Industry Focus Malaysian Consumer Sector - DBS Bank Padini Holdings Padini Holdings :::: Apparel and...

54
ed-CK / sa- BC, PY Subdued consumer recovery, but expected Recovery in consumer sentiment remains fragile, but priced in 4Q16 earnings above, but due to low expectations; outlook remains cloudy OldTown remains our top pick for the sector Leading indicators point towards subdued recovery. Despite q-o-q pick up in private consumption growth in fourth quarter 2016, we remain cautious on the overall consumer sector given that leading indicators such as MIER Consumer Sentiment Index (CSI), job vacancies data and household loan approval rate continue to point towards subdued recovery. Earnings outlook remains sluggish. 4Q16 corporate results were above expectations partly due to already low market expectations. We maintain our cautious stance on the sector, as earnings prospects remain weak due to (1) continued slow recovery in consumer spending, (2) weakening ringgit that will inflate the cost of imported materials, (3) higher minimum wage effective from July 2016 to add onto cost pressures, and (4) an increasingly competitive operating environment and weak consumer market may restrict companies’ ability to pass on rising costs. Notable changes in recent stock recommendations. We recently downgraded BAT to Fully Valued and upgraded our call on MSM Malaysia Holdings to HOLD. We are putting our recommendation and TP for Padini under review, pending the upcoming management meeting. On the other hand, we maintain our BUY recommendation for Oldtown with higher TP of RM3.05. Lacking catalysts. While potential election goodies could help to temporarily create ‘feel good’ sentiment, we do not expect it to be a significant re-rating catalyst for the sector. With no significant catalysts on the horizon, bottom up stock picking remains our strategy for investors to generate alpha returns. OldTown remains our top pick for the sector in view of its (1) resilient business model, (2) established brand name, (3) strong balance sheet, (4) regional exposure to mitigate (potential) domestic earnings risks, and (5) attractive valuation. KLCI KLCI KLCI KLCI : : : : 1,754.67 1,754.67 1,754.67 1,754.67 Analyst King Yoong CHEAH +60 32604 3908 [email protected] Nur Inani Rozidin +60 326043905 [email protected] Abdul Azim Bin MUHTHAR +603 2604 3967 [email protected] STOCKS Source: AllianceDBS, Bloomberg Finance L.P. Closing price as of 21 Mar 2017 British American Tobacco British American Tobacco British American Tobacco British American Tobacco : Manufacturing and distribution of tobacco products OldTown Berhad OldTown Berhad OldTown Berhad OldTown Berhad : Café chain operator & FMCG manufacturer Padini Holdings Padini Holdings Padini Holdings Padini Holdings : Apparel and accessories retailer with overwhelming domestic presence as well as exposure in high end, mid-end and value clothing segments for all age groups. Sasbadi Holdings Sasbadi Holdings Sasbadi Holdings Sasbadi Holdings : Educational book publisher MSM Malaysia Holdings MSM Malaysia Holdings MSM Malaysia Holdings MSM Malaysia Holdings : Largest refined sugar manufacturer in Malaysia QL Resources QL Resources QL Resources QL Resources : Agro-food producer involved in integrated livestock farming, marine products manufacturing and palm oil activities Petr Petr Petr Petronas Dagangan onas Dagangan onas Dagangan onas Dagangan : PETRONAS' retail arm which involves in the marketing and distribution of petroleum products i.e. mogas, diesel, LPG, aviation fuel, fuel oil, kerosene oil, lubricant and asphalt in Malaysia. MIER Consumer Sentiment Index and private consumption growth Source: Department of Statistics, MIER 50 60 70 80 90 100 110 120 130 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 sa % q-o-q Private consumption growth (lhs) Consumer sentiments index (rhs) DBS Group Research . Equity 22 Mar 2017 Industry Focus Malaysian Consumer Sector Refer to important disclosures at the end of this report Price Price Price Price Mkt Cap Mkt Cap Mkt Cap Mkt Cap Target Price Target Price Target Price Target Price Performance (%) Performance (%) Performance (%) Performance (%) RM RM RM RM US$m US$m US$m US$m RM RM RM RM 3 mth 3 mth 3 mth 3 mth 12 mth 12 mth 12 mth 12 mth Rating Rating Rating Rating British American Tobacco 47.70 3,076 41.70 9.4 (13.7) FULLY VALUED OldTown Berhad 2.65 270 3.05 39.7 74.8 BUY Padini Holdings 2.90 431 2.95 12.4 44.3 BUY Sasbadi Holdings 1.58 99.7 1.75 15.1 28.0 BUY MSM Malaysia Holdings 4.47 710 4.70 (8.2) (3.9) HOLD QL Resources 4.55 1,283 4.60 6.0 6.5 HOLD Petronas Dagangan 23.70 5,318 24.92 0.9 (2.5) HOLD

Transcript of Industry Focus Malaysian Consumer Sector - DBS Bank Padini Holdings Padini Holdings :::: Apparel and...

ed-CK / sa- BC, PY

Subdued consumer recovery, but expected

• Recovery in consumer sentiment remains fragile,

but priced in

• 4Q16 earnings above, but due to low

expectations; outlook remains cloudy

• OldTown remains our top pick for the sector

Leading indicators point towards subdued recovery. Despite q-o-q pick up in private consumption growth in fourth quarter 2016, we remain cautious on the overall consumer sector given that leading indicators such as MIER Consumer Sentiment Index (CSI), job vacancies data and household loan approval rate continue to point towards subdued recovery. Earnings outlook remains sluggish. 4Q16 corporate results were above expectations partly due to already low market expectations. We maintain our cautious stance on the sector, as earnings prospects remain weak due to (1) continued slow recovery in consumer spending, (2) weakening ringgit that will inflate the cost of imported materials, (3) higher minimum wage effective from July 2016 to add onto cost pressures, and (4) an increasingly competitive operating environment and weak consumer market may restrict companies’ ability to pass on rising costs. Notable changes in recent stock recommendations. We recently downgraded BAT to Fully Valued and upgraded our call on MSM Malaysia Holdings to HOLD. We are putting our recommendation and TP for Padini under review, pending the upcoming management meeting. On the other hand, we maintain our BUY recommendation for Oldtown with higher TP of RM3.05. Lacking catalysts. While potential election goodies could help to temporarily create ‘feel good’ sentiment, we do not expect it to be a significant re-rating catalyst for the sector. With no significant catalysts on the horizon, bottom up stock picking remains our strategy for investors to generate alpha returns. OldTown remains our top pick for the sector in view of its (1) resilient business model, (2) established brand name, (3) strong balance sheet, (4) regional exposure to mitigate (potential) domestic earnings risks, and (5) attractive valuation.

KLCIKLCIKLCIKLCI : : : : 1,754.671,754.671,754.671,754.67 Analyst King Yoong CHEAH +60 32604 3908 [email protected]

Nur Inani Rozidin +60 326043905 [email protected]

Abdul Azim Bin MUHTHAR +603 2604 3967 [email protected] STOCKS

Source: AllianceDBS, Bloomberg Finance L.P.

Closing price as of 21 Mar 2017 British American TobaccoBritish American TobaccoBritish American TobaccoBritish American Tobacco :::: Manufacturing and distribution of tobacco products

OldTown BerhadOldTown BerhadOldTown BerhadOldTown Berhad :::: Café chain operator & FMCG manufacturer

Padini HoldingsPadini HoldingsPadini HoldingsPadini Holdings :::: Apparel and accessories retailer with overwhelming domestic presence as well as exposure in high end, mid-end and value clothing segments for all age groups.

Sasbadi HoldingsSasbadi HoldingsSasbadi HoldingsSasbadi Holdings :::: Educational book publisher

MSM Malaysia HoldingsMSM Malaysia HoldingsMSM Malaysia HoldingsMSM Malaysia Holdings :::: Largest refined sugar manufacturer in Malaysia

QL ResourcesQL ResourcesQL ResourcesQL Resources :::: Agro-food producer involved in integrated livestock farming, marine products manufacturing and palm oil activities

PetrPetrPetrPetronas Daganganonas Daganganonas Daganganonas Dagangan :::: PETRONAS' retail arm which involves in the marketing and distribution of petroleum products i.e. mogas, diesel, LPG, aviation fuel, fuel oil, kerosene oil, lubricant and asphalt in Malaysia.

MIER Consumer Sentiment Index and private consumption

growth

Source: Department of Statistics, MIER

50

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sa % q-o-q Private consumption growth (lhs)

Consumer sentiments index (rhs)

DBS Group Research . Equity 22 Mar 2017

Industry Focus

Malaysian Consumer Sector Refer to important disclosures at the end of this report

Price Price Price Price Mkt CapMkt CapMkt CapMkt Cap Target PriceTarget PriceTarget PriceTarget Price Performance (%)Performance (%)Performance (%)Performance (%)

RMRMRMRM US$mUS$mUS$mUS$m RMRMRMRM 3 mth3 mth3 mth3 mth 12 mth12 mth12 mth12 mth RatingRatingRatingRating

British American Tobacco

47.70 3,076 41.70 9.4 (13.7) FULLY VALUED

OldTown Berhad 2.65 270 3.05 39.7 74.8 BUY Padini Holdings 2.90 431 2.95 12.4 44.3 BUY Sasbadi Holdings 1.58 99.7 1.75 15.1 28.0 BUY MSM Malaysia Holdings

4.47 710 4.70 (8.2) (3.9) HOLD QL Resources 4.55 1,283 4.60 6.0 6.5 HOLD Petronas Dagangan 23.70 5,318 24.92 0.9 (2.5) HOLD

Industry Focus

Malaysian Consumer

Page 2

Table of Contents Sentiment still subdued 3

Potential election goodies 4

4QCY16 results review 4

Margin compression 5

M&A opportunities 6

Recommendation 6

Company Guides

British American Tobacco 8

MSM Malaysia 15

Oldtown 22

Petronas Dagangan 29

QL Resources 35

Sasbadi 43

Industry Focus

Malaysian Consumer

Page 3

Sentiment still subdued

RRRRecoveryecoveryecoveryecovery remains downbeatremains downbeatremains downbeatremains downbeat.... With the adverse impact of

GST implementation fading, we have observed that recovery

in consumer spending remains slow, uneven and fragile. We

believe that the slow pick-up in consumer spending has

been dragged by (1) higher cost of living contributed partly

by removal of subsidies by the government, (2) slowing

economic growth momentum, (3) concerns over job

prospects, (4) ringgit volatility, and (5) high household debt.

Table 1 : Table 1 : Table 1 : Table 1 : Elevated uElevated uElevated uElevated unemployment ratenemployment ratenemployment ratenemployment rate

Source: Department of Statistics

Table 2 : Household debt to GDP (%) stayed highTable 2 : Household debt to GDP (%) stayed highTable 2 : Household debt to GDP (%) stayed highTable 2 : Household debt to GDP (%) stayed high

Source: Department of Statistics

Table 3 : Recent policy Table 3 : Recent policy Table 3 : Recent policy Table 3 : Recent policy developments that could raise cost of developments that could raise cost of developments that could raise cost of developments that could raise cost of livinglivinglivingliving

Source: Various, AllianceDBS

PPPPrivate consumption growth rivate consumption growth rivate consumption growth rivate consumption growth picked up qpicked up qpicked up qpicked up q----oooo----qqqq….….….…. Private

consumption (55% of GDP) remained expansionary,

growing by 2.2% in q-o-q terms in 4Q16, up from 0.2%

sequential expansion in 3Q16. Nonetheless, we remain

cautious as the q-o-q expansion could be driven by (1) heavy

sales promotions and discounting activities towards the end

of the year, (2) shopping for Chinese New Year which fell in

Jan 2017, and, (3) the sharp weakening of Ringgit since

November 2016 that may have encouraged local travelling

among Malaysians, which supported end-of year sales.

…………bbbbut ut ut ut leading indicators point towards subdueleading indicators point towards subdueleading indicators point towards subdueleading indicators point towards subduedddd recovery.recovery.recovery.recovery. In

fact, our cautious stance is supported by consumer leading

indicators such as MIER Consumer Sentiment Index (CSI),

job vacancies data and household loan approval rate. CSI

statistics released by the Malaysian Institute of Economic

Research (MIER) dipped q-o-q to 69.8 points in 4Q16 (3Q16:

73.6), pointing towards sluggish recovery in consumer

spending. Besides that, data on recent job vacancies and

household loan approval rates remain below the historical

average, which could continue to drag consumption.

In a recent report, Retail Group Malaysia (RGM) has also

slashed its annual retail sales growth forecasts for 2017

from the initial 5% to 3.9%, citing low consumer

confidence, dampened by weak economic environment and

concerns of job prospects.

Table 4 : Table 4 : Table 4 : Table 4 : Expansionary private consumption Expansionary private consumption Expansionary private consumption Expansionary private consumption amidamidamidamid weak weak weak weak sentimentsentimentsentimentsentiment

Source: Department of Statistics, MIER

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'000%Unemployed persons (rhs) Unemployment rate (lhs)

69.1 66.3 63.6 60.4

72.4 72.376.1

80.586.1 86.8 89.1 89.1

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% to GDP

Effe c t i ve da teEffe c t i ve da teEffe c t i ve da teEffe c t i ve da te I temsI temsI temsI tems Quantum of a d justme ntQuantum of a d justme ntQuantum of a d justme ntQuantum of a d justme nt % cha nge% cha nge% cha nge% cha nge

29-Jun-15 Cigarettes - excise duty hike +RM0.30/pack of 20 2.2

15-Oct-15 Selected toll charges (18 intracity highways) - Avg 40

4-Nov-15 Cigarettes - excise duty hike +RM3.20/pack of 20 23.2

2-Dec-15 KTM railway charges +4 sen/km 36.4

2-Dec-15 LRT and Monorail charges - Avg 10

1-Mar-16 Removal of flour subsidy +RM8.25/pack of 25kg 24.4

1-Mar-16 AlcoholVaries depending on a lcohol content and

litre chargeBetween -10 & +10

1-Jul-16 Minimum wage hike +RM100 to RM1,000/mth for Peninsula 11.1

15-Jul-16 Natural gas tariffs revision for non-power sector +RM1.52/MMBtu 6.0

1-Nov-16 Retail pump price adjustment +15 sen/litre 7.0 - 8.6

1-Nov-16Cooking oil (various bottled packaging, except 1kg

polybag)Reportedly between RM1.40/kg - RM1.82/kg 42.4 - 61.9 per kg

1-Jan-17 Retail pump price adjustment +15sen/litre to 20sen/litre Between 6.7 & 10.8

1-Feb-17 Retail pump price adjustment +10sen/litre to 20sen/litre Between 4.9 & 9.5

1-Mar-17 Sugar price ceiling (wholesale & retail) raised +11sen/kg 4 per kg

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sa % q-o-q Private consumption growth (lhs)

Consumer sentiments index (rhs)

Industry Focus

Malaysian Consumer

Page 4

Table 5 : Job vacancies remain below Table 5 : Job vacancies remain below Table 5 : Job vacancies remain below Table 5 : Job vacancies remain below trendtrendtrendtrend

Source: Department of Statistics, MIER

Table 6 : Household loan approval rate remain belowTable 6 : Household loan approval rate remain belowTable 6 : Household loan approval rate remain belowTable 6 : Household loan approval rate remain below averageaverageaverageaverage

Source: BNM

Excise Excise Excise Excise duty duty duty duty hike unlikely forhike unlikely forhike unlikely forhike unlikely for tobaccotobaccotobaccotobacco products, but sugar price products, but sugar price products, but sugar price products, but sugar price

has movedhas movedhas movedhas moved upupupup.... A couple of months have passed since Budget

2017 and there is no indication from authorities that there

could be post-budget excise duty hike for tobacco products.

We now believe that tobacco companies are off the radar for a

potential excise duty hike until Budget 2018, to be tabled in

fourth quarter 2017.

Nevertheless, we recently downgraded British American

Tobacco (BAT) to Fully Valued with RM41.70 TP in view of (1)

sluggish topline recovery due to challenging industry prospects,

in particular the persistently high proportion (>50%) of illicit

trades, (2) profit margins being under pressure in 2017 as the

group is starting to source tobacco products for the domestic

market from other British American Tobacco Group’s factories

in the region, and (3) de-rating of PE as it is a pure trading

company going forward.

On the other hand, we upgraded our call on MSM Malaysia

Holdings to HOLD and raised our TP to RM4.70 after we raised

our earnings forecasts to reflect the higher average selling price

of sugar announced by the authorities effective in March.

Potential election goodies

Sentiment is Sentiment is Sentiment is Sentiment is so lowso lowso lowso low that that that that goodies will helpgoodies will helpgoodies will helpgoodies will help. . . . We maintain that

one theme to watch this year will be potential election

goodies. The government is poised to hold a general election

(GE) latest by May 2018 and the market is anticipating that the

election will take place this year. As such, we will not be

surprised if the government announces additional stimulus

measures this year to create feel-good factors prior to the

election.

Anticipated potential election goodies include (1) higher civil

servant bonus and/or even pay rises, (2) imposition of cap on

petrol price increase, (3) increased allocation of landbank for

PRIMA housing scheme, and (4) more high impact

infrastructure projects. While potential election goodies could

temporarily create feel good sentiment, we do not expect this

to be a significant re-rating catalyst for the sector.

4QCY16 results review

An appetising An appetising An appetising An appetising quarterquarterquarterquarter. . . . Quarterly earnings were above

expectations mainly contributed by (1) already low market

expectations, and, (2) strong earnings contributions by

Petronas Dagangan, OldTown, and Padini. Petronas Dagangan

benefited from the recovery of crude oil price in 4Q16. On the

other hand, OldTown benefited from strong export sales and

weak ringgit, while Padini continued to ride on downtrading,

new store expansions and resilient margins.

As illustrated in table 8, total profit for the 4QCY16 for

consumer stocks under our coverage improved by 25% y-o-y

mainly boosted by strong earnings contributions from Petronas

Dagangan, OldTown, and Padini due to factors outlined above.

On a q-o-q basis, earnings growth for 4Q was relatively flattish.

-

100,000

200,000

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700,000

800,000

1Q

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Reported job

vacancies

2010 - 2016 avg

30.0

35.0

40.0

45.0

50.0

55.0

60.0

1Q

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Household loan

approval rate (%)

2010 - 2016 avg

Industry Focus

Malaysian Consumer

Page 5

Table 7 : 4QCY16 results summary tableTable 7 : 4QCY16 results summary tableTable 7 : 4QCY16 results summary tableTable 7 : 4QCY16 results summary table

Source: AllianceDBS

Table Table Table Table 8888 : : : : 4QCY16 : 4QCY16 : 4QCY16 : 4QCY16 : Earnings growth trends Earnings growth trends Earnings growth trends Earnings growth trends

Source: AllianceDBS

Sluggish eSluggish eSluggish eSluggish earnings arnings arnings arnings outlook.outlook.outlook.outlook. Despite stronger than expected

4Q16 results, we maintain our cautious stance on the sector,

as earnings prospects are expected to remain weak due to (1)

continued slow recovery in consumer spending, (2) weakening

ringgit that will inflate the cost of imported materials, (3)

higher minimum wage effective from July 2016 to add on to

cost pressures, and (4) an increasingly competitive operating

environment and weak consumer market may restrict

companies’ ability to pass on the rising cost.

Margin compression KKKKey drag on earnings. ey drag on earnings. ey drag on earnings. ey drag on earnings. In fact, we expect margin compression

to be the key earnings downside risk going forward for

consumer stocks under our coverage. The potential victims

include Padini and MSM, with the former sourcing about 80-

90% of its products from China. As such, the ringgit’s

persistent weakness against RMB could continue to increase

Padini’s inventory cost and put downward pressure on its

margins in the coming quarters. We are also concerned that

the recent hike in MSM’s selling price may not be sufficient to

cover the higher production cost should there be significant

increase in USD- denominated raw sugar costs.

OldOldOldOldTTTTown and BAT own and BAT own and BAT own and BAT –––– actively addressing margin compression actively addressing margin compression actively addressing margin compression actively addressing margin compression

challenges.challenges.challenges.challenges. Meanwhile, we believe that potential margin

compression for OldTown’s fast moving consumer goods

(FMCG) operations, arising from potentially higher cost of raw

materials, is largely mitigated in the near term as the group has

locked in contract prices for its coffee powder over the next

seven months.

There will be an uptick in its non-dairy creamer cost from Nov

2016 (as the group renewed its non-dairy creamer contract for

a year till Oct 2017), which constitutes about 40% of its cost

of goods sold, but management will seek to mitigate this

through an improvement in cost efficiency. On a positive note,

higher export sales have enabled the group to benefit from

ringgit’s weakness against USD and RMB.

Table 8 : Selective raw material costs (sugar and coffee powder)

Source: Bloomberg

On the other hand, BAT has resorted to addressing margin

compression issues by closing its manufacturing factory along

Jalan Universiti, Petaling Jaya in stages up to 2HFY17 and has

turned to sourcing tobacco products for the domestic market

from other British American Tobacco Group’s factories in the

region.

Although we believe that such move could help the group to

improve its mid to longer term profitability, near term profit

margins would be under pressure from the product

outsourcing route.

