Entering the next growth phase. Rationale for report: Company Visit. Investment Highlights. d e x P o

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1 CNSUMER THREE- RESURCES (TRE MK, THE.KL) 29 tober 22 Comany reort Low Soo Fang Entering the next growth hase Rationale for reort: Comany Visit BUY (Maintained) Prie Fair Value 52-week High/Low Key Changes Fair value EPS RM.7 RM.5 RM.4/RM.99 Unhanged YE to De FY FY2F FY3F FY4F Revenue (RMmil) Core net rofit (RMmil) EPS (Sen) EPS growth (%) n/a Consensus EPS (Sen) n/a n/a n/a n/a DPS (Sen) PE (x) EV/EBITD (x) Div yield (%) RE (%) Net Gearing (%) Stok and Finanial Data Shares utstanding (million) Market Ca (RMmil) Book value (RM/share).5 P/BV (x) 2.4 RE (%) 7.8 Net Gearing (%) 4. Major Shareholders Mr Fang Chew Ham (2.4%) Wilmar International (5.7%) Free Float (%) 24.4 vg Daily Value (RMmil).4 Prie erformane 3mth 6mth 2mth bsolute (%) (2.) (2.7) (4.2) Relative (%) (4.) (6.) (33.6) ) M 2. (R,746,63,53 In d e x P o in ts Investment Highlights Following our reent omany visit, we re-affirm our BUY reommendation on Three- Resoures (3), with an unhanged fair value of RM.5/share. ur target PE of 2x FY3F earnings is lose to the stok s 5-year mean of 9x. We retain our long-term bullish onvition in 3. The grou has exiting growth lans maed out, baked by its highly-salable business model and suortive oerating dynamis. stable ost struture, steady double-digit demand growth and a transformational rise in earnings as underinned by its maiden 5:5 China JV lant with assoiate Wilmar International (WIL S Equity, Hold) are set to drive 3-year earnings CGR of 3%. To be sure, the grou is in the final hase to attain the remaining ertifiations from the relevant authorities before embarking on full ommerialisation. To rea, the grou had bak in June initiated fine-tuning of mahineries at its state-of-art faility in Qinhuangdao for rodution of better-margin HVP (hydrolysed vegetable rotein). We also understand initial feedbak from 3 s marketing drive has been enouraging leading us to believe the maiden lant may surass our exetation of an 8-2 months aybak eriod. This is remised on:- ) 3 s aess to Wilmar s wide ustomer base and; 2) Wilmar s roven franhise value with a dominant 45%-5% market share of China s ooking oil industry. To underline management s onfidene, we learnt exansion lans are in lae to lift the maiden lant s urrent installed aaity of 6, tonnes/a to 2x the size otentially translating into RM7-8mil additional revenues based on our estimates. Further out, we do not rule out an aelerated exansion hase into other loations given Wilmar s vast geograhial resene in China with over 6 lants. Earnings near term will be mainly driven by its Malaysia os on the bak of enlarged aaities from newly-installed 2 nd aramel olour rodution line (+4, tonnes or +%). More imortantly, we antiiate utilisation rate to see a gradual utik from the urrent 5% to ~75% by end-fy3f, as demand momentum and oerational effiieny kik-in. s it is, management has seured ontrats with a few multinational F&B roduers effetively minimising downside risks. dditionally, 3 has begun onstrution of its 3 rd maltodextrin line for omletion in Jul-ug ,397,28 2 We have trimmed our FY2F EPS foreast by 4%, but our FY3F- 4F rojetions are maintained ost adjustments from:- ) an uward revision to our sales volume growth assumtions, and 2) higher taxation rate of 2%-24%, from 6% reviously due to absene of reinvestment allowanes. PP 2247/6/23 (3238) TRE MK FBM KLCI Valuation is attrative given 3 s solid earnings rosets. The stok is trading at 6.5x forward earnings well below its PE band of 26x-42x.

