Zhulian Corporation. Initiating Coverage. Strong but Undervalued Jewel BUY. MALAYSIA EQUITY Investment Research Daily News.

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1 PP10551/10/2010(025682) 30 April 2010 Eing Kar Mei +60 (3) Initiating Coverage Zhulian Corporation Strong but Undervalued Jewel MALAYSIA EQUITY Investment Research Daily News BUY Target RM3.77 Previous - Price RM2.43 CONSUMER (RETAIL) Zhulian is involved in multi-level marketing (MLM) and has diversified interests in the manufacture and trading of costume and fine jewelry, consumer products and printing. Stock Statistics Bloomberg Ticker ZHCB MK Share Capital (m) Market Cap (RMm) week H L Price (RM) mth Avg Vol ( 000) YTD Returns 47.0 Beta (x) 0.65 Major Shareholders (%) Zhulian Holdings SB The Best Source Holdings Teoh Beng Seng Share Performance (%) Month Absolute Relative 1m m m m month Share Price Performance Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 Riding on its reputation as a costume and fine jewelry producer, the group has grown into a regional MLM company with a broad product range. Targeting the Bumiputra market in multiracial and multilingual Malaysia, the group is poised to tap the potential in Malaysia, Singapore, Thailand and Indonesia. We are forecasting a 2- year revenue and earnings CAGR of 19.8% and 27.8% for the next 2 years and initiate coverage on the stock with a BUY call at a TP of RM3.77 (based on 12x FY10 EPS). Despite its strong fundamentals, the stock is trading at some 30% discount to the industry s forward PE. Zhulian is the highest dividend yield stock in the industry. From small to big. Zhulian started as a multi-level marketing (MLM) company selling costume and fine jewelry. Recognizing the cyclical nature of its business, the group has diversified into nutritional, F&B and household related goods, each of which contributes about ~20% of total sales. Acknowledging the need to expand overseas to enlarge market share by strengthening its branding as early as possible, the group is among the first MLM companies to expand overseas. Today, it has more than 450,000 members and 250 distribution centers in Malaysia, Thailand, Singapore and Indonesia. In the right market segment and place. As more than 90% of Zhulian s members are bumiputras, its target segment is naturally the bumiputra market. As this group represents >60% of Malaysia s population, there is a lot of room for growth. Also, starting out in multilingual and multiracial Malaysia paved the way for the company to expand into other Asian countries. Strong revenue and profit growth. Zhulian recorded 2-year revenue and earnings CAGR of 19.6% and 18% respectively in the past two years. If not for the poor economic conditions last year, we believe that it would have chalked up a stronger CAGR. Going forward, we expect the group to achieve sales and earnings CAGR of 19.8% and 27.8% respectively for the next two years. Although we expect growth in its Malaysia and Thailand markets, we see Indonesia sales leading growth forward after its 60% acquisition of its Indonesia operation in May Initiate with a BUY. While the group has comparable if not a stronger fundamentals compared to its peers, Zhulian is trading at a ~30% discount to the industry s forward PE. Given its comparable fundamentals and slightly higher dividend payout ratio of 60% versus Hai-O s 50%, we expect Zhulian to re-rate at least to Hai-O s valuation of 12xPE. We initiate coverage on Zhulian with a BUY call at a TP of RM3.77, pegged at 12x FY10 EPS. Potential share price appreciation aside, the stock offers a high dividend yield of 7.8% to 9.6%, which makes it a good stock pick given the current volatile market conditions. FYE Nov (RMm) FY07 FY08 FY09 FY10f FY11f Revenue Net Profit % chg y-o-y Consensus - - EPS (sen) DPS (sen) Dividend yield (%) ROE (%) ROA (%) PER (x) BV/share (RM) P/BV (x) EV/ EBITDA (x) OSK Research See important disclosures at the end of this report 1

