2.4 489 Company Focus 1.9 389 Bermaz Auto · SWOT Analysis Strengths Weakness Sole distributor for...

Refer to important disclosures at the end of this report ed:CK / sa: BC

BUY (Initiating Coverage)

Last Traded Price ( 1 Nov 2016): RM2.30 (KLCI : 1,670.93)

Price Target 12-mth: RM2.55 (11% upside)

Shariah Compliant: Yes

Potential Catalyst: Broad-based recovery in auto segment Analyst Siti Ruzanna MOHD FARUK +603 2604 3965 [email protected]

Price Relative

Forecasts and Valuation FY Apr (RMm) 2016A 2017F 2018F 2019F

Revenue 2,095 2,186 2,385 2,654 EBITDA 258 261 293 324 Pre-tax Profit 278 279 314 349 Net Profit 198 205 231 257 Net Pft (Pre Ex.) 198 205 231 257 EPS (sen) 17.3 18.0 20.2 22.5 EPS Pre Ex. (sen) 17.3 18.0 20.2 22.5 EPS Gth (%) (8) 4 12 11 EPS Gth Pre Ex (%) (8) 4 12 11 Diluted EPS (sen) 17.3 18.0 20.2 22.5 Net DPS (sen) 16.9 14.4 16.2 18.0 BV Per Share (sen) 46.6 50.2 54.2 58.7 PE (X) 13.3 12.8 11.4 10.2 PE Pre Ex. (X) 13.3 12.8 11.4 10.2 P/Cash Flow (X) 10.7 15.6 12.7 11.8 EV/EBITDA (X) 8.9 8.8 7.8 7.1 Net Div Yield (%) 7.3 6.3 7.0 7.8 P/Book Value (X) 4.9 4.6 4.2 3.9 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 39.3 37.2 38.8 39.8 Consensus EPS (sen): 17.5 21.2 23.3 Other Broker Recs: B: 11 S: 0 H: 1

ICB Industry : Consumer Goods ICB Sector: Automobiles & Parts Principal Business: Bermaz Auto Berhad is the sole distributor of Mazda vehicles in Malaysia and Philippines. They are also involved in the provision of after sales services for Mazda and perform local assembly of Mazda vehicles through their associate companies.

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

At A Glance Issued Capital (m shrs) 1,145 Mkt. Cap (RMm/US$m) 2,635 / 628 Major Shareholders (%) Dynamic Milestone Sdn. Bhd. 15.2% Employees Provident Fund 10.7%

Free Float (%) 59.8% 3m Avg. Daily Val (US$m) 1.1

Malaysia Equity Research

2 Nov 2016

Company Focus

Bermaz Auto Bloomberg: BAUTO MK | Reuters: BERAol.KL Refer to important disclosures at the end of this report

Ahead of the race

Superior than industry volume growth underpinned by

new launches and capacity expansion

Asset-light business model reduces earnings risk

Handsome dividends in the pocket

Initiate BUY with TP of RM2.55

Mazda growing amidst dull sector. We are initiating Bermaz Auto

(BAuto) as we believe stock has growth potential despite a gloomy

outlook for the auto sector. We expect its growth to be underpinned

by 1) upcoming new model launches such as the new Mazda CX-5 (in

2HCY17), Mazda CX9 (in mid-17) and facelift of Mazda 3 and Mazda

2 (in 1H17), 2) potential growth in Mazda Philippines backed by

strong GDP growth and upcoming model launches, and 3) capacity

expansion in Inokom’s plant to 35k units p.a (+40%) by end 2016

which will support volume growth for both local and export markets

and increase associates contribution. We expect earnings uplift from

FY18 once capacity expansion is completed.

Light on asset and heavy on cash. BAuto adopts an asset-light

business model as assembly and manufacturing of CKD models is

undertaken by its 30%-owned associate Mazda Malaysia through

third-party assembler Inokom (29% owned) and while it focuses on

distribution of Mazda cars in Malaysia and Philippines. Given its

strong cash generating business with minimum capex, BAuto is in net

cash position with RM0.19 net cash per share as at end-1QFY17. We

believe the company will be able to maintain its net cash position for

FY17F-19F.

Higher dividends going forward. BAuto has recently gone through

a management buy-out via a SPV which makes it the highest single

shareholder of the company. Post buy-out, we expect a high dividend

payout as the new controlling shareholders look to pare down its

borrowings. We conservatively assume an 80% dividend payout ratio

for FY17 vs 97.6% dividend payout for FY16. This translates to 6.3%

yield for FY17. There could be further dividend surprise from the

monetisation of its Philippines unit via a planned IPO.

Initiate BUY with TP of RM2.55. Our TP is based on 13.0x CY17F

EPS. This is supported by superior ROE from asset- light business

model and generous dividend yields of 6.8% for CY17, which limits

downside risk. Re-rating catalysts will come from (1) higher than

expected dividend payout, (2) completion of capacity expansion by

end-2016, and (3) listing of its Philippines unit.

89

189

289

389

489

589

0.4

0.9

1.4

1.9

2.4

2.9

Nov-13 Nov-14 Nov-15

Relative IndexRM

Bermaz Auto (LHS) Relative KLCI (RHS)

Company Focus

Bermaz Auto

INVESTMENT THESIS

Profile Rationale

Bermaz Auto Group is the sole distributor of Mazda vehicles

& spare parts in Malaysia and Philippines. It distributes a

selected range of Mazda vehicles and spare parts in

Malaysia and the Philippines. It also operates 3S centres in

Malaysia which offer after sales services. The local assembly

of Mazda vehicles is performed by their associate

companies.

New models in line up

Bermaz Auto has a few models in its line up to ensure steady

growth. Its new launches and upcoming models are exciting,

and it hopes to boost its market share that currently stands at

2.20%.

Capacity expansion in Inokom

Bermaz Auto has plans to ramp up capacity in 29%-owned

Inokom to cater to the local and export markets. This will

support its continuous growth as well as provide price

advantages. The group will be able to price the CKD models

more competitively compared to the CBU models by

leveraging on cheaper costs and import duty savings.

