Version 8 Bloomberg: AAX MK Reuters: AIRX.KL Refer to important disclosures at the end of this report Malaysia Equity Research 25 Aug 2017 HOLD (Upgrade from Fully Valued) Last Traded Price ( 24 Aug 2017): RM0.39 (KLCI : 1,775.50) Price Target 12-mth : RM0.38 (-3% downside) (Prev RM0.39) Analyst Marvin KHOR +60 32604 3911 marvinkhor@alliancedbs.com What s New 2Q17 core earnings shrank more than expected, while headline profit was lifted by forex and deferred tax Sharp yield decline stifled topline gain despite large volume rise; though better utilisation eased unit costs Outlook still soft, earnings risks will emerge if yield suppression persists Trim FY17/18/19F earnings 23%/27%/21% mainly for reduced yields, cut TP to RM0.38; but upgrade to HOLD on lower downside from current share price Buffeting winds Outlook still soft, but downside has narrowed. s (AAX) 1H17 core earnings shrank 52% y-o-y, as 2Q was barely in the black from steep yield declines in the low season. Fortunately, large volume gains and improved utilisation have also helped ease unit costs, softening the margin decline. We continue to see risks in the mid- to long-haul space as competition may continue pressuring margins in the coming quarters. That said, as recent share price decline has narrowed the downside to our TP, we upgrade our fully valued call to HOLD. Where we differ. More negative on fare development. Our forecasts include more conservative assumptions on the yields or average fares that AAX can achieve due to intense competition in the long haul space. This leads to lower revenue and bottomline forecasts than the street. Price Relative Potential catalyst. Yield surprises in upcoming quarters. Given the high sensitivity of earnings to yield changes, positive development in the upcoming quarters may lead to upside surprises in profitability. Forecasts and Valuation FY Dec (RM m) 2016A 2017F 2018F 2019F Revenue 4,007 4,434 4,621 5,033 EBITDA 390 291 298 306 Pre-tax Profit 251 139 155 172 Net Profit 231 134 147 160 Net Pft (Pre Ex.) 251 134 147 160 Net Pft Gth (Pre-ex) (%) nm (46.7) 9.6 9.3 EPS (sen) 5.56 3.23 3.54 3.87 EPS Pre Ex. (sen) 6.05 3.23 3.54 3.87 EPS Gth Pre Ex (%) (210) (47) 10 9 Diluted EPS (sen) 5.56 3.23 3.54 3.87 Net DPS (sen) 0.0 0.0 0.0 0.0 BV Per Share (sen) 26.0 29.2 32.7 36.6 PE (X) 7.0 12.1 11.0 10.1 PE Pre Ex. (X) 6.4 12.1 11.0 10.1 P/Cash Flow (X) 4.7 4.9 5.0 4.0 EV/EBITDA (X) 5.8 6.8 5.7 4.4 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 1.5 1.3 1.2 1.1 Net Debt/Equity (X) 0.6 0.3 0.1 CASH ROAE (%) 27.1 11.7 11.4 11.2 Earnings Rev (%): (23) (27) (21) Consensus EPS (sen): 4.60 5.50 6.30 Other Broker Recs: B: 2 S: 4 H: 3 Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P. Valuation: Upgrade to HOLD. Our revised TP of RM0.38 is based on 1.3x (-1SD of its mean) FY17F P/BV, reflecting the reduced ROAE expectations. As downside to current price has reduced following recent share price correction, we upgrade AAX to HOLD. Key Risks to Our View: Ringgit against the USD. Our forecasts assume an average USD/MYR exchange rate of 4.28/4.25/4.28 for FY17/18/19F. Significant movements in either direction will affect earnings as the majority of costs are USD-denominated. At A Glance Issued Capital (m shrs) 4,148 Mkt. Cap (RMm/US$m) 1,618 / 378 Major Shareholders (%) Tune Group Sdn Bhd 14.3 AirAsia Bhd 13.8 Kamarudin Bin Meranun 7.1 Free Float (%) 71.9 3m Avg. Daily Val (US$m) 1.9 ICB Industry : Consumer Services / Travel & Leisure Refer to important disclosures at the end of this report ed: CK / sa:bc
