Introducing Quintessential Indian Sandalwood Management … · Canaccord Genuity is the global...

TFS Corporation Limited

Forest Products

Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and allthe companies and securities that are the subject of this report discussed herein.

Australian Equity Research27 February 2017

BUYunchangedPRICE TARGET A$3.38↑from A$3.36Price (27-Feb)Ticker

A$1.50TFC-ASX

52-Week Range (A$): 1.11 - 1.98Market Cap (A$M): 580Shares Out. (M) : 388.1Dividend /Shr (AUc): 3.0Dividend Yield (%) : 2.0Enterprise Value (A$M): 768Cash (A$M): 90.6Long-Term Debt (A$M): 278.5

FYE Jun 2016A 2017E 2018E 2019ESales (A$M) 171.8 214.6↓ 224.1↓ 232.3↓

Previous - 218.4 229.7 244.0EBITDA (A$M) 62.2 81.9↓ 86.0↓ 90.7↑

Previous - 83.0 88.3 86.6Net Income Adj (A$M) 16.7 33.8↓ 36.8↓ 39.9↑

Previous - 34.4 38.2 36.6EPS Adj&Dil (AUc) 4.1 7.6↓ 8.3↓ 9.0↑

Previous - 7.8 8.6 8.3DPS (AUc) 3.00 3.00 3.50 4.00P/E (x) 36.4 19.6 18.0 16.6Equity FCF Yield(%) 0.7 4.0 7.1 9.0

Book Value /Shr (AUc) 1.9 2.2 2.5 2.7

Net Income (A$M) 90.4 88.2↓ 99.5↓ 109.1↑

Previous - 88.8 100.2 104.8

1.9

1.8

1.7

1.6

1.5

1.4

1.3

1.2

Mar-16

Apr-16

May

-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

TFC

Source:�FactSet

Priced as of close of business 27 February 2017

Owen Humphries | Analyst | Canaccord Genuity (Australia) Ltd. | [email protected] | +61.2.9263.2702

Raising Target Price

Introducing Quintessential Indian SandalwoodCanaccord Genuity (Australia) Limited was a Joint Lead Manager to the Placement of~39m shares at A$1.55 per share to raise ~A$60.45m in April 2016.TFC reported its 1H17 with little surprises. FY17 is being marked as a transformationperiod as the company begins to monetise (at scale) its large asset base in various endmarkets at prices materially higher than historic expectations. TFC is transitioning froma pure plantation manager/owner to a product/sales company that should generatelucrative cash flows to shareholders. This transition will see the the company rebrandedQuintis (quintessential Indian Sandalwood) in Mar-17.Management provided a positive outlook statement with EBITDA guidance (>$78m)reaffirmed and OCF expected to be "strongly positive" in FY17. TFC's earnings and cashflows (figure 3) are heavily weighted to the 2H (~90%), we therefore view the 1H result aslargely immaterial from a financial perspective, however it does illustrate the progress ofthe business throughout the financial year.We remind investors of the unit economics that drive our investment thesis. On currentheartwood yield expectations (~8tn/ha, 300kg oil) and current prices (US$4,500/kg), each hectare generates a marginal revenue (A$1.8m/ha) that well exceeds itsmarginal cost (A$150k/ha) and investors' cost of capital (IRR >25%). Notably, an oilprice of just US$1,000/kg is required to generate a pre-tax 10% return on capital (US$500/kg breakeven).Following various modelling adjustments and roll-forward of our DCF valuation, our targetprice moves slightly to A$3.38. BUY recommendation retained.

The key takeaways from the result include:• Management reiterated FY17 guidance with "Cash EBITDA to increase by at least

+25% on FY16 levels”, implying FY17 Cash EBITDA >$78m (CGAu est. A$81.9m).This is despite expecting A$10m lower oil sales during the period (largely non-coreAustralian Sandalwood). TFC expects to establish c1,400 hectares in CY17, a slightreduction on previous years (CY16: 1,618ha, CY15: 1,539ha). The variance in TFC’sguidance is the proportion of its FY17 plantation that the company holds on its balancesheet (~200ha, A$7.3m cash EBITDA variance) versus what it sells to third parties,coupled with a normalisation of Australian Sandalwood oil sales in 2H17.

• Plantation sales in 1H17A was the strongest on record, increasing +32% on the pcp toA$20m (~250ha, 50% institutional/50% sophisticated) and provides a solid platformas it enters the seasonally high 2H sales period. Positively, TFC was successful inincreasing prices on establishment fees per hectare by +8% to ~$80k/ha and followsthe +29% avg. price rise in FY16. TFC is expecting to introduce new institutional andsophisticated investors with the “pipeline the strongest its ever been”. Given TFC'sfixed cost base, the higher prices directly translate to EBITDA margin expansion. As thecompany continues to prove-up the commodity price with long term supply agreementsand provides more transparency on the size/scale of the market, we expect the salesprocess for such financial products to appeal to a larger investment community

Continued on next page...

For important information, please see the Important Disclosures beginning on page 9 of this document.

The 1H17 cash balance of A$89m was broadly as expected, with the group’s net debt standing at A$249m. TFC provided guidance that it expects the business to generate strong OCF in FY17, illustrating a large reversal in its working capital position during 2H17. This is not unusual as the business has historically demonstrated large movements in working capital and we forecast TFC to finish FY17 with >A$140m cash on the balance sheet. When coupled with the likely warrant exercise (A$72.2m) the company has significant balance sheet flexibility (>A$350m over FY17-FY19) to invest accretively for long term shareholder value (investment in plantations yields >25%).

TFC secured a A$35m working capital facility (overdraft facility) with one of the world’s largest banks to aid its working capital swings throughout the financial year. The two year revolving facility is not expected to be drawn in FY17 however enables the group to utilise its unsecured bond facility (US$250m) for growth initiatives and not to fund its working capital position. The terms of the facility were not disclosed, however is lower than its existing cost of debt (<8.75%). Notably, TFC’s bond currently trades at a +6% premium to par (105.8) illustrating a yield to maturity of +7.6%.

