January 6, 2020

Philippine Macro & Strategy

2020 Outlook

Playing the domestic growth story Analysts A healthy macro backdrop in 2020, with forecast +6.3% real GDP growth Equity: and further easing of monetary policy amid moderate inflation outlook and stable Peso, underpins our positive equity market outlook. Continued Katherine Tan ramp-up in government and investment spending, and greater private (63) 2 8849 8843 [email protected] sector participation in a growing list of infra projects, provide upside to

growth, while structural reforms re optimizing tax rates and investment Romel Libo-on STRATEGY

incentives will have broadly positive impact on the PSEi. Base case is for (63) 2 8849 8844 high single digit market earnings growth to sustain in 2020, with higher- [email protected] beta sectors (i.e. banks, property), construction and consumer favoured. Kayzer Llanda Macro: Robust momentum to continue (63) 2 8849 8839 [email protected] MACRO & MACRO GDP growth is expected to strengthen to +6.3% in 2020 (2019E: +6.0%) on additional monetary easing by BSP via another 25bps interest rate cut Fredrick De Guzman (2019: -75bps) and further -300bps RRR cut (2019: -400bps), and fiscal (63) 2 8849 8847 stimulus from a larger 2020 budget (+12% YoY) and spillover of unutilized [email protected]

2019 spending allocation (valid to end-2020). Expansion in the number of Macro: public-private partnership (PPP) infrastructure projects and

implementation of Corporate Income Tax and Incentive Rationalisation Suhaimi Ilias Act (CITIRA), which reduces corporate tax from 30% to 20% by 2029, will (603) 2297 8682 broadly reinvigorate private (domestic and foreign) investment. [email protected]

Philippines Market: Potential catalysts and risks Dr Zamros Dzulkafli (603) 2082 6818 Our 12M PSEi target of 8,700 based on bottom-up MKE/consensus TPs of [email protected] PSEi constituents, translates to a 16.2x forward PE, in line with historical average (Fig. 8). Besides the aforementioned growth upside, sustaining Ramesh Lankanathan structural reforms would allow the market to trade at above mean (603) 2297 8685 valuation, key measures being i) passage of CITIRA; and ii) liquidity boost [email protected]

from a forecast additional 300 bps RRR cut. Re risks, politics could be a

wild card, especially given concerns about President Duterte’s health, while a reversal of good relations with China could have implications on the property sector (tourism, POGOs) and investments (China ODA, FDI). Overweight banks, construction, property, consumer Sectors expected to generate the best returns in 2020 are i) banks, on NIM support from aggressive RRR cuts, healthy 11% forecast loan growth and contained asset quality stress; picks are BDO, MBT; ii) construction, as ramp-up in infra spending boosts order book of contractors; EEI is best positioned to defend margins and grow order book; iii) property, where we are cautious on office but positive on residential given easing mortgage rates; preference is for developers with low POGO exposures and potential REIT plays ALI, RLC and SMPH; and iv) consumer, given attractive dynamic of forecast domestic consumption recovery vs. 2019 sector underperformance – top pick is PGOLD; we also like JFC and URC. We are selective on conglos, preferring GTCAP with its exposure to our preferred bank MBT; Toyota sales recovery and car tax incentives.

Philippines: stock recommendations BBg Code Mkt. cap Rec. Price TP Upside EPS grw. (%) PER (x) ROE (%) P/B (x) Div. Yield (%) (PHPm) (PHP) (PHP) (%) CY19E CY20E CY19E CY20E CY19E CY20E CY19E CY20E CY19E CY20E

Top picks BDO Unibank BDO PM 13,208 BUY 158.0 174.0 10.1 24.7 9.3 17.1 15.7 11.3 11.2 1.9 1.7 0.8 0.8 Ayala Land ALI PM 12,658 BUY 45.5 56.3 23.7 11.4 18.2 20.6 17.4 15.5 16.3 3.2 2.8 1.7 1.9 Jollibee Foods JFC PM 4,600 BUY 216.0 247.0 14.4 17.4 23.5 27.8 42.3 11.1 9.8 4.8 4.1 1.2 0.8

GT Capital GTCAP PM 3,578 BUY 847.0 1095.0 29.3 8.7 14.2 12.8 11.2 10.6 9.2 1.0 1.0 0.4 0.4 Puregold PGOLD PM 2,279 BUY 39.8 52.7 32.6 4.9 16.0 17.1 14.7 11.0 11.7 1.9 1.7 1.0 1.0 EEI Corp EEI PM 195 BUY 9.8 13.1 33.7 48.7 2.0 9.1 8.9 12.7 11.4 1.2 1.0 0.0 0.0 Source: Maybank KE, Bloomberg – as at 27 Dec closing price

THIS REPORT HAS BEEN PREPARED BY MAYBANK ATR KIM ENG SECURITIES INC SEE PAGE 21 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Strategy Research

MACRO: Firmer footing on growth

Firmer growth in 2020E after slippage in 2019. Real GDP growth was +5.5% in 1H 2019 due to glitch from delay in Budget 2019 approval and ban on government spending during the mid-term election. But subsequent ramp up – thus normalization - in government spending, on top of the series of cuts in policy interest rate and RRR together with receding inflation have spurred +6.2% YoY growth in 3Q 2019 and we see +6.5% YoY expansion in 4Q 2019, which should take the full-year average growth to +6.0%.

Growth is expected to strengthen to +6.3% in 2020 on additional monetary policy easing by BSP via another 25bps cut in interest rate and further -300bps RRR cuts; plus fiscal stimulus from higher 2020 budget, spillover of 2019 unutilized government spending into 2020, and corporate tax rate cut.

Enhancing “Build, Build, Build”. The government revised and expanded the “Build, Build, Build” list to 100 flagship projects from 75 previously, which includes increasing public-private partnership (PPP) projects to 26 versus 9 previously. The higher numbers of PPP projects are to catalyse the execution of infrastructure investments going forward. Therefore, we expect further push in private investment growth momentum in 2020 and beyond. “Build, Build, Build” focus now is also more on smaller projects like roads, bridges and irrigation systems that will benefit more provinces not included in the original list.

Inclusive growth remains a challenge. The economy is mid-way through its Development Plan (PDP) 2017-2022 as part of the “AmBisyon Natin 2040”. PDP aims to increase the size of the economy by 50% between 2016 and 2022 and raise per capita income to at least USD5,000 in 2022 from USD3,550 in 2015 via +7.0%-8.0% real GDP growth p.a. It also target to lower poverty, jobless rate and youth unemployment. The challenge of inclusive growth is reflected by the stubbornly high youth unemployment rate of around 13% currently versus the 8.0% target.

Wildcard. There could be upside to our 2020 real GDP growth forecast of +6.3% as the unutilized spending allocation from the delayed Budget 2019 is allowed by law to be utilized until end-2020. Furthermore, actual and outlook of moderate inflation that creates rooms for BSP to ease its monetary policy in 2019-2020 could revive private consumption growth by more than currently expected. In addition, the implementation of Corporate Income Tax and Incentive Rationalisation Act (CITIRA) to cut corporate income tax rate and modernize investment incentives can boost private sector capex. Risks include regulatory related risks which could impact investors’ confidence, and recent surge in crude oil price on geopolitical risk in Middle East concerning the US and Iran that could result in higher than expected inflation.

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Strategy Research

Race to meet growth target

Need for speed in non-monetary policy execution

Philippines is on track to meet the official real GDP growth target of +6.0%-7.0% for 2019 after the glitches from the delay in Budget 2019 approval and ban on government spending during the mid-term election that saw real GDP growth slowed to +5.5% in 1H 2019 (2018: +6.2%).

Subsequent ramp up to normalize government spending, together with monetary policy stimulus from the series of cuts in policy interest rate totalling 75bps in May-Sep 2019 and in RRR totalling 400bps in May-Dec 2019 amid the deceleration in inflation (11M 2019: +2.5%; 2018: +5.2%), had resulted in faster +6.2% YoY growth in 3Q 2019. This momentum should be sustained in 4Q 2019 at +6.5% YoY, thus taking the economy back on track to hit the low end of the official growth target of +6.0%-7.0% for 2019.

After the hiccup in Budget 2019 approval and implementation, a speedier passage of Budget 2020 of PHP4.1tr is vital for timely execution in 2020 given the higher official growth target of +6.5%-7.5% for the year.

Economy set to expand +6.3% in 2020

Following the slippage in growth to +6.0% in 2019E (2018: +6.2%), we expect the economy to be on firmer footing in 2020 to post higher growth of +6.3%, though this is below the official target.

We expect additional monetary policy easing in 2020 i.e. another 25bps cut in the benchmark policy rate in 1H 2020, and further -300bps RRR cuts via -100bps per quarter reduction in 1Q-3Q 2020. Inflation is expected to remain within BSP’s inflation target range of 2.0%-4.0% at +3.0% (2019E: +2.5%) as the government continues to manage food inflation via existing measures to ensure sufficient supply of food.

