#1MACQUARIE EQUITIES D.E.L.T.A.H Digital Transformation, Energy Transition, Lifestyle, Technology, Automation & Mobility, Health China industrial automation May 2023 Daisy Zhang, CFA Macquarie Capital Limited +86 21 2412 9086 [email protected] Please refer to pages 33-35 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures FOR IMPORTANT DISCLOSURES ON US EXECUTIVE ORDER SANCTIONS, PLEASE REFER TO PAGE 34#2Executive summary - China industrial automation Import substitution players: Inovance, Estun, LHDS, Shuanghuan Driveline & OPT High-end localization suppliers: Hanbell & Sinoseal NEV related players: Shuanghuan Driveline, Sanhua & OPT Company Ticker Inovance 300124 CH OP Rec TP (Rmb) Theme 98.80 Import substitution Estun 002747 CH OP 34.20 Import substitution LHDS 688017 CH UP Shuanghuan 002472 CH OP 38.20 Driveline OPT 98.90 Import substitution Import substitution NEV related Import substitution NEV related 688686 CH OP 206.40 Hanbell 002158 CH OP 41.50 High-end localization Sinoseal 300470 CH OP Sanhua 002050 CH OP 36.30 NEV related Investment thesis China's Siemens with market share gains in each subsegment in industrial automation & industrial robot Largest domestic industrial-robot manufacturer with integrated supply-chain coverage Largest domestic harmonic speed reducer supplier Strong growth on NEV and industrial-robot demand China's Keyence with integrated machine-vision supply- chain coverage High-end vacuum pump manufacturer with market-share gains in PV and semiconductor industry 60.80 High-end localization High-end mechanical seal localization player Global leader in NEV thermal management system supplier CTI 300012 CH OP 26.10 Market share gain Largest domestic third-party TIC institution supplier Source: Macquarie Research, May 2023 2#3Industrial robots-Estun, Inovance, LHDS, Shuanghuan The supply chain of industrial robots The industrial robot supply-chain includes upstream core components, the industrial robot body, and downstream system integration. Upstream components, especially speed reducers, have highest entry barriers Up stream Mid stream Down stream Multi joint Welding robot Hardware Siemens, ADtech, Transport robot Control system Beckhoff, Estun, Efort, Inovance, ABB, FANUC, Yaskawa, Kuka, Siasun, STEP SCARA Software Robot Body ABB, FANUC, Yaskawa, Kuka, Estun, Epson, Step, Inovance, Assembly robot Collaborative Efort, Topstar, Siasun, STEP, Kuka System Integration Spray-painting robot Servo driver Servo system Servo motor Encoder Panasonic, Siemens, Mitsubishi, Estun, Inovance, ABB, FANUC, Yaskawa, Efort RV speed reducer Nabtesco, Shuanghuan Speed reducer Harmonic speed HD, LHDS reducer Source: Leadleo Research Institute, Macquarie Research, May 2023 Delta Monitoring robot Automotive 3C Topstar, DEMC, Bozhon, Estun, FANUC, ABB, Yaskawa, Kuka, Efort, Topstar, Siasun, STEP, Kuka Application Metal and machinery Plastic and chemical products Automotive, 3C, Metal processing, Plastic and chemical products Food & Beverage 3#4Industrial robot-Estun, Inovance, LHDS & Shuanghuan Upstream and downstream enjoy higher profit margins than midstream Speed reducer component has highest GPM and lowest localization rate Industrial robot cost breakdown as of 2020 GPM across the industrial robot supply chain as at 2020 Source: Leadleo Research Institute, Macquarie Research, May 2023 50% 47% 45% 40% Speed reducer, 35% 35% 30% 25% 20% 35% 25% 15% 36% 15% ■ Servo system, 24% 10% 5% 0% Speed reducer Servo system Control system Robot body System integration ■Control system, 12% Localization rate of industrial robot supply chain as at 2021 100% Up-stream Robot body, 23% 90% 96% Mid-stream Down-stream System Integration 80% 70% 60% 60% 50% ■ Others, 6% 37% 40% 31% 33% 30% 25% 21% 20% 10% 0% Speed Control reducer system Servo system Robot body High-end middle-end low-end 4#5Upstream is best positioned-LHDS & Shuanghuan RV (rotary vector) vs. harmonic speed reducer Upstream includes three core components - controlling systems, servo systems and speed harmonic speed reducers Product Producer Technical characteristics Product performance Application scenarios RV reducer Nabtesco, Zhejiang Shuanghuan The transmission is achieved by multi-stage reduction (the front stage of the planetary gear reducer and the back stage of the cycloidal-pin wheel reducer), which consists of more components. Harmonic reducer HD, LHDS The motion is transmitted through the elastic deformation of the flex spline, which is mainly composed of three core components: the flex spline, the circular spline and the wave generator. Compared with RV and other precision reducers, the material, size and weight of the harmonic reducer are largely reduced. Large size, high load capacity and high stiffness. Small size, high transmission ratio and high precision. Generally used in multi-joint robots where heavy Generally used in small arm, wrist or hand of the robot. loads