F inancialF inancialF inancialF inancial EPSEPSEPSEPS v s DBSv s DBSv s DBSv s DBS v s consensusv s consensusv s consensusv s consensus

CompanyCompanyCompanyCompany quartersquartersquartersquarters ChangeChangeChangeChange est imatesest imatesest imatesest imates est imatesest imatesest imatesest imates

BAT 4QFY16 ▼ Inline Inline

MSM Malaysia 4QFY16 ◄► Below Below

Oldtown 3QFY17 ▲ Above Above

Padini 2QFY17 ◄► Inline Above

Petronas Dagangan 4QFY16 ◄► Above Above

Sasbadi Holdings 1QFY17 ◄► Inline Inline

QL Resources 3QFY17 ◄► Inline Inline

F inanc ialF inanc ialF inanc ialF inanc ial

CompanyCompanyCompanyCompany quar te rsquar te rsquar te rsquar te rs Y-o-Y changeY-o-Y changeY-o-Y changeY-o-Y change Q-o-Q changeQ-o-Q changeQ-o-Q changeQ-o-Q change

BAT 4QFY16 -17.8% -22.4%

MSM Malays ia 4QFY16 -78.4% -38.2%

Oldtown 3QFY17 119.4% 85.0%

Padini 2QFY17 65.1% 91.0%

Petronas Dagangan 4QFY16 183.9% 5.1%

Sas badi Holdings 1QFY17 -3.1% 10.9%

QL Res ources 3QFY17 114.1% 5.2%

Total T otal T otal T otal 25.3%25.3%25.3%25.3% -0.1%-0.1%-0.1%-0.1%

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USD/lbUSD/lb

Coffee (LHS) Raw Sugar (RHS)

Industry Focus

Malaysian Consumer

Page 6

M&A opportunities

M&A opportunities for cashM&A opportunities for cashM&A opportunities for cashM&A opportunities for cash----rich companies? rich companies? rich companies? rich companies? Given the current

challenging operating environment for the sector, companies

with healthy cash positions like OldTown and Sasbadi are

looking for earnings-accretive acquisitions to boost their

growth prospects. OldTown is actively pursuing M&A

opportunities in F&B operations to enhance earnings while

Sasbadi has openly stated its desire of making at least one

value-accretive acquisition per annum to sustain growth.

Recommendation Subdued recovery in consumer spendingSubdued recovery in consumer spendingSubdued recovery in consumer spendingSubdued recovery in consumer spending ---- not a not a not a not a mouthmouthmouthmouth----

wateringwateringwateringwatering sectorsectorsectorsector.... While we remain cautiously optimistic that

consumer spending will continue along its recovery path this

year, we do not foresee any significant re-rating catalysts for

the overall sector at this juncture. As such, bottom up stock

picking remains a preferred strategy to generate alpha returns.

Notable changeNotable changeNotable changeNotable changessss in recommendations for consumer stocks in recommendations for consumer stocks in recommendations for consumer stocks in recommendations for consumer stocks

under our coverage. under our coverage. under our coverage. under our coverage. As mentioned above, we recently

downgraded BAT to Fully Valued and upgraded our call on

MSM Malaysia Holdings to HOLD. We are also putting our

recommendation and TP for Padini under review, pending the

upcoming management meeting.

Stock picksStock picksStock picksStock picks. . . . Given the concerns outlined above, we favour

stocks with (1) resilient business models, (2) established brand

names in their respective sectors to withstand the continued

challenging operating environment, (3) strong balance sheets

to undertake earnings-accretive M&A activities to drive growth

and/or engage in capital-management exercises to reward

shareholders, (4) regional exposure to mitigate (potential)

domestic earnings risks, and (5) attractive value propositions.

OldTownOldTownOldTownOldTown (BUY, TP: RM(BUY, TP: RM(BUY, TP: RM(BUY, TP: RM3.3.3.3.05050505)))) remains our top pick for the

sector.

Table 9: Peer Comparison

Sources: AllianceDBS, Bloomberg Finance L.P

CY2016/2017

Recomme

ndation

Target

Price

Current

Price

Market

CapCY2017 CY2018 CY2017 CY2018 CY2017 CY2018 CY2017 CY2018 CY2017 CY2018

British American

Tobacco

FULLY

VALUED

41.70 47.70 13,619.8 19.7x 20.3x (6%) 4% 4.8% 4.7% 31.3x 30.5x 135% 157%

MSM Malaysia HOLD 4.70 4.47 3,142.3 20.1x 14.9x 46% 19% 3.2% 4.4% 1.7x 1.4x 9% 10%

Oldtown BUY 3.05 2.65 1,196.4 12.6x 16.8x 10% 4% 3.5% 2.6% 2.1x 2.6x 17% 16%

Padini BUY 2.95 2.90 1,907.9 10.6x 11.1x 7% 9% 3.9% 3.4% 2.8x 2.7x 28% 26%

Petronas Dagangan HOLD 24.92 23.70 23,544.9 26.3x 24.9x (2%) 5% 2.9% 3.0% 4.4x 4.2x 17% 17%

Sasbadi Holdings BUY 1.75 1.58 441.5 15.4x 14.5x 31% 24% 3.3% 3.4% 2.2x 2.3x 15% 17%

QL Resources HOLD 4.60 4.55 5,678.5 22.8x 19.8x 16% 20% 1.3% 1.5% 2.9x 2.7x 13% 15%

Total / weighted avg 49,531.3 21.9x 20.9x 4% 8% 3.4% 3.5% 10.7x 10.4x 47% 53%

ROAEP/E EPS Growth (YoY) Dividend Yield Price/ BVPS

Industry Focus

Malaysian Consumer

Page 7

Company GuidesCompany GuidesCompany GuidesCompany Guides

ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa:BC, PY

FULLY VALUEDFULLY VALUEDFULLY VALUEDFULLY VALUED (Downgrade from Hold)

Last Traded PriceLast Traded PriceLast Traded PriceLast Traded Price (((( 21 Mar 201721 Mar 201721 Mar 201721 Mar 2017)))): : : : RM47.70 (KLCIKLCIKLCIKLCI : : : : 1,754.67) Price Target Price Target Price Target Price Target 12121212----mthmthmthmth:::: RM41.70 (-13% downside) (Prev RM41.70)

Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Negative. Persistently high percentage of illicit trades

Where we differWhere we differWhere we differWhere we differ:::: Lower than consensus on lower GP margins Analyst King Yoong CHEAH +60 32604 3908 [email protected]

What’s New • FY16 results were within expectations

• Increasingly cautious of its outlook; cut FY17-18F

earnings by 16-14% on lower margins

• Downgrade to FULLY VALUED with lower TP of

RM41.70

Price Relative

Forecasts and Valuation FY FY FY FY DecDecDecDec ((((RMRMRMRM m) m) m) m) 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF

Revenue 4,582 3,756 3,717 3,767 EBITDA 1,277 902 869 901 Pre-tax Profit 1,231 909 860 893 Net Profit 910 721 645 670 Net Pft (Pre Ex.) 910 687 645 670 Net Pft Gth (Pre-ex) (%) 0.9 (24.5) (6.2) 3.9 EPS (sen) 319 253 226 235 EPS Pre Ex. (sen) 319 241 226 235 EPS Gth Pre Ex (%) 1 (24) (6) 4 Diluted EPS (sen) 319 240 226 235 Net DPS (sen) 312 278 215 223 BV Per Share (sen) 191 191 143 156 PE (X) 15.0 18.9 21.1 20.3 PE Pre Ex. (X) 15.0 19.8 21.1 20.3 P/Cash Flow (X) 13.9 19.8 20.1 20.2 EV/EBITDA (X) 10.9 15.1 15.8 15.2 Net Div Yield (%) 6.5 5.8 4.5 4.7 P/Book Value (X) 24.9 25.0 33.5 30.5 Net Debt/Equity (X) 0.5 CASH 0.3 0.2 ROAE (%) 170.0 132.0 135.3 157.0 Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: 240 261 268 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 5 S: 4 H: 11

Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P

Outlook Outlook Outlook Outlook still still still still smokysmokysmokysmoky and hazyand hazyand hazyand hazy Downgrade to Downgrade to Downgrade to Downgrade to FULLY VALUEDFULLY VALUEDFULLY VALUEDFULLY VALUED.... We downgrade our recommendation for British American Tobacco (BAT) to FULLY VALUED in view of (1) sluggish topline recovery due to challenging industry prospects, in particular the persistently high proportion (>50%) of illicit trades, (2) profit margin being under pressure in 2017 as the group is starting to source tobacco products for the domestic market from other British American Tobacco Group’s factories in the region, and (3) PE could de-rate being a pure trading company. Increasingly challenging sector landscaIncreasingly challenging sector landscaIncreasingly challenging sector landscaIncreasingly challenging sector landscape.pe.pe.pe. The sector landscape is getting increasingly difficult due to: (1) declining cigarette consumption per capita because of an increasing health-conscious population; (2) continued high proportion of illicit trades; (3) regulatory risks; and (4) emergence of alternative product offerings such as e-cigarettes. Cut forward earnings forecasts by Cut forward earnings forecasts by Cut forward earnings forecasts by Cut forward earnings forecasts by 11116666----11114444%.%.%.%. Although FY16 earnings came in within expectations, we are increasingly concerned about the group’s earnings prospects in view of the persistently high illicit trades and thinning profit margins. We cut our FY17-18F earnings by 16-14% as we increase our illicit trades assumption (from 43% to 48% and lower our GP margin assumptions from 34% to 32%. Valuation:

Post earnings adjustments, we downgrade our

recommendation to FULLY VALUED with a lower DCF-based TP

of RM41.70. Our TP implied a forward PE of 19x, which we

deem to remain rich for a pure trading company. Although the

share price could be supported in the near term with the

upcoming 4Q DPS payout of RM1.23 (interim + special), we

believe that cloudy earnings outlook would cap its upside

potential.

Key Risks to Our View:

Sharp drop in illicit trades and strong recovery in legal cigarette

market could pose upside risk to our recommendation. At A Glance Issued Capital (m shrs) 286

Mkt. Cap (RMm/US$m) 13,620 / 3,076

Major Shareholders (%)

British American Tobacco BV (%) 50

Skim ASB 6.3

Aberdeen Assets 5.0

Free Float (%) 38.7

3m Avg. Daily Val (US$m) 2.9

ICB IndustryICB IndustryICB IndustryICB Industry : Consumer Goods / Tobacco

DBS Group Research . Equity

22 Mar 2017

Malaysia Company Guide

British American Tobacco Version 6 | Bloomberg: ROTH MK | Reuters: BATO.KL Refer to important disclosures at the end of this report

62

82

102

122

142

162

182

202

222

38.3

43.3

48.3

53.3

58.3

63.3

68.3

73.3

78.3

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

Relative IndexRM

British American Tobacco (LHS) Relative KLCI (RHS)

ASIAN INSIGHTS VICKERS SECURITIES

Page 9

Company Guide

British American Tobacco

WHAT’S NEW

Within expectations

FYFYFYFY16 results 16 results 16 results 16 results mmmmetetetet expectationexpectationexpectationexpectationssss.... Stripping off various non-core

adjustments including disposal gains of RM159m and

restructuring cost of RM27m, the group’s 4QFY16 core net

profit declined by 18% y-o-y to RM164m. The fall in earnings

was attributed to its top-line declining by 18% on the back of

the sharp drop in domestic sales volume (-28% y-o-y). This

brings its full year core earnings to RM687m, which was

within our expectations.

The group declared final net DPS of RM1.23 (special: 46sen,

interim: 77sen), going ex on 9 March and payment on 23

March. This brings its total dividend payout to RM2.78,

implying a payout ratio of 110% based on reported earnings.

IllIllIllIlliciticiticiticit trades exceeded trades exceeded trades exceeded trades exceeded 50%.50%.50%.50%. Management highlighted that

the sales volume was weighed down by illicit trades, which

reached a record high of 51.2% in June 2016 from 35.5% in

August 2015. This was triggered by the c.40% excise duty

hike in Nov 2015, which reduced the affordability of smokers.

We understand that the illicit trades have continued to rise

and could have hit 55% recently.

Other key takeaways from the briefing:

Restructuring plan on trackRestructuring plan on trackRestructuring plan on trackRestructuring plan on track.... The group is closing its

manufacturing factory along Jalan Universiti, Petaling Jaya in

stages up to 1HFY17. It will resort to sourcing tobacco

products for the domestic market from other British American

Tobacco Group’s factories in the region, from mainly

Indonesia and some from Singapore.

The group will relocate to a new office at Wisma Guocoland

in Damansara Heights, KL by August 2017.

CutCutCutCut forwardforwardforwardforward earnings forecasts by earnings forecasts by earnings forecasts by earnings forecasts by 11116666----11114444%%%%. Although FY16

earnings came in within expectations, we have increasingly

concerns about the group’s earnings prospects in view of (1)

persistently high illicit trades, (2) profit margins could come

under pressure in 2017 as the group is starting to source

tobacco products for the domestic market from other British

American Tobacco Group’s factories in the region. We cut

our FY17-18 earnings forecasts by 16-14% as we increase

our illicit trades assumptions (from 43% to 48%) and lower

our GP margin assumptions from 34% to 32%.

Lower TP,Lower TP,Lower TP,Lower TP, ddddowngrade to owngrade to owngrade to owngrade to FULLY VALUEDFULLY VALUEDFULLY VALUEDFULLY VALUED.... Post earnings cut,

we downgrade our recommendation for British American

Tobacco (BAT) to Fully Valued with a lower DCF-based TP of

RM41.70.

Quarterly / Interim Income Statement (RMm)

FY FY FY FY DecDecDecDec 4Q4Q4Q4Q2015201520152015 3Q3Q3Q3Q2016201620162016 4Q4Q4Q4Q2016201620162016 % chg yoy % chg yoy % chg yoy % chg yoy % chg qoq% chg qoq% chg qoq% chg qoq

Revenue 1,058 932 841 (20.5) (9.8)

Cost of Goods Sold (686) (609) (573) (16.5) (6.0)

Gross ProfitGross ProfitGross ProfitGross Profit 372372372372 323323323323 268268268268 (28.0)(28.0)(28.0)(28.0) (17.1)(17.1)(17.1)(17.1)

Other Oper. (Exp)/Inc (93.4) (73.0) (76.6) (18.0) 4.9

Operating ProfitOperating ProfitOperating ProfitOperating Profit 279279279279 250250250250 191191191191 (31.4)(31.4)(31.4)(31.4) (23.6)(23.6)(23.6)(23.6)

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm

Associates & JV Inc 0.0 0.0 0.0 nm nm

Net Interest (Exp)/Inc (1.0) (3.0) 0.07 nm nm

Exceptional Gain/(Loss) (5.2) (2.9) 125 nm nm

PrePrePrePre----tax Profittax Profittax Profittax Profit 273273273273 244244244244 316316316316 16.116.116.116.1 29.529.529.529.5

Tax (78.0) (35.8) (27.2) (65.2) (24.0)

Minority Interest 0.0 0.0 0.0 nm nm

Net ProfitNet ProfitNet ProfitNet Profit 195195195195 209209209209 289289289289 48.748.748.748.7 38.738.738.738.7

Net profit bef Except. 200 211 164 (17.8) (22.4)

EBITDA 288 250 194 (32.9) (22.6)

Margins (%)

Gross Margins 35.2 34.7 31.9

Opg Profit Margins 26.3 26.8 22.8

Net Profit Margins 18.4 22.4 34.4

Source of all data: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 10

Company Guide

British American Tobacco

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Pricing policy remains its key earnings driver. Pricing policy remains its key earnings driver. Pricing policy remains its key earnings driver. Pricing policy remains its key earnings driver. Operating in an

oligopoly industry with three leading players (BAT, JTI and Philip

Morris International) in the legalised market, the ability of BAT

to raise prices to pass on increased costs (mainly arising from sin

tax hikes), without affecting its market share and profit remains

its key earnings driver.

Commanding position helps to influence market pricing. Commanding position helps to influence market pricing. Commanding position helps to influence market pricing. Commanding position helps to influence market pricing. BAT

has a commanding market share of >55% in the legalised

market in Malaysia. Such a dominant position has, to some

extent, allowed the group to be a price leader rather than a

price taker.

Ability to adjust its pricing strategy to maintain its earnings Ability to adjust its pricing strategy to maintain its earnings Ability to adjust its pricing strategy to maintain its earnings Ability to adjust its pricing strategy to maintain its earnings

growth is fast eroding. growth is fast eroding. growth is fast eroding. growth is fast eroding. Over the years, the group’s profit

margins and absolute earnings had been improving, driven by

effective pricing policy and increased productivity. Nonetheless,

we observe that the ability to adjust its pricing strategy to

maintain its profit growth is fast eroding, judging from its latest

quarterly results, which were affected by the c.40% hike in

excise duty back in Nov 2015.

High illicit trades and alternatives could drag earnings. High illicit trades and alternatives could drag earnings. High illicit trades and alternatives could drag earnings. High illicit trades and alternatives could drag earnings. Given

BAT’s dominant position in the legalised cigarette market, the

high illicit trades continue to be a drag on its earnings growth.

Despite recent strong enforcement activities by the authorities,

illicit trades remain high with >50% estimated total market

share. Besides that, the increasing popularity of other product

offerings such as e-cigarettes could pose a new challenge to the

industry.

Industry prospects toIndustry prospects toIndustry prospects toIndustry prospects to be increasingly challenging.be increasingly challenging.be increasingly challenging.be increasingly challenging. We are

negative on the Malaysian tobacco industry as the sector

landscape remains increasingly challenging due to: (1) declining

cigarette consumption per capita because of an increasingly

health-conscious population; (2) continued high illicit trades; (3)

regulatory risks; and (4) emergence of alternative product

offerings such as e-cigarettes.

Domestic Legitimate trade volume (bn sticks)

Illicit trade market share (%)

Total revenue (RM m)

Gross margin (%)

Source: Company, AllianceDBS

12.2

10.5

7.9 7.95 8.06

0.0

1.8

3.5

5.3

7.0

8.8

10.5

12.3

2014A 2015A 2016F 2017F 2018F

33.736.9

5048 48

0.0

10.2

20.4

30.6

40.8

51.0

2014A 2015A 2016F 2017F 2018F

47964582

3756 3717 3767

0.00

978.38

1956.76

2935.15

3913.53

4891.91

2014A 2015A 2016F 2017F 2018F

35.7 36.533.8

31.6 32.1

0.0

7.4

14.8

22.1

29.5

36.9

2014A 2015A 2016F 2017F 2018F

ASIAN INSIGHTS VICKERS SECURITIES

Page 11

Company Guide

British American Tobacco

Balance Sheet:

Healthy balance sheet.Healthy balance sheet.Healthy balance sheet.Healthy balance sheet. The group’s balance sheet remains

healthy despite net gearing position of about 0.5x, given the

strong cash generation of its business, which allows the group

to comfortably meet its debt obligations and maintain a high

dividend payout without overstretching its balance sheet.

Share Price Drivers:

Decent dividend yield. Decent dividend yield. Decent dividend yield. Decent dividend yield. Despite the increasingly challenging

industry outlook, BAT is viewed as a relatively defensive stock,

given its ability to sustain high cash flow generation, and

provide decent dividend yields of about 5%.

Key Risks:

High illicit trade.High illicit trade.High illicit trade.High illicit trade. Counterfeit and smuggled cigarettes could

continue to cap domestic sales volume.

High taxes.High taxes.High taxes.High taxes. The government may increase taxes on cigarettes,

in line with plans to improve public health.

Company Background

BAT is the leading manufacturer and distributor of cigarettes in

Malaysia. Its portfolio includes Dunhill, Pall Mall and Kent. The

group has a c.60% legal market share in Malaysia.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, AllianceDBS

3.1

3.2

3.3

3.4

3.5

3.6

3.7

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

2014A 2015A 2016F 2017F 2018F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

50.0

100.0

150.0

200.0

250.0

2014A 2015A 2016F 2017F 2018F

Capital Expenditure (-)

RMm

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

2014A 2015A 2016F 2017F 2018F

Avg: 21.4x

+1sd: 22.9x

+2sd: 24.4x

-1sd: 20x

-2sd: 18.5x

16.4

18.4

20.4

22.4

24.4

26.4

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

(x)

Avg: 32.53x

+1sd: 37.13x

+2sd: 41.73x

-1sd: 27.93x

-2sd: 23.34x

20.0

25.0

30.0

35.0

40.0

45.0

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

(x)

ASIAN INSIGHTS VICKERS SECURITIES

Page 12

Company Guide

British American Tobacco

Key Assumptions

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF

Domestic Legitimate trade volume (bn sticks)

12.2 10.5 7.90 7.95 8.06

Illicit trade market share (%) 33.7 36.9 50.0 48.0 48.0

Total revenue (RM m) 4,796 4,582 3,756 3,717 3,767

Gross margin (%) 35.7 36.5 33.8 31.6 32.1

Income Statement (RMm)

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF Revenue 4,796 4,582 3,756 3,717 3,767

Cost of Goods Sold (3,084) (2,907) (2,487) (2,543) (2,557)

Gross ProfitGross ProfitGross ProfitGross Profit 1,7121,7121,7121,712 1,6741,6741,6741,674 1,2701,2701,2701,270 1,1741,1741,1741,174 1,2101,2101,2101,210 Other Opng (Exp)/Inc (480) (436) (389) (312) (316)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 1,2321,2321,2321,232 1,2381,2381,2381,238 881881881881 861861861861 893893893893

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc (13.2) (6.7) (6.0) (1.5) 0.25

Exceptional Gain/(Loss) 0.0 0.0 33.9 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 1,2191,2191,2191,219 1,2311,2311,2311,231 909909909909 860860860860 893893893893 Tax (317) (321) (187) (215) (223)

Minority Interest 0.0 0.0 0.0 0.0 0.0

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net ProfitNet ProfitNet ProfitNet Profit 902902902902 910910910910 721721721721 645645645645 670670670670 Net Profit before Except. 902 910 687 645 670

EBITDA 1,277 1,277 902 869 901

Growth

Revenue Gth (%) 6.2 (4.5) (18.0) (1.0) 1.3

EBITDA Gth (%) 8.0 0.0 (29.4) (3.6) 3.7

Opg Profit Gth (%) 9.5 0.5 (28.9) (2.2) 3.7

Net Profit Gth (Pre-ex) (%) 9.5 0.9 (24.5) (6.2) 3.9

Margins & Ratio

Gross Margins (%) 35.7 36.5 33.8 31.6 32.1

Opg Profit Margin (%) 25.7 27.0 23.4 23.2 23.7

Net Profit Margin (%) 18.8 19.9 19.2 17.3 17.8

ROAE (%) 174.7 170.0 132.0 135.3 157.0

ROA (%) 68.0 73.4 59.8 57.3 62.8

ROCE (%) 91.9 101.3 87.6 100.9 113.4

Div Payout Ratio (%) 97.9 98.0 110.0 95.0 95.0

Net Interest Cover (x) 93.7 185.0 148.0 563.5 NM

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 13

Company Guide

British American Tobacco

Quarterly / Interim Income Statement (RMm)

