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CP All PCL
CPALL TB
Target price: Bt31.00 Up/downside: -29.5% Share price (13 May): Bt44.00
Pyari Menon
(SEJ) with CPALLs stock suggests to us that, a frothy run-up aside, the latter is likely to see a significant derating even as earnings rise over the next six months. The share price has risen by 800%, from its five-year low (March 2007), 246% over the past two years, and 56% over the past year. We therefore believe most of the positives are priced in. CPALLs scale, supply-chain management, use of technology, store locations, and merchandising are difficult for its competitors to replicate. This is widely acknowledged and factored into the share price, in our view, but some of the issues we have highlighted do not appear to be. The stock is trading currently at a premium to our discounted FCF valuation, historical valuation multiples, and relative to its peers. We initiate coverage with a Sell (5) rating and six-month target price of Bt31.
How we differ
We think the market expects CPALLs market capitalisation to increase on the back of rising store numbers: we disagree with this. As profitability growth per store drops, we believe the share price will too.
Share price performance
What's new
We believe CP All PCLs (CPALL) business is close to saturation point in Bangkok and the suburbs. Therefore we expect the benefits of increased network density in those areas to be offset by cannibalisation.
What's the impact
Rising margins, strong same-storesales (SSS) growth, a high rate of new-store openings and a general euphoria over convenience-store chains across Asia has been a key driver of the share price over the past two years. A slowdown or reversal in any one of these areas would be enough for a significant fall in the share price, in our opinion. We expect the profitability growth per store to slow over the next three years, suggesting a slowdown in the network multiplier effect.
What we recommend
12-month range Market cap (US$bn) Average daily turnover (US$m) Shares outstanding (m) Major shareholder
Ours is one of the first Sell ratings for the stock. Our 2011, 2012, and 2013 net-profit forecasts are respectively 2.4%, 4.9%, and 10.3% below those of the consensus.
Important disclosures, including any required research certifications, are provided on the last two pages of this report.
Retailing / Thailand
CPALL TB
18 May 2011
Growth outlook
We expect earnings-growth rates to slow in 2012 and 2013 given that Bangkok and the suburbs are close to saturation in terms of the number of stores. We expect per-store profitability to decline, leading to a derating of the stock. With a dividend-payout ratio of about 70%, the franchisee model is instrumental in funding CPALLs business growth. A slowdown in willing franchisees is a long-term risk to earnings growth. We note, however, that CPALL has been a great growth story. SSS growth, the rise in the number of stores, and margins have typically surprised on the upside. Improved merchandising, the IT systems, and poor execution by competitors have been the primary drivers.
Valuation
We have a six-month target price of Bt31. This is derived from an average of our discounted FCF methodology (fair-value estimate of Bt34) and the average PER since January 2006 (fair-value estimate of Bt29). Based on average trading multiples since 2006, the stock is trading currently at a 50% premium on PER basis and at a 120% premium on a PBR basis. Meanwhile, the stock is trading at a significant premium to average industry PER, PBR, and market cap/store based on the Bloomberg 2011 forecasts. Some of the higher valuation metrics can be partly explained by better returns and growth profile.
Earnings revisions
We forecast a 2010-13 earnings CAGR of 17%. Our earnings forecasts for 2011, 2012, and 2013 are respectively 2%, 5%, and 10% lower than those of the Bloomberg consensus. Over the past two years, the consensus earnings forecasts for 2011 have been revised up slowly. However, we expect them to be revised down over the next year. The company has indicated that it plans to enter overseas markets, which might lead to less efficient capital allocation over the medium-to-long term. While this could help sustain earnings growth, it highlights our concern of a slowdown in the earnings-growth rate in Thailand.
