OSK Research 15 Feb 2013

THAILAND EQUITY Investment Research Daily

Wanida Geisler 66 2862 9748 [email protected] Initiating Coverage

MBK PCL

Buy THB267 Deep Discount to RNAV Target 267 We initiate coverage on MBK with a BUY call and a TP of THB267. The company’s Price 145 focus is on retail, although its hotel and financial services businesses should see decent growth in the medium term. We estimate its RNAV at THB40bn, against its

BV of THB14bn (THB95/share) and market cap of THB27bn. MBK’s recent asset sale Real Estate generated THB3bn in gains, boosting its cash pile to THB6.5bn. Out of this, we MBK PCL operates property, motorcycle leasing and hotel businesses. The company expect a surprise upside in its new ventures and a special dividend to shareholders th also owns the Mah Bo on Krong Center building to mark its 30 anniversary this year. complex in downtown . The complex Diversified businesses. Listed in 1996, MBK is a leading retail/shopping operator that is consists of shopping malls, an office building and Patumwan Princess Hotel. Through its also involved in the hotels, property development, golf courses and rice businesses (under subsidiaries, the company distributes rice, the Mahboonkrong brand) and as well as financial services (leasing and mortgage). Its other grain products and operates a power retail business comprising MBK Center, and the Nine contributes 40% to its generation and distribution business. sales, and 80% to its operating profit.

Stock Statistics Upside surprise expected to mark its 30th anniversary. 2012 was a period of recovery Bloomber g Ticker MBK TB for both its retail and hotel businesses, after several challenging years due to political Market Cap THB27,351m turmoil and floods. MBK Center’s renewal of its lease contract with Chulalongkorn USD915m University for another 20 years will come into effect in end-April 2013. Hence, all cheap 52 wk H/L price (THB) 147.50 91.00 sub-lease contracts with tenants as per its old lease will expire and it will be able to directly 3m ADT (‘000) 438 sign rental contracts with its tenants for higher fees. Although its core operation is set to be YTD Returns 33.5% weak with higher leasing fees at MBK Center (THB695m) and an underperforming rice Beta (x) 0.64 business given the government’s rice pledging scheme, its bottom line will be boosted by a

Major Shareholders (%) THB3bn gain from the sale of its assets (6% stake in Erawan (ERW), 130 rai of land in Samui Island and Montien Hotel Pattaya). Patum Rice Mill and Granary 26.5 Thanachart Capital 19.9 RNAV estimated at THB40bn (THB267/share) , against its book value of THB14bn (THB95/share) and market cap of THB27bn. Its current market cap is equivalent to the value of its retail and hotel businesses less total liabilities plus cash on hand. It does not Share Performance (%) yet include its golf courses, property development, land bank and financial services Month Absolute Relative business. Hence, we believe MBK is still trading at a deep discount to its RNAV. 1m 31.2 25.2 3m 41.5 19.2 BUY. Our target price is based on an RNAV of THB267/share. As MBK is a cash-rich 6m 59.5 23.0 company (THB6.5bn) with a huge land bank of 670 rai and enjoys good relationships with 12m 62.8 14.7 Siam Piwat and Thanachart Capital (TCAP), we are anticipating more good news from the company in terms of new business ventures and a special dividend. Valuation-wise, MBK 6-month Share Price Performance is attractive as its P/E and P/B multiples are the lowest compared to other retail/tourism stocks, while its dividend yield is the highest at 5%.

Forecasts and Valuations Dec-10 Dec-11 Dec-12F Dec-13F Dec-14F Total turnover (THBm) 6,575 7,740 8,054 8,438 9,382 Recurring net profit (THBm) 421 1,357 1,815 1,739 1,792 Net profit growth 0.0% 223.4% 33.1% 147.6% (60.1%) EPS (THB) 2.8 9.0 12.0 29.7 11.8 DPS (THB) 5.00 5.00 6.00 7.00 7.50 Source: Bloomberg Return on average assets 5.0% 6.4% 13.3% 4.7%

Return on average equity 11.3% 13.8% 28.1% 10.0%

Net debt to equity 5.7% 27.8% 11.2% (10.5%) (13.5%)

