MRT - Mar Update

8/13/2019 MRT - Mar Update

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Key company data: See page 2 for company data and detailed price/index chart.

SMRT Corporation SMRT.SI MRT SPTRANSPORT/LOGISTICS

EQUITY RESEARCH

Less for shareholders

Negatives not fully priced in

March 11, 2013

RatingRemains

Reduce

arget price

Reduced from 1.57SGD 1.35

Closing price

March 8, 2013SGD 1.60

Potential downside -15.6%

Action: Cut TP by 14%

We cut our earnings forecasts as we raise our staff cost estimates on theback of higher salary assumptions post SMRTs wage review. We alsoraise our loss estimates for the Circle Line (CCL) as we are not convinced

that a significant ramp-up in ridership will materialise from hereon.We cut our already lowered dividend estimates by another 30%. SMRTfaces a huge capex outlay, which comes at a time when growth inoperational cashflow is facing headwinds. We expect SMRT to reducedividends so as to conserve cash, while borrowing more to fund capex.

Catalyst: Lower final dividend

A key de-rating catalyst could be the announcement of a final dividendthat comes in below an already lowered consensus dividend estimate. Thestock may also de-rate further if earnings surprise on the downside. Thiscould come from a further deterioration of the core business andoperational and impairment losses on its investment in Shenzhen Zona.

Both our FY14F earnings and dividend forecasts are 30% belowconsensus.

Valuation/Risks

The stock trades at 24.9x/23.0x FY13F/FY14F P/E, which is towards thehigh end of its trading range. It offers a FY13F dividend yield of 2.8% onour revised dividend estimates. Key upside risks include higher averagefares and passenger growth; higher-than-expected subsidies/grants;better cost control; regulatory changes; and better performance at itsassociate and engineering division.

31 Mar FY12 FY13F FY14F FY15F

Currency (SGD) Actual Old New Old New Old New

Revenue (mn) 1,057 1,146 1,125 1,216 1,184 1,271 1,281

Reported net profit (mn) 120 142 110 149 98 158 106

Normalised net profit (mn) 142 142 110 149 98 158 106

FD normalised EPS 9.30c 9.30c 7.25c 9.80c 6.44c 10.44c 6.99c

FD norm. EPS growth (%) -12.2 0.0 -22.1 5.3 -11.1 6.6 8.5

FD normalised P/E (x) 17.3 N/A 22.2 N/A 24.9 N/A 23.0

EV/EBITDA (x) 7.9 N/A 9.7 N/A 9.7 N/A 9.0

Price/book (x) 3.1 N/A 3.1 N/A 3.0 N/A 2.8

Dividend yield (%) 4.6 N/A 2.8 N/A 2.5 N/A 2.6

ROE (%) 15.1 17.2 13.9 17.0 12.1 16.9 12.5

Net debt/equity (%) net cash 56.7 51.4 51.3 53.9 52.7 56.1

Anchor themes

Singapores long-term goal ofbringing 8 in 10 householdswithin a 10 minute walk of a rail

station is a structural positivefor rail ridership and operators.

Nomura vs consensus

Our FY14F earnings anddividend forecasts are 30%below consensus.

Research analysts

Singapore Transport/Logistics

Wen Jie Chan - NSL

[email protected]

+65 6433 6965

See Appendix A-1 for analystcertification, importantdisclosures and the status ofnon-US analysts.


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Nomura | SMRT Corporation March 11, 2013

2

Key data on SMRT CorporationIncomestatement(SGDmn)Year-end 31 Mar FY11 FY12 FY13F FY14F FY15F

