Ph Armani Aga

7/23/2019 Ph Armani Aga

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Important disclosures at end of report Page 1 of 12

1July 2013KDN: PP 10251/07/2013(032736)

Spreading its wings regionally

Moving regionally

Over the past several months, Pharmaniaga has entered into a ventureagreement (JVA) and completed a couple of corporate exercises. These moves

are part of the groups overall strategy to becoming a one-stop solution within the

pharmaceutical industry and to expand its presence beyond Malaysian shores.

This includes a 50:50 JVA in Saudi Arabia as well as a proposed acquisition

(75:25) in Indonesia. In addition, the group has completed the pre EU final audit

inspection in June 2013 and is waiting to secure the GMP certification (good

manufacturing practice).

Malaysia still a sweet spotLocally, the rising purchasing power from the expanding middle income segment

will continue to be the key growth driver for the group. Recap that,

Pharmaniagas 10-year Concession Agreement with the government will extend

until 2019. Whilst the Concession Agreement with the government is significant

to the group, contributing 59% to groups FY12 revenue, management reaffirmed

that the private sector will continue to be the groups emphasis. Less than 7% of

the groups revenue is derived from the private sector, which is as large as

RM2.2bn per annum.

Forecast 3-year CAGR of 16.7%

For FY13-FY15E, we have modelled in a conservative 5-6% topline growth. This

would be driven by 5-8% growth from the trading and logistic segment and 8-10%

growth from the manufacturing business. All in, we project Pharmaniaga to

achieve a FY12-15 EPS CAGR of 16.7%. We have not imputed any contribution

from the proposed joint ventures as it is still premature and any earnings flow will

likely come on stream from 2015/16 onwards.

Indicati ve fair value of RM5.09In our view, a blue sky valuation for Pharmaniaga would be at 18x PER whichimplies a 10% discount to KPJs target PER of 20x. Assuming a target PER of15x (at par to markets PER), the stock is valued at RM5.09. Re-rating catalystsfor the stock include; 1) growth delivery and, 2) an alternative and more modestcomparable valuation to KPJ Healthcare and IHH. In addition, based on a 60%payout ratio for FY13, we forecast a DPS of 17.6 sen. This translates into adecent gross dividend yield of 3.0%. We believe the payout is sustainableconsidering the defensiveness of its healthcare earnings.

Earnings & Valuation Summary

FYE Dec 2011 2012 2013F 2014F 2015F

Revenue (RMm) 1,521.0 1,812.3 1,920.6 2,036.4 2,138.3

EBITDA (RMm) 99.2 161.7 173.8 194.0 209.5

Pretax profit (RMm) 73.2 103.3 115.2 132.8 148.3

Net profit (RMm) 52.2 61.7 76.1 87.8 98.1

EPS (sen) 20.1 23.8 29.4 33.9 37.9

PER (x) 22.1 18.7 15.1 13.1 11.7

Core net profit (RMm) 61.0 61.7 76.1 87.8 98.1

Core EPS (sen) 23.5 23.8 29.4 33.9 37.9

Core EPS grow th (%) 21.0 1.2 23.3 15.4 11.7

Core PER (x) 18.9 18.7 15.1 13.1 11.7

Gross DPS (sen) 13.6 15.9 17.6 20.4 24.6

Dividend Yield (%) 2.3 2.7 3.0 3.4 5.5

Consensus profit - - 70.0 103.0 108.0

Af f in/Concensus (x) - - 1.1 0.9 0.9

EV/EBITDA (x) 13.0 9.0 8.3 7.3 6.7

PharmaniagaPHRM MK

RM4.49

NOT RATED

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13

Company Brief

Healthcare & Pharmaceuticals

Price Performance

1M 3M 12MAbsolute -2.1% +17.6% -1.9%Rel to KLCI -1.3% +11.7% -11.3%

Stock Data

Issued shares (m) 258.9Mkt cap (RMm) 1,154.6

Avg daily vol - 6mth (m) 9.552-wk range (RM) 3.20-5.07Est free float 28.1%NTA per share (RM) 1.3P/NTA (x) 3.4Net cash/ (debt) (RMm)(1Q13) (304.3)ROE (FY13F) 14.3%Derivatives Nil

