Singapore Equity Explorer. Hong Fok Corp

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1 SMC Research Singapore Equity Explorer Bloomberg: HFC SP Reuters: HONG.SI Refer to important disclosures at the end of this report DBS Group Research. Equity 1 Dec 2017 NOT RATED S$0.825 STI : 3, Closing price as of 30 Nov 2017 Return *: 2 Risk: Moderate Potential Target 12-mth* : 12-month S$ 1.31 (59% upside) Analyst Derek TAN derektan@dbs.com Carmen TAY carmentay@dbs.com Price Relative Forecasts and Valuation FY Dec (S$m) 2016A 2017F 2018F 2019F Revenue EBITDA Pre-tax Profit 83.3 (6.5) Net Profit 73.0 (9.9) Net Pft (Pre Ex.) (24.6) (9.9) EPS (S cts) 10.5 (1.4) EPS Pre Ex. (S cts) (3.6) (1.4) EPS Gth (%) (56) nm nm 121 EPS Gth Pre Ex (%) (52) (60) (154) 121 Diluted EPS (S cts) 10.5 (1.4) Net DPS (S cts) BV Per Share (S cts) PE (X) 7.8 nm PE Pre Ex. (X) nm nm P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) 4.8 (0.6) ICB Industry : Financials ICB Sector: Real Estate Investment & Services Principal Business: oration is a Singapore-based investment holding company, whose subsidiaries are primarily engaged in property development and investment. Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P. Prime assets going for a song Integrated property developer and investor with quality portfolio of commercial assets in downtown Singapore Earnings catalyst from YOTEL launch and potential pickup in development sales Record bids at Beach Road commercial site imply significant upside to capital values for The Concourse Trading at c.62% discount to RNAV; fair value of S$1.31 The Business Owner of prime commercial assets in Singapore. Hong Fok Corporation is an integrated property developer and investor with a sizeable investment portfolio valued at c.s$2.6bn (as at end-3q17), serving as a steady source of recurring income of S$50.8m p.a. on average over the past three years. Close to 70% of the portfolio value is derived from three assets YOTEL Singapore and International Building in Orchard Road and The Concourse (office block). Upside to book values if portfolio is put to market. Given the limited scope for acquiring quality assets in Singapore, we believe that Hong Fok s portfolio can fetch above-book bids if put to the market. The Concourse average holding cost of c.s$1,885psf on the books is more than 30% lower than the latest breakeven for The Beach Road commercial site by Guocoland (S$2,600 psf breakeven). In addition, prime properties in Orchard International Building (S$1,855 psf) and YOTEL are valuable assets that in our view, will attract strong demand from international investors if an opportunity to acquire them comes along. Doubling of EBITDA post YOTEL opening and potential pick-up in development sales. Mainly, the October 2017 launch of YOTEL Singapore Orchard Road is set to double rental income to sustainably higher levels of c.s$99m p.a. by FY19F. Unit sales for Hong Fok s Concourse Skyline and Jewel of Balmoral could also improve given the robust residential backdrop. The Stock Trading at c.62% discount to RNAV and under 0.4x P/NAV. Our RNAV is based on the valuation of Hong Fok s existing investment and development properties. After imputing a 40% discount to RNAV (vs 10% discount for large-cap developers) we arrive at a fair value of S$1.31. Low liquidity and lucrative executive compensation at the expense of a higher dividend payout could hamper the stock s ability to re-rate despite positive catalysts. At A Glance Issued Capital (m shrs) 871 Mkt. Cap (S$m/US$m) 718 / 533 Major Shareholders (%) Hong Fok Land 20.4 Sin Eng Cheong 12.4 Kim Pong Cheong 11.5 Free Float (%) m Avg. Daily Val (US$m) 0.32 *This Equity Explorer report represents a preliminary assessment of the subject company, and does not represent initiation into DBSV s coverage universe. As such DBSV does not commit to regular updates on an ongoing basis. The rating system is distinct from stocks in our regular coverage universe and is explained further on the back page of this report. ed: TH / sa: SM, PY, CS

