Weekly Equity Review

Ucap Hong Kong Asset Management Limited

6th September 2016

Equity Strategy Highlights

� Global Markets Highlights

� Today is the first day after Labor Day and traditionally marks the beginning of the Fall season.

� The ECB meets this Thursday and the Fed and BOJ on September 21.

� The latest Payrolls came slightly below expectations, leaving implied probabilities for a rate hike in

September around 1/3.

� Important Events This Week

� Tuesday: EU GDP, ISM Services

� Wednesday: US Fed Beige Book

� Thursday: Japan GDP, ECB Meeting, US Jobless Claims

� Friday: US Wholesale Inventories

6 September, 2016

Equity Strategy Highlights

� Global Leaders – 2016

� The European portfolio is now in positive territory for the year and remains very strong compared to

indices.

� The US portfolio is still lagging despite a positive performance (and after a strong outperformance in

2015)

� The weakness of the Pharmaceuticals sector is weighting on both portfolios.

� Europe: +2.2% YTD vs Euro Stoxx at -2.5% YTD (4.7% alpha).

� US: 4% YTD vs S&P at 8.3% YTD (-4.2% alpha).

� Stock-Picking List – 2016

� The average performance of our Stock-Picking YTD is +0.47%. The average alpha is +238 bps.

� We have closed positions for the time being.

6 September, 2016

COMPANY PRIMER: AIRBUS

6 September, 2016

Airbus (AIR FP)

� Our View

� Airbus benefits from a strong backlog that ensures around 10 years of production. But that goes with

some potential execution risk and new demand is weakening as developed countries carriers tend to be

in overcapacity while emerging markets are slowing.

� For that reason, we do not see Airbus as a potential long-term, core investment but as a tactical play.

The stock price is positively correlated to the USD and to Oil prices and as such is a very good tool to

express macro views.

� Company Description

� Airbus is a diversified Aerospace company with:

� 70% of revenues from Civil Aircraft, where they share a duopoly with Boeing

� 20% from Defense and Space (Airbus, Astrium and Cassidian)

� and 10% from Helicopters (Eurocopter)

� The Civil Aircraft business is the main driver of the stock price.

� Airbus started as a consortium of European companies and remains 30% owned by the French, German

and Spanish governments.

6 September, 2016

Airbus (AIR FP)

6 September, 2016

Airbus (AIR FP)

� Industry

� Civil aircrafts Book-to-bill rates remain low and new orders falling due to a number of factors:

� Cheap Fuel tends to lengthen the replacement cycle.

� Emerging market growth is staling.

� Travel growth in developed markets is slowing and capacity is too high.

� Falling interest rate expectations have lowered the need for carriers to jump on low financing rates.

� The biggest customers now are Middle East and Asian carriers.

� Recent Developments

� Latest earnings showed a weakness in helicopter and defense sales that offset civil aircrafts gains.

� Airbus launched the A380, the world largest airliner in 2007. After some initial success, demand is

waning, and Airbus is mostly relying on Emirates for sales.

6 September, 2016

Airbus (AIR FP) - SWOT

6 September, 2016

Strengths Weaknesses

• Duopoly situation with Boeing.

• Strong barriers to entry

• Strong relationships with suppliers

• Maintenance revenues over the life of the aircrafts (10 to 30 years)

• Strong backlog (10 years of production)

• Heavy R&D and development costs

• High sensitivity to the USD (most costs and revenues are in USD by

earnings are reported in Euros)

• High competition in the narrow-body segment

• The industry remains in overcapacity

• Limited production slots for popular models

• Negative Free Cash Flow Yield in the current production phase

Opportunities Threats

• Dollar strength

• Higher oil prices

• Rising US rates that will push customers to refinance quickly

• Higher A320 and A350 deliveries as engine problems get fixed.

• Emerging markets growth

• Higher emerging market currencies giving local carriers more pricing

power.

