DRAGON CROWN GROUP HOLDINGS (935.HK) 1H 2013 Review: Bucked the Trend. Company Profile. 1-Yr Price Performance vs. HSI. Basic Share Information

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20 August 2013 LOGISTIC SERVICES DRAGON CROWN GROUP HOLDINGS (935.HK) BUY TARGET Maintain HK$1.30 Previous Target HK$1.30 Consensus Target N/A Current (19/8/2013) HK$0.98 Upside 33% Market Cap. HK$1,087.5M Company Profile Established in early nineties, Dragon Crown (DC) is an integrated terminal service provider in PRC (Nanjing, Ningbo and Tianjin), specialized in the storage and handling of liquid chemical products. Its major customer, Celanese Corporation (CE US) accounted for 88.4% of its total revenue in 2012. DC was listed in Jun 2011 on the MainBoard of the Stock Exchange Hong Kong. 1-Yr Price Performance vs. HSI 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 May-2012 Jul-2012 Sep-2012 Nov-2012 Jan-2013 Mar-2013 May-2013 Jul-2013 Source: Bloomberg HSI Index 935 HK Equity Basic Share Information 52-Week Range HK$0.76 HK$1.07 Avg Daily Turnover (3M) HK$0.30M Shares Outstanding 1,109.7mn Free Float 29.7% Major Shareholders 70.3% Major Shareholders Mr. Ng Wai Man, Chairman 70.3% Public 29.7% JENNIFER SO +852 2971 5433 jennifer.so@quamgroup.com 1H 2013 Review: Bucked the Trend DC s 1H2013 results beat our expectations, recurring np +27% YoY to HK$53.4mn (reported np +12% YoY to HK$60.4mn, accounted for 50.7% of our full-year forecast for FY2013, versus ~45-48% on average in the past), on lower diesel cost and strong performance from its Ningbo JV. The good results came in despite a 1.3% YoY decline in revenue, amid a dire macro situation in China. This can also compare to a general decline in earnings from its competitors in the same period. DC declared an interim DPS of HK$0.02, (1H 2012: nil). Going forward, the four new tanks under NJ Phase III will be fully contributing to DC s chemical handling and storage capacity in 2H 2013. We maintain our BUY rating and TP unchanged. Optimization in Throughput Mix. 1H2013 revenue fell 1.3% YoY due to i) the reform of business tax to value-added tax in Nanjing, PRC, which resulted in a ~100-50bp increases in tax rate, ii) smaller currency translation gain from slower appreciation in RMB YoY and iii) the results only captured one month s operation of the four new tanks. Although, overall throughput volume fell 2.2% YoY to 1,037,108 metric tonnes, bottom-line impact is muted because the decline in the throughput volume of lower-margin methanol and ethanol was fully offset by an increase in higher-margin ethylene. Improvement in Gross and Operating Margins. Gross margin improved by 2.8 ppts. to 62.9%, mainly due to a 16-17% YoY decline in diesel cost. Diesel cost usually accounts for ~20% of DC s COGS. Administrative expense to revenue also dropped to 13.9% (1H2012:16.2%), resulting in a 5.3 ppt increase in EBIT margin to 49.5%. This came despite a decline in revenue, which reflected DC s leaner operating structure. Tie-up with DOW DC s has completed all the ground work for a potential JV with Dow Chemical China (DOW), to build and operate chemical facilities in Tianjin Nangang Industrial Park. However, an official announcement is still pending, which is expected to be announced no later than end of FY2013. We expect it will double DC s existing throughput capacity on completion of the JV expansion. Maintain BUY and TP at HK$1.30 We revised down our revenue forecasts by 6.5% in FY2013 and 7% in FY2014, as we fine-tune our estimates for the contribution