are placed on the base, arm, shoulder, etc. Heavy-load robots with RV reducers are Terminal market commonly used in the automotive, transportation, and port industries. RMB 5,000-8,000/unit. Price range RV reducer market share in China Robots with load of <=30 kg with harmonic reducers are commonly used in the 3C, semiconductor, F&B, injection molding, molding, and medical industries. RMB 1,500-5,000/unit. Harmonic speed reducer market share in China as of 2021 60% 40% 35% 50% 30% 40% 25% 30% 20% 15% 20% 10% 10% 5% 0% 0% Nabtesco Zhejiang ZhongDa Sumitomo Nantong Qinchuan Shuanghuan Leader Zhenkang Others Harmonic Drive LHDS Shimpo Laifu Xiebo FD Robot Han's Motion Others 2020 2021 2020 2021 Source: Huaon, Leadleo Research Institute, Macquarie Research, May 2023 5#6Industrial robot-Estun, Inovance, LHDS & Shuanghuan Future demand trends - strong demand from emerging industries We believe downstream application from the lithium battery, PV, and F&B industries will continue to see faster growth than the automotive industry China industrial robot downstream application as of 2022 China industrial robot downstream application as of 2022 YoY Auto electronics 3% Others 12% Home 3C 21% appliance 4% Photovoltaic 6% YoY > 30% YoY > 20% YoY <10% YoY < 0% 50% 40% 38% 38% 37% 35% 30% 30% 28% 28% 30% 20% 10% 0% Auto parts 14% -10% -20% Food & Beverage 6% Automotive 9% Lithium Metals battery 12% 13% Source: MIR, IFR, May 2023 7% 3% 2% -10% -15% Auto electronics Lithium battery Semiconductor Auto parts Automotive Healthcare Photovoltaic Warehouse logistics Chemicals Food & Beverage Metals Home appliance 3C 60#7Industrial robot-Estun, Inovance, LHDS & Shuanghuan Localization rate & market share (%) of industrial robots in China Historically, international manufacturing brands have held a monopoly in the industrial -obot market, but market share of Chinese makers has gradually improved. China industrial robot body manufacturers' localization rate Market share analysis of robot body manufacturers in China as of 2022 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 17.5% 19.9% 24.2% 26.9% 30.1% 28.6% 32.8% 35.7% 0% 2015 2016 2017 2018 2019 2020 2021 2022 Domestic ■Overseas Source: MIR, Leadleo Research Institute, Macquarie Research, May 2023 ■FANUC, 15% ■ ABB, 8% ■ Yaskawa, 8% ■ KUKA, 8% ■ Epson, 6% ■ Estun, 6% ■Inovance, 5% ■ Yamaha, 4% ■ Kawasaki, 3% Nachi, 3% ■ Efort, 2% ■ Others, 31% 7#8Industrial robot-Estun, Inovance, LHDS & Shuanghuan Four types of industrial robots based on mechanical structure Multi-joint robots are mostly heavy-load robots, while the remaining types of robots are mostly light-load robots Category of robots こ Multi-joint robot SCARA robot Collaborative robot DELTA robot No.of harmonic speed reducer consumed 3.5 3 6-7 1 Source: Macquarie Research, May 2023 8#9Estun: the leading robot manufacturer to compete w/ big 4 Market share of 6-axis industrial robot by weight in 2022 in China heavy duty >20kg ■ FANUC, 27% ■ KUKA, 18% ■ ABB, 13% Yaskawa, 12% ■ Estun, 8% ■ Kawasaki, 6% ■ Nachi, 3% ■ Efort, 2% Market share of 6-axis industrial robot in 2022 in China - light duty <=20kg ■ FANUC, 15% ■Yaskawa, 10% ■ ABB, 9% ■ KUKA, 5% Nachi, 5% Efort, 5% Panasonic, 4% CRP, 4% ■ OTC, 3% Others, 40% Market share of SCARA robots in China in 2022 Epson, 25% ■Inovance, 17% ■ Yamaha, 16% ■ STEP, 6% ■ Delta, 6% ■Mitsubishi, 5% ■ Estun, 4% ■ Staubl, 4% Source: MIR, Macquarie Research, May 2023 Market share of collaborative robots in China in 2022 Jaka, 23% ■ Zhejiang Aobo, 23% ■ Universal, 11% ■ Dobot, 7% ■ Elite, 7% Hans, 6% ■Techman, 6% ■ Rokae, 4% 6#10Source: MIR, Macquarie Research, May 2023 South Korea Robots installed per 10,000 manufacturing employees 1,200 1,000 800 600 400 200 0 Singapore Japan Germany China Sweden 2019 2020 2021 2025E Market size of Industrial robot manufacturing in China Hong Kong Industrial robots in 14th FYP As per China's 14th Five-Year Plan, regarding robot-industry development, industrial robot density should double in 2025 from 246 units in 2020, and the market size of robot industry is set to grow at least 20% p.a. until 2025 Industrial robot density by region Chinese Taipei USA Unit 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2017 2018 2019 2020 2021 2022E 2023E 2024E Market size of China's industrial robot YoY % (RHS) 10 2025E Slovenia Switzerland Denmark Netherlands 60% 50% 40% 30% 20% 10% 0% -10% Italy Belgium & Luxembourg Austria Canada Spain France#11Source: MIR, Macquarie Research, May 2023 15% 10% 5% 0% ABB Siemens Inovance 20% Danfoss 20% 15% 10% 5% 0% FANUC Yaskawa Market share of inverters in China Schneider INVT 2019 2020 2021 2022 Delta KUKA Epson ABB 2019 2020 2021 2022 Market share of industrial robot in China Estun novance Inovance-China's future Siemens Market-share gains on import substitution Yamaha Yaskawa Kawasaki Mitsubishi Rockwell Fuji 50% 40% 30% 20% 10% 90 0% Siemens Inovance