Credit Suisse Equity Strategy LatAm Equity Research Handbook

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30 March 2014

Credit Suisse Equity Strategy

LatAm Equity Research Handbook 30 March 2014

Andrew T. Campbell, CFA 55 11 3701.6313

[email protected]

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Daniel Federle 55 11 3701.6311

[email protected]

Andrei Sabah 52 55 5283.3810

[email protected]

André Hachem 55 11 3701.6306

[email protected]

& LatAm Equity Research team

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30 March 2014

Latin America Research Team

Felipe Vinagre SP- 55 11 3701.6333 [email protected]

Financials Banks

Marcelo Telles SP- 55 11 3701.6338 [email protected]

Victor Schabbel SP- 55 11 3701.6337 [email protected]

Financials NonBanks



Healthcare


Metals & Mining

Santiago Perez MX- 52 55 5283.8916 [email protected]

Ivano Westin SP- 55 11 3701.6318 [email protected]

Oil, Gas & Petrochemicals

André Sobreira SP- 55 11 3701.6299 [email protected]

Vinicius Canheu SP- 55 11 3701.6310 [email protected]

Vanessa Quiroga MX- 52 55 5283.8939 [email protected]

Pulp & Paper

Viccenzo Paternostro SP- 55 11 3701.6043 [email protected]

Retailing

Tobias Stingelin SP- 55 11 3701.6301 [email protected]

Antonio González MX- 52 55 5283.8921 [email protected]

Technology, Media, Telecommunications

Daniel Federle SP- 55 11 3701.6311 [email protected]

Andrew T. Campbell SP- 55 11 3701.6313 [email protected]

Transportation

Bruno Savaris SP- 55 11 3701.6332 [email protected]

Felipe Vinagre SP- 55 11 3701.6333 [email protected]

Food & Beverages


Antonio González MX- 52 55 5283.8921 [email protected]

Alexandre Amson SP- 55 11 3701.6320 [email protected]

Real Estate

Nicole Hirakawa SP- 55 11 3701.6307 [email protected]


Electric & Other Utilities


Pedro Manfredini SP- 55 11 3701.6308 [email protected]

Cement & Construction



Equity Strategy


Agribusiness


Capital Goods


Head of Research

Emerson Leite SP- 55 11 3701.6290 [email protected]

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30 March 2014

All-Brazil Research Team

Education


Metals & Mining

Ivano Westin SP- 55 11 3701.6318 [email protected]

Equity Strategy


Chemicals & Oil


Technology, Media, Telecom


Financials NonBanks


Transportation


Consumer Goods


Healthcare


Agribusiness




Pulp & Paper


Capital Goods


Financials Banks


Real Estate


Head of Research

Emerson Leite SP- 55 11 3701.6290 [email protected]

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30 March 2014

Intentionally in Blank

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30 March 2014

Investment Summary – Index Page

Agribusiness 17 SLCE3 AGRO

Financials Banks

21 TGMA3 POMO4 Capital Goods

31 ESTC3 AEDU3

39 BBDC3 / BAP BBAS3 / GFNORTE

Financials NonBanks 45 BBSE3 PSSA3

Transportation

49 ABEV3 CCU

Oil, Gas & Petrochemicals 59 BRKM5 n.a.

Pulp & Paper 63 KLBN4 CMPC

Real Estate 67 VESTA BRPR3

Retailing 73 LAME4 / ALSEA AMAR3 / SORIANAB

Technology, Media, Telecom 83 TOTS3 VIVT4

Sector Page Top Long Idea Top Short Idea Sector bias

Equity Strategy 13 We prefer Brazilian equities over Mexican, Chilean and Peruvian and advocate an Overweight in Brazil within a LatAm context. We are Market Weight Colombia.

HOLT® 7 Our HOLT® methodology assesses companies’ performance according to track record of cash generation, market sentiment and DCF valuation.


89 MILS3 STBP11

Food & Beverages

25 CX PDGR3

Metals & Mining 53 USIM5 / SCCO MFRISCO

Cement & Construction

35 CPFE3 TAEE11

Education

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30 March 2014

FOTO

HOLT®

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30 March 2014

Sector Valuation Market Sentiment CFROI ® Sentiment Overall Rank Previous Overall Rank

China 1 5 1 1 1

Taiwan 7 3 2 2 2

Russia 2 12 4 3 3

Poland 9 1 5 4 5

Korea 4 4 13 5 7

Malaysia 14 2 7 6 10

Indonesia 13 6 8 7 9

India 8 10 9 8 11

Philippines 15 8 3 9 12

Chile 5 14 10 10 13

South Africa 11 9 6 11 6

Turkey 3 13 14 12 4

Mexico 12 7 12 13 14

Brazil 6 15 11 14 8

Thailand 10 11 15 15 15

HOLT® Emerging Markets Rank

Source: Credit Suisse HOLT®. HOLT® scores range from 1 (worst) to 5 (best).

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HOLT® Top-Ranked LatAm Companies


Ticker Company Name Country Code Quality Momentum Valuation Overall Score

QUAL3 Qualicorp SA BRA 4.94 4.44 3.39 4.25

PFDAVVND Banco Davivienda SA COL 4.67 3.99 3.91 4.19

PSSA3 Porto Seguro SA BRA 4.01 4.67 3.67 4.11

CTIP3 Cetip SA Mercados Organizados BRA 4.33 4.71 3.17 4.06

OHLMEX OHL Mexico S.A.B. de C.V. MEX 4.04 4.18 3.90 4.04

AEROMEX Grupo Aeromexico SAB de CV MEX 3.42 4.33 4.32 4.03

KROT3 Kroton Educacional SA BRA 4.94 4.93 2.20 4.01

BOC Banco de Occidente COL 4.50 3.43 4.05 3.99

ERAR Siderar SAIC ARG 2.34 4.66 4.91 3.98

CIEL3 Cielo S.A. BRA 4.91 4.70 2.31 3.96

CVCB3 CVC Brasil - Operadora e Agencia de Viagens SA BRA 4.07 3.86 3.93 3.95

ANTO Antofagasta PLC GBR 3.96 3.50 4.33 3.93

MRVE3 MRV Engenharia e Participacoes S.A. BRA 3.12 4.05 4.59 3.93

BBDC4 Banco Bradesco S.A. BRA 3.95 3.81 3.95 3.90

ENX Enaex SA CHL 3.67 3.90 4.14 3.90

PFAVTA Avianca Holdings SA COL 3.17 4.22 4.30 3.90

EZTC3 Ez Tec Empreendimentos e Participacoes S.A. BRA 4.28 2.97 4.43 3.90

TLVACPO Grupo Televisa S.A.B MEX 4.19 4.20 3.27 3.88

QNN Quinenco S.A. CHL 4.18 2.72 4.55 3.82

BBTG11 Grupo BTG Pactual BRA 4.85 2.79 3.81 3.82

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30 March 2014

HOLT®: IBX 100 Index’s Top Quartile Credit Suisse HOLT® Scorecard

IBX 100 – Top Quartile (BEST combinations of valuation, momentum and quality of operations)

Additions to the TOP quartile Ticker

Qualicorp QUAL3

Kroton KROT3

AES Tietê GETI4

Estácio Part. ESTC3

Ambev ABEV3

Taesa TAEE11

Usiminas USIM5

Lojas Renner LREN3


Company Name Ticker

20%

Quartile

40%

Quartile

40%

Quartile

100% Overall

Quartile MktCap ($ bln)

Quality

Score

Momentum

Score

Valuation

Score

Overall

Score

Qualicorp SA QUAL3 4.94 5 4.44 5 3.39 4 4.25 5 2.6

Porto Seguro SA PSSA3 4.01 5 4.67 5 3.67 4 4.11 5 4.7

Cetip SA Mercados Organizados CTIP3 4.33 5 4.71 5 3.17 3 4.06 5 2.9

Kroton Educacional SA KROT3 4.94 5 4.93 5 2.20 2 4.01 5 5.6

Cielo S.A. CIEL3 4.91 5 4.70 5 2.31 2 3.96 5 24.1

MRV Engenharia e Participacoes S.A. MRVE3 3.12 3 4.05 5 4.59 5 3.93 5 1.5

Banco Bradesco S.A. BBDC4 3.95 4 3.81 5 3.95 5 3.90 5 52.1

Ez Tec Empreendimentos e Participacoes S.A. EZTC3 4.28 5 2.97 3 4.43 5 3.90 5 1.7

Energias do Brasil SA ENBR3 2.72 3 3.80 5 4.79 5 3.78 5 1.9

Sabesp - Compania Saneamento Basico Estado de Sao Paulo SBSP3 3.51 4 3.25 4 4.35 5 3.71 5 5.8

Even Construtora e Incorporadora EVEN3 3.69 4 2.54 2 4.75 5 3.67 5 0.7

Magazine Luiza SA MGLU3 4.07 5 2.54 2 4.23 5 3.62 5 0.5

AES Tiete SA GETI4 3.07 3 3.12 3 4.53 5 3.58 5 2.8

Estacio Participacoes S A ESTC3 3.80 4 4.79 5 2.19 2 3.58 5 2.7

Cemig - Companhia Energetica de Minas Gerais CMIG4 2.38 2 4.02 5 4.30 5 3.58 5 7.7

Itau Unibanco Holding S.A. ITUB4 2.54 2 4.33 5 3.56 4 3.48 5 69.2

Ambev - Companhia de Bebidas das Americas ABEV3 4.59 5 4.04 5 1.81 1 3.47 5 112.8

Taesa - Transmissora Alianca de Energia Eletrica SA TAEE11 3.44 4 3.48 4 3.43 4 3.45 5 2.9

Usiminas - Usinas Siderurgicas de Minas Gerais SA USIM5 2.59 2 4.25 5 3.42 4 3.42 5 4.3

Cesp - Companhia Energetica de Sao Paulo CESP5 2.10 2 3.40 4 4.60 5 3.38 4 3.5

Cyrela Brazil Realty S.A. Empreendimentos e Partic CYRE3 2.83 3 2.84 3 4.39 5 3.36 4 2.3

Lojas Renner SA LREN3 4.24 5 2.94 3 2.82 3 3.33 4 3.2

Sul America S.A. SULA11 3.38 4 3.01 3 3.48 4 3.29 4 2.1

Banco do Brasil SA BBAS3 3.80 4 2.01 1 3.98 5 3.27 4 25.5

Sulamérica SULA11

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30 March 2014

HOLT®: IBX 100 Index’s Bottom Quartile

Credit Suisse HOLT® Scorecard

IBX 100 – Bottom Quartile (WORST combinations of valuation, momentum and quality of operations)


Company Name Tick+er 20%

Quartile

40%

Quartile

40%

Quartile

100% Overall

Quartile

MktCap

($ bln) Quality

Score Momentum

Socre

Valuation

Score

Overall

Score

Brookfield Incorporacoes S.A. BISA3 1.23 1 1.66 1 1.92 1 1.61 1 0.4

PDG Realty SA PDGR3 1.94 1 2.08 1 1.53 1 1.85 1 0.8

Prumo Logistica SA LLXL3 1.10 1 2.74 3 1.93 1 1.92 1 0.7

Eneva SA ENEV3 1.03 1 3.63 4 1.36 1 2.00 1 0.5

Gol Linhas Aereas Inteligentes S.A. GOLL4 2.10 2 2.23 2 1.87 1 2.07 1 1.2

BRF SA BRFS3 2.25 2 2.44 2 1.67 1 2.11 1 16.5

Petrobras - Petroleo Brasileiro SA PETR4 1.78 1 2.53 2 2.35 2 2.22 1 81.2

Braskem S.A. BRKM5 1.66 1 3.26 4 1.96 1 2.29 1 5.9

Marcopolo SA POMO4 3.19 3 1.62 1 2.20 2 2.34 1 1.7

Hypermarcas SA HYPE3 2.95 3 2.56 2 1.66 1 2.38 1 4.5

Dasa - Diagnosticos da America SA DASA3 2.94 3 2.87 3 1.53 1 2.44 1 2.0

Mills Estrut. e Serv. de Engenharia S.A MILS3 3.15 3 1.91 1 2.29 2 2.45 1 1.5

TIM Participacoes SA TIMP3 1.84 1 3.30 4 2.22 2 2.45 1 11.7

Iochpe-Maxion SA MYPK3 1.91 1 2.92 3 2.66 2 2.50 1 1.0

Fibria Celulose SA FIBR3 2.22 2 3.31 4 2.02 1 2.51 1 6.0

Multiplan Empreendimentos Imobiliarios S.A. MULT3 3.07 3 2.22 2 2.25 2 2.51 1 3.6

Raia Drogasil SA RADL3 3.58 4 2.27 2 1.71 1 2.51 1 2.6

B2W Companhia Digital BTOW3 1.52 1 4.83 5 1.26 1 2.52 1 1.8

Marfrig Global Foods SA MRFG3 2.27 2 2.59 2 2.72 3 2.53 1 0.9

Gerdau S.A. GGBR4 1.83 1 3.06 3 2.72 3 2.54 1 10.6

Natura Cosmeticos SA NATU3 3.95 4 2.02 1 1.74 1 2.56 1 6.9

CPFL Energia SA CPFE3 2.47 2 3.07 3 2.20 2 2.58 1 7.3

Souza Cruz SA CRUZ3 3.84 4 1.89 1 2.06 1 2.59 2 13.6

Eletropaulo Metropolitana Electricidade Sao Paulo ELPL4 1.74 1 3.80 5 2.24 2 2.59 2 0.6

Additions to the BOTTOM quartile Ticker

GOL GOLL4

Brasil Foods BRFS3

Petrobras PBR

Braskem BRKM5

Marcopolo POMO4

Hypermarcas HYPE3

DASA DASA3

Mills MILS3

Iochpe Maxion MYPK3

Fibria FIBR3

Marfrig MRFG3

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30 March 2014

Company Name Ticker Country Code Quality Momentum Valuation Overall Score Market Cap (USD bln)

Qualicorp SA QUAL3 BRA 4.94 4.44 2.87 4.07 2.6

Banco Davivienda SA PFDAVVND COL 4.67 3.99 3.57 4.07 5.2 OHL Mexico S.A.B. de C.V. OHLMEX MEX 4.04 4.18 3.34 3.85 4.4

Grupo Aeromexico SAB de CV AEROMEX MEX 3.42 4.33 4.14 3.96 1.1 Siderar SAIC ERAR ARG 2.34 4.66 4.83 3.95 2.0 CVC Brasil - Operadora e Agencia de Viagens SA CVCB3 BRA 4.07 3.86 3.88 3.93 0.8 Enaex SA ENX CHL 3.67 3.90 3.76 3.77 1.2

Avianca Holdings SA PFAVTA COL 3.17 4.22 3.92 3.77 2.2

Grupo BTG Pactual BBTG11 BRA 4.85 2.79 3.54 3.72 10.4 Forus SA FORUS CHL 4.59 3.84 2.52 3.64 1.1 Banco de Credito e Inversiones BCI CHL 4.03 3.94 2.94 3.63 5.9

Enersur S.A ENERSUC1 PER 3.99 4.36 2.56 3.63 2.1 Grupo Elektra SA de CV ELEKTRA MEX 4.08 2.94 3.95 3.66 7.3

Banco de Bogota BBO COL 4.75 3.46 2.62 3.60 10.0 Ecopetrol SA ECOPETL COL 4.18 3.34 3.13 3.55 78.8 Banco Internacional Del Peru SAA- Interbank RBA PER 4.07 2.95 3.93 3.66 2.2

HOLT®

All LATAM companies in HOLT® with market cap greater than US$ 0.5 bln 356 stocks

Greater than US$ 2 million average (90-day) trading volume 203 stocks

No CS Equity Research coverage 38 stocks

In Top Quintile of HOLT’s rankings

16 stocks

Liquid LatAm equities with high HOLT® scores, but without CS Equity Research coverage.

HOLT® scores range from 1 (worst) to 5 (best). The overall score is an equally weighted combination of each company’s valuation, operational quality and momentum scores. The 3-Month CFROI Momentum metric is a measure of earnings momentum.


30 March 2014

FOTO

LatAm Equity Strategy

Andrew T. Campbell, CFA

55 11 3701.6313 [email protected]

Daniel Federle


Andrei Sabah


DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Latin America Equity Strategy Team

André Hachem


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30 March 2014

LatAm Equity Strategy

We rate Brazil as O/W in a LatAm portfolio, but reduce our YE IBOV target to 59,000

from 63,000. Our view is that Brazil’s outperformance versus Mexico of 7% in USD terms YTD may continue for the short-term. The valuation argument continues to be in Brazil’s favor, especially because downward earnings revisions have not been as severe as those affecting

Mexico, Colombia and Peru. This means that Brazil’s forward P/E of 9.9x remains below its historical average. Positives for the Brazilian investment case include: (i) 2014 expectations already at low levels, allowing recent macro data to surprise positively, (ii) monetary tightening

cycle close to pausing with CS expecting only 50bps more in 2014, and (iii) earnings, along with Chile, holding up better than the rest of the region. We note the greatest points of

vulnerability are (i) potential for significant depreciation of the BRL (CS still forecasting R$2.60/US$ for YE) and (ii) the risk that electricity rationing (not our base case scenario) could become a drag on growth later this year.

We rate Mexico as U/W in a LatAm portfolio and reduce our YE IPC target to 41,500

from 44,000. Our view is that weak market performance YTD was warranted based on overly optimistic growth expectations and heady valuations. Even though the medium-term outlook for

the economy and MNX are promising, we see risk of further underperformance in the short-term relative to LatAm due to (i) forward P/E of 17.8x which is still well above historical levels, (ii) softer recovery in GDP growth, which is still being reflected in forecasts (CS currently at

2.8% for this year), (iii) earnings growth in 2014 is likely to lag other LatAm markets and

downward revisions have not yet stabilized, and (iv) negative earnings impact from reform initiatives (fiscal and telco reforms) are still being factored into estimates. On the positive side, we see the less currency risk with our economics teams forecasting a stable MNX of

MxN$13.00/US$ for YE.

LatAm Overview

Source: Bloomberg, Credit Suisse Research

LatAm 2014 Earnings Revisions,

values in local currency, based to 100 on 1/1/2013

LatAm Indexes12 month forward P/E

BRAZIL IBX-100 Mexico MEXBOL COLCAP CHILE IPSA

IPSA

COLCAP

IGBVL

MEXBOL

IBX 100

65

75

85

95

105

115

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14

7x

8x

9x

10x

11x

12x

13x

14x

15x

Mar-09 Sep-10 Mar-12 Sep-13

10x

12x

14x

16x

18x

20x

22x


10x

12x

14x

16x

18x

20x


10

15

20

25

30


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30 March 2014

Top 10 LatAm country/sector pairings – recommended weighting

Sector Stance Coverage Information (local terms)

Brazil

Financials

Brazil

Materials

Brazil

Consumer

Staples

Brazil

Oil, Gas &

Petrochemicals

Mexico

Consumer

Staples

OVERWEIGHT

MARKETWEIGHT

OVERWEIGHT

MARKETWEIGHT from UNDERWEIGHT

UNDERWEIGHT

P/E 2014

P/B 2014

ROE 2014

12M Upside

8.61

1.43

16.6%

21.2%

P/E 2014

P/B 2014

ROE 2014

12M Upside

8.49

0.84

9.9%

39.8%

P/E 2014

P/B 2014

ROE 2014

12M Upside

19.08

4.49

23.5%

17.2%

P/E 2014

P/B 2014

ROE 2014

12M Upside

11.84

0.59

5.0%

9.6%

P/E 2014

P/B 2014

ROE 2014

12M Upside

21.13

2.33

11.0%

13.0%

Comments

Private sector banks should continue to be an attractive sector for domestic exposure considering (i) stable lending spreads and increasing interest rates, (ii) modest loan growth, (iii) improvement in

provisions, and (iv) unprecedented cost control efforts. Less expensive valuations than other domestic sectors. Key risk factor is Supreme Court ruling on legacy contingencies from "economic plans“, now

expected in April.

Preference for Steels and Pulp & Paper over Mining. Weak earnings expected in Mining due to (i)

significant contraction in iron ore prices YTD, (ii) weak volume growth expected at Vale and (iii) ongoing concern on China’s economic growth. On the other hand, Steels and Pulp & Paper would be better

vehicles for exposure to a more depreciated BRL

Less discretionary companies, like ABEV, should continue to perform well in a soft GDP and gradually tougher consumer environment. High multiples are warranted. ABEV can benefit from margin

expansion, strong volumes driven by weather and World Cup, and higher distributions to shareholders.

BRF has started a turnaround process through the means of a corporate restructuring agenda which

should bear fruit in the medium long-run.

We raise Petrochemicals and Oil & Gas to Market Weight mainly on valuation grounds after weak sector performance YTD. We still take a more cautious approach, however, considering: (i) lack of a

transparent pricing formula, (ii) potential for weaker BRL to put pressure on margins and (iii) stretched

balance sheet. Petrochemicals, on the other hand, can benefit from high int'l spreads and weaker BRL.

May continue to underperform on the back of weak consumer credit growth, slower recovery in economic growth, and slow pace of job creation. Beverage companies still vulnerable to volume declines

in 2014 due to pass-through of excise taxes. Supermarkets still affected by structural shift in consumption patterns and lack of selling space growth.

In this report we revisit our recommended weighting on the 10 country-sector pairings that we believe are most important for LatAm portfolio managers. Our main overweight sectors are Brazilian Financials (especially private sector banks), Brazilian Consumer Staples and Mexico Materials. We have also raised Brazilian Energy from underweight to market weight in the wake of

analyst Vinicius Canheu’s recent upgrade of PBR to Neutral on valuation grounds. On the other hand, we are reducing our weighting on Brazilian Capital Goods to market weight in light of the deterioration in the market for exports to Argentina and uncertainty over electricity rationing. Finally, we reduce two sectors to underweight from market weight: Mexico Financials and Mexico TMT.

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30 March 2014

Sector Stance Coverage Information (local terms)

Mexico

TMT

Mexico

Materials

Mexico

Financials

Brazil

Capital Goods &

Transportation

Brazil

Utilities

OVERWEIGHT

UNDERWEIGHT from MARKETWEIGHT

MARKETWEIGHT from OVERWEIGHT

MARKETWEIGHT

P/E 2014

P/B 2014

ROE 2014

12M Upside

14.66

3.29

22.5%

25.3%

P/E 2014

P/B 2014

ROE 2014

12M Upside

34.71

1.96

5.6%

7.6%

P/E 2014

P/B 2014

ROE 2014

12M Upside

16.46

2.13

12.9%

4.5%

P/E 2014

P/B 2014

ROE 2014

12M Upside

17.41

3.54

20.4%

6.1%

P/E 2014

P/B 2014

ROE 2014

12M Upside

7.67

1.45

18.9%

9.1%

Comments

Reduce to Underweight because Telcos may face more negative regulatory newsflow as preponderance measures and secondary laws go into effect. Preference for Media over Telco considering that Media is better positioned to benefit from cyclical rebound in the economy and not as negatively exposed to TMT reform measures. In addition, Televisa has exposure to strong spending in US Hispanic ad market and

catalyst from higher Univision valuation.

Even though copper prices have corrected sharply YTD, we are still positive on Mining because GMEX is tackling costs, expanding production, and may receive an important approval in Peru in the

upcoming months. At the same time, its energy and infrastructure assets are positively exposed to reform process. Negative view on precious metals, however, and their higher impact from mining

taxes.

We reduce to Underweight even though medium- to long-term outlook is favorable because of structural factors, including low consumer credit penetration (although it is overstated), a comfortable funding and

capital position and long-run benefits from the financial reform. In the short-term, we are cautious because of the still sluggish consumer environment, consumer asset quality trends (particularly in payroll loans), and

a higher tax burden system-wide. Also, in the short-term, we see some degree of regulatory risk stemming from the competition study being conducted by Cofece.

In light of electricity rationing risks and a slowdown in the Argentine economy (main destination for Brazilian auto exports), we reduce the Capital Goods sector to Market Weight. We would keep our

exposure through the transportation sector via toll roads and construction service providers (MILLS), which should benefit from government infrastructure programs.

We maintain a balanced approach to the sector. Increased chances of rationing in 2014 are a negative, but we believe fears of further government intervention in the sector have already been priced in. A

possible catalyst could be an improvement in regulatory conditions, combined with the next tariff review cycle for discos (slated to start in 2015).

Top 10 LatAm country/sector pairings – continued

UNDERWEIGHT from MARKETWEIGHT

30 March 2014

FOTO

LatAm Agribusiness

Viccenzo Paternostro



Latin America Agribusiness Team

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30 March 2014

LatAm Agribusiness – Data Summary

Source: Credit Suisse Research. All figures in USD unless otherwise stated. Price performance change in USD.

1 Month Performance YTD Performance Market Cap (USD millions) ADTV (USD millions)

Company Ticker Rating Last

Close

Target

Price

Upside

(%) ADTV Mkt Cap Net Debt

1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E

ROE P / E EV / EBITDA EPS Div. Yield

Fertilizers

SQM SQM N 30.73 34.00 10.6% 43.5 8,537 687 0.9% 18.7% 2.8x 17.8x 18.0x 10.3x 10.3x 1.73 1.70 4.2% 4.2% 15.9%

Agribusiness

Adecoagro AGRO N 7.91 7.50 -5.2% 1.7 968 469 1.0% -2.2% 0.9x 8.8x 6.4x 6.4x 5.0x 0.90 1.23 1.1% 1.5% 9.8%

Cosan CSAN3 R BRL 34.80 R R 19.7 6,269 R -0.1% -8.1% R R R R R R R R R R

São Martinho SMTO3 N BRL 30.85 BRL 30.00 -2.8% 2.6 1,540 502 6.0% 12.3% 1.8x 20.8x 20.8x 6.6x 5.8x 0.66 0.66 0.0% 2.4% 8.6%

SLC Agrícola SLCE3 O BRL 16.40 BRL 27.00 64.6% 1.2 718 149 -6.4% -16.0% 0.9x 12.0x 18.4x 5.8x 7.2x 0.61 0.39 2.1% 1.3% 7.3%

Vanguarda Agro VAGR3 O BRL 2.93 BRL 4.10 39.9% 0.9 502 146 -3.5% -10.7% 1.0x 35.4x 36.5x 10.2x 11.0x 0.04 0.04 0.0% 0.0% 2.7%

7.1%

6.0%

3.9%

3.0%

2.6%

1.5%

1.3%

1.0%

0.9%

-0.1%

-3.5%

-6.4%

Ibovespa

São Martinho

Mexbol

IPSA

Brazilian Real

Chilean Peso

Mexican Peso

Adecoagro

SQM

Cosan

Vanguarda Agro

SLC Agrícola

18.7%

12.3%

4.3%

0.7%

-0.4%

-2.2%

-3.9%

-5.2%

-6.9%

-8.1%

-10.7%

-16.0%

SQM

São Martinho

Brazilian Real

Ibovespa

Mexican Peso

Adecoagro

IPSA

Chilean Peso

Mexbol

Cosan

Vanguarda Agro

SLC Agrícola

8,536.9

6,269.0

1,540.3

967.9

717.5

502.2

SQM

Cosan

São Martinho

Adecoagro

SLC Agrícola

Vanguarda Agro

43.5

19.7

2.6

1.7

1.2

0.9

SQM

Cosan

São Martinho

Adecoagro

SLC Agrícola

Vanguarda Agro

19

30 March 2014

Sector Overview

Outlook for Sugar & Ethanol sector dependent on the government; Fertilizers fundamentals remain strong; Grains should continue posting attractive returns to farmers

18.7

8.7

29.2

14.6

34.2

Sugar Prices 26.5

Price forecast

17.5

18.5

20.0

0

10

20

30

40

Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14

Sugar prices likely to remain under pressure because of high inventories.

Potentially lower sugarcane volume due to weather conditions to benefit Sugar&Ethanol prices.

Potential further government incentives.

Depreciated BRL

Sugar prices are likely to recover since sugar price is below cash-cost production worldwide.

Sugar prices to increase to $20c/lb, which is the minimum price that remunerates the cost of capital of a sugarcane mill in Brazil.

Current mismatch of fuel prices (domestic vs. intl.) is not sustainable, benefiting ethanol price in the long term.

Stock/use ratio of sugar

Sugar&Ethanol prices

Sugarcane seasons in Brazil, India and Thailand

Gasoline price in Brazil.

Renewable future mandates in developed economies.

Sugarcane yields.

Uralkali’s statement in July that it’s going to quit supply discipline still puts pressure on Potash prices (falling from ~USD400/t to ~USD330/t).

Lithium and Iodine market remain robust, sustaining prices at profitable levels.

Agricultural products demand should continue growing because of demographics, increasing demand for meat and biofuels

Farmer profitability because of grain price should support demand for fertilizers.

Lithium price and demand should remain attractive because of electric cars batteries.

Grain prices

Planted area

Start up of potash projects.

Potash/Iodine/Lithium prices

Short-Term View (1H2014) Mid/L-T View (2H2014-2016) Sector Attractiveness - Framework

Su

gar

& E

thano

l Fert

iliz

er

Gra

ins

Expansion in planted area will support a new record in grain production in 2013/14 harvest season in Brazil.

Low fertilizer prices should help farmers to sustain higher margins.

Corn exports to China from Brazil will increase due to a commercial agreement signed by both parts.

Scenario for cotton inventories in China remains uncertain.

Agricultural products demand should continue growing because of demographics, increasing demand for meat and biofuels.

High land prices and potential for further price appreciation due to (i) improvement in logistics; (ii) ease of regulation and (iii) competition for land with other crops.

Improvement in logistics would also help to improve farmers’ margins in the long-run.

Stock/use ratio of grains

Grains and land prices

Planted area and mix of planted area

Grain yields

Improvements in logistics

334 300

400

500

600

700

Jan-09 Mar-10 May-11 Jul-12 Sep-13

Potash (Vancouver, USD/Mt)

4.0 4.3

4.7

1.5

4.0

6.5

9.0

Jan-00 Jan-04 Jan-08 Jan-12 Jan-16

Corn

Price

12.5

11.0 11.5

12.0

3.5

8.5

13.5

18.5

Jan-00 Jan-04 Jan-08 Jan-12 Jan-16

Soybean

Price

Sector Drivers

Price Forecast

Price Forecast

20

30 March 2014

-

+

Pre

fere

nce

Source: Company data, Bloomberg, Credit Suisse estimates, Price as of September 27

Executive Summary

Integrated S&E producer (own land, own sugarcane planting, sugar and ethanol production).

One of the most efficient S&E producer.

Player in land business: 50,000 ha of own land in SP,

~16mn tones crushing capacity

Investments in biotechonology through JV with Amyris.

\

Strengths: (i) Low production cost, (ii) land portfolio in SP state, (iii) skilled management team, (iv) expansion opportunity through Santa Cruz acquisition

Risks: (i) Low sugar prices in short term, (ii) ethanol profitability due to government interventions in fuel prices, (iii) rising logistics costs

(i) Sale of land located in urban area

(ii) Recovery of sugar prices

(iii) Depreciated BRL

Integrated S&E producer (owned land, owned sugarcane crops, sugar and ethanol production)

One of the most efficient S&E producers; ~16Mt crushing capacity

Player in land business: 50,000ha of owned land in SP

Investments in biotechnology through joint venture with Amyris.

Strengths: (i) Expansion projects being implemented (Ivinhema mill in May 2013), (ii) improvement in agricultural yields, (iii) excellent land portfolio in Argentina, (iv) diversified mix of products and footprint mitigate risks

Risks: (i) Low sugar prices in short term, and (ii) Argentina’s political/ economic environment

Integrated business model: farming, land transformation, and S&E

~7.2Mt crushing capacity, ~286,000ha of farmlands, produces ~1Mt of agricultural products: Leader in agricultural business in South America with above-average agricultural yields

Diversified mix of products and footprint (Brazil, Argentina and Uruguay)

(i) Land sales

(ii) Recovery of sugar prices

(ii) Easing of government intervention in Argentina

(iv) Ebitda/cash flow increase because of startup of Ivinhema mill

SQM is a low-cost producer of iodine, lithium, industrial chemicals, potassium chloride and SPN (potassium-based products). The pillars of its business model are its unique natural assets combined with a fully integrated production and logistics operations.

