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Global Equity Themes: Appetite For Disruption
Global Equity Themes: Appetite For Disruption
Global/Europe
Equity Research
Thematic Research
Research Analysts
Appetite for disruption
Eugene Klerk In this report, we expand on our original Age of Disruption analysis, with
44 20 7883 4678 input from our analysts now allowing us to rank c2,700 stocks globally based
eugene.klerk@credit-suisse.com
on the disruptive risk they face from Competition, Regulation and
Richard Kersley
Technological Innovation. Disruption has already impacted many companies.
44 20 7888 0313
richard.kersley@credit-suisse.com However, Credit Suisse HOLT's conditional probability framework enables us
Brandon Vair to identify where disruptive risk still appears mispriced.
44 20 7888 6381
Disruptive forces: CompetitionChina remains key, not least with R&D
brandon.vair@credit-suisse.com
spend of cUS$370bn annually (more than Japan, Germany and South
Maria Bhatti
44 20 7888 1503 Korea combined). Regulation touches every sector and region.
maria.bhatti@credit-suisse.com Technology materially reduces barriers to disrupt as it levels the playing
field both globally and across public and private markets (the number of
'unicorn' companies has risen sevenfold since 2011, with a valuation of
cUS$653bn).
A multipolar world is more likely with Brexit and President Trump,
increasing disruptive risk owing to heightened supply chain challenges. We
use Credit Suisse's PEERs supply chain tool to highlight stocks in the US
and UK that are most at risk from this.
Disruptive risk appears higher in Europe and for Pharma, Autos, Energy,
Retail and Insurance; we think it is lower in NJ-Asia and for Staples and
Real Estate. We identify and discuss regional outliers by sector.
Cheap 'Undisruptables' with high quality and momentum: We find 25
Outperform-rated companies globally including Reckitt Benckiser, Orange,
UnitedHealth, Vantiv, China Resources Gas, Murata and Sekisui House.
Expensive, with a risk of disruption and low quality: We highlight 20
companies globally, including AstraZeneca, Smith & Nephew, Netflix,
Falabella, Global Logistic Properties, Cathay Pacific, Eisai and Nomura.
Figure 1: Our analysts ranked c2,700 stocks (90% of Figure 2: We expect the outperformance of our new
coverage) on degree of disruptive exposure list of 25 'Undisruptable' stocks to continue
900 1.5 Our 25 Undisruptable, Cheap, High quality & momentum stocks
773
800 713 Not undisruptable, Cheap, High quality & momentum stocks 38%
1.4
700 Our 20 Disruptable, Expensive, Low quality stocks
Number of Companies
600
1.3 MSCI AC World
466
500
421
1.2 15%
400
13%
300
213 1.1 5%
200
100
99 1.0
46
0
9 8 7 6 5 4 3 0.9
Disruptable Undisruptable Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Source: Thomson Reuters, Credit Suisse research Source: Credit Suisse research, Credit Suisse HOLT
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
24 January 2017
Table of contents
Disruption: key factors 3
Executive summary 4
Key stocks 36
2.0 400
200
1.5
0
1.0 2000 2002 2004 2006 2008 2010 2012
Source: Thomson Reuters, Credit Suisse research Source: CB Insights, Credit Suisse Research
Figure 7: GDP is becoming less concentrated. Multi Figure 8: Specifically, we watch out for companies
polarity increases risk, in our view with a high share of global suppliers
110 GDP Non-US Total
%of Non-
US Company Name Sector Country
Suppliers Suppliers
Suppliers
22 26 85% Apple Techh Hardware & Equip US
100 11 13 85% Avis Budget Group Transportation US
10 12 83% Herc Holdings Transportation US
8 10 80% NVIDIA Corporation Semi & Semi Equip US
8 10 80% QUALCOMM Semi & Semi Equip US
90
27 39 69% Hewlett Packard Technology Hardware & Equip US
9 14 64% Eli Lilly & Co. Pharma, Biotech & Life Sciences US
5 8 63% Amkor Technology Semi & Semi Equip US
80 19 31 61% KBR Inc. Capital Goods US
11 18 61% Microsoft Software & Services US
6 10 60% Bristol Myers Squibb Pharma, Biotech & Life Sciences US
70 6 10 60% Micron Technology Semi & Semi Equip US
7 12 58% GameStop Retailing US
9 16 56% General Electric Capital Goods US
17 31 55% International Business Machines Software & Services US
60
4 8 50% Cobalt International Energy Energy US
22 44 50% ExxonMobil Corporation Energy US
4 8 50% Honeywell International Capital Goods US
50 4 8 50% Morgan Stanley Diversified Financials US
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 6 12 50% Nexeo Solutions Capital Goods US
7 14 50% Ulta Salon Retailing US
GDP concentration 5 10 50% Wesco International Capital Goods US
Executive summary
Although disruption has been a constant factor through time, we note that the topic has
gained importance with investors as technology has allowed a range of new business
models to develop that threaten a wide range of incumbent industries and companies.
Digital cameras Film cameras 1999-2010 Although not directly comparable, 35mm films have the equivalent pixel quality
somewhere between 4MP to 16MP. To put this in perspective, basic digital single-
lens reflex camera resolution starts at 24MP nowadays.
Smartphones Digital cameras 2007-Today The first built-in cell phone digital camera launched in 2000 was capable of taking 20
photos at 0.35 megapixels. The original iPhone was launched in 2007 and had a 2MP
camera, this compares with the current iPhone 6 camera which has 8MP of resolution
Figure 10: We rank c2,700 stocks from Figure 11: Low disruptive risk comes at a premium,
3 (minimal risk) to 9 (maximum disruptive exposure) especially in Europe and the US
900 80
773
800
713 70 J
700 Undisruptable
and cheap
60 NJ-A
Number of Companies
600
NJ-A
500 466 NJ-A
421 50 J
NJ-A EU
400 AM AM
40 AM EU
300 NJ-A
EU AM
213
200
30 J EU
100
99
Disruptable
EU
46
and expensive
0
20
9 8 7 6 5 4 3 7-9 6 5 4 3
Disruption Score AM EU NJ-A J
Source: Credit Suisse research Source: Credit Suisse research
Figure 12: Average regional valuation score by sector: Pharma most exposed, Staples least
80
J J
70 AM J
EU
NJA
Value in high risk sectors mostly found in NJ-Asia
60 NJA AM J
NJA NJA EU J
NJA EU EU J
J J NJA EU
50 J
EU AM EU AM AM
AM NJA
EU NJA AM NJA NJA
AM AM EU NJA
AM EU AM
AM NJA NJA EU
40 EU AM AM EU EU NJA
NJA EU NJA
AM EU NJA AM AM
NJA AM J
EU NJA EU EU
J AM
30 EU J AM
EU JNJA NJA
Stocks expensive in every region
20
J
Highest risk from disruption Lowest risk from disruption
10
AM EU NJA J
Source: Credit Suisse HOLT, Credit Suisse research, J = Japan, EU = Europe, AM = Americas, NJ-A = Non-Japan Asia. Grey bar reflects global sector conditional probability. Note: Insurance
and Banks not included as no Conditional Probability calculations are available for these sectors
Figure 13: Our preferred 25 cheap stocks with low Figure 14: We are cautious on 20 expensive stocks
disruptive risk, high quality and momentum with high disruptive risk and low quality
Total Risk Cond. Total Risk Cond.
Ticker Com pany Rating Quality Mom entum Valuation
Score Prob. Ticker Company Rating Quality Momentum Valuation
Score Prob.
Europe
DLGS.DE 4 Dialog Semiconductor O 96 78 79 87 Europe
RB.L 3 Reckitt Benckiser O 56 81 86 45 SN.L 7 Smith & Nephew N 9 44 14 18
JE.L 4 Just Eat O 50 87 70 51 AZN.L 7 AstraZeneca U 34 18 26 38
LSE.L 4 London Stock Exchange O 51 71 68 32 WLN.PA 7 Worldline N 25 21 46 25
ORAN.PA 4 Orange O 62 52 74 81
SPMI.MI 8 Saipem N 34 6 22 25
North America
AJG.N 4 Arthur J. Gallagher & Co. O 83 95 70 88
PSON.L 8 Pearson U 30 38 43 55
LUN.TO 3 Lundin M ining O 82 57 95 88 Americas
CELG.OQ 4 Celgene O 76 86 77 83 NFLX.OQ 7 Netflix N 3 30 85 0
VNTV.N 4 Vantiv O 73 77 76 43 SGEN.OQ 9 Seattle Genetics N 3 19 94 4
AET.N 4 Aetna O 72 62 52 98
FAL.SN 7 Falabella U 9 30 46 14
COMM.OQ 4 CommScope O 69 73 90 84
ANET.N 4
CCU.SN 7 Compaia Cervecerias Unidas U 47 40 11 75
Arista Networks O 67 87 86 66
UNH.N 4 UnitedHealth O 55 90 95 78 VET.TO 8 Vermilion Energy N 11 49 31 29
Non-Japan Asia NJ-Asia
600066.SS 4 Zhengzhou Yutong Bus O 98 99 35 99 GLPL.SI 7 Global Logistic Properties U na 46 44 6
PPL.KA 4 Pakistan Petroleum O 90 84 79 85 0981.HK 7 Semiconductor Manufacturing Intl N na 0 93 16
0338.HK 4 Sinopec Shanghai Petrochemical O 79 82 76 87
035720.KQ 7 Kakao U 12 33 0 2
002508.SZ 4 Hangzhou Robam Appliances O 62 98 98 70
0914.HK 3
0293.HK 7 Cathay Pacific U 32 33 4 12
Anhui Conch Cement O 69 67 72 91
0014.HK 3 Hysan Development O 100 78 87 0991.HK 7 Datang International Power Generation U 35 2 11 8
1193.HK 3 China Resources Gas O 59 98 53 51 MINT.BK 9 Minor International N 29 39 37 26
Japan Japan
1928.T 4 Sekisui House O 69 65 66 90
8729.T 7 Sony Financial N na 10 52 24
1801.T 4 Taisei O 60 82 77 80
4217.T 4
4523.T 9 Eisai U 29 14 68 33
Hitachi Chemical O 70 62 75 25
6981.T 3 M urata M anufacturing O 54 75 56 56 8604.T 7 Nomura N na 36 98 30
8303.T 3 Shinsei Bank O 69 51 60 8570.T 7 Aeon Financial Service N na 49 4 36
Financials
Banks Insurance
Tightening regulation reduces returns Development of insurance linked securities
Technology/Fintech allows for increased competition Growth of online insurance offerings
Crowdfunding/P2P lending Sharing and driverless vehicle development
Growth of passive investments impacts investment banks Greater disclosure lowers fees
Technology
Hardware Software
Competition from China/Taiwan Among the key beneficiaries of industry 4.0, big data, cyber security
Software-defined network technology Cloud technology: slows revenue growth through increased deferral
Cloud technology impacts hardware demand
New technologies: e.g. LCD to OLED displays
Health care
Pharmaceuticals Med-tech
Payer consolidation and impact on pricing Industry consolidation and impact of new technologies
Increasing competition from EM-based generic manufacturing Competition from low cost countries: China in particular
Figure 16: Total R&D as a % of GDP vs OECD Figure 17: Total business R&D as a % of GDP vs
OECD
4.0 3.0
(% of GDP) (% of GDP)
3.5 2.5
3.0
2.0
2.5
1.5
2.0
1.5 1.0
1.0 0.5
0.5
0.0
2000 2005 2010 2015E 2020E
2000 2002 2004 2006 2008 2010 2012 2014
China US Japan EU15 China US Japan EU15
* OECD data for 2014 or before. IRI data for 2015 & 2016. Source: OECD
Source: OECD, "2016 Global R&D Funding Forecast" published by
US IRI and R&D Magazine.