Budget deficit is projected to be maintained at -3.2% of GDP on continued government spending in infrastructure projects to support economic growth, as well as fiscal stimulus from the expected corporate tax cut in 2020.

Budget 2020 is set for action

Budget 2020 was signed into law by President Duterte on 6 Jan 2020, a slight delay from earlier schedule of 20 Dec 2019. The PHP4.1tr budget is 12% higher than 2019’s budget as the expansionary fiscal policy is expected to complement monetary policy easing to achieve official growth target of +6.5%-7.5% in 2020 and maintain the momentum to achieve even higher growth target of +7.0%-8.0% p.a. in 2021 and 2022.

In addition, the House has also passed the resolution extending the validity of some portions of the Budget 2019’s PHP3.8tr until 31 Dec 2020, which was subsequently approved by Senate on 20 Nov 2019. The resolution extends the life of funds allocated for the maintenance and other operating expenses and for capital outlay under the 2019 budget into 2020.

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Strategy Research

CITIRA Bill to uplift private sector capex growth

Further support to growth in 2020 is expected to come from the implementation of Corporate Income Tax and Incentive Rationalisation Act (CITIRA) Bill, which will reduce corporate income tax rate from 30% to 20% by 2029. Philippines’ current 30% corporate income tax rate is the highest in ASEAN.

CITIRA is also aimed at invigorating domestic and foreign direct investments by modernising incentives structure to make the economy more attractive and competitive to investors, hence stimulating economic, jobs and income growth.

The government expects CITIRA to generate 1.5m jobs, add +1.1% to GDP growth in the first year of implementation i.e. 2020 and another +3.6% annually until 2030. CITIRA has been approved by the House but still pending in the Senate at the time of writing.

Recalibrating “Build, Build, Build”

Slow progress in infra projects, need a jump-start

In 2017, the government identified 75 projects under the “Build, Build, Build” program considered as "high-impact". From the 75 infrastructure projects, 37 have been processed and approved by National Economic and Development Authority (NEDA) board as of 25 Oct 2019. However, as of 15 Oct 2019, only 2 of the 75 projects have been completed, while 9 were under construction. The 2 completed projects were improvements along the River from Delpan Bridge to Channel, and the selective dredging of the Pulangi River with total cost of PHP1.24b.

Recent report by the Commission on Audit points to slow disbursements and delayed implementation of projects at the departments implementing the infrastructure projects as being the main reasons for the dismal progress.

Revise and expand the “Build, Build, Build” list

Hence, the government has revised and expanded the “Build, Build, Build” list to 100 flagship projects from 75 previously, including 26 Public Private Partnership (PPP) projects vs. 9 PPP projects previously. Priorities were given to the smaller but "game-changing projects" like roads, bridges and irrigation systems that will benefit provinces not included in the original list. At least 29 of the original infrastructure projects will not be pursued due to cost and engineering issues.

The new list divides the infrastructure projects into 5 sectors i.e. transport & mobility; water; urban development and renewal (including disaster resilience projects); information & communications technology (ICT); and power generation with total costs of PHP4.3tr. Bulk of the projects are in transport & mobility sector comprising 71 projects with total costs of PHP3.9tr. Other projects are water (11 projects costing PHP167.4b), urban development and renewal (9 projects costing PHP133.4b), ICT (7 projects costing PHP71.0b) and power (2 projects costing PHP20.0b).

NEDA targets at least 12 projects to be completed in 2020, 17 projects in 2021, 26 projects in 2022, and the rest beyond President Duterte’s terms in office.

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Strategy Research

The return of PPP

The government previously had shifted from PPP as the primary mode of implementing and financing infrastructure in favour of public funding and official development assistance (ODA). PPP projects now comprise 26% of total projects in the new list as compared with 12% previously. The higher numbers of PPP projects are to catalyse the execution of infrastructure investments going forward. Therefore, we expect further push in private investment growth momentum in 2020 and beyond.

The biggest of the 100 projects is the New International Airport amounting to PHP735.6b, classified as a PPP project via an unsolicited proposal. As of 31 Oct 2019, a total of 19 PPP projects are currently under implementation, of which 15 projects worth PHP242.8b had been solicited, while another 4 projects are unsolicited, amounted to PHP821.6b. This brings the total cost of PPP projects currently under implementation to PHP1.06tr. Meanwhile, the number of PPP projects in the pipeline is 49 projects amounting to PHP2.94tr.

Inclusive growth aspiration

Philippine Development Plan (PDP) 2017-2022

The Philippine Development Plan (PDP) 2017-2022 is the first medium-term plan anchored on socio-economic agenda and is geared towards the “AmBisyon Natin 2040” long term vision. It also takes into account the country’s international commitments such as the 2030 Sustainable Development Goals. The current PDP aims to lay a stronger foundation for inclusive growth, a high-trust society, and a globally-competitive economy towards realizing the vision by 2040.

The PDP 2017-2022 targets among others are to uplift the country to be an upper-middle income country by 2022 with inclusive growth, which include:

. Real GDP growth at +7.0%-8.0%, hence the economy to expand by almost 50% by 2022 vs. 2016.

. Higher per capita income from USD3,550 in 2015 to at least USD5,000 in 2022.

. Lower poverty incidence from 21.6% in 2015 to 14.0% in 2022, with rural poverty down from 30.0% in 2015 to 20.0% in 2022.

. Food inflation to remain within headline inflation 2.0%-4.0% target range.

. Lower unemployment rate to 3.0%-5.0% in 2022.

. Reduce youth unemployment rate to 8.0%.

. Generate 950,000-1.1m new jobs per year.

Underemployment still high

Unemployment rate has been kept below 6.0% since Apr 2017. Nevertheless, underemployment remained high at 13.0% in Oct 2019, as the jobs created by the economy are mainly low-paying and seasonal, resulting in underemployed workers. Youth unemployment rate (aged 15-24) stays double-digit at 12.9% in Apr 2019.

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Strategy Research

Manufacturing sector, which has a 21.2% share of GDP in 3Q 2019, accounts for only 8.5% share of total employment as of Jul 2019, and has been consistent around that level all the while. This shows that there are insufficient better- paying manufacturing job opportunities available in the country. Compare that to regional neighbours; the manufacturing sector in Malaysia and Thailand contributed 16.8% and 26.0% share of total employment respectively. Hence, the government needs to attract more high quality domestic and foreign direct investments to set up more manufacturing activities in the country and provide job opportunities.

On the other hand, the low-paying and seasonal sectors such as agriculture and services contributed 23.5% and 57.8% share of employment respectively. Agriculture and services sectors share of GDP are 7.2% and 59.7% in 3Q 2019 respectively.

Sticky wages

Minimum daily wage has been on the rise but is below GDP growth performance. Nominal minimum daily wage rate rose 5.1% in Jan-Oct 2019 (2018: +4.2%) while its real counterpart rose a mere 2.4% (2018: -1.2%) during the same period. If the PDP 2017-2022 objective of inclusive growth is to be achieved, swift and assertive enhancements are needed to further reduce poverty, create more high- income jobs, increase productivity and improve competitiveness.

Wildcard – Upside potential to 2020 growth

2019 budget spending to roll into 2020

Due to the delay in the approval of Budget 2019 in Apr 2019 and the 45 days public work ban on implementation of infrastructure and social services projects as the country headed to the 13 May 2019 mid-term election, some government agencies were unable to fully spend the allocated funds for 2019. Some of the pending projects are:

. Construction of 2,900 classrooms.

. Electricity supply for 590 schools.

. Produce 11.7m activity sheets for kinder and grade 1 children.

. Delays in 3,000 health infrastructure projects.

Details by the Senate Finance Committee Chair showed that less than 1% of the health facilities budget has been spent and still at procurement stage.

The Congress resolution allows for the implementation of and payment for 2019 Maintenance and Other Operating Expenses (MOOE) as well as other Capital Outlays (CO) and infrastructure projects to be extended until 30 Jun 2020 and 31 Dec 2020 respectively. These would be used to roll out government’s priority projects such as medical assistance program, aid, relief activities, maintenance, and construction and rehabilitation of schools, hospitals, roads, bridges, and other essential facilities of the government.

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Strategy Research

Official 2020 growth target could be within reach

Government expenditure growth slowed in 9M 2019 to +8.1% YoY (2019E: +9.7%) as compared to +12.8% in 2018. With the unutilized spending allocation from Budget 2019 to continue until end-2020, there could be upside potential to our real GDP growth forecast of +6.3% for 2020. Furthermore, the low-base in 1H 2019 should arithmetically boost growth in 1H 2020, provided that implementation of government spending and infrastructure projects are accelerated with minimal institutional bottlenecks and red tapes.

At the same time, the deceleration in inflation (11M 2019: +2.5%; 2018: +5.2%) created rooms for BSP to ease its monetary policy, principally via interest rate cuts, in turn lifting consumers sentiment and spending, thus reviving private consumption growth (9M 2019: +5.8%; 2018: +5.6%).

