Singapore Market Focus Small Mid Cap Monthly...Zhongmin Baihui 234.4 1.19 (8%) 54.0 6.88 12.6 1,088,500 0.6% 17-Nov-16 Leveraged Companies Poh Tiong Choon Logistics 284.0 1.33 94%

ed: TH / sa: JC, PY

FSST Small Cap: 379.53 FSST - Mid Cap : 679.61 STI : 2837.14

Analyst Paul YONG CFA +65 6682 3712 [email protected] Singapore Research Team

Key Indices

Current % Chng STI Index 2,837.14 0.8% FS Small Cap Index 379.53 -1.5% USD/SGD Curncy 1.41 -0.3% Daily Volume (m) 1,638 Daily Turnover (S$m) 1,086 Daily Turnover (US$m) 771

Source: Bloomberg Finance L.P.

SMC Top Picks

Prices as at 18 Nov 2016 Source: DBS Bank Source: Bloomberg Finance L.P.

DBS Group Research. Equity 21 Nov 2016

Singapore Market Focus

Small Mid Cap Monthly

Issue No. 8 Refer to important disclosures at the end of this report

Are buybacks a boon?

Amidst the lull market, we look for firms with active share buyback mandates which could provide some support for share prices

Keeping most conviction picks for November:China Aviation Oil, Cityneon and Singapore O&G

Add movie production and entertainment play, mm2 Asia, and newly initiated CNMC Goldmine, which is attractive as a less-risky, gold proxy given its low production cost

SMC Radar: Global Invacom

Conviction picks for October underperform; add CNMC Goldmine, our preferred leveraged play on gold – with yield. Our top picks underperformed slightly last month, closing 3.9% lower on average since our last issue. For November, we keep most of our picks, China Aviation Oil, Cityneon and Singapore O&G. Add movie production and entertainment play mm2 Asia, and CNMC Goldmine – which is supported by well-run operations, steady cash flow generation and competitive cash costs, as our preferred leveraged play on gold, with a prospective 3% yield. Can buybacks drive better returns? While there are proponents both for and against the use of share buybacks, we believe that in times of macro uncertainty, buybacks – if executed properly, could provide some support for share prices as they send positive signals about companies being undervalued. In our screen for SMC names of market capitalisation between US$20m to US$1bn, we found that net-cash companies with a record of stable dividends, combined with prudent buyback schemes and positive long-term outlook, tend to be more effective in supporting their share prices and believe that firms such as Valuetronics and Telechoice could fare a little better than their respective sector peers in delivering better returns to shareholders. SMC Radars: We also share our first impressions on Global Invacom, a manufacturer and supplier of integrated satellite communications equipment to large-scale satellite broadcasters, which could see stronger growth ahead following the recent product approval secured from its largest customer.

Price Mkt Cap 12-mth Target Price Performance (%)

S$ US$m S$ 1 mth 12 mth Rating

Current China Aviation 1.350 828 1.70 0.4 90.1 BUY Cityneon 1.100 191 1.37 16.4 436.6 BUY CNMC Goldmine 0.450 130 0.65 (13.5) 139.4 BUY mm2 Asia 0.445 325 0.56 (4.3) 123.8 BUY Singapore O&G 1.175 199 1.50 4.4 67.9 BUY

Previous China Aviation 1.350 828 1.70 0.4 90.1 BUY Cityneon Holdings 1.100 191 1.37 16.4 436.6 BUY Katrina Group 0.245 40 0.43 (16.9) NA BUY Singapore O&G 1.175 199 1.50 4.4 67.9 BUY

Market Focus


Conviction Picks – October & November 2016 Review of our performance for October Singapore’s equity markets were relatively volatile over the last six weeks as it suffered shocks in the lead-up to the US presidential elections and following Trump’s subsequent presidential win, but appear to be stabilising as the indices (FTSE STI, FTSE Small Cap and FTSE Mid Cap indices) have fallen by a modest 2.4% on average since our last issue. Our conviction picks were not spared from the volatility, underperforming the indices slightly despite Cityneon’s m-o-m gain of 16.2%. This was mainly as Katrina Group – which lost 22% of its value since our last issue, was dragged by poor market sentiment and poor retail sales for food service.

Desc. 1M Price Performance* Oct Conviction Picks# -3.9% China Aviation Oil -1.8% Cityneon Holdings +16.2% Katrina Group 22.2% Singapore O&G 0% Indices (STI, FSTS and FSTM) -2.4% FTSE STI -1.5% FSTS Index -2.4% FSTM Index -3.4%

*Refers to change in last price between 6th Oct and 18th Nov

#Shown are 4 out of our 5 top picks. For full list, please refer to October

issue: Eye$ on the money

Source: DBS Bank, Bloomberg Finance L.P.

Add movie production and entertainment play, mm2 Asia and new initiation, CNMC, our preferred leveraged play on gold with yield! This month, we include:

1) mm2 Asia, a leading producer of films and TV/online content in Asia, is projected to grow at an EPS CAGR of 50% from FY16-FY19F, underpinned by growth in productions, expansion into the China market, contributions from cinema operations and entertainment company, UnUsUal Group. Additionally, the successful listing of UnUsUal Group - in which mm2 acquired a 51% stake for S$26m (at 10.2x PE) in Feb 2016, would enable mm2 to crystallise gains and unlock value, and allow UnUsUal to tap on public funds for expansion.

2) Kelantan-based low-cost gold miner, CNMC Goldmine, which supported by well-run operations, steady cash flow generation and competitive cash costs, is attractive as a less risky, leveraged gold play with a prospective yield of 3%.

Conviction Picks for November 2016 No. Security Desc. Sector Rating Last Price

(18-Nov)

12-mth

Target Price

Upside/

(Downside)

Catalyst

1 China Aviation Oil Oil & Gas BUY 1.350 1.70 26% 1) Earnings growth and delivery

2) Value-accretive acquisitions

2 Cityneon Holdings Support

Services

BUY 1.110 1.37 23% 1) Securing third IP

3 CNMC Goldmine

Mining BUY 0.450 0.65 44% 1) Higher gold produciton

2) Higher gold price

4 mm2 Asia Consumer

Services

BUY 0.445 0.56 26% 1) Earnings-accretive acquisitions

2) UnUsUal listing

5 Singapore O&G Health Care BUY 1.175 1.50 28% 1) Successful new recruits of

medical practitioners

2) Acquisition of new

specialisations and/or markets


Market Focus


Can buybacks drive better returns? While there are proponents both for and against the use of share buybacks, we believe that in times of macro uncertainty (where companies have funds beyond current working capital and investment needs), buybacks - if executed properly, could provide some support for share price as they send positive signals about companies being undervalued.

S&P 500 T12M Earnings

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03/01/2012 03/01/2014 03/01/2016

S&P 500 (LHS) S&P 500 T12M EPS (RHS)


Often cited as a means of returning wealth to shareholders, with a lesser aim of facilitating employee share option schemes, share buybacks appear to have been largely responsible for holding up the value of the S&P 500 (+7% YTD), even as underlying earnings growth have remained relatively flat - as evidenced by T12M earnings trends. This month, we screen for SGX-listed SMC names of market capitalisation between US$20m and US$1bn with active share repurchase mandates (have repurchased shares over the last 12 months), and also fulfil the following criteria: 1) Profitable over the last 12 months

2) Repurchased >0.3% of current market cap over the last

12 months, and

3) Cash resources (either internally-generated or through access to loan facilities) are in excess of curent reinvestment needs

Name Mkt Cap Price Price Net Cash / P/BV P/E # of Shares % of Mkt Cap Latest

(S$m) (17 Nov) %Chg* (Debt) S$ m Repurchased* Repurchased* Transaction

Net Cash Companies

Powermatic Data 35.6 1.02 9% 21.1 0.75 9.1 355,700 0.9% 7-Apr-16

PEC Ltd 139.2 0.57 52% 157.8 0.63 8.4 1,434,100 0.4% 8-Jan-16

ISOTeam Ltd 109.5 0.39 (3%) 27.9 2.05 14.5 6,675,000 1.9% 16-Nov-16

iFAST Corp 223.1 0.90 (29%) 23.5 2.86 30.7 2,368,900 1.0% 14-Nov-16

LHN Ltd 73.8 0.20 44% 7.4 1.34 14.9 1,853,000 0.3% 21-Jul-16

Kingsmen Creatives 122.8 0.63 (39%) 52.6 1.14 7.0 1,041,300 0.5% 6-Apr-16

Soup Restaurant 56.0 0.20 (9%) 7.0 5.99 48.8 3,399,900 1.2% 24-Aug-16

Telechoice International 118.1 0.27 0% 25.8 1.73 12.4 2,000,000 0.5% 8-Sep-16

Datapulse Tech 44.9 0.21 (23%) 31.9 0.95 51.6 829,600 0.4% 24-Mar-16

Valuetronics 200.2 0.52 11% 125.7 1.29 8.9 3,039,800 0.7% 5-Oct-16

Zhongmin Baihui 234.4 1.19 (8%) 54.0 6.88 12.6 1,088,500 0.6% 17-Nov-16

Leveraged Companies

Poh Tiong Choon Logistics 284.0 1.33 94% (60.1) 3.43 20.3 1,390,100 0.4% 23-Aug-16

GKE Corp Ltd 56.8 0.09 (1%) (23.5) 0.68 9.9 9573400 8.5% 28-Oct-16

Lum Chang Holdings 131.4 0.34 (13%) (64.0) 0.62 6.1 4,828,600 1.3% 16-Feb-16

Tiong Seng Holdings 104.6 0.23 (22%) (113.9) 0.42 8.1 4517800 2.1% 17-Nov-16

Falcon Energy 122.6 0.15 (36%) (202.3) 0.29 9.6 2599700 0.4% 30-Sep-16

Karin Technology 62.2 0.29 (16%) (20.0) 0.50 24.9 1312000 0.6% 16-Mar-16

*for the period between start date of share buyback mandate in 2015/16 to 17 Nov 2016 Source: DBS Bank, Bloomberg Finance L.P

Market Focus

Small Mid Cap

Page 4

Buybacks more popular among net cash companies. When screening for companies with active buyback programmes, we found that the majority of the companies that have engaged in buybacks over the last 12 months are in net cash positions. We believe this is mostly due to the current volatile market environment, which limits corporations’ access to profitable investment opportunities and shifts focus to their ability to stay nimble. Share buybacks could then be attractive as they provide companies with a fairly low-risk approach to utilising their excess cash. Debt-financed share buybacks generally less effective... Theoretically, the use of debt for share repurchases could help unlock value, i.e. when the company is able to lower its WACC in the process. With the exception of Poh Tiong Choon Logistics, which rallied in August 2016 on news that the group’s major shareholders were seeking a strategic review relating to their shares in the company, our preliminary findings based on the criteria set out above suggest that oftentimes (Lum Chang, Tiong Seng, Falcon Energy and Karin Technology), debt-financed buybacks have been seen as generally less effective in supporting share price. … while evidence is relatively mixed for cash-rich companies. Of the 11 net-cash companies in our screen, only five – Powermatic Data, PEC Ltd, LHN Ltd, Telechoice International and Valuetronics – appear to have greater success in supporting share price (represented by the change in price from the beginning of the respective companies’ share buyback mandate in 2015 to 17 November’s close), while the remaining half saw declines of between 3% and 39% over the period. We think the mixed performance among the net-cash companies was mainly driven by company/industry-specific factors, such as iFAST, whose operations are vulnerable to market sentiment and saw four consecutive weak quarters between 3Q15 and 2Q16, before delivering an improved quarter in 3Q16. Buying at the right cost. Overpaying for shares can destroy value. While there is no clear metric for determining the right price that companies should pay, we opine that prudent buybacks conducted at the lower end of companies’ historical price range could provide a better signal that stocks are undervalued, while instilling investor confidence in management’s commitment towards delivering value. At a glance, companies that appear to have done well in this regard include PEC Ltd, LHN Ltd and GKE Corp, which bought back shares near 5-year lows:

Name Last Price (17 Nov)

Avg Cost (Buybacks)

5-Yr Avg Price

5-Yr Low

PEC Ltd 0.57 0.40 0.55 0.29 LHN Ltd 0.20 0.13 0.16 0.13 GKE Corp 0.09 0.08 0.12 0.06

Source: Companies, DBS Bank, Bloomberg Finance L.P. Paying stable dividends helps. We also observed that with the exception of Lum Chang Holdings, the buyback programmes of companies which had a record of stable dividends tend to be more effective:

Name Last Price (17 Nov)

DPS Yield Price %Chg

Powermatic Data

1.02 S$0.05 4.9% 9%

PEC Ltd 0.57 S$0.02 3.5% 52% Telechoice International

0.27 S$0.016 5.9% 0%

Valuetronics 0.52 HK$0.20 7.0% 11% Lum Chang Holdings

0.35 S$0.02 5.7% (13%)

Source: Companies, DBS Bank, Bloomberg Finance L.P. Trading below book value. Based on our screen, there are three names that are trading below their book values, i.e. Powermatic Data, PEC Ltd and Datapulse Tech – currently trading at 0.75, 0.65 and 0.95x P/BV respectively. In addition to holding a high proportion of net cash, two of these companies are also trading at seemingly undemanding valuations of 9.1x and 8.2x historical PE, suggesting that they could be undervalued:

Name Net Cash (S$m)

Net Cash/ Mkt Cap

P/BV P/E

Powermatic Data

21.1 59% 0.76 9.1

PEC Ltd 157.8 113% 0.65 8.2

Source: Companies, DBS Bank, Bloomberg Finance L.P. Buybacks could help, but fundamentals still important – prefer net-cash companies with steady dividends, prudent buyback schemes and positive outlook over the long term. Amidst the lull market, we think that share buybacks – if executed prudently could help drive value. However, it should not be used or viewed in isolation. Among the companies highlighted in our screen, we believe net-cash companies with a steady dividend payout and positive longer-term growth outlook such as Valuetronics and Telechoice International, could fare a little better than their respective sector peers in delivering value.

Market Focus

Small Mid Cap

Page 5

SMC Radar

Market Focus

Small Mid Cap

Page 6

Explorations Global Invacom Group Limited (RAD SP, S$0.166) Global Invacom Group Limited (“Global Invacom”) – listed on the Mainboard of SGX-ST in 2012 via RTO – is primarily engaged in the design, manufacture and supply of satellite communications equipment to large-scale satellite broadcasters. Currently trading at similar valuations to larger peers’ 24x T12M PE, Global Invacom appears fairly valued but could re-rate if the commercial success of its new technologies is demonstrated and earnings are delivered on a sustained basis. Incorporated in 1985, Global Invacom is a leading player in

the field of integrated satellite communications equipment, where it is principally engaged in the research and development, design and supply of satellite communications products to large-scale satellite broadcasters. In addition, the group is also involved in the complementary contract manufacturing business, which is served out of its facility in Shenzhen, China.

