16 March 2016

Roll out Sector Update The construction sector saw a core EPS contraction of 4.5% YoY in 2015 due to slow order book replenishment. We expect the acceleration in contract awards since 3Q15 and into 2016 to drive Construction earnings growth of 24.8% YoY in 2016. We look for the rollout of large-scale public transportation and highway projects worth over RM75bn in 2016 to spur an upward re-rating of the construction Overweight (maintain) sector. We remain Overweight the sector and our top BUYs are Gamuda, Sunway Construction (Suncon) and WCT.

Strong earnings rebound expected in 2016 Most of the construction companies saw core EPS contractions in 2015 Absolute Performance (%) due to slow construction order book replenishment and weak property 1M 3M 12M sales. However, earnings for several construction companies such as Benalec -1.9 -9.0 -38.8 Eversendai, IJM Corp, MRCB and WCT were boosted by exceptional Eversendai +2.2 -10.3 -14.1 gains. The award of contracts has accelerated since 3Q15 with major Gamuda +8.5 +7.7 -8.3 infrastructure contracts awarded for the Refinery and Petrochemical GAQRS +2.4 +1.2 -38.2 Integrated Development (RAPID), West Coast Expressway (WCE) and IJM Corp +1.5 +2.4 -4.3 MRCB +4.4 -4.0 -7.0 Pan-Borneo Highway (PBH). We expect order book expansion for most of SUNCON +9.2 +9.2 +7.0 the contractors under our coverage to spur strong core EPS growth of WCT Hldgs +0.6 +7.9 +7.0 24.8% YoY in 2016 compared to a contraction of 4.5% YoY in 2015.

Major infrastructure projects to roll out Relative Performance (%) Major rail projects such as the Valley Mass Rapid Transit Line 2 SCGB Gamuda WCT (MRT2) and Light Railway Transit Line 3 (LRT3), Kuala Lumpur-Singapore 140.00 130.00

High-Speed Rail (HSR) and Southern Double-Tracking (SDT) are in the 120.00 pipeline. Implementation of the MRT2 project is imminent, and major 110.00 contract awards are expected to start in March/April. Besides the PBH and 100.00 90.00

WCE, two major highways in the pipeline for implementation this year are 80.00 Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) and Damansara- 70.00 Jul-15 Jan-16 Jan-15 Jan-15 Jun-15 Oct-15 Apr-15 Feb-15 Sep-15 Feb-16 Dec-15 Dec-15 Aug-15 Nov-15 Mar-15 Highway (DASH). This should support the construction order May-15 Source: Affin, Bloomberg. When a report covers six or more book growth for contractors in 2016 and improve earnings visibility. subject companies please access important disclosures for

Daiwa Capital Markets Hong Kong Limited at Domestic growth story http://www.daiwacm.com/hk/research_disclaimer.html or The shift in investor focus away from export-oriented companies to contact your investment representative or Daiwa Capital Markets Hong Kong Limited at Level 26, One Pacific Place, domestic plays given the strengthening of the Ringgit should generate 88 Queensway, Hong Kong. 8Hong Kong interest in construction stocks. We expect the award of major billion Ringgit contracts to accelerate this year to show progress in infrastructure development in a potential election year in 2017. The general election has to be held by March 2018. The acceleration in infrastructure spending should also support economic growth given the external headwinds.

Maintain Overweight We are Overweight on the construction sector as we believe sector core EPS growth in 2016 will exceed the market average. Our top BUYs are Gamuda Loong Chee Wei CFA among the large-caps and Suncon and WCT among the mid-caps. We believe (603) 2146 7548 these are the companies with the best prospects to win major contracts this [email protected] year. The de-gearing efforts by WCT through the potential listing of its construction arm and REIT should unlock value, in our view.

