Singapore Strategy - DBS Bank [PDF]

Singapore Market Focus

Singapore Strategy Refer to important disclosures at the end of this report

DBS Group Research . Equity

Hitch hike the bounce

23 Feb 2016 STI :

2,660.65



Valuation support and possible reversal of US$ trigger bear market rally



But market is not out of the woods yet

Analysts Janice CHUA +65 6682 3692 [email protected]



Trade the bounce on oversold stocks – OCBC, OSIM, SCI and Capitaland. Trim oil and gas stocks on rebound.

LING Lee Keng +65 6682 3703 [email protected]



Stay safe with dividend plays– CD, STE, SIE, Sheng Siong, AREIT, MLT, Thai Bev. BUY Innovalues – new initiation

Key Indices

More red ink in 4Q15. Kitchen sinking, higher provisions, asset impairment charges were the key drags on 4Q earnings so far, leading to a splash of red ink, particularly in the oil and gas sector. Earnings disappointment is taking a toll on dividends. Companies are conserving cash ahead of challenging times. Blue chips which have cut dividends include Keppel Corp, SCI and SMM, HPH Trust and M1. We shaved STI’s earnings growth estimate for 2016 from 6% to 3.4%, as volatility in cyclical sectors continues to pose challenges for 2016. Bear market rally to provide temporary breather. A counter-trend rally from the recent low of 2530 is in the making, supported by a) US rate hike expectations have back-pedalled, a March rate hike is unlikely and consensus thinks that the FED may even hold off rate hikes this year; b) strength of US$ is less of a worry; our currency strategist has lowered his USDSGD forecast to 1.43 by year-end as rate hike expectations are lowered. A pullback in USDSGD is short-term positive for Singapore equities as funds outflow reverses; c) possible ‘buy-inanticipation’ trade ahead of expectations that the ECB will dish out more stimulus at the next policy meeting on March 10; d) the oversold market that has led to PB and PE valuations matching several major market troughs in the past. Longer term uncertainties linger on. While we are short-term positive, we believe that even in a ‘best case’ scenario, the magnitude of the current rise in the Singapore market is unlikely to stretch beyond the 2900 level for the STI over the next 2 months. Global growth remains uncertain despite rounds of QEs with global interest rates near zero or even negative in the case of Japan and the Eurozone. Closer home, Singapore faces the rising risk of a technical recession amid the challenging macro environment and weakness of our major trading partners. Revisiting bear targets. We re-visited our bear case target prices; with downward revisions in banks, oil and gas and property companies. We are buyers of bomb out stocks trading close to their bear TPs - SCI, OCBC, OSIM and Capitaland, but will trim oil and gas plays (SMM, Vard, Nam Cheong, Mermaid) on oil price rebound. We continue to prefer companies that offer upside in terms of dividend yields in the current environment where economic growth is uncertain. Our preferred yield picks : Comfort Delgro, Thai Bev, SIA Engineering, ST Engineering, Sheng Siong, Ascendas REIT and Mapletree Logistics Trust. We initiated Innovalues(BUY, TP$1.01), demand growth for automotive sensors is supported by rising awareness and stricter regulatory standards on safety and emissions.

STI Index FS Small Cap Index USD/SGD Curncy Daily Volume (m) Daily Turnover (S$m) Daily Turnover (US$m)

YEO Kee Yan +65 6682 3706 [email protected] Singapore Research Team

Current 2,660.65 528.62 1.41 1,468 1,042 739

% Chng 1 day 0.1% 40.4% 0.3%

Source: Bloomberg Finance L.P. Market Key Data – DBS Coverage (%) EPS Gth 2015E (4.8) 2016F 7.2 2017F 7.2 (x) 2015E 2016F 2017F

Source: DBS Bank

Div Yield 4.1 4.2 4.2

PER 13.9 13.0 12.1

EV/EBITDA 11.3 10.4 10.2

Stock Picks Price ($) Target Price 22 Feb 16 ($)

Rcmd

Ascendas Reit

2.39

2.52

BUY

Capitaland ComfortDelgro Innovalues Ltd

2.93 2.97 0.805

3.70 3.24 1.01

BUY BUY BUY

Mapletree Logistics Trust

0.975

1.15

BUY

OCBC

7.95

9.40

BUY

OSIM International

1.025

1.28

BUY

SembCorp Industries

2.70

3.30

BUY

Sheng Siong Group

0.865

1.01

BUY

SIA Engineering

3.46

3.84

BUY

ST Engineering

2.80

3.60

BUY

Thai Beverage Public

0.69

0.82

BUY

Source: Bloomberg Finance L.P; DBS Bank

Page 1 ed: JS / sa: YM

Market Focus Singapore Strategy

Outlook ‘Monkeyful’ of Surprises If the YTD behavior of equity markets is anything to go by, the Year of the Fire Monkey is likely characterised by ‘wide swings’. Worries about the Chinese economy and tumbling oil prices led to a 12% slump in the STI to 2530 during the initial 3 weeks of 2016.

At the recent January FOMC meeting, the FED acknowledged that economic growth has slowed; the committee is closely monitoring global economic and financial developments as well as assessing their implications for the labour market, inflation and the US economy.

Monetary policy easing by the BOJ and ECB as well as expectations that the FED will hold back rate hikes calmed volatile financial markets in the immediate term. The Singapore market’s attractive valuations also helped to fend off further selling below the 2500 level, and we saw the STI rebounding 5% over the past week.

US rate hike expectations have back-pedaled, swinging further away from the Fed’s forecast at last December’s FOMC meeting for four rate hikes this year. Data from CME Group FedWatch shows there is just a 44% probability for a one-off 25bps rate hike at this year’s December FOMC meeting. That is, consensus currently expects at most one, if not no rate hikes (<50% probability) for 2016.

Reasons for a counter trend rally from 2500 In our opinion, a counter-trend rally from the recent low of 2530 has begun. The following supports our view:

Meanwhile, our economist has lowered his FED rate hike expectation to 3 times (previously 4) that would lift the Fed funds rate to 1.25% by year-end.

1.

US rate hike expectations have back-pedalled. A March rate hike is now unlikely and consensus thinks that the FED may hold off rate hikes this year.

2.

Earlier projections of a strong USD have been toned down. Our currency strategist has lowered his USDSGD forecast to 1.43 (previous 1.46) by year-end as rate hike expectations are lowered. A pullback in USDSGD is shortterm positive for Singapore equities as funds outflow reverses.

3.

A ‘buy-in-anticipation’ trade ahead of expectations that the ECB will dish out more stimulus at the next policy meeting on March 10.

4.

PB and PE valuations “too attractive to ignore”, matching several major market troughs in the past.

1. US rate hike expectations have back-pedalled Much has happened since the Fed initiated the rate hike cycle in mid-December. Worries about a slowdown in China have deepened. Global PMI figures have weakened. Recent US data such as industrial production, ISM manufacturing and housing starts came in worse-than-expected, casting doubts about the strength of the US recovery. Despite the recent rebound in Brent crude from USD27/bbl to USD32/bbl, the outlook for oil price remains uncertain as the supply-demand imbalance is not expected to end anytime soon. Deflation remains the bigger concern for central banks. The BOJ joined the ECB and several other European central banks in implementing negative interest rates in a bid to boost growth and lift inflation.

2-3 rate hikes December 2015 Zero or 1 rate hike Now

Consensus FED Rate Hike

2. Strong USD projection toned down USD projections have moderated, in line with lower rate hike expectations. The USD Index is 2.6% weaker since the December FOMC meeting when the FED initiated the rate hike cycle. This is in line with our observation that based on previous rate hike cycles, the USD Index tends to weaken (rather than strengthen) once the rate hike cycle starts.

Page 2

Market Focus Singapore Strategy

USD Index (Daily)

Source: DBS Bank

Our currency strategist has lowered his USD forecasts (see table below). YTD, the USDSGD has pulled back from a high of 1.44 down to 1.39. The revised USDSGD forecast implies a re-test of the recent high of 1.44 in 3Q but not exceeding it.

The back-pedalling in US rate hike and lower USDSGD expectations are short-term positives for Singapore equities as it results in a reversal of the funds outflow. But there is an upside cap to this view because of the higher macro economic uncertainties.

Revised currency forecasts The lower USDSGD forecast implies a retest of the recent high of 1.44 in 3Q but not exceeding it

Source: Philip Wee, Regional Currency Strategist at DBS Bank

Expectations of more ECB monetary stimuli come March 10 ECB President Mario Draghi drummed up expectations for more monetary stimulus at its next policy meeting on March 10. Draghi commented that with the decline in oil price YTD, the annual rate of inflation in 2016 is likely to be “significantly” below forecast. Just last week, he re-iterated that the ECB will not hesitate to act if the decline in commodity prices and problems in the region’s banking sector threatens price stability. Depo rates are currently -0.30%. Odds of another 10-20bps cut in March have risen.

Attractive valuation matching previous major market troughs At the recent low of 2530, STI traded at 10.55x (-2SD) 12-mth forward PE and the Singapore market at 1.1x PB. The table below compares current valuation levels with previous major market troughs.

The expectation of further ECB stimuli next month may be one of the reasons why equity markets are currently on the rebound. It’s a ‘buy-in-anticipation’ trade. The MSCI Europe Index, for example, is higher by nearly 5% to 111 over the past week after touching a low of 102.

The only exceptions were during the 97/98 AFC and 2008/09 GFC when PB valuation fell by a further 15%. We see a low risk of such a decline happening in the short-term for the simple reason - the world is not in a major financial crisis and Singapore is currently not in a technical recession yet.

3.

4.

Based on historical trends, with the exception of the 97/98 Asian Financial Crisis (AFC) and 2008/09 Global Financial Crisis (GFC), the stock market has priced in plenty of risk and in our opinion, including that of a brief technical recession.

Page 3

Market Focus Singapore Strategy

Singapore market valuation at major troughs Event

MSCI SG

Singapore

12-mth

Market P/B

fwd PE (x)

(x)

11.47

0.95

97/98 Asian Financial Crisis September 11

12.65

1.29

2003 Iraq War & SARS

13.07

1.03

Global Financial Crisis

8.16

0.90

Eurozone Crisis

10.85

1.23

Current

10.53

1.10

PE valuation lower than 97/98 AFC, Sept11, 2003 Iraq War & SARS; comparable to Eurozone crisis; higher than GFC

PB valuation lower than Eurozone crisis and Sept 11; almost comparable to 2003 Iraq War & SARS; higher than 97/98 AFC and GFC

Source: DBS Bank, DataStream

STI at various fwd PE levels -2.5 sd

-2sd

-1.5sd

-1 sd

-0.5 sd

9.77x

10.55

11.32x

12.09

12.87x

PE

x PE

PE

x PE

PE

FY16

2,313

2,498

2,680

2,863

3,047

FY17

2,467

2,663

2,858

3,052

3,249

12-mth fwd PE

2339

2525

2710

2895

3080

Ave FY16/17

2,390

2,581

2,769

2,957

3,148

At recent low 2530, STI traded at -2SD 12-mth fwd PE.

Source: DBS Bank

But market is not out of the woods yet - longer term uncertainties linger on While we are short-term positive, we believe that even in a ‘best case’ scenario, the magnitude of the current rise in the Singapore market is unlikely to stretch beyond the 2900 level for the STI over the next 2 months. Global growth remains uncertain despite rounds of QEs (and QQEs) with global interest rates near zero or even turning negative in the case of Japan and Eurozone. Investors are increasingly doubtful about the central banks’ ability to lift their respective economies through monetary easing. As Singapore is an externally driven economy, the risk of a technical recession has risen amid the challenging macro environment. Growing scepticism about the central banks’ abilities to save the economy We think one of the biggest challenges facing equities this year is that investors are fast losing confidence about central banks’ ability to uplift their respective economies through monetary easing. Here’s what our economists at DBS Bank have to say about both recent and upcoming central banks’ policy moves:

1.

Eurozone deposit rates are currently at -0.3% and odds are for the ECB to cut a further 10-20bps in March. Our economist is doubtful about the effectiveness of further rate cuts. The sustainability of the early pick-up in deposit growth and lending activity is in doubt. A recovery in loan growth depends on demand, which remains weak. Meanwhile, inflation expectations continue to fall. Headline inflation was flat in 2015, down from 0.4% in 2014, and far below the ECB’s target at 2%.

2.

In China, the substantial CNY3.42tril (or USD520bil) jump in total social financing in Jan 2016 was not an encouraging development. It is a reflection that the potency of monetary policy in stimulating growth has been weakening due to severe overcapacity in the manufacturing and industrial sectors. We remain cautious about the growth outlook in spite of the tremendous surge in credit. The economy has already reached a point where cyclical macroeconomic policy tools cannot resolve economic ills caused by structural imbalances. Only a ‘surgical’ reform will be effective this time.

Page 4

Market Focus Singapore Strategy

China: GDP/M2

Decelerating velocity of money suggests incremental credit growth is not channelled into real economic activities

Source: DBS Bank

3.

BOJ started applying negative interest rates to banks’ reserves from 16 Feb in a further bid to spur bank lending, following the path adopted by the ECB and central banks of Sweden, Switzerland and Denmark. This follows two rounds of QE that started from 2013. It remains to be seen how the latest move by the BOJ will help in lifting loans growth given structural factors such as aging population, shrinking domestic consumer base and relocation of corporate investments to overseas emerging economies. We think the impact of the BOJ’s latest policy move is likely to be reflected in the financial markets more than in the real economy.

Singapore risks a technical recession Our Singapore economist notes that global demand has weakened amid a challenging external environment. PMI, a leading indicator of manufacturing activity, remained in contraction territory for the seventh consecutive month in January. The NODX figure was equally disappointing; reflecting Singapore’s vulnerability to the weak global growth prospects as the country is a small and open economy. A recession will become a clear and present danger if the recent trend of poor economic data continues. Singapore’s January data Event Purchasing Managers Index Electronics Sector Index Non‐oil Domestic Exports YoY Electronic Exports YoY

Jan Jan Jan Jan

Survey Actual Prior 49.7 49 49.5 ‐‐ 48.5 48.9 ‐7.60% ‐9.90% ‐7.20% ‐1.70% ‐0.60% ‐0.30%

STI Base case: 2550 to 2950 With the uncertain macro economic situation and corporate earnings revisions still on a downward trend, our base view remains for the STI to trade within 10.55x (-2SD) to 12.09x (1SD) blended FY16/17F PE. However, with the persistent earnings downward revisions in the current results season, the corresponding STI levels are now lower at 2550 to 2950, compared to our mid Dec15 forecast of 2650 to 3100. We place a higher two-thirds chance of this scenario developing for the simple reason - the world is currently not in a financial crisis and Singapore is currently not in a technical recession yet. STI change in fwd PE levels since Dec15

FY16

-2.5 sd

-2sd

-1.5sd

-1 sd

-0.5 sd

9.77x

10.55

11.32x

12.09

12.87x

PE

x PE

PE

x PE

PE

2,498

2,680

2,863

3,047

(-126)

(-128)

(-131)

(-134)

2,663

2,858

3,052

3,249

(-151)

(-153)

(-158)

(-161)

2,313

FY17

2,467

12-mth fwd PE

2339

2525

2710

2895

3080

Ave FY16/17

2,390

2,581

2,769

2,957

3,148

Source: DBS Bank

Source: DBS Bank

Page 5

Market Focus Singapore Strategy

Straits Times Index Base Case - Range from 2500 to 2950

1. 2. 3.

Macroeconomic uncertainties Technical recession risk Monetary policies becoming ineffective 1st resistance 2750

1. 2. 3. 4.

Rate hike expectations have back-peddled Expecting ECB stimulus & FED holds rates steady in March USD pullback, oil price rebound Attractive valuation @ 1.1x PB, 10.5x (-2SD) 12mth fwd PE

Base case: A rise from 2500 cap at/below 2900

Snap back rally off 2500

Bear case: Down to 2250-2300

Source: DBS Bank

Alternative scenario : STI Bear case: Down to 2250-2300 We see STI sinking lower to 2250-2300 should current uncertainties degenerate further and the fear of a financial crisis escalates. At this lower level, the STI would have retraced 61.8% of its post-GFC bull market, with PB valuation falling

to just 0.98x and PE valuation sinking below 9.77x (-2.5SD) 12-mth fwd PE, which is around the AFC and GFC troughs. We place a lower one-third chance of this scenario developing.

Page 6

Market Focus Singapore Strategy

Strategy Trade the rebound Markets and stocks are oversold, throwing up bargain hunting opportunities. In our stock selection, we re-visited our bear case target prices, most of which were revised down – mainly banks and oil and gas companies, which have taken the brunt of lower oil prices, higher provisions and impairment charges. We prefer stocks which are bombed out, and are close to its bear TPs, to trade the rebound. In particular, Property and Banks are about 10% from their GFC troughs. OCBC (BUY, TP $9.40), trading at 0.9x PB offers a dividend yield of 4.6%. We believe the current share price has priced in a cautious 2016 outlook – slower loan growth, flat NIM and higher provisions. OCBC’s NPL ratio has held up well vs peers despite increasing in 2015. Despite concerns of an unsustainable low credit cost, OCBC has weathered past crisis over the last 10 years. Key risks lie in its oil and gas exposure which account for 6% of its portfolio. Solid non-interest income drivers from wealth management will sustain growth in the long term.

company privatising Sembcorp Marine. Stripping out the value of Sembcorp Marine, Salalah and Gallant Ventures, its Utilities business is only trading at 0.5x PB and 5x FY16 PE vs historical mean of 11x PE. Current price offers dividend yield of 4.3%. Capitaland (BUY, TP $3.73). We believe that CAPL offers value, trading at close to its GFC low at 0.6x P/RNAV. Growth will be driven by China, we expect the group to focus on growing its commercial portfolio, while opportunistic asset recycling of mature assets into its listed REITs/funds will present upside to our earnings. We upgraded OSIM (BUY, TP$1.28) after >40% decline in its share price in the past 6 months. Valuations are attractive with dividend yield at close to 7% and forward PE (c.10x) at close to -1SD of its 7-year mean (14x). 4Q15 earnings showed sequential improvement with signs of bottoming out. We believe this will support DPS and dividend yield going forward. Our PE-based TP of S$1.28 is premised on modest earnings growth in FY16F and its target PE of 14x at historical mean.

Sembcorp Industries (BUY, TP$3.30), trading below its bear case TP has been battered down due to provisions and losses at Sembcorp Marine and unwarranted rumours of the

Page 7

Market Focus Singapore Strategy

Re-visiting bear case target prices.

Company Name

Rcmd

Price 19 Feb

Mkt Cap (S$ m)

Current TP (S$)

Revised Bear Case TP (S$)

Downside to Bear Case %

Assumptions for Bear Case TP

% chg to bear case TP 26%

Reason for revision in TP

StarHub Limited

FV

3.80

6,566.1

3.30

2.58

-32%

Based on 12x forward PER seen in GFC

Genting Singapore

HOLD

0.69

8,281.5

0.76

0.49

-29%

Pegged to 5x EV/EBITDA which is the GFC low for Genting Malaysia as Resorts World Sentosa was not operating during the GFC. Pegged to GFC Low of 0.65x PB

23% 7%

Rise in BV

PB of 0.86x ( pegged to the average during the GFC). TP is based on rental reversions of 1.5%2.0%. Based on 12x FY16F PE, which is -1 std deviation below historical average of 15x. Earnings should remain relatively resilient on the back of low oil prices, offset by stronger USD and other operating costs. 54% NAV discount, 2 standard deviation below 10-year average

0%

-

0%

-

0%

-

Based on 7% dividend yield, average trading band observed in post-GFC period of 2008-09 Peg to 15x PE, same levels as GFC

0%

-

0%

-

1.2x PB, based on GFC low. In line with 8% GFC dividend yield. Based on 14x PE and 6% dividend yield, trough valuations observed post-GFC Assume flat ASP and decline in Spirits volume. Raise discount rate to 9.4% and impute lower values for stakes in FNN/ FCL, coupled with a weaker THB/SGD. Beta at 1.2; FY16 CPO price assumed to average RM1,720 (based on fibonacci projection) this year; consumer margins drop to 1%, oilseeds & grains margins fall to 0.1% (low of 2014) and SGD goes to at 1.45 Based on the GFC low P/B of 0.29x and latest BPS of US$0.70

0%

-

0%

-

0%

-

0%

-

-7%

Change in BV due to losses and Asset impairment

CapitaLand

BUY

2.90

12,319.3

3.73

2.73

-6%

Ascendas Reit

BUY

2.38

6,115.1

2.52

1.79

-25%

ComfortDelgro

BUY

3.01

6,473.5

3.24

1.94

-36%

HongKong Land (US$)

BUY

5.81

13,646.3

9.32

5.36

-8%

SIA Engineering Singapore Exchange

BUY

3.47

3,892.6

3.84

2.00

-42%

BUY

7.18

7,694.1

7.80

5.20

-28%

Our previous bear case TP was excessively bearish and assumed deep cut in future earnings. In 2010 cut in earnings was due to iPhone subsidies rather than weak economy Change in cash and debt assumptions

SPH

HOLD

3.76

6,010.1

3.51

2.84

-24%

ST Engineering

BUY

2.74

8,495.6

3.60

2.45

-11%

Thai Beverage Public

BUY

0.68

17,074.8

0.82

0.54

-21%

Wilmar

BUY

3.10

19,592.0

3.70

2.40

-23%

Noble Group

HOLD

0.34

2,189.4

0.42

0.28

-23%

Hutchison Port Hldgs Trust (US$) UOB

BUY

0.43

5,265.8

0.61

0.40

-7%

based on 10% yield as DPU forecast has been lowered

-9%

DPU Forecast has been lowered

17.81

28,625.8

18.80

14.70

-17%

-9%

GFC Valuation, at 0.76x P/B

OCBC

BUY

7.77

31,965.8

10.00

7.35

-5%

-10%

Pegged to GFC valuation, 0.8x P/B

Global Logistic Properties SembCorp Industries

BUY

1.65

7,826.8

2.47

1.59

-4%

BUY

2.51

4,480.8

3.50

2.60

4%

City Development Keppel Corp

BUY

6.93

6,301.5

10.26

5.90

-15%

HOLD

5.20

9,417.9

5.25

4.26

-18%

SembCorp Marine

FV

1.57

3,278.9

1.24

1.12

-29%

Lower loan growth close to 2008/09 but still growth (2008/09 saw loan contraction); raised provisions by almost double and NPL ratio by 50bps; UOB tends to face larger stress on asset quality vs peers; raised risk premium by 100bps Lowered loan growth but higher than 2008/09 levels with higher base from WHB, raise provisions to levels slightly higher than 2009 levels; NPL ratio raised by 40bps; raised risk premium by 100bps Pegged to sector trough of 0.65x P/B – GFC low Lowered Utilities PE to 8x; SMM TP to S$1.12. This translates to 0.7x FY15 PB (36% below GFC/AFC low of 1.1x PB) Pegged to sector trough of 0.65x P/B – GFC low Based on 1.5x O&M PB; and 0.7x Property PB. This translates to 0.67x FY15 PB (40% below GFC low of 1.1x PB) Based on 0.9x P/Bv, in line with AFC low

SATS

HOLD

3.83

4,254.7

3.65

2.70

-30%

Yangzijiang Shipbuilding

BUY

0.96

3,659.6

1.55

0.89

-7%

HOLD

Lower PE target to 8x GFC PE. Assumes earnings decline by 20% in line with magnitude of earnings decline in 08-09. 0.65x FY16 PB. Assume 20% discount to GFC trough of 0.8x.

-13%

Lower P/B assumptions

-14%

Lower marine valuation

-15%

Lower P/B assumptions

-23%

n.a.

Decline in NTA post provisions; lower multiples given the lower oil price levels and prolonged downturn. Decline in NTA post provisions; lower multiples given the lower oil price levels and prolonged downturn. -

n.a.

-

-38%

Source: DBS Bank

Page 8

Market Focus Singapore Strategy

the dividend yield for companies with resilient earnings has also risen with the stock market correction in recent months. Stocks will be trading cum dividends over the next two months and this should hold up share prices, amidst a market fraught with uncertainties. Our top dividend yield picks are appended below.

Stay safe We prefer companies that offer upside in terms of dividend yields in the current environment where economic growth is uncertain, with an increasing number of central banks turning towards more monetary easing policies and the FED looking increasingly unlikely to raise rates anytime soon. In addition,

Co mp a n y

M kt Pri c e Ca p (S$ ) (US$ m) 1 9 -Fe b

Ta rg e t Pri c e (S$ )

% Up s i d e R c md

PE (x) 16F 17F

P/B (x) 16F 17F

Di v Yl d 16F 17F

EPS / DPU Gro wth 16F 17F

Ascendas REIT *

4,351

2.38

2.52

6%

BUY

16.1x

15.9x

1.1x

1.2x

6.5%

6.5%

3%

1%

ComfortDelgro

4,515

2.95

3.24

10%

BUY

18.2x

17.2x

2.5x

2.4x

3.6%

3.8%

15%

6%

Mapletree Greater China*

1,741

0.89

1.11

25%

BUY

14.8x

14.5x

0.8x

0.8x

8.7%

8.7%

7%

0%

Mapletree Logistics Trust *

1,705

0.965

1.15

19%

BUY

12.6x

12.2x

0.9x

0.9x

8.1%

8.3%

4%

3%

SIA Engineering

2,762

3.460

3.84

11%

BUY

21.6x

21.7x

2.5x

2.5x

5.1%

5.1%

1%

(0.5%)

Sembcorp Industries

3,430

2.700

3.30

22%

BUY

8.3x

7.7x

0.7x

0.7x

4.1%

4.2%

6%

8%

915

0.855

1.01

18%

BUY

21.1x

21.0x

5.2x

5.1x

4.3%

4.3%

9%

0%

Singapore Exchange

5,567

7.30

7.80

7%

BUY

20.6x

20.1x

7.5x

7.2x

4.4%

4.5%

9%

3%

ST Engineering

6,184

2.80

3.60

29%

BUY

16.3x

16.0x

3.9x

3.7x

5.4%

5.4%

1%

2%

Thai Beverage

12,150

0.68

0.82

21%

BUY

17.3x

16.1x

3.6x

3.3x

3.8%

3.9%

(5%)

7%

Sheng Siong

Source: DBS Bank * FY17 & 18 estimate

Snapshot of 4Q15 earnings : Profit warnings on the rise, led by oil & gas companies We note that there was a 20% y-o-y rise in companies issuing profit warnings before the 4Q results were announced. One notable difference is that for this year, about 30% of these companies are from the Oil & Gas related industry, mainly attributable to the adverse impact of falling oil prices on the absence of project wins, low utilisation of offshore vessels, asset impairment charges, increasing deferment & cancellation risks and rising provisions. Companies which had issued profit warnings, due in part to asset impairment charges were Nam Cheong, Ezra, Ezion, Mermaid, KS Energy and Technics Oil & Gas. We think Nam Cheong’s loss guidance for 4Q15 could be due to a steep slowdown in revenue recognition for vessels under construction, as customers are probably attempting to stretch out delivery dates further. Order cancellations are also possible. Nam Cheong’s net margins have trended down in recent quarters, with 3Q15 just breaking even on a net profit level. Mermaid is expected to take a substantial impairment charge and consequently report a net loss, mainly attributable to non-cash provisions for impairments on the value of key assets, investments in subsidiaries as well as share of loss in an associate investment.

Cut in dividends Earnings disappointments are taking a toll on dividends. Companies are conserving cash ahead of challenging times, although REITS have taken a different route which we believe is not sustainable. Some of the blue chips companies that have cut dividends include Oil & Gas stocks – Keppel Corp, SCI and SMM. Other blue chips include HPH Trust and M1. The challenging outlook on the back of the drop in oil prices has led to the cut in dividends for the O&G stocks. The cut in dividend for HPH Trust was within our expectations. Even with a lowered expected DPU of HK 31cts in 2016F as compared to HK 34.4cts for 2015, HPH Trust offers an attractive prospective dividend yield of 8.6%. M1’s FY15 dividend payout ratio stood at 80% versus 100% in FY14 as M1 wants to reserve cash for the upcoming spectrum auction. For the smaller caps stocks, Tat Hong declared 0.5Scts for 1H16 vs 1Sct for 1H15. For 3Q16, the group registered net losses, affected by the market weakness in the ASEAN countries and Australia for crane rental. Tat Hong paid 3Scts DPS in FY15. We expect continued pressure on both day rate and utilisation fronts in the coming quarters for POSH.

Page 9

Market Focus Singapore Strategy

Companies which have cut dividends Compa ny

M k t Ca p Curr. Price ( $m) ( $)

T a rge t T a rge t Pric e ( $) re turn ( %)

Re c ' n

Div Yie ld ( %) FY15

DPS ( S c ts ) FY14

DPS ( S c ts ) FY15

% c ut -67%

Tat Hong Holdings

263.6

0.420

0.52

23%

HOLD

0.8

1.5

0.5

SembCorp Marine

3,550.4

1.700

1.24

-27%

FV

3.5

13.0

6.0

-54%

Global Logistic Properties

8,135.1

1.715

2.47

44%

BUY

2.1

5.8

3.7

-36%

PACC Offshore Services Holdings

507.4

0.280

0.35

23%

HOLD

3.7

1.5

0.5

-67%

SembCorp Industries

4,820.0

2.700

3.30

22%

BUY

4.1

16.0

11.0

-31%

Keppel Corp

9,671.4

5.340

5.25

-2%

HOLD

6.4

47.9

33.9

-29%

M1

2,380.0

2.540

2.60

2%

HOLD

6.0

18.9

15.3

-19%

Hutchison Port Hldgs Trust (US$)

5,692.4

0.465

0.61

32%

BUY

9.5

7.4

6.2

-16%

497.2

0.780

0.86

10%

HOLD

9.8

8.7

7.6

-12%

CDL Hospitality Trust

1,281.0

1.295

1.54

19%

BUY

7.8

11.0

10.1

-8%

Keppel REIT

2,971.5

0.920

1.12

22%

BUY

7.3

7.2

6.8

-7%

SPH

Croesus Retail Trust

6,010.1

3.760

3.51

-7%

HOLD

5.3

21.0

20.0

-5%

Cambridge Industrials

668.4

0.515

0.61

19%

HOLD

9.3

5.0

4.8

-4%

OUE Hospitality Trust

990.9

0.740

0.91

23%

BUY

8.9

6.7

6.6

-3%

Source: DBS Bank

Cyclicals hit by kitchen sinking, higher provisions The latest cut in earnings by 2.5% has led to a flattish earnings growth estimate of only 3% for 2016, in line with the dismal GDP growth outlook for Singapore and its trading partners. Hardest hit were companies from the Oil & Gas sector as the recent plunge in oil prices pushed up provisions for contracts, with the domino impact on Banks’ provisions. Slow tourist arrivals and poor luck factor also hit Genting, leading to a close to 50% decline in VIP rolling chip volumes, while losses on its investment portfolio added to its woes. Red ink and kitchen sinking quarter for Oil & Gas Oil & Gas sector suffered the steepest cut in earnings estimates, on the back of falling oil prices, low utilisation rate, rising deferments and cancellations of contracts. We cut FY16F earnings by 13.2% and 12.8% for FY17F. Key culprits are Keppel Corp, Sembcorp Marine, while red ink at Ezra, and profit warnings from other OSV asset owners pulled the sector down. Both Keppel Corp and Sembcorp Marine were hit by provisions for Sete projects and other rigs. Ezra also reported bigger than expected losses as its Subsea losses intensify as a result of low utilisation rates. Its OSV division was also lossmaking. Banks – saved by higher NIM but focus on rising credit cost For the Banks, UOB reported higher 4Q15 NIM at 1.79% (+2bps q-o-q; +10bps y-o-y) while loans grew by 2% q-o-q, 4% y-o-y. Provisions were higher at S$115m in 4Q15 (3Q15: S$56m). OCBC also reported higher NIM at 1.74% (+8bps qo-q; +7bps y-o-y) for 4Q15 but loans dipped by 1% q-o-q and were flat y-o-y. Provisions were higher q-o-q from both specific and general allowances. Key concerns for the banks are exposure to the oil & gas and commodity sectors. UOB’s exposure to oil & gas comprises is 3.6% of total loans while other commodity segments make up another 3.4%. For OCBC, exposure to the oil & gas segment amounts to S$12.4bn or 6% of total loans.

DPUs for REITS boosted by capital returns; sustainability in question Although earnings were largely in line, 4Q15 results showed cracks in the operating environment on the back of slowing business activities with retail REITs remaining the most stable. As a result, we tweaked earnings for REITS by -0.7% for FY16F and -1.3% for FY17F. We note that several S-REITs have boosted DPUs through capital distributions in 4Q15, which is timely in an environment where stable dividends are valued. However, investors will question the sustainability of this move to hold up DPUs, against the backdrop of weak operational growth outlook. Revision to sector earnings Curre nt vs Pre v. Qua rte r % Chng S e ctor Banking

FY16 -3.6%

FY17 -4.0%

Commodities Related

-0.2%

0.0%

Consumer Goods

0.0%

0.1%

Consumer Services

-3.9%

-3.4%

Financials

1.0%

1.4%

Health Care

1.6%

1.6%

Industrials

-3.4%

-1.6%

Oil & Gas

-13.2%

-12.8%

Real Estate

3.5%

-0.2%

REITS

-0.7%

-1.3%

Technology

0.0%

0.0%

Telecommunications

0.0%

0.0%

-2. 5%

-2. 7%

Gra nd T ota l

Source: DBS Bank

Page 10

Market Focus Singapore Strategy

Sector Valuation CAGR

Eps Growth (%) Sector Banking

2015F 7.2

PER (x)

Div Yld

2016F 3.8

2017F 5.5

15-17 4.6

2015F 8.5

2016F 8.2

2017F 7.8

2015 4.5

Consumer Goods

-4.3

4.8

10.8

7.7

14.8

14.1

12.7

2.4

Consumer Services

-6.2

13.7

6.2

9.9

21.3

18.8

17.7

3.0

Financials

7.9

-0.7

3.9

1.5

19.7

19.9

19.1

6.1

Health Care

10.8

27.1

14.1

20.4

48.8

38.4

33.6

0.9

Industrials

-25.2

37.1

17.7

27.0

21.2

15.5

13.2

3.8

Oil & Gas

-47.5

18.0

7.8

12.8

11.1

9.4

8.7

4.8

Real Estate

-1.8

-2.9

9.5

3.1

12.3

12.6

11.5

2.9

REITS

5.5

3.6

2.8

3.2

14.7

14.2

13.8

6.8

Technology

7.4

8.1

6.3

7.2

9.2

11.8

11.1

6.3

Telecommunications

0.0

4.6

4.9

4.7

15.5

14.8

14.1

5.0

DB S Co ve ra g e

-4 .8

7 .2

7 .2

7 .2

1 3 .9

1 3 .0

1 2 .1

4 .1

Ex-p ro p e rty

-4 .8

8 .2

7 .0

STI DB SV Fo re c a s t Avg (B e fo re EI )

-2 .7

3 .4

5 .7

4 .6

1 1 .8

1 1 .4

1 0 .8

STI Co n s e n s u s Avg

-3 .2

3 .5

6 .2

1 1 .7

1 1 .0

1 1 .0

Source: DBS Bank, Bloomberg Finance L.P.

Page 11

Singapore Company Guide

Ascendas REIT Edition 1 Version 1 | Bloomberg: AREIT SP | Reuters: AEMN.SI

Refer to important disclosures at the end of this report

DBS Group Research . Equity

14 Dec 2015

BUY

Diversifying Out Of Hometown

Last Traded Price: S$2.26 (STI : 2,834.63) Price Target : S$2.52 (12% upside) (Prev S$2.57)

Rebounding occupancy holds potential earnings upside. Portfolio occupancy rates bottomed out in 3QCY15, increasing marginally to 88.9% (vs 88.6% in Jun-15). Looking ahead, with vacancy rates standing at c.11%, we believe that A-REIT has upside to earnings if the unoccupied space can be filled, which is not included in our earnings forecast.

Potential Catalyst: Better than expected operational results Where we differ: In line Analyst Derek Tan +65 6682 3716 [email protected]

Modest rental growth but still expected to remain positive despite market headwinds. A-REIT recorded 9.1% reversion in its 2QFY16 (FYE Mar) results, boosted by 13.2% rise in rents achieved for its Business Parks/Science Parks. Looking ahead, we expect rental reversion momentum to slow but still remain positive based on the positive spread between market and passing rent levels over 2H16 – FY17.This will provide a buffer against expected falling market rents.

Price Relative S$

Relative Index 222

3.0 202

2.8

182

2.6

162

2.4 2.2

142

2.0

122 102

1.8 1.6 Dec-11

Dec-12

Ascendas REIT (LHS)

Forecasts and Valuation FY Mar (S$ m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)

Dec-13

82 Dec-15

Dec-14

Relative STI INDEX (RHS)

2015A 673 463 398 351 14.6 0 14.6 3 208.3 15.5 6.5 1.1 33.4 7.1

Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:

2016F 739 527 347 370 13.6 (7) 14.9 2 208.5 16.6 6.6 1.1 35.4 6.5

2017F 813 582 398 412 14.8 8 15.3 2 207.6 15.3 6.8 1.1 35.4 7.1

2018F 830 596 402 417 14.9 1 15.5 1 206.8 15.1 6.8 1.1 35.5 7.2

3 15.4 B: 16

10 16.2 S: 0

11 16.6 H: 8

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

Acquisitions to drive earnings. A-REIT has acquired assets worth more than S$1bn in assets in Singapore and Australia, in search for higher returns. The medium-term strategy is to have overseas exposure form c.30% of the A-REIT revenues. In addition, A-REIT has a visible pipeline of over S$1bn worth of business park assets under the Sponsor’s balance sheet which can be acquired in the medium term. Valuation: Our DCF-based TP is lowered to S$2.52 as we roll forward our valuations and update our assumptions from the recent placement. Maintain BUY given total returns of >10%. Key Risks to Our View: Interest rate risk. An increase in lending rates will negatively impact distributions. However, A-REIT's strategy has been to actively manage its exposure and currently has c.70% of its interest cost hedged into fixed rates. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Ascendas Pte Ltd (%) Blackrock (%) Matthews International Capital

2,408 5,442 / 3,850 17.1 6.0 5.1 71.8 16.8

Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust

ASIAN INSIGHTS ed: JS / sa: JC

VICKERS SECURITIES Page 12

Company Guide Ascendas REIT Net Property Income and Margins (%)

CRITICAL DATA POINTS TO WATCH

S$ m

600

75.3%

400

73.3% 300

71.3%

200

69.3%

100

67.3%

0

65.3% 2014A

2015A

2016F

Net Property Income

2017F

2018F

Net Property Income Margin %

Net Property Income and Margins (%) 73%

130

72%

125

71% 120

70%

115

69%

110

68% 67%

105

66%

Net Property Income

1Q2016

4Q2015

3Q2015

2Q2015

1Q2015

4Q2014

64%

3Q2014

65%

95

2Q2014

100

1Q2014

Modest rental growth but still positive. A-REIT recorded reversions of 9.1% in its 2QFY16 results, boosted by 13.2% rise in rents achieved for its Business/Science Parks. Looking ahead, we see rental reversion momentum slowing down, but still expect A-REIT to achieve higher rents given the positive spread between market and passing rents over 2H16 – FY17. That said, we expect rental reversions to moderate to c.5% in the coming financial year, in view of the high supply completion rate and keen competition expected in 2016.

77.3%

500

4Q2013

Earnings Drivers: Rebounding occupancy rates. A-REIT’s occupancy rates are bottoming out with portfolio occupancy rate increasing marginally to 88.9% (vs 88.6% in Jun-15). For multi-tenanted properties, occupancy rate was 84.9% in 3QCY15, vs 84.7% in 2QCY15. On average, occupancy rates are higher than the average for industrial properties reported by JTC. Looking ahead, with vacancy rates standing at c.11%, we believe that A-REIT has upside to earnings if the Manager is able to backfill the unoccupied space, which is not included in our earnings estimates.