2 Three- Resoures 29 tober 22 RE-FFIRM BUY, FV: RM.5/SHRE We re-affirm our BUY reommendation on Three- Resoures (3), with an unhanged fair value of RM.5/share. The grou has exiting growth lans maed out, baked by its highly-salable business model and suortive oerating dynamis. stable ost struture, steady double-digit demand growth and a transformational rise in earnings as underinned by its maiden 5:5 China JV lant with assoiate Wilmar International (Wilmar) are set to drive 3- year earnings CGR of 3%. Valuation is attrative, with the stok trading at 6.5x forward earnings well below the stok s 5-year mean of 9x. Full ommerialisation uon ertifiations from relevant authorities To be sure, the grou is in the final hase to attain the remaining ertifiations from the relevant authorities before embarking on a full ommerialisation. To rea, the grou had bak in June initiated fine-tuning of mahineries at its state-of-art faility whih boasts a total floor area measuring 3,6m² in Qinhuangdao, China for the rodution of better-margin HVP (hydrolysed vegetable rotein) (See Chart and 2). Qinhuangdao is a seaort ity loated 3km east of Beijing, in whih a luster of Wilmar-owned lants are situated. ENTERING THE NEXT GRWTH PHSE Exiting growth lans baked by a highly salable business model We retain our long-term bullish onvition in 3, following a reent omany visit. The grou has exiting growth lans maed out, baked by its highly-salable business model and suortive oerating dynamis. stable ost struture off flattish raw material ries, steady double-digit demand growth and a transformational rise in earnings as underinned by its maiden China joint venture lant is set to drive 3-year earnings CGR of 3%. CHRT : QINHUNGD NRTH F CHIN Enouraging marketing feedbak may suggest a shorter aybak eriod We also understand initial feedbak from 3 s marketing drive has been enouraging leading us to believe the maiden lant may surass our exetation of an 8-2 months aybak eriod. This is remised on:- ) 3 s aess to Wilmar s wide ustomer base, and 2) Wilmar s roven franhise value with a dominant 45%-5% market share of China s ooking oil industry. Signifiant synergies to be reaed from assoiate Wilmar International ssoiate Wilmar owns a 5.65% equity stake in 3. The grou is an integrated agribusiness grou in sia with oerations in more than 2 ountries. It is the largest alm biodiesel manufaturer in the world, and a leading merhandiser and refiner of edible oils, oleohemials, rie and flour in China. s an indiation, Wilmar is urrently one of the leaders in soybean refining, and manufaturing of ooking oil in China. Wilmar s own subsidiary Qinhuangdao Goldensea Foodstuff Industries Co. Ltd China s biggest soy rotein roduer is loated nearby, giving rise to immense logistial synergies and distribution strength for 3. Total aex and working aital of USD4mil for JV in China Soure: Comany, mresearh Reall, Wilmar s wholly-owned subsidiary Yihai Kerry Investments Co. Ltd entered into a 5:5 joint venture agreement with 3 bak in May 2. Under the agreement, 3 and Wilmar will jointly invest u to a total of USD4mil (aroximately RM24mil). The initial hase of investment amounting to USD2mil inludes USD6.9mil for the JV lant, and the balane of USD5.mil for working aital uroses. mresearh Sdn Bhd 2

3 Three- Resoures 29 tober 22 CHRT 2 : 3 S BLUEPRINT MNUFCTURING HUB IN CHIN Soure: Comany, mresearh CHRT 3 : WREHUSING & LGISTICS FCILITTED WITH WN RILWY SYSTEM Soure: Comany, mresearh mresearh Sdn Bhd 3