Figure 18: Share of Science & Engineering articles Figure 19: Number of first university degrees in
(2013) Science and Engineering
1,400
US ('000)
19% 1,200
Others 1,000
33% 800
600
400
China 200
18% 0
Canada 2000 2002 2004 2006 2008 2010 2012
3%
Korea Italy China United States
Japan
3% 3% 5%
India UK Germany
Japan Germany
France
3% 4% 4% 5% South Korea United Kingdom
Source: Science and Engineering Indicators 2016, National Science Foundation Source: Science and Engineering Indicators 2016, National Science Foundation
Another factor worth considering when assessing the potential competitive or innovative
threat from developing countries is the fact that their focus tends to be more on applied
sciences rather than more fundamental research. In the case of China for example we
note that its investment into basic research as a share of total R&D spending is roughly a
third of that of the US, UK, France and Korea.
Figure 21: Manufacturing improvement targets for Figure 22: Key end markets identified in 'Made in
'Made in China 2025' China 2025'
Target Indicator 2015 2020 2025 Sector Target and focus areas Existing capability
R&D intensity (as % of sales) 0.95 1.26 1.68 Limited but key focus sector for creating
Information technology Technological innovation, particularly semiconductors
leadership in technology
Innovation
Patents per 100m of core business revenues 0.44 0.7 1.1 Low and medium level automation capability. Focus on
Already a leader in low and medium level
Numerical control tools and robotics NC tool capability to improve manufacturing quality
NC tools
and productivity
Manufacturing quality competitiveness index 83.5 84.5 85.5
Focus on satellite capabilities and passenger jet One passenger jet C9192,400 planes
Aerospace equipment
Quality efficiency Manufacturing value added growth rate NA 2% > 2015 4%>2015 transportation including aircraft engines possible by 2045
Existing investment and capabilities in South
+/-7.5% (13th 5YP +/-6.5% (13th 5YP Marine engineering Offshore infrastructure and high-tech ships
Manufacturing labour productivity growth rate NA China Seas infrastructure
CAGR) CAGR) High speed rail equipment sales to Russia
Broadband penetration (%) 50 70 82 Existing high speed train production. "One Belt, One and Malaysia. In discussions with over 20
Railway equipment
Road" projects to improve competitiveness countries for potential high speed railway
Integration of equipment sales including US
R&D digital design tool penetration (%) 58 72 84 Existing environment clean-up and emission
Industrialisation
and IT Energy efficiency and electric Domestic environmental clean-up priorities and long reduction targets should support this
Utilisation rate for numerical controls in critical vehicles established domestic car manufacturing aspirations segment. Visibility of innovation new fuel
33 50 64
processes (%) vehicles limited
Core priorities of smart grid and smart city Currently exporter of power equipment to
Power equipment
Energy consumption per unit of industrial value technologies India
NA 18%<2015 34%<2015 Key government focus on "invention" and "innovation"
added New materials Research into new materials in its infancy
in materials
CO2 emissions per unit of industrial value added NA 22%<2015 40%<2015 Rapid growth in medical equipment market
Environmental Existing success in low tech medical devices.
of 20% pa since 2009 from small base.
improvements Biopharma and medical devices Likelihood of success in biopharma and medicines
Medical device capability currently small, low
Water consumption per unit of industrial value less certain
NA 23%<2015 41%<2015 technology equipment and supplies
added
Focus on improving quality in current manufacturing Domestic industry concentrated on low
Agricultural machinery and potential export sector. Potential for international power tractors and small to medium
Utilisation rate of solid industrial waste (%) 65 73 79 demand less clear machinery. Exports predominantly from JVs.
Source: State Council, People's Republic of China Source: State Council, People's Republic of China, Credit Suisse research
Against the background of these government targets, it is not surprising to find that
academic focus in terms of programmes and projects is set to remain geared towards
relevant related areas until 2030. This clearly suggests that China if anything is likely to
become a more significant competitor to Western firms in the future.
These are:
Biotech: Our analysts believe that China's large domestic market, favourable
regulatory environment and strong government support provide the necessary
framework for further development.
Big Data / Artificial Intelligence: China's strong growth and development of internet
and mobile usage and applications provides the backdrop for strong growth in
investments related to IT areas such as Big Data and AI.
IoT: The reasons for our China analysts' positive view as a potentially dominant force
in Internet of Things related products and services include the fact that China is the
world's largest internet hardware manufacturing hub and internet usage base.
New Energy: Strong government support including subsidies has allowed R&D into
Electric Vehicles to grow strongly. Our analysts expect this to continue, not least owing
to environmental and energy supply/demand challenges faced by China.
Nuclear: China's need to balance its growing demand for energy with incremental
sources has allowed it to become the larger developer of nuclear facilities globally.
The table below highlights the Chinese companies that our local analysts believe appear
well placed to drive development and innovation in each of these end markets.
Figure 24: Leading Chinese companies active in industries that China can dominate
Area Subsector Company Area Subsector Company
55 2015 level:
90 58%
50
80 45
40
70
35
60 30
25
50
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 20
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
GDP concentration
World trade (% of GDP)
Source: Credit Suisse Research Institute Source: Credit Suisse Research Institute
The falter of trade agreements and an increasing reluctance to accept new or support
existing trade deals. For example, the Trans-Pacific Partnership (TPP) between the
US, Japan and a group of Asian countries collapsed. The same happened with the
Transatlantic Trade and Investment Partnership (TTIP).
Inequality has become a major issue on the political agenda across the developed
world, which in turn fuels 'protectionist' policies, in our view. The Credit Suisse
Research Institute highlights that in the US the number of people with average income
outweighed the combined number of low and high income groups by c60% in 1971.
Today they are in the minority. Oxfam in its most recent report (An economy for the
99%) pointed out that the world's richest eight men have a combined wealth of
cUS$426bn which is equal to the poorest 50% of the world.
Migration has added to the anti-open border debate. One trend that has been
associated with globalization is migration; however, it now appears to have reached
levels that have started to breed significant resistance across many developed
markets. The 'Brexit' vote and the US presidential election appear to be clear examples
of this skepticism towards migration.
Figure 27: Multipolarity has increased across all key Figure 28: The share of mega buildings by region as
variables during the past few years an indication of region building
GDP 100
0.90
80
0.85
60
Markets Low cost of capital; global shocks The rise of regional financial Fragmentation of global financial
more frequent. centers. markets; a rise in the cost of
capital.
Currency Dollar dominates. The rise of new anchor Currency wars and growing
currencies. protectionist tendencies.
Economic growth Increasingly driven by trade Lower growth; some regions Domestic; slower. Tough
growth. Low macro-economic thrive while others fall back. times/recessions confined to
volatility, except in times of crisis Regional setbacks in response to centers of origin. Shocks from
when risk of contagion is higher. economic crisis. Emerging debt, inequality, climate and
market consumer grows. geopolitics.
Corporations Multinationals become more Regional champions. EU thrives. National champions dominate.
powerful. Anti-multinational corporation
sentiment rises.
Global governance Collaborative; supranational Competitive; regional hegemons; Open conflicts. Geopolitical
institutions dominate; US a covert conflicts; spheres of military clashes. Climate events.
dominant force. Governance influence. New institutions with
rules established by global exclusive memberships.
regulators.
People flows Open-door policy for immigrants. Increased restrictions on Breakdown of migration. Social
immigrants. Selective skill-based exclusion of migrant population.
movement of labor. Rural-urban
migration to dominate
cross-country movement.
Social and human Greater convergence in living Living standards become more Increased poverty and civil strife.
development standards, but less globalized unequal. Local economies Rise of anti-globalization
regions fall back. Human become wealthier in aggregate. sociopolitical movements.
development improves. In emerging market economies
rising consumer (incomes,
consumption and wealth).
Figure 30: US companies and international supply chains (total suppliers >=8, % of Non-US >=50% of total)
%of Non-
Non-US Total
US Company Name Sector Country
Suppliers Suppliers
Suppliers
22 26 85% Apple Techh Hardware & Equip US
11 13 85% Avis Budget Group Transportation US
10 12 83% Herc Holdings Transportation US
8 10 80% NVIDIA Corporation Semi & Semi Equip US
8 10 80% QUALCOMM Semi & Semi Equip US
27 39 69% Hewlett Packard Technology Hardware & Equip US
9 14 64% Eli Lilly & Co. Pharma, Biotech & Life Sciences US
5 8 63% Amkor Technology Semi & Semi Equip US
19 31 61% KBR Inc. Capital Goods US
11 18 61% Microsoft Software & Services US
6 10 60% Bristol Myers Squibb Pharma, Biotech & Life Sciences US
6 10 60% Micron Technology Semi & Semi Equip US
7 12 58% GameStop Retailing US
9 16 56% General Electric Capital Goods US
17 31 55% International Business Machines Software & Services US
4 8 50% Cobalt International Energy Energy US
22 44 50% ExxonMobil Corporation Energy US
4 8 50% Honeywell International Capital Goods US
4 8 50% Morgan Stanley Diversified Financials US
6 12 50% Nexeo Solutions Capital Goods US
7 14 50% Ulta Salon Retailing US
5 10 50% Wesco International Capital Goods US
In Figure 32, we conduct a similar exercise for the UK by looking at companies with a
more European supply chain. We show companies with at least three suppliers in their
supply chain and where 15% of them are European in nature. This also comes with health
warnings given the lack of clarity on how trade negotiations will play out, though we are of
course already seeing pressure on companies with non-UK supply chains via sterling's
weakness
Figure 32: UK companies and international supply chains (total West European suppliers >=3, % of
W.European suppliers >=15% of total)
Western %of
UK Total
Europe W.Europe Company Name Sector Country
Suppliers Suppliers
Suppliers Suppliers
3 0 3 100% RPC Group PLC Materials UK
7 1 8 88% WPP Media UK
7 1 10 70% EasyJet Transportation UK
4 0 6 67% Royal Bank of Scotland Banks UK
5 3 10 50% ASOS Plc Retailing UK
6 0 12 50% Subsea 7 S.A. Energy UK
8 2 16 50% Vodafone Group Telecommunication Services UK
6 1 13 46% IAG Transportation UK
6 7 16 38% Wm Morrison Food & Staples Retailing UK
5 4 15 33% BT Group Telecom UK
5 6 15 33% Ocado Plc Retailing UK
5 7 16 31% J Sainsbury Food & Staples Retailing UK
5 9 18 28% Tesco Food & Staples Retailing UK
5 7 20 25% Next Retailing UK
4 0 17 24% Inchcape Retailing UK
5 4 33 15% Dixons Carphone Plc Retailing UK
Source: Company data, Credit Suisse estimates, PEERs
(Mobile) Internet Improves and unlocks delivery and productivity of services including: banking, Retail, Banking, Education, Travel, Ongoing
retail, education, health care. Provides the backbone for all sharing economy Payment/Credit Cards, Real Estate.
services through mobile app development.
