Ho Choon Seng CFA +(65)

Transcription

1 INITIATING COVERAGE 1 February 2011 OUTPERFORM Mewah International Twin engines Target: S$1.41 SINGAPORE Palm Oil MII SP / MEWI.SI Ho Choon Seng CFA +(65) choonseng.ho@cimb.com Initiate with Outperform and target price of S$1.41. Mewah is the second largest palm-oil refiner by capacity in Malaysia and sixth largest globally. It is also the owner of a stable of brands. We are bullish on its growth prospects from capacity and margin expansion, with earnings upside from acquisitions. Our target price of S$1.41 is based on 13x CY12 P/E, a 10% discount to the plantation sector average to factor in its slimmer margins. Potential catalysts are better-than-forecast earnings, higher refining margins, and announcements of earnings-accretive acquisitions, in our view. FY10-12 core EPS CAGR of 20%. Our forecast is supported by higher sales volumes and wider margins from economies of scale and expansion in downstream consumer pack products. We expect wider EBITDA margins from greater economies of scale and expansion into higher-margin products such as CBS. Strong industry outlook. Palm oil is the cheapest vegetable oil to produce and refine, contributing to its position as the biggest source of vegetable oils, at 37% of the world s vegetable-oil production. From 1999 to 2009, palm-oil production grew at 8% CAGR, almost twice the 4.3% rate for total vegetable oils, while world palm-oil consumption grew by 9.5% CAGR. Oil World expects demand for palm oil to reach 76m-77m tonnes by 2020, from 46m in Financial summary FYE Dec F 2011F 2012F Revenue (US$ m) 3, , , , ,335.1 EBITDA (US$ m) EBITDA margins (%) 4.1% 4.6% 3.7% 4.0% 4.2% Pretax profit (US$ m) Net profit (US$ m) EPS (S cts) EPS growth (%) 234.0% 0.5% (20.4%) 21.5% 19.4% P/E (x) Core EPS (S cts) Core EPS growth (%) 234.0% 0.5% (16.7%) 16.2% 19.4% Core P/E (x) Gross DPS (S cts) Dividend yield (%) 1.2% 2.6% 0.0% 0.0% 0.0% P/BV (x) ROE (%) 49.3% 41.7% 22.6% 18.4% 18.3% Net gearing (%) 81.7% 76.9% N/A 0.3% N/A Net cash per share (S$) N/A N/A 0.03 N/A 0.03 P/FCFE (x) (32.8) (44.1) 29.4 EV/EBITDA (x) CIMB/Consensus (x) Note: Per share data translated into listing currency at current fx spot rates, valuation methodology based on house forex forecasts, CIMB Research, Bloomberg Price chart Nov-10 Jan-11 Volume 10m (R.H.Scale) Mewah International Source: Bloomberg Market capitalisation & share price info Market cap S$1,658m/US$1,290m Share price perf. (%) 1M 3M 12M 12-mth price range S$1.20/S$0.92 Relative (12.1) 3-mth avg daily volume 7.9m Absolute # of shares (m) 1,507 Major shareholders % held Est. free float (%) 36.0 Eighteenth Tenth Nineteen Forty Four 35.0 Conv. secs (m) Cheo Seng Jin 8.2 Conv. price ( ) Cheo Tiong Choon 7.7, CIMB Research, Bloomberg Please read carefully the important disclosures at the end of this publication.

