Page 1 of 11

22 January 2014

HLIB Research PP 9484/12/2012 (031413)

Power (Overweight )

INDUSTRY INSIGHT 22 January 2014

IBR – FCPT Implementation – Viva TNB! Highlights/ Comment

The government has started the trial run implementation of IBR (Incentive Based Regulation) and FCPT (Fuel Cost Past Through) since 1 Jan 2014 (prior to effective implementation on 1 Jan 2015), which has increased the average tariff by 14.89% to 38.53 sen/kWh.

The new tariff structure is derived after taking into consideration power generation cost (including capacity payment and fuel cost), required 7.5% rate of return for power transmission and distribution, operational cost, depreciation and tax expenses.

The 7.5% rate of return is based on the weighted average cost of capital (WACC) for TNB’s transmission and distribution segments.

While the base tariff of 38.53 sen/kWh will be reviewed every 3 years by Energy Commission under IBR, there is also adjustment to the tariff due to changes in fuel cost under FCPT every 6 months. Domestic natural gas price is expected to be adjusted every 6 months under NEP.

Under the IBR, the recommended capex for power transmission and distribution is RM5-6.5bn per annum, which we expect TNB to spend less than the proposed amount, providing TNB opportunity to gain from higher earnings during the regulated period (incentives). Historically, TNB capex was only RM3-4bn per annum.

TNB is the major beneficiary of the implementations, as IBR ensures 7.5% rate of return (transmission and distribution) and FCPT protects TNB from fuel cost uncertainties. TNB will be more willing to invest in capex to improve system efficiency and service delivery.

On the other hand, power generation segment will go through competitive biddings, which allow the participation of TNB, domestic IPPs and international IPPs, in order to ensure continued low power generation cost (lower capacity payments and increase plant efficiency) or lower rate of return for the power generation industry. IPPs such as YTLP, 1MDB and Malakoff will have to accept lower IRR for new power generation projects.

Risks Downside risks – Surge in global energy prices (natural gas and coal). Supply disruption of energy resources. Depreciation of RM.

Forecasts Unchanged.

Rating Overweight Positives – Expect continued economy growth albeit slower pace. Commencement of Melaka RGT (Stable gas supply). Implementation of FCPT and IBR.

Negatives – Depreciation of RM against US$.

Valuation Maintained Buy on Tenaga with higher TP of RM13.15. Maintained Hold on YTLP with unchanged TP of RM1.85.

Daniel Wong kkwong@hlib.hongleong.com.my (603) 2168 1077 Malaysia Power Demand

Tenaga TP: RM13.15 KLCI 1815 Expected share price return 14.3% Expected dividend return 2.8% Expected total return 17.1%

Share price

YTL Power TP: RM1.87 KLCI 1815 Expected share price return -1.1% Expected dividend return 0.0% Expected total return -1.1% Share price

HLIB

d

0

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

TWh

1550

1600

1650

1700

1750

1800

1850

1900

6.0

7.0

8.0

9.0

10.0

11.0

12.0

Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13

(KLCI)(RM)

TNB (LHS) KLCI (RHS)

1550

1600

1650

1700

1750

1800

1850

1900

1.4

1.5

1.6

1.7

1.8

1.9

2.0

Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13

(KLCI)(RM)

YTLP (LHS) KLCI (RHS)

HLIB Research | Power

www.hlebroking.com

Page 2 of 11

22 January 2014

Implementation of FCPT & IBR Government of Malaysia (GoM) has started to trial-run FCPT (Fuel Cost Past Through) and IBR (Incentive Based Regulation) from 1 Jan 2014 for 1 year, before effective implementation on 1 Jan 2015 (for 3 years until 31 Dec 2017). During the trial period, IBR will be reviewed by EC (Energy Commission). The effective average new tariff is 38.53 sen/kWh (See Figure #1) from previous 33.54 sen/kWh (hike of 14.89%),

Figure #1: Average Tariff Requirement for 2014-2017

Energy Commission

Estimated 70.7% domestic users will not be affected by the new proposed tariff structures, while the remaining 29.3% may experience up to 25% increase in total electricity bill (See Figure #2). Commercial and industrial users are expected to experience an average electricity bill increase of 16.85% (ranging 0.9% to 18%), while Special Industrial Tariff (SIT) users will experience an average increase of 19%.