Automation/Artificial Intelligence Computers to perform complex analysis and problem solving exercises through Common business functions (sales, 5-10 years
machine-learning and neural networks. This would impact a wide range of administrative, customer service),
different (mostly support) functions. Total FTEs at risk according to McKinsey technical professions, professional
from further automation could be 140m or c50% of the total workforce across the services (legal, financial).
exposed end markets.
Advanced robotics Advances in artificial intelligence, machine vision, sensors, motors and hydraulics Labor intensive manufacturing 5-10 years
allow for more advanced robots who increasingly replace human labor. McKinsey industrials.
estimates that 60m FTEs might be at risk by 2025. Falling robot costs (typically by
10% per annum) and China's rapidly growing robotic-capabilities imply that
robotic-growth globally is likely to remain strong.
Car technology: driverless, car Autonomous vehicles offer substantial benefits in terms of emission reduction, Entire auto supply chain, car insurance 5-10 years
sharing and electric vehicles fuel efficiency, the reduction of traffic accidents. In combination with the rapid exposed companies, Oil companies
increase in car sharing this development has the potential to substantially reduce
car sales (every car shared typically replaces c10 privately owned cars). Finally we
note that the electrification of vehicles adds further pressure on the current,
largely combustion-engine focussed, car industry.
Energy Storage The ability to store energy (largely through batteries) generated from renewable Utilities and Oil & Gas producers 10 years
sources (i.e. solar) has the potential to allow residential and corporates to
become selfsufficient. This in turn would be highly disruptive for the utility
sector (generation and distribution). If consumers were to switch from gas-fired
heating to electrical-based heating this would also negatively impact gas
suppliers.
3D Printing 3D printing capabilities are rapidly expanding although full disruption is likely a Medical device manufacturers, 10 years
few years away owing to currently higher production costs. Longer term, consumer products, engine
however, we believe that layer-based printing will allow for widespread manufacturers, suppliers into these
disruption across various consumer end markets. The ability to produce goods end markets including logistics firms
more locally and with minimal waste is also set to impact the supply chain may also be impacted
including delivery. The ability to produce low volume, high value items might
also support the on-shoring of certain manufacturing activities.
Renewable energy Increasing cost competitiveness should allow renewable energy sources such as Utilities and Oil & Gas producers 10 years
solar and wind to become disruptive on a 10 year horizon in our view. Demand for
renewable energy solutions is likely to be strong across the emerging world
owing to climate conditions and relative absence of incumbent energy supply
networks. Key for the timespan of disruption are a) the continued speed with
which production costs are falling and efficiency ratios are rising and b) whether
or not renewable subsidies remain.
Figure 34: The number of guests staying at an Figure 35: E-retail disruption: Amazon's market cap
AirBnB over New Year has grown more than 1400- is now bigger than the combined total of the largest
fold since 2009 indicating disruption eight traditional retailers in the US (US$bn)
2,500 500
Thousands
400
400 371
2,000
295
300
1,500
200
1,000
100
18
500 0
2006 today
Best Buy JCPenny Kohl's
0 Macy's Nordstrom Sears
2009 2010 2011 2012 2013 2014 2015 2016
Target Walmart Amazon
Figure 36: Global investment in industrial robots is Figure 37: Investment into renewable capacity in
let by India and China 2015: GEM dominates
Europe
India
17%
China
Spain
China
United States
36%
United Kingdom
Germany US
Forecast 2015: 3.8%
France Forecast 2014: 3.3% 15%
Japan
Italy
Brazil
Russia MENA
ASOC, ex 4%
-6% -4% -2% 0% 2% 4% 6% 8% 10% China/India RoLatam
Brazil India
17% 4%
Forecast 2015 Forecast 2014 3% 4%
Source: CB Insights, Credit Suisse research Source: CB Insights, Credit Suisse research
Not only do we observe strong growth in the number of unicorns and their valuation levels
but a sector analysis of them also reveals their focus on 'disruptive' services. Cumulative
unicorn valuation levels are mostly geared to disruptive sectors including on-demand
services (e.g. Uber and Didi), eCommerce (e.g. AirBnB and Flipkart), Fintech (e.g. Lu.com
and Stripe), Internet services (e.g. Spotify) and facilities (e.g. WeWork). Below we list the
largest 30 unicorns based on the most recent valuation data as per CB Insights.
Figure 40: The largest 30 unicorns based on implied valuation: most offer a capital-light disruptive service
Valuation ($bn) Company Country Service Valuation ($bn) Company Country Service
68.0 Uber United States On-Demand 9.2 Stripe United States Fintech
46.0 Xiaomi China Hardware 8.5 Spotify Sweden Internet Software & Services
33.8 Didi Chuxing China On-Demand 8.0 Zhong An Insurance China Fintech
30.0 Airbnb United States eCommerce/Marketplace 7.0 Snapdeal India eCommerce/Marketplace
20.0 Palantir Technologies United States Big Data 6.2 Lianjia China eCommerce/Marketplace
18.5 Lu.com China Fintech 6.0 Global Switch United Kingdom Computer Hardware & Services
18.0 China Internet Plus Holding China eCommerce/Marketplace 5.5 Intarcia Therapeutics United States Healthcare
18.0 Snapchat United States Social 5.5 Lyft United States On-Demand
16.9 WeWork United States Facilities 5.0 Coupang South Korea eCommerce/Marketplace
16.0 Flipkart India eCommerce/Marketplace 5.0 Olacabs India On-Demand
12.0 SpaceX United States Other Transportation 4.8 One97 Communications (Paytm) India Fintech
11.0 Pinterest United States Social 4.5 Ele.me China On-Demand
10.0 DJI Innovations China Hardware 4.5 Magic Leap United States VR/AR
10.0 Dropbox United States Internet Software & Services 4.1 Cloudera United States Big Data
10.0 Infor United States Internet Software & Services 4.0 Social Finance United States Fintech
Figure 41: Breakdown of responses by region Figure 42: Breakdown of responses by market cap
Figure 43: Number of stocks by risk scoring Figure 44: Share of by risk scoring by region
9 = maximum risk, 3 = minimum risk 9 = maximum risk, 3 = minimum risk
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
High Disruption score Low 0%
3 4 5 6 7 8 9
Figure 45: Low disruptive exposure (score of 3-4): Figure 46: NJ-Asia has relatively speaking the
Europe is underrepresented lowest high/low risk ratio. Not so for Europe/Japan
Europe,
17% Americas, Americas,
38% Europe, 44%
22%
Asia
Pacific, Asia
37% Pacific,
21%
Source: Credit Suisse research Source: Credit Suisse research
When breaking down our low and high risk companies by region, we find that relative to
the total number of stocks included in our database Europe is indeed underrepresented in
the low risk category (17% share vs 19% share of overall universe) and overrepresented
in the high risk group (22% share vs 19% overall share).
The opposite applies to companies in NJ-Asia. They make up 35% of our universe, have a
37% share of the low risk group and just 21% of the high risk group.
In the case of the US, we find a slight skew towards high risk (44% share of high risk
group vs a 37% share of the overall universe).
Figure 47: Stocks with low disruptive risk by sector Figure 48: Stocks with high disruptive risk by sector
4% 1% 6% 1% 1% 3% 2% 4%
4% Autos 4% Autos
4% 4% 0%
8% Banks 3% Banks
4% 8%
4%
Capital Goods Capital Goods
5% 3%
Comm & Prof Svs 3% Comm & Prof Svs
4% 8%
2% Cons Durables & Apparel Cons Durables & Apparel
6%
3% 2% Consumer Svc
Consumer Svc
4% 1%
Diversified Financials Diversified Financials
9% Energy Energy
7% 10%
Food & Staples Retailing Food & Staples Retailing
4% 1% Food, Bev & Tobacco 1% 26% Food, Bev & Tobacco
2% 7% 5%
HC Equipment & Svc 3% HC Equipment & Svc
8% 2% 2% 3% 0% 3%1% 0%
Our updated analysis shows broadly similar results, with Pharma, Energy and Auto stocks
ranked highest on disruptive exposure. Other sectors deemed at risk include Retail and
Financials (mainly Insurance and Diversified Financials). Sectors with below-average risk
from disruption are now found in Consumer Staples and Business Services but also Real
Estate.
Figure 49: Cumulative disruptive risk by sector: a higher score implies more risk
Global Competition Technology / Industry 4.0 Tightening Regulation
6.0
5.0
4.0
3.0
2.0
1.0
0.0
7
J AM
EU J
6 EU J
J NJ-A EU J EU
AM NJ-A
EU J NJ-A
AM
AM NJ-A EU J
AM NJ-A J
NJ-A EU AM
EU EU EU EU AM
5 EU AM NJ-A NJ-A AM NJ-A AM EU
AM EU EU
NJ-A AM EU NJ-A AM NJ-A NJ-A EU
NJ-A NJ-A NJ-A EU
J AM AM EU
NJ-A J NJ-A
NJ-A AM NJ-A EU AM
AM EU
EU J EU NJ-A J
4 AM AM J AM
J J NJ-A
NJ-A
J AM
NJ-A
EU
3
J
2
Pharma Energy Autos Consumer Retailing Insurance Diversified Food, Bev HC Software & Media Semis Tech Utilities Telecom Banks Transports Capital Materials Cons Food & Comm & Real Estate Household
Svc Financials & Tobacco Equipment Services Hardware Goods Durables & Staples Prof Svs & Personal
& Svc Apparel Retailing
Highest risk from disruption Lowest risk from disruption
AM EU NJ-A J Outlier
24 January 2017
24
24 January 2017
NJA Pharma scores low on disruption: Analyst Iris Wang believes that with
the ongoing implementation of drug tenders, clinical data self-inspection and the
two-invoice system and reimbursement budget control, there will unlikely be any
additional negative policy changes in 2017. Moreover, the long-awaited
expansion of the National Reimbursement Drug Listlikely to be announced in
1H17could be a sector tailwind. She expects the sector to consolidate further
and big pharma companies with rich pipelines, solid clinical trial records and
strong in-house sales capabilities to benefit. See the China Pharma Sector
Headwinds turning into tailwinds section from our team's China-HK Chronicles
Outlook 2017.
