Bank Mandiri. Indonesia Company Guide

Transcription

1 Indonesia Company Guide Version 10 Bloomberg: BMRI IJ Reuters: BMRI.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 16 Jun 2017 BUY Last Traded Price ( 15 Jun 2017): Rp12,500 (JCI : 5,792.90) Price Target 12-mth: Rp14,800 (18% upside) (Prev Rp12,800) Analyst Sue Lin LIM suelinlim@dbs.com Benedictus Agung SWANDONO agung.swandono@id.dbsvickers.com What s New Monthly performance tracking well; solidly on a recovery path Accelerating growth in corporate & consumer loans; lower NIM to be offset by lower credit cost Regulatory disclosure for deposits accounts of >Rp1bn should have minimal impact Maintain BUY with higher TP of 14,800 as we roll forward our valuation base to 2018 and assume a lower risk-free rate Price Relative Forecasts and Valuation FY Dec (Rpbn) 2016A 2017F 2018F 2019F Pre-prov. Profit 43,258 44,697 51,951 59,489 Net Profit 13,807 20,762 27,745 34,067 Net Pft (Pre Ex.) 13,807 20,762 27,745 34,067 Net Pft Gth (Pre-ex) (%) (32.1) EPS (Rp) ,189 1,460 EPS Pre Ex. (Rp) ,189 1,460 EPS Gth Pre Ex (%) (32) Diluted EPS (Rp) ,189 1,460 PE Pre Ex. (X) Net DPS (Rp) Div Yield (%) ROAE Pre Ex. (%) ROAE (%) ROA (%) BV Per Share (Rp) 6,448 6,839 7,628 8,612 P/Book Value (x) Earnings Rev (%): Consensus EPS (Rp): 853 1,039 1,239 Other Broker Recs: B: 14 S: 7 H: 15 Source of all data on this page: Company, DBS Bank, DBSVI, Bloomberg Finance L.P. On a recovery path Solidly on a recovery path, BUY. We believe the cyclical recovery of the Indonesian banking industry and improving macro environment should translate into better loan demand and lower credit cost for (BMRI). The stock is currently a laggard among its peers, rising merely 6% vs. the sector s 14%. The current stock price is trading at 1.6x FY18 BV, lower than its 5-year historical average P/BV. Our BUY rating on BMRI is maintained with a higher TP of Rp14,800 as we roll over our valuation base to 2018 and lower our risk free-rate assumption to 7.5% (from 8%) in the wake of the positive sovereign rating upgrade and the banking system s improving prospects. Where we differ. We believe the market view was framed by the BMRI s asset quality weakness in the commercial segment. Taking a broader perspective, we note that its asset quality excluding commercial is consistently improving during the past year but was left underappreciated by the market. Our earnings forecasts are more bullish due to our optimistic credit cost assumption. Management is currently tightening and centralising credit disbursement in the commercial segment. A gradual improvement in this thorny segment and an improving economic environment should lower credit cost and would translate into an ROE upward trajectory of 17% by Its higher dividend payout should also aid in raising its ROE profile. Potential catalyst. Visible asset-quality improvement, strongerthan-expected loan growth should be BMRI s key catalysts. Management is guiding for NPL ratio and loan growth at 3.5%- 4% and 11%-13%, respectively. Furthermore, BMRI s rather conservative restructuring policy should translate into better asset-quality metrics relative to its peers if the regulators decide to not extend the loan restructuring relaxation policy which expires in Aug Special dividends would act as a bonus. Valuation: Maintain BUY; TP at Rp14,800. Our TP (based on Gordon Growth Model 16% ROE, 11% growth rate, and 14% cost of equity) implies 1.9x FY17F BV. Asset-quality issues should already be priced in. Lower-than-expected NIM remains a risk. Key Risks to Our View: Lower-than-expected NIM. NIM has been guided at lower levels of 5.7%-5.8% (vs 5.9% in 1Q17). However, we believe there could be further loan yield pressures ahead. Monetary policy reversal to a higher policy rate could quickly translate into higher cost of funds and pressure NIM further. At A Glance Issued Capital (m shrs) 23,333 Mkt. Cap (Rpbn/US$m) 291,667 / 21,958 Major Shareholders (%) Govt. of Indonesia 60.0 Free Float (%) m Avg. Daily Val (US$m) 17.6 ICB Industry : Financials / Banks ed: CK / sa: MA, PY

