JPM Plantation

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Asia Pacific Equity Research17 March 2012

ASEAN PlantationsMalaysia's downstream 'dilemma' - We assesspossible counter measures and risk to upstream

Plantations

Simone YeohAC

(60-3) 2270-4710

[email protected]

JPMorgan Securities (Malaysia) Sdn. Bhd.(18146-X)

Ying-Jian Chan, CFAAC

(65) 6882-2378

[email protected]

J.P. Morgan Securities Singapore PrivateLimited

Aditya Srinath, CFAAC

(62-21) 5291-8573

[email protected]

PT J.P. Morgan Securities Indonesia

See page 16 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware ththe firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a singfactor in making their investment decision.

Indonesia tax cuts hurting Malaysian downstream players whose profitsfell 25-81% Y/Y in 4Q11. As a recap, with the tax cuts last Oct-11, Indorefiners have a cost advantage of up to US$66/t vs. Malaysia currently. As aresult, Indonesia plays with refining profits fared better in 4Q11 (Table 7).

Indirect impact on upstream. Weaker downstream/refining demand couldresult in further build-up in inventory of the feedstock, CPO in Malaysia(Feb-12 inventory was higher than expected). But, under this scenario, webelieve the government will consider increasing the tax-free export volumequota for CPO from the current 3.6MT pa (20% of total production) as ashort-term measure, given that external CPO demand remains strong.

Possible counter measures by Malaysia? In our view, one possiblemeasure is to redirect existing windfall and sales taxes already collectedfrom upstream of M$2.66B pa to subsidize downstream. This accounts for74% of estimated subsidies of M$3.58B required to fully match the pricingadvantage that Indo refiners now have. But, in the worst case, if upstream isrequired to fully absorb this amount as additional taxes/subsidy, we estimatethat it would work out to 6% of CPO revenues for each player. This couldcut EPS by 5-9% pa, and translate to share price downside of 10-15% forIOI and GENP (both UWs), and 4% for KLK (Neutral), but still a 13%upside for SIME (OW) to our revised fair values (see pages 7-9 for details).

Overall sector implications. For now, we believe Indo players are likely tobenefit more than Malaysia players from any short-term overshoot in CPO

prices. This is in view of the current shift in profitability and market share toIndonesia, the overhang risk from potential counter measures in Malaysia,and continued better long-term land-banking growth prospects in Indonesia.Among the Indo plays, our top picks are FR (OW) and LSIP (OW), and wealso like the fundamentals of AALI (Neutral) and GGR (Neutral). Weremain positive on big-cap pick, SIME (OW) in Malaysia given its smallexposure to refining, additional non-CPO drivers, and attractive valuations.

Table 1: JPM ASEAN Plantations universe

As at: 16 Mar-12 Ticker FYE Mkt cap Price Rating Target Reporting EPS (RC) PE(US$mn) (LC) (LC) crncy FY12E FY13E FY12E FY13

Astra Agro Lestari AALI IJ Dec 3,681 21,350 N 22,500 IDR 1,624 1,624 13.1 13.London Sumatra Indon LSIP IJ Dec 2,110 2,825 OW 2,900 IDR 231 220 12.2 12.Genting Plantations GENP MK Dec 2,277 9.17 UW 8.60 MYR 0.63 0.68 14.5 13.

IOI Corporation IOI MK Jun 11,016 5.24 UW 5.00 MYR 0.32 0.36 16.5 14.Kuala Lumpur Kepong KLK MK Sep 8,124 23.26 N 24.00 MYR 1.33 1.53 17.5 15.Sime Darby SIME MK Jun 19,171 9.75 OW 11.60 MYR 0.69 0.78 14.2 12.First Resources FR SP Dec 2,220 1.89 OW 2.10 USD 0.10 0.10 15.5 15.Golden Agri-Resources GGR SP Dec 7,164 0.75 N 0.75 USD 0.05 0.05 12.4 12.Indofood Agri Resources IFAR SP Dec 1,806 1.59 N 1.80 IDR 990 1,047 11.6 10.Mewah International MII SP Dec 621 0.52 N 0.52 USD 0.03 0.04 13.2 10.Wilmar International WIL SP Dec 25,051 4.94 OW 6.00 USD 0.27 0.29 14.7 13.

Source: Bloomberg, J.P. Morgan estimates.

CPO price chart (M$/ton)

Source: Bloomberg.

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Jul-06 Jul-08 Jul-10

CPO price chart (M$/ton)

Source: Bloomberg.

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J ul-0 6 J ul-08 J ul-10


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Simone Yeoh(60-3) [email protected]

Table 2: ASEAN Plantations sector regional peer comparison

As at: 16 Mar-12 Ticker Price Rating Mkt cap P/E EV/ha (US$) 2yr EPS CAGR P/B ROE Div Yld Target

(LC) (US$mn) CY12E CY13E FY12E 2012 - 2013E FY12E FY12E FY12E (LC)IndonesiaAstra Agro Lestari AALI IJ 21,350 N 3,681 13.1 13.1 20,831 3.1% 3.7 29.8 4.9% 22,500Bakrie Sumatera Plant UNSP IJ 300 NR 450 8.5 6.4 NA 8.9% 0.4 5.8 0.7% NRBW Plantation BWPT IJ 1,650 NR 730 17.4 12.8 NA 28.3% 3.8 24.9 0.8% NRLondon Sumatra Indon LSIP IJ 2,825 OW 2,110 12.2 12.8 19,741 0.4% 3.0 26.6 3.3% 2,900Salim Ivomas Pratama SIMP IJ 1,340 NR 2,321 11.2 9.6 NA 10.1% 1.4 13.1 2.5% NRSampoerna Agro SGRO IJ 3,475 NR 719 10.6 9.7 NA 5.7% 2.2 22.4 2.9% NRWeighted average* 5,792 12.8 13.0 20,434 2.1% 3.5 28.6 4.3%MalaysiaGenting Plantations GENP MK 9.17 UW 2,277 14.5 13.5 35,583 8.1% 1.9 14.0 1.7% 8.60Hap Seng Plantations HAPL MK 3.06 NR 801 10.7 9.9 NA -1.0% 1.2 11.8 6.3% NRIJM Plantations IJMP MK 3.30 NR 866 14.4 13.6 NA 5.2% 1.9 13.5 2.7% NRIOI Corporation IOI MK 5.24 UW 11,016 15.5 14.1 59,621 9.2% 2.5 16.2 3.3% 5.00Kuala Lumpur Kepong KLK MK 23.26 N 8,124 16.9 14.8 47,674 4.4% 3.2 19.2 3.3% 24.00Kulim Malaysia KUL MK 4.27 NR 1,763 11.1 10.3 NA -3.8% 1.2 12.5 1.8% NRSarawak Plantation SPLB MK 3.01 NR 276 9.4 7.9 NA 13.7% NA 15.2 5.3% NR

