Indonesia Company Guide Version 11 Bloomberg: BDMN IJ Reuters: BDMN.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 23 Nov 2017 BUY Last Traded Price ( 22 Nov 2017): Rp5,575 (JCI : 6,069.80) Price Target 12-mth: Rp6,300 (13% upside) Analyst Sue Lin LIM +65 8332 6843 suelinlim@dbs.com Benedictus Agung SWANDONO +6221 3003 4935 agung.swandono@id.dbsvickers.com What s New Possible M&A bonus; Asia Financial (Indonesia) Pte Ltd receives expression of interest from MUFG Business as usual - transformation continues to deliver strong results; ready for quality growth Earnings continues to be driven by efficiency and lower provisions Reiterate our BUY with TP Rp6,300 on stronger fundamentals; M&A is a bonus Price Relative Forecasts and Valuation FY Dec (Rpbn) 2016A 2017F 2018F 2019F Pre-prov. Profit 9,375 10,454 12,150 13,836 Net Profit 2,670 4,241 5,343 6,467 Net Pft (Pre Ex.) 3,126 4,241 5,343 6,467 Net Pft Gth (Pre-ex) (%) 30.6 35.7 26.0 21.0 EPS (Rp) 280 444 560 678 EPS Pre Ex. (Rp) 328 444 560 678 EPS Gth Pre Ex (%) 31 36 26 21 Diluted EPS (Rp) 280 444 560 678 PE Pre Ex. (X) 17.0 12.5 10.0 8.2 Net DPS (Rp) 75.2 83.9 178 280 Div Yield (%) 1.3 1.5 3.2 5.0 ROAE Pre Ex. (%) 8.9 11.2 12.9 14.4 ROAE (%) 7.6 11.2 12.9 14.4 ROA (%) 1.5 2.3 2.7 2.9 BV Per Share (Rp) 3,766 4,140 4,522 4,920 P/Book Value (x) 1.5 1.3 1.2 1.1 Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 412 469 535 Other Broker Recs: B: 5 S: 5 H: 12 Source of all data on this page: Company, DBS Bank, DBSVI, Bloomberg Finance L.P. Sustained trajectory Delivering as promised, reiterate BUY. We maintain our bullish view on (BDMN) as the transformation story morphs into reality. Deliveries on the 3-year transformation programme initiated in March 2016 have been satisfying mainly on two fronts structurally lower funding cost and credit costs. Management has put forward a more holistic approach in achieving loan growth by winning quality clients to expand its transaction banking business, which results in organic CASA and fee income growth. Adira Finance (ADMF) also supports growth with decent levels of new financing while it continues to enhance cross-selling of BDMN s retail products. BDMN s micro business is being rationalised. A new product and business approach to its SME clients (bundled with CASA) has delivered improvements in its SME offerings and should garner better returns over time. BDMN s share price has also reacted positively to recent news on Mitsubishi-UFJ Financial Group (MUFG) expressing interest to acquire a stake in the bank. The deal will depend on further talks and there is no certainty that this will lead to a transaction. Where we differ. We have one of the highest target price on the street as we believe the transformation story will continue to unfold. We also have one of the highest earnings forecasts, which translates into 14% ROE by FY19. Potential catalysts. Full impact of the transformation programme on earnings. Positive growth in CASA and consolidated loan growth. Revival of the 2W industry could boost ADMF s high yielding business. Successful corporate action from the potential acquirer could add value to the bank. Valuation: Reiterate BUY; ready for growth. We maintain our TP at Rp6,300, which is based on the Gordon Growth Model (15% ROE, 10% growth and 13.6% cost of equity) and implies 1.4x FY18 BV. Key Risks to Our View: Ineffective transformation deliveries. Slower-than-expected growth could derail the next transformation phase. Failure to improve the deposit franchise could further pressure NIM. At A Glance Issued Capital (m shrs) 9,585 Mkt. Cap (Rpbn/US$m) 53,434 / 3,953 Major Shareholders (%) Asia Financial (Indonesia) Pte. Ltd (%) 67.4 JPMCB Franklin Templeton Inv Funds 6.7 Free Float (%) 26.1 3m Avg. Daily Val (US$m) 1.0 ICB Industry : Financials / Banks ed: JS / sa: MA, PY, CS
WHAT S NEW M&A bonus to top up already improving fundamentals Expression of interest by MUFG Expression of interest for an acquisition. (BDMN) announced today that management has acknowledged receiving a notice from Asia Financial (Indonesia) Pte Ltd, which is the controlling shareholder of BDMN, outlining an expression of interest towards a 40% stake in BDMN. The deal will depend on further talks and there is no certainty that this will lead to a transaction. Potential valuation of transaction could be higher than current share price. In early Nov 2017, the Nikkei newspaper reported that Mitsubishi-UFJ Financial Group (MUFG), through its core unit Bank of Tokyo Mitsibishi-UFJ (BTMU), is aiming to spend JPY200bn to buy about 40% of BDMN. Our estimates indicate a price of Rp6,240/share or 1.4x FY18F BV. Historically, Japanese