Revenue 970 1,057 1,125 1,184 1,281

Cost of goods sold -514 -591 -663 -711 -756

Gross profit 456 466 462 474 525

SG&A -260 -296 -323 -347 -386

Employee share expense 0 0 0

Operating profit 196 170 139 127 139

EBITDA 315 300 294 298 323

Depreciation -135 -141 -165 -181 -193

Amortisation 16 11 11 10 9

EBIT 196 170 139 127 139

Net interest expense -5 -4 -5 -9 -10

Associates & JCEs 1 3 -1 0 0

Other income 0 0 0 0 0

Earnings before tax 192 169 133 118 129

Income tax -31 -27 -23 -20 -22

Net profit after tax 161 142 110 98 107

Minority interests 0 0 0 0 -1

Other items 0 0 0 0 0

Preferred dividends 0 0 0 0 0

Normalised NPAT 161 142 110 98 106

Extraordinary items 0 -22 0 0 0Reported NPAT 161 120 110 98 106

Dividends -129 -113 -68 -61 -65

Transfer to reserves 32 7 42 37 41

Valuation and ratio analysis

Reported P/E (x) 15.1 20.4 22.1 25.0 23.0

Normalised P/E (x) 15.1 17.2 22.1 25.0 23.0

FD normalised P/E (x) 15.1 17.3 22.2 24.9 23.0

FD normalised P/E at price target (x) 12.7 14.5 18.6 20.9 19.3

Dividend yield (%) 5.3 4.6 2.8 2.5 2.6

Price/cashflow (x) 8.6 8.7 153.5 9.0 7.4

Price/book (x) 3.1 3.1 3.1 3.0 2.8

EV/EBITDA (x) 7.3 7.9 9.7 9.7 9.0

EV/EBIT (x) 11.7 13.8 20.6 22.7 21.0

Gross margin (%) 47.0 44.1 41.1 40.0 41.0EBITDA margin (%) 32.5 28.4 26.1 25.1 25.2

EBIT margin (%) 20.2 16.1 12.4 10.7 10.9

Net margin (%) 16.6 11.3 9.8 8.3 8.3

Effective tax rate (%) 16.0 16.0 17.1 17.0 17.0

Dividend payout (%) 80.1 94.5 62.1 62.3 61.1

Capex to sales (%) 11.0 22.2 32.1 20.8 23.9

Capex to depreciation (x) 0.8 1.7 2.2 1.4 1.6

ROE (%) 20.5 15.1 13.9 12.1 12.5

ROA (pretax %) 15.8 12.4 8.3 7.0 7.4

Growth (%)

Revenue 8.3 9.0 6.5 5.2 8.2

EBITDA -1.9 -4.7 -2.1 1.5 8.6

EBIT -4.1 -12.9 -18.3 -8.8 9.8

Normalised EPS -5.1 -12.2 -22.1 -11.5 8.9

Normalised FDEPS -5.1 -12.2 -22.1 -11.1 8.5

Per share

Reported EPS (SGD) 10.61c 7.89c 7.25c 6.42c 6.99c

Norm EPS (SGD) 10.61c 9.31c 7.25c 6.42c 6.99c

Fully diluted norm EPS (SGD) 10.60c 9.30c 7.25c 6.44c 6.99c

Book value per share (SGD) 0.53 0.52 0.52 0.54 0.57

DPS (SGD) 0.09 0.07 0.05 0.04 0.04

Source: Company data, Nomura estimates

Relative perfo rmance chart (one year)

Source: ThomsonReuters, Nomura research

(%) 1M 3M 12M

Absolute (SGD) 0.0 -5.0 -7.8

Absolute (USD) -0.6 -7.0 -7.2

Relative to index -0 .1 -9.7 -15 .9

Market cap (USDmn) 1,957.0

Estimated free float (%) 45.6

52-week range (SGD) 1.84/1.59

3-mth avg daily turnover(USDmn)

1.92

Major shareholders (%)