• Execution risk, Production delays with in particular :

• The ramp-up of the A350

• Engine issues on the A320

• Super Puma Helicopter

• Lower oil prices lead that extend the replacement cycle of aircrafts

• Arrival of Chinese and Russian manufacturer on the commercial

aircraft market

• Lack of new commands or order cancellations

• Weak demand for the A380

• Emerging market currencies depreciation leading to cancellations by

local customers

• Dollar weakness

Airbus (AIR FP), September 5, 2016

6 September, 2016

On a long term perspective, the stock is in consolidation mode with a EUR 40 – EUR 70 range. Short term, the

stock is rebounding from an oversold level and could jump back to EUR 60 till the end of the year.

INVESTMENT IDEAS

6 September, 2016

Global Leaders

6 September, 2016

The Global Leaders are quality companies that we believe are fit for a long-term investment.

We launched this strategy in August 2011. Please read our special report for a full explanation of this strategy.

Benchmark: S&P 500Benchmark: Euro Stoxx 50

� European Portfolio � US Portfolio

*Since

August 2011

Portfolio Benchmark Delta Annualized Portfolio Benchmark Delta Annualized

Performance 99% 64% 34.8% 15% Performance 117% 99% 17.4% 17%

Performance YTD 2.2% -2.5% 4.7% Performance YTD 4.0% 8.3% -4.2%

Volatility 15.9% 22.1% -6.2% Volatility 13.5% 14.4% -0.8%

Max DrawDown -18.7% -27.8% 9.1% Max DrawDown -13.1% -13.0% -0.2%

-15

5

25

45

65

85

105

125Index Benchmark

-10

10

30

50

70

90

110

130Index Benchmark

Global Leaders – Current List

� European Portfolio � US Portfolio

6 September, 2016

Name Weight Mkt Cap ($bn) Sector

Apple 6.62% 568 Information Technology

Accenture 5.39% 73 Information Technology

Adobe 2.59% 49 Information Technology

Amazon 6.33% 365 Consumer Discretionary

Bristol Myers 5.70% 127 Health Care

Costco 5.39% 73 Consumer Staples

CVS 2.78% 100 Consumer Staples

Walt Disney 2.91% 155 Consumer Discretionary

Facebook 6.32% 357 Information Technology

Alphabet 6.59% 544 Information Technology

Goldman Sachs 2.68% 69 Financials

Honeywell 5.49% 88 Industrials

Johnson & Johnson 3.15% 344 Health Care

JP Morgan 6.06% 234 Financials

Mastercard 2.79% 104 Information Technology

Altria 1.89% 132 Consumer Staples

Merck & Co 5.84% 162 Health Care

Microsoft 6.45% 440 Information Technology

Nike 5.52% 93 Consumer Discretionary

Pepsico 5.82% 157 Consumer Staples

Philip Morris 1.92% 155 Consumer Staples

Reynolds 1.77% 71 Consumer Staples

Starbucks 2.74% 85 Consumer Discretionary

AT&T 3.07% 267 Telecommunication Services

Time Warner 2.64% 60 Consumer Discretionary

Visa 2.96% 184 Information Technology

Verizon 3.01% 224 Telecommunication Services

Walgreen 2.74% 86 Consumer Staples

Wells Fargo 3.04% 243 Financials

Exxon 3.16% 361 Energy

Name Weight Mkt Cap ($bn) Sector

Inditex 6.72% 109 Consumer Discretionary

Vinci 6.12% 45 Industrials

Fresenius 6.10% 41 Health Care

Essilor 5.91% 28 Health Care

Philips 5.79% 25 Industrials

Dassault Systemes 5.69% 21 Information Technology

Nestlé 5.48% 250 Consumer Staples

Unilever 5.19% 140 Consumer Staples