investors have acquired Indonesian banks at a large premium. For example, Bank Tabungan Pensiunan Nasional (BTPN) was sold to Sumitomo Banking Corporation (SMBC) at 3.8x BV while Sumitomo Mitsui Financial Group (SMFG) bought a 17.5% stake at 2.85x BV in 2014; BTPN was then trading at 2.0x BV. Another example would be Bank Mutiara s acquisition by J Trust in 2015 at a lofty 3.5x BV. Bank Mutiara was not listed as the stock was suspended then following internal issues it had to iron out. As such, we do not discount the possibility of MUFG paying a premium if the transaction goes through. and also other banks in the ASEAN region. In 2013, (BTMU) acquired a majority stake in Bank of Ayudhya (BAY) in Thailand at 2.0x BV when peers were trading at an average of 1.4x BV. And in 2016, BTMU acquired a 20% stake in Security Bank (SECB) in the Philippines at 2.8x BV when peers were trading at 1.5x BV. Interestingly, BTMU sold its 4.56% stake in CIMB (Malaysia) in Sep 2017 at 1.1x BV, approximately US$610m. Deliveries up to 9M17 Positive loan growth trend. BDMN was able to book respectable loan growth of 2% y-o-y despite the declining micro portfolio. Stripping off the micro loans, loans grew by 5% y-o-y. The growth mainly came from SME (+10% y-o-y), commercial and corporate (+7%) as well as mortgage segments (+31%). Adira Finance, which contributes c.35% of BDMN s loan portfolio, booked flattish growth of 1% as the 2W industry remained soft. Commercial vehicles bookings were promising. Higher NIM due to structurally lower cost of funds. On a q-o-q basis, NIM was higher at 9.3% (vs 9.2% in 2Q17 and 8.9% in 3Q16). Asset yield is lower due to BDMN s strategy in targeting lower-risk loans but this was compensated by lower cost of funds. The lower cost of funds is one of the important deliveries of BDMN s structural improvement. Credit cost continues to decline; asset quality in check; opex is well maintained. Credit cost was significantly lower at 2.7% (vs 2.8% in 2Q17 and 3.8% in 3Q16) mainly due to the structural shift of the loan portfolio. NPL was in check at 3.3% (vs 3.2% in 1H17 and 3.5% in 3Q16). Operating expenses were also flattish y-o-y, reflecting its ability to maintain efficiency. CASA-driven funding growth; solid CAR at 22.3%. The bank continued to trim its expensive time deposits (-9% y-o-y) and seemed unperturbed by the declining total funding amid the soft underlying demand for loans. Positively, CASA still grew 5% y-o-y, bringing the CASA ratio even higher to 47.5% vs 44% a year ago. CAR improved to 22.3% even after a higher dividend payout ratio earlier this year. Outlook Stronger growth remains challenging. Management believes that the economy and purchasing power have not picked up enough traction and this might not translate into significantly better underlying demand for loans. Moreover, management stated that the micro business will continue to shrink, contributing a mere c.5% of total portfolio. Adira contributes 35% of total loans, while the rest is equally split between consumer, SME, and commercial & corporate segments. Expecting smaller restructuring costs in 4Q17; efficiency will continue to improve. Management has guided that there will be more restructuring costs as part of the employee and branch rationalisation programme in 4Q17. However, the magnitude will be much smaller than the ones booked in the last quarter of 2016 and 2015. As a result, we should continue to see flattish operating expenses going forward. Gauging the impact of IFRS 9. BDMN will be adopting IFRS 9 in 2018, one of the first in the country to adopt this reporting standard due to its relationship with Temasek. Management estimated that the adoption will result in a 1% reduction of CAR from its Dec 2016 book. The departure of veteran CFO, Vera Eve Lim. BDMN s veteran CFO, Vera Eve Lim, is leaving and will be replaced by Mr. Satinder Pal Singh Ahluwalia as acting CFO, who is currently the Page 2
Director of Risk and Micro Business. We believe this should not impact the ongoing structural transformation of the bank as the CEO, Sng Seow Wah, has been involved in the most important initiatives and structural changes of the bank. Valuation and recommendation Maintain BUY with TP of Rp6,300. Our thesis for BDMN remains intact its next re-rating catalyst hinges on the next phase of growth and sustaining higher ROEs. BDMN s recent 9M17 results testifies that its restructuring story is bearing fruit. We reiterate our BUY rating for BDMN with TP of Rp6,300 on continuously improving fundamentals. An M&A is a bonus. Page 3