2 Background Mewah is a vertically-integrated edible oil refiner and producer with a stable of brands and a wide product portfolio. With palm-oil refining capacity of 2.8 tonnes p.a., it is the second largest palm-oil refiner by capacity in Malaysia and sixth largest globally. Its three refineries and processing facilities are located in Semenyih, Pasir Gudang and Westport, in Malaysia, with three packing plants in Westport, Pasir Gudang and Singapore. Products are sold to more than 100 countries in the Asia Pacific, India, Middle East, Africa and Europe. History. Mewah began in the 1950s as an importer of refined palm oil from refineries in Malaysia and repacking and selling it in Singapore. In 1987, it started its refining operations in Semenyih, Malaysia with an initial capacity of 140K tonnes p.a., followed by a second manufacturing plant in Pasir Gudang, Malaysia, with an initial refining capacity of 271K tonnes p.a. to refine palm, lauric and soft oils in In 2002, Mewah set up its third integrated manufacturing plant in Westport, Malaysia to refine palm, lauric and soft oils with an initial refining capacity of 980K tonnes p.a. The Westport facility also includes a packaging manufacturing plant, which makes packing containers for consumer packs, and an advanced packing plant. From 1987 to 2007, the company s refining capacity ballooned 20x to 2.8m tonnes p.a. Figure 1: Strategically located manufacturing operations Locations lead to cost savings. Mewah s facilities in Westport and Pasir Gudang are located near ports that are along major shipping routes, thus saving transport costs when shipping goods to customers and receiving raw materials. The Westport facility even has transportation pipes which extend from the plant to the port, enabling the plant to receive CPO supplies directly from the port and deliver bulk products straight to ships. Management estimates that the direct pumping facilities save the company at least US$5/tonne vs. using third parties to transport and store. Its Semenyih facility, on the other hand, is located inland near many of the company s Malaysian customers, giving Mewah a price advantage as customers spend less on transportation when buying from the plant. [ 2 ]

3 Figure 2: Historical milestones Experienced management. Management is helmed by Dr Cheo Tong Choon, Chairman, who has more than 20 years of experience in the edible oils and fats business, and is credited with establishing the Mewah group of companies in Malaysia and Singapore. He is responsible for overall strategy and direction and is supported by Ms Michelle Cheo, CEO, who joined the group in Ms Cheo is jointly responsible for strategic direction, in addition to managing the bulk business segment. Ms Bianca Cheo, COO, joined the group in 2004, and is responsible for HR, financial management, marketing, organisational development and IT systems, in addition to heading the consumer pack business. Mr Cheo Seng Jin, Head of Commercial, has more than 20 years of experience in the edible oils and fats industry in Singapore and China, and helped to establish marketing offices in Australia and China. He is also responsible for group sales and marketing strategies. After listing, management has a deemed and direct stake of 43% vs. 50.6% before the IPO. Figure 3: Management team [ 3 ]

4 Extensive portfolio. Mewah produces a range of refined and fractionated vegetable oils and fats from palm oil, lauric oils such as palm kernel oil and coconut oil, and soft oils such as soybean oil, canola oil, sunflower seed oil and corn oil. It sells them in bulk as well as under its own brands. It also packs for customers under their brands. Mewah s brands include Oki, Moi, Mewah, Krispi, Mona, Fry-Ola, and Arome which are well-recognised in Africa. Its revenue comes from both the bulk and consumer pack segments. Figure 4: Brands and presence Bulk vs. consumer packs. The bulk segment sources, manufactures and sells edible oils and fats in bulk to refiners, processors, wholesalers and retailers who may use the products in the food, animal feed and oleochemical industries. While revenue constituted 69-76% of the total in FY07-09 and sales volume 77-83%, EBITDA/tonne was lower, at US$ vs. US$ for the consumer pack segment during the same period. In contrast to consumer packs, the bulk business sells in large quantities for lower margins. However, large throughput generates economies of scale, giving Mewah cost advantages to smaller competitors. The consumer-pack segment makes, packs and sells a variety of edible oils and fats, such as cooking oils and frying oils, and specialised bakery and confectionery oils and fats, including margarine, shortening, ice cream fats, and cocoa butter substitutes, under Mewah s brands and customers brands (such as Giant, Jusco and Carrefour; and Mazola). Although representing only 24-34% of revenue from FY07 to FY09, consumer packs accounted for 35-45% of the net profits made during the same period. While this segment is dwarfed by the bulk business, margins are much higher due to product differentiation and strong branding. Mewah s stable of brands here includes Oki, Mona, Moi, Krispi, Turkey, Cabbage and Fry-ola. Management believes that the Oki and Moi brands are the leading edible-oil brands in Africa and has priced them at premiums to rival brands. Meanwhile, its large stable of brands allows the company to use other house brands (such as Turkey) to fight off competitors which compete on price. At the same time, an extensive product offering allows the company to capture a larger share of end-customers spending and build brand loyalty. Figure 5: Bulk vs. consumer packs: historical comparison of revenue and EBITDA/tonne FY07 FY08 FY09 Bulk revenue US$m 2, , ,125.8 Consumer pack revenue US$m , Bulk EBITDA/tonne, US$ Consumer pack EBITDA/tonne, US$ [ 4 ]

