20111128 - MIIF - DBS Vickers

www.dbsvickers.com Refer to important disclosures at the end of this report ed: MY / sa: JC

BUY S$0.525 STI : 2,677.15 (Re-instating Coverage) Price Target : 12-Month S$ 0.64 Reason for Report : Re-instating Coverage Potential Catalyst: Steady dividend payouts DBSV vs Consensus : Our DPS forecasts are in line with consensus Analyst Suvro SARKAR +65 6398 7973 [email protected]

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M I IF ( L H S ) R e la t iv e S T I IN D E X ( R H S )

Adjusted Income, Distribution and Valuation FY Dec (S$ m) 2010A 2011F 2012F 2013F

Investment Income 45 59 73 75 EBITDA 37 49 62 64 Pre-tax Profit (Adj) 33 46 62 64 Net Profit (Adj) 33 46 62 64 Net Pft (Pre Ex.) 37 49 62 64 EPS (S cts) 2.5 3.6 5.2 5.6 EPS Pre Ex. (S cts) 2.9 3.9 5.2 5.6 EPS Gth (%) (41) 45 44 7 EPS Gth Pre Ex (%) (37) 35 35 7 Diluted EPS (S cts) 2.5 3.6 5.2 5.6 Net DPS (S cts) 3.0 5.5 5.5 5.5 BV Per Share (S cts) 80.2 75.2 70.4 64.2 PE (X) 21.0 14.4 10.0 9.3 PE Pre Ex. (X) 18.3 13.6 10.0 9.3 P/Cash Flow (X) 35.9 nm nm nm EV/EBITDA (X) 8.2 13.7 10.7 9.9 Net Div Yield (%) 5.7 10.5 10.5 10.5 P/Book Value (X) 0.7 0.7 0.7 0.8 Net Debt/Equity (X) CASH CASH 0.0 0.0 ROAE (%) 3.1 4.7 7.2 8.3 Consensus DPS (S cts): 5.5 5.5 5.5 Other Broker Recs: B: 2 S: 0 H: 1 ICB Industry : Financials ICB Sector: Equity Investment Instruments Principal Business: MIIF is an Asia-focused owner and operator of private infrastructure businesses

Source of all data: Company, DBS Vickers, Bloomberg

At A Glance Issued Capital (m shrs) 1,267 Mkt. Cap (S$m/US$m) 665 / 508 Major Shareholders Macquarie Bank (%) 10.5 Abu Dhabi Invest (%) 10.2 Asset Value Investment (%) 7.3 Free Float (%) 61.9 Avg. Daily Vol.(‘000) 2,024

DBS Group Research . Equity 25 Nov 2011

Singapore Company Focus

Macquarie International Infrastructure Fund (MIIF) Bloomberg: MIIF SP | Reuters: MIIF.SI

Revitalised, refocused • Completed transformation into pure Asia-focused

infrastructure asset fund • Organic growth from key assets and investment

of surplus cash should support steady dividends • Dividend yield of 10.5% and TP of S$0.64 implies

total return potential of more than 30% at current prices; reinstate coverage with BUY

Now leaner, fitter and wholly Asia-focused. Over the years, MIIF has divested its non-Asian assets, and repaid corporate level loans with the sale proceeds, rendering a cleaner balance sheet with current net cash of about S$115m. The sale of stakes in other funds also eliminated the black box problem (assets with limited financial visibility) and the fund now focuses purely on key Asian infrastructure assets.

Growth in dividend income expected. MIIF’s three key investments include stakes in i) Taiwan Broadband Communications (TBC), the 3rd largest cable TV network in Taiwan, ii) Hua Nan Expressway (HNE), a 31km urban toll road in Guangzhou, China and iii) Changshu Xinghua Port (CXP), a multipurpose port in the Yangtze River Delta region of China. We visited these assets earlier this year and not only were we impressed by management and operations, but we are fairly confident of steady organic dividend growth from CXP and TBC, though traffic growth at HNE could face some near-term roadblocks. MIIF has also used its surplus cash (from sale of prior investments) to increase its stake in TBC from 20% to 47.5%, which will lead to higher dividend receipts from TBC.

Yield of 10.5% at current prices. MIIF paid out 3Scts dividend in FY10. Post restructuring of its portfolio, MIIF is now guiding for 5.5Scts DPS in FY11, based on expected cash flow generation plus existing cash reserves (2.75Scts already declared for 1H11). We expect this is achievable and given the healthy implied yield of close to 10.5% at current prices, we are reinstating coverage with a BUY call and TP of S$0.64, based on DCF valuation of underlying assets. Share buyback programme in place provides further support to stock price.

Note: The revenue and earnings shown above are on an adjusted basis and represent the earnings of MIIF from its key investments that underpin the dividend flow to shareholders, and are not in accordance with accounting standards.

Company Focus

MIIF

Table of Contents SWOT Analysis 3 Valuation 4 Story of the transformation 6 No immediate balance sheet issues 10 Management and fees 11 Fund strategy and operations 13 Changshu Xinghua Port 14 Taiwan Broadband Communications 19 Hua Nan Expressway 25 Miaoli Wind 32 Financials 34

Company Focus

MIIF

SWOT Analysis

Strengths Weakness • Ultimate manager Macquarie Bank is one of Australia’s top financial services groups, and has a proven track record in developing and acquiring infrastructure assets and packaging these assets into funds for investors • Infrastructure assets will typically be recession-proof and provide stable and predictable cash flows supported by steady underlying demand • No exposure to mature markets • Fully Asia-focused investments; growth is also expected from certain assets in China, in line with GDP and trade growth expectations

• Assets operate in highly regulated environment and tariffs can be fully controlled by government and may not change over long periods • Economic downturns could lead to lower utilisation of some assets like ports • Distributions and valuations subject to exchange rate fluctuations (RMB and NTD vs. SGD) • Minority stakes in certain assets could imply lack of control in deciding the course of distributions • Since the underlying assets are not listed, financial visibility of these assets may be limited for investors

Opportunities Threats • Limited borrowings at corporate level, leaves significant headroom to fund acquisitions • Leverage on the Macquarie Group’s deal flow, expertise and contact network to source for new opportunities

• Rising interest rates could increase interest expenses as well as compress yield spreads and lead to de-rating • Political and regulatory risks in China and Taiwan (risk of lower tariffs in toll road and other utility assets if the governments pursue populist measures during crises or inflationary periods) • Competition from other assets entering in the vicinity of individual assets; e.g. a parallel road or a nearby port

Source: DBS Vickers

Company Focus

MIIF

Valuation We value MIIF at S$0.64 per share. This is based on the sum of DCF valuations of the underlying assets, which will be discussed in greater details in the report, as well as cash holdings of the fund. Owing to the investment fund structure, however, there is some leakage in the form of management fees, which are payable to the fund manager, MIMAL. Despite this, we believe the fund is undervalued at this moment, and current dividend yield of 10.5% looks very attractive, and is at a discount to peer valuations. Sum-of-the-parts valuation for MIIF

Attributable to MIIF DCF Valuation (S$m) Per share (S$)CXP 81.1 0.07HNE 174.5 0.14TBC 502.7 0.41Miaoli 0.0 0.00

Management Fees (79.2) -0.07Holding company cash 100.8 0.08

Total 779.8 0.64

No of shares (m) – end FY 1212.8

Source: DBS Vickers estimates DPUs should be sustainable in FY11/12, initiate with BUY. MIIF management has guided for 5.5Scts annual dividend in FY11, and we believe this level should be sustainable in FY12, given that dividends received from underlying investments should increase, driven by increased deployment of cash in the assets plus organic growth. MIIF also has enough surplus cash at the holding company level to support the dividend payouts to investors as well as buy back its shares – which are trading much below book value – to return capital to shareholders. Dividend inflow and outflow for FY11/12F

S$m FY11F FY12FTBC dividends 29.5 45.3HNE dividends 22.9 20.1CXP dividends 5.5 6.3Miaoli dividends 0.0 0.0Net expenses (11.6) (9.6)

Net cash inflow 46.2 62.1

Gross holding company cash 100.8 71.9 Dividends paid 69.0 64.8DPU (Scts) 5.5 5.5DPU Yield (%) 10.5% 10.5%

Source: DBS Vickers estimates

Share buy back programme provides support. MIIF is currently trading at a discount to the directors’ valuation of MIIF, and at present management believes there are no other imminent acquisition opportunities. At the MIIF Annual General Meeting of April 2011, shareholders approved the renewal of a Share Purchase Mandate that authorises the buy-back of up to 10 per cent of the issued share capital of MIIF. Consequently, MIIF has commenced a partial buy-back of its own shares by way of on-market purchases funded from its cash reserves. The buy-back will be subject to the usual trading restrictions. The continuing programme should help support share price, while increasing trading liquidity and providing investors with an exit option. Since the last mandate in April 2011, MIIF has utilised S$40m of its cash buffer to buy back about 73m shares (6% of share cap). It is authorized to buy back up to 129m shares until the date of the next AGM in April 2012. Monthly trends in MIIF share buybacks in 2011

Source: Company, DBS Vickers Details of share buybacks since last mandate in Apr’11

Date Shares

Purchased Value (S$) Per share

(S$)

Buybacks as a % of mkt

volume Since last mandate 72.9 39.7 0.54 19%Maximum allowed 128.9 % of maximum 56.6%

Source: Company, DBS Vickers

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Company Focus

MIIF

MIIF – peer comparisons Company Price

(S$) Mkt Cap

(US$m)

TP (S$)

Rcmd DPU FY10

DPU FY11

DPU FY12

Yield FY10

Yield FY11

Yield FY12

DPU CAGR

EV/EBITDA FY11

EV/EBITDA FY12

HPH Trust 0.61 5312 0.95 Buy N/A 0.06 0.06 N/A 9.2% 9.8% 6.4% 11.7 11.1 SP Ausnet* 1.195 2597 NR NR 0.08 0.08 0.08 N/A 6.7% 6.8% 0.6% 10.4 9.8 CitySpring* 0.335 390 NR NR 0.04 0.03 0.03 12.1% 9.6% 9.3% -12.6% 13.5 14.0 Average 12.1% 8.5% 8.6% -1.9% 11.9 11.6 MIIF 0.525 493 0.64 Buy 0.03 0.06 0.06 5.7% 10.5% 10.5% 35.4% 13.3 10.5 * Based on consensus figures Source: Bloomberg, DBS Vickers MIIF Dividend Yield Trading Band – currently trading at close to –1 S.D. valuations

Source: Bloomberg, DBS Vickers MIIF has outperformed the STI by about 6% YTD in 2011

Source: Bloomberg, DBS Vickers

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Company Focus

MIIF

Story of the transformation

Macquarie International Investment Fund (MIIF) was the first infrastructure fund to list on the SGX in May 2005, and started off with a global portfolio of infrastructure investments across toll roads, airports, renewable energy, communications infrastructure, broadcast infrastructure, transport infrastructure and aged care infrastructure assets, among others. The underlying assets spread across Canada, US, various European countries, Asia and Australia. Lack of visibility in underlying businesses and high gearing levels impacted past performance. Stakes in other Macquarie Group funds accounted for a significant part of MIIF’s portfolio in the initial stages. These funds were invested in multiple assets across multiple geographies and visibility for each of these assets was limited, thus impacting investor’s ability to project cash flows. The fund also had significant holding company debts, and came under capital structure-related stress during the financial crisis. Now leaner, fitter and wholly Asia-focused. Over the years, MIIF has sold off its investments in non-Asian assets, and repaid corporate level loans with the sale proceeds, rendering a cleaner balance sheet. The sale of stakes in other funds also eliminated the black box problem (assets with limited visibility) and the fund now focuses purely on 4 key Asian infrastructure assets located in China and Taiwan. Steady dividend income. MIIF’s three key investments include stakes in i) Changshu Xinghua Port (CXP), a multi-purpose port in the Yangtze River Delta region of China, ii) Hua Nan Expressway (HNE), a 31km urban toll road in Guangzhou, China and iii) Taiwan Broadband Communications (TBC), the 3rd largest cable TV network in Taiwan. Annual dividends received from these assets are paid out to shareholders net of management fees and other fund expenses. As a result of time differences between dividend declaration by assets and receipts by MIIF, surplus cash or corporate debt facility can be used to finance the dividend on a temporary basis. Any debt drawn will be repaid once the distributions from assets are received. MIIF receives regular distributions from its investments