CRITICAL DATA POINTS TO WATCH Margin Trends Critical Factors Picking up steam. We expect loan growth to gradually improve. Auto loan growth at Adira Finance (ADMF) is expected to turn positive (from a contraction in FY15). The Danamon Simpan Pinjam (DSP) or micro business is expected to stay muted as management is in the midst of recalibrating its business model. The worst of asset quality should be over, in our view. Provisions should taper off from the current levels. Loan growth to resume in 2017 (ex-micro). Loans growth started to pick up albeit slow in 2017 because of the rundown of micro loans and subtle growth in the automotive segment. The decline in consumer loans in 2016 was a result of reducing its exposure to unsecured lending. Green shoots for growth was seen in mortgage and SME in 2017. Going forward a recovery is expected for auto loans at Adira, SME and retail loans should continue its positive traction and commercial loans will start to show growth by the middle of the year. A segment called asset-based financing which is largely related to the plantation segment will be reduced. Lower NIM trends ahead as loan mix changes... NIM is likely to slide as the loan mix changes towards SME loans, which are mainly secured. On the other hand, cost of funds reduction would not be as significant as this year. Positively, fee income should start to improve as retail and SME loans pick up. but lower expenses and provisions should make up for earnings over time. The less risky portfolio should also come with significantly lower credit cost and expenses. Comparatively, the credit cost for micro loans is in excess of 8% but credit cost for SME would be below 1% (this portfolio is deemed to have lower risk). Expenses will be lower as the bank scales down its labour-intensive micro business (typically requiring more employees to be surveyors and for collections). Provisions should also decline. All in, the lower NIM will be compensated by lower expenses, higher fee income and lower provisions. With the recovery of its loans in 2018, earnings are well poised for growth. Separately, the pressure by regulators have somewhat cooled off. That said, new loan products by BDMN (e.g. mortgage and SME loans) are at single-digit levels. Further cost reduction likely as efficiency improves. There was another round of restructuring costs booked in 4Q16 (similar to that recorded in 4Q15). There is still room for further cost reduction when efficiency improves mainly from branch/outlet rationalisation in 2017. Cost-toincome ratio should stay below 50%. Gross Loan& Growth Customer Deposit & Growth Loan-to-Deposit Ratio Trend Cost & Income Structure Source: Company, DBS Bank, DBSVI Page 4
Appendix 1: A look at Company's listed history what drives its share price? Loan growth as critical factor 8000 7000 6000 5000 4000 3000 2000 1000 0 40 35 30 25 20 15 10 5 0-5 -10-15 Remarks The stock price has largely been driven by the expectation of loan growth for the subsequent quarter/year. The relationship has shown strong positive correlation over the past 10 years. Price Loan Growth T+1 Bond Yield as critical factor 8000 7000 6000 5000 4000 3000 2000 1000 0 25 20 15 10 5 0 BDMN s stock price is negatively correlated (- 55%) to the Indonesian 10-year government bond yield. The NPL downtrend during 2008-2015 supported the share price rally during the same period. Price Bond Yield Source: Bloomberg Finance L.P., DBSVI Share price performance (10-year historical trend) 8000 7000 6000 5000 2012: DBS open talks to take over BDMN which sparks stock price rally 2015: New CEO came in, transformation program implemented and start to show positive results 4000 3000 2000 1000 2008-2009: Global Financial Crises 2009-2012: Periods of strong performance driven by high yieding mass market segment. Adira Finance and DSP is performing well 2013: After a year of stalled negotiations, DBS drops plan to buy BDMN due to failure to get regulatory approval 2013-2015: Series of earnings dissapointment due to decline in the mass market segment 0 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 Source: Bloomberg Finance L.P., DBSVI Pi Page 5
