Singapore Company Guide Version 8 Bloomberg: JAP SP Reuters: JAPF.SI Refer to important disclosures at the end of this report DBS Group Research. Equity 28 Oct 2016 BUY Last Traded Price ( 27 Oct 2016): S$0.81 (STI : 2,828.94) Price Target 12-mth: S$1.18 (47% upside) (Prev S$0.97) Potential Catalyst: Resilience despite typically weaker 4Q earnings Analyst Ben SANTOSO +65 6682 3707 bensantoso@dbs.com What s New 3Q16 core earnings of US$42m was well ahead of our expectations Results were boosted by contribution from Japfa Comfeed (on gains from sale of Australian cattle, firm DOC/broiler ASP and stronger Rupiah) FY16F/17F earnings raised 40%/32%; TP lifted to S$1.18 BUY call reiterated for 47% upside Price Relative Forecasts and Valuation FY Dec (US$m) 2015A 2016F 2017F 2018F Revenue 2,787 3,189 3,415 3,597 EBITDA 292 400 465 494 Pre-tax Profit 112 276 307 343 Net Profit 64.7 151 164 160 Net Pft (ex. BA gains) 64.0 151 164 183 Net Pft (Pre Ex.) 70.3 151 164 160 Net Pft Gth (Pre-ex) (%) (1.5) 114.8 8.3 (2.1) EPS (S cts) 5.10 11.9 12.9 12.6 EPS Pre Ex. (S cts) 5.54 11.9 12.9 12.6 EPS Gth Pre Ex (%) (2) 115 8 (2) Diluted EPS (S cts) 5.10 11.9 12.9 12.6 Net DPS (S cts) 0.0 0.0 0.0 0.0 BV Per Share (S cts) 52.9 64.8 77.7 90.3 PE (X) 15.8 6.8 6.2 6.4 PE Pre Ex. (X) 14.5 6.8 6.2 6.4 P/Cash Flow (X) 4.0 8.4 4.3 3.5 EV/EBITDA (X) 7.0 5.4 4.9 4.7 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 1.5 1.2 1.0 0.9 Net Debt/Equity (X) 0.7 0.5 0.4 0.3 ROAE (%) 9.7 20.2 18.1 15.0 Earnings Rev (%): 40 32 11 Consensus EPS (S cts): 8.3 9.5 11.2 Other Broker Recs: B: 1 S: 0 H: 0 Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P. Firing on all cylinders Delivering growth. (JAP) s FY15-18F EBITDA CAGR of 19% justifies our implied 6.3x forward EV/EBITDA multiple. The stock trades at a significant discount to its Indonesian-listed subsidiary Japfa Comfeed Indonesia (JPFA) despite delivering decent earnings growth from China, Vietnam and Myanmar, where per capita demand for dairy, animal protein and branded consumer foods is still rising. Strong 3Q16 led to FY16F/17F earnings revisions of 40%/32%. Reported 3Q16 earnings came in at US$48.0m (6-fold increase y-o-y; +8% q-o-q). Excluding the impact of changes in fair value of biological assets and translation FX gains (losses), 3Q16 core earnings came in at US$42.0m (+51% y-o-y; -13% q-o-q) far ahead of our expectations on annualised basis given strong contribution from subsidiary Japfa Comfeed Indonesia (JPFA). Taking this into account, we raised our ASP assumptions for Indonesian Feed, day-old-chick (DOC), and live broilers, and adjusted margins in cattle feedlot and consumer food higher. Our forecast on Dairy, which delivered 44% y-o-y growth in EBIT (-25% q-o-q due to seasonality) was unchanged BUY rating reiterated for 47% upside. Based on our revised forecasts, JAP s EBITDA is projected to expand by 16% to US$464.8m next year (from US$399.8m this year) driven by continued growth in all segments. Over the next twelve months we expect resilient demand in Indonesian live broiler and DOCs, further improvements in Consumer Food products through new product launches, better productivity/raw milk price in Dairy segment, as well as lower borrowing costs as we impute refinancing through new bonds. We recommend investors to take advantage of the attractive valuations. Valuation: Our SOP-based TP (pegged to forward EV/EBITDA) is raised to S$1.18 following our earnings revisions. While JPFA remains the largest contributor, the group s Dairy and Animal