Stock Bbg Rating Sh Pr TP Mkt cap Co r e PER ( x) Core EPS gr (%) P/BV (x) ROE ( %) DY (%) (RM ) (RM ) (RMbn) CY16E CY17E CY16E CY17E CY16E CY16E CY16E IJM Cor p IJM MK BUY 3.39 3.76 12.1 19.0 15.6 18.2 22.3 1.0 5.8 3.1 Gamuda GA M MK BUY 4.70 5.59 11.3 19.3 17.3 (7.3) 11.5 1.6 10.1 2.6 MRCB MRC MK BUY 1.15 1.46 2.1 29.3 22.6 200.7 29.8 0.9 2.8 2.2 WCT Hldgs WCTHG MK BUY 1.63 1.90 2.0 15.8 10.7 87.8 47.9 0.7 5.4 3.7 Sunw ay Construction SCGB MK BUY 1.53 1.74 2.0 14.0 11.5 3.9 22.0 3.8 29.1 3.6 Eversendai EV SD MK BUY 0.71 0.84 0.5 8.4 7.3 25.0 15.1 0.6 6.2 5.6 Benalec BHB MK HOLD 0.51 0.56 0.4 8.2 6.9 104.9 19.3 0.7 8.6 5.0 Gabungan AQRS A QRS MK SELL 0.85 0.70 0.3 10.9 8.8 (402.8) 24.2 1.0 9.2 1.8 Malaysian w gt avg 17.0 14.1 24.8 20.2 1.1 6.9 2.7 Source: Affin estimates, Bloomberg, Note: Pricing as of close on 15 March 2016 Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 1 of 13

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Construction contract awards likely bottomed in 4Q15 The lack of major infrastructure projects and the slowdown in property development activities contributed to the 43% YoY decline in total construction contract awards to RM96.1bn in 2015 from RM167.6bn in 2014. 4Q15 was the weakest quarter in terms of contract awards, ie, 52% QoQ and 74% YoY decline to RM12bn in 4Q15.

Fig 1: Annual contract awards by government and private sector

Source: Construction Industry Development Board

Fig 2: Quarterly contract awards by government and private sector

Source: Construction Industry Development Board

Record order books for some construction companies Despite the fall in construction contract awards, we believe the small unlisted contractors were affected the most. Some of the large listed construction companies under our coverage, ie, IJM Corp, Malaysian Resources Corp (MRCB) and WCT, had record order books at end-2015. This was achieved by clinching contracts for large-scale projects such as WCE, RAPID, Kwasa Damansara, Commercial Centre (CCC) and Tun Razak Exchange (TRX). Note that most of the projects that kicked off last year excluding the

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WCE are related to property development and building works, which generally are lower in value compared to infrastructure projects.

Fig 3: Construction order book of companies under coverage

Source: Company, Affin Hwang estimates

Good earnings visibility IJM, MRCB and WCT have the best earnings visibility, as their outstanding order book is more than 2x their historical annual construction revenue. We believe the potential new contracts to be secured this year by Suncon, WCT and Gamuda (our top sector picks) will grow their order book and improve earnings visibility to narrow the gap with peers such as IJM and MRCB.

Fig 4: Construction order book / Annual revenue ratio of selected companies

Source: Company, Affin Hwang estimates

Cut in government development expenditure The government has reduced development expenditure by RM5bn to RM45bn under the recalibrated Budget 2016 announced on 29 January 2016. The implementation of non-physical projects and projects that are still under study is to be rescheduled. Physical projects that will be prioritised include construction of affordable houses, hospitals, schools,

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roads and public transport as well as security. The reduced development expenditure budget for 2016 is still 21% higher than the amount spent in 2015.

Fig 5: Annual development expenditure under five-year Malaysia Plans

Source: Ministry of Finance, Bank Negara Malaysia

But we believe the impact is not substantial as large-scale infrastructure projects such as the MRT, LRT, PBH and HSR should proceed. Malaysian Vision Valley (Sime Darby-EPF), CCC (MRCB) and HSR are to be implemented on a public-private partnership basis and hence private investments should reduce the burden on the government’s finances. Meanwhile, RAPID should continue to be developed by Petronas due to committed investments to build the refinery and oil storage facilities.

Funding from private sector The MRT, LRT and PBH are to be funded by government-guaranteed bonds raised by DanaInfra, the government’s special-purpose vehicle to finance infrastructure projects. Hence, it is not affected by the cut in development expenditure since DanaInfra’s government-guaranteed bonds are just a contingent liability, for which repayment and debt servicing will come from operating expenditure in the future. However, the government indicated that new projects in the planning stage could be deferred.

