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www.dbsvickers.com ed: JS / TH; sa: TW / YM

Regional equity strategist

Joanne Goh (65) 6878 5233 Regional ASEAN Research Team [email protected]

ASEAN market and sector recommendations

Overweight Thailand

Neutral Singapore Malaysia Indonesia

Underweight Philippines

Key themes BUY Thai Banks and Property Overweight ASEAN construction Rising oil price Low US bond yields

ASEAN stock ideas for the month of July

Spore M's ia Thai Indo Phi l

Banks / Fin'lPublic Bank *

Bangkok Bank

MBT**

Rizal Com Bank **

Property Keppel Land Supalai * BSDE* MEG*

AP Thailand * *

REITS FCT **

CapitaRetail China Trust

Coal / Ut i l i t ies

Tenaga

Consumer Upstream

TSH Resources

Khon Khaen Sugar *

Genting Plantations

Consumer Downstream

Sheng Shiong Padini EMP *

Construct ion IJM *Wijaya Karya

GamudaTravel / Leisure

AoT

Industrials CMH

Nam Cheong*

Telcoms M1 XL (sell)

OthersKalbe Farma*

PCOR *

Source: DBS Bank, DBS Vickers. AllianceDBS, First Metro Securities * Picks by country strategist; ** Picks by both country and sector analyst; picks by sector analysts otherwise.

Additions: — Singapore: FCT, Nam Cheong, Keppel Land; Malaysia: Public Bank, Gamuda; Thailand: AP Thailand, Supalai, Khon Kaen Sugar, Bangkok Bank; Indonesia: Kalbe Farma; Philippines: Rizal Commercial Bank

Deletions: — Singapore: FCOT; Malaysia: None; Thailand: Quality Houses, CP Foods, CH Karnchang; Indonesia: Unilever; Philippines: None

Regional Market Focus

ASEAN Strategy Refer to important disclosures at the end of this report

DBS Group Research. Equity 2 July 2014

Consolidate & rejuvenate Inflows moderated; upbeat investment

environment to sustain positive flows

4200-5200 range for JCI; only sentiments will change but not fundamentals

Thailand’s economy has already shown signs of improvement

Iraqi uncertainties bode well for oil and yield plays

The investment environment should still be

positive in the coming month and we do not

expect major fund outflows. China’s improving

PMI, a pragmatic QE tapering schedule in the US

and a recovery in 2H are reasons to stay positive.

While the situation in Iraq could reduce risk

appetite, investment opportunities surrounding

this uncertainty are in O&G plays, plantation

stocks, and yield plays.

Thailand’s economy is expected to improve, as

both confidence index and capacity utilisation

have risen after the NCPO took over as the

interim government. We reiterate our Thailand

Overweight with focus on Banks and Property

sector.

Construction sector in ASEAN is likely to extend

its multi-year PE expansion, especially in Thailand

and Indonesia, when the new governments are

formed post-elections.

We maintain our opportunistic stance on

Indonesia. Currently, JCI should be supported in a

six-month timeframe, as the new leader, whoever

he may be, is expected to spend more on

infrastructure, education, social safety and

healthcare. Sentiments could however be

affected either way, thus confining the JCI

between the 4200 – 5200 range, in our view.

Market Focus

ASEAN Strategy

Analysts Fig. 1: ASEAN stock ideas for the month of July by country strategist and sector analysts

Joanne Goh +65 6878 5233 [email protected]

Janice Chua +65 6682 3692 [email protected] Tan Ai Teng +65 6682 3719 [email protected] Bernard CHING +603 2604 3918 [email protected]

Chanpen Sirithanarattanakul +662 657 7824 [email protected]

Maynard Arif +6221 3003 4930 [email protected]

Reuben Mark ANGELES

Lim Sue Lin +603 2604 3969 [email protected]

Derek Tan CA +65 6682 3716 [email protected]

June Ng +603 2604 3968 [email protected]

Ben Santoso +65 6682 3707 [email protected]

Andy Sim, CFA +65 6682 3718 [email protected]

Alfie Yeo, +65 6682 3717

[email protected]

Chong Tjen-San, CFA +603 2604 3972 [email protected]

Sachin Mittal, + 65 6682 3699 [email protected]

Paul Yong, CFA + 65 6682 3712 [email protected] Lee Eun Young +65 6682 3708 [email protected]

Source: DBS Bank, DBS Vickers, AllianceDBS, Bloomberg Finance L.P, First Metro Securities

30-Jun Ta rge t %BBG code Re c Crncy Pric e pric e ups ide

Singa poreFrasers Centrepoint Trust FCT SP Buy S$ 1.895 2.13 12.4Nam Cheong NCL SP Buy S$ 0.395 0.47 18.3Ma la ys iaPublic Bank PBK MK Buy RM 19.58 23.00 17.5IJM Corp IJM MK Buy RM 6.70 7.85 17.2Padini Holdings PAD MK Buy RM 1.97 2.55 29.3Tha i la ndAP Thailand PCL AP TB Buy Bt 6.25 7.70 23.2Supalai SPALI TB Buy Bt 21.90 28.10 28.3Khon Kaen Sugar Industry KSL TB Buy Bt 14.40 16.80 16.7Indone s iaKalbe Farma KLBF IJ Buy Rp 1,660 1,900 14.5Bumi Serpong Damai BSDE IJ Buy Rp 1,485 1,860 25.3Phi l ipp ine sPetron Corp PCOR PM Buy P 12.74 17.00 33.4Metropolitan Bank & Trust MBT PM Buy P 87.40 95.00 8.7Rizal Commercial Bank RCB PM Buy P 53.00 68.00 28.3Emperador Inc EMP PM Buy P 11.82 15.60 32.0Megaworld Corporation MEG PM Buy P 4.50 5.50 22.2Ba nksBangkok Bank BBL TB Buy Bt 193.00 255.00 32.1Metropolitan Bank & Trust MBT PM Buy P 87.40 95.00 8.7Rizal Commercial Bank RCB PM Buy P 53.00 68.00 28.3Re a l Es ta teAP Thailand PCL AP TB Buy Bt 6.25 7.70 23.2Keppel Land KPLD SP Buy S$ 3.38 4.65 37.4REITsFrasers Centrepoint Trust FCT SP Buy S$ 1.895 2.13 12.4CapitaRetail China Trust CRCT SP Buy S$ 1.480 1.62 9.2CPN Retail Growth Property FundCPNRF TB Buy Bt 16.60 18.00 8.4Coa l / Uti l i t ie sTenaga Nasional TNB MK Buy RM 12.18 13.30 9.2Consume r Upstre a mGenting Plantations GENP MK Buy RM 11.60 13.35 15.1TSH Resources TSH MK Buy RM 3.71 4.70 26.7Consume r downstre a mSheng Siong SSG SP Buy S$ 0.650 0.76 17.7Padini Holdings PAD MK Buy RM 1.97 2.55 29.3Construc tionGamuda IJM MK Buy RM 4.71 5.50 16.8Wijaya Karya WIKA IJ Buy Rp 2215 3,150 42.2TelcomsM1 M1 SP Buy S$ 3.51 3.60 2.6XL Axiata EXCL IJ FV Rp 5,100 4,200 -17.6Tra nsportChina Merchants Hldgs (Pacific) CMH SP Buy S$ 0.920 1.32 43.5Airports of Thailand AOT TB Buy Bt 198.50 237.00 19.4

Market Focus

ASEAN Strategy

ASEAN (Joanne GOH, [email protected])

Regional ASEAN countries — 12-m forward PER

Source: Datastream, DBS

Performance driving factors

MSCI ASEAN returned 1% for the month, driven by Thailand’s and Philippines’ 5% and 3% returns respectively. Domestic drivers reign again in June. Thailand is recovering well after the National Council for Peace and Order (NCPO) took over the government on 22 May, and Philippines rebounded from its sell-off late last month.

Others were locked in a tight trading range, moving between -1% and +1%. In Indonesia investors are awaiting the presidential elections to be over by 9 July and JCI was flat for the month. It seems to us market hasn’t priced in a Prabowo-win and polls are suggesting a 43%-33% lead by Jokowi. Malaysia’s performance could have been better if not for the sell-down in Public Bank after its rights issue. Its exports and industrial production growth have been strong and steady. Singapore consolidated around 14x PE while awaiting fresh news.

Looking forward

1) 9 July elections for Indonesia. We remain neutral on the market. The two scenarios could swing JCI between 4200-5200 in our view. In the medium six-month term, we believe JCI could be supported at current levels. We should be seeing better data out of Indonesia.

2) Improving economy in Thailand. GDP should have bottomed out in 1Q14 and started to recover in 2Q14, before picking up strongly in 2H and 2015. The NCPO has been quick to proceed with its

economic roadmap to stimulate the economy. Sentiment indices are already showing signs of improvement.