Net Property Income Margin %

Distribution Paid / Net Operating CF 1.1

(x)

1.0 0.9

Inorganic growth to drive contributions in Australia and Singapore. A-REIT has regularly embarked on acquisitions and development projects, which have helped the REIT to deliver sustained growth in distributions over time. Given limited opportunities in Singapore and the fragmented market in China, the Manager has looked overseas for higher returns. Most recently, A-REIT announced the c.A$1,013m acquisition of a logistics portfolio in Australia which will propel the REIT as one of the largest landlords there. The medium-term strategy is to have overseas exposure form c.30% of the REIT’s revenue exposure.

0.8 0.7 0.6 0.5 0.4 0.3 2014A

2015A

2016F

2017F

2018F

Source: Company, DBS Bank

In addition, A-REIT also recently announced the acquisition of 8@Changi, which is in a prime location within Changi Business Park. The property is part of an integrated project, including a retail mall (Changi City Point, owned by Frasers Centerpoint Trust) and Capri, a hotel. The acquisition is priced at c.S$435m, implying a net property income yield of 5.9%.

ASIAN INSIGHTS Page 2

VICKERS SECURITIES Page 13

Company Guide Ascendas REIT

Balance Sheet: Optimal gearing level of c.35%. Post the recent placement exercise of S$408m and S$210m in consideration units for the purchase of 8@Changi, A-REIT’s gearing is estimated to remain at the lower end of management’s comfortable range of 35%. We believe that there is still capacity for management to utilise its debt headroom for further acquisitions.

Aggregate Leverage (%) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2014A

Well-staggered debt maturity profile. The Manager adopts a prudent interest rate risk management strategy with a weighted average cost of debt of 2.7% with 72% hedged. The debt tenure is long at 3.4 years.

2015A

2016F

2017F

2018F

2017F

2018F

ROE (%) 7.0% 6.0%

Share Price Drivers: Direction of 10-year long bonds impact share price. Seen by investors as a key S-REIT proxy, share price has typically been closely linked to investors’ perception on the direction of the benchmark 10-year bonds. A fall in 10-year yields on the back of a delay in Fed hikes is likely to mean higher share price. Capital recycling strategy. With limited acquisition opportunities in Singapore, A-REIT regularly looks to divest older, lower-yielding properties and re-cycle the capital into asset enhancement exercises (AEI), development projects or acquisitions. The aim is to optimise the portfolio returns and distributions which have a positive impact on share price. Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments, which will reduce income available for distribution and result in lower distribution per unit (DPU) to unitholders. Economic risk. A deterioration in the economic outlook could have a negative impact on industrial rents and occupancies as companies cut back production and require less space; industrial rents have a strong correlation with GDP growth.

5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2014A

2015A

2016F

Distribution Yield (%) (%) 7.8 7.3

+2sd: 7.1% 6.8

+1sd: 6.6% 6.3

Avg: 6.1%

5.8

‐1sd: 5.7%

5.3

‐2sd: 5.2%

4.8 4.3 2011

2012

2013

2014

PB Band (x) 1.7

(x)

1.6 1.5 1.4

+2sd: 1.33x

1.3

+1sd: 1.25x

1.2

Company Background Ascendas Real Estate Investment Trust (A-REIT) is one of the leading industrial S-REITs listed on the SGX. A-REIT owns and invests in a diverse, income-producing portfolio of business parks (including science parks), light industrial, hitech industrial and logistic properties in Singapore.

ASIAN INSIGHTS

Avg: 1.16x

1.1

‐1sd: 1.07x

1.0

‐2sd: 0.99x

0.9 0.8 Dec-11

Dec-12

Dec-13

Dec-14

Source: Company, DBS Bank

VICKERS SECURITIES Page 14 Page 3

Company Guide Ascendas REIT

Income Statement (S$ m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales %) ROAE (%) ROA (%) ROCE (%) Int. Cover (x)

2014A

2015A

2016F

2017F

2018F

614 (178) 436 (41) 3 (36) 12 374 (23) 0 0 351 482 (9) 342

673 (211) 463 (44) 42 (105) 2 357 (7) 0 0 351 398 1 351

739 (212) 527 (88) 0 (83) 0 355 0 0 (8) 347 347 23 370

813 (231) 582 (57) 0 (108) 0 417 (4) 0 (15) 398 398 14 412

830 (234) 596 (58) 0 (116) 0 422 (5) 0 (15) 402 402 15 417

6.6 6.6 32.8 100.0 71.1 57.2 55.7

9.8 6.1 0.0 100.0 68.7 52.1 52.1

9.7 13.8 (1.0) 100.0 71.3 47.0 50.1

10.1 10.6 14.5 100.0 71.6 48.9 50.7

2.0 2.3 1.2 100.0 71.8 48.5 50.2

6.6

6.5

12.0

7.1

6.9

7.4 4.9 5.3 11.0

7.1 4.5 5.5 4.0

6.5 3.9 5.0 5.3

7.1 4.0 5.4 4.9

7.2 4.1 5.5 4.6

Driven mainly by acquisitions

Source: Company, DBS Bank

ASIAN INSIGHTS Page 4

VICKERS SECURITIES Page 15

Company Guide Ascendas REIT

Quarterly / Interim Income Statement (S$ m) FY Mar 1Q2015 2Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)

3Q2015

4Q2015

1Q2016

163 (47) 116 (11) 3 (23) 2 87 (1) 0 86 86 2 88

165 (50) 115 (11) 14 (20) (12) 86 (1) 0 85 113 (26) 87

172 (57) 115 (10) 14 (26) 0 93 (1) 0 92 92 (6) 86

174 (57) 117 (12) 22 (37) 0 91 (4) 0 88 106 (17) 89

181 (56) 124 (11) (13) (12) 0 88 0 0 87 92 0 92

4 4 116 71.3 100.0

1 (1) (1) 69.6 100.0

4 0 9 66.7 100.0

1 2 (5) 67.4 100.0

4 6 0 68.8 100.0

Balance Sheet (S$ m) FY Mar

2014A

2015A

2016F

2017F

2018F

Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

6,923 290 67 0 65 13 7,358

7,868 135 42 0 90 26 8,160

9,481 135 82 0 99 26 9,822

9,496 135 88 0 109 26 9,853

9,511 135 82 0 111 26 9,864

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities

893 128 86 1,231 171 4,849 0 7,358

286 189 33 2,442 198 5,014 0 8,160

246 207 29 3,230 203 5,907 0 9,822

251 228 33 3,240 209 5,893 0 9,853

256 232 34 3,250 214 5,878 0 9,864

Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)

(136) (2,057)

(105) (2,686)

(111) (3,394)

(126) (3,403)

(129) (3,424)

0.1 0.1 28.9 1.5

0.3 0.3 33.4 1.3

0.4 0.4 35.4 1.3

0.4 0.4 35.4 1.1

0.4 0.4 35.5 1.1

Results continue to firm on the back of new acquisitions and positive rental reversions

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 16 Page 5

Company Guide Ascendas REIT

Cash Flow Statement (S$ m) FY Mar

2014A

2015A

2016F

2017F

2018F

Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash

374 1 (1) 0 (1) 29 401 0 (95) 0 0 (40) (135) (326) 170 0 (71) (227) 9 48

357 0 (2) 0 (10) 17 362 0 (643) 0 0 6 (638) (261) 577 0 (68) 249 1 (26)

355 0 (4) 0 10 (8) 353 0 (1,613) 0 0 6 (1,607) (370) 748 617 300 1,294 0 40

417 0 0 0 11 (15) 412 0 (15) 0 0 6 (9) (412) 15 0 0 (397) 0 6

422 0 (4) 0 2 (15) 405 0 (15) 0 0 6 (9) (417) 15 0 0 (402) 0 (6)

Operating CFPS (S cts) Free CFPS (S cts)

16.8 16.7

15.5 15.1

13.5 13.9

14.9 15.3

14.9 15.0

Source: Company, DBS Bank Target Price & Ratings History

2.75

S$

2.65

2

4

5

2.55 2.45 2.35

3 1 8 6

2.25

S.No.

Dat e

Closing Pric e

T arget Rat ing Pric e

1:

09 J an 15

2.43

2.49

BUY

2:

26 J an 15

2.60

2.62

BUY

3:

24 F eb 15

2.48

2.62

BUY

4:

31 Mar 15

2.59

2.65

BUY

5:

24 Apr 15

2.67

2.65

HOLD

6:

31 Aug 15

2.23

2.30

HOLD

7:

23 Sep 15

2.24

2.45

BUY

8:

10 Dec 15

2.28

2.57

BUY

7

2.15 2.05 Dec-14

Apr-15

Aug-15

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

ASIAN INSIGHTS Page 6

VICKERS SECURITIES Page 17

Company Guide Ascendas REIT DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

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DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

ASIAN INSIGHTS

VICKERS SECURITIES Page 18 Page 7

Company Guide Ascendas REIT 3.

Compensation for investment banking services: DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Ascendas REIT as of 30 Nov 2015. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Ascendas REIT in the past 12 months, as of 30 Nov 2015. 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.

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In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

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Singapore Company Guide

CapitaLand Refer to important disclosures at the end of this report

Version 3 | Bloomberg: CAPL SP | Reuters: CATL.SI

DBS Group Research . Equity

18 Feb 2016

BUY

Steadfast In The Face Of Uncertainty

Last Traded Price: S$2.86 (STI : 2,613.79) Price Target : S$3.70 (29% upside) (Prev S$3.73)

Improved earnings quality. We believe that CAPL offers compelling value, trading at an attractive 0.7x P/Bk and 0.6x P/RNAV. We expect the group’s strategy to focus on growing its commercial portfolio, and coupled with opportunistic asset recycling of mature assets into its listed REITs/funds, will present upside to our earnings. We maintain our BUY call with a target price of S$3.70.

Potential Catalyst: Asset recycling Where we differ: We are more conservative in forecasts Analyst Derek Tan +65 6682 3716 [email protected] Singapore Research Team Mervin SONG + 65 6682 3715 [email protected]

What’s New 

Recurring earnings forming 61% of PATMI highlights improved earnings quality



Strong balance sheet empowers group with firepower to acquire opportunistically



Strong recurring cashflows offer earnings visibility

Launch of new PE funds to boost returns. Leveraging on its fund management expertise, CAPL aims to launch 5-6 private equity funds with funds under management of S$8-10bn by 2020. We think that by tapping on third-party capital, CAPL would be able to leverage on its larger scale to achieve better economies of scale, capitalise on market opportunities and at the same time de-risk its property level exposure.

Price Relative S$

Relative Index 222

4.2

202 182

3.7

162 3.2

142 122

2.7

102 2.2 Feb-12

Feb-13

CapitaLand (LHS)

Forecasts and Valuation FY Dec (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Feb-14

82 Feb-16

Feb-15

Relative STI INDEX (RHS)

2014A 3,925 2,444 1,997 1,161 1,161 32.7 27.3 27.3 33 36.9 9.00 394 10.5 10.5 12.2 13.0 3.1 0.7 0.6 7.1

Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:

Growing recurring revenues from its retail mall portfolio and Ascott. Its current property portfolio has up to 75% of its assets in retail malls, and commercial integrated developments, including Ascott Group, which offer strong income visibility in the medium term. We see improved operating performance for its malls, as the properties reach maturity, boosted by the completion of four Raffles City mega developments in China in the medium term.

2015A 4,762 2,325 1,839 1,066 1,066 (8.2) 25.0 25.0 (8) 25.0 9.00 420 11.4 11.4 4.9 13.3 3.1 0.7 0.5 6.1

2016F 4,164 1,761 1,261 776 776 (27.2) 18.2 18.2 (27) 18.2 9.00 430 15.7 15.7 nm 19.2 3.1 0.7 0.6 4.3

2017F 5,357 2,023 1,482 911 911 17.5 21.4 21.4 17 21.4 9.00 442 13.4 13.4 8.0 16.9 3.1 0.6 0.6 4.9

B: 17

2 14.9 S: 0

(1) 20.0 H: 3

Valuation: Our target price of S$3.70 is based on a 25% discount to our adjusted RNAV of S$4.94/share, tweaked slightly as we update project completion assumptions. Our RNAV is based on our estimates of the market valuations of its various property developments and investment property assets across its various divisions. Key Risks to Our View: Slowdown in Asian economies. The risk to our view is if there is a slowdown in Asian economies, especially China, which could dampen demand for housing and private consumption expenditure and retail sales. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Temasek Holdings Pte Ltd Blackrock Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate

4,248 12,149 / 8,642 39.6 6.0 54.4 28.7

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ASIAN INSIGHTS ed: TH / sa:AS

VICKERS SECURITIES Page 20

Company Guide CapitaLand

WHAT’S NEW FY15 a year of resilience CapitaLand (CAPL) results in line.  4Q15 Operating PATMI came in at S$249.2m (-12% y-o-y) on the back of a 17% rise in top line to S$1,739m. The fall in PATMI was mainly attributable to the one-off gain from the sale of Westgate Tower back in 4Q14.  Stripping off the Tower sale, operating PATMI would have increased by 55.7%.  For FY15, CAPL reported an operating PATMI of S$823.7m (inclusive of S$170.6m in FV gains).  Core PATMI would have come in at c.S$653m, in line with our expectations of S$715m (consensus estimates of S$705m).  The group has proposed a final dividend of 9 Scts/share, in line with last year.  We also note that the group recorded a provision for foreseeable losses of close to S$105m, which we understand to be mainly from the Singapore property project.  Gearing remained stable at 0.48x Debt/Equity (off balance sheet gearing for its REITs, JVs and Funds are also in the range of 0.42x-0.52x).  Interest costs remained stable at 3.5% (vs 3.4% in 2014). Salient highlights Residential  China residential hit a new record high. China residential hit record sales in 2015 – CAPL achieved a record RMB 15bn in sales (selling 9,402 units) of which a majority are from its projects in Tier 1 cities (The Paragon and Lotus





Mansion in Shanghai, Dolce Vita in Guangzhou, Riverfront in Hangzhou, The Metropolis in Kunshan, One iPark in Shenzhen, Century Park in Chengdu and La Botanica in Xian). Looking ahead, the group have another 7,300 launchready units of which 65% have been pre-sold. Rising momentum in Vietnam. The group also sold 1,321 residential units with a sales value of S$226.5m. Vietnam will be one of the few markets that the group is expecting to see increased contribution in the medium term.

Malls (CMA)  Ex Westgate Tower Sale, CMA’s operating profit would have improved by 13.9% and 13.4% for 4Q2015 and FY15 respectively .  Same-mall NPI growth across its portfolio remained stable – with China leading the wall with a 7.4% lift in NPI, while its Singapore, Malaysia and Japan operations saw NPI increasing by 2.2%. India saw a 21.6% lift in NPI but operational scale is small there.  Portfolio tenant sales are up 7.3% in China; 1.2% in Singapore on the back of an increase in traffic. Ascott  Performance remained stable. RevPAU is up 1% y-o-y driven mainly from the group’s operations in SE Asia, Australia and China, brought down by weakness seen in Singapore and Europe.  The group opened 2,700 units in 2015 and expects to open a further 2,000 units, a majority of which will be from China and SE Asia.  

Quarterly / Interim Income Statement (S$m) 4Q2014

3Q2015

4Q2015

% chg yoy

% chg qoq

1,518 (1,080)

1,076 (738)

1,740 (1,359)

14.6 25.9

61.7 84.2

Gross Profit Other Oper. (Exp)/Inc

438 (173)

338 (30.2)

381 (28.4)

(13.1) (83.5)

12.6 (5.9)

Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss)

265 0.0 331 (97.6) 248

308 0.0 140 (105) 0.0

352 0.0 224 (97.1) 0.0

32.7 nm (32.3) (0.4) nm

14.4 nm 59.9 (7.8) nm

Pre-tax Profit Tax Minority Interest

747 (104) (227)

343 (64.4) (85.6)

479 (84.7) (147)

(35.8) (18.6) (35.3)

39.9 (31.6) 71.7

416 168 596

193 193 448

248 248 576

(40.4) 47.6 (3.3)

28.5 28.5 28.6

28.9 17.5 27.4

31.4 28.6 17.9

21.9 20.3 14.2

FY Dec Revenue Cost of Goods Sold

Net Profit Net profit bef Except. EBITDA Margins (%) Gross Margins Opg Profit Margins Net Profit Margins

Source of all data: Company, DBS Bank

ASIAN INSIGHTS Page 2

VICKERS SECURITIES Page 21

Company Guide CapitaLand Revenue growth

CRITICAL DATA POINTS TO WATCH

6,000.0

S $'m

5,000.0

Earnings Drivers: Growing recurring revenues from its retail mall portfolio and Ascott. While trading properties (residential development and strata offices) account for 25% of assets, we see continued strength from CAPL’s retail mall division (CapitaMalls Asia) and commercial integrated developments, including Ascott Group and its successful serviced residence brand, which forms a significant 75% of total assets and is expected to contribute to growing recurring income for the group.

4,000.0 3,000.0 2,000.0 1,000.0 13A

14A

15A

16F

17F

18F

% Breakdown of assets by segments Others, 1%

Looking ahead, CapitaMalls Asia continues to perform steadily despite ongoing operational headwinds. There are 88 operating properties across Asia (55 of it in China). As of Dec-15, the group’s shopping malls continued to see healthy sales and occupancy. Shopper traffic at its malls in Singapore and China rose 1.2% and 7.3% y-o-y respectively, which we expect to further moderate but remain positive despite ongoing uncertainties. Looking ahead, CAPL is expected to open another 16 properties (nine in China) in the coming few years.

Serviced Residences , 17%

Shopping Malls, 21%

In addition, Raffles City integrated developments in China will continue to offer stable returns (7-8% for stabilised properties in Shanghai and Beijing, c.3% for stabilising properties in Chengdu and Ningbo). Looking ahead, the group will be opening four more Raffles City developments in 2015-2018, which will boost the group’s returns and profitability when completed. The Ascott Limited remains on the fast track to achieve its 80,000-unit target by year 2020. Ascott recently invested over S$120m in China’s largest and fastest-growing online apartment sharing platform, Tujia, which we believe enables the group to extract synergies and leverage on Tujia’s platform to reach out to a wider addressable market. The group also recently launched a US$600m joint venture fund with Qatar Investment Authority to invest in value-added opportunities globally. This fund, when fully vested, will offer its REIT, Ascott Residence Trust (ART) a viable acquisition pipeline in the medium term. Launch of new PE funds. Leveraging on its fund management expertise, CAPL aims to launch 5-6 private equity funds with funds under management of S$8-10bn by 2020. We think that by tapping on third-party capital, CAPL would be able to leverage on larger economies of scale, better capitalise on market opportunities and at the same time de-risk its property level exposure. This strategy will be able to deliver medium-term shareholder ROE of 8-12%.

Residential & Strata Sales, 26%

Commercial & Integrated Devt, 35%

Breakdown of Mall portfolio (% by country) Japan, 1% India, 2% Malaysia, 4%

Singapore, 41%

China, 52%

RNAV breakdown Segments Value of CapitaLand Singapore

S$’m 6,981.1

Value of CapitaLand China

10,871.3

CapitaMalls Asia

17,303.4

Ascott Others GDV of CAPL Group Less: Net Debt

4,222.9 846.8 40,225.5 (11,552.3)

Less: devt capex

(7,775.9)

RNAV of CAPL

21,017.3

Total Shares

4,258.6

RNAV per share

4.94

Discount to RNAV

25%

Target price

3.70

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 22 Page 3

Company Guide CapitaLand

Balance Sheet: Balance sheet remains strong. We forecast debt/equity ratio to remain stable at below c.0.6x over the coming years (0.48x as of end-4Q15). Debt maturity profile remains long at 3.7 years (as of 3Q15) with an average cost of 3.5%. Approximately 70% of the interest cost is hedged into fixed rate debt.

Leverage & Asset Turnover (x) 0.2 0.70

0.2

0.60

0.2 0.1

0.50

0.1 0.40

0.1

0.30

0.1 0.1

0.20

0.0

Share Price Drivers: De-risking its Singapore residential exposure/replenishing land bank. CAPL has been actively de-risking its Singapore residential exposure through active marketing of its unsold units across its projects and most completed projects are substantially sold. As of 4Q15, its Singapore residential exposure stands at S$3.1bn in value. This is only c.6% of its total asset value, and is not likely to have a major impact on earnings if further risks arise. Looking ahead, while the group has not been an active investor in Singapore’s residential market, winning any new land tenders will imply improved confidence in the outlook for Singapore’s residential market in the medium term.

0.10

0.0 0.0

0.00 2013A

2014A

Gross Debt to Equity (LHS)

2016F

2017F

Asset Turnover (RHS)

Capital Expenditure S$m 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 2013A

Relaxation of government policies. Expectations of policy relaxation (especially cyclical measures like the Buyers’ and Sellers’ stamp duties) may improve buyers’ market sentiment and spark a revival in transactional volumes in the Singapore residential market. This is also expected to lift sentiment on property stocks, which we believe will enable CAPL to close the gap between stock price and its NAV.

2015A

2014A

2015A

2016F

2017F

Capital Expenditure (-)

ROE (%) 7.0% 6.0% 5.0% 4.0% 3.0%

Asset recycling into listed S-REITs. CAPL will continue to demonstrate its ability to crystallise value through strategic divestments of mature assets to its listed REITs, which are market leaders in their respective subsectors of retail, office and hospitality. The ability to recycle capital efficiently will enable the group to free up capital, improve its balance sheet position and deploy capital to projects with higher returns.

2.0% 1.0% 0.0% 2013A

2014A

2015A

2016F

Forward PE Band (x) 20.9

(x)

18.9

Key Risks: Slowdown in Asian economies. The risk to our view is a slowdown in Asian economies which could dampen demand for housing and private consumption expenditure and retail sales. This in turn could result in slower-than-expected projections. Company Background CapitaLand is one of Asia’s largest real estate companies headquartered and listed in Singapore. Its two core markets are Singapore and China; while Indonesia, Malaysia and Vietnam have been identified as new growth markets.

2017F

+2sd: 18.7x

16.9

+1sd: 16.5x

14.9

Avg: 14.3x

12.9

‐1sd: 12.2x 10.9

‐2sd: 10x 8.9 Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

PB Band (x) 1.3

(x)

1.2 1.1

+2sd: 1.04x

1.0

+1sd: 0.94x

0.9

Avg: 0.85x

0.8

‐1sd: 0.75x 0.7

‐2sd: 0.66x

0.6 0.5 Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

Source: Company, DBS Bank

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Company Guide CapitaLand

Segmental Breakdown FY Dec

2013A

2014A

2015A

2016F

2017F

Revenues (S$m) CapitaLand Singapore CapitaLand China CMA Ascott Others Total

1,237 899 641 635 99.0 3,511

1,242 638 1,178 683 185 3,925

1,229 2,039 663 744 86.1 4,761

998 1,452 842 725 147 4,164

1,207 2,227 999 775 149 5,357

2013A

2014A

2015A

2016F

2017F

3,511 (2,274) 1,237 72.5 1,310 0.0 903 (402) 0.0 1,811 (205) (731) 0.0 875 875 2,275

3,925 (2,543) 1,382 27.7 1,410 0.0 970 (382) 0.0 1,997 (238) (599) 0.0 1,161 1,161 2,444

4,762 (3,287) 1,475 59.4 1,534 0.0 726 (422) 0.0 1,839 (344) (430) 0.0 1,066 1,066 2,325

4,164 (2,171) 1,993 (465) 1,528 0.0 169 (435) 0.0 1,261 (227) (259) 0.0 776 776 1,761

5,357 (3,082) 2,275 (489) 1,787 0.0 171 (476) 0.0 1,482 (267) (304) 0.0 911 911 2,023

6.4 25.3 40.3 12.8

11.8 7.4 7.6 32.7

21.3 (4.9) 8.8 (8.2)

(12.6) (24.3) (0.4) (27.2)

28.7 14.8 17.0 17.5

35.2 37.3 24.9 5.6 2.1 3.0 39.0 3.3

35.2 35.9 29.6 7.1 2.6 3.0 33.0 3.7

31.0 32.2 22.4 6.1 2.3 3.0 36.0 3.6

47.9 36.7 18.6 4.3 1.7 2.9 49.4 3.5

42.5 33.4 17.0 4.9 2.0 3.3 42.1 3.8

Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

Driven by completion of various malls, and recognition of property sales

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 24 Page 5

Company Guide CapitaLand

Quarterly / Interim Income Statement (S$m) FY Dec 4Q2014 1Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

2Q2015

3Q2015

4Q2015

1,518 (1,080) 438 (173) 265 0.0 331 (97.6) 248 747 (104) (227) 416 168 596

915 (553) 362 (116) 245 0.0 126 (107) 0.0 263 (50.6) (51.6) 161 161 371

1,031 (637) 394 (88.0) 306 0.0 236 (112) 322 753 (144) (146) 464 142 543

1,076 (738) 338 (30.2) 308 0.0 140 (105) 0.0 343 (64.4) (85.6) 193 193 448

1,740 (1,359) 381 (28.4) 352 0.0 224 (97.1) 0.0 479 (84.7) (147) 248 248 576

65.2 74.6 21.9 29.1

(39.7) (37.8) (7.6) (3.9)

12.7 46.3 24.9 (12.2)

4.3 (17.4) 0.5 36.1

61.7 28.6 14.4 28.5

28.9 17.5 27.4

39.5 26.8 17.6

38.2 29.7 45.0

31.4 28.6 17.9

21.9 20.3 14.2

Balance Sheet (S$m) FY Dec

2013A

2014A

2015A

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

666 12,673 16,583 6,393 0.0 1,167 7,579 45,063

1,047 12,781 18,705 2,941 0.0 963 7,676 44,113

808 12,858 20,760 4,257 0.0 1,424 6,945 47,053

908 13,118 21,560 1,925 0.0 1,041 6,797 45,349

1,007 13,379 22,360 2,381 0.0 1,339 6,045 46,511

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

1,280 2,889 478 14,656 1,305 16,109 8,346 45,063

3,469 3,070 463 12,517 1,386 16,758 6,451 44,113

2,246 4,064 620 13,812 1,373 17,905 7,032 47,053

2,246 1,340 704 14,312 1,373 18,298 7,076 45,349

2,246 1,176 827 14,812 1,373 18,826 7,251 46,511

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

5,379 (9,543) 137.9 433.2 N/A 0.1 3.3 1.6 0.4 0.6 0.5 1.2

5,107 (13,045) 99.1 438.9 N/A 0.1 1.7 0.6 0.6 0.8 0.8 1.1

3,685 (11,801) 91.5 404.1 N/A 0.1 1.8 0.8 0.5 0.7 0.4 1.1

5,794 (14,633) 108.1 468.2 N/A 0.1 2.3 0.7 0.6 0.8 1.0 1.1

5,381 (14,677) 81.1 152.2 N/A 0.1 2.3 0.9 0.6 0.8 1.0 1.1

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Driven mainly from improved operating PATMI, forming a substantial portfolio

Net Debt/Equity remains stable at 0.6x

Source: Company, DBS Bank

ASIAN INSIGHTS Page 6

VICKERS SECURITIES Page 25

Company Guide CapitaLand

Cash Flow Statement (S$m) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)

2013A

2014A

2015A

2016F

2017F

1,811 62.8 (223) (903) (53.7) 262 956 (76.6) (190) 57.0 439 141 370 (688) 280 1.64 (464) (869) 352 809 23.8 20.7

1,997 64.6 (256) (970) 51.9 111 999 (127) (1,357) 841 406 (102) (339) (705) 177 1.38 (3,746) (4,272) 55.0 (3,557) 22.2 20.5

1,839 65.0 (145) (726) 1,264 169 2,466 (64.0) (718) 509 394 33.0 154 (727) (212) 0.0 (274) (1,213) 0.0 1,407 28.2 56.4

1,261 65.0 (144) (169) (2,192) 0.0 (1,179) (164) (800) (150) 59.0 0.0 (1,055) (598) 500 0.0 0.0 (98.1) 0.0 (2,332) 23.8 (31.5)

1,482 65.0 (143) (171) 290 0.0 1,523 (164) (800) (150) 59.9 0.0 (1,055) (513) 500 0.0 0.0 (12.6) 0.0 456 29.0 31.9

Source: Company, DBS Bank Target Price & Ratings History 3.94

S$ S.No.

3.74 3.54 1

2

3 4

3.34

6 5

7

12

10

3.14

9 2.94

11

14 13

8 15

2.74 2.54 Feb-15

Jun-15

Oct-15

Feb-16

Not e : Share price and Target price are adjusted for corporate actions.

Dat e

Closing Pric e

T arget Rat ing Pric e

1:

18 F eb 15

3.68

3.88

BUY

2:

17 Mar 15

3.50

3.88

BUY

3:

04 May 15

3.76

4.11

BUY

4:

25 J un 15

3.46

4.11

BUY

5:

14 J ul 15

3.38

4.11

BUY

6:

15 J ul 15

3.40

4.11

BUY

7:

10 Aug 15

3.22

4.11

BUY

8:

31 Aug 15

2.82

3.73

BUY

9:

12 Oct 15

3.13

3.73

BUY

10:

05 Nov 15

3.20

3.73

BUY

11: 12: 13: 14: 15:

23 Nov 15 17 Dec 15 08 Jan 16 18 Jan 16 16 Feb 16

3.10 3.26 3.16 3.02 2.90

3.73 3.73 3.73 3.73 3.73

BUY BUY BUY BUY BUY

Source: DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 26 Page 7

Company Guide CapitaLand

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a)

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.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 18 Feb 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

ASIAN INSIGHTS Page 8

VICKERS SECURITIES Page 27

Company Guide CapitaLand

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1.

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in CapitaLand recommended in this report as of 31 Jan 2016

2.

DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.

Compensation for investment banking services: 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.

4.

Directorship/trustee interests: Peter Seah Lim Huat, Chairman of DBS Group Holdings, is a Deputy Chairman of Capitaland as of 28 Feb 2015. Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Director of Capitaland as of 28 Feb 2015.

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”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong

This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia

This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia

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

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.

Thailand

This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

ASIAN INSIGHTS

VICKERS SECURITIES Page 28 Page 9

Company Guide CapitaLand

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC rd Branch) having its office at PO Box 506538, 3 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.

United States

This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

ASIAN INSIGHTS Page 10

VICKERS SECURITIES Page 29

Singapore Company Guide

ComfortDelgro Refer to important disclosures at the end of this report

Version 2 | Bloomberg: CD SP | Reuters: CMDG.SI

DBS Group Research . Equity

15 Feb 2016

BUY (Upgrade from HOLD)

Time To Board Again

Last Traded Price: S$2.79 (STI : 2,539.95) Price Target : S$3.24 (16% upside) (Prev S$3.00) Potential Catalyst: Upgrade in recommendation/ TP; results review Where we differ: FY17F below consensus on higher cost assumptions Analyst Andy Sim +65 6682 3718 [email protected]

What’s New 

Upgrade to BUY, TP raised to S$3.24



Projecting above average growth of 15% in FY16F on lower oil price, improvement in margins



Not expecting lump sum cash from bus assets; base case assumption is progressive asset transfer



4Q15 within expectations; FY15 posts 6% earnings growth

Price Relative S$

4Q15 results within expectations. 4Q15 net profit grew by 7.1% y-o-y to S$68.2m, while revenue reached S$1.06bn (+1.5%). For FY15, CD’s net profit ended the year at S$302m (+6.5% y-o-y) on the back of 1.5% growth in revenue to S$4.11bn. Revenue growth was driven by Bus, Taxis, Rail and Car Rental and Leasing businesses, offset by a decline in Automotive Engineering due to lower prices of diesel sales. EBIT improved marginally to 11% with increases in staff and depreciation costs offset by lower fuel and electricity costs. Despite more competition, management shared that its taxi hire-out rate remains high, as evidenced by continued growth in its operating profit.

Relative Index 249 229

3.3

209 2.8

189 169

2.3 149 129

1.8

109 1.3 Feb-12

Feb-13

ComfortDelgro (LHS)

Forecasts and Valuation FY Dec (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Feb-14

Feb-15

89 Feb-16

Relative STI INDEX (RHS)

2014A 4,051 800 436 284 284 7.7 13.3 13.3 7 13.1 8.25 102 21.1 21.1 9.3 8.2 3.0 2.7 CASH 13.1

Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:

2015A 4,112 845 452 302 302 6.5 14.1 14.1 6 14.1 9.00 109 19.8 19.8 9.9 7.6 3.2 2.6 CASH 13.3

2016F 4,138 893 529 347 347 15.1 16.2 16.2 15 16.2 10.6 116 17.2 17.2 7.5 6.9 3.8 2.4 CASH 14.4

2017F 4,278 913 553 368 368 5.9 17.2 17.2 6 17.2 11.2 123 16.2 16.2 7.2 6.4 4.0 2.3 CASH 14.4

14.2 B: 9

1 16.2 S: 1

0 17.7 H: 2

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ASIAN INSIGHTS ed: JS / sa:YM

Upgrade to BUY, TP raised to S$3.24. We upgrade our recommendation for ComfortDelgro (CD) to BUY (from HOLD) with a revised TP of S$3.24. Share price has weakened by c.8% YTD and we believe this presents an opportune time to accumulate as oil prices have dropped c.20% YTD, which bodes well for margins.

Stronger FY16F growth projected; valuations more palatable. With share price down recently, valuations look more palatable at 17x/ 16x FY16F/17F on the back of a stronger FY16F growth. Current price is also within the S$2.70-S$2.80 range that we had earlier stated that we would be comfortable to accumulate. Though we are not expecting a significant onetime cash payout for the Singapore bus assets, the transition to the new model should bode well and relief it of future capital expenditures. Valuation: Our target price is raised to S$3.24, derived from the average valuations using discounted cash flow (DCF) and price-earnings ratio (PER) methods. Our TP implies a PE of 18.8x on forward FY17F earnings, which is +1 std deviation above its historical average factoring in the asset-light model for the bus operations in Singapore. Key Risks to Our View: Regulatory risks. Lower-than-expected fare increase, and or changes in regulations to the operations, may impact our forecasts. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Blackrock Capital Group Companies Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Consumer Services / Travel & Leisure

2,151 6,000 / 4,292 6.8 6.4 97.4 9.9

VICKERS SECURITIES Page 30

Company Guide ComfortDelgro

WHAT’S NEW

Time to board again Time to board again; upgrade to BUY; TP S$3.24. After waiting for about a year for earnings to catch up with valuations, we upgrade our recommendation on CD to BUY, from HOLD. Our strategy seems akin to waiting for the right truck bus service, rather than going around in a loop in a feeder bus. Share price has weakened by c.8% YTD, while oil prices have slumped by 20% YTD. We believe this presents an opportune time to accumulate the shares, coupled with the fact that we are projecting a stronger earnings growth in FY16F. While energy and fuel historically accounts for only c.8% of revenue, the recent drop in oil price will still bode well for margins. We tweaked our FY16F earnings up by 1% to factor in lower energy prices, offset partially by a lower rate of revenue growth (diesel sales) and weaker AUD. Our TP is raised to S$3.24 (from S$3.00 previously) as we roll our valuations forward to average of FY16F/ 17F, coupled with marginally higher forecasts for FY16F. This implies c.20% total return upside, inclusive of 3.8% dividend yield. Beneficiary of lower oil and energy prices Lower oil prices lower costs. With oil prices falling to U.S$30/bbl, we expect to see continued benefits accruing to CD’s bottomline. We have further lowered our oil price assumption to US$45 and US$50 per bbl for FY16F and FY17F. In FY15, CD hedged about 60% of its FY15 requirements, which we believe was entered into earlier in 2014/ 2015 when oil prices were higher. For 2016, we expect to see the benefits of lower oil prices flowing down to its bottomline. We understand that CD hedged about a quarter of its FY16F diesel/ electricity requirements in 2015. With oil prices now hovering around US$30/bbl, this should have a positive impact on earnings, particularly for its bus operations in Singapore up till Aug-16 (before the Bus Contracting model takes effect). We project fuel and electricity costs as a percentage of revenue to drop to 5.5%/ 6.5% for FY16F/17F, down from c.7-8% in previous years. 4Q15 Results Comments & Briefing Highlights 4Q15 results within expectations. Results performance was within expectations. 4Q15 net profit grew by 7.1% y-o-y to S$68.2m, while revenue reached S$1.06bn. For FY15, CD’s net profit ended at S$302m (+6.5% y-o-y) on the back of 1.5% growth in revenue to S$4.11bn. A final DPS of 5 Scts was proposed, up from FY14’s 4.5 Scts. Coupled with the interim

ASIAN INSIGHTS Page 2

DPS of 4 Scts, total DPS for FY15 is 9 Scts, equating to a payout of 64%, up from FY14’s 62%. Revenue growth was driven by Bus, Taxis, Rail and Car Rental and Leasing businesses. The largest decline in revenue contribution came about from Automotive Engineering (-21% to S$238.5m) mainly due to lower prices of diesel sold to taxi drivers arising from the retreat in oil prices. Slight EBIT margin improvements. The group posted a slight improvement in EBIT margins to 11% (from 10.9% in FY14). While revenue grew by 1.5%, growth in operating costs was a tad slower at 1.4%. Increases in the larger costs items such as staff costs (+3.3%), contract services (+3%) and depreciation and amortization (+10.1%) were offset by lower fuel/ electricity costs (-8.5%), materials and consumables costs (11.7%). Taxi still resilient despite challenges. Despite concerns on threats of online booking and private car hire (such as Uber and GrabCar), the group’s taxi operations remained resilient. Taxi Business registered a revenue growth of 3.4% and an operating margin of 12.4% in FY15, an improvement from FY14’s 11.8%. Management indicated that its hired out rate remained high at close to 100%. We believe this can be put down to its sound driver management strategy, and established network. Rail saw drop in margins, though we believe it should be better in FY16F. Rail Business registered a strong growth in revenue (+8.4% to S$213.4m), while operating margins retreated to just 1.5% in FY15, from 3.9% a year earlier. This was largely attributed to pre-operating start up costs from Downtown Line Stage 2 (DTL2) which commenced operations on 27 Dec 2015. While management guided that DTL will still register losses pending the opening of Stage 3 in 2016, we believe losses could be lower and rail operations’ margins should improve. Bus Contracting Model still in discussion with authorities. Management indicated that discussions are still in progress for the bus contracts. The parties are still working towards the 1 September 2016 timeline. With respect to the potential transfer of bus assets (if any), management was unable to give indications as it was still under discussions. At this current juncture, we opine that the authorities are unlikely to take possession and pay the operators all at once. Instead, we believe a phased approach is more likely, and we have penciled this into our operating model.

