6 July 2015

Positives priced in Initiate Coverage We initiate coverage on Malakoff, the largest independent power producer in with a HOLD rating and a DCF-based target price of RM1.92. While we forecast a 2014-17 earnings CAGR of 17%, Malakoff we believe these positives are already priced in. Nonetheless, we see MLK MK Malakoff as a decent dividend yield play with management guidance Sector: Utilities of at least 70% dividend payout. Reliable cash flows supported by long term PPAs RM1.79 @ 6 Jul 2015 Malakoff exhibits stable and defensive earnings as its power generation capacity is fully contracted for based on long term power purchase HOLD agreements (PPAs) that feature fuel cost pass through and scheduled Upside 7% escalations in relation to operating rates. TNB is the key offtaker for output of power generation and contributes c.90% to Malakoff’s revenue. Price Target: RM1.92 Potential expansion from longer term opportunities Previous Target: New Coverage Management intends to grow Malakoff’s total effective power generation capacity from 7,036MW in 2016 to 10,000MW by 2020. However, most of (RM) 1.90 the plant-ups for Peninsular Malaysia have already been awarded by the 1.85 EC and thus may present a challenge to Malakoff’s medium term growth 1.80 plans. Malakoff’s plan to export power also comes with regulatory and 1.75 political hurdles. Nonetheless, we do not rule out Malakoff pursuing M&A 1.70 as they have demonstrated in the past to achieve their targets. 1.65

Ample room to gear up for expansion and more foreign ventures 1.60 With a healthier balance sheet now, Malakoff is better positioned to May-15 Jun-15 undertake new power projects as well as pursue M&A to grow. Malakoff Price Performance has established a good M&A track record since privatisation in 2006, notably the Macarthur Wind Farm which is a key foreign earnings driver. 1M 3M 12M Absolute -4.3% NA NA Tapping into electricity and water demand growth in foreign markets Rel to KLCI -2.7% NA NA Malakoff has an existing presence in foreign markets namely Saudi Arabia, Algeria and Bahrain which are expected to show high growth in Stock Data electricity and water demand. While Malakoff has relatively small minority Issued shares (m) 5,000.0 stakes in many of its foreign ventures, it intends to consolidate and Mkt cap (RMm)/(US$m) 8,950.0/2,374.8 Avg daily vol - 6mth (m) 24.0 increase market share in the MENA region. 52-wk range (RM) 1.63-1.91 Initiating coverage with HOLD and TP of RM1.92 Est free float 25% BV per share (RM) 10.07 We initiate coverage on Malakoff with a HOLD rating and 12-month TP of P/BV (x) 0.18 RM1.92 based on DCF (WACC: 6.3%). While we like Malakoff for its Net cash/(debt) (RMm) (1Q15) (14,863.5) decent dividend yield of 3-4% and stable cash flows, we believe most of ROE (2015E) 7.2% the positives are already priced in. Derivatives Nil Shariah Compliant Yes Earnings & Valuation Summary FYE 31 Dec 2013 2014 2015E 2016E 2017E Key Shareholders Revenue (RMm) 4,717.4 5,594.5 5,713.4 6,196.6 6,211.1 MMC Corp 37.6% EBITDA (RMm) 1,589.5 2,327.3 2,438.1 2,512.5 2,492.6 EPF 19.1% Pretax profit (RMm) 84.1 595.5 658.1 824.4 827.2 LTH 10.0% Net profit (RMm) 161.5 341.5 434.3 544.1 545.9 Source: Affin Hwang, Bloomberg EPS (sen) 3.2 6.8 8.7 10.9 10.9 PER (x) 55.4 26.2 20.6 16.4 16.4 Core net profit (RMm) 161.5 341.5 434.3 544.1 545.9 Lim Tee Yang, CFA Core EPS (sen) 3.2 6.8 8.7 10.9 10.9 (603) 2145 9616 Core EPS growth (%) (65.5) 111.4 27.2 25.3 0.3 [email protected] Core PER (x) 55.4 26.2 20.6 16.4 16.4 Net DPS (sen) 0.0 0.0 6.1 7.6 7.6 Dividend Yield (%) 0.0 0.0 3.4 4.2 4.2 EV/EBITDA (x) 15.2 10.1 9.0 8.2 7.8

Chg in EPS (%) - - - Affin/Consensus (x) 1.0 0.9 1.0 Source: Company, Affin Hwang estimates, Bloomberg

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 1 of 24

6 July 2015

Investment thesis Reliable cash flows supported by long term PPAs Malakoff exhibits stable and defensive earnings as its power generation capacity is fully contracted for based on long term power purchase agreements (PPAs) that feature fuel cost pass through and scheduled escalations in relation to operating rates. The offtakers for Malakoff’s power generation output consist of high credit government or government-linked entities, which suggests that there is minimal risk to earnings. The key offtaker for Malakoff is Berhad (TNB), which is a 30%-government-owned entity and is the sole offtaker in Malaysia. TNB contributes c.90% to Malakoff’s revenue, which mainly comprises of capacity payments and energy payments. This is unsurprising, given that the bulk of Malakoff’s existing 6,036MW effective power generation capacity is derived domestically. Malakoff derives the bulk of its gross profits from capacity payments, which mainly cover the power plant’s fixed costs and capital costs. Note that TNB is required to pay the available capacity payment to Malakoff regardless of whether Malakoff despatches the power generated from the power plant, provided that the power plant makes available a daily available capacity (committed availability declared by Malakoff on a daily basis) to TNB and meets certain performance targets specified in the relevant PPA. Fig 1: High credit quality offtakers Country Offtaker S&P Credit Effective Rating Capacity Malaysia TNB BBB+ 5,346MW Australia AGL Energy Ltd BBB 210MW Algeria L’Algerienne Des Eaux NA 71,400 m3/day Bahrain Ministry of Electricity and Water BBB- 372MW 164,000 m3/day Saudi Water and Electricity Company NA 108MW Arabia 123.450 m3/day