3) Inflation picking up pace in Malaysia and Philippines. Price pressures are expected to persist in these two countries, as food and electricity prices have been rising. BN and BSP could raise rates in their upcoming policy meetings.

4) Iraqi uncertainties. The geopolitical unrest in Iraq could prolong. We see the likely impact in higher oil price, as risk of supply disruption could escalate. We believe this could also lead to lower bond yields on safe haven flights.

Key themes

The investment environment should still be positive in the coming month and we do not expect major fund outflows. China’s improving PMI, a pragmatic QE tapering schedule in the US and a recovery in 2H are reasons to stay positive. Meanwhile, ASEAN markets will trade on their own merits. We look for outperformance in country sectors which will benefit from the macro trends.

BUY Thai Banks and Property. We are Overweight on Banking and Property counters which should benefit from the rebound in the economy and are still trading at attractive valuations.

Overweight ASEAN Construction sector. We believe the news and contract flows for the Construction sector should be positive in Thailand, Indonesia, and Malaysia. While acknowledging that the sector may have already done well YTD, sector valuations are likely to continue to expand, given the slew of infrastructure projects to be completed. Contract handouts are likely to accelerate, especially after the elections in Thailand and Indonesia.

Rising oil price as a near-term catalyst for O&G and plantation sectors. Oil price could stay high on continued Iraqi uncertainties. This could be a near-term catalyst for O&G companies, and consumer upstream players. With the latter, we believe the Hari Raya in July could also support the demand outlook.

US bond yields could stay low for longer. We expect US bond yields to stay low in 3Q. Rising Iraqi uncertainties could invoke safe haven flows, thereby maintaining US bond yields at lower-than-expected levels. We believe the case for investing in REITs is still attractive as yield spreads, which are trading at their historical average, still provide a safety margin. Meanwhile, growth prospects for S-REITs are still in the offing. With high yields and visible growth, interest in S-REITs could return after a weak performance in June.

Market Focus

ASEAN Strategy

Highlights on stock picks June / July (Joanne Goh: [email protected])

During the month our stock picks were flat vs MSCI’s ASEAN’s 0.9% return, with only half of the 22 stock recommendations beating the country index.

Performance was affected by profit-taking in some of the stocks as they have done remarkably well after inclusion in our stock pick list, such as TSH, IJM, CapitaRetail China. We recommend buying these stocks on weakness and have maintained them as our top picks.

Our overweight market, Thailand, rebounded 5% in June. AOT and property picks rebounded in line with the market as the NCPO has been quick to implement reform measures. Reform beneficiaries include the banks, property, tourism and construction stocks, while reform uncertainties are affecting the Telcos. CPF was also affected by Europe’s import ban on Thailand’s products due to military involvement in the country. We have switched our stock picks to include property (AP Thailand, Supalai), Bangkok Bank, and Khon Khaen Sugar.

The consumer downstream sector had underperformed for reasons such as rising costs and weak consumer demand. We are defensive in our stock picks in this sector and look for stocks which will be less affected by these factors with their growth strategy and better management, and have reasonable valuations. Padini and Sheng Siong remain our top picks.

We have made the following changes this month. There were more additions than deletions, reflecting analysts’ higher confidence on stock picking as the trading environment became less volatile.

1) Uncertainties in Iraq led our Singapore strategist to look for rising oil price beneficiaries (Oil & Gas sector, Nam Cheong) and defensive yield play (REITS, FCT). Derek Tan, our property analyst, has added Keppel Land to the regional property top picks as a potential value-unlocking candidate. Other picks include Sheng Siong by Andy, our Consumer analyst, CMH by Paul Yong, our Transport analyst, and M1 by Sachin Mittal, our Telco analyst.

2) Our stock picks on Malaysia include:- i) Public Bank (buy on share price weakness, beneficiary of potential rate hike); ii) Construction sector including both IJM and Gamuda;

iii) Tenaga (beneficiary of tariff review); iv) upstream planters TSH Resources and Genting Plantations to benefit directly from volume growth; iv) and niche consumer player Padini.

3) JCI is likely the biggest wild card in July with a binary elections outcome. It seems to us the market has not priced in a Prabowo-win and polls are suggesting a 43%-33% lead by Jokowi. We recommend investors to look at stocks that will benefit from the new leader's policies. We have Kalbe Farma, BSDE, Wijaya Karya as our top buy picks. Sachin, our regional Telco analyst is maintaining XL-Axiata as a Sell.

4) The Philippines market has been volatile. We continue to hold the view that rich valuations will not be sustainable given unexciting 1Q14 earnings results, rising inflation and central bank signaling a hawkish stance. We are maintaining our value picks with near term catalysts, including MBT, MEG, EMP and PCOR; and have added Rizal Commercial Bank as a top pick as M&A speculation heats up.

5) We are maintaining AOT and CMH as our two top transportation picks. Tourism boosting measures in Thailand should benefit AoT, and CMH is a laggard with steady growth, high dividend yield, low PE valuations and potential for more toll road acquisitions.

6) In the construction space, Tjen-Sen, our Construction sector analyst, has switched out of IJM into Gamuda, and maintains Indonesia’s Wijaya Karya as a regional construction sector pick.

7) On the property sector, Derek prefers REITS to property developers. Macro support is available for Thai property, and low bond yields are favourable for REITS.

8) We are retaining Genting Plantations and TSH Resources as our top picks in the Plantations sector. Upstream planters are likely to outperform. CPO prices may not recover significantly and volume growth should be the name of the game. Refiners are also suffering from weak margins, thus affecting integrated players.

Market Focus

ASEAN Strategy

Fund flows (Joanne Goh: [email protected])

Inflows to Indonesia and Philippines continued to moderate in June, while outflows also moderated in Thailand.

In the near term, we expect flows to be positive for Thailand and Indonesia, as the change in the political regime should present some opportunities.

As defensive markets, we do not expect fund flows into Singapore and Malaysia to turn negative. Philippines runs the risk of negative flows as the market remains highly volatile.

Singapore

Source: EPFR, First Metro. Data till end May

Malaysia

Source: Bursa. Data till end May

Thailand

Source: Bloomberg

Indonesia

Source: Bloomberg

Philippines

Source: Bloomberg

Market Focus

ASEAN Strategy

PE Bands (Joanne Goh: [email protected])

We believe markets could hug around their trading bands, but re-rating to the Malaysia and Philippines markets should be challenged by their indices trading towards the upper boundaries. Thailand trades at 12.5x forward PE which is the lowest in ASEAN, with room for PE expansion should sentiment turn better on the political scene. Elections year in Indonesia should see the market trading at higher multiples.

Singapore 12-m forward PE Bands 10-18x

Source: Datastream, IBES, DBS

Malaysia 12-m forward PE Bands 12-17x


Thailand 12-m forward PE Bands 8-18x


Indonesia 12-m forward PE Bands 9-17x

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

07 08 09 10 11 12 13 14

(index)


Philippines 12-m forward PE Bands 10-20x


18x 16x 14x 12x 10x

17x 16x 15x 14x 13x 12x

19x 17x 15x 13x 11x

17x 15x 13x 11x 9x

17x

15x

13x

11x

9x

7x

Market Focus

ASEAN Strategy

Singapore (Tan Ai Teng; [email protected]; Janice CHUA; [email protected])

FSST Index performance

Source: DBS Bank, Bloomberg Finance L.P


The STI retreated from the high of about 3310, and was locked in a tight trading range of just 50pts, mainly due to the World Cup effect and also lack of catalysts. Trading activity for large caps eased, evidenced by the lower average daily trading value of S$1.0bn for June, vs S$1.2bn over the past three months. Small mid caps were more active, partly fuelled by M&A activities. The more significant M&A deals recently include SingPost’s sale of 10.35% stake to Alibaba and the privatization of Goodpack by KKR. Both the FTSE small and mid cap indices registered positive returns of 1.5% and

0.5% on a m-o-m basis, vs -0.1% for the STI.

Looking forward

M&A momentum remains strong. STATS ChipPAC is the latest and hottest M&A target as this semiconductor firm which is 80% owned by Temasek, is rumoured to be in talks with more than five interested parties. Meanwhile, Chinese developer Ying Li has requested for a trading halt. It is widely speculated that a SOE is poised to become a substantial shareholder. We believe M&A will continue to take centrestage for as long as the market lacks actionable strong themes.

Key themes

Oil plays to stay up on continued Iraqi uncertainties. We believe high oil prices would sustain interests in oil-related stocks as the price of Brent crude rose to an 11-month high of USD115pbl on continued uncertainties in Iraq. Beyond supply risks, rising affluence in Asia will also underpin energy demand growth over the long term.