Mitsubishi Nachi 25% Market share of servo systema in China 20% 15% 10% 5% 0% Inovance Siemens Panasonic 2019 2020 2021 Yaskawa Mitsubishi 2022 Market share of small PLCs in China Omron 2020 2021 2022 Xinjie 11 Delta Panasonic Schneider Rockwell Delta Estun#12Hanbell: Growth catalysts in vacuum-pump segment. The global vacuum-pump market is highly concentrated, with the top-three suppliers - Atlas, Ebara, and Pfeiffer. Hanbell has dominant market in PV vacuum pump but very small position in semiconductor vacuum-pump industry. Global market share of vacuum pumps in 2019 Atlas, 49% Ebara, 25% ■ Pfeiffer, 14% Others, 12% Global vacuum pumps: downstream application industries in 2019 Semiconductor, 37% ■Industrial Vacuum, 18% Instrument Manufacturing, 8% Process Vacuum, 8% ■Rough Vacuum, 7% ■Flat Panel Displays, 7% ■Scientific Research, 6% ■Thin Film Deposition, 6% ■Solar Energy, 2% Vacuum pump in semiconductor application Global market share of semiconductor vacuum pump in 2021 Cleaning Semi-harsh process Harsh process Hanbell & Sky Tech 5% Other overseas players 34% இணம் CHABELL Pfeiffer 13% HANBELL WEN TERNOLOGY PMF Series Source: Huaon, Macquarie Research, May 2023 IPM Series IPH Series Atlas 48% 12#13Hanbell: Growth catalysts in vacuum-pump segment Leading in PV crystal pulling, and catching up in PV battery cell In 2023, Hanbell will switch its focus to PV battery-cell vacuum pumps from PV crystal, pulling on faster capacity growth. Hanbell set to gain market share in the PV battery cell industry on the back of its competitive advantages. Vacuum pumps in PV applications Upstream Midstream Downstream Silicon raw materials Silicon wafer/ rod/ ingot Crystal pulling PV battery PV module PV application/ product Polysilicon material Monocryst alline rod Monocryst alline wafer PECVD/ALD Crystalline Silicon Modules PV battery module PV power generation Industrial silicon Silicon ore Polysilicon ingot Polysilicon wafer Polysilicon cells 2022 global market share of crystal pulling 2022 global market share of PV batterv Hanbell Precise 80% Ningbo BaoSi and others 20% Ebara and Lot Vacuum 85% Hanbell Precise 15% PV product Source: Company data, Macquarie Research, May 2023 13#14Hanbell: Growth catalysts in vacuum pump segment Vacuum pump segment to become the company's growth engine Our forecast for vacuum pumps in the PV industry: Our base case assumes the total market size of vacuum pumps used in the PV industry will reach Rmb1,540m in 2025E, representing a 7.2% revenue CAGR over 2021-25E. Base case PV (GW) YoY % (RHS) New capacity (GW) 13.0% 30.8% 17.6% 12.5% 11.1% 25 2020 2021 2022 Global Installations Capacity: Solar 130 170 200 2023E 2024E 2025E 225 250 Bull case 270 Global Installations Capacity: Solar PV (GW) 2020 2021 2022 2023E 2024E 2025E 130 170 225 270 300 330 8.0% YoY % (RHS) 15 40 30 25 20 New capacity (GW) 144 163 213 250 281 48 54 71 83 94 104 63 94 101 108 119 124 12.4 12.4 12.4 12.4 12.4 12.4 313 Inventory capacity (GW) Inventory renewal 48 Equipment demand (GW) 63 13.0% 30.8% 32.4% 20.0% 11.1% 10.0% 15 40 55 45 30 30 144 163 213 281 338 375 54 71 94 113 125 94 126 139 143 155 Value per GW, RMB m 780 1,168 1,250 1,343 1,473 1,540 Total market size, RMB m 18.3% 49.7% 7.1% 7.4% 9.6% 4.6% YoY % Inventory capacity (GW) Inventory renewal Equipment demand (GW) Value per GW, RMB m Total market size, RMB m YoY % 12.4 12.4 12.4 12.4 12.4 12.4 780 1,168 1,560 1,721 1,767 1,922 18.3% 49.7% 33.6% 10.3% 2.7% 8.8% Our base case forecast for vacuum pumps in the semiconductor industry: We expect market size of semiconductor vacuum pumps to reach Rmb31,953m in 2022E and Rmb38,965m in 2025E, representing a 6.8% revenue CAGR over 2022E-25E. 2020 2021 2022E 2023E 2024E 2025E Incremental market Wafer production capacity, thousand /month 610 YoY % (RHS) Vacuum pump production capacity, thousand /month 571 840 37.7% 571 940 11.9% 950 1,000 1,000 1.1% 5.3% 0.0% 571 571 571 571 No. of vacuum pump 34,794 48,251 Price of vacuum pump, RMB 120,000 120,000 53,589 120,000 54,286 120,000 57,143 57,143 120,000 120,000 Market size, RMB m 4,175 5,790 6,431 6,514 6,857 6,857 Existing market Wafer production capacity, thousand /month YoY % (RHS) 9,930 10,780 Vacuum pump production capacity, thousand /month 571 8.6% 571 11,720 8.7% 571 12,670 8.1% 571 13,670 14,670 7.9% 571 7.3% 571 No. of vacuum pump renewal 113,523 123,175 133,893 144,800 156,229 167,657 Price of vacuum pump, RMB 120,000 120,000 120,000 120,000 120,000 120,000 Market size, RMB m 13,623 14,781 16,067 17,376 18,747 20,119 Total market size of vacuum pump, RMB m 17,798 20,571 22,498 23,890 25,605 26,976 Repair & Maintenance market size of vacuum pump, RMB bn Total, RMB bn N.A. 8,709 9,455 10,279 11,112 11,989 17,798 29,280 31,953 34,169 36,717 38,965 YoY % 42% 42% 43% 43% 44% 14 Source: Company data, Macquarie Research, May 2023#15OPT: largest domestic integrated machine vision supplier Product