Food & Beverages SINGAPORE

October 9, 2012

QAF Limited
QAF SP / QAFS.SI Current

NOT RATED
Avg Daily Turnover Free Float
Target Previous Target Up/downside
Conviction

Market Cap

S$0.76 N/A N/A N/A

US$321.6m
S$395.8m

US$0.21m
S$0.26m

25.0%
524.2 m shares

CIMB Analyst

Man can live by bread alone

QAF offers a tasty dividend yield of 6.6%, which should be sustained by strong cash flows from its bakery business even though the margin outlook is soft. An improving Australian pork business increases the chances of divestment.

Daniel Lau
T (65) 62108614 E daniel.lau@cimb.com

Kenneth Ng, CFA

T (65) 62108610 E kenneth.ng@cimb.com

Company Visit Channel Check

Expert Opinion Customer Views

QAF has also recently expanded its bakery footprint to China. While initial contributions will not be material, we like the fact that management is starting to explore growth in the region. Potential divestment of its pork business could add S$280m-320m to the firms value if capital is ploughed into expansion of its lucrative bakery franchise.

Consumer staples play with attractive yields

QAFs recent share price support is probably a consequence of its cash-generating bakery franchise and attractive dividend yield which is drawing yield hunters like bees to honey. While we anticipate margin headwinds and even a slight earnings dip, we continue to expect price support as QAF should be able to maintain the 5 Scts dividend payout seen in 2011, taking capex and cash generation into consideration.

The Philippines will be the key growth driver in the near term as QAF expands its Gardenia brand outside metro Manila. We think that growth in Malaysia could be crimped by a new rival, Massimo, which is gaining good traction with Chinese consumers. Growth in Singapore should remain stable and should trot in line with historical growth. A longer-term growth driver could come from QAFs recent venture into Fuqing, China though management is keeping a prudent stance, preferring to understand the market before putting in significant capex.

Potential catalyst?
We think that a potential divestment of its previously-loss-making pork production business could be a price catalyst. According to management, QAFs Australian pork production business has seen a marked improvement in profitability in 2012 early fruits of a change in strategy. This enhances potential for divesting the franchise.

Growth outlook

0.80 0.75 0.70 0.65 0.60 0.55 0.50 50 40 30 20 10

Oct-11

Price Close

Relative to FSSTI (RHS)

Financial Summary
131 125 119 114 108 102 96

Jan-12

Apr-12

Jul-12

Source: Bloomberg

52-week share price range

0.76 0.56 0.78

FYE Dec Revenue (S$m) Operating EBITDA (S$m) Net Profit (S$m) Core EPS (S$) Core EPS Growth FD Core P/E (x) DPS (S$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing (x) P/BV (x) Recurring ROE

2007 1,076.9 93.5 4.6 0.01 -83.7% 43.6 0.02 4.5% 5.0 1.2 1.4 0.68 2.1%

2008 840.1 36.9 (35.2) (0.09) -683.3% -2.4 0.02 10.8% 12.6 na 0.5 0.40 -15.8%

2009 855.0 103.0 56.3 0.12 -236.8% 4.4 0.03 5.8% 4.5 4.1 0.3 0.84 22.2%

2010 856.4 110.7 48.7 0.10 -16.4% 6.5 0.04 6.3% 4.2 3.9 0.1 0.93 15.3%

2011 977.0 123.1 59.2 0.07 -25.6% 5.1 0.05 8.6% 3.8 3.2 0.1 0.77 10.3%

1H12 484.5 48.4 18.7 0.04 -51.6% 10.6 0.01 1.3% 4.8 3.6 0.1 1.03 9.7%

Vol m

Current

SOURCE: CIMB, COMPANY REPORTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
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QAF Limited
October 9, 2012