Protein segments outside Indonesia are expected to deliver respectable double-digit growth annually. Key Risks to Our View: JAP s share price is driven by DOC, broiler and swine prices as well as China raw milk price movements and the USD/IDR exchange rate. A strong recovery in the group s ASP and/or Rupiah would boost JAP s share price higher than our fair value, and vice versa. At A Glance Issued Capital (m shrs) 1,765 Mkt. Cap (S$m/US$m) 1,421 / 1,021 Major Shareholders (%) Rangi Management Limited 52.6 Morze International Limited 16.0 Tasburgh Limited 7.2 Free Float (%) 24.2 3m Avg. Daily Val (US$m) 1.4 ICB Industry : Consumer Goods / Food Producers ed: JS / sa: DT, PY
WHAT S NEW Firing on all cylinders Highlights 3Q16 earnings well ahead of expectations Reported 3Q16 earnings came in at US$48.0m (up from US$44.6m in 2Q16 and US$8.0m in 3Q15). This brought 9M16 reported earnings to US$116m, representing 107% of our initial FY16F earnings. Excluding the impact of changes in fair value of biological assets and translation FX gains (losses) the group posted 3Q16 core earnings of US$42.0m (+51% y-o-y; -13% q-o-q) well ahead of our expectations on annualised basis. As in 2Q16, the strong performance was driven by higher EBITDA contribution from Japfa Comfeed Indonesia (JPFA) of US$94.7m (+44% y-o-y; +7% q-o-q). EBITDA contribution from Animal Protein outside Indonesia and Dairy continued to expand by a decent 38% and 45% y-o-y to US$13.5m and US$16.4m, respectively. For the quarter, contribution from Japfa Comfeed had included US$13m gain from sale of its cattle in Australia as the ranches were sold. Japfa Comfeed (JPFA) s contribution remained strong 3Q16 EBITDA contribution from JPFA was stronger than expected (i.e. post Lebaran) due to better DOC/live broiler prices as well as lower realised feed raw material costs than expected. These high prices (due to rebalanced supply/ demand) rather than volume bolstered profitability in both Feed and DOC segments. For this reason, we expect margins to ease next year. Decent growth in Animal Protein outside Indonesia Animal Protein outside Indonesia contributed 3Q16 EBITDA of US$13.5m (+38% y-o-y; -28% q-o-q). The group attributed the improved performance to 18%/29% y-o-y higher swine feed and swine fattening volumes as well as better swine fattening margins in Vietnam which contributed more than 80% of operating profit from this segment. Dairy milking yield continued to rise In 3Q16, raw milk production in China rose 19% y-o-y (+1% q-o-q) to 87.4m kg from 86.4m kg in 2Q16 and just 73.4m kg in 3Q15 backed by higher number of milkable cows. Daily milking yields seasonally eased to 35.3kg/day vs. 36.9kg/day in 2Q16 and 34.7kg/day in 3Q15. The Dairy segment s revenue inched up 3% y-o-y (+1% q-o-q) to US$66.8m as lower prices offset higher volume. 3Q16 Dairy EBITDA consequently declined 24% q-o-q (+45% y-o-y) to US$16.4m delivering EBITDA margin of 24.6% - down from 32.8% in 2Q16. The group expects raw milk prices to remain sluggish in the near term, mitigated by operational efficiency and better yields. Volume driven improvement in Consumer Food The Consumer Food segment s EBITDA contribution was exceptionally strong at US$4.9m (+172% y-o-y; +158% q-oq) primarily due to higher sales volumes. However, start-up losses in Vietnam continued to weigh on profit contribution from Indonesia. Lower net gearing ratio As at end-september 2016, the group had total borrowings of US$732m down from US$846m at end June 2016. This translated to net debt