Growth in Philippines market

The Philippines market is expected to boost the sales of

Bermaz Auto. There is potential in the Philippines market

which has recorded Mazda volume growth of 31.5% y-o-y,

compared to Mazda Malaysia’s 23.3% y-o-y growth for

FY16. There is also a proposed plan to list its Philippines

arm, Bermaz Auto Philippines.

Dividend upside in the coming quarters

Given the recent management buyout, dividends may

surprise on the upside as management would want to pare

down borrowings.

Valuation Risks

Initiate BUY with TP of RM2.55. The stock is currently

trading at 12.0x CY17 PE which above the average of the last

three years’ forward PE. This is a 47% discount to the

industry average (ex BAuto) which is unjustified given decent

dividend yield of 6.8% for CY17 and superior ROE from its

asset light business model. We initiate coverage with TP of

RM2.55 based on CY17PE of 13.0x which implies total return

of 17.8%.

Dependent on Mazda Japan The business is solely dependent on the contract with Mazda Japan. The termination of the contract will cause its business and earnings to collapse. TIV growth under pressure The weak consumer sentiment and stringent lending policies may dampen sales in the auto sector and put pressure on TIV growth. Forex exposure

It is exposed to currency exchange risks, considering that it

imports CBU cars and CKD kits from Mazda Japan. Volatility

in the yen may lead to higher costs and lower margins for

the group.

Source: AllianceDBS

Company Focus

Bermaz Auto

SWOT Analysis

Strengths Weakness

Sole distributor for Mazda vehicles in Malaysia and Philippines

Has exposure to the Philippines market which has potential to grow further

Adopts an asset light business model with minimal capex requirement on top of heavy cash generation business. Healthy balance sheet with a net cash position

It distributes Mazda cars based on a contract with Mazda Japan. It is solely dependent on the relationship with Mazda Japan for continuous business

Opportunities Threats

Strong growth in the Philippines which has been registering double-digit volume growth on the back of a strong domestic economic growth

Expansion in production facility to cater for export market will raise the group’s earnings to the next level, as it allows the company to expand its geographical reach and reduces its reliance on a single market in Malaysia

Currency volatility will affect margins as it imports CKD kits and CBU models from Mazda Japan which are denominated in JPY

Tight lending policy from banks may affect customers’ demand

An economic downturn will lead to weak consumer sentiment and reduces consumers’ spending on big ticket items such as cars

Source: AllianceDBS

Company Focus

Bermaz Auto

Company Background

Mazda Mazda Mazda. Bermaz Auto (BAuto) was incorporated in

Malaysia on 11 May 2010 as a private limited company under the name

Fiscal Start Sdn Bhd. It assumed the name Bermaz Auto Sdn Bhd on 14

February 2011 and was subsequently converted into a public company

in July 2011. It acquired Bermaz Motor Sdn Bhd on 26 September 2013

and was subsequently listed on the Main Market of Bursa Malaysia

Securities Berhad on 18 November 2013.

The group is principally involved in the distribution and retailing of

Mazda vehicles as well as provision of after-sales services for Mazda

vehicles in Malaysia via Bermaz Motor Sdn Bhd and Bermaz Motor

Trading Sdn Bhd (Bermaz). In the Philippines, the distribution of Mazda

vehicles and spare parts is undertaken by 60%-owned Bermaz Auto

Philippines Inc (BAP) through appointed dealers.

There was a management buy-out via a special purpose vehicle named

Dynamic Milestone in July 2016. Dynamic Milestone owns 15.2% of

BAuto which makes it the largest single shareholder. The management

of BAuto owns 66.7% of Dynamic Milestone whereas Berjaya Corp

owns 33.3%. Following the management buy-out, the company

proposed to change the company’s name to Bermaz Auto as Berjaya

Corporation Group has no other interest in BAuto except the indirect

interest of 17.6% via its stake in Dynamic Milestone and BSompo.

Dynamic Milestone Sdn Bhd

Source: Company

Engines have been rolling since 2008. Bermaz Motor Sdn Bhd

commenced operations on 1 April 2008 after it entered into a

distribution agreement with Mazda Motor Corporation (Mazda Japan)

on 28 February 2008 and was awarded the distributorship of specific

models of Mazda CBU (completely built-up) vehicles, spare parts,

accessories and tools in Malaysia for a period of three years.

Mazda Japan had, via its letter dated 14 January 2013, agreed to

further extend the Malaysia CBU Agreement upon the expiry of the said

agreement on 31 March 2014, for another five years expiring on 31

March 2019, subject to annual minimum purchase quota of Mazda CBU

vehicles to be mutually agreed upon.

As at 31 July 2016, Bermaz has 10 branches in Malaysia, of which six

are 3S (sales, spare parts and after-sales services) centres, three 2S

centres and one body repair and paint centre. It also has 78 dealers

nationwide.

Philippines joined shortly in 2013. Bermaz via 60.4%-owned Bermaz

Auto Philippines (BAP) entered into the Philippines CBU Agreement with

Mazda Japan on 12 September 2012 for the distributorship of specific

Mazda CBU vehicles. BAP commenced operations on 2 January 2013.

As at 31 July 2016, it has 18 appointed dealers, all of which are 3S

centres.

Proposed listing of BAP. BAuto has recently proposed to list BAP on the

Main Market of Philippines. The announcement will be made once BAP

has finalised the details of the listing proposal. This will unlock value on

the stock as there is growth in the Philippines market which has been

registering a 4-year CAGR of 19%. Post-listing, BAuto is expected to

own at least 51% of BAP.

CKD models by MMSB. Mazda Malaysia Sdn Bhd (MMSB) is a 30%-

associate company of Bermaz Motor Sdn Bhd, with the remaining 70%

equity interest held by Mazda Japan. On 11 September 2012, MMSB

was established under a JV agreement whereby Mazda Japan will

provide the assembly and technical expertise to MMSB’s operations in

rolling out of CKD models. MMSB is principally involved in the local

assembly of Mazda vehicles through a third-party contract assembler,

Inokom (29%-owned associate company) using local parts and

imported Mazda supplied parts. Currently, Inokom is assembling the

Mazda3 CKD and Mazda CX-5 CKD models.