and Business Scope Company Keyence Cognex Hikrobot Self-owned products Light source and light controller Lens Camera Vision control system Solutions Overall Solution Overall Solution Overall Solution Overall Solution DHC CCS Moritex ง Stemmer Imaging AG No mass production yet Optical Solution Hardware & overall solution Hardware & overall solution OPT Market size of China machine vision industry in 2015-2024E Market share of China's machine vision industry in 2021 RMB, m 45,000 40,000 35,000 30,000 CAGR:31.9% 25,000 20,000 15,000 10,000 5,000 0 2015 2016 2017 2018 2019 Source: Company data, May 2023 CAGR:37.0% 2020 2021 2022E 2023E 2024E Keyence, 31.4% Cognex, 7.8% ■Opt, 5.3% Others, 55.5% 15#16OPT: largest domestic integrated machine vision supplier Revenue breakdown by geographic areas for OPT in 2021 9% 91% Revenue breakdown by geographic areas for Keyence in 2021 Domestic ■Overseas 56% Revenue breakdown by geographic areas for Cognex in 2021 44% Domestic ■Overseas 62% 38% ■Domestic ■ Overseas Revenue breakdown by downstream application industries for OPT in 2021 3C, 59% ■New Energy, 29% Others, 11% Revenue breakdown by downstream application industries for Keyence in 2021 Automobiles & Transportation, 25% ■Electric Appliances & Precision Instruments, 15% Semiconductor & Fpd, 10% Metals & Machine Tools, 10% ■Foods & Pharmaceuticals, 10% Others, 30% Revenue breakdown by downstream application industries for Cognex in 2021 ■3C, 30% ■Logistics & Transportation, 20% Automobiles, 20% Others, 30% Source: Company data, May 2023 16#17OPT: largest domestic integrated machine vision supplier OPT enjoys higher GPM than its domestic peers due to the difference of business structure. Compared with its international pers, OPT's GPM is slightly lower, mainly because they have more advantages in technology and pricing power, provide standard products with diversified downstream application users. GPM comparison for OPT & peers in 2017-21 OPT's revenue breakdown by segment in 2020-24E 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% OPT Keyence Cognex Hangzhou Daheng New Hikvision Epoch 2017 2018 ■2019 2020 2021 Source: Company data, Macquarie Research, May 2023 RMB, m 2,500 2,000 1,500 1,000 500 0 3C 3yr CAGR: 26.6% New energy 3yr CAGR: 55.3% 2020 2021 2022E ■New energy ■3C ■ Others 2023E 2024E 17 77#18Shuanghuan Driveline-NEV and industrial robot-driven growth play In cooperation with high-quality customers such as BorgWarner, BYD, SAIC, Schaeffler, and Inovance, Shuanghuan has covered a variety of new energy vehicles. In terms of AMT among heavy-duty trucks, Shuanghuan is the exclusive supplier of ZF in the Asia Pacific region. With the popularization of AMT gearbox in the heavy truck market, the company's market share has also steadily improved The best sellers of NEVs in China in 2022 - 7/10 transmission gear products are provided by Shuanghuan k units 1,800 1,600 1,400 1,200 1,000 800 600 400 200 BYD SAIC Tesla Geely GAC Aion Changan Chery Neta Dongfeng Li Auto Source: CAAM, May 2023 The best sellers of heavy-duty trucks in China ZF Friedrichshafen 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 XCMG Heavy Truck 18 Hanma Technology#19Shuanghuan Driveline-NEV and industrial robot-driven growth play We estimate the automatic transmission gear market size for traditional vehicles, BEVS, PHEVs, and heavy-duty vehicles will see CAGRS of 9.8%, 24.7%, 45.7%, and 64.5% in 2021-2025E. 2016 2017 Automatic transmission gear market size for traditional vehicles, PHEVs, BEVs, and heavy-duty trucks, 2016-2025E Automatic transmission for vehicles 21-25E 2018 2019 Sales volume of Auto, units '000 28,028 Penetration % (RHS) 50% 28,879 55% 28,081 60% 25,769 65% 2020 2021E 2022E 2023E 25,311 26,100 27,500 28,000 70% 75% 80% 85% 2024E 2025E 29,000 30,000 90% CAGR 95% Sales volume of automatic transmission, 14,014 15,883 16,848 16,750 17,718 19,580 22,000 23,800 26,100 28,500 units '000 Market size, RMB m 21,021 YoY growth % (RHS) 23,825 25,272 25,125 13.3% 6.1% -0.6% 26,577 29,370 5.8% 10.5% 33,000 35,700 12.4% Auto - PV 2016 2017 2018 2019 2020 2021E 2022E 8.2% 2023E Sales volume of BEV, units '000 259 470 790 824 949 2,723 Sales volume of PHEV, units '000 79 111 265 226 256 BEV market size, RMB m 130 235 395 412 475 596 1,362 YoY growth % (RHS) 81.2% 68.1% 4.3% 15.2% PHEV market size, RMB m 8 YoY growth % (RHS) Total PV market size, RMB m 138 YoY growth % (RHS) 11 40.5% 246 78.9% 27 138.7% 422 71.3% 23 -14.7% 435 3.1% 26 13.3% 500 15.1% 186.9% 60 132.8% 1,421 184.2% 26.9% 39,150 9.7% 2024E 3,312 4,202 5,342 6,577 1,170 1,695 2,189 2,686 1,656 2,101 2,671 21.6% 42,750 9.2% 2025E 9.8% 3,289 24.7% 27.1% 23.1% Heavy duty truck 2016 2017 2018 2019 2020 Sales volume, units '000 728 1,112 1,138 1,174 1,617 Penetration rate of AMT for heavy-duty truck Market size, RMB m 2021 1,393 10% 557 117 96.3% 1,773 24.8% 2022E 2023E 2024E 2025E 1,533 1,686 1,855 