REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES

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1 Market Update Laos Securities Exchange Laos market cap now above US$1bn The Laos Securities Exchange (LSX) surpassed US $1.0bn in market capitalization for the first time in mid- November The market has picked up in recent weeks, as investors wade into an inexpensive market with strong growth prospects, which has remained overlooked because of low liquidity, a limited number of listings near foreign shareholding limits and an absence of global custodians. We expect that many of these constraints will be loosened in More listings possible for 2013 Additional listings are expected for 2013; 1) the government may list the largest telecoms, Laos Telecom and ETL, while 2) Dao Heaung, a diversified firm with a focus on duty free and coffee products, also plans to list. This will boost liquidity, market cap and see additional room for foreign investors. With listed firms BCEL and EDL-Gen also expected to raise capital next year, we estimate that US$ mn could be added to the LSX market cap in Looking good in a global frontier context Figure 1 shows the Laos market in the context of global frontier markets; it is still small, but could be on track to match the size of some African and Eastern European markets over the next few years. The LSX also looks inexpensive on a PE valuation versus many of the frontier exchanges, and has the highest dividend yield of the markets for which information is available. Global custodians on the way An absence of global custodians has remained an impediment to large foreign funds entering the market. However, some of these institutions have been visiting Laos in recent months, and we expect that we could see global custodians present in Laos by late 2012 or early Strong growth for inexpensive BCEL and EDL-Gen The two listed stocks on the LSX, Bank Pour Le Commerce Exterieur (BCEL) and EDL-Generation (EDL- Gen) have strong growth prospects for , and are market leaders in their respective fields of commercial banking and energy generation. However, the two still trade still trade at undemanding valuations versus the region (both below 1x price to book) mainly for structural reasons outlined above. The companies also currently have high dividend yields forecast for See the summaries on both companies at the end of this report for more detail. Value % chg BCEL 7, EDL-Gen 5, LSX 1, Source: Bloomberg Valuation P/E P/B BCEL EDL-Gen LSX Source: Bloomberg, KT Zmico estimates Market Cap (US$mn) BCEL 128 EDL-Gen 896 LSX 1,024 Source: Bloomberg Graeme Cunningham, CFA Head of Indochina Research graemec@ktzmico.com 66 (0) Patcharin Karsemarnuntana Indochina Energy patcharink@ktzmico.com 66 (0) Prapharas Nonthapiboon Indochina Banks prapharasn@ktzmico.com 66 (0)

2 Figure 1: Laos versus global frontier markets Market Market Cap (US$bn) P/E (x) Div Yld (%) Africa Ghana Kenya Mauritius 6.7 n/a n/a Tunisia Americas Argentina Trinidad, Tobago 11.4 n/a n/a Asia Pakistan Sri Lanka n/a Vietnam n/a Laos Europe, CIS Bulgaria 4.7 n/a n/a Croatia Estonia Lithuania 3.8 n/a n/a Kazakhstan 13.6 n/a n/a Romania Slovenia n/a Ukraine Middle East Abu Dhabi Bahrain 13.9 n/a n/a Jordan 26.1 n/a n/a Kuwait 96.5 n/a n/a Oman Qatar Saudi Arabia Source: Bloomberg 2

3 Figure 2: Relative performance 125 Figure 3: Price to earnings Source: Bloomberg, KT Zmico estimates Laos BCEL EDL-Gen Figure 4: Price to book 1.0 Figure 5: Currency 8, , , , , Laos BCEL EDL-Gen Source: Bloomberg, KT Zmico estimates USD:LAK THB:LAK 3

4 BCEL BUY TP: LAK 11,400/US$ 1.42 Price: LAK 7,500/US$ 0.94 Market leader to benefit from strong economy We maintain our BUY rating on BCEL with a 2013E target price of LAK11,400/share, implying a target P/BV of 1.2x. This is underpinned by the bank s number one position in the market with a 29% loan share, making it a likely prime beneficiary of Laos solid expected GDP growth (7.6% average growth for based on IMF forecasts). Riding secular long term growth trend in loans/gdp Beyond the cyclical upswing in Laos the bank has also been riding a strong secular long-term trend of growth in the credit/ GDP ratio as the economy expands. Regional comparables suggest a peak average ratio for loans/gdp around 130%; the ratio for Laos stood at just 29% as of Projected earnings growth of 44% for 2013E We project strong EPS growth of 24% for 2012E and 44% for 2013E, driven by; 1) rising net interest income growth boosted by rapid loan growth (+40% for 2012E and +30% for 2013E), and expanding NIM; and 2) strong growth in fee income (especially trade finance) and trading income. Regulatory and regional macro risks BCEL faces some regulatory risk as the country eventually shift to BIS regulatory standards. It also faces regional macro risks given the country s export-led growth strategy with large energy and mining exports to Thailand and China. Declines in demand for Laos exports from these countries could slow economic growth, and affect loan and trade financing demand. Inexpensive on P/E and P/B, with high yield BCEL trades on a 2013E PER and PBV of just 3.96x and 0.79x respectively vs. a regional average PER of 10x and PBV of 1.5x for 2003 and yields around 6% for 2H12E (we expect a DPS of LAK463/share for 2H12E) and ~17% for 2013E. Financials and valuation FY Ended 31 Dec E 2013E PPOP (US$mn) Provision (US$mn) Share data LSX code/bloomberg Sector BCEL.LS/BCEL LS Banks Closing Price (US$, Kip) 0.94/7,500 Paid-up shares (mn) Par (US$, Kip) 0.62/5,000 Mkt cap (Kip bn/us$mn) 1,024/128 Foreign limit/actual (%) 5%/5% 52 week High/Low (Kip) 7,850/6,000 Avg. daily T/O (000 shrs) Estimated free float Major Shareholders Laos government 70% Public 15% Cofibred 10% BCEL staff 5% Company Profile State-owned Banque Pour Le Commerce Exterieur du Laos (BCEL) is the largest commercial bank in Laos by loan share. BCEL accepts deposits, runs the most extensive branch network in the country, lends to large corporates and SME and has the country s largest trade finance business. Net profit (US$mn) EPS (US$) EPS growth (%) 30% 40% 24% 44% BVPS (US$) DPS (US$) n.a PER (X) PBV (X) Div. Yield (%) n.a. 10.0% 11.5% 16.6% ROE (%) 18.2% 17.6% 18.3% 21.9% Prapharas Nonthapiboon Indochina Banks prapharasn@ktzmico.com 66 (0)