2 INVESTMENT THESIS Wide product range provides a buffer. Having leant a lesson during the economic recession of the 90s, the group has moved from a single product strategy revolving around costume jewelry to a multi-product strategy encompassing nutritional to household products. While costume jewelry products are more susceptible to the vagaries of the economic cycle, demand for nutrition and household products are less elastic. These products provided support to its earnings to a certain extent during economic turbulence. Zhulian recorded a 9.8% y-o-y earnings growth in FY09 when the recession damped consumer spending. We consider this impressive given that its peers recorded slower bottom line growth or even contractions over the same period. Figure 1: Revenue contribution by product (FY09) Therapeutic products, 10% Others, 1% Home Technology, 12 % Jewelry, 22% Home Care, 5% Nutritional, 22 % Personal care, 11% Food & beverage, 17% Exposure in 4 countries. The key to success for a MLM company is by having a large network of members, which could be achieved by penetrating into foreign markets. Among the listed MLM companies in Malaysia, Zhulian is the one of the first to expand overseas, which also explains the company s better than industry profit growth last year. The group started its MLM locally in 1989, and later expanded into Indonesia through the appointment of a master agent, Thailand (via a 49% associate) and Singapore (100% subsidiary). We have seen its business in Thailand thrive and sales are fast catching up with Malaysia sales. Although sales in Indonesia are still slow, we expect this to improve after Zhulian s 60% acquisition in its Indonesia company. We believe these two countries, which have larger populations, would supplement the growth in Malaysia although there is still room for growth. Its earlier exposure to foreign markets would also help Zhulian build up its brand ahead of other MLM companies and gain market share. Vertical integration enhances margins. With its 3 owned manufacturing plants in Penang, Malaysia, Zhulian manufactures >80% of its products, from which it garners higher margins. Compared to its peers which outsource most of their products, Zhulian had commanded superior EBITDA margin of >25% over the past 3 years versus its peers EBITDA margins of <20%. It is also less subject to foreign exchange risk compared with its peers because the group transacts ~50% of its sales in USD, which acts as a natural hedge to its USD-denominated raw material cost while its peers have no foreign currency sales but transact some of their raw materials in USD. To cope with rising demand, the group is constructing a new plant for its newly upgraded bedding product line and extending its office buildings with auditoriums in order to reduce future rental costs. These measures will give rise to better margins as the group achieves economies of scale. Strong top and bottom line seen. We are forecasting a 2-year revenue and net profit CAGR of 19.8% and 27.8% respectively, driven by a larger number of members (6%-12% growth), higher sales/distributor (7%-11% growth), weakening of RM against USD towards 2011 (the foreign exchange risk impact on revenue is stronger than the impact on raw material costs) and higher associate contribution from Thailand. While we expect the bulk of growth to be generated from Malaysia and Thailand, we believe sales from Indonesia will improve to a larger extent as the group gains management control after they acquired 60% of the operation in Indonesia. To drive growth further, the group is now exploring new places in existing markets and plans to expand further into Indochina. OSK Research See important disclosures at the end of this report 2

3 Superior fundamentals but undervalued. While the group has comparable if not stronger fundamentals compared to its peers, Zhulian is trading at some 30% discount to the industry forward PE. Given its comparable fundamentals and slightly higher dividend payout ratio of 60% versus Hai-O s 50%, we expect Zhulian s share price to re-rate at least to Hai-O s valuation of 12xPE. Table 1: Fundamentals comparison FY10 profit growth FY09 EBITDA margin Dividend yield (f) ROE (%) ROA (%) Net Cash/share (RM) Dividend payout ratio Zhulian Hai-O Amway ~90 Source: Companies, OSK OSK Research See important disclosures at the end of this report 3

4 AN OVERVIEW Corporate profile. Zhulian was listed on Main Board of Bursa Malaysia on 27 April 2007 with Syariah status. The group is involved in multi-level marketing (MLM), and has diversified interests in the manufacturing and trading of costume and fine jewelry, consumer products and printing. As of Nov 2009, the group had 273 agencies functioning as distribution centers and approximately 480,000 distributors in Malaysia, Thailand, Indonesia and Singapore. Figure 2: Members distribution 76% 19.8% 3.8% 0.4% From a small local costume jewelry company to a regional MLM company. Zhulian s journey began in 1989 with founder Mr. Teoh Beng Seng s idea of bringing the concept of gold plated jewelry back to his homeland from Europe. Within a mere 4 years after inception and due to the overwhelming demand, the group commenced the construction of its first plant at Bayan Lepas Industrial Estate, Penang. In 1996, in order to reduce its dependence on its core products, gold plated jewelry, the group started to diversify its product portfolio, switching from a single-product strategy to a multiple-product strategy. Since then, Zhulian has grown into a group of companies with widely diversified manufacturing facilities. At the same time, the group also began to venture abroad by establishing Zhulian Thailand and Indonesia through the appointment of a master agent. In 2003, Zhulian set up its Singapore Regional Office. In May 2009, the group took a strategic move by acquiring a 60% stake of Zhulian Indonesia with the aim of improving its operation in that country and increasing its market share. Table 2: Zhulian s milestone Zhulian s milestone 1989 Year of founding 1993 Construction of its first plant 1996 Started to diversify product range 1996 Ventured into Thailand and Indonesia 2003 Ventured into Singapore 2009 Acquired 60% stake of Zhulian Indonesia OSK Research See important disclosures at the end of this report 4

