MISC MISC MK Sector: Transport & Logistics

Transcription

1 28 June 2016 Sailing into choppy waters The termination of 4 LNG charters by PETRONAS has raised concerns on LNG earnings visibility. Petroleum charter rates are likely to taper off due to vessel oversupply and tepid global crude shipping demand. Meanwhile, lower termtospot ratios in the LNG and petroleum segments could expose MISC to charterrate volatility. We now expect FY16 core earnings to contract 14% yoy on lower tanker yields and margin pressure from higher bunker costs. Downgrade to SELL from Hold with a lower TP of RM6.70. Concerns on LNG earnings visibility The early termination of 4 LNG vessels chartered to PETRONAS has raised concerns on the earnings visibility of the traditionally stable LNG segment. LNG tanker yields fell a significant 17% yoy in FY15 amid several charter expiries, terminations and high docking days. The termtospot ratio is now 80:20, with up to 5 LNG vessels seeking spot charters, which could be a huge drag on yields given the soft rates. Globally, LNG rates halved in FY15 and have declined 26% ytd, on the chronic vessel oversupply situation. We expect LNG charter rates to remain weak as the 32% orderbooktofleet ratio is set to outstrip LNG shipping demand growth of 7% yoy. Consequently, we expect the LNG FY16 core PBT to contract 17% yoy (in US$) on LNG tanker yield declines. Petroleum charter rates to decline MISC s petroleum tanker yield rose sharply by 24% yoy in FY15, in line with the charterrate rally in all petroleum vessel classes globally. While many of MISC s charters were renewed in FY1415, charter durations are comparatively shorter at 2 years, which could expose MISC to substantial charterrate volatility in FY1718. We believe there are significant risks to petroleum tanker charter rates on vessel oversupply worries. The orderbooktofleet ratio has risen to 17%, a historical high, with major deliveries in FY17. Meanwhile, crude shipping demand could taper due to slowing oil inventorybuilding activities. The charterrate correction should hit MISC on its low termtospot ratio, currently running at 70:30, while charter expiries in FY1718 could see yield declines. We expect the petroleum core PBT to contract 27% yoy in FY16, mainly on lower yield assumptions and margin pressure on higher bunker costs. Downgrade to SELL with lower target price of RM6.70 We trim our FY1618E earnings by 517%, after taking into account falling yields in the LNG and petroleum segments. We have switched our valuation method to EV/EBITDA from PER to better reflect the operational structure. All in, we cut our SOTPbased 12M TP to RM6.70 (from RM8.60), on an implied FY16E 14x PER. Downgrade to SELL from Hold. Earnings & Valuation Summary FYE 31 Dec E 2017E 2018E Revenue (RMm) 9, , , , ,346.7 EBITDA (RMm) 2, , , , ,277.6 Pretax profit (RMm) 2, , , , ,359.8 Net profit (RMm) 2, , , , ,272.0 EPS (sen) PER (x) Core net profit (RMm) 1, , , , ,272.0 Core EPS (sen) Core EPS growth (%) (13.4) 45.6 (13.7) (0.2) 2.9 Core PER (x) Net DPS (sen) Dividend Yield (%) EV/EBITDA (x) Company Update MISC MISC MK Sector: Transport & Logistics 27 June 2016 SELL (downgrade) Downside: 9% Price Target: RM6.70 Previous Target: RM8.60 (RM) Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 Jun16 Price Performance 1M 3M 12M Absolute 3.2% 17.0% 5.2% Rel to KLCI 2.7% 13.2% 0.4% Stock Data Issued shares (m) 4,463.8 Mkt cap 32,854/8,009 Avg daily vol 6mth (m) wk range (RM) Est free float 17% BV per share (RM) 7.30 P/BV (x) 1.01 Net cash/ (debt) (RMm) (295.5) ROE (2016E) 5.8% Derivatives Nil Shariah Compliant Yes Key Shareholders Petroliam Nasional 62.7% EPF 6.9% Source: Affin Hwang, Bloomberg Aaron Kee (603) aaron.kee@affinhwang.com Chg in EPS (%) (5.0) (17.4) (15.9) Affin/Consensus (x) Source: Company, Affin Hwang estimates Page 1 of 14

