Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Vol m Company Update, Hengdeli Holdings (3389 HK) Buy (Maintained) Consumers Staples - Retail Target Price: HKD2.25 Market Cap: USD1,239m Price: HKD2.00 Still Expecting Better Times Ahead 3.1 2.9 2.7 2.5 2.3 2.1 1.9 1.7 1.5 250 200 150 100 50 Source: Bloomberg Avg Turnover (HKD/USD) Hengdeli Holdings (3389 HK) Price Close Relative to Hang Seng Index (RHS) 146 137 129 120 111 102 94 85 76 16.2m/2.05m Cons. Upside (%) -7.0 Upside (%) 12.7 52-wk Price low/high (HKD) 1.69-2.85 Free float (%) 48 Shareholders (%) Zhang Yu Ping 36.3 Swatch Group 9.1 LVMH Group 6.4 Shariah compliant Eugene Mak +852 2103 9202 eugene.mak@rhbgroup.com Macro Risks 3 Growth. 3 Value 0 During our recent NDR with Hengdeli, management indicated that its July/Aug mid-end retail sales grew by a mid-teen % y-o-y but its highend retail sales dipped by a high-teen % y-o-y, in line with 1H13 while HK/Macau saw sales up high single digit % y-o-y. Hengdeli now expects a turnaround in 2H14. We maintain BUY, TP: HKD2.25, as we make no changes to our earnings forecasts and target FY14F P/E of 12x. Stable 2H13F, turnaround expected in 2H14. In July/Aug, China s midend retail sales grew by a mid-teen % y-o-y, while high-end retail sales dipped by a high-teen % y-o-y, in line with 1H13. HK/Macau had a high single-digit % y-o-y growth (1H13: 14% y-o-y). 2H13 GPM is expected to remain in line with that of 1H13. Hengdeli expects a recovery by 2H14. Negative impact from ban on forced shopping tours. We expect the ban on forced shopping tours in HK to have a direct negative impact on the group s 70% interest in Harvest Max (HM). Management said it will be able to provide more updates towards end-october. We leave our HM forecasts unchanged pending further updates on its operations. Despite HM s high SG&A/turnover of 64% (16% of the group s 1H13 SG&A), its impact on group earnings may not be significant as most of its SG&A is from commission expense to tours (linked to HM s turnover). Management has yet to disclose HM s commission rate. SG&A growth to stabilise after FY13F. In 1H13, selling expense (excluding HM) grew ~17% y-o-y (+42% y-o-y including HM), as ~70% of its HK stores had their rental contract renewed and saw rental cost increasing by ~40%/store. Starting FY14F, SG&A will stabilise as the group will not face rental pressure in China, while most of its HK stores will not have rental renewal for another three years, with most of HM s SG&A coming from commission expense. Maintain BUY with HKD2.25 TP on expected FY14F turnaround. We leave our TP unchanged with a target FY14F P/E of 12x, and maintain BUY in view of the 13% upside potential. Although we remain positive on Hengdeli s growth prospects as Greater China s largest watch retailer, we retain our target P/E and earnings estimates pending further operational details on HM from Hengdeli. Forecasts and Valuations Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Total turnover (CNYm) 11,375 12,120 13,520 15,091 17,610 Reported net profit (CNYm) 815 855 561 716 952 Recurring net profit (CNYm) 793 789 623 716 952 Recurring net profit growth (%) 43.1 (0.5) (21.1) 14.9 33.0 Core EPS (CNY) 0.16 0.16 0.13 0.15 0.20 DPS (CNY) 0.06 0.04 0.02 0.03 0.04 Dividend Yield (%) 3.7 2.3 1.5 1.9 2.5 Core P/E (x) 9.6 9.7 12.2 10.6 8.0 Return on average equity (%) 17.7 16.5 9.9 11.6 13.9 P/B (x) 1.56 1.40 1.28 1.17 1.05 P/CF (x) 39 31 168 12 10 EV/EBITDA (x) 5.44 5.51 7.56 6.37 5.19 Net debt to equity (%) 3.5 22.2 32.9 28.8 23.2 Our vs consensus EPS (%) (15.5) (11.8) 2.7 See important disclosures at the end of this report Powered by EFA TM Platform 1. 2 0. 3 0. 0 0