5 Figure 3: Zhulian s corporate structure OSK Research See important disclosures at the end of this report 5

6 KEY HIGHLIGHTS Expertise in costume and fine jewellery manufacturing. The group s founder, Mr Teoh Beng Seng, has more than 25 years experience in fine jewelry production and has successfully turned Zhulian into a leading manufacturer of costume jewelry in Malaysia. Given its expertise in this area, these products have been the group s core product until 1996 when it diversified its product range in recognition of cyclical nature of the jewelry business. While revenue contribution from this product segment has fallen from 38% in FY04 to 22% in FY09, Zhulian is still known for its expertise in costume and fine jewelry and in fact, some people even think that the group only produces jewelry. Wide product range. As a result of product diversification, Zhulian now offers a varied range of products including jewelry, nutrition products, food & beverages and water filters, with each accounting for approximately 20%of the sales pie. Hence, as opposed to some MLM players who rely heavily on certain products, Zhulian s risks are spread out across a mixed range of elastic and inelastic goods which act as an earnings buffer during an economic downturn. Despite the tough operating environment last year, Zhulian reported revenue and net profit growth of 3.9% and 9.8% respectively. Although single digit, we think the results were impressive compared to its peers, which saw slower growth or even sales contraction. Table 3: Zhulian s product categories Product category Products Note Costume jewelry/fine Gold plated, rhodium plated, two-tone Biggest gold plated fashion jewelry jewelry products and sterling sliver jewelry jewelry manufacturer in Malaysia products Most sophisticated mass Nutritional Food supplements, nutritional supplements and sugar substitute Food & beverage Coffee, cereal beverages and fruit juice concentrate Water treatment Water purification systems and related products Air purifier Personal care Home care Bolsters, pillows, mattress pads and other therapeutic products Air purifier systems Hygiene, grooming and skin care products such as hair shampoo and conditioners, hair gel, shower gel, body lotion, skin whitening cream, facial scrubs, facial masks, talcum, deodorant, toothpaste and footcare Products comprise laundry, dishwashing and general purpose detergents, floor polish, air fresheners and fire extinguishers Bolsters, pillows, mattress pads and belts production method Strong R&D Food Technologist and directors involved Beyond brand has won the 4 th Asia Pacific Super Excellent Brand Award in 2008 Equipped with fully automated sanitary pad machines which are not exposed to contamination The facility will be expanded to meet increasing market demand Table 4: Zhulian and Peers net profit (RM m) FY07 FY08 FY09 Zhulian (RM m) Growth (%) Amway (RM m) Growth (%) Hai-O (RM m) Growth (%) CNI (RM m) Growth (%) Source: Companies OSK Research See important disclosures at the end of this report 6

