CCZ EQUITIES PTY LIMITED LEVEL 24, 9 CASTLEREAGH STREET, SYDNEY NSW 2000 GPO BOX 5045, SYDNEY NSW 2001 TEL: 61 2 9238 8238 FAX: 61 2 9231 0822 EMAIL: CCZ@CCZ.COM.AU

This is a research publication of CCZ Equities Pty Limited ABN 97 085 277 881 as a Corporate Authorised Representative

reference number 273728 of CCZ Statton Equities Pty Ltd ABN 16 104 843 370 AFS Licence 239946.

27 May 2013 Ian Munro imunro@ccz.com.au +61 (0) 3-8605 7902

Recommendation: BUY, target price to $0.27 (from $0.21) Share price: $0.23 Market Cap: $98m

Year end June 2012A 2013E 2014E 2015E

Revenue ($m) 52.2 61.7 85.5 90.8

EBITDA ($m) 5.7 7.7 12.7 15.4

Net Profit ($m) 2.1 3.5 5.8 7.6

EPS (cps) 0.6 0.9 1.4 1.8

EPS growth 115.8% 44.8% 49.1% 30.5%

PER (x) 36.5 25.2 16.9 12.9

DPS (cps) 0.40 0.45 0.75 1.00

Yield (%) 1.7% 2.0% 3.3% 4.3%

EV/EBITDA 18.2x 13.9x 8.0x 6.2x

$0.00

$0.04

$0.08

$0.12

$0.16

$0.20

$0.24

CAJ price history Source; IRESS

The MDI diagnostic imaging group acquisition settled on 1 May 2013, for an enterprise valuation of c$15m. We expect MDI to contribute $0.5m profit before tax (PBT) for FY13, out of the total $5m group PBT forecast. The EPS accretion is forecast to be 22% in FY14 and 32% in FY15. Productivity gains (i.e. 10% shorter consultation times) within MDI under new ownership could generate an additional $0.76m EBITDA or +6% to our FY14 EPS, on top of $0.6m of synergies already in our forecasts. We expect EPS growth of 49% during FY14, above company guidance of a 25%+ EPS increase. General trading conditions have been solid during 3Q13. CAJ acquired 11 MDI Clinics, comprising 5 large full service clinics and 6 smaller sized clinics. Clinics are located in the S/SE suburbs of Melbourne with a hub and spoke model, similar to the Capitol Health structure and importantly two fully licensed MRI machines. MDIs larger clinics include an out of pocket charge on c40% of scans, providing a template for how the charging structure may change within some of the 15 larger Capitol Health clinics. Only c20% of scans include out of pocket charges, within the Capitol branded clinics. We expect average pricing pressure of 3%-4% and volume growth of 4%-5% on scans within large clinics during FY14-FY15.

The Federal Budget re-affirmed that from Nov 2013 GPs will be able to refer scans and request Medicare-eligible MRIs for patients over the age of 16 for a set of clinically approved indications. The Budget allows additional program expenses of c$582m for each of the next 4 years and permits an additional 10 MRI machines in that period(currently c130 MRI machines are fully licensed Australia-wide). These measures are consistent with our theory of restricted supply of radiology, higher out of pocket charges and growing GP awareness and referral rates of MRIs (70% of all Capitols scans are referred by GPs) and likely pressure on competitors who cannot substitute CTs with MRI.

Valuation: Our valuation has risen to $0.27 per share, with a 100% weighting to DCF. BUY Recommendation. Next Catalysts: further uplift in demand for MRI scans and potential for higher out of pocket charges, new clinic and MRI license acquisitions. FY13-FY15 forecasts assume volume/price growth in scans but no new clinics.