Figure #2: New Domestic Tariff Structure Domestic Tariff Customer in the Existing Charges New Charges Change Change Band (kWh) Band (%) (RM) (RM) (RM) (%)

1-200 50.37% 3.00 - 43.60 3.00 - 43.60 Unchanged 0.0%201-300 20.30% 43.93 - 77.00 43.93 - 77.00 Unchanged 0.0%301-400 11.10% 77.40 -117.00 77.52 - 128.60 0.12 -11.60 1.6 - 9.9%401-600 10.44% 117.40 - 198.80 129.12 - 231.80 11.71 -33.00 10.0 - 16.6%601-800 4.03% 199.23 - 285.10 232.35 - 341.00 33.12 -55.90 16.6 - 19.6%

801-1,000 1.75% 285.55 - 375.80 341.55 - 452.70 55.99 -76.90 19.6 - 20.5%1,001-5,000 1.98% 376.25 - 2,191.80 453.27 - 2,736.70 77.02 -544.90 20.5 - 24.9%

> 5,000 0.03% > 2,192.25 > 2,737.27 >545.02 24.9%TNB, HLIB

Under IBR, TNB has restructured its accounting and reporting mechanism (See Figure #3), in order to separate its power generation, transmission and distribution segments for transparency purpose. Moving forward, power generation segment’s earnings will be based on competitive open biddings between TNB, domestic and international IPPs (independent power producers), in order to maintain continuous low power generation cost (capacity payments and efficient power generation). TNB’s transmission and distribution segments’ earnings will be regulated through IBR, which is set at 7.5% net margin (based on WACC) for the regulated period of 2014-2017.

Implementation of IBR since 1 Jan 2014 (trial run for 1 year and subsequently 3 year effective period) Under IBR, the average tariff requirement is 38.53 sen/kWh (a hike of 14.89%) Estimated 70.67% of domestic user unaffected, while the remaining 29.3% will experience up to 25% increase in total electricity bill. TNB has restructured its accounting and reporting mechanism to separate power generation, transmission and distribution segments.

HLIB Research | Power

www.hlebroking.com

Page 3 of 11

22 January 2014

Figure #3: TNB’s New Business Structure

Energy Commission

New Tariff Structure The new tariff structure consists of two major components, which are base tariff and FCPT. Base tariff is currently set at 38.53 sen/kWh (14.89% hike) after taking into account of:

1. 1.52% or 0.51 sen/kWh increase for domestic gas price adjustment from RM13.70/MMBtu to RM15.20/MMBtu;

2. 10.17% or 3.41 sen/kWh hike for imported LNG price fixed at RM41.68/MMBtu;

3. 0.51% or 0.17 sen/kWh hike for coal price adjustment from US$85/mt to US$87.5/mt. (Foreign exchange rate of RM3.14/US$)

4. 2.69% or 0.90 sen/kWh increase in base tariff (TNB), which will be regulated through IBR (Incentive Based Regulation) mechanism.

The base tariff is regulated under IBR and will be reviewed by Energy Commission every 3-year, to determine the suitable return (currently 7.5%) for TNB’s transmission and distribution segments. The FCPT will be reviewed every 6-month, to adjust the average tariff due to changes in fuel and purchasing cost (which may vary from the base assumption of fuel cost), as TNB (being a single buyer entity) has to pay the fuel cost incurred by power generation entities (TNB and IPPs).