Other positive themes for the O&G companies in the region include : 1) Presence in niche markets is a competitive advantage, such as liftboat market in SE Asia or global deepwater offshore accommodation market; 2) early exposure to protected/ cabotage markets like Malaysia and Indonesia in SE Asia, and Mexico/ Brazil in the Americas; 3) recovery in charter and utilisation rates for offshore support vessels like AHTS, PSVs and accommodation vessels, which would benefit vessel owners and built-to-stock shipbuilders; and 4) expertise in subsea services, the fastest growing sub-segment in the offshore services space. In this space, we like Ezion, POSH, Vard, Nam Cheong, and Pacific Radiance.

Maintain positions in stocks with visible growth. REITs such as CRCT, MCT and FCT should continue to offer visible growth driven by completed acquisitions. Centurion’s strong earnings growth remains backed by rising occupancy of its new dorms. Thai Bev’s growth is underpinned by a turnaround in its Beer operations and margin improvement backed by higher white Spirit sales and lower interest expenses.

Top picks for the month

Frasers Centrepoint Trust (Share price: S$1.895, TP: S$2.13)

Potential rental reversion of Change City Point offers ample room to raise profitability and spur growth in the coming years, thanks to a growing catchment population. FCT also offers attractive FY14-16F yields of 6.0-6.8%.

Nam Cheong (Share price: S$0.395, TP: S$0.47)

Offshore support vessel builder continues to benefit from industry upcycle and positive market dynamics in Malaysia. Its built-to-stock business model, while riskier, has beaten our expectations time and time again. We believe its shipbuilding margins can potentially surprise on the upside.

Market Focus

ASEAN Strategy

Malaysia (Bernard CHING: [email protected]; Research Team)

Market pricing in a 25-bp hike in OPR

Source: AllianceDBS, Bloomberg Finance L.P

Factors driving performance

Mixed performance. The benchmark KLCI was marginally higher by 0.6%, but lagged the MSCI APxJ’s 1.1% gain in June. The performance of KLCI has generally been positive if not for the heavy sell-down of Public Bank following a strong close at end-May due to MSCI rebalancing. The sell-down was also notable post-entitlement date for its 1-for-10 rights issue at a steep 33% discount to theoretical ex-right price. Excluding Public Bank, the KLCI would have risen by 1.4% in June amid a rebound in April’s export growth (+18.9%) and a steady industrial production index (+4.2%), as well as continued foreign net equity inflows. YTD, the KLCI is up 0.9% while the MSCI APxJ’s has gained 5.2%.

Looking forward

Expect tighter monetary stance amid rising inflation and escalating concerns over financial imbalances. Headline inflation as measured by the Consumer Price Index rose 3.2% in May vs the average of 2.1% in 2013. Inflationary pressure is expected to persist in the near term, following the hike in natural gas tariff for non-residential and non-power sectors on 1 May 2014, as well as the more anticipated rollback in fuel subsidy. Against the backdrop of rising inflation and steady economic growth, Bank Negara is turning hawkish due to concerns over rising financial imbalances. DBS Economist for Malaysia Irvin Seah expects Bank Negara to raise the overnight policy rate (OPR) by 25bps at each of the two upcoming Monetary Policy Committee meetings in July and September. Such a hawkish tone did not go unnoticed, as the market has so far priced in a 25-bp hike following the YTD increase of 24bps in the 3-month KLIBOR.

RAPID boost. We expect various engineering, procurement and construction (EPC) contracts related to the Pengerang Integrated Complex (PIC) to be awarded in the coming months starting July. This includes the Refinery and Petrochemical Integrated Development (RAPID) and other associated facilities. RAPID is estimated to cost about US$16bn, while its associated facilities will involve another

US$11bn in investments. We understand that Muhibbah has submitted tenders for certain packages which has opened for RAPID, together with its two foreign JV partners. We expect contract sizes to be chunky and Muhibbah’s portion of the contracts to be worth at least RM1-2bn. Another notable potential beneficiary of RAPID is KNM Group (not rated), which is bidding for seven out of 17 packages in the megaproject. Within the broader oil & gas space, our top BUY calls are SapuraKencana, Bumi Armada and Coastal Contracts.

OPR hike to provide some reprieve to NIM pressure. There may be earnings upside for banks from an interest rate hike, provided that credit costs do not escalate. Our banking analyst Lim Sue Lin estimates that every 10-bp hike in NIM would raise earnings by c.5%. Banks with a higher proportion of variable rate loans (most banks except for AMMB) and strong CASA base (Maybank, CIMB, Public Bank and HLB) should benefit in a rising interest rate environment. Among Malaysian banks, we like Public Bank for its defensive and consistent earnings delivery. Apart from its bread-and-butter business, there is room for non-interest income to expand, especially from bancassurance and unit trusts. We also like HLFG and RHBC for opportunities to unlock value through restructuring and balance sheet optimisation.


Public Bank (Share Price: RM19.58; TP: RM23.00)

Despite Bank Negara’s tightening measures, the group’s consumer loan growth did not weaken. Its recent share price weakness following the entitlement date for its rights issue presents an opportunity to accumulate on weakness. Given its strong CASA franchise and high proportion of variable rate loan, the group will also benefit from any OPR hike by BNM.

IJM Corp (Share Price: RM6.70; TP: RM7.85)

The group is poised to triple its orderbook this calendar year, supported by two key projects: West Coast Expressway (RM5bn) and Kuantan Port Phase 1 (RM1.4bn). There may be upside to our earnings from more buoyant contract wins and higher CPO prices. Every RM500m in new wins and every RM100 increase in average CPO price (per tonne), would each lift FY15F earnings by 3%.

Padini (Share Price: RM1.97; TP: RM2.55)

The group plans to add 17 stores each in FY15 and FY16. We expect the store roll-outs to increase its retail floor space by more than 180k sq ft. Based on this estimate, we expect an earnings CAGR of 17% over FY14-16. Hence, we believe its valuation of 9x FY15 EPS (ex-cash) is attractive. Moreover, the stock also provides a 7% net dividend yield.

Market Focus

ASEAN Strategy

Thailand (Chanpen SIRITHANARATTANAKUL: [email protected])

SET Index and foreign net buy (sell) positions

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

Btm

Net Foreign Buy (Sell) SET (RHS)

Source: DBS Vickers, Bloomberg Finance L.P


SET grew 4.4% in June (up to 26 June). The SET outperformed regional peers, which rose 1.2% during the same period, on the back of investors’ increasing risk appetite following the National Council for Peace and Order (NCPO)’s takeover on 22 May. The NCPO has been quick to proceed with its economic roadmap to stimulate the economy. Among these were payments of Bt92bn to rice farmers under the rice pledging scheme, accelerating 2014 budget disbursements, extension of 7% VAT for another one year, setting up of a new BOI board to approve pending investment applications, and the plan to continue with infrastructure spending. Consumer confidence rebounded for the first time in 14 months in May 2014.

Renewed interest in domestic plays. Leading the gains were Property, Banks and Building Materials, which surged 8.3%, 7.7%, and 6.7%, respectively.

Foreign investors were net sellers. Total foreign net sell positions amounted to Bt4.9bn in June vs Bt35.8bn net sell in May.

Looking forward

Improving economy. We believe the Thai economy is now on the right track. GDP growth should have bottomed out in 1Q14 and starting to recover in 2Q14, before picking up strongly in 2H14 and 2015. We expect consumer and investors’ confidence to continue to recover, which would be positive for both consumption and investment.

New government within 3 months. General Prayuth Chan-Ocha has promised that the country should have a new government within three months or by September. The new government would run the country for about a year, before elections probably late next year. The resumption of a functioning government is positive as it means the country

can now move forward. Investors’ confidence should pick up once the new government is in place.

Market to continue its upward momentum. With the country moving onto the right track, we believe the market should continue its upward momentum.

Key theme

Buy Banks and Property. We recommend Overweight on Banking and Property counters, which should benefit from the rebound in the economy and are still trading at attractive valuations.


AP (Thailand) (Share price: Bt6.25, TP: Bt7.70)

AP’s presales rose 25% y-o-y to Bt7.5bn in 5M14, strongly outperforming the sector which saw presales drop 36% in the same period. Earnings visibility is also clear. The company has secured 65% and 30% of our revenue forecast for this year and next, respectively. We expect earnings to be flat this year, before surging 22% next year. We like AP for its diversified product mix, strong earnings growth of 22% next year and attractive valuation. The stock is trading at 7.3x FY15F PE, while offering a decent FY15F dividend yield of 4.8%. We maintain BUY with Bt7.70 TP, based on 9x FY15F PE.

Supalai (Share price: Bt21.90, TP: Bt28.10)

SPALI remains our top pick among residential property developers. Earnings are expected to jump 43% in 2014F and 17% in 2015F, among the highest in the industry, on the back of higher condominium transfers. Revenue visibility is clear, as the company has secured 100% and 72% of our revenue forecasts for this year and next, respectively. Valuation is undemanding, trading at 7.8x FY15F PE, while offering a generous FY15F dividend yield of 5.8%. We reiterate BUY with a TP of Bt28.1, based on 10x FY15F PE.