2 REVENUE DRIVERS Integrated property developer and investor in real estate. Established in 1967, oration is principally focused on three business segments (i) Property Investment, (ii) Property Development and Construction of residential and commercial properties, and (iii) Property Management (provision of maintenance and management services). Revenue Breakdown (FY16, S$ m) $9.3 m, 16% $1.5 m, 3% Hong Fok derived a substantial proportion of its FY16 revenue from the leasing of its investment and development properties, which serves as a steady recurring income base for the group generating an average of c.s$50.8m p.a. in rental income over FY14-FY16. Upside to group revenue comes primarily from development sales. However, unit sales have come off the FY13 peak, resulting in lower contribution to top line of c.12-17% (vs 77% in FY13). Singapore remains the group s predominant exposure, contributing c.95% of FY16 revenue, while Hong Kong accounted for the remaining c.5%. Opening of Asia s first YOTEL a key earnings driver. YOTEL Singapore Orchard Road - a 610-room hotel developed and constructed by Hong Fok and managed by cabin hotel group YOTEL was recently launched in October Riding on the full-year contribution from YOTEL in FY18F and assumption of a modest rental reversion of +3% for The Concourse, rental income could more than double to sustainably higher levels of c.s$99m by FY19F. Locking in sales from Concourse Skyline. Development sales have recovered slightly from a trough of S$7.4m in FY15 to S$9.3m (+26% y-o-y) in FY16. As at end-fy16, Hong Fok owned 118 units (GFA of 18,676 sqm) at Concourse Skyline and two units (GFA of 300 sqm) at Jewel of Balmoral. Assuming a 10% discount to the YTD average transacted price of S$1,729 psf for Concourse Skyline, this represents a substantial revenue opportunity of c.s$300m. We believe that the current property market upturn will enable the group to finally realise value from Concourse Skyline in the coming quarters. YOTEL and Concourse Skyline to Drive Revenue Growth (S$ m) Property Summary (as at end-fy16) Property Desc. Site Area (m 2 ) Investment Properties International Building Office/Shops at Orchard Road (SG) /Restaurants YOTEL Singapore at Orchard Road (SG) The Concourse at Beach Road (SG) Concourse Skyline at Beach Road (SG) International Plaza at Anson Road (SG) GFA (m 2 ) % Owned 2,066 14,963 * 100% Hotel 2,990 16, % Office/Retail; 43 Units Retail; 9 Units Residential; 8 Units Residential; 3 Units $47.6 m, 81% Investment Properties Development Properties Propety Management S$58.4m S$72.1m S$135.3m S$148.1m FY16 FY17F FY18F FY19F Investment Properties Development Properties Propety Management 11,715 60,164 ## 100% ## 100% 8, ## 42% ## 42% KEY OPERATING ASSETS Magazine Gap Towers (Hong Kong) Residential 1,765 5,128 42% Investment property portfolio valued at c.s$2.6 bn; owns quality commercial assets in downtown Singapore. Hong Fok s investment property portfolio is valued at c.s$2.6bn (as at end-3q17), comprising Singapore and Hong Kong residential and commercial properties with a combined gross floor area of c.100,000 sqm majority of which (95.3% of GFA) are prime commercial assets located in downtown Singapore. Magazine Heights (Hong Kong) Development Properties Concourse Skyline at Beach Road (SG) Jewel of Balmoral at Balmoral Park (SG) Residential 2,139 5,574 42% Residential; 118 Units Residential; 2 Units 8,662 18,676 ## 1, ## # Excludes 162 m 2 of floor space held by third parties on 999-year lease # # Relates to the strata area for the said units Source: Company, DBS Bank Page 2

