Bank Danamon. Indonesia Company Focus. BUY Last Traded Price: Rp3,800 (JCI : 4,624.64) Price Target : Rp4,200 (11% upside) (Prev Rp3,600)

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1 Indonesia Company Focus Bloomberg: BDMN IJ Reuters: BDMN.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 2 Feb 2016 BUY Last Traded Price: Rp3,800 (JCI : 4,624.64) Price Target : Rp4,200 (11% upside) (Prev Rp3,600) Reason for Report : Company update; 3-year plan in place Potential Catalyst: Transformation plans materialise under new CEO Where we differ: We are among the few brokers bullish on Danamon s turnaround story; expect turnaround to be visible by FY17F Analyst LIM Sue Lin suelinlim@dbs.com Price Relative 6, , , , , , , , ,925.5 Rp 2, Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 (LHS) Forecasts and Valuation FY Dec (Rpbn) 2014A 2015F 2016F 2017F Pre-prov. Profit 8,050 8,412 9,527 11,468 Net Profit 2,604 2,550 3,464 4,391 Net Pft (Pre Ex.) 2,604 2,550 3,464 4,391 Net Pft Gth (Pre-ex) (%) (35.6) (2.1) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) (36) (2) Diluted EPS (Rp) PE Pre Ex. (X) Net DPS (Rp) Div Yield (%) ROAE Pre Ex. (%) ROAE (%) ROA (%) BV Per Share (Rp) 3,435 3,630 3,913 4,264 P/Book Value (x) Earnings Rev (%): Consensus EPS (Rp): Other Broker Recs: B: 6 S: 9 H: 9 ICB Industry : Financials ICB Sector: Banks Principal Business: Banking Relative JCI INDEX (RHS) Relative Index Source of all data: Company, DBS Bank, Bloomberg Finance L.P Stepping up its game plan CEO articulates the bank s 3-year strategic journey; aims to achieve double digit ROE over time; new engines to rev up existing 2-cylinder gears Raising FY16-17F earnings by 5-9%; 2016 will see the start of its execution plans Valuations have priced in zero success for its new plans in our view; upside potential should emerge as strategic priorities start to bear fruit Maintain BUY; TP raised to Rp4,200 3-year strategic plan to unfold. s (BDMN) CEO has outlined his 3-year strategy to bring the bank to the next stage. After spending almost a year cleaning up the bank, we believe BDMN is set to start on its long-haul journey. Six key priorities have been articulated and the first two will be crucial in our view for the subsequent ones take shape. Please refer to page 3 for BDMN s strategic priorities in detail. Stepping up revenue engines, key to re-rating. BDMN has long been relying on Adira Finance (ADMF) and its micro lending unit, Danamon Simpan Pinjam (DSP) as engines of growth. In the past few years, both these businesses have faced challenges. If this persists, there would be further downside to the bank s profitability. The four new engines identified, in addition to the current two, are SME, consumer, commercial and Adira Insurance. They are not easy-wins. But once they take shape, we believe the benefit over time would be significantly lower cost of funds, which is one of BDMN s ultimate goals. Double digit ROEs over time. Cost cutting measures had started even before the current CEO joined the bank. Additional clean up on operating expenses and provisions were done in Management s target is to achieve double digit ROE over time. And that can only be possible once the current engines are revived and new revenue engines start to fire up. With the lower cost base and a cleaner balance sheet, we expect ROE to improve closer to the 10% mark by end FY16F as loan growth starts to pick up and funding costs lowered. We are now more bullish on our FY16-17F earnings forecasts, and our forecasts are 6-7% above consensus. Maintain BUY; TP raised to Rp4,200. Currently trading below book value, we believe market is not attributing any upside to the strategic plans set in place. Valuations have bottomed, in our view, equivalent to -2SD over its 10-year mean, and disregarding any positive impact from the current transition phase. Impact from the transformation program should be fully reflected in 2017, in our view. Our TP is based on the Gordon Growth Model implying 1.1x FY16 BV. At A Glance Issued Capital (m shrs) 9,585 Mkt. Cap (Rpbn/US$m) 36,422 / 2,678 Major Shareholders (%) Asia Finance 68.9 Morgan Stanly Sec 5.0 Free Float (%) m Avg. Daily Val (US$m) 0.64 ed: JS / sa: MA