Strengths: (i) Unique natural resources bring about low production costs; (ii) pricing power in key market due to market share dominance. Risks: (i) regulatory issues may raise concerns, (ii) substitute products and alternative processes; (iii) new entrants in iodine and lithium markets.

(i) Grain prices and next round of potash negotiations,

(ii) 3Q results and indications on volume and pricing performance,

(iii) a depreciated CLP

EBITDA Margin: 38%

Net Margin: 19%

ROE: 17%

ROIC: 14%

EBITDA Margin: 41%

Net Margin: 10%

ROE: 9%

ROIC: 7%

EBITDA Margin: 30%

Net Margin: 5%

ROE: 4%

ROIC: 4%

Rating: NEUTRAL

TP: USD 34.0

(34% Upside)

EV/EBITDA’14: 9.3x

P/E’14: 14.7x

Rating: NEUTRAL

TP: R$30.0

(5.3% Upside)


P/E’14: 16.2x

Rating: NEUTRAL

TP: $7.5

(-1.7% Upside)


P/E’14: 8.4x

Business Model Strengths / Risks Catalysts Profitability/

Returns 2014E Valuation

Strengths: (i) Turnaround opportunities (area expansion; operational improvement), (ii) experienced and skilled management, (iii) exposure to increase in land prices

Risks: (i) Low corn prices in short term, (ii) poor logistics conditions, (iii) weather-related risks.

(i) Improvement in yields

(ii) Cash-flow generation in the next years

(iii) Recovery of corn prices

(iv) Depreciated BRL

(v) Improvement in logistics

Farming and land transformation operations

Farming: one of the major grain producers: specialized in soybean, corn, and cotton. ~1.0Mt produced in 2012/2013

~253k ha of land under management (89k ha own)

Land portfolio worth ~BRL1.1bn (Delloite, 2013) .

To

p L

on

g Id

ea

To

p S

ho

rt Id

ea

EBITDA Margin: 19%

Net Margin: 5%

ROE: 3%

ROIC: 4%

Rating: OUTPERFORM

TP: R$4.1

(16.8% Upside)


P/E’14: 36.4x

One of the largest grain producers: ~1.1Mt in 2013/14, ~340,000 hectares

Vertically-integrated operation (own land + own agricultural machinery + own farming operation)

Focused on soybean, corn, and cotton

~320,000 hectares of own land, market value of ~R$2.7bn.

Strengths: (i) Earnings momentum: good prospects for agricultural yields in 2013/14 reducing unit costs, (ii) long-term value creation due to expansion and margin improvement opportunities, (iii) BRL depreciation

Risks: (i) Low corn prices in the short term, (ii) still-high transportation costs, (iii) weather risks and regulation, and (iii) low liquidity

(i) Recovery of corn prices

(ii) Land sales (high prices) or easing of land regulation in Brazil

(iii) Depreciated BRL

(iv) Improvement in logistics

EBITDA Margin: 23%

Net Margin: 10%

ROE: 8%

ROIC: 6%

Rating: OUTPERFORM

TP: R$27.0

(5.3% Upside)


P/E’14: 13.0x

30 March 2014

FOTO

LatAm Capital Goods

Bruno Savaris, CFA


Felipe Vinagre



Latin America Capital Goods Team

Vanessa Quiroga, CFA

52 55 5283 8939 [email protected]

22

30 March 2014

LatAm Capital Goods – Data Summary

Market Cap (USD millions) ADTV (USD millions) 1 Month Performance YTD Performance



Close

Target

Price

Upside


1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Industrials

Iochpe-Maxion MYPK3 O BRL 23.02 BRL 35.00 52.0% 3.3 966 897 0.5% -6.8% 2.0x 13.7x 9.2x 6.2x 5.4x 0.74 1.10 1.8% 2.7% 14.5%

Randon RAPT4 N BRL 8.21 BRL 14.00 70.5% 4.8 835 354 -0.4% -25.3% 1.2x 9.4x 7.9x 5.3x 4.7x 0.39 0.46 3.2% 7.6% 13.2%

Marcopolo POMO4 N BRL 4.26 BRL 5.70 33.8% 4.8 1,660 74 -5.7% -10.8% 2.8x 13.6x 11.7x 9.1x 8.1x 0.14 0.16 3.7% 5.1% 20.2%

Autometal AUTM3 N BRL 15.40 BRL 24.00 55.8% 0.6 858 26 -0.7% -7.5% 1.6x 11.1x 9.7x 6.0x 5.7x 0.61 0.70 4.5% 5.2% 14.8%

Mahle Metal

Leve LEVE3 N BRL 23.50 BRL 30.00 27.7% 2.0 1,334 118 0.1% -10.4% 2.5x 14.8x 12.7x 7.9x 7.1x 0.70 0.82 6.7% 7.9% 17.0%

WEG WEGE3.SA N BRL 31.60 BRL 30.00 -5.1% 7.0 8,680 5 8.1% 7.1% 4.6x 23.2x 19.5x 15.7x 13.4x 0.60 0.72 2.2% 3.1% 19.7%

Logistics

Localiza RENT3 N BRL 32.65 BRL 33.00 1.1% 14.9 2,997 514 6.0% 2.8% 5.5x 20.5x 18.9x 9.3x 8.4x 0.71 0.77 3.4% 3.7% 26.7%

Tegma TGMA3 O BRL 18.35 BRL 27.00 47.1% 1.3 536 137 -1.7% 6.5% 3.1x 22.0x 14.2x 9.3x 7.0x 0.37 0.57 3.0% 4.9% 14.2%

JSL JSLG3 O BRL 14.06 BRL 18.00 28.0% 0.9 1,433 1,068 5.0% -8.0% 3.0x 23.1x 17.2x 8.1x 7.1x 0.27 0.36 1.1% 1.4% 12.9%

Conglomerates

ALFA ALFAA.MX O MXN 33.01 MXN 41.00 24.2% 24.3 12,958 2,354 4.6% -10.2% 2.6x 18.0x 14.8x 7.5x 6.5x 0.14 0.17 0.0% 0.0% 14.5%

Aircrafts

Embraer ERJ U 35.36 29.00 -18.0% 33.4 6,449 (114) -2.8% 10.1% 1.7x 16.7x 18.3x 7.6x 7.8x 2.12 1.93 1.5% 1.4% 10.1%

8.1%

7.1%

6.0%

5.0%

4.6%

3.9%

3.0%

2.6%

1.5%

1.3%

0.5%

0.1%

-0.4%

-0.7%

-1.7%

-2.8%

-5.7%

WEG

Ibovespa

Localiza

JSL

ALFA

Mexbol

IPSA

Brazilian Real

Chilean Peso

Mexican Peso

Iochpe-Maxion

Mahle Metal Leve

Randon

Autometal

Tegma

Embraer

Marcopolo

10.1%

7.1%

6.5%

4.3%

2.8%

0.7%

-0.4%

-3.9%

-5.2%

-6.8%

-6.9%

-7.5%

-8.0%

-10.2%

-10.4%

-10.8%

-25.3%

Embraer

WEG

Tegma

Brazilian Real

Localiza

Ibovespa

Mexican Peso

IPSA

Chilean Peso

Iochpe-Maxion

Mexbol

Autometal

JSL

ALFA

Mahle Metal Leve

Marcopolo

Randon

12,957.7

8,679.8

6,449.3

2,997.1

1,660.0

1,432.6

1,333.9

966.0

857.8

834.7

535.8

ALFA

WEG

Embraer

Localiza

Marcopolo

JSL

Mahle Metal Leve

Iochpe-Maxion

Autometal

Randon

Tegma

33.4

24.3

14.9

7.0

4.8

4.8

3.3

2.0

1.3

0.9

0.6

Embraer

ALFA

Localiza

WEG

Randon

Marcopolo

Iochpe-Maxion

Mahle Metal Leve

Tegma

JSL

Autometal

23

30 March 2014

LatAm Capital Goods – Sector Trends

Production and Sales Imbalances Potentially Leading to Short/Medium-Term Corrections

Top Long Chart – Passenger Car Sales in Europe (‘000 units)

Top Short Chart – Consensus revision for Marcopolo’s earnings (R$mn)

Source: ACEA, Bloomberg, Credit Suisse Research

Theme #1: Interesting Prospects for the Global Automotive Market

The worst is behind Europe – more signals of improvement: Monthly stats passenger car sales

in Europe have reinforced our belief that the worst is behind Europe. Although 2013 has started

with LV sales y/y down by 8.6% in January, the market kept posting modest signals of

improvement and LV sales closed 11M13 down 2.7%. At the same time we envisage a more

significant recovery to take place only in the 2H14 in Europe, we believe that capital good

companies with exposure to global markets could partially mitigate the uncertain outlook for the

Brazilian heavy vehicle industry, which could experience a decline of about 10% in production in

2014.

Good prospects for the 2013/2014 agricultural harvest in Brazil partially offsetting weak

economic prospects: Conab forecasts for Dec. 2013 indicate that the 2013/2014 agricultural

harvest could increase by ~3%-5% y/y and total around 196mn tonnes of agricultural

commodities, which should certainly contribute to truck production and sales in the next few

months. While we are convinced that a variety of products and grains are harvested almost

continuously throughout the year, partially stimulating the demand for trucks at the same rate,

we believe Randon is well positioned to take advantage of this. Under this scenario, it seems

reasonable to expect 2014 truck production to not materially decline (above 10%) as part of the

demand could still be resilient; in the latter case, a flat demand in the heavy-duty truck

segment, used largely for transporting agricultural harvests, would be offset by a decrease in

the semi-heavy and medium trucks segment, widely employed in industrial and urban activities.

Also, bear in mind that truck orders from the government should not be as material as last year

(~8,000 trucks).

Theme #2: Uncertainties Remain in Brazil’s Bus Sector

Uncertainties and delays abound in Brazil’s bus sector. Although public protests in Brazil have

decreased in intensity since they began last July, they brought much uncertainty to the

transportation sector. Consequently, businesses have reduced their purchases of buses and

postponed orders until they gain more confidence. In addition, delays in government

infrastructure projects ended up causing BRT's orders to be postponed until around mid-2014

or so. Contributing to this gloomy scenario for bus producers, injunctive relief granted recently

by federal court suspended the auction of intercity bus lines (expected to start on January 20

and 21, 2014). Although we believe that such auction should happen at some point in time, this

indefinite suspension should negatively affect at least the 2014 results of Brazilian bus

manufacturers, including Marcopolo.

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

0

200

400

600

800

1,000

1,200

1,400

1,600

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13

Car sales ('000 units) YTD change in 2012 (%) YTD change in 2013 (%)

2013CY

2014CY

310

320

330

340

350

360

370

380

390

400

410

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14

24

30 March 2014

LatAm Capital Goods – Long/Short Ideas

Source: Company, Credit Suisse Research

Top Long Idea – Tegma (TGMA3) Top Short Idea - Marcopolo (POMO4)

After its massive underperformance due to poor e-commerce results, the company changed its CEO and CFO; the new management seems to have a strong corporate structuring profile. Within the e-commerce operations, the new management team (1) renegotiated prices with key customers, reportedly reaching double-digit price increases; (2) rightsized its footprint by shutting down 13 distribution centers (from 30 in 2012YE); and (3) reduced labor costs by 20%. Other measures could arise from new pricing agreements aimed at increasing yields for packages with higher value added, such as electronics/cellphones, and a riskier profile (subject to cargo theft). Considering the decent upside potential, we would stay long on the name.

Although Marcopolo has an interesting ROIC profile compared to other companies in the sector, it should have quite challenging short-term earnings momentum. Since the protests in Brazil, bus fleet owners have slowed orders. In addition, recent negative news regarding the suspension of the intercity bus line auction (initially expected to happen in January 2014) should further dampen market expectations and deteriorate results in 2014. Although the stock has recently suffered, we believe that the market had afforded the company very optimistic assumptions and that a underweight position is still justified.

Long ideas Short ideas

Mahle Metal Leve (LEVE3): In addition to be going through a good/stable moment, Mahle's diversified geographic exposure should allow the company to post good results in the 4Q13. Also, the BRL depreciation is also a positive for the company.

Autometal (AUTM3): After the acquisition of the Indian business, the company is expected to go through a restructuring, which will likely mute the benefits of such acquisition for the next two years. In spite of that, the stock suffered a lot of pressure in the 4Q13, and currently it seems to be fluctuating around attractive price levels.

WEG (WEGE3): BRL depreciation is positive for the company since it lowers competition from imports. Also, 50% of the company’s sales are outside of Brazil but most all of its products are made in Brazil. Thus the BRL depreciation improves export margins. Aside from that, we have been witnessing the auction of some generation, transmission, and distribution projects in which the company could be more competitive. Note that sales in this division have higher margins.

Alfa: At current levels, Alfa continues to offer a compelling 21.4% upside to our P$41 TP. We expect good overall performance from the company’s subsidiaries backed by favorable auto dynamics in North America, Sigma’s leadership in Latam and Newpek’s growth potential . Our concerns are mainly related to Alpek’s polyester chain and Sigma’s Campofrio acquisition where possible synergies remain unclear.

Localiza (RENT3): While this is a premium company with clear-cut competitive advantages, we believe the current market price is stretched and is not justified from a fundamental point of view. In addition, the company has been growing in the mid-single digits, which is substantially below what it posted in previous years.

JLS continues to deliver reasonable backlog addition, has been delivering operating improvements, and should continue to grow at double-digit rates for at least the next five years. Yet, it could through a process of downward earnigns trend as it has ~45% of its debt linked to the selic interest rate

Randon (RAPT4): The company is well positioned to deliver at least three consecutive quarters of strong results. Backlog is full until May/June 2014. The 2014 harvest should support positive momentum for the company by boosting sales of trailers and semi-trailers in the next few quarters and helping Randon maintain high capacity utilization

Iochpe-Maxion (MYPK3): Iochpe should benefit from its diversified geographical footprint, now with an exposure of ~55% to Europe and NAFTA. Management has also been doing a great job in terms of cost-cutting efforts, especially in Europe, where Iochpe's cost structure is already adjusted for current demand levels. Despite the improving operational trend, the company could unperfperfom in the short-term as it has >3x Net Debt/Ebitda leverage position with most of its debt linked to the selic interest rate. As such, a downward earnings trend could take place.

Embraer: Given the stock's recent move, shares appear fully valued on our forecast, and even on a bull case where ERJ achieves the high-end of 2014 guidance. With a light Q1 coming up and the investor day having passed, we don't see meaningful catalysts in the near-term beyond order announcements which seem likely closer to Farnborough in July. That said, if E-Jet order momentum continues in 2014 and executive jet orders start to improve, our more cautious stance could be proved wrong. We acknowledge the bull case is predicated on the potential for a business jet recovery given ERJ's strong market share gains, pricing discipline & new product momentum as well as any potential continued weakening of the BRL.

30 March 2014

FOTO

LatAm Cement & Construction

Nicole Hirakawa




Luis Stacchini



Latin America Properties Team

Maria Madrazo


26

30 March 2014

LatAm Cement & Construction – Data Summary




Close

Target

Price

Upside


1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E

P / FFO EV / EBITDA FFO Div. Yield

Brazilian Homebuilders

Brookfield BISA3 U BRL 1.47 BRL 1.05 -28.6% 3.0 372 1,024 1.3% 33.6% 0.4x 24.1x 8.1x 8.2x 8.4x 15 46 0.0% 0.0%

Cyrela CYRE3 N BRL 13.25 BRL 18.00 35.8% 16.9 2,442 1,041 0.4% -3.9% 1.0x 7.8x 6.9x 6.9x 6.3x 313 354 5.1% 7.2%

Direcional Engenharia DIRR3 N BRL 9.55 BRL 14.00 46.6% 2.8 656 67 -7.5% -16.9% 1.0x 5.5x 4.9x 4.6x 4.4x 120 134 6.2% 9.8%

Even EVEN3 O BRL 7.29 BRL 10.50 44.0% 5.5 752 379 1.3% -6.5% 0.9x 5.3x 4.8x 5.9x 5.3x 142 156 4.7% 8.2%

Eztec EZTC3 N BRL 27.47 BRL 34.00 23.8% 5.5 1,783 2 8.4% -1.5% 1.9x 8.2x 7.9x 7.9x 7.8x 217 226 4.2% 5.0%

Gafisa GFSA3 N BRL 3.32 BRL 3.90 17.5% 11.0 640 787 2.7% -1.7% 0.6x 13.4x 11.8x 10.0x 9.7x 48 54 1.5% 3.8%

Helbor HBOR3 N BRL 7.88 BRL 9.50 20.6% 0.9 898 296 14.3% 5.6% 1.8x 8.7x 8.1x 5.7x 5.5x 103 110 5.7% 6.1%

MRV MRVE3 O BRL 7.92 BRL 11.50 45.2% 17.5 1,672 378 0.3% -1.8% 1.0x 6.8x 5.9x 6.1x 5.7x 246 283 4.9% 8.2%

PDG PDGR3 U BRL 1.35 BRL 1.50 11.1% 15.8 799 2,412 -11.7% -22.1% 0.5x -10.2x -87.5x 16.4x 17.6x -78 -9 0.0% 0.0%

Rossi RSID3 N BRL 1.65 BRL 2.30 39.4% 4.5 313 1,018 -5.3% -15.5% 0.3x 8.8x 17.6x 9.7x 12.2x 36 18 2.7% 1.2%

Tecnisa TCSA3 O BRL 7.75 BRL 12.00 54.8% 2.1 617 664 5.4% -9.6% 0.9x 5.0x 4.1x 5.7x 4.9x 124 150 4.8% 5.9%

Brazilian Brokers

BR Brokers BBRK3 O BRL 4.85 BRL 7.50 54.6% 2.9 414 (120) 2.1% -13.4% 1.2x 7.8x 6.7x 3.6x 3.2x 53 62 3.4% 6.0%

Lopes LPSB3 N BRL 12.00 BRL 21.50 79.2% 2.3 607 12 -2.2% -13.2% 2.2x 8.5x 7.0x 6.8x 6.2x 72 87 2.0% 4.3%

Mexican Cement

Cemex CX.N O 12.73 15.20 19.4% 174.7 14,672 15,522 -3.5% 7.6% 1.5x 20.9x 15.0x 9.8x 8.5x 702 975 0.0% 0.0%

Cemex Latam Holdings CLH.CN O COP 16,300 COP 18,100 11.0% 2.7 4,884 0 3.8% 10.1% 2.7x 10.7x 9.9x 8.0x 7.3x 409 439 0.0% 0.0%

Cementos Pacasmayo CPAC.N O 8.77 11.71 33.5% 0.1 932 68 -5.8% -25.4% 1.3x 3.4x 3.1x 7.7x 6.9x 96 105 0.0% 0.0%

14.3% 8.4% 7.1%

5.4% 3.9% 3.8% 3.0% 2.7% 2.6% 2.1% 1.5% 1.3% 1.3% 1.3% 0.4% 0.3%

-2.2% -3.5%

-5.3% -5.8%

-7.5% -11.7%

HelborEztec

IbovespaTecnisaMexbol

Cemex Latam HoldingsIPSA

GafisaBrazilian Real

BR BrokersChilean Peso

BrookfieldMexican Peso

EvenCyrelaMRV

LopesCemex

RossiCementos PacasmayoDirecional Engenharia

PDG

33.6% 10.1% 7.6% 5.6% 4.3% 0.7%

-0.4% -1.5% -1.7% -1.8% -3.9% -3.9% -5.2% -6.5% -6.9% -9.6%

-13.2% -13.4% -15.5% -16.9%

-22.1% -25.4%

BrookfieldCemex Latam Holdings

CemexHelbor

Brazilian RealIbovespa

Mexican PesoEztec

GafisaMRV

CyrelaIPSA

Chilean PesoEven

MexbolTecnisa

LopesBR Brokers

RossiDirecional Engenharia

PDGCementos Pacasmayo

14,672.1

4,883.9

2,442.3

1,783.0

1,672.0

932.2

898.3

798.9

752.4

656.1

639.7

617.1

607.2

413.7

371.6

313.0

Cemex

Cemex Latam Holdings

Cyrela

Eztec

MRV

Cementos Pacasmayo

Helbor

PDG

Even

Direcional Engenharia

Gafisa

Tecnisa

Lopes

BR Brokers

Brookfield

Rossi

174.7

17.5

16.9

15.8

11.0

5.5

5.5

4.5

3.0

2.9

2.8

2.7

2.3

2.1

0.9

0.1

Cemex

MRV

Cyrela

PDG

Gafisa

Eztec

Even

Rossi

Brookfield

BR Brokers

Direcional Engenharia

Cemex Latam Holdings

Lopes

Tecnisa

Helbor

Cementos Pacasmayo

27

30 March 2014

Brazilian Homebuilders – Sector Trends

Theme #1: Homebuilders – Operational Improvement Has Been Overlooked

In early-2013, the market started questioning whether the business model for listed

players could be broken, or not. Most listed players had posted excessive growth in

the post-IPO period and were struggling with construction cost overruns and high

inventory placed in cities facing overbuilding. Back then, skepticism towards the

sector was significant, as on top of said problems companies were posting high cash

burn coupled with weak financial results. However, throughout 2013 companies

started posting significant operational improvement with increasing margins and cash

flow converging to more neutral terrain. MRV and Cyrela also managed to generate a

significant amount of cash in the full-year, while several finished the year approaching

the cash flow inflexion point.

This progress was overlooked by the market owing mostly to the tougher macro

backdrop. Additionally, the sector’s high Beta coupled with the still existing aversion

towards the sector (following the problematic period) rendered weak stock

performances. However, the sector’s valuations screen as cheap, and sector’s

improvements cannot be ignored for long.

Theme #2: Homebuilders – Cash & Dividends

We believe companies have moved up on the learning curve and last’s cycles

mistakes should not persist. In addition, the restructuring process the companies

underwent coupled with the fade out of legacy projects with lower margins should lead

to improved margins for several companies under our coverage.

2014 should mark the period of cash flow inflexion point, in our view. We expect most

of our sample to turn cash flow positive and even deliver a sizable cash generation in

the year. In our view, discussion towards year-end could shift towards which players

could become dividend payers at some point.

Source: Company data, Credit Suisse Research

Big FCF Yields

YTD Performance: Looks Cheap?

10.7% 10.3% 9.8% 8.6%

7.0% 6.7% 6.4% 6.1% 6.1% 3.9% 3.4%

-20%

-10%

0%

10%

20%

30%

40%

GFSA3 MRVE3 DIRR3 RSID3 CYRE3 EVEN3 BISA3 PDGR3 HBOR3 EZTC3 TCSA3

Cash Generation/EV 13E Cash Generation/EV 14E

Cash Generation/EV 15E Avg 13-15

-29.3%

-25.0%

-22.1%

-17.9%

-14.5%

-12.2%

-11.1%

-9.3%

-7.8%

-7.1%

-6.9%

24.3%

PDG

Rossi

Direcional

Tecnisa

Even

Gafisa

Cyrela

MRV

EZTec

Helbor

Ibov

Brookfield

28

30 March 2014

LatAm Cement & Construction – Long Ideas

Long ideas


Top Long Idea – Cemex

We maintain our positive stance on the company and remain optimistic on Mexico’s construction sector. General industry feedback implies a healthy pricing environment in Mexico which has

allowed for the implementation of a second round of price increases by 3 of the major cement companies including Cemex. Additionally, combined January-February housing starts are up 11%

yoy. Furthermore, preliminary numbers for infra government spending in February show a 300% increase yoy, and is 40.1% higher than the monthly average in 2013. Regarding the U.S. we

believe the market is expecting weak 1Q14 results caused by bad weather, but we believe underlying demand and pricing fundamentals remain solid.

At current levels Cemex continues to offer a 18% upside to our US$15.2/ADR TP.

Even: Valuation Is Undemanding, Profitability to Increase Gradually But Surely. Even’s shares are trading at 0.9x P/TBV (1.3x at TP). We expect the company to deliver ROEs of ~17% in 2014 and 2015. However, there could be some upside to our estimates, as the management is guiding for an ~18% ROE mark in 4Q14, considering annualized figures. We expect cash generation of ~R$200 million in 2014, ~8% FCF yield. In addition, sales velocity has been healthy. Even ranked second, only after MRV in our VSO analysis.

Gafisa: Cash generation of R$178 million in 4Q13 prevenient from Gafisa's recurring operations was a very positive surprise. While we are expecting the company to be more in cash neutral terrain for 2014, 4Q13's cash generation - coupled with higher sales speed, decreasing sales cancellations and better margins - indicates operations could be more oiled than anticipated. Net debt to equity ratio was 40% in 4Q13, after AUSA sale, compared with 130% in 3Q13. Following the mark to market of Gafisa's 30% stake in AUSA undertaken in Q4, the company is trading at 0.45x P/TBV (0.3x excluding AUSA at 1x P/Book). Lastly, Tenda's spin off could be another positive trigger, especially if the BU continues to deliver solid operating performance in its new projects until the operation is concluded.

EZTec: EZTec is trading at 1.9x P/TBV (2.4x in our TP), already pricing in long-term ROE expectations of ~25%. We forecasted an ROE of 30% for 2013 (actual was 31%) and we see this number at 25% in 2014, as gross margins are at a historical peak, ~53% ex interests. However, for the long run, we expect gross margins to converge to ~47%, in-line with the land bank’s estimated margins, pushing ROEs lower.

Cyrela: Following recent share weakness, we now see a better risk-reward profile. Ceryla’s JVs are gaining ground with Cury, MAC and Plano representing more of the company’s consolidated launches. The Company generated ~R$100 million of cash in 4Q13 adjusted for dividend payment and land plot acquisitions, but 2014 should post cash generation. A period of solid cash generation could concretize if we see an ease in land plot purchases.

Cemex Latam Holdings: CLH is trading at 9.5x EV/Ebitda and its FCF yield is 6.9%. Our positive view on the company is supported by its attractive exposure to high growth markets with a strong construction medium term outlook backed by substantial infrastructure programs. Additionally, CLH’s focus on domestic markets and its clinker self-sufficiency provide for above-average margins (2014E 36.5% Ebitda margin ).

Rossi: Conservative stance on margin recovery going forward. Debt roll over efforts seem to be paying off and cash has originated after asset sales. Cash generation has missed expectations and Rossi is running out of land bank in SP. Inventory sale (+60% launched prior to 2011) could bring more margin pressure.

Cementos Pacasmayo: The company’s new cement plant in Piura is expected to increase the company’s capacity by 48%. This will cut Pacasmayo’s need to buy clinker from third parties, thus resulting in a more profitable operation with higher margins. Pacasmayo is currently trading at 7.3x EV/Ebitda.

Tecnisa: In our view, the company offers a combination of supportive cash flow prospects and significant re-rating potential. Tecnisa is currently trading at 1.1x P/ TBV (0.6x excluding JdP), which we see as unwarranted given company’s promising profitability outlook. Our price target implies a 40% upside from current levels (P/TBV of 1.5x). We expect Tecnisa to deliver ROEs of 19.5% and 20.5% in 2014 and 2015, respectively, and believe there could be some upside risk to our numbers. Cash generation should amount to R$280 million in 2014, 9% FCF yield. In our estimate, JdP project alone should be worth ~R$850 million, 55% of company’s current market cap, even assuming somewhat conservative premises. Tecnisa gross margins ex JdP improved markedly during 2013, running at 29% before interests in 4Q13, an important driver, in our view.

29

30 March 2014

LatAm Cement & Construction – Weaker Momentum


Helbor: Gross margins came down significantly in 4Q13, coming in at 33% compared to an average of 37-40% in 2012 and 9M13 after adjusting for positive effects in

previous quarters (RET tax reversion) – this is explained by (i) higher recognition of lower margin projects and (ii) increased representativeness of projects with land swap and,

this, lower margins in quarters’ revenue-mix. Cancellation seem to be running at higher levels (remembering Helbor only divulges gross sales). In 4Q13, we assume sales

cancellation represented ~17% of gross sales – second quarter in a row that levels are pretty high.. We expect 2014 revenue recognition to be lower than what the company

delivered in 4Q13, which would lead to a lower ROE. We continue to believe that their premium valuation (1.4x P/BV) does not provide enough valuation cushion for a period

of operational adjustments aiming at (i) improving sales velocity and (ii) reducing sales dissolution rate.

Weaker Momentum

MRV: Going through a weaker momentum after an earnings miss regarding fourth quarter results. The cancellations uptick in 4Q13 was unexpected and prompted by stricter

credit scoring policies adopted by government-owned banks in the quarter. However, the company does not expect this impact to be intensified over the next quarter, but the

retreat in sales cancellations could take longer. Productivity was hurt by changes in the construction process. In the context of the conduct adjustment term signed by MRV, the

company will have to internalize a higher portion of its construction force – 45% of construction workers compared with 30% currently – which has drove production lower. Even

though we expect strong cash generation in 2014, margins will have to improve slightly as will asset turnover, in order to improve ROE.

PDG is trading at 0.6x P/TBV and profitability should remain depressed for the foreseeable future, we expect the company to post net losses over the next two years. Risk of

balance sheet restructuring is high, in our view, as PDG is attempting to roll over debt amid an unfavorable cash flow outlook (cash burn of R$1.1 bn in 2013). Meaningful cash

generation should come only in 2H14 and PDG has ~R$0.9 billion of corporate loans maturing in 1H14 (R$1.4 billion until end-2014), following the recent debt roll-over

efforts. PDG’s cash balance was R$1.4 billion as of 4Q13 pointing to a very limited headroom for further cash burn and setback in the debt renegotiation process. On the other

hand, VSO seemed to receover at the end of 2013, coming in at healthy levels (21%). In addition, PDG’s financial expenses climbed 40% qoq in 4Q13, hinting that greater

challenges could have been encountered in the renegotiation process. We reckon PDG's management team is a high quality one and is taking several steps in the right

direction, but we remain on the sidelines as the company is trading at a premium to the turnaround group while having the most challenging profitability outlook, due to: (i)

oversized capital structure, invested capital has to cut by R$8 bn to adjust to its new reality, (ii) opex has to be curtailed by 60% and (iii) provisioning for construction delays

seem low (adjustment to Gafisa’s level would lead to ~10% hit in market cap).

30

30 March 2014


30 March 2014

FOTO

LatAm Education

Victor Schabbel



Latin America Education Team

32

30 March 2014

LatAm Education – Data Summary

Source: Bloomberg, Credit Suisse Research. All figures in USD unless otherwise stated. Price performance change in USD.



Close

Target

Price

Upside

(%) ADTV

Mkt

Cap Net Debt

1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Brazilian

Education

ANIMA ANIM3.SA O BRL 20.66 BRL 24.00 16.2% 2.0 757 (158) 10.5% 1.8% 3.0x 14.1x 11.9x 12.8x 10.3x 0.65 0.77 0.4% 1.8% 21.2%

Anhanguera AEDU3 N BRL 13.17 BRL 13.50 2.5% 35.2 2,546 84 7.8% -7.6% 2.6x 24.9x 18.1x 16.1x 13.2x 0.23 0.32 0.5% 1.0% 10.4%

Estácio ESTC3 O BRL 21.58 BRL 27.00 25.1% 28.7 2,818 (188) 2.1% 10.5% 3.9x 18.0x 14.0x 14.2x 11.0x 0.53 0.68 1.6% 1.4% 21.8%

Kroton KROT3 O BRL 48.95 BRL 57.00 16.4% 50.4 5,819

(79) 15.6% 30.5% 4.8x 20.2x 15.4x 16.3x 13.2x 1.07 1.41 1.4% 1.6% 23.9%

SER Educacional SEER3.SA O BRL 19.59 BRL 27.00 37.8% 2.4 1,085

(33) -1.9% -12.9% 5.1x 17.3x 13.3x 12.9x 10.7x 0.50 0.65 1.1% 1.4% 29.7%

15.6%

10.5%

7.8%

7.1%

3.9%

3.0%

2.6%

2.1%

1.5%

1.3%

-1.9%

Kroton

GAEC Educação

Anhanguera

Ibovespa

Mexbol

IPSA

Brazilian Real

Estácio

Chilean Peso

Mexican Peso

SER Educacional

30.5%

10.5%

4.3%

1.8%

0.7%

-0.4%

-3.9%

-5.2%

-6.9%

-7.6%

-12.9%

Kroton

Estácio

Brazilian Real

GAEC Educação

Ibovespa

Mexican Peso

IPSA

Chilean Peso

Mexbol

Anhanguera

SER Educacional

5,818.6

2,818.3

2,546.4

1,085.1

757.4

Kroton

Estácio

Anhanguera

SER Educacional

GAEC Educação

50.4

35.2

28.7

2.4

2.0

Kroton

Anhanguera

Estácio

SER Educacional

GAEC Educação

33

30 March 2014

LatAm Education – Sector Trends

Theme #1: Education – Increasing Penetration of Post-Secondary Education

The evolution of Brazil’s post-secondary sector in the past decade has been

remarkable. Economic stabilization and the social programs introduced in the past 15

years boosted income growth and expanded Brazil’s middle class, increasing access

of many young adults to post-secondary education. In 2010 the government

announced its new National Education Plan (PNE) and introduced the new FIES

structure, triggering a strong acceleration in the growth of enrollments. Interest rates

were lowered, repayment periods were extended, and grace periods were introduced

to increase the attractiveness of student funding. Student intake in the subsequent

cycles was substantially greater, with a high share coming from students receiving

FIES loans, nearly 40-50% for the listed players.