1. BACKGROUND 1.1 Whats the story, morning glory?

Yield sharks have been on the prowl for most of 2012, in search of defensive stocks with high dividend yields. It is, therefore, not a surprise that QAF has seen very strong price support in recent months as its cash-flow generating bakery franchise across Malaysia, Singapore and the Philippines with high dividend yield (~6.6%) brands it as a defensive, high-yield consumer staple play. Rivalea, QAFs pork production business in Australia, started to turn around in recent quarters. We previously mentioned that QAF has been looking to divest its pork production business since 2008. A turnaround could enhance the possibility of a divestment. In our view, this could act as a price catalyst as QAF could enhance the firms value by S$280m-320m if freed-up capital is ploughed back into its profitable bakery franchise. In addition to its defensive nature, we think that QAFs recent venture into China could have helped support the share price. In Jul 2012, together with Lin Kejian (Daniel Halim), son of its major shareholder Andree Halim, QAF set up a joint venture (Gardenia Fujian) to expand its bakery operations in Fujian, China. Entry into a potentially high-growth market like China could have allayed concerns over growth in mature markets like Malaysia and Singapore. The key investment risk for QAF lies in its ability to sustain its dividend payout. In FY12, emergence of new competition in Malaysia as well as rising wheat and fuel prices should crimp bakery margins and earnings. This should lower operating cash flow generation. In addition, QAF continues to plough capital into expanding and upgrading its bakery lines in Singapore and Malaysia. In the coming years, management also sees growth opportunities in the Philippines which could require additional capex for capacity upgrades and expansion. In this note, we look at QAFs historical earnings performance and cash flow generation. We conclude that QAF should be able to dish out healthy scoops of dividends to shareholders. This should provide share price support if risk-off sentiment returns. Its attractive valuations also offer limited downside risks.

2. OUTLOOK 2.1 Near-term margin pressures...

Bakery costs should increase in 2H12. Fuel and wheat costs are the largest components of the cost base for bakeries. As a result, Gardenias (bakery) operating margin is inversely related to wheat and fuel prices. Bad weather in the US and Russia has led to a 42% spike in wheat prices since Jun 12. Despite weak macro fundamentals, speculation has also helped boost fuel prices.

QAF Limited
October 9, 2012

Figure 1: Inverse relationship between bakery margins and price of wheat price, a major cost component
Wheat (US$) 900 Bakery operating margins (%, RHS) 20 19 800 18 17 16 600 15 14 500

Figure 2: Wheat and fuel price: Climbing wheat and fuel prices from Jun onwards will put pressure on Gardenia's margins
Title: Source:
Wheat (US$) Brent crude (US$) 130 120 110 800 100 700 90 600
13 12 11

1,000

Please fill in the values above to have them entered in your report
900

700

80 500 70 60
Mar-10 Mar-11 May-10 May-11 Mar-12 May-12 Jan-10 Jan-11 Jan-12 Jul-10 Jul-11 Nov-10 Nov-11 Sep-10 Sep-11 Jul-12 Sep-12
130 120 110 800 100 700 90 600 80 500 70 60

400

300 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

10

400

SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG

SOURCES: CIMB, BLOOMBERG

In addition, Gardenia has been facing stiff competition from Massimo, the new kid on the block. Since its inception in 2011, Massimo, owned by ethnic Malaysian tycoon Robert Kuok, has been very well received by the ethnic Chinese population in Malaysia. From its production facility in Port Klang, Massimos fleet of 200 trucks distribute three products (wheatgerm loaves, sandwich loaves, cream rolls) to provision stores and Chinese medicinal stores in Ipoh, Penang, Malacca and Seremban. This puts Massimo in direct competition with Gardenia, which generates around 75% of its sales from provision shops. Massimo still has a long way to go before it can reach Gardenias production scale, product suite and distribution capabilities. Gardenia has five plants and 12 production lines in central Kuala Lumpur compared to Massimos sole line in Port Klang. Gardenia has a 1,000-strong truck fleet; Massimo has 200. Gardenia has over 20,000 distribution points, the largest network in Malaysia. Consequently, operating leverage has made Gardenia the price leader in Malaysias branded bread market. However, with backing from FFM, Robert Kuoks flour mill, Massimo has been able to wage a price war against Gardenia despite its lack of scale and reach. For example, Massimos wheatgerm loaf, which, at RM2.50 is 22% cheaper than Gardenias equivalent wholemeal loaf costing RM3.20, has been taking market share from Gardenias wholemeal loaf.
Figure 3: Price war - Massimo wheat germ loaf at RM2.50
Wheat (US$) 1,000 Brent crude (US$) 130 120 110 800 100 700 90 600 80 500 70 60 1,000

