7%
Financials
28%
Health
Care 4%
Industrials
15%
Info. Tech.
11%
Materials
8%
Telecom
5%
Utilities
4%
Market cap of each
sector as a
percentage of the
total market cap of
the markets

1128 February 2015
Why invest in Asia?
Domestic economies are racing ahead in Emerging Asia
Over the next decade 85% of the current Asian population will be in the
labor force
Household debt is lower than in the US in almost every Asian country
Strong corporate governance and predictable businesses

28 February 2015 12
Note: *China is average growth from 2004 - 2013, Malaysia is average growth from 2005 - 2014
Asia, where the growth still is; Domestic economies are racing
ahead in Emerging Asia
10.3
6.8
5.6
5.0 4.9
4.1
2.7 2.7
1.5 1.3
0.5
0.0
2.0
4.0
6.0
8.0
10.0
12.0
China* Malay* Indo Sing Phils HK Korea Thai Taiwan USA Japan
Domestic economic growth p.a. (2004-2014)
(%)

28 February 2015 13
Note: *Average between 2005-2013
Singapore’s economy has a high dependency on global
economies; those of Indonesia and Philippines, less so
35.7
17.9 17.7
11.2
5.3 5.1
3.4
2.3
0.0
(0.2)
(3.5)
(10)
(5)
-
5
10
15
20
25
30
35
40
Sing Thai Malay Indo China* HK Korea Japan Taiwan Phils USA
Net exports/domestic economy (average 2005-2014)
(%)

28 February 2015 14
 US’s profitability has been stable for the past four years with a high return on equity of 15.4%
 Asia ex-Japan’s profitability has dropped in line with developed Europe
 Growth in Asia ex-Japan has tracked along with US
 Japan’s EPS has rebounded to pre-2008-crisis levels, thanks to Abenomics for the depreciating the yen
A. Stotz Profitable Growth: High profitability in US; three
consecutive years of declining EPS in developed Europe
Profitability: High in US Growth: Japan has picked up from Abenomic’s weaker yen
(5)
-
5
10
15
20
25
USA
Asia ex-Japan
Developed Europe
Japan
Return on equity (%)
(50)
-
50
100
150
200
250
USA
Asia ex-Japan
Developed Europe
Japan
Index of EPS growth

28 February 2015 15
 Asia ex-Japan clearly showed high sales growth of 12.2% p.a. in the past decade versus 4.8% p.a. in the
US and 0.4% p.a. in developed Europe
 Being a production hub and faced with increasing wages, Asia ex-Japan has seen margin contraction
 For Japan, Abenomics has helped the recovery of Japan’s profitability
 US cut costs dramatically after the 2008 crisis, which has led to high unemployment but high profit
margins. EPS has grown at 5.8% p.a. in the past decade in line with the uptrend in the US market
Strong brands and innovation keep high profitability in the US,
Asia ex-Japan showed sales growth of 12% p.a.
Net margin: Uptrend in US vs. downtrend in Asia ex-Japan Sales growth: Tripled in Asia ex-Japan, slow in Japan & Europe
(2)
-
2
4
6
8
10
12
USA
Asia ex-Japan
Developed Europe
Japan
Net margin (%)
60
110
160
210
260
310
360
USA
Asia ex-Japan
Developed Europe
Japan
Index of Sales growth

28 February 2015 16
30 20 10 - 10 20
0-14
15-24
25-34
35-44
45-54
55-64
65+
1990 2010
(% of Total population)
Asia* Europe and US
Sources: A. Stotz Investment Research, Department of Economic and Social Affairs (Population Division), United Nations
Note: *China, Hong Kong, India, Indonesia, Malaysia, Korea, Philippines, Singapore, and Thailand
By 2020, 85% of the current Asian population
will be in the labor force
40 20 - 20 40
0-14
15-24
25-34
35-44
45-54
55-64
65+
1990 2010
(% of Total population)

28 February 2015 17
 Memories of the 1997
Asian crisis, which originated
in ASEAN, has kept its
constituent countries’
leverage levels low
 Within Asia, the highest
indebted countries are
Hong Kong, Malaysia,
and Singapore
 Malaysia is the leader
in consumer debt
 Corporates: China and HK
have high debt to GDP, more
than 2x for HK and 1.5x for
China, US has low gearing
 Household: People in the
top-three Asian countries by
population have limited
access to credit. Korea has the
highest debt-to-GDP. This is a
potential opportunity for
financial services firms in
India and Indonesia
Opportunity for consumption growth in the long run in
Indonesia, India, and Philippines due to low household debt
Sources: A. Stotz Investment Research, Thomson Reuters, Trading Economics
318
250
243 242
219
204
172
164
133
125
64
-
50
100
150
200
250
300
350
HK Malay Sing USA Korea China Thai Taiwan Phils India Indo
Gov't debt
Corporate debt
Household debt
(% of GDP)

28 February 2015 18
 Exceptional growth from
2002 to 2011. Driven by
investment, then exports,
then investment and now
back to normal growth
 Net exports added 3% to
GDP during the three best
years, now it contributes zero
 Gov’t cut its investment
from 2012, now things are
back to normal
 During the past 15 years
consumers always
contributed about 3-4%
of GDP growth
 In 2014, GDP grew at 7.4%,
slower than in 1997 Asia crisis
 Consumers have more
money to spend and their
GDP per capita has grown at
18.3% p.a. in the past decade.
Challenges are to no longer
be a net exporter
China: Cooling down economic growth by cutting investment
Sources: A. Stotz Investment Research, FactSet
Note: *Not enough data to estimate
4 4 4 4
3 3 2 2 3 3
4
3 3 3
4
3 3
2 2
2 2
2 1
1 1
2 1
2
1
1 2
1
1 1
1
2
3 2
4 5
7 6 3
5
6
6
8
6 5
3 4
3 0
(1)
(0) (0)
1
(0)
1 3
3
3
(0)
(3)
(0) (1)
0
(0)
9
8 8 8 8
9
10 10
11
13
14
10
9
11
9
8 8
7
(4)
(2)
-
2
4
6
8
10
12
14
16
Net exports
Investment
Gov't cons
Private cons
Estimated contribution to real GDP growth (%)

28 February 2015 19
 This chart looks at the
length of railroad track in
China versus the US
 In the mid-1800s the US
kicked off its railroads. What
followed was a bubble of
massive proportions
 The bust cycle took eight
decades to play out,
accelerated in the 1970s/80s
due to deregulation
 China, on the other hand,
had a slow start with trains,
but it has been rising steadily
over the past five decades
 Some worry that the
Chinese government has
over-invested, but when it
comes to railroads, that is just
not the case
Is there a bubble in government investment spending? Railroad
construction has been steady, no boom-bust here
Sources: A. Stotz Investment Research, Dr. Jean-Paul Rodrigue at Hofstra University, Wikipedia
-
50
100
150
200
250
300
350
400
450
Decades of existence
US
China
Railroad tracks, ('000 kilometers)

28 February 2015 20
 Personal consumption is
not yet maxed out in Asia
 The driving force for
consumption growth will be
growth in income
If you see a Singaporean, ask him to treat you to a big dinner!
-
10,000
20,000
30,000
40,000
50,000
60,000
GDP Personal consumption
(USD/capital)

28 February 2015 21
 Chinese consumers have
about 5x more money in their
pocket versus about 2x more
in Asia ex-Japan and China
China: Chinese get richer
Sources: A. Stotz Investment Research, FactSet
18.3
7.7
3.8
2.9 2.5
1.4
-
2
4
6
8
10
12
14
16
18
20
China Asia ex-
Japan and
China
Euro zone United
States
United
Kingdom
Japan
GDP per capita in the past ten years
Growth (%, p.a.)