Novo Nordisk 5.18% 146 Health Care

BATS 5.10% 118 Consumer Staples

L'Oréal 5.06% 107 Consumer Staples

Sanofi 5.05% 110 Health Care

Reckitt Benckiser 4.84% 69 Consumer Staples

Roche 3.63% 221 Health Care

Novartis 3.61% 218 Health Care

ABInbev 3.60% 204 Consumer Staples

LVMH 3.27% 87 Consumer Discretionary

Allianz 3.20% 65 Financials

Heineken 3.14% 53 Consumer Staples

AXA 3.10% 49 Financials

Daimler 2.12% 72 Consumer Discretionary

BMW 2.06% 56 Consumer Discretionary

Stock-Picking List – Performance

� Hit Ratio 35%

� Hit Ratio Alpha 58%

� Average Perf. 0.47%

� Average Alpha 2.38%

� Nb. of Trades 31

� Open Trades 0

6 September, 2016

Average alpha of each stock strategy when compared to its

index (S&P or Euro Stoxx) over the same holding period.

Average performance of each stock strategy.

Please ask for more details.

Latest Equity Research

6 September, 2016

Date Document Strategy Stocks Covered

August 30, 2016 Weekly Report Company Primer Medtronic

August 23, 2016 Weekly Report Thematic View Costco, Kroger

August 12, 2016 Key Highlight Tech Leaders Alibaba

August 8, 2016 Key Highlight Global Leaders Bristol-Myers

August 4, 2016 Key Highlight Global Leaders Time Warner

July 29, 2016 Key Highlight Global Leaders Alphabet

July 29, 2016 Company Primer Global Leaders Apple, Microsoft, CVS, Walgreens, Disney, Time Warner

July 28, 2016 Key Highlight Global Leaders Facebook

July 27, 2016 Key Highlight Global Leaders Apple

July 22, 2016 Key Highlight Global Leaders Starbucks

July 20, 2016 Key Highlight Global Leaders Johnson & Johnson

July 19, 2016 Key Highlight Thematic View IBM

July 15, 2016 Key Highlight Global Leaders JPMorgan

July 12, 2016 Key Highlight Global Leaders Amazon

July 8, 2016 Key Highlight Global Leaders PepsiCo

July 7, 2016 Key Highlight Global Leaders Walgreens

July 4, 2016 Company Primer Thematic View Nike, Under Armour

June 30, 2016 Key Highlight Thematic View US Banks

June 29, 2016 Key Highlight Global Leaders Nike

June 28, 2016 Weekly Report Global Leaders Reckitt Benckiser, Unilever

June 20, 2016 Company Primer Global Leaders Heineken

June 16, 2016 Key Highlight Global Leaders Inditex

June 14, 2016 Company Primer Global Leaders Accenture

June 14, 2016 Key Highlight Global Leaders Apple

June 14, 2016 Weekly Report Tech Leaders Accenture

June 9, 2016 Company Primer Global Leaders Starbucks

June 9, 2016 Company Primer Global Leaders Facebook

June 9, 2016 Company Primer Global Leaders Amazon

June 9, 2016 Company Primer Global Leaders Alphabet

June 7, 2016 Company Primer Tech Leaders PayPal

June 7, 2016 Company Primer Tech Leaders Broadcom

June 7, 2016 Company Primer Tech Leaders Adobe Systems

June 7, 2016 Key Highlight Thematic View Bristol-Myers

June 7, 2016 Weekly Report Tech Leaders Adobe, Broadcom, PayPal

June 3, 2016 Key Highlight Global Leaders Johnson & Johnson

Date Document Strategy Stocks Covered

May 31, 2016 Weekly Report Global Leaders Alphabet, Amazon, Facebook

May 27, 2016 Key Highlight Global Leaders Costco

May 24, 2016 Weekly Report Thematic View Swisscom, Deutsche Tel., Vodafone, BT Group