Asset Frequency of

distribution per annum

Distribution

declaration period

CXP 1 September

HNE 1 September

TBC 2 June, December


Residual cash being deployed to grow and sustain future dividend stream. After divesting its remaining legacy holdings in non-Asian assets in early-2010, MIIF ended FY10 with more than S$400m in net cash reserves. In 1Q11, it announced that it would deploy part of the cash reserves (S$174m) to increase its stake in TBC from 20% to 40% by buying out another shareholder. MIIF has also deployed another S$145m in 2Q11 to subscribe to TBC rights issue, which will bring its stake in TBC up to 47.5%. TBC’s proceeds from rights issue will be used to repay borrowings and refinance debt at TBC level, and change the repayment profile from amortising loan to bullet repayments. With a better capital structure, more cash will be available for distribution from TBC and help ensure sustainability of dividends over the long term. MIIF’s portfolio composition as of end-3Q11

Source: Company, DBS Vickers MIIF’s dividend payment record


Ports10%

Cash12%

Expressways

27%

Communications51%

0.000.501.001.502.002.503.003.504.004.50

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Company Focus

MIIF

A list of MIIF’s investments from IPO to current portfolio

Asset Initial Stake Acquired on Acquisition Value

(S$m) Sold on Sale Value

(S$m) Gain on sale

(S$m) Brussels Airport 3.2% IPO $71.7 Aug-07 $107.9 $36.2 Arqiva 8.7% IPO $176.6 Mar-10 $238.5 ($198.1) Novera Macquarie Renewable Energy (NMRE) 50.0% IPO $63.6 Jan-07 $90.8 $26.5 Macquarie European Infrastructure Fund (MEIF) 6.3% IPO $87.4 Jun-09 $177.4 ($18.0) Macquarie Airports (MAp) 2.2% IPO $156.7 Mar-08 $152.9 ($4.5) Macquarie Communication Infrastructure Group (MCG) 4.8% IPO $150.1 Jul-07 $147.2 ($2.9) Diversified Utility and Energy Trusts (DUET) 4.1% IPO $55.2 Jul-07 $85.2 $30.0 Macquarie Infrastructure Company (MIC) 2.2% IPO $28.1 Jul-07 $37.4 $9.3 Changshu Xinghua Port (CXP) 38.0% Nov-05 $112.3 TanQuid (TSB) 100.0% Nov-05 $90.3 Nov-07 $187.3 $72.9 Canadian Aged Care (CAC) 55.0% Nov-05 $164.9 Mar-10 $88.1 ($87.0) Hua Nan Expressway (HNE) 81.0% Nov-07 $295.7 Taiwan Broadband Communications (TBC) 20.0%* Jul-07 $265.9 Miaoli Wind Co. 100.0% Mar-08 $28.3 * now 47.5% stake with acquisition value of S$479.2m Source: Company, DBS Vickers A sequence of MIIF’s investments and divestments from IPO portfolio to current portfolio

Date Event Jan 2007 Divested entire interest in Novera Macquarie Renewable Energy Apr 2007 Arqiva acquired 100% of National Grid Wireless July 2007 MIIF sells interest in Macquarie Infrastructure Company July 2007 MIIF sells interest in DUET Group July 2007 MIIF acquires 20% interest in Taiwan Broadband Communications Nov 2007 Divestment of interest in Brussels Airport Nov 2007 Divestment of interest in TanQuid Nov 2007 Acquisition of 81% interest in Hua Nan Expressway Mar 2008 MIIF divests stake in Macquarie Airports Mar 2008 Acquisition of stake in Miaoli Wind (formerly known as infraVest Wind Power) May 2008 HNE completes refinancing of debt facilities, with single long-term debt facility of RMB2.8bn Jun 2009 Divested entire interest in MEIF to a number of investors Feb 2010 Disposal of stake in CAC through proposed IPO Mar 2010 Disposal of interest in Arqiva, last remaining non-Asian investment, to three existing shareholders of the

business Source: Company, DBS Vickers

Company Focus

MIIF

Evolution of MIIF’s portfolio composition by individual assets – simpler and more focused portfolio now Source: Company, DBS Vickers Evolution of MIIF’s asset portfolio by geographical location – transformation to a pure Asia-focused play now Source: Company, DBS Vickers

Port folio Composit ion - Dec 2006

Arqiva17%Brussels Airport

7%

DUET4%

MIC2%

CAC10%

MAp11%

TSB9%

CXP

Geographical Spread - Dec 2006

UK36%

Canada10%

Belgium11%

China9%

USA3%

France4%

Sweden1%

Italy1%

Australia13%

Denmark3%

Germany9%

Port folio Composit ion - Sep 2011

CXP10%

Cash12%

HNE27%

TBC51%

Geographical Spread - Sep 2011

12%

China37%

Taiwan51%

Company Focus

MIIF

MIIF’s portfolio valuation and net cash level trends Source: Company, DBS Vickers MIIF’s net book value trend Source: Company, DBS Vickers

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Company Focus

MIIF

No immediate balance sheet issues Asset level borrowings are non-recourse to MIIF. MIIF’s aggregate gearing level (debt/ asset) is about 50%, while the net debt/ equity ratio is about 101%. Compared to normal capital-intensive infrastructure businesses, this level of gearing is quite reasonable, and compares favourably with infrastructure business trusts listed on the SGX. At the individual asset level (excluding Miaoli Wind, where equity has been fully written down), Hua Nan Expressway is the most heavily geared asset, but the loan is amortising and the amortisation profile is set to match the cash flow growth profile of the asset, thus reducing risks to cash flows. MIIF’s aggregate and asset level gearing (debt/ asset)

Equity Net Debt Net Gearing

TBC 498.9 466.8 0.48x

HNE 257.1 419.4 0.62x

CXP 97 27.1 0.22x

Miaoli 0.0 66.7 1.00x

Total 853 980 0.53x

Corporate level cash (114.7)

Total (incl. Cash) 853.0 865.3 0.50x


Few risks to debt covenants. The average Debt Service Coverage Ratio (DSCR) of MIIF’s asset portfolio is safe at 1.7x – ranging from 1.5x at HNE to 2.0x at TBC. Though aggregate net debt to EBITDA of 5.4x is likely at the higher end of the comfortable range, we believe the assets, apart from Miaoli Wind, are unlikely to run into any balance sheet stress anytime soon. The only near term refinancing risk is at Miaoli Wind, but unlikely to impact distributions. Since the asset was acquired by MIIF, wind speeds have been lower than expected and hence, operational performance has disappointed and been on a downtrend. The poor operational performance at Miaoli Wind has been fully reflected in its book valuation, which has been written down fully in FY09. We believe this puts debt refinancing at risk. Miaoli Wind has two debt facilities outstanding, a NT$1.3bn debt facility which is amortising up to 2020, and a NT$465m (~S$20m) facility, which comes up for renewal in December 2012. Given the lower than expected cash flows generated at Miaoli Wind and the subsequent write down of valuations, we believe rolling over debt will be difficult, and MIIF may be forced to either inject capital or divest the assets to pay back creditors. In March 2010, MIIF injected $1.7m into Miaoli Wind to avoid a breach of the debt service cover ratio. If this situation is repeated in future, MIIF may be required to put in further equity, funded by its cash reserves. Management is also looking for opportunities to sell the asset at reasonable valuations.

MIIF’s aggregate and asset level gearing (debt/ asset)

Business Level Borrowings Debt Drawn Maturity Date Repayment Profile % Hedged DSCR CXP A RMB180m Jul 2014 Bullet N/A 1.7x CXP B RMB200m Apr 2017 Bullet; repayment over 2014-17 N/A 1.7x HNE RMB2.6bn Feb 2022 Amortising N/A 1.5x Miaoli Wind A NT$1.3bn Jun 2020 Amortising 100% 1.1x Miaoli Wind B NT$465m Dec 2012 Bullet 100% 1.1x TBC Senior NT$20.4bn Jun 2017 Bullet + Amrotising from Dec 2013 85% 2.0x TBC Junior US$135m Dec 2017 Bullet 100% 2.0x

MIIF Level Borrowings Facility Limit Maturity Date Debt drawn down Corporate Facility A S$100m Oct 2014 NIL N/A N/A


Company Focus

MIIF

Management and Fees MIIF has appointed Macquarie Infrastructure Management (Asia) Pty Limited (MIMAL or the manager) as its sole and exclusive manager pursuant to a management agreement dated 19 May 2005. MIMAL is a member of the Macquarie Group, a diversified international provider of banking, finance, advisory and investment services headquartered in Sydney, Australia, with approximately 15,500 employees in 28 countries as at 30 September 2010. The Macquarie Group is one of the global leading advisors in acquisition, disposition and financing of infrastructure assets and the management of infrastructure investment vehicles on behalf of third-party investors. MIMAL is part of the Macquarie Group’s Infrastructure and Real Assets business, which, through special purpose management companies, has approximately A$97bn of

assets under management as of 30 September 2010. MIMAL invests on behalf of retail and institutional investors in infrastructure assets and businesses, including toll roads, airports and airport-related infrastructure, communications infrastructure, electricity and gas transmission and distribution networks, water utilities and rail. Operating history of Macquarie Infrastructure and Real Assets dated back since 1996. The Singapore branch of MIMAL is also licensed by the Monetary Authority of Singapore as a holder of a Capital Markets Services Licence to conduct the regulated activity of fund management in Singapore. The Board of Directors of MIMAL is responsible for overseeing the management of MIMAL.

Board of Directors of MIIF – 4 out of 5 are Independent Directors

Name Designation Experience Heng Chiang Meng Chairman &

Independent Director Has held several key positions across various companies and government bodies like Far East Organisation, First Capital Corporation, Overseas Union Bank, Monetary Authority of Singapore and Citibank. Has served as Member of Parliament in Singapore for 4 terms from 1984-2001. He received his BBA (Hons) degree from the University of Singapore, Singapore in 1970.

Michael David Hamer Independent Director President and CEO of Camford Atlantic Ltd., a Bermudan company providing risk management, investment and financial services. Has Michael Hamer received his Bachelor of Science (Hons) degree from the University of Melbourne Australia in 1972 and a Master of Science degree in Mathematics in 1974 and a D. Phil in Mathematics and Economics in 1980 from the University of Oxford England.

Lee Suet Fern Independent Director Senior director at Stamford Law Corporation; her practice focuses on mergers and acquisitions, equity and debt capital markets and corporate finance. She graduated with a double first in law from Cambridge University in 1980 and qualified as a Barrister-at-Law at Gray’s Inn London in 1981. She was admitted to the Singapore Bar in 1982.

Robert Andrew Mulderig Independent Director Rob Mulderig is chairman of the board of financial services company Woodmont Trust Company Ltd, and is chairman of the Bermudian Bank of N.T. Butterfield and Son Ltd. He is the chairman of Intoll International Limited, the Bermuda entity that is part of Intoll Group, and a director of Macquarie Atlas Roads International Limited. He is a former member of the board of governors of the Bermuda Stock Exchange. He attended Colombia University and the Fordham University School of Law.