VICKERS SECURITIES Page 31

Company Guide ComfortDelgro

Diesel and electricity hedged “comfortably”. Management did not disclose the exact amount of its fuel/ electricity requirements that have been hedged, but indicated that it was in a “comfortable” position. Based on previous results’ teleconference, we understand that it has hedged about a quarter of its FY16F requirements. We believe the company is well placed to benefit with oil prices hovering at current levels. Capex guided to remain at similar levels as previous periods, though we believe it could turn out to be lower. Management guided that its capex is likely to remain at similar levels seen in the previous years, at c.S$500m or so. We believe management is assuming a status quo position – that its Singapore bus operations still requires continued capex with the transition to the Government Bus Contracting model given ongoing discussions. Valuation & Forecasts Upgrade to BUY, valuation looks more palatable on lower oil prices, stronger growth in FY16. CD’s share price has traded within a range in the past one year whilst we had a neutral recommendation since our downgrade on 12 Feb 2015 when CD’s price was S$3.14. At that time, we believed the market was getting ahead of itself with CD’s price rallying 23% in a month.

earnings projections. Our TP is based on the average of PE and DCF valuation. We based on DCF methodology to account for the stable nature of CD’s businesses, while PE takes into account any potential near term earnings fluctuations. Project current yield of 3.8%-4%. We are projecting a higher DPS going into FY16F/17F, assuming a higher payout ratio of 66%/ 68%, compared to 5-year average of 58%, given our forecasts of its stronger balance sheet and net cash position. We are currently assuming that on the Singapore bus assets, the authorities could take a progressive approach in acquiring the assets in tranches rather than all at once from the start of the bus contracting model. Hence, we are not assuming a huge influx of cash from the transfer of the bus assets to the authorities. Fuel and Electricity as % of revenue projected to drop as % of revenue

Projecting drop in oil price will result in fall in fuel & electricity costs as % of revenue

10.0% 8.3% 8.0%

7.3%

7.8%

7.7%

S$ m $350

8.1%

$300

7.3%

6.0%

$250 6.4% $200

4.0%

$150

5.4%

$100

We believe it is now time to review and “board” again. With the share price retreating by c.8%, while oil prices have slumped by c.20% YTD, we believe this bodes well for CD. Furthermore, we are projecting a stronger growth in FY16F of 15%, vis-à-vis historical average on the back of lower oil price, transition to bus contracting model and improvement in rail margins. TP raised to S$3.24, providing c.20% total return upside. Our TP is raised to S$3.24 as we roll forward our valuations to average of FY16F/17F earnings and with marginally higher

ASIAN INSIGHTS

2.0%

$50

0.0%

$0 2010

2011

2012

2013

2014

2015

2016F

2017F

Fuel and Electricity costs (S$m) [RHS] Fuel and Electricity as % of revenue [LHS]

Source: Company, DBS Bank estimates

VICKERS SECURITIES Page 32 Page 3

Company Guide ComfortDelgro

Quarterly / Interim Income Statement (S$m) 4Q2014

3Q2015

4Q2015

% chg yoy

% chg qoq

Revenue

1,047

1,048

1,063

1.5

1.5

Other Oper. (Exp)/Inc

(950)

(919)

(965)

1.6

5.1

Operating Profit

96.8

129

97.7

0.9

(24.3)

Other Non Opg (Exp)/Inc

2.90

4.60

3.10

6.9

(32.6)

Associates & JV Inc

2.20

0.40

2.50

13.6

525.0

Net Interest (Exp)/Inc

(4.6)

(4.8)

(4.4)

(4.3)

(8.3)

0.0

0.0

0.0

nm

nm

97.3

129

98.9

1.6

(23.5)

Tax

(19.8)

(26.1)

(17.2)

(13.1)

34.1

Minority Interest

(13.8)

(17.9)

(13.5)

(2.2)

(24.6)

Net Profit

63.7

85.2

68.2

7.1

(20.0)

Net profit bef Except.

63.7

85.2

68.2

7.1

(20.0)

EBITDA

193

233

206

6.9

(11.3)

Opg Profit Margins

9.2

12.3

9.2

Net Profit Margins

6.1

8.1

6.4

FY Dec

Exceptional Gain/(Loss) Pre-tax Profit

Margins (%)

Source of all data: Company, DBS Bank

ASIAN INSIGHTS Page 4

VICKERS SECURITIES Page 33

Company Guide ComfortDelgro SGP bus ridership growth (%)

CRITICAL DATA POINTS TO WATCH 3.45

Earnings Drivers: Bus operations in Singapore and overseas. Bus operations account for c.50% and c.37% of the group’s revenue and operating profit respectively. The major profit contribution from its bus operations comes from the United Kingdom followed by Australia. Within these areas of operations, the revenue and earnings drivers are based on tenders for routes, coupled with CD meeting the service requirements set forth by the authorities. Over in Singapore, the operators undertake revenue and costs risk, though this will change from 2H2016 with the transition to the Government Contracting Model.

3.2

3.02

2.81 2.5

2.5

2016F

2017F

2.59 2.16 1.73 1.30 0.86 0.43 0.00 2013A

2014A

2015A

SGP fare chg (%) 5.12

5.04

5.11 4.07

Taxis hired out and rental rates. Taxi operations account for about one-third the group’s operating profit, with Singapore operations accounting for the majority. It has a fleet of over 17,000 taxis in Singapore with a market share of 65%. The hired out and rental rates of taxis has a direct impact on profitability, while the cost of certificates of entitlement in Singapore would also have an impact on margins (impacting depreciation). In the immediate term, we do not expect significant impact from the private car booking apps, such as Uber or Grabcar, though over the longer run, the differential in rental rates of cars and taxis could prompt drivers to switch. This is an area that would need to be monitored going forward.

3.42

3.76

3.02 1.98 0.93 -0.11 -1.16

-1

-2.20 2013A

2014A

-2 2016F

2015A

Avg oil price (US$) 96.9

95

90

77.5

70

58.1 45

Oil prices. Fuel and electricity account for 8% of CD’s sales historically and a surge in oil price may impact margins. Management seeks to hedge its exposure to oil prices by entering into forward contracts, thus mitigating volatile fluctuations. We are projecting that fuel and electricity as percentage of revenue to dip to c.5% in FY16F on lower oil prices.

2017F

50

38.8 19.4 0.0 2013A

2014A

2015A

2016F

2017F

Chg in staff strength (%) 4.16

4.17

4

3.64

Overseas presence through acquisitions. Since 2003, revenue contribution from overseas has increased from 35% to 40% (as of end 2014), while operating profit contribution stands at 49% (from 26%) a decade ago. Management has indicated a target of further increasing overseas revenue contribution to 70%. This is likely to be achieved through organic growth (winning of tenders) and inorganic sources, such as bite-sized acquisitions. Earnings growth of 15%/6% for 16F/17F. CD’s growth has been stable, posting average CAGR of 7% in the past 4 years (2012 to 2015). We project earnings growth of 15%/6% for FY16F/17F driven by higher ridership, rental rates for its taxis, coupled with lower energy costs (on the back of lower oil prices). The higher rate of growth in FY16F is a result of upside from the expected transition to the bus contracting model coupled with lower energy prices.

3.11 2.58 2.06 1.53

1

1.01 0.48 -0.05 -0.57 -1.10 2013A

2014A

-1 2016F

2015A

-1 2017F

Operating Profit geographical split (FY15) Opg Profit FY15 - S$450.7m

Vietnam 0%

Malaysia 0%

Australia 14% China 11% United Kingdom/ Ireland 21%

Singapore 54%

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 34 Page 5

Company Guide ComfortDelgro

Balance Sheet: Low gearing provides opportunities for inorganic growth. The group’s balance sheet remains strong with gross debt to equity at <0.2x while net debt to equity hovers near zero. This provides the group with ample headroom for overseas acquisitions to supplement growth and further diversify its geographical exposure out of Singapore.

Leverage & Asset Turnover (x) 0.35

0.9 0.9

0.30

0.9 0.25

0.8 0.8

0.20

0.8 0.15

0.8 0.8

0.10

0.7 0.05

Capex to taper from FY16F. We expect capex requirements to taper from FY16F with a step down in its bus assets enhancement in Singapore, coupled with the potential divestment of buses to the authorities under the Government Contracting Model. This could provide a lift to available cash for acquisitions and/or higher dividend payout.

0.7 0.7

0.00 2013A

2014A

2015A

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure S$m 500.0 450.0 400.0 350.0

Share Price Drivers: Potential payout from Singapore bus contract model. With the new Government Bus Contracting model expected to be in place from 2H16, and that the government will take over the operating assets, there are general expectations that CD will see an inflow of cash from the disposal of the assets, amounting to c.S$800m. Should these be paid out to shareholders, it could provide an additional catalyst to share price. Acquisitions. CD has successfully diversified its operations outside of Singapore over the past decade through bite-sized acquisitions. Further accretive acquisitions to leverage on its strong balance sheet could provide further catalyst to share price.

300.0 250.0 200.0 150.0 100.0 50.0 0.0 2013A

2014A

2015A

2016F

2017F

Capital Expenditure (-)

ROE (%) 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0%

Key Risks: Oil price surge. Energy and fuel costs account for about 8% of CD's sales and a surge in oil price may impact margins and vice versa, though this is partially mitigated by its hedging policies. Regulatory risks. Lower-than-expected fare increase, and or changes in regulations to the operations, may impact our forecasts. Company Background ComfortDelGro Corporation Limited is a land transport services company. Its business includes bus, taxi, rail car rental and leasing, automotive engineering services, testing services, etc. Besides being a market leader for buses and taxis in Singapore, its business spans across other geographies such as UK, Australia, China, Vietnam and Malaysia.

0.0% 2013A

2014A

2015A

2016F

2017F

Forward PE Band (x) 24.0

(x)

22.0

+2sd: 21.4x

20.0

+1sd: 18.8x

18.0 16.0

Avg: 16.3x

14.0

‐1sd: 13.7x

12.0

‐2sd: 11.1x 10.0 Feb-12

Feb-13

Feb-14

Feb-15

PB Band (x) (x) 3.2

+2sd: 3.09x

2.7

+1sd: 2.65x

2.2

Avg: 2.21x

1.7

‐1sd: 1.77x ‐2sd: 1.34x

1.2 Feb-12

Feb-13

Feb-14

Feb-15

Source: Company, DBS Bank

ASIAN INSIGHTS Page 6

VICKERS SECURITIES Page 35

Company Guide ComfortDelgro

Key Assumptions FY Dec SGP bus ridership growth SGP fare chg (%) Avg oil price (US$) Chg in staff strength (%)

Segmental Breakdown FY Dec Revenues (S$m) Bus & Bus Station Rail Taxi Automotive Engn Others Total EBIT (S$m) Bus & Bus Station Rail Taxi Automotive Engn Others Total EBIT Margins (%) Bus & Bus Station Rail Taxi Automotive Engn Others Total Income Statement (S$m) FY Dec Revenue Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2013A

2014A

2015A

2016F

2017F

3.42 3.76 95.0 4.17

3.20 5.04 90.0 4.00

2.81 5.12 70.0 1.00

2.50 (2.0) 45.0 (1.0)

2.50 (1.0) 50.0 (1.0)

2013A

2014A

2015A

2016F

2017F

1,890 165 1,198 317 179 3,748

2,084 197 1,284 303 184 4,051

2,148 213 1,327 239 185 4,112

2,093 254 1,450 156 184 4,138

2,130 266 1,522 177 184 4,278

170 4.80 146 52.7 52.8 426

177 7.60 151 51.4 55.1 442

187 3.20 164 41.2 55.4 451

225 12.7 180 31.3 73.2 522

229 15.9 190 31.9 69.7 537

9.0 2.9 12.2 16.7 29.5 11.4

8.5 3.9 11.8 17.0 29.9 10.9

8.7 1.5 12.4 17.3 30.0 11.0

10.8 5.0 12.4 20.0 39.7 12.6

10.8 6.0 12.5 18.0 37.9 12.6

2013A

2014A

2015A

2016F

2017F

3,748 (3,321) 426 0.0 4.00 (16.0) 0.0 414 (87.0) (64.1) 0.0 263 263 768

4,051 (3,609) 442 0.0 4.30 (10.1) 0.0 436 (92.3) (60.5) 0.0 284 284 800

4,112 (3,661) 451 0.0 4.90 (3.4) 0.0 452 (88.4) (61.9) 0.0 302 302 845

4,138 (3,616) 522 0.0 5.39 1.03 0.0 529 (111) (70.2) 0.0 347 347 893

4,278 (3,741) 537 0.0 5.93 9.96 0.0 553 (111) (74.3) 0.0 368 368 913

5.7 3.9 3.4 5.7

8.1 4.2 3.7 7.7

1.5 5.6 1.9 6.5

0.6 5.7 15.9 15.1

3.4 2.3 2.8 5.9

11.4 7.0 12.6 5.3 8.2 56.5 26.6

10.9 7.0 13.1 5.5 8.2 62.2 43.8

11.0 7.3 13.3 5.8 8.6 63.8 132.6

12.6 8.4 14.4 6.6 9.7 65.0 NM

12.6 8.6 14.4 6.9 10.0 65.0 NM

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 36 Page 7

Company Guide ComfortDelgro

Quarterly / Interim Income Statement (S$m) FY Dec 4Q2014 1Q2015 Revenue Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

2Q2015

3Q2015

4Q2015

1,047 (950) 96.8 2.90 2.20 (4.6) 0.0 97.3 (19.8) (13.8) 63.7 63.7 193

964 (860) 103 3.00 1.50 (4.7) 0.0 103 (20.5) (14.8) 67.6 67.6 199

1,037 (916) 121 4.30 0.50 (4.5) 0.0 121 (24.6) (15.7) 80.9 80.9 222

1,048 (919) 129 4.60 0.40 (4.8) 0.0 129 (26.1) (17.9) 85.2 85.2 233

1,063 (965) 97.7 3.10 2.50 (4.4) 0.0 98.9 (17.2) (13.5) 68.2 68.2 206

0.9 (11.5) (21.9) (21.2)

(8.0) 3.3 6.5 6.1

7.6 11.2 17.3 19.7

1.0 4.9 6.7 5.3

1.5 (11.3) (24.3) (20.0)

100.0 9.2 6.1

100.0 10.7 7.0

100.0 11.7 7.8

100.0 12.3 8.1

100.0 9.2 6.4

Balance Sheet (S$m) FY Dec

2013A

2014A

2015A

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

2,777 6.20 1,061 836 70.6 120 214 5,085

2,895 8.00 1,088 826 72.3 120 221 5,231

2,909 10.2 1,017 788 75.1 140 277 5,216

2,844 15.6 1,017 930 75.2 148 277 5,307

2,694 21.5 1,017 1,110 77.8 153 277 5,350

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

218 665 179 590 638 2,155 640 5,085

243 837 178 494 640 2,190 649 5,231

126 833 177 432 635 2,335 678 5,216

100 796 239 300 635 2,490 748 5,307

100 823 239 100 635 2,632 822 5,350

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

(440) 27.7 12.8 79.4 7.9 0.8 1.2 0.9 CASH CASH 51.7 3.1

(601) 88.7 10.8 84.2 8.0 0.8 1.0 0.8 CASH CASH 63.9 3.1

(519) 229 11.5 93.2 8.2 0.8 1.1 0.8 CASH CASH 69.4 3.2

(535) 530 12.7 91.5 8.4 0.8 1.3 0.9 CASH CASH 75.0 3.5

(554) 910 12.8 87.6 8.3 0.8 1.4 1.1 CASH CASH 110.0 3.8

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Source: Company, DBS Bank

ASIAN INSIGHTS Page 8

VICKERS SECURITIES Page 37

Company Guide ComfortDelgro

Cash Flow Statement (S$m) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)

2013A

2014A

2015A

2016F

2017F

414 337 (78.1) (4.0) 5.80 22.3 698 (418) (130) 0.0 2.40 13.6 (532) (138) 120 35.2 (55.4) (38.3) 8.40 136 32.6 13.2

436 354 (83.1) (4.3) 23.8 (87.4) 639 (471) (28.7) (0.5) 3.00 12.5 (485) (165) (61.5) 22.6 41.7 (163) 3.40 (4.8) 28.8 7.86

452 389 (81.8) (4.9) (23.4) (131) 600 (388) (1.3) 0.0 2.90 14.1 (372) (183) (190) 17.7 85.4 (269) 2.80 (38.0) 29.1 9.93

529 365 (49.1) (5.4) (45.9) 0.0 793 (300) 0.0 0.0 0.0 0.0 (300) (193) (159) 0.0 0.0 (351) 0.0 142 39.2 23.1

553 370 (111) (5.9) 19.4 0.0 825 (220) 0.0 0.0 0.0 0.0 (220) (226) (200) 0.0 0.0 (426) 0.0 180 37.7 28.3

Source: Company, DBS Bank Target Price & Ratings History

3.37

S$

3.27 3.17

2

3.07

3

1 2.97

S.No.

Dat e

Closing Pric e

T arget Rat ing Price

1:

11 May 15

3.08

3.00

HOLD

2:

14 May 15

3.06

3.00

HOLD

3:

14 Aug 15

3.11

3.00

HOLD

4:

31 Aug 15

2.81

3.00

HOLD

5:

16 Nov 15

3.00

3.00

HOLD

5

2.87

4

2.77 2.67 2.57 Feb-15

Jun-15

Oct-15

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 38 Page 9

Company Guide ComfortDelgro

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a)

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.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 15 Feb 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

ASIAN INSIGHTS Page 10

VICKERS SECURITIES Page 39

Company Guide ComfortDelgro

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1.

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in ComfortDelgro recommended in this report as of 31 Jan 2016

2.

DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.

Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia

This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

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Indonesia

This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia

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

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.

Thailand

This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC rd Branch) having its office at PO Box 506538, 3 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.

ASIAN INSIGHTS

VICKERS SECURITIES Page 40Page 11

Company Guide ComfortDelgro

United States

This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

ASIAN INSIGHTS Page 12

VICKERS SECURITIES Page 41

Singapore Company Focus

Innovalues Ltd Refer to important disclosures at the end of this report

Bloomberg: IP SP | Reuters: INNV.SI

DBS Group Research. Equity

22 Feb 2016

BUY

Going big on sensors Initiate with BUY with 21% upside to TP of S$1.01; Beneficiary of automotive megatrend towards safety and eco-efficiency. Innovalues is a beneficiary of raising awareness and stricter regulatory standards on safety and emissions, as it is a key supplier to Sensata, a leading global producer of automotive sensors. As Innovalues taps into the underpenetrated Chinese automotive sensor market alongside Sensata, we project earnings to grow by 30% from S$23m in FY15 to S$30m in FY17F on 30% revenue growth (from S$114m in FY15 to S$148m in FY17) and modest improvement in margins.

(Initiating Coverage)

Last Traded Price: S$0.835 (STI : 2,660.65) Price Target : S$1.01 (21% upside) Potential Catalyst: Earnings delivery Analyst Paul YONG CFA +65 6682 3712 [email protected] Singapore Research Team

Beyond the automotive segment, the long-term multisector application potential of sensors also bodes well for Innovalues. Beyond automotives, the global smart sensor market is expected to grow at a 9.9% CAGR from c.US$80bn in 2013 to nearly US$154bn in 2020. Through partnerships with Sensata and TE Connectivity, leading producers of sensors, Innovalues also hopes to venture into the industrial segment, which could be the next leg of growth.

Price Relative S$

Relative Index

1.0 2561

0.9 0.8

2061

0.7 0.6

1561

0.5 1061

0.4 0.3

561

0.2 0.1 Feb-12

Feb-13

Innovalues Ltd (LHS)

Forecasts and Valuation FY Dec (S$m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth (%) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Consensus EPS (S cts): Other Broker Recs:

Feb-14

Feb-15

61 Feb-16

Relative FSTOG INDEX (RHS)

2014A 108 24.7 17.4 15.8 15.8 4.89 4.89 81 144 4.89 2.00 21.9 17.1 17.1 11.1 10.0 2.4 3.8 CASH 24.8

2015A 114 33.7 26.2 23.0 23.0 7.12 7.12 45 45 7.12 3.80 25.5 11.7 11.7 10.0 7.1 4.6 3.3 CASH 30.0

2016F 128 36.0 27.9 24.4 24.4 7.55 7.55 6 6 7.55 3.02 30.0 11.1 11.1 7.8 6.1 3.6 2.8 CASH 27.2

2017F 148 43.1 34.5 30.0 30.0 9.29 9.29 23 23 9.29 3.72 35.6 9.0 9.0 7.4 4.7 4.5 2.3 CASH 28.3

7.30 B: 3

8.10 S: 0

9.30 H: 0

ICB Industry : Industrials ICB Sector: Industrial Engineering Principal Business: Precision Components and Parts

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ed: TH / DT

Cost advantages and focus on operating efficiency and productivity improvements to drive earnings. Innovalues’ ability to customise machines and tools in-house enables the company to operate more efficiently than its peers. As its ongoing automation efforts are subsequently rolled out, we expect a boost to EBIT margins from 19% in FY15 to 22% in FY17F on enhanced productivity. Valuation: Our 12-month TP of S$1.01 offers potential upside of 21%. Our TP of S$1.01 for Innovalues is based on 12x blended FY16/17F PE, which implies a discount of 20% to peers' average PE of c.15x blended FY16/17F earnings. Its share price should re-rate as the Group ramps up on production and as earnings growth is delivered. Key Risks to Our View: Slowdown in global automotive sales could weigh on AU segment. As the automotive segment makes up a significant proportion of Innovalues’ business, a significant slowdown in the global auto market could weigh on the segment’s outlook. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Goh Leng Tse Ong Tiak Beng Koh Boon Hwee Free Float (%) 3m Avg. Daily Val (US$m)

325 272 / 193 21.3 9.6 6.8 51.5 0.36

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Company Focus Innovalues Ltd

SWOT Analysis Strengths  Long-standing manufacturing partner of leading automotive and office automation players.

Weakness  Demand for predictable.

 Proven track capabilities.

 Revenue from four key clients accounted for almost 70% of FY15 revenue.

record

and

superior

in-house

tooling

office

automation

products

is

 High barriers to entry due to capex requirements.

Opportunities  Greater demand for sensor content in vehicles.

Threats  Susceptibility to global economy and local policies.

 Multi-sector application potential of sensors.

 Slowdown in global auto sales.

 Potential for greater operational efficiency and productivity amidst ongoing automation efforts.

 Competition for skilled labour.

Source: DBS Bank

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Company Focus Innovalues Ltd

Company Background Long-standing manufacturer of customised precision parts to leading AU and OA players. Founded in 1997, Innovalues Limited initially specialised in the manufacture and assembly of customised precision machining parts, components, electronics and mechanical devices for the Office Automation (OA), Hard Disk Drives (HDD) and Automotive (AU) Industries.

forward, expansion will likely be focused on operations in Johor and Ayutthaya. Fig. 2: Manufacturing Facilities Geographical Presence Malaysia Innovalues Precision Sdn Bhd Facility 1- Pasir Gudang (AU) Facility 2 – Pasir Gudang (OA) Warehouse – Pasir Gudang (OA)* Innovalues Precision (Kluang) Sdn Bhd Facility 3A – Kluang (AU) Facility 3B – Kluang (OA) Innovalues Precision Microtech Sdn Bhd Facility 4 – Pasir Gudang (AU & OA) Thailand Innovalues Precision (Thailand) Ltd Facility 5 – Ayutthaya (AU)

However, following tough operating conditions and stiffening competition for the HDD sector, Innovalues gradually divested the segment from FY09 to focus on its primary OA and growing AU segments. Later in FY11, in anticipation of a poor outlook for the OA business, Innovalues undertook another strategic decision to reposition itself – redeploying existing machinery toward the growing AU business instead, which became the company’s key engine for growth. Between FY10 and FY15, the AU segment grew strongly at 16.2% CAGR, offsetting weakness in the legacy OA business, and driving overall net revenue growth at CAGR of 2.5% over the same period.

S$ m

20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2013A

2014A

Total Revenue

2015A

2016F

2017F

Revenue Growth (%) (YoY)

14,676 11,121 2,255 1,300 8,826 4,413 4,413 3,900 3,900 10,400 # 10,400

China Innovalues Auto Precision (Shanghai) Co., Ltd Facility 6 – Songjiang (AU) Innovalues Industry (Shanghai) Co., Ltd Facility 7 – Songjiang (AU)* Innovalues Technology (Shanghai) Co., Ltd Facility 8 – Songjiang (AU)

Fig. 1: Sales Trend 200 180 160 140 120 100 80 60 40 20 0

Area (sqm)

9,469 9,469 2,056 2,056 500 500

* In 3Q15, Innovalues completed the relocation of OA operations from Songjiang, Shanghai back to Pasir Gudang, Malaysia #

Total area of 36,800 m2, with built-up area of 10,400 m2

Source: Company, DBS Bank

Fig. 3: Revenue by Geography* (2015, %) Germany, Singapore, Others, 2.6% 0.5% Malaysia, 0.4% 5.7% Mexico, 6.5% Brazil, 0.2% Thailand, 6.7%

Source: Company, DBS Bank

Today, backed by almost two decades of experience, Innovalues not only manufactures precision components for the AU and OA sectors, but also provides complementary, surface treatment services such as Electroless Nickel plating and Zinc Phosphating, and remains a long-standing manufacturing partner to leading global AU and OA players such as Sensata, Hilite and HP, which in turn have major automobile manufacturers such as Mercedes-Benz and the Volkswagen Group as customers. Manufacturing facilities spanning c.50,000 sqm. Innovalues is headquartered in Singapore but operates manufacturing facilities in Johor (Malaysia), Ayutthaya (Thailand) and Song Jiang (China). Despite operating solely within Asia, the Group also delivers solutions to customers from other geographies, including the US, Brazil and Mexico. To better service OA client, HP, and to mitigate rising labour costs, Innovalues recently completed the shift of its OA operations out of China and back to Malaysia in 3Q15. Going

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USA, 18.3%

PRC, 59.1%

*based on customers’ location, not end-demand Source: Company, DBS Bank

Core business. Innovalues has two key product segments: (1) Automotive segment which manufactures precision automotive components that cater primarily to the areas of (a) Safety/Control, (2) Energy-saving, and (3) Environmental Protection.

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Company Focus Innovalues Ltd

These components include the micro-fused strain gage, engine and transmission valves, automotive pressure transducers, and cylinder pressure sensors.

These other industries supported by Innovalues include Oil & Gas, Home Appliances, and Infrastructure. Fig. 6: FY15 Revenue Breakdown by Segment (%)

Fig. 4: Automotive (AU) Products

Others 0.4% OA 21.0%

AU 78.7%

Source: Company, DBS Bank Source: Company

(2) Legacy office automation segment which focuses on the manufacture of rod carriages and printing rollers, as well as roller assemblies. Fig. 5: Office Automation (OA) Products OA Plotter / Wide Format Printer

OA Shafts and Roller Assemblies Rod Carriage Pins Printing rollers Photocopy rollers Label dispenser rollers Bearing assembly Rubber-toplastic tometal assembly

Source: Company

In addition, the Group also provides complementary, valueadded surface treatment services in Malaysia and China, which can enhance the physical properties of both the AU and OA component parts. However, Innovalues does not own a plating licence in Thailand. According to the company, due to environmental concerns and stringent regulations, only one other manufacturer (apart from Innovalues) is licensed to operate a surface treatment facility in Song Jiang. More favourable revenue mix. Innovalues’ revenue mix has changed significantly over the years, from an AU to OA ratio of about 0.8:1 in FY10 to almost 4:1 in FY15. Over the same period, revenue has also grown 18% from c.S$96m to c.S$114m in FY15. Meanwhile, the sale of component parts to other industries remained insignificant, at S$0.4m or 0.4% of FY15 revenues.

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Optimal utilisation for AU, but room for improvement for OA segment. In FY15, assuming a 7-day work week, Innovalues’ AU facilities were operating at an average utilisation rate of c.85% – which implies that the Group was essentially operating at full AU capacity. According to management, 85% is optimal as it provides the company with the flexibility to cater to spikes in near-term demand from key customers, when necessary. The utilisation rate for the OA segment was estimated to be between 30-40% for FY15, primarily due to Innovalues’ decision to move its OA operations back to Malaysia. Given the completion of the move in 3Q15, and the progressive ramp-up in production for HP’s new printer which was secured in FY15, we expect better utilisation of OA facilities in FY16 and beyond. Material lead time provides buffer and reduces risk when expanding AU capacity. Further, we think that with a 12month order book, the buffer between the lead time for procurement of raw materials and time required by the company to construct additional capacity provides Innovalues with better visibility and control over future expansion needs. Fig. 7: Buffer Reduces Uncertainty and Risk Estimated time to: Order delivery

12 months

Procure raw materials

7 – 8 months

Expand capacity

3 – 4 months

Source: Company

Three pillars of cost efficiency. Innovalues has historically been able to obtain favourable allocations from leading customers as it is among the lowest-cost producers of AU and OA precision parts. The Group has been increasingly cost efficient over the years, owing to: (1) Ability to customize machines, (2) In-house tooling capabilities, and (3) Provision of surface plating services

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Company Focus Innovalues Ltd

Customisation of machines and superior in-house tooling capabilities allows for more efficient operations vs peers... Innovalues procures standard machines from Japan, and works alongside the Japanese manufacturers to customise these machines according to their tooling needs. Although the cost tends to vary quite substantially with the size and requirements of the tool, the overall in-house tooling cost for customised machines is much cheaper - at approximately 1/3 that of off-the-shelf models (typically purchased by competitors in the US and EU). As a result, Innovalues’ average cost of investments in procuring and customising both basic machine and the more complex multi-spindle machines are only at a fraction of their average retail price of about US$600k and US$1.2m, respectively, when purchased off the shelf. Also, as Innovalues customise its tools in-house, it enjoys a longer tool life. On average, the Group is able to produce up to 15,000 pcs per tool as compared to 5,000 pcs when using a standard, off-the-shelf tool. ...coupled with the provision of complementary surface treatment services... Surface treatment services improve the hardness, wear-resistance and ability of component parts to withstand corrosion. As a complementary, value-added service, the provision of surface treatment services allows Innovalues to generate higher revenue per product, thus expanding gross margins. Although surface plating is only applied to 30% of Innovalues’ products currently, we expect better utilisation ahead as fears of the potential environmental impact from failure to treat toxic waste prior to air or water emissions, has led to the increasing reluctance of governments to award surface treatment licences. ...have led to a surge in gross margins. Leveraging on its three pillars of cost efficiency, depressed raw material prices, revenue growth, more favourable revenue mix, and provision of value-added services, Innovalues has successfully expanded its gross margins from 14% in FY10 to almost 31% in FY15. Fig. 8: Average Gross Margins of Segments Gross Margins

Segment Automotive

29 – 31%

Office Automation

26 – 28%

Source: Company, DBS Bank

Going forward, amidst ongoing cost management efforts, more aggressive expansion into the AU business and better utilisation of plating facilities, we expect the Group to comfortably maintain gross margins between 30-31%.

Cost Structure Raw materials and labour are key costs. Innovalues has a fairly stable cost structure, of which cost of sales form the majority (>85% in FY15). Raw materials, such as aluminium, stainless steel and brass, which made up c.30% of FY15 revenues, have traditionally been the largest cost component for Innovalues. As raw materials are procured from qualified, client-designated vendors, Innovalues has largely been able to pass on cost increases to customers, which helps to protect margins. Innovalues incurred additional lay-off costs in FY15 due to the relocation of OA operations from China (which has undergone a period of double-digit wage growth) back to Malaysia. With a more favourable labour-mix following the completion of the relocation in 3Q15, and better efficiencies from the expected completion of ongoing automation efforts in China and Thailand around 3Q16, we expect the Company’s labour cost component to decline to more stable levels of around 7.5% to 8.4% of sales from FY16 and beyond. Fig. 9: Breakdown of Costs (FY15, %) Administration Expenses 12.2%

Depreciation 7.4%

Raw Materials 37.1% Cost of Sales 85.6%

Utilities and Others 41.1%

Marketing and distribution Cost 2.2%

Source: Company, DBS Bank

Collaborative long-term relationships with major customers reduces marketing needs. Rather than to aggressively diversify its customer base, Innovalues has focused primarily on deepening existing relationships with long-standing AU and OA clients - expanding its manufacturing portfolio in the process, and have thus been able to keep marketing and distribution costs low. In FY15, distribution expenses made up less than 2% of the Company’s total sales. Net margin expansion helped by emphasis on efficiency. Innovalues takes a three-pronged approach to the maximisation of operational efficiency: (1) Enhancement of production processes (2) Continuous Control Improvement (3) Material Wastage Management

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Company Focus Innovalues Ltd

As a result of its ongoing efforts toward greater operational efficiency and productivity enhancements, Innovalues has drastically increased its output value per worker. Fig. 10: Increase in Output Value per Worker Productivity Metrics FY10 FY15 Improvement No. of workers

2,600

1,500

+42%

Production days per component

7

3

+57%

Output per worker

S$ Output per worker increased by 93%

Source: Company, DBS Bank

The greater cost savings arising from higher operational efficiencies and productivity gains among workers have resulted in a leaner and more efficient structure, as reflected by the EBIT and net profit margin of c.19.0% and 20.2% in FY15, up from c.1.8% and 1.3% respectively in FY10.

Management & Strategy Managed by founder. Close to 20 years after Innovalues was established, the founder – Mr Goh Leng Tse, remains actively involved in the business’s manufacturing operations. Under his leadership, together with the rest of the management team, the Group was able to navigate through challenging conditions such as the global financial crisis in 2008/09 and the severe flood in Thailand in 2011. Over the last decade, earnings have grown from S$10.1m in FY05 to S$23.0m in FY15, which represents a 10-year CAGR of 8.6%. Fig. 12: Delivering Earnings at 10-year CAGR of 9.3% (S$m) 35 30 25 20 15

Fig. 11: Expansion of Operating and Net Margins (to 2017F)

10 5

Decrease in earnings mainly due to the overall decline in the demand for products across all sectors caused by the global economic slowdown.

0

25% 20%

-5

15%

-10

10%

-15

Due to the Thailand flood, half of operations in Innovalues’ Thailand plant were halted. In addition, flood-related charges (i.e. impairments, write-offs and restorations) amounted to S$13.6m.

5%

Source: Company, DBS Bank

0% -5%

FY10

FY11

FY12

FY13

FY14

FY15

FY16F

FY17F

Dual strategy of both efficiency and growth. To ensure the stability of its earnings, Innovalues focuses on both top-line and bottom-line performance.

-10% -15% -20% Operating Margin

Net Margin

Source: Company, DBS Bank

With the machines for the OA segment being almost fully depreciated, and as more automation initiatives are gradually rolled out going forward, we expect resultant efficiencies to lift both operating and net margins to c. 22% and c. 20% respectively by FY17F. Net beneficiary of a stronger USD. Innovalues generates surplus in US$ as it receives more than 90% of its revenues in US$ while only c.30% of overall costs are incurred in US$. A stronger dollar against SGD would be positive for the Group’s earnings. All else constant, the strengthening of the US$ by 1% should lift net profit by c.1.8%. We’ve assumed lower positive forex going forward.

By maintaining consistent standards of manufacturing and delivery, the Group remains a reliable source of component parts to key clients, and has been able to progressively grow the size of its contribution to their overall needs. For instance, Innovalues benefitted from a key client’s decision in FY15 to shift procurement of parts away from a less-consistent, existing supplier in Mexico. The continuous enhancement of production processes and streamlining of cost structure over the years have also fed through to the bottom line, as net margins expanded from 9.5% in FY05 to 20.2% in FY15, and as earnings more than doubled over the last decade – outpacing sales growth. No dividend policy.... While Innovalues does not have a fixed dividend policy, dividend payouts have hovered around c.30% of free cash flows in previous years but rose to 60% in FY15 as net profits surged 45.5% over the year. At time of announcement, this represented a yield of c. 5%. Fig. 13: Historical Dividend Payouts (% of FCF) FY11 20%

FY12 28%

FY13 27%

FY14 33%

FY15 60%

Source: Company, DBS Bank

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Page 47

Company Focus Innovalues Ltd

Fig. 14: Key Management Team Name

Position

Company Tenure

Goh Leng Tse

CEO/ Chairman/ Founder

19 years

Profile   

Pung Tong Seng, Steven

Executive Director

15 years

  

Soo King Teng

Ho Beng Joo

Group Financial Controller/ Company Secretary

6 years

Senior Project Manager

14 years

  

  

Over two decades of experience in the precision turned-parts industry, and leads while taking a hands-on approach to the development of Innovalues’ business and manufacturing operations Chairman of the Board but also sits in the Audit Committee, Remuneration Committee and Nominating Committee Holds Diploma in Business Management from the Singapore Institute of Management Responsible for Innovalues’ marketing and business development functions Carries about 20 years of experience working with MNCs such as Micropolis (S) Ltd and Iomega Pacific Pte Ltd in the electronic and hard disk drive industries Holds an MSc in Total Quality Management from the Sheffield Hallam University Promoted to Group Financial Controller in 2011 and is responsible for overseeing the financial and accounting functions of the Group Has more than 15 years of accounting and finance experience across various industries Holds a professional accountancy qualification from the Association of Chartered Certified Accountants, UK and is a Chartered Accountant of the Institute of Singapore Chartered Accountants Responsible for the Group’s sales, engineering and quality control functions Has more than 30 years of experience in metal machining and quality control, including 20 years in the aerospace industry Holds a Diploma in Production Technology from German Singapore Institute

Source: Company

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Company Focus Innovalues Ltd

Industry Prospects Fig. 15: Cumulative Annual Growth (Decline) in Production of Passenger Vehicles (2010 – 2015F)

Source: International Organization of Motor Vehicle Manufacturers (OICA), World Bank, DBS Bank

Uneven distribution of growth across markets. Following the greater shift in production from developed to developing nations, and the varying conditions impacting consumption patterns across regions, the key automotive markets have and are experiencing uneven distributions of growth in both production and demand. For instance, the temporary purchase tax cut for vehicles (1.6 litre and smaller) implemented in China in October 2015 led to a c.18% surge in sales, while car sales in Russia were hit by the recession, plummeting c.45% over two years . Fig. 16: Est. Production and Sales in Key Markets Production of Passenger Vehicles Market

2015F

3yr CAGR

Global Share (%)*

+10.9%

31%

Production* China

21.2m

Europe

18.4m

+1.8%

27%

Japan

7.5m

-4.3%

11%

*estimated Sales of Passenger Vehicles Market

1H15 Sales

3yr CAGR

Global Share (%)*

China

10.1m

+9.9%

30%

Europe

8.5m

-0.4%

26%

US

3.8m

+0.9%

12%

*as at 1H15

Given the uneven regional sales growth, profitability of the auto industry should depend on broad global demand patterns – which we think should remain close to the aggregate level estimated for 2012 to 2015 of about 2.2% p.a. With future demand growth likely to be modest, manufacturers with wider geographical reach, such as Innovalues, are better positioned to compete in a global setting. Drivers of changing automotive trends. In recent years, the greater scrutiny of governments and regulators on the automotive sector, coupled with shifts in consumer behaviour, have transformed the priorities of auto manufacturers. Areas of increasing regulatory concern include the environmental compatibility and availability of safety-related features in motor vehicles. Meanwhile, the neutralising of differentiation among vehicles have shifted buying power to consumers, putting greater pressure on automakers to meet their demands for more high-tech and high-end features. Importance of environmental protection. The release of and increasing concentration of greenhouse gases have impacted both the environment and economy, and could result in more severe consequences if left unmanaged. The European Automobile Manufacturers’ Association (ACEA) estimates that every litre of petrol/gasoline or diesel used produces close to 2.3kg or 2.7kg of CO2 respectively.

Source: OICA, DBS Bank

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Company Focus Innovalues Ltd

Governments have thus been placing greater emphasis on the environmental impact of automotives, particularly fuel consumption and CO2 emissions, and have rolled out both incentives and penalties aimed at influencing buying decisions and usage patterns, which forces car manufacturers to offer more fuel-efficient cars. According to The Economist, regulators in the US are aiming for fuel-economy standards of 54.5 mpg by 2025, while regulators in China, Europe, India and Japan hope to reach standards of at least 55 mpg by 2020. Fig. 17: Increased Fuel Economy Standards for Environmental Protection

Control (ESC) systems – which uses multiple sensors to detect loss of steering control and automatically applies brakes to stabilise vehicles. According to the Insurance Institute for Highway Safety, this program has proven to be one of the most effective safety technologies, and could reduce fatal single-vehicle crash risk and fatal multiple-vehicle crash risk by 29% and 20% respectively. Following its adoption in the US, Europe and Korea have also mandated the use of ESC programs in all vehicles by 2014 and 2015 respectively. ESC penetration is low in China as it has yet to be mandated by the authorities, which could represent a substantial future opportunity for components manufacturers. Further, the regulatory impact from government scrutiny over safety and emissions, and increasing preference for telematics features have also led to the surge in demand for automotive sensors. The number of automotive sensors used in vehicles has been trending upwards due to: (1) Rising safety and emission standards and regulations

Source: International Council on Clean Transportation (ICCT)

Fig. 18: Increased Emission Standards for Environmental Protection

To ensure compliance to safety and emission standards, auto manufacturers have introduced additional safety features such as electronic stability control, occupant weight force sensing, and tyre pressure monitoring. Sensors, which facilitate communication between these applications and the vehicle or other external devices, have thus been playing an increasingly important role as more applications and electronic content are installed per vehicle. (2) Growing preference for telematics features A wide range of telematics features (supported by sensors) such as automatic crash notification, roadside assistance, automatic parallel parking, vehicle health diagnostics and vehicle locator have been increasingly introduced in newer vehicle models (especially higher-end varieties) as auto manufacturers seek to differentiate their products. The rising popularity of telematics and infotainment systems have thus also supported the growth of sensor content in automotives.