28 February 2015 22
 Despite desperately low interest rates, the US dollar continues to climb
 Thanks to it’s safe-haven status, money keeps pouring into stocks and bonds. And of course, falling
interest rates are good for stocks, and rock bottom rates even better
 Eventual rising rates should have a more negative impact on US stocks and bonds
 Euro disaster – Investors have been fleeing the Euro as the economies stagnate
Note: Each currency relative to USD, USD relative to all currencies, prices as of 19 February 2015
Strong US dollar at 10-year high – good time to invest abroad
18
1
(0) (0) (1)
(3) (4) (4)
(8) (8) (8)
(17)(20)
(15)
(10)
(5)
-
5
10
15
20
Currency change* - Past one year(%)
80
85
90
95
100
105
110
115
Feb-05 Aug-07 Feb-10 Aug-12 Feb-15
US dollar
Index, rebased to 100

28 February 2015 23
 After the global crisis in
2008, interest rates were cut
across the developed
countries
 Only minimal cuts in Asia
 Interest rates in developed
countries are almost at zero,
with no more room for cuts
 China has started to cut its
policy rate again, pushing the
yuan to become weaker
 More stable interest rates
in Asia ex-Japan and China
Developed countries: Can’t cut interest rates any further
-
1
2
3
4
5
6
7
8
Dec-00 Apr-03 Aug-05 Dec-07 Apr-10 Aug-12 Dec-14
China
Asia ex-Japan and China*
USA
Euro zone
Japan
Policy rate (%)

2428 February 2015
Integrating the financial markets
ASEAN Economic Community (AEC)
Shanghai-Hong Kong Stock Connect (SHKSC)

28 February 2015 25
 The ASEAN Economic Community (AEC) aims to create
a single market and production base with a free flow
of goods, services, investments, capital and skilled
labor by end of 2015
 ASEAN members includes Brunei Darussalam,
Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar,
Philippines, Singapore, Thailand and Vietnam
 With approximately 620 million of combined
population and about US$3tn GDP, ASEAN is the 7th
largest economy in the world
 ASEAN has already established free-trade agreements
(FTAs) with Australia, New Zealand, China, India,
Japan and South Korea. Additionally, a discussion
regarding potential FTA with Hong Kong has just
begun
What is the AEC? Progress and Challenge
Sources: A. Stotz Investment Research, Association of Southeast Asian nations, World Bank.
Note: *The European Union as a Model for Regional Integration – Council on Foreign Relations
ASEAN Economic Community (AEC)
 The launch of AEC was previously delayed by a year
but it is now set to launch by December 2015.
However, it is widely expected to be further delayed
as the ambitious timeline (18 years of integration
process time, whereas it took the European Union
about 50 years*)
 Under the Master Plan of ASEAN Vision 2020, the
ASEAN Connectivity project requires massive funding
for its ambitious infrastructure projects; the private
sector’s contribution is needed to move forward
 Once capital markets within ASEAN are open to all
ASEAN countries as planned, it will allow funds to
flow freely between ASEAN countries, although the
progress in this section has been slow

28 February 2015 26
What is SHKSC? Weak performance since launch
Sources: A. Stotz Investment Research, Shanghai Stock Exchange
Shanghai-Hong Kong Stock Connect (SHKSC)
 Settlement, custody and regulatory issues have kept
foreign investors less excited about the scheme
 China is aware of foreign investors’ concerns and is
expected to improve the system to bring it into line
with international standards
 In the long run, a better exposure and fund flows in
the capital markets around the world that SHKSC
provides in theory would improve Chinese companies’
financial reporting and transparency
 QFII quotas remain exhausted as foreign investors still
prefer to invest through QFII scheme instead of the
current SHKSC scheme
 Shanghai-Hong Kong Stock Connect (SHKSC) allows
foreign investors directly invest in China A shares and
Chinese investors to invest in Hong Kong stocks
 A daily quota for investments of RMB13bn and
aggregated quota of RMB300bn is applied for north
bound investments (investing in A shares), hence total
foreign investments are denied to exceed the
aggregated quota at any time. Meanwhile south-
bound investing (in Hong Kong H shares) has a daily
quota of RMB10.5bn and RMB250bn aggregated
quota
 Prior to SHKSC, foreign investors could only invest in A
shares through QFII (Qualified Foreign Institutional
Investor) quota after obtaining a license, which
typically is issued to long term and long only investors
 China to start allowing short selling in the Shanghai-
Hong Kong Stock Connect scheme in March, 2015

2728 February 2015
Asian economic performance
Our Four Elements view on Asia ex-Japan:
Strong fundamentals: Indonesia and India
Cheap valuation: China and Korea
High momentum: Taiwan and Philippines
Low risk: Philippines and Indonesia

28 February 2015 28
Four Pillars of GDP: Domestic activities drive growth
A. Stotz Four Elements (4Es) rank relative to Asia Long-term country price-to-book
Sources: A. Stotz Investment Research, CIA World Factbook, FactSet, Thomson Reuters, World Bank
*Consensus estimates
China: Cheap then cheaper is the story of the past seven years
Country information:
People’s Republic of China
President: Xi Jinping
Population: 1,357m
2013 GDP: US$9,253bn
GDP/capita: US$6,856
Equity market:
Main index: CSI300 index
Market cap: US$6,905bn
Market size/GDP: 75%
Market volume: US$110bn
ETF BB code: MCHI US
Listed companies: 2,590
Year end Dec 13A 14A 15CE* 16CE* 17CE*
PE (x) 10.1 10.7 10.2 9.0 7.7
EPS growth (%) 4.0 7.0 5.2 12.6 17.6
PBV (x) 1.5 1.5 1.4 1.2 1.0
ROE (%) 14.0 14.0 13.3 13.6 14.9
Dividend yield (%) 3.5 3.0 3.1 3.5 4.9
60
80
100
120
140
160
60
80
100
120
140
160
Feb-12 Nov-12 Aug-13 May-14 Jan-15
MSCI China (LHS)
Asia ex-Japan rel performance
(Index, rebased to 100) (Index)
+2 Stdev
+1 Stdev
Average
-1 Stdev
-2 Stdev0.5
1.5
2.5
3.5
4.5
Feb-05 Jun-08 Oct-11 Feb-15
China - 12mth fwd price-to-book(x)
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
Worst Decile ranking Best
2.9
1.2
3.7
(0.2)
7.7
(5) - 5 10
GDP growth - 2013
Net exports (-6 x 3%)
Investment (8 x 48%)
Gov't cons (9 x 13%)
Private cons (8 x 36%)
(% chg YoY)
(Chg YoY x % of real GDP)