Rise in investments from China Malaysia is benefiting from the rising investments in infrastructure and property development projects from China due the latter’s “One Belt, One Road” development strategy to improve connectivity and cooperation with European and Asian countries. Chinese state-owned enterprises (SOE) have proposed to acquire 1MDB power assets for RM9.83bn and invest up to RM7.41bn for a 60% stake in the Bandar Malaysia development.

A consortium of Chinese railway construction companies was awarded the RM8bn SDT project a few months ago, which would mainly be funded by soft loans from the Chinese government. We understand that the Malaysian government insists that the Chinese consortium appoint local companies as subcontractors for the project. Construction companies vying to participate in this project include Gamuda, IJM Corp, Fajarbaru Builder Group and WCT.

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Expect a rebound in contract awards in 1Q15 We believe the contract awards bottomed in 4Q15 and expect a rebound in 1Q15. We look for the launch of major infrastructure projects in 2016 to drive the rebound in construction contract awards this year, which could exceed the record high of RM167.6bn achieved in 2014. The award of the first package of the PBH (Sarawak section) worth RM1.46bn to Zecon-Kimlun joint venture (JV) on 10 March 2016 has started the ball running.

Strong pipeline of infrastructure projects to be implemented We remain bullish on the prospects for the Malaysian contractors to grow their order books on expectations of RM292bn worth of major infrastructure projects to kick off before 2020. This is to support the Malaysian government’s Economic Transformation Programme to achieve the high-income nation status by 2020.

Fig 6: Potential large-scale construction projects to kick off by 2020 Project Cost (RMbn) Potential listed co bidders KL-Singapore High Speed Rail 40.0 Gamuda, IJM, YTL Klang Valley MRT Line 3 (Circle Line) 30.0 MMC-Gamuda, IJM, Suncon Klang Valley MRT Line 2 (Sg Buloh--) 30.0 MMC-Gamuda, IJM, Suncon Pan-Borneo Highway 28.9 Cahya Mata-Bina Puri, HSL, Gamuda-Naim, WCT-KKB End, Suncon, IJM Penang Transport Master Plan 27.0 Gamuda, IJM, WCT LRT Line 3 (Bandar Utama-Shah Alam-Klang) 9.0 MRCB-George Kent, Suncon, IJM, Gamuda Southern Double-Tracking Rail (SDT) 8.0 Gamuda, IJM, WCT, Fajar Baru Serendah--Seremban Bypass Double-Tracking Rail 8.0 Gamuda, IJM, WCT, Fajar Baru West Coast Expressway 5.0 IJM, WCT, WZ Satu Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) 5.3 IJM, Suncon, WCT Damansara-Shah Alam Highway (DASH) 4.2 IJM, Suncon, WCT River of Life 4.0 Ekovest-MRCB Setiawangsa-Pantai Expressway (DUKE Phase 3) 3.7 Ekovest KL118 Tower 3.4 UEM-Samsung Kuantan Deep Water Terminal 3.0 IJM Kota Kinabalu Water Supply Scheme 2.8 WCT Kuala Lumpur International Airport Terminal 3 2.5 WCT, Gadang Kinrara-Damasara Expressway (KIDEX) 2.5 Kuala Krai-Kota Baru Highway 2.0 East Klang Valley Expressway (EKVE) 1.6 AZRB Duta-Ulu Kelang Expressway Phase 2 (DUKE) extension 1.2 Ekovest Kwasa Damansara infrastructure works 1.0 WCT, Gadang Upgrade East Coast Railway Line 0.2 Total 292.2 Source: The Star, NST, Malay Mail, The Sun, The Edge, Affin Hwang

Major infrastructure projects worth RM75bn to kick off in 2016 The more imminent projects to roll out this year are MRT2, LRT3, WCE, PBH (Sarawak section), SUKE, DASH and SDT. We estimate the balance of contract work to be awarded for these projects is worth about RM75bn. We believe Gamuda, IJM, Suncon, WCT are the potential winners of construction contracts for these projects.

