plantation crude awakening for cpo price 180908...

Please read carefully the important disclosures at the end of this publication.

SECTOR UPDATE

18 September 2008

UNDERWEIGHT Maintained

Plantations

Crude awakening for CPO price

REGIONAL

Ivy Ng Lee Fang CFA +60(3) 2084 9697 - [email protected]

• Downgrade of in-house crude oil price assumptions. Our regional oil analyst is scaling back his crude oil price forecasts today. Instead of a strengthening of oil price in 2009, we now expect it to decline by US$10 to US$90/barrel, a US$30 downgrade from our previous forecast. Effectively, we have cut our forecasts by US$10 for 2008, US$30 for 2009 and US$20 for 2010 (see today’s regional oil report). This has implications for our CPO price forecasts as a lower crude oil price reduces the economic viability of biodiesel.

• Cutting CPO price forecasts. In view of our lower crude oil price assumptions and rising supply prospects for CPO, we are pruning our CPO price forecasts by 12% to US$920 per tonne (fob) for 2008, 34% to US$680 for 2009 and 30% to US$660 for 2010.

• Cutting earnings and target prices. Our new price forecasts translate into downward revisions of up to 55% for our FY08-10 earnings forecasts for all the plantation companies in our universe. This, coupled with the 1-3 multiple pt reduction in our P/E targets, has the effect of slashing our target prices by 19-60%.

• Sime Darby downgraded to UNDERPERFORM. Following our earnings forecasts and target price revisions, we relegate Sime Darby from Neutral to UNDERPERFORM in view of its less exciting earnings prospects. There is no change to our rating for the other regional planters.

• Switching preference to Singapore-listed planters. Regionally, we are switching our preference to planters listed in Singapore and Indonesia as their share prices have fallen more steeply than their Malaysian peers. Also, political risk is now lower in Indonesia than in Malaysia. Between Singapore and Indonesia-listed planters, we prefer the former as they offer better share liquidity and bigger market caps.

• Staying UNDERWEIGHT on sector. The downgrade in our price forecasts reinforces our UNDERWEIGHT stance on the sector. Rising operating costs and the deteriorating outlook for CPO price due to a combination of rising supply prospects and slowing demand growth will crimp earnings in the coming years. Key de-rating catalysts are lower prices for CPO and crude and rising operating costs. The main risks to our forecasts and sector call are a sharp recovery in crude oil price, weaker US$ and lower-than-expected edible oil supplies due to weather disasters.

Sector comparisons

Target Core 3-yr EPS P/BV ROE Div

Bloomberg Price price Mkt cap P/E (x) CAGR (x) (%) Yield (%)

Ticker Recom. (Local) (Local) (US$ m) CY2008 CY2009 (%) CY2008 CY2008 CY2008

Sime Darby SIME MK U 5.95 6.05 10,383 10.7 11.9 (9.5) 1.6 15.8 8.9

IOI Corp IOI MK U 3.96 3.50

7,063 12.8 13.6 (3.0) 2.8 23.7 4.2

KLK KLK MK U 9.50 8.30 2,945 10.5 14.9 (6.6) 1.8 17.6 6.7

Asiatic ASP MK U 4.50 3.70 988 7.2 11.0 (5.5) 1.4 20.9 4.4

Hap Seng Plant HAPL MK U 1.72 1.60 400 8.9 8.7 1.8 0.8 9.6 8.5

Wilmar WIL SP N 2.61 3.60 12,712 12.2 12.6 19.3 1.5 12.6 1.6

Golden Agri GGR SP N 0.35 0.42 2,396 5.0 7.4 (1.1) 0.7 13.9 8.3

Indofood Agri IFAR SP N 0.63 0.90 690 5.0 6.8 5.3 0.8 16.8 2.2

Astra Agro AALI IJ U 12,000 9,000 2,002 7.3 10.7 (4.6) 3.5 53.9 6.8

Lonsum LSIP IJ U 3,125 2,800 452 5.0 8.9 (9.4) 1.5 33.5 0.0

Bakrie Plantation UNSP IJ U 700 400 281 6.0 10.3 (1.1) 1.0 16.5 1.6

Sampoerna Agro SGRO IJ U 1,620 1,750 324 5.6 7.4 2.6 1.7 33.6 7.8

Simple average

8.0 10.4 (1.0) 1.6 22.5 5.1

O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and TS = Trading Sell Source: Company, CIMB/CIMB-GK Research

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Outlook

CPO price on a losing streak. International CPO price has come off another 33% since our last report on 8 August 2008. All in, it is down 52% (US$723 per tonne) from the year’s high of US$1,395 per tonne and 11% since the beginning of the year. The halving from the year’s high is the steepest correction for the CPO price since 1990 and took place within the short span of six months. Currently, CPO price is at a 17-month low.

Figure 1: CPO price performance since 1990

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200

400

600

800

1,000

1,200

1,400

Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08

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900

1,400

1,900

2,400

2,900

3,400

3,900

CPO Price (LHS)

CPO Price (RHS)

Int CPO price (US$/tonne) Local CPO price (RM per tonne)

Source: MPOB, CIMB/CIMB-GK Research,Bloomberg

Turning into a bear market? Bearish newsflow continues to hold sway over the CPO

market since our last regional plantation report where we highlighted the rising downside risk to CPO price. The adverse newflow which has pushed CPO to a new low for the year includes:

1. Crude oil price has lost a further US$22/barrel or 18% since our last note. This has the effect of lowering the breakeven CPO price for biodiesel conversion. Furthermore, there are reports that the EU is looking to modify its biofuel target by moving away from traditional first-generation feedstock crops to “new alternatives” that do not compete with food production. These two factors have dampened the prospects of CPO being converted for biodiesel usage.

2. US soyabean plantings have so far been spared by frost risks. This raises the expectation of a good harvest for US soyabean crops. Also, rapeseed crops have so far been above expectations in Europe and Ukraine.

3. Palm oil is currently in its peak production season. Malaysia’s high palm oil stock level of 1.8m tonnes and reports of a record stockpile of 2.4m tonnes at Indonesian ports have spooked the market.

4. The volatility and continued downtrend for both CPO and crude oil price have rattled sentiment in the market. Consumers are delaying their purchases or buying on an as-need basis in anticipation of further price declines. As such, palm exports may be slower than earlier expected by the market.

5. Worries of a slowdown of global economies continue to weigh down demand expectations for edible oils.

6. The flow of funds out of commodities adds to the CPO price decline. 7. Prominent oilseeds and edible oils grain analysts have been downgrading their

CPO price expectation in recently organised conferences.

[ 3 ]

Figure 2: Recent price movement of various related commodities to CPO price

Source: Bloomberg, CIMB/CIMB-GK Research

Cutting crude oil price forecast

Downgrade of in-house crude oil price assumptions. Our regional oil analyst is scaling back his crude oil price forecasts today. Instead of a strengthening of oil price in 2009, we now expect it to decline by US$30 to US$90/barrel in 2009 and US$20 to US$90/barrel in 2010 (see today’s regional oil report). This works out to 9-25% cuts in our earlier projections.

Figure 3. Brent crude oil assumptions (US$/barrel)

New Previous Change % change

2008F 110 100 -10 -9%

2009F 120 90 -30 -25%

2010F 110 90 -20 -18%

Source: CIMB estimates

Crude oil’s influence on palm oil price. Crude oil’s price spiral was one of the major

factors that drove up CPO prices in 2007 as it made it the conversion of CPO into biodiesel economically viable. However, the correlation between the two broke down this year as CPO price rocketed past crude oil price on the back of its own fundamentals (refer to Figure 4). The rise in CPO price in the early part of the year was stoked by fears of a potential shortfall in global edible oil supplies due to adverse weather and competition with grain products for acreage. With CPO price at much higher levels, it became unfeasible to use CPO as a feedstock for biodiesel except where the government mandates the usage of biodiesel in 1H08. As a result, producers have scaled back the use of palm oil for energy purposes in the EU and Asia in 2Q08. This has affected the demand for edible oils, partly contributing to the setback in CPO price in 3Q08.

Economically viable to produce biodiesel again… Given the sharper fall in CPO price relative to crude oil price in recent months, we find that conversion of palm oil to biodiesel is again an economically viable proposition, especially with the support of government subsidies. We understand that some biodiesel producers have started to increase production, helping to rekindle the positive correlation between the two commodities.

…. but rising operating challenges as well. Though biodiesel production is now feasible from an economic standpoint, the operating environment has also become more challenging due to the increased volatility of both crude oil and CPO prices. The sharp fall in crude oil price will make it harder for biodiesel producers to hedge the prices of their end-products. Also, palm oil-based biodiesel may face resistance in the EU market due to sustainability issues. Also, due to its properties, palm-based biodiesel is not suitable during the winter season in Europe.