28 February 2015 29
Four Pillars of GDP: No help from net exports
Hong Kong: Cheap but painfully bad fundamentals
Hong Kong, Special
Administrative Region
Chief Executive: Chun-ying
Leung
Population: 7m
2013 GDP: US$274bn
Equity market:
Main index: HSI index
Market size/GDP: 1,004%
Market volume: US$4.5bn
ETF BB code: EWH US
PE (x) 17.2 16.1 15.5 14.1 12.3
EPS growth (%) 11.5 8.2 3.8 10.1 14.2
PBV (x) 1.3 1.3 1.3 1.2 1.1
ROE (%) 7.6 8.3 8.2 8.6 10.6
Dividend yield (%) 2.7 3.1 2.9 3.1 4.6
+2 Stdev
+1 Stdev
Average
-1 Stdev
1.0
1.5
2.0
2.5
Hong Kong - 12mth fwd price-to-book(x)
60
80
100
120
140
160
60
80
100
120
140
160
MSCI Hong Kong (LHS)
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
1.8
0.3
0.7
(0.4)
2.3
(1) - 1 2 3
GDP growth - 2014
Net exports (-327.9 x 0%)
Investment (2.8 x 25%)
Gov't cons (3.1 x 9%)
Private cons (2.7 x 66%)
(% chg YoY)
(Chg YoY x % of GDP)

28 February 2015 30
Four Pillars of GDP: Growing consumption and trading
India: Has been on a roll, but valuation is getting expensive
and risk is high
India
President: Pranab Mukherjee
Population: 1,252m
2013 GDP: US$1,788bn
Equity market:
Main index: Nifty index
ETF BB code: INDA US
Listed companies: 390
PE (x) 17.5 20.6 17.8 15.0 12.8
EPS growth (%) 6.8 7.9 16.3 18.1 17.3
PBV (x) 2.8 3.1 2.7 2.4 1.2
ROE (%) 15.0 14.8 15.4 16.3 19.9
Dividend yield (%) 1.4 1.4 1.5 1.7 1.4
+2 Stdev
+1 Stdev
Average
-1 Stdev
-2 Stdev
0.5
1.5
2.5
3.5
4.5
India - 12mth fwd price-to-book(x)
60
80
100
120
140
160
60
80
100
120
140
160
MSCI India (LHS)
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
4.4
0.6
0.7
1.5
7.2
- 2 4 6 8
GDP growth - 2014
Net exports (47.3 x -3%)
(% chg YoY)

28 February 2015 31
Four Pillars of GDP: All four worked well
Indonesia: Most attractive in Asia, but it’s getting expensive
Republic of Indonesia
President: Joko Widodo
Population: 250m
2013 GDP: US$869bn
Equity market:
Main index: JCI index
Market cap: US$427bn
ETF BB code: EIDO US
PE (x) 14.7 16.9 15.5 13.6 11.2
EPS growth (%) 2.3 8.4 9.0 13.9 21.4
PBV (x) 3.5 3.4 3.0 2.6 2.1
ROE (%) 22.1 20.1 19.4 19.4 24.4
Dividend yield (%) 2.7 2.3 2.5 2.8 3.2
+2 Stdev
+1 Stdev
Average
-1 Stdev
-2 Stdev
1.0
2.0
3.0
4.0
5.0
Indonesia - 12mth fwd price-to-book(x)
60
80
100
120
140
160
60
80
100
120
140
160
MSCI Indonesia (LHS)
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
3.22
0.16
1.41
0.28
5.06
- 2 4 6
GDP growth - 2014
Net exports (2.5 x 11%)
(% chg YoY)

28 February 2015 32
Four Pillars of GDP: Up from both consumption and trade
Malaysia: Domestic economy drives growth, 4Es look
unattractive on almost every measure
Federation of Malaysia
Prime Minister: Najib Razak
Population: 30m
2013 GDP: US$313bn
Equity market:
Main index: KLCI index
ETF BB code: EWM US
PE (x) 16.2 16.8 15.8 14.5 14.3
EPS growth (%) (0.7) (3.2) 6.6 8.7 1.8
PBV (x) 2.3 2.0 1.9 1.7 1.8
ROE (%) 13.5 11.7 11.7 11.9 12.8
Dividend yield (%) 3.0 3.1 3.2 3.4 3.2
+2 Stdev
+1 Stdev
Average
-1 Stdev
-2 Stdev
1.0
1.5
2.0
2.5
Malaysia - 12mth fwd price-to-book(x)
60
80
100
120
140
160
60
80
100
120
140
160
MSCI Malaysia (LHS)
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
3.67
0.60
0.36
1.40
6.02
- 2 4 6 8
GDP growth - 2014
(% chg YoY)

28 February 2015 33
Four Pillars of GDP: On fire by consumption and investment
Philippines: Growing economy, attractive on 3 out of 4Es, but
most expensive in Asia
Republic of the Philippines
President: Benigno Aquino III
Population: 98m
2013 GDP: US$272bn
Equity market:
Main index: PCOMP index
ETF BB code: EPHE US
PE (x) 20.4 23.0 20.4 18.1 18.5
EPS growth (%) 9.8 5.8 12.9 12.2 (1.8)
PBV (x) 3.1 3.3 3.0 2.8 3.4
ROE (%) 13.8 14.4 14.9 15.2 19.5
Dividend yield (%) 2.0 2.0 2.1 2.3 3.0
+2 Stdev
+1 Stdev
Average
-1 Stdev
-2 Stdev
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Philippines - 12mth fwd price-to-book(x)
60
80
100
120
140
160
60
80
100
120
140
160
MSCI Philippines (LHS)
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
2.98
0.19
0.25
2.67
6.10
- 2 4 6 8
GDP growth - 2014
Net exports (120.7 x -2%)
(% chg YoY)