WHAT S NEW Yield pressure suppresses core earnings Forex, deferred tax lift headline profit but core earnings barely in the black. (AAX) reported a 2Q17 headline profit of RM47.4m, substantially above 2Q16 s RM1m but was heavily lifted by RM28.5m of forex gains and RM21m in deferred taxation. Stripping those and other non-recurring items out, core earnings stood at a soft RM2.2m (-79% y-o-y, -95% q-o-q). This brings 1H17 core profit to RM51.5m (- 52.5m), lower than our and street expectations. Great volume performance, but came at the cost of yields. 2Q17 RPKs had grown by an impressive 35% y-o-y, against 26% ASK addition which resulted in load factors rising 5.1ppts to 80.4%. This came on the back of substantially improved fleet utilisation, as fleet size was virtually unchanged y-o-y. However, yields (fares/rpk) fell by a significant 14% y-o-y given softness in certain markets like the China and Australia segments. This was partially offset by improving ancillary income/rpk (+4.7% y-o-y), leading to total revenue/rpk falling by a slower 10% y-o-y. Ultimately, revenue rose by 17% y-o-y to RM1.04bn, not keeping pace with volumes. Better utilisation kept unit costs low. Given the improved fleet utilisation, 2Q17 cost/ask fell 7% y-o-y. Reductions of 18% and 13% in cash costs and asset costs per ASK more than offset the 19% hike in fuel costs/ask. However, overall opex rose 18% y-o-y, outpacing revenue growth and leading to EBIT shrinking 65% to RM7m. A balancing game in the coming quarters. ASK growth will be less vibrant in 2H17, as utilisation had a higher base. However management aims to use the opportunity to drive higher load factors and increase fares to help keep bottomline positive. Yields are expected to perform better as seasonal weaknesses pass. The group is also considering leasing in 2-4 additional aircraft in the coming months (given that slated deliveries are only for late-2018) as it sees some new routes with potential. However,.this will be assessed against the performance of its current operations given that new routes typically involve a gestation period. More moderation in forecasts, but downside capped at current prices. We retain caution on AAX s outlook as continued yield pressure or a decline in loads may lead to losses, especially as 3Q is still a relatively slow travel season. We lower our FY17/18/19F forecasts by 23%/27%/21% - mainly from 1) cutting FY17F yield change to -4% from flat before; offset by 2) raising ASK growth to +17.5% from 12.5%, 3) raising load factors to 82% from 81%, and 4) changing USDMYR assumptions to 4.28/4.25/4.28 from 4.38/4.40/4.40, which led to cost/ask dropping by 4%. Our TP is thus reduced to RM0.38, based on 1.3x P/BV. That said, with the reduced implied downside at the current share price, we upgrade AAX to HOLD. Quarterly / Interim Income Statement (RMm) FY Dec 2Q2016 1Q2017 2Q2017 % chg yoy % chg qoq Revenue 883 1,181 1,036 17.3 (12.2) Other Oper. (Exp)/Inc (863) (1,120) (1,029) 19.3 (8.1) Operating Profit 20.0 60.3 6.98 (65.1) (88.4) Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm Associates & JV Inc 0.0 0.0 0.0 nm nm Net Interest (Exp)/Inc (9.4) (9.6) (3.2) 65.6 66.4 Exceptional Gain/(Loss) (19.9) (18.8) 24.2 nm (228.4) Pre-tax Profit (9.2) 31.9 28.0 nm (12.4) Tax 10.3 (21.6) 19.5 90.2 (190.4) Minority Interest 0.0 0.0 0.0 nm nm Net Profit 1.02 10.3 47.4 4,555.3 359.0 Net profit bef Except. 10.5 49.3 2.23 (78.8) (95.5) EBITDA 48.9 87.4 34.4 (29.7) (60.7) Margins (%) Opg Profit Margins 2.3 5.1 0.7 Net Profit Margins 0.1 0.9 4.6 Source of all data: Company, AllianceDBS Page 2
