Global rubber gloves. A tale of two regions GLOBAL. Event. Impact. Outlook

Transcription

1 GLOBAL TOPG MK Outperform Price (at 08:44, 16 Dec 2015 GMT) RM13.52 Valuation RM PER 12-month target RM month TSR % Market cap RMm 7,686 Investment fundamentals Year end 31 Aug (RM) 2015A 2016E 2017E 2018E Revenue m 2, , , ,490.4 EBIT m Adjusted profit m EPS adj sen PER adj x ROE % HART MK Outperform Price (at 08:44, 16 Dec 2015 GMT) RM5.83 Valuation - PER RM month target RM month TSR % -2.5 Market cap RMm 9,878 Investment fundamentals Year end 31 Mar (RM) 2015A 2016E 2017E 2018E Revenue m 1, , , ,624.9 EBIT m Adjusted profit m EPS adj sen PER adj x ROE % SUCB MK Underperform Price (at 08:44, 16 Dec 2015 GMT) RM3.27 Valuation - PER RM month target RM month TSR % Market cap RMm 2,013 Investment fundamentals Year end 31 Dec (RM) 2014A 2015E 2016E 2017E Revenue m 1, , , ,416.9 EBIT m Adjusted profit m EPS adj sen PER adj x ROE % ANN AU Outperform Price (at 05:10, 16 Dec 2015 GMT) A$20.25 Valuation A$ DCF (WACC 8.4%, beta 1.1, ERP 5.0%, RFR 3.8%, TGR 2.0%) 12-month target A$ month TSR % Market cap A$m 3,088 Investment fundamentals Year end 30 Jun (USD) 2015A 2016E 2017E 2018E Revenue m 1, , , ,799.6 EBIT m Adjusted profit m EPS adj PER adj x ROE % Source: FactSet, Macquarie Research, December December 2015 A tale of two regions Event Over the past 12 months we have seen a large divergence in the stock performance between the Malaysian rubber glove manufacturers (TOPG.MK, HART.MK and SUCB.MK) and Australian-based glove manufacturer Ansell (ANN.AU). In this note, we examine the drivers underpinning this discrepancy and assess the implications for future performance. Impact Currency and falling latex prices a significant boost for Malaysian manufacturers: Earnings for the Malaysia manufacturers have been boosted by the sharp fall in the MYR (-18% vs. USD) which, on a predominately MYR cost base, has a meaningful impact on earnings. Conversely ANN s higher SG&A (which is matched to sales currency) means it has not been impacted to the same extent. Further, ANN derives a higher proportion of sales (~1/4) in EUR (which has remained relatively flat vs. the AUD) and also does not have the same exposure to falling latex prices. Malaysian players have boosted share: Hartalega and Top Glove have both executed on meaningful capacity expansion over the past months, which has helped underpin significant market share gains. The debasing of the MYR has also made the Malaysian companies more competitive against their competitors in Thailand and China, where local currencies have not fallen to the same extent. This together with efficiency programs has allowed TOPG and HART to take market share at the same time as materially improving profit margins. Ansell continues to be impacted by industrial weakness: Unlike the Malaysian manufacturers, ANN derives approximately half of its sales from its industrial business. Global industrial activity has remained sluggish throughout CY15, meaning that whilst ANN has performed well competitively in the segment, organic growth has remained relatively flat. Outlook Outlook for Malaysia manufacturers remains strong: We expect earnings for TOPG and HART to continue to grow as their ongoing capacity expansion and production efficiencies are augmented by favourable currency and raw material levels. Although SUCB will benefit from the same macro factors, it is suffering from significant capacity constraints, which we believe do not support the recent rally in its share price. Our preference order is Top Glove (TOPG MK, RM13.52, Outperform, TP: RM16.70), Hartalega (HART MK, RM5.83, Outperform, TP: RM5.78), follow by Supermax Corp (SUCB MK, RM3.27, Underperform, TP: RM1.95), all covered by Chi Hoong Ng. Ansell about to turn the corner: With global industrial activity likely to remain suppressed in the medium term, the growth outlook for Ansell (ANN AU, A$20.25, Outperform, TP: A$26.00, Craig Collie) remains lower than its Malaysia peers. However at 12.5x F16E, we believe the subdued IP environment is already reflected in its price and we see good support to earnings from ongoing synergy extraction, further acquisitions, operational efficiencies and continued growth in its more defensive medical and sexual wellness businesses. Please refer to page 12 for important disclosures and analyst certification, or on our website