Dynamic Milestone

Management of Bermaz Auto

66.7%

Berjaya Corporation

33.3%

Company Focus

Bermaz Auto

Corporate Structure

No Company Roles

1 Bermaz Auto Berhad Investment Holding

2 Bermaz Motor Sdn Bhd Distribution of Mazda vehicles in Malaysia

3 Bermaz Motor Trading Sdn Bhd Retailing and After Sales Service

4 Bermaz Motor International Ltd Investment Holding

5 Berjaya Auto Philippines Inc Distribution of Mazda vehicles in the Philippines

6 Mazda Malaysia Sdn Bhd Local assembly of Mazda vehicles

7 Inokom Corporation Bhd Contract manufacturer of various marques including Mazda vehicles

Source: Company, AllianceDBS

Solid management team. BAuto is led by CEO, Dato’ Sri Yeoh Choon

San, who has 40 years of experience in the automotive industry,

encompassing the various fields of retail, distribution and

manufacturing. Since FY10, BAuto’s revenue grew from RM287m to

RM1,673m in FY16. This represents a 6-year CAGR of 34.15%.

Focus on Mazda. Management’s branding and marketing strategy forms

part of Mazda’s worldwide strategy which focuses on creating a niche

image of luxury and uniqueness as well as sporty performance for

Mazda vehicles. Management will continue to leverage on Mazda’s

strong brand presence, appealing designs and environmentally friendly

SKYACTIV engines. Management will also focus on building more

vocational automotive industry management training centres in

Malaysia, in line with group’s vision to meet the ongoing demand for

skilled technicians in the automotive industry.

Key Management Team

Name and Designation Profile

Dato' Sri Yeoh Choon San Chief Executive Officer / Executive Director

Appointed as an Executive Director of the Company on 27 July 2011 and subsequently as the Chief Executive Officer of the company on 15 November 2011.

Fellow of the Institute of Motor Industry, United Kingdom on 22 May 2007

40 years of experience in the automotive industry, encompassing the various fields of retail, distribution and manufacturing

Dato’ Lee Kok Chuan Non-Independent Non-Executive Director

Appointed to the Board on 27 July 2011 and is now the Non-Independent Non-Executive Director of the Company

Fellow Member of the Institute of Chartered Accountants in Australia. Over 10 years of working experience in fields of accounting, auditing and corporate services.

Currently the Chief Executive Officer of Berjaya Food Berhad and Director of Berjaya Capital Berhad, Bermaz Motor Sdn Bhd, Bermaz Motor Trading Sdn Bhd and Mazda Malaysia Sdn Bhd.

Tan Lay Hian Chief Financial Officer

Chief Financial Officer of Bermaz Auto since 18 August 2014

Qualified Accountant and holds a professional degree from the Malaysian Institute of Certified Public Accountants

Over 30 years of experience in audit and finance

Hiew Hock Ngan Head of Business Development / CKD

More than 25 years of working experience in the fields of accounting, financial management, audit, information technology and operations

Qualified accountant and graduated from the Association of Chartered Certified Accountants (ACCA) in 1996

Member of the ACCA and a member of MIA, member of Certified Practicing Accountant, Australia

Lee Ai Hoon Head of Marketing

Over 25 years of experience in automotive industry

Been with Bermaz since August 2008

Responsible for the setting up of CRM programme in Bermaz

Source: Company

Bermaz Auto Bhd

Bermaz Motor Sdn Bhd

100%

Bermaz Motor Trading Sdn Bhd

100%

Mazda Malaysia Sdn Bhd

30%

Bermaz Motor International Ltd

100%

Bermaz Auto Philipipnes 60%

Inokom Corporation

29%

Company Focus

Bermaz Auto

Competitive Strengths

Mazda a premium market. The Mazda brand has re-emerged and been

gaining market share in Malaysia with its exciting models since the

takeover of Mazda distribution rights by Bermaz from Cycle & Carriage

Bintang Bhd in 2008. The introduction of CKD units by Bermaz since

2011 has also pushed up sales as CKD models are priced c.10% lower

than CBU models. This was reflected in the 20% growth for FY12. The

exceptional growth in FY13 (+49% y-o-y) was due to the maiden

contribution from the Philippines market and change in strategy by

offering multi-year free service and parts. Mazda has been releasing

new models with attractive designs and equipped with its innovative

SKYACTIV technology. The brand has been enhanced by Mazda’s solid

branding strategy, enabling it to achieve 6-year sales CAGR of 45.1%.

We expect its revenue to increase by 5%/8%10% in FY17F/18F/19F vs

sales volume growth forecast of 2%/7%/9% in FY17F/18F/19F. We

factored in a price increase for FY17 hence the higher revenue growth

of 5% vs a 2% growth in sales volume. Thereafter, we expect revenue

growth to be in line with sales growth. We anticipate minimal growth in

sales volume for FY17 given the weak consumer sentiment which has

pressured sales.

Historical Mazda sales volume

SKYACTIV Technology

SKYACTIV-G Gasoline Engine

The world’s first gasoline engine for mass production vehicles to achieve a high compression ratio of 14.0:1

Significantly improved engine efficiency thanks to the high compression combustion, resulting in 15% increases in fuel efficiency and torque

Improved everyday driving thanks to increased torque at low- to mid-engine speeds

A 4-2-1 exhaust system, cavity pistons, multi-hole injectors and other innovations enable the high compression ratio

SKYACTIV-DRIVE

Combines all the advantages of conventional automatic transmissions, continuously variable transmissions, and dual clutch transmissions

A dramatically widened lock-up range improves torque transfer efficiency and realises a direct driving feel that is equivalent to a manual transmission

A 4-to-7% improvement in fuel economy compared to the current transmission

SKYACTIV-BODY

High rigidity and lightness (8% lighter, 30% more rigid)

Crash safety performance that meets the top criteria for crash safety assessments in all markets (US-NCAP, Euro-NCAP, IIHS, JNCAP, etc.)

