South East Asia Industry Focus ASEAN Consumer: Food for ......South East Asia Industry Focus ASEAN Consumer: Food for Thought Page 5 Valuations getting richer; at +1.2SD above historical

ed-TH / sa: SM, PY

Good but servings getting rich

Lip-smacking performance thus far

Projecting robust growth; Thai companies stand out

Strong margin improvement on raw materials but watch out as selected commodity prices are on the rise

Stock picks: sticking to earnings/ margin surprise, growth and specific catalysts

Servings are good so far. Profit growth for companies under our consumer coverage has been robust, particularly in Thailand, Indonesia and Philippines. In the most recent results for 2QCY16, companies under our consumer sector posted an aggregate profit growth of 13.5% y-o-y, on the back of 7.6% increase in sales. Almost two-thirds of consumer companies under our coverage performed within expectations – the highest since 2015.

Projecting earnings growth of 16%. We are projecting an aggregate profit growth of c.16% for FY16F, driven by improved consumer sentiment, margin expansion and stable regional currencies. Among the ASEAN countries, Thai consumer companies are projected to show the most robust growth on the back of rising consumer confidence and stability. As farm prices rise, this could also spur consumption and bode well for mass-market consumer companies.

Robust margins but something to keep an eye on. 2Q16 gross margins continued to edge higher, reaching a record high of 27.9% since 1Q14, due to lower raw material costs. We could still see margins maintained in 3Q, but with several commodity prices off their lows and on the steady trek upwards, one should watch for moderating margins going forward, particularly from 4Q16 or 1Q17.

Valuations getting richer; stick to stock picking. The sector has re-rated upwards on the back of improving sentiment; and, valuations have moved up to +1.2SD above historical average. Our stock picks from our last issue have performed well, averaging a total return of c.32%. We continue to advocate a stock picking strategy, sticking to names that have potential to continue to deliver strong growth or those which could potentially see upside surprises. We retain Sheng Siong given its potential upside margin surprise, CPALL for its strong growth profile and OldTown for potential upside surprise to earnings. We still like Indofood Sukses Makmur given its decent valuation, growth, and potential for its sum-of-parts discount to narrow with the divestment plan of China Minzhong. We add back THBEV after its recent correction, and project growth to remain robust.

STI : 2,869.47 KLCI : 1,652.55 SET : 1,483.21 JCI : 5,364.80 PCOMP : 7,629.73

Analyst Andy SIM CFA +65 6682 3718 [email protected] Alfie YEO +65 6682 3717 [email protected] King Yoong CHEAH +60 32604 3908 [email protected] Namida ARTISPONG +66 2657 7833 [email protected] Tiesha PUTRI +62 21 3003 4931 [email protected] Reuben Mark ANGELES

STOCKS PICKS

Source: DBS Bank, Alliance DBS, DBS Vickers, First Metro

Closing price as of 30 Sep 2016

DBS Group Research . Equity 4 October 2016

South East Asia Industry Focus

ASEAN Consumer: Food for Thought

Issue #08/16

Refer to important disclosures at the end of this report

Price Mkt Cap Target

Price Performance (%)

LCY US$m Local 3 mth 12 mth Rating

Thai Beverage Public Company

0.970 17,871 1.13 6.6 41.6 BUY

CP ALL 61.50 15,965 75.00 22.4 28.8 BUY

Indofood Sukses Makmur

8,700 5,856 9,700 23.8 58.2 BUY

Sheng Siong Group Ltd

1.060 1,169 1.18 20.5 28.5 BUY

OldTown Berhad 1.99 218 2.15 4.2 56.7 BUY

Page 1



Page 2

Table of Contents Overview: Good but servings getting rich 3 Regional and Country 12-month forward PE 8 Performance Review and Regional Benchmarks 9 DBS ASEAN Consumer Stock Universe Performance 11 Same-store-sales-growth charts 12 Country briefings

Singapore 17 Malaysia 19 Thailand 21 Indonesia 24 Philippines 27

Macro Charts/ Data

GDP 31 Inflation 32 Forex 33 Input costs 34

PE & PB trading band charts 36 Peer comparison 46 Company Guides & Equity Explorer

Thai Beverage Pcl 49 CP ALL Pcl 58 Indofood Sukses Makmur 65 Sheng Siong Group 74 OldTown Berhad 80 Duty Free International Equity Explorer 87

Appendix 93

Page 2



Page 3

Overview: Good but servings getting rich Servings so far so good... In our ASEAN Consumer outlook back in November 2015 and subsequent in March 216, we highlighted that 2016 should dish out better servings for consumer stocks in the region as the year moves on. The recent outperformance has vindicated our view. In addition, profit growth for companies under our consumer coverage has been relatively robust, particularly in Thailand, Indonesia and Philippines. In fact, we are projecting an aggregate profit growth of c.16% for FY16F, driven by improved consumer sentiment, margin expansion and stable regional currencies. …but getting rich; stick to stock picking. That said, valuations continued to creep higher at +1.2SD above historical average, with Indonesian companies leading the pack (see valuation table on page 8). Notwithstanding the secular growth story of growing affluence and urbanisation, we prefer to stick to our strategy of looking for specific individual catalysts, earnings surprises and/or growth. Our last set of stock picks did well, returning an average of c.32% since May. In this issue, we continue to maintain the majority – Sheng Siong [SSG SP], Indofood Sukses Makmur [INDF IJ], CP ALL Pcl [CPALL TB] and OldTown Berhad [OTB MK]. We replaced Courts Asia with ThaiBev Pcl [THBEV SP].

2Q16 earnings review and recap A good quarter: Largest proportion of companies meeting expectations. In the most recent results for 2QCY16, the showing was good, going by the track record since 2015. it was by far the lowest proportion of disappointments for companies under our coverage. Almost two-thirds of consumer companies under coverage performed within expectations – the highest since 2015. Following from 1Q, we believe this could also arise from subdued expectations post 2015. That said, we had projected an aggregate net earnings growth of c.13% across the region for consumer companies under our coverage. Top-line growth helped by elections, earlier festive season. In 2Q16, the aggregate top-line growth was relatively strong at 7.6% y-o-y, largely driven by Thailand, Philippines and Indonesia. In Thailand, sales growth was helped by strong performance in the retail/commerce sector. CPALL and Home Products reported strong same-store-sales growth (SSSG) of 5% and 3.7% respectively, boosted by sales of beverages and air conditioners/evaporative fans due to the hot weather. In Philippines, consumer companies probably also received a boost in consumption from the Presidential election which wrapped up in May, while for Indonesia, the earlier Lebaran led to a shift in peak selling season towards 2Q, vis-à-vis 2015.

2Q16 saw 50% of coverage meeting expectations 2Q16 aggregated revenue and net profit growth (y-o-y %)

Source: DBS Bank Source: DBS Bank 2Q16 bottom line boosted by margins expansion. Compared to top line, bottom-line growth was significantly more robust arising from margin expansion, seen from the more robust net profit growth of 13.5% in 2Q16 compared to revenue growth. With the exception of Malaysia, all countries saw bottom-line growth.

The strong net profit growth in Thailand arose from robust earnings from CPALL and CP Foods (CPF). CPALL benefitted from strong SSSG, margin expansion and lower effective tax rate. CPF saw stronger-than-expected gross margins and its performance was also fuelled by a surge in domestic meat

38% 41%35%

25% 23%15%

47% 41% 53%

50% 50%61%

16% 18%12%

25% 27% 24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Above

Inline

Below

3.0%

-55.2%

30.8%

18.1%

29.5%

13.5%

1.5%

2.4%

13.1%

11.2%

8.4%

7.6%

-60.0% -40.0% -20.0% 0.0% 20.0% 40.0%

S ingapore

Ma laysia

Thailand

Philippines

Indonesia

Aggregate total

2Q16 Revenue growth (%) yoy

2Q16 Net profit growth (%) yoy

Page 3



Page 4

prices, lower prices of key raw materials, and strong recovery of the shrimp unit in Thailand. For Indonesia, the growth was generally broad-based given the subdued results in 2Q15, helped by better margins and improving consumer sentiment and an earlier Lebaran. We saw a significant drop in net profit from Malaysia, this arose partly from the a RM85.7m restructuring charge taken by

British American Tobacco, coupled with a slump in sales following the excise tax hike in November 2015. Upward revision in growth. On the back of a relatively strong showing, we revised our net profit growth forecasts for FY16F by 2.9ppts to 16.1%.

Aggregate change in net profit forecasts (by country) from May to Aug

Source: DBS Bank Tweaking FY16F forecasts up... ...but regional consumer valuations (PE) now at +1.2SD

Source: DBS Bank Source: DBS Bank

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(x)

-2sd: 7x

-1sd: 13.3x

Avg: 19.6x

+1sd: 25.9x

+2sd: 32.1x

10.4%11.0% 10.6%

7.9% 8.2% 8.3%9.4%

8.7%

13.1% 12.8% 13.0%11.9%

12.6%

10.6%

13.2%

16.1%

0.0%

5.0%

10.0%

15.0%

20.0%

Post 4Q14 (Feb-15) Pre-2Q15 (Jul-15)Post-3Q15 (Nov-15)Post-1Q16 (May-16)

FY16F revenue gwth over FY15F (%) FY16F net profit gwth over FY15F (%)

2016F growth projections raised slightly, largely due to ThaiBev and CPF revisions

Page 4



Page 5

Valuations getting richer; at +1.2SD above historical average. The market has priced in the relatively robust outlook. Since the start of the year, it has re-rated upwards on the back of improving sentiment; and moved from about +0.3SD to +1.2SD above average. Risks of margins topping out; watchful as commodity prices move up. In the last set of results (2Q16), consumer companies witnessed robust margins. This, we believe, was a

result of soft commodity prices seen in 2015. We could still see margins maintained in 3Q, with several commodity prices off their lows and on the steady trek upwards, one should watch for moderating margins going forward, particularly from 4Q16 or 1Q17. For instance, sugar, coffee, crude palm oil and skimmed milk powder prices are up by 49%, 17%, 34% and 24% respectively based on the indices we track.

Gross margin improvement… but at risk of limited upside with higher raw material prices…

Sugar prices up by 49% YTD…

Source: Companies, DBS estimates Source: ThomsonReuters, DBS Bank Crude Palm Oil up by 34% YTD… Milk powder up by 24% YTD…

Source: ThomsonReuters, DBS Bank Source: ThomsonReuters, DBS Bank

25.4%

26.6%

25.5%

26.6%

26.1%

27.1%

26.3%

26.9%

26.9%

27.9%

24.0%

24.5%

25.0%

25.5%

26.0%

26.5%

27.0%

27.5%

28.0%

28.5%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Aggregate Gross Margins (%)

0

0.5

1

1.5

2

2.5

Sep-11 Sep-12 Sep-13 Sep-14 Sep-15

CME-Milk Non Fat Dry Grade A Spot

0

5

10

15

20

25

30


Raw Sugar-ISA Daily Price c/lb

0

200

400

600

800

1000

1200

1400


Crude Palm Oil FOB MY P1 U$/Tonne

Page 5



Page 6

Profit growth still the key; Thai consumer companies expected to show strong growth. Going forward, we believe earnings growth will continue to be a key factor. Despite their recent good showing, we believe Thai consumer companies will remain resilient given their strong growth profiles and rising consumer confidence and stability. As farm prices rise, this could spur consumption and bode well for mass-market consumer companies. We continue to favour CPALL and THBEV.

Indonesia – gradual recovery though tax amnesty programme may see slower discretionary spending for middle- to upper-middle-class spending. Potential changes in consumer spending patterns in Philippines. Despite the optimism on Philippines on its macro outlook, we had made a deliberate effort not to choose any Philippine consumer stocks as a key pick for ASEAN since late March. This was due to the lofty valuations and our view that the election fever had played out well. Going forward, there are some uncertainties pertaining to changes in consumer spending patterns arising from income and excise tax reforms.

Thai consumer companies expected to post strongest growth

Stock picks performance (25 May 2016 to 28 Sep 2016)

Source: DBS estimates Source: ThomsonReuters, DBS Bank, DBS Vickers (for period 25 May to 28 Sep 2016)

Strategy and stock picks Picks review: Good pickings, averaging 31% returns. Since our last issue in May, our stock picks have performed well, averaging a total return of c.32% (for the period from 25 May to 28 September 2016). Along with the market's performance, our picks did well, averaging a return of 31% over four months. Our two small-cap picks were the outperformers. OldTown Berhad was the key performer with a 40% gain, on the back of a good set of results, coupled with announcement of special dividends. Courts Asia saw a continued turnaround in its operating results, thus providing a catalyst for its undervalued share price, which was trading at 7x PE and 0.7x P/BV. Sheng Siong, Indofood Sukses Makmur and CPALL driven by strong 2Q results. Besides the consumer sector’s re-rating, our other picks were also driven by robust operating performance. In addition to that, INDF's additional catalyst came about from a privatisation offer for its stake in China Minzhong.

Stick to growth, and potential earnings surprises, catalysts. With the relatively buoyant market and in view of current valuations, we continue to advocate a stock-picking strategy, selectively looking for outperformance from earnings surprises and/or stock-specific catalysts. We would stick to names that have potential to continue to deliver strong growth or those which could potentially see upside surprises. Despite the strong performance, we retain most of our picks – Sheng Siong, CPALL, OldTown, Indofood Sukses Makmur. However, we decided to remove COURTS SP from our pick given relatively limited upside to our current TP, despite lower valuations. Sheng Siong Group [SSG SP; BUY, TP: S$1.18]. We maintain our BUY recommendation on Sheng Siong. We continue to like Sheng Siong for its earnings growth traction, efficient operations, strong ROE, and net cash balance sheet. We have turned more positive on gross margins as we believe the run

40.8

32.3

27.5 27.5 26.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Oldtown Bhd Courts Asia Ltd Indofood Sukses Makmur Tbk PT

CP All PCL Sheng Siong Group Ltd

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Singapore Malaysia Thailand Philippines Indonesia

FY14

FY15

FY16F

FY17F

Ne t profit growth (%) yoy

Page 6



Page 7

rate of 26% in 2Q16 will be sustainable. We believe more can be done for gross margin to expand through direct sourcing, house brands, and higher mix of fresh food. There is still room to increase direct sourcing of fresh products especially vegetables from farms regionally. Cutting off middlemen would contribute to improving gross margins. Higher-margin house brands currently contribute below 10% of turnover and improving the company's house brand mix will support margin improvement. Finally, fresh food mix can increase due to supermarkets' displacement of wet markets. Our FY16-17F gross margin assumption is now higher at 26%. ThaiBev Pcl [THBEV SP; BUY, TP: S$1.13]. We included THBEV back into our top pick list after its share price correction. We project a continued robust core profit growth of c.25% for FY16F on the back of its strong performance in beer, stable spirits and lower losses in its Non-Alcoholic Beverages segment. Over the medium to longer term, we see that THBEV is transforming itself into a regional beverage player, which will aid in the re-rating of the counter. As part of the plan, we expect to see its associate, FNN, embarking on acquisition-led growth thereby aiding in the restructuring of the group. THBEV is shifting its financial year-end to September, and the upcoming quarter ending September will mark its financial year-end for 2016. Along with this, we expect a final dividend to be proposed, providing support to share price. CP ALL [CPALL TB; BUY, TP: THB75). We still prefer domestic plays over export plays, on the back of the continued recovery in domestic consumption amid rising external uncertainties. CPALL remains our top pick, given its strong growth outlook, underpinned by improvements in its core operations and margins. CPALL’s operations are resilient, as food products are

its major revenue source while consumers tend to spend on small-ticket items amid weak consumer sentiment. Additionally, we expect its 2H16 SSSG to remain strong given its successful stamp campaign while an aggressive branch expansion to reach 12,000 stores in the next three years was also announced. We see the aggressive expansion as a positive development as it could reflect easing concerns over the issue of market saturation. We reiterate our BUY call on CPALL with a TP of Bt75.0, based on DCF valuation (WACC 10.4%, terminal growth rate 2%). Indofood Sukses Makmur [INDF IJ; BUY, TP: Rp9,700]. INDF IJ remains one of our top picks as we believe INDF offers better value, and as a proxy to its 80.5% subsidiary, Indofood ICBP Sukses (ICBP). Despite signs of high commodity prices, we expect ICBP to still see margin expansion for the upcoming quarters, and the higher prices could be mitigated by a resilient IDR. Furthermore, progress on the China Minzhong Food Corporation (CMFC) divestment plan should serve as a positive catalyst and help to narrow INDF’s discount to SOTP valuation. OldTown Berhad [OTB MK; BUY, TP: RM2.15]. Despite having performed well in the past couple of months, we expect further upside earnings revision for OldTown as its FMCG division continues to post robust sales driven by its exports to China, as seen in its 1Q17 results. We believe sales could have been stronger if not for stoppages in its production lines, leading to unfilled domestic sales. OldTown is on the lookout for M&A opportunities to leverage on its cash hoard. There is possibility of continued surprise in special dividend of 3 sen/share. Including this to our current assumed 6 sen/share, this could raise yield to 4.5%.

Stock picks Mkt Pric e Ta rge t

Compa ny Ca p (S$) Pric e %(US$m) 30-Se p (S$) Ups ide Rc md 16F 17F 16F 17F 16F 17F 16F 17F

Thai Beverage 17,871 0.970 1.13 16% BUY 22.1x 20.1x 4.9x 4.4x 2.8% 2.9% 6% 10%

CP ALL 15,965 61.50 75.00 22% BUY 34.1x 27.5x 12.8x 11.2x 2.1% 2.5% 19% 24%

Indofood Sukses Makmur 5,856 8,700 9,700 11% BUY 19.8x 16.0x 2.6x 2.4x 2.5% 3.1% 30% 24%

Sheng Siong 1,169 1.060 1.18 12% BUY 24.2x 22.4x 6.4x 6.3x 3.8% 4.1% 16% 8%

OldTown Berhad* 218 1.99 2.15 8% BUY 15.6x 14.3x 2.3x 2.2x 3.0% 3.5% 5% 9%

EPSPE (x) P/B (x) Div Yld Growth

Source: DBS Bank, DBS Vickers, AllianceDBS * FY17 & 18 estimate

Page 7



Page 8

Regional and Country 12-month forward PE (stocks under DBS coverage) DBS Regional Coverage PE band Singapore coverage: PE band

Source: DBS Bank

Source: DBS Bank

Malaysia coverage: PE band Thailand coverage: PE band

Source: DBS Bank

Source: DBS Bank

Indonesia coverage: PE band Philippines coverage: PE band

Source: DBS Bank

Source: DBS Bank

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(x)

-2sd: 7x

-1sd: 13.3x

Avg: 19.6x

+1sd: 25.9x

+2sd: 32.1x

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(x)

-2sd: 9.1x

-1sd: 14.2x

Avg: 19.3x

+1sd: 24.5x

+2sd: 29.6x

10

12

14

16

18

20

22

24

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(x)

-2sd: 11.9x

-1sd: 14.5x

Avg: 17.1x

+1sd: 19.8x

+2sd: 22.4x

0

5

10

15

20

25

30

35

40

45

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(x)

-2sd: 3.6x

-1sd: 12.1x

Avg: 20.6x

+1sd: 29x

+2sd: 37.5x

0

5

10

15

20

25

30

35

40

45

2009 2010 2011 2012 2013 2014 2015 2016

(x)

-2sd: 10.3x

-1sd: 18.1x

Avg: 26x

+1sd: 33.9x

+2sd: 41.7x

0

5

10

15

20

25

30

35

40

2010 2011 2012 2013 2014 2015

(x)

-1sd: 11.4x

Avg: 19.7x

+1sd: 28x

+2sd: 36.3x

-2sd: 3.1x

Page 8



Page 9

Performance Review and Regional Benchmarks Asia consumer indices led by Thailand. ASEAN consumer indices started the year well and registered relatively good performances. The top-performing markets are Thailand and Indonesia, while the under-performers are China indices. The buoyant markets, particularly in ASEAN, likely stemmed from relatively stable regional currencies, coupled with expectations of a better 1Q16 compared to 2015.

Markets could be volatile. Going forward, we believe that the ASEAN markets are likely to see more volatility, which is a deviation from the past couple of months. This is in line with our earlier view that as 2H draws near, the uncertainties surrounding the implications on Fed rate hikes could surface.

Regional benchmark consumer indices’ valuation and performance

Source: Bloomberg Finance L.P., DBS Bank (as of 23 Sept 2016)

Regional benchmark consumer indices’ performance YTD

Source: Bloomberg Finance L.P., DBS Bank (as of 23 Sept 2016)

57.7

27.6 27.3

13.2 9.6 9.3 9.0 8.7 8.5 7.7

4.4 3.3 1.8

(0.9) (1.4)(5.0)(10.00)

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00 YTD %

Benchmark IndicesIndex PE (A ct ) PE (Yr 1) Div Y ield 1m 3m 6m 12m QTD % YTD %MSCI Consumer StaplesMSCI THAILAND/CON STPL 28.36 26.80 1.90 (0.93) 20.18 33.93 27.70 17.28 57.69 MSCI INDONESIA/CON STPL 29.92 28.44 2.29 (0.11) 7.44 8.97 37.59 4.15 27.59 MSCI AC AS xJ /CON STPL 26.88 23.98 1.79 0.97 4.70 8.81 13.20 0.15 9.55 MSCI EM ASIA/CONSUM STAP 27.98 25.05 1.75 0.79 4.75 9.08 11.93 0.07 8.66 MSCI SINGAPORE/CON STPL 27.48 16.06 2.18 3.16 0.75 (8.65) 18.83 (0.74) 7.72 MSCI MALAYSIA/CON STPL 27.18 24.98 2.26 1.91 4.66 (0.78) 7.51 3.33 1.83 MSCI PHILIPPINES/CON STP 26.88 27.96 1.72 1.78 (10.15) (13.13) (4.53) (11.87) (1.45) MSCI CHINA/CON STPL 22.34 21.84 1.97 (1.98) 4.49 9.89 (10.31) 2.11 (4.95)

MSCI Consumer Discret ionaryMSCI INDONESIA/CONS DIS 25.21 21.76 2.11 0.63 15.03 10.47 41.23 7.71 27.33 MSCI PHILIPPINE/CONS DIS 50.40 41.87 0.74 (2.06) 5.45 5.72 32.51 2.40 13.15 MSCI THAILAND/CONS DIS 22.89 28.19 1.95 (5.69) (0.33) 7.67 19.17 (2.87) 9.26 MSCI AC AS xJ /CONS DIS 17.54 15.48 1.72 4.64 16.74 8.96 13.75 13.23 8.96 MSCI EM ASIA/CONSUM DISC 16.68 14.63 1.40 4.53 16.85 10.10 13.49 13.20 8.47 MSCI MALAYSIA/CONS DIS 26.11 19.58 1.54 2.21 5.24 (6.11) 7.42 1.67 4.35 MSCI SINGAPORE/CONS DIS 28.66 24.02 3.39 0.04 10.92 (3.62) 11.77 4.02 3.34 MSCI CHINA/CONS DIS 28.12 22.33 0.93 4.37 23.49 13.45 10.14 19.57 (0.87)

Page 9



Page 10

Regional benchmark consumer indices’ performance from 25 May 2016 to 23 Sep 2016

Source: Bloomberg Finance L.P., DBS Bank (as of 23 Sep 2016)

Stock picks’ performance since 25 May 2016 to 28 Sep 2016

Source: ThomsonReuters, DBS Bank (as of 28 Sep 2016)

20.2 16.9 16.9

15.6 14.6

7.4 6.8 6.1 5.0 4.8 4.6 4.3 3.5 3.2

(2.5)

(10.6)(15.00)

(10.00)

(5.00)

-

5.00

10.00

15.00

20.00

25.00

Holding Period Return % (25/05/16 - 23/09/16)

44.3

32.3 31.1

25.9 25.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Oldtown Bhd Courts Asia Ltd Indofood Sukses Makmur Tbk PT

CP All PCL Sheng Siong Group Ltd

Page 10



Page 11

DBS ASEAN Consumer Stock Universe Performance

Company Rat ing T P 1m 3m 6m 12m YT D %

YT D mkt cap

weighted av g return

Thai Beverage PCL BUY 1.13 -4.9% 9.0% 41.6% 41.6% 45.1% 5.1%Dairy Farm International Holdings Ltd BUY 7.18 -2.7% 9.2% 15.3% 17.0% 20.5% 1.2%Fraser and Neave Ltd HOLD 2.30 -0.9% 7.0% 1.9% -1.8% 5.3% 0.1%Delfi Ltd HOLD 2.42 -14.3% -8.0% 2.7% -12.0% 11.4% 0.1%Super Group Ltd HOLD 0.87 4.6% -5.9% 6.0% 3.2% -2.8% 0.0%JUMBO Group Ltd BUY 0.77 -7.0% 10.2% 30.8% na 36.8% 0.1%Sheng Siong Group Ltd BUY 1.18 4.4% 21.1% 27.7% 28.5% 31.1% 0.2%Del Monte Pacific Ltd HOLD 0.37 -5.4% 16.7% -6.7% 14.8% -4.4% 0.0%Katrina Group Ltd BUY 0.43 3.4% -11.8% 0.0%Courts Asia Ltd BUY 0.45 -3.4% 32.3% 16.2% 10.3% 14.7% 0.0%

Singapore return 6.8%

British American Tobacco Malaysia Bhd FULLY VALUED 49.80 -5.5% -4.2% -8.1% -18.5% -9.4% -0.2%QL Resources Bhd HOLD 4.60 0.7% 3.0% 3.3% 10.8% 4.3% 0.0%MSM Malaysia Holdings Bhd HOLD 4.60 -2.2% -2.6% 2.3% 2.9% 1.3% 0.0%Padini Holdings Bhd BUY 2.95 0.0% 23.1% 55.9% 112.5% 59.3% 0.2%Oldtown Bhd BUY 2.15 4.1% 45.3% 23.9% 59.1% 33.5% 0.0%

Malay sia return 0.1%

CP All PCL BUY 75.00 2.1% 28.1% 50.0% 28.8% 59.8% 6.0%Charoen Pokphand Foods PCL BUY 40.00 -2.3% 9.5% 80.4% 53.4% 79.5% 3.6%Big C Supercenter PCL FULLY VALUED 210.00 -3.2% -0.9% 5.0% 4.0% 4.5% 0.1%Minor International PCL BUY 50.00 -2.5% 0.6% 16.4% 35.7% 8.6% 0.3%Thai Union Group PCL BUY 26.50 4.9% -2.3% 27.4% 16.3% 28.3% 0.5%Home Product Center PCL HOLD 10.00 -9.1% 11.1% 48.1% 46.0% 51.8% 1.2%Taokaenoi Food & Marketing PCL BUY 32.00 -12.0% 51.9% 150.0% na 144.5% 0.7%Central Plaza Hotel PCL BUY 45.00 -6.6% 6.8% -7.7% 4.0% -10.2% -0.1%

T hailand return 12.4%

Universal Robina Corp BUY 218.00 -3.4% -11.4% 2.4% -6.6% -2.0% -0.1%Jollibee Foods Corp FULLY VALUED 209.00 -1.7% 4.6% 24.1% 28.1% 13.2% 0.5%Emperador Inc HOLD 7.90 -4.1% 0.0% -13.3% 3.7% -17.2% -0.3%Robinsons Retail Holdings Inc HOLD 88.00 -5.7% -2.6% 15.5% 2.9% 20.1% 0.3%Puregold Price Club Inc BUY 50.00 -7.6% 2.3% 38.2% 37.5% 23.9% 0.4%Century Pacific Food Inc HOLD 17.80 -4.9% 10.7% 62.0% 47.5% 49.3% 0.4%

Philippines return 1.1%

Kalbe Farma Tbk PT BUY 1,600 0.0% 28.0% 24.7% 24.7% 31.6% 1.2%Unilever Indonesia Tbk PT FULLY VALUED 30,700 -2.2% 3.7% 19.0% 17.2% 21.6% 3.6%Indofood CBP Sukses Makmur Tbk PT HOLD 9,800 3.0% 15.5% 36.6% 52.8% 42.9% 2.3%Matahari Putra Prima Tbk PT FULLY VALUED 1,160 -14.5% 34.6% 0.6% -7.8% -1.4% 0.0%Indofood Sukses Makmur Tbk PT BUY 9,700 5.5% 23.8% 50.0% 58.2% 72.1% 2.7%Matahari Department Store Tbk PT HOLD 20,300 -12.0% -1.7% 8.0% 14.8% 7.3% 0.2%Mitra Adiperkasa Tbk PT HOLD 4,150 2.7% 15.3% 15.3% 53.3% 21.2% 0.1%Mayora Indah Tbk PT HOLD 1,600 -2.6% -4.1% 33.5% 40.5% 23.5% 0.4%

Indonesia return 10.4%A sean cov erage return 30.8%

Source: Thomson Reuters, DBS Bank, DBS Vickers, AllianceDBS, First Metro Securities (as of 28 Sep 2016)

Page 11



Page 12

SAME-STORE-SALES-GROWTH CHARTS

Page 12



Page 13

SSSG charts

BIG C Sheng Siong

-14.0%

0.0%

14.0%

Big C Supercenter

Source: Company, DBS Bank Source: Company, DBS Bank

Puregold CP All

-7%

40%

Puregold Puregold + S&R S&R


Robinson’s Retail Holdings Matahari Department Store

-10%

20%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Robinsons Retail Holdings RRHI - Supermarket

RRHI - Department RRHI - DIY

RRHI - Convenience store RRHI - Drug Store

RRHI - Specialty Store

0.0%

30.0%

Matahari Department Store


-4.0%

6.0%

Sheng Siong

-5.0%

20.0%

CP ALL

Page 13



Page 14

SSSG charts

MK Restaurants and Yayoi Courts Singapore & Malaysia

-20.0%

40.0%

MK Restaurants Yayoi

hvs


Mitra Adiperkasa

7-Eleven Malaysia

0.0%

14.0%

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Mitra Adiperkasa


Parkson Retail Asia

Robinson’s Department Store Pcl

-30%

40%

PRA Myanmar PRA Vietnam

PRA Indonesia PRA Malaysia

-12.0%

0.0%

12.0%

Robinson Department Store Pcl


-28.0%

28.0%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17

Courts Asia Singapore Courts Asia Malaysia

-8.0%

6.0%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

7 Eleven Malaysia

Page 14



Page 15

SSSG charts

Centel Minor International foodhubs

-4.0%

15.0%

CENTEL

hvs


Homepro

hvs

-8.0%

8.0%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Homepro

Source: Company, DBS Bank

-4.0%

10.0%

MINT foodhubs (TH, CN, AU, SG)

Page 15



Page 16

COUNTRY BRIEFINGS

Page 16



Page 17

Singapore – Earnings improving but mind the valuations (Alfie YEO)

Latest developments

Area of focus Details/Comments

July retail

sales

July retail sales (ex motor vehicles) declined 3.1% y-o-y led by consumer goods such as departmental stores, apparel and

footwear, furniture and household equipment, recreational goods, watches and jewellery, computer & telecommunications

equipment and optical goods and books. As usual, petrol declined, by -13% on lower oil price. Otherwise, motor vehicle

sales rose 36.5% y-o-y trending higher from last year. F&B services index rose 3.5% led by fast food outlets. Grocery retail

remained firm at 0-2% y-o-y growth for supermarkets, minimarts and convenience stores.

COE prices COE price now stands at S$50,000 for Cat A and S$55,501 for Cat B.