4 Three- Resoures 29 tober 22 Caaity exansion lans in store To underline management s onfidene, we learnt exansion lans are in lae to lift the maiden lant s urrent installed aaity of 6, tonnes er annum (.a.) to 2x the size otentially translating into RM7-8mil additional revenues based on our estimates. s an indiation, installed HVP rodution line of 6, tonnes is already more than 3x the size for equivalent rodue in Malaysia. This is easily ahievable, given unutilised floor sae. Further out, we do not rule out an aelerated exansion hase into other loations given Wilmar s vast geograhial resene in China with over 6 lants. Produt line extension in China lant soon? Beyond that, the grou may look into rodut line extension at its maiden lant in China, given Wilmar s well-known intention to venture into downstream onsumer roduts in China. art from HVP, whih is essential in the manufaturing of saues and seasonings, 3 is also involved in the rodution of other intermediary ingredients suh as aramel olour, maltodextrin and vinegar (See Table ). Margin exansion to ontinue on bak of flattish raw ingredient ries & usaling to higher value roduts Like most onsumer erishable food omanies, the main risk to our earnings foreast is volatile raw material osts. 3 imorts some of its raw ingredients from overseas. Main ingredient of taioa starh is urhased from Thailand, while sugar and soya beans are soured from loal suliers. In the last two years, 3 s erformane was imated by ost overruns arising from riier raw ingredients, namely taioa starh. Consequently, this has led to as muh as a 6t-EBITD margin omression from its historial average of 5%. Current taioa starh rie is still 28% off its all time high Fortunately, taioa starh, whih onstitutes some 4%- 5% of total raw ingredients used, is still some 28% off its all-time high rie of USD63/MT (See Chart 4). Year-todate average rie of USD438/MT is 6% below that reorded last year. Notwithstanding exessive weather-related fators, ries should remain relatively stable on the bak of softening global maroeonomi outlook and the absene of seulative ativities. ERNINGS FINE-TUNED Enlarged aaities from 2 nd aramel olour line to drive earnings near term Earnings near term will be mainly driven by its Malaysia os on the bak of enlarged aaities from newlyinstalled 2 nd aramel olour rodution line (+4, tonnes or +%). More imortantly, we antiiate utilisation rate to see a gradual utik from the urrent 5% to ~75% by end- FY3F as demand momentum and oerational effiieny kik-in. s it is, management has seured ontrats with a few multinational F&B roduers, effetively minimising downside risks. dditionally, the grou has begun onstrution of its 3 rd maltodextrin line for omletion in July-ugust 23. FY2F earnings trimmed due to higher taxation rate of 2%-24%, versus 6% reviously We have trimmed our FY2F EPS foreast by 4%, but our FY3F-4F rojetions are maintained ost adjustments from:- ) an uward revision to our sales volume growth assumtions and; 2) higher taxation rate of 2%-24%, from 6% reviously due to absene of reinvestment allowanes. VLUTIN & RECMMENDTIN Re-affirm BUY, fair value of RM.5/share We re-affirm our BUY reommendation on Three- Resoures (3), with an unhanged fair value of RM.5/share. ur target PE of 2x FY3F earnings is lose to the stok s 5-year mean of 9x. Valuation is attrative given 3 s solid earnings rosets. The stok is trading at 6.5x forward earnings well below its PE band of 26x-42x. We believe the worst is over for 3 in terms of margin omression, given mostly flattish global soft ommodity ries year-to-date. mresearh Sdn Bhd 4

5 Three- Resoures 29 tober 22 CHRT 4 : FLT TPIC STRCH PRICE YTD Soure: Bloomberg, mresearh TBLE : CRE PRDUCTS ND PPLICTINS Produts Caramel Colour* Gluose & Maltose Syru Soya Protein Saue (Hydrolyzed Vegetable Protein; HVP)* Vinegar (Natural Fermented Vinegar; NFV) Maltodextrin liations Saues and seasonings (saues and seasoning mix, sou base, gravies et), beverages industry suh as soft drinks and ordials, anned foods, dairy roduts Confetionery, harmaeutial industry, ie-ream, beverages, non-dairy reamer et Saues and seasonings suh as soy saue, oyster saue, snak foods, et Kethu, hili saue, table vinegar, mayonnaise, ikles, et Instant drinks mix, milk owder, seasoning, onfetionery, harmaeutial, ie-ream et. * Liquid and owder form Soure: Comany, mresearh mresearh Sdn Bhd 5

