Version 8 Bloomberg: TNB MK Reuters: TENA.KL Refer to important disclosures at the end of this report Malaysia Equity Research 28 Jul 2017 BUY Last Traded Price ( 27 Jul 2017): RM14.24 (KLCI : 1,770.07) Price Target 12-mth: RM16.00 (12% upside) (Prev RM15.80) Shariah Compliant: Yes Analyst QUAH He Wei, CFA +603 2604 3966 hewei@alliancedbs.com What s New 3QFY17 results missed expectations Dragged by lower-than-expected power demand growth, higher finance cost and tax expenses Cut FY17-19F earnings by 2%-4% Maintain BUY with revised TP of RM16.00 Price Relative 16.7 15.7 14.7 13.7 12.7 11.7 10.7 9.7 8.7 RM 7.7 88 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 (LHS) Relative KLCI (RHS) Relative Index Forecasts and Valuation FY Aug (RM m) 2016A 2017F 2018F 2019F Revenue 44,532 45,963 46,712 47,474 EBITDA 14,919 15,254 15,731 16,089 Pre-tax Profit 8,067 8,212 8,350 8,464 Net Profit 7,368 7,147 7,600 7,535 Net Pft (Pre Ex.) 7,758 7,147 7,600 7,535 Net Pft Gth (Pre-ex) (%) 24.8 (7.9) 6.3 (0.9) EPS (sen) 131 127 135 134 EPS Pre Ex. (sen) 137 127 135 134 EPS Gth Pre Ex (%) 25 (8) 6 (1) Diluted EPS (sen) 131 127 135 134 Net DPS (sen) 32.0 38.0 40.4 40.1 BV Per Share (sen) 928 1,017 1,111 1,205 PE (X) 10.9 11.2 10.6 10.7 PE Pre Ex. (X) 10.4 11.2 10.6 10.7 P/Cash Flow (X) 6.0 6.1 6.1 5.8 EV/EBITDA (X) 6.5 6.4 6.1 5.9 Net Div Yield (%) 2.2 2.7 2.8 2.8 P/Book Value (X) 1.5 1.4 1.3 1.2 Net Debt/Equity (X) 0.3 0.3 0.3 0.2 ROAE (%) 14.8 13.0 12.7 11.5 Earnings Rev (%): (4) (2) (3) Consensus EPS (sen): 134 133 133 Other Broker Recs: B: 18 S: 3 H: 4 Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P 208 188 168 148 128 108 Smooth sailing Steady electricity demand. After experiencing stronger electricity demand growth of 4% in Peninsular Malaysia in FY16 due to the El-Niño phenomenon, consumption is set to normalise in FY17, growing in tandem with the relatively healthy economic expansion in Malaysia which is projected at 4%-5% in 2017. We believe electricity consumption will continue to grow steadily. Energy reform remains on track. The government is fully committed to the implementation of the Imbalance Cost Pass- Through (ICPT) which has removed the burden of fuel cost volatility and ensures strong earnings clarity for (TNB). More importantly, the gradual increase in piped gas price has quashed concerns over the government s commitment to address the gas subsidy rationalisation issue. TNB s revised dividend payout policy of 30%-50% is the result of improved earnings clarity after the implementation of ICPT. Where we differ. We project a 6% EPS growth in FY18 compared to consensus flattish EPS forecast. We expect any fuel cost increase to be fully passed through and electricity demand to continue to grow healthily, albeit at a moderated pace. Potential catalyst. TNB will be commissioning 3,000 MW worth of new power plants over the next two years, translating into a 25% increase in its existing generation capacity. These more efficient power plants will allow TNB to gain a higher market share. Also, a successful tariff adjustment to reflect higher generation cost could remove any doubts that TNB will remain earnings-neutral in an environment of rising fuel cost. Valuation: We have revised our DCF-derived TP to RM16.00 (WACC 7.6%, 1.5% terminal growth) after incorporating our earnings revision and rolling forward our valuation base to FY18. TNB is trading at an undemanding valuation despite improving earnings visibility arising from the incentive-based regulatory framework. Key Risks to Our View: Operational breakdown. Unplanned outages may result in the shortage of electricity which may necessitate expensive overseas procurement. At A Glance Issued Capital (m shrs) 5,659 Mkt. Cap (RMm/US$m) 80,584 / 18,839 Major Shareholders (%) Khazanah Nasional 28.3 EPF 15.7 Skim ASB 6.8 Free Float (%) 49.2 3m Avg. Daily Val (US$m) 29.7 ICB Industry : Utilities / Electricity Refer to important disclosures at the end of this report ed: JC / sa: BC