from the seven new tanks from NJ Phase III, which are under spot contract. However, we adjust our net profit forecast for FY2013 upwards by 4.2%, factoring in higher gross and operating margins on lower diesel costs and finance expense savings, as well as higher contribution from the Ningbo JV. We maintain our TP of HK$1.3 based on 13.6x EV/ EBITDA industry average in 2013E (see Figure 3). Forecasts and Valuations Dec 11 Dec 12 Dec 13E Dec 14E Dec 15E Total Revenue (HKDmn) 241 258 274 307 324 Revenue Growth 3.3% 7.1% 6.3% 12.0% 5.4% EBITDA (HK$mn) 142 157 176 199 213 EBITDA Growth -8.4% 10.5% 12.4% 13.3% 6.7% Net Profit (HK$mn) - owners of the co. (exclu. MI) 90 99 109 116 124 Net Profit Growth -6.9% 10.0% 9.5% 6.8% 7.0% Recurring Net Profit (HK$mn) - owners of the co. (exclu. MI) 90 87 104 116 124 Core Net Profit Growth -5.0% -3.0% 18.8% 11.7% 7.0% EPS (HK$) 0.092 0.089 0.098 0.104 0.112 Recurring EPS (HK$) 0.092 0.079 0.094 0.104 0.112 DPS (HK$) 0.050 0.055 0.059 0.063 0.067 P/E (x) 10.7 11.0 10.0 9.4 8.8 EV/EBITDA (x) 5.1 5.3 5.4 4.7 4.2 Dividend Yield 5.1% 5.6% 6.0% 6.4% 6.8% Source: Company data, Quam estimates, Bloomberg ` Dragon Crown Group Holdings 1

Figure 1: 1H 2013 Results Review HK$ mn (FYE Dec) 1H 2013 1H 2012 YoY Change Comments Impact from VAT reform, lower curr translation gains, throughput Revenue 128.8 130.5-1.3% volume -2.2% YoY Cost of Revenue (47.8) (52.1) -8.3% Diesel cost fell 16-17% YoY Gross Profit 81.0 78.4 3.4% Gross Margin 62.9% 60.1% 2.8 ppt Gross margin improved on lower disesel fuel cost Administrative expenses (17.9) (21.1) -15.1% Leaner operating structure Other income/ (costs) 0.7 0.5 40.0% Operating EBIT 63.8 57.8 10.4% EBIT Margin 49.5% 44.3% 5.3 ppt Sharp improvement EBITDA 82.3 75.9 8.4% Depreciation and amortization 18.5 18.1 2.1% Net interest 1.0 (2.5) -140.1% Repayment of bank loans; Effective interest rate fell 93 b.p. to 3.75% Non-recurring items 5.9 11.8 Arbitration income from a debtor Share of profits & losses of: - Associates 0.002 (1.3) NA A turnaround in Tianjin terminal - Joint-controlled entities 3.2 2.9 12.0% Continual strong performance in Ningbo terminal Pre-tax Profit 73.9 68.7 7.5% Income tax expenses (13.5) (14.7) -8.3% Effective tax rate lowered by 3.1 ppts to 18.3% Profit for the Year 60.4 54.0 11.8% Owners of the Company 53.0 46.4 14.2% Minority interests 7.4 7.6-2.8% Recurring Profit for the Year - Owners of the Company 48.8 38.4 27.0% Strong recurring profit growth, bucked the trend compared to a decline in earnings from its competitors. Basic EPS (HK$) 0.0477 0.0418 14.1% FD EPS (HK$) 0.0477 0.0418 14.2% No dilution FD Recurring EPS (HK$) 0.0440 0.0346 27.0% DPS (HK$) 0.02 nil NA Source: Company Data, Quam Estimates DC has just secured a new license in Tianjin to handle petroleum products Finance cost savings on lower effective interest rate Strong Performance in Ningbo and a Turnaround in Tianjin Terminal PBT from its Ningbo JV +12% YoY, on solid demand and DC s ability to rent additional tanks to fill extra throughput handling orders. Its Tianjin associate turned around into black on rebound in throughput volume, as the construction works of the local government along the inner river of Tianjin Bin Hai Xin Qu were completed in May 2012. Apart from that, DC has just secured a new license in Tianjin to handle petroleum on top of its existing license for the handling of chemicals. Lower Effective Interest Rate. DC undertook a long-term bank loan of ~HK$113mn in 1H 2013, thus lowering the effective interest rate to 