Sime Darby SIME MK 9.75 OW 19,171 13.3 12.0 26,742 10.9% 2.2 16.5 3.5% 11.60Weighted average* 40,588 14.7 13.2 40,351 9.0% 2.5 16.8 3.3%SingaporeFirst Resources FR SP 1.89 OW 2,221 15.5 15.6 26,839 1.9% 2.6 16.9 2.1% 2.10Golden Agri-Resources GGR SP 0.75 N 7,167 12.4 12.3 23,032 -7.2% 0.9 6.9 1.4% 0.75Indofood Agri Resources IFAR SP 1.59 N 1,807 11.6 11.0 17,207 4.1% 1.3 11.5 1.7% 1.80Kencana Agri KAGR SP 0.36 NR 323 14.8 10.0 NA 18.3% 1.3 8.8 0.7% NRMewah International MII SP 0.52 N 621 13.2 10.4 NA 34.2% 1.1 9.0 1.9% 0.52Wilmar International WIL SP 4.94 OW 25,063 14.7 13.5 NA 10.7% 1.7 12.2 1.4% 6.00Weighted average* 11,816 12.9 12.6 21,646 -1.6% 1.3 9.6 1.6%Sector weighted average* 58,196 14.1 13.1 60,722 6.1% 2.3 16.5 3.1%

Source: Bloomberg, J.P. Morgan estimates. NR=Not rated. B loomberg estimates used for NR companies.

Table 3: Absolute stock performance

1m 3m 6m 12m Ytd

Astra Agro Lestari -3.2% 3.6% -4.7% -2.5% -1.6%London Sumatra Indon 2.7% 31.4% 27.0% 22.8% 25.6%Genting Plantations -2.6% 13.2% 28.5% 15.8% 7.2%IOI Corporation -3.1% 3.8% 13.4% -5.8% -2.6%Kuala Lumpur Kepong -6.2% 5.5% 9.8% 13.1% 2.5%Sime Darby 2.2% 8.8% 21.9% 8.2% 6.0%First Resources 6.2% 27.7% 41.6% 48.8% 25.2%Golden Agri-Resources -2.6% 5.7% 8.8% 14.6% 4.2%Indofood Agri Resources -1.6% 23.8% 10.1% -27.3% 25.3%Mewah International -16.1% 7.2% 11.8% -42.2% 11.8%Wilmar International -16.7% -1.2% -5.7% -3.1% -1.2%

Source: Bloomberg.

Table 4: Stock performance relative to local indices

1m 3m 6m 12m Ytd

Astra Agro Lestari -5.6% -3.1% -9.3% -14.5% -6.7%London Sumatra Indon 0.2% 22.9% 20.9% 7.7% 19.1%Genting Plantations -3.9% 5.6% 17.0% 10.0% 4.4%IOI Corporation -4.4% -3.2% 3.3% -10.5% -5.1%Kuala Lumpur Kepong -7.5% -1.5% 0.0% 7.4% -0.2%Sime Darby 0.8% 1.5% 11.0% 2.8% 3.2%First Resources 5.0% 12.8% 31.2% 46.9% 10.0%Golden Agri-Resources -3.7% -6.7% 0.8% 13.1% -8.4%Indofood Agri Resources -2.6% 9.4% 2.0% -28.3% 10.1%Mewah International -17.1% -5.3% 3.6% -43.0% -1.7%Wilmar International -17.6% -12.7% -12.7% -4.4% -13.2%

Source: Bloomberg.


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Figure 1: 1m absolute stock performance

Source: Bloomberg. Based on share prices as at 14 Feb-12.

Figure 2: 6m absolute stock performance

Source: Bloomberg. Based on share prices as at 14 Feb-12.

Figure 3: Plantation sector FY12E earnings sensitivity to 10% rise in CPO prices (base case:M$3,200/t for 2012E)

Source: J.P. Morgan estimates.

Table 5: Plantation sector correlation to CPO, soy-oil and crude oil prices

CPO Soyoil Crude oil

Golden Agri-Resources 0.91 0.82 0.77Genting Plantations 0.89 0.76 0.69Mewah International 0.85 0.39 0.14London Sumatra Indon 0.84 0.72 0.63First Resources 0.80 0.69 0.61Astra Agro Lestari 0.79 0.61 0.63Kuala Lumpur Kepong 0.78 0.69 0.55IOI Corporation 0.77 0.63 0.68Sime Darby 0.72 0.61 0.60

Indofood Agri Resources 0.69 0.43 0.51Wilmar International 0.31 0.06 0.21Mean 76% 58% 55%Median 79% 63% 61%


-16.7%

-16.1%

-6.2%

-3.2%

-3.1%

-2.6%

-2.6%

-1.6%

2.2%2.7%

6.2%

-10.0% -7.5% -5.0% -2.5% 0.0% 2.5% 5.0% 7.5%

WIL SP

MII SP

KLK MK

AALI IJ

IOI MK

GGR SP

GENP MK

IFAR SP

SIME MKLSIP IJ

FR SP

-5.7%

-4.7%

8.8%

9.8%

10.1%

11.8%

13.4%

21.9%

27.0%28.5%

41.6%

-20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0%

WIL SP

AALI IJ

GGR SP

KLK MK

IFAR SP

MII SP

IOI MK

SIME MK

LSIP IJGENP MK

FR SP

GENP MK15.3%

KLK MK10.4% SIME MK

9.4%AALI IJ

9.2%FR SP9.1%

IOI MK8.7% LSIP IJ

6.9%GGR SP

4.6%

WIL SP1.6%

IFAR SP1.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%


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Indonesia tax cuts hurting Malaysia

downstreamAs a recap, the restructuring of export taxes in Indonesia in 4Q11 has given

Indonesia refiners a cost advantage of up to US$66/t to Malaysian players at current

CPO prices (for details, please refer to Appendix). The industry is a major export

earner for Malaysia. Downstream/refined products accounted for 82% of total CPO

exports of M$60.5B in 2011, with the remaining 16% exported in crude form. In

Malaysia, there are currently no export taxes on refined/downstream products, but

there is a 23% export tax on crude palm oil (excluding the tax free export volume

quota of 3.6MT pa currently, which makes up just below 20% of Malaysia's total

CPO production). Hence, the existing tax structure is clearly with the objective of

promoting the downstream industry and ensuring adequate supply of feedstock or

crude palm oil.

The downstream market & key players

Figure 4: Malaysia CPO exports

Source: CEIC.