Well supported by its global manufacturing footprint (of seven manufacturing plants across China, Israel, Malaysia, the United Kingdom and United States), Global Invacom supplies an extensive range of products and services – from satellite dishes, low noise blocks and switches to video distribution components and waveguides – that are used in and/or serve the consumer electronics, computer peripherals and medical industries. As a result of ongoing R&D efforts and focus on innovation, Global Invacom currently boasts a total of 60 granted patents and has a further 64 patent applications.

Global Invacom had a challenging FY15 and recorded a loss

of US$1.1m on a combination of delays in sales from three main customers in the first half of 2015 (which were destocking as the industry hit a technological inflection point), delays in production due to the lack of semiconductor devices, and the incurrence of one-off expenses in the acquisition and restructuring of Skyware Global.

This was against net sales of US$129.1m (-3.7% y-o-y), which can be broken down into the following key business segments:

(a) Satellite Communications (78.9% of FY15 revenue)

Under the group’s bread-and-butter satellite communications business, core activities mainly involve the design and manufacture of satellite TV products, with its customers ranging from broadcasters, building and electrical contractors to satellite installers and mobile system integrators. Contributing approximately four months’ revenue, or US$17.5m in FY15, the acquisition of Skyware Global (completed in August 2015) extended the group’s portfolio of

antenna products – cementing its position as the only player offering a complete package of satellite communications products (from antennas and electronics to accessories).

(b) Contract Manufacturing (21.1% of FY15 revenue)

Based in China, Global Invacom’s contract manufacturing business is focused on third-party printed circuit board (PCB) assembly, logistics, and module assembly and testing. The lion’s share of Global Invacom’s revenue comes from the US, which formed 59% of its FY15 sales. Outside of the US, Europe accounted for 26% and Asia, 11%. The remaining 4% was jointly contributed by various countries across the globe. While the bulk of Global Invacom’s demand currently stems from developed countries, we see a greater shift in Global Invacom’s geographical mix as it seeks to capitalise on the higher expected demand for HD and 4K content from satellite broadcasters in emerging markets.


At A Glance Issued Capital (m shrs) 272 Market Cap (S$m/US$m) 45/32 Major Shareholders (%)

EGCP II Satellite Holdings 9.0 Chee Beng Neo 6.7 Investec PLC 5.5

River & Mercantile Asset Mangement 5.3 Bak Heng Goh 5.2 Free Float (%) 66.9 Avg Daily Vol (m shrs) 0.5

Forecasts and Valuation FY Dec (US$ m) 2012 2013 2014 2015 Turnover 74.7 115.8 134.1 129.1 EBITDA (15.8) 10.1 7.6 2.5 Pre-tax Profit (16.9) 9.3 5.5 (1.3) Net Profit (16.0) 8.0 5.1 (1.1) EPS (S cts) (8.1) 4.1 2.6 (0.6) EPS Gth (%) - - (36.6) - Net DPS (S cts) - 0.5 0.5 0.0 BV Per Share (S cts) 21.4 26.5 30.6 27.5 PE (X) - 4 6 (28.3) P/Cash Flow (X) (4.8) 7.4 7.8 (21.1) EV/EBITDA (X) (2.2) 3.5 3.1 16.9 Net Div Yield (%) - 3.1 - 3.3 P/Book Value (X) 0.8 0.6 0.5 0.6 Net Debt/Equity (X) CASH CASH CASH CASH ROA (%) (21.8) 10.1 5.9 (1.3) ROE (%) (44.6) 17.9 8.5 (2.1)

50

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350

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Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16Globa l Invacom Group Ltd (LHS )Re la tive ST I Index (RHS )

Relative IndexS$ Relative IndexS$

Market Focus

Small Mid Cap

Page 7

According to the Satellite Industry Association’s 2016 State of the Satellite Industry Report prepared by The Tauri Group, the global satellite communications market grew by 3% y-o-y to US$208.3bn in 2015, mainly as the consumer services sector lifted demand for satellite services (primarily satellite television, satellite broadband and Earth observation services).

While technological advancements in the pay-TV industry and expansion of broadband Internet services should bode well for the medium-term demand for satellite ground equipment, we think headwinds from the current inflection in Low Noise Blocks (LNB) technology will likely persist in the near term as customers continue to transition to the new technology. However, we note that Global Invacom has completed R&D for the next generation of LNB technology and has secured production approval for volume supply to its largest customer, which will commence in 4Q16, and also hopes to complete R&D and deploy DCSS technology across its LNBs for all customers and territories over the next year. If successful, we believe that this will likely be a significant driver for the group ahead.

Even though Global Invacom has made good progress on

restructuring, labour efficiencies and cost management – which has allowed the group to post its second consecutive quarter of profitability in 3Q16, eking out a profit of US$0.3m (thus narrowing YTD losses to US$0.1m as at end-9M16). The company still sees room for efficiency improvements and optimisation ahead, especially in the areas of direct material costs and fixed costs.

Key Risks: (1) the ability to restructure and unlock value from the recently acquired Skyware Global, which was still loss-making in 2Q16, (2) currency risk due to the group’s geographically diversified manufacturing bases, (3) qualification and commercial success of new product innovations and/or technologies, (4) customer concentration risk, and (5) unanticipated shifts in technology.

Global Invacom currently trades at similar valuations to larger peers’ 24x T12M PE, and appears fairly valued. The counter could re-rate if: (1) the group’s next-gen LNB technology attains commercial success, (2) further technological advancements are unlocked alongside ongoing R&D initiatives, and (3) earnings are delivered on a sustained basis.

Group Structure (includes active companies only)

Source: Company, DBS Bank

Global Invacom’s Range of Manufactured Products


Breakdown of FY15 Revenue

US$101.97m, 79%

US$27.14m, 21%

Satellite Communications Contract Manufacturing

Source: Company, DBS

Paul YONG, CFA +65 6682 3712 [email protected] Singapore Research Team

Global Invacom Group Limited (Head Office)

Global Invacom Manufacturing

(Shanghai) (Electronics

Manufacturing)

Radiance Electronics (Shenzhen)

(Contract Manufacturing)

Global Invacom Sdn Bhd

(ODU Manufacturing)

Global Invacom Holdings Ltd

Skyware Global

(Dish Antennas R&D and

Manufacturing)

Global Invacom Manufacturing

Ltd (Dish Antennas Manufacturing)

The Waveguide

Solution (Waveguide

R&D, Design and Manufacturing)

Foxcom(RF over Fibre

R&D and Manufacturing)

Global Invacom Ltd

(Sales & Marketing, R&D,

Bespoke Manufacturing)

LNBs VSAT Video

Distribution

In-home Distribution Fibre Antennas

Accessories OEM Professional

Market Focus

Small Mid Cap

Page 8

APPENDICES

Market Focus

Small Mid Cap

Page 9

APPENDIX (1) Review of October 2016 Picks #

No. Security Desc. Sector Rating

(06-Oct)

Beg. Price

(06-Oct)

Last Price

(18-Nov)

% Price Change

(1M*)

Absolute Return

(%)

1 China Aviation Oil Oil & Gas BUY 1.375 1.350 - 1.8% - 1.8%

2 Cityneon Holdings Support Services BUY 0.955 1.110 + 16.2% + 16.2%

3 Katrina Group Consumer Services BUY 0.315 0.245 - 22.2% - 22.2%

4 Singapore O&G Health Care BUY 1.175 1.175 0% 0%

*Refers to change in last price between 6 October and 18 November

#Shown are 4 out of our 5 top picks. For full list, please refer to October issue: Eye$ on the Money Source: DBS Bank, Bloomberg Finance L.P. Indices lost 2.4% on average since last issue (6 Oct – 18 Nov): FTSE STI: 2881.79 to 2838.65 // -1.5% FSTS Index: 389.31 to 379.93 // -2.4% FSTM Index: 703.83 to 679.94 /-3.4% Our picks underperformed, losing 3.9% on average, mainly as Katrina Group lost >20% of its value from our last update Singapore’s equity markets were relatively volatile over the last six weeks as it suffered shocks in the lead-up to the US presidential elections and following Trump’s subsequent presidential win, but appear to be stabilising as the indices (FTSE STI, FTSE Small Cap and FTSE Mid Cap indices) have fallen by a modest 2.4% on average since our last issue.

Index Performance (6 Oct – 18 Nov)

93

94

95

96

97

98

99

100

101

6/10/2016 20/10/2016 3/11/2016 17/11/2016

FTSE STI FSTS FSTM


Our conviction picks were not spared from the volatility, underperforming the indices slightly despite Cityneon’s m-o-m gain of 16.2%. This was mainly as Katrina Group – which has lost 22% of its value since our last issue, was dragged by poor market sentiment and poor retail sales for food service.

CITN SP vs KTG SP vs STI (6 Oct – 18 Nov)

2720

2740

2760

2780

2800

2820

2840

2860

2880

2900

0

0.2

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0.6

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1

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CITN SP (LHS) KTG SP (LHS) FTSE STI (RHS)


Market Focus

Small Mid Cap

Page 10

APPENDIX (2) Company Profiles for November 2016 Conviction Picks

No. Security Desc. Sector Rating Last Price

(18-Nov)

12-mth

Target Price

Upside/

(Downside)

Catalyst

1 China Aviation Oil Oil & Gas BUY 1.350 1.70 26% 1) Earnings growth and delivery

2) Value-accretive acquisitions

2 Cityneon Holdings Support

Services

BUY 1.110 1.37 23% 1) Securing third IP

3 CNMC Goldmine Mining BUY 0.450 0.65 44% 1) Higher gold produciton

2) Higher gold price

4 mm2 Asia Consumer

Services

BUY 0.445 0.56 26% 1) Earnings-accretive acquisitions

2) UnUsUal listing

5 Singapore O&G Health Care BUY 1.175 1.50 28% 1) Successful new recruitments of

medical practitioners

2) Acquisition of new

specialisations and/or markets

Source: DBS Bank, Bloomberg Finance L.P. 1) China Aviation Oil [CAO SP, 12-mth TP S$1.70]

We like CAO given its unique proposition on two fronts. Firstly, its monopoly in the supply of jet fuel in China should allow the group to benefit from the long-term growth in the Chinese international air travel market, which in our opinion, carries fairly low risk (owing to the cost-plus pricing model CAO enjoys for its domestic business).

Its domestic scale and strong backing from its parent have also been instrumental to the group’s ability to secure jet fuel supply contracts outside of China thus far. The group has successfully increased its total non-PRC supply locations to 42 other international airports, and is expected to add more ahead.

Secondly, we also like CAO for its unique exposure to Shanghai Pudong International Airport through its 33% stake in SPIA, the sole suppier of jet fuel at the airport.

In addition, with net cash of almost US$203m as at 3Q16, we believe that CAO could be on the lookout for acquisitions to further grow the scale and reach of its business and profits.

Our target price of S$1.70 is based on 12x FY17F PE, which we believe is reasonable against the projected 18% EPS CAGR over FY15-17F.

2) Cityneon Holdings [CITN SP, 12-mth TP S$1.37]

Cityneon has evolved to become a creator of innovative and interactive exhibits revolving around Marvel’s The Avengers and Hasbro’s Transformers franchises, with the acquisition of Victory Hill Exhibitions (VHE) in September 2015.

While it will operate its Las Vegas exhibits, VHE primarily develops travelling exhibits which will be operated by local partners, and upfront licensing fees should account for a large portion of VHE’s takings; execution risk is thus minimal, while the business model is scalable. Apart from the recent Singapore opening, the group also announced forthcoming openings in Taipei, Taiwan (June 2017) and Sydney, Australia (December 2017). We believe that more sets would be needed to fulfil the overwhelming demand and expect a total of seven sets by end-2017 and eight sets by 2018. Cityneon's earnings are forecasted to ramp up rapidly from ~S$1m in FY15 to S$7.4m and S$19.3m in FY16F and FY17F respectively. Further upside could stem from securing a third IP (Star Wars or Jurassic World, for example), which we have not factored into our earnings.

Our target price of S$1.37 is pegged to peer average of 17x FY17F earnings (instead of 15x previously), and represents an upside of about 23% over the current share price of S$1.110.

Market Focus

Small Mid Cap

Page 11

3) CNMC Goldmine [CNMC SP, 12-mth TP S$0.65]

CNMC Goldmine is principally engaged in the exploration and mining of gold and the processing of mined ores into gold dores at its flagship Kelantan-based Sokor project, and is projected to grow its gold production at a 7% CAGR, from 31,206 ounces in FY15 to 38,738 ounces by FY18F. Additionally, the group recently announced its proposed acquisition of a 51% stake in another Kelantan-based gold miner, Pulai Mining. Given their previous success in Sokor and similarities between the two in mineralisation and geological features, we are optimistic of a shorter time to production at the new project, of three years or under. While we have not assumed contributions from Pulai in our forecasts, the potential monetisation of in-ground resources at Pulai ahead could propel the company's earnings outlook. Beyond Pulai, backed by net cash of US$33.4m, we believe that CNMC could still be on the lookout for acquisitions to further accelerate growth opportunities for the group. Given the volatile nature of gold prices and their potential impact on near-term earnings, we base our TP of S$0.65 on a blend of DCF (1ACC of 10.7% and terminal growth of 1%), and peer average of 14x FY17F PE, which we think better reflects CNMC’s superior cash generation and steadily growing gold production at Sokor.

4) mm2 Asia [MM2 SP, 12-mth TP S$0.56]

As a leading producer of films and TV/online content in Asia, mm2 provides a full suite of services spanning the entire filmmaking process. We think that more than half of mm2’s growing movie production pipeline to come from North Asia especially in China, where production budgets and margins tend to be higher (as compared to local productions). In China, we are also expecting the group to produce dramas, which often carries a much bigger production budget as compared to movies. mm2 has also made several acquisitions to strengthen its network and competitive edge, such as its recent MOU to acquire up to 30% stake in RINGS.TV (a leading interactive live streaming platform), and most recently, the proposed acquisition of 13 cinemas in Malaysia.

Additionally, the successful listing of UnUsUal Group - in which mm2 acquired a 51% stake for S$26m (at 10.2x PE) in Feb 2016, would enable mm2 to crystallise gains and unlock value, and allow UnUsUal to tap on public funds for expansion. Our TP is of S$0.56 is pegged to FY18F earnings and peers’ average of 24x, which represents an upside of 26% to current prices. 5) Singapore O&G [SOG SP, 12-mth TP S$1.50]

Singapore O&G (SOG) is a chain of medical practices, specialising in women’s health. It derives 60% of its revenue from its obstetrics and gynaecology (O&G) services, leveraging on the healthcare segment which is predominantly served by the private sector (57% of babies are delivered through the private sector).

Apart from plans to grow its market share in the O&G segment via the recruitment of new doctors, SOG has also been diversifying into higher-margin complementary services, such as its cancer-related and newly acquired dermatology and aesthetics business, which should continue to leverage on referrals from its existing bread-and-butter O&G business to deliver growth.

Further, we could also see an acceleration of growth through the acquisition of new specialisations as management hopes to start a new paediatrics division in 2017 (subject to the successful recruitment of competent paediatricians), and is also exploring other expansion opportunities into new specialisations or markets.