2 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 28 June 2016 LNG segment charterrate volatility High visibility in LNG segment Despite the fall in LNG charter rates to record low since 2012, MISC s LNG segment, its main bread and butter, has held up relatively well in recent years. This was mainly due to the symbiotic relationship with PETRONAS, which contracts with MISC for all its LNG shipping requirements. PETRONAS is also the largest shareholder of MISC, with a 62.7% stake. The arrangement has led to better earnings visibility and higher profitability, due to longer contractual terms and higher charter rates. Hence, MISC s LNG segment generally is more profitable than other segments, averaging 55% core PBT margin. Fig 1: LNG segment financials Fig 2: FY16 Core PBT breakdown by segment 1, LNG revenue LNG core PBT PBT margin Heavy engineering 4% Tank terminals 2% Linear logistics 0% Offshore JV 13% Others 10% LNG 49% Offshore others 4% Chemical 1% Petroleum 17% 2012A 2013A 2014A 2015A 40.0 Source: Affin Hwang, Company Source: Affin Hwang, Company Surprise core PBT decline However, 1QFY16 results surprised as MISC reported a core LNG PBT decline of 20% yoy to U$75.3m, after stripping out a net compensation gain of U$87m. The compensation gain was in relation to the early terminations of Aman Bintulu and Aman Hakata, which came as a surprise. The latest terminations came on the heels of the terminations of another two LNG contracts in 4QFY15 which related to Tenaga Dua and Tenaga Tiga. Fig 3: LNG segment quarterly breakdown (U$m) Revenue Core PBT Core PBT margin (%) Source: Affin Hwang, Company Page 2 of 14

3 2012A 2013A 2014A 2015A 2016E 2017E 2018E 28 June 2016 Concerns on earnings visibility More importantly, all four vessels, which were previously chartered to PETRONAS, were given compensation lower than what was actually due to MISC based on agreed charter rates (in presentvalue terms), as they had been compensated based on lower layup rates. The charters were also terminated at a time when charter rates were low amid oversupply of LNG vessels, and exposed MISC to rate volatility. Management does not expect further terminations in the near future but we reckon the latest episode may raise some concerns on MISC s earnings visibility, given its heavy reliance on PETRONAS charters. Fig 4: LNG dwt and yield (dwt) Total dwt (LHS) LNG yield per dwt (RHS) (U$/dwt) 2,500, ,000, ,500, ,000, , Source: Affin Hwang, Company We estimate that LNG tanker yields (measured by dividing total revenue by total dwt) fell 17% yoy in FY15. We attribute the yield decline to: (i) the early terminations of Tenaga Dua and Tenaga Tiga; (ii) expiry of Puteri Delima; (iii) expiry of Seri Bakti; (iv) higher drydocking activities; and (v) a lower termtospot charter ratio. The 5 vessels totaled about 16% of LNG shipping capacity in dwt terms. Fig 5: LNG vessel breakdown (dwt) 2,500,000.0 Aman Tenaga Puteri Puteri Satu Seri A Seri B New builds 2,000, ,500, ,000, ,000.0 Source: Affin Hwang, Company 2016E 2017E 2018E 2019E Page 3 of 14