SKYACTIV-CHASSIS

Suspension and steering functions have been thoroughly revised to achieve the 'driving pleasure of oneness between car and driver'

Driving quality has been raised to new levels through improvements to comfort and security

Newly-developed front and rear suspension systems and electric power steering. Functional improvements are combined with reduced weight. The entire chassis is 14% lighter than the previous model

Source: Company

SKYACTIV boost. Mazda has the capability to come up with solid

models because of its effective SKYACTIV Technology which promotes

efficiency and optimal fuel combustion. The technology affects the car

as a whole from the engine to the body weight as well as the chassis,

and improves driving experience to a whole new level.

SKYACTIV technology aims to make cars with environmental-friendly

features and better fuel economy, without changing how people

normally drive.

0%

10%

20%

30%

40%

50%

60%

-

5,000

10,000

15,000

20,000

25,000

30,000

2011A 2012A 2013A 2014A 2015A 2016A 2017F 2018F 2019F

Total sales (unit) (LHS) Y-o-y Growth (RHS)

units

Company Focus

Bermaz Auto

Philippines growing strong. Bermaz Auto Philippines (BAP), which is the

group’s 60% subsidiary, has been gaining momentum with increasing

revenue and vehicle sales. BAP is the sole distributor of Mazda cars

there. The total vehicle sales in the Philippines have posted a 3-year

CAGR of 92.5%. Vehicle sales saw a major leap of 247.5% from FY13

to FY14, and 32% from FY15 to FY16. It offers less variants in the

Philippines, namely the Mazda 2, Mazda 3, Mazda 6, CX-5, CX-9, and

BT-50 (all CBU units). The revenue contributed by the Philippines rose

by 58% from RM267.6m in FY15 to RM422.7m in FY16. This

represents 20.2% of total group revenue vs 14.6% in FY15.

Historical Mazda sales volume in Philippines

Source: Company

Better outlook with strong GDP growth in Philippines. Philippines GDP

has rebounded from the slowdown in mid-2015 to record impressive

5.9% GDP growth in 2015 and 6.9% in first half of 2016. Real GDP

growth has been projected at 6.4% in 2016 and 6.7% in 2017 by the

IMF from continued robust private domestic demand and higher public

spending. This bodes well for the Philippines market as strong GDP

growth will support car sales growth in the coming years. There is also

potential to grab more market share as the company widens its

distribution network.

Philippines GDP Growth

Source: Bloomberg

Sustainable margins. Auto margins have increased y-o-y compared to

the other auto players which recorded a decline – given the tough

economic conditions and unfavourable forex. BAuto has been

improving its margins, thanks to its exposure to Yen. Other auto

players are exposed to USD as the imports of CBU models and CKD kits

are denominated in USD which caused margins to deteriorate in CY15.

The USD appreciated significantly against the MYR in CY15 (up to

+35%) whereas Yen depreciated in the 1HCY15 (up to -10%) and

slight appreciation towards the end of CY15 (up to +20%). The group

enjoys competitive advantages arising from its exposure to yen as well

as marketing the Mazda brand as a premium brand – as opposed to

the other major auto players which are more volume-driven.

Historical Margins vs Peers


Relative movement of USD and 100 JPY against MYR

Source: Bloomberg

Asset-light model to minimise risk to earnings. BAuto takes on an

asset-light business model to reduce earnings risk. The structure is such

that the manufacturing and assembly of CKD models is undertaken by

Mazda Malaysia (30%-owned associate) through third-party assembler

Inokom (29%-owned associate). This translates into minimal capital

expenditure requirement and a growing cash pile from operating cash

flow.

657

2,283

3,561

4,684

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2013A 2014A 2015A 2016A

Mazda Units

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

% y-o-y

10.8%

15.2%14.6%

14.1%13.7%

8.0%8.3% 8.6%

7.2%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

CY2013 CY2014 CY2015

Berjaya Auto UMW MBM

80

90

100

110

120

130

140

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4M

ay-1

4

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4D

ec-

14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5D

ec-

15

Jan14 = 100

USDMYR Curncy JPYMYR Curncy

Company Focus

Bermaz Auto

Growth Strategies

New variants to sustain volume. Mazda Malaysia launched some

exciting new variants in the first half of 2016. The Mazda CX-3, which

was launched in Dec 2015, managed to sell 1,834 units and orders are

still coming in. Other launches include the Mazda BT-50 FL, 2016

Mazda 2, Mazda CX-5 SkyActiv-D (CKD) and Mazda 6 SkyActiv-D

(CBU). Both diesel engine cars are priced higher than the petrol variants

at RM166k for Mazda CX-5 and RM209k for Mazda 6. The diesel

variants will attract customers who prefer diesel to petrol. The group

plans to roll out two more variants with the SkyActiv-D engine, namely

the Mazda CX-3 and Mazda 2.

The next big thing would be the Mazda CX-9 in 1QCY17, followed by

an all-new CX-5 (CBU) in 2HCY17. The Mazda CX-9, a seven-seater

SUV comes with a turbocharged engine (SkyActiv-G 2.5T) which will

provide significant fuel and road tax savings compared to the older CX-

9 model. Other than that, there will be upcoming facelift models for

the Mazda 2 and Mazda 3 in 1HCY17. New models in the line-up will

ensure solid growth and enable the company to maintain its volume

growth and market share. The current market share for Mazda is

relatively low at 2.20%, but there is potential for growth. 3MFY17

total unit sales came in at 3,519 units, forming about 20% of the

company’s full-year target of 15,000 units.

Mazda CX-9

New Mazda CX-5

Source: Company

Volume growth outperforms TIV. Mazda in Malaysia has been able to

register higher volume growth than Malaysia TIV in the past few years.

This shows that Mazda has outperformed the industry, backed by its

exciting variants, and effective sales and marketing tactics. In FY15,

Mazda recorded 27.8% growth compared to Malaysia TIV contraction

of 0.4%. As for FY16, Mazda’s volume grew 23.3% vs. a Malaysia TIV

contraction of 5.3%.