5 Vertical integration offers greater operating efficiencies, through economies of scale, improved quality control and better access to market information. By taking control of the production process from the selection of raw materials onwards, Mewah is able to monitor product quality throughout and control the manufacturing process. Being present both upstream (through purchases of CPO and CPKO) and downstream (refined oil and other downstream products) also offers management timely and integrated information to better comprehend the entire market. Demand-driven expansion. Mewah historically expands only when there is more than enough demand. In FY09, sales volume was 3.8m tonnes although physical refining capacity was only 2.8m tonnes, with the excess demand met by trading i.e. buying from third parties. Even taking into account a planned increase in refining capacity to 3.3m tonnes p.a. by 2012, with the completion of the Sabah refinery, sales volume based on the 3.8m tonnes in FY09 would still exceed physical capacity by 15%. To management, optimising utilisation translates into better operating efficiencies. Also, the trading business helps the company manage volatility that could be caused by competitors dumping excess supplies in the market, by purchasing these supplies and selling to customers for minimal profits. The trading business also gives Mewah the opportunity to build relationships with new customers without immediate capex spending and lowers the risk of inefficient capacity utilisation. As volumes grow and customer relationships strengthen, risks from investing in new physical refining capacity shrink. On top of that, the trading business cushions Mewah in a sudden demand shock, as Mewah can handle the lower demand by reducing its purchases from third parties, while keeping in-house capacity utilisation optimal. With the trading operation serving more as a damage control mechanism, profits are marginal due to a lack of value-add, in the range of US$0-10/tonne. Given the fine margins, management intends to pace volume increases here and optimise its use of capital. Also, aggressive increases in trading may lead to profit and sales-volume fluctuations, which management prefers to avoid. Collaboration with customers seals long-term relationships. Mewah also collaborates with customers to manufacture margarine, cooking oils etc, based on their requirements. Once a product meets customers requirements, customers become unwilling to switch suppliers as Mewah keeps the manufacturing formulas. Switching suppliers involve unnecessary costs (time and money) as the new suppliers would need to go through a whole series of trials before finding the correct formulas. Hence, once trust between Mewah and its customers has been established and a consistent quality assured, customers tend to continue the relationship and even outsource future production and new products to Mewah. Diversified customers. Through its wide product portfolio, strong brands, two business segments, and established operating history, Mewah has built a range of customers, including refiners, processors, wholesalers and retailers in the food, animal feed and oleochemical industries, as well as distributors and factories producing confectionery, bakery products and other food items. For some small markets, Mewah sells directly to end-customers by putting its products on retail shelves. Its customer diversification insulates the company from individual customer risks and volatility, while enabling the company to take advantage of rising global consumption demand. Some 90-94% of its sales are business-to-business, with the rest from industrial and retail customers. Sourcing from various suppliers. Mewah sources for raw materials such as palm, laurics and soft oils from plantations and mills in Malaysia, Indonesia and South America, utilising spot and forward purchases. Suppliers include Sime Darby, Felda Palm Industries, Felcra Berhad, Kulim (Malaysia) TDM, Far East Holdings, the Bell group of companies, Harn Len Corporation and Kilang Kelapa. In FY10, purchases from Sime Darby accounted for 7.2% of its cost of sales, while purchases from Felda accounted for 3.6%. Seasonality. Business in the second half of the year tends to be stronger than the first half due to strong festive demand, with the fourth quarter typically the peak as Mewah s customers stock up for the festive season. Hedged commodity price exposure. Given unpredictable commodity price swings, management hedges its commodity price exposure through forward contracts and exchange-traded futures. Management is focused on generating profits through valueadd such as refining, brand building etc. rather than speculating on commodity prices. [ 5 ]