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Fig 7: Balance of contracts to be awarded in 2016 Project Cost (RMbn) Potential listed co bidders Klang Valley MRT Line 2 (Sg Buloh-Selayang-Putrajaya) 30.0 MMC-Gamuda, IJM, Suncon Cahya Mata-Bina Puri, HSL, Gamuda-Naim, Pan-Borneo Highway (Sarawak section) 14.6 WCT-KKB End, Suncon, IJM LRT Line 3 (Bandar Utama-Shah Alam-Klang) 9.0 MRC-George Kent, Suncon, IJM, Gamuda Southern Double-Tracking Rail 8.0 Gamuda, IJM, WCT, Fajar Baru West Coast Expressway 2.2 IJM, WCT, WZ Satu Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) 5.3 IJM, Suncon, WCT Damansara-Shah Alam Highway (DASH) 4.2 IJM, Suncon, WCT Setiawangsa-Pantai Expressway (DUKE Phase 3) 1.2 Ekovest Total 74.5 Source: The Star, NST, Malay Mail, The Sun, The Edge, Affin Hwang

Higher contract value for MRT2 is positive for Gamuda We understand that the cost estimate for the MRT2 has increased to RM30bn from the initial RM28bn due to the increased scope of work, including additional stations and the higher cost of imported materials due to depreciation of the MYR against the USD. The cost of the underground work may increase to RM15bn from the initial estimate of RM12bn. This is positive for MMC-Gamuda if it wins the contract. There is potential earnings upside for Gamuda if the total underground contract value is higher than our assumption of RM12bn.

Gamuda has a competitive advantage in MRT2 bid We gather that MMC-Gamuda is the frontrunner for the project ahead of three Chinese contractors that have also been shortlisted under the ongoing selective tender exercise. Gamuda has the competitive advantage since it has invested over RM1bn for 10 tunnel-boring machines for MRT1 that can be refurbished at a relatively low cost to be used for MRT2. Under the tender exercise, MMC-Gamuda is given the first right of refusal to match the lowest bid (Swiss Challenge) plus 8% local preference price. Under the local contractor preferential treatment, MMC-Gamuda can submit a bid that is up to 8% higher than the lowest bidder and still win the contract.

Maintain Overweight We reiterate our Overweight stance on the Malaysian construction sector as we believe core EPS growth of 25% YoY in 2016 will outpace the market average of 5% YoY. The weighted average construction sector fully diluted core PER of 17x is below the market average of 17.4x. We look for news flow on the awards of major infrastructure projects in 2016 to sustain the re-rating of the construction stocks. Our top BUYs are Suncon, WCT and Gamuda.

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Fig 8: Valuations and core EPS growth for the Malaysian sectors and market

Sector Rating Core EPS Gr (%) Core PER (x) Yield (%) P/BV (x) ROE (%) 2016E 2017E 2016E 2017E 2016E 2016E 2016E

Banks & Financial Services OW 7.5 7.2 13.3 12.5 3.8 1.5 10.8 Auto & Auto Parts N (45.7) 86.5 33.7 15.4 3.1 1.0 1.4 Building Materials UW 27.9 2.2 23.9 23.5 3.9 2.4 9.1 Construction & Infrastructure OW 24.8 20.2 17.0 14.1 2.7 1.1 6.9 Consumer N 3.3 3.5 22.2 21.5 4.5 17.5 24.8 Gaming OW 3.5 4.4 19.5 18.6 1.0 0.7 4.3 Healthcare & Pharmaceutical OW 11.7 14.1 48.1 41.9 0.6 2.5 5.2 Media N 16.4 10.1 17.3 15.5 5.6 5.8 24.9 MREIT OW 5.3 3.9 17.2 16.9 5.3 1.1 6.8 Oil & Gas UW (13.7) 5.6 23.4 22.1 5.6 1.8 6.6 Plantation N 38.9 20.1 21.3 18.3 2.5 2.4 10.3 Property OW 1.5 12.6 10.6 9.4 4.1 0.8 7.7 Rubber Products N 21.1 10.0 19.3 17.6 2.5 3.9 19.5 Technology OW 8.6 3.6 13.9 13.7 3.9 2.5 19.4 Telecoms N 1.2 1.7 24.1 23.6 3.5 4.4 19.2 Timber OW 17.5 12.4 10.8 9.8 3.5 1.1 7.5 Transports & Logistics N 34.8 8.8 17.6 16.6 1.5 1.2 7.3 Utilities N 3.5 3.0 14.0 13.7 2.6 1.9 10.6 Market average 5.0 6.0 17.4 16.4 3.4 2.1 9.7