Figure 1: Growth in various P&L line items

Source: Company Reports, Canaccord Genuity estimates

TFC’s leverage ratio (assets [excl. MIS assets]/equity) currently stands at 1.9x (1H16: 1.8x), however reduces to 1.6x if we mark TFC’s asset at

US$4,500/kg oil (vs US$2,800/kg as reflected on the balance sheet). Importantly, global timber companies traditionally trade on leverage ratio >2.5x. We expect the impending warrant exercise and strong reversal of its working capital position in 2H17 to reduce TFC’s leverage ratio in future periods. Notably, TFC reported a +7.5% increase in its Biological assets (excl. FX, acq/harvest) in 1H17, which highlights the value uplift of its estate.

FY17 total product sales (including Australian Sandalwood) are expected to be in the range of A$45m to A$55m, a slight reduction on the previous guidance of at least ~A$60m. The $10m moderation was explained by:

o Lower Australian Sandalwood product sales in 1H17A (1H17A :$6.3m, 1H16A: A$11.1m) following “market disruption associated with the delayed finalisation of a new 10 year supply contract with the West Australian state government”. We understand customers were unsure

of TFC’s positon in the market and were unwilling to commit to purchase orders until the new contracts were finalised. TFC expects Australian

TFS Corporation LimitedRaising Target Price

Buy unchanged Target Price A$3.38 from A$3.36 | 27 February 2017 Forest Products 2

Sandalwood sales to remain somewhat subdued in 2H17 (~$6m) however should normalise in 1H18 (>A$10m). We suspect this resulted in a A$7m-$10m impact to TFC’s product revenue guidance.

o Slight deferral of Indian Sandalwood product sales to its Middle Eastern counterparty due to some complexities with its first timber export to the region. The logistical issue is now resolved with the group delivering heartwood to the customer in February. We suspect this resulted in a A$2m-$5m impact to TFC’s product revenue guidance.

During CY16, TFC harvested 104ha yielding 309tn of heartwood (CY15: 31tn). This translated strong growth in Indian Sandalwood product sales to A$9.2m vs. $0.1m in the pcp. TFC’s is expecting Indian Sandalwood product sales to increase to A$30m in 2H17 (at >85% gross profit margins). The company also

announced it is expecting to harvest 240tn from 107ha in CY17 (2.2tn/ha). This is in-line with previous forecasts (9tn oil = US$40m) with TFC owning ~70% the 2017 harvest and the balance owned by MIS investors.

Figure 2: Indian Sandalwood Sales beginning to kick


As illustrated below, TFC’s earnings and cash flow profile are heavily skewed to the 2H. This stems from the investments in plantations that is largely absorbed in 1H, and plantation sales that are generated in the 2H. In 1H17A, the group reported a negative FCF of -$44m (1H16 -$40m) which was in-line with previous years. On the conference call management highlighted OCF is expected to be “strongly positive for FY17” illustrating a large reversal in the 2H17 (CGAu est.

>$75m). Notably, the prior periods reported negligible Indian Sandalwood sales which should aid the 2H17 uplift (A$30m at >85% gross profit margins).

Figure 3: Seasonality part of TFC’s business model (both earnings and cash flows)


0

5

10

15

20

25

30

35

40

1H15A 2H15A 1H16A 2H16A 1H17A 2H17E

Product RevenuesA$m

11.2

16.5

13.1

16.8 17.1

32.9

CGAu est.

TFC 2H17 guidance $28m - $38m.Variance relates to uplift from non-core Australian Sandalwood sales.

18.420.5

27.7

29.9

55.5 72.4 71.9

0

50

100

150

200

250

FY13 FY14 FY15 FY16 FY17 FY18 FY19

$m

Product Revenue

Establishment Fees

Management Fees(Recurring fees)

TFS Revenue Profile

CGAU fcsts

-9.0

60.5

-9.0

60.4

6.7

50.9

8.6

53.6

7.6

72.4

86.0 90.7

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

1H13A 2H13A 1H14A 2H14A 1H15A 2H15A 1H16A 2H16A 1H17A 2H17E FY18 FY19

A$mEBITDA Seasonality CGau est.

3.2

18.7

4.2 3.1

-11.2

35.8

-22.1

42.3

-32.6

72.9

-40

-20

0

20

40

60

80

1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17

Operating Cash FlowA$m

Strong cash flow sensitivity, 2H17 will be boosted by Indian Sandalwood sales (none in prior years)



TFC’s biological assets (3,518ha direct/indirect ownership) are marked on the balance sheet using an AUDUSD cross rate of 0.72x. As the currency remains above this rate, we expect TFC to mark down its asset at the FY17 result impacting the book value of the business.

In line with its strategy of owning a larger proportion of the underling Indian Sandalwood resource, TFC acquired 35ha of plantations from third parties for

A$9.3m ($266k/ha). Following a suboptimal take-up of its 2001 (66%) and 2002 (32%) buyback scheme, the group is expecting to complete the buyback programme for the 2018 to 2022 harvests over 2H17 (A$27m).

TFC’s pharmaceutical subsidiary, Santalis, is in the process of developing/ commercialising 11x products in its Rx (prescription) portfolio and 10x products in its OTC (over-the-counter) portfolio.

o During the period, Santalis requested an end of Phase 2 meeting with the FDA for HPV warts. The group will present its Phase 3 plans to the FDA with a response expected in 4QFY17. The group currently has ongoing Phase 2 trials for four Rx products with studies expected to be completed/announced from mid-2017 (figure 4).

o As Santalis continues to progress positively, the board announced its plan to monitsise this asset in FY18, via a trade sale or primary issuance (NASDAQ/ASX) while retaining majority control.

o While early stage and thus difficult to value, management of Santalis

stated, “based on comparable valuations for companies at this

stage of development, Santalis attributes would suggest a valuation in the US$300m-US$500m [A$400m-A$666m] range”. Our current

modelling incorporates a negative value to this asset as our royalty payments over the medium term (US$3m pa, primarily Benzac AC) do not exceed the ongoing annual expense (CGAu est. US$4m pa). For further analysis on this opportunity, please refer to the research report “Santalis a US$300m-US$500m sleeper” dated Jan-17.