Figure #4: TNB’s Tariff Component

Energy Commission

Earnings for transmission and distribution segments will be based on IBR, while power generation will be based on competitive bidding system. The current base tariff of 38.53 sen/kWh is arrived after taking into account of current fuel cost and required rate of return for TNB under IBR. Base tariff will be regulated under IBR and reviewed every 3 years, while FCPT component will be reviewed every 6 months. Under IBR, current tariff structure includes base tariff + changes in FCPT.

HLIB Research | Power

www.hlebroking.com

Page 4 of 11

22 January 2014

Under IBR, the average base electricity tariff is arrived at based on the overall revenue requirement for TNB (See Figure #5), after taking into account of the 7.5% required rate of return on Regulated Asset Base (RAB), operational expenditure, depreciation cost and tax expenses as well as efficiency carryover amount (based on the performance of the previous regulatory term).

Figure #5: Calculation of Revenue Requirement

Energy Commission

The breakdown of the revenue requirement includes:

1) Single Buyer Revenue of RM116,273m; 2) Single Buyer Operation Revenue of RM849m; 3) Transmission Revenue of RM16,189m; 4) System Operation Revenue of RM201m; and 5) Distribution Revenue of RM170,054m.

Figure #6: TNB Revenue Requirement for 2014-2017 (RMm)

Energy Commission

However, we wish to highlight that the projected revenue requirement has not taken into account of FCPT (to be reviewed for every 6 months), which will adjust the overall electricity tariff rates due to changes to the fuel cost i.e. imported LNG, domestic gas price, coal price, alternative fuels, fuel mix and exchange rates. The domestic gas price is expected to be revised every 6 months under NEP plan.

Calculation of TNB’s WACC The fair Rate of Return (RoR) is based on the historical track record and current environment of TNB’s average cost of capital (WACC), in order for TNB to provide the regulated service i.e. transmission and distribution of electricity. Based on Energy Commission’s recommendation, the appropriate return (or WACC) is set at 7.5% of the average Regulated Asset Base (RAB) (See Figure #7).

TNB’s revenue requirement is calculated based on: 1) WACC of 7.5%; 2) Opex; 3) Depreciation; 4) Tax; and 5) Efficiency carryover

amount. TNB’s overall revenue requirement during the first IBR regulatory period is RM170.1bn (have not taken into account of possible tariff adjustments due to FCPT). Tariff likely to be adjusted when FCPT is reviewed every 6 months.

HLIB Research | Power

www.hlebroking.com

Page 5 of 11

22 January 2014

Figure #7: Regulatory WACC under IBR 2014-2017 Set at 7.5%

Energy Commission

TNB’s Recommended Capital Expenditure After being scrutinized by Energy Commission, the overall capex for 2014-2017 was cut by 15% for transmission to RM8.5bn and 20% for distribution to RM14.9bn (See Figure #8). The capex will increase RAB continuously. Tracking back TNB’s historical capex (See Figure #9), the annual amount range was RM3-4bn (only transmission and distribution), lower than the recommended range of RM5-6.5bn per annum, suggesting possible significant under-investment in the previous years. Nevertheless, we expect TNB to spend less than the recommended capex and still achieve its set of KPIs. Hence, TNB will be able to enjoy the incentives through capex savings (efficiency gain) during the regulated period 2014-2017.

Figure #8: TNB’s Capital Expenditure for 2014-2015

Energy Commission

Energy Commission has set the WACC to be 7.5% (required rate of return based on RAB), based on TNB’s historical and current cost structure. Overall proposed capex for transmission and distribution was RM8.5bn and RM14.9bn respectively. TNB will be enjoying the IBR incentives, given it had spent significantly lower capex amount historically. The recommended capex was RM5-6.5bn per annum

HLIB Research | Power

www.hlebroking.com

Page 6 of 11

22 January 2014

Figure #9: TNB’s Historical Capital Expenditure

TNB

Impact of IBR to Industry Player TNB is the major beneficiary of IBR implementation, which effectively removes major investment risks on TNB i.e. ensuring strong and stable earnings and cash flow as: 1) FCPT protects TNB from fluctuating and increasing power generation costs; and 2) IBR ensures a fair 7.5% rate of return to TNB’s transmission and distribution segments, while we believe TNB will be able to achieve higher return during the first regulatory period 2014-2017, from potentially spending lower than the recommended capex and opex. Furthermore, TNB will be more willing to invest in transmission and distribution capex, given that it is protected under IBR to recover its investment. Hence, we expect improve in system efficiency and service delivery.