Source: Company data, OSK Research estimates

OSK Research | See important disclosures at the end of this report 1 Powered by Enhanced Datasystems’ EFA Platform RNAV calculation Stake % Retail (sq.m.) Office (sq.m.) Investment (THBm) NAV (THBm) Remark MBK Center 100 92,000 MBK Tower 100 18,000 22,000 Value of new 20-year lease contract=200k/sq.m. Paradise Park 65.4 87,000 2,845 50% disc to value of CPN Pinklao sold to CPNRF Fund in 2009 The Nine 100 12,000 9,000 1,333 50% disc to value of CPN Pinklao sold to CPNRF Fund in 2009

Glas Haus 100 13,500 397 50% discount to price of the Offices at Central World Glas Haus 100 8,200 241 50% discount to price of the Offices at Central World BV Siam Piwat Stake% 1379 30.7 19,000 1,167 MBK asset price of THB200k/sq.m. as a benchmark Siam Discovery & 30.7 23,200 30,700 3,309 MBK asset price of THB200k/sq.m. as a benchmark 15.4 191,000 5,883 MBK asset price of THB200k/sq.m. as a benchmark Retail 37,175

Hotel Stake # Room Replacement Patumwan 100% 455 6 2,730 Same replacement cost with ERAWAN's asset Sheraton Krabi 100% 240 10 2,400 Some discount to ERAWAN's replacement cost Tinidee Ranong 100% 135 2 270 Some discount to ERAWAN's replacement cost Tinidee Inn 100% 39 2 78 Some discount to ERAWAN's replacement cost Tinidee Phuket, 100% 45 2 90 Layana 100% 50 326 Appraised price from MBK 56-1 5,894 Mkt. cap (THBm) Investment (THBm) DMS Dusit Thani 30% 100 348 348 Investment cost from MBK ROH 30% 540 1781 533 Mkt. cap using current price DTC 12% 4636 4101 480 Mkt. cap using current price

Hotel 7,254

Book Appr. Price Golf course Stake Land (rai) value(THBm) (THB/sq.wah) Lock Palm 100% 500 7,000 1,400 Cheapest land price in Phuket from Department of Land Red Mountain 100% 600 7,000 1,680 Cheapest land price in Phuket from Department of Land Riverdale 100% 360 3,500 504 Cheapest land price in Patumthani from Department of Land Lam Luk Ka 28% 1500 3,500 580 Cheapest land price in Patumthani from Department of Land Golf course 1636 4,164

Real Estate Year launch Project value % sold Remaining Backlog Housing Baan Suan Lock 2007 678 93% 49 25 The Indy II 2009 336 42% 193 11 Sabai Village I 2010 271 87% 34 48 The Pano 2010 381 0% 381 Sabai Village II 2011 504 19% 409 95 The Creek 2012 49 0% 49 Total 2219 54% 1115 179 1,115 From MBK Land for sale Planery Zone 2 2010 59 64% 22 38 RM 18A 2011 232 0% 232 Planery Zone 6 2012 50 0% 50 Little Lake Front 2012 50 0% 50 Total 391 9% 354 38 Grand 2610 46% 1469 217 1,469 From MBK

Port. Dec-11 Port. Sep-12 (THBm) (THBm) MBK Guarantee 100 2245 3190 3,190 From MBK T Leasing 100 952 1410 1,410 From MBK

Asset (THBm) Mkt. cap (THBm) TCAP 10.4 5033 12778 1,329 Using current mkt. cap MAXX 16.6 245 245 From MBK

Appraised Land 673 rai 490 rai in Patumthani; others in Phuket, Chiengmai, Rayong, Bangkok etc. 2,301 Using appraised price from MBK and Department of Land

RNAV-assets 59,651

Proceeds from ERW & Samui Land 1,623 MBK-Declared to Investors Proceeds from Pattaya 2,008 MBK-Declared to Investors Cash End Sept 12 2,897 Total liabilities End Sept 12 plus NPV of lease obligation (25,700) RNAV 40,479 No. of shares net treasury stocks 151.4 RNAV per share 267 Source: OSK, MBK 1 rai=1600 sq.m., 1 sq.wah=4 sq.m

We appraised MBK’s assets using their replacement cost, appraisal prices from Department of Lands and the market cap estimates from TCAP, ROH and DTC and came up with RNAV of THB40bn (THB267/share). About 54% of its RNAV comprise cash of THB6.5bn, investments in listed companies (TCAP, ROH, DTC) at THB2.7bn, a landbank of THB2.3bn and a 30%-holding in Siam Piwat worth THB10bn.