Hengdeli Holdings (3389 HK) Improving operating CF going forward. Hengdeli expects operating cash flow (CF) to improve by FY13F (1H13 operating CF: CNY177m outflow). We now expect operating CF to reach CNY45m in FY13F, and continue to improve going forward as inventory days shorten (increased contribution of mid-end watches which have a higher turnover rate) and as EBIT begins to recover. HKD2.2bn CB refinancing funded by senior note issued in January. Hengdeli aims to pay back all or part of its HKD2.2bn convertible bonds (CB) on 22 Oct 2013 (effective interest of 5.0% due in 2015), refinanced by a USD350m senior note issued in Jan 2013 (6.25% per annum maturing in 2018). Hengdeli explained that the early refinance is due to the uncertainty in the future interest rate outlook. Management expects no further borrowing needs from now until end-fy14f. Net gearing to increase to 33% in FY13F and decline from FY14F. Due to the weak operating CF in FY13F (CNY45m), we now expect net gearing to increase from 22% in FY12 to 33% in FY13F. However, as we expect operating CF to gradually improve, coupled with the company s undemanding capex needs, we project FY14F/15F net gearing to decline to 29% and 23% respectively. Finance cost to significantly increase in FY13F, but decline in FY14F. As the CBs will not be paid off until 22 Oct, the group will incur interest expenses from CBs (a 5% effective interest) for the first 10 months of FY13F, as well as from the senior notes issued in January (6.25% per annum) for the entire FY13F. Hence, we expect FY13F interest expense to increase to CNY309m (effective interest rate of 9.5%) vs. 1H12:CNY266m (effective interest rate of 6.4%). However, as there will be no more CB expenses from FY14F onwards and no new bank borrowings, Hengdeli s interest expense would decline to CNY225m (effective interest rate of 6.5%) for FY14F and FY15F. See important disclosures at the end of this report 2
Share Price (HKD) Hengdeli Holdings (3389 HK) Figure 1: Hengdeli s five-year historical forward P/E band 5.00 4.00 +2SD = 22.3x +1SD = 18.1x 3.00 Mean = 14.0x 2.00-1SD = 9.9x 1.00-2SD = 5.7x 0.00 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Source: RHB estimates, Bloomberg Figure 2: Valuation comparables Hong Kong-listed jewellery and watch retailers Company Ticker Price Mkt cap (USDm) 3-mth avg t/o (USDm) P/E Hist EPS FY1 EPS FY2 (x) P/E FY1 (x) P/E FY2 (x) y-o-y% y-o-y% 3-Yr EPS CAGR (%) PEG (x) Div yld Div yld FY1 Hist (%) (%) P/BV Hist (x) Hengdeli Holding 3389 HK 2.00 1,239 2.1 9.7 12.2 10.6 (21.1) 14.9 6.7 1.8 2.3 1.5 1.4 1.3 HSI 23,179 10.7 11.1 10.3 (3.2) 7.9 4.7 2.3 3.3 3.5 1.5 1.4 HSCEI 10,535 8.3 7.9 7.2 5.8 8.9 8.4 0.9 3.9 4.1 1.3 1.2 CSI300 2,442 11.8 10.6 