Source: International Council on Clean Transportation (ICCT)

No substitute for safety. In addition to their role in influencing fuel efficiency in automotives, governments have also been paying closer attention to in-vehicle safety. In 2015, vehicle recalls hit an all-time high of 51.2m vehicles (over 900 separate recalls) for the second consecutive year as regulators cracked down on safety defects. Governments are also increasingly mandating safety-related components. In 2011, the US mandated Electronic Stability

Page 9

Advent of the electric vehicle (EVs). While the market for electric vehicles is still at a relatively early stage, the International Energy Agency (IEA) estimates that there could be 20m on the road (or 2% of projected passenger cars) by 2020, from c.665,000 globally or <0.1% of total passenger cars in 2014, as governments invest in more sustainable and environmentally- friendly transportation systems. Due to the sophistication of EVs, as compared to traditional models which run on internal combustion engines, they are fitted with higher sensor content (by more than 50% on average) to ensure reliable performance. With more sensors installed in each successive generation of EVs, we think the outlook and market potential of these higher-tech vehicles bodes well for Innovalues in the long run.

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Company Focus Innovalues Ltd

Growth Prospects Fig. 20: Penetration Rate of Autos (Per 100 People) Greater regulatory scrutiny on safety and eco-efficiency in automotives. Tighter regulations for safety and emissions, especially post the Volkswagen emission scandal, should lift demand for eco-efficient automotive components. Drawing on the Group’s existing product portfolio (such as the Greener Automotive transmission / engine), engineering capabilities for quality automotive safety systems, and energysaving and environmental protection features, Innovalues is well positioned to harness the expected increase in demand for such automotive content to grow its AU segment. To support growth in its AU business, management has guided for capex (60% developmental, 40% maintenance) of S$5-6m in FY2016. However, we expect capex to increase slightly from FY2017 and beyond, as Innovalues gears up for the commercial production of newly qualified components. Growing samples with PO indicative of stronger production pipeline in 2016 and 2017 and beyond. We estimate that between 2010 and 2015, the number of samples with purchase orders (PO) grew at 20% CAGR to c.300 in 2015. As close to 70% of these samples (mostly AU components) should eventually move towards commercial production two to three years after sample submissions, we expect stronger growth in the AU segment from 2H16 onward. Fig. 19: Projected No. of Samples with PO (FY10-FY15)

90 80

78.6

70 57.5

60 50 40 30 20

6.9

10 0 North America

Europe

China

Source: Sensata, DBS Bank

(2) Higher expected adoption of sensor units Further, we estimate that current sensor content per vehicle in China is under US$10, as compared to c.US$40 per vehicle in North America and Europe. As consumer preferences mature, we believe that the growth in demand for more sensor-rich applications in China should gradually bring sensor content in Chinese vehicles up to current penetration levels observed in the West. Assuming no end-market growth in automotives in China, Sensata estimates that the following applications could grow between 3-13% CAGR ahead:

350

Fig. 21: Estimated Sensor Unit Growth

300 250

Applications include:

Projected CAGR

150

Gas Direct Injection

8%

100

Electronic Stability Control

4%

Dual Clutch

13%

Tyre Pressure Sensing

9%

Advanced Transmissions

3%

Advanced HVOR Operator Controls

12%

200

50 0 2010

2011

2012

2013

2014

2015

Source: Company, DBS Bank

Tapping on China’s growth. Innovalues has historically contributed close to 30% of some of Sensata’s component needs. In Feb 2016, Sensata identified China as a key driver of its growth, given: (1) Low penetration rate of automotives With a penetration rate of less than seven auto vehicles per 100 people in China vs 58-79 vehicles per 100 people in Europe and North America respectively, we think there is substantial headroom for the gap to narrow, helped by the cut in purchase tax, and rising affluence in smaller cities.

Page 10

Source: Sensata, DBS Bank

With growing exposure to this small but fast-growing market, as well as the potential arising from greater scrutiny over safety and eco-efficiency in automotives, we believe that Innovalues’ AU segment should grow between 13% to 18% p.a. from 2015 to 2017. Venturing beyond the auto market – industrial sensors. The key benefits smart sensors provide to vehicle operators, such as vehicle efficiency, safety and lower prices, have led to the rising adoption of sensors in automotives. Between 2013

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Company Focus Innovalues Ltd

and 2020, BCC Research estimates that the global sensor market, largely driven by demand for automotive sensors, will grow at a 9.9% CAGR from US$79.5bn in 2013 to nearly US$154.4bn in 2020. Beyond automotives however, Innovalues has been working alongside TE Connectivity, one of the largest connectivity and sensor companies, in the manufacture of industrial sensors. While current contribution from this segment is relatively insignificant at only c.0.4% of FY15 revenue, vast potential remains in the industrial segment, as it is estimated to represent more than 30% of the global sensor business. Fig. 22: Potential Areas of Focus for Industrial Sensor Business

Profile of Key Clients (1) Sensata Technologies

Segment: Est. Contribution to Innovalues’ AU Revenue:

AU 35-40%

(2) Hilite International

Segment: Est. Contribution to Innovalues’ AU Revenue:

AU 20-25%

(3) TE Connectivity (Including Measurement Specialties) Source: Company, DBS Bank

In the longer term, as one of Sensata’s main component suppliers, we think Innovalues could potentially benefit from Sensata’s recent acquisition of CST’s sensing portfolio – which provides growth and diversification opportunities for both Sensata and Innovalues outside of the automotivesensing segment. Given the multi-application potential of smart sensors beyond the automotive and industrial sector, to the medical, agricultural and aerospace industries, the sensing business presents untapped opportunities for Innovalues and widens its addressable market if it can successfully grow its range of sensors to cater to these new segments. Continuous focus on operational efficiency and productivity enhancement. Over the years, Innovalues has consistently invested in the enhancement of its operating efficiency. As part of its automation efforts, Innovalues expects to take receipt of a new batch of fully-automated machines in 2H15 for its Shanghai operations. If the Group successfully automates its operations in Shanghai, we think there could be further scope for reduction of headcount in China by c.20%. If it materialises, we expect operating margins to be lifted from 19% in FY15 to 22% in FY17 as the improved productivity should help mitigate the impact of potential wage hikes.

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Segment: Est. Contribution to Innovalues’ AU Revenue:

AU / Others 10-15%

(4) HP

Segment: Est. Contribution to Innovalues’ OA Revenue:

OA 60-65%

Source: Companies, DBS Bank

Page 52

Company Focus Innovalues Ltd

Key Risks Slowdown in automotive sales. As the auto segments makes up a significant proportion of Innovalues’ business (c.78% of FY15 revenue), a significant slowdown in global auto market could weigh on the business’ outlook. However, as Innovalues is likely to place greater emphasis on auto demand in China, in line with Sensata’s strategy for 2016 and beyond, we think that the company should benefit from favourable demand conditions, helped by favourable policies, and as the current penetration rate of autos remain low at less than seven per 100 people. Key client risk. Over the years, Innovalues has substantially grown the size of its AU portfolio alongside leading AU players such as Hilite, Sensata and TE Connectivity. As more than 70% of its AU revenues are from its three key AU clients, Innovalues remains susceptible to the business direction and performance of these key customers. Potential brain drain in manufacturing. As the automotive industry advances, industry players (including automotive components suppliers) will have to deliver continuous improvements and innovation to meet the future needs of the industry. While this may not be an immediate concern, the inability to appeal to and retain workers with cuttingedge electronic manufacturing and IT skills, especially with rising competition for talent from technological firms, could hamper Innovalues’ progress on the technological advancement and innovation front in the longer term.

Page 12

Page 53

Company Focus Innovalues Ltd

Sensitivity Analysis

Segmental Forecasts

2015

Expect weaker 1H16 for AU business... We think that the AU segment will likely be weaker in 1H16 as Innovalues works alongside a key client in the management of inventory, which had weighed on 4Q15 revenues but should recover from 2Q16 onwards. We project the AU segment to make up 79% and 80% of Group revenue in 2016 and 2017 respectively.

USD/SGD +/- 1% Wage rate +/- 1%

Net Profit +/- 1.8% Net Profit +/- 0.4%

...but expect stronger ramp-up in production from 2H16 and beyond. As Innovalues partners with Sensata to ride the growth potential in the fast-growing Chinese auto sensor market, and as the Company starts to ramp up production on samples approved in 2014 and 2015, we expect the AU business to deliver stronger growth from 2H16 and beyond. Innovalues is also in talks with HP to further ramp up production for the manufacture of rollers (project won in 2015) for its new printer. If it materialises, production volumes for this project will likely double in 2016. Assume slight decline in gross margins in 2016. As gross margins were partly bolstered to 30.7% in 2015 by positive forex movements, we expect a modest decline in gross margins in 2016 as we assume lower positive forex going forward. Key Assumptions FY Dec

2012

2013A

2014A

2015A

2016F

2017F

AU Revenue (S$ m)

61.5

76.3

87.8

89.5

101

119

OA Revenue (S$ m)

29.4

22.5

20.1

23.8

26.0

28.3

Operating Profit Margin (%)

2.63

7.10

15.2

19.0

20.4

22.0

Capital Expenditure (S$ m)

12.2

3.90

4.66

5.59

6.01

7.01

Tax Rate (%)

1.56

5.48

9.01

12.3

12.5

13.0

2012A

2013A

2014A

2015A

2016F

2017F

Segmental Breakdown FY Dec

As reinvestment allowances were fully utilised in 2013, we expect the effective tax rate to increase to 13% by 2017.

Revenues (S$m) Automotive (AU)

y-o-y growth Office Automation (OA)

y-o-y growth Others Total

61.5

76.3

87.8

89.5

101

119

--

24.0%

15.1%

1.9%

13.0%

18.0%

29.4

22.5

20.1

23.8

26.0

28.3

--

(23.5%)

(10.5%)

19.4%

9.0%

9.0%

0.92

0.56

0.55

0.41

0.49

0.59

91.8

99.3

108

114

128

148

9.84

14.9

23.7

27.7

31.3

37.6

19.9%

Expect stronger growth from 2H16 and beyond.

Gross Profit (S$m) Automotive (AU)

y-o-y growth

--

51.2%

59.3%

17.0%

13.0%

3.38

3.37

4.83

6.91

7.27

8.21

--

(0.2%)

43.3%

43.1%

5.2%

12.9%

0.44

0.27

0.31

0.21

0.26

0.30

13.7

18.5

28.8

34.9

38.9

46.1

Automotive (AU)

16.0

19.5

27.0

31.0

31.0

31.5

Office Automation (OA)

11.5

15.0

24.0

29.0

28.0

29.0

Others

48.4 14.9

48.6 18.6

55.7

52.0

52.0

50.0

26.6

30.7

30.5

31.1

Office Automation (OA)

y-o-y growth Others Total Gross Profit Margins (%)

Total

Source: Company, DBS Bank

Page 13

Page 54

Company Focus Innovalues Ltd

Margins Trend

Financials – Income Statement

24.0% 22.0% 20.0%

Expect modest margin improvement ahead. Innovalues achieved record margins (gross, operating and net) in FY15, helped by favourable exchange conditions, low raw material prices and ongoing drive towards operational efficiency. As the Group continues to focus on cost management and the enhancement of operating efficiency and productivity, we expect further operating margin expansion from 19.0% in FY15 to 22.0% in FY17F, and modest net margin improvement from 20.2% in FY15 to 20.3% in FY17F.

18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 2013A

2014A

Operating Margin %

2015A

2016F

Earnings to grow on stronger production pipeline and higher efficiency. We project Innovalues to achieve better sales growth as sample orders secured in 2014 and 2015 are progressively due to come on stream, and as the Group strengthens its partnership with Sensata to tap into growth opportunities in the lucrative Chinese sensing market. Together with projected efficiencies from the ongoing automation efforts, we expect earnings to grow by c.30.5% from FY15 to FY17F. Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit

2012A

2013A

2014A

2015A

2016F

2017F

91.8

99.3

108

114

128

148

(78.1)

(80.8)

(79.6)

(78.8)

(88.7)

(102)

13.7

18.5

28.8

34.9

38.9

46.1

(11.3)

(11.5)

(12.4)

(13.4)

(12.9)

(13.5)

Operating Profit

2.41

7.05

16.5

21.6

26.0

32.6

Other Non Opg (Exp)/Inc

1.59

0.66

1.27

4.83

2.00

2.00

0.0

0.0

0.0

0.0

0.0

0.0

Net Interest (Exp)/Inc

(1.0)

(0.8)

(0.4)

(0.2)

(0.1)

(0.1)

Exceptional Gain/(Loss)

12.6

2.25

0.0

0.0

0.0

0.0

Pre-tax Profit

15.6

9.18

17.4

26.2

27.9

34.5

Tax

(0.2)

(0.5)

(1.6)

(3.2)

(3.5)

(4.5)

Minority Interest

0.0

0.0

0.0

0.0

0.0

0.0

Preference Dividend

0.0

0.0

0.0

0.0

0.0

0.0

Net Profit

15.4

8.68

15.8

23.0

24.4

30.0

Net Profit before Except.

2.80

6.43

15.8

23.0

24.4

30.0

EBITDA

11.4

15.0

24.7

33.7

36.0

43.1

Other Opng (Exp)/Inc

Associates & JV Inc

Growth Revenue Gth (%)

4.6

8.2

9.2

4.8

12.2

16.2

EBITDA Gth (%)

11.8

31.5

64.7

36.3

6.6

20.0

Opg Profit Gth (%)

nm

192.5

133.4

31.0

20.5

25.5

Net Profit Gth (Pre-ex) (%)

nm

129.8

146.1

45.5

6.0

23.1

Margins & Ratio Gross Margins (%)

14.9

18.6

26.6

30.7

30.5

31.1

Opg Profit Margin (%)

2.6

7.1

15.2

19.0

20.4

22.0

Net Profit Margin (%)

16.7

8.7

14.6

20.2

19.1

20.3

ROAE (%)

33.2

15.9

24.8

30.0

27.2

28.3

ROA (%)

18.5

10.1

17.6

23.1

21.6

22.6

ROCE (%)

3.5

9.1

22.7

28.9

26.5

27.8

24.9 2.5

44.4

40.9

53.4

40.0

40.0

9.1

47.1

133.1

253.7

450.5

Div Payout Ratio (%) Net Interest Cover (x)

Source: Company, DBS Bank

Page 14

2017F

Net Income Margin %

Page 55

Company Focus Innovalues Ltd

Quarterly / Interim Income Statement (S$m) 3Q201 4Q2014 FY Dec Revenue Cost of Goods Sold

Revenue Trend 1Q2015

2Q2015

3Q2015

4Q2015

27.9

27.9

29.1

29.5

28.2

26.9

(19.4)

(19.4)

(20.1)

(20.7)

(20.2)

(17.8)

35

15%

30

10%

25

5%

20

0%

15

-5%

4.97

4.97

5.89

5.57

4.55

5.53

0

-20%

Other Non Opg (Exp)/Inc

1.04

1.04

0.48

1.03

3.13

0.21

0.0

0.0

0.0

0.0

0.0

0.0

(0.1)

(0.1)

(0.1)

(0.1)

0.0

0.0

Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss)

0.0

0.0

0.0

0.0

0.0

0.0

Pre-tax Profit

5.94

5.94

6.32

6.54

7.66

5.71

Tax

(0.5)

(0.5)

(0.8)

(0.6)

(1.0)

(0.9)

0.0

0.0

0.0

0.0

0.0

0.0

5.44

5.44

5.53

5.90

6.72

4.85

Net profit bef Except.

5.44

5.44

5.53

5.90

6.72

4.85

EBITDA

7.87

7.87

8.25

8.50

7.69

5.73

Revenue Gth (%)

8.3

(2.2)

4.4

1.5

(4.4)

(4.8)

EBITDA Gth (%)

16.5

20.2

4.9

3.0

(9.5)

(25.4)

Opg Profit Gth (%)

24.2

23.5

18.5

(5.5)

(18.2)

21.4

Net Profit Gth (Pre-ex) (%)

16.9

30.4

1.6

6.8

13.7

(27.7)

Gross Margins (%)

25.6

30.4

31.0

29.9

28.4

33.7

Opg Profit Margins (%)

14.1 14.6

17.8

20.2

18.9

16.1

20.6

19.5

19.0

20.0

23.8

18.1

Minority Interest Net Profit

Revenue

Revenue Growth % (QoQ)

Net profit fell y-o-y due to an exceptionally strong 4Q14 1Q and 4Q have traditionally been weak quarters, and as inventory held on behalf of a key client was pushed back.

Growth

Margins

Net Profit Margins (%)

Source: Company, DBS Bank

Page 15

4Q2015

-15%

Operating Profit

3Q2015

-10%

5

2Q2015

10

(3.5)

1Q2015

9.06

(3.5)

4Q2014

8.02

(3.3)

3Q2014

8.84

(3.1)

2Q2014

9.01

(3.5)

1Q2014

8.47

(3.5)

4Q2013

8.47

Other Oper. (Exp)/Inc

3Q2013

Gross Profit

Page 56

Company Focus Innovalues Ltd

Asset Breakdown

Financials – Balance Sheet

Debtors 25.3%

Net Fixed Assets 34.5%

Declining PPE as Group becomes increasingly efficient. PPE has been trending downwards from S$43.3m in FY12 to S$34.9m in FY15, mostly due to Innovalues’ increasing ability to customise inexpensive standardised machines inhouse, thus incurring lower capital expenditures as compared to annual depreciation charges. Healthy balance sheet. Innovalues’ net cash position has strengthened significantly from S$5.2m in FY12 to almost double y-o-y from S$13.9m in FY14 to S$30.7m in FY15. All else constant, our projections show that Innovalues should be able to fund management’s planned capital expenditures of S$6m in FY16 internally, and that cash balance will continue to rise. Balance Sheet (S$m) FY Dec Net Fixed Assets

2012A

2013A

2014A

2015A

2016F

2017F 31.4

43.3

39.6

38.0

34.9

33.0

Invts in Associates & JVs

0.0

0.0

0.0

0.0

0.0

0.0

Other LT Assets

0.0

0.33

0.38

0.38

0.38

0.38

Cash & ST Invts

14.3

13.4

24.6

32.5

51.5

68.8

Inventory

13.9

12.7

8.38

10.1

10.9

12.6

Debtors

15.8

17.9

23.9

25.6

26.2

30.5

0.0

0.0

0.0

0.0

0.0

0.0

Total Assets

87.3

83.9

95.3

103

122

144

ST Debt

1.54

1.15

1.18

1.02

1.02

1.02

Creditor

12.2

14.3

15.2

15.3

17.2

19.8

Other Current Liab

14.0

6.68

6.50

3.94

5.95

6.96

LT Debt

7.56

4.83

1.79

0.78

0.78

0.78

Other LT Liabilities

0.07

0.01

0.0

0.0

0.0

0.0

Shareholder’s Equity

52.0

56.9

70.7

82.4

97.1

115

Other Current Assets

Minority Interests

0.0

0.0

0.0

0.0

0.0

0.0

Total Cap. & Liab.

87.3

83.9

95.3

103

122

144

Non-Cash Wkg. Capital

3.52

9.63

10.6

16.4

14.0

16.3

Net Cash/(Debt)

5.17

7.39

21.7

30.7

49.7

67.0

Debtors Turn (avg days)

63.7

61.9

70.4

79.5

74.1

69.8

Creditors Turn (avg days)

60.9

65.8

74.2

78.0

73.5

72.1

Inventory Turn (avg days)

72.9

66.2

53.0

47.2

47.5

45.9

Asset Turnover (x)

1.1

1.2

1.2

1.1

1.1

1.1

Current Ratio (x)

1.6

2.0

2.5

3.4

3.7

4.0

Quick Ratio (x)

1.1

1.4

2.1

2.9

3.2

3.6

CASH

CASH

CASH

CASH

CASH

CASH

Net Debt/Equity ex MI (X)

CASH

CASH

CASH

CASH

CASH

CASH

Capex to Debt (%)

133.8

65.3

157.0

311.3

335.0

390.7

Net Debt/Equity (X)

Assocs'/JVs 0.0%

Bank, Cash and Liquid Assets 30.3%

Inventory 10.0%

Source: Company, DBS Bank

Page 16

Page 57

Company Focus Innovalues Ltd

Capital Expenditure

Financials – Cash Flow Statement

S$m 8.0 7.0

Operating cashflow of S$27m in FY15. Innovalues has consistently generated positive operating cashflow over the years. In FY15, the Group recorded operating cashflow of S$27m on improved financial performance – up 50% from S$18m in FY13. Dividend payout of 53.7% in FY15 but likely to be closer to 40% ahead. Supported by higher operating cashflows, the Group declared dividends of 3.8 Scts in FY15, up from 2.0 Scts a year ago. Based on share price of S$0.835 on the date of dividend announcement (18 Feb 2016), this represents a c.4.6% yield.

6.0 5.0 4.0 3.0 2.0 1.0 0.0 2013A

2014A

2015A

2016F

2017F

Capital Expenditure (-)

Despite expectations of a growing cash hoard, we think dividend payouts will likely be closer to normalised levels of c.40% ahead as Innovalues would likely prefer to retain financial flexibility in case of higher-than-expected capital expenditures, as it expects to benefit from new orders in the near-to-medium term following Sensata’s new acquisitions of Schrader and CST. Cash Flow Statement (S$m) 2012A FY Dec

2013A

2014A

2015A

2016F

2017F

Pre-Tax Profit

15.6

9.18

17.4

26.2

27.9

34.5

Dep. & Amort.

7.42

7.32

7.01

7.33

7.97

8.55

Tax Paid

(0.3)

(0.5)

(1.2)

(1.8)

(3.5)

(4.5)

0.0

0.0

0.0

0.0

0.0

0.0

Chg in Wkg.Cap.

(6.2)

(6.1)

(1.0)

(5.8)

2.42

(2.3)

Other Operating CF

9.09

8.12

2.11

1.11

0.0

0.0

Net Operating CF

25.6

18.0

24.3

27.0

34.8

36.3

Capital Exp.(net)

(12.2)

(3.9)

(4.7)

(5.6)

(6.0)

(7.0)

Other Invts.(net)

0.0

0.0

0.0

0.0

0.0

0.0

Invts in Assoc. & JV

0.0

0.0

0.0

0.0

0.0

0.0

Div from Assoc & JV

0.0

0.0

0.0

0.0

0.0

0.0

0.04

(0.3)

0.0

0.09

0.0

0.0

Assoc. & JV Inc/(loss)

Other Investing CF Net Investing CF

(12.1)

(4.2)

(4.7)

(5.5)

(6.0)

(7.0)

Div Paid

(1.9)

(3.8)

(3.9)

(8.5)

(9.8)

(12.0)

Chg in Gross Debt

(8.9)

(10.4)

(4.2)

(5.4)

0.0

0.0

0.25

0.29

0.36

0.0

0.0 0.0

(1.0)

(0.8)

(0.4)

(0.3)

0.0

0.0

(11.8)

(14.8)

(8.1)

(13.7)

(9.8)

(12.0)

0.0

0.0

0.0

0.0

0.0

0.0

1.63

(1.0)

11.5

7.81

19.0

17.3

Opg CFPS (S cts)

10.00

7.52

7.84

10.2

10.0

11.9

Free CFPS (S cts)

4.22

4.40

6.09

6.63

8.90

9.06

Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash

Expect dividends to be closer to normalised levels of c.40% ahead.

Source: Company, DBS Bank

Page 17

Page 58

Company Focus Innovalues Ltd

Valuation We initiate coverage with a BUY rating and 12-month target price of S$1.01. This is based on 12x blended CY16/17F PE, which represents a c.20% discount to larger peers’ (Venture Corp, NGK Insulators, TE Connectivity and Sensata) PE of 15x blended CY16/17F earnings. Fig. 23: Innovalues’ Average Discount to Larger Peers* (P/E)

of 12x PE. We believe this is reasonable given Innovalues’ higher 2-year EPS CAGR of 14.3% vs the peer group average of 7.5%. Fig. 24: Innovalues' Forward PE Band (x) 13 . 9

(x)

11 . 9

+ 2 s d :  1 1 .6 x

9. 9

60%

+ 1 s d :  8 .6 x

7. 9

50%

5. 9

40%

3. 9

30%

1. 9

A v g :  5 .7 x ‐1 s d :  2 .8 x

-0 . 1 F e b -1 2

20% 10%

F eb -1 3

Fe b - 1 4

F e b -1 5

Source: DBS Bank

0%

Fig. 24: Innovalues, PB Band (x) 4. 4

(x)

3. 9

*based on both internal/consensus estimates

3. 4

Source: Bloomberg, DBS Bank

2. 4

+ 2 s d :  3 . 6 2 x

2. 9

Innovalues has historically traded at a discount to its larger listed peers and its discount to its peers’ average has been trending downwards over the past 12 months, from above 40% in Feb 2015 to c.20% in Feb 2016. We believe this is because Innovalues has delivered faster earnings growth vs peers over the past year. In addition, Innovalues’ PEG ratio of 0.7 is the lowest among peers, which provides support for further upside.

+ 1 s d :  2 . 5 3 x

1. 9

Av g : 1 .4 4 x

1. 4 0. 9 0. 4 -0 . 1 F e b -1 2 -0 . 6

‐ 1 s d :  0 . 3 5 x F eb -1 3

Fe b - 1 4

F e b -1 5

Source: DBS Bank

Assuming a 20% discount due to its smaller market cap and scale, we believe that Innovalues should be valued at 12x FY16/17F PE, similar to its average historical valuation

Company Last Px V ENTURE CORP SGD 7.82 NGK INSULATORS J PY 2070.00 TE CONNECTIV ITY USD 57.61 SENSATA USD 34.60 A v erage INNOV ALUES

M k t Cap US$m 1,538 6,012 21,297 5,894

SGD 0.81

186

– – - PER – – Crnt F orw 12.4 11.6 12.4 11.5 14.1 12.7 19.0 16.7 14.5 13.1 10.7

8.7

EPS CA GR (CY 15- CY 17) 9% 9% 11% 1%

14%

PEG Rat io 1.3 1.4 1.3 17.7

0.7

Price- t o- Book Hist Crnt 1.2 1.2 1.7 1.6 2.6 2.7 4.7 3.1 2.6 2.1 n.a.

2.6

ROE 8.5% 12.1% 18.3% 25.9% 16.2%

Crnt Y ield 6.4% 1.8% 2.4% 0.0% 2.6%

26.8%

4.6%

Source: DBS Bank, Thomson Reuters

Page 18

Page 59

Company Focus Innovalues Ltd

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a)

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.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 22 Feb 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

Page 19

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Company Focus Innovalues Ltd

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Jan 2016 2.

DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.

Compensation for investment banking services: 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.

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Wong Ming Tek, Executive Director, ADBSR Singapore

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.

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This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC rd Branch) having its office at PO Box 506538, 3 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.

Page 20

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Company Focus Innovalues Ltd

United States

This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

Page 21

Page 62

Singapore Company Guide

Mapletree Logistics Trust Refer to important disclosures at the end of this report

| Bloomberg: MLT SP | Reuters: MAPL.SI

Version

DBS Group Research . Equity

26 Jan 2016

BUY

Treading Carefully

Last Traded Price: S$0.91 (STI STI : 2,582.64) Price Target : S$1.15 (26% upside)

Steady growth from acquisitions, maintain BUY. We maintain our BUY rating with a TP of S$1.15, based on DCF valuation. Recent acquisitions have placed the Trust back on a growth path, with more to follow. Yields are attractive at >7.0%, offering total returns of 23%.

Potential Catalyst: Catalyst: Acquisitions Where we differ: differ: We are more conservative in our estimates Analyst Derek Tan +65 6682 3716 [email protected] Mervin Song CFA +65 6682 3715 [email protected]

Acquisitions and developments to drive growth as rental outlook falters. We are positive on MLT’s rising acquisition growth momentum and strategy to optimise yields through strategic redevelopments to diversify its earnings base. Growth will come from a visible sponsor pipeline, which is currently under various stages of development. In addition, the completion of various AEIs will underpin medium-term growth for the Trust. These growth drivers are expected to more than compensate for the risk of falling rents and vacancy rates especially in S’pore given ongoing property conversions.

Price Relative S$

Relative Index

1.5 1.4

206

1.3

186

1.2

166

1.1

146

1.0

126

0.9

106

0.8 Jan-12

Jan-13

Jan-14

Mapletree Logistics Trust (LHS)

Forecasts and Valuation FY Mar (S$ m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)

Jan-15

86 Jan-16

Relative STI INDEX (RHS)

2014A 2014A 311 268 293 180 7.7 2 7.3 7 97.3 11.9 8.1 0.9 33.1 8.1

Distn. Inc Chng (%): Consensus DPU (S S cts): cts : Other Broker Recs:

2015A 2015A 330 277 241 185 6.4 (17) 7.5 2 102.6 14.3 8.3 0.9 34.1 6.4

2016F 2016F 340 294 182 185 7.4 15 7.5 0 102.5 12.4 8.2 0.9 38.6 7.2

2017F 2017F 359 312 189 192 7.7 4 7.8 4 102.4 11.9 8.5 0.9 39.5 7.5

B: 9

0 7.6 S: 0

0 7.7 H: 7

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ASIAN INSIGHTS ed: TH / sa: JC

Gearing is close to 40% but within management's comfortable range. Given ongoing capex obligations for redevelopment projects, we project gearing to stay at the c.40% level. This means that further acquisitions are likely to be partially funded from the issue of new equity, if opportunity arises. Valuation: We maintain our BUY rating with TP of S$1.15, based on DCF valuation. At its current price, MLT offers investors dividend yields of >8.0%.

Key Risks to Our View: Acquisitions ramp up faster than expected. A faster-thanprojected acquisition pace or a better-than-expected outlook for the Singapore warehouse market will translate into positive surprises to earnings estimates, and re-rate the stock higher. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Temasek Holdings (%) Columbia Wanger Asset Mgmt (%)Alliance Global Properties (%) Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust

2,484 2,260 / 1,580 44.4 6.4 5.7 59.3 2.3

VICKERS SECURITIES Page 63

Company Guide Mapletree Logistics Trust Net Property Income and Margins (%) S$ m

CRITICAL DATA POINTS TO WATCH Earnings Drivers: MLT beats our acquisition estimates for FY16F with new Australian foray. MLT continues to deliver on the acquisition growth front. The REIT has acquired six accretive properties in China, Singapore, Malaysia and Korea with projected NPI yields ranging from 6.5% to 8.4% in 2015, which will contribute positively come FY16. The REIT started FY16 strongly, delivering close to S$300m @ weighted average yield of 6.1% in acquisitions in Vietnam, Korea and most recently, Australia.

400 350

93.8%

300

91.8%

250

89.8%

200

87.8%

150

85.8%

100

83.8%

50

81.8%

0

79.8% 2013A

2014A

2015A

Net Property Income

2016F

2017F

Net Property Income Margin %

Net Property Income and Margins (%) 87%

77

86%

73

85%

71

84%

69 83%

67

Net Property Income

We are positive on MLT’s rising acquisition growth momentum which would diversify its earnings base while scaling up its presence in target growth markets in China, Korea and Australia which will compensate for the expected dip in rentals from its Singapore operations in the interim.

3Q2016

2Q2016

1Q2016

4Q2015

3Q2015

2Q2015

81%

1Q2015

63

4Q2014

82%

3Q2014

65

2Q2014

Its first foray in Australia is through a A$253m (S$261.5m) premium cold warehouse located in Eastern Creek, Sydney from BGAI Pty Ltd, a 50:50 JV between Brickworks Limited and Goodman Australia Industrial Fund. The property is acquired at an initial yield of 5.6% and leased on long-term tenure of 19 years to Coles Group Limited with rental escalations. Upside will come from a potential expansion of 7,000 sqm which we have yet to price in.

75

Net Property Income Margin %

Distribution Paid / Net Operating CF 1.1

(x)

1.0 0.9 0.8 0.7

Sizeable portfolio of assets to be injected from the sponsor in the longer term. term In addition, there is a sizeable and growing pipeline of development properties from the Sponsor, Mapletree Investments that is available for MLT to acquire in the medium term. Potential assets for acquisitions are mainly in the development stages across Asia, especially

0.6 0.5 0.4 0.3 2013A

2014A

2015A

2016F

2017F

Interest Cover (x)

in China, Japan, HK and Vietnam, where demand for logistics warehouses remains robust. China remains a key growth area, where the proliferation of e-commerce will drive demand for more logistic space.

(x) 10.00 9.00 8.00 7.00 6.00 5.00

Conversions of singlesingle-user facilities to multimulti-tenanted properties to limit growth. MLT's historical performance has been stable, complemented by a balance between positive rental reversions, stable portfolio occupancies and acquisitions. The REIT has a weighted average lease to expiry (WALE) of 4.5 years (by NLA), which offers strong income visibility for the trust. Looking ahead, MLT has 24%/21% of its revenues up for renewal in FY16/17F. A majority of the leases are from Singapore, of which we expect a number of warehouses that are leased to singleusers (SUA) to be converted into multi-tenanted properties (MTB). We expect acquisitions to somewhat compensate the risks in rising vacancies at its Singapore assets.

ASIAN INSIGHTS Page 2

4.00 3.00 2.00 1.00 0.00

2013A

2014A

2015A

2016F

2017F

Source: Company, DBS Bank

VICKERS SECURITIES Page 64

Company Guide Mapletree Logistics Trust

Balance Sheet: Gearing of c.39 c.39% 39% remains within management's comfortable range. With the latest acquisitions, investments into development projects, we project gearing to settle around the c.40% level. With a fairly optimised balance sheet, we believe that the manager might need to raise new equity if any acquisition opportunities arise in the medium term. WellWell-staggered debt maturity profile; interest costs remain stable. Interest rates remain stable at 2.1% and are expected to stay low given that a majority of its debts are in JPY/HKD and RMB, and as the rates there continue to fall. To hedge against currency volatility, the manager typically takes on localdenominated loans (pegged to maximum of asset values in each overseas market).

Aggregate Leverage (%) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2013A

2014A

2015A

2016F

2017F

ROE (%) 8.0% 7.0% 6.0% 5.0%

MLT has a long debt-to-maturity of 3.6 years in 4QFY14/15 and proactively renews its loans ahead of time. Over the next two financial years, only c.23% of its total debt will be rolled over, meaning that interest cost will remain stable.

4.0% 3.0% 2.0% 1.0% 0.0%

2013A

Share Price Drivers: Ability to drive growth through acquisitions. We remain optimistic on the ability of the Trust to drive growth through acquisitions. With its first foray into Australia, we see the Trust further deepening its exposure through strategic purchases over the medium term. The Manager is also looking to divest lowyielding assets in Singapore and Japan, and re-cycle the proceeds into higher-yielding assets.

2014A

2015A

2016F

2017F

Distribution Yield (%) (%) 9.6

8.6

+2sd: 8.5%

7.6

+1sd: 7.6% Avg: 6.8%

6.6

-1sd: 6% 5.6

-2sd: 5.1%

Key Risks: Rise in interest rates. The Manager has hedged a majority of its debt into fixed rates but is expected to see increased cost of funds when these loans are rolled over in the coming year.

4.6 2012

2013

2014

2015

2016

PB Band (x) 1.7

(x)

1.6

Company Background MapleTree Logistics is a real estate investment trust which invests in logistics warehouses in the Asia Pacific region. It currently owns warehouses in Singapore, Japan, China, South Korea, Vietnam and Hong Kong.

1.5 1.4

+2sd: 1.35x

1.3

+1sd: 1.25x

1.2

Avg: 1.14x

1.1

-1sd: 1.03x

1.0

-2sd: 0.93x

0.9 0.8 0.7 Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 65 Page 3

Company Guide Mapletree Logistics Trust

Income Statement (S$ m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales %) ROAE (%) ROA (%) ROCE (%) Int. Cover (x)

2013A 2013A

2014A 2014A

2015A 2015A

2016F 2016F

2017F 2017F

308 (40) 268 (37) 23 (38) 0 216 (14) (1) (19) 182 203 (36) 166

311 (43) 268 (18) 3 (29) 0 224 (17) (1) (19) 187 293 (113) 180

330 (53) 277 (24) (15) (32) 0 205 (29) (1) (19) 157 241 (56) 185

340 (47) 294 (43) 0 (37) 0 215 (14) 0 (19) 182 182 3 185

359 (47) 312 (42) 0 (46) 0 224 (16) 0 (19) 189 189 3 192

(9.4) (8.7) (11.6) 100.0 87.1 59.3 54.0

0.9 (0.2) 2.7 100.0 86.1 60.3 57.8

6.2 3.7 (16.2) 100.0 84.0 47.6 56.0

3.1 6.0 15.9 100.0 86.3 53.4 54.3

5.4 6.1 4.0 100.0 87.0 52.8 53.6

12.0

5.9

7.4

12.5

11.7

8.3 4.3 5.3 6.1

8.1 4.3 5.5 8.7

6.4 3.4 4.9 7.8

7.2 3.7 4.9 6.9

7.5 3.7 5.1 5.8

Driven by acquisitions

Source: Company, DBS Bank

ASIAN INSIGHTS Page 4

VICKERS SECURITIES Page 66

Company Guide Mapletree Logistics Trust

Quarterly / Interim Income Statement (S$ m) 3Q2015 4Q2015 FY Mar 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)

1Q2016 1Q2016

2Q2016 2Q2016

3Q2016 3Q2016

83 (13) 69 (2) (1) (8) 0 58 (3) 0 50 50 (4) 46

85 (14) 70 (9) (10) (9) 0 43 (20) 0 18 102 (56) 46

85 (14) 71 (7) 4 (9) 0 59 (4) 0 51 51 (5) 46

87 (15) 73 (19) (1) (10) 0 42 (4) 0 33 33 13 46

89 (15) 74 (13) 3 (12) 0 53 (6) 0 42 49 (3) 46

2 1 (2) 83.8 100.0

2 1 (64) 83.1 100.0

0 1 185 83.6 100.0

3 3 (35) 83.4 100.0

2 2 27 83.4 100.0

Balance Sheet (S$ m) FY Mar

2013A 2013A

2014A 2014A

2015A 2015A

2016F 2016F

2017F 2017F

Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

4,050 0 150 0 12 24 4,237

4,235 0 114 0 16 31 4,397

4,631 0 107 0 21 29 4,788

4,953 0 76 0 9 29 5,067

5,037 0 80 0 9 29 5,155

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities

289 159 12 1,145 50 2,576 6 4,237

149 140 11 1,307 59 2,726 6 4,397

57 164 24 1,575 80 2,882 6 4,788

57 113 34 1,897 80 2,879 6 5,067

57 120 36 1,981 80 2,876 6 5,155

Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)

(135) (1,283)

(103) (1,341)

(138) (1,525)

(110) (1,878)

(117) (1,958)

0.4 0.4 33.8 1.1

0.5 0.4 33.1 1.1

0.6 0.5 34.1 1.0

0.6 0.4 38.6 0.9

0.6 0.4 39.5 0.9

Gearing to remain fairly stable at 40%

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 67 Page 5

Company Guide Mapletree Logistics Trust

Cash Flow Statement (S$ m) FY Mar Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash

2013A 2013A

2014A 2014A

2015A 2015A

2016F 2016F

2017F 2017F

216 0 (3) 0 25 20 258 (197) 0 0 0 1 (197) (179) 132 0 (37) (85) (9) (33)

224 0 (3) 0 (25) 14 210 (101) 0 0 0 1 (100) (177) 74 0 (27) (130) 0 (21)

205 0 (4) 0 (1) 35 236 (247) 0 0 0 1 (246) (177) 207 0 (30) 0 3 (7)

215 0 (4) 0 (39) 0 173 (322) 0 0 0 0 (322) (185) 322 0 (19) 118 0 (31)

224 0 (14) 0 6 0 215 (84) 0 0 0 0 (84) (192) 84 0 (19) (128) 0 4

9.6 2.5

9.6 4.5

9.6 (0.5)

8.5 (6.0)

8.5 5.3

Operating CFPS (S cts) Free CFPS (S cts)

Capex for development projects

Source: Company, DBS Bank Target Price & Ratings History 1.31

S$

2

1.26 1.21

1 3

1.16

4

1.11 1.06

6

1.01

T arget Rat ing Pric e

S.No.

