ASEAN Port investment outlook till 2020

ASEAN Port investment outlook till 2020 Wednesday 11 and Thursday 12 June 2014 JW Marriott, Jakarta, Indonesia Copyright notice This Report is for the sole use of the purchaser and is not to be copied or distributed outside of the client organisation Jason Chiang Director Drewry Maritime Advisors

2 0 About Us Since its founding in 1970, Drewry has grown into one of the world's most respected international maritime research & advisory providers. LONDON SHANGHAI DELHI SINGAPORE

3 Evaluation criteria: South East Asian container port Outlook till 2020 GOOD FAIR POOR Container volume Strong growth or captive volume Competitive landscape Gateway or transhipment Strong margins Tariff levels Sufficient operating margins Investment access Does the country welcome foreign ownership? Are there investment opportunities? Transaction price Price dependent on willing buyer, willing seller Future trends

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979 982 985 988 991 994 997 000 003 006 009 012 % transhipment 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Percentage of MTs Container tonnage to general cargo 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 Container Shipping olumes (million TEU) Drewry Maritime Advisors 12th ASEAN Ports and Shipping 2014 5 Drivers: Container volume growth Growth drivers for container volumes growth remain largely unchanged. Organic Economic growth Income levels => Import Manufacturing => Export Substitution Containerization of general cargo Key driver historically for gateway laden containers Container shipping volumes against world GDP 200.00 150.00 100.00 50.00 0.00 80% 60% 40% 20% 0% 0 20,000 40,000 60,000 80,000 Container to total general cargo tonnage ratio Laden gateway Laden gateway Accidental Trade imbalances resulting in more/less import/exports 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Percentage of MTs Empty containers Induced Vessel upsizing => Fewer port calls, selected hub ports Percentage Transhipment 40.0% 30.0% 20.0% 10.0% 0.0% Transhipment

Stevedoring tariffs per move (US$) Drewry Maritime Advisors 12th ASEAN Ports and Shipping 2014 6 Revenue sources: Container port Stevedoring accounts for the bulk of terminal operator s revenue. Gateway terminals generate higher unit revenues than empty and transhipment terminals. Typical SEA port operator revenue sources Non stevedoring 11% Typical SEA port tariff structure (per move US$) 60.00 50.00 40.00 30.00 20.00 10.00 Stevedoring 89% 0.00 Gateway laden 20" Gateway empty 20" Transhipment laden 20" Revenue 89% of the typical SEA terminal operator s revenue is from stevedoring. Remainder from storage and other auxiliary services. Tariff While incurring similar costs to perform, gateway laden tariffs are generally higher than empty and transhipment tariffs.

Volume (million TEU) Transhipment (laden) + Empty % of total Drewry Maritime Advisors 12th ASEAN Ports and Shipping 2014 7 Historical: South East Asia port container volume SEA port volumes grew from 34.5 million TEU in 2000 to 89.3 million TEU in 2013, a 7.6% CAGR. 40 million TEU are transhipment laden. Transhipment and empty containers accounted for 61% of total throughput in 2013. SEA container terminal throughput, 2000-2013 (million TEU) 100.00 90.00 64% Containers CAGR 2000-2013 80.00 62% Empty 8.2% 70.00 60.00 60% Transhipment (laden) 8.1% 50.00 58% 40.00 30.00 56% Gateway (laden) 6.9% 20.00 54% 10.00 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 52% Total throughput 7.6% Gateway (laden) Transhipment (laden) Empty Transhipment (laden) + Empty % of total

Gateway (%) transhipment (%) Gateway laden volume (million TEU) containerization (%) Drewry Maritime Advisors 12th ASEAN Ports and Shipping 2014 8 Drivers: Container volume growth momentum and trends (2020) Economy and containerization will be key growth drivers for the region. Organic growth: Gateway (laden) growth continues to be driven by economic growth 60 50 40 30 20 10 Accidental growth: Empty volume growth to remain stable 84% 83% 82% 81% 80% 79% 78% 77% 0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 SEA GDP (trillion USD) O Substitution growth: Containerization continues to drive gateway (laden) volume growth 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Induced growth: Transhipment to remain stable as region already has high transhipment incidence 64% 62% 60% 58% 56% 54% 52% O