Total refining capacity in Malaysia currently amounts to 24MT pa, of which 75% or

18MT pa was utilized as at 2011 before the export tax cuts came into place in

Indonesia. The production capacity and profit exposure to the refining/downstream

sector for major listed plays are in the table below.

Table 6: Major refiners/downstream players in Malaysia and Indonesia

Refining capacity pa Location FY11 contribution to(MT) Profit

First Resources 0.25 Indonesia 9%Golden Agri-Resources 1.38 Indonesia 8%Indofood Agri Resources 1.4 Indonesia 7%Wilmar International 23.0 Indonesia(8MT),

Malaysia (5MT),China (10MT)

30%

Mewah International 2.8 Malaysia 65%IOI Corporation* 2.3 Malaysia 12%Kuala Lumpur Kepong(largely oleo-chemicals)

1.6 Malaysia 16%

Sime Darby* 1.7 Malaysia 1%

Source: Company data, J.P. Morgan estimates. *Note, including overseas operations outside of Malaysia, refining capacity for IOI

Corp and Sime Darby totals to 3.5MT and 2.8MT respectively largely in Europe.

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

M$0

M$10,000

M$20,000

M$30,000

M$40,000

M$50,000

M$60,000

M$70,000

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

C rude CPO (M$mn) R ef ined CPO (M$mn) Refined as a % of t ot al export s

Downstream/refining sector a

major export earner for Malaysia


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Recent report card for downstream players

To recap, the new Indo tax cuts hence is positive for Indo refiners and negative for

Malaysian refiners/downstream players. We provide below the report card or profitperformance of the key refiners/downstream players in Indonesia and Malaysia in

4Q11. This would capture some of the impact of the said export tax cuts, but we

believe the fuller and clearer impact is likely to show mainly from 2012 onwards.

From the table below, the Malaysian downstream/refiners i.e. Mewah, IOI, KLK and

Sime saw profits contracting by 25-81% Y/Y in 4Q11. These listed players partly

benefit from exposure to higher value-added products as well as presence in other

overseas markets which will likely help mitigate the impact. However, some of the

smaller players in Malaysia with higher exposure to the bulk or lower-end

downstream products are already making losses or negative margins. The purer Indo

refiners (i.e. First Resources, Golden Agri) however continued to show strong Q/Q

and Y/Y growth in profits in 4Q11. Despite Wilmars large exposure to Indonesia,

losses from its Malaysian operations however and reduced volumes overall for its

refined products resulted in profits dropping by 32-36% Q/Q in 4Q11.

Table 7: Downstream (refining) profit trends since introduction of new Indonesian tax structure in 4Q11

Reported currency Profits Profits Profits Change ChangeCompany for earnings 4QCY11 3QCY11 4QCY10 % Q/Q % Y/Y Comments

First Resources US$MM 12 11 -3 6% 354% EBITDA.Golden Agri-Resources - NA NA NA NA NA Contributes 8% to profitsIndofood Agri Resources Rp Billion 92 57 44 61% 109% EBITDA.Wilmar Interntational US$MM 109 171 159 -36% -32% PBT

Mewah International US$MM 24 18 37 30% -35% Operating profitIOI Corporation M$MM 126 112 168 13% -25% EBIT (including associates)Kuala Lumpur Kepong M$MM 17 79 75 -79% -77% Operating profit

Sime Darby M$MM 2 -38 8 104% -81% EBIT (including associates)Source: Company data.

Figure 5: Malaysia daily palm oil refining margins (M$/t)

Source: Palm & Lauric Oils Conference & Exhibition. Transgraph Consulting Pvt Ltd.

Note: Refining margin is defined as (Sales realization of Olein, PFAD and Stearin) (CPO price + Cost of refining).

Refiners in Malaysia historically

commanded margins of up to

M$100-150/t (US$30-50/t)

with the export tax cuts inIndonesia, there are refiners of

bulk products now incurring

losses or with negative margins


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Indirect impact on upstream segment

For upstream players, the implications of a struggling downstream market is that it

would result in weak off-take or demand for CPO as feedstock. While external orglobal demand for CPO remains strong, upstream players are unable to or reluctant to

export, given the existing 23% export taxes on crude palm oil unless the tax free

export quota volume is increased. In view of this and its loss of competitiveness to

Indonesia, inventory levels in Malaysia have not fallen as fast as expected.

The recent Feb-12 inventory level of 2.06MT (up 39% Y/Y) is the highest level for

the month since 2006, due to lower domestic usage and continued 13% M/M fall in

exports despite the 8% M/M drop in production. However, the M/M fall in exports is

partly seasonal, and improving trends since Mar is likely to result in some easing in

inventory levels in the coming months. For the first 15 days of Mar-12, Malaysia's

exports have recovered by 42% M/M according to cargo surveyors.

Figure 6: Malaysias monthly inventory data (MT)

Source: Malaysian Palm Oil Board.

Table 8: Indonesia CPO exports ('000 MT)

Dec-11 Dec-10 Y/Y 4Q11 4Q10 Y/YCPO 780 1,011 -22.8% 2,276 2,953 -22.9%Processed CPO 945 632 49.5% 2,902 2,242 29.4%Total 1,725 1,643 5.0% 5,178 5,195 5,341

Source: Oil World.

The market share gains or competitive edge which Indonesia now commands is

already evident in the export trends of its CPO products in 4Q11 as shown in the

table above. In 4Q11, Indonesia's processed palm oil exports rose substantially by

29% Y/Y, while exports of crude palm oil fell by 23% Y/Y with the rising feedstock

requirements domestically for downstream.

2012

Feb

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2007

2008

2009

2010

2011


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Possible counter measures by Malaysia?

We discuss the potential counter measures by the Malaysian government to resolve

the current dilemma for its downstream/refining segment.

Increase in the tax-free export volume quota for CPO short-term measure

Malaysias current 23% export duty on crude palm oil is to protect the domestic

refining industry to ensure adequate supply of feedstock. In recent years however,

due to tight supplies, refiners in Malaysia do also rely on crude palm oil imports

from Indonesia to supplement their stock. We estimate that the Malaysian

downstream industry sources about 15MT of CPO from domestic upstream players

as feedstock which represents just over 80% of its requirements, with the remaining

3MT largely imported from Indonesia.

However, if there is an excess or build-up in inventory of CPO due to weakdemand from refining/downstream, we believe that the government will

consider increasing the tax free export volume quota for CPO (currently at just

below 20% of total domestic production) to relieve the upstream players as a shorter

term measure until finalization of a property holistic solution to this issue.

