Equity Research Me xico

Quarterly Report May 4, 2021 www..com Strong growth at year' s start and rises guidance @analisis_fundam

§ Orbia's report was outstanding and above expectations, driven by the solid performance in Vestolit, amid a favorable pricing environment, Marissa Garza and growing demand in Wavin and Netafim Director of Equity Strategy [email protected]

§ On the back of a more favorable businesses outlook, the company raised its EBITDA guidance to +15% in 2021 (vs. 4%-7% previously). We will BUY be revising our estimates with positive implications Current Price $54.85 PT $56.00 Dividend 0.10 Double-digit growth in virtually all segments. The 1Q21 figures surprised Dividend Yield (%) 3.6% very favorably, with most businesses experiencing relevant growth, even Upside Potential 5.7% Max – Min LTM ($) 59.14.-23.80 despite the pandemic's impact. Once again, the most important advances were Market Cap (US$m) 5.772.0 recorded in Vestolit and Wavin, the former favored by the limited PVC supply Shares Outstanding (m) 2,100 Float 58.5% in the face of a challenging weather environment in the US Gulf Coast, coupled Daily Turnover ($ m) 172.2 with a high infrastructure demand globally, which led to higher prices. Valuation metrics LTM FV/EBITDA 7.0x Similarly, Wavin benefited from strong demand and higher prices in the face of P/E 19.8x raw material shortages that led to an inventory build-up in March, which was MSCI ESG Rating* CCC covered by this segment. Netafim and Dura-Line also performed very positively, supported by solid demand in most of the regions in which they Relative performance to MEXBOL operate. These results more than offset the weakness in Kuora in the face of the LTM 120% continuing pandemic impact and raw material supply disruptions. In this 100% context, revenues rose 17.7% y/y, in line with our estimates, while EBITDA 80% grew 45.8% y/y, exceeding our expectations. Consequently, profitability 60% 40% increased 450 bps to 23.6%, reflecting cost efficiencies and higher PVC 20% margins. At a net level, the company recorded a 215.3% y/y rise in net income, 0% -20% due to higher operating income and lower financial costs (-19.9% y/y). A very Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 favorable environment. We believe that growth prospects for the company's MEXBOL ORBIA* businesses are encouraging, which, coupled with a strong balance sheet

(ND/EBITDA 2.6x), will allow it to continue leverage the opportunities ahead.

In the meantime, we will be incorporating results into our estimates with clearly positive implications. Financial Statements Valuation and financial metrics

USD, million 2019 2020 2021E 2022E 2019 2020 2021E 2022E Rev enue 6,987 6,420 6,576 6,781 FV/EBITDA 7.6x 7.7x 7.1x 6.2x

Operating Income 823 720 825 986 P/E 11.6x 13.0x 15.4x 10.7x EBITDA 1,365 1,318 1,395 1,480 P/BV 2.4x 2.3x 2.0x 1.7x EBITDA Margin 19.5% 20.5% 21.2% 21.8%

Net Income 497 442 374 539 ROE 20.9% 17.7% 15.1% 17.8% Net Margin 7.1% 6.9% 5.7% 8.0% ROA 4.9% 4.3% 3.9% 5.5%

EBITDA/ Interest 10.5x 16.7x 11.8x 17.9x Total Assets 10,057 10,211 9,505 9,800 Net Debt/EBITDA 2.8x 2.8x 2.2x 1.4x

Cash 586 875 582 749 Debt/Equity 1.4x 1.5x 1.1x 0.7x

Total Liabilities 6,963 7,032 5,835 5,482 This document is provided for the reader’s convenience Debt 4,461 4,618 3,877 3,238 only. The translation from the original Spanish version was made by Banorte’s staff. Discrepancies may possibly arise Common Equity 3,094 3,180 3,670 4,318 between the original document in Spanish and its English translation. For this reason, the original research paper in Source: Banorte Spanish is the only official document. The Spanish version was released before the English translation. The original document entitled “Inicia el año con fuertes crecimientos 1 y sube guía” was released on April 28, 2021. Document for distribution among public