3 GROWTH PROSPECTS Upside to capital values at Beach Road (Office The Concourse) post recent robust tenders in land sites. Sentiment in the office sector is turning positive with rentals expected to rise 10-15% over 2018 on the cards. In addition, limited commercial sites have also resulted in robust bids by developers to gain a foothold in a rising market in the medium term. In September 2017, GuocoLand submitted the highest bid for the Beach Road commercial site at S$1,622m (42.5% above the reserve price of S$1,138m), which translates to S$1,706 psf based on gross floor area - the highest on record. Based on GFA and a development with 100% Premium Grade A office tower, we estimate the breakeven cost to range from S$2,242-2,372 psf. Meanwhile, Hong Fok s wholly-owned investment property at The Concourse was valued at c.s$1.22bn on 31 December 2016 or an average holding cost of S$1,885 psf, which implies >30% upside to current book value. Beach Road Commercial Site Attracts Top Bid of S$1,706 psf (i) Bidders Rank Property Group Tendered Sales Tendered Sales Price (S$ m) Price (S$ psf) 1 GuocoLand 1,622 1,706 2 Kingsford 1,572 1,654 3 OUE 1,451 1,526 4 Cheung Kong 1,404 1,477 5 Far East Organisation 1,295 1,362 (ii) Details of Beach Road Land Parcel Site Area Plot 1: 21,026.9m2 Plot 2: 1,175 m2 Allowable Development Commercial with conservation and restoration of the former Beach Road Police Station Max. GFA 88,212 sqm Office: Minimum 61,820 sqm Retail: Maximum 3,000 sqm Lease Period 99 years (iii) Site Map Headroom to acquire properties. With YOTEL just starting operations and poised to deliver strong cashflows from FY18F onwards, we believe that Hong Fok could be on the lookout for other suitable investment opportunities. Further, with low gearing of under 0.4x (on a gross basis as at end- 3Q17) vs peers c.1x, there remains room for the company to gear up and acquire, which could help catalyse earnings for the group. MANAGEMENT & STRATEGY Managed by founding Cheong family. The company is currently helmed by several members of the Cheong family, whom we estimate hold a combined 52.7% stake in the company. Under the leadership of the highly experienced management team (with over 110 years of combined experience in the property development and construction field), Hong Fok has been successful in the execution of its development projects and stands out for its steady operating cash flows and low average holding costs of its investment properties, leading to further revaluation potential. Low annual dividends, alignment of interest with minority shareholders can be further improved. Hong Fok initiated dividend payments from FY12, and has been paying a fixed 1-Sct dividend p.a. since FY14. Despite the Cheong family s controlling stake and regular dividend payout, management s interest does not appear to be adequately aligned with minority investors given elevated compensation levels (especially to the Cheong family) vs earnings and peers, which needs to be further addressed: Remuneration Band (FY16) Salary Fees Bonus Others S$4.24m S$4.50m Mr Cheong Sim Eng 45% - 50% 5% Mr Cheong Pin Chuan 27% - 59% 14% S$2.75m S$2.99m Ms Cheong Hooi Kheng 44% - 52% 4% Key Management Team Joint Managing Directors and Chairmen Chief Operating Officer Mr Cheong Pin Chuan Mr Cheong Sim Eng Ms Cheong Hooi Kheng Source: Company, URA, DBS Bank - Carries over 45 years of property development experience in the Singapore and Hong Kong markets - Principally involved in the group s overall operations and management, with greater emphasis in Hong Kong - Graduated from the Footscray Institute of Technology in Australia - Has over 32 years of experience in the property development business - Principally involved in the group s overall operations and management, with greater emphasis in Singapore - Graduated from the Chaminade University of Honolulu with a Bachelor of Arts Degree - Over 37 years of experience in the property development and construction businesses - Oversees the development, construction, leasing and marketing of the group s real estate properties and major financial affairs in Singapore Source: Company Page 3

4 Segmental Breakdown FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Revenues (S$m) Investment Properties Development Properties Propety Management Others Total Pool of recurring rental incomes to grow to S$86.2m in FY18F on the full-year contribution from YOTEL Income Statement (S$m) FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Revenue Cost of Goods Sold (29.3) (22.6) (21.0) (33.2) (82.6) (88.9) Gross Profit Other Opng (Exp)/Inc (44.7) (35.3) (25.6) (23.0) (23.0) (23.0) Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (18.8) (20.4) (26.2) (25.7) (25.9) (25.3) Exceptional Gain/(Loss) Pre-tax Profit (6.5) Tax (6.0) (1.3) (1.3) 0.65 (1.3) (2.0) Minority Interest (16.0) (32.2) (9.0) (4.0) (6.0) (6.0) Preference Dividend Net Profit (9.9) Net Profit before Except. (17.3) (51.3) (24.6) (9.9) EBITDA Growth Revenue Gth (%) nm (37.8) (3.4) EBITDA Gth (%) nm (85.9) Opg Profit Gth (%) nm (88.7) Net Profit Gth (Pre-ex) (%) nm (195.9) nm Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) (13.1) ROAE (%) (0.6) ROA (%) (0.3) ROCE (%) Div Payout Ratio (%) N/A Net Interest Cover (x) Margins Trend Source: Company, DBS Bank Page 4

