Equity Research Me xico

Company Note September 30, 2020 NEMAK www.banorte.com A less challenging environment ahead @analisis_fundam

▪ After the impact of COVID-19, Nemak’s outlook is poised for Consumer and Telecoms recovery. Meanwhile, the cost and expense reduction strategy implemented should be reflected into better margins Valentín Mendoza Senior Strategist, Equity ▪ Its spin-off from Alfa conglomerate will provide greater independence [email protected] for strategic decision-making. Likewise, when eventually only one Juan Barbier, CFA series of shares remains listed, marketability should improve Analyst [email protected] ▪ Through a discounted cash flow valuation model, we raised our PT2020 to MXN 7.60 vs. the MXN 7.00 previously, representing a 4.8x HOLD FV/EBITDA 2021E multiple. We reiterate our HOLD rating Current Price $6.78 PT 2020 $7.60 Dividend The worst is over now. After the strong impact on Nemak's results from the Dividend Yield (%) OEMs plants closure due to the COVID-19 pandemic, IHS Automotive has Upside Potential 12.1% Max – Min LTM ($) 9.54 – 3.25 revised upwards its vehicle production projections for 2H20 and 2021. This is Market Cap (US$m) 924.2 explained by a faster recovery in China and low inventory levels at the Detroit Shares Outstanding (m) 3,076.6 Float 19.24% 3, yet mainly at General Motors, after production ceased in 2Q20. Thus, IHS Daily Turnover ($m) 10.0 now estimates global vehicle production to sequentially recover to -5% y/y in Valuation metrics TTM FV/EBITDA 7.8x 3Q20 (vs. -43% in the previous quarter), while it is expected to recover 13% in P/E N.A. 2021 and 6% more in 2022. Consequently, Nemak's volumes should rebound significantly, while its US$125 million q/q savings (60% recurrent) –which Relative performance to Mexbol lowered the break-even point from 60% to 40%-, would support a significant LTM recovery in margins. Simultaneously, Nemak’s spin-off from Alfa -and with it, 20% 10% the independent listing of ‘Nemak Holding’ on the Mexican Stock Exchange-, 0% -10% would provide greater independence for decision making, allowing it to better -20% -30% leverage arising opportunities in the electric vehicle components and structural -40% applications segments. With this in mind, we have adjusted our estimates and -50% -60%Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 through a discounted cash flow (DCF) valuation model, we raised our PT2020 -70% to MXN 7.60, representing a 4.8x FV/EBITDA 2021E multiple, though we MEXBOL NEMAKA reiterate our HOLD rating.

Financial Statements Valuation and financial metrics MXN, million 2018 2019 2020E 2021E 2018 2019 2020E 2021E

Revenues 90,327 77,363 66,373 74,864 EV/EBITDA 3. 3x 3.7x 7.1x 4.6x Operating Income 7,823 4,964 -69 3,203 P/E 6. 1x 8.4x -6.7x 31.0x EBITDA 14,105 11,958 7,396 10,849 P/Book 0. 6x 0.6x 0.6x 0.6x

EBITDA Margin 15.6% 15.5% 11.1% 14.5% Net Income 3,464 2,493 -3,114 675 ROE 9.3% 7.1% -8.7% 1.8%

Net Margin 3.8% 3.2% -4.7% 0.9% ROA 3.7% 2.8% -2.9% 0.6% EBITDA/ Interest expenses 7. 5x 7.6x 3.9x 4.6x

Total Assets 93,258 88,744 109,232 109,592 Net Debt/EBITDA 1. 8x 1.9x 4.2x 2.7x Cash 3,555 5,883 16,029 16,304 Debt/Equity 0. 8x 0.8x 1.3x 1.2x

Total Liabilities 57,154 54,800 71,938 71,943 This document is provided for the reader’s convenience Debt 29,187 28,605 47,348 45,288 only. The translation from the original Spanish version was Common Equity 36,104 33,943 37,295 37,649 made by Banorte’s staff. Discrepancies may possibly arise between the original document in Spanish and its English Source: Banorte with data from MSE translation. For this reason, the original research paper in Spanish is the only official document. The Spanish version was released before the English translation. The original document entitled “Un entorno menos adverso hacia adelante” was released on September 29, 2020. 1 Document for distribution among public