CRITICAL DATA POINTS TO WATCH Critical Factors Keeping a lid on fleet growth. Airline capacity is measured via ASK (available seat kilometres), which is a function of the active fleet and flight distances of routes served. AAX s ASK spiked 25.5% in FY16 primarily on improved fleet utilisation as its net aircraft growth was two (bringing the total aircraft count to 22) in Malaysia. No further fleet growth is expected until 2H18, and as such we expect any capacity growth to be primarily on further utilisation improvements. ASK growth (%) Load Factor (%) Expect improvements in load factors. Load factors determine the ASK that is converted into RPKs (revenue passenger kilometres). AAX s load factor improved 4ppts to 79% in FY16 despite its large capacity growth, given eased competition from Malaysia Airlines Bhd (MAB). We assume further improvements to 82% average load factor in FY17 as the routes initiated to China further mature, before easing to 80% going forward. Maintaining yields is deciding factor. Passenger yields (fare/rpk) had continued a sharp upswing in FY16, expanding 7.6% in the wake of a 7% recovery in FY15. We attribute this to both the easing of irrational competition and expansion of uncontested routes. We expect moderation in the near term as competitive pressures set in amid capacity growth, and forecast changes of - 4%/+3%/+3% yield changes in FY17/18/19F as it will only be able to pass on costs once more routes mature. Initiatives in the pipeline to drive ancillary income. AAX remains focused on growing its ancillary income with the provision of WiFi Onboard services, extending in-flight entertainment on all routes, value bundles including meal & seat selection, and more. The adoption of Fly Thru services may also rise as more city pairs are made available via the wider AirAsia network. In our forecasts, we assume 3%/3%/1% growth in ancillary income/pax for FY17/18/19F. Unit costs to move past the bottom. AAX managed to achieve a 5.6% reduction in cost/ask on the back of 19% lower average jet fuel prices, though partially offset by rising staff costs and some ringgit weakening. We forecasts a further 3% decline in FY17F from the improved fleet utilisation, before easing to - 1%/+4% in FY18/19F. Jet fuel prices will average higher though AAX has hedged 74% of FY17 fuel requirements at USD60/bbl. USD-based costs are also a factor to watch as 68% of operating expenses in FY16 were USD-denominated, and our current estimates impute an average USDMYR rate of 4.28/4.25/4.28 for FY17/18/19F. Fare / RPK (sen) Ancillary income / pax Cost / ASK (sen) Source: Company, AllianceDBS Page 3
Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Company Guide Appendix 1: AAX price correlation with critical factors Graph 1: Share price vs FBMKLCI Indexed: Jul13 =100 120 AAX MK FBMKLCI 100 80 Expectation of MAS restructuring; MAS delisting announced 60 Return to profitability 40 Losses announced 20 Losses persisting 0 Source: Company, Bloomberg L.P., AllianceDBS AAV share price vs forward earnings estimates 1.20 AAX MK Fwd consensus EPS estimates (RM) (RHS) 1.00 0.80 0.60 0.40 0.20 0.30 0.20 0.10 0.00-0.10 Remarks AAX has posted volatile profitability and its share price movements have been closely related to expectations of positive earnings or recoveries. 