2 INVESTMENT THESIS Profile (BDMN) is the sixth largest bank in Indonesia by assets. The bank focuses on mass market loans with its Danamon Simpan Pinjam. BDMN is aided by its 95% owned multifinance arm Adira Finance for auto loans. Valuation We rate BDMN a BUY with a target price of Rp4,200. Our valuation is based on the Gordon Growth Model and implies 1.1x FY16F BV. Valuations have bottomed out in our view and is disregarding any positive impact from the current transition phase and 2016 are transition periods and impact from the transformation program should be fully reflected in Rationale Valuations have bottomed, BUY. BDMN is currently trading close to 10-year P/BV multiple lows. Market appears to be disregarding any potential upside to the transition phase the bank is going through. Admittedly, BDMN s turnaround strategy has yet to unfold. A lot needs to be fixed at the bank. Initiatives to drive growth in the SME segment will be for the long haul and there is a need to build a sustainable SME business model with the aim to garner CASA and fees from cash management and transaction banking. Micro business has become increasingly competitive and there is a need to re-engineer the DSP business model. Even ADMF s business (both auto and insurance) needs to be relooked. We believe that the impact of restructuring should be fully reflected from New CEO at the helm; slow but steady progress. BDMN s CEO, Mr. Sng Seow Wah, who joined the bank at end Feb 2015, will spearhead the bank s transformation. He has a strong track record in turning around banks with exposure to SME and consumer segments. In his last posting, he successfully improved the business and profitability of a Malaysian bank, thus increasing its valuation. We believe BDMN should see similar success under his leadership but we are aware of the differences between Malaysian and Indonesian bank operations. Weak phase before picking up steam. We assume a conservative FY15F/16F/17F loan growth of 3%/9%/12% as management indicated that its focus will primarily be on efficiency and asset quality this year. Our NPL ratio is forecasted at 3.2% in 2015 which is expected to come with higher provisions. Finally, we imputed a weaker performance from Adira in our estimates. All in, we are expecting a mild earnings contraction in FY15F before seeing a recovery in FY16F. Risks Ineffective transformation deliveries. This would be mainly slower-than-expected changes in business processes and the new business model being ineffective. But these changes will take time and resources to implement. Failure of the transformation program will not only impact operations and profitability, but the opportunity cost would magnify the impact. The other key risks for BDMN are failure to maintain liquidity and weaker-than-expected deposit growth since its loan-to-deposit ratio has always been high. Source: DBS Bank Page 2