Industry news The government has rolled out a roadmap to transform the food service industry. The road map aims to achieve 2% annual

productivity growth without increasing manpower over the next five years. Initiatives include ready-to-eat meals such as grab-

and-go vending machines, adopting manpower-lean technologies, raising employees' skills and versatility, and expanding

Singapore's F&B companies overseas.

Source: DBS Bank Review & what to look out for. In the quarter-ended June 2016, earnings continued to stay resilient. Most stocks posted results with were largely in line with our forecasts with the exception of SUPER (below), COURTS and FNN (above). Earnings recovery is ongoing as demand and regional consumer sentiment turn more positive. Post earnings season, we maintain neutral-to-positive ratings on our Singapore universe. Notably, there were no prominent downgrades due to significant underperformance in earnings. 2Q16 earnings summary

Stock Result Earnings note

SSG In line Gross margins at all time high of 26%

THBEV In line Higher beer market share

DELFI In line Recovering on better consumer sentiment

SUPER Below Sales drag from Myanmar and Indonesia

COURTS Above Cost management led to earnings surprise

FNN Above Boosted by lower raw material costs

DFI In line More evident operating efficiencies

DELM In line Driven by Philippines/Asia Pac business

JUMBO In line Margin outperformed strongly

Source: DBS Bank Earnings is expected to continue recovering albeit at a slow pace. We see an improving earnings trend. Regional consumer sentiment is showing improvement in Malaysia, Indonesia, Philippines, and Thailand. That should support top-line macro demand in the upcoming results. Commodity prices have crept slightly higher but we believe hedging policies would buffer impact of margin compression to some extent. We expect margin outlook to at least hold steady or improve for the upcoming results due to lower cost of existing inventories. Beyond the current period’s margin trend, margin outlook could be slightly compressed if commodity prices continue to increase further. Most

companies should be able to outperform from the low FY15 earnings base this year. We expect a slow earnings recovery as top line improves but is yet challenged by weak margin outlook. Valuations have re-ratedsince our last issue

Source: DBS Bank Market has been focused on earnings recovery. Post our previous edition, valuations for our Singapore universe peaked at 23x forward PE as we believe the market was more positive on a recovering earnings trend. Stocks with solid fundamentals were the flavour of investors. As usual, Sheng Siong and THBEV both outperformed with returns of 25%. Courts results showed strong performance in Singapore’s sales which led to a 36% return over the same period, while turnaround was seen from Del Monte which also gained 23%. By the same token, Super has struggled in its stock price performance as its earnings trailed earnings expectations.

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(x)

-2sd: 9.1x

-1sd: 14.2x

Avg: 19.3x

+1sd: 24.5x

+2sd: 29.6x

Page 17



Page 18

Share price performance since last issue

Stock Price performance Fwd PE

SSG 26% 25x

THBEV 32% 20x

DELFI -5% 23x

SUPER -2% 19x

COURTS 36% 10x

FNN 5% 31x

DFI 8% 20x

DELM 23% 14x

JUMBO 5% 17x

Mean 20x

Weighted average 23x

Source: DBS Bank Stock picks. Our Singapore universe stock picks remain very much focused on earnings. Valuations of strong fundamental stocks Sheng Siong and THBEV have re-rated, yet earnings of stocks with decent fundamentals are seeing earnings recovery. We advocate stock picks with valuations which remain attractive and have decent fundamentals to deliver earnings improvement or turnaround in the coming quarters. We are positive on JUMBO and newly initiated

Katrina Group. The catalyst in Jumbo lies in growth in China and the expectation of a new JV cooperation that can potentially support earnings growth. We like Katrina Group for its growth potential in online business. It has signed with Foodpanda to put its services on the portal. Improvement in online sales will create leverage for higher margins and earnings growth going forward. Sheng Siong and THBEV remain long-term buys given their strong fundamentals. We also did a write-up on Duty Free International (DFIL) which is appended in this report as a stock profile. Singapore Universe earnings outlook

Stock Note

DELM Turning around, pace of growth uncertain

SUPER Slow recovery from product launches

THBEV Re-rating to continue on earnings, transformation

FNN Key catalyst is inorganic growth, cash deployment

JUMBO Operational efficiencies, JVs to drive growth

DFI Operating margins set to bottom

SSG New stores, margins to continue driving growth

DELFI Recovery on track

COURTS More stores, credit business & narrowing losses in ID

Source: DBS Bank Singapore retail sales (ex motor vehicles) Singapore grocery retail sales

Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank

Singapore F&B retail sales Singapore real wages


Page 18



Page 19

Malaysia – Remain cautious on its outlook (CHEAH King Yoong )

Latest developments

Area of focus Details/ Comments

CPI for August In August, the Consumer Price Index (CPI) grew 1.5% y-o-y versus 1.1% in July. The expansion was driven by price

increases in key items in the basket of goods (Food and Non-alcoholic Beverages: +3.5%, Housing and Utilities: +2.1%).

However, continued deflation in the transport sector (July: -6.7%) offset some of the price pressures. On a m-o-m basis,

inflation growth expanded 0.4% (July: +0.3%), marking the fifth consecutive month of expansion.

Shopping mall

licence

The Malaysia Retail Chain Association (MRCA) has asked the government to temporarily freeze issuing licences for new

shopping malls to curb the oversupply of retail space. Its deputy president, Valerie Choo, said the number of shopping

malls was likely to grow between 2017 and 2018 and this would strain the retailers’ margins. “There will be over 50%

increase in shopping mall space (once the new shopping malls are ready). Too many shopping malls can be tough on

the retailers as well,” she told reporters at the ‘MRCA Engaging with the Media’ session in Kuala Lumpur.

Potential IPO A consortium that includes private-equity firm CVC Capital Partners is planning an initial public offering for the operator

of KFC and Pizza Hut restaurants in Southeast Asia that could raise more than US$400m. The owners of Malaysia’s QSR

Brands, including CVC and Malaysian pension fund Employees Provident Fund, are considering listing the franchise

operator on the local stock exchange next year, according to sources.

Source: AllianceDBS CSI gradually recovering, though still weak. After about one-and-a-half years since the implementation of GST, we observe that its impact is subsiding with consumer spending and visits to shopping malls are gradually recovering, though still below the pre-GST level. Our observations are also supported by recent statistics released by MIER Malaysia. Since hitting a record low of 64 points in December 2015, the Consumer Sentiment Index (CSI) has gradually recovered and reach 79 points as of June 2016 (+6 points q-o-q, +7 points y-o-y), although still below threshold level of optimism of 100. The recovery in CSI was attributed to (1) waning concern of job prospects, (2) stability of foreign exchange, and (3) stability in current household income. Expect consumer spending to recover. We remain cautiously optimistic that consumer spending is expected to recover in the coming quarters, supported by (1) government stimulus announced in January such as the 3% cut in employees’ contribution to EPF, (2) hike in minimum wage in July, and (3) the ringgit’s stabilisation. Nonetheless, we believe that the recovery will be gradual. Budget 2017- expect some goodies? The government is targeting to table Budget 2017 on 21 October. There are speculations that the authority is studying the possibility of granting tax relief to the middle 40% income bracket (M40) under Budget 2017 to help them cope with rising costs of living. Potential fiscal stimulus to be announced in the upcoming budget, coupled with additional rate cut by the Bank Negara Malaysia (BNM), could help to support consumer spending.

Latest quarterly results were rather mixed. The 2QCY16 results reported were rather mixed. British American Tobacco (BAT) and MSM Malaysia (MSM)’s earnings came in below expectations, while Padini’s 2QCY16 results were above. The rest of the results were largely in line. Still cautious on earnings outlook…As a whole, we anticipate that earnings outlook for the sector will remain cloudy since the expected gradual improvement in consumer spending in the coming quarters could support top-line growth of industry players, but cost pressures and potential labour shortage issues could adversely impact earnings prospects. Stock picks. As such, we favour stocks with (1) resilient business models, (2) established brand names in their respective sectors to withstand the continued challenging operating environment, (3) strong balance sheets to undertake earnings-accretive M&A activities to drive growth and/or engage in capital management exercises to reward shareholders, (4) regional exposure to mitigate (potential) domestic earnings risks, and (5) attractive value propositions. OldTown serves as our preferred pick for the sector, riding on these themes mentioned.

Page 19



Page 20

Malaysia consumer sentiment index Malaysia private consumption growth

Source: MIER, Bloomberg Finance L.P. Source: Thomson Reuters Datastream

Malaysia food beverage and tobacco retail sales Malaysia retail trade index

Source: Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream

40

50

60

70

80

90

100

110

120

130

140

Mar-98 Apr-00 May-02 Jun-04 Jul-06 Aug-08 Sep-10 Oct-12 Nov-14

Consumer Sentiment Index: Malaysia

Page 20



Page 21

Thailand – Consumer confidence picks up (Namida Artispong)

Latest developments


Economic data The Comptroller-General's Department maintains its investment budget disbursement of 87% for the next fiscal year, of

which 19% will be taken out in the quarter of October to December, 22% in the quarter of January to March, 22% in

the quarter of April to June, and 24% in the quarter of July to September. The annual budget for FY17, pending the

National Legislative Assembly's deliberation is expected to be Bt2.73tn in which Bt547bn is for investment. Public

investment and spending will be the main drivers of the economy while the government expects this spending to ramp

up private investment for sustainable growth.

Economic data According to a survey by University of the Thai Chamber of Commerce (UTCC), consumer confidence rose for a second

month consecutively in August, supported by political stability, government spending, easing concerns over drought,

and voters’ approval of the draft charter. Additionally, Thailand’s higher-than-expected 2Q16 economic growth which

came in at 3.5% was also a driver of rising consumer confidence. The government still maintains its forecast of annual

GDP growth of 3.0-3.5% with falling exports as the key area of concern.

Economic data The Board of Investment of Thailand (BoI) has raised its 2016 investment value target to Bt550bn, up 20% from the

previous target of Bt450bn, given the improved political climate and economic recovery. The 10 target industries remain

in focus. They are (i) automobiles for the future, (ii) smart electronics, (iii) high- income tourism and healthcare tourism,

(iv) agricultural and biotechnology, (v) processed food industry, (vi) robots for industry, (vii) transportation and aviation

industry, (viii) bio energy and chemical, (ix) digital industry, and (x) comprehensive medical industry.

Corporate

development

CPF was selected as a component of the Dow Jones Sustainability Indices (DJSI) for the second consecutive year in 2016,

as it earned high scores in the areas of economic, social and environmental contributions to the sector across supply

chains. CPF said that it will focus more on sustainability and best practices in the coming years. Economic data There have been increasing concerns about employment on low recruitment rates and cuts in overtime payments, the

vice president at the UTCC insisted that Thailand’s unemployment rate remains relatively low at 0.9% of the total

workforce and has yet to see signs of mass layoffs.

Source: DBS Vickers 2Q16 results review. For the earnings results in 2Q16, all of the companies under our coverage reported stronger earnings growth y-o-y and did not see any disappointment. The decent results were partly due to the government’s dining tax rebate stimulus measure (tax incentive scheme to any individual who dines at restaurants and requests for tax invoice from 9-17 April, can claim income tax deduction of no more than Bt15,000) in April. Earnings of a number of companies beat our/market expectations, especially in the commerce sector. CPALL and HMPRO reported robust SSSG of 5% and 3.7% respectively, as they benefitted from hot weather which boosted the sales of beverages and air conditioners/evaporative fans. Coupled with stronger gross margins, the solid SSSG performance allowed both companies to deliver robust bottom-line growth of more than 20%. CPF continued to beat street expectations on the back of stronger-than-expected gross margins and better cost control despite the one-off recognition of an additional tax expense of Bt1.3bn arising from the change in corporate income tax calculation in the quarter. Its 2Q16 results marked a big turnaround from a core loss last year, fuelled

by a surge in domestic meat prices, lower prices of key raw materials, and strong recovery of the shrimp unit in Thailand with rising productivity, following several years of being affected by the Early Mortality Syndrome (EMS) disease. CENTEL also reported higher-than-expected net earnings, mostly from higher-than-expected other income, the booking of extraordinary gains from its property fund, and a lower-than-expected effective tax rate. Nevertheless, its hotel and food operations were solid, with hotel RevPar growth of 3.8% and a rebound of SSSG to 2.7% from a negative number last year.

Meanwhile, TU and MINT’s results were in line. Despite a slight dip in TU’s gross margin as a result of a challenging situation for smoked salmon in Europe, its earnings still grew, thanks to its record-high revenue and lower interest expense. MINT’s earnings growth was satisfactory, supported by the decent performance of its hotels in Thailand and Australia, hotel room expansion, incremental earnings from Tivoli hotels, the sale of one unit at The Residences by Anantara Phuket, its strong food business in Thailand and China hubs, and the consolidation of Minor DKL Australia.

Page 21



Page 22

Thailand consumer confidence index Thailand retail sales growth

Source: Thomson Reuters Datastream


Thailand tourist arrivals (000’s) Thailand private consumption (Food) growth


Source: Thomson Reuters Datastream Thailand: 2Q16 earnings results review

Stocks Results Note

CPF Above Stronger-than-expected gross margins and better cost control

TU In line Healthy revenue with lower interest expense

MINT In line Decent performance of owned hotels in Thailand and Oaks in Australia, strong food business in Thailand and China hubs

CENTEL Above Higher-than-expected other income and lower- than-expected effective tax rate

CPALL Above Stronger-than-expected revenue (from sales promotion with suppliers) and a lower-than-expected effective tax rate

HMPRO Above Better-than-expected gross margins

Source: DBS Vickers The outlook and what to look out for. Thailand’s economy has been picking up slowly with GDP growth coming in at 3.4% in 1H16, mainly boosted by continued growth in public investment and consumption. Meanwhile, private consumption also showed an improvement on the back of the increase in expenditure on durable goods, thanks to improved farm income and the government’s stimulus

package. Retail sales have also returned to positive growth, following negative readings in the past two years.

In terms of consumer confidence, the index rose for a second consecutive month in August, supported by political stability, government spending, easing concerns over drought, and voters’ approval of the draft charter. Nevertheless, Thailand’s exports should remain sluggish due to the slow recovery of major trading partners’ economies. Given the poor export demand, agricultural and manufacturing products which make up c.35% of the economy and employ more than 40% of the labour force, will be pressured while capacity utilisation will also be at its lowest. Thus, a significant pick-up in private investment growth is unlikely to happen in the near term. Overall, Thailand’s economy will still depend largely on public sector growth and tourism, with falling exports being the key area of concern and posing downside risk to 2016 GDP growth forecast.

Page 22



Page 23

Tourism remains strong. Tourism will continue to provide solid support to the Thai economy. International tourist arrivals climbed 9.1% to 19.5m in 7M16, on track to reach the government’s full-year growth forecast of at least 10% to 33m in 2016. 3Q is still the low season for Thailand tourism and lower q-o-q earnings are expected for food-related/hospitality players like MINT and CENTEL. Nevertheless, the earnings gap during Thailand’s high and low seasons for tourism has narrowed for MINT following its Tivoli acquisitions in Portugal. The high seasons for hotels in Europe in 3Q will compensate for Thailand’s low season.

Ongoing success expected on the labour front. Following Thailand’s issuance of the GLP (Good Labour Practices) guidelines to tackle the labour issues in the fishing industry, the DOF (Department Of Fisheries) has played a leading role in the provision of training courses for entrepreneurs and employees. So far, the target for GLP training workshops has been reached for this year such as conducting workshops for commercial fishing vessel operators and shipmasters with regards to labour on fishing vessels and sessions for seafood processing factories and shrimp farms. DOF has delivered some measure of success with the relevant legal matters being clarified and new legal provisions being laid out. Domestic meat prices to remain solid. The recovery story will continue for the rest of the year for the livestock sector in Thailand, following a cyclical downturn in 2015 due to oversupply. We expect broiler prices to start rising in 2H16, thanks to growing demand from domestic and export markets, as well as limited broiler production as a result of Thailand’s restriction on poultry parent stock imports from the US after the outbreak of highly pathogenic avian influenza. Meanwhile, swine production growth was also tampered by a drought. Additionally, livestock and swine producers continue to enjoy low animal feed cost (corn and soybean meal). Thus, CPF will emerge as the main beneficiary of rising domestic meat prices and low raw material costs.

Recovery of smoked salmon business. TU faced a challenging situation in 1H16 due to the sharp increase in salmon prices (+54.1% y-o-y to NOK61.9/kg) as a result of the breakout of the algae bloom in Chile which reduced global farmed salmon production. TU could not adjust its selling prices timely to cope with the rapid increase in raw material costs during the period. However, we expect TU’s operations to gain momentum in 2H16 due to the high season in 3Q (tuna stocking ahead of Christmas and shrimp harvesting period in Thailand) and the recovery of the smoked salmon business in Europe, as the sharp rise in salmon price has started to taper off. As TU has done a number of successful repricing negotiations so far, we believe that a narrower net loss for its salmon business in 2H16 is expected. Stock pick: CPALL (BUY, THB75). We still prefer domestic plays to export plays, on the back of the continued recovery in domestic consumption amid rising external uncertainties. CPALL remains our top pick, given its strong growth outlook, underpinned by improvements in its core operations and margins. CPALL’s operations are resilient, as food products are its major revenue source while consumers tend to spend on small-ticket items amid weak consumer sentiment. Additionally, we expect its 2H16 SSSG to remain strong given its successful stamp campaign while an aggressive branch expansion to reach 12,000 stores in the next three years was also announced. We see the aggressive expansion as a positive development as it could reflect easing concerns over the issue of market saturation. Management sees no reason to slow down its store expansion and believes that opportunities still exist even in Bangkok in light of the upcoming new mass transit lines. Additionally, as it uses the small-sized CVS store format, we believe that its aggressive outlet expansion is doable. We reiterate our BUY call on CPALL with a TP of Bt75.0, based on DCF valuation (WACC 10.4%, terminal growth rate 2%).

Page 23



Page 24

Indonesia – Curb your enthusiasm (Tiesha Putri)

Latest developments


Consumer

Confidence Index

Consumer Confidence Index (CCI) had stayed above its three-year mean level of 113 in the past three months,

indicating a gradual but stable recovery. Consumers with monthly income above Rp4m turned more upbeat in August,

nonetheless the data suggests that consumers who earn less remained cautious.

Tax amnesty

programme

The roll-out of tax amnesty programme has stolen the limelight in the past months. The programme, running from mid-

July 2016 until the end of March 2017, allows individual and corporate taxpayers to pay a defined amount in exchange

for forgiveness of their tax liability in the past tax periods. Many taxpayers have participated with total penalty payment

reaching Rp95.8tn as of 30 September. In the shorter term, we see a case of upper-middle consumers holding back

spending for big-ticket discretionary items as participation in the tax amnesty programme would reduce their disposable

income.

Stabilising Rupiah Rupiah continued to appreciate against USD in 3Q16, averaging at 13,239 vs. 13,849 a year ago. We are expecting a

more stable Rupiah through the remainder of the year. A stable Rupiah, if not an appreciating one, should be

supportive on consumer companies’ margins and earnings growth since most of input costs are linked to USD.

Proposed 2017

state budget

The proposed 2017 state budget indicates that the government is trying to be more prudent in spending and keep the

fiscal deficit in check. The proposed 2017 budget appears to be non-expansionary with total expenditure set at

Rp2,071tn, 0.6% lower than that allocated in the 2016 revised state budget. Proposed infrastructure budget, which in

the longer term should be able to spur private consumption growth, was raised although modestly at 9% y-o-y.

Nonetheless, some subsidy allocations which have more direct impact on private consumption were cut, namely

electricity and LPG subsidy. Our economist does not expect any material deviation in private consumption growth which

has grown steadily at 5% in the past years.

Source: DBS Vickers Earnings growth accelerated as F&B players enjoyed lower raw material costs. Revenue growth slightly accelerated in 2Q16 as companies under our coverage registered 13% y-o-y growth in 2Q16 vs. 11% y-o-y. Nonetheless, this was mainly due to a shift in Lebaran seasonality which caused some retailers to book exceptionally strong revenue growth. F&B companies had less motivation to raise selling prices in 2Q16 as key soft commodity prices and Rupiah had remained favourable during the quarter. Gross margin expansion were seen in UNVR, INDF, ICBP, while MYOR saw a decline in gross margin on the back of higher coffee and sugar prices. Earnings growth accelerated in 2Q16, largely driven by falling soft commodity prices for F&B players. The strong growth, nevertheless, was distorted by Lebaran shift, particularly for retailers. Still not in buying mood. Two retailers have disclosed their 8M16 same-store-sales growth which shows some moderation in discretionary spending in August. RALS, which caters for low-end consumers, registered a 7.2%

growth, lower than the 7.7% growth booked in 7M16. Meanwhile, Ace Hardware (ACES IJ; not rated), a home improvement retailer catering for middle to higher end consumers booked a flattish SSSG of 1.2% in 8M16, also lower than the 2.3% growth booked in 7M16. Tax amnesty programme may pose threat to upper-middle class’ spending in the near term. Indonesia has rolled out its tax amnesty programme starting in July 2016. Tax payers’ participation has continued to pick up approaching the deadline of phase 1 of the programme with total penalty payment Rp95.8tn (as at end-September). The programme will continue until end of March 2017. We are expecting softer sales for big-ticket discretionary items during the tax amnesty programme as penalty payments may lead to lower disposable incomes and hence discretionary spending, particularly for the middle- to upper-middle-class participating in the programme.

Page 24



Page 25

2Q16 results review

2Q15 1Q16 2Q16 q-o-q y-o-y 1H15 1H16 y-o-y 1Q16 y-o-y CommentRevenueICBP 8,584 8,922 9,253 4% 8% 16,551 18,175 10% 12%INDF 17,614 16,516 17,568 6% 0% 32,635 34,084 4% 10%LPPF 2,302 1,862 3,318 78% 44% 3,921 5,180 32% 15%MPPA 3,507 3,265 3,736 14% 7% 6,855 7,001 2% -2%MYOR 4,083 4,681 4,595 -2% 13% 7,540 9,276 23% 35%MAPI 3,137 3,167 3,494 10% 11% 6,102 6,661 9% 7%UNVR 9,388 9,988 10,757 8% 15% 18,802 20,746 10% 6%Aggregate* 31,001 31,886 35,152 10% 13% 59,771 67,038 12% 11%F&B* 22,055 23,592 24,605 4% 12% 42,893 48,197 12% 13%Retailers 8,946 8,294 10,547 27% 18% 16,878 18,841 12% 5%

Net profitICBP 942 945 1,034 9% 10% 1,738 1,979 14% 19% In lineINDF 861 1,086 1,145 6% 33% 1,731 2,231 29% 25% In lineLPPF 463 244 913 275% 97% 648 1,157 79% 32% AboveMPPA 94 (123) 102 -183% 9% 175 (21) -112% -251% BelowMYOR 321 323 268 -17% -16% 594 591 0% 18% In lineMAPI 14 15 31 101% 126% 26 46 78% 25% BelowUNVR 1,339 1,570 1,728 10% 29% 2,931 3,298 13% -1% Above

Aggregate* 3,172 2,974 4,078 37% 29% 6,112 7,051 15% 1%F&B* 2,602 2,838 3,031 7% 17% 5,263 5,869 12% 7%Retailers 570 136 1,047 669% 83% 849 1,183 39% -51% *excluding INDF Source: Companies, DBS Vickers, Indonesia consumer confidence index Indonesia 3-month price expectations

Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream Indonesia food, beverage and tobacco retail sales Indonesia 2 & 4-wheeler sales (y-o-y change %)

Source: Thomson Reuters Datastream Source: Indonesia 2W association (AISI)

CCI hovering at 113.3 as of Aug 2016, after reaching a recent high of 114.2 in July.

2-wheeler sales dropped 15% y-o-y in Aug, while 4-wheeler registered 6% growth possibly due to new models launched

Page 25



Page 26

Expect a more stable Rupiah but watch out for a reversal in soft commodity price trend. DBS economists’ forecast for Rupiah is at Rp13,200 per USD in 2H16, which implies 1.7% appreciation sequentially from 1H16 and 4% appreciation y-o-y. A more stable Rupiah should bode well for consumer companies’ margins, given the high portion of imported or USD-linked raw materials for F&B companies and selected retailers. However, we have seen a reversal in most key soft commodity prices recently, namely CPO, skim milk powder, coffee and sugar. That said, F&B companies will likely see their margins normalise in the coming quarter. Stock picks. Domestic consumption has shown some recovery although at a moderate pace, in line with our

expectation of a gradual recovery in 2H16. In the near term, retailers may see a softer demand tax amnesty programme posing downside risk to discretionary spending. We prefer F&B companies over retailers in Indonesia consumer shelf. Indofood Sukses Makmur (INDF IJ) remains our top pick as we believe INDF offers better value for investors looking to play on ICBP’s margin expansion story. Furthermore, progress on the China Minzhong Food Corporation (CMFC) divestment plan should serve as a positive catalyst and help to narrow INDF’s discount to SOTP valuation. We have a BUY call on the stock with TP of Rp9,700, providing 12% potential upside.

Page 26



Page 27

Philippines – Change is coming (Mark ANGELES)

Latest developments


Regulatory and

taxes

Cigarette and liquor sales restrictions are now being strictly implemented. Sales of these items are prohibited in areas 100

metres away from perimeters of schools, churches, hospitals, medical clinics, public transport terminals and offices,

recreational places, hotels and restaurants, movie houses and shopping malls. Under Duterte’s administration, we see

proposals for nationwide liquor ban (sales to end at 1.00am), recalibration of income tax brackets, and changes in excise

tax regimes to gain traction. We view these developments as having significant impact on Filipino consumers’ consumption

patterns. We should be getting more clarity once details of proposals by Department of Finance are made available to the

public.

Inflation

(August-16)

August headline inflation came in at +1.8%, this brings average YTD inflation to 1.5%, at the lower end of the BSP's

revised target range of 1.6-2.4%. Food CPI held steady at +2.4% y-o-y due to slower price adjustments and resilience in

the face of El Niño. We expect prices to remain stable for the rest of the year as adverse effects on El Niño wanes and in

the environment of low energy prices.

OF Remittances

(July-16)

July OF remittances fell by 5.4% y-o-y due to weak oil prices globally which adversely affected economies and jobs of oil-

producing countries in the Middle East. Looking at OF remittances in the first seven months of the year, growth rates have

been volatile – this is due to reports (anecdotal) of delayed compensation of workers. The low oil price environment will

remain with us longer than so far assumed. As a result, we see slower growth in OF remittances moving forward. Impact

on consumer spend limited for now, while low inflation and weaker Philippine peso are helping mitigate slower OF

remittance growth.

Source: First Metro Securities, Bangko Sentral ng Pilipinas (BSP) Mixed performance but our picks performed well. As of September 26, 2016, Philippine consumers within our coverage have underperform the PSEI (benchmark index) by 2.0%. Philippine consumer counters under our coverage rose by +7.7% (market weighted) versus the PSEi’s performance of +9.8%. However, our picks from the start of the year have yielded robust absolute returns: CNPF +50.0%, PGOLD +26.6%, and RRHI +24.4%. This is not surprising as we pegged these stocks to be beneficiaries of election-related spending. 2Q16 results review: No surprises here. With the exception of URC and EMP, sales growth in 2Q16 continued to be robust as expected, with additional demand boost coming from election-related spending. Retailers were the main beneficiary, PGOLD and RRHI 2Q16 at 6.1% and 8.8% respectively, sustaining momentum in 1Q16 – normalised SSSG levels are in the range of 2-4%. Meanwhile, JFC’s domestic business was the main driver of growth in 2Q16 with SSSG accelerating to 11%. Volume growth for the branded business of CNPF and URC’s domestic business remained resilient at high single digit for the quarter. However, we did see some slowdown due to softer demand from traditional retailers and wholesalers – disposable income of agriculture-based households was adversely impacted by El NIño. And lastly for EMP, we estimate volumes to have declined by 5% y-o-y in 2Q16, reasons being the slowdown in demand for liquor products and stiff competition.

In toto, margins have remained stable or improved y-o-y for counters under our coverage (except for URC). We expect this trend to continue as there is a conscious effort to rein in operating expenses. For retailers, GP margins have held up despite strengthening bargaining power of suppliers – due to intense competition. For CNPF and EMP, GP margin expansion was due to changing mix from new businesses. Stable raw materials and upward price adjustments are attributed to the GP margin recovery of JFC in 2Q16. For URC, GP margin was stable but EBIT margin took a hit from international BCF segment and regulatory issues from Vietnam (product recalls).

2Q16 results summary (in P bn)

Revenues2Q15 2Q16 Chg y-o-y 1H15 1H16 Chg y-o-y

Century Pacific 6.1 6.6 8.8% 11.3 13.0 15.4%Emperador 9.4 9.4 -0.4% 18.3 18.4 0.3%Jollibee 24.9 28.3 14.0% 47.9 54.4 13.7%Puregold 22.5 26.3 17.1% 43.2 51.1 18.4%Robinsons Retail 21.6 25.6 18.5% 41.3 48.3 16.9%

3Q15 3Q16 9M15 9M16Universal Robina 26.3 26.8 2.0% 81.9 85.4 4.2%

Net Income2Q15 2Q16 Chg y-o-y 1H15 1H16 Chg y-o-y

Century Pacific 0.5 0.7 45.9% 0.9 1.3 47.7%Emperador 1.9 2.0 9.4% 3.3 3.4 5.3%Jollibee 1.4 1.7 17.3% 2.6 3.1 17.0%Puregold 1.0 1.1 16.9% 2.1 2.3 12.7%Robinsons Retail 1.1 1.2 14.4% 1.9 2.0 8.3%

3Q15 3Q16 9M15 9M16Universal Robina 3.1 3.8 21.0% 9.5 12.0 26.0% Source: Companies, First Metro Securities

Page 27



Page 28

Philippines consumer confidence index Philippines food retail price

Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream

Philippines beverage and tobacco retail price


Outlook for the rest of FY16

Post-election earnings results will be paramount. Sales growth is expected to normalise in the upcoming earnings seasons, especially for counters that benefitted from election-related spending (e.g. JFC, CNPF, PGOLD, and RRHI). Watch out for the impact of weaker Philippine peso on GP margins for counters which have international exposure (URC, JFC, EMP, and CNPF) and importers (PGOLD); waning effects of El Niño and slowing OF remittances' effect on demand; and changes in the consumption of cigarettes and liquor due to strict implementation of selling restrictions. Holiday season spending and strong consumer confidence should provide support. Nevertheless, we should be seeing slower top-line growth in 2H16.

Change is coming or should we say change in consumer spending patterns. Uncertainties associated with income tax and excise tax reforms should weigh on the sector. Here is the list of items that the Department of Finance has proposed:

1.) Income tax reforms – tax bracket adjustments and reduction of maximum rate to 25% from 32%, except for high-wage earners. Our view: Will result in positive household wealth effect – but not all households will benefit. Low-income workers or minimum-wage earners, who are tax exempt and we think account for a significant part of the work force, will not benefit unless the package includes cash transfers. For those households that will benefit, the question is: “Will they spend or save?”.

2.) Expansion of the value-added tax (VAT) – trim exceptions to raw food, education, and healthcare. Also, limit the VAT zero-rating on direct exports. Our view: Will result in subsidy cuts for senior citizens and PWDs. Direct exporters will feel the pinch in demand for their goods (if they raise prices in order to compensate) or earnings (if prices are left unchanged).