Key Shareholders

Boustead Holdings 54.7%LTAT 12.4%

Earnings & Valuation Revisions

13E 14E 15EPrev EPS (sen) - - -Curr EPS (sen) 29.4 33.9 37.9Chg (%) - - -Indicative fair value (RM) 5.09

Sharifah Farah(603) 2145 0327

[email protected]


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Page 2 of 12

Expanding regionally into the Middle East

Moving up and expanding regionallyOver the past several months, Pharmaniaga has entered into a joint ventureagreement (JVA) and completed a couple of corporate exercises. These moves

are part of the groups overall strategy to becoming a one-stop solution within the

pharmaceutical industry and to expand its presence beyond Malaysian shores.

Signed a JV with Modern Healthcare

In May 2013, Pharmaniaga entered into a JVA with Modern Healthcare Solutions

to form a joint venture company in Saudi Arabia. The company will primarily be

involved in manufacturing pharmaceutical products in Sudair Economic City. The

products produced at the plant will be marketed within the MEENA region. This

includes countries like Algeria, Bahrain, Egypt, Sudan, Tunisia, Turkey and

United Arab Emirates. The initial duration of the JV will be 15 years effective from

the date of the corporation being registered. The plant is expected to only come

on-stream two years after the JV signing. Initial work will include the design of theplant as well as the type of generic drugs to be produced at the plant.

Primarily involved in the supply o f healthcare products

Modern Healthcare Solutions is primarily involved in the supply of healthcare

products and services as well as retail business of medical equipment and

accessories, import & export of products and marketing on behalf of third parties.

Modern Healthcare is owned by HRH Prince Turki bin Abdulrahman, as majority

shareholder and Engr. Abdulaziz F.Al Hamwah.

Pharmaniagas main role to impart knowledge and technical know-how

We view the proposed JV as a stepping stone for Pharmaniaga to penetrate and

capture the opportunities within the growing MEENA and North Africa regions.

The JV which will be on a 50:50 basis will have an initial share capital of SAR1m,of 100,000 shares. This suggests that Pharmaniagas initial monetary exposure is

only SAR500k (c.RM430k). However, the main role of Pharmaniaga in this JV is

to provide expertise and technical know-how within the Pharmaceutical industry,

whilst we gather that the partner will likely be the main bearer in terms of funding.

Risks include currency fluctuation and change in business landscape

Amongst the key risks to this venture, we opine, include a change in the political

and business landscape of the country as well as fluctuations in the currency and

exchange rate.

Competition will be amongst patented drugs

In terms of competition, we gather that most multinationals (MNCs) like

GlaxoSmithKline and Astra Zeneca already have presence within the MEENAregion. However, the JV will not be competing head on with the MNCS, as the

MNCs supply patented drugs, whilst the JV will be manufacturing and supplying

generic drugs, which is currently unpopular within the region.


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Page 3 of 12

Making further inroads into Indonesia

Proposed acquisition of PT Errita Pharma

Pharmaniaga and Glen Rahyu Adli Ariff have recently signed a memorandum ofunderstanding (MoU) with Sutjipto Tjengudororo and Hendrijanto Surjosuseno to

acquire 40,000 shares or 100% stake in PT Errita Pharma. PT Errita Pharma is

principally involved in the manufacturing of generic pharmaceutical products in

Indonesia. Pharmaniaga will hold a 75% stake in the company whilst the

Indonesia partner will hold the remaining 25%. The total indicative purchase

consideration is US$28m, of which Pharmarniaga will have to fork out US$21m

for its 75% stake. Funding for the acquisition will likely be via bank borrowings.

Plant in Bandung, but distributors across the country

Whilst PT Erritas plant is located in Bandung, the products are well distributed

across Indonesia. Based on its website, the company has distributors in all the

major cities in Indonesia including Medan, Riau, Semarang, Makasar,

Balikpapan, Palembang and Padang.