NEMAK – Financial Statements Revenue & EBITDA Margin MXN, million MXN, million

Year 2018 2019 2020E 2021E CAGR

100,000 16.0% 15.6% 15.5% 18% Net Revenue 90,327 77,363 66,373 74,864 -6.1% 14.5% 16% Cost of goods sold 76,878 66,276 60,103 65,790 -5.1% 80,000 14% Gross profit 13,449 11,087 6,270 9,074 -12.3% 11.1% 12% General expenses 5,746 5,328 5,576 5,872 0.7% 60,000 10% Operating Income 7,823 4,964 (69) 3,203 -25.7% 8% Operating Margin 8.7% 6.4% -0.1% 4.3% -21.0% 40,000 Depreciation 6,166 5,788 7,460 7,646 7.4% 6% EBITDA 14,105 11,958 7,396 10,849 -8.4% 20,000 4% EBITDA Margin 15.6% 15.5% 11.1% 14.5% 2% Interes income (expense) net (2,220) (1,368) (3,207) (2,160) -0.9% 0 0% Interest expense 1,883 1,583 1,889 2,334 7.4% 2017 2018 2019 2020e 2021e Interest income 93 85 117 273 43.0% Other income (expenses) 35 163 (5) (6) -155.6% Revenue EBITDA Margin Exchange Income (loss) (465) (33) (1,430) (92) -41.6% Unconsolidated subsidiaries 136 41 (46) (78) -183.0% Income before taxes 5,739 3,638 (3,322) 965 -44.8% Income taxes 2,276 1,145 (208) 289 -49.7% Discontinued operations Net Income & ROE Consolidated Net Income 3,464 2,493 (3,114) 675 -42.0% MXN, million Minorities Net Income 3,464 2,493 (3,114) 675 -42.0% Net margin 3.8% 3.2% -4.7% 0.9% 5,000 15.0% EPS 1.125 0.810 (1.012) 0.220 -42.0% 9.6% 7.1% 4,000 9.3% 10.0% Balance Sheet (Million pesos) 3,000 Total Current Assets 27,405 25,403 36,168 39,202 12.7% 2,000 5.0% Cash & Short Term Investments 3,555 5,883 16,029 16,304 66.1% 1,000 1.8% Long Term Assets 65,853 63,341 73,065 70,390 2.2% 0 0.0% Property, Plant & Equipment (Net) 51,629 48,140 54,989 52,315 0.4% (1,000) 2017 2018 2019 2020e 2021e Intangible Assets (Net) 5,287 5,647 6,582 6,582 7.6% (2,000) Total Assets 93,258 88,744 109,232 109,592 5.5% -5.0% (3,000) Current Liabilities 26,544 25,332 31,673 33,240 7.8% -8.7% Short Term Debt 2,834 2,684 11,490 10,991 57.1% (4,000) -10.0% Accounts Payable 23,258 21,765 18,730 20,511 -4.1% Long Term Liabilities 30,610 29,468 40,264 38,703 8.1% Net Income ROE Long Term Debt 26,353 25,921 35,858 34,297 9.2% Total Liabilities 57,154 54,800 71,938 71,943 8.0% Common Stock 36,104 33,943 37,295 37,649 1.4% Noncontrolling Interest Total Equity 36,104 33,943 37,295 37,649 1.4% Net Debt & Net debt to EBITDA ratio Liabilities & Equity 93,258 88,744 109,232 109,592 5.5% MXN, million Net Debt 25,632 22,722 31,319 28,984 4.2%

Cash Flow 2018 2019 2020E 2021E 4.2x 35,000 4.5x Cash Flow from Operating Activities 12,942 11,833 1,733 7,773 30,000 4.0x Cash Flow from Investing Activities (8,222) (4,673) (5,267) (5,716) 2.7x 3.5x Cash Flow from Financing Activities (4,647) (4,629) 12,092 (2,656) 25,000 3.0x FX differences in cash & equivalents (275) (202) 2,845 1,151 20,000 1.9x Change in Cash Balance (202) 2,328 11,402 552 1.9x 1.8x 2.5x 15,000 2.0x 1.5x 10,000 1.0x 5,000 0.5x 0 0.0x 2017 2018 2019 2020e 2021e

Net Debt Net Debt/EBITDA

Source: Banorte, MSE.

