Ready for Battle:Macquarie earnings survivors’ guide 40 key earnings surprises to watch this ‘season’

Please refer to page 20 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. ASIA Forecast 2016 EPS beats vs consensus Source: Macquarie Research, FactSet, October 2015 Forecast 2016 EPS misses vs consensus Source: Macquarie Research, FactSet, October 2015 Analyst(s) Alfred Hong +852 3922 3385 alfred.hong@macquarie.com Greg Norton-Kidd +852 3922 3826 greg.norton-kidd@macquarie.com 14 October 2015 Macquarie Capital Securities Limited Ready for Battle Macquarie earnings survivors’ guide 40 key earnings surprises to watch this ‘season’ For the September quarter reporting season, we highlight 40 key earnings surprises predicted by Macquarie’s Asia research team. These are our highest conviction earnings calls, and represent 4% of our Asia coverage of over 1,000 stocks. We have had 3 quarters of negative revisions and we expect a 4th negative revisions skew (11 beats to 29 misses) for the quarter. For these stocks we have highly differentiated full year 2016E EPS estimates vs. consensus, with EPS estimates typically 10-60% above/below consensus. We see the upcoming earnings season as a natural catalyst to trigger revisions, but with less than 60 working days until the end of year we shift our focus to 2016 earnings. These stocks are highlighted in the table to the left, together with Macquarie’s 2016 estimates vs. consensus, and approximate reporting dates where available. 11 earnings beats – Korea topping the list We identified 11 stocks where we expect material EPS upgrades in 2016. Topping the list this quarter are Samlip General Foods, CJ CGV, Hanssem, and Yuhan. We expect 21-40% upside risk to 2016 consensus earnings estimates for these stocks. The biggest individual beat we expect is our recent initiation, Samlip General Foods (see report), where our estimates are 40% above the street for 2016. Notably, our top earnings beats are concentrated in Korea and we have 37%, 42%, 48%, and 44% TSR on those stocks, respectively. 29 earnings misses – Re-iterating risks on Indian financials We have identified 29 stocks where we see material EPS risks to consensus 2016 estimates. Topping the list are China Life (Taiwan), Bank of India, JSW Steel, Mega FHC and Chailease. Our EPS estimates are more than 35% below consensus for each of these, and we have another 10 stocks where we expect greater than 20% earnings risks. The earnings risks we see for 2016 are dominated by Financials and we expect an average of 27% downside risk for this group. Notably, Indian banks feature again this quarter, and to date earnings are continuting to face pressure. We also see Wynn Macau as a key risk in the gaming sector (see full sector report). Earnings matter, so we are sticking our necks out! The Macquarie quant team remind us regularly of the overwhelming importance of earnings in determining equity market returns over the longer term. Since 2002, Asia equities have delivered a total return of 249%, with rising earnings expectations over the period generating returns of 216%. This report contains details for each of our highest conviction stock calls, including the magnitude of expected earnings surprises, report dates, and key catalysts for EPS revisions. June quarter Post Mortem – downgrades trump upgrades Our Post Mortem of the June quarter earnings season showed earnings downgrades trumping upgrades for a hat trick quarter (10 beats: 25 misses). Of the stocks we identified, Macquarie analysts predicted 77% of these downgrades/upgrades correctly. Earnings revisions have been worse than our expectations for the past 3 quarters (Fig 8) and we expect a further negative skew this quarter. This highlights the importance of investors avoiding earnings downgrades if possible. Com pany Nam eDifference (%)Est. Reporting DatesSamlip General Foods+4016-Nov-15CJ CGV+3010-Nov-15Hanssem+2616-Nov-15Yuhan+2127-Oct-15Yokogaw a Electric+1904-Nov-15NEC Corp+1829-Oct-15Lotte Chemical+1526-Oct-15EVA Air+1412-Nov-15Ajinomoto+1305-Nov-15Secom Co+1309-Nov-15ENN Energy+1022-Mar-16Com pany Nam eDifference (%)Est. Reporting DatesChina Lif e (Taiw an)-59NABank of India-4527-May-16JSW Steel-4221-Oct-15Mega FHC-3607-Oct-15Chailease-3510-Nov-15Daum Kakao-3406-Nov-15Canara Bank-3225-May-16Union Bank of India-3212-May-16Tata Steel-3012-Nov-15Bharat Heavy Electricals-2426-May-16Biostime-2329-Mar-16Industrial Bank (A-Share)-2128-Oct-15Siemens India-21NAWynn Macau-2029-Oct-15BNK Financial Group-2005-Nov-15Shanghai Jahw a-1930-Oct-15Perusahaan Gas Negara-1830-Oct-15Yonghui Superstores (A-Share)-1730-Oct-15Inpex Corp-1710-Nov-15Standard Chartered-1623-Feb-16Samsung SDS-1611-Nov-15AMMB-1519-Nov-15Punjab National Bank-1506-May-16Bank of Baroda-1511-May-16JFE Holdings-1429-Oct-15CIMB-1218-Nov-15Astra International-1230-Oct-15POSCO-1222-Oct-15Hirose Electric-929-Oct-15 Macquarie Research Ready for Battle 14 October 2015 2 Macquarie earnings survivors’ guide Post mortem from the June quar