Khon Kaen Sugar Industry (Share price: Bt14.40, TP: Bt16.80)

We like KSL for its strong earnings and diversification into power and ethanol to generate more stable and higher margins. The sentiment on the sugar market should also turn positive in the 2014/15 season as world sugar balance is forecast to reverse to a deficit position. We forecast earnings to grow 23% in FY14F (FYOct) and 18% in FY15F. KSL is trading 12x FY14F PE and 10x FY15F PE. We rate the stock a BUY with a TP of Bt16.80, based on 14x FY14F PE.

Market Focus

ASEAN Strategy

Indonesia (Maynard ARIF; [email protected])

Jakarta Composite Index

4100

4300

4500

4700

4900

5100

30-Dec-13 30-Jan-14 28-Feb-14 31-Mar-14 30-Apr-14 31-May-14

Source: Bloomberg Finance L.P.


In wait-and-see mode. JCI was relatively flattish in May 2014 and its daily average trading value declined by over 10% from the prior month, as investors wait on the sidelines prior to the Presidential election on July 9. In addition, the currency was under pressure and broke the Rp12,000/USD level towards the end of May, which triggered investors to remain cautious too on Indonesia.

We believe investors are leaning towards more defensive stocks to ride the volatility in the near term. Within our coverage, among the top performers are big cap consumer names such as Kalbe Farma (9%) and Unilever (2%). In addition, United Tractors and the agri sector also performed well due to positive USD exposure. Meanwhile, property stocks were battered due to profit taking and our last month’s pick Bumi Serpong Damai also fell by 7%.

Looking forward

All eyes on presidential election. The upcoming presidential election on July 9 will be the focus, as investors are waiting to see who the next leader will be. The market seems to be favouring Jokowi-JK who is also leading in most of the polls. Another leg up is possible if Jokowi wins and the JCI may break the 5,000 level. However, the other candidate, Prabowo-Hatta, is catching up as the election date draws closer and investors will likely to sell off Indonesia should the favourite lose, despite the fact that the next leader will have to grapple with challenging economic conditions to start with, whoever he is.

Currency pressures. The Indonesian Rupiah has weakened in the past month due to the bigger-than-expected deficit. IDR broke the Rp12,000/USD level and fell by almost 5%. Our conversation with the Treasury Team indicates that the currency is likely to be under pressure in the near term as demand for USD is expected to have increased in 2Q ahead of Hari Raya.

The key is whether the deficit issue will improve after 2Q and if the Rupiah can strengthen. We believe if macro conditions do not improve, the pressure on Rupiah may continue and sentiments on the JCI could turn more negative. In addition, Bank Indonesia may raise interest rates to protect the currency and prevent outflows in 2H.

Key themes

Election play. If the favourite wins, we can expect the market to rally and the big cap names to lead the JCI. The new leader is expected to spend more on infrastructure, education, social safety and healthcare. We recommend investors to look at stocks that will benefit from the new leader's policies, such as Waskita Karya, Kalbe Farma, Wijaya Karya and Bank Rakyat .

Seasonal demand theme. In the near term, investors can also consider consumer stocks such as Indofood and Unilever for a cyclical trade as Hari Raya will be celebrated in July.

From a trading perspective, the property sector could be an interesting proposition as it fell significantly last month. We expect property stocks to post more resilient earnings this year, driven by marketing sales from the prior year or two.

Our picks for the month

Kalbe Farma (Share price: Rp1,660, TP: Rp1,900)

Seasonal demand expected in 2Q due to Hari Raya

Structural story on healthcare spending should help LT growth

Key risk will be further weakness in Rupiah

Bumi Serpong Damai (Share price: Rp1,485, TP: Rp1,860)

Upside potential for 2Q earnings from revenue recognition

Healthy balance sheet; net cash position

Pre-sales are still on track to meet its Rp7tr target

Market Focus

ASEAN Strategy

Philippines (Reuben Mark ANGELES)

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The release of May inflation numbers earlier this month (5 June) caused uneasiness ahead of the BSP’s Monetary Board meeting on June 19. After dipping to 6,647.65 at the end of May from lackluster 1Q14 GDP results, the benchmark index regained traction as window dressing started to occur in late 1H.

Inflation picked up pace in May at 4.5% y-o-y (above consensus expectations of 4.2%) after posting a 4.1% y-o-y advance in April. The heavily-weighted food index was still the main culprit – rising at a quicker pace of 6.7% y-o-y (vs. April’s 6.2%). Rice prices escalated around 20% from last year as supplies dwindled throughout the lean season. Electricity prices also contributed to the rise after sustaining a 0.76% increase m-o-m (vs. April’s 0.77%).

Despite market expectations of a rate hike, BSP kept its key rate unchanged at 3.5%. However, the monetary board still raised its SDA rate to 2.25% (from 2.00%).

Looking forward

Consolidation after end-1H14 window dressing. After a disappointing 1Q14 GDP, we saw the Philippine equities market losing momentum. Market range traded until late June, until window dressing took hold. We continue to hold the view that rich valuations will not be sustainable given unexciting 1Q14 earnings results, rising inflation, and central bank signaling a hawkish stance. We expect 2Q14 GDP (around 6.3% y-o-y) to be stronger than 1Q14 (5.7% y-o-y), but we see 2Q14 earnings to be in line at best. July could be a positive month, but with the “Ghost Month” just around the corner, any upside may be capped. Having said these, we reiterate our view that performances of glamour stocks (high growth, beta, and momentum) are poised to slow come August. We prefer a rotation to defensive stocks (value and low beta stocks) as risk-to-reward is better.

Key themes

Phil banks: M&A speculation heats up. M&A rumours surround the Philippine banks, particularly after both the Senate and Congress amended the regulations on foreign ownership of Phil banks (i.e. from 60% cap to 100% voting). The bill is now awaiting the signature of the President, and should consequently be enacted into a law. We believe mid-sized banks would be likely targets by either regional players or larger domestic U/KBs. Recent talks in the market indicate Rizal Commercial Bank (RCB) and Phil Business Bank (PBB) as potential targets.

Positioning portfolios for the “Ghost Month” Superstitious as it may sound, in the past, the Philippine equities market tends to underperform during the “Ghost Month” (27 July to 24 August). Unfortunately, the MSCI quarterly rebalancing also falls within this period, and could result in a volatile trading environment. Under these circumstances, we expect a “sell on strength” in July and a “buy on dips” in August.


Petron Corp (Share price: P12.74; TP P17.00)

RMP-2 is expected to have reached mechanical completion by end-1H14. The Limay refinery is scheduled to undergo commissioning in 2H14; crude run should ramp up starting Sept-14 and is forecasted to reach 170-177k bpd by Dec. RMP-2, which is completing this year, will be a key catalyst for growth starting FY15.

Metropolitan Bank & Trust (Share price: P87.40; TP P95.00)

MBT is a key beneficiary of the public sector’s infrastructure drive starting FY14. Loan growth is forecast to be in the high-teens, driven by corporate and consumer loans.

Rizal Commercial Bank (Share price: P53.00; TP P68.00).

M&A rumours are heating up, following the ratifications on foreign ownership limits of Phil banks. Speculations should buoy RCB’s share price in the near term.

Emperador, Inc (Share price: P11.82; TP P15.60).

Acquisition of Whyte & Mackay is expected to close in 2-3 months time and should be immediately earnings accretive. Look for stronger earnings in 2Q14 due to seasonality.

Megaworld Corp (Share price: P4.50; TP P5.50).

Recent acquisition of AGI’s 49% stake in GERI should have minimal impact on bottom line, but should be RNAV accretive. We see great potential in GERI’s landbank which is approximately 3,000 ha located in prime tourist areas. Synergies with GERI should be apparent in the medium to long term.

Market Focus

ASEAN Strategy

Banks (LIM Sue Lin; [email protected])

ASEAN Banks: Relative price performance

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The Thai banks, which are now the sector’s top performer, were back full of energy after sentiment turned positive as the Junta now focuses on economic growth and starts to proceed with project approvals and budget spending which has been on hold. Elsewhere, we saw Indonesian banks wavering due to election blues. Philippines banks have been trading in a tight range but we believe it should re-rate stronger as the infra projects are announced. Malaysian banks continued to be led by heavyweights. Meanwhile, Singapore banks remained fairly inactive due to a dearth of catalysts.

Looking forward

Overweight Thai banks. Outlook should improve as the Junta focuses on economic growth and starts to proceed with project approvals and budget spending which have been on hold for the last seven months. The corporate sector is likely to lead growth, driven by pent-up demand for investment and bank’s willingness to lend. Sentiment for SME and retail segments has improved. BBL and KBANK would be key proxies from an improving credit environment. KTB should re-rate from potential infrastructure investments in 2015.