ORBIA –Results 1Q21 Revenue & EBITDA Margin USD million USD, million Diff% vs Concept 1Q20 1Q21 Var % 1Q21e Estim. Revenue 1,626 1,914 17.7% 1,860 2.9% 22.0% 23.6% 2,500 22.1% 25.0% Operating Income 172 305 77.6% 230 32.5% Ebitda 309 451 45.8% 380 18.7% 19.0% 18.6% 2,000 20.0% Net Income 45 141 215.3% 110 28.1% Margins 1,500 15.0% Operating Margin 10.6% 15.9% 5.4pp 12.4% 3.6pp Ebitda Margin 19.0% 23.6% 4.5pp 20.4% 3.1pp 1,000 10.0% Net Margin 2.8% 3.8% 1.0pp 5.9% -2.2pp EPS $0.021 $0.067 215.3% $0.053 28.1% 500 5.0%

0 0.0%

Income Statement (Million) 1Q20 2Q20 3Q20 4Q20 1Q21 Year 2020 2020 2021 Change Change Revenue EBITDA Margin Quarter 1 4 1 % y/y % q/q

Net Revenue 1,626.4 1,742.3 1,914.0 17.7% 9.9% Costs of goods sold 1,177.9 1,200.1 1,331.7 13.1% 11.0% Gross profit 448.4 542.2 582.3 29.8% 7.4% General expenses 276.6 341.6 277.1 0.2% -18.9% Net Income & ROE Operating Income 171.9 200.6 305.2 77.6% 52.2% USD, million Operating Margin 10.6% 11.5% 15.9% 5.4pp 4.4pp Depreciation 137.6 182.8 146.0 6.1% -20.1% EBITDA 309.5 383.4 451.2 45.8% 17.7% 160 12.3% 14.0% EBITDA Margin 19.0% 22.0% 23.6% 4.5pp 1.6pp 140 12.0% Interest Income (Expense) net (85.0) (34.4) (68.1) -19.9% 98.2% 120 8.9% 7.8% 10.0% Interest expense 52.4 51.2 50.7 -3.3% -1.0% 100 Interest income 2.8 2.7 1.3 -53.4% -51.6% 8.0% 80 5.6% 5.3% Other income (expense) (12.4) (8.4) (6.1) -51.0% -27.7% 6.0% Foreign exchange gain (loss) (23.0) 22.6 (12.6) -45.1% N.A. 60 4.0% Unconsolidated subsidiaries (0.1) 0.2 (0.1) 14.8% N.A. 40 Income before taxes 86.8 166.4 237.0 173.0% 42.4% 20 2.0% Income taxes 9.6 68.9 63.6 >500% -7.7% 0 0.0% Discontinued operations (0.1) (1.4) (0.1) 51.9% -91.2% 1Q20 2Q20 3Q20 4Q20 1Q21 Consolidated Net Income 77.2 96.1 173.3 124.4% 80.2% Non-controlling interest 32.4 30.3 31.9 -1.5% 5.1% Net Income ROE Net Income 44.8 65.8 141.4 215.3% 114.8% Net Margin 2.8% 3.8% 7.4% 4.6pp 3.6pp EPS 0.021 0.031 0.067 215.3% 114.8%