3 3-year strategic direction plans unveiled BDMN has articulated its 3-year journey with the aim to create a sustainable growth base in order to bring the bank to double digit ROE. From a big picture perspective, the underlying philosophy for its 3-year strategic direction lies in fixing and improving its existing infrastructure, fostering collaboration and more importantly to build up its funding franchise, something that has been characterised as the elephant in the room for BDMN. This entails: (1) Rejuvenating ADMF and revitalising DSP. ADMF s outlets have been reduced to 603 (from 647). There are plans to drive cross-selling activities i.e. CASA, insurance and white goods (previous business of Adira Quantum, which has been folded into ADMF). There are also initiatives to expand the use of alternative channels for distribution (eg Keday, digital marketplace, etc) over time. For DSP, there is a need to rationalise the coverage model. There may be a need to go back to basics to relook at the nuts and bolts of the business. In addition, the DSP outlets that have previously been focused on (micro) asset gathering could be leveraged up to sell additional products including deposits. An analytics-driven approach for decision making should be adopted. (2) Creating new growth engines - SME, consumer, commercial banking and insurance. BDMN has historically been over-reliant on two engines of growth i.e. ADMF and DSP, which used to contribute two-thirds of its loan portfolio. That has since declined to 50% of its portfolio currently amid declining performance attributed by the weakness in the auto sector and the non-competitiveness of its DSP business model. (i) SMEs in this sense refers to small SMEs with a scalable business model which will then enable gathering more low cost funding. (ii) Consumer banking (ex-admf) includes tailored product bundles to match customer lifestyles and demography. The product bundles would include credit cards, mortgages, investments, savings accounts and various loyalty programmes. These will enable the bank to offer a more holistic product offering to retail customers. (iii) The commercial banking agenda serves to strengthen the transaction banking platform (see point below), also to gain access to low cost deposits and fees. (iv) Adira Insurance, a franchise which has not been fully taken advantage of could be used to expand product offerings beyond just auto insurance, leveraging upon the bank's existing customers. (3) Collaboration and cross leveraging across product units. After repairing the original two engines and adding on the new engines, there would then be opportunities for cross leveraging across these lines of businesses to provide more integrated solutions. Transaction banking acts as a solution integrator across the lines of businesses and is crucial to generate low cost funding. This would create "sticky" client relationships and promote cross-selling. Treasury which had previously only focused on assetliability management and trading would be refreshed to create new fee income generation channels via treasury sales to capture flows. Sharia business has been revamped. Its pawn booking business has been discontinued. The Sharia branches have been reduced from 150 to only 14 currently. BDMN will adopt the leverage model practiced in Malaysia where conventional branches will have a window to sell Sharia products. This has successfully reduced infra costs. The Sharia business provides offerings to the Islamic institutions, and Umroh, Halal and Hajj ecosystems. (4) Sales and distribution network. A new division, Sales and Distribution (S&D) organisation, has been set up to streamline operations. The branches will no longer be owned by the line of business (i.e SME or retail) but by the S&D unit. The S&D functions more than just for cost cutting or branch closing. The intention of management is to move away from a silo-based mentality to a collaborative mindset while eliminating infrastructure limitations in the region of operations. Over the year, the bank has reduced its headcount from c.70,000 to slightly below 50,000 by end In terms of network, outlets have been reduced from 2,400 to approximately 2,000. As stated above, ADMF's outlets have been reduced to 603 from 647, and Sharia outlets have been reduced to only 14 from 150. Conventional branches have been reduced to 517 from 544 while DSP units have been reduced from 774 from 826. Although with fewer outlets currently, the objective is to offer a more holistic service to open up to further cross-selling opportunities. This will also drive collaboration with shared goals and accountabilities across the lines of businesses and subsidiaries. This initiative was rolled out in Jan (5) Digital technology and analytics. IT infrastructure is crucial to further refine all the above strategies. An enhanced digital channel coupled with the digitisation of back-end operations would provide the next edge. Data analytics would also aid in ensuring the right product and proper credit origination methods are adopted across the bank. This could further enhance the next stage of growth. (6) Human capital. After breaking down the silos and refining KPIs, there is a need to instilling meritocracy to ensure a proper performance reward system is put in place. A stock plan is an option to be considered. But there may be challenges in implementation from a regulatory standpoint.a lot has been said of the bank's three year strategic direction, and execution will be key. Clearly not everything can be done instantaneously. Page 3

4 Immediate priorities would be: (1) DSP and ADMF revamp, given that they are the current engines of growth, (2) SME, the change in business model to focus on smaller SMEs will be crucial, (3) Commercial banking initiatives is needed to develop new skill sets to create industry experts as a key differentiator, (4) When all these are in place, the transactional banking business will then enable the funding franchise to be solidified. What has changed in the past year Management changes. With a new CEO, senior management changes are highly likely. In the past year, there have been several reshuffles and new faces on the Board of Directors and Management. There has also been a streamlining of direct reporting lines to the CEO. There will still be new faces expected this year. For now, the organisation chart looks as follows: Structural changes; S&D organisation. The formation of the S&D organisation breaks down the silo infrastructure to create a more collaborative environment. The entire S&D channel can now be used by the whole bank rather than ownership by lines of businesses which lacked a common goal. The first phase of the S&D reorganisation has been completed. The area and branch manager now reports to a regional head who will then report to the S&D organization. A shared services division to house Finance, Human Resource and Real Estate management has been created. The next phase would involve implementing this into the consumer and SME businesses. The entire reorganisation will take time and is expected to be fully completed by BDMN: Organisation chart Board of Management Board of Directors (BoD) Other direct reports President Director Sng Seow Wah Vice President Director Muliadi Rahardja Consumer & SME Director Micro Business Director Sy ariah Director Finance Director Integrated Risk Director Legal & Compliance Director/ Corporate Secretary Human Resource Director Michellina Triwardhany Satinder Pal Singh Ahluwalia Herry Hykmanto V era Eve Lim Vacant Fransiska Oei Vacant Integrated Risk Mgt Head Iwan Dharmawan (acting) Human Resource Head Marta Jonatan Regional Sales & Distribution President Director Sng Seow Wah Wholesale Banking Head Yanto Edy Umar Transaction Banking Head Yen Yen Setiawan Operations Head Anthony Kurniawan Chief Information Officer/ IT Head Vacant Chief Data Officer Vacant Treasury & Capit al Market Head Chief Internal Auditor Corporate Banking Risk Head Chief Marketing Officer Chief Transformation Officer Herman Nathan Tanuwidjaja (acting) Siswo Soebianto Vacant Vacant Source: Company Page 4