3.75% p.a. from 4.68% p.a. in 1H 2012 because the short-term loans in 2012 were mainly project financing, under PBOC base rate discounted by 5%, which is higher than the HIBOR +2% in HK. The effective interest rate is expected to maintain at 3.75% p.a. for FY2013, thus we expect finance cost savings of < HK$1mn for the full-year in 2013. Earnings Revision. We revised down our revenue forecast by 6.5% in FY2013 and 7% in FY2014, as we fine-tune our estimates for the contribution of the seven new tanks from NJ Phase III, which are under spot contract. However, we adjusted our net profit forecast for FY2013 upwards by 4.2%, factoring in higher gross and operating margins on lower diesel costs and finance expense savings, as well as higher contribution from the Ningbo associates. (see Figure 2). Figure 2: Revision of Key Assumptions Revised Before Operational Data Assumption 2013E 2014E 2015E 2013E 2014E 2015E *Actual Throughput (metric tonnes) 2,386,967 2,606,967 2,716,967 2,511,633 2,760,967 2,870,967 - Nanjing 1,826,000 2,046,000 2,156,000 1,950,667 2,200,000 2,310,000 - Tianjin 373,500 373,500 373,500 373,500 373,500 373,500 - Ningbo 187,467 187,467 187,467 187,467 187,467 187,467 Margins Gross Profit Margin 61.8% 62.5% 63.3% 59.6% 61.5% 62.1% EBIT Margin 50.5% 51.3% 52.0% 47.2% 49.0% 49.7% Source: Company Data, Quam Estimates *Actual throughput = Total designed storage capacity (tanks) x turnover ratio and adjusted for the operating months Valuation. We maintain our BUY rating on DC and our TP unchanged at HK$1.3, based on 13.6x EV/EBITDA (industry average) in 2013 (see your report on 3 Jun 2013). We believed chemical demand in China has already bottomed out in 1H 2013, with stronger demand in 2H to support DC s growth. We expect DC to deliver a 12.4% core net profit CAGR over 2012-2015E, under the premise of 7.9% increase in total revenue in the same period. Our target price translates into 13.9x P/E in 2013 on a FD recurring EPS basis, representing a discount of ~32% compared to its peers average of 20.5x and a PEG of 1.1x. It trades at an estimated DVD yield of 6.0% in 2013. Dragon Crown Group Holdings 2

Figure 3: Peer Comparables Name Ticker Mkt Cap (bn HK$) Curr Last Price 2013 P/E (x) 2014 P/E (x) 2013 P/B (x) Sales growth Op Profit Margin Cap Ex/ Sales ROIC ROA Dvd Yield EV/ EBITDA (X) OEM and Branded Peers Dragon Crown 935 HK 1.09 HKD 1.0 10.2 8.9 1.1 7.1 53.3 37.2 11.0 9.3 5.6 4.7 Nanjing Port 002040 CH 1.49 CNY 6.0 N/A N/A N/A 5.3 19.2 21.9 3.3 2.2 N/A NA Zhuhai Winbase Int'l 002492 CH 1.82 CNY 15.2 20.5 17.6 N/A 12.3 46.5 71.6 6.5 6.4 1.3 NA Kinder Morgan KMI US 300.71 USD 290.3 31.5 24.0 2.9 25.6 26.0 70.1 4.6 1.6 4.0 16.2 Nustar Energy NS US 25.26 USD 324.3 39.0 21.7 1.4-5.0 3.6 6.9 4.2 0.9 10.5 12.8 Buckeye Partners BPL US 55.22 USD 523.0 20.2 18.0 2.6-8.5 9.2 7.6 N/A 5.0 6.2 15.3 Magellan Midstream MMP US 96.35 USD 425.1 22.3 20.2 7.6 1.3 31.0 20.0 15.4 11.1 3.6 17.9 Sunoco Logistics SXL US 52.15 USD 502.4 17.5 19.6 1.1 20.2 4.6 2.9 10.1 6.7 3.2 10.2 Wilson Sons WSON11 BZ 5.67 BRL 79.7 13.0 8.2 1.4-7.6 13.2 25.2 2.7 5.3 N/A 5.5 Vopak VPK NA 55.32 EUR 432.7 16.2 14.4 N/A 12.1 34.1 34.2 9.3 7.1 N/A 10.6 Rubis RUI FP 16.87 EUR 487.1 14.9 13.7 N/A 31.5 5.3 4.0 6.8 4.9 N/A 8.4 Average 55.6 20.5 16.6 2.6 8.6 22.4 27.4 7.4 5.5 4.9 11.3 Source: QUAM Securities, Bloomberg (as of 19 Aug 2013) Dragon Crown Group Holdings 3