9.1 11.5 17.0 14.9 0.7 2.4 2.4 1.7 1.5 Adjusted sector avg* 14.2 12.3 10.2 19.9 20.0 18.7 0.9 2.6 2.5 1.9 1.7 Chow Tai Fook Je 1929 HK 11.74 15,141 9.9 21.3 17.9 15.2 18.9 17.6 17.6 1.0 2.7 1.8 3.6 3.1 Chow Sang Sang 116 HK 23.70 2,069 1.5 13.8 13.3 11.1 22.3 19.8 19.1 0.7 2.5 2.8 2.2 2.0 Luk Fook Hldgs I 590 HK 25.30 1,922 7.0 11.8 10.5 9.0 12.1 17.2 15.8 0.7 3.4 3.8 2.3 2.0 Emperor Watch & 887 HK 0.68 604 1.0 13.5 13.6 10.6 (16.7) 28.0 9.1 1.5 2.2 1.9 1.1 1.1 Oriental Watch 398 HK 2.57 189 0.2 17.0 8.9 8.0 91.4 10.7 38.0 0.2 2.7 2.8 0.7 0.6 Stelux Hldg Intl 84 HK 2.73 368 0.3 12.2 9.3 7.0 31.4 33.1 25.0 0.4 2.6 3.3 2.0 1.4 P/BV FY1 (x) Figure 3: Valuation comparables Hong Kong-listed jewellery and watch retailers (continued) Company Rev Hist (USDm) NP Hist (USDm) EV/ EV/ Ebitda Ebitda Cur Hist Yr Net gearing Hist (%) Net gearing FY1 (%) Unlev beta Gross margin Hist (%) Net margin Hist (%) ROIC Hist (%) ROE Hist (%) ROE FY1 (%) Sh px 1-mth % Hengdeli Holding 1,980 129 5.5 7.6 22.2 32.9 1.3 26.0 7.1 7.3 16.5 9.9 14.9 16.3 HSI 13.6 12.4 2.5 12.6 HSCEI 15.2 14.8 1.9 16.2 CSI300 14.1 14.2 5.5 10.3 Adjusted sector avg* 10.1 8.6 12.7 7.4 1.2 28.8 6.9 10.8 14.3 13.8 6.7 26.6 Chow Tai Fook Je 7,407 710 15.4 12.6 0.0 0.0 1.19 28.4 9.6 13.3 17.8 18.4 7.7 45.5 Chow Sang Sang 2,355 127 12.5 10.2 22.6 12.2 1.19 18.8 5.4 10.6 17.0 16.1 11.8 53.9 Luk Fook Hldgs I 1,730 163 8.5 7.7 0.0 0.0 1.80 21.1 9.4 20.5 21.1 20.3 (4.2) 42.5 Emperor Watch & 842 52 7.1 8.6 0.0 0.0 1.30 26.0 6.2 8.1 8.2 8.1 7.9 15.3 Oriental Watch 481 11 12.7 7.1 14.0 3.9 1.04 18.8 4.4 4.1 7.5 5.4 8.9 4.5 Stelux Hldg Intl 470 30 7.4 6.2 30.1 2.6 0.46 62.7 6.4 11.4 18.1 17.4 (0.4) 8.5 * N/A entries excl. from calculations of averages Source: RHB estimates, Bloomberg Based on 8 October closing prices Sh px 3-mth % See important disclosures at the end of this report 3
Hengdeli Holdings (3389 HK) Figure 4: Hengdeli's semi-annual results breakdown and forecasts Actual (CNYm) FY end-dec 1H12 2H12 1H13 2H13F FY13F Total turnover 5,750 6,371 6,294 7,226 13,520 y-o-y change 6.3% 6.7% 9.5% 13.4% 11.6% - China Retail 2,825 2,803 2,852 2,904 5,756 y-o-y change 8.8% 7.3% 1.0% 3.6% 2.3% % of total turnover 49% 44% 45% 40% 43% - HK/Macau Retail 1,415 1,699 1,593 1,895 3,488 y-o-y change -2.4% -0.5% 12.6% 11.5% 12.0% % of total turnover 25% 27% 25% 26% 26% - Taiwan Retail 100 115 90 102 192 y-o-y change -3.0% -3.9% -9.4% -11.3% -10.4% % of total turnover 2% 2% 1% 1% 1% - Wholesale 1,284 1,830 1,361 1,944 3,305 y-o-y change 11.1% 31.2% 6.0% 6.2% 6.1% % of total turnover 22% 29% 22% 27% 24% - After-sales operations 127 88 114 97 211 y-o-y change 22.2% -33.3% -10.3% 10.2% -1.9% % of total turnover 2% 1% 2% 1% 2% - Harvest Max 0 0 284 284 568 y-o-y change - - - - - % of total turnover - - 5% 4% 4% COGS (4,214) (4,752) (4,621) (5,370) (9,991) Gross Profit 1,536 1,619 1,673 1,856 3,529 y-o-y change 10.3% 10.5% 9.0% 14.6% 11.9% Gross margin 26.7% 25.4% 26.6% 25.7% 26.1% Selling expenses (710) (842) (1010) (1,162) (2,173) Administrative expenses (148) (208) (133) (187) (320) Other costs 0 1 0 0 0 Other income 49 37 67 22 89 Operating Profit 726 608 597 528 1,126 y-o-y change 4.6% 6.4% -17.8% -13.1% -15.6% Operating