6 Industry outlook Palm and palm kernel oils are the most popular vegetable oils. In 2009, production of vegetable oils, at 134.2m tonnes, accounted for 84% of global oil and fat production. Palm and palm kernel oils commanded the biggest market share of 37%, followed by soybean oil at 28%. In , palm and palm kernel oil production grew by 8% CAGR, almost twice the 4.3% rate for total vegetable oils. The strong growth can be attributed to the fact that it is the cheapest vegetable oil to produce and refine. Indonesia and Malaysia are the two main producers, accounting for 87% of the world s palm-oil output and 84% of palm-kernel-oil output in In , Indonesia s palm-oil output grew by an average of 12% annually vs. 6% for Malaysia. World palm-oil consumption grew by 9.5% CAGR from 1999 to 2009, with 11-24% CAGRs for the US, China and India. India and China were the largest consumers of palm oil in 2009, consuming a combined 27% vs. 20% in Oil World expects demand for palm oil to jump to 76-77m tonnes by 2020, from 46m in 2010, with Indonesia supplying the bulk of the oil. Near term, we expect palm-oil prices to remain firm on the back of strong seasonal demand and tight supplies. Total refining capacity in Indonesia and Malaysia was 45m tonnes at end At end-2008, the Malaysian government had authorised the development of 69 refineries with a total capacity of 25.2m tonnes but only 52, with an aggregate capacity of 19.4m tonnes, operated, while output was 16.9m tonnes. In Indonesia, refining capacity in 2009 was 20m tonnes, including plants still being built, while production was 11.3m tonnes. Figure 6: World palm consumption by geography m tonnes % of total consumption CAGR % India China Indonesia EU Malaysia Pakistan Nigeria Thailand US Other Total Source: FAO, USDA, Oil World, LMC estimates Figure 7: World oil and fats output World oils and fats output m tonnes % of total consumption CAGR % Total vegetable oils Palm & palm kernel oils Soybean oil Rapeseed Sunflower Others Animal fats and fish oil output Total world oils and fats output Source: FAO, USDA, Oil World, LMC estimates Competition. In the bulk edible oils and fats business, Mewah s competitors are Wilmar, IOI, Musim Mas, Felda, and Sime Darby. Due to industry fragmentation, competition also stems from numerous small producers in addition to Wilmar, IOI and Cargill, and producers of substitutes. Wilmar, the world s largest palm-oil refiner, processed almost 8m tonnes of CPO in 2009, and has refineries in Malaysia, Indonesia, China, India, Europe and Africa. IOI Corp has 3.4m tonnes of refining capacity in Malaysia and the Netherlands, while the Felda Group has 2.4m tonnes of refining capacity in Malaysia and several refining JVs. Sime Darby has 840K tonnes of refining capacity and will soon have another 660K tonnes from a ready plant. Industry participants tend to compete on price, quality, customer service, timely delivery and product range. To fend them off, Mewah will be developing new products, adopting new manufacturing technologies, and improving distribution capability to cut costs and improve product quality. [ 6 ]

7 Figure 8: Malaysian corporate market share of refining capacity in 2009 Other, 25% Mew ah, 14% IOI, 13% ISF, 5% Sime Darby, 8% Felda, 12% Wilmar, 23% Source: LMC estimates, company reports, MPOB Company outlook Capacity expansion. The company recently raised net proceeds of S$234.8m from its listing. Management intends to use S$175m for expansion, including its Sabah refinery, Westport expansion project, Pasir Gudang expansion project, Zhangjiagong project, and Tianjin packing plant and other potential capex or acquisitions. The remaining S$59.8m has been allocated for working capital, capex or acquisitions. While upstream plantation profits are fatter than processing, Mewah is unlikely to consider plantation investments in the near term, we believe, due to the substantial costs involved. While management is understandably coy about its longer-term expansion plans for competitive reasons, we see opportunities in downstream products where Mewah can substitute fats with palm oil, such as condensed milk, milk powder etc. Figure 9: Expansion projects Source: LMC estimates, company reports, MPOB [ 7 ]