Currently, Indonesia contribu tes 21% of groups revenue

The proposed acquisition will further enhance Pharmaniagas foothold inIndonesia. Currently, its 55%-owned PT Millennium Pharmacon International(MPI) is amongst the top 10 pharmaceutical distributors in Indonesia with adistribution network of 29 branches across the country. In 2012, at RM389m, MPIcontributed to 21% of groups total revenue, an increase from the RM337mrevenue registered in 2011.

Acquis it ion suggests a strong growth impetusIndonesias population which exceeds 240m suggest a vast potential for growthin terms of demand. Although IMF ranks Indonesia 108th in terms of GDP/capita(comparatively, Malaysia is ranked 68th), we think the absolute addressable

market of a rising disposable income segment is huge. As such, we believe theproposed acquisition will be a strong growth impetus for Pharmaniaga.

Fig 1: Pharmaniagas Indonesian distribution network

Source: Company


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Page 4 of 12

Malaysia stil l a sweet spot

Growing middle income to spur local demand growth

Locally, the rising purchasing power from the expanding middle income segmentwill continue to be the key growth driver for the group. The Pharmaceutical

Association of Malaysia estimates that the Malaysian market for over-the counter

and prescription drugs will experience a compounded growth of 9.5% p.a. from

2009 to 2014, with a projected worth of RM5.3bn. In addition, the government

has allocated a 15% increase in the national budget towards healthcare

management and development services in 2013. Recap that, Pharmaniagas 10-

year Concession Agreement with the government will extend until 2019.

Private sector stil l on the cards

Whilst the Concession Agreement with the government is significant to the group,

contributing 59% to groups FY12 revenue, management reaffirmed that private

sector will continue to be the groups emphasis to further penetrate into the

segment. The private healthcare sector is worth an estimated RM2.2bn andremains a huge untapped market for the group as the private sector accounts for

less than 7% of the groups FY12 revenue.

Certification fo r more potential export opportunities

Excluding the Indonesian market, sales contribution from other countries

contributes less than 1% of groups FY12 revenue. Pharmaniagas proposed joint

venture in Saudi Arabia is its first step to making further inroads into the Middle

East markets. A key limiting factor to this has been an absence of required

certification to enable its products to be sold in the EU and US. However, the

group has completed the pre EU final audit inspection in June 2013 and is

waiting to secure the GMP certification (good manufacturing practice). The

certification will pave the way for the group to secure contract manufacturing jobs

from European pharmaceuticals and biotech companies. In addition, it is also inthe midst of working to secure the US FDA certification, which would allow the

group to penetrate into the US markets.

Fig 2: An overview of Malaysias pharmaceutical industry

Malaysian Pharmaceutical Industry

RM5.3 bi l l ion

Ministry of Health

RM3.1 bi ll ion

PharmaniagaConcession

RM1.0 billion

Pharmaniagas

market share : 32%of MOHs market s ize

Non-Concession

RM2.1 billion

Pharmaniagas market

share : 11.9% of MOHsNon-Concession market

size

Private Sector

RM2.2 bill ion

Pharmaniagasmarket share: 5%of private sector

market size

Source: Company data


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Financial Outlook

The logistics & d istribution segment contributed lower to 1Q13 earnings

In 1Q13, Pharmaniaga reported a profit before tax (PBT) of RM36.9m, down 14%yoy mainly dragged down by lower contribution from the logistics and distribution

segment. The segment a lower PBT of RM12.6m compared to the RM43.0m

reported in 1Q12. This was due to provision for doubtful debts and lower profit

margins as a result of higher direct overhead cost. However, the manufacturing

division fared better registering a PBT of RM24.3m (1Q12:RM11.6m).

1Q13 topl ine grew by 12% yoy

On the topline basis, the group posted revenue of RM500.3m, which was 12%

higher yoy, on increased demand from both government and private sector. In the

near term, we expect revenue growth will be bolstered by its Indonesian

operation, whilst longer term, its JV in Saudi Arabia as well as the necessary

certifications should aid topline growth.

