Bank Mandiri. Indonesia Company Guide

Transcription

1 Indonesia Company Guide Version 8 Bloomberg: BMRI IJ Reuters: BMRI.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 24 Mar 2017 HOLD Last Traded Price ( 23 Mar 2017): Rp11,900 (JCI : 5,563.80) Price Target 12-mth: Rp12,800 (8% upside) (Prev Rp10,500) Potential Catalyst: Asset quality recovery Where we differ: Our FY17F earnings are below consensus on higher credit costs; FY18F earnings are higher on expectation of a stronger recovery in asset quality and better fee income potential Analyst Sue Lin LIM suelinlim@dbs.com Benedictus Agung SWANDONO agung.swandono@id.dbsvickers.com What s New FY16 proved to be a kitchen sinking year with credit costs soaring up to almost 4% FY17 earnings uplift mainly from lower credit cost, improved loan growth although lower NIM Asset quality yet to peak; drag extended further to 2Q17 Maintain HOLD, TP rises to Rp12,800 after FY17-18 earnings lift and lower risk-free rate Price Relative 12, , , , , , ,985.0 Rp 5, Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 (LHS) Relative JCI (RHS) Relative Index 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 (%): 2 7 N/A Consensus EPS (Rp): 905 1,073 1,100 Other Broker Recs: B: 10 S: 6 H: 19 Source of all data on this page: Company, DBS Bank, DBSVI, Bloomberg Finance L.P Longer-than-expected recovery track Further delay to recovery; maintain HOLD. s (BMRI) asset-quality issues have yet to reach a peak. The drag is further extended to 2Q17 as these issues have yet to reach a crescendo. Further non-performing loans (NPL) are still likely albeit in a smaller quantum. Credit cost for 2017 is still expected to remain high at % but much lower vs 2016 credit cost of almost 4%. While loan growth should pick up, net interest margin (NIM) may start to slip from here. Its 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. 4Q/FY16 earnings were a bomb; provisions were way higher than expected. BMRI saw its 4Q16 earnings plunge, booking up to Rp89.7trn of provisions during the quarter. Collectively, FY16 provisions hit a high of Rp24tr, equivalent to a credit cost of 4%, and NPL ratio at a high of 4%. Restructured loans almost doubled from a year ago while the proportion of restructured loans downgraded to non-performing rose to a high of 14% of restructured loans. FY16 NIM was higher thanks to a one-off interest payment from a corporate account; loan growth came in at 11%. Fee income was modest while cost-to-income ratio stood at 42%. Total CAR was at a high of 22%. Earnings uplift in FY17 almost purely on lower provisions. FY17F earnings growth of 50% is largely due to lower credit costs guided at % (DBS FY17F: 2.5%), albeit still significantly higher compared to its 5-year (FY11-16) historical average of 1.2%. NPL formation is expected to ease in FY17; NPL ratio to stay at the % range. NIM will likely slip as the positives from lower policy rate should start to fade. Our FY17-18F earnings are nudged up from lower credit costs as guided, coupled with expectations of a strong fee income momentum. Valuation: Maintain HOLD; TP raised to Rp12,800. Our TP (based on Gordon Growth Model 16% ROE, 11% growth rate, and 14% cost of equity) implies 1.8x FY17F BV, following earnings uplift for FY17-18F as well as a lower risk-free rate to 8% (from 8.5%). Assetquality recovery remains a risk which could limit share price upside, in our view. Key Risks to Our View: Quicker-than-expected asset-quality recovery. The market appears to be disregarding the prolonged asset-quality issue at BMRI. A quicker-than-expected recovery in its asset quality should confirm BMRI s visible fundamental catalyst. At A Glance Issued Capital (m shrs) 23,333 Mkt. Cap (Rpbn/US$m) 277,667 / 20,827 Major Shareholders (%) Govt. of Indonesia 60.0 Free Float (%) m Avg. Daily Val (US$m) 15.0 ICB Industry : Financials / Banks ed: CK / sa: MA, PY