3.) Excise taxes – adjustment on excise tax on petroleum products and restructuring of excise tax on automobiles.

Page 28



Page 29

Our view: Hike in excise tax on petroleum products will lead to higher inflation. Its effect will be broad-based, affecting households – whether they benefit from lower income tax or not. We think the excise tax on automobiles will have limited impact on the ultra-rich households given the level of their disposable income. However, low- to middle-income households that are aspiring to own cars may forego purchases of automobiles.

While still lacking some details, it is safe to assume that the proposals, if passed, will result in changes in spending habits of Filipino consumers. Please note that what we mentioned above are official proposals submitted by the Department of Finance to the Senate. We acknowledge that there are more proposals that may be submitted soon, such as excise tax on sugar-sweetened beverages, lower corporate income tax, reduction in property taxes, capital taxes, etc. We will have more colour on these when the proposals are submitted to the Senate.

Stock picks Go defensive, stick with the necessities. Unless the dust settles, uncertainties associated with regulatory and excise tax proposals will be sticky. Outcomes may either curb or promote demand. In this backdrop, we prefer consumer

staples over consumer discretionary due to resilient demand and the first to benefit from rising household disposable income. CNPF, RRHI, and PGOLD are our picks. In terms of valuations, they are trading at a discount relative to Philippine consumer glamour names.

2Q15 to 2Q16 Margin trends

Gross ma rgins (%)CNPF EMP JFC PGOLD RRHI URC

1Q15 25.7 30.1 17.7 17.2 25.4 32.72Q15 27.0 36.2 16.9 15.6 22.0 30.63Q15 26.1 27.7 18.0 16.1 21.7 32.84Q15 27.3 34.2 18.4 18.6 21.7 33.31Q16 30.2 31.8 17.9 16.6 21.2 34.02Q16 30.2 41.8 19.2 15.8 21.8 32.53Q16 - - - - - 32.8

EBIT ma rg ins (%)CNPF EMP JFC PGOLD RRHI URC

1Q15 11.7 21.1 6.3 6.6 4.7 15.42Q15 11.3 27.7 5.9 6.2 5.4 15.63Q15 13.4 17.3 6 7.1 5.2 16.04Q15 10.5 17.0 4.2 9.0 5.9 15.71Q16 13.7 19.5 6.7 6.7 4.0 17.12Q16 16.3 27.2 7.2 7.1 6.5 14.93Q16 - - - - - 14.9 Source: Companies, First Metro Securities

Page 29



Page 30

MACRO CHARTS / DATA

Page 30



Page 31

Macro – Economic Charts Economic growth forecast & commentary Singapore GDP

GDP Growth (%) 2015 2016F 2017F

Singapore 2.0 1.5 1.9

Malaysia 5.0 4.2 4.5

Thailand 2.8 3.3 3.5

Indonesia 4.8 5.1 5.3

Philippines 5.8 6.6 6.3

Source: DBS Bank

We have lowered our 2016 GDP growth forecast to 1.5%. Key manufacturing, construction and services sectors have shown signs of slowdown, a key risk to GDP contraction.

Source: Thomson Reuters Datastream, DBS Bank

Malaysia GDP Thailand GDP

GDP growth moderated from 4.2% to 4% y-o-y in 2Q16. Domestic demand may cool on a soft labour market with downside risk exacerbated by global markets of China, US and Europe.

Downside risks remain for our 2016 and 2017 GDP growth forecasts of 3.3% and 3.5% respectively. The economy will still be dependent on public sector growth should exports slow.


Indonesia GDP Philippines GDP

With steady consumption growth, GDP growth is set to remain around 5% for now. Downside risks stem from reined-in fiscal spending. We have lowered our 2017 GDP growth forecast to 5.3%.

GDP growth is still running in excess of 6%. Overheating risks remain as long as investment growth stays above 20%.


Page 31



Page 32

Inflation forecasts & commentary Singapore

Source: DBS Bank

CPI Inflation (%) 2015 2016F 2017F

Singapore -0.5 -0.5 0.9

Malaysia 2.1 2.0 2.2

Thailand -0.9 0.3 1.9

Indonesia 6.4 3.7 4.6


Inflation remains negative even though we believe is it bottoming out and recovering. Expect inflation to turn positive in 2017. Source: Thomson Reuters Datastream, DBS Bank

Malaysia Thailand

August CPI registered 1.5% y-o-y, beating market expectation of 1.3% and confirming our belief that inflation has bottomed and will be on a gradual rise in the coming months.

Core inflation is inching higher but very slowly. Deflationary pressures from housing, transport and food has led CPI inflation to be below the BOT’s 2-3% target.


Indonesia Philippines

Core inflation is expected to be markedly lower than last year. Inflation in housing/utilities is benign while food inflation is under control amid generally stable rice prices.

The BSP kept rates unchanged, noting that the policy stance is still appropriate under current conditions. Domestic demand is firm while inflation remains below target.


Page 32



Page 33

Forex forecasts & commentary USD/SGD

Source: DBS Bank

Exchange Rates, eop Current 2Q17F 3Q17F

Singapore 1.37 1.37 1.38

Malaysia 4.14 4.20 4.24

Thailand 34.6 35.4 35.5

Indonesia 13,041 13,518 13,697


MAS stopped appreciating NEER in April on poor inflation outlook. Our FX desk has narrowed the trading range to 1.34-1.40.


USD/MYR

USD/THB

We see USD/MYR rising towards 4.24 in the next 12 months. Malaysia has cut rates on lower growth and falling inflation.


USD/THB may trade higher on favourable fundamentals. Inflation and GDP growth have bottomed out, benchmark rates have held steady and foreign reserves have increased.


USD/IDR

USD/PHP

USD/IDR broke the psychological 13,000 mark recently, on strong demand in the government bond auction, which will benefit from delay in rate hike. A dovish statement from Bank Indonesia (BI) last week has also fuelled expectations of further policy easing by the central bank.


The peso has been the worst-performing currency in Asia over the past month. Even then, this is not significant given that it has been appreciating since 2013. Source: Thomson Reuters Datastream, DBS Bank

Page 33



Page 34

Input costs – Watch out for higher commodity prices

Generally higher commodity prices. Commodity prices within our tracking universe have generally rebounded on supply factors. Sugar in particular has reached 2012 levels on lower-than-expected production in cane crushing from Brazil due to rain. Poor weather and yields have affected palm oil production, while coffee prices could continue rising on poor weather in Brazil.

Margins may stabilise before compressing. We are likely to see margins stabilising at best before compressing going forward. Companies should already have stocked up inventories at lower prices before the increase in commodity prices and that should cushion the impact of margin compression to some extent.

Sugar Coffee


Cocoa Palm Oil


Milk Rice - Thailand


Page 34



Page 35

Barley Wheat


PET Aluminium


Tin WTI


Page 35



Page 36

PE & PB TRADING BAND CHARTS

Page 36



Page 37

PE & PB trading band charts

Thai Beverage Public Company Forward PE Band (x) Thai Beverage Public Company PB Band (x)

Avg: 16.9x

+1sd: 18.9x

+2sd: 20.8x

‐1sd: 15x

‐2sd: 13.1x

11.4

13.4

15.4

17.4

19.4

21.4

23.4

25.4

Oct-12 Oct-13 Oct-14 Oct-15

(x)

Avg: 4.11x

+1sd: 4.63x

+2sd: 5.14x

‐1sd: 3.6x

‐2sd: 3.09x

2.6

3.1

3.6

4.1

4.6

5.1

5.6

6.1


(x)

Dairy Farm Forward PE Band (x) Dairy Farm PB Band (x)

Avg: 27x

+1sd: 32.4x

+2sd: 37.8x

‐1sd: 21.5x

‐2sd: 16.1x14.4

19.4

24.4

29.4

34.4

39.4


(x)

Avg: 9.45x

+1sd: 12.13x

+2sd: 14.82x

‐1sd: 6.76x

‐2sd: 4.08x3.6

5.6

7.6

9.6

11.6

13.6

15.6


(x)

F & N Forward PE Band (x) F & N PB Band (x)

Avg: 64.1x

+1sd: 95.8x

+2sd: 127.5x

‐1sd: 32.5x

‐2sd: 0.8x0.7

20.7

40.7

60.7

80.7

100.7

120.7


(x)

Avg: 1.52x

+1sd: 1.99x

+2sd: 2.45x

‐1sd: 1.06x

‐2sd: 0.59x0.5

1.0

1.5

2.0

2.5

3.0


(x)

Delfi Ltd Forward PE Band (x) Delfi Ltd PB Band (x)

Avg: 47.5x

+1sd: 71.2x

+2sd: 95x

‐1sd: 23.7x

0.0

20.0

40.0

60.0

80.0

100.0

120.0


(x)

Avg: 5.46x

+1sd: 6.25x

+2sd: 7.04x

‐1sd: 4.68x

‐2sd: 3.89x

3.2

3.7

4.2

4.7

5.2

5.7

6.2

6.7

7.2

7.7


(x)


Page 37



Page 38

Super Group Ltd Forward PE Band (x) Super Group Ltd PB Band (x)

Avg: 27x

+1sd: 33.9x

+2sd: 40.7x

‐1sd: 20.1x

‐2sd: 13.2x11.9

16.9

21.9

26.9

31.9

36.9

41.9


(x)

Avg: 3.34x

+1sd: 4.72x

+2sd: 6.11x

‐1sd: 1.96x

‐2sd: 0.58x0.5

1.5

2.5

3.5

4.5

5.5

6.5


(x)

Sheng Siong Group Ltd Forward PE Band (x) Sheng Siong Group Ltd PB Band (x)

Avg: 20x

+1sd: 21.6x

+2sd: 23.3x

‐1sd: 18.3x

‐2sd: 16.7x

15.0

17.0

19.0

21.0

23.0

25.0

27.0


(x)

Avg: 5.3x

+1sd: 5.87x

+2sd: 6.44x

‐1sd: 4.72x

‐2sd: 4.15x

3.7

4.2

4.7

5.2

5.7

6.2

6.7

7.2


(x)

Del Monte Pacific Forward PE Band (x) Del Monte Pacific PB Band (x)

Avg: 11.9x+1sd: 13.9x+2sd: 15.9x

‐1sd: 9.8x‐2sd: 7.8x

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16

(x)

Avg: 2.49x

+1sd: 3.27x

+2sd: 4.06x

‐1sd: 1.7x

‐2sd: 0.91x0.8

1.3

1.8

2.3

2.8

3.3

3.8

4.3

4.8


(x)

Courts Asia Forward PE Band (x) Courts Asia PB Band (x)

Avg: 13.4x

+1sd: 17.8x

+2sd: 22.2x

‐1sd: 9x

‐2sd: 4.7x4.1

9.1

14.1

19.1

24.1


(x)

Avg: 1.06x

+1sd: 1.49x

+2sd: 1.93x

‐1sd: 0.62x

‐2sd: 0.19x0.1

0.6

1.1

1.6

2.1


(x)


Page 38



Page 39

Jumbo Group Forward PE Band (x) Jumbo Group PB Band (x)

Avg: 16x

+1sd: 18.5x

+2sd: 20.9x

‐1sd: 13.6x

‐2sd: 11.2x

7.8

9.8

11.8

13.8

15.8

17.8

19.8

21.8

Nov-15 Feb-16 May-16 Aug-16

(x)

Avg: 6.12x

+1sd: 7.46x

+2sd: 8.81x

‐1sd: 4.77x

‐2sd: 3.43x

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

Nov-15 Feb-16 May-16 Aug-16

(x)

Katrina Group Forward PE Band (x) Katrina Group PB Band (x)

Avg: 13.7x

+1sd: 14.3x

+2sd: 15x

‐1sd: 13x

‐2sd: 12.4x

11.0

12.0

13.0

14.0

15.0

16.0

17.0

Jul-16 Aug-16 Sep-16

(x)(x)

Avg: 4.8x

+1sd: 5x

+2sd: 5.2x

‐1sd: 4.6x

‐2sd: 4.4x

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.6

5.8

Jul-16 Aug-16 Sep-16

(x)(x)

British American Tobacco Forward PE Band (x) British American Tobacco PB Band (x)

Avg: 21.2x

+1sd: 22.6x

+2sd: 24x

‐1sd: 19.7x

‐2sd: 18.3x

15.3

17.3

19.3

21.3

23.3

25.3

27.3


(x)

Avg: 34.13x

+1sd: 37.41x

+2sd: 40.68x

‐1sd: 30.85x

‐2sd: 27.58x

20.9

25.9

30.9

35.9

40.9


(x)

QL Resources Forward PE Band (x) QL Resources PB Band (x)

Avg: 21.3x

+1sd: 24.4x

+2sd: 27.5x

‐1sd: 18.2x

‐2sd: 15.1x

13.6

15.6

17.6

19.6

21.6

23.6

25.6

27.6

29.6


(x)

Avg: 2.94x

+1sd: 3.47x

+2sd: 4x

‐1sd: 2.41x

‐2sd: 1.88x

1.6

2.1

2.6

3.1

3.6

4.1


(x)

Source: Company, DBS Bank, AllianceDBS

Page 39



Page 40

MSM Malaysia Holdings Forward PE Band (x) MSM Malaysia Holdings PB Band (x)

Avg: 14.2x

+1sd: 15.5x

+2sd: 16.8x

‐1sd: 12.9x

‐2sd: 11.6x

10.4

11.4

12.4

13.4

14.4

15.4

16.4

17.4

18.4


(x)

Avg: 1.82x

+1sd: 1.95x

+2sd: 2.07x

‐1sd: 1.7x

‐2sd: 1.58x

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

2.4


(x)

Padini Holdings Forward PE Band (x) Padini Holdings PB Band (x)

Avg: 11.5x

+1sd: 14.6x

+2sd: 17.6x

‐1sd: 8.4x

‐2sd: 5.3x4.7

6.7

8.7

10.7

12.7

14.7

16.7

18.7


(x)

Avg: 3.05x

+1sd: 3.56x

+2sd: 4.07x

‐1sd: 2.54x

‐2sd: 2.04x1.8

2.3

2.8

3.3

3.8

4.3

4.8


(x)

OldTown Berhad Forward PE Band (x) OldTown Berhad PB Band (x)

Avg: 15.7x

+1sd: 18.9x

+2sd: 22.1x

‐1sd: 12.5x

‐2sd: 9.2x8.3

10.3

12.3

14.3

16.3

18.3

20.3

22.3

24.3

26.3


(x)

Avg: 2.34x

+1sd: 2.71x

+2sd: 3.07x

‐1sd: 1.98x

‐2sd: 1.62x

1.4

1.9

2.4

2.9

3.4

Apr-13 Apr-14 Apr-15 Apr-16

(x)

CP ALL Forward PE Band (x) CP ALL PB Band (x)

Avg: 30.8x

+1sd: 35.8x

+2sd: 40.9x

‐1sd: 25.8x

‐2sd: 20.8x18.7

23.7

28.7

33.7

38.7

43.7


(x)

Avg: 12.55x

+1sd: 13.98x

+2sd: 15.41x

‐1sd: 11.12x

‐2sd: 9.69x

8.4

10.4

12.4

14.4

16.4

18.4


(x)

Source: Company, AllianceDBS, DBS Vickers

Page 40



Page 41

Charoen Pokphand Foods Forward PE Band (x) Charoen Pokphand Foods PB Band (x)

Avg: 26.4x

+1sd: 32.7x

+2sd: 38.9x

‐1sd: 20.2x

‐2sd: 14x12.5

17.5

22.5

27.5

32.5

37.5

42.5

47.5

Jan-08 Feb-09 Mar-10 Apr-11 May-12 Jun-13 Jul-14 Aug-15 Sep-16

(x)

Avg: 1.75x

+1sd: 2.12x

+2sd: 2.48x

‐1sd: 1.38x

‐2sd: 1.01x0.9

1.4

1.9

2.4

2.9


(x)

Big C Supercenter Forward PE Band (x) Big C Supercenter PB Band (x)

Avg: 23.5x

+1sd: 26.2x

+2sd: 28.9x

‐1sd: 20.8x

‐2sd: 18.1x

16.2

18.2

20.2

22.2

24.2

26.2

28.2

30.2

32.2

34.2


(x)

Avg: 4.32x

+1sd: 4.97x

+2sd: 5.61x

‐1sd: 3.68x

‐2sd: 3.04x2.7

3.2

3.7

4.2

4.7

5.2

5.7

6.2

6.7


(x)

Minor International Forward PE Band (x) Minor International PB Band (x)

Avg: 24.4x

+1sd: 28.8x

+2sd: 33.2x

‐1sd: 20x

‐2sd: 15.6x

13.0

18.0

23.0

28.0

33.0


(x)

Avg: 4.17x

+1sd: 4.68x

+2sd: 5.2x

‐1sd: 3.65x

‐2sd: 3.14x

2.4

2.9

3.4

3.9

4.4

4.9

5.4


(x)

Thai Union Group Forward PE Band (x) Thai Union Group PB Band (x)

Avg: 17.1x

+1sd: 20.9x

+2sd: 24.8x

‐1sd: 13.2x

‐2sd: 9.3x8.4

13.4

18.4

23.4

28.4


(x)

Avg: 1.99x

+1sd: 2.2x

+2sd: 2.41x

‐1sd: 1.79x

‐2sd: 1.58x

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.5

2.7


(x)

Source: Company, DBS Vickers

Page 41



Page 42

Home Products Center Forward PE Band (x) Home Products Center PB Band (x)

Avg: 29.5x

+1sd: 35.4x

+2sd: 41.4x

‐1sd: 23.5x

‐2sd: 17.5x15.7

20.7

25.7

30.7

35.7

40.7

45.7

50.7


(x)

Avg: 7.52x

+1sd: 9.83x

+2sd: 12.14x

‐1sd: 5.21x

‐2sd: 2.9x2.6

4.6

6.6

8.6

10.6

12.6

14.6


(x)

Central Plaza Hotel Forward PE Band (x) Central Plaza Hotel PB Band (x)

Avg: 30.1x

+1sd: 36x

+2sd: 41.8x

‐1sd: 24.3x

‐2sd: 18.4x16.5

21.5

26.5

31.5

36.5

41.5

46.5

51.5


(x)

Avg: 5.15x

+1sd: 5.94x

+2sd: 6.73x

‐1sd: 4.36x

‐2sd: 3.57x

2.6

3.6

4.6

5.6

6.6

7.6


(x)

Universal Robina Corp Forward PE Band (x) Universal Robina Corp PB Band (x)

Avg: 26.9x

+1sd: 31.6x

+2sd: 36.3x

‐1sd: 22.2x

‐2sd: 17.4x

13.8

18.8

23.8

28.8

33.8

38.8


(x)

Avg: 5.91x

+1sd: 7.07x

+2sd: 8.22x

‐1sd: 4.76x

‐2sd: 3.61x

2.6

3.6

4.6

5.6

6.6

7.6

8.6


(x)

Jollibee Foods Corp. Forward PE Band (x) Jollibee Foods Corp. PB Band (x)

Avg: 35.5x

+1sd: 41.6x

+2sd: 47.6x

‐1sd: 29.5x

‐2sd: 23.5x20.5

25.5

30.5

35.5

40.5

45.5

50.5

55.5


(x)

Avg: 7.33x

+1sd: 8.22x

+2sd: 9.11x

‐1sd: 6.44x

‐2sd: 5.55x

4.5

5.5

6.5

7.5

8.5

9.5


(x)

Source: Company, Vickers, FirstMetro

Page 42



Page 43

Emperador Inc Forward PE Band (x) Emperador Inc PB Band (x)

Avg: 25.3x

+1sd: 34.5x

+2sd: 43.7x

‐1sd: 16.1x

‐2sd: 6.9x4.0

14.0

24.0

34.0

44.0

54.0


(x)

Avg: 3.82x

+1sd: 4.98x

+2sd: 6.13x

‐1sd: 2.67x

‐2sd: 1.52x1.3

2.3

3.3

4.3

5.3

6.3

Dec-12 Dec-13 Dec-14 Dec-15

(x)

Robinsons Retail Holdings Forward PE Band (x) Robinsons Retail Holdings PB Band (x)

Avg: 22.3x

+1sd: 24.8x

+2sd: 27.2x

‐1sd: 19.8x

‐2sd: 17.3x

14.2

16.2

18.2

20.2

22.2

24.2

26.2

28.2

30.2

Nov-13 Nov-14 Nov-15

(x)

Avg: 2.42x

+1sd: 2.67x

+2sd: 2.93x

‐1sd: 2.17x

‐2sd: 1.92x

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

Nov-13 Nov-14 Nov-15

(x)

Puregold Price Club Forward PE Band (x) Puregold Price Club PB Band (x)

Avg: 22.1x

+1sd: 25.7x

+2sd: 29.2x

‐1sd: 18.6x

‐2sd: 15.1x13.5

15.5

17.5

19.5

21.5

23.5

25.5

27.5

29.5

31.5


(x)

Avg: 3.16x

+1sd: 3.64x

+2sd: 4.11x

‐1sd: 2.69x

‐2sd: 2.21x

1.9

2.4

2.9

3.4

3.9

4.4


(x)

Century Pacific Food Inc Forward PE Band (x) Century Pacific Food Inc PB Band (x)

Avg: 18.8x

+1sd: 21.3x

+2sd: 23.9x

‐1sd: 16.2x

‐2sd: 13.7x

11.6

13.6

15.6

17.6

19.6

21.6

23.6

25.6

May-14 Nov-14 May-15 Nov-15 May-16

(x)

Avg: 5.31x

+1sd: 6.44x

+2sd: 7.58x

‐1sd: 4.18x

‐2sd: 3.05x2.7

3.7

4.7

5.7

6.7

7.7

8.7

May-14 Nov-14 May-15 Nov-15 May-16

(x)

Source: Company, FirstMetro

Page 43



Page 44

Unilever Indonesia Forward PE Band (x) Unilever Indonesia PB Band (x)

Avg: 44.1x

+1sd: 52.3x

+2sd: 60.6x

‐1sd: 35.9x

‐2sd: 27.6x24.8

29.8

34.8

39.8

44.8

49.8

54.8

59.8

64.8


(x)

Avg: 56.92x

+1sd: 65.4x

+2sd: 73.88x

‐1sd: 48.44x

‐2sd: 39.96x

35.3

40.3

45.3

50.3

55.3

60.3

65.3

70.3

75.3

80.3


(x)

Kalbe Farma Forward PE Band (x) Kalbe Farma PB Band (x)

Avg: 32.8x

+1sd: 38.3x

+2sd: 43.7x

‐1sd: 27.4x

‐2sd: 22x19.7

24.7

29.7

34.7

39.7

44.7


(x)

Avg: 7.69x

+1sd: 8.79x

+2sd: 9.89x

‐1sd: 6.59x

‐2sd: 5.49x

4.8

5.8

6.8

7.8

8.8

9.8

10.8


(x)

Indofood Sukses Makmur Forward PE Band (x) Indofood Sukses Makmur PB Band (x)

Avg: 17.4x

+1sd: 20.2x

+2sd: 23x

‐1sd: 14.6x

‐2sd: 11.8x

10.1

12.1

14.1

16.1

18.1

20.1

22.1

24.1

26.1


(x)

Avg: 2.43x

+1sd: 2.76x

+2sd: 3.09x

‐1sd: 2.1x

‐2sd: 1.78x

1.3

1.8

2.3

2.8

3.3


(x)

Indofood CBP Sukses Makmur Forward PE Band (x) Indofood CBP Sukses Makmur PB Band (x)

Avg: 20.9x

+1sd: 25.6x

+2sd: 30.3x

‐1sd: 16.2x

‐2sd: 11.5x

7.8

12.8

17.8

22.8

27.8

32.8


(x)

Avg: 4.04x

+1sd: 5.54x

+2sd: 7.04x

‐1sd: 2.54x

‐2sd: 1.03x0.9

1.9

2.9

3.9

4.9

5.9

6.9


(x)


Page 44



Page 45

Matahari Putra Prima Forward PE Band (x) Matahari Putra Prima PB Band (x)

Avg: 46.5x

+1sd: 76x

+2sd: 105.5x

‐1sd: 17x

-11.2

8.8

28.8

48.8

68.8

88.8

108.8

128.8


(x)

Avg: 4.16x

+1sd: 5.83x

+2sd: 7.5x

‐1sd: 2.49x

‐2sd: 0.82x0.7

1.7

2.7

3.7

4.7

5.7

6.7

7.7

8.7


(x)

Mitra Adiperkasa Forward PE Band (x) Mitra Adiperkasa PB Band (x)

Avg: 32.4x

+1sd: 35.9x

+2sd: 39.3x

‐1sd: 29x

‐2sd: 25.6x

20.0

25.0

30.0

35.0

40.0

45.0

Jan-16 Mar-16 May-16 Jul-16 Sep-16

(x)(x)

Avg: 3.69x

+1sd: 4.9x

+2sd: 6.11x

‐1sd: 2.48x

‐2sd: 1.26x1.1

2.1

3.1

4.1

5.1

6.1

7.1


(x)


Page 45



Page 46

Peer Comparison

Regional retailer peer comparison

Company Rat ingTarget price Count ry

Market Cap

(US$m) Px Last PE (A ct ) PE (Yr 1) PE(Yr 2)P/BV (x )

P/Sales (x )

ROE (%)

Operat ing Margin

(%)

Net Margin

(%)

Div idend Yield (%)

NetGearing

(x )

South East A sia Retailers 19.8 Dairy Farm International Holdings Ltd BUY 7.18 SGX 9,641 7.13 22.5x 21.9x 20.3x 6.2x 0.8x 30% 3.7% 3.9% 2.9% 0.45CP All PCL BUY 75.00 SET 15,870 61.25 40.2x 33.9x 27.4x 12.7x 1.3x 40% 6.4% 3.7% 2.1% 3.42

Kalbe Farma Tbk PT BUY 1,600 IDX 6,286 1,745 40.8x 36.6x 30.0x 6.9x 4.2x 20% 15.5% 11.5% 1.1% cashBig C Supercenter PCL FULLY VALUED 210.00 SET 4,973 209 25.0x 21.7x 19.2x 3.3x 1.4x 16% 8.2% 6.3% 1.4% 0.10

Siam Makro PCL Not rated N/A SET 4,582 33.00 31.3x 30.1x 26.5x 11.0x 1.0x 38% 4.5% 3.5% 2.5% 0.35Minor International PCL BUY 50.00 SET 4,898 38.50 36.4x 31.0x 25.9x 4.4x 3.2x 21% 13.4% 14.4% 1.3% 0.92

Matahari Department Store Tbk PT HOLD 20,300.00 IDX 4,266 19,025 31.2x 26.1x 22.9x 31.8x 5.5x 122% 14.9% 12.0% 2.7% cashHome Product Center PCL HOLD 10.00 SET 3,907 10.30 37.3x 33.3x 28.3x 6.4x 2.2x 21% 9.1% 6.7% 0.3% 0.52

Robinsons Retail Holdings Inc HOLD 88.00 PSE 2,222 77.50 24.7x 21.8x 19.2x 2.3x 1.0x 11% 5.3% 4.7% 0.8% cash

Puregold Price Club Inc BUY 50.00 PSE 2,482 43.35 24.1x 21.6x 18.7x 2.8x 1.1x 14% 7.1% 4.9% 0.7% cashSumber Alfaria Trijaya Tbk PT Not rated N/A IDX 1,684 525 44.6x 35.2x 28.7x 4.7x 0.4x 10% 2.4% 0.9% 0.8% 0.71

Matahari Putra Prima Tbk PT FULLY VALUED 1,160.00 IDX 752 1,820 53.5x 47.4x 36.2x 3.4x 0.6x 7% 2.1% 1.3% 0.7% 0.01Central Plaza Hotel PCL BUY 45.00 SET 1,558 40 30.4x 27.5x 23.6x 5.1x 2.7x 20% 14.8% 9.8% 1.5% 0.68

Osim International Ltd HOLD 1.39 NULL 756 1.39 15.6x 16.0x 15.3x 2.4x 1.6x 16% 14.0% 10.3% 3.6% cashPhilippine Seven Corp Not rated N/A PSE 1,343 141 57.5x NaN NaN 14.9x 2.5x 24% 6.6% 4.5% 0.4% 0.09

Ace Hardware Indonesia Tbk PT Not rated N/A IDX 1,199 905 26.9x 25.6x 23.4x 6.0x 3.2x 22% 16.2% 12.4% 1.7% cash

Siam Global House PCL BUY 14.38 SET 1,498 14.20 29.5x 19.9x NaN 3.0x 1.5x 16% 10.4% 7.7% 1.5% 0.58Sheng Siong Group Ltd BUY 1.18 SGX 1,179 1.07 28.3x 24.5x 22.6x 6.5x 2.0x 27% 8.3% 8.2% 3.8% cash

Mitra Adiperkasa Tbk PT HOLD 4,150 IDX 598 4,690 nm 43.3x 27.2x 2.5x 0.5x 6% 4.3% 1.3% 0.2% 0.98Parkson Holdings Bhd Not rated N/A NULL 206 0.78 NULL 13.9x 12.9x 0.3x 0.2x -4% -1.2% -2.3% 0.0% 0.84

Hero Supermarket Tbk PT Not rated N/A IDX 359 1,110 NULL NaN NaN 0.9x 0.3x -3% -0.5% -0.6% na cash

7 Eleven Malaysia Holdings Bhd Not rated N/A NULL 477 1.73 35.8x 30.2x 28.9x 10.0x 0.9x 36% 4.0% 3.1% 1.7% cashRamayana Lestari Sentosa Tbk PT Not rated N/A IDX 625 1,140 15.9x 21.4x 19.4x 2.4x 1.3x 10% 4.5% 6.1% 2.6% cash

Hour Glass Ltd Not rated N/A SGX 353 0.68 9.6x NaN NaN 1.1x 0.7x 12% 8.5% 7.4% 2.9% cashParkson Retail Asia Ltd Not rated N/A SGX 78 0.16 3.2x 31.4x 17.4x 0.7x 0.3x 20% 26.4% 8.5% 3.2% cash

Padini Holdings Bhd BUY 2.95 NULL 453 2.85 23.4x 13.6x 12.0x 4.2x 1.4x 32% 14.3% 10.6% 4.0% cashModern Internasional Tbk PT Not rated N/A IDX 57 160 NULL nm nm 0.6x 0.7x -5% 6.7% -4.8% na 0.69

Midi Utama Indonesia Tbk PT Not rated N/A IDX 174 780 14.6x NaN NaN 3.1x 0.3x 19% 4.5% 2.0% 1.9% 1.83

Courts Asia Ltd BUY 0.45 SGX 163 0.43 13.6x 11.2x 9.5x 0.8x 0.3x 7% 6.7% 2.6% 3.0% 0.77Electronic City Indonesia Tbk PT Not rated N/A IDX 52 500 NULL NaN NaN 0.4x 0.4x 2% 2.2% 1.9% 1.1% cash

Challenger Technologies Ltd Not rated N/A SGX 118 0.47 8.6x NaN NaN 2.1x 0.4x 24% 5.7% 5.2% 5.7% cashF J Benjamin Holdings Ltd Not rated N/A SGX 22 0.05 NULL NaN NaN 0.5x 0.1x -37% -7.9% -9.1% 0.0% 0.51

EpiCentre Holdings Ltd Not rated N/A SGX 14 0.14 NULL NaN NaN 17.0x 0.1x -748% -3.2% -3.5% 0.0% 2.15Regional av erage 21.3x 25.4x 20.9x 5.5x 1.3x -5% 7.2% 4.7% 1.8% 0.9x