Disclaimer: CCZ acted as lead manager to the $7.3m capital raise, executed in March 2013 and received a fee for providing this service. The author of this report holds a beneficial interest in CAJ shares.

imunro@ccz.com.au

27 May 2013 2

Investment thesis & Key Drivers MDI synergies FY14-FY15 & Government backed revenue = high quality of earnings. Improved

forecast free cash flow to c$9m by FY15e (9% free cash yield) from a forecast $6.6m in FY13e. Increase in utilisation of the 5 Capitol Health and 2 MDI owned MRI machines following regulatory

changes allowing Medicare rebate on certain MRI scans for children (aged < 16 years) on 1 Nov 2012. MRI scans /machine /day likely rose to 13 in December 2012 (from 8 in July 2012). Partial & full licensing of the 5 MRI machines is due to occur in November 2013, applicable for adults (> 16 years old) referred by GPs for certain scans. We expect close to 100% utilisation on these MRI machines to occur by FY15 and excess demand to facilitate a higher rate of out of pocket charges on MRI scans.

There is also excess capacity in the 2 MDI owned MRI machines to absorb greater demand for MRI

services. Profitability within competing community health imaging clinics is likely to come under pressure if they do not have an MRI license. The broadly comparable CT scan cannot be discounted below the bulk billing rate (as per Federal Law) giving little competitive fire power as a response.

Higher volume ultrasound and X-Rays normally cover costs for diagnostic imaging centres, whereas

the CT scans generate the highest margin and excess returns above costs. Profitability pressure within those centres unable to offer MRIs is likely to accelerate industry consolidation and perhaps provide acquisition opportunities for Capitol Health.

Higher MRI demand and increasing utilisation of the remaining scan machines (CT, Ultra Sound, and X-Ray) driven by IT technology, operational efficiencies across the 21 larger clinics and competitive advantage through independence from hospital & GP networks, plus superior follow up post scan.

EBITDA margin improvement to 12.7% in FY13 and 14.9% in FY14 (from 11.0% FY12), driven by higher

machine utilisation, revenue expansion, fixed cost leverage and the inclusion of MDI. Every $1 of revenue from here has a 30% variable cost (technician).

Opportunities for new clinic expansion within Victoria and potential to take advantage of industry consolidation. Capitol Health is currently just in Victoria with an optimal management structure and differentiation based on flexible employment terms and more autonomy for radiologists.

Favourable industry backdrop, with growth in the scan market of 4%-6%, driven by an ageing population and shorter GP consultation times. MRI demand growth is forecast to be 7%-8% pa.

The CAJ imaging centres are strategically located North, South West, West and East according to a

hub (CT Scan/MRI/Nuclear Med) and spoke (Ultrasound, X-Ray) model. Positioning of MDIs 11 clinics, mostly in the SE suburbs, includes only 1 clinic with overlap whilst adding a new set of GP, Physio and Dentists to the referral base.

The combined group is on track for over 650,000 scans in FY14. Industry trends towards out of

pocket charges are likely to accelerate as the supply of radiology services remains flat. A $10 charge on 10% of scans, would generate $0.65m in revenue, c$0.5m would fall to the bottom line or +9% to EPS.

The radiology industry may shift towards simultaneous patient and Medicare payments under a

Coalition Government, increasing the adoption of out of pocket charging on scans.

A 10% improvement in productivity / reduction in average consultation times for MDI under new owners could potentially add $0.76m EBITDA or 6% to group earnings in FY14, on top of our forecast.

imunro@ccz.com.au

27 May 2013 3

Trading Update released to the ASX on 9th April 2013

9MFY13 unaudited PBT of $3.3m (+27%), including 3Q13 PBT of $1.2m. PBT growth is likely being driven by the mixture of volume growth in the number of scans in Capitals larger clinics (statistics provided by Medicare Australia on diagnostic imaging grew by 5% between 2012 and 2013 and 6% between 4Q11and 4Q12). Capitols volume growth is also likely being assisted by IT efficiencies and improvements to patient management.

Price inflation on MRI & CT scans is also a positive driver. Demand for MRI scans has likely tightened, post the changes to referral structure, allowing GPs to refer child patients (< 16 years old) directly to diagnostic imaging centres and the associated costs coming under the bulk billing framework.

Average number of scans per MRI machine per day have likely increased to c13/14 scans in 3Q13 from c8/9 per day pre the MRI referral changes in 1Q13. The real kicker here is still on track for November 2013, when the adults come under the Medicare rebate and direct GP referral structure, predicating an expected increase in MRI utilisation > 20 scans per machine per day and potentially triggering an increase to out of pocket charges.