Frank Kwok Executive Director Member of investment committees or boards of a number of Macquarie-managed funds. Previously the global COO of Macquarie Infrastructure and Real Assets division. Has also been the CFO of Macquarie Airports and Macquarie Airports Group. He holds Bachelor of Economics and Bachelor of Law degrees from the University of Sydney.

Source: Company

Company Focus

MIIF

Board of Directors of MIMAL

John Stuart High Roberts Executive Director John is Executive Chairman of the Macquarie Funds Group, which has

US$300bn of capital under management and includes the activity of the Macquarie Infrastructure and Real Assets division (MIRA). John is on all investment committees or boards of directors in MIRA to provide oversight and strategic direction to individual fund management executive teams. He joined Macquarie in 1991 and is based in Sydney. John has a Bachelor of Laws degree from the University of Canterbury in New Zealand.

John Lawson Stuart CEO and Executive Director

John is a division director of Macquarie Group. He joined Macquarie’s fund business in London in 2004 and has been in Asia since 2008. He was previously asset director for a number of MIIF’s direct investments and sits on the Board of all the assets. He has been instrumental in divesting non-Asian assets and furthering MIIF’s focus on Asian investments. Prior to joining Macquarie, John spent 13 years with ExxonMobil, where he established the marine fuels and lubricants business in Europe.

Frank Kwok Executive Director Member of investment committees or boards of a number of Macquarie-managed funds. Previously the global COO of Macquarie Infrastructure and Real Assets division. Has also been the CFO of Macquarie Airports and Macquarie Airports Group. He holds Bachelor of Economics and Bachelor of Law degrees from the University of Sydney.

Source: Company Under the terms of the management agreement, MIIF compensates MIMAL for managing its investments through base fees and performance fees. These fees are calculated for each quarter ending on 31 March, 30 June, 30 September and 31 December of each year. Any change to the fee structure will be subject to shareholders’ approval at a general meeting, where the Manager and any Macaquarie Group member will abstain from voting. The base fee is calculated on the following basis: 1.5% per annum of MIIF’s Net Investment Value Payable quarterly in arrears

The Net Investment Value is the average market capitalisation over the last 15 SGX-ST trading days of the quarter; plus The total external borrowings at the end of the quarter;

plus Firm commitments to invest in future investments at the

end of the quarter; less The cash or cash equivalents at the end of the quarter

Performance Fees: Strong alignment with shareholders interests — the

manager will only get rewarded after shareholders are rewarded i.e. if the return on the shares for a quarter is greater than zero and exceeds a benchmark return

The fee will be reduced by any deficit of MIIF’s performance to the benchmark. And this carries on in perpetuity.

The performance fee is calculated on the following basis: If the return on the shares for a quarter (including the

reinvestment of all dividends) is greater than zero and exceeds the benchmark return, the performance fee is equal to;

20% of the excess above the benchmark return for the quarter. If the return is less than the benchmark return in any quarter, the amount of the deficit is carried forward i.e. Performance fee = 20% × (return − benchmark return − deficit brought forward);

Payable quarterly in arrears; and The performance fee is payable to the Manager in cash.

MIMAL may apply to invest all or a portion of the performance fee in MIIF shares.

Company Focus

MIIF

Fund strategy and operations Investment Policy. MIIF’s investment policy is to invest in income-producing global assets with stable and predictable cashflows. Its objective is to provide shareholders with regular and stable dividends, whilst achieving long-term capital growth through active investment management, asset acquisitions and diversification with regard to currencies, infrastructure sectors and geography. Dividend Policy. MIIF’s policy is to pay out the bulk of cash available for distribution. MIIF has guided for 5.5Scts annual dividend in FY11, up from the 3.0Scts dividend it declared in FY10. It has already declared 2.75Scts interim dividend at the end of 1H11. The distributions are based on expected forecast distributions from the underlying assets, as well as buffer cash from sale of investments. Capital Structure. Total borrowings at corporate level should not exceed 35% of total gross assets but this limit excludes gearing within MIIF’s underlying assets. Debt in underlying assets is non-recourse to MIIF and will be repaid from the revenues generated from these assets. New acquisitions will be funded through raising new capital. Short-term, MIIF may use debt-bridging facilities to facilitate acquisition. These will then be replaced by new capital. Quarterly Valuations. The Manager intends to conduct quarterly valuations of its investment portfolio. Market value will be used for listed investments. Unlisted assets will be valued using established valuation techniques. Changes in investment values will not affect distributions. Any changes in the value of the investment portfolio will be reflected in the income statement in the next period. We would like to highlight that revaluations are not expected to have an impact on MIIF’s ability to pay dividends since MIIF is not required to pay dividends out of distributable profits. Hedging Policy. The forecast dividends for 2011 are hedged. Currently, a part of forecast distributions for 2012 is hedged. There is no hedging policy in place, but the manager will monitor the forex movements and may enter into any hedging arrangements as distribution guidance provided by underlying investments becomes more certain. Income. This is made up of: (a) Distribution income, which is dependent upon the financial performance of MIIF’s investments which then determines the respective investment’s dividend and distribution policy. (b) Forex gains/(losses), which arise on (i) differences between rates on settlement date and transaction date; and (ii)

differences between end of period rates for assets and liabilities denominated in currencies other than Singapore dollars. Current investments have exposure to the Hong Kong Dollar, Chinese Renminbi and the New Taiwanese Dollar. (c) Net gain/(loss) on financial assets are changes in fair values of assets. Note that the net gain/(loss) on revaluations of investments is merely an accounting adjustment to restate investments to their current fair value and will not impact cashflows. Operating expenses. This is made up of: (a) Management Fees – this is made up of base fees and performance fees, payable quarterly. (b) Directors’ fees - each independent director is paid an annual retainer fee of US$72,500 payable quarterly. (c) Transaction costs (d) Other operating expenses – this item is expected to be fairly predictable and consist of recurring operating expenses such as accounting, audit and tax advisory fees, annual listing fees, costs associated with the preparation and distribution of reports to shareholders and other miscellaneous expenses. Higher costs are likely if (i) MIIF takes operational and management control of a future investment; and (ii) MIIF undertakes new acquisitions leading to additional funding costs, advisory and legal fees. Borrowing Costs. MIIF does not have any borrowings at the corporate level currently except for a S$100m debt facility, which has not been drawn down. The facility was renewed in October 2011 for 3 more years with a renewal fee of US$1m. Undrawn amounts are subject to a 0.4% commitment fee (calculated on the unutilised portion). The interest cost for the drawn down amounts are assumed to be LIBOR plus 2.5% margin. Taxation. MIIF is a resident for tax purposes in Bermuda. MIIF has applied for and expect to receive from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966, an assurance that MIIF will not be liable for any tax until 28 Mar 2016 in the event that there is any new legislation imposing tax on income, capital gains or any other. There are withholding taxes expected though in respect of distributions from its assets in China and Taiwan. Distributions made to Singapore tax resident investors will be tax-free.

Company Focus

MIIF

Changshu Xinghua Port Changshu Xinghua Port Co. Ltd (CXP) is a multi-berth river port; majority owned by Singapore based Pan-United Corporation Ltd in a consortium with Macquarie International Infrastructure Fund Limited, Petroships Investment Pte Ltd and Jiangsu Changshu Economic Development Group. The development is a multi-purpose port for general cargo and containers, and was established as a joint venture with the Changshu government (through its Changshu Riverbank Economic Development Corporation) in 1994. CXP has been granted a 50-year concession to operate the port until 2044. It has been ranked among the top ten river ports in China for bulk cargo tonnage.

A view of the port

Asset shareholding structure

Source: Company Located in high-growth industrial region. CXP was established in 1994 and opened in 1997. CXP is centrally located within a high growth industrial area along the Yangtze River, which includes the important cities of Suzhou, Wuxi and Changshu. Its hinterland, which covers the provinces of Shanghai, Jiangsu and Zheijang has close to 150 million people and is one of China’s faster growing industrial regions. As a port, CXP’s growth is driven by local GDP and trade volume growth. With a water depth of 13 meters, CXP is the furthest port upstream from Shanghai that is able to handle containerized traffic. With “Class 1” port status, CXP is able to accept vessels directly from overseas thereby allowing it to participate in international trade flows.

Asset Location

Source: Company

Company Focus

MIIF

Asset Snapshot

Geography 80km upstream from Shanghai

Concession Start date 50 year concession granted to Pan United Corp in 1994

Concession End date 2044

Port Status International Port – Class 1

Water Depth 13.3m

Vessel Capacity Up to 100,000 dead weight tonne (DWT) vessels under ideal conditions

Facilities

8 berths

1,700m of berth

2 gantry cranes

10 multi-use portal cranes

Storage Yard storage totaling 608,147 sq m

14 warehouses with total built up area of 107,300 sq m

Source: Company Facilities in place. CXP has become one of the fastest growing ports along the Yangtze River. CXP has built 8 all-purpose berths with total of 1.5km berth length, and the waterfront depth is maximum 13.3 meters. The port is able to handle vessel sizes in excess of 50,000dwt and theoretically up to 100,000 dwt. The jetty is equipped with 2 units of quay cranes,10 portal cranes, rubber tire gantry cranes ,empty container cranes and multi-usage cranes. Currently, CXP has 14 warehouses with total built-up area of 107,300 sq m, a 249,000 sq m general cargo yard, a 50,000 sq m container yard to accommodate 6,000-TEUs containers, and a 370,000 sq m temporary stacking yard. General cargo contributes bulk of revenues. CXP’s revenues are primarily based on fixed tariffs negotiated with customers. The main products handled on the general cargo side include steel and forestry products. The port also handles some container traffic. 2010 Revenue breakdown by cargo type

Source: Company

Based on 2010 numbers, general cargo products (including steel, logs and non-ferrous metals) accounted for about 63% of revenue while paper & pulp products and container traffic accounted for 24% and 9% of total revenues, respectively. Steel volumes have been the major base loads. In the steel products segment, under general cargo, CXP benefits from the presence of captive steel mills and processing plants located in close proximity. The major factors for traders choosing CXP is the kind of facilities provided (including warehouses/ storage) and distance from the mill. Steel volumes at CXP are somewhat resilient to economic downturns. The steel trade for CXP is a direct export-import trade, and the proportion of steel being exported or imported depends on the arbitrage between domestic steel prices and international market prices. As seen from the figure below, the breakdown between imports and exports can vary widely between years. Domestic steel manufacturers export finished steel products when the international market prices are higher, and domestic steel processing firms import crude steel when domestic prices are higher. Thus, volumes are not as dependent on steel demand cycles as the difference between local and global prices. Steel volume breakdown depend on price arbitrage

Source: Company

1,873

341 134 94

1,435

138

497

1,4842,370

1,858

605

1,549

259

619650 275

530

525

-

500

1,000

1,500

2,000

2,500

3,000

3,500

05 06 07 08 09 10

'000

ton

s

Import Export Domestic

Container8.4%

Other5.5%

Paper & Pulp

23.5%General Cargo (steel/ logs)

62.6%

Company Focus

MIIF

Leading player in the paper and pulp trades . This position is due to CXP’s relationship with Westerlund, a global leader in the handling and logistics of paper, pulp and other forest products. Westerlund and CXP have jointly set up Changsu Westerlund Warehousing (CWW), in which CXP has a 25% stake, to operate a dedicated forestry product terminal at CXP. According to management, CWW handles almost 15% of China’s pulp imports. China’s pulp import volumes are expected to continue to grow strongly, driven by increasing per capita consumption levels and constraints in domestic supply from the closure of polluting units. Steady growth in pulp & paper volumes at CXP

Source: Company

Growing presence in the logs segment. CXP marked its entry into the logs logistics space with the import of New Zealand logs, as management actively sourced wholesalers in the Chinese market to promote the use of NZ logs. From a relative small base prior to 2009, CXP’s log business took off and volume grew 56% in 2010. Import growth of logs is likely to be supported by increasing furniture consumption as well as strict domestic controls on deforestation. Currently, NZ wood (Pacific Forest Products) contributes close to 74% of total log volumes in CXP and CXP can drive further growth in the logs business as it has spare storage space and facilities are not as congested as other major log ports like SIPG (Longwu). Container handling business still small. In the container segment, renewed growth is projected as CXP develops as an inland hub for container shipping along the Yangtze River. Rising costs for road transport, especially to and from the new Yangshan Port, are expected to make transport of containers via the Yangtze River more competitive. CXP is thus likely to handle more international and domestic containerized cargo as river traffic increases.

