Flooring It Stamford Tyres Corp

Thursday 26 February 2004 Initiation of coverage Stamford Tyres Corp Buy

Flooring it

The prospects for Stamford Tyres are bright, in our view, as it is positioned in the world's fastest-growing auto region. We expect This research report has been prepared for general circulation. It is circulated for information only. The earnings to accelerate going forward through deeper market opinions expressed herein do not have regard to the specific investment objectives, or financial situation of any specific person who may read this report. penetration and greater operational efficiencies. Buy. Permit No. MITA (P) 280/05/2003

Automobiles & Parts Key forecasts Singapore

FY02A FY03A FY04F FY05F FY06F Revenue (S$m) 120.1 163.0 186.2 219.4 259.0 Price EBITDA (S$m) 11.8 15.4 19.7 25.8 32.8 S$0.69 Reported Net Profit (S$m) 2.76 8.18 11.4 15.1 19.3 Target price Normalised Net Profit (S$m) 2.76 8.18 11.4 15.1 19.3 S$1.05 Normalised EPS (S$) 0.02 0.05 0.06 0.08 0.10 Dividend Per Share (S$) 0.01 0.01 0.01 0.02 0.02 Market capitalisation Dividend Yield (%) 1.12 1.12 1.80 2.20 2.82 S$137.24m (US$80.97m) Normalised PE (x) 37.8 13.0 11.1 9.08 7.10 Avg (12mth) daily volume

EV/EBITDA (x) 14.9 10.7 8.05 6.10 4.68 S$1.48m (US$0.86m) Price/Book Value (x) 2.44 2.16 2.19 1.84 1.52 Reuters ROIC (%) 5.63 12.9 17.7 20.4 22.4 STAS.SI Source: Company data, ABN AMRO estimates year to Apr, fully diluted

Bloomberg

STC SP

Solid prospects in Asian tyre industry Price performance (1M) (3M) (12M) Asia's tyre industry has significantly outpaced the growth rates in developed Price (S$) 0.7 0.5 0.2 countries. With healthy economic conditions in the region, a rapidly growing car Absolute % 2.2 39.0 345.5 population and low vehicle penetration rates, we expect the long-term outlook for Rel market % 2.8 23.4 209.9 auto-parts suppliers to remain strong. Rel sector % 1.7 21.1 223.2 Source: ABN AMRO China and Thailand raise prospects Stamford Tyres is set to benefit over the long term from increased demand for auto 52-week range: 0.74-0.15 Straits Times Index: 1878.41 parts due to its positioning in two of the fastest growing tyre markets in Asia. It has BBG AP Autos: 149.47 a JV to distribute Dunlop tyres manufactured in China and will also manufacture sports alloy rims in Thailand.

Three-year net income CAGR of 33% Against a backdrop of healthy regional GDP growth and higher consumption rates, we expect Stamford Tyres' new Thai wheel manufacturing operations, growing Asian distribution network and greater operational efficiencies to boost group net income by a three-year CAGR of 33%, while EBIT margins are set to rise from 7.7% in FY03 to 11.2% in FY06F.

Accelerating returns and attractive valuations At 0.4x PEG and 9x FY05F PER, Stamford Tyres appears attractive at current levels. With its promising China and Thai exposures and accelerating returns, we believe its long-term prospects are strong and positive. Our 12-month target price of S$1.05 (51% potential upside) is derived from a three-stage DCF valuation. We initiate coverage with a Buy recommendation.

Analyst Kevin Chong ABN AMRO Asia Securities (Singapore) Private Ltd Singapore +65 6230 3323 [email protected]

Disclosures and analyst certifications are at the end of the body of this research. www.abnamroresearch.com Priced at close of business 24 February 2004. Use of %& indicates that the line item has changed by at least 10%.

63 Chulia Street, Level 10, Singapore 049514, Singapore

The Basics

Key assumptions The Asian tyre market has been growing at a rate of 9-13% over the past several Distribution of broker years and we expect this trend to continue on the back of healthy economic growth in recommendations the region, the rapidly growing vehicle population and increasing consumer spending. 4 3 Our assumption of 14-18% yoy revenue growth for Stamford Tyres is slightly above 2 the industry rate as it takes into account Stamford’s niche product segment of high- 1 end tyres and sports alloy wheel manufacturing. We expect margins to continue 0 Sell Buy expanding with EBIT rising from 7.7% in FY03 to 11.2% in FY06F on the back of Add Hold greater operational efficiencies and leverage, resulting in a three-year group net Reduce income CAGR of 33%. Source: Multex

Versus consensus How we differ from consensus EPS ABN Con- % Our FY04 forecast EPS of S$0.062 is 8.8% below the consensus estimate of S$0.068. (S$) AMRO sensus Diff Note that the current market coverage of Stamford Tyres is limited. FY04F 0.062 0.068 -8.8 FY05F 0.077 0.086 -8.3 FY06F 0.098 0.107 -8.4

Valuation and target price Source: Bloomberg, ABN AMRO estimates Our 12-month target price of S$1.05, which implies 51% potential upside, is derived from a three-stage DCF valuation and assumes operating margins will decline from 9-11% over 2004-10 to 8.0-8.5% during the value expansion period of 2011-20. Valuation snapshot Financial returns are then expected to fade over five years (2021-25) until they equal the company’s WACC (9%), as supernormal returns are competed away over the long Current price S$0.69 Fair value* S$1.05 term. Target price S$1.05 Upside/downside 51% Catalysts for share price performance *Methodology 3-stage DCF Source: ABN AMRO estimates We expect the following factors to move the share price towards our target over the next 12 months:

■ Better-than-expected performance from the company’s Thai wheel manufacturing Key events operations. Date Event ■ Better-than-expected progress with the SRI-TP joint venture to distribute Dunlop 9-Jul-04 FY04 results

tyres in China. Source: Company

■ The possibility of securing new product lines and brands for distribution.

Risks to central scenario

■ The inability to secure adequate tyre allocation from manufacturers (note that tyres are allocated by manufacturers to distributors).

■ Unexpected disruption to tyre supply in the industry due to an unforeseen event (eg, fire at a tyre manufacturer).