Figure 4: vs Gardenias wholemeal loaf at RM3.20

Title: Source:
Wheat (US$) Brent crude (US$)

Please fill in the values above to have them entered in your report
900

900

400

400

Mar-10

Mar-11

Mar-12

Mar-10

Mar-11

May-10

May-11

May-12

May-10

May-11

Mar-12

May-12

Jan-10

Jan-11

Jan-12

Jan-10

Jan-11

Jan-12

Jul-10

Jul-11

Jul-12

Jul-10

Jul-11

Nov-10

Nov-11

Nov-10

Nov-11

Sep-10

Sep-11

Sep-12

Sep-10

Sep-11

Jul-12

SOURCES: COMPANY WEBSITE

SOURCES: COMPANY WEBSITE

Sep-12

QAF Limited
October 9, 2012

In response, Gardenia has come up with a similarly priced wheatgerm loaf. In addition, management has been flooding the market with its products, limiting shelf space for Massimo. This will inevitably increase bread returns (typically 15-20% of unsold bread is returned to Gardenia) and, thus, reduce margins. Price competition between Massimo and Gardenia will also limit the latters ability to pass through cost increases to customers.

2.2 but margins could be supported as pork production in Australia starts to break even
Management continues to see a recovery in its Australian pork production business, reflecting traction gained from the change in its corporate strategy. Rivalea is now avoiding head-on competition with cheap frozen pork imports from the US/Canada/Europe by introducing higher-margin branded pork products, minimising sale of fresh pork to product manufacturers (sausages, ham etc) and increasing supply to supermarkets (Woolworths, Cosco) and butcheries. Additional services include manufacturing hams and sausages for supermarkets and tray-packaging for both supermarkets and butcheries. Such additional products and services helped lift ASPs and sales volumes, thereby raising margins and consequently, profitability. While QAF does not release segmental quarterly performance, management indicated that Rivalea was EBITDA-positive in 1H12 compared to losses in 1H11. Assuming Rivalea is able to maintain its earnings momentum in 2H12, we could see some margin support from its pork production business.

2.3 Potential divestment of Rivalea?

In our first Not-Rated report on 29 Mar 2012 (So good, you can even buy it on its own), we mentioned that management has been looking to divest its pork production business since 2008. Rivaleas improving profitability increases the chances of divestment. We estimated that QAF will be able to free up around S$148m-170m based on a 20-30% haircut for Rivaleas net asset of S$211m (based on 2011 annual report disclosure). Assuming QAF is able to plough freed-up capital back into its lucrative bakery operations, we estimate that it can raise the firms economic value by S$280m-320m in the longer term.
Figure 5: Incremental value enhancement analysis
Primary production net assets (S$ m) Segment assets Segment liabilities Net assets 2010 265 54.1 211

Assuming haircut on net assets sales Potential freed up capital (S$ m) Bakery long term sustainable economic spread Incremental economic profits per annum (S$ m) Long term WACC Long term sustainable growth Incremental value added (S$ m)

20% 169 8.20% 13.9 9.50% 5% 323.4

30% 148 8.20% 12.1

282.9

SOURCES: CIMB ESTIMATES, COMPANY REPORTS

2.4 Will China venture change growth profile significantly?

In Jul 2012, QAF announced that it has set up a joint venture with its major shareholder, Daniel Halim, to set up a bakery (Gardenia Fujian) in Fujian, China. QAF will hold a 55% interest in the JV. The total investment cost to set up the manufacturing facility and initial working capital for Gardenia Fujian is estimated at S$16m (~Rmb80m). QAF will provide S$4.4m capital and S$4.4m in shareholders loan. Mr Halim will provide S$3.6m in upfront capital and S$3.6m in shareholders loan. Prima facie, QAF will be ploughing around S$8.8m into Gardenia Fujian in capital and shareholders loan. In actual fact, QAFs investment in Gardenia Fujian will be rather minimal. QAF is in the midst of upgrading its plant in
4