Through the National Plan for Education (PNE), the government aims to achieve a

gross penetration rate of 50.0% in post-secondary enrollments by 2020. Although we

do not see government’s target as feasible, we still expect significant increase in

growth and penetration in the coming years. Our base case scenario implies a gross

penetration of 40.1% by 2020 vs. 29.3% in 2012.

Theme #2: Education – Educating The Population At Lower Costs

The government programs such as the Prouni and FIES cost considerably less for the

government than what would cost to put a student under the public education system.

In our calculation, the FIES (with a R$600 average monthly ticket) would cost roughly

R$4.7k per year compared to R$39.1k in the University of São Paulo (one of the most

renowned and expensive schools for the State government to keep up and running).

The numbers show how great of a deal it is for the government to continue to invest in

these kind of programs that could, at a faster pace, improve the number of people that

have post-secondary education in the country.

While some people might become increasingly concerned about the outlook for

government-supported programs (student loans/FIES or tax exemptions/Prouni), we

note that incentives are today fairly aligned between parties. Lacking capacity and

conditions to support education initiatives, the government has no other option than

that of leaving the responsibility to private players – unfortunately focused on the post-

secondary level.

Source: INEP, IBGE, Credit Suisse Research

Further Room For Sound Growth

* Data for public institutions are impacted by infrastructure offered to the community, i.e., university hospitals

-5%

5%

15%

25%

35%

45%

0

1

2

3

4

5

6

7

8

9

10

2001 2004 2007 2010 2013E 2016E 2019E

# Enrollments (mn)

Gross Enrollment Rate (%)

Yearly Government Spending per Student*

Implied CAGR 12-20 3.9%

CAGR 01-12 7.9%

=

R$ 39,086

=

R$ 21,812

=

R$ 4,700

=

R$ 1,687

http://www.interquimicas.xpg.com.br/m ufscar.html

34

30 March 2014

LatAm Education – Long/Short Ideas

Top Long Idea - Estácio

Investment case: Sound student growth, coupled with margin and return improvements support our preference for the stock in the education space. Strong intake processes have been

supported by the availability of funding (FIES) and further market share gains, mainly in the Rio de Janeiro region. The company is still capitalized and should continue to consolidate in the

sector.

Valuation: Currently trading at a discount to its main peers, Estacio stands out in the education space. For the 1Q14, we expect volume growth to be sustained and would not be surprised

in seeing growth rates as high as in the 1Q13. Also, Estacio still awaits approval from the anti-trust authorities (CADE) for its latest acquisition (UNISEB). However, we do not expect any

major issues coming from this front. Any news on the deal along with numbers from its intake process could be triggers for the stock.

Other Long Ideas

Source: Company Data, Credit Suisse Research

Top Short Idea - Anhanguera

Investment case: The company is not at their brightest momentum, given some changes in management and below expectation results in the last couple of quarters. Anhanguera no

longer enjoys the high growth phase that was previously seen and has been having challenges with its distance learning segment. The task of improving margins from recent acquired

businesses has been proving to be tougher than expected with the company’s EBITDA margin decreasing from 21.9% in 2011 to 18.6% in 2013 (-330bp).

Valuation: At current levels, we have limited upside on the name (~2.6%). With our view that, under current conditions, the deal with Kroton is unlikely to materialize, we see significant

downside potential to Anhanguera given that the probability of materialization of the deal already seems to be priced in.

Kroton: Largest player in the post-secondary market, well-known for its strong management and financial performance. The company is highly leveraged on distance

learning operations, having 28% market share on this segment. Despite the rally seen in the last couple of years, we still see room for outperformance, with earnings being

revised upwards. The company should still engage in M&A activity, which could bring some volatility to the stock. We highlight our view on the merger with Anhanguera

which, under current conditions, we see as unlikely to materialize.

Anima: This is the player for the ones willing to play quality in the sector. Company is backed by strong management and its positioning aims to deliver quality with scale –

which seems like the best strategy to thrive in the education space going forward. Also, the stock is currently trading at 11.5x 2014 P/E, implying a 33% discount to peers.

Despite the much lower liquidity, we believe this gap should diminish as the company delivers good results, proving the success of its business model.

Ser Educacional: Another interesting smaller cap idea. Ser seems to be the best positioned post-secondary player to capture Brazil’s fastest-growing regions potential,

the North and Northeast. We see some execution risk in starting their distance learning operations this year as well as risk related to its Pronatec exposure. Shares currently

trade at a 16% discount to its larger peers, but not as much as its smaller cap peer. With the worse short-term momentum being derived from downward estimates

revisions, long-term prospects are still there.

30 March 2014

FOTO

LatAm Electric & Other Utilities


Latin America Utilities Team

Vinicius Canheu, CFA


Pedro Manfredini


36

30 March 2014

LatAm Electric & Other Utilities – Data Summary




Close

Target

Price

Upside


1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Integrated

Alupar ALUP11 O BRL 17.88 BRL 22.00 23.0% 1.2 1,648 986 6.4% 15.0% 1.9x 19.0x 11.8x 15.1x 10.2x 0.42 0.67 8.2% 8.2% 9.8%

Cemig CMIG4 N BRL 15.29 BRL 17.00 11.2% 38.5 8,561 2,194 18.0% 14.0% 1.7x 7.1x 13.1x 5.5x 10.8x 0.95 0.52 10.5% 7.2% 23.8%

CPFL CPFE3 O BRL 18.50 BRL 23.00 24.3% 13.8 7,885 5,183 11.5% 1.3% 3.2x 18.8x 17.4x 9.4x 8.9x 0.44 0.47 5.1% 5.5% 16.8%

Energias do

Brasil ENBR3 N BRL 9.68 BRL 12.00 24.0% 10.8 2,040 1,100 9.6% -10.9% 1.2x 8.1x 8.1x 4.8x 5.1x 0.53 0.53 7.0% 7.0% 14.5%

Distributors

AES Eletropaulo ELPL4 U BRL 8.25 BRL 7.00 -15.2% 3.7 611 1,927 4.1% -7.9% 0.7x n.a. 21.4x 69.8x 7.7x (1.24) 0.17 0.0% 1.2% -23.5%

Equatorial EQTL3.SA O BRL 19.90 BRL 27.00 35.7% 8.0 1,747 1,204 2.0% -10.2% 1.5x 22.1x 10.1x 10.8x 7.4x 0.40 0.87 1.1% 2.5% 6.9%

Light LIGT3 O BRL 18.91 BRL 24.00 26.9% 10.7 1,706 1,993 18.4% -10.7% 1.4x 19.4x 6.9x 8.1x 5.1x 0.43 1.21 2.6% 7.3% 7.1%

Generators

AES Tietê GETI4 U BRL 17.68 BRL 19.00 7.5% 5.5 2,791 257 7.6% -3.2% 4.2x 7.6x 7.2x 4.4x 4.2x 1.03 1.09 13.7% 13.3% 55.7%

CESP CESP6 N BRL 26.10 BRL 26.00 -0.4% 14.3 3,494 (1,105) 17.6% 21.6% 1.6x 4.1x 6.8x 1.4x 2.8x 2.83 1.71 6.1% 6.1% 40.4%

Tractebel TBLE3 N BRL 35.49 BRL 36.00 1.4% 13.6 10,248 833 8.8% 3.2% 5.0x 15.6x 14.9x 8.4x 8.3x 1.01 1.05 6.4% 6.7% 31.9%

Transmission

CTEEP TRPL4 N BRL 23.95 BRL 33.00 37.8% 3.3 2,261 632 -2.4% -7.0% 0.7x 4.0x 6.8x 4.2x 7.6x 2.63 1.56 12.4% 13.9% 18.0%

TAESA TAEE11 N BRL 19.50 BRL 19.00 -2.6% 7.5 2,972 1,473 12.1% 11.9% 2.0x 9.2x 9.1x 9.7x 10.1x 0.94 0.95 9.8% 10.0% 21.6%

18.0%

17.6%

12.1%

11.5%

9.6%

8.8%

7.6%

7.1%

6.4%

4.1%

3.9%

3.0%

2.6%

2.0%

1.5%

1.3%

-2.4%

Cemig

CESP

TAESA

CPFL

Energias do Brasil

Tractebel

AES Tietê

Ibovespa

Alupar

AES Eletropaulo

Mexbol

IPSA

Brazilian Real

Equatorial

Chilean Peso

Mexican Peso

CTEEP

21.6%

15.0%

14.0%

11.9%

4.3%

3.2%

1.3%

0.7%

-0.4%

-3.2%

-3.9%

-5.2%

-6.9%

-7.0%

-7.9%

-10.2%

-10.9%

CESP

Alupar

Cemig

TAESA

Brazilian Real

Tractebel

CPFL

Ibovespa

Mexican Peso

AES Tietê

IPSA

Chilean Peso

Mexbol

CTEEP

AES Eletropaulo

Equatorial

Energias do Brasil

10,248.1

8,561.3

7,885.3

3,494.2

2,971.8

2,791.5

2,261.3

2,040.1

1,747.0

1,647.6

610.7

Tractebel

Cemig

CPFL

CESP

TAESA

AES Tietê

CTEEP

Energias do Brasil

Equatorial

Alupar

AES Eletropaulo

38.5

14.3

13.8

13.6

10.8

8.0

7.5

5.5

3.7

3.3

1.2

Cemig

CESP

CPFL

Tractebel

Energias do Brasil

Equatorial

TAESA

AES Tietê

AES Eletropaulo

CTEEP

Alupar

37

30 March 2014

LatAm Electric & Other Utilities – Risk-Reward Outlook is Skewed to the Downside

Positive Negative

Valuations are already discounting further government interference in a potential scenario

of power rationing.

Government has signaled strong support for distribution companies, removing the main balance sheet risk of the sector in 2014.

Next tariff review cycle for discos is underway (slated to start in 2015) and we believe that

regulatory conditions are set to improve.

Water reservoirs are very low, putting rationing risks at levels much higher than in previous

years.

High spot prices raise the fear of room for interference in its calculation. In our view, the success of the upcoming A-0 auction is key in reducing such risks.

Elections in Oct-14 are likely to bring volatility to the entire sector, especially for state-

owned names: Eletrobras, Cemig, Copel.



AES Eletropaulo: Very sensitive to any negative volume impact from a

potential rationing. In our numbers, it is the only stock that is not fully

reflecting the downside potential from a volume reduction, which leaves lower

room for positive surprises if the hydrology situation doesn’t improve.

Taesa: It has outperformed recently, since it is shielded from any potential

power rationing impact, but we believe its valuation is very rich relative to local

interest rates, making it difficult to believe in further upside from here. We

also see very little room for positive operational suprises.

AES Tietê: Tiete is highly exposed to hydro shortfalls, since it is a fully

contracted genco. With no power availability fitting the upcoming A-0

auction, we believe the upside case of re-pricing its 2016 volumes is not yet

clear.

CPFL: Another stock hardly hit by rationing fears, we believe it can actually

benefit from the current situation given (1) room for sales of Serra da Mesa

volumes in the upcoming A-0 auction (up to R$2/share TP accretion); (2)

strong volume performance in the 2014 (high temperatures) and (3)

potential regulatory improvements in the upcoming tariff review cycle

EQTL: Valuation strongly hit by rationing fears (-15% YTD), should benefit

in the short-term from high sales volumes (high temperatures) and balance

sheet protection from government measures. In an potential rationing, we

believe it is less likely to be impacted than peers given its very large low-

income base and weak share of industrial volumes.

Cemig: A more protected play in a rationing scenario, Cemig has available

capacity to sell in the spot market at very high prices and a big share of

transmission business, which is not impacted by changes in sales volumes.

Tractebel: TBLE’s recent performance more than reflects company’s lower

exposure to any scenario of demand cut (thermal capacity and available

capacity in 2014).

Alupar: Alupar can benefit from rising spot prices as it has app. 30% of

Ferreira Gomes yet to be sold in 2015+. Also, Alupar is working to conclude

the plant 6-M ahead the schedule, likely selling this energy in the spot

market.

EdP: After a strong mtd rebound, EdP now offers a much more limited

upside than its integrated peers. Furthermore, Pecem I full start up has been

a challenge to EdP and should continue hurting consolidated earnings.

Light: One of the main affected names by the risk of a rationing in the

country. Valuation looks cheap (0.7x EV/RAB) as we still expect company

do deliver a significant cut in commercial expenses in the next years.

Cesp: Cesp is the most benefited name to the rising spot prices as

company has the biggest portion of available capacity in 2014/15. Cesp’s

short term duration also protects the name against higher interest rates.

38

30 March 2014


30 March 2014

FOTO

LatAm Financials Banks

Marcelo Telles, CFA


Victor Schabbel


Daniel Magalhães

55 11 3701.6124

[email protected]


Latin America Banks Team

Alonso Garcia


40

30 March 2014

LatAm Financials Banks – Data Summary




Close

Target

Price

Upside


1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 14E

ROE P / E EPS Div. Yield

Brazil

Itau Unibanco ITUB4 O BRL 33.44 BRL 37.00 10.6% 138.7 73,787 (6,882) 9.3% 13.3% 2.1x 10.2x 8.9x 1.44 1.66 4% 4% 20.1%

Bradesco BBDC4 O BRL 30.63 BRL 34.00 11.0% 113.8 59,587 (5,159) 14.8% 11.0% 1.7x 9.8x 8.3x 1.38 1.63 3% 4% 17.2%

Santander Brazil SANB11 O BRL 12.40 BRL 13.44 8.4% 16.9 20,847 (2,334) 9.5% 20.1% 0.9x 11.3x 8.3x 0.49 0.66 15% 7% 7.9%

Banco do Brasil BBAS3 N BRL 22.51 BRL 23.00 2.2% 80.4 28,534 (4,997) 15.5% -1.7% 1.0x 7.4x 6.5x 1.34 1.54 5% 5% 13.0%

Banrisul BRSR6 N BRL 12.35 BRL 16.00 29.6% 4.0 2,157 (302) 15.8% 3.7% 1.0x 7.0x 6.5x 0.78 0.85 6% 6% 14.8%

Itausa ITSA4 O BRL 9.13 BRL 10.96 20.0% 56.7 21,496 (5) 10.5% 9.9% 1.5x 10.0x 8.7x 0.40 0.47 4% 5% 15.4%

Mexico

Banorte GFNORTEO U MXN 84.78 MXN 84.00 -0.9% 44.9 17,978 (5,297) 2.1% -7.5% 1.9x 15.6x 11.8x 0.42 0.55 1% 1% 13.2%

Santander Mexico SANMEXB U MXN 31.13 MXN 33.00 6.0% 8.3 16,151 (7,948) 8.7% -12.6% 2.0x 15.3x 12.9x 0.16 0.18 2% 4% 13.7%

Inbursa GFINBURO O MXN 33.24 MXN 36.00 8.3% 9.6 16,943 (2,751) 7.4% -10.3% 2.2x 17.1x 14.6x 0.14 0.17 1% 3% 13.1%

Interaciones GFINTERO.MX N MXN 76.07 MXN 68.00 -10.6% 1.7 1,570 (947) 7.1% 24.0% 1.6x 12.1x 9.8x 0.48 0.59 0% 2% 14.6%

Gentera GENTERA.MX O MXN 23.82 MXN 27.00 13.4% 11.2 3,002 (229) 7.4% -4.4% 3.5x 15.5x 13.4x 0.12 0.14 0% 3% 25.0%

FINDEP FINDEP N MXN 4.70 MXN 4.50 -4.3% 0.0 257 (18) -4.7% -4.0% 1.0x 12.1x n.a. 0.03 n.a. 0% n.a. 8.4%

Chile

Santander Chile BSAC N 23.01 23.50 2.1% 8.3 10,840 (2,855) 8.4% -7.2% 2.5x 13.9x 12.3x 1.66 1.87 4% 4% 18.6%

Banco do Chile BCH N 77.65 80.00 3.0% 6.7 12,058 (1,586) 4.6% -16.0% 2.8x 12.7x 12.0x 6.10 6.72 0% 0% 23.7%

Peru

Intergroup IFS.LM O 31.20 43.00 37.8% 1.5 3,016 (2,998) -1.4% 0.6% 2.4x 10.7x 8.9x 2.93 3.52 3% 4% 24.2%

Credicorop BAP O 132.83 173.00 30.2% 35.9 10,546 (9,082) 3.1% 0.1% 2.2x 12.5x 10.2x 10.66 13.14 2% 2% 19.0%

Colombia

Bancolombia CIB O 54.84 60.99 11.2% 35.8 11,313 (8,459) 12.0% 12.7% 1.6x 12.1x 10.4x 4.54 5.31 3% 3% 14.3%

15.8% 15.5% 14.8%

10.5% 9.5% 9.3% 8.7% 8.4%

7.4% 7.4% 7.1% 7.1%

4.6% 3.9%

3.0% 2.6% 2.1% 1.5% 1.3%

-1.4% -4.7%

BanrisulBanco do Brasil

BradescoItausa

Santander BrazilItau Unibanco

Santander MexicoSantander Chile

GenteraInbursa

IbovespaInteraciones

Banco do ChileMexbol

IPSABrazilian Real

BanorteChilean Peso

Mexican PesoIntergroup

FINDEP

24.0% 20.1%

13.3% 11.0% 9.9%

4.3% 3.7%

0.7% 0.6%

-0.4% -1.7%

-3.9% -4.0% -4.4% -5.2%

-6.9% -7.2% -7.5%

-10.3% -12.6%

-16.0%

InteracionesSantander Brazil

Itau UnibancoBradesco

ItausaBrazilian Real

BanrisulIbovespa

IntergroupMexican Peso

Banco do BrasilIPSA

FINDEPGentera

Chilean PesoMexbol

Santander ChileBanorteInbursa

Santander MexicoBanco do Chile

73,786.9

59,586.8

28,533.7

21,495.7

20,847.3

17,978.1

16,942.6

16,151.1

12,058.4

10,840.4

3,015.6

3,001.5

2,157.3

1,569.8

257.2

Itau Unibanco

Bradesco

Banco do Brasil

Itausa

Santander Brazil

Banorte

Inbursa

Santander Mexico

Banco do Chile

Santander Chile

Intergroup

Gentera

Banrisul

Interaciones

FINDEP

138.7

113.8

80.4

56.7

44.9

16.9

11.2

9.6

8.3

8.3

6.7

4.0

1.7

1.5

0.0

Itau Unibanco

Bradesco

Banco do Brasil

Itausa

Banorte

Santander Brazil

Gentera

Inbursa

Santander Mexico

Santander Chile

Banco do Chile

Banrisul

Interaciones

Intergroup

FINDEP

41

30 March 2014

LatAm Financials Banks – Sector Trends

Brazil – More than enough reasons to remain overweight: Despite the 8% YTD outperformance

of large-cap private-sector banks versus local benchmark, we believe it is set to continue. Even in a

more challenging scenario for volumes resulting from lackluster economic growth, private-sector banks

will deliver good top line and EPS growth. For those that believed the earnings growth story of private-

sector banks was short-lived and relied entirely on better cost of credit, the secular trend of higher credit

spreads is a game changer for top line growth, which, coupled with cost control effort, will allow for

double-digit earnings growth not only in 2014 but also in 2015. The positive impact from the pullback of

public banks is being overlooked in our view. In a year of drought and risk of energy rationing, Brazilian

banks are a little oasis in the desert, as we believe tkhe potential impact for the banking sector in

general is far less meaningful than most sectors in Brazil.

Mexico – Slow start confirmed: Despite the fact the market was hoping for a much better year after a

very disappointing 2013 (mainly on the back of a strong recovery of the Mexican economy), the truth of

the matter is that the earnings outlook for the banking sector looks challenging for this year as well.

Optimism regarding the recovery of the economy is now more tempered than before, mainly on the back

of a very weak GDP report for 4Q13 and a slow start so far in 2014; CS economics team has recently

reduced its GDP growth forecast from 3.7% to 2.8%. In this same line, CNBV data for multiple banks

for the month of January confirmed the slow start for the sector, with total loans posting a 0.1% m/m

contraction mainly explained by a 0.4% decline in the consumer portfolio, on the back of a weak

consumer environment which we expect to start showing signs of recovery only until 2H14. Moreover,

an analysis that we have recently run shows that growth potential for consumer credit in Mexico is

massively overstated, and that higher GDP growth rates expected for the coming years might not

necessarily translate into consumer credit soaring in the country owed to its poor income distribution.

Andean countries – Eyeing value in Peru and Colombia: Not only is Peru the country with the

highest potential in the region (by far) for consumer credit growth (as its addressable market is the truly

most underpenetrated), it also offers reasonably priced vehicles to play the story that in turn offer strong

earnings growth outlook with attractive returns, such as Credicorp (our top pick in the LatAm space) and

Intercorp. In the case of Bancolombia, valuation seems attractive (even after incorporating the recent

capital increase) on the back of positive prospects at the micro level that are also supported by a

favorable macroeconomic outlook; CS economics team is expecting GDP growth in Colombia to

accelerate from 4.2% in 2013 to 4.5% in 2014 and 4.9% in 2015.

Liking Peru, Colombia and Brazil… Mexico not so much Bradesco - Potential Upside in NII for 2014 as a Result of Increases in

Credit Card Rates (R$mn)

Credicorp – Adjusted Net Income and ROE forecasts

Source: Credit Suisse Research

Source: Company data, Credit Suisse estimates.

1,883

1,886

2,428

2,974

19.0%

17.1%

19.0%

19.9%

2012 2013 2014E 2015E

Adj. Net Income ROE

6% 6% 6% 6% 6% 6%

0% 1% 2% 3% 4% 5%

47,165 47,965

48,765 49,565

50,365 51,165

Potential monthly increase in the credit card rate

Estimate for the monthly credit card rate of Bradesco

Estimated NII for 2014 (R$mn)

+9% +11%

+13% +15%

+16% +18%

CS base-case

scenario

42

30 March 2014

LatAm Financials Banks: Brazil - Long/Short Ideas

Top Long Idea – Bradesco Top Short Idea – Banco do Brasil

Investment case: We are pretty constructive on NII growth for Bradesco and believe it should be

at least 6% for 2014, at the bottom of the 6% - 10% guidance the bank provided. While we

believe NII may grow even over the 6% level (our official estimate takes into account a 9%

growth), we acknowledge that there are other potential upsides for Bradesco we do not even

consider into our base case scenario, such as Bradesco increasing credit card rates along the

year (we estimate each 1p.p. increase in the monthly interest rate should translate into

~R$800mn in NII for the bank). Nonetheless, we are ~8% above consensus EPS estimate for

2014 and believe it should move upward at some point. Finally, Bradesco is far less exposed to

volatility and interest rates than it was in the recent past, which helps to support our view that the

risk of severe losses from sharp shifts in the yield curve is very limited.

Investment case: While we found disappointing the 2014 guidance provided by BB, the

outlook for NII and credit recoveries is not as bright as we anticipated. In addition to that,

with low profitability and large capital requirements in the coming years arising from Basel

III implementation, BB has no option other than fostering capital discipline, slow down

growth and work to boost its earnings power.

Valuation: Our R$23/share target price implies limited upside potential from current levels,

which helps to reinforce our belief that Banco do Brasil currently is not the best option in

the Brazilian banks universe.

Long ideas

Itaú - Unibanco: Amid a brighter NII environment supported by higher rates, a more normalized treasury result and higher credit spreads, Itaú-Unibanco

should continue to be a compelling pick among the banks universe. The

earnings growth story of Itaú is not short-lived, as the secular growth trend in credit spreads is a game changer for top line growth and will allow for double digit earnings for longer: Itaú should fuel EPS growth by 23% in 2014 and 15% in 2015. Also, we still expect continued improvement in asset quality,

driven by lower credit delinquency and safer mix.

Santander: Santander will likely go through a better momentum in 2015, as

the expected ~10% growth in NII (vs. CSe of -2.6% for 2014) should help

the bank to significantly expand its adjusted EPS by 37% y/y. 2014 should

be a transition year as higher interest rates still impact NII negatively and the

big mix change towards lower risk segments take a toll. However, 2015

should show a significant pickup in NII growth to 10% as asset re-pricing

kicks in full and credit spreads continue to rise.

Banrisul: Banrisul faced a significant de-rating since its disappointing 3Q13

results, and currently share price is already not only reflecting a more

challenging outlook (that the bank should really face) but also fluctuates

around compelling levels.


43

30 March 2014

LatAm Financials Banks: Mexico, Chile, Peru and Colombia - Long/Short Ideas

Source Credit Suisse Research

Top Long Idea – Credicorp Top Short Idea – Banorte

Investment case: For Credicorp we are anticipating a strong earnings growth over the next two years (26% two-year CAGR), with ROE back to 20s in 2015 (scaling up from 17.1% in 2013), mainly on the back of: i) margin expansion; ii) stable cost of risk; iii) a slight

improvement in insurance result; and iv) opex remaining under control. Moreover, although we are expecting a much more moderated shift in mix towards retail lending (despite

BCP’s below potential market share), it is worth mentioning that we see Peru as the market with the greatest potential for increasing consumer credit, as its addressable

market is truly the most underpenetrated in the region. Valuation: At 11.8x ‘14 P/E and 2.1x P/B, valuation looks compelling, with our

US$173/ADR TP implying an attractive 37% upside from current levels.

Investment case: On the back of a more challenging operating outlook, we have recently

reduced by ~7% our EPS forecasts for 2014 and 2015, after factoring in lower volumes (9% cut), a heavier expense base and lower fees. Despite being 8% below consensus for

2014, we believe our forecasts might still be optimistic given we are giving the benefit of the doubt on a 2.0% cost of risk (assuming no additional impact on P&L from homebuilders) and on the very high yields the company has been posting on its investment

portfolio (whose sustainability is a source of concern). Valuation: Under our new forecasts GFNorte is trading at 15.6x 2014 P/E and 1.9x P/B,

reflecting a weak risk-reward balance. No upside potential to our P$84/share TP is also consistent with an Underperform rating.


Banco de Chile and Santander Chile: Despite the significant

underperformance of Chilean banks (YTD and LTM), we deem current valuations

of BCH and BSAC as fair in light of the tougher earnings outlook for the years to

come. The muted outlook for earnings growth is mainly the result of an

unfavorable regulatory environment that should result in NIM going slightly

downwards, poor fee growth and a higher tax burden, affecting both banks’

sustainable returns. Under our new forecasts, BCH is trading at 12.7x 2014 P/E

and 2.8x P/B, while BSAC is trading at 13.6x and 2.4x, respectively; moreover,

upside potential to our target prices is rather limited. On a relative basis, our

preference is for Santander Chile.

FINDEP: Despite seeing with good eyes the fact the company is back to

profitability, and despite the positive company guidance for 2014, we see

Gentera as a much more attractive vehicle to play the micro lending segment in

Mexico, with better loan growth and asset quality prospects in 2014, as well as

very superior profitability levels (not to mention the trading liquidity).

Santander Mexico: After a weak 2013 we reduced our EPS forecasts for 2014

and 2015 by 7% and 6%, leaving us 9% below consensus for the period

(though we believe our new forecasts might still be optimistic on cost of risk and

opex assumptions). Sanmex current valuation seems unattractive to us for a bank

expected to deliver 14% ROE in the next two years.

Bancolombia: After a disappointing 2013, we anticipate a strong 18% increase in EPS in 2014 (even accounting for the 11% dilution). While not anticipating an acceleration in loan growth, we anticipate significant growth in NII as mark-to-market losses fade away; moreover, positive trends in asset quality bode well for lower cost of risk. Our US$61/ADR TP still implies an attractive 13% upside from current levels.

Intercorp: While 2013 was a difficult year for revenue growth for Intercorp on the back of

i) a change in fee regulation; and ii) a big slowdown in consumer lending impacting NII

growth (owed to market share loss in credit cards in 1H13), the bank is now recovering

the ground lost in the segment and fees should be back to a growth path, fueling strong

earnings growth and an increase in recurring ROE to the 24% level

Gentera: Despite having recently trimmed (-4%) our EPS forecast for 2014 on lower NII

(explained by lower volumes) and higher provisions, we continue to see Gentera’s

investment case as compelling. Decoupling from the system, loan portfolio in Mexico

resumed growth (after two consecutive declines), by expanding 2.3% m/m during Jan’14;

moreover, asset quality evolved favorably, with NPL formation rate improving by 60bps.

Inbursa: Although Inbursa was not exempt from the slow start of the banking system in Mexico in 2014 (as shown by CNBV figures for January), the big shit in mix as a result of more retail participation should continue to drive NII and earnings growth in the years to come. Moreover, the implementation of expected loss criteria for commercial loans should lead to a meaningful reduction in loan loss reserves in the P&L, plus a ~P$19bn (pre-tax) reversal of excess provisions in the next three to five years.

Interacciones: Despite recent outperformance and medium-term risks of margin pressure,

we believe the stock should continue to perform well as the company is set to have a good

2014 explained by higher credit demand, on the back of: i) a normalized government

spending, and ii) the launching of infrastructure projects.

44

30 March 2014


30 March 2014

FOTO

LatAm Financials Nonbank


Latin America Financials Nonbank Team

Marcelo Telles, CFA


Victor Schabbel


Daniel Magalhães


Alonso Garcia


46

30 March 2014

LatAm Financials Nonbank – Data Summary




Close

Target

Price

Upside


1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Merchant Acquirers

Cielo CIEL3 N BRL 71.15 BRL 76.00 6.8% 48.4 24,743 233 15.0% 15.2% 13.5x 20.7x 18.3x 12.2x 11.0x 1.52 1.72 3.0% 3.4% 65.1%

Exchanges

BM&F Bovespa BVMF3 O BRL 10.75 BRL 12.70 18.1% 53.9 9,036 (1,236) 9.6% 1.6% 1.2x 21.2x 17.2x 14.6x 12.4x 0.22 0.28 3.0% 4.4% 5.5%

BMV BOLSAA N MXN 24.63 MXN 30.00 21.8% 5.9 1,117 3 5.3% -18.0% 2.6x 18.5x 16.2x 12.9x 11.3x 0.10 0.12 4.5% 4.8% 13.8%

Cetip CTIP3 O BRL 26.99 BRL 30.00 11.2% 24.5 3,161 22 11.2% 16.9% 4.6x 17.1x 14.9x 11.4x 10.2x 0.70 0.80 4.9% 5.0% 27.1%

Insurers

Porto Seguro PSSA3 U BRL 33.00 BRL 30.00 -9.1% 10.6 4,720 (83) 6.4% 15.9% 2.1x 13.8x 13.2x 19.0x 24.1x 1.06 1.11 6.8% 3.7% 15.1%

BB Seguridade BBSE3 O BRL 24.15 BRL 28.00 15.9% 61.2 21,367 (1,106) 5.3% 5.5% 7.3x 18.6x 15.0x 15.0x 12.1x 0.57 0.71 4.3% 5.3% 38.9%

Sul América SULA11 N BRL 15.46 BRL 16.00 3.5% 3.4 2,330 228 7.5% 9.2% 1.4x 9.9x 8.4x 21.8x 17.6x 0.69 0.81 0.7% 3.5% 14.6%

Diversified Financial Services

Valid VLID3 O BRL 34.20 BRL 38.00 11.1% 5.4 843 101 17.6% 11.9% 3.6x 15.5x 13.2x 9.1x 7.9x 0.98 1.15 2.7% 3.8% 23.0%

Private Equity

GP Investments GPIV11 O BRL 3.50 BRL 6.70 91.4% 1.0 194 - -12.3% -15.0% n.a. 1.3x 1.3x n.a. n.a. 1.15 1.15 0.0% 0.0% n.a.