5 EDL Generation BUY TP: LAK 8,825/US$ 1.10 Price: LAK 5,850/US$ 0.73 Undemanding valuation We rate EDL-Generation Pcl. (EDL-GEN) a BUY, with a 2013 target price of LAK8,825/share (US$1.1/share). Despite strong forecast earnings growth, underpinned by a 128% increase in power capacity to 881 MW, EDL trades at undemanding 2013E valuations below regional peers, even while its 9% projected 2013E yield and ROE is above comparables. Entering the earnings growth cycle until 2014E We forecast a 146% hoh rise in EDL-Gen s 2H12E net profit to US$59mn (on seasonally high 2H power generation and the five month consolidation of four transferred IPPs), to a FY profit USD84mn, up 19% yoy. We expect continued earnings momentum with a 16% E CAGR growth to US$113mn by 2014E. EDL-Gen s 7 existing 100%-owned hydropower plants (totalling 387 MW) and the FY contribution of 4 hydropower plants (equity capacity: 494 MW) will drive growth. Soaring capacity growth in long-term EDL-Gen s long-term growth will be driven by acquisitions from state-owned EDL, which has sizeable hydropower generation assets under construction and in development. These include 218MW from EDL s 100%-owned assets - Huauy Lampan Ngai and Nam Khan 2 (set to start COD in E), and 1,289 MW in hydropower assets from EDL s 100%-owned assets and EDL s equity share in IPPs over the next eight years. Upside from these projects are not included in our projections. D/E well below ceiling policy With the four transferred IPPs with the THPC project to be 60% proportionately consolidated, as well as the recent capital raising of US$200mn to fund the four IPPs, we expect EdL- Gen s interest-bearing debt to equity ratio to rise from an abnormally low 0.33x in 2011 to 0.78x in 2013E, well below the company s policy of a 1.5x ceiling. Share data LSX code/bloomberg EDL-GEN/ EDL LS Sector Power Closing Price (US$, Kip) 0.73/5,850 Paid-up shares (mn) 1, Par (US$, Kip) 0.50 / 4,000 Makt cap (Kip bn/us$mn) 7,175.7/896 Foreign limit/actual (%) 20%/13.83% 52 week High/Low (Kip) 5,850/4,100 Avg. daily T/O (000 shrs) Estimated free float (%) Beta 1.21 Major Shareholders Electricite Du Laos 75.00% Ratch-Laos Service 6.46% RH International 2.88% BCEL 2.68% Financials and Valuation FY Ended 31 Dec E 2013E 2014E Revenues (US$mn) Company Profile EDL-Gen owns/operates all power plant assets separated and privatized from EDL. Net Profit (US$mn) EPS (USD) - Diluted EPS growth (%) n/a (15.6) DPS (USD) BV (USD) FY Ended 31 Dec E 2013E 2014E PER (x) PBV (x) EV/EBITDA (x) Dividend Yield (%) ROE (%) Net Gearing (%) Patcharin Karsemarnuntana Indochina Energy patcharink@ktzmico.com 66 (0)

6 Disclaimer This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user. KT ZMICO RESEARCH - RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months TRADING BUY: Expecting positive total returns of 10% or more over the next 3 months SELL INTO STRENGTH: Expecting total returns of not more than 10% over the next 3 months; share price has largely priced in fundamentals BUY ON WEAKNESS: Expecting negative total returns of not more than -10% over the next 3 months, while expecting positive developments in the medium to longer term SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst s coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst s coverage universe, is expected to perform in-line relevant primary market index by at least 10% over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 15% or more over the next 12 months 6