Figure 4: Rx Product pipeline over 2017




Figure 5: Investment in plantation yields a pre-tax IRR of 25.3% (over 15years)


Assumption

Oil Sale price US$/kg 4,500 ISW trees per hectare # 505

Oil extraction yield % 3.70% Survival rates % 83%

AUDUSD x 0.75 ISW harvested trees # 420

Maintenance costs A$/hec 3,000 Tree yield kg/tree 19

Harvest costs A$/hec 20,000 Yield per hectare tn/ha 8.0

Processing fee A$/kg 209 Oil yield per hectare kg/ha 295

Per Hectare FY0 FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15

Years until harvest # 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

Revenue model

Hectares harvest hec 1.0

Tonnes Heartwood harvest tn/hec 8.0

Oil Yield % 3.7%

Oil Produced kg/hec 295

Oil Yield (inflation linked) A$/kg 4,500

AUDUSD x 0.75

Marginal revenue $m 1,772

Cost inflation % 100% 103% 106% 109% 113% 116% 119% 123% 127% 130% 134% 138% 143% 147% 151% 156%

Expense model

Land acquisition A$'000 -10.0

Irrigation A$'000 -12.5

Preparation/planting A$'000 -22.5

Maintenance costs A$'000 -3.1 -3.2 -3.3 -3.4 -3.5 -3.6 -3.7 -3.8 -3.9 -4.0 -4.2 -4.3 -4.4 -4.5 -4.7

Harvesting cost A$'000 -20.0

Oil processing A$'000 -44.3

Marginal cost $m -45.0 -3.1 -3.2 -3.3 -3.4 -3.5 -3.6 -3.7 -3.8 -3.9 -4.0 -4.2 -4.3 -4.4 -4.5 -69

Pre-tax cash flows $m -45.0 -3.1 -3.2 -3.3 -3.4 -3.5 -3.6 -3.7 -3.8 -3.9 -4.0 -4.2 -4.3 -4.4 -4.5 1,703.3

NPV $m 257.6

IRR (pre-tax) % 25.3%

25.3% 500 1,000 1,500 2,000 2,500 2,800 3,000 3,500 4,000 4,500

0.55 6.5% 13.9% 17.9% 20.6% 22.7% 23.7% 24.4% 25.8% 27.1% 28.2%

0.65 4.4% 12.2% 16.2% 19.0% 21.1% 22.2% 22.8% 24.3% 25.5% 26.6%

0.75 2.5% 10.7% 14.8% 17.6% 19.8% 20.8% 21.5% 22.9% 24.2% 25.3%

0.85 0.6% 9.4% 13.6% 16.4% 18.6% 19.7% 20.3% 21.8% 23.0% 24.1%

0.95 -1.2% 8.2% 12.5% 15.4% 17.5% 18.6% 19.3% 20.7% 22.0% 23.1%

1.05 -3.0% 7.0% 11.4% 14.4% 16.6% 17.6% 18.3% 19.8% 21.0% 22.1%

Oil Price (US/kg)

AUDUSD

(x)

IRR

(pre-tax)




TFS Corporation (TFC) Share Price 1.50$ Profit & Loss ($m) 2015A 2016A 2017F 2018F 2019F Valuation ratios 2015A 2016A 2017F 2018F 2019F

Cash Revenues 147.7 171.8 214.6 224.1 232.3 Cash EPS (cps) 7.4 4.1 7.6 8.3 9.0

EPS Growth (%) 41.5 -44.4 85.5 8.9 8.6

Cash EBITDA 57.5 62.2 81.9 86.0 90.7 Statutory EPS (cps) 29.7 22.3 19.9 22.5 24.7

D & A -8.6 -11.2 -12.9 -13.8 -14.9 P/E (x) - Cash 20.4 36.7 19.8 18.2 16.7

Cash EBIT 48.9 51.0 68.9 72.3 75.8 P/E (x) - Underlying 5.2 6.5 6.6 5.9 5.4

Net Interest Expense -19.0 -26.8 -22.4 -21.6 -20.7 NTA per share ($) 1.42 1.38 1.57 1.80 2.05

NPBT 30.0 24.3 46.6 50.7 55.1 BV per share ($) 1.48 1.93 2.25 2.47 2.71

Tax expense -1.8 -7.6 -12.8 -13.9 -15.1 P/BV (x) 1.02 0.78 0.67 0.61 0.56

NPAT (Cash) 28.1 16.7 33.8 36.8 39.9 Enterprise Value ($m) 742.7 751.5 736.6 737.2 724.7

Non Cash Items 84.9 73.7 54.5 62.7 69.2 EV / EBITDA (x) 12.9 12.1 9.0 8.6 8.0

NPAT (Reported) 113.0 90.4 88.2 99.5 109.1 EV / EBIT (x) 15.2 14.7 10.7 10.2 9.6

DPS (cps) 3.0 3.0 3.0 3.5 4.0

EBITDA Margin (%) 38.9% 36.2% 38.1% 38.4% 39.0% Dividend Yield (%) 2.0% 2.0% 2.0% 2.3% 2.6%

EBIT Margin (%) 33.1% 29.7% 32.1% 32.3% 32.6% Franking (%) 100% 100% 100% 100% 100%

NPAT Margin (%) 19.1% 9.7% 15.7% 16.4% 17.2% FCF PS - excl acq. (cps ) 6.4 9.0 11.9 18.1 19.7

P / FCFPS (x) 23.5 16.7 12.7 8.3 7.7

Cash Flow ($m) 2015A 2016A 2017F 2018F 2019F FCF yield (%) 1.8% 0.7% 4.0% 7.1% 8.9%

Operating Cash EBITDA 57.5 62.2 81.9 86.0 90.7 Dupont Analysis 2015A 2016A 2017F 2018F 2019F

- Interest & Tax Pa id -22.1 -30.7 -35.2 -35.5 -35.9 Net Profi t Margin 19.1% 9.7% 15.7% 16.4% 17.2%

+/- change in Work. Cap. -10.8 -7.9 -6.3 8.7 15.8 Asset Turnover 0.2 0.2 0.2 0.2 0.2

- other 0.0 -3.3 0.0 0.0 0.0 ROA (%) 4.2% 1.9% 3.4% 3.5% 3.5%

Operating Cashflow 24.6 20.2 40.3 59.2 70.6 Financia l Leverage 1.8 1.8 1.7 1.7 1.6