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Retailing / Thailand
CPALL TB
18 May 2011
Financial summary
Key assumptions
Year to 31 Dec Same store sales (SSS) change (%) Number of stores (Multiline retail) Number of stores - dept Number of stores - disct 2006 5.5 3,784 3,279 505 2007 5.9 4,279 3,665 614 2008 10.5 4,778 4,065 713 2009 9.7 5,270 4,462 808 2010 9.9 5,790 4,920 870 2011E 6.0 6,311 5,378 933 2012E 5.0 6,838 5,841 997 2013E 5.0 7,366 6,304 1,062
2006 (402) 2,798 (819) 3,740 775 6,092 (4,936) (226) (1,614) (6,776) 3,800 98 (1,330) (289) 2,279 (223) 1,372 1,156
2007 (533) 2,988 (877) 3,246 1,203 6,027 (4,636) 485 292 (3,859) 1,519 159 (1,114) (580) (16) (22) 2,130 1,391
2008 3,495 3,017 (1,090) 3,365 624 9,410 (3,839) (1,497) (537) (5,873) (1,883) 157 (1,569) (514) (3,808) 85 (186) 5,571
2009 6,787 2,859 (1,492) 882 (30) 9,005 (3,552) (1,717) (70) (5,339) (158) 0 (2,696) (3) (2,857) (24) 786 5,454
2010 9,157 3,093 (2,083) 2,077 96 12,340 (3,869) (26) 22 (3,873) (10) 0 (5,392) 0 (5,402) (32) 3,033 8,471
2011E 10,918 3,190 (2,948) 2,225 (84) 13,302 (4,548) (50) 38 (4,560) 0 0 (5,579) (3) (5,582) 0 3,159 8,754
2012E 12,613 3,288 (3,405) 2,336 (84) 14,748 (5,078) (50) 60 (5,068) 0 0 (6,445) (6) (6,451) 0 3,229 9,670
2013E 14,451 3,387 (3,902) 2,447 (83) 16,300 (5,483) (50) 82 (5,451) 0 0 (7,384) (9) (7,393) 0 3,456 10,817
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Retailing / Thailand
CPALL TB
18 May 2011
2006 0.0 0.0 0.0 0.0 0.0 21.7 2.5 n.a. 15.3 3.1 n.a. n.a. net cash n.a. 8.1 80.9 n.a. 99.8
2007 11.6 12.9 n.a. 9.6 9.0 22.2 2.6 n.a. 16.3 3.3 n.a. n.a. net cash n.a. 6.5 77.3 n.a. 76.3
2008 12.2 138.0 n.a. 126.1 124.9 24.1 5.4 3.0 25.5 7.7 23.8 79.1 net cash 34.5 4.1 62.6 16.1 47.5
2009 (9.6) 38.7 74.2 51.2 51.2 26.4 8.3 5.8 28.1 11.8 36.1 101.1 net cash 26.1 3.2 60.0 n.a. 54.0
2010 20.1 23.3 35.8 33.6 33.6 26.8 8.5 6.5 36.6 14.4 47.8 446.8 net cash 27.2 2.9 55.2 n.a. 80.8
2011E 15.0 16.1 19.9 19.5 19.5 27.1 8.6 6.8 41.4 15.7 54.3 n.a. net cash 27.0 3.2 53.9 n.a. 70.0
2012E 13.4 13.4 16.0 15.5 15.5 27.4 8.6 7.0 41.6 16.2 54.8 n.a. net cash 27.0 3.3 53.4 n.a. 70.0
2013E 12.7 12.8 15.0 14.6 14.6 27.7 8.6 7.1 42.1 16.7 55.5 n.a. net cash 27.0 3.4 53.0 n.a. 70.0
Company profile
CP All PCL was founded in 1988 to operate convenience stores as its core business under the 7-Eleven brand in Thailand. The company is also active in running related businesses, such as a bill-payment collection service, the manufacture and sale of frozen foods and bakery items, and the sale and maintenance of retail equipment.
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Retailing / Thailand
CPALL TB
18 May 2011
The slowdown in profitability per store is likely to make it more difficult to find franchisees for stores over the long term. In our view, franchising is critical for CPALL, given that it is committed to a high dividend payout. Our 2011, 2012 and 2013 net-profit forecasts are respectively 2.4%, 4.9%, and 10.3% below those of the consensus. The performance of the share price has closely tracked earnings revisions. We believe that as the 2011 consensus earnings forecast is revised down, the stock will be derated.
Earnings revisions versus share price
(Bt) 50 40 30 20 10 0 Sep-08 Sep-09 Sep-10 Jan-09 Jan-10 May-08 May-09 May-10 Jan-11 May-11 (Bt) 2.0 1.5 1.0 0.5 0.0
Price (LHS)
Source: Bloomberg
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Retailing / Thailand
CPALL TB
18 May 2011
CPALL (RHS)
It could be argued that SEJ and CPALL have very different fundamentals and the market environments in which they operate are different. It could also be argued that the bursting of the Dot.com bubble led to the collapse of SEJs share price. We think these arguments are valid. However, in our view, once store expansion reaches critical mass, the valuation per store increases as the benefits of network density, information feedback from the network, and sheer scale improve operational efficiencies significantly. That said, as store expansion begins to reach saturation point, as we believe it has in Bangkok and the suburbs on a per store basis, the stocks valuations will not rise as the risk of cannibalism, less-efficient franchisees, and less-attractive locations will slow SSS growth, operational efficiency, and ultimately the ROI. It is difficult to predict when the market will start to discount this, but as the comparison chart between SEJ and CPALL shows, at the current levels the risks to the downside are more than those to the upside, in our view.