2 WHAT S NEW On a recovery path Highlights Asset-quality improvements visible from 2Q17. BMRI s asset quality issue is single-handedly caused by the commercial segment, which was largely exposed to commodity supply chains. We note that BMRI s asset quality is clearly improving if we strip out the commercial segment. NPL ex-commercial segment was 1.63% (vs total NPL of 3.96%) in 1Q17, lower than 2.25% in 1Q16 (vs total NPL of 2.9%) in 1Q16. We also understand that NPL formation is gradually tapering off, a sign that we have been anticipating. Currently, management is centralising the underwriting process in this segment and also tightening such disbursements. We believe that these necessary efforts should put BMRI s asset quality within its guidance. (Refer to Charts 1-4 on next page to track trends). Keeping an eye on aggressive infra loans. Management has previously indicated its increased appetite to expand its infra loans by targeting 20% growth this year. However, these infra loans can be a double-edged sword, in our view. It can boost loan growth and fee income. On the flipside, it can ratchet down NIM and expose the bank to potential asset-quality risks. We do believe asset-quality risks are apparent because the loan tenure is typically more than 10 years and the governmentrelated infrastructure projects are exposed to political risks which can be significantly affected by regime changes. Indonesia goes into a general election in (Refer to Charts 5-6 on next page to track trends) Silver lining for potential changes in loan restructuring regulation. BMRI has been aggressively restructuring loans since Otoritas Jasa Keuangan (OJK)/Financial Services Authority relaxed the regulation on loan restructuring back in 3Q15. The policy was set to be effective only for two years (expiring in 3Q17) to help the banks weather the downturn of the credit cycle. Whether or not OJK will extend the relaxation policy remains a wildcard. However, we believe there could be a silver lining for BMRI. The bank is said to have a more conservative restructuring policy and reporting. Unlike its SOE peers, it never takes out restructured loans out of the restructured category even if the restructuring term has been finished. Furthermore, management also claimed that it continues to take into account the three pillars (repayment ability, business prospects, financial situation) when restructuring loans even when OJK relaxed it to just one (repayment ability only). Financial disclosure requirement from tax office creates minimal impact. The ministry of finance requires the bank to disclose the information on customers with over Rp1bn deposits account for tax purposes. This could potentially affect BMRI s individual customers which have not properly reported their taxes. Management stated that there are c.500k accounts with balance of over Rp1bn. However, we believe that the impact should be limited as some of its customers should have participated in the tax amnesty programme earlier this year. Another special dividend this year. Management is guiding for another special dividend around 10%-15% from 2017 s profit, which should help ROE. A high CAR level of 21% should provide ample room for higher dividend payouts but this also depends on the pace of loan growth. On track 4M17 earnings in line as lower NIM is compensated by strong fee income. BMRI (bank level) recorded 4M17 earnings of Rp6.5tr (+10.9% y-o-y), comprising 31% of our/consensus' estimates. Its strong loan growth momentum continued with loans growing 14.4% y-o-y. Deposits were mainly driven by CASA while time deposits remained flat. 4M17 credit cost slipped to 2.9% from 3.6% in 1Q17. 4M17 credit cost is moving closer to the full-year management guidance at 2.5%-2.7%. Non-interest income grew strongly 25% y-o-y driven by mainly by fee income. Management previously stated that strong disbursement in the infra loans syndication, although lower yielding loan in nature, may provide fee income revenue. Good performance from treasury activities could enhance its non-interest income further. Lower NIM dragged down net interest income growth to just 3.2% y-o-y but strong fee income and lower credit cost paved the way for net profit to grow 10.9% y-o-y in 4M17. Pending appointments of CFO and President Commissioner. BMRI s previous CFO, Mr Pahala Mansury has left the bank to assume the position of President Director at Garuda Indonesia, while its President Commissioner, Mr Wimboh Santoso was elected the chairman of the OJK, for These two positions will be filled after the Extraordinary General Meeting scheduled in July/August. Valuation and recommendation Maintain BUY, with higher TP of Rp14,800. We maintain a BUY rating with a higher TP of 14,800 as we roll over our valuation base to 2018 and impute a lower risk-free rate assumption 7.5% (vs 8% previously). Our TP (based on Gordon Growth Model 16% ROE, 11% growth rate, and 14% cost of equity) implies 1.9x FY17F BV. We make no changes to our earnings forecasts. Page 2