Mazda Malaysia volume growth vs TIV growth


CKD models to improve margins and support growth. The Inokom

plant in Kulim, Kedah does a number of assemblies for different auto

brands such as Hyundai, Inokom Truck, BMW, Ford, Mini, Land Rover,

Mazda, Jinbei and Foton. The Mazda CKD models from Inokom

comprise the Mazda CX-5 and Mazda 3. These vehicles are distributed

locally as well as to Thailand. BAuto has a 29% stake in Inokom which

allows the group to have representation in the assembly company as

well as participate in the growth of its business. Mazda Malaysia, its

associate company will continue to upgrade its paint shop in Kulim

plant to increase production capacity and support the growth of the

upcoming CKD models made for both domestic and export markets.

Historical production volume at Inokom

Source: Company

The CKD models are the key growth drivers as they have minimal

constraints and plenty of room to expand. The CKD models will also

mitigate some of the group’s exposure to foreign exchange

fluctuations, as the purchase price of the build-up model from Mazda

Malaysia Sdn Bhd is denominated in ringgit. CKD kits are purchased in

Yen but the currency fluctuation risk is borne by the manufacturing

associate under MMSB. With the CBU models, the AP (Approved

Permit) required to bring in imported cars may restrict growth. The

current localisation rate for CKD models stands at 45%; an increase in

the localisation rate allows the group to enjoy better margins as well as

price advantages. The associate contributed 4% of the group PBT in

FY16. We expect associates earnings to grow by 17%/18%/19% in

FY17F/18F/19F backed by the incoming capacity and introduction of

7.9%

-6.7%

12.9%1.9% -0.4% -5.3%

123.26%

14.98%

41.60%

16.64%28.56%

23.27%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

TIV YoY Mazda YoY

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4M

ay-1

4Ju

n-1

4Ju

l-1

4A

ug-

14

Sep

-14

Oct

-14

No

v-1

4D

ec-

14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-

15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6M

ay-1

6Ju

n-1

6Ju

l-1

6A

ug-

16

Mazda units

Company Focus

Bermaz Auto

more CKD models. As of 1QFY17, CKD unit consists of 63.6% of total

volume sales vs 54.6% in 4QFY16.

Expansion to bring in growth. BAuto is in the midst of expanding its

capacity to cater to the local and export markets as well as to address

the bottleneck on production at the painting lines. The current capacity

of Mazda-exclusive body shop and vehicle assembly facility at the

Inokom plant stands at 25k units p.a. and the post-expansion capacity

could hit 35k units p.a. (+40%). This is expected to complete by year

end 2016. The expansion includes painting lines to cater to the

demand of Soul Red Metallic colour for the Mazda 3 and Mazda CX-5

(both CKD) models. A capex of USD20m for the upgrade is already

spent by Mazda Japan as part of its plan to make Malaysia an export

hub for ASEAN. Management has stated its intention to focus on the

Mazda CX-5 model, which offers better profit margins. The export

market will be enlarged to cover the Philippines and Indonesia in Jan

17 as well as the Middle East in Apr-Jun 17.

Financial Highlights

Expect earnings to grow. BAuto revenue has grown 15.4% y-o-y to

RM2.1bn in FY16, but net profit contracted by 6.8% to RM198m. The

higher revenue can be attributed to the strong y-o-y sales growth of

the Mazda2 (3,669 units in FY16) and CX-5 (CKD) (4,906 units in

FY16). In the Philippines, the Mazda 3 was the favourite model with

1,641 units sold in FY16, comprising 35% of the total units sold.

There was a slight drop in net profit for FY16 as margins contracted

from the weaker ringgit against yen.

We are cautious on the near term earnings outlook for BAuto as there

were some supply constraints on CKD models from upgrading works of

its paint shop in 1QFY17. Numbers should pick up in upcoming

quarters and record higher growth in FY18F/19F once capacity

expansion kicks in. This brings our forecast to a y-o-y net profit increase

of 4-12% for FY17-19F. A key risk to our earnings estimate is further

depreciation of Ringgit against the Yen.

Revenue and net profit trend


Bulk of revenue comes from Malaysia. Malaysia’s sales contribute 80%

(RM1.7bn) of the group’s total revenue. However, revenue contribution

from the Philippines increased from 5% in FY13 to 20% in FY16. We

expect Philippines revenue to grow by 11%/10%/10% for

FY17F/18F/19F and contribute 22%/23%/24% for FY17F/18F/19F to

the group. This is backed by the favourable economic conditions as

well as upcoming launches. The Philippines unit currently has only 7

models offered compared to the wide range of 14 models (including

CKD models) offered in Malaysia.

Revenue by segments


Steady margins level. The group has been able to increase its net profit

margins steadily from 4.78% in FY13 to 11.6% in FY15. The jump in

FY15 margins could be partly due to the boost in pre-GST sales as well

as the depreciation of the Japanese Yen. There was a margin

contraction in FY16 (-2.23ppts) as the group incurred higher operation

cost from the weaker ringgit against yen as well as fierce competition

from other auto players. Going forward, margins should hover at

around 9.2-9.7% (FY17-19F). We believe the high margin of 11.6% in

FY15 is not sustainable as the Yen appreciates to current levels of

above JPY100/RM4.00 vs FY15 levels of below 100JPY/RM3.00. The

intense competition among auto players will also pressure margins

from aggressive promotions and expensive roadshows to capture

market share.

Margins trend


Exposure to yen. The group is adversely impacted by the volatility of

the yen, as it purchases the CBU models from Mazda Japan in yen. This

is regardless whether the CBU models are imported from Japan or its

Thailand plant (only BT50 and Mazda2). The weak yen during CY13-15

gave an advantage to the group which managed to cut import costs.

However, the recovery in yen in mid-CY15 impacted earnings and led

to net margins falling from 11.6% in FY15 to 9.4% in FY16 (-

2.23ppts).