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Nemak, independent from Alfa. As a result of Alfa's new strategy, launched with the objective of detonating value for its shareholders, the conglomerate will split its participation in Nemak (75.24%). The objective is to become totally independent from its auto parts subsidiary, seeking to maximize the potential value of the business, and creating a new company called ‘Nemak Holding’. The latter would basically hold Alfa's stake in Nemak and will be listed on the Mexican Stock Exchange, tentatively before October 17th. After that, Alfa's shareholders will receive 1 new share of ‘Nemak Holding’ for each share they hold in the conglomerate. Initially the shares of both companies would be listed on the stock exchange; however, eventually they would seek to merge both entities (Nemak and ‘Nemak Holding’). Likewise, it is worth noting that the price of the new listed share of the holding company would be the result of dividing the market value of Nemak’s shares held by Alfa by the number of shares outstanding in the conglomerate. Accordingly, Alfa's shares outstanding are 64.2% higher than those of Nemak, so the price of the ‘Nemak Holding’ company's shares would be ~54% lower than that of NEMAK A, corresponding to MXN 3.11 as of today. We believe that this strategic move would be positive for Nemak for two reasons: (1) the independence of the business should facilitate decision-making and, consequently, maximize the potential value of the company by motivating the optimal leverage of arising opportunities; and (2) when the merger into a single entity finally takes place, the stock’s marketability should increase.

Vehicle production would begin to recover. After the unprecedented impact on global vehicle production due to the closure of assembly plants in the wake of COVID-19 pandemic, IHS Automotive, the industry's most recognized forecaster, has been revising its projections upwards, due to a more accelerated recovery in China (the world's largest automotive market) and low inventory levels in the Big 3, primarily at General Motors. Just in last September’s issue, the company raised its projection for 2020 by 140bps (+1.2 million vehicles), reflecting a less adverse outlook. With this in mind, the company now expects global vehicle production to fall 19% y/y to 71.7 million units by 2020, with a significant sequential improvement in the indicator, which is estimated to fall 5% in 3Q20 and 7% in 4Q20 (vs. -43% in 2Q20). Review of vehicle production estimates (Sep.-20 vs. Aug.-20) Estimated quarterly vehicle production (2020E) Millions of vehicles Left Axis Millions of vehicles, Right Axis %Var y/y Europe China 2 Japan/Korea Middle East / Africa 50.0 -5% -7% 10% -22% North America South America -43% South Asia Global 20.0 21.3 2 17.8 12.7 1 - -90% 1Q20 2Q20 3Q20 4Q20 1 China Europe North America Japan/Korea 0 South Asia South America 3Q20 4Q20 2020E 2021E 2022E 2023E Middle East / Africa Global -1

Source: IHS Automotive, Banorte

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While it is not expected that global industry will fully recover from the onslaught of the pandemic -in volume terms- until 2023, primarily due to the boost of emerging markets, 2021 is poised for being a year of recovery. In that sense, production is projected to reach 81.2 million vehicles in 2021, equivalent to a 13% year-over-year growth, while 6% and 4% growths are expected for 2022 and 2023, respectively. By region (in which Nemak operates), the recovery that is outlined for 2021 stands out in South America, with +27% y/y (vs. 31% in 2020E), followed by North America -its most important region- by +18% (-21%e in 2020), then Europe (+17% y/y vs. -24% previously) and, finally, China (+6% vs. -9% previously). Annual vehicle production Annual vehicle production Left Axis Millions of vehicles, Right Axis %Var y/y %Var y/y

100.0 88.9 81.2 86.0 89.2 20% 40% 71.7 30% 20% 13% 6% 50.0 -6% 4% 10% 0% -10% -19% -20% - -30% -30% 2019 2020E 2021E 2022E 2023E -40% China Europe 2018 2019 2020E 2021E 2022E 2023E North America Japan/Korea South Asia South America Europe China Middle East / Africa Global % y/y North America South America Source: IHS Automotive, Banorte