ROE accretion with MDI: Revenue still skewed to the larger Capitol Health clinics.

7%

9%

11%

13%

15%

17%

19%

2012 2013e 2014e 2015e

ROEMDI an ROE accretive acquisition FY14-FY15e.

source: CCZ Equities

ROE (ex MDI)

NEW ROE with MDI

15 large Capitol

clinics , 49

21 small large

Capitol

clinics , 7

3 nuc med capitol

clinics, 6

5 large MDI clinics , 21

6 small MDI clinics , 2

Split of Revenue FY14e $mSource; CCZ Equities,

MDI Acquisition

Expected synergies of $0.6m between FY13-FY15, based on finance synergies of $0.45m and operating synergies (Telco/Insurance/Systems) of $0.15m. There will be zero cost of attaining these synergies and the finance synergies will be realised in year 1. There arenil staff synergies included in the $0.6m total synergy forecast and none included in the assumption of EPS accretion.

Higher staff productivity has the potential to double our synergy assumptions, although these are difficult to gauge during the early stages. A 10% improvement in productivity / reduction in average consultation times could potentially add a further $0.76m EBITDA or 6% to group earnings in FY14.

IT platforms and staff arrangements and employment contracts will be largely left alone during FY13e in order to maintain the existing profitable structure and patient volumes and not open CAJ up to unnecessary levels of integration risk. Key radiologist staff have been retained on long term employment contracts.

CCZ Forecast uplift in ROE from c11% in FY13e to c19% in FY15e, from margin uplift and EPS accretion.

CCZ forecast CAJ will continue maintaining a dividend payout ratio of 50%-55% of reported EPS.

imunro@ccz.com.au

27 May 2013 4

Capitol runs a bulk billing, referral based community services model and aims to be the lowest cost in the industry. MRI, by contrast, has a far higher proportion of out of pocket charges (almost 40% of scans include out of pocket charges), providing Capitol a template to use in pricing imaging scans in appropriate demographics.

MDI adds a premium, higher value scan (CT/MRI) and more out of pocket charge based model

40

50

60

70

80

90

100

110

120

130

2012a 2013e 2014e 2015e

15 large Capitol clinics higher volume than the 5 large MDI Clinics source: CCZ Equities

Capitol Ave Scans/Day/Clinic

MDI ave Scans/Day/Clinic

80

100

120

140

160

180

200

220

240

260

2012a 2013e 2014e 2015e

$/scan5 large MDI clinics: higher value scans than 15

large Capitol clinics source: CCZ Equities

Capitol ave $ / scan

MDI ave $ / scan

Volume growth across the larger Capital (15 large clinics) and MDI (5 large clinics) imaging centres is likely to track at 4%-5% volume growth between FY13-FY15, in line with industry growth.

Some cannibalisation of CTs may occur during this time, however this will be compensated by higher MRI demand, potential to charge out of pockets in Capitol clinics on MRIs and also, the notion that Capitol clinics have another 2-3 years of industry growth rates levels, to reach full scan capacity on existing machines.

There is potential for larger clinic opening hours to be extended beyond 9-5:30, as far as 8:00-19:30 in some to capture unfilled MRI demand.

Historical earnings growth in the MDI business has been tracking in the single digits at the PBT line, driven by c5%-6% volume growth in scans and upward trajectory of scan charges, based on out of pockets on CT & MRI.

Finance Synergies

(based on MDI debt position on acquisition)$m

MDI Bank Debt $m 1H13 2.80

interest on MDI bank debt pre-synergies @ 8.6% (bbsw +560) 0.24-

interest on MDI bank debt post synergies @6.1% (bbsw +300) 0.17-

finance synergy on MDI bank debt $m 0.07

MDI Finance Leases $m 1H13 4.2

interest on MDI finance leases pre-synergies @10.5% 0.44-

interest on MDI finance leases post-synergies @ 8.5% -0.36

finance synergy on MDI finance leases $m 0.08

MDI shareholders Loans/notes $m 4.10

Interest payable on MDI shareholder loans / notes @ 7.3% 0.30-

Savings on paying down the MDI shareholder loans as part of deal 0.30

Total Finance Synergies $m 0.45

Combined MDI & CAJ Cost Base FY13e

(based on annualising 1H13 results)