We cut our revenue forecast adjusting for lower throughput Earnings Projections Income Statement (HKD mn) Dec 11 Dec 12 Dec 13E Dec 14E Dec 15E Revenue 241 258 274 307 324 Cost of goods sold (102) (104) (105) (115) (119) Gross Profit 138 153 169 192 205 Administrative expenses (32) (34) (33) (37) (39) Other income/ (costs) 1 2 2 2 2 Operating EBIT 108 121 139 157 168 We raised our net profit forecast by 4.2% on margin expansion Interim DVD payout at 41% EBITDA 142 157 176 199 213 Depreciation and amortisation 34 35 38 42 44 Net interest (7) (2) (1) (2) (2) Non-recurring items - 17 6 - - Share of profits and losses of: Associates 2 (1) 2 2 2 Joint-controlled entities 6 6 7 7 7 Income Tax Expense (5) (26) (27) (30) (32) Profit for the Year 103 114 124 134 144 Minority interests 13 15 15 18 20 Owners of the Company 90 99 109 116 124 Recurring Profit for the Year - Owners of the Company 90 87 104 116 124 Per Share Items (HKD) Dec 11 Dec 12 Dec 13E Dec 14E Dec 15E Basic EPS 0.09 0.09 0.10 0.10 0.11 FD EPS 0.09 0.09 0.10 0.10 0.11 Recurring FD EPS 0.09 0.08 0.09 0.10 0.11 Book value per share 0.91 0.86 0.90 0.95 0.99 DPS 0.05 0.05 0.06 0.06 0.07 Gross margin improvement on lower diesel costs Ratio Analysis Dec 11 Dec 12 Dec 13E Dec 14E Dec 15E Growth (YoY %) Revenue 3.3% 7.1% 6.3% 12.0% 5.4% EBIT -12.5% 12.8% 14.2% 13.6% 7.0% EBITDA -8.4% 10.5% 12.4% 13.3% 6.7% Net profit -6.9% 10.0% 9.5% 6.8% 7.0% Recurring Net profit -5.0% -3.0% 18.8% 11.7% 7.0% Margins Gross margin 57.5% 59.5% 61.8% 62.5% 63.3% EBIT margin 44.7% 47.1% 50.5% 51.3% 52.0% EBITDA margin 58.9% 60.8% 64.2% 65.0% 65.7% Net profit margin 42.9% 44.2% 45.3% 43.7% 44.4% Other Ratios Sales/ avg. assets 26.2% 24.2% 24.5% 25.1% 25.5% Return on average assets 9.8% 9.3% 9.7% 9.5% 9.8% Return on average equity 15.0% 12.3% 12.7% 13.1% 13.3% ROIC 11.6% 9.7% 10.7% 11.1% 11.4% Dividend payout ratio 54.6% 61.6% 60.0% 60.0% 60.0% Valuation Measures EV/ Sales (x) 3.0x 3.2x 3.5x 3.0x 2.8x EV/ EBITDA (x) 5.1x 5.3x 5.4x 4.7x 4.2x EV/ IC (x) 0.8x 0.8x 0.9x 0.8x 0.7x P/E (x) 10.7x 11.0x 10.0x 9.4x 8.8x P/ B (x) 1.1x 1.1x 1.1x 1.0x 1.0x Dividend yield 5.1% 5.6% 6.0% 6.4% 6.8% Source: Company data, Quam estimates Dragon Crown Group Holdings 4

Cash Flow and Balance Sheet Projections Cashflow Statement (HKD mn ) Dec 11 Dec 12 Dec 13E Dec 14E Dec 15E Operating Cashflow Profit Before Tax 109 140 151 164 175 Depreciation and Amortization 34 35 38 42 44 Income Tax Paid (5) (26) (27) (30) (32) Other (1) 0 (8) (8) (9) Operating Cashflow before W/C 136 150 154 168 179 Change in Working Capital 7 27 (3) (11) (5) Cash flow from operations 144 176 151 157 174 We have not modeled the capex (~HK$600mn) of the potential Dow JV development in our financial projections Investing Activities Purchases of PPE (6) (96) (195) (45) (45) Other 6 4 - - - Cash flow from investing activities (0) (92) (195) (45) (45) Financing Activities Net Proceeds from Issue of Shares 342 - - - - Increases/ (decreases) in debt (62) (144) 111 4 (14) Dividend paid (67) (77) (81) (86) (91) Cashflow from financing activities 213 (222) 30 (82) (105) Net Increase in Cash and Cash Equivalents 357 (138) (14) 30 24 Cash and Cash Equivalents at Beginning of the Year 47 403 266 252 282 Cash and Cash Equivalents at End of the Year 403 266 252 282 306 Balance Sheet (HKD mn) Dec 11 Dec 12 Dec 13E Dec 14E Dec 15E Non-Current Assets PPE 547 636 794 798 800 Prepaid lease payments 47 47 45 50 53 Other 51 48 55 63 71 Total Non-Current Assets 645 730 894 911 924 Current Assets Accounts Receivables 40 40 45 51 54 Inventories 4 4 4 4 4 Cash and Cash Equivalents 403 266 252 282 306 Other - 1 2 2 2 Total Current Assets 447 312 302 339 366 Total Assets 1,093 1,042 1,197 1,250 1,290 