Source: Thomson Reuters, DBS Bank, DBS Vickers, AllianceDBS, First Metro Securities

Page 46



Page 47

Regional F&B peer comparison

Company Rat ingTarget price Count ry

Market Cap


P/Sales (x )

ROE (%)

Operat ing Margin

(%)

Net Margin

(%)

Div idend Yield (%)

NetGearing

(x )

South East A sia F &B

Unilever Indonesia Tbk PT FULLY VALUED 30,700 IDX 26,796 45,700 59.6x 59.7x 56.8x 72.1x 8.9x 121% 20.2% 14.9% 1.7% 0.28

Thai Beverage PCL BUY 1.13 SGX 18,057 0.98 23.7x 22.3x 20.3x 5.0x 3.2x 23% 15.7% 14.5% 2.8% 0.25Universal Robina Corp BUY 218.00 PSE 8,246 182.60 32.2x 27.2x 25.7x 5.5x 3.4x 21% 15.3% 12.6% 2.0% 0.11Indofood CBP Sukses Makmur Tbk PT HOLD 9,800 IDX 8,715 9,725 37.8x 31.0x 28.7x 6.6x 3.3x 21% 13.5% 10.5% 1.6% cash

Jollibee Foods Corp FULLY VALUED 209.00 PSE 5,524 248.20 55.2x 42.4x 35.8x 7.7x 2.3x 19% 6.6% 5.5% 0.9% cashCharoen Pokphand Foods PCL BUY 40.00 SET 7,035 31.50 168.9x 23.3x 20.4x 1.6x 0.5x 8% 4.9% 2.2% 2.1% 0.87

Indofood Sukses Makmur Tbk PT BUY 9,700 IDX 6,174 9,150 27.1x 20.9x 16.9x 2.8x 1.2x 13% 11.6% 5.7% 2.4% 0.23

Nestle Malaysia Bhd Not rated N/A NULL 4,479 79.00 26.9x 27.1x 25.8x 25.6x 3.7x 83% 15.7% 12.2% 3.1% 0.47

Emperador Inc HOLD 7.90 PSE 2,419 7.25 16.8x 17.0x 16.6x 2.1x 2.6x 13% 20.5% 15.4% 2.0% 0.05Fraser and Neave Ltd HOLD 2.30 SGX 2,289 2.16 45.4x 33.8x 32.5x 1.4x 1.6x 4% 8.1% 4.6% 1.5% cash

Thai Union Group PCL BUY 26.50 SET 2,973 21.60 19.4x 16.0x 14.2x 2.0x 0.7x 13% 6.1% 4.6% 3.1% 0.60Mayora Indah Tbk PT HOLD 1,600 IDX 2,577 1,500 27.5x 26.5x 23.4x 5.6x 2.0x 21% 11.7% 7.6% 1.1% 0.31

Delfi Ltd HOLD 2.42 SGX 940 2.09 61.3x 30.2x 22.6x 4.8x 2.1x 14% 11.5% 7.0% 2.6% 0.02MK Restaurant Group PCL Not rated N/A SET 1,376 52.25 25.1x 24.1x 22.7x 3.6x 3.2x 14% 14.4% 12.8% 3.8% na

QL Resources Bhd HOLD 4.60 NULL 1,339 4.44 30.3x 28.9x 23.9x 3.5x 1.9x 13% 9.4% 6.7% 1.0% 0.32Heineken Malaysia Bhd Not rated N/A NULL 1,296 17.74 20.2x 19.0x 19.1x 15.9x 2.9x 79% 19.1% 14.4% 3.1% na

Carlsberg Brewery Malaysia Bhd Not rated N/A NULL 1,083 14.54 17.7x 18.6x 17.8x 18.8x 2.7x 64% 16.5% 13.0% 5.0% cash

Super Group Ltd HOLD 0.87 SGX 657 0.81 18.4x 18.5x 18.5x 1.6x 1.8x 9% 12.8% 9.8% 2.7% cashMSM Malaysia Holdings Bhd HOLD 4.60 NULL 832 4.90 12.3x 16.5x 15.9x 1.7x 1.4x 10% 12.0% 8.7% 3.9% 0.13

Century Pacific Food Inc HOLD 17.80 PSE 1,195 16.30 29.8x 21.4x 18.9x 4.6x 1.7x 24% 10.9% 8.1% 0.9% 0.27Taokaenoi Food & Marketing PCL BUY 32.00 SET 852 21.40 57.6x 42.3x 25.9x 13.9x 6.7x 35% 19.5% 15.9% 1.4% cash

Thai President Foods PCL Not rated N/A SET 948 182.00 15.5x NaN NaN 2.2x 2.7x 14% 16.5% 16.5% 1.5% cashDutch Lady Milk Industries Bhd Not rated N/A NULL 928 60.00 26.3x 23.1x 21.8x 24.4x 3.8x 90% 18.8% 14.1% 1.7% cash

President Bakery PCL Not rated N/A SET 846 65.00 20.7x NaN NaN 5.2x 3.9x 24% 19.1% 17.8% 2.4% cash

Thai Vegetable Oil PCL Not rated N/A SET 731 31.25 11.9x 12.5x 12.5x 3.1x 0.9x 25% 7.5% 7.2% 6.9% cash

Nippon Indosari Corpindo Tbk PT Not rated N/A IDX 663 1,695 31.1x 29.9x 25.8x 6.8x 3.7x 23% 20.9% 12.4% 0.6% 0.40Del Monte Pacific Ltd HOLD 0.37 SGX 508 0.36 nm 9.9x 13.8x 1.7x 0.2x 18% 7.1% 2.3% 5.1% 4.93

JUMBO Group Ltd BUY 0.77 NULL 282 0.60 37.2x 21.2x 18.0x 7.7x 2.8x 29% 14.0% 11.1% 2.2% cashOishi Group PCL Not rated N/A SET 776 143.00 22.5x NaN NaN 5.9x 2.0x 18% 6.3% 5.5% 1.8% 0.63

Khon Kaen Sugar Industry PCL Not rated N/A SET 523 4.10 52.8x 22.4x 18.4x 1.3x 1.0x 6% 10.0% 4.3% 1.2% 1.62BreadTalk Group Ltd Not rated N/A SGX 208 1.01 43.9x 22.2x 17.2x 2.2x 0.5x 6% 4.1% 1.2% 1.5% 0.90

President Rice Products PCL Not rated N/A SET 250 57.75 14.2x NaN NaN 2.3x 6.6x 16% 8.9% 44.6% 3.5% cash

Power Root Bhd Not rated N/A NULL 154 2.09 17.2x NaN NaN 2.6x 1.7x 18% 11.8% 11.8% 5.0% cashKatrina Group Ltd BUY 0.43 NULL 52 0.31 15.4x 14.5x 12.8x 4.8x 1.2x 24% 9.2% 5.9% 3.0% cash

Oldtown Bhd BUY 2.15 NULL 217 1.99 18.3x 16.3x 15.6x 2.5x 2.3x 15% 17.9% 13.2% 4.5% cashRegional av erage 32.3x 24.6x 21.9x 8.0x 2.6x 27% 12.8% 10.7% 2.6% 0.7x

Source: Thomson Reuters, DBS Bank, DBS Vickers, AllianceDBS, First Metro Securities

Page 47



Page 48

COMPANY GUIDES & EQUITY EXPLORER

Page 48

ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa: JC, PY

BUY Last Traded Price: S$1.03 (STI : 2,869.82) Price Target 12-mth: S$1.13 (9% upside) (Prev S$0.92) Potential Catalyst: M&A, corporate restructuring Where we differ: Above consensus on more optimistic beer sales, lower NAB losses Analyst Andy SIM CFA +65 6682 3718 [email protected]

What’s New 2Q16 performance showing strong momentum –

within expectations

Interim DPS of THB0.20/share declared

Re-rating to continue on earnings, transformation

Maintain long-term BUY, TP raised to S$1.13

Price Relative

Forecasts and Valuation FY Dec (Bt m) 2015A 2016F 2017F 2018F Revenue 172,049 193,246 204,211 214,134 EBITDA 36,496 39,393 43,278 45,208 Pre-tax Profit 30,972 33,999 37,838 39,750 Net Profit 26,463 28,027 30,830 32,149 Net Pft (Pre Ex.) 26,463 28,027 30,830 32,149 Net Pft Gth (Pre-ex) (%) 22.0 5.9 10.0 4.3 EPS (S cts) 4.08 4.32 4.75 4.95 EPS Pre Ex. (S cts) 4.08 4.32 4.75 4.95 EPS Gth Pre Ex (%) 22 6 10 4 Diluted EPS (S cts) 4.08 4.32 4.75 4.95 Net DPS (S cts) 2.36 2.71 2.79 2.94 BV Per Share (S cts) 17.9 19.5 21.4 23.4 PE (X) 25.3 23.9 21.7 20.9 PE Pre Ex. (X) 25.3 23.9 21.7 20.9 P/Cash Flow (X) 29.8 25.1 22.3 20.9 EV/EBITDA (X) 19.5 17.9 16.1 15.2 Net Div Yield (%) 2.3 2.6 2.7 2.8 P/Book Value (X) 5.8 5.3 4.8 4.4 Net Debt/Equity (X) 0.3 0.3 0.2 0.1 ROAE (%) 24.4 23.1 23.2 22.1 Earnings Rev (%): 2 4 - Consensus EPS (S cts): 4.2 4.5 4.9 Other Broker Recs: B: 6 S: 0 H: 2

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

Earnings momentum continuing Long term BUY, TP raised to S$1.13. Despite the stock price rising by c.50% year to date, we retain our long-term BUY recommendation on Thai Beverage Public Company (ThaiBev) with a higher TP of S$1.13. While investors may be deterred given the recent outperformance, we believe its earnings momentum coupled with its ongoing transformation into a regional beverage player will aid in further re-rating of the counter. We would advocate accumulating on pullbacks.

2Q16 –strong operating performance. Headline net profit was THB5.8bn (-1% y-o-y), due to a dip in contribution from F&N and Frasers Centrepoint Limited (FCL). Excluding F&N/FCL’s contribution, net profit would have increased by 19.1% to THB5.4bn. Revenue grew by a robust 17% y-o-y to THB45.5bn contributed by all business segments, with Beer rising by 69%. Operating profit improved by 25% y-o-y while there was a 1ppt lift in margins to 14%, largely led by an improvement in Beer, coupled with lower losses from Non-Alcoholic Beverage (NAB) segment. An interim dividend of THB0.20 was declared, up from THB0.15 in 1H15.

Raised FY16/17F earnings by 2-4%. We raised our earnings estimates by 2%- 4% factoring in recent ASP increases and higher volume growth for its beer. Excluding the disposal gain in FY15 from its associate F&N, we project core profit growth of c.24% in FY16, driven by Beer, Spirits and smaller losses from its NAB segment. With a solid performance in 1H16 and the strong momentum in Beer, we believe the market will gain confidence in the group’s potential to deliver which will drive a further re-rating for the counter. Other catalysts are potential corporate restructuring with the eventual consolidation of F&N as a subsidiary, and monetisation of its stake in FCL.

Valuation:

Our target price is raised to S$1.13 on higher earnings estimates, and rolling over our valuation base to FY17F (from FY16F). Our TP is based on sum-of-parts valuation, derived via discounted cashflows of its core operations, and imputing fair values for its stakes in F&N and FCL. Key Risks to Our View:

Further excise tax hikes. Further increase in excise duties without a commensurate increase in ASP. At A Glance Issued Capital (m shrs) 25,110 Mkt. Cap (S$m/US$m) 25,863 / 19,305 Major Shareholders (%) Siriwana Co.Ltd 45.3 Maxtop Management Corp 14.7 Capital Group Companies 5.4

Free Float (%) 34.6 3m Avg. Daily Val (US$m) 16.3 ICB Industry : Consumer Goods / Beverages

DBS Group Research . Equity 12 Aug 2016

Singapore Company Guide

Thai Beverage Public Company Version 4 | Bloomberg: THBEV SP | Reuters: TBEV.SI Refer to important disclosures at the end of this report

Page 49

ASIAN INSIGHTS VICKERS SECURITIES Ă

Company Guide


WHAT’S NEW

Earnings momentum continuing

2Q16 earnings momentum continuing:

2Q16 within expectations. ThaiBev continued to post strong earnings following on from 1Q16. Headline net profit was THB5.8bn (-1% y-o-y), but this was due to a dip in FNN/ FCL’s contribution. Excluding FNN/FCL’s contribution, net profit would increased by 19.1% to THB5.4bn. An interim dividend of THB0.20 was declared, up from THB0.15 in 1H15.

Revenue showed robust growth. The group’s revenue grew by a robust 17% y-o-y to THB45.5bn. This was contributed by all its business segments, with Beer posting the strongest growth of 69% to THB14.8bn. Spirits revenue edged up slightly by 0.7% on the back of higher volumes, offset partially by lower ASP. Non-Alcoholic Beverages (NAB) and Food segment also registered revenue growth of 3.3% and 4.8% respectively.

Operating profit margins improved by 1ppt to 14%. In 2Q16, the group’s operating profit margins improved by 1ppt to 14%, largely led by an improvement in its Beer segment, coupled with lower losses from NAB segment. Spirits segment held its margins stable despite having a higher proportion white spirits.

Spirits:

Spirits still the main cash generator. Despite having a high market share, Spirits segment still managed to eke out marginal growth. Sales volume increased by 4.4% largely as consumers traded down to white spirits. However, this was eroded by the lower ASP. Nonetheless, Spirits continued to be the main cashflow generator for the group, posting an EBITDA of THB6.3bn in 2Q16, accounting for 81% of the group’s EBITDA.

Market talk of excise duties subsides; but risks of destocking should be minimal. Inventory levels for brown and white spirits were said to be at 4 weeks and 3 weeks, respectively. This is about 1 week higher than average, as distributors had stocked up in anticipation of an increase in excise duties. However, we understand that expectations of an increase in excise duties has subsided, and could likely take place only 6 to 8 months later (i.e early 2017). However, management does not see huge risks arising from destocking.

Beer:

Beer still holding on to market share gains, despite competitors’ price cut/price parity. Beer sales continue to grow (on an y-o-y basis), as the Group holds on to its market share gains. Management indicated that its market share stood at c.40%, similar to 1Q16 and is not expecting any rapid gains going forward. In fact, with recent price increase of c.2% in May, its retail price is now similar to the market leader, LEO brand. Previously, Chang’s selling price was about 5% lower. Its competitor, Leo Brand, had increased trade

promotions in June in response to Chang’s market share gains. Coupled with price increase by ThaiBev on its Chang Beer, this has thus put both brands at price parity. Based on brand health indicators tracked by ThaiBev, the management believes that the readings are positive, and its brand is well positioned to deliver sustainable growth over the longer term.

Inventory levels tracked closely. Inventory levels for Beer are usually around 2 weeks on average, and freshness of the stock is tracked closely by the management team. Trade stocking is not allowed and while there would be some variation (based on the inventory days) held at the distribution channels, it is understood that the team would respond immediately if there is a build-up in inventories.

Recycled bottles at c.60%. The rate of recycled bottles was at c.60% of total bottles used, which is an improvement from 1Q16 (understood to be 50%-60%). The longer term target would be to increase it towards 70-75%.

Non-Alcoholic Beverage (NAB):

Lowering losses. Overall, NAB registered 3.3% growth in revenue due to an increase in volume and sales mix. As a result, gross profit improved to THB1.7bn, from THB1.23bn (+37.8% y-o-y). Although modest, EBITDA turned positive at THB20m, from a loss of THB370 (in 2Q15) excluding gains on sales of Serm Suk’s land and buildings.

Sales growth from carbonated soft drinks, water and RTD tea. Sales volume was promising, increasing by 18.3%/ 11.2%/ 3.4% for carbonated soft drinks/ water/ RTD (ready to drink) tea. This was, however, offset by a drop in Jubjai, other herbal drinks and 100Plus volumes. Management indicated that due to production capacity constraints, priority was given to Oishi’s new product launch, thus affecting Jubjai’s volume. The drop in 100Plus volumes arose from the high trade loading during its launch phase in early 2015.

Valuation and forecasts

Raised forecasts by 2%-4%; long term BUY, TP raised to S$1.13. We raised our earnings estimates by 2%-4% factoring in recent ASP increases and higher volume growth for its beer. Our TP is raised to S$1.13 as we roll over our valuation base to FY17F. We also introduced FY18F estimates. Our TP is derived via discounted cash flow of its core operations, coupled with our estimated value of its stakes in associates, F&N and FCL. Our TP implies a PE of 23.5x/22.5x on FY17F/18F earnings. While this looks high compared to its historical trend, we believe this could still be justified as the group is in the process of transforming into a larger and regional player.

We retain our positive view of the company as it progressively transforms itself into a regional beverage player. In our view, we believe ThaiBev should have an advantage over its peers

Page 50

ASIAN INSIGHTS VICKERS SECURITIES

Company Guide


given its dominant position as the leading spirits player in Thailand, providing it with ample firepower and serve as a bastion for the group while it invests in new avenues of growth.

With the strong momentum seen in its beer performance, we believe the market will continue to gain confidence in the

group to deliver. Thus, we believe counter will continue to re-rate. While some may be put off by its strong performance year to date, we advocate to accumulate on pull-backs and reiterate our long term positive view on this counter.

Quarterly / Interim Income Statement (Btm)

FY Dec 2Q2015 1Q2016 2Q2016 % chg yoy % chg qoq Comments

Revenue 38,992 55,175 45,450 16.6 (17.6) All segments registered growth, with Beer the strongest

Cost of Goods Sold (27,147) (38,956) (31,761) 17.0 (18.5)

Gross Profit 11,845 16,219 13,689 15.6 (15.6)

Other Oper. (Exp)/Inc (6,768) (6,863) (7,328) 8.3 6.8 2Q15 includes gain on sale of Serm Suk’s land and building

Operating Profit 5,077 9,356 6,361 25.3 (32.0) Within expectations

Other Non Opg (Exp)/Inc 613 143 201 (67.3) 39.9

Associates & JV Inc 1,585 1,115 692 (56.4) (37.9) Slower contribution from FNN/ FCL. FNN affected by disposal of its beer business/

FCL due to slower recognition of development profits

Net Interest (Exp)/Inc (261) (275) (229) (12.2) (16.8)

Exceptional Gain/(Loss) 0.0 0.0 31.4 nm nm 2Q16 FX gain

Pre-tax Profit 7,015 10,340 7,056 0.6 (31.8)

Tax (1,064) (1,745) (1,169) 9.9 (33.0)

Minority Interest (89.1) (34.6) (81.8) (8.2) 136.6

Net Profit 5,862 8,560 5,806 (1.0) (32.2)

Net profit bef Except. 5,862 8,560 5,774 (1.5) (32.5)

EBITDA 7,275 10,615 7,254 (0.3) (31.7)

Margins (%)

Gross Margins 30.4 29.4 30.1 Lower margins due to higher contribution of beer

Opg Profit Margins 13.0 17.0 14.0

Net Profit Margins 15.0 15.5 12.8

Source of all data: Company, DBS Bank

Page 51


Company Guide


Beer sales volume maintaining momentum; 1H16 highest Beer: Strong turnaround; projecting record profits


Spirits sales volume relatively stable given its size NAB to continue losses, but projected to be smaller

Source: Company, DBS Bank Source: Company, DBS Bank Sum-of-parts valuation methodology

Valuation THB bn THB/share S$/share Methodology/ Basis

Thai Bev - core business 680.5 27.10 1.06 Enterprise value - DCF, WACC 7.2%, t= 3%

Share of FNN 24.2 0.96 0.04 Based on 28.5% stake, at DBS TP of S$2.3/share Share of FCL 40.1 1.60 0.06 Based on 28.5% stake, at DBS TP of S$1.9/share Less: Net Debt (23.4) (0.93) (0.04) FY17F net debt

721.4 28.73 1.13 Source: Company, DBS Bank

-60%

-40%

-20%

0%

20%

40%

60%

80%

0

50

100

150

200

250

300

Beer volumes (m litres) % chg yoy [RHS]

Beer sales Vol (m litres)

2,163 1,702

338

(1,632)(1,643)(1,031)

(1,176)

(447)

396 1,215

4,636

6,092 6,873

0

200

400

600

800

1,000

1,200

(3,000)

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

FY06 FY08 FY10 FY12 FY14 FY16F FY18F

Net Profit Vol (m litres) [RHS]

Beer sales vol (m litres)Ne t profit (THB m)

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

80

90

100

110

120

130

140

150

160

170

1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16

Spirits volume (m litres) yoy chg (%) [RHS]

Sa les Vol (m litres) yoy chg (%)369

(464)

43

(1,464) (1,469)

(1,811)

(1,428)

(923)

(210)

(2,000)

(1,500)

(1,000)

(500)

0

500

FY10 FY11 FY12 FY13 FY14 FY15 FY16F FY17F FY18F

Non-Al Bev profits (THB m)

Investment phase for Non-Alcoholic Beverage

Ne t profit (THB m)

Page 52


Company Guide


CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Spirits as the main earnings driver. Thai Bev derives earnings mainly from four key divisions – Spirits, Beer, Non-alcoholic beverages and Food. Spirits division is the largest revenue contributor, accounting for 62% (as of FY15) of the group’s revenue. Earnings from Spirits division are particularly sensitive to excise tax – this accounts for 52.5% of Spirits’ revenue. Consumption of spirits has held up despite the weak consumer sentiment in Thailand, due to the wide range of brands that cater to the wide spectrum of consumers – from low to high income. Building upon Chang’s popularity. Revenues from Beer division contributed 25% of the group’s revenue in FY15. Excise tax is also the largest cost component, accounting for 57.5% of the group’s revenue. Input cost accounts for 18.5% of Beer revenue and is affected by the prices of raw materials such as barley, rice, tin and glass bottles. Chang Beer was recently re-launched with the streamlining of its sub-brands into just Chang Classic and repackaged into emerald green bottles, from amber. Operating expenses ticked up arising from this, but the purpose is to accentuate the brand’s offering and to grow its market share. Alcohol sale restrictions. Alcohol sales have been subjected to restrictions in Thailand. Most recently, laws regarding banning the sale of alcoholic products in proximity of education institutions have been discussed in Thailand. Given that the alcoholic businesses – Spirits and Beer - contribute c.87% of the group’s revenue, any decline in sales revenue by the alcoholic divisions will be significantly felt by the group. Expanding the Non-alcoholic Beverages (NAB) division. Revenues from non-alcoholic beverages made up almost 10% of group revenue in FY15. The business unit is incurring operating losses due to its high SG&A expenses as it is focused on building brand awareness and gaining market share. With the launch of 100Plus in Thailand through a collaboration with F&N, it could take time for the brand to be built up. We project NAB's business segment to remain in the red over the medium term as management builds traction. Fortunately, this should not make a huge dent on group earnings, given the strong contribution from Spirits. Weaker macroeconomic conditions, but should remain resilient. The group derives the majority of its sales from Thailand. In the near term, we expect a slowdown in consumption due to the political instability and macro uncertainties. We do not expect the group’s alcoholic beverage businesses to be significantly affected given the inelasticity of demand and its wide portfolio of brands.

Sprits vol gwth (%)

Spirits ASP gwth (%)

Beer vol gwth (%)

Beer ASP gwth (%)

Non-Alc Bev rev gwth (%)


Page 53


Company Guide


Balance Sheet:

Gearing has improved since acquisition of F&N’s stake. The group’s net gearing has improved significantly, and is projected to further reduce to 0.23 (by end FY16F) from the high of 1.2x immediately following its 28.5% stake acquisition in F&N. Going forward, its healthy balance sheet will put it in a good position for inorganic growth opportunities within the region. Share Price Drivers:

Changes in excise taxes. More than 50% of the group’s revenue goes into excise duties. A change in excise tax would impact on the share price, and depending on whether the group is able to pass on the increase costs to consumer, share price could be positively or negatively affected. Corporate restructuring. With F&N’s arbitration and the recent disposal of its stake in Myanmar Brewery Limited, this could possibly pave the way for the eventual consolidation of F&N as a subsidiary, coupled with a expected monetisation of its stake in Frasers Centrepoint Limited. In our view, these tie in with the group’s announced “Vision 2020” Strategic Roadmap, in which one of the targets is to increase NAB's revenue contribution to over 50%. Turnaround in NAB. We project NAB to continue in the current investment mode in the foreseeable future. However, in the event that NAB turns around faster than expected, it could provide a catalyst to share price, underlining management’s ability to create value for the group. Key Risks:

Prolonged slump in consumer sentiment. A prolonged slump in the Thai economy could impact consumption, and hence our forecasts. Vice-versa, a pickup in economic activity could offer upside potential. Political situation in Thailand. A change or deterioration of the uncertain political situation in Thailand could have an adverse impact on the broader economy and private consumption. Further excise tax hikes. Further increases in excise duties without a commensurate increase in ASP. Company Background

ThaiBev is a leading beverage producer in Thailand, with business segments spanning across spirits, beer, non-alcoholic beverages and food. Its key brands are Sangsom, Hong Thong and Chang. It has 28.5% associate stakes in both Singapore-listed F&N and Frasers Centrepoint Limited.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


Page 54


Company Guide


Key Assumptions

FY Dec 2014A 2015A 2016F 2017F 2018F Sprits vol gwth (%) (0.3) 1.20 3.00 1.50 1.00 Spirits ASP gwth (%) 5.00 0.20 (1.0) 3.00 2.00 Beer vol gwth (%) (2.4) 17.5 38.0 5.00 5.00 Beer ASP gwth (%) 9.50 4.20 3.00 3.00 3.00 Non-Alc Bev rev gwth (%) (7.3) 4.50 5.00 5.00 5.00

Segmental Breakdown

FY Dec 2014A 2015A 2016F 2017F 2018F Revenues (Btm) Spirits 104,592 105,991 108,079 112,991 116,404 Beer 35,193 43,112 61,279 66,274 71,675 Non-Alcoholic Bev. 15,775 16,488 17,312 18,178 19,087 Food 6,602 6,578 6,710 6,911 7,118 Others (122) (120) (135) (142) (149) Total 162,040 172,049 193,246 204,211 214,134 Operating profit (Btm) Spirits 25,278 25,191 26,479 27,457 28,286 Beer 334 1,290 5,515 7,290 8,243 Non-Alcoholic Bev. (2,336) (3,461) (1,904) (1,272) (382) Food 36.0 52.0 101 104 107 Others 68.0 120 120 120 120 Total 23,380 23,192 30,311 33,698 36,374 Operating profit Margins

Spirits 24.2 23.8 24.5 24.3 24.3 Beer 0.9 3.0 9.0 11.0 11.5 Non-Alcoholic Bev. (14.8) (21.0) (11.0) (7.0) (2.0) Food 0.5 0.8 1.5 1.5 1.5 Others (55.7) (100.0) (89.0) (84.3) (80.3) Total 14.4 13.5 15.7 16.5 17.0

Income Statement (Btm)

FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 162,040 172,049 193,246 204,211 214,134 Cost of Goods Sold (114,710) (121,830) (132,789) (138,656) (144,356) Gross Profit 47,330 50,219 60,457 65,555 69,779 Other Opng (Exp)/Inc (23,886) (26,839) (30,146) (31,857) (33,405) Operating Profit 23,443 23,380 30,311 33,698 36,374 Other Non Opg (Exp)/Inc 600 1,162 600 600 600 Associates & JV Inc 3,389 7,774 4,135 4,467 3,555 Net Interest (Exp)/Inc (1,447) (1,344) (1,047) (928) (779) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 25,984 30,972 33,999 37,838 39,750 Tax (4,552) (4,508) (5,973) (7,008) (7,601) Minority Interest 261 (0.3) 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 21,694 26,463 28,027 30,830 32,149 Net Profit before Except. 21,694 26,463 28,027 30,830 32,149 EBITDA 31,427 36,496 39,393 43,278 45,208 Growth Revenue Gth (%) 4.0 6.2 12.3 5.7 4.9 EBITDA Gth (%) 23.3 16.1 7.9 9.9 4.5 Opg Profit Gth (%) 10.3 (0.3) 29.6 11.2 7.9 Net Profit Gth (Pre-ex) (%) 13.4 22.0 5.9 10.0 4.3 Margins & Ratio Gross Margins (%) 29.2 29.2 31.3 32.1 32.6 Opg Profit Margin (%) 14.5 13.6 15.7 16.5 17.0 Net Profit Margin (%) 13.4 15.4 14.5 15.1 15.0 ROAE (%) 22.2 24.4 23.1 23.2 22.1 ROA (%) 12.2 15.0 15.1 15.9 15.8 ROCE (%) 11.8 12.3 14.8 15.6 16.0 Div Payout Ratio (%) 70.6 57.9 62.7 58.6 59.4 Net Interest Cover (x) 16.2 17.4 29.0 36.3 46.7


Page 55


Company Guide



FY Dec 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 Revenue 38,992 36,472 50,880 55,175 45,450 Cost of Goods Sold (27,147) (25,851) (36,780) (38,956) (31,761) Gross Profit 11,845 10,621 14,100 16,219 13,689 Other Oper. (Exp)/Inc (6,768) (6,241) (7,584) (6,863) (7,328) Operating Profit 5,077 4,380 6,516 9,356 6,361 Other Non Opg (Exp)/Inc 613 169 271 143 201 Associates & JV Inc 1,585 4,565 728 1,115 692 Net Interest (Exp)/Inc (261) (325) (328) (275) (229) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 31.4 Pre-tax Profit 7,015 8,789 7,188 10,340 7,056 Tax (1,064) (802) (1,192) (1,745) (1,169) Minority Interest (89.1) 8.99 34.0 (34.6) (81.8) Net Profit 5,862 7,996 6,030 8,560 5,806 Net profit bef Except. 5,862 7,996 6,030 8,560 5,774 EBITDA 7,275 9,114 7,516 10,615 7,254 Growth Revenue Gth (%) (14.7) (6.5) 39.5 8.4 (17.6) EBITDA Gth (%) (13.5) 25.3 (17.5) 41.2 (31.7) Opg Profit Gth (%) (31.5) (13.7) 48.8 43.6 (32.0) Net Profit Gth (Pre-ex) (%) (10.8) 36.4 (24.6) 42.0 (32.5) Margins Gross Margins (%) 30.4 29.1 27.7 29.4 30.1 Opg Profit Margins (%) 13.0 12.0 12.8 17.0 14.0 Net Profit Margins (%) 15.0 21.9 11.9 15.5 12.8

Balance Sheet (Btm)

FY Dec 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 46,251 46,921 47,132 47,176 47,053 Invts in Associates & JVs 67,614 75,737 78,272 81,139 83,095 Other LT Assets 11,054 11,231 11,174 11,118 11,061 Cash & ST Invts 2,230 3,494 4,742 8,866 14,011 Inventory 35,084 35,204 38,709 40,427 42,094 Debtors 3,668 3,906 4,394 4,644 4,869 Other Current Assets 6,085 5,523 5,523 5,523 5,523 Total Assets 171,987 182,017 189,946 198,892 207,707 ST Debt 21,947 17,374 17,374 17,374 17,374 Creditor 4,803 4,851 3,625 3,785 3,942 Other Current Liab 9,286 10,865 14,571 15,606 16,199 LT Debt 26,555 24,883 19,883 14,883 9,883 Other LT Liabilities 4,720 4,778 4,778 4,778 4,778 Shareholder’s Equity 101,263 115,885 126,335 139,085 152,151 Minority Interests 3,414 3,380 3,380 3,380 3,380 Total Cap. & Liab. 171,987 182,017 189,946 198,892 207,707 Non-Cash Wkg. Capital 30,749 28,918 30,431 31,202 32,346 Net Cash/(Debt) (46,272) (38,763) (32,516) (23,391) (13,246) Debtors Turn (avg days) 8.5 8.0 7.8 8.1 8.1 Creditors Turn (avg days) 16.5 15.0 12.0 10.1 10.1 Inventory Turn (avg days) 115.3 109.0 105.0 107.7 107.8 Asset Turnover (x) 0.9 1.0 1.0 1.1 1.1 Current Ratio (x) 1.3 1.5 1.5 1.6 1.8 Quick Ratio (x) 0.2 0.2 0.3 0.4 0.5 Net Debt/Equity (X) 0.4 0.3 0.3 0.2 0.1 Net Debt/Equity ex MI (X) 0.5 0.3 0.3 0.2 0.1 Capex to Debt (%) 9.4 9.3 12.1 14.0 16.5 Z-Score (X) 7.4 7.9 8.3 8.9 9.5


Page 56


Company Guide


Cash Flow Statement (Btm)

FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 25,984 30,972 33,999 37,838 39,750 Dep. & Amort. 4,038 4,452 4,348 4,515 4,681 Tax Paid (4,884) (5,003) (2,267) (5,973) (7,008) Assoc. & JV Inc/(loss) (3,389) (7,774) (4,135) (4,467) (3,555) Chg in Wkg.Cap. 1,135 (1,236) (5,219) (1,807) (1,737) Other Operating CF 1,524 1,074 0.0 0.0 0.0 Net Operating CF 24,409 22,486 26,727 30,106 32,131 Capital Exp.(net) (4,570) (3,946) (4,500) (4,500) (4,500) Other Invts.(net) 6.50 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 6,903 2,276 1,600 1,600 1,600 Other Investing CF 268 1,552 0.0 0.0 0.0 Net Investing CF 2,607 (118) (2,900) (2,900) (2,900) Div Paid (11,359) (15,378) (17,577) (18,079) (19,084) Chg in Gross Debt (17,202) (3,728) (5,000) (5,000) (5,000) Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (1,259) (1,378) 0.0 0.0 0.0 Net Financing CF (29,820) (20,484) (22,577) (23,079) (24,084) Currency Adjustments (65.0) (622) 0.0 0.0 0.0 Chg in Cash (2,869) 1,262 1,250 4,126 5,147 Opg CFPS (S cts) 3.59 3.65 4.92 4.92 5.22 Free CFPS (S cts) 3.06 2.86 3.42 3.94 4.26


Target Price & Ratings History

Source: DBS Bank

Analyst: Andy SIM CFA

Page 57

ed: CK

BLaPrPoAnNa

W

Pr

FoFYReEBPrNeNeNeEPEPEPDNeBVPEPEP/EVNeP/NeRO

EaCoO

SoFin

DB

T

CVe

AS

K / sa:CS, PY

BUY ast Traded Pricerice Target 12-otential Catalyst:nalyst amida ARTISPON

What’s New2H16 SSSG

stamp camp

More aggre

stores in th

Maintain po

As we roll o

our TP rises

rice Relative

orecasts and VaY Dec (Bt m) evenue BITDA re-tax Profit et Profit et Pft (Pre Ex.) et Pft Gth (Pre-ePS (Bt) PS Pre Ex. (Bt) PS Gth Pre Ex (%iluted EPS (Bt) et DPS (Bt) V Per Share (Bt) E (X) E Pre Ex. (X) /Cash Flow (X) V/EBITDA (X) et Div Yield (%) /Book Value (X) et Debt/Equity (XOAE (%)

arnings Rev (%):onsensus EPS (Bther Broker Recs

ource of all data nance L.P

BS Group R

Thailand

CP Aersion 4 | Bloom

SIAN INSIG

e: Bt61.25 (SEmth: Bt75.00 Healthy SSSG, a

NG +66 2657 78

w to remain str

paign

essive branch

e next three

ositive view o

over our valu

s to Bt75.0

aluation 2014

357,726,812,510,2

9,8ex) (%) (10

1.1.