OSK Research | See important disclosures at the end of this report 2

In comparing MBK with other retail/tourism stocks like Central Plaza (CENTEL), Central Pattana (CPN), Minor International (MINT) and The Erawan Group (ERW), we noticed that it trades at the lowest P/E and P/B multiples among its peers although its dividend yield, at 5%, is the highest. However, its EV/EBITDA and ROE are at subpar levels because it has a big asset base. That said, there is still room for MBK to improve its efficiency and better utilize its assets.

Figure 1: A peers comparison EV/EBITDA ------PE------ROE------P/BV---- Yield Yield 12f 13f 12f 13f 12f 13f 12f 13f 12f 13f (%) (%) (x) (x) (%) (%) (x) (x) (%) (%) CENTEL TB 20 19 43 34 17 18 7 6 1 1 CPN TB 28 23 32 35 24 19 8 7 1 1 MINT TB 16 14 32 25 14 14 4 3 1 1 ERW TB 20 18 135 17 3 19 4 3 0.3 2 MBK TB* 18 18 13 14 11 10 1.5 1.2 5 5 *Use pre-extra item profit to calculate PE and ROE Source: OSK estimates

Based on its mean P/B and standard deviations, we found that its historical P/B surged above +2SD. However, once the divestment gains of THB3bn kick in sometime in 1H13, its P/B will slip to 1.2x, wh ich is +1SD to its long-term mean.

Figure 2: Mean P/B and standard deviations P/BV (X) 1.6

1.4 +2SD = 1.36x +1SD = 1.20x 1.2

1.0 Mean = 1.04x 0.8 -1SD = 0.87x -2SD = 0.71x 0.6 0.4

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: Bloomberg, OSK

Company background

MBK Public Company Limited (MBK) was founded and registered on 25 July 1974, as Mah Boon Krong Drying and Silo Company Limited. It managed a shopping center called “Mah Boon Krong Shopping Center”, which has been open since 7 Feb 1985. On 8 April 1994, it was became a public limited company under the name of “MBK Property & Development Public Company Limited”. It was listed on the Stock Exchange of on April 1996.

MBK has seven business units comprising shopping, hotel & tourism, golf, real estate, rice, financial services and others (see Figure 4). Its retail business contributes the most to its revenue (43%) and EBITDA (63%), as shown below. The hotel & tourism and financial services businesses contribute about 10% each to total EBITDA.

OSK Research | See important disclosures at the end of this report 3

Figure 3: 9m12 Revenue and EBITDA breakdown

Source: OSK, MBK

Figure 4: Business structure

Source: OSK, MBK Note: MBK divested shares in Erawan Group in Feb 2013 for proceeds of THB563m

Focus on commercial property

Figure 5: Commercial properties

Source: OSK, MBK OSK Research | See important disclosures at the end of this report 4

Figure 6: Details of MBK’s commercial properties

Source: OSK, MBK

According to CBRE , Bangkok’s total retail space spanned was 6.12m sq m, of which around 50% is in shopping malls. Central Pattana (CPN) and the Central Department Store Group are leaders in this market, followed by the Mall group and its associate, Siam Piwat. MBK has both retail and office space, as illustrated in Figures 5 and 6. While its average occupancy rate is healthy at over 90%, its rental rates are subpar compared to the industry average.

Rooms to improve rental rates. 30 years ago, the company secured a leasehold contract from , and at that time, it sub-leased sizeable retail space to several tenants at a very low rate in order to obtain some cash up front to develop MBK Center. Hence, the average rental rate of MBK Center, which is now in the middle of Bangkok’s CBD, is unrealistically low at THB1500/sqm/month (below the industry’s average of over THB2000/sqm/month).

Upon the expiration of the old leasehold contract in end April-13, all sub-leased contracts will also expire. Under the new 20-year contract, which starts from May 2013 onwards, all MBK contracts will be signed directly with tenants and there will be no more sub-leases. This will help to increase its average rental rate from the current THB1500/sqm/month to THB1700/sqm/month this year. We believe its rental rates, which are mostly in short-term contracts, will gradually increase to reach the industry average. We also note that the rental rates for the MBK office (with Thanachart Group being its major tenant) will increase from only a few hundred baht/sqm/month currently to more than THB500/sqm/month under the new contract.

Rental rates in its suburban Bangkok retail centers Paradise Park and The Nine, which are still in their early stages of business, remain quite low at THB700/sqm/month. We see that there is also further room for these rates to appreciate moving forward.