- Maintenance Capex -14.1 -16.1 -17.0 -17.7 -18.4 ROE (%) 7.7% 3.5% 5.9% 5.8% 5.7%

Free Cashflow 10.5 4.1 23.4 41.4 52.2 ROE (%) - Reported 19.7% 13.7% 10.9% 10.9% 10.8%

- Growth Capex (Land/Develop.) -14.5 -30.9 -22.9 -28.8 -24.1 Balance Sheet ratios 2015A 2016A 2017F 2018F 2019F

- Acquis i tion (buyback etc.) -42.2 -34.1 -25.0 0.0 0.0 Net Debt (cash) 156.7 165.5 150.5 151.2 138.6

- Ord Dividends -7.2 -7.5 -12.2 -13.3 -15.5 Price / NTA (x) 1.1 1.1 1.0 0.8 0.7

- Equity /other 2.5 65.7 69.6 0.0 0.0 EFPOWA (m) - incl . warrant 380.5 405.7 442.5 442.5 442.5

Net Cashflow -51.0 -2.7 33.0 -0.6 12.5 Growth ratios 2015A 2016A 2017F 2018F 2019F

Cash at beginning of period 88.6 72.7 107.0 140.0 139.3 Sales revenue ($m) 21.8% 16.4% 24.9% 4.4% 3.7%

+/- borrowings / other 35.1 37.0 0.0 0.0 0.0 EBITDA ($m) 11.7% 8.2% 31.6% 5.1% 5.4%

Cash at end of period 72.7 107.0 140.0 139.3 151.9 EBIT ($m) 7.7% 4.3% 35.1% 4.9% 4.8%

NPAT ($m) 23.0% -40.7% 102.4% 8.9% 8.6%

Balance Sheet 2015A 2016A 2017F 2018F 2019F

Cash 72.7 107.0 140.0 139.3 151.9 Assumptions 2015A 2016A 2017F 2018F 2019F

Inventories 23.7 25.0 30.0 30.0 30.0 Saleable ISW Oil Price ($/kg) 4198 3900 4290 4354 4441

Debtors 136.8 139.7 159.7 169.7 169.7 Hectares Planted (hec) 1539 1703 1400 1400 1400

PPE 144.6 161.7 190.4 225.0 254.4 Hectares Harvest (hec) 35 104 109 71 91

Intangibles 114.4 265.2 263.4 261.6 259.9 Tonnes Heartwood Harvest (tn) 31 309 247 244 231

Biologica l Assets - TFS Owned 504.5 623.2 689.1 760.1 843.1 Oil Quantity Harvest (tn) 1.1 11.4 9.2 9.0 8.5

Biologica l Assets - MIS Owned 120.0 148.1 177.7 213.2 255.8 Yield (tn/hec) 0.9 3.0 2.3 3.5 2.5

Other assets 56.7 22.2 22.2 22.2 22.2 AUDUSD 0.77 0.75 0.75 0.75 0.75

Total Assets 1173.3 1492.0 1672.4 1821.0 1986.9

Borrowings 229.3 272.5 290.5 290.5 290.5 Cash Revenue breakdown 2015A 2016A 2017F 2018F 2019F

Trade Creditors 55.1 49.4 49.4 49.4 49.4 Establ ishment Fees 87 103 119 109 110

Tax Liabi l i ties 155.4 206.3 213.5 240.4 270.1 Product Revenue 28 30 56 72 72

Other Liabi l i ties 159.0 216.6 246.2 281.7 324.3 Management Fees 23 29 35 40 45

Total Liabilities 598.8 744.8 799.6 862.0 934.3 Other Revenue 10 10 5 3 6

NET ASSETS 574.5 747.2 872.9 959.1 1052.6 Total Revenue 148 172 215 224 232

Board of Directors / Substantial Shareholders Valuation

Board of Directors Shareholding % Discounted Cash flow

Dalton Gooding - Chairman 0.1 0.0% Beta 1.7 WACC 11.9%

Gi l l ian Frankl in - Non Exec Director 0.2 0.1% Cost of equity 13.4% Discount period 27 years

Frank Wi lson - CEO 48.0 14.0% Cost of debt 6.1% EFPOWA* 442.5

John Groppol i - Non Exec Director Target Net debt/Net debt + equity 20% Valuation 3.38

Jul ius Matthys - Non Exec Director 3.3 1.2% *EFPOWA incorporates conversion of 55.5m options at $1.28

Michael Kay - Non Exec Director 0.2 0.1%

Description

Substantial Shareholders Shareholding %

Domenica Nominees (Frank Wi lson) 48.0 14.0%

Regal Funds Management 19.9 7.1%

Fidel i ty Investments 20.3 5.3%

TFS Corporation Limited (TFC) i s an owner and manager of Indian sandalwood plantations in

northern Austra l ia . TFC is involved the management and operation of forestry plantations ,

cul tivation and sa le of agricul ture produce, the provis ion of finance, and the production and

sa le of Sandalwood Oi l and related products . TFC has four divis ions namely plantation

management, finance, sandalwood products and agricul ture.



Figure 6: Breakdown of TFC’s Revenue and Expense profile by key line items (establishment fees, product revenues, management fees)


Re

ven

ue

Bre

akd

ow

nFY

14A

FY15

AFY

16A

FY17

EFY

18E

FY19

EFY

20E

FY21

EFY

22E

FY23

EFY

24E

FY25

EFY

26E

FY27

EFY

28E

FY29

EFY

30E

FY31

EFY

32E

FY33

EFY

34E

FY35

EFY

36E

FY37

EFY

38E

FY39

EFY

40E

MIS

/HN

W I

nves

tors

$m35

.962

.760

.856

.257

.958

.559

.159

.760

.260

.861

.521

.70.

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00.

00.

00.

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00.

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00.

00.

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0

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ect

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s$m

44.7

41.4

34.2

53.7

43.4

43.9

44.3

44.7

45.2

45.6

46.1

46.6

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Land

Sal

es$m

7.4

7.0

8.1

9.3

7.5

7.6

7.7

7.8

7.8

7.9

8.0

8.1

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

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Esta

blis

hm

ent

Fees

$m87

.986

.710

3.1

119.