3 Chart 1: BMRI s non-performing loan trends Chart 2: BMRI s loans-at-risk (LAR) 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 2.90% 2.25% 3.85% 3.69% 2.64% 2.60% 4.11% 1.99% 3.96% 1.63% 12.0% 10.0% 8.0% 6.0% 7.3% 9.0% 10.3% 10.1% 10.5% 10.7% 1.50% 4.0% 1.00% 0.50% 2.0% 0.00% 1Q16 2Q16 3Q16 4Q16 1Q17 0.0% 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 NPL - ex commercial NPL Total NPL SML Restructured Current LAR Chart 3: BMRI s loans at risk (% of total loans) 1Q16 2Q16 3Q16 4Q16 1Q17 Corporate 1.25% 1.72% 1.74% 1.01% 0.98% Commercial 4.40% 6.69% 6.34% 9.32% 10.55% Small 4.72% 4.95% 5.29% 4.07% 3.54% Micro 3.97% 4.12% 4.20% 3.50% 2.09% Consumer 1.91% 1.87% 1.94% 1.73% 1.84% Total 2.89% 3.74% 3.69% 3.96% 3.95% Chart 4: BMRI s restructured loans (% of total loans) 9.0% 8.3% 8.1% 8.0% 7.0% 7.0% 6.4% 6.0% 5.5% 5.5% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 Restructured Loans Chart 5: BMRI s loan growth (y-o-y) 16.0% 14.2% 14.0% 11.5% 12.0% 11.2% 10.5% 10.0% 7.9% 8.0% 6.0% 4.0% 2.0% 0.0% 1Q16 2Q16 3Q16 4Q16 1Q17 Chart 6: BMRI s NIM trends (quarterly) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 BMRI Source: Company, DBS Bank, DBSVI Page 3

4 CRITICAL DATA POINTS TO WATCH Critical Factors Loan growth should improve from here. Loan demand has not fully recovered but we expect a gradual improvement from last year. Loan growth is expected pick up slightly in FY17 to 11-13%, driven by corporate and consumer loans. On the corporate side, we expect its above industry loan growth to be driven by competitive pricing and government-related infrastructure loans. On the consumer side, BMRI is showing a huge appetite in salary-based loans, mortgage, and automotive loans. Management seemed to be cautious in expanding the commercial segment which was plagued by asset-quality deterioration last year. Overall, we forecast FY17 loan growth at 12%. Margin Trends Gross Loan & Growth Infrastructure loans should boost corporate loan growth. Management is targeting 20% growth of infrastructure loans this year. The tenure of the loans is usually longer than 10 years with relatively low interest rates. However, we believe the NIM risk from these loans exposure is limited due to floating-rate nature for most of the loans. Credit costs on downward trajectory. We believe the worst of assetquality woes should be over for BMRI. Despite the severe asset-quality problem in the commercial segment, we note that BMRI s NPL excluding the commercial segment is actually improving. Management has decided to tighten credit disbursement in the segment while centralising the underwriting process in the commercial segment. We believe that credit cost and NPL guidance of 2.5%-2.7% and 3.5%- 4%, respectively, should be achievable this year. NIM compression from lower asset yield. NIM will likely to contract further on the back of lower asset yield as management prefers to compete for better quality consumer loans (mortgage, payroll-based loans, and automotive loans). Moreover, strong growth in infrastructure loans should also be a drag on asset yield. Cost of funds is expected to be slightly higher as the policy rate is expected to trend up in 2H17. Customer Deposit & Growth Loan-to-Deposit Ratio Trend Strong fee-based income growth; operating expenses to grow at historical levels. BMRI has always registered one of the highest proportions of fee-based income to total income among the big banks. Fee-based income will be driven by tapping into the value chain of existing customers and cross-selling existing insurance, loan and deposit products. Operating expenses will grow at historical levels as expansion will be stable in the future. Liquidity is less of a problem. BMRI has indicated that it has gathered sufficient liquidity for 2017 through aggressive growth of deposits. The easing liquidity conditions have allowed BMRI to re-price its deposits downwards and cut expensive time deposits to reduce cost of funds. The maturing low-yielding recap bonds will provide additional liquidity for growth. Up to Rp61tr of these bonds will mature in Cost & Income Structure Source: Company, DBS Bank, DBSVI Page 4