Forecast 3-year CAGR of 16.7%

For FY13-FY15E, we have modelled in a conservative 5-6% topline growth. This

would be driven by 5-8% growth from the trading and logistic segment and 8-10%

growth from the manufacturing business. All in, we project Pharmaniaga to

achieve a FY12-15 EPS CAGR of 16.7%. We have not imputed any contribution

from the proposed joint ventures as it is still premature and any earnings flow will

likely come on stream from 2015/16 onwards.

Fig 3: EPS and EBITDA margin t rend

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

5

10

15

20

25

30

35

40

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

CoreEPS(sen)(LHS) EBITDAmargin(%) (RHS)

Source: Company, Affin estimates


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Valuation

Share split and bonus issue

Pharmaniaga has recently completed a corporate exercise which involved ashare split exercise of subdividing every existing share of RM1.00 into two shares

of RM0.50. This doubles its share base to 235.3m shares. In addition, the group

also awarded its shareholder with bonus issuance of one ordinary share for every

ten (10) existing shares (post share split) held. Overall, this has raised the

groups share base by 2.2x to 258.9m shares.

Premium is warranted

At current price level, Pharmaniaga is trading at 13x CY14 EPS, a premium to the

sectors PER average of 11x. We believe the premium is justifiable given; 1)

Pharmaniagas defensive government hospitals concession operations, 2) strong

growth potential from its Indonesia business, 3) positive sentiments within the

healthcare sector, 4) reasonable earnings growth (FY13-15F core EPS growth of

12-23% p.a.) and, 5) strong management team and stakeholders.

An indicative fai r value of RM5.09

In Figure 4, we simulate the indicative fair values for Pharmaniaga based on

various PER targets on CY14 EPS. In our view, a blue sky valuation for

Pharmaniaga would be at 18x PER which implies a 10% discount to KPJs target

PER of 20x. Assuming a target PER of 15x (at par to markets PER), the stock is

valued at RM5.09. Re-rating catalysts include; 1) growth delivery and, 2)

alternative and more modest valuation to KPJ Healthcare and IHH.

Assume a dividend payout of 60% of PATAMIIn FY12, Pharmaniaga paid out a DPS of 15.9 sen (adjusted for share split andbonus issuance), which translated to a payout ratio of 67%. Going forward, we

understand that management is targeting a payout ratio of 60%, although thecompany has not formalised a dividend policy. Based on a 60% payout ratio forFY13, we forecast a DPS of 17.6 sen. This translates into a decent grossdividend yield of 3.0%. We believe the payout is sustainable considering thedefensiveness of its healthcare earnings.

Fig 4: Indicative fair value range

FY14 EPS of RM0.34 11 12 13 14 15 16 17 18

Indicative fair value 3.73 4.07 4.41 4.75 5.09 5.42 5.76 6.10

PER (x)

Source: Affin estimates

Fig 5: Peers comparisonStock Rating Price (RM) Mkt Cap FYE

(m) CY13 CY14 CY13 CY14 CY13 CY14 CY13 CY14 CY13 CY14 FY13 FY14

Pharmaniaga N.R. 4.49 1162.4 Dec 15.1 13.1 23.3 15.4 8.3 7.3 2.3 2.1 13.5 18.0 3.0 3.4

CCM Duopharma N.R. 2.38 330.4 Dec N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Apex Healthcare N.R. 4.49 420.8 Dec 11.6 10.0 15.8 N/A N/A N/A 1.8 1.6 15.3 16.0 4.5 4.5

Hovid N.R. 0.23 175.3 Jun 8.2 N/A 1782.1 N/A 5.2 15.0 N/A N/A 17.1 10.8 4.3 N/A

YSP N.R. 1.29 171.6 Dec 9.7 9.0 7.7 0.00 4.2 4.0 N/A N/A 7.5 7.6 3.0 3.3

Simple average 11.1 10.7 5.9 8.8 2.0 1.9 13.4 13.1 3.7 3.7

P/E (x) Core EPS growth (%) Net Yield (%)EV/EBITDA P/BV (x) ROE (%)

Source: Company, Bloomberg


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Risks

Risks include losing the concession business

Key risk to investing in Pharmaniaga is the non-renewal of its concessionbusiness. However, we believe the risk is mitigated given the groups extensivedistribution network, their ability to execute the delivery of medical supplies andequipment efficiently, as well as limited substitute to Pharmaniaga. In addition,given the GLIC status of its ultimate parent (LTAT), we believe the risk is low.Meanwhile, any adverse changes in the concession terms could also impairfuture revenue and profitability for the group.