210

8.8

109.

911

1.0

112.

111

3.3

114.

411

5.5

76.3

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

TFS

Ow

ned

oil

sale

s$m

2.1

2.1

4.0

34.9

41.2

37.8

41.9

55.4

39.7

0.0

261.

095

.310

4.9

830.

577

0.8

235.

368

1.9

542.

019

4.8

445.

244

5.2

445.

244

5.2

445.

244

5.2

445.

289

0.4

MIS

Acq

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les

$m0.

03.

65.

86.

712

.914

.59.

36.

540

.211

9.3

170.

929

3.9

274.

413

2.2

62.1

75.7

335.

237

2.4

438.

131

1.6

311.

631

1.6

467.

431

1.6

311.

631

1.6

218.

1

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tral

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00.

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0

Com

mis

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and

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Rev

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11.

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93.

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64.

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311

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93.2

93.2

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Pro

du

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25.8

27.3

28.5

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29.3

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28.5

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24.5

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29.3

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26.3

24.5

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20.7

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12.8

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23.9

19.9

51.6

44.7

27.9

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52.

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131.

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Exp

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Bre

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nFY

14A

FY15

AFY

16E

FY17

EFY

18E

FY19

EFY

20E

FY21

EFY

22E

FY23

EFY

24E

FY25

EFY

26E

FY27

EFY

28E

FY29

EFY

30E

FY31

EFY

32E

FY33

EFY

34E

FY35

EFY

36E

FY37

EFY

38E

FY39

EFY

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He

ctar

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lant

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5012

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50

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31.2

36.5

36.9

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32.0

32.7

33.4

34.2

34.9

35.7

36.4

37.2

0.0

0.0

0.0

0.0

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18,4

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18,7

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3,06

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19.3

21.5

26.6

33.7

38.3

43.2

48.2

53.2

57.9

62.3

65.7

68.4

67.9

66.9

64.1

60.5

55.8

50.7

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31.9

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Ha

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20.1

26.2

30.1

32.9

35.3

44.8

47.5

41.9

41.7

36.9

35.8

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32.6

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Cos

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oil

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6.5

6.7

6.9

7.1

7.3

7.6

7.8

8.0

8.3

8.5

8.8

9.0

9.3

9.6

9.9

Tota

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cess

ing

Cost

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17.0

17.6

22.4

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44.2

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94.2

90.7

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8.9

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91.6

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83.7

81.7

79.7

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76.1

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64.

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5.8

217.

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7.6

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6.3

217.

621

7.6

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52.

318

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9.7

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9.7

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9.7

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716

9.7

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Fixe

d C

osts

$m12

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.516

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.114

.614

.213

.813

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.8

Tota

l Exp

ense

s$m

80.5

91.0

109.

611

4.1

119.

412

5.8

129.

513

6.4

149.

019

9.3

246.

336

8.6

364.

226

6.5

186.

224

3.8

414.

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2.0

458.

435

9.5

352.

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4.9

446.

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9.6

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3.5

413.

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Cash

EB

ITD

A$m

51.4

57.5

62.2

81.9

86.0

90.7

90.7

90.8

122.

212

7.6

349.

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9.6

139.

151

9.1

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311

6.7

527.

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2.0

273.

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368.

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6.6

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2.2

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52.

318

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9.7

169.

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9.7

169.

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9.7

169.

7

Cash

EB

ITD

A (

pre

-wri

teb

ack)

$m51

.460

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0.5

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6.5

107.

311

6.9

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7.5

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3.7

177.

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6.5

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8.6

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5.6

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1.9

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0

Cap

ex

FY14

AFY

15A

FY16

EFY

17E

FY18

EFY

19E

FY20

EFY

21E

FY22

EFY

23E

FY24

EFY

25E

FY26

EFY

27E

FY28

EFY

29E

FY30

EFY

31E

FY32

EFY

33E

FY34

EFY

35E

FY36

EFY

37E

FY38

EFY

39E

FY40

E

Mai

nte

nan

ce C

ape

x$m

7.1

7.3

9.0

9.3

9.5

9.8

10.1

10.4

10.7

11.1

11.4

11.7

12.1

12.5

12.8

13.2

13.6

13.2

12.8

12.4

12.1

11.7

11.3

11.0

10.7

10.3

10.0

TFS

Pla

nta

tio

n M

ain

ten

ance

co

st c

apit

alis

ed

$m8.

76.

97.

17.

78.

28.

68.

99.

410

.110

.010

.611

.19.

37.

77.

35.

94.

84.

43.

21.

90.

6-0

.8-0

.8-0

.8-0

.8-0

.8-0

.8

On

goin

g Ca

pex

$m15

.814

.116

.117

.017

.718

.419

.019

.820

.921

.122

.022

.921

.420

.120

.119

.218

.417

.616

.014

.312

.610

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.510

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99.

59.

2

Irri

gati

on

Cap

ex

$m11

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78.

87.

47.

67.

88.

08.

28.

48.

68.

89.

0

De

velo

pm

en

t C

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x (+

lan

d a

cq.)

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66.

815

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Acq

uis

itio

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Tre

es/

Ph

arm

a)$m

4.0

42.2

37.1

25.0

Oil

dis

till

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/Pro

cess

ing

faci

lity

$m5.

05.