FY FY FY FY DecDecDecDec 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016 2Q2Q2Q2Q2016201620162016 3Q3Q3Q3Q2016201620162016 4Q4Q4Q4Q2016201620162016 Revenue 1,058 1,021 963 932 841

Cost of Goods Sold (686) (668) (638) (609) (573)

Gross ProfitGross ProfitGross ProfitGross Profit 372372372372 354354354354 325325325325 323323323323 268268268268 Other Oper. (Exp)/Inc (93.4) (122) (117) (73.0) (76.6)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 279279279279 231231231231 208208208208 250250250250 191191191191 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc (1.0) (2.5) (0.5) (3.0) 0.07

Exceptional Gain/(Loss) (5.2) 2.50 (90.9) (2.9) 125

PrePrePrePre----tax Profittax Profittax Profittax Profit 273273273273 231231231231 117117117117 244244244244 316316316316 Tax (78.0) (55.6) (68.7) (35.8) (27.2)

Minority Interest 0.0 0.0 0.0 0.0 0.0

Net ProfitNet ProfitNet ProfitNet Profit 195195195195 176176176176 47.947.947.947.9 209209209209 289289289289 Net profit bef Except. 200 173 139 211 164

EBITDA 288 241 217 250 194

Growth

Revenue Gth (%) (8.9) (3.5) (5.7) (3.2) (9.8)

EBITDA Gth (%) (20.1) (16.6) (9.6) 15.0 (22.6)

Opg Profit Gth (%) (20.6) (17.1) (10.0) 20.3 (23.6)

Net Profit Gth (Pre-ex) (%) (23.0) (13.4) (19.8) 52.4 (22.4)

Margins

Gross Margins (%) 35.2 34.6 33.8 34.7 31.9

Opg Profit Margins (%) 26.3 22.6 21.6 26.8 22.8

Net Profit Margins (%) 18.4 17.2 5.0 22.4 34.4

Balance Sheet (RMm)

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF Net Fixed Assets 325 292 28.5 34.8 41.2

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0

Other LT Assets 438 443 442 442 442

Cash & ST Invts 10.1 33.9 144 22.2 52.3

Inventory 263 234 217 190 193

Debtors 236 204 341 328 329

Other Current Assets 0.45 0.40 30.0 30.0 30.0

Total AssetsTotal AssetsTotal AssetsTotal Assets 1,2741,2741,2741,274 1,2071,2071,2071,207 1,2041,2041,2041,204 1,0481,0481,0481,048 1,0881,0881,0881,088

ST Debt

360 305 130 130 130

Creditor 268 305 404 387 388

Other Current Liab 84.0 16.7 89.7 89.7 89.7

LT Debt 0.0 0.0 0.0 0.0 0.0

Other LT Liabilities 37.2 34.0 34.0 34.0 34.0

Shareholder’s Equity 524 547 546 407 447

Minority Interests 0.0 0.0 0.0 0.0 0.0

Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 1,2741,2741,2741,274 1,2071,2071,2071,207 1,2041,2041,2041,204 1,0481,0481,0481,048 1,0881,0881,0881,088

Non-Cash Wkg. Capital 147 117 94.7 71.4 74.5

Net Cash/(Debt) (350) (271) 14.0 (108) (77.7)

Debtors Turn (avg days) 16.6 17.5 26.5 32.9 31.8

Creditors Turn (avg days) 30.1 36.5 52.5 56.9 55.4

Inventory Turn (avg days) 33.5 31.7 33.4 29.3 27.4

Asset Turnover (x) 3.6 3.7 3.1 3.3 3.5

Current Ratio (x) 0.7 0.8 1.2 0.9 1.0

Quick Ratio (x) 0.3 0.4 0.8 0.6 0.6

Net Debt/Equity (X) 0.7 0.5 CASH 0.3 0.2

Net Debt/Equity ex MI (X) 0.7 0.5 CASH 0.3 0.2

Capex to Debt (%) (3.3) 3.0 (156.6) 11.1 11.1

Z-Score (X) 17.5 19.1 18.4 18.9 18.8

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 14

Company Guide

British American Tobacco

Cash Flow Statement (RMm)

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016FFFF 2017201720172017FFFF 2018201820182018FFFF Pre-Tax Profit 1,219 1,231 1,080 860 893

Dep. & Amort. 45.1 39.6 37.3 8.04 8.04

Tax Paid (329) (399) (305) (215) (223)

Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0

Chg in Wkg.Cap. 31.3 97.6 23.0 23.3 (3.1)

Other Operating CF 11.9 9.96 0.93 1.53 (0.3)

Net Operating CFNet Operating CFNet Operating CFNet Operating CF 978978978978 980980980980 688688688688 678678678678 675675675675 Capital Exp.(net) 11.7 (9.0) 204 (14.4) (14.4)

Other Invts.(net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF 2.43 9.31 3.55 6.95 8.73

Net Investing CFNet Investing CFNet Investing CFNet Investing CF 14.114.114.114.1 0.300.300.300.30 207207207207 (7.4)(7.4)(7.4)(7.4) (5.7)(5.7)(5.7)(5.7) Div Paid (882) (891) (776) (784) (631)

Chg in Gross Debt (150) (55.0) 0.0 0.0 0.0

Capital Issues 0.0 0.0 0.0 0.0 0.0

Other Financing CF (15.6) (9.2) (8.5) (8.5) (8.5)

Net Financing CFNet Financing CFNet Financing CFNet Financing CF (1,048)(1,048)(1,048)(1,048) (955)(955)(955)(955) (785)(785)(785)(785) (792)(792)(792)(792) (639)(639)(639)(639)

Currency Adjustments 0.0 0.0 0.0 0.0 0.0

Chg in Cash (55.6) 24.8 110 (122) 30.1

Opg CFPS (sen) 332 309 233 229 237

Free CFPS (sen) 347 340 312 232 231

Source: Company, AllianceDBS

Target Price & Ratings History

Source: AllianceDBS

Analyst: King Yoong CHEAH

S.No.S.No.S.No.S.No.Date of Date of Date of Date of

ReportReportReportReport

Closing Closing Closing Closing

PricePricePricePrice

12-mth 12-mth 12-mth 12-mth

Target Target Target Target

PricePricePricePrice

Rat ing Rat ing Rat ing Rat ing

1: 27 Apr 16 52.10 51.40 HOLD

2: 09 Jun 16 50.34 51.40 HOLD

3: 27 Jul 16 49.80 49.80 FULLY VALUED

4: 25 Oct 16 49.24 50.20 HOLD

5: 13 Dec 16 45.08 50.20 HOLD

6: 17 Feb 17 49.16 41.70 FULLY VALUED

Note Note Note Note : Share price and Target price are adjusted for corporate actions.

12

3

4

5

6

40.37

42.37

44.37

46.37

48.37

50.37

52.37

54.37

56.37

58.37

Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17

RMRMRMRM

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:BC, PY

HOLDHOLDHOLDHOLD (Upgrade from fully valued)

Last Traded PriceLast Traded PriceLast Traded PriceLast Traded Price (((( 21 Mar 201721 Mar 201721 Mar 201721 Mar 2017)))): : : : RM4.47 (KLCIKLCIKLCIKLCI : : : : 1,754.67) Price Target Price Target Price Target Price Target 12121212----mthmthmthmth:::: RM4.70 (5% upside) (Prev RM4.70)

Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Stronger ringgit, higher domestic volume

Where we differ:Where we differ:Where we differ:Where we differ: In line with consensus Analyst King Yoong CHEAH +60 32604 3908 [email protected]

What’s New • Increased wholesale/retail ceiling prices for

refined sugar by 7%/3%

• Increase forward earnings by 40-76%

• Upgrade to HOLD with higher TP of RM4.70

Price Relative

Forecasts and Valuation FY FY FY FY DecDecDecDec ((((RMRMRMRM m) m) m) m) 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF

Revenue 2,307 2,658 2,935 3,063 EBITDA 419 199 301 363 Pre-tax Profit 378 149 221 263 Net Profit 281 121 177 211 Net Pft (Pre Ex.) 281 121 177 211 Net Pft Gth (Pre-ex) (%) 9.2 (57.0) 46.2 19.4 EPS (sen) 39.9 17.2 25.1 30.0 EPS Pre Ex. (sen) 39.9 17.2 25.1 30.0 EPS Gth Pre Ex (%) 9 (57) 46 19 Diluted EPS (sen) 39.9 17.2 25.1 30.0 Net DPS (sen) 26.0 10.0 16.3 19.5 BV Per Share (sen) 291 281 296 310 PE (X) 11.2 26.0 17.8 14.9 PE Pre Ex. (X) 11.2 26.0 17.8 14.9 P/Cash Flow (X) nm 9.6 17.0 11.5 EV/EBITDA (X) 8.2 17.5 12.8 10.8 Net Div Yield (%) 5.8 2.2 3.7 4.4 P/Book Value (X) 1.5 1.6 1.5 1.4 Net Debt/Equity (X) 0.1 0.2 0.3 0.4 ROAE (%) 14.1 6.0 8.7 9.9 Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: 25.8 29.5 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 0 S: 2 H: 6

Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P

Sugar rush Upgrade to HOLD with higher TP of RUpgrade to HOLD with higher TP of RUpgrade to HOLD with higher TP of RUpgrade to HOLD with higher TP of RMMMM4.74.74.74.70000.... We upgrade our call for MSM to HOLD and raise our TP to RM4.70 upon revising upwards our 17F/18F earnings to reflect the increased average selling price announced by the authorities recently. Sugar price Sugar price Sugar price Sugar price hikehikehikehike.... The authorities have announced that with effect from 1 March, the maximum wholesale price and retail price for coarse grain white refined sugar would be raised to RM2.87/kg (+7%) and RM2.95/kg (+3.8%), respectively. We are not entirely surprised by such a move as it has been highlighted as one of the key upside risks to our previous recommendation. Bidding to be a regional player.Bidding to be a regional player.Bidding to be a regional player.Bidding to be a regional player. MSM is building a new sugar refinery at Port Tanjung Pelepas (PTP), Johor, capable of producing 1.1m MT refined sugar p.a. The refinery is targeted to be completed in FY18, and will reportedly have 30-35% lower processing cost upon full capacity operation. But the refinery’s margins will be lower than its existing operations, as it is intended to serve the competitive export market. Opening of DubaOpening of DubaOpening of DubaOpening of Dubai trading platform.i trading platform.i trading platform.i trading platform. MSM registered commodity gains of RM38m in YTD FY16 owing to the opening of its Dubai trading operations. The new trading platform will fully take over the role of purchasing raw sugar, which was previously done by MSM’s refinery. This move allows MSM to improve the management of its cost (which can be volatile), in light of the fact that the trading platform provides better access to the global raw sugar market. Valuation:

We upgrade our rating to HOLD with a higher TP of RM4.70

(RM3.00 previously), still pegged to a forward PE of 17x (5-

year mean), following our earnings revision.

Key Risks to Our View:

Weaker ringgit against USD.Weaker ringgit against USD.Weaker ringgit against USD.Weaker ringgit against USD. Raw sugar costs, which make up

c.82% of the group’s opex, are transacted in USD. If the

ringgit continues to weaken against the USD, this could put

pressure on the group’s bottomline. At A Glance Issued Capital (m shrs) 703

Mkt. Cap (RMm/US$m) 3,142 / 710

Major Shareholders (%)

Felda Global Ventures Sugar 54.2

Koperasi Permodalan Felda 20.0

Employees Provident Fund 5.3

Free Float (%) 20.6

3m Avg. Daily Val (US$m) 0.08

ICB IndustryICB IndustryICB IndustryICB Industry : Consumer Goods / Food Producers

DBS Group Research . Equity

22 Mar 2017

Malaysia Company Guide

MSM Malaysia Holdings Version 5 | Bloomberg: MSM MK | Reuters: MSMH.KL Refer to important disclosures at the end of this report

76

96

116

136

156

176

196

216

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

Relative IndexRM

MSM Malaysia Holdings (LHS) Relative KLCI (RHS)

ASIAN INSIGHTS VICKERS SECURITIES

Page 16

Company Guide

MSM Malaysia Holdings

WHAT’S NEW

Reprieve from ceiling price hike

Sugar price hikeSugar price hikeSugar price hikeSugar price hike.... The authorities have announced that with

effect from 1 March, the maximum wholesale price and retail

price for coarse grain white refined sugar would be raised to

RM2.87/kg (+7%) and RM2.95/kg (+3.8%), respectively.

This effectively means that MSM could sell its product to

domestic wholesalers at the maximum price of RM2.87/kg.

Given that the group is already charging its wholesalers at

RM2.66/kg in 4QFY16, which is not far from its previous cap

price of RM2.68/kg, we believe that the announcement is

timely for the group to pass on the increased cost of raw

sugar.

Not entirely surprising news.Not entirely surprising news.Not entirely surprising news.Not entirely surprising news. We are not entirely surprised by

such a move as it has been highlighted as one of the key

upside risks to our previous FULLY VALUED recommendation.

Raise forward earnings by 40%Raise forward earnings by 40%Raise forward earnings by 40%Raise forward earnings by 40%----76%76%76%76%: : : : We raise our FY17-18

earnings estimates by 40%-76%, upon raising our blended

domestic average selling price of FY17-18 (for domestic

wholesalers and industries) to RM2.76/kg and RM2.83/kg

from RM2.61/kg previously. . . .

Upgrade TP and recommendation to HOLD. Upgrade TP and recommendation to HOLD. Upgrade TP and recommendation to HOLD. Upgrade TP and recommendation to HOLD. Following our

earnings revisions, we upgrade our recommendation for the

group to HOLD with a higher TP of RM4.70, pegged to an

unchanged forward PE of 17x.

ASIAN INSIGHTS VICKERS SECURITIES

Page 17

Company Guide

MSM Malaysia Holdings

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Topline growth mainly driven by ASP movements.Topline growth mainly driven by ASP movements.Topline growth mainly driven by ASP movements.Topline growth mainly driven by ASP movements. We expect

MSM’s output to be relatively stable on a y-o-y basis, pending

the completion of the new PTP sugar refinery in early FY18.

Thus, topline growth will be driven largely by changes in

blended ASP. This in turn is dependent on the sales mix, as the

domestic wholesaler segment has the highest ASP, followed by

the industries and exports segments. MSM’s strategy is to run

the refinery at an optimal utilisation rate (c.92%), and then sell

whatever it can to the domestic and industries customers, and

export the remainder of the output to foreign markets. We

believe its next export focus will be Indonesia, given the

establishment of a representative office in Jakarta in 1Q16.

Blended Blended Blended Blended domestic domestic domestic domestic ASP to improve by ASP to improve by ASP to improve by ASP to improve by 6666% in FY1% in FY1% in FY1% in FY17777F.F.F.F. We forecast

MSM’s blended domestic ASP to improve by 6% to RM2.76/kg

in FY16F, given the improvement in high-yielding domestic

volume and recent ceiling price hike allowed by the authorities.

The authorities have announced that with effect from 1 March

2017, the maximum wholesale price and retail price for coarse

grain white refined sugar would be raised by RM2.87/kg (+7%)

and RM2.95/kg (+3.8%), respectively.

Volatile currency and raw sugar prices.Volatile currency and raw sugar prices.Volatile currency and raw sugar prices.Volatile currency and raw sugar prices. Due to the weakened

ringgit compared to previous years, we expect unit production

cost to rise by 15% in FY17F, coupled with the recent higher

raw sugar cost in USD. Unit production cost is assumed to

improve gradually in FY18F as the Dubai office will fully be

managing the purchases of raw sugar for the group, coupled

with the completion of the new PTP sugar refinery.

Regulatory approval to raise price. Regulatory approval to raise price. Regulatory approval to raise price. Regulatory approval to raise price. Given that pricing of the

refined sugar has a domino effect on the domestic economy

and is classified as a control item, the group will need to seek

the authorities’ approval to raise the maximum domestic

wholesale price it could charge for the group to raise its average

selling price.

Domestic Volume (MT)

Industries Volume (MT)

Exports Volume (MT)

Blended ASP (RM/kg)

Production Cost (RM/kg)

Source: Company, AllianceDBS

455073

392953

491511 506256 511319

0.0

73776.0

147552.1

221328.1

295104.1

368880.2

442656.2

516432.2

2014A 2015A 2016A 2017F 2018F

346252

465340

398967 404267 412352

0.0

94929.3

189858.6

284787.8

379717.1

474646.4

2014A 2015A 2016A 2017F 2018F

187965175795

137788153336

208610

0.00

42556.40

85112.81

127669.21

170225.62

212782.02

2014A 2015A 2016A 2017F 2018F

2.25 2.18

2.592.76 2.71

0.0

0.6

1.1

1.7

2.2

2.8

2014A 2015A 2016A 2017F 2018F

1.821.72

2.092.25

2.13

0.0

0.5

0.9

1.4

1.8

2.3

2014A 2015A 2016A 2017F 2018F

ASIAN INSIGHTS VICKERS SECURITIES

Page 18

Company Guide

MSM Malaysia Holdings

Balance Sheet:

Gearing for expansion plan.Gearing for expansion plan.Gearing for expansion plan.Gearing for expansion plan. Capex for the PTP sugar refinery is

expected to cost USD260m, while maintenance capex is

assumed to be c.RM40m p.a. We believe there is sufficient

room for MSM to gear up to fund these capex commitments

without cutting its dividend payout. MSM was in a net cash

position in FY14, but registered a net gearing of 0.1x in FY16.

We forecast MSM to record a net gearing of 0.2x/0.2x in FY17F

and FY18F.

Share Price Drivers:

Earnings outlook.Earnings outlook.Earnings outlook.Earnings outlook. MSM’s earnings outlook is a function of its

blended ASP and unit production cost. Blended ASP is

predominantly driven by the changing sales mix, as the

domestic segment has the highest ASP, followed by industries

and exports segments. Production cost is determined by raw

sugar prices and forex rate (i.e. RM/USD).

ProposeProposeProposeProposed sugar refinery in PTP.d sugar refinery in PTP.d sugar refinery in PTP.d sugar refinery in PTP. The proposed sugar refinery in

PTP could be a re-rating catalyst for the stock, as it could

significantly increase the group’s capacity (by adding another

1.1m MT in capacity), and lower its processing cost by 30-35%.

However, this is a longer-term catalyst as the refinery is targeted

to be completed only in early FY18. Additionally, the PTP plant’s

margins will be lower than the group’s existing operations, as it

is intended to serve the competitive export market.

Key Risks:

WeaWeaWeaWeaker ringgit against USD.ker ringgit against USD.ker ringgit against USD.ker ringgit against USD. Raw sugar costs, which make up

c.82% of the group’s opex, are transacted in USD. If the

ringgit continues to weaken against the USD, this could put

pressure on the group’s bottomline.