IBR applies only to TNB’s power transmission and distribution segments, while its power generation business will have to undergo competitive bidding system (since Prai Combine-Cycled Gas Power Plant under Track 1 Project in 4Q12) along with IPPs (YTLP, Malakoff, 1MDB and etc) to ensure continued low electricity generation cost i.e. lower rate of return for power generation industry. Furthermore, the competitive bidding system is open to international IPP players such as Marubeni, KEPCO and etc. Hence, we expect the IRR of the industry to fall below 10%, as compared to previous generations of PPAs, which fetch up to 20% IRR. According to The Edge, the latest Track 4 Project: Greenfield Coal Power Plant is competitively bidded, with frontrunner being YTLP and 1MDB. The IRR of the project is believed to be around 8%, suggesting intense pressures among the IPPs to secure new power generation project. Both YTLP and 1MDB are in dire need for the project, as YLTP’s existing PPAs will expire by Sept 2015 while 1MDB need the project to enhance its valuation for potential IPO exercise in 2H14.

Valuation and Recommendation We maintained Overweight on Power Sector as the government continued to push through industry transformation and transparency. Our top pick of the industry is TNB, given that it is the major beneficiary of the industry transformation.

Maintained Buy on TNB with higher target price of RM13.15 (from RM11.90) based on DCFE valuation, after we have rolled-forward our valuation into FY08/15.

Maintained Hold on YTLP with unchanged target price of RM1.85 based on SOP, given its uncertain outlook from expiring domestic PPAs and margin compression of Singapore Seraya Power.

Historical capex for transmission and distribution was RM3-4bn per annum. TNB is the major beneficiary of IBR implementation. IPPs’s projected IRR for new power generation project will be affected by the new open tender system, due to competitive biddings.

HLIB Research | Power

www.hlebroking.com

Page 7 of 11

22 January 2014

Appendix

Figure #10: Projected Regulated Asset Base (RAB)

Energy Commission

Figure #11: Single Buyer Revenue Requirement

Energy Commission

Figure #12: System Operation Revenue Requirement

Energy Commission

The projected regulated asset base of TNB’s transmission and distribution segments will increase from RM41.1bn to RM48.6bn, after taking into account the recommended capex.