QAF Limited
October 9, 2012

Singapore and will be transferring spare parts from its Singapore plant to Fuzhou county in Fujian. In addition, the new manufacturing facility will operate on a ready-built site in Fuqing, Yuan Hong Investment Zone. A bonus for this venture is that Gardenia Fujian will be operating on a rent-free lease for 20 years up till 2032, granted by Fujian Dongjia Feeds, a company controlled by Mr Halim. We think that Gardenia Fujian will not materially change QAFs near-term growth trajectory. We sense that management could be taking a measured approach to its Chinese investment and developments in Fujian could be at snails pace. Gardenia Fujian can be considered as a testing ground for Gardenias renewed Sino ambitions. As China does not have a culture of consuming loaf bread, Gardenias bestselling product, management will have to take time to understand the market and fine-tune operating and distribution models, recipes and product offerings. As such, initial production will be on a small scale, at around 2,000 loaves per hour (top-of-the-line production line can produce around 10,000 loaves per hour). Gardenia Fujian will first test the market with hot dog rolls and hamburger buns. This is not QAFs maiden venture into China. It set up shop in Tianjin close to a decade ago but the venture did not succeed as the factory was located too far from its distribution points, it resulted in high distribution costs. We think that chances of success should be higher this time round, given the low upfront capital. In addition, consumer spending has been on the rise in Fuzhou, with total sales of consumer goods hitting Rmb194.8bn in 2011 vs. Rmb55.3bn in 2002. As such, Fuzhou can be considered a blue ocean in the branded bread segment as it does not have a major branded bread producer in the market. Having said that, we prefer to observe QAF for a few more quarters before coming to a verdict on whether Gardenia Fujian will be a major growth profile changer.

2.5 Growth in existing markets

Management continues to see strong growth potential in existing markets. According to management, production capacity in Malaysia and Singapore is nearing full utilisation and there is still scope for further expansion. QAF has budgeted around S$20m for upgrades in Singapore and S$20m for a new production line in Malaysia, both of which are expected to be completed in 2013. The Philippines will be a key growth driver. Gardenia Philippines has 70% share of the metro Manila branded bread segment and is now serving Mindanao through its newly set-up production facility in Cebu. Management is also attempting to raise margins by reducing its reliance on the flour cartels in the Philippines and turning to cheaper flour supply from Indonesian flour mills. However, initial flour supply volumes from Indonesia make up only 10% of Gardenia Philippines flour requirements and should not have much impact on near-term margins. Historically, the 5-year revenue CAGR was around 0.8% for Singapore, 12% for Malaysia and 13.3% for the Philippines. Singapore, as a mature market, should remain around 1% growth. In the near term, we expect competition from Massimo in Malaysia to impede growth potential, leading to high-single-digit topline growth. Lastly, we think that the Philippines to sustain double-digit annual growth as Gardenia Philippines extends its reach throughout the archipelago.

QAF Limited
October 9, 2012

Figure 6: Historical topline CAGR geographical breakdown

14.0% 12.0% 12.0% 13.3%

Figure 7: Estimated geographical operating margins

18.0% 16.0% 14.0% 15.8%

Title: Source: Please fill in the values above to have them entered in your report

10.0% 12.0% 8.0% 10.0% 8.0% 6.0% 4.0% 4.0% 2.0% 0.8% 0.0% Singapore Malaysia Philippines 2.0% 0.0% Singapore Malaysia Philippines 7.7% 11.1%

6.0%

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB ESTIMATES, COMPANY REPORTS