Source: Company data

There is minimal risk to Malakoff’s cash flows from fluctuations in fuel costs due to the cost pass through mechanism, which is captured under the energy payments. The energy payments generally cover the power plant’s fuel costs as well as variable operation and maintenance (O&M) costs that are incurred when TNB despatches the power generated from the power plant. Under the PPAs for Malakoff’s CCGT power plants, the cost of gas is passed on to TNB pursuant to the formulas under the respective PPAs, which has historically fully covered the cost of gas. Should Malakoff’s CCGT power plants need to run on distillate oil upon direction from TNB, the cost of distillate oil is passed on to TNB as well. The cost pass through mechanism for fuel applies to Malakoff’s coal-fired power plants as well.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 2 of 24

6 July 2015

Malakoff has good earnings visibility given that it has the longest PPA term remaining among the Malaysian independent power producers (IPPs), with a weighted average PPA term of about 13 years. With the inclusion of Tanjung Bin Energy’s PPA (due to start operation in March 2016) Malakoff’s weighted average PPA term increases to about 15 years. Fig 2: Longest remaining PPA term among Malaysian IPPs Years

14 13

12 11

10

8

6

4

2 1

0 Malakoff 1MDB YTL Power

Source: Company data

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 3 of 24

6 July 2015

Beneficiary of continuing domestic shift in generation mix to coal

Given Malakoff’s track record with the Tanjung Bin Power Plant, we believe that Malakoff would be well positioned to capture any future tenders for new power plants that use coal for fuel. While coal will remain as the dominant source of fuel for generation mix in Peninsular Malaysia, we note that the EC has largely planned out future plant-ups until 2024. Fig 3: Outlook of generation mix for Peninsular Malaysia

Source: Energy Commission

Malakoff has established a track record with coal-fired power plants with the successful development and operation of the 2,100MW Tanjung Bin Power Plant, one of the largest coal-fired power plants in South East Asia. According to management, Malakoff is on track to complete the 1,000MW Tanjung Bin Energy Power Plant by Mar16. Malakoff has ample room to expand its generation capacity with its existing land bank estimated at 400 hectares in total and with remaining leases of 47 years on average that have easy access to transmission infrastructure. For example, the Tanjung Bin site has a remaining lease of up to 33 years, which can be used to support further PPA extensions or new capacity expansion.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 4 of 24

6 July 2015

Potential expansion from longer term opportunities

Management intends to grow Malakoff’s total effective power generation capacity from 7,036MW in 2016 (with the addition of Tanjung Bin Energy Power Plant) to 10,000MW by 2020. However, most of the plant-ups in Peninsular Malaysia involving coal and gas have already been awarded by the EC and thus may present a challenge to Malakoff’s medium term growth plans. Nonetheless, we do not rule out Malakoff pursuing M&As as they have demonstrated in the past to achieve their targets. Fig 4: New generation projects in Peninsular Malaysia Power Plant Awarded Key Owner Capacity (MW) Type Commercial Operation Date Janamanjung Unit 4 Yes TNB 1,010 Coal 31 Mar 2015 CBPS Redevelopment Yes TNB 385 Gas 1 Sep 2015 Hulu Terengganu Yes TNB 250 Hydro U1: 16 Sep 2015 U2: 17 Dec 2015 Ulu Jelai Yes TNB 372 Hydro U1: 13 Dec 2015 U2: 14 Mar 2016 Prai Yes TNB 1,071 Gas 1 Jan 2016 Tanjung Bin Energy Yes Malakoff 1,000 Coal 1 Mar 2016 Hulu Terengganu (Tembat) Yes TNB 15 Hydro U1: 15 Nov 2016 U2: 15 Dec 2016 Pengerang Co-Generation Yes Petronas 400 Gas 1 Jun 2017 Janamanjung Unit 5 Yes TNB 1,000 Coal 1 Oct 2017 Project 4A (Pasir Gudang) Yes TNB-SIPP 1,000 Gas 1 Jun 2018 Jimah East Power Yes 1MDB 1,000 Coal U1: 15 Nov 2018 1,000 U2: 15 May 2019 Additional Chenderoh Yes TNB 12 Hydro Oct 2018 Tekai Yes TNB 156 Hydro Dec 2020 New CCGT NA NA 2,000 Gas Jan 2021 Telom Yes TNB 132 Hydro Dec 2022 New coal-fired power plant NA NA 1,000 Coal 2023

Source: Affin Hwang, Company data

Among the nearer term opportunities for Malakoff is the Pengerang co- generation power plant. We understand from management that Malakoff is still in discussions with PETRONAS for a role in the 1,300MW co- generation power plant that forms part of PETRONAS’ Refinery and Petrochemicals Integrated Development (RAPID) project in southern . At this stage, talks are still ongoing to work out the split in equity ownership. While PETRONAS is not completely without experience in terms of running gas-fired power plants, such as the RM1.5bn 400MW gas-fired Kimanis Power Plant managed by subsidiary Petronas Gas, we believe PETRONAS may benefit from Malakoff’s track record as well as in- house operations & maintenance (O&M) expertise. Between 2015 and 2019, coal is expected to be the main fuel for generation as an additional 5,000MW of coal-fired capacity will be commissioned. However, to ensure a balanced fuel mix while meeting future demand, the EC is projecting an additional 3,000MW capacity based on CCGT to be commissioned with the first 1,000MW by Jun18 followed by another 2,000MW by Jan21.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 5 of 24

6 July 2015

In the nearer term, we believe there is an opportunity for Malakoff to bid for the 2,000MW CCGT. The tender process for the 2,000MW CCGT has yet to be done and Malakoff would likely be keen given its extensive background experience in CCGT. According to the Energy Commission (EC), the power transfer from Sarawak Interconnection has been further delayed to 2024, resulting in an additional 1,000MW coal fired power plant to be built in 2023 as compensation. We believe this is also an opportunity that Malakoff would likely be keen on, although the tender may only take place in 2018 assuming a 5 year construction period. Nonetheless, the projected steady growth of Malaysia’s GDP as well as electricity demand underlines the long term potential for future plant-ups in Peninsular Malaysia. We note however that compared to GDP, the electricity growth rates are projected to be lower as we note that elasticity of electricity demand to GDP has been hovering marginally below 1.0 for the last several years. Fig 5: Electricity demand growth for Peninsular Malaysia MW 22,000 8%