9 Outlook: South East Asia port container volume International transhipment hubs located in Straits of Malacca along the Far East-Europe route. Indonesia, Thailand, Malaysia, Vietnam and Philippines combine for a huge 41.4 million TEU market. 0.56 Regional volume Myanmar 8.1 Gateway and domestic Thailand hubs 0.28 7.1 Gateway and domestic hubs Vietnam 5.7 Gateway and domestic hubs Philippines International transhipment hubs located along the Far East Europe/Med trades. Transhipment hubs likely remain the same as ships upsize to 18,000 across the shipping lines. 13.5 7.8 Main 28.1 4.5 transhipment hub 0.13 Main gateway ports of Indonesia, Malaysia, Vietnam, Philippines and Thailand with Indonesia being the largest. Gateway and 12.7 domestic hubs Indonesia Legend Gateway Transshipment

10 Outlook: South East Asia port container volume Volume projections 2013-2020: Gateway: 6.6%, transhipment 5.1%. Container port gateway volume outlook CAGR, 2013-2020* Vietnam 9.2% Thailand 6.2% Singapore 3.1% Philippines Malaysia 5.5% 6.0% Indonesia Myanmar Cambodia 5.5% 6.6% 7.3% Brunei 9.7% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Transhipment 2013-2020 CAGR 5.1% Volume drivers Manufacturing bases: Thailand, Indonesia, Vietnam Agricultural: Malaysia, Philippines Import dependent: Singapore, Myanmar, Cambodia Drewry projections based on economic outlook

11 Outlook: South East Asia port tariff Gateway port tariffs in South East Asia range widely. Key factors include the tariff policy as well as the level of competition. SEA container stevedore tariff gateway 20 (USD) * Vietnam Thailand Singapore Philippines Myanmar Malaysia Indonesia Cambodia 0 20 40 60 80 100 120 Tariff drivers Over competition: Vietnam, Thailand Tariff policy: Philippines, Indonesia, Thailand Limited competition: Singapore, Myanmar * Drewry estimates from public tariff and shipping lines

12 Outlook: South East Asia port EBITDA margins* South East Asia port EBITDA margins are generally positive (exclude concessions). SEA container terminal operator EBITDA margin (%) Vietnam Thailand Singapore Philippines Myanmar Malaysia Indonesia Cambodia 0% 20% 40% 60% 80% Margins are derived based on estimates of tariff, volume and operating expenses. Concession payments are not included Margin drivers Limited competition: : Philippines, Singapore, Myanmar Intense competition: Vietnam Improving capacity utilization: Thailand High cost of operations: Cambodia

13 Outlook: South East Asia container port investment Country outlook is positive for Philippines, Myanmar and Indonesia. Viable investment opportunities can be found in the region. Myanmar HPH present Mainly imports. Exports require manufacturing to take root Limited competition Singapore PSA base of operations More than 80% is transhipment. Margins healthy due to keen cost management Thailand Foreign investment encouraged in LCB Industries affected by flood and political uncertainty Margins increasing with capacity utilization Vietnam Foreign investment encouraged Volume growth steady Margins pressured due to overcapacity Cambodia State owned enterprises Captive volumes Margins eroded by high cost of operations Malaysia Limited opportunities, Westport IPO Captive volumes Steady margins Indonesia Kalibaru, Cilamaya concessions Strong growth. Healthy margins Philippines ICTSI base of operations. DPW present Steady volume growth, mainly in Manila Low cost environment, gateway pricing Country Access Volume Tariff Margin Thailand Philippines Cambodia Myanmar Vietnam Malaysia Singapore Indonesia