Balance Sheet (Million pesos) Total Current Assets 3,694.1 3,156.2 3,315.5 -10.2% 5.1% Net Debt & Net Debt to EBITDA ratio Cash & Short Term Investments 1,451.8 875.2 713.3 -50.9% -18.5% USD, million Long Term Assets 7,080.9 7,055.0 6,915.8 -2.3% -2.0% Property, Plant & Equipment (Net) 3,238.3 3,186.5 3,108.4 -4.0% -2.4% 3.1x 3.1x Intangible Assets (Net) 1,725.8 1,733.5 1,687.9 -2.2% -2.6% 3,950 3.2x 3.1x Total Assets 10,775.0 10,211.1 10,231.3 -5.0% 0.2% 3,900 3.0x Current Liabilities 2,507.0 2,587.6 2,988.6 19.2% 15.5% 2.9x 2.8x Short Term Debt 971.8 1,129.9 1,292.7 33.0% 14.4% 3,850 2.9x 2.8x Accounts Payable 1,355.2 1,258.8 1,490.0 10.0% 18.4% 3,800 Long Term Liabilities 5,273.8 4,443.9 4,191.5 -20.5% -5.7% 2.6x 2.7x Long Term Debt 4,374.5 3,487.8 3,227.1 -26.2% -7.5% 3,750 2.6x Total Liabilities 7,780.8 7,031.5 7,180.2 -7.7% 2.1% 2.5x 3,700 Common Stock 2,994.2 3,179.6 3,051.2 1.9% -4.0% 2.4x Non-controlling interest 709.8 686.7 685.9 -3.4% -0.1% 3,650 2.3x Total Equity 2,284.4 2,492.9 2,365.2 3.5% -5.1% 1Q20 2Q20 3Q20 4Q20 1Q21 Liabilities & Equity 10,775.0 10,211.1 10,231.3 -5.0% 0.2% Net Debt 3,894.5 3,742.5 3,806.5 -2.3% 1.7% Net Debt Net Debt to EBITDA

Cash Flow CF from Operating Activities 348.7 1,374.1 177.6 CF from Investing Activities (42.3) (218.6) (55.7) CF from Financing Activities 646.3 (562.0) (180.0) Change in Cash Balance 922.6 312.9 (135.3)

Source: Banorte, MSE

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Report Details by business group

Vestolit (Polymer Solutions) US$ millions 1Q20 Margin 4Q20 Margin 1Q21 Margin % y/y % q/q Revenue 583 100.0% 617 100.0% 708 100.0% 21.4% 14.7% EBITDA 121 20.8% 158 25.6% 224 31.6% 85.1% 41.8% Source:Orbia

Wavin (Construction and Infrastructure) US$ millions 1Q20 Margin 4Q20 Margin 1Q21 Margin % y/y % q/q Revenue 512 100.0% 582 100.0% 679 100.0% 32.6% 16.7% EBITDA 51 30.0% 88 15.1% 95 51.6% 86.3% 8.0%

Source:Orbia

Netafim (Precision Agriculture) US$ millions 1Q20 Margin 4Q20 Margin 1Q21 Margin % y/y % q/q Revenue 232 100.0% 270 100.0% 275 100.0% 18.5% 1.9% EBITDA 37 21.8% 53 9.1% 52 28.3% 40.5% -1.9%

Source:Orbia

Dura-Line (Data Communications) US$ millions 1Q20 Margin 4Q20 Margin 1Q21 Margin % y/y % q/q Revenue 170 100.0% 176 100.0% 184 100.0% 8.2% 4.5% EBITDA 29 17.1% 34 19.3% 29 15.8% 0.0% -14.7%

Source:Orbia

Kuora (Fluor) US$ millions 1Q20 Margin 4Q20 Margin 1Q21 Margin % y/y % q/q Revenue 182 100.0% 182 100.0% 172 100.0% -5.5% -5.5% EBITDA 68 37.4% 58 31.9% 56 32.6% -17.6% -3.4%

Source:Orbia

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

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

Compensation of Analysts. Analysts’ compensation is based on activities and services that are aimed at benefiting the investment clients of Casa de Bolsa Banorte Ixe and its subsidiaries. Such compensation is determined based on the general profitability of the Brokerage House and the Financial Group and on the individual performance of each analyst. However, investors should note that analysts do not receive direct payment or compensation for any specific transaction in investment banking or in other business areas. Last-twelve-month activities of the business areas. Grupo Financiero Banorte S.A.B. de C.V., through its business areas, provides services that include, among others, those corresponding to investment banking and corporate banking, to a large number of companies in and abroad. It may have provided, is providing or, in the future, will provide a service such as those mentioned to the companies or firms that are the subject of this report. Casa de Bolsa Banorte or its affiliates receive compensation from such corporations in consideration of the aforementioned services.