Several reports from competitors and the company itself have suggested that as the penetration rate of CVS in Thailand is less than half of those of mature markets such as Japan and Taiwan, and there is 2-3x upside for expansion in the country. We believe this analysis ignores the importance of relative per-capita spending power and population density. On a purchasing-potential-per-store basis, Thailand lags behind Japan and Taiwan significantly. In addition, population density is critical for successfully expanding a CVS network to different areas, in our view. -6-
Retailing / Thailand
CPALL TB
18 May 2011
While the economy outside of Bangkok is expanding, the relatively low population density will be an issue with regards to how many profitable stores the provinces can accommodate. The success of CVS networks depend to a large extent on store-network density as well as population density.
Population support is overplayed
Population/store Potential purchasing power per store (US$m) Relative population density (x) Japan 2,300 98 2.8 Taiwan 2,500 45 5.8 Thailand 6,400 26 1.0
Competition has been limited but a few companies are reaching critical mass
CPALL has used its IT system to improve its delivery and merchandising strategy. While the company continues to gain market share in Thailand some of its competitors appear to have reached critical mass in terms of the number of stores (500), which might allow them to invest in similar IT distribution systems. A significant gap is likely to remain in terms of capabilities, but we expect competition to increase gradually over the next few years. The situation was similar in Japan, where SEJ was regarded to have the best supply-chain management techniques, but over time it was copied and matched by its competitors. CPALL has a solid distribution network, and given its network density it is likely to continue to have a competitive advantage for the foreseeable future. However , we believe the benefits from the companys scale in Bangkok and its suburbs have peaked and additional leverage is limited and that increasing its competitive advantage will be difficult to achieve.
Casey CPALL
In some cases the store concentrations achieved in Taiwan, in particular, suggest that significant opportunities exist in China. This has led to strong share-price performances by President Chain Store (7/11 Taiwan) and Taiwan Family Mart, and CPALLs share-price performance has been helped in part by this. However, President Chain store, Seven & I Holdings and Taiwan Family Mart may be better-positioned to exploit the business growth opportunities in China than CPALL as they already have a presence there.
Looking overseas
The company has indicated that it has plans to expand into Cambodia and China. While this might result in its earnings rising, valuation multiples are likely to be derated as CPALL would not have the advantages it has in Thailand. The transfer of technology and distribution systems might be much less successful than it is in Thailand due to geographic differences and differences in consumer trends. In addition, we believe that the move highlights that the earnings-growth opportunities in Thailand are declining, especially in the Bangkok region.
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Retailing / Thailand
CPALL TB
18 May 2011
CPALL has technology and systems that help it and its store managers to understand shoppers purchasing patterns at an individual level, so as to allow for a varied range of RTE meals. The retail information systems of the company provide the infrastructure for a highly-integrated, highly-distributed demand-chain environment. CPALLs operational excellence in terms of merchandising, location, ability to attract quality franchisees, cost control, use of technology, customer data-mining, and capital efficiency remains a strong and sustainable competitive advantage.
CPALLs scale, supply-chain management, store locations, and merchandising are difficult for its competitors to replicate. This is a sustainable competitive edge over the other convenience-store operators, in our opinion. Product innovation improves the gross-profit margin and boosts SSS. Over the past few years, CPALL has increased ready-to-eat (RTE) and ready-to-drink (RTD) products that it sells in its stores.
7-11 65%
108 Shop 8%
Source: AC Nielsen
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Retailing / Thailand
CPALL TB
18 May 2011
The company pays out almost 70% of earnings as dividends and still manages to fund its more-than-20% sales growth entirely through internal cash flow, which is a testament to the free cash flow it generates through its negative-working-capital business model. The other advantage that size offers the company is the ability to spend on technology. Technologies that boost supply-chain sensitivity and capabilities are costly and the small chains cannot afford to spend as freely as CPALL can in this area.
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Retailing / Thailand
CPALL TB
18 May 2011
Valuations
We have used an FCF-derived methodology to value CPALL, based on the average of our discounted FCF methodology and average past-five-year PER. We have used an FCF methodology over a dividend-discount methodology, as while the company pays out significant dividends it also generates significant free cash flow from its operations.