1,064.3

1,450.8

1,830.4

2,095.4 2,170.4 2,368.5

2,635.3

50.9 130.6 212.4 197.6 203.8 230.0 255.6

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

2013A 2014A 2015A 2016A 2017F 2018F 2019F

Revenues Net Profit

RM m

1,008.83 1,274.9

1,562.9 1,672.7 1,701.0 1,810.5 1,960.9 55.5

175.9

267.6 422.7 469.4

558.0 674.4

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

2013A 2014A 2015A 2016A 2017F 2018F 2019F

Malaysia Philippines

RM m

4.78%

9.00%

11.60%

9.43% 9.39% 9.67% 9.67%

13.06%

18.34%

23.46%

19.93%18.00% 17.70% 17.50%

6.73%

11.06%

15.20%

12.06% 11.69% 12.03% 11.99%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2013A 2014A 2015A 2016A 2017F 2018F 2019F

Net profit margin Gross profit margin EBIT margin

Company Focus

Bermaz Auto

Historical exchange rate 100 JPY/MYR

Source: Bloomberg

Balance sheet is healthy with big cash pile. The group has a

comfortable cash balance of RM387m with net cash per share of

RM0.19 as at 1QFY17. This is attributable to its asset-light business

model with minimal capex requirements. We expect capex for FY16-18

to remain below RM20m-RM25m per annum and company to be in

net cash position for FY17-19F.

Keep an eye on dividends. In FY16, it had declared a total dividend of

16.90 sen (14.60 sen in FY15). This represents a payout ratio of about

97.8% vs 77.9% in FY15. We assume a high dividend payout going

forward in view of the recent management buy-out, as management

would want to pare down its borrowings. The current dividend yield

stands at 6.8% for CY17, which is higher than its peers. We

conservatively forecast an 80% payout ratio for FY17-19. There could

be further upside in dividends in the event of a monetisation of its

Philippines unit via a planned IPO.

Key Risks

Business is dependent on Mazda Japan. BAuto is dependent on Mazda

Japan to keep the business going. They import CBU models from

Mazda Japan’s manufacturing plants located in Japan and Thailand.

Meanwhile, its assembly arm MMSB imports the CKD kits from Japan.

They have a current agreement which stipulates that BAuto is the

exclusive distributor of Mazda vehicles up to 31 March 2019.

Auto demand may be sluggish. The currently weak consumer

sentiment may impact the demand for auto and intensify the

competition among auto players. This will cause revenue and profit

margins to drop significantly.

Weak ringgit means higher costs. The weakening of the Malaysian

ringgit will lead to higher costs since the group buys CBU models in

Japanese yen. If the ringgit continues to weaken, costs will increase

and margins will decline.

Valuation

Initiate coverage with TP of RM2.55. The stock is currently trading at

12.0x CY17 PE which is above the average of the last three years’ forward

PE of 10.8. However, it is trading at discount to sector average PE (ex

BAuto) of 22.7x which is unjustifiable given its superior ROE from asset

light business model and highest dividend yield in the sector at 6.8% for

CY17. We initiate coverage with TP of RM2.55 based on CY17 PE of 13x

which implies total return of 17.8%. While its attractive dividend limits

downside risk, re-rating catalysts will come from (1) higher than expected

dividend payout, (2) completion of capacity expansion by end-2016, and

(3) listing of its Philippines unit.

Historical P/E band

Source: AllianceDBS

Peer comparison

Source: Bloomberg, AllianceDBS

2.80

3.00

3.20

3.40

3.60

3.80

4.00

4.20

4.40

Mar

-13

Jun

-13

Sep

-13

De

c-1

3

Mar

-14

Jun

-14

Sep

-14

De

c-1

4

Mar

-15

Jun

-15

Sep

-15

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

100 JPY/MYR Curncy

100JPY/MYR

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

De

c-1

3

Feb

-14

Ap

r-1

4

Jun

-14

Au

g-1

4

Oct

-14

De

c-1

4

Feb

-15

Ap

r-1

5

Jun

-15

Au

g-1

5

Oct

-15

De

c-1

5

Feb

-16

Ap

r-1

6

Jun

-16

Au

g-1

6

Oct

-16

P/E

Avg: 11.7x

+1sd:14.2x

+2sd:16.8x

-1sd: 9.2x

-2sd:6.6x

CY2016/2017

RecommendationTarget

Price

Current

Price

Market

CapCY2016 CY2017 CY2016 CY2017 CY2016 CY2017 CY2016 CY2017 CY2016 CY2017

Automotive

UMW Holdings HOLD 5.75 5.90 6,893 36.2x 23.4x (67%) 55% 1.4% 2.1% 1.0x 1.0x 3% 4%

DRB Hicom NR NR 1.28 2,475 na na (254%) 93% 1.3% 1.2% 0.4x 0.4x (2%) 1%

Bermaz Auto BUY 2.30 2.24 2,566 12.7x 11.8x (13%) 7% 6.8% 6.8% 4.6x 4.2x 38% 37%

Tan Chong Motors NR NR 1.90 1,240 na 90.5x (180%) 123% 2.1% 2.0% 0.5x 0.5x 2% 0%

MBM Resources FULLY VALUED 1.95 2.55 996 13.8x 11.8x (14%) 17% 3.3% 3.2% 0.6x 0.6x 5% 5%

Total/ Weighted average ex

Bermaz Auto 11,604 22.7x 24.6x (115%) 67% 1.6% 2.0% 0.8x 0.8x 2% 3%

ROAEPrice/ BVPSP/E EPS Growth (YoY) Dividend Yield

Company Focus

Bermaz Auto

Key Assumptions

FY Apr 2014A 2015A 2016A 2017F 2018F 2019F

Malaysia sales (units) 9,497 12,209 15,050 15,050 15,803 16,909

Philippines sales (units) 2,283 3,561 4,684 5,152 6,028 7,174

EBIT Margin % 11.1 15.2 12.1 11.7 12.0 12.0

Segmental Breakdown

FY Apr 2014A 2015A 2016A 2017F 2018F 2019F Revenues (RMm)