Following the strong set of 1H16 results, we have raised earnings for FY16F/17F by 13%/11%, and lifted TP (based on the average of PE multiple of 30x and DCF valuation) to S$1.50, from S$1.05 previously.

Market Focus

Small Mid Cap

Page 12

APPENDIX (3) Historical Performance of Previous Conviction Picks

Conviction Picks - Jan 2016 No. Sec. Desc. Rcmd Absolute

Performance

Date Removed

Comments

1 China Merchants Holdings (Pacific) BUY -3.0% 2 Japfa Ltd BUY -3.1% 3 mm2 Asia BUY -12.2% 4 Riverstone Holdings BUY -11.7% 5 Sheng Siong Group BUY 0.6% 4-Feb-16 Replaced with new conviction

idea Simple Average: -5.9% vs STI: -6.3%

Conviction Picks - Feb 2016 No. Sec. Desc. Rcmd Absolute

Performance

Date Removed

Comments

1 China Merchants Holdings (Pacific) BUY 3.8% 2 Japfa Ltd BUY 10.5% 3 mm2 Asia BUY 42.9% 8-Mar-16 Re-rated near TP 4 OSIM International BUY 23.7% 8-Mar-16 Re-rated near TP and downgraded

to HOLD on 8-Mar-16 5 Riverstone Holdings BUY -10.8%

Simple Average: 14.0% vs STI: +9.5%

Conviction Picks - Mar 2016# No. Sec. Desc. Rcmd Absolute

Performance

Date Removed

Comments

1 China Merchants Holdings (Pacific) BUY -1.2% 2 Japfa Ltd BUY 11.4% 3 Innovalues Ltd BUY 19.3% 4 Riverstone Holdings BUY 2.6%

Simple Average: 3.6% vs STI: -0.4%

#Shown are 4 out of our 5 top picks. For full list, please refer to March issue: Sifting Out M&A Plays

Conviction Picks - Apr 2016 No. Sec. Desc. Rcmd Absolute

Performance

Date Removed

Comments

1 China Merchants Holdings (Pacific) BUY 0.6% 2 Courts Asia BUY -1.5% 5-May-16 Replaced with new conviction

idea 3 Innovalues Ltd BUY 4.1% 5-May-16 Downgraded to HOLD on 4-May-

16 4 Japfa Ltd BUY 20.5% 5 mm2 Asia BUY 8.9% 6 Riverstone Holdings BUY 0.5% 5-May-16 Replaced with new conviction

idea Simple Average: 5.5% vs STI: -0.0%

Source: DBS Bank

Market Focus

Small Mid Cap

Page 13

Conviction Picks – May 2016

No. Sec. Desc. Rcmd Absolute Performance

Date Removed

Comments

1 China Merchants Holdings (Pacific) BUY 23.6% 14-Jun-16 Replaced with new conviction idea 2 Japfa Ltd BUY 10.6% 3 mm2 Asia BUY 22.7% 4 UMS Holdings BUY -4.8% 11-May-16 Downgraded to HOLD on 11-May-16 5 Nam Cheong FULLY

VALUED 5.5% 14-Jun-16 Replaced with new conviction idea


Conviction Picks – Jun 2016#


Date Removed

Comments

1 Cityneon Holdings BUY 11.5% 2 Japfa Ltd BUY 12.2% 3 Jumbo Group BUY 10.3% 15-July-16 Replaced with new conviction idea 4 mm2 Asia BUY 0.7%

Simple Average: 6.4% vs STI: 4.4%

#Shown are 4 out of our 5 top picks. For full list, please refer to June issue: The Hunt for GARP

Conviction Picks – Jul 2016#


Date Removed

Comments

1 China Aviation Oil BUY 6.2% 2 Cityneon Holdings BUY 12.5% 3 Japfa Ltd BUY -2.9% 26-July-16 Downgraded to HOLD on 26-July-16 4 mm2 Asia BUY 2.9%


#Shown are 4 out of our 5 top picks. For full list, please refer to July issue: Ambitions for Growth

Conviction Picks – Aug 2016#


Date Removed

Comments

1 China Aviation Oil BUY -10.7% 2 Cityneon Holdings BUY -4.8% 3 mm2 Asia BUY +12.1% Replaced with new conviction idea 4 Singapore O&G BUY -2.5%

Simple Average: -1.1% vs STI: +0.6%

#Shown are 4 out of our 5 top picks. For full list, please refer to August issue: Seeking Resilience Amidst Uncertainty

Source: DBS Bank

Market Focus

Small Mid Cap

Page 14

Conviction Picks – Sep 2016#


Date Removed

Comments

1 China Aviation Oil BUY +0.0% 2 Cityneon Holdings BUY - 3.0% 3 Katrina Group BUY +0.0% 4 Singapore O&G BUY +2.2%

Simple Average: -0.5% vs STI: -0.4%

#Shown are 4 out of our 5 top picks. For full list, please refer to September issue: Safety First as Dark Clouds Gather

Conviction Picks – Oct 2016#


Date Removed

Comments

1 China Aviation Oil BUY -1.8% 2 Cityneon Holdings BUY +16.2% 3 Katrina Group BUY -22.2% Replaced with new conviction idea 4 Singapore O&G BUY 0%

Simple Average: -3.9% vs STI: -1.5%

#Shown are 4 out of our 5 top picks. For full list, please refer to October issue: Eye$ on the money

Source: DBS Bank

Market Focus

Small Mid Cap

Page 15

APPENDIX (4) FSTS & FSTM Indices in October 2016

Top 5 Performing Sectors - FSTM Top 5 Performing Sectors - FSTS

ICB Sector No. of

Constituents

Net Market

Cap % Chg

ICB Sector No. of

Constituents

Net Market

Cap % Chg

(S$ m) (1m) (S$ m) (1m)

General Industrials

1 1,475 9.2

Mining 1 124 48.6

Food Producers

3 3,572 5.8 Oil & Gas Producers 1 47 40.2

Electronic & Electrical Equipment

1 2,368 5.3

Food Producers 6 1,423 5.3

Construction & Materials

1 1,195 4.9

Oil Equipment, Services & Distribution

7 841 4.3

Financial Services

1 698 3.7 Financial Services

1 167 3.6

Bottom 5 Performing Sectors – FSTM Bottom 5 Performing Sectors - FSTS

ICB Sector No. of

Constituents

Net Market

Cap % Chg

ICB Sector No. of

Constituents

Net Market

Cap % Chg

(S$ m) (1m) (S$ m) (1m)

Mobile Telecommunications

1 611 (15.0) Chemicals 1 148 (13.6)

Software & Computer Services

1 512 (3.0) Industrial Metals & Mining

1 274 (6.5)

Real Estate Investment Trusts

16 25,369 (2.9) General Retailers

3 331 (5.2)

Health Care Equipment & Services

1 1,314 (1.6) Software & Computer Services

1 27 (5.1)

Oil Equipment, Services & Distribution

1 1,077 (0.8) Personal Goods

1 202 (4.6)

Source: DBS Bank, FTSE

Market Focus

Small Mid Cap

Page 16

APPENDIX (5) SMC Screener: Ranked by Investment Metrics* (as at 11 November 2016)

*based on 30 Sep 2016 prices Source: DBS Bank, Bloomberg Finance L.P.

Top 10 Prospective Dividend Yield (FY16 DBS Estimates)

Company Name (%) Cache Logistics Trust 9.7

Soilbuild Business Space REIT 9.2

Croesus Retail Trust 9.0

Frasers Hospitality Trust 8.8

IREIT Global 8.8

UMS Holdings 8.1

OUE Commercial REIT 7.6

Ascendas Hospitality Trust 7.6

Cambridge Industrials 7.5

Keppel Infrastructure Trust 7.5 Average 8.4

Top 10 Potential Upside (DBS Estimates of 12-month TP)

Company Name (%) Midas Holdings 76.7%

Katrina Group 74.4%

Perennial Real Estate Holdings 53.5%

Trendlines Group 42.9%

iFAST Corporation 41.7%

Ezra Holdings 39.5%

Yoma Strategic Holdings 36.3%

Bumitama Agri 30.7%

Singapore O & G 27.7%

Frasers Hospitality Trust 24.3% Average 44.8

Lowest P/B (FY16 DBS Estimates)

Company Name (x) Ezra Holdings 0.15

Pacific Radiance Ltd 0.25

Nam Cheong 0.31

Mermaid Maritime 0.35

Noble Group 0.37

PACC Offshore Services Holdings 0.40

Vard Holdings 0.43

Midas Holdings 0.45

Tat Hong Holdings 0.51

Far East Hospitality Trust 0.64 Average 0.39

Lowest P/E (FY16 DBS Estimates)

Company Name (x) Japfa Ltd 7.96

Courts Asia 9.11

Mermaid Maritime 9.80

CSE Global 10.85

China Aviation Oil 11.00

Midas Holdings 11.26

Katrina Group 11.64

Cache Logistics Trust 11.92

IREIT Global 12.30

Soilbuild Business Space REIT 12.42 Average 10.83

Top 10 Net Cash to Share Price (FY16 DBS Estimates of Net Cash to Last Price)

Company Name (%) China Aviation Oil 27.7%

CSE Global 24.4%


UMS Holdings 17.4%

Innovalues 15.1%

Katrina Group 15.0%

Jumbo Group 14.0%

iFAST Corporation 13.1%

Venture Corporation 12.6%

Super Group 12.4% Average 17.3

Top 10 2-yr EPS CAGR (FY15-17 DBS Estimates)

Company Name (%) Ascendas Hospitality Trust 452%

Cityneon Holdings 351.2%

Indofood Agri 199.0%


Ascendas India Trust 148%

Perennial Real Estate Holdings 144%

Frasers Hospitality Trust 70.8%

mm2 Asia 55.3%

Delfi Ltd 53.2%

Midas Holdings 53.0% Average 172.0

Market Focus

Small Mid Cap

Page 17

APPENDIX (6) DBS SMC Universe (as at 11 November 2016) Breakdown by Sector Breakdown by Rating

Source: DBS Bank

SMC Universe (US$50m to US$2bn Market Cap)

S/n Security Description Rating Market

Cap (S$ m)

Last Price

(Sep-16)

Target Price

(12 month)

Upside /

Downside

P/E

FY16

P/E

FY17

P/B

FY16

EPS Growth

(%, FY16)

1 Venture Corporation BUY 2,748 9.880 10.90 10% 15.5 14.4 1.4 13.3

2 Mapletree Greater China Commercial Trust

BUY 2,710 0.975 1.11 14% 17.8 17.6 0.8 -14.6

3 Raffles Medical HOLD 2,560 1.465 1.43 -2% 34.4 32.5 3.9 5.9

4 SMRT ACCEPT THE OFFER

2,557 1.675 1.28 -24% 29.1 36.2 2.7 -19.9

5 Noble Group HOLD 2,549 0.195 0.20 3% nm 12.2 0.373 nm

6 Mapletree Logistics Trust BUY 2,524 1.010 1.15 14% 14.6 13.9 1.0 -9.8

7 SPH REIT HOLD 2,487 0.975 1.00 2% 19.4 19.6 1.0 -17.4

8 Keppel Infrastructure Trust BUY 1,929 0.500 0.56 12% 54.0 48.5 1.5 92.7

9 M1 FV 1,916 2.060 1.97 -4% 12.5 13.1 4.552 -14.1

10 Ascott Residence BUY 1,877 1.135 1.32 16% 18.5 18.5 0.8 32.9

11 Frasers Centrepoint Trust BUY 1,825 1.985 2.29 15% 19.2 19.1 1.0 -11.8

12 Japfa Ltd BUY 1,676 0.950 1.18 24% 8.0 7.3 1.5 114.8

13 Starhilll Global REIT BUY 1,658 0.760 0.87 14% 19.3 14.2 0.8 -48.7

14 Sheng Siong Group BUY 1,534 1.020 1.19 16% 23.8 21.5 6.2 13.2

15 Parkway Reit BUY 1,482 2.450 2.75 12% 19.9 19.7 1.447 21.9

16 Perennial Real Estate Holdings BUY 1,424 0.860 1.32 54% 84.1 2.9 0.677 -79.1

17 Super Group HOLD 1,404 1.260 0.87 -31% 29.0 28.9 2.6 -0.5

18 Bumitama Agri BUY 1,334 0.760 0.99 31% 14.8 12.9 2.1 -5.2

19 Delfi Ltd HOLD 1,332 2.180 2.16 -1% 31.5 26.2 4.798 95.4

20 CDL Hospitality Trust BUY 1,319 1.330 1.59 19% 14.7 15.5 0.836 0.3

21 Frasers Logistics & Industrial T t

BUY 1,318 0.925 1.10 19% 171.8 15.0 1.0 nm

22 Frasers Hospitality Trust BUY 1,232 0.675 0.84 24% 16.0 15.8 0.8 189.0

23 CapitaLand Retail China Trust HOLD 1,209 1.390 1.60 15% 15.1 14.1 0.871 11.3

24 China Aviation Oil BUY 1,202 1.390 1.70 23% 11.0 10.1 1.334 28.2

25 OUE Hospitality Trust BUY 1,173 0.655 0.72 10% 17.0 17.4 0.8 -25.9

26 Far East Hospitality Trust HOLD 1,081 0.600 0.62 3% 16.4 17.2 0.6 -13.1

27 Keppel DC Reit BUY 1,055 1.195 1.22 2% 15.8 16.7 1.288 18.3

28 Frasers Commercial Trust BUY 1,028 1.290 1.49 15% 15.1 14.8 0.8 -10.5

29 Yoma Strategic Holdings BUY 1,017 0.585 0.80 36% 105.6 37.6 1.5 nm

30 Ascendas India Trust BUY 990 1.065 1.13 6% 18.5 17.2 1.6 469.7

9%

10%

3%

6%

17%

10%3%

35%

6%

1%Consumer Goods

Consumer Services

Financials

Health Care

Industrials

Oil & Gas

Real Estate

REITS

Technology

Telecommunications

40

2

23

2 2

BUY

FV

HOLD

FULLY VALUED

ACCEPT THE OFFER

Market Focus

Small Mid Cap

Page 18

SMC Universe (US$50m to US$2bn Market Cap)

S/n Security Description Rating Market

Cap (S$ m)

Last Price

(Sep-16)

Target Price

(12 month)

Upside /

Downside

P/E

FY16

P/E

FY17

P/B

FY16

EPS Growth

(%, FY16)