Current Liabilities Accounts Payable - - - - - Bank borrowings 144 12 10 14 - Other 36 65 66 66 67 Total Current Liabilities 180 77 76 80 67 Non-Current Liabilities Bank borrowings 12-113 113 113 Deferred tax liabilities 6 6 6 7 7 Other - - - - - Total Non-Current Liabilities 18 6 120 120 121 Total Liabilities 198 83 195 200 187 Equity Share Capital 156 169 168 171 174 Reserves 739 789 833 879 929 Total Shareholder's Equity 895 959 1,001 1,050 1,103 Net cash position Key Ratios Dec 11 Dec 12 Dec 13E Dec 14E Dec 15E Net debt (HK$mn) -247-254 -128-155 -193 Net debt to equity -27.6% -26.5% -12.8% -14.7% -17.5% Net debt/ EBITDA -1.7x -1.6x -0.7x -0.8x -0.9x Capex/ Sales 2.5% 37.2% 71.2% 14.7% 13.9% Current ratio 13.9x 5.5x 5.3x 5.9x 6.3x Quick ratio 11.3x 4.1x 3.8x 4.3x 4.6x Interest coverage 15.1x 54.5x 116.0x 70.9x 80.3x Book value per share (HK$) 0.8 0.9 0.9 0.9 1.0 Avg Inventory (days) 12 15 13 13 13 Avg Receivables (days) 64 57 60 60 60 Avg Payables (days) - - - - - Cash conversion cycle (days) 76 72 74 74 74 Source: Company data, Quam estimates Dragon Crown Group Holdings 5

Rating Definitions BUY We expect the stock to have a total return of > 15% over the next 12 months HOLD We expect the stock to have a total return of < 15% and >-15% over the next 12 months SELL We expect the stock to have a total return of < -15% over the next 12 months Disclosures Disclaimer and Risk Statement This document is published by Quam Securities Company Limited ( Quam Securities ), a licensed corporation (central entity number AAC577) regulated by the Securities and Futures Commission in Hong Kong. This document is for distribution in Hong Kong only to persons who are Professional Investors as defined in Part 1 of Schedule 1 of Securities and Futures Ordinance (Cap 571) of Hong Kong and any rules made thereunder. This document is not intended for distribution to or use by, any person or entity who is a citizen or resident of any jurisdiction where such distribution or use would be contrary to applicable law or regulation within such jurisdiction. This document does not constitute an offer or a solicitation of an offer to buy or sell any securities. This document is circulated to addresses solely and may not be reproduced or redistributed to any other person or published, in whole or in part, for any purpose. The research is based on information obtained from sources believed to be reliable, but Quam Securities does not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without prior notice. Any recommendation does not have regard to specific investment objectives, financial situation and particular needs of any specific addressee. Quam Securities accepts no liability whatsoever for any direct or consequential loss arising from any use of this document. Quam Securities and its affiliates as well as persons associated with any of them from time to time may or may not have interests in the securities mentioned in this document. The prices of securities may move up or down, and past performance is not an indication of future performance. Investors shall consider seeking separate legal or financial advice before making investment decisions. Analyst Certification: The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Jennifer So (CE No.: AHA295). Quam Securities Company Limited and Jennifer So (CE No.: AHA295), the author of this document and her associates declare that as of the date of the publication of this report, they do not hold any financial interest in the company. Dragon Crown Group Holdings 6