4 Feb12 May12 Aug12 Nov12 Feb13 May13 Aug13 Nov13 Feb14 May14 Aug14 Nov14 Feb15 May15 Aug15 Nov15 Feb16 May16 Aug12 Oct12 Dec12 Feb13 Apr13 Jun13 Aug13 Oct13 Dec13 Feb14 Apr14 Jun14 Aug14 Oct14 Dec14 Feb15 Apr15 Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 28 June 2016 LNG tanker yields to decline We expect LNG tanker yields to decline 10% yoy in FY16 due to: (i) the terminations of Aman Bintulu and Aman Hakata in our charter assumptions; (ii) the expiry of one vessel in 3Q; (iii) lower termtospot charter ratios; and (iv) weaker LNG charter rates. We are forecasting yields to stay flattish in FY1718, as we take into account the delivery of 5 new builds on a staggered basis over the next 36 months, which should partially cushion the impact of the 5 idling vessels seeking spot charters. We estimate that up to 5 vessels will be running on spot rates in FY16, compared to 2 vessels in FY15. This has lowered the termtospot ratio to 80:20, a significant decline considering MISC used to run most, if not all, LNG vessels on longterm charters. Given the circumstances, LNG segment could be subject to higher risk of LNG charter rate volatility, which we analyse in the following commentary. Fig 6: LNG orderbooktofleet ratio Fig 7: LNG charter rates since 2012 Total in service Orderbook as a % of fleet Total on order Spot Rates 3 Year Time Charter , , , ,000 80,000 60,000 40,000 20,000 Source: Bloomberg Source: Company Charter rates under pressure According to the International Gas Union, while global LNG trade reached a historic high of 250 million tonnes per annum (mtpa), global nominal liquefaction capacity outstripped demand by 50mtpa, suggesting overcapacity in the LNG supply stream. A total of 29 LNG carriers were delivered in 2015, representing approximately 7% of total global active vessels. By contrast, LNG global trade only grew 2% yoy or by 4.7 mt to 250 mtpa in the same period. As a result, charter rates were halved in 2015 to U$38k/d for spot and declined by 26% to U$29k/d ytd. LNG charter rates to stay low on overcapacity In 2016, we expect LNG charter rates to stay low, weighed down primarily by vessel overcapacity. 43 vessels are expected to be delivered in 2016 or 11% of total global active vessels. By contrast, LNG demand is only expected to grow by 7% yoy or 17.5 mtpa, judging by the historical growth rate since Taking into account more than 40 vessels which are currently laying idle, the LNG market oversupply situation could worsen in Meanwhile, the orderbooktofleet ratio is hovering around 32%, close to its historical high. Page 4 of 14

5 28 June 2016 Petroleum segment correction expected Petroleum turns profitable in FY15 on higher charter rates A large part of MISC s earnings outperformance in FY15 can be attributed to its petroleum arm that has staged a turnaround on a record charter rates rally. MISC s petroleum segment, led by wholly owned subsidiary AET Tankers (AET), is the market leader in US Gulf lightering operations where it manages the transfer of crude oil from very large crude carriers (VLCC) to smaller Aframax tankers to the refineries. AET currently owns and charters a total of 81 petroleum tankers, including 12 VLCCs, 4 Suezmax and 49 Aframax. The petroleum segment, which had been bleeding for several years, marked a return to profitability in FY15 with a core PBT of U$138.5m. Fig 8: Petroleum tanker breakdown Panamax 1.0 DP Shuttle 4.0 LR2 3.0 MR2 8.0 VLCC 12.0 Suezmax 4.0 Fig 9: Petroleum segment financials (U$) Revenue Core PBT 1,200 1, Source: Company Aframax A 2013A 2014A 2015A Source: Affin Hwang, Company Low termtospot ratio to expose MISC to rate volatility Tanker owners generally enjoyed a good run in FY15, buoyed by higher charter rates, mainly due to: (i) strong growth in oil trade sparked by lower crude prices; (ii) sluggish fleet growth; and (iii) lower bunker prices. Similar to the LNG segment, we use petroleum tanker yields as a better gauge for petroleum segment performance, which is measured by total revenue divided by total dwt. MISC s petroleum tanker yields rose sharply by 24% yoy in FY15, led by higher blended charter rates, which was in line with the charter rate rally in all petroleum vessel classes (VLCC, Suezmax and Aframax). Based on our analysis, we find that MISC s petroleum tanker yields generally correlate with Aframax 3year average charter rates (+28% yoy), unsurprising given the heavy mix of Aframax in MISC s vessels portfolio (50% of total dwt with 49 vessels). Many charters were renewed in FY1415 to take advantage of the higher charter rates. However, what is also pertinent is that the charter durations were comparatively shorter at 2 years, which could expose MISC s to substantial charterrate volatility in FY1718 when the contracts are up for renewal. The termtospot ratio is at 70:30. Page 5 of 14