%) (11.0.3.54562026

117

X) 434

t): s:

on this page: Co

Research . E

d Com

ALL mberg: CPALL T

HTS

ET : 1,546.13) (22% upside) aggressive store

833 namidaa@t

rong given its

expansion to

years

on CPALL

uation window

4A 2015A 66 391,817 4

802 32,554 89 16,884 00 13,682

823 13,687 0.7) 39.3

13 1.52 09 1.52

11) 39 13 1.52 82 1.07 43 4.16

4.2 40.2 6.0 40.2 0.9 17.5 6.9 22.2 1.3 1.7 7.9 14.7 4.7 4.0 4.3 40.2

B: 24

Company, DBS Vi

Equity

mpany G

TB | Reuters: CP

(Prev Bt60.00)expansion

th.dbsvickers.com

s successful

o reach 12,00

w to FY17F,

2016F 201436,663 492,0

35,880 41,019,963 25,016,219 20,016,219 20,0

18.5 231.80 2.1.80 2.

19 1.80 2.1.26 1.4.82 5.33.9 2733.9 2717.9 1620.0 17

2.1 212.7 11

3.4 340.2 43

0 1.80 2.S: 1 H

Vickers, Bloomber

Guide

PALL.BK

)

m

00

17F0380770170940943.9.24.2424

.24

.57

.497.47.46.17.42.61.23.03.4

0.16

H: 3

rg

Per

Favougivenin coroperamajorticket decen Drivenecononumbhas a new sthan hAs at with 4in progrowtgener Expanbusineexpanscale higheand bdeclinacquirefinaloans,fees, a Valua

Our Ttermin Key R

Key riexpec At A G

Issued Mkt. CMajor C.P. MCharoThai

Free Fl3m AvICB Ind

31 A

R

sistent st

urable long-terits strong grow

re operations aations are exper revenue sourcitems when co

nt ROE of 40.2

n by aggressiveomic recovery, ber of outlets. I

target to reacstores are likelyhalf in provincend-2Q16, CP

44.5% in Bangovincial regionsth (SSSG) to berated from stap

nding margins.ess, consolidatnd by 0.2ppt tofrom a larger nr-margin prod

beauty items. Ane in utilities exring MAKRO in

ancing by issuin, there will be and hedging fe

ation:

TP of Bt75 is banal growth rat

Risks to Our V

sks are (i) delacted consumer

Glance

Capital (m shrs)Cap (Btm/US$m)Shareholders (%Merchandising (oen Pokphand GNDVR (%)oat (%)

vg. Daily Val (US$dustry : Consum

Aug 2016

Refer to impo

trength

m outlook. Wewth outlook, u

and margins, acted to be resice while consuonsumption slo% in FY16F.

e expansion plCPALL continut plans to roll h 12,000 storey to be on a staial regions to cPALL has a totagkok and surbus. We expect Ce resilient, as cple food produ

Despite pressted CPALL’s gro 22% in FY16network and inucts such as re

Additionally, CPxpenses and a n FY13. As CPAng debentures less expenses fees on USD br

ased on DCF vae 2%).

View:

ys in store expconfidence, a

)

%) %)

Group (%)

$m) mer Services / Foo

ortant disclos

VICKER

e remain positunderpinned bnd deleveraginilient, as food umers tend to ows down. CP

an. Despite thues to aggressout at least 70

es in the next tandalone basiscapture the groal of 9,252 outurban areas an

CPALL’s same-sc.71% of its pructs.

ures for its casross margin is p6F, thanks to encreasing conteady-to-eat mePALL will benesmaller cost bALL has compl to replace higfrom advisory ridging loans.

aluation (WAC

pansion, (ii) wend iii) intense

od & Drug Retail

sures at the e

RS SECURIT

ive on CPALL y improvemen

ng. CPALL’s products are itspend on sma

PALL offers a

e slow domestively expand th

00 stores p.a. athree years. Ths, with more owing demandtlets nationwidnd the remainistore-sales-roduct mix is

sh-and-carry projected to steconomies of tribution from eals and healthefit from the urden from leted its loan

gh-cost bank fees, refinanci

CC 10.4%,

eaker-than-competition.

8,9550,215 / 15,9

31

53

ers

nd of this rep

TIES

nts

ts ll-

tic he and he

d. de, ng

till

h

ng

983916

0.50.24.88.38.4

port

Page 58


Company Guide

CP ALL

WHAT’S NEW

Reiterate positive view on CPALL

CVS’ SSSG to remain strong in 2H16. Thailand’s economic recovery has been slow, but we expect the recovery to gain traction as farm income has improved given the alleviated drought impact and a rise in agricultural prices such as rubber, palms, fruits, sugar, etc. On top of the improving domestic consumption spending, CPALL’s marketing activities (its stamp campaign runs from 26 July to 25 Nov) will provide another big boost to the SSSG of its convenient store business (CVS). So far, this year’s stamp campaign has done better than last year’s. Management has maintained its CVS’ SSSG of 3-5% in 2016 (vs our assumption of 3%).

More aggressive branch expansion milestone. CPALL plans to open c.700 CVS stores in 2016 and has target to reach 10,000 stores by 2018. In 1H16, CPALL opened 420 outlets and its network stood at 9,252 stores as at end-2Q16. Recently, its management has set a new milestone of 12,000 stores in the next three years. We see this as a positive development as it reflects easing concerns over the market saturation point issue. Management has seen no signs of slowing down in store expansion and believes that opportunities still exist even in Bangkok from the upcoming new mass transit lines. Additionally, as it uses the small-sized CVS store format, we believe its aggressive outlet expansion is achievable.

Expect wider margins. We expect strong growth in ready-to-eat food, health and beauty products, and drinks at its cafe corner which yield relatively higher margins, to continue given the tilt in consumer lifestyles towards convenience. Meanwhile, SG&A to sales may climb on the back of CVS’s marketing activities but this would be offset by an increase in other income from higher partner participation in promotion campaigns.

Favourable long-term outlook. Despite strong competition in the cash-and-carry business, we expect the positive momentum to continue for CPALL in view of its dominance in the CVS market, continuous branch expansion, strong growth outlook from margin expansion and lower interest expense, and decent ROE.

Maintain BUY. As we roll over our valuation window to FY17F, our TP rises to Bt75. We reiterate our BUY call on CPALL.

CPALL: CVS quarterly SSSG


-1.1%

0.5%

-4.5%

-3.6%

0.3%

1.1%1.6%

1.2%

2.6%

5.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Page 59

CR

Ea

AgAswreecitsmtobestainm SSAmmmfohawprprstaWim SoWcomhicomhi LoAlammelewexmcore

A

RITICAL DATA

arnings Drive

ggressive outles at end 2Q16ith 44.5% in B

emaining in proconomy recoves network. It tailestone to rea

otal additional e on a standaloations. Furtherprovincial areuch higher po

SSG in positivemid weak consore cautious aaking more fre

or convenienceas been deliverho have mostlroduct mix is grocessed foodsaple, we expec

We estimate CPmprovement fro

olid gross margWe expect econontribution froargins. With agh bargaining

ontinue to addeals and from gher margins t

ower financinglthough CPALLmid weak consore than offseectricity chargeere lower due

xpenses relatedanagement fe

ompleted its loeplace high-cos

ASIAN INSIG

A POINTS TO

ers:

et expansion. , CPALL has a

Bangkok and sovincial regionsery, CPALL willargets to add aach 12,000 sto700 stores p.aone basis whilermore, more thas as there is apulation per st

e territory. sumption pres

and are spendinequent shoppi stores and miring positive SSy registered ne

generated froms, bakery, snacct CPALL’s ope

PALL to deliver om 0.9% in FY

gin. nomies of scalem higher-marg larger networpower on sup high-margin pthe health and

than other pro

g expenses. L has launchedsumption, an inet rising SG&A es which accouto the decline

d to the acquises and forex can refinancingst bank loans.

GHTS

WATCH

total of 9,252 urburban areas. Despite the continue to a

at least 700 ouores in the next., 90% of the e another 10%han half of newample potentiatore compared

sure, Thai conng on smaller-ng trips. This tni-supermarke

SSG, outperforegative growth

m food (ready-tks, beverages,

erations and SSSSSG of 3% in

Y15.

e from outlet egin products tork, CPALL will bpply contracts. product lines lid beauty categoducts.

d aggressive prncrease in otheto total sales. unt for 10% o

e in oil prices. Asition of MAKRosts should als

g in 2Q15 by is

outlets nationas, and the slow domesticggressively exp

utlets p.a. and t three years. Onew stores wo

% will be at PTTw outlets woulal demand withd to Bangkok.

sumers are nowticket items an

trend is favouraets formats. CPrming other reth. As c.71% ofto-eat meals, etc.) which is SSG to be resiln FY16F, an

xpansion and o support CPAbe leveraging iThe group wilke ready-to-ea

gory which yiel

omotion camper income shoMeanwhile,

of its SG&A expAdditionally, thRO such as finaso decline. CPAssuing debentu

nwide,

c pand has a

Of the ould T gas ld be h

w nd able PALL tailers f its

a ient.

larger ALL’s its ll at ld

paigns uld

penses he ancial ALL ures to

SSource: Company

Same-st

Spending

Custom

Ne

Total sto

y, DBS Vickers

VICKERS

Com

tore-sales (%)

g per ticket (Bt

mers/store/day

ew Stores

ores at year end

S SECURITIE

mpany Guid

CP AL

)

d

ES

de

LL

Page 60

C

C

Ba

ExCPgeofleveq Sh

Rempoanitefafoslopu Ke

WcoCoecCPec Unstocosa Co

CPofbu(7Adbifro

A

Company Gu

CP ALL

alance Sheet:

xpect gearing tPALL’s net geaearing droppedf its business – vels of free casquity ratio to 2

hare Price Dri

esilient SSSG. Domentum is ex

osition in the cnd sales promoems and makinvourable for c

ormats. Going fowly, supporteublic infrastruc

ey Risks:

Weak consumeronsumer confidonfidence Indeconomic slowdPALL tends to conomic condit

nfavourable wores are mostlyould deter suchales during the

ompany Back

P ALL PCL wasf Charoen Pokpusiness. It is th-Eleven) in Thadditionally, it all payment colozen foods an

ASIAN INSIG

uide

:

to decline. Follaring surged tod to 4.2x as at being cash ge

sh flow. CPALL2.5x in FY17F.

ivers:

Despite weak dxpected to remconvenient storotions. Consumng more frequeonvenience stoforward, domeed by the govecture spending

r confidence. Cdence (as measex) in Thailand down or domesadjust its prodtions.

weather conditiy walk-ins. Unh customers. Crainy season.

kground

s established inphand Group’se leading operailand with thealso operates olection serviced bakery, etc.

GHTS

owing the MAo 4.9x in FY13.

end 2Q16, thenerative and pL targets to low

domestic econmain positive, tre market and mers tend to spent shopping tores and mini-estic consumpt

ernment’s stimu.

CPALL’s businesured by the Cweakens beca

stic political unduct mix in resp

ons. Customerfavourable we

CPALL normally

n 1988 and is as marketing anrator of convene highest markother related b, manufacturin

AKRO acquisitio Nonetheless, anks to the naproviding goodwer its net deb

omy, CPALL’s thanks to its leattractive prod

pend on small-trips which aresupermarkets tion should imulus packages

ess may suffer Consumer ause of an nrest. In any caponse to chang

r traffic at CPAeather conditioy registers softe

a flagship comnd distribution nience store chket share. usinesses such

ng and sales of

on, its net

ature d bt to

SSSG ading ducts -ticket e

mprove and

if

ase, ging

ALL’s ons er

pany hains

h as f

SSource: Company

Leverage & A

Capital

R

Forwar

PB

y, DBS Vickers

VICKERS

Asset Turnove

l Expenditure

ROE (%)

rd PE Band (x)

Band (x)

S SECURITIE

r (x)

ES

Page 61


Company Guide

CP ALL

Key Assumptions

FY Dec 2013A 2014A 2015A 2016F 2017F

Same-store-sales (%) 5.70 (2.6) 0.90 3.00 5.00 Spending per ticket (Bt) 62.0 63.0 63.0 64.3 65.6 Customers/store/day 1,294 1,252 1,261 1,267 1,274 New Stores 607 698 705 700 700 Total stores at year end 7,429 8,127 8,832 9,532 10,232

Income Statement (Btm)

FY Dec 2013A 2014A 2015A 2016F 2017F

Revenue 272,286 357,766 391,817 436,663 492,038Cost of Goods Sold (210,657) (281,443) (306,519) (340,760) (383,087)Gross Profit 61,629 76,323 85,299 95,903 108,952Other Opng (Exp)/Inc (46,549) (55,830) (60,030) (67,961) (76,582)Operating Profit 15,079 20,493 25,269 27,942 32,369Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0Associates & JV Inc 0.0 0.0 0.0 0.0 0.0Net Interest (Exp)/Inc (1,736) (8,281) (8,381) (7,979) (7,352)Exceptional Gain/(Loss) (498) 377 (4.2) 0.0 0.0Pre-tax Profit 12,845 12,589 16,884 19,963 25,017Tax (2,255) (2,270) (3,066) (3,593) (4,753)Minority Interest (88.0) (119) (135) (151) (170)Preference Dividend 0.0 0.0 0.0 0.0 0.0Net Profit 10,503 10,200 13,682 16,219 20,094Net Profit before Except. 11,001 9,823 13,687 16,219 20,094EBITDA 19,780 26,802 32,554 35,880 41,077Growth Revenue Gth (%) 44.3 31.4 9.5 11.4 12.7EBITDA Gth (%) 19.2 35.5 21.5 10.2 14.5Opg Profit Gth (%) 14.1 35.9 23.3 10.6 15.8Net Profit Gth (Pre-ex) (%) (0.1) (10.7) 39.3 18.5 23.9Margins & Ratio Gross Margins (%) 22.6 21.3 21.8 22.0 22.1Opg Profit Margin (%) 5.5 5.7 6.4 6.4 6.6Net Profit Margin (%) 3.9 2.9 3.5 3.7 4.1ROAE (%) 37.6 34.3 40.2 40.2 43.4ROA (%) 5.6 3.2 4.2 4.9 5.9ROCE (%) 9.2 6.8 8.2 9.1 10.6Div Payout Ratio (%) 73.6 72.1 70.0 70.0 70.0Net Interest Cover (x) 8.7 2.5 3.0 3.5 4.4


Page 62


Company Guide

CP ALL


FY Dec 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016

Revenue 97,292 96,364 102,608 104,969 109,998Cost of Goods Sold (76,135) (75,068) (80,191) (82,253) (86,035)Gross Profit 21,158 21,296 22,417 22,716 23,962Other Oper. (Exp)/Inc (15,121) (15,276) (15,710) (15,707) (16,877)Operating Profit 6,037 6,020 6,707 7,009 7,086Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0Associates & JV Inc 0.0 0.0 0.0 0.0 0.0Net Interest (Exp)/Inc (2,116) (2,031) (2,035) (2,009) (2,048)Exceptional Gain/(Loss) (36.1) 25.5 25.7 58.6 7.69Pre-tax Profit 3,884 4,015 4,697 5,059 5,046Tax (716) (718) (790) (960) (817)Minority Interest (29.0) (38.6) (30.2) (34.5) (32.6)Net Profit 3,140 3,258 3,877 4,065 4,196Net profit bef Except. 3,176 3,232 3,851 4,006 4,188EBITDA 7,828 7,906 8,410 8,949 9,025 Growth Revenue Gth (%) 1.8 (1.0) 6.5 2.3 4.8EBITDA Gth (%) (4.7) 1.0 6.4 6.4 0.9Opg Profit Gth (%) (7.2) (0.3) 11.4 4.5 1.1Net Profit Gth (Pre-ex) (%) (7.4) 1.8 19.1 4.0 4.5Margins Gross Margins (%) 21.7 22.1 21.8 21.6 21.8Opg Profit Margins (%) 6.2 6.2 6.5 6.7 6.4Net Profit Margins (%) 3.2 3.4 3.8 3.9 3.8

Balance Sheet (Btm)

FY Dec 2013A 2014A 2015A 2016F 2017F

Net Fixed Assets 71,273 80,201 89,447 98,168 106,053Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0Other LT Assets 178,773 181,525 182,663 182,678 182,697Cash & ST Invts 25,682 33,436 22,921 19,253 11,114Inventory 19,916 22,167 25,072 28,383 31,982Debtors 848 910 854 1,365 1,538Other Current Assets 7,516 8,170 8,126 8,939 9,832Total Assets 304,008 326,410 329,083 338,785 343,216 ST Debt 135,171 19,701 23,803 23,995 23,117Creditor 54,734 59,312 62,624 71,812 80,732Other Current Liab 10,893 13,002 14,705 16,119 17,671LT Debt 50,166 178,779 165,684 158,570 147,335Other LT Liabilities 20,074 20,558 20,593 20,593 20,593Shareholder’s Equity 28,747 30,782 37,349 43,327 49,355Minority Interests 4,223 4,276 4,326 4,370 4,413Total Cap. & Liab. 304,008 326,410 329,083 338,785 343,216 Non-Cash Wkg. Capital (37,347) (41,066) (43,276) (49,245) (55,051)Net Cash/(Debt) (159,654) (165,044) (166,566) (163,312) (159,338)Debtors Turn (avg days) 0.9 0.9 0.8 0.9 1.1Creditors Turn (avg days) 77.4 75.6 74.4 73.7 74.4Inventory Turn (avg days) 25.8 27.9 28.8 29.3 29.4Asset Turnover (x) 1.4 1.1 1.2 1.3 1.4Current Ratio (x) 0.3 0.7 0.6 0.5 0.4Quick Ratio (x) 0.1 0.4 0.2 0.2 0.1Net Debt/Equity (X) 4.8 4.7 4.0 3.4 3.0Net Debt/Equity ex MI (X) 5.6 5.4 4.5 3.8 3.2Capex to Debt (%) 6.1 8.1 9.3 9.0 9.7Z-Score (X) 1.6 2.2 2.3 2.5 2.6


Page 63

Ca

FY

PrDTaACONCOInDONDCCONCCOFr

So Ta

So

An

Co

An

Co

A

ash Flow Statem

Y Dec

re-Tax Profit ep. & Amort. ax Paid ssoc. & JV Inc/(lohg in Wkg.Cap. ther Operating Cet Operating CFapital Exp.(net) ther Invts.(net)

nvts in Assoc. & Jiv from Assoc & ther Investing Cet Investing CF iv Paid hg in Gross Debapital Issues ther Financing Cet Financing CF urrency Adjustmhg in Cash pg CFPS (Bt)

ree CFPS (Bt)

ource: Company,

arget Price & Ra

ource: DBS Vicke

Analyst: Namida

orporate Govern

nti-corruption Pr

orporate Govern

ASIAN INSIG

ment (Btm)

oss)

CF F

(JV JV F

(

bt

CF

ments

y, DBS Vickers

atings History

ers

a ARTISPONG

nance CG Rating

rogress Indicator

nance CG RatingScore

90-100

80-89

70-79

60-69

50-59 <50

GHTS

2013A

12,845 14,700

(2,255) (0.0

8,675 0.0

21,624 2(11,272) (1

180,136) 0.0 0.0

(1.0) 191,410) (1

(8,084) (181,000 1

0.0 (1,739) (

171,177 (155

1,546 1.44 1.15

g 2015

r DeclaCertif

g

2014A 20

12,589 166,310 7

(2,270) (3,0.0

3,850 50.0

26,371 316,019) (17,

(182) (60.0 0.0

242 5,958) (17,

(8,085) (7,12,798 (9,

0.0 (7,543) (8,(2,830) (24,

(10.6) 7,572 (10,

2.51 1.15

red

fied

Range

No

015A 201

,884 19,9,285 7,9066) (3,59

0.0 0,065 2,2

0.0 0,419 30,7549) (16,45

68.3) 00.0 00.0 0

208 2409) (16,23186) (11,35177) (6,92

0.0 0416) 0780) (18,2783.9 0686) (3,802.93 3.1.54 1.

Number of Logo

o logo given

6F 2017F

63 25,01739 8,708

92) (4,752)0.0 0.032 2,7150.0 0.005 34,119

50) (16,450)0.0 0.00.0 0.00.0 0.012 216

38) (16,234)53) (14,066)21) (12,113)0.0 0.00.0 0.075) (26,179)0.0 0.008) (8,294)17 3.4959 1.97

o

F

78)0509)0006)))00)

0)97

VICKERS

Com

Description Excellent

Very Good

Good

Satisfactory

Pass N/A

S SECURITIE

mpany Guid

CP AL

ES

de

LL

Page 64

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa:MA, PY

BUY Last Traded Price: Rp8,525 (JCI : 5,381.40) Price Target 12-mth: Rp9,700 (14% upside) (Prev Rp8,310) Potential Catalyst: Finalisation of CMFC sale and purchase agreement and recovery in CPO price Where we differ: Broadly in line with consensus

Analyst

Tiesha Putri +6221 30034931 [email protected] Andy SIM CFA +65 6682 3718 [email protected]

What’s New Raise TP to Rp9,700 after rolling over valuation

base to 2017

Recent progress on CMFC divestment plan should

help to narrow INDF’s current discount to SOTP

valuation

Price Relative

Forecasts and Valuation FY Dec (Rp m) 2015A 2016F 2017F 2018F Revenue 64,062 67,765 72,631 77,909 EBITDA 10,391 10,496 12,056 12,766 Pre-tax Profit 4,962 6,764 8,097 8,514 Net Profit 2,968 3,848 4,767 4,771 Net Pft (Pre Ex.) 2,968 3,848 4,767 4,771 Net Pft Gth (Pre-ex) (%) (24.7) 29.7 23.9 0.1 EPS (Rp) 338 438 543 543 EPS Pre Ex. (Rp) 338 438 543 543 EPS Gth Pre Ex (%) (25) 30 24 0 Diluted EPS (Rp) 338 438 543 543 Net DPS (Rp) 169 219 271 272 BV Per Share (Rp) 3,106 3,325 3,596 3,868 PE (X) 25.2 19.5 15.7 15.7 PE Pre Ex. (X) 25.2 19.5 15.7 15.7 P/Cash Flow (X) 17.8 10.8 8.6 8.5 EV/EBITDA (X) 10.0 9.7 8.5 8.1 Net Div Yield (%) 2.0 2.6 3.2 3.2 P/Book Value (X) 2.7 2.6 2.4 2.2 Net Debt/Equity (X) 0.3 0.2 0.2 0.2 ROAE (%) 10.9 13.2 15.1 14.0 Earnings Rev (%): 6 (2) 9 Consensus EPS (Rp): 444 504 585 Other Broker Recs: B: 21 S: 0 H: 3

Source of all data on this page: Company, DBS Bank, DBS Vickers, Bloomberg Finance L.P

A catch-up play BUY on attractive valuation and exposure to ICBP’s strong earnings outlook. We believe INDF offers better value for investors looking to play on the margin expansion story of its 80.5%-owned subsidiary ICBP. Based on our calculation, the company now trades at a 28% discount to its SOTP valuation vs. an average discount of 14% in the past five years. ICBP contributed 52% and 66% to INDF’s 1H16 consolidated revenue and EBIT respectively, making it the largest earnings contributor among INDF’s subsidiaries. As raw material costs have remained benign and rupiah continues to stabilise, we expect INDF’s consumer branded product segment to continue its strong growth momentum for the remainder of this year, while a stronger pick-up in domestic consumption and recovery in agribusiness’ earnings are expected to be in play next year. CMFC divestment plan is moving along. INDF’s shares have been trading at a deep discount to SOTP valuation in the past three years, which may be mainly attributable to the company’s venture into the cultivation business through China Minzhong Food Corporation (CMFC) acquisition back in 2013. On 6 September, the divestment plan became clearer as Marvellous Glory Holdings Ltd., an SPV controlled by Anthoni Salim, stepped in to make a voluntary offer to acquire all the issued and paid-up shares in CMFC. Approval from independent shareholders of INDF and First Pacific Company is required before the offer can be made, with the deadline of approval being set for 31 December 2016. INDF will maintain minority ownership in CMFC post transaction. We believe this positive development would help to narrow INDF’s current discount to SOTP valuation. Valuation:

We raise our SOTP-based TP to Rp9,700 (implying 18x FY17F PE) after rolling over to 2017F. ICBP contributes 86% to our valuation before holding discount of 15%. Key Risks to Our View:

Volatile commodity prices. Fluctuations in commodity prices could swing costs, and consequently, margins. At A Glance Issued Capital (m shrs) 8,780 Mkt. Cap (Rpbn/US$m) 74,853 / 5,723 Major Shareholders (%) CAB Holding (%) 51.5

Free Float (%) 48.5 3m Avg. Daily Val (US$m) 6.5 ICB Industry : Consumer Goods / Food Producers

DBS Group Research . Equity 8 Sep 2016

Indonesia Company Guide

Indofood Sukses Makmur Version 6 | Bloomberg: INDF IJ | Reuters: INDF.JK Refer to important disclosures at the end of this report

Page 65


Company Guide


WHAT’S NEW

A catch-up play in consumer sector; maintain BUY

Rolling over valuation base to 2017; maintain BUY for 14% potential upside. We fine-tune our forecasts on INDF, resulting in minor +6%/-2% changes to our FY16F/FY17F net profit mainly due to higher margin assumption for CBP. We roll over our sum-of-the-parts valuation base to 2017, hence our TP increases to Rp9,700. Our new TP implies 18x FY17F PE or +0.9SD above 5-year mean PE. We believe INDF’s current valuation provides a cheaper entrance for investors looking to play on ICBP’s margin expansion story with discount to SOTP valuation at 28% vs. 5-year average discount of 14%. Furthermore, we expect the SOTP valuation discount to narrow if CMFC divestment materialises.

Muted earnings growth in 2Q16 as agribusiness experienced weak quarter. INDF’s consumer-branded product (CBP) posted strong results in 2Q16 as the subsidiary saw its EBIT growing 21% y-o-y on the back of higher ASP and receding soft commodity prices. The strong results in CBP was nonetheless offset by weak performance in agribusiness which sales and EBIT dropped by 15% y-o-y. This was partially due to 2015 El Nino impact which led to a steep drop in FFB production. INDF’s 2Q16 results came in line with our estimates with headline net profit growing 33% y-o-y to Rp1.15tn. This was nonetheless boost by a Rp280bn forex gain booked during the quarter. Stripping off the forex gain, INDF’s 2Q16 core profit would have declined by 2% y-o-y to Rp986bn. 1H16 core profit was at Rp2.07tn (-2.2%), in line with our/consensus estimates, forming 53%/54% of our/consensus FY16 forecasts.

Recent cut in wheat flour’s ASP supports CBP segment’s short-term earnings outlook. Bogasari (contributing 22% of INDF’s 1H16 EBIT) had seen its margin expanding in 1H16 on the back of lower wheat price. The company recently cut ASP by 3% in early August, the second price cut in 2016. It is worth highlighting that Bogasari’s EBIT margin in 2Q16 (i.e. 8.6%) was still higher than the company’s target. Note that Bogasari adopts a cost-plus business model with targeted EBIT margin

in the range of 6-8%). Hence, we expect Bogasari’s EBIT margin to continue to normalise in coming quarters. On a more positive note, the recent ASP cut on wheat flour, which is the primary raw material of INDF’s CBP segment, should bode well for earnings.