3. FINANCIALS 3.1 Can QAF sustain dividend payout?

In 2011, QAF gave out S$26m in dividends or 5 Scts/share. QAF has already dished out a 1 Sct/share dividend in 1H12. Assuming it is able to maintain its dividend payout, the prospective end-CY12 dividend yield at current prices will be around 4.2%. Near-term cost pressures and competition in Malaysia could reduce profitability and operating cash flow generation. QAF is expected to invest around S$40m in plant upgrades and new production lines in Singapore and Malaysia in 2013. In view of margin headwinds and competitive pressure in Malaysia, we think that operating cash flows could fall from the typical S$90m-100m range to S$80m-90m for FY12. There is a risk that management might decide to cut its FY12 dividend payout. However, we believe that management should be able to sustain its dividend payout. First of all, QAF has never reduced its dividend payout since 1999. Secondly, despite facing cash outflows during its dark days in 2007 and 2008, QAF continued to dish out healthy scoops of dividends to investors. Earnings volatility also did not have any impact on its dividend payout decision. Lastly, with 2Q12 net gearing of 0.11x, QAF still has sufficient debt headroom to fund its capex requirements in 2013. Even if it were to fund its capex requirements fully by debt, net gearing would merely increase to 0.2x, still at comfortable levels. This should allay concerns that management may reduce FY12 dividend payout to conserve cash for capex in 2013.

QAF Limited
October 9, 2012

Figure 8: FY12 operating cash flow could fall but QAF still has debt headroom to fund FY13s S$40m capex
In S$m 120 100 80 1.2 60 40 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H12 (20) 0.4 (40) (60) (80) 0.2 0 1 Operating cash flow s (LHS) Net gearing (x) 1.6 1.4

Figure 9: DPS vs EPS: Historically, earnings volatility did not have any impact on dividend payout
15

Title: Source: Please fill in the values above to have them entered in your report 5.0

10

1.2
0

1.2

1.5

1.6

1.6

1.6

1.6

2.0

2.0

2.0

3.0

4.0

0.8 0.6 -5

-10 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

DPS

Core EPS

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

4. RISKS 4.1 Inability to divest Rivalea

It could take some time before QAF is able to divest its pork production business to a willing buyer at a decent price. Profitability for Rivalea depends largely on weather conditions, which has a big influence on feed costs. In recent years, severe weather conditions like floods and droughts have led to poor grain harvests, thereby decimating margins for Rivaleas pork production business. Coupled with a tough pricing environment (supermarket chains like Woolworths have been suppressing prices for all its merchandise, including fresh products), the profit outlook for the meat production business in Australia seems to be very volatile. In addition, pork consumption is not big in Australia as consumers still prefer red meats like beef and lamb. While Rivalea was able to support sales volume by exporting its pork produce in the middle of the decade, recent strength of the Australian dollar has also eroded export competitiveness for Rivaleas pork products. Management has yet to raise the white flag. Efforts to raise pork consumption are underway, via cooking classes, demonstrations at supermarkets and promotion of lean cuts as a healthier alternative to lamb. In our view, more can still be done to raise Rivaleas profitability though new measures will probably have to be creative. For example, Rivalea can explore tying up with restaurants and celebrity chefs to promote innovative pork dishes. Rivalea could also consider introducing snacks like pork jerkies (bak kwa) or the famous pork cutlet buns from Macau. While QAF might incur some near-term increase in opex or capex, we see this as a small investment to free up its locked-up capital in Australia, which could be more efficiently deployed to fund its bakery expansion.

5. VALUATION 5.1 Attractive valuations

QAF currently trades at 4.8-5x c.CY12 EV/EBITDA, below regional peers average of 12.0x. It also offers a very attractive CY13 dividend yield of 6.6%, above regional peers 3.4% average (CY13). It is even higher than REITs 6% yield. Lastly, we think that a potential divestment of its pork production business could be a major price catalyst.
7

QAF Limited
October 9, 2012

Figure 10: Peer comparisons

Target Price Price (lcl curr) (lcl curr) Market Cap (US$ m) Recurring ROE (%) CY2012 Dividend Yield (%) CY2012

Company Singapore Super Group Dairy Farm Int'l Cerebos Pacific BreadTalk Group Eu Yan Sang Petra Foods QAF Ltd Simple average Malaysia Cocoaland Holdings Fraser & Neave Holdings MSM Malaysia Holdings Nestle (Malaysia) Simple average Indonesia Indofood CBP Indofood Sukses Makmur Mayora Indah Simple average Thailand Thai Union Frozen Products Charoen Pokphand Foods Simple average Simple Average (all co)

Bloomberg Ticker

Recom.