2 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Macquarie Wealth Management Malaysian manufacturers have significantly outperformed Ansell in 2015 As highlighted below, Malaysian rubber glove manufacturers Top Glove (TOPG.MK +153%), Hartalega (HART.MK +64%) and Supermax (SUCB.MK +68%) have significantly outperformed Australian manufacturer Ansell (-4%) over CY15: Fig 1 YTD stock performance Total return index Source: FactSet, Macquarie Research, December 2015 Top Glove Hartalega Supermax Ansell This outperformance has been driven by both faster earnings growth and greater PE multiple expansion: Earnings growth for the Malaysian manufacturers averaged 18% EPSg over F15 and F16e, materially higher than the 3% delivered by ANN over the same period (Macq. forecasts); PE multiple for the Malaysian manufacturers expanded by 51%, 45% and 26% for TOPG, HART and SUCB respectively over CY15, whilst ANN s multiple contracted by 10% over the same period. Fig 2 Outperformance driven by multiple expansion and change in earnings expectations PE PE ratios - One year forward PER +45% +51% -10% +26% 70% 60% 50% 40% 30% 20% 10% 0% Change in 1yr forward earnings expectations 63% 31% 11% 4% 5-10% 0-20% Top Glove Hartalega Supermax Ansell Top Glove Hartalega Supermax Ansell Note: ANN earnings depicted in listed currency (AUD) to allow for like-for-like comparison. Macquarie Research, December Source: FactSet, 21 December

3 Malaysia manufacturer earnings driven by FX, raw material savings and market share gains Malaysian manufacturer earnings growth has been driven by capacity expansion, margin expansion, favourable FX rates and lower raw material prices. Capacity and volume expansion: The average capacity growth rate for the top 4 listed manufacturers grew by 15% for the past 12 months, with almost all capacity dedicated to the nitrile (synthetic) glove segment. Although capacity growth continues to outpace demand growth, the listed manufacturers are able to keep utilisation healthy as they continue to take market share from their competitors (foreign and local); Fig 3 TOPG s earnings growth driven by higher vols Fig 4 A similar story for HART... bn pcs/per Q Sales volume Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 bn pcs/ per Q Sales volume Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep -15 Source: Company data, Macquarie Research, December 2015 Source: Company data, Macquarie Research, December 2015 Investment in automation: To protect their margins from increasing labour costs, Malaysian manufacturers have modernised their production facilities (i.e. increased automation) since the 2013 implementation of minimum wages in Malaysia. This transformation has started to bear fruit, with their labour costs remaining relatively flat over the period (currently 11-12% of COGS vs. the pre-2013 level of 8-9%); and Fig 5 Automation has improved efficiency and allowed TOPG to maintain stable labour costs in the face of rising wages TOPG cost breakdown F15 Fig 6 HART was a pioneer of factory automation and has also kept labour costs at a relatively stable level since 2013 HART cost breakdown F15 Fuel 11% Labour 11% Fuel 9% Labour 11% Latex 47% Packaging 5% Latex 38% Packaging 5% Chemical 9% Overhead & others 28% Chemical 9% Overhead & others 17% Source: Company data, Macquarie Research, December 2015 Source: Company data, Macquarie Research, December 2015 Favourable FX movements and low raw material prices: Falling natural latex prices (see below) has helped the latex glove margins, which was badly impacted by the overcapacity seen 2 years ago. Furthermore the weakening MYR has helped margins, as 60-80% of COGS are MYR denominated, while revenue contracts continue to be predominately written in USD. 21 December