WHAT S NEW Weaker electricity consumption 3QFY17 below expectations. Excluding RM191m forex translation loss, TNB s 3QFY17 core earnings came in at RM1.77bn on the back of RM12.5bn in revenue. This takes 9MFY17 core profit to RM5.2bn, comprising 70% and 69% of our and consensus initial forecasts, respectively. The-lower-than-expected 9MFY17 earnings are largely attributable to: 1) weaker electricity sales growth of 0.7% for 9MFY17 (vs our 2.2% assumption), 2) substantially higher finance cost (+53% y-o-y) due to one-off recognition of interest payable to the government for the PPA savings fund held by TNB since 2013, and 3) higher effective tax rate of 15.5% (vs our 10% assumption). Low electricity sales. TNB s 3QFY17 electricity demand in Peninsular Malaysia dipped 2.4% y-o-y the first negative quarterly growth in recent years due to the high base effect in 3QFY16, when the El Nino-induced heat wave boosted sales by 6.2%. Coal-fired power generation remains high. While the coalfired generation mix remained high at 53% in 3QFY17, it moderated from 56% in 3QFY16 due to power outages at some coal-fired plants. Therefore, gas-fired generation mix improved to 41% in 3QFY17 from 40% in 3QFY16. Minimal contribution from overseas ventures. TNB s share of results of associates registered RM11m in losses in 3QFY17, compared to a RM19m profit in 3QFY16. We understand that its 30% associate, GAMA Enerji (Turkey) incurred losses during the quarter, and is only expected to perform better from FY18 onwards. ICPT to buffer increases in fuel cost. TNB reiterated during the results conference call that the expected higher fuel cost, especially arising from coal prices, will be earnings-neutral to the group as per the adjustment under the ICPT mechanism. The government still has RM500m in the PPA savings fund (from RM1.8bn as at May 2017) as it will be utilising RM1.3bn for the tariff subsidy of 2.54/kWh for Jul-Dec 2017. Therefore, there will be limited leeway for the government to subsidise subsequent increases in fuel costs in the future, if any. Healthy financials. TNB incurred RM7.54bn in capex in 9MFY17, 45% of which was utilised for new generation capacity. This is also the lowest amount spent over the past two years which reinforces our view that the peak capex cycle is over, which will then give management further leeway to increase TNB s dividend payout. Meanwhile, its balance sheet remains very healthy with a net gearing level of 37%. Earnings revision. We have revised down our FY17-19F earnings by 4%/2%/3% after imputing higher effective tax rate for FY17 as well as slower growth in electricity sales across those years. We have revised our DCF-derived TP (7.6% WACC, 1.5% TG) to RM16.00 after incorporating the earnings changes and rolling forward our valuation base to FY18. Page 2
Quarterly / Interim Income Statement (RMm) FY Aug 3Q2016 2Q2017 3Q2017 % chg yoy % chg qoq Revenue 12,129 11,162 12,549 3.5 12.4 Cost of Goods Sold (9,570) (9,342) (10,039) 4.9 7.5 Gross Profit 2,559 1,821 2,511 (1.9) 37.9 Other Oper. (Exp)/Inc 188 158 202 7.4 27.7 Operating Profit 2,747 1,979 2,713 (1.2) 37.1 Other Non Opg (Exp)/Inc 30.1 7.20 20.5 (31.9) 184.7 Associates & JV Inc 25.4 68.2 (5.3) nm (107.8) Net Interest (Exp)/Inc (231) (384) (485) (109.8) (26.4) Exceptional Gain/(Loss) (39.8) 28.7 191 nm 565.9 Pre-tax Profit 2,532 1,700 2,435 (3.8) 43.2 Tax (225) (259) (486) 116.3 87.5 Minority Interest 1.50 41.5 13.7 813.3 (67.0) Net Profit 2,309 1,482 1,962 (15.0) 32.4 Net profit bef Except. 2,349 1,453 1,771 (24.6) 21.9 EBITDA 4,271 3,563 4,311 0.9 21.0 Margins (%) Gross Margins 21.1 16.3 20.0 Opg Profit Margins 22.6 17.7 21.6 Net Profit Margins 19.0 13.3 15.6 Source of all data: Company, AllianceDBS Page 3