Sensitivity of CPO biodiesel breakeven price to crude oil price changes. The lower crude oil price reduces the economic viability of biodiesel and ethanol and may cut demand for edible oils and grains for energy purposes. It also provides a lower support price for CPO. Our breakeven model suggests that at a crude oil price of US$100 per barrel, it is economical to produce biodiesel when CPO price on a fob basis is no higher than US$673 (RM2,323) per tonne assuming no government subsidies and US$823 (RM2,840) per tonne with government subsidies. This is slightly lower than the current spot CPO price of US$690 (RM2,350) per tonne. Based on our model, the sensitivity of CPO price to every US$10 per barrel change in crude

Active futures price

1 Jan 2008 8 Aug 2008 CY's high Latest YTD chge Chge from 8 Aug Chge from

year's high

CPO (RM per tonne) 3,073 2,830 4,315 2,040 -33.6% -27.9% -52.7%

Soyabean (US cents/lbs) 51.96 53.80 70.00 43.60 -16.1% -19.0% -37.7%

Soybean oil (US cents/bushel) 1,146 1,238 1,629 1,124 -1.9% -9.2% -31.0%

Corn (UScents/bushel) 484 549 806 532 10.0% -3.1% -34.0%

Wheat (Uscents/bushel) 788 803 1,284 726 -7.9% -9.6% -43.5%

Crude oil (US$/barrel) 95 119 147 97 2.3% -18.4% -33.7%

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oil price is US$70 (RM238) per tonne, based on the current exchange rate (see Figure 6). In our analysis, we have assumed government subsidies of US$300 per tonne of biodiesel and an equal split of the subsidies between biodiesel producers and distributors. Hence, the subsidies to biodiesel producers amount to exactly US$150 per tonne in our calculation.

Figure 4: CPO price falls in tandem with crude oil price

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Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08

US$/bbl

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Crude palm oil (RHS) Breakeven CPO

WTI Crude oil


Figure 5: Economically viable to produce CPO-biodiesel again

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Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08

US$/bbl

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Breakeven CPO (RHS)

WTI Crude oil (LHS)


Figure 6: Breakeven CPO price at various crude oil price (with and without subsidies)

Crude oil price (US$/barrel) 80 90 100 110 120 130 140

CPO breakeven -w'out subsidy (US$/tonne) 533 603 673 744 814 884 955

CPO breakeven - with subsidy (US$/tonne) 683 753 823 894 964 1,034 1,105

Ex-rate (MYR/USD) 3.45 3.45 3.45 3.45 3.45 3.45 3.45

Local CPO price (RM/tonne) w'out subsidy 1,838 2,080 2,323 2,565 2,808 3,050 3,293

Local CPO price (RM/tonne) with subsidy 2,355 2,598 2,840 3,083 3,325 3,568 3,811

Ex-rate 9,000 9,000 9,000 9,000 9,000 9,000 9,000

Local CPO price (Rp/kg) w'out subsidy 4,794 5,427 6,060 6,692 7,325 7,958 8,591

Local CPO price (Rp/kg) with subsidy 6,144 6,777 7,410 8,042 8,675 9,308 9,941

Source: CIMB/CIMB-GK Research

[ 5 ]

Figure 7: Calculation of breakeven price for CPO-based biodiesel against crude oil

Breakeven-price of CPO without subsidies Breakeven-price of CPO with subsidies of US$150 per tonne

Crude oil price (US$ barrel) - fob 100.0

Est refining costs 10.0

Diesel price (US$ barrel) 110.0

Conversion to tonne 7.4

Diesel price equivalent (US$/tonne) 814.0

Biodiesel selling price at 5% discount to diesel 773.3

Est production cost for biodiesel 100

CPO price (US$/tonne) - fob 673.3

Ex-rate (MYR/USD) 3.4

Local CPO price (RM/tonne) 2,289

Ex- rate (IDR/USD) 9,000

Indonesia CPO price (Rp/kg) 6,060

Crude oil price (US$ barrel) - fob 100.0

Est refining costs 10

Diesel price (US$ barrel) 110.0

Conversion to tonne 7.4

Diesel price equivalent (US$/tonne) 814.0

Biodiesel selling price at 5% discount to diesel 773.3

Est production cost for biodiesel 100

Est subsidy (assuming 50% share of total US$300/tonne subsidy) 150

CPO price (US$/tonne) - fob 823.3

Ex-rate (MYR/USD) 3.4

Local CPO price (RM/tonne) 2,799

Ex-rate (IDR/USD) 9000.0

Indonesia CPO price (Rp/kg) 7,410


Other notable development

EU biofuel targets to be modified? Last Thursday, the European Parliament’s influential industry committee endorsed the general 10% target for biofuels in transport but added a number of modifications aimed at moving away from traditional biofuels made from grains and other crops toward other, renewable energy sources.

It called for 5% of transport fuels to come from renewable sources by 2015, with at least a fifth of the amount coming from “new alternatives” that do not compete with food production. The “new alternatives” could include sources like hydrogen or electricity from renewable sources, or biofuels made from water, algae or non-food vegetation.

Although it stuck to the 10% biofuel target for 2020, it said that at least 40% should be made from “second-generation” renewable sources and the target will be reviewed in 2014. This is not final and the Parliament and EU governments must still reach agreement on any targets before they become law. Implementation of the above would lead to slower demand growth for biodiesel made from first-generation food crops. This is because it is a lower target than the EU’s earlier voluntary biodiesel target of 5.75% for 2010. Based on the new plan, it would appear that biofuel from first-generation crops will form only 4% of transport fuel in 2015 as opposed to the earlier plan of 5.75% for 2010. As the EU has already achieved around 3%, future expansion in demand for biofuel is likely to be on a voluntary basis and less dependent on governments’ push/incentives.

CPO price forecast downgrades

Cutting CPO price forecasts. In view of our lower crude oil price assumptions and rising supply prospects for CPO, we are pruning our CPO (fob) price forecasts by 12% to US$920 per tonne (fob) for 2008, 34% to US$680 for 2009 and 30% to US$660 for 2010. We now expect international CPO price to rise by 25%, instead of 42% in 2008 before declining by 26% in 2009 and 3% in 2010. In tandem with our international CPO price downgrade, we have cut our Malaysian CPO price assumptions by RM320 per tonne to RM3,030 (fob) for 2008, RM700 per tonne to RM2,300 per tonne for 2009 and RM550 per tonne to RM2,200 for 2010. Our 2008 price forecast also takes into consideration the RM3,344 CPO price achieved in the first eight months of the year and recent developments.

Basis of our new CPO price forecast. In view of the unwinding of speculative funds out of the commodity market, we have removed the premium that we earlier attached to CPO price for this factor. Secondly, we have taken into consideration the improving supply prospects reported so far and relatively fair weather at key planting areas for the remainder of the year. Thirdly, we have factored in our new crude oil price forecasts. Lastly, we have also accounted for the recent changes in our forex assumptions which call for a weaker ringgit and rupiah. We recently adjusted our RM/US$1 year-end forecasts to RM3.50 for end-2008 (RM2.95 previously), RM3.40 for end-2009 (RM2.80 previously) and RM3.35 (RM2.85) for end-2010. For the rupiah, we are tweaking our year-end forecasts to Rp9,000/US$1 by end-2008 till end-2010

[ 6 ]

(from Rp8,500 previously for end-08 and 09 and Rp8,800 for end-2010). Our new CPO price forecast for 2009 is close to the average breakeven CPO price for biodiesel conversion, with and without subsidies based on our new crude oil price projections.

Figure 8: Changes to our CPO price forecasts

Old New Old New Old New

As at 12 Sept 2008 2008 % chge 2009 2009 % chge 2010 2010 % chge

CPO - cif (US$ tonne) 760 1,105 1,000 -10% 1,090 750 -31% 1,000 720 -28%

CPO - fob (US$ tonne) 674 1,045 920 -12% 1,030 680 -34% 940 660 -30%

Ex-rate (RM/US$) 3.5 3.2 3.3 0.0 2.9 3.4 17% 2.9 3.4 16%

CPO - fob (RM/tonne) 2,326 3,350 3,030 -10% 3,000 2,300 -23% 2,750 2,200 -20%

Transport cost 86 60 80 60 70 60 60

Export tax 10% 5.0% 5.0%

CPO - fob Indon 828 646 627

IDR rate 9,277 9,000 9,000

CPO - fob (IDR) 7,681 5,814 5,643

CPO-fob (RM) for Indon 2,732 2,196 2,100


Valuation and recommendation

Slashing earnings by up to 55% for FY08-10. We have chopped our FY08-10 earnings forecasts for all the plantation companies under our coverage by up to 55% after incorporating our new CPO price forecasts. Our new earnings numbers also factor in a lower increase in fertiliser cost. We now expect fertiliser prices to be flattish next year in view of the weaker mineral oil prices. In the case of companies with estates in Indonesia, we also take into consideration the lower CPO export tax and the recent cut in corporate tax rate from 30% to 28% for 2009 and 25% for 2010. All in, the earnings adjustment was most significant for purer palm oil plays, in particular pure planters listed in Indonesia and Singapore. In our universe, the stock that is least affected is Wilmar, thanks to its large oilseed crushing and downstream palm processing businesses.

Chopping target prices by 19-60%. Our target prices for all the planters in our universe have been scaled back by 19-60% for our new earnings forecasts as well as cuts in our target P/E ratings. For almost all the planters, we have clipped 1-2 multiple points off their target P/Es following recent downgrades in the target P/E for both the Malaysian and Indonesian markets.