7% 20,000 6% 18,000 5%

16,000 4%

3% 14,000 2% 12,000 1%

10,000 0% 2010A 2011A 2012A 2013A 2014A 2015F 2016F 2017F 2018F 2019F 2020F

Peak demand (LHS) Peak demand growth (RHS) GDP Growth (RHS)

Source: Affin Hwang, Company data, TNB

To meet its 10,000MW generation capacity target by 2020, Malakoff is also undertaking feasibility studies to export power to Singapore and Thailand. According to management, Malakoff is looking into the possibility of a new 1,000MW coal-fired power plant at the Tanjung Bin site to export power to Singapore. Based solely on cost alone, there is an argument to be made for exporting power to Singapore, since the average energy cost per kWh using coal is about 10 sen. In comparison, Singapore relies mainly on natural gas imports which are more expensive and incurred an average energy cost per kWh of 59 sen. However, we believe there are regulatory and political hurdles to go through before Malakoff is able to export power to Singapore, and that further discussions would need to take place between the relevant government agencies. We believe these issues may be applicable as well for exporting power to Thailand. While management acknowledges that Malakoff lacks a ready existing site to build a power plant for exporting power to Thailand, Malakoff has identified a few potential suitable sites.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 6 of 24

6 July 2015

Ample room to gear up for expansion and more foreign ventures

Malakoff has emerged with a healthier balance sheet post-IPO after raising a gross proceed of RM1.8bn (based on 1bn new shares issued) to fully redeem the RM1.8bn Junior Sukuk Musharakah. Note that the 30- year sukuk bears a profit rate of 6.3% per annum until Sep15 and a profit rate of 9.3% thereafter until maturity in 2042). Therefore, we view the proceeds from the IPO as timely, due to the significant savings in finance costs that Malakoff stands to gain. As a result, we estimate that Malakoff’s gross debt of RM18.2bn as at Mar15 would be reduced to RM16.4bn. This implies its gross debt/equity ratio would improve from 4.6x to 2.7x, which is significantly below its debt covenant level of 5.5x. Fig 6: Gross debt/equity ratio to improve post-IPO (x)

4.6

2.7

Before IPO After IPO

Source: Company data

The healthier balance sheet would help Malakoff undertake new power projects as well as conduct M&As to grow. Malakoff has established a good track record in M&A since privatisation in 2006, notably the Macarthur Wind Farm which is a key foreign earnings driver. Fig 7: Malakoff’s M&A track record since privatization Year Country Target Equity Plant Generation Effective Stake Type Capacity Capacity 2012 Bahrain Hidd Power 40.0% Natural Gas / 929MW 372MW Distillate Oil 410,000 m3/day 164,000 m3/day 2013 Australia Macarthur Wind Farm 50.0% Wind 420MW 210MW 2014 Malaysia Port Dickson Power Increased from OCGT 436.4MW 436.4MW 25% to 100%

Source: Company data

We believe that with limited domestic opportunities available in the short to medium term, management may adopt the M&A approach to meet its effective power generation capacity target of 10,000MW by 2020. Domestically, Malakoff had acquired the remaining 75% interest in Port Dickson Power Plant in 2014. Meanwhile, the acquisition of a 50.0% stake in Macarthur Wind Farm (effective renewable power capacity of 210MW) in 2013 marks one of Malakoff’s more prominent foreign acquisitions. Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 7 of 24

6 July 2015

Outside of Malaysia, Malakoff intends to explore opportunities in developed markets where renewable energy and power generation are given high importance and treated with priority, such as Australia and the United Kingdom. Fig 8: Growing electricity consumption in Australia Electricity Year Consumption (GWh) Growth (%) 2008 – 2009 249,531 n/a 2009 – 2010 252,133 1.0 2010 – 2011 252,620 0.2 2011 – 2012 249,884 -1.3 2012 – 2013 249,075 -0.3 2013 – 2014E 256,325 2.9 2014 – 2015F 263,997 3.0 2015 – 2016F 272,126 3.1 2016 – 2017F 280,749 3.2 2017 – 2018F 289,905 3.3 2018 – 2019F 299,639 3.4 2019 – 2020F 310,000 3.5

Source: Affin Hwang, Company data, Frost & Sullivan

These advanced markets are also attractive for their high growth prospects in renewable energy output. According to Frost & Sullivan, electricity production from renewable energy in Australia is expected to expand to 63,000 GWh (2013-2020 CAGR of 9.9%), while the United Kingdom is expected to see a 2013-2020 CAGR of 12.7% to 110,000 GWh.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 8 of 24

6 July 2015

Tapping into electricity and water demand growth in foreign markets

Malakoff has an existing presence in foreign markets namely Saudi Arabia, Algeria and Bahrain which are expected to show high growth in electricity and water demand. Forecasts from Frost & Sullivan indicate that power demand in Saudi Arabia, Algeria and Bahrain are expected to grow at a 2014-2018 compounded annual growth rate (CAGR) of 6.3%, 7.5% and 4.1% respectively, while water consumption for the Middle East and North Africa (MENA) region is estimated to grow at a CAGR of 2.1%. Malakoff currently has relatively small minority stakes in many of its foreign ventures but intends to consolidate and increase market share in the MENA region through its interests in existing projects, such as through brownfield expansions, as well as through new opportunities, including privatisations or acquisitions of existing power generation or water production assets and new greenfield project developments.