Singapore banks remain a safe haven. Although we like Singapore banks’ resiliency with strong asset quality and superior capital, catalysts are limited vs ASEAN peers apart from being a safe haven. The only concern for Singapore banks, if any, is the overall rise in loan-to-deposit ratio, which has reached 109%, inching closer to the peak 117% reached in Oct 97-Jan 98. We can at best suspect that the foreign banks operating in Singapore are the ones lacking liquidity in the form of deposits. This is evident as the three Singapore banks have loan-to-deposit ratios averaging 86% (S$ loan-to-deposit ratio: 82%) as at end 1Q14. Near-term, all eyes will be on liquidity conditions of Singapore banks with MAS unveiling new liquidity requirements to strengthen the system. We prefer OCBC to UOB.

Wait for Indonesian elections to pass. Indonesia’s large cap banks have been trading at peak valuations since March. We believe populist policies will benefit banks such as BBRI and BBTN. Assuming all goes well on the political front and macro indicators improve, it will set a strong base for growth in 2015. Meanwhile, we adopt a cautious approach in Indonesia for now; Neutral; stay on the sidelines.

Momentum picking up for Philippine banks. In the absence of trading gains, Philippines banks are focusing on their core businesses. Strong loan growth from infra loans and the soon to be released PPP-related projects will boost utilisation of excess liquidity in the system which will improve NIM and core earnings growth. MBT would be a key beneficiary. M&A news continues to be at the forefront, heating up with United Coconut Planters Bank (UCPB) up for bids, with BDO as one of the bidders. While BPI-PNB has officially denied an M&A, we hear market murmurs that talks may still be ongoing. CIMB (Malaysia) is rumoured to be on the prowl for a mid-tier Philippines bank after talks with Bank of Commerce fell through. Mid-tier banks include China Banking Corp (CHIB), Rizal Commercial Bank (RCB), Union Bank of Philippines (UBP) and Security Bank (SECB). Philippine Business Bank (PBB), a thrift bank, is also said to be an M&A target.

Rate hike anticipation for Malaysian banks. While we are Underweight on Malaysian banks, upcoming interest rate hikes might provide positive sentiment. Amid soft capital markets, we continue to like defensive names such as PBK.

Key theme

Focus on strength. With uncertainties still lingering in ASEAN, Singapore banks remain the safe haven. Philippine banks should continue to rally on news flow while Indonesian, Malaysian and Thai banks are likely to remain on the sidelines. We would stay focused on large cap banks with strong franchises.


Bangkok Bank (Share price: Bt193.00; TP Bt255.00).

BBL is will be a key proxy to corporate loan recover, and is also the sector’s laggard. Clarity of events (political and news flow on infra) would be a key re-rating catalyst for the stock despite its typical conservative stance.

Metropolitan Bank & Trust (Share price: P87.40; TP P95.00).

MBT is a key beneficiary of the public sector’s infrastructure drive starting FY14. Loan growth is forecast to be in the high-teens, driven by corporate and consumer loans.

Rizal Commercial Banking Corp (Share price: P53.00; TP P68.00).

RCB is hot on heels as M&A rumours heat up, following the ratifications on foreign ownership limits of Phil banks. Speculations should buoy RCB share price in the near term.

Market Focus

ASEAN Strategy

Real Estate (Derek TAN; [email protected])


Real estate underperformed in Jun. ASEAN real estate developers’ performance remained mixed, with those in Singapore, Malaysia and Indonesia underperforming their respective indices. Thailand was the outperformer with an 8.3% return, outperforming the market’s 4.4% gain.

Looking forward

Pick Thailand given improved sentiment; event driven catalysts / laggards. Fundamentally, we think ASEAN property markets have largely factored in slower y-o-y sales and the decelerating price momentum that was observed through 1H14. Therefore, we believe that any short-term sector price drivers are likely to be event-driven, e.g. country-specific events such as resumption of sales and laggard valuations. The laggard markets YTD are Malaysia, Singapore and Thailand. In terms of valuations, ASEAN property stocks are trading at 10-18x FY14 PE multiples and 0.83-2.2x P/BV NAV basis.

Among the ASEAN property developers, Singapore remains at the lower end of the P/BV NAV multiple range and is likely to remain range bound, unless driven by event-based catalysts. We have turned positive on Thailand, given the improved sentiment following the alleviation of its political uncertainties, while remaining neutral on the markets in Indonesia and Malaysia.

Thailand’s residential sector to take off in 2H2014/2015. New launches and presales should pick up strongly in 2H14 amid improving consumer confidence and rebounding economy. Interest rate should stay low, which should be positive for the sector. The sector should see earnings grow at 11% each this year and the next. Valuation remains attractive at only 10x 2015F PE. We prefer companies with diversified products, large secured revenues and attractive valuations.

Malaysia township developers more resilient. Despite the relatively weaker property sentiment due to tightening measures, all-time high property prices remain steady as supply continues to lag demand which is supported by favourable demographics. Property prices are likely to remain firm at current levels, though the growth pace is likely to moderate due to the cooling measures. The fact that property supply still lags demand will continue to help support prices as the young labour force (60% below 40 years old) will still be on the lookout for residential properties, especially affordable homes (which are still enjoying robust sales). Developers' earnings visibility should remain intact, given the current large unbilled sales. We prefer township developers, conglomerates

and investment asset owners which have more resilient earnings.

New launches to be back-end loaded. Proposed regulatory measures, generally disappointing Indonesia macro data and banks’ cautionary stance have led to the reversal of property stock prices (after a furious rally in 1Q14). YTD marketing sales achievement is largely in line with expectations. We continue to favour property developers with sustainable existing developments and high portions of recurring revenues (with particular exposure to retail malls). The growth in demand for retail space (from both foreign and local brands) remains strong, while retail space supply in Jakarta will stay limited due to the mall moratorium imposed by Jakarta’s governor. After its recent correction, the property sector currently trades at a 45% discount to RNAV.

Singapore in range-bound performance. In Singapore, price and volume corrections in the private and public housing sectors have extended their declines for the second consecutive quarter, while CBD office rents see continued uplift with the limited new incoming supply in the office market over the next two years, from a drop in new completions. Property stocks are currently trading at a 30% discount to RNAV, indicating that they have largely priced in an expected 5-10% home price correction.


AP Thailand PCL (Share price: Bt6.25, TP: Bt7.70)

AP offers strong earnings visibility as it has secured 65% and 30% of our revenue forecasts for this year and the next respectively. We expect earnings to be flat this year, before surging 22% next year. We like AP for its diversified product mix, strong earnings growth of 22% next year and attractive valuation. The stock is trading at 7.3x 2015F PE, while offering a generous 2015F dividend yield of 4.8%.

Keppel Land (Share price: S$3.38, TP: S$4.65)

Among property developers, we see possible value-unlocking event-driven catalysts in the medium term. Following the S$500m sale of Equity Plaza (an office property in Singapore), we expect KPLD to continue to divest its 1/3 stake in Marina Bay Financial Center Tower 3 to K-REIT and this should serve as a re-rating catalyst for the group. The proceeds could be utilised towards paying a special dividend, which is likely to keep investors vested in the stock.

Market Focus

ASEAN Strategy

REITs (Derek TAN; [email protected])

ASEAN REITs/PFPOs - Salient details

Markets Singapore Malaysia Thailand

No of REITs/PFPOs 37 15 44

Market Cap (US$bn)

US$49.2bn US$16.0bn US$6.5bn

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ASEAN REITs broadly underperformed. Long bonds across the region rose slightly by 10-15bps, resulting in fund outflows from yield plays in the month of Jun’14. ASEAN REITs across the region broadly underperformed their respectively indices - Singapore REITs (S-REITs) fell by 1.5% m-o-m, compared to the 0.5% drop in the STI. Malaysian REITs (M-REITs) remained flattish due to a dearth of fresh catalysts while the Thai Property Funds (PFPOs) rose by 3.1% but underperformed the 4.4% rise in the SET over the same period, as investors turned “risk-on” following the easing of political uncertainties.

Looking forward

Yield spreads near their historical mean. Looking ahead, with the Fed’s tapering expected to remain on track to be concluded by end-2014, we believe that investors will refocus on the impact on returns for yield instruments like REITs, given expectedly higher 10-year yields. That said, current spreads ranging between 2.9%-3.8%, which are in line/higher than historical average, imply that there is a safety margin for REIT prices.

Key Themes

S-REITs continue to offer visible growth. We believe that investors are likely to focus on growth prospects in the immediate term and organic growth to be a driver. Acquisitions surprised in 1H14 but are likely to turn selective going forward, given limited opportunities in the physical market at “correct prices”. This is exacerbated by diminishing returns due to thinning spreads between physical yields and yields implied by current prices after the recent share price weakness.