Semiconductors: US semi stocks appear to carry above sector-average disruptive
risk. The key reason for this relates to the fact that some of the solar stocks are
classified as semiconductor companies. The solar space in general ranks high for
disruption, especially through competition but also technological innovation and its
impact on market share and or profit margins. For the remainder of the semi space, our
analysts are broadly positive owing to rising barriers to entry, consolidation and
diversifying demand drivers (see Semiconductors: 2017 Outlook).
Telecoms: Telecoms in Asia score higher than those in Europe and the US on
disruptive risk. The key drivers behind this are:
NJA Telcos: Amongst the divergent regional views in telecoms, our Asia-ex
Japan teams underweight sector view is underpinned by several factors
including several 'problem markets', namely India, Singapore, Malaysia and the
Philippines, where rising competition, new entrant threats and cannibalization by
OTT (Over the Top) services are weighing on the space. However, Chinese
telecoms are an exception as the market looks structurally better positioned,
given 1) no new entrants in the cellular space; and 2) China telcos have avoided
unlimited data plans which ensures that the economics of consumer behaviour
matches the cost structure of the operators, and drives revenue. The team also
sees a reduced probability of further regulatory interference for China. While
investors remain concerned over the potential for other regulatory moves, there
have been strong 4G net additions with a more even share, reducing the need
for further measures. Furthermore, the data pricing curve is such that customers
are enjoying volume discounts. See our Asia Pacific/HK Outlook 2017 from 11
January 2017 for more details.
European telcos: The European telco sector has for two decades been driven
by common regulatory themes emerging from the EU, starting with liberalisation
in the mid-1990s, licensing of mobile spectrum to new operators (1995-2002),
disruptive fixed line access regulation (ULL) from 2002 and more recently
BULRIC MTRs (2007-2013) and roaming regulation (2007-2016+). These EU
initiatives have been sector wide, generally deflationary and disruptive to telco
sector returns. The EU is now reviewing its telecoms regulation and discussing
a wide range of options. Few if any of these have the potential to disrupt the
sector in the way previous initiatives have done. Some options even involve
reducing regulation. International exposure remains a decisive factor for
European relative performance. Many of the world's telecoms markets are
suffering the same trend of increasing regulation and competition that Europe
has suffered from, so International stopped being a driver of outperformance
some years ago. However exposure varies by market, and by market position.
See Outlook 2017 from 8 December 2016.
Media: The above-average regional risk difference in media is largely due to a low
reading for US media companies. The reason for this according to our US media
analysts is the election of a Republican administration which has had a significant
positive impact on the regulatory outlook for US ISPs. The team expects Congress and
the FCC to work together to replace the 2015 Open Internet Order. This order enforces
the principles of net neutrality including that ISPs must enable access to all content
without favouring or blocking specific websites, and under Title II of the
Telecommunications Act created the possibility of direct price regulation. See US
Media & Cable: Themes for 2017 from 10 January.
Banks: Finally, we note that the disruptive risk spread for banks is because of the high
readings for European banks. Our analysts note that risk from fintech and regulation
are the key drivers for this.
Diversified financials: Our diversified financial analysts in the US and Europe (Craig
Siegenthaler, Tom Mills and Martin Price) highlight the ETF vehicle as a global
disruptor within the financial sector. See Reiterate preference for market infrastructure
vs. asset managers on active-passive theme. Specifically they highlight the following
developments:
ETFs vs. Mutual Funds: They believe there are four clear advantages of the
ETF structure to the mutual fund: (1) tax efficiency (only in US), (2) cost, (3)
liquidity, and (4) transparency. However, underperformance of actives versus
passives (after fees) over the last decade has also tilted the demand from active
to passive, and this has benefited ETFs as passive exists in the ETF vehicle,
while actives do not (active funds tend to have less transparency).
reach over 40% over the next 10 years. So the question for many CEOs is
how can active, traditional, benchmark-relative managers fight back? We think a
non-transparent ETF solution, or a new mutual fund structure with a variable
management fee offer two future options for active managers (both models are
currently seeking approval from the SEC in the US).
Figure 51: Stocks where rankings moved notably higher or lower since our initial publication in March 2016
Technology Technology
Total Global Tightening Global Tightening
Ticker Com pany Sector / Industry / Industry
Change Com petition Regulation Com petition Regulation
4.0 4.0
2016 2017
MYPK3.SA Iochpe-Maxion Capital Goods 3 2 1 1 2 2 3
WMH.L William Hill Consumer Services 3 1 1 2 2 2 3
8572.T ACOM Diversified Financials 3 1 2 1 2 3 2
DG.N Dollar General Retailing 3 1 1 1 1 2 3
DLTR.OQ Dollar Tree Retailing 3 1 1 1 1 2 3
FIVE.OQ Five Below , Inc. Retailing 3 1 1 1 1 2 3
BAES.L BAE Systems Capital Goods -3 2 3 2 1 1 2
002008.SZ Han's Laser Capital Goods -3 3 1 3 2 1 1
CVA.N Covanta Commercial & Prof Svc -3 1 3 3 1 1 2
YUM.N Yum! Brands Consumer Services -3 3 3 1 1 2 1
AIG.N American International Group Insurance -3 3 3 3 2 1 3
DD.N DuPont de Nemours Materials -3 3 2 2 1 1 2
4043.T Tokuyama Materials -3 3 3 2 2 2 1
6239.TW Pow ertech Technology Semi & Semi Equip -3 3 3 2 2 1 2
Source: Company data, Credit Suisse estimates, colour indicates level of change
Sectors where on average we now see greater risk than before include: Retail,
Software, Media and Telcos.
Sector where on average risk is now deemed lower include Semis, Real Estate and
Banks. Notably, lower risk from regulation appears to be a key driver behind these
reduced risk readings. This is partly owing to the inclusion of more NJ-Asia companies
but we would also highlight reduced regulatory concerns from our US banks team.
Figure 52: Cumulative disruptive score by sector: current results vs. our 2016 report
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Pharma Energy Autos Con. Retail Insurance Div. Fin. Staples H/C Eq. Software Media Semis Tech Utilities Telcos Banks Transport Cap. Materials Durables FB&T Bus. Serv. Real H&PG
Serv. Goods Estate
Figure 53: CFROI grouped by exposure to Figure 54: Recent earnings revision activity: higher
disruption: higher risk score = lower CFROI risk score = more substantial CFROI downgrades
14 10Y Median CFROI 2015 CFROI 12m fwd CFROI 26wk CFROI Revisions 13wk CFROI revisions 4wk CFROI revisions
12 0.0
10 -0.1
8 -0.2
6 -0.3
4 -0.4
2 -0.5
0 -0.6
3 4 5 6 7-9 3 4 5 6 7-9
Source: Credit Suisse HOLT, Credit Suisse research Source: Credit Suisse HOLT, Credit Suisse research
Figure 55: Disruptive risk exposure by sector relative to the % change in expected cash flow returns
30%
CFROI: 12mF vs FY0
Above average risk from
disruption, yet CFROIs are
expected to increase Materials
Pharma
20%
Transport
10% Media
Autos Utilities H/C Eq.
Tech Durables H&PG
Con. Serv. Semis Bus. Serv.
0%
Insurance Telcos FB&T Real Estate
Staples
-10% Retail Cap. Goods
Div. Fin. Software
-20%
-30%
Falling CFROI
Energy expectations appear in
-40% line with above average
risk from disruption
Figure 56: Stock screens depending on risk from disruption and degree to
which this risk is reflected in current share prices
Disruptive risk
High Low
We are most cautious on:
Pull-back risk: Low risk from
high risk from disruption is
Too optimistic disruption has already resulted
not reflected in future
in valuation premium.
returns
Figure 57: Market-implied CFROI in line with relative risk scoring. Higher risk
score = lower returns
14 10Y Median CFROI 2015 CFROI 12m fwd CFROI Mkt implied CFROI (T+5)
12
10
0
3 4 5 6 7-9
Figure 58: Share-price-implied CFROI by sector also seems to reflect relative risk
Figure 59: Average conditional probability score Figure 60: Regional conditional probability scores
grouped by disruptive exposure per risk score
50 80
Conditional Probaility
48 J
Companies with the lowest 70
46 perceived risk from disruption Undisruptable
have the biggest valuation and cheap
44 premium 60 NJ-A
42 NJ-A
NJ-A
50 J
40 NJ-A
AM EU AM
38 AM
40 NJ-A EU
36 EU AM
34 30 J EU
Disruptable
EU
32
and expensive
20
30
7-9 6 5 4 3 7-9 6 5 4 3
Disruption Score AM EU NJ-A J
Source: Credit Suisse HOLT, Credit Suisse research Source: Credit Suisse HOLT, Credit Suisse research
Figure 61: Conditional probability by sector relative to their disruptive ranking score
Conditional Probability
70 The market appears too negative
on the future outlook for autos
65
Autos Tech
60
Semis
Materials
55
Utilities
Durables
50
Pharma Telcos
Div. Fin. Transport
45 Energy
Retail Software
These sectors have low
Cap. Goods
40 Staples risk from disruption but
Media that has already been
Con. Serv.
FB&T more than priced into their
35 H/C Eq. share prices
Bus. Serv.
J
J
70
AM J
EU
Value in high risk sectors mostly found in NJ-Asia
NJA
60 AM J
NJA
NJA EU J
NJA
NJA EU
EU J
J J
J NJA AM
50 EU
AM EU AM NJA
EU
AM NJA
NJA AM NJA NJA
EU AM
AM AM EU
EU EU AM
AM NJA NJA EU
AM AM EU EU NJA
40
NJA EU NJA
AM EU NJA
AM AM
NJA J
EU NJA AM
EU EU
AM
J
30 EU J AM
JNJA NJA
EU
Source: Company data, Credit Suisse estimates. Note: Insurance and Banks not included as no Conditional Probability calculations are available for these sectors
24 January 2017
35
24 January 2017
Key stocks
Finally, we determine by sector and region the key stocks that we would recommend
owning and avoiding against the background of both exposure to disruption and current
valuation levels. More specifically, the following pages highlight stocks that fall in one of
the following four categories:
Disruptables
Disruptables to avoid 7-9 < 50% Positive At high risk from disruption and expensive
Beware:
- Rebound potential 7-9 > 50% Negative High risk from disruption already more than priced in
'Undisruptable' companies
Of the companies with a low disruptive score (3 or 4), we would recommend owning those
that have a conditional probability of more than 50% and a moderate to negative fade in
CFROI implied by the current share price (i.e. future returns are expected to fall relative to
history which, given the low risk from disruption, appears too negative).
Stocks with low risk from disruption to avoid are those where the market is already pricing
in a too aggressive improvement in CFROI. These stocks may have little to fear from
disruption, but their share prices carry a risk of a pull-back.
'Disruptable' companies
Of the companies with a high risk from disruption (score of 7 to 9) we would be most
cautious on those where the market is pricing in a too optimistic CFROI profile. In other
words, those with a conditional probability of less than 50% and a positive CFROI fade.