Temasek Holdings 54.4

Source: Thomson Reuters, Nomura research

Notes

We expect earnings to pick up in

FY15F, but remain well below

FY12 earnings


3/12


3

Cashflow(SGDmn)Year-end 31 Mar FY11 FY12 FY13F FY14F FY15F

EBITDA 315 300 294 298 323

Change in working capital 10 265 -253 -16 18

Other operating cashflow -41 -282 -24 -11 -13

Cashflow from operations 283 282 16 271 328

Capital expenditure -107 -234 -362 -247 -307

Free cashflow 177 48 -346 25 22

Reduction in investments 0 -1 0 0 0

Net acquisitions 0 0 0 0 0

Reduction in other LT assets 3 -4 1 13 13

Addition in other LT liabilities -29 -6 -11 -10 -9

Adjustments 29 11 12 -2 -3

Cashflow after investing acts 179 48 -344 26 23

Cash dividends -129 -129 -109 -65 -65

Equity issue 0 0 0 0 0

Debt issue 0 -100 450 0 50

Convertible debt issue 0 0 0 0

Others 0 0 0 0 0

Cashflow from financial acts -129 -229 341 -64 -14

Net cashflow 50 -181 -3 -38 8

Beginning cash 326 376 195 192 154

Ending cash 376 195 192 154 162

Ending net debt -126 -45 408 446 488


Balancesheet(SGDmn)As at 31 Mar FY11 FY12 FY13F FY14F FY15F

Cash & equivalents 376 195 192 154 162

Marketable securities 4 0 0 0 0

Accounts receivable 65 64 74 78 84

Inventories 54 54 66 72 78

Other current assets 1 0 0 0 0

Total current assets 499 313 333 304 324

LT investments 10 15 15 15 15

Fixed assets 998 1,346 1,538 1,598 1,706

Goodwill 0 0 0 0

Other intangible assets 35 14 14 14 14

Other LT assets 64 68 67 54 41

Total assets 1,607 1,756 1,966 1,984 2,100

Short-term debt 100 0 0 150 0Accounts payable 269 546 308 300 323

Other current liabilities 72 58 66 68 75

Total current liabilities 441 604 374 517 398

Long-term debt 150 150 600 450 650

Convertible debt 0 0 0 0

Other LT liabilities 217 210 199 189 180

Total liabilities 808 965 1,173 1,157 1,228

Minority interest 0 0 0 0 1

Preferred stock 0 0 0 0 0

Common stock 165 166 168 169 171

Retained earnings 634 625 626 658 700

Proposed dividends 0 0 0 0

Other equity and reserves 0 0 0

Total shareholders' equity 799 791 793 828 870

Total equity & liabilities 1,607 1,756 1,966 1,984 2,100

Liquidity (x)

Current ratio 1.13 0.52 0.89 0.59 0.82

Interest cover 36.7 38.2 27.0 14.0 14.0

Leverage

Net debt/EBITDA (x) net cash net cash 1.39 1.50 1.51

Net debt/equity (%) net cash net cash 51.4 53.9 56.1

Act ivi ty (d ays)

Days receivable 22.4 22.3 22.4 23.4 23.1

Days inventory 36.7 33.2 33.0 35.6 36.3

Days payable 188.3 252.3 234.9 156.0 150.2

Cash cycle -129.2 -196.8 -179.5 -97.0 -90.8


Notes

Operating cashflow remains stable

but is expected to be eroded by high

capex requirements in our forecast

period

Notes

The group looks set to move into a

net debt position across our forecast

period to fund its capex requirements


4/12


4

Higher costs and losses on CCL toreduce earnings and dividendsWe lower our earnings estimates to reflect an increase in our cost assumptions for

wages and repair maintenance, plus higher expected losses for the Circle Line. Lower

operational profitability may lead to a drop in dividend payout.

Higher staff costWe raise our staff cost estimates on the back of headcount growth and higher salary

assumptions post the Wage Review 2013 announced by SMRT (for details see our 7

March 2012 report, More for employees, less for shareholders).

Fig. 1: Higher staff cost estimates

Source: Nomura research. Note: Figures based on gross salary increase, prior to government subsidies

On the basis that the group receives adjustments under the governments wage creditscheme, we expect staff cost to increase by ~12% y-y in FY14F, after adjusting for a

one-off payment in FY13F.

Higher expected losses on the CCL

Even though ridership continues to increase on the Circle Line (CCL), we have our

doubts that the ridership levels will continue to increase significantly from hereon. As

such, we reduce our revenue numbers, which leads to higher losses, especially since the

cost of operation has since increased.

Current numbers reflect weak growth

Our basis stems from the fact that ridership level growth seem to be tapering. CCL daily

ridership in 3QFY13F came in at 338,000, up 5% from 1QFY13F but down on a q-qbasis (2QFY13F: 350,000).

No major developments along CCL to supercharge ridership growth

Based on ridership numbers, we believe the bulk of the ridership is seen on weekdays as

people travel on the CCL for work and is significantly lesser on the weekend.

Our research shows a lack of significant commercial developments, with the exception of

the One-North development, that could significantly increase weekday ridership. Our

research also shows a lack of significant residential development along the CCL that

could significantly drive weekend ridership and change the current travelling pattern.

Sports Hub could change our view

The new Sports Hub could be a game changer if it can bump up weekend traffic on the

CCL as people travel to the Sports Hub for sports activities and food. The Sports Hub islocated at the Stadium station on the CCL and is slated to open by April 2014. We have

not factored in such a scenario as we see no reasonable certainty that it will significantly

increase ridership.