$m run rate

(pre-synergy)

$m synergies to

be captured FY14-

FY15

Total Operating Expenses FY13e -64.26 -0.15

Employment -45.67 0

Telephone -1.36 -0.025

Equipment costs & servicing -3.62 -0.05

Technical & Medical Supply -3.85 -0.05

Insurance -0.63 -0.025

imunro@ccz.com.au

27 May 2013 5

Out of pockets an industry trend: Revenue share from MRI c20% by FY15 (from 5% in 1H13)

40

50

60

70

80

90

100

Mar '07 Sep '07 Mar '08 Sep '08 Mar '09 Sep '09 Mar '10 Sep '10 Mar '11 Sep '11 Mar '12 Sep '12 Mar '13

Patients paying 54% higher out of pocket charges for scans in VIC since '07. Source: Medicare, CCZ.

Average Patient Contribution Per Service - Patient Billed Only $

X-Ray24%

Ultrasound34%

CT Scan30%

BMD/Nuc Med4%

MRI5%

Services3%

Estimated revenue share by scan 1H13 $m Source; CCZ Equities,

Recent Federal Budget re-affirms funding support for MRI The Federal Budget in May re-affirmed that from November 2013, GPs will be able to refer scans and request Medicare-eligible MRIs for all patients over the age of 16 for a small set of clinically approved indications (Head, Shoulder, Arm, Spine). This builds on the 2012-13 initiative to extend Medicare requesting right to GPs for children (< age 16), applicable 1 November 2012. The Budget allows additional program expenses of c$582m for each of the next 4 years and permits an additional 10 MRI machines (currently c130 MRI machines are fully licensed Australia-wide), to be licensed and brought under Medicare eligibility across Australia between now and 2016. This clears any minor questions on Government funding/policy on MRIs, and clarifies that only a small number of MRI licenses will be issued over the coming three years, all of which re-affirms our forecast benefits of MRI demand for Capitol Health.

Diagnostic Imaging Review Reform Package 2011-12: In 2012, the Government increased the provision of full and partial Medicare eligible MRI units throughout Australia to a total of 341. Of these, 130 units are Medicare eligible MRI machines, across Australia, with 97 in Metropolitan areas and 33 in regional areas. Applicable from 1 November 2012, six new GP requested items for patients < 16 years old were added to the Medical Benefits schedule. Included within the better Access to MRI package, was $104m funding over 4 years to expand patient access and increase the bulk billing incentive to 15% of the schedule fee (from 10%) as of 1 May 2012. As part of the package announcement in May 2011, the then Federal Minister for Health and Ageing, Nicola Roxon, licensed 60 existing MRI machines in metropolitan regions (including 3 Capitol Health MRI machines) and 6 in regional areas.

It should become faster and easier (and cheaper via the rebate) for GPs to refer an MRI, which in many instances is a superior diagnostic technology to the CT scan and inflicts less radiation. On our projections, each MRI license is likely to be worth $5.4m in its own right by FY15. The Medicare rebate on MRIs increased also to c$400/MRI from 1 Nov 2012, with variances based on the nature of the scan.

GPs are the main referral base for Capitol Health, generating 70% of referrals. 5%-10% come from Dentists/Chiropractors and c20% from Physios and specialists. Some hospitals have their own exclusive radiology centres and 40% of all radiologists work in private hospitals. CAJ has opted not to form a strategic alliance with hospitals and instead, targets a broader base of GPs. Hospitals have a large back log of readymade in-house patients to service and therefore do not have the incentive or resources to attract outside patients.