Pressure on margins from assessment tax hikes will be an overhang for M-REITs. We believe the demand for retail space in prime locations and large catchment areas will remain resilient, and this should support rental reversions. For the office market, we remain cautious on the incoming supply in 2014 which could adversely affect capacity to raise rentals. The downside risks of higher electricity charges and assessment taxes are partially mitigated by rental reversions and higher service charges. Going forward, we expect moderate earnings growth as rental reversions are offset by higher expenses. Among the M-REITs, we believe that Sunway REIT will perform best due to its large asset pipeline, higher distribution yield and relative safety from KL-imposed assessment taxes.

IPOs in Thailand have done well recently. The property fund sector saw new listing Thai Hotel Investment Freehold and Leasehold Property Fund (THIF) on the SET on 16 June, which has appreciated by 20% since its IPO. With a total fund size of Bt26.2bn (US$806m), the fund invests in 12 hotels in Thailand. The fund is now the second largest PFPO on the SET by market capitalisation, after CPNRF. Meanwhile, a few companies are planning to set up new REITs in 2H14. These include Impact Exhibition Management, WHA Corporation and TICON Industrial Connection.


Frasers Centrepoint Trust (Share price: S$1.895, TP: S$2.13)

FCT offers attractive FY14-15F yields of 6.4%-6.6%. Earnings expected to accelerate after the acquisition of Changi City Point, where expiring leases are below market levels.

CapitaRetail China Trust (Share price: S$1.48, TP: S$1.62)

Fueled by the completion of the refurbishment of Mingzhongleyuan Mall in 3Q14, CRCT offers a 2-year DPU CAGR of 15%, one of the strongest earnings growth prospects in the REIT space.

CPN Retail Growth Property Fund (Share price: THB16.60, TP: THB 18.00)

Offers a generous dividend yield of 7.7-8.1%. The recent acquisition of CentralPlaza Changmai Airport, which expands its leasable area by about 20%, will be a main driver of growth for CPNRF going forward.

Market Focus

ASEAN Strategy

Coal / Gas utilities (June NG: [email protected])

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Profit-taking sets in for coal miners. As expected, profit taking activity kicked-in for Indo coal miners after the sterling 16% average gain in May. The short-term interest in coal miners was not sustainable due to the still weak coal sector fundamentals, with excess supply and carbon emission concerns over the longer term.

Gas players to outperform. Prices of utility stocks remained stable despite the weaker equity markets last month. While there is a dearth of short-term catalysts this month, we believe gas players will continue to outperform over the longer term due to increasing gas demand and higher throughput from gas volume growth.

Looking forward

Growing energy demand and capacity additions are key catalysts. We expect stronger 2H14 energy demand following the implementation of major infrastructure projects and recovery in exports. Our preferred power utility player is Tenaga Nasional (TNB MK), for its improving earnings visibility from implementation of cost pass-through mechanism and incentive-based return. We also favour gas utility companies, given the push for higher gas usage due to its greener environmental impact. Our preferred gas stocks are Petronas Gas (PTG MK) in Malaysia as the best proxy for Petronas’s growing gas capex; and Perusahaan Gas Negara (PGAS IJ) for its growing gas supply.

The worst is over for coal miners. Coal miners are on track with cost-cutting measures but a meaningful earnings recovery is unlikely due to the still subdued coal prices and limited volume growth to offset the lower coal prices. We expect the growing demand from domestic coal-fired power plants to partially compensate for lower exports over the longer term. The inflexion point will crystalise when there is a clearer sign of coal demand recovery from China and India.

Key themes

Positive sector reform for utilities. Energy players in Indonesia and Malaysia will continue to benefit from the push for fuel subsidy rationalisations due to rising budget deficits. We expect better earnings visibility for utility players, given the plan for incentive-based regulated return to encourage higher efficiency. Coal is the cheaper fuel source and we expect growing usage due to abundant supply in Indonesia. Nevertheless, gas will be the preferred choice over the longer term for its greener environmental impact. We expect gas cost to rise in the near term following subsidy cuts but over the longer term, gas price is poised to trend down with an increase in new supply and more LNG imports when infrastructure is in place.

Coal miners are less affected by election outcome in Indonesia. Coal miners in Indonesia are less affected by election outcome as >80% of their production is exported. We expect earnings for coal miners to remain subdued till 1H15 but trading interest may improve in 4Q14 due to the bottoming out of coal prices and improving domestic demand from new coal-fired power plants. Our preferred picks are Adaro and ITMG for their successful cost contracts, good execution and longer-term upsides from production increases from new mines.

Top pick for the month

Tenaga Nasional (Share price: RM12.18, TP: RM13.30)

Attractively priced big cap in Malaysia with potential upside from the tariff review

Outlook remains promising with rising energy demand and capacity growth

Key catalysts: Capacity growth and successful implementation of incentive-based regulation (IBR) framework.

Maintain BUY rating with TP of RM13.30

Market Focus

ASEAN Strategy

Consumer Upstream (Ben SANTOSO; [email protected]))

CPO prices are being dragged down by soybean oil



We have overestimated palm oil prices by 6% YTD due to 10% lower-than-expected soybean prices. Better-than-expected progress on US planting on record acreage, easing congestion problems in Brazil and a clampdown on Chinese shadow banking have all weighed on prices. In the short term, we will be watching the Argentine Peso, as a potential devaluation may eventually inundate the export market with more soybeans.

Looking forward

Palm oil prices may not recover significantly in 2H14 as we had previously expected – despite the prospect of y-o-y drop in peak yields in Peninsular Malaysia and Sumatra – as demand substitution into soybean oil may pick up speed in the coming months. Normal yields in Kalimantan and Sabah are also expected to maintain output against lower-than-expected biodiesel take-up in Indonesia (despite the recent rise in crude oil prices). Yet, with the start of Ramadan on 29 Jun14, we expect harvesting rounds to yield less for the next one-and-a-half months. We will be reviewing our CPO prices after Jun14 data is made available.

Key themes

Political developments in Indonesia to affect markets. The Indonesian government is expected to issue a number of new regulations which would, inter alia, limit foreign ownership, revise the export tax structure, promote the downstream industry and eliminate bulk cooking oil in favour of consumer packaged cooking oil and other downstream products. These proposals are in addition to maximum

hectarage regulation, the mandatory ISPO regulation and the biodiesel mandates. With the new government not expected to be formed until Nov14, we do not expect any significant new investments in the sector (i.e. new planting and/or acquisitions). We believe this would exacerbate palm oil supply growth in the long term (starting in 2016).

Palm oil to lose market share. Decelerated expansion in Indonesian oil palm estates since 2012, adverse weather conditions, continued growth in Indonesian domestic consumption and expansion in downstream capacities in Indonesia are expected to increasingly limit palm oil’s availability for the export markets. Against these prospects, rising soybean cultivation in Brazil’s cerrados, expanding US shale gas and planting shift from corn to soybeans are expected to increase soybean oil’s availability.

We prefer upstream planters. As attested by the weak bulk refining margins reported by integrated players, we believe the thin margins would continue to prevail even if the Indonesian export tax structure were to be tweaked again to promote the downstream industries. This is because reactions from Indian and Malaysian governments are likely going to water-down any temporary gain and at the same time encourage refining overcapacity. Without regard to more specialised downstream products/niche markets, we believe refiners would remain in a tough position. Hence, high-volume growth upstream planters remain our picks for value creation.


Potential outperformers (1-month horizon)

Genting Plantations (BUY; Price: RM11.60, TP: RM13.35)

We like the counter for its 31% earnings CAGR between FY13 and FY16F. The group already has significant land bank in Indonesia, which we believe will drive its volume growth by 11% CAGR over the same period.

TSH Resources (BUY; Price: RM3.71, TP: RM4.70)

Relative to growth, TSH remains the cheapest counter in our Malaysian universe. The group is forecast to book an FY13F-16F core earnings CAGR of 12%; backed by an own FFB volume CAGR of 16% over the same period. This is supported by its relatively strong balance sheet (FY14F net gearing ratio of 45%; current ratio of 1.4x).

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Market Focus

ASEAN Strategy

Downstream Consumer (Andy Sim: [email protected], Alfie Yeo: [email protected], Kevin Wong: [email protected])

Recent rise in commodity prices is a risk for downstream food players

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Sugar Coffee Palm Oil Cocoa



Weak May amid market resilience. On the whole, consumer sector’s share price continued its lackluster performance from May into June with returns of 0%, -2.1% and 3.3% for F&B, personal goods and retail sub-sectors, respectively. The retail sub-sector was better, buoyed by stronger performance from Thailand as confidence rose with the removal of the curfew.