Carbon copy of Indonesia's export tax structure not feasible in Malaysia

We believe it is not likely to be feasible for Malaysia to simply follow or implement

the same export tax structure in Indonesia as a solution given the different market

dynamics. The cheaper CPO prices in Indonesia which refiners are benefiting from

as a result of the new tax structure is largely due to the still developing or fast

growing downstream market, which gives the refiners higher bargaining power when

sourcing for CPO or feedstock (i.e., cheaper feedstock is facilitated by the new

export tax structure and largely due to market forces rather than due to legislation).This is clearly evident from the fact that Indonesia produces 24-25MT of CPO pa, or

larger than its refining capacity of 21MT pa.

Malaysia's downstream/refining sector however is much more mature with the

industry facing overcapacity or utilization rates at 75% even before the increased

competition from Indonesia. Hence, downstream players do not have the bargaining

power to command for cheaper feedstock even if the Indo tax structure is completely

copied or followed. To recap, opposite to the situation in Indonesia, Malaysia's

refining capacity of 24MT pa is larger than its CPO production of 19MT pa.

Redirection of existing upstream taxes of M$2.66B as subsidies to downstream?

Aside from corporate taxes, upstream players in Malaysia currently are also payingother forms of taxes to the government (i.e., windfall taxes, sales taxes in East

Malaysia, as well as cess-tax to the Malaysian Palm Oil Board (MPOB)). The total

amount collected from these taxes amount to an estimated M$2.66B pa (Table 9).

One solution, in our view, may be to redirect these taxes as subsidies to the

downstream segment. This may take time to implement due to the need to change

legislations in the respective state governments for the consent to redirect the funds

(i.e. namely for the sales taxes in Sabah and Sarawak). But, if approved, we estimate

that the M$2.66B in taxes so far already collected from upstream players would be


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able to fund the bulk or about 74% of subsidies of M$3.58B which we estimate is

required for downstream to remain competitive (see details in following section).

Table 9: Malaysia - Estimated existing taxes collected from upstream CPO players in Malaysia (atCPO prices assumed at M$3,200/t)

TaxesAmount pa

(M$MM) Comments

Windfall taxSabah (31% of CPO output of 19MT pa) 88 At 7.5% above CPO price of M$3,200/tSarawak (14% of CPO output of 19MT pa) 40 At 7.5% above CPO price of M$3,200/tPeninsula (55% of CPO output of 19MT pa) 1,089 At 15% above CPO price of M$2,500/t

Sub-total 1,217Sales taxSabah 964 At 7.5% above CPO price of M$1,000/tSarawak 229 At 5.0% above CPO price of M$1,500/tSub-total 1,193MPOB cess tax 246 At M$13 per ton of CPO(cess for R&D, replanting, biofuel subsidy)

Total taxes already paid (excluding 25%corporate tax) 2,656

Accounts for 74% of estimated subsidies requiredfor downstream

Estimated subsidies required for downstream 3,580

Based on Indonesias cost advantage of US$66/Tfor refiners at current CPO price levels and basedon 18MT of refining capacity utilized in Malaysia.

Source: MPOB, J.P. Morgan estimates.

Risk for upstream Malaysia

Special funding from government and/or upstream players to downstream

The long-term solution that has been proposed is potential provision of incentives or

subsidies to downstream either by the government or upstream segment. We estimate

that in order to match the pricing advantage of US$66/t that Indo refiners have, total

subsidies required works out to M$3.58B (based on total utilized 18MT of refining

capacity domestically). This accounts for 6% of total palm oil sales of M$60.8B pa(assuming prices at M$3,200/t and total 19MT pa production from Malaysia).

We believe the above indirectly implies that should the Malaysian government

tax the upstream players to subsidize downstream, the amount would work out

to 6% of CPO revenue for each player, if equally shared. This could hurt the

smaller players in the upstream segment, which the government we believe may be

reluctant to do for now ahead of impending general elections in Malaysia possibly in

the next 3-6 months. Hence, the political repercussions from here can be avoided if

the government takes on the full burden of subsidizing the downstream players, but

raising the funds may still be an issue given the existing budget deficit and various

other ongoing subsidy obligations still in place domestically (i.e. food, diesel etc).

In the worst case, if entirely subsidized by the upstream players, the estimated impactof the additional cost or tax from here on earnings and price targets is presented in

the table below. The more diversified plays (e.g., Sime and IOI) would be less

impacted compared to the purer plays (e.g., KLK and Genting Plant). We estimate

the impact to be a reduction in earnings by 5% for both Sime and IOI, and by 6.5%

and 8.7% for KLK and Genting Plant, respectively.

M$2.66B pa in windfall and sales

taxes already collected by the

government from upstream

players in Malaysia

one solution, in our view, may

be to redirect these taxes to fundthe estimated subsidies of

M$3.58B required by

downstream players to stay

competitive


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With the additional cost or subsidies as noted above, our revised PTs compared to

current levels, still would translate to upside potential of 13% for Sime (OW), but

downside of 15% for Genting Plantations (UW), 10% for IOI Corp (UW) and asmaller 4% downside for KLK (Neutral).

Table 10: Malaysian CPO plays - Risk to earnings if upstream were to subsidize downstream (assuming full impact from FY12 on)

Base case With downstream subsidies

Shareprice

EPS(sen)

EPS(sen) Price

EPS(sen)

EPS(sen) Price target (M$)

(M$) FY12E FY13E Target (M$) FY12E FY13E (Downside)/Upside %Genting Plantations 9.17 63.2 68.1 8.60 57.6 62.0 7.80

(-8.7%) (-9.0%) (-15%)

IOI Corp 5.24 31.7 35.9 5.00 30.1 34.1 4.70(-5.0%) (-5.0%) (-10%)

KL Kepong 23.26 132.9 152.9 24.00 124.2 143.4 22.40(-6.5%) (-6.2%) (-4%)

Sime Darby 9.75 68.6 78.1 11.60 65.1 74.1 11.00

(-5.1%) (-5.1%) (+13%)Source: J.P. Morgan estimates. Prices as of March 15, 2012.

Overall implications for the ASEAN palm oil sector

Increased competition from the export tax cuts in Indonesia since 4Q11, and possible

counter measures by Malaysia has the following key implications for the sector.

Malaysian downstream players to face challenging prospects for now. To

withstand competition, the bigger players, IOI, KLK, Sime are already or have

indicated plans to focus on greater cost controls, and production of higher value-

added products in the downstream sector where margins are higher.

Super-normal profitability and market share gains for pure Indonesia

refiners until impact of the recent investment boom in refining capacity tocapitalize on the cost advantage in the country is felt (likely in the next 12-18

months which is the lead time to set-up operations by new entrants).

Indias potential retaliation should be closely watched. India refiners have also

been hard hit by the Indo tax cuts, with proposals for the government to increase

import duties on refined palm oil to protect domestic producers. Nevertheless, the

threat of food inflation reduces this possibility for now. However, if the Indian

government succumbs to the proposal, this could erode some of the competitive

edge that Indonesian refiners now command, and also pose as a threat as well for

Malaysian refiners in the absence of any government counter measures.