Sime Darby downgraded to UNDERPERFORM. Following our earnings forecasts and target price revisions, we relegate Sime Darby from Neutral to UNDERPERFORM in view of its less exciting earnings prospects. However, we do see some share price support from its dividend yields. There is no change to our ratings for all the other plantation stocks in the region.

Market has not priced in all the bad news. The share prices of all the listed planters have corrected significantly since we downgraded the sector to Underweight on 18 July 2008 (see Figure 11). We believe the steep price decline is justified as the plantation stocks have to adjust not only for the CPO price downswing and rising costs but also the deteriorating equity market conditions. We feel that the market has not priced in all the bad news, specifically the cost increases that planters are likely to report in the upcoming results as rising fertiliser and fuel prices start to kick in. The time is not ripe for investors to venture back into the sector as pessimism on CPO price is not at its height yet and bears continue to prevail in the stock market. This may limit the upside to plantation share prices even if CPO prices start to recover.

Switching preference to Indonesian and Singapore-listed planters. Regionally, we are switching our preference to planters listed in Singapore and Indonesia as their share prices have fallen more steeply than their Malaysian peers. Also, political risk is now lower in Indonesia than in Malaysia. In Malaysia, aside from political risks and CPO price outlook, foreigners own substantial slices of the listed planters’ shares Between Singapore and Indonesia-listed planters, we prefer the former as they offer better share liquidity and bigger market caps.

Maintain UNDERWEIGHT on the sector. The downgrade in our price forecasts reinforces our UNDERWEIGHT stance on the sector. Increasing operating costs and the deteriorating outlook for CPO price due to a combination of rising supply prospects and slowing demand growth will crimp earnings in the coming quarters. There may be downside risk to our CPO price estimates if crude oil price extends its downtrend,

[ 7 ]

palm oil stocks continue to rise and governments make a U-turn in their biofuel policies. The key risks to our forecasts and sector call are a sharp recovery in crude oil price, weaker US$ and lower-than-expected edible oil supplies due to weather disasters.

Figure 9: Earnings revisions for all plantation companies under coverage

FY08F FY08F FY09F FY09F FY10F FY10F

Bef Aft Bef Aft Bef Aft

EPS (reporting curr) FY End Curr FY08F FY08F Chge FY09F FY09F Chge FY10F Chge

Asiatic Dev Dec sen 70.3 62.2 -12% 58.1 41.1 -29% 50.8 37.8 -26%

HS Plant* Jan sen 22.0 19.6 -11% 27.6 19.8 -28% 24.0 17.4 -28%

IOI Corp Jun sen 35.3 35.3 0% 37.1 29.2 -21% 35.7 28.0 -22%

KL Kepong Sep sen 100.3 97 -3% 100.7 75.0 -26% 89.2 58.0 -35%

Sime Darby Dec sen 58.4 58.4 0% 66.2 53.0 -20% 58.3 47.0 -19%

Average Curr -6% -25% -26%

Golden Agri Dec US$cts 5.14 4.83 -6% 4.89 3.24 -34% 3.86 2.77 -28%

Indofood Agri Dec S$cts 16.6 14.0 -16% 17.1 10.0 -42% 17.4 10 -43%

W ilmar Int Dec US$cts 16.5 16.1 -2% 17.6 15.2 -14% 18.0 16.1 -11%

Average -11% -38% -35%

Astra Agro Dec Rp 1,882 1,619 -14% 1,857 1,019 -45% 1,561 1,095 -30%

London Sumatra Dec Rp 737 624 -15% 663 352 -47% 554 353 -36%

Bakrie Sumatra Dec Rp 132 113 -14% 135 65 -52% 133 60 -55%

Sampoerna Plantations Dec Rp 320 288 -10% 301 225 -25% 285 229 -20%

Source: Company, CIMB/CIMB-GK Research, Bloomberg

Figure 10: Changes to our target prices estimates and basis

Currency Current Previous New Upside/ Basis of TP

Companies price TP TP (Downside)

Asiatic Dev RM/share 4.50 5.80 3.70 -18% Based on CY09 P/E of 9x (was 10x)

IOI Corp RM/share 3.96 4.60 3.50 -12% Based on CY09 P/E of 12x (was 13x)

KL Kepong RM/share 9.30 11.50 8.50 -9% Based on 10% dis to SOP, plant 09 P/E of 11x (was 12x)

Hap Seng Plant RM/share 1.72 2.36 1.60 -7% Based on CY09 P/E of 8x (was 8x)

S ime Darby RM/share 5.95 7.50 6.05 2% Based on 10% dis to SOP, plant 09 P/E of 11x (was 12x)

Golden Agri SGD/share 0.35 0.65 0.42 22% Based on CY09 P/E - 9x (was 9.5x)

Indofood Agri SGD/share 0.63 1.53 0.90 44% Based on CY09 P/E - 9x (was 10x)

W ilmar Int SGD/share 2.61 4.60 3.60 38% Based on CY09 P/E - 16x (was 19x)

Astra Agro Rp/share 12,000 19,000 9,000 -25% Based on CY09 P/E - 8x (was 10x)

London Sumatra Rp/share 3,125 6,700 2,800 -10% Based on CY09 P/E - 8x (was 10x)

Bakrie Sumatra Rp/share 1,720 1,100 440 -74% Based on CY09 P/E - 6x (was 8x)

Sampoerna Agro Rp/share 1,600 3,000 1,750 9% Based on CY09 P/E - 8x (was 10x)


Figure 9: Share price performance of plantation stocks under coverage

Currency 2 Jan 2008 12 Sept 2008 YTD abs perf YTD rel to index 12M high 12M low Decline from 12M's high

Sime Darby RM 11.60 6.10 -47% -20% 13.40 5.95 -54%

IOI Corp RM 7.45 4.38 -41% -14% 8.60 4.26 -49%

KL Kepong RM 17.50 10.40 -41% -13% 19.20 9.95 -46%

Asiatic RM 8.60 4.90 -43% -16% 9.40 4.80 -48%

Hap Seng Plant RM 3.16 1.80 -43% -16% 3.78 1.75 -52%

Wilmar S$ 5.36 3.18 -41% -15% 5.72 3.13 -44%

Golden Agri S$ 1.03 0.39 -63% -37% 1.23 0.39 -69%

Indofood Agri S$ 2.35 0.80 -66% -41% 3.17 0.745 -75%

Astra Agro Rp 28,350 12,750 -55% -21% 35,300 12,100 -64%

London Sumatra Rp 10,650 3,775 -65% -31% 14,250 3,575 -74%

Bakrie Sumatra Rp 2,275 770 -66% -32% 2,950 760 -74%

Sampoerna Agro Rp 3,425 1,830 -47% -13% 5,050 1,725 -64%

FSSTI 3,444 2,571 -25% 3,831 2,541 -33%

KLCI 1,436 1,044 -27% 1,525 1,040 -32%

JCI 2,732 1,804 -34% 2,838 1,792 -36%

CPO price RM/tonne 3,110 2,333 -25% 4,203 2,384 -45%

CPO price USD/tonne 1,000 755 -25% 1,395 750 -46%


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QUICK TAKES

18 September 2008

CIMB Research Report

UNDERPERFORM Downgraded Sime Darby Bhd

RM5.95 Target: RM6.05

Crude awakening for CPO price Mkt.Cap: RM35,756m/US$10,315m

Conglomerate

MALAYSIA

SIME MK / SIME.KL Ivy Ng Lee Fang CFA +60(3) 2084 9697 – [email protected]


Downgrade of in-house crude oil price assumptions. Our regional oil analyst is scaling back his crude oil price forecasts today. Instead of a strengthening of oil price in 2009, we now expect it to decline by US$10 to US$90/barrel, a US$30 downgrade from our previous forecast. Effectively, we have cut our forecasts by US$10 for 2008, US$30 for 2009 and US$20 for 2010 (see today’s regional oil report). This has implications for our CPO price forecasts as a lower crude oil price reduces the economic viability of biodiesel. Essentially, it provides a lower floor price for CPO. Cutting CPO price forecasts. In view of our lower crude oil price assumptions and rising supply prospects for CPO, we are pruning our CPO (fob) price forecasts by 12% to US$920 per tonne (fob) for 2008, 34% to US$680 for 2009 and 30% to US$660 for 2010. We now expect international CPO price to rise by 25%, instead of 42% in 2008 before declining by 26% in 2009 and 3% in 2010. In tandem with our international CPO price downgrade, we have cut our Malaysian CPO price assumptions by RM320 per tonne to RM3,030 (fob) for 2008, RM700 per tonne to RM2,300 per tonne for 2009 and RM550 per tonne to RM2,200 for 2010. Our 2008 price forecast also takes into consideration the RM3,344 CPO price achieved in the first eight months of the year and recent developments.