Source: Affin Hwang estimates

Fig 9: Malaysian construction sector and market top BUYs Top BUY Rating Analysts’ Comments GAMUDA (GAM MK) BUY Gamuda is our top BUY among the large-cap Malaysian construction stocks with a RNAV-based 12-month target Target Price : RM5.59 price of RM5.59. Gamuda together with its partners have Share Price as at : RM4.70 been appointed as the project delivery partner for the 15 March 2016 RM30bn Klang Valley Mass Rapid Transit Line 2 (MRT2) (RM) 5.40 and RM27bn Penang Transport Master Plan (PTMP). It is 5.20 also the frontrunner to be appointed the main contractor for 5.00 4.80 the underground portion of MRT2 in March/April 2016. We 4.60 think the two projects will likely spur long-term growth of its 4.40 4.20 construction division. The potential sale of its 40% stake in 4.00 the Splash water supply concession should provide the 3.80 3.60 funding for its PTMP project. Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16

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Top BUY Rating Analysts’ Comments Sunway Construction (SCGB MK) BUY SCGB is our top BUY among the mid-cap Malaysian construction stocks with a 12-month target price of RM1.74, Target Price : RM1.74 based on 10% discount to RNAV. Prospects to win new Share Price as at : RM1.53 infrastructure projects look good as a preferred contractor 15 March 2016 for MRT2, LRT3, PBH, SUKE and DASH expressways to be (RM) 1.60 rolled out this year. SCGB provides a pure construction

1.50 exposure to the cyclical upturn for the sector. Its precast

1.40 concrete division benefits from the weak Ringgit as it 1.30 derives SGD revenue. Its strong net cash position should 1.20 support a high dividend payout and attractive net yield of 1.10 3.6% in FY16E. Ex-cash PER of 12x looks attractive 1.00 compared to peers. 0.90 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16

WCT (WCTHG MK) BUY We reiterate our BUY call on WCT with a 12-month target price of RM1.90, based on a 10% discount to RNAV. After a Target Price : RM1.90 slow start, WCT has clinched RM3.4bn of new contracts in Share Price as at : RM1.63 2015 to expand its order book to RM4.8bn. WCT’s 15 March 2016 prospects to secure more local contracts have improved (RM) 1.80 after it was pre-qualified to bid for the MRT2 above-ground 1.70 packages and new highways, ie, PBH, SUKE and DASH. It 1.60 is also in the running for additional infrastructure work 1.50

1.40 packages for the WCE and RAPID. The potential REIT 1.30 listing of its retail mall assets and construction arm in 1.20 2016/17 would unlock values and reduce its gearing in our 1.10 view. Its FY16E core PER of 16x looks attractive 1.00 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 considering a 2-year core EPS CAGR of 67% in FY16-17E.

Source: Bloomberg, Affin Hwang

Valuations for Malaysian construction companies also look reasonable relative to regional peers in Asean. The weighted average construction sector core PER of 17x is below the regional average of 19.4x, while core EPS growth of 24.8% YoY is slightly below the Asean average of 26.2% YoY.

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Fig 10: Valuations and core EPS growth for Asean construction companies Stock Bloomberg Rating Sh Pr TP Mkt cap C PER (x) C EPS gr (%) P/BV (x) ROE (%) DY (%) (LC) (LC) (US$bn) CY16E CY16E CY16E CY16E CY16E

IJM Corp IJM MK BUY 3.39 3.76 3.3 19.0 18.2 1.0 5.8 3.1 Gamuda GAM MK BUY 4.70 5.59 3.1 19.3 (7.3) 1.6 10.1 2.6 MRCB MRC MK BUY 1.15 1.46 0.6 29.3 200.7 0.9 2.8 2.2 WCT Hldgs WCTHG MK BUY 1.63 1.90 0.5 15.8 87.8 0.7 5.4 3.7 Sunway Construction SCGB MK BUY 1.53 1.74 0.5 14.0 3.9 3.8 29.1 3.6 Eversendai EVSD MK BUY 0.71 0.84 0.1 8.4 25.0 0.6 6.2 5.6 Benalec BHB MK HOLD 0.51 0.56 0.1 8.2 104.9 0.7 8.6 5.0 Gabungan AQRS AQRS MK SELL 0.85 0.70 0.1 10.9 (402.8) 1.0 9.2 1.8 Malaysian wgt avg 17.0 24.8 1.1 6.9 2.7