Loss of certificationThe pharmaceutical industry is highly regulated and any loss of certification fromthe authorities could result in a closure of its manufacturing facilities.

M&A and new market riskApart from foreign currency volatility and exchange rate fluctuations,

Pharmaniagas recent proposed joint ventures in Saudi Arabia and Indonesiapose the risk of failure as well as implementation risk which could result toimpairment losses and higher start-up costs. However, we believe the risk ismitigated given the groups existing foothold in Indonesia and established partnerin Saudi Arabia.


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Brief Background

Largest pharmaceutical operator in Malaysia

Pharmaniaga is primarily involved in trading and logistics of pharmaceuticalproducts and manufacturing of generic pharmaceuticals. The group is the soleconcession holder for the procurement and distribution of drugs and non-drugs toGovernment hospitals and clinics throughout Malaysia. Effectively, it suppliesdrugs and medical supplies to 148 hospitals and over 2,000 clinics. Its 10-yearconcession, which is an extension from its 1994-2009 concession, will end inNovember 2019.

Acquis it ion of Idaman in 2011 to complement its operationsIn 2011, the company successfully acquired Idaman Pharma Manufacturing SdnBhd, which subsequently increased the groups manufacturing sites by two i)Sg. Petani, Kedah; and ii) Seri Iskandar, Perak. This complements their existingmanufacturing plants in Bangi and Puchong as well as their 4 distributionwarehouses across Malaysia and Indonesia. PT Millennium Pharmacon

International TBK (MPI), a 55%-owned subsidiary of Pharmaniaga, focuseslargely on trading and distribution operations in Indonesia with 29 spread acrossIndonesia.

Close to 500 registered productsWith the consolidation of Idaman Pharma, the group has in total 485 registeredproducts, of which 185 products have been registered across South East Asia,East Asia as well as Africa. It has a combined logistics capacity of 27,750 palletsover 239, 348 sq ft.