May 17, 2016 Weekly Report Global Leaders Heineken

May 11, 2016 Key Highlight Global Leaders Amazon

May 5, 2016 Key Highlight Global Leaders Time Warner

May 4, 2016 Key Highlight Global Leaders CVS

April 29, 2016 Key Highlight Global Leaders Amazon

April 28, 2016 Key Highlight Global Leaders Facebook

April 27, 2016 Key Highlight Global Leaders Apple

April 22, 2016 Key Highlight Global Leaders Essilor

April 20, 2016 Key Highlight Global Leaders Johnson & Johnson

April 14, 2016 Key Highlight Global Leaders JPMorgan

April 13, 2016 Key Highlight Global Leaders Facebook

April 5, 2016 Weekly Report Thematic View Ctrip, Expedia, Priceline

April 1, 2016 Company Primer Thematic View Ctrip

April 1, 2016 Company Primer Thematic View Expedia

April 1, 2016 Company Primer Thematic View Priceline

March 31, 2016 Key Highlight M&A Hon Hai

March 16, 2016 Key Highlight Global Leaders Apple

March 10, 2016 Key Highlight Global Leaders Inditex

March 8, 2016 Weekly Report Thematic View 3M, GE, Honeywell, UTC

March 7, 2016 Key Highlight Global Leaders Novo Nordisk

March 4, 2016 Key Highlight Global Leaders Time Warner

February 23, 2016 Weekly Report Thematic View IBM

February 19, 2016 Key Highlight M&A IBM

February 2, 2016 Key Highlight Global Leaders Alphabet

January 29, 2016 Key Highlight Global Leaders Microsoft

January 28, 2016 Key Highlight Global Leaders Facebook

January 27, 2016 Key Highlight Global Leaders Apple

January 25, 2016 Key Highlight Earnings Eiffage

January 15, 2016 Key Highlight Global Leaders JPMorgan

January 13, 2016 Company Primer Global Leaders Accenture

January 13, 2016 Key Highlight Global Leaders Time Warner

January 8, 2016 Key Highlight Global Leaders Walgreens

January 7, 2016 Company Primer Thematic View Siemens

Disclaimer

6 September, 2016

Ucap Hong Kong Asset Management Ltd has issued this document for information purposes only. This document may not be distributed to the United States, Canada,

Australia or to any other jurisdiction in which its distribution is unlawful. If you require investment advice or wish to discuss the suitability of any investment decision,

you should contact your professional advisers for financial, legal or tax advice when appropriate. This document is not and should not be construed as an offer to sell or

a solicitation of an offer to purchase or subscribe for any investment or service.

Ucap Hong Kong Asset Management Ltd has based this document on information obtained from sources it believes to be reliable but which it has not independently

verified. Ucap Hong Kong Asset Management Ltd makes no guarantees, representations or warranties, and accepts no responsibility or liability as to its accuracy or

completeness. Expressions of opinion herein are subject to change without notice.

Members of the Ucap Hong Kong Asset Management Ltd and/or their officers, directors and employees may have positions in any securities mentioned in this

document (or any related investment) and may from time to time add to or dispose of any such securities (or investment).

In the case where this document is distributed in the United Kingdom by a person who is not authorized by the United Kingdom Financial Services Authority; it is only

intended for persons who (i) have professional experience in matters related to investments or (ii) are persons falling within Article 49(2)(a) to (d) ("high net worth

companies, unincorporated associations, etc") of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) or to whom it may

otherwise lawfully be communicated by such an unauthorized person (all such persons together being "relevant persons"). This communication must not be acted on

or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and

will be engaged in only with relevant persons.

Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not receive back

the full amount invested. When an investment is denominated in a currency other than your local or reporting currency, changes in exchange rates may have an

adverse effect on the value, price or income of that investment. In the case of investments for which there is no recognized market, it may be difficult for investors to

sell their investments or to obtain reliable information about their value or the extent of the risk to which they are exposed. Investment in any market may be

extremely volatile and subject to sudden fluctuations of varying magnitude due to a wide range of direct and indirect, influences. Such characteristics can lead to

considerable losses being incurred by those exposed to such markets.

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No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, whether electronic, mechanical, photocopying,

recording or otherwise, without the prior written permission of Ucap Hong Kong Asset Management Ltd.