Dat e

Closing Price

1:

02 Apr 15

1.24

1.27

2:

22 Apr 15

1.26

1.29

HOLD

3:

26 May 15

1.20

1.29

HOLD

4:

02 J ul 15

1.13

1.31

BUY

5:

19 Aug 15

1.03

1.11

BUY

6:

20 Oct 15

1.02

1.15

BUY

7:

08 J an 16

0.99

1.15

BUY

HOLD

5

0.96

7

0.91 0.86 Jan-15

May-15

Sep-15

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

ASIAN INSIGHTS Page 6

VICKERS SECURITIES Page 68

Company Guide Mapletree Logistics Trust

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) (b)

such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 26 Jan 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

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VICKERS SECURITIES Page 69 Page 7

Company Guide Mapletree Logistics Trust

COMPANYCOMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in Mapletree Logistics Trust recommended in this report as of 31 Dec 2015 2.

DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.

Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION 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.

General

Australia

This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong

This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia

This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia

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

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.

Thailand Thailand

This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 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.

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VICKERS SECURITIES Page 70

Company Guide Mapletree Logistics Trust

United States

This report was prepared by DBS Bank Ltd.. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

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Singapore Company Guide

OCBC Version 4

Refer to important disclosures at the end of this report

| Bloomberg: OCBC SP | Reuters: OCBC.SI

DBS Group Research . Equity

17 Feb 2016

BUY

Balancing act

Last Traded Price: S$7.78 (STI : 2,613.79) Price Target : S$9.40 (21% upside) (Prev S$10.00)

A cautious 2016, but priced in; BUY. Focus in 2016 would likely hinge on controlling expenses and new originations to contain quality of its assets. Loan growth is expected to be at low single digits while NIM would likely stay flat. Higher credit costs are imputed given the vulnerability of its oil & gas exposure which currently stands at 6% of total loans. Current valuations appear to be unduly punitive on OCBC’s asset quality position, in our view. Maintain BUY. Solid non-interest income drivers to sustain earnings growth. Wealth management income may stay muted due to the uncertain market environment but long-term prospects of this business remain attractive. Insurance contribution could be volatile due to interest rate movements. As such, underlying growth in new business embedded value and total weighted sales should be the focus parameters for insurance, and these have been robust. Riding on its unappreciated Greater China franchise over the long term. While there are near-term uncertainties on Greater China growth prospects, we believe the market is still under appreciating the OCBC-WHB’s franchise over the longer term. With its enlarged Greater China presence, OCBC’s growth prospects in wealth management, retail & commercial banking and insurance are further enhanced. Active cross-selling for OCBC’s private banking and insurance businesses are key wins. Integration is still ongoing and on track.

Potential Catalyst: Keeping credit costs and NPLs better than peers Where we differ: Our earnings forecasts are slightly above consensus likely due to lower credit cost assumptions Analyst LIM Sue Lin +65 8332 6843 [email protected]

What’s New 

4Q/FY15 earnings were above consensus but in line with our forecasts



Total oil & gas exposure at 6% of total loans; bulk of new NPL formation were from this sector



Earnings trimmed on slower loan growth; flattish NIM and higher credit costs



TP trimmed to S$9.40 after earnings revision

Price Relative S$

Relative Index

11.7

207

10.7

187

9.7

167

Valuation: Our S$9.40 TP which implies 1.0x FY16F BV is derived from the Gordon Growth Model. The potential reach of its differentiated non-interest income franchise should support valuations. Current share price pressure pushing valuations close to GFC levels are unwarranted, in our view. Maintain BUY.

147 8.7 127 7.7 6.7 Feb-12

107

Feb-13

OCBC (LHS)

Forecasts and Valuation FY Dec (S$ m) Pre-prov. Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) PE Pre Ex. (X) Net DPS (S cts) Div Yield (%) ROAE Pre Ex. (%) ROAE (%) ROA (%) BV Per Share (S cts) P/Book Value (x)

Feb-14

Feb-15

87 Feb-16

Relative STI INDEX (RHS)

2014A 5,008 3,760 3,369 25.4 101 90.6 19 94.2 8.6 36.3 4.7 12.6 14.1 1.1 744 1.0

Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:

2015A 4,960 3,821 3,821 13.4 95.7 95.7 6 95.7 8.1 36.2 4.6 12.2 12.2 1.0 830 0.9

2016F 5,014 3,818 3,818 (0.1) 95.6 95.6 0 95.6 8.1 36.1 4.6 10.9 10.9 1.0 919 0.8

2017F 5,188 4,063 4,063 6.4 102 102 6 102 7.6 37.4 4.8 10.5 10.5 1.1 1,013 0.8

B: 18

(6) 93.0 S: 3

(7) 96.3 H: 4

Key Risks to Our View: A significant upset in asset quality. While we have assumed higher credit cost and NPL ratio in FY16F, a significant deterioration in asset quality related to the oil & gas and commodities segment could pose downside risk to earnings. Slower traction in wealth management business. As a growing income contributor, stricter regulatory requirements for private banking clients could slow growth. Additionally, weak and volatile markets could put customers on a risk-off mode, reducing investment activities. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Selat Pte Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Banks

4,114 32,008 / 22,768 10.7 79.9 38.8

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ASIAN INSIGHTS ed: TH / sa: AS

VICKERS SECURITIES Page 72

Company Guide OCBC

WHAT’S NEW Concerns on oil & gas exposure is key Highlights of 4Q/FY15 results Net profit for 4Q15 came in at S$960m (+6% q-o-q; +20% yo-y) bringing full-year 2015 earnings to S$3,903m (+13% y-oy; ex-one-off gain of S$391m in FY14) - 4% ABOVE consensus; in line with our forecasts. Net interest income was slightly higher q-o-q, thanks to higher NIM at 1.74% (+8bps q-o-q; +7bps y-o-y) as loans dipped by 1% q-o-q and was flat y-o-y. On a full-year basis, NIM stood at 1.67%, 1bp lower compared to a year ago. Higher loan yields, particularly in Singapore, was offset by lower returns from money market gapping activities. Deposits contracted by 2% q-o-q and was flat y-o-y. Overall loan-to-deposit ratio was stable at 85% with S$ loan-todeposit ratio rising to 91% (3Q15: 90%, 4Q14: 84%) while US$ loan-to-deposit ratio was at 68% (3Q15: 66%, 4Q14: 89%). CASA-to-total deposits rose to 49% from 45% a year ago. Separately, the S$ and all currency liquidity coverage ratio stood high at 253% and 124% respectively, way above minimum requirements. Non-interest income surged 24% q-o-q, 26% y-o-y on higher insurance income contribution partially offset by lower trading income and flat fee income. There was also higher net gain from disposal of properties in 4Q15. On a full-year basis, noninterest income (ex-one-off gains) grew 10% y-o-y on the back of higher fees from brokerage, fund management, credit cards and trading income but offset by lower insurance contribution due to unrealised mark-to-market losses in Great Eastern's bond investment portfolio. Note that there was a one-off gain of S$391m booked in FY14 for a re-measurement of OCBC's stake in Bank of Ningbo which became a 20% associate company on 30 Sep 2015. Expenses for the full year were higher mainly due to the full consolidation of OCBC Wing Hang. Cost-to-income ratio was just up marginally to 42% from 41% a year ago. Provisions were higher q-o-q from both specific and general allowances. Higher specific allowances were noted in Malaysia. NPL ratio stayed stable at 0.9% compared to the previous quarter but higher vs a year ago (FY14: 0.6%). Absolute NPLs rose to S$1.97bn in FY15 (FY14: S$1.28bn) largely arising from the classification of a few large corporate accounts associated with the oil & gas services sector. Separately, loan loss coverage stood at 120%, relatively stable q-o-q but lower compared to a year ago (4Q14: 171%). Capital ratios stood strong and were higher q-o-q and y-o-y with fully loaded CET1, Tier-1 and Total CAR at 11.8%, 14.8% and 16.8% respectively (FY14: 10.6%, 13.8% and 15.9%). Risk-weighted assets hardly grew. Separately, leverage ratio rose to 8% from 7.6% a quarter ago, way above the minimum 3% requirement.

ASIAN INSIGHTS Page 2

Final DPS of 18 Scts was declared, bringing full-year DPS to 36 Scts. Scrip dividend remains applicable with shares issued at a 10% discount to the average daily volume weighted average prices between 26-28 April (26 April is the ex-date). Key notes on OCBC's subsidiaries: - Great Eastern reported its full-year results yesterday with lower net profit due to unrealised mark-to-market losses from its bond investment portfolio. Total weighted new sales was 8% higher y-o-y while new business embedded value was 3% higher y-o-y. Great Eastern's net profit contributed to 16% of OCBCs earnings. - OCBC Malaysia saw a 6% increase in earnings in FY15, driven mainly by its Islamic banking business and higher noninterest income. NIM was stable q-o-q but fell y-o-y while loans grew 9% y-o-y, flat q-o-q. Provisions were stable while NPL ratio rose marginally to 2.1% from 2.0%. - OCBC NISP (Indonesian subsidiary) achieved a record net profit which was 13% higher y-o-y, driven by higher revenues but was partially offset by higher provisions. Loans grew 26% y-o-y while NPL ratio stayed stable at 1.3%. Deposits grew 20% y-o-y driven by CASA. NIM rose significantly q-o-q. - OCBC Wing Hang reported its first full consolidated earnings with the group in FY15. Integration is on track. With OCBC Wing Hang, the group's Greater China pre-tax profit contribution rose to 20% from 12%. Notably, NIM stayed stable and NPL ratio stayed stable and low at 0.4%. - Bank of Singapore's assets under management rose by 7% yo-y to US$55bn/S$77bn. Correspondingly, the group's wealth management income rose 6% y-o-y and made up 27% of total income. Key takeaways from the analyst briefing Details on oil & gas exposure. Exposure to the oil & gas segment amounts to S$12.4bn (6% of total loans). This compares to S$13.8bn a year ago. The exposure includes a broad range from downstream, midstream and upstream and also encompasses all oil & gas support services. Of the S$12.4bn, 47%/c.S$6bn relates to the offshore supply services (e.g. vessels, rigs, tug/lift boats), and within this, 14%/c.S$800m) have been classified as NPL. New NPL formation over the year was largely from this segment. NPL ratio from the oil & gas segment is 0.39% (vs total NPL ratio of 0.9% in FY15). Stresses in this segment are possible so long as oil prices remain under pressure. Sufficient specific provisions have already been made for FY15. Management did not provide any guidance on the proportion of this segment which could potentially default but instead articulated the process of containing the stress. Potentially stressed accounts will be brought up for renegotiation of terms and whether the facility needs to be restructured. Once the account is restructured, it will be classified as NPL. If there is further deterioration in the account, additional specific provisions will be required. We understand that the oil & gas-

VICKERS SECURITIES Page 73

Company Guide OCBC

related accounts have been stress-tested for oil price at US$20 per barrel.

only adds S$2bn to its risk-weighted assets, hence there was limited impact to its capital ratios.

Commodities exposure performing well. While there was not much emphasis on the exposure to commodities, management stated that the NPL ratio for the commodities segment is only 0.03% and these are from downstream traders which are middle market companies.

FY16 will be a challenging year. Management guided for a challenging year ahead with loan growth at low single digits and NIM to only be slightly better from the FY15 level of 1.67%. No credit cost guidance was provided but we expect it to be higher than that booked in FY15. We have imputed 25bps credit cost (vs its 10-year average of 20bps) in our assumptions for FY16F. Taking into account the slower loan growth, flattish NIM and higher credit costs, our FY16-17F earnings are trimmed by 6-7%.

China exposure explained. Total Greater China customer loans amounted to S$56bn in FY15, but only S$6bn was related to China onshore business (FY14: S$8bn). Of the S$6bn, S$3bn is from OCBC China which are large corporate and SOE loans, while the other S$3bn is from OCBC Wing Hang in China, of which 65% of it are residential mortgages by Hong Kong-ers while the remaining portion are commercial and SME loans. The unsecured SME loans are only at 1% of OCBC Wing Hang’s loans and the exposure is reducing. Treatment for MAS’s clarification on the definition of loan commitment effective 31 Dec 2015 for OCBC. Unlike UOB, OCBC stated that the recognition of undrawn credit facilities

Quarterly / Interim Income Statement (S$m) FY Dec 4Q2014 3Q2015

Valuation and recommendation Maintain BUY, TP lowered to S$9.40. Following our earnings revision, our TP is trimmed to S$9.40 from S$10.00 based on the Gordon Growth Model (11% ROE, 4% growth, 11% cost of equity). The potential reach of its differentiated non-interest income franchise should support valuations. Current share price pressure pushing valuations close to GFC levels are unwarranted in our view. Maintain BUY.

4Q2015

% chg yoy

% chg qoq

FY2014

FY2015

% chg yoy

Net Interest Income Non-Interest Income

1,277 762

1,317 775

1,341 960

5.0 26.0

1.8 23.9

4,736 3,604

5,189 3,533

Operating Income Operating Expenses

2,039 (954)

2,092 (925)

2,301 (999)

12.8 4.7

10.0 8.0

8,340 (3,332)

8,722 (3,762)

Pre-Provision Profit Provisions Associates

1,085 (154) 64.0

1,167 (150) 99.0

1,302 (193) 63.0

20.0 25.3 (1.6)

11.6 28.7 (36.4)

5,008 (357) 112

4,960 (488) 353

Pretax Profit Taxation Minority Interests

995 (146) (58.0)

1,116 (181) (33.0)

1,172 (160) (52.0)

17.8 9.6 (10.3)

5.0 11.6 57.6

4,763 (687) (234)

4,825 (717) (205)

Net Profit One-off item

791 -

902 -

960 -

21.4 -

6.4 -

3,842 391

3,903 -

Net Profit (ex-one-offs)

791

902

960

21.4

6.4

3,451

3,903

9.6 (2.0) 4.6 12.9 (1.0) 36.7 215.2 (6.4) 4.4 (12.4) (1.6) nm 13.1

169 44 74 35

48 72 73 27

180 75 73 38

6.5 70.5 (1.4) 8.6

>100 4.2 40.7

719 81 333 120

639 307 306 129

(11.1) 279.0 (8.1) 7.5

2.5 (35.8)

2.7 (13.9)

1.8 6.4

22.0 13.5

9.6 13.1

1.67 0.6 84.5 46.8 15.9

1.66 0.9 83.5 44.2 16.6

1.74 0.9 0.0 43.4 0.0

1.68 0.6 84.5 41.0 15.9

1.67 0.9 84.5 42.0 16.8

Net profit contribution of b idiEastern i Great OCBC Wing Hang OCBC Malaysia OCBC NISP Growth (%) Net Interest Income Gth Net Profit Gth Key ratio (%) NIM NPL ratio Loan-to deposit Cost-to-income Total CAR

Source of all data: Company, DBS Bank

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VICKERS SECURITIES Page 74 Page 3

Company Guide OCBC Margin Trends

CRITICAL DATA POINTS TO WATCH

S$ m

5,000

Earnings Drivers: NIM will be flattish going forward. Sentiments on further rate hikes have eased and as such, the quantum of loan yield increases seen in 4Q15 would unlikely be repeated. OCBC should stand out better than UOB by virtue of its higher CASA and lower S$ loan-to-deposit ratio. Funding cost pressures may be felt along the way. Muted loan growth expected. Loan demand remains weak and 2016 loan growth could stay at low single digits. OCBC believes that in an uncertain market environment, new originations should be carefully watched to contain the quality of its overall portfolio. Loan growth might be compromised but not at the expense of defaults.

1.8%

4,000

1.8%

3,000

1.7%

2,000

1.7%

1,000

1.6%

0

1.6% 2013A

2014A

2015A

Net Interest Income

2016F

2017F

Net Interest Income Margin

Gross Loan& Growth S$ m

30% 200,000

25%

150,000

20% 15%

100,000

10%

Non-interest income drivers remain its key differentiator. OCBC differentiates itself from peers when looking at its non-interest income composition. Its focus to grow its non-interest income franchise, especially its wealth management business, is aimed at buffering potential moderation in net interest income due to sluggish loan growth. Its insurance business, 87%-owned subsidiary, Great Eastern Holdings, remains a dominant part of its non-interest income. OCBC has no plans to sell its stake in Great Eastern as it remains complementary to its non-interest income franchise. Management believes it is still logical and beneficial to keep the insurance product manufacturing inhouse. Since the acquisition of Bank of Singapore in 2010, we have seen its wealth management income growing steadily; this trend is expected to be sustainable. Minimal cost pressures. Expenses should remain stable with the bulk of integration issues set aside. Ongoing initiatives for digital banking could be a cost factor. In ASEAN, the Singapore banks are the most prepared for the digital banking phase. We note that OCBC has several key product differentiators vs peers and its regional digitisation plans are picking up speed.

50,000

5%

0

0% 2013A

2014A

Gross Loan (LHS)

2015A

2016F

2017F

Gross Loan Growth (%) (YoY) (RHS)

Customer Deposit & Growth S$ m

30% 250,000 25% 200,000

20%

150,000

15%

100,000

10%

50,000

5%

0

0% 2013A

2014A

2015A

2016F

2017F

Customer Deposits (LHS) Customer Deposits Growth (%) (YoY) (RHS)

Loan-to-Deposit Ratio Trend 291,069

93%

271,069 88%

251,069 231,069

83%

211,069

Regionalisation is a key item on its agenda. Malaysia remains OCBC’s second largest contributor but will likely face funding cost pressures which are intensely faced by its Malaysian banking peers. Despite a challenging year, OCBC Malaysia posted decent earnings traction. Its business proposition in Malaysia has a track record of over 80 years and its added advantage lies in its Islamic banking franchise. Management feels bullish for its operations in Indonesia. While still a small contributor, opportunities are aplenty for further growth. Greater China would be the shining star with Wing Hang Bank. Integration is still ongoing. We see the wealth management line as the key initial indicator to watch for synergies in the coming quarters. Integration of its China business is still being finalised.

191,069

78%

171,069 151,069

73% 2013A Loans

2014A Deposit

2015A

2016F

2017F

Loan-to-Deposit Ratio (RHS)

Cost & Income Structure 12,000

0.48

10,000

0.46

8,000

0.44

6,000

0.42

4,000

0.4

2,000

0.38

0

0.36 2013A

2014A

Net Interest Income

2015A

2016F

Non-interest Income

2017F

Cost-to-income Ratio

Source: Company, DBS Bank

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VICKERS SECURITIES Page 75

Company Guide OCBC

Balance Sheet: Asset quality on watch. OCBC’s NPL ratio has held up well vs peers despite increases noted in the past year. Its credit cost has also been lower compared to peers. Despite concerns of an unsustainably low credit cost level, OCBC has successfully weathered through the storm as seen during several crisis phases over the past 10 years. That said, at such a low base, it would not be surprising to see credit cost normalise in coming years. OCBC’s oil & gas exposures were at 6% of total loans. There is risk to its oil & gas exposure depending on oil price trends but its commodity portfolio remains healthy.

Asset Quality 2.0%

1.5%

1.0%

0.5%

0.0% 2013A

2014A

2015A

NPL Ratio

2016F

2017F

Provision Charge-Off Rate

Capitalisation (%)

Capital ratios to remain stable. We believe OCBC will continue with its scrip dividend policy to shore up capital. Separately, while there are still some non-core assets the bank can divest, these are not large and not an immediate priority. There has been a continuous debate on whether OCBC should divest its insurance business, Great Eastern Holdings, as it is perceived to be capital punitive once Basel III is fully enforced. But we think that without majority control of the business, integrating it as part and parcel of its wealth management offerings would be challenging.

18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 2013A

2014A

2015A

Tier-1 CAR

2016F

2017F

Total CAR

ROE (%) 14.0%

Share Price Drivers: Ability to contain asset quality would be a key catalyst for the stock. We believe market will continue to watch OCBC’s asset quality indicators closely. New NPLs in 2015 largely arose from the oil & gas sector and risks prevail. Successful credit costs and NPL containment should prove that current valuations are undemanding. OCBC currently trades at GFC P/BV multiples which we believe is unwarranted.

12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2013A

Key Risks: Slower traction in wealth management business. As a growing income contributor, stricter regulatory requirements for private banking clients could slow growth. Additionally, weak and volatile markets could cause risk-averse customers to reduce investment activities.

2014A

2015A

Company Background The OCBC Bank group of businesses comprises a family of companies owned by Singapore's longest-established local bank. Its banking business franchise includes OCBC Bank, Bank OCBC NISP and Bank of Singapore, with branches in over 15 countries. OCBC has strategic stakes in other financial service businesses operating under independent brands such as Great Eastern, Bank of Singapore and Lion Global Investors.

2017F

Forward PE Band (x) (x) 13.9 12.9

+2sd: 13.1x

11.9

+1sd: 12x Avg: 11x

10.9

Significant asset quality upset. While we have assumed higher credit cost and NPL ratio in FY16F, a significant deterioration in asset quality especially that related to the oil & gas and commodities segments could pose downside risk to earnings.

2016F

9.9

‐1sd: 9.9x

8.9

‐2sd: 8.8x

7.9 6.9 Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

PB Band (x) (x) 1.7

+2sd: 1.61x 1.5

+1sd: 1.48x Avg: 1.35x

1.3

‐1sd: 1.22x 1.1

‐2sd: 1.09x

0.9

0.7 Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 76 Page 5

Company Guide OCBC

Key Assumptions FY Dec

2013A

2014A

2015A

2016F

2017F

Gross Loans Growth Customer Deposits Growth Yld. On Earnings Assets Avg Cost Of Funds

17.7 18.7 2.6 1.0

23.7 25.3 2.7 1.1

0.4 0.3 2.7 1.1

2.3 5.0 2.7 1.1

3.1 5.0 2.7 1.1

Income Statement (S$ m) FY Dec

2013A

2014A

2015A

2016F

2017F

3,883 2,738 6,621 (2,842) 3,779 (266) 54 0 3,567 (597) (202) (82) 2,686 2,686

4,736 3,604 8,340 (3,332) 5,008 (357) 112 0 4,763 (687) (234) (82) 3,760 3,369

5,189 3,533 8,722 (3,762) 4,960 (488) 353 0 4,825 (717) (205) (82) 3,821 3,821

5,302 3,812 9,114 (4,100) 5,014 (519) 355 0 4,850 (744) (206) (82) 3,818 3,818

5,567 4,119 9,686 (4,498) 5,188 (437) 375 0 5,126 (762) (218) (82) 4,063 4,063

3.6 (1.2)

22.0 25.4

9.6 13.4

2.2 (0.1)

5.0 6.4

1.6 1.6 42.9

1.6 1.7 40.0

1.6 1.7 43.1

1.6 1.7 45.0

1.6 1.7 46.4

58.6 41.4 20.5 20.9

56.8 43.2 17.9 25.3

59.5 40.5 18.8 21.7

58.2 41.8 19.4 22.4

57.5 42.5 19.9 22.6

11.5 11.5 0.9 0.9

12.6 14.1 1.1 1.1

12.2 12.2 1.0 1.0

10.9 10.9 1.0 1.0

10.5 10.5 1.1 1.1

Net Interest Income Non-Interest Income Operating Income Operating Expenses Pre-provision Profit Provisions Associates Exceptionals Pre-tax Profit Taxation Minority Interests Preference Dividend Net Profit Net Profit before Except. Growth (%) Net Interest Income Gth Net Profit Gth bef Except Margins, Costs & Efficiency (%) Spread Net Interest Margin Cost-to-Income Ratio Business Mix (%) Net Int. Inc / Opg Inc. Non-Int. Inc / Opg inc. Fee Inc / Opg Income Oth Non-Int Inc/Opg Inc Profitability (%) ROAE Pre Ex. ROAE ROA Pre Ex. ROA

Expect credit cost to escalate in FY16 on uncertain market outlook especially in the oil & gas segment

NIM to likely stay flattish from here

Source: Company, DBS Bank

ASIAN INSIGHTS Page 6

VICKERS SECURITIES Page 77

Company Guide OCBC

Quarterly / Interim Income Statement (S$ m) FY Dec 4Q2014 1Q2015

2Q2015

3Q2015

4Q2015

Net Interest Income Non-Interest Income Operating Income Operating Expenses Pre-Provision Profit Provisions Associates Exceptionals Pretax Profit Taxation Minority Interests Net Profit

1,277 762 2,039 (954) 1,085 (154) 64 0 995 (146) (58) 791

1,249 859 2,108 (897) 1,211 (64) 89 0 1,236 (185) (58) 993

1,282 939 2,221 (942) 1,279 (80) 102 0 1,301 (191) (62) 1,048

1,317 775 2,092 (925) 1,167 (150) 99 0 1,116 (181) (33) 902

1,341 960 2,301

Growth (%) Net Interest Income Gth Net Profit Gth

2.5 (35.8)

(2.2) 25.5

2.6 5.5

2.7 (13.9)

1.8 6.4

2013A

2014A

2015A

2016F

2017F

Cash/Bank Balance Government Securities Inter Bank Assets Total Net Loans & Advs. Investment Associates Fixed Assets Goodwill Other Assets Life Ass Fund Inv Assets Total Assets

19,341 20,610 39,573 167,854 19,602 380 2,629 3,741 11,313 53,405 338,448

25,314 22,249 41,220 207,535 23,466 2,096 4,556 5,157 12,347 57,286 401,226

21,180 21,001 35,791 208,218 22,786 2,248 4,605 5,195 12,183 56,983 390,190

25,859 22,051 36,563 212,712 25,525 2,603 4,736 5,195 12,763 56,983 404,990

27,152 23,154 43,814 219,069 26,288 2,978 4,870 5,195 13,144 56,983 422,647

Customer Deposits Inter Bank Deposits Debts/Borrowings Others Minorities Shareholders' Funds Life Ass Fund Liabs Total Liab& S/H’s Funds

195,974 21,549 26,702 12,961 2,964 25,115 53,183 338,448

245,519 20,503 28,859 14,936 3,088 31,097 57,224 401,226

246,277 12,047 23,479 14,282 2,558 34,553 56,994 390,190

258,591 10,422 23,479 14,658 2,764 38,082 56,994 404,990

271,520 10,732 23,479 15,092 2,982 41,847 56,994 422,647

Balance Sheet (S$ m) FY Dec

(999) 1,302 (193) 63 0 1,172 (160) (52) 960

Driven by a spike in loan yields during the quarter; unlikely to be repeated

Loan growth to stay muted at low single digits

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 78 Page 7

Company Guide OCBC

Financial Stability Measures (%) FY Dec Balance Sheet Structure Loan-to-Deposit Ratio Net Loans / Total Assets Investment / Total Assets Cust . Dep./Int. Bear. Liab. Interbank Dep / Int. Bear. Asset Quality NPL / Total Gross Loans NPL / Total Assets Loan Loss Reserve Coverage Provision Charge-Off Rate Capital Strength Total CAR Tier-1 CAR

2013A

2014A

2015A

2016F

2017F

86.5 49.6 5.8 80.2 8.8

85.4 51.7 5.8 83.3 7.0

85.5 53.4 5.8 87.4 4.3

83.3 52.5 6.3 88.4 3.6

81.8 51.8 6.2 88.8

0.7 0.4 140.5 0.2

0.6 0.3 174.3 0.2

0.9 0.5 122.9 0.2

1.0 0.5 129.4 0.2

0.8 0.4 173.1 0.2

16.3 14.6

15.9 13.8

16.8 14.8

17.2 15.3

17.7 15.9

NPL ratio could be at risk although still below peers

3.5

Source: Company, DBS Bank Target Price & Ratings History

11.07

S$ S.No.

2

10.57

4

1 10.07

3

9.57

6

9.07

5

8.57

Closing Pric e

Dat e

T arget Rat ing Pric e

1:

30 Apr 15

10.68

12.70

BUY

2:

22 May 15

10.37

12.70

BUY

3:

10 J un 15

10.06

12.80

BUY

4:

10 Aug 15

10.20

12.80

BUY

5:

31 Aug 15

8.93

10.00

BUY

6:

28 Oct 15

9.20

10.00

BUY

7:

10 Dec 15

8.64

10.00

BUY

7 8.07 7.57 7.07 Feb-15

Jun-15

Oct-15

Feb-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

ASIAN INSIGHTS Page 8

VICKERS SECURITIES Page 79

Company Guide OCBC

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a)

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.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 17 Feb 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

ASIAN INSIGHTS

VICKERS SECURITIES Page 80 Page 9

Company Guide OCBC

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1.

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in OCBC recommended in this report as of 31 Jan 2016

2.

DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.

Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia

This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong

This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia

This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia

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

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.

Thailand

This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC rd Branch) having its office at PO Box 506538, 3 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.

ASIAN INSIGHTS Page 10

VICKERS SECURITIES Page 81

Company Guide OCBC

United States

This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

ASIAN INSIGHTS

VICKERS SECURITIES Page 82Page 11

Singapore Company Guide

OSIM International Refer to important disclosures at the end of this report

| Bloomberg: OSIM SP | Reuters: OSIL.SI

Version

DBS Group Research . Equity

29 Jan 2016

BUY (Upgrade from FULLY VALUED)

Deep value

Last Traded Price: S$0.94 (STI STI : 2,562.45) Price Target : S$1.28 (36% upside) (Prev S$1.22)

BUY. We turn positive on OSIM after a >40% Upgrade to BUY. share price decline since we downgraded the stock in October 2015. Valuations are attractive with dividend yield at close to 7% and forward PE (c.10x) at close to -1SD of its 7-year mean (14x). 4Q15 earnings showed sequential improvement with signs of bottoming out. We believe this will support DPS and dividend yield going forward. We hence do not see further downside pressure on the stock. Instead, earnings recovery momentum and valuation from a PE basis lead us to believe that OSIM’s share price reflects value. Our PE-based TP of S$1.28 is premised on modest earnings growth in FY16F and its target PE of 14x at historical mean. This represents 36% potential return from its current share price, and dividend yield (based on DPS of 6 Scts) at its target price is 4.7%.

Potential Catalyst: Earnings recovery Where we differ: differ: Slower earnings recovery than consensus Analyst Alfie Yeo +65 6682 3717 [email protected] Andy Sim +65 6682 3718 [email protected]

Price Relative S$

Relative Index

3.2

223 203

2.7

183 163

2.2

143 1.7

123 103

1.2

83 0.7 Jan-12

Jan-13

Jan-14

OSIM International (LHS)

Forecasts and Valuation FY Dec (S$m S$m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Jan-15

63 Jan-16

Relative STI INDEX (RHS)

2014A 2014A 691 158 132 102 108 9.8 13.4 14.2 4 12.8 6.00 56.7 7.0 6.6 6.1 3.2 6.4 1.7 CASH 28.8

Earnings Rev (%): Consensus EPS (S cts):: Other Broker Recs:

2015A 2015A 620 109 71.3 51.5 67.5 (37.4) 6.79 8.91 (37) 6.79 6.00 53.5 13.8 10.6 12.3 5.2 6.4 1.8 CASH 12.3

2016F 2016F 640 118 94.8 67.9 67.9 0.6 9.16 9.16 3 8.96 6.00 56.7 10.3 10.3 7.3 4.3 6.4 1.7 CASH 16.6

2017F 2017F 664 122 99.3 71.0 71.0 4.6 9.58 9.58 5 9.37 6.00 60.3 9.8 9.8 7.1 3.9 6.4 1.6 CASH 16.4

B: 1

1 9.20 S: 3

1 10.3 H: 6

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ASIAN INSIGHTS ed: JS / sa: JC

Sequential earnings improvement with minimal risk of dividend cut for now. 4Q15 has recorded a smaller than expected earnings decline. Core earnings (S$18m, -35% y-o-y) for 4Q15 was above expectations while the decline in revenue (S$169m, -5% y-o-y) moderating on a sequential basis. Sequential quarter growth in 4Q15 (vs 3Q15) was broad based, led by all three brands and the Hong Kong market. OSIM has continued to pay 6 Scts DPS from its strong balance sheet even though core earnings fell by close to 40%. With earnings decline seen projected to stabilise and its net cash of S$200m, we see limited risks of dividend cuts at this stage. Downside risk should therefore be minimal. Valuation: Our target price of S$1.28 is based on 14x FY16F PE. OSIM has strong net cash, cheap PE valuation, and is showing narrowing y-o-y sales decline. Our target PE valuation of 14x is pegged to the stock’s average 7-year historical mean valuation. Key Risks to Our View: Our positive view is based on earnings bottoming out and attractive dividend yield. Earnings risks and hence reduction in DPS would dampen our optimism on the stock. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Chye Hock Sim (%) Capital Group Companies Inc (%) Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Consumer Goods / Leisure Goods

742 697 / 487 68.6 5.2 26.2 1.6

VICKERS SECURITIES Page 83

Company Guide OSIM International

Results Summary and Comparison FY Dec (S$m) Sales Cost of Goods Sold Gross Profit Other Operating Income

Distribution Costs Administration Expenses R & D and other expenses Other Operating Expenses EBIT Non-Operating Income Interest Income Interest Expense Share of Associates’ or JV Income Exceptional Gains/(Losses) Pretax Profit Tax Minority Interests Net Profit Net profit (pre-ex) Margins (%) Gross Margin SGA % Sales EBITDA Margin EBIT Margin Pre-tax Margin Net Margin

FY1 FY14

FY1 FY15

YoY Chg

4Q14 Q14

4Q15 Q15

YoY Chg

691.1 (204.8) 486.3 19.1 (122.0) (21.8) (226.2) (370.0) 135.4 0.0 5.0 (3.5) 1.0 (5.7) 132.3 (30.1) (0.0) 102.2 107.8

619.6 (174.8) 444.8 24.6 (126.0) (23.2) (235.8) (385.0) 84.4 0.0 6.4 (5.0) 1.5 (16.0) 71.3 (21.5) 1.7 51.5 67.5

-10% -15% -9% 29% 3% 6% 4% 4% -38% n/a 27% 43% 50% 183% -46% -29% -13146% -50% -37%

177.7 (54.1) 123.5 3.5 (28.8) (5.4) (58.7) (92.9) 34.2 0.0 1.8 (1.2) (0.1) (0.7) 34.0 (6.3) (0.3) 27.4 28.1

168.7 (47.0) 121.7 6.1 (34.5) (6.1) (64.1) (104.8) 23.0 0.0 1.5 (1.3) 0.3 (9.0) 14.5 (5.3) 0.3 9.4 18.4

-5% -13% -1% 72% 20% 13% 9% 13% -33% n/a -15% 4% -558% 1276% -57% -15% -205% -66% -35%

70.4 53.5 22.8 19.6 19.1 14.8

71.8 62.1 17.4 13.6 11.5 8.3

69.5 52.3 22.3 19.2 19.1 15.4

72.2 62.1 17.3 13.6 8.6 5.6

Source: Company, DBS Bank

Core earnings above expectations, expectations, excluding oneone-offs of S$9m.. Core earnings (S$18m, -35% y-o-y) for 4Q15 was S$9m above expectations while the decline in revenue (S$169m, 5% y-o-y) has moderated on a sequential basis. Growth was broad based, led by all three brands and the Hong Kong market. We had previously tapered our expectations to muted levels as we believed outlook lacked visibility. Headline earnings was S$9m but this included one-offs amounting to S$9m for closure of GNC in Australia and legal fees for TWG. While segment information remains undisclosed, margins were slightly higher as we believe sales mix of TWG had increased.

Upgrade to BUY, TP S$1.28. Results were in line and therefore we have left our earnings estimates largely intact. Valuations are now attractive with dividend yield at close to 7% and PE valuations at near -1SD of its mean. Our TP of S$1.28 is based on 14x FY16F PE at historical average. BUY for 36% upside. Trades Trades close to -1SD of its 77-year mean (x)

Quarterly earnings (RHS)

S$m

Fwd PE (LHS)

30

25.0 + 2 sd

24

20.0

Final DPS in line with expectations. OSIM declared a final quarterly dividend of 2 Scts bringing total DPS to 6 Scts, in line with expectations. Due to OSIM’s strong balance sheet and despite the 63% EPS decline, DPS remained at 6 Scts for the full year. This represents a dividend payout ratio of 86%. Slightly better better earnings visibility. visibility. We are now less pessimistic on earnings visibility going forward. OSIM will launch new products, expand franchise markets and adopt a more dynamic approach to marketing this year. At GNC, closure of GNC’s loss making Australian business will help the bottom line. TWG will continue to expand by 15-20 stores this year, while legal fees are likely to be lower this year.

ASIAN INSIGHTS Page 2

+ 1 sd 18

15.0 Avg

12

10.0 - 1 sd

6

5.0

- 2 sd

-

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

0 Jan-16

Source: Company, DBS Bank

VICKERS SECURITIES Page 84

Company Guide OSIM International Store count

CRITICAL DATA POINTS TO WATCH Earnings Drivers: Five key markets. OSIM primarily operates in five key markets Singapore, Malaysia, Taiwan, Hong Kong and China - with all other markets indirectly owned and operated. We estimate that OSIM’s massage products contribute close to 60% of total revenue.

871

841

800

807

2015F

2016F

700 600 500 400 300 200 100 0 2013A

visibility ibility likely to improve. We turn less Earnings growth vis pessimistic on earnings visibility as we can now see some positives from the OSIM, GNC and TWG brands for FY16F. As we had previously observed, sales growth rates (ex TWG consolidation) from 3Q12 to 1Q15 were declining. However from 2Q15, the rate of sales decline had consistently decelerated. We believe recovering chair sales could be driving this and the brighter outlook is validated by plans to focus more on marketing, introduce new products, and expand the OSIM franchise into new markets this year. In addition, costs for labour and rents in Singapore have eased compared to previous quarters, providing further relief to operating expenses. Apart from OSIM’s massage products, GNC’s earnings will also benefit from the closure of its Australian operations which has been loss making. TWG will continue to grow store count and will likely enjoy ramp up of its new opened North Asian outlets in FY16F. Besides, legal costs are likely to be much lower this year.