28 February 2015 34
Four Pillars of GDP: Up by both consumption and trading
Singapore: Moderate GDP growth, driven by both domestic
and exports, attractive on 4Es but has poor fundamentals
Republic of Singapore
Prime Minister: Hsien Loong
Lee
Population: 5m
2013 GDP: US$302bn
Equity market:
Main index: STI index
ETF BB code: EWS US
PE (x) 13.8 14.1 13.6 12.4 11.4
EPS growth (%) (3.2) 10.1 3.7 9.3 9.3
PBV (x) 1.4 1.4 1.3 1.2 1.2
ROE (%) 9.3 9.8 9.7 10.0 10.7
Dividend yield (%) 3.7 3.6 3.7 4.0 4.3
+2 Stdev
+1 Stdev
Average
-1 Stdev
-2 Stdev1.0
1.5
2.0
2.5
Singapore - 12mth fwd price-to-book(x)
60
80
100
120
140
160
60
80
100
120
140
160
MSCI Singapore (LHS)
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
1.89
0.01
(0.68)
1.71
2.92
(2) - 2 4
GDP growth - 2014
Investment (-2.4 x 29%)
(% chg YoY)

28 February 2015 35
Four Pillars of GDP: All Pillars contributed growth
Korea: A nearly eight-year straight line valuation slide
Republic of Korea
President: Geun-hye Park
Population: 50m
2013 GDP: US$1,305bn
Equity market:
Main index: KOSPI index
ETF BB code: EWY US
PE (x) 10.7 11.8 9.9 9.2 8.4
EPS growth (%) (8.1) (3.1) 19.4 7.1 10.4
PBV (x) 1.1 1.1 1.0 0.9 0.8
ROE (%) 9.2 9.0 9.8 9.7 10.7
Dividend yield (%) 1.0 1.3 1.6 1.7 2.3
+2 Stdev
+1 Stdev
Average
-1 Stdev
-2 Stdev
0.5
1.0
1.5
2.0
Korea - 12mth fwd price-to-book(x)
60
80
100
120
140
160
60
80
100
120
140
160
MSCI Korea (LHS)
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
1.7
0.4
0.7
0.6
3.3
- 2 4
GDP growth - 2014
(% chg YoY)

28 February 2015 36
Four Pillars of GDP: All Pillars contributed growth
Taiwan: Early phase of momentum, the Four Pillars of GDP are
in good condition
Taiwan
President: Ying-jeou Ma
Population: 23m
2013 GDP: US$513bn
Equity market:
Main index: TWSE index
ETF BB code: EWT US
PE (x) 20.5 14.4 13.0 12.3 11.5
EPS growth (%) 33.2 27.2 10.7 6.0 6.4
PBV (x) 1.9 1.9 1.8 1.6 1.8
ROE (%) 11.6 13.4 13.6 13.5 15.6
Dividend yield (%) 2.7 3.0 3.5 3.8 3.9
+2 Stdev
+1 Stdev
Average
-1 Stdev
-2 Stdev
1.0
1.5
2.0
2.5
Taiwan - 12mth fwd price-to-book(x)
60
80
100
120
140
160
60
80
100
120
140
160
MSCI Taiwan (LHS)
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
1.6
0.5
1.0
0.6
3.7
- 2 4
GDP growth - 2014
(% chg YoY)

28 February 2015 37
Four Pillars of GDP: Net exports were the white horse
Thailand: Economic growth in line with Euro zone,
unattractive on all 4Es, ranked worst in Asia ex-Japan
Kingdom of Thailand
Prime Minister: General
Prayuth Chan-Ocha
Population: 67m
2013 GDP: US$387bn
Equity market:
Main index: SET index
ETF BB code: THD US
PE (x) 13.6 17.0 14.4 12.5 10.8
EPS growth (%) 0.9 (5.5) 17.7 15.3 15.9
PBV (x) 2.1 2.3 2.0 1.8 1.7
ROE (%) 13.8 13.3 14.0 14.7 16.6
Dividend yield (%) 3.3 2.8 3.1 3.4 3.9
+2 Stdev
+1 Stdev
Average
-1 Stdev
-2 Stdev
1.0
1.5
2.0
2.5
Thailand - 12mth fwd price-to-book(x)
60
80
100
120
140
160
60
80
100
120
140
160
MSCI Thailand (LHS)
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
0.25
0.29
(2.68)
2.86
0.71
(4) (2) - 2 4
GDP growth - 2014
Investment (-11.4 x 24%)
(% chg YoY)

28 February 2015 38
Four Pillars of GDP: Domestic businesses fueled growth
A. Stotz Four Elements (4Es) rank relative to Asia ex-Japan Long-term country price-to-book
US: Strong fundamentals push valuation almost back to the
pre-global crisis, economy is in good shape
United States of America
President: Barack Obama
Population: 316m
2013 GDP: US$16,768bn
Equity market:
Main index: S&P500 index
Market volume: US$100bn
ETF BB code: EUSA US
PE (x) 17.7 18.5 18.0 15.9 14.1
EPS growth (%) 7.9 3.8 2.4 13.4 12.6
PBV (x) 2.7 2.8 2.6 2.5 2.3
ROE (%) 15.3 15.4 14.6 15.5 18.0
Dividend yield (%) 1.7 1.8 2.0 2.2 2.4
USA Asia
Strong Fundamentals X
Cheap Valuation X
High momentum X
Low risk X
+2 Stdev
+1 Stdev
Average
-1 Stdev
-2 Stdev
1.0
1.5
2.0
2.5
3.0
USA - 12mth fwd price-to-book(x)
60
80
100
120
140
160
60
80
100
120
140
160
MSCI USA (LHS)
1.7
(0.0)
1.0
(0.2)
2.4
(1) - 1 2 3
GDP growth - 2014
Net exports (-7.6 x -3%)
Gov't cons (-0.2 x 18%)
(% chg YoY)

3928 February 2015
A. Stotz Academic-style research
We have published eight academic-style studies and two academic papers by Andrew
Stotz in the past year
Example of academic-style research: Does high risk mean high return?

4028 February 2015
10 academic-style research
publications in the past year
Academic-style research by A. Stotz Investment Research
Can investors in Asia gain from analyst earnings forecasts?
Can analysts give the right direction?
Can an investor rely on target prices to make money?
Is unanticipated growth a driver of value?
How do we avoid negative earnings surprises?
Are analysts’ EPS forecasts accurate?
How long can price momentum last?
Does high risk mean high return?
Academic research by Andrew Stotz (available at SSRN)
Ten stocks are enough in Asia
Eight stocks are enough in China