Figure 7: Average occupancy Figure 8: Rental rates

OSK Research | See important disclosures at the end of this report 5

The healthy relationship with Siam Piwat will bring new opportunities. Apart from its own retail space, MBK also earns sizeable income from its 30%-holding in Siam Piwat, which owns and operates Siam Center, Siam Discovery and Siam Paragon. For 9M12, the equity-accounted profit of Siam Piwat was THB193m (+5% yoy) while dividend income w as THB121m (+20% yoy).

Apart from being MBK’s ass ociate, Siam Piwat is also its partner in establishing Paradise Park Shopping Center. This joint venture is a ideal match, as Siam Piwat’s strength is in sourcing for popular brands while MBK’s expertise lies in service and maintenance. We expect to see more ventures between the two moving forward, particularly to compete with its archrival which is planning an aggressive expansion of THB30bn over the next three years.

Figure 9: Contributions from Siam Piwat

Source: OSK, MBK

Improvements in hotel and tourism

MBK owns and operates six hotels as illustrated in Figure 10. Revenue from this unit represents 13% of MBK’s turnover and 11% of EBITDA. Of the total hotel revenue of THB793m (+12% yoy) in 9M12, around 58% was from Patumwan Princess, 36% from 5-star hotels like Sheraton Krabi and Layana Resort Krabi.

Figure 10: MBK’s hotel businesses

Source: OSK, MBK

Amidst political turmoil , natural disasters and the financial crisis in the western countries, the hotel sector has been in the doldrums over the past several years. Nevertheless, 2012 bore witness to a pickup for the industry. The Tourism Authority of Thailand (TAT) said that the number of tourists and business travelers increased sharply from 15m in 2009 to 19m in 2011, and over 22m in 2012. Last year, over 60% of tourist arrivals were from Asia. For 2013, TAT is targeting 24.5m international tourist arrivals, with the majority coming from other Asian countries again. Tourist arrivals are expected to hit 30m by 2015. As Asian tourists are generally rate-sensitive and more budget conscious in nature, MBK’s hotels, whose rooms are priced cheaper than their peers, should stand to gain from this.

OSK Research | See important disclosures at the end of this report 6

Figure 11: A breakdown of MBK’s hotel businesses Room Rate REVPAR Star THB/Room/night THB/Room/night Patumwan Princess-MBK 5 3,000 2,300 Centara Grand-Central World 5 3,000 2,000 JW Marriott, Grand Hyatt Erawan-BKK 5 4,800 3,400 Sheraton Krabi -MBK 5 3,400 2,000 Layana Krabi-MBK 5 5,500 3,200

Centara Grand-Krabi 5 6,500 3,315 Tinidee -MBK 3 400 -700 200 -400 Ibis-ERAWAN 3 1,100 830 Source: OSK, MBK

Financial Services: A New Growth Area

The revenue from MBK’s financial service business (MBK Guarantee, T Leasing) represented 9%-10% of its total revenue and EBITDA. For 9M12, revenue and operating profit from this business grew 38% y-o-y to THB481m and 42% y-o-y THB169m respectively. As seen from Figure 11, the growth rate of this business had been enormous. Its main competitors in this business are mostly locals with comparably tiny capital bases. The company expects the growth momentum of its financial services arm to continue, and expects it to make register an additional THB100m-THB200m in earnings this year.

Figure 12: Breakdown of financial services

Source: OSK, MBK

Figure 13: Financial services-performance MBK-G (Interest Revenue) T Leasing (Hire Purchase Revenue)

Source: OSK, MBK

The Hidden Assets – The Investment Portfolio and Land Bank

In Feb 2013, MBK sold three assets; its 6% stake in Erawan (ERW), 130 rai of land in Samui Island and Montien Hotel Pattaya, generating cash of THB3.6bn and extra gains of almost THB3bn . Meanwhile, MBK still has 673 rai (108 hectare) of vacant landbank worth THB2.3bn in appraised value and stakes in listed companies like Royal Orchid Hotel (ROH), Dusit Thani Hotel (DTC) and Thanachart Capital (TCAP) with a total of THB2.3bn. Unrealized gains are approximately THB2.9bn or THB19/share.

OSK Research | See important disclosures at the end of this report 7

Figure 14: Current investment portfolio and land bank

Book value (THBm) Appraised value (THBm) Landbank: 673 rai 539 2,301 Using appraised price from MBK and Department of Land (490 rai in Patumthani; others in Phuket, Chiengmai, Rayong, Bangkok etc.)