Stock picks turned in mixed bag. Our stock picks – Sheng Siong and Padini – turned in mixed performances in June. Sheng Siong did well, up by 4% MTD but Padini dipped by 2%.

Looking forward

Rising commodity prices is a risk to downstream in 2H14. We continue to be cognisant of the potential pressure from rising commodity prices which has increased this year. Rising expectations of an occurrence of El Nino this year may continue to have an adverse impact on soft commodities and this could potentially present earnings risks to downstream consumer companies in the form of lower margins. Relatively higher commodity prices could pose margin risks to food-producing companies such as Super Group (coffee) and Petra (cocoa). Fortunately, these companies are monitoring this trend and are responding with forward hedges/purchases.

Private consumption to grow, but at a slower pace in 2014. GDP growth for FY14F is projected at 4-6.6%, relatively similar to 2013. Private consumption, however, is expected to grow at a slower pace than 2013, as forecast by our economists. Recent corporate results announced seem to indicate a slowdown in ASEAN consumption. That said, our economists remain positive on private consumption in Indonesia, backed by a rising middle class population and favourable demographics.

Key themes

Maintain defensive stance. Priced at high valuations, we believe ASEAN consumer stocks have factored in high growth expectations. We continue to advocate a more defensive and resilient stance in our picks. On this account, we maintain our stock picks and highlight Sheng Siong for its stable and resilient profile, and Padini as a value retail play that would benefit as consumers trade down in the light of weaker sentiment.


Sheng Siong (Share price: S$0.65, TP: S$0.76). 1Q14 results were slightly above our expectations, led by accelerating sequential SSSG and higher margins. We now expect a better FY14F performance with TP of S$0.76 after we raised our FY14F/15F earnings by +6%/+5% in late April. We believe its margins have further room to grow from more efficient centralised purchasing and SSSG will continue to improve through continued store renovations. Furthermore, food inflation in Singapore is ticking up, and this may benefit grocery retailers like Sheng Siong.

Padini Holdings (Share price: RM1.97, TP: RM2.55). Padini’s business fundamentals remain strong and its bundled sales strategy has successfully stabilised its profitability. We like Padini for its diversified target market, namely its premium branding (Padini, Seed) for middle-to-high income consumers and value-for-money products (Brands Outlet) for low-to-middle income consumers. We see two re-rating catalyst for Padini : (i) the successful Vincci makeover; (ii) reinstatement of Securities Commission (SC) Shariah-compliant status. The stock trades at a compelling PE of 9x (ex-cash) and 7% yield for FY15F on the back of 17% 3-year CAGR from FY14-FY16F.

Market Focus

ASEAN Strategy

Construction (CHONG Tjen-San: [email protected])

Indonesia underperformed in June but still the best YTD

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For the month of June 2014, Thailand contractors performed the best, yielding an average return of 19% vs Malaysia’s 2% and Indonesia’s -8%. YTD 2014, Indonesia remains the clear winner while Malaysia has been the laggard. For the month of June, our top two picks, IJM and Wijaya Karya posted a return of 5% and -6% respectively. IJM‘s share price has enjoyed a good run, driven by newsflow on its key project WCE as well as the announcement on the potential privatisation of IJM Land. Meanwhile, Wijaya Karya has been largely range bound as investors assess the outcome of the presidential elections.

Looking forward

In the month of June, we initiated coverage on the Indonesian construction sector with the inclusion of two new stocks – PTPP and Waskita Karya. We think the sector is in a multi-year upcycle irrespective of the election outcome, given the low investments for infrastructure thus far, where government spending stands at a mere 2.2% of GDP (27% CAGR 2010-13) vs ASEAN peers of 3-4%. To support our view, listed contractors have been on a strong recruitment drive for engineers this year.

We acknowledge that the sector has done well YTD but it still offers an attractive entry point at +1.7SD above mean (below the peak of >2SD or 21x PER in May 13). Sector valuations will continue to expand, driven by the following: i) Contractors are expecting record growth in contract wins (24-95% y-o-y); ii) Strong EPS CAGR of 18-25% and rising ROEs, iii) Expectations that the new government will place greater emphasis on infrastructure development, and iv) Consensus is expected to start upgrading earnings and lifting target prices.

For Malaysia, the key newsflow for the month has been the privatisation of IJM Land by its parent company IJM Corporation, and a JV between tile manufacturer Seacara

Group, local firm SPAZ Sdn Bhd and two companies from China (Sinohydro Corp and Shanghai Construction Group) to bid for the RM3bn Warisan Merdeka project. The market also awaits news on the fate of Gamuda’s 40%-owned Splash, where we think an amicable solution will be reached.

Thailand’s construction stock index has risen 11.8% since the step-in of the military on 22 May, as the chief of the National Council for Peace and Order (NCPO) declared the inclusion of infrastructure in the national economic roadmap agenda. All the mega-projects initiated by the previous government will be reviewed and given priority to proceed. The Transport Ministry has proposed the outline of the Bt2.4tr eight-year investment plan for infrastructure projects, excluding high-speed trains, to the NCPO chief for final approval. The infrastructure plan’s costs have surged from Bt2tr as proposed by the previous government, adding projects for aviation and water transport. Currently, projects that are likely to proceed in FY15 are three electric train lines (orange, pink, and yellow lines), motorways, dual-track rails and the four-lane road expansion. Nonetheless, the list of projects that are given the green light will only be finalised the next month. Large contractors will have high potential to boost their backlogs as they have exposure to these types of construction jobs. However, earnings from infrastructure projects will only be visible from FY15 onwards.


For this month, we are removing IJM Corp from our top picks and replacing it with Gamuda, as some of the former’s key catalysts have come to fruition. We retain our pick for Indonesia, Wijaya Karya as the most diversified and large cap proxy to the sector but also highlight our other initiations PTPP (strong earnings visibility) and Waskita Karya (most leveraged government-owned proxy). Elsewhere, our Thailand universe has done well and we will be reviewing this in due course.

Gamuda (Share price: RM4.71, RM5.50)

Gamuda remains the best MRT proxy in Malaysia where Line 2 (Sg Buloh-Serdang-Putrajaya) is awaiting for official Cabinet approval. We continue to like its chances for the tunneling works (RM5bn for a 50% share) and PDP role, given its cost-efficient track record so far for Line 1.

Wijaya Karya (Share price: Rp2,251, Rp3,150)

WIKA has a tenderbook of c.Rp40tr and its historical hit rate of between 20-25% could mean another Rp8-10tr coming from more EPC jobs in the immediate term. YTD May 14 wins of Rp6.4tr are tracking its full-year target of Rp26tr. We maintain our BUY rating and TP of IDR3,150 pegged to 21x FY15F EPS (+2SD but below peak of 25x) as we believe the construction sector is in an upcycle.

Market Focus

ASEAN Strategy

Telecom (Sachin Mittal; [email protected])

Performance driving factors in June 2014

AIS, DTAC and XL were worst performers. AIS & DTAC dropped 7% each in June on the back of (i) re-capitalization of TRUE and (ii) military junta ordering postponement of 4G spectrum auction as it reviews various projects in Thailand. XL declined by over 8% possibly due to concerns about its rich valuations in the light of huge EPS dilution due to Axis acquisition. Another possible cause could be news flow on Hutch expanding its 3G network outside Java, which could be slightly negative for XL, as it secures two-thirds of its revenue from ex-Java. Singapore telcos were slightly weak in June due to broader market weakness.

Looking forward

3G is not enhancing ARPU in Indonesia & Thailand. Unlike Indonesian peers, Thai operators are prudent to keep 3G capex low despite regulatory cost savings. It makes sense to limit 3G capex in urban areas before rolling out a nationwide network. This would save excessive network, depreciation and interest costs resulting in superior earnings. However, Indonesian operators are spending way too much capex amid declining ARPU due to competitive reasons (despite tower leasing model). For Thai operators, the possible delay of 4G auction is a concern especially for AIS, which will be left with only 2100 MHz spectrum band after its 2G concession expires in 2015. In the event of a prolonged delay, AIS will need to subsidize 3G handsets to encourage 3G users to buy 3G handsets as it will not be able to offer 2G services.

Capex for Indonesian operators is too high versus peers

Source: Companies, DBS Bank

Indonesia relies heavily on SMS revenue (c.23% of mobile revenue versus 6% in Thailand). In prepaid dominated markets of Indonesia & Malaysia, it makes sense for subscribers to use free Internet Messaging apps in place of paid SMSes to lower their spending. In Malaysia, Maxis does not offer fixed bundle of voice & SMS with data even on

postpaid plans (47% of mobile revenue), hence accelerating its ARPU decline.