to total equity ratio of 43% (declining from 64% at end-june 2016). The lower net gearing ratio reflects debt repayments undertaken by JPFA following cash injection from recently completed placement to KKR. No additional USD bond repurchase was undertaken in 3Q16. JPFA has recently announced plans to issue re-tap bonds for maximum amount of Rp3tr of which Rp1tr we assumed would be launched by end of this year to repay Rp1.5tr IDR bonds due February/March 2017. Outlook FY16F/17F earnings raised by 40%/32% Adjusting for the strong JPFA results in 9M16, we made changes to JPFA s earnings, particularly in Feed, DOC and broiler ASP as well as Feed raw material costs: 1. We tweaked FY16F/17F DOC ASP to Rp4,900/Rp5,100 per chick from Rp4,700/Rp4,900 previously 2. We adjusted FY16F/17F broiler ASP to Rp17,200/Rp17,600 per kg live from Rp17,000/Rp17,500 previously 3. We adjusted poultry feed ASP to Rp6,300/Rp6,400 Rp6,100/Rp6,400 previously We adjusted USD/IDR rate next year (in favour of stronger Rupiah) and benchmarked corn/soybean meal prices based on our latest in-house forecasts Accounting for its 51% stake in JPFA, JAP s FY16F/17F earnings were revised by +40%/+32%. Likewise, FY16F/17F EBITDA were revised by +18%/+20%. In line with seasonal trend, we anticipate sequentially lower 4Q16 earnings contribution from JPFA, offset by higher China Dairy (on seasonal recovery in milk yields). Post revisions, JAP s interest coverage ratio is expected to average 4.9x this year up from 3.2x last year thanks to both reduced debt and better profitability. Valuation TP adjusted to 1.18; BUY rating reiterated Based on our revised forecasts, JAP s EBITDA is due to expand 16% next year driven by steady double-digit growth in Animal Protein outside Indonesia and Dairy EBITDA. We employed SOP valuation based on forward EV/EBITDA multiples on each segment. Based on our forecast revisions, our TP is lifted to S$1.18 mainly to account for higher contribution from JPFA and significantly lower net debt. We reiterate our BUY rating for 47% upside to our revised TP. We believe the stock is significantly undervalued relative its presence in Asia s largest population, relative to peers, and for its secular growth prospects. Page 2
Quarterly / Interim Income Statement (US$m) FY Dec 3Q2015 2Q2016 3Q2016 % chg yoy % chg qoq Revenue 695 782 788 13.3 0.8 Cost of Goods Sold (557) (591) (601) 7.8 1.6 Gross Profit 138 191 187 35.4 (1.8) Other Oper. (Exp)/Inc (72.5) (82.8) (81.9) 12.9 (1.1) Operating Profit 65.8 108 105 60.1 (2.3) Other Non Opg (Exp)/Inc (21.2) (1.2) 5.95 nm nm Associates & JV Inc 0.0 0.0 0.0 nm nm Net Interest (Exp)/Inc (17.2) (15.1) (13.9) 19.2 8.0 Exceptional Gain/(Loss) (9.3) (10.8) 5.75 nm nm Pre-tax Profit 18.1 80.8 103 468.9 27.8 Tax (7.7) (11.2) (24.2) 213.1 116.6 Minority Interest (2.4) (25.0) (31.0) nm 24.2 Net Profit 7.99 44.6 48.0 501.2 7.6 EBITDA 92.0 132 131 42.3 (1.0) Margins (%) Gross Margins 19.9 24.4 23.8 Opg Profit Margins 9.5 13.8 13.4 Net Profit Margins 1.1 5.7 6.1 Source of all data: Company, DBS Bank Quarterly EBITDA (US$m) EBITDA 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Japfa Comfeed 31.6 33.6 20.3 29.0 65.9 64.8 43.5 88.7 94.7 q-o-q growth -49% 6% -40% 43% 127% -2% -33% 104% 7% y-o-y growth 226% -12% -53% 109% 93% 114% 206% 44% Animal Protein - others 13.0 14.7 10.8 13.4 9.8 8.6 11.7 18.8 13.5 q-o-q growth 400% 13% -27% 24% -27% -12% 36% 61% -28% y-o-y growth 67% -4% 415% -25% -41% 8% 40% 38% Dairy 13.7 11.0 16.4 15.4 11.3 17.6 18.1 21.7 16.4 q-o-q growth -53% -20% 