28 February 2015 41
 Breaking down the world
into regions, we find that in
many regions, the annual
return of the lowest-beta
decile is not very much higher,
but the risk-adjusted return is
considerably higher
 In North America, the
lowest-beta decile returns a
little bit less than the highest-
beta decile; however, its risk-
adjusted return is
substantially higher
 Our research shows that
the main benefit of investing
in the lowest-beta decile in
most regions comes from a
substantial risk reduction
 The lowest-beta decile
beats the highest-beta decile
in every market in risk-
adjusted return
Low beta beats high beta in every region
Sources: A. Stotz Investment Research, Thomson Reuters. Note: *Sharpe ratio is calculated by dividing the geometric mean by standard deviation.
**Due to lack of large-cap stocks in Middle East & Africa until 1995, the return shown is from Dec 1995 to Dec 2013.
(2)
-
2
4
6
8
10
12
14
-
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
Middle
East &
Africa**
Europe North
America
Australia Japan Latin
America
Asia ex
Japan
Lowest-beta decile minus highest-beta decile (Sharpe ratio)
Lowest-beta decile minus highest-beta decile (return, RHS)
Mcap-weighted return p.a. (%)Sharpe ratio* (x)

4228 February 2015
A. Stotz Model Portfolios
The portfolios
Asia portfolio
ASEAN portfolio
Thai portfolio

28 February 2015 43
 Investment research product: Independent, across Asia, bottom-up stock picking
 Three portfolios: Asia, ASEAN and Thai portfolios (more portfolios to come)
 Based upon A. Stotz Four Elements: Fundamentals, Valuation, Momentum and Risk
 No major style bias
 Concentrated portfolios, 12-15 stocks in each portfolio
 Rebalanced and issued each quarter with detailed research on each stock
 Specific guidance of when to buy AND sell
The portfolios

28 February 2015 44
 We introduced our Asia portfolio on 21 April 2014
 Since its inception, it has generated a total return of 18% versus MSCI Asia ex-Japan’s total return of 11%
 Since the last rebalancing, it has had five major outperformers: Medy, Com2Us, LGHouse, AP, and
ChinaTel
 Since the last rebalancing, it has had three major underperformers: HAP, TUF, and STPI
Sources: A. Stotz Investment Research, Thomson Reuters. Prices as of 20 February 2015
Note: *MSCI Asia ex-Japan local currency index
Asia portfolio
95
100
105
110
115
120
Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15
A.Stotz Asia
MSCI Asia ex-Japan*
Total return indices, rebased to 100 since inception
118
111
31 28
16
11 11 9 8
5 3 3 0
(2)
(18)
8.1
5.7
(30)
(20)
(10)
-
10
20
30
40
Medy
Com2Us
LGHouse
AP
ChinaTel
MEG
IJM
YZJ
Yuhan
PChome
STPI
TUF
HAP
Stocks
A. Stotz Asia
MSCI Asia ex-Japan*
Total return since last rebalancing (%)

28 February 2015 45
 We introduced our ASEAN portfolio on 18 November 2013
 Since its inception, it has generated a total return of 54% versus ASEAN’s total return of 11%
 Since the last rebalancing, it has had eight major outperformers: MPPA, UOL, VLL, UNVR, FGEN, SIA,
CD, and GLO
 Since the last rebalancing, it has had four major underperformers: HAP, TUF, STPI, and ADVANC
Note: *MSCI South East Asia local currency index consists of Indonesia, Malaysia, Philippines, Singapore, and Thailand
ASEAN portfolio
90
100
110
120
130
140
150
160
Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15
A.Stotz ASEAN
MSCI South East Asia*
154
111
28
15 15 14 12 11 10 9 7 5 2
(4) (4) (6)
(19)
6.3
3.6
(30)
(20)
(10)
-
10
20
30
40
MPPAIJ
UOLSP
VLLPM
UNVRIJ
FGENPM
SIASP
CDSP
GLOPM
IJMMK
MEGPM
YZJSP
ADVANCTB
STPITB
TUFTB
HAPMK
Stocks
A.Stotz ASEAN
MSCI South East Asia*

28 February 2015 46
 We introduced our Thai portfolio on 31 March 2014
 Since its inception, it has generated a total return of 19% vs. the SET 100 Index’s total return of 16%
 Since the last rebalancing, it has had five major outperformers: KCE, SCC, SYNTEC, AKR, and ANAN
 Since the last rebalancing, it has had seven major underperformers: GFPT, EFORL, CPF, TUF, ADVANC,
STPI, and RML
Thai portfolio
90
95
100
105
110
115
120
125
130
Apr-14 Jun-14 Sep-14 Dec-14 Feb-15
A.Stotz Thailand
SET 100 index
119
116
29
15 12 10 7
2 0
(4) (4) (5) (6)
(10)(12)
(21)
1.0
1.1
(30)
(20)
(10)
-
10
20
30
40
KCE
SCC
SYNTEC
AKR
ANAN
SPCG
PTTGC
RML
STPI
ADVANC
TUF
CPF
EFORL
GFPT
Stocks
A. Stotz Thailand
SET100 Index

4728 February 2015
Example of
company research
Note: This is an example. See notes for
information about when data used in this
analysis was retrieved

28 February 2015 48
 Low debt levels and low core profit valuation relative to companies
across its sector, and improving asset turnover relative to companies
across the region
 It is the only Asian postal service to expand its delivery services into the
fast growing Asian e-commerce and logistics space. It has increased its
e-commerce customer base 100% in one year, from 300 to 600
 Alibaba Group about to take a stake in SPOST, which will help it to scale
up its business and, in the long term, will lead to improved cost efficiencies
 SPOST trades at a premium of 15CE* 4.4x PB compared to its ASEAN
sector in line with its attractive ROE and a dividend yield of 4%
 Risk: Declining mail volumes in Singapore
A. Stotz Four Elements Watching ‘The Street’
SPOST: E-commerce is the new postal money-spinner
Background: Singapore Post Limited is engaged in domestic and
international postal, courier, logistical, and retail services. While its main
operations are in Singapore, it has operations in 13 countries, where
delivery services are focused largely on delivery of products ordered
through e-commerce websites.
Stock information:
Name: Singapore Post Ltd.
Ticker: SPOST SP
Price (SGD): 1.75
Mcap: US$2,648m
3MADTO: US$9m
Beta: 0.6x
Sector: Industrials
Industry: Transportation
Major shareholders:
25% Singapore
Telecommunications Ltd.
3% Deutsche Asset &
Wealth Management
Investment GmbH
71% Free float
Sources: A. Stotz Investment Research, Bloomberg, company data, FactSet, Thomson Reuters
Note: *Consensus estimates. Originally published on 12 Sept 2014
Year End Mar 12 13 14 15CE* 16CE*
PE (x) 23.7 25.7 23.9 21.3 20.3
EPS (SGD) 0.07 0.07 0.07 0.08 0.09
EPS growth (%) (10.7) (7.7) 7.4 12.3 4.9
PBV (x) 5.0 4.8 4.6 4.4 4.7
BVPS (SGD) 0.35 0.36 0.38 0.40 0.37
ROE (%) 28.8 20.6 22.2 21.5 24.9
Dividend yield (%) 3.6 3.6 3.6 3.7 3.5
- 1 2 3 4 5 6 7 8 9 10
Risk
Momentum
Overall
Fundamentals
Valuation
Sell, 6 Neutral, 5 Sell, 3
Neutral, 4
-
20
40
60
80
100
-
20
40
60
80
100
Dec' 11 Dec' 12 Dec' 13 Current
SPOST SP
Buy
Sell
Buy
Sell