010

.0

Gro

wth

Cap

ex$m

17.2

56.8

60.9

47.9

28.8

24.1

34.5

24.9

25.2

25.6

8.8

9.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Tota

l Cap

ex$m

33.0

70.9

80.1

64.8

46.5

42.6

53.5

44.7

46.1

46.7

30.7

31.9

21.4

20.1

20.1

19.2

18.4

17.6

16.0

14.3

12.6

10.9

10.5

10.2

9.9

9.5

9.2



Figure 7: DCF valuation for TFC


FY

14

FY1

5FY

16

FY1

7FY

18

FY1

9FY

20

FY2

1FY

22

FY2

3FY

24

FY2

5FY

26

FY2

7FY

28

FY2

9FY

30

FY3

1FY

32

FY3

3FY

34

FY3

5FY

36

FY3

7FY

38

FY3

9FY

40

Re

ven

ue

Esta

blis

hm

ent

Fees

$m

87

.98

6.7

10

3.1

11

9.2

10

8.8

10

9.9

11

1.0

11

2.1

11

3.3

11

4.4

11

5.5

76

.30

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

.0

Pro

du

ct R

even

ue

$m

20

.52

7.7

29

.95

5.5

72

.47

1.9

70

.48

1.2

86

.11

30

.34

54

.04

63

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47

.51

03

2.6

92

9.1

38

5.3

11

40

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01

6.3

75

6.8

85

0.0

85

0.0

85

0.0

10

05

.88

50

.08

50

.08

50

.01

25

0.0

Man

agem

ent

Fee

$m

18

.02

3.2

28

.83

5.0

39

.94

4.5

49

.35

4.0

82

.28

2.2

11

7.1

11

2.4

94

.66

9.8

72

.36

5.0

61

.65

4.3

49

.44

5.0

40

.53

5.8

31

.02

6.0

20

.81

5.4

9.9

Oth

er R

even

ues

$m

5.5

10

.11

0.2

5.0

3.0

6.0

6.0

6.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Tota

l Re

ven

ue

$m

13

1.9

14

7.7

17

1.8

21

4.6

22

4.1

23

2.3

23

6.7

25

3.3

28

1.6

32

6.9

68

6.7

65

2.4

54

2.1

11

02

.41

00

1.4

45

0.3

12

02

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07

0.7

80

6.2

89

5.0

89

0.5

88

5.8

10

36

.88

75

.98

70

.78

65

.41

25

9.9

Exp

en

ses

Pla

nta

tio

n C

ost

s$

m3

1.2

36

.53

6.9

36

.03

2.0

32

.73

3.4

34

.23

4.9

35

.73

6.4

37

.20

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

.00

.0

Mai

nte

nan

ce C

ost

s$

m1

9.3

21

.52

6.6

33

.73

8.3

43

.24

8.2

53

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7.9

62

.36

5.7

68

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7.9

66

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4.1

60

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5.8

50

.74

5.9

41

.53

6.8

31

.92

6.7

21

.21

5.4

9.4

3.0

Pro

cess

ing

Co

sts

$m

17

.01

7.6

22

.41

9.2

21

.12

1.6

24

.02

5.4

17

.84

4.2

47

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4.0

94

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0.7

61

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13

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08

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5.8

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5.8

83

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1.7

79

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7.9

76

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4.3

72

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MIS

Wo

od

Acq

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n c

ost

s$

m0

.02

.64

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.49

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.43

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3.7

42

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1.7

19

3.1

18

5.8

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3.3

52

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34

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05

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17

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17

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17

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26

.32

17

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17

.62

17

.63

26

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Fixe

d C

ost

s$

m1

2.9

12

.01

6.5

18

.31

8.7

19

.01

9.3

19

.71

4.7

15

.11

5.5

15

.81

6.2

16

.61

7.1

16

.51

6.0

15

.61

5.1

14

.61

4.2

13

.81

3.4

13

.01

2.6

12

.21

1.8

Bio

logi

cal C

OG

S**

$m

18

.71

8.7

15

.81

6.6

26

.11

0.4

0.0

90

.83

4.2

38

.83

16

.72

93

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9.7

26

0.0

20

6.7

74

.31

69

.71

69

.71

69

.71

69

.71

69

.71

69

.71

69

.71

69

.7

Tota

l Exp

en

ses

$m

80

.59

0.2

10

9.6

13

2.8

13

8.1

14

1.6

14

6.1

16

2.5

15

9.4

19

9.3

33

7.2

40

2.8

40

3.0

58

3.2

48

0.1

33

3.5

67

4.8

61

8.7

53

2.7

52

9.2

52

2.0

51

4.6

61

5.9

49

9.3

49

1.4

48

3.2

58

3.6

Cas

h E

BIT

DA

$m

51

.45

7.5

62

.28

1.9

86

.09

0.7

90

.79

0.8

12

2.2

12

7.6

34

9.5

24

9.6

13

9.1

51

9.1

52

1.3

11

6.7

52

7.4

45

2.0

27

3.5

36

5.8

36

8.5

37

1.2

42

0.9

37

6.6

37

9.4

38

2.2

67

6.3

Ad

d b

ack

Bio

logi

cal C

OG

S**

$m

2.3

18

.71

8.7

15

.81

6.6

26

.11

0.4

0.0

90

.83

4.2

38

.83

16

.72

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Appendix: Important DisclosuresAnalyst CertificationEach authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) therecommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent andobjective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoringanalyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to thespecific recommendations or views expressed by the authoring analyst in the research.Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons ofCanaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communicationswith a subject company, public appearances and trading securities held by a research analyst account.Sector CoverageIndividuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoringanalysts of the report.

Investment RecommendationDate and time of first dissemination: February 27, 2017, 15:12 ETDate and time of production: February 27, 2017, 15:12 ETTarget Price / Valuation Methodology:TFS Corporation Limited - TFCWe currently value TFC using a 27-year DCF methodology (no terminal value) with a WACC of 10.8%.Risks to achieving Target Price / Valuation:TFS Corporation Limited - TFCThe key investment risks for TFS include: Biological risk -- Biological assets are prone to weather, pests, disease and fire risk. Thecompany has operated for fourteen years without fire damage to its plantations. The plantations are located inland to prevent impactfrom cyclones and situated in tropical areas of northern Australia that are not prone to flooding. Long-term duration investment --Sandalwood trees take over fifteen years to mature, and should be considered by long-term investors. Key man risk -- Over the pastdecade, the company has invested heavily in R&D programs and personnel. In our view, a loss of a number of key people should beperceived by shareholders as a negative. Commodity price risk -- TFS plans to sell a significant amount of Indian Sandalwood heartwoodoil into the export market. The quantum of end market demand remains largely unknown leading to price assumptions that could beincorrect. Currency risk -- The company converted US$150m debt at a currency level of 1.0941. A continued devaluation of the AUDwould see this liability increase. The company plans to sell its heartwood in USD, providing a natural hedge to the liability.