5 Quarterly / Interim Income Statement (S$m) FY Dec 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 Revenue Trend Revenue Cost of Goods Sold (1.5) (4.9) Gross Profit Other Oper. (Exp)/Inc (10.0) (10.1) (15.1) (11.5) (11.3) (13.7) Operating Profit (0.2) Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (5.3) (5.0) (10.4) (5.3) (5.8) (6.3) Exceptional Gain/(Loss) Pre-tax Profit (1.3) (1.1) 87.1 (2.7) 6.75 (4.7) Tax (0.7) (1.0) 0.10 (0.7) (0.4) (0.9) Minority Interest (12.9) 1.73 (4.2) 1.78 Net Profit (0.6) (0.8) 74.3 (1.6) 2.19 (3.8) Net profit bef Except. (0.6) (0.8) (23.3) (1.6) (7.0) (3.8) EBITDA Growth Revenue Gth (%) 0.1 (0.1) 17.3 (13.8) EBITDA Gth (%) 0.7 (3.3) (75.4) (48.3) Opg Profit Gth (%) 0.6 (3.5) (103.8) (1,886.0) 25.1 (50.3) Net Profit Gth (%) (1,140.7) 44.7 (9,239.9) (102.1) (237.5) (272.9) Margins Gross Margins (%) Opg Profit Margins (%) (0.9) Net Profit Margins (%) (4.0) (5.8) (11.3) 14.9 (18.7) Source: Company, DBS Bank Balance Sheet (S$m) FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Asset Breakdown (2017) Net Fixed Assets Invts in Associates & JVs Other LT Assets 2,199 2,395 2,570 2,570 2,570 2,570 Cash & ST Invts Inventory Debtors Other Current Assets Total Assets 2,622 2,813 2,900 2,885 2,879 2,888 ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder s Equity 1,322 1,484 1,554 1,534 1,525 1,522 Minority Interests Total Cap. & Liab. 2,622 2,813 2,900 2,885 2,879 2,888 Non-Cash Wkg. Capital Net Cash/(Debt) (646) (580) (657) (672) (624) (559) Debtors Turn (avg days) Creditors Turn (avg days) , , Inventory Turn (avg days) N/A N/A N/A N/A N/A N/A Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Source: Company, DBS Bank Page 5

6 Cash Flow Statement (S$m) FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Pre-Tax Profit (9.9) Dep. & Amort Tax Paid 5.95 (9.4) (9.6) 0.65 (1.3) (2.0) Assoc. & JV Inc/(loss) Chg in Wkg.Cap Other Operating CF (33.9) (167) (51.7) Net Operating CF Capital Exp.(net) (21.6) (31.4) (62.5) (20.0) (2.0) (2.0) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF (62.0) (20.0) (2.0) (2.0) Div Paid (9.5) (12.6) (6.9) (6.9) (6.9) (6.9) Chg in Gross Debt (55.9) (2.0) (15.6) Capital Issues Other Financing CF (27.6) (21.0) (23.3) Net Financing CF (93.0) (35.6) (45.9) (6.9) (6.9) (6.9) Currency Adjustments Chg in Cash (86.4) (14.2) Opg CFPS (S cts) 3.20 (1.3) 1.79 (0.9) Free CFPS (S cts) (6.2) (1.1) Capital Expenditure Assuming the 1-Sct dividend is maintained Source: Company, DBS Bank VALUATIONS Trades at c.62% discount to RNAV and under 0.4x P/NAV. Riding on positive investor sentiment in the office sector, Hong Fok has done relatively well YTD (+31.8%) - currently trading c.+1 std dev of the last four years forward P/NAV, but remains at a substantial 62% discount to RNAV. Hong Fok s Historical Forward P/BV Source: Bloomberg Finance L.P., DBS Bank Potential 56% upside to fair value of S$1.31. Our RNAV is based on the valuation of its existing investment and fair value for its development properties. After imputing a 40% discount to RNAV (vs 10% discount for large-cap developers), we arrive at a fair value of S$1.31 for the company, which implies a P/NAV of close to 0.6x, which is close to the peak that the group trades in a market upturn back in This represents potential upside of c.59%. Hong Fok typically pays a fixed 1-Sct dividend p.a. and if maintained, represents a prospective c.1.2% yield. Breakdown of RNAV RNAV Value/ (psf/key) (S$) OMV (S$'m) Cap rates sqft 1, % International Building (Orchard) YOTEL Key 876, % The Concourse sqft 1, , % Concourse Skyline sqft 2, % (Office) Concourse Skyline % (retail) Internal Plaza (Anson road) Magazine Gap Towers Magazine Heights Development Concourse Skyline sqft 1, Jewel at Balmoral sqft 2, Total Value of 2,626.8 company Less: Net Debt -726 RNAV 1,900.8 Total Shares RNAV per share 2.18 Discount 40% Fair Value (S$) 1.31 Implied Price / NAV (x) 0.59 (x) Implied Price / RNAV 0.60 (x) Source: DBS Bank Page 6