CXP – historical cargo throughput details

Cargo Volumes 07 08 09 10Steel (tons) 3,028,095 2,600,770 2,315,743 2,217,018 Logs (tons) 831,219 1,297,735 Other non-steel (tons) 692,291 788,161 378,155 647,302 Paper & Pulp (tons) 1,834,540 1,893,519 2,094,048 2,138,717

Total general cargo (tons) 5,554,926 5,282,450 5,619,165 6,300,772

Growth -4.9% 6.4% 12.1% Container (TEU) 87,763 95,522 81,893 90,163 Growth 8.8% -14.3% 10.1%

Source: Company Most of the river ports in China are concentrated in Yangtze River Delta region. River ports in China are much smaller than the seaports and serve as centers of domestic trade and transhipment of import/ export cargoes. They largely serve as connections between seaports and inland regions (manufacturing hubs). Most of the bigger river ports in China are concentrated in the Yangtze River Delta (YRD) region, and CXP competes with at least 7 other major ports either upstream or downstream on the Yangtze River. These include

SIPG (Longwu) SIPG (Luojing) Taicang Nantong

Zhangjiagang Jinagyin, and Nanjing

All YRD river ports may not be direct competitors. Among the ports listed above, only the first three are downstream from CXP and enjoy potentially greater drafts. Upstream ports cannot accommodate larger ships. Moreover, ports like Nantong, Zhangjiagang and Jiangyin are mainly involved in iron ore, coal and chemical trades and do not deal with similar cargo as CXP. The main competitiors for CXP are thus limited to SIPG (Luojing) and Taicang as these ports also deal with steel, paper & pulp and log trades.

2,1392,0941,8941,835

-

500

1,000

1,500

2,000

2,500

07 08 09 10

'000 tons

Company Focus

MIIF

Revenue and EBITDA trends. Historically, CXP has delivered steady growth in revenues and EBITDA. Revenue has grown at a CAGR of 7% and EBITDA at a CAGR of 2% over 2007-10. EBITDA growth has been slower than revenue growth owing to declining margins, as a result of higher wages, overheads and an appreciating RMB. CXP had to provide for a one-off litigation payment amounting to RMB30m, which affected its EBITDA and net profit in 2008, and consequently impacted distributions to MIIF in FY09. Since the hiccup in 2008, EBITDA is back on the growth track. CXP – revenue, gross profit and EBITDA trends

Note: FY08 EBITDA affected by one-time litigation charges Source: Company Distributions once a year, in September. CXP pays out substantially almost all of its net profits after scheduled loan repayments. Distributions pertaining to the current financial year’s performance are paid out in September the next year. Thus, distributions received by MIIF in FY11 will pertain to HNE’s performance in FY10, which is already known. Given stronger financial performance and net profit growth in FY10, FY11 distributions to MIIF should be higher than FY10. CXP – distributions to MIIF

Source: Company

Very strong growth trend YTD in FY11. In the 9 months to September 2011, CXP generated revenues of RMB223m, up 15.5% y-o-y. This was driven by higher cargo volume across the board, led by log volumes with 48% y-o-y growth off a lower base in FY10. Despite higher costs, EBITDA margins were maintained around 51% and EBITDA came in 19% higher y-o-y. This bodes well for growth in distributions to MIIF in FY12. Gearing on the lower side. CXP has a strong balance sheet, with gross gearing of around 0.3x, comprising two bullet loans drawn down to the extent of RMB380m, which will mature in 2014 and 2017 respectively. With a current Debt/ EBITDA ratio of only 3.1x, we do not envisage any difficulty in rolling over the debt, given that CXP’s concession extends till 2044. CXP – revenue, gross profit and EBITDA trends

Debt Facility Draw down

(RMB m)

Base rate Maturity

date

CCB (Bullet) 180 > 5 yr PBOC rate July 2014

ICBC (Bullet) 200 > 5 yr PBOC rate April 2017

Source: Company Growth initiatives. Management is looking to further diversify cargo types. These include initiatives in the spheres of: • Developing the North American log markets and

increasing market share in this market • Increase the trade volumes of chemicals like sodium

sulphate with Brazilian volumes as a key target • Develop further inroads into the export of project

equipment by renting out assembly space in the port area to improve business proposition to customers

• Increase volumes in white minerals, which are used in LCD manufacturing, for example

Key risks. Apart from the competition from neighbouring river ports on the Yangtze River, which could limit growth in volumes and tariffs, CXP faces the following concerns: • Higher export steel duty in 2H-2011, which could cap

the growth momentum in steel volumes • Mounting cost pressures from higher minimum wage

levels in 2011 and tight labour markets

215 210 217

264

157 153 158182

121

89119 128

-

50

100

150

200

250

300

07 08 09 10

Revenue (RMB m) Gross Profit (RMB m) EBITDA (RMB m)

Distributions to MIIF (S$ m)5.7

5.1

1.5

4.6

-

1

2

3

4

5

6

07 08 09 10

Company Focus

MIIF

CXP – Revenue and EBITDA forecasts

FY Dec (m) 07 08 09 10 11F 12F 13F Revenue (RMB m) 214.7 209.6 217.2 263.6 295.6 317.8 333.7 Revenue growth 10% -2% 4% 21% 12% 8% 5% EBITDA (RMB m) 120.8 84.0 119.1 127.4 153.7 165.2 173.5EBITDA Margin 56% 40% 55% 48% 52% 52% 52% Distributions to MIIF (S$) 5.7 5.1 1.5 4.6 5.5 6.3 6.8

Source: Company, DBS Vickers estimates CXP DCF Valuation – Key Assumptions

Risk Free Rate 5.5% Cost of Debt (b/tax) 6.0% Tax rate % 25.0% Expected market return 15.0% Target Debt/Equity Ratio 45.0% Beta at Target Gearing 1.0 Cost of Equity 15.0% WACC 11.7%

CXP DCF Valuation Methodology

Multi-stage revenue growth model 2013-15 5% 2016-18 3% 2019-21 2% Terminal growth 1% Sum of NPV (RMB m) 1446.8 Net cash (debt) (RMB m) -380.0 Fair value of equity (RMB m) 1066.8 Fair value (SGD m) 213.4 Fair value of MIIF's stake (SGD m) 81.1 Implied FY12 EV/EBITDA (x) 8.8

Source: DBS Vickers CXP – Peers Valuation Summary

Company Price (Local $) Market Cap

(US$m) FY11 PE FY12 PE P/B FY11 EV/EBITDA FY12 EV/EBITDA

CMHI 21.40 6,781 10.0 11.1 1.2 15.5 16.3

CP 8.74 3,039 7.5 7.4 0.8 12.8 11.3

DLP 1.85 1,816 7.8 6.9 0.5 11.3 9.7

XIP 1.04 363 6.8 6.3 0.6 4.0 3.6

TPD 1.09 861 9.4 8.4 0.6 7.0 6.1

HPHT 0.61 5,269 19.0 18.6 0.6 12.4 11.6

Average 10.1 9.8 0.7 10.5 9.8


Company Focus

MIIF

Taiwan Broadband Communications Taiwan Broadband Communications (TBC) was established in 1999 and is the third largest cable TV (CATV) infrastructure owner and operator in Taiwan. It is the sole licensee and provider of CATV in its five franchised areas passing over one million homes. As of 30 Sep 2011, TBC has 747,126 Basic cable subscribers, 79,864 Premium digital subscribers and provides broadband services to 162,421 subscribers.

Investment highlights

Date of acquisition 16 July 2007

Cost of acquisition S$479.2m

Latest valuation S$498.9m

Distributions paid since acquisition S$77.8m

MIIF’s ownership 47.5%

% of MIIF portfolio as of end-3Q11 51.5%

Source: Company

Snapshot of the leading Cable TV operators in Taiwan

Cable Operator # System Operators Subscribers (approx.) Areas of operation Owner Kbro 19 1,200,000 Cable TV Broadband Cable Phone Carlysle Group CNS 10 1,000,000 Cable TV Broadband Cable Phone MBK Partners TBC 5 750,000 Cable TV Broadband Macquarie Group TFN Media 550000 Cable TV Broadband Taiwan Mobile

Source: Companies, DBS Vickers TBC is one of the leading multi-system cable operators in Taiwan. Established in 1999, TBC’s franchised areas include Taoyuan, HsinChu, Miaoli and Taichung. Today, TBC serves over 740,000 cable TV households with more than 150 channels of exciting local and international content on its analogue and digital TV platforms. TBC also provides a full range of quality broadband access packages with speeds ranging from 2M to 30M, as well as a VOIP service. Franchise Map

Source: Company

Cable television is widely prevalent in Taiwan, as a result of cheap subscription rates (typically around NT$550-600, or less than USD$20 a month) and the paucity of free-to-air television, which comprises of a few channels only. Community Antenna Television (CATV) is the dominant broadcast medium accessed by 80% to 85% of the population. Programming is mostly in Mandarin, Taiwanese and Japanese, with some English, Korean and other foreign language channels. Miniseries, called Taiwanese drama, are popular. There are around 100 channels with most stations being dedicated to a particular genre; such as game shows, news, anime, movies, sports and documentaries. Almost all programs are in the original language with traditional Chinese subtitles. The Taiwan government has been pushing for a switch to digital television services in the near future - provided through set-top box, which will increase the number of channels available to subscribers. TBC is the sole licensee and provider of CATV, or cable television, in its franchised areas. Contracts are one to three months long and generally pre-paid. Contracts are also renewed automatically. TBC’s 3 key product segments are:

• Basic Cable TV – more than 100 channels of diverse content, delivered via TBC’s 10,570km Hybrid Co-axial Fibre (HFC) network spread over the five franchised areas

• Premium Digital TV – recently re-launched digital product offering state-of-the-art interactive digital TV services, including Digital Video Recording (DVR)

• Broadband – various high-speed options, using cable modem technology

Company Focus

MIIF

TBC’s broadband offering provides high-speed Internet access to subscribers in its franchised areas using cable modem technology. TBC completed a technology upgrade in early 2007 to significantly increase its broadband Internet speeds, currently providing subscribers with up to a 16Mbps offering. TBC Broadband subscribers are also able to obtain cable telephony or Voice Over Internet Protocol services over the network enabling local, national and international calls. TBC has an arrangement with Eastern Broadband Communications under which TBC earns commission per cable phone subscriber.