2020 Estimates.

We have adjusted our projections model by incorporating 2Q20 results and updating automotive production expectations. In this context, we now assume the company will produce 34.0 million equivalent units in 2020, thus registering a 23% annual decline at the consolidated level, explained by declines in all regions: North America (-24.4%), Europe (-23.7%) and the Rest of the World (-11.5%), due to the impact of the pandemic. Although car production is certainly expected to recover significantly in 2H20 (-6% y/y vs. -23% in 1H20), due to the economic reopening, China's fast recovery and low inventory levels at General Motors, Ford and Fiat-Chrysler, we still expect 3Q20 and 4Q20 volumes to reflect annual drops of 6.9% and 9.8%, respectively.

Regarding aluminum, Bloomberg's consensus anticipates a sequential recovery in the metal price, closing the year at US$1,650 per ton, equivalent to an 8.7% y/y estimated depreciation (when compared to the 2H19 average). On the other hand, a modest appreciation is estimated for the euro. Accordingly, the average unit price would remain virtually stable at US$89 (-18% y/y), so we now estimate that total revenues will tumble 24.4% annually to US$3.038 billion. By region, we expect the biggest drop in NAFTA (-26.3% to US$1.633 billion), followed by Europe (-24.1% to US$1.085 billion) and the Rest of the World (-14.1% to US$320 million).

Notwithstanding the above, it should be remembered that Nemak is one of the few companies listed on the Mexican Stock Exchange to benefit from FX depreciation. With that in mind, in light of the sharp depreciation estimated for the peso against the US dollar (+16.2% y/y to MXN 22.00), we expect that

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a positive FX conversion effect will partially offset the impact already described. Thus, we now estimate that sales would amount MXN 66.373 billion (-14.2% y/y).

As for EBITDA, we expect a 450bps contraction in its respective margin to 11.1%, with EBITDA falling 38.1% y/y to MXN 7.396 billion (-43.4% y/y in dollars to US$351 million). Such performance would be mainly explained by the significant declines in all regions' volumes already described, which would result in operating deleverage. However, it is worth noting that most of this effect would be explained by losses registered in 2Q20 at the peak of the crisis, when we observed plant closures. This is due to the recovery we expect in 2H20, added to the benefits from the cost and expense reduction strategy implemented (-US$125 million q/q in 2Q20), of which 60% would be permanent and 40% would be linked to volume performance, and the positive effect of peso's depreciation on NAFTA's cost structure, supporting a more optimistic outlook for the rest of the year, in our view. Thus, we now estimate EBITDA in North America will decrease by 40.2% to US$220 million, in Europe by 49.5% to US$112 million, and finally, in the Rest of the World by 40.1% to US$19.8 million, with pressures of 300bps (at 11.3%), 520bps (at 10.3%) and 270bps (at 6.2%), respectively.

As for net income, we expect a MXN 3.114 billion loss. This result would be the product of the aforementioned operating weakness and a 134% y/y increase in the CFC, due to an adverse FX effect that would result in MXN 1.430 billion in FX losses, as well as a 19% increase in interest expense due to higher leverage, after the company drew down credit lines to strengthen its liquidity during the pandemic. Finally, we now assume that the company will allocate capital expenditures of MXN 4.966 billion (US$248 million; -27.7% y/y), mainly for maintenance, and the launch of structural components and platforms for electric vehicles.