Malaysia 1,275 1,563 1,673 1,717 1,827 1,979

Philippines 176 268 423 469 558 674

Total 1,451 1,830 2,095 2,186 2,385 2,654

EBIT (RMm)

Malaysia 156 260 218 208 228 247

Philippines 12.2 25.4 45.0 47.9 58.6 70.8

Total 169 285 263 256 287 318

EBIT Margins (%)

Malaysia 12.3 16.6 13.0 12.1 12.5 12.5

Philippines 6.9 9.5 10.7 10.2 10.5 10.5

Total 11.6 15.6 12.5 11.7 12.0 12.0


Sensitivity Analysis 2017

Malaysia sales +/- 1%

Net Profit +/- 1%

Philippines sales +/- 1%

Net Profit +/- 0.1%

Company Focus

Bermaz Auto

Income Statement (RMm)

FY Apr 2014A 2015A 2016A 2017F 2018F 2019F

Revenue 1,451 1,830 2,095 2,186 2,385 2,654

Cost of Goods Sold (1,185) (1,401) (1,678) (1,793) (1,963) (2,189)

Gross Profit 266 429 418 394 422 464

Other Opng (Exp)/Inc (106) (151) (165) (138) (135) (146)

Operating Profit 160 278 253 256 287 318

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

Associates & JV Inc 10.9 9.08 11.4 17.2 20.3 24.1

Net Interest (Exp)/Inc 8.50 11.7 14.1 6.67 6.56 6.79

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

Pre-tax Profit 180 299 278 279 314 349

Tax (45.9) (79.5) (67.9) (68.2) (76.6) (85.2)

Minority Interest (3.2) (7.1) (12.7) (6.1) (6.6) (7.4)

Preference Dividend 0.0 0.0 0.0 0.0 0.0 0.0

Net Profit 131 212 198 205 231 257

Net Profit before Except. 131 212 198 205 231 257

EBITDA 166 285 258 261 293 324

Growth

Revenue Gth (%) 36.3 26.2 14.5 4.3 9.1 11.2

EBITDA Gth (%) 111.4 71.7 (9.3) 1.1 12.0 10.7

Opg Profit Gth (%) 124.0 73.4 (9.1) 1.1 12.3 10.9

Net Profit Gth (Pre-ex) (%) 156.8 62.6 (6.9) 3.8 12.4 11.2

Margins & Ratio

Gross Margins (%) 18.3 23.5 19.9 18.0 17.7 17.5

Opg Profit Margin (%) 11.1 15.2 12.1 11.7 12.0 12.0

Net Profit Margin (%) 9.0 11.6 9.4 9.4 9.7 9.7

ROAE (%) 52.0 52.0 39.3 37.2 38.8 39.8

ROA (%) 23.8 31.4 23.4 20.4 20.9 21.5

ROCE (%) 32.0 41.9 31.8 28.8 30.1 31.0

Div Payout Ratio (%) 42.7 77.9 97.6 80.0 80.0 80.0

Net Interest Cover (x) NM NM NM NM NM NM


Margins Trend

8.0%

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 %

Company Focus

Bermaz Auto

Quarterly / Interim Income Statement (RMm)

FY Apr 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017

Revenue 424 513 542 523 535 494

Cost of Goods Sold (352) (445) (471) (469) (465) (442)

Gross Profit 72.0 68.0 71.0 53.1 70.0 52.1

Other Oper. (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 0.0

Operating Profit 72.0 68.0 71.0 53.1 70.0 52.1

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

Associates & JV Inc 3.60 4.22 1.61 3.84 1.76 5.01

Net Interest (Exp)/Inc 1.61 1.31 1.14 1.25 1.54 1.45

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

Pre-tax Profit 77.2 73.5 73.7 58.2 73.3 58.6

Tax (20.2) (18.5) (17.8) (14.2) (17.5) (14.3)

Minority Interest (1.8) (2.8) (2.8) (2.9) (4.2) (3.1)

Net Profit 55.3 52.2 53.1 41.1 51.6 41.1

Net profit bef Except. 55.3 52.2 53.1 41.1 51.6 41.1

EBITDA 72.0 68.0 71.0 53.1 70.0 52.1

Growth

Revenue Gth (%) 9.2 20.8 5.8 (3.7) 2.3 (7.7)

EBITDA Gth (%) 10.7 (5.6) 4.3 (25.1) 31.7 (25.5)

Opg Profit Gth (%) 10.7 (5.6) 4.3 (25.1) 31.7 (25.5)

Net Profit Gth (Pre-ex) (%)

18.8 (5.5) 1.6 (22.5) 25.5 (20.4)

Margins

Gross Margins (%) 17.0 13.3 13.1 10.2 13.1 10.6

Opg Profit Margins (%) 17.0 13.3 13.1 10.2 13.1 10.6

Net Profit Margins (%) 13.0 10.2 9.8 7.9 9.7 8.3

Revenue Trend


-30%

-20%

-10%

0%

10%

20%

30%

40%

0

100

200

300

400

500

600

4Q

2014

1Q

2015

2Q

2015

3Q

2015

4Q

2015

1Q

2016

2Q

2016

3Q

2016

4Q

2016

1Q

20

17

Revenue Revenue Growth % (QoQ)

Company Focus

Bermaz Auto

Balance Sheet (RMm)

FY Apr 2014A 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 20.4 23.6 24.0 28.3 32.5 36.7