Fig 9: Growing electricity consumption in Bahrain Fig 10: Growing water consumption in Bahrain GWh % mil m3/day % 17,000 25 0.55 25

16,000 0.50 15,000 20 20

14,000 0.45 15 15 13,000 0.40 12,000 10 10 11,000 0.35 10,000 5 5 0.30 9,000

8,000 0 0.25 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F 2014F 2015F 2016F 2017F 2018F Source: Frost & Sullivan Source: Frost & Sullivan

Fig 11: Growing electricity consumption in Saudi Arabia Fig 12: Stagnant water consumption in Saudi Arabia GWh % mil m3/day % 400,000 11 60 2

10 58 0 350,000 9 56 54 8 -2 300,000 52 7 50 -4 6 250,000 48 5 -6 46 4 200,000 44 -8 3 42 150,000 2 40 -10 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F 2014F 2015F 2016F 2017F 2018F Source: Frost & Sullivan Source: Frost & Sullivan

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 9 of 24

6 July 2015

Fig 13: Growing electricity consumption in Algeria Fig 14: Growing electricity consumption in Oman GWh % GWh % 70,000 12 40,000 16

65,000 11 15 35,000 60,000 10 14 9 13 55,000 30,000 8 12 50,000 7 25,000 11 45,000 6 10 40,000 20,000 5 9 35,000 4 8 15,000 30,000 3 7 25,000 2 10,000 6 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F 2014F 2015F 2016F 2017F 2018F Source: Frost & Sullivan Source: Frost & Sullivan

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 10 of 24

6 July 2015

Forecasts and assumptions Earnings growth projection We expect to see strong 2014-17E earnings CAGR of 17%, mainly driven by savings from the redemption of the RM1.8bn sukuk, as well as the commissioning of Tanjung Bin Energy in Mar16. We forecast 2015 earnings to grow by 27.2% mainly driven by savings in finance costs, as Malakoff had redeemed the sukuk in May15. The combination of the full year impact from the savings in finance costs and the commissioning of Tanjung Bin Energy in Mar16 would result in 2016 earnings growing further by 25.3%. However, unless Malakoff acquires a new asset in the interim, we expect earnings growth to be relatively flat in 2017 due to the expiry of Segari Energy Ventures’ (SEV) existing PPA in Jun17. Malakoff will receive lower capacity payments under the PPA extension from Jul17 to Jun27. Fig 15: Net profit growth to moderate in 2017E RM m 600 140% 120% 500 100% 80% 400 60% 40% 300 20% 0% 200 -20% 100 -40% -60% 0 -80% 2012 2013 2014 2015E 2016E 2017E Net Profit Growth

Source: Affin Hwang, Company data

We expect Malakoff’s EBITDA margin to remain relatively stable going forward so long as it does not experience major unscheduled outages in its power plants. Recall that in 2013, Malakoff experienced a number of unscheduled outages in its Tanjung Bin power plant, which resulted in substantially lower capacity payments received. In addition, Malakoff had to incur additional costs from remedial works while also incurring write-offs on replaced plant equipment. As for fluctuations in fuel cost, these are covered under the cost pass through mechanism.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 11 of 24

6 July 2015

Fig 16: Revenue growth to moderate in 2016E Fig 17: EBITDA margin should remain stable RM m 6,500 25% 44.0% 20% 6,000 42.0% 15% 5,500 40.0% 10% 5,000 5% 38.0%

4,500 0% 36.0% -5% 4,000 34.0% -10% 3,500 32.0% -15% 3,000 -20% 30.0% 2012 2013 2014 2015E 2016E 2017E 2012 2013 2014 2015E 2016E 2017E Revenue Growth Source: Affin Hwang, Company data Source: Affin Hwang, Company data

Dividends We expect Malakoff to deliver better dividends in 2016 upon the commissioning of Tanjung Bin Energy. For 2015-17, we have assumed a dividend payout of 70%, which we deem conservative based on management’s guidance of at least a 70% payout. We estimate 2015 DPS of 6.1 sen (3.4% net yield) before rising to 7.6 sen (4.3% net yield) in 2016. Given flattish earnings growth expectations in 2017, we expect DPS to remain flat at 7.6 sen (4.3% net yield). Malakoff declared a dividend of 3.0 sen following its 1Q15 results. We forecast a final DPS of 3.1 sen, which implies a 70% payout from 2015 EPS of 8.7 sen.

Balance sheet Malakoff has emerged with a healthier balance sheet by paring down its existing debt using the IPO proceeds. We estimate Malakoff’s gross debt/EBITDA ratio to improve from 7.8x in 2014 to 6.7x in 2015. At such gearing levels, we believe the management would take a gradual approach in raising the dividend payout ratio. Given that Malakoff has outlined its plans to grow inorganically, we believe management would likely try to conserve some cash to prepare itself for future M&A exercises.

Capex As for capex, we have assumed a 3% capex/sales ratio, which imply 2015- 17 capex plans of around RM200-RM220 per annum mostly comprising of maintenance capex. We do not expect capex to change significantly in the short term, as Malakoff is not embarking on new plant ups at this juncture while Tanjung Bin Energy is already c.90% complete.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 12 of 24

6 July 2015

Valuation Initiating coverage with HOLD rating and TP of RM1.92 We initiate coverage on Malakoff with a HOLD rating and TP of RM1.92 based on DCF. We believe DCF is an appropriate way to value Malakoff, as it captures the company’s steady stream of cash flow. We assume a WACC of 6.3%. Fig 18: Assumptions for WACC Beta 1.0 Risk free rate 4.5% Market risk premium 5.5% Cost of equity 10.0% Cost of debt (after tax) 5.3% Debt/Capital 80% Tax 24% WACC 6.3%

Source: Affin Hwang, Company data

Fig 19: Sensitivity to our target price (RM) to WACC assumptions WACC 5.1% 5.6% 6.1% 6.3% 7.1% 7.6% 8.1% TP 3.44 2.82 2.31 1.92 1.54 1.24 0.98