Concept 2020E 2021E Prior Current Variation Prior Current Variation Volume+ 42.0 34.0 -19.1% 42.1 38.0 -9.7% Revenue* 73,946 66,373 -10.2% 75,725 74,864 -1.1% EBITDA* 10,704 7,396 -30.9% 10,722 10,849 1.2% EBITDA Margin 14.5% 11.1% -3.4pp 14.2% 14.5% 0.3pp Net Income* 2,033 -3,114 N.A. 2,265 675 -70.2% Source: Banorte + Equivalent units, million * MXN, million

We set our PT2020 at MXN 7.60, reiterating HOLD. With a discounted cash flow (DCF) valuation model, based on the free cash flow to the firm (FCFF), we determined a new PT2020 of MXN 7.60 per share, increasing it by 8.6% from MXN 7.00. In this, we assumed a weighted average cost of capital (WACC) of 9.1%, which was calculated with a beta of 1.0, a risk-free rate of 6.5% (10-year MBono YE2020 estimate by our Fixed Income and Exchange Rate strategy team), a debt to equity ratio of 40% (vs. current 52%) assuming that it is an adequate level, given that the historical average has been around this level, and a 6.5% market premium. As for the residual value, we used a 5.5x exit FV/EBITDA multiple, above the median of comparable

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companies in 2021E of 5.0x, but in line with the 5-year average, considering that the recovery outlook justifies a modest revaluation when compared to historical levels, in our view. Such intrinsic value represents multiple of 7.4x FV/EBITDA 2020E, reflecting the current complex situation of the auto parts sector in the world due to the COVID-19 pandemic. In that sense, we consider the FV/EBITDA 2021E multiple a more accurate valuation parameter. In this regard, in our PT2020, Nemak would trade at 4.8x FV/EBITDA 20201E, below the current valuation of 7.8x, but in line with the historical average already described, as well as with its peers. The potential return against our PT is 12.1%, thus our rating continues to be to HOLD. Valuation by discounted cash flows (DCF) MXN, million 2020e 2021e 2022e 2023e 2024e 2025e Perp.

(+) EBITDA 7,396 10,849 11,355 12,499 12,811 13,132 (-) Working Capital (4,224) (978) (908) (1,000) (1,025) (1,051) (-) Fixed Capital Investment (4,966) (5,989) (6,691) (7,044) (7,044) (7,396) (-) Taxes 208 (289) (1,703) (1,875) (1,922) (1,970) (=) CF (1,585) 3,592 2,052 2,581 2,821 2,716 (+) Perpetuity 0 0 0 0 0 0 74,030 (=) Total Cash flow (1,585) 3,592 2,052 2,581 2,821 2,716 74,030

Risk-free rate (RF) 6.5% (+) Present value of cash flows 10,760 Market risk (RM) 6.5% (+) Present Value perpetuity 43,976 Beta 1.0 = EV 54,736 CAPM 13.0% (-) Net Debt (31,319) (-) Minority Interest 0 Cost of Debt 4.5% Tax rate 30.0% (=) Equity Value 23,418 Net cost of debt 3.2% Shares outstanding 3,077

Debt / Equity 40% Tarjet Price $ 7.61 WACC 9.1% Current Price 6.80 Exit multiple FV/EBITDA 5.5x Upside Potential 11.9% Source: Banorte

Nemak- FV/EBITDA forward LTM Nemak- FV/EBITDA LTM Times Times

7.0x 10 MedianaAuto parts FV/EBITDA companies U12M FV/EBITDA Empresas LTM de Median Autopartes FV/EBITDA Promedio1Y Average 1A 6.5x 9 FV/EBITDANemak FV/EBITDA Nemak U12MLTM 6.0x 8 5.5x 7 5.0x 4.6x 6 4.5x 4.0x 5 3.5x 4 3.0x 3 Sep.-19 Nov.-19 Jan.-20 Mar.-20 May.-20 Jul.-20 Sep.-20 Sep.-19 Nov.-19 Jan.-20 Mar.-20 May.-20 Jul.-20 Sep.-20

Source: Bloomberg, Banorte

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P/U FV/EBITDA P/E FV/EBITDA Rendimiento de EmisoraStock P/VLP/BV Dividend Yield U12MLTM 2020E2020E 2021E2021E U12MLTM 2020E2020E 2021E2021E Dividendos

ALFA S.A.B.-A 0.9x 16.6x 33.5x 8.2x 6.6x 6.9x 5.9x 5.8% GRUPO KUO SAB DE CV-SER B 1.6x 22.7x 0.9% GRUPO INDUSTRIAL SALTILLO 0.4x 7.6x 7.8x 7.9x 4.4x