49% -6% -27% 56% 3% 20% -24% y-o-y growth 39% -1% -47% -18% 60% 10% 41% 45% Consumer food 3.8 1.9 2.0 3.6 1.8 1.4 2.1 1.9 4.9 q-o-q growth 138% -50% 5% 80% -50% -22% 50% -10% 158% y-o-y growth NM 11% 125% -53% -26% 5% -47% 172% Others (3.0) 0.0 0.8 1.1 1.0 2.8 1.8 1.1 1.2 EBITDA 59.1 61.2 50.3 62.5 89.8 95.2 77.2 132.2 130.7 q-o-q growth -37% 4% -18% 24% 44% 6% -19% 71% -1% y-o-y growth 106% 0% -33% 52% 56% 53% 112% 46% EBITDA margin 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Japfa Comfeed 5.8% 7.2% 4.4% 6.1% 14.3% 14.0% 9.1% 16.7% 17.8% Animal Protein - others 9.8% 10.5% 8.5% 10.2% 7.3% 6.1% 8.6% 13.4% 9.3% Dairy 22.8% 18.2% 27.2% 23.8% 17.5% 25.2% 26.0% 32.8% 24.6% Consumer food 6.5% 3.9% 4.7% 7.4% 3.7% 3.0% 4.6% 3.6% 9.4% Source: Company, DBS Bank Page 3
SOP Valuation CY17F Target Holdco CY17F CY17F CY17F Proport ion St ake Equit y EBITDA CY17F discount Net Net EV Net debt of net debt value (US$ m) EV/EBITDA EV/EBITDA (US$ m) (US$ m) (US$ m) Dairy 93.5 9.0 0% 9.0 841.5 77.3 12% 61.9% 473.0 Animal Protein (JPFA) 295.0 6.5 20% 5.2 1,533.9 472.8 51.0% 541.2 80% Animal Protein (ex JPFA) 66.8 7.0 0% 7.0 467.5 33.1 100.0% 434.4 Consumer Foods 10.3 10.0 0% 10.0 102.9 51.7 8% 100.0% 51.2 Aggregat e value 465.6 6.3 2,945.8 635.0 100% 1,499.8 (+) Cash 254.4 (-) Borrowings 889.3 Net debt 635.0 Number of shares (m) 1,765 Equity value/share (US$) 0.85 Equit y value/share (S$) 1.18 FY17F earnings (US$ m) 163.6 Implied FY17F PER based on TP 9.2 Implied FY17F EV/EBITDA based on TP 6.3 FY15-18F earnings CAGR 42% PEG 0.22 Source: DBS Bank estimates Page 4
CRITICAL DATA POINTS TO WATCH Raw & fresh milk output (k MT) Earnings Drivers: DOC capacity expansion in Indonesia. Hampered by oversupply in FY14-15, JAP s DOC production in Indonesia is expected to remain flat in FY16F as a result of the government-mandated cull of c.640k Parent Stock (JAP s estimated share of 3m culled between Oct15 and Dec15). Feedmill capacity expansion on hold in Indonesia. Capital expenditure in poultry feedmill capacity is likewise expected to remain on hold until capacity utilisation rates are in excess of 90%. However, we expect continued expansion in fish and shrimp feeds. Volatility of raw material costs (as well as changes in government regulations with regard to importation of raw materials) and exchange rates may adversely affect profitability, if JAP is unable to pass on the cost pressures. Expansion of Animal protein operations in Vietnam, India and Myanmar. The group is expanding its geographical operations in Vietnam for both poultry and swine segments; swine profitability in Vietnam should improve in FY16 on the back of improved genetics. The group s Myanmar operations expanded poultry operations into Mandalay in FY15, and we expect improved earnings following the purchase of the remaining 15% minority interest. JAP s operation in India is small, with some increase in feedmill capacity there. More dairy farms. The group intends to expand its dairy business in China through continued replication of its successful business model. The fifth farm of the first five-farm hub in Shandong province was completed in FY15. A second five-farm hub was initially planned for construction between FY14 and FY18 in Inner Mongolia. However, so far only Farm 6 has started milking at end of FY15 and full milking is expected by end of this year. We understand construction of Farm 7 has been delayed due to weaker-than-expected raw milk prices. JAP is also expanding its dairy capacity in Malang, East Java to hold