836

783

2014A

2017F

Blended sales per store (S$m) 0.82

0.84 0.74

0.79

0.79

0.79

2015F

2016F

2017F

0.67 0.50 0.34 0.17 0.00 2013A

2014A

Rate of sales decline is decelerating y oy ( %) 20

TWG consolidation

15 10 5

GNC, Australia.. OSIM is the GNC, more positive post closure of GNC Australia sole franchisee for GNC in Singapore, Malaysia and Taiwan. This business generally generates stable earnings and delivers positive cashflows. We estimate that GNC contributes about 25% of total sales. Store count has decreased from the peak of 270 in 4Q11 to 197 in 4Q15 partly due to closure of the GNC business in Australia. Following the provision of S$5.6m in 4Q15 for the closure, we are now more optimistic on the GNC business given that GNC Australia was making losses of S$3.5m a year for the past three years. Taiwan now has the most headroom for GNC to scale up. growing,, legal expenses should be lower in FY16F TWG is growing barring court’s ruling. ruling. TWG’s development has been exciting, growing from 26 stores in FY13 to 52 stores by 4Q15. It now has presence in new markets including Korea, Taiwan, Macau and China. 4Q15 saw more store openings including Four Seasons Macau and Tea WG at Elements in Hong Kong. Going forward, there are plans to open another 15-20 stores in 2016. Besides store presence, it is also increasing its market share in supplying to luxury hotel segment in Hong Kong, China and Taiwan. We estimate TWG’s contribution to group net profit (70% stake and after minority interest) to be small at 8-10%. Following S$3.4m recognition for legal expenses in 4Q15, 2016’s legal fees are expected to be much lower, barring potential damages it has to pay should the court order compensation to its plaintiffs.

0 (5) (10) (15)

Sales mix by geography FY15 America/Africa /Europe/ Middle East/Oceania 7%

South Asia 40%

North Asia 55%

EBIT Margins % ( %) 20 16 12 8 4 0

07

08

09

10

11

12

13

14

15

16F 17F

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 85 Page 3

Company Guide OSIM International

Balance Sheet: Net cash of S$200 S$200m. 00m. The business is generally cashflow positive, generating average operating cashflow of S$100m over the past five years. OSIM's 4Q15 balance sheet has S$358m of cash, well equipped to make acquisitions. We believe the company is able to serve out the call option for its convertible bonds in 2017, provided it does not make a significant acquisition. Net cash of S$200m is equal to over 4x annual dividend payments at 6 Scts/share. Therefore, there is no stress on its balance sheet in this respect. Share Price Drivers: Deep value. We see deep value from a valuation perspective as dividend yield is attractive at close to 7% while PE valuations are below average at near -1SD of its 7-year mean. There is minimal risk of dividend cut as earnings are showing a turnaround. Downside risks for the stock should be supported by dividend yield while upside is now fuelled by earnings recovery. Our PEbased TP of S$1.28 is conservatively premised on modest earnings growth in FY16F and its target PE of 14x at historical mean. Our TP yields an upside of >30%. Upside risk to earnings as our estimates are below consensus. Key Risks: Strong reliance on new chair sales to drive turnaround. Due to the significant contribution of OSIM massage products to revenue, new products OSIM massage products are expected to lead sustainable turnaround and drive growth. New products such as uMagic, uGallop 2, limited edit uDiva will be launched soon. uJoy should be leading growth going forward, if earnings turnaround is to be sustainable. Any potential slowdown in market demand for OSIM massage products would hamper earnings recovery. Litigation cases pose unknown earnings risks. The two ongoing litigation cases in Singapore and Hong Kong where costs remain relatively uncertain are two unknowns that could spring negative surprises which could yet dampen earnings. Apart from legal fees, there are also potential expenses on damages which OSIM may or may not have to pay, depending on the court’s ruling. Consumer sentiment. OSIM is ultimately a retailer of lifestyle products, and its fortune depends on discretionary consumption. Poor consumption sentiment will be a drag on demand while strong consumption cycle will fuel demand for its products. Company Background OSIM is a retailer and brand owner of healthy lifestyle products. The company is the brand owner manufacturer and retailer for the OSIM line of massage chairs and related products worldwide; a sole franchisee for the GNC chain of nutritional supplement retail stores in Singapore, Malaysia, and Taiwan; and a majority owner of the TWG brand of high-end luxury tea cafes and saloons.

Leverage & Asset Turnover (x) 1.2 0.50 1.1 0.40 1.0

0.30

0.9

0.20

0.8

0.10 0.00

0.7 2013A

2014A

2015F

Gross Debt to Equity (LHS)

2016F

2017F

Asset Turnover (RHS)

Capital Expenditure S$m 25.0 20.0 15.0 10.0 5.0 0.0

2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

2013A

2014A

2015F

2016F

2017F

Forward PE Band (x) (x) 25.9

+2sd: 26x

20.9

+1sd: 21.1x

15.9

Avg: 16.3x

10.9

-1sd: 11.4x

5.9 Jan-12

-2sd: 6.6x Jan-13

Jan-14

Jan-15

PB Band (x) (x) 8.2

+2sd: 8.11x

7.2

+1sd: 6.58x

6.2 5.2

Avg: 5.06x

4.2

-1sd: 3.53x

3.2 2.2 1.2 Jan-12

-2sd: 2x Jan-13

Jan-14

Jan-15

Source: Company, DBS Bank

ASIAN INSIGHTS Page 4

VICKERS SECURITIES Page 86

Company Guide OSIM International

Key Assumptions FY Dec Store count Blended sales per store (S$m) Segmental Breakdown FY Dec Revenues (S$m) North Asia South Asia America / Africa / Europe / Middle Total East / Oceania

Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) PrePre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2013A 2013A

2014A 2014A

2015A

2016F 2016F

2017F 2017F

871 0.74

841 0.82

783 0.79

807 0.79

836 0.79

2013A 2013A

2014A 2014A

2015A 2015A

2016F 2016F

2017F 2017F

353 250 45.0 648

366 279 46.0 691

341 248 31.0 620

355 252 31.8 640

377 255 32.5 664

2013A 2013A

2014A 2014A

2015A 2015A

2016F 2016F

2017F 2017F

648 (193) 455 (332) 123 0.0 2.92 (0.4) 3.35 129 (27.6) 0.0 0.0 102 98.2 140

691 (205) 486 (351) 135 0.0 0.98 1.54 (5.7) 132 (30.1) 0.0 0.0 102 108 158

620 (175) 445 (360) 84.4 0.0 1.47 1.41 (16.0) 71.3 (21.5) 1.70 0.0 51.5 67.5 109

640 (179) 460 (368) 92.5 0.0 1.47 0.85 0.0 94.8 (28.6) 1.70 0.0 67.9 67.9 118

664 (186) 478 (381) 96.4 0.0 1.47 1.39 0.0 99.3 (30.0) 1.70 0.0 71.0 71.0 122

7.6 8.6 6.9 13.0

6.7 13.0 9.8 9.8

(10.4) (31.1) (37.7) (37.4)

3.2 8.6 9.6 0.6

3.8 3.3 4.2 4.6

70.3 19.0 15.7 43.5 17.7 21.9 44.5 278.4

70.4 19.6 14.8 28.8 13.3 16.7 45.4 NM

71.8 13.6 8.3 12.3 6.3 8.6 86.4 NM

72.0 14.5 10.6 16.6 8.5 9.6 65.5 NM

72.0 14.5 10.7 16.4 8.6 9.7 62.7 NM

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 87 Page 5

Company Guide OSIM International

Quarterly / Interim Income Statement (S$m) 4Q2014 1Q2015 FY Dec 4Q2014 1Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) PrePre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

2Q2015 2Q2015

3Q2015 3Q2015

4Q2015 4Q2015

178 (54.1) 124 (89.4) 34.2 0.0 (0.1) 0.54 (0.7) 34.0 (6.3) (0.3) 27.4 28.1 39.6

150 (44.1) 106 (87.2) 18.6 0.0 0.43 0.0 (1.0) 18.0 (4.9) 0.49 13.5 14.5 24.5

159 (43.7) 116 (86.0) 29.8 0.0 0.49 0.54 (2.0) 28.8 (6.9) 0.49 22.4 24.4 36.0

142 (40.1) 101 (88.4) 13.1 0.0 0.30 0.69 (4.0) 10.0 (4.3) 0.45 6.17 10.2 19.2

169 (47.0) 122 (98.7) 23.0 0.0 0.25 0.22 (9.0) 14.5 (5.3) 0.28 9.40 18.4 29.4

12.3 20.1 26.9 31.1

(15.7) (38.0) (45.6) (48.3)

6.4 46.9 60.4 68.0

(11.2) (46.8) (56.2) (58.3)

19.2 53.2 76.1 80.9

69.5 19.2 15.4

70.6 12.4 9.0

72.6 18.7 14.0

71.7 9.2 4.4

72.2 13.6 5.6

2013A 2013A

2014A 2014A

2015A 2015A

2016F 2016F

2017F 2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

25.2 18.5 219 291 72.5 42.0 12.5 680

36.4 18.4 211 456 71.6 42.6 17.8 854

33.5 21.7 217 385 78.2 37.6 17.9 790

28.5 23.2 207 418 80.7 38.8 17.9 814

23.5 24.6 198 455 83.7 40.3 17.9 842

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

155 107 35.2 0.06 39.1 271 72.7 680

17.2 77.0 64.0 168 35.7 438 53.6 854

13.2 76.6 50.4 173 29.4 397 50.9 790

13.2 79.0 50.4 173 29.4 420 49.2 814

13.2 82.0 50.4 173 29.4 447 47.5 842

(15.4) 136 22.6 201.2 128.9 1.1 1.4 1.1 CASH CASH 7.4 0.0

(8.9) 271 22.3 183.5 143.7 0.9 3.7 3.2 CASH CASH 12.7 0.0

6.71 199 23.6 184.8 180.3 0.8 3.7 3.0 CASH CASH 7.7 0.0

7.98 232 21.8 183.7 187.6 0.8 3.9 3.2 CASH CASH 5.4 0.0

9.50 269 21.7 182.2 186.0 0.8 4.1 3.4 CASH CASH 5.4 0.0

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Balance Sheet (S$m) FY Dec

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

Source: Company, DBS Bank

ASIAN INSIGHTS Page 6

VICKERS SECURITIES Page 88

Company Guide OSIM International

Cash Flow Statement (S$m) FY Dec

2013A 2013A

2014A 2014A

2015A 2015A

2016F 2016F

2017F 2017F

129 21.7 (29.2) (2.9) 3.87 (9.5) 113 (11.5) (3.8) (7.0) 1.36 16.5 (4.4) (36.2) 4.57 (7.5) (2.3) (41.4) 6.19 73.6 15.1 14.1

132 29.8 (26.0) (1.0) (16.0) (2.3) 117 (23.6) (3.8) 0.0 1.21 3.19 (23.0) (45.5) 134 0.0 (15.1) 73.4 0.85 168 17.4 12.3

71.3 31.2 (38.8) (1.5) (5.8) 1.58 58.0 (14.2) (9.7) (2.6) 0.69 5.29 (20.5) (45.9) (4.0) 0.0 (52.2) (102) 2.93 (61.5) 8.42 5.77

94.8 32.5 (28.6) (1.5) (1.3) 0.0 96.0 (10.0) 0.0 0.0 0.0 0.0 (10.0) (44.5) 0.0 0.0 0.0 (44.5) 0.0 41.5 13.1 11.6

99.3 32.5 (30.0) (1.5) (1.5) 0.0 98.9 (10.0) 0.0 0.0 0.0 0.0 (10.0) (44.5) 0.0 0.0 0.0 (44.5) 0.0 44.4 13.5 12.0

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)

Source: Company, DBS Bank Target Price & Ratings History

2.13

S$ Dat e

Closing Price

T arget Price

Rat ing

1:

04 F eb 15

2.02

1.94

HOLD

2:

06 May 15

1.74

1.82

HOLD

3:

24 J ul 15

1.54

1.61

HOLD

4:

02 Sep 15

1.47

1.61

HOLD

5:

28 Oct 15

1.44

1.22

FULLY VALUED

S.No.

1.93

1 2

1.73

4

1.53

3 1.33

5

1.13 0.93 0.73 Jan-15

May-15

Sep-15

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 89 Page 7

Company Guide OSIM International

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) (b)

such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 29 Jan 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

ASIAN INSIGHTS Page 8

VICKERS SECURITIES Page 90

Company Guide OSIM International

COMPANYCOMPANY-SPECIFIC / REGULATORY REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Dec 2015 2. 3.

DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia

This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong

This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia

This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia

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

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.

Thailand

This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 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.

ASIAN INSIGHTS

VICKERS SECURITIES Page 91 Page 9

Company Guide OSIM International

United States

This report was prepared by DBS Bank Ltd.. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

ASIAN INSIGHTS Page 10

VICKERS SECURITIES Page 92

Singapore Company Guide

Sembcorp Industries Refer to important disclosures at the end of this report

Version 4 | Bloomberg: SCI SP | Reuters: SCIL.SI

DBS Group Research . Equity

18 Feb 2016

BUY

SMM Privatisation Rumour Unsubstantiated

Last Traded Price: S$2.53 (STI : 2,613.79) Price Target : S$3.30 (30% upside) (Prev S$3.50) Potential Catalyst: Ramp up of India power plant, improvement in marine business Where we differ: In line Analyst Janice CHUA +65 6682 3692 [email protected] Pei Hwa Ho +65 6682 3714 [email protected]

What’s New    

4Q15 affected by losses from Marine and slower ramp up of Indian power plant (TPCIL) TPCIL will contribute positively from 1Q16, with >80% utilisation since end Dec-15 Declared final DPS of 6 Scts; FY15 DPS at 11 Scts on similar 36% payout ratio SMM privatisation chatter unsubstantiated; Reiterate BUY, TP adjusted to S$3.30

S$

Relative Index 206

5.5

186

5.0

166

4.5

146

4.0

126

3.5

106

3.0

86

2.5

66

2.0 Feb-12

Feb-13

Feb-14

Sembcorp Industries (LHS)

Forecasts and Valuation FY Dec (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Feb-15

46 Feb-16

Relative STI INDEX (RHS)

2014A 10,895 1,612 1,246 801 801 (2.4) 44.9 44.9 (2) 44.5 16.0 315 5.6 5.6 nm 5.7 6.3 0.8 0.4 14.8

Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:

2015A 9,545 1,015 426 549 549 (31.5) 30.7 30.7 (32) 30.5 11.0 360 8.2 8.2 nm 11.2 4.3 0.7 0.6 9.1

2016F 8,667 1,311 838 581 581 5.8 32.5 32.5 6 32.2 11.1 382 7.8 7.8 8.2 9.2 4.4 0.7 0.7 8.8

2017F 9,324 1,393 895 626 626 7.9 35.1 35.1 8 34.8 11.2 406 7.2 7.2 4.2 8.7 4.4 0.6 0.6 8.9

31.1 B: 10

(8) 32.8 S: 3

(6) 34.8 H: 4

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ASIAN INSIGHTS ed: JS / sa:YM

Chatter on SMM privatisation does not hold water. SCI’s PATMI slid 75% y-o-y and 50% q-o-q to S$60.8m in 4Q15, due to Marine losses (S$328m), and impairment (S$70m) charges on Utilities’ PPE. In response to the privatization rumour of SembCorp Marine, management stressed that any asset acquisitions should be accretive and enhance returns to SCI shareholders. Moreover, there are more appealing opportunities in the utilities space in view of the lacklustre marine prospects. In our view, the more likely scenario of a restructuring of rigbuilders would be the merger of Keppel O&M and SMM. As such, the elimination of fear of privatisation could give an uplift to SCI’s stock prices in the near term. Emerging markets the growth engine. SCI’s first India power plant, fully operational since Sept-2015, is expected to contribute S$70m or 12% of FY16F PATMI. It incurred startup losses of S$22.5m last year, but is expected to turn profitable in 1Q16 with the ramp-up to >80% since end 2015. This would help to mitigate the earnings decline from Singapore power plants while other overseas utility businesses are expected to be stable this year. Besides, SCI has also made its forays into other emerging markets – Bangladesh and Myanmar, underpinning longer-term growth prospects of its utilities segment.

Price Relative 6.0

Utilities’ steep discount unwarranted. Stripping out the market value of Sembcorp Marine (SMM), Salalah and Gallant Venture, SCI’s utilities business is valued at an unjustifiably low 0.5x P/B and 5x FY16F PE vs historical mean of 11x PE. We have lowered our SOTPbased TP to S$3.30, reflecting the downgrade in SMM’s TP. This translates to 0.9x P/B, which is 20-30% below GFC/AFC trough, implying 30% upside potential. We believe this is a fair multiple in view of 9% ROE and 4% dividend yield. Reiterate BUY.

Valuation: Given its diverse earnings stream and various listed assets, we derive our fair value on SCI based on the sum of its different parts, which include market valuations of its stakes in listed companies Sembcorp Marine (SGX-listed, 60.6% stake), Gallant Venture (SGX-listed, 11.96% stake) and Salalah (Muscat stock exchange, 40% stake) and earnings from utilities and urban development. For its holding company position, we have applied a 10% conglomerate discount to the reappraised net asset value (RNAV). Our TP is lowered slightly to S$3.30 (from S$3.50 previously) as we imputed the downgrade in SMM’s TP. We revised FY16-17F earnings down by 6-8%, factoring in weaker SMM earnings. Key Risks to Our View: Key risks to earnings are further deferments / cancellations of marine projects, deterioration of Singapore power’s spark spreads, and execution hiccups in India power plants. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Temasek Holdings Pte Ltd JP Morgan Chase & Co Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Oil & Gas / Oil Equipment; Services & Dist

1,785 4,517 / 3,218 49.5 5.0 50.1 12.1

VICKERS SECURITIES Page 93

Company Guide Sembcorp Industries

WHAT’S NEW Weak 4Q15 as expected Results review SCI’s PATMI slid 75% y-o-y and 50% q-o-q to S$60.8m in 4Q15, with the blame largely on Marine losses (S$328m), and impairment (S$70m) losses on Utilities’ PPE due to closure of customers’ facilities and the exit from the chemical feedstock business. In addition, TPCIL earnings also missed expectations due to a cyclone hitting Chennai in Nov-Dec 2015. Otherwise, the utiltiies business was relatively stable. The losses were mitigated by S$353m disposal gains on Sembsita. On full year basis, net profit came in at S$549m (-32% y-o-y). Utilities business was steady. Utilities’ core profit dropped 19% to S$332m in FY15 due largely to the earnings decline in Singapore’s power business, which is cash flow positive but loss-making at NPAT level. The power plants in India will be the growth driver in the next two years. Marine dragged by massive provisions. SMM swung into a net loss of S$537m for 4Q15 (SCI: S$328m), from net profit of S$178m a year ago. While losses were expected as guided in its profit warning in early Dec-2015, the provisions taken were much larger than expected – an eye popping >S$600m for Sete projects (S$329m) and other rigs (~S$280m). We expect SMM to return to the black, achieving net profit of c. S$260m in FY16 (SCI: S$156m). Urban Development: land sales and margins are patchy. Land sales were up 51% in FY15 to 211 hectares, but profits were down 25%to S$33.5m due to lumpy revenue recognition and lower margin mix. This was attributable to a lower proportion of higher-margin residential land sales, partially due to lower allocation of land sales quotas by the Nanjing government this year, and lumpy revenue recognition. FY16 could be a better year as land quota is expected to increase. Gallant Venture investment written down. Gallant Venture has been reclassified as an available for sale financial asset and incurred S$34.5m fair value loss in the quarter, after marking down the investment to the current share price of S$0.22.

Key takeaways from briefing TPCIL hit by cyclone in Nov-Dec 2015. TPCIL suffered loss of income as the plant was down for more than 3 weeks before resuming operations towards the end of Dec-2015, and the plant also incurred loss on inventory ie coal, repair cost (in the process of claiming ~S$5m from insurance) and lower industrial power demand during the floods. Despite this, losses narrowed to S$1.5m in 4Q15 (from S$12m loss in 3Q15). On a positive note, operations have since resumed from end Dec-15 and the plant is now running at >80% utilisation. SCI has also secured a PPA for the second unit of the TCIL plant, which means that 86% of the capacity is now on long term PPAs, allowing TPCIL to enjoy mega power status. We expect TPCIL to churn S$15-20m profit a quarter. Second India power plant (NCCPP) commencing operation in 2016. The 45% owned NCCPP, which has a total capacity of 1,320 MW, is expected to commence operations in 2016. The first unit is expected to come onstream by May-2016 and second unit by Sept-2016. We have assumed small startup losses of S$10m in 2016. Cleaner energy. SCI will continue to grow its portfolio in the key emerging markets – India, Indonesia, Myanmar, Bangladesh etc. It is also keeping an eye out for more renewable energy assets in the light of the long term trend towards cleaner energy. Divestment of Yancheng. SCI announced on 5 Feb that it is divesting its entire 49% stake in Yancheng China Water for S$57m. The deal is expected to complete in mid-2016 with a net gain of S$35m. We have yet to factor this in, pending fulfilment of conditions and approval from relevant authorities. Privatising SMM? In response to SMM privatisation rumour, management stressed that any asset acquisitions should be accretive and enhance returns to SCI shareholders. In addition, there are more appealing opportunities in the utilities space in view of the bleak marine outlook.

Declared 6Scts final dividend. SCI declared a final DPS of 6 Scts, bringing full year DPS to 11 Scts (including 5Scts interim dividend). This works out to a 36% payout ratio, translating to 4.4% dividend yield. We expect SCI to sustain a similar DPS of 11 Scts on payout ratio of 30-35% in FY16-17, implying 4% yield.

ASIAN INSIGHTS Page 2

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Company Guide Sembcorp Industries

Quarterly / Interim Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Margins (%) Gross Margins Opg Profit Margins Net Profit Margins

4Q2014

3Q2015

4Q2015

% chg yoy

% chg qoq

2,664 (2,241) 424 (63.3) 360 0.0 35.4 (37.0) 0.0 359 (25.6) (92.1) 241 241 396

2,399 (2,110) 290 (104) 186 0.0 21.2 (57.0) 0.0 150 (10.9) (17.0) 122 122 207

2,419 (2,619) (200) (252) (451) 0.0 (114) (72.6) 371 (266) 121 207 60.8 (310) (565)

(9.2) 16.9 nm 297.9 nm nm nm 96.1 nm nm nm nm (74.8) nm nm

0.8 24.1 nm 142.6 nm nm nm 27.4 nm nm nm nm (50.3) nm nm

15.9 13.5 9.0

12.1 7.8 5.1

(8.3) (18.7) 2.5

Source of all data: Company, DBS Bank

SOTP-based valuation for SCI

Sembcorp Marine Gallant Ventures Salalah Less: book value of listed companies Surplus from listed companies Utilities (Surplus) Urban Development Net Surplus Book value as of end FY15 RNAV RNAV per share (S$) Fair value (S$) Implied FY16 PE (x) Implied FY16 PB (x)

Value (S$ m)

Basis

1,571 63 350 1,984 (2,035) -51 267 (441) -225 6,817 6,592 3.66 3.30 10.1 0.9

Fair value for Sembcorp Marine Share price 40% stake

Based on 11x FY16 PE, less book value Based on 11x FY16 PE, less book value

10% conglomerate discount

Source of all data: Company, DBS Bank

Implied valuation for utilities business

SCI's market capitalisation SCI's share of market capitalisation for: SMM Salalah Gallant Venture

Congolomerate discount

Implied value for Utilities Implied FY16 PE for Utilities (x) Implied FY16 PB for Utilities (x)

Value (S$m)

Basis

4,522

Market price @ 17 Feb

2,052 350 66 10% 2,300 5.2 0.5

Market price @ 17 Feb Market price @ 17 Feb Market price @ 17 Feb

Source of all data: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 95 Page 3

Company Guide Sembcorp Industries Marine contract wins

CRITICAL DATA POINTS TO WATCH

4,193

4,192

4,000 3,500

Earnings Drivers: Utilities projects pipeline should progressively add to earnings. New facilities will add to SCI’s power generation and water treatment capacities, which should increase earnings assuming the operations are profitable. A total of 3,800MW of power generation capacity, 140tph of steam capacity and 1.3million m3/day of water treatment capacity is expected to be added from now until 2018. This roughly translates to a 36%, 3% and 14% increase in power, steam and water treatment capacities respectively. Narrowing spark spreads in Singapore have hit power generation earnings. Growth in supply of electricity outpacing the growth in consumption led to Uniform Singapore Energy Price (USEP) falling by 22% y-o-y in 2013, 21% in 2014 and by further 29% in 2015, shrinking the generator’s spark spread – a barometer of profits on electricity sales. However, the impact will not be significant, as Singapore power generation only makes up <5% of SCI’s net income. Nonetheless, an increase in USEP prices going forward will help earnings. Greater contribution from non-Singapore power generation facilities would also alleviate the pressure on profitability.

3,150 2,500

2,500 2,000 1,500 1,000 500 0 2013A

2014A

2015F

Urban Development business provides growth opportunities. Urban Development accounts for c.6% of SCI’s bottomline. Thus, a strong performance of this segment will not move the needle too much for now, but represents an avenue for growth. SCI has about 3,500ha of saleable land remaining across China, Indonesia and Vietnam, which it can develop. However, headwinds in the form of delays in China land sales have proven to be a stumbling block recently; better sales momentum, which we are seeing a glimmer of, would give some earnings uplift.

ASIAN INSIGHTS Page 4

2016F

2017F

SCI Group Net Profit for FY15 - Total S$549m 0.083144 0.061017937

‐0.100755209 Utilities Marine

‐0.321467419

Urban  Development Other Businesses

1.27806069

Utilities FY15 Net Profit by Geography - Total S$702m Singapore Rest of ASEAN,  Australia & India China

0.209265859

Marine business (SMM) earnings are orderbook-driven. Sembcorp Marine’s (SMM) orderbook has declined to S$10.4bn as of end-2015, in tandem with the downturn in the offshore oil & gas industry. Order wins of S$3.2bn in 2015 were weak but respectable amid the current environment; 2013 and 2014 saw full-year order wins of S$4.2bn. The current orderbook stretches until 2020, but there is risk of order deferments – which would spread revenues and earnings thinner – given that drilling units account for 75% of its value. It has primarily been low oil prices that saw oil majors and asset owners defer capex spending. Hence, a rebound in oil prices should trigger more order wins for SMM, which would be positive for earnings.

3,000

3,000

0.053884533

0.527298646

0.13613685 0.068852459 0.042622951 0.017676408 ‐0.055737705

Middle East  & Africa UK The Americas Corporate

Utilities in Singapore FY15 Net Profits - Total S$147m

Energy 0.374659401

0.352179837 Water

0.273160763

On‐site Logistics &  Solid Waste  Management

Source: Company, DBS Bank

VICKERS SECURITIES Page 96

Company Guide Sembcorp Industries

Balance Sheet: SCI’s gearing stood at 0.4x as of end 2015 – a stark contrast to a net cash position in 2013; increasing leverage at SMM has been the main reason for the increase in debt levels. Overall though, gearing remains at palatable levels and there is adequate debt headroom of approx S$3bn for SCI’s expansion capex and working capital. Share Price Drivers: Oil price rebound would drive the share price higher. Investors would have greater confidence in the Marine business, as the operating environment improves. While drilling rig orders might lag oil price recovery, we could expect orders for production related facilities to flow through. Order wins in the Marine segment and land sales from Urban Development would bode well for SCI’s share price. While the oil price rebound would be an early indicator, securing contract wins by SMM is a more tangible indicator. More momentum in land sales would signal more hope for growth, and be positive to share price. Widening spark spreads at Singapore power plants. Signs of positive and widening spark spreads in Singapore would alleviate a key concern of investors and provide support to the share price.

Leverage & Asset Turnover (x) 0.9

0.90

0.9

0.80

0.8

0.70

0.8

0.60

0.7

0.50

0.7

0.40

0.6

0.30

0.6

0.20

0.5

0.10

0.5 0.4

0.00 2013A

2014A

2015F

Gross Debt to Equity (LHS)

2016F

2017F

Asset Turnover (RHS)

Capital Expenditure S$m 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 0.0 2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 16.0% 14.0% 12.0% 10.0% 8.0%

Key Risks: Increasing competition in the Singapore power market. Total power generation supply in Singapore rose over 9% y-o-y in the past two years, marking the biggest y-o-y jumps since the electricity market started. This has depressed prices and hurt SCI’s bottom line. The oversupply of capacity and overcommitment of gas supply issues will likely continue to plague Singapore power market in the near-to-medium term. Execution of Indian power plants. The availability of coal supply and power purchase agreements (PPA) for SCI’s power plants in India have been a concern. We find comfort that the TPCIL plant is up and running on 86% of capacity committed on long term PPAs and operating on both domestic and imported coal. Company Background Sembcorp Industries (SCI) is a trusted provider of essential energy and water solutions to both industrial and municipal customers. It has facilities with 10,600 megawatts of gross power capacity and over 10 million cubic metres of water per day in operation and under development. It is also a world leader in marine and offshore engineering (via Sembcorp Marine) as well as an established brand name in urban development (comprising industrial parks as well as business, commercial and residential space) in Vietnam, China and Indonesia.

6.0% 4.0% 2.0% 0.0% 2013A

2014A

2015F

2016F

2017F

Forward PE Band (x) (x) 16.0

+2sd: 15.3x 14.0

+1sd: 13.8x Avg: 12.2x

12.0

‐1sd: 10.6x

10.0

‐2sd: 9.1x 8.0 6.0 Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

PB Band (x) (x) +2sd: 2.56x

2.5

+1sd: 2.12x

2.0

Avg: 1.69x 1.5

‐1sd: 1.26x 1.0

‐2sd: 0.82x 0.5 Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 97 Page 5

Company Guide Sembcorp Industries

Key Assumptions FY Dec

2013A

2014A

2015A

2016F

2017F

Marine contract wins

4,193

4,192

3,150

2,500

3,000

Segmental Breakdown FY Dec

2013A

2014A

2015AF

2016F

2017F

5,138 5,526 12.5 122 10,798

4,850 5,831 6.54 208 10,895

4,227 4,967 7.95 342 9,545

4,595 3,790 8.61 274 8,667

4,693 4,401 10.3 219 9,324

450 337 50.2 (16.6) 820

408 340 44.3 8.78 801

701 (176) 33.5 (9.7) 549

411 158 33.8 (22.1) 581

447 162 34.2 (17.6) 626

8.8 6.1 401.4 (13.6) 7.6

8.4 5.8 678.1 4.2 7.4

16.6 (3.6) 421.3 (2.8) 5.8

8.9 4.2 392.9 (8.1) 6.7

9.5 3.7 330.7 (8.0) 6.7

Revenues (S$m) Utilities Marine Industrial Parks Other Businesses and Total Net Profit before EI Utilities Marine Industrial Parks Other Businesses and Total Net Profit before EI Utilities Marine Industrial Parks Other Businesses and Total

Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2013A

2014A

2015A

2016F

2017F

10,798 (9,510) 1,287 (339) 948 212 155 (101) 0.0 1,214 (117) (277) 0.0 820 820 1,619

10,895 (9,480) 1,415 (352) 1,062 76.7 158 (50.7) 0.0 1,246 (162) (283) 0.0 801 801 1,612

9,545 (8,813) 732 (524) 207 418 6.20 (205) 0.0 426 28.1 94.5 0.0 549 549 1,015

8,667 (7,600) 1,067 (295) 772 38.8 95.7 (69.3) 0.0 838 (154) (103) 0.0 581 581 1,311

9,324 (8,175) 1,149 (317) 832 38.8 97.6 (74.6) 0.0 895 (164) (103) 0.0 626 626 1,393

6.0 4.6 (10.5) 8.9

0.9 (0.4) 12.0 (2.4)

(12.4) (37.0) (80.5) (31.5)

(9.2) 29.1 272.6 5.8

7.6 6.3 7.7 7.9

11.9 8.8 7.6 16.9 6.2 9.5 37.0 9.4

13.0 9.7 7.4 14.8 5.2 8.3 35.7 21.0

7.7 2.2 5.8 9.1 3.0 1.4 35.8 1.0

12.3 8.9 6.7 8.8 2.9 3.9 34.0 11.1

12.3 8.9 6.7 8.9 3.1 4.1 32.0 11.2

Source: Company, DBS Bank

ASIAN INSIGHTS Page 6

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Company Guide Sembcorp Industries

Quarterly / Interim Income Statement (S$m) FY Dec 4Q2014 1Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

2Q2015

3Q2015

4Q2015

2,664 (2,241) 424 (63.3) 360 0.0 35.4 (37.0) 0.0 359 (25.6) (92.1) 241 241 396

2,338 (2,050) 289 (74.9) 214 0.0 40.0 (25.5) 0.0 228 (40.5) (45.5) 142 142 254

2,388 (2,035) 353 (102) 251 0.0 58.5 (50.1) 54.5 314 (41.1) (49.6) 224 169 310

2,399 (2,110) 290 (104) 186 0.0 21.2 (57.0) 0.0 150 (10.9) (17.0) 122 122 207

2,419 (2,619) (200) (252) (451) 0.0 (114) (72.6) 371 (266) 121 207 60.8 (310) (565)

(13.2) 22.7 21.2 22.6

(12.2) (35.9) (40.7) (41.0)

2.1 nm 17.6 18.9

0.5 nm (26.0) (27.7)

0.8 nm nm (353.7)

15.9 13.5 9.0

12.3 9.1 6.1

14.8 10.5 9.4

12.1 7.8 5.1

(8.3) (18.7) 2.5

Balance Sheet (S$m) FY Dec

2013A

2014A

2015AF

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

5,127 1,852 1,086 2,257 2,241 1,140 52.8 13,754

7,725 2,074 1,246 1,663 3,205 1,200 63.8 17,176

8,685 2,349 1,273 1,609 4,233 1,568 201 19,915

9,282 2,375 1,273 1,036 4,127 1,733 201 20,024

9,859 2,403 1,273 987 4,238 1,865 201 20,821

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

414 2,692 1,796 1,485 837 5,230 1,300 13,754

1,086 2,745 1,526 3,649 938 5,616 1,616 17,176

1,801 3,388 758 5,032 894 6,433 1,610 19,915

1,801 3,076 691 5,032 894 6,817 1,713 20,024

1,801 3,310 723 5,032 894 7,246 1,816 20,821

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

(1,054) 358 39.1 109.5 81.8 0.8 1.2 0.7 CASH CASH 61.3 2.1

198 (3,071) 39.2 108.3 108.4 0.7 1.1 0.5 0.4 0.5 27.4 1.6

1,856 (5,223) 52.9 132.8 161.0 0.5 1.3 0.5 0.6 0.8 20.2 1.5

2,295 (5,797) 69.5 163.9 212.0 0.4 1.3 0.5 0.7 0.9 14.6 1.5

2,272 (5,846) 70.4 150.3 196.9 0.5 1.3 0.5 0.6 0.8 14.6 1.5

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 99 Page 7

Company Guide Sembcorp Industries

Cash Flow Statement (S$m) FY Dec

2013A

2014A

2015A

2016F

2017F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)

1,214 303 (125) (155) 141 92.0 1,470 (1,164) 16.1 (284) 94.7 (21.0) (1,358) (413) 393 0.0 81.9 61.8 22.1 196 73.9 17.0

1,246 315 (119) (158) (1,414) 72.9 (57.4) (1,298) 4.30 (280) 122 10.9 (1,441) (539) 393 0.0 1,049 903 1.78 (594) 76.1 (76.0)

426 405 (150) (6.2) (1,961) 525 (761) (1,381) 9.98 (427) 129 471 (1,199) (415) (982) 0.0 3,289 1,892 14.7 (53.0) 67.3 (120)

837 403 (192) (95.7) (401) 0.0 552 (1,000) 0.0 0.0 70.0 0.0 (930) (196) 0.0 0.0 0.0 (196) 0.0 (575) 53.4 (25.1)

893 424 (154) (97.6) 12.8 0.0 1,079 (1,000) 0.0 0.0 70.0 0.0 (930) (197) 0.0 0.0 0.0 (197) 0.0 (48.6) 59.7 4.41

Source: Company, DBS Bank Target Price & Ratings History 5.08

S$ S.No.

4.58

2

4.08 1 3.58

3

6

4 5

3.08

8

7 10 9

2.58

11 12

2.08 Feb-15

Jun-15

Oct-15

Dat e

Closing Pric e

T arget Rat ing Pric e

1:

18 F eb 15

4.24

4.80

BUY

2:

08 May 15

4.37

4.30

HOLD

3:

10 Aug 15

3.72

4.10

BUY

4:

19 Aug 15

3.39

0.98

BUY

5:

31 Aug 15

3.42

4.00

BUY

6:

18 Sep 15

3.50

4.00

BUY

7:

23 Sep 15

3.53

4.00

BUY

8:

30 Oct 15

3.58

4.20

BUY

9:

09 Dec 15

3.04

3.80

BUY

10:

06 J an 16

2.92

0.91

BUY

11: 12:

22 Jan 16 27 Jan 16

2.34 2.23

3.80 3.50

BUY BUY

Feb-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

ASIAN INSIGHTS Page 8

VICKERS SECURITIES Page 100

Company Guide Sembcorp Industries

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

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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.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 18 Feb 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

ASIAN INSIGHTS

VICKERS SECURITIES Page 101 Page 9

Company Guide Sembcorp Industries

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1.

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in Sembcorp Industries, Sembcorp Marine recommended in this report as of 31 Jan 2016

2.

DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.

Compensation for investment banking services: 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.

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Wong Ming Tek, Executive Director, ADBSR Singapore

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.

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This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC rd Branch) having its office at PO Box 506538, 3 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.

ASIAN INSIGHTS Page 10

VICKERS SECURITIES Page 102

Company Guide Sembcorp Industries

United States

This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

ASIAN INSIGHTS

VICKERS SECURITIES Page 103Page 11

Singapore Company Guide

Sheng Siong Group Refer to important disclosures at the end of this report

Edition 1 Version 2 | Bloomberg: SSG SP | Reuters: SHEN.SI

DBS Group Research . Equity

15 Dec 2015

BUY

Still Going Strong

STI : 2,815.04) Last Traded Price: S$0.84 (STI Price Target: S$1.01 (21% upside)

Maintain BUY; margins, store expansion, revenue and earnings growth remain on track. We continue to like SSG as earnings are firing on all cylinders. SSG is on track towards its 50-store target, margin expansion trend is performing to our expectations, and there is no let up in SSSG. The company is one of the most well-run grocery retailers in ASEAN, leading regional peers in profitability, cashflow generation and working capital management. Dividend continues to be attractive at 4.3% based on FY16F DPS of 3.6 Scts.

Potential Catalyst: Margin expansion, store growth Where we differ: differ: Below, on more muted growth Analyst Alfie Yeo +65 6682 3717 [email protected] Andy Sim +65 6682 3718 [email protected]

Price Relative S$

Relative Index

1.0

222

0.9

202

0.8

182

0.7

162

0.6

142

0.5

122

0.4

102

0.3 Nov-11

Nov-12

Nov-13

Sheng Siong Group (LHS)

Forecasts and Valuation FY Dec (S$m S$m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth (%) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Nov-14

82 Nov-15

Relative STI INDEX (RHS)

2014A 2014A 726 63.0 57.1 47.0 47.0 3.13 3.13 11 11 3.13 2.88 15.7 26.9 26.9 17.6 18.0 3.4 5.3 CASH 24.3

Earnings Rev (%): Consensus EPS (S cts):: Other Broker Recs:

2015F 2015F 782 71.5 68.2 56.1 56.1 3.73 3.73 19 19 3.73 3.36 16.1 22.5 22.5 17.0 15.9 4.0 5.2 CASH 23.4

2016F 2016F 846 79.7 74.1 60.9 60.9 4.05 4.05 9 9 4.05 3.64 16.5 20.7 20.7 15.8 14.2 4.3 5.1 CASH 24.9

2017F 2017F 816 79.5 74.4 61.2 61.2 4.07 4.07 0 0 4.07 3.66 16.9 20.6 20.6 17.2 14.1 4.4 5.0 CASH 24.4

3.80 B: 9

4.10 S: 0

4.50 H: 0

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ASIAN INSIGHTS ed: TH / sa: JC

On track for store expansion, margins to improve going forward, longerlonger-term drivers continue to develop. Sheng Siong will have 39 stores by year-end, in line with our expectations and eventual target of 50 stores. We see margins normalising going into 4Q15 as 1) input prices for fresh food should ease as logistical disruption and the haze clears up; and 2) pricing should be less aggressive post SG50 and seventh month promotions. Online initiative remains in the pilot phase. Online sales for grocery retail remain in its infancy in Singapore and we therefore believe Sheng Siong can afford to develop this business over a longer time frame. Developments in China continue to be on securing suitable sites in Kunming. As the grocery retail scene in China is facing intensifying competition, especially from online channels, we also believe time is on Sheng Siong’s side to land the ideal location. Valuation: Our target price for Sheng Siong is S$1.01 based on 25x FY16F PE. Valuation is pegged to below +1SD of its historical mean and below regional peers' average of 27x PE. Key Risks to Our View: Store openings, price competition. Revenue growth will be led by new store openings, since SSSG is low at <0.5%. Excessive discounts and promotions in the market by competitors will ultimately result in lower margins. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders SS Holdings (%) Lim Family (%) Hock Leng Lim (%) Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Consumer Services / Food & Drug Retailers

1,504 1,263 / 896 29.9 34.0 11.3 36.2 1.2

VICKERS SECURITIES Page 104

Company Guide Sheng Siong Group Rev per sqft

CRITICAL DATA POINTS TO WATCH Earnings Drivers: Store expansion. Sheng Siong currently operates only 38 stores (39 by year-end). Compared to the other local operators, it has scope to expand its store network, particularly in areas such as Bukit Batok, Serangoon, Hougang and Seng Kang where it has a low presence. Management targets to ultimately operate 50 stores islandwide. In the past six years, store opening has ranged from 0-8 stores annually, largely a function of the supply of HDB shop space available for tender and Sheng Siong’s ability to win the tenders. Sheng Siong mainly operates in HDB estates.