STAMFORD TYRES CORP 26 FEBRUARY 2004 2

KEY ASSUMPTIONS AND SENSITIVITIES

Key assumptions and sensitivities

Table 1 : Revenue breakdown

YE - April 2002 2003 2004F 2005F 2006F Revenues - by activity (S$ m) Wholesale & distribution 90.5 131.5 150.8 172.2 198.1 Retail & fleet 29.3 31.3 34.6 38.6 40.1 Services 0.2 0.2 0.4 0.4 0.5 Other revenues 0.0 0.0 0.4 8.1 20.3 120.1 163.0 186.2 219.4 259.0 Revenues - % of total Wholesale & distribution 75.4% 80.7% 81.0% 78.5% 76.5% Retail & fleet 24.4% 19.2% 18.6% 17.6% 15.5% Services 0.2% 0.1% 0.2% 0.2% 0.2% Other revenues 0.0% 0.0% 0.2% 3.7% 7.8% Total 100% 100% 100% 100% 100%

Revenues - by region (S$ m) Singapore 72.4 85.4 94.7 103.3 110.5 Malaysia 19.6 24.6 28.4 33.2 38.5 HK/China 10.2 33.9 40.9 48.7 58.5 Thailand 6.7 8.8 10.8 20.0 33.4 Indonesia 6.3 5.3 5.6 6.5 7.6 Latin America 2.0 2.5 3.0 3.6 4.4 Others 2.9 2.6 2.7 4.1 6.2 120.1 163.0 186.2 219.4 259.0 Thai wheel plant # of production lines 12 # of alloy wheels (m) - capacity 0.20 0.48 utilisation rate 48% 50% Revenues (S$ m) - wheel production 8.1 20.3 Revenues (S$ m) - distribution 11.9 13.1

Source: Company data, ABN AMRO estimates

Table 2 : Target price sensitivity table

No of Years in Fade Period WACC 15 18 20 23 25 6.0% 1.60 1.66 1.72 1.79 1.85 7.0% 1.29 1.33 1.37 1.41 1.46 8.0% 1.06 1.09 1.12 1.14 1.17 9.0% 0.89 0.91 0.93 0.95 0.96 10.0% 0.76 0.77 0.78 0.79 0.80

Source: ABN AMRO estimates

STAMFORD TYRES CORP 26 FEBRUARY 2004 3

Contents

INDUSTRY DYNAMICS Solid prospects in Asian tyre industry 5 Asia’s tyre industry has significantly outpaced the growth rates in developed countries. With a rapidly growing car population and low vehicle penetration rates, we expect the long-term outlook to remain strong.

Stamford Tyres’ Asian prospects look strong 8

INVESTMENT VIEW China and Thailand raise prospects 10 Positioned in two of the fastest-growing tyre markets in Asia with its JV to distribute Dunlop tyres and its sports alloy rims manufacturing business, Stamford Tyres is set to benefit from increased demand for auto...

China 10

Thailand 12 Net income CAGR of 33% 13 Healthy regional GDP growth rates, higher consumption spending and deeper market penetration are expected to boost net income by a three-year CAGR of 33% and EBIT margins from 7.7% in FY03 to 11.2% in FY06F.

VALUATION COMMENT Accelerating returns and attractive valuations 14 At 0.4x PEG and 9x PER, and with accelerating returns, Stamford Tyres looks attractive at current levels. Our 12-month target price of S$1.05 (potential 51% upside) is derived from a three-stage DCF valuation.

COMPANY OUTLINE Background 16

STAMFORD TYRES CORP 26 FEBRUARY 2004 4

INDUSTRY DYNAMICS

Solid prospects in Asian tyre industry

Asia’s tyre industry has significantly outpaced the growth rates in developed countries. With a rapidly growing car population and low vehicle penetration rates, we expect the long-term outlook to remain strong.

Rapid vehicle population growth in Asia

The vehicle population in Asia has been growing rapidly over the past four years, Vehicle population growth outpacing developed countries by a factor of four. This rapid growth comes on the in Asia has been outpacing developed countries by a back of a low base, the improved economic outlook and increased consumer factor of four spending. Within Asia, countries with the greatest growth rates include China (11.7% CAGR from 1998-2002), Korea (7.4%), Malaysia (8.6%) and Thailand (6.0%) (see chart 1).

Chart 1 : Vehicle population growth rate (1998-2002)

14%

11.7% 12%

10% 8.6%

8% 7.4% 6.0% 6% 4.6% 3.9% 4% 2.5% 1.6% 2% 1.0% 1.0% 1.1%

0% US NZ China Japan Korea Thailand Malaysia W Europe Indonesia Singapore Hong Kong

Source: CEIC

The aforementioned countries also possess the largest vehicle populations within the A healthy market base and region, suggesting a healthy market base and good long-term growth potential for good long-term growth potential for vehicle parts vehicle parts suppliers. As at 2002, China’s vehicle population stood at 20.5m, while suppliers Korea, Malaysia and Thailand had populations of 13.9m, 6.5m and 7.1m, respectively.

STAMFORD TYRES CORP 26 FEBRUARY 2004 5

INDUSTRY DYNAMICS

Table 3 : Global vehicle population

2002 vehicle population Singapore 0.6 Hong Kong 0.6 NZ 2.4 Indonesia 6.0 Malaysia 6.5 Thailand 7.1 Australia 12.8 Korea 13.9 China 20.5 Japan 76.3 W Europe 205.9 US 225.7

Source: Bloomberg Consensus, CEIC, Australian Bureau of Statistics, SingStats, Ministry of Transport (Japan), Japan Automobile Manufacturers Assosciation (JAMA), Quarterly Labour Force Statistics, OECD, Association Auxilliaire de l'Automobile (ACEA)

Low vehicle penetration rates suggest attractive prospects

Furthermore, the current Asian vehicle penetration rate (vehicle per population) – at China, with a vehicle 1-3% for China and Indonesia, 8-14% for Hong Kong, Thailand and Singapore and penetration rate of only 1.6%, provides the greatest 28-30% for Malaysia and Korea – is much lower than in developed countries at 60- growth potential within the 80%, suggesting significant long-term growth potential for vehicle ownership as region. Asian economies develop (see chart 2). This would imply that vehicle parts suppliers would also likely experience healthy growth in the region. China, with a vehicle penetration rate of only 1.6% and a robust economy, provides the greatest growth potential within the region, in our view.

Chart 2 : Low vehicle penetration rates vs developed countries

100%

78.3%

65.0% 60.0% 60.0%

50% 39.3%

28.9% 29.3%

13.7% 11.2% 8.1% 1.6% 2.6% 0% NZ US China Korea Japan Thailand Malaysia Australia W Europe Indonesia Singapore Hong Kong

Tyre sales in Asia outpace developed countries

Accordingly, tyre sales in Asia have outpaced the growth rates in developed China, Asean and South countries. As shown in chart 3, China, the Asean (Association of Southeast Asian Korea have registered tyre sales growth rates ranging Nations) area and South Korea have registered tyre sales growth rates of 9-13% vs from 9-13% vs 1-2% in 1-2% in developed countries. We expect the rapid growth in Asia to continue as developed countries consumer spending power increases and economies expand further.