Counter measures by Malaysia could in the worst case impact upstream

players if they are required to subsidize downstream via higher taxes. We have

already estimated the worst case impact on the Malaysian names as above.

We believe the valuation gap between Malaysia and Indonesia CPO stocks

could continue to narrow in favor of the Indo plays (Malaysia commands a PE

premium of 20-30% to Indonesia) especially in any short-term overshoot in CPO

prices, given tight supply currently. This is in view of the current shift in

profitability and market share to Indonesia and the overhang risk from potential

counter measures in Malaysia, coupled with continued better long-term land-

banking growth prospects in Indonesia for plantations.

IOI, KLK and Sime are all setting

up new refineries in Indonesia totake advantage of the cost

advantage


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Appendix

Indonesia export tax revision

Favorable to Indo refiners, negative for Malaysian refiners

Effective 1 Oct-11, Indonesia changed the previously uniform export tax rate for

CPO and refined palm oil where steep reductions in tax rate for refined palm

products were implemented to promote the development of downstream palm

refining and to encourage the export of refined products so that the value addition

may be captured locally. Key highlights of the changes are shown below.

Table 11: Key changes to Indonesia palm oil export tax (effective 1st Oct-11)CPO price

(US$/MT)

CPO RBD Palm

Olein

CPO - RBD

PO

Biodiesel

CIF ROTT >than

Old New Change Old New Change Differential Old New Change

700 1.5% 0.0% -1.5% 1.5% 0.0% -1.5% 0.0% 0.0% 0.0% 0.0%750 3.0% 7.5% 4.5% 3.0% 2.0% -1.0% 5.5% 0.0% 0.0% 0.0%800 4.5% 9.0% 4.5% 4.5% 3.0% -1.5% 6.0% 0.0% 0.0% 0.0%850 6.0% 10.5% 4.5% 6.0% 4.0% -2.0% 6.5% 0.0% 0.0% 0.0%900 7.5% 12.0% 4.5% 7.5% 5.0% -2.5% 7.0% 0.0% 0.0% 0.0%950 10.0% 13.5% 3.5% 10.0% 6.0% -4.0% 7.5% 2.0% 0.0% -2.0%

1,000 12.5% 15.0% 2.5% 12.5% 7.0% -5.5% 8.0% 2.0% 2.0% 0.0%1,050 15.0% 16.5% 1.5% 15.0% 8.0% -7.0% 8.5% 2.0% 2.0% 0.0%1,100 17.5% 18.0% 0.5% 17.5% 9.0% -8.5% 9.0% 5.0% 2.0% -3.0%1,150 20.0% 19.5% -0.5% 20.0% 10.0% -10.0% 9.5% 5.0% 5.0% 0.0%1,200 22.5% 21.0% -1.5% 22.5% 11.5% -11.0% 9.5% 7.5% 5.0% -2.5%1,250 25.0% 22.5% -2.5% 25.0% 13.0% -12.0% 9.5% 10.0% 7.5% -2.5%

Source: Indonesia Ministry of Finance, J.P. Morgan.

Essentially, we believe this change will make refined palm products exported out of

Malaysia, significantly less competitive than its Indonesian equivalent. This is due to

the unique case in Indonesia where refiners are able to procure their CPO feedstock

at spot price less the CPO export tax rate from the upstream CPO producers, while

the Malaysia refiners pay the full spot price. In the past, the uniform export tax rate

between CPO and refined products in Indonesia meant that whatever the refiner

deducts from its CPO purchase is subsequently paid out in the form of export tax to

the government, leaving the refiner relatively indifferent. However, with now a

differential between the CPO and refined products tax rate, the Indonesia refiner is

able to profit from the difference, although over time, some of these margins may be

shared with the upstream CPO producers as well when the refining industry gets

more mature and competitive.

Ying-Jian ChanAC(65)[email protected]

JPMorgan Securities SingaporePrivate Limited


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11



New heightened competition for Malaysian refiners

We illustrate below the favorable impact that Indonesian refiners could get over their

Malaysian counterparts at various price points above US$700/t. We estimate thatIndonesian refiners will enjoy pricing or cost advantage of US$96/t at product prices

of US$1,120/t c.i.f. (close to our CPO forecast for 2012/13E) assuming Indonesian

upstream players absorb 100% of the export tax on CPO. But, we understand

upstream players absorb about 85% of the CPO export tax currently, translating to a

cost advantage of up to US$66/t for Indonesian over Malaysian refiners, which is

still substantial.

Table 12: Comparison between Malaysia and Indonesia refiner under new Indonesia export tax regime over various price points (US$/t)Refiner Malay Indo Malay Indo Malay Indo Malay Indo Malay Indo Malay Indo

At purchase of CPO feedstockCPO spot price 700 700 750 750 800 800 850 850 900 900 950 950Less: Indo export tax deducted 0.0% 7.5% 9.0% 10.5% 12.0% 13.5%

0 56 72 89 108 128

CPO feedstock cost to refiner 700 700 750 694 800 728 850 761 900 792 950 822At sale of refined productRefined palm product price 730 730 780 780 830 830 880 880 930 930 980 980Less: Indo export tax paid to govt 0.0% 2.0% 3.0% 4.0% 5.0% 6.0%

0 16 25 35 47 59Effective selling price 730 730 780 764 830 805 880 845 930 884 980 921Refining margin 30 30 30 71 30 77 30 84 30 92 30 99Pricing advantage of Indo refiner 0 41 47 54 62 69

Refiner Malay Indo Malay Indo Malay Indo Malay Indo Malay Indo Malay Indo

At purchase of CPO feedstockCPO spot price 1,000 1,000 1,050 1,050 1,100 1,100 1,150 1,150 1,200 1,200 1,250 1,250Less: Indo export tax deducted 15.0% 16.5% 18.0% 19.5% 21.0% 22.5%

150 173 198 224 252 281CPO feedstock cost to refiner 1,000 850 1,050 877 1,100 902 1,150 926 1,200 948 1,250 969At sale of refined productRefined palm product price 1,030 1,030 1,080 1,080 1,130 1,130 1,180 1,180 1,230 1,230 1,280 1,280

Less: Indo export tax paid to govt 7.0% 8.0% 9.0% 10.0% 11.5% 13.0%72 86 102 118 141 166

Effective sel ling price 1,030 958 1,080 994 1,130 1,028 1,180 1,062 1,230 1,089 1,280 1,114Refining margin 30 108 30 117 30 126 30 136 30 141 30 145Pricing advantage of Indo refiner 78 87 96 106 111 115



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Genting Plantations

Company descriptionGenting Plantations is a 55%-ownedlisted plantation entity of Genting Bhd.The group has 65,838ha of plantationland-bank in Malaysia, of which 70% islocated in Sabah and 30% in PeninsulaMalaysia. The group also has threeseparate ongoing JVs in Indonesia witha total land-bank of 67,635ha.