an additional 9,000 heads (completed at end FY15). Expansion of beef cattle feedlot. Japfa has a beef cattle feedlot in Shandong province with production capacity of 10,000 heads per annum. The bull calves produced by Japfa s five dairy farms in Shandong will be the livestock input into the new beef cattle feedlot in China. In Indonesia, imports of cattle are subject to government approvals and regulations, including quotas. Further investment in high-growth Consumer Food brands. The group intends to expand its manufacturing and processing capacities in Indonesia and Vietnam, as it seeks to expand the reputation and market reach of its brands, including Real Good for UHT milk and So Good, So Nice and Best Chicken for processed meats. Broiler sales (mn birds) Consumer foods volume (k MT) China raw milk price (CNY/kg) Average USD/IDR rate Source: Company, DBS Bank Page 5
Balance Sheet: JAP s net debt-to-total equity ratio came in at 43% as at end of September 2016 and is conservatively forecast to settle at 57% by end- FY16F. We expect the group to refinance the outstanding Rp1.5tr notes (due 2017) and repay the USD notes (due 2018) to reduce its USD debt exposure by issuing IDR bonds. Share Price Drivers: DOC oversupply issues. The Indonesian poultry industry is dominated by a few players, which collectively control more than 75% of the market. Overinvestment and/or miscalculated demand often lead to depressed DOC and broiler prices on top of an already volatile market. Changes in prices would have an instant impact on JAP s profitability even with cuts in parent stock (PS) numbers. Hence, we believe resumption of nationwide PS culling would send a positive signal for further DOC price upside. Leverage & Asset Turnover (x) Capital Expenditure Rupiah movements. JAP s USD bonds have created translation FX losses in Japfa s subsidiary, JPFA, together with the Rupiah s depreciation YTD. Hence, Rupiah movements would impact reported earnings. Key Risks: Outbreak of diseases. Outbreak of diseases affecting livestock would have material effect on the group's business and financial status. ROE (%) Intense competition. Excess capacity and intense competition in Indonesia may continue to result in DOC oversupply and slower-than expected price growth Movements in raw material costs and currencies. JAP is exposed to volatile movements in raw material costs and currencies. For example, weakness in Rupiah and consumer purchasing power led to delays in passing on raw material costs. Forward PE Band (x) Changes in regulations. Changes in government regulations/ licensing/price or volume controls may adversely affect JAP s profitability. Vulnerable to liquidity and credit risks Company Background (JAP) is a leading industrialised and vertically integrated producer of multiple animal proteins, dairy and consumer food products in Indonesia, Vietnam, Myanmar, India and China. The group is the second largest poultry feed and DOC (day-old-chicks) breeder The group is involved in production of animal feeds, poultry breeding, poultry commercial farms, beef cattle feedlots, swine breeding, swine commercial farms, dairy farms as well as frozen and ambient temperature consumer food products. PB Band (x) Source: Company, DBS Bank Page 6