As mentioned earlier, inflation is expected to stay moderate and within BSP target range to allow further monetary policy easing/stimulus by BSP via additional interest rate and RRR cuts in 2020.

In addition, the implementation of CITIRA Bill can boost private sector investment. Therefore, there is potential upside to our +6.3% real GDP growth forecast for 2020 such that at least the lower end of the official growth target of 6.5%-7.5% is within reach.

Risks

The government’s move, in Dec 2019, to renegotiate or terminate the contracts of water concessionaires in Manila highlights the country’s regulatory risk. This creates concern over concession contracts in power distribution and toll roads although no pronouncements have been made by the government yet. With the government transitioning back to greater private sector participation in its infrastructure program, regulatory risk could affect overall investor sentiment.

Figure 1: Philippines: Key Macroeconomic Indicators

2017 2018 2019E 2020E Real GDP (%) 6.7 6.2 6.0 6.3 Private Consumption (%) 5.9 5.6 6.0 6.2 Government Consumption (%) 7.0 12.8 9.7 11.9 Gross Fixed Capital Formation (%) 9.5 14.0 3.8 11.2 Exports of Goods & Services (%) 19.5 11.5 3.3 4.4 Imports of Goods & Services (%) 18.1 14.5 2.9 7.6 Current Account Balance (% of GDP) (0.7) (2.6) (1.3) (2.0) Fiscal Balance (% of GDP) (2.2) (3.2) (3.2) (3.2) Inflation Rate (%, period average) 2.9 5.2 2.5 3.0 Unemployment Rate (%, period average) 5.7 5.3 5.0 5.0 Exchange Rate (per USD, end-period) 49.9 52.7 51.0 49.0 Benchmark Interest Rate (% p.a., end-period) 3.00 4.75 4.00 3.75 Source: CEIC, MKE Economics Research

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Strategy Research

Figure 2: Philippines – Government ramped up Figure 3: Philippines – Easing inflation is supportive to infrastructure spending in 3Q 2019 by +11.3% YoY (2Q sustain growth in consumer spending 2019: -32.6% YoY)

Source: CEIC Source: CEIC

Figure 4: Philippines – While unemployment remain stable, Figure 5: Philippines – High youth unemployment which underemployment persistently at double digit level stood at 12.9% in Apr 2019

Source: CEIC Source: CEIC

Figure 6: Philippines - Summary of the revised list of 100 "Build, Build, Build" projects

Sector Number of Project Project Cost Share (in PHPb) (% of total cost) Transport and Mobility 71 3,862,438 90.8 Water 11 167,429 3.9 Urban Development and Renewal 9 133,443 3.1 Information and Communications Technology 7 71,900 1.7 Power 2 20,046 0.5 Total 100 4,255,256 100.0 Source: Office of Presidential Adviser for Flagship Programs and Projects

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Strategy Research

Figure 7: Philippines - Summary of PPP Projects (as of 31 Oct 2019)

Stage/Mode of Procurement Number of Project Project cost (in PHPb) PPP Projects under Implementation Solicited 15 242.77 Unsolicited 4 821.59 Sub-Total 19 1,064.36 PPP Projects in the pipeline Solicited 15 0.38 Unsolicited 34 2,938.97

Sub-Total 49 2,939.35 Source: Philippines PPP Center

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Strategy Research

Sector Outlook

POSITIVE on Banks

Sector Analyst Outlook Our Thoughts

Banks Kat Tan Positive Rising to the challenge

Outlook. Post-strong 9M19 EPS growth of 35% on the back of better NIMs and hefty trading gains, FY20 growth is expected to come from recovery in loans, in our view. For the banks under our coverage, we estimate 11% loan growth in FY20 (vs. +9% in FY19E) and 8% EPS growth in FY20 (vs. +20% in FY19E). Hefty treasury gains propped FY19E as banks capitalized on low bond prices in the early part of the year.

The government has allowed appropriations under the 2019 national budget to be spent until the entire 2020 while 2020 national budget was signed on 6 Jan. The anticipated increase in both public and private sector infrastructure projects should spur loan demand. Low interest rate environment will also support consumer loan growth.

Likewise, liquidity has slightly eased with the 400bps cut in reserve requirement. RRR is now at 14% from 18% at the start of 2019, and MKE estimates a further drop of 300bps in 2020E. In our estimate, every 100bps RRR cut releases about PHP107b liquidity into the financial system, and increases banks’ NIMs by an average of 2.5bps. This will further support NIM expansion in 2020 albeit at a slower pace. Easing liquidity has also resulted in lower cost of funds, which will offset the potential deceleration in asset yield as banks’ fully integrate the 75bp cumulative reduction (in 2019) in benchmark interest rate. MKE is still looking for an additional 25bp policy rate cut in 1H20.

Meanwhile, systemic pressure on asset quality is not evident. On the specific exposure to Hanjin Phils, a quick resolution regarding the sale may result in lower required provisions for the affected banks - BDO, BPI and MBT. To recall, banks exposed to Hanjin Phils’ bad debt (i.e. BDO, BPI, RCBC and Land Bank) had participated in the debt-to-equity swap with Hanjin Heavy Industries and Construction. About 36% of the debt was converted to 20% equity stake.

Risks. Sharp decline in loan yield to protect and gain market share of the big banks could disrupt rational loan pricing, which will cap NIM improvement. Inability to further cut RRR may tighten liquidity and in turn result in high funding costs. Hence, preference is for the top banks with high CASA ratio. Other risks include further slowdown in loan growth (vs. 11% MKE forecast for FY20).

Stock picks. Our preferred exposures are BDO and MBT (both BUYs).

. Strong 9M19 EPS and lower capital requirement of Bangko Sentral ng Pilipinas (BSP) will allow BDO (BDO PM, TP: PHP174) to defer capital raising with parent’s CET1 ratio estimated to average 12.5% in next three years (vs. 12.6% end-Sep 2019), hence maximising ROE improvement (11.6% vs. 9.8% average for peer banks in FY20E).

. MBT (MBT PM, TP: PHP88.50) continues to be a valuation play, trading at 0.9x FY20E P/BV. Its strong capital position (CET1 at 15.0% end-Sep 2019) and strong niche in Chinese middle market and auto lending should continue to support margin improvement.

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Strategy Research

POSITIVE on Property

Sector Analyst Outlook Our Thoughts

Property Romel Positive Property takes a breather, but still on track Libo-on Outlook. The sector appears to have taken a breather since mid-2019, as twin uncertainties on Philippines Offshore Gaming Operators (POGO) regulations and the potential impact of the Comprehensive Tax Reform Program package 2 (CTRP 2) on Information Technology-Business Process Outsourcing (IT-BPO) incentives have dampened sentiment. The Property Index is now trading at 1SD below its mean forward PER, while the sector NAV discount has widened from 26% as of mid-2019, to around 35%, which we believe prices-in these uncertainties.

Despite this, we expect office demand from POGOs to comprise around one-third of annual take-ups, as the industry incumbents are still expanding despite a moratorium on new licenses. We also believe that a resolution on CTRP 2 in the next few months will greatly help the IT-BPO sector to decide on whether or not to continue their expansion plans.

There are some pockets of concern on the construction sector capacity, with some developers tempering their launch pipelines in order to manage constraints on skilled labour pool. The government’s ramp-up of infrastructure programme is starting to draw away from a limited pool of skilled construction labour. While this is still not a major problem for ongoing property projects in the short run, newly-launched projects could face longer turnover periods in the next few years, which could then affect revenue bookings for the residential segment and completions of new malls, offices, or hotels.

For residential, we continue to expect demand from locals and overseas Filipinos to support the market as around 70-80% of industry presales are from this demographic, enabled by lower mortgage rates. Chinese buying and inquiries have also slowed down in 2019, as there are fewer projects launched in their preferred locations of Manila Bay Area, , BGC, and .

Risks. Key risks include: 1) tougher regulatory stance on POGOs which could limit office demand growth; 2) shorter sunset provision of 3-5 years vs. the 10 year counterproposal on the removal of tax incentives of IT-BPOs based on the final CTRP 2 law; and 3) skilled labour shortage which could extend project completion timelines and slow down revenue bookings.

Stock picks. Our top BUY pick for the sector is Ayala Land (ALI PM, TP: PHP56.30) due to its diversified presence in property development, commercial leasing, and hospitality segments. Main drivers are the appreciation of its estates and industry-leading land bank (23K hectares) outside , a main beneficiary of the government’s infrastructure push, coupled with the improved earnings contribution of newly added malls & offices GLA comprising of around 279K launched back in 2H19. Lastly, we expect more favourable implementation rules & regulations (IRR) of Philippine REITs to be released in 1Q20, with Ayala Land slated to become the first developer to tap this market and use the potential proceeds to further expand its office leasing portfolio.

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Strategy Research

NEGATIVE on Utilities & Toll Roads

Sector Analyst Outlook Our Thoughts

Utilities & Kayzer Negative Navigating regulatory headwinds Toll Roads Llanda Outlook. We expect regulatory challenges for electricity and water distribution sectors to continue moving into 2020. On the other hand, the toll road sector is expected to benefit from staggered tariff increases implemented beginning 2019 with the possibility of additional upward tariffs in 2020.