Ch Kamchang CK TB BUY 24.90 33.00 1.3 25.9 32.2 2.0 8.0 1.5 SEAFCO Pcl STEC TB BUY 8.25 13.00 0.1 7.4 35.0 1.9 28.6 5.4 Sino-Thai Eng SEAFCO TB HOLD 21.60 28.00 1.0 18.3 19.2 3.2 20.4 2.2 Thai wgt avg 20.6 25.9 2.5 14.0 1.9

Wijaya Karya Perkeso WIKA IJ BUY 2,545 3,100 1.2 19.9 40.6 3.0 16.2 1.5 Pemb Perumahan PTPP IJ BUY 3,885 4,300 1.4 20.5 30.3 4.9 26.3 1.5 Waskita Karya Persero WSKT IJ BUY 1,925 1,975 2.0 23.1 17.3 2.7 12.1 0.9 Adhi Karya Persero ADHI IJ BUY 2,735 2,550 0.7 18.2 (17.4) 1.8 10.6 1.1 Total Bangun Persada TOTL IJ BUY 580 940 0.1 8.6 16.7 2.0 24.3 6.0 Wijaya Karya Beton WTON IJ HOLD 965 965 0.6 26.6 45.0 3.4 13.4 1.1 Jasa Marga JSMR IJ BUY 5,500 6,250 2.8 25.9 13.1 3.2 13.0 1.2 Indonesian wgt avg 22.1 28.2 3.2 15.4 1.3

Asean wgt avg 19.4 26.2 2.2 11.6 2.0 Source: Affin Hwang, Thanachart and Bahana estimates

Examining the 12-month PER trading bands for the Malaysian construction stocks, we find that valuations are either close to the historical mean or at a discount. Given the short trading history for Suncon, which was listed in 4Q15, we examine its trading bands before the de-listing of the stock in 2006 and find that the current PER of 14x (ex-cash PER of 12x) is below the historical mean of 15.8x. In the current upcycle for the construction sector underpinned by the roll out of major infrastructure projects, we believe current PER valuations are undemanding. We think this provides fundamental support for the outperformance of the stocks on expected positive news flow.

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Fig 11: Gamuda 12-month forward PER Fig 12: IJM Corp 12-month forward PER

Source: Bloomberg, Affin Hwang estimates Source: Bloomberg, Affin Hwang estimates

Fig 13: WCT Holdings 12-month forward PER Fig 14: Suncon 12-month forward PER prior to de-listing

Source: Bloomberg, Affin Hwang estimates Source: Bloomberg, Affin Hwang estimates

Fig 15: Eversendai Corp 12-month forward PER

Source: Bloomberg, Affin Hwang estimates

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Important Disclosures and 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.

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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 market making activities, 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.

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. 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); Accordia Golf Trust (AGT SP); Hua Hong Semiconductor Ltd (1347 HK); GF Securities Co Ltd (1776 HK); Mirae Asset Life Insurance Co Ltd (085620 KS). *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 - 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. 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. 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. India

This research is distributed in India to Institutional Clients only by Daiwa Capital Markets India Private Limited (Daiwa India) which is an intermediary registered with Securities & Exchange Board of India as a Stock Broker, Merchant Bank and Research Analyst. Daiwa India, its Research Analyst and their family members and its associates do not have any financial interest save as disclosed or other undisclosed material conflict of interest in the securities or derivatives of any companies under coverage. Daiwa India and its associates may have received compensation for any products other than Investment Banking (as disclosed) or brokerage services from the subject company in this report during the past 12 months. Unless otherwise stated in BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action, Daiwa India and its associates do not hold more than 1% of any companies covered in this research report. There is no material disciplinary action against Daiwa India by any regulatory authority impacting equity research analysis activities as of the date of this report. 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 Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 11 of 13

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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.

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. 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 in Bahrain 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 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 (Tel no. 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.

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. Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 12 of 13

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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 13 of 13