4 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Macquarie Wealth Management Fig 7 Latex prices have fallen significantly since 2013, assisting the recovery in latex glove margins... Fig 8 Similarly the weakening of the MYR against the USD has also helped the recovery in margin 650 Latex (RM/kg) 5.00 USD/MYR Source: Bloomberg, Macquarie Research, December 2015 Source: Bloomberg, Macquarie Research, December 2015 Ansell meanwhile has not enjoyed the same tailwinds ANN s earnings expectations have remained relatively flat over the past 12 months relative to its Malaysian peers, for several reasons: Comparatively less currency tailwinds: Unlike its Malaysian peers, ANN s currency tailwinds over the past 12 months have been relatively modest, for three reasons: 1. Unlike the MYR manufacturers ANN s costs are relatively well matched to its revenues, meaning that revenue tailwinds from a falling AUD have been offset by increasing costs as in AUD terms; 2. ANN derives many of its overseas sales (~25% in F15) from European customers who purchase goods in EUR which relative to the AUD has been relatively flat (see below); and 3. Whilst the AUD has fallen against the USD (-11% to date in CY15), it has not fallen as much as the MYR over the same time period (-18%). Fig 9 MYR has depreciated more than the AUD in CY15 10% Change in currency 5% 0% -5% -3% -10% -15% -11% -20% -18% -25% Source: FactSet, Macquarie Research, December 2015 MYR/USD AUD/USD AUD/EUR 21 December

5 Continued sluggishness in developed market manufacturing: ANN derives a significant proportion of its earnings from industrial glove sales (~50%), unlike the Malaysian manufacturers. Sales in this Division have been relatively flat for ANN over the past 12 months with developed market manufacturing and industrial activity (the main driver of growth) having been subdued. As shown below, US PMI has tracked lower over the course of CY15 (with the exception of a minor spike in June), from 55.5 (at the beginning of January) to 48.6 (in December). Furthermore, ANN has relatively high exposure to the Oil and Gas and US ports sub-sectors, which have experienced meaningful slowdowns in recent months; Fig 10 Weakness in global PMI data over CY15, particularly in the US 65 Manufacturing PMI Eurozone USA China Japan Brazil Source: Bloomberg, Macquarie Research, December 2015 Weakness in Brazil and Russia: Two of ANN s key emerging market businesses, Russia and Brazil, significantly underperformed management s expectations in F15. Russia s sales were severely impacted (-37%) by a falling oil price and a number of geopolitical sanctions. The company also saw revenue declines in Brazil (-7% vs. F14) on the back of the sustained macroeconomic weakness being felt in the region. Malaysian manufacturer PE multiples have expanded on an improved growth outlook The multiple expansions seen in the Malaysian rubber glove sector started in 2HCY15 and have been driven by earnings delivery (recovery from CY14 lows), favourable macro price movements (forex and latex) and also investors preference for growth stocks in Malaysia. Earnings delivery and outlook: On average, the Malaysian glove sector has delivered 30% earnings growth in F15 (significantly higher than the -10% earnings growth seen in F14). Top Glove, the outperformer of the sector (+153% total return YTD), has an impressive earnings growth rate of 55% for FY15, which was partly due to the recovery of earnings from a lower base (-8% in F14 and -3% in F13). And with the market expecting further market share gains and tailwinds from lower raw materials, the growth outlook for the companies remains strong; Cost advantage relative to competitors to remain: The prolonged weakness of the MYR, has made the Malaysian manufacturers more competitive against competitors in other countries like Thailand and China. This has helped them maintain sharp pricing in USD and market share gains, at the same time as expanding margins. Although it is difficult to predict with great certainty future FX movements, at current levels we expect the relative cost advantage of the Malaysian manufacturers to drive continued market share gains; and 21 December