Basis of our new CPO price forecast. In view of the unwinding of speculative funds out of the commodity market, we have removed the premium that we earlier attached to CPO price for this factor. Secondly, we have taken into consideration the improving supply prospects reported so far and relatively fair weather at key planting areas for the remainder of the year. Thirdly, we have factored in our new crude oil price forecasts. Lastly, we have also accounted for the recent changes in our forex assumptions which call for a weaker ringgit and rupiah. Our new CPO price forecast for 2009 is close to the average breakeven CPO price for biodiesel conversion, with and without subsidies based on our new crude oil price projections.


Lowering earnings forecasts and target price. We are cutting our earnings forecasts by 19-24% to account for our new CPO price forecasts. This, coupled with our downgrade of our target P/E for the group’s plantation unit from 12x to 11x in tandem with the recent reduction in our target market P/E, has the effect of lowering our SOP-based target price from RM7.50 to RM6.05. Our new price objective implies a CY09 P/E of 11.3x, which represents a discount to our target market P/E of 12x given its less exciting earnings prospects compared to the market.

Downgrade to UNDERPERFORM due to lower upside. In line with our target price downgrade, we have cut our rating for Sime Darby from Neutral to UNDERPERFORM. The stock now offers a lower return than the KLCI and may experience a series of earnings downgrades by the market over the next few months given the deteriorating outlook for the global economy and CPO price. However, the share price may see some support from its strong dividend yield, costdown initiatives and possible M&A moves.

[ 9 ]

Financial summary

Price chart

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6.6

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Volume 100m (R.H.Scale) Sime Darby Bhd

FYE Jun 2008 2009F 2010F 2011F

Revenue (RM m) 34,044.7 34,408.7 34,133.6 34,388.9

EBITDA (RM m) 5,935.5 5,383.5 5,001.5 4,750.7

EBITDA margins (%) 17.4% 15.6% 14.7% 13.8%

Pretax profit (RM m) 5,206.4 4,644.0 4,069.8 3,719.1

Net profit (RM m) 3,512.1 3,196.0 2,838.7 2,594.1

EPS (sen) 58.4 53.2 47.2 43.2

EPS growth (%) 33.3% (9.0%) (11.2%) (8.6%)

P/E (x) 10.2 11.2 12.6 13.8

Core EPS (sen) 58.2 53.2 47.2 43.2

Core EPS growth (%) 34.3% (8.6%) (11.2%) (8.6%)

Core P/E (x) 10.2 11.2 12.6 13.8

Gross DPS (sen) 50.9 55.0 50.0 51.0

Dividend yield (%) 8.6% 9.2% 8.4% 8.6%

P/BV (x) 1.7 1.6 1.6 1.5

ROE (%) 17.1% 14.5% 12.5% 11.2%

Net gearing (%) N/A N/A N/A N/A

Net cash per share (RM) 0.27 0.42 0.32 0.12

P/FCFE (x) 13.4 21.7 43.5 54.6

EV/EBITDA (x) 5.7 6.1 6.7 7.3

% change in EPS estimates -19.6% -19% -24%

CIMB/Consensus (x) 0.84 0.71 0.70

Source: Bloomberg Source: Company, CIMB Research, Bloomberg

Figure 1: SOP valuation

Source: Company, CIMB Research,

Fair value Sime Darby's

Assets Valuation method (RM m) stake (RM m)

Plantation Forward P/E of 11x 22,390.8 22,390.8

Property 0.5x P/RNAV 12,066.3 6,033

Heavy Equipment Forward P/E of 14x 7,621.9 7,622

Motor Vehicles Forward P/E of 12x 2,114.6 2,114.6

Energy business 1x P/NBV 684.9 684.9

Others 1X P/BV 409.3 409.3

Cash As at 31 June 2008 5,994.2

Debts As at 31 June 2008 (4,829.0)

Total RNAV 40,419.8

No. of shares (m) 6,009.4

SOP per share (RM) 6.73

Discount (RM) (0.67)

Target price (RM) 6.05

[ 10 ]

QUICK TAKES

18 September 2008


UNDERPERFORM Maintained IOI Corporation Bhd


Crude awakening for CPO price forecasts Mkt.Cap: RM24,325m/US$7,017m

Palm Oil & Rubber

MALAYSIA

IOI MK / IOIB.KL Ivy Ng Lee Fang CFA +60(3) 2084 9697 – [email protected]





Chopping target price and earnings estimates. In line with our CPO price downgrade, we have lowered our earnings forecast for IOI Corp by 21-22% for FY09-10. In line with the downgrade in our earnings forecasts and target P/E, our target price is scaled back from RM4.60 to RM3.50. We adopt a lower forward PE of 12x instead of 13x to account for the recent downgrade in our target market P/E by one multiple point.

Maintain UNDERPERFORM call. We maintain our UNDERPERFORM call due to the potential downside to target price and its unexciting earnings prospects. We are also concerned about its exposure to the property sector in Singapore and Malaysia as well as potential earnings downgrades by the market. Potential de-rating catalysts include the softer CPO price, lower crude oil price, weaker property earnings and higher-than-expected operating costs.

[ 11 ]

Financial summary

Price chart

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Volume 100m (R.H.Scale) IOI Corporation Bhd

FYE Jun 2007 2008 2009F 2010F 2011F

Revenue (RM m) 8,952.7 14,655.1 15,194.4 15,681.6 17,079.3

EBITDA (RM m) 2,258.1 3,394.7 2,856.1 2,782.4 2,899.7

EBITDA margins (%) 25.2% 23.2% 18.8% 17.7% 17.0%

Pretax profit (RM m) 1,991.1 3,095.2 2,527.1 2,440.9 2,556.5

Net profit (RM m) 1,482.1 2,162.3 1,825.8 1,752.4 1,823.5

EPS (sen) 23.5 35.3 29.8 28.6 29.7

EPS growth (%) 72.9% 50.0% (15.6%) (4.0%) 4.1%

P/E (x) 16.8 11.2 13.3 13.9 13.3

Core EPS (sen) 19.9 32.1 29.8 28.6 29.7

Core EPS growth (%) 64.9% 60.9% (7.2%) (4.0%) 4.1%

Core P/E (x) 19.9 12.3 13.3 13.9 13.3

FD core EPS (sen) 19.9 32.0 29.2 28.0 29.1

FD core P/E (x) 19.9 12.4 13.6 14.1 13.6

Gross DPS (sen) 6.8 16.7 16.7 16.7 16.7

Dividend yield (%) 1.7% 4.2% 4.2% 4.2% 4.2%

P/BV (x) 3.2 2.9 2.6 2.3 2.1

ROE (%) 21.5% 27.0% 20.7% 17.8% 16.7%

Net gearing (%) 10.3% 18.8% 11.3% 6.2% N/A

P/FCFE (x) 11.3 12.4 12.8 13.2 13.1

EV/EBITDA (x) 11.6 7.6 8.9 9.0 8.3

% change in EPS estimates -19.8% -19.8% -15.8%



[ 12 ]

QUICK TAKES

18 September 2008


UNDERPERFORM Maintained Kuala Lumpur Kepong Bhd


Crude awakening for CPO price forecasts Mkt.Cap: RM10,141m/US$2,926m

Palm Oil & Rubber

MALAYSIA

KLK MK / KLKK.KL Ivy Ng Lee Fang CFA +60(3) 2084 9697 – [email protected]





Cutting our earnings estimates and target price. We are reducing our earnings forecasts for KL Kepong by 5-33% and have also chopped our target price by 28% from RM11.50 to RM8.30 after applying a lower target P/E of 11x (12x previously) to its plantation unit as well as a 10% discount to KLK’s SOP value. The reduction in the P/E multiple accorded to its plantation unit basically reflects the recent downgrade in our KLCI target market P/E by one multiple point.

Maintain UNDERPERFORM call. There is no change to our UNDERPERFORM call on the stock. We continue to expect KL Kepong to de-rate against the market as the softening CPO price will dampen its earnings prospects. The principal de-rating catalysts are the softening CPO price, declining crude oil price, potential U-turn in biodiesel policy and rising operating costs.