28 February 2015 49
Revenue breakdown by business division 1Q15
Singapore Post Limited
Sources: A. Stotz Investment Research, company data, Thomson Reuters
Originally published on 12 Sept 2014
 SPOST has three business divisions: mail, logistics and retail services
 It is the designated Public Postal Licensee for Singapore, which gives it
access to low-cost, postage-to-postal rates (governed by the Universal
Postal Union); bilateral agreements with other countries; and partnerships
with low-cost couriers
 Although the majority of SPOST’s revenue comes from Singapore, the
company has been expanding across the rest of Asia, which now accounts
for 28% of the service’s total revenue. In May 2014 SPOST signed an
investment agreement with Alibaba group. The companies are discussing a
JV for strategic partnership in South East Asian e-commerce
 Most other Asian countries have regulations preventing government
postal services from competing in e-commerce, but SPOST has the
advantage of no such restrictions. A number of new corporate customers
have outsourced their entire e-commerce logistics supply chain to SPOST,
including Adidas in Singapore, Malaysia and the Philippines, as well as
Toshiba, Canon, and Philips
Mail 51% Logistics 40% Retail & e-commerce 9%

28 February 2015 50
Board composition
Institutional ownership
Sources: A. Stotz Investment Research, company data, FactSet
Notes: *outstanding ,**institution, ***growth at a reasonable price Originally published on 12 Sept 2014
SPOST: Leadership and Ownership
Top shareholders % O/S* Holdings style % of inst**
Deutsche Asset & Wealth
Management Investment GmbH
3.10 Aggressive Growth -
Aberdeen Asset Mgt (Asia) Ltd 2.53 Deep Value -
Matthews Int’l Capital Mgt LLC 2.19 GARP*** -
Others 3.44 Growth 60
Total institutional ownership 11.26 Index 12
Region % of inst** Value 27
Asia 22 Yield -
North America 31 Others -
Europe 46 Total 100
Others -
Total 100
Chairman (Independent)
Ho Kee Lim
Chief Executive Officer
Dr. Wolfgang Baier
-
5
10
15
20
25
Dec-11 Dec-12 Dec-13 Latest
SPOST
Singapore
ASEAN
(Institutional ownership, %)
10 7
70
7 3
46
8 3
39
-
20
40
60
80
Number of
directors
Number of
independent
directors
Independent
directors (%)
SPOST Singapore ASEAN
(#,%)

28 February 2015 51
Valuation
Notes: *Bars are decile rankings of most recent period. na = not available, nm = not meaningful Originally published on 12 Sept 2014
SPOST: A. Stotz Four Elements
Fundamentals
Momentum Risk
Worst Neutral Best
Rank relative to peers*
W B W B
W B W B
Note: Benchmarked against 760 nonfinancial companies in ASEAN.
(%) Mar '11 Mar '12 Mar '13 Mar '14 Jun '14
Operating profit margin 34.4 30.1 26.4 22.5 22.5
Net margin 28.4 24.5 20.7 17.4 17.4
Asset turnover 52.2 45.9 44.1 57.1 61.9
Return on assets 14.9 11.3 9.1 9.9 10.8
Return on equity 52.0 28.8 20.6 21.0 20.7
(x) Mar '11 Mar '12 Mar '13 Mar '14 Jun '14
Price-to-sales 3.9 3.4 3.6 3.2 2.7
Price-to-earnings 13.9 13.7 17.2 18.1 15.8
Price-to-book 6.8 2.9 3.5 3.7 4.9
PE-to-EPS growth (PEG) nm nm nm 4.52 3.21
EV/EBIT 12.0 10.0 13.1 13.4 17.7
(%) Mar '11 Mar '12 Mar '13 Mar '14 Jun '14
Revenue growth 7.7 2.2 13.9 24.6 17.2
Recurring EPS growth (2.1) (10.7) (3.4) 4.0 4.9
Oper. profit margin chg. (bps) (279) (424) (370) (397) (298)
6mth 3mth 1mth 3wk 1wk
Price change 30.7 6.2 (1.4) (1.4) (0.3)
(x) Mar '11 Mar '12 Mar '13 Mar '14 Jun '14
Current ratio 2.1 3.3 1.3 1.6 1.5
Net debt-to-equity (%) 35.0 (28.3) (16.2) (25.2) (29.2)
Times-interest-earned 13.4 12.4 12.3 26.2 nm
5yr 2yr 1yr 6mth 3mth
Beta 0.3 0.4 0.1 0.1 0.1

28 February 2015 52
Note: Sector ROAs are asset-weighted. Originally published on 12 Sept 2014
Profitability: Return is stable and in the top two deciles Growth: Advancing slowly
SPOST: Regional benchmarking2 out of 10
SPOST: ROA (%) & ranking SPOST: EPS growth (%) & ranking
Mar-11 Mar-12 Mar-13 Mar-14 Jun-14
Best 15 10
2 11 9 11
3
4
5
6
7
8
9
Worst
Note: SPOST is benchmarked against 590 companies in Asia.
-
2
4
6
8
10
12
14
16
SPOST
Asia Industrials
Singapore Industrials
Return on assets (%)
SPOST: EPS growth (%) & ranking
Best
2
3
4
5 (3) 5
6 (11) 4
7
8 (2)
9
Worst
-
20
40
60
80
100
120
SPOST
Asia Industrials
EPS growth indices, rebased to 100

28 February 2015 53
Note: Sector asset turnovers is asset-weighted. Originally published on 12 Sept 2014
Asset utilization: Improved efficiency, but still low ranked Net margin: Impressive net margin ranked in the 2nd decile
SPOST: Regional benchmarking – Breaking down ROA
SPOST: Asset turnover (%) & ranking SPOST: Net margin (%) & ranking
Best
2
3
4
5
6 57 62
7 52 44
8 46
9
Worst
Note: SPOST is benchmarked against 590 companies in Asia.
-
10
20
30
40
50
60
70
80
90
100
SPOST
Asia Industrials
Asset turnover (%)
SPOST: Net margin (%) & ranking
Best 28 25
2 21 17 17
3
4
5
6
7
8
9
Worst
-
5
10
15
20
25
30
SPOST
Asia Industrials
Net margin (%)