6 A strong preference for growth stock in Malaysia: CY15 has been the year for export oriented stocks in Malaysia due to both the weakening MYR and consumer sentiment. We have seen a strong preference from investors for export names due to their strong earnings delivery, while most domestically focussed stocks have languished. With both currency and sentiment continuing to provide favourable trading conditions, we doubt the interest for the sector will wear off soon, despite earnings growth normalising somewhat. A lack of organic growth has hampered ANN s PE multiple ANN s multiple has experienced a contraction since the beginning of CY15, declining from 15.2x to 13.7% (-10%). We attribute this to three factors: 1. A lack of organic growth across all of ANN s business units: ANN recorded 0.6% in organic sales growth in F15 with the majority of the company s growth being driven by acquisitions (this has continued to be the case over recent years). With this challenge now having persisted for a number of years, we believe concerns about ANN s ability to grow organically have increased; 2. Headwind from F16 as DTA benefits expire: ANN s reported tax rate is set to increase from ~15.5% in F15 to ~20.5% in F16 and to 24-25% in F17. This step-up is related to a roll-off on the company s accumulated DTA benefits, providing an additional headwind to ANN s earnings in the coming years, which we believe is now being reflected in its multiple; and 3. Likely persistence of weak global manufacturing activity: As can be seen in the PMI chart above (Fig 10), the second half of CY15 has seen a further weakening in global manufacturing activity, with significant declines coming in the US and Brazil (two key markets for ANN). With industrial activity a lead indicator for ANN sales growth, we believe the continued sluggishness has dampened expectations for a rebound in sales growth anytime soon. Stock calls for the sector Maintain Outperform on Top Glove (target price: RM16.70) and Hartalega (target price: RM5.78): With ongoing capacity expansion and production efficiencies set to continue, we remain positive on the growth outlook for both TOPG and HART. The upside risk to our earnings forecasts and valuations is the continued weakening of both the MYR and raw material prices (latex and nitrile). Maintain Outperform on Ansell (target price: $26.00): Although global manufacturing activity remains sluggish and with it ANN s immediate organic growth prospects, we believe this is more than reflected in its current multiple of 12.5x F16 EPS. And although it is difficult to predict the timing of a rebound in global industrial activity we believe it will happen. In the meantime, we believe ANN will still grow, through ongoing synergy extraction, acquisitions, operational efficiencies and growth in its more defensive medical and sexual wellness businesses. Maintain Underperform on Supermax (target price: RM1.95): Although SUCB will benefit from the same macro factors as the other two Malaysian companies, it is suffering from significant capacity constraints which we believe do not support the recent rally in its share price. Management s execution capability to consistently expand capacity is our biggest concern. 21 December

7 Fig 11 The Malaysian names are forecast to experience superior earnings growth to their international peers EPS Price Target Up/(Down) side ADV Rec Market cap PER 1 (x) Div Yield 1 (%) CAGR 1 (15-18) Company Name Bbg Ticker (lcy) (lcy) (%) (US$ m) (US$m) FY0 FY1 FY2 FY3 FY1 FY2 % Hartalega HART MK Opf 2, Top Glove Corp TOPG MK Opf 1, Kossan Rubber KRI MK 8.94 na na 5.1 na 1, Supermax Corp SUCB MK Upf Ansell Ltd ANN AU Opf 2, Semperit Ag SEM AV na na 0.5 na Simple Average Mkt Weighted Average (1) Calculations conducted in USD. Source: Bloomberg, Macquarie Research, December 2015, Prices as of 18/12/ December

8 Fig 12 Top Glove (TOPG MK, Outperform, Target Price: RM16.70) Quarterly Results 1Q/16A 2Q/16E 3Q/16E 4Q/16E Profit & Loss 2015A 2016E 2017E 2018E Revenue m Revenue m 2,511 3,203 3,861 4,490 Gross Profit m Gross Profit m ,058 Cost of Goods Sold m Cost of Goods Sold m 1,811 2,344 2,927 3,433 EBITDA m EBITDA m Depreciation m Depreciation m Amortisation of Goodwill m Amortisation of Goodwill m Other Amortisation m Other Amortisation m EBIT m EBIT m Net Interest Income m Net Interest Income m Associates m Associates m Exceptionals m Exceptionals m Forex Gains / Losses m Forex Gains / Losses m Other Pre-Tax Income m Other Pre-Tax Income m Pre-Tax Profit m Pre-Tax Profit m Tax Expense m Tax Expense m Net Profit m Net Profit m Minority Interests m Minority Interests m Reported Earnings m Reported Earnings m Adjusted Earnings m Adjusted Earnings m EPS (rep) sen EPS (rep) sen EPS (adj) sen EPS (adj) sen EPS Growth yoy (adj) % EPS Growth (adj) % PE (rep) x PE (adj) x EBITDA Margin % Total DPS sen EBIT Margin % Total Div Yield % Earnings Split % Basic Shares Outstanding m Revenue Growth % Diluted Shares Outstanding m EBIT Growth % Profit and Loss Ratios 2015A 2016E 2017E 2018E Cashflow Analysis 2015A 2016E 2017E 2018E Revenue Growth % EBITDA m EBITDA Growth % Tax Paid m EBIT Growth % Chgs in Working Cap m Gross Profit Margin % Net Interest Paid m EBITDA Margin % Other m EBIT Margin % Operating Cashflow m Net Profit Margin % Acquisitions m Payout Ratio % Capex m EV/EBITDA x Asset Sales m EV/EBIT x Other m Investing Cashflow m Balance Sheet Ratios Dividend (Ordinary) m ROE % Equity Raised m ROA % Debt Movements m ROIC % Other m Net Debt/Equity % Financing Cashflow m Interest Cover x ,157.3 Price/Book x Net Chg in Cash/Debt m Book Value per Share Free Cashflow m All figures in MYR unless noted. Source: Company data, Macquarie Research, December 2015 Balance Sheet 2015A 2016E 2017E 2018E Cash m Receivables m Inventories m Investments m Fixed Assets m 1,178 1,259 1,374 1,529 Intangibles m Other Assets m Total Assets m 2,692 3,039 3,358 3,670 Payables m Short Term Debt m Long Term Debt m Provisions m Other Liabilities m Total Liabilities m 1,078 1,157 1,266 1,354 Shareholders' Funds m 1,608 1,875 2,085 2,310 Minority Interests m Other m Total S/H Equity m 1,615 1,882 2,092 2,316 Total Liab & S/H Funds m 2,692 3,039 3,358 3, December