CPALL: FCF assumptions (Bt m)
Earnings Capex-depreciation Change in WC FCF to equity Present value Terminal growth rate FCF in terminal year Cost of equity Value at the end of growth phase Present value of explicit forecast (2011-13) Present value of transition phase (2014-16) Present value of terminal value Total value of equity Value per share (Bt)
Source: Daiwa
Source: Daiwa
FCF-based valuation
On an FCF basis, we value CPALL at Bt34. Our base assumptions are laid out in the following table.
2011 7,970 (1,600) 1,440 7,809 7,067 3% 14874 10.5% 198,321 21,772 24,109 108,451 154,332 34.3
969 14,874
Comments 2011-13 is our explicit forecast period; for 2014-16, earnings growth falls gradually to 3% YoY. For the terminal year (2017), we assume that capex and depreciation are of similar amounts. The company has negative working capital hence we add back working capital
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Retailing / Thailand
CPALL TB
18 May 2011
CPALL Industry average 0.83 1.11 0.04 0.045 0.98 0.70 10% 13%
The following table gives the per store details for all the companies in our sample. CPALLs operating performance per store is strong and just behind those of Casey's General Store Inc, President Chain store (7Eleven Taiwan), and Seven & I Holdings.
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Retailing / Thailand
CPALL TB
18 May 2011
Lower per store profitability than CPALL and industry average reduces market cap per store.
Better than those of CPALL despite having a higher concentration of stores. This is driven by higher per capita income. Better than those of CPALL, driven by higher per capita income and network density. Driven by higher earnings as well as the market's expectations of its potential in China.
Higher per capita income drives per store sales. Higher earnings per store than its counterparts in Asia are driven by higher store sales than those of its counterparts in Asia.
Source: Companies, compiled by Daiwa, Bloomberg Note: *Sales, earnings and earnings growth/store based on Bloomberg consensus. Number of stores as at the end of 2011
Relative valuations
CPALL trades at a premium on all multiples compared with its convenience-store peers in Thailand. We
Regional convenience-store operators: relative valuations
Bloomberg code CPALL TB Equity AMRT IJ Equity 3382 JP Equity 5903 TT Equity 8028 JP Equity 2912 TT Equity CASY US Equity 2651 JP Equity MGNT LI Equity DLTR US Equity 3337 JP Equity Rating Sell (5) NR Hold (3) NR Outperform (2) Buy (1) NR Hold (3) Hold (3) NR Hold (3)
believe the companys higher returns justify its higher multiples, particularly on a PBR basis.
*CP ALL PCL SUMBER ALFARIA TRIJAYA TBK SEVEN & I HOLDINGS CO LTD TAIWAN FAMILYMART CO LTD FAMILYMART CO LTD PRESIDENT CHAIN STORE CORP CASEY'S GENERAL STORES INC LAWSON INC MAGNIT OJSC-SPON GDR REGS DOLLAR TREE INC CIRCLE K SUNKUS CO LTD Average
Closing share price (local currency) 16-May-11 44 3,000 2,028 135.5 2,905 155 39.55 3,975 27.50 60.28 1,209
Market cap (US$m) 6,544 1,200 22,285 1,050 3,531 5,600 1,501 4,945 12,234 7,357 1,292
EV/EBITDA (x) (FY11E) 13.0 9.8 4.7 2.3 3.9 17.5 5.5 4.3 14.3 8.7 1.3 6.7
PBR (x) (FY11E) 9.5 7.5 1.0 n.a 1.3 7.3 n.a 1.9 5.7 5.1 0.7 4.8
2011 EPS ROE (FY11E) change (%) (%) 19 41.4 58 33.0 n.a. 6.5 18 6.3 20 8.8 23 35.1 10 20.7 2 12.8 (74) 8.2 31 27.3 29 5.3 25 22
Source: Daiwa forecasts for rated stocks, Bloomberg for others *Note: Share price as at the close on 13 May for CPALL
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Retailing / Thailand
CPALL TB
18 May 2011
related exposure, ensuring the food it provides is fresh is important. This requires a very responsive IT system. Although these are usually costly to implement, CPALL is able to afford this, and other very responsive technology, given its large network.
Distribution system
The company has distribution centres (DC) serving several store areas, which enables it to deliver fresh and quality products with less lead time, as well as helping it to reduce inventory and logistics costs. The company has an IT system that links up its stores to its head office and to the distribution centre (DC), which enables it to deliver goods to its stores quickly from both the DC and suppliers.