17.6%

15.0%

11.2%

9.6%

7.5%

7.1%

6.4%

5.3%

5.3%

3.9%

3.0%

2.6%

1.5%

1.3%

-12.3%

Valid

Cielo

Cetip

BM&F Bovespa

Sul América

Ibovespa

Porto Seguro

BB Seguridade

BMV

Mexbol

IPSA

Brazilian Real

Chilean Peso

Mexican Peso

GP Investments

16.9%

15.9%

15.2%

11.9%

9.2%

5.5%

4.3%

1.6%

0.7%

-0.4%

-3.9%

-5.2%

-6.9%

-15.0%

-18.0%

Cetip

Porto Seguro

Cielo

Valid

Sul América

BB Seguridade

Brazilian Real

BM&F Bovespa

Ibovespa

Mexican Peso

IPSA

Chilean Peso

Mexbol

GP Investments

BMV

24,743

21,367

9,036

4,720

3,161

2,330

1,117

843

194

Cielo

BB Seguridade

BM&F Bovespa

Porto Seguro

Cetip

Sul América

BMV

Valid

GP Investments

61.2

53.9

48.4

24.5

10.6

5.9

5.4

3.4

1.0

BB Seguridade

BM&F Bovespa

Cielo

Cetip

Porto Seguro

BMV

Valid

Sul América

GP Investments

47

30 March 2014

LatAm Financials Nonbank – Sector Trends

Theme #1: Exchanges – Delivering Is Key For 2014

BVMF Is Still A Call For The Future: Brazil is a market with plenty of long-term potential with

clear short-term challenges. For BVMF, this should be seen as an opportunity. The exchange

should work to deploy key projects (i.e., new integrated clearing house) and capture the long-

awaited synergies from the merger between BM&F and Bovespa.

Cetip Is In For A Sound 2014: With earnings momentum back in scene (and not looking to leave

anytime soon) and the new CEO (Mr. Gilson Finkelsztain) being able to implement its philosophy

(pushing for new products to be placed, costs to be controlled and consequently more value to be

generated to the shareholders) a higher dividend payout was able to come already in 2013 –

definitely a positive signal from management.

Theme #2: Insurers – BB Seguridade Is Now Our Top-Pick

Leveraging On Cross-Selling Opportunities: Despite the optimism seen around, we don’t see the

insurance market growing as strongly as credit did over the last decade. This doesn't mean,

though, that BB Seguridade shouldn't be able to grow at a strong pace. Existing opportunities

arising from Banco do Brasil's client base should help sustain its above-market growth – at least

for this year.

Porto Looks Increasingly Expensive: With an outlook that does not justify the 11.5x 12m fwd PE

that is currently trading at we see current stock price as too expensive.

Theme #3: Acquirers – Valuation Less Attractive At This Point

Already In The 70s: With the stock now trading above the 70s, current valuation level doesn’t

seem as attractive as it once was. Given the lagging macro environment, though, Cielo could be

seen as a safe harbor (earnings growth; good dividend yield).

Bigger Pie; Not A Thinner Slice: Market volumes have been growing at a faster pace and Cielo’s

market-share declining at a slower pace than expected – which could raise some questions

around how tougher competition could get. For another year, though, we expect a healthy

competitive environment to prevail.

Theme #4: Diversified Financials – A Valid Year For Growth

Migration To Chip & Pin As The Big Driver For 2014: Given that the US is today one of the few

big markets that still don’t use the Chip & Pin technology, migration was already expected to start

happening this year. Frauds at the POS terminal in big retailers (e.g. Target and Neiman

Marcus), though, could prove to be the big drivers for a faster pace in replacement given that that

banks and merchants are now more aware of the damage that could be derived from not having

a safer platform.

In The Tough Scenario, A Few Names Stand Out

Top Long Chart – Sound Earnings Growth Ahead

Top Short Chart – Increasingly More Expensive


1,740

2,261

2,981

3,712

4,286 4,902

33%

40%

49%

45% 46% 47%

2012A 2013A 2014E 2015E 2016E 2017E

Earnings ROE

Average

+1 stdev

-1 stdev 12m fwd P/E

11.5

3

4

5

6

7

8

9

10

11

12

13

Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13

http://www.bb.com.br/portalbb/home24,500148,500148,21,0,1,1.bb?codigoMenu=17789

48

30 March 2014

LatAm Financials Nonbank – Long/Short Ideas

Top Long Idea – BB Seguridade Top Short Idea - PSSA

BM&F Bovespa: Current valuation levels still seem like an interesting entry

point for long investors. Although short-term should continue to be

negatively impacted by the lagging macro scenario, the buyback program

announced earlier this year could be seen as the first positive catalyst for

the stock. In the long-term, BVMF has room to deliver especially given its

cost-cutting strategy.

Investment case: Based on higher prices and lower loss ratios, 2013 was a great year

for the insurer. This year, though, should be trickier given that raising prices at such high

levels could prove to be unsustainable. With higher interest rates, fiercer competition

should also start to be seen later this year (with the possibility of affecting both prices

and volumes) – a clear negative for the stock.

Valuation: Rich multiples derived from the strong stock performance seen lately are not

sustained by our structural view on the name. Extra dividends from the reversal of

provisions derived from the COFINS tax litigation (a one-timer), though, should sustain

such multiples at least for now.


Cielo: Although not as cheap as once seemed, its resilience and better-

than-average outlook is definitely something that calls attention – especially

in a tough macro environment.

Cetip: Recent results brought earnings momentum back in scene. With the

new products being developed, revenue streams should broaden, not

scaring earnings momentum anytime soon. With higher payout ratio coming

a year earlier (now at 75%), we could see this as a positive signal from

management.

Investment case: In a scenario where few stocks present the combination between

resilience and sound earnings outlook, BB Seguridade stands out. Robust operating

performance to continue (which should help to boost the bancassurance segment)

coupled with improving financial results, should be the main factors behind the promising

earnings outlook - for those not counting on the insurer for the challenging times ahead,

hurry up: shares are gaining momentum

Valuation: Attractive multiples and compelling dividend yield (~5% for 2014) make the

story seem even more interesting. Its defensive profile could also prove to be a safer play

especially considering current market conditions.

Sul América: Higher financial gains and the leverage derived from the

price adjustments seen back in the 3Q13, should drive the company to

report decent earnings growth this year. Long-term, though, seems

challenging especially given the market dynamics.

Bolsa Mexicana: After a tough 2013, expectation is for a still challenging

short-term outlook (especially on cash equities and derivatives). Although

risk-reward has improved, a better momentum is needed to justify a re-

rating for the stock – something that we do not expect to happen just yet.


Valid: 2014 should be a sound year for Valid, making us see the name as

the most attractive smaller-cap idea under our coverage. Better operating

trends along with new ventures that should be added to its portfolio make

currently valuation levels seem increasingly attractive.

http://www.bb.com.br/portalbb/home24,500148,500148,21,0,1,1.bb?codigoMenu=17789

30 March 2014

FOTO

LatAm Food & Beverages

Tobias Stingelin, CFA


Antonio González, CFA


Alexandre Amson



Latin America Beverages Team

Ignacio Ochoa


Armando Perez


50

30 March 2014

LatAm Food & Beverages: Data Summary

Market Cap (USD millions) ADTV (USD millions) One-Month Performance YTD Performance



Close

Target

Price

Upside

(%) ADTV Mkt Cap

Net

Debt

1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Brewers

Ambev ABEV3 O BRL 17.05 BRL 20.00 17.3% 70.1 118,150 (4,798) 3.7% 4.4% 6.7x 24.0x 21.4x 15.5x 14.1x 0.31 0.35 3.1% 3.5% 27.8%

Co. Cerveceras

Unidas CCU U CLP 6,321 CLP 6,400 1.2% 3.1 4,225 (374) 3.6% -3.6% 2.9x 15.3x 13.7x 8.0x 7.2x 0.75 0.84 3.5% 3.9% 18.6%

Bottlers

FEMSA FEMSAUBD N MXN 122.05 MXN 130.00 6.5% 29.8 33,583 2,516 7.1% -3.8% 1.8x 23.1x 20.4x 10.7x 9.5x 0.40 0.46 1.7% 1.7% 7.9%

Coca-Cola Femsa KOFL N MXN 133.97 MXN 180.00 34.4% 7.3 21,230 2,854 5.4% -15.5% 2.2x 18.9x 16.7x 10.2x 9.3x 0.54 0.61 2.3% 2.6% 11.9%

Arca-Continental AC N MXN 78.08 MXN 94.00 20.4% 9.2 9,618 (60) 13.7% -4.7% 2.7x 17.5x 15.1x 9.1x 8.0x 0.34 0.40 2.4% 3.0% 15.2%

Cultiba CULTIBAB.MX O MXN 22.70 MXN 42.00 85.0% 2.7 1,257 (124) 15.9% -14.3% 1.1x 11.9x 9.0x 4.5x 3.7x 0.15 0.19 0.0% 0.0% 9.5%

Embotelladora Andina ANDINAB N CLP 2,015 CLP 2,200 9.2% 1.3 2,479 1,023 -3.3% -20.1% 2.2x 23.2x 22.1x 7.2x 6.6x 0.16 0.16 3.5% 3.8% 9.6%

Food

Brasil Foods BRFS3 O BRL 46.50 BRL 55.00 18.3% 61.3 17,947 2,187 16.8% -0.5% 2.6x 19.1x 17.2x 10.6x 9.5x 1.08 1.20 1.3% 1.5% 13.6%

Minerva BEEF3 O BRL 10.10 BRL 18.00 78.2% 5.7 666 408 -1.2% -8.2% 1.1x 9.2x 13.2x 4.8x 6.0x 0.48 0.34 0.0% 1.9% 11.9%

16.8%

15.9%

13.7%

7.1%

7.1%

5.4%

3.9%

3.7%

3.6%

3.0%

2.6%

1.5%

1.3%

-1.2%

-3.3%

Brasil Foods

Cultiba

Arca-Continental

Ibovespa

FEMSA

Coca-Cola Femsa

Mexbol

Ambev

Co. Cerveceras…

IPSA

Brazilian Real

Chilean Peso

Mexican Peso

Minerva

Embotelladora Andina

4.4%

4.3%

0.7%

-0.4%

-0.5%

-3.6%

-3.8%

-3.9%

-4.7%

-5.2%

-6.9%

-8.2%

-14.3%

-15.5%

-20.1%

Ambev

Brazilian Real

Ibovespa

Mexican Peso

Brasil Foods

Co. Cerveceras Unidas

FEMSA

IPSA

Arca-Continental

Chilean Peso

Mexbol

Minerva

Cultiba

Coca-Cola Femsa


118,150

33,583

21,230

17,947

9,618

4,225

2,479

1,257

666

Ambev

FEMSA

Coca-Cola Femsa

Brasil Foods

Arca-Continental



Cultiba

Minerva

70.1

61.3

29.8

9.2

7.3

5.7

3.1

2.7

1.3

Ambev

Brasil Foods

FEMSA

Arca-Continental

Coca-Cola Femsa

Minerva


Cultiba


51

30 March 2014

LatAm Food & Beverages: Sector Trends

Poor results, equity dilutions, and higher leverage have led to downward EPS revisions.

Thus valuations have not become any cheaper despite contractions in market values.

We believe there will be further potential downward revisions, especially for soft-drink

bottlers, given:

Theme #1: 1Q14 showing signs of recovery in Beer Brazil (ABEV) but not soft drinks

(KOF, ANDINA)

Beer production data in Brazil (SICOBE) shows ~8% growth in 1Q14 (updated March 24).

Feedback from industry is that good weather and later Carnival in Brazil boosted sales.

Soft-drink production was flat in the same period. Data for 2013 signaled that ABEV had been

gaining market share in soft drinks in Brazil.

Theme #2: In Mexico, volumes are falling

Companies have passed the new MXN 1 per liter tax through to consumers, increasing retail

prices by ~13%.

Coca-Cola bottlers have mentioned declines of 4%–7% YTD.

Cultiba noted volume contractions of ~6% YTD in soft-drinks (-3% when including jug water).

Theme #3: Exposure to Venezuela and Argentina

The Argentine and Venezuelan currencies have depreciated. 17% YTD for Argentina and 28%

YTD for Venezuela (in parallel markets, 0% officially), respectively.

Our team is expecting a 43% depreciation in FY14 for Argentina.

Although companies will report under official Venezuelan currency terms, we are concerned

about operations due to political issues. We think there could be short-term impacts on volumes

and profitability.

Theme #4: Should we keep paying premiums for M&A? We think not…

We think M&A in the region will slow down, as (i) there are not that many attractive targets left

in the region; (ii) lower stock prices make it less attractive to use shares as currency; (iii) the

economic environment across the region is tough; and (iv) in our opinion, The Coca-Cola

Company may be pausing M&A activity and focusing on integration.

Prices have fallen, but multiples have not!

Source: Bloomberg, Credit Suisse Research

Revised Fwd P/E (LHS) vs. Market Cap and Est. Fwd EPS (RHS)

Exposure to Argentina and Venezuela

AmBev

Arca Continental

KOF

Femsa*

Andina

CCU

Argentina

c.13%

14%

6%

2%

29%

27%

Venezuela

0%

0%

18%

7%

0%

0%

Total

c.13%

14%

24%

9%

29%

27%

Argentina

c.11%

10%

2%

1%

20%

19%

Venezuela

0%

0%

17%

6%

0%

0%

Total

c.11%

10%

19%

7%

20%

19%

* Pro-forma - Taking into account Femsa's stake in Heineken which is not consolidated.

Company Revenues Ebitda

May-13 Jul-13 Sep-13 Nov-13 Dec-13 Feb-13 70

75

80

85

90

95

100

105

15x

16x

17x

18x

19x

20x

21x

22x

Revised fwd P/E

Market cap

Median EPS fwd Est.

52

30 March 2014

LatAm Food & Beverages: Long/Short Ideas


Top Long Idea: ABEV Top Short Idea: CCU

Investment case: We think volume growth will resume in 1Q14. SICOBE data shows a 5%

expansion in beer production in the quarter (the first in four quarters).

Pricing alone could lead ABEV to its high single-digit/low-teens guidance. If Rev/Hl

remains unchanged y/y for FY14, revenues would grow 10%.

New shareholder structure could maximize IOC payments, reducing tax burden.

Valuation: Ambev is trading at a 2014 P/E of 20.5x, in line with LatAm beverages. We

think ABEV should trade at a premium vs. the LatAm beverages sector.

Investment case: The new administration in Chile has mentioned increasing excise tax on

beer; different scenarios imply price hikes of 4% to 23%.

After issuing USD700 mn in equity, we think that acquiring small operations, in new regions

and non-beverage businesses, is a risk for investors.

Nearly a dozen top managers, including the CFO, have left CCU. We think integrating new

acquisitions will be more difficult with changes in management.

Valuation: We think valuation has to be adjusted for its exposure to Argentina (27% of sales),

higher competition in beer and soft drinks in Chile, and investments with lower ROIC.

Short Ideas

Andina: Competition has led to aggressive pricing, which coupled with high salary increases could reduce profitability. After adjusting our estimates and FX rate (29% of revenues in Argentina), our EPS estimate is 30% below consensus, with Andina trading at a premium to the sector.

AC: Mexican vols. are contracting 4-5% YTD, better than the original estimate of 5-7% contraction. In the long term, we think there’s a risk in capital allocation as the company acquires non-Coca-Cola businesses. It recently acquired Tonicorp, a dairy business in Ecuador, at 10.5x EV/EBITDA ’13, similar to the 10.3x of Mexican Coca-Cola bottlers.

KOF: We expect a negative impact from FX in KOF given its exposure to Venezuela (18% of sales) and Argentina (6%). We think the situation in Venezuela could result in volume and margin contractions in the short term. In Mexico, volumes are contracting 4%–5%, slightly better than estimated, yet the company expects some contraction in margins. Higher interest expense from debt related to acquiring Spaipa in Brazil could negatively impact EPS.

FMX: Short term we remain cautious on Femsa. We expect weak performance from KOF (36% of net income) and think Oxxo will be impacted by excise taxes to snacks/sugar (30% of Oxxo sales) and VAT increases in North Mexico (18% of stores). However, long term, Oxxo’s openings and SSS will outperform those of the retail sector, in our opinion. We like the opportunity of drugstores in Mexico.

Long Idea (OXXO)

Cultiba: Soft-drink volumes are contracting 6% (c.72% of revenues) and new tax reform could eliminate the company's tax benefits. Given the Cultiba’s higher operating leverage, we think margins will be impacted by lower volumes and a weaker sales mix (as including jug water, volumes are contracting only 3%) in 2014.

Impact from tax reform

Weaker momentum

BRF: the evolution of the turnaround will continue to be the main theme in the short term. We believe that BRF moves in the right direction, and quickly. We note, however, that this is a quite challenging process, which demand flawless execution. The potential - and substantial - gains estimated by management are far from being fully priced in, in our opinion. In light of the great uncertainty and lack of tangible references on the potential synergy gains, we expect high stock volatility to persist in the short term; but we maintain a constructive view for the long term.

Minerva: stock down 14% YTD despite the strong sector and company momentum. South America gains relevance as a global beef supplier and Minerva is poised to continue capturing the benefits of it. Positive highlights remain the company’s consistent execution and strategy, which has translated into robust operating performance. A more challenging macro scenario, low liquidity and net debt/EBITDA persistently over 3x likely to maintain the short term stock pressure.

30 March 2014

FOTO

LatAm Metals & Mining

Ivano Westin


Santiago Perez Teuffer


Marina Melemendjian



Latin America Metals & Mining Team

54

30 March 2014

LatAm Metals & Mining – Data Summary




Close

Target

Price

Upside


1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Brazil Mining

Bradespar BRAP4 N BRL 19.40 BRL 38.00 95.9% 14.8 3,001 (50) -7.4% -19.2% 0.6x 4.9x 4.8x 4.9x 4.8x 1.74 1.80 5.9% 5.0% 12.1%

MMX MMXM3 R BRL 2.66 R R 2.4 191 R -14.4% -33.8% R R R R R R R R R R

Vale VALE N 13.65 19.00 39.2% 291.7 71,431 23,932 -4.7% -10.5% 0.9x 7.1x 9.3x 4.9x 5.3x 1.92 1.46 5.5% 5.1% 13.2%

LatAm Steel

Gerdau GGBR4 N BRL 14.58 BRL 21.00 44.0% 41.8 10,524 4,559 1.6% -16.5% 0.9x 15.3x 11.1x 6.9x 6.0x 0.42 0.58 1.6% 2.3% 6.1%

Ternium TX O 30.21 38.00 25.8% 5.8 5,930 1,544 0.7% -3.5% 1.0x 11.6x 8.9x 4.3x 4.1x 2.61 3.40 2.6% 2.6% 8.8%

CSN CSNA3 N BRL 10.10 BRL 12.00 18.8% 27.9 6,280 8,514 -2.9% -24.5% 1.8x 11.2x 16.6x 6.9x 7.6x 0.40 0.27 2.2% 1.5% 16.1%

Usiminas USIM5 O BRL 10.40 BRL 15.00 44.2% 33.3 4,425 952 5.5% -23.5% 0.7x 19.5x 10.9x 5.6x 4.7x 0.24 0.42 2.5% 2.2% 3.5%

ICH ICHB.MX N MXN 71.37 MXN 70.00 -1.9% 2.4 2,375 (565) -8.1% -19.3% 1.1x 28.3x 24.5x 6.8x 5.7x 0.19 0.22 0.0% 0.0% 3.8%

Brazil Refractories

Magnesita MAGG3 N BRL 5.09 BRL 7.90 55.2% 0.6 657 409 -2.1% -9.9% 0.6x 18.2x 10.2x 6.3x 5.4x 0.12 0.22 2.7% 7.8% 3.2%

LatAm Precious Metals

BVN BVN N 12.63 11.00 -12.9% 30.4 3,214 398 0.8% 12.6% 0.8x 3.0x 3.0x 2.6x 2.6x 4.15 4.18 0.0% 0.0% 25.4%

Fresnillo FRES.L U GBP 837.50 GBP 650.00 -22.4% 22.1 9,953 (377) -13.0% 12.3% 4.0x 39.0x 26.6x 15.2x 11.5x 0.35 0.51 0.0% 0.0% 10.4%

Mfrisco MFRISCOA1.MX U MXN 25.19 MXN 20.00 -20.6% 1.5 4,916 1,782 18.4% -6.5% 3.3x 24.2x 23.9x 11.6x 11.3x 0.08 0.08 0.0% 0.0% 13.8%

Penoles PENOLES.MX N MXN 328.87 MXN 315.00 -4.2% 4.5 9,994 577 2.4% 1.4% 2.7x 27.4x 21.7x 8.5x 7.8x 0.92 1.16 2.2% 2.5% 9.7%

LatAm Copper

SCC SCCO O 27.62 38.00 37.6% 56.6 23,023 2,922 -10.0% -3.4% 3.7x 14.9x 10.4x 9.2x 6.8x 1.86 2.66 2.3% 5.0% 24.6%

GMexico GMEXICOB.MX O MXN 39.43 MXN 50.00 26.8% 35.6 23,468 3,099 -4.9% -8.2% 2.4x 16.1x 11.9x 6.5x 5.1x 0.19 0.25 2.7% 3.7% 14.6%

18.4% 7.1%

5.5% 3.9% 3.0% 2.6% 2.4% 1.6% 1.5% 1.3% 0.8% 0.7%

-2.1% -2.9%

-4.7% -4.9%

-7.4% -8.1%

-10.0% -13.0%

-14.4%

MfriscoIbovespaUsiminas

MexbolIPSA

Brazilian RealPenolesGerdau

Chilean PesoMexican Peso

BVNTernium

MagnesitaCSNVale

GMexicoBradespar

ICHSCC

FresnilloMMX

12.6% 12.3%

4.3% 1.4% 0.7%

-0.4% -3.4% -3.5% -3.9% -5.2% -6.5% -6.9% -8.2% -9.9%

-10.5% -16.5%

-19.2% -19.3%

-23.5% -24.5%

-33.8%

BVNFresnillo

Brazilian RealPenoles

IbovespaMexican Peso

SCCTernium

IPSAChilean Peso

MfriscoMexbol

GMexicoMagnesita

ValeGerdau

BradesparICH

UsiminasCSNMMX

71,431.0

23,467.7

23,022.6

10,524.4

9,993.6

9,953.5

6,280.1

5,930.5

4,916.1

4,424.6

3,213.6

3,001.1

2,375.2

657.5

190.9

Vale

GMexico

SCC

Gerdau

Penoles

Fresnillo

CSN

Ternium

Mfrisco

Usiminas

BVN

Bradespar

ICH

Magnesita

MMX

291.7

56.6

41.8

35.6

33.3

30.4

27.9

22.1

14.8

5.8

4.5

2.4

2.4

1.5

0.6

Vale

SCC

Gerdau

GMexico

Usiminas

BVN

CSN

Fresnillo

Bradespar

Ternium

Penoles

MMX

ICH

Mfrisco

Magnesita

55

30 March 2014

LatAm Metals & Mining – Sector Trends

Theme #1: Steel – BRL depreciation supporting domestic price hikes in Brazil leading to

margin expansion

Over the past months the BRL depreciated significantly, reaching all time high of

BRL2.45/USD in 2013. This sharp and unexpected movement led to a favorable domestic

steel price parity, which resulted in steel price increases in the domestic market by local players

during 3Q13 and more recently in 1Q14. We estimate current flat steel price parity at 6% and

long steel at 10%, lower than normalized levels, respectively.

The price increases announced in January was mainly to distribution clients, which represents

~30% of the steelmakers revenues. Price hikes and lower competition from imported products,

may result in market share gains, higher earnings and margin expansion for steelmakers in

Brazil.

Theme #2: Mining – Negative view with new supply hitting the market

The new iron ore supply, mainly coming from the Australian miners, was expected by the

investors to impact the supply/demand balance of the seaborne market from 2H13 onwards,

therefore leading spot prices downhill. However, ramp up delays of iron ore expansions and

stronger demand resulted in resilient iron ore prices as supply and demand remained well-

adjusted in 2013.

On the other hand, looking into 2014, most of the expected iron ore new supply from the

Australian miners should hit the market in 2H14 resulting in a drop of iron ore prices as supply

will outpace demand growth. In addition, we believe that iron ore volumes coming from Brazil will

disappoint the market as a result of slower ramp up in Vale’s projects due to environmental

license delays and postponements in the start up of MMX Sudeste Port.

As a result of lower iron ore prices, we expect a y/y earnings compression for miners, therefore

resulting in higher multiples.

Long Steel vs. Short Mining: Iron ore prices to decline faster than steel in 2014 Top Long Chart

Top Short Chart

Source: IABR, Bloomberg, Credit Suisse Research

Global Iron Ore Net Supply Forecast

(Mt)

83 109

59 54

0

15

57

37

-21

10 8

35

3 3

5

97 137

127

96

2013E 2014E 2015E 2016E

AustraliaBrazilIndiaOthers

Global Iron Ore Net Demand Forecast

(Mt)

77 80 68

94

19 15

10

7 96 95

78

101

2013E 2014E 2015E 2016E

China

World excl. China

Steel Imports vs. FX Rate

FX USD/BRL

1.50

1.70

1.90

2.10

2.30

2.50

0

100

200

300

400

500

600

700

Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13

Flat Steel Imports (kt)

Long Steel Imports (kt)

56

30 March 2014

LatAm Metals & Mining – Long Ideas

Top Long Idea - Usiminas

Investment case: We expect Usiminas to post strong 1Q14 results on the back of price hikes announced in Jan-14, stable volumes despite a seasonally weaker quarter

however with an improved sales mix. Also, the depreciated BRL provides an important tailwind for steelmakers as it contributes for potential steel price hikes in the

domestic market. We have a positive view for Usiminas as the company has (i) higher operational leverage and (ii) spare steel production capacity to replace steel

imports.

Long ideas


Ternium: Offers the most attractive valuation under our

coverage, and is set to start up its Pesquería project in

Mexico with 1.5Mt capacity of CRC and 400kt of

galvanizing capacity. The new plant will partially replace less

productive capacity.

Pair Trade Idea – Long BRAP vs. Short VALE

Investment case: Bradespar’s current holding discount to NAV is at 32%, significantly higher than its 2.5 years average of 11%. Despite the risks related with Valepar’s

shareholder’s agreement renewal (which expires in 2017), we believe that a final outcome will be reached in 2015, post 2014 presidential election. On the other hand,

we are more cautious on Vale due to further delays in the ramp-up of iron ore projects and the ongoing concern of the market about lower iron ore prices pressuring

earnings.

Short ideas

CSN: Despite the positive scenario for steelmakers as a

result of depreciated BRL, CSN runs at full capacity in its

UPV mill and has no room to replace imports. In addition,

~50% of the company’s Ebitda is represented by its mining

operations which we have a negative view (as for Vale) due

to lower iron ore prices.

Magnesita: The company is diversifying operations its

mining assets: graphite and talc. Both projects are currently

in the certification phase, further announcements on

development and capex will be welcomed by the market.

Gerdau: On a ST perspective we believe the stock may

underperform on the back of weak 1Q14 results driven by

weak results in Brazil and USA. On a LT view, we like

Gerdau's story as we expect structural changes through

diversification into mining, flat steel, and natural hedge

through exposure to US and Brazilian markets.

57

30 March 2014

LatAm Copper & Precious Metals Mining – Sector Trends

Theme #1: We like SCC to kick off 2014, with a swift change towards Gmexico in the

middle of 2014.

Both SCC and Gmexico have displayed a lackluster performance in 1Q14. Gmexico's discount

to NAV traded at attractive entry points (over 20%) though underscored by a risk on the rail

division. SCC has imminent catalysts with the chance of Peruvian projects getting the green

light on 2Q14. We think Gmexico will benefit from SCC's potential, though momentum for the

former should intensify towards 2H14, underscored by more clarity on Mexican economic

dynamics.

2014/15 will be marked by Mexican expansions, with Buenavista leading the way for copper

projects in the world. We believe there is a strong possibility that 2016/17 will be marked by

the dawn of the Peruvian projects. 2Q14 will tell, and we think this is a big opportunity for us to

participate.

In our model, we assume that Toquepala materializes in 2016. The public audience will take

place on April 16th, this timespan supports our view that constructions could begin this year. Tia

Maria, on the other hand, is not in our numbers, meaning that it is pure optionality to our current

estimates and target price. Taking into account the information published by SCC coupled with

our own estimates, we believe that Tia Maria's impact would be a 13% increase in our

SCC target price.

Theme #2: Favorite Pair Trade: Long Peñoles/Short Fresnillo

Driven by the partial recovery of precious metal prices, Fresnillo has rallied 17% YTD while

Peñoles has lagged significantly with a meager 0.2% increase. Although the NAV spread has

been closing from its 22.4% peak on February 28th to levels around 15% we believe there is still

room for adjustment, we deem the discount levels of Peñoles to its subsidiary as unjustified.

The explosive permit for Penmont was restored on February 26th, thus production on 1Q14 on

Herradura and Soledad will suffer a significant 2-month hit, at least.

We believe Peñoles margins-over-volumes strategy leaves it on a better position than Fresnillo

to mitigate the risk of a low precious metal prices situation, as the latter has full exposure to

these prices.

We prefer SCC over Gmexico for 2Q14, Peñoles discount unjustified.

SCC Production Profile to Hike on the Upcoming Years


-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Feb-12 Apr-12 Jul-12 Sep-12 Dec-12 Feb-13 May-13 Jul-13 Oct-13 Dec-13 Mar-14

+ 1 St. Dev

Average

- 1 St Dev

Discount to NAV

Adjusting to average

Peñoles’ Discount to NAV Bound to Adjust

2010 2011 2012 2013 2014E 2015E 2016E

Cuajone Toquepala La Caridad Buenavista Others

478

587 673

809

1024

636 637

58

30 March 2014

LatAm Copper & Precious Metals Mining – Long/Short Ideas

Top Long Idea - SCCO Top Short Idea - Mfrisco

Investment case: We think there are solid chances for SCC’s strongest catalyst in

years—Tia Maria—to materialize during 2Q14, though we have not yet reflected it

on our model. The most critical phase of the process has been made (the public

hearing) and on a base case scenario, we expect the project to be approved on

April. This would represent an additional 13% upside to our already

attractive potential.

Strongest Catalyst: Toquepala public hearing. The company will pursue to

get yet another Peruvian project approved by April 16, this is included in our

model, though we would still expect it to be an important catalyst.

Valuation: With a 39% upside to our target price, we believe the stock has been

lagging both peers and copper performance, and its bound to catch up.

Investment case: The company invested on the peak of the precious metal cycle,

reaching to expand capacity by 5x in silver and 3x in gold. With our gold and silver

price estimates, the company does not reach decent returns until 2016. Added to

that, our valuation includes a reserve premium, as the company has not released

its reserves to the market since its IPO in 2011.

Project rationalization: Given the type of assets it has, we expect the company to

keep on rationalizing projects.

Valuation: The stock has dropped significantly after exiting the Mexbol index, still,

we believe there is room to go down. We have 19% downside to TP, which

coupled with the current 20% 2014 EV/Ebitda premium to peers, make

us select it as a preferred short.