8 Increasing refining capacity. The current bottleneck is refining capacity, with its three refineries already running at maximum capacity with no room to refine more. Hence, management is raising refining capacity to capture upstream profits and provide feedstock for its downstream consumer-pack business. By 2012, when its new Sabah refinery is completed, the company s refining capacity will be raised to 3.3m tonnes from 2.8m tonnes. Consumer-pack expansion to fatten margins. Management aims to improve capital efficiency by raising sales in the consumer-pack segment and expanding the product range there. Given this segment s higher margins than bulk (US$ /tonne vs. US$ /tonne), for the same amount of capital, management can generally generate twice the level of profits from the consumer-pack business. Moreover, strong branding gives Mewah a better grip on customer loyalty, while product differentiation allows it to position and price its products accordingly. New consumer-pack products may include cocoa butter equivalents (CBE) and soap. The company is also expanding its capacity in cocoa butter substitutes (CBS) by 3-fold to 280K tonnes by 2H11. CBS are customised products based on specific applications (ice cream, confectionery etc.) and customers specifications. Once relationships with customers have been established and a consistent quality assured, customers tend to give repeat orders to the same suppliers. Margins for CBS and CBE are said to exceed US$100+/tonne when reasonable production scale has been achieved. Where economically feasible, management prefers to sell consumer packs due to their superior margins. It also sells consumer packs where selling in bulk to competitors will cannibalise its own-brand sales. However, in certain markets where there are tariff differentials between crude and refined products or where Mewah s presence is not material, selling in bulk makes more economic sense. Figure 10: Revenue by geography in 2009 Consumer packs Bulk Pacific Oceania 6% Europe 6% Americas 2% Asia 23% Middle East Africa 9% 0% Rest of Asia 16% Europe 3% Pacific Oceania 1% Americas 1% Middle East 21% Africa 42% Singapore 16% Malaysia 54%, CIMB Research Extending market leadership in Africa. According to management, Mewah is strong in Africa, especially in the Benin, Togo and Nigeria pockets in West Africa, where Mewah accounts for 45-50% of the market. Management plans to expand into the surrounding regions of Ghana, Ivory Coast, Cameroon and Gabon, where its brands are known but market share still small. After its IPO, Mewah has acquired a 52% stake in Belgium-incorporated Molly Food, which owns BeCe Sarl, a West Africa commodity distributor for 4.68m euros as part of its plan to boost its distribution capability. CBS to support Europe expansion. Mewah s CBS products target the European market where chocolate consumption is the highest in the world. Due to the customised nature of CBS products, building customer relationships is key. Hence, Mewah is establishing new offices in Europe to support its European expansion. [ 8 ]

9 Tianjin and Zhangjiagang projects to boost China presence. Recognising the huge potential of China from its growing population, and rising income and consumption, management plans to expand there, initially by setting up packing plants in Zhangjiagang and Tianjin, followed by refining facilities when operations scale up. The Zhangjiagang packing plant is expected to commence operations by 2H13, while the Tianjin packing plant is expected to be completed by Dec 12. Mewah will focus sorely on the industrial segment, where there are no price controls, and not the retail segment. Government price controls in the retail market cloud market dynamics and create uncertainties for producers, increasing risks. Strong support for refining margins. Management believes that refining margins will widen over the long term if CPO prices rise, structurally. When CPO prices rise, plantation owners are more likely to lock in the high prices and accord more margins to refiners given their already fat profits. Moreover, as CPO prices rise, there is consolidation in the refining space as smaller players with insufficient access to capital are forced out. Also, the fat margins in the plantation space could attract more new players and investments than the processing space, leading to greater fragmentation upstream than downstream. Figure 11: Revenue breakdown US$ m, FYE Dec F 2011F 2012F Bulk 2, , , ,153.4 Consumer pack , ,181.7 Total revenue 2, , , ,335.1, CIMB Research Figure 12: SWOT analysis Strengths Significant operating scale - sixth largest refining capacity globally Strong balance sheet Stable of strong brands Weaknesses Price taker for generic products Already running at full refining capacity Opportunities Further expansion into high-growth economies Increasing sales of high-margin downstream products Has financial capacity for acquisitions Threats Many competitors Upstream plantation owners expanding downstream Source: CIMB Research Risks Adverse weather may affect availability of raw materials. Adverse weather and natural disasters may affect the production of vegetable oil crops, leading to industry shortages and Mewar s inability to procure sufficient raw materials. However, the company s ability to refine different types of vegetable oil helps to mitigate the risks associated with a particular crop. Policies to limit credit risks. With the wide commodity price fluctuations of recent years, customer and supplier defaults in the commodities industry have been rising. When commodity prices spike, supplier default risks rise as suppliers prefer to sell at higher prices. Conversely, when commodity prices collapse, customer default risks rise as customers can now buy at lower spot prices. Mewah has been able to manage supplier risks partly with the help of its scale and partly with prudent credit policies. As a result of its scale and purchasing power, suppliers are reluctant to default on contracts with Mewah. Moreover, plantation margins have been very fat in recent years, making it still profitable for upstream suppliers to honour their contracts. Management is also careful in selecting suppliers for their credit-worthiness and reliability. Products are also sold on a cash-against-documents basis, which means the company receives payment when goods are delivered. If a customer defaults on a contract and does not take delivery, management will sell the goods in the spot market, and claim the difference from the customer. Changes in tariffs, import or export taxes and/or price controls may affect price competitiveness. Imposition/increases in tariffs, import or export taxes and/or price controls may affect Mewah s price competitiveness and operations in certain markets. [ 9 ]