7 Vertical integration. Zhulian manufactures 80% of its products in-house at its 3 manufacturing facilities in Bayan Lepas, Penang. Only the production of personal care, home care, skin care and cosmetic products are outsourced to third parties, mainly through a trading subsidiary, Master Square SB. The group will then market its products via its own direct selling channel. This vertical integration enables the group to increase its margins through economies of scale, close monitoring of product quality, ensure timely delivery of products to distribution centres and control of product supply. Compared to its peers, which outsource most of their products, the group has achieved superior average EBITDA margins of 25% over the past 3 years compared with its peers <20%. Figure 4: Vertically integrated business model Malaysia provides platform for regional reach. As with Hai-O, Zhulian s members are mainly Bumiputra. In fact >90% of its members are Bumiputras. In view of this, the group s main consumer target segment would naturally be Bumiputra consumers, who make up the majority in Malaysia, accounting for >60% of the population. Hence, the group has ample room to grow locally even if we assume that only 20% of this population would purchase MLM products. Also, due to the cultural similarities, starting off in a multiracial country like Malaysia paved the way for Zhulian to penetrate into Thailand, Singapore and Indonesia. An Indian MLM player appears to share this view, as The Star has reported that an India-based MLM company, RMP Infotec Pte Ltd, has voiced plans to expand its operation to Malaysia, citing its intention of using Malaysia as a gateway to other Asian countries. Table 5: Population by country Numbers of members Total population ( 000) % of Bumiputera to total population Malaysia 27,000 67% Indonesia 227,300 - Thailand 63,525 - Singapore 4,600 18% Early expansion to new market helps stave off competition. The group has spread its wings to Thailand, Indonesia and Singapore with the setting up of 49% owned Zhulian Thailand Ltd in 1996, PT. Zhulian Indonesia via the appointment of master agent in 1997 and Zhulian Singapore Pte Ltd (100% owned), which commenced business in These companies were established under Zhulian Management SB, which was set up to support the group s overseas operations. While the local market still has ample room to grow given that the group targets mainly Bumiputra, it is among the first to expand overseas as Zhulian recognizes that early expansion into foreign markets is necessary to fence off future competition by strengthening its brand earlier than its competitors. This opens up new growth opportunities and serves to complement organic growth in the Malaysian market. Although the group is present in 4 countries, the Zhulian trademark is registered in Malaysia, Thailand, Indonesia, Philippines, Singapore, PR China, Taiwan, Hong Kong, Japan, Australia and New Zealand, which makes it easier for the group to set up its operation in these countries in future. The current plan is to expand its operation to Indochina. OSK Research See important disclosures at the end of this report 7

8 Table 6: Numbers of distribution centres and distributors Commencement Distribution Numbers of Notes date centres distributors ( 000) Malaysia Top 5 direct selling companies Thailand Top 3 MLM companies Indonesia Singapore Continuous capacity expansion to meet rising demand. The group owns 3 manufacturing plants (plot 3, 41 and 42) in Bayan Lepas, Penang. While Zhulian had just constructed the third plant at plot 3, which commenced business operations in July 2008, the group is expanding further to cope with rising market demand. For now, a new plant will be built in Plot 41 to cater for the newly upgraded bedding product lines. This new facility is about 2 times bigger than the existing capacity for bedding products. Aside from expanding manufacturing plant, Zhulian has also embarked on an extension of the office buildings in its existing markets. Its commitment to invest more shows that Zhulian is confident of being able to grow in the respective markets. While depreciation charges will eat into its profit margin, having its own auditorium would help it realize some rental cost savings in the longer term. Figure 5: Locations of Zhulian s manufacturing plants OSK Research See important disclosures at the end of this report 8

9 Table 7: Zhulian s expansion plan Expansion Malaysia International Headquarters New extended International Headquarters building to be completed by end New building includes a wellequipped administration office, a 2,000 pax auditorium, a new cafeteria and a huge warehouse Thailand Own regional office (administrative office, 4,000 pax auditorium, cafeteria) cum warehouse Indonesia Building a regional head office with auditorium and warehouse facilities which would be completed in 3 years Singapore Regional office cum retail outlet in Singapore New extended building will be completed by 2 nd half of the year - New building includes a wellequipped administration office, a 4,000 pax auditorium, a new cafeteria and a huge warehouse Purchased a piece of land in Cikarang, Jawa Barat Indonesia for the construction of the future regional office - Natural hedge on currency risk. The fact that the revenue of most local MLM companies are transacted solely in RM although they buy their raw materials in USD exposes them to currency exchange risk. Zhulian, in contrast, is in a better position as some 50% of its total revenue is transacted in USD, which serves as a natural hedge to its 20%-30% USD denominated raw materials. As shown in the table below, the fluctuation of the USD/RM exchange rate has a smaller impact on Zhulian compared to its peers. Table 8: Sensitivity analysis of USD/RM exchange rate on net earnings Companies USD/RM exchange rate ±2% ±1% Zhulian ±0.8% ±0.4% Amway ±4.2% ±2.1% Hai-O ±1.2% ±0.6% Source: OSK OSK Research See important disclosures at the end of this report 9