Holding ROH 30% 161 533 Mkt. cap using current price DTC 12% 542 480 Mkt. cap using current price TCAP 10% 523 1,329 Using current mkt. cap

Grand Total 1,766 4,642 Unrealized gains (THBm) 2,876 Unrealized gains per share (THB) 19 Source: OSK, MBK , Department of Land Note: 1 rai=1600 sq.m.

New Projects: Retails and Property Development

MBK has capex budgets of THB2.2bn and THB1.7bn for 2013 and 2014, respectively, the majority of which is for retail and property development. It plans to open two new retail centers, Haha Market next to Paradise Park shopping center and the expansion phase of The Nine neighborhood mall. This will add a combined retail space of 16,600 sqm.

MBK is also set to launch its first THB3bn condominium project called Quinn Condo located at Ratchada 17. This project, located a mere 500m from the MRT station on Ratchadapisek road (new Bangkok CBD), is competitively priced at less than THB100k/sqm, compared to other nearby new condo projects which are priced higher. Hence, presales are likely to go well while margins also will come out above average, as the project is built upon an old plot of its land.

Figure 15: New projects

Source: OSK, MBK

Figure 16: Planned CAPEX

Source: OSK, MBK

OSK Research | See important disclosures at the end of this report 8

Threats

New leasehold fees to pressure short-term bottomline. Under MBK Center’s new 20-year leasehold contract effective from end-April 2013, rental fee will increase from THB85m/year to a fixed THB695m/year for the first three years, growing by 6% p.a. thereafter. Its annual operating costs, on the other hand, will increase to approximately THB1bn. Although MBK is expected to generate additional: i) THB200m from an increase in average rental rate, ii) THB100m-THB200m from a turnaround in its hotel business, and iii) THB100m-THB200m from financial services, these are still insufficient to offset the substantial increase in its rental costs. We expect MBK’s core operation to be under pressure over the next few years until revenue from its first condominium project, Quinn, worth THB3bn starts to kick in around 2015.

Rice business suffers losses from government pledging scheme. The group’s rice business is under its 75%-owned subsidiary Patum Rice Mill and Granary (PRG). The company used to be a manufacturer and distributor of milled rice and rice by-products both locally and overseas. However, PRG had discontinued its rice mill business since 2011 to concentrate only on the production of rice packed under the name “Mah Boonkrong”, which is one of Thailand’s leading rice brands. Land belonging to the rice milling business, on the other hand, is now ready for either future development or for sale as vacant land. However, profitability of the rice business had been sluggish over the past nine months of 2012 due to government’s pledging scheme. Should the scheme continue throughout 2013, PRG may incur losses which will certainly have a negative impact on MBK. However, the company hopes that this scheme will be abolished as the government has already incurred massive losses from it.

Golf and property development: thin contribution. MBK has four golf courses as illustrated in Figure 19. This business has incurred losses over the past few years. Despite a turnaround in 9M12 which saw THB12m in operating profit, contribution from this business remains thin. Hidden assets are land around the golf courses. Although MBK, through its subsidiary Plan Estate, has been trying to develop houses beside the golf courses, the business seems unsuccessful. It would have been better if MBK enters into a joint venture with a professional developer to do a proper residential business.

Figure 17: Rice business Figure 18: Golf business

THBm THBm Revenue-LHS Operating Profit-RHS THBm THBm 3000 250 Revenue-LHS Operating Profit-RHS 350 15 2500 200 300 10 150 2000 250 5 100 0 1500 200 -5 50 150 1000 -10 0 100 -15 500 -50 50 -20 0 -100 0 -25 FY6/08 FY6/09 FY6/10 FY6/11 9m11 9m12 FY6/08 FY6/09 FY6/10 FY6/11 9m11 9m12

Source: MBK, OSK Source: MBK, OSK

Figure 19: Golf courses

Source: OSK, MBK

OSK Research | See important disclosures at the end of this report 9

Cross shareholding structure. MBK owns a 10% stake in TCAP and 75% in PRG. Meanwhile, TCAP owns a 26.5% stake in MBK while PRG owns 20% in MBK. Investors dislike such a cross shareholding structure among the group. Hence, MBK’s share price has always been trading at a discount. From the management’s point of view, such cross shareholding structure can prevent hostile takeover of MBK because almost 50% of MBK’s shares are in the group’s hand.