6 Three- Resoures 29 tober 22 CHRT 5 : PE BND Soure: Bloomberg, mresearh mresearh Sdn Bhd 6

7 Three- Resoures TBLE 3 : FINNCIL DT Inome Statement (RMmil, YE 3 De) F 23F 24F Revenue EBITD Dereiation (4.8) (6.) (7.3) (7.8) (8.2) erating inome (EBIT) ther inome & assoiates (.) (.4) Net interest (3.) (3.) (2.7) (2.7) (2.7) Exetional items..... Pretax rofit Taxation (4.) (.) (5.4) (7.2) (8.5) Minorities/ref dividends..... Net rofit Core net rofit Balane Sheet (RMmil, YE 3 De) F 23F 24F Fixed assets Intangible assets..... ther long-term assets Total non-urrent assets Cash & equivalent Stok Trade debtors ther urrent assets Total urrent assets Trade reditors Short-term borrowings ther urrent liabilities Total urrent liabilities Long-term borrowings ther long-term liabilities Total long-term liabilities Shareholders funds Minority interests..... BV/share (RM) Cash Flow (RMmil, YE 3 De) F 23F 24F Pretax rofit Dereiation Net hange in working aital (25.3) (8.3) (7.3) (8.9) (6.4) thers (2.9).9 (6.5) (3.9) (6.) Cash flow from oerations (2.5) Caital exenditure (3.8) (7.8) (5.) (5.) (5.) Net investments & sale of fixed assets (4.) (3.8)... thers (32.4) Cash flow from investing (68.3) 9.2 (5.) (5.) (5.) Debt raised/(reaid) 35.2 (2.4)... Equity raised/(reaid) Dividends aid (4.4) (4.7) (5.9) (8.7). thers (.5).4... Cash flow from finaning 7.6 (25.7) (5.9) (8.7). Net ash flow (9.2) (.6) (4.9) (2.6) 3. Net ash/(debt) b/f (44.4) 9.9 (4.9) (2.6) 3. Net ash/(debt) /f (47.8) (32.7) (38.4) (44.3) (33.7) Key Ratios (YE 3 De) F 23F 24F Revenue growth (%) EBITD growth (%) n/a n/a Pretax margins (%) Net rofit margins (%) Interest over (x) Effetive tax rate (%) Net dividend ayout (%) Debtors turnover (days) Stok turnover (days) Creditors turnover (days) Soure: Comany, mresearh estimates mresearh Sdn Bhd 7

8 Three- Resoures nhor oint for dislaimer text box Published by mresearh Sdn Bhd (3355-P) ( member of the minvestment Bank Grou) 5 t h F l oor B a ng un an mb a n k Grou 55 Jalan Raja Chulan 52 Kuala Lumur Tel: ( 3 ) ( r e sea r h) F a x: ( 3 ) Printed by mresearh Sdn Bhd (3355-P) ( member of the minvestment Bank Grou) 5 t h F l oor B a ng un an mb a n k Grou 55 Jalan Raja Chulan 52 Kuala Lumur Tel: ( 3 ) ( r e sea r h) F a x: ( 3 ) The information and oinions in this reort were reared by mresearh Sdn Bhd. The investments disussed or reommended in this reort may not be suitable for all investors. This reort has been reared for information uroses only and is not an offer to sell or a soliitation to buy any seurities. The diretors and emloyees of mresearh Sdn Bhd may from time to time have a osition in or with the seurities mentioned herein. Members of the minvestment Grou and their affiliates may rovide servies to any omany and affiliates of suh omanies whose seurities are mentioned herein. The information herein was obtained or derived from soures that we believe are reliable, but while all reasonable are has been taken to ensure that stated fats are aurate and oinions fair and reasonable, we do not reresent that it is aurate or omlete and it should not be relied uon as suh. No liability an be aeted for any loss that may arise from the use of this reort. ll oinions and estimates inluded in this reort onstitute our judgement as of this date and are subjet to hange without notie. For mresearh Sdn Bhd Benny Chew Managing Diretor mresearh Sdn Bhd 8