31 OUE Commercial REIT HOLD 900 0.695 0.74 6% 21.2 20.2 0.742 65.3

32 Ascendas Hospitality Trust BUY 819 0.730 0.84 15% 23.9 24.8 0.9 3072.0

33 Manulife US REIT BUY 737 1.179 0.93 -21% 19.6 17.5 1.035 4.1

34 Cache Logistics Trust HOLD 732 0.815 0.93 14% 11.9 12.5 0.9 2.7

35 Religare Health Trust HOLD 712 0.885 0.95 7% 14.9 13.8 0.989 22.0

36 Cambridge Industrials HOLD 711 0.545 0.54 -1% 13.5 13.3 0.8 -6.9

37 Soilbuild Business Space REIT BUY 688 0.660 0.75 13% 12.4 12.3 0.781 0.6

38 Indofood Agri BUY 656 0.470 0.58 23% 16.9 12.1 0.677 542.6

39 Riverstone Holdings HOLD 656 0.885 0.97 9% 17.0 15.2 3.604 -7.3

40 Del Monte Pacific HOLD 651 0.335 0.37 11% 12.9 9.7 1.51 -28.7

41 Croesus Retail Trust BUY 636 0.845 0.99 17% 13.1 13.4 0.8 87.2

42 Cosco Corporation HOLD 593 0.265 0.30 14% nm nm 0.869 nm

43 PACC Offshore Services H ldi

HOLD 571 0.315 0.33 4% nm nm 0.402 nm

44 mm2 Asia BUY 473 0.460 0.56 22% 26.2 19.4 6.6 78.2

45 IREIT Global HOLD 445 0.720 0.77 7% 12.3 12.9 1.12 90.4

46 Jumbo Group BUY 398 0.620 0.77 24% 22.0 18.6 8.003 75.2

47 Midas Holdings BUY 361 0.215 0.38 77% 11.3 9.5 0.448 98.3

48 Pan-United Corp HOLD 336 0.600 0.59 -2% 20.7 14.6 1.218 -27.6

49 Innovalues ACCEPT THE OFFER

322 0.980 1.01 3% 14.0 12.1 3.3 -1.9

50 Tat Hong Holdings HOLD 286 0.455 0.56 23% nm nm 0.505 nm 51 Singapore O & G BUY 280 1.175 1.50 28% 30.0 26.2 7.43 59.6

52 Cityneon Holdings BUY 278 1.135 1.37 20% 36.9 14.1 4.8 679.7

53 Vard Holdings HOLD 271 0.230 0.18 -23% nm nm 0.434 nm

54 UMS Holdings HOLD 266 0.620 0.61 -2% 12.8 10.9 1.374 -39.6

55 Centurion Corporation BUY 248 0.335 0.61 82% 6.3 7.4 0.6 23.6

56 Courts Asia BUY 232 0.450 0.50 11% 9.1 9.0 0.8 28.7

57 iFAST Corporation BUY 222 0.845 1.20 42% 36.7 31.5 2.79 -50.3

58 CSE Global HOLD 214 0.415 0.41 -1% 10.9 11.5 0.8673 -35.6

59 Mermaid Maritime HOLD 161 0.114 0.09 -17% 9.8 2138.3

0.3513 139.7

60 Nam Cheong FULLY VALUED

134 0.064 0.04 -36% nm nm 0.3147 nm

61 Procurri Corporation Limited BUY 132 0.470 0.56 19% 14.8 9.5 1.7306 -28.4

62 Ezra Holdings FV 126 0.043 0.06 40% nm nm 0.1479 nm

63 Pacific Radiance Ltd FULLY VALUED

111 0.155 0.12 -23% nm nm 0.2515 nm

64 Trendlines Group HOLD 85 0.168 0.24 43% 15.5 15.1 0.7051 744.6

65 Katrina Group BUY 57 0.245 0.43 74% 11.6 10.3 3.8565 6.4


Market Focus

Small Mid Cap

Page 19

COMPANY GUIDES

ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa:YM, PY

BUYLast Traded Price ( 2 Nov 2016): S$1.43 (STI : 2,807.14) Price Target 12-mth: S$1.70 (19% upside)

Potential Catalyst: Earnings growth and delivery; value-accretive acquisitions Where we differ: Slightly below consensus due to lower GP/tonne estimates

Analyst Paul YONG CFA +65 6682 3712 [email protected] Singapore Research Team [email protected]

What’s New 3Q16 net profit up 31% y-o-y to US$23.2m, as

several associates benefited from one-offs

Continued organic growth supported by robustlong-term growth of Chinese civil aviation andfurther expansion into new international markets

Sitting on US$202.8m war chest, which could beused towards value-accretive acquisitions

Maintain BUY and TP of S$1.70

Price Relative

Forecasts and Valuation FY Dec (US$ m) 2015A 2016F 2017F 2018F Revenue 8,987 9,410 10,948 11,495 EBITDA 66.2 83.9 90.8 95.9 Pre-tax Profit 63.6 81.8 88.9 94.3 Net Profit 61.3 78.6 85.4 90.5 Net Pft (Pre Ex.) 61.3 78.6 85.4 90.5 Net Pft Gth (Pre-ex) (%) 24.7 28.2 8.7 6.0 EPS (S cts) 9.86 12.6 13.7 14.6 EPS Pre Ex. (S cts) 9.86 12.6 13.7 14.6 EPS Gth Pre Ex (%) 25 28 9 6 Diluted EPS (S cts) 9.86 12.6 13.7 14.6 Net DPS (S cts) 2.94 3.79 4.12 4.37 BV Per Share (S cts) 95.4 104 114 124 PE (X) 14.5 11.3 10.4 9.8 PE Pre Ex. (X) 14.5 11.3 10.4 9.8 P/Cash Flow (X) 17.0 20.0 19.4 17.6 EV/EBITDA (X) 10.8 7.7 6.3 5.1 Net Div Yield (%) 2.1 2.7 2.9 3.1 P/Book Value (X) 1.5 1.4 1.3 1.1 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 10.7 12.7 12.6 12.2 Earnings Rev (%): 4 0 - Consensus EPS (S cts): 12.9 14.6 17.1 Other Broker Recs: B: 4 S: 0 H: 0

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P

Cruising towards record 2016 Maintain BUY with TP of S$1.70 as our 2017 outlook remains unchanged. Registering a 31% y-o-y jump in net profit to US$23.2m in 3Q16, China Aviation Oil (CAO)’s results were above expectations, as several associates benefited from one-offs such as mark-to-market inventory gains and favourable currency movements.

While our FY17F earnings are intact, we lift FY16F earnings by 4% as we adjust for slightly higher supply and trading volumes.

Sole supplier of imported jet fuel in China with growing international presence. With monopoly on the supply of bonded jet fuel to China’s civil aviation industry, CAO should benefit from the long-term growth of China’s international air travel market. Furthermore, with the backing of SOE parent China National Aviation Fuel Group (CNAF), CAO has expanded its business to marketing and supply of jet fuel at 43 international airports outside China, and further growing its reach, volumes, and ultimately achieving greater economies of scale.

Firm outlook for prized asset 33%-owned associate, SPIA. As the exclusive supplier of jet fuel to Pudong International Airport, Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA) has and should carry on to benefit from rising air traffic at the airport, which is driven by the continued development of Shanghai as China’s key financial centre. Net cash and strong balance sheet could fund acquisition-driven growth. With net cash of c.US$203m at the end of 3Q16, and strong support from its parent CNAF, we believe that CAO could be on the lookout for acquisitions to further grow the scale and reach of its business and profits.

Valuation:

Our TP of S$1.70 is based on 12x FY17F PE. We think that 12x earnings against the projected 18% EPS CAGR over FY15-FY17F is reasonable, and believe that the group is poised to see a structural re-rating of its valuation multiple on sustained earnings growth, especially if CAO can utilise its strong cash balance to further accelerate growth through M&A.

Key Risks to Our View:

Weaker demand for air travel and execution risk. A sustained slowdown in demand for air travel could impact jet fuel demand and volumes. Further, the group could also face execution risk in its trading business and prospective M&A activities.

At A Glance

Issued Capital (m shrs) 865 Mkt. Cap (S$m/US$m) 1,237 / 891 Major Shareholders (%) China National Aviation Fuel Grp 51.0 BP Plc 20.1

Free Float (%) 28.9 3m Avg. Daily Val (US$m) 2.1 ICB Industry : Oil & Gas / Oil & Gas Producers

DBS Group Research . Equity 3 Nov 2016

Singapore Company Guide

China Aviation Oil Version 3 | Bloomberg: CAO SP | Reuters: CNAO.SI Refer to important disclosures at the end of this report

Page 20

ASIAN INSIGHTS VICKERS SECURITIES Page 2

Company Guide

China Aviation Oil

WHAT’S NEW

CAO exceeds expectations in 3Q16 as several associates

(primarily SPIA) benefitted from one-offs

3Q16 net profit grew 31% y-o-y to US$23.2m. Registering a 31% y-o-y jump in net profit to US$23.2m in 3Q16, CAO’s 9M16 profit rose 42.4% to US$71m, which was above our expectations.

This was mainly because several associates (primarily SPIA) benefited from one-offs. For instance:

1) SPIA’s contribution of US$17.4m (which represented 74.9% of the group’s profit in 3Q) was partly lifted by mark-to-market gains as the associate is required to hold 15 days of inventory.

2) Oilhub Korea Yeosu Co., Ltd (OKYC)’s contribution of US$1.4m (which represented 6% of net profit) was partly helped by favourable USD/KRW currency movements.

Progress on international expansion efforts. True to CAO’s mandate of growing its international presence, the group continued to make headway in its aviation marketing business as it extended its reach to a total of 43 international airports outside of China (from 42 previously) as at end-Sep 2016.

Currently sitting on US$202.8m war chest. During the quarter, CAO’s net cash position was bolstered from the receipt of dividends from associates and on strong cashflow generation from its core operations, rising to US$202.8m (or c.16% of current market cap).

Set to deliver record 2016. While the upcoming quarter has been a historically weaker quarter for the group, we are optimistic of CAO’s ability to deliver growth on a y-o-y basis and deliver record earnings in 2016.

Firm organic growth outlook for FY17F/18F. Beyond 2016, we believe that the robust outlook for China’s civil aviation industry and company-driven efforts to further expand the aviation marketing business should provide support for a firm growth outlook for CAO in FY17F/18F.

Maintain BUY and TP of S$1.70 (based on 12x FY17F earnings) as we keep FY17F earnings. Our FY17F earnings is intact as our outlook for 2017 remains unchanged, but we raised FY16F earnings by 4% after factoring in higher supply and trading volumes on other oil products, against slightly lower gross profit/tonne estimates. We maintain BUY with TP of S$1.70, which is based on 12x FY17F earnings.

Quarterly / Interim Income Statement (US$m)

FY Dec 3Q2015 2Q2016 3Q2016 % chg yoy % chg qoq

Revenue 2,399 3,023 3,940 64.2 30.3

Cost of Goods Sold (2,386) (3,013) (3,929) 64.7 30.4

Gross Profit 12.9 9.90 10.4 (19.7) 4.9

Other Oper. (Exp)/Inc (4.1) (4.3) (5.3) 28.5 23.9

Operating Profit 8.80 5.62 5.08 (42.3) (9.7)

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm

Associates & JV Inc 9.73 19.4 19.5 100.4 0.6

Net Interest (Exp)/Inc (0.2) (0.2) (0.7) (209.4) (209.4)

Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm

Pre-tax Profit 18.3 24.8 23.9 30.4 (3.6)

Tax (0.6) (1.2) (0.7) 13.6 (42.5)

Minority Interest 0.0 0.0 0.0 nm nm

Net Profit 17.7 23.6 23.2 31.0 (1.7)

Net profit bef Except. 17.7 23.6 23.2 31.0 (1.7)

EBITDA 18.5 25.0 24.6 32.6 (1.7)

Margins (%)

Gross Margins 0.5 0.3 0.3

Opg Profit Margins 0.4 0.2 0.1

Net Profit Margins 0.7 0.8 0.6

Source of all data: Company, DBS Bank

Page 21


Company Guide

China Aviation Oil

CRITICAL DATA POINTS TO WATCH

Earnings Drivers: Sole importer of jet fuel into the PRC with growing international presence… Leveraging on the network of its parent, China National Aviation Fuel Group Corporation (CNAF) – a state-owned enterprise and the largest aviation transportation logistics services provider in the PRC – China Aviation Oil (Singapore) Corporation Ltd (CAO) has monopoly in the supply of imported jet fuel (or bonded jet fuel) to 17 international airports in China.

With the backing of its parent, CAO has also expanded its business to the marketing and supply of jet fuel to airline companies at 43 international airports outside of the PRC, spanning across Asia Pacific, North America, Europe and the Middle East.

Owing to its domestic monopoly, CAO should benefit from the long-term growth of China’s international air travel market. Coupled with its ongoing international expansion, we expect jet fuel volumes supplied and traded to grow at a 4.5% CAGR from c.12m in FY15 to almost 16m by FY18F.

Optimising of margins through trading activities. As CAO enjoys cost-plus pricing (we estimate gross profit (GP) of US$3.02/tonne) for its China jet fuel supply business, and after hedging downside risk, CAO will seek to further optimise margins when viable trading opportunities arise.

While opportunities to improve margins are available in both backwardation and contango markets, CAO generally prefers contango markets as it allows for superior opportunities for margin optimisation from the storing and trading of fuels (which also includes gas oil, fuel oil and avgas).

With trading opportunities potentially constrained by the lack of clarity in the underlying oil market, we have lowered our GP/tonne assumptions to US$1.37 and US$1.46 for FY16F and FY17F respectively.

Contributions from associates, including prized asset SPIA. Arguably CAO’s best-performing asset, SPIA has never had a cash call since the group first invested in Shanghai Pudong International Airport’s exclusive supplier of jet fuel in 2002, and has historically close to 90% share in the annual income contributions from CAO’s associated companies. Notably, SPIA alone contributed c.61.3% of the group’s FY15 profit, and continues to perform firmly as it contributed c.66% of CAO’s 9M16 net profit.

With two new runways added in the last 18 months, which has doubled the capacity of the airport, and additional satellite concourse expected to be completed by 2019, capacity at China’s second-largest airport is expected to be raised from 60m to 80m passengers p.a., which should underpin SPIA’s long-term growth prospects.

Nearer term, given SPIA’s consistently firm performance - even as expected air traffic increases from the recent opening of Shanghai Disneyland have yet to show up, we think that contributions from the associate should more than offset trading challenges (if any) in 2H16.