Investors should be careful about reducing exposure to all companies with high risk from
disruption as share prices for those that have a high conditional probability and too
negative fade in CFROI priced in already may rebound.
Disruptables
Disruptables to avoid 7 13 4 6
Beware:
- Rebound potential 1 11 2 4
Source: Credit Suisse research
Figure 65: Our 25 'Undisruptables': Low disruption, high conditional probability and above-average quality
and momentum stocks
Technology Market CFROI 10
Total Risk Global Tightening CFROI 5 yr Fw d Cond.
Ticker / Industry Com pany Cap (USD Country Industry (shortened) Rating year Quality Mom entum Valuation
Score Com petition Regulation 12m Fw d CFROI Prob.
4.0 bn) m edian
Europe
DLGS.DE 4 2 1 1 Dialog Semiconductor 3.4 DE Semis O 13.71 14.46 6.41 96 78 79 87
RB.L 3 1 1 1 Reckitt Benckiser 57.7 GB Household & Personal O 49.88 56.72 43.56 56 81 86 45
JE.L 4 2 1 1 Just Eat 4.5 GB Software & Services O 0.00 41.79 23.49 50 87 70 51
LSE.L 4 1 2 1 London Stock Exchange 12.5 GB Diversified Financials O 46.03 24.60 17.62 51 71 68 32
ORAN.PA 4 1 1 2 Orange 41.3 FR Telecom O 8.44 5.84 4.95 62 52 74 81
North America
AJG.N 4 1 1 2 Arthur J. Gallagher & Co. 9.3 US Insurance O 23.70 26.98 10.75 83 95 70 88
LUN.TO 3 1 1 1 Lundin Mining 4.3 CA Materials O 4.37 6.12 0.31 82 57 95 88
CELG.OQ 4 2 1 1 Celgene 90.9 US Pharma O 20.53 21.74 9.14 76 86 77 83
VNTV.N 4 2 1 1 Vantiv 12.2 US Software & Services O 0.00 48.72 28.40 73 77 76 43
AET.N 4 1 1 2 Aetna 43.0 US HC Equipment & Svc O 23.72 20.72 10.54 72 62 52 98
COMM.OQ 4 2 1 1 CommScope 7.2 US Tech Hardware O 18.78 25.16 12.61 69 73 90 84
ANET.N 4 2 1 1 Arista Networks 7.0 US Tech Hardware O 0.00 17.37 8.27 67 87 86 66
UNH.N 4 1 1 2 UnitedHealth 154.1 US HC Equipment & Svc O 30.62 32.26 21.29 55 90 95 78
Non-Japan Asia
600066.SS 4 1 1 2 Zhengzhou Yutong Bus 6.1 CN Capital Goods O 15.10 17.92 3.21 98 99 35 99
PPL.KA 4 1 1 2 Pakistan Petroleum 3.4 PK Energy O 16.05 7.31 1.33 90 84 79 85
0338.HK 4 1 1 2 Sinopec Shanghai Petrochemical 9.2 CN Materials O -0.20 7.71 4.55 79 82 76 87
002508.SZ 4 1 2 1 Hangzhou Robam Appliances 4.0 CN Cons Durables & Apparel O 0.00 28.72 16.44 62 98 98 70
0914.HK 3 1 1 1 Anhui Conch Cement 14.1 CN Materials O 11.18 8.96 5.15 69 67 72 91
0014.HK 3 1 1 1 Hysan Development 4.7 HK Real Estate O 2.87 3.20 2.33 100 78 87
1193.HK 3 1 1 1 China Resources Gas 7.2 CN Utilities O 9.16 14.30 10.30 59 98 53 51
Japan
1928.T 4 1 1 2 Sekisui House 11.7 JP Cons Durables & Apparel O 4.82 6.16 3.79 69 65 66 90
1801.T 4 1 1 2 Taisei 8.3 JP Capital Goods O 3.49 8.67 5.89 60 82 77 80
4217.T 4 2 1 1 Hitachi Chemical 5.5 JP Materials O 2.83 2.65 2.16 70 62 75 25
6981.T 3 1 1 1 Murata Manufacturing 28.1 JP Tech Hardware O 4.45 7.61 5.94 54 75 56 56
8303.T 3 1 1 1 Shinsei Bank 4.5 JP Banks O 5.81 5.12 4.87 69 51 60
Source: Credit Suisse research, Credit Suisse HOLT Source: Credit Suisse research, Credit Suisse HOLT
Figure 68: Our 20 'Disruptables': High disruption, low conditional probability and below-average-quality
stocks
Technology Market CFROI 10
Total Risk Global Tightening CFROI 5 yr Fw d Cond.
Ticker / Industry Com pany Cap (USD Country Industry (shortened) Rating year Quality Mom entum Valuation
Score Com petition Regulation 12m Fw d CFROI Prob.
4.0 bn) m edian
Europe
SN.L 7 3 2 2 Smith & Nephew 13.1 GB HC Equipment & Svc N 12.51 7.28 14.10 9 44 14 18
AZN.L 7 3 2 2 AstraZeneca 70.6 GB Pharma U 13.53 2.46 6.44 34 18 26 38
WLN.PA 7 2 2 3 Worldline 3.6 FR Software & Services N na 13.40 14.91 25 21 46 25
SPMI.MI 8 2 3 3 Saipem 5.6 IT Energy N 6.70 1.87 4.63 34 6 22 25
PSON.L 8 2 3 3 Pearson 8.2 GB Media U 12.92 9.34 11.21 30 38 43 55
Americas
NFLX.OQ 7 3 3 1 Netflix 56.0 US Retailing N 13.32 6.80 13.98 3 30 85 0
SGEN.OQ 9 3 3 3 Seattle Genetics 7.9 US Pharma N 3.83 4.44 10.29 3 19 94 4
FAL.SN 7 3 3 1 Falabella 19.0 CL Retailing U 9.41 6.92 11.14 9 30 46 14
CCU.SN 7 3 1 3 Compaia Cervecerias Unidas 3.9 CL Food, Bev & Tobacco U 10.70 7.97 8.46 47 40 11 75
VET.TO 8 3 3 2 Vermilion Energy 5.0 CA Energy N na na na 11 49 31 29
NJ-Asia
GLPL.SI 7 3 1 3 Global Logistic Properties 8.9 SG Real Estate U na 3.29 6.20 46 44 6
0981.HK 7 3 1 3 5.9
Semiconductor Manufacturing International Corp. CN Semis N na na na 0 93 16
035720.KQ 7 2 3 2 Kakao 4.7 KR Software & Services U 0.00 20.13 20.19 12 33 0 2
0293.HK 7 3 2 2 Cathay Pacific 5.3 HK Transports U 4.20 1.16 5.16 32 33 4 12
0991.HK 7 1 3 3 Datang International Power Generation 6.6 CN Utilities U 2.51 1.94 5.07 35 2 11 8
MINT.BK 9 3 3 3 Minor International 4.5 TH Consumer Svc N 7.00 6.53 7.20 29 39 37 26
Japan
8729.T 7 2 2 3 Sony Financial 6.9 JP Insurance N 11.70 7.92 13.37 10 52 24
4523.T 9 3 3 3 Eisai 16.4 JP Pharma U 9.08 0.79 5.38 29 14 68 33
8604.T 7 3 2 2 Nomura 21.2 JP Diversified Financials N 3.13 5.87 8.73 36 98 30
8570.T 7 2 3 2 Aeon Financial Service 3.9 JP Diversified Financials N 9.01 10.19 12.05 49 4 36
Figure 69: Disruptive scoring vs conditional Figure 70: Quality and Momentum score for high-
probability risk and below-average conditional probability
50
CCU.SN
45
Conditional Probability
40
0991.HK
8570.T
35 SPMI.MI AZN.L
0293.HK
MINT.BK PSON.L
30 8604.T
4523.T
25 WLN.PA
8729.T
20
0981.HK
15
VET.TO 035720.KQ
10 FAL.SN
SN.L
GLPL.SI
5
SGEN.OQ NFLX.OQ
0
9 8.8 8.6 8.4 8.2 8 7.8 7.6 7.4 7.2 7
Disruptable
Source: Credit Suisse research, Credit Suisse HOLT Source: Credit Suisse research, Credit Suisse HOLT
Performance overview
We have been tracking the performance of the stocks that were selected as part of our
disruption work to date (e.g. Disruption and share price performance). This suggests
the market has rewarded cheap companies with low risk from disruption relative to those
that are at above-average risk and appear expensive (Figure 71 and Figure 72).
Figure 71: Cheap 'Undisruptables' have Figure 72: Expensive 'Disruptables' have
outperformed MSCI AC World by c320bps since underperformed MSCI AC World by c660bps since
April 2016 April 2016
Return profile of 10 most attractive 'Undisruptables' as reported in Return profile of 10 least attractive 'Disruptables' as reported in
previous publications previous publications
115 110
Cheap undisruptable MSCI World 111.5 Expensive disruptable MSCI World
108 108.3
110 106
104
108.3
105 102 101.7
100
100 98
96
95 94
92
90 90
Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17
Past performance should not be taken as an indication or guarantee of future performance. Past performance should not be taken as an indication or guarantee of future performance.
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
In this report, we have not only expanded our universe to c2,700 stocks but have also
tightened our filtering criteria in order to keep our most and least preferred stocks to a
manageable number. While historical returns obviously provide no guarantee whatsoever
as regards to future returns, Figure 73 indicates that our new list of 25 'Undisruptables' has
recently outperformed our screen of 20 'Disruptables'. The former also outperformed
cheap, high quality & momentum non-undisruptables, suggesting that the degree of
disruption has become a relevant factor.
1.2 15%
13%
1.1 5%
1.0
0.9
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Americas
Figure 75: Key stocks in the Americas: ranked within category by z-score
Technology Market CFROI 10
Total Risk Global Tightening CFROI 5 yr Fw d Cond.
Ticker / Industry Com pany Cap (USD Country Industry (shortened) Rating year Quality Mom entum Valuation
Score Com petition Regulation 12m Fw d CFROI Prob.
4.0 bn) m edian
Non-Japan Asia
Figure 76: Non-Japan Asian stocks by category: ranked by z-score
Technology Market CFROI 10
Total Risk Global Tightening CFROI 5 yr Fw d Cond.
Ticker / Industry Com pany Cap (USD Country Industry (shortened) Rating year Quality Mom entum Valuation
Score Com petition Regulation 12m Fw d CFROI Prob.
4.0 bn) m edian
Japan
Figure 77: Japanese stocks by category: ranked by z-score
Technology Market CFROI 10
Total Risk Global Tightening CFROI 5 yr Fw d Cond.
Ticker / Industry Com pany Cap (USD Country Industry (shortened) Rating year Quality Mom entum Valuation
Score Com petition Regulation 12m Fw d CFROI Prob.