Lower dividend due to lower earnings and higher capex

We cut our dividend forecast by >30% on the back of lower earnings, while assuming a

payout ratio of ~60%, which is consistent with the groups dividend policy but lower than

the historical payout ratio. A lower dividend is consistent with the need to conserve cash

due to huge capex requirements in coming years, which comes at a time when growth in

operational cashflows is facing headwinds. Our current FY13F/FY14F dividend forecast

is 4.5/4.0 S$cents, which is 28%/38% lower than consensus on average.

Key staff cost assumption for FY14F y-y increase

Headcount increase 8%

Wage increase for non-executive staff 9%

Wage increase for Bus Capitains 5%

Wage increase for executive & managerial staff 3%


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Key downside risks

Sharper-than-expected cut in dividends

The announcement of a final dividend that comes in below an already lowered

consensus dividend would be a key de-rating catalyst, in our view. The need to conserve

cash for capex and a potential acceleration of the companys capex plan may be

motivation for a sharper-than-expected cut in dividends.

We think the Street is too high on dividend estimates. Our current dividend forecast for

FY13F/FY14F is 4.5/4.0 S$cents, which is 28%/38% lower than consensus on average.

Earnings surprise on the downside

The stock may also de-rate further if earnings surprise on the downside. This could come

from a greater-than-expected deterioration of the core business and impairment losses

from its investment in a loss-making associate.

We, again, think that the Street is too high on earnings estimates. Our current earnings

forecast for FY13F/FY14F is 13%/26% below consensus.

Deterioration of core business

On the cost side, we could see higher cost pressures stemming from even highersalaries needed to attract the necessary headcount to roll out its repair & maintenance

regimes and to run its operations.

On the revenue side, ridership growth assumptions remain a key risk due to a

government-engineered slowdown in population growth and a potential change in

travelling patterns and shift to alternative modes of transport as a result of congestion on

the rail network.

Losses on Shenzhen Zona both impairment and operational

Shenzhen Zona has been marginally profitable across the years but in recent quarters

has begun to register losses. It remains to be seen as to whether SMRT needs to impair

this investment and when. The key question is whether the intangible assets on

Shenzhen Zonas books are worth less than what they were initially valued at, at the

point of acquisition, in our view. Given the subjectivity inherent in the valuation ofintangible assets, any impairment will be largely at the discretion of management.

It is also possible that Shenzhen Zona remains unprofitable on an operational level and

that the losses may widen due to competition, rising costs and other factors.

Background of Shenzhen Zona

In 2009, SMRT invested CNY320mn for a 49% stake in Shenzhen Zona, which

effectively values Shenzhen Zona at CNY653mn. This is a premium to Shenzhen Zonas

NAV (as of 31 Dec 2008) of CNY377mn. The NAV comprises of a negative NTA of

CNY48mn and net intangible assets of CNY425mn. The intangibles are largely taxi

operating licenses. We understand that these licenses are term licenses with tenures

ranging from 5 to 50 years.

Shenzhen Zona, according to the original acquisition press release, operates taxiservices in Shenzhen; car and bus repair in Shenzhen and Huizhou; a public bus

business in Huizhou; car leasing, scheduled coach services from Shenzhen; and a

33.5% equity stake in one of the three bus operating companies in Shenzhen. In Feb

2012, Shenzhen Zona also acquired a public bus transport services company within the

Daxing District in Beijing (Beijing National Express Passenger Transportation Co) for

CNY30mn.


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Key upside risksUncertainty over the timing and quantum of SMRTs capex requirement will remain a key

overhang and is likely to limit any re-rating.

Higher average fares; higher passenger growth

The fare formula review and the subsequent fare review in 1Q/2QFY14 could see higher

fare levels. Average fares could also increase on the back of longer average travelling

distance by commuters. Such increases will be positive for the bottom line as it will beamplified by the high operating leverage effect. If passenger growth increases due to

new developments along the rail lines (eg, the planned opening of the new Sports Hub in

2014, new property developments), we will potentially see upside risk to our earnings.

Better cost contro l

With electricity/diesel cost making up >20% of the operating cost, lower oil prices would

be beneficial. Higher productivity and a slower expansion in headcount could also see

cost increase slower than expected, which would be a positive for earnings.

Engineering div ision and associates

We assume no growth for the engineering division and SMRTs associates. As such, this

represents potential upside if they are able to secure more projects. Given the lumpiness

of project revenues, we might see profitability getting a boost from the recognition of

such project revenues.