Jet Fuel Volumes (m tonnes)

Other Oil Product Volumes (m tonnes)

Implied Average Jet Fuel Price (USD/bbl)

Gross Profit per Tonne (US$)

Contribution from Associates (US$ m)


Page 22


Company Guide

China Aviation Oil

Balance Sheet:

Strong balance sheet with a net cash position of US$203m as at end-3Q16. With net cash of US$202.8m in 3Q16, we believe the company has sufficient firepower with room to gear up further to finance its M&A opportunities and grow the scale and reach of its business and profits. Share Price Drivers:

Progress on the M&A front. While CAO is armed with dry powder for potential acquisitions and investments, it has yet to announce significant M&A plans – its last major investment was in 2013, when the company acquired a 39% stake in refueller CNAF Hong Kong Refuelling Limited. Management has shared that they will be looking at both “asset-light” investments, which will allow the group to gain access to air spaces, customer contracts, strategic alliances and further trading synergies, as well as “asset-backed” investments (or infrastructure assets), which may include airport refuelling stations, pipelines going into airports and storage facilities. We believe that the eventual deployment of cash to fund value-accretive opportunities should lead to a further rerating of the stock. Key Risks:

Weaker demand for air travel. Given the group’s exposure to the air passenger market, events that could significantly dampen travellers’ sentiment, such as the outbreak of diseases and acts of terror, pose direct threats to the tourism and air travel industry which in turn, could weigh on global demand for jet fuel. Potential mark-to-market losses for associates. As SPIA and CNAF-HKR hold inventories of fifteen days and seven days respectively, these have to be marked to market. In a declining oil price environment, these would result in paper losses for these associates, which add volatility to CAO’s bottom line. Trading and execution risks. CAO is exposed to a myriad of risks that are inherent in the lifecycle of trades, which include market risk, credit risk, and operational risk. Company Background China Aviation Oil (Singapore) Corporation Ltd (CAO SP) is principally engaged in the supply and trading of bonded jet fuel, with monopoly in China and a growing international presence. Apart from jet fuel, the group also trades and/or supplies other transportation fuel (such as fuel oil, gas oil and aviation gas) and has varying equity stakes in oil-related assets. These assets include airport refuelling facilities (SPIA and CNAF HKR), pipelines (TSN-PEKCL) and storage facilities (Xinyuan and OKYC).

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


Page 23


Company Guide

China Aviation Oil

Key Assumptions

FY Dec 2014A 2015A 2016F 2017F 2018F Jet Fuel Volumes (m 12.1 11.9 14.3 15.0 15.7 Other Oil Product 8.29 8.28 16.6 15.7 16.5 Implied Average Jet Fuel 141 74.4 56.6 64.7 64.7 Gross Profit per Tonne 1.34 1.76 1.37 1.46 1.51 Contribution from 43.2 42.3 58.8 62.9 66.8

Segmental Breakdown

FY Dec 2014A 2015A 2016F 2017F 2018F Revenues (US$m) Middle distillates 13,508 7,010 6,400 7,680 8,064 Other oil products 3,553 1,978 3,010 3,268 3,431 Total 17,061 8,987 9,410 10,948 11,495

Income Statement (US$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 17,061 8,987 9,410 10,948 11,495 Cost of Goods Sold (17,034) (8,952) (9,368) (10,903) (11,447) Gross Profit 27.4 35.4 42.3 45.0 48.6 Other Opng (Exp)/Inc (16.5) (13.1) (18.7) (18.5) (20.6) Operating Profit 10.9 22.3 23.5 26.5 28.0 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 43.2 42.3 58.8 62.9 66.8 Net Interest (Exp)/Inc (3.1) (1.0) (0.5) (0.5) (0.5) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 51.0 63.6 81.8 88.9 94.3 Tax (1.9) (2.3) (3.3) (3.6) (3.8) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 49.2 61.3 78.6 85.4 90.5 Net Profit before Except. 49.2 61.3 78.6 85.4 90.5 EBITDA 55.6 66.2 83.9 90.8 95.9 Growth Revenue Gth (%) 9.6 (47.3) 4.7 16.3 5.0 EBITDA Gth (%) (30.1) 19.1 26.7 8.2 5.7 Opg Profit Gth (%) (65.1) 104.8 5.3 12.5 5.7 Net Profit Gth (Pre-ex) (%) (30.0) 24.7 28.2 8.7 6.0 Margins & Ratio Gross Margins (%) 0.2 0.4 0.4 0.4 0.4 Opg Profit Margin (%) 0.1 0.2 0.3 0.2 0.2 Net Profit Margin (%) 0.3 0.7 0.8 0.8 0.8 ROAE (%) 9.1 10.7 12.7 12.6 12.2 ROA (%) 3.2 5.5 8.9 8.8 8.4 ROCE (%) 1.9 3.7 3.6 3.7 3.6 Div Payout Ratio (%) 26.5 29.8 30.0 30.0 30.0 Net Interest Cover (x) 3.5 21.5 47.1 53.0 56.0


We adjust our GP/tonne assumptions for FY16F/17F slightly downward on the expectation of a more challenging trading environment.

Tax rate to remain low as CAO receives tax incentives under Singapore’s Global Trader Programme.

Page 24


Company Guide

China Aviation Oil

Quarterly / Interim Income Statement (US$m)

FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 Revenue 2,399 1,973 1,464 3,023 3,940 Cost of Goods Sold (2,386) (1,965) (1,451) (3,013) (3,929) Gross Profit 12.9 8.00 13.2 9.90 10.4 Other Oper. (Exp)/Inc (4.1) (5.7) (2.3) (4.3) (5.3) Operating Profit 8.80 2.30 10.8 5.62 5.08 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 9.73 9.75 14.2 19.4 19.5 Net Interest (Exp)/Inc (0.2) (0.2) (0.1) (0.2) (0.7) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 18.3 11.9 24.9 24.8 23.9 Tax (0.6) (0.4) (0.7) (1.2) (0.7) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 17.7 11.4 24.2 23.6 23.2 Net profit bef Except. 17.7 11.4 24.2 23.6 23.2 EBITDA 18.5 12.0 25.0 25.0 24.6 Growth Revenue Gth (%) (4.9) (17.8) (25.8) 106.5 30.3 EBITDA Gth (%) (1.7) (35.0) 107.7 (0.1) (1.7) Opg Profit Gth (%) 64.2 (73.9) 371.7 (48.1) (9.7) Net Profit Gth (Pre-ex) (%) (0.3) (35.6) 111.6 (2.2) (1.7) Margins Gross Margins (%) 0.5 0.4 0.9 0.3 0.3 Opg Profit Margins (%) 0.4 0.1 0.7 0.2 0.1 Net Profit Margins (%) 0.7 0.6 1.6 0.8 0.6

Balance Sheet (US$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 6.79 6.21 5.64 5.06 4.49 Invts in Associates & JVs 270 266 275 285 295 Other LT Assets 9.96 9.43 8.70 8.20 7.90 Cash & ST Invts 94.3 171 241 313 392 Inventory 38.1 56.8 66.9 75.2 78.9 Debtors 959 337 314 342 348 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 1,379 846 910 1,029 1,128 ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 819 247 253 311 347 Other Current Liab 0.02 0.01 3.28 3.56 3.78 LT Debt 0.0 0.0 0.0 0.0 0.0 Other LT Liabilities 6.24 6.16 6.16 6.16 6.16 Shareholder’s Equity 554 593 648 707 771 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 1,379 846 910 1,029 1,128 Non-Cash Wkg. Capital 179 147 124 102 76.7 Net Cash/(Debt) 94.3 171 241 313 392 Debtors Turn (avg days) 23.8 26.3 12.6 10.9 11.0 Creditors Turn (avg days) 21.2 21.7 9.7 9.5 10.5 Inventory Turn (avg days) 1.6 1.9 2.4 2.4 2.5 Asset Turnover (x) 11.0 8.1 10.7 11.3 10.7 Current Ratio (x) 1.3 2.3 2.4 2.3 2.3 Quick Ratio (x) 1.3 2.1 2.2 2.1 2.1 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) N/A N/A N/A N/A N/A


Contribution from SPIA alone represented c.75% of 3Q16 net profit.

With net cash of US$203m as at end-Sep 2016, CAO is well able to finance value-accretive M&A opportunities internally, if they arise.

Page 25


Company Guide

China Aviation Oil

Cash Flow Statement (US$m)

FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 51.0 63.6 81.8 88.9 94.3 Dep. & Amort. 1.50 1.56 1.56 1.33 1.13 Tax Paid (2.6) (2.2) 0.0 (3.3) (3.6) Assoc. & JV Inc/(loss) (43.2) (42.3) (58.8) (62.9) (66.8) Chg in Wkg.Cap. 36.1 33.1 19.6 21.6 25.4 Other Operating CF 4.34 (1.7) 0.0 0.0 0.0 Net Operating CF 47.2 52.1 44.2 45.6 50.5 Capital Exp.(net) (0.2) (0.3) (0.3) (0.3) (0.3) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 35.2 37.2 49.9 52.9 56.0 Other Investing CF 0.07 0.19 0.0 0.0 0.0 Net Investing CF 35.0 37.2 49.6 52.6 55.8 Div Paid (13.7) (12.8) (23.6) (25.6) (27.2) Chg in Gross Debt (28.6) 0.0 0.0 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (1.6) (0.3) 0.0 0.0 0.0 Net Financing CF (43.9) (13.0) (23.6) (25.6) (27.2) Currency Adjustments (0.4) (0.1) 0.0 0.0 0.0 Chg in Cash 38.0 76.2 70.3 72.6 79.1 Opg CFPS (S cts) 1.79 3.05 3.96 3.87 4.03 Free CFPS (S cts) 7.56 8.35 7.07 7.30 8.08


Target Price & Ratings History

Source: DBS Bank

Analyst: Paul YONG CFA

Singapore Research Team

Page 26

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: YM, PY

BUY Last Traded Price: S$1.005 (STI : 2,867.40) Price Target 12-mth: S$1.37 (36% upside) (Prev S$1.20) Potential Catalyst: Securing of third IP; entry of strategic investor Where we differ: Assume more sets of exhibits Analyst Lee Keng LING +65 6682 3703 [email protected]

What’s New 1H16 results above expectations; driven by newly

acquired VHE

Potential catalysts include securing third IP and

entry of strategic investor

Maintain BUY with a higher TP of S$1.37

Price Relative

Forecasts and Valuation FY Dec (S$ m) 2015A 2016F 2017F 2018F Revenue 96.5 101 127 149 EBITDA 2.63 15.1 34.6 43.3 Pre-tax Profit 0.79 9.37 24.9 31.3 Net Profit 0.87 7.41 19.3 24.0 Net Pft (Pre Ex.) 0.87 7.41 19.3 24.0 Net Pft Gth (Pre-ex) (%) (62.9) 750.3 161.1 24.2 EPS (S cts) 0.39 3.08 8.03 9.98 EPS Pre Ex. (S cts) 0.39 3.08 8.03 9.98 EPS Gth Pre Ex (%) (85) 680 161 24 Diluted EPS (S cts) 0.39 3.08 8.03 9.98 Net DPS (S cts) 0.40 0.0 0.0 0.0 BV Per Share (S cts) 22.4 23.7 31.7 41.7 PE (X) 254.8 32.7 12.5 10.1 PE Pre Ex. (X) 254.8 32.7 12.5 10.1 P/Cash Flow (X) 76.8 nm 10.5 7.6 EV/EBITDA (X) 79.7 16.9 7.1 5.1 Net Div Yield (%) 0.4 0.0 0.0 0.0 P/Book Value (X) 4.5 4.2 3.2 2.4 Net Debt/Equity (X) CASH 0.2 0.1 CASH ROAE (%) 2.3 13.9 29.0 27.2 Earnings Rev (%): - - - Consensus EPS (S cts): 3.2 7.5 9.9 Other Broker Recs: B: 3 S: 0 H: 0


Catalysts in sight Impressive results with new business segment incorporated. Cityneon’s strong set of 1H16 results was driven by newly acquired VHE. Net profit of S$4.7m accounts for 63% of our FY16F forecast of S$7.4m. Trading at a low FY17F PE-to-growth multiple of <0.1x with explosive FY15-FY18F EPS CAGR growth of about 300%, Cityneon is attractive to investors seeking growth and unique ideas in the entertainment industry. An expanding project pipeline, plans to add a third Intellectual property rights (IP), and potential tie-ups with strategic investors like CMC Holdings are catalysts. Scalable business model with low execution risk. Cityneon’s earnings are directly correlated with the number of exhibits it has. The group recently announced its forthcoming openings in Singapore (October 2016), Taipei, Taiwan (June 2017) and Sydney, Australia (December 2017). We believe that more sets would be needed to fulfill the overwhelming demand. We expect a total of seven sets by end-2017, and eight sets by 2018. Potential for third IP. There is a huge pool of franchises that meet management’s criteria of box office of >US$1bn and with sequels in the pipeline. Some attractive options include Star Wars, Jurassic Park, Batman and Spiderman. We expect the Victory Hill Exhibitions (VHE) team to leverage their credentials in developing the Avengers and Transformers exhibits to leapfrog to the next IP. Valuation:

Maintain BUY with higher TP of S$1.37. Maintain BUY with a higher TP of S$1.37, up from S$1.20, based on peer average PE valuation of 17x FY17F earnings, instead of 15x previously. The sector has re-rated; peers' share prices have shot up 15-20% in the last two months. Key Risks to Our View:

VHE’s limited track record. VHE was formed in 2012 and the first exhibition was in New York in 2014. At A Glance Issued Capital (m shrs) 245 Mkt. Cap (S$m/US$m) 246 / 183 Major Shareholders (%) Star Publications 52.5 Tan Aik Ti 16.4

Free Float (%) 31.1 3m Avg. Daily Val (US$m) 3.1 ICB Industry : Consumer Services / Media

DBS Group Research . Equity 15 Aug 2016


Cityneon Holdings Version 4 | Bloomberg: CITN SP | Reuters: CNHL.SI Refer to important disclosures at the end of this report

Page 27

ASIAN INSIGHTS VICKERS SECURITIES

Company Guide

Cityneon Holdings

WHAT’S NEW

1H16 results above expectations

Highlights Strong set of results driven by newly acquired VHE 1H16 revenue increased by 13.8% y-o-y to S$46.3m, mainly contributed by the acquisition of VHE in September 2015, which is classified under the Intellectual Properties Rights (IPR) segment. Revenues from IPR were mainly generated from both the travelling and permanent exhibitions. The revenue contributions from the group’s travelling Avengers S.T.A.T.I.O.N. set in Paris, the recently opened Las Vegas’ immersive attraction and the licence deal in China for Transformers travelling set all contributed to the strong 1H16 performance. 1H16 net profit of S$4.7m accounts for 63% of our FY16F forecast of S$7.4m.

The old Cityneon business, which consists of Exhibition Services, Experiential Environment, Event Management and Interior Architecture, registered a 11% drop in revenue to S$36.1m. Gross profit surged by 88.2% y-o-y to S$18m, mainly contributed by IPR. Excluding IPR, gross profit margin of the old business improved to 25% in 1H16, from 23% in 1H15. The improvement is mainly driven by higher-margin projects.

Our take

Outlook The IPR business will continue to be the focus for the group as the operating landscape remains challenging for the old business on the back of the uncertain global economic outlook.

Project pipeline In terms of project pipeline, the travelling Avengers set is expected to be launched in Singapore in October 16, followed by Taiwan and Australia in 2017. The group is also targeting to launch its new Transformers sets in Las Vegas and China in the next few months.

Potential catalysts 1) Securing third IP

There is a huge pool of franchises that meet the management’s criteria of box office of >US$1bn and with sequels in the pipeline. Some attractive options include Star Wars, Jurassic Park, Batman and Spiderman. We expect the VHE team to leverage on their credentials in developing the Avengers and Transformers exhibits to leapfrog to the next IP.