STAMFORD TYRES CORP 26 FEBRUARY 2004 6

INDUSTRY DYNAMICS

Chart 3 : Global tyre sales by country and region (1998-2002 CAGR)

14% 12.5%

12% 11.1%

9.6% 10%

8% 7.4%

6% 5.3%

4% 3.1% 1.9% 2% 1.0% 1.2% 0.0% 0% ROW India Japan Asean China China North Europe Eastern Europe America Western Mercosur South Korea South

Source: LMC

Replacement tyre market is also strong in Asia

Similarly, the replacement market for tyres in Asia has also expanded faster than in The replacement market for developed countries (see chart 4). This comes on the back of a rapidly growing tyres in Asia has also expanded faster than in vehicle population and healthy economic conditions in the region (see table 4). Going developed countries forward, we expect the replacement tyre market to continue growing rapidly as increased affluence and a larger vehicle population raise demand.

Chart 4 : Global replacement tyre sales (1998-2002 CAGR)

12% 10.8%

10% 8.9% 7.7% 8% 6.5% 5.7% 5.7% 6%

4% 3.3%

1.6% 2% 1.3% 0.3% 0% ROW India Japan Asean China China North Europe Eastern Europe America Western Mercosur South Korea

Source: LMC

Table 4 : GDP growth forecast (%)

1996A 1997A 1998A 1999A 2000A 2001A 2002A 2003F 2004F 2005F Thailand 5.9 -1.4 -10.5 4.4 4.6 1.9 5.3 6.3 6.2 5.0 Taiwan 6.1 6.7 4.6 5.4 5.9 (2.2) 3.6 2.6 4.6 4.2 China 9.6 8.8 7.8 7.1 8 7.3 8.0 9.1 7.5 7.0 HK 4.1 5.1 -5.4 3 9.3 0.5 2.3 2.5 7.0 5.0 Msia 10 7.3 -7.4 6.1 8.3 0.3 4.1 5.1 6.5 5.0 Singapore 8.1 8.5 -0.9 6.4 9.4 (2.4) 2.2 0.5 6.3 4.2 Indonesia 7.8 4.7 -13.1 0.8 4.9 3.4 3.7 4.0 4.4 4.1 Australia 3.9 4.4 5.7 4.7 3.8 1.8 3.8 2.7 3.1 n.a. New Zealand 4.6 0.3 0.4 4.9 2 2.6 4.4 2.8 2.3 2.5 Source: ABN AMRO ESTIMATES

STAMFORD TYRES CORP 26 FEBRUARY 2004 7

INDUSTRY DYNAMICS

Stamford Tyres’ Asian prospects look strong

Deeper market penetration in Asia

Having established its presence in Southeast Asia, Stamford Tyres is expanding its Expanding its distribution distribution networks in Australia, South Korea and China. On the back of rising networks in Australia, South Korea and China affluence, we expect demand for cars to increase, allowing the group to take advantage of the growth in these countries through its brands. Firenza, Stamford Tyres’ proprietary brand of high-performance passenger car tyres made in Japan, currently enjoys good acceptance by end-users. To further increase market penetration, a new line of Firenza tyres manufactured in Indonesia was introduced recently. The group will also introduce tyres manufactured in Malaysia by Continental Sime Tyre. These new tyre lines will enjoy the preferential AFTA tariff rate of 5% and are expected to enhance the group's turnover within the ASEAN region.

Table 5 : Revenue breakdown (by region)

YE – April 2000 2001 2002 2003 2004F 2005F 2006F Revenues (S$ mn) Singapore 78.8 76.7 72.4 85.4 94.7 103.3 110.5 Malaysia 13.3 15.3 19.6 24.6 28.4 33.2 38.5 HK/China 6.2 9.1 10.2 33.9 40.9 48.7 58.5 Thailand 6.3 6.9 6.7 8.8 10.8 20.0 33.4 Indonesia 0.0 0.0 6.3 5.3 5.6 6.5 7.6 Latin America 9.2 7.3 2.0 2.5 3.0 3.6 4.4 Others 0.0 3.7 2.9 2.6 2.7 4.1 6.2 113.8 119.1 120.1 163.0 186.2 219.4 259.0 Revenues (% of total) Singapore 66% 64% 60% 52% 51% 47% 43% Malaysia 11% 13% 16% 15% 15% 15% 15% HK/China 5% 8% 8% 21% 22% 22% 23% Thailand 5% 6% 6% 5% 6% 9% 13% Indonesia 0% 0% 5% 3% 3% 3% 3% Latin America 8% 6% 2% 2% 2% 2% 2% Others 0% 3% 2% 2% 1% 2% 2% 100% 100% 100% 100% 100% 100% 100%

Source: Company data, ABN AMRO estimates

Some of the top brands represented in the industry

With an operating history spanning several decades, Stamford Tyres has built up a Strong reputation and strong reputation and comprehensive family of vendors that it represents. The comprehensive family of vendors represented company’s main brands Falken (under Sumitomo), Dunlop (under Sumitomo), Continental and Toyo are major names with large customer bases. As shown in chart 5, in the US$69 bn market for tyres globally, Toyo, Sumitomo and Continental hold 2%, 4% and 7% market shares, respectively. Catering to the niche market of high- end performance tyres with these major brands, we believe Stamford is in a strong position as it expands further in Asia.

Table 6 : Brands represented under Stamford Tyres

Major brands represented Falken, Continental, Toyo Tires, Firenza, Sumo Tire, Stamford Wheels Dunlop (through TPHK; exclusive for China through SRITP) Other brands represented (wheels and auto accessories) Ray Wheels, Gram Lights, SSR, United Arrows, Versus, Yolk, Momo, Alessio, TSW, Hamann BBS, Projec U, Tanabe, Fiamm, General tyres, Arnco, Regal tyres, 5 Zigen

Source: Stamford Tyres

STAMFORD TYRES CORP 26 FEBRUARY 2004 8

INDUSTRY DYNAMICS

Chart 5 : Global tyre companies – Market share, 2002

Toyo Hankook 2% Cooper Yokohama Pirelli Others 1% 3% 3% 4% 18% Sumitomo Rubber 4%

Continental 7%

Bridgestone 20% Goodyear 18% Michelin 20%

Source: LMC

STAMFORD TYRES CORP 26 FEBRUARY 2004 9

INVESTMENT VIEW

China and Thailand raise prospects

Positioned in two of the fastest-growing tyre markets in Asia with its JV to distribute Dunlop tyres and its sports alloy rims manufacturing business, Stamford Tyres is set to benefit from increased demand for auto parts.