P&L sensitivity metrics (FY12E)EBITDA

impact (%)EPS

impact (%)

Average CPO Price 3,200

Impact of each 5% 7.20% 8.50%

Plantation EBIT Margins 50.6%

Impact of each 5ppt 11.40% 9.70%

CPO production growth 6%


Production cost 30% of cost



Price target and valuation analysisWe forecast CPO prices at M$3,200/t for 2012-13E. Our Dec-12 PTis M$8.60 based on 14x FY12E P/E, in line with the stock'shistorical mean.

Revenue breakdown (FY11)

FY12E EPS (M$) 0.63 (1)

Target FY11E P/E (x) 14.00 (2)

Price Target (M$) 8.60 (1) X (2)

Key risks to our PT are higher-than-expected CPO prices versusour forecast and significantly stronger-than-expected contributionsfrom the Johor premium outlets which commenced operations inDec-11.

Please refer to Table 2 for regional valuation comparison table

Source: Company Data.

EPS: J.P. Morgan vs. consensus

J. P. Morgan Consensus

FY12E 0.63 0.58

FY13E 0.68 0.63

FY14E 0.72 0.51

Source: Bloomberg, J.P. Morgan estimates

93%

7%

Plantations Property


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Kuala Lumpur Kepong

Company DescriptionP&L sensitivity metrics(FY12E) EBITDA EPS

KLK is the third-largest plantationscompany by market cap in Malaysia,with 251,196ha of plantation land-bank in Peninsula Malaysia, Sabahand Indonesia, of which 200,375haplanted as at end-2010 (89% with oilpalm and 11% with rubber). KLK alsooperates an oleo-chemical business,and is a property developer, as wellas international retailer under the

brand-name of Crabtree & Evelyn.

impact (%) impact (%)

Average CPO Price (M$/t) 3,150






Fertilizer Cost 30% of cost



Price target and valuation analysisWe forecast CPO prices at M$3,200/t for 2012-13E. Our Dec-12PT of M$24.00 for KLK is based on sum-of-the-parts analysis.FY11 operating profit breakdown

Sum-of-the-parts (SOTP) - CY12E M$MM Comment

Plantation 23,527 18x CY12E PEProperty, Manufacturing & Retail 2,000 1x P/BTotal RNAV 25,527Total No. of shares 1,065

Price target 24.00Implied blended PE of

17x

At our PT, the implied CY12E P/E for KLK is 17x, a premium tothe sector average of 16x, which we believe is fair, given thegroup's superior fundamentals versus peers. This is in view of itsyounger trees and effective expansion into Indonesia over the lastfew years.Key upside risk to our PT is stronger-than-expected CPO prices.Key downside risk is a much more challenging or competitiveenvironment for the downstream manufacturing unit.

Source: Company reports.



FY12E 1.37 1.38

FY13E 1.58 1.42

FY14E 1.76 1.47


84%

13%

3%

Plantat ions Manufac turing Property


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IOI Corporation

Company Description P&L sensitivity metrics (FY12E) EBITDA EPSIOI Corp is the second-largestplantations company by market cap inMalaysia, with 150,931ha of plantedland-bank, 99% of which is in Malaysia.IOI has two new palm oil JVs inIndonesia (i.e. 33%-stake and 67%-stakefor development of 100,000ha and66,000 ha of land respectively). IOI isalso involved in downstreammanufacturing operations (i.e. refining,oleochemicals, specialty fats) as well asproperty development in Malaysia (KlangValley & Johor) and Singapore.

impact (%) impact (%)




Impact of each 5% ppt 4.50% 4.80%



Fertilizer cost30% of

cost



Operating profit breakdown (FY11) Price target and valuation analysisWe forecast CPO prices at M$3,200/f for 2012-13E. Our Dec-12 PT isM$5.00 based on sum-of-the-parts (SoTP) valuation.

Sum-of-the-parts (CY12E) M$MM Comment

Plantation 22,979 17x PE on CY12EProperty 4,513 RNAV

Manufacturing 4,72210x PE on CY12E, implying

1.2x P/B

Total RNAV 32,215

SOTP/share (M$) 5.0215x implied blended PE on

CY12E

At our PT, the implied CY11E blended P/E is 15x versus the sector'shistorical mean of 16x. Key risks to our PT are stronger-than-expected CPOprices, and also strong long-term contributions from the group's recentproperty acquisitions in Singapore.

Source: Company reports.

EPS: J.P. Morgan vs consensus


FY12E 0.32 0.33

FY13E 0.36 0.35

FY14E 0.39 0.37


62%

22%

2% 14%

Plantation Property Dev.

Property Inv. Manufacturing


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Sime Darby

Company Description P&L sensitivity metrics (FY12E) EBITDASime Darby is the largest listedplantations company on Bursa after itsmerger with Golden Hope and KumpulanGuthrie, completed in Nov-07. Thegroup's six core businesses areplantations, property, heavy equipment,auto, energy & utilities, and healthcare.The plantations segment is the largestprofit contributor, estimated at 58% ofprofits for FY12E.

impact (%) impact


Impact of each 5% 3.8% 4

Plantation EBIT Margins 25%

Impact of each 5ppt 10.20% 12.


Impact of each 5ppt 5.00% 6.

Fertilizer cost 30% of cost

Impact of each 5% 0.70% 1.

Source: J.P Morgan estimates.

Price target and valuation analysis

Simes FY11 profit breakdown We forecast CPO prices at M$3,200/t for 2012-13E. Our Dec-12 PT ofM$11.60 is based on sum-of-the-parts valuation.

Sum-of-the-parts (SoTP) M$ Comm

Plantation 7.48 17x CY12EProperty 1.39 30% RNAV discoHeavy equipment 1.70 11x CY12E

Auto 0.76 10x CY12EOthers 0.22 Implied CY12E PE o

SOTP 11.55Implied blended CY12E PE

Price target 11.60

At our PT, the implied CY12E blended P/E for Sime is about 16x, in line with

the stocks and sectors historical mean. Key downside risks to our PT are:

1) The court rules in favor of the E&O minority and Sime is required tomake a GO for the remaining E&O shares it does not own, especially if newevidence suggests that there was collusion in the takeover deal. We believe,however, that this is an unlikely outcome (see our Sime Note dated 2 Feb-12for details).