CRITICAL DATA POINTS TO WATCH 4.3 Electricity sales growth (%) 4.21 Critical Factors Electricity demand. This is the key earnings driver for TNB. Historically, the growth in electricity sales has been highly correlated with the country s GDP growth. Industrial and commercial users typically account for ~75% of TNB s electricity usage, and therefore a healthy economy is of utmost importance to TNB. 3.6 3.0 2.4 1.8 1.2 0.6 2.22 0.64 1.52 1.51 Transparent tariff-setting mechanism. The implementation of the Incentive-Based Regulation (IBR) framework will have a base tariff that reflects: 1) capex as well as opex of transmission and distribution business, 2) return on regulated assets, and 3) power purchase cost charged by generators. The implementation of the imbalance cost pass-through (ICPT) mechanism, which is a part of IBR, will offer strong earnings clarity going forward with a tariff revision every six months. We believe the government is committed to the energy reform that kicked off on 1 Jan 2014. New power plants coming on-stream. TNB is set to benefit from the new generation capacity that is under construction which will progressively increase its capacity by ~25% by 2019. The new power plants will be completed progressively to boost its generation capacity. Ultimately, the new power plants will help reduce generation cost due to the more efficient technology. The new additions will also help replace expiring power purchase agreements/service level agreements which tend to be costlier. Balanced generation mix. TNB s coal-based generation mix has improved to 53% in 3QFY17, from 38% three years ago, due to the contribution of new coal-fired power plants in recent years. This enables TNB to consume less LNG for power generation which is more expensive. Overseas expansion. TNB s overseas footprint is still minimal at this juncture, though it intends to expand into energy-related businesses overseas such as project management, operation and maintenance, as well as power generation. Its 100%-owned Liberty Power Ltd, which operates a 235-MW combined-cycle natural gas power plant, currently contributes ~1% of TNB s revenue. We understand the group will focus on the Middle East and ASEAN regions as its target markets. 0.0 69.4 55.5 41.6 27.7 13.9 0.0 21.99 17.59 13.19 8.80 4.40 0.00 49.9 39.9 29.9 20.0 10.0 0.0 Coal price (US$/MT) 68 68 68 57.7 55.7 Gas price (RM/mmbtu) 21.6 20.9 20.9 20.9 20.9 Gas-based generation (%) 49.4 42.7 43.4 41.9 40.8 Coal-based generation (%) 55.9 53.1 52.7 54.3 55.3 44.7 45.6 33.5 22.4 11.2 0.0 Source: Company, AllianceDBS Page 4
1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 Company Guide Appendix 1: A look at Company's listed history what drives its share price? Share price vs FBM KLCI 400 350 300 250 200 150 100 TNB FBM KLCI Remarks TNB s share price generally underperformed prior to 2014 due to the sustained period of high coal prices, which resulted in high fuel cost. Fuel cost was a major earnings determinant back then due to the lack of transparency on tariff revision. Since 2014, the government has implemented the imbalance cost-pass-through mechanism that incorporates a tariff revision every six months to reflect the actual generation cost on a lagged basis. Fuel cost volatility will be earnings-neutral to the company. Source: Bloomberg L.P., AllianceDBS Share price vs power demand in Peninsular Malaysia 400 350 300 250 200 150 150 140 130 120 110 Remarks There is a positive correlation between share price performance and electricity consumption in Peninsular Malaysia as TNB holds a monopoly of transmission and distribution, and accounts for the lion s share of power generation. Higher power consumption will translate into better earnings growth for TNB. 100 100 TNB Power demand Source: Bloomberg L.P., AllianceDBS Share price vs coal price 400 350 300 250 200 150 100 50 Remarks Prior to the implementation of the Incentive- Based Regulation framework for the power industry in 2014, the changes in coal prices had an inverse relationship with TNB s share price as it formed a major component of fuel cost. The negative correlation has been less apparent since the IBR framework was smoothly implemented. TNB 1-month Aus coal futures Source: Bloomberg L.P., AllianceDBS Page 5