Balance Sheet: Improved funding franchise would be key. BDMN has long been seen to be a bank with a weak funding franchise. We have seen improvements in recent quarters, albeit gradual. Loan-to-deposit ratios have trended down. Further improvements should be expected as its strategic initiatives unfold. Asset quality under control. We expect BDMN to show lower credit cost levels in FY17F. BDMN has among the lowest percentage of restructured loans to total loans (c. 3%). This is also because auto loans (both 2W and 4W from Adira) and micro loans have automatic write-off policies of 180 days and 360 days respectively. Loan loss coverage ratios should correspondingly improve. NPL ratios should improve to below 3% for 2017. Share Price Drivers: Sustained deliveries of strategic priorities. It has been two years since Mr Sng Seow Wah came on board as BDMN s CEO. His 3-year strategic priorities were crafted out in early 2016. Early wins are visible. He has a strong track record in turning around banks with exposure to SME and consumer segments. He had successfully improved the business and profitability of a Malaysian bank, thus increasing its valuation. He also initiated a high dividend payout ratio policy to share the bank s success with shareholders. We believe BDMN should see similar success under his leadership. Going in Year 3 of transformation; growth phase. After two years of painful restructuring and cleaning up its balance sheet, BDMN is now ready for growth. The ability of BDMN to show strong growth in targeted areas as part of its transformation programme would be imperative for the next re-rating phase for the stock. Under our initial blue-sky scenario (see our reinitiation report dated 18 March 2015), we postulate that an ROE of 15% is closer to being materialised. Key Risks: Ineffective transformation deliveries. This would be mainly due to slower-than-expected changes in business processes and the new business model being ineffective. But these changes will take time and resources to implement. Failure of the transformation programme will not only impact operations and profitability, but the opportunity cost would magnify the impact. The other key risks for BDMN are failure to maintain liquidity and weaker-than-expected deposit growth since its loan-to-deposit ratio has always been high. Company Background (BDMN) is the eight largest bank in Indonesia by assets. The bank focuses on mass market loans with its Danamon Simpan Pinjam. BDMN is aided by its 95%-owned multi-finance arm Adira Finance for auto loans. Asset Quality Capitalisation (%) ROE (%) Forward PE Band (x) PB Band (x) Source: Company, DBS Bank, DBSVI Page 6
Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F Gross Loans Growth (6.1) (7.4) 8.0 12.0 12.0 Customer Deposits Growth (1.2) (9.9) 9.8 11.3 11.4 Yld. On Earnings Assets 13.5 12.9 12.9 12.7 12.4 Avg Cost Of Funds 5.6 4.8 4.7 4.6 4.5 Income Statement (Rpbn) FY Dec 2015A 2016A 2017F 2018F 2019F Net Interest Income 13,648 13,779 14,733 16,173 17,614 Non-Interest Income 4,608 4,693 4,785 5,578 6,354 Operating Income 18,257 18,472 19,518 21,751 23,967 Operating Expenses (9,231) (9,096) (9,064) (9,602) (10,132) Pre-provision Profit 9,026 9,375 10,454 12,150 13,836 Provisions (5,082) (4,441) (4,011) (4,048) (4,038) Associates 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 3,282 4,393 5,737 7,213 8,723 Taxation (812) (1,600) (1,434) (1,803) (2,181) Minority Interests (75.9) (123) (61.7) (67.3) (75.3) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 2,393 2,670 4,241 5,343 6,467 Net Profit bef Except 2,393 2,670 4,241 5,343 6,467 Growth (%) Net Interest Income Gth (0.2) 1.0 6.9 9.8 8.9 Net Profit Gth (8.1) 11.5 58.9 26.0 21.0 Margins, Costs & Efficiency (%) Spread 7.9 8.1 8.2 8.1 7.9 Net Interest Margin 8.2 8.6 8.8 8.7 8.5 Cost-to-Income Ratio 50.6 49.2 46.4 44.1 42.3 Business Mix (%) Net Int. Inc / Opg Inc. 74.8 74.6 75.5 74.4 73.5 Non-Int. Inc / Opg inc. 25.2 25.4 24.5 25.6 26.5 Fee Inc / Opg Income 21.0 19.7 20.4 21.0 21.8 Oth Non-Int Inc/Opg Inc 4.2 5.7 4.1 4.7 4.7 Profitability (%) ROAE Pre Ex. 7.2 8.9 11.2 12.9 14.4 ROAE 7.2 7.6 11.2 12.9 14.4 ROA Pre Ex. 1.3 1.5 2.3 2.7 2.9 ROA 1.3 1.5 2.3 2.7 2.9 Source: Company, DBS Bank, DBSVI Page 7
Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 Net Interest Income 3,498 3,585 3,597 3,558 3,569 Non-Interest Income 1,175 1,189 1,112 1,099 1,108 Operating Income 4,673 4,775 4,709 4,657 4,677 Operating Expenses (2,489) (2,281) (2,411) (2,352) (2,445) Pre-Provision Profit 2,184 2,493 2,298 2,305 2,232 Provisions (1,118) (1,000) (812) (899) (810) Associates 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Pretax Profit 1,074 924 1,502 1,418 1,442 Taxation (256) (749) (417) (393) (406) Minority Interests (36.2) (21.5) (34.7) (36.0) (40.4) Net Profit 782 153 1,050 989 995 Growth (%) Net Interest Income Gth 1.0 2.5 0.3 (1.1) 0.3 Net Profit Gth (15.1) (80.4) 584.9 (5.8) 0.6 Balance Sheet (Rpbn) FY Dec 2015A 2016A 2017F 2018F 2019F Cash/Bank Balance 16,105 11,386 11,119 13,451 15,976 Government Securities 6,916 9,563 11,476 13,771 16,525 Inter Bank Assets 17,983 5,937 7,125 7,838 8,621 Total Net Loans & Advs. 99,483 91,889 99,441 111,404 124,892 Investment 6,392 17,408 19,633 22,079 24,771 Associates 0.0 0.0 0.0 0.0 0.0 Fixed Assets 2,559 2,506 2,444 2,374 2,295 Goodwill 1,427 1,470 1,470 1,470 1,470 Other Assets 37,193 33,928 40,036 39,857 40,128 Total Assets 188,057 174,087 192,743 212,243 234,680 Customer Deposits 115,142 103,740 113,938 126,774 141,197 Inter Bank Deposits 1,826 2,873 2,350 2,611 2,480 Debts/Borrowings 22,800 19,813 23,775 27,161 31,086 Others 14,075 11,284 12,679 11,981 12,330 Minorities 283 435 497 564 639 Shareholders' Funds 33,932 35,943 39,505 43,152 46,947 Total Liab& S/H s Funds 188,057 174,087 192,743 212,243 234,680 Source: Company, DBS Bank, DBSVI Page 8