Progress on CMFC divestment. INDF is currently in the process of divesting its stake in CMFC to Marvellous Holdings, a BVI-based SPV controlled by Anthoni Salim, which has announced its intention to privatise CMFC. The proposed transaction is still subject to approval from INDF and First Pacific Company’s independent shareholders with the deadline being set for 31 December 2016. Once the deal goes through, the company will be left with only a 29.94% stake in CMFC (vs. 82.88% currently).

Some changes in the divestment scheme that are worth highlighting are: 1) Marvellous Holdings replaces China Minzhong Holdings Ltd. as the bidder, 2) CMFC will be privatised, 3) INDF will receive exchangeable bonds for the remaining 29.94% stake, which is convertible into a 29.94% stake in CMFC after the offer closes. The exchangeable bonds will be mandatorily exchanged for shares at the expiry of the exchange period. Thus, INDF will eventually retain a 29.94% minority stake in CMFC, in line with INDF’s initial plan. INDF has received S$40m cash (9.6% of total transaction value based on the bid price stipulated in the letter of intent) at the end of 2015 from China Minzhong Holding Ltd. which will be treated as part of cash payable by Marvellous Holdings to INDF.

Any favourable developments on this planned divestment would be a positive catalyst for INDF’s share price and help to narrow its current discount to SOTP valuation, in our view. Furthermore, INDF will be entitled to receive S$416.4m cash which will be used to pare down its gearing level. We projected INDF’s debt-to-equity to come down to 0.2x post transaction vs. 0.3x at the end of 2015.

INDF’s SOTP valuation discount trend in the past five years

Source: Bloomberg Finance L.P., DBS Vickers, DBS Bank

-28%

-14%

-50%-40%-30%-20%-10%

0%10%20%30%40%50%

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

Sep-

16

Premium (discount) to RNAV Avg. Premium (discount) to RNAV

Page 66


Company Guide


Existing structure

*Effective ownership Source: Company, DBS Vickers, DBS Bank

Structure post transaction

*Effective ownership **After INDF converts the exchangeable bonds into equity in CMFC ***Assuming the remaining shareholders opted to be paid in full cash Source: Company, DBS Vickers, DBS Bank

Sum-of-the-parts (SOTP) valuation

Entity INDF's effective shareholding

EV adj, to INDF's

ownership (Rp bn)

Adj. EV per share (Rp) Remarks

ICBP 80.5% 86,248 9,823 DBS target price; 29x FY17F EPS

Bogasari 100.0% 11,667 1,329 6x FY17F EV/EBITDA

Indofood Agri Resources 62.8% 8,978 1,023 DBS target price; DCF-based

Distribution 100.0% 2,284 260 6x FY17F EV/EBITDA

CMFC 29.9% 773 88 Offer price for majority stake

Net cash (debt)

(9,480) (1,080)

Holding company discount (15%)

(15,071) (1,716)

Target price

85,400 9,700

Implied PE 17F (x) 18.2

Source: DBS Vickers, DBS Bank

Page 67


Company Guide


Quarterly / Interim Income Statement (Rpbn)

FY Dec 2Q2015 1Q2016 2Q2016 % chg yoy % chg qoq

Revenue 17,614 16,516 17,568 (0.3) 6.4

Cost of Goods Sold (12,769) (11,902) (12,383) (3.0) 4.0

Gross Profit 4,844 4,614 5,186 7.0 12.4

Other Oper. (Exp)/Inc (2,744) (2,735) (3,051) 11.2 11.5

Operating Profit 2,101 1,879 2,135 1.6 13.6

Other Non Opg (Exp)/Inc (308) 0.0 0.0 nm nm

Associates & JV Inc (104) (78.4) (116) (11.6) (47.8)

Net Interest (Exp)/Inc (218) (69.8) (161) 26.1 (130.4)

Exceptional Gain/(Loss) 183 101 82.6 (55.0) (18.1)

Pre-tax Profit 1,654 1,832 1,941 17.3 6.0

Tax (519) (468) (547) 5.3 16.8

Minority Interest (274) (278) (249) 9.3 (10.5)

Net Profit 861 1,086 1,146 33.1 5.5

Net profit bef Except. 678 985 1,063 56.9 7.9

EBITDA 2,671 2,487 2,135 (20.1) (14.2)

Margins (%)

Gross Margins 27.5 27.9 29.5

Opg Profit Margins 11.9 11.4 12.2

Net Profit Margins 4.9 6.6 6.5

Source of all data: Company, DBS Vickers, DBS Bank

Page 68


Company Guide



Earnings Drivers:

Consumer Branded Products (CBP) segment is the primary earnings driver. In 2015, Indofood’s CBP segment, under ICBP, contributed more than 50% of INDF’s EBIT. Agribusiness and Bogasari contributed 20% and 18% respectively. Growth in the CBP segment is predominantly driven by the noodle business which generated c.90% of ICBP’s earnings in FY15. Also, noodles are considered a cheap substitute to rice for many Indonesians, which is why noodle sales are relatively resilient in a slow economy. Wheat price and rupiah strength. Bogasari produces wheat flour, of which 30% is used by ICBP, 65% is sold to SMEs, and the rest to retail consumers. Bogasari imports its entire wheat requirement, which means it is susceptible to fluctuations in global wheat prices and the strength of the rupiah. It adjusts average selling price according to its costs, which eventually affects ICBP’s margins. The sharp depreciation of the rupiah in 2013-14 had reduced EBIT margins at the CBP segment by about 300bps to 10.2% in 2014 from 13.1% in 2012. CPO price and output. The Agribusiness segment, under 62.8%-owned subsidiary Indofood Agri Resources (IFAR SP), is involved in both upstream and downstream operations. Our plantation analyst expects a flattish CPO price in FY17F, but sales volume recovery should help to boost Agribusiness’ performance next year with EBIT being projected to grow 45% y-o-y in FY17F vs. 6% in FY16F. The Agribusiness segment contributed 20% and 12% of Indofood’s FY15 and 1H16 EBIT respectively. Recovery of the domestic economy. We are expecting a gradual recovery in consumption going into 2017. This, coupled with a favourable soft commodity prices and stabilising rupiah should support INDF’s earnings growth, particularly for its CBP and Bogasari segments. As for the latter, around 65% of Bogasari’s wheat flour is sold to SMEs. Improving domestic consumer demand would eventually lead to more business expansion by SMEs and higher demand for wheat flour. Competition in FMCG industry. Indonesia’s rising consumerism has attracted a number of new local and foreign players to the FMCG industry. Rising competition would dent INDF’s pricing power and top-line growth for its consumer goods products. In the event of rising input costs, weak competitive position would result in INDF not being able to pass through the rising costs, hence a drag on earnings.

Revenue Trend and Forecasts

Net Profit Trend and Forecasts

Margin Trend and Forecasts

CBOT Wheat Price (USD/bushel)

CPO Price (MYR/MT)

Source: Company, DBS Vickers DBS Bank

-

2%

4%

6%

8%

10%

12%

14%

16%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2013A 2014A 2015A 2016F 2017F

Revenue (Rp bn) Growth y-o-y (RHS)

(30%)

(20%)

(10%)

-

10%

20%

30%

40%

50%

60%

70%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2013A 2014A 2015A 2016F 2017F

Net profit (Rp bn) Growth y-o-y (RHS)

-

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2013A 2014A 2015A 2016F 2017F

EBIT margin Net margin

300

350

400

450

500

550

600

650

700

750

800

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

CBOT wheat (USD/bu.) Quarterly avg. price

2,000

2,100

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

Jan-15 Jul-15 Jan-16 Jul-16

CPO (MYR/MT) Quarterly avg. price

Page 69


Company Guide


Balance Sheet:

Cash-rich; ready for attractive ventures. Indofood Sukses Makmur had Rp13tn cash (US$980m) as at end-2015. This puts the company in a comfortable position to take on acquisitions or joint ventures that are in line with its vision of being a Total Food Company. Healthy debt ratio. Indofood had a debt-equity ratio of c.0.3x as at end of 2015, which is reasonable. After the planned partial divestment of CMFC, we expect the proceeds to be used to pare down outstanding debts, and reduce the debt-equity ratio to 0.2x by end-2016. Share Price Drivers:

INDF is exposed to fluctuations in wheat as well as crude palm oil (CPO) prices. An increase in wheat price (as well as a weaker rupiah) would translate into higher wheat flour price, which will consequently reduce margins for ICBP’s noodle segment (assuming no adjustment to noodle ASP). Overall, that would hurt INDF as ICBP’s noodle segment accounts for c.40% of INDF’s operating profit. Similarly, weak CPO prices will hurt the Agribusiness segment, and consequently, INDF. These could pressure INDF’s share price. Key Risks:

Volatile commodity prices. Fluctuations in commodity prices could swing costs, and consequently, margins. Suppressed CPO price. Persistently low CPO prices could hurt Agribusiness’ revenues and earnings. Company Background

Indofood Sukses Makmur (INDF) is the largest instant noodle and wheat flour manufacturer in Indonesia, has the largest market share in the cooking oil market, and is also involved in oil palm cultivation (through subsidiary, Indofood Agri Resources), and other branded food products, including snack food, food seasoning, specialty and nutrition food, and dairy products.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company, DBS Vickers, DBS Bank

Rpbn

Page 70


Company Guide


Segmental Breakdown

FY Dec 2014A 2015A 2016F 2017F 2018F Revenues (Rpbn) Consumer Branded 29,921 31,736 34,848 37,688 41,138 Bogasari 19,926 19,177 18,381 19,124 19,896 Agribusiness 14,947 13,803 15,206 16,538 16,916 Distribution 4,865 4,978 5,098 5,464 6,529 Others (6,064) (5,632) (5,768) (6,182) (6,570) Total 63,594 64,062 67,765 72,631 77,909 Operating Profit (Rpbn) Consumer Branded 3,096 3,856 4,714 5,183 5,654 Bogasari 1,457 1,341 1,379 1,434 1,492 Agribusiness 2,235 1,506 1,576 2,291 2,126 Distribution 197 172 189 202 242 Others 532 533 0.0 0.0 0.0 Total 7,517 7,410 7,860 9,113 9,517 Operating Profit Margins Consumer Branded 10.3 12.2 13.5 13.8 13.7 Bogasari 7.3 7.0 7.5 7.5 7.5 Agribusiness 15.0 10.9 10.4 13.9 12.6 Distribution 4.0 3.5 3.7 3.7 3.7 Others (8.8) (9.5) 0.0 0.0 0.0 Total 11.8 11.6 11.6 12.5 12.2

Income Statement (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 63,595 64,062 67,765 72,631 77,909 Cost of Goods Sold (46,545) (46,804) (49,604) (53,166) (57,029) Gross Profit 17,050 17,258 18,161 19,465 20,880 Other Opng (Exp)/Inc (9,730) (9,895) (10,301) (10,352) (11,363) Operating Profit 7,320 7,363 7,860 9,113 9,517 Other Non Opg (Exp)/Inc (51.1) (1,132) 0.0 0.0 0.0 Associates & JV Inc (119) (334) (162) (162) (162) Net Interest (Exp)/Inc (809) (935) (935) (854) (841) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 6,340 4,962 6,764 8,097 8,514 Tax (1,856) (1,730) (1,961) (2,348) (2,469) Minority Interest (543) (264) (954) (982) (1,275) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 3,942 2,968 3,848 4,767 4,771 Net Profit before Except. 3,942 2,968 3,848 4,767 4,771 EBITDA 10,286 10,391 10,496 12,056 12,766 Growth Revenue Gth (%) 14.3 0.7 5.8 7.2 7.3 EBITDA Gth (%) 17.9 1.0 1.0 14.9 5.9 Opg Profit Gth (%) 19.8 0.6 6.7 16.0 4.4 Net Profit Gth (Pre-ex) (%) 57.4 (24.7) 29.7 23.9 0.1 Margins & Ratio Gross Margins (%) 26.8 26.9 26.8 26.8 26.8 Opg Profit Margin (%) 11.5 11.5 11.6 12.5 12.2 Net Profit Margin (%) 6.2 4.6 5.7 6.6 6.1 ROAE (%) 15.7 10.9 13.2 15.1 14.0 ROA (%) 4.6 3.2 4.2 5.0 4.8 ROCE (%) 7.0 6.2 7.3 8.1 8.1 Div Payout Ratio (%) 50.0 50.0 50.0 50.0 50.0 Net Interest Cover (x) 9.0 7.9 8.4 10.7 11.3


Others include Cultivation and Process Food and elimination.

Page 71


Company Guide


Quarterly / Interim Income Statement (Rpbn)

FY Dec 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 Revenue 17,614 14,929 16,498 16,516 17,568 Cost of Goods Sold (12,769) (11,015) (12,107) (11,902) (12,383) Gross Profit 4,844 3,915 4,391 4,614 5,186 Other Oper. (Exp)/Inc (2,744) (2,341) (2,453) (2,735) (3,051) Operating Profit 2,101 1,574 1,938 1,879 2,135 Other Non Opg (Exp)/Inc (308) (1,125) 710 0.0 0.0 Associates & JV Inc (104) (109) (50.6) (78.4) (116) Net Interest (Exp)/Inc (218) (286) (258) (69.8) (161) Exceptional Gain/(Loss) 183 29.9 55.7 101 82.6 Pre-tax Profit 1,654 83.6 2,395 1,832 1,941 Tax (519) (97.0) (793) (468) (547) Minority Interest (274) (34.0) (318) (278) (249) Net Profit 861 (47.3) 1,284 1,086 1,146 Net profit bef Except. 678 (77.2) 1,229 985 1,063 EBITDA 2,671 2,227 2,539 2,487 2,135 Growth Revenue Gth (%) 17.3 (15.2) 10.5 0.1 6.4 EBITDA Gth (%) 12.5 (16.6) 14.0 (2.0) (14.2) Opg Profit Gth (%) 20.1 (25.1) 23.1 (3.1) 13.6 Net Profit Gth (Pre-ex) (%) 2.5 nm nm (19.9) 7.9 Margins Gross Margins (%) 27.5 26.2 26.6 27.9 29.5 Opg Profit Margins (%) 11.9 10.5 11.7 11.4 12.2 Net Profit Margins (%) 4.9 (0.3) 7.8 6.6 6.5

Balance Sheet (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 30,575 34,184 33,634 36,691 39,442 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 14,488 14,831 14,669 14,507 14,345 Cash & ST Invts 14,823 14,167 13,180 13,493 13,954 Inventory 8,446 7,627 8,518 9,129 9,793 Debtors 4,358 5,117 5,384 5,336 5,724 Other Current Assets 13,386 15,906 15,906 15,906 15,906 Total Assets 86,077 91,832 91,290 95,063 99,164 ST Debt 10,096 10,712 10,712 10,712 10,712 Creditor 5,093 5,174 5,669 6,076 6,517 Other Current Liab 7,470 9,222 9,222 9,222 9,222 LT Debt 16,838 16,894 12,980 12,980 12,980 Other LT Liabilities 6,306 6,708 6,708 6,708 6,708 Shareholder’s Equity 25,104 27,269 29,194 31,577 33,962 Minority Interests 15,170 15,852 16,806 17,788 19,063 Total Cap. & Liab. 86,077 91,832 91,290 95,063 99,164 Non-Cash Wkg. Capital 13,628 14,254 14,918 15,074 15,684 Net Cash/(Debt) (12,110) (13,439) (10,512) (10,199) (9,738) Debtors Turn (avg days) 25.0 29.2 29.0 26.8 26.8 Creditors Turn (avg days) 42.7 43.1 44.1 44.2 44.2 Inventory Turn (avg days) 70.7 63.6 66.2 66.3 66.5 Asset Turnover (x) 0.7 0.7 0.7 0.8 0.8 Current Ratio (x) 1.8 1.7 1.7 1.7 1.7 Quick Ratio (x) 0.8 0.8 0.7 0.7 0.7 Net Debt/Equity (X) 0.3 0.3 0.2 0.2 0.2 Net Debt/Equity ex MI (X) 0.5 0.5 0.4 0.3 0.3 Capex to Debt (%) 17.5 12.8 25.3 25.3 25.3 Z-Score (X) 2.6 2.4 2.6 2.6 2.7


Page 72


Company Guide


Cash Flow Statement (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 6,340 4,962 6,764 8,097 8,514 Dep. & Amort. 2,467 2,448 2,637 2,943 3,249 Tax Paid (1,856) (1,730) (1,961) (2,348) (2,469) Assoc. & JV Inc/(loss) 119 334 162 162 162 Chg in Wkg.Cap. (6,078) (501) (663) (157) (610) Other Operating CF 8,277 (1,299) 0.0 0.0 0.0 Net Operating CF 9,269 4,214 6,937 8,697 8,846 Capital Exp.(net) (4,707) (3,525) (6,000) (6,000) (6,000) Other Invts.(net) (3,937) 396 0.0 0.0 0.0 Invts in Assoc. & JV (461) (2,050) 3,914 0.0 0.0 Div from Assoc & JV 0.0 346 0.0 0.0 0.0 Other Investing CF (1,058) (833) 0.0 0.0 0.0 Net Investing CF (10,163) (5,666) (2,086) (6,000) (6,000) Div Paid (1,247) (1,932) (1,924) (2,384) (2,385) Chg in Gross Debt 3,109 2,162 (3,914) 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (460) (371) 0.0 0.0 0.0 Net Financing CF 1,403 (141) (5,838) (2,384) (2,385) Currency Adjustments 130 515 0.0 0.0 0.0 Chg in Cash 639 (1,078) (987) 314 461 Opg CFPS (Rp) 1,748 537 866 1,008 1,077 Free CFPS (Rp) 520 78.5 107 307 324



Source: DBS Vickers, DBS Bank

Analyst: Tiesha Putri

Andy SIM CFA

Page 73

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa:SM, PY

BUY Last Traded Price ( 28 Sep 2016): S$1.07 (STI : 2,858.01) Price Target 12-mth: S$1.18 (11% upside) (Prev S$1.09) Potential Catalyst: New stores Where we differ: Higher margin assumptions Analyst Alfie YEO +65 6682 3717 [email protected] Andy SIM CFA +65 6682 3718 [email protected]

Price Relative

Forecasts and Valuation FY Dec (S$ m) 2015A 2016F 2017F 2018F Revenue 764 806 816 868 EBITDA 70.6 81.7 88.7 94.7 Pre-tax Profit 67.7 79.4 86.0 87.9 Net Profit 56.8 65.8 71.2 72.7 Net Pft (Pre Ex.) 56.8 65.8 71.2 72.7 Net Pft Gth (Pre-ex) (%) 20.8 15.9 8.2 2.1 EPS (S cts) 3.78 4.38 4.74 4.84 EPS Pre Ex. (S cts) 3.78 4.38 4.74 4.84 EPS Gth Pre Ex (%) 21 16 8 2 Diluted EPS (S cts) 3.78 4.38 4.74 4.84 Net DPS (S cts) 3.50 4.06 4.39 4.48 BV Per Share (S cts) 16.2 16.6 16.9 17.3 PE (X) 28.3 24.5 22.6 22.1 PE Pre Ex. (X) 28.3 24.5 22.6 22.1 P/Cash Flow (X) 21.9 19.0 18.3 17.5 EV/EBITDA (X) 21.0 18.9 17.5 16.3 Net Div Yield (%) 3.3 3.8 4.1 4.2 P/Book Value (X) 6.6 6.5 6.3 6.2 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 23.6 26.7 28.3 28.3 Earnings Rev (%): 7 8 7 Consensus EPS (S cts): 4.20 4.60 4.80 Other Broker Recs: B: 8 S: 0 H: 1

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

Anticipate higher margins

Maintain BUY, more positive on margins. We maintain our BUY recommendation on Sheng Siong, even though the stock has gained c.12% since our last update. We continue to like Sheng Siong for its earnings growth traction, efficient operations, strong ROE, and net cash balance sheet. We are now more positive on gross margins as we believe the run rate of 26% in 2Q16 will be sustainable. Maintain BUY for 15% upside including dividends. Anticipate higher gross margins. We revise our gross margin assumption to 26% at 2Q16’s current run rate, which we believe is sustainable. We believe more can be done for gross margin to expand through direct sourcing, house brands, and higher mix of fresh food. There is still room to increase direct sourcing of fresh products especially vegetables from farms regionally. Cutting off middlemen would contribute to improving gross margins. Higher-margin house brands currently contribute below 10% of turnover and improving the company's house brand mix will support margin improvement. Finally, fresh food mix can increase due to supermarkets' displacement of wet markets. We raise FY16-17F earnings by 7-8% led by higher gross margin assumption of 26%. In store updates, the new Junction 9 store has commenced operations earlier this month, while the new Kunming store, which is scheduled to start in 2H16, will be postponed to 1H17 due to delays in property handover. Our forecasts are not significantly affected by the delay. Valuation:

Our target price for Sheng Siong is S$1.18 based on 25x FY17F PE. The valuation is pegged at below +1SD of its historical mean and below regional peers' average of 27x PE. Key Risks to Our View:

Store openings, price competition. Revenue growth will be led by new store openings. Excessive discounts and promotions in the market by competitors will ultimately result in lower margins. At A Glance Issued Capital (m shrs) 1,504 Mkt. Cap (S$m/US$m) 1,609 / 1,184 Major Shareholders (%) SS Holdings 29.85 Lim Family 33.99

Free Float (%) 36.16 3m Avg. Daily Val (US$m) 2.3 ICB Industry : Consumer Services / Food & Drug Retailers


Singapore Company Guide

Sheng Siong Group Version 6 | Bloomberg: SSG SP | Reuters: SHEN.SI Refer to important disclosures at the end of this report

89

109

129

149

169

189

209

229

249

269

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2


Relative IndexS$

Sheng Siong Group (LHS) Relative STI (RHS)

Page 74

ASIAN INSIGHTS VICKERS SECURITIES Page 2

Company Guide

Sheng Siong Group


Earnings Drivers:

Store expansion. Sheng Siong currently operates 42 stores (including Loyang Point which is under renovation). Compared to the other local operators, it has scope to expand its store network, particularly in areas such as Serangoon, Hougang and Seng Kang where it has a low presence. Management targets to ultimately operate 50 stores islandwide. In the past six years, 0-8 stores were opened annually, largely a function of supply of HDB shop space available for tender and Sheng Siong’s ability to win the tenders. Sheng Siong mainly operates in HDB estates. Gross margin expansion through better sales mix. The gross margin for fresh products is estimated to be >30%, and close to 20% for non-fresh grocery items. Sheng Siong’s product mix stands at approximately 40% fresh vs 60% non-fresh. We see headroom for sales mix to improve to 50% for each as it skews its store offerings more towards fresh products. Mandai Distribution Centre to expand. The Mandai Distribution Centre allows Sheng Siong to perform direct sourcing and bulk handling. This effectively drives down input costs, resulting in cost savings and better margins. We estimate that the facility is currently running at only 90% of capacity and a new warehouse adjacent to the current one is expected to start construction in FY17F. It will be able to secure more suppliers and products to trade through the distribution centre to effectively enjoy more bulk handling and higher supplier rebates. Margins are expected to trend up as utilisation increases towards full capacity. Margin expansion through direct sourcing. Sheng Siong is increasingly sourcing directly from suppliers such as farms instead of from middlemen. The company has the resources to place large orders, which is welcomed by producers. Generating more same-store-sales growth (SSSG) to increase revenue. Sheng Siong has been able to maintain positive SSSG since 4Q13 (excluding 4Q15, 1Q16) through longer operating hours and renovation of older stores, offering the correct products and effective marketing. Maintaining positive SSSG will support earnings growth. Kunming store in China to open in 2017. E-commerce remains an ongoing initiative. Its first store in Kunming (40,000 sqft) is expected to commence operations in 2017. Downside for the JV is limited to US$6m paid-up capital which is sufficient to open 2-3 new stores.

Rev per sqft

Operation Area (sqft)

Number of stores

SSSG

Gross margins (%)


1,8151,892

1,753 1,700 1,700

0

273

546

819

1,092

1,365

1,638

1,911

2014A 2015A 2016F 2017F 2018F

404,000431,000 430,800

460,800490,800

0

100,123

200,246

300,370

400,493

500,616

2014A 2015A 2016F 2017F 2018F

34

39

4447

50

0.0

10.2

20.4

30.6

40.8

51.0

2014A 2015A 2016F 2017F 2018F

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Affected by SG50 promotion and discounting

Weak demand conditions, store renovations

22.5

23.0

23.5

24.0

24.5

25.0

25.5

26.0

26.5

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Page 75


Company Guide

Sheng Siong Group

Balance Sheet:

Net cash of over S$50m or >3 Scts per share. The excess cash allows for strategic store acquisitions if suitable real estate arises for it to expand its store presence in the future. The business generates positive working capital. Inventory is purchased on credit, and quickly turned into cash. Over the past seven years, the business has generated between S$20-75m of operating cash flow each year. Dividend payout is attractive at 90%. We expect this to be maintained as long as there is no significant requirement for cash funding. Share Price Drivers:

Strong earnings growth performance. Sheng Siong’s financial performance has consistently met our expectations, delivering earnings growth (4-year CAGR of 20.4% since FY11) through a combination of margin expansion, store growth and SSSG. It is this consistency, together with strong dividend payout of 90% and yield of 4%, that has led to the stock's re-rating from 20x to 22x FY15F PE currently. We believe continued delivery of consistent performance and profit growth will support a strong share price. China to be a wildcard. We believe Sheng Siong’s JV in China is a wildcard. If operations prove to be successful, in time to come, China can provide an alternate source of growth. There is scope for the number of stores to increase should Sheng Siong’s business model work. Downside remains limited to US$6m for now should the JV fail. Key Risks:

Revenue growth limited by store openings. Store expansion in Singapore is largely dependent on the supply of new supermarket retail space released by HDB and its ability to secure the tenders. Excessive discounts and promotions may erode margins. Heavier discounts and promotions vis-a-vis competitors would drive sales revenue, but this could be gained at the expense of margins. Company Background

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


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


2.1

2.2

2.2

2.3

2.3

2.4

2.4

2.5

2.5

0.00

0.01

0.01

0.02

0.02

0.03

0.03

0.04

0.04

0.05

0.05

2014A 2015A 2016F 2017F 2018F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2014A 2015A 2016F 2017F 2018F

Capital Expenditure (-)

S$m

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2014A 2015A 2016F 2017F 2018F

Avg: 20x

+1sd: 21.6x

+2sd: 23.3x

‐1sd: 18.3x

‐2sd: 16.7x

14.9

16.9

18.9

20.9

22.9

24.9

26.9


(x)

Avg: 5.29x

+1sd: 5.87x

+2sd: 6.44x

‐1sd: 4.72x

‐2sd: 4.15x

3.7

4.2

4.7

5.2

5.7

6.2

6.7

7.2


(x)

Page 76


Company Guide

Sheng Siong Group

Key Assumptions

FY Dec 2014A 2015A 2016F 2017F 2018F Rev per sqft 1,815 1,892 1,753 1,700 1,700 Operation Area (sqft) 404,000 431,000 430,800 460,800 490,800 Number of stores 34.0 39.0 44.0 47.0 50.0

Segmental Breakdown

FY Dec 2014A 2015A 2016F 2017F 2018F Revenues (S$m) Singapore 726 764 806 816 868 Total 726 764 806 816 868 Operating profit (S$m)

Singapore 52.2 57.2 67.0 73.9 78.9 Total 52.2 57.2 67.0 73.9 78.9 Operating profit Margins

Singapore 7.2 7.5 8.3 9.1 9.1 Total 7.2 7.5 8.3 9.1 9.1

Income Statement (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 726 764 806 816 868 Cost of Goods Sold (550) (576) (599) (604) (643) Gross Profit 176 189 207 212 226 Other Opng (Exp)/Inc (124) (132) (140) (138) (147) Operating Profit 52.2 57.2 67.0 73.9 78.9 Other Non Opg (Exp)/Inc 3.80 9.26 11.2 11.4 8.40 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 1.19 1.22 1.24 0.65 0.56 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 57.1 67.7 79.4 86.0 87.9 Tax (10.2) (10.9) (13.6) (14.7) (15.1) Minority Interest 0.0 0.0 0.0 0.0 (0.1) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 47.0 56.8 65.8 71.2 72.7 Net Profit before Except. 47.0 56.8 65.8 71.2 72.7 EBITDA 63.0 70.6 81.7 88.7 94.7 Growth Revenue Gth (%) 5.6 5.3 5.4 1.3 6.5 EBITDA Gth (%) 21.9 12.1 15.6 8.7 6.8 Opg Profit Gth (%) 25.3 9.7 17.1 10.3 6.8 Net Profit Gth (Pre-ex) (%) 20.8 20.8 15.9 8.2 2.1 Margins & Ratio Gross Margins (%) 24.2 24.7 25.6 26.0 26.0 Opg Profit Margin (%) 7.2 7.5 8.3 9.1 9.1 Net Profit Margin (%) 6.5 7.4 8.2 8.7 8.4 ROAE (%) 24.3 23.6 26.7 28.3 28.3 ROA (%) 15.8 15.9 17.6 18.6 18.5 ROCE (%) 22.0 19.8 22.3 24.1 25.2 Div Payout Ratio (%) 92.1 92.7 92.7 92.7 92.7 Net Interest Cover (x) NM NM NM NM NM


Page 77


Company Guide

Sheng Siong Group

Quarterly / Interim Income Statement (S$m)

FY Dec 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 Revenue 179 200 187 209 189 Cost of Goods Sold (134) (151) (140) (158) (139) Gross Profit 45.1 48.8 46.7 51.0 49.4 Other Oper. (Exp)/Inc (31.5) (33.8) (32.5) (35.4) (33.3) Operating Profit 13.6 15.0 14.2 15.6 16.0 Other Non Opg (Exp)/Inc 2.30 2.78 1.95 3.82 2.14 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.30 0.34 0.31 0.34 0.20 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 16.2 18.1 16.5 19.8 18.4 Tax (2.6) (3.5) (1.9) (3.4) (3.2) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 13.6 14.7 14.6 16.4 15.2 Net profit bef Except. 13.6 14.7 14.6 16.4 15.2 EBITDA 19.2 21.2 19.8 23.0 22.1 Growth Revenue Gth (%) (9.8) 11.7 (6.4) 11.5 (9.5) EBITDA Gth (%) (4.2) 10.4 (6.6) 16.6 (4.0) Opg Profit Gth (%) (6.6) 10.5 (5.3) 9.9 2.5 Net Profit Gth (Pre-ex) (%) (3.0) 7.5 (0.4) 12.4 (7.6) Margins Gross Margins (%) 25.2 24.4 25.0 24.5 26.1 Opg Profit Margins (%) 7.6 7.5 7.6 7.5 8.5 Net Profit Margins (%) 7.6 7.3 7.8 7.9 8.0

Balance Sheet (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 161 178 248 264 262 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 0.0 0.0 0.0 0.0 0.0 Cash & ST Invts 130 126 64.7 56.3 66.5 Inventory 43.1 52.5 54.5 55.0 58.5 Debtors 10.8 11.8 12.2 12.3 13.1 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 345 368 379 387 400 ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 95.9 109 115 116 124 Other Current Liab 10.7 12.7 13.6 14.7 15.1 LT Debt 0.0 0.0 0.0 0.0 0.0 Other LT Liabilities 2.20 2.24 2.24 2.24 2.24 Shareholder’s Equity 236 244 249 254 260 Minority Interests 0.0 0.0 0.0 0.0 0.10 Total Cap. & Liab. 345 368 379 387 400 Non-Cash Wkg. Capital (52.7) (57.1) (61.4) (63.5) (67.0) Net Cash/(Debt) 130 126 64.7 56.3 66.5 Debtors Turn (avg days) 5.8 5.4 5.4 5.5 5.3 Creditors Turn (avg days) 62.3 66.4 69.7 71.5 69.7 Inventory Turn (avg days) 30.0 31.0 33.4 33.9 33.0 Asset Turnover (x) 2.4 2.1 2.2 2.1 2.2 Current Ratio (x) 1.7 1.6 1.0 0.9 1.0 Quick Ratio (x) 1.3 1.1 0.6 0.5 0.6 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) N/A N/A N/A N/A N/A Z-Score (X) 11.5 10.5 10.0 9.9 9.6


Page 78


Company Guide

Sheng Siong Group

Cash Flow Statement (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 57.1 67.7 79.4 86.0 87.9 Dep. & Amort. 10.9 13.4 14.7 14.8 15.8 Tax Paid (7.5) (10.7) (12.7) (13.6) (14.7) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 11.5 2.54 3.30 0.95 3.14 Other Operating CF (0.3) 0.52 0.0 0.0 0.0 Net Operating CF 71.7 73.5 84.7 88.1 92.1 Capital Exp.(net) (80.8) (30.4) (85.0) (30.5) (14.5) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.92 1.22 0.0 0.0 0.0 Net Investing CF (79.9) (29.2) (85.0) (30.5) (14.5) Div Paid (40.1) (48.9) (61.0) (66.0) (67.4) Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0 Capital Issues 79.0 0.0 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF 38.9 (48.9) (61.0) (66.0) (67.4) Currency Adjustments 0.0 0.04 0.0 0.0 0.0 Chg in Cash 30.8 (4.5) (61.3) (8.4) 10.2 Opg CFPS (S cts) 4.00 4.72 5.42 5.80 5.92 Free CFPS (S cts) (0.6) 2.86 0.0 3.83 5.16



Source: DBS Bank

Analyst: Alfie YEO, Andy SIM CFA

S.No.Date of Report

Closing Price

12-mth Target Price

Rat ing

1: 23 Oct 15 0.88 1.01 BUY

2: 17 Dec 15 0.84 1.01 BUY

3: 24 Feb 16 0.87 1.01 BUY

4: 28 Apr 16 0.89 1.04 BUY

5: 25 May 16 0.87 1.04 BUY

6: 31 May 16 0.88 1.04 BUY

7: 13 Jul 16 0.90 1.04 BUY

8: 27 Jul 16 0.99 1.09 BUY

9: 29 Aug 16 1.05 1.09 BUY

10: 26 Sep 16 1.08 1.09 BUY

Note : Share price and Target price are adjusted for corporate actions.