China

JV with Sumitomo to distribute Dunlop tyres in China

Tyre Pacific HK Ltd (TPHK) – a 50:50 joint venture between Stamford Tyres and Tan SRITP is the sole distributor Chong International – has formed a joint venture with Sumitomo Rubber Industries of Dunlop tyres manufactured in China Co. Ltd (SRI) and set up a joint venture holding company, SRITP Ltd, as the sole distributor of Dunlop tyres manufactured in China. SRITP is 60% owned by Sumitomo with TPHK owning 40%. SRI’s factory in Changsu, Jiangsu province, will produce passenger car radials from 1Q04 and will eventually have a capacity of more than 3m tyres annually.

Chart 6 : Organisational chart

Stamford Tyres Tan Chong International 50% 50%

Sumitomo Rubber Tyre Pacific (TP) Industries (SRI) 40% 60%

SRI- TP JV Co Ltd (Sole distributor of Dunlop Tyres manufactured in China)

Source: Company data

With a plan to operate a chain of 400 outlets in two years, SRITP will be in an SRITP to contribute over investment phase. As such, we believe this JV will not have much of an earnings the longer term impact on Stamford Tyres for the next two to three years. However, with SRI targeting a 10% market share in the domestic Chinese tyre market by 2010, we believe Stamford Tyres’ position and long-term prospects are strong. SRITP is expected to produce 5,000 pieces/day by end-2004 and 10,000/day by end-2006.

TPHK is currently the distributor of Dunlop tyres in Hong Kong, Macau, Vietnam and China. With the incorporation of SRITP, TPHK will remain the prime distributor for imported Dunlop tyres in China, Hong Kong, Macau, and Vietnam, while the distribution of ‘China-made’ Dunlop tyres for China will be handled by SRITP.

STAMFORD TYRES CORP 26 FEBRUARY 2004 10

INVESTMENT VIEW

Chart 7 : China with SRITP’s reach

Source: Company data

Excellent prospects for auto-parts suppliers in China

Longer term, the prospects for auto-parts suppliers in China are good with the rapidly Vehicle population growth growing vehicle population and increasing private car ownership. The Development CAGR of 17% for the next ten years Research Centre of China Cabinet has forecast a 17% vehicle population CAGR in China for the next ten years, reaching a population of 100m vehicles from 20.5m as at 2002.

With growing affluence and greater purchasing power, more private individuals in More private individuals in China own vehicles. A study by the China National Statistics Bureau (CNSB) indicates China are owning vehicles that about 20% of city residents currently have the financial means to purchase a family car and the accelerating private vehicle ownership in China comes on the back of robust economic growth. From 1992 to 1999, private car ownership in China increased from 1m to 5m, but it took only three years after 1999 for the private car population to expand from 5m to 10m.

STAMFORD TYRES CORP 26 FEBRUARY 2004 11

INVESTMENT VIEW

Thailand

Thai wheel manufacturing plant

Construction of Stamford Tyres’ Thai wheel manufacturing plant commenced in Thai factory will target new October 2003 and production is expected to begin in May 2004. Manufacturing product lines, focusing on the niche high-end “Stamford Sports Wheels” (SSW), the company has teamed up with the Singapore replacement market Institute of Manufacturing Technology (SIMTech), a research institute of the Agency segment for Science, Technology and Research (A*STAR), to draw upon its knowledge in advanced metal-forming technologies. The Thai factory will target new product lines in Asean and North America, focusing on the niche high-end replacement market segment. Stamford Tyres plans for quick product development and market introduction, benchmarking its wheel quality to the Japanese standard.

With a planned production capacity of 480,000 wheels by FY06 (two production Thai revenues are expected lines), we expect manufacturing revenues in Thailand to surge from S$8m in FY05F to surge about four times from S$8.8m in FY03 to to S$20m in FY06F (accounting for about 8% of group revenues). Together with S$33.4m by FY06F Stamford Tyres’ existing distribution business in Thailand, the group’s Thai revenues are expected to surge about four times, from S$8.8m in FY03 to S$33.4m by FY06F.

STAMFORD TYRES CORP 26 FEBRUARY 2004 12

INVESTMENT VIEW

Net income CAGR of 33%

Healthy regional GDP growth rates, higher consumption spending and deeper market penetration are expected to boost net income by a three-year CAGR of 33% and EBIT margins from 7.7% in FY03 to 11.2% in FY06F.

EBIT margins and ROIC to expand

Apart from healthy regional GDP growth rates and higher consumption, Stamford Net income up at a three- Tyres’ new Thai wheel manufacturing operations, deeper market penetration of its year CAGR of 33%. EBIT margins up from 7.7% in distribution network in Asia and greater operational efficiencies and leverage are FY03 to 11.2% in FY06F expected to boost group net income by a three-year CAGR of 33% while EBIT margins rise from 7.7% in FY03 to 11.2% in FY06F. Consequently, ROIC is set to rise strongly, as profit growth should be largely margin-driven, with ROIC increasing from 12.9% in FY03 to 22.4% in FY06F (see chart 8). Margins, in particular, are expected to increase at a healthy rate due to the group’s high fixed-cost component, which should allow the group to benefit from operational leverage as revenues increase.

Chart 8 : EBIT and ROIC chart

25.0% 22.4% 20.4% 20.0% 17.7%

15.0% 12.9% 11.2% 10.2% 10.0% 8.8% 7.7% 7.1% 5.6% 5.0%

0.0% FY02 FY03 FY04F FY05F FY06F

EBIT margins ROIC

Source: Company data, ABN AMRO estimates

FCF yield to rise, suggesting potential for increased dividends

Stamford Tyres’ FCF yield is forecast to rise from the current 3.2% to 5.4% by FY06F, Greater upside risk to our while the group’s net debt is expected to decline from 56% in FY03 to 18% by FY06F. dividend assumptions and room for payout to rise With future capex requirements manageable, we believe this implies greater upside risk to our dividend assumptions and room for payout to rise. At current prices, with our existing conservative assumption of a 20% payout ratio (versus the five-year historical average of 37%), Stamford Tyres’ dividend yields are expected to range between 2% and 3% over the next three years.

STAMFORD TYRES CORP 26 FEBRUARY 2004 13

VALUATION COMMENT

Accelerating returns and attractive valuations

At 0.4x PEG and 9x PER, and with accelerating returns, Stamford Tyres looks attractive at current levels. Our 12-month target price of S$1.05 (potential 51% upside) is derived from a three-stage DCF valuation.