Source: Affin Hwang, Company data

Our TP translates to 9.5x 2016 EV/EBITDA, which is a 19% premium to its domestic peers’ average EV/EBITDA of 8x. We believe the premium stems from Malakoff’s position as the only listed major IPP in Malaysia deriving almost of its revenue and earnings from domestic operations. Malakoff’s 2016 ROE of 8.6% is within its domestic peers’ range of 8-13%. While we like Malakoff for its decent dividend yield of 3-4%, stable cash flows and long term growth plans, we believe most of the positives are already priced in at this juncture. As outlined in the report, we are positive on Malakoff’s plan to grow its generation capacity by 42% to 10,000MW by 2020 and would be in a better financial position to do so following the deleveraging exercise via the IPO proceeds. However, we think Malakoff’s growth path will not be smooth given the regulatory and political hurdles involved in exporting power while new tenders for domestic power plants may likely only come in 2018 at the earliest. Malakoff’s share price has recovered following a rather lacklustre re-listing on 15 May. The stock was re-listed at RM1.80 but subsequently fell to a low of RM1.63 on 20 May before gradually recouping losses to close near its IPO price now.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 13 of 24

6 July 2015

Fig 20: Regional peer comparison Company Price Mkt Cap PER (x) EV/EBITDA (x) ROE (%) Div Yield (%) (local ccy) (US$ mil) FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 Malaysia TNB * 12.62 18,935 10.0 9.7 6.9 6.7 14.5 13.5 2.4 2.6 YTL Power * 1.61 2,998 13.0 14.1 8.9 9.2 9.0 8.2 6.2 6.2 Average 11.5 11.9 7.9 7.9 11.8 10.9 4.3 4.4

Thailand Glow Energy 83.50 3,618 13.7 13.7 9.2 9.4 18.8 17.5 4.3 5.0 Ratchaburi Electricity 56.25 2,416 12.7 10.7 10.7 10.6 10.4 11.6 4.1 4.5 Electricity Generating 152.00 2,370 10.6 9.6 22.3 18.5 10.1 10.5 4.1 4.2 Average 12.3 11.3 14.1 12.8 13.1 13.2 4.2 4.6

Philippines Aboitiz Power 43.60 7,120 17.6 16.1 12.9 11.2 18.5 18.7 3.6 3.8 Energy Dev Corp 7.26 3,021 12.8 11.2 9.5 8.7 23.0 22.6 2.7 3.1 First Philippine 79.00 971 8.3 6.5 4.8 4.2 8.1 9.2 2.5 2.5 Average 12.8 11.2 9.5 8.7 23.0 22.6 2.7 3.1

Hong Kong HK & China Gas 16.00 23,865 23.8 22.2 20.4 19.1 13.6 13.8 2.3 2.4 CLP Holdings 65.35 21,297 15.3 14.6 9.9 9.5 11.8 12.0 4.1 4.2 Power Assets 69.40 19,106 17.2 17.4 76.5 75.9 6.9 6.7 3.9 4.0 Average 18.8 18.0 35.6 34.8 10.8 10.8 3.4 3.5

India NTPC Ltd 137.95 17,950 11.4 11.8 9.5 8.3 11.1 11.8 3.4 3.6 Tata Power 74.20 3,165 Nm 15.4 7.1 6.8 9.0 10.3 1.9 2.0 Reliance Power 45.25 2,002 12.3 9.7 8.5 7.8 6.3 7.8 0.3 0.7 Average 11.8 12.3 8.4 7.6 8.8 10.0 1.9 2.1

China Datang International 56.05 11,602 12.4 10.7 15.3 14.0 9.4 10.2 2.2 2.6 Huadian Power 7.97 10,323 17.7 15.0 9.5 8.4 10.3 11.0 1.1 1.3 Huaneng Power 7.35 9,563 11.9 10.0 4.4 3.9 9.2 10.0 2.3 2.7 Average 14.0 11.9 9.7 8.8 9.7 10.4 1.8 2.2

Average - All 14.0 13.0 14.6 14.6 11.8 12.1 3.0 3.2

Source: Bloomberg, * Affin Hwang estimates

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 14 of 24

6 July 2015

Risks Disruption to operations Should Malakoff experience operational disruptions and hinder its ability to deliver power, this could have negative consequences to revenues as a result of lower capacity payments. Such disruptions may arise under various circumstances including breakdown of power generation equipment, failure of transmission systems or unscheduled outages. For example, due to a shortage of natural gas supply in Malaysia, the Tanjung Bin Power Plant experienced a number of unscheduled outages in 2013 that negatively affected Malakoff’s capacity payments beginning in 1Q13. Capacity payments received by Malakoff only normalised when remedial works to the Tanjung Bin Power Plant were completed in 1Q14. Besides the loss of capacity payments during the interim to undertake remedial works, Malakoff had to write off a total of RM109.4m to replace the power plant equipment. Under a worst case scenario, if Malakoff is unable to deliver power for prolonged periods such that there is a material breach of one or more of the PPAs, TNB may terminate the PPA after the lapse of the applicable cure period, which in turn may lead to a default. Challenges in renewing existing PPAs The likelihood of PPA extensions in the future for Malakoff’s gas-fired power plants would be more challenging given the higher generation cost of gas compared to coal. The importation of LNG into Malaysia since 2013 would lead to higher natural gas prices. Under the two-tier pricing mechanism, the price of natural gas has been set at RM15.20 per mmbtu for the first 1,000 mmscfd, and RM41.68 per mmbtu for quantities exceeding 1,000 mmscfd. Besides that, under a more competitive structure, the IPPs including Malakoff would need to submit competitive bids when bidding for extensions of PPAs. If Malakoff’s bids are not competitive enough, then Malakoff would not be able to sell power using the relevant power plant at that juncture. In that case, Malakoff may consider selling its power plant or using the equipment in other power plants in or outside of Malaysia. Deregulation of power sector In the long term, there is a possibility that the Government may introduce a market system, whereby the IPPs make competitive offers to supply electricity in a wholesale market and derive revenue primarily based on the quantities and prices at which their electricity is sold, based on supply and demand in the market. In our view, a market system rewards the most efficient IPPs and in return offers consumers the cheapest form of electricity. However, in a market system, the IPPs would not be able to enjoy a steady stream of capacity payments due to the absence of a fixed tariff rate and cost pass through.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 15 of 24