2) Entry of strategic investorChina remains an important market for the group, in addition to its current focus in Las Vegas, US. We would not rule out further collaboration with CMC Holdings or other strategic investors as the business is still in the growth phase. Back in May, Cityneon entered into a placement agreement with CMC, a media and entertainment investment with an operating platform in China. This enhances collaboration opportunities between the two entities and also paves the way for growth.

Valuation and recommendation We maintain our earnings forecasts for FY16F despite the outperformance as the bulk of contribution from Paris had already been factored in 1H16. Though 2H16 will include partial contribution from Singapore, but given its smaller population, the contribution will be much smaller.

Maintain BUY with a higher TP of S$1.37, up from S$1.20, based on peer average PE valuation of 17x FY17F earnings, instead of 15x previously. The sector has re-rated up; peers' share prices have shot up 15-20% in the last two months. Merlin Entertainments, Europe’s leading and the world’s second-largest visitor attraction operator, reported a resilient set of interim results despite challenging market conditions. Viad Corp, which provides experiential services within the exhibition and events industry and the travel and recreation industry, reported 2Q16 results that beat consensus.

Page 28


Company Guide

Cityneon Holdings

Quarterly / Interim Income Statement (S$m)

FY Dec 1H2015 2H2015 1H2016 chg yoy chg hoh

Revenue 41 56 46 13.8% -17.0% Cost of Goods Sold (31) (42) (28) -9.0% -32.6% Gross Profit 10 14 18 88.2% 30.7% Other Oper. (Exp)/Inc (10) (12) (12) 17.8% -2.5% Operating Profit (1) 2 6 n.m. 260.7% Other Non Opg (Exp)/Inc 0 0 0 - -

Associates & JV Inc 0 0 0 - -

Net Interest (Exp)/Inc 0 0 0 - -

Exceptional Gain/(Loss) 0 0 0 - -

Pre-tax Profit (1) 2 6 n.m. 274.6% Tax 0 0 (1)

Minority Interest 0 0 0 - -

Net Profit (1) 2 5 n.m. 196.6% Net profit bef Except. (1) 2 5 n.m. 196.6% EBITDA 0 3 8 n.m. 176.3% Margins (%)

Gross Margins N/A 42.0 46.2

Opg Profit Margins N/A 11.1 15.0

Net Profit Margins N/A 7.3 13.2


Page 29


Company Guide

Cityneon Holdings


Earnings Drivers:

Scalable business model. The first set had cost around US$8-9m to build but subsequent sets cost only about one-third of the original cost per set. Thus, Cityneon is able to achieve operational leverage with every subsequent set built. The group recently announced its forthcoming openings in Singapore (October 2016), Taipei, Taiwan (June 2017) and Sydney, Australia (December 2017). We believe that more sets would be needed to fulfill the overwhelming demand. We expect a total of seven sets by end-2017, and eight sets by 2018. With the increasing demand, Cityneon has expanded its creative team with two senior-level hires and is now equipped with both breadth and depth to produce and create innovative concepts to capture visitors’ interest.

The 7-8 exhibition sets would enable Cityneon to hold exhibitions in various parts of the world. Only the Las Vegas sets in the US are permanent ones; while the rest are travelling sets, and will be moved from one location to another after the exhibition ends, which usually lasts for a few months. For every location or project, Cityneon would be able to book revenues that include licensing fees, minimum guarantees from operator and also from merchandise sales. Assuming that an exhibition lasts for about 3-4 months, theoretically, a set can be used 2-3 times per year based on a back-to-back schedule.

Manageable execution risk. Furthermore, execution risk is minimal for the travelling exhibits as the bulk of the risk is borne by the operator. Only the two permanent sets in Las Vegas need to assume operating risks.

Project pipeline till 2017 VHE targets to launch Transformers in Las Vegas and China by the end of 2016. For next year, VHE intends to venture into Middle East, rest of Asia and others parts of China. There are no limits on locations for its IP rights. VHE can venture into any part of the world with the two existing franchises. Though it makes more business sense to target the larger cities first, VHE has vast opportunities as there are >30 cities globally with populations of >10m.

Strong pipeline of Avengers/Transformers movies bodes well for attracting visitors Marvel has a strong movie pipeline stretching to 2020. The pipeline includes Guardians of the Galaxy 2, Thor and Spiderman in 2017; Avengers Infinity War part 1, Black Panther and Ant-man in 2018; Avengers Infinity War part 2, Captain Marvel and Inhumans in 2019, and yet-to-be-named movies in 2019/2020. For Transformers, there are four more films in the next ten years, with Transformers 5 slated to be released in June 2017.

The Las Vegas permanent attraction

Earnings contribution breakdown

Project pipeline assumption for 2016/2017 Country Announced / Assumed Exhibition Las Vegas * Announced – exhibition started in

May 2016 Avengers

Las Vegas * Announced – exhibition expected to start in October 2016

Transformers

Paris Announced – exhibition from April 2016 to September 2016

Avengers

Australia Announced – exhibition expected to start in December 2017

Avengers

Singapore Announced – exhibition expected to start in October 2016

Avengers

China Announced – exhibition expected to start in December 2016

Transformers

Taiwan Announced – exhibition expected to be opened no later than 15 June 2017

Avengers

China Assumed Avengers Sweden Assumed Avengers Middle East Assumed Transformers Europe Assumed Transformers

*permanent set

Historical box office takings – Avengers and Transformers


1.9

10.1 10.924.4

8.2

12.88

0.9

1.1

1.1

0.73

0

5

10

15

20

25

FY15 FY16F FY17F FY18F

Las Vegas perm set Travelling sets Old Cityneon business

S$m

Name of movieRelease Date

#Rank by gross takings for that year

Gross takings (US$m)

Grossing of the average movie

that yearTransformers Jul-07 3 319 15.4Iron Man May-08 2 318 16.0The Incredible Hulk Jun-08 17 135 16.0Transformers: Revenge of the Fallen

Jun-09 2 402 20.8

Iron Man 2 May-10 3 312 19.1Thor May-11 10 181 16.8Captain America: The First Avenger

Jul-11 12 177 16.8

Transformers: Dark of the Moon

Jun-11 2 352 16.8

The Avengers May-12 1 623 16.4Iron Man 3 May-13 2 409 15.9Thor: The Dark World Nov-13 12 206 15.9Transformers: Age of Extinction

Jun-14 7 245 14.9

Captain America: The Winter Soldier

Apr-14 4 260 14.9

Avengers: Age of Ultron May-15 3 459 15.9Ant-Man Jul-15 14 180 15.9

Total: 4,580

Page 30


Company Guide

Cityneon Holdings

Balance Sheet:

Expansion should increase debt levels, but gearing will remain low in FY16. We believe the group will take on incremental debt of ~S$10m in the near term to fund the building of new exhibits, increasing net gearing to 0.1x in FY16, but positive cash flows should bring the group back into a net cash position in FY17, barring other unexpected capex outlays. Thus, at this point, gearing remains insignificant.

Share Price Drivers:

Potential for third IP There is a huge pool of franchises that meet the management’s criteria of box office of >US$1bn and with sequels in the pipeline. Some attractive options include Star Wars, Jurassic Park, Batman and Spiderman. We expect the VHE team to leverage on their credentials in developing the Avengers and Transformers exhibits to leapfrog to the next IP. Entry of strategic investor paves way for growth China remains an important market for the group, in addition to its current focus in Las Vegas, US. We would not rule out further collaboration with CMC Holdings or other strategic investors as the business is still in the growth phase. Back in May, Cityneon entered into a placement agreement with CMC, a media and entertainment investment with an operating platform in China.

Key Risks:

Limited track record for VHE VHE was formed in 2012 and the first exhibition was in New York in 2014. Earnings dependent on number of visitors Though Cityneon will usually receive upfront payment fees from operators to use its exhibits, a higher number of visitors would enable the group to generate higher royalties in excess of the minimum guarantees on royalties. Furthermore, ancillary sales like merchandise, photos, food & beverage are also dependent on the number of visitors. Low free float, key stakeholders control more than half of the group. Shares in Cityneon are tightly held, with a free float of about 30%. Star Media still holds about 52.6% after the placement while CEO Ron Tan holds 16.4%.

Company Background

With the acquisition of Victory Hill Exhibitions (VHE) in September 2015, Cityneon has evolved to become a creator of innovative and interactive exhibitions, focusing on creating captivating cutting-edge content, and delivering engaging and interactive exhibitions to audiences. To date, it has secured two IP rights – with Marvel Entertainment to use Avengers S.T.A.T.I.O.N. till 2024 and with HASBRO Studios for the Transformers franchise till year 2023.


Capital Expenditure

ROE (%)

Victory Hill Exhibitions – two distinct models


Las Vegas (permanent sets)

Ticket sales (incl. processing charges)

Merchandise sales / Photo ops

Sponsorship revenue

Naming rights

Sources of revenue:

Depreciation of the set

Sources of expenditure:

COGS (merchandise)

Rental expense

SG&A/ other opex

Royalties to Marvel/Hasbro (10% of net ticket sales)

Travelling sets (operated by partners)

20% cut of ticket sales

Upfront license fee from partner for usage of set

Merchandise (sales to partner + cut of final sales to customer)

Sources of revenue:

Depreciation of the set

Sources of expenditure:

COGS (merchandise)

SG&A/ other opex(minimal)

Royalties to Marvel/Hasbro (10% of ticket sales)

Half of the 20%

goes to Marvel or H

asbro

Risk‐reward profile:No execution risk; partner runs the operations

High margins (DBS estimate 25‐35% net margin) but lower nominal take

Risk‐reward profile:Cityneon takes on execution risk.

Lower margin (DBS estimate of 25% net margin) but higher nominal take

Minimum guarantees reduce risk of non‐

performance

Page 31


Company Guide

Cityneon Holdings

Segmental Breakdown

FY Dec 2014A 2015A 2016F 2017F 2018F

Revenues (S$m)

Old Business 78.0 96.5 79.5 70.0 77.0 Victory Hill Exhibitions 0.0 0.0 21.0 57.3 72.0 Total 78.0 96.5 101 127 149

Net Profit (S$m)

Old Business 2.35 0.87 1.10 1.07 0.73 Victory Hill Exhibitions n.a. n.a. 5.6 18.3 23.4 Total 2.35 0.87 7.41 19.3 24.0

Net Profit Margins (%)

Old Business 3.0 0.9 1.4 1.5 0.9 Victory Hill Exhibitions n.a. n.a. 30.0 31.9 32.5 Total 3.0 0.9 7.4 15.2 16.1

Income Statement (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F

Revenue 78.0 96.5 101 127 149 Cost of Goods Sold (55.9) (73.2) (64.0) (64.3) (73.1) Gross Profit 22.1 23.3 36.5 63.0 76.0 Other Opng (Exp)/Inc (19.3) (22.2) (27.0) (38.1) (44.2) Operating Profit 2.78 1.15 9.48 24.9 31.8 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.02 0.02 0.02 0.02 Net Interest (Exp)/Inc (0.3) (0.4) (0.1) (0.1) (0.5) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 2.51 0.79 9.37 24.9 31.3 Tax (0.2) 0.04 (1.9) (5.5) (7.2) Minority Interest 0.03 0.04 (0.1) (0.1) 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 2.35 0.87 7.41 19.3 24.0 Net Profit before Except. 2.35 0.87 7.41 19.3 24.0 EBITDA 4.02 2.63 15.1 34.6 43.3 Growth

Revenue Gth (%) 15.1 23.7 4.2 26.7 17.0 EBITDA Gth (%) 65.8 (34.4) 475.0 128.6 25.2 Opg Profit Gth (%) 142.3 (58.8) 727.6 163.1 27.5 Net Profit Gth (Pre-ex) (%) 162.2 (62.9) 750.3 161.1 24.2 Margins & Ratio

Gross Margins (%) 28.3 24.1 36.3 49.5 51.0 Opg Profit Margin (%) 3.6 1.2 9.4 19.6 21.3 Net Profit Margin (%) 3.0 0.9 7.4 15.2 16.1 ROAE (%) 10.0 2.3 13.9 29.0 27.2 ROA (%) 4.5 1.2 7.9 17.2 17.4 ROCE (%) 5.6 1.0 10.2 21.4 21.1 Div Payout Ratio (%) 0.0 101.6 0.0 0.0 0.0 Net Interest Cover (x) 10.4 3.1 79.1 352.0 63.9


Includes contribution from the Avengers set in Paris and Las Vegas, as well as partial upfront licence fee to be recognised in FY16 for the 2-year agreement in China

Page 32


Company Guide

Cityneon Holdings


FY Dec 1H2014 2H2014 1H2015 2H2015 1H2016

Revenue 30 48 41 56 46 Cost of Goods Sold (20) (36) (31) (42) (28) Gross Profit 10 12 10 14 18 Other Oper. (Exp)/Inc (10) (10) (10) (12) (12) Operating Profit 0 3 (1) 2 6 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc 0 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 0 2 (1) 2 6 Tax 0 0 0 0 (1) Minority Interest 0 0 0 0 0 Net Profit 0 2 (1) 2 5 Net profit bef Except. 0 2 (1) 2 5 EBITDA 1 4 0 3 8

Growth

Revenue Gth (%) (31.5) 57.3 (14.7) 37.1 (17.0) EBITDA Gth (%) (77.4) 472.7 (104.7) (1,670.9) 171.8 Opg Profit Gth (%) (91.7) 949.2 (122.8) (397.8) 260.7 Net Profit Gth (Pre-ex) (%) (95.6) 1,722.1 (132.1) (322.2) 196.6 Margins

Gross Margins (%) 32.7 25.5 23.5 24.6 38.8 Opg Profit Margins (%) 0.8 5.3 (1.4) 3.1 13.4 Net Profit Margins (%) 0.4 4.7 (1.8) 2.8 10.1

Balance Sheet (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F

Net Fixed Assets 2.26 16.0 29.6 35.3 32.8 Invts in Associates & JVs 0.0 0.38 0.39 0.41 0.42 Other LT Assets 1.21 10.7 16.3 14.8 13.4 Cash & ST Invts 23.9 24.3 8.45 17.6 42.1 Inventory 0.32 0.19 0.36 0.36 0.41 Debtors 18.6 26.0 35.8 45.3 53.1 Other Current Assets 9.88 9.95 9.95 9.95 9.95 Total Assets 56.2 87.6 101 124 152

ST Debt 13.4 11.7 11.7 11.7 11.7 Creditor 14.8 23.8 17.7 17.8 20.2 Other Current Liab 2.18 0.97 2.86 6.43 8.19 LT Debt 0.0 0.0 10.0 10.0 10.0 Other LT Liabilities 0.22 1.10 1.10 1.10 1.10 Shareholder’s Equity 25.1 49.6 57.0 76.3 100 Minority Interests 0.49 0.45 0.51 0.57 0.60 Total Cap. & Liab. 56.2 87.6 101 124 152