Accelerating returns and attractive valuations

Robust industry dynamics and effective business execution have delivered impressive Our analysis suggests operational growth for Stamford Tyres and are likely to continue improving returns strong fundamentals for the group and an attractive for the group going forward. Currently trading at attractive valuations, we believe investment entry level Stamford Tyres presents a compelling investment case. Utilising several different returns and valuation parameters, our analysis suggests strong fundamentals for the group and an attractive investment entry level.

■ Sharp increase in value creation. Stamford Tyres’ ROIC is set to accelerate rapidly, rising from 12.9% in FY03 to 22.4% by FY06F. This comes on the back of margin expansion and healthy revenue growth. ROE is also expected to continue improving from 17.8% in FY03 to 23.4% in FY06F.

■ Implied price to book. With a theoretical P/B multiple of 2.7x (derived from an attainable ROE of 20%, cost of equity of 10% and LT growth rate of 4%), Stamford Tyres’ current P/B of 2.2x appears attractive. Note: P/BV = (ROE-g)/(COE-g). See table 7 for sensitivity.

■ Implied EV/IC. At our theoretical EV/IC multiple of 3.2x (derived from an attainable ROIC of 20%, WACC of 9% and growth rate of 4%), Stamford Tyres’ current EV/IC of 1.9x also appears attractive. Note: EV/IC = (ROIC-g)/(WACC-g). See table 8 for sensitivity.

■ Margins. EBIT margins are expected to increase from 7.7% in FY03 to 11.2% in FY06F on the back of greater operational efficiencies.

■ PEG. With an FY05F (Apr YE) PER of 9x and a three-year earnings CAGR of 22.3%, Stamford Tyres’ PEG of 0.4x appears attractive.

Table 7 : Sensitivity table on theoretical price to book

Cost of Equity 6% 8% 10% 12% 14% 2% 4.5 3.0 2.3 1.8 1.5 3% 5.7 3.4 2.4 1.9 1.5 Growth 4% 8.0 4.0 2.7 2.0 1.6 5% 15.0 5.0 3.0 2.1 1.7 6% n.m. 7.0 3.5 2.3 1.8

Source: ABN AMRO estimates

STAMFORD TYRES CORP 26 FEBRUARY 2004 14

VALUATION COMMENT

Table 8 : Sensitivity table on theoretical EV/IC

WACC 7% 8% 9% 10% 11% 2% 3.6 3.0 2.6 2.3 2.0 3% 4.3 3.4 2.8 2.4 2.1 Growth 4% 5.3 4.0 3.2 2.7 2.3 5% 7.5 5.0 3.8 3.0 2.5 6% 14.0 7.0 4.7 3.5 2.8

Source: ABN AMRO estimates

Target price of S$1.05 from our three-stage DCF valuation

Our 12-month target price of S$1.05 is derived from a three-stage DCF valuation and Our 12-month target price assumes operating margins will decline from 9-11% over 2004-10 to 8.0-8.5% of S$1.05 (51% upside potential) is derived from a during the value expansion period of 2011-20. Financial returns are then expected to three-stage DCF valuation fade over five years (2021-25) until they equal the company’s WACC (9%), as supernormal returns are competed away over the long term. At our target price, Stamford Tyres would trade at an FY05F PER of 13.7x and EV/EBITDA of 8.8x. In terms of peer comparison at our target, its FY05F PER of 13.7x would still be below its closest competitor YHI International (YHI SP, Not rated), which is currently trading at a forward PER of 16.1x (based on consensus forecasts).

Chart 9 : Returns, cost of capital and NPV of free cash flow

25% 10 9 20% 8 7 15% 6 5 10% 4 3 5% 2 1 0% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Phase 1 NPV of FCF (RHS) Phase 2 NPV of FCF (RHS) Phase 3 NPV of FCF (RHS) Total Business ROIC Growth Business ROIC Remaining Business ROIC WACC

Source: ABN AMRO estimates

STAMFORD TYRES CORP 26 FEBRUARY 2004 15

COMPANY OUTLINE

Background

Stamford Tyres is a regional distributor of a complete range of tyres and wheels with supporting services. The business operates an international distribution network providing a complete range of tyres and wheels with supporting services to tyre and wheel distributors and retailers in more than 30 countries in Asia Pacific, Africa and Latin America.

It conducts its worldwide operations from its headquarters in Singapore. The modern facilities include an 18,000 sqm warehouse, a 3,000 sqm automotive Mega Mart and a 1,800 sqm corporate head office.

History Started as a tyre service shop over 70 years ago, the company was founded by the late Wee Boon Kew, father of current president Wee Kok Wah, during the 1930s as a tyre retail and petrol service station operator in Singapore. The business was located on Stamford Road, hence its name.

In 1940s, a tyre retreading plant was established to provide additional services for the British army and help grow the business. In the 1970s, Wee Kok Wah joined the business. To expand the scope of the business, he established a new tyre distribution operation. With this expansion, larger premises were needed and the company moved to its present location in Singapore’s Jurong Industrial Estate.

In 1991, the business was incorporated and listed on SESDAQ. Rapid expansion as the company extended its reach into the region and beyond. In April 2003, the company was upgraded to the main board of the SGX.

Business activities Stamford Tyres distributes tyres, wheels and tyre-related products in regional markets. It also operates five Mega Marts in Singapore and one in Kuala Lumpur, Malaysia. Each Mega Mart offers a comprehensive range of tyres, wheels, auto accessories and services for all brands of cars. In addition, the company has four tyre marts in Singapore and two in Malaysia, as well as five tyre workshops with major car distributors in Singapore that provide tyres and services.

With more than 20 years in the OTR business, Stamford Tyres is well known regionally, especially in Indonesia. Services and advice are provided to port authorities and mining, logging and construction companies.

Some of the services provided by the company include value-added fleet tyre management and maintenance services to vehicle fleet owners like the supply and lease of tyres, such as the tyre leasing program to mining operators PT Inco and long-term contracts with customers such as PSA, Sembwaste and Colex.

The company has retreading operations in Singapore, Malaysia and Indonesia. It is currently expanding into the wheel manufacturing business with a new wheel manufacturing plant in Thailand.

STAMFORD TYRES CORP 26 FEBRUARY 2004 16

COMPANY OUTLINE

Brands represented Stamford Tyres carries Falken Tires (a major brand owned by Sumitomo Rubber Industries in Japan). It is distributed in Southeast Asia, North Asia, India, South Africa, Mauritius, Reunion Island and the Pacific islands. New markets are Central America, South America and the Carribean. Through Tyre Pacific, it distributes Dunlop (a major brand owned by SRI) in Hong Kong, Macau, China and Vietnam.