9 Fig 13 Hartalega (HART MK, Outperform, Target Price: RM5.78) Quarterly Results 2Q/16A 3Q/16E 4Q/16E 1Q/17E Profit & Loss 2015A 2016E 2017E 2018E Revenue m Revenue m 1,146 1,626 2,145 2,625 Gross Profit m Gross Profit m Cost of Goods Sold m Cost of Goods Sold m 783 1,134 1,575 1,971 EBITDA m EBITDA m Depreciation m Depreciation m Amortisation of Goodwill m Amortisation of Goodwill m Other Amortisation m Other Amortisation m EBIT m EBIT m Net Interest Income m Net Interest Income m Associates m Associates m Exceptionals m Exceptionals m Forex Gains / Losses m Forex Gains / Losses m Other Pre-Tax Income m Other Pre-Tax Income m Pre-Tax Profit m Pre-Tax Profit m Tax Expense m Tax Expense m Net Profit m Net Profit m Minority Interests m Minority Interests m Reported Earnings m Reported Earnings m Adjusted Earnings m Adjusted Earnings m EPS (rep) sen EPS (rep) sen EPS (adj) sen EPS (adj) sen EPS Growth yoy (adj) % EPS Growth (adj) % PE (rep) x PE (adj) x EBITDA Margin % Total DPS sen EBIT Margin % Total Div Yield % Earnings Split % Basic Shares Outstanding m 1,603 1,603 1,603 1,603 Revenue Growth % Diluted Shares Outstanding m 1,559 1,503 1,603 1,603 EBIT Growth % Profit and Loss Ratios 2015A 2016E 2017E 2018E Cashflow Analysis 2015A 2016E 2017E 2018E Revenue Growth % EBITDA m EBITDA Growth % Tax Paid m EBIT Growth % Chgs in Working Cap m Gross Profit Margin % Net Interest Paid m EBITDA Margin % Other m EBIT Margin % Operating Cashflow m Net Profit Margin % Acquisitions m Payout Ratio % Capex m EV/EBITDA x Asset Sales m EV/EBIT x Other m Investing Cashflow m Balance Sheet Ratios Dividend (Ordinary) m ROE % Equity Raised m ROA % Debt Movements m ROIC % Other m Net Debt/Equity % Financing Cashflow m Interest Cover x 2, Price/Book x Net Chg in Cash/Debt m Book Value per Share Free Cashflow m All figures in MYR unless noted. Source: Company data, Macquarie Research, December 2015 Balance Sheet 2015A 2016E 2017E 2018E Cash m Receivables m Inventories m Investments m Fixed Assets m 1,044 1,379 1,707 1,828 Intangibles m Other Assets m Total Assets m 1,458 2,187 2,511 2,840 Payables m Short Term Debt m Long Term Debt m Provisions m Other Liabilities m Total Liabilities m Shareholders' Funds m 1,269 1,537 1,711 1,927 Minority Interests m Other m Total S/H Equity m 1,271 1,539 1,713 1,929 Total Liab & S/H Funds m 1,458 2,187 2,511 2, December