Long ideas

Gmexico: We like the exposure it has to SCC’s catalysts in 2Q14,

additionally to that, we think that the momentum on the company’s

energy branch should intensify with the approval of the secondary

laws, also expected on 2Q14.

Short ideas

Fresnillo: Although the problems related to the ban of explosives

use have been solved, Fresnillo’s full exposure to gold and silver

makes us think that it will lose momentum as we go into 2Q14.

ICH: With a 3% downside, our TP already reflects the good news

coming from the Mexican infrastructure sector as well as the

exposure that the company has to the dynamic US auto industry.

Trading at a 24% premium to peers, an adjustment could be in

sight.

BVN: With no catalyst in sight and poor expected results, the risk in

the story is yet to large to ignore. Despite a strong y/y plunge we

believe that the stock will still be pressured, until it is able to secure

any of its planned gold projects.


Penoles: We welcome Penoles ability to maintain margins on a

price environment like the one we are going through in precious

metals. The stock has been underperforming both peers and its

subsidiary (Fresnillo) YTD and we should expect the spread to

shorten.

http://www.industriasch.com.mx/index.php

30 March 2014

FOTO

LatAm Oil, Gas & Petrochemicals

Vinicius Canheu, CFA


Andre Sobreira, CFA


Pedro Manfredini



Latin America Oil, Gas & Petrochemicals Team



Maria Madrazo


60

30 March 2014

LatAm Oil, Gas & Petrochemicals – Data Summary




Close

Target

Price

Upside

(%) ADTV

Mkt

Cap Net Debt

1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Integrated

Petrobras PBR N 12.92 14.00 8.4% 288.4 84,267 114,858 12.2% -6.2% 0.6x 11.7x 6.6x 8.0x 5.8x 1.10 1.95 4.2% 5.4% 4.7%

YPF YPF U 29.71 11.00 -63.0% 29.7 11,684 2,265 11.4% -9.9% 1.7x 7.5x 6.1x 2.4x 2.0x 3.98 4.89 8.4% 7.7% 23.2%

E&P

HRT HRTP3 N BRL 0.95 BRL 3.20 236.8% 1.2 125 (78) -9.7% 9.1% 0.2x n.a. n.a. n.a. n.a. (0.10) (0.12) 0.0% 0.0% -4.5%

QGEP QGEP3 N BRL 7.97 BRL 14.00 75.7% 3.6 937 (6) -5.1% -18.5% 0.8x 65.2x 6.0x 7.8x 3.6x 0.05 0.59 0.0% 0.0% 1.2%

Chemicals

Alpek ALPEKA.MX U MXN 22.31 MXN 23.00 3.1% 4.0 3,613 739 -1.8% -24.9% 1.9x 20.1x 14.4x 7.7x 6.4x 0.08 0.12 2.8% 2.8% 9.3%

Braskem BRKM5 O BRL 17.61 BRL 25.00 42.0% 19.2 5,959 6,924 7.7% -12.4% 1.6x 11.4x 9.7x 5.4x 5.0x 0.68 0.80 0.0% 0.0% 14.3%

Mexichem MEXCHEM.MX N MXN 45.46 MXN 58.00 27.6% 14.4 7,299 767 7.0% -15.8% 2.1x 21.0x 18.3x 8.2x 7.4x 0.17 0.19 1.2% 1.4% 10.1%

Gas Utilities

Ienova IENOVA.MX O MXN 66.01 MXN 71.00 7.6% 5.8 5,824 366 13.8% 26.5% 2.5x 68.0x 107.4x 23.4x 20.1x 0.07 0.05 2.6% 2.7% 3.7%

13.8%

12.2%

11.4%

7.7%

7.1%

7.0%

3.9%

3.0%

2.6%

1.5%

1.3%

-1.8%

-5.1%

-9.7%

Ienova

Petrobras

YPF

Braskem

Ibovespa

Mexichem

Mexbol

IPSA

Brazilian Real

Chilean Peso

Mexican Peso

Alpek

QGEP

HRT

26.5%

9.1%

4.3%

0.7%

-0.4%

-3.9%

-5.2%

-6.2%

-6.9%

-9.9%

-12.4%

-15.8%

-18.5%

-24.9%

Ienova

HRT

Brazilian Real

Ibovespa

Mexican Peso

IPSA

Chilean Peso

Petrobras

Mexbol

YPF

Braskem

Mexichem

QGEP

Alpek

84,267

11,684

7,299

5,959

5,824

3,613

937

125

Petrobras

YPF

Mexichem

Braskem

Ienova

Alpek

QGEP

HRT

288.4

29.7

19.2

14.4

5.8

4.0

3.6

1.2

Petrobras

YPF

Braskem

Mexichem

Ienova

Alpek

QGEP

HRT

61

30 March 2014

Latest sector news & trends to watch

BAK: R$1.2bn Q4 results slight disappointed the market, and rationing fears significantly

impacted the share price.

PBR: Q4 results were poor, and there was little in the Strategic Plan to urge investors to

buy, in our view. But the share price is reaching value levels that are difficult to ignore.

QGEP: Delays in equipment contracting for Carcará delayed its most important trigger.

The shares were actually down despite good results in BS-4 flowrates due to profit taking.

YPF: Argentine govt deal with Repsol, neutral Q4 results, strong Peso depreciation

LatAm Oil, Gas & Petrochemicals – Sector Trends and Stock Calls

BAK’s strong fall / PBR upgrade to Neutral / Alpek downgrade to Underperform/ Mexichem downgrade to Neutral

Source: Credit Suisse Research, Petrobras

Alpek. Trading at 9.0x 14’ EV/Ebitda. We believe that the current oversupply situation in Asia on the Polyester chain will not change in the next two years and will keep the company's growth under potential..

YPF. The deal of the Argentine Government with Repsol removes an overhang, but Argentine macro and FX risks are more evident now, and the share price is already back at pre-expropriation levels.

QGEP. Manati + cash + Carcara/BS-4 at book = R$11/sh. Shares screen value at R$8.5. But we think investors need to be patient to realize such value, since BS-4 is challenging and Carcará is now a mid-2015 event. We see QGEP in value trap territory for 2014.

Braskem. Braskem is down 20% YTD mostly on rationing fears and high electricity costs. Even on a bear case scenario if a Rationing occurs, therefore reducing demand, we see a cheap stock at c.5.0x EV/EBITDA, ahead of a strong, and possibly all-time high Q1. We think fears of a rationing impact are overrated as Braskem has portfolio flexibility (locked-in Energy costs, PVC consumes most of the Energy but generates little EBITDA, possiblity of exports) .

Top Long Idea - Braskem

HRT. Shares are below R$1.0/sh, and company will deliver R$1.0/sh of cash by year end, is selling R$1.26/sh of assets, and there is no cash-burn from 2014 onwards. Management now needs to deliver on asset sales and cash preservation.

IENOVA. The company trades at similar Ebitda multiple vs U.S. peers (13.7x '15). By entering partnerships where IENova doesn't consolidate numbers, it can lever at an efficient 70/30 debt/equity ratio and enlarge its investment firepower to US$1.3bn. We remain positive on the company on the side that it has proven to be a defensive stock amidst market volatility while offering high-quality exposure to the Mx energy infra sector.

Long ideas

Value traps / Expensive stocks

Petrobras. With PBR being a potentially 6.0x PE stock on earnings that include a BRL depreciation to 2.60x and only 10% price increase in the enxt two years, we upgraded to Neutral on valuation, despite still uncertain macro. We like the long PN, short ON spread.

Braskem significantly impacted by Energy Rationing fears

UGPA. Valuation levels look stretched even under strong operational assumptions, but we believe the high-quality theme in Brazil can still persist in 2014, making Ultra a risky Underweight with few clear business risks in sight.

14

15

16

17

18

19

20

21

22

01 Nov 13 27 Nov 13 23 Dec 13 18 Jan 14 13 Feb 14 11 Mar 14

Share

price

(R

$/s

h)

Braskem down c.20% YTD and

on weak Q4 + rationing fears.

Attractive entry point?

Ultrapar: Q4 results showed strong 20% growth (as usual), but did not beat

consensus, a ‘dangerous’ thing in a high-multiple stock such as Ultra.

Mexichem. Mexichem trades at 9.7x ‘14 EV/Ebitda, in line with large US/Europe-based peers and has a similar growth profile, but it has a notably lower ROIC of 11% vs. 17%. Mexichem’s Fluorine chain has been significantly impacted by the collapse in refrigerant gas prices driven by greater globally available supply coming from China We continue to see room for disappointment into 2014 and maintain a cautious view on the shares in the short term.

62

30 March 2014


30 March 2014

FOTO

LatAm Pulp & Paper

Viccenzo Paternostro



Latin America Pulp & Paper Team

64

30 March 2014

LatAm Pulp & Paper – Data Summary




Close

Target

Price

Upside


1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Pulp & Paper

Fibria FIBR3 N BRL 24.64 BRL 29.00 17.7% 14.7 6,038 2,842 0.6% -6.9% 1.0x 38.3x 28.7x 7.9x 7.8x 0.28 0.38 0.0% 0.0% 2.7%

Suzano SUZB5 O BRL 8.23 BRL 12.00 45.8% 25.0 3,330 3,336 -5.0% -6.9% 0.9x 11.4x 9.0x 6.8x 6.1x 0.32 0.41 2.2% 2.8% 8.0%

Klabin KLBN4 O BRL 2.35 BRL 3.60 53.2% 1.0 3,477 1,831 3.6% 1.0% 1.9x 27.8x 19.7x 7.7x 6.9x 0.04 0.05 0.9% 2.5% 6.8%

Copec COP.SN N CLP 7,100 CLP 8,400 18.3% 6.4 16,695 3,912 -3.3% 0.9% 1.5x 11.2x 10.0x 7.3x 6.8x 1.15 1.29 5.8% 6.5% 13.3%

CMPC CAR.SN O CLP 1,254 CLP 2,374 89.4% 6.0 5,385 4,110 -6.2% -2.5% 0.6x 12.7x 6.9x 8.9x 6.2x 0.18 0.33 3.9% 10.9% 4.6%

Building Materials

Duratex DTEX3.SA O BRL 11.68 BRL 17.27 47.9% 8.5 3,126 495 7.1% -6.4% 1.7x 13.8x 12.8x 7.3x 6.7x 0.37 0.40 3.6% 3.9% 12.5%

7.1%

7.1%

3.9%

3.6%

3.0%

2.6%

1.5%

1.3%

0.6%

-3.3%

-5.0%

-6.2%

Duratex

Ibovespa

Mexbol

Klabin

IPSA

Brazilian Real

Chilean Peso

Mexican Peso

Fibria

Copec

Suzano

CMPC

4.3%

1.0%

0.9%

0.7%

-0.4%

-2.5%

-3.9%

-5.2%

-6.4%

-6.9%

-6.9%

-6.9%

Brazilian Real

Klabin

Copec

Ibovespa

Mexican Peso

CMPC

IPSA

Chilean Peso

Duratex

Fibria

Mexbol

Suzano

16,694.9

6,038.0

5,385.4

3,477.3

3,329.6

3,126.3

Copec

Fibria

CMPC

Klabin

Suzano

Duratex

25.0

14.7

8.5

6.4

6.0

1.0

Suzano

Fibria

Duratex

Copec

CMPC

Klabin

65

30 March 2014

LatAm Pulp & Paper – Sector Trends

Hardwood pulp market has short-term momentum; Packaging paper and wood panel have long term fundamentals.

Prices have decreased since June-2013 (from USD821/t to current ~USD760/t).

The start-up of Suzano-MA in

Dec/13 and the imminent start-up of Montes del Plata mill should pressure hardwood pulp price down

A depreciated BRL (2.4/USD) and still high pulp prices support earnings momentum in 1H2014.

Packaging paper demand in Brazil remains strong (+4% y/y in 2013)

Companies have announced paperboard price increases of ~13% effective Nov-13.

Despite new capacities, wood panel price has remained flat at attractive level, which means that demand has been strong mainly because of government incentives (Minha Casa Melhor program)

However, we still see some pressure on hardwood pulp prices in 2H2014 mainly due to additional supply from Suzano-MA and Montes del Plata. Our

LT price is USD 720/t, which is the price that remunerates the cost of capital of a pulp mill in Brazil, the marginal producer.

Risks are: capacities shutdown and conversion to dissolving pulp to support prices because of a balanced SD.

SD is likely to remain tight because of few expansion projects announced, while demand should continue growing at ~4-5% y/y.

We expect demand growth to continue because of rising consumer income together with housing deficit in Brazil.

There are few new expansion projects planned to start up in 2014-15 period.

Chinese and European demand

Start up of new capacities

Hardwood pulp prices

FX Rate

Cost of Debt (high leverage of companies)

Domestic consumption

Packaging paper sales

Packaging paper prices

New capacities/shutdowns

Recycled paper prices

Consumption

Real estate market

Consumer/Housing Credit

Wood panel prices

Resign costs

0

15

30

45

60

75

0

1

2

3

Jan-03 Mar-07 May-11

Thousa

nds

Hardwood Inventories

Inventories

D-of-S Hardwood

Average

2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 700

750

800

850

900

950

839 827

792

734

833

863 887

932

Avg. realized price – Wood division, Duratex (R$/ m3)

Short-Term View (1H2014) Mid/L-T View (2H2014-2016) Sector Drivers Charts

Hard

wo

od

Pu

lp

Packag

ing

Pap

er

Wo

od

Panel

470

520

570

620

670

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13

631

770

200

400

600

800

1000

Nov-02 Nov-07 Nov-12

FOEXBHKP (USD/t)

66

30 March 2014

LatAm Pulp & Paper – Long/Short Ideas

Source: Company data, Bloomberg, Credit Suisse estimates, Price as of September 27

Pure player Eucalyptus pulp producer

80% own land vs. 20% leased/partners

Diversified sales (42% Europe, 23% Asia, 25% N. America and 10% Other)

Integrated producer of wood products and building materials in Brazil

~80% own land vs. ~20% leased/ partnerships; ~90% domestic sales, ~10% exports

Capacity: MDF:1.75Mn m3, MDP: 1.78Mn m3, Hardboard:195k m3, sanitary wares:12.56mn items, metal fittings:18.98mn items, electronic showers:1.5mn items

Strengths: (i) Strong position in LatAm paper market, (ii) Integrated player

Risks: (i) Lower Pulp prices, (ii) Execution challenges

Strengths: (i) Pure pulp producer, (ii) Low cost-producer

Risks: (i) Lower pulp prices, (ii) Negative decision to Tax liability case, (iii) High leverage

Strengths: (i) More stable cash flow (fuel distribution) (ii) diversified operation

Risks: (i) Lower pulp prices, (ii) Lower GDP growth in Chile

Strengths: (i) Further expansions (organic + M&A) and government incentives, (ii) Resilient wood panels prices and building materials in domestic market

Risks: (i) Potential pressure on prices due to strong fiercer competition, (ii) Labor inflation

(i) Increase in panel prices. (ii) Short term momentum

due to recent price hikes.

(iii) Depreciation of BRL reduces competition with imports.

(i) Results showing improvement of capacity utilization

(ii) Definition on Montes Del Plata and Vale do Corisco Project

(i) Final decision on Tax liability case

(ii) A plan/event to ease its current debt

Focused on Eucalyptus Pulp (100%) with 100% own land

Important player in fuel distribution sector in Chile (~60% market share)

Other assets include: fishing, energy and mining

Integrated P&P player – sales of wood, pulp and paper products

95% own land

Diversified sales - Paper products focused on domestic market while pulp and wood exposed to global market

(i) Results showing improvement of capacity utilization

(ii) Definition on Guaiba project

Integrated Pulp&Paper producer (Eucalyptus pulp, paperboard, coated and uncoated P&W paper)

Exports represent ~50% of revenues

Pulp capacity: 1.9mn ton (3.4 after Maranhao start up)

Paper capacity: 1.3mn ton

Strengths: (i) Strong position in domestic paper market, (ii) Low cost in pulp production, (iii) cost-cutting initiatives

Risks: (i) Lower pulp prices, (ii) High leverage, (iii) Digitalization

(i) Cost-reduction plan to deliver higher margins

(ii) Maranhão start up (iii) Depreciation of BRL

Business Model Strengths / Risks Catalysts Profitability/

Returns 2014E Valuation

Pre

fere

nce

Rating: NEUTRAL

TP: Ch$8,400 (21.3% Upside)


P/E’14: 11.3x

Rating: OUTPERFORM

TP: R$17 (41% Upside)


P/E’14: 12.2x

Rating: OUTPERFORM

TP: R$12 (28% Upside)


P/E’14: 11.1x

Rating: OUTPERFORM

TP: Ch$2,374 (84.8% Upside)


P/E’14: 13.4x

Rating: NEUTRAL

TP: R$29 (7.4% Upside)


P/E’14: 35.7x

EBITDA Margin: 12%

Net Margin: 6%

ROE: 13%

ROIC: 16%

EBITDA Margin: 30%

Net Margin: 14%

ROE: 10%

ROIC: 13%

EBITDA Margin: 34%

Net Margin: 12%

ROE: 8%

ROIC: 6%

EBITDA Margin: 40%

Net Margin: 6%

ROE: 3%

ROIC: 4%

EBITDA Margin: 18%

Net Margin: 7%

ROE: 5%

ROIC: 4%

Integrated player focused on paper (coated board, corrugated box and industrial bags) and wood logs in the Brazilian market.

~80% own land vs. ~20% leased/partnerships.

76% domestic sales, 24% exports.

Industrial Capacity: wood logs: 2,500m3/y, Kraftliner: 1,000kt/y, c.board: 750kt/y, corrugated box: ~600kt/y, industrial bags: 150kt/y.

Strengths: (i) Further margin improvement due to a cost-reduction plan implemented and government incentives, (ii) Resilient paper prices in domestic market

Risks: (i) Potential increase in paper imports, (ii) Finding a partner for its expansion project, (iii) BNDES divestment

EBITDA Margin: 34%

Net Margin: 10%

ROE: 6.8%

ROIC: 6.2%

Rating: OUTPERFORM

TP: R$3.6/sh or R$18/unit (50% Upside)


Adjusted P/E’14: 17.7x

To

p L

on

g Id

ea

To

p S

ho

rt

Ide

a

(i) Continuation of margin expansion (price hikes + integrated business model)

(ii) Confirmation of expansion projects at decent IRR

(iii) Potential improvements in corporate governance

http://www.klabin.com.br/pt-br/home/default.aspx

30 March 2014

FOTO

LatAm Real Estate

Nicole Hirakawa




Luis Stacchini



Latin America Properties Team

Maria Madrazo


68

30 March 2014

LatAm Real Estate – Data Summary




Close

Target

Price

Upside


1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E

P / FFO EV / EBITDA FFO Div. Yield

Brazilian Mall Operators

BR Malls BRML3 O BRL 18.40 BRL 26.50 44.0% 25.2 3,749 1,655 3.3% 12.8% 1.1x 16.3x 13.6x 11.8x 10.4x 229 275 2.9% 3.5%

Multiplan MULT3 O BRL 47.75 BRL 67.00 40.3% 16.1 3,982 585 5.7% 0.0% 2.3x 18.2x 16.3x 14.2x 12.5x 218 245 2.3% 2.5%

Iguatemi IGTA3 O BRL 20.93 BRL 29.00 38.6% 5.2 1,635 202 -0.1% -1.9% 1.7x 12.5x 10.3x 10.7x 8.9x 131 159 2.3% 2.7%

Aliansce ALSC3 N BRL 17.96 BRL 24.50 36.4% 2.7 1,263 766 1.4% 2.5% 1.9x 18.3x 13.8x 12.6x 11.1x 69 92 0.7% 0.7%

Sonae Sierra SSBR3 N BRL 18.20 BRL 31.50 73.1% 1.4 615 206 17.0% 4.3% 0.7x 10.0x 8.6x 7.4x 6.4x 62 72 6.7% 8.3%

Brazilian Offices and Industrial

Properties

BR Properties BRPR3 N BRL 17.90 BRL 19.50 8.9% 17.6 2,476 1,046 10.6% 0.5% 0.9x 26.4x 22.1x 13.7x 14.1x 94 112 17.7% 3.6%

Mexican Industrial Properties

Vesta VESTA.MX O MXN 25.88 MXN 32.00 23.6% 4.2 994 278 5.5% 13.4% 1.3x 32.0x 18.9x 21.9x 14.7x 31 53 0.0% 0.0%

Fibras

Fibra Uno FUNO11.MX R MXN 40.94 R R 28.2 5,662 R -1.0% -1.3% R R R R R R R R R

Fibra Hotel FIHO12.MX O MXN 21.92 MXN 27.00 23.2% 1.0 837 36 4.6% 6.6% 1.1x 21.1x 12.5x 16.6x 10.4x 40 67 4.8% 5.9%

Fibra Inn FINN13.MX O MXN 17.21 MXN 23.00 33.6% 0.6 340 164 5.6% 1.0% 1.0x 18.3x 14.3x 17.9x 14.3x 19 24 4.8% 5.3%

Fibra

Macquarie FIBRAMQ O MXN 24.45 MXN 26.00 6.3% 4.1 1,130 896 11.4% -1.7% 0.9x 14.7x 13.0x 16.5x 15.1x 77 87 6.3% 6.9%

Terrafina TERRA13.MX O MXN 26.17 MXN 31.00 18.5% 4.8 762 879 5.2% 15.1% 1.0x 11.5x 10.0x 16.6x 15.0x 66 76 7.4% 6.2%

17.0% 11.4%

10.6% 7.1%

5.7% 5.6% 5.5%

5.2% 4.6% 3.9% 3.3% 3.0% 2.6%

1.5% 1.4% 1.3%

-0.1% -1.0%

Sonae SierraFibra Macquarie

BR PropertiesIbovespaMultiplanFibra Inn

VestaTerrafina

Fibra HotelMexbol

BR MallsIPSA

Brazilian RealChilean Peso

AliansceMexican Peso

IguatemiFibra Uno

15.1%

13.4%

12.8% 6.6%

4.3%

4.3% 2.5%

1.0% 0.7%

0.5% 0.0%

-0.4%

-1.3% -1.7%

-1.9% -3.9%

-5.2%

-6.9%

TerrafinaVesta

BR MallsFibra Hotel

Sonae SierraBrazilian Real

AliansceFibra InnIbovespa

BR PropertiesMultiplan

Mexican PesoFibra Uno

Fibra MacquarieIguatemi

IPSAChilean Peso

Mexbol

5,662

3,982

3,749

2,476

1,635

1,263

1,130

994

837

762

615

340

Fibra Uno

Multiplan

BR Malls

BR Properties

Iguatemi

Aliansce

Fibra Macquarie

Vesta

Fibra Hotel

Terrafina

Sonae Sierra

Fibra Inn

28.2

25.2

17.6

16.1

5.2

4.8

4.2

4.1

2.7

1.4

1.0

0.6

Fibra Uno

BR Malls

BR Properties

Multiplan

Iguatemi

Terrafina

Vesta

Fibra Macquarie

Aliansce

Sonae Sierra

Fibra Hotel

Fibra Inn

69

30 March 2014

Brazilian Real Estate – Sector Trends

Theme #1: Office Properties – Tougher Times Looming

São Paulo: The inventory of office space could increase by 55% until 2015. As a consequence,

we expect a tougher market environment in the short term, with bargaining power shifting to tenant’s hands. Pricing dynamics should be more challenging, following project deliveries. We believe that vacancy rates could reach 20% 2015, even considering a healthy net absorption

pace.

Rio de Janeiro: Even though the scheduled deliveries are posed to set a 70% increase in the

cities’ current office inventory, we see a far greater risk of delays. Similarly to Sao Paulo, vacancies are expected to increase, but in a less representative way. The bulk of the pipeline is expected to be back-end loaded and there is a higher risk of a shift in the deliveries’ curve.

Theme #2: Malls Sector – Will Growth Cease?

After sequential years of increasing growth, the malls sector should experience deceleration in

the delivery pace of Greenfields over the next years, as obvious locations look already well served and recently developed Greenfields have faced commercialization issues and fiercer competition. Cities such as Londrina, Sorocaba, Ribeirão Preto and Goiânia already look

oversupplied, while the next generation of assets is being announced in smaller and less penetrated cities, which require more caution and research.

Companies’ performance and SSS have been resilient even in face of the current macro environment and we expect the mall operators in our coverage to deliver SSS growth of 7-8% in the fourth quarter. 2013 marked the peak of mall development in Brazil and deceleration is

expected in the following years with 26 malls opening in 2014 and 22 in 2015.

2.8 4.3

1.5

2011 2012-2015 2015

1.2 2.1

0.9

2011 2012-2015 2015

Rio de Janeiro (million sqm of GLA)

Sao Paulo (million sqm of GLA)

Source: Jones Lang LaSalle, Cushman & Wakefield, Abrasce, BR Malls Day Presentation, Credit Suisse Research

Forecasted Inventory Growth of Office Space (Includes 2012)

Greenfield Delivery Pace Should Moderate Going Forward

Inventory New Supply

13

16 16

22

27

38

26

22

2008 2009 2010 2011 2012 2013 2014e 2015e

462

92

176

257

524

20

0 0 - 50 50 - 100 100 - 150 150 - 200 250+

GLA/'000 Inhabitants Classes

Number of Greenfield deliveries

65% of the New Greenfields will be Placed in cities with less than

150 sqm/’000 inhabitants

Announced Greenfields Pipeline (sqm)

70

30 March 2014

Mexican Real Estate – Sector Trends

Theme #1: It’s not all about interest rates in the case of Fibras

Amidst interest rate concerns, 2014 is expected to be a challenging year for Fibras given

their strong correlation with interest rates. However, we believe it's not all about interest

rates. Sector fundamentals should offset the interest rate effect, supported by healthy

real estate markets with important growth potential. Key points to watch out for are:

– Dividend yields and cap rate spreads to risk-free rates – companies that offer

wider spreads indicating a discount to market comps are better protected against

increasing interest rates; we highlight Terrafina.

– Real estate markets will benefit from overall economic growth backed by the

structural reforms and expanding manufacturing industry; this applies to the

sector overall.

– Accretive growth – Capitalized companies can improve trading cap rates by

deploying cash at attractive valuations and improving operational margins backed

by higher occupancy and rents; we highlight Vesta.

Theme #2: Stable and Healthy Real Estate Market

Fourth quarter’13 earnings results showed an upward trend in same store rents and

occupancy proof of a healthy market.

Further supporting the markets’ stability are the constant announcements of

investments in new manufacturing plants in Mexico. We believe this should boost

demand not only for industrial space but also increase the interest in office, and retail

space.

Regarding the lodging sector we maintain a positive outlook for 2014. When

economic recovery becomes more evident as the year progresses, the sector’s ability

to swiftly reflect the change in trends through better occupancy levels and higher

average daily rates should positively impact Fibra Inn and Fibra Hotel’s performance.


Vesta & Fibras’ Index Performance vs. MXN 10-Year Gov't Bond Yields

Fibras Index

MXN 10YR

GOVT BOND

VESTA* MM

Equity

Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14

Fibras’ Dividend Yields & Trading Cap Rates (2014) vs. MXN 10-Year Sovereign Bond Yields (inflation-linked) (Spreads in Basis Points)

471

370

212 208

152

440 434 432

389

256

Terrafina Fibra Macquarie Fibra Hotel Fibra Inn Fibra Uno

Dividend yield Implied cap rate

71

30 March 2014

LatAm Properties – Long/Short Ideas

Long ideas


fInvestment Case: With the company’s main focus being the development of Built-to Suit facilities, we believe Vesta should outperform vs. Fibra peers amidst interest rate concerns,

since it does not rely on acquisitions to continue its expansion strategy, allowing for attractive development returns.

Additionally, Vesta has proven to be the benchmark of the gold standard in industrial facilities in Mexico for the auto and aerospace industries with top notch international brands like NISSAN turning to the company for their investments in the country. Therefore, we are

confident that Vesta is in a strong position to benefit from the manufacturing boom in the Bajio region. We reiterate our outperform rating and emphasize the attractive 19% upside to our P$32TP.

Top Long Idea – Vesta

BR Malls: Last year’s sell-off was overdone. For the first time since 2010, BRML is trading at a discount to peers at 14x P/FFO 2014. In our view, the shares offer an interesting entry point, trading at a 330 bps spread to NTNB-24. We like BR Malls’ undemanding valuation coupled with its efficient operations. In the future, lower growth should open room for higher dividends.

Multiplan: Has the most premium portfolio within our coverage, which could prove specially valuable in the context of retail sales accommodation. We believe there is growth potential coming from the ramp up from the three assets inaugurated in 4Q12 as well as the recent inaugurations of RibeiraoShopping expansions and ParkShopping Maceio. In addition, Morumbi Corporate leasing seems to be evolving nicely.

Iguatemi: After successfully delivering three new assets in 2H13 (Ribeirao, Esplanada and Platinum Outlet), we see a major de-risking of the IGTA portfolio and a reasonable growth locked-in. Shares have a significant discount to peers, trading at 12x ‘14 P/FFO, which we find unwarranted given the company’s premium portfolio and interesting growth prospects.

Weaker Momentum

Fibra Macquarie: During 4Q13 the company was able to renew leases equivalent to100Ksqm of GLA in the northern region. This a clear evidence of the North's recovery, an important indicator for FibraMq as ~80% of it GLA is located in these states. However, we see the 700bps q/q decrease in the company’s retention rate observed during 4Q13 (58% rate) as an indication that FibraMQ is in a transitional stage after having formed its own property management team.

Fibra Hotel: The company’s discipline when acquiring assets has resulted in attractive cap-rates for investors. We are confident of the company’s ability to continue to capture investment opportunities in the lodging sector derived by the energy reform and the expansion of the manufacturing sector

Aliansce: Valuation does not look specially compelling and the recent batch of inaugurated assets’ ramp up should be challenging. Additionally, poorly performing asset expansions come to sum up: one inaugurated in 2013 and another is on the way for 2014. The company has an increased exposure to the middle-low income segment and has several malls in maturation period, increasing the risk of a higher hit in case retail sales decelerate further.

BR Properties: The industrial transaction should reduce companies’ indebtedness level, generate hefty dividends and speed up of the share buyback program that could bring some support to the shares. However, the company will exit the industrial segment, which in our view, presents better prospects compared to the SP office market. Following the transaction, SP office market will account for 35% of companies revenues (vs. 25% currently) and thus, vacancy rates should escalate, given that the industrial segment had the lowest vacancy within the portfolio (~3%), compared with 10.5% for the totality of the assets. Risk of controlling shareholders’ (BTG Pactual) stake coming to the market exists, which could incentivize the current overhang’s continuity. Besides this, vacancy of new office greenfields should be higher and leasing spreads have been closing (mainly in Sao Paulo).

Sonae Sierra: For those who can afford to hold a long-term view on the space and can cope with lower ADTV stories, we believe Sonae Sierra could become an interesting play, at some point. The company is currently trading below replacement cost at R$ 5,400 EV/sqm and at a ~20% discount to peers in terms of 2015 EV/Ebitda.

Fibra Inn: We welcome the company’s continued efforts to enhance transparency while we believe Fibra Inn’s growth guidance and overall market perspectives support our bullish view on the name. At current levels Fibra Inn offers an attractive 31% upside, considering our P$23 TP.