6 July 2015

Foreign operations may carry greater risks than domestic assets Overseas operations generally carry risks that are different from or greater than those that Malakoff faces in its domestic operations. These risks can include challenges in complying with multiple foreign laws and regulations, less developed legal systems, political and economic instability and lack of familiarity with local markets and competitive conditions. Failure to effectively manage assets which only have minority stakes Where Malakoff only has minority interests, this may limit the group’s ability to manage their foreign operations due to lack of management control. Disagreement with any of Malakoff’s partners may result in the assets potentially experiencing operational issues due to inconsistent business goals. Any serious disputes may also lead to Malakoff’s partners taking action contrary to Malakoff’s instructions or Malakoff’s partners being unwilling to fulfil their obligations.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 16 of 24

6 July 2015

Company background Corporate profile Malakoff Corporation Berhad (Malakoff) is the largest independent power producer (IPP) in Malaysia and South East Asia (SEA) in terms of total generation capacity. Outside of Malaysia, Malakoff also acts as an independent water and power producer (IWPP) in the MENA region and a renewable energy (RE) producer in Australia, with a combined effective water production capacity of about 358,850 m3 per day and power generation capacity of about 690MW. The bulk of Malakoff’s earnings is derived from its domestic power plants, in which Malakoff usually has the entire or majority equity stake with the exception of the Kapar Power Plant (40% equity stake). For 2014, we estimate that about 75% of Malakoff’s operating profit came from the domestic power plants, while the remaining 25% was from its foreign ventures in which the Macarthur Wind Farm was the primary contributor (74% of total foreign operating profits). Fig 21: Malakoff’s portfolio of assets Plant Name Location Plant PPA/WPA Generation Effective Effective Type /PWPA Capacity Equity Capacity Expiration In Malaysia: Tanjung Bin Power Johor Coal 2131 2,100MW 90.00% 1,890MW Plant SEV Power Plant CCGT 2027 1,303MW 93.75% 1,221.6MW Kapar Power Plant Multi-fuel 2019/29 2,420MW 40.00% 968MW GB3 Power Plant Perak CCGT 2022 640MW 75.00% 480MW Port Dickson Power Negeri OCGT 2016 436.4MW 100.00% 436.4MW Plant Sembilan Prai Power Plant Pulau Pinang CCGT 2024 350MW 100.00% 350MW Total effective power generation capacity in Malaysia 5,346.0MW

Under construction in Malaysia: Tanjung Bin Energy Johor Coal 2041 1,000MW 100.00% 1,000MW Power Plant

Outside Malaysia: Hidd IWPP Bahrain Water/Natural 2027 410,000 m3/day 40.00% 164,000 m3/day Gas/Distillate Oil 929MW 372MW Shuaibah Phase 3 Kingdom of Water/Oil 2030 880,000 m3/day 12.00% 105,600 m3/day IWPP Saudi Arabia 900MW 108 MW Suok Tleta IWP Algeria Water 2036 200,000 m3/day 35.70% 71,400 m3/day Shuaibah Phase 3 Kingdom of Water 2029 150,000 m3/day 11.90% 17,850 m3/day Expansion IWP Saudi Arabia Macarthur Wind Australia Wind 2038 420MW 50.00% 210MW Farm

Total effective water production capacity outside Malaysia 358,850 m3/day Total effective power production capacity outside Malaysia 690 MW

Under construction outside Malaysia: Al Ghubrah IWP Sultanate of Water 2034 191,000 m3/day 45.00% 85,950 m3/day Oman

Total effective power generation capacity in and outside Malaysia 6,036.0MW

Source: Company data Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 17 of 24

6 July 2015

Fig 22: Location of Malakoff’s assets

Source: Company data

Brief recap of privatization In 2007, MMC had via its 51% subsidiary Malakoff Corporation Berhad privatised Malakoff Berhad (MB) for RM7.2bn for the remaining 77.7% stake it did not own then. The remaining 49% stake in Malakoff Corporation Berhad was then held by the Employees Provident Fund Board (30%), Kumpulan Wang Persaraan (10%) and foreign financial institutions (9%). MMC had privatised MB at RM10.35 per share, which represented a 5.1% premium to MB’s last traded price of RM9.85 before the stock was suspended from trading prior to the announcement of the privatisation in May 2006. The privatisation exercise valued MB at RM9.3bn. Based on reported FY06 (FYE 31 Aug) earnings of RM442.4m, MB’s privatisation was valued at PE of 21.0x. In FY06, MB had gross borrowings of RM10.2bn, gross cash balance of RM2.2bn and an estimated EBITDA of RM1.2bn, which implies EV/EBITDA privatisation ratio of 14.4x.

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 18 of 24

6 July 2015

Changes since privatization One of the major changes in Malakoff since the privatisation is the diversification of generation mix from gas towards coal and renewable energy. In particular, Malakoff’s coal generation mix has risen to 31% in 2014, which is positive given that the Government would likely continue to tender out new coal power plants in the future to reduce reliance on natural gas as a source of fuel. Gas fired power plants would increasingly become less competitive as the Government continues to reduce its gas- fuel subsidy by raising the gas tariff for the power sector going forward. The other notable major change in Malakoff is the expansion into international water, power and renewable energy businesses. These investments have been made either via forming or acquiring joint ventures or associate stakes. The most significant acquisition made so far is the 50% stake acquisition in the Macarthur Wind Farm in Jun13, which contributed 74% of Malakoff’s 2014 foreign operating profits.