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EV/EBITDA Drewry Maritime Advisors 12th ASEAN Ports and Shipping 2014 15 Historical transaction: Container port EV/EBITDA Port transactions rose to historical highs in 2007 to current 10-12X EV/EBITDA valuations. At each time phase, different investor classes were active in acquiring assets. 30.0 Initial: Terminal operator Interim: Investment fund Recent: Private equity fund 25.0 Investment funds became active, pushing valuations to as high as 30X 20.0 15.0 10.0 HPH acquire ICTSI overseas assets Dubai Ports International (today's DP World) bought CSX. 8.3 10.1 10.7 15.4 18.4 12.2 9.1 10.7 GIP acquires Brisbane and Sydney ports 12.0 9.8 5.0 6.9 7.1 7.0 PSA acquired HNN DPW acquired P&O ports 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

EBITDA margin Drewry Maritime Advisors 12th ASEAN Ports and Shipping 2014 16 Financial performance : Container maritime assets Ports are an attractive asset class for investors due to steady margins and returns. 70.0% 60.0% Container shipping: High volatility Container port: Steady, positive returns 50.0% 40.0% 30.0% 20.0% 10.0% 2009 2010 2011 2012 0.0% -10.0% Maersk Line Neptune Orient Line Evergreen Hanjin Orient Overseas Hyundai APM Terminals DP World PSA International ICTSI Hutchison Port Holdings HHLA AG Major shipping lines Major port operators

EV/EBITDA Drewry Maritime Advisors 12th ASEAN Ports and Shipping 2014 17 Financial benchmarks: Port transaction List port companies can be used as benchmarks for private transactions 25.0 20.0 19.5 19.6 18.0 15.0 10.0 5.0 7.5 7.1 7 6.7 7.1 6.8 7.0 9.2 9 7.5 11.3 7.5 9.0 10.8 10.5 10.7 17.2 12.8 12.0 12.3 11.2 Valuation gaps 9.7 9.0 8.5 11.9 11.8 9.6 14.0 10.0 10.1 10.3 9.4 9.2 9.3 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Private port Private transactions port transactions (less majority stakes) Listed port valuations Listed port valuations

18 Outlook: Port investment Increase in US interest rates would result in higher interest payments by terminal operators with US denominated debt. Investors would have to seek alternative sources of funding for future acquisitions. 9% 8% Interest rates high, higher use of equity Increasing use of debt as interest rates lower 8% Operators load up on debt with likely increase in interest rates 7% 7% 6% 6% 6% 6% 6% 5% 5.0% 5.0% 4% 3% 3% Financial crisis, Fed lower rates to absolute lows. Fed indicates intention to increase rates. 2% Operators careful about using debt. 1.9% 1% 1% 0% 0.2% 0.2% 0.1% 0.1% 0.1% 2006 2007 2008 2009 2010 2011 2012 2013 Interest as % of revenue Fed rates

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In conclusion Drewry Maritime Advisors 12th ASEAN Ports and Shipping 2014 20 US and European economies have recovered. Possible increase in interest rates would affect port valuations in near future Asean region economies in better shape and projected to grow strongly => Container trade growth likely to be centered in Asia. Opportunities for investing in Asian ports are limited but comes with the assurance of captive volumes. Margins remain a concern. Careful due diligence required.

21 Contact Head Office UK Drewry Shipping Consultants Ltd 15-17 Christopher Street London EC2A 2BS, United Kingdom t: +44 (0)20 7538 0191 e: enquiries@drewry.co.uk India Office Drewry Maritime Services Private Limited 209 Vipul Square, Sushant Lok-1 Gurgaon, Haryana-122002, India t: +91 124 497 4979 e: india@drewry.co.uk Jason Chiang Director chiang@drewry.co.uk Singapore Office Drewry Maritime Services (Asia) Pte, Ltd. 15 Hoe Chiang Road #13-02 Tower fifteen Singapore 089316 t: +65 6220 9890 e: singapore@drewry.co.uk Shanghai Office 555, 5th floor Standard Chartered Tower, 201 Shi Ji Avenue, Pudong District, Shanghai, China 200120 t: +86 (0)21 6182 6759 e: info@drewry.co.uk