Meralco’s (MER PM, SELL, TP: PHP315.0) scheduled rate reset process commenced in June 2019 with the regulator already conducting public consultation regarding draft rules to be used. We understand that the rate determination is expected in 4Q20 with implementation set to 2021. Our initial scenario analysis points to a lower rate range of PHP1.02-1.36/KWh, lower than the PHP1.38/KWh currently implement.

Meanwhile, uncertainty over water concessionaires’ contracts remain a key issue for Metro Pacific Investment’s (MPI PM, BUY, TP: PHP6.00) subsidiary Maynilad Water Services and Manila Water Company (MWC PM, BUY, TP: PHP28.0). The main issue on whether their contracts will be renegotiated or terminated is still unclear but recent pronouncements made by the President does not inspire confidence. Both concessionaires have already announced to defer their scheduled tariff increases to appease the administration. In addition, raw water supply issues will continue to be a concern with its main water source not being able to reach its target elevation by start of 2020.

For toll roads, MPI subsidiaries, MPI and Cavitex, are expected to implement another round of tariff increases following approval of a staggered implementation of their long- delayed 2012 and 2014 tariff adjustments.

Risks. Regulatory related, i.e. unfavourable terms for Meralco’s rate reset, negative decision for water distributors in Manila and non-implementation of scheduled tariff increases for the toll roads.

Stock picks. We continue to prefer MPI whose regulatory woes could be offset by positive developments in its toll roads unit. In addition, the recent stake sale in its hospital business provides the company capital to trim debt levels and fund on-going projects in the toll roads sector.

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Strategy Research

POSITIVE on Construction

Sector Analyst Outlook Our Thoughts

Construction Kayzer Positive Execution is key Llanda Outlook. Revenue visibility remains strong with EEI Corporation (EEI PM, BUY, TP: PHP13.2) and Megawide Construction Corporation’s (MWIDE PM, HOLD, TP: PHP20.0) combined 9M19 orderbook at a record level of PHP109b, equivalent to 3.2x 12-month trailing revenues. We expect new orders to remain strong particularly in the infrastructure sector where both companies are bidding for key segments in the PHP777b North-South Commuter Rail project.

Other infrastructure projects that are expected to commence construction in the next 12- 16 months include the PHP357b Manila Subway and PHP753b San Miguel Corp’s (SMC PM, Not rated) New Manila International Airport which could be a key source of orders for domestic contractors. However, execution will be key as contractors try to ramp up production level while maintaining margins.

Risks. Include: 1) project delays due to permitting issues; 2) managing attrition rates of both skilled and unskilled workers; and 3) uncollected revenues from variation orders.

Stock picks. We keep EEI as our top BUY pick as its long track record as an AAAA rated contractor with strong corporate ties makes EEI well placed to win sizeable contracts as infrastructure investments ramp up. Unlike other contractors, EEI has been successful in keeping margins in check and has an established upskilling program that has helped retain workers and improve production levels. More project wins from a pie of at least PHP1b contracts provide upside to our single-digit EPS growth forecasts for FY20-22.

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Strategy Research

POSITIVE on Consumer

Sector Analyst Outlook Our Thoughts

Consumer Fred de Positive Value emerging Guzman Outlook. We have a constructive view on the sector going into 2020 as macroeconomic drivers have turned supportive. Our Economics Team expects inflation to remain steady at 3.0% in 2020, well within the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target. Moreover, we expect a pick-up in consumer spending with our Economists forecasting 6.8% growth in private consumption, faster than 2019E’s 6.5%. Most consumer names have underperformed the PSEi in 2019, presenting an opportunity to add position as valuation premiums have narrowed.

We expect the recovery in domestic operations to anchor our forecasted 14.8% EBIT growth in 2020 (excluding FB). Absence of one-off factors such as supply chain disruptions, inflation overhang and adverse impact of PFRS 16 will further magnify YoY improvement. On the other hand, we are cautious on the international operations of some consumer companies (JFC, URC) given a slowing global economy. Nevertheless, we expect the domestic businesses to outweigh potential drags of their international operations.

Risks: Include: 1) more pronounced drag from international operations, 2) persistent adverse impacts of African swine fever and 3) irrational competition within sub-sectors.

Stock picks. Despite our positive top-down view on the sector, we advise investors to be selective on stock bets as some names are exposed to idiosyncratic risks.

. Our top BUY pick in the sector is PGOLD (PGOLD PM, TP: PHP52.70). Aside from inexpensive valuations — 14.8x 12M fwd P/E, 2.2 SDs below 5Y mean — PGOLD will benefit from margin recovery as inflation stabilizes, record-high Puregold expansion in 2018 fully ramps up and supplier support normalizes. This will lead to our expected 18.1% core income growth in FY20.

. We also like JFC (JFC PM, BUY, TP: PHP247.00) and URC (URC PM, BUY, TP: PHP173.00) on the back of the recovery of their domestic businesses. Additionally for JFC, we are of the view that recent share price underperformance has priced in the potential earnings drag from Smashburger and The Coffee Bean & Tea Leaf in 2020. We expect 23.5% and 11.4% YoY core income growth for JFC and URC respectively in FY20.

. We are lukewarm on RRHI (RRHI PM, HOLD, TP: PHP80.00) as we estimate that it is close to its fair value. We are optimistic on the faster-than-expected turnaround of Rustan, but we need to see improvements in RRHI’s capital use to make us more positive on the name.

. Lastly, we have a SELL on FB (FB PM, TP: PHP80.00) as the pending excise tax hike will challenge its highly-profitable beverage business (55% of revs, 91% of EBIT as of 9M19). Meanwhile, we also have a SELL on WLCON (WLCON PM, TP: PHP17.30) as strong residential construction and excellent execution of expansion plans in recent years have been priced in, in our view. Budding challenges to growth in the form of competition and a peaking property market also make us hesitant to recommend adding position on the name.

January 6, 2020 14

Strategy Research

Figure 8: PSEi’s 12M forward PER (x) 12M Fwd PE (LHS) 10Y Mean: 17.3x +1SD: 20x 30.0 -1SD: 14.5x +2SD: 22.7x -2SD: 11.8x

25.0

20.0

15.0

10.0

5.0

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

Source: Bloomberg, Maybank KE

Figure 9: PSEi’s trailing P/B (x) Trail Pb (LHS) 10Y Mean: 2.3x +1SD: 2.6x 4.0 -1SD: 2.1x +2SD: 2.9x -2SD: 1.8x

3.0

2.0

1.0

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

Source: Bloomberg, Maybank KE

January 6, 2020 15

Macro & Strategy Research

Appendix 1: Market stock watch as of 27 Dec 2019 YTD Mkt Cap ADTV Price TP Upside Rec 1D 1M 3M 12M YTD 2yr avg Year Net profit EPS EPS growth PE DPS Yield BVPS P/BV ROE Stock (USDm) (USDm) (PHP) (PHP) (%) (%) (%) (%) (%) (%) Beta* (PHPm) (PHP) (%) (x) (PHP) (%) (PHP) (x) (%) Banks BDO 13,154 4.48 158.00 174.00 10.13 BUY (0.8) (1.7) 7.2 15.8 (2.7) 1.07 2018A 32,369 7.4 15.4 21.3 1.2 0.8 73.7 2.1 10.3 2019F 40,379 9.2 24.7 17.1 1.2 0.8 82.9 1.9 11.3 2020F 44,148 10.1 9.3 15.7 1.2 0.8 91.8 1.7 11.2

BPI 7,642 1.55 87.90 101.00 14.90 BUY (2.4) (2.4) (6.6) (7.1) (1.2) 1.04 2018A 23,078 5.3 (6.0) 16.4 1.8 2.0 55.1 1.6 10.8 2019F 25,728 5.7 6.8 15.4 1.8 2.0 59.1 1.5 10.0 2020F 29,033 6.4 12.8 13.6 1.8 2.0 63.7 1.4 10.5

MBT 5,667 2.72 66.30 88.50 33.48 BUY (0.7) (5.0) 7.3 (13.8) (2.6) 0.92 2018A 22,008 5.2 1.7 12.9 0.9 1.3 61.8 1.1 7.8 2019F 26,288 5.8 13.3 11.3 0.9 1.3 66.8 1.0 8.6 2020F 30,412 6.8 15.7 9.8 0.9 1.3 72.7 0.9 9.2

SECB 2,738 1.19 195.00 183.00 (6.15) HOLD (1.5) (5.0) (5.7) 14.6 (4.6) 0.98 2018A 8,604 11.4 (16.1) 17.1 3.0 1.5 145.1 1.3 7.9 2019F 9,586 12.7 11.4 15.3 3.0 1.5 154.9 1.3 8.2 2020F 11,005 14.6 14.8 13.4 3.0 1.5 166.5 1.2 8.8