FINANCIALS

2012 a recovery year. With growing rental/service income, financial services income and hotel revenue, the group’s overall gross and operating margins have picked up meaningfully from 2010 and 2011. We estimate 2012 net profit to grow 25% y-o-y to THB1.73bn.

2013: Weak core profit but divestment gains will boost bottom line. MBK Center’s new 20-year lease contract, which is effective from end-April 2013, stipulates that any new contract will be done directly with tenants at higher rental fees instead of sub-lease as per previous contract. Although its core operation is likely to be weak given higher lease fees (THB695m) at MBK Center and poor rice business amid the government’s rice pledging scheme, MBK had extra gains of almost THB3bn from the sale of assets (6% stake in Erawan (ERW), 130 rai of land in Samui Island and Montien Hotel Pattaya). Also, we remain positive on the outlook for its hotel and financial services businesses, which should help lessen the impact from higher rental fees. All in, we estimate 2013 core net profit to dip 15% y-o-y to THB1.5bn, but its bottomline to reach THB4.5bn, boosted by its nearly THB3bn divestment gains.

Strong balance sheet with cash surplus in 2013. After some asset divestment, MBK is turning to a net cash position. Hence, the group is now ready to take a more aggressive expansion move. In view of its close relationship with Siam Piwat (Thailand’s largest premium operator) and Thanachart group, we expect MBK to form new business ventures as well as announce a special dividend to mark its 30 th anniversary.

Figure 20: Financial Data Revenue (THBm) 2010 2011 2012f 2013f 2014f 9m12 %yoy Sales* 2,829 2,949 2,823 2,385 2,592 2,042 -8 Rental/service income 2,843 3,544 3,753 4,368 4,857 2,810 +8 Financial services 121 273 421 650 748 296 +44 Hotel revenue 782 974 1,056 1,035 1,186 794 +11 Total 6,575 7,740 8,054 8,438 9,382 5,942 +3

*Rice, Real Estate

Gross Profit (THBm) Sales* 315 327 404 239 259 326 +22 Rental/service income 1,614 2,035 2,155 2,110 2,397 1,617 +8 Hotel revenue 190 290 356 362 415 283 +34 *Rice, Real Estate

Gross profit margin Sales 11% 11% 14% 10% 10% 16% Rental/service income 57% 57% 57% 48% 49% 58% Hotel revenue 24% 30% 34% 35% 35% 36%

Operating margin 17% 19% 21% 19% 19% 22% Net margin-pre exta item 6% 18% 23% 18% 19% 25% Net margin 39% 18% 21% 53% 19% 24%

Source: OSK estimates, MBK

OSK Research | See important disclosures at the end of this report 10

OSK Research

FINANCIAL

Profit & Loss (THBm) Dec-10 Dec-11 Dec-12F Dec-13F Dec-14F Total turnover 6,575 7,740 8,054 8,438 9,382 Cost of sales (4,335) (4,814) (4,717) (5,077) (5,564) Gross profit 2,240 2,925 3,336 3,361 3,818 Gen & admin expenses (1,156) (1,478) (1,685) (1,769) (1,990) Operating profit 1,085 1,447 1,652 1,592 1,828 Operating EBITDA 1,085 2,333 2,556 3,250 3,628 Depreciation of fixed assets - (887) (904) (1,658) (1,800) Operating EBIT 1,085 1,447 1,652 1,592 1,828 Net income from investments 323 385 294 338 380 Other recurring income 172 182 363 180 180 Interest income 152 223 247 272 285 Interest expense (354) (386) (313) (510) (480) Exceptional income - net 4 9 - 2,963 - Pre-tax profit 1,381 1,860 2,243 4,834 2,194 Taxation (985) (443) (428) (341) (402) Minority interests 25 (53) - - - Profit after tax & minorities 422 1,364 1,815 4,494 1,792 Net income to ord equity 422 1,364 1,815 4,494 1,792 Recurring net profit 421 1,357 1,815 1,739 1,792