5 BDMN:Sales & Distribution Organisation (Before and after restructuring) Before CEO After CEO Consumer SME DSP Adira Sharia Retail branches & sales team SME branches & RMs DSP units & sales team Adira branches & sales team LOBs have separate sales & distribution channels Lack common regional definition Competition against LOBs; going after same customers with minimal cross-selling Sharia branches Sales & Distribution Regional Head Area & Branch Manager Consumer SME DSP Adira Leverage S&D State 1: 2016 State 2: 2017 Source: Company Starting 2016 on a cleaner slate Weak phase before picking up steam. We assume a conservative FY15F loan growth of 3%/as management indicated that its focus will primarily be on efficiency and asset quality this year. Our NPL ratio is forecasted at 3.2% in FY15F which is expected to come with higher provisions. Finally, we imputed a weaker performance from Adira in our estimates. All in, we are expecting a mild earnings contraction in FY15F before seeing a recovery in FY16F. Slightly more bullish 2016 targets; FY16-17F earnings raised by 5-9%. We are raising FY16F slightly with a loan growth forecast of 9%, which is the lower end of management guidance 9-12% driven by SME and commercial segments. ADMF is also expected to return to positive growth in the lowsingle digits from a contraction in FY15. With expectations of improved funding costs, we have imputed a flattish NIM level in FY16F. However, slight compression could be expected should the loan mix shift more towards the non-mass market which carries lower yields if there is no significant improvement in funding costs. We expect BDMN to show lower credit cost levels in FY16F. After all, FY15E is somewhat a kitchen sinking year to build buffers. Loan loss coverage ratios should correspondingly improve. NPL ratios should improve to 3% or lower. With the above adjustments, we raise our FY16-17F earnings by 5-9%, putting our forecasts 6-7% above consensus. Cost management. Cost management efforts started from With most of the cost optimisation plans completed, BDMN s cost-to-income ratio should gradually tilt towards the low-50%. With investments especially into IT and infrastructure in the pipeline, cost-to-income ratio could stay flattish for a while. Improved funding franchise would be key. BDMN has long been seen to be a bank with a weak funding franchise. We have seen improvements in recent quarters, albeit gradual. Loan-to-deposit ratios have trended down. Further improvements should be expected as its strategic initiatives unfold. Valuation and recommendation Maintain BUY, TP raised to Rp4,200. We rate BDMN a BUY with a target price of Rp4,200. Our valuation is based on the Gordon Growth Model and implies 1.1 FY16F BV. We believe market has yet to price in any positive impact from the current transition phase and 2016 are transition periods and impact from the transformation programme should be fully reflected in Deliveries of strategic priorities will be a re-rating catalyst. The new CEO, Mr Sng Seow Wah has a strong track record in turning around banks with exposure to SME and consumer segments. He had successfully improved the business and profitability of a Malaysian bank, thus increasing its valuation. He also initiated a high dividend payout ratio policy to share the bank s success with shareholders. We believe BDMN should see similar success under his leadership but we would give a discount to the parameters after taking into account the different operating environment in Indonesia. Key risks. This would be mainly slower-than-expected changes in business processes and the new business model being ineffective. But these changes will take time and resources to implement. Failure of the transformation programme will not only impact operations and profitability, but the opportunity cost would magnify the impact. The other key risks for BDMN are failure to maintain liquidity and weaker-than-expected deposit growth since its loan-to-deposit ratio has always been high. Page 5