10 Fig 14 Supermax Corp (SUCB MK, Underperform, Target Price: RM1.95) Quarterly Results 4Q/14A 1Q/15E 2Q/15E 3Q/15E Profit & Loss 2014A 2015E 2016E 2017E Revenue m Revenue m 1,008 1,466 1,919 2,417 Gross Profit m Gross Profit m Cost of Goods Sold m Cost of Goods Sold m 764 1,193 1,584 1,992 EBITDA m EBITDA m Depreciation m Depreciation m Amortisation of Goodwill m Amortisation of Goodwill m Other Amortisation m Other Amortisation m EBIT m EBIT m Net Interest Income m Net Interest Income m Associates m Associates m Exceptionals m Exceptionals m Forex Gains / Losses m Forex Gains / Losses m Other Pre-Tax Income m Other Pre-Tax Income m Pre-Tax Profit m Pre-Tax Profit m Tax Expense m Tax Expense m Net Profit m Net Profit m Minority Interests m Minority Interests m Reported Earnings m Reported Earnings m Adjusted Earnings m Adjusted Earnings m EPS (rep) sen EPS (rep) sen EPS (adj) sen EPS (adj) sen EPS Growth yoy (adj) % EPS Growth (adj) % PE (rep) x PE (adj) x EBITDA Margin % Total DPS sen EBIT Margin % Total Div Yield % Earnings Split % Basic Shares Outstanding m Revenue Growth % Diluted Shares Outstanding m EBIT Growth % Profit and Loss Ratios 2014A 2015E 2016E 2017E Cashflow Analysis 2014A 2015E 2016E 2017E Revenue Growth % EBITDA m EBITDA Growth % Tax Paid m EBIT Growth % Chgs in Working Cap m Gross Profit Margin % Net Interest Paid m EBITDA Margin % Other m EBIT Margin % Operating Cashflow m Net Profit Margin % Acquisitions m Payout Ratio % Capex m EV/EBITDA x Asset Sales m EV/EBIT x Other m Investing Cashflow m Balance Sheet Ratios Dividend (Ordinary) m ROE % Equity Raised m ROA % Debt Movements m ROIC % Other m Net Debt/Equity % Financing Cashflow m Interest Cover x Price/Book x Net Chg in Cash/Debt m Book Value per Share Free Cashflow m All figures in MYR unless noted. Source: Company data, Macquarie Research, December 2015 Balance Sheet 2014A 2015E 2016E 2017E Cash m Receivables m Inventories m Investments m Fixed Assets m Intangibles m Other Assets m Total Assets m 1,505 1,738 1,893 2,095 Payables m Short Term Debt m Long Term Debt m Provisions m Other Liabilities m Total Liabilities m Shareholders' Funds m 980 1,132 1,217 1,332 Minority Interests m Other m Total S/H Equity m 980 1,131 1,216 1,331 Total Liab & S/H Funds m 1,505 1,738 1,893 2, December