6 Feb2012 May2012 Aug2012 Nov2012 Feb2013 May2013 Aug2013 Nov2013 Feb2014 May2014 Aug2014 Nov2014 Feb2015 May2015 Aug2015 Nov2015 Feb2016 May2016 Sep12 Nov12 Jan13 Mar13 May13 Jul13 Sep13 Nov13 Jan14 Mar14 May14 Jul14 Sep14 Nov14 Jan15 Mar15 May15 Jul15 Sep15 Nov15 Jan16 Mar16 May16 28 June 2016 Fig 10: Spot charter rates have fallen from peak (U$/d) VLCC Suezmax Aframax 120, ,000 80,000 60,000 40,000 20,000 Source: Company Vessels oversupply to pressure charter rates We believe there is significant risk to petroleum tanker charter rates, mainly due to vessel oversupply worries. Sluggish tonnage supply in recent years is expected to accelerate in FY17 with aggressive newbuild deliveries. Strong charter rates in have spurred several newdelivery orders for petroleum tankers. According to Bloomberg estimates, the orderbooktofleet ratio has risen to more than 17% (in dwt terms). Crude tanker supply is expected to grow by 6% yoy or 108 vessels in FY16. FY17 could see higher supply growth at 14% yoy or 250 vessels, while demolition activity is likely to stay subdued, thanks to unattractive scrapping prices, according to data provided by MISC. Fig 11: Orderbook is at historical high since 2012 Total in service Total on order Orderbook as a % of supply 3,000 2,900 2,800 2,700 2,600 2,500 2,400 2,300 2,200 2,100 2, Source: Company Page 6 of 14

7 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 Jul14 Jan15 Jul15 Jan16 Jul16 Jan17 Jul17 28 June 2016 Rising inventory levels could curb oil trade growth Crude shipping demand is largely dictated by global oil trade flows and inventorybuilding activities, which is a function of global oil production and consumption. The glut of cheap oil incentivizes countries to stockpile. Largescale stockpiling by China and India seeking to boost their strategic petroleum reserves has buoyed crude shipping demand. However, we believe that largescale stockpiling could turn damaging in the longer term, especially when countries start running down inventories which would reduce fleet utilisation. In other words, rising inventory levels could curb crude shipping demand, as it reduces the need for imports, assuming demand stays constant. Charter rates correlate with oil inventory buildup Data on oil storage capacity to estimate stockpiling is hard to come by. Hence, we take the inventorybuilding activities direction as an approximation for crude shipping demand growth. Putting our hypothesis to the test, we attempt to analyse the effect of global oil trade flows on MISC by plotting total implied oil balance (total global oil production net of total global oil consumption), a broad indicator of inventorybuilding activities, against Aframax 3year charter rates, which share the highest correlation with MISC s tanker yields. Our results show that the two are highly correlated at 0.9x, suggesting that charter rates are closely aligned with oil inventorybuildup activities. Fig 12: Correlation between charter rates and oil balance Fig 13: Inventory draw down in 3QFY17 Implied oil balance Correlation Aframax 3year charter Stock Change Production Consumption (m b/d) (U$/d) , , , , Correlation: 0.9x , , Source: EIA, Company, Affin Hwang Source: EIA First oil inventory draw in 3QFY17 to affect shipping demand Higher inventorybuildup activities are likely to spur higher shipping demand assuming fleet growth stays constant, and vice versa. The US EIA estimates that global petroleum and other liquid fuel inventory builds will average 1m b/d in 2016 and 0.3m b/d in Inventory building is expected to continue throughout the first half of 2017, but at a decreasing rate. More importantly, EIA expects the first inventory draw of 0.1m b/d to happen in the third quarter of 2017, which could signal a reversal or a dampener to crude shipping demand. Taking into account the aggressive fleet growth amid tepid shipping demand, we are of the view that there are prevailing risks to charter rates. Page 7 of 14

8 May14 Jul14 Sep14 Nov14 Jan15 Mar15 May15 Jul15 Sep15 Nov15 Jan16 Mar16 May16 28 June 2016 Secondhand tanker prices remain flat As a reasonable check, we also look into secondhand tankers for guidance. Historically, secondhand tanker values enjoy rallies commensurate to the charter market due to their high correlation, with a time lapse of 12 months. Volatility in charter rates often leads to asset plays, where shipping vessel values could double in a matter of few short years. Surprisingly, we did not see such a scenario pan out in FY15. To illustrate, Aframax spot charter rates rose 69% yoy but the same secondhand vessel value barely moved 18% yoy in FY15. We believe this was partly attributed to the expectations of accelerated newbuilds coming online in FY17. In addition, the poor scrapping prices are likely to keep demolition low and should not be enough to offset the newbuilds. The subdued asset prices also spilled over to the newbuilds, as list prices for a new Aframax were flat yoy. We believe this could be a sign that vessel owners are increasingly reluctant to invest in both new and old vessels, suggesting that potential oversupply worries have been priced into asset values. Fig 14: Secondhand prices barely moved in tandem with spot rates (U$/d) 60,000 50,000 40,000 30,000 20,000 10,000 Aframax Spot Rates (LHS) Aframax Secondhand price (RHS) (U$m) Source: Company Page 8 of 14