CONTINENTAL AG 1.3x 81.5x 12.6x 30.4x 7.6x 4.9x 3.3% AISIN SEIKI CO LTD 0.7x 33.2x 8.9x 8.4x 6.0x 4.3x RHEINMETALL AG 1.9x 43.7x 10.3x 5.8x 6.4x 5.1x 3.2% LINAMAR CORP 0.6x 11.3x 14.0x 7.7x 5.2x 5.3x 4.3x 0.6% ELRINGKLINGER AG 0.5x 16.2x 6.9x 8.3x 5.8x AMERICAN AXLE & MFG HOLDINGS 2.9x 12.1x 7.0x 5.1x KAISER ALUMINUM CORP 1.1x 6.1x 17.7x 10.7x 6.0x 7.3x 6.0x 5.3% S&T MOTIV CO LTD 0.9x 9.7x 10.0x 8.8x 3.5x 3.7x 3.2x 2.8% MARTINREA INTERNATIONAL INC 0.6x 24.1x 4.8x 7.6x 5.3x 3.7x 2.2% RYOBI LTD 0.3x 6.2x TUPY SA 1.0x 21.0x 7.4x 8.9x 5.5x TOWER INTERNATIONAL INC 14.4x S&T DYNAMICS CO LTD 0.2x 9.0x 5.8% FEDERAL-MOGUL GOETZE INDIA 2.6x 64.8x 15.8x YUTAKA GIKEN CO LTD 0.3x 2.4x 2.5%

Promedio Empresas de Autopartes 1.1x 19.6x 30.2x 10.7x 9.5x 6.7x 4.8x 3.3% AverageAverage Auto Auto parts parts companies companies Mediana Empresas de Autopartes 0.9x 10.5x 24.1x 9.6x 6.9x 7.0x 5.0x 3.0% MedianMedian Auto Auto parts parts companies companies

NEMAKNEMAKNEMAK SAB SAB SAB DE DE CV DECV CV 0.6x N.A. -6.7x 31.0x 7.8x 7.1x 4.6x Premium/DiscountPremio/DescuentoPremium/Discount vsvs Median Mediana vs Median -43.1% N.A. -122.2% 188.6% -18.0% 5.8% -5.1% Source:Fuente:Source: Bloomberg, Bloomberg, BanorteBanorte Banorte -127.8% 223.2% 13.7% 1.9% -7.6%

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Certification of Analysts. We, Gabriel Casillas Olvera, Alejandro Padilla Santana, Delia María Paredes Mier, Juan Carlos Alderete Macal, Manuel Jiménez Zaldívar, Marissa Garza Ostos, Tania Abdul Massih Jacobo, Francisco José Flores Serrano, Katia Celina Goya Ostos, Santiago Leal Singer, José Itzamna Espitia Hernández, Valentín III Mendoza Balderas, Víctor Hugo Cortes Castro, Hugo Armando Gómez Solís, Miguel Alejandro Calvo Domínguez, Luis Leopoldo López Salinas, Leslie Thalía Orozco Vélez, Gerardo Daniel Valle Trujillo, Eridani Ruibal Ortega and Juan Barbier Arizmendi, certify that the points of view expressed in this document are a faithful reflection of our personal opinion on the company (s) or firm (s) within this report, along with its affiliates and/or securities issued. Moreover, we also state that we have not received, nor receive, or will receive compensation other than that of Grupo Financiero Banorte S.A.B. of C.V for the provision of our services.

Relevant statements. In accordance with current laws and internal procedures manuals, analysts are allowed to hold long or short positions in shares or securities issued by companies that are listed on the Mexican Stock Exchange and may be the subject of this report; nonetheless, equity analysts have to adhere to certain rules that regulate their participation in the market in order to prevent, among other things, the use of private information for their benefit and to avoid conflicts of interest. Analysts shall refrain from investing and holding transactions with securities or derivative instruments directly or through an intermediary person, with Securities subject to research reports, from 30 calendar days prior to the issuance date of the report in question, and up to 10 calendar days after its distribution date.

Compensation of Analysts.