Key Assumptions FY Dec 2014A 2015A 2016F 2017F 2018F Raw & fresh milk output 224 316 436 533 555 Broiler sales (mn birds) 351 352 351 396 421 Consumer foods volume 77.4 82.4 87.9 93.9 101 China raw milk price 4.90 4.00 3.75 3.90 3.94 Average USD/IDR rate 11,879 13,392 13,190 13,608 14,325 Segmental Breakdown FY Dec 2014A 2015A 2016F 2017F 2018F Revenues (US$m) Dairy 226 257 315 388 411 Animal protein 2,513 2,361 2,674 2,816 2,965 Consumer foods 209 169 200 212 221 Total 2,947 2,787 3,189 3,415 3,597 EBITDA (US$m) Dairy 70.4 60.7 66.8 93.5 110 Animal protein 192 222 324 362 374 Consumer foods 9.10 8.80 9.86 10.3 10.7 Total 271 291 401 466 495 EBITDA Margins (%) Dairy 31.2 23.6 21.2 24.1 26.8 Animal protein 7.6 9.4 12.1 12.8 12.6 Consumer foods 4.3 5.2 4.9 4.9 4.8 Total 9.2 10.5 12.6 13.6 13.8 Income Statement (US$m) FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 2,947 2,787 3,189 3,415 3,597 Cost of Goods Sold (2,441) (2,267) (2,525) (2,669) (2,804) Gross Profit 506 520 663 746 792 Other Opng (Exp)/Inc (315) (304) (336) (356) (376) Operating Profit 191 217 327 390 417 Other Non Opg (Exp)/Inc 1.62 (31.9) 15.9 (19.7) (14.8) Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (79.2) (67.2) (66.8) (63.5) (58.9) Exceptional Gain/(Loss) (40.2) (5.6) 0.0 0.0 0.0 Pre-tax Profit 73.7 112 276 307 343 Tax (14.5) (20.2) (55.2) (61.3) (68.6) Minority Interest (28.0) (27.1) (69.5) (81.7) (114) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 31.2 64.7 151 164 160 Net Profit before Except. 71.4 70.3 151 164 160 Net Pft (ex. BA gains) 51.8 64.0 151 164 183 EBITDA 271 292 400 465 494 EBITDA (ex. BA gains) 271 292 400 465 494 Growth Revenue Gth (%) 9.3 (5.4) 14.4 7.1 5.3 EBITDA Gth (%) 4.7 7.9 36.9 16.3 6.3 Opg Profit Gth (%) (5.1) 13.2 50.8 19.3 6.9 Net Profit Gth (Pre-ex) (%) 101.1 (1.5) 114.8 8.3 (2.1) Margins & Ratio Gross Margins (%) 17.2 18.7 20.8 21.9 22.0 Opg Profit Margin (%) 6.5 7.8 10.2 11.4 11.6 Net Profit Margin (%) 1.1 2.3 4.7 4.8 4.5 ROAE (%) 5.8 9.7 20.2 18.1 15.0 ROA (%) 1.5 2.9 6.4 6.1 5.5 ROCE (%) 8.2 8.9 12.4 12.9 12.7 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 0.0 Net Interest Cover (x) 2.4 3.2 4.9 6.1 7.1 Source: Company, DBS Bank Page 7
Quarterly / Interim Income Statement (US$m) FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 Revenue 695 712 718 782 788 Cost of Goods Sold (557) (559) (571) (591) (601) Gross Profit 138 153 146 191 187 Other Oper. (Exp)/Inc (72.5) (77.5) (91.0) (82.8) (81.9) Operating Profit 65.8 75.3 55.1 108 105 Other Non Opg (Exp)/Inc (21.2) 7.87 9.89 (1.2) 5.95 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (17.2) (15.2) (15.4) (15.1) (13.9) Exceptional Gain/(Loss) (9.3) 13.8 (1.6) (10.8) 5.75 Pre-tax Profit 18.1 81.7 48.0 80.8 103 Tax (7.7) (6.8) (10.9) (11.2) (24.2) Minority Interest (2.4) (28.2) (13.7) (25.0) (31.0) Net Profit 7.99 46.7 23.4 44.6 48.0 Net profit bef Except. 17.3 33.0 25.0 55.4 42.3 EBITDA 92.0 95.1 76.6 132 131 Growth Revenue Gth (%) (1.3) 2.4 0.8 9.0 0.8 EBITDA Gth (%) 45.3 3.4 (19.5) 72.9 (1.0) Opg Profit Gth (%) 49.3 14.3 (26.8) 95.6 (2.3) Net Profit Gth (Pre-ex) (%) (15.6) 91.1 (24.2) 121.7 (23.7) Margins Gross Margins (%) 19.9 21.5 20.4 24.4 23.8 Opg Profit Margins (%) 9.5 10.6 7.7 13.8 13.4 Net Profit Margins (%) 1.1 6.6 3.3 5.7 6.1 Balance Sheet (US$m) FY Dec 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 834 835 854 940 1,019 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 310 331 488 570 652 Cash & ST Invts 287 148 230 254 147 Inventory 598 609 590 624 655 Debtors 151 132 154 165 174 Other Current Assets 148 157 223 279 328 Total Assets 2,327 2,213 2,540 2,832 2,975 ST Debt 476 330 483 556 346 Creditor 233 260 222 234 246 Other Current Liab 25.0 20.3 37.4 40.9 45.1 LT Debt 507 510 406 365 429 Other LT Liabilities 91.4 83.2 81.4 79.8 78.3 