HLIB Research | Power

www.hlebroking.com

Page 8 of 11

22 January 2014

Figure #13: Single Buyer Operation Revenue Requirement

Energy Commission

Figure #14: Transmission Revenue Requirement

Energy Commission

Figure #15: Transmission Revenue Requirement

Energy Commission

HLIB Research | Power

www.hlebroking.com

Page 9 of 11

22 January 2014

Financial Projections - Tenaga

Income statement Cashflow FYE 31 Aug (RMm) 2012A 2013A 2014E 2015E 2016E FYE 31 Aug (RMm) 2012A 2013A 2014E 2015E 2016E Revenue 32,241 35,848 37,131 42,340 46,937 EBITDA 5,384 7,540 9,398 10,387 10,943 Operating cost -26,857 -28,308 -28,074 -31,049 -34,843 Net interest received -559 -640 -667 -673 -643 EBITDA 5,384 7,540 9,057 11,291 12,094 Working cap changes -2,348 -737 -34 -433 -425 Depreciation -4,041 -4,268 -4,570 -5,068 -5,145 Taxation -697 -432 -1,181 -1,041 -1,137 EBIT 1,343 3,272 4,488 6,224 6,949 Others 2,630 2,237 1,526 0 0 Interest income 319 189 225 256 280 Operating cashflow 4,410 7,967 9,042 8,240 8,737 Interest expense -879 -829 -936 -1,066 -1,057 Capex & acquisitions -5,764 -7,091 -8,000 -5,950 -6,550 Associates 93 27 75 80 80 Free cashflow -1,354 876 1,042 2,290 2,187 Exceptionals 116 2,879 1,686 0 0 Other inv cashflow 244 50 50 0 0 Pretax profit 993 5,537 5,537 5,493 6,252 Net borrowings -2,613 3,637 -126 170 170 Taxation (Inc Def Tax) -152 -1,386 -1,225 -1,099 -1,250 Share issuance 82 263 780 260 260 Minorities 0 -17 0 0 1 Dividends paid -838 -273 -1,106 -1,250 -1,146 Net profit 840 4,134 4,313 4,395 5,002 Share repurchase 0 0 0 0 1 Core profit (Ex Def Tax) 746 2,561 2,982 4,395 5,002 Other fin cashflow 93 119 0 0 0 No of shares (m) 5,486 5,531 5,648 5,698 5,748 Net cashflow -4,386 4,673 641 1,470 1,472 Rep. EPS (Sen) 18.7 79.4 82.3 77.1 87.0 Forex translation -3 -1 0 0 0 Core EPS (sen) 13.6 46.3 52.8 77.5 87.4 Beginning cash 8,344 3,954 8,626 9,267 10,737 Ending cash 3,954 8,626 9,267 10,737 12,209 Balance sheet Valuation Ratios FYE 31 Aug (RMm) 2012A 2013A 2014E 2015E 2016E FYE 31 Aug (RMm) 2012A 2013A 2014E 2015E 2016E Fixed assets 68,559 73,974 78,431 79,886 80,668 Reported basic EPS (sen) 79.4 82.3 77.1 87.0 96.5 Other long-term