2) Acquisitions and overseas expansion risk.a) Sime has palm oil concessions in Liberia. However, the group has beenexpanding here cautiously with no more than 5,000ha of total plantings in thenext 1-2 years (of the total 220,000 ha concession), with total developmentcost of no more than M$100MM we estimate.

b) The Starreports that Sime may be looking to buy a 70% stake in the1,400MW Jimah IPP in Malaysia. This is a third-generation IPP where IRRs aestimated at about 10-12% versus a WACC of no more than 10%. Much isdependant on pricing which remains a key risk.

3) Lower-than-expected CPO prices versus our forecast and achallenging environment for the downstream segment.



FY12E 0.68 0.68

FY13E 0.78 0.71

FY14E 0.84 0.74


Plant.59%

Prop.8%

Heav.Equip.19%

Motor10%

Energy4%


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Companies Recommended in This Report (all prices in this report as of market close on 16 March 2012)Astra Agro Lestari (AALI.JK/Rp21350/Neutral), First Resources Limited (FRLD.SI/S$1.89/Overweight), Golden Agri-

Resources Ltd (GAGR.SI/S$0.75/Neutral), London Sumatra Indonesia (LSIP.JK/Rp2825/Overweight), Sime Darby Berhad(SIME.KL/M$9.76/Overweight)

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the documentindividually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part ofany of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report.

Important Disclosures

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Astra AgroLestari within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Astra Agro Lestari, SimeDarby Berhad.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investmentbanking clients: Astra Agro Lestari.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Astra AgroLestari.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment bankingservices in the next three months from Astra Agro Lestari, Sime Darby Berhad.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgancovered companies by visiting https://mm.jpmorgan.com/disclosures/company , calling 1-800-477-0406, or [email protected] with your request.

Date Rating Share Price(S$)

Price Target(S$)

11-Jan-10 OW 1.16 1.65

12-Nov-10 OW 1.40 1.75

13-Jan-11 OW 1.53 1.90

25-Oct-11 OW 1.36 1.70

16-Feb-12 OW 1.82 2.10

0

1

2

3

Price(S$)

Dec

07

Sep

08

Jun

09

Mar

10

Dec

10

Sep

11

First Resources Limited (FRLD.SI, FR SP) Price Chart

OW S$1.9 OW S$2.1

OW S$1.65 OW S$1.75 OW S$1.7

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage Jan 11, 2010.
https://mm.jpmorgan.com/disclosures/companyhttps://mm.jpmorgan.com/disclosures/companymailto:[email protected]://mm.jpmorgan.com/disclosures/companymailto:[email protected]


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Date Rating Share Price(Rp)

Price Target(Rp)

02-Oct-06 OW 8900 10000

24-Nov-06 OW 10600 12700

08-Jan-07 OW 12250 16700

06-Mar-07 OW 12050 16200

28-Aug-07 OW 14250 17000

20-Sep-07 OW 16050 18500

14-Nov-07 OW 23000 30000

01-Feb-08 OW 32050 36300

24-Apr-08 OW 25100 33200

06-May-08 OW 23900 31500

12-Aug-08 OW 16100 22000

12-Nov-08 OW 8100 9000

12-Dec-08 N 9800 9000

23-Apr-09 N 15050 15000

12-Jun-09 OW 18700 21500

12-Aug-09 OW 22150 25000

04-Dec-09 OW 23850 26700

16-Apr-10 OW 24200 26000

28-Apr-10 UW 23250 19000

16-Jul-10 UW 18550 14500

13-Aug-10 UW 20050 17000

21-Sep-10 OW 20850 23500

29-Oct-10 OW 25450 28000

13-Jan-11 OW 23850 27600

25-Feb-11 N 21700 20000

25-Oct-11 N 19850 19000

16-Feb-12 N 22550 22500

Date Rating Share Price(Rp)

Price Target(Rp)

23-Apr-08 OW 1930 2600

12-Aug-08 OW 1250 1800

11-Nov-08 UW 570 430

26-Feb-09 UW 680 580

23-Apr-09 UW 895 760

04-Dec-09 OW 1640 1960

13-Aug-10 OW 1840 2140

13-Jan-11 OW 2310 2920

31-May-11 OW 2400 2950

25-Oct-11 OW 2075 2400

16-Feb-12 OW 2750 2900

0

9,284

18,568

27,852

37,136

46,420

55,704

Price(Rp)

Oct

06

Jul

07

Apr

08

Jan

09

Oct

09

Jul

10

Apr

11

Jan

12

Astra Agro Lestari (AALI.JK, AALI IJ) Price Chart

W Rp16,700 OW Rp30,000OW Rp31,500N Rp9,000OW Rp25,000 UW Rp14,500OW Rp28,000

Rp12,700 OW Rp18,500OW Rp33,200OW Rp9,000OW Rp21,500 UW Rp19,000OW Rp23,500N Rp20,000 N Rp22,5

Rp10,000OW Rp16,200OW Rp17,000OW Rp36,300OW Rp22,000N Rp15,000OW Rp26,700OW Rp26,000UW Rp17,000OW Rp27,600 N Rp19,000


Initiated coverage Oct 02, 2006.

0

822

1,644

2,466

3,288

4,110

4,932

Price(Rp)

Feb

08

Nov

08

Aug

09

May

10

Feb

11

Nov

11

London Sumatra Indonesia (LSIP.JK, LSIP IJ) Price Chart

UW Rp430UW Rp760 OW Rp2,90

W Rp2,600OW Rp1,800 UW Rp580 OW Rp1,960 OW Rp2,140OW Rp2,920OW Rp2,950OW Rp2,400


Initiated coverage Apr 23, 2008.


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Date Rating Share Price(S$)

Price Target(S$)

24-Aug-09 UW 0.48 0.40

11-Jan-10 UW 0.60 0.45

13-Aug-10 UW 0.57 0.50

13-Jan-11 UW 0.78 0.58

13-May-11 N 0.66 0.75

25-Oct-11 N 0.62 0.65

16-Feb-12 N 0.77 0.75

Date Rating Share Price(M$)

Price Target(M$)

01-Feb-08 N 11.80 13.20

27-Feb-08 N 11.90 13.40

03-Mar-08 OW 11.10 13.40

13-Apr-08 OW 8.85 12.80

06-Jun-08 OW 8.85 12.30

25-Jul-08 OW 8.05 10.30

12-Aug-08 OW 6.90 7.70

30-Sep-08 OW 6.60 7.30

16-Oct-08 N 6.60 7.30

11-Nov-08 UW 6.40 5.80

12-Jan-09 N 5.50 5.80

26-Feb-09 UW 5.75 4.80

22-Apr-09 N 6.40 6.30

26-May-09 N 6.85 6.00

22-Jun-09 N 6.85 6.70

07-Aug-09 UW 8.31 7.80

28-Aug-09 N 8.25 8.70

26-Nov-09 OW 8.98 10.60

26-Feb-10 OW 8.60 10.30

13-May-10 OW 8.25 10.10

28-May-10 N 7.60 8.00

13-Aug-10 N 7.60 8.40

27-Aug-10 OW 7.88 9.4027-Nov-10 OW 8.74 10.40

13-Jan-11 OW 9.30 11.00

25-Oct-11 OW 8.55 10.20

25-Nov-11 OW 8.88 10.40

16-Feb-12 OW 9.64 11.30

29-Feb-12 OW 9.57 11.60

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entireperiod.J.P. Morgan ratings: OW = Overweight, N= Neutral, UW = Underweight

0

0.5

1

Price(S$)

Oct

06

Jul

07

Apr

08

Jan

09

Oct

09

Jul

10

Apr

11

Jan

12

Golden Agri-Resources Ltd (GAGR.SI, GGR SP) Price Chart


Initiated coverage Aug 24, 2009.