28 February 2015 54
Profit & loss (SGD m) Mar '10 Mar '11 Mar '12 Mar '13 Mar '14 Jun '13 Sep '13 Dec '13 Mar '14 Jun '14
Revenue 526 566 579 659 821 201 204 223 193 211
Cost of goods sold (133) (152) (158) (202) (311) (76) (78) (89) (68) (79)
Gross profit 392 414 421 457 510 125 126 133 125 132
SG&A & others (193) (204) (232) (288) (331) (74) (82) (82) (91) (83)
Operating profit 200 209 189 169 179 51 44 51 34 49
Other inc/(exp) - - - 12 7 (2) (1) (1) 1 (1)
Earnings before interest & tax 200 209 189 181 186 49 43 50 35 48
Interest expense (9) (17) (17) (17) (8) - - - - -
Pretax profit 190 193 172 164 177 49 43 50 35 48
Income tax (29) (33) (32) (30) (34) (9) (8) (10) (7) (9)
After-tax profit 161 159 140 134 143 40 36 40 28 39
Equity income 1 (1) 1 2 4 0 1 1 2 1
Minorities (1) (1) (0) (0) (2) (1) (0) (0) (0) (1)
Earnings from continuing operations 161 158 141 136 146 39 36 41 29 39
Forex gain/(loss) & unusual items 4 3 1 0 (3) (2) (1) (1) 1 0
Net income 165 161 142 136 143 37 36 39 31 39
EPS (SGD) 0.09 0.08 0.07 0.07 0.08 0.02 0.02 0.02 0.02 0.02
Weighted average shares (m) 1,927 1,924 1,905 1,890 1,899 1,890 1,899 1,901 1,903 1,907
Balance sheet (SGD m) Mar '10 Mar '11 Mar '12 Mar '13 Mar '14 Jun '13 Sep '13 Dec '13 Mar '14 Jun '14
Assets 1,075 1,093 1,430 1,554 1,322 1,302 1,269 1,289 1,322 1,383
Liabilities 776 761 770 887 626 635 595 596 626 643
Equity 299 332 660 668 696 667 673 692 696 740
Growth (%) Mar '10 Mar '11 Mar '12 Mar '13 Mar '14 Jun '13 Sep '13 Dec '13 Mar '14 Jun '14
Revenue 9.2 7.7 2.2 13.9 24.6 32.8 32.6 30.2 5.9 4.8
Operating income 10.0 4.9 (9.9) (10.5) 5.7 3.2 0.5 1.2 4.5 (3.2)
EPS 10.8 (2.3) (10.9) (3.1) 4.4 (2.0) 8.0 (0.8) 16.9 4.2
Assets 39.6 1.7 30.9 8.7 (15.0) (11.8) (12.0) (11.1) (15.0) 6.2
Liabilities 51.1 (2.0) 1.3 15.1 (29.4) (23.0) (24.5) (23.6) (29.4) 1.2
Equity 16.5 11.3 98.5 1.2 4.2 2.4 3.2 3.5 4.2 10.9
Profits (%) Mar '10 Mar '11 Mar '12 Mar '13 Mar '14 Jun '13 Sep '13 Dec '13 Mar '14 Jun '14
Gross margin 74.7 73.1 72.7 69.3 62.1 62.1 61.9 59.9 64.8 62.7
Operating margin 38.0 37.0 32.6 25.6 21.7 25.1 21.5 23.0 17.4 23.2
Net margin 31.4 28.4 24.5 20.7 17.4 18.5 17.5 17.7 15.9 18.6
ROE 60.6 52.0 28.8 20.6 21.0 22.4 21.3 23.1 17.7 21.9
ROIC 43.6 47.2 41.9 45.9 70.3 80.9 77.3 78.5 56.2 91.0
Originally published on 12 Sept 2014
SPOST: Financials

10 February 2015By: Andrew Stotz, CFA and Sornsak Kongcharoenpanich
WHITE
PAPER
A. Stotz Profitable Growth

28 February 2015 56
Source: A. Stotz Investment Research
'10 '11 '12 '13 '14
2 3 1 1 1
'10 '11 '12 '13 '14 '10 '11 '12 '13 '14
2 3 1 1 1 8 6 3 4 5
'10 '11 '12 '13 '14 '10 '11 '12 '13 '14 '10 '11 '12 '13 '14 '10 '11 '12 '13 '14
4 4 3 4 4 3 3 2 2 2 8 6 5 5 4 9 8 2 3 6
Profitable growth
Asset utilization Profit margin Sales growth Margin change
Profitability Growth
Profitable growth: Profit growth with
minimum asset use
Why: The way to be world class and
sustainable in the long run
Risk: One without the other is not
enough
Profitability: ROA – generating the
most profit out of your assets
Why: Getting more out of assets
means you need less capital
Risk: Only high returns, but no
asset growth, is unsustainable
Growth: EPS growth – the market
values it and so should you
Why: Grow earnings to grow firm
value
Risk: Focus on short-term results is
an unsustainable strategy
Profit margin: Cost control
Why: Internal improvement of
efficiency and profitability
Risk: Too tight cost control
prevents growth
Sales growth: Externally
driven EPS growth
Why: Essential to grow your
business
Risk: Growth without profit
doesn’t win in the long run
Asset utilization: Amount of
revenue per unit of assets
Why: Careful asset growth
preserves capital
Risk: Too tight asset policy
prevents growth
Margin change: Internally
driven EPS growth
Why: Getting more profit
from every sale
Risk: Too high prices, or low
costs could hurt sales growth

5728 February 2015
We started this study with 6,700 stocks that were listed
anywhere in Asia ex Japan (including China A shares) at any
point in time between January 2003 to December 2014
We then removed 500 stocks that did not close their books in
December each year
This left us with about 4,100 stocks listed on different markets in Asia
ex Japan
Why A. Stotz Profitable Growth
matters
We removed 2,100 stocks that did not have the fundamental data
needed to calculate A. Stotz Profitable Growth metrics

5828 February 2015
Methodology
First we calculate the two components of our A. Stotz Profitable Growth measure:
We ranked the companies in deciles and grouped them into three categories:
Profitability, Growth, and our combined ranking of A. Stotz Profitable Growth in each
year from 2003-2013
We calculated the one-year stock price return from the prior year’s reporting date, e.g.
for Dec 2013 results, if we assume that the company announced its financial results by
Mar 2014 then its one-year price return is from Mar 2013-Mar 2014
Then we calculate the simple average price return for each decile of those three
categories and calculate the compound annual price return during Mar 2003-Mar 2014
To eliminate outliers, we exclude the stock that displayed a price change of more than
500% or less than -90%
𝑃𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦 =
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
(𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 + 𝐸𝑛𝑑𝑖𝑛𝑔 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠)/2
𝐺𝑟𝑜𝑤𝑡ℎ =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟′ 𝑠 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 𝐸𝑃𝑆 − 𝑃𝑟𝑖𝑜𝑟 𝑦𝑒𝑎𝑟′ 𝑠 𝐸𝑃𝑆
𝐴𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑝𝑟𝑖𝑜𝑟 𝑦𝑒𝑎𝑟′ 𝑠 𝐸𝑃𝑆