1,815

1,718

1,800

1,935

1,890

1,890

2015F

2016F

2017F

1,600 1,400 1,200 1,000 800 600 400 200 0 2013A

2014A

Operation Area (sqft) 486,000

476,500

466,500

2016F

2017F

436,500 400,000

404,000

2013A

2014A

388,800

Gross margin expansion through through better sales mix. The gross margin for fresh products is estimated to be >30%, and close to 20% for non-fresh grocery items. Sheng Siong’s product mix stands at approximately 40% fresh vs 60% non-fresh. We see headroom for sales mix to improve to 50% as it skews its store offering more towards fresh products. Margin expansion through bulk purchasing at its Mandai Distribution Centre. The Mandai Distribution Centre allows Sheng Siong to perform direct sourcing and bulk handling. This effectively drives down input costs, resulting in cost savings and better margins. We estimate that the facility is currently running at only 60% of capacity and expects it to achieve >80% ultimately as it secures more suppliers and products to trade through the distribution centre. Margins are expected to trend up as utilisation increases towards optimal capacity.

291,600 194,400 97,200 0 2015F

Number of stores 47.9

47

44 39

38.4 33

34

2013A

2014A

28.8 19.2 9.6 0.0

Margin expansion through direct sourcing. Increasingly, Sheng Siong is sourcing directly from source such as farms instead of from middlemen. The company has the resources to place orders in cheaper but large quantities, which is welcomed by producers.

2015F

2016F

2017F

Same store sales growth 5.0% 4.5% 4.0% 3.5%

Generating more samesame-storestore-sales growth to increase revenue. Sheng Siong has been able to maintain a positive SSSG since 4Q13 through longer operating hours and renovation of older stores, offering the correct products and effective marketing. Maintaining a positive SSSG will support earnings growth.

Uptick driven by seventh month festival,

3.0% 2.5% 2.0%

Affected by SG50 promotion and discounting

1.5% 1.0% 0.5% 0.0%

Future earnings drivers, e-commerce and China JV (in Kunming). Both developments are at their initial stages. The market for e-commerce remains small and the business model in Kunming is still under trial. This is even though Sheng Siong already has 1) an up-and-running e-commerce operation which services selected areas in Singapore; and 2) the JV in Kunming has already secured the relevant licences to operate there. It targets to open its first Kunming store in 2H15. Downside for the JV is limited to US$6m paid-up capital which is sufficient to open 2-3 new stores.

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

Gross margin GP M ( %) 25 24

+5.5 ppt

23 22 21 20

24.2

19 18 17

21.8

22.1

22.1

10

11

12

23.0

20.5 18.7

16 15

08

09

13

14

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 105Page 79

Company Guide Sheng Siong Group

Balance Sheet: Net cash of over S$125 S$125m 25m or 8 Scts per share. The excess cash allows for strategic store acquisitions if suitable real estate arises for it to expand its store presence in the future. The business generates positive working capital. Inventory is purchased on credit, turned quickly and sold for cash. Over the past seven years, the business has generated between S$20-75m of operating cashflow each year. Dividend payout is attractive at 90%. We expect this to be maintained as long as there is no significant requirement for cash funding. Share Price Drivers: Strong earnings growth performance. Sheng Siong’s financial performance has consistently met our expectations, delivering earnings growth (CAGR of 20.4% since FY11) through a combination of margin expansion, store growth and SSSG. It is this consistency, together with strong dividend payout of 90% and yield of 4%, that has led to the stock’s re-rating from 20x to 22x FY15F PE currently. We believe continued delivery of consistent performance and profit growth will support a strong share price. China to be a wildcard. We believe Sheng Siong’s JV in China is a wildcard. If operations prove to be successful in time to come, China will provide an alternate source of growth in the future. There is scope for the number of stores to increase should Sheng Siong’s business model work. Downside remains limited to US$6m for now should the JV fail. Key Risks: Revenue growth limited by store openings. Store expansion in Singapore is largely dependent on the supply of new supermarket retail space released by HDB and its ability to secure the tenders.

Leverage & Asset Turnover (x) 0.05

2.9

0.05

2.8

0.04

2.7

0.04 0.03

2.6

0.03

2.5

0.02

2.4

0.02

2.3

0.01

2.2

0.01 0.00

2.1 2013A

2014A

2015F

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure S$m 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0

2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

2013A

2014A

2015F

2016F

2017F

Forward PE Band (x) (x) 25.5

Excessive discounts and promotions may erode margins. Heavier discounts and promotions vis-a-vis competitors would drive sales revenue, but this could be gained at the expense of margins.

23.5

+2sd: 23.7x

21.5

+1sd: 21.8x

19.5

Avg: 19.9x -1sd: 18.1x

17.5

Company Background Sheng Siong is the third largest supermarket operator in Singapore, behind NTUC Fairprice and Dairy Farm International.

-2sd: 16.2x

15.5 13.5 Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

PB Band (x) (x) 7.1 6.6

+2sd: 6.39x

6.1 5.6

+1sd: 5.71x

5.1

Avg: 5.03x

4.6

-1sd: 4.35x 4.1

-2sd: 3.67x

3.6 3.1 Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Source: Company, DBS Bank

ASIAN INSIGHTS Page 80

VICKERS SECURITIES Page 106

Company Guide Sheng Siong Group

Key Assumptions FY Dec Rev per sqft Operation Area (sqft) Number of stores

Segmental Breakdown FY Dec Revenues (S$m) Singapore

Total Operating profit (S$m) Singapore

Total Operating profit Margins (%) Singapore

Total Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) PrePre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

1,718 400,000 33.0

1,815 404,000 34.0

1,935 436,500 39.0

1,890 476,500 44.0

1,890 466,500 47.0

Lease of 40,000 sqft Woodlands store to expire 2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

687

726

782

846

816

687

726

782

846

816

41.6

52.2

58.3

65.4

65.7

41.6

52.2

58.3

65.4

65.7

6.1

7.2

7.5

7.7

8.1

6.1

7.2

7.5

7.7

8.1

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

687 (529) 158 (117) 41.6 4.89 0.0 1.05 0.0 47.6 (8.7) 0.0 0.0 38.9 38.9 51.7

726 (550) 176 (124) 52.2 3.80 0.0 1.19 0.0 57.1 (10.2) 0.0 0.0 47.0 47.0 63.0

782 (589) 192 (134) 58.3 9.31 0.0 0.65 0.0 68.2 (12.2) 0.0 0.0 56.1 56.1 71.5

846 (637) 209 (143) 65.4 8.04 0.0 0.62 0.0 74.1 (13.2) 0.0 0.0 60.9 60.9 79.7

816 (612) 204 (138) 65.7 8.04 0.0 0.66 0.0 74.4 (13.3) 0.0 0.0 61.2 61.2 79.5

7.9 19.8 19.8 24.7

5.6 21.9 25.3 20.8

7.7 13.4 11.7 19.3

8.2 11.5 12.3 8.6

(3.5) (0.2) 0.5 0.5

23.0 6.1 5.7 25.8 15.9 22.3 92.5 NM

24.2 7.2 6.5 24.3 15.8 22.0 92.1 NM

24.6 7.5 7.2 23.4 15.9 19.8 90.0 NM

24.7 7.7 7.2 24.9 16.6 21.8 90.0 NM

25.0 8.1 7.5 24.4 16.3 21.3 90.0 NM

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 107Page 81

Company Guide Sheng Siong Group

Quarterly / Interim Income Statement (S$m) 3Q2014 4Q2014 FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) PrePre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015 1Q2015

2Q2015 2Q2015

3Q2015 3Q2015

186 (141) 45.1 (31.7) 13.4 1.33 0.0 0.52 0.0 15.2 (2.8) 0.0 12.5 12.5 17.4

178 (135) 43.3 (29.6) 13.7 0.0 0.0 0.31 0.0 14.0 (2.2) 0.0 11.8 11.8 16.5

198 (150) 48.5 (33.9) 14.6 2.24 0.0 0.27 0.0 17.1 (3.0) 0.0 14.1 14.1 20.0

179 (134) 45.1 (31.5) 13.6 2.30 0.0 0.30 0.0 16.2 (2.6) 0.0 12.6 12.6 19.2

200 (151) 48.8 (33.8) 15.0 2.78 0.0 0.34 0.0 18.1 (3.5) 0.0 12.7 12.7 21.2

8.6 8.5 7.8 12.6

(4.3) (5.4) 2.0 (5.5)

11.2 21.5 6.6 19.2

(9.8) (4.2) (6.6) (10.1)

11.7 10.4 10.5 0.2

24.2 7.2 6.7

24.3 7.7 6.6

24.4 7.3 7.1

25.2 7.6 7.1

24.4 7.5 6.3

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

90.8 0.0 0.0 99.7 45.6 12.3 0.0 248

161 0.0 0.0 130 43.1 10.8 0.0 345

178 0.0 0.0 124 46.1 11.5 0.0 359

181 0.0 0.0 132 49.8 12.4 0.0 375

178 0.0 0.0 140 47.8 11.9 0.0 377

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

0.0 88.2 7.94 0.0 2.29 150 0.0 248

0.0 95.9 10.7 0.0 2.20 236 0.0 345

0.0 103 12.2 0.0 2.20 242 0.0 359

0.0 112 13.2 0.0 2.20 248 0.0 375

0.0 108 13.3 0.0 2.20 254 0.0 377

(38.4) 99.7 5.0 59.0 30.1 2.8 1.6 1.2 CASH CASH N/A 10.7

(52.7) 130 5.8 62.3 30.0 2.4 1.7 1.3 CASH CASH N/A 9.9

(57.8) 124 5.2 63.1 28.3 2.2 1.6 1.2 CASH CASH N/A 9.5

(62.7) 132 5.2 63.0 28.1 2.3 1.6 1.2 CASH CASH N/A 9.1

(61.2) 140 5.4 66.9 29.8 2.2 1.6 1.3 CASH CASH N/A 9.3

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) Balance Sheet (S$m) FY Dec

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

Source: Company, DBS Bank

ASIAN INSIGHTS Page 82

VICKERS SECURITIES Page 108

Company Guide Sheng Siong Group

Cash Flow Statement (S$m) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

47.6 10.1 (8.7) 0.0 (2.6) (1.2) 45.1 (26.1) 0.0 0.0 0.0 1.05 (25.0) (40.8) 0.0 0.0 0.0 (40.8) 0.0 (20.7) 3.45 1.38

57.1 10.9 (7.5) 0.0 11.5 (0.3) 71.7 (80.8) 0.0 0.0 0.0 0.92 (79.9) (40.1) 0.0 79.0 0.0 38.9 0.0 30.8 4.00 (0.6)

68.2 13.2 (10.7) 0.0 3.70 0.0 74.4 (30.5) 0.0 0.0 0.0 0.0 (30.5) (50.5) 0.0 0.0 0.0 (50.5) 0.0 (6.5) 4.70 2.92

74.1 14.3 (12.2) 0.0 3.81 0.0 80.0 (17.5) 0.0 0.0 0.0 0.0 (17.5) (54.8) 0.0 0.0 0.0 (54.8) 0.0 7.71 5.07 4.16

74.4 13.8 (13.2) 0.0 (1.5) 0.0 73.5 (10.5) 0.0 0.0 0.0 0.0 (10.5) (55.1) 0.0 0.0 0.0 (55.1) 0.0 7.95 4.99 4.19

Source: Company, DBS Bank Target Price & Ratings History 0.96

S$

0.91

6

0.86

4

5

7

0.81 0.76

T arget Rat ing Pric e

S.No.

Dat e

Closing Price

1:

18 Dec 14

0.67

0.78

BUY

2:

13 J an 15

0.71

0.82

BUY

3:

26 F eb 15

0.74

0.83

BUY

4:

24 Apr 15

0.83

0.90

BUY

5:

22 J ul 15

0.88

0.98

BUY

6:

24 J ul 15

0.89

1.00

BUY

7:

23 Oct 15

0.88

1.01

BUY

2 0.71

3

0.66

1 0.61 Nov-14

Mar-15

Jul-15

Nov-15

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 109Page 83

Company Guide Sheng Siong Group DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) (b)

such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 15 Dec 2015, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). COMPANYCOMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 30 Nov 2015 2.

DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.

Compensation for investment banking services: 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.

ASIAN INSIGHTS Page 84

VICKERS SECURITIES Page 110

Company Guide Sheng Siong Group

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In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

ASIAN INSIGHTS

VICKERS SECURITIES Page 111Page 85

Singapore Company Guide

SIA Engineering Refer to important disclosures at the end of this report

Version 3 | Bloomberg: SIE SP | Reuters: SIAE.SI

DBS Group Research . Equity

2 Feb 2016

BUY Upgrade from HOLD

Time for a re-look

Last Traded Price: S$3.41 (STI : 2,602.41) Price Target : S$3.84 (13% upside)

3QFY16 results provide some relief. Headline net profit came in slightly above our expectations at S$49.4m (+ 7% y-o-y; +11% q-o-q). Two things stood out – core operating margins continued on a recovery trend to 10.5% and engine MRO centres registered sizeable rebound in profitability after some relatively weak quarters.

Potential Catalyst: Special dividends, M&A acitivity Where we differ: More optimistic call than consensus based on balance sheet strength, dividend promise and M&A potential Analyst Suvro SARKAR +65 6682 3720 [email protected]

Outlook not the best but worst could be over. SIE’s heavy maintenance segment has been grappling with longer intervals between maintenance cycles of new planes, and engine shops’ performance has also been soft as some older engine models are phased out. However, new capabilities have been built and maintenance requirements will eventually catch up over a 2-3 year timeframe. Given that we are already about 7 quarters into a downcycle, a recovery can’t be that far off.

What’s New 

3Q-FY16 results inspire some confidence



Worst could be over for earnings



Possibility of special dividends exists



Upgrade to BUY, TP S$3.84

Limited growth in FY16/17, but there is potential for special dividends. We are not expecting strong earnings growth in FY15-17 but the fleet management JV with Boeing is up and running and will drive growth in the longer term. SIAEC has also recently restructured its shareholdings in engine MRO JVs with Rolls Royce, which will result in one-off disposal gain of S$186.8m (reflected in our FY16 forecast) once completed. This could result in special dividends either in FY16 or FY17.

Price Relative S$

Relative Index

5.4

203

4.9

183 163

4.4

143 3.9

123

3.4

103

2.9 Jan-12

Jan-13

SIA Engineering (LHS)

Forecasts and Valuation FY Mar (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Jan-14

Jan-15

83 Jan-16

Relative STI INDEX (RHS)

2014A 1,178 315 294 266 265 (1.7) 23.8 23.8 (3) 23.3 25.0 122 14.3 14.4 33.7 10.5 7.3 2.8 CASH 20.0

Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:

2015A 1,121 233 205 183 177 (33.1) 16.3 15.8 (33) 16.1 14.5 118 20.9 21.6 39.8 14.7 4.3 2.9 CASH 13.6

2016F 1,106 234 388 367 181 1.8 32.5 16.0 1 32.3 17.5 137 10.5 21.3 11.7 13.8 5.1 2.5 CASH 25.6

2017F 1,106 239 201 181 181 0.2 15.9 15.9 0 15.8 17.5 137 21.4 21.4 28.4 13.8 5.1 2.5 CASH 11.7

B: 1

15.5 S: 1

16.3 H: 5

Valuation: Given the possibility of sequential earnings recovery, special dividends, and potential M&A activity, we upgrade our call to BUY. The stock is down around 15% since its recent peak last November and provides a better entry point. Our TP of S$3.84 is based on a blended valuation framework (PE, dividend yield and DCF), and includes a 10% M&A candidate premium. Key Risks to Our View: Further earnings downside. While we reckon the worst could be over on the earnings front, we cannot rule out a lengthy period of slow MRO demand amid structural changes in the industry. Increasing competition in the region could also lead to renewed stress on the margins front. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Singapore Airlines Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Industrials / Industrial Transportation

1,122 3,825 / 2,686 77.6 22.4 0.74

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ASIAN INSIGHTS ed: JS / sa:YM

VICKERS SECURITIES Page 112

Company Guide SIA Engineering

WHAT’S NEW Best headline numbers in six quarters 3Q-FY16 net profit for SIA Engineering came in slightly above estimates at S$49.4m (up 7% y-o-y and 11% q-o-q), boosted by one-off gains from JV/associates and decent operating margins. Revenue was up 4% y-o-y in 3Q-FY16 to S$275m on the back of higher fleet management and line maintenance volumes. Core operating margin was relatively healthy at 10.5% in 3Q-FY16, a tad higher than 2Q-FY16 levels and significantly better than FY15 operating margin of 7.5%. The y-o-y improvement was due to better control of material costs and subcontracting costs. Some encouragement from engine centres. Share of profits from JV/ associates were up 31% y-o-y and 77% q-o-q to S$33.2m, mainly driven by one-time restructuring gains, including profit from the sale of facilities. But what was encouraging was that profit from engine MRO centres was up by S$4m y-o-y and about S$8m q-o-q to S$19.6m. Whether this improvement is one-off or can be sustained is the question of course, as management indicated that performance of the engine shops will continue to be impacted by reduced shop visits and lower work content for newer engine types. Balance sheet further strengthened by HAESL transaction. Net book value increased by 11.2% or S$148.6m from a fair

value adjustment for the group’s interest in HAESL, in line with the earlier announcement regarding SIE’s divestment of its 10% stake in HAESL. Carrying value of the investment in HAESL increased to S$164m from S$14.6m earlier, based on the proposed sale price. To recap, SIE will be booking close to S$186.8m of gains from the restructuring of its shareholdings in Rolls Royce engine centres HAESL and SAESL (including dividends from HAESL) once the transactions are completed, likely in 4Q-FY16, pending the receipt of necessary approvals. Focus on rationalisation. Management indicated that the operating conditions for the MRO industry remain challenging and SIE will continue its efforts to control costs and strengthen efficiencies. The group will also be looking to pursue ongoing initiatives to streamline and rationalise its core businesses. Restructuring of its shareholdings in various JV/ associates are part of this process. Special dividends in the offing? Factoring in the cash received from the HAESL transactions, once completed, we estimate SIE’s cash reserves could swell beyond S$600m. Thus, we believe the Board could look at the possibility of special dividends in FY16 or FY17. We are currently expecting higher dividend of 17.5Scts in FY16/17 compared to 14.5Scts paid out in FY15, but we cannot rule out further dividend upside if the Board decides to pay out more of the disposal gains.

Quarterly / Interim Income Statement (S$m) FY Mar

3Q2015

Revenue

2Q2016

3Q2016

% chg yoy

% chg qoq

265

266

275

3.7

3.5

Cost of Goods Sold

(241)

(239)

(246)

2.2

3.0

Gross Profit

24.3

27.0

29.0

19.3

7.4

0.0

0.0

0.0

nm

nm

24.3

27.0

29.0

19.3

7.4

0.0

0.0

0.0

nm

nm

Associates & JV Inc

25.3

18.7

33.2

31.2

77.5

Net Interest (Exp)/Inc

2.40

1.90

1.80

(25.0)

(5.3)

Exceptional Gain/(Loss)

0.10

2.80

(7.1)

nm

(353.6)

Pre-tax Profit

52.1

50.4

56.9

9.2

12.9

Tax

(5.3)

(4.9)

(5.9)

11.3

(20.4)

Minority Interest

(0.5)

(1.0)

(1.6)

220.0

60.0

Net Profit

46.3

44.5

49.4

6.7

11.0

Net profit bef Except.

46.2

41.7

56.5

22.3

35.5

EBITDA

60.6

56.5

73.2

20.8

29.6

Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc

Margins (%) Gross Margins

9.2

10.2

10.5

Opg Profit Margins

9.2

10.2

10.5

Net Profit Margins

17.5

16.7

18.0

Source of all data: Company, DBS Bank

ASIAN INSIGHTS Page 2

VICKERS SECURITIES Page 113

Company Guide SIA Engineering Base maintenance revenue

CRITICAL DATA POINTS TO WATCH 585

Earnings Drivers: Close to 60% of top line is driven by parent SIA. This is mainly due to legacy reasons, as SIE was born as the in-house MRO operations centre of SIA before it was independently listed in 2000. The growth and maintenance cycle of SIA's fleet therefore strongly impact SIE’s core businesses of line maintenance, heavy maintenance and fleet management.

579

552

490

512

452

2016F

2017F

366 292 219 146 73 0 2013A

Line maintenance division largely driven by Changi Airport traffic. SIE already captures around 90% of the line maintenance market at Changi Airport, thus market share gains are unlikely. We estimate flights handled by SIE to grow by 2% annually in FY16 and FY17. In the longer term, continued growth of Singapore as a tourism hub to the region and the addition of capacity via the upcoming Terminals 4 and 5 should help drive line maintenance revenues and earnings.

461

439

2014A

2015A

Line maintenance revenue 456

421

435

442

447

447

2013A

2014A

2015A

2016F

2017F

365 274 182 91

Heavy maintenance headwinds prevail in near term. The heavy maintenance segment saw revenues decline sharply by 15% in FY15, which was largely attributed to the phasing in of newer aircrafts with longer maintenance cycles and less need for maintenance by virtue of just being new. This trend would weigh on SIE’s heavy maintenance business.

0

Fleet management revenue 212 188 174

127

JVs/associates contribute roughly 50-60% to the bottomline. SIE has 26 associates and JVs in nine countries, with engine overhaul centres comprising the bulk of JV/associate revenues. However, the phasing out of older generation engine models and extended maintenance cycles for their successors continue to dampen contributions from the company’s key engine MRO centres Eagle Services Asia and SAESL. The recent sale of SIE’s 10% shareholding in HK-based engine centre HAESL will result in onetime disposal gain of close to S$186.8m but loss of recurring dividends of about S$8-10m annually.

164

207

165

169

SIE will need to adapt to an OEM-centric environment. How SIE responds to the trend of OEMs entering the aftermarket services space is important. In 2015, SIE incorporated a fleet management JV with Boeing – its first with an airframe OEM. The deal allows SIE to penetrate new markets in Asia and will be the key growth driver in the medium to long term. Entrance into similar partnerships in the future could thus boost earnings.

198

85 42 0 2013A

2014A

2015A

2016F

2017F

Profit from associates & JVs 163 150

144 123

106

103

85

89

2016F

2017F

82 62 41 21 0 2013A

2014A

2015A

Slump in oil price is a positive. The slump in fuel prices since September 2014 means airlines across the world are benefitting in terms of their bottom lines, and this should encourage more MRO spending in the medium term if oil prices stay benign. Management had indicated earlier that the aircraft MRO cycle should start to turn again over the next 2-3 years, as maintenance cycles cannot be deferred forever, even for new aircraft types. Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 114 Page 3

Company Guide SIA Engineering

Balance Sheet: Strong balance sheet provides headroom for expansion. SIE has very low leverage at only a 0.02x gross debt-to-equity ratio, and is in a net cash position with close to S$350m of cash reserves on its balance sheet. SIE therefore has ample room to take on additional debt to fund attractive projects, should they arise.

Leverage & Asset Turnover (x) 0.8 0.14 0.8

0.12 0.10

0.7

0.08

0.7

0.06 0.6 0.04

Dividend boost likely. SIE had to cut dividends in FY15 owing to poorer operating and financial performance, and the outlook for FY16/17 dividends was not great either.(contradicts point on page2) But the recent sale of its 10% shareholding in HK-based engine MRO HAESL and restructuring of Singapore-based engine MRO JV SAESL have resulted in cash proceeds of around S$200m (including dividends). Net gain on sale will be around S$186.8m. This will boost SIE’s cash reserves to around S$600m in our opinion, which creates the possibility of special dividends in the near future, given no other use for the cash.

0.6

0.02 0.00

0.5 2013A

2014A

2015A

Gross Debt to Equity (LHS)

2016F

2017F

Asset Turnover (RHS)

Capital Expenditure S$m 80.0 70.0 60.0 50.0 40.0 30.0 20.0

Share Price Drivers: M&A and other corporate activity is a catalyst. In order to tackle some of the structural issues, SIE may consider merging with or partnering third-party MROs with complementary business models. We continue to believe in the merits of a combination of SIA Engineering and ST Aerospace to better consolidate Singapore’s credentials as an aviation hub, as synergies are realised in the form of bigger scale, cost efficiencies and breadth of offerings. Under such a scenario, the target company – in this case, SIA Engineering – usually sees a positive reaction in share price, as other parties may need to pay a premium over market prices. Special dividends. We are currently expecting dividends of 17.5Scts each in FY16/17 (higher than 14.5Scts in FY15), but SIE could choose to be more generous with special dividends at one go. This will provide an upside catalyst. Key Risks: Slow growth at certain associates and joint ventures (JVs). Some of the engine MRO JVs cater to older widebody models, which are being phased out. Demand may be negatively affected as a result. Risk of cannibalisation by OEM partnerships remains salient. New JVs and associates, such as the Boeing fleet management JV, carry the risk of cannibalising some of the group's existing revenue lines, which could slow growth.

10.0 0.0 2013A

2014A

2015A

2016F

ROE (%) 25.0%

20.0%

15.0%

10.0%

5.0%

0.0% 2013A

2014A

2015A

2016F

2017F

Forward PE Band (x) (x) 32.6

+2sd: 32.9x

27.6

+1sd: 28.2x

22.6

Avg: 23.5x ‐1sd: 18.8x

17.6

‐2sd: 14.1x 12.6 Jan-12

Jan-13

Jan-14

Jan-15

PB Band (x) (x) 4.7

Company background Leading regional aircraft maintenance, repair and overhaul (MRO) company with bases in Singapore and Philippines. A comprehensive cluster of JVs with renowned OEMs allows it to provide a full suite of MRO services.

2017F

Capital Expenditure (-)

+2sd: 4.55x

4.2

+1sd: 4.11x

3.7

Avg: 3.66x

3.2

‐1sd: 3.21x

2.7

‐2sd: 2.77x

2.2 Jan-12

Jan-13

Jan-14

Jan-15

Source: Company, DBS Bank

ASIAN INSIGHTS Page 4

VICKERS SECURITIES Page 115

Company Guide SIA Engineering

Segmental Breakdown FY Mar Revenues (S$m) Base maintenance Line maintenance Fleet management

Total

Income Statement (S$m) FY Mar Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2013A

2014A

2015A

2016F

2017F

552 421 174

579 435 165

490 442 188

461 447 198

452 447 207

1,147

1,178

1,121

1,106

1,106

2013A

2014A

2015A

2016F

2017F

1,147 (1,019) 128 0.0 128 0.0 150 18.3 0.50 297 (22.8) (4.1) 0.0 270 270 313

1,178 (1,063) 116 0.0 116 0.0 163 15.1 0.70 294 (23.0) (5.3) 0.0 266 265 315

1,121 (1,037) 84.0 0.0 84.0 0.0 106 9.20 5.90 205 (20.0) (2.1) 0.0 183 177 233

1,106 (999) 106 0.0 106 0.0 85.0 9.20 187 388 (18.1) (2.1) 0.0 367 181 234

1,106 (1,000) 107 0.0 107 0.0 89.3 5.29 0.0 201 (18.1) (2.1) 0.0 181 181 239

(2.0) (4.0) (1.2) 0.7

2.7 0.7 (9.8) (1.7)

(4.9) (26.0) (27.3) (33.1)

(1.3) 0.5 26.8 1.8

0.1 1.9 0.1 0.2

11.2 11.2 23.6 21.1 16.7 8.9 90.1 NM

9.8 9.8 22.6 20.0 15.9 7.6 105.0 NM

7.5 7.5 16.4 13.6 10.9 5.3 88.7 NM

9.6 9.6 33.2 25.6 20.8 6.7 53.8 NM

9.6 9.6 16.4 11.7 9.6 5.9 110.0 NM

Heavy maintenance will likely be the key drag on revenues

Loss of dividend income from HAESL

Source: Company, DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 116 Page 5

Company Guide SIA Engineering

Quarterly / Interim Income Statement (S$m) FY Mar 3Q2015 4Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

265 (241) 24.3 0.0 24.3 0.0 25.3 2.40 0.10 52.1 (5.3) (0.5) 46.3 46.2 60.6

276 (253) 23.1 0.0 23.1 0.0 21.3 1.90 0.30 46.6 (5.5) 0.30 41.4 41.1 55.1

1Q2016

2Q2016

3Q2016

277 (256) 20.9 0.0 20.9 0.0 24.0 2.00 0.0 46.9 (5.2) (0.4) 41.3 41.3 55.6

266 (239) 27.0 0.0 27.0 0.0 18.7 1.90 2.80 50.4 (4.9) (1.0) 44.5 41.7 56.5

275 (246) 29.0 0.0 29.0 0.0 33.2 1.80 (7.1) 56.9 (5.9) (1.6) 49.4 56.5 73.2

(7.0) 9.4 52.8 9.2

4.0 (9.1) (4.9) (11.0)

0.5 0.9 (9.5) 0.5

(4.1) 1.6 29.2 1.0

3.5 29.6 7.4 35.5

9.2 9.2 17.5

8.4 8.4 15.0

7.5 7.5 14.9

10.2 10.2 16.7

10.5 10.5 18.0

Assoc/ JV income better q-oq but includes some one-off items

Loss on closure of an associated company plus provision for impairment for another associated company

Core operating margin improvement is encouraging

Balance Sheet (S$m) FY Mar

2013A

2014A

2015A

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

306 427 63.6 523 108 86.8 119 1,633

337 436 68.9 536 107 117 106 1,707

344 464 76.1 464 125 95.5 88.7 1,657

351 479 76.1 669 123 94.2 88.7 1,881

359 494 76.1 652 123 94.3 88.7 1,887

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

5.70 246 26.2 0.0 25.3 1,302 27.3 1,633

8.20 242 26.0 13.6 26.8 1,361 29.6 1,707

9.30 227 19.8 23.9 26.6 1,325 24.7 1,657

9.30 224 20.5 23.9 26.6 1,550 26.8 1,881

9.30 225 20.5 23.9 26.6 1,553 28.8 1,887

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

41.2 517 31.0 94.7 41.8 0.7 3.0 2.2 CASH CASH 798.2 10.6

61.4 514 31.5 86.9 38.2 0.7 3.1 2.4 CASH CASH 338.5 10.3

61.6 431 34.5 86.2 42.5 0.7 3.0 2.2 CASH CASH 161.1 10.3

61.0 636 31.3 86.2 47.2 0.6 3.8 3.0 CASH CASH 150.6 10.3

61.0 619 31.1 85.6 46.9 0.6 3.8 2.9 CASH CASH 150.6 10.4

Net cash position provides safety in uncertain times

Source: Company, DBS Bank

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Company Guide SIA Engineering

Cash Flow Statement (S$m) FY Mar Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)

2013A

2014A

2015A

2016F

2017F

297 34.9 (26.7) (150) (4.0) (17.5) 134 (45.5) 0.0 0.0 138 18.5 111 (242) 3.20 22.6 (2.4) (219) (0.1) 25.0 12.4 7.96

294 37.0 (23.6) (163) (20.6) (11.2) 113 (73.8) 0.0 1.80 157 16.1 101 (245) 16.1 30.3 (3.1) (202) 0.0 12.8 12.0 3.51

205 42.8 (23.3) (106) (5.1) (17.4) 96.1 (53.5) 0.0 0.0 112 18.9 77.7 (269) 8.80 17.2 (7.9) (251) 5.10 (72.0) 9.02 3.80

388 42.8 (17.4) (85.0) (0.1) 0.0 328 (50.0) 0.0 (20.0) 89.8 0.0 19.8 (163) 0.0 20.0 0.0 (143) 0.0 205 29.0 24.6

201 42.8 (18.1) (89.3) 0.0 0.0 137 (50.0) 0.0 (20.0) 94.3 0.0 24.3 (198) 0.0 20.0 0.0 (178) 0.0 (16.7) 12.0 7.61

Share buybacks expected to continue

Source: Company, DBS Bank Target Price & Ratings History

4.49

S$

4.29 4.09

4 1

3.89

S.No.

Dat e

Closing Pric e

T arget Price

Rat ing

1:

14 May 15

4.02

3.70

FULLY V ALUED

2:

10 Aug 15

3.47

3.70

HOLD

3:

31 Aug 15

3.50

3.52

HOLD

4:

03 Nov 15

3.98

3.84

HOLD

3.69

2

3.49

3 3.29 3.09 Jan-15

May-15

Sep-15

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

ASIAN INSIGHTS

VICKERS SECURITIES Page 118 Page 7

Company Guide SIA Engineering

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a)

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.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 2 Feb 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

ASIAN INSIGHTS Page 8

VICKERS SECURITIES Page 119

Company Guide SIA Engineering

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1.

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in SIA Engineering recommended in this report as of 31 Dec 2015

2.

DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.

Compensation for investment banking services: 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.

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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.

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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

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.

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This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) rd having its office at PO Box 506538, 3 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.

ASIAN INSIGHTS

VICKERS SECURITIES Page 120 Page 9

Company Guide SIA Engineering

United States

This report was prepared by DBS Bank Ltd.. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

ASIAN INSIGHTS Page 10

VICKERS SECURITIES Page 121

Singapore Company Guide

ST Engineering Refer to important disclosures at the end of this report

Edition 1 Version 1 | Bloomberg: STE SP | Reuters: STEG.SI

DBS Group Research . Equity

15 Dec 2015

BUY

Invest for the long term

Last Traded Price: S$2.92 (STI STI : 2,815.04) Price Target : S$3.60 (23% upside)

division is positioned to capitalise capitalise on the Smart The Electronics division Nation revolution in Singapore, Singapore with projects worth more than S$1bn in the near future, according to our estimates. The division has a long track record in providing both hardware and system integration solutions as part of its Smart City capability build up, which breeds optimism. Additionally, recent focus on space-related technology and robotics hold promise as longer-term growth drivers for the company.

Potential Catalyst: Better earnings execution, strong order wins, M&A Where we differ: differ: More conservative on FY16/17 earnings Analyst Suvro SARKAR +65 6682 3720 [email protected]

Targeted investments in Aerospace provide potential potential upside in the mediummedium-term. The aerospace business’s investments into cabin interiors, VIP completions and configurations business in the US, as well as new partnerships with OEMs across the value chain, create new avenues for growth amidst a broadly stable industry environment.

Price Relative S$

Relative Index

4.7 208 4.2

188

3.7

168 148

3.2

128 2.7

108

2.2 Dec-11

Dec-12

ST Engineering (LHS)

Forecasts and Valuation FY Dec (S$m S$m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Dec-13

88 Dec-15

Dec-14

Relative STI INDEX (RHS)

2014A 2014A 6,539 835 651 532 532 17.1 17.1 (9) 17.1 15.0 68.4 17.1 17.1 14.6 10.4 5.1 4.3 CASH 25.0

Earnings Rev (%): Consensus EPS (S cts):: Other Broker Recs:

2015F 2015F 6,345 852 660 531 531 17.0 17.0 0 17.0 15.0 70.4 17.1 17.1 13.3 10.2 5.1 4.1 CASH 24.6

2016F 2016F 6,194 861 666 536 536 17.2 17.2 1 17.2 15.0 72.6 17.0 17.0 13.1 10.0 5.1 4.0 CASH 24.0

2017F 2017F 6,155 883 686 545 545 17.5 17.5 2 17.5 15.0 75.1 16.7 16.7 13.0 9.7 5.1 3.9 CASH 23.7

16.8 B: 6

17.5 S: 1

18.6 H: 6

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ASIAN INSIGHTS ed: TH / sa: YM

Orderbook remains healthy. The group’s orderbook of S$12.2bn remains relatively stable and covers almost two years of revenue, securing decent visibility going forward, despite a slowdown in Marine and Land division orders YTD in 2015. We believe the strength in the Electronics division will support STE over the next two years and allow the company to report steady earnings and dividends in the near term. Valuation: We maintain our BUY call with TP of S$3.60, based on a blended valuation framework (blend of price-earnings, dividend yield and discounted cash flows) to factor both earnings growth and cash-generative nature of the business. Key Risks to Our View.: The structural changes facing the aircraft MRO industry could hit harder than expected, as newer airframe and engines reduce maintenance spend and lengthen the cycle for checks and OEMs take a larger share of the aftermarket services. Also, continued lack of action on the M&A front could lead to inefficient use of balance sheet and lower ROEs in the future. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Temasek Holdings Pte Ltd (%) Aberdeen Asset Management (%) Capital Group (%) Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Industrials / Aerospace & Defense

3,103 9,062 / 6,432 51.4 6.9 5.0 36.7 7.1

VICKERS SECURITIES Page 122

Company Guide ST Engineering Aerospace sales growth (%)

CRITICAL DATA POINTS TO WATCH Earnings Drivers: Conglomerate with diverse interests in defense and commercial spheres. STE started out life as a defense contractor but has leveraged its technical knowhow over the years to penetrate the commercial market. It boasts multinational operations with a global presence in 23 countries and 41 cities, and hires more than 22,000 employees. The group has reduced its reliance on the defense sector over time from 57% of revenues in 2002 to the current 37%, with another 33% from government agencies and the balance from commercial businesses. STE's STE's four key business divisions bring diversification benefits. Its Aerospace, Electronics, Land Systems and Marine businesses contributed 32%, 24%, 21% and 21% respectively to FY14 revenues, allowing the company to avoid reliance on any particular sector. This has engendered relatively stable revenues and earnings, weathering even crisis periods.

2.97 2.79 2.42 2.04 1.67 1.29 0.92 0.54 0.17 -0.21 -0.58 -0.96 -1.33

0.96

-0.45 -0.87 2013A

2015F

-1.21 2016F

2017F

Electronics sales growth (%) 7.35 6.18

6.03 4.53

5

4.56

3.03 1.53 0.03 -1.47 -2.97 -4.47

Acquisitions have been a key driver, accounting for around 40% of revenue growth over the last decade. However, the dampening effect of a weakening US$ and addition of lowermargin businesses meant earnings growth has not kept up with top-line growth. Utilisation of its strong balance sheet and steady cash-flows to undertake acquisitions of high ROE assets could boost future earnings.

2014A

2013A

-4.06 2014A

2015F

2016F

2017F

Land Systems sales growth (%) -2.32 -2.82

-2.2 -2.51 -2.87

-3.32 -3.82 -4.32

Healthy order book drives visibility. As of 3Q15, the order book stood at S$12.2bn, down slightly from a high of S$13.2bn in FY13 but nonetheless giving visibility on revenues into FY16 at a c.1.9x book-to-bill ratio.