Financial Stability Measures (%) FY Dec 2015A 2016A 2017F 2018F 2019F Balance Sheet Structure Loan-to-Deposit Ratio 86.4 88.6 87.3 87.9 88.5 Net Loans / Total Assets 52.9 52.8 51.6 52.5 53.2 Investment / Total Assets 3.4 10.0 10.2 10.4 10.6 Cust. Dep./Int. Bear. Liab. 73.7 71.8 78.5 78.3 77.8 Interbank Dep / Int. Bear. 1.2 2.0 1.6 1.6 1.4 Asset Quality NPL / Total Gross Loans 3.3 3.5 2.9 2.6 2.5 NPL / Total Assets 1.8 1.9 1.5 1.4 1.4 Loan Loss Reserve Coverage 99.4 100.7 113.7 125.3 126.3 Provision Charge-Off Rate 4.9 4.7 3.9 3.5 3.1 Capital Strength Total CAR 18.6 21.1 21.1 22.8 22.6 Tier-1 CAR 18.0 20.5 20.5 22.1 21.9 Source: Company, DBS Bank, DBSVI Target Price & Ratings History Source: DBS Bank, DBSVI Analyst: Sue Lin LIM Benedictus Agung SWANDONO Page 9
DBS Bank, DBSVI 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: 23 Nov 2017 09:11:45 (WIB) Dissemination Date: 23 Nov 2017 09:12:33 (WIB) Sources for all charts and tables are DBS Bank, DBSVI unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely intended for the clients of DBS Bank 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, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). 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 ) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research 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. 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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) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) 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. Page 10
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests 2 in relation to an issuer or a new listing applicant that the analyst reviews. 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. 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. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Oct 2017. 2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. Compensation for investment banking services: 3. 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. Disclosure of previous investment recommendation produced: 4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months. 1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant. Page 11
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 This report is being distributed in Australia by DBS Bank Ltd. ( DBS ) or DBS Vickers Securities (Singapore) Pte Ltd ( DBSVS ). DBS holds Australian Financial Services Licence no. 475946. DBSVS is 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. DBSVS is 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. Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report has been prepared by an entity(ies) which is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). 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 Sekuritas 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 Singapore Thailand 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. Page 12
United Kingdom 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 International Financial Centre United Arab Emirates United States Other jurisdictions This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd 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 is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. This report was prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). 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. Page 13
DBS Regional Research Offices HONG KONG DBS Vickers (Hong Kong) Ltd Contact: Paul Yong 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: equityresearch@dbs.com Participant of the Stock Exchange of Hong Kong MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: 603 2604 3333 Fax: 603 2604 3921 e-mail: general@alliancedbs.com SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: equityresearch@dbs.com Company Regn. No. 196800306E INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: research@id.dbsvickers.com THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 857 7831 Fax: 66 2 658 1269 e-mail: research@th.dbs.com Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand Page 14