Company Background

MSM is a major sugar producer in Malaysia with an annual

capacity of over 1.1m tonnes. It produces, markets and sells

refined sugar products.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, AllianceDBS

0.8

0.8

0.8

0.9

0.9

0.9

0.9

0.9

1.0

1.0

1.0

0.00

0.10

0.20

0.30

0.40

0.50

2014A 2015A 2016A 2017F 2018F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

2014A 2015A 2016A 2017F 2018F

Capital Expenditure (-)

RMm

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2014A 2015A 2016A 2017F 2018F

Avg: 17.3x

+1sd: 22.1x

+2sd: 26.8x

-1sd: 12.6x

-2sd: 7.8x7.0

12.0

17.0

22.0

27.0

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

(x)

Avg: 1.79x

+1sd: 1.9x

+2sd: 2x

-1sd: 1.69x

-2sd: 1.58x

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

(x)

ASIAN INSIGHTS VICKERS SECURITIES

Page 19

Company Guide

MSM Malaysia Holdings

Key Assumptions

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF

Domestic Volume (MT) 455,073 392,953 491,511 506,256 511,319

Industries Volume (MT) 346,252 465,340 398,967 404,267 412,352

Exports Volume (MT) 187,965 175,795 137,788 153,336 208,610

Blended ASP (RM/kg) 2.25 2.18 2.59 2.76 2.71

Production Cost (RM/kg) 1.82 1.72 2.09 2.25 2.13 Income Statement (RMm)

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Revenue 2,281 2,307 2,658 2,935 3,063

Cost of Goods Sold (1,814) (1,818) (2,328) (2,510) (2,585)

Gross ProfitGross ProfitGross ProfitGross Profit 467467467467 489489489489 331331331331 425425425425 478478478478 Other Opng (Exp)/Inc (132) (112) (174) (202) (208)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 335335335335 377377377377 156156156156 223223223223 270270270270

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc 9.17 0.32 (7.9) (2.3) (6.4)

Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 344344344344 378378378378 149149149149 221221221221 263263263263 Tax (87.3) (96.8) (27.8) (44.1) (52.7)

Minority Interest 0.0 0.0 0.0 0.0 0.0

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net ProfitNet ProfitNet ProfitNet Profit 257257257257 281281281281 121121121121 177177177177 211211211211 Net Profit before Except. 257 281 121 177 211

EBITDA 382 419 199 301 363

Growth

Revenue Gth (%) 3.6 1.1 15.2 10.4 4.4

EBITDA Gth (%) (2.2) 9.5 (52.4) 51.2 20.5

Opg Profit Gth (%) (3.9) 12.6 (58.5) 42.5 21.0

Net Profit Gth (Pre-ex) (%) 0.9 9.2 (57.0) 46.2 19.4

Margins & Ratio

Gross Margins (%) 20.5 21.2 12.4 14.5 15.6

Opg Profit Margin (%) 14.7 16.4 5.9 7.6 8.8

Net Profit Margin (%) 11.3 12.2 4.5 6.0 6.9

ROAE (%) 13.5 14.1 6.0 8.7 9.9

ROA (%) 11.0 10.7 4.2 5.6 6.1

ROCE (%) 11.8 11.7 4.9 6.3 6.9

Div Payout Ratio (%) 65.6 65.1 58.2 65.1 65.1

Net Interest Cover (x) NM NM 19.8 96.0 42.3

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 20

Company Guide

MSM Malaysia Holdings

Quarterly / Interim Income Statement (RMm)

FY FY FY FY DecDecDecDec 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016 2Q2Q2Q2Q2016201620162016 3Q3Q3Q3Q2016201620162016 4Q4Q4Q4Q2016201620162016 Revenue 664 553 634 633 838

Cost of Goods Sold (545) (450) (548) (556) (774)

Gross ProfitGross ProfitGross ProfitGross Profit 119119119119 104104104104 85.985.985.985.9 76.876.876.876.8 64.264.264.264.2 Other Oper. (Exp)/Inc (22.1) (41.3) (51.3) (42.8) (38.8)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 97.197.197.197.1 62.362.362.362.3 34.634.634.634.6 34.034.034.034.0 25.525.525.525.5 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc 0.10 (1.7) (3.6) (1.3) (1.4)

Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 97.297.297.297.2 60.660.660.660.6 31.131.131.131.1 32.832.832.832.8 24.124.124.124.1 Tax (30.5) (1.2) (7.4) (9.5) (9.7)

Minority Interest 0.0 0.0 0.0 0.0 0.0

Net ProfitNet ProfitNet ProfitNet Profit 66.766.766.766.7 59.359.359.359.3 23.723.723.723.7 23.323.323.323.3 14.414.414.414.4 Net profit bef Except. 66.7 59.3 23.7 23.3 14.4

EBITDA 120 70.7 44.1 43.9 40.6

Growth

Revenue Gth (%) 21.5 (16.7) 14.6 (0.1) 32.4

EBITDA Gth (%) 29.3 (40.9) (37.7) (0.5) (7.4)

Opg Profit Gth (%) 11.9 (35.9) (44.4) (1.7) (25.2)

Net Profit Gth (Pre-ex) (%) 4.5 (11.1) (60.1) (1.6) (38.2)

Margins

Gross Margins (%) 18.0 18.7 13.6 12.1 7.7

Opg Profit Margins (%) 14.6 11.3 5.5 5.4 3.0

Net Profit Margins (%) 10.0 10.7 3.7 3.7 1.7

Balance Sheet (RMm)

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Net Fixed Assets 474 671 784 1,176 1,336

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0

Other LT Assets 691 771 811 808 804

Cash & ST Invts 470 124 270 117 227

Inventory 674 730 888 958 987

Debtors 206 426 240 265 277

Other Current Assets 3.07 0.60 0.60 0.60 0.60

Total AssetsTotal AssetsTotal AssetsTotal Assets 2,5182,5182,5182,518 2,7232,7232,7232,723 2,9942,9942,9942,994 3,3253,3253,3253,325 3,6313,6313,6313,631

ST Debt

248 420 420 420 420

Creditor 242 183 319 344 355

Other Current Liab 6.15 1.98 1.98 1.98 1.98

LT Debt 0.0 0.0 200 400 600

Other LT Liabilities 76.7 75.4 75.4 75.4 75.4

Shareholder’s Equity 1,945 2,042 1,978 2,084 2,180

Minority Interests 0.0 0.0 0.0 0.0 0.0

Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 2,5182,5182,5182,518 2,7232,7232,7232,723 2,9942,9942,9942,994 3,3253,3253,3253,325 3,6313,6313,6313,631

Non-Cash Wkg. Capital 635 971 808 877 907

Net Cash/(Debt) 222 (296) (349) (702) (793)

Debtors Turn (avg days) 32.4 50.0 45.7 31.5 32.3

Creditors Turn (avg days) 45.8 43.7 40.2 49.8 51.2

Inventory Turn (avg days) 128.6 144.2 129.2 138.6 142.4

Asset Turnover (x) 1.0 0.9 0.9 0.9 0.9

Current Ratio (x) 2.7 2.1 1.9 1.8 1.9

Quick Ratio (x) 1.4 0.9 0.7 0.5 0.6

Net Debt/Equity (X) CASH 0.1 0.2 0.3 0.4

Net Debt/Equity ex MI (X) CASH 0.1 0.2 0.3 0.4

Capex to Debt (%) 33.1 55.6 32.1 57.1 24.5

Z-Score (X) 5.8 5.1 3.8 3.3 3.2

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 21

Company Guide

MSM Malaysia Holdings

Cash Flow Statement (RMm)

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Pre-Tax Profit 344 378 146 221 263

Dep. & Amort. 47.1 41.4 56.9 78.5 93.5

Tax Paid (86.3) (96.8) (37.4) (44.1) (52.7)

Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0

Chg in Wkg.Cap. (66.8) (332) 163 (69.6) (29.9)

Other Operating CF 1.58 (81.5) 0.0 0.0 0.0

Net Operating CFNet Operating CFNet Operating CFNet Operating CF 240240240240 (91.0)(91.0)(91.0)(91.0) 328328328328 185185185185 274274274274 Capital Exp.(net) (82.2) (233) (199) (468) (250)

Other Invts.(net) 2.29 1.66 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF 0.0 0.0 0.0 0.0 0.0

Net Investing CFNet Investing CFNet Investing CFNet Investing CF (79.9)(79.9)(79.9)(79.9) (232)(232)(232)(232) (199)(199)(199)(199) (468)(468)(468)(468) (250)(250)(250)(250) Div Paid (169) (183) (183) (70.6) (115)

Chg in Gross Debt 219 171 200 200 200

Capital Issues 0.0 0.0 0.0 0.0 0.0

Other Financing CF (8.0) (11.2) 0.0 0.0 0.0

Net Financing CFNet Financing CFNet Financing CFNet Financing CF 42.742.742.742.7 (23.3)(23.3)(23.3)(23.3) 17.217.217.217.2 129129129129 85.185.185.185.1

Currency Adjustments 0.0 0.0 0.0 0.0 0.0

Chg in Cash 203 (346) 146 (153) 109

Opg CFPS (sen) 43.6 34.2 23.5 36.3 43.3

Free CFPS (sen) 22.5 (46.2) 18.4 (40.2) 3.46

Source: Company, AllianceDBS

Target Price & Ratings History

Source: AllianceDBS

Analyst: King Yoong CHEAH

S.No.S.No.S.No.S.No.Date of Date of Date of Date of

ReportReportReportReport

Closing Closing Closing Closing

PricePricePricePrice

12-mth 12-mth 12-mth 12-mth

Target Target Target Target

PricePricePricePrice

Rat ing Rat ing Rat ing Rat ing

1: 20 May 16 5.02 5.25 HOLD

2: 05 Aug 16 5.08 5.25 HOLD

3: 24 Aug 16 5.03 4.60 HOLD

4: 22 Nov 16 4.90 3.00 FULLY VALUED

5: 13 Dec 16 4.79 3.00 FULLY VALUED

6: 23 Feb 17 4.44 3.00 FULLY VALUED

7: 03 Mar 17 4.71 4.70 HOLD

Note Note Note Note : Share price and Target price are adjusted for corporate actions.

1

23

4

5

6

7

4.20

4.40

4.60

4.80

5.00

5.20

Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17

RMRMRMRM

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:BC, PY

BUYBUYBUYBUY Last Traded PriceLast Traded PriceLast Traded PriceLast Traded Price (((( 21 Mar 201721 Mar 201721 Mar 201721 Mar 2017)))): : : : RM2.65 (KLCIKLCIKLCIKLCI : : : : 1,754.67) Price Target Price Target Price Target Price Target 12121212----mthmthmthmth:::: RM3.05 (15% upside) (Prev RM2.65) Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Stronger-than-expected FMCG sales

Where we differ:Where we differ:Where we differ:Where we differ: Earnings forecasts higher than consensus due to

higher FMCG sales assumptions Analyst King Yoong CHEAH +60 32604 3908 [email protected]

What’s New • Should trade closer to its regional peers being an

increasingly established regional player

• Re-peg to PE of 19x, below its average peer PE of

23x

• Maintain BUY with higher TP of RM3.05

Price Relative

Forecasts and Valuation FY FY FY FY MarMarMarMar ((((RMRMRMRM m) m) m) m) 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF

Revenue 393 430 463 482 EBITDA 87.3 103 109 111 Pre-tax Profit 67.9 87.4 94.2 96.7 Net Profit 52.0 66.4 71.6 73.5 Net Pft (Pre Ex.) 55.0 66.4 71.6 73.5 Net Pft Gth (Pre-ex) (%) 13.1 20.7 7.8 2.7 EPS (sen) 11.5 14.3 15.5 15.9 EPS Pre Ex. (sen) 12.2 14.3 15.5 15.9 EPS Gth Pre Ex (%) 12 18 8 3 Diluted EPS (sen) 12.2 14.3 15.5 15.9 Net DPS (sen) 9.00 6.00 7.00 7.00 BV Per Share (sen) 80.2 86.5 95.0 104 PE (X) 23.0 18.5 17.1 16.7 PE Pre Ex. (X) 21.8 18.5 17.1 16.7 P/Cash Flow (X) 19.4 15.7 14.8 14.4 EV/EBITDA (X) 11.9 10.0 9.1 8.5 Net Div Yield (%) 3.4 2.3 2.6 2.6 P/Book Value (X) 3.3 3.1 2.8 2.6 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 15.0 17.4 17.0 16.0 Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): (1) (3) (5) Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: 12.8 14.2 15.0 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 7 S: 0 H: 0

Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P

Let’s top up your coffee Craving for a nice cup of coffee.Craving for a nice cup of coffee.Craving for a nice cup of coffee.Craving for a nice cup of coffee. We maintain our positive stance on OldTown Berhad (Oldtown) given that (1) the strong 3QFY17 results has reaffirmed our investment thesis that the group is firmly on a growth trajectory, (2) its valuation remains attractive despite the recent run-up, and (3) expansion to regional markets offers multi-year growth potentials. 3Q strong earnings, multi3Q strong earnings, multi3Q strong earnings, multi3Q strong earnings, multi----year sustained growth path ahead.year sustained growth path ahead.year sustained growth path ahead.year sustained growth path ahead. To recap, Oldtown has delivered a set of impressive quarterly figures. The group reported strong core earnings of RM24.4m for 3QFY17 (+119% y-o-y, +92% q-o-q), mainly boosted by 26% FMCG revenue y-o-y growth. We understand that the strong FMCG sales were mainly driven by > 1-fold revenue growth to the China market. Given that China sales still account for <15% of its total FMCG sales, we believe that its regional expansion story, particularly to the China market, offers Oldtown multi-year growth potentials. Potential M&APotential M&APotential M&APotential M&A to enhance growth.to enhance growth.to enhance growth.to enhance growth. On the other hand, management is actively pursuing M&A opportunities to enhance its growth prospects. As such, we will not be surprised should the group announce an acquisition this year. Given that Oldtown is likely to finance its acquisition with internal funds and the current challenging operating environment favours industry consolidation, we are optimistic of possibilities that a potential M&A exercise can be earnings accretive. Valuation:

We maintain our BUY call for the group with a higher TP of

RM3.05 as we re-peg Oldtown to a higher PE of 19x (vs 16x

previously), which is +1 SD above its mean. We believe that

being a stock with multiyear-growth potentials and bright

earnings prospects, Oldtown should deserve a higher PE.

Furthermore, our target PE remains low relative to its regional

peers’ average of 23x. Stripping out net cash, our target price

implies a forward PE (ex-cash) valuation of about 16x.

Key Risks to Our View:

Weaker-than-expected consumer spending could be a drag on

its F&B business. At A Glance Issued Capital (m shrs) 451

Mkt. Cap (RMm/US$m) 1,196 / 270

Major Shareholders (%)

Old Town International 42.6

Mawer Global Fund 10.0

Free Float (%) 46.1

3m Avg. Daily Val (US$m) 0.39

ICB IndustryICB IndustryICB IndustryICB Industry : Consumer Goods / Beverages

DBS Group Research . Equity

22 Mar 2017

Malaysia Company Guide

OldTown Berhad Version 10 | Bloomberg: OTB MK | Reuters: OLDT.KL Refer to important disclosures at the end of this report

60

80

100

120

140

160

180

200

220

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

Relative IndexRM

OldTown Berhad (LHS) Relative KLCI (RHS)

ASIAN INSIGHTS VICKERS SECURITIES

Page 23

Company Guide

OldTown Berhad

WHAT’S NEW

Risk appetite could expand further

We have revisited our investment thesis for Oldtown. Given

that the bulk of the group’s FMCG business (which now

contributes >75% of the group’s earnings) mainly comes

from its promising regional presence, we believe that the

stock should be traded closer to its regional peers.

Furthermore, we believe that the stock could offer multi-year

growth potentials, which support the case for it to be valued

at about +1 SD above its mean.

Regional expansions offer multiRegional expansions offer multiRegional expansions offer multiRegional expansions offer multi----year sustained growth year sustained growth year sustained growth year sustained growth

potentials.potentials.potentials.potentials. To recap, we understand that Greater China

(Mainland China, Hong Kong, Taiwan) now contributes 45%

of its total FMCG sales, followed by Malaysia (35%), South

East Asia (ex- Malaysia) (14%) and others (6%).

Given that China alone sales still accounts for <15% of its

total FMCG sales, we believe that its regional expansion story,

particularly to the China market, offers Oldtown a multi-year

growth trajectory. Although the group has only ventured

directly into the China market since 3QCY14, its instant

coffee mix products have been well received in China. At

present, we gather e-commerce sales constitutes about 80%

of Oldtown sales in the China market, where the group’s

distribute its products through three key online platforms: (1)

Tmall, (2) Taobao, and (3) JD.com. According to a study done

by Tmall, Oldtown’s online flagship store in Tmall was ranked

number 3 as of June 2016 based on coffee mix powder sales.

Table 1 : Position in Tmall under coffee mix powder category

Repeg at Repeg at Repeg at Repeg at a a a a PE of 19x. Maintain BUYPE of 19x. Maintain BUYPE of 19x. Maintain BUYPE of 19x. Maintain BUY. . . . We maintain our BUY

recommendation for the group with a higher TP of RM3.05

as we re-peg Oldtown to a higher PE of 19x (vs 16x

previously), which is +1 SD above its mean. We believe that

being a stock with multiyear-growth avenues and bright

earnings prospects, Oldtown should deserve a higher PE.

Furthermore, our target PE remains low relative to its regional

peers’ average of 23x. Stripping out net cash, our target price

implies a forward PE (ex-cash) valuation of 16x.

Peers comparison table

Source: Bloomberg Finance L.P, AllianceDBS

CallTarget

Price (LC)

Current

Price (LC)

Mkt Cap

(MYR m)CY2017 CY2018 CY2017 CY2018 CY2017 CY2018 CY2017 CY2018 CY2017 CY2018

Berjaya Food NR NR 1.88 664.9 80% 44% 20.1x 14.3x 1.7x 1.7x 2.2% 2.8% 5.5% 5.5%

Bread Talk NR NR 1.30 1,158.0 63% 13% 19.3x 17.0x 2.5x 2.3x 2.7% 2.5% 13.4% 13.4%

Oldtown BUY 3.05 2.65 1,191.9 12% 6% 17.2x 16.3x 2.9x 2.6x 2.5% 2.6% 16.7% 16.0%

Super Group HOLD 1.30 1.30 4,604.5 0% 7% 22.3x 26.5x 1.9x 2.4x 2.0% 2.2% 8.9% 9.0%

Gourmet Master NR NR 311.00 6,671.2 18% 20% 22.3x 18.6x 4.5x 3.9x 1.7% 2.1% 22.7% 22.7%

Café De Coral HOLD 27.31 25.45 8,498.3 14% 11% 27.2x 24.5x 4.4x 4.2x 3.1% 3.5% 16.4% 17.4%

Total / weighted avg 22,788.7 17% 13% 23.6x 22.1x 3.7x 3.5x 2.4% 2.7% 16.3% 16.6%

EPS (FD) Growth

(YoY)P/E (FD) Pric e/ BVPS Dividend Yield ROE

ASIAN INSIGHTS VICKERS SECURITIES

Page 24

Company Guide

OldTown Berhad

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

FMCG sales to be its key earnings driver.FMCG sales to be its key earnings driver.FMCG sales to be its key earnings driver.FMCG sales to be its key earnings driver. FMCG revenue grew

by 10.5% y-o-y in FY16. Management is targeting double-digit

growth in FY17 while we have assumed FMCG sales volume to

grow by 15% in FY17 with the China market being the key

growth driver. We estimate that sales to China only represents

<15% of its FMCG sales in 9MFY17, As such, we are positive

that there is plenty of room for the group to boost export sales

with the completion of the restructuring of its China

distributorship in late 2015.

Room to utilise its production capacity.Room to utilise its production capacity.Room to utilise its production capacity.Room to utilise its production capacity. The manufacturing plant

in Tasek Industrial Estate, Ipoh, has an annual designed

production capacity of 24k kg for instant coffee mix and instant

tea mix, with only about 50% utilised so far. This provides room

to accommodate rising demand without further capacity

expansion.

F&B F&B F&B F&B –––– challenging operating environment.challenging operating environment.challenging operating environment.challenging operating environment. On the other hand,

we believe that the growth prospects of its F&B business remain

challenging. The group operated 238 café outlets in Dec 2016,

with 204 (86%) based in Malaysia.

F&B F&B F&B F&B –––– ppppotential M&A?otential M&A?otential M&A?otential M&A? As at 31 Dec 2016, the group had net

cash of RM154m, and management may undertake M&As in

the F&B space to enhance future growth. Although we

understand that there is no attractive M&A target in sight at

present, we will not be surprised if the group announces an

acquisition before the end of this financial year. Given that

Oldtown is likely to finance its acquisition with internal funds

and the current challenging operating environment favours

industry consolidation, we are positive that any potential M&A

exercise will be earnings accretive for the group.

Avg revenue/ self&partly owned outlet (RM k/yr)

Number of total outlets

FMCG sales volume (k kg)

FMCG ASP (RM)

Source: Company, AllianceDBS

10731035

10871141

1198

0.0

172.9

345.7

518.6

691.4

864.3

1037.1

1210.0

2015A 2016A 2017F 2018F 2019F

245 244 249 254 259

0.0

52.8

105.7

158.5

211.3

264.2

2015A 2016A 2017F 2018F 2019F

9651 10056

11728

13135

14711

0.00

3001.04

6002.09

9003.13

12004.18

15005.22

2015A 2016A 2017F 2018F 2019F

18.719.8 19.8 19.8 19.8

0.0

4.0

8.0

12.0

16.0

20.0

2015A 2016A 2017F 2018F 2019F

ASIAN INSIGHTS VICKERS SECURITIES

Page 25

Company Guide

OldTown Berhad

Balance Sheet:

Strong balance sheet Strong balance sheet Strong balance sheet Strong balance sheet –––– net cash position.net cash position.net cash position.net cash position. As at 31 Dec 2016,

Oldtown had a net cash position of RM154m, which allows the

group to (1) sustain its dividend policy at a minimum 50%

payout, (2) continue its share buyback scheme, and (3)

undertake attractive M&A activities to expand its operations.

Share Price Drivers:

ProfProfProfProfitability and prospects itability and prospects itability and prospects itability and prospects –––– key share price drivers.key share price drivers.key share price drivers.key share price drivers. We are

positive that there is plenty of room for the group to boost its

export sales with the completion of the restructuring of its

China distributorship in late 2015. On the other hand, we

believe its F&B operations are still facing challenges, although

F&B earnings contribution to the group has declined over the

years (20%-30% of group earnings).

Key Risks:

Increasing competition in F&B segment.Increasing competition in F&B segment.Increasing competition in F&B segment.Increasing competition in F&B segment. Oldtown’s cafe chain

has been challenged by small specialty cafe chains in the local

market since 2013. If the group fails to transform and adapt to

rapidly changing consumer demand, the decline in F&B

contributions will drag its overall earnings.

Failure to pass on higher costs to consumers.Failure to pass on higher costs to consumers.Failure to pass on higher costs to consumers.Failure to pass on higher costs to consumers. Given that raw

material costs make up over 30% of Oldtown’s total operating

cost, an unexpected swing in food commodity prices, e.g. due

to changes in climate and government regulations, could result

in a spike in the prices of key raw materials such as sugar,

coffee beans, and flour.

Company Background

Oldtown is a regional cafe chain operator (F&B) and an

established beverage manufacturer (FMCG) based in Malaysia.