Invts in Associates & JVs 34.1 79.3 98.2 115 136 160

Other LT Assets 31.7 34.0 45.6 45.6 45.6 45.6

Cash & ST Invts 186 259 367 361 373 380

Inventory 288 218 312 407 444 494

Debtors 53.8 103 96.0 100 109 122

Other Current Assets 0.0 21.3 6.18 6.18 6.18 6.18

Total Assets 614 740 949 1,064 1,147 1,244

ST Debt

0.0 0.0 0.0 0.0 0.0 0.0

Creditor 134 119 231 241 263 292

Other Current Liab 60.6 65.2 71.2 129 137 146

LT Debt 0.0 0.0 0.0 0.0 0.0 0.0

Other LT Liabilities 64.9 63.3 83.9 83.9 83.9 83.9

Shareholder’s Equity 344 474 531 572 618 670

Minority Interests 10.5 18.9 31.8 37.9 44.5 51.9

Total Cap. & Liab. 614 740 949 1,064 1,147 1,244

Non-Cash Wkg. Capital 147 160 113 144 160 184

Net Cash/(Debt) 186 259 367 361 373 380

Debtors Turn (avg days) 12.7 15.7 17.4 16.4 16.0 15.9

Creditors Turn (avg days) 40.0 33.1 38.1 48.2 47.0 46.4

Inventory Turn (avg days) 74.6 66.3 57.9 73.4 79.3 78.4

Asset Turnover (x) 2.6 2.7 2.5 2.2 2.2 2.2

Current Ratio (x) 2.7 3.3 2.6 2.4 2.3 2.3

Quick Ratio (x) 1.2 2.0 1.5 1.2 1.2 1.1

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

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

Capex to Debt (%) N/A N/A N/A N/A N/A N/A


Asset Breakdown

Net Fixed Assets -2.8%

Assocs'/JVs -11.4%

Bank, Cash and Liquid

Assets -35.7%

Inventory -40.2%

Debtors -9.9%

Company Focus

Bermaz Auto

Cash Flow Statement (RMm)

FY Apr 2014A 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 180 299 278 279 314 349

Dep. & Amort. 5.49 6.69 5.68 5.73 5.79 5.85

Tax Paid (41.1) (88.3) (87.7) (10.6) (68.2) (76.6)

Assoc. & JV Inc/(loss) (10.9) (9.1) (11.4) (17.2) (20.3) (24.1)

Chg in Wkg.Cap. 90.7 (4.0) (25.9) (88.8) (24.3) (32.7)

Other Operating CF (139) 18.3 85.5 0.0 0.0 0.0

Net Operating CF 85.1 223 244 169 207 222

Capital Exp.(net) 2.53 (8.8) (5.8) (10.0) (10.0) (10.0)

Other Invts.(net) 3.22 6.02 4.86 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 (36.1) (7.5) 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 0.0 (20.9) 16.2 0.0 0.0 0.0

Net Investing CF 5.74 (59.7) 7.75 (10.0) (10.0) (10.0)

Div Paid (14.1) (98.1) (147) (164) (185) (205)

Chg in Gross Debt (130) 0.0 0.0 0.0 0.0 0.0

Capital Issues 58.9 4.53 2.15 0.0 0.0 0.0

Other Financing CF (1.3) (0.1) 0.0 0.0 0.0 0.0

Net Financing CF (86.5) (93.7) (145) (164) (185) (205)

Currency Adjustments (0.1) 4.08 0.08 0.0 0.0 0.0

Chg in Cash 4.19 73.3 107 (5.6) 12.4 6.38

Opg CFPS (sen) (0.5) 20.0 23.7 22.6 20.3 22.3

Free CFPS (sen) 8.24 18.9 20.9 13.9 17.3 18.5


Capital Expenditure

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2015A 2016A 2017F 2018F 2019F

Capital Expenditure (-)

RMm

Company Focus

Bermaz Auto

DISCLOSURE

Stock rating definitions 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 > -10% over the next 12 months SELL - negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame Commonly used abbreviations Adex = advertising expenditure EPS = earnings per share PBT = profit before tax bn = billion EV = enterprise value P/B = price / book ratio BV = book value FCF = free cash flow P/E = price / earnings ratio CF = cash flow FV = fair value PEG = P/E ratio to growth ratio CAGR = compounded annual growth rate FY = financial year q-o-q = quarter-on-quarter Capex = capital expenditure m = million RM = Ringgit CY = calendar year M-o-m = month-on-month ROA = return on assets Div yld = dividend yield NAV = net assets value ROE = return on equity DCF = discounted cash flow NM = not meaningful TP = target price DDM = dividend discount model NTA = net tangible assets trn = trillion DPS = dividend per share NR = not rated WACC = weighted average cost of capital EBIT = earnings before interest & tax p.a. = per annum y-o-y = year-on-year EBITDA = EBIT before depreciation and amortisation PAT = profit after tax YTD = year-to-date

Company Focus

Bermaz Auto

DISCLAIMER

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This report is based on data and information obtained from various sources believed to be reliable at the time of issuance of this report and any opinion expressed herein is subject to change without prior notice and may differ or be contrary to opinions expressed by ADBSR’s affiliates and/or related parties. ADBSR does not make any guarantee, representation or warranty (whether express or implied) as to the accuracy, completeness, reliability or fairness of the data and information obtained from such sources as may be contained in this report. As such, neither ADBSR nor its affiliates and/or related parties shall be held liable or responsible in any manner whatsoever arising out of or in connection with the reliance and usage of such data and information or third party references as may be made in this report (including, but not limited to any direct, indirect or consequential losses, loss of profits and damages). The views expressed in this report reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendation(s) or view(s) in this report. ADBSR prohibits the analyst(s) who prepared this report from receiving any compensation, incentive or bonus based on specific investment banking transactions or providing a specific recommendation for, or view of, a particular company. This research report provides general information only and is not to be construed as an offer to sell or a solicitation to buy or sell any securities or other investments or any options, futures, derivatives or other instruments related to such securities or investments. In particular, it is highlighted that this report is not intended for nor does it have regard to the specific investment objectives, financial situation and particular needs of any specific person who may receive this report. Investors are therefore advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situations and particular needs and consult their own professional advisers (including but not limited to financial, legal and tax advisers) regarding the appropriateness of investing in any securities or investments that may be featured in this report. ADBSR, AIBB, DBSVH and DBS Bank Ltd, their directors, representatives and employees or any of their affiliates or their related parties may, from time to time, have an interest in the securities mentioned in this report. 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Additional information is, subject to the overriding issue of confidentiality, available upon request to enable an investor to make their own independent evaluation of the information contained herein.

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