Terrafina: The integration of the recently the acquired KIMCO portfolio seems to be running smoothly, proof of the company’s experienced management and industry knowledge. Additionally, according to our estimates, Terrafina is currently offering a 7.3% dividend yield for 2014, this being the highest when compared to its peers.

http://www.vesta.com.mx/index.php

http://www.terrafina.mx/

72

30 March 2014


30 March 2014

FOTO

LatAm Retailing


Latin America Retail Team

Tobias Stingelin, CFA


Antonio González, CFA


Alexandre Amson


Ignacio Ochoa


Armando Perez


74

30 March 2014

LatAm Retailing – Data Summary



Close

Target

Price

Upside

(%) ADTV

Mkt

Cap Net Debt

1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Brazilian Retail

B2W BTOW3 N BRL 26.64 BRL 20.00 -24.9% 3.3 1,874 29 18.9% 82.3% 2.4x n.a. 54.4x 8.1x 5.9x (0.01) 0.22 0.0% 0.0% -0.1%

Lojas

Americanas LAME4 N BRL 16.10 BRL 19.00 18.0% 11.8 6,331 1,890 13.5% 7.6% 10.4x 28.9x 24.3x 9.4x 7.8x 0.25 0.29 0.9% 1.1% 36.0%

Brazilian Consumer Goods

Arezzo ARZZ3 N BRL 25.59 BRL 34.00 32.9% 1.9 1,003

(56) -1.2% -10.1% 4.4x 20.0x 17.2x 13.2x 11.5x 0.57 0.66 2.4% 2.8% 22.1%

Hering HGTX3 O BRL 27.05 BRL 32.00 18.3% 13.2 1,970

(58) 10.2% -5.5% 4.8x 15.6x 13.6x 10.9x 9.5x 0.77 0.88 3.4% 3.7% 30.9%

Hypermarcas HYPE3 O BRL 16.70 BRL 19.00 13.8% 14.6 4,670 1,035 13.4% -1.1% 1.6x 26.7x 20.7x 13.9x 12.4x 0.28 0.36 1.2% 1.9% 6.1%

Lojas Renner LREN3 N BRL 62.20 BRL 65.00 4.5% 17.0 3,464 165 9.0% 6.8% 5.1x 21.2x 19.2x 10.3x 9.0x 1.30 1.44 1.8% 1.9% 24.2%

Marisa AMAR3 U BRL 14.38 BRL 16.00 11.3% 1.6 1,180 218 5.5% -19.2% 2.4x 18.4x 13.7x 7.6x 6.2x 0.35 0.46 0.7% 1.4% 13.3%

Natura NATU3 N BRL 36.87 BRL 42.00 13.9% 23.0 7,034 709 8.0% -4.0% 15.6x 19.8x 17.5x 11.2x 10.1x 0.82 0.93 4.9% 5.2% 78.6%

Restoque LLIS3 N BRL 6.01 BRL 7.00 16.5% 0.5 458 99 0.4% 4.7% 4.9x 27.3x 21.4x 8.1x 7.4x 0.10 0.12 0.2% 1.1% 18.0%

Technos TECN3 N BRL 15.15 BRL 20.00 32.0% 0.8 520 45 8.1% -2.3% 2.7x 17.1x 13.1x 13.0x 10.8x 0.39 0.51 1.5% 1.9% 15.6%

Mexican Retail

Walmex WALMEXV N MXN 30.98 MXN 32.00 3.3% 49.9 41,700 (1,631) 11.2% -9.9% 3.6x 22.3x 19.5x 12.1x 10.6x 0.11 0.12 5.0% 3.9% 16.3%

Chedraui CHDRAUIB U MXN 38.00 MXN 40.00 5.3% 4.7 2,800 434 5.3% -17.9% 1.6x 21.1x 17.6x 8.6x 7.7x 0.14 0.16 0.0% 0.7% 7.4%

Soriana SORIANAB N MXN 38.73 MXN 48.00 23.9% 2.6 5,329 109 5.0% -17.1% 1.5x 17.2x 14.5x 8.7x 7.5x 0.17 0.20 0.9% 0.0% 8.5%

Grupo Sanborns GSNBRB1.MX O MXN 23.11 MXN 37.00 60.1% 1.4 4,207 (360) -3.2% -16.7% 1.9x 13.6x 11.9x 7.4x 6.3x 0.13 0.15 3.7% 3.8% 13.7%

Grupo Famsa GFAMSAA O MXN 17.96 MXN 31.00 72.6% 0.7 603 1,154 -1.8% -24.2% 0.7x 9.9x 8.0x 8.2x 7.3x 0.14 0.17 0.0% 0.0% 6.9%

Andean Retail

Cencosud SA CEN.SN N CLP 1,775 CLP 3,000 69.0% 9.1 9,012 2,851 6.0% -10.9% 1.1x 15.0x 10.5x 8.1x 6.6x 0.21 0.31 1.6% 2.1% 7.3%

Falabella FAL.SN N CLP 4,700 CLP 5,100 8.5% 9.9 20,625 3,430 4.0% -5.2% 2.5x 18.4x 15.7x 11.3x 9.9x 0.46 0.54 0.0% 0.0% 13.9%

Ripley RIP.SN N CLP 332 CLP 640 92.8% 0.8 1,163 1,110 -1.4% -17.0% 0.7x 7.6x 6.0x 8.0x 6.7x 0.08 0.10 3.4% 4.1% 9.5%

Almacenes Exito IMI.CN O CLP 28,980 CLP 34,000 17.3% 2.8 6,721 (1,710) 15.6% -3.0% 1.6x 20.0x 16.9x 7.1x 6.2x 0.75 0.89 1.0% 1.1% 8.1%

Restaurants

Alsea ALSEA O MXN 47.45 MXN 55.00 15.9% 5.5 2,495 602 17.5% 15.9% 3.4x 37.1x 27.1x 13.8x 10.1x 0.10 0.13 0.0% 1.0% 9.2%

Arcos Dorados ARCO N 10.00 12.70 27.0% 9.2 2,095 708 11.5% -17.0% 2.3x 13.5x 12.7x 6.4x 5.8x 0.74 0.79 2.4% 2.4% 17.1%

IMC IMCH3 O BRL 16.75 BRL 31.00 85.1% 1.7 626 35 10.6% -4.1% 1.6x 12.7x 8.8x 6.2x 5.3x 0.58 0.84 2.0% 2.8% 12.2%

Mexican Healthcare

Genomma Lab LABB U MXN 32.56 MXN 25.00 -23.2% 15.3 2,621 297 4.6% -11.4% 3.1x 16.1x 12.6x 10.0x 8.0x 0.15 0.20 0.0% 0.0% 19.5%

75

30 March 2014

LatAm Retailing – Data Summary



18.9%

17.5%

15.6%

13.5%

13.4%

11.5%

11.2%

10.6%

10.2%

9.0%

8.1%

8.0%

7.1%

6.0%

5.5%

5.3%

5.0%

4.6%

4.0%

3.9%

3.0%

2.6%

1.5%

1.3%

0.4%

-1.2%

-1.4%

-1.8%

-3.2%

B2W

Alsea

Almacenes Exito

Lojas Americanas

Hypermarcas

Arcos Dorados

Walmex

IMC

Hering

Lojas Renner

Technos

Natura

Ibovespa

Cencosud SA

Marisa

Chedraui

Soriana

Genomma Lab

Falabella

Mexbol

IPSA

Brazilian Real

Chilean Peso

Mexican Peso

Restoque

Arezzo

Ripley

Grupo Famsa

Grupo Sanborns

82.3%

15.9%

7.6%

6.8%

4.7%

4.3%

0.7%

-0.4%

-1.1%

-2.3%

-3.0%

-3.9%

-4.0%

-4.1%

-5.2%

-5.2%

-5.5%

-6.9%

-9.9%

-10.1%

-10.9%

-11.4%

-16.7%

-17.0%

-17.0%

-17.1%

-17.9%

-19.2%

-24.2%

B2W

Alsea

Lojas Americanas

Lojas Renner

Restoque

Brazilian Real

Ibovespa

Mexican Peso

Hypermarcas

Technos

Almacenes Exito

IPSA

Natura

IMC

Chilean Peso

Falabella

Hering

Mexbol

Walmex

Arezzo

Cencosud SA

Genomma Lab

Grupo Sanborns

Ripley

Arcos Dorados

Soriana

Chedraui

Marisa

Grupo Famsa

41,700.4

20,625.0

9,012.4

7,033.7

6,721.0

6,330.6

5,329.2

4,669.8

4,207.5

3,464.1

2,800.3

2,620.6

2,494.9

2,095.3

1,969.8

1,873.8

1,180.3

1,162.8

1,003.4

626.0

603.4

520.3

457.8

Walmex

Falabella

Cencosud SA

Natura

Almacenes Exito

Lojas Americanas

Soriana

Hypermarcas

Grupo Sanborns

Lojas Renner

Chedraui

Genomma Lab

Alsea

Arcos Dorados

Hering

B2W

Marisa

Ripley

Arezzo

IMC

Grupo Famsa

Technos

Restoque

49.9

23.0

17.0

15.3

14.6

13.2

11.8

9.9

9.2

9.1

5.5

4.7

3.3

2.8

2.6

1.9

1.7

1.6

1.4

0.8

0.8

0.7

0.5

Walmex

Natura

Lojas Renner

Genomma Lab

Hypermarcas

Hering

Lojas…

Falabella

Arcos Dorados

Cencosud SA

Alsea

Chedraui

B2W

Almacenes Exito

Soriana

Arezzo

IMC

Marisa

Grupo Sanborns

Ripley

Technos

Grupo Famsa

Restoque

76

30 March 2014

Brazil Retail – Sector Trends

The economic environment is clearly looking more challenging than it has been in the last few years. On top of (1) the continuation of modest economic growth, (2) the currency

depreciated (-15% yoy), (3) interest rates are still going up (+350-bps yoy), (4) the Soccer World Cup will be held, (5) there are elections and, (6) even the “tail” risk of energy

rationing. So far (Jan-Feb 2014), the impact of all these issues has been relatively muted on demand, as sales appear to be evolving “in line with expectations” and, the most recently

released consumption indicators have been better than expected [real wages +4.0 yoy (Feb-14), formal job creation of impressive 261,000 (Feb-14), real retail sales +6.2% yoy

(Jan-14)]. However, we note that seasonality might be impacting comps, as Carnival was in February in 2013 vs. in March in 2014 (= expect lower sales in 2014). Moreover, we

might still be in the early process of a gradual deterioration on some consumption indicators. In any case, the “stress” anticipated by the Street has yet to be reflected in the real

economy, which might ultimately happen or not. In light of the looming risks, which are several, we suggest prudence in the stock picking process and recommend investor’s to focus

on either relatively simple non-discretionary stories or alternatively on very cheap cases.

Keep it Simple as the Environment Remains Unclear

Source: Credit Suisse Research Unfavorable Favorable

MACRO

Modest overall GDP growth (1.8% 14e / 2.5% 15e)

Household consumption decelerating, but still holding up relatively well (1.9% 14e / 1.9% 15e).

Retail sales volume growth already slowing down since February 2013, but still running at 4.3% yoy (LTM).

Secular growth opportunities (i.e. formalization, consolidation,

regionalization, social mobility, etc) largely intact.

CONCERNS

Long-term growth outlook under the same status quo/ elections.

Currency volatility (from “tailwind” to “headwind”).

Increased competitive pressures.

Soccer World Cup

Potential energy rationing.

RECOMMENDATION

Do you need to be invested in the sector? If yes, keep it simple!!!!!

Ideally non-discretionary sales mix.

Best in class management with proven track-record.

No restructuring (turnarounds).

Earnings growth largely dependent on initiatives under management control.

Strong balance sheet.

Cheap valuation & share liquidity.

Low productivity, high labor costs, bottlenecks in infrastructure.

Uncertainty about economic policy, mainly for 2015.

Top line (macro/competition) and margin (FX/labor) pressures.

More holidays, specifically during 1H14.

Street protests?

Still record low unemployment rates (5.1%), albeit expected to increase (+30-bps yoy).

Real wage growth (+4.0%) accelerating (so far).

Food inflation (4.5% LTM) contained, albeit accelerating recently.

Debt service relatively stable (21.6%)

Feedback from corporates generally constructive.

Consumer (107.1) and business confidence (99.5) declining fast.

Food inflation accelerating.

Consumer credit growth decelerating.

Interest rates (+350-bps yoy) still increasing.

FX volatility (-15% yoy).

77

30 March 2014


Still record low unemployment rates, although CS expects a 30-bps yoy in 2014.

Real wage bill growth well below recent peaks, but still growing 2.2% in the last twelve months (CS 2014e 2.7%).

Consumer and business confidence declining fast; business index already in bear territory (does not bode well for future job creation).

Recent real sales indicators (IBGE and Cielo) better than expected still, although comps are not truly comparable (Carnival).

Record Low Unemployment (Still), Growing Real Wage Bill , Lower Confidence

Sources: IBGE, FGV, Cielo and Credit Suisse Research

12-Month Real Wage Bill Still Growing 2.2% 12-Monthly year-on-year change (%)

Cielo Retail Index

(ICVA)

PMC

-2%

0%

2%

4%

6%

8%

10%

12%


Cielo Retail Index (ICVA) PMC

Consumer Confidence Constantly Receding Year-on-year change, %

Real Sales Growth Year-on-year change, %

Still Record Low Unemployment Rates Year-on-year change, %

5.1

5.0

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14

New PNAD PME PME Seasonally Adj.

95

100

105

110

115

120

125

130

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14

Industry Confidence Index (ICI)

Consumer Confidence Index (ICC)

Optimism

Pessimism

Employed

Population

Average Real

Wage

Real Total Wage

Bill

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

78

30 March 2014


Unlike 2012-2013, the sector is no longer perceived as the only “safe haven” and there seems to be other attractive alternatives.

Higher interest rates (SELIC and future DIs), country risk (CDS) and looming risks justify higher discount rates (= lower multiples).

Forward multiple compressed to ca. 18.8x from 22.2x one year ago, but past multiples are less relevant in our view.

The sector is definitively cheaper, but we are still far from bargains across the board.

Valuation: Cheaper, But Few Bargains

Sources: Company reports, Bloomberg and Credit Suisse Research

Brazil 5Y CDS and Future Rates (DI) Forward P/E Market cap. weighted 12-month forward P/E

Average

+ 1 St. Dev.

- 1 St. Dev.

15x

17x

19x

21x

23x

25x

27x

Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14

P/E and Free Cash Flow Yield P/E vs Earnings Growth

8.5

9

9.5

10

10.5

11

11.5

12

12.5

13

13.5

100

120

140

160

180

200

220

240


DI

CD

S

CDS DI

0

5

10

15

20

25

30

P/E

2015E

Net Earnings Growth (CAGR 2013-15E)

Natura

Renner

Arezzo

Lame (Cons.)

Hering

Hypermarcas

Marisa

15%

Average

Average

0% 20% 40% 60% 80% 100% 120%

29%

Via Varejo Technos

11.6 13.6 14.9 16.0 17.2

18.4

18.6 17.3

23.6

23.8

n.m.

9.5%

4.5%

2.1% 2.4%

4.6%

0.5%

5.6%

3.0%

0.5%

8.6%

-4.0%

Via

Var

ejo

Hering

Tech

nos

Mar

isa

Nat

ura

Loja

s R

enner

Hyp

erm

arca

s

Are

zzo

Loja

sA

meric

anas

Rest

oque

B2W

P/E FCF yield

79

30 March 2014

LatAm Retail – Long/Short Ideas

Top Long Idea – Lojas Americanas

Investment case: we maintain LAME as our top pick, as it remains one of the fastest growing retailers in Brazil, delivering top line growth, margin expansion, WC improvements and high ROIC (30%+ at B&M). Flawless execution on ambitious expansion program (doubled # of stores in 4 years). Very diversified, almost non-discretionary sales mix (no category represents more than 10% of sales). Over 60% of sales are on cash (i.e. limited credit exposure). The proposed recapitalization of B2W is a game changer, buying the company time to keep growing while at the same time allowing B2W to narrow its losses and work towards FCF generation.

Valuation: 2014e P/E of 23.6x vs historical average of 29.2x. Premium to sector compressed to 25% vs. an historical avg. of over 35% for no reason. Post-recapitalization of B2W, LAME’s B&M business is implicitly trading at 18.6x 2014e P/E (17.7x 2015e). 18% upside to our target price.

Risks to our call: higher interest rates, faster top line growth at B2W comes at the expense of faster than projected cash burn and worse earnings, negatively impacting LAME.

Better Momentum

Weaker momentum

Hypermarcas: Compelling combination of exposure to two less discretionary growing businesses, solid free cash flow generation (5.6%) and gradually improving ROIC. We expect leverage to decrease to 2.4x from 2.9x on lower Capex, divestitures and no FX volatility. Cash flow growth largely in the hands of management.

Arezzo: premium company with still high returns that remains with several ongoing projects to drive long-term growth (Anacapri, e-commerce, organic store openings, the new Arezzo store model, Schutz in the international market, etc). Management has been responding fast to the recent strong sales deceleration (some of it self-inflicted) and while consensus earnings are more reasonable now, in our view, reigniting growth is crucial. Stock already de-rated massively, but trading at 2014e 17.3x P/E is still not at bargain (limited discount to Renner for instance).


Le Lis Blanc: continues with its process of focusing on cash flow generation, while SSS is expected to gradually stabilize (probably not necessarily before the end of 1H2014 on some tough comps related to changes in its calendar). The clean-up process of old inventory is also still taking place, and the company is working to increase product assortment and consequently reduce stock-outs. The company is on the right strategy; however, we need to see sales stabilizing, and then to resume growth on a sustainable manner before turning more positive.

Natura: warming up to the story on valuation (17.2x 2014e P/E ) and expectations that market share erosion will finally stop due to a combination of factors (innovation, higher promotional activity, channel segmentation, new means of payment, etc). 1Q14 sales might be good already. Rumors about potential changes on taxation are an “overhang”.

Top Short Idea – Marisa

Investment case: company faced a rough year, particularly during 2H13 on the back of a sales deceleration and a major retail margin compression. We do believe that SSS and margins (+176-bps GM and +210-bps EM) will improve during 2014, which might create momentum, but we expect this to be a gradual process and even under this scenario valuation does not yet look compelling. Moreover, the more “risky” credit business continues to represent nearly 40% of EBITDA in our projections. We still believe that consensus earnings expectations might have to come down. While consensus earnings projections have been coming down finally, we are still 9% below consensus.

Valuation: 2014e P/E of 16.0x vs. 13.6x for Hering (13% discount to Renner looks low as well).

Risks to our call: very limited share liquidity. Indications that profitability is effectively improving could created momentum, which combined with limited share liquidity could result in a short squeeze. This is a risky short, mainly considering that shares are down another 23% YTD (worst performing stock in the sector).

Hering: there is no clear short-term catalyst and Hering has clearly become a show me story. We believe, however, that the initiatives being implemented will gradually restore growth, valuation remains undemanding (13.6x 2014e P/E), the FCF and the dividend yields remain decent (3.9%), balance sheet rock solid and expectations are low.

Via Varejo: stock is close to the IPO price despite delivering strong 4Q13 earnings and indications that the margin expansion in 2014 might be even higher than anticipated. Sales mix is discretionary, but earnings growth is largely in the hands of management on the back of cost cutting and efficiency gains. Cheapest stock in our coverage [2014e P/E 11.6x, highest FCF yield 9.5%, 26% ROIC and solid earnings growth 22%]

Better Momentum

B2W: proposed recapitalization is a game changer, as it will fix the company’s balance sheet for a few years and also provide flexibility to keep growing while working towards cash flow generation. Competitive environment remains tough, however, growth has been restored, investments in logistics, IT and customer service are building a competitive advantage. Financially, margins and WC are finally improving. Street will start to focus on growth and stock is trading at 0.9x P/Sales.

Renner: continues to execute superbly as evidenced by a strong set of results. Renner is also uniquely positioned to keep growing market share in a very fragmented market, not only with its traditional Renner format, but also with Camicado, e-commerce and eventually Youcom. Moreover, the company's aggressive investments in logistics for the implementation of push & pull should bear fruit from 2015 onwards, positively impacting margins. Premium company at premium valuation (2014e 18.4x P/E)

IMC: the acquisition of Margaritaville should conclude IMC’s inorganic expansion phase. From now on, management will focus on execution: (1) integration of the recently acquired assets, (2) operating performance improvement (3) organic growth expansion (i.e. 26 new stores in airports to be opened before the World Cup) and, (4) enhancing cash flow generation. Despite the weak performance YTD, IMC’s stocks begun to rebound in the last month. Execution will be a key driver going forward.

http://www.google.com.br/imgres?imgurl=http://lojaseofertas.net/wp-content/uploads/2010/12/lojas-renner.jpg&imgrefurl=http://lojaseofertas.net/category/lojas-renner&usg=__71IFvJSobakRI4hMxtWceWuC_ws=&h=189&w=593&sz=56&hl=pt-br&start=3&zoom=1&tbnid=v-k7hqkeuTqVSM:&tbnh=43&tbnw=135&ei=bkNsTYK6LpS5twfe_6XoAw&prev=/images?q=lojas+renner&um=1&hl=pt-br&sa=N&tbs=isch:1&um=1&itbs=1

http://blogs.advfn.com/wp-content/blogs.dir/00/2011/03/IMC-logo.png

80

30 March 2014

LatAm Retail ex Brazil: Sector Trends

Theme #1: The new normal? Mexican grocery retailers have guided for slower selling

space growth going forward; SSS are still on the weak side in 1H14.

Several grocery retailers (Chedraui, Comerci, Soriana) have published their 2014 guidance, with

low single-digit growth in selling space being the new norm across the sector. We expect only

Walmex to reach mid-single digit growth this year. This compares to past 3-year average of

7.5% y/y growth for the industry. We expect department stores to reach mid-to-high single digit

selling space growth in 2014.

We believe SSS will recover across the industry in 2H14, as several factors remain too weak

(consumer credit, low economic growth, slow pace of job creation) for sales to significantly pick

up in 1H14. Additionally, sales in 2H14 will be aided in part by easier comps.

Theme #2: Alsea, our top pick in the consumer sector in LatAm.

Though Alsea has rallied 43% in the past 12 months, we still see 18% upside from current

levels, since:

– We consider the VIPS acquisition to be a strategic milestone, as it gives Alsea’s integrated

business model a new dimension and gives Alsea the flexibility to close / convert locations

that aren't profitable (we estimate ~30 stores), while clearing bottlenecks in store openings

for other brands.

– We think Alsea will continue to post interesting growth (29% CAGR in 2013–16 Ebitda),

while achieving strong cash flow generation (4% FCF yield in 2015). Alsea has the best

combination of accelerating EPS growth and positive FCF yield across our coverage

universe.

Theme #3: Andean Retail. Sluggish consumer environment to persist; focus on omni-

channel investments to deliver attractive growth and returns... in the long term.

The Andean consumer remains sluggish, with weak performance by Andean retailers in several

territories (negative SSS in Colombia, slight increase in Chile, etc.) Falabella is continuously

reporting the strongest SSS results in the region.

Andean retailers (mainly Exito and Falabella) have mentioned their intentions to accelerate their

focus (both in capex terms and in allocation of management’s time) on developing strong omni-

channel platforms, which we deem positive in the long term.

In the meantime, we think these omni-channel investments will reduce ROICs across the region,

as companies gain scale and traction.

Slower growth and sluggish SSS remain in place; expect a weak 1H14. Alsea is our top pick in the consumer sector.

LatAm Retailers PEG: 2013 P/E, 2013–16 EPS CAGR

Slowing Growth in Selling Space of Grocery Retailers

Source: Company data, Credit Suisse estimates, Bloomberg (graph 2 adjusted for acquisitions)

Walmex

Soriana

Chedraui

Comerci

Exito

Cencosud

Falabella

-5%

0%

5%

10%

15%

20%

2009 2010 2011 2012 2013 2014e

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

Walmex Exito Chedraui Liverpool Alsea Falabella Soriana Cencosud

Average

81

30 March 2014

LatAm Retail ex Brazil: Long/Short Ideas

Top Long Idea – Alsea Top Short Idea - Soriana

Investment case: We think Alsea provides an interesting combo for investors: It is an

attractive growth story (29% CAGR for 2013–16 Ebitda), while generating strong FCF (4% FCF yield in 2015, when VIPS is fully integrated).

After leverage goes down, we think Alsea has a strong track record in allocating capital (e.g., deployed Dominos Pizza's CF to build one of the most attractive brand portfolios across LatAm).

Valuation: Alsea is currently trading at 36.5x 2014 P/E, above the Mexican retailers average of 20x. However due to its 25% CAGR for 2013-16 EPS (including the expected dilution

from the VIPS acquisition), Alsea is trading at 1.8x PEG, in line with Mexican retailers’1.8x average.

Investment case: Soriana has been underperforming peers in terms of SSS for the past few

months, causing operating deleverage which will potentially impact margins. We believe Soriana is having problems with its fresh product section (an important traffic driver), and it is

being less aggressive than peers in pricing, which is negatively affecting Soriana’s sales.

Soriana has declined 22% in value in the past 12 months, however its trailing P/E has adjusted only 9% (to 21.3x) in the same period.

Valuation: The company is trading at 17.3x 2014 P/E, a 12% discount to peers. However we believe there is a potential risk for an earnings downgrade, especially after Soriana

reports weak 1Q14 results.

Long Ideas Weaker Momentum

Sanborns: Although it fell considerably short of its expansion guidance in 2013 (grew

3.2% vs. 9.5% original expectation), management has guided for a selling space pick-

up of 9.5% this year. The company is one of the cheapest LatAm retailers, trading at

14.9x 2014 P/E, vs. 20x for the LatAm average).

Walmex: We recently upgraded Walmex to Neutral, as the company will deliver a record FCF yield this year (5%, driven in part by the sale of VIPS). As such, we view limited downside from current levels. However, we believe Walmex is in the early stages of the transition from being a growth stock to a yield play, with the subsequent de-rating this transition implies (similar to what happened with Wal-Mart Inc. ten years ago when its Ebitda multiple declined by more than 50%, despite an increasing FCF yield).

Ripley: SSS remain weak, and we expect a low single-digit increase in both Chile and Peru in 4Q13, while Ebitda margin should be impacted by the Colombian operation. This will be the first time Ripley reports after the merger of the financial subsidiaries.

Chedraui: The company has seen a recovery in SSS in the past few months (low prices strategy yielding positive results). However we think there is a potential risk for an earnings downgrade on the back of the tax reform (effective tax rate hike from 22% to 32%). Additionally, we think Chedraui trading at a 5% 2014 P/E premium to Walmex is unwarranted.

Exito: We expect flat SSS performance in 2014, after a decrease of 0.8% y/y in 2013. Additionally, there is a potential risk of margin pressure, as Exito integrates its Super Inter acquisition (2%–3% Ebitda margin, vs. Exito’s 8.7% in 2013). Nevertheless, complementary businesses should partially or fully offset the expected negative margin impact of the Super Inter integration.


Falabella: Falabella posted the strongest SSS in the region for 4Q13; however, several gray areas remain. Cash flow from operations decreased 27% y/y, credit card margin is now normalized, and the company revised its expansion plan for 2014–2017 (increasing capex by 35% and reducing selling space growth by 17%).

Cencosud: The operating outlook for Cencosud has worsened on the back of weaker Brazilian results in 4Q13, as well as an increasingly challenging outlook in Argentina (YTD FX depreciation of 23%). We expect flat Ebitda margin and flat EPS (+13% net income) in 4Q13, due to the equity issuance in March 2013. Additionally, Cencosud failed to lower its leverage (Net debt / Ebitda at 3.6x as of 3Q13) after the Itau deal fell through. High interest expenses will pressure EPS growth in 2014.

GFamsa: After a disappointing 4Q13 (results impacted by unfavorable weather in the US, a decline in personal loans, and deteriorating working capital), we expect Famsa’s shares to continue to struggle, in spite of a 31% YTD decline. Genomma Lab: Growth in Mexico has slowed down, partly due to the weak

economy and management’s strategy to renegotiate receivables with retailers. Recently, Genomma Lab acquired Mexico’s third largest distributor which typically have higher cash needs. We think ROIC will deteriorate as the company integrates this business .

Short Ideas

http://www.google.com/url?q=http://virket.com/2011/07/12/genomma-lab-definicion-de-publicidad-y-mercadotecnia-exitosa/&sa=U&ei=AHo0U_u8H86L0QGI3ICgDw&ved=0CC4Q9QEwAA&usg=AFQjCNGa6mav25SxKNDNIfDvj4CsxmYY4g

82

30 March 2014


30 March 2014

FOTO

LatAm Technology, Media & Telecom


Latin America Telecom, Media & Technology Team

Andrew T. Campbell, CFA


Daniel Federle


Andrei Sabah


84

30 March 2014

LatAm Technology, Media & Telecom – Data Summary




Close

Target

Price

Upside

(%) ADTV

Mkt

Cap Net Debt

1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Telecom

America Movil AMX N 19.31 25.00 29.5% 202.9 67,317 33,393 -2.8% -17.4% 3.8x 11.1x 12.6x 5.2x 5.4x 1.73 1.53 1.8% 1.7% 34.1%

NII Holdings NIHD U 1.03 3.00 191.3% 14.9 178 4,735 -60.0% -62.5% 0.3x n.a. n.a. 11.2x 7.5x (3.98) (2.74) 0.0% 0.0% #####

Axtel AXTELCPO N MXN 4.43 MXN 5.00 12.9% 1.0 424 514 -5.3% -5.3% 0.8x n.a. n.a. 4.1x 3.9x (0.05) (0.04) 0.0% 0.0% -12.6%

Telefônica Brasil VIVT4 N BRL 46.95 BRL 48.00 2.2% 21.6 22,237 781 12.4% 13.3% 1.4x 16.7x 16.1x 5.5x 5.3x 1.25 1.29 5.9% 5.9% 8.7%

TIM

Participações TIMP3 N BRL 11.70 BRL 9.50 -18.8% 19.7 12,513 (175) 3.4% -0.9% 2.1x 21.6x 21.0x 5.9x 5.6x 0.24 0.25 2.2% 3.6% 9.8%

Oi OIBR4 R BRL 3.18 R R 17.8 2,307 R -10.3% -7.5% R R R R R R R R R R

Entel ENT.SN O CLP 6,740 CLP 8,000 18.7% 3.2 2,884 1,914 4.9% -5.5% 1.6x 15.2x 12.8x 5.7x 5.2x 0.80 0.96 3.2% 3.5% 10.6%

Media & Cable

Televisa TV O 32.61 36.00 10.4% 118.4 20,356 3,158 13.3% 7.8% 3.1x 30.3x 27.3x 10.2x 9.3x 1.08 1.20 0.0% 0.0% 10.2%

TV Azteca AZTECACP O MXN 7.81 MXN 9.50 21.6% 2.1 1,845 77 5.1% 11.6% 1.5x 12.8x 12.7x 5.8x 5.7x 0.05 0.05 1.9% 2.1% 11.8%

Time For Fun SHOW3 N BRL 4.85 BRL 7.00 44.3% 0.3 150 (52) 10.7% -6.2% 1.0x 10.5x 11.6x 4.7x 5.3x 0.20 0.18 0.6% 4.7% 9.7%

Megacable MEGACPO N MXN 53.49 MXN 36.00 -32.7% 2.0 3,512 (161) 10.2% 21.1% 2.4x 20.8x 19.5x 8.5x 7.9x 0.20 0.21 1.6% 1.8% 11.5%

Technology

Linx LINX3 N BRL 45.86 BRL 44.00 -4.1% 3.3 945 (125) 5.0% 0.7% 3.8x 35.6x 29.9x 22.4x 18.9x 0.57 0.68 0.6% 1.7% 10.8%

Totvs TOTS3 O BRL 35.14 BRL 39.00 11.0% 10.3 2,541 (81) 14.5% 1.3% 5.6x 21.9x 19.1x 14.0x 12.5x 0.71 0.81 2.3% 3.7% 25.5%

Contax CTAX11 O BRL 17.35 BRL 26.00 49.9% 0.4 531 309 -11.2% -9.4% 3.4x 15.5x 13.1x 4.6x 4.3x 0.50 0.59 6.5% 7.3% 22.2%

Positivo POSI3 N BRL 2.51 BRL 6.00 139.0% 0.2 97 14 1.9% -8.6% 0.3x 3.2x 3.0x 1.9x 1.8x 0.34 0.37 10.5% 25.7% 10.2%

14.5% 13.3% 12.4% 10.7% 10.2% 7.1% 5.1% 5.0% 4.9% 3.9% 3.4% 3.0% 2.6% 1.9% 1.5% 1.3%

-2.8% -5.3%

-10.3% -11.2%

-60.0%

TotvsTelevisa

Telefônica BrasilTime For Fun

MegacableIbovespa

TV AztecaLinx

EntelMexbol

TIM ParticipaçõesIPSA

Brazilian RealPositivo

Chilean PesoMexican PesoAmerica Movil

AxtelOi

ContaxNII Holdings

21.1% 13.3% 11.6%

7.8% 4.3% 1.3% 0.7% 0.7%

-0.4% -0.9% -3.9% -5.2% -5.3% -5.5% -6.2% -6.9% -7.5% -8.6% -9.4%

-17.4% -62.5%

MegacableTelefônica Brasil

TV AztecaTelevisa

Brazilian RealTotvsLinx

IbovespaMexican Peso

TIM ParticipaçõesIPSA

Chilean PesoAxtelEntel

Time For FunMexbol

OiPositivoContax

America MovilNII Holdings

67,317

22,237

20,356

12,513

3,512

2,884

2,541

2,307

1,845

945

531

424

178

150

97

America Movil

Telefônica Brasil

Televisa

TIM Participações

Megacable

Entel

Totvs

Oi

TV Azteca

Linx

Contax

Axtel

NII Holdings

Time For Fun

Positivo

202.9

118.4

21.6

19.7

17.8

14.9

10.3

3.3

3.2

2.1

2.0

1.0

0.4

0.3

0.2

America Movil

Televisa

Telefônica Brasil

TIM Participações

Oi

NII Holdings

Totvs

Linx

Entel

TV Azteca

Megacable

Axtel

Contax

Time For Fun

Positivo

85

30 March 2014

LatAm Technology, Media & Telecom – Sector Trends

Theme #1: Regulators in the spotlight

In Mexico, the telecom & media reform is up and running. IFT has determined AMX preponderant in telecom and Televisa in broadcasting, while imposing sets specific regulatory measures for the two. Meanwhile, Congress is reviewing ‘secondary’ laws to complete the legal

overhaul, expected by April 30th. Regulatory overhang still pending as infrastructure leasing-type measures will take several months to implement.