imunro@ccz.com.au

27 May 2013 6

Diagnostic market costs & margins The average MRI costs $300-$400 in out of pocket expenses (prior to 1 Nov 2012 Capitol could not bulk-bill on GP referrals). The average rebate on a CT is $220-$250 (bulk-billed), Ultra Sound is $100 (bulk-billed) and X-Ray is $50 (bulk-billed). In Australia there are 130 MRI full licenses post the Government changes on 1 Nov 2012, of which around 40 are located in Victoria and 23 in Melbourne. Of these, only 10 are outside of hospitals, of which Capitol Health holds 7. No new licenses have been issued since 2007. It is important for the Government to restrict supply in this space and maintain health/customer service levels. CT and MRI are the highest margin imaging services. There are only low margins in the Ultra Sound (US) and X-Ray (XR) services because the cost is the same as the government rebate and there is limited room to charge the patient out of pocket expenses under current industry conditions. US and XR services are bankable, high volume services and keep the patient numbers ticking over to cover fixed costs.

Revenue from MRI is likely to be 20% by FY15 (from 5% in 1H13)

0

50

100

150

200

250

300

350

400

450

500

MRI low cost

MRI high cost

CT Scan low

cost

CT Scan high

cost

X-Ray low cost

X-Ray high cost

Ultras Sound

low

cost

Ultra Sound

high

cost

Nuc Med low

cost

Nuc Med high

cost

300

400

220250

45 6090

110

380

480$/Scan Est. scan cost range- Capitol. Source: CCZ Equities.

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

0%

10%

20%

30%

Mar '07

Sep '07

Mar '08

Sep '08

Mar '09

Sep '09

Mar '10

Sep '10

Mar '11

Sep '11

Mar '12

Sep '12

Mar '13

5% p.a scan growth in VIC & higher Government funding Source: Medicare, CCZ

% out of pockets by $ lhs

no. of scans/qtr in and out of hospital rhs

1H13 shortfall in current assets to liabilities of $3.7m: an efficient balance sheet

At 31 Dec 2012 there was a gap in receivables of $1.3m to be collected vs. payables of $4.3m. This is due to the timing of payments from debtors and to creditors. The shortfall is actually Debtor collections which on average turn around in 2-3 days as monies are received by patients via credit cards for the full amount plus out of pocket (the patient then gets bulk billed the claimable amount from Medicare). This means that at a point in time, the level of receivables is very low as the revenue is received and the cash follows in 2-3 days on average, clearing the balance sheet carrying item.

On the payables side, creditor terms for CAJ on average are < 30 days. CAJ payables include outgoings in tax to the ATO, GE Finance for machine leases, Property Leases, Staff and Payroll, Cleaners etc. With c$25m of cash costs incurred during 1H13, including $17m of employee costs, carrying $4.3m worth of payables is a reasonable position at 31 Dec 2012. CAJ has transitioned payables to direct debit wherever possible, in order to minimise the carrying value and shorten the working capital cycle. In many cases, such as rental outgoings, payments are generated 3 months in advance.

Under current circumstances, the shortfall of current assets to current liabilities will likely wind down to zero in 12-24 months as revenue & cash collected increases over a relatively fixed cost base.

Current liabilities are also partially inflated by c$1.6m of forward 12 month finance lease obligations aggregated as liabilities, when the income associated with these machines is collected on a monthly basis over those 12 months. If the Income/EBITDA from these machines was theoretically aggregated on the current asset side, this would add c$14m to current assets and alleviate the imbalance.

imunro@ccz.com.au

27 May 2013 7

Relative valuation with 2 large cap Health stocks

Health Sector -Valuation Summary .

CompanyShare

PriceCap $m

NPAT

'13e $m

EV/

EBITDA

'13e

EV/

EBITDA

'14e

EV/

EBITDA

'15e

EPS %

'12a

EPS %

'13e

EPS %

'14e

EPS %

'15e

P/E

'12a

P/E

'13e

P/E

'14e

P/E

'15e

Yield

'12a

Yield

'13e

EBITDA

margin

'13e

P/ CFPS

'12a

ROE %

FY13e

Primary Health (PRY) 5.11 2570.3 150.9 9.3 8.7 8.3 44% 30% 11% 9% 22.2 17.0 15.3 14.1 2% 3% 26.2% 12.0 5.6%