Non-Cash Wkg. Capital 11.8 11.4 25.6 31.5 35.1 Net Cash/(Debt) 10.5 12.6 (13.2) (4.1) 20.4 Debtors Turn (avg days) 93.8 84.4 112.2 116.3 120.5 Creditors Turn (avg days) 88.2 98.2 129.6 118.3 112.5 Inventory Turn (avg days) 1.9 1.3 1.7 2.4 2.3 Asset Turnover (x) 1.5 1.3 1.1 1.1 1.1 Current Ratio (x) 1.7 1.7 1.7 2.0 2.6 Quick Ratio (x) 1.4 1.4 1.4 1.8 2.4 Net Debt/Equity (X) CASH CASH 0.2 0.1 CASH Net Debt/Equity ex MI (X) CASH CASH 0.2 0.1 CASH Capex to Debt (%) 7.5 38.8 81.8 64.3 34.6 Z-Score (X) 3.7 4.4 4.5 4.9 4.8


Page 33


Company Guide

Cityneon Holdings

Cash Flow Statement (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F

Pre-Tax Profit 2.51 0.79 9.37 24.9 31.3 Dep. & Amort. 1.24 1.47 5.65 9.66 11.5 Tax Paid 0.03 (0.2) 0.0 (1.9) (5.5) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 5.85 0.80 (16.1) (9.5) (5.4) Other Operating CF (0.1) 0.07 0.0 0.0 0.0 Net Operating CF 9.55 2.89 (1.1) 23.1 32.0 Capital Exp.(net) (1.0) (4.5) (17.8) (14.0) (7.5) Other Invts.(net) 0.0 (1.1) 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 (0.4) 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.08 (10.0) (7.0) 0.0 0.0 Net Investing CF (0.9) (16.0) (24.8) (14.0) (7.5) Div Paid 0.0 (0.9) 0.0 0.0 0.0 Chg in Gross Debt 0.73 (3.1) 10.0 0.0 0.0 Capital Issues 0.0 15.7 0.0 0.0 0.0 Other Financing CF 0.0 0.87 0.0 0.0 0.0 Net Financing CF 0.69 12.6 10.0 0.0 0.0 Currency Adjustments 0.39 0.85 0.0 0.0 0.0 Chg in Cash 9.71 0.39 (15.8) 9.19 24.5 Opg CFPS (S cts) 4.18 0.95 6.22 13.5 15.5 Free CFPS (S cts) 9.65 (0.7) (7.8) 3.82 10.2



Source: DBS Bank

Analyst: Lee Keng LING

Assume 7 sets by end-2017 and 8 sets for 2018

Page 34

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: JC, PY

BUY (Initiating Coverage) Last Traded Price ( 16 Nov 2016): S$0.45 (STI : 2,793.99) Price Target 12-mth: S$0.65 (43% upside) Potential Catalyst: Higher gold production and/or gold price Analyst Paul YONG CFA +65 6682 3712 [email protected] Singapore Research Team [email protected]

Price Relative

Forecasts and Valuation FY Dec (US$m) 2015A 2016F 2017F 2018F Revenue 36.5 38.9 43.5 49.6 EBITDA 18.0 20.2 21.6 26.1 Pre-tax Profit 14.4 16.2 17.6 22.3 Net Profit 10.7 12.0 13.0 14.7 Net Pft (Pre Ex.) 10.7 12.0 13.0 14.7 EPS (S cts) 3.70 4.17 4.50 5.10 EPS Pre Ex. (S cts) 3.70 4.17 4.50 5.10 EPS Gth (%) (13) 13 8 13 EPS Gth Pre Ex (%) (13) 13 8 13 Diluted EPS (S cts) 3.70 4.17 4.50 5.10 Net DPS (S cts) 1.34 1.25 1.35 1.53 BV Per Share (S cts) 11.6 14.5 17.7 21.3 PE (X) 12.2 10.8 10.0 8.8 PE Pre Ex. (X) 12.2 10.8 10.0 8.8 P/Cash Flow (X) 6.4 6.0 6.0 4.9 EV/EBITDA (X) 6.3 5.3 4.7 3.5 Net Div Yield (%) 3.0 2.8 3.0 3.4 P/Book Value (X) 3.9 3.1 2.5 2.1 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 36.4 31.9 28.0 26.2 Consensus EPS (S cts): 6.5 7.8 8.4 Other Broker Recs: B: 3 S: 0 H: 0 ICB Industry : Basic Materials ICB Sector: Mining Principal Business: CNMC Goldmine Holdings Limited, together with its subsidiaries, is principally engaged in the business of exploration, mining of gold and the processing of mined ores into gold dores. It is currently focused on the development of its flagship Sokor G

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.

At A Glance Issued Capital (m shrs) 407 Mkt. Cap (S$m/US$m) 183 / 130 Major Shareholders (%) Innovation China 26.3 Messiah Ltd 13.0 Ng Eng Tiong 9.8

Free Float (%) 50.9 3m Avg. Daily Val (US$m) 3.2


Singapore Company Focus

CNMC Goldmine Holdings Bloomberg: CNMC SP | Reuters: CNMC.SI Refer to important disclosures at the end of this report

Au-gmenting growth via M&A

Initiate with BUY; TP of S$0.65 based on blend of DCF (WACC of 10.7%, terminal growth of 1%) and 14x FY17F PE

Kelantan-based miner attractive as a less-risky, gold proxy with low production cost

Flagship Sokor project already in production and highly cash generative while proposed acquisition of 51% stake in Pulai Mining could propel earnings growth for CNMC

Growing net cash of US$33.4m can be readily deployed to finance further M&A opportunities

Competitive low-cost miner attractive as a less-risky leveraged gold play. Principally engaged in the exploration and mining of gold and the processing of mined ores into gold dores, CNMC is projected to grow its gold production at a 7% CAGR, from 31,206 ounces in FY15 to 38,728 ounces by FY18F. Supported by well-run operations, steady cash flow generation and competitive cash costs, CNMC is our preferred leveraged play on gold.

Acquisition of 51% stake in Pulai Mining could propel earnings growth. CNMC recently announced plans to acquire a 51% stake in Kelantan-based gold miner, Pulai Mining. Given the group’s success in Sokor, we think that CNMC will be well able to expound on its familiarity and expertise to accelerate the exploration process and production. If successful, the potential monetisation of in-ground resources at Pulai could propel earnings outlook for the group.

Growing net cash of US$33.4m as at 3Q16 can be readily deployed to finance other acquisitions. Beyond the Pulai concession, we believe that CNMC could still be on the lookout for acquisitions to accelerate growth opportunities for the group. Supported by strong cash generation, this could be readily funded using CNMC’s strong net cash position – which has nearly tripled from US$12.1m at end-FY14 to US$33.4m in 3Q16.

Valuation: Our 12-month TP of S$0.65 is based on a blend of DCF (WACC of 10.7% terminal growth of 1%) and 14x FY17F PE. Given the volatile nature of gold prices and its potential impact on near-term earnings, we base our TP on a blend of DCF (which assumes WACC of 10.7% and terminal growth of 1%) and PE (at larger peers’ average of 14x FY17F PE) metrics, which we believe better reflect CNMC’s superior cash flow generation, already competitive cash costs and steadily growing gold production.

Assuming a 30% payout, a prospective yield of 3% is also on offer.

Key Risks to Our View: Susceptibility to volatility in gold prices and mining conditions. As price takers, gold miners are generally susceptible to volatility in gold prices. Their output may also be hampered in the event of unfavourable weather conditions. Each US$10/oz decrease in gold prices could lower FY17F earnings by 1.7%.

Page 35


Company Focus

CNMC Goldmine Holdings

INVESTMENT THESIS

Profile Rationale

CNMC Goldmine Holdings Limited (CNMC SP), together with its subsidiaries, is principally engaged in the business of exploration, mining of gold and the processing of mined ores into gold dores. It is currently focused on the development of its flagship Sokor Gold Field Project, but has recently proposed the acquisition of a 51% stake in Pulai Mining Sdn. Bhd.

Attractive as a less-risky gold proxy with low production cost. Supported by well-run operations, steady cash flow generation and competitive cash costs, CNMC is our preferred leveraged play on gold. Proposed acquisition of 51% stake in Kelantan-based Pulai Mining could propel earnings growth. Given the group’s success in Sokor, we think that CNMC will be well able to expound on its familiarity and expertise to accelerate the exploration process and production at Pulai. If successful, the potential monetisation of in-ground resources at Pulai could propel earnings outlook for the group. We have not factored in upside from Pulai in our forecasts and valuations.

Valuation Risks

Our 12-month TP of S$0.65 is based on a blend of DCF (WACC of 10.7% terminal growth of 1%) and 14x FY17F PE. Given the volatile nature of gold prices and its potential impact on near-term earnings, we base our TP on a blend of DCF (which assumes WACC of 10.7% and terminal growth of 1%) and PE (at larger peers’ average of 14x FY17F PE) metrics, which we believe better reflect CNMC’s superior cash flow generation, already competitive cash costs and steadily growing gold production.

Assuming a 30% payout, a prospective yield of 3% is also on offer.

Susceptibility to volatility in gold prices and mining conditions. As price takers, gold miners are generally susceptible to volatility in gold prices. Their output may also be hampered in the event of unfavourable weather conditions.

Source: DBS Bank

Page 36


Company Focus


SWOT Analysis

Strengths Weakness

Long-standing relationship. CNMC’s strong and entrenched relationship with the Kelantan State government should put the company in good stead for future collaborative projects in and around the Kelantan region. Lower costs and better control arising from the insourcing of critical processes. CNMC has internalised the bulk of its mining activities – spanning gold exploration, mining and extraction, as the group sought to build scale and gradually develop in-house expertise in critical functions along the gold production value chain. Thus, CNMC typically enjoys lower costs and better control over peers which outsource critical functions. Healthy balance sheet. Strong cash flow generation and steady growth in net cash balance over the last few years to US$33.4m currently should provide the group with adequate buffer to weather near-term challenges, if any.

Price taker. While hedging affords protection, it does not eliminate risk for commodity producers such as CNMC, which are susceptible to prevailing prices. Note: CNMC sells its gold dorés at a slight premium to London Gold Spot and does not practise producer hedging. However, the company has recently doubled the number of gold deliveries from 12 to 24 annually to smoothen out the effects of volatility in gold spot prices on its sale prices.

Opportunities Threats

Vast upside potential in Pulai Mining. If CNMC is successful in uncovering new gold deposits, and if they prove to be commercially viable for extraction and sale, we believe that the potential monetisation of in-ground resources at Pulai could propel earnings outlook for the group ahead. Further M&A opportunities. Beyond the Pulai concession, we believe that CNMC could still be on the lookout for acquisitions – particularly brownfield opportunities in Malaysia, which could then allow the group to grow quickly. This will likely be funded out of its strong net cash balance of US$33.4m (as at 3Q16). Possible alternative income stream from base metals. Apart from gold, Sokor is home to other base metals. If they are determined to be commercially viable for extraction, CNMC could potentially tap into this segment as an additional avenue of long-term growth for the group when the market for base metals recovers.

Vulnerability to Kelantan’s weather conditions. The Kelantan region typically enters the monsoon season in the last quarter of each year, which has generally led to lower production in Q1 and Q4 for CNMC. In the event of prolonged, adverse weather conditions in Kelantan, CNMC’s mining activity could be severely hampered – potentially weighing on the group’s profitability.

Source: DBS Bank

Page 37


Company Focus


Company Background First SGX-listed gold producer struck gold with Sokor Gold Field Project. Headquartered in Singapore, CNMC Goldmine Holdings Limited (“CNMC”) began operations in 2006 and is principally engaged in the exploration and mining of gold and the processing of mined ores into gold dorés. It is the first gold producer to be listed on SGX’s catalist board, where it commenced trading on 28 October 2011. The group is currently focused on the development of its flagship 10km2 Sokor Gold Field Project, located in the state of Kelantan, Malaysia. The opportunity at Sokor came to be after the initial government-to-government venture between the Kelantan state government and a Chinese SOE, which was facilitated by CNMC Chairman, Professor Lin Xiang Xiong, fell through. Thereafter, Professor Lin, then chief adviser on Kelantan-China international trade for the Malaysian state government, was entrusted with the Sokor project by the Kelantan chief minister and proceeded to take the project private. Growing Fine Gold Production and Gold Resources

Source: Company, DBS Bank While mining companies may take between eight to ten years on average to successfully extract gold, we note that CNMC was successful in just three years, achieving its first gold pour on 21 July 2010. CNMC’s gold production has been increasing steadily since, as the group produced a record 31,206 ounces of fine gold against an all-time high gold reserve balance of 618,000 ounces, in FY15. Growing gold resources and reserves provide a glimpse into CNMC’s potential. Even as production levels have more than doubled over the last few years, CNMC’s gold resources have risen from 410,000 ounces in FY12 to a historical high of 618,000 ounces (as at FY15), implying that ongoing exploration efforts have more than compensated for the extraction of in-ground gold resources.

But look beyond reserves, as it is often less relevant for producing mines. While reserves are often referenced to in the mining industry, we advocate looking beyond reserves as it is mostly of interest to exploration-stage miners (who have yet to produce gold) looking to raise financing – as opposed to CNMC, a producing and cash-generative gold miner. We also believe that there remains vast potential for the uncovering of new commercially viable mineralisations at Sokor going forward, as production is still in its infancy. Mining concession extended to 31 December 2034. The relevant mining licences for the Sokor project were first awarded in 2008 on a 10+21-year basis, and was previously due to expire in 2018. On 23 August 2016, the group was awarded the extension to 31 December 2034, which confers upon CNMC the right to mine unlimited amounts of ore. While the extension provides certainty to CNMC’s operations in the long run, CNMC will be subject to a one-off processing fee of RM20m (for the extension) and upward revision to the annual royalties payable to a minimum of 13% of total minerals produced in Sokor (from 8% previously). Beyond 2034, long-standing partnership with local government provides support for continuity and sustainable growth. CNMC, through its subsidiary CMNM Mining Group Sdn. Bhd., currently holds a majority 81% stake and mining rights to the Sokor project. According to the group, the remaining 19% are jointly owned the by Kelantan State Government and royal family. Given the size of CNMC’s contribution to the Kelantan government’s total revenue - which we estimate to be 2.8% for 2015 and believe will likely increase in the future on the adjusted royalty rate of 10% and higher expected production, we think the risk of a non-renewal come 2034 will be dependent upon 1) continued production, and 2) sustainable resources to be mined economically Proposed acquisition of brownfield Pulai Mining Sdn Bhd (“Pulai”) to widen opportunity set. CNMC announced the proposed acquisition of a 51% stake in brownfield project, Pulai Mining Sdn Bhd, for RM13.8m on 28 June 2016. The project, spanning 38.4 km2, is almost four times the size of Sokor, and has 11 licences for the exploration and mining of gold, iron ore and feldspar. Comparative studies have shown that Pulai has similar mineralisation and geological features to that of Sokor. While Pulai’s reserve levels are not known at this point, we believe that CNMC’s expertise in the identified mineralisation could potentially reduce time to production (to three years or less) at Pulai and lead to higher gold production in the long term.