2,040 20% 30% 40% 50% 1,226 2,023 2,967 4,080 170 44.9% 2,271 3,557 28.1% 27.3% 23.1% 219 269 45.7% 29.1% 2,890 22.7% 64.5% Source: Macquarie Research, May 2023 19#20Shuanghuan Driveline: NEV and industrial robot-driven growth play Market share of RV speed reducers in China (2021) Our valuation for Shuanghuan's RV speed reducer Source: Company data, May 2023 RMB m 2023E 2024E ■ Nabtesco Valuation for RV speed reducer Zhejiang Shuanghuan Revenue from RV reducer (RMB m) 189 255 NPM % 40% 40% ■ Sumitomo Net profit from RV speed reducer (RMB m) 76 102 No. of shares outstanding 778 778 ■ Zhuhai Sima Zhong Da Leader ■ Nantong Zhenkang EPS from RV speed reducer (RMB) 0.10 0.13 Total EPS (RMB) 0.98 1.21 PER 40x 30x Implied valuation (RMB/share) 3.89 3.94 Our current estimates ■ Chietom NPM % 7% 9% ■ Qinchuan Machine Tool Net profit from RV speed reducer (RMB m) EPS from RV speed reducer (RMB) 14 22 0.02 0.03 ■ Others PER Implied current valuation (RMB/share) 38x 0.68 20#21Sanhua: Small components, big strategic shift Global market share of automotive thermal management system in 2021 (based on revenue) Domestic market share of NEV thermal management system in 2021 (based on revenue) Source: Huaon, Macquarie Research, May 2023 ■Denso, 30.0% ■Hanon, 15.0% ■Valeo, 12.5% ■Zhejiang Sanhua, 9.4% ■Mahle, 14.0% Valeo, 13.0% ■ Yinlun, 2.0% ■Zhejiang Yinlun, 8.6% Aotecar, 8.6% ■Mahle Gmbh, 7.0% ■Denso Corp, 6.8% ■Hanon Systems, 6.6% ■ Aotecar, 1.0% ■Ningbo Tuopu, 4.4% ■Sanhua, 1.0% ■Mahle Gmbh, 7.0% Others, 36.2% ■ Others, 24.0% 21#22Sanhua: Small components, big strategic shift Zhejiang Sanhua Revenue Refrigeration and air conditioning electrical parts Car parts RMB m 20,000 CAGR: 7.6% RMB m 10,000 CAGR: 41.1% 5,000 0 2017 2018 2019 2020 2021 Refrigeration and air conditioning electrical parts 0 2017 2018 2019 Car parts 2020 2021 50% 50% Gross Profit Margin 0% Refrigeration and air conditioning electrical parts 0% 2017 2018 ■ 2019 2020 ■2021 TRANE Customer Profile Source: Company data, Macquarie Research, May 2023 Car parts 2017 2018 2019 2020 2021 | GM Midea Hisense AUX 奥克斯 SAMSUNG Carrier LG Goodman Air Conditioning & Heating TCL 000 Panasonic ITSUBISHI DAIKIN Haier OOHOO TESLA Ford HYUNDAI TOYOTA HONDA The Power of Diame FCA PSA |长城汽车 Great Wall 吉利汽车 GEELY AUTO NIO 小鹏 理想 22#23Sinoseal: Play on localization in mechanical seals Sinoseal is a local SOE enterprise. Sichuan Chuanji Investment, a wholly owned subsidiary of Sichuan Machinery Research and Design Institute, is its actual controller, with 22.1% of its total shares. Upstream Downstream Metal Materials Rubber & Plastic Materials Plastic products Graphite Silicon Carbide Mechanical Seals & Auxiliary Systems Instrumentation Others Raw Material Suppliers Seals Industry Overall middle-to-high-end mechanical seal demand in China RMB bn Petrochemicals Coal Chemicals Power Metallurgy Total Source: Company data, Macquarie Research, May 2023 Compressor Petrochemicals Pump Coal Chemicals Stove Pipeline Transportation Others Equipment Manufacturers Electricity Metallurgy Pharmaceutics Food Aerospace, etc. End Users 2020 2025E CAGR 2.46 3.11 4.8% 0.57 0.77 6.2% 2.08 2.78 6.0% 0.60 0.60 0.0% 5.71 7.26 4.9% 23#24Sinoseal: Play on localization in mechanical seals Sinoseal surpassed global peers (John Crane, EagleBurgmann, and Flowserve) in 2017 to become the largest mechanical seal manufacturer in China, with 13.2% market share in 2020. Global market share in mechanical seal industry, 2019 Source: Huaon, Macquarie Research, May 2023 John Crane, 25.6% Domestic mkt share in mechanical seal industry, 2020 Sinoseal, 13.2% ■ John Crane, 11.6% ■Eagle Burgmann, 20.9% ■ Eagle Burgmann, 10.2% ■Sinoseal, 2.6% Others, 50.9% Colossus, 8.2% ■ Yitong Seal, 2.9% Others, 53.9% 24#25Sinoseal: Play on localization in mechanical seals Original Equipment Sinoseal Aftermarket 100% 80% 59% 57% 53% 51% 62% 60% Revenue Mix 40% 20% 41% 43% 38% 47% 49% 0% 2017 2018 2019 2020 2021 OE Aftermarket 70% 70% Gross Profit 60% 60% 50% 50% Margin 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% OE 2017 2018 2019 2020 2021 MITSUBISHI MOTORS Aftermarket 2017 2018 2019 2020 2021 沈鼓集团 HENGYI 恒逸集团 SULZER Customer Profile ShaanGu EBARA 陕鼓集团 SIEMENS SHAANGU GROUP Deep Blue DBP Source: Company data, Macquarie Research, May 2023 中国航天 Tianjin 三一集团 Elliott Machinery 中国石油 中国海油 Chooc 国家管网 PIPECHINA J 706) WANHUA 国家能源集团 CHN ENERGY RONGSHENG Dr CGN 中国神华 CHINA SHENHUA 盛虹集团 SHENGHONG GROUP 88 中核集团 CNNC I 中国交建 1905 延长石油 YANCHANG PETROLEUM REG 中国中铁 25 25#26CTI: Fragmented industry with resilient growth CTI and Pony Testing accounts for 2.8%/1.3% market share of TIC industry. CTI and Pony Testing have comprehensive business qualifications and enjoy strong brand and credibility. The global market share of TIC industry in 2020 Third-party TIC industry market share based on 2021 revenue in China Source: Company data, May 2023 Eurofins, 2.9% ■SGS, 2.8% ■BV, 