Balance Sheet: More debt headroom to gear up. TNB s net gearing stood at 37% as at end-may 17. This is after taking into consideration its total capex spending of RM11.4bn in FY16. The construction of the 2,000-MW Jimah East Power has already achieved 56% progress, and this could be the last of its series of major expansion of power-generation capacity. Share Price Drivers: Strong power consumption. Higher-than-expected electricity consumption will be TNB s key earnings driver, given the implementation of the ICPT mechanism which insulates the company from fuel-cost volatility. Government s commitment to ICPT. There have always been doubts about TNB's ability to implement ICPT fully, due to the government s intervention. We believe the government is committed to energy reform, as evidenced by the latest hike in the price of piped gas. A smooth implementation of ICPT will be a strong re-rating catalyst for TNB, as ICPT will remove the burden of volatility in its energy procurement. Key Risks: Increase in fuel costs. Gas and coal account for more than 90% of TNB's fuel mix and a hike in the costs of these inputs would reduce TNB's profitability. Tariff revision is subject to the government s approvals, but TNB has historically been fully compensated for any fuel cost increase by tariff hikes. Demand weakness. TNB's earnings are sensitive to power demand growth, which is affected by overall economic conditions. Company Background Berhad (TNB) is the largest electricity provider in Malaysia. Its core business comprises the generation, transmission and distribution of electricity. It has a total installed generation capacity of 12,000MW. Leverage & Asset Turnover (x) 0.4 0.70 0.60 0.4 0.50 0.4 0.40 0.30 0.3 0.20 0.3 0.10 0.00 0.3 Gross Debt to Equity (LHS) Asset Turnover (RHS) Capital Expenditure RMm 11,400.0 11,200.0 11,000.0 10,800.0 10,600.0 10,400.0 10,200.0 10,000.0 9,800.0 9,600.0 9,400.0 Capital Expenditure (-) ROE (%) 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 13.8 Forward PE Band (x) (x) 12.8 +2sd: 12.5x 11.8 +1sd: 11.5x 10.8 Avg: 10.6x 9.8-1sd: 9.7x 8.8-2sd: 8.8x 7.8 6.8 Jul-13 Jul-14 Jul-15 Jul-16 Source: Company, AllianceDBS PB Band (x) (x) 2.1 2.0 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 Jul-13 Jul-14 Jul-15 Jul-16 +2sd: 1.82x +1sd: 1.68x Avg: 1.55x -1sd: 1.41x -2sd: 1.28x Page 6
Key Assumptions FY Aug Electricity sales growth (%) 2.22 4.21 0.64 1.52 1.51 Coal price (US$/MT) 57.7 55.7 68.0 68.0 68.0 Gas price (RM/mmbtu) 21.6 20.9 20.9 20.9 20.9 Gas-based generation (%) 49.4 42.7 43.4 41.9 40.8 Coal-based generation (%) 45.6 53.1 52.8 54.3 55.3 Segmental Breakdown FY Aug Revenues (RMm) Electricity sales 41,721 43,100 45,409 46,141 46,887 Goods and services 411 1,506 554 570 588 Customer's contributions 739 (401) 0.0 0.0 0.0 Release of deferred income 416 327 0.0 0.0 0.0 Lifted by heat wave Total 43,287 44,532 45,963 46,712 47,474 Income Statement (RMm) FY Aug Revenue 43,287 44,532 45,963 46,712 47,474 Cost of Goods Sold (35,483) (36,171) (37,337) (37,852) (38,489) Gross Profit 7,803 8,361 8,626 8,860 8,986 Other Opng (Exp)/Inc 824 712 726 740 755 Operating Profit 8,628 9,072 9,352 9,600 9,741 Other Non Opg (Exp)/Inc (833) 31.8 0.0 0.0 0.0 Associates & JV Inc 101 93.3 96.1 99.0 102 Net Interest (Exp)/Inc (663) (740) (1,236) (1,349) (1,379) Exceptional Gain/(Loss) (99.3) (390) 0.0 0.0 0.0 Pre-tax Profit 7,134 8,067 8,212 8,350 8,464 Tax (1,073) (746) (1,136) (825) (1,003) Minority Interest 57.5 46.8 70.8 75.3 74.6 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 6,118 7,368 7,147 7,600 7,535 Net Profit before Except. 