assets 1,229 4,598 1,103 1,133 1,163 Core basic EPS (sen) 46.3 52.8 77.5 87.4 96.9 Other short-term assets 224 811 811 811 811 Core FD EPS (sen) - - - - - Working capital 4,152 3,716 4,928 5,343 5,757 PER (x) 19.5 17.1 11.7 10.4 9.3 Receivables 5,844 5,820 7,049 7,968 8,911 FD PER (x) - - - - - Payables -4,535 -4,981 -5,508 -6,381 -7,287 Net DPS (sen) 20.0 25.0 32.0 36.0 40.0 Inventory 2,842 2,878 3,387 3,755 4,132 Net DY (%) 2.2 2.8 3.5 4.0 4.4 Net cash -14,501 -14,289 -13,221 -11,682 -9,123 BV/ share (RM) 6.5 6.2 6.7 7.3 7.9 Cash 8,626 9,531 11,527 13,884 16,418 PB (x) 1.8 1.8 1.7 1.6 1.5 ST debt -1,659 -1,807 -736 666 2,267 FCF/ share (sen) 15.8 6.2 39.0 54.0 75.3 LT debt -21,468 -22,014 -24,012 -26,231 -27,808 FCF yield (%) 1.4 0.5 3.4 4.7 6.6 Shareholders' funds 36,137 35,117 38,360 41,799 45,585 Market capitalization 63,268 64,901 65,476 66,051 66,626 Share capital 5,502 5,644 5,694 5,744 5,794 Net cash -14,501 -14,289 -13,221 -11,682 -9,123 Reserves 30,636 29,474 32,667 36,055 39,791 Enterprise value 77,769 79,191 78,697 77,733 75,749 Minorities 261 274 273 273 272 EV/ EBITDA (x) 10.3 8.7 7.0 6.4 5.9 Other liabilities 23,265 33,419 33,419 33,419 33,419 ROE (%) 12.5 12.5 12.0 12.5 12.8 Assumption Metrics Other Ratios FYE 31 Aug 2012A 2013A 2014E 2015E 2016E FYE 31 Aug (RMm) 2012A 2013A 2014E 2015E 2016E Unit Sale (GWh) 102,132 105,479 110,769 115,722 120,900 Growth (%) Power Growth (% yoy) 4.3% 3.4% 5.0% 4.5% 4.5% Sales Growth 11.2 11.1 14.0 10.9 10.0 EBITDA Growth 40.0 45.1 24.7 7.1 6.4 Tariff (Sen/kWh) 33.69 33.96 36.87 39.20 41.36 EBIT Growth 143.7 117.5 38.7 11.6 10.1 PBT Growth 203.2 171.2 42.6 13.8 11.9 Gas Price (RM/mmbtu) 13.70 13.70 14.70 19.20 25.20 Net Profit Growth 240.4 105.3 46.7 12.8 10.9 Gas Supply (mmsftd) 1,061 1,192 1,320 1,345 1,355 Margins (%) Coal Price (US$/MT) 103.60 103.60 85.00 90.00 95.00 EBITDA Margin 21.0 24.4 26.7 25.8 24.9 Coal Usage (mm MT) 20.80 20.80 21.13 22.17 23.85 EBIT Margin 9.1 12.1 14.7 14.8 14.8 PBT Margin 7.4 10.4 13.0 13.3 13.5 RM/US$ 3.11 3.11 3.15 3.15 3.15 Net Profit Margin 7.1 8.0 10.4 10.7 10.8 RM/JP¥ (x100) 3.86 3.86 3.76 3.97 3.97 Net Debt/Equity (%) 35.7 40.7 34.5 27.9 20.0