10 Loss of key management personnel. Mewah s Chairman, Dr Cheo, is being prosecuted in Malaysia with regard to certain CPO purchases. An adverse judgement may rob Mewah of a key management personnel and affect the company s reputation. A subsidiary of Mewah, Mewah-Oils Sdn Bhd, is being prosecuted along with Dr Cheo. An adverse judgement may again harm Mewah s reputation and business relationships. Financials FY10-12 core EPS CAGR forecast of 20%. We forecast a FY10-12 EPS CAGR of 20%, supported by higher sales volumes and wider margins from economies of scale and downstream expansion in consumer-pack products. We expect wider EBITDA margins for the consumer-pack segment from greater economies of scale and expansion into higher-margin products such as CBS where margins are US$100+/tonne. Also, the push into the rest of Africa where the company sells mainly consumer-pack products should support volume growth and margins. Bulk margins are expected to recover to US$25-31/tonne on the back of higher margins from customised product sales and higher refining capacity. Figure 13: Assumptions FY07 FY08 FY09 FY10F FY11F FY12F Bulk EBITDA/tonne Bulk sales volume m tonnes Consumer pack EBITDA/tonne Consumer pack sales volume m tonnes , CIMB Figure 14: Revenue breakdown and EBITDA/tonne margin 5,000 4,000 3,000 2,000 1, , ,058 2,248 2,126 1, ,028 2,610 2,798 3, F 2011F 2012F 0 Bulk rev enue US$m (LHS) Ov erall EBITDA/tonne margin US$ (RHS) Consumer pack US$ m (LHS), CIMB Research Earnings upside from possible acquisitions. The company s gearing after its IPO is 0.47x (based on adjusted 31 Aug 10 data), with interest coverage (EBITDA/interest expense) at 16x (again based on 31 Aug 10 data). Management is comfortable with a debt/equity ratio of 1.5x, implying the company could gear up by another US$450m. Assuming a 2:1 working capital-fixed assets ratio, Mewah could spend at least another US$150m on acquisitions on top of its announced expansion. The gearing headroom coupled with low interest rates suggests earnings upside potential of US$9m-13m, assuming the company spends US$150m on acquisitions at 8-10x P/Es and interest rates of 4%. We believe companies in related industries with strong branding, producers of downstream products, and distributors could be targets. Alternatively, management could decide on more greenfield projects, which come cheaper but take longer (some 18 months) to complete. [ 10 ]

11 Figure 15: Revenue and core net profit, US$m 5,000 4,000 3,000 2,705 3,276 2,865 3,504 3,825 4, , , FY07 FY08 FY09 FY10F FY11F FY12F Rev enue (LHS) Core net profit (LHS) EBITDA/tonne 10 0, CIMB Research Dividends unlikely for now. While the company is financially strong at the moment (operating cash flow forecast at US$117m-119m for FY10-12), we do not expect dividends in the near term. Management will likely use the money for acquisitions and/or organic expansion. Valuation and recommendation Initiate with Outperform and target price of S$1.41. We are positive on Mewah s expansion plans and earnings upside potential from acquisitions and/or expansion. Backward integration raises capacity utilisation and increases the efficiency of capital use. We initiate with a target price of S$1.41, based on a 10% discount to the plantation sector average of 14.4x. We accord Mewah a slight discount due to its slimmer margins than upstream plantations. Stock catalysts are likely to come from better-than-forecast earnings, higher refining margins, and announcements of earnings-accretive acquisitions. Figure 16: Sector comparisons Target Core 3-yr EPS P/BV ROE Div Bloomberg Price price Mkt cap P/E (x) CAGR (x) (%) yield (%) ticker Recom. (Local) (Local) (US$ m) CY2011 CY2012 (%) CY2011 CY2011 CY2011 Mewah MII SP O , Wilmar WIL SP N , Indofood Agri IFAR SP N , Golden Agri GGR SP TB , IOI Corp IOI MK N , Sime Darby SIME MK TB , KLK KLK MK TB , Genting Plantations GENP MK N , Hap Seng Plant HAPL MK TB Astra Agro AALI IJ O 21,700 31,300 3, Lonsum LSIP IJ O 11,800 15,000 1, N/A Sampoerna Agro SGRO IJ O 2,850 3, Bakrie Plantation UNSP IJ U N/A (4.9) BW BWPT IJ O 1,160 1, Simple average O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and TS = Trading Sell, CIMB Research [ 11 ]