0

6

12

18

24

Price(M$)

Jan

08

Oct

08

Jul

09

Apr

10

Jan

11

Oct

11

Sime Darby Berhad (SIME.KL, SIME MK) Price Chart

W M$13.4OW M$10.3N M$7.3UW M$4.8N M$6.7 OW M$10.6 N M$8 OW M$10.4 OW M$11.3

M$13.4OW M$12.3OW M$7.3N M$5.8 N M$6N M$8.7 OW M$10.1OW M$9.4 OW M$10.4

N M$13.2OW M$12.8OW M$7.7UW M$5.8 N M$6.3UW M$7.8 OW M$10.3 N M$8.4 OW M$11 OW M$10.2OW M$11.


Initiated coverage Feb 01, 2008.


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Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform theaverage total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months,

we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverageuniverse.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocksin the analyst's (or the analyst's team's) coverage universe.] In our Asia (ex-Australia) and UK small- and mid-cap equity research, eachstocks expected total return is compared to the expected total return of a benchmark country market index, not to those analystscoverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can

be found on J.P. Morgans research website, www.morganmarkets.com.

Coverage Universe: Yeoh, Simone Xenia: CapitaMalls Malaysia Trust (CAMA.KL), Genting Plantations (GENP.KL), IGB Corporation(IGBS.KL), IJM Land (IJML.KL), IOI Corp. (IOIB.KL), KLCC Property Holdings (KCCP.KL), Kuala Lumpur Kepong (KLKK.KL),MISC Berhad (MISC.KL), SP Setia (SETI.KL), Sime Darby Berhad (SIME.KL), Sunway REIT (SUNW.KL), WTK Holdings Berhad(WTKH.KL)

Chan, Ying-Jian: BreadTalk Group Limited (BRET.SI), China Agri-Industries (0606.HK), China Minzhong Food Corporation Limited(CMFC.SI), ComfortDelgro (CMDG.SI), First Resources Limited (FRLD.SI), Golden Agri-Resources Ltd (GAGR.SI), Hyflux Limited(HYFL.SI), Indofood Agri Resources Ltd (IFAR.SI), Mewah International Inc (MEWI.SI), SMRT (SMRT.SI), ST Engineering

(STEG.SI), SingPost (SPOS.SI), Wilmar International Limited (WLIL.SI)

Srinath, Aditya: Astra Agro Lestari (AALI.JK), Astra International (ASII.JK), Bank Central Asia (BCA) (BBCA.JK), Bank Danamon(BDMN.JK), Bank Niaga (BNGA.JK), Bank Pan Indonesia (Panin) (PNBN.JK), Bank Rakyat Indonesia (BBRI.JK), London SumatraIndonesia (LSIP.JK), PT Bakrie & Brothers, Tbk (BNBR.JK), PT Bank Internasional Indonesia (BNII.JK), PT Bank Mandiri Tbk.(BMRI.JK), PT Bank Tabungan Pensiunan Nasional Tbk (BTPN.JK), United Tractors (UNTR.JK)

J.P. Morgan Equity Research Ratings Distribution, as of January 6, 2012

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 47% 42% 12%

IB clients* 52% 45% 36%

JPMS Equity Research Coverage 45% 47% 8%IB clients* 72% 62% 58%

*Percentage of investment banking clients in each rating category.

For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a holdrating category; and our Underweight rating falls into a sell rating category.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for coveredcompanies, please see the most recent company-specific research report athttp://www.morganmarkets.com , contact the primary analystor your J.P. Morgan representative, or [email protected] .

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation basedupon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues,which include revenues from, among other business units, Institutional Equities and Investment Banking.

Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-USaffiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS,and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, publicappearances, and trading securities held by a research analyst account.

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please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf

Legal Entities Disclosures

U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in theUK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorized andregulated by the Financial Services Authority. Registered in England & Wales No. 2711006. Registered Office 125 London Wall, London EC2Y 5AJ.

South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. MorganSecurities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in
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Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. MorganAustralia Limited (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245

234/AFS Licence No: 238066) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a

participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India PrivateLimited, having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz East, Mumbai - 400098, is a member of the National Stock

Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBIRegistration Number - INB 010675237/INF 010675237) and is regulated by Securities and Exchange Board of India. Thailand: JPMorgan Securities(Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange

Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK.Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock Exchange and is regulated by the Securities and ExchangeCommission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P.

Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealerby the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan SecuritiesSingapore Private Limited (JPMSS) [MICA (P) 032/01/2012 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities

Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCBSingapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd(18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities

Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securitiesand Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom ofSaudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079

and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai:JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is DubaiInternational Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.

Country and Region Specific Disclosures

U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL.Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of

publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This

report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000(Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by personswho are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be

engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) intheir home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. JPMSAL does not issue ordistribute this material to "retail clients". The recipient of this material must not distribute it to any third party or outside Australia without the prior written

consent of JPMSAL. For the purposes of this paragraph the terms "wholesale client" and "retail client" have the meanings given to them in section 761G ofthe Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan ChaseBank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of

the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered withthe Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end datafrom two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear

contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk.Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to theexchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and

consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorganSecurities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau(kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial

Instruments Firms Association and Japan Securities Investment Advisers Association. Korea: This report may have been edited or contributed to fromtime to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of thesecurities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section

above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued anddistributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposesof their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with

section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written

consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, apublic offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or

territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file aprospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively,pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The

information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored tothe needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under thelaws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities

commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained hereinor the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regardedas professional clients as defined under the DFSA rules.

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co.

or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative toJPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the


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securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to changewithout notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any

financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not

intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its ownindependent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S.

affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments orannouncements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P.Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

"Other Disclosures" last revised January 6, 2012.

Copyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold orredistributed without the written consent of J.P. Morgan. #$J&098$#*P

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