Bloomberg, HLIB

HLIB Research | Power

www.hlebroking.com

Page 10 of 11

22 January 2014

Financial Projections - YTLP

Income statement Cashflow FYE 30 Jun (RMm) 2012A 2013A 2014E 2015E 2016E FYE 30 Jun (RMm) 2012A 2013A 2014E 2015E 2016E Revenue 15,870 15,816 17,523 18,252 18,142 EBITDA 3,086 2,915 3,362 3,629 3,442 Operating cost -12,784 -12,901 -14,161 -14,623 -14,700 Net interest received -796 -785 -807 -807 -802 EBITDA 3,086 2,915 3,362 3,629 3,442 Working cap changes 52 -68 -50 -52 37 Depreciation -1,243 -1,105 -1,246 -1,276 -1,054 Taxation -383 -430 -468 -539 -551 Interest income 24 16 25 26 28 Others 144 301 -30 0 27 Interest expense -820 -801 -832 -833 -830 Operating cashflow 2,105 1,933 2,008 2,232 2,153 Associates 285 356 250 250 250 Capex & acquisitions -1,311 -1,537 -1,458 -1,458 -1,408 Exceptionals 45 -64 0 0 0 Free cashflow 793 396 550 774 745 Pretax profit 1,391 1,337 1,560 1,796 1,836 Other inv cashflow 767 208 0 0 0 Taxation (Inc Def Tax) -235 -285 -468 -539 -551 Net borrowings 1,280 -14 -260 -263 -66 Minorities -75 -21 -30 0 27 Share issuance 78 12 0 0 0 Net profit 959 968 1,122 1,257 1,258 Dividends paid -586 -198 0 0 0 Core Profit (Ex Def Tax) 959 968 1,122 1,257 1,258 Share repurchase 0 0 0 0 0 No of shares (m) 7,253 7,253 7,287 7,297 7,307 Other fin cashflow -8 -366 0 0 0 No of FD shares (m) 8,429 8,430 8,462 8,472 8,482 Net cashflow 2,324 38 290 511 680 Rep. EPS (sen) 17.0 14.8 15.4 17.2 17.2 Forex Translation 98 -39 0 0 0 Core EPS (sen) 13.2 13.3 15.4 17.2 17.2 Beginning Cash Flow 7,131 9,553 9,920 10,211 10,722 Core FD EPS (sen) 11.4 11.5 13.3 14.8 14.8 Ending Cash Flow 9,553 9,552 10,211 10,722 11,401 Balance sheet Valuation ratios FYE 30 Jun (RMm) 2012A 2013A 2014E 2015E 2016E FYE 30 Jun (RMm) 2012A 2013A 2014E 2015E 2016E Fixed assets 17,259 17,287 17,478 17,660 18,014 Reported basic EPS (sen) 17.0 14.8 15.4 17.2 17.2 Other long-term assets 8,850 9,267 9,350 9,600 9,850 Core basic EPS (sen) 13.2 13.3 15.4 17.2 17.2 Other short-term assets 76 38 76 76 76 Core FD EPS (sen) 11.4 11.5 13.3 14.8 14.8 Working capital 836 283 637 689 652 PER (x) 14.2 14.0 12.1 10.9 10.9 Receivables 2,609 2,177 2,804 2,920 2,903 FD PER (x) 16.4 16.3 14.1 12.6 12.6 Payables -2,320 -2,420 -2,832 -2,925 -2,940 Net DPS (sen) 4.7 4.7 0.0 0.0 0.0 Inventory 548 526 666 694 689 Net DY (%) 2.9 2.9 0.0 0.0 0.0 Net cash -13,358 -13,174 -12,182 -11,408 -10,663 BV/ share (RM) 1.3 1.4 1.5 1.7 1.9 Cash 9,628 9,624 10,286 10,797 11,476 PB (x) 1.3 1.2 1.1 1.0 0.9 ST debt -9,298 -1,879 -9,298 -9,298 -9,298 FCF/ share (sen) 10.9 5.6 7.5 10.6 10.2 LT debt -13,688 -20,918 -13,169 -12,906 -12,841 FCF yield (%) 5.8 3.0 4.0 5.7 5.5 Shareholders' funds 9,438 9,998 11,209 12,466 13,752 Market capitalization 13,598 13,281 13,635 13,654 13,673 Share capital 3,664 3,669 3,664 3,664 3,664 Net cash -13,358 -13,174 -12,182 -11,408 -10,663 Reserves 5,773 6,329 7,545 8,802 10,087 Enterprise value 26,956 26,455 25,817 25,062 24,335 Minorities 374 289 299 299 326 EV/ EBITDA (x) 8.7 9.1 7.7 6.9 7.1 Other liabilities 3,852 3,414 3,852 3,852 3,852 ROE (%) 13.7 11.0 10.5 10.6 9.6 Assumption Metrics Other Ratios FYE 30 Jun (RMm) 2012A 2013A 2014E 2015E 2016E FYE 30 Jun (RMm) 2012A 2013A 2014E 2015E 2016E Revenue Growth (%) Power Generation 1,155 1,119 1,155 1,155 289 Sales Growth 8.2 -0.3 5.0 4.2 -0.6 Multi Utilities (Merchant) 11,999 11,655 13,111 13,474 13,810 EBITDA Growth 0.5 -5.5 8.2 7.9 -5.2 Water & Sewerage 2,396 2,507 2,697 2,828 2,966 EBIT Growth -15.0 -1.8 11.0 11.2 1.5 Mobile Broadband 221 446 461 695 978 PBT Growth -17.8 3.6 14.7 15.1 2.2 Investment Holdings 98 89 100 100 100 Net Profit Growth -26.7 1.0 12.4 11.9 0.0 PBT Margins (%) Power Generation 288 178 254 259 66 EBITDA Margin 19.4 18.4 19.2 19.9 19.0 Multi Utilities (Merchant) 726 728 824 864 901 EBIT Margin 11.6 11.4 12.1 12.9 13.2 Water & Sewerage 597 672 630 663 719 PBT Margin 8.4 8.7 8.9 9.8 10.1 Mobile Broadband -308 -269 -150 1 135 Net Profit Margin 6.0 6.1 6.4 6.9 6.9 Investment Holdings 88 29 2 9 15 Net Debt/Equity (%) 141.5 131.8 108.7 91.5 77.5 Bloomberg, HLIB