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

Activities of the business areas during the next three months.

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

Securities holdings and other disclosures.

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

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

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

Guide for investment recommendations.

Reference

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

Determination of Target Prices For the calculation of estimated target prices for securities, analysts use a combination of methodologies generally accepted among financial analysts, including, but not limited to, multiples analysis, discounted cash flows, sum-of-the-parts or any other method that could be applicable in each specific case according to the current regulation. No guarantee can be given that the target prices calculated for the securities will be achieved by the analysts of Grupo Financiero Banorte S.A.B. C.V, since this depends on a large number of various endogenous and exogenous factors that affect the performance of the issuing company, the environment in which it performs, along with the influence of trends of the stock market, in which it is listed. Moreover, the investor must consider that the price of the securities or instruments can fluctuate against their interest and cause the partial and even total loss of the invested capital. The information contained hereby has been obtained from sources that we consider to be reliable, but we make no representation as to its accuracy or completeness. The information, estimations and recommendations included in this document are valid as of the issue date, but are subject to modifications and changes without prior notice; Grupo Financiero Banorte S.A.B. of C.V. does not commit to communicate the changes and also to keep the content of this document updated. Grupo Financiero Banorte S.A.B. of C.V. takes no responsibility for any loss arising from the use of this report or its content. This document may not be photocopied, quoted, disclosed, used, or reproduced in whole or in part without prior written authorization from Grupo Financiero Banorte S.A.B. of C.V. History of PT and Ratings MSCI ESG Rating scale Stock Date Rating PT CCC B BB BBB A AA AAA ORBIA February 26, 2020 BUY $56.00 LAGGARD AVERAGE LEADER ORBIA January 13, 2020 Under Review Under Review ORBIA July 24, 2019 BUY $50.00 *The MSCI ESG Rating is an indicator that evaluates ORBIA January 25, 2019 BUY $64.00 companies in Environment, Society and Governance (ESG) metrics.

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

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

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

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

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

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

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

Corporate Debt Hugo Armando Gómez Solís Senior Analyst, Corporate Debt [email protected] (55) 1670 - 2247 Gerardo Daniel Valle Trujillo Analyst, Corporate Debt [email protected] (55) 1670 - 2248

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

Wholesale Banking Armando Rodal Espinosa Head of Wholesale Banking [email protected] (81) 8319 - 6895 Alejandro Aguilar Ceballos Head of Asset Management [email protected] (55) 5268 - 9996 Alejandro Eric Faesi Puente Head of Global Markets and Institutional Sales [email protected] (55) 5268 - 1640 Alejandro Frigolet Vázquez Vela Head of Sólida Banorte [email protected] (55) 5268 - 1656 Arturo Monroy Ballesteros Head of Investment Banking and Structured Finance [email protected] (55) 5004 - 1002

Carlos Alberto Arciniega Navarro Head of Treasury Services [email protected] (81) 1103 - 4091 Gerardo Zamora Nanez Head of Transactional Banking, Leasing and Factoring [email protected] (81) 8318 - 5071 Jorge de la Vega Grajales Head of Government Banking [email protected] (55) 5004 - 5121 Luis Pietrini Sheridan Head of Private Banking [email protected] (55) 5004 - 1453 Lizza Velarde Torres Executive Director of Wholesale Banking [email protected] (55) 4433 - 4676

Osvaldo Brondo Menchaca Head of Specialized Banking Services [email protected] (55) 5004 - 1423 Raúl Alejandro Arauzo Romero Head of Transactional Banking [email protected] (55) 5261 - 4910 René Gerardo Pimentel Ibarrola Head of Corporate Banking [email protected] (55) 5268 - 9004 Ricardo Velázquez Rodríguez Head of International Banking [email protected] (55) 5004 - 5279 Víctor Antonio Roldan Ferrer Head of Commercial Banking [email protected] (55) 5004 - 1454