Fig 6. Snapshot of Pharmaniaga



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Fig 7. Corporate structure

Lembaga Tabung Angkatan Tentera

12.4%

Boustead Holding s Bhd

54.7%

Pharmaniaga Berhad

Pharmaniaga Manufacturing Bhd100%

Idaman Pharma Manufacturing Sdn Bhd100%

Pharmaniaga Pegasus (Seychelles) Co Ltd100%

Pharmaniaga Research Centre Sdn Bhd100%

Insugree Sdn Bhd100%

Pharmaniaga Marketing Sdn Bhd100%

Safire Pharmaceuticals Sdn Bhd100%

Pharmaniaga LifeScience Sdn Bhd100%

Pharmaniaga International Corporation Sdn Bhd100%

Pharmaniaga Logistics Sdn Bhd100%

PT Millenniu m Pharm acon International Tbk (Indonesia )55%

Pharmaniaga Biomedical Sdn Bhd100%

Pharmaniaga Biovention Sdn Bhd100%


Fig 8. Malaysias logisti cs network

Pulau Pinang

Ipoh

Kuching

Sandakan

Langkawi

Kangar

Jitra

Lahad Datu

TawauSemporna

Beluran

Kudat

Kota Belud Kota Marudu

Tambunan

KeningauTenom

Lawas

Limbang

Sipitang

Bintulu

Mukah

KapitKanawit

Daro

Sarakei

Sri Aman

Simunjan

Lunda

Bau

Serian

Betong

Sik

Yan

Sg. Petani

Gerik

Parit Buntar

Taiping

TelukIntan

Kota Kinab atangan

Tuaran

MarudiTg.Malim

Bt.Gajah

Kampar

K.KangsarSg.Siput

Balik Pulau SelamaSg.Bakap

MuarTangkak

Segamat

Pekan

Kemaman

Kuala Pilah

Jelebu

Kajang

MentakabK.KubuBaru

Tapah

T.Intan

Banting

Tj.Karang

Kota Bahru

Kuala Terengganu

Dungun

Tumpat

P.Mas

BesutK.Krai

P.Putih

T.Merah

Bukit Mertajam

Kuantan

P.Dickson

Bentong

Melaka

Johor Bahru

Kluang

Mersing

Kota Tinggi

Pontian

Batu Pahat

Sibu

Miri

Kota KinabaluBeufort

Papar

Sri Manjung

Baling

Kulim

Seremban

Labuan

Alor Setar



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Focus Charts

Fig 9. EPS and EBITDA margin trend Fig 10. Net profi t and margin trend

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

5

10

15

20

25

30

35

40

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

CoreEPS(sen)(LHS) EBITDAmargin(%)(RHS)

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

5%

0

20

40

60

80

100

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Net

profit

(RMm)

(LHS) Net

profit

margin

(RHS)

Source: Company data, Affin estimates Source: Company data, Affin estimates

Fig 11. Revenue breakdown by segment in 2012 Fig 12. Revenue breakdown by geography in 2012

Government

concession,

59%Tender

business,

14%

Indonesian

operation,

21%

Others,

6%

Malaysia78%

Indonesia21%

Others1%

Source: Company data Source: Company data

Fig 13. EPS and dividend trend Fig 14. DPS and yield

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

EPS(sen) NetDPS(sen)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0

5

10

15

20

25

30

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

DPS

(sen)

(LHS) Dividend

yield

(%)

(RHS)

Dividend

yields

expected

to

rise

Source: Company data, Affin estimates Source: Company data, Affin estimates


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Page 11 of 12

Pharmaniaga FINANCIAL SUMMARY

Profit & Loss Statem ent Key Financial Ratios and Margins

FYE 31 Dec (RMm ) 2011 2012 2013E 2014E 2015E FYE 31 Dec (RMm ) 2011 2012 2013E 2014E 2015E

Revenue 1521.0 1812.3 1920.6 2036.4 2138.3 Growth

Operating expenses (1421.8) (1650.6) (1746.9) (1842.4) ( 1928.7) Revenue (%) 10.3 19.2 6.0 6.0 5.0

EBITDA 99.2 161.7 173.8 194.0 209.5 EBITDA (%) 55.6 63.0 7.4 11.6 8.0

Depreciation (22.5) (44.1) (39.0) (40.1) (39.1) Core net profit (%) 21.0 1.2 23.3 15.4 11.7

EBIT 76.7 117.7 134.8 153.9 170.5

Net int income/(expense) (3.2) (14.4) (19.6) (21.1) (22.2) Profitability

Associates' contribution (0.3) 0.0 0.0 0.0 0.0 EBITDA margin (%) 6.5 8.9 9.0 9.5 9.8

Pretax profit 73.2 103.3 115.2 132.8 148.3 PBT margin (%) 4.8 5.7 6.0 6.5 6.9

Tax (20.4) (40.1) (37.2) (42.8) (47.8) Net profit margin (%) 3.4 3.4 4.0 4.3 4.6

Minority interest (0.6) (1.5) (1.8) (2.1) (2.4) Ef fective tax rate (%) 27.5 38.5 32.0 32.0 32.0

Net profit 52.2 61.7 76.1 87.8 98.1 ROA (%) 4.6 5.0 5.8 6.2 6.6

Core ROE (%) 12.6 12.6 14.3 15.1 15.9

Balance Sheet Stateme nt ROCE (%) 10.2 13.6 14.3 31.5 33.0

FYE 31 Dec (RMm ) 2011 2012 2013E 2014E 2015E Div idend payout ratio (%) 57.9 66.7 60.0 60.0 65.0

Fixed assets 346.3 339.7 350.7 360.6 351.6

Other long term assets 117.4 159.8 159.8 159.8 159.8 Liquidity

Total non-cur rent ass ets 463.7 499.5 510.5 520.4 511.4 Current ratio (x) 1.0 1.0 1.0 1.1 1.1