TBC’s Premium Digital TV has seen strong demand since re-launch. After upgrading hardware and software systems, TBC introduced its revamped digital cable TV product in March 2009, following which subscriber base has increased almost four-fold. The digital service is provided via a set-top box (STB) and offers premium and HD content – an additional 33 video and 30 music channels, which are not subject to regulatory price caps; and Interactive video services. The STB also comes with an external hard disk, which provides an advanced Digital Video Recording (DVR) platform to users.

Subscriber Numbers and Growth

Subscribers FY06 FY07 FY08 FY09 FY10Basic Cable TV 664,785 688,860 712,895 724,628 738,072 Basic Digital 16,009 19,373 18,958 25,012 55,619 Penetration rate 2.4% 2.8% 2.7% 3.5% 7.5%Broadband 92,723 111,177 128,605 140,227 152,369 Penetration rate 13.9% 16.1% 18.0% 19.4% 20.6% Subscriber Growth Basic Cable TV 3.6% 3.5% 1.6% 1.9%Basic Digital 21.0% -2.1% 31.9% 122.4%Broadband 19.9% 15.7% 9.0% 8.7%

Source: Company TBC – Growth in subscriber base across business lines

Source: Company Breakdown of TBC’s subscriber base by franchise areas and type of service (as of end-1Q11)

Subscribers South Taoyuan Hsinchu County North Miaoli South Miaoli Taichung City TotalBasic Cable TV 233,548 111,697 45,002 57,977 293,037 741,261Basic Digital 21,548 9,466 4,061 2,715 26,999 64,789Penetration rate 9.2% 8.5% 9.0% 4.7% 9.2% 8.7%Broadband 53,806 24,976 9,512 5,292 63,428 157,014Penetration rate 23.0% 22.4% 21.1% 9.1% 21.6% 21.2%Source: Company

665 689 713 725 738 741 744

16 19 19 2556 65 7293 111 129 140 152 157 160

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100

200

300

400

500

600

700

800

FY06 FY07 FY08 FY09 FY10 1Q11 2Q11

'000 Subscribers

Basic Cable TV Basic Digital Broadband

Company Focus

MIIF

Basic CATV growth will be driven by population increase. TBC’s franchised areas are located in growth corridors of Taiwan and have historically enjoyed population growth above national average. TBC’s largest franchised area is in Tai Chung City, the 3rd largest city in Taiwan, where it has exclusive franchise rights. Population & households CAGR (2000-2010)

Source: Ministry of the Interior, Taiwan Cable TV penetration in Taiwan is among the highest in Asia. This is primarily driven by the high affordability of the cable TV services in Taiwan – monthly cable TV ARPU amounts to only 1.1% of monthly nominal GDP per capita, according to a recent report by Media Partners Asia – as programming and content costs are among the lowest in the region. Content providers derive more than 60% of revenue from advertisements and hence, content subscription costs are lower. Moreover, the regulator caps basic CATV services tariff at NT$600 (around S$26 or US$20) per month, further subject to local governments’ regulations, and hence cable TV services remain very affordable. Local Free-to-Air (FTA) content is deemed inadequate and hence, Cable TV has grown in popularity over the years, resulting in a penetration rate of close to 83% of all TV households, one of the highest on Asia, matched only by South Korea. Organic growth will be boosted by up/cross-selling digital TV and broadband services. Digital TV subscribers only account for just over 10% of TBC’s CATV subscriber base as of end-3Q11. Hence, there is substantial headroom for expansion in the non-regulated space of the Cable TV industry in Taiwan. While basic CATV ARPUs range from NT$540-580 per month, digital TV subscriptions can add another NT$200 per month. Cable broadband is the other product where TBC has the chance to take market share away from traditional providers like telecom providers. With its DOCSIS-3.0 infrastructure already in place, TBC is able to provide high speed broadband (up to 120 Mbps) at slightly lower price than existing players owing to bandwidth advantages. Higher speeds also allow for higher ARPUs.

This also helps diversify revenue away from regulated basic CATV services. With higher revenues from digital TV and broadband services, TBC will be able to reduce regulatory risks as the regulated basic CATV business now accounts for a lower proportion of revenues. From 2006 to 2010, revenue from basic cable TV services has been reduced from 88% to 83%, and the trend should continue in future. TBC – Revenue breakdown by service (FY10)

Source: Company, DBS Vickers Capital expenditure for network upgrades mostly in place. TBC’s network currently consists of 13,493km coaxial cable and 1,956km of fibre, which forms the backbone of its Digital TV and Broadband services. Over 95% of TBC’s network has been upgraded to 750Mhz to provide more spectrum for Digital TV, with two-way capability upgrade for broadband access through cable modem. In 2009, TBC made significant investments to launch its premium digital TV service, to deliver latest MPEG-4 technology digital signal, which allows for higher number of channels while reserving sufficient capacity for DOCSIS-3.0 Broadband product. Strong and experienced management in place. Current CEO Thomas Ee is former Head of Cable, Broadband and Fixed Line at StarHub, Singapore’s leading quad-play operator and was the key driver for the rollout of Singapore’s nationwide 100Mbps residential broadband service. Other senior management includes Ms. Loke Kheng Tham, former Head of Content and Marketing at StarHub, Singapore. EBITDA has grown at a faster pace than revenues. Given that broadband EBITDA margins are higher than CATV services, the higher growth rate of non-basic CATV services, as described above, has led to improving EBITDA margins and a faster EBITDA CAGR of 5.3% compared to revenue CAGR of 3.9% over FY07-10.

Basic Digital1%

Broadband16%

Basic Cable TV

83%

0.4%

1.7%

1.2%

2.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Population growth Houseold growth

Taiwan (national average) TBC Franchise Areas

Company Focus

MIIF

TBC – Revenue, EBITDA and margin trends

Source: Company, DBS Vickers Broadband EBITDA margins are better than CATV margins

Source: Company, DBS Vickers Distributions to MIIF affected by loan amortisation payments. Distributions to MIIF from TBC have declined over the past 2 years, despite higher EBITDA. This was due to higher loan amortisation payment for TBC’s outstanding borrowings, which lowered cash available for distributions.

TBC – Distributions to MIIF

Source: Company, DBS Vickers New capital injection by MIIF geared towards capital structure optimization and higher distributable cash flows. TBC was initially acquired from Carlyle Group in 2006 by a Macquarie Group-led consortium. Now MIIF has a 47.5% stake in TBC over 3 transactions: i) July 2007 – MIIF acquired 20% interest for S$161.8m ii) March 2011 – MIIF acquired a further 20% interest for

S$174.4m iii) June 2011 – MIIF subscribed to shares and other

instruments representing 12.5% interest for S$143m iv) The remaining stake is held by another Macquarie Group

company, Macquarie Korea Opportunities Fund.

The last tranche of S$143m (NT$3.3bn) investment from MIIF has been used to pay down about NT$3.2bn of TBC’s outstanding Senior Secured Facility, as outlined below. Following this, the amortisation profile has been amended to begin from December 2013, freeing up cash flow for distribution in the near to medium term.

TBC – details of borrowings

Facility Facility Size Drawn down Maturity Repayment profile % HedgedSenior Secured Debt Facility (Onshore) NT$24.5bn NT$20.4bn Jun 2017 Amortising from Dec 2013 84%Subordinated Debt Facility (Offshore) US$135m US$135m Dec 2017 Bullet 100%

Source: Company TBC – revised repayment profile of Senior Secured Debt Facility

2011 2012 2013 2014 2015 2016 2017

Repayment (NT$bn) 0.2 0.0 0.2 2.3 2.9 3.2 15.8

Source: Company

62%

61%61%

60%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

07 08 09 10

58%

59%

59%

60%

60%

61%

61%

62%

62%

63%

Revenue (NTD m) EBITDA(NTD m) EBITDA Margin

Distributions to MIIF (S$ m)

-2

46

81012

1416

1820

07 08 09

Revenue (NTD m)

60%60%59%59%

75%73%73%69%

50%

55%

60%

65%

70%

75%

80%

FY07 FY08 FY09 FY10

CATV Broadband

Company Focus

MIIF

Key risk is regulatory in nature. Until recently, cable operators in Taiwan were principally regulated by the Government Information Office (GIO) and the Ministry of Transportation and Telecommunications (MOTC). The National Communications Commission (NCC) was established in March 2006 as the central independent regulator, consolidating the functions of the GIO and MOTC with respect to cable television regulation. Notwithstanding this regulatory consolidation, the CATV Review Committee (CTRC) remains independent as the body responsible for setting national price caps for cable operators as well as the approval, issuance, and renewal of CATV operating licenses. In addition, local governments impose local tariff limits within the national cap set by the CTRC. Licenses have to be renewed every 9 years. Each initial Systems Operation (SO) license was expressed to be effective for nine years to facilitate the regulation of the industry initially. Each license is renewable provided that a renewal application is filed during the six months following the eighth anniversary of the date on which the original license was issued. All existing SOs licenses (including TBC) expired in 2008 or 2009, and have since been renewed for another nine years stretching up to 2017-18. While we do not think renewal of licenses at the end of these periods will be an issue, this limits the tenure of borrowings and hence, debt has to be rolled over in conjunction with the roll-over of the license periods.

Industry is fairly consolidated already but M&A opportunities exist. The market currently consists of 51 franchised areas and 64 cable television operators with 40 franchises having a sole operator. Market consolidation has already occurred in the past with the top four operators servicing approximately 3.4 million subscribers (60%). Cable market subscriber growth over the next five years is expected to grow in-line with organic household growth in Taiwan. Total market revenue of US$1.9 billion (S$2.9 billion) with total industry growth forecast at 4.5% per annum over the next 10 years, largely driven by increased penetration of digital programming. Management remains open to the possibility of acquiring smaller Systems Operators, especially in contagious franchised areas to increase the scale of TBC’s business. Direct competition should remain scarce, given the barriers to entry. While growth opportunities from the bundling of digital TV, broadband and other value-added services exist; we believe new players are unlikely to enter the Taiwanese Cable TV market. Regulatory ownership restrictions, operator licensing requirements, the ability to source content, as well as the cost and practicality of building a new cable network and establishing a significant customer base to justify that investment create significant barriers to entry for potential new entrants within TBC’s operating regions, in our opinion.

Regulatory Environment Highlights

Licensing Licenses for each of 51 franchised areas

Each initial license effective 9 years

Renewal subject to an administrative process and self-assessment tests every

three years

Price Caps Basic television prices capped at rates which vary from one franchise to

another but must not exceed the maximum tariff set centrally by NCC, which

is currently NT$600 per month

Digital services not subject to tariff caps

Market concentration No license holder allowed to control more than 33.3% of total subscribers in

Taiwan

A multiple licenses holder can only own half of licenses in any given

administration area

Vertical integration not prohibited

Foreign ownership TBC ownership structure is in full compliance with Taiwan laws and

regulations

TBC ownership structure was last reviewed and approved by the Taiwan

Investment Commission in June 2007

Content Programs produced in-house by license holders and affiliates must not exceed

25% of content

Source: Company

Company Focus

MIIF

TBC – Revenue and EBITDA forecasts

FY Dec (m) 07 08 09 10 11F 12F 13F Revenue (NT$ m) 6,157.3 6,408.4 6,646.1 6,909.6 7,112.8 7,305.8 7,524.9 Revenue growth 4.1% 3.7% 4.0% 2.9% 2.7% 3.0% EBITDA (NT$ m) 3672.6 3902.0 4078.1 4287.2 4444.9 4627.2 4766.0EBITDA Margin 59.6% 60.9% 61.4% 62.0% 62.5% 63.3% 63.3% Distributions to MIIF (S$)* 18.2 16.6 13.1 29.5 45.3 46.6

Source: Company, DBS Vickers estimates * Note: Ownership change for MIIF in 2011-12 from 20% stake previously to current 47.5% stake DCF Valuation – Key Assumptions


TBC – DCF Valuation Methodology

Multi-stage revenue growth model 2013-15 3.0% 2016-18 2.5% 2019-21 2.0% Terminal growth 1.0% Sum of NPV (NT$ m) 48465.9 Net cash (debt) (NT$ m) -24125.0 Fair value of equity (NT$ m) 24340.9 Fair value (SGD m) 1058.3 Fair value of MIIF's stake (SGD m) 502.7 Implied EV/EBITDA (x) 10.5

Source: DBS Vickers estimates

Company Focus

MIIF

Hua Nan Expressway HNE is a 31km, dual way six-to-eight-lane brown-field urban-tolled expressway, located in the city of Guangzhou in South China. The road comprises a tunnel, various bridges and interchanges. The asset has been constructed in two separate phases – Phase I totaling 15.6km long with eight lanes commenced operations in October 1999 and Phase II totaling 15.4km in length with six to eight lanes (four lanes in the tunnel) commenced operations in January 2004. The rights to operate and collect tolls for Phase I & II expire in April 2026. Phase I & II make up one of the main arteries for north-south traffic in Guangzhou, giving easy access to cities in the Pearl River Delta such as Foshan, Zhongshan, Zhuhai, Shenzhen and the whole of Southern China. It is the only tolled expressway running through the central areas of Guangzhou and hence, provides one of the high-speed options for car travel through the city.