11 Fig 15 Ansell (ANN AU, Outperform, Target Price: AUD26.00) Profit & Loss USD 1H/15A 2H/15A 1H/16E 2H/16E 1H/17E 2H/17E 1H/18E 2H/18E 2015A 2016E 2017E 2018E Sales Industrial US$m Specialty US$m Medical US$m SHWB US$m Total Sales US$m Growth % 20.4% -10.0% -8.0% 5.2% 4.4% 6.6% 5.6% 5.1% 3.5% -1.6% 5.6% 5.4% + Other US$m Total Revenue US$m Reported EBITDA US$m EBITDA margin % 16.0% 17.0% 16.0% 18.2% 15.8% 19.2% 16.1% 19.5% 16.5% 17.1% 17.6% 17.9% - Depreciation & Other Amortisation US$m % of sales % 2.0% 1.4% 2.3% 2.2% 2.4% 2.2% 2.4% 2.3% 1.7% 2.2% 2.3% 2.4% Industrial US$m Single Use US$m Medical US$m SHWB US$m Corporate revenue/costs US$m Underlying EBIT US$m EBIT margin % 14.0% 15.4% 13.7% 16.0% 13.4% 16.9% 13.7% 17.2% 14.7% 14.9% 15.3% 15.5% Reported EBIT US$m EBIT margin % 14.0% 15.7% 13.7% 16.0% 13.4% 16.9% 13.7% 17.2% 14.8% 14.9% 15.3% 15.5% - Net Interest Expense US$m Pretax Profit US$m Tax Expense US$m tax rate % 17.3% 14.1% 19.8% 20.9% 24.5% 24.5% 24.5% 24.5% 15.6% 20.4% 24.5% 24.5% Net Profit US$m Minority Interests US$m Reported Profit US$m Abnormals US$m Adjusted Profit US$m Gross Cashflow US$m EPS (basic) US EPS (adj / fully diluted) US EPS Growth % 22.3% 7.0% -12.0% 1.0% -2.3% 7.7% 9.0% 7.4% 13.7% -5.0% 3.3% 8.0% CFPS (incl. NIA, fully diluted) US DPS as paid in Australian currency A PGCFPS x Yield % 2.0% 1.9% 2.0% 2.1% Franking % 0.0% 0.0% 0.0% 0.0% EV/EBIT Ordinary Fully Paid m EFPOWA m Cashflow Analysis USD 1H/15A 2H/15A 1H/16E 2H/16E 1H/17E 2H/17E 1H/18E 2H/18E 2015A 2016E 2017E 2018E EBITDA US$m Inc. in Working capital US$m Net Interest Paid US$m Tax Paid US$m Other (P&L asset sales) US$m Net Cash in Op Activities US$m Asset Sales US$m Capex, Acq's & Invest. US$m Other US$m Net cash in investing US$m Dividends Paid (before DRP) US$m Equity Movements (inc. DRP) US$m Debt Movements US$m Other US$m Net cash in financing US$m Opening Cash balance US$m Net Increase in Cash US$m Adjusting Figure (inc. net exch. diff.) US$m Net Cash movement US$m Cash Balance US$m Performance Analysis Balance Sheet (US$m) 2015A 2016E 2017E 2018E Cash + equiv Medical 28% FY15 EBIT breakdown % SHWB 11% Single Use 24% Indust. 37% Source: Company data, Macquarie Research, December 2015 Current Assets Investments Fixed Assets Intangibles Other Assets Total Assets Short Term Debt Long Term Debt Other Liabilities Total Liabilities Net Assets Shareholders Funds Minority Interests Total Shareholder Funds Ratios 2015A 2016E 2017E 2018E Working Capital Interest cover (times) Gearing (D/D+E) (%) 28.3% 30.5% 25.5% 20.4% Return on Equity (%) 16.3% 14.9% 14.7% 14.4% Return on Assets (%) 10.3% 10.1% 10.6% 10.6% 21 December

12 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 30 September 2015 AU/NZ Asia RSA USA CA EUR Outperform 48.87% 59.96% 35.63% 42.13% 59.44% 42.11% (for US coverage by MCUSA, 3.54% of stocks followed are investment banking clients) Neutral 33.44% 25.00% 39.08% 52.55% 37.06% 38.42% (for US coverage by MCUSA, 5.05% of stocks followed are investment banking clients) Underperform 17.68% 15.04% 25.29% 5.32% 3.50% 19.47% (for US coverage by MCUSA, 0.51% of stocks followed are investment banking clients) SUCB MK vs KLCI, & rec history HART MK vs KLCI, & rec history TOPG MK vs KLCI, & rec history (all figures in MYR currency unless noted) ANN AU vs ASX 100, & rec history (all figures in MYR currency unless noted) (all figures in MYR currency unless noted) (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, December month target price methodology SUCB MK: RM1.95 based on a PER methodology HART MK: RM5.78 based on a PER methodology TOPG MK: RM16.70 based on a PER methodology ANN AU: A$26.00 based on a DCF methodology Company-specific disclosures: TOPG MK: Macquarie may be an Issuer of Structured Warrants on securities mentioned in this report HART MK: Macquarie may be an Issuer of Structured Warrants on securities mentioned in this report SUCB MK: Macquarie may be an Issuer of Structured Warrants on securities mentioned in this report. Macquarie Group Limited together with its affiliates beneficially owns 1% or more of the equity securities of Supermax Corporation Bhd. ANN AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Ansell Limited's equity securities. Important disclosure information regarding the subject companies covered in this report is available at Target price risk disclosures: TOPG MK: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. 21 December

13 HART MK: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. SUCB MK: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. ANN AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Ltd total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN , AFSL No ) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN , AFSL No ) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. 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The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at 21 December