Fig 23: Power generation mix (MW) upon privatisation Fig 24: Current power generation mix (MW)

Australia Saudi 3% Arabia Bahrain 2% 6%

Malaysia 100% Malaysia 89%

Source: Affin Hwang, Company data Source: Affin Hwang, Company data

Fig 25: Effective power generation capacity upon Fig 26: Current effective power generation capacity privatization (MW) 3,129 6,036 210

968 1,448

1,890

2,161

2,488

Gas 1 Multi-fuel Gas Coal 1 Multi-fuel Wind

Source: Affin Hwang, Company data Source: Affin Hwang, Company data

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 19 of 24

6 July 2015

Fig 27: Effective water production capacity (m3/day) Fig 28: Effective water production capacity (m3/day)

Algeria Saudi 20% Arabia 358,850 34%

- Bahrain 46% Upon Current privatisation

Source: Affin Hwang, Company data Source: Affin Hwang, Company data

Fig 29: Key developments in Malakoff

1998: 2011: 1975: 2004: 2007: 2013: Acquired 100% -> Souka Tleta IWP Malakoff Berhad Acquired 40% -> Taken private by MMC -> Secured extension to operate interestin commenced operations incorporated in interest in Kapar -> Acquired 12.75% SEV Power Plant for another 10 TJSB, owner of -> Awarded concessions for Malaysia Power Plant interest in CEGCO, years until 2027 an O&M multifuel power plant construction of Tanjung -> Selected to undertake the Al in Jordan Bin Energy Power Plant Ghubrah IWP project in Oman 1995: 2001-2002: -> Tanjung Bin Power -> Acquired 50% interest in the Macarthur Wind Farm Port Dickson Power GB3 Power Plant Plant commenced full Plant commenced commenced operations

1993: 2000: 2012: 2006: Shift in Wirazone -> Acquired 40% interest Acquired 20% operations commenced an in Hidd Power interest in Dhofar 2009-2010 to power electricity and chilled -> Disposed 12.75% Power Company -> Diposed 20% interest in 2014: 1996-1997: water distribution interest in CEGCO 2003: Dhofar Power Company Acquiredremaining 75% SEV Power -> Acquisition from Prai Power Plant -> Shuaibah Phase 3 interest in Port Dickson Plant HICOM Power commenced Expansion IWP & commenced Power Plant Shuaibah Phase 3 IWPP commenced operations in Saudi Arabia

Source: Affin Hwang, Company data

Shareholding structure With the re-listing of Malakoff, MMC as the largest shareholder would see its shareholding in Malakoff reduced from 51.0% to 37.8%. This is partly due to a combination of the existing shareholders selling 521,740,000 existing shares and the dilutive effect of a public issue of 1,000,000,000 new shares.

Fig 30: Shareholding before IPO Fig 31: Shareholding immediately after IPO Shareholder No. of shares Stake (%) Shareholder No. of shares Stake (%) MMC 2,040,000,000 51.0 MMC 1,890,434,000 37.8 EPF 1,200,000,000 30.0 EPF 972,138,000 19.4 KWAP 400,000,000 10.0 KWAP 324,046,000 6.5 Others 360,000,000 9.0 Others 291,642,000 5.8 Total 4,000,000,000 100.0 Public 1,521,740,000 30.4 Source: Affin Hwang, Company data Total 5,000,000,000 100.0 Source: Affin Hwang, Company data

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 20 of 24

6 July 2015

Malakoff – FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Dec (RMm) 2013 2014 2015E 2016E 2017E FYE 31 Dec (RMm) 2013 2014 2015E 2016E 2017E Revenue 4,717.4 5,594.5 5,713.4 6,196.6 6,211.1 Growth Operating expenses (3,127.9) (3,267.2) (3,275.3) (3,684.1) (3,718.5) Revenue (%) (15.6) 18.6 2.1 8.5 0.2 EBITDA 1,589.5 2,327.3 2,438.1 2,512.5 2,492.6 EBITDA (%) (23.1) 46.4 4.8 3.1 (0.8) Depreciation (887.3) (994.9) (1,125.8) (1,125.8) (1,125.8) Core net profit (%) (65.5) 111.4 27.2 25.3 0.3 EBIT 702.2 1,332.4 1,312.2 1,386.7 1,366.7 Net int inc/(exp) (679.3) (778.6) (695.8) (604.0) (581.3) Profitability Associates' contribution 61.2 41.7 41.7 41.7 41.7 EBITDA margin (%) 33.7 41.6 42.7 40.5 40.1 Exceptional items - - - - - PBT margin (%) 1.8 10.6 11.5 13.3 13.3 Pretax profit 84.1 595.5 658.1 824.4 827.2 Net profit margin (%) 3.4 6.1 7.6 8.8 8.8 Tax 150.5 (182.6) (144.8) (181.4) (182.0) Effective tax rate (%) (178.9) 30.7 22.0 22.0 22.0 Minority interest (73.1) (71.3) (79.0) (98.9) (99.3) ROA (%) 0.6 1.2 1.5 1.8 1.7 Net profit 161.5 341.5 434.3 544.1 545.9 Core ROE (%) 4.1 8.6 7.2 8.6 8.2 ROCE (%) 0.6 1.2 1.5 1.8 1.7 Balance Sheet Statement Dividend payout ratio (%) - - 70.2 69.8 69.6 FYE 31 Dec (RMm) 2013 2014 2015E 2016E 2017E Fixed assets 13,061.0 14,324.0 15,319.9 16,301.9 17,240.8 Liquidity Other long term assets 9,409.4 9,020.5 8,458.1 7,895.8 7,333.4 Current ratio (x) 2.8 3.2 3.6 3.7 4.4 Total non-curr assets 22,470.4 23,344.5 23,778.1 24,197.7 24,574.2 Op. cash flow (RMm) 1,589.5 2,327.3 2,438.1 2,512.5 2,492.6 Free cashflow (RMm) (898.4) 1,087.4 708.3 2,048.8 2,090.9 Cash and equivalents 2,375.8 3,574.9 4,291.1 4,605.9 5,885.5 FCF/share (sen) (18.0) 21.7 14.2 41.0 41.8 Stocks 479.1 518.4 529.5 574.2 575.6 Debtors 1,266.3 1,304.3 1,332.0 1,444.7 1,448.0 Asset management Other current assets 1,476.8 594.0 676.3 803.9 977.0 Debtors turnover (days) 98.0 85.1 85.1 85.1 85.1 Total current assets 5,597.9 5,991.6 6,828.8 7,428.6 8,886.1 Stock turnover (days) 37.1 33.8 33.8 33.8 33.8 Creditors turnover (days) 72.3 63.6 63.6 63.6 63.6 Creditors 934.1 975.5 996.2 1,080.5 1,083.0 Short term borrowings 4.2 23.9 23.9 23.9 23.9 Capital structure Other current liabilities 1,026.2 892.4 892.4 892.4 892.4 Net gearing (%) 387.4 369.7 217.2 186.2 157.4 Total current liab 1,964.5 1,891.7 1,912.5 1,996.7 1,999.3 Interest cover (x) 2.3 3.0 3.5 4.2 4.3