Balance Sheet (THBm) Dec-10 Dec-11 Dec-12F Dec-13F Dec-14F Total cash and equivalents 7,165 4,283 6,243 9,013 8,675 Inventories 1,372 1,305 1,240 1,178 1,119 Accounts receivable 578 519 571 628 691 Total current assets 10,156 8,419 10,480 13,367 13,160 Other current assets 1,042 2,311 2,427 2,548 2,676 Total investments 2,230 2,654 7,600 7,600 7,600 Tangible fixed assets 10,683 10,975 10,071 10,413 10,613 Total other assets 4,721 5,017 1,500 6,500 6,250 Total non-current assets 17,634 18,646 19,171 24,513 24,463 Total assets 27,790 27,065 29,651 37,880 37,623 Short-term debt 3,592 1,240 3,000 3,000 3,000 Accounts payable 358 665 631 600 570 Other current liabilities 1,247 1,363 1,431 1,503 1,578 Total current liabilities 5,198 3,267 5,063 5,103 5,148 Total long-term debt 4,308 6,625 5,000 4,000 3,000 Other liabilities 5,330 4,313 3,937 9,631 9,712 Total non-current liabilities 9,638 10,938 8,937 13,631 12,712 Total liabilities 14,836 14,205 13,999 18,734 17,860 Share capital 1,514 1,514 1,514 1,514 1,514 Retained earnings reserve 7,505 8,094 8,878 12,240 12,711 Other reserves 3,043 2,369 3,936 3,936 3,936 Shareholders' equity 12,062 11,977 14,328 17,690 18,162 Minority interests 893 883 1,324 1,456 1,602 Other equity (1) - - - - Total equity 12,954 12,860 15,652 19,146 19,764 Total liabilities & shareholders' equity 27,790 27,065 29,651 37,880 37,623

OSK Research | See important disclosures at the end of this report 11

OSK Research

Cashflow (THBm) Dec-10 Dec-11 Dec-12F Dec-13F Dec-14F Operating profit 1,085 1,447 1,652 1,592 1,828 Depreciation & amortisation - 887 904 1,658 1,800 Change in working capital (1,740) (443) 5,618 (6) Other operating cashflow 375 858 3,274 346 Operating cashflow 1,085 969 2,971 12,142 3,969 Interest received 152 223 247 272 285 Interest paid (354) (386) (313) (510) (480) Tax paid - (443) (428) (341) (402) Cashflow from operations 882 363 2,477 11,563 3,372 Capex - (1,231) - - - Other investing cashflow - (1,036) 290 (6,661) (1,390) Cashflow from investing activities - (2,267) 290 (6,661) (1,390) Dividends paid to ordinary shareholders (943) (943) (1,132) (1,320) Increase in debt - (35) 135 (1,000) (1,000) Other financing cashflow - - 0 - - Cashflow from financing activities - (979) (808) (2,132) (2,320) Cash at beginning of period 7,165 4,283 6,243 9,013 Total cash generated 882 (2,882) 1,959 2,770 (339) Implied cash at end of period 882 4,283 6,243 9,013 8,674

Source : OSK, Bloomberg

Ratios Dec-11 Dec-12f Dec-13f Dec-14f Dupont Analysis EBIT / sales 26.1% 28.7% 60.1% 25.5% Sales / avg assets 0.28 0.28 0.25 0.25 Pretax profit / EBIT 0.92 0.97 0.95 0.92 Pre tax ROAA 6.8% 7.9% 14.3% 5.8% Net / pretax profit 0.73 0.81 0.93 0.82 Return on average assets 5.0% 6.4% 13.3% 4.7% Return on average equity 11.3% 13.8% 28.1% 10.0% Pre tax ROAE 15.5% 17.1% 30.2% 12.2% Dividend payout ratio 69.1% 52.0% 25.2% 73.7% Tax rate 23.8% 19.1% 7.0% 18.3%

Financial Strength Interest coverage ratio (x) 3.75 5.28 3.12 3.81 Avg assets/avg equity (x) 2.28 2.16 2.11 2.11 Net debt to equity 27.8% 11.2% -10.5% -13.5% Net debt to assets 13.2% 5.9% -5.3% -7.1% Total debt to equity 61.2% 51.1% 36.6% 30.4% Total liabilities to assets 52.5% 47.2% 49.5% 47.5% Current ratio (x) 2.6 2.1 2.6 2.6

Source: OSK, MBK

OSK Research | See important disclosures at the end of this report 12

OSK Guide to Investment Ratings

Buy : Share price may exceed 10% over the next 12 months Trading Buy : Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral : Share price may fall within the range of +/- 10% over the next 12 months Take Profit : Target price has been attained. Look to accumulate at lower levels Sell : Share price may fall by more than 10% over the next 12 months Not Rated : Stock is not within regular research coverage

Disclosure & Disclaimer

All research is based on material compiled from data considered to be reliable at the time of writing, but OSK does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst OSK’s and its affiliates’ clients. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or financial advice.