CHIB 1,308 0.15 25.05 30.00 20.24 HOLD (0.2) (0.2) 0.2 (9.4) (0.4) 0.49 2018A 8,110 3.0 7.9 8.3 0.8 3.3 32.4 0.8 9.2 2019F 8,883 3.3 9.5 7.6 0.9 3.5 34.8 0.7 9.4 2020F 9,746 3.6 9.7 6.9 0.9 3.5 37.6 0.7 9.6

PNB 1,074 0.09 34.50 61.00 69.21 BUY 0.1 0.7 (17.1) (13.5) 4.5 0.71 2018A 9,465 7.6 16.0 4.6 - - 89.9 0.4 7.5 2019F 8,992 6.5 (13.8) 5.3 - - 88.4 0.4 6.1 2020F 10,521 6.9 5.5 5.0 - - 95.8 0.4 6.6

UBP 1,377 0.00 57.70 63.00 8.71 HOLD 0.3 (0.1) (1.9) (10.0) 0.4 0.43 2018A 7,316 6.7 (16.2) 8.7 1.9 3.3 61.4 0.9 8.1 2019F 7,929 6.5 (2.2) 8.9 1.9 3.3 66.0 0.9 8.3 2020F 8,314 6.8 4.8 8.4 1.9 3.3 70.9 0.8 8.1 Consumer PGOLD 2,238 0.05 39.75 52.70 32.58 BUY (0.1) 2.7 4.0 (15.0) - 0.59 2018A 6,193 2.2 5.4 17.9 0.4 1.0 19.5 2.0 11.9 2019F 6,633 2.3 4.9 17.1 0.4 1.0 20.7 1.9 11.0 2020F 7,836 2.7 16.0 14.7 0.4 1.0 23.0 1.7 11.7

JFC 4,455 0.03 216.00 247.00 14.35 BUY (3.2) 3.0 (5.5) (32.7) (3.7) 0.98 2018A 8,330 7.8 17.4 27.8 2.5 1.2 45.1 4.8 17.2 2019F 4,434 4.1 (46.7) 52.2 1.8 0.8 48.7 4.4 11.1 2020F 5,475 5.1 23.5 42.3 1.7 0.8 52.1 4.1 9.8

URC 6,261 0.06 145.00 173.00 19.31 BUY (2.3) 7.0 (7.7) 14.3 0.3 1.13 2018A 9,605 4.4 (7.7) 33.3 3.2 2.2 38.0 3.8 11.0 2019F 11,167 5.1 16.3 28.6 3.2 2.2 39.9 3.6 12.7 2020F 12,440 5.6 11.4 25.7 3.2 2.2 42.4 3.4 13.3

RRHI 2,410 0.00 80.00 80.00 - HOLD (2.2) 6.2 3.0 (11.0) (2.1) 0.61 2018A 5,179 3.5 (2.4) 22.9 0.9 1.1 43.5 1.8 7.5 2019F 4,082 2.6 (26.0) 30.9 0.6 0.8 45.4 1.8 5.7 2020F 4,869 3.1 19.3 25.9 0.8 1.0 47.7 1.7 6.5

WLCON 1,434 0.00 18.00 17.30 (3.89) SELL 0.1 (2.7) 5.8 34.2 (0.4) 0.59 2018A 1,835 0.4 21.2 40.2 0.1 0.6 3.2 5.6 13.9 2019F 2,031 0.5 10.7 36.3 0.1 0.6 3.6 5.0 13.7 2020F 2,201 0.5 8.4 33.5 0.1 0.7 4.0 4.5 13.4

FB 9,679 0.00 85.00 80.00 (5.88) SELL (0.1) (5.4) (6.8) 2.4 (1.3) 0.80 2018A 17,559 3.0 3.7 28.6 1.6 1.9 14.8 5.7 20.8 2019F 18,266 3.1 4.0 27.5 1.6 1.8 16.3 5.2 18.9 2020F 17,811 3.0 (2.5) 28.2 1.4 1.6 18.0 4.7 16.7 Property JanuaryALI 6, 2020 12,572 5.72 45.50 56.30 23.74 BUY (2.2) (3.8) (5.3) 0.1 (3.8) 0.99 2018A 29,241 2.0 15.4 22.9 0.6 1.2 12.7 3.6 15.6 16 2019F 32,581 2.2 11.4 20.6 0.8 1.7 14.2 3.2 15.5 2020F 38,500 2.6 18.2 17.4 0.9 1.9 16.1 2.8 16.3

MEG 2,518 1.76 4.01 7.00 74.56 BUY (1.7) (6.3) (11.1) (17.2) (0.2) 1.01 2018A 14,928 0.5 13.6 8.7 0.1 1.5 5.9 0.7 8.1 2019F 16,477 0.5 10.4 7.8 0.1 1.7 6.3 0.6 8.4 2020F 19,171 0.6 16.3 6.7 0.1 1.9 6.8 0.6 8.9

RLC 2,920 0.95 27.55 31.00 12.52 BUY (2.4) 11.6 18.0 33.3 4.5 0.93 2018A 6,961 1.3 (6.7) 20.6 0.4 1.3 18.0 1.5 8.9 2019F 9,672 1.9 38.9 14.8 0.4 1.3 20.0 1.4 9.4 2020F 10,466 2.0 8.2 13.7 0.4 1.3 21.7 1.3 9.4

SMPH 23,735 5.65 42.10 43.30 2.85 BUY (1.6) 3.2 11.5 9.4 - 1.07 2018A 32,173 1.1 16.7 37.8 0.4 0.9 9.5 4.4 11.7 2019F 38,277 1.3 19.0 31.8 0.4 1.0 10.4 4.0 12.7 2020F 41,235 1.4 7.7 29.5 0.4 1.1 11.4 3.7 12.5

VLL 1,867 0.33 7.73 7.10 (5.71) SELL (0.5) (0.7) (2.1) 34.5 (2.6) 0.38 2018A 10,238 0.8 16.3 9.7 0.2 2.8 7.0 1.1 11.4 2019F 11,276 0.9 10.4 8.8 0.2 3.1 7.7 1.0 11.5 2020F 12,568 1.0 12.3 7.8 0.3 3.5 8.5 0.9 11.7

FLI 710 0.14 1.50 2.00 33.33 BUY (0.7) (0.7) - 4.4 - 0.77 2018A 6,946 0.3 22.3 5.2 0.1 4.7 2.8 0.5 10.1 2019F 8,062 0.3 16.1 4.5 0.1 5.7 3.1 0.5 10.7 2020F 8,518 0.4 5.7 4.3 0.1 6.6 3.3 0.4 10.5

DMW 648 0.01 9.90 16.8 69.70 BUY (0.2) (5.2) (1.2) 23.9 (1.2) n.a. 2018A 937 0.3 (46.6) 32.3 - - 5.7 1.7 0.1 2019F 1,852 0.6 97.7 16.3 0.2 1.7 6.3 1.6 0.1 2020F 3,083 1.0 66.5 9.8 0.2 2.3 7.0 1.4 0.1 Utilities MER 6,861 0.54 317.00 315.00 (0.63) SELL (0.2) (4.4) (15.0) (19.6) (1.6) 0.72 2018A 22,408 19.9 10.9 15.9 13.4 4.2 72.8 4.4 28.1 2019F 23,455 20.8 4.7 15.2 16.1 5.1 77.6 4.1 26.8 2020F 23,645 21.0 0.8 15.1 16.8 5.3 81.7 3.9 25.7

MWC 362 4.41 10.36 28.00 170.27 BUY (2.7) (45.0) (54.7) (67.6) (13.4) 0.47 2018A 5,428 2.6 (0.9) 3.9 0.9 8.3 25.6 0.4 10.4 2019F 4,075 2.0 (24.9) 5.2 0.9 8.8 27.0 0.4 7.4 2020F 7,337 3.6 80.1 2.9 0.7 6.7 30.1 0.3 11.9 Construction EEI 191 0.01 9.80 13.10 33.67 BUY 0.1 (8.5) (8.5) 14.9 (3.9) 0.69 2018A 752 0.7 37.7 13.5 - - 7.4 1.3 6.9 2019F 1,118 1.1 48.7 9.1 - - 8.5 1.2 12.7 2020F 1,140 1.1 2.0 8.9 - - 9.6 1.0 11.4

MWIDE 653 0.07 16.38 20.00 22.10 HOLD (0.1) (3.0) (11.8) (10.8) (1.1) 0.57 2018A 1,469 0.6 (20.8) 29.5 0.1 0.7 6.8 2.4 12.1 2019F 1,552 0.6 6.9 27.6 0.2 0.9 7.2 2.3 11.9 2020F 2,708 1.1 91.0 14.4 0.2 0.9 8.2 2.0 17.1

Conglomerates MPI 2,095 1.09 3.48 6.00 72.41 BUY (1.2) (7.1) (30.8) (29.9) (2.3) 0.90 2018A 15,059 0.5 6.8 7.3 0.1 3.2 5.5 0.6 8.2 2019F 14,494 0.5 (3.7) 7.6 0.1 3.2 5.8 0.6 7.9 2020F 15,163 0.5 4.6 7.2 0.1 3.2 6.2 0.6 7.7