In Brazil, we believe the risk of harsh sanctions associated with poor service quality has subsided. On the other hand, MTRs were reduced by a hefty 25% this year and another 33.3% will be cut next year.

In Colombia, regulation of postpaid contracts has banned ‘minimum duration clauses’, while

AMX / TEF were exposed to additional regulatory controls on service quality, in order to avoid a return of spectrum and network infrastructure in the 850 MHz concession.

Theme #2: Increasing visibility on 4G rollout across LatAm

With wireless voice revenue growth having stagnated, focus shifts to postpaid due to high data growth potential and market saturation in prepaid. Vivo leads in Brazil, AMX in Mexico, and Entel

in Chile.

Governments auctioning more 4G spectrum to stimulate investment and widespread internet access. Brazil, Chile, Colombia and Peru have auctioned spectrum in the 2.5-2.6 GHz bands. Chile recently auctioned the prime 700 MHz band.

In Brazil, Anatel is striving to publish bidding rules in the coming months for the 700MHz spectrum auction (4G) with the intention of holding the auction in August. We estimate the auction will generate aggregate proceeds from R$8bn to R$12bn given its premium quality and

indications that the government will not saddle these licenses with so many burdens related to

coverage and service quality.

Theme #3: Possible in-market telco consolidation driving performance in Brazil

The possibility of a bid from a consortium of local wireless players for TIM seems to have

pushed out to latter part of this year. Our view is that a bid is unlikely earlier than Brazilian

elections in October and a CADE approval could take as long as eleven months.

Execution risks associated with such a transaction are considerable, in our view. Our interaction with regulators and government officials indicates a strong government preference for an

outside buyer for TIM that preserves the current market structure. In December, the anti-trust

regulator, CADE, took a hard line against TEF, implying resistance to additional market concentration.

Finding the best house on a bad street – we like Totvs, Entel and Televisa

LatAm wireless market – mkt. share vs. Ebitda margin, 2013

Top Long Chart – Totvs Ebitda Margin (%)


23.4 23.2

23.8

26.5 26.2

27.1 27.6

25.9 26.1

25.0

25.5

23.4

24.7

25.3

26.1 25.7

1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14E 3Q14E

TEF Mx

Vivo TEF Cl

TEF Ar

TEF Col

TEF Pe

AMX Mx

AMX Bz

AMX Cl

AMX Ar

AMX Col AMX Pe

NIHD Mx

NIHD Bz

NIHD Ar

NIHD Pe

Millicom SA

Millicom CA

TIM

Oi

Entel TEO

y = 0.5137x + 0.1303

R² = 0.5758

0%

10%

20%

30%

40%

50%

60%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Eb

itd

a m

arg

in

Market share

86

30 March 2014

Long ideas

LatAm Technology, Media & Telecom – Long Ideas

Top Long Idea - Totvs

Contax: Company is building earnings momentum backed by its cost-cutting efforts that should restore its profitability. Although Contax has already delivered a strong 15.9%

Ebitda margin in 4Q13, pointing that the initiative is gaining traction, the restructuring hasn’t translated into price action yet (-9.4% YTD).

Entel: Attractive risk / return profile as the market wrote-off investments in Peru and MTR cut has been defined. Leading role in postpaid / data in Chile; swift data growth

supporting ARPU. FCF pressed by high capex cycle for LTE / Peru plus negative Peru Ebitda through 2015, but expectations set at a low reference point, in our view.

Earnings momentum and inexpensive valuation suggest an attractive entry-point to a high-quality name and underpin our upbeat view on the company.

We expect 1Q14 results to become a catalyst for the stock, pointing to profitability recovery on the grounds of more effective deployment of commercial efforts, renewed vigilance on costs and

resumption of scale benefits. Besides, Totvs is also likely to report healthy top-line growth boosted by a weak q/q comparison base.

Consensus EPS forecasts have been substantially lowered for 2014 and 2015, denoting disappointments related to Ebitda margins (-2pp. y/y). We believe further downward revisions are no

longer necessary, as conservative premises are embedded in consensus estimates. We expect a 25.5% Ebitda margin for 2014, while management is vocal about its 27–30% guidance, implying an increase from the abnormal level of 24.9% posted last year.

TV Azteca: Large valuation gap vs. Televisa could narrow (6x vs. 10x EV/Ebitda 2014, respectively), despite lower trading liquidity and corporate governance concerns. Broadcasting business should recover in 2014 due to higher govt. spending, an easier base effect and the World Cup.

Televisa: Favourable operating outlook with healthy pay TV growth expected this year. The Mexico economy is weak, but TV benefits from exposure to the USA Hispanic

broadcasting market through royalties and equity in Univision. Potential net beneficiary from telco & media reform as possible gains at Iusacell outweigh lost revenues from must-offer and other company-specific measures. Valuation has beneffited from re-rating of content peers in the USA.

Axtel: Financial restructuring throughout 2013 addressed balance sheet issues. Company now transitioning its business model towards fiber-to-the-home, IPTV and IT services, but sluggish revenues from traditional telephony services exert pressure on overall growth. Beneficiary from telco & media reform through must-offer and LLU.


Positivo: Company focus on profitability entailed wider margins and hasn’t impaired its growth, as Positivo actually gained market share last year. The company has already released a strong backlog of sales to the government for 2014, which, along with the corporate channel, fostered by its direct sales strategy, should drive its growth this year.

Although in the long run we believe the company will bear fruits from its smartphones’ initiative, the retail segment is likely to continue at a slower pace in 2013, given the slowdown of retail sales in Brazil and the global trend of decreasing computer sales.

Megacable: Pure-play in Mexico pay TV benefits from growing penetration, increasing sale of 3-play packages and VAS. High Ebitda margin should be sustained by cost discipline, benefits from must-offer and the ramp-up of its own fiber backbone network. Potential beneficiary from cable market consolidation.

TIM: We believe TIM should continue trading mostly on M&A expectations and operating results should not be a trigger for now. With a substantial premium due to possible M&A already embedded in TIM’s share price, we would look for a more attractive entry point in the shares closer to our target price (organic TP) however we do not see as prudent a short positioning now given the huge potential upside in the case of a sale of TIM. On the operating side, our estimates are slightly lower than consensus.

Pre

fere

nce

87

30 March 2014

Top Short Idea - Vivo

LatAm Technology, Media & Telecom – Short Ideas

Linx: We believe Linx maintains impressive top line growth in a weak macro environment because: (i) structural shifts within retail are favoring Linx’s clients, including expansion of shopping malls and franchises, and, (ii) Linx’s sales are more related to the long-term expansion plans of retailers rather than short-term volatility in their

sales. However, our main issue with the stock is valuation as strong share performance has erased upside.

Challenging scenario in the mobile and fixed-line segments should lead to subdued top line growth of 2% coupled with a small margin expansion. Shares are trading at above-average

valuation that we do not see as warranted.

Mobile-line should face headwinds from sharper MTR cut, increasing market maturity and possible slower economic activity. If on the one hand those trends suggests ARPUs squeeze

over the year, company’s efforts to convert prepaid users into postpaid might lead to ARPUs stabilization.

Despite increasing efforts to increase its FTTH footprint, we do not believe this initiative may bring substantial results still in 2014.

We believe Capex is likely to increase to 18% of net revenues in 2014 (vs. 16% in 2013), impairing cash generation on the back of ongoing requirements to accommodate data

growth, cost inflation, regulatory capex and competition.

Short ideas

NII Holdings: Small-scale wireless company, trying to narrow the technological gap vs. competitors by launching 3G. High opex from transition to 3G and tough

competitive environment have driven down Ebitda significantly. This, in addition to high capex cycle, have put pressure on FCF and led to skyrocketing leverage of 11x

net debt / Ebitda. “Project Accelerate” to stimulate growth in 2014 could imply swifter pace of cash burn. Main risk to shorting would be divestment of either of its key

operations, Brazil or Mexico, in our view.

AMX: Regulatory overhang from telco & media reform in Mexico still pending on the shares, as LLU and infrastructure leasing rules will take months to implement.

Other measures have been worse than expected, like asymmetric MTR potentially dropping to zero, elimination of DLD and national roaming, and imposed equalization

of on- / off-net rates. Authorization to enter pay TV likely to delay 2 years at least. Regulatory concerns also affect Brazil, Colombia and Chile. Slow growth as revenue

mix is skewed towards wireless/fixed voice. Structurally lower margins are likely to stay due to smartphone subsidies and rising contribution of pay TV in the revenue

mix. Uncertainties on M&A strategy in Europe. On the other hand, progress in the consolidation of the Brazilian wireless market would be the main risk to shorting

AMX, we believe.


T4F: 2014 has the potential for a recovery with a more active events calendar, facilitated by the company’s recent push into the festivals segment. However, we

believe that this welcomed initiative, coupled with a more benign market structure, will not materialize in 1Q14 yet. Other concerns are FX depreciation, possible weak

performance in theater / performing arts and possible risk to sponsorship revenues in weak macro environment. Pre

fere

nce

88

30 March 2014


30 March 2014

FOTO

LatAm Transportation


Latin America Infrastructure and Transportation Team

Bruno Savaris, CFA


Felipe Vinagre


90

30 March 2014

LatAm Infrastructure and Transportation – Data Summary

Source: Bloomberg, Credit Suisse Research. All figures in USD unless otherwise stated. Price performance change in USD.


Close

Target

Price

Upside

(%) ADTV

Mkt

Cap

Net

Debt

1 Month

Performance

YTD

Performance

14E

P/B

2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 14E


Brazilian Infrastructure

CCR CCRO3 O BRL 17.10 BRL 16.00 -6.4% 34.7 13,356 3,160 5.8% 0.5% 10.4x 23.0x 20.4x 10.1x 9.0x 0.33 0.37 3.9% 4.6% 45.2%

Ecorodovias ECOR3 O BRL 13.71 BRL 14.50 5.8% 9.6 3,389 1,045 9.9% -2.9% 3.5x 13.7x 15.8x 8.1x 7.1x 0.44 0.38 3.6% 3.2% 25.5%

Arteris ARTR3.SA N BRL 19.13 BRL 17.00 -11.1% 2.3 2,915 1,692 11.3% 4.9% 3.8x 17.1x 15.8x 7.4x 6.7x 0.49 0.53 2.9% 3.2% 22.2%

Santos Brasil STBP11 N BRL 17.07 BRL 30.00 75.7% 1.0 1,006 58 20.4% -4.4% 1.6x 13.1x 15.6x 5.7x 6.2x 0.58 0.48 3.8% 3.2% 12.0%

Wilson Sons WSON11 N BRL 26.60 BRL 36.00 35.3% 0.7 837 748 6.4% -14.0% 1.6x 10.7x 10.4x 7.6x 7.2x 1.10 1.13 9.3% 9.6% 14.9%

Mills MILS3 O BRL 27.47 BRL 34.00 23.8% 6.5 1,549 224 9.1% -13.0% 3.4x 19.9x 15.9x 9.6x 8.0x 0.61 0.77 1.3% 1.6% 17.1%

Airlines

Copa Holdings CPA O 135.67 181.00 33.4% 71.4 5,915 909 0.8% -14.7% 2.7x 12.5x 11.8x 10.5x 9.7x 10.85 11.50 2.8% 3.2% 21.8%

Gol Linhas Aéreas GOLL4 N BRL 10.79 BRL 12.00 11.2% 4.3 1,321 3,218 -2.5% 7.6% 5.8x n.a. 14.0x 11.7x 9.3x (0.22) 0.34 5.4% 0.0% -26.6%

Latam Airlines

Group LFL O 14.81 24.00 62.1% 7.9 8,080 11,637 -2.8% -9.2% 1.4x 20.7x 10.9x 9.0x 7.4x 0.72 1.36 1.0% 2.8% 6.8%

Loyalty Programs

Multiplus MPLU3 O BRL 25.60 BRL 37.00 44.5% 7.1 1,836 (271) -1.2% -9.0% 29.9x 13.7x 10.5x 5.7x 7.0x 0.83 1.08 7.3% 9.5% 218.4%

Smiles SMLE3 O BRL 36.50 BRL 39.00 6.8% 9.1 1,973 (363) 2.0% 17.4% 4.3x 20.1x 21.0x 20.8x 15.6x 0.80 0.77 5.0% 4.8% 21.2%


20.4%

11.3%

9.9%

9.1%

7.1%

6.4%

5.8%

3.9%

3.0%

2.6%

2.0%

1.5%

1.3%

0.8%

-1.2%

-2.5%

-2.8%

Santos Brasil

Arteris

Ecorodovias

Mills

Ibovespa

Wilson Sons

CCR

Mexbol

IPSA

Brazilian Real

Smiles

Chilean Peso

Mexican Peso

Copa Holdings

Multiplus

Gol Linhas Aéreas

Latam Airlines Group

17.4%

7.6%

4.9%

4.3%

0.7%

0.5%

-0.4%

-2.9%

-3.9%

-4.4%

-5.2%

-6.9%

-9.0%

-9.2%

-13.0%

-14.0%

-14.7%

Smiles

Gol Linhas Aéreas

Arteris

Brazilian Real

Ibovespa

CCR

Mexican Peso

Ecorodovias

IPSA

Santos Brasil

Chilean Peso

Mexbol

Multiplus


Mills

Wilson Sons

Copa Holdings

13,356.1

8,079.7

5,914.9

3,388.5

2,914.9

1,972.7

1,836.1

1,549.3

1,320.8

1,006.0

836.8

CCR


Copa Holdings

Ecorodovias

Arteris

Smiles

Multiplus

Mills

Gol Linhas Aéreas

Santos Brasil

Wilson Sons

71.4

34.7

9.6

9.1

7.9

7.1

6.5

4.3

2.3

1.0

0.7

Copa Holdings

CCR

Ecorodovias

Smiles

Latam Airlines…

Multiplus

Mills

Gol Linhas Aéreas

Arteris

Santos Brasil

Wilson Sons

91

30 March 2014

LatAm Infrastructure and Transportation – Sector Trends

Theme #1 (Top Long): Renting Shovels in a Gold Rush - Searching for Winners of the

Brazilian Infrastructure Cycle

The Brazilian Government has auctioned impressive ~R$50bn of transportation projects in

2013, among highways, airports and urban mobility assets. Just for comparison, we estimate

that a similar amount was auctioned between 2002 and 2012 (ten years).

With that in mind, it is important to say that the respective construction works should start more

significantly as of 2015, reaching its peak years between 2016 and 2019, as (i) highway

duplications must be fully delivered by the fifth year of concession and (ii) urban mobility works

are concentrated in first three years.

In this context, the clear-cut winners of said infrastructure boom, in our view, are the leading

service providers of the heavy construction chain as they do not rely on whether these projects

bring attractive returns. If the construction happens, that’s what matters.

In our coverage universe, we see Mills (MILS3) as the best positioned to surf that cycle, as the

leading equipment rental player, bringing high growth at attractive ROICs, amid a bear macro

environment for other sectors.

Theme #2 (Top Short): Worse than Expected Competition Pressure Impacting Santos

Brasil (STBP11)

In the past two years, the main discussion surrounding Santos Brasil investment thesis has

been how to assess the competition impact of Embraport and BTP in terms of market share

losses, tariff decreases and margin compression.

Both Embraport and BTP started-up during the 2H13 and their operational ramp-ups have

been faster than expected. Embrabort reached an impressive 15% share of container volumes

in the Santos Port, while BTP achieved 10%. Ecoporto (owned by ECOR), Libra (non-public)

and Santos Brasil all lost share in comparison to the 1H levels.

As such, we expect the negative operating momentum to persist for Santos Brasil, with volume

decreases, tariff decreases and margins compression in the upcoming 4Q13 results, likely

showing a deterioration in comparison to the already weak 3Q.

Top Long Chart – Brazilian Infrastructure Pipeline

Top Short Chart – Container Volumes Share (Santos Port)

Source: Smiles, Multiplus, OHL Mexico, Codesp, Credit Suisse Research

In number of container boxes

98 81

94 97 101 103 104 109 94

81 91 87 84

41

34

36 32 37 35 37 32

25 35

32 23 26

21

18

29 25 27 27

32 28

25 28 22

22 17

1 20

28 32 32

19 25

3

6 16 21

25 16 9

8

10 12 14 13

13

13

11

11 10

10 7


Tecon Santos

Libra

Ecoporto

Embraport

Brasil Terminais

Others

92

30 March 2014

Top Long Idea – Mills (MILS3) Top Short Idea – Santos Brasil (STBP11)

Investment case: Addressing infrastructure bottlenecks is key for Brazil to recover its

emerging status. The Government has auctioned more than R$50bn in new transportation

projects in 2013 and Mills, as the leading equipment rental company, is the clearest

winner, in our view.

Shares have been underperforming due to weak results on the Real Estate division in

2013. As the demand prospects hasn’t deteriorated, the deployed adjustments on the

supply side should be enough to normalize ROICs.

Valuation: Heavy construction and Rental should continue to push overall earnings growth

above 20% rates in the upcoming years, already assuming low growth for Real Estate.

Therefore, we see 17x P/E’ 14 as attractive.


Copa Holdings: Major underperformance driven by Venezuelan risks looks

exaggerated on a valuation perspective. Our sensitivity analysis shows that US$130/share is the worst case scenario, assuming all cash and operations in that country would disappear, without any aircraft relocation to

other markets. We believe that good fundamentals will persist corroborated by strong operating momentum during 1H14. For 2014, the focus on

increasing frequencies instead of adding new routes should imply in still higher-than-historical margins.


Investment case: The new entrants’ pressure is proving to be tougher than initially

expected. Embraport and BTP are ramping-up rapidly implying higher mix of transshipment

and cabotage for STBP (worse for margins). 1Q should still face hard 2013 comps and the

competition pressure should remain in the next two years, which support our cautions view

on STBP.

The short-term upside risk could come from a possible concession renewal of Tecon

Santos (main asset). The government has been vocal on its intention of announcing new

infrastructure investments which could catalyze said negotiation, specially considering the

elections context. Nonetheless, the renewal conditions are still rather unclear which

challenges a positive view.

Ecorodovias: After major underperformance due to weak non-road results

during 2013, we think valuation looks highly discounted to peers. Possible triggers could come from double-digit margins in the Logistics unit during

1Q14 coupled with resilient Ebitda in the port segment, despite the challenging competition scenario. Strong traffic should also help the road segment coupled with cash cost normalization.

LatAm Infrastructure and Transportation – Sector Trends

Smiles: Despite the strong outperformance since the IPO, we still see

room for upward revisions in consensus for 2014 besides the still strong

operating momentum driven by good margins and market share gains over Multiplus. All the focus on the possible short terms announcement of anticipated extraordinary dividends of up to R$1bn (capital reduction). On

valuation perspective, however, we don’t see significant upside potential.

Arteris: We believe the stock has been outperforming its peers based on an expected positive outcome regarding how compliant is the Arteris in relation to Novo Mercado rules (from Bovespa). Aside from this technical factor, we don’t find good upside potential to justify a positive stance on the name. We think that cost synergies of R$60mn /year to be achieved

by the new management looks priced in.

Wilson Sons: While Wilson Sons had been delivering its growth strategy since the IPO in 2007, one of its main businesses, namely container terminals, started to experience increasing competition in the south region of

Brazil, which brings downside potential to our numbers. Additionally, the

commercial challenge of fulfilling Salvador terminal after its recent expansion cannot be understated.

93

30 March 2014

LatAm Infrastructure and Transportation – Long/Short Ideas

Long ideas

Latam: After a major underperformance in 2013 and clear signs of

operational recovery in 2H13, we think LFL offers good upside potential and strong operating momentum. 2014 should bring further margin recoveries

pushed by Brazilian operations and Cargo stabilization.

Gol: Even though we think that current valuation is not a bargain as it

already embeds 2015 margins 4p.p. above 2013, we think there is a good sentiment over the stock which should be corroborated in the next monthly

traffic releases. The company has just published positive 4Q13 results and released a 2014 guidance which 0p.p. to 3p.p. margin expansion for 2014. Multiplus: In our view, the risk/reward is fairly reasonable, specially on a

relative basis to Smiles (~30% discount). Nonetheless, the next short term

trigger should be negative. Our sensitivity analysis shows that Gross Billings could decrease y/y in the 1Q14 due to a hard comp effect. We recall that

Itau deployed the ratio cut in February 28th, 2013 and gave a waver of one month for credit card members to transfer their points to Multiplus/Smiles

with the previous ratio. This implied in significant issuance in March (1Q13 hard comp).

CCR: Enjoys the highest credibility in terms of capital discipline, which supports the valuation premium to peers. Moreover, in 2013, it was able to add new projects to its portfolio including airports, subways and roads,

which, despite small acquisitions support the long-term growth thesis.

Finally, we see CCR as the best vehicle to surf the strong urban mobility pipeline which faces less competition and thus higher IRRs. On a short term perspective, however, there could the all time high level of capex execution

(new projects) coupled increasing interest rates could bring timid earnings growth.

94

30 March 2014


30 March 2014

FOTO

Latin America Equity Research Reports

96

30 March 2014

Key Latin America Equity Research Reports

23-Mar-14 Brazilian Banks - A Little Oasis in the Desert

20-Mar-14 BRAZIL EQUITY STRATEGY: What cost of equity should you be using now in your DCF models?

20-Mar-14 IENOVA: How far can it go? New TP at P$71/sh – Reiterate Outperform

16-Mar-14 LatAm Sugar&Ethanol: Light at the End of the Tunnel for Sugar Market

14-Mar-14 Alsea (new TP, MXN55 per share, 34% upside): From cash burn to cash generation. Top pick in Mexico consumer space

14-Mar-14 AMX (NEUTRAL): Mexico not the only market with regulatory issues; reducing target

12-Mar-14 TOTVS (TOTS3): After Trough, Valuation Should Prevail; Upgrading to Outperform

12-Mar-14 Localiza (RENT3) - Paying for Uncertain Growth 2 Years Forward

12-Mar-14 Mills (MILS3) - Real Estate 3% ROIC... Is It the Trough?

11-Mar-14 The Petrobras Handbook: An investor's guide to a unique oil company (120 pg-report). Upgrade to Neutral

11-Mar-14 Brazilian Utilities: Thinking About Rationing (Comprehensive Sector Report)

10-Mar-14 Televisa (OUTPERFORM): Preponderance rulings released; most bad news out of the way

10-Mar-14 AMX (NEUTRAL): Preponderance rulings released; devil's in the details?

9-Mar-14 Grupo Financiero Banorte (GFNORTEO.MX; U - TP P$84/share): The best is yet to come… not in 2014, hopefully in 2015

7-Mar-14 Santander Mexico (SANMEXB.MX; U – TP P$33/share): Consensus in wonderland, again

7-Mar-14 LatAm Banks: Myths and Maths of Bancarizaton in LatAm - How overstated is consumer credit growth potential in key LatAm markets?

6-Mar-14 Latam Beverages Chartbook - Volume 1: Downgrading Andina to NEUTRAL, reiterate Ambev as top pick

5-Mar-14 WALMEX Upgrade to Neutral - Play the (potential) macro recovery, but do not miss the structural changes

3-Mar-14 AMX (NEUTRAL): Secondary law may contain negative elements for AMX

28-Feb-14 Bancolombia (CIB): More Than Enough Reasons to Like it

27-Feb-14 Brazil Education - Who Said Education Wasn't Good In Brazil

27-Feb-14 Soquimich (SQM): SQM is not a Pure Potash Producer, Improving Lithium Market to be a Trigger

27-Feb-14 Hypermarcas (HYPE3) -- New Estimates; Still Outperform

25-Feb-14 Gentera (GENTERA.MX): Trimming forecasts; but still compelling

25-Feb-14 Cosan(CSAN3): One Less Thing to Worry About...

25-Feb-14 Latam M&M: Energy Rationing - Myths and Reality - What Can We Learn from 2001?

25-Feb-14 Televisa (OUTPERFORM): Investment case still intact; raising target to US$36/ADS from US$32

25-Feb-14 Hering (HGTX3) -- Simply too Cheap; Upgrading to Outperform

24-Feb-14 Lojas Renner (LREN3) -- Flawlessly Executing

24-Feb-14 Natura (NATU3) -- Playing Offense; Warming Up to the Story

23-Feb-14 BR Properties: Running from the Bear, but Far from the Bull

21-Feb-14 BRAZIL EQUITY STRATEGY: 2014 reminding us of 2002... but with some key differences

21-Feb-14 Latam Beverages: Redefining capital allocation: Animal Spirits down... time for share buybacks

19-Feb-14 Brazilian banks - Economic plans and "The Black Swan"

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=emfromsendlink&format=PDF&document_id=806090770&extdocid=806090770_1_eng_pdf&serialid=fIuUtGyrKv5RB+2L7wclCtAFzbgHpDQpvK5Nxd5kwiI=




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97

30 March 2014


17-Feb-14 Ternium (TX): Surfing the Mexican Expansion at a Discounted Valuation

14-Feb-14 Banco do Brasil (BBAS3, N, R$23 TP) - Little to think; a lot to do (Dowgrading to Neutral)

14-Feb-14 LatAm Toll Roads - Attack or Defense?

13-Feb-14 Latam Metals & Mining: Steel Standing & Carefully Watching Miners

13-Feb-14 ENTEL (OUTPERFORM): Ample upside to greatly reduced expectations

13-Feb-14 Alpek: Downgrading to sell on deteriorating fundamentals

12-Feb-14 Klabin (KLBN4 / KLBN11): Ready to More than Double EBITDA by 2017 (IN DEPTH Report)

12-Feb-14 BM&F Bovespa (BVMF3): Little Brazil

12-Feb-14 BTOW3: e-Commerce: Growth and Change – Highlights of Meeting E-bit

10-Feb-14 CONTAX (CTAX11): Cost Cutting Restores Profitability; Raising to Outperform

10-Feb-14 Argentina: An unsteady state

10-Feb-14 Emerging Market Consumer Survey 2014

09-Feb-14 Brazilian Utilities: LAIC 2014 Feedback

07-Feb-14 LatAm Oil: Learnings from LAIC

07-Feb-14 LatAm Agribusiness: Land Prices Momentum Continues, Southeast Region Affected by Sugarcane

07-Feb-14 LatAm Conference Feedback: Brazil - A Competitive Protein Player

07-Feb-14 Brazil Consumer -- Latin America Investment Conference Feedback: Focusing on Execution

07-Feb-14 Andean Cement Sector - We are Bullish - Initiating Cemex Latam and Pacasmayo with Outperfom

06-Feb-14 Latam Metals & Mining - Highlights of C-level Meetings - LAIC Conference

06-Feb-14 Latin America: Sovereign Credit Ratings Monitor

05-Feb-14 Fibra Uno: Reinstating with Outperform – Acquisitions Not Yet Priced In

05-Feb-14 Brazil Economics Digest: We have lowered our forecast for GDP growth in 2014 from 2.0% to 1.5% has been successfully published

04-Feb-14 BB Seguridade (BBSE3): Call Your Broker: You Might Need An Insurer For Times Like These

03-Feb-14 LatAm Equity Strategy: Stock Ideas for the Long Road

03-Feb-14 Latam Beverages Monitor: 4Q13 preview - Expect weak volumes across the board; Ambev best in the sector, once again

03-Feb-14 Brazilian Utilities: Spot Prices to the Max

31-Jan-14 Grupo Financiero Banorte: Time to let go

30-Jan-14 Braskem (BRKM5): Buy now, or buy later?

30-Jan-14 Brazil Economics Digest: Isolated deterioration in Argentina's economy would have limited impact on activity in Brazil

29-Jan-14 OHLMEX: Market Overpricing Cash Fundamentals

29-Jan-14 Latin America: Why worry about Argentina...

29-Jan-14 Petrobras (PBR): The value trap dilemma

29-Jan-14 Tegma (TGMA3) - It's All About Restructuring

28-Jan-14 Latam Equity Strategy: Mind the earnings yield gap? Not so much

https://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=1029573391&source_id=emrna&serialid=YYXSC2QIhdlGSt7dH/A3XDst7M98CuFKH37Ek8RVKKw=

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30 March 2014


26-Jan-14 Lojas Americanas: Investing Up to R$1.2 billion in B2W

26-Jan-14 B2W: A Smart Capitalization: Upgrading to Neutral

24-Jan-14 Embraer (ERJ) - Selling When Backlog Is Stalling (Initiating Coverage - UNDERPERFORM, TP US$28/ADS, 13% Downside)

24-Jan-14 Buy Penoles/Sell Fresnillo: : Discount to NAV at 14.6% - 12 Month Record

24-Jan-14 Cemex (Buy, TP US$15.2): U.S. Momentum Continues, Mexico Inflection Point Has Arrived

23-Jan-14 QGEP (QGEP3): Postponing the catalysts, again

22-Jan-14 Ideas Engine - Cielo (CIEL3): Brazil, Winner of 2014 World Cup

22-Jan-14 VVAR11: It Ain't Over Yet! More Margin Expansion to Come

22-Jan-14 Fleury (FLRY3): Short-Term Pressures to Continue, But Improvements Are Underway

20-Jan-14 Mexichem: Downgrading to Neutral; Stock Fairly Valued

21-Jan-14 Peruvian banks: Why overpay for "high expectations" in Mexico when you can buy "reality" cheap in Peru?

21-Jan-14 Latam Chart-pack: Economic and Market Outlook

16-Jan-14 Latin America: 2013 inflation recap

17-Jan-14 Direcional (DIRR3): Feedback from Meetings with Management

14-Jan-14 ESTC3.SA: Competitor Disaccreditation to Benefit Estacio

13-Jan-14 LatAm Equity Strategy LatAm Equity Research Handbook

13-Jan-14 Marcopolo (POMO4): 30% De-Rating in Three Months; What Now?