9 Jun2014 Jul2014 Aug2014 Sep2014 Oct2014 Nov2014 Dec2014 Jan2015 Feb2015 Mar2015 Apr2015 May2015 Jun2015 Jul2015 Aug2015 Sep2015 Oct2015 Nov2015 Dec2015 Jan2016 Feb2016 Jan15 Jan15 Feb15 Mar15 Mar15 Apr15 May15 May15 Jun15 Jul15 Jul15 Aug15 Sep15 Oct15 Oct15 Nov15 Dec15 Dec15 Jan16 Feb16 Feb16 Mar16 Apr16 28 June 2016 US export lift limited impact The lifting of the ban on US crude oil exports has yet to yield a significant impact for crude shipping demand given the current oil glut environment. In fact, US crude exports actually declined 4% qoq and 9% yoy in February We believe the impact on charter rates remains limited in the short term due to the muted shipping demand from the US. The currently narrow WTIBrent also does not generally support significant crude oil exports out of the US as the discount is insufficient to compensate for the cost of shipping overseas and insurance. Fig 15: US exports of crude oil m bbl Fig 16: WTIBrent spread (U$) Source: EIA Source: Bloomberg 8 newbuilds to boost capacity by 17% In view of the weaker charterrate outlook, MISC is actively taking steps to mitigate the lower tanker yields by boosting its vessel capacity. 8 newbuilds are to be delivered in FY1718, which should add approximately 1m dwt or 12% to the fleet. MISC has also entered into an agreement with Paramount Tankers Corp for the acquisition of the remaining 50% of 6 Aframax vessels. All in, total petroleum tankers dwt would be boosted by 17% by FY18, however, still insufficient to compensate for the decline in charter rates. Petroleum tankers yield to fall We estimate that tanker yields will fall by 5% yoy in FY16, 10% yoy in FY17 and 5% yoy in FY18 as accelerated fleet growth and tepid crude shipping demand dampen charter rates. We expect yields to drop substantially in FY17, as most charters would have expired by then. Consequently, we expect petroleum segment core PBT (US$) to decline 23% yoy in FY16 and 8% yoy in FY17 on yield declines and margin pressure from higher bunker prices, before a slight rebound of 1% yoy in FY18, due to the fullyear contribution from newbuild deliveries. Page 9 of 14

10 28 June 2016 Valuation and recommendation Weaker earnings expected in FY1718 We are revising our forecasts and finetuning our assumptions. We cut our FY1618 earnings forecasts by 517%, mainly driven by lower yield assumptions for the LNG and petroleum segments. We have also imputed the acquisition of: (i) the remaining 50% of Paramount Tankers Corp; and (ii) the remaining 50% of GumusutKakap semisubmersible FPS into our forecasts. Our assumption changes are detailed below: (i) LNG segment we expect LNG tanker yields to decline by 10% yoy in FY16, 10% yoy in FY17 and 2% yoy in FY18, mainly due to lower termtospot ratios. We estimate up to 5 vessels, or 20% of the LNG vessels, will be seeking spot charter rates which are significantly lower than the respective agreed charter rates before termination. We have yet to take into account the risks of vessels being drydocked, which would be a drag on yields. We have also assumed slightly lower PBT margins to take into account the higher bunker prices. As a result, we estimate LNG segment to decline 27% yoy in FY16, with growth of 1% yoy in FY17 and 2% yoy in FY18, mainly due to the new builds in FY17 which should boost capacity by 14%. (ii) Petroleum segment we expect petroleum tanker yields to decline by 10% yoy in both FY16 and FY17 and by 5% in FY18 on charterrate corrections amid heavy newbuild deliveries in FY17. We also expect some margin contraction as bunker prices have rallied in line with higher crude oil prices. Charterrate volatility is likely to have an impact on earnings, as the bulk of Aframax still runs on spot. All in, we estimate petroleum segment core PBT (US$) to contract 27% yoy in FY16 and 8% yoy in FY17 before a slight rebound of 1% yoy in FY18 on newbuild deliveries. Page 10 of 14