28 February 2015 59
 The higher deciles for each
group: Profitability, Growth,
and A. Stotz Profitable
Growth yield higher returns
versus the lower deciles
 The top four deciles in the
Growth group yield higher
price return versus the top
four deciles in the Profitability
group
 However, for Growth, the
companies that rank in the
bottom five deciles
underperform the Profitability
group companies that rank in
the same deciles
 Though investors like to
pay for growth, over the long
run they are willing to pay
even more for profitability
and growth. Which is where
we focus our A. Stotz
Profitable Growth measure
Superior A. Stotz Profitable Growth companies beat their peers
43
30
25
19
18
13
9
6
5
(7)
(10)
-
10
20
30
40
50
Decile1
Decile2
Decile3
Decile4
Decile5
Decile6
Decile7
Decile8
Decile9
Decile10
Profitability
Growth
Price return (%, p.a.)
Best <== Fundamentals ===> Worst

6028 February 2015
Methodology (cont.)
We analyzed the share price performance of the companies that improved/did not
improve their rankings in each category: Profitability, Growth and A. Stotz Profitable
Growth
We calculated the change in decile ranking from prior year in each group, e.g. if the
company is ranked in the 3rd decile this year vs. the 4th decile last year, the company
has improved one step and vice versa
Then we grouped the companies that showed no change in decile rank and every
incremental one-to-three-step improvement/decline. We ended up with seven groups,
each containing a different number of companies
Then we calculate the simple average price change of each group each year, assuming
that we start to invest in each group every year in March, from Mar 2003-Mar 2014
and compound the annual returns of each group

28 February 2015 61
 Companies that improve a
lot in their decile rank prove
to generate a superior price
return versus its peers
 The A. Stotz Profitable
Growth group that improved
by 7-9 steps (left-end group),
returned 49%, almost 4x
higher than the group that
showed no improvement
 The A. Stotz Profitable
Growth groups that fall in
decile rank displayed a
negative share price
performance, losing 7% p.a.
on average
 If a company can show a
large improvement in
Profitability it will yield a
better price performance
compared to a similar
improvement in Growth
Groups that show large improvements yield outstanding returns
49
42
29
13
4
(7)
(11)
(20)
(10)
-
10
20
30
40
50
60
+7-9 +4-6 +1-3 Same -1-3 -4-6 -7-9
Profitability
Growth
Price return (%, p.a.)
<=== Change in decile rank ===>

28 February 2015 62
'10 '11 '12 '13 '14
10 10 10 1 1
'10 '11 '12 '13 '14 '10 '11 '12 '13 '14
10 10 10 1 1 6 9 3 1 1
'10 '11 '12 '13 '14 '10 '11 '12 '13 '14 '10 '11 '12 '13 '14 '10 '11 '12 '13 '14
10 10 9 6 6 10 10 10 1 1 7 8 7 1 1 3 10 1 1 1
Benchmarked against 770 Info Tech companies across Asia.
Profitable Growth
Asset utilization Profit margin Sales growth Margin change
Profitability Growth
Source: A. Stotz Investment Research.
Note: 1 = top ranking and 10 = worst. Most recent year’s data is based on the last 12 months of published data.
Inotera (3474 TT): Profitable Growth jumps to 1st from 10th decile
-
10
20
30
40
50
60
Mar-10 Aug-12 Jan-15
Inotera
Price (TWD)
Profitable Growth
'10 '11 '12 '13 '14
1
2 1
3 1 2
4 2 3 1
5 3 4 2
6 4 5 3 1
7 5 6 4 2
8 6 7 5 3
9 7 8 6 4
10 8 9 7 5
9 10 8 6
10 9 7
10 8
9
10
Five years of ranking
Its decile ranking
improved to no. 1
from no. 6 among
its peers
How to read the diagram
Company was ranked in
the 3rd decile in 2013

6328 February 2015
A. Stotz Valuation
We do independent valuations of companies all across Asia
The valuations are based on proprietary tools and research
We have more than 20 years of experience on the ground in Asia
Thorough company research that not only analyzes the business and its management
but also other stakeholder and analyst views
All our research is presented in an easy-to-understand language and format

28 February 2015 64
Background
- The company’s current position and support for our opinion of the stock. Short comment on the
current relative valuation in the market and the main risks
- Relative rank based on the A. Stotz Four Elements: Fundamentals, Valuation, Momentum (price
and earnings) and Risk and an overall rank relative to the universe of Asian (or local) companies
- A brief company description that in simple terms explain where the company’s sources of
revenue are and revenue breakdown by product type and/or region
- Analyzing institutional ownership, board independence and other corporate governance issues
Sector and Competitor Analysis
- SWOT analysis of the sector on global, regional and local level and SWOT analysis of company
- Detailed breakdown of the A. Stotz Four Elements to rank attractiveness relative to peers
- A. Stotz Profitable Growth to benchmark the company against all other Asian sector peers
Assumptions and Forecasts
- Core assumptions on which we base our forecast with regards to the company’s position, future
growth potential, sector outlook, country outlook, regional and global economic conditions
- Forecasted financial statements and a ratios section, which interprets those forecasts mainly
focused on internal liquidity, working capital management, profitability, financial risk, general
growth and Du Pont analysis
Valuation and Sensitivity Analysis
- Discounted cash flow valuation and relative valuation using applicable methods for the company
- Explanation of our discount rate assumptions with regards to company specific variables and
proprietary research on discount rate input variables, as well as other model input variables
- Sensitivity analysis of the most important factors and a point estimate of the value of the stock
Source: A. Stotz Investment Research
A. Stotz does valuations of companies all across Asia

6528 February 2015
Download this Presentation now at:
www.astotz.com
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28 February 2015 66
DISCLAIMER
Analyst Certification
The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal views of the analyst(s) with
regard to any and all of the subject securities and companies mentioned in this report and (ii) no part of the compensation of the analyst(s)
was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by that analyst herein.
Required Disclosures
The analyst named in this report (or their associates) does not have a financial interest in the corporation(s) mentioned in this report.
Global Disclaimer
This report was prepared by IND-X Securities (Asia) Limited (“IND-X”). IND-X is a limited company registered in Hong Kong and is authorised
and regulated by Hong Kong's Securities and Futures Commission. The registered office is Unit 801-04,Kinwick Centre, 32 Hollywood Road,
Central, Hong Kong.
This report is for the use of intended recipients only and may not be reproduced, in whole or in part, or delivered or transmitted to any other
person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set out
herein. The information contained in this report has been obtained from public sources believed to be reliable and the opinions contained
herein are expressions of belief based on such information. No representation or warranty, express or implied, is made that such information
or opinions is accurate, complete or verified and it should not be relied upon as such. Nothing in this report constitutes a representation that
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