6 Indonesian Banks: Peer comparison Banking Group Market cap Price Target Price Rating PE (x) CAGR PBV (x) ROE (%) Net div (%) (US$bn) (Rp/s) (Rp/s) FY14A FY15F FY16F ^ (%) FY14A FY15F FY16F FY16F FY16F Bank Central Asia 23,979 13,225 15,500 BUY 19.8x 18.3x 16.9x x 3.6x 3.1x 19.9% 1.6% 2,678 3,800 4,200 BUY 13.9x 14.2x 10.5x x 1.0x 1.0x 9.6% 2.1% Bank Mandiri 16,516 9,625 9,400 HOLD 11.3x 13.1x 10.4x x 2.0x 1.7x 18.0% 1.9% Bank Negara Indonesia 6,693 4,880 5,000 HOLD 8.4x 10.8x 8.1x x 1.4x 1.2x 16.4% 2.8% Bank Rakyat Indonesia 20,364 11,225 10,200 HOLD 11.4x 11.4x 11.0x x 2.3x 2.0x 19.5% 1.8% Bank Tabungan Negara 1,066 1,370 1,080 HOLD 12.7x 9.2x 7.8x x 1.1x 1.0x 12.9% 3.2% Bank Tabungan Pensiunan Nasional 919 2,140 3,000 HOLD 6.5x 6.3x 5.9x x 0.9x 0.8x 13.9% 0.0% Panin Bank 1, HOLD 6.7x 8.1x 7.4x x 0.7x 0.6x 9.0% 0.0% Weighted average 13.8x 13.9x 12.3x x 2.5x 2.2x 18.3% 1.8% Simple average 11.3x 11.4x 9.7x x 1.6x 1.4x 14.9% 1.7% Weighted average (ex BBCA) 10.9x 11.8x 10.1x x 1.9x 1.7x 17.6% 2.0% Simple average (ex BBCA) 10.1x 10.5x 8.7x x 1.3x 1.2x 14.2% 1.7% ^ Refers to 2-year EPS CAGR for FY14-16F Source: Companies, Bloomberg Finance L.P., DBS Bank Page 6

7 Key Assumptions FY Dec 2013A 2014A 2015F 2016F 2017F Gross Loans Growth Customer Deposits Growth Yld. On Earnings Assets Avg Cost Of Funds Income Statement (Rpbn) FY Dec 2013A 2014A 2015F 2016F 2017F Margins Trend Rp bn Net Interest Income 13,531 13,680 13,011 13,989 15,758 Non-Interest Income 5,643 4,763 5,382 6,192 7,177 Operating Income 19,174 18,443 18,393 20,182 22,934 Operating Expenses (10,221) (10,394) (9,982) (10,655) (11,466) Pre-provision Profit 8,953 8,050 8,412 9,527 11,468 Provisions (3,348) (3,986) (4,509) (4,210) (4,728) Associates Exceptionals Pre-tax Profit 5,530 3,554 3,413 4,650 5,894 Taxation (1,371) (871) (836) (1,139) (1,445) Minority Interests (118) (78.7) (26.1) (45.7) (58.9) Preference Dividend Net Profit 4,042 2,604 2,550 3,464 4,391 Net Profit bef Except 4,042 2,604 2,550 3,464 4,391 Growth (%) Net Interest Income Gth (4.9) Net Profit Gth 0.7 (35.6) (2.1) 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 Source: Company, DBS Bank 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000, % 9.2% 8.7% 8.2% 7.7% 7.2% 2013A 2014A 2015F 2016F 2017F Net Interest Income Net Interest Income Margin Page 7