Core P/E (x) 3-year EPS CY2012 CY2013 CAGR (%)

P/BV (x) CY2012

SUPER SP OUTPERFORM DFI SP Outperform CER SP OUTPERFORM BREAD SP NR EYSAN SP NR PETRA SP Underperform QAF SP NR

2.31 11.27 6.57 0.585 0.655 2.44 0.755

2.65 12.00 6.59 NA NA 2.04 NA

1,047 15,221 1,694 134 236 1,212 322

19.0 28.3 17.9 na na 19.5 na 21.2

17.0 24.7 16.5 14.2 11.6 17.5 6.5 16.9

29% 23% 16% 13% 18% 12% na 18%

3.2 13.1 4.4 11.7 13.0 3.6 na 8.2

17.3% 51.7% 25.0% 2.1% 2.4% 19.7% 1.0% 19.7%

2.6% 2.1% 3.8% 3.5% 9.5% 2.1% 4.2% 3.9%

COLA MK FNH MK MSM MK NESZ MK

Underperform Underperform Neutral Underperform

2.60 18.48 5.00 63.80

1.84 15.30 5.07 55.20

146 2,188 1,146 4,880

18.6 29.0 13.9 30.2 22.9

16.0 21.8 13.5 28.0 19.8

23% -3% 0% 11% 8%

2.2 6.6 1.6 24.2 8.7

12.1% 18.5% 11.7% 79.0% 30.3%

2.1% 1.8% 4.3% 3.1% 2.8%

ICBP IJ INDF IJ MYOR IJ

Outperform Outperform Outperform

6,800.0 5,800.0 22,200.0

7,800 7,000 29,000

4,129 5,303 1,772

16.3 14.5 25.4 18.7

15.4 13.1 19.7 16.1

17% 18% 53% 29%

3.4 2.3 5.8 3.8

21.7% 17.1% 25.3% 21.4%

2.1% 2.6% 0.5% 1.7%

TUF TB CPF TB

Outperform Outperform

73.00 33.50

85.00 44.00

2,730 8,452

14.2 20.8 17.5 20.6

11.3 12.0 11.7 16.8

31% 29% 30% 19%

2.3 2.5 2.4 6.7

19.3% 14.6% 16.9% 22.5%

3.5% 3.2% 3.4% 3.1%

SOURCES: CIMB, COMPANY REPORTS

QAF Limited
October 9, 2012

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Unless permitted to do so by the securities laws of Hong Kong, no person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the securities covered in this report, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong). Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (CIMBI). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBI. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBI. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesia residents except in compliance with applicable Indonesian capital market laws and regulations. Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (CIMB). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB. New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978. Singapore: This report is issued and distributed by CIMB Research Pte Ltd (CIMBR). Recipients of this report are to contact CIMBR in Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to update its opinion or the information in this research report.
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This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR. As of October 9, 2012, CIMBR does not have a proprietary position in the recommended securities in this report. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden. Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China. Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result. Score Range 90 100 80 89 70 79 Below 70 or No Survey Result Description Excellent Very Good Good N/A United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. 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A high net worth entity includes a body corporate which has (or is a member of a group which has) a called-up share capital or net assets of not less than (a) if it has (or is a subsidiary of an undertaking which has) more than 20 members, 500,000, (b) otherwise, 5 million, the trustee of a high value trust or an unincorporated association or partnership with assets of no less than 5 million. Directors, officers and employees of such entities are also included provided their responsibilities regarding those entities involve engaging in investment activity. Persons who do not have professional experience relating to investments should not rely on this document. 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For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribtion to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Recommendation Framework #1 *

Stock
OUTPERFORM: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 3 months. relevant relevant relevant relevant relevant

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand an d Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

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Recommendation Framework #2 **

Stock
OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months. NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months. UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months. TRADING BUY: Expected positive total returns of 10% or more over the next 3 months. TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.
ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCP - Excellent, BEC - Very Good, BECL Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Very Good, ITD - Good, IVL - Very Good, JAS Very Good, KBANK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good.

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