0.00-0.20 Source: Bloomberg L.P., AllianceDBS AAV share price vs USDMYR Remarks 1.20 1.00 0.80 0.60 0.40 AAX MK USDMYR (RHS) 4.80 4.60 4.40 4.20 4.00 3.80 3.60 3.40 AAX s operating cost is predominantly denpminated in US dollars from expenses relating to jet fuel consumption, aircraft rental and maintenance charges. As revenues are primarily in ringgit, earnings are negatively impacted if the USD appreciates against the MYR, and vice versa. Its share price has thus been likewise negatively correlated with USD strength vs the ringgit. 0.20 3.20 3.00 0.00 2.80 Source: Bloomberg L.P., AllianceDBS Page 4
Balance Sheet: Leverage ratios to further moderate. AAX s net gearing has fallen to 0.7x in FY16 thanks to a positive bottomline, after easing to 1.8x (from 2.1x) in FY15 with a rights issue. We expect its net gearing to further fall to 0.4x in FY17F given its minimal fleet expansion plans; though this hinges on continued profitability. Share Price Drivers: Maintaining profitability. AAX has achieved successive profitability for the six quarters since 4Q15 on the back of a more relaxed competitive environment and bottoming jet fuel prices. As these factors ease and a weaker ringgit comes into view, AAX s ability to remain in the black is required to support valuations, which are now at a premium to peers. Leverage & Asset Turnover (x) Capital Expenditure Key Risks: Further depreciation of the MYR against the USD. A stronger USD will pressure AAX s profitability as a significant portion of its operating and financing costs are in USD. Irrational competition. The emergence of irrational competition in the form of excessive capacity increases by AAX s competitors or new entrants pose threats to both yields and load factors. Besides the natural dilution of demand, the airline players would also drive down fares to recapture passengers. Company Background is a low-cost airline that operates mid- to long-haul international routes, i.e. flight times longer than four hours. It is an affiliate of the AirAsia group, and operates from hubs in Kuala Lumpur (Malaysia), Bangkok (Thailand), and Bali (Indonesia). ROE (%) PB Band (x) Source: Company, AllianceDBS Page 5
Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F ASK growth (%) (7.8) 25.5 17.5 5.00 5.00 Load Factor (%) 75.1 79.0 82.0 80.0 80.0 Fare / RPK (sen) 10.2 10.9 10.5 10.8 11.1 Ancillary income / pax 132 137 143 147 149 Cost / ASK (sen) 13.7 12.9 12.5 12.4 12.9 Income Statement (RMm) FY Dec 2015A 2016A 2017F 2018F 2019F Revenue 3,063 4,007 4,434 4,621 5,033 Other Opng (Exp)/Inc (3,180) (3,731) (4,264) (4,449) (4,858) Operating Profit (118) 276 170 172 175 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (37.6) 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (71.9) (25.1) (31.1) (17.0) (3.3) Exceptional Gain/(Loss) (207) 0.25 0.0 0.0 0.0 Pre-tax Profit (434) 251 139 155 172 Tax 74.0 (20.6) (5.1) (8.5) (11.7) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit (360) 231 134 147 160 Net Profit before Except. (228) 251 134 147 160 EBITDA (10.7) 390 291 298 306 Growth Revenue Gth (%) 4.3 30.8 10.7 4.2 8.9 EBITDA Gth (%) 93.0 nm (25.3) 2.3 2.7 Opg Profit Gth (%) (60.4) (334.1) (38.4) 1.3 1.9 Net Profit Gth (Pre-ex) (%) 53.3 nm (46.7) 9.6 9.3 Margins & Ratio Opg Profit Margin (%) (3.9) 6.9 3.8 3.7 3.5 Net Profit Margin (%) (11.8) 5.8 3.0 3.2 3.2 ROAE (%) (54.4) 27.1 11.7 11.4 11.2 ROA (%) (9.3) 5.4 2.9 3.0 3.1 ROCE (%) (5.1) 9.6 5.5 5.3 5.0 Div Payout Ratio (%) N/A 0.0 0.0 0.0 0.0 Net Interest Cover (x) (1.6) 11.0 5.5 10.1 53.4 Source: Company, AllianceDBS Page 6