Store-network growth
With a bigger network, the company has been able to introduce more new products and services. For example, the high density network means it costs less to distribute RTE food items. Additionally, it enables the company to accept more bill payments, as utility providers, ATMs and phone companies are unlikely to use them without a large enough network. This is because by dealing with just one entity (CPALL), the utilities get access to a big network of payment counters for their customers. The cost of linking up the utilities and the stores on a per outlet basis is also less as it just needs to link with the one CPALL server.
7-11 65%
108 Shop 8%
Competitive positioning
CPALLs scale, supply-chain management, store locations, and merchandising are difficult for competitors to replicate, in our view. This should enable CPALL to sustain its competitive edge. CPALLs annual sales are about 8x those of its nearest competitor in Thailand, and despite its size (in terms of sales) relative to its competitors, the company is expanding at a faster rate than its competitors, which should thus increase its market lead further. CPAlls operational excellence in terms of merchandising, location, ability to attract quality franchisees, cost control, use of technology, customer data mining and capital efficiency are the primary drivers of its competitive advantage.
Clustering
The companys strategy of having divided store clusters based on location (eg, residential areas, markets, schools, offices, gas stations, factories, tourist spots, and transport-interchange areas) allows it to plan product and service management strategies to better meet the needs of its customers.
Standardising technology
The company strives to manage each store to meet 7Elevens standard by applying a standardised system to its stores. This has made it easier for the company to expand in terms of the number of stores and sales. The IT system draws on data that can be used to make relevant management and strategy decisions. Additionally, given the companys significant food- 13 -
Retailing / Thailand
CPALL TB
18 May 2011
Operations
CPALL operates its chain of convenience stores in Thailand through the 7-Eleven trademark. It generates revenue through three types of ownership format: 1) corporate stores, 2) franchise stores, and 3) sub-area licence stores.
CPALL: franchise business model breakdown (number of stores)
3,000 2,500 2,000 1,500 1,000 500 0 2006 2007 Corporate
Source: Company
Franchisees account for about 50% of the companys annual gross profit. CPALL invests in the retailing equipment, store decoration and inventory. The company also gives its franchisees a lot of help in managing stores. Most of the other costs incurred to run these outlets are borne by the franchisee. These costs include rentals, staff pay and utility charges.
The company had 5,790 stores as at 31 December 2010. About 15% of the companys convenience stores are located in PTT gas stations.
To support its expansion plan, the company is building two new regional distribution centres. The regional distribution centre in the north-eastern region commenced operations in early 2011, and the one in the northern region will open in 2012. Management has indicated that it will continue to increase focus on expanding in the provincial areas rather than in Bangkok and the suburbs.
CPALL: provincial versus Bangkok (number of stores)
3,500 3,000 2,500 2,000 1,500 1,000 500 0 2006 2007 2008 Provincial 2009 2010 Bangkok & Suburban
Source: Company
Corporate stores
The company invests in retailing equipment, store decorations and inventory using its own equity, and hence the stores are wholly owned and controlled independently by the company. The income generated from this form of ownership comes solely from the net sales at its 7-Eleven stores, while the major part of costs incurred usually come from employee-related and fixed expenses.
Franchise stores
CPALL gives anyone, including its employees, the opportunity to manage their own 7-Eleven stores under a franchise system. Franchisees are charged a franchise sign-up fee, and a deposit guarantee that is refunded if the contract is terminated.
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Retailing / Thailand
CPALL TB
18 May 2011
The company operates a network of 5,790 stores, while its portfolio of stores is expanding at a rate of more than 500 new stores a year.
Company background
CPALL was founded in 1988 by Charoen Pokphand Group (Not listed), a Thailand-based conglomerate. It has the exclusive right to operate convenience-store chains in Thailand under the 7-Eleven trademark.
CPALL and subsidiaries
The company also operates supporting companies that supply its network of company-owned and franchised stores with bill-payment services, manufacturing and the sale of frozen foods and bakery items, IT services including smart cards, logistics services, and staff training.
Source: Company
Key management
Mr. Dhanin Chearavanot is the chairman of CPALL. He also serves as the chairman and CEO of Charoen Pokphand Group. Mr. Piyawat Titasattavorakul is CPALLs managing director. He served as the vice-president of operations from 1996-98. Mr. Taweesak Kaewrathtanapattama is CPALLs senior vice-president of accounting and finance.
Key shareholder
The Charoen Pokphand Group holds a 44% stake in CPALL.