MIIF holds 81% effective stake in the asset. On 19 November 2007, MIIF acquired a 90% interest in South China Highway Development (SCHK) from Preciseway Management Ltd and Topwise Consultants Ltd (Vendors). SCHK holds a 90% interest in Gunagzhou South China Highway and Bridge Industry Ltd. (GZSC), resulting in MIIF holding an effective 81% stake in HNE Phase I and II and the vendors retaining a 9% effective interest. Guangzhou Centre for Administration of Municipal & Gardening Works (Guangzhou government body) holds the remaining 10% in GZSC. The following is a simplified diagram of HNE’s holding structure. Investment highlights

Date of acquisition 19 November 2007

Cost of acquisition S$295.7m

Latest valuation S$257.1m

Distributions paid since acquisition S$85.6m

MIIF’s ownership 81.0%

% of MIIF portfolio as of end-3Q11 26.6%

Source: Company

Asset shareholding structure

Source: Company Under the CJV between SCHK and a Guangzhou government entity, GZSC has the exclusive rights to operate and collect tolls and ancillary revenues along HNE until 2026. At the end of the toll collection period, all the assets of GZSC (excluding cash) and the rights to operate the road will be transferred to the Guangzhou government without compensation.

Asset location

Source: Company

Company Focus

MIIF

Asset snapshot

Phase I Phase II

Construction Period Dec 1996 – Sep 1999 Sep 2000 – Dec 2003

Construction Cost RMB2.15bn RMB1.38bn

Concession Expiry Date 2026 2026

Length 15.6km 15.4km

Interchanges 7 4

Number of lanes 6-8 (4 in tunnel) 6-8 (4 in tunnel)

Immediate Destinations Panyu and Nansha

Guangzhou International Exhibition Centre Baiyun and Tianhe districts

Local universities Baiyun International Airport

Residential developments in southern Guangzhou Mt Maofeng scenic region

Distant Destinations Zhong Shan Shaoguan

Zhu Hai Hunan Province

Macau Beijing

Source: Company Road configuration. HNE has three to four lanes in each direction and converges into two lanes each way in the tunnel at Shimentang Hill. HNE lies to the east of Guangzhou City and has good connectivity with other roads in the province including other expressways, the national highway and urban primary roads as marked out in the map below. Phase I of HNE originates in the Tianhe district, the financial center of Guangdong and connects to the Panyu Bridge in the south. It intersects with eight expressways and urban arteries, namely Guangshen Highway, Northern Ring Road, Guangyuan East Expressway, Zhongshan Avenue, Huangpu Avenue, Xinguang Expressway, Xinjiaonan Road and Southeast West Ring Road. Phase I is the only external highway backbone which runs near the city centre in Guangzhou and connects to the Pazhou International Exhibition Centre and Guangzhou University Town. According to management, Phase I provides the fastest and most convenient route between Guangzhou and Panyu. Phase II of HNE connects to Phase I from Cencun Bridge and converges with Jingzhu Highway and the second Northern Ring Road at Taihe Town next to the Helong Reservoir in Baiyun District. The second Northern Ring Road is the key road in the Guangzhou-Foshan area and is the primary linkage between Baiyun Airport and Guangzhou New Railway Station. By taking the Jingzhu national highway from Beijing and continuing down Phase II to Guangzhou, cities in the Pearl River Delta such as Foshan, Zhongshan, Zhuhai, Shenzhen are easily accessible.

HNE Phase I and II Interchanges

Source: Company Ample capacity for traffic growth. The road handled about 50m vehicles traffic in 2010 and management believes there is ample room to grow traffic up to 80m vehicles without adding significant congestion to the network. If growth is skewed towards heavier vehicles, the number could be closer to 70m vehicles. This is assuming average speeds of about 80kmph. The actual capacity could go beyond this if speeds are sacrificed but the key bottleneck will be at the tunnels where the 6 lanes converge into 4 lanes. We estimate there is unlikely to be a capacity issue before the end of the concession in 2026, and thus, there will be no need for any significant capital expenditure during the life on concession.

Company Focus

MIIF

HNE road network map with competing roads and potential feeder roads

Source: Company Competitive landscape and industry dynamics. The key competing roads for HNE Phase I and II are the parallel roads on either side of the expressway in southern Guangzhou – Xinguang Expressway and Keyun Road (refer to map above). Both of these roads are not tolled currently and though they do not provide the same level of connectivity as HNE, they do have a significant impact on traffic flows. As seen in the table below, traffic numbers in 2007 were approximately 11.7% lower than for 2006 predominantly due to the opening of Xinguang Expressway in January 2007. The negative impact of Xinguang Expressway on Phase I was limited over the next 3 years as the traffic on Xinguang Expressway mainly consists of local passenger cars whereas Phase I has a wider traffic mix consisting of long distance freight trucks, buses and also local passenger cars. Moreover, Xinguang Expressway has limited connectivity within the

region (limited to the southern part of the city), which indicates that fewer cars are likely to use the road given the lack of destinations served by the road. For instance, the residential area just south of Panyu Bridge is a main source of traffic for Phase I, and given the immediate proximity of this region to Phase I the traffic is unlikely to detour and use the cheaper but less convenient Xinguang Expressway. However, with the recent de-tolling of Xinguang Expressway from 1 Dec 2010, there has been some migration of local passenger cars from HNE to Xinguang Expressway and has resulted in 3.6% decline in HNE revenue YTD in FY11. However, after the initial one-time hit in 1Q11, we expect traffic growth for HNE to resume slowly as greater congestion on Xinguang Expressway will cause some migration back to HNE.

Traffic trends – historical

Traffic ('000) 06 07 08 09 10Passenger Vehicles 29,406 27,827 30,110 34,936 38,550 Minibus/ Light Truck 4,671 2,973 2,490 2,427 2,414 Medium Bus/ Truck 9,630 7,359 6,370 6,864 7,086 Large Bus/ Large Truck 576 628 599 618 654 Heavy Duty Truck/ Trailer 1,476 1,613 1,304 1,485 1,828

Total Vehicles 45,759 40,400 40,873 46,330 50,532

Growth -11.7% 1.2% 13.4% 9.1%

Source: Company

HNE Phase III

Guanghe E’way (under construction)

Keyun Road

Company Focus

MIIF

Further competition is unlikely. According to the Guangzhou Urban Master Plan – which provides detailed plans for the construction of roads and toll expressways till 2020 – there are no plans to construct any roads or toll expressways which would be in direct competition to HNE Phase I and II. Moreover, we believe there are significant barriers to the development of new competing roads – i) It is a time- consuming process which requires a number of approvals from the regulatory authorities, ii) it is capital intensive and returns may not be attractive in an inflationary and high interest cost environment and iii) the corridor where HNE is located (especially the southern corridor) is well developed and heavily built-up, making land acquisition complicated and expensive. Feeder roads could provide growth. Again, with reference to the road network map in the preceding page, we notice that HNE Phase III has been completed and the Guanghe Expressway – which is a 70-km 6 lane expressway is also due for completion by end-FY11. These two east-west expressways are expected to provide feeder traffic to HNE Phase I and II and boost growth prospects in future. Toll rates are regulated. Toll rates in Guangzhou are regulated and have to be approved by the Guangdong Pricing Bureau, the Guangdong Bureau of Communications and the Guangdong Provincial Government. Toll rates for HNE Phase I were set based on the construction cost of the road plus a perceived fair return on investment. For HNE Phase II, toll rates were set at the standardized provincial rate, in line with all roads completed after 2003. The average toll rate for HNE Phase I is about RMB0.60/ km, though it charges slightly more at some elevated sections of the road. HNE Phase II charges a flat rate of RMB0.60/ km. No increases in rates. Toll rates have not increased since the opening of Phase I in 1999 and are set initially on a per-km basis by the provincial government (i.e. Guangdong Province Government). Toll rates in the Guangdong province have remained unchanged at RMB0.60/ km (for 6 lane roadways) and RMB0.45/ km (4-lane roadways) since 2003. There is no defined contractual mechanism for revision of HNE’s toll rates. In the event that the HNE Phase I & II Board decides to increase toll rates, they are required to submit an application to the various regulators as mentioned above. Any such approval by the government authorities will have an effect on all toll roads in the province, and thus any upside is unlikely at this point. To date, the Guangzhou City and Guangzhou Provincial Governments have not initiated any action to either increase or decrease HNE’s toll rates.

Average toll rates declining at HNE as passenger car growth increases. Toll rates for larger vehicles are higher than that for the passenger car segment. However, since growth in traffic for larger vehicles – especially in the Minibus/ Light Truck segment has been slow, passenger vehicle traffic now accounts for 76% of total traffic, compared to 69% in FY07. As a result, average toll rates have been declining, though absolute rates remained steady. Average toll rate trend - historical

07 08 09 10

Rate (RMB) 11.4 10.9 10.5 10.4

Growth -4% -4% -1%

Source: Company Traffic mix – 2010

Source: Company Revenue mix – 2010

Source: Company

Minibus/ Light Truck

5%

Passenger Vehicles

76%

Heavy Duty Truck/ Trailer4%

Large Bus/ Large Truck

1%Medium Bus/ Truck

14%

Minibus/ Light Truck

5%

Medium Bus/ Truck

20%

Large Bus/ Large Truck

3%

Heavy Duty Truck/ Trailer13%

Passenger Vehicles

59%

Company Focus

MIIF

Revenue and EBITDA trends. Historically, HNE has delivered revenue CAGR of 4.5% and EBITDA CAGR of 3.6% over 2007-10, despite a hiccup in 2008. In 2008, revenue declined 2.3% owing to various one-off factors like weather disruptions, impact of the Beijing Olympics and reduced industrial activity in the region because of the global economic slowdown towards end-year. Likewise, EBITDA declined 7.3% in 2008 but has since recovered. Revenue and EBITDA trend – historical

Source: Company Debt amortisation profile matches cash inflows. After MIIF bought into the asset in 2007, HNE was able to refinance its existing mix of multi-currency, multi-term debt facilities with a single RMB-denominated facility in 2008 from China Construction Bank. Currently HNE has about RMB2.5bn debt outstanding. The facility has a 14-year tenor and an amortisation profile, which matches the operating cash flow growth profile of the asset and allows HNE to repay a larger proportion of the debt towards the end of the tenor. The interest rate applicable to the loan is the 5-year PBOC rate, and MIIF is currently reviewing potential interest rate hedging options. MIIF has also changed the depreciation policy of HNE from straight-line depreciation to units-of-production method to better match depreciation profile to traffic growth at the expressway.

