Report date: December 2, 2014

Max’s Group Inc. (Maxs) follow on offering to be listed on December 12, 2014

Recommendation: Neutral

The Company has a potential to become the leading Filipino brands with the most loved brands by 2025, however the Company is currrently under consolidation and restructuring stage. The result of operations efficiency might be reflected (if successful) in the medium term.

Also Php3bn of the Php3.36 bn proceeds will be use immediately to pay the loan (Bank of the Philippine Islands) used to fund the Pancake House Inc. buy-out. With the early repayment of debt, the Company net savings equates to Php166,668,000 per annum interest expense or a total of about Php1.05 billion from December 12, 2014 to maturity (February 27, 2021).

For expansion, the Company plans to grow by 68 outlets by 2014 to 2015, bulk of which will be used to expand star brands such as Maxs, Pancake House, Yellow Cab and (comprising 86% of the Group revenues). For 2015 the star brands will open 60-80 new stores.

The Company is also preparing for expansion abroad: 15 stores to be opened in Saudi Arabia alone within 10 years, one in Canada and six in within the next six months.

Short-term, there is Php0.65/share arbitrage gain. (December 1, 2014 closing price of Php18.40 less final offer price of Php17.75/share)

Company profile

The Company was listed on the PSE on December 15, 2000. Formerly known as Pancake House, Inc., it was acquired by certain Max’s Entities (the selling subsidiaries) on February 24, 2014. It was subsequently changed its corporate name to Max’s Group Inc. on August 22, 2014 following the integration of the Max’s businesses into the Company on June 30, 2014. The Integration resulted in making the Compnay the country’s leading group in the chained full service restaurant sector.

The consolidation brought together 14 brands: four from Max’s – Max’s Restaurant, Max’s Corner Bakery, Krispy Kreme and and 10 from Pancake House – Pancake House, Yellow Cab, Le Coeur de France, Dencio’s, Teriyaki Boy, Singkit, Sizzling Pepper Steak, Kabisera, and Maple.

As of 1H 2014, the group have a total of 525 outlets, 498 stores nationwide and 27 abroad.

PSE Trading Participant; SCCP and SIPF Member www.ibgsecurities.com +632 667 3472

Use of proceeds from follow on offering

Amount % Timing Proceeds from new shares 362,170,399.00 Capital expenditures for store and commissary expansion 300,000,000.00 8.92% 2015 Working capital 62,170,399.00 1.85% 2015 Proceeds to the selling subsidiaries (from Group Shares) Repayment of debt incurred in connection with the acquisition of a controlling interest in the Company 3,000,000,000.00 89.23% Immediate

Total 3,362,170,399.00

Repayment of debt

Bulk of the proceeds will be used to pay the Bank of the Islands for the payment of the loan Php4,324,110,000 used to fund Pancake House buy-out. The loan bears interest of 5.5556% per annum due on February 27, 2021. The balance for the payment of the loan will be taken from operating cash flows of the Company.

Expansion plans

The Company plans to grow by 68 outlets by 2014 to 2015, bulk of which will be used to expand star brands such as Maxs, Pancake House, Yellow Cab and Krispy Kreme (comprising 86% of the Group revenues). For 2015 the star brands will open 60-80 new stores.

The Company is also preparing for expansion abroad: 15 stores to be opened in Saudi Arabia alone within 10 years, one in Canada and six in Malaysia within the next six months.

PSE Trading Participant; SCCP and SIPF Member www.ibgsecurities.com +632 667 3472

Target price

MAXS (refer to below for JFC MCD estimate)

OS - Dec 1, 2014 1,066,543,841.00 973,200,000.00 780,208,978.00

Market capitalization 219,708,031,246.00 94,215,492,000.00 13,848,709,359.50

Closing price - Dec 1 206.00 96.81 17.75

2014 estimated EPS ( from Bloomberg) 5.03 5.09 0.56

PER 40.92 19.01 31.78

Average PER industry 29.97

Max's 2014 EPS estimate 0.56

Target price 16.74

Final offer price 17.75 % return -5.70%

JFC – Jollibee Foods Corporation MCD – McDonald’s Corporation OS – Outstanding shares

PSE Trading Participant; SCCP and SIPF Member www.ibgsecurities.com +632 667 3472

Max’s Group Inc. Income Statement In Php million

2014E 1H 2014 2013

Pancake Maxs Total Pancake Maxs Total Pancake Maxs Total

Revenue 4,032.16 6,109.62 10,141.78 1,832.80 2,777.10 4,579.60 3,751.60 5,468.40 9,220.00

COS 3,230.72 4,420.77 7,651.49 1,545.80 2,115.20 3,630.70 3,067.20 4,185.80 7,253.00

Gross profit 801.44 1,688.85 2,490.29 287.00 661.90 948.90 684.40 1,282.60 1,967.00

OPEX 764.30 1,293.88 2,058.17 273.70 507.10 780.80 568.10 1,022.10 1,590.20

Operating income 37.14 394.98 432.12 13.30 154.80 168.10 116.30 260.50 376.80

Other income(loss) - - - (77.30) (48.20) (125.50) 26.30 25.20 51.50 Provision for income tax 11.14 118.49 129.63 (27.40) 31.10 3.70 63.30 104.20 167.50

Net income after tax 26.00 276.48 302.48 (36.60) 75.50 38.90 79.30 181.50 260.80

Minority interest 7.15 - 7.15 (7.90) - (7.90) (26.30) - (26.30)

1H net income (28.70) 75.50 46.80

Full year net income 18.85 276.48 295.33 234.50

PSE Trading Participant; SCCP and SIPF Member www.ibgsecurities.com +632 667 3472

PSE Trading Participant; SCCP and SIPF Member www.ibgsecurities.com +632 667 3472

IB Gimenez Securities recommendation matrix

Criteria Recommendation > +18% within the next 12 months or double its earnings within the next four Buy years 0 to +18% returns within the next 12 months or fairly valued with probable Hold+ plans to meet the expected earnings 0 to -18% returns within the next 12 months or with possible indicators to Hold- missed the expected earnings > -18% returns within the next 12 months or might significantly dropped the Sell earnings within the next four years

Sources:

Max’s Group Inc prospectus Philippine Stock Exchange Bloomberg

PSE Trading Participant; SCCP and SIPF Member www.ibgsecurities.com +632 667 3472