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Co-head of Regional IT/Electronics; IT/Electronics Semiconductor/IC Design (Regional) Eric CHEN IT/Technology Hardware PC Hardware (Taiwan) IT/Electronics - Semiconductor/IC Design (Taiwan) Regional Head of Materials; Materials/Energy (Regional) Materials (China) Pan Asia Research, Consumer, Pharmaceuticals and Healthcare (China) Pan Asia Research Head of Hong Kong and China Property; Property Developers (Hong Kong, China) Property (Hong Kong, China) Regional Head of Small/Medium Cap; Small/Medium Cap (Regional) Small/Medium Cap (Regional) Regional Head of Telecommunications; Telecommunications (Regional, Greater China); Internet (China) Transportation Marine and Transportation Infrastructure (Regional) Transportation Aviation, Land and Transportation Infrastructure (Regional) Transportation Transportation Infrastructure; Capital Goods Construction and Engineering (China) Regional Head of Clean Energy and Utilities; Utilities; Power Equipment; Renewables (Hong Kong, China) Head of Custom Products Group; Custom Products Group Custom Products Group Custom Products Group Calvin HUANG Ashley CHUNG Alexander LATZER Felix LAM Hongxia ZHU Kenji SERIZAWA Danny BAO Yannis KUO Mark CHANG John CHOI Marvin LO Jimmy LAM Kelvin LAU Edwin LEE Dave DAI Justin LAU Philip LO Jibo MA
South Korea Head of Research; Strategy; Banking/Finance Automobiles; Shipbuilding; Steel Banking/Finance Capital Goods (Construction and Machinery) Consumer/Retail IT/Electronics (Tech Hardware and Memory Chips) IT Electronics (Tech Hardware) Materials (Chemicals); Oil and Gas Pan Asia Research; Small/Medium Caps Telecommunications; Software (Internet/Online Games) Chang H LEE Sung Yop CHUNG Anderson CHA Mike OH Sang Hee PARK Jae H LEE Steve OH Daniel LEE Yumi KIM Thomas Y KWON (82) 2 787 9177 (82) 2 787 9157 (82) 2 787 9185 (82) 2 787 9179 (82) 2 787 9165 (82) 2 787 9173 (82) 2 787 9195 (82) 2 787 9121 (82) 2 787 9838 (82) 2 787 9181 chlee@kr.daiwacm.com sychung@kr.daiwacm.com anderson.cha@kr.daiwacm.com mike.oh@kr.daiwacm.com sanghee.park@kr.daiwacm.com jhlee@kr.daiwacm.com steve.oh@kr.daiwacm.com daniel.lee@kr.daiwacm.com yumi.kim@kr.daiwacm.com yskwon@kr.daiwacm.com
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Taiwan Head of Taiwan Research; Pan Asia Research Co-head of Research; Strategy Banking/Diversified Financials Consumer/Retail IT/Technology Hardware (Communications Equipment); Software; Small/Medium Caps IT/Technology Hardware (Handsets and Components) IT/Technology Hardware (PC Hardware - Panels) IT/Technology Hardware (PC Components) Materials; Conglomerates Hirokazu Mitsuda Alex YANG Ling TANG Yoshihiko KAWASHIMA Christine WANG Alex CHANG Chris LIN Jenny SHIH Albert HSU (886) 2 2758 8754 (886) 2 2345 3660 (886) 2 8789 5158 (886) 2 8780 5987 (886) 2 8788 1531 (886) 2 8788 1584 (886) 2 8788 1614 (886) 2 8780 1326 (886) 2 8786 2212 h.mitsuda@daiwacm-cathay.com.tw alex.yang@daiwacm-cathay.com.tw ling.tang@daiwacm-cathay.com.tw y.kawashima@daiwacm-cathay.com.tw christine.wang@daiwacm-cathay.com.tw alex.chang@daiwacm-cathay.com.tw chris.lin@daiwacm-cathay.com.tw jenny.shih@daiwacm-cathay.com.tw albert.hsu@daiwacm-cathay.com.tw
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Singapore Head of Research; Pan Asia Research Chief Economist, Asia Ex-JP; Macro Economy (Regional) Global Director of Quantitative Research; Quantitative Research Quantitative Research Quantitative Research Regional Head of Banking/Finance; Banking; Property and REITs Banking (ASEAN) Consumer; Food and Beverage; Small/Medium Cap (ASEAN) Head of ASEAN Oil and Gas; Oil and Gas (ASEAN and China); Capital Goods (Singapore) Head of ASEAN & India Telecommunications; Telecommunications (ASEAN & India) Tatsuya TORIKOSHI Prasenjit K BASU Deep KAPUR Josh CHERIAN Suzanne HO David LUM Srikanth VADLAMANI Pyari MENON Adrian LOH Ramakrishna MARUVADA (65) 6321 3050 (65) 6321 3069 (65) 6321 3079 (65) 6499 6549 (65) 6499 6545 (65) 6329 2102 (65) 6499 6570 (65) 6499 6566 (65) 6499 6548 (65) 6499 6543 tatsuya.torikoshi@sg.daiwacm.com p-k.basu@sg.daiwacm.com deep.kapur@sg.daiwacm.com josh.cherian@sg.daiwacm.com suzanne.ho@sg.daiwacm.com david.lum@sg.daiwacm.com srikanth.vadlamani@sg.daiwacm.com pyari.menon@sg.daiwacm.com adrian.loh@sg.daiwacm.com ramakrishna.maruvada@sg.daiwacm.com
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Office / Branch / Affiliate DAIWA SECURITIES GROUP INC HEAD OFFICE Daiwa Securities Trust Company Daiwa Securities Trust and Banking (Europe) PLC (Head Office) Daiwa Securities Trust and Banking (Europe) PLC (Dublin Branch) Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. 5 King William Street, London EC4N 7JB, United Kingdom Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (1) 201 333 7300 (81) 3 5555 0661 (1) 201 333 7726 Address Tel Fax