12

3

4

5

6

7

8 9

10

0.76

0.81

0.86

0.91

0.96

1.01

1.06

1.11

1.16

Sep-15 Jan-16 May-16 Sep-16

S$

Page 79

ASIAN INSIGHTS VICKERS SECURITIES ed: JS/ sa:BC, PY

BUYBUYBUYBUY Last Traded Price: Last Traded Price: Last Traded Price: Last Traded Price: RM1.87 (KLCIKLCIKLCIKLCI : : : : 1,683.09) Price TaPrice TaPrice TaPrice Target rget rget rget 12121212----mthmthmthmth:::: RM2.15 (15% upside) (Prev RM2.10)

Potential Catalyst: Potential Catalyst: Potential Catalyst: Potential Catalyst: Stronger than expected FMCG sales

Where we differWhere we differWhere we differWhere we differ:::: Higher than consensus as we assume higher FMCG

sales Analyst King Yoong CHEAH +60 32604 3908 [email protected]

What’s New • Contributions from FMCG segment could be

stronger if there are no production hiccups

• Increased likelihood of 3sen/share special dividend

• Maintain BUY with higher TP of RM2.15

Price Relative

Forecasts and Valuation FY FY FY FY MarMarMarMar ((((RMRMRMRM m) m) m) m) 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF

Revenue 398 393 424 456 EBITDA 83.9 87.3 93.2 99.6 Pre-tax Profit 64.2 67.9 77.8 84.9 Net Profit 47.5 52.0 59.1 64.5 Net Pft (Pre Ex.) 48.6 55.0 59.1 64.5 Net Pft Gth (Pre-ex) (%) (0.2) 13.1 7.5 9.2 EPS (sen) 10.6 11.5 12.8 13.9 EPS Pre Ex. (sen) 10.9 12.2 12.8 13.9 EPS Gth Pre Ex (%) 1 12 5 9 Diluted EPS (sen) 10.9 12.2 12.8 13.9 Net DPS (sen) 6.00 9.00 6.00 7.00 BV Per Share (sen) 74.4 80.2 84.9 91.9 PE (X) 17.6 16.2 14.7 13.4 PE Pre Ex. (X) 17.2 15.4 14.7 13.4 P/Cash Flow (X) 13.8 13.7 12.1 11.4 EV/EBITDA (X) 8.4 7.9 7.2 6.4 Net Div Yield (%) 3.2 4.8 3.2 3.7 P/Book Value (X) 2.5 2.3 2.2 2.0 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 14.3 15.0 15.7 15.8 Earnings Rev (%):Earnings Rev (%):Earnings Rev (%):Earnings Rev (%): 0 0 0 Consensus EPS Consensus EPS Consensus EPS Consensus EPS (sensensensen):::: N/A 12.3 13.4 Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 5 S: 0 H: 2

Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P

Wake up and smell the coffee Enjoy the nice cup of coffeeEnjoy the nice cup of coffeeEnjoy the nice cup of coffeeEnjoy the nice cup of coffee.... We maintain our positive stance on OldTown Berhad (Oldtown), given that (1) the strong 1QFY17 results has reaffirmed our investment thesis that the group is back on a growth trajectory, and, (2) valuation remains attractive despite recent share price run up. As we understand that M&A may not crystalise during this financial year as the group has not identified an attractive target, we believe that there is now higher chance of a special dividend of 3sen/share in view of its increasing cash pile and management’s commitment to reward shareholders. Strong dose of caffeine.Strong dose of caffeine.Strong dose of caffeine.Strong dose of caffeine. Oldtown reported 1QFY17 net profit of RM14m (+48% y-o-y, -24% q-o-q) mainly boosted by high revenue contribution from its FMCG operations, despite the ongoing challenging conditions for the F&B business. In fact, we gather that contributions from its FMCG segment may have been stronger in 1QFY17 if not for the production hiccups in April; as a result, the group was only able to meet 85% of the domestic FMCG demand in 1Q. This led to a c.20% drop in domestic sales. Higher probability of 3senHigher probability of 3senHigher probability of 3senHigher probability of 3sen special dividend special dividend special dividend special dividend ....We believe that there is a higher chance of a special dividend of 3sen/share in view of (1) its increasing cash pile (35sen net cash/share as at 30

th June 2016), (2) M&A may not crystalise in FY17, and, (3)

management has indicated that they intend to continue rewarding shareholders. A potential special dividend of 3sen per share could raise its yield to about 5%.

Valuation:

We are maintaining our BUY recommendation with a higher

TP of RM2.15, pegged to an unchanged PE of 16x, upon

rolling forward our 12 months valuation to 2QCY17. Stripping

out net cash, our target price implies a forward PE (ex cash)

valuation of 13x.

Key Risks to Our View:

Weaker than expected consumer spending could be a drag on

its F&B business.

At A Glance Issued Capital (m shrs) 451

Mkt. Cap (RMm/US$m) 844 / 209

Major Shareholders (%)

Old Town International 42.6

Mawer Global Fund 10.0

Free Float (%) 46.1

3m Avg. Daily Val (US$m) 0.43

ICB IndustryICB IndustryICB IndustryICB Industry : Consumer Goods / Beverages

DBS Group Research . Equity

29 Aug 2016

Malaysia Company Guide

OldTown Berhad Version 6 | Bloomberg: OTB MK | Reuters: OLDT.KL Refer to important disclosures at the end of this report

Page 80


Page 2

Company Guide

OldTown Berhad

WHAT’S NEW

Still room to further re-rating

A nice cup of coffeeA nice cup of coffeeA nice cup of coffeeA nice cup of coffee:::: We maintain our positive stance on

Oldtown post its analyst briefing, given that (1) the strong

1QFY17 results has reaffirmed our investment thesis that the

group is back on a growth trajectory, and, (2) valuation

remains attractive despite recent share price run up. While we

understand that probability of M&A may not crystalise this

financial year as the group has not identified a target, we

believe that there exists higher chance of special dividend of

3sen/share in view of its increasing cash pile and

management commitment to reward shareholders.

A decent startA decent startA decent startA decent start: : : : To recap, Oldtown reported 1QFY17 net profit

of RM14m (+48% y-o-y) mainly boosted by high revenue

contribution from its FMCG operations, despite the ongoing

challenging conditions in the F&B business. Its 1QFY17

earnings met about 25% ours and consensus earnings

forecasts.

CCCCoffee dose could be stronger.offee dose could be stronger.offee dose could be stronger.offee dose could be stronger. We understand that revenue

from its FMCG segment increased by 21% y-o-y to RM57m

due to stronger export sales driven by 240% y-o-y growth in

its China sales. In fact, we gather that contributions from its

FMCG segment may have been stronger in 1QFY17 as the

FMCG manufacturing plant had broken down in the third

week of April, resulting in production hiccups and the group

only able to meet 85% of the domestic demand in 1Q. This

led to about 20% drop in its domestic sales.

F&B operationF&B operationF&B operationF&B operationssss, the other side of the coin., the other side of the coin., the other side of the coin., the other side of the coin. Oldtown’s F&B

operations registered pretax profit of RM4m (-3%y-o-y) in

1QFY16, dragged by a 2% y-o-y decline in its topline. We

understand that the decline in revenue was largely due to the

fasting month and contributions are expected to improve q-o-

q. We are maintaining our expectations that contributions

from F&B operations for FY17 will remain relatively flat y-o-y.

Nonetheless, 1QFY17 results has illustrated that investors

should not be overly concerned about the challenging

environment of its F&B business, given that FMCG

contributions to the group’s earnings have risen significantly.

For 1QFY17, FMCG contributed 78% of the group’s pretax

profit.

Higher chance of 3sen special dividend/share.Higher chance of 3sen special dividend/share.Higher chance of 3sen special dividend/share.Higher chance of 3sen special dividend/share. As we

understand that probability of M&A may not crystalise this

financial year as the group has not identified an attractive

M&A target, we believe that there exists higher chance of

special dividend of 3sen/share in view of its increasing cash

pile and management commitment to reward shareholders.

At present, we have estimated 6sen DPS for the group, which

represents 3% yield. A potential special dividend of 3sen per

share could raise its yield to about 5%.

Maintain BUY, still room for further reMaintain BUY, still room for further reMaintain BUY, still room for further reMaintain BUY, still room for further re----rating.rating.rating.rating. We are

maintaining our BUY recommendation with a higher TP of

RM2.15, pegged to an unchanged PE of 16x, upon rolling

forward our 12-month valuation to 2QCY17. Stripping out

net cash, our target price implies a forward PE (ex cash)

valuation of 13x.

Page 81


Page 3

Company Guide

OldTown Berhad


Earnings Drivers:

FMCG sales to be its key earnings driver.FMCG sales to be its key earnings driver.FMCG sales to be its key earnings driver.FMCG sales to be its key earnings driver. FMCG revenue grew

by 10.5% y-o-y in FY16. Management is targeting double digit

growth in FY17 while we have assumed FMCG sales to grow by

12% in FY17. We estimate that sales to China only represents

<6% of its FMCG sales in FY16, a far cry from its peak of

>10%. As such, we are positive that there is plenty of room for

the group to boost export sales with the completion of the

restructuring of its China distributorship in late 2015.

Room to utilise its production capacity.Room to utilise its production capacity.Room to utilise its production capacity.Room to utilise its production capacity. The manufacturing plant

in Tasek Industrial Estate, Ipoh, has an annual designed

production capacity of 24k kg for instant coffee mix and instant

tea mix, with only <50% utilised so far. This provides room to

accommodate rising demand without further capacity

expansion.

F&B F&B F&B F&B –––– challenging operating environment.challenging operating environment.challenging operating environment.challenging operating environment. On the other hand,

we believe that growth prospects of its F&B business remains

challenging. The group operated 244 café outlets in early 2016,

with 210 (86%) based in Malaysia. Despite the challenging

environment, we believe that its F&B earnings bottomed in

FY16, in view of (1) improving consumer sentiment, and, (2)

management’s efforts in carrying out a profit optimisation

exercise such as closing down/reallocating non-profitable outlets

and consolidation of its manufacturing plants in 2015.

F&B F&B F&B F&B –––– potential M&A?potential M&A?potential M&A?potential M&A? As at 30 June 2016, the group had net

cash of RM161m, and management may undertake M&As in

the F&B space to enhance future growth. Although we

understand that there is no attractive M&A target insights at

present, we will not be surprised if the group announces an

acquisition this financial year should they find one. Given that

Oldtown is likely to finance its acquisition with internal funds

and the current challenging operating environment favours

industry consolidation, we are positive any potential M&A

exercise will be earnings accretive for the group.

Avg revenue/ self&partly owned outlet (RM k/yr)

Number of total outlets

FMCG sales volume (k kg)

FMCG ASP (RM)

Source: Company, AllianceDBS

Page 82


Page 4

Company Guide

OldTown Berhad

Balance Sheet:

Strong balance sheet Strong balance sheet Strong balance sheet Strong balance sheet –––– net cash position.net cash position.net cash position.net cash position. As at 30 June 2016,

Oldtown had a net cash position of RM161m, which allows the

group to (1) sustain its dividend policy at a minimum 50%

payout, (2) continue its share buyback scheme, and (3)

undertake attractive M&A activities to expand its operations.

Share Price Drivers:

Profitability and prospects Profitability and prospects Profitability and prospects Profitability and prospects –––– keys share price drivers.keys share price drivers.keys share price drivers.keys share price drivers. The strong

1QFY17 results reaffirmed our investment thesis that the group

is back on its growth trajectory. We are positive that there is

plenty of room for the group to boost its export sales with the

completion of restructuring of China distributorship in late

2015. On the other hand, we believe its F&B operations are

stabilising and we believe its earnings had bottomed in FY16.

Key Risks:

Increasing competition in F&B segment.Increasing competition in F&B segment.Increasing competition in F&B segment.Increasing competition in F&B segment. OldTown’s cafe chain

has been challenged by small specialty cafe chains in the local

market since 2013. If the group fails to transform and adapt to

rapidly changing consumer demand, the decline in F&B

contributions will drag its overall earnings.

FaiFaiFaiFailure to pass on higher costs to consumers.lure to pass on higher costs to consumers.lure to pass on higher costs to consumers.lure to pass on higher costs to consumers. Given that raw

material costs make up over 30% of Oldtown’s total operating

cost, an unexpected swing in food commodity prices, e.g. due

to changes in climate and government regulations, could result

in a spike in prices of key raw materials such as sugar, coffee

beans, and flour.

Company Background

OldTown is a regional cafe chain operator (F&B) and an

established beverage manufacturer (FMCG) based in Malaysia.

As at FY16, the group derived 45% of its revenue from F&B

and 55% from FMCG.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


Page 83


Page 5

Company Guide

OldTown Berhad

Key Assumptions

FY FY FY FY MarMarMarMar 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF

Avg revenue/ self&partly owned outlet (RM k/yr)

1,054 1,073 1,035 1,087 1,141

Number of total outlets 238 245 244 249 254

FMCG sales volume (k kg) 9,565 9,651 10,056 11,413 12,783

FMCG ASP (RM) 18.3 18.7 19.8 19.8 19.8 Income Statement (RMm)

FY FY FY FY MarMarMarMar 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Revenue 382 398 393 424 456

Cost of Goods Sold (248) (256) (247) (268) (291)

Gross ProfitGross ProfitGross ProfitGross Profit 134134134134 141141141141 146146146146 156156156156 166166166166 Other Opng (Exp)/Inc (67.7) (76.2) (75.6) (78.2) (81.1)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 66.566.566.566.5 65.265.265.265.2 70.670.670.670.6 77.577.577.577.5 84.484.484.484.4

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc (0.2) (0.2) 0.0 0.0 0.0

Net Interest (Exp)/Inc (0.1) 0.31 0.28 0.28 0.52

Exceptional Gain/(Loss) 0.19 (1.1) (3.0) 0.0 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 66.466.466.466.4 64.264.264.264.2 67.967.967.967.9 77.877.877.877.8 84.984.984.984.9 Tax (16.0) (15.1) (15.9) (18.7) (20.4)

Minority Interest (1.4) (1.6) 0.0 0.0 0.0

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net ProfitNet ProfitNet ProfitNet Profit 48.948.948.948.9 47.547.547.547.5 52.052.052.052.0 59.159.159.159.1 64.564.564.564.5 Net Profit before Except. 48.8 48.6 55.0 59.1 64.5

EBITDA 85.9 83.9 87.3 93.2 99.6

Growth

Revenue Gth (%) 10.9 4.1 (1.1) 7.7 7.7

EBITDA Gth (%) 12.1 (2.4) 4.1 6.8 6.9

Opg Profit Gth (%) 11.5 (1.9) 8.3 9.8 8.9

Net Profit Gth (Pre-ex) (%) 7.2 (0.2) 13.1 7.5 9.2

Margins & Ratio

Gross Margins (%) 35.1 35.5 37.2 36.7 36.3

Opg Profit Margin (%) 17.4 16.4 17.9 18.3 18.5

Net Profit Margin (%) 12.8 11.9 13.2 13.9 14.1

ROAE (%) 15.4 14.3 15.0 15.7 15.8

ROA (%) 12.1 11.0 11.7 12.6 12.8

ROCE (%) 14.0 13.4 14.2 14.5 14.6

Div Payout Ratio (%) 55.6 56.5 78.2 47.0 50.2

Net Interest Cover (x) 621.0 NM NM NM NM


Page 84


Page 6

Company Guide

OldTown Berhad

Quarterly / Interim Income Statement (RMm)

FY FY FY FY MarMarMarMar 1Q1Q1Q1Q2016201620162016 2Q2Q2Q2Q2016201620162016 3Q3Q3Q3Q2016201620162016 4Q4Q4Q4Q2016201620162016 1Q1Q1Q1Q2017201720172017 Revenue 94.1 92.6 102 105 103

Cost of Goods Sold (61.8) (59.2) (60.4) (65.9) (65.3)

Gross ProfitGross ProfitGross ProfitGross Profit 32.332.332.332.3 33.533.533.533.5 41.841.841.841.8 38.638.638.638.6 37.637.637.637.6 Other Oper. (Exp)/Inc (18.8) (17.0) (24.6) (15.0) (17.8)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 13.513.513.513.5 16.516.516.516.5 17.217.217.217.2 23.623.623.623.6 19.819.819.819.8 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.01 0.02 0.10 0.02 0.0

Net Interest (Exp)/Inc 0.08 0.10 0.10 0.0 0.04

Exceptional Gain/(Loss) 0.0 0.0 0.0 (3.0) 0.0

PrePrePrePre----tax Profittax Profittax Profittax Profit 13.613.613.613.6 16.616.616.616.6 17.417.417.417.4 20.620.620.620.6 19.819.819.819.8 Tax (4.0) (3.5) (6.2) (2.2) (6.1)

Minority Interest (0.2) (0.1) (0.1) (0.1) 0.18

Net ProfitNet ProfitNet ProfitNet Profit 9.399.399.399.39 13.113.113.113.1 11.111.111.111.1 18.318.318.318.3 13.913.913.913.9 Net profit bef Except. 9.39 13.1 11.1 21.3 13.9

EBITDA 17.2 20.6 21.5 28.3 24.1

Growth

Revenue Gth (%) (10.5) (1.5) 10.3 2.3 (1.5)

EBITDA Gth (%) (22.3) 20.1 4.2 31.7 (15.0)

Opg Profit Gth (%) (23.2) 22.2 4.2 37.1 (16.1)

Net Profit Gth (Pre-ex) (%) (30.5) 39.1 (15.0) 92.2 (34.8)

Margins

Gross Margins (%) 34.3 36.1 40.9 36.9 36.5

Opg Profit Margins (%) 14.4 17.8 16.8 22.6 19.2

Net Profit Margins (%) 10.0 14.1 10.9 17.5 13.5 Balance Sheet (RMm)

FY FY FY FY MarMarMarMar 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Net Fixed Assets 123 125 126 122 120

Invts in Associates & JVs 1.51 1.50 1.40 1.40 1.40

Other LT Assets 59.2 52.5 47.2 45.6 43.1

Cash & ST Invts 166 162 180 214 250

Inventory 22.5 30.1 25.5 27.7 30.0

Debtors 45.9 61.0 63.0 67.9 73.1

Other Current Assets 5.62 4.70 7.50 7.50 7.50

Total AssetsTotal AssetsTotal AssetsTotal Assets 424424424424 436436436436 450450450450 487487487487 525525525525

ST Debt

10.0 9.80 9.80 9.80 9.80

Creditor 49.9 63.4 56.3 61.1 66.2

Other Current Liab 1.83 2.60 2.20 2.20 2.20

LT Debt 20.4 15.7 12.1 12.1 12.1

Other LT Liabilities 7.78 8.00 7.10 8.12 8.70

Shareholder’s Equity 329 333 362 393 426

Minority Interests 5.04 3.80 0.0 0.0 0.0

Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 424424424424 436436436436 450450450450 487487487487 525525525525

Non-Cash Wkg. Capital 22.2 29.8 37.5 39.8 42.1

Net Cash/(Debt) 136 137 158 192 228

Debtors Turn (avg days) 45.9 49.1 57.5 56.4 56.4

Creditors Turn (avg days) 70.8 87.1 94.8 84.9 84.3

Inventory Turn (avg days) 29.0 40.4 44.0 38.4 38.2

Asset Turnover (x) 0.9 0.9 0.9 0.9 0.9

Current Ratio (x) 3.9 3.4 4.0 4.3 4.6

Quick Ratio (x) 3.4 2.9 3.6 3.9 4.1

Net Debt/Equity (X) CASH CASH CASH CASH CASH

Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH

Capex to Debt (%) 57.0 44.7 48.4 45.7 45.7

Z-Score (X) 7.2 6.7 7.5 7.5 7.3


Strong balance sheet- net cash position

Page 85


Page 7

Company Guide

OldTown Berhad

Cash Flow Statement (RMm)

FY FY FY FY MarMarMarMar 2014201420142014AAAA 2015201520152015AAAA 2016201620162016AAAA 2017201720172017FFFF 2018201820182018FFFF Pre-Tax Profit 66.4 64.2 67.9 77.8 84.9

Dep. & Amort. 19.6 18.9 16.7 15.7 15.2

Tax Paid (15.7) (11.5) (15.7) (18.7) (20.4)

Assoc. & JV Inc/(loss) 0.16 0.0 0.0 0.0 0.0

Chg in Wkg.Cap. (2.8) (12.6) (14.5) (2.3) (2.4)

Other Operating CF (1.6) 1.64 7.32 (1.2) (1.4)

Net Operating CFNet Operating CFNet Operating CFNet Operating CF 66.166.166.166.1 60.660.660.660.6 61.761.761.761.7 71.471.471.471.4 76.076.076.076.0 Capital Exp.(net) (17.3) (11.4) (10.6) (10.0) (10.0)

Other Invts.(net) 4.20 (67.9) (15.0) 0.0 0.0

Invts in Assoc. & JV (18.3) 0.0 0.0 0.0 0.0

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF 3.34 62.9 32.1 1.19 2.00

Net Investing CFNet Investing CFNet Investing CFNet Investing CF (28.1)(28.1)(28.1)(28.1) (16.4)(16.4)(16.4)(16.4) 6.506.506.506.50 (8.8)(8.8)(8.8)(8.8) (8.0)(8.0)(8.0)(8.0) Div Paid (10.9) (27.0) (26.8) (27.8) (32.4)

Chg in Gross Debt (11.6) (5.4) (4.5) 0.0 0.0

Capital Issues (1.5) (19.7) (0.4) 0.0 0.0

Other Financing CF 0.07 (4.8) (0.3) 0.0 0.0

Net Financing CFNet Financing CFNet Financing CFNet Financing CF (23.9)(23.9)(23.9)(23.9) (56.9)(56.9)(56.9)(56.9) (32.0)(32.0)(32.0)(32.0) (27.8)(27.8)(27.8)(27.8) (32.4)(32.4)(32.4)(32.4)

Currency Adjustments (0.3) (5.3) (1.8) 0.0 0.0

Chg in Cash 13.7 (18.0) 34.4 34.8 35.5

Opg CFPS (sen) 15.2 16.3 16.9 15.9 16.9

Free CFPS (sen) 10.7 11.0 11.3 13.2 14.2



Source: AllianceDBS

Analyst: King Yoong CHEAH

Page 86

*This Equity Explorer report represents a preliminary assessment of the subject company, and does not represent initiation into DBSV’s coverage universe. As such DBSV does not commit to regular updates on an ongoing basis. The rating system is distinct from stocks in our regular coverage universe and is explained further on the back page of this report.

ed: TH / sa: SM, PY

NOT RATED S$0.42 STI : 2,856.95 Closing price as of 23 Sep 2016 Return *: 1 Risk: Moderate Potential Target 12-mth* : 12-Month S$ 0.52 (23% upside) Analyst Alfie YEO +65 6682 3717 [email protected] Andy SIM CFA +65 6682 3718 [email protected]

Price Relative

Forecasts and Valuation FY Feb (RMm) 2016A 2017F 2018F 2019F Revenue 605 785 879 985 EBITDA 88.1 106 127 147 Pre-tax Profit 84.9 104 127 146 Net Profit 62.1 75.8 92.5 107 Net Pft (Pre Ex.) 62.2 75.8 92.5 107 EPS (S cts) 1.86 2.09 2.55 2.95 EPS Pre Ex. (S cts) 1.86 2.09 2.55 2.95 EPS Gth (%) 13 12 22 16 EPS Gth Pre Ex (%) 12 12 22 16 Diluted EPS (S cts) 1.86 2.09 2.55 2.95 Net DPS (S cts) 1.48 1.66 2.03 2.34 BV Per Share (S cts) 12.1 16.7 17.3 17.9 PE (X) 22.6 20.1 16.5 14.3 PE Pre Ex. (X) 22.5 20.1 16.5 14.3 P/Cash Flow (X) 115.0 9.1 15.7 19.1 EV/EBITDA (X) 16.0 11.7 9.6 8.5 Net Div Yield (%) 3.5 4.0 4.8 5.6 P/Book Value (X) 3.5 2.5 2.4 2.3 Net Debt/Equity (X) 0.0 CASH CASH CASH ROAE (%) 15.6 15.0 15.0 16.8 ICB Industry : Consumer Services ICB Sector: General Retailers Principal Business: Duty Free International owns and operates duty free retail outlets at entry/exit points of international airports, seaports, international ferry terminals, border towns and popular tourist destinations in Malaysia.

International partnership boost Largest duty free trading group in Malaysia with

more than 40 outlets

Heinemann partnership to yield better cost

efficiencies over the longer term

Fair value of S$0.52 based on 20x FY18F PE

Largest duty free retail player in Malaysia. Duty Free International (DFIL) is one of the largest duty free trading groups in Malaysia with more than 40 retail outlets nationwide. DFIL is a licensed duty free retailer under Malaysia’s Customs Act and Free Zone Act. It operates retail outlets under five types of Duty Free Shops (International Airport, Port Duty Free Shops, Downtown Duty Free Shops, Border Duty Free Shops, Domestic Inland Duty Free Shops). It also owns more than 700 acres of land near the Malaysia-Thailand border at Bukit Kayu Hitam which includes the 18-hole Black Forest Golf and Country Club and an oil palm plantation.

Formed through the RTO of Esmart. In 2011, Bursa-listed Atlan Holdings Bhd (the 75% major shareholder of DFIL) completed the Reverse Takeover (RTO) of Esmart Holdings Ltd on the SGX and subsequently injected the duty free business and divested Esmart’s electronics business.

Expect operational improvement from cooperation with Heinemann. DFIL recently sold 10% plus one share sale of wholly owned duty free retail subsidiary, DFZ Capital Bhd for EUR19.7m to Heinemann Asia Pacific, (one of the largest duty free operators in Europe) with an option for Heinemann to purchase an additional 15% for up to 30 months subject to certain conditions for an aggregate sum of up to EUR52.21m. Heinemann’s investment in DFZ Capital also signifies the start of its strategic partnership with DFIL, where it aims to 1) maximise product margins and range, and 2) transfer knowhow of global travel retail business. Through better execution, we expect better cost management and efficiencies to kick in and improve margins going forward.

Stock's fair value at S$0.52 based on PE. We value DFIL at 20x FY18F PE, which is within peer average and 1x PEG. Fair value works out to S$0.52 per share, which translates to a 23% upside from the current price.

At A Glance Issued Capital (m shrs) 1,194 Mkt. Cap (S$m/US$m) 502 / 369 Major Shareholders (%) Atlan Holdings 75.8

Free Float (%) 24.2 3m Avg. Daily Val (US$m) 0.23

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


Singapore Equity Explorer

Duty Free International Bloomberg: DFIL SP | Reuters: DUTY.SI Refer to important disclosures at the end of this report

79

99

119

139

159

179

199

219

0.2

0.3

0.3

0.4

0.4

0.5

0.5


Relative IndexS$

Duty Free International Limited (LHS) Relative STI (RHS)

SMC Research

Page 87

Company

Duty Free International

Page 2

REVENUE DRIVERS

Duty free retail. DFIL is in the business of duty free retail in

Malaysia. It currently operates over 40 retail outlets nationwide in

border towns, duty free zones, international airports, ports, and

inland duty free shops. Products include premium selection of

international brands - imported duty free beverages, tobacco

products, chocolates and confectionery products, perfumery,

cosmetics and souvenirs. Four locations drive over 80% of DFIL’s

turnover, which are Johor Zon, KLIA/Penang Airports, Padang Besar

in Perlis, and Kayu Hitam in Kedah. Liquor, beer and cigarettes form

approximately >80% of total sales.

Driven by customer footfall. Revenue is driven by customer

footfall to its stores. This is in turn led by domestic and tourist-in-

transit traffic at its airports, border towns and checkpoints, etc. In

marketing its retail services, DFIL has established a premium travel

retail brand “The Zon” that is strategically located across Peninsular

Malaysia. The Zon has extensive presence at all leading entry and

exit points, at international airports, seaports, international ferry

terminals, border towns and popular tourist destinations.

Key product lines are tobacco and alcohol. DFIL has created and

defined its own unique and exclusive travel retail concept that offers

travellers an extensive premium selection of international brands -

imported duty free beverages, tobacco products, chocolates and

confectionery products, perfumery, cosmetics and souvenirs. DFIL’s

core value is to provide travellers with an exclusive duty free

shopping experience beyond expectations by having the highest

standards of customer service, retail execution and exquisite product

offering.

Licensed business. DFS outlets operate (i) on duty free shop licence

(under the Customs Act, 1967), (ii) within a duty free location

(under the Customs Act, 1967), or (iii) within a Free Zone (under the

Free Zone Act, 1990). Customs Act licences are typically renewed

every two years for a very minimal fee.