4.0 bn) m edian
Figure 78: Small-cap global stocks with relatively low disruptive risk, high conditional probability, high
quality and high momentum
Technolo Tighteni
Total Global Market CFROI 10
gy / ng CFROI 5 yr Fwd Cond. Momentu
Ticker Risk Competit Company Cap Country Industry (shortened) Rating year Quality Valuation
Industry Regulati 12mFwd CFROI Prob. m
Score ion (USD bn) median
4.0 on
Europe
ZPLAZ.L 4 2 1 1 Zoopla Property 1.7 GB Software & Services O 0.00 60.96 31.88 73 98 86 6
Americas
INCR.OQ 4 2 1 1 INC Research 2.7 US Pharma O 0.00 46.00 25.10 77 75 82 77
FII.N 4 2 1 1 Federated Investors 2.8 US Diversified Financials N 58.79 40.30 22.56 73 89 50 75
ALRM.OQ 3 1 1 1 Alarm.com Holdings Inc. 1.3 US Software & Services O 0.00 13.04 7.75 52 94 86 50
ALJ.N 4 1 2 1 Alon USA Energy, Inc. 0.8 US Energy O 7.71 4.85 4.42 70 88 55 87
RENT3.SA 3 1 1 1 Localiza 2.4 BR Transports N 13.13 11.00 9.24 62 68 94 70
MEGACPO.MX 3 1 1 1 Megacable 2.5 MX Media O 14.16 11.37 8.23 54 74 79 69
NJ-Asia
2186.HK 4 1 1 2 Luye Pharma Group Ltd. 2.1 CN Pharma O 0.00 0.00 0.00 64 65 65 88
CYOU.OQ 4 2 1 1 Changyou 1.3 CN Software & Services N 35.73 6.70 -2.27 87 67 90 95
AQZ.AX 3 1 1 1 Alliance Aviation 0.1 AU Transports O 0.00 6.87 1.38 89 66 72 100
PDNI.KL 4 2 1 1 Padini Holdings Berhad 0.4 MY Retailing O 12.60 12.57 6.71 84 87 63 86
SDF.AX 3 1 1 1 Steadfast 1.3 AU Insurance O 0.00 35.30 22.32 71 100 61 68
TEDU.OQ 4 1 2 1 Tarena International, Inc. 0.9 CN Consumer Svc O 0.00 13.91 5.58 69 82 99 75
CBPO.OQ 3 1 1 1 CN Biologic Prod 2.9 CN Pharma O 27.22 21.43 12.23 56 99 74 68
012630.KS 4 1 1 2 Hyundai Development 2.9 KR Capital Goods O 3.93 9.67 7.52 58 56 86 77
3669.HK 4 1 2 1 China Yongda Automobiles Svc
1.0 CN Retailing O 0.00 9.47 7.10 54 57 68 90
Japan
6256.T 3 1 1 1 NuFlare Technology 0.8 JP Semis N 0.00 9.58 3.26 90 77 58 98
7729.T 3 1 1 1 Tokyo Seimitsu 1.3 JP Semis N 9.20 8.24 6.21 67 67 78 83
6920.T 4 2 1 1 Lasertec 0.5 JP Semis N 9.11 11.89 9.91 53 88 53 66
Figure 79: Small-cap global stocks with relatively high disruptive risk, low conditional probability and low
quality
Technolog
Global Market CFROI 10
Total Risk y/ Tightening CFROI 5 yr Fw d
Ticker Com petiti Com pany Cap (USD Country Industry (shortened) Rating year Cond. Prob. Quality Mom entum Valuation e-Cap Z-score
Score Industry Regulation 12m Fw d CFROI
on bn) m edian
4.0
Americas
CSOD.OQ 7 3 2 2 Cornerstone OnDemand 2.3 US Software & Services N 0.00 6.32 16.06 1 12 49 4 0 -1.8
P.N 7 3 3 1 Pandora Media 3.0 US Software & Services N 0.00 -0.01 10.73 2 21 18 3 0 -1.8
REXX.OQ 7 1 3 3 Rex Energy 0.1 US Energy U 0.62 -0.01 7.15 11 7 29 5 0 -1.6
ZOES.N 7 3 2 2 Zoe's Kitchen 0.4 US Consumer Svc U 0.00 4.26 7.35 14 30 34 4 0 -1.3
NDLS.OQ 7 3 2 2 Noodles & Company 0.1 US Consumer Svc N 0.00 1.26 5.88 23 6 9 3 0 -1.2
SPWR.OQ 8 3 3 2 SunPower 1.0 US Semis N 6.08 -0.01 5.28 32 5 8 14 0 -1.0
YGE.N 8 3 3 2 Yingli Green 0.1 US Semis U 7.78 3.62 7.97 35 22 8 14 0 -0.8
PPY.TO 8 3 3 2 Painted Pony Petroleum 0.6 CA Energy N 0.00 2.39 3.71 26 12 32 38 0 -0.8
GFAMSAA.MX 7 3 3 1 Grupo Famsa 0.2 MX Retailing N 6.76 5.84 6.33 36 38 5 51 0 -0.4
Europe
GEPH.PA 8 3 2 3 CGG 0.2 FR Energy U 3.40 -0.01 3.69 42 42 12 31 0 -0.6
Japan
4552.T 9 3 3 3 JCR Pharma 0.8 JP Pharma N 4.57 5.85 9.05 14 35 49 24 0 -1.3
Disclosure Appendix
Analyst Certification
The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views
expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Hyundai Development (012630.KS)
012630.KS Closing Price Target Price Target Price Closing Price 012630.KS
Date (W) (W) Rating 95,000
04-Feb-14 23,650 30,000 O
23-Apr-14 30,500 35,000
25-Jul-14 37,100 45,000 70,000
033780.KS Closing Price Target Price Target Price Closing Price 033780.KS
Date (W) (W) Rating 150,000
17-Apr-14 81,100 72,000 U
17-Jul-14 94,500 88,000 130,000
22-Jan-15 78,400 88,000 N
24-Apr-15 94,900 100,000 110,000
28-Mar-16 108,500 107,000
21-Apr-16 119,000 143,000 O 90,000
U N D ERPERFO RM
N EU T RA L
O U T PERFO RM
035720.KQ Closing Price Target Price Target Price Closing Price 035720.KQ
Date (W) (W) Rating 260,000
20-Jun-14 101,300 125,000 O
30-Jul-14 130,800 150,000 210,000
06-Oct-14 154,800 220,000
10-Nov-14 139,300 200,000 160,000
13-Feb-15 141,200 175,000
20-Mar-15 121,000 110,000 N 110,000
036570.KS Closing Price Target Price Target Price Closing Price 036570.KS
Date (W) (W) Rating 370,000
21-Jan-14 210,500 300,000 O
14-Mar-14 215,000 290,000 320,000
001800.KS Closing Price Target Price Target Price Closing Price 001800.KS
Date (W) (W) Rating 1,860,000
13-Mar-14 881,000 1,140,000 O
18-May-15 1,311,000 1,650,000 1,610,000
O U T PERFO RM
N EU T RA L
018260.KS Closing Price Target Price Target Price Closing Price 018260.KS
Date (W) (W) Rating 520,000
25-Nov-14 428,000 470,000 O*
27-Jan-15 242,000 270,000 N 420,000
01-May-15 256,000 220,000 U
29-Oct-15 275,000 200,000 320,000
22-Jan-16 259,500 180,000
28-Apr-16 168,000 130,000 220,000
O U T PERFO RM
N EU T RA L
U N D ERPERFO RM
3-Year Price and Rating History for Seoul Semiconductor Co Ltd (046890.KQ)
046890.KQ Closing Price Target Price Target Price Closing Price 046890.KQ
Date (W) (W) Rating 60,000
13-Feb-14 44,550 53,000 O
30-Jul-14 34,000 37,000 N 50,000
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts stock rating are defined as follows:
Outperform (O) : The stocks total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stocks total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stocks total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stocks total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings
are based on a stocks total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian
ratings were based on (1) a stocks absolute total return potential to its current share price and (2) the relative attractiveness of a stocks total return potential within
an analysts coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An
Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned
where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18
May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July
2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the
company at this time.
Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment
view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts sector weightings are distinct from analysts stock ratings and are based on the analysts expectations for the fundamentals and/or
valuation of the sector* relative to the groups historic fundamentals and/or valuation:
Overweight : The analysts expectation for the sectors fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analysts expectation for the sectors fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analysts expectation for the sectors fundamentals and/or valuation is cautious over the next 12 months.
*An analysts coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 45% (64% banking clients)
Neutral/Hold* 38% (60% banking clients)
Underperform/Sell* 15% (54% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Important Global Disclosures
Credit Suisses research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products
may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made
available through CS PLUS. The services provided by Credit Suisses analysts to clients may depend on a specific clients preferences regarding the
frequency and manner of receiving communications, the clients risk profile and investment, the size and scope of the overall client relationship with
the Firm, as well as legal and regulatory constraints. To access all of Credit Suisses research that you are entitled to receive in the most timely
manner, please contact your sales representative or go to https://plus.credit-suisse.com .
Credit Suisses policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer
to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-
analytics/disclaimer/managing_conflicts_disclaimer.html .