margin 12.6% 9.5% 9.5% 7.3% 8.3% Finance costs (136) (131) (156) (153) (309) Finance income 31 34 30 11 42 Share results from JV 10 22 9 23 32 Exceptional items 140 (74) (62) 0-62 Pre-tax profits 771 460 419 410 829 Tax (158) (128) (117) (90) (207) Effective tax rate 20.4% 27.8% 27.9% 22.0% 25.0% Minority interest (51) (39) (30) (31) (61) Reported net Profit 563 292 273 289 561 y-o-y change 25.6% -20.3% -51.6% -1.3% -34.4% Recurring net Profit 423 366 334 289 623 y-o-y change -5.6% 6.2% -21.0% -21.2% -21.1% Recurring net margin 7.4% 5.7% 5.3% 4.0% 4.6% See important disclosures at the end of this report 4
Hengdeli Holdings (3389 HK) Figure 5: Major forecast parameters (CNYm) Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Total turnover 11,375 12,120 13,520 15,091 17,610 y-o-y change 38.5% 6.6% 11.6% 11.6% 16.7% China Retail Operations China Turnover 5,210 5,628 5,756 6,401 7,378 y-o-y change 38.2% 8.0% 2.3% 11.2% 15.3% % of total turnover 45.8% 46.4% 42.6% 42.4% 41.9% Stores High-end 62 58 48 48 48 net additions 3 (4) (10) - - Mid-end 11 316 346 381 416 net additions 43 46 30 35 35 Subtotal 332 374 394 429 464 net additions 46 42 20 35 35 High-end retail turnover 2,337 2,116 1,502 1,390 1,487 y-o-y change NA -9.5% -29.0% -7.5% 7.0% % of total turnover 20.5% 17.5% 11.1% 9.2% 8.4% Mid-end retail turnover 2,873 3,512 4,255 5,011 5,891 y-o-y change NA 22.2% 21.2% 17.8% 17.6% % of total turnover 25.3% 29.0% 31.5% 33.2% 33.5% SSSG High-end NA -15% -19% 7% 7% Mid-end NA 8% 1% 7% 7% Gross margin 31.7% 33.9% 32.0% 33.0% 33.0% HK/Macau Retail Operations HK/Macau Turnover 3,157 3,114 3,488 3,802 4,659 y-o-y change 30.9% -1.4% 12.0% 9.0% 22.5% % of total turnover 27.8% 25.7% 25.8% 25.2% 26.5% Stores (high-end only) 19 22 19 22 22 net additions 3 3 (3) 3 - SSSG 7% -16% 11% 10% 10% Gross margin 23.7% 24.2% 22.0% 22.0% 22.5% Taiwan Retail Operations Taiwan Retail turnover 222 215 192 208 216 y-o-y change 15.3% -3.4% -10.4% 8.1% 4.0% % of total turnover 2.0% 1.8% 1.4% 1.4% 1.2% SSSG -14% -12% -14% 4% 4% Gross Margin 33.6% 32.2% 33.6% 33.6% 33.6% Wholesale Operations 2,551 2,925 3,305 3,814 4,394 y-o-y change 53.5% 14.7% 13.0% 15.4% 15.2% % of total turnover 22.4% 24.1% 24.4% 25.3% 25.0% Gross Margin 11.8% 11.6% 11.6% 11.6% 11.6% After-sales Operations 235 239 211 242 276 y-o-y change 30.9% 1.6% -12.0% 14.8% 14.0% % of total turnover 2.1% 2.0% 1.6% 1.6% 1.6% Gross Margin 35.3% 37.2% 34.1% 33.8% 33.8% Harvest Max - - 568 625 688 y-o-y change NA NA NA 10.0% 10.0% % of total turnover 0.0% 0.0% 4.2% 4.1% 3.9% Gross Margin 0.0% 0.0% 70.6% 70.6% 70.6% See important disclosures at the end of this report 5
Hengdeli Holdings (3389 HK) Financial Exhibits Profit & Loss (CNYm) Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Total turnover 11,375 12,120 13,520 15,091 17,610 Cost of sales (8,518) (8,966) (9,991) (11,107) (12,966) Gross profit 2,857 3,154 3,529 3,984 4,644 Gen & admin expenses (369) (356) (320) (365) (406) Selling expenses (1,325) (1,552) (2,173) (2,503) (2,797) Other operating costs 102 87 89 92 108 Operating profit 1,265 1,334 1,126 1,207 1,549 Operating EBITDA 1,340 1,447 1,241 1,325 1,674 Depreciation of fixed assets (72) (107) (110) (111) (118) Amortisation