Subsidies and grants

The award of grants relating to the upgrade of rail operating assets would be a key

positive in mitigating the cashflow impact of the asset renewal plan. It would also help to

improve earnings as amortisation of the grant would potentially offset higher depreciation

levels. Grants to offset the cost of purchasing the Dover and Changi stations would also

be a positive. Neither of these has been taken into account in our forecasts yet, given the

uncertainty of award.

Better-than-expected subsidies for the bus segment, such as a meaningful sharing of

bus shelter advertisement revenues, would also be a key contributor to better earnings

and cashflows.

Greater certainty relating to the quantum, form and timing of the subsidies and grants

would also reduce uncertainty about cashflow and potentially lead to higher valuations.

Change in Singapore bus framework

A game changer could come if the government decides that a cost-plus model is more

suited for managing bus operations in Singapore. A cost-plus model would potentially be

more rewarding for operators as they would be rewarded based on what they can control costs and as such, the bus segment could see a reversal of its losses.

Shift to new rail financing framework

SMRT could potentially shift its existing rail operating license to the new regime which is

currently applied to the new Downtown Line. Under the new Downtown Line regime, the

operator would not be required to fund replacement assets. The quid pro quo would be a

shorter license period and possibly, a higher annual license fee.

The new regime would eliminate cashflow uncertainty revolving around capex and

potentially lead to higher valuations. However, a shorter operating license period and a

possibly higher annual license fee may be taken negatively, and the outcome therefore

would be mixed and would depend on the specific details of the arrangement.


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Valuation: Lower TP to SGD1.35We continue to value the stock on a DCF basis, which derives our new TP of SGD1.35,

representing a 14% cut from our previous TP.

Fig. 2: DCF

Source: Bloomberg, Nomura research

We cross-check our DCF valuation against other valuation methods to help provide abetter sense of the range of TPs based on different measures. We observe that the

range is rather wide from SGD1.06 to SGD1.63 with DCF valuation being in the

midpoint of this valuation range. This make sense given that the DCF valuation is

generally quite sensitive to changes in capex and borrowing assumptions and there is an

elevated level of uncertainty on both of these at the moment.

Assuming that investors are holding the stock for the dividend yield, we also showed

what the stock price could theoretically be based on our revised dividend forecast,

assuming that a dividend yield of 3.5% is sufficient for investors (see figure below)

Fig. 3: Valuation range

Source: Nomura estimates

The stock trades at 24.9x/23.0x FY13F/FY14F P/E, which is towards the high end of its

trading range. It offers a yield of 2.8% on our revised dividend estimates.

DCF - till 2018 2014 2015 2016 2017 2018 2019 Terminal

Operating CF 271 328 341 353 373 393

Capex (247) (307) (472) (202) (188) (118)

Proceeds from/(Repayment of) debt - 50 200 (70) (110) (200)FCFE 25 72 70 81 75 75

Terminal Value 1,954

Discounted CF 23.0 63.0 57.6 63.0 54.9 51.6 1,735

Rf 1.4%

Rm 9.9%

Beta 0.54

Ke 5.9%

Terminal growth rate 2.0%

Target Price TP Valuation Exch rate Shares('000) Valuation (S$)

DCF basis 1.35 2,048 1 1,521,586 1.35

1.29

1.63

1.06

1.30

1.35

0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80

FY13F Dividend yield @ 3.5%

Historical valuation (P/B)

Historical valuation (P/E)

Relative valuation (P/E)

DCF


8/12


8

Fig. 4: 12-month forward P/E band


Fig. 5: 12-month fo rward P/B band


Fig. 6: Peer comps

Source: Bloomberg, Nomura research. Note: Pricing as of 8 March 2013

0.4

0.6

0.81.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

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Jan-13

Price (S$)

18x

20x

14x

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0.00

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S$(x)

Price (RHS)

P/BV (LHS)

Rating

Mkt Cap

(US$ mn)

Price

(LC)

P/E (x)

2013E

P/E (x)

2014E

P/B (x)

2013E

P/B (x)

2014E

EV/EBITDA

(x)

2013E

EV/EBITDA

(x)

2014E

ROE

(%)

2013E

ROE

(%)

2014E

Div yield

(%)

2013E

Div yield

(%)

2014E

Debt/

Asset

(%)

Debt/

Equity

(%)