10 Financials Resilient revenue and earnings. Prior to the economic downturn in 2009, Zhulian registered impressive top and bottom line growth of 37.6% and 26.8% y-o-y respectively, driven by higher number of new products (at least 10 new products/year) and distributors as well as stronger average revenue/distributor. While Zhulian posted a slower revenue and net profit growth of 3.9% and 9.8% respectively in 2009 due to weak economic conditions, it has nonetheless outperformed its peers, which recorded smaller profit growth or even earnings contraction. In tandem with recovering consumer spending recently, the group has regained momentum by posting respectable 1QFY10 results, with revenue and core earnings growth of 21.4% and 40.3% y-o-y respectively. Apart from the growing network and higher average revenue/ distributor, the impressive earnings growth was also attributable to the bigger contribution from its associate in Thailand despite political instability in that country. It is also worth noting that while sales from Malaysia and Singapore declined in FY09, Thailand and Indonesia continued to record revenue growth, which we believe was supported by the high population base in the two countries. Stronger top and bottom line growth.considering the increasing consumer spending, we now expect Zhulian s revenue and earnings to grow by a CAGR of 19.8% and 27.8% in , driven by its two main markets of Malaysia and Thailand, as it turns more profitable and contributes more at the associate level. We expect the number of members to grow by 6%-12% and sales/distributor to increase by 7%-11%, including a stronger USD against RM towards While Indonesia sales are slow, we expect it to gain momentum given that the group has won management control after buying a 60% stake in the company. Management said that after the acquisition, its subsidiary in Indonesia had been aggressively conducting promotions and penetrating into more new districts in the country. Figure 6: Yearly revenue and net profit (RM m) f 2011f Revenue Net profit, OSK Figure 7: Quarterly revenue and net profit (RM m) Revenue Core net profit, OSK OSK Research See important disclosures at the end of this report 10

11 Superior margin. In the past 3 years, Zhulian s EBITDA margins have never fallen below 25%, which is already substantially higher than the industry average of 17% - 19%. Other than the group manufacturing most of its products in-house which would command higher margins, this is also partly due to the fact that the group s margins are less sensitive to USD/RM exchange rate as compared to its peers as explained above. While EBITDA margin narrowed to 25.5% in FY08 from 26.8% in FY07 on higher raw material prices, it has recovered quickly to 28.1% in FY09 despite the tough operating environment. We expect EBITDA margins to surge further as sales increase and the company achieves better economies of scale. Note that increasing its selling price is not a common practice for the group. Figure 8: EBITDA margins 35% 30% 25% 26.8% 25.5% 28.1% 30.4% 31.3% 20% 15% 10% 5% 0% f 2011f, OSK Table 9: EBITDA margins comparison FY07 FY08 FY09 Zhulian Amway Hai-O *Based on OSK FY10 forecast, OSK Malaysia still the largest contributor but Thailand is catching up. As at FY09, Malaysia contributed 54.5% of group revenue, followed by Thailand with 40.3% of the pie, Indonesia at 4.3% and lastly Singapore, with only 0.9% of total sales. As shown in Table 10, Thailand is fast catching up fast with Zhulian s local market, posting a huge 57% jump in sales for FY08 and 14.6% growth in FY09. We believe the impressive growth and resilience of its business in Thailand, despite poor economic conditions in FY09 and an unstable political situation, are largely due to that country s larger population. Although its operation in Indonesia saw much slower growth in FY08 compared to Thailand as Zhulian started its Indonesia MLM via the appointment of a master agent and which resulted in looser management control, it posted positive growth 16% in FY09 despite the tough operating environment. This, we believe, is due to its huge population base and as the management gained control in the company by completing its 60% acquisition in May While Malaysia and Singapore recorded positive y-o-y sales growth in FY08, the two countries saw sales contract in FY09 due to weaker consumer spending and a lower population base. Figure 9: Revenue contributions by country Indonesia, 4.3% Thailand, 40.3% Malaysia, 54.5% Singapore, 0.9% Source Company, OSK OSK Research See important disclosures at the end of this report 11

12 Table 10: Revenue by country FY08 FY09 Revenue (RM m) y-o-y growth (%) Revenue (RM m) y-o-y growth (%) Malaysia Singapore Thailand Indonesia , OSK No major concern on Thailand sales. We believe that the political instability in Thailand would not have major impact on its sales given that Zhulian s operation is widely spread throughout the country, whereas the political issue is mostly confined to Bangkok. In its 1QFY10 results, sales from Thailand recorded a >50% y-o-y jump. Strong balance sheet to support expansion, high dividend yield. The group has a strong balance sheet and no borrowings, which enables Zhulian to expand its business and ride through economic downturns while still being able to return cash to shareholders. With its strong cash position coupled with the fact that it requires minimal capex of about RM5m/year, we do not discount the potential of a corporate exercise in the future. Based on management s 60% dividend payout guidance and the last closing price of RM2.43, our forecast dividend yield ranges from 7.8% to 9.6% in FY10-FY11, which makes the company the highest dividend yield stock in the industry. Zhulian has declared a first interim single tier dividend of 3 sen in conjunction with the announcement of its 1QFY10 results. Ex and payable date for the dividend have been determined on 10 and 27 May 2010 respectively. Table 11: Fundamentals comparison Net cash/share (sen) Total borrowings (RM m) ROE (%) ROA (%) Dividend payout (%) Dividend yield (%) (f) (as at 29 Apr 2010) Zhulian Amway ~ Hai-O Source: Companies, OSK OSK Research See important disclosures at the end of this report 12