Distribution of Ratings:Global Stock Ratings (as of 02/27/17)Rating Coverage Universe IB Clients

# % %Buy 579 60.44% 37.48%Hold 289 30.17% 15.92%Sell 32 3.34% 18.75%Speculative Buy 58 6.05% 74.14%

958* 100.0%*Total includes stocks that are Under Review

Canaccord Genuity Ratings SystemBUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.

HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.

SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.

NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer.“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or therelevant issuer.Risk Qualifier



SPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in thestock may result in material loss.

12-Month Recommendation History (as of date same as the Global Stock Ratings table)A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month periodmay be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures-mar.canaccordgenuity.com/EN/Pages/default.aspx

Required Company-Specific Disclosures (as of date of this publication)TFS Corporation Limited currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During thisperiod, Canaccord Genuity or its affiliated companies provided investment banking services to TFS Corporation Limited.In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services fromTFS Corporation Limited .In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-manager ofa public offering of securities of TFS Corporation Limited or any publicly disclosed offer of securities of TFS Corporation Limited or in anyrelated derivatives.Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Bankingservices from TFS Corporation Limited in the next three months.The primary analyst, a member of primary analyst's household, or any individual directly involved in the preparation of this research, hasa long position in the shares or derivatives, or has any other financial interest in TFS Corporation Limited, the value of which increases asthe value of the underlying equity increases.

Apr 2014 Jul 2014 Oct 2014 Jan 2015 Apr 2015 Jul 2015 Oct 2015 Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017

3.50

3.00

2.50

2.00

1.50

1.00

TFS Corporation Limited Rating History as of 02/23/2017

Closing Price Target Price

Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)

B:AUD3.3402/26/14

B:AUD2.9705/22/14

B:AUD3.2007/01/14

B:AUD3.3308/19/14

B:AUD3.4409/02/14

B:AUD2.8401/19/15

B:AUD2.8403/30/15

B:AUD2.9006/18/15

B:AUD3.0209/01/15

B:AUD3.2411/26/15

B:AUD3.2304/13/16

B:AUD3.3608/28/16

Online DisclosuresUp-to-date disclosures may be obtained at the following website (provided as a hyperlink if this report is being read electronically)http://disclosures.canaccordgenuity.com/EN/Pages/default.aspx; or by sending a request to Canaccord Genuity Corp. Research, Attn:Disclosures, P.O. Box 10337 Pacific Centre, 2200-609 Granville Street, Vancouver, BC, Canada V7Y 1H2; or by sending a requestby email to [email protected]. The reader may also obtain a copy of Canaccord Genuity’s policies and proceduresregarding the dissemination of research by following the steps outlined above.General DisclaimersSee “Required Company-Specific Disclosures” above for any of the following disclosures required as to companies referred to in thisreport: manager or co-manager roles; 1% or other ownership; compensation for certain services; types of client relationships; researchanalyst conflicts; managed/co-managed public offerings in prior periods; directorships; market making in equity securities and relatedderivatives. For reports identified above as compendium reports, the foregoing required company-specific disclosures can be found ina hyperlink located in the section labeled, “Compendium Reports.” “Canaccord Genuity” is the business name used by certain whollyowned subsidiaries of Canaccord Genuity Group Inc., including Canaccord Genuity Inc., Canaccord Genuity Limited, Canaccord GenuityCorp., and Canaccord Genuity (Australia) Limited, an affiliated company that is 50%-owned by Canaccord Genuity Group Inc.The authoring analysts who are responsible for the preparation of this research are employed by Canaccord Genuity Corp. a Canadianbroker-dealer with principal offices located in Vancouver, Calgary, Toronto, Montreal, or Canaccord Genuity Inc., a US broker-dealerwith principal offices located in New York, Boston, San Francisco and Houston, or Canaccord Genuity Limited., a UK broker-dealer with