FY13

EBITDA

MarginSingapore

Comfort Delgro BUY 3,198 1.895 14.9 13.5 1.8 1.7 5.0 4.6 12.7 13.1 3.5 3.7 15.4 37.2 21.4

SMRT REDUCE 1,947 1.6 24.9 23.0 3.0 2.8 9.7 9.7 13.9 12.1 2.5 2.6 30.2 72.4 25.1SG Average 19.9 18.3 2.4 2.3 7.4 7.2 13.3 12.6 3.0 3.2 22.8 54.8 23.3HK

MTR Corp BUY 24,429 32.7 20.9 21.1 1.4 1.4 15.2 14.6 6.8 6.7 2.4 2.4 17.2 26.4 55.9

HK Average 20.9 21.1 1.4 1.4 15.2 14.6 6.8 6.7 2.4 2.4 13.1 19.7 36.0

Asia Av erage 20.2 19.2 2.1 2.0 10.0 9.6 11.1 10.6 2.8 2.9 20.9 45.3 34.1


9/12


9

Appendix A-1

Analyst Cert ificat ion

I, Wen Jie Chan, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about

any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be

directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my

compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc.,

Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures

The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more

Nomura Group companies.

Materially mentioned issuers

Issuer Ticker Price Price date Stock rating Sector rating Disclosures

SMRT Corporation MRT SP SGD 1.62 07-Mar-2013 Reduce Not rated

SMRT Corporation (MRT SP) SGD 1.62 (07-Mar-2013)

Rating and target price chart (three year history)

Reduce (Sector rating: Not rated)

Date Rating Target price Closing price

08-Nov-12 Reduce 1.71

08-Nov-12 1.57 1.71

28-Dec-11 1.75 1.75

03-Aug-10 Neutral 2.04

03-Aug-10 2.05 2.04

29-Mar-10 2.45 2.03

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology We use a DCF methodology to derive our target price of SGD1.35, assuming a cost of equity of 5.9%and a terminal growth rate of 2%, discounted back to end-FY13F.

Risks that may impede the achievement of the target priceKey upside risks include higher-than-expected subsidies/grants;higher average fares and passenger growth; better cost control; regulatory changes; and better performance at its associate andengineering division.


10/12


10

Important DisclosuresOnline availability of research and conflict-of-interest disclosuresNomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne.Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspxor requestedfrom Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, [email protected] help.The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, aportion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report arenot registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject toFINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities heldby a research analyst account.Nomura Global Financial Products Inc. (NGFP) Nomura Derivative Products Inc. (NDPI) and Nomura International plc. (NIplc) areregistered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, andNIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.Any authors named in this report are research analysts unless otherwise indicated. Industry Specialistsidentified in some Nomura Internationalplc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they havecoverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear. Marketing

Analystsidentified in some Nomura research reports are research analysts employed by Nomura International plc who are primarily responsiblefor marketing Nomuras Equity Research product in the sector for which they have coverage. Marketing Analysts may also contribute toresearch reports in which their names appear and publish research on their sector.Distribution of ratings (Global)The distribution of all ratings published by Nomura Global Equity Research is as follows:

43% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 41% of companies with thisrating are investment banking clients of the Nomura Group*.45% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies withthis rating are investment banking clients of the Nomura Group*.12% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 26% of companies withthis rating are investment banking clients of the Nomura Group*.As at 31 December 2012. *The Nomura Group as defined in the Disclaimer section at the end of this report.Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock.Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited managementdiscretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriatevaluation methodology such as discounted cash flow or multiple analysis, etc.STOCKSA rating of 'Buy',indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates thatthe analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, targetprice and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstancesincluding, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company.Benchmarks are as follows: United States/Europe: please see valuation methodologies for explanations of relevant benchmarks for stocks,which can be accessed at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global EmergingMarkets (ex-Asia):MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology.SECTORSA 'Bullish'stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral'stance,indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates thatthe analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500;Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan STOCKSStock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy'recommendation indicates thatpotential upside is 15% or more. A 'Neutral'recommendation indicates that potential upside is less than 15% or downside is less than 5%. A'Reduce'recommendation indicates that potential downside is 5% or more. A rating of 'Suspended'indicates that the rating and target pricehave been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura isacting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelledas 'Not rated'or shown as 'No rating'are not in regular research coverage of the Nomura entity identified in the top banner. Investors shouldnot expect continuing or additional information from Nomura relating to such securities and/or companies.SECTORSA 'Bullish'rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positiveabsolute recommendation. A 'Neutral'rating means most stocks in the sector have (or the weighted average recommendation of the stocksunder coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average

recommendation of the stocks under coverage is) a negative absolute recommendation.
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Target PriceA Target Price, if discussed, reflects in part the analyst's estimates for the company's earnings. The achievement of any target price may beimpeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if thecompany's earnings differ from estimates.