-4.82 -5.32

-5.29

-5.82 2013A

2014A

2015F

2016F

2017F

Marine sales growth (%)

Aerospace MRO primed for steady steady growth. Continued initiatives by ST Aerospace to broaden its capabilities should propel its growth in the longer term. These include a partnership with Airbus for passenger-to-freighter conversion of its A320 and A321 jets, marking a diversification of its conversion portfolio; a continued expansion of its cabin interior service solutions business, particularly for VIP aircraft completions; and an aircraft seating solutions JV with Tenryu Holdings set up in 1Q15. Electronics division’s initiatives should be a key longlong-term growth driver. driver. Within the Smart Nation framework, we estimate there will be projects worth more than S$1bn in the near future, as the Singaporean government pushes for smart technology usage across the utilities, healthcare, housing and transport spaces. The launch of its TeLEOS-1 satellite this December will herald a new space-centered growth channel for the division. We are also seeing increased importance placed on robotics, which could be another future key growth driver.

22.5 20.0 17.2 14.3 11.5 8.6 5.8 3.0 0.1 -2.7 -5.5 -8.4 -11.2 -14.0 -16.9 -19.7 -22.5

8.3

-20.5 2013A

2014A

2015F

-17.7 2016F

-15.9 2017F

Source: Company, DBS Bank

Proxy to a recovery in the US. Around 24% of STE's business is derived from the US, which has seen its currency surge by ~20% since mid-2014 against a basket of other currencies. STE is thus poised to benefit from USD-denominated orders.

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Company Guide ST Engineering

Balance Sheet: Healthy balance sheet can drive M&A ambitions. STE was in a net cash position of about S$931m as of end-3Q15. It thus has ample ammunition to undertake attractive acquisitions in growth areas.

Leverage & Asset Turnover (x) 0.8 0.70

0.8

0.60

0.8 0.8

0.50

0.8 0.40

Dividend payout should remain steady. Strong operating cash flows and a strong balance sheet provide support to healthy dividend yield levels of around 5.5% currently. STE has cut its payout ratio in recent years from 100% to around 80%, owing to cash locked up in overseas locations, which it prefers to invest for growth rather than pay withholding taxes on repatriation. Share Price Drivers: Strong order wins. Order wins YTD have been sluggish at around US$2.5bn, compared to the US$4-6bn seen in previous years, as a result of the land systems and marine divisions having had no major order wins this year. Meanwhile the Aerospace and Electronics divisions have announced US$1.3bn and US$1.2bn in order wins in 2015 respectively. More announced wins should boost the share price. Recovery in the Marine sector. The Marine sector is arguably facing the strongest industry headwinds on the commercial front, with low offshore oil & gas spending and broad overcapacity in shipping. Cost overruns in the US exacerbate the situation. An industry recovery, as well as better productivity in the US, would provide more confidence in the medium-term earnings of the business.

0.8

0.30

0.7 0.7

0.20

0.7 0.10

0.7

0.00

0.7 2013A

2014A

2015F

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure S$m 300.0 250.0 200.0 150.0 100.0 50.0 0.0

2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 25.0% 20.0% 15.0% 10.0% 5.0%

Key Risks: Declining defense budgets in the West. Austerity programmes in Europe and planned US spending cuts create the risk of delays to some defense programmes that STE may be bidding for. Commercial vehicle businesses face headwinds. The growth of STE’s commercial vehicle operations in China has been affected by weak demand and high inventory levels. Its Brazil operations have also been affected by withdrawal of subsidies for purchases of construction equipment. Protracted slowdown slowdown in shipbuilding. shipbuilding The traditional shipping sector has been plagued by overcapacity for some time now, while the slide in oil prices also affects demand for offshore vessels. Visibility on demand recovery is low at this point. Company Background ST Engineering (STE) is an integrated engineering group in the aerospace, electronics, land systems and marine sectors. The company has over the years diversified its businesses and geographies.

0.0%

2013A

2014A

2015F

2016F

2017F

Forward PE Band (x) (x) 25.6

+2sd: 24.9x

23.6

+1sd: 22.2x

21.6 19.6

Avg: 19.6x

17.6

-1sd: 16.9x

15.6

-2sd: 14.2x

13.6 11.6 Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

PB Band (x) 7.5

(x)

7.0 6.5

+2sd: 6.47x

6.0

+1sd: 5.88x

5.5

Avg: 5.29x 5.0

-1sd: 4.7x

4.5

-2sd: 4.1x

4.0 3.5 Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Source: Company, DBS Bank

ASIAN INSIGHTS Page 86

VICKERS SECURITIES Page 124

Company Guide ST Engineering

Key Assumptions FY Dec

Aerospace sales growth (%) Electronics sales growth (%) Land Systems sales growth Marine(%) sales growth (%) Segmental Breakdown FY Dec Revenues (S$m) Aerospace Electronics Land Systems Marine Others Total PBT (S$m) Aerospace Electronics Land Systems Marine Others Total PBT Margins (%) Aerospace Electronics Land Systems Marine Others Total Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) PrePre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

2.97 4.56 (2.5) 22.5

(0.9) (4.1) (5.3) 8.32

(0.5) 7.35 (2.2) (20.5)

(1.2) 5.00 (2.1) (17.7)

0.96 6.18 (2.9) (15.9)

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

2,079 1,650 1,475 1,238 191 6,633

2,061 1,583 1,397 1,341 157 6,539

2,052 1,699 1,366 1,066 162 6,345

2,027 1,784 1,338 877 168 6,194

2,046 1,895 1,299 738 177 6,155

319 170 112 146 (18.1) 730

283 184 56.2 123 4.70 651

279 196 76.4 100 8.09 660

282 200 80.5 93.4 10.1 666

286 213 82.9 91.3 12.4 685

15.4 10.3 7.6 11.8 (9.5) 11.0

13.7 11.6 4.0 9.2 3.0 10.0

13.6 11.5 5.6 9.4 5.0 10.4

13.9 11.2 6.0 10.7 6.0 10.8

14.0 11.2 6.4 12.4 7.0 11.1

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

6,633 (5,201) 1,432 (712) 720 0.0 31.1 (20.9) 0.0 730 (138) (10.7) 0.0 581 581 893

6,539 (5,221) 1,319 (711) 608 0.0 57.2 (14.3) 0.0 651 (114) (5.0) 0.0 532 532 835

6,345 (5,013) 1,333 (706) 626 0.0 52.0 (18.3) 0.0 660 (119) (9.8) 0.0 531 531 852

6,194 (4,863) 1,332 (694) 638 0.0 46.6 (18.3) 0.0 666 (120) (9.9) 0.0 536 536 861

6,155 (4,801) 1,354 (692) 662 0.0 41.0 (17.6) 0.0 686 (130) (10.1) 0.0 545 545 883

4.0 1.9 1.9 0.8

(1.4) (6.4) (15.5) (8.4)

(3.0) 1.9 3.0 (0.1)

(2.4) 1.1 1.9 0.9

(0.6) 2.6 3.7 1.6

21.6 10.8 8.8 29.0 6.9 12.4 80.2 34.4

20.2 9.3 8.1 25.0 6.2 10.3 87.9 42.7

21.0 9.9 8.4 24.6 6.4 10.9 88.0 34.3

21.5 10.3 8.7 24.0 6.4 10.9 87.2 34.8

22.0 10.8 8.9 23.7 6.5 11.0 85.8 37.7

Source: Company, DBS Bank

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VICKERS SECURITIES Page 125Page 87

Company Guide ST Engineering

Quarterly / Interim Income Statement (S$m) 3Q2014 4Q2014 FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) PrePre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015 1Q2015

2Q2015 2Q2015

3Q2015 3Q2015

1,553 (1,220) 333 (190) 144 0.0 11.7 (3.6) 0.0 152 (31.6) 1.18 121 121 196

1,848 (1,530) 318 (163) 156 0.0 15.4 (3.9) 0.0 167 (21.9) (5.2) 140 140 203

1,511 (1,219) 292 (149) 143 0.0 11.2 (4.0) 0.0 151 (19.0) (1.5) 130 130 199

1,545 (1,212) 333 (185) 148 0.0 14.2 (3.9) 0.0 159 (34.0) 0.44 125 125 208

1,500 (1,181) 319 (175) 144 0.0 15.4 (4.6) 0.0 155 (22.3) 0.81 133 133 207

(2.1) (5.1) (8.5) (8.9)

19.0 3.5 8.5 15.6

(18.2) (2.1) (8.0) (7.3)

2.2 4.5 3.3 (3.8)

(2.9) (0.6) (2.8) 6.6

21.5 9.2 7.8

17.2 8.4 7.6

19.4 9.5 8.6

21.5 9.6 8.1

21.3 9.6 8.9

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

1,520 462 963 2,065 1,808 1,222 667 8,707

1,578 478 937 1,590 1,802 1,319 615 8,319

1,654 500 937 1,586 1,749 1,280 615 8,322

1,678 517 937 1,642 1,707 1,249 615 8,345

1,698 528 937 1,702 1,696 1,241 615 8,418

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

434 1,605 2,055 939 1,414 2,116 144 8,707

74.7 1,667 1,974 944 1,395 2,132 132 8,319

74.7 1,618 1,953 944 1,395 2,196 142 8,322

74.7 1,579 1,936 944 1,395 2,264 152 8,345

74.7 1,569 1,931 944 1,395 2,342 162 8,418

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

37.3 692 65.5 119.0 134.5 0.8 1.4 0.8 CASH CASH 20.5 2.4

94.8 571 70.9 118.2 130.4 0.8 1.4 0.8 CASH CASH 22.0 2.5

73.2 568 74.8 123.9 133.9 0.8 1.4 0.8 CASH CASH 24.5 2.5

56.4 623 74.5 124.5 134.6 0.7 1.5 0.8 CASH CASH 19.6 2.5

52.0 683 73.9 124.3 134.4 0.7 1.5 0.8 CASH CASH 19.6 2.5

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) Balance Sheet (S$m) FY Dec

Source: Company, DBS Bank

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Company Guide ST Engineering

Cash Flow Statement (S$m) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

730 142 (110) (31.1) 154 44.8 930 (282) 70.8 (19.3) 39.6 (67.1) (258) (521) 28.2 52.2 (30.9) (472) 17.7 218 25.0 20.9

651 171 (133) (57.2) (72.2) 65.3 624 (224) 79.0 5.67 35.0 (53.4) (157) (499) (394) 10.7 (43.8) (926) (0.3) (459) 22.3 12.8

660 173 (119) (52.0) 21.6 0.0 684 (250) 0.0 (5.0) 35.0 0.0 (220) (468) 0.0 0.0 0.0 (468) 0.0 (3.6) 21.2 13.9

666 177 (120) (46.6) 16.8 0.0 693 (200) 0.0 (5.0) 35.0 0.0 (170) (468) 0.0 0.0 0.0 (468) 0.0 55.2 21.7 15.8

685 180 (130) (41.0) 4.41 0.0 698 (200) 0.0 (5.0) 35.0 0.0 (170) (468) 0.0 0.0 0.0 (468) 0.0 60.4 22.2 16.0

Source: Company, DBS Bank Target Price & Ratings History

3.83

S$

3.63

3

2 3.43

4 3.23

78

1 6 5

3.03

T arget Rat ing Pric e

Dat e

Closing Price

1:

20 J an 15

3.31

3.80

2:

02 Mar 15

3.40

3.80

BUY

3:

14 May 15

3.59

3.80

BUY

4:

10 Aug 15

3.26

3.80

BUY

5:

17 Aug 15

3.17

3.80

BUY

6:

31 Aug 15

3.07

3.40

BUY

7:

04 Nov 15

3.30

3.60

BUY

8:

09 Nov 15

3.15

3.60

BUY

S.No.

BUY

2.83 2.63 Dec-14

Apr-15

Aug-15

Dec-15

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

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VICKERS SECURITIES Page 127Page 89

Company Guide ST Engineering

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) (b)

such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 15 Dec 2015, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). COMPANYCOMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates have a proprietary position in ST Engineering recommended in this report as of 30 Nov 2015 2.

DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.

Compensation for investment banking services: 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.

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Company Guide ST Engineering

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Singapore Company Guide

Thai Beverage Public Company Edition 1 Version 1 | Bloomberg: THBEV SP | Reuters: TBEV.SI

Refer to important disclosures at the end of this report

DBS Group Research . Equity

13 Nov 2015

BUY

Positioning to be a regional player

Last Traded Price: S$0.68 (STI STI : 2,959.01) Price Target : S$0.82 (21% upside) (Prev S$0.81)

S$0.82 0.82. 0.82. We maintain our BUY Maintain BUY, TP at S$ recommendation with a TP of S$0.82. We believe ThaiBev is taking steps to transform into a regional beverage player. In our view, we believe ThaiBev should have an advantage over its peers given its dominant position as the leading spirits player in Thailand, providing it with ample firepower and serve as a bastion for the company while it invests in new avenues of growth.

Potential Catalyst: M&A, corporate restructuring Where we differ: differ: Higher forecasts in FY15 due to disposal gains, lower in FY16 due to higher opex assumed Analyst Andy Sim +65 6682 3718 [email protected]

3Q15 results resilient despite weak sentiment. sentiment. ThaiBev’s 3Q15 results were within expectations. While headline net profit surged by 115%, this was on the back of a disposal gain by its associate FNN. Excluding this, net profit would have grown c.12% largely on stronger associate’s contribution. Revenue grew by 3% while EBIT slipped 7% y-o-y. This was largely a result of higher costs relating to the relaunch of Chang Beer, as well as higher losses at its Non-Alcoholic Beverages given its investment phase.

Price Relative S$

Relative Index

0.9 287 0.8 0.7

237

0.6 187

0.5 0.4

137

0.3 0.2 Nov-11

Nov-12

Nov-13

Thai Beverage Public Company (LHS)

Nov-14

87 Nov-15

Relative STI INDEX (RHS)

Forecasts and Valuation FY Dec (Btm 2014A 2015F 2016F 2017F Btm) 2014A 2015F 2016F 2017F Revenue 162,040 166,933 175,728 184,605 EBITDA 31,427 36,510 35,871 38,465 Pre-tax Profit 25,984 31,275 30,647 32,938 Net Profit 21,694 26,359 25,079 26,959 Net Pft (Pre Ex.) 21,694 26,359 25,079 26,959 EPS (S cts) 3.42 4.15 3.95 4.25 EPS Pre Ex. (S cts) 3.42 4.15 3.95 4.25 EPS Gth (%) 13 22 (5) 7 EPS Gth Pre Ex (%) 13 22 (5) 7 Diluted EPS (S cts) 3.42 4.15 3.95 4.25 Net DPS (S cts) 2.41 2.49 2.61 2.69 BV Per Share (S cts) 16.0 17.6 19.0 20.5 PE (X) 19.9 16.4 17.2 16.0 PE Pre Ex. (X) 19.9 16.4 17.2 16.0 P/Cash Flow (X) 17.7 19.3 17.6 16.8 EV/EBITDA (X) 15.3 13.1 13.2 12.1 Net Div Yield (%) 3.6 3.7 3.8 4.0 P/Book Value (X) 4.3 3.9 3.6 3.3 Net Debt/Equity (X) 0.4 0.4 0.3 0.2 ROAE (%) 22.2 24.7 21.6 21.5 Earnings Rev (%): Consensus EPS (S cts):: Other Broker Recs:

9 3.6 B: 5

(4) 4.0 S: 2

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

ASIAN INSIGHTS www.dbsvickers.com ed: TH / sa: JC

4.1 H: 2

Growth is projected to continue. We raised FY15F forecasts by 9%, taking into account the one-off gain by F&N’s disposal of its 55% stake in MBL, offset partially by a lower operating profit. While consumer sentiment remains weak, we note that the Group’s operations remained relatively resilient. With the conclusion of F&N’s disposal of the latter’s stake in Myanmar Brewery Limited, this could possibly pave the way for the eventual consolidation of FNN as a subsidiary, coupled with the eventual monetisation of its stake in Frasers Centrepoint Limited. In our view, this tie in with the Group’s announced “Vision 2020” Strategic Roadmap, in which one of the targets is to increase NAB's revenue contribution to over 50%. Valuation: Our target price is revised marginally to S$0.82 as we roll our valuations over to FY16F. Our TP is based on sum-of-parts valuation, derived via discounted cashflows of its core operations, coupled with fair values of its stakes in F&N and Frasers Centrepoint Limited. Key Risks to Our View: Further excise tax hikes. Further increases in excise duties without a commensurate increase in ASP. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Siriwana Co.Ltd (%) Maxtop Management Corp (%) Capital Group (%) Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Consumer Goods / Beverages

25,110 17,075 / 12,020 45.3 20.6 5.0 29.1 5.6

VICKERS SECURITIES Page 130

Company Guide Thai Beverage Public Company

3Q15 Results Summary and Update FY Dec (m) Sales

3Q14 35,276

2Q15 38,992

3Q15 36,472

yoy % 3.4

qoq % (6.5)

9M14 116,344

9M15 121,169

yoy % 4.1

(24,884) 10,392

(27,147) 11,845

(25,851) 10,621

3.9 2.2

(4.8) (10.3)

(81,927) 34,416

(85,050) 36,119

3.8 4.9

Other Operating Income

22

(141)

44

101.9

(131.4)

44

(39)

(188.3)

Selling expenses Administration Expenses Others

(3,188) (2,518)

(3,929) (2,769)

(3,520) (2,765)

10.4 9.8

(10.4) (0.1)

(9,444) (7,803)

(10,839) (8,447)

14.8 8.3

0 (5,707)

71 (6,627)

0 (6,285)

nm 10.1

(100.0) (5.2)

22 (17,246)

71 (19,216)

214.9 11.4

4,707

5,077

4,380

(7.0)

(13.7)

17,214

16,864

(2.0)

74

613

169

130.1

(72.4)

371

891

140.2

20 (343)

9 (269)

1 (326)

(93.2) (4.9)

(84.3) 21.2

96 (1,147)

11 (1,028)

(88.5) (10.4)

91

1,585

4,565

4914.8

187.9

1,917

7,045

267.6

4,548 (914) 84 3,718

7,015 (1,064) (89) 5,862

8,789 (802) 9 7,996

93.2 (12.3) (89.3) 115.1

25.3 (24.6) (110.1) 36.4

18,451 (3,398) 155 15,208

23,784 (3,316) (34) 20,434

28.9 (2.4) (122.1) 34.4

Cost of Goods Sold Gross Profit

Other Operating Expenses EBIT Non-Operating Income Interest Income Interest Expense Share of Associates' or JV Income Pretax Profit Tax Minority Interests Net Profit

Comments Higher spirits, beer and non-al revenue, offset by drop in food contribution. Marginally lower margins in 3Q

Higher A&P for Spirits and Beer due to relaunch of Chang beer

Lower debt which was refinanced earlier Boosted by FNN's MBL disposal gain THB3.8bn

Within expectations

Source: Company, DBS Bank

Results comments 3Q15 results within expectations, headline boosted by associate’s gain. ThaiBev’s 3Q net profit surged 115% to THB8bn, arising from a gain of THB3.8bn recognised by FNN for its disposal of the latter’s stake in Myanmar Brewery Limited. Excluding this, we estimate that net profit would have been THB4.2bn, registering 12% growth y-o-y. Despite the overall subdued Thai economy and consumer sentiment, the Group posted a 3.4% revenue growth. This was contributed by all segments, except Food. EBIT margins for the Group dipped by 1.3ppts to 12% in 3Q15, arising from lower margins from Beer due to the relaunch of Chang Beer and higher A&P for Spirits. Spirits relatively resilient despite weak sentiment. sentiment. Spirits registered a 2.7% increase in revenue arising from a change in product mix – higher proportion of higher priced brown spirits vs white spirits. In the quarter, we saw higher A&P expenses which management attributed to a push to increase fixtures and displays at point-of-sale to increase the products’ presence. Going forward and as we move into 4Q, we believe Spirits should see better sequential performance in 4Q, and as the recently announced government stimulus package works its way down.

ASIAN INSIGHTS Page 2

Beer – positioning for bigger share with relaunch. relaunch. In 3Q15, the Group relaunched Chang Beer, and discontinued its other variants. There was a change of the bottle's colour to green, from amber, and this increased the cost of packaging and hence impacted on margins. In addition, the alcohol content was lowered to 5.5%, from 6% previously. Arising from higher costs due to the relaunch, the Beer segment registered a net loss of THB23bn, down from a profit of THB28bn a year ago. The impact was surprisingly less than we had envisaged. Cost of goods for beer higher due to new bottles. Management indicated that with the use of new green bottles, the cost of packaging has gone up. This was because it had to use completely new bottles, while previously there was a mix of old (returnables) and new bottles (for amber ones). It is envisaged that it could take up to a year for the trend to stabilise before we see the cost of packaging revert to normal. NonNon-Alcoholic Beverage – no surprises, still in investment mode. There were no major surprises on the non-alcoholic beverage front. In 3Q15, the segment registered a loss of THB532m, an increase from THB408m a year ago. This is not surprising to us given that there has been new product launches this year (Jubjai and 100Plus), while its est cola and the flavoured carbonated soft drinks are still in an investment mode.

VICKERS SECURITIES Page 131

Company Guide Thai Beverage Public Company

Valuation and forecasts FY15F/16F forecasts +9%/ +9%/9%/-4%. We adjusted our forecasts by +9%/-4% for FY15F/ 16F. The adjustment up for FY15 is to take into account the disposal gain from MBL (by its associate FNN), while we tune down our operating forecasts to account for higher costs of goods sold and A&P expenses, particularly for its beer. Maintain BUY, TP adjusted to S$0.82 S$0.82. 0.82. While 3Q15 operating results registered a drop, this was a factor of higher operating expenses due to the overhaul and relaunch of Chang Beer. In our view, this is to position the brand for the longer term,

particularly the change in bottle colour to green, from amber, making it more contemporary. We revised our sum-of-parts TP slightly to S$0.82 as we roll our valuations over to FY16F, offset partially by a lower operating profit in FY16F. We retain our positive view of the company as it progressively transforms itself into a regional beverage player. In our view, we believe ThaiBev should have an advantage over its peers given its dominant position as the leading spirits player in Thailand, providing it with ample firepower and serve as a bastion for the company while it invests in new avenues of growth.

Chang Classic relaunch Previous packaging

New contemporary packaging

Source: Company

ASIAN INSIGHTS

VICKERS SECURITIES Page 132 Page 3

Company Guide Thai Beverage Public Company Sprits vol gwth (%)

CRITICAL DATA POINTS TO WATCH Earnings Drivers: Spirits as the main earnings driver. driver. Thai Bev derives earnings mainly from four key divisions – Spirits, Beer, Non-alcoholic beverages and Food. Spirits division is the largest revenue contributor, accounting for 64% (as of FY14) of the Group’s revenue. Earnings from Spirits division are particularly sensitive to excise tax – this accounts for 52.7% of Spirits’ revenue. Consumption of spirits has held up despite the poorer consumer sentiments in Thailand, in part due to the wide range of brands that cater to the wide spectrum of consumers – from low to high income. Building upon Chang’s popularity. popularity Revenues from Beer division contribute to 22% of the Group’s revenue in FY14. Excise tax is also the largest cost component, accounting for 57% of the Group’s revenue. Input cost accounts for 17.4% of Beer revenue and is affected by the prices of raw materials such as barley, rice, tin and glass bottles. Chang Beer was recently re-launched with the streamline of its sub-brands into just Chang Classic and repackaged into emerald green bottles, from amber ones. Operating expenses recently ticked up arising from this, but the purpose is to accentuate the brand’s offering and to grow its market share.

4 3.80 3.29 2.79 2.28 1.78 1.27 0.77 0.26 -0.25 -0.75 -1.26 -1.76

Weaker macroeconomic macroeconomic conditions. The Group derives the majority of its sales from Thailand. In the near term, we expect a slowdown in consumption due to the political instability as well as a weakening tourism sector. The Group’s alcoholic beverage businesses are not expected to be significantly affected by the forecasted fall in tourist numbers given its biasness towards off-trade sales – 80% to 100%

2

2016F

2017F

3

3

2016F

2017F

-0.3

-1.6 2013A

2014A

2015F

Spirits ASP gwth (%) 9 8.08 6.24 5 4.41 2.57 0.74 -1.10 2013A

2014A

-1 2015F

Beer vol gwth (%)

Alcohol sale restrictions. Alcohol sales have been subjected to restrictions in Thailand. Most recently, laws regarding banning the sale of alcoholic products in proximity of education institutions have been discussed in Thailand. Given that the alcoholic businesses – Spirits and Beer, contribute 86% of the Group’s revenue, any decline in sales revenue by the alcoholic divisions will be significantly felt by the Group. Expanding the NonNon-alcoholic Beverages (NAB) division. division. Revenues from non-alcoholic beverages make up 10% of Group revenue in FY14. The business unit is incurring operating losses due to its high SG&A expenses as it is focused on building brand awareness and gaining market share. With the launch of 100Plus in Thailand through a collaboration with FNN, it could take time for the brand to be built up. We project NAB's business segment to remain in the red over the medium term as management builds traction. Fortunately, this should not make a huge dent on Group earnings, given the strong contribution from Spirits.

2

Beer ASP gwth (%) 9.5

9.60 8.40 7.20 6.00

5.3

4.80 3.60

3 2

2.40 1.20 0

0.00 2013A

2014A

2015F

2016F

2017F

Non-Alc Bev rev gwth (%) 5

5

5

2015F

2016F

2017F

-4 -7.3 -14 -24 -34 -44

-39.9 2013A

2014A

Source: Company, DBS Bank

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VICKERS SECURITIES Page 133

Company Guide Thai Beverage Public Company

depending on brands. NAB and the Food division will continue to face challenges with on-premise consumption volumes and the growth of these two divisions could be undermined in the near term.

Leverage & Asset Turnover (x) 1.0 0.70 1.0

0.60 0.50

0.9

0.40

0.9

Balance Sheet: Gearing has improved since acquisition of F&N’s stake. stake The Group’s net gearing has improved significantly, and projected to be c.0.4x by end-FY15F, from the high of 1.2x immediately following its 28.5% stake acquisition in F&N. Going forward, its healthy balance sheet will put it in a good position for inorganic growth opportunities within the region.

0.30

Share Price Drivers: Changes in excise taxes. More than 50% of the Group’s revenue goes into excise duties. A change in excise tax would impact on share price, and depending on whether the company is able to pass on the increase costs to consumer, share price could be positively or negatively affected.

4,800.0

0.8 0.20 0.8

0.10 0.00

0.7 2013A

2014A

2015F

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure Btm 4,850.0 4,750.0 4,700.0 4,650.0 4,600.0 4,550.0 4,500.0 4,450.0 4,400.0 4,350.0

2013A

Corporate restructuring. With FNN’s arbitration and eventual disposal of its stake in Myanmar Brewery Limited, this could possibly pave the way for the eventual consolidation of FNN as a subsidiary, coupled with the eventual monetisation of its stake in Frasers Centrepoint Limited. In our view, this ties in with the Group’s recently announced “Vision 2020” Strategic Roadmap, in which one of the targets is to increase NAB's revenue contribution to over 50%. Turnaround in NAB. NAB. We project NAB to continue in the current investment mode in the foreseeable future. However, in the event that this turns around faster than expected, it could provide a catalyst to share price, underlining management’s ability to create value for the company.

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%)

20.0%

15.0%

10.0%

5.0%

0.0%

2013A

2014A

2015F

2016F

2017F

Forward PE Band (x) (x) 22.3

Key Risks: Prolonged slump in consumer sentiments. A prolonged slump in the Thai economy could impact consumption, and hence our forecasts. Vice-versa, a pickup in economic activity could offer upside potential.

20.3

Political situation in Thailand. A change or deterioration of the uncertain political situation in Thailand could have an adverse impact on the broader economy and private consumption.

10.3

Further excise tax hikes. Further increases in excise duties without a commensurate increase in ASP.

+2sd: 21.1x +1sd: 18.4x

18.3 16.3

Avg: 15.7x

14.3

-1sd: 12.9x

12.3

-2sd: 10.2x

8.3 Nov-11

Nov-12

Nov-13

Nov-14

PB Band (x) 5.6

(x)

5.1

+2sd: 5.06x

4.6

Company Background ThaiBev is a leading beverage producer in Thailand, with business segments spanning across spirits, beer, nonalcoholic beverages and food. Its key brands are Sangsom, Hong Thong and Chang.

Nov-15

+1sd: 4.43x

4.1

Avg: 3.79x

3.6 3.1

-1sd: 3.16x

2.6

-2sd: 2.53x

2.1 Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Source: Company, DBS Bank

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VICKERS SECURITIES Page 134 Page 5

Company Guide Thai Beverage Public Company

Key Assumptions FY Dec Sprits vol gwth (%) Spirits ASP gwth (%) Beer vol gwth (%) Beer ASP gwth (%) Non-Alc Bev rev gwth (%) Segmental Breakdown FY Dec Revenues (Btm) Spirits Beer Non-Alcoholic Bev. Food Others Total Operating profit (Btm) Spirits Beer Non-Alcoholic Bev. Food Others Total Operating profit Margins (%) Spirits Beer Non-Alcoholic Bev. Food Others Total Income Statement (Btm) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) PrePre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

(1.6) 9.00 (9.0) 5.30 (39.9)

(0.3) 5.00 (2.4) 9.50 (7.3)

4.00 (1.0) 1.00 0.0 5.00

2.00 3.00 3.00 2.00 5.00

2.00 3.00 2.00 3.00 5.00

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

99,916 32,935 17,018 5,976 (74.0) 155,771

104,592 35,193 15,775 6,602 (122) 162,040

107,688 35,545 16,564 7,262 (126) 166,933

113,137 37,344 17,392 7,988 (132) 175,728

118,862 39,233 18,262 8,388 (139) 184,605

23,694 (681) (2,276) 192 73.0 21,002

25,278 334 (2,336) 36.0 68.0 23,380

25,845 71.1 (2,485) 363 68.0 23,863

27,153 560 (1,391) 399 68.0 26,789

28,527 785 (913) 419 68.0 28,886

23.7 (2.1) (13.4) 3.2 (98.6) 13.5

24.2 0.9 (14.8) 0.5 (55.7) 14.4

24.0 0.2 (15.0) 5.0 (54.1) 14.3

24.0 1.5 (8.0) 5.0 (51.4) 15.2

24.0 2.0 (5.0) 5.0 (48.9) 15.6

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

155,771 (112,033) 43,738 (22,478) 21,260 795 3,434 (2,251) 0.0 23,238 (4,236) 128 0.0 19,130 19,130 25,489

162,040 (114,710) 47,330 (23,886) 23,443 600 3,389 (1,447) 0.0 25,984 (4,552) 261 0.0 21,694 21,694 31,427

166,933 (118,865) 48,068 (24,205) 23,863 600 7,867 (1,055) 0.0 31,275 (4,916) 0.0 0.0 26,359 26,359 36,510

175,728 (123,459) 52,270 (25,481) 26,789 600 4,135 (878) 0.0 30,647 (5,567) 0.0 0.0 25,079 25,079 35,871

184,605 (128,952) 55,654 (26,768) 28,886 600 4,467 (1,015) 0.0 32,938 (5,979) 0.0 0.0 26,959 26,959 38,465

(3.3) 13.1 1.9 21.0

4.0 23.3 10.3 13.4

3.0 16.2 1.8 21.5

5.3 (1.8) 12.3 (4.9)

5.1 7.2 7.8 7.5

28.1 13.6 12.3 21.8 9.8 9.6 57.8 9.4

29.2 14.5 13.4 22.2 12.2 11.8 70.6 16.2

28.8 14.3 15.8 24.7 15.0 12.5 60.0 22.6

29.7 15.2 14.3 21.6 13.9 13.3 66.1 30.5

30.1 15.6 14.6 21.5 14.5 14.0 63.3 28.5

Factored in gains by FNN (on disposal of MBL’s stake)

Source: Company, DBS Bank

ASIAN INSIGHTS Page 6

VICKERS SECURITIES Page 135

Company Guide Thai Beverage Public Company

Quarterly / Interim Income Statement (Btm) 3Q2014 4Q2014 FY Dec 3Q2014 4Q2014

1Q2015 1Q2015

2Q2015 2Q2015

3Q2015 3Q2015

Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) PrePre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

45,704 (32,051) 13,653 (6,245) 7,408 108 895 (431) 0.0 7,980 (1,450) 45.8 6,575 6,575 8,411

38,992 (27,147) 11,845 (6,768) 5,077 613 1,585 (261) 0.0 7,015 (1,064) (89.1) 5,862 5,862 7,275

36,472 (25,851) 10,621 (6,241) 4,380 169 4,565 (325) 0.0 8,789 (802) 8.99 7,996 7,996 9,114

35,276 (24,884) 10,392 (5,685) 4,707 73.5 91.0 (323) 0.0 4,548 (914) 83.7 3,718 3,718 4,872

45,696 (32,783) 12,914 (6,684) 6,229 229 1,472 (397) 0.0 7,534 (1,154) 106 6,485 6,485 7,931

Boosted by gains from FNN Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

(11.9) (30.1) (17.2) (32.7)

29.5 62.8 32.3 74.4

0.0 6.1 18.9 1.4

(14.7) (13.5) (31.5) (10.8)

(6.5) 25.3 (13.7) 36.4

29.5 13.3 10.5

28.3 13.6 14.2

29.9 16.2 14.4

30.4 13.0 15.0

29.1 12.0 21.9

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

46,827 75,558 11,220 5,108 34,837 3,891 5,888 183,329

46,251 67,614 11,054 2,230 35,084 3,668 6,085 171,987

46,927 73,881 10,998 552 36,134 3,887 6,085 178,465

47,138 76,417 10,941 556 37,529 4,092 6,085 182,757

47,182 79,284 10,884 1,273 39,207 4,299 6,085 188,213

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

12,357 5,202 8,671 54,343 4,763 94,286 3,707 183,329

21,947 4,803 9,286 26,555 4,720 101,263 3,414 171,987

21,947 3,456 11,570 21,555 4,720 111,802 3,414 178,465

21,947 3,590 12,222 16,555 4,720 120,309 3,414 182,757

21,947 3,750 12,634 11,555 4,720 130,193 3,414 188,213

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

30,742 (61,591) 8.8 16.8 110.5 0.8 1.9 0.3 0.6 0.7 6.9 4.8

30,749 (46,272) 8.5 16.5 115.3 0.9 1.3 0.2 0.4 0.5 9.4 5.8

31,080 (42,950) 8.3 13.1 113.3 1.0 1.3 0.1 0.4 0.4 11.0 6.2

31,894 (37,947) 8.3 10.8 112.9 1.0 1.3 0.1 0.3 0.3 11.7 6.6

33,207 (32,230) 8.3 10.8 112.5 1.0 1.3 0.1 0.2 0.2 13.4 6.6

Balance Sheet (Btm) FY Dec

Net debt-to-equity has dropped from 1.2x since its acquisition of a 28.5% stake in FNN

Source: Company, DBS Bank

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VICKERS SECURITIES Page 136 Page 7

Company Guide Thai Beverage Public Company

Cash Flow Statement (Btm) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Bt) Free CFPS (Bt)

2013A 2013A

2014A 2014A

2015F 2015F

2016F 2016F

2017F 2017F

23,238 3,935 (5,005) (3,434) (2,428) 1,783 18,089 (4,619) 40.0 1.46 34,998 2,378 32,798 (10,816) (38,561) 0.0 (1,772) (51,148) 820 559 3.23 2.12

25,984 3,997 (4,884) (3,389) 1,135 1,566 24,409 (4,570) 6.50 0.0 6,903 268 2,607 (11,359) (17,202) 0.0 (1,259) (29,820) (65.0) (2,869) 3.67 3.13

31,275 4,182 (2,631) (7,867) (2,615) 0.0 22,343 (4,800) 0.0 0.0 1,600 0.0 (3,200) (15,819) (5,000) 0.0 0.0 (20,819) 0.0 (1,676) 3.93 2.76

30,647 4,348 (4,916) (4,135) (1,466) 0.0 24,478 (4,500) 0.0 0.0 1,600 0.0 (2,900) (16,573) (5,000) 0.0 0.0 (21,573) 0.0 5.10 4.09 3.15

32,938 4,515 (5,567) (4,467) (1,724) 0.0 25,694 (4,500) 0.0 0.0 1,600 0.0 (2,900) (17,075) (5,000) 0.0 0.0 (22,075) 0.0 719 4.32 3.34

Source: Company, DBS Bank Target Price & Ratings History

0.82

S$

4

0.77

5 6

0.72

1

S.No .

Da te

Cl o s i n g Pri c e

1: 2: 3: 4: 5: 6:

17 Nov 14 18 Dec 14 27 Feb 15 15 May 15 14 Aug 15 31 Aug 15

0.72 0.68 0.70 0.76 0.77 0.71

Ta rg e t R a ti n g Pri c e 0.80 BUY 0.80 BUY 0.80 BUY 0.81 BUY 0.81 BUY 0.81 BUY

2 3

0.67

0.62 Nov-14

Mar-15

Jul-15

Nov-15

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

ASIAN INSIGHTS Page 8

VICKERS SECURITIES Page 137

Company Guide Thai Beverage Public Company

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) 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. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.

ANALYST CERTIFICATION The research analyst 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 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 this report. As of the date the report is published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

COMPANYCOMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates have a proprietary position in the Thai Beverage Public Company recommended in this report as of 30 Sep 2015. 2.

DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates do not beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 30 Sep 2015.

3.

Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates did not receive compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the company mentioned.

ASIAN INSIGHTS

VICKERS SECURITIES Page 138 Page 9

Company Guide Thai Beverage Public 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 document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia

This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong

This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia

This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia

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

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.

Thailand

This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 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.

United States

Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. 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.

Other Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

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Market Focus Singapore Strategy

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) 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. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. 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 this report. As of 23 Feb 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

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Market Focus Singapore Strategy COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in Ascendas REIT, CapitaLand, ComfortDelgro, ComfortDelgro, Hong Kong Land, CDL Hospitality Trusts, City Development, Cambridge Industrial Trust, Croesus Retail Trust, Ezion Holdings, Ezra Holdings, Genting Singapore, Golden Agri Resources, Global Logistic Properties, Hutchison Port Holdings Trust, Keppel Corporation, Keppel REIT, M1, Mapletree Logistics Trust, Noble Group, OCBC, OUE Hospitality Trust, SATS, Sembcorp Industries, Singapore Exchange, SIA Engineering, Sembcorp Marine, SPH, Sheng Siong Group, ST Engineering, StarHub, Thai Beverage Public Company, UOB, Wilmar International, Yangzijiang Shipbuilding recommended in this report as of 31 Oct 2015 2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. 3. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of Croesus Retail Trust as of 31 Jan 2016. 4. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 5% of any class of common equity securities of Croesus Retail Trust as of 31 Jan 2016. 5. Compensation for investment banking services: DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Ascendas REIT, Croesus Retail Trust, Ezra Holdings, Keppel Corporation, Keppel REIT as of 31 Jan 2016. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Ascendas REIT, Croesus Retail Trust, Ezra Holdings, Keppel REIT in the past 12 months, as of 31 Jan 2016. 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. 6. Directorship Peter Seah Lim Huat, Chairman of DBS Group Holdings, is a Deputy Chairman of Capitaland as of 28 Feb 2015. Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Director of Capitaland as of 28 Feb 2015. Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Director of Keppel Corporation as of 28 Feb 2015. Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Director of SATS as of 28 Feb 2015. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of SATS as of 28 Feb 2015. Peter Seah Lim Huat, Chairman of DBS Group Holdings, is a Director of Starhub as of 28 Feb 2015. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of Starhub as of 28 Feb 2015. 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”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong

This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia

This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

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Market Focus Singapore Strategy

Malaysia

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

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.

Thailand

This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC rd Branch) having its office at PO Box 506538, 3 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.

United States

This report was prepared by DBS Bank Limited. 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.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

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