Op. cash f low (RMm) (65.1) 16.7 98.6 110.5 122.3

Cash and equivalents 55.1 34.6 83.0 122.8 171.1 Free cashf low (RMm) (95.6) (54.7) 48.6 60.5 92.3

Stocks 384.6 464.9 492.7 522.3 548.4 FCF/share (sen) (0.4) (0.2) 0.2 0.2 0.4

Debtors 221.6 218.3 231.3 245.3 257.5

Other current assets 8.5 5.7 5.7 5.7 5.7 As set m anage nm en t

Total current assets 669.8 723.4 812.8 896.0 982.7 Debtors turnover (days) 53.2 44.0 44.0 44.0 44.0

Stock turnover (days) 108.5 111.7 111.7 111.7 111.7

Creditors 437.3 377.5 400.1 424.2 445.4 Creditors turnover (days) 123.4 90.7 90.7 90.7 90.7

Shor t term bor rowings 188.2 341.0 375.1 393.8 413.5Other current liabilities 15.6 5.3 5.3 5.3 5.3 Capital stru cture

Total current liabilit ies 641.2 723.7 780.5 823.2 864.1 Net gearing (%) 27.6 62.8 55.0 46.6 39.2

Interest cover (x) 18.4 7.9 6.7 7.1 7.5

Long term borrow ings 0.1 0.1 0.1 0.1 0.1

Other long term liabilities 8.9 11.2 11.2 11.2 11.2

Total long term liabilit ies 9.0 11.2 11.2 11.2 11.2

Shareholders ' Funds 468.9 472.0 513.9 562.2 596.5

Minor ity interes t 14.4 15.8 17.7 19.8 22.2

Quarterly Profit & Los s

Cash Flow Statement FYE 31 Dec (RMm ) 2Q11 3Q11 4Q11 1Q12 1Q12

FYE 31 Dec (RMm ) 2011 2012 2013E 2014E 2015E Revenue 396.4 371.4 367.8 446.7 456.7

PBT 73.2 103.3 115.2 132.8 148.3 Operating expenses (376.1) (354.8) (350.2) (400.6) (456.7)

Depreciation & amortisation 22.5 44.1 39.0 40.1 39.1 EBIT 20.3 16.7 17.6 46.2 30.8Working capital changes (126.5) (136.8) (18.3) (19.5) (17.2) Net int income/(expense) (0.7) (1.0) (1.2) (3.2) (3.1)

Cash tax paid (23.5) (36.1) (37.2) (42.8) (47.8) Associates' contribution (0.2) 0.0 0.0 0.0 0.0

Others (10.8) 42.3 0.0 0.0 0.0 Exceptional Items 0.0 0.0 0.0 0.0 0.0

Cashflow from operat ion (65.1) 16.7 98.6 110.5 122.3 Pretax profit 19.4 15.6 16.4 43.0 27.6

Capex (30.5) (71.4) (50.0) (50.0) (30.0) Tax (5.3) (4.7) (4.2) (13.9) (11.5)

Others (101.3) (55.9) 0.0 0.0 0.0 Minority interest (0.1) (0.1) (0.2) (0.4) (0.4)

Cas h flow f r om i nves ting (131.8) (127.3) (50.0) (50.0) (30.0) Net profit 13.9 10.8 11.9 28.7 15.7

Debt raised/(repaid) 155.2 152.7 34.1 18.8 19.7 Core net prof it 13.9 10.8 11.9 28.7 15.7

Dividends paid 0.0 (61.4) ( 34.3) ( 39.5) ( 63.8)

Others (6.2) (1.9) 0.0 0.0 0.0 Margins (%)

Cash flow from f inancing 149.0 89.5 (0.2) (20.8) (44.1) EBIT 5.1 4.5 4.8 10.3 6.7

PBT 4.9 4.2 4.5 9.6 6.0

Free Cash Flow (95.6) (54.7) 48.6 60.5 92.3 Net profit 3.5 2.9 3.2 6.4 3.4

Source: Company, Affin estimates


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Page 12 of 12

EEqquuii ttyyRRaatt iinnggSSttrruuccttuurreeaannddDDeeffiinnii tt iioonnss

BUY Total return is expected to exceed +15% over a 12-month period

TRADING BUY(TR BUY)