11 28 June 2016 Downgrade to SELL with a lower target price of RM6.70 Postearnings revisions, we downgrade our rating to SELL from Hold with a lower 12month target price of RM6.70 (from RM8.60) as we switch our valuation method to EV/EBITDA from PER to better reflect the company s operational structure. We have also imputed a 10% holdingcompany discount to our SOTP valuation. The breakdown of our SOTP is as follows: (i) 2016E 8x EV/EBITDA for LNG, in line with peers; (ii) 2016E 6x EV/EBITDA for Petroleum, in line with peers; (iii) 2016E 6x EV/EBITDA for Offshore, lower than peers, to take into account the slowing EPC projects; (iv) Secondhand fleet value for lossmaking Chemical segment; (v) Our TP of RM1.25 for the 66.5%owned Heavy Engineering; (vi) 1x book value for the associates; and (vii) 10% holding company discount. Fig 17: SOTP breakdown of MISC Segment Value Valuation Methodology (RMm) LNG 17, E 8x EV/EBITDA Petroleum 4, E 6x EV/EBITDA Chemical 498 Seven 'A' class 38,000 dwt vessels worth U$18m each Offshore 6, E 6x EV/EBITDA Heavy Engineering 1,330 Based on TP of RM1.25 at 66.5% shareholdings Associate 2,369 1x book value FY15 Subtotal 33,133 Less: Net debt (61) As at FY15 Total RNAV 33,072 Issued shares (m) 4,464 RNAV/share (RM) % discount (RM) 0.70 Holding company discount Target price (RM) 6.70 Source: Affin Hwang Key risks to our recommendation include: (i) A rebound in oil prices; (ii) Mass deferment of vessel deliveries; and (iii) higherthanexpected charter rates. Page 11 of 14

12 28 June 2016 Fig 18: Peer comparison (2016E) Company Segment Share Price (U$) Mkt Cap (U$) EV/EBITDA PER PBV Euronav NV Petroleum , DHT Holdings, Inc. Petroleum Frontline Ltd. Petroleum , Nordic American Tankers Limited Petroleum , Segment mean SBM Offshore N.V. Offshore , MODEC, Inc. Offshore BW Offshore Limited Offshore NM 0.1 Teekay Offshore Partners LP Offshore Yinson Holdings Berhad Offshore Bumi Armada Berhad Offshore NM 0.6 Segment mean Pacific Basin Shipping Ltd. LNG/Shipping NM 0.2 Orient Overseas LNG/Shipping , SITC International Holdings LNG/Shipping , Nippon Yusen Kabushiki Kaisha LNG/Shipping , Segment mean MISC Berhad , Source: Affin Hwang, pricing as of 27 June 2016 Page 12 of 14