6,218 7,758 7,147 7,600 7,535 EBITDA 13,190 14,919 15,254 15,731 16,089 Growth Revenue Gth (%) 1.2 2.9 3.2 1.6 1.6 EBITDA Gth (%) 14.0 13.1 2.2 3.1 2.3 Opg Profit Gth (%) 30.9 5.2 3.1 2.7 1.5 Net Profit Gth (Pre-ex) (%) 14.5 24.8 (7.9) 6.3 (0.9) Margins & Ratio Gross Margins (%) 18.0 18.8 18.8 19.0 18.9 Opg Profit Margin (%) 19.9 20.4 20.3 20.6 20.5 Net Profit Margin (%) 14.1 16.5 15.5 16.3 15.9 ROAE (%) 13.5 14.8 13.0 12.7 11.5 ROA (%) 5.4 5.9 5.2 5.3 5.1 ROCE (%) 7.2 7.4 6.6 6.8 6.5 Div Payout Ratio (%) 26.7 24.5 30.0 30.0 30.0 Net Interest Cover (x) 13.0 12.3 7.6 7.1 7.1 Expecting steady growth Source: Company, AllianceDBS Page 7
Quarterly / Interim Income Statement (RMm) FY Aug 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 Revenue 12,129 11,237 11,242 11,162 12,549 Cost of Goods Sold (9,570) (9,355) (9,086) (9,342) (10,039) Gross Profit 2,559 1,882 2,156 1,821 2,511 Other Oper. (Exp)/Inc 188 203 184 158 202 Operating Profit 2,747 2,085 2,340 1,979 2,713 Other Non Opg (Exp)/Inc 30.1 7.20 5.80 7.20 20.5 Associates & JV Inc 25.4 24.6 (3.0) 68.2 (5.3) Net Interest (Exp)/Inc (231) (130) (116) (384) (485) Exceptional Gain/(Loss) (39.8) (115) (231) 28.7 191 Pre-tax Profit 2,532 1,872 1,995 1,700 2,435 Tax (225) (136) (207) (259) (486) Minority Interest 1.50 25.8 (48.0) 41.5 13.7 Net Profit 2,309 1,762 1,741 1,482 1,962 Net profit bef Except. 2,349 1,877 1,972 1,453 1,771 EBITDA 4,271 3,634 3,796 3,563 4,311 Induced by El-Nino phenomenon Growth Revenue Gth (%) 15.6 (7.4) 0.0 (0.7) 12.4 EBITDA Gth (%) 31.2 (14.9) 4.5 (6.1) 21.0 Opg Profit Gth (%) 49.2 (24.1) 12.2 (15.4) 37.1 Net Profit Gth (Pre-ex) (%) 56.8 (20.1) 5.0 (26.3) 21.9 Margins Gross Margins (%) 21.1 16.7 19.2 16.3 20.0 Opg Profit Margins (%) 22.6 18.6 20.8 17.7 21.6 Net Profit Margins (%) 19.0 15.7 15.5 13.3 15.6 Balance Sheet (RMm) FY Aug Net Fixed Assets 90,300 96,513 101,707 105,675 109,428 Invts in Associates & JVs 758 1,838 1,934 2,033 2,135 Other LT Assets 7,282 7,796 7,796 7,796 7,796 Cash & ST Invts 8,910 17,154 19,417 20,093 21,466 Inventory 844 792 847 855 866 Debtors 8,639 8,277 8,730 8,872 9,017 Other Current Assets 402 533 533 533 533 Total Assets 117,135 132,902 140,964 145,857 151,242 ST Debt 1,986 1,489 1,582 1,576 1,570 Creditor 10,412 11,409 11,298 11,402 11,553 Other Current Liab 3,195 3,186 4,272 3,961 4,139 LT Debt 22,713 32,818 34,880 34,742 34,604 Other LT Liabilities 31,363 31,401 31,401 31,401 31,401 Shareholder s Equity 47,208 52,389 57,391 62,711 67,986 Minority Interests 259 211 140 65.1 (9.5) Total Cap. & Liab. 117,135 132,902 140,964 145,857 151,242 Non-Cash Wkg. Capital (3,721) (4,994) (5,460) (5,102) (5,276) Net Cash/(Debt) (15,789) (17,153) (17,045) (16,225) (14,707) Debtors Turn (avg days) 66.5 69.3 67.5 68.8 68.8 Creditors Turn (avg days) 111.1 130.8 131.4 130.2 129.9 Inventory Turn (avg days) 10.5 9.8 9.5 9.8 9.7 Asset Turnover (x) 0.4 0.4 0.3 0.3 0.3 Current Ratio (x) 1.2 1.7 1.7 1.8 1.8 Quick Ratio (x) 1.1 1.6 1.6 1.7 1.8 Net Debt/Equity (X) 0.3 0.3 0.3 0.3 0.2 Net Debt/Equity ex MI (X) 0.3 0.3 0.3 0.3 0.2 Capex to Debt (%) 43.6 32.5 30.2 27.5 27.6 Z-Score (X) 1.8 1.7 1.7 1.7 1.8 Solid balance sheet Source: Company, AllianceDBS Page 8