[ 13 ]

Financial summary

Price chart

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Volume 10m (R.H.Scale) Kuala Lumpur Kepong Bhd

FYE Sep 2006 2007 2008F 2009F 2010F

Revenue (RM m) 3,916.6 5,067.6 6,636.1 6,891.8 7,106.3

EBITDA (RM m) 650.9 1,043.0 1,582.2 1,174.7 982.8

EBITDA margins (%) 16.6% 20.6% 23.8% 17.0% 13.8%

Pretax profit (RM m) 588.6 886.5 1,366.2 962.8 756.2

Net profit (RM m) 436.2 694.2 1,008.8 720.3 565.7

EPS (sen) 40.8 65.0 94.5 67.5 53.0

EPS growth (%) 3.5% 59.3% 45.3% (28.6%) (21.5%)

P/E (x) 23.3 14.6 10.1 14.1 17.9

Core EPS (sen) 32.5 65.0 98.3 67.5 53.0

Core EPS growth (%) (17.4%) 99.8% 51.2% (31.4%) (21.5%)

Core P/E (x) 29.2 14.6 9.7 14.1 17.9

Gross DPS (sen) 33.1 49.9 65.1 60.0 54.9

Dividend yield (%) 3.5% 5.3% 6.9% 6.3% 5.8%

P/BV (x) 2.3 2.1 1.8 1.8 1.7

ROE (%) 10.0% 14.7% 19.4% 12.8% 9.8%

Net gearing (%) N/A 11.1% 5.5% 4.4% 7.5%

Net cash per share (RM) 0.08 N/A N/A N/A N/A

P/FCFE (x) 154.7 32.6 22.3 20.6 46.3

EV/EBITDA (x) 15.5 10.3 6.6 8.8 10.8

% change in EPS estimates -5% -30% -33%



Figure 1: SOP valuation for KL Kepong

Source: Company, CIMB Research,

Segments Stake Method Mkt value (RM'm) KLK's share (RMm)

Plantations 100.0% 2009 P/E of 11x 5,804.0 5,804.0

Manufacturing 100.0% NBV 1,657.4 1,657.4

Crabtree & Evelyn 100.0% Based on P/S of 1.2x 934.9 934.9

Yule Catto 18.9% Market value 2,368.1 447.6

Property 100.0% 1x NBV 351.3 351.3

Associates 100.0% 1x NBV 172.5 172.5

Investment & Cash 100.0% As at 30 Sept 2007 495.6

SOP value for KL Kepong 9,863.3

No of shares (m) 1,068.8

SOP per KLK share (RM) 9.23

10% discount to SOP (RM) (0.92)

Target price (RM) 8.31

[ 14 ]

QUICK TAKES

18 September 2008


UNDERPERFORM Maintained Asiatic Development Bhd


Crude awakening for CPO price forecasts Mkt.Cap: RM3,404m/US$982m

Palm Oil & Rubber

MALAYSIA

ASP MK / ASIA.KL Ivy Ng Lee Fang CFA +60(3) 2084 9697 – [email protected]





Cutting earnings forecasts and target price. We are chopping our earnings forecasts for Asiatic by 11-30% for FY08-10 to reflect our CPO price downgrade. In line with the recent downgrade in our target market P/E from 13.1x to 12.1x, we have also lowered our target forward P/E from 10x (based on the stock’s historical 3-year average 12-month forward P/E) to 9x. These two changes combined lead to a downgrade of our target price by 36% from RM5.80 to RM3.70.

Maintain UNDERPERFORM rating. We are keeping our UNDERPERFORM rating due to the unexciting CPO price and earnings prospects. The group’s earnings are sensitive to changes in CPO price as it is a pure planter and sell all its crop on spot basis. Key de-rating catalysts are the softening CPO price, lower crude oil price, higher operating costs and earnings downgrades by the market.

[ 15 ]

Financial summary

Price chart

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Volume 10m (R.H.Scale) Asiatic Development Bhd

FYE Dec 2006 2007 2008F 2009F 2010F

Revenue (RM m) 576.5 906.4 1,142.7 924.1 943.8

EBITDA (RM m) 229.7 455.9 629.0 408.0 373.9

EBITDA margins (%) 39.8% 50.3% 55.0% 44.2% 39.6%

Pretax profit (RM m) 220.4 445.6 623.0 405.7 378.5

Net profit (RM m) 171.1 338.5 469.5 309.4 285.7

EPS (sen) 22.8 44.8 62.2 41.0 37.8

EPS growth (%) (1.2%) 96.6% 38.7% (34.1%) (7.7%)

P/E (x) 19.7 10.0 7.2 11.0 11.9

Gross DPS (sen) 7.5 14.5 20.0 18.0 16.0

Dividend yield (%) 1.7% 3.2% 4.4% 4.0% 3.6%

P/BV (x) 1.9 1.6 1.4 1.3 1.2

ROE (%) 10.1% 17.7% 20.9% 12.2% 10.5%

Net cash per share (RM) 0.36 0.62 0.91 1.12 1.26

P/FCFE (x) 26.4 14.4 10.1 11.2 14.3

EV/EBITDA (x) 13.5 6.4 4.3 6.3 6.6




[ 16 ]

QUICK TAKES

18 September 2008


UNDERPERFORM Maintained Hap Seng Plantations Holdings


Crude awakening for CPO price Mkt.Cap: RM1,440m/US$419m

Palm Oil & Rubber

MALAYSIA

HAPL MK / HAPP.KL Ivy Ng Lee Fang CFA +60(3) 2084 9697 – [email protected]





Cutting EPS forecasts by 11-28%. We are lowering our net profit forecasts for FY1/09-11 by 11-28% to account for the downgrade in our CPO price assumption, lower OER rate and higher operating costs. In line with the earnings downgrade, we are cutting our dividend forecast by 4 sen to 18 sen for FY09 and 2 sen to 22 sen for FY10 and 19 sen for FY11. There is no change to our net dividend payout assumption of 60% for the group.

Maintain UNDERPERFORM with a lower TP of RM1.60. We are lowering our target price from RM2.36 to RM1.60 solely for our earnings downgrade. There is no change to our target P/E rating of 8x, which we recently cut by one multiple after its poor 2Q results. Maintain UNDERPERFORM call, with the key de-rating catalysts being weaker CPO price, rising operating costs and earnings downgrades by the market.

[ 17 ]

Financial summary

Price chart

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Volume 10m (R.H.Scale) Hap Seng Plantations Holdings

FYE Jan 2008 2009F 2010F 2011F

Revenue (RM m) 273.6 444.6 493.6 463.2

EBITDA (RM m) 183.9 231.1 254.7 219.3

EBITDA margins (%) 67.2% 52.0% 51.6% 47.3%

Pretax profit (RM m) 249.2 210.8 231.3 196.3

Net profit (RM m) 209.1 158.1 173.5 147.2

EPS (sen) 26.1 19.8 21.7 18.4

EPS growth (%) N/A (24.4%) 9.8% (15.1%)

P/E (x) 6.9 9.1 8.3 9.8

Core EPS (sen) 16.5 19.8 21.7 18.4

Core EPS growth (%) N/A 19.9% 9.8% (15.1%)

Core P/E (x) 10.9 9.1 8.3 9.8

FD core EPS (sen) 16.5 19.8 21.7 18.4

FD core P/E (x) 10.9 9.1 8.3 9.8

Gross DPS (sen) 4.3 15.8 17.3 14.7

Dividend yield (%) 2.4% 8.8% 9.6% 8.2%

P/BV (x) 0.9 0.9 0.8 0.8

ROE (%) 26.1% 9.7% 10.2% 8.3%

Net cash per share (RM) N/A N/A 0.01 0.06

P/FCFE (x) (105.0) 8.0 11.0 12.6

EV/EBITDA (x) 7.8 6.3 5.6 6.3




[ 18 ]

QUICK TAKES

18 September 2008

NEUTRAL Maintained Wilmar International Ltd

S$2.61 Target: S$3.60

Crude awakening for CPO price Mkt.Cap: S$16,667m/US$11,661m

Palm Oil

SINGAPORE

WIL SP / WLIL.SI Ivy Ng Lee Fang CFA +60(3) 2084 9697 – [email protected]

Lower CPO price forecasts

Downgrade of house crude oil price assumptions. Our regional oil analyst is scaling back his crude oil price forecasts. Instead of expectations of strengthening oil prices, we now expect prices to decline by US$10 to US$100/barrel in 2008, US$30 to US$90/barrel in 2009 and US$20/barrel to US$90/barrel in 2010 (see today’s regional oil report). This works out to 9-25% cuts in our projections. The downgrade has implications for our CPO price forecasts as lower crude oil prices reduce the economic viability of biodiesel and ethanol and may cut the demand for edible oils and grains for energy purposes.

Cutting CPO price forecasts. In view of our lower crude oil price assumptions and rising supply prospects for CPO, we are pruning our CPO (FOB) price forecasts by 12% to US$920 per tonne for 2008, 34% to US$680 for 2009 and 30% to US$660 for 2010. We now expect international CPO prices to rise by 25%, instead of 42%, in 2008, before declining by 26% in 2009 and 3% in 2010.

Basis of our new forecasts. In view of the unwinding of speculative funds from the commodity market, we have also removed the premium that we earlier attached to CPO prices because of these funds. Secondly, we have taken into consideration improving supply prospects reported so far and rather fair weather at key planting areas for the remainder of the year. Thirdly, we have factored in our new crude oil price forecasts. Lastly, we have accounted for recent changes in our forex assumptions which now call for a weaker rupiah. Our new CPO price forecast for 2009 is close to the average breakeven CPO price for biodiesel conversion, with or without subsidies based on our new crude oil price projections.


Reducing earnings forecasts and target price to S$3.60. We have cut our earnings forecasts for Wilmar to account for lower CPO price assumptions and minor reductions in our refining profit margins. We also lowered our target P/E to 16x forward earnings from 19x, to account for a lower target P/E for the Singapore market. As a result, our target price falls to S$3.60 from S$4.60.

Maintain Neutral. Wilmar remains a Neutral as it continues to offer potential returns that would match the market’s, in our estimation. Its earnings are the least sensitive to declining CPO prices, among the plantation stocks under our coverage, given that the bulk of its earnings comes from the processing of edible oils and oilseeds. We believe that it deserves to trade at higher P/E valuations than its plantation peers due to its dominant position in the global edible oils market, potential merger synergies, and strong management.