http://disclosures-mar.canaccordgenuity.com/EN/Pages/default.aspx

http://disclosures-mar.canaccordgenuity.com/EN/Pages/default.aspx

http://disclosures.canaccordgenuity.com/EN/Pages/default.aspx

principal offices located in London (UK) and Dublin (Ireland), or Canaccord Genuity (Australia) Limited, an Australian broker-dealer withprincipal offices located in Sydney and Melbourne.The authoring analysts who are responsible for the preparation of this research have received (or will receive) compensation based upon(among other factors) the Investment Banking revenues and general profits of Canaccord Genuity. However, such authoring analystshave not received, and will not receive, compensation that is directly based upon or linked to one or more specific Investment Bankingactivities, or to recommendations contained in the research.Some regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising asa result of publication or distribution of research. This research has been prepared in accordance with Canaccord Genuity’s policy onmanaging conflicts of interest, and information barriers or firewalls have been used where appropriate. Canaccord Genuity’s policy isavailable upon request.The information contained in this research has been compiled by Canaccord Genuity from sources believed to be reliable, but (with theexception of the information about Canaccord Genuity) no representation or warranty, express or implied, is made by Canaccord Genuity,its affiliated companies or any other person as to its fairness, accuracy, completeness or correctness. Canaccord Genuity has notindependently verified the facts, assumptions, and estimates contained herein. All estimates, opinions and other information containedin this research constitute Canaccord Genuity’s judgement as of the date of this research, are subject to change without notice and areprovided in good faith but without legal responsibility or liability.From time to time, Canaccord Genuity salespeople, traders, and other professionals provide oral or written market commentary ortrading strategies to our clients and our principal trading desk that reflect opinions that are contrary to the opinions expressed in thisresearch. Canaccord Genuity’s affiliates, principal trading desk, and investing businesses also from time to time make investmentdecisions that are inconsistent with the recommendations or views expressed in this research.This research is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any designatedinvestments discussed herein in any jurisdiction where such offer or solicitation would be prohibited. As a result, the designatedinvestments discussed in this research may not be eligible for sale in some jurisdictions. This research is not, and under nocircumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or companythat is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. This material is prepared forgeneral circulation to clients and does not have regard to the investment objectives, financial situation or particular needs of anyparticular person. Investors should obtain advice based on their own individual circumstances before making an investment decision.To the fullest extent permitted by law, none of Canaccord Genuity, its affiliated companies or any other person accepts any liabilitywhatsoever for any direct or consequential loss arising from or relating to any use of the information contained in this research.Research Distribution PolicyCanaccord Genuity research is posted on the Canaccord Genuity Research Portal and will be available simultaneously for access by allof Canaccord Genuity’s customers who are entitled to receive the firm's research. In addition research may be distributed by the firm’ssales and trading personnel via email, instant message or other electronic means. Customers entitled to receive research may alsoreceive it via third party vendors. Until such time as research is made available to Canaccord Genuity’s customers as described above,Authoring Analysts will not discuss the contents of their research with Sales and Trading or Investment Banking employees without priorcompliance consent.For further information about the proprietary model(s) associated with the covered issuer(s) in this research report, clients shouldcontact their local sales representative.Short-Term Trade IdeasResearch Analysts may, from time to time, discuss “short-term trade ideas” in research reports. A short-term trade idea offers a near-term view on how a security may trade, based on market and trading events or catalysts, and the resulting trading opportunity that maybe available. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks. Ashort-term trade idea may differ from the price targets and recommendations in our published research reports that reflect the researchanalyst's views of the longer-term (i.e. one-year or greater) prospects of the subject company, as a result of the differing time horizons,methodologies and/or other factors. It is possible, for example, that a subject company's common equity that is considered a long-term ‘Hold' or 'Sell' might present a short-term buying opportunity as a result of temporary selling pressure in the market or for otherreasons described in the research report; conversely, a subject company's stock rated a long-term 'Buy' or “Speculative Buy’ could beconsidered susceptible to a downward price correction, or other factors may exist that lead the research analyst to suggest a sale overthe short-term. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm does not intend, and does notundertake any obligation, to maintain or update short-term trade ideas. Short-term trade ideas are not suitable for all investors and arenot tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regardingany securities or strategies discussed herein. Please contact your salesperson for more information regarding Canaccord Genuity’sresearch.For Canadian Residents:This research has been approved by Canaccord Genuity Corp., which accepts sole responsibility for this research and its disseminationin Canada. Canaccord Genuity Corp. is registered and regulated by the Investment Industry Regulatory Organization of Canada (IIROC)and is a Member of the Canadian Investor Protection Fund. Canadian clients wishing to effect transactions in any designated investmentdiscussed should do so through a qualified salesperson of Canaccord Genuity Corp. in their particular province or territory.



For United States Persons:Canaccord Genuity Inc., a US registered broker-dealer, accepts responsibility for this research and its dissemination in the United States.This research is intended for distribution in the United States only to certain US institutional investors. US clients wishing to effecttransactions in any designated investment discussed should do so through a qualified salesperson of Canaccord Genuity Inc. Analystsemployed outside the US, as specifically indicated elsewhere in this report, are not registered as research analysts with FINRA. Theseanalysts may not be associated persons of Canaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSERule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analystaccount.For United Kingdom and European Residents:This research is distributed in the United Kingdom and elsewhere Europe, as third party research by Canaccord Genuity Limited,which is authorized and regulated by the Financial Conduct Authority. This research is for distribution only to persons who are EligibleCounterparties or Professional Clients only and is exempt from the general restrictions in section 21 of the Financial Services andMarkets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is beingdistributed in the United Kingdom only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) (High NetWorth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005(as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. This material is not fordistribution in the United Kingdom or elsewhere in Europe to retail clients, as defined under the rules of the Financial Conduct Authority.For Jersey, Guernsey and Isle of Man Residents:This research is sent to you by Canaccord Genuity Wealth (International) Limited (CGWI) for information purposes and is not to beconstrued as a solicitation or an offer to purchase or sell investments or related financial instruments. This research has been producedby an affiliate of CGWI for circulation to its institutional clients and also CGWI. Its contents have been approved by CGWI and we areproviding it to you on the basis that we believe it to be of interest to you. This statement should be read in conjunction with your clientagreement, CGWI's current terms of business and the other disclosures and disclaimers contained within this research. If you are in anydoubt, you should consult your financial adviser.CGWI is licensed and regulated by the Guernsey Financial Services Commission, the Jersey Financial Services Commission and the Isleof Man Financial Supervision Commission. CGWI is registered in Guernsey and is a wholly owned subsidiary of Canaccord Genuity GroupInc.For Australian Residents:This research is distributed in Australia by Canaccord Genuity (Australia) Limited ABN 19 075 071 466 holder of AFS Licence No234666. To the extent that this research contains any advice, this is limited to general advice only. Recipients should take into accounttheir own personal circumstances before making an investment decision. Clients wishing to effect any transactions in any financialproducts discussed in the research should do so through a qualified representative of Canaccord Genuity (Australia) Limited. CanaccordGenuity Wealth Management is a division of Canaccord Genuity (Australia) Limited.For Hong Kong Residents:This research is distributed in Hong Kong by Canaccord Genuity (Hong Kong) Limited which is licensed by the Securities and FuturesCommission. This research is only intended for persons who fall within the definition of professional investor as defined in the Securitiesand Futures Ordinance. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Recipients ofthis report can contact Canaccord Genuity (Hong Kong) Limited. (Contact Tel: +852 3919 2561) in respect of any matters arising from, orin connection with, this research.Additional information is available on request.Copyright © Canaccord Genuity Corp. 2017 – Member IIROC/Canadian Investor Protection Fund

Copyright © Canaccord Genuity Limited. 2017 – Member LSE, authorized and regulated by the Financial Conduct Authority.

Copyright © Canaccord Genuity Inc. 2017 – Member FINRA/SIPC

Copyright © Canaccord Genuity (Australia) Limited. 2017 – Participant of ASX Group, Chi-x Australia and of the NSX. Authorized andregulated by ASIC.

All rights reserved. All material presented in this document, unless specifically indicated otherwise, is under copyright to CanaccordGenuity Corp., Canaccord Genuity Limited, Canaccord Genuity Inc or Canaccord Genuity Group Inc. None of the material, nor its content,nor any copy of it, may be altered in any way, or transmitted to or distributed to any other party, without the prior express writtenpermission of the entities listed above.None of the material, nor its content, nor any copy of it, may be altered in any way, reproduced, or distributed to any other partyincluding by way of any form of social media, without the prior express written permission of the entities listed above.



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