OSK, its affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to, or dispose off, or may be materially interested in any such securities. Further, OSK, its affiliates and related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity mentioned in this research report.

OSK do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or damages that may arise from any reliance based on this report or further communication given in relation to this report.

The term “OSK” shall denote where applicable,the relevant entity distributing the report in the particular jurisdiction mentioned specifically herein below and shall refer to OSK Investment Bank Berhad, its affiliates, subsidiaries and related companies.

All Rights Reserved. This report is for the use of intended recipients only and may not be reproduced, distributed or published for any purpose without prior consent of OSK.

Malaysia

This report is published and distributed in Malaysia by OSK Research Sdn Bhd (206591-V), 6th Floor, Plaza OSK, Jalan Ampang, 50450 Kuala Lumpur, a wholly owned subsidiary of OSK Investment Bank Berhad (OSKIB). This report is printed by Xpress Print (KL) Sdn. Bhd., No. 17, Jalan Lima, Off Jalan Chan Sow Lin, 55200 Kuala Lumpur.

As of 14 Feb 2013, OSKIB does not have proprietary positions in the subject companies, except for: a) -

As of 14 Feb 2013, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: a) -

Singapore

This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No. 200808705N), a wholly owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad, Malaysia and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited.

As of 14 Feb 2013, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) -

As of 14 Feb 2013, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: a) -

Special Distribution by OSK

Where the research report is produced by an OSK entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, it is only distributed to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd.

OSK Research | See important disclosures at the end of this report 13

Hong Kong

This report is published and distributed in Hong Kong by OSK Securities Hong Kong Limited (“OSKSHK”), a subsidiary of OSK Investment Bank Berhad, Malaysia (“OSKIB”).

OSKSHK, OSKIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company. OSKSHK, OSKIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company.

Risk Disclosure Statements

The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. OSKSHK does not maintain a predetermined schedule for publication of research and will not necessarily update this report

Indonesia

This report is published and distributed in Indonesia by PT OSK Nusadana Securities Indonesia, a subsidiary of OSK Investment Bank Berhad, Malaysia.

Thailand

This report is published and distributed in Thailand by OSK Securities (Thailand) PCL, 10th Floor, Sathorn Square Office Tower, 98, North Sathorn Road, Bangrak, Bangkok, a subsidiary of OSK Investment Bank Berhad, Malaysia.

Other Jurisdictions

In any other jurisdictions, this report is intended to be distributed to qualified, accredited and professional investors, in compliance with the law and regulations of the jurisdictions.

Kuala Lumpur Hong Kong Si ngapore

Malaysia Research Office OSK Securities DMG & Partners OSK Research Sdn. Bhd. Hong Kong Ltd. Securities Pte. Ltd. 6th Floor, Plaza OSK 12 th Floor, 10 Collyer Quay Jalan Ampang World-Wide House #09-08 Ocean Financial Centre 50450 Kuala Lumpur 19 Des Voeux Road Singapore 049315 Malaysia Central, Hong Kong Tel : +(65) 6533 1818 Tel : +(60) 3 9207 7688 Tel : +(852) 2525 1118 Fax : +(65) 6532 6211 Fax : +(60) 3 2175 3202 Fax : +(852) 2810 0908

Jakarta Shanghai Phnom Penh

PT OSK Nusadana OSK (China) Investment OSK Indochina Securities Limited Securities Indonesia Advisory Co. Ltd. No. 1-3, Street 271, Plaza CIMB Niaga, Suite 4005, CITIC Square Sangkat Toeuk Thla, Khan Sen Sok, 14th Floor, 1168 Nanjing West Road Phnom Penh, Jl. Jend. Sudirman Kav.25, Shanghai 20041 Cambodia Jakarta Selatan 12920, Indonesia. China Tel: (855) 23 969 161 Tel : (6221) 2598 6888 Tel : +(8621) 6288 9611 Fax: (855) 23 969 171 Fax : (6221) 2598 6777 Fax : +(8621) 6288 9633

Bangkok

OSK Securities (Thailand) PCL 10th Floor ,Sathorn Square Office Tower, 98, North Sathorn Road,Silom, Bangrak, Bangkok 10500 Thailand Tel: +(66) 862 9999 Fax : +(66) 108 0999

OSK Research | See important disclosures at the end of this report 14