2 WHAT S NEW FY17 earnings uplift mainly on lower credit costs Highlights It will get worse before it gets better. After hefty provisions in and NPL ratio hitting a high in FY16, we would have thought the worse is behind us. However, it appears that asset quality will still be a drag until 2Q17 but credit costs should ease from here. Management guided that NPL levels should peak in 1Q17 but loans at risk (NPL + special mentions loans + current portion of restructured loans) might remain elevated until 2Q17. BMRI s loan at risk is has been increasing since 4Q15 contrary to its peers which have largely showed a declining trend. Management also indicated that Rp2-4tr may be downgraded to NPL in 1Q17 and Rp10tr could be added into restructured loans. NPL should be maintained at 3.5%- 4.0% for FY17 but credit cost should be much lower at 2.5%-2.7% (from 4% in 4Q/FY16), albeit still significantly higher than its historical 5-year ( ) average of 1.2%. The only silver lining we are seeing is that new NPL formation should be easing. Loan at risk levels among SOE banks (2016) 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% BMRI BBCA BBRI BBNI BDMN BBTN BTPN PNBN 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Source: Companies, DBS Bank, DBSVI Higher loan growth but lower NIM. Loan growth this year is guided higher at 11%-13% (from 11% last year) mainly driven by consumer loans. However, NIM was guided to be slightly lower at 5.7%-5.8% as the positives from declining policy rate should start to fade. The high proportion of loans at risk could also take toll on interest income. Higher dividend payout for two years. During BMRI s recent Annual General Meeting, its board approved a higher dividend payout of 45% (from 30%) for FY17-18 on the back of high capital ratios. FY16 earnings review Asset-quality issues in the spotlight; provisions doubled y-o-y. BMRI reported weak 4Q16 earnings of Rp1.79tr on the back of higher provisions. This brought FY16 earnings to Rp13.8tr, representing 91%/88% of our/consensus earnings forecast. Asset quality was on a weakening trend. Non-performing loans (NPLs) reached 4% (vs 2.6% in FY15 and 3.8% in 3Q16), while restructured loans to total loans were higher at 7.6% (vs 5.5% in FY15 and 7% in 3Q16). Our concern lies with the quality of loan restructuring as 14% of loans that were already restructured with the help of external consultants in 2Q16 still fell into the NPL category. Most of these loans came from the commercial segment which was the main focus in 2Q16 s portfolio review. These downgrades required BMRI to book Rp24tr provisions which was the main drag on FY16 earnings. Higher NIM due to lower cost of funds and one-time interest income. Net interest margin (NIM) was higher at 6.44%, higher than 6.1% a year ago mainly due to lower cost of funds. A one-time interest payment in 3Q16 from the Raja Garuda Mas group also contributed to higher interest income and therefore NIM. Without it, NIM would be only slightly higher at 6.18%. Asset yields were also lower but it was insufficient to offset the positive impact from the lower cost of funds. Demand deposits were strong at 23% due to some temporary placements of government funds. CASA to total deposits was flattish y-o-y at 70% while loan-to-deposit ratio was slightly lower at 86.4% (vs 87.7% FY15). Time deposits jumped in 4Q16, mainly driven by repatriation funds from the tax amnesty programme. Separately, fee income grew by 14.2% y-o-y mainly driven by retail transactions. Opex was well maintained (8.7% y-o-y) with cost-to-income ratio falling to 41.3% (vs. 42.7% in 4Q15). Valuation and recommendation. Maintain HOLD, Rp12,800 TP. We have a HOLD rating on BMRI although our TP is raised to Rp12,800. Our TP is based on the Gordon Growth Model (16% ROE, 11% growth and 14% cost of equity), implying 1.8x FY17 BV. 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, BMRI, being a key proxy to the JCI and LQ45 index and deemed a key benchmark stock for the Indonesian banks, BMRI s share price performance is prone to positive macro news (including that of the possible sovereign rating upgrade by S&P Ratings). Key risks. Fundamentally, upside risk to our call would be a better-than-expected asset-quality improvement. Downside risks include its inability to disburse infrastructure loans in a big way and a sustained strain in NPLs. Page 2