Cash Flow Statement (RMm) FY Aug Pre-Tax Profit 7,134 8,067 8,212 8,350 8,464 Dep. & Amort. 5,294 5,722 5,806 6,032 6,246 Tax Paid (811) (721) (50.6) (1,136) (825) Assoc. & JV Inc/(loss) 0.0 0.0 (96.1) (99.0) (102) Chg in Wkg.Cap. 974 1,412 (619) (46.5) (4.9) Other Operating CF (1,152) (1,188) 0.0 0.0 0.0 Net Operating CF 11,439 13,293 13,252 13,101 13,778 Capital Exp.(net) (10,774) (11,143) (11,000) (10,000) (10,000) Other Invts.(net) 0.0 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 (2,052) (7,253) 0.0 0.0 0.0 Net Investing CF (12,826) (18,396) (11,000) (10,000) (10,000) Div Paid (1,637) (1,806) (2,144) (2,280) (2,260) Chg in Gross Debt (1,775) 9,063 2,156 (144) (144) Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (840) (664) 0.0 0.0 0.0 Net Financing CF (4,252) 6,593 11.6 (2,424) (2,405) Currency Adjustments (2.6) 9.90 0.0 0.0 0.0 Chg in Cash (5,641) 1,500 2,264 676 1,373 Opg CFPS (sen) 185 211 246 233 244 Free CFPS (sen) 11.8 38.1 39.9 54.9 67.0 Capex to come down after aggressive expansion in recent years Source: Company, AllianceDBS Target Price & Ratings History 15.21 14.71 14.21 13.71 1 RM 2 3 4 6 7 8 5 10 911 12 14 13 16 15 S.No. Date of Report Closing Price 12-mth T arget Price Rating 1: 29 Jul 16 14.38 16.60 BUY 2: 05 Aug 16 14.40 16.60 BUY 3: 02 Sep 16 14.66 16.60 BUY 4: 06 Oct 16 14.36 16.60 BUY 5: 21 Oct 16 14.32 16.60 BUY 6: 24 Oct 16 14.34 16.60 BUY 7: 28 Oct 16 14.42 17.00 BUY 8: 07 Nov 16 14.32 17.00 BUY 13.21 9: 06 Dec 16 14.00 17.00 BUY 10: 13 Dec 16 14.06 17.00 BUY 11: 15 Dec 16 13.98 17.00 BUY 12.71 12: 09 Jan 17 13.92 17.00 BUY Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 13: 10 Jan 17 13.80 17.00 BUY 14: 25 Jan 17 13.80 17.00 BUY Note : Share price and Target price are adjusted for corporate actions. 15: 28 Apr 17 13.94 15.80 BUY 16: 04 May 17 13.90 15.80 BUY 17: 03 Jul 17 14.12 15.80 BUY 17 Source: AllianceDBS Analyst: QUAH He Wei, CFA Page 9
DISCLOSURE Stock rating definitions 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 > -10% over the next 12 months SELL - negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame Commonly used abbreviations Adex = advertising expenditure EPS = earnings per share PBT = profit before tax bn = billion EV = enterprise value P/B = price / book ratio BV = book value FCF = free cash flow P/E = price / earnings ratio CF = cash flow FV = fair value PEG = P/E ratio to growth ratio CAGR = compounded annual growth rate FY = financial year q-o-q = quarter-on-quarter Capex = capital expenditure m = million RM = Ringgit CY = calendar year M-o-m = month-on-month ROA = return on assets Div yld = dividend yield NAV = net assets value ROE = return on equity DCF = discounted cash flow NM = not meaningful TP = target price DDM = dividend discount model NTA = net tangible assets trn = trillion DPS = dividend per share NR = not rated WACC = weighted average cost of capital EBIT = earnings before interest & tax p.a. = per annum y-o-y = year-on-year EBITDA = EBIT before depreciation and amortisation PAT = profit after tax YTD = year-to-date Page 10
DISCLAIMER This report has been prepared for information purposes only by AllianceDBS Research Sdn Bhd ( ADBSR ), a subsidiary of Alliance Investment Bank Berhad ( AIBB ) and an associate of DBS Vickers Securities Holdings Pte Ltd ( DBSVH ). DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. This report is strictly confidential and is meant for circulation to clients of ADBSR, AIBB and DBSVH only or such persons as may be deemed eligible to receive such research report, information or opinion contained herein. Receipt and review of this report indicate your agreement not to distribute, reproduce or disclose in any other form or medium (whether electronic or otherwise) the contents, views, information or opinions contained herein without the prior written consent of ADBSR. This report is based on data and information obtained from various sources believed to be reliable at the time of issuance of this report and any opinion expressed herein is subject to change without prior notice and may differ or be contrary to opinions expressed by ADBSR s affiliates and/or related