Quarterly / Interim Income Statement (RMm) FY Dec 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 Revenue 883 982 1,170 1,181 1,036 Other Oper. (Exp)/Inc (863) (932) (1,070) (1,120) (1,029) Operating Profit 20.0 50.8 100 60.3 6.98 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (9.4) (6.7) 0.58 (9.6) (3.2) Exceptional Gain/(Loss) (19.9) (32.0) (70.8) (18.8) 24.2 Pre-tax Profit (9.2) 12.0 29.9 31.9 28.0 Tax 10.3 (1.0) 9.12 (21.6) 19.5 Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 1.02 11.0 39.0 10.3 47.4 Net profit bef Except. 10.5 44.2 101 49.3 2.23 EBITDA 48.9 78.8 128 87.4 34.4 Growth Revenue Gth (%) (9.0) 11.2 19.1 0.9 (12.2) EBITDA Gth (%) (63.8) 61.2 62.1 (31.6) (60.7) Opg Profit Gth (%) (80.9) 153.5 97.2 (39.7) (88.4) Net Profit Gth (Pre-ex) (%) (89.0) 320.1 128.9 (51.3) (95.5) Margins Opg Profit Margins (%) 2.3 5.2 8.6 5.1 0.7 Net Profit Margins (%) 0.1 1.1 3.3 0.9 4.6 Balance Sheet (RMm) FY Dec 2015A 2016A 2017F 2018F 2019F Net Fixed Assets 1,921 1,705 1,634 1,558 1,478 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 1,315 1,630 1,630 1,630 1,630 Cash & ST Invts 418 515 798 1,071 1,424 Inventory 3.99 14.2 14.2 14.2 14.2 Debtors 330 507 547 570 621 Other Current Assets 0.71 136 136 136 136 Total Assets 3,989 4,507 4,759 4,980 5,303 ST Debt 319 208 208 208 208 Creditor 710 900 1,005 1,048 1,143 Other Current Liab 893 715 729 760 827 LT Debt 1,110 952 952 952 952 Other LT Liabilities 335 654 654 654 654 Shareholder s Equity 621 1,077 1,211 1,358 1,518 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 3,989 4,507 4,759 4,980 5,303 Non-Cash Wkg. Capital (1,269) (958) (1,036) (1,087) (1,199) Net Cash/(Debt) (1,011) (646) (362) (88.9) 264 Debtors Turn (avg days) 42.0 38.1 43.4 44.1 43.2 Creditors Turn (avg days) (1,968.8) (2,588.7) (2,869.2) (2,975.7) (3,062.0) Inventory Turn (avg days) (6.7) (29.2) (42.6) (41.0) (39.6) Asset Turnover (x) 0.8 0.9 1.0 0.9 1.0 Current Ratio (x) 0.4 0.6 0.8 0.9 1.0 Quick Ratio (x) 0.4 0.6 0.7 0.8 0.9 Net Debt/Equity (X) 1.6 0.6 0.3 0.1 CASH Net Debt/Equity ex MI (X) 1.6 0.6 0.3 0.1 CASH Capex to Debt (%) (17.2) 1.7 4.3 4.3 4.3 Z-Score (X) 0.3 1.0 1.1 1.2 1.3 Source: Company, AllianceDBS Page 7
Cash Flow Statement (RMm) FY Dec 2015A 2016A 2017F 2018F 2019F Pre-Tax Profit (434) 251 139 155 172 Dep. & Amort. 145 114 121 126 131 Tax Paid 1.84 2.84 (5.1) (8.5) (11.7) Assoc. & JV Inc/(loss) 37.6 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 144 (25.9) 78.2 50.9 112 Other Operating CF 119 7.37 0.0 0.0 0.0 Net Operating CF 4.51 341 333 323 403 Capital Exp.(net) 246 (20.0) (50.0) (50.0) (50.0) 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 0.0 0.92 0.0 0.0 0.0 Net Investing CF 246 (19.1) (50.0) (50.0) (50.0) Div Paid 0.0 0.0 0.0 0.0 0.0 Chg in Gross Debt (463) (213) 0.0 0.0 0.0 Capital Issues 391 0.0 0.0 0.0 0.0 Other Financing CF (6.2) 1.15 0.0 0.0 0.0 Net Financing CF (78.2) (211) 0.0 0.0 0.0 Currency Adjustments 7.08 2.14 0.0 0.0 0.0 Chg in Cash 180 112 283 273 353 Opg CFPS (sen) (3.4) 8.84 6.15 6.57 7.01 Free CFPS (sen) 6.05 7.73 6.83 6.59 8.51 Source: Company, AllianceDBS Target Price & Ratings History Source: AllianceDBS Analyst: Marvin KHOR Page 8
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 9
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 10