In FY16, the group derived 45% of its revenue from F&B and

55% from FMCG.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, AllianceDBS

0.8

0.8

0.8

0.9

0.9

0.9

0.9

0.9

1.0

1.0

1.0

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

2015A 2016A 2017F 2018F 2019F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

9.0

9.5

10.0

10.5

11.0

11.5

12.0

2015A 2016A 2017F 2018F 2019F

Capital Expenditure (-)

RMm

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2015A 2016A 2017F 2018F 2019F

Avg: 15.1x

+1sd: 18.7x

+2sd: 22.3x

-1sd: 11.4x

-2sd: 7.8x7.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

23.0

25.0

27.0

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

(x)

Avg: 2.35x

+1sd: 2.7x

+2sd: 3.05x

-1sd: 2x

-2sd: 1.64x

1.4

1.9

2.4

2.9

3.4

Apr-13 Apr-14 Apr-15 Apr-16

(x)

ASIAN INSIGHTS VICKERS SECURITIES

Page 26

Company Guide

OldTown Berhad

Key Assumptions

FY FY FY FY MarMarMarMar 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF

Avg revenue/ self&partly owned outlet (RM k/yr)

1,073 1,035 1,087 1,141 1,198

Number of total outlets 245 244 249 254 259

FMCG sales volume (k kg) 9,651 10,056 11,728 13,135 14,711

FMCG ASP (RM) 18.7 19.8 19.8 19.8 19.8 Income Statement (RMm)

FY FY FY FY MarMarMarMar 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF Revenue 398 393 430 463 482

Cost of Goods Sold (256) (247) (271) (295) (310)

Gross ProfitGross ProfitGross ProfitGross Profit 141141141141 146146146146 159159159159 168168168168 172172172172 Other Opng (Exp)/Inc (76.2) (75.6) (71.7) (74.7) (76.6)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 65.265.265.265.2 70.670.670.670.6 87.187.187.187.1 93.693.693.693.6 95.895.895.895.8 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc (0.2) 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc 0.31 0.28 0.28 0.57 0.87

Exceptional Gain/(Loss) (1.1) (3.0) 0.0 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 64.264.264.264.2 67.967.967.967.9 87.487.487.487.4 94.294.294.294.2 96.796.796.796.7 Tax (15.1) (15.9) (21.0) (22.6) (23.2)

Minority Interest (1.6) 0.0 0.0 0.0 0.0

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net ProfitNet ProfitNet ProfitNet Profit 47.547.547.547.5 52.052.052.052.0 66.466.466.466.4 71.671.671.671.6 73.573.573.573.5 Net Profit before Except. 48.6 55.0 66.4 71.6 73.5

EBITDA 83.9 87.3 103 109 111

Growth

Revenue Gth (%) 4.1 (1.1) 9.3 7.7 4.1

EBITDA Gth (%) (2.4) 4.1 17.7 5.9 1.7

Opg Profit Gth (%) (1.9) 8.3 23.4 7.5 2.4

Net Profit Gth (Pre-ex) (%) (0.2) 13.1 20.7 7.8 2.7

Margins & Ratio

Gross Margins (%) 35.5 37.2 36.9 36.3 35.8

Opg Profit Margin (%) 16.4 17.9 20.3 20.2 19.9

Net Profit Margin (%) 11.9 13.2 15.4 15.5 15.2

ROAE (%) 14.3 15.0 17.4 17.0 16.0

ROA (%) 11.0 11.7 14.1 13.8 13.1

ROCE (%) 13.4 14.2 16.1 15.8 14.9

Div Payout Ratio (%) 56.5 78.2 41.8 45.3 44.1

Net Interest Cover (x) NM NM NM NM NM

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 27

Company Guide

OldTown Berhad

Quarterly / Interim Income Statement (RMm)

FY FY FY FY MarMarMarMar 3Q3Q3Q3Q2016201620162016 4Q4Q4Q4Q2016201620162016 1Q1Q1Q1Q2017201720172017 2Q2Q2Q2Q2017201720172017 3Q3Q3Q3Q2017201720172017 Revenue 102 105 103 99.6 116

Cost of Goods Sold (60.4) (65.9) (65.3) (65.3) (70.1)

Gross ProfitGross ProfitGross ProfitGross Profit 41.841.841.841.8 38.638.638.638.6 37.637.637.637.6 34.234.234.234.2 45.745.745.745.7 Other Oper. (Exp)/Inc (24.6) (15.0) (17.8) (18.0) (14.3)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 17.217.217.217.2 23.623.623.623.6 19.819.819.819.8 16.216.216.216.2 31.431.431.431.4 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.10 0.02 0.0 0.0 0.0

Net Interest (Exp)/Inc 0.10 0.0 0.04 0.05 0.15

Exceptional Gain/(Loss) 0.0 (3.0) 0.0 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 17.417.417.417.4 20.620.620.620.6 19.819.819.819.8 16.316.316.316.3 31.631.631.631.6 Tax (6.2) (2.2) (6.1) (3.8) (7.5)

Minority Interest (0.1) (0.1) 0.18 0.20 0.24

Net ProfitNet ProfitNet ProfitNet Profit 11.111.111.111.1 18.318.318.318.3 13.913.913.913.9 12.712.712.712.7 24.424.424.424.4 Net profit bef Except. 11.1 21.3 13.9 12.7 24.4

EBITDA 21.5 28.3 24.1 20.6 35.7

Growth

Revenue Gth (%) 10.3 2.3 (1.5) (3.2) 16.3

EBITDA Gth (%) 4.2 31.7 (15.0) (14.4) 73.4

Opg Profit Gth (%) 4.2 37.1 (16.1) (18.1) 93.8

Net Profit Gth (Pre-ex) (%) (15.0) 92.2 (34.8) (8.9) 92.3

Margins

Gross Margins (%) 40.9 36.9 36.5 34.4 39.4

Opg Profit Margins (%) 16.8 22.6 19.2 16.3 27.1

Net Profit Margins (%) 10.9 17.5 13.5 12.7 21.0 Balance Sheet (RMm)

FY FY FY FY MarMarMarMar 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF Net Fixed Assets 125 126 122 120 117

Invts in Associates & JVs 1.50 1.40 1.40 1.40 1.40

Other LT Assets 52.5 47.2 45.6 43.1 40.7

Cash & ST Invts 162 180 221 263 305

Inventory 30.1 25.5 28.0 30.4 32.0

Debtors 61.0 63.0 68.9 74.2 77.3

Other Current Assets 4.70 7.50 7.50 7.50 7.50

Total AssetsTotal AssetsTotal AssetsTotal Assets 436436436436 450450450450 495495495495 540540540540 581581581581

ST Debt

9.80 9.80 9.80 9.80 6.00

Creditor 63.4 56.3 61.8 67.2 70.6

Other Current Liab 2.60 2.20 2.20 2.20 2.20

LT Debt 15.7 12.1 12.1 12.1 12.1

Other LT Liabilities 8.00 7.10 8.12 8.70 8.70

Shareholder’s Equity 333 362 401 440 481

Minority Interests 3.80 0.0 0.0 0.0 0.0

Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 436436436436 450450450450 495495495495 540540540540 581581581581

Non-Cash Wkg. Capital 29.8 37.5 40.4 42.7 43.9

Net Cash/(Debt) 137 158 199 242 286

Debtors Turn (avg days) 49.1 57.5 56.0 56.4 57.3

Creditors Turn (avg days) 87.1 94.8 84.3 84.1 85.2

Inventory Turn (avg days) 40.4 44.0 38.2 38.1 38.6

Asset Turnover (x) 0.9 0.9 0.9 0.9 0.9

Current Ratio (x) 3.4 4.0 4.4 4.7 5.3

Quick Ratio (x) 2.9 3.6 3.9 4.3 4.8

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

Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH

Capex to Debt (%) 44.7 48.4 45.7 45.7 55.2

Z-Score (X) 6.9 7.8 7.7 7.5 7.6

Source: Company, AllianceDBS

Strong balance sheet- net cash position

ASIAN INSIGHTS VICKERS SECURITIES

Page 28

Company Guide

OldTown Berhad

Cash Flow Statement (RMm)

FY FY FY FY MarMarMarMar 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF Pre-Tax Profit 64.2 67.9 87.4 94.2 96.7

Dep. & Amort. 18.9 16.7 15.7 15.2 14.8

Tax Paid (11.5) (15.7) (21.0) (22.6) (23.2)

Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0

Chg in Wkg.Cap. (12.6) (14.5) (2.9) (2.4) (1.2)

Other Operating CF 1.64 7.32 (1.2) (1.5) (1.8)

Net Operating CFNet Operating CFNet Operating CFNet Operating CF 60.660.660.660.6 61.761.761.761.7 78.078.078.078.0 83.083.083.083.0 85.385.385.385.3 Capital Exp.(net) (11.4) (10.6) (10.0) (10.0) (10.0)

Other Invts.(net) (67.9) (15.0) 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF 62.9 32.1 1.19 2.00 2.00

Net Investing CFNet Investing CFNet Investing CFNet Investing CF (16.4)(16.4)(16.4)(16.4) 6.506.506.506.50 (8.8)(8.8)(8.8)(8.8) (8.0)(8.0)(8.0)(8.0) (8.0)(8.0)(8.0)(8.0) Div Paid (27.0) (26.8) (27.8) (32.4) (32.4)

Chg in Gross Debt (5.4) (4.5) 0.0 0.0 (3.8)

Capital Issues (19.7) (0.4) 0.0 0.0 0.0

Other Financing CF (4.8) (0.3) 0.0 0.0 0.0

Net Financing CFNet Financing CFNet Financing CFNet Financing CF (56.9)(56.9)(56.9)(56.9) (32.0)(32.0)(32.0)(32.0) (27.8)(27.8)(27.8)(27.8) (32.4)(32.4)(32.4)(32.4) (36.2)(36.2)(36.2)(36.2)

Currency Adjustments (5.3) (1.8) 0.0 0.0 0.0

Chg in Cash (18.0) 34.4 41.4 42.5 41.1

Opg CFPS (sen) 16.3 16.9 17.5 18.4 18.7

Free CFPS (sen) 11.0 11.3 14.7 15.8 16.3

Source: Company, AllianceDBS

Target Price & Ratings History

Source: AllianceDBS

Analyst: King Yoong CHEAH

S.No.S.No.S.No.S.No.Date of Date of Date of Date of

ReportReportReportReport

Closing Closing Closing Closing

PricePricePricePrice

12-mth 12-mth 12-mth 12-mth

T arget T arget T arget T arget

PricePricePricePrice

Rat ing Rat ing Rat ing Rat ing

1: 24 Mar 16 1.48 1.70 BUY

2: 23 May 16 1.40 1.70 BUY

3: 25 May 16 1.42 1.70 BUY

4: 27 May 16 1.66 1.70 BUY

5: 30 May 16 1.69 2.10 BUY

6: 26 Aug 16 1.87 2.10 BUY

7: 29 Aug 16 1.85 2.15 BUY

8: 04 Oct 16 2.00 2.15 BUY

9: 25 Nov 16 1.87 2.15 BUY

10: 28 Nov 16 1.91 2.15 BUY

11: 13 Dec 16 1.87 2.15 BUY

12: 23 Feb 17 2.21 2.15 BUY

13: 24 Feb 17 2.43 2.65 BUY

14: 03 Mar 17 2.46 2.65 BUY

Note Note Note Note : Share price and Target price are adjusted for corporate actions.

1

2

3

4

5

6

7

8

9

10

11

1213

14

1.32

1.52

1.72

1.92

2.12

2.32

2.52

2.72

Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17

RMRMRMRM

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:BC, PY

HOLDHOLDHOLDHOLD Last Traded PriceLast Traded PriceLast Traded PriceLast Traded Price (((( 21 Mar21 Mar21 Mar21 Mar 2017201720172017)))): : : : RM23.70 (KLCIKLCIKLCIKLCI : : : : 1,749.41) Price Target Price Target Price Target Price Target 12121212----mthmthmthmth:::: RM24.92 (5% upside)

Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Stronger-than-expected sales volume, recovery in oil

prices, reduction in opex

Where we differ:Where we differ:Where we differ:Where we differ: In line with consensus

Analyst King Yoong CHEAH +60 32604 3908 [email protected]

Price Relative

Forecasts and Valuation FY FY FY FY DecDecDecDec ((((RMRMRMRM m) m) m) m) 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF

Revenue 25,171 21,805 23,194 23,471 EBITDA 1,461 1,608 1,589 1,662 Pre-tax Profit 1,081 1,244 1,234 1,299 Net Profit 786 945 898 945 Net Pft (Pre Ex.) 790 911 898 945 Net Pft Gth (Pre-ex) (%) 57.5 15.4 (1.5) 5.3 EPS (sen) 79.5 95.1 90.4 95.1 EPS Pre Ex. (sen) 79.5 91.7 90.4 95.1 EPS Gth Pre Ex (%) 57 15 (2) 5 Diluted EPS (sen) 79.5 95.1 90.4 95.1 Net DPS (sen) 60.0 70.0 68.5 72.1 BV Per Share (sen) 498 512 537 560 PE (X) 29.8 24.9 26.2 24.9 PE Pre Ex. (X) 29.8 25.8 26.2 24.9 P/Cash Flow (X) 38.4 20.7 18.3 17.7 EV/EBITDA (X) 15.4 14.0 13.9 13.2 Net Div Yield (%) 2.5 3.0 2.9 3.0 P/Book Value (X) 4.8 4.6 4.4 4.2 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 16.2 18.8 17.2 17.3 Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: 88.3 91.8 95.2 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 2 S: 2 H: 4

Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P

Not a time to pump to the brim Maintain HOLD.Maintain HOLD.Maintain HOLD.Maintain HOLD. We are maintaining our FY17-18 earnings forecasts, as sales volume remains lacklustre with Petronas Dagangan Bhd (PDB) moderating its new station openings. Management expects oil prices to remain volatile in FY17, caused by the global crude oil supply-demand rebalancing . In the near term, we foresee earnings to be supported by continued cost management initiatives in mitigating the volatile oil prices.

Volatile oil prices continue to cloud earnings visibility.Volatile oil prices continue to cloud earnings visibility.Volatile oil prices continue to cloud earnings visibility.Volatile oil prices continue to cloud earnings visibility. Brent oil price has recovered by 16% to about USD57/barrel in 4Q16 (from USD49/barrel in 3Q16). Nonetheless, it has since retraced back to about USD49-51/barrel recently. If oil prices continue to drop, retail motorgas prices could be cut again under the automatic pricing mechanism (APM). This may lead to inventory losses and margin compression.

Active stock management to mitigate earnings volatility.Active stock management to mitigate earnings volatility.Active stock management to mitigate earnings volatility.Active stock management to mitigate earnings volatility. Nevertheless, we note that management had implemented better inventory management and brought down the average inventory turnaround days to approximately five days, compared to 10 days in the past.

Curtailed expansion plan.Curtailed expansion plan.Curtailed expansion plan.Curtailed expansion plan. Given the challenging operating environment, PDB has moderated its expansion to 5-10 stations p.a. (from 30 p.a. previously). Moreover, management has undertaken various measures to keep opex at RM300-320m per quarter. The reduction in opex was mainly due to the variation in yearly bonus payment that resulted in lower manpower expenses, as well as lower advertising and promotional expenses.

Valuation:

Limited upside.Limited upside.Limited upside.Limited upside. Our HOLD rating for PDB is premised on the

limited potential upside to our target price of RM24.92, which

is pegged to 28x forward earnings, its 5-year mean historical

PE valuation.

Key Risks to Our View:

Falling oil prices could lead to margin compression. PDB could

incur inventory losses, and experience margin compression if

crude prices fall sharply within a short period of time.

At A Glance Issued Capital (m shrs) 993

Mkt. Cap (RMm/US$m) 23,545 / 5,318

Major Shareholders (%)

Petroliam National Bhd 69.9

Employee Provident Fund 5.1

Free Float (%)

3m Avg. Daily Val (US$m) 2.4

ICB IndustryICB IndustryICB IndustryICB Industry : Oil & Gas / Oil & Gas Producers

DBS Group Research . Equity

22 Mar 2017

Malaysia Company Guide

Petronas Dagangan Version 4 | Bloomberg: PETD MK | Reuters: PETR.KL Refer to important disclosures at the end of this report

ASIAN INSIGHTS VICKERS SECURITIES

Page 30

Company Guide

Petronas Dagangan

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Retail volume to improve marginally.Retail volume to improve marginally.Retail volume to improve marginally.Retail volume to improve marginally. Sales of subsidised

petroleum products (i.e. RON95 and RON97 motorgas, diesel),

are classified under the retail segment, and distributed via PDB’s

network of petrol stations. At present, PDB operates >.1,100

petrol stations.

Management plans to open 5-10 new petrol stations p.a. in

FY17-18F. Despite the higher number of stations, retail volumes

only grew by about 1% in 2016, dragged by diesel sales which

were affected by the “Ops Titik” enforcement activities (to curb

the illegal smuggling of subsidised diesel to neighbouring

countries) and implementation of the managed float pricing

mechanism since Dec 2014.

We expect PDB’s retail volume to marginally grow by 1.5% p.a.

in FY17-18F, which is not particularly exciting.

Commercial volume to grow by 2% p.Commercial volume to grow by 2% p.Commercial volume to grow by 2% p.Commercial volume to grow by 2% p.a. in FY1a. in FY1a. in FY1a. in FY17777----18F.18F.18F.18F.

Commercial business comprises the sale of unsubsidised

petroleum products, and is predominantly made up of four key

products: diesel, aviation fuel, bitumen and fuel oil.

Commercial volume sales rose about 1% in FY16. We expect

commercial volume to further grow by 2% p.a. in FY17-18F.

Higher volume sales can come from resumption of aviation

traffic growth, economic growth, and large-scale road

construction activities.

Other segments Other segments Other segments Other segments –––– insignificant contributions. insignificant contributions. insignificant contributions. insignificant contributions. Other segments

remain weak, but growth trajectory should be higher in the

future. LPG sales fell by 1.4% y-o-y in FY16, dragged by sales in

both the household and bulk segments, while lubricant sales

increased by 4% y-o-y in the same period, as consumptions

reverted to growth post fading effect of GST. We forecast LPG

growth to normalise to 1% p.a. in FY17-18F, driven by bulk LPG

sales, which is still seeing demand growth from SME and

hospitality users.

We expect lubricants sales to normalise to 5% p.a. in FY17-18F,

backed by higher sales volume from Perodua, Naza Kia, along

with the marine and plantation segments.

Retail Volume (% y-o-y)

Commercial Volume (% y-o-y)

LPG Volume (% y-o-y)

Lubricant Volume (% y-o-y)

Gross Margin (%)

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 31

Company Guide

Petronas Dagangan

Balance Sheet:

Strong balance sheet posiStrong balance sheet posiStrong balance sheet posiStrong balance sheet position.tion.tion.tion. We expect PDB to stay net cash

in FY17-18F, helped by strong operating cash flow of RM1.0-

1.2bn p.a., which far exceeds its capex of <RM500m p.a. PDB

ended FY14 with a cash pile of RM2.4bn, which allows the

group to engage in high dividend payout (>70%) and continue

its expansion plan.

Share Price Drivers:

Oil price outlook.Oil price outlook.Oil price outlook.Oil price outlook. Oil price fluctuations could significantly affect

PDB’s retail margins, due to inventory gains/losses. Petroleum

products’ retail prices are set based on the average Mean of

Platts Singapore (MOPS) price in the previous month, but PDB’s

net revenue for the retail products are linked to the average

MOPS price in the transacted month itself, as government will

levy a duty/compensate PDB to remove the difference. Thus,

PDB will achieve lower ASP and face margin compression in the

event of a sharp decline in oil prices, and vice versa.

Key Risks:

Falling oil prices could lead to margin compression.Falling oil prices could lead to margin compression.Falling oil prices could lead to margin compression.Falling oil prices could lead to margin compression. PDB could

experience margin compression, if crude prices continue to

trend down. This could be a drag on PDB’s earnings going

forward. Expansion plan will raise opex and start-up losses.

Management remains committed to expanding its network by

10-15 outlets annually. We concur with management that this

would benefit PDB in the long run, but the new petrol stations

could continue to drive up opex and start-up losses.

Company Background

PDB sells petroleum products through its domestic service

station operations. The group also has aviation fuelling

operations at KLIA and bunkering facilities at Westports, along

with marketing and lubricants distribution.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 32

Company Guide

Petronas Dagangan

Key Assumptions

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF

Retail Volume (% y-o-y) (1.9) (8.4) 1.00 1.46 1.45

Commercial Volume (% y-o-y) (6.6) (1.8) 1.00 1.58 1.58

LPG Volume (% y-o-y) 0.53 3.56 (1.4) 1.00 1.00

Lubricant Volume (% y-o-y) 4.66 130 3.50 5.00 5.00

Gross Margin (%) 5.90 8.08 10.4 9.23 9.25 Income Statement (RMm)

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Revenue 32,341 25,171 21,805 23,194 23,471

Cost of Goods Sold (30,432) (23,138) (19,878) (21,054) (21,299)

Gross ProfitGross ProfitGross ProfitGross Profit 1,9091,9091,9091,909 2,0332,0332,0332,033 1,9281,9281,9281,928 2,1402,1402,1402,140 2,1722,1722,1722,172 Other Opng (Exp)/Inc (1,203) (939) (715) (921) (892)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 706706706706 1,0941,0941,0941,094 1,2131,2131,2131,213 1,2191,2191,2191,219 1,2791,2791,2791,279 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 1.91 3.78 5.62 3.78 3.78

Net Interest (Exp)/Inc 1.80 (13.5) (7.7) 11.6 16.0

Exceptional Gain/(Loss) 0.0 (3.7) 33.2 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 710710710710 1,0811,0811,0811,081 1,2441,2441,2441,244 1,2341,2341,2341,234 1,2991,2991,2991,299 Tax (201) (290) (297) (331) (349)

Minority Interest (6.6) (4.7) (1.9) (5.3) (5.6)

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net ProfitNet ProfitNet ProfitNet Profit 502502502502 786786786786 945945945945 898898898898 945945945945 Net Profit before Except. 502 790 911 898 945

EBITDA 1,049 1,461 1,608 1,589 1,662

Growth

Revenue Gth (%) 0.0 (22.2) (13.4) 6.4 1.2

EBITDA Gth (%) (26.5) 39.2 10.1 (1.2) 4.6

Opg Profit Gth (%) (36.3) 55.1 10.8 0.5 5.0

Net Profit Gth (Pre-ex) (%) (38.2) 57.5 15.4 (1.5) 5.3

Margins & Ratio

Gross Margins (%) 5.9 8.1 8.8 9.2 9.3

Opg Profit Margin (%) 2.2 4.3 5.6 5.3 5.5

Net Profit Margin (%) 1.6 3.1 4.3 3.9 4.0

ROAE (%) 10.5 16.2 18.8 17.2 17.3

ROA (%) 5.1 8.9 11.9 11.2 11.3

ROCE (%) 9.1 14.3 16.6 16.1 16.3

Div Payout Ratio (%) 118.8 75.8 73.6 75.8 75.8

Net Interest Cover (x) NM 81.4 158.3 NM NM

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 33

Company Guide

Petronas Dagangan

Quarterly / Interim Income Statement (RMm)

FY FY FY FY DecDecDecDec 4Q4Q4Q4Q2015201520152015 1Q1Q1Q1Q2016201620162016 2Q2Q2Q2Q2016201620162016 3Q3Q3Q3Q2016201620162016 4Q4Q4Q4Q2016201620162016 Revenue 6,048 4,929 5,331 5,537 6,007

Cost of Goods Sold (5,644) (4,453) (4,886) (5,036) (5,503)

Gross ProfitGross ProfitGross ProfitGross Profit 403403403403 477477477477 445445445445 502502502502 504504504504 Other Oper. (Exp)/Inc (273) (181) (196) (172) (166)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 131131131131 295295295295 249249249249 330330330330 339339339339 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.70 0.62 2.02 4.32 (1.3)