7 Developers Historical P/NAV and Discount to RNAV // Peer Comparisons Company FYE Mkt Cap Developers Price 30/11/ mth Target Price Upside RNAV *Assumed P/ RNAV (S$ bn) (S$) Rcmd (S$) % (S$) Discount (%) City Dev Dec BUY % % Frasers Centrepoint Ltd Sep BUY % % UOL Dec BUY % % Average 14% Non-Covered Guocoland Dec na 0.65 UIC Dec na 0.77 Ho Bee Dec na 0.56 Wheelock Dec na 0.76 Wing Tai Jun na 0.53 Bukit Sembawang Dec na 1.21 United Engineers Dec na 0.86 Hiap Hoe Dec na 0.58 Hotel Properties Dec na 1.10 Average na 0.78 Average sector 0.82 Source: Bloomberg Finance L.P., DBS Bank (x) P/ NAV (x) KEY RISKS Low free float and high management compensation are key challenges. Shares in Hong Fok are tightly held, with the Cheong family holding the majority share and free float of <13%. Inability to keep high executive compensation in check and at the expense of dividends, is disadvantageous to minority shareholders and could further weigh on liquidity. Category Risk Rating Wgt Wgtd Score 1 (Low) - 3 (High) Earnings 2 40% 0.8 Financials 1 20% 0.2 Shareholdings 1 40% 0.4 Overall 1.4 However, we acknowledge that salaries and benefits have already come off by c.30% since FY13, which is encouraging. Ahead, with rental income and operating cash flows set to strengthen post the recent launch of YOTEL Singapore, we do not rule out the potential for higher dividends, which could help raise the profile of the stock. Execution risk. Ability to unlock gains from selective undervalued investment properties and realise value from its completed development projects are subject to market conditions and buyer sentiment. Page 7

8 DBS Bank Equity Explorer return ratings reflect return expectations based on an assumed earnings profile and valuation parameters: 1 (>20% potential returns over the next 12 months) 2 (0-20% potential returns over the next 12 months) 3 (negative potential return over the next 12 months) The risk assessment is qualitative in nature and is rated as either high, low or moderate risk. (see section on risk assessment) Note that these assessments are based on a preliminary review of factors deemed salient at the time of publication. DBSV does not commit to ongoing coverage and updated assessments of stocks covered under the Equity Explorer product suite. Such updates will only be made upon official initiation of regular coverage of the stock. Completed Date: 1 Dec :57:31 (SGT) Dissemination Date: 1 Dec :52:46 (SGT) Sources for all charts and tables are DBS Bank unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. 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9 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. 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 have proprietary positions in City Development, Frasers Centrepoint Ltd, UOL Group recommended in this report as of 31 Oct 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 9

10 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 This report is being distributed in Australia by DBS Bank Ltd. ( DBS ) or DBS Vickers Securities (Singapore) Pte Ltd ( DBSVS ). DBS holds Australian Financial Services Licence no DBSVS is 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. DBSVS is 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. Hong Kong 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). 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 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. Page 10

11 United Kingdom 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 International Financial Centre United Arab Emirates 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 is provided by DBS Bank Ltd (Company Regn. No E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. 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. Page 11

12 DBS Regional Research Offices HONG KONG DBS Vickers (Hong Kong) Ltd Contact: Paul Yong 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: Fax: Participant of the Stock Exchange of Hong Kong MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek ( U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah Kuala Lumpur, Malaysia. Tel.: Fax: general@alliancedbs.com SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore Tel: Fax: equityresearch@dbs.com Company Regn. No E INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: Fax: research@id.dbsvickers.com THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand Tel Fax: research@th.dbs.com Company Regn. No Securities and Exchange Commission, Thailand Page 12