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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
+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
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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
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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
Source: Company data, Nomura estimates
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
Source: Company data, Nomura estimates
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
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Nomura | SMRT Corporation March 11, 2013
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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$)
DCF basis 1.35 2,048 1 1,521,586 1.35
1.29
1.63
1.06
1.30
1.35
0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80
FY13F Dividend yield @ 3.5%
Historical valuation (P/B)
Historical valuation (P/E)
Relative valuation (P/E)
DCF
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Fig. 4: 12-month forward P/E band
Source: Bloomberg, Nomura research
Fig. 5: 12-month fo rward P/B band
Source: Bloomberg, Nomura research
Fig. 6: Peer comps
Source: Bloomberg, Nomura research. Note: Pricing as of 8 March 2013
0.4
0.6
0.81.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Jan-04
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Price (S$)
18x
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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
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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.
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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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