Net Interest (Exp)/Inc (2.1) (1.8) (2.4) (2.2) (1.3)

Exceptional Gain/(Loss) 0.0 0.0 33.2 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 129129129129 294294294294 282282282282 332332332332 336336336336 Tax (36.8) (73.0) (66.7) (82.1) (75.6)

Minority Interest (0.2) (1.6) (0.5) (0.9) 1.07

Net ProfitNet ProfitNet ProfitNet Profit 92.192.192.192.1 219219219219 215215215215 249249249249 261261261261 Net profit bef Except. 92.1 219 182 249 261

EBITDA 262 377 348 423 460

Growth

Revenue Gth (%) (7.4) (18.5) 8.2 3.9 8.5

EBITDA Gth (%) (31.1) 44.2 (7.7) 21.5 8.7

Opg Profit Gth (%) (56.6) 126.0 (15.5) 32.1 2.7

Net Profit Gth (Pre-ex) (%) (57.9) 138.2 (17.1) 36.8 5.1

Margins

Gross Margins (%) 6.7 9.7 8.3 9.1 8.4

Opg Profit Margins (%) 2.2 6.0 4.7 6.0 5.6

Net Profit Margins (%) 1.5 4.5 4.0 4.5 4.4 Balance Sheet (RMm)

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Net Fixed Assets 4,532 4,482 4,454 4,413 4,360

Invts in Associates & JVs 9.52 13.3 17.1 20.9 24.6

Other LT Assets 8.23 9.41 9.41 9.41 9.41

Cash & ST Invts 1,840 1,259 1,336 1,635 1,930

Inventory 1,032 626 533 569 576

Debtors 2,119 1,649 1,423 1,520 1,538

Other Current Assets 0.0 32.6 32.6 32.6 32.6

Total AssetsTotal AssetsTotal AssetsTotal Assets 9,5419,5419,5419,541 8,0718,0718,0718,071 7,8057,8057,8057,805 8,2008,2008,2008,200 8,4708,4708,4708,470

ST Debt

360 98.5 98.5 98.5 98.5

Creditor 4,059 2,602 2,217 2,368 2,395

Other Current Liab 25.6 92.1 67.6 67.6 67.6

LT Debt 135 113 113 113 113

Other LT Liabilities 169 180 180 180 180

Shareholder’s Equity 4,752 4,952 5,091 5,330 5,568

Minority Interests 39.6 31.7 36.3 41.6 47.2

Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 9,5419,5419,5419,541 8,0718,0718,0718,071 7,8057,8057,8057,805 8,2008,2008,2008,200 8,4708,4708,4708,470

Non-Cash Wkg. Capital (934) (387) (296) (314) (317)

Net Cash/(Debt) 1,345 1,047 1,124 1,423 1,718

Debtors Turn (avg days) 35.8 27.3 25.7 23.2 23.8

Creditors Turn (avg days) 52.1 53.4 45.1 40.4 41.6

Inventory Turn (avg days) 13.5 13.3 10.8 9.7 10.0

Asset Turnover (x) 3.3 2.9 2.7 2.9 2.8

Current Ratio (x) 1.1 1.3 1.4 1.5 1.6

Quick Ratio (x) 0.9 1.0 1.2 1.2 1.4

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

Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH

Capex to Debt (%) 86.7 154.1 154.1 154.1 154.1

Z-Score (X) 7.3 9.0 8.1 8.0 8.0

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 34

Company Guide

Petronas Dagangan

Cash Flow Statement (RMm)

FY FY FY FY DecDecDecDec 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Pre-Tax Profit 709 1,081 1,098 1,234 1,299

Dep. & Amort. 341 368 355 367 379

Tax Paid (237) (243) (295) (331) (349)

Assoc. & JV Inc/(loss) (1.9) (3.8) (3.8) (3.8) (3.8)

Chg in Wkg.Cap. 1,790 (589) (15.3) 18.0 2.80

Other Operating CF (51.2) (0.3) 0.0 0.0 0.0

Net Operating CFNet Operating CFNet Operating CFNet Operating CF 2,5502,5502,5502,550 613613613613 1,1391,1391,1391,139 1,2841,2841,2841,284 1,3291,3291,3291,329 Capital Exp.(net) (429) (326) (326) (326) (326)

Other Invts.(net) 23.5 54.6 0.0 0.0 0.0

Invts in Assoc. & JV (4.1) 0.0 0.0 0.0 0.0

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF 0.0 0.0 0.0 0.0 0.0

Net Investing CFNet Investing CFNet Investing CFNet Investing CF (409)(409)(409)(409) (272)(272)(272)(272) (326)(326)(326)(326) (326)(326)(326)(326) (326)(326)(326)(326) Div Paid (551) (616) (653) (659) (707)

Chg in Gross Debt (92.4) (284) 0.0 0.0 0.0

Capital Issues 0.0 0.0 0.0 0.0 0.0

Other Financing CF (17.4) (24.3) 0.0 0.0 0.0

Net Financing CFNet Financing CFNet Financing CFNet Financing CF (661)(661)(661)(661) (925)(925)(925)(925) (653)(653)(653)(653) (659)(659)(659)(659) (707)(707)(707)(707)

Currency Adjustments 1.36 4.54 0.0 0.0 0.0

Chg in Cash 1,481 (579) 160 299 295

Opg CFPS (sen) 76.5 121 116 127 133

Free CFPS (sen) 214 28.8 81.8 96.4 101

Source: Company, AllianceDBS

Target Price & Ratings History

Source: AllianceDBS

Analyst: King Yoong CHEAH

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:BC, PY

HOLDHOLDHOLDHOLD Last Traded PriceLast Traded PriceLast Traded PriceLast Traded Price (((( 21 Mar 201721 Mar 201721 Mar 201721 Mar 2017)))): : : : RM4.55 (KLCIKLCIKLCIKLCI : : : : 1,754.67) Price Target Price Target Price Target Price Target 12121212----mthmthmthmth:::: RM4.60 (1% upside) (Prev RM4.60)

Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Volume and capacity expansion

Where we differ:Where we differ:Where we differ:Where we differ: In line with consensus Analyst Nur Inani Rozidin +60 326043905 [email protected]

What’s New • 3QFY17 earnings came in line with expectations

• Earnings from palm oil activities improved on

increased maturity profile

• Integrated livestock farming dragged by disease

outbreak in Indonesian operations

• FamilyMart venture is on-track

• Maintain HOLD

Price Relative

Forecasts and Valuation FY FY FY FY MarMarMarMar ((((RMRMRMRM m) m) m) m) 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF

Revenue 2,853 3,273 3,610 4,042 EBITDA 372 415 473 551 Pre-tax Profit 249 280 329 396 Net Profit 192 211 248 300 Net Pft (Pre Ex.) 192 211 248 300 Net Pft Gth (Pre-ex) (%) 4.9 9.7 17.7 20.7 EPS (sen) 15.4 16.9 19.9 24.0 EPS Pre Ex. (sen) 15.4 16.9 19.9 24.0 EPS Gth Pre Ex (%) 5 10 18 21 Diluted EPS (sen) 15.4 16.9 19.9 24.0 Net DPS (sen) 4.25 5.06 5.96 7.20 BV Per Share (sen) 127 139 153 170 PE (X) 29.6 27.0 22.9 19.0 PE Pre Ex. (X) 29.6 27.0 22.9 19.0 P/Cash Flow (X) 20.9 21.3 17.5 15.2 EV/EBITDA (X) 16.9 15.2 13.4 11.4 Net Div Yield (%) 0.9 1.1 1.3 1.6 P/Book Value (X) 3.6 3.3 3.0 2.7 Net Debt/Equity (X) 0.3 0.3 0.3 0.2 ROAE (%) 12.7 12.7 13.6 14.9 Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: 16.9 19.0 21.3 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 0 S: 2 H: 9

Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P

Diversified business model Volume, capacity expansion the next step.Volume, capacity expansion the next step.Volume, capacity expansion the next step.Volume, capacity expansion the next step. QL’s core staple food

businesses will likely remain resilient despite expectations of a

slowdown in Malaysia’s private consumption and economic

growth. Hence, to boost near-term growth, QL plans to ramp up

its regional feedmill production, aquaculture (prawn farming)

project, and the volume of frozen surimi-based products plus

snack foods for export. Although we continue to like QL for its

diversified business model, we believe near-term growth

initiatives are priced in and unlocking the long-term earnings

potential of its expansion plans is a key re-rating catalyst.

FamilyMart venture to offer longFamilyMart venture to offer longFamilyMart venture to offer longFamilyMart venture to offer long----term synergies. term synergies. term synergies. term synergies. FamilyMart –

QL’s venture with Japan’s FamilyMart Co. Ltd – targets to open

300 stores in five years. Currently, four stores had been opened

with eight more in 2017. The intention to focus on ready-to-eat

F&B will bring synergies to QL’s surimi-based products, snack

foods, and processed poultry product businesses. However, the

earnings impact in the near term is negligible given the

prerequisite 2-3 years’ gestation period. In the mid to long term,

positive accretion from this venture will depend a lot on

FamilyMart’s ability to differentiate itself from its competitors

such as 7-11 Malaysia and Bison.

Special dividend.Special dividend.Special dividend.Special dividend. QL announced a special dividend of 3

sen/share, coupled with proposed bonus issue on the basis of

three bonus shares for every ten existing ordinary shares held in

QL. Free operating cash flow for FY17F stands at 4 sen/share. Valuation:

Our DCF-derived TP is RM4.60 (8.0% WACC, 5% TG), and

implies 24x FY17F (ending March) PE.

Key Risks to Our View:

Severe price volatility is a threat to commodity-intensive sectors

like poultry. Prolonged weak product prices or high feed costs

may hurt earnings, though QL’s integrated and diversified

structure implies less earnings fluctuations than its peers. At A Glance Issued Capital (m shrs) 1,248

Mkt. Cap (RMm/US$m) 5,679 / 1,283

Major Shareholders (%)

CBG Holdings Sdn Bhd 42.1

Farsathy Holdings Sdn Bhd 12.1

Free Float (%) 45.8

3m Avg. Daily Val (US$m) 0.65

ICB IndustryICB IndustryICB IndustryICB Industry : Consumer Goods / Food Producers

DBS Group Research . Equity

22 Mar 2017

Malaysia Company Guide

QL Resources Version 5| Bloomberg: QLG MK | Reuters: QLRES.KL Refer to important disclosures at the end of this report

84

104

124

144

164

184

204

224

1.9

2.4

2.9

3.4

3.9

4.4

4.9

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

Relative IndexRM

QL Resources (LHS) Relative KLCI (RHS)

ASIAN INSIGHTS VICKERS SECURITIES

Page 36

Company Guide

QL Resources

WHAT’S NEW

Improvement in POA segment

HighlightsHighlightsHighlightsHighlights

• 3QFY17 core earnings of RM56m (-3% y-o-y) were in

line with our/consensus expectations, with improvements

in the palm oil activities (POA) segment mitigating lower

earnings from the marine product manufacturing (MPM)

segment and the integrated livestock farming (ILF)

segment.

HiccupHiccupHiccupHiccup in ILF segmentsin ILF segmentsin ILF segmentsin ILF segments

• The ILF division saw topline grow by 10% y-o-y to

RM479m, due to higher contribution from Malaysian

poultry operations and higher volume of raw feed

material traded.

• However, PBT fell by 15% y-o-y to RM19m. This was

mainly led by lower contribution from the Indonesian

poultry unit. The farms were affected by Newcastle

disease which is a contagious respiratory infection that

affects domestic poultry and other bird species. The

affected farms had been quarantined and vaccinated.

We expect the Indonesian operations to run smoothly in

the next quarter.

MPM MPM MPM MPM earningsearningsearningsearnings decline due to lower surimi operationsdecline due to lower surimi operationsdecline due to lower surimi operationsdecline due to lower surimi operations

• QL’s marine products manufacturing (MPM) segment

revenue declined by 2% y-o-y to RM230m, due to lower

contribution from surimi operations.

• Concurrently, PBT contracted by 7% y-o-y to RM46m,

making up 61% of 3QFY17 group PBT (3QFY16: 64%).

• This was due to the lower number of fish catch in

3QFY17 driving up production costs and a weaker ringgit

to USD in the quarter compared to the previous year.

• Consequently, MPM’s profitability has declined with a

PBT margin of 20% in 3QFY17 (3QFY16: 21%).

POA earnings to improve in FY17POA earnings to improve in FY17POA earnings to improve in FY17POA earnings to improve in FY17

• In 3QFY17, palm oil activities (POA) segment’s revenue

increased by 31% y-o-y to RM90m and PBT soared by

126% y-o-y to RM10m. This was attributable to higher

CPO price at RM2,867/MT in 3QFY17

(3Q16:RM2,094/MT).

• Moreover, lower FFB produced and processed by the

Sabah palm oil unit was mitigated by higher

contributions from the Indonesian plantations. Upstream

plantations in Indonesia are having an increasing

maturity profile (4-7 years old). FFB production in FY17 is

projected to increase by 50% to 120k MT.

OutlookOutlookOutlookOutlook

FamilyMart venture to offer longFamilyMart venture to offer longFamilyMart venture to offer longFamilyMart venture to offer long----term synergiesterm synergiesterm synergiesterm synergies

• QL has signed an area franchise agreement with Japan’s

FamilyMart Co. Ltd to open 300 stores in five years.

Currently, four stores had been opened with eight more

in 2017. We anticipate capex needs for this venture to

make up a small proportion of QL’s total capex, as the

requirement per-store of c.RM200k is small in

comparison to the group’s expected annual capex of

RM200-300m.

• The intention to focus on ready-to-eat F&B will bring

synergies to QL’s surimi-based products, snack foods,

and processed poultry product businesses. However, the

earnings impact in the near term is negligible given the

prerequisite 2-3 years’ gestation period. In the mid to

long term, positive accretion from this venture will

depend a lot on FamilyMart’s ability to differentiate itself

from its competitors such as 7-11 Malaysia and Bison.

MPM toMPM toMPM toMPM to expand into food manufacturing expand into food manufacturing expand into food manufacturing expand into food manufacturing

• QL plans to produce surimi-based products as an

extension of its existing Surabaya operations – this is in

progress and should be realised in three years.

Meanwhile, QL plans to set up a distribution centre in

Indonesia to provide an immediate channel to market its

surimi-based products from the plants in Hutan

Melintang and Johor.

• QL’s Hutan Melintang unit is constructing a new chilled

surimi-based production plant with an estimated capacity

of 25k MT, whose completion is slated for 3QFY18.

• Phase 1 of the new plant that specialises in frozen

surimi-based products in Kulai, Johor has been

completed, with full completion expected in the next

two years.

• The new plants will be technologically enhanced with

more automation, less manpower requirements and

improved production efficiency.

• QL is also ramping up its commercial prawn farming

initiative with expected earnings contribution of RM1-2m

in FY17. We are optimistic on the prospects of

commercially cultivated aquaculture-based products as

this business carries high margins – similar to surimi-

based products – and it is possible for QL to aggressively

expand the farming volume in the future.

ASIAN INSIGHTS VICKERS SECURITIES

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Company Guide

QL Resources

ILF to count on raw material feed trade for nearILF to count on raw material feed trade for nearILF to count on raw material feed trade for nearILF to count on raw material feed trade for near----term earnings term earnings term earnings term earnings

boostboostboostboost

• The recent completion of the new commercial feedmill in

Bekasi, Indonesia is expected to increase FY17’s total

group production by >200k MT/yr from >980k MT/yr

currently. This additional volume allows QL to enhance

its cost efficiency and expand further into commercial

feedmilling.

• There are plans to build additional commercial feedmill

plants in Indonesia and Malaysia, supported by

management’s efforts to replicate its local raw material

trade business regionally.

Our interactive QL modelOur interactive QL modelOur interactive QL modelOur interactive QL model

We invite readers to explore the effects of changes in the

various assumptions we imputed with our interactive model.

We highlight two possible near-term scenarios: 1) egg

oversupply, and 2) surimi price increase – these illustrate the

stability of QL’s integrated and diversified business model,

given the relatively contained net profit impact from both

events.

Quarterly / Interim Income Statement (RMm)

FY FY FY FY MarMarMarMar 3Q3Q3Q3Q2016201620162016 2Q2Q2Q2Q2017201720172017 3Q3Q3Q3Q2017201720172017 % chg yoy % chg yoy % chg yoy % chg yoy % chg qoq% chg qoq% chg qoq% chg qoq

Revenue 738 730 799 8.3 9.5

Other Oper. (Exp)/Inc (655) (654) (720) 10.0 10.2

Operating ProfitOperating ProfitOperating ProfitOperating Profit 83.183.183.183.1 76.076.076.076.0 78.978.978.978.9 (5.1)(5.1)(5.1)(5.1) 3.73.73.73.7

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm

Associates & JV Inc 2.14 2.09 2.29 7.1 9.7

Net Interest (Exp)/Inc (8.7) (7.4) (5.7) 34.3 22.7

Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm

PrePrePrePre----tax Profittax Profittax Profittax Profit 76.576.576.576.5 70.770.770.770.7 75.475.475.475.4 (1.5)(1.5)(1.5)(1.5) 6.76.76.76.7

Tax (12.4) (14.8) (14.3) 15.0 (3.6)

Minority Interest (6.3) (5.4) (5.1) 18.7 (5.3)

Net ProfitNet ProfitNet ProfitNet Profit 57.957.957.957.9 50.550.550.550.5 56.056.056.056.0 (3.1)(3.1)(3.1)(3.1) 10.910.910.910.9

Net profit bef Except. 57.9 50.5 56.0 (3.1) 10.9

EBITDA 106 107 107 0.6 (0.4)

Margins (%)

Opg Profit Margins 11.3 10.4 9.9

Net Profit Margins 7.8 6.9 7.0

Source of all data: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

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Company Guide

QL Resources

CRITICAL DATA POINTS TO WATCH

Earnings Drivers: Integrated food businesses to be resilient.Integrated food businesses to be resilient.Integrated food businesses to be resilient.Integrated food businesses to be resilient. QL has three key segments – marine product manufacturing (MPM), integrated livestock farming (ILF) and palm oil activities (POA). As staple protein food products, MPM and ILF product lines enjoy resilient demand. Also, QL’s integrated business operations with both upstream and downstream activities provide some cushion against the price volatility of commoditised goods like eggs, feed material and surimi. Surimi, the backbone of MPM.Surimi, the backbone of MPM.Surimi, the backbone of MPM.Surimi, the backbone of MPM. In FY16, QL produced up to 40k MT per annum of surimi – ground fish paste – whereby 25k MT came from Malaysia (split between plants in Perak and Sabah), and 15k MT from Surabaya, Indonesia. Based on management’s estimates, QL commands around 10% market share of surimi in ASEAN. Most of it is sold directly (typically exported), though around half of Malaysian production is used for surimi-based products (SBP) at the Hutan Melintang plant in Perak with a capacity of 55k MT/yr. Together, surimi and SBP make up 60-70% of MPM's revenue and PBT. The remainder comes from its sale of fishmeal (>30k MT/yr), deep-sea fishing, and its relatively new venture into aquaculture or prawn farming. Overall MPM is QL’s most profitable division, making up 25-30% of revenue but >50% of pretax as margins are strong at c.20%. Solid ILF presence.Solid ILF presence.Solid ILF presence.Solid ILF presence. QL is one of the three largest egg producers in Malaysia, with around 3.3m eggs per day (epd); plus c.0.65m epd in Indonesia and c.0.65m epd in Vietnam. Its other poultry presence is primarily in East Malaysia, with around 20m day-old chicks (DOC) and 12m broilers. Additionally, it has a production of around 20m DOC/yr in Indonesia. QL also has feedmills supplying its own blended feed to all eight farms; plus a poultry processing house in Sabah with capacity of 4,000 birds per hour. The integrated structure supports relatively steady ILF pretax margins of 5-8%. In FY16, ILF contributes c.60% to group revenue and >40% to group PBT. Feed material trading.Feed material trading.Feed material trading.Feed material trading. A differentiating factor for QL’s ILF division is its feed material trading, primarily involving the import of corn and soybean meal used to mix poultry feed. Trading an estimated >980k MT/yr of feed material in FY16, QL has a market share of about 20%. It enjoys cost advantages and stability over other pure poultry players, as feed material comprises up to 80% of COGS for layer and boiler operations. This volume-driven business is a significant contributor with up to 60% of ILF revenue and up to 50% of ILF PBT in FY16. POA still needs time.POA still needs time.POA still needs time.POA still needs time. In FY16, QL has c.10k ha of oil palm plantations in Kalimantan, Indonesia, plus three palm oil mills (two in Tawau, Sabah, and one in Tarakan, Indonesia). Due to the young age profile of its trees (1k ha immature, others 4-7 years old), and low CPO prices, the division has been loss-making. We expect a gradual turnaround as its palms mature to yield more fruit fresh fruit bunches (FFB), and CPO price recovers. Earnings at the pretax level have been held up by its 41.5% stake in Boilermech Holdings, which manufactures biomass boilers. It currently contributes a minimal c.5% of total group PBT.