2.5% ■CTI, 0.2% ■CTI, 2.8% ■Intertek China, 2.5% ■Guangzhou GRG, 1.4% ■Guangzhou GRG, 0.1% CTC, 1.4% Pony Testing, 0.1% - СТС, 0.1% ■Suzhou Sushi Testing, 0.1% ■Pony Testing, 1.3% Suzhou Sushi Testing, 1.0% Others, 89.6% Others, 91.2% 26#27CTI: Fragmented industry with resilient growth CTI is our top pick in the TIC sector as the largest domestic third-party TIC institution with a diversified business portfolio. Pony Testing is the fourth-largest domestic third-party TIC institution with national service coverage. CTI's main business segments CTI Source: Company data, May 2023 Pony Testing's main business segments Environmental Testing Life science Industrial testing Food Testing Construction Engineering and industrial services Metrology and Digital Services Shipping Low Carbon Environmental Protection and Green Certification Auto Service Electronic Technology Consumer goods testing Service Light Industrial Toys Textiles International trade security Restriction of Hazardous Substances Medical service Pharmaceutical and Medical Testing Measurement Pony Testing Inspection and testing Certification Food Environment Health and Environment CRO Electronics and Safety Regulations Medical Testing Electronics Safety Regulations Consumer Goods Quality Testing Auto Toy textile Daily use cosmetics Battery Safety and Security Chemicals Inspection of goods 27#28CTI: Fragmented industry with resilient growth China has become one of the world's fastest-growing TIC markets driven by increasing demand for regulation of new materials, products, hi-tech equipment, and systems and processes across industries Revenue per capita RMB 900,000 Net profit per capita RMB 120,000 800,000 100,000 700,000 600,000 80,000 500,000 60,000 400,000 300,000 40,000 200,000 20,000 100,000 0 0 CTI Guangzhou GRG 2016 2017 2018 2019 2020 2021 Pony Testing CTC Suzhou Sushi Testing CTI Guangzhou GRG Pony Testing CTC Suzhou Sushi Testing 2016 2017 2018 2019 2020 2021 TIC industry's CAPEX vs. revenue Operating cash flow vs. net profit 45% 4.0 40% 3.5 35% 3.0 30% 2.5 25% 2.0 20% 15% 1.5 10% 1.0 5% 0.5 0% 0.0 CTI Guangzhou GRG Pony Testing CTC Suzhou Sushi CTI Guangzhou GRG Pony Testing Testing 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021 Source: Company data, May 2023 CTC Suzhou Sushi Testing 28#29Source: NBS, Macquarie Research, May 2023 Monthly sales volume of excavators in China Units Upward cycle 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 Construction engineering: downcycle set to continue in 2023 With the current replacement cycle approaching an end, engineering equipment demand in China has entered a down cycle that won't end anytime soon. The downward cycle will impact manufacturers and hydraulic parts suppliers. May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 Excavator sales volume Downward cycle Upward cycle Downward cycle 350% 300% 250% 200% 150% 100% 50% 0% -50% May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 YoY % (RHS) Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 29 -100%#30400% 350% 300% 250% 200% 150% 100% 50% 0% -50% -100% Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Construction engineering: downcycle set to continue in 2023 Compared with global construction engineering manufacturers, most domestic construction engineering manufacturers have very limited revenue exposure to foreign markets, and thus are beholden more to the domestic demand downcycle. Monthly sales volume of excavators: domestic and export sales Revenue contribution from overseas market (1H22) 100% 90% 80% 70% 57.4% 60% 50% 40% 30% 20% 42.6% 10% 0% Sany Heavy Source: Company data, Macquarie Research, May 2023 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Domestic Apr-16 Jul-16 Oct-16 Jan-17 Exported Total Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 11.2% 44.4% 67.3% 81.8% 18.3% Zoomlion Overseas XCMG ■Domestic Caterpillar Komatsu 88.8% 55.6% 32.7% 30#31China automation-sector peer-valuation comparisons BBG Ticker Company EPS Current Price Upside/ CAGR Rating Price (LC) Target Downside (LC) (%) 12m TSR (%) Market Cap (US$, m) P/E (x) P/B (x) ROE (%) EV/EBITDA (x) (%) 2022E 2023E 2024E 2022E 2023E 2024E 2022E 2023E 2024E 2022E 2023E 2024E 22-24E Automation 300124 CH 002747 CH 688017 CH 300024 CH 002158 CH 002371 CH 300316 CH Shenzhen Inovance Technolo-A Estun Automation Co Ltd-A Leader Harmonious Drive Sy-A Siasun Robot & Automation-A Shanghai Hanbell Precise -A Naura Technology Group Co-A Zhejiang Jingsheng Mechani-A NR Outperform Outperform 23.85 34.20 Underperform 116.52 98.90 11.15 58.76 98.80 68.1 68.8 22,624 35.9 31.9 26.8 7.8 6.6 5.6 24.2 22.6 22.6 38.9 28.3 23.3 15.9 43.4 43.6 3,000 124.6 73.7 45.4 6.8 6.2 5.5 5.6 8.8 12.8 56.6 54.2 34.9 65.7 -15.1 -15.1 2,843 102.4 92.4 70.7 10.1 9.2 8.2 8.2 10.5 12.2 108.3 83.2 61.9 20.4 NR N/A N/A 3,123 N/A 116.0 73.3 5.2 5.0 4.7 1.1 4.2 6.5 N/A N/A 156.8 N/A Outperform NR 23.33 41.50 