GTCAP 3,621 0.76 847.00 1,095.00 29.28 BUY (1.4) (4.3) 2.6 (6.5) 1.7 1.38 2018A 13,071 60.7 (9.4) 14.0 3.0 0.4 731.0 1.2 8.9 2019F 14,206 66.0 8.7 12.8 3.0 0.4 808.2 1.0 10.6 2020F 16,225 75.4 14.2 11.2 3.0 0.4 880.5 1.0 9.2 Ports & Transportation ICT 5,175 3.61 128.60 140.00 8.86 BUY (2.2) 10.4 9.5 36.1 3.0 0.72 2018A 8,297 4.1 16.8 31.5 2.6 2.0 45.0 2.9 37.8 2019F 11,026 5.4 32.8 23.7 4.9 3.8 41.1 3.1 45.9 2020F 12,706 6.3 15.2 20.6 3.8 3.0 43.5 3.0 43.5 PSEi 7815.26 8,700.0 11.32 (1.6) (1.2) 0.1 (0.6) (1.3) Macro & Strategy Research

YTD Mkt Cap ADTV Price TP Upside Rec 1D 1M 3M 12M YTD 2yr avg Year Net profit EPS EPS growth PE DPS Yield BVPS P/BV ROE Stock (USDm) (USDm) (PHP) (PHP) (%) (%) (%) (%) (%) (%) Beta* (PHPm) (PHP) (%) (x) (PHP) (%) (PHP) (x) (%) Property ALI 12,733 8.91 45.50 56.30 23.74 BUY (1.3) (3.0) (4.4) 1.0 (3.0) 0.99 2018A 29,241 2.0 15.4 22.9 0.6 1.2 12.7 3.6 15.6 2019F 32,581 2.2 11.4 20.6 0.8 1.7 14.2 3.2 15.5 2020F 38,500 2.6 18.2 17.4 0.9 1.9 16.1 2.8 16.3

MEG 2,603 2.14 4.01 7.00 74.56 BUY 1.2 (3.5) (8.4) (14.7) 2.7 1.01 2018A 14,928 0.5 13.6 8.7 0.1 1.5 5.9 0.7 8.1 2019F 16,477 0.5 10.4 7.8 0.1 1.7 6.3 0.6 8.4 2020F 19,171 0.6 16.3 6.7 0.1 1.9 6.8 0.6 8.9

RLC 2,926 1.23 27.55 31.00 12.52 BUY (2.5) 11.4 17.8 33.0 4.4 0.93 2018A 6,961 1.3 (6.7) 20.6 0.4 1.3 18.0 1.5 8.9 2019F 9,672 1.9 38.9 14.8 0.4 1.3 20.0 1.4 9.4 2020F 10,466 2.0 8.2 13.7 0.4 1.3 21.7 1.3 9.4

SMPH 23,878 6.88 42.10 43.30 2.85 BUY (1.4) 3.4 11.8 9.6 0.2 1.07 2018A 32,173 1.1 16.7 37.8 0.4 0.9 9.5 4.4 11.7 2019F 38,277 1.3 19.0 31.8 0.4 1.0 10.4 4.0 12.7 2020F 41,235 1.4 7.7 29.5 0.4 1.1 11.4 3.7 12.5

VLL 1,878 0.41 7.73 7.10 (5.96) SELL (0.3) (0.4) (1.8) 34.8 (2.3) 0.38 2018A 10,238 0.8 16.3 9.7 0.2 2.8 7.0 1.1 11.4 2019F 11,276 0.9 10.4 8.8 0.2 3.1 7.7 1.0 11.5 2020F 12,568 1.0 12.3 7.8 0.3 3.5 8.5 0.9 11.7

FLI 717 0.17 1.50 2.00 32.45 BUY - - 0.7 5.1 0.7 0.77 2018A 6,946 0.3 22.3 5.2 0.1 4.7 2.8 0.5 10.1 2019F 8,062 0.3 16.1 4.5 0.1 5.7 3.1 0.5 10.7 2020F 8,518 0.4 5.7 4.3 0.1 6.6 3.3 0.4 10.5

DMW 651 0.03 9.90 16.8 69.70 BUY (0.2) (5.2) (1.2) 23.9 (1.2) n.a. 2018A 937 0.3 (46.6) 32.3 - - 5.7 1.7 0.1 2019F 1,852 0.6 97.7 16.3 0.2 1.7 6.3 1.6 0.1 2020F 3,083 1.0 66.5 9.8 0.2 2.3 7.0 1.4 0.1 Utilities MER 6,868 0.71 317.00 315.00 (0.63) SELL (0.4) (4.6) (15.3) (19.8) (1.9) 0.72 2018A 22,408 19.9 10.9 15.9 13.4 4.2 72.8 4.4 28.1 2019F 23,455 20.8 4.7 15.2 16.1 5.1 77.6 4.1 26.8 2020F 23,645 21.0 0.8 15.1 16.8 5.3 81.7 3.9 25.7

MWC 388 5.79 10.36 28.00 170.27 BUY 4.1 (41.1) (51.5) (65.3) (7.3) 0.47 2018A 5,428 2.6 (0.9) 3.9 0.9 8.3 25.6 0.4 10.4 2019F 4,075 2.0 (24.9) 5.2 0.9 8.8 27.0 0.4 7.4 2020F 7,337 3.6 80.1 2.9 0.7 6.7 30.1 0.3 11.9 Construction EEI 190 0.02 9.80 13.10 33.67 BUY (0.4) (9.0) (9.0) 14.3 (4.4) 0.69 2018A 752 0.7 37.7 13.5 - - 7.4 1.3 6.9 2019F 1,118 1.1 48.7 9.1 - - 8.5 1.2 12.7 2020F 1,140 1.1 2.0 8.9 - - 9.6 1.0 11.4

MWIDE 649 0.09 16.38 20.00 22.10 HOLD (1.1) (4.0) (12.6) (11.7) (2.1) 0.57 2018A 1,469 0.6 (20.8) 29.5 0.1 0.7 6.8 2.4 12.1 2019F 1,552 0.6 6.9 27.6 0.2 0.9 7.2 2.3 11.9 2020F 2,708 1.1 91.0 14.4 0.2 0.9 8.2 2.0 17.1

Conglomerates MPI 2,159 1.26 3.48 6.00 72.41 BUY 1.5 (4.6) (28.9) (28.0) 0.3 0.90 2018A 15,059 0.5 6.8 7.3 0.1 3.2 5.5 0.6 8.2 2019F 14,494 0.5 (3.7) 7.6 0.1 3.2 5.8 0.6 7.9 2020F 15,163 0.5 4.6 7.2 0.1 3.2 6.2 0.6 7.7

GTCAP 3,691 0.98 847.00 1,095.00 29.28 BUY 0.1 (2.8) 4.2 (5.0) 3.3 1.38 2018A 13,071 60.7 (9.4) 14.0 3.0 0.4 731.0 1.2 8.9 2019F 14,206 66.0 8.7 12.8 3.0 0.4 808.2 1.0 10.6 2020F 16,225 75.4 14.2 11.2 3.0 0.4 880.5 1.0 9.2 Ports & Transportation ICT 5,292 4.28 128.60 140.00 8.86 BUY (0.4) 12.5 11.6 38.7 5.0 0.72 2018A 8,297 4.1 16.8 31.5 2.6 2.0 45.0 2.9 37.8 2019F 11,026 5.4 32.8 23.7 4.9 3.8 41.1 3.1 45.9 2020F 12,706 6.3 15.2 20.6 3.8 3.0 43.5 3.0 43.5 PSEi 7815.26 8,700.0 11.32 (0.5) (0.0) 1.2 0.5 (0.2) Source: Maybank Kim Eng estimates, Bloomberg – as at 27 Dec 2019 closing price

January 6, 2020 17

Macro & Strategy Research

Appendix 2: Flagship Projects List to be funded by Public-Private Partnerships (PPP)