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer
to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research:
See the Companies Mentioned section for full company names
The subject company (000333.SZ, LALAB.MX, WLN.PA, VMI.N, 0451.HK, PNR.N, EMAM.BO, UNH.N, 0293.HK, CACT.SI, RLOG3.SA, ICPT.OQ,
LPI.N, CBPO.OQ, HLBB.KL, 1798.HK, HFC.N, SNCR.OQ, 0817.HK, DKS.N, APPS.MC, GFAMSAA.MX, ALXN.OQ, DOV.N, NEST.BO, AXAF.PA,
MA.N, BCEI.N, 8303.T, 1033.HK, SNHG.F, RGC.N, 0152.HK, 1299.HK, ECA.N, CTAX3.SA, COMM.OQ, FNV.N, HBOR3.SA, 6951.T, VAH.AX,
PPL.KA, PARC3.SA, INCR.OQ, 2778.HK, AET.N, KPN.AS, WCC.N, GPOR.OQ, ANET.N, 2777.HK, ELEMENT.MX, 4217.T, TEDU.OQ, SVT.L,
RB.L, CCU.SN, WDR.N, 0853.HK, LSE.L, CARLb.CO, 0991.HK, EVR.N, CR.TO, SN.N, SN.L, MERL.L, LEJU.N, ALRM.OQ, BIRD.JK, K.N,
SPWR.OQ, SPMI.MI, DD.N, KO.N, PBR.N, CTSH.OQ, PMO.L, AGL.MI, SGEN.OQ, CWD.L, VATE.BO, KALU.OQ, 7729.T, SFUN.N, 018260.KS,
DUFN.S, 1136.HK, CSOD.OQ, SOHU.OQ, MB.OQ, IMI.CN, 0338.HK, 6756.T, 1918.HK, GLPL.SI, BURL.N, MNDI.L, JUP.L, ORAN.PA, 2600.HK,
VONN.S, 8591.T, ZPLAZ.L, OIBR4.SA, ABC.N, NAB.AX, TSO.N, VNTV.N, HBM.TO, O2Dn.DE, GOLF.N, MOGa.N, CYOU.OQ, CNK.N, 8604.T,
WRB.N, REXX.OQ, IMO.TO, 001800.KS, KEPL.SI, CAIL.BO, PCLN.OQ, GLOW.BK, HDFr.AT, SERV.N, SANB11.SA, CBA.AX, FLOW.AS,
HLAG.DE, VALN.S, AZN.L, 1109.HK, 6315.T, PSON.L, OXY.N, PVH.N, 046890.KQ, SILO.JK, 012630.KS, VRNT.OQ, SKS.L, 1114.HK, MANU.N,
8750.T, MEGACPO.MX, QUB.AX, 0861.HK, PAY.N, PEGI.OQ, DISH.OQ, LUN.TO, EOG.N, 2186.HK, TCSA3.SA, REGN.OQ, ELIOR.PA, MINT.BK,
AB.N, GEPH.PA, 3836.HK, MMS.AX, SRPT.OQ, SIIC.SI, TDG.N, CEN.SN, 0268.HK, CNV.OQ, 2007.HK, HSO.AX, 3673.TW, YGE.N, PBF.N,
3034.TW, SRP.L, POU.TO, AMZN.OQ, CRZO.OQ, WSKT.JK, RSG.N, SUNT.SI, BNP.TO, 1363.HK, BLK.N, G24n.DE, 0182.HK, 8729.T, OAS.N,
MTLS.OQ, CK.BK, HII.N, WWD.OQ, CELG.OQ, 1898.HK, SWN.N, 1065.HK, 0636.HK, 2801.T, 2897.T, 3333.HK, 4555.T, CAH.N, EPE.N, ETL.PA,
FDC.N, PPG.N, SCMN.S, SOL.N, WB.OQ, 0700.HK, 3888.HK, 1530.HK, 1816.HK, 2196.HK, 600196.SS, NVDA.OQ, BMY.N, LLY.N, AMKR.OQ,
GE.N, CAR.OQ, HON.N, MS.N, XOM.N, NXEO.OQ, KBR.N, CIE.N, GME.N, HPE.N, IBM.N, AAPL.OQ, MU.OQ, QCOM.OQ, WMT.N, TGT.N,
ICAG.L, VOD.L, WPP.L, SUBC.OL, EZJ.L, RBS.L, ASOS.L, BT.L, RPC.L, DC.L, BAES.L, WMH.L, D.N, AIG.N, 8572.T, FIVE.OQ) currently is, or
was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (EMAM.BO, UNH.N, CACT.SI, ICPT.OQ, LPI.N, 1798.HK, SNCR.OQ,
0817.HK, APPS.MC, DOV.N, NEST.BO, AXAF.PA, RGC.N, 1299.HK, ECA.N, COMM.OQ, FNV.N, VAH.AX, PPL.KA, PARC3.SA, INCR.OQ, AET.N,
KPN.AS, WCC.N, GPOR.OQ, TEDU.OQ, MERL.L, LEJU.N, BIRD.JK, K.N, SPWR.OQ, SPMI.MI, DD.N, KO.N, CTSH.OQ, VATE.BO, SFUN.N,
DUFN.S, 1136.HK, MB.OQ, IMI.CN, BURL.N, ZPLAZ.L, ABC.N, NAB.AX, TSO.N, VNTV.N, GOLF.N, WRB.N, IMO.TO, GLOW.BK, SERV.N,
SANB11.SA, CBA.AX, HLAG.DE, VALN.S, OXY.N, SILO.JK, 012630.KS, 1114.HK, 0861.HK, DISH.OQ, 2186.HK, MINT.BK, AB.N, GEPH.PA,
3836.HK, SRPT.OQ, SIIC.SI, TDG.N, CNV.OQ, YGE.N, PBF.N, CRZO.OQ, 1363.HK, BLK.N, G24n.DE, 0182.HK, OAS.N, HII.N, CELG.OQ,
1898.HK, SWN.N, 1065.HK, 2897.T, 3333.HK, EPE.N, FDC.N, PPG.N, SCMN.S, WB.OQ, 3888.HK, BMY.N, LLY.N, GE.N, CAR.OQ, MS.N, XOM.N,
HPE.N, IBM.N, AAPL.OQ, MU.OQ, QCOM.OQ, WMT.N, RBS.L, ASOS.L, DC.L, D.N, AIG.N, 8572.T, FIVE.OQ) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (000333.SZ, UNH.N, AXAF.PA, 8303.T, AET.N, WDR.N, KO.N,
ABC.N, NAB.AX, VNTV.N, 8604.T, 001800.KS, CBA.AX, 8750.T, REGN.OQ, AB.N, RSG.N, BLK.N, CELG.OQ, FDC.N, PPG.N, GE.N, MS.N,
XOM.N, IBM.N, RBS.L) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (UNH.N, ICPT.OQ, LPI.N, 1798.HK, APPS.MC,
NEST.BO, 1299.HK, ECA.N, COMM.OQ, FNV.N, INCR.OQ, AET.N, KPN.AS, WCC.N, GPOR.OQ, MERL.L, SPWR.OQ, KO.N, BURL.N, NAB.AX,
GOLF.N, WRB.N, IMO.TO, SANB11.SA, CBA.AX, HLAG.DE, SILO.JK, 2186.HK, GEPH.PA, SRPT.OQ, TDG.N, PBF.N, BLK.N, OAS.N, HII.N,
SWN.N, FDC.N, SCMN.S, LLY.N, GE.N, MS.N, XOM.N, MU.OQ, RBS.L, DC.L, D.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (EMAM.BO, UNH.N, CACT.SI, ICPT.OQ, LPI.N,
1798.HK, SNCR.OQ, 0817.HK, APPS.MC, DOV.N, NEST.BO, AXAF.PA, RGC.N, 1299.HK, ECA.N, COMM.OQ, FNV.N, VAH.AX, PPL.KA,
PARC3.SA, INCR.OQ, AET.N, KPN.AS, WCC.N, GPOR.OQ, TEDU.OQ, MERL.L, LEJU.N, BIRD.JK, K.N, SPWR.OQ, SPMI.MI, DD.N, KO.N,
CTSH.OQ, VATE.BO, SFUN.N, DUFN.S, 1136.HK, MB.OQ, IMI.CN, BURL.N, ZPLAZ.L, ABC.N, NAB.AX, TSO.N, VNTV.N, GOLF.N, WRB.N,
IMO.TO, GLOW.BK, SERV.N, SANB11.SA, CBA.AX, HLAG.DE, VALN.S, OXY.N, SILO.JK, 012630.KS, 1114.HK, 0861.HK, DISH.OQ, 2186.HK,
MINT.BK, AB.N, GEPH.PA, 3836.HK, SRPT.OQ, SIIC.SI, TDG.N, CNV.OQ, YGE.N, PBF.N, CRZO.OQ, 1363.HK, BLK.N, G24n.DE, 0182.HK,
OAS.N, HII.N, CELG.OQ, 1898.HK, SWN.N, 1065.HK, 2897.T, 3333.HK, EPE.N, FDC.N, PPG.N, SCMN.S, WB.OQ, 3888.HK, BMY.N, LLY.N,
GE.N, CAR.OQ, MS.N, XOM.N, HPE.N, IBM.N, AAPL.OQ, MU.OQ, QCOM.OQ, WMT.N, RBS.L, ASOS.L, DC.L, D.N, AIG.N, 8572.T, FIVE.OQ)
within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (000333.SZ, LALAB.MX,
033780.KS, WLN.PA, VMI.N, 0451.HK, PNR.N, EMAM.BO, UNH.N, 0293.HK, CACT.SI, PDNI.KL, RLOG3.SA, ICPT.OQ, LPI.N, CBPO.OQ,
BIR.TO, HLBB.KL, 1798.HK, HFC.N, SNCR.OQ, 0817.HK, YHOO.OQ, DKS.N, 6773.T, APPS.MC, GFAMSAA.MX, ALXN.OQ, DOV.N, NEST.BO,
AXAF.PA, MA.N, BCEI.N, SLCE3.SA, 8303.T, 1033.HK, HZNC.BO, SNHG.F, 2912.TW, RGC.N, 0152.HK, 1299.HK, YAZG.SI, ECA.N, CTAX3.SA,
COMM.OQ, FNV.N, HBOR3.SA, VAH.AX, PPL.KA, PARC3.SA, INCR.OQ, 2778.HK, AET.N, KPN.AS, WCC.N, GPOR.OQ, 4540.T, ANET.N,
2777.HK, ELEMENT.MX, 4217.T, TEDU.OQ, SVT.L, RB.L, LREN3.SA, PPY.TO, HPWR.KA, CCU.SN, WDR.N, 0853.HK, LSE.L, CARLb.CO,
0991.HK, EVR.N, 1928.T, CR.TO, SN.N, 0358.HK, 0014.HK, 1293.HK, SN.L, MERL.L, LEJU.N, ALRM.OQ, BIRD.JK, K.N, SPWR.OQ, SPMI.MI,
1193.HK, 036570.KS, DD.N, KO.N, PBR.N, CTSH.OQ, PMO.L, 2314.HK, AGL.MI, SGEN.OQ, CWD.L, VATE.BO, 2348.HK, KALU.OQ, SFUN.N,
018260.KS, FAL.SN, DUFN.S, TWE.AX, 1136.HK, CSOD.OQ, SOHU.OQ, MB.OQ, 0914.HK, IMI.CN, 0338.HK, 6756.T, 1918.HK, BURL.N, MNDI.L,
JUP.L, HBI.N, ORAN.PA, 2688.HK, 2600.HK, VONN.S, 8591.T, ZPLAZ.L, OIBR4.SA, ABC.N, NAB.AX, TSO.N, VNTV.N, 3668.T, HBM.TO,
O2Dn.DE, PUBM.KL, RENT3.SA, GOLF.N, MOGa.N, CYOU.OQ, 6981.T, CNK.N, PETS.OQ, 8604.T, WRB.N, REXX.OQ, SSI.PS, IMO.TO,
KEPL.SI, CAIL.BO, PCLN.OQ, GLOW.BK, HDFr.AT, 0981.HK, SERV.N, SANB11.SA, CBA.AX, P.N, FLOW.AS, HLAG.DE, 0934.HK, VALN.S,
AZN.L, CVA.N, 1109.HK, PSON.L, OXY.N, PVH.N, 046890.KQ, SILO.JK, 2802.T, 012630.KS, UPS.N, VRNT.OQ, 1114.HK, MANU.N, 8750.T,
MEGACPO.MX, QUB.AX, CAG.N, 0861.HK, PAY.N, SHB.L, PEGI.OQ, DISH.OQ, LUN.TO, EOG.N, 2186.HK, TCSA3.SA, 035720.KQ, REGN.OQ,
ELIOR.PA, MINT.BK, AB.N, GEPH.PA, 3836.HK, MMS.AX, SRPT.OQ, SIIC.SI, TDG.N, CEN.SN, 0268.HK, 002242.SZ, CNV.OQ, TET.TO,
2007.HK, HSO.AX, 3673.TW, YGE.N, PBF.N, 3034.TW, SRP.L, POU.TO, AMZN.OQ, ALJ.N, TEL2b.ST, 3008.TW, CRZO.OQ, WSKT.JK, RSG.N,
JBHT.OQ, SUNT.SI, BNP.TO, 1363.HK, BLK.N, G24n.DE, 0182.HK, 8729.T, OAS.N, MTLS.OQ, CK.BK, HII.N, WWD.OQ, CELG.OQ, 1898.HK,
SWN.N, 1065.HK, 0636.HK, 2801.T, 2897.T, 3333.HK, 3289.T, 4523.T, 4912.T, 4555.T, CAH.N, EPE.N, ETL.PA, FDC.N, PCAR4.SA, PPG.N,
SCMN.S, SOL.N, V.N, LEA.N, WB.OQ, 0700.HK, 2382.HK, 3888.HK, 300124.SZ, 1530.HK, 1816.HK, 2196.HK, 002415.SZ, 0732.HK, 1072.HK,
600196.SS, 1211.HK, NVDA.OQ, BMY.N, LLY.N, AMKR.OQ, GE.N, CAR.OQ, HON.N, MS.N, XOM.N, NXEO.OQ, KBR.N, CIE.N, GME.N, HPE.N,
IBM.N, AAPL.OQ, MU.OQ, QCOM.OQ, WMT.N, KR.N, RAD.N, CVS.N, TGT.N, COST.OQ, DG.N, SBRY.L, ICAG.L, VOD.L, WPP.L, EZJ.L,
TSCO.L, RBS.L, ASOS.L, BT.L, RPC.L, DC.L, 002008.SZ, BAES.L, MYPK3.SA, WMH.L, YUM.N, D.N, AIG.N, 4043.T, 8572.T, FIVE.OQ, 6239.TW)
within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (000333.SZ,
UNH.N, AXAF.PA, 8303.T, AET.N, WDR.N, KO.N, ABC.N, NAB.AX, VNTV.N, 8604.T, 001800.KS, CBA.AX, 8750.T, REGN.OQ, AB.N, RSG.N,
BLK.N, CELG.OQ, FDC.N, PPG.N, GE.N, MS.N, XOM.N, IBM.N, RBS.L) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (GPOR.OQ, TSO.N, P.N, SRPT.OQ, D.N).