Loan amortisation profile

Source: Company, DBS Vickers estimates Distributions once a year, in September. HNE pays out substantially almost all of its net profits after scheduled loan repayments. Distributions pertaining to the current financial year’s performance are paid out in September the next year. Thus, distributions received by MIIF in FY11 will pertain to HNE’s performance in FY10, which is already known. We thus, estimate FY11 distribution receipts to be higher than FY10, but FY12 distribution receipts will be lower owing to weaker traffic numbers at HNE in FY11. Distributions to MIIF

Source: Company

Revenue and EBITDA forecasts

FY Dec (m) 07 08 09 10 11F 12F 13F Revenue (RMB m) 459.2 446.7 484.4 523.4 496.8 515.1 540.8 Revenue growth -2.7% 8.4% 8.1% -5.1% 3.7% 5.0% EBITDA (RMB m) 381.6 353.8 393.4 424.8 397.4 412.1 438.1EBITDA Margin 83% 79% 81% 81% 80% 80% 81% Distributions to MIIF (S$) 13.2 14.2 21.3 22.9 20.1 20.9

Source: Company, DBS Vickers estimates

459 447484

523

382 354393

425

-

100

200

300

400

500

600

07 08 09 10

Revenue (RMB m) EBITDA(RMB m)

Distributions to MIIF (S$ m)

13 14

21

-

5

10

15

20

25

08 09 10

0

100

200

300

400

11 12 13 14 15 16 17 18 19 20 21 22

Company Focus

MIIF

DCF Valuation – Key Assumptions


DCF Valuation Methodology

Multi-stage revenue growth model 2013-16 5% 2017-19 3% 2020-2026 1% EBITDA Margin 80% Sum of NPV (RMB m) 3577.0 Net cash (debt) (RMB m) (2,500) Fair value of equity (RMB m) 1077.0 Fair value (SGD m) 215.4 Fair value of MIIF's stake (SGD m) 174.5 Implied FY12 EV/EBITDA (x) 8.6

Source: DBS Vickers estimates China Toll Road Peers Valuation Summary

Company Price (Local $) Market Cap

(US$m) FY11 PE FY12 PE P/B FY11 EV/EBITDA FY12 EV/EBITDA

Jiangsu E'way 7.12 4,609 11.2 10.3 1.7 7.7 7.2

Zhejiang E'way 4.86 2,706 9.3 8.9 1.1 4.3 4.2

Sichuan E'way 3.04 1,816 6.3 5.7 0.8 7.3 6.4

Hopewell H'way 4.06 1,542 12.6 13.4 1.4 8.8 8.9

Shenzhen E'way 3.16 1,208 7.3 6.4 0.6 8.7 8.0

Anhui E'way 4.48 1,107 6.8 6.1 0.9 4.6 4.2

Average 8.9 8.5 1.1 6.9 6.5


Company Focus

MIIF

Policy risks for HNE. The Notice issued by the Chinese central government (five ministries) earlier this year aims to enforce already existing regulations that target illegal toll roads, unauthorized toll stations or unreasonably high toll charges. Possible actions include lowering of concession lengths, toll rates or removal of collection stations. However, provincial governments (as they provide the bulk of funding) would have the final say. A summary of major targets of the Notice is shown below:

1) Illegal toll roads

a. Public loan toll road act as commercial toll road

b. Class II highways approved after Nov 2004 for eastern regions and Jan 2009 for midland regions

c. Commercial expressway exceeds stipulated concession (25 years for eastern region and 30 years for mid/western region)

d. Toll road fails to meet certain criteria e.g. Expressway less than 30km in length or Class I highway less than 50km

2) Unauthorized toll stations

a. Toll gates not approved by the government

b. Toll gates with unreasonable interval (<50km on main routes)

3) Unreasonable toll rates

a. No specific standard provided

Retrospective clause is the ‘wild card’. The Notice mentioned that the current campaign would also rectify non-compliant toll roads approved before 2004 when the Regulations on the Administration of Toll Road (“the Regulations”) was adopted. The Regulations exempted pre-2004 cases that deviated from the concession cap. The Notice’s retrospective clause will mainly impact toll roads granted more than 25 years (30 years for mid/west regions) concession. Nonetheless, not all pre-2004 cases will be rectified as the Notice also states that special situations could be spared. Uncertainty over what constitutes ‘unreasonable’ toll rates. The Notice has also instructed local governments to lower unreasonably high toll rates. However, it is not clear on what constitutes “unreasonable toll rates”. Toll rates vary across the provinces owing to differences in economic development and toll road requirements. Hence it would be difficult to implement a uniform standard for all provinces. Ultimately, the provincial government will have to make the final decision on toll rates.

Truck toll rates linked to inflation. Prior to the Notice, the State Council asked toll road companies to lower toll charges for trucks in an effort to help logistic companies and to tame inflation. The Central government in fact adopted the nationwide Green Passage (no tolls for trucks carrying fresh produce) in Dec 2010 for the same reason. We believe the Notice further echoes this view and we may see truck toll rates being lowered. Passenger vehicle toll rates are on the higher side in Guangzhou; potential risk of reduction. As seen in the table below, coastal regions Zhejiang, Jiangsu and Anhui have the same passenger vehicle toll rate, while Guangdong charges 33% higher despite having similar GDP per capita. Listed toll road company Hopewell Highway's key asset GS Super Highway has been one of the toll roads highlighted in the media to be overcharging (though other complaints include poor service and traffic congestion). Toll rate comparisons (RMB/km)

Province GDP per

capita (US$)

Passenger

vehicle rate

Commercial

vehicle rate

Jiangsu 6,884 0.45 0.90

Zhejiang 6,868 0.45 0.90

Guangzhou 6,333 0.60 N/A

Sichuan 2,668 0.35 0.85

Anhui 2,524 0.45 0.90

Source: CEIC, DBS Vickers estimates

Can HNE’s concession period/ toll rates be altered? HNE’s Phase I and II are both less than 30km in length and HNE Phase I has a concession period of 27 years, and it was approved pre-2004. Moreover, as shown above, Guangzhou toll rates are above other provinces’ average and media reports have already highlighted one of the expressways in the province. Thus, we believe there is a possibility that HNE could come under the regulatory review. However, downside may be limited. Toll road projects would need to sustain a reasonable and good-enough rate of return to attract private investments in this sector, if China and the local governments are to continue developing the expressway network. From a contractual perspective as well, we don’t think that toll road concessions (especially those under listed companies) that have already been handed out would see their concession periods reduced (or stopped entirely) without fair compensation. In fact, most of the buy-backs (by the local governments) we have seen involving assets of listed companies are at least at book value. Therefore, even if HNE has its concession period reduced or removed, we think that it is very likely that shareholders will receive fair and adequate compensation.

Company Focus

MIIF

Miaoli Wind MIIF's acquired 100% interest in Miaoli Wind (formerly known as infraVest Wind Power) from Asia Wind Co. Limited and Meihui Windpark GmbH & Co KG in March 2008. The total consideration (including transaction costs) was S$27.9m. Miaoli Wind holds an Electricity Industry Licence issued by the Taiwanese Bureau of Energy for a period of 30 years, expiring in 2036. Miaoli Wind owns and operates 25 wind energy converters (WEC), with a cumulative installed capacity of 49.8MW, at two sites (Dapong and Chunan) in Miaoli County, Taiwan. The terrain in the area is flat and all the WEC sites are found directly on the coastline facing the Taiwan Strait or inland at elevated and exposed points. Location of Miaoli Wind’s wind farms

Source: Company These WECs provide power generation capacity under license from the Energy Commission of the Ministry of Economic Affairs of Taiwan. All output from the WECs is sold to Taiwan Power Company (Taipower), the government-owned electricity company, under long-term power purchase agreements (PPA). Taipower is obliged by regulation to purchase power from renewable energy sources. There is strong government and legislative support for renewable energy in Taiwan. In 2009, the Taiwanese government passed a renewable energy act aimed at promoting the use of renewable energy. The goal is to increase Taiwan’s renewable energy generation capacity by 6.5 GW to 10 GW within 20 years. Miaoli Wind uses turbines manufactured by Enercon, one of the world’s leading manufacturers of WECs. The E-70 WEC

installed by Miaoli is based on well-proven technology and has been installed at more than 150 sites worldwide. A view of Miaoli Wind’s turbines

Source: Company Stable revenue from fixed long-term tariffs. The entire energy production is sold to Taipower under 15-year fixed tariff PPA and there is an option to extend each PPA for an additional 5 years. The fixed tariff is NT$2.00 per KWh. Long-term O&M contracts to control costs. Operation and maintenance (O&M) of the WECs is contracted to Solvent, a wholly owned subsidiary of the turbine manufacturer, Enercon. The fixed fee contract is valid for 12 years, with the option to extend for three more years. With the contract, costs are fixed and there is no need for separate maintenance capital expenditure. The O&M contract with Solvent guarantees 97% WEC availability. If this level of availability is not achieved, Solvent is required to compensate Miaoli Wind. The O&M contract payments are denominated in € and have been hedged to NT$ for five years. Highly vulnerable to wind speeds. Energy production by each WEC fluctuates based on the natural wind speed at the location of the WEC. Energy production is subject to seasonality, with the autumn and winter months forecast to have higher wind speed than the spring and summer months. Wind speeds have disappointed. At the time of acquisition, energy yields of the infraVest sites were assessed by Deutsche WindGuard, using the European Wind Atlas Procedure. Wind measurements were based on a data series covering 36 years of historical data gathered from a meteorological station at Hsinchu Airport, which is located close to the two wind farm sites. A long-term average mean energy production or

Company Focus

MIIF

probability of exceedance (P50) was assumed in MIIF’s investment case. However, since acquisition, wind speeds have been significantly lower than expected. Hence, the operational performance has been disappointing and management has now revised its forecast to the average actual historic generation. This puts at risk Miaoli Wind’s ability to refinance to current debt levels in 2012. Steady decline in energy production. Owing to lower wind speeds, energy production has declined at CAGR of 6% over 2007-10 at Miaoli Wind. This has had an adverse effect on revenues and EBITDA as well, which have declined at 8% and 11% CAGR over the same period. Energy production on a decline at Miaoli Wind

Source: Company Revenue and EBITDA on a decline at Miaoli Wind

Source: Company Equity has been written off. The poor operational performance at Miaoli Wind has been fully reflected in its book valuation, which has been written down fully in FY09.

This puts debt refinancing at risk. Miaoli Wind has two debt facilities outstanding, a NT$1.3bn debt facility which is amortising to 2020, and a NT$465m facility due for renewal in December 2012. Given the lower than expected level of cash flows being generated at Miaoli Wind and the subsequent write down of valuations, we believe rolling over debt will be difficult, and MIIF may be forced to either inject capital or divest the assets to pay back creditors. Further equity infusion maybe needed. In March 2010, MIIF injected S$1.7m into Miaoli Wind to avoid a breach of the debt service cover ratio. The low debt service cover ratio was caused by the poor wind conditions for the 12 months to 31 December 2009. By proactively addressing this potential breach, the Company continues the validation process in its application for Voluntary Gold Standard carbon credits. Miaoli Wind has lodged an application for Voluntary Gold Standard carbon credits. The Gold Standard Foundation has accepted Miaoli’s pre-feasibility assessment and the project is now undergoing the validation process. If successful, Miaoli Wind will be able to generate incremental revenue through the sale of these credits. However, we do not think the additional cash flow will be significant enough to impact valuations.