Continental AG (high-tech German tyre manufacturer) is also distributed by Stamford tyres in Singapore, Malaysia, Thailand, Brunei and Indonesia. The company also distributes OTR as well as truck and bus radials for Toyo. Stamford Tyres distributes Toyo in Singapore, Malaysia, Thailand, Brunei and Indonesia.

The Stamford tyres proprietary brand is Firenza. It is contract manufactured in Japan by Sumitomo Rubber Industries Ltd, utilising the latest tyre research and technology. The Firenza line is presently being extended to new lines. It is distributed worldwide except in Western Europe and the USA.

Another proprietary brand is Sumo Tire, which is manufactured according to TRA standards and is well distributed around the world. It is made by Henan Tyre co. Ltd in China, Ceat Ltd in India and Otani Tyre Co. Ltd in Thailand.

SSW (Stamford Sports Wheels) is the company’s proprietary brand of alloy wheels. They are manufactured in-house in their wheel plant in Thailand. Other Japanese wheels distributed by Stamford tyres are RAYS, Gram lights, SSR, United Arrows (UA), 5 Zigen, Yolk and Versus. European brands include Momo, Alessio, TSW, Hamann and BBS.

Tanabe, Project U, Momo are some high performance car tuning parts from Japan and Italy that are distributed by Stamford Tyres. Industrial products such as Fiamm Batteries, Yokohama conveyer belting and Arnco Industrial Tyrefill are also distributed by the company.

CEO background Mr Wee Kok Wah has been the group’s president since 1989. He has more than 30 years of experience in the tyre business. He joined Stamford Tyres as a marketing executive in 1970 after graduating with a Bachelor of Social Science degree, majoring in Economics and Law, from the University of Singapore.

STAMFORD TYRES CORP 26 FEBRUARY 2004 17

STAMFORD TYRES CORP 26 FEBRUARY 2004 18

STAMFORD TYRES CORP 26 FEBRUARY 2004 19

DISCLOSURES

Recommendation structure

For stocks, such as this one, which do not fit neatly into a sector paradigm we show a target price and an absolute recommendation based on the implied upside/downside. A Buy/Sell requires upside/downside of 15% or more; an Add/Reduce requires upside/downside of between 5% and 15%; a Hold implies less than 5% upside/downside. Given the volatility of share prices and our predisposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 6 to 12 months.

The target price is the level the stock should currently trade at if the market accepted the analyst's view of the stock, provided that the necessary catalysts are in place to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a view on the market or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value the target price will differ from 'fair' value.

For large-cap stocks where there is a clearly defined, broadly-based sector universe our primary recommendation is relative to the sector universe.

Distribution of recommendations Recommendation distribution (as at 25 Feb 2004)

Global total (IB%) Asia / Pacific total The table opposite shows the distribution of ABN AMRO's recommendations. (IB%) The first column displays the distribution of recommendations globally and the second column shows the distribution for the region. Numbers in Buy 410 (25) 206 (6) brackets show the percentage for each category where ABN AMRO has an Add 381 (23) 153 (5) investment banking relationship. In all cases the numbers include both Hold 364 (19) 173 (5) absolute and sector relative recommendations. Reduce 192 (15) 51 (8) Sell 68 (21) 29 (0) Total (IB%) 1415 (21) 612 (5)

Stock performance, recommendation history and analyst coverage (as at 25 Feb 2004)

Stamford Tyres Corp

STAMFORD TYRES CORP 26 FEBRUARY 2004 20

DISCLAIMER

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Regulatory disclosures

Subject companies: STAS.SI Mentioned companies: STAS.SI, 1114.HK, 0203.HK ______The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts. ______

Disclosures regarding companies covered by ABN AMRO Group can be found on ABN AMRO's Research Website at www.abnamroresearch.com

STAMFORD TYRES CORP 26 FEBRUARY 2004 21

Stamford Tyres Corp: KEY FINANCIAL DATA

Income statement

S$m FY02A FY03A FY04F FY05F FY06F Revenue 120.1 163.0 186.2 219.4 259.0 Cost of Sales -88.2 -123.0 -136.9 -162.3 -192.9 Operating Costs -20.0 -24.6 -29.6 -31.3 -33.2 EBITDA 11.8 15.4 19.7 25.8 32.8 DD&A (Ex GW) -3.31 -2.87 -3.28 -3.50 -3.79 EBITA 8.49 12.5 16.5 22.3 29.0 Goodwill Amort (Pre-EBIT) n/a n/a n/a n/a n/a EBIT 8.49 12.5 16.5 22.3 29.0 Net Interest -4.37 -2.88 -2.88 -2.88 -2.88 Associates (Pre-Tax) 1.07 0.00 0.00 0.00 0.00 Exceptionals (Pre-Tax) n/a n/a n/a n/a n/a Other Pre-Tax Items 0.00 0.00 0.00 0.00 0.00 Reported PTP 5.19 9.65 13.6 19.4 26.1 Taxation -2.43 -1.46 -2.17 -4.27 -6.79 Minority Interests 0.01 -0.01 -0.01 -0.02 -0.02 Exceptionals (Post-Tax) n/a n/a n/a n/a n/a Other Post-Tax Items 0.00 0.00 0.00 0.00 0.00 Reported Net Profit 2.76 8.18 11.4 15.1 19.3 Exceptionals (Total) 0.00 0.00 0.00 0.00 0.00 Normalised Net Profit 2.76 8.18 11.4 15.1 19.3 Source: Company data, ABN AMRO estimates year to Apr

Balance sheet

S$m FY02A FY03A FY04F FY05F FY06F Cash and Liq Assets (1) 3.74 11.4 17.4 19.2 22.8 Other Current Assets 83.0 92.6 105.2 123.3 144.9 Tangible Fixed Assets 36.3 40.4 42.2 45.7 49.4 Intang Assets (Incl GW) 0.31 0.31 0.31 0.31 0.31 Oth Non-Curr Assets 9.23 0.72 0.72 0.71 0.72 Total Assets 132.6 145.3 165.8 189.2 218.2 Short Term Debt (2) 6.27 3.77 3.77 3.77 3.77 Trade & Oth Current Liab 46.4 55.9 63.1 74.4 87.9 Long Term Debt (3) 35.5 34.9 34.9 34.9 34.9 Oth Non-Current Liab 1.61 1.29 1.29 1.29 1.29 Total Liabilities 89.8 95.9 103.0 114.3 127.8 Total Equity (Incl Min) 42.9 49.4 62.7 74.9 90.3 Total Liab & Sh Equity 132.6 145.3 165.8 189.2 218.2 Net Debt (2+3-1) 38.4 27.7 21.7 19.9 16.3 Source: Company data, ABN AMRO estimates year ended Apr