Project title Project Proponent Locati Project Funding Target Status on cost source complet (PHPb) ion 1 Integrated Terminal Arca South Integrated NCR 4.0 PPP 2021 >For implementation Exchange Terminal Inc (ASITI) 2 LRT-1 Cavite Extension Light Rail Manila NCR 64.9 PPP 2022 >Under construction Corporation (consortium >Key proponents are AC-MPI of Ayala Corporation, Metro Pacific Light Rail Corporation and Macquarie Infrastructure Holdings) 3 MRT-7 SMC Mass Rail Transit 7, Inc. NCR 70.8 PPP 2021 >Under construction >Key proponent is SMC >EEI tapped as civil works general contractor 4 Clark International Airport Megawide – GMR Joint Luzon 15.0 PPP 2020 >Under construction Expansion Venture Incorporated >MWIDE tapped as EPC contractor (MGCJVI) >JGS-FLI group awarded O&M contract >Under construction >Key proponent is SMC >EEI tapped as civil works general contractor >Under construction >Key proponent is SMC >EEI/DMC tapped as civil works general contractor 5 Southeast Metro Manila NCR 45.3 PPP 2022 >Under construction Expressway Project >MWIDE tapped as EPC contractor 6 Metro Manila Stage 3 Citra Central Expressway NCR 37.4 PPP 2020 >JGS-FLI group awarded O&M contract Corporation (CCEC) >Under construction >Key proponent is SMC >EEI tapped as civil works general contractor >Under construction >Key proponent is SMC >EEI/DMC tapped as civil works general contractor >For implementation >Key proponent is MPI >DMC tapped as EPC contractor 7 NLEX-SLEX Connector Road Manila North Tollways Corp NCR 23.3 PPP 2022 >For implementation >Key proponent is MPI >DMC tapped as EPC contractor 8 C5 Southlink Expressway Manila North Tollways Corp NCR 12.6 PPP 2022 >Under construction Project >Key proponent is MPI 9 SLEX TR 4 Luzon 19.1 PPP 2022 >Under construction >Key proponent is SMC 10 Quezon-Bicol Expressway Luzon 89.3 PPP 2026 >Advanced stages of feasibility studies 11 New Manila/Bulacan San Miguel Holdings Corp Luzon 753.6 PPP 2025 >For implementation; construction International Airport expected to commence 2021 >SMC recently finalized concession agreement with government 12 Ninoy Aquino International NAIA consortium NCR 101.9 PPP 2024 >Advanced stages of government Airport approval >Government and proponents finalizing terms of concession agreement prior to Swiss Challenge >Key proponent is consortium of AP, AEV, AC, MPI, JGS, FDC and LTG 13 Bacolod-Silay International Visayas 20.3 PPP 2026 >Advanced stages of government Airport approval >Unsolicited proposal submitted by Dennis Uy under review Source: NEDA, www.ppp.gov.ph

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Macro & Strategy Research

Project title Project Proponent Locati Project Funding Target Status on cost source compl (PHPb) etion

14 Ilo-ilo International Airport Visayas 4.6 PPP 2023 >Advanced stages of government approval >Unsolicited proposal submitted by Villar Family under review

15 C5 MRT 10 Project C5 Mass Transit Corp Ltd NCR 81.5 PPP 2022 >Advanced stages of government approval

16 BGC-Makati Skytrain NCR 3.3 PPP 2022 >Advanced stages of government approval >Unsolicited proposal submitted by AGI under review

17 MRT-11 Aerorail Integrated NCR 71.1 PPP 2022 >Advanced stages of government Transport Services, Inc approval

18 LRT-6 Cavite Line Prime Asset Ventures Inc Luzon 50.4 PPP 2021 >Advanced stages of government (PAVI) approval

19 New Bohol (Panglao) Aboitiz InfraCapital Inc Visayas 4.0 PPP 2021 >Advanced stages of government International Airport approval >Unsolicited proposal submitted by AEV under review

20 Kalibo International Airport Mega 7 Construction Visayas 3.8 PPP 2022 >Advanced stages of government approval

21 Cebu Monorail System Udenna Infrastructure Corp Visayas 78.9 PPP 2023 >Advanced stages of feasibility studies

22 Lagundingan Airport Aboitiz InfraCapital Inc Mindan 45.8 PPP 2020 >Advanced stages of government ao approval >Unsolicited proposal submitted by AEV under review

23 Davao International Airport Chelsea Logistics Holdings Mindan 49.0 PPP 2028 >Advanced stages of government Corp ao approval >Unsolicited proposal submitted by Dennis Uy under review

24 TPLEX Extension Project San Miguel Holdings Corp Luzon 23.9 PPP 2026 >Advanced stages of government approval >Unsolicited proposal submitted by SMC under review

25 Cavite-Tagaytay-Batangas MPCALA Holdings Luzon 22.4 PPP 2024 >Advanced stages of government Expressway Project Incorporated and Metro approval Pacific >Unsolicited proposal submitted by MPI Tollways Corporation under review (MPTC)

26 New Clark City Phase 1 Luzon 18.0 PPP 2022 >Under construction a) National Government Administrative Center b) Filinvest Mixed Use Industrial Development Site

Source: NEDA, www.ppp.gov.ph

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Macro & Strategy Research

Research Offices

MACRO REGIONAL EQUITIES SINGAPORE THAILAND

Sadiq CURRIMBHOY Anand PATHMAKANTHAN CHUA Su Tye Maria LAPIZ Head of Institutional Research Head of Regional Macro Research Head of Regional Equity Research (65) 6231 5842 [email protected] Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 (65) 6231 5836 (603) 2297 8783 • REITs [email protected] [email protected] [email protected] • Strategy • Consumer • Materials • Services LAI Gene Lih, CFA Teerapol UDOMVEJ, CFA ECONOMICS WONG Chew Hann, CA (65) 6231 5832 [email protected] • Technology • Healthcare (66) 2658 6300 ext 1394 Head of ASEAN Equity Research [email protected] Suhaimi ILIAS (603) 2297 8686 Chief Economist Thilan WICKRAMASINGHE • Healthcare [email protected] (65) 6231 5840 [email protected] Malaysia | Philippines | Global Jesada TECHAHUSDIN, CFA (603) 2297 8682 • Banks • Consumer (66) 2658 6300 ext 1395 ONG Seng Yeow [email protected] [email protected] Research, Technology & Innovation TAN Chin Poh Head of Retail Research (65) 6231 5928 [email protected] • Banking & Finance CHUA Hak Bin (65) 6231 5839 Regional Thematic Macroeconomist [email protected] Kaushal LADHA, CFA Eric ONG (65) 6231 5830 (66) 2658 6300 ext 1392 (65) 6231 5924 [email protected] [email protected] MALAYSIA [email protected] • Retail Research • Oil & Gas LEE Ju Ye Anand PATHMAKANTHAN, Head of Research Ekachai TARAPORNTIP Head of Retail Research (603) 2297 8783 Matthew SHIM Singapore | Thailand (65) 6231 5929 (66) 2658 5000 ext 1530 (65) 6231 5844 [email protected] [email protected] • Strategy [email protected] [email protected] • Retail Research Surachai PRAMUALCHAROENKIT Desmond CH’NG, ACA (66) 2658 5000 ext 1470 Linda LIU Kareen CHAN (603) 2297 8680 [email protected] Singapore | Vietnam (65) 6231 5926 [email protected] • Auto • Conmat • Contractor • Steel (65) 6231 5847 [email protected] • Retail Research Suttatip PEERASUB [email protected] • Banking & Finance (66) 2658 5000 ext 1430 INDIA [email protected] Dr Zamros DZULKAFLI LIAW Thong Jung • Media • Commerce (603) 2082 6818 (603) 2297 8688 [email protected] Jigar SHAH Head of Research • Oil & Gas Services- Regional [email protected] (91) 22 4223 2632 [email protected] Jaroonpan WATTANAWONG • Automotive • Strategy • Oil & Gas • Automobile • Cement (66) 2658 5000 ext 1404 Ramesh LANKANATHAN [email protected] ONG Chee Ting, CA (603) 2297 8685 Neerav DALAL • Transportation • Small cap [email protected] (603) 2297 8678 [email protected] • Plantations - Regional (91) 22 4223 2606 [email protected] Thanatphat SUKSRICHAVALIT • Software Technology • Telcos (66) 2658 5000 ext 1401 William POH [email protected] (603) 2297 8683 YIN Shao Yang, CPA Kshitiz PRASAD • Media • Electronics [email protected] (603) 2297 8916 [email protected] • Gaming – Regional • Media (91) 22 4223 2607 Wijit ARAYAPISIT FX [email protected] (66) 2658 5000 ext 1450 TAN Chi Wei, CFA • Banks [email protected] Saktiandi SUPAAT (603) 2297 8690 [email protected] • Strategist Head of FX Research • Power • Telcos INDONESIA Kritsapong PATAN (65) 6320 1379 (66) 2658 5000 ext 1310 [email protected] WONG Wei Sum, CFA Isnaputra ISKANDAR Head of Research [email protected] (603) 2297 8679 [email protected] (62) 21 8066 8680 • Chartist Christopher WONG • Property [email protected] (65) 6320 1347 • Strategy • Metals & Mining • Cement VIETNAM [email protected] LEE Yen Ling • Autos • Consumer • Utility (603) 2297 8691 [email protected] LE Hong Lien, ACCA TAN Yanxi • Glove • Ports • Shipping • Healthcare Rahmi MARINA Head of Institutional Research (62) 21 8066 8689 (65) 6320 1378 (84 28) 44 555 888 ext 8181 [email protected] Kevin WONG [email protected] [email protected] (603) 2082 6824 [email protected] • Banking & Finance • Strategy • Consumer • Diversified Fiona LIM • REITs • Consumer Discretionary • Technology Aurellia SETIABUDI (65) 6320 1374 (62) 21 8066 8691 LE Nguyen Nhat Chuyen Adrian WONG, CFA (84 28) 44 555 888 ext 8082 [email protected] [email protected] [email protected] (603) 2297 8675 [email protected] • Property STRATEGY • Constructions • Building Materials • Oil & Gas Luthfi RIDHO QUAN Trong Thanh Willie CHAN Jade TAM (62) 21 8066 8690 (84 28) 44 555 888 ext 8184 Regional (603) 2297 8687 [email protected] [email protected] • Macro/Strategy [email protected] (852) 2268 0631 • Consumer Staples • Banks [email protected] TEE Sze Chiah Head of Retail Research PHILIPPINES NGUYEN Thi Sony Tra Mi Anand PATHMAKANTHAN (603) 2082 6858 [email protected] (84 28) 44 555 888 ext 8084 Katherine TAN [email protected] ASEAN (63) 2 8849 8843 Nik Ihsan RAJA ABDULLAH, MSTA, CFTe • Consumer (603) 2297 8783 [email protected] [email protected] (603) 2297 8694 [email protected] • Banks • Conglomerates • Ports Tyler Manh Dung Nguyen • Chartist (84 28) 44 555 888 ext 8180 FIXED INCOME Romel LIBO-ON [email protected] (63) 2 8849 8844 Amirah AZMI • Utilities Winson PHOON, ACA [email protected] (603) 2082 8769 [email protected] (65) 6812 8807 • Property NGUYEN Thi Ngan Tuyen • Retail Research [email protected] Head of Retail Research Kayzer LLANDA (84 28) 44 555 888 ext 8081