12-Jan-14 Linx S.A. (LINX3): Re-rating drains upside; downgrade to Neutral

10-Jan-14 Fibra Uno: Management Update on Growth Strategy

10-Jan-14 Mexican Infrastructure Program Starts Rolling: Groundwork Laid Out to Finance New Mexico City Airport

10-Jan-14 Natura: Gradual Improvements Set to Persist

09-Jan-14 LatAm Equity Strategy: Identifying stocks with strong companyspecific triggers in 2014

07-Jan-14 Walmex: December SSS: Closing the year in negative territory, hoping for a better 2014

06-Jan-14 LatAm Copper and Precious Metals Miners 2014 Guide: Favoring Gmexico/SCC, Precious Metals Doomed to Struggle Further

06-Jan-14 ASUR 2014-2018 Capex Plan: Neutral; more investment but lower tariffs

03-Jan-14 ASURB reduction in maximum tariffs has marginal effect, upside potential still high

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99

30 March 2014

Companies Mentioned

AES Tiete (GETI4.SA, R$17.68) ALFA (ALFAA.MX, $33.01) ALSEA, S.A.B. DE C.V (ALSEA.MX, $47.45) ARCA CONTINENTAL, S.A.B. DE C.V. (AC.MX, $78.08) Adecoagro (AGRO.N, $7.91) Aliansce Shopping Centers (ALSC3.SA, R$17.96) Almacenes Exito (IMI.CN, peso28980.0) Alpek S.A. de C.V (ALPEKA.MX, $22.31) Alupar (ALUP11.SA, R$17.88) AmBev (ABEV3.SA, R$17.05) America Movil (AMX.N, $19.31) Andina Minerals (ADM.V^B13, C$0.79) Anhanguera Educacional (AEDU3.SA, R$13.17) Antofagasta (ANTO.L, 827.5p) Arcos Dorados (ARCO.N, $10.0) Arezzo Industria e Comercio SA (ARZZ3.SA, R$25.59) Arteris (ARTR3.SA, R$19.13) Asesor de Activos Prisma SAP (FINN13.MX, $17.21) Autometal (AUTM3.SA, R$15.4) AviancaTaca (AVT_p.CN, peso4120.0) Axtel (AXTELCPO.MX, $4.43) B2W (BTOW3.SA, R$26.64) BB Seguridade (BBSE3.SA, R$24.15) BM&F Bovespa SA (BVMF3.SA, R$10.75) BR Malls Participacoes (BRML3.SA, R$18.4) BR Properties (BRPR3.SA, R$17.9) BTG Pactual Part (BBTG11.SA, R$28.2) Banco Davivienda (DVI_p.CN, peso25400.0) Banco Occidente (BOC.CN, peso39000.0) Banco de Bogota (BBO.CN, peso69800.0) Banco de Chile (BCH.N, $77.65) Banco do Brasil (BBAS3.SA, R$22.51) Bancolombia (CIB.N, $54.84) Banrisul (BRSR6.SA, R$12.35) Bco Credito Invs (BCI.SN, CLP$31429.0) Bolsa Mexicana de Valores (BOLSAA.MX, $24.63) Bradesco (BBDC4.SA, R$30.63) Bradespar (BRAP4.SA, R$19.4) Brasil Brokers Participacoes (BBRK3.SA, R$4.85) Brasil Foods S.A. (BRFS3.SA, R$46.5) Braskem (BRKM5.SA, R$17.61) Brookfield Incorporacoes S.A. (BISA3.SA, R$1.47) CCR (CCRO3.SA, R$17.1) CESP (CESP5.SA, R$24.72) CIA Hering S.A. (HGTX3.SA, R$27.05) CMPC (CAR.SN, CLP$1262.8) CPFL (CPFE3.SA, R$18.5)

Price as of 27-Mar-2014 CVC Brasil (CVCB3.SA, R$14.75) Cementos Pacasmayo (CPAC.N, $8.77) Cemex (CX.N, $12.73) Cemex Latam Holdings, S.A. (CLH.CN, peso16300.0) Cemig (CMIG4.SA, R$15.29) Cencosud SA (CEN.SN, CLP$1774.7) Cesp (CESP6.SA, R$26.1) Cetip (CTIP3.SA, R$26.99) Cielo (CIEL3.SA, R$71.15) Coca-Cola Femsa SAB de CV (KOFL.MX, $133.97) Companhia Siderurgica Nacional (CSNA3.SA, R$10.1) Compania de Minas Buenaventura (BVN.N, $12.63) Companias Cerveceras Unidas (CCU.SN, CLP$6360.6) Concentradora Fibra Hotelera (FIHO12.MX, $21.92) Contax Participacoes (CTAX11.SA, R$17.35) Copa Holdings (CPA.N, $135.67) Copec (COP.SN, CLP$7101.4) Cosan (CSAN3.SA, R$34.8) Credicorp (BAP.N, $132.83) Cyrela Brazil Realty (CYRE3.SA, R$13.25) Diagnosticos da America SA (DASA3.SA, R$15.04) Direcional Engenharia (DIRR3.SA, R$9.55) Duratex (DTEX3.SA, R$11.68) EVEN CONSTRUCTORA E INCORPORADORA (EVEN3.SA, R$7.29) EZ Tec (EZTC3.SA, R$27.47) Ecopetrol (EC.N, $40.13) Ecorodovias S.A. (ECOR3.SA, R$13.71) Eletropaulo Metropolitana (ELPL4.SA, R$8.25) Embraer (ERJ.N, $35.36) Enaex SA (ENX.SN, CLP$5250.0) Energias do Brasil (ENBR3.SA, R$9.68) Enersur (ENE.LM, S/.25.7) Entel Chile (ENT.SN, CLP$6741.9) Equatorial Energia (EQTL3.SA, R$19.9) Estacio Participacoes SA (ESTC3.SA, R$21.58) Fibra Macquarie (FIBRAMQ12.MX, $24.45) Fibra Uno Administracion S A (FUNO11.MX, $40.94) Fibria (FIBR3.SA, R$24.64) Financiera Independencia (FINDEP.MX, $4.7) Fomento Economico Mexicano SAB de CV (FMX.N, $93.18) Forus (FOR.SN, CLP$2450.0) Fresnillo plc (FRES.L, 837.5p) G.F. Inbursa (GFINBURO.MX, $33.24) GAEC Educacao SA (ANIM3.SA, R$20.66) GENOMMA LAB INTERNACIONAL, S.A.B. DE C.V. (LABB.MX, $32.56) GP Investments (GPIV33.SA, R$3.5) GRUPO COMERCIAL CHEDRAUI ORD (CHDRAUIB.MX, $38.0)

GRUPO SANBORNS, S.A.B. DE CV (GSNBRB1.MX, $23.11) Gafisa (GFSA3.SA, R$3.32) Gentera (GENTERA.MX, $23.82) Gerdau (GGBR4.SA, R$14.58) Gol Linhas Aerea (GOLL4.SA, R$10.79) Gpo Aeromex (AEROMEX.MX, $20.35) Grupo Elektra (ELEKTRA.MX, $405.39) Grupo Famsa (GFAMSAA.MX, $17.96) Grupo Financiero Banorte (GFNORTEO.MX, $84.78) Grupo Financiero Interacciones (GFINTERO.MX, $76.07) Grupo Mexico (GMEXICOB.MX, $39.43) Grupo Televi (TLVACPO.MX, $85.46) HRT Participacoes S.A. (HRTP3.SA, R$0.95) Helbor (HBOR3.SA, R$7.88) Hypermarcas S.A. (HYPE3.SA, R$16.7) IENOVA (IENOVA.MX, $66.01) Iguatemi (IGTA3.SA, R$20.93) Industrias CH S.A.B. de C.V. (ICHB.MX, $71.37) Industrias Penoles S.A.B. DE C.V. (PENOLES.MX, $328.87) Intercorp (IFS.LM, $31.2) International Meal Company Holdings (IMCH3.SA, R$16.75) Iochpe-Maxion (MYPK3.SA, R$23.02) Itau Unibanco (ITUB4.SA, R$33.44) Itausa (ITSA4.SA, R$9.13) JSL (JSLG3.SA, R$14.06) Klabin (KLBN4.SA, R$2.35) Kroton (KROT3.SA, R$48.95) LATAM Airlines (LFL.N, $14.81) LLX (LLXL3.SA, R$1.01) Light Servicos de Eletricidade (LIGT3.SA, R$18.91) Linx S.A. (LINX3.SA, R$45.86) Localiza (RENT3.SA, R$32.65) Lojas Americanas S.A. (LAME4.SA, R$16.1) Lojas Renner S.A. (LREN3.SA, R$62.2) Lopes (LPSB3.SA, R$12.0) MMX (MMXM3.SA, R$2.66) MPX (ENEV3.SA, R$1.72) MRV Engenharia (MRVE3.SA, R$7.92) Magazine Luiza (MGLU3.SA, R$6.49) Magnesita (MAGG3.SA, R$5.09) Mahle Metal Leve (LEVE3.SA, R$23.5) Marcopolo (POMO4.SA, R$4.26) Marfrig (MRFG3.SA, R$4.13) Marisa S.A. (AMAR3.SA, R$14.38) Megacable Holdings, S.A.B. De C.V. (MEGACPO.MX, $53.49) Mexichem (MEXCHEM.MX, $45.46) Mills (MILS3.SA, R$27.47)

100

30 March 2014

Companies Mentioned

Minera Frisco S.A.B de C.V (MFRISCOA1.MX, $25.19) Minerva (BEEF3.SA, R$10.1) Multiplan Empreendimentos. Imobiliarios S/A (MULT3.SA, R$47.75) Multiplus (MPLU3.SA, R$25.6) NII Holdings Inc (NIHD.OQ, $1.03) Natura Cosméticos S.A. (NATU3.SA, R$36.87) OHL Mexico (OHLMEX.MX, $33.97) ORGANIZACION CULTIBA, S.A.B. DE CV (CULTIBAB.MX, $22.7) Oi SA (OIBR4.SA, R$3.18) PDG Realty (PDGR3.SA, R$1.35) Petrobras (PBR.N, $12.92) Petrobras BR (PETR4.SA, R$15.57) Porto Seguro (PSSA3.SA, R$33.0) Positivo Informatica (POSI3.SA, R$2.51) QGEP Participacoes SA (QGEP3.SA, R$7.97) QUALICORP SA (QUAL3.SA, R$22.75) Quinenco (QNN.SN, CLP$1170.0) Raia Drogasil (RADL3.SA, R$18.6) Randon (RAPT4.SA, R$8.21) Restoque Comércio e Confecções de Roupas S.A. (LLIS3.SA, R$6.01) Ripley Corp SA (RIP.SN, CLP$332.0) Ritchie Bros Auctioneers (RBA.N, $23.56) Rossi Residencial (RSID3.SA, R$1.65) S.A.C.I. FALABELLA (FAL.SN, CLP$4711.2) SER Educacional S.A. (SEER3.SA, R$19.59) SLC Agricola (SLCE3.SA, R$16.4) Sabesp (SBSP3.SA, R$20.27) Santander Brasil (SANB11.SA, R$12.4) Santander Chile (BSAC.N, $23.01) Santander Mexico (SANMEXB.MX, $31.13) Santos Brasil S.A. (STBP11.SA, R$17.07) Sao Martinho (SMTO3.SA, R$30.85) Siderar (SID.BA, $3.46) Smiles (SMLE3.SA, R$36.5) Sonae Sierra Brasil (SSBR3.SA, R$18.2) Soquimich (SQM.N, $30.73) Soriana (SORIANAB.MX, $38.73) Southern Copper Corporation (SCCO.N, $27.62) Souza Cruz (CRUZ3.SA, R$20.7) SulAmerica (SULA11.SA, R$15.46) Suzano (SUZB5.SA, R$8.23) T4F Entretenimento S.A (SHOW3.SA, R$4.85) TAESA (TAEE11.SA, R$19.5) TIM Participacoe (TIMP3.SA, R$11.7) TV Azteca (AZTECACPO.MX, $7.81) Technos (TECN3.SA, R$15.15) Tecnisa (TCSA3.SA, R$7.75)

Price as of 27-Mar-2014 Tegma (TGMA3.SA, R$18.35) Telefonica Brasil (VIVT4.SA, R$46.95) Televisa (TV.N, $32.61) Ternium (TX.N, $30.21) Terrafina (TERRA13.MX, $26.17) Totvs (TOTS3.SA, R$35.14) Tractebel Energia (TBLE3.SA, R$35.49) Transmissao Paulista (TRPL4.SA, R$23.95) Usiminas (USIM5.SA, R$10.4) Vale (VALE.N, $13.65) Valid (VLID3.SA, R$34.2) Vanguarda Agro (VAGR3.SA, R$2.93) Vesta, S.AB. De C.V (VESTA.MX, $25.88) WEG (WEGE3.SA, R$31.6) Walmex (WALMEXV.MX, $30.98) Wilson, Sons (WSON33.SA, R$26.6) YPF Sociedad Anonima (YPF.N, $29.71)

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Disclosure Appendix Important Global Disclosures

Andrew T. Campbell, CFA, Daniel Federle, Andre Hachem and Andrei Sabah each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all

of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms

representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the

analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities.

For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian

ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling

yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-

15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 43% (53% banking clients)

Neutral/Hold* 40% (50% banking clients)

Underperform/Sell* 14% (45% banking clients)

Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our

stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research:

http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

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Disclosure Appendix See the Companies Mentioned section for full company names

The subject company (FUNO11.MX, BBSE3.SA, CYRE3.SA, GGBR4.SA, BRML3.SA, HYPE3.SA, MMXM3.SA, LFL.N, VLID3.SA, BCH.N, ENT.SN, LAME4.SA, TV.N, SANB11.SA, LPSB3.SA, RAPT4.SA, SHOW3.SA, EQTL3.SA, BEEF3.SA,

ELPL4.SA, IMCH3.SA, SANMEXB.MX, CMIG4.SA, AZTECACPO.MX, SCCO.N, CCRO3.SA, GFINTERO.MX, MAGG3.SA, CSNA3.SA, ECOR3.SA, ALUP11.SA, USIM5.SA, MRVE3.SA, GFSA3.SA, QUAL3.SA, NIHD.OQ, SEER3.SA, GFAMSAA.MX,

TECN3.SA, IGTA3.SA, MEXCHEM.MX, TERRA13.MX, ARCO.N, GOLL4.SA, GETI4.SA, CTIP3.SA, SMTO3.SA, CIB.N, HRTP3.SA, JSLG3.SA, FINDEP.MX, ITSA4.SA, LREN3.SA, ITUB4.SA, ALSC3.SA, ALFAA.MX, IMI.CN, FIBR3.SA, SULA11.SA,

FIBRAMQ12.MX, DASA3.SA, TOTS3.SA, CLH.CN, DIRR3.SA, ARTR3.SA, BBRK3.SA, BISA3.SA, VESTA.MX, CX.N, RSID3.SA, OIBR4.SA, KOFL.MX, CHDRAUIB.MX, TCSA3.SA, KLBN4.SA, TRPL4.SA, RENT3.SA, TIMP3.SA, GFINBURO.MX,

STBP11.SA, TBLE3.SA, ESTC3.SA, BSAC.N, WALMEXV.MX, GFNORTEO.MX, SSBR3.SA, BBAS3.SA, SUZB5.SA, COP.SN, CTAX11.SA, CSAN3.SA, PENOLES.MX, ANIM3.SA, MULT3.SA, HBOR3.SA, PBR.N, MPLU3.SA, BBDC4.SA,

LLXL3.SA, LINX3.SA, KROT3.SA, AUTM3.SA, SMLE3.SA, GSNBRB1.MX, MFRISCOA1.MX, RBA.N, AXTELCPO.MX, CEN.SN, PDGR3.SA, GMEXICOB.MX, ERJ.N, MRFG3.SA, FRES.L, BAP.N, LABB.MX, AC.MX, AMX.N, CPA.N, VALE.N, TX.N,

WSON33.SA, FMX.N, GPIV33.SA) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (FUNO11.MX, BBSE3.SA, MMXM3.SA, BCH.N, LAME4.SA, SANB11.SA, EQTL3.SA, BEEF3.SA, IMCH3.SA, SANMEXB.MX, SCCO.N, GFINTERO.MX, MAGG3.SA,

ECOR3.SA, ALUP11.SA, NIHD.OQ, SEER3.SA, GFAMSAA.MX, IGTA3.SA, MEXCHEM.MX, TERRA13.MX, ARCO.N, GOLL4.SA, GETI4.SA, JSLG3.SA, LREN3.SA, ALSC3.SA, ALFAA.MX, FIBRAMQ12.MX, DASA3.SA, CLH.CN, ARTR3.SA,

BISA3.SA, VESTA.MX, CX.N, KOFL.MX, KLBN4.SA, TRPL4.SA, TIMP3.SA, GFINBURO.MX, ESTC3.SA, WALMEXV.MX, BBAS3.SA, SUZB5.SA, CTAX11.SA, MULT3.SA, PBR.N, LLXL3.SA, LINX3.SA, KROT3.SA, SMLE3.SA, GSNBRB1.MX,

CEN.SN, GMEXICOB.MX, MRFG3.SA, AMX.N, GPIV33.SA) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (GGBR4.SA, LFL.N, VLID3.SA, BCH.N, LAME4.SA, SANB11.SA, ELPL4.SA, CMIG4.SA, AZTECACPO.MX, SCCO.N, CCRO3.SA, MAGG3.SA, CSNA3.SA, GFSA3.SA,

NIHD.OQ, ARCO.N, GETI4.SA, CIB.N, ITUB4.SA, ALFAA.MX, FIBR3.SA, SULA11.SA, DASA3.SA, BISA3.SA, OIBR4.SA, TCSA3.SA, KLBN4.SA, RENT3.SA, GFINBURO.MX, STBP11.SA, TBLE3.SA, BSAC.N, GFNORTEO.MX, BBAS3.SA,

CSAN3.SA, BBDC4.SA, AXTELCPO.MX, GMEXICOB.MX, ERJ.N, BAP.N, AMX.N, VALE.N) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (FUNO11.MX, BBSE3.SA, MMXM3.SA, BCH.N, SANB11.SA, SANMEXB.MX, GFINTERO.MX, MAGG3.SA, ALUP11.SA, SEER3.SA, GFAMSAA.MX,

IGTA3.SA, TERRA13.MX, ARCO.N, GOLL4.SA, ALFAA.MX, FIBRAMQ12.MX, ARTR3.SA, BISA3.SA, VESTA.MX, KOFL.MX, TIMP3.SA, GFINBURO.MX, ESTC3.SA, WALMEXV.MX, LLXL3.SA, SMLE3.SA, MRFG3.SA, AMX.N, GPIV33.SA) within

the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (FUNO11.MX, BBSE3.SA, MMXM3.SA, BCH.N, LAME4.SA, SANB11.SA, EQTL3.SA, BEEF3.SA, IMCH3.SA, SANMEXB.MX, SCCO.N, GFINTERO.MX,

MAGG3.SA, ECOR3.SA, ALUP11.SA, NIHD.OQ, SEER3.SA, GFAMSAA.MX, IGTA3.SA, MEXCHEM.MX, TERRA13.MX, ARCO.N, GOLL4.SA, GETI4.SA, JSLG3.SA, LREN3.SA, ALSC3.SA, ALFAA.MX, FIBRAMQ12.MX, DASA3.SA, CLH.CN,

ARTR3.SA, BISA3.SA, VESTA.MX, CX.N, KLBN4.SA, TRPL4.SA, TIMP3.SA, GFINBURO.MX, ESTC3.SA, WALMEXV.MX, BBAS3.SA, SUZB5.SA, CTAX11.SA, MULT3.SA, PBR.N, LLXL3.SA, LINX3.SA, KROT3.SA, SMLE3.SA, GSNBRB1.MX,

CEN.SN, GMEXICOB.MX, MRFG3.SA, AMX.N, GPIV33.SA) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (FUNO11.MX, BBSE3.SA, CYRE3.SA, BRML3.SA, HYPE3.SA, MMXM3.SA, BCH.N, ENT.SN, LAME4.SA, TV.N, SANB11.SA,

LPSB3.SA, BVN.N, RAPT4.SA, SHOW3.SA, EQTL3.SA, BEEF3.SA, IMCH3.SA, SANMEXB.MX, SCCO.N, CCRO3.SA, GFINTERO.MX, MAGG3.SA, ECOR3.SA, ALUP11.SA, USIM5.SA, MRVE3.SA, GFSA3.SA, QUAL3.SA, NIHD.OQ, WEGE3.SA,

SEER3.SA, GFAMSAA.MX, TECN3.SA, IGTA3.SA, MEXCHEM.MX, TERRA13.MX, ARCO.N, GOLL4.SA, GETI4.SA, CTIP3.SA, SMTO3.SA, CIB.N, HRTP3.SA, JSLG3.SA, FINDEP.MX, ITSA4.SA, FAL.SN, LREN3.SA, ALSC3.SA, ALFAA.MX,

IMI.CN, FIBR3.SA, AEDU3.SA, SULA11.SA, FIBRAMQ12.MX, DASA3.SA, TOTS3.SA, BRPR3.SA, CLH.CN, DIRR3.SA, ARTR3.SA, CPFE3.SA, BBRK3.SA, BISA3.SA, VESTA.MX, CX.N, RSID3.SA, OIBR4.SA, KOFL.MX, CHDRAUIB.MX,

TCSA3.SA, NATU3.SA, KLBN4.SA, TRPL4.SA, RENT3.SA, TIMP3.SA, GFINBURO.MX, ESTC3.SA, WALMEXV.MX, GFNORTEO.MX, SSBR3.SA, BBAS3.SA, ALSEA.MX, SUZB5.SA, ENBR3.SA, COP.SN, BOLSAA.MX, CTAX11.SA, CSAN3.SA,

PENOLES.MX, CPAC.N, ANIM3.SA, MULT3.SA, HBOR3.SA, PBR.N, MPLU3.SA, BBDC4.SA, LLXL3.SA, LINX3.SA, KROT3.SA, AUTM3.SA, SMLE3.SA, GSNBRB1.MX, MFRISCOA1.MX, RBA.N, CRUZ3.SA, CEN.SN, PDGR3.SA, GMEXICOB.MX,

CCU.SN, ERJ.N, MRFG3.SA, FRES.L, ICHB.MX, BAP.N, LABB.MX, ANTO.L, AC.MX, AGRO.N, AMX.N, CPA.N, VALE.N, WSON33.SA, FMX.N, GPIV33.SA) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (GGBR4.SA, LFL.N, VLID3.SA, BCH.N, LAME4.SA, SANB11.SA, ELPL4.SA, CMIG4.SA, AZTECACPO.MX, SCCO.N,

CCRO3.SA, MAGG3.SA, CSNA3.SA, GFSA3.SA, NIHD.OQ, ARCO.N, GETI4.SA, CIB.N, ITUB4.SA, ALFAA.MX, FIBR3.SA, SULA11.SA, DASA3.SA, BISA3.SA, OIBR4.SA, TCSA3.SA, KLBN4.SA, RENT3.SA, GFINBURO.MX, STBP11.SA,

TBLE3.SA, BSAC.N, GFNORTEO.MX, BBAS3.SA, CSAN3.SA, BBDC4.SA, AXTELCPO.MX, GMEXICOB.MX, ERJ.N, BAP.N, AMX.N, VALE.N) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (LFL.N, BCH.N, TV.N, BVN.N, SCCO.N, NIHD.OQ, ARCO.N, CIB.N, CLH.CN, SQM.N, YPF.N, CX.N, BSAC.N, CPAC.N, PBR.N, RBA.N, ERJ.N, BAP.N,

AGRO.N, AMX.N, CPA.N, VALE.N, TX.N, FMX.N).

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (FUNO11.MX, MYPK3.SA, CYRE3.SA, BRML3.SA, VLID3.SA, FIHO12.MX, LEVE3.SA, LPSB3.SA, EQTL3.SA, BEEF3.SA,

IMCH3.SA, QUAL3.SA, SLCE3.SA, TECN3.SA, TERRA13.MX, CTIP3.SA, VAGR3.SA, ALSC3.SA, AEDU3.SA, FIBRAMQ12.MX, FINN13.MX, DIRR3.SA, ARTR3.SA, TAEE11.SA, BBRK3.SA, VESTA.MX, RSID3.SA, HGTX3.SA, STBP11.SA,

ESTC3.SA, SSBR3.SA, CTAX11.SA, KROT3.SA, SMLE3.SA, AXTELCPO.MX, PDGR3.SA, TGMA3.SA).

Credit Suisse has a material conflict of interest with the subject company (FUNO11.MX) . Credit Suisse is acting as financial advisor to Fibra Uno Administracion S.A. de C.V. on their announced acquisition of a portfolio of commercial properties held by

MRP Group LP.

Credit Suisse has a material conflict of interest with the subject company (GGBR4.SA) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report

Credit Suisse has a material conflict of interest with the subject company (MMXM3.SA) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report

Credit Suisse has a material conflict of interest with the subject company (SCCO.N) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report

Credit Suisse has a material conflict of interest with the subject company (MAGG3.SA) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report

Credit Suisse has a material conflict of interest with the subject company (CSNA3.SA) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report. I, Ivano

Westin, hold directly or indirectly, securities referenced in the research reports I prepare [VALE, CSNA3].

Credit Suisse has a material conflict of interest with the subject company (USIM5.SA) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report

Credit Suisse has a material conflict of interest with the subject company (CESP6.SA) . Credit Suisse or its controlled entities, controlling entities, or entities under common control hold directly or indirectly a relevant participation in the capital stock of the

subject company/companies. [ CESP6 ]. For purposes of this report, a relevant participation means a participation of 5% or more in a type or class of shares of the capital stock of a company.

Credit Suisse has a material conflict of interest with the subject company (BRAP4.SA) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report

Credit Suisse has a material conflict of interest with the subject company (TX.N) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report

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Disclosure Appendix Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (FUNO11.MX, MYPK3.SA, BBSE3.SA, LLIS3.SA, CIEL3.SA, CYRE3.SA, GGBR4.SA, BRML3.SA, HYPE3.SA, MMXM3.SA, LFL.N,

VLID3.SA, BCH.N, FIHO12.MX, ENT.SN, BRSR6.SA, LAME4.SA, TV.N, SANB11.SA, LEVE3.SA, LPSB3.SA, BVN.N, RAPT4.SA, SHOW3.SA, EQTL3.SA, BEEF3.SA, ELPL4.SA, IMCH3.SA, LIGT3.SA, SANMEXB.MX, CMIG4.SA, BVMF3.SA,

AZTECACPO.MX, SCCO.N, CCRO3.SA, GFINTERO.MX, MAGG3.SA, CSNA3.SA, ECOR3.SA, SBSP3.SA, ALUP11.SA, USIM5.SA, MRVE3.SA, GFSA3.SA, AMAR3.SA, QUAL3.SA, NIHD.OQ, WEGE3.SA, SEER3.SA, SLCE3.SA, GFAMSAA.MX,

VIVT4.SA, MEGACPO.MX, DTEX3.SA, CESP6.SA, TECN3.SA, IGTA3.SA, MEXCHEM.MX, TERRA13.MX, BRKM5.SA, ARCO.N, GOLL4.SA, GETI4.SA, CTIP3.SA, ALPEKA.MX, SMTO3.SA, CAR.SN, CIB.N, VAGR3.SA, ENEV3.SA, HRTP3.SA,

JSLG3.SA, FINDEP.MX, ITSA4.SA, FAL.SN, LREN3.SA, ITUB4.SA, ALSC3.SA, ALFAA.MX, IMI.CN, FIBR3.SA, AEDU3.SA, SULA11.SA, FIBRAMQ12.MX, DASA3.SA, TOTS3.SA, POMO4.SA, BRPR3.SA, FINN13.MX, BRAP4.SA, CLH.CN,

DIRR3.SA, ARTR3.SA, TAEE11.SA, CPFE3.SA, BRFS3.SA, BBRK3.SA, BISA3.SA, SQM.N, VESTA.MX, YPF.N, CX.N, RSID3.SA, OIBR4.SA, EZTC3.SA, KOFL.MX, CHDRAUIB.MX, TCSA3.SA, NATU3.SA, MILS3.SA, KLBN4.SA, TRPL4.SA,

RENT3.SA, TIMP3.SA, CULTIBAB.MX, HGTX3.SA, GFINBURO.MX, STBP11.SA, TBLE3.SA, ESTC3.SA, BSAC.N, BTOW3.SA, WALMEXV.MX, GFNORTEO.MX, SSBR3.SA, BBAS3.SA, ALSEA.MX, SUZB5.SA, ENBR3.SA, COP.SN, RIP.SN,

ABEV3.SA, SORIANAB.MX, BOLSAA.MX, POSI3.SA, QGEP3.SA, CTAX11.SA, CSAN3.SA, PENOLES.MX, CPAC.N, ANIM3.SA, IENOVA.MX, MULT3.SA, HBOR3.SA, PBR.N, MPLU3.SA, BBDC4.SA, LLXL3.SA, LINX3.SA, KROT3.SA, AUTM3.SA,

SMLE3.SA, GSNBRB1.MX, MFRISCOA1.MX, RBA.N, AXTELCPO.MX, CRUZ3.SA, CEN.SN, IFS.LM, PDGR3.SA, GMEXICOB.MX, TGMA3.SA, CCU.SN, ERJ.N, MRFG3.SA, GENTERA.MX, FRES.L, ICHB.MX, EVEN3.SA, ARZZ3.SA, PSSA3.SA,

BAP.N, LABB.MX, ANTO.L, AC.MX, AGRO.N, AMX.N, CPA.N, VALE.N, TX.N, WSON33.SA, GPIV33.SA) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this

were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

The following disclosed European company/ies have estimates that comply with IFRS: (ENT.SN, ANTO.L).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (FUNO11.MX, BBSE3.SA, MMXM3.SA, BCH.N, BRSR6.SA, SANB11.SA, SHOW3.SA, BEEF3.SA, SANMEXB.MX, SCCO.N,

CCRO3.SA, GFINTERO.MX, MAGG3.SA, ALUP11.SA, QUAL3.SA, NIHD.OQ, SEER3.SA, GFAMSAA.MX, TECN3.SA, IGTA3.SA, MEXCHEM.MX, TERRA13.MX, ARCO.N, GOLL4.SA, ALPEKA.MX, ALSC3.SA, ALFAA.MX, IMI.CN, FIBRAMQ12.MX,

ARTR3.SA, BISA3.SA, VESTA.MX, TIMP3.SA, CULTIBAB.MX, GFINBURO.MX, ESTC3.SA, BSAC.N, WALMEXV.MX, BBAS3.SA, IENOVA.MX, MULT3.SA, PBR.N, LLXL3.SA, LINX3.SA, KROT3.SA, SMLE3.SA, GSNBRB1.MX, CEN.SN,

GMEXICOB.MX, MRFG3.SA, AMX.N, GPIV33.SA) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Andrew T. Campbell, CFA & Daniel Federle & Andre Hachem & Andrei Sabah each certify that (1) The views expressed in this report solely and exclusively reflect my personal opinions and have been prepared independently, including with respect to Banco

de Investimentos Credit Suisse (Brasil) S.A. or its affiliates ("Credit Suisse"). (2) Part of my compensation is based on various factors, including the total revenues of Credit Suisse, but no part of my compensation has been, is, or will be related to the specific

recommendations or views expressed in this report. In addition, Credit Suisse declares that: Credit Suisse has provided, and/or may in the future provide investment banking, brokerage, asset management, commercial banking and other financial services to

the subject company/companies or its affiliates, for which they have received or may receive customary fees and commissions, and which constituted or may constitute relevant financial or commercial interests in relation to the subject company/companies

or the subject securities.

Andrew T. Campbell, CFA is the responsible analyst for this report according to Instruction CVM 483

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not

registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with

a subject company, public appearances and trading securities held by a research analyst account.

Casa de Bolsa Credit Suisse (Mexico), S.A Andrei Sabah

Banco de Investments Credit Suisse (Brasil) SA or its affiliates. Andrew T. Campbell, CFA ; Daniel Federle ; Andre Hachem

Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation

was, is, or will be directly related to the specific views disclosed in this report.

The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that

are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source

financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when

analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then

may adjust the default variables to produce alternative scenarios, any of which could occur.

Additional information about the Credit Suisse HOLT methodology is available on request.

The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the

warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur.

CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries.

HOLT is a corporate performance and valuation advisory service of Credit Suisse.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

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30 March 2014

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