[ 19 ]

Financial summary

Price chart

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Volume 10m (R.H.Scale) Wilmar International Ltd

FYE Dec 2006 2007 2008F 2009F 2010F

Revenue (US$ m) 5,301.6 16,466.2 27,420.7 29,888.4 32,308.3

EBITDA (US$ m) 221.5 908.0 1,804.7 1,755.1 1,814.6

EBITDA margins (%) 4.2% 5.5% 6.6% 5.9% 5.6%

Pretax profit (US$ m) 135.4 829.8 1,523.7 1,472.6 1,537.3

Net profit (US$ m) 104.6 580.4 1,045.8 1,010.8 1,055.2

EPS (S cts) 6.4 18.3 23.4 22.6 23.6

EPS growth (%) 69.2% 183.6% 28.0% (3.4%) 4.4%

P/E (x) 40.5 14.3 11.1 11.5 11.1

Core EPS (S cts) 6.1 13.5 23.4 22.6 23.6

Core EPS growth (%) 77.9% 123.1% 72.8% (3.4%) 4.4%

Core P/E (x) 43.0 19.3 11.1 11.5 11.1

FD core EPS (S cts) 6.1 13.5 22.8 22.1 23.0

FD core P/E (x) 43.0 19.3 11.4 11.8 11.3

Gross DPS (S cts) 1.7 4.6 4.6 5.1 5.3

Dividend yield (%) 0.6% 1.8% 1.8% 1.9% 2.0%

P/BV (x) 7.9 1.5 1.3 1.2 1.1

ROE (%) 24.6% 13.8% 12.6% 11.1% 10.6%

Net gearing (%) 118.0% 49.6% 69.0% 68.4% 63.7%

EV/EBITDA (x) 22.4 13.5 10.0 10.7 10.5



Source: Bloomberg Note: Per share data translated into listing currency at current fx spot rates, valuation methodology based on house forex forecasts

Source: Company, CIMB-GK Research, Bloomberg

[ 20 ]

QUICK TAKES

18 September 2008

NEUTRAL Maintained Golden Agri-Resources Ltd

S$0.35 Target: S$0.42

Crude awakening for CPO price Mkt.Cap: S$3,442m/US$2,408m

Palm Oil & Rubber

SINGAPORE

GGR SP / GAGR.SI Ivy Ng Lee Fang CFA +60(3) 2084 9697 – [email protected]






Maintain Neutral but reducing target price to S$0.42 from S$0.65. We are lowering our EPS forecasts by 5-35% for FY08-11 to account for our lower CPO price assumption and lower corporate tax rate. We have also cut our P/E target for Golden Agri to 9x from 9.5x to factor in the recent de-rating in market P/E. Accordingly, our target price drops from S$0.65 to S$0.42. Our Neutral rating has been maintained.

[ 21 ]

Financial summary

Price chart

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Volume 100m (R.H.Scale) Golden Agri-Resources Ltd

FYE Dec 2006 2007 2008F 2009F 2010F

Revenue (US$ m) 1,129.6 1,873.4 2,661.2 2,531.5 2,597.0

EBITDA (US$ m) 826.9 1,811.5 821.8 579.6 512.5

EBITDA margins (%) 73.2% 96.7% 30.9% 22.9% 19.7%

Pretax profit (US$ m) 740.6 1,802.9 729.1 473.5 390.5

Net profit (US$ m) 470.5 1,164.8 482.3 322.3 273.2

EPS (S cts) 7.8 16.7 6.9 4.6 3.9

EPS growth (%) 101.8% 115.3% (58.6%) (33.2%) (15.2%)

P/E (x) 4.5 2.1 5.0 7.5 8.8

Core EPS (S cts) 0.8 4.0 6.9 4.6 3.9

Core EPS growth (%) (22.3%) 387.7% 70.8% (33.2%) (15.2%)

Core P/E (x) 41.6 8.5 5.0 7.5 8.8

FD core EPS (S cts) 0.8 4.0 6.9 4.6 3.9

FD core P/E (x) 41.6 8.5 5.0 7.5 8.8

Gross DPS (S cts) 0.3 1.4 2.9 2.5 2.1

Dividend yield (%) 0.9% 4.0% 8.3% 7.2% 6.2%

P/BV (x) 1.2 0.7 0.7 0.6 0.6

ROE (%) 31.9% 46.5% 13.9% 8.6% 7.0%

Net gearing (%) 17.8% 10.2% 7.6% 7.8% 9.5%

Net cash per share (S$) N/A N/A N/A N/A N/A

EV/EBITDA (x) 3.2 1.6 3.4 4.9 5.7




Source: Company, CIMB Research, Bloomberg

[ 22 ]

QUICK TAKES

18 September 2008

NEUTRAL Maintained Indofood Agri Resources

S$0.63 Target: S$0.90

Crude awakening for CPO price forecasts Mkt.Cap: S$1bn/US$690m

Palm Oil

SINGAPORE

IFAR SP / IFAR.SI Ivy Ng Lee Fang CFA +60(3) 2084 9697 – [email protected]






Lowering earnings estimates and target price. We are slashing our earnings forecasts for Indofood Agri for FY08-10 by 18-42% mainly to account for our CPO price downgrade, lower Indonesian corporate tax rates of 28% for 2009 and 25% for 2010 (from 30% previously) as well as lower cost increases in view of the weaker oil price assumptions.

We have also tagged a lower forward P/E of 9x against 10x previously for Indofood Agri, to account for the recent downgrade in our market P/E target for Indonesia. In total, these have the effect of lowering our target price for Indofood Agri to S$0.90 from S$1.53. The 9x forward P/E is at a 10% discount to the historical 3-year average forward P/E of Indonesian planters due to the increasingly unexciting CPO price prospects.

Maintain Neutral. We are keeping our NEUTRAL rating as the stock is estimated to share similar returns as the market. Indofood Agri’s share price has plummeted the most in the recent sell-down, declining by as much as 76% since the beginning of the year and 71% from the year’s high. As a result, it now trades at a more attractive P/E than its peers. This, however, is partially offset by our concerns about weaker CPO prices and rising operating costs.

[ 23 ]

Financial summary

Price chart

0.5

1.0

1.5

2.0

2.5

3.0


0.00

1.00

2.00

3.00

4.00

5.00

Volume 10m (R.H.Scale) Indofood Agri Resources

FYE Dec 2006 2007 2008F 2009F 2010F

Revenue (Rp bn) 4,088.5 6,505.6 12,418.9 10,926.5 10,742.1

EBITDA (Rp bn) 1,311.3 1,661.8 3,359.4 2,523.1 2,396.0

EBITDA margins (%) 32.1% 25.5% 27.1% 23.1% 22.3%

Pretax profit (Rp bn) 1,091.1 1,489.2 2,744.5 1,953.3 1,860.3

Net profit (Rp bn) 646.5 889.1 1,296.4 986.5 962.8

EPS (S cts) 9.7 9.3 13.6 10.4 10.1

EPS growth (%) 19.1% (3.9%) 45.8% (23.9%) (2.4%)

P/E (x) 7.0 7.3 5.0 6.6 6.8

Core EPS (S cts) 4.7 8.7 13.6 10.0 10.1

Core EPS growth (%) (30.5%) 84.8% 57.3% (26.5%) 1.1%

Core P/E (x) 14.6 7.9 5.0 6.8 6.8

FD core EPS (S cts) 4.7 8.7 13.6 10.0 10.1

FD core P/E (x) 14.6 7.9 5.0 6.8 6.8

Gross DPS (S cts) 0.0 0.0 1.5 1.5 1.5

Dividend yield (%) 0.0% 0.0% 2.2% 2.2% 2.2%

P/BV (x) 1.6 0.9 0.8 0.7 0.7

ROE (%) 26.3% 17.9% 16.8% 11.3% 10.1%

Net gearing (%) 15.2% 37.1% 34.1% 25.5% 20.8%

EV/EBITDA (x) 4.4 7.7 4.0 5.2 5.5




Source: Company, CIMB-GK Research, Bloomberg

[ 24 ]

QUICK TAKES

18 September 2008

UNDERPERFORM Maintained Astra Agro Lestari

RP12,000 Target: Rp9,000

Crude awakening for CPO prices Mkt.Cap: Rp18,897bn/US$2,009m

Palm Oil

INDONESIA

AALI IJ / ALII.JK Liliana S Bambang +62(21) 3006 1726 – [email protected]






Downgraded earnings by 14-40% for FY08-10. On the back of the 12-34% downgrade in our CPO (FOB) price estimates for FY08-10, we have lowered our earnings estimates for Astra Agro by 14% for FY08, 40% for FY09, and 34% for FY10. We have also modelled in lower income tax rates of 28% for FY09 and 25% for FY10 (from 30% previously) as well as lower fertiliser prices and transport costs.