334.52 77.9 80.3 1,806 19.3 16.2 13.5 4.1 3.5 3.0 22.7 23.1 23.7 14.6 11.0 8.8 19.6 NR N/A N/A 24,652 75.9 56.6 42.4 8.8 7.7 6.7 12.0 14.0 16.0 59.7 46.1 35.4 33.8 NR 68.42 NR N/A N/A 12,694 30.6 21.0 17.0 8.8 6.1 4.7 31.9 31.7 29.4 26.5 17.6 14.3 34.1 300751 CH Suzhou Maxwell Technologie-A NR 274.87 NR N/A N/A 6,588 49.4 31.5 20.3 6.7 5.8 4.7 14.1 18.9 23.9 47.9 29.3 18.5 56.0 300724 CH Sc New Energy Tec-A NR 102.80 NR N/A N/A 5,331 36.2 26.5 21.0 5.1 4.3 3.6 14.7 17.1 18.6 29.7 20.1 15.0 31.4 603915 CH 688686 CH 002415 CH 600480 CH 002472 CH Jiangsu Guomao Reducer Co -A Opt Machine Vision Tech Co-A Hangzhou Hikvision Digital-A Lingyun Industrial Corp-A Zhejiang Shuanghuan Drivel-A NR 19.43 NR N/A N/A 1,836 27.2 21.2 16.6 3.5 3.0 2.6 13.5 15.4 16.9 20.8 16.4 11.9 28.2 Outperform Neutral 147.39 206.40 40.0 40.9 2,604 61.4 41.9 32.1 8.6 5.9 5.2 12.3 14.7 17.1 76.6 39.6 30.2 38.2 36.06 26.80 -25.7 -24.5 48,870 25.1 21.5 18.4 4.9 4.2 3.6 20.3 20.8 20.9 20.4 16.1 13.1 16.9 NR Outperform 7.49 23.34 38.20 NR N/A N/A 1,012 23.3 18.1 15.0 1.4 1.0 1.0 4.7 6.0 7.1 5.9 5.9 5.4 24.4 63.7 64.1 2,873 32.9 23.8 18.3 2.7 2.6 2.3 9.5 11.2 13.5 15.8 12.7 10.5 34.0 002050 CH 601689 CH Zhejiang Sanhua Intelligen-A Ningbo Tuopu Group Co Ltd-A Outperform 23.29 36.30 55.9 56.9 12,104 32.5 28.0 22.7 6.5 5.4 4.6 21.4 21.1 22.0 25.3 19.0 15.4 19.7 NR 50.60 NR N/A N/A 7,954 31.4 23.4 17.3 4.5 3.8 3.2 14.7 16.9 19.1 21.8 15.8 12.1 34.8 601799 CH Changzhou Xingyu Automotiv-A NR 109.45 NR N/A N/A 4,391 26.3 24.0 18.2 3.5 3.2 2.8 13.4 13.0 15.1 18.9 17.4 13.6 20.4 002434 CH Zhejiang Wanliyang Co Ltd-A NR 8.47 NR N/A N/A 1,666 30.2 21.9 15.7 2.0 1.9 1.7 6.7 8.7 11.0 16.6 15.8 12.4 39.0 300258 CH Jiangsu Pacific Precision -A NR 9.76 NR N/A N/A 660 18.6 14.7 11.5 1.4 1.3 1.2 7.4 8.7 10.4 9.2 7.5 6.3 27.6 002765 CH Landai Technology Group Co-A NR 6.94 NR N/A N/A 643 17.0 13.1 9.9 1.7 1.6 1.4 10.5 12.3 14.4 10.0 8.9 7.1 31.3 300470 CH Sinoseal Holding Co Ltd-A Outperform 43.90 60.80 38.5 39.7 1,323 29.3 25.3 21.7 3.8 3.4 3.0 13.3 13.9 14.9 22.8 19.6 16.3 16.2 000887 CH 603308 CH Anhui Zhongding Sealing Pa-A Anhui Yingliu Electromecha-A NR 11.68 NR N/A N/A 2,300 14.6 11.8 9.5 1.5 1.4 1.2 10.8 11.2 12.0 9.0 7.7 6.5 24.0 NR 19.81 NR N/A N/A 1,770 26.6 25.1 19.0 2.8 2.7 2.4 9.8 10.1 12.1 18.3 22.2 19.2 18.4 603915 CH Jiangsu Guomao Reducer Co -A NR 19.43 NR N/A N/A 1,836 27.2 21.2 16.6 3.5 3.0 2.6 13.5 15.4 16.9 20.8 16.4 11.9 28.2 300718 CH Zhejiang Changsheng Sliding NR 16.96 NR N/A N/A 730 26.9 22.0 17.2 3.5 3.4 3.0 12.7 14.3 16.0 17.7 15.8 12.8 25.1 603699 CH Neway Valve Suzhou Co Ltd-A NR 14.04 NR N/A N/A 1,444 21.6 16.4 13.1 3.0 2.6 2.2 14.1 15.7 16.5 16.2 11.6 9.6 28.1 002438 CH Jiangsu Shentong Valve Co-A NR 12.38 NR N/A N/A 869 20.2 15.6 12.2 2.1 1.9 1.6 10.4 11.7 13.1 14.1 11.2 8.9 28.5 Average 37.2 31.7 23.5 4.6 4.0 3.4 13.1 14.5 16.1 28.6 21.9 21.9 29.2 *BBG pricing as of May 5, 2023 Source: Bloomberg, Macquarie Research, May 2023 31#32China automation-sector peer-valuation comparisons Price Upside/ BBG Ticker Company Rating Current Price (LC) Target Downside 12m TSR Market Cap EPS (LC) (%) (%) (US$, m) P/E (x) P/B (x) ROE (%) EV/EBITDA (x) CAGR (%) 2022E 2023E 2024E 2022E 2023E 2024E 2022E 2023E 2024E 2022E 2023E 2024E 22-24E Service Robot 603486 CH 688169 CH 603666 CH 000651 CH 600690 CH 000333 CH 1810 HK Ecovacs Robotics Co Ltd-A Beijing Roborock Technolog-A Yijiahe Technology Co Ltd-A Gree Electric Appliances I-A Haier Smart Home Co Ltd-A Midea Group Co Ltd-A Xiaomi Corp-Class B Outperform Neutral 69.04 101.70 311.80 321.00 47.3 48.1 5,720 23.3 19.2 13.6 6.0 4.9 3.7 29.5 28.2 31.0 17.3 13.8 9.3 31.0 3.0 3.6 4,228 23.6 23.1 19.4 2.2 2.7 2.4 13.1 12.5 13.2 13.1 15.7 12.8 10.3 Underperform 39.66 21.40 -46.0 -45.7 1,194 N/A 46.3 38.0 3.4 3.2 3.0 -3.9 7.2 8.1 -105.1 36.0 28.8 N/A Outperform 35.15 47.00 33.7 39.4 28,648 8.2 7.4 6.8 2.0 1.8 1.5 24.5 26.0 24.3 4.2 3.8 2.9 9.7 Outperform 22.60 37.00 63.7 66.9 29,829 15.5 13.7 12.1 2.3 2.0 1.8 17.0 17.1 17.4 8.3 6.9 5.8 13.4 Outperform 55.33 91.00 64.5 68.0 56,229 13.2 12.1 11.0 2.7 2.4 Underperform 11.16 9.77 -12.5 -12.5 35,527 29.4 26.0 19.8 1.7 1.6 21 2.1 22.1 21.8 21.2 10.9 9.3 7.9 9.7 1.4 1.8 7.8 8.9 26.8 30.6 19.2 21.8 1691 HK Js Global Lifestyle Co Ltd Underperform 6.92 5.50 -20.5 -20.5 3,081 9.1 7.2 6.6 603195 CH Gongniu Group Co Ltd-A NR 148.20 NR N/A N/A 12,921 28.4 24.1 20.8 88 1.6 1.3 1.1 17.7 20.1 18.0 5.8 3.9 3.1 17.5 7.2 6.1 5.1 25.3 25.2 24.8 20.3 17.2 14.8 16.8 002032 CH Zhejiang Supor Co Ltd -A NR 51.50 NR N/A N/A 5,980 20.1 18.1 16.4 5.1 5.2 4.6 25.1 28.5 28.2 15.4 14.0 12.6 10.8 603355 CH Kingclean Electric Co Ltd-A NR 27.09 NR N/A N/A 2,065 15.1 14.0 12.0 3.9 3.4 2.9 28.3 25.3 24.4 11.1 9.7 8.4 12.0 000921 CH Hisense Home Appliances G-A NR 24.79 NR N/A N/A 4,134 24.4 18.3 15.5 2.9 2.6 002242 CH Joyoung Co Ltd -A NR 16.28 NR N/A N/A 1,767 17.4 16.3 14.2 2.8 3.3 23 2.3 12.4 13.9 15.5 9.5 7.9 6.8 25.7 