Shareholder s Equity 662 671 822 985 1,145 Minority Interests 332 338 489 571 685 Total Cap. & Liab. 2,327 2,213 2,540 2,832 2,975 Non-Cash Wkg. Capital 639 618 709 793 866 Net Cash/(Debt) (697) (693) (658) (667) (628) Debtors Turn (avg days) 17.7 18.5 16.4 17.1 17.2 Creditors Turn (avg days) 32.9 41.0 35.8 32.1 32.1 Inventory Turn (avg days) 87.5 100.4 89.3 85.4 85.6 Asset Turnover (x) 1.4 1.2 1.3 1.3 1.2 Current Ratio (x) 1.6 1.7 1.6 1.6 2.0 Quick Ratio (x) 0.6 0.5 0.5 0.5 0.5 Net Debt/Equity (X) 0.7 0.7 0.5 0.4 0.3 Net Debt/Equity ex MI (X) 1.1 1.0 0.8 0.7 0.5 Capex to Debt (%) 29.8 21.7 18.4 26.1 32.1 Z-Score (X) 2.4 2.6 2.6 2.6 2.8 Source: Company, DBS Bank Page 8
Cash Flow Statement (US$m) FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 73.7 112 276 307 343 Dep. & Amort. 62.2 71.9 74.0 75.8 78.4 Tax Paid (37.8) (20.2) (55.2) (61.3) (68.6) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (88.4) 11.8 (195) (112) (94.5) Other Operating CF 0.12 0.08 0.02 0.03 0.03 Net Operating CF 125 254 121 237 292 Capital Exp.(net) (293) (182) (163) (241) (248) Other Invts.(net) 0.01 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF (5.9) (3.6) (2.9) (2.9) (3.0) Net Investing CF (299) (186) (166) (244) (251) Div Paid (3.7) 0.0 0.0 0.0 0.0 Chg in Gross Debt 68.1 (132) 48.1 32.7 (147) Capital Issues 198 0.0 0.0 0.0 0.0 Other Financing CF (27.3) (75.3) 79.7 (2.0) (1.9) Net Financing CF 235 (207) 128 30.7 (149) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 61.6 (139) 82.5 23.9 (108) Opg CFPS (S cts) 16.8 19.1 24.9 27.5 30.5 Free CFPS (S cts) (13.2) 5.68 (3.3) (0.3) 3.46 Source: Company, DBS Bank Target Price & Ratings History Source: DBS Bank Analyst: Ben SANTOSO Page 9
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 Completed Date: 28 Oct 2016 01:00:58 Dissemination Date: 28 Oct 2016 09:13:16 GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of 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 and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. 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. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. 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. Page 10
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 28 Oct 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). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. 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 30 Sep 2016. 2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. Compensation for investment banking services: 3. 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 as of 30 Sep 2016. 4. 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 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 or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.) For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at equityresearch@dbs.com. Indonesia Malaysia This report is being distributed in Indonesia by PT DBS Vickers 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 603-2604 3333 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 Page 11
Singapore Thailand United Kingdom This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), 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 6327 2288 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 produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai 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 506538, 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 018982 Tel. 65-6878 8888 e-mail: equityresearch@dbs.com Company Regn. No. 196800306E Page 12