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DisclaimersThis document contains material that has been prepared by the Nomura entity identified at the top or bottom of page 1 herein, if any, and/or, with the sole or jointcontributions of one or more Nomura entities whose employees and their respective affiliations are specified on page 1 herein or identified elsewhere in thedocument. The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries and may refer to one or more Nomura Groupcompanies including: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), UK; Nomura Securities International, Inc. ('NSI'), NewYork, US; Nomura International (Hong Kong) Ltd. (NIHK), Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. (NFIK), Korea (Information on Nomuraanalysts registered with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet at http://dis.kofia.or.kr); Nomura Singapore Ltd.(NSL), Singapore (Registration number 197201440E, regulated by the Monetary Authority of Singapore); Nomura Australia Ltd. (NAL), Australia (ABN 48 003 032513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence number 246412; P.T. NomuraIndonesia (PTNI), Indonesia; Nomura Securities Malaysia Sdn. Bhd. (NSM), Malaysia; NIHK, Taipei Branch (NITB), Taiwan; Nomura Financial Advisory andSecurities (India) Private Limited (NFASL), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli,Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037 4111; SEBI Registration No: BSE INB011299030, NSE INB231299034, INF231299034, INE231299034, MCX: INE261299034); NIplc, Madrid Branch (NIplc, Madrid) and NIplc, Italian Branch (NIplc, Italy). CNS Thailand next to an analysts name on the

front page of a research report indicates that the analyst is employed by Capital Nomura Securities Public Company Limited (CNS) to provide research assistanceservices to NSL under a Research Assistance Agreement. CNS is not a Nomura entity.THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO BE CONSTRUEDAS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATIONWOULD BE ILLEGAL; AND (III) BASED UPON INFORMATION FROM SOURCES THAT WE CONSIDER RELIABLE, BUT HAS NOT BEEN INDEPENDENTLYVERIFIED BY NOMURA GROUP.Nomura Group does not warrant or represent that the document is accurate, complete, reliable, fit for any particular purpose or merchantable and does not acceptliability for any act (or decision not to act) resulting from use of this document and related data. To the maximum extent permissible all warranties and otherassurances by Nomura group are hereby excluded and Nomura Group shall have no liability for the use, misuse, or distribution of this information.Opinions or estimates expressed are current opinions as of the original publication date appearing on this material and the information, including the opinions andestimates contained herein, are subject to change without notice. Nomura Group is under no duty to update this document. Any comments or statements madeherein are those of the author(s) and may differ from views held by other parties within Nomura Group. Clients should consider whether any advice orrecommendation in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Nomura Group doesnot provide tax advice.Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as principal, agent, or otherwise,or have long or short positions in, or buy or sell, the securities, commodities or instruments, or options or other derivative instruments based thereon, of issuers orsecurities mentioned herein. Nomura Group companies may also act as market maker or liquidity provider (as defined within Financial Services Authority (FSA)rules in the UK) in the financial instruments of the issuer. Where the activity of market maker is carried out in accordance with the definition given to it by specific

laws and regulations of the US or other jurisdictions, this will be separately disclosed within the specific issuer disclosures.This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poors. Reproduction anddistribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party content providers do notguarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligentor otherwise), regardless of the cause, or for the results obtained from the use of such content. Third party content providers give no express or implied warranties,including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third party content providers shall not be liable for any direct,indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits andopportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements of fact orrecommendations to purchase hold or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes, andshould not be relied on as investment advice.Any MSCI sourced information in this document is the exclusive property of MSCI Inc. (MSCI). Without prior written permission of MSCI, this information and anyother MSCI intellectual property may not be reproduced, re-disseminated or used to create any financial products, including any indices. This information is providedon an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computingor compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose withrespect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to,computing or compiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates.Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying orsuggesting all risks, direct or indirect, that may be associated with any investment decision. Nomura Group produces a number of different types of research productincluding, among others, fundamental analysis, quantitative analysis and short term trading ideas; recommendations contained in one type of research product may

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