Further de-rating possible; maintain Underperform with lower target price of Rp9,000. We have lowered our target price to Rp9,000, from Rp19,000. Our new target is derived from 8x CY09 P/E (from previously 10x CY09 P/E), a 20% discount to our index target of 10x CY09 P/E. This discount is roughly in line with Astra Agro’s 3-year historical discount to the market, before it started to trade at a premium to the market in Nov 07. Even though the company remains a low-cost producer thanks to its peak-age oil palms, we believe the valuation de-rating could continue amid changes in the CPO price outlook.

[ 25 ]

Financial summary

Price chart

11400.0

16400.0

21400.0

26400.0

31400.0


0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

Volume 10m (R.H.Scale) Astra Agro Lestari

FYE Dec 2006 2007 2008F 2009F 2010F

Revenue (Rp bn) 3,758 5,961 8,247 6,906 7,042

EBITDA (Rp bn) 1,383 3,114 3,942 2,777 2,694

EBITDA margins (%) 36.8% 52.2% 47.8% 40.2% 38.3%

Pretax profit (Rp bn) 1,154 2,914 3,754 2,503 2,375

Net profit (Rp bn) 787 1,973 2,549 1,747 1,725

EPS (Rp) 500 1,253 1,619 1,109 1,095

EPS growth (%) (0.4%) 150.7% 29.2% (31.5%) (1.3%)

P/E (x) 24.0 9.6 7.4 10.8 11.0

Core EPS (Rp) 527 1,268 1,635 1,125 1,101

Core EPS growth (%) (0.2%) 140.3% 28.9% (31.2%) (2.1%)

Core P/E (x) 22.7 9.5 7.3 10.7 10.9

Gross DPS (Rp) 420 324 811 1,048 718

Dividend yield (%) 3.5% 2.7% 6.8% 8.7% 6.0%

P/BV (x) 6.9 4.7 3.5 3.4 3.1

ROE (%) 29.3% 58.0% 53.9% 32.0% 29.8%

Net gearing (%) 2.5% N/A N/A N/A N/A

Net cash per share (Rp) N/A 640 797 611 899

P/FCFE (x) 35.3 18.1 10.4 13.7 11.8

EV/EBITDA (x) 13.8 5.8 4.5 6.6 6.6



Source: Bloomberg Source: Company, CIMB-GK Research, Bloomberg

Figure 1: Changes in our forecasts

Changes in forecast

Old New Change Old New Change Old New Change

FFB production k tonnes 4,118 4,118 0% 4,368 4,368 0% 4,636 4,636 0%

CPO production k tonnes 1,032 1,032 0% 1,094 1,094 0% 1,146 1,146 0%

Rp/US$ 8,500 9,000 6% 8,500 9,000 6% 8,500 9,000 6%

CPO Price, CIF Rotterdam US$/ton 1,105 1,000 -10% 1,090 750 -31% 1,000 720 -28%

Selling price, net of VAT Rp/kg 7,950 7,228 -9% 7,706 5,640 -27% 6,515 5,474 -16%

Revenue Rp bn 9,095 8,247 -9% 9,426 6,906 -27% 9,775 7,042 -28%

EBITDA Rp bn 4,556 3,942 -13% 4,561 2,777 -39% 4,216 2,694 -36%

Net profit Rp bn 2,963 2,549 -14% 2,925 1,747 -40% 2,458 1,725 -30%

2008F 2009F 2010F

Source: CIMB-GK Research

Figure 2: Before trading at a premium, AALI used to trade at a 25% discount to the market

-

5.0

10.0

15.0

20.0

25.0

Nov -04 May -05 Nov -05 May -06 Nov -06 May -07 Nov -07 May -08

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Forward market PER (LHS)

AALI forward PER (LHS)

AALI's premium or discount to market (RHS)

Source: Bloomberg, CIMB-GK Research

[ 26 ]

QUICK TAKES

18 September 2008

UNDERPERFORM Maintained London Sumatra


Crude awakening for CPO prices Mkt.Cap: Rp4,264bn/US$453m

Palm Oil & Rubber

INDONESIA

LSIP IJ / LSIP.JK Liliana S Bambang +62(21) 3006 1726 – [email protected]






Earnings downgraded by 13-47% for FY08-10. We have cut our earnings forecasts for Lonsum by 13-47% for FY08-10, on the back of the 12-34% declines in our CPO price estimates. The company recently hired Goh Cheng Beng, ex-Sampoerna Agro’s CEO who was in charge of Sampoerna Agro’s high-yielding South Sumatra estates. As he brought expertise on plasma plantations, we expect a faster turnaround process in Lonsum’s underperforming South Sumatra estates. Maintain Underperform with lower target price of Rp2,800. On the back of our earnings downgrade and a lower P/E target of 8x (from previously 10x), we have chopped our target price for Lonsum from Rp6,700 to Rp2,800. Our new P/E is in line with the company’s 3-year historical discount to the market, before it started trading at a premium.

Despite the 58% decline in the stock price since Jul 08, downside risk is 10% from our new target price. Hence, maintain Underperform.

[ 27 ]

Financial summary

Price chart

2921.2

4921.2

6921.2

8921.2

10921.2

12921.2


0.00

0.50

1.00

1.50

2.00

2.50

3.00

Volume 10m (R.H.Scale) London Sumatra

FYE Dec 2006 2007 2008F 2009F 2010F

Revenue (Rp bn) 2,148 2,901 3,852 3,318 3,304

EBITDA (Rp bn) 537 1,093 1,378 859 809

EBITDA margins (%) 25.0% 37.7% 35.8% 25.9% 24.5%

Pretax profit (Rp bn) 430 835 1,251 668 643

Net profit (Rp bn) 303 564 876 481 482

EPS (Rp) 277 413 642 352 353

EPS growth (%) (14.8%) 49.4% 55.3% (45.1%) 0.3%

P/E (x) 11.3 7.6 4.9 8.9 8.8

Core EPS (Rp) 245 476 624 352 353

Core EPS growth (%) 2.1% 94.1% 31.1% (43.6%) 0.3%

Core P/E (x) 12.7 6.6 5.0 8.9 8.8

Gross DPS (Rp) 0 60 0 207 321

Dividend yield (%) 0.0% 1.9% 0.0% 6.6% 10.3%

P/BV (x) 2.5 1.8 1.5 1.4 1.3

ROE (%) 24.5% 30.8% 33.5% 16.4% 15.7%

Net gearing (%) 58.6% 10.4% 6.0% 7.4% 2.5%

Net cash per share (Rp) N/A N/A N/A N/A N/A

P/FCFE (x) 16.9 (40.9) 35.8 20.9 22.1

EV/EBITDA (x) 7.8 4.1 3.2 5.2 5.4




Figure 1: Changes in our forecasts


FFB production K tones 1,519 1,519 0.0% 1,640 1,640 0.0% 1,688 1,688 0.0%

CPO production K tones 353 353 0.0% 381 381 0.0% 392 392 0.0%

CPO price forecast (CIF) US$ 1105 1,000 -9.5% 1090 750 -31.2% 1000 720 -28.0%

Selling price, net of VAT Rp/kg 8,004 7,445 -7.0% 8,108 5,588 -31.1% 6,975 5,376 -22.9%

Revenue Rp bn 4,090 3,852 -5.8% 4,442 3,318 -25.3% 3,991 3,304 -17.2%

EBITDA Rp bn 1,563 1,378 -11.8% 1,481 859 -42.0% 1,211 809 -33.2%

Net profit Rp bn 1,005 876 -12.9% 905 481 -46.9% 756 482 -36.2%

2008F 2009F 2010F


Figure 2: Before trading at a premium, LSIP was trading at an 18% discount to the market’s P/E

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

Market forward PER (LHS)

LSIP's forward market PER (LHS)

LSIP's premium or discount to market (RHS)

Source: Bloomberg, CIMB-GK Researchh

[ 28 ]

QUICK TAKES

18 September 2008

UNDERPERFORM Maintained Bakrie Sumatra Plantation

RP700 Target: Rp400

Crude awakening for CPO price forecasts Mkt.Cap: Rp2,652bn/US$282m

Palm Oil & Rubber

INDONESIA

UNSP IJ / UNSP.JK Liliana S Bambang +62(21) 3006 1726 – [email protected]






Earnings downgraded by 14-50% for FY08-10. We have cut our earnings estimates for Bakrie Sumatera by 14-50% for FY08-10, on the back of the cut in our CPO price forecasts. We maintain our rubber price estimates of US$2.60/kg for FY08 and US$2.35/kg for FY09-10.

Maintain Underperform with new TP of Rp400. We have lowered our target price to Rp400 from Rp1,100, after applying a lower 6x CY09 P/E target, from 8x previously. As the company carries balance sheet and operational risk, we assign the company a lower P/E multiple compared to other plantation companies under our coverage.

Bakrie Sumatera, to us, is the riskiest of the plantation stocks in Indonesia when CPO prices weaken, mainly due to the fact that excluding Agri BV, around 54% of its estates contain trees 0-5 years old, which translates into high capex, low FFB yields and high costs. The company also has a net gearing of 30%, which increases to 72% if its 51% ownership of Agri BN (with its US$150m of senior secured notes) is included.