parties. ADBSR does not make any guarantee, representation or warranty (whether express or implied) as to the accuracy, completeness, reliability or fairness of the data and information obtained from such sources as may be contained in this report. As such, neither ADBSR nor its affiliates and/or related parties shall be held liable or responsible in any manner whatsoever arising out of or in connection with the reliance and usage of such data and information or third party references as may be made in this report (including, but not limited to any direct, indirect or consequential losses, loss of profits and damages). The views expressed in this report reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendation(s) or view(s) in this report. ADBSR prohibits the analyst(s) who prepared this report from receiving any compensation, incentive or bonus based on specific investment banking transactions or providing a specific recommendation for, or view of, a particular company. This research report provides general information only and is not to be construed as an offer to sell or a solicitation to buy or sell any securities or other investments or any options, futures, derivatives or other instruments related to such securities or investments. In particular, it is highlighted that this report is not intended for nor does it have regard to the specific investment objectives, financial situation and particular needs of any specific person who may receive this report. Investors are therefore advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situations and particular needs and consult their own professional advisers (including but not limited to financial, legal and tax advisers) regarding the appropriateness of investing in any securities or investments that may be featured in this report. ADBSR, AIBB, DBSVH and DBS Bank Ltd, their directors, representatives and employees or any of their affiliates or their related parties may, from time to time, have an interest in the securities mentioned in this report. AIBB, DBSVH and DBS Bank Ltd, their affiliates and/or their related persons may do and/or seek to do business with the company(ies) covered in this report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell or buy such securities from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report. AIBB, DBSVH, DBS Bank Ltd (which carries on, inter alia, corporate finance activities) and their activities are separate from ADBSR. AIBB, DBSVH and DBS Bank Ltd may have no input into company-specific coverage decisions (i.e. whether or not to initiate or terminate coverage of a particular company or securities in reports produced by ADBSR) and ADBSR does not take into account investment banking revenues or potential revenues when making company-specific coverage decisions. ADBSR, AIBB, DBSVH, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ( DBSVUSA ), a U.S.-registered broker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of the subject company mentioned in this report. ADBSR, AIBB, DBSVH, DBS Bank Ltd and/or other affiliates of DBSVUSA may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager 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 report should contact DBSVUSA exclusively. DBS Vickers Securities (UK) Ltd is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research distributed in the UK is intended only for institutional clients. In reviewing this report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the overriding issue of confidentiality, available upon request to enable an investor to make their own independent evaluation of the information contained herein. Wong Ming Tek, Executive Director Published by AllianceDBS Research Sdn Bhd (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 email : general@alliancedbs.com Page 11