154140 134 127

-

20

40

60

80

100

120

140

160

180

07 08 09 10

Energy Production (GWh)

313288

260 246264

215 204 189

-

50

100

150

200

250

300

350

07 08 09 10

Revenue (NTD m) EBITDA(NTD m)

Company Focus

MIIF

Financials & Forecasts

MIIF – Consolidated Revenue and EBITDA trends for key assets

FY Dec (m) 07 08 09 10 11F 12F 13F TBC Revenue (NT$ m) 6,157.3 6,408.4 6,646.1 6,909.6 7,112.8 7,305.8 7,524.9 Revenue growth 4.1% 3.7% 4.0% 2.9% 2.7% 3.0% EBITDA (NT$ m) 3672.6 3902.0 4078.1 4287.2 4444.9 4627.2 4766.0EBITDA Margin 59.6% 60.9% 61.4% 62.0% 62.5% 63.3% 63.3% Distributions to MIIF (S$)* 18.2 16.6 13.1 29.5 45.3 46.6 HNE Revenue (RMB m) 459.2 446.7 484.4 523.4 496.8 515.1 540.8 Revenue growth -2.7% 8.4% 8.1% -5.1% 3.7% 5.0% EBITDA (RMB m) 381.6 353.8 393.4 424.8 397.4 412.1 438.1EBITDA Margin 83% 79% 81% 81% 80% 80% 81% Distributions to MIIF (S$) 13.2 14.2 21.3 22.9 20.1 20.9 CXP Revenue (RMB m) 214.7 209.6 217.2 263.6 295.6 317.8 333.7 Revenue growth 10% -2% 4% 21% 12% 8% 5% EBITDA (RMB m) 120.8 84.0 119.1 127.4 153.7 165.2 173.5EBITDA Margin 56% 40% 55% 48% 52% 52% 52% Distributions to MIIF (S$) 5.7 5.1 1.5 4.6 5.5 6.3 6.8

Source: Company, DBS Vickers estimates

Company Focus

MIIF

Segmental Breakdown of Investment Income FY Dec 2008A 2009A 2010A 2011F 2012F 2013F

Income (S$ m)

CXP 5 2 5 5 6 7

HNE 13 14 21 23 20 21

TBC 18 17 13 29 45 47

Miaoli 0 0 0 0 0 0

Others 98 31 6 1 1 1

Total 135 64 45 59 73 75 Source: Company, DBS Vickers Adjusted Income Statement (S$ m) FY Dec 2008A 2009A 2010A 2011F 2012F 2013F

Investment Income 135 64 45 59 73 75

Expenses (19) (7) (7) (10) (11) (11)

Operating Profit 116 56 37 49 62 64

Other Non Opg (Exp)/Inc 0 0 0 0 0 0

Associates & JV Inc 0 0 0 0 0 0

Net Interest (Exp)/Inc 0 0 0 0 0 0

Transaction Costs (2) (3) (5) (3) 0 0

Pre-tax Profit (Adj) 113 53 33 46 62 64

Tax 0 0 0 0 0 0

Minority Interest 0 0 0 0 0 0

Preference Dividend 0 0 0 0 0 0

Net Profit (Adj) 113 53 33 46 62 64

Net Profit before Except. 116 56 37 49 62 64

EBITDA 116 56 37 49 62 64

Growth

Revenue Gth (%) 2.7 (52.8) (30.1) 32.4 23.4 3.5

EBITDA Gth (%) 20.3 (51.4) (33.9) 30.8 26.6 4.3

Opg Profit Gth (%) 20.3 (51.4) (33.9) 30.8 26.6 4.3

Net Profit Gth (%) (57.8) (53.0) (39.0) 40.3 34.9 4.3

Margins & Ratio

Opg Profit Margin (%) 85.7 88.3 83.4 82.4 84.5 85.1

Net Profit Margin (%) 83.9 83.6 72.9 77.3 84.5 85.1

ROAE (%) 7.9 4.6 3.1 4.7 7.2 8.3

ROA (%) 6.9 4.1 2.7 4.1 6.2 7.1

ROCE (%) 7.1 4.4 3.2 4.4 6.3 7.2

Div Payout Ratio (%) 83.0 70.2 119.7 151.3 105.2 97.9

Source: Company, DBS Vickers Note: The revenue and earnings shown above are on an adjusted basis and represent the earnings of MIIF from its key investments that underpin the dividend flow to shareholders, and are not in accordance with accounting standards.

Margins Trend

69.0%

74.0%

79.0%

84.0%

89.0%

2009A 2010A 2011F 2012F 2013F

Operating Margin % Net Income Margin %

Higher stake in TBC

HNE growth impacted

FY10 net adjusted income was lower as a result of divestment of assets

Company Focus

MIIF

Balance Sheet (S$ m) FY Dec 2008A 2009A 2010A 2011F 2012F 2013F

Net Fixed Assets 1,260 930 581 842 769 694

Invts in Associates & JVs 0 0 0 0 0 0

Other LT Assets 105 94 89 83 77 77

Cash & ST Invts 42 176 486 102 73 78

Inventory 0 0 0 0 0 0

Debtors 11 3 13 13 13 13

Other Current Assets 0 0 0 0 0 0

Total Assets 1,418 1,202 1,170 1,041 933 863

ST Debt

26 6 6 6 6 6

Other Current Liab 28 17 12 12 12 12

LT Debt 86 80 74 74 74 74

Other LT Liabilities 8 5 6 6 6 6

Shareholder’s Equity 1,239 1,066 1,041 912 804 734

Minority Interests 30 29 31 31 31 31

Total Cap. & Liab. 1,418 1,202 1,170 1,041 933 863

Non-Cash Wkg. Capital (17) (15) 1 1 1 1

Net Cash/(Debt) (70) 90 406 22 (7) (2)

Debtors Turn (avg days) 39.7 37.7 65.6 83.2 67.4 65.1

Creditors Turn (avg days) N/A N/A N/A N/A N/A N/A

Inventory Turn (avg days) N/A N/A N/A N/A N/A N/A

Asset Turnover (x) 0.1 0.0 0.0 0.1 0.1 0.1

Current Ratio (x) 1.0 7.7 27.3 6.3 4.7 5.0

Quick Ratio (x) 1.0 7.7 27.3 6.3 4.7 5.0

Net Debt/Equity (X) 0.1 CASH CASH CASH 0.0 0.0

Net Debt/Equity ex MI (X) 0.1 (0.1) (0.4) 0.0 0.0 0.0

Capex to Debt (%) (121.0) (195.0) (417.5) 398.4 0.0 0.0


Asset Breakdown

Debtors - 1.4%

Net Fixed Assets - 88.1%

Associates'/JVs 0.0%

Bank, Cash and Liquid

Assets - 10.5% Inventory -

0.0%

About S$320m used in increasing stake in TBC from 20% to 47.5%

Company Focus

MIIF

Cash Flow Statement (S$ m) FY Dec 2008A 2009A 2010A 2011F 2012F 2013F

Pre-Tax Profit (314) (117) 33 (10) (8) (8)

Dep. & Amort. 5 6 6 6 6 0

Tax Paid (3) (1) (1) 0 0 0

Assoc. & JV Inc/(loss) 0 0 0 0 0 0

Chg in Wkg.Cap. (2) (1) (16) 0 0 0

Other Operating CF 411 170 (3) 0 0 0

Net Operating CF 97 57 19 (5) (2) (8)

Capital Exp.(net) 135 167 335 (320) 0 0

Other Invts.(net) 0 0 0 0 0 0

Invts in Assoc. & JV 0 0 0 0 0 0

Div from Assoc & JV 0 0 0 59 73 75

Other Investing CF 23 0 0 0 0 0

Net Investing CF 159 167 335 (261) 73 75

Div Paid (98) (58) (39) (69) (65) (63)

Chg in Gross Debt (155) (25) (6) 0 0 0

Capital Issues 0 0 0 (50) (35) 0

Other Financing CF (23) 0 0 0 0 0

Net Financing CF (276) (84) (45) (119) (100) (63)

Currency Adjustments 1 0 0 0 0 0

Chg in Cash (20) 140 310 (385) (29) 5

Opg CFPS (S cts) 7.6 4.6 2.7 (0.4) (0.2) (0.7)

Free CFPS (S cts) 17.9 18.0 27.3 (25.9) (0.2) (0.7) Source: Company, DBS Vickers

Capital Expenditure

0

50

100

150

200

250

300

350

400

2009A 2010A 2011F 2012F 2013F

Capital Expenditure (-)

Share buyback programme in place

Company Focus

MIIF

Quarterly / Interim Adjusted Income Statement (S$ m) FY Dec 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011

Investment Income 1 35 1 10 1 48

Fund Expenses (1) (2) (1) (2) (4) (2)

Operating Profit (Adj) (1) 33 (1) 8 (3) 46

Other Non Opg (Exp)/Inc 0 0 0 0 0 0

Associates & JV Inc 0 0 0 0 0 0

Net Interest (Exp)/Inc 0 0 0 0 0 0

Exceptional Gain/(Loss) 0 0 0 0 0 0

Pre-tax Profit (Adj) (1) 33 (1) 7 (3) 46

Tax 0 0 0 0 0 0

Minority Interest 0 0 0 0 0 0

Net Profit (Adj) (1) 33 (1) 7 (3) 46

Net profit bef Except. (1) 33 (1) 8 (3) 46

EBITDA (1) 33 (1) 8 (3) 46

Growth

Revenue Gth (%) (93.7) 6,620.0 (97.7) 1,139.3 (94.2) 8,213.4

EBITDA Gth (%) (113.7) (4,556.0) (101.9) (1,278.5) (141.0) (1,566.9)

Opg Profit Gth (%) (113.7) (4,556.0) (101.9) (1,278.5) (141.0) (1,566.9)

Net Profit Gth (%) (199.3) (5,916.3) (101.9) (1,261.2) (143.9) (1,491.1)

Margins

Opg Profit Margins (%) (142.8) 94.7 (80.4) 76.4 (538.7) 95.1

Net Profit Margins (%) (109.4) 94.7 (80.4) 75.3 (568.1) 95.1

Margins Trend

-700%

-600%

-500%

-400%

-300%

-200%

-100%

0%

100%

200%

2Q20

09

3Q20

09

4Q20

09

1Q20

10

2Q20

10

3Q20

10

4Q20

10

1Q20

11

2Q20

11

3Q20

11

Operating Margin % Net Income Margin %


Note: The revenue and earnings shown above are on an adjusted basis and represent the earnings of MIIF from its key investments that underpin the dividend flow to shareholders, and are not in accordance with accounting standards.

Higher dividend income y-o-y owing to higher stake in TBC

Company Focus

MIIF

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson (www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg (DBSR GO). For access, please contact your DBSV salesperson. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVR. It is being distributed in the United States by DBSV US, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBS Vickers Securities (USA) Inc (“DBSVUSA”) directly and not its affiliate. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVR, DBSVS, and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. DBSVR accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by DBSVR, DBSVS and/or DBSVH (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 25 Nov 2011, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).

Company Focus

MIIF

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned as of 23 Nov 2011

2. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of the company mentioned as of 25 Nov 2011.

3. Compensation for investment banking services:

i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months receive or intends to seek compensation for investment banking services from the HPHT Trust.

ii. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident

of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to hold an Australian financial services licence under the Corporation Act 2001 [“CA] in respect of financial services provided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [“MAS”] under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

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20111128 - MIIF - DBS Vickers

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