3.0 16.2 20.3 21.5 16.1 14.6 12.7 10.7 002959 CH Bear Electric Appliance Co-A NR 84.42 NR N/A N/A 1,912 35.4 27.1 23.2 5.7 4.8 4.2 16.0 17.9 18.0 21.6 17.6 15.2 23.5 2148 HK Vesync Co Ltd NR 3.06 NR N/A N/A 498 12.2 9.7 7.6 1.4 1.5 1.3 11.6 15.4 17.5 8.6 6.8 5.2 26.5 300853 CH Hangzhou Shenhao Technolog-A NR 32.16 NR N/A N/A 711 38.2 20.6 15.6 N/A N/A N/A N/A N/A N/A N/A N/A N/A 56.3 Average TIC 20.9 18.9 15.8 3.4 3.1 2.7 17.1 19.1 19.5 5.6 13.9 11.0 19.7 300012 CH 300887 CH 002967 CH 603060 CH 300416 CH Average Construction 603338 CH Centre Testing Intl Group-A Pony Testing International-A Guangzhou Grg Metrology & -A China Testing & Certificat-A Suzhou Sushi Testing Group-A Outperform 19.01 26.10 37.3 37.8 4,630 34.8 27.5 21.9 5.6 4.7 3.9 17.6 Outperform 35.48 51.70 45.7 46.8 1,474 30.7 28.7 20.6 NR 22.66 NR N/A N/A 1,837 51.7 37.2 27.4 NR 11.82 NR N/A N/A 1,252 32.5 25.8 20.7 NR 28.60 NR N/A N/A 1,559 38.9 29.5 22.2 2345 2.9 2.8 2.5 11.5 806 18.6 19.6 22.9 18.5 14.5 26.1 9.8 12.7 14.2 16.0 12.2 22.1 3.5 3.3 3.0 6.7 8.8 10.9 22.2 18.3 14.6 37.3 4.7 4.1 3.5 15.0 16.6 17.8 18.0 14.8 11.9 25.2 5.2 4.4 37.7 29.8 22.6 4.4 3.9 33 3.7 13.9 15.0 16.9 20.4 17.2 13.4 32.3 3.3 13.0 13.8 15.6 19.5 17.0 13.3 28.6 601100 CH 600031 CH 002050 CH 002884 CH 603956 CH Zhejiang Dingli Machinery -A Jiangsu Hengli Hydraulic C-A Sany Heavy Industry Co Ltd-A. Zhejiang Sanhua Intelligen-A Guangdong Lingxiao Pump In-A Wpg Shanghai Smart Water P-A Outperform 49.15 87.10 77.2 78.4 3,602 19.8 17.5 14.1 3.5 3.0 2.6 19.3 18.6 19.7 17.1 12.4 9.3 18.5 Neutral 58.94 53.40 -9.4 -8.0 11,438 32.9 27.7 22.1 6.1 5.3 4.5 21.5 20.4 22.1 27.2 18.9 14.6 22.0 Neutral 16.24 18.10 11.5 12.8 19,947 32.1 21.6 18.4 2.1 2.0 1.8 6.6 9.4 10.2 29.4 19.5 16.2 32.2 Outperform 23.29 36.30 55.9 56.9 12,104 32.5 28.0 22.7 6.5 5.4 4.6 21.4 21.1 22.0 25.3 19.0 15.4 19.7 NR 15.36 NR N/A N/A 804 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A NR 7.98 NR N/A N/A 603 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3339 HK Lonking Holdings Ltd NR 1.39 NR N/A N/A 785 12.1 8.2 7.0 0.6 0.5 0.5 5.0 6.6 7.4 5.0 4.3 3.9 30.9 000528 CH Guangxi Liugong Machinery-A NR 7.62 NR N/A N/A 2,180 16.3 13.4 11.4 0.9 0.9 0.8 5.9 6.7 7.5 14.0 11.7 11.0 19.9 000157 CH Zoomlion Heavy Industry S-A NR 6.48 NR N/A N/A 7,693 21.2 16.2 12.7 1.0 1.0 0.9 4.6 6.1 7.4 18.2 14.3 12.2 29.3 000425 CH Xcmg Construction Machin-A NR 6.86 NR N/A N/A 10,996 12.4 10.5 9.3 1.3 1.2 1.1 10.5 10.6 11.5 16.6 15.3 14.4 15.3 Average 22.4 17.9 14.7 2.7 2.4 2.1 11.8 12.4 13.5 19.1 14.4 12.1 23.5 *BBG pricing as of May 5, 2023 Source: Bloomberg, Macquarie Research, May 2023 32#33Important Disclosures: Recommendation definitions Macquarie - Asia and USA Outperform expected return >10% Neutral - expected return from -10% to +10% Underperform - expected return <-10% Macquarie - Australia/New Zealand Outperform expected return >10% - Neutral - expected return from 0% to 10% Underperform - expected return <0% Note: expected return is reflective of a Medium Volatility stock and should be assumed to adjust proportionately with volatility risk Volatility index definition* This is calculated from the volatility of historic price movements. Very high-highest risk - Stock should be expected to move up or down 60-100% in a year - investors should be aware this stock is highly speculative. High-stock should be expected to move up or down at least 40-60% in a year - investors should be aware this stock could be speculative. Medium - stock should be expected to move up or down at least 30-40% in a year. Low-medium-stock should be expected to move up or down at least 25-30% in a year. Low - stock should be expected to move up or down at least 15-25% in a year. * Applicable to select stocks in Asia/Australia/NZ Recommendation - 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests = EPS adjusted net profit/efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions - For quarter ending 31 March 2023 AU/NZ Asia Outperform 56.13% 64.77% Neutral 37.74% 23.98% Underperform 6.13% 11.26% USA 64.49% 32.71% 2.80% (for global coverage by Macquarie, 2.51% of stocks followed are investment banking clients) (for global coverage by Macquarie, 1.83% of stocks followed are investment banking clients) (for global coverage by Macquarie, 0.00% of stocks followed are investment banking clients) 33#34Important Disclosures: Company-Specific Disclosures: TO THE EXTENT THAT ANY COMPANY MENTIONED IN THIS COMMUNICATION IS A COMPANY LISTED IN THE ANNEX TO EXECUTIVE ORDER 14032 OF JUNE 3, 2021 FROM THE PRESIDENT OF THE UNITED STATES OF AMERICA ("EO14032") OR IN THE OFAC NON-SDN CHINESE MILITARY-INDUSTRIAL COMPLEX COMPANIES LIST AS UPDATED FROM TIME TO TIME AND YOU ARE A "UNITED STATES PERSON" AS DEFINED UNDER EO14032, YOU ARE REMINDED THAT YOU MAY BE PREVENTED BY EO14032 FROM TRADING THE SECURITIES OF SUCH A COMPANY. 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