Surimi prod (k MT)

Eggs prod (m/day)

Own FFB prod (k MT)

MPM key indicators and assumptions

ILF key indicators and assumptions

Source: Company, AllianceDBS

35

40

45 45 45

0.0

6.5

13.0

19.5

26.0

32.5

39.0

45.5

2015A 2016A 2017F 2018F 2019F

4.16

4.6 4.71 4.825.05

0.0

1.0

2.1

3.1

4.1

5.2

2015A 2016A 2017F 2018F 2019F

68

85.5

117

138

168

0.00

34.33

68.67

103.00

137.33

171.67

2015A 2016A 2017F 2018F 2019F

Total production (MT p.a.) FY15 FY16 FY17 FY18F FY19F

Surimi 35,000 40,000 45,000 45,000 45,000

Fishmeal 37,500 45,000 45,000 45,000 45,000

Surimi-based products 47,500 55,000 55,000 55,000 80,000

Aquaculture 600 1,500 1,800 2,813 4,230

Total production FY15 FY16 FY17F FY18F FY19F

Eggs (m/day) 4.2 4.6 4.7 4.8 5.1

DOC (m) 34.0 20.0 40.0 40.0 40.0

Broilers (m) 7.0 12.0 12.0 12.0 12.0

Traded feed material (MT) 900 980 1,200 1,257 1,320

ASP (RM)

Eggs (ea) 0.33 0.27 0.27 0.28 0.28

DOC (ea) 0.70 0.70 0.71 0.73 0.74

Broilers (/kg) 6.77 6.25 6.25 6.38 6.50

ASIAN INSIGHTS VICKERS SECURITIES

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Company Guide

QL Resources

Balance Sheet:

Solid balance sheet from strong cash flow.Solid balance sheet from strong cash flow.Solid balance sheet from strong cash flow.Solid balance sheet from strong cash flow. QL has a

manageable gearing level of <0.5x gross debt-to-equity (0.3x

net). Net interest cover is also secure at >8x. Given the strong

operating cash generation nature of its businesses, we think

that QL would have little trouble gearing up further for any

expansion needs. We also forecast QL to continue with a 30%

dividend payout, close to its historical trend, though there is no

fixed policy.

Share Price Drivers:

Key product pricing.Key product pricing.Key product pricing.Key product pricing. QL‘s share price is strongly correlated to

the pricing outlook and supply-demand dynamics of its core

products like eggs, broilers, surimi and fishmeal. Rising prices

from low supply or growing demand may boost its earnings and

share price.

Capacity exCapacity exCapacity exCapacity expansion or downstream progress.pansion or downstream progress.pansion or downstream progress.pansion or downstream progress. Growing its

capacity will increase QL’s long-term earnings potential,

particularly for core products like surimi and eggs. We believe

that further expansion into the higher-margin surimi-based

products (SBP), particularly at its Indonesian and Sabah surimi

operations, also offers upside potential.

Key Risks:

Feed costs volatility.Feed costs volatility.Feed costs volatility.Feed costs volatility. ILF margins can be affected by higher feed

costs (corn and soybeans). But, as a feed material trader, QL

has an edge over industry peers with no direct access to the

materials.

Volatility in prices of commodity products. Volatility in prices of commodity products. Volatility in prices of commodity products. Volatility in prices of commodity products. QL is exposed to

risks of falling/weak chicken egg prices, which may be caused

by general supply-and-demand forces and seasonality. This

could affect ILF margins. On a regional basis, the large supply

growth of fishmeal and surimi can also drive down prices and

hurt the MPM segment.

Company Background

QL has three core businesses: ILF – integrated livestock farming

(chicken eggs, broilers, day-old chicks, feed material trading),

MPM – marine product manufacturing (surimi, surimi-based

products, frozen food), and POA – palm oil activities (palm oil

plantation, milling).

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, AllianceDBS

1.0

1.1

1.1

1.2

1.2

0.00

0.10

0.20

0.30

0.40

0.50

0.60

2015A 2016A 2017F 2018F 2019F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

205.0

210.0

215.0

220.0

225.0

230.0

235.0

240.0

245.0

250.0

255.0

2015A 2016A 2017F 2018F 2019F

Capital Expenditure (-)

RMm

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2015A 2016A 2017F 2018F 2019F

Avg: 22.7x

+1sd: 25.6x

+2sd: 28.5x

-1sd: 19.8x

-2sd: 17x

14.2

16.2

18.2

20.2

22.2

24.2

26.2

28.2

30.2

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

(x)

Avg: 3.08x

+1sd: 3.51x

+2sd: 3.94x

-1sd: 2.64x

-2sd: 2.21x

1.7

2.2

2.7

3.2

3.7

4.2

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

(x)

ASIAN INSIGHTS VICKERS SECURITIES

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Company Guide

QL Resources

Key Assumptions

FY FY FY FY MarMarMarMar 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF

Surimi prod (k MT) 35.0 40.0 45.0 45.0 45.0

Eggs prod (m/day) 4.16 4.60 4.71 4.82 5.05

Own FFB prod (k MT) 68.0 85.5 117 138 168 Segmental Breakdown

FY FY FY FY MarMarMarMar 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF Revenues (RMm)

MPM 733 835 864 925 1,199

POA 345 310 363 379 369

ILF 1,630 1,708 2,046 2,305 2,474

TotalTotalTotalTotal 2,7082,7082,7082,708 2,8532,8532,8532,853 3,2733,2733,2733,273 3,6103,6103,6103,610 4,0424,0424,0424,042

Pretax profit (RMm) MPM 127 164 163 192 245

POA 14.8 12.1 11.8 15.8 21.1

ILF 95.6 73.8 105 121 130

TotalTotalTotalTotal 246246246246 249249249249 280280280280 329329329329 396396396396

Pretax profit Margins (%)

MPM 17.4 19.6 18.9 20.8 20.5

POA 4.3 3.9 3.2 4.2 5.7

ILF 5.9 4.3 5.1 5.2 5.2

TotalTotalTotalTotal 9.19.19.19.1 8.78.78.78.7 8.58.58.58.5 9.19.19.19.1 9.89.89.89.8

Income Statement (RMm)

FY FY FY FY MarMarMarMar 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF Revenue 2,708 2,853 3,273 3,610 4,042

Cost of Goods Sold (2,240) (2,351) (2,728) (3,004) (3,355)

Gross ProfitGross ProfitGross ProfitGross Profit 467467467467 501501501501 545545545545 606606606606 686686686686 Other Opng (Exp)/Inc (223) (232) (243) (255) (267)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 244244244244 269269269269 301301301301 351351351351 419419419419

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 23.3 12.6 10.7 11.3 11.8

Net Interest (Exp)/Inc (29.7) (32.5) (32.3) (33.9) (35.0)

Exceptional Gain/(Loss) 8.35 0.0 0.0 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 246246246246 249249249249 280280280280 329329329329 396396396396 Tax (50.0) (47.7) (58.8) (69.0) (83.1)

Minority Interest (4.5) (9.7) (10.3) (11.5) (13.2)

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net ProfitNet ProfitNet ProfitNet Profit 191191191191 192192192192 211211211211 248248248248 300300300300 Net Profit before Except. 183 192 211 248 300

EBITDA 333 372 415 473 551

Growth

Revenue Gth (%) 10.2 5.4 14.7 10.3 12.0

EBITDA Gth (%) 10.9 11.7 11.7 14.0 16.5

Opg Profit Gth (%) 10.1 10.3 11.9 16.5 19.3

Net Profit Gth (Pre-ex) (%) 14.5 4.9 9.7 17.7 20.7

Margins & Ratio

Gross Margins (%) 17.3 17.6 16.6 16.8 17.0

Opg Profit Margin (%) 9.0 9.4 9.2 9.7 10.4

Net Profit Margin (%) 7.1 6.7 6.4 6.9 7.4

ROAE (%) 14.1 12.7 12.7 13.6 14.9

ROA (%) 7.9 7.1 7.2 7.8 8.6

ROCE (%) 8.8 9.0 9.1 9.7 10.7

Div Payout Ratio (%) 27.7 27.6 30.0 30.0 30.0

Net Interest Cover (x) 8.2 8.3 9.3 10.4 12.0

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 41

Company Guide

QL Resources

Quarterly / Interim Income Statement (RMm)

FY FY FY FY MarMarMarMar 3Q3Q3Q3Q2016201620162016 4Q4Q4Q4Q2016201620162016 1Q1Q1Q1Q2017201720172017 2Q2Q2Q2Q2017201720172017 3Q3Q3Q3Q2017201720172017 Revenue 738 769 670 730 799

Other Oper. (Exp)/Inc (655) (712) (612) (654) (720)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 83.183.183.183.1 56.556.556.556.5 58.058.058.058.0 76.076.076.076.0 78.978.978.978.9 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 2.14 1.55 3.60 2.09 2.29

Net Interest (Exp)/Inc (8.7) (8.6) (8.8) (7.4) (5.7)

Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 76.576.576.576.5 49.449.449.449.4 52.852.852.852.8 70.770.770.770.7 75.475.475.475.4 Tax (12.4) (8.4) (11.5) (14.8) (14.3)

Minority Interest (6.3) (3.0) 0.84 (5.4) (5.1)

Net ProfitNet ProfitNet ProfitNet Profit 57.957.957.957.9 38.138.138.138.1 42.142.142.142.1 50.550.550.550.5 56.056.056.056.0 Net profit bef Except. 57.9 38.1 42.1 50.5 56.0

EBITDA 106 85.5 85.5 107 107

Growth

Revenue Gth (%) 6.9 4.2 (12.9) 9.0 9.5

EBITDA Gth (%) 7.0 (19.5) 0.0 25.3 (0.4)

Opg Profit Gth (%) 14.8 (32.0) 2.7 31.1 3.7

Net Profit Gth (Pre-ex) (%) 4.9 (34.2) 10.6 19.9 10.9

Margins

Opg Profit Margins (%) 11.3 7.3 8.7 10.4 9.9

Net Profit Margins (%) 7.8 5.0 6.3 6.9 7.0

Balance Sheet (RMm)

FY FY FY FY MarMarMarMar 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF Net Fixed Assets 1,239 1,377 1,486 1,615 1,734

Invts in Associates & JVs 94.7 105 116 127 139

Other LT Assets 278 230 228 226 225

Cash & ST Invts 201 245 279 329 414

Inventory 335 375 430 475 531

Debtors 307 279 321 354 396

Other Current Assets 131 193 193 193 193

Total AssetsTotal AssetsTotal AssetsTotal Assets 2,5852,5852,5852,585 2,8042,8042,8042,804 3,0523,0523,0523,052 3,3183,3183,3183,318 3,6323,6323,6323,632

ST Debt 431 473 498 523 548

Creditor 238 267 307 338 379

Other Current Liab 16.8 13.5 13.5 13.5 13.5

LT Debt 326 303 328 353 378

Other LT Liabilities 73.7 79.9 79.9 79.9 79.9

Shareholder’s Equity 1,427 1,588 1,736 1,910 2,119

Minority Interests 72.9 79.3 89.6 101 114

Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 2,5852,5852,5852,585 2,8042,8042,8042,804 3,0523,0523,0523,052 3,3183,3183,3183,318 3,6323,6323,6323,632

Non-Cash Wkg. Capital 518 566 624 669 728

Net Cash/(Debt) (556) (531) (547) (547) (512)

Debtors Turn (avg days) 39.0 37.5 33.5 34.1 33.8

Creditors Turn (avg days) 34.5 41.0 40.1 40.9 40.6

Inventory Turn (avg days) 47.8 57.6 56.2 57.3 57.0

Asset Turnover (x) 1.1 1.1 1.1 1.1 1.2

Current Ratio (x) 1.4 1.4 1.5 1.5 1.6

Quick Ratio (x) 0.7 0.7 0.7 0.8 0.9

Net Debt/Equity (X) 0.4 0.3 0.3 0.3 0.2

Net Debt/Equity ex MI (X) 0.4 0.3 0.3 0.3 0.2

Capex to Debt (%) 32.3 30.4 26.6 28.5 27.0

Z-Score (X) 0.0 0.0 0.0 0.0 0.0

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

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Company Guide

QL Resources

Cash Flow Statement (RMm)

FY FY FY FY MarMarMarMar 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF 2019201920192019FFFF Pre-Tax Profit 246 249 280 329 396

Dep. & Amort. 88.5 102 114 122 132

Tax Paid (50.0) (47.7) (58.8) (69.0) (83.1)

Assoc. & JV Inc/(loss) (23.3) (12.6) (10.7) (11.3) (11.8)

Chg in Wkg.Cap. (71.5) (48.6) (57.1) (45.7) (58.6)

Other Operating CF 35.4 29.5 0.0 0.0 0.0

Net Operating CFNet Operating CFNet Operating CFNet Operating CF 225225225225 272272272272 267267267267 325325325325 374374374374 Capital Exp.(net) (245) (236) (220) (250) (250)

Other Invts.(net) (0.4) 60.6 0.0 0.0 0.0

Invts in Assoc. & JV (37.2) 0.0 0.0 0.0 0.0

Div from Assoc & JV 4.82 0.0 0.0 0.0 0.0

Other Investing CF 0.0 2.38 0.0 0.0 0.0

Net Investing CFNet Investing CFNet Investing CFNet Investing CF (277)(277)(277)(277) (173)(173)(173)(173) (220)(220)(220)(220) (250)(250)(250)(250) (250)(250)(250)(250) Div Paid (53.0) (53.0) (63.2) (74.4) (89.9)

Chg in Gross Debt 103 19.2 50.0 50.0 50.0

Capital Issues 0.0 0.0 0.0 0.0 0.0

Other Financing CF (54.8) (12.3) 0.0 0.0 0.0

Net Financing CFNet Financing CFNet Financing CFNet Financing CF (5.2)(5.2)(5.2)(5.2) (46.1)(46.1)(46.1)(46.1) (13.2)(13.2)(13.2)(13.2) (24.4)(24.4)(24.4)(24.4) (39.9)(39.9)(39.9)(39.9)

Currency Adjustments 0.0 0.0 0.0 0.0 0.0

Chg in Cash (57.5) 53.1 33.8 50.2 84.6

Opg CFPS (sen) 23.8 25.7 26.0 29.7 34.7

Free CFPS (sen) (1.6) 2.91 3.76 5.98 9.97

Source: Company, AllianceDBS

Target Price & Ratings History

Source: AllianceDBS

Analyst: Nur Inani Rozidin

S.No.S.No.S.No.S.No.Date of Date of Date of Date of

ReportReportReportReport

Closing Closing Closing Closing

PricePricePricePrice

12-mth 12-mth 12-mth 12-mth

T arget T arget T arget T arget

PricePricePricePrice

Rat ing Rat ing Rat ing Rat ing

1: 12 Apr 16 4.32 4.10 HOLD

2: 31 May 16 4.41 4.10 HOLD

3: 07 Jun 16 4.42 4.60 HOLD

4: 25 Aug 16 4.39 4.60 HOLD

5: 22 Nov 16 4.40 4.60 HOLD

6: 13 Dec 16 4.34 4.60 HOLD

7: 10 Feb 17 4.43 4.60 HOLD

8: 01 Mar 17 4.55 4.60 HOLD

Note Note Note Note : Share price and Target price are adjusted for corporate actions.

1

2

3

4

5

67

8

4.01

4.11

4.21

4.31

4.41

4.51

4.61

4.71

4.81

Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17

RMRMRMRM

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:BC, PY

BUYBUYBUYBUY Last Traded PriceLast Traded PriceLast Traded PriceLast Traded Price (((( 21 Mar 201721 Mar 201721 Mar 201721 Mar 2017)))): : : : RM1.58 (KLCIKLCIKLCIKLCI : : : : 1,754.67) Price Target Price Target Price Target Price Target 12121212----mthmthmthmth:::: RM1.75 (11% upside) (Prev RM1.58) Potential CatalysPotential CatalysPotential CatalysPotential Catalyst: t: t: t: Earnings-accretive M&A, strong contributions from its

network marketing business

Where we differ:Where we differ:Where we differ:Where we differ: FY18 earnings below consensus due to lower

assumption of network marketing contributions. Analyst King Yoong CHEAH +60 32604 3908 [email protected]

What’s New • Reported strong 1QFY17 earnings of RM4.3m

versus RM2m in 1QFY16

• Results came within expectations. Remain positive

on earnings prospects

• Maintain BUY with a higher TP of RM1.75

Price Relative

Forecasts and Valuation FY FY FY FY AugAugAugAug ((((RMRMRMRM m) m) m) m) 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF

Revenue 88.0 92.7 115 136 EBITDA 24.4 26.9 36.2 43.5 Pre-tax Profit 21.4 17.4 31.5 38.9 Net Profit 15.3 11.9 22.7 28.4 Net Pft (Pre Ex.) 15.3 16.7 22.7 28.4 Net Pft Gth (Pre-ex) (%) (1.0) 9.1 35.8 25.0 EPS (sen) 5.48 4.24 8.11 10.1 EPS Pre Ex. (sen) 5.48 5.97 8.11 10.1 EPS Gth Pre Ex (%) (1) 9 36 25 Diluted EPS (sen) 5.48 5.46 8.11 10.1 Net DPS (sen) 2.28 2.25 4.06 5.07 BV Per Share (sen) 37.7 52.8 58.5 65.4 PE (X) 28.9 37.3 19.5 15.6 PE Pre Ex. (X) 28.9 26.4 19.5 15.6 P/Cash Flow (X) 96.4 263.7 49.6 28.1 EV/EBITDA (X) 18.3 16.4 12.6 10.5 Net Div Yield (%) 1.4 1.4 2.6 3.2 P/Book Value (X) 4.2 3.0 2.7 2.4 Net Debt/Equity (X) 0.0 CASH 0.0 0.1 ROAE (%) 14.5 8.0 14.6 16.4 Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: N/A 8.40 14.3 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 3 S: 0 H: 0

Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P

A good book to keep Dominant player in the publishing industry. Dominant player in the publishing industry. Dominant player in the publishing industry. Dominant player in the publishing industry. Sasbadi Holdings (Sasbadi) serves as one of the best proxies to the Malaysian education sector, as it is a dominant player in the domestic educational publishing industry with c.10% market share. The group is well managed and enjoys high ROE and superior profitability, supported by a lean operating structure and complementary business models. BookingBookingBookingBooking decent earnings in 1QFY17decent earnings in 1QFY17decent earnings in 1QFY17decent earnings in 1QFY17.... Although 1Q ending November is traditionally a weak quarter for Sasbadi’s educational publishing business, the group has registered strong earnings of RM4.3m during the quarter, a substantial improvement compared with core earnings of RM2m recorded in 1QFY16. Its 1QFY17 earnings were within our expectations. Network marketing Network marketing Network marketing Network marketing –––– key growth driver. key growth driver. key growth driver. key growth driver. Since obtaining the network marketing licence in April 2016, management has been actively engaged in recruiting members for the business. We gather that the group has so far signed on >3,000 members and significant contributions will start to kick in from FY17 onwards. We are positive of the group engaging in such marketing strategies since we believe that the general market remains unfamiliar with its digital products and a more personalised marketing strategy could lead to better recognition and appreciation of such products by consumers. Valuation: We are maintaining our BUY recommendation with a TP of RM1.75, pegged to a higher PE of 19x (previously 17x) as we narrow our valuation discount from 25% to 10%, compared to the sector PE of 21x. We believe that the smaller discount attached to Sasbadi’s valuation is justifiable in view of its larger market capitalisation, improved liquidity and superior ROE relative to its peers.

Key Risks to Our View: Failure to respond timely to changes in education policies could hurt sales and earnings. At A Glance Issued Capital (m shrs) 279

Mkt. Cap (RMm/US$m) 441 / 99.7

Major Shareholders (%)

Law King Hui 18.3

Lee Swee Hang 8.5

Employees Provident Fund 5.8

Free Float (%) 62.8

3m Avg. Daily Val (US$m) 0.23

ICB IndustryICB IndustryICB IndustryICB Industry : Consumer Services / Media

DBS Group Research . Equity

22 Mar 2017

Company Guide

Sasbadi Holdings Berhad Version 5 | Bloomberg: SASB MK | Reuters: SAHO.KL Refer to important disclosures at the end of this report

89

139

189

239

289

0.5

0.7

0.9

1.1

1.3

1.5

1.7

Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

Relative IndexRM

Sasbadi Holdings Berhad (LHS) Relative KLCI (RHS)

ASIAN INSIGHTS VICKERS SECURITIES

Page 44

Company Guide

Sasbadi Holdings Berhad

WHAT’S NEW

Booking a strong set of results

BBBBookookookookinginginging decent 1Qdecent 1Qdecent 1Qdecent 1QFY17FY17FY17FY17 earningsearningsearningsearnings:::: Sasbadi registered core

earnings of RM4.3m during the quarter, a substantial

improvement compared with core earnings of RM2m

recorded in 1QFY16. The stronger 1Q results were supported

by a 48% increase in its topline growth, compared with the

corresponding period last year. This meets about 18% of our

and consensus full- year earnings forecasts, which we deem

to be within expectations given that 1Q is a seasonally weak

quarter for the group.

Boosted by government contracts and network marketingBoosted by government contracts and network marketingBoosted by government contracts and network marketingBoosted by government contracts and network marketing: : : :

Although 1Q ending November is traditionally a weak quarter

for the group’s educational publishing business due to school

holidays and completion of exam period, the group’s 1QFY17

core earnings were boosted by (1) revenue recognition from

RM9.4m textbook publishing contract secured, (2) textbook

reprinting contract, (3) provisions of Lego Education robotics

sets to primary and secondary schools amounting to RM3.6m,

and (4) increased contributions from network marketing.

Expecting stronger contributions from its network marketing Expecting stronger contributions from its network marketing Expecting stronger contributions from its network marketing Expecting stronger contributions from its network marketing

business.business.business.business. Since obtaining the network marketing licence in

mid-2016, management has been actively expanding the

business to further monetise its digital products.

We understand that the group has so far recruited > 3,000

members. We are positive that contributions from its network

marketing business has improved to RM1.2m in 1QFY17 from

RM700,000 recorded in 4QFY16. In our earnings model, we

have only assumed RM5m contributions from its network

marketing business for FY17, leaving room for further

earnings upgrade.

BUY with a higher TP of RM1.75BUY with a higher TP of RM1.75BUY with a higher TP of RM1.75BUY with a higher TP of RM1.75: : : : We are maintaining our

BUY recommendation with a TP of RM1.75, pegged to a

higher PE of 19x (previously 17x) as we narrow our valuation

discount from 25% to 10%, compared to the sector PE of

21x. We believe that the smaller discount attached to

Sasbadi’s valuation is justifiable in view of its larger market

capitalisation, improved liquidity and superior ROE relative to

its peers.