of intangible assets (3) (6) (6) (7) (7) Operating EBIT 1,265 1,334 1,126 1,207 1,549 Net income from investments (1) 32 32 32 32 Interest income 90 65 42 27 30 Interest expense (178) (266) (309) (225) (225) Exceptional income - net 22 66 (62) - - Pre-tax profit 1,198 1,231 829 1,042 1,386 Taxation (280) (285) (207) (250) (333) Minority interests (103) (90) (61) (76) (101) Profit after tax & minorities 815 855 561 716 952 Reported net profit 815 855 561 716 952 Recurring net profit 793 789 623 716 952 Cash flow (CNYm) Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Operating profit 1,265 1,334 1,126 1,207 1,549 Depreciation & amortisation 75 113 116 117 125 Change in working capital (873) (782) (858) (351) (436) Other operating cash flow 2 (3) (39) 32 32 Operating cash flow 470 662 344 1,005 1,270 Dividends received (28) (38) (45) (55) (65) Tax paid (247) (376) (253) (318) (423) Cash flow from operations 195 248 45 632 781 Capex (208) (434) (120) (175) (175) Other new investments (2) (22) (305) - - Other investing cash flow (58) (95) 87 82 95 Cash flow from investing activities (268) (552) (338) (93) (80) Dividends paid (185) (281) (112) (143) (190) Shares repurchased - (10) - - - Increase in debt 953 (119) 1,285 - - Other financing cash flow (88) (358) (2,431) (324) (324) Cash flow from financing activities 680 (768) (1,259) (467) (514) Cash at beginning of period 3,410 3,942 2,870 1,318 1,391 Total cash generated 608 (1,072) (1,551) 73 187 Forex effects (75) 0 - - - Implied cash at end of period 3,942 2,870 1,319 1,391 1,578 See important disclosures at the end of this report 6
Hengdeli Holdings (3389 HK) Financial Exhibits Balance Sheet (CNYm) Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Total cash and equivalents 4,104 2,871 1,318 1,391 1,578 Inventories 4,521 5,570 6,195 6,664 7,390 Accounts receivable 1,115 1,369 1,622 1,811 2,113 Other current assets - 0 - - - Total current assets 9,740 9,810 9,135 9,866 11,082 Total investments 786 1,152 814 1,682 1,512 Tangible fixed assets 666 997 1,007 1,071 1,128 Intangible assets 320 474 779 779 779 Total other assets 78 53 51 56 62 Total non-current assets 1,849 2,676 2,651 3,588 3,482 Total assets 11,589 12,486 11,786 13,455 14,563 Short-term debt 2,089 3,622 1,099 1,099 1,099 Accounts payable 1,759 2,163 1,798 2,777 2,982 Other current liabilities 174 30 33 37 43 Total current liabilities 4,022 5,815 2,930 3,913 4,124 Total long-term debt 220 562 2,346 2,346 2,346 Other liabilities 2,017 196 54 58 62 Total non-current liabilities 2,237 758 2,400 2,404 2,408 Total liabilities 6,259 6,572 5,330 6,316 6,532 Share capital 21 21 23 23 23 Retained earnings reserve 4,870 5,436 5,885 6,457 7,219 Shareholders' equity 4,891 5,457 5,907 6,480 7,242 Minority interests 440 457 548 658 790 Total equity 5,331 5,914 6,456 7,138 8,031 Total liabilities & equity 11,589 12,486 11,786 13,455 14,563 Valuation and Growth Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Valuation Ratios Core P/E (x) 9.6 9.7 12.2 10.6 8.0 Dividend yield (%) 3.7 2.3 1.5 1.9 2.5 P/BV (x) 1.6 1.4 1.3 1.2 1.0 Growth Revenue (%) 38.5 6.6 11.6 11.6 16.7 Gross profit (%) 39.4 10.4 11.9 12.9 16.6 Recurring net profit (%) 