High SMS revenue is a concern as Internet Messaging rises

0%

5%

10%

15%

20%

25%

30%

2012 2013

SMS as % of mobile service revenue

FY13/14 for March Year Eng Source: Companies, DBS Bank

Tiered-data pricing is playing out well in Singapore. Consumers in Singapore are giving up unlimited data plans for tiered-data plans in order to avail attractive subsidies on 4G smart phones. About 7% of postpaid subscribers are paying excess charges already. This coupled with declining handset subsidies is going to boost FY14F earnings. The key risk in Singapore is (i) declining prepaid mobile revenue due to curbs on foreign labour and (ii) declining fixed broadband ARPU as multiple players compete for the same pool of subscribers. In Malaysia, tiered-data pricing is not launched yet but access speed drops sharply once data-cap is reached. Telkom Malaysia has confirmed its plan to launch 4G-LTE in the long term by acquiring a 57% stake in Packet One (P1) – a WiMax player - for its spectrum & infrastructure, in our view.


Buys

M1 (Share price: S$3.51, TP: S$3.60)

More subscribers paying excess data charges, Fixed Broadband revenue on the rise versus decline for peers; not affected by rising competition in the pay TV segment, offers 4.8% yield with single digit earnings growth.

Sells

XL Axiata (Share price: Rp5,100, TP Rp4,200)

Consensus’ FY14F/15F earnings may be cut by 45%/11% due to the consolidation of Axis. Too expensive at 112x FY14F PE and 31x FY15F PE. Too much hope placed that competition will ease. Indosat is eager to gain revenue share in the data space after a dismal performance in 1Q14. Hutch is also expanding its 3G network outside Java.

5%

10%

15%

20%

25%

30%

35%

40%

45%

2013 2014F

Capex to sales ratio

Market Focus

ASEAN Strategy

Transport (Paul YONG; [email protected])

Thailand Monthly Tourist Arrivals – Y-o-Y Change

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14

Source: DBS Bank, Bloomberg Finance L.P.


Notable performers for the month of June include Airports of Thailand (+6.7%), Thai Airways (+4.7%), and Jasa Marga (+2.6%) while one notable loser was HPH Trust (-4%). Other Singapore large cap transport names were largely flat, i.e. Singapore Airlines, SIA Engineering and ST Engineering.

Looking forward

Gradual improvement in air travel demand, driven by mild recovery in the US and Eurozone. We are seeing nascent signs of recovery for air travel to and from the US as well as Eurozone regions. The average year-to-date jet fuel price is c. 5% lower than last year’s and could provide some relief for carriers, especially as they are facing the challenge of falling yields.

Lifting of curfew could spark a turnaround for Thai Tourism. Overall tourist arrivals fell by c. 8% in May to 1.74m visitors, and June numbers are expected to remain weak. However, with the lifting of the curfew amid a more stable environment, Tourism could do much better in the second half of the year as compared to the first six months of 2014.

Key themes

Infrastructure plays to continue outperforming transport operators. We very much prefer infrastructure plays, i.e. airports, ports and toll roads, over operators such as container lines and airlines. The two main reasons are: 1) Operators continue to face global over-capacity which depresses yields. and 2) Operators remain vulnerable to volatile fuel prices. Meanwhile, infrastructure plays are better positioned to ride on sustained growth in traffic.

Worst is over for airlines, but this sector is a late cyclical. With improving travel demand on the long haul routes, as well as stabilising and lower jet fuel prices, we see profitability improving for airlines in general, though they remain fairly vulnerable to global economic conditions and fuel prices. However, their earnings are only expected to fully recover when the broader economy has had a more sustained period of improvement, which could potentially happen in the second half of 2014.

Top picks for the month of July

Our pick AoT performed well in June, gaining 6.7% for the month, while CMH (Pacific) was flat but still outperformed the STI. We maintain our two picks going into July as we see further upside for both stocks.

China Merchants Hldgs (Pacific) (Share price: S$0.92, TP: S$1.32)

Steady earnings growth, driven by higher traffic volumes in China as well as lower interest costs

Potential to buy more toll roads with its strong balance sheet to drive future growth

Attractive valuation with 7.6% dividend yield, and less than 10x fully-diluted core PE

Airports of Thailand (Share price: Bt198.50, TP: Bt237.00)

Steady earnings despite short-term uncertainties over political situation in Thailand; international arrival decline offset by higher passenger service charges

Great pick for the longer term, especially once international arrivals rebound upon an improvement in the country’s state of affairs

Offers a good 19% upside to our DCF-based TP of Bt237

Market Focus

ASEAN Strategy

Base Materials (LEE Eun Young; [email protected])

SE Asia Basic Resources Index vs. LME Index

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

0

100

200

300

400

500

600

700

05.12 06.12 07.12 08.12 09.12 10.12 11.12 12.12 13.12

SE Asia sector index‐Basic resources

LME Index

Source: Datastream, DBS Bank


Price indices reveal mixed signals. The MSCI for EM Metal & Mining rose 0.2% in June, charting two months of consecutive marginal growth. It had turned positive last month for the first time this year. Meanwhile, the SE Asia Basic Resource Index retreated c.3% in June, reversing from its uptrend since Feb. For metal prices, the LMEX Index increased 1.8%, while the CRB index declined 0.7% in June.

ASEAN Basic Resource Index was affected by drop in Nickel prices. Despite general price hikes in commodities, the ASEAN Basic Resource Index declined by c.3% in June. This was due to a 5.1% drop in Nickel prices after a strong 38% growth YTD, after Indonesia banned nickel ore exports in Jan. Many material sector’s large caps in the ASEAN stock market are running nickel-related businesses. Hence, the impact of a decline in Nickel prices on stock prices should remain significant going forward.

Looking forward

Iron ore prices to rebound but remain weak.

Iron ore prices (Fe content 62%) have dropped to US$90.9/ton on 13 June, the lowest level in 20 months. Specifically, Chinese banks are tightening credit on commodity to restrict shadow banking amid an official probe into a suspected metal financing fraud in Qingdao port, which accelerated the price decline. Iron ore prices have subsequently rebounded to US$95.3/ton on 27 June, due to real demand by steel producers. However, we believe its recovery would be capped by global supply increase and decelerating Chinese demand growth. Hence we expect steel prices to likely be stagnant, coupled with weak iron ore prices until they return to the growth track.

Nonferrous metal prices are passing their troughs. Despite negative

news of the probe into fraudulent financing in Qingdao port,

nonferrous metal prices have registered limited downside movement

in June. LME copper prices edged down only 0.8% in June, while

most metal prices have risen. Precious metals gold and silver have

shown strong price performances of 4.1% and 10.5% respectively.

We believe non-ferrous metal prices are passing their troughs, as most

of them are reaching production cost levels, while inventories have

declined significantly.

Key drivers & theme

Chinese economy’s recovery. For the commodity prices and sector’s stock prices in the region, the Chinese economy’s recovery should be a key catalyst. According to Reuter, China’s PMI (Purchasing Managers' Index) is forecast to rise to 51 in June, its best performance this year. Hence, we expect a better performance in the sector going forward compared to 1H14. For ASEAN players, we recommend investors to keep an eye on the effects of changes in nickel prices on nickel producers in the region.

Stock performance: Major ASEAN stocks

Singapore Indonesia Thailand Malaysia Philippines

XINREN ALUMINUM

KRAKATAU STEEL

ANEKA TAMBANG

VALE INDONESIA

STP & I PUBLIC CO

LTD KINSTEEL

BHD

DMCI HOLDINGS

INC

SEMIRARA MINING CORP

NICKEL ASIA CORP

Market cap (US$ m) 537 583 853 2,940 915 49 4,551 2,915 1,862

Chg % 1-month 5.1 (6.9) (11.9) (9.8) (4.3) (11.8) 1.0 (7.7) 19.7

Chg % 3-month (1.9) (14.6) (5.3) 27.6 (5.2) (11.8) 10.4 (7.6) 66.9 Rel. performance %, 1-month 5.2 (4.5) (9.7) (7.5) (9.7) (12.5) 0.1 (8.6) 18.6 Rel. performance %, 3-month (5.1) (16.7) (7.6) 24.5 (12.9) (13.4) 1.9 (14.7) 54.1

Source: Bloomberg Finance L.P., DBS Bank

Market Focus

ASEAN Strategy

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published,, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates do not have proprietary position in the company mentioned recommended in this report as of 31 May 2014 except for Keppel Land, CapitaRetail China Trust, M1

2. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% or 5% of any class of common equity securities of the company mentioned as of 31 May 2014.

3.

Compensation for investment banking services:

DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Nam Cheong Ltd,

Market Focus

ASEAN Strategy

Keppel Land, CapitaRetail China Trust.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

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General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

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Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR") (formerly known as HwangDBS Vickers Research Sdn Bhd). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

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Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

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

DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3

Singapore 018982 Tel. 65-6878 8888

Company Regn. No. 196800306E

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