5 Appendix 1: A look at Company's listed history what drives its share price? NIM as critical factor (IDR) (%) Stock Price vs NIM Remarks NIM is strongly correlated to BMRI s stock price performance with positive correlation of 78% during the past 10 years BMRI NIM - RHS Source: Bloomberg Finance L.P, DBSVI NPL as critical factor (IDR) Stock Price vs NPL (%) NPL is negatively correlated with BMRI s stock price with correlation of -54% during the past 10 years BMRI NPL Source: Bloomberg Finance L.P, DBSVI Government bond yield as critical factor (IDR) Stock Price vs Indonesia Government Bond Yield (%) BMRI is still considered as a proxy for he Indonesian economy and therefore has strong negative correlation with the 10-year government bond yield BMRI Bond Yield Source: Bloomberg Finance L.P, DBSVI Page 5

6 Balance Sheet: Long-term target to focus on CASA. BMRI is targeting 70% CASA ratio by 2020; this is the most challenging target for the bank. It will focus on improving e-banking initiatives to improve transaction banking services. BMRI will also tap the value chain of existing customers to create a transaction banking ecosystem, to grow the number of operating accounts (current account deposits) in its portfolio. BMRI launched the branchless banking initiative to gain a foothold in massmarket funding, to add savings deposits over time. The worst of asset-quality woes should be over. We believe that the worst of asset-quality issues should be over. Credit cost and NPL should not deviate significantly from management guidance, in our view. NPL levels should have peaked in 1Q17 but loans at risk (NPL + special mentions loans + current portion of restructured loans) might remain elevated until 2Q17. NPL should be maintained at 3.5%-4.0% for FY17 but credit cost should be much lower at 2.5%-2.7% albeit still significantly higher than its historical 5-year ( ) average of 1.2%. Higher dividend payout for BMRI s high capital ratios led to a higher dividend payout of 45% (30% prev.). We understand this percentage is here to stay for two years. If such dividend payout is sustained, ROEs could creep higher. Asset Quality Capitalisation (%) ROE (%) Share Price Drivers: Improving momentum, resolution of NPLs. Although the market does not appear to be pricing in the further deterioration of asset quality, we are of the view that it is too early to turn bullish on BMRI. That said, given that BMRI is a key proxy to the JCI and LQ45 index and is deemed a key benchmark stock for the Indonesian banks, BMRI s share price performance is prone to positive macroeconomic news (including that of the sovereign rating upgrades by rating agencies). Key Risks: Extended slow growth. If infrastructure projects do not live up to expectations and mortgage demand does not pick up, BMRI may struggle to achieve its loan growth target. Forward PE Band (x) NIM shrinkage. Inability to manage NIM could cause topline growth to deteriorate. Intensified competition in the consumer segment, especially with Bank Central Asia, might pressure asset yield. Company Background BMRI is Indonesia's largest bank by assets. Currently 60% owned by the Government of Indonesia, BMRI went through a transformation process that started in 2003, and has successfully positioned itself into what it is today. PB Band (x) Source: Company, DBS Bank, DBSVI Page 6

7 Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F Gross Loans Growth Customer Deposits Growth Yld. On Earnings Assets Avg Cost Of Funds Income Statement (Rpbn) FY Dec 2015A 2016A 2017F 2018F 2019F Net Interest Income 48,500 54,478 56,321 63,180 70,974 Non-Interest Income 18,360 19,302 22,381 26,499 30,773 Operating Income 66,861 73,780 78,702 89, ,746 Operating Expenses (28,479) (30,522) (34,005) (37,728) (42,257) Pre-provision Profit 38,382 43,258 44,697 51,951 59,489 Provisions (12,043) (24,645) (17,963) (16,504) (16,130) Associates Exceptionals Pre-tax Profit 26,369 18,573 26,694 35,401 43,308 Taxation (5,217) (3,923) (5,004) (6,636) (8,118) Minority Interests (817) (844) (928) (1,021) (1,123) Preference Dividend Net Profit 20,335 13,807 20,762 27,745 34,067 Net Profit bef Except 20,335 13,807 20,762 27,745 34,067 Growth (%) Net Interest Income Gth Net Profit Gth 2.3 (32.1) Margins, Costs & Efficiency (%) Spread Net Interest Margin Cost-to-Income Ratio Business Mix (%) Net Int. Inc / Opg Inc Non-Int. Inc / Opg inc Fee Inc / Opg Income Oth Non-Int Inc/Opg Inc Profitability (%) ROAE Pre Ex ROAE ROA Pre Ex ROA Credit cost to decline gradually Source: Company, DBS Bank, DBSVI Page 7