Credit Suisse may have interest in (PDNI.KL, HLBB.KL, PUBM.KL, GAMU.KL)
Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India
(Research Analysts) Regulations, 2014
Credit Suisse may have interest in (EMAM.BO, NEST.BO, HZNC.BO, VATE.BO, CAIL.BO)
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (UNH.N, RLOG3.SA,
SLCE3.SA, 8303.T, 2912.TW, DLGS.DE, 2777.HK, SVT.L, LSE.L, CTSH.OQ, 3377.HK, CSOD.OQ, VONN.S, TSO.N, 0981.HK, P.N, 3702.TW,
VALN.S, 0268.HK, TET.TO, HSO.AX, 3673.TW, 3034.TW, ALJ.N, SUNT.SI, 2347.TW, FDC.N, PCAR4.SA, SUBC.OL, EZJ.L, RPC.L, 6239.TW).
As of the end of the preceding month, Credit Suisse beneficially own between 1-3% of a class of common equity securities of (DUFN.S, SCMN.S).
Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (033780.KS, DLGS.DE, 036570.KS,
018260.KS, 3377.HK, TSO.N, 001800.KS, 012630.KS, TET.TO, HSO.AX, 3008.TW, 002241.SZ).
Credit Suisse has a material conflict of interest with the subject company (DOV.N) . Credit Suisse acted as exclusive financial advisor to Wayne
Fueling Systems in relation to its potential sale to Dover Corp. (DOV).
Credit Suisse has a material conflict of interest with the subject company (1299.HK) . Jack So (IB in HK) is an Independent Non-Exec Director of AIA
(previously was a Non-Executive Director).
Global Equity Themes 56
24 January 2017
Credit Suisse has a material conflict of interest with the subject company (PBR.N) . Andre Natal was formerly employed by Petroleo Brasileiro SA.
within the past 12 months and received compensation from the company during that period. A household member of the research analyst Andre
Natal is employed by Petroleo Brasileiro SA.
Credit Suisse has a material conflict of interest with the subject company (ABC.N) . Credit Suisse is acting as financial adviser to PharMedium
Healthcare Holdings, Inc. in relation to its definitive agreement to be acquired by AmerisourceBergen (ABC).
Credit Suisse has a material conflict of interest with the subject company (VNTV.N) . Credit Suisse acted as lead financial advisor to Vantiv Inc. in
relation to Moneris Solutions Corporation.
Credit Suisse has a material conflict of interest with the subject company (SRP.L) . Sir Roy Gardner, a Senior Advisor of Credit Suisse, is the
Chairman of the Board of Serco Group PLC
Credit Suisse has a material conflict of interest with the subject company (POU.TO) . Credit Suisse is acting as a strategic advisor on Seven
Generations' acquisition of Paramount Resources Ltd's Montney Nest assets.
Credit Suisse has a material conflict of interest with the subject company (PCAR4.SA) . Credit Suisse or its controlled entities, controlling entities, or
entities under common control hold directly or indirectly a relevant participation in the capital stock of the subject company/companies.[PCAR4]. For
purposes of this report, a relevant participation means a participation of 5% or more in a type or class of shares of the capital stock of a company.
Credit Suisse or one of its affiliates is acting as an intermediary in a public offering of securities issued by Brasil Foods or referenced in assets or
receivables of Companhia Brasileira de Distribuicao.
Credit Suisse has a material conflict of interest with the subject company (GE.N) . Credit Suisse is acting as financial advisor to General Electric
Company (GE) in connection with the announced proposed acquisition of certain assets from Alstom S.A. Credit Suisse is acting as exclusive
financial advisors to Capital One Financial in relation to their potential acquisition of General Electric's U.S. Healthcare Finance Unit. Credit Suisse is
acting as a financial advisor to General Electric Co. (GE) in relation to their potential sale of GE Capitals Commercial Distribution Finance, North
American Vendor Finance and Corporate Finance platforms to Wells Fargo & Co. (WFC). Credit Suisse is acting as as financial advisor General
Electric Co. (GE) in relation to their potential sale of GE Capital, Transportation Finance business in the U.S. and Canada to BMO Financial Group
(BMO).
Credit Suisse has a material conflict of interest with the subject company (XOM.N) . Kofi Adjepong-Boateng, a Senior Advisor of Credit Suisse, is a
Senior Advisor to Exxon Mobile (XOM).
Credit Suisse has a material conflict of interest with the subject company (QCOM.OQ) . Credit Suisse is Financial Advisor to NXP Semiconductors
(NXPI.OQ) on their sale to Qualcomm Incorporated (QCOM.OQ).
Credit Suisse has a material conflict of interest with the subject company (WMH.L) . Sir Roy Gardner, a Senior Advisor of Credit Suisse, is an
Independent Non-Executive Director of William Hill (WMH.L)
As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject
company (CVS.N). Training
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Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (ZPLAZ.L, EZJ.L, MRW.L).
The following disclosed European company/ies have estimates that comply with IFRS: (DK.N, AXAF.PA, ECM.L, KPN.AS, SVT.L, RB.L, LSE.L,
CARLb.CO, SN.L, SPMI.MI, PMO.L, DUFN.S, ORAN.PA, 6806.T, AZN.L, PSON.L, UU.L, SRP.L, TEL2b.ST, CAH.N, SCMN.S, BMY.N, XOM.N,
SBRY.L, VOD.L, WPP.L, EZJ.L, MRW.L, TSCO.L, RBS.L, NXT.L, BT.L, DC.L, BAES.L, WMH.L).
The preparation of this report was funded by ASX in accordance with the ASX Equity Research Scheme. This report was prepared by Credit Suisse
and not by ASX. The views expressed in this report do not necessarily reflect the views of ASX. No responsibility or liability is accepted by ASX in
relation to this report.
An analyst involved in the preparation of this report received third party benefits in connection with this research report from the subject company
(CVS.N)
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (UNH.N, ICPT.OQ, LPI.N,
CBPO.OQ, 1798.HK, SNCR.OQ, APPS.MC, NEST.BO, BCEI.N, BTE.TO, SNHG.F, RGC.N, 1299.HK, ECA.N, COMM.OQ, FNV.N, PARC3.SA,
INCR.OQ, AET.N, KPN.AS, WCC.N, GPOR.OQ, ANET.N, ELEMENT.MX, TEDU.OQ, CCU.SN, SN.N, MERL.L, LEJU.N, ALRM.OQ, BIRD.JK,
SPWR.OQ, DD.N, KO.N, DUFN.S, MB.OQ, IMI.CN, 1918.HK, BURL.N, MNDI.L, ZPLAZ.L, OIBR4.SA, ABC.N, NAB.AX, O2Dn.DE, NOS.LS,
GOLF.N, WRB.N, SSI.PS, IMO.TO, KEPL.SI, GLOW.BK, SERV.N, SANB11.SA, CBA.AX, FLOW.AS, HLAG.DE, AZN.L, 046890.KQ, SILO.JK,
012630.KS, VRNT.OQ, EOG.N, 2186.HK, ELIOR.PA, GEPH.PA, 3836.HK, MMS.AX, SRPT.OQ, SIIC.SI, TDG.N, 0268.HK, CNV.OQ, HSO.AX,
PBF.N, CRZO.OQ, BLK.N, OAS.N, MTLS.OQ, HII.N, CELG.OQ, SWN.N, 3333.HK, FDC.N, PPG.N, SCMN.S, WB.OQ, 0700.HK, 3888.HK,
1816.HK, 2196.HK, 1072.HK, 600196.SS, BMY.N, LLY.N, GE.N, MS.N, XOM.N, CIE.N, IBM.N, AAPL.OQ, MU.OQ, WMT.N, RAD.N, RBS.L, DC.L,
D.N, AIG.N) within the past 3 years.
Principal is not guaranteed in the case of equities because equity prices are variable.
Global Equity Themes 57
24 January 2017
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For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai
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PCL (Very Good) , Glow Energy PCL (Good) , Minor International PCL (Excellent) , Ch Karnchang (Excellent)
This research report is authored by:
Credit Suisse International.........................................................................................Eugene Klerk ; Richard Kersley ; Brandon Vair ; Maria Bhatti
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research analyst account.
Credit Suisse International.........................................................................................Eugene Klerk ; Richard Kersley ; Brandon Vair ; Maria Bhatti
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