Cash flow statement

S$m FY02A FY03A FY04F FY05F FY06F EBITDA 11.8 15.4 19.7 25.8 32.8 Change in Working Capital -1.86 0.41 -6.23 -8.90 -10.6 Net Interest (Pd) / Rec -4.37 -2.88 -2.88 -2.88 -2.88 Taxes Paid -1.17 -2.12 -1.46 -2.17 -4.27 Other Oper Cash Items 1.07 0.00 0.00 0.00 0.00 Cash Flow from Ops (1) 5.46 10.8 9.18 11.8 15.0 Capex (2) -2.78 -2.85 -5.09 -6.99 -7.57 Other Investing Cash Flow -1.13 -1.17 -2.28 -3.02 -3.86 Disposals/(Acquisitions) 0.65 0.35 0.00 0.00 0.00 Cash Flow from Invest (3) -3.26 -3.67 -7.37 -10.0 -11.4 Incr / (Decr) in Equity 0.81 3.23 4.18 0.00 0.00 Incr / (Decr) in Debt 0.00 0.00 0.00 0.00 0.00 Ordinary Dividend Paid n/a n/a n/a n/a n/a Preferred Dividends (4) n/a n/a n/a n/a n/a Other Financing Cash Flow n/a n/a n/a n/a n/a Cash Flow from Fin (5) 0.81 3.23 4.18 0.00 0.00 Forex & Disc Ops (6) n/a n/a n/a n/a n/a Inc/(Decr) Cash (1+3+5+6) 3.02 10.4 5.98 1.81 3.59 Equity FCF (1+2+4) 2.69 7.97 4.09 4.83 7.45 Source: Company data, ABN AMRO estimates. Lines in bold can be derived from the immediately preceding lines year to Apr

STAMFORD TYRES CORP 26 FEBRUARY 2004 22

Stamford Tyres Corp: PERFORMANCE AND VALUATION

Standard ratios Stamford Tyres Brilliance China Automotive Denway Motors

Performance FY02A FY03A FY04F FY05F FY06F FY03F FY04F FY05F FY03F FY04F FY05F Sales Growth (%) 0.82 35.8 14.2 17.8 18.0 37.0 7.88 4.30 11.8 12.0 12.2 EBITDA Growth (%) 33.4 30.4 28.2 30.6 27.2 80.0 -0.34 7.07 50.7 4.64 3.38 EBIT Growth (%) 37.7 47.5 31.3 35.4 30.2 59.4 1.43 4.66 108.8 1.70 -0.02 Normalised EPS Growth (%) 4.32 190.8 16.7 22.6 27.8 52.6 22.7 10.4 46.2 28.1 11.7 EBITDA Margin (%) 9.84 9.44 10.6 11.7 12.7 21.8 20.2 20.7 2.59 2.42 2.23 EBIT Margin (%) 7.08 7.69 8.84 10.2 11.2 14.6 13.7 13.8 1.65 1.50 1.34 Net Profit Margin (%) 2.30 5.02 6.12 6.89 7.46 9.90 11.8 13.1 103.4 122.9 122.3 Return on Avg Assets (%) 3.83 7.65 8.88 9.79 10.5 8.18 8.40 8.65 36.4 35.8 30.5 Return on Avg Equity (%) 6.74 17.8 20.4 22.0 23.4 15.3 15.3 14.1 40.3 38.9 32.7 ROIC (%) 5.63 12.9 17.7 20.4 22.4 23.5 20.0 20.5 75.6 64.2 49.1 ROIC - WACC (%) -3.63 3.63 8.45 11.1 13.2 9.52 6.06 6.49 65.3 53.9 38.9 year to Apr year to Dec year to Dec

Valuation EV/Sales (x) 1.46 1.01 0.85 0.72 0.59 1.52 1.25 1.13 17.6 16.0 14.4 EV/EBITDA (x) 14.9 10.7 8.05 6.10 4.68 6.99 6.20 5.44 680.4 658.9 646.7 EV/EBITDA @ Tgt Price (x) 20.8 15.3 11.6 8.82 6.82 9.15 8.37 7.47 818.7 791.1 774.5 EV/EBIT (x) 20.7 13.2 9.66 7.05 5.29 10.4 9.10 8.17 1066.4 1062.6 1078.3 EV/Invested Capital (x) 2.13 2.11 1.86 1.64 1.43 2.15 1.84 1.74 7.55 4.84 3.50 Price/Book Value (x) 2.44 2.16 2.19 1.84 1.52 2.14 1.66 1.46 6.65 4.85 3.74 Equity FCF Yield (%) 2.57 7.50 3.22 3.52 5.43 3.20 3.77 7.05 1.05 0.17 0.32 Normalised PE (x) 37.8 13.0 11.1 9.08 7.10 14.9 12.2 11.0 18.5 14.4 12.9 Norm PE @Tgt Price (x) 57.1 19.6 16.8 13.7 10.7 19.7 16.0 14.5 22.1 17.2 15.4 Dividend Yield (%) 1.12 1.12 1.80 2.20 2.82 0.47 0.58 0.64 1.19 1.53 1.70 year to Apr year to Dec year to Dec

Per share data FY02A FY03A FY04F FY05F FY06F Solvency FY02A FY03A FY04F FY05F FY06F Tot Adj Dil Sh, Ave (m) 150.1 153.0 182.4 197.5 197.5 Net Debt to Equity (%) 89.4 56.0 34.6 26.6 18.1 Reported EPS (SGD) 0.02 0.05 0.06 0.08 0.10 Net Debt to Tot Ass (%) 28.9 19.1 13.1 10.5 7.48 Normalised EPS (SGD) 0.02 0.05 0.06 0.08 0.10 Net Debt to EBITDA (%) 324.8 179.9 110.0 77.2 49.8 Dividend Per Share (SGD) 0.01 0.01 0.01 0.02 0.02 Current Ratio (x) 1.65 1.74 1.83 1.82 1.83 Equity FCF Per Share (SGD) 0.02 0.05 0.02 0.02 0.04 Operating CF Int Cov (x) 2.52 5.50 4.70 5.87 7.71 Book Value Per Sh (SGD) 0.28 0.32 0.32 0.38 0.46 Dividend Cover (x) 2.36 6.86 5.00 5.00 5.00 year to Apr year to Apr