13 28 June 2016 MISC FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Dec (RMm) 2014A 2015A 2016E 2017E 2018E FYE 31 Dec (RMm) 2014A 2015A 2016E 2017E 2018E Revenue 9, , , , ,346.7 Growth Operating expenses (6,468.8) (7,158.5) (4,946.7) (4,818.0) (5,069.1) Revenue (%) (16.2) (1.4) 3.6 EBITDA 2, , , , ,277.6 EBITDA (%) Depreciation (1,244.8) (1,495.3) (2,075.7) (2,185.3) (2,263.4) Core net profit (%) (13.4) 45.6 (13.7) (0.2) 2.9 EBIT 1, , , , ,014.3 Net interest income/(expense (165.3) (113.2) (165.6) (103.0) (81.9) Profitability Associates' contribution EBITDA margin (%) EI (96.8) PBT margin (%) Pretax profit 2, , , , ,359.8 Net profit margin (%) Tax (90.3) (31.8) (49.7) (45.8) (47.2) Effective tax rate (%) Minority interest (115.7) (67.3) (30.1) (35.3) (40.5) ROA (%) Net profit 2, , , , ,272.0 Core ROE (%) ROCE (%) Balance Sheet Statement Dividend payout ratio (%) FYE 31 Dec (RMm) 2014A 2015A 2016E 2017E 2018E PPE 20, , , , ,092.0 Liquidity Other noncurrent assets 11, , , , ,546.8 Current ratio (x) Total noncurrent assets 32, , , , ,638.8 Op. cash flow (RMm) 2, , , , ,476.1 Cash and equivalents 3, , , , ,227.6 Free cashflow (RMm) 1, , , ,488.6 Inventory FCF/share (sen) Trade receivables 2, , , , ,944.9 Other current assets 2, , , , ,467.3 Asset management Total current assets 9, , , , ,794.7 Inventory turnover (days) Trade payables Receivables turnover (day Short term borrowings 1, , , , ,110.1 Payables turnover (days) Other current liabilities 3, , , , ,404.2 Total current liabilities 4, , , , ,735.7 Capital structure Long term borrowings 7, , , , ,896.3 Net Gearing (x) net cash net cash Other long term liabilities Interest Cover (x) Total long term liabilities 8, , , , ,623.7 Shareholders' Funds 27, , , , ,870.6 Cash Flow Statement FYE 31 Dec (RMm) 2014A 2015A 2016E 2017E 2018E PAT 2, , , , ,312.6 Depreciation & amortisation 1, , , , ,263.4 Working capital changes (603.4) (536.3) (99.9) Others (115.8) (67.3) (192.0) Cashflow from operations 2, , , , ,476.1 Capex (1,708.8) (2,557.6) (3,414.9) (2,777.5) (1,987.5) Others 1, ,893.4 Cash flow from investing (345.2) 1,335.8 (3,414.9) (2,777.5) (1,987.5) Debt raised/(repaid) (1,980.6) (3,845.3) (500.0) (500.0) (500.0) Equity raised/(repaid) Dividends paid (401.7) (602.6) (481.1) (441.8) (454.4) Others Cash flow from financing (2,860.8) (4,737.4) (981.1) (941.8) (954.4) Free Cash Flow 1, , , ,488.6 Page 13 of 14

14 28 June 2016 Equity Rating Structure and Definitions BUY Total return is expected to exceed +10% over a 12month period HOLD Total return is expected to be between 5% and +10% over a 12month period SELL Total return is expected to be below 5% over a 12month period NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months. OVERWEIGHT Industry, as defined by the analyst s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL Industry, as defined by the analyst s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst s coverage universe is expected to underperform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389U) (formerly known as HwangDBS Investment Bank Berhad) ( the Company ) based on sources believed to be reliable. However, such sources have not been independently verified by the Company, and as such the Company does not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. Facts, information, views and/or opinion presented in this report have not been reviewed by, may not reflect information known to, and may present a differing view expressed by other business units within the Company, including investment banking personnel. Reports issued by the Company, are prepared in accordance with the Company s policies for managing conflicts of interest arising as a result of publication and distribution of investment research reports. Under no circumstances shall the Company, its associates and/or any person related to it be liable in any manner whatsoever for any consequences (including but are not limited to any direct, indirect or consequential losses, loss of profit and damages) arising from the use of or reliance on the information and/or opinion provided or rendered in this report. Any opinions or estimates in this report are that of the Company, as of this date and subject to change without prior notice. Under no circumstances shall this report be construed as an offer to sell or a solicitation of an offer to buy any securities. The Company and/or any of its directors and/or employees may have an interest in the securities mentioned therein. The Company may also make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences and hence an independent evaluation is essential. Investors are advised to independently evaluate particular investments and strategies and to seek independent financial, legal and other advice on the information and/or opinion contained in this report before investing or participating in any of the securities or investment strategies or transactions discussed in this report. Thirdparty data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. The Company s research, or any portion thereof may not be reprinted, sold or redistributed without the consent of the Company. The Company, is a participant of the Capital Market Development FundBursa Research Scheme, and will receive compensation for the participation. This report is printed and published by: Affin Hwang Investment Bank Berhad (14389U) (formerly known as HwangDBS Investment Bank Berhad) A Participating Organisation of Bursa Malaysia Securities Bhd Chulan Tower Branch, 3rd Floor, Chulan Tower, No 3, Jalan Conlay, Kuala Lumpur. affin.research@affinhwang.com Tel : Fax : Page 14 of 14