3 Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2015 3Q2016 4Q2016 % chg yoy % chg qoq FY2015 FY2016 % chg yoy Net Interest Income 12,911 14,413 13, (8.6) 48,500 54, Non-Interest Income 6,175 5,789 6, ,360 19, Operating Income 19,086 20,202 19, (4.2) 66,861 73, Operating Expenses (8,080) (7,676) (7,962) (1.5) 3.7 (28,479) (30,522) 7.1 Pre-Provision Profit 11,006 12,526 11, (9.1) 38,382 43, Provisions (3,552) (6,023) (8,734) (12,043) (24,645) >100.0 Associates nm nm nm Exceptionals nm nm nm Pretax Profit 7,477 6,488 2,632 (64.8) (59.4) 26,369 18,573 (29.6) Taxation (1,725) (1,977) (838) (51.4) (57.6) (5,217) (3,923) (24.8) Minority Interests nm (100.0) (817) (844) 3.3 Net Profit 5,752 4,933 1,794 (68.8) (63.6) 20,335 13,807 (33.6) Growth (%) Net Interest Income Gth (8.6) 14.7 (4.5) Net Profit Gth (63.6) 23.5 (33.6) Key ratio (%) NIM NPL ratio Loan-to deposit Cost-to-income Total CAR Source of all data: Company, DBS Bank, DBSVI Page 3

4 Margin Trends CRITICAL DATA POINTS TO WATCH Earnings Drivers: Subdued loan growth in a tough environment. Loan growth is expected pick up slightly in FY17 to 11-13%. We forecast FY16 loan growth at 12%. Loan growth will continue to be driven by the corporate, commercial and micro segments. Realisation of the government infrastructure projects should add to corporate loan growth. Rp bn 70, % 60, % 50, % 40, % 30, % 20, % 10, % 0 6.0% Net Interest Income Net Interest Income Margin Leveraging on higher-yielding retail loans. BMRI has been mostly a corporate bank. It continues to focus on retail loans which are yielding bps more than its corporate book. And given that corporate loan growth is expected to be stronger in the coming years, the need to grow retail-based loans will be crucial to keep asset yields and NIM in check. Retail loans are defined as micro, SME and consumer loans. BMRI s long-term goal is to increase its retail loan mix to 45% of total loans by This shift in asset mix should lift NIM over time. 900, , , , , , , , ,000 0 Rp bn Gross Loan & Growth 20% 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% Strong fee-based income growth; operating expenses to grow at historical levels. BMRI has always registered the highest proportion 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. Credit costs to decline from 2016 but still high vs historical trends. The weak economy and slower loan growth will pressure BMRI s asset quality this year. Management has indicated that cost of credit could increase beyond 2% this year, as the bank cautiously takes into account any potential deterioration in asset quality. The bank will maintain its cautious stance and continue to book high levels of provisions this year. In a worst case basis, credit cost could be as high as %. 1,000, , , , ,000 0 Rp bn Rp bn 1,207,954 1,107,954 1,007,954 Gross Loan (LHS) Gross Loan Growth (%) (YoY) (RHS) Customer Deposit & Growth Customer Deposits (LHS) Customer Deposits Growth (%) (YoY) (RHS) Loan-to-Deposit Ratio Trend 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 90% 85% Liquidity is less of a problem. BMRI has indicated that it has gathered sufficient liquidity for 2015 through aggressive growth of time deposits in 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 Syariah unit still facing asset-quality stress. Bank Syariah Mandiri (BSM) has been struggling with asset-quality issues and has not kept the same standard of risk management as BMRI. Since then, BMRI has changed the senior management of the unit and tightened risk management standards in BSM. The improvement in BSM s asset quality will reduce provisioning expenses at BMRI and boost earnings. 907, , , , ,954 Loans Deposit Loan-to-Deposit Ratio (RHS) Cost & Income Structure Rp bn 100,000 80,000 60,000 40,000 20, % 75% 70% 44% 43% 43% 42% 42% 41% 41% 40% Net Interest Income Non-interest Income Cost-to-income Ratio Source: Company, DBS Bank, DBSVI Page 4