Sonic Health (SHL) 14.73 5847.8 382.4 11.4 10.6 9.8 8% 2% 9% 9% 18.2 17.7 16.3 14.9 4% 4% 18.9% 11.9 13%

Capitol Health (CAJ) 0.23 98.8 3.1 13.9 8.0 6.2 116% 45% 49% 31% 36.5 25.2 16.9 12.9 2% 2% 12.7% 13.4 11%

Average 10.4 9.7 9.0 20.2 17.4 15.8 14.5 17.4 12%

CAJ vs. Average 34% -18% -31% 80% 45% 7% -11% -23% -11%Source; CCZ Equities & Reuters Consensus

The discount for size is overdone: CAJ trades at an EV/EBITDA discount of 18% and 31% respectively to

peer group in FY14e and FY15e.

We forecast CAJ earnings to accelerate strongly in FY15, as they will include a full 12 months of the

adult MRI regulatory changes, MDI synergies, improved critical mass, efficiency and margin expansion,

plus an evident squeeze on other industry players without the capacity to offer MRI.

Company History Capitol Health model- CAJ invests in the relationship between the referrer (70% GPs) and the radiologist, providing close consultation with referrers and sharing resources for bone, prostate etc specialists in Melbourne by sending scans across the IT network. Capitol takes a partnership approach with the 30 radiologist employees, providing flexible work arrangements where possible and a mix of performance/base packages and part/full time and management responsibility. Competition- The top 6/7 players in radiology control c50% of the domestic market, unlike pathology where the top 3 control 90% of the market. Industry evidence suggests that there are 4 hour waits for an MRI in many Primary hospitals. Medicare/Childcare is not means tested. Primary has introduced incentive based remuneration schemes to its radiologists, which may encourage competition for patients. Outside of Primary, DCA and Capitol Health/MDI in Victoria, the employment opportunities for radiologists drop away significantly. The MDI ownership model (with 7 partners) was unique across the industry; the balance of smaller players each have 2-3 clinics and typically the same number of partners. The field drops off significantly after Capitol Health in Melbourne. Management & Register Structure- 4-person board, including the MD & CFO and 2 non-executive directors (none of whom are currently independent, although this may change). Between them, the board own 47.5m shares or 13% of issued capital. Of the register, 25% is owned by founders, 30% by institutions, 25% by retail, 10% by directors and 10% by radiologists. Clinton Athaide recently joined the Capitol Health management team. As a former MDI partner with extensive diagnostic imaging and community health industry experience, Clinton strengthens the management structure around MD John Conidi. He is ideally suited to help drive the MDI integration and MRI/out of pocket strategy.

imunro@ccz.com.au

27 May 2013 8

Capitol Health- Sensitivities & Risks

Regulatory risk: sensitivity to Federal Government regulation and bulk billing levels as stipulated

within the MBS and Federal Budget in May 2013.

The number of scans (full or partial) covered within the new MRI license arrangements from MBS:

elbow, head, shoulders, hands, feet are the most likely categories to be licensed.

Attracting and retaining high quality radiologists on reasonable employment conditions

Availability and cost of equipment finance and credit.

Fleet upgrades (less of a risk as the average useful life of MRI/CT/US and X-Ray is between 10-15

years) and all of the Capitol Health machines are run on operating lease agreements, with straight line

charges. It is likely that the MDI machines will also be transitioned from finance lease to operating

lease, once upgrades occur.

Capitol & MDI Geographic Footprint: Excellent hub and spoke coverage.