Total return is expected to exceed +15% over a 3-month period due to short-term positive development, but fundamentals arenot strong enough to warrant a Buy call. This is to cater to investors who are willing to take on higher risks

ADD Total return is expected to be between 0% to +15% over a 12-month period

RREEDDUUCCEE Total return is expected to be between 0% to -15% over a 12-month period

TRADING SELL(TR SELL)

Total return is expected to exceed -15% over a 3-month period due to short-term negative development, but fundamentals arestrong enough to avoid a Sell call. This is to cater to investors who are willing to take on higher risks

SSEELLLL Total return is expected to be below -15% over a 12-month period

NOT RATED Affin Investment Bank does not provide research coverage or rating for this company. Report is intended as information onlyand not as a recommendation

OVERWEIGHT Industry, as defined by the analysts coverage universe, is expected to outperform the KLCI benchmark over the next 12months

NEUTRAL Industry, as defined by the analysts coverage universe, is expected to perform inline with the KLCI benchmark over the next

12 monthsUNDERWEIGHT Industry, as defined by the analysts coverage universe is expected to under-perform the KLCI benchmark over the next 12months

This report is intended for information purposes only and has been prepared by Affin Investment Bank Berhad (Affin Investment Bank) basedon sources believed to be reliable. However, such sources have not been independently verified by Affin Investment Bank, and as such, AffinInvestment Bank does not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability orcompleteness of the information and/or opinion provided or rendered in this report. Facts, information, views and/or opinions presented in thisreport have not been reviewed by, may not reflect information known to, and may present a differing view expressed by other business unitswithin Affin Investment Bank, including investment banking personnel. Reports issued by Affin Investment Bank are prepared in accordance with

Affin Investment Banks policies for managing conflicts of interest arising as a result of publication and distribution of investment researchreports. Under no circumstances shall Affin Investment Bank, its affiliates and related companies, their directors, associates, connected partiesand/or employees be liable in any manner whatsoever for any consequences (including but are not limited to any direct, indirect orconsequential losses, loss of profit and damages) arising from the use of or reliance on the information and/or opinion provided or rendered inthis report. Any opinions or estimates in this report are that of Affin Investment Bank as of this date and subject to change without prior notice.Under no circumstances shall this report be construed as an offer to sell or a solicitation of an offer to buy any securities.

Affin Investment Bank and/or any of its directors and/or employees may have an interest in the securities mentioned therein. Affin InvestmentBank may also make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report.Further, Affin Investment Bank, its affiliates and its related companies may do and seek to do business with the company(ies) covered in thisresearch report and may from time to time assume an underwriting commitment in securities of such company(ies), may sell them to or buythem from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwritingservices for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entities mentioned in thisreport.

Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations.These opinions may not fit to your financial status, risk and return preferences and hence, an independent evaluation is essential. In addition,this report is general in nature and it is intended for circulation for Affin Investment Bank and its affiliates clients generally and does not haveregard to the specific investment objectives, financial situations and the particular needs of any specific person who may receive this report.Investors are advised to independently evaluate particular investments and strategies and to seek independent financial, legal and other adviceon the information and/or opinion contained in this report before investing or participating in any of the securities or investment strategies ortransactions discussed in this report.

Simulations or model portfolio are prepared on a hypothetical basis and are for illustrations only.

Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data

they provide and shall not have liability for any damages of any kind relating to such data.

Affin Investment Banks research, or any portion thereof may not be reprinted, transmitted to, photocopied or reproduced in any form - sold orredistributed, directly or indirectly in whole or in part without the prior written express consent of Affin Investment Bank.

This report is printed and published by:Af fin Inves tmen t Bank B hd (9999-V)A Participating Organisation of Bursa Malaysia Securities BhdChulan Tower Branch,3rd Floor, Chulan Tower,No 3, Jalan Conlay,50450 Kuala Lumpur.

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