5 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 mass-market funding, to add savings deposits over time. The worst of asset quality isn t over yet. Asset quality will still be a drag until 2Q17 but credit costs should ease from here. Management guided that NPL levels should peak 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% (from 4% in 4Q/FY16), 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. 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, BMRI, being a key proxy to the JCI and LQ45 index and deemed a key benchmark stock for the Indonesian banks, BMRI s share price performance is prone to positive macro news (including that of the possible sovereign rating upgrade by S&P Ratings). 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. 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 23.0% 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% (x) Asset Quality Capitalisation (%) ROE (%) Forward PE Band (x) NPL Ratio Provision Charge-Off Rate Tier-1 CAR Total CAR +2sd: 16x +1sd: 14.3x Avg: 12.6x 1sd: 10.8x Asset-quality risk. We have imputed higher credit costs in our projections, but the sustained macro weakness could lead to rising NPLs that could, in turn, necessitate higher provisions. Any further deterioration at its Syariah unit could also undermine BMRI s overall asset quality sd: 9.1x 7.2 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 PB Band (x) (x) 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 sd: 2.94x +1sd: 2.56x Avg: 2.17x 1sd: 1.79x 1.2 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 2sd: 1.41x Source: Company, DBS Bank, DBSVI Page 5

6 Key Assumptions FY Dec Gross Loans Growth Customer Deposits Growth Yld. On Earnings Assets Avg Cost Of Funds Income Statement (Rpbn) FY Dec 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 costs to decline in FY17 albeit still high compared to previous five years Excluding a one-off interest payment in FY16, NIM would be c.30bps lower. Expect FY17 NIM to slip as positives from funding costs fade and as competitive pressures set in Source: Company, DBS Bank, DBSVI Page 6

7 Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Net Interest Income 12,911 12,331 11,913 14,413 13,168 Non-Interest Income 6,175 4,982 5,752 5,789 6,177 Operating Income 19,086 17,314 17,664 20,202 19,345 Operating Expenses (8,080) (7,930) (7,700) (7,676) (7,962) Pre-Provision Profit 11,006 9,383 9,965 12,526 11,383 Provisions (3,552) (4,312) (5,576) (6,023) (8,734) Associates Exceptionals Pretax Profit 7,477 5,066 4,386 6,488 2,632 Taxation (1,725) (1,039) (911) (1,977) (838) Minority Interests 0.0 (210) (212) Net Profit 5,752 3,817 3,263 4,933 1,794 Growth (%) Net Interest Income Gth 14.7 (4.5) (3.4) 21.0 (8.6) Net Profit Gth 23.5 (33.6) (14.5) 51.2 (63.6) Dented by higher-thanexpected provisions Balance Sheet (Rpbn) FY Dec 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 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 7

8 Financial Stability Measures (%) FY Dec 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 High capital ratios; dividend payout raised to 45% in FY17-18 Source: Company, DBS Bank, DBSVI Target Price & Ratings History Rp Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 S.No. Date of Report Closing Price 12-mth Target Price Rating 1: 11 Apr HOLD 2: 17 May HOLD 3: 19 May HOLD 4: 04 Jul HOLD 5: 14 Jul HOLD 6: 27 Jul HOLD 7: 26 Oct HOLD 8: 15 Nov HOLD 9: 13 Dec HOLD 10: 16 Feb HOLD Note : Share price and Target price are adjusted for corporate actions. Source: DBS Bank, DBSVI Analyst: Sue Lin LIM Benedictus Agung SWANDONO Page 8

9 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: 23 Mar :10:33 (WIB) Dissemination Date: 24 Mar :34:07 (WIB) GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). 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10 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 Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 28 Feb PT DBS Vickers Sekuritas Indonesia (''DBSVI'') have a proprietary position in recommended in this report as of 23 Mar 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: 4. 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: 5. 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 10

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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. 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. 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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. Dubai This research report is being distributed in The Dubai International Financial Centre ( DIFC ) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box , 3 rd 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. Page 11

12 United States Other jurisdictions 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 12