[ 29 ]

Financial summary

Price chart

655.5

1155.5

1655.5

2155.5

2655.5


0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Volume 100m (R.H.Scale) Bakrie Sumatra Plantation

FYE Dec 2006 2007 2008F 2009F 2010F

Revenue (Rp bn) 1,181 1,949 2,813 2,509 2,575

EBITDA (Rp bn) 345 643 832 583 528

EBITDA margins (%) 29.2% 33.0% 29.6% 23.2% 20.5%

Pretax profit (Rp bn) 250 344 609 343 301

Net profit (Rp bn) 173 206 426 247 226

EPS (Rp) 65 54 113 65 60

EPS growth (%) 40.3% (16.2%) 106.6% (42.0%) (8.6%)

P/E (x) 10.8 12.8 6.2 10.7 11.7

Core EPS (Rp) 59 57 117 68 60

Core EPS growth (%) 22.4% (4.1%) 106.1% (41.9%) (11.4%)

Core P/E (x) 11.8 12.3 6.0 10.3 11.6

Gross DPS (Rp) 8 9 11 23 13

Dividend yield (%) 1.1% 1.3% 1.6% 3.3% 1.9%

P/BV (x) 2.9 1.1 1.0 0.9 0.8

ROE (%) 30.5% 13.6% 16.5% 8.6% 7.4%

Net gearing (%) 95.6% 28.2% 28.9% 22.4% 16.4%

Net cash per share (Rp) N/A N/A N/A N/A N/A

P/FCFE (x) 6.3 (2.0) (12.8) 9.8 11.3

EV/EBITDA (x) 7.2 5.2 4.2 5.7 6.0




Figure 1: Forecast changes

Unit Old New Change Old New Change Old New Change

FFB production (nucleus, plasma) K tones 767 767 0.0% 814 814 0.0% 863 863 0.0%

CPO production (nucleus, plasma, 3rd party) K tones 193 193 0.0% 202 202 0.0% 213 213 0.0%

CPO price forecast (CIF) US$ 1,105 1,000 -9.5% 1,090 750 -31.2% 1,000 720 -28.0%


Revenue Rp bn 3,067 2,813 -8.3% 3,342 2,509 -24.9% 3,191 2,575 -19.3%

EBITDA Rp bn 954 832 -12.8% 932 583 -37.5% 788 528 -33.0%

Core Profit Rp bn 517 444 -14.1% 517 258 -50.1% 430 229 -46.8%

2008F 2009F 2010F


Figure 2: Excluding Agri BV, majority of its palm oil age profile stands at 0-5 yrs old, which translate s to high cost, low yield

-

5,000

10,000

15,000

20,000

25,000

30,000

0-5 yrs 6-10 yrs 11-15 yrs 16-20 yrs

Source: Bloomberg

[ 30 ]

QUICK TAKES

18 September 2008

UNDERPERFORM Maintained Sampoerna Agro


Crude awakening for CPO prices Mkt.Cap: Rp3,062bn/US$326m

Palm Oil & Rubber

INDONESIA

SGRO IJ / SGRO.JK Liliana S Bambang +62(21) 3006 1726 – [email protected]






Cutting earnings by 10-25% for FY08-10. We downgrade our earnings estimates for Sampoerna by 10-25% for FY08-10 to adjust for lower CPO price estimates. We have also accounted for higher seed pricing of Rp8,000/seed for FY09 (previously Rp7,300/seed), up from the Rp4,900/seed forecast we have for FY08. Despite weakening CPO prices, we believe seed pricing should remain good as plantation companies continue to expand their plantation areas.

Among Indonesian plantation companies under our coverage, the earnings cut for Sampoerna Agro is the least, as 50% of its plantation areas consist of plasma which effectively buffers the company during the decline in CPO price.

Maintain Underperform with lower target price of Rp1,750. We have slashed our target price for Sampoerna to Rp1,750 from Rp3,000. We have assigned a lower target of 8x CY09 P/E from 10x previously, inline with the 3-yr average discount the plantation sector have towards market before they traded at premium.

[ 31 ]

Financial summary

Price chart

1539.0

2039.0

2539.0

3039.0

3539.0

4039.0

4539.0


0.00

0.20

0.40

0.60

0.80

1.00

1.20

Volume 100m (R.H.Scale) Sampoerna Agro

FYE Dec 2006 2007 2008F 2009F 2010F

Revenue (Rp bn) 977 1,599 2,618 2,212 2,268

EBITDA (Rp bn) 235 483 864 700 691

EBITDA margins (%) 24.1% 30.2% 33.0% 31.6% 30.5%

Pretax profit (Rp bn) 162 312 788 601 586

Net profit (Rp bn) 113 215 544 426 433

EPS (Rp) 218 179 288 225 229

EPS growth (%) 83.8% (17.9%) 61.1% (21.6%) 1.5%

P/E (x) 7.4 9.1 5.6 7.2 7.1

Core EPS (Rp) 221 198 288 219 213

Core EPS growth (%) 99.2% (10.5%) 45.7% (23.9%) (2.6%)

Core P/E (x) 7.3 8.2 5.6 7.4 7.6

Gross DPS (Rp) 0 0 126 58 45

Dividend yield (%) 0.0% 0.0% 7.8% 3.6% 2.8%

P/BV (x) 2.1 2.1 1.7 1.5 1.3

ROE (%) 32.0% 22.9% 33.6% 22.1% 19.2%

Net gearing (%) 12.0% N/A N/A N/A N/A

Net cash per share (Rp) N/A 128 240 141 269

P/FCFE (x) 18.9 4.6 7.4 (26.8) 10.5

EV/EBITDA (x) 3.8 3.6 3.1 4.0 3.8




Figure 1: Forecast changes


FFB production K tones 1,314 1,314 0.0% 1,420 1,420 0.0% 1,510 1,510 0.0%

CPO production K tones 289 289 0.0% 315 315 0.0% 335 335 0.0%

CPO price forecast (CIF) US$ 1,105 1,000 -9.5% 1,090 750 -31.2% 1,000 720 -28.0%


Revenue Rp bn 3,012 2,618 -13.1% 3,183 2,212 -30.5% 3,009 2,268 -24.6%

EBITDA Rp bn 951 864 -9.1% 914 700 -23.4% 866 691 -20.1%

Net Profit Rp bn 605 544 -10.1% 570 426 -25.2% 538 426 -20.8%

2010F2009F2008F


[ 32 ]

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(a) Asiatic, IOI Corp, IOI Corp CW, KL Kepong, KL Kepong CW, Sime Darby, Sime Darby CW, Indofood Agri, Golden Agri, Wilmar.

(ii) As of 18 September 2008, the analyst, Ivy Ng who prepared this report, has / have an interest in the securities in the following company or companies covered or recommended in this report:

(a) -

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Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (“CIMB”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB.

New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978.

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Singapore: This report is issued and distributed by CIMB-GK Research Pte Ltd (“CIMB-GKR”). Recipients of this report are to contact CIMB-GKR in Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB-GKR has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMB-GKR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB-GKR.

As of 18 Sept 2008 CIMB-GK Research Pte Ltd does not have a proprietary position in the recommended securities in this report.

Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden.

Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China.

Thailand: This report is issued and distributed by CIMB-GK Securities (Thailand) Ltd (“CIMB-GKT”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB-GKT has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMB-GKT. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB-GKT.

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other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom: This report is being distributed by CIMB-GK Securities (UK) Limited only to, and is directed at selected persons on the basis that those persons are (a) persons falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (the “Order”) who have professional experience in investments of this type or (b) high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49(1) of the Order, (all such persons together being referred to as “relevant persons”). A high net worth entity includes a body corporate which has (or is a member of a group which has) a called-up share capital or net assets of not less than (a) if it has (or is a subsidiary of an undertaking which has) more than 20 members, £500,000, (b) otherwise, £5 million, the trustee of a high value trust or an unincorporated association or partnership with assets of no less than £5 million. Directors, officers and employees of such entities are also included provided their responsibilities regarding those entities involve engaging in investment activity. Persons who do not have professional experience relating to investments should not rely on this document.

United States: This research report is distributed in the United States of America by CIMB-GK Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB-GK Research Pte Ltd solely to persons who qualify as "Major U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors and investment professionals whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not an Institutional Investor must not rely on this communication. However, the delivery of this research report to any person in the United States of America shall not be deemed a recommendation to effect any transactions in the securities discussed herein or an endorsement of any opinion expressed herein. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB-GK Securities (USA) Inc.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

RECOMMENDATION FRAMEWORK #1*

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS

OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months.

NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total return.

NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.

UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months.

TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months.

TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange.

CIMB-GK Research Pte Ltd (Co. Reg. No. 198701620M)

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RECOMMENDATION FRAMEWORK #2 **

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS

OUTPERFORM: Expected positive total returns of 15% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 12 months.

NEUTRAL: Expected total returns of between -15% and +15% over the next 12 months.

NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +15% (or better) or -15% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +15% to -15%; both over the next 12 months.

UNDERPERFORM: Expected negative total returns of 15% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 12 months.

TRADING BUY: Expected positive total returns of 15% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 3 months.

TRADING SELL: Expected negative total returns of 15% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange.

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