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DAIWA CAPITAL MARKETS LIMITED HEAD OFFICE Daiwa Capital Markets America Inc Daiwa Capital Markets America Inc. San Francisco Branch Daiwa Capital Markets Europe Limited Daiwa Capital Markets Europe Limited, Frankfurt Branch Daiwa Capital Markets Europe Limited, Paris Branch Daiwa Capital Markets Europe Limited, Geneva Branch Daiwa Capital Markets Europe Limited, Milan Branch Daiwa Capital Markets Europe Limited, Moscow Representative Office Daiwa Capital Markets Europe Limited, Bahrain Branch Daiwa Capital Markets Europe Limited, Dubai Branch Daiwa Capital Markets Hong Kong Limited Daiwa Capital Markets Singapore Limited Daiwa Capital Markets Australia Limited DBP-Daiwa Capital Markets Philippines, Inc Daiwa-Cathay Capital Markets Co Ltd Daiwa Securities Capital Markets Co Ltd, Seoul Branch Daiwa Securities Capital Markets Co Ltd, Beijing Representative Office Daiwa SSC Securities Co Ltd Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 Financial Square, 32 Old Slip, New York, NY10005, U.S.A. 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. 5 King William Street, London EC4N 7AX, United Kingdom Trianon Building, Mainzer Landstrasse 16, 60325 Frankfurt am Main, Federal Republic of Germany 127, Avenue des Champs-Elyses, 75008 Paris, France 50 rue du Rhne, P.O.Box 3198, 1211 Geneva 3, Switzerland Via Senato 14/16, 20121 Milan, Italy 25/9, build. 1, Per. Sivtsev Vrazhek, Moscow 119002, Russian Federation 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, Manama, Bahrain The Gate village Building 1, 1st floor, Unit-6, DIFC, P.O.Box-506657, Dubai, UAE. Level 26, One Pacific Place, 88 Queensway, Hong Kong 6 Shenton Way #26-08, DBS Building Tower Two, Singapore 068809, Republic of Singapore Level 34, Rialto North Tower, 525 Collins Street, Melbourne, Victoria 3000, Australia 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, Makati City, Republic of the Philippines 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. 6th Floor, Hana Daetoo Securities Bldg 27-3, Yeouido-Dong, Yeongdeungpo-Gu, Seoul, Republic of Korea Room 3503/3504, SK Tower, No.6 Jia Jianguomen Wai Avenue, Chaoyang District, Beijing 100022, Peoples Republic of China Room 011, 45F HSBC Tower, 1000 Lujiazui Ring Road, Pudong New Area, Shanghai 200120, Peoples Republic of China Level 8 Zuellig House, 1 Sliom Road, Bangkok 10500, Thailand 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra East, Mumbai 400051, India Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam (03) 5555 3111 (1) 212 612 7000 (1) 415 955 8100 (03) 5555 0661 (1) 212 612 7100 (1) 415 956 1935
(44) 20 7597 8000 (44) 20 7597 8600 (49) 69 717 080 (33) 1 56 262 200 (41) 22 818 7400 (39) 02 763 271 (7) 495 617 1960 (973) 17 534 452 (971) 47 090 401 (852) 2525 0121 (65) 6220 3666 (61) 3 9916 1300 (632) 813 7344 (49) 69 723 340 (33) 1 47 550 808 (41) 22 818 7441 (39) 02 763 27250 (7) 495 244 1977 (973) 17 535 113 (971) 43 230 332 (852) 2845 1621 (65) 6223 6198 (61) 3 9916 1330 (632) 848 0105
(886) 2 2723 9698 (886) 2 2345 3638 (82) 2 787 9100 (82) 2 787 9191
Daiwa Securities Capital Markets Co. Ltd, Bangkok Representative Office Daiwa Capital Markets India Private Ltd Daiwa Securities Capital Markets Co. Ltd, Hanoi Representative Office
(91) 22 6622 1000 (91) 22 6622 1019 (84) 4 3946 0460 (84) 4 3946 0461
DAIWA INSTITUTE OF RESEARCH LTD HEAD OFFICE MARUNOUCHI OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603 (81) 3 5202 2021
Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011
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Disclaimer
This publication is produced by Daiwa Securities Capital Markets Co. Ltd. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Capital Markets Co. Ltd. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Capital Markets Co. Ltd. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Capital Markets Co. Ltd., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Daiwa Securities Capital Markets Co. Ltd., its parent, holding, subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures. Japan Daiwa Securities Capital Markets Co. Ltd and Daiwa Securities Group Daiwa Securities Capital Markets Co. Ltd and Daiwa Securities Group: Daiwa Securities Capital Markets Co. Ltd is a subsidiary of Daiwa Securities Group. Investment Banking Relationship Within the preceding 12 months, The Affiliates of Daiwa Securities Capital Markets Co. Ltd.* has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Patel Engineering (PEC IN); International Taifeng Holdings Limited (873 HK); Sihuan Pharmaceutical Holdings Group Limited (460 HK); Strides Arcolab Limited (STR IN); China Metal Resources Holding Limited (8071 HK); China 33 Media Group Limited (8087 HK); Sabana Shariah Compliant Industrial Real Estate Investment Trust (SSREIT SP); SBI Holdings Inc. (6488 HK). *Affiliates of Daiwa Securities Capital Markets Co. Ltd. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited 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 Co. Ltd., Seoul Branch Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (DHK) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Ownership of Securities For Ownership of Securities information, please visit BlueMatrix disclosure Link at http://www2.us.daiwacm.com/report_disclosure.html. Investment Banking Relationship For Investment Banking Relationship, please visit BlueMatrix disclosure Link at http://www2.us.daiwacm.com/report_disclosure.html. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. DHK market making DHK may from time to time make a market in securities covered by this research. Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limiteds interest and/or its representatives interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research. Australia This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research. Ownership of Securities For Ownership of Securities information, please visit BlueMatrix disclosure Link at http://www2.us.daiwacm.com/report_disclosure.html. India This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of or reliance on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and analysis, in evaluating the information in this document. The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to, or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analysts personal views about the securities and issuers that are subject of the Report, and that no part of the analysts compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited. Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research.
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United Kingdom This research report is produced by Daiwa Securities Capital Markets Co., Ltd and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Services Authority (FSA) and is a member of the London Stock Exchange, Chi-X, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the Securities), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients. This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FSA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europes 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-and-regulatory. Regulatory disclosures of investment banking relationships are available at www2.us.daiwacm.com/report_disclosure.html. Germany This document has been approved by Daiwa Capital Markets Europe Limited and 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. Dubai This document has been distributed by Daiwa Capital Markets Europe Limited, Dubai Branch. Related financial products or services are intended only for professional clients and no other person should act upon it. Daiwa Capital Markets Europe Limited is duly licensed and regulated by the Dubai Financial Services Authority. 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 preparers views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMAs 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 DCMAs non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000). Ownership of Securities For Ownership of Securities information please visit BlueMatrix disclosure Link at http://www2.us.daiwacm.com/report_disclosure.html. Investment Banking Relationships For Investment Banking Relationships please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html. DCMA Market Making For DCMA Market Making please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html. Research Analyst Conflicts For updates on Research Analyst Conflicts please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html. 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 http://www2.us.daiwacm.com/report_disclosure.html. 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. The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next six months. "2": the security is expected to outperform the local index by 5-15% over the next six months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next six months. "4": the security is expected to underperform the local index by 5-15% over the next six months. "5": the security could underperform the local index by more than 15% over the next six months. 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 Capital Markets 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 Capital Markets Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.109 Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan Japan Securities Investment Advisers Association
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