465,000506,000

618,000

12,649 26,122 31,206

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

FY13 FY14 FY15

Gold Resource (ounces) Fine Gold Production (ounces)

Page 38


Company Focus


Flagship Sokor Gold Field Project About Sokor. The Sokor Project is located approximately 80km southwest of Kota Bharu, the capital of Kelantan State in northern Peninsular Malaysia. It consists of a mining licence covering approximately 10km2 (known as the “Sokor Block”) and an exploration licence approximately 62.8km2 (known as the “Sokor Gold Field Project”). The project comprises three deposits in the southern part of the Sokor Project area regions (Manson’s Lode, New Discovery, Sg. Ketubong) and a fourth deposit (Rixen) which is approximately 3km to the north of Ketubong. While the Rixen deposit is currently the most actively mined pit, CNMC believes exploration and mining works have barely scratched the surface and sees potential for more mineralisations to be uncovered. At present, mining works at New Discovery and Ketubong deposits remain inactive with small-scale operations taken only on an ad-hoc basis. Extension of mining rights to 2034. CNMC recently received approval on its application for large-scale operations at its Sokor Gold Field Project, which will allow the company to mine unlimited amounts of ore and extend its mining lease to 31 December 2034, from 2018 previously. While the extension provides certainty to the group’s operations in the long run, we think the one-off processing payment of RM20m payable to the Kelantan State Lands and Mines Office and upward revision in royalty rates to 10%

(from 8% previously), could weigh on the group’s performance in the second half of 2016. CNMC retains an 81% majority share in Sokor project. Under the extended concession, CNMC, through its subsidiary CMNM Mining Group Sdn. Bhd., will continue to hold a majority interest of 81% and the right to mine the Sokor project. The remaining 19% is held by the Kelantan State Government and the royal families. Apart from gold, Sokor is also home to other base metals. In addition to gold, resource estimates indicate that Sokor could also be rich in other base metals such as silver, lead and zinc as follows: Mineral Resources: Other Base Metals (as at 31 Dec 2015)

Source: Company, DBS Bank If commercially viable for extraction and sale, we think that CNMC could potentially tap into this segment as an additional avenue of long-term growth for the group when the market for base metals recovers.

Geological Location of Sokor and Distribution of Deposits


Category S i lver Lead Z inc

Contained Metal (Ag koz) (Pb t) (Zn t)

Measured 674 5,632 5,535

Indicated 398 2,925 3,299

Inferred 645 12,245 10,781

Tota l 1,717 20,802 19,615

Mineral Resource

Rixen

Ketubong

New Discovery

Manson’s Lode

Page 39


Company Focus


Proposed Acquisition of Pulai Mining CNMC to acquire 51% stake in Kelantan miner for RM13.8m. In line with its long term strategy to expand its portfolio and revenue streams, CNMC signed a conditional share subscription agreement to acquire a 51% stake in Pulai Mining Sdn Bhd (“Pulai”) for RM13.8m on 25 August 2016. Existing shareholders of Pulai are:

Sumberjaya Ventures Sdn Bhd, Centurion Resources Pte Ltd, Kelstone Sdn Bhd, and CM Strategic Holdings Pte Ltd

About Pulai. Pulai Mining is a brownfield project, which owns 11 exploration and mining licenses (for gold, iron ore and feldspar) with a combined licensed area of about 38.4 km2- nearly four times the size of CNMC’s current flagship Sokor Gold Field project. The project is situated in the state of Kelantan, approximately 105km from Sokor, within the Central Gold Belt of Malaysia. Location of Pulai Concession

Source: Company, DBS Bank Iron ore extraction could alone cover the cost of investment. According to the company, about 10,000 tonnes of iron ore were extracted with grades ranging from 50-55% Fe (iron).

If costs of extracting these ores are sufficiently low, we think that CNMC might engage in the extraction and sale of these minerals to finance its operations at Pulai – similar to the strategy pursued at Sokor a decade ago. Over 260kg of gold produced via alluvial mining previously provides support for possible new gold inputs. In the absence of a JORC-compliant report (with indicative resource and reserve estimates), and as initial exploratory works are still underway, the economic value of the Pulai concession remains in the air. However, the previous concession owners’ success in producing and selling over 260kg of gold worth close to RM38m – albeit from alluvial mining, is indicative of the potential for new gold input discoveries at Pulai. Still too early to tell, but Pulai acquisition could yield higher gold production for the group. Comparative studies commissioned by the company have shown that Pulai bears similar geochemistry and mineralisation features to that of Sokor. Given the group’s success in Sokor, we think that CNMC will be well able to expound on its familiarity and expertise to accelerate the discovery process, which could yield substantial synergies for the group. In the absence of neither in-depth exploratory work nor official resource estimates from previous concession owners, it is still too early to tell if concentrations of mineralisation (if any) are economically viable for extraction. If present, however, we believe that CNMC is better equipped today (given strong internal funding capabilities and a larger talent pool) than it was in the early years of the Sokor project, and are thus optimistic of a shorter time to production (i.e. under three years) as compared to that achieved at Sokor. Vast upside potential, if successful. Thus, if CNMC proves to be successful in uncovering new mineralisation, and if subsequently identified resources are deemed to be economically viable for extraction and sale, the potential monetisation of these in-ground resources at the Pulai concession could propel the group's earnings outlook.

Page 40


Company Focus


Gold Resource Estimates SGX disclosure requirements. Under SGX-ST’s listing rules, mineral, oil and gas companies are required to provide a compliant, qualified person’s report on mineral resource and ore reserve estimates for each of their mining projects at the end of each financial year. CNMC’s gold (and other mineral resource) estimates are prepared by an independent resources and reserves estimation consultant, Optiro Pty Ltd, in accordance to the Australasian Joint Ore Reserve Committee (JORC) Code, which is the minimum standard for public reporting among mining companies. Resource vs reserve. Mineral resource estimations are used to determine and define the tonnage and grade of a mineral occurrence within a delineated area, from which valuable or useful minerals may be recovered. Depending on the degree of confidence in the estimate, the resources are then grouped into one of three confidence bands: 1) Measured Resource – highest level of confidence, 2) Indicated Resource, or 3) Inferred Resource– lowest level of confidence

Reserves, which are included within the overall resource figures, are defined as the part of Measured or Indicated resources which can be mined and from which valuable or useful minerals can be recovered economically. Reserve figures typically incorporate mining dilution and allow for mining losses, and are based on appropriate level of mine planning, design and scheduling. Like resources, reserves can be classified into one of two categories: 1) Proved Reserves, where economic extraction is justified 2) Probable Reserves, which represents probable

uncertainty in economic extraction

Contrasting Resource and Reserve Estimates


618,000 ounces of contained gold at Sokor. As at 31 December 2015, the total Measured, Indicated and Inferred gold resource for the Sokor project (above a 0.5 g/t cut off grade at Manson’s Lode and Ketubong, above a 0.4 g/t gold cut-off grade at New Discovery and above a 0.3 g/t gold cut off grade at Rixen) was 13.83m tonnes at an average grade of 1.4g/t with 618,000 ounces of contained gold. These cut-off grades effectively reflect present commodity prices, operating costs and processing options. Sokor’s Gold Resource Statement* (as at 31 Dec 2015)

Category FY12 FY13 FY14 FY15Tonnes (millions)Measured 0.52 0.53 0.55 0.56Indicated 3.90 4.64 6.75 7.14Inferred 3.40 3.97 3.51 6.13Total 7.82 9.14 10.81 13.83Grade (Au g/t )Measured 3.30 3.30 3.20 3.10Indicated 1.40 1.40 1.30 1.30Inferred 1.60 1.50 1.40 1.40Total 1.60 1.60 1.40 1.40Cont ained Metal (Au koz)Measured 55 55 57 56Indicated 180 210 287 297Inferred 178 200 163 265Total 413 465 507 618Growt h (%) 12.59 9.03 21.89

Gold Resource

*includes gold reserves Source: Company, DBS Bank

Sokor’s Gold Reserves Statement (as at 31 Dec 2015)

Cat egory FY12 FY13 FY14 FY15Tonnes(millions)Proved 0.12 0.12 0.19 0.33Probable 3.20 3.60 3.94 4.78Tot al 3.32 3.72 4.13 5.11Grade (Au g/t )Proved 4.10 4.10 3.60 3.70Probable 1.40 1.40 1.30 1.10Tot al 1.50 1.50 1.40 1.07Contained Met al (Au koz)Proved 15 15 23 39Probable 140 163 165 183Tot al 155 178 188 222Growth (%) 14.84 5.62 18.09

Gold Reserves


Page 41


Company Focus


Principally Engaged from Exploration to Production Better control over the full gold production value chain. Over the years, CNMC has internalised much of its gold mining processes – spanning gold exploration, mining and extraction, as the group sought to build scale and gradually develop in-house expertise in critical functions along the gold production value chain. According to management, only the blasting operations are sub-contracted as the group does not have a blasting licence. Critical Functions Along Mining Lifecycle

Source: Company, DBS Bank Concurrent exploration and extraction programmes. While most mining companies typically engage in gold extraction only upon the completion of the exploration phase (which results in high cash burn over a prolonged period), CNMC has been running its exploration and extraction programmes concurrently ever since the economic feasibility of extraction for its reserves were determined in 2010. Given the shorter time to production, CNMC’s operations were already cashflow-positive from 2012, which provided the group with ample working capital and cash buffer to finance its expansion needs internally. Open pit mining. The group engages in conventional open pit mining, a form of surface mining that delves into rock to extract deposits of mineral resources that are close to the surface. Gold-bearing ores are then excavated from the earth using excavators, before being transported by dump trucks to the ore processing facility. Open pit mining is subject to lower costs and offers higher safety levels as compared to other underground mining methods (such as draft mining, slope mining and shaft mining). The key drawback of this approach, however, would be its higher relative exposure to adverse weather conditions, which could hamper gold production levels. Combined leaching capacity of 1.2m tonnes of ore p.a. at Sokor. With the addition of its upgraded vat leaching facility (capacity of 0.2m tonnes of ore p.a.) in April this year, CNMC

currently boasts both heap and vat leaching capabilities with a combined capacity of 1.2m tonnes p.a. Actual annual gold production will be dependent on the actual grade of mined ores. Heap leaching is predominantly used at Sokor’s northern deposits (i.e. Rixen, the most actively mined area in Sokor), while the vat leaching process is mainly applied to ores mined from the wetter, southern deposits (i.e. Manson’s Lode). The group has three leaching pads at the Rixen, which boasts a combined heap leaching capacity of 1m tonnes of ore p.a. Gold Extraction Process (Heap Leaching Facility)

Source: Company, DBS Bank In the process of heap leaching, fresh ore is first piled onto leach pads, before a barren solution is pumped into the vat, saturating the ore and leaching out the gold. The gold-laden pregnant solution is then drained from the vat and pumped through carbon columns. The extraction process ends with the loaded carbon being transported to the gold de-absorption facility for processing and smelting of gold mud to produce gold doré bars. Short cash conversion cycle. Not engaged in producer hedging, CNMC’s gold doré bars are generally delivered to the buyer within 48 hours of production. These gold dorés are currently sold to a licensed gold buyer in Kelantan at a slight premium to the London gold spot rate. While payments are split into three legs, the cash conversion cycle from point of gold production to receipt of cash is relatively short at three to five days as follows:

50% deposit of estimated value upon delivery 40% on confirmation of pricing by both parties 10% upon confirmation of purity of gold content by

both parties

Gold Exploration Gold Mining Gold Extraction

Exploration Process: Literature survey Geographical

mapping Identification of

gold-bearing zones

Three dimension sampling by drilling

Estimation of resource

Mining Methods: Surface mining Placer mining Open pit mining Dredging Underground

mining Draft mining Slope mining Shaft mining

Extraction Methods: Amalgamation Gravity

concentration Floatation Refractory ore

processing Cyanide process

Page 42


Company Focus


Historical Relationship with Gold Spot Prices Correlation between CNMC and Gold Spot Price Through the Years

Source: Company, DBS Bank, Bloomberg Finance L.P. Strong historical correlation between share price and spot gold. We attempt to study the long-term relationship between CNMC’s share price performance against spot gold as we compute the correlation of CNMC’s historical share price against underlying gold commodity price, since the former’s listing in 2011. The pair displayed a positive correlation of 0.691, which suggests that like most gold-related counters, CNMC’s long-term performance was closely correlated to changes in underlying gold prices. But lower risk due to low cost of production. Stripping out the effects of one-off mining licence extension fees, CNMC’s lower cost of production provides investors with a larger margin of safety vs peers in the event of steep declines in gold prices.

Apart from the gold price rally, recent outperformance was largely driven by company-specific factors. In the short term however, deviations may occur depending on expectations of the individual company’s earnings potential – such as that observed for CNMC since the start of the year, following the company’s series of positive announcements, such as: Jan-16: Announced record production of fine gold for FY15 Apr-16: New vat leaching facility, lifting CNMC’s combined leaching capacity by 20% to 1.2m tonnes of ore p.a. (from 1m previously) Jun-16: Enters into letter of intent to acquire a 51% stake in Kelantan miner, Pulai Mining

0

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Gold Spot (LHS)

CNMC SP (RHS)

31 Dec 12- Achieved significant production milestone with the successful comissioning of its heap leaching plant, producing record 740.82 ounces gold dore bars

07 Jan 16-Announces recordproduction of fine gold in FY15 13 April 16- Newly upgraded VAT leach

facility . Now has two fully operational gold production lines

28 June 16- Enters letter of intent to acquire stake in Kelantan Miner

10 May 16--Strong 1Q results. Lower cost, higher volume. Strong net cash position.Announced interest to acquire other mines in Malaysia or SEA.

23 Aug 16-Receives approval for extension of mining lease for Sokor

Fall in gold price as inflation falls. Reducing gold value as hedge

Correlation: +0.691

Page 43


Company Focus


Management and Strategy

Good relationship with Kelantan government and mining consultants. Professor Lin, the founder of CNMC, has more than 20 years of experience in the mining industry. Prior to his current role, he served as the Chief Advisor of Kelantan-China International Trade for the Kelantan State Government in 2004.

Under the leadership of Prof Lin and his management team, the group achieved its first gold pour within three years of exploration (as compared to the industry average of eight to ten years), and has since seen production levels constantly breaking new highs each year.

Key Management Team

Member Designation Role and Responsibility Lim Kuoh Yang CEO, Executive

Director Mr Lim has over 15 years of experience in the mining industry and has driven the successful exploration and operation of various stone mining projects. Previously from 2004-2009, he was a consultant at Innovation Worldwide Group where he gained experience in sub-contracted mining projects. He served as the Chief Operation Officer of Innovation World-Wide Trader Pte Ltd from 2000-2006, prior to his appointment as CEO and Executive Director of CNMC in 2011.

Professor Lin Xiang Xiong

Founder, Executive Chairman

From 1980-2004, Prof Lin was the managing director of Innovation World-Wide Trader Pte Ltd, a company engaged in mining, processing and sale of dimension stones. He was the