13 Recommendation and valuation Initiate with a BUY. We initiate Zhulian with a BUY recommendation at a TP of RM3.77, pegged at 12x FY10 EPS, which is also Hai-O s target PE. We think Zhulian should trade on par with Hai-O given its comparable bottom line growth and ROA, higher dividend payout, stronger balance sheet but lower ROE (see Table 1). With its good dividend yield and strong earnings growth driven by its growth in foreign countries, we believe Zhulian will re-rate and narrow its valuation gap with its peers. Also, given its high dividend yield, the stock is a good pick given the current volatile market conditions. Table 12: Valuation and net profit comparisons Net profit (f) Forward PE FY10 FY11 RM m y-o-y growth % RM m y-o-y growth % Zhulian Amway Hai-O Source: Companies, OSK OSK Research See important disclosures at the end of this report 13

14 EARNINGS FORECAST FYE Nov (RMm) FY07 FY08 FY09 FY10f FY11f Turnover EBITDA PBT Net Profit EPS (sen) DPS (sen) Margin EBITDA (%) PBT (%) Net Profit (%) ROE (%) ROA (%) Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities Net Current Assets LT Liabilities Shareholders Funds Net Gearing (%) Net cash Net cash Net cash Net cash Net cash OSK Research See important disclosures at the end of this report 14

15 APPENDIX FIgure 10: Zhulian s products OSK Research See important disclosures at the end of this report 15

16 Country Statistics SINGAPORE Figure 11: Population (m) Figure 12: Unemployment rate (%) Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Figure 13: Retail sales Index Source: CEIC OSK Research See important disclosures at the end of this report 16

17 INDONESIA Figure 14: Population (m) Figure 15: Unemployment rate (%) Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan Figure 16: Consumer confidence index Figure 17: Retail sales Index Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 OSK Research See important disclosures at the end of this report 17

18 MALAYSIA Figure 18: Population (m) Figure 19: Unemployment rate (%) Figure 20: Consumer confidence index Source:Bloomberg OSK Research See important disclosures at the end of this report 18

19 THAILAND Figure 21: Population ( 000) Figure 22: Unemployment rate (%) 64,000 63,500 63, , ,000 61,500 61,000 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan Figure 23: Consumer confidence index Figure 24: Retail sales Index Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 OSK Research See important disclosures at the end of this report 19

20 OSK Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated (NR): Stock is not within regular research coverage All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned. Distribution in Singapore This research report produced by OSK Research Sdn Bhd is distributed in Singapore only to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an Institutional Investor, Expert Investor or Accredited Investor, this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd ( DMG ). All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Research. Published and printed by :- OSK RESEARCH SDN. BHD. ( V) (A wholly-owned subsidiary of OSK Investment Bank Berhad) Chris Eng Kuala Lumpur Hong Kong Singapore Jakarta Shanghai Malaysia Research Office OSK Research Sdn. Bhd. 6 th Floor, Plaza OSK Jalan Ampang Kuala Lumpur Malaysia Tel : +(60) Fax : +(60) Hong Kong Office OSK Securities Hong Kong Ltd. 12 th Floor, World-Wide House 19 Des Voeux Road Central, Hong Kong Tel : +(852) Fax : +(852) Singapore Office DMG & Partners Securities Pte. Ltd. 20 Raffles Place #22-01 Ocean Towers Singapore Tel : +(65) Fax : +(65) Jakarta Office PT OSK Nusadana Securities Indonesia Plaza Lippo, 14 th Floor, Jln. Jend. Sudirman Kav 25, Jakarta Indonesia Tel : +(6221) Fax : +(6221) Shanghai Office OSK (China) Investment Advisory Co. Ltd. Room 6506, Plaza 66 No.1266, West Nan Jing Road Shanghai China Tel : +(8621) Fax : +(8621) OSK Research See important disclosures at the end of this report 20