43.1-0.5-21.1 14.9 33.0 Per Share Data (CNY) Core EPS 0.16 0.16 0.13 0.15 0.20 DPS 0.06 0.04 0.02 0.03 0.04 Payout Ratio (%) 34.5 20.4 20.0 20.0 20.0 BVPS 1.01 1.13 1.23 1.35 1.51 Financial Ratios Gross margin (%) 25.1 26.0 26.1 26.4 26.4 Operating margin (%) 11.1 11.0 8.3 8.0 8.8 Recurring net margin (%) 7.0 6.5 4.6 4.7 5.4 Current ratio 2.4 1.7 3.1 2.5 2.7 Total Debt/equity (%) 80.5 70.7 53.4 48.3 42.9 Net debt/equity (%) 3.5 22.2 32.9 28.8 23.2 Inventory days 165 205 215 211 198 Receivable days 34 37 40 42 41 Payable days 57 80 72 75 81 ROA (%) 7.9 7.1 4.6 5.7 6.8 ROE (%) 17.7 16.5 9.9 11.6 13.9 See important disclosures at the end of this report 7
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Hengdeli Holdings (3389 HK) SWOT Analysis China s largest watch retailer Distributes both high- and mid-end watches through four different store formats Swatch Group and LVMH as major strategic shareholders Long-term growth potential in both luxury and mid-end watch demand in China Continues to expand presence in China through expansion into lower-tier cities A slowdown in China/Hong Kong s retail sector China s economic slowdown persists More unfavourable policies from the Chinese Government on luxury spending Increasing competition from other distributors Non-core businesses (Ming Fung Jewellery and Harvest Max) drag down overall group performance Pricing controlled by watch suppliers Balance sheet / cash flow health remains a concern P/E (x) vs EPS growth P/BV (x) vs ROAE 16.0 70% 1.8 30% 14.0 12.0 10.0 8.0 6.0 4.0 2.0 56% 43% 29% 15% 1% -13% -26% 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 27% 23% 20% 17% 13% 10% 7% 3% 0.0-40% 0.0 0% P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs) Company Profile Hengdeli is the largest watch retailer of international renowned brands in China and Greater China with 452 stores as of end-2012. See important disclosures at the end of this report 8
NR 3.20 3.87 3.40 3.30 2.24 Hengdeli Holdings (3389 HK) Recommendation Chart Price Close 5.1 Recommendations & Target Price 4.6 4.1 3.6 3.1 2.6 2.1 1.6 1.1 0.6 0.1 Oct-08 Jan-10 Apr-11 Jul-12 Buy Neutral Sell Trading Buy Take Profit Not Rated Source: RHB estimates, Bloomberg Date Recommendation Target Price Price 2013-08-30 Buy 2.24 1.78 2013-05-20 Buy 3.30 1.98 2013-03-27 Buy 3.40 1.98 2013-01-22 Buy 3.87 2.79 2012-11-02 Buy 3.20 2.60 2012-09-10 Buy 3.20 2.02 Source: RHB estimates, Bloomberg See important disclosures at the end of this report 9
RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. 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If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd. Hong Kong This report is published and distributed in Hong Kong by RHB OSK Securities Hong Kong Limited ( RHBSHK ) (formerly known as OSK Securities Hong Kong Limited), a subsidiary of OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB ), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company. 