3-stage DCF valuation Economic Profit Valuation US$ m % Discounted Cash Flow Valuation US$ m % Adjusted Opening Invested Capital 86.6 38 Value of Phase 1: Explicit (2003 to 2009) 52.7 23 NPV of Economic Profit During Explicit Period 68.4 30 Value of Phase 2: Value Driver (2010 to 2017) 64.8 28 NPV of Econ Profit of Remaining Business (1, 2) 47.4 21 Value of Phase 3: Fade (2018 to 2032) 25.3 11 NPV of Econ Profit of Net Inv (Grth Business) (1, 3) 26.1 11 Terminal Value 85.7 38 Enterprise Value 228.6 100 Enterprise Value 228.5 100 Plus: Other Assets 0.0 0 FCF Grth Rate at end of Phs 1 implied by DCF Valuation 5 Less: Minorities 0.0 0 FCF Grth Rate at end of Phs 1 implied by Current Price 2 Less: Net Debt (as at 19 Dec 2003) 21.3 9 Equity Value 207.3 91 Returns, WACC and NPV of Free Cash Flow No. Shares (millions) 197.5 25% 10 Per Share Equity Value 1.05 9 Current Share Price 0.69 20% 8 7 Sensitivity Table No of Years in Fade Period 15% 6 #REF! 15 18 20 23 25 5 6.0% 1.60 1.66 1.72 1.79 1.85 10% 4 7.0% 1.29 1.33 1.37 1.41 1.46 3 8.0% 1.06 1.09 1.12 1.14 1.17 5% 2 WACC 9.0% 0.89 0.91 0.93 0.95 0.96 1 10.0% 0.76 0.77 0.78 0.79 0.80 0% 0

Performance Summary Phase 2 Avg 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2003 2004 2005 (2010 - 2017) Phase 1 NPV of FCF (RHS) Phase 2 NPV of FCF (RHS) Phase 3 NPV of FCF (RHS) Total Business ROIC Invested Capital Growth (%) 9.4 12.1 12.4 9.0 Growth Business ROIC Remaining Business ROIC Operating Margin (%) 8.8 10.2 11.2 8.6 WACC Capital Turnover (x) 2.4 2.6 2.7 2.5

Source: ABN AMRO estimates 1. In periods following the Explicit Period i.e. Phase 2 and Phase 3 2. Remaining Business is defined as Capital as at the end of Phase 1 and capex = depreciation thereafter 3. Net Investment is defined as capex over and above depreciation after Phase 1

STAMFORD TYRES CORP 26 FEBRUARY 2004 23

Strategic & competitive overview Stamford Tyres Corp

Company description Buy Price relative to country

Stamford Tyres is a regional distributor of a complete range of tyres and wheels with supporting 700 services. The business operates an international distribution network providing a complete range of 600 tyres and wheels with supporting services to tyre and wheel distributors and retailers in more than 500 30 countries in Asia Pacific, Africa and Latin America. Stamford Tyres operates five Mega Marts in 400 Singapore and one in Kuala Lumpur, Malaysia. Each Mega Mart offers a comprehensive range of tyres, wheels, auto accessories and services for all brands of cars. In addition, the company has 300 four tyre marts in Singapore and two in Malaysia, as well as five tyre workshops with major car 200 distributors in Singapore that provide tyres and services. 100

0 Feb Jun Oct Jan May Aug Dec Apr Jul Nov Feb 01 01 01 02 02 02 02 03 03 03 04

Strategic analysis Average SWOT company score: 4 Revenue breakdown, FY03

Latin Strengths 5 Indonesia America Others Thailand 3% 2% 2% Well-established distribution channel, brand name and reputation in the auto-parts industry. Good Singapore 5% 52% long-term relationships with key vendors. A dedicated and passionate management team. HK/China 21% Weaknesses 2 Dependence on tyre allocation from key vendors. Slightly late in establishing wheel manufacturing Malaysia business. 15%

Source: Company Opportunities 5 Significant market opportunities in China, Thailand and other Asian/Australasian countries. With low Market data vehicle penetration rates in Asia, long-term growth prospects are good. Headquarters 19 Lok Yang Way, Jurong, Singapore Threats 2 628635, Singapore Unforeseen events at vendors (eg, fire at tyre manufacturing plant) would affect allocation of tyres Website and accordingly the growth rate of Stamford Tyres. www.stamfordtyres.com Shares in issue Scoring range is 1-5 (high score is good) 197.5m Freefloat 60% Majority shareholders Wee Kok Wah (32.5%)

Singapore

Country view Overweight Country rel to Asia Pacific

The Singapore economy has clearly hit a cyclical trough. Consumption indicators have continued to 102 strengthen in recent months, following an initial post-SARS rebound in 2Q. Notwithstanding the 100 structural challenges, Singapore today remains a major important regional transport and financial centre for the Asean region, a major goods producer for the world. Singapore electronic exports 98 have resumed growth. The risk of an overly-bearish call on Singapore is global demand continuing 96 to surprise on the upside. In the Asia ex Japan portfolio, we have moved to neutral from our 94 previous marginal underweight in Singapore and recommend banks and regional transport stocks to play the domestic and regional cyclical recovery. In the Asia Pacific ex Japan portfolio, Singapore is 92 a marginal overweight. 90 Aug Aug Sep Sep Oct Nov Nov Dec Dec Jan Feb The country view is set in consultation with the relevant company analyst but is the ultimate responsibility of the Strategy Team. 03 03 03 03 03 03 03 03 03 04 04

Competitive position Average competitive score: 3+ Recommendations¹

Supplier power 2- Buy: Stamford Tyres is dependent on key vendors for tyre allocation. With Continental, Sumitomo and SingTel, DBS Bank, OCBC, SPH, STE, SCLog, NOL, MobileOne, Star Cruises, Toyo being large established companies with strong brands, suppliers yield significant power. China Aviation Barriers to entry 4+ Add: Establishing a strong distribution network, brand name and reputation with the market and key UOB, SIA, Want Want vendors are the most difficult challenges for potential entrants. Hold: Customer power 3+ UOL, SMRT Stamford Tyres is not dependent on any single customer. The group utilises multiple dealers in the Reduce: different countries for its network reach. Chartered Semi Substitute products 4+ Sell: Substitution with low-end generic tyres is a low-level threat as Stamford Tyres focuses on the niche segment of quality branded tyres. 1. Other absolute performance recommendations in the same market. Rivalry 3+ Largest 10 or so companies by market Competition is keen in the tyre distribution business. However, Stamford Tyres has been able to set cap. itself apart from the competition by focusing on the high-end tyre segment.

Scoring range 1-5 (high score is good) Plus = getting better Minus = getting worse

STAMFORD TYRES CORP 26 FEBRUARY 2004 24