Analysts’ compensation is based on activities and services that are aimed at benefiting the investment clients of Casa de Bolsa Banorte Ixe and its subsidiaries. Such compensation is determined based on the general profitability of the Brokerage House and the Financial Group and on the individual performance of each analyst. However, investors should note that analysts do not receive direct payment or compensation for any specific transaction in investment banking or in other business areas.

Last-twelve-month activities of the business areas. Grupo Financiero Banorte S.A.B. de C.V., through its business areas, provides services that include, among others, those corresponding to investment banking and corporate banking, to a large number of companies in Mexico and abroad. It may have provided, is providing or, in the future, will provide a service such as those mentioned to the companies or firms that are the subject of this report. Casa de Bolsa Banorte or its affiliates receive compensation from such corporations in consideration of the aforementioned services.

Over the course of the last twelve months, Grupo Financiero Banorte S.A.B. C.V., has not obtained compensation for services rendered by the investment bank or by any of its other business areas of the following companies or their subsidiaries, some of which could be analyzed within this report.

Activities of the business areas during the next three months.

Casa de Bolsa Banorte, Grupo Financiero Banorte or its subsidiaries expect to receive or intend to obtain revenue from the services provided by investment banking or any other of its business areas, by issuers or their subsidiaries, some of which could be analyzed in this report.

Securities holdings and other disclosures.

As of the end of last quarter, Grupo Financiero Banorte S.A.B. of C.V. has not held investments, directly or indirectly, in securities or derivative financial instruments, whose underlying securities are the subject of recommendations, representing 1% or more of its investment portfolio of outstanding securities or 1 % of the issuance or underlying of the securities issued.

None of the members of the Board of Grupo Financiero Banorte and Casa de Bolsa Banorte, along general managers and executives of an immediately below level, have any charges in the issuers that may be analyzed in this document.

The Analysts of Grupo Financiero Banorte S.A.B. of C.V. do not maintain direct investments or through an intermediary person, in the securities or derivative instruments object of this analysis report.

Guide for investment recommendations.

Reference

BUY When the share expected performance is greater than the MEXBOL estimated performance. HOLD When the share expected performance is similar to the MEXBOL estimated performance. SELL When the share expected performance is lower than the MEXBOL estimated performance. Even though this document offers a general criterion of investment, we urge readers to seek advice from their own Consultants or Financial Advisors, in order to consider whether any of the values mentioned in this report are in line with their investment goals, risk and financial position.

Determination of Target Prices

For the calculation of estimated target prices for securities, analysts use a combination of methodologies generally accepted among financial analysts, including, but not limited to, multiples analysis, discounted cash flows, sum-of-the-parts or any other method that could be applicable in each specific case according to the current regulation. No guarantee can be given that the target prices calculated for the securities will be achieved by the analysts of Grupo Financiero Banorte S.A.B. C.V, since this depends on a large number of various endogenous and exogenous factors that affect the performance of the issuing company, the environment in which it performs, along with the influence of trends of the stock market, in which it is listed. Moreover, the investor must consider that the price of the securities or instruments can fluctuate against their interest and cause the partial and even total loss of the invested capital.

The information contained hereby has been obtained from sources that we consider to be reliable, but we make no representation as to its accuracy or completeness. The information, estimations and recommendations included in this document are valid as of the issue date, but are subject to modifications and changes without prior notice; Grupo Financiero Banorte S.A.B. of C.V. does not commit to communicate the changes and also to keep the content of this document updated. Grupo Financiero Banorte S.A.B. of C.V. takes no responsibility for any loss arising from the use of this report or its content. This document may not be photocopied, quoted, disclosed, used, or reproduced in whole or in part without prior written authorization from Grupo Financiero Banorte S.A.B. of C.V. History of PT and Ratings Stock Date Rating PT NEMAK A 29/9/2020 Hold $7.60 NEMAK A 4/3/2020 Hold $7.00 NEMAK A 9/1/2020 Buy $10.00 NEMAK A 17/07/2019 Hold $10.00

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GRUPO FINANCIERO BANORTE S.A.B. de C.V.

Research and Strategy Gabriel Casillas Olvera IRO and Chief Economist [email protected] (55) 4433 - 4695 Raquel Vázquez Godinez Assistant [email protected] (55) 1670 - 2967 Lourdes Calvo Fernández Analyst (Edition) [email protected] (55) 1103 - 4000 x 2611

Economic Research and Financial Market Strategy Executive Director of Economic Research and Financial Alejandro Padilla Santana [email protected] (55) 1103 - 4043 Markets Strategy Itzel Martínez Rojas Analyst [email protected] (55) 1670 - 2251

Economic Research Juan Carlos Alderete Macal, CFA Director of Economic Research [email protected] (55) 1103 - 4046 Francisco José Flores Serrano Senior Economist, Mexico [email protected] (55) 1670 - 2957 Katia Celina Goya Ostos Senior Economist, Global [email protected] (55) 1670 - 1821 Luis Leopoldo López Salinas Economist, Global [email protected] (55) 1103 - 4000 x 2707

Market Strategy Manuel Jiménez Zaldívar Director of Market Strategy [email protected] (55) 5268 - 1671

Fixed income and FX Strategy Santiago Leal Singer Senior Strategist, Fixed Income and FX [email protected] (55) 1670 - 2144 Leslie Thalía Orozco Vélez Strategist, Fixed Income and FX [email protected] (55) 5268 - 1698

Equity Strategy Marissa Garza Ostos Director of Equity Strategy [email protected] (55) 1670 - 1719 José Itzamna Espitia Hernández Senior Strategist, Equity [email protected] (55) 1670 - 2249 Valentín III Mendoza Balderas Senior Strategist, Equity [email protected] (55) 1670 - 2250 Víctor Hugo Cortes Castro Senior Strategist, Technical [email protected] (55) 1670 - 1800 Juan Barbier Arizmendi, CFA Analyst [email protected] (55) 1670 - 1746 Eridani Ruibal Ortega Analyst [email protected] (55) 1103 - 4000 x 2755

Corporate Debt Tania Abdul Massih Jacobo Director of Corporate Debt [email protected] (55) 5268 - 1672 Hugo Armando Gómez Solís Senior Analyst, Corporate Debt [email protected] (55) 1670 - 2247 Gerardo Daniel Valle Trujillo Analyst, Corporate Debt [email protected] (55) 1670 - 2248

Economic Studies Delia María Paredes Mier Executive Director of Economic Studies [email protected] (55) 5268 - 1694 Miguel Alejandro Calvo Domínguez Senior Analyst, Economic Studies [email protected] (55) 1670 - 2220

Wholesale Banking Armando Rodal Espinosa Head of Wholesale Banking [email protected] (81) 8319 - 6895 Alejandro Aguilar Ceballos Head of Asset Management [email protected] (55) 5268 - 9996 Alejandro Eric Faesi Puente Head of Global Markets and Institutional Sales [email protected] (55) 5268 - 1640 Alejandro Frigolet Vázquez Vela Head of Sólida Banorte [email protected] (55) 5268 - 1656 Arturo Monroy Ballesteros Head of Investment Banking and Structured Finance [email protected] (55) 5004 - 1002 Carlos Alberto Arciniega Navarro Head of Treasury Services [email protected] (81) 1103 - 4091 Gerardo Zamora Nanez Head of Transactional Banking, Leasing and Factoring [email protected] (81) 8318 - 5071 Jorge de la Vega Grajales Head of Government Banking [email protected] (55) 5004 - 5121 Luis Pietrini Sheridan Head of Private Banking [email protected] (55) 5004 - 1453 Lizza Velarde Torres Executive Director of Wholesale Banking [email protected] (55) 4433 - 4676 Osvaldo Brondo Menchaca Head of Specialized Banking Services [email protected] (55) 5004 - 1423 Raúl Alejandro Arauzo Romero Head of Transactional Banking [email protected] (55) 5261 - 4910 René Gerardo Pimentel Ibarrola Head of Corporate Banking [email protected] (55) 5268 - 9004 Ricardo Velázquez Rodríguez Head of International Banking [email protected] (55) 5004 - 5279 Víctor Antonio Roldan Ferrer Head of Commercial Banking [email protected] (55) 5004 - 1454