imunro@ccz.com.au

27 May 2013 9

Analyst: Ian Munro e: imunro@ccz.com.au p: (03) 8605 7902

Publication Date: 24 May 2013

STOCK INFORMATION Share Price (AUD) $ 0.23 Market Cap (AUD) 98.8m

Target Price (AUD) $ 0.27 Shares (fully diluted) 429.5m

Recommendation BUY Year End 30-Jun

1yr TSR Potential 20.7%

RETURN ANALYSIS 2011A 2012A 2013E 2014E 2015E

Adj EPS (AUD cps) 0.29 0.63 0.91 1.36 1.78

adj EPS % 22% 116% 45% 49% 31%

Weighted Shares (m) 329.0 338.2 382.8 429.5 429.5

reported EPS (AUD cps) 0.32 0.67 0.81 1.36 1.78

reported EPS % 32% 112% 20% 68% 31%

PE on adj EPS 78.7x 36.5x 25.2x 16.9x 12.9x

PE - Market 14.7x 13.6x 14.6x 13.2x 12.2x

PE Relative 435.2% 168.0% 72.4% 28.0% 6.1%

Dividend (AUD cps) 0.00 0.40 0.45 0.75 1.00

Franking 100.0% 100.0% 100.0% 100.0% 100.0%

Dividend Yield 0.0% 1.7% 2.0% 3.3% 4.3%

Payout Ratio 0.0% 59.5% 55.6% 55.1% 56.3%

EV/EBITDA 26.9x 18.2x 13.9x 8.0x 6.2x

EV/EBIT 51.5x 29.2x 19.1x 10.7x 8.1x

EV/PBT 77.6x 34.4x 21.4x 12.1x 8.7x

EBITDA/Sales 8.6% 11.0% 12.7% 14.9% 17.0%

EBIT/Sales 4.5% 6.8% 9.2% 11.1% 12.9%

ROE 4.8% 8.7% 10.5% 16.0% 18.9%

ROFE 7.7% 12.9% 16.0% 23.5% 30.9%

VALUATION SUMMARY

Models (AUD/share) DCF - Key Inputs DDM - Key Inputs

DCF 0.27 WACC 13.3% Retention Ratio 40.5%

DDM 0.13 Cost of Equity 13.5% Expected Growth 4.3%

PE 0.20

Weighted Avg 0.27 PE - Key Inputs 2013E 2014E 2015E

Target PER relative 90.0% 90.0% 90.0%

Valuation Weighting Discount Rate 99.5% 94.8% 90.4%

DCF 100.0% PV of EPS 0.11 0.16 0.20

DDM 0.0% PV of Dividend 0.00 0.01 0.01

PE 0.0% PE Valuation 0.11 0.17 0.20

PROFIT & LOSS (AUD'm) 2011A 2012A 2013E 2014E 2015E

Revenue 45.6 52.2 61.7 85.5 90.8

Operating Cost (41.7) (46.6) (53.9) (72.8) (75.5)

EBITDA 3.9 5.7 7.7 12.7 15.4

D&A (1.9) (2.1) (2.1) (3.2) (3.6)

EBIT 2.0 3.5 5.6 9.5 11.7

Net Interest (0.7) (0.5) (0.6) (1.1) (0.8)

Pre-Tax Profit 1.4 3.0 5.0 8.4 10.9

Other Significants 0.0 0.0 (0.4) 0.0 0.0

Tax (0.4) (0.8) (1.5) (2.5) (3.3)

Reported NPAT 1.0 2.1 3.1 5.8 7.6

Underlying NPAT 1.0 2.1 3.5 5.8 7.6

Income Growth 25.0% 14.5% 18.1% 38.7% 6.2%

EBITDA Growth 8.0% 44.9% 36.9% 64.0% 21.1%

EBIT Growth 8.0% 73.0% 59.1% 68.7% 23.7%

Underlying PBT Growth 100.0% 120.6% 67.5% 67.2% 30.5%

Reported NPAT Growth 100.0% 121.8% 45.1% 88.8% 30.5%

Capitol Health (CAJ.AX)

Capitol Health Provides facil ities and diagnostic imaging services to the

healthcare industry via 51 clinics and 30 radiologists throughout

Melbourne and regional Victoria. Services include X-Ray, Ultra Sound, CT

Scan, MRI, Nuc Med & Bio Medical Scans. Scan costs vary by site and type (X-

Ray c$55, US c$100, CT c$225, MRI c$320). Capitol operates a hub and spoke

model, with the 30 smaller clinics referring scan patients through to 21 large

clinics which account for c80% of revenue. X-Ray, US, CT and limited MRI

scans attract a medicare rebate. CAJ maximises machine util isation through

resource allocation and IT invesment.