8 Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Quarterly Net Profit & Growth 4,000 3,500 20% 15% Net Interest Income 3,530 3,580 3,122 3,644 3,608 Non-Interest Income 1,014 1,098 1,367 1, ,000 2,500 2,000 10% 5% Operating Income 4,544 4,678 4,488 5,386 4,090 Operating Expenses (2,608) (2,557) (2,416) (3,462) (1,870) Pre-Provision Profit 1,936 2,121 2,073 1,924 2,220 Provisions (1,055) (1,010) (1,132) (1,107) (1,322) Associates Exceptionals ,500 1, Q2013 3Q2013 4Q2013 1Q2014 Net Interest Income 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Net Interest Income Growth % (QoQ) 0% -5% -10% -15% Pretax Profit Taxation (207) (161) (227) (203) (216) Minority Interests (17.4) (15.6) (12.8) (16.5) (21.6) Net Profit Growth (%) Net Interest Income Gth (12.8) 16.7 (1.0) Net Profit Gth 0.6 (19.2) 37.8 (17.7) 13.8 Balance Sheet (Rpbn) FY Dec 2013A 2014A 2015F 2016F 2017F Cash/Bank Balance 21,182 17,983 23,807 28,999 31,572 Government Securities 5,598 7,146 8,358 9,857 11,690 Inter Bank Assets 3,758 9,675 11,612 13,934 16,721 Total Net Loans & Advs. 103, , , , ,939 Investment 7,739 8,888 10,024 11,274 12,648 Associates Fixed Assets 2,199 2,490 2,520 2,462 2,316 Goodwill 1,378 1,367 1,367 1,367 1,367 Other Assets 38,914 41,386 37,462 36,335 37,408 Total Assets 184, , , , ,661 Gross Loan& Growth 6,000 5,000 4,000 3,000 2,000 1,000 0 Rp bn 2013A 2014A 2015F 2016F 2017F Fees & Commissions Fees & Commissions Growth (%) (YoY) (RHS) 0% -10% -20% -30% -40% -50% -60% -70% -80% -90% -100% Customer Deposits 109, , , , ,699 Inter Bank Deposits 1,695 2,426 2,060 2,243 2,152 Debts/Borrowings 28,191 26,390 29,754 32,729 36,002 Others 13,638 17,380 15,258 16,242 15,750 Minorities Shareholders' Funds 31,251 32,780 34,639 37,338 40,690 Total Liab& S/H s Funds 184, , , , ,661 Source: Company, DBS Bank Customer Deposit & Growth Rp bn 140, , ,000 80,000 60,000 40,000 20, A 2014A 2015F 2016F 2017F Customer Deposits (LHS) Customer Deposits Growth (%) (YoY) (RHS) 30% 25% 20% 15% 10% 5% 0% Page 8

9 Financial Stability Measures (%) FY Dec 2013A 2014A 2015F 2016F 2017F NPL / Total Gross Loans 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 Source: Company, DBS Bank 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2013A 2014A 2015F 2016F 2017F Target Price & Ratings History Rp S.No. Date Closing Price Target Price Rating 1: 18 Mar BUY 2: 17 Apr BUY 3: 25 Jun BUY 4: 01 Jul BUY 5: 15 Jul BUY 6: 28 Jul BUY 7: 06 Aug BUY 8: 13 Aug BUY 9: 03 Sep HOLD 10: 30 Sep HOLD 11: 27 Oct HOLD 2560 Feb-15 Jun-15 Oct-15 Feb-16 Note : Share price and Target price are adjusted for corporate actions. Source: DBS Bank Page 9

10 DBS Bank 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 GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the DBS Vickers Group ) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the DBS Group )) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) (b) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. 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. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-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 this report. As of 2 February 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report ( interest includes direct or indirect ownership of securities). Page 10

11 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 31 Dec Compensation for investment banking services: DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Bank Central Asia, Indonesia, Bank Rakyat Indo, Bank Tabungan Negara as of 31 Dec DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek compensation for investment banking services from as of 31 Dec 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. RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia Hong Kong Indonesia Malaysia This report is being distributed in Australia by DBS Bank Ltd. ( DBS ) or DBS Vickers Securities (Singapore) Pte Ltd ( DBSVS ), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 ( CA ) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for wholesale investors within the meaning of the CA. This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission. This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia. This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. Wong Ming Tek, Executive Director, ADBSR Singapore Thailand United Kingdom This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No E) or DBSVS (Company Regn No G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at for matters arising from, or in connection with the report. This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it. This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients. Page 11

12 Dubai United States Other jurisdictions 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. 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 Company Regn. No E Page 12