Quarterly / Interim Income Statement (RMm)

FY FY FY FY AugAugAugAug 1Q1Q1Q1Q2016201620162016 4Q4Q4Q4Q2016201620162016 1Q1Q1Q1Q2017201720172017 % chg yoy % chg yoy % chg yoy % chg yoy % chg qoq% chg qoq% chg qoq% chg qoq

Revenue 21.0 15.9 31.2 48.4 96.3

Cost of Goods Sold (11.7) (9.6) (16.3) 38.8 69.1

Gross ProfitGross ProfitGross ProfitGross Profit 9.299.299.299.29 6.266.266.266.26 14.914.914.914.9 60.560.560.560.5 138.1138.1138.1138.1

Other Oper. (Exp)/Inc (5.8) (1.9) (8.2) 41.3 329.1

Operating ProfitOperating ProfitOperating ProfitOperating Profit 3.523.523.523.52 4.364.364.364.36 6.766.766.766.76 92.292.292.292.2 55.055.055.055.0

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm

Associates & JV Inc 0.0 0.0 0.0 nm nm

Net Interest (Exp)/Inc (0.3) (0.2) (0.4) (37.4) (161.6)

Exceptional Gain/(Loss) 0.0 (4.3) 0.0 nm nm

PrePrePrePre----tax Profittax Profittax Profittax Profit 3.243.243.243.24 (0.1)(0.1)(0.1)(0.1) 6.386.386.386.38 96.996.996.996.9 nmnmnmnm

Tax (0.9) 0.02 (1.6) 77.0 (8,668.4)

Minority Interest (0.3) (0.1) (0.4) (38.9) 292.2

Net ProfitNet ProfitNet ProfitNet Profit 2.032.032.032.03 (0.2)(0.2)(0.2)(0.2) 4.354.354.354.35 114.1114.1114.1114.1 nmnmnmnm

Net profit bef Except. 2.03 4.13 4.35 114.1 5.2

EBITDA 4.46 5.34 7.94 77.8 48.5

Margins (%)

Gross Margins 44.2 39.4 47.8

Opg Profit Margins 16.7 27.4 21.7

Net Profit Margins 9.7 (1.1) 13.9

Source of all data: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 45

Company Guide

Sasbadi Holdings Berhad

Peers comparison table

Source: Bloomberg, AllianceDBS

CallTarget

Price (LC)

Current

Price (LC)

Mkt Cap

(MYR m)CY2016 CY2017 CY2016 CY2017 CY2016 CY2017 CY2016 CY2017 CY2016 CY2017

Prestariang NR NR 2.11 1,023.3 (11%) 252% 68.1x 19.4x 5.8x 5.4x 1.8% 3.4% 8.3% 8.3%

SEG NR NR 1.12 801.1 15% 10% 28.7x 26.0x 2.8x 2.8x N/A N/A 9.8% 10.8%

Sasbadi BUY 1.58 1.53 427.5 10% 52% 27.0x 17.7x 2.9x 2.6x 1.2% 2.8% 10.5% 14.4%

Total / weighted avg 2,251.9 2% 125% 45.3x 21.0x 4.1x 3.9x 1.0% 2.0% 9.0% 10.1%

EPS (FD) Growth

(YoY)P/E (FD) Price/ BVPS Dividend Yield ROE

ASIAN INSIGHTS VICKERS SECURITIES

Page 46

Company Guide

Sasbadi Holdings Berhad

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Publishing business Publishing business Publishing business Publishing business –––– bread and butter.bread and butter.bread and butter.bread and butter. As a dominant player in

Malaysia’s publishing industry, Sasbadi derives its income mainly

from the publication of educational materials. The group

focuses on National School Curriculum-based (NSC-based)

educational materials for primary and secondary education.

Over the past 30 years, the group has published millions of

books (>11,000 titles) and has >1,300 distribution points in

Malaysia.

M&A to strengthen its position.M&A to strengthen its position.M&A to strengthen its position.M&A to strengthen its position. In the domestic educational

publishing industry, the top three players have less than 25%

market share. To further strengthen its dominant position in the

publishing industry and drive income growth, management

aims to embark on at least one earnings-accretive acquisition

annually. We are optimistic that the acquisition of a 70% stake

in Sanjung Unggul Sdn Bhd (SUSB), which is a major publishing

player in the national Chinese schools arena (Sekolah Jenis

Kebangsaan Cina) with c.1,300 book titles, will drive FY17

revenue growth by c.11%. We are also optimistic that the

successful acquisition of United Publishing could add about

RM1m-2m per annum to Sasbadi’s earnings.

Applied and online learning products.Applied and online learning products.Applied and online learning products.Applied and online learning products. Sasbadi is also involved in

the distribution of applied learning products (since 2005) and

online publishing (since 2011), which contributed <15% of

FY16 revenue. We expect the contributions from online

products to improve going forward with: (1) the launch of the i-

LEARN offline platform at end-CY15; and (2) the licence and

services agreement (LSA) with one of Indonesia’s largest book

publishers, PT Penerbit Erlangga. This would grant the publisher

an exclusive and non-transferable licence to use its interactive

online learning system i-LEARN, and sell the latter’s online

learning materials under its platform in Indonesia. In return,

Sasbadi would receive semi-annual royalty fees based on net

sales generated through the online platform in Indonesia.

Network marketing business could be another growth driver.Network marketing business could be another growth driver.Network marketing business could be another growth driver.Network marketing business could be another growth driver.

We understand that since obtaining the network marketing

licence, management has been actively engaged in building up

membership for the business in May and June. We gather that

the group has so far recruited >3,000 members and significant

contributions will start to kick in from FY17 onwards. We are

positive of the group engaging in such marketing strategies

since we believe that the general market remains unfamiliar

with its digital products and a more personalised marketing

strategy could achieve better recognition and appreciation of

such products by consumers.

Incremental print publishing revenue (RM m)

Organic growth (excl. past year exam) (RM m)

GP margin (%)

Dividend payout ratio (%)

Source: Company, AllianceDBS

1.24

7.228.01

17.916.8

0.0

2.6

5.2

7.7

10.3

12.9

15.5

18.1

2014A 2015A 2016A 2017F 2018F

5.06

0.66 0.73

5

0.99

0.0

1.0

2.1

3.1

4.1

5.2

2014A 2015A 2016A 2017F 2018F

46.6 47.249.1 48.7 48.2

0.00

10.02

20.04

30.06

40.08

50.10

2014A 2015A 2016A 2017F 2018F

0 0 0

118

50

0.0

23.8

47.6

71.4

95.3

119.1

2014A 2015A 2016A 2017F 2018F

ASIAN INSIGHTS VICKERS SECURITIES

Page 47

Company Guide

Sasbadi Holdings Berhad

Balance Sheet:

Healthy balance sheet.Healthy balance sheet.Healthy balance sheet.Healthy balance sheet. Sasbadi was in a net cash position as at

end-November 2016. Nonetheless, we do not discount the

possibility that the group may engage in capital-raising exercises

should it undertake a sizeable acquisition in the future.

Share Price Drivers:

Proxy to defensive education industry.Proxy to defensive education industry.Proxy to defensive education industry.Proxy to defensive education industry. Sasbadi is a good proxy

to Malaysia’s education industry, given that it is principally

involved in the provision of educational materials for primary

and secondary education. As such, any government policy

change to the educational sector may influence its share price.

Earnings Earnings Earnings Earnings delivery and earningsdelivery and earningsdelivery and earningsdelivery and earnings----accretive acquisitions. accretive acquisitions. accretive acquisitions. accretive acquisitions. Sasbadi’s

share price will also be largely dependent on its earnings

delivery and the group’s ability to engage in earnings-accretive

acquisitions.

Key Risks:

Paper cost fluctuation.Paper cost fluctuation.Paper cost fluctuation.Paper cost fluctuation. A sudden surge in paper cost, which

represents about 40% of Sasbadi's cost of goods sold, would

hurt earnings.

Change in education policies. Change in education policies. Change in education policies. Change in education policies. Failure to respond to changes in

education policies in a timely manner would hurt sales and

earnings.

Company Background

Sasbadi is a market leader in the local educational publishing

industry with c.12% market share. The group is well managed

and enjoys high ROE and superior profitability, thanks to its

lean operating structure and complementary business models.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, AllianceDBS

0.5

0.6

0.6

0.7

0.7

0.8

0.8

0.9

0.9

0.00

0.05

0.10

0.15

0.20

0.25

2014A 2015A 2016A 2017F 2018F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2014A 2015A 2016A 2017F 2018F

Capital Expenditure (-)

RMm

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2014A 2015A 2016A 2017F 2018F

Avg: 16.7x

+1sd: 19.6x

+2sd: 22.4x

-1sd: 13.9x

-2sd: 11.1x

9.7

11.7

13.7

15.7

17.7

19.7

21.7

23.7

25.7

Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

(x)

Avg: 2.66x

+1sd: 3.1x

+2sd: 3.53x

-1sd: 2.22x

-2sd: 1.78x1.6

2.1

2.6

3.1

3.6

4.1

Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

(x)

ASIAN INSIGHTS VICKERS SECURITIES

Page 48

Company Guide

Sasbadi Holdings Berhad

Key Assumptions

FY FY FY FY AugAugAugAug 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF

Incremental print publishing revenue (RM m)

1.24 7.22 8.01 17.9 16.8

Organic growth (excl. past year exam) (RM m)

5.06 0.66 0.73 5.00 0.99

GP margin (%) 46.6 47.2 49.1 48.7 48.2

Dividend payout ratio (%) 0.0 0.0 0.0 118 50.0 Income Statement (RMm)

FY FY FY FY AugAugAugAug 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Revenue 79.5 88.0 92.7 115 136

Cost of Goods Sold (42.4) (46.5) (47.2) (59.0) (70.3)

Gross ProfitGross ProfitGross ProfitGross Profit 37.037.037.037.0 41.541.541.541.5 45.545.545.545.5 56.056.056.056.0 65.565.565.565.5 Other Opng (Exp)/Inc (16.6) (20.0) (22.7) (23.9) (26.0)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 20.420.420.420.4 21.521.521.521.5 22.922.922.922.9 32.132.132.132.1 39.539.539.539.5 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc (0.3) (0.1) (0.6) (0.6) (0.6)

Exceptional Gain/(Loss) (3.2) 0.0 (4.9) 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 16.916.916.916.9 21.421.421.421.4 17.417.417.417.4 31.531.531.531.5 38.938.938.938.9 Tax (4.6) (5.6) (5.1) (7.8) (9.5)

Minority Interest 0.0 (0.5) (0.4) (1.0) (1.0)

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net ProfitNet ProfitNet ProfitNet Profit 12.312.312.312.3 15.315.315.315.3 11.911.911.911.9 22.722.722.722.7 28.428.428.428.4 Net Profit before Except. 15.5 15.3 16.7 22.7 28.4

EBITDA 23.0 24.4 26.9 36.2 43.5

Growth

Revenue Gth (%) 1.9 10.7 5.3 24.1 18.0

EBITDA Gth (%) 18.0 6.2 10.4 34.3 20.2

Opg Profit Gth (%) 16.1 5.4 6.3 40.5 22.9

Net Profit Gth (Pre-ex) (%) 21.2 (1.0) 9.1 35.8 25.0

Margins & Ratio

Gross Margins (%) 46.6 47.2 49.1 48.7 48.2

Opg Profit Margin (%) 25.7 24.4 24.7 27.9 29.1

Net Profit Margin (%) 15.4 17.4 12.8 19.7 20.9

ROAE (%) 13.1 14.5 8.0 14.6 16.4

ROA (%) 10.7 10.9 5.8 10.6 12.1

ROCE (%) 14.2 12.6 8.9 13.0 14.8

Div Payout Ratio (%) 69.4 41.5 53.0 50.0 50.0

Net Interest Cover (x) 62.9 215.0 36.8 52.9 66.5

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 49

Company Guide

Sasbadi Holdings Berhad

Quarterly / Interim Income Statement (RMm)

FY FY FY FY AugAugAugAug 1Q1Q1Q1Q2016201620162016 2Q2Q2Q2Q2016201620162016 3Q3Q3Q3Q2016201620162016 4Q4Q4Q4Q2016201620162016 1Q1Q1Q1Q2017201720172017 Revenue 21.0 33.9 22.4 15.9 31.2

Cost of Goods Sold (11.7) (16.5) (11.0) (9.6) (16.3)

Gross ProfitGross ProfitGross ProfitGross Profit 9.299.299.299.29 17.417.417.417.4 11.411.411.411.4 6.266.266.266.26 14.914.914.914.9 Other Oper. (Exp)/Inc (5.8) (8.1) (5.7) (1.9) (8.2)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 3.523.523.523.52 9.309.309.309.30 5.705.705.705.70 4.364.364.364.36 6.766.766.766.76 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc (0.3) (0.3) 0.0 (0.2) (0.4)

Exceptional Gain/(Loss) 0.0 0.0 0.0 (4.3) 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 3.243.243.243.24 9.009.009.009.00 5.705.705.705.70 (0.1)(0.1)(0.1)(0.1) 6.386.386.386.38 Tax (0.9) (2.3) (1.6) 0.02 (1.6)

Minority Interest (0.3) 0.0 (0.2) (0.1) (0.4)

Net ProfitNet ProfitNet ProfitNet Profit 2.032.032.032.03 6.706.706.706.70 3.903.903.903.90 (0.2)(0.2)(0.2)(0.2) 4.354.354.354.35 Net profit bef Except. 2.03 6.70 3.90 4.13 4.35

EBITDA 4.46 11.2 8.50 5.34 7.94

Growth

Revenue Gth (%) 4.6 61.2 (33.9) (29.0) 96.3

EBITDA Gth (%) 3.9 151.0 (24.1) (37.1) 48.5

Opg Profit Gth (%) 5.6 164.4 (38.7) (23.5) 55.0

Net Profit Gth (Pre-ex) (%) (9.0) 229.7 (41.8) 6.0 5.2

Margins

Gross Margins (%) 44.2 51.3 50.9 39.4 47.8

Opg Profit Margins (%) 16.7 27.4 25.4 27.4 21.7

Net Profit Margins (%) 9.7 19.8 17.4 (1.1) 13.9 Balance Sheet (RMm)

FY FY FY FY AugAugAugAug 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Net Fixed Assets 30.3 30.9 45.2 45.7 46.1

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0

Other LT Assets 4.95 22.7 29.1 29.2 27.8

Cash & ST Invts 26.3 8.34 25.9 11.3 9.82

Inventory 20.2 37.1 47.9 59.9 71.3

Debtors 31.1 40.4 51.7 64.1 75.7

Other Current Assets 1.67 1.36 5.14 10.8 15.3

Total AssetsTotal AssetsTotal AssetsTotal Assets 114114114114 141141141141 205205205205 221221221221 246246246246

ST Debt

5.80 9.30 10.5 10.0 10.0

Creditor 8.00 13.4 22.4 28.0 33.3

Other Current Liab 2.48 1.60 2.00 2.11 2.11

LT Debt 0.20 0.10 9.52 9.52 9.52

Other LT Liabilities 4.30 6.10 7.43 2.00 2.00

Shareholder’s Equity 93.7 105 148 163 183

Minority Interests 0.0 5.10 5.47 6.10 6.47

Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 114114114114 141141141141 205205205205 221221221221 246246246246

Non-Cash Wkg. Capital 42.5 63.9 80.4 105 127

Net Cash/(Debt) 20.3 (1.1) 5.85 (8.2) (9.7)

Debtors Turn (avg days) 115.4 148.3 181.3 183.8 188.0

Creditors Turn (avg days) 45.8 89.6 151.5 167.1 168.7

Inventory Turn (avg days) 161.3 239.8 360.0 358.0 361.3

Asset Turnover (x) 0.8 0.7 0.5 0.5 0.6

Current Ratio (x) 4.9 3.6 3.7 3.6 3.8

Quick Ratio (x) 3.5 2.0 2.2 1.9 1.9

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

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

Capex to Debt (%) 112.8 37.2 45.2 15.4 15.4

Z-Score (X) 14.2 10.2 6.5 6.7 6.5

Source: Company, AllianceDBS

ASIAN INSIGHTS VICKERS SECURITIES

Page 50

Company Guide

Sasbadi Holdings Berhad

Cash Flow Statement (RMm)

FY FY FY FY AugAugAugAug 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Pre-Tax Profit 16.9 21.4 17.4 31.5 38.9

Dep. & Amort. 2.58 2.90 4.09 4.06 4.00

Tax Paid (5.2) (5.9) (6.7) (7.8) (9.5)

Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0

Chg in Wkg.Cap. (15.0) (15.4) (12.0) (18.8) (17.7)

Other Operating CF 1.88 1.60 (1.0) 0.0 0.0

Net Operating CFNet Operating CFNet Operating CFNet Operating CF 1.121.121.121.12 4.584.584.584.58 1.671.671.671.67 8.908.908.908.90 15.715.715.715.7 Capital Exp.(net) (6.8) (3.5) (9.1) (3.0) (3.0)

Other Invts.(net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 (18.6) (6.2) 0.0 0.0

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF 0.04 0.10 0.31 0.0 0.0

Net Investing CFNet Investing CFNet Investing CFNet Investing CF (6.7)(6.7)(6.7)(6.7) (22.0)(22.0)(22.0)(22.0) (14.9)(14.9)(14.9)(14.9) (3.0)(3.0)(3.0)(3.0) (3.0)(3.0)(3.0)(3.0) Div Paid (8.5) (3.8) (5.6) (11.3) (14.2)

Chg in Gross Debt (0.3) 0.90 5.13 (0.5) 0.0

Capital Issues 25.2 0.0 31.6 0.0 0.0

Other Financing CF (2.3) (0.2) (0.7) 0.0 0.0

Net Financing CFNet Financing CFNet Financing CFNet Financing CF 14.114.114.114.1 (3.1)(3.1)(3.1)(3.1) 30.530.530.530.5 (11.9)(11.9)(11.9)(11.9) (14.2)(14.2)(14.2)(14.2)

Currency Adjustments 0.0 0.0 0.0 0.0 0.0

Chg in Cash 8.52 (20.5) 17.3 (6.0) (1.5)

Opg CFPS (sen) 5.78 7.16 4.91 9.92 11.9

Free CFPS (sen) (2.0) 0.39 (2.6) 2.11 4.54

Source: Company, AllianceDBS

Target Price & Ratings History

Source: AllianceDBS

Analyst: King Yoong CHEAH

S.No.S.No.S.No.S.No.Date of Date of Date of Date of

ReportReportReportReport

Closing Closing Closing Closing

PricePricePricePrice

12-mth 12-mth 12-mth 12-mth

T arget T arget T arget T arget

PricePricePricePrice

Rat ing Rat ing Rat ing Rat ing

1: 18 Jul 16 1.24 1.40 BUY

2: 27 Jul 16 1.22 1.40 BUY

3: 09 Aug 16 1.20 1.40 BUY

4: 01 Nov 16 1.35 1.58 BUY

5: 13 Dec 16 1.36 1.58 BUY

6: 25 Jan 17 1.51 1.75 BUY

Note Note Note Note : Share price and Target price are adjusted for corporate actions.

12

3

4

5

6

0.97

1.07

1.17

1.27

1.37

1.47

1.57

1.67

Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17

RMRMRMRM

Industry Focus

Malaysian Consumer

Page 51

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

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

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

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

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

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

Share price appreciation + dividends

Completed Date: 21 Mar 2017 19:22:32 (MYT) Dissemination Date: 22 Mar 2017 09:00:19 (MYT)

GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by This report is prepared by This report is prepared by This report is prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS'')AllianceDBS Research Sdn Bhd (''AllianceDBS'')AllianceDBS Research Sdn Bhd (''AllianceDBS'')AllianceDBS Research Sdn Bhd (''AllianceDBS''). . . . This report is solely intended for the clients of DBS Bank Ltd, its

respective connected and associated corporations and affiliates 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 AllianceDBS Research Sdn Bhd (''AllianceDBS'').

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other

factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or

warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without

notice. This research 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. The DBS Group 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. The DBS Group, 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. The DBS Group, 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, it may

not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to

update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

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 the DBS Group (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.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

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.

Industry Focus

Malaysian Consumer

Page 52

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public

offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage

in market-making.

ANALYST CERTIFICATIONANALYST CERTIFICATIONANALYST CERTIFICATIONANALYST CERTIFICATION

The research analyst(s) 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(s) 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 the report. The research analyst (s)

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the

issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real

estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the

management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or

his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the

DBS Group.

COMPANYCOMPANYCOMPANYCOMPANY----SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates do not have a proprietary

position in the securities recommended in this report as of 28 Feb 2017.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.

Compensation fCompensation fCompensation fCompensation for investment banking services:or investment banking services:or investment banking services:or investment banking services:

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction 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.

Disclosure of previous investment recommendation produced:Disclosure of previous investment recommendation produced:Disclosure of previous investment recommendation produced:Disclosure of previous investment recommendation produced:

4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Industry Focus

Malaysian Consumer

Page 53

RESTRICTIONS ON DISTRIBUTION RESTRICTIONS ON DISTRIBUTION RESTRICTIONS ON DISTRIBUTION RESTRICTIONS ON DISTRIBUTION

GeneralGeneralGeneralGeneral 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.

AustraliaAustraliaAustraliaAustralia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of 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. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore 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.

Hong KongHong KongHong KongHong Kong This report has been prepared by an entity(ies) which is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

IndonesiaIndonesiaIndonesiaIndonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

MalaysiaMalaysiaMalaysiaMalaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

SingaporeSingaporeSingaporeSingapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

ThailandThailandThailandThailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

Industry Focus

Malaysian Consumer

Page 54

United United United United KingdomKingdomKingdomKingdom

This report is produced by AllianceDBS Research Sdn Bhd which is regulated by the Securities Commission Malaysia.

This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates 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 DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

DDDDubaiubaiubaiubai

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United StatesUnited StatesUnited StatesUnited States This report was prepared by AllianceDBS Research Sdn Bhd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other Other Other Other jurisdictionsjurisdictionsjurisdictionsjurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

AllianceDBS Research Sdn BhdAllianceDBS Research Sdn BhdAllianceDBS Research Sdn BhdAllianceDBS Research Sdn Bhd

(128540 U) 19th Floor, Menara Multi-Purpose, Capital Square,

8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia.

Tel.: +603 2604 3333 Fax: +603 2604 3921 email : [email protected]