COST STRUCTURE

Margins dependent on the level of bulk purchase and per unit

cost. Gross margins have averaged between 29-33% over the past

three years. Margin fluctuations are directly related to cost of

purchase for inventory which is in turn determined by the level of

bulk purchase and economies of scale it receives from its suppliers.

Lower margins can generally be expected when inventory levels are

undergoing destocking, which results in lower bulk purchase and

higher unit prices. Conversely, higher margins can be achieved

when inventories build up, enjoying higher per unit price discount.

KEY OPERATING ASSETS

Owns more than 700 acres of land at the Malaysia-Thailand

border. DFIL also owns more than 700 acres of land near the

Malaysia-Thailand border at Bukit Kayu Hitam which includes the

18-hole Black Forest Golf and Country Club and an oil palm

plantation.

Table 1 : Revenue composition by channels and product lines

Channels Product lines

Airport Liquor

Border Beer

Duty Free Zone Cigarettes

Others Confectionery

Perfume & cosmetics

Others

Chart 2: Cost Breakdown

Chart 3: Gross margins generally inverse to inventories

Chart 4: Monthly Malaysia tourist arrival growth y-o-y

Source: Company, DBS Bank estimates

COGS77%

Staff costs6%

Rental8%

Others9%

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Jan-

13Ju

l-13

Jan-

14Ju

l-14

Jan-

15Ju

l-15

Jan-

16% y-o-y

26.0

27.0

28.0

29.0

30.0

31.0

32.0

33.0

34.0

0

50

100

150

200

250

300

350

10 11 12 13 14 15 16

%RMm

GPM (RHS)

Inventory (LHS)

Page 88

Company


Page 3

GROWTH PROSPECTS

Growing tourist arrivals in Malaysia. Outlook for visitor arrivals,

tourist receipts, and passenger air traffic growth has been positive.

According to data from CEIC, Malaysia’s tourism receipts have

grown at a 10-year CAGR of 9.3% to RM72bn in 2014. Tourist

arrivals climbed to 25.7m visitors in 2015 at a 10-year CAGR of

4.6%. Air traffic growth at Kuala Lumpur reached 52m passengers,

representing a 10-year CAGR of 8.4%. We see improving visitor

arrivals and tourist spending driving customer footfall and sales for

DFIL positively.

Synergies with Heinemann to drive bottom-line growth. DFIL

sees synergies with Heinemann on supply collaboration

(Management Agreement Collaboration). It could potentially

leverage off Heinemann’s supply chain in a few areas, some of

which include better product variety and selection, improved

economies of scale, and better margins with joint procurement

arrangement. Going forward, supply arrangement will be made with

Heinemann, who will procure products on DFIL’s behalf.

Collaboration with Heinemann could in fact help to improve DFIL’s

sales mix and product range such as perfume and cosmetics which

currently contribute only 10% to total sales. Unit costs can also be

further reduced as products currently supplied by distributors can be

procured directly from suppliers. Besides, Heinemann’s economies of

scale could deliver a more substantial discount to DFIL’s purchase

price of its products that will eventually lead to better net margins.

According to data from DFIL’s management, a 1% change in gross

profit margin could lead to a 10% change in profit after tax.

MANAGEMENT & STRATEGY

Managed by Malaysians. DFIL’s key management team comprises

its managing director, executive director, financial controller and

assistant GM for Group merchandising – all of whom are Malaysian

citizens. In addition, its two directors on the key management team

are also directors of Atlan Holdings Bhd (Atlan), DFIL’s major

shareholder. Mr Ong Bok Siong is a non-independent non-executive

director, while Mr Lee Sze Siang is finance director and executive

director of Atlan.

Leveraging on Heinemann. Management’s short-term priorities

are to improve the performance of current outlets, including

maximising retail area and refurbishment to enhance travel retail

experience. Medium-term plans are to expand Duty Free Complexes

in Bukit Kayu Hitam, Langkawi, and establish Downtown DF Galleria

Concepts stores. Longer term, it will seek to realise synergies with

Heinemann, expand overseas, grow via M&A, and through

alternative segments (airline/cruise retail market) and platforms (e-

commerce).

Management’s interest aligned with shareholders. DFIL’s

managing director Mr Ong Bok Siong is well compensated at

between S$250,000 and S$500,000 annually. This translates into

approximately RM750,000 to RM1.5m. As directors of Atlan with

Mr Lee, both key managers are well positioned to manage DFIL in

line with shareholders’ interests.

Table 2: Key global duty free competitors

Name (Headquartered) Name (Headquartered)

Dufry King Power Int’l (Thailand)

Duty Free Americas Sunrise Duty Free

DFS Ever Rich Group

World Duty Free Group China duty free group

DFASS King Power Group (Hong Kong)

The Nuance Group Sky Connection Limited (Free Duty)

Flemingo International Japan Airport Terminal Co.

Gebr Heinemann Dubai Duty Free

LS Travel Retail (Aelia Group) JR/Duty Free

Aer Rianta International EGYPTAIR duty free (EADFS)

DFS Group DFS (Abu Dhabi Duty Free)

Lotte Duty free Saudi Duty Free

The Shilla Duty Free

Table 3: Store network

Format Location Outlets

Duty Free Zone Batu Kayu Hitam 2

Johor Bahru 12

Border towns Padang Besar 1

Pengkalan Hulu 1

Rantau Panjang 2

International airports KLIA 1 3

KLIA 2 6

Melaka International 2

Penang International 2

Airport duty paid outlets Subang International 1

KLIA 2 (Gateway) 2

Duty free islands Langkawi 2

Tioman 2

Seaport Melaka 1

Downtown outlets Penang 1

Sepang 1

Trading outlets Penang 2

KLIA 1

Table 4: Key Management Team

Name Designation

Mr Ong Bok Siong Managing Director

Mr Lee Sze Siang Exec. Director (Finance and Corp svc)

Mr Winnen Andreas Curt CEO DFZ Capital Bhd

Mr Heyde Hendrik Korbinian Operations director

Ms Cheah Im Bee Financial controller

Mr Stuart Saw Teik Siew Asst. GM – Merchandising

Table 5: Management Remuneration Structure

Name Remuneration Band

Mr Ong Bok Siong S$250,000 – S$500,000

Mr Lee Sze Siang Below S$250,000

Ms Cheah Im Bee Below S$250,000

Mr Stuart Saw Teik Siew Below S$250,000

Source: Company, CEIC, DBS Bank

Page 89

Company


Page 4

Segmental Breakdown

FY Feb 2014A 2015A 2016A 2017F 2018F 2019F Revenues (RMm) Duty Free 565 559 603 784 878 983 Investment 1.73 1.56 1.58 1.58 1.58 1.58 Properties and hospitality 0.0 0.0 0.0 0.0 0.0 0.0 Elimination 0.0 0.0 0.0 0.0 0.0 0.0 Total 567 561 605 785 879 985 Operating profit (RMm) Duty Free 89.9 83.7 76.4 89.8 118 132 Investment 21.8 133 82.0 52.6 52.6 52.6 Properties and hospitality 62.0 83.1 0.0 0.0 0.0 0.0 Elimination (88.5) (216) (82.9) (55.0) (69.5) (69.5) Total 85.2 84.7 75.5 87.4 101 115 Operating profit Duty Free 15.9 15.0 12.7 11.5 13.4 13.4 Investment 1,260.7 8,542.5 5,195.1 3,331.6 3,331.6 3,331.6 Properties and hospitality N/A N/A N/A N/A N/A N/A Elimination N/A N/A N/A N/A N/A N/A Total 15.0 15.1 12.5 11.1 11.4 11.6 Income Statement (RMm)

FY Feb 2014A 2015A 2016A 2017F 2018F 2019F Revenue 567 561 605 785 879 985 Cost of Goods Sold (398) (399) (406) (534) (589) (655) Gross Profit 169 162 199 251 290 330 Other Opng (Exp)/Inc (90.4) (89.3) (109) (143) (161) (181) Operating Profit 78.4 72.5 90.3 108 130 149 Other Non Opg (Exp)/Inc 0.0 (0.2) (7.0) (7.0) (7.0) (7.0) Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 2.82 1.84 1.80 2.78 4.13 4.43 Exceptional Gain/(Loss) 0.38 (0.9) (0.2) 0.0 0.0 0.0 Pre-tax Profit 81.6 73.3 84.9 104 127 146 Tax (28.3) (17.8) (22.9) (24.9) (30.4) (35.1) Minority Interest (0.1) (0.4) 0.08 (3.1) (3.8) (4.4) Preference Dividend 0.0 0.0 0.0 0.0 0.0 0.0 Net Profit 53.2 55.0 62.1 75.8 92.5 107 Net Profit before Except. 52.8 55.9 62.2 75.8 92.5 107 EBITDA 83.1 77.1 88.1 106 127 147 Growth Revenue Gth (%) 5.1 (1.0) 7.8 29.9 12.0 12.0 EBITDA Gth (%) (16.7) (7.3) 14.3 20.3 20.3 15.2 Opg Profit Gth (%) (16.6) (7.6) 24.5 19.8 19.9 14.9 Net Profit Gth (Pre-ex) (%) (24.5) 5.8 11.3 21.8 22.0 15.5 Margins & Ratio Gross Margins (%) 29.8 28.8 32.9 32.0 33.0 33.5 Opg Profit Margin (%) 13.8 12.9 14.9 13.8 14.7 15.1 Net Profit Margin (%) 9.4 9.8 10.3 9.7 10.5 10.9 ROAE (%) 14.1 13.7 15.6 15.0 15.0 16.8 ROA (%) 8.9 9.7 10.9 10.4 10.8 11.9 ROCE (%) 12.1 12.4 14.1 13.9 14.2 15.8 Div Payout Ratio (%) 185.6 130.2 79.4 79.4 79.4 79.4 Net Interest Cover (x) NM NM NM NM NM NM Source: Company, DBS Bank

Margins Trend

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

2015A 2016A 2017F 2018F 2019F

Operating Margin % Net Income Margin %

Margin increased due to lower cost of goods through bulk purchase and economies of scale

Reduced inventory level from buying lower quantity resulted in higher cost of goods.

Unlikely to have special dividend post DFZ divestment and share placement

No dividend policy. Has paid at least 50% historically

Page 90

Company


Page 5

Quarterly / Interim Income Statement (RMm)

FY Feb 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 Revenue 160 140 150 153 162 193 Cost of Goods Sold (110) (95.4) (105) (101) (103) (137) Gross Profit 50.0 44.3 44.6 51.4 58.5 55.7 Other Oper. (Exp)/Inc (23.8) (25.3) (25.9) (28.0) (29.3) (32.0) Operating Profit 26.3 19.0 18.7 23.4 29.1 23.6 Other Non Opg (Exp)/Inc (1.2) 0.06 (4.6) (2.2) (0.4) 1.39 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.63 0.51 0.48 0.45 0.37 0.30 Exceptional Gain/(Loss) (0.7) 0.04 (0.1) 0.0 (0.1) (0.2) Pre-tax Profit 25.0 19.6 14.5 21.7 29.1 25.2 Tax (3.9) (5.1) (5.1) (4.9) (7.8) (5.3) Minority Interest (0.2) 0.02 0.02 0.02 0.01 0.01 Net Profit 21.0 14.5 9.43 16.8 21.3 19.8 Net profit bef Except. 21.7 14.5 9.52 16.8 21.4 20.0 EBITDA 25.1 19.1 14.1 21.2 28.8 25.0 Growth Revenue Gth (%) 17.7 (12.7) 7.4 1.9 5.9 18.9 EBITDA Gth (%) 77.3 (24.1) (25.8) 50.3 35.5 (13.0) Opg Profit Gth (%) 79.3 (27.7) (1.6) 25.3 24.4 (18.9) Net Profit Gth (%) 105.9 (30.7) (35.2) 78.1 27.0 (7.0) Margins Gross Margins (%) 31.3 31.7 29.7 33.6 36.1 28.9 Opg Profit Margins (%) 16.4 13.6 12.5 15.3 18.0 12.3 Net Profit Margins (%) 13.1 10.4 6.3 11.0 13.2 10.3 Source: Company, DBS Bank

Balance Sheet (RMm)

FY Feb 2014A 2015A 2016A 2017F 2018F 2019F Net Fixed Assets 62.3 70.7 72.4 73.0 77.6 80.2 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 0.0 Other LT Assets 138 128 118 118 117 117 Cash & ST Invts 54.4 76.2 49.3 339 353 341 Inventory 239 171 297 212 234 260 Debtors 102 64.0 63.4 82.8 84.3 103 Other Current Assets 11.7 12.9 13.3 13.3 13.3 13.3 Total Assets 607 523 614 838 880 914 ST Debt 51.0 31.7 39.0 39.0 39.0 39.0 Creditor 112 74.9 144 144 158 161 Other Current Liab 9.83 2.87 8.84 26.6 32.1 36.8 LT Debt 12.7 16.8 12.8 12.8 12.8 12.8 Other LT Liabilities 5.32 4.59 4.64 4.64 4.64 4.64 Shareholder’s Equity 413 392 404 607 626 648 Minority Interests 3.00 0.17 0.09 3.20 7.00 11.4 Total Cap. & Liab. 607 523 614 838 880 914 Non-Cash Wkg. Capital 230 170 221 138 141 178 Net Cash/(Debt) (9.3) 27.8 (2.5) 287 302 290 Debtors Turn (avg days) 39.3 54.0 38.5 34.0 34.7 34.6 Creditors Turn (avg days) 117.3 86.6 99.7 99.4 94.4 89.8 Inventory Turn (avg days) 207.9 189.5 213.1 175.7 139.4 138.8 Asset Turnover (x) 1.0 1.0 1.1 1.1 1.0 1.1 Current Ratio (x) 2.3 3.0 2.2 3.1 3.0 3.0 Quick Ratio (x) 0.9 1.3 0.6 2.0 1.9 1.9 Net Debt/Equity (X) 0.0 CASH 0.0 CASH CASH CASH Net Debt/Equity ex MI (X) 0.0 CASH 0.0 CASH CASH CASH Capex to Debt (%) (324.2) (53.8) (4.3) 9.7 17.4 13.5 Source: Company, DBS Bank

Revenue Trend

Asset Breakdown (2017)

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

4Q

20

14

1Q

20

15

2Q

20

15

3Q

20

15

4Q

20

15

1Q

20

16

2Q

20

16

3Q

20

16

4Q

20

16

1Q

20

17

Revenue Revenue Growth % (QoQ)

Net Fixed Assets -10.3%

Assocs'/JVs -0.0%

Bank, Cash and Liquid

Assets -47.9%

Inventory -30.0%

Debtors -11.7%

Driven by volumes from new KLIA stores and promotions

Payable days to improve through cooperation with Heinemann who will negotiate for better terms

Estimate 6-9 months to flush out old inventory before commencing arrangement with Heinemann

30-35 days credit terms for on-board sales to airlines and pubs in Johor duty free Zon

High inventory days. Have been stocking up in bulk to improve bargaining power and product margins.

Typically 60-70 days. Inflated due to stocking up of inventory ahead of peak season after financial year

d

Promotions drove revenue but yielded lower margins

Page 91

Company


Page 6

Cash Flow Statement (RMm)

FY Feb 2014A 2015A 2016A 2017F 2018F 2019F Pre-Tax Profit 81.6 73.3 84.9 104 127 146 Dep. & Amort. 4.69 4.77 4.88 4.88 4.88 4.88 Tax Paid (29.3) (25.5) (19.2) (7.2) (24.9) (30.4) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (135) 65.9 (53.6) 65.7 (9.5) (41.0) Other Operating CF (11.1) (9.1) (4.7) 0.0 0.0 0.0 Net Operating CF (88.8) 109 12.2 167 97.2 79.9 Capital Exp.(net) 206 26.1 2.22 (5.0) (9.0) (7.0) Other Invts.(net) (2.2) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 0.0 Other Investing CF 1.43 8.32 4.25 89.8 0.0 0.0 Net Investing CF 206 34.4 6.47 84.8 (9.0) (7.0) Div Paid (70.1) (100) (49.3) (60.2) (73.5) (84.9) Chg in Gross Debt (33.3) (9.1) 3.59 0.0 0.0 0.0 Capital Issues 2.10 0.01 0.09 97.5 0.0 0.0 Other Financing CF 0.50 (5.0) (0.1) 0.0 0.0 0.0 Net Financing CF (101) (115) (45.7) 37.3 (73.5) (84.9) Currency Adjustments 0.24 0.12 0.01 0.0 0.0 0.0 Chg in Cash 16.3 29.4 (27.0) 289 14.8 (12.0) Opg CFPS (S cts) 1.37 1.30 1.97 2.80 2.94 3.33 Free CFPS (S cts) 3.50 4.05 0.43 4.47 2.43 2.01 Source: Company, DBS Bank

Capital Expenditure

VALUATIONS

Currently trading in line with peers. The stock currently trades at

near +2SD post 2011’s RTO. DFIL also trades in line with its global

duty free retail peers' average, which are valued at between 12-20x

prospective PE. The stock has been trading between 0 and +1SD of

its mean from 16-18x PE. We expect Heinemann to lift DFIL’s

performance going forward and have factored in better operating

efficiencies and earnings growth in the longer term. We value DFIL

at 20x FY18F PE, which is within the range of its peers and 1x PEG.

Fair value works out to S$0.52 per share, which translates to a 23%

upside from the current price.

Risk Assessment: Moderate Category Risk Rating Wgt Wgtd Score

1 (Low) - 3 (High) Earnings 2 40% 0.8 Financials 1 20% 0.2 Shareholdings 1 40% 0.4 Overall 1.4

Raised funds in 2016. In CY2016, DFIL has raised approximately

S$32.5m through share placements. The capital raising is aimed at

general corporate requirements including acquiring potential

businesses, and general working capital including renovation and

upgrading of business outlets.

Low free float, key stakeholders control more than half of

the company. Shares in DFIL are tightly held, with a free float of

c.25%. Atlan Holdings Bhd, DFIL’s major shareholder, controls 75%

of DFIL. There are no plans for DFIL to increase the free float

further.

Chart 5: Historical 12-month forward PE ratio (x)

Table 6: Peers’ Comparisons

Source: DBS Bank, Thomson Reuters

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2015A 2016A 2017F 2018F 2019F

Capital Expenditure (-)

RMm

7.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

23.0

Feb

-12

Aug

-12

Feb

-13

Aug

-13

Feb

-14

Aug

-14

Feb

-15

Aug

-15

Feb

-16

Aug

-16

(x)

+1sd

+2sd

Avg

-1sd

-2sd

Cash from 10% sale of DFZ to Heinemann

Placement proceeds c.S$32m

Company

Market Cap


ROE (%)

Net Margin

(%)

Div idend Y ield (%)

NetGearing

(%)

Duty Free International Ltd 0.42 24.2x 21.7x 19.3x 3.3x 16% 10.3% 3.7% 0.01

Internat ional duty f ree retailers

Dufry AG 6,504 116.90 NULL 15.5x 12.3x 2.1x -3% -1.3% 0.0% 131%Folli Follie Commercial 1,666 22.20 7.1x na na 0.9x 12% 15.3% 0.0% 9%Jordanian Duty Free 288 21.10 37.8x 21.9x 20.6x 7.9x 29% 10.7% 2.1% cash

Bahrain Duty Free 264 0.77 14.0x na na 2.1x 18% 30.9% 6.3% -31%

Egypt Free Shops 35 3.29 5.0x na na 1.4x 27% 16.4% 17.0% -57%

A v erage 16.0x 18.7x 16.5x 2.9x 17% 14.4% 5.1% 13.0%

Page 92



Page 49

APPENDIX

Page 93



Page 50

ASEAN Consumer List Bloomberg Code Acronyms Company Description BIGC TB Equity BIG C Big C Supercenter Big C Supercenter Public Company Limited operates

supermarkets and discount stores. The Company's Big C Supercenters are a combination of a supermarket selling fresh food and prepared food, and a retail discount store selling a wide variety of consumer products such as apparel, cosmetics, houseware, toys, appliances, furniture, electronics, and hardware.

ROTH MK Equity BAT British American Tobacco Malaysia

BAT is the leading manufacturer and distributor of cigarettes in Malaysia for brands such as Dunhill, Pall Mall and Kent.

CENTEL TB EQUITY CENTEL Central Plaza Hotel CENTEL owns and operates hotels and restaurant chains. It has high exposure to the high-growth hotel industry in Thailand and its well-diversified hotel portfolio serves a wide range of customer segments.

CNPF PM Equity Century Pacific Century Pacific Food Produces, markets and distributes marine, milk, mixes and processed meat products.

CPF TB Equity CPF Charoen Pokphand Foods Charoen Pokphand Foods Public Company Limited produces a wide range of food products. The company's products include chicken, pork, shrimp, fish, eggs and duck.

COURTS SP Equity COURTS Courts Asia Courts Asia is a retailer of furniture, IT products and Electrical products in Singapore and Malaysia. Courts provides in-house credit that allows consumers to purchase products with monthly instalments.

CPALL TB Equity CPALL CP ALL CP ALL PCL is the leading operator of convenience store chains (7-Eleven) in Thailand with the highest market share.

DFI SP Equity DFI Dairy Farm Dairy Farm is a Pan Asian retailer, operating over 5,600 supermarkets, hypermarkets, health and beauty stores, convenience stores, home furnishing stores and restaurants under well-known brand names in Hong Kong, Taiwan, China, Macau, Singapore, India, Philippines, Cambodia, Brunei, Malaysia, Indonesia and Vietnam.

DELM SP Equity DELM Del Monte Pacific Del Monte Pacific Limited is a consumer food and beverage-focused company. It recently acquired the consumer food business of Del Monte Corp in the US and thus extended the footprint of the group to the US and South America, along with trademarks such as Del Monte, S&W, Contadina, College Inn, etc. The group now has exclusive rights to use the Del Monte trademarks for packaged products in the United States, South America, the Philippines, Indian subcontinent and Myanmar. It owns another premium brand, S&W, globally except Australia and New Zealand.

EMP PM Equity EMP Emperador Manufactures and trades brandy, wine, and other similar alcoholic beverage products.

Source: DBS Bank, Bloomberg Finance L.P.

Page 94



Page 51

Asean Consumer List Bloomberg Code Acronyms Company Description FNN SP Equity FNN F & N F&N is a food and beverage company with interests in

printing and publishing. It manufactures, markets and distributes dairy and non-alcoholic products in the region.

HMPRO TB Equity HMPRO Home Product Center Home Product Center Public Company Limited is a retailer of building materials and home improvement products.

ICBP IJ Equity Indofood CBP Indofood CBP Sukses Makmur

Indofood CBP Sukses Makmur is a 80.5%-subsidiary of Indofood Sukses Makmur PT (INDF IJ). It is the Consumer Branded Products arm of INDF with noodles as its biggest revenue and profit contributor. Domestically, ICBP with its flagship brand Indomie captures the largest market share for instant noodles with 72%. Other segments of the company include: dairy, snack food, food seasoning, beverage, and nutritional food.

INDF IJ Equity Indofood Indofood Sukses Makmur Indofood Sukses Makmur is the largest instant noodle and wheat flour manufacturer in Indonesia, has the highest market share in cooking oil and is also engaged in oil palm plantation (through its subsidiary, Indofood Agri Resources), and other branded food products including snack food, food seasoning, specialty and nutrition food, as well as dairy products.

JFC PM Equity Jollibee Jollibee Foods Corp Owns, franchises and manages a network of fast food restaurants under the trade names Jollibee, Chowking, Greenwich, Red Ribbon, and Mang Inasal.

KLBF IJ EQUITY Kalbe Kalbe Farma KLBF is one of the leading pharmaceutical companies in Indonesia. The company offers prescription and non-prescription drugs as well as nutritional and consumer health products. In addition, the company has distribution and logistics operations under PT Enseval.

KTG SP Equity Katrina Katrina Group Katrina is an F&B Restaurant brand owner and operator in Singapore and China. Operates nine different F&B brands and concepts including Bali Thai, Streats, Rennthai, Bayang, Muchos, So Pho, Indobox, Hutoang and Honguo, serving mainly Indonesian, Chinese, Mexican and Vietnamese cuisines.

LPPF IJ Equity LPPF Matahari Department Store PT Matahari Department Store Tbk operates a retail business that carries several types of products including clothes, accessories, bags, shoes, cosmetics, and household appliances.

MYOR IJ Equity MYOR Mayora Indah Mayora manufactures candies and cookies. The company markets its products under the Roma, Kis, Kopiko, Danisa, Beng Beng, Astor, Torabika Duo, Energen and Suklat brand names. Its subsidiaries process food, coffee powder, instant coffee and cocoa beans.

MINT TB Equity MINT Minor International Minor International (MINT) is the leading hospitality and leisure business operator in Thailand. It is also the leader in Thailand's food & beverage industry with strong brand recognition.


Page 95



Page 52

ASEAN Consumer List Bloomberg Code Acronyms Company Description MAPI IJ Equity MAPI Mitra Adiperkasa Mitra Adiperkasa (MAPI) operates department stores

and specialty stores, selling a broad range of goods including sporting apparels, clothing, food, and other merchandise. Its stores mainly cater to the middle-high/high-income segment and to date, it carries more than 140 brands and operates more than 1,800 stores nationwide, making it Indonesia’s largest retail store operator.

M TB Equity MK MK Restaurant Group M is Thailand's dominant full-service restaurant chain player. It operates primarily suki restaurants under MK brand and Japanese restaurants, Yayoi.

MSM MK Equity MSM MSM Malaysia Holdings MSM is a major sugar producer in Malaysia with an annual capacity of over 1.1m tonnes. It produces, markets and sells refined sugar products.

OTB MK Equity OldTown OldTown Berhad OldTown is a regional cafe chain operator (F&B) and an established beverage manufacturer (FMCG) based in Malaysia. As at FY15, the group derived 55% of its revenue from F&B and 45% from FMCG.

PAD MK Equity Padini Padini Holdings Padini is a 43-year-old Malaysia-based fashion retailer offering clothing, accessories and shoes for women, men and children under the brands of Padini, Vincci, Seed, Miki, Padini Authentic, P&Co, PDI, etc. As of June 2015, the group operated 117 outlets in Malaysia and is the largest fashion retailer in terms of number of stores.

PETRA SP Equity PETRA Petra Foods Petra Foods manufactures, markets and distributes confectionery products. Petra has a broad brand portfolio that extends across multiple product categories and different price points. Key markets are Indonesia, the Philippines, Singapore and Malaysia. Its brands command over 50% market share in Indonesia.

PGOLD PM Equity PGOLD Puregold Price Club Puregold Price Club, Inc. operates as a retailer in the hypermarket, supermarket, discounter, and membership shopping format in the Philippines.


Page 96



Page 53

ASEAN Consumer List Bloomberg Code Acronyms Company Description QLG MK Equity QL QL Resources QL has three core businesses which are

integrated livestock farming/ILF (chicken eggs, broilers, day-old chicks, feed), marine product manufacturing/MPM (surimi, surimi-based products, frozen food) and palm oil activities/POA (palm oil plantation, milling).

RRHI PM Equity RRHI Robinsons Retail Holdings Robinsons Retail Holdings, Inc. operates as a retail company in the Philippines. Supermarkets, Department Stores, Hardware Stores, Convenience Stores, Drug Stores, and Specialty Stores are its main businesses.

SSG SP Equity SSG Sheng Siong Group Sheng Siong is the third largest supermarket operator in Singapore, behind NTUC Fairprice and Dairy Farm International.

SUPER SP Equity Super Super Group Ltd Super Group Ltd (Super) is a manufacturer, distributor and brand-owner of instant beverages and convenience food products.

THBEV SP Equity THBEV Thai Beverage Public THBEV is a leading beverage producer in Thailand, with business segments spanning across spirits, beer, non-alcoholic beverages and food. Its key brands are Sangsom, Hong Thong and Chang.

TU TB Equity TU Thai Union Frozen Products Thai Union Frozen Products Public Company Limited produces and exports frozen and canned seafood products including frozen tuna loin, shrimp and cephalopod. The company also produces canned pet foods from by-products of its seafood process. Additionally, the company also produces fish snacks and canned tuna which are marketed locally.

UNVR IJ Equity UNVR Unilever Indonesia Unilever Indonesia manufactures soaps, detergents, margarine, oil and dairy-based foods, tea-based beverages, ice cream, and personal care products.

URC PM Equity Universal Robina Universal Robina Corp Market leader in branded consumer foods. Also involved in hog and poultry farming, animal feeds, corn products, and animal health products.


Page 97



Page 54

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends DBS Bank Equity Explorer return ratings reflect return expectations based on an assumed earnings profile and valuation parameters:

1 (>20% potential returns over the next 12 months)

2 (0 - 20% potential returns over the next 12 months)

3 (negative potential return over the next 12 months)

The risk assessment is qualitative in nature and is rated as either high, low or moderate risk. (see section on risk assessment)

Note that these assessments are based on a preliminary review of factors deemed salient at the time of publication. DBSV does not commit to ongoing coverage and updated assessments of stocks covered under the Equity Explorer product suite. Such updates will only be made upon official initiation of regular coverage of the stock.

Completed Date: 4 Oct 2016 07:49:00

Dissemination Date: 4 Oct 2016 08:33:59

GENERAL DISCLOSURE/DISCLAIMER BY FIRST METRO SEC

All information contained herein is obtained by First Metro Securities from sources believed by it to be accurate and reliable. Because of the possibility of

human or mechanical error as well as other factors, however, the information is provided “as is” without warranty of any kind and First Metro Securities, in

particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any

particular purpose of any such information. Under no circumstances shall First Metro Securities or its directors, officers, analysts, and other duly authorized

representatives (“Affiliated Persons”) ,or its Parent Company and the latter’s Affiliated Persons have any liability to any person or entity for any loss or

damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or

outside the control of First Metro Securities. The information contained herein is, and must be construed solely as, statements of opinion and not

statements of fact or recommendations to purchase, sell, or hold any securities. This document, and any opinion contained herein, must be weighed solely

as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make

his/her own study and evaluation of each security and of each issuer that it may consider purchasing, selling, or holding.

ANALYST CERTIFICATION BY FIRST METRO SEC

The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies

and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation

was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 24 Mar 2016 the analyst and

his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests of more than 1% in the securities

recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.



Page 55

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 4 Oct 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have proprietary positions in Thai

Beverage Public Company, CP ALL, Charoen Pokphand Foods, Minor International, Home Products Center, FJ Benjamin Holdings

recommended in this report as of 31 Aug 2016

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

3. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a net long position

exceeding 0.5% of the total issued share capital in FJ Benjamin Holdings recommended in this report as 31 Aug 2016.

4. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity

securities of FJ Benjamin Holdings as of 31 Aug 2016.

5. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 5% of any class of common equity

securities FJ Benjamin Holdings as of 31 Aug 2016.

Compensation for investment banking services:

6. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for

investment banking services from Courts Asia as of 31 Aug 2016.

7. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for

Courts Asia in the past 12 months, as of 31 Aug 2016.



Page 56

8. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION

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

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

Hong Kong This report is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.) For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

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

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

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

United Kingdom

This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.



Page 57

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

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

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd.

12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888

e-mail: [email protected]

Company Regn. No. 196800306E

Documents

South East Asia Industry Focus ASEAN Consumer: Food for ......South East Asia Industry Focus ASEAN Consumer: Food for Thought Page 5 Valuations getting richer; at +1.2SD above historical