12 Appendix Figure 17: Complete edible oils and fats value chain Figure 18: Mewah s business model [ 12 ]

13 Figure 19: Range of consumer pack products Figure 20: Consumer pack production line Figure 21: Bulk packing line [ 13 ]

14 Financial tables PROFIT & LOSS KEY RATIOS (US$ m, FYE Dec) F 2011F 2012F (FYE Dec) F 2011F 2012F Revenue 3,276 2,865 3,504 3,825 4,335 Revenue growth (%) 21.1 (12.5) Operating expenses (3,141) (2,734) (3,374) (3,672) (4,153) EBITDA growth (%) (2.4) (1.6) EBITDA Pretax margins (%) Depreciation & amortisation (10) (11) (14) (21) (24) Net profit margins (%) EBIT Interest cover (x) Net interest & invt income (9) (3) (5) (6) (6) Effective tax rates (%) Associates contribution Net dividend payout (%) Exceptional items 0 0 (5) 0 0 Debtors turnover (days) Others Stock turnover (days) Pretax profit Creditors turnover (days) Tax (26) (27) (21) (25) (30) Minority interests (1) (1) Net profit Adj. wt. shares (m) 1,281 1,281 1,507 1,507 1,507 Unadj. year-end shares (m) 1,281 1,281 1,507 1,507 1,507 BALANCE SHEET KEY DRIVERS (US$ m, end Dec) F 2011F 2012F (FYE Dec) F 2011F 2012F Fixed assets Bulk EBITDA/tonne (US$) Intangible assets Sales volume (million tonnes) Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders funds Minority interests NTA/share (S$) CASH FLOW (US$ m, FYE Dec) F 2011F 2012F Pretax profit Depreciation & non cash adj Working capital changes (25) (134) 14 (13) (33) Cash tax paid (5) (37) (21) (25) (30) Others (39) Cash flow from operations Capex (21) (21) (75) (145) (75) Net investments & sale of FA Others (56) (13) (11) 0 0 Cash flow from investing (78) (34) (86) (145) (75) Debt raised/(repaid) (12) Equity raised/(repaid) Dividends paid (13) (28) Cash interest & others (6) (6) Cash flow from financing (6) (6) Change in cash 10 (1) 217 (35) 37 Change in net cash/(debt) 22 (28) 217 (35) 37 Ending net cash/(debt) (155) (183) 33 (2) 36 12M - FORWARD FD CORE P/E (X) Nov-10 Dec-10 Jan-11 Feb-11, CIMB Research, Bloomberg [ 14 ]

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16 New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act Singapore: This report is issued and distributed by CIMB Research Pte Ltd ( CIMBR ). Recipients of this report are to contact CIMBR in Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. 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Directors, officers and employees of such entities are also included provided their responsibilities regarding those entities involve engaging in investment activity. Persons who do not have professional experience relating to investments should not rely on this document. United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB Research Pte Ltd solely to persons who qualify as "Major U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of This communication is only for Institutional Investors and investment professionals whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not an Institutional Investor must not rely on this communication. However, the delivery of this research report to any person in the United States of America shall not be deemed a recommendation to effect any transactions in the securities discussed herein or an endorsement of any opinion expressed herein. For further information or to place an order in any of the abovementioned securities please contact a registered representative of CIMB Securities (USA) Inc. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. RECOMMENDATION FRAMEWORK #1* STOCK RECOMMENDATIONS OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 3 months. SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months. * This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No M) [ 16 ]