imunro@ccz.com.au

27 May 2013 10

BALANCE SHEET (AUD'm) 2011A 2012A 2013E 2014E 2015E

Cash 1.2 1.7 5.1 8.2 11.1

Receivables 1.2 1.3 2.5 2.1 2.3

Inventory 0.0 0.0 0.0 0.0 0.0

Other 0.4 0.8 1.1 1.1 1.1

Current assets 2.8 3.8 8.7 11.5 14.5

Fixed Assets 9.4 8.7 17.1 15.4 13.8

Intangibles 20.9 23.4 26.9 28.8 28.8

Other 0.6 1.0 2.7 2.7 2.7

Non-Current Assets 30.9 33.2 46.6 46.9 45.2

Total Assets 33.7 37.0 55.4 58.4 59.7

Creditors 5.1 4.6 4.9 7.5 8.0

Short term debt & finance leases 1.9 2.1 3.5 3.5 3.5

Current tax liability 0.1 0.8 0.4 0.4 0.4

Employee Benefits 0.7 0.9 2.8 2.8 2.8

Current Liabilities 7.7 8.5 11.6 14.2 14.6

Long term debt & finance leases 5.5 3.5 10.0 7.0 4.0

Other & Employee benefits 0.3 0.5 0.5 0.5 0.5

Total Liabilities 13.5 12.5 22.2 21.7 19.2

Total Shareholder Funds 20.2 24.5 33.2 36.6 40.5

Total Funds Employed 24.5 26.3 38.1 35.4 33.4

Liquidity and leverage ratios

NTA per Share $ (0.00) 0.00 0.01 0.02 0.03

Net Debt (cash) / Equity 20.7% 7.3% 15.5% (3.8%) (21.6%)

Cash Balance $ per share 0.00 0.01 0.01 0.02 0.03

Net Debt (cash) / EBITDA 1.1x 0.3x 0.6x (0.1x) (0.5x)

Est franking credit balance $m 0.2 0.5 0.8 1.2 1.6

Est franking credits per share $ 0.00 0.00 0.00 0.00 0.00

CASHFLOW (AUD'm) 2011A 2012A 2013E 2014E 2015E

Gross Cash Flow 4.5 4.8 7.1 9.1 11.3

Change in Working Capital (0.7) (0.5) 0.9 (3.0) (0.3)

Net Capital Expenditure (1.8) (1.5) (1.4) (1.5) (2.0)

Free Cash Flow 2.0 2.8 6.6 4.6 9.0

Free CFPS (AUD cps) 0.6 0.8 1.7 1.1 2.1

Price / Free CFPS 37.7x 27.6x 13.4x 21.5x 11.0x

Capex / Depreciation 1.0x 0.7x 0.7x 0.5x 0.6x

Free Cash Yield % 2% 3% 7% 5% 9%

SEGMENT INFORMATION 2011A 2012A 2013E 2014E 2015E

Total Capital & MDI Clinics 34 37 48 48 48

Capital large clinics 13 15 15 15 15

ave scans per day 104 108 113 118 122

ave $ per scan 100 101 103 106 110

Capital large clinic revenue $m 35.0 39.7 45.5 48.7 52.0

MDI large clinics 5.0 5.0 5.0

ave scans per day 68 71 74

ave $ per scan 222 228 233

MDI large clinic revenue $m 3.3 21.2 22.5

Capital & MDI small & NUC med clinics 19 22 28 28 28

small & nuc med revenue $m 10.2 11.8 12.0 15.2 15.9

SUBSTANTIAL SHAREHOLDERS Interim Results 1H13a 2H13e

Shareholder (post capital raise) Holding Revenue 28.5 33.2

1. Idinoc (J Conidi) 7% EBITDA 3.2 4.6

2. Ms Stella Ha 4% NPAT 1.4 1.7

3. Peter & Janet Hunt 6% EPS (c) 0.4 0.5

4. Bond Street Custodians (Bkohn) 6% DPS (c) 0.30 0.15

5. Gia Chau Pty Ltd 4% EBITDA margin % 11.1% 13.8%

Free Cash Flow $m 1.1 5.4

imunro@ccz.com.au

27 May 2013 11

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