8 Quarterly / Interim Income Statement (Rpbn) FY Dec 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 Net Interest Income 12,331 11,913 14,413 13,168 12,816 Non-Interest Income 4,982 5,752 5,789 6,177 5,870 Operating Income 17,314 17,664 20,202 19,345 18,686 Operating Expenses (7,930) (7,700) (7,676) (7,962) (7,864) Pre-Provision Profit 9,383 9,965 12,526 11,383 10,822 Provisions (4,312) (5,576) (6,023) (8,734) (5,401) Associates Exceptionals Pretax Profit 5,066 4,386 6,488 2,632 5,397 Taxation (1,039) (911) (1,977) (838) (1,318) Minority Interests (210) (212) Net Profit 3,817 3,263 4,933 1,794 4,079 Growth (%) Net Interest Income Gth (4.5) (3.4) 21.0 (8.6) (2.7) Net Profit Gth (33.6) (14.5) 51.2 (63.6) Balance Sheet (Rpbn) FY Dec 2015A 2016A 2017F 2018F 2019F Cash/Bank Balance 118, , , , ,007 Government Securities 104, , , ,288 99,938 Inter Bank Assets 10,872 14,390 17,310 20,772 24,927 Total Net Loans & Advs. 564, , , , ,983 Investment 43,690 56,797 63,883 72,374 82,563 Associates Fixed Assets 9,762 35,663 35,663 35,663 35,663 Goodwill Other Assets 58,775 66,183 65,064 66,356 66,476 Total Assets 910,063 1,038,706 1,140,633 1,275,413 1,431,557 Loan growth is targeted at 11%-13% in FY17 Customer Deposits 676, , , ,127 1,121,649 Inter Bank Deposits 12,636 9,339 10,988 10,164 10,576 Debts/Borrowings 39,901 45,124 37,937 31,917 26,873 Others 61,330 68,036 64,683 66,360 65,521 Minorities 2,422 2,916 3,844 4,865 5,987 Shareholders' Funds 117, , , , ,951 Total Liab& S/H s Funds 910,063 1,038,706 1,140,633 1,275,413 1,431,557 Source: Company, DBS Bank, DBSVI Page 8

9 Financial Stability Measures (%) FY Dec 2015A 2016A 2017F 2018F 2019F Balance Sheet Structure Loan-to-Deposit Ratio Net Loans / Total Assets Investment / Total Assets Cust. Dep./Int. Bear. Liab Interbank Dep / Int. Bear Asset Quality NPL / Total Gross Loans NPL / Total Assets Loan Loss Reserve Coverage Provision Charge-Off Rate Capital Strength Total CAR Tier-1 CAR NPL should improve over time Source: Company, DBS Bank, DBSVI Target Price & Ratings History Source: DBS Bank, DBSVI Analyst: Sue Lin LIM Benedictus Agung SWANDONO Page 9

10 DBS Bank, DBSVI recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends Completed Date: 15 Jun :11:38 (WIB) Dissemination Date: 16 Jun :59:12 (WIB) Sources for all charts and tables are DBS Bank, DBSVI unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the DBS Group ) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. Page 10

11 DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests 2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 May Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. Compensation for investment banking services: 3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. Disclosure of previous investment recommendation produced: 4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months. 1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant. Page 11

12 RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia Hong Kong This report is being distributed in Australia by DBS Bank Ltd. ( DBS ) or DBS Vickers Securities (Singapore) Pte Ltd ( DBSVS ), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 ( CA ) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for wholesale investors within the meaning of the CA. This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report has been prepared by an entity(ies) which is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at equityresearch@dbs.com. Indonesia Malaysia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. Wong Ming Tek, Executive Director, ADBSR Singapore Thailand United Kingdom This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No E) or DBSVS (Company Regn No G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at for matters arising from, or in connection with the report. This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it. This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Page 12

13 Dubai United States Other jurisdictions This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box , 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it. This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore Tel equityresearch@dbs.com Company Regn. No E Page 13