SE THO Mun Yi (63) 2 8849 8839 [email protected] (603) 2074 7606 [email protected] • Food & Beverage • Oil&Gas • Banking [email protected] • Utilities NGUYEN Thanh Lam Fredrick De GUZMAN (84 28) 44 555 888 ext 8086 (63) 2 8849 8847 [email protected] [email protected] • Technical Analysis • Consumer

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APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should no t be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contai ned herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressio ns. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to t ime participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. One or more directors, officers and/or employees of MKE may be a director of the issue rs of the securities mentioned in this report to the extent permitted by law. This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in w hole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect. 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. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this report. Malaysia Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Singapore This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Rese arch Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to cont act Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional inv estor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. Thailand Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of Maybank Kim Eng Securities (Thailand) Public Company Limited. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) accepts no liability whatsoeve r for the actions of third parties in this respect. Due to different characteristics, objectives and strategies of institutional and retail investors, the research reports of MBKET Institutional and Retail Research Department may differ in either recommendation or target price, or both. MBKET Retail Research is intended for retail investors (http://kelive.maybank-ke.co.th) while Maybank Kim Eng Institutional Research is intended only for institutional investors based outside Thailand only. The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities a nd Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, th e survey may be changed after that date. MBKET does not confirm nor certify the accuracy of such survey result. The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by Thaipat Institute, is made in order to comply with the policy and sustainable development plan for the listed companies of the Office of the Securities and Exchange Commission. Thaipat Institute made this assessment based on the information received from the listed company, as stipulated in the form for the assessment of Anti-corruption which refers to the Annual Registration Statement (Form 56-1), Annual Report (Form 56-2), or other relevant documents or reports of such listed company. The assessment result is therefore made from the perspective of Thaipat Institute that is a third party. It is not an assessment of operation and is not based on any inside information. Since this assessment is only the assessment result as of the date appearing in the assessment result, it may be changed after that date or when there is any change to the relevant information. Nevertheless, MBKET does not confirm, verify, or certify the accuracy and completeness of the assessment result. US This third-party research report is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a -6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. This report is not directed at you if MKE is prohibited or restric ted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations. All U.S. persons receiving and/or accessing this re port and wishing to effect transactions in any security mentioned within must do so with: Maybank Kim Eng Securities USA Inc. 400 Park Avenue, 11th Floor, New York, New York 10022, 1-(212) 688-8886 and not with, the issuer of this report.

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UK This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Conduct Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility fo r its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients sho uld consult with their own independent tax advisers. DISCLOSURES

Legal Entities Disclosures Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938- H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This report is distributed in Singapore by Maybank KERPL (Co. Reg No 198700034E) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Maybank Kim Eng Securities (“PTMKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the Financial Services Authority (Indonesia). Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities Limited (License Number: 117/GP-UBCK) is licensed under the State Securities Commission of Vietnam. Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited and the Bombay Stock Exchange and is regulated by Securities and Exchange Board of India (“SEBI”) (Reg. No. INZ000010 538). KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) and as Research Analyst (Reg No: INH000000057) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Conduct Authority.

Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to he rein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.

Singapore: As of 6 January 2020, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong: As of 6 January 2020, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

India: As of 6 January 2020, and at the end of the month immediately preceding the date of publication of the research report, KESI, authoring analyst or their associate / relative does not hold any financial interest or any actual or beneficial ownership in any shares or having any conflict of interest in the subject companies except as otherwise disclosed in the research report. In the past twelve months KESI and authoring analyst or their associate did not receive any compensation or other benefits fr om the subject companies or third party in connection with the research report on any account what so ever except as otherwise disclosed in the research report.

MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the re port. Reminder Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors wh o are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Definition of Ratings Maybank Kim Eng Research uses the following rating system BUY Return is expected to be above 10% in the next 12 months (including dividends) HOLD Return is expected to be between 0% to 10% in the next 12 months (including dividends) SELL Return is expected to be below 0% in the next 12 months (including dividends) Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

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 Malaysia  Singapore  London  New York Maybank Investment Bank Berhad Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Securities Maybank Kim Eng Securities USA (A Participating Organisation of Maybank Kim Eng Research Pte Ltd (London) Ltd Inc Bursa Malaysia Securities Berhad) 50 North Canal Road PNB House 400 Park Avenue, 11th Floor 33rd Floor, Menara Maybank, Singapore 059304 77 Queen Victoria Street New York, New York 10022, 100 Jalan Tun Perak, London EC4V 4AY, UK U.S.A. 50050 Kuala Lumpur Tel: (65) 6336 9090 Tel: (603) 2059 1888; Tel: (44) 20 7332 0221 Tel: (212) 688 8886 Fax: (603) 2078 4194 Fax: (44) 20 7332 0302 Fax: (212) 688 3500

Stockbroking Business:  Hong Kong  Indonesia  India Level 8, Tower C, Dataran Maybank, Kim Eng Securities (HK) Ltd PT Maybank Kim Eng Securities Kim Eng Securities India Pvt Ltd No.1, Jalan Maarof 28/F, Lee Garden Three, Sentral Senayan III, 22nd Floor 1101, 11th floor, A Wing, Kanakia 59000 Kuala Lumpur 1 Sunning Road, Causeway Bay, Jl. Asia Afrika No. 8 Wall Street, Chakala, Andheri - Tel: (603) 2297 8888 Hong Kong Gelora Bung Karno, Senayan Kurla Road, Andheri East, Fax: (603) 2282 5136 Jakarta 10270, Indonesia Mumbai City - 400 093, India Tel: (852) 2268 0800 Fax: (852) 2877 0104 Tel: (62) 21 2557 1188 Tel: (91) 22 6623 2600 Fax: (62) 21 2557 1189 Fax: (91) 22 6623 2604

 Philippines  Thailand  Vietnam  Saudi Arabia Maybank ATR Kim Eng Securities Inc. Maybank Kim Eng Securities Maybank Kim Eng Securities Limited In association with 17/F, Tower One & Exchange Plaza (Thailand) Public Company Limited 4A-15+16 Floor Vincom Center Dong Anfaal Capital Ayala Triangle, Ayala Avenue 999/9 The Offices at Central World, Khoi, 72 Le Thanh Ton St. District 1 Ground Floor, KANOO Building Makati City, Philippines 1200 20th - 21st Floor, Ho Chi Minh City, Vietnam No.1 - Al-Faisaliyah,Madina Road, Rama 1 Road Pathumwan, P.O.Box 126575 Jeddah 21352 Tel: (63) 2 8849 8888 Bangkok 10330, Thailand Tel : (84) 844 555 888 Kingdom of Saudi Arabia Fax: (63) 2 8848 5738 Fax : (84) 8 38 271 030 Tel: (66) 2 658 6817 (sales) Tel: (966) 920023423 Tel: (66) 2 658 6801 (research)

 South Asia Sales Trading  North Asia Sales Trading Kevin Foy Andrew Lee Regional Head Sales Trading [email protected] [email protected] Tel: (852) 2268 0283 Tel: (65) 6636-3620 US Toll Free: 1 877 837 7635 US Toll Free: 1-866-406-7447

Indonesia London Iwan Atmadjaja Greg Smith [email protected] [email protected] (62) 21 8066 8555 Tel: (44) 207-332-0221

New York India James Lynch Sanjay Makhija [email protected] [email protected] Tel: (212) 688 8886 Tel: (91)-22-6623-2629

Philippines Keith Roy [email protected] Tel: (63) 2 848-5288

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