HLIB Research | Power

www.hlebroking.com

Page 11 of 11

22 January 2014

Disclaimer The information contained in this report is based on data obtained from sources believed to be reliable. However, the data and/or sources have not been independently verified and as such, no representation, express or implied, is made as to the accuracy, adequacy, completeness or reliability of the info or opinions in the report. Accordingly, neither Hong Leong Investment Bank Berhad nor any of its related companies and associates nor person connected to it accept any liability whatsoever for any direct, indirect or consequential losses (including loss of profits) or damages that may arise from the use or reliance on the info or opinions in this publication.

Any information, opinions or recommendations contained herein are subject to change at any time without prior notice. Hong Leong Investment Bank Berhad has no obligation to update its opinion or the information in this report.

Investors are advised to make their own independent evaluation of the info contained in this report and seek independent financial, legal or other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise represent a personal recommendation to you.

Under no circumstances should this report be considered as an offer to sell or a solicitation of any offer to buy any securities referred to herein.

Hong Leong Investment Bank Berhad and its related companies, their associates, directors, connected parties and/or employees may, from time to time, own, have positions or be materially interested in any securities mentioned herein or any securities related thereto, and may further act as market maker or have assumed underwriting commitment or deal with such securities and provide advisory, investment or other services for or do business with any companies or entities mentioned in this report. In reviewing the report, investors should be aware that any or all of the foregoing among other things, may give rise to real or potential conflict of interests.

This research report is being supplied to you on a strictly confidential basis solely for your information and is made strictly on the basis that it will remain confidential. All materials presented in this report, unless specifically indicated otherwise, is under copyright to Hong Leong Investment Bank Berhad. This research report and its contents may not be reproduced, stored in a retrieval system, redistributed, transmitted or passed on, directly or indirectly, to any person or published in whole or in part, or altered in any way, for any purpose.

This report may provide the addresses of, or contain hyperlinks to, websites. Hong Leong Investment Bank Berhad takes no responsibility for the content contained therein. Such addresses or hyperlinks (including addresses or hyperlinks to Hong Leong Investment Bank Berhad own website material) are provided solely for your convenience. The information and the content of the linked site do not in any way form part of this report. Accessing such website or following such link through the report or Hong Leong Investment Bank Berhad website shall be at your own risk. 1. As of 22 January 2014, Hong Leong Investment Bank Berhad has proprietary interest in the following securities covered in this report: (a) -. 2. As of 22 January 2014, the analyst, Daniel Wong, who prepared this report, has interest in the following securities covered in this report: (a) -.

Published & Printed by Hong Leong Investment Bank Berhad (10209-W) Level 23, Menara HLA No. 3, Jalan Kia Peng 50450 Kuala Lumpur Tel 603 2168 1168 / 603 2710 1168 Fax 603 2161 3880

Equity rating definitions BUY Positive recommendation of stock under coverage. Expected absolute return of more than +10% over 12-months, with low risk of sustained downside. TRADING BUY Positive recommendation of stock not under coverage. Expected absolute return of more than +10% over 6-months. Situational or arbitrage trading opportunity. HOLD Neutral recommendation of stock under coverage. Expected absolute return between -10% and +10% over 12-months, with low risk of sustained downside. TRADING SELL Negative recommendation of stock not under coverage. Expected absolute return of less than -10% over 6-months. Situational or arbitrage trading opportunity. SELL Negative recommendation of stock under coverage. High risk of negative absolute return of more than -10% over 12-months. NOT RATED No research coverage, and report is intended purely for informational purposes.

Industry rating definitions OVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% over 12-months. NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return between –5% and +5% over 12-months. UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than –5% over 12-months.