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Risk Disclosure Statements The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. RHBSHK does not maintain a predetermined schedule for publication of research and will not necessarily update this report Indonesia This report is published and distributed in Indonesia by PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Thailand This report is published and distributed in Thailand by RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Other Jurisdictions In any other jurisdictions, this report is intended to be distributed to qualified, accredited and professional investors, in compliance with the law and regulations of the jurisdictions. DMG & Partners Research Guide to Investment Ratings Kuala Lumpur Hong Kong Singapore Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Malaysia Research Office RHB OSK Securities Hong Kong Ltd. DMG & Partners Neutral: Share RHB price Research may Institute fall within Sdn the Bhd range of +/- 10% (formerly over known the next as 12 OSK months Securities Hong Kong Ltd.) Securities Pte. Ltd. Take Profit: Level Target 11, Tower price One, has been RHB Centre attained. Look to accumulate at lower 12th levels Floor 10 Collyer Quay Sell: Share price may Jalan fall Tun by Razak more than 10% over the next 12 months World-Wide House #09-08 Ocean Financial Centre Not Rated: Stock is Kuala not within Lumpur regular research coverage Malaysia 19 Des Voeux Road Central, Hong Kong Singapore 049315 Tel : +(65) 6533 1818 Tel : +(60) 3 9280 2185 Tel : +(852) 2525 1118 Fax : +(65) 6532 6211 Fax : +(60) 3 9284 8693 DISCLAIMERS Jakarta Fax : +(852) 2810 0908 Shanghai Phnom Penh This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, PT financial RHB OSK situation Securities and Indonesia particular needs of any RHB specific OSK (China) recipient Investment of this research Advisory report. Co. Ltd. You should independently RHB OSK Indochina evaluate Securities particular Limited investments (formerly known and consult as PT OSK an independent Nusadana Securities financial adviser (formerly before making known as any OSK investments (China) Investment or entering into (formerly any transaction known as in OSK relation Indochina to any Securities securities Limited) or investment instruments Indonesia) mentioned in this report. Plaza CIMB Niaga Advisory Co. Ltd.) Suite 4005, CITIC Square No. 1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok 14th Floor 1168 Nanjing West Road Phnom Penh The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor Jl. Jend. Sudirman Kav.25 Shanghai 20041 Cambodia accept any Jakarta responsibility Selatan 12920, or liability Indonesia as to its accuracy, completeness or correctness. China Opinions and views expressed in this Tel: report +(855) are 23 969 subject 161 to change without notice. Tel : +(6221) 2598 6888 Tel : +(8621) 6288 9611 Fax: +(855) 23 969 171 Fax : +(6221) 2598 6777 Fax : +(8621) 6288 9633 This report does not constitute or form part of any offer or solicitation of any Bangkok offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank RHB OSK Securities (Thailand) PCL Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB which in turn is a whollyowned subsidiary of RHB Capital Berhad) and Deutsche Asia 10th Pacific Floor, Holdings Sathorn Square Pte Ltd Office (a subsidiary Tower of Deutsche Bank Group). 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