Long term borrowings 16,611.8 17,493.2 16,593.2 15,693.2 15,693.2 Other long term liabilities 5,352.8 5,774.5 5,774.5 5,774.5 5,774.5 Quarterly Profit & Loss Total long term liab 21,964.6 23,267.7 22,367.7 21,467.7 21,467.7 FYE 31 Dec (RMm) 1Q15 Revenue 1,346.6 Shareholders' Funds + MI 4,139.1 4,176.6 6,326.7 8,161.9 9,993.3 Operating expenses (1,012.2) EBIT 334.5 Cash Flow Statement Int income 45.3 FYE 31 Dec (RMm) 2013 2014 2015E 2016E 2017E Int expense (214.4) EBIT 702.2 1,332.4 1,312.2 1,386.7 1,366.7 Associates' contribution 10.1 Depreciation & amortisation 887.3 994.9 1,125.8 1,125.8 1,125.8 Exceptional items 0.0 Working capital changes (262.6) (36.0) (18.0) (73.2) (2.2) Pretax profit 175.5 Cash tax paid 150.5 (182.6) (144.8) (181.4) (182.0) Tax (54.6) Others 159.2 593.3 - - - Minority interest (17.1) Cashflow from operation 1,636.6 2,702.0 2,275.3 2,258.0 2,308.4 Net profit 103.9 Capex (2,535.0) (1,614.6) (1,567.0) (209.2) (217.5) Core net profit 103.9 Disposal/(purchases) 927.0 654.1 - - - Others 181.3 104.2 160.9 193.1 207.3 Margins (%) Cash flow from investing (1,426.7) (856.2) (1,406.2) (16.1) (10.2) EBIT 24.8 Debt raised/(repaid) 2,280.2 684.1 (900.0) (900.0) - PBT 13.0 Equity raised/(repaid) - - 1,758.7 - - Core net profit 7.7 Interest paid (923.5) (965.7) (856.7) (797.1) (788.5) Dividends paid (381.0) (286.3) (155.0) (230.0) (230.0) Others (1,508.3) (78.8) - - - Cash flow from financing (532.5) (646.7) (153.0) (1,927.1) (1,018.5)

Free Cash Flow (898.4) 1,087.4 708.3 2,048.8 2,090.9

Source: Affin Hwang forecasts, Company

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 21 of 24

6 July 2015

Disclaimer

This publication is prepared by Affin Hwang Investment Bank Berhad (“Affin Hwang”) and reviewed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates (collectively, “Daiwa”), and is distributed and/or originated from outside Malaysia by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. The role of Daiwa Securities Group Inc. and/or its non-U.S. affiliates in connection with this publication is solely limited to the review and distribution of this publication ; and Daiwa Securities Group Inc. and/or its non-U.S. affiliates are not involved in the preparation of this publication in any other way. This research is for Daiwa clients only and the publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Other than disclosures relating to Daiwa, this research is based on current public information that Affin Hwang and Daiwa consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such.

The analysts named in this report may have from time to time discussed with clients, including Daiwa’s salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks, which rating reflects a stock's return potential relative to its coverage group as described herein.

Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Affin Hwang ,Daiwa Securities Group Inc. nor any of its or their respective parent, holding, subsidiaries or affiliates, nor any of its or their respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction where such an offer or solicitation would be illegal nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Affin Hwang, Daiwa Securities Group Inc. and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents in relation to such investments.

All research reports are disseminated and available to our clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients or available to third-party aggregators, nor is Daiwa and Affin Hwang responsible for the redistribution of our research by third party aggregators.

Affin Hwang, Daiwa Securities Group Inc., its subsidiaries and affiliates, and its or their respective directors, officers and employees, from time to time may have trades as principals, or may have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Japan Disclosure of Interest of Daiwa Securities Group Inc. Investment Banking Relationship Within the preceding 12 months, The subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Modern Land (China) Co. Ltd (1107 HK); econtext Asia Ltd (1390 HK); Neo Solar Power Corp (3576 TT); Accordia Golf Trust (AGT SP); Hua Hong Semiconductor Ltd (1347 HK); GF Securities Co Ltd (1776 HK). *Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公 司), Daiwa Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd. This research may only be distributed in Japan to “qualified institutional investors”, as defined in the Financial Instruments and Exchange Act (Article 2 (3) (i)), as amended from time to time. Disclosure of Interest of Affin Hwang Investment Bank Investment Banking Relationship Within the preceding 12 months, Affin Hwang Investment Bank has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following company: ALAM MARITIM (AMRB MK) Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. DHK market making DHK may from time to time make a market in securities covered by this research. Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research. Australia This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. India This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of or reliance on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and analysis, in evaluating the information in this document. The data contained in this document is subject to change Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 22 of 24

6 July 2015

without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to, or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited. Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research. Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively. United Kingdom This research report is produced by Daiwa Capital Markets Europe Limited and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and/or its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and/or its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Germany This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany. Bahrain This research material is distributed by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113 This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent. United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000).

Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Investment Banking Relationships For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

DCMA Market Making For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 23 of 24

6 July 2015

Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. For stocks and sectors in Malaysia covered by Affin Hwang, the following rating system is in effect: Stocks: BUY: Total return is expected to exceed +10% over a 12-month period HOLD: Total return is expected to be between -5% and +10% over a 12-month period SELL: Total return is expected to be below -5% over a 12-month period NOT RATED: Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation Sectors: OVERWEIGHT: Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL: Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT: Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months

Conflict of Interest Disclosure Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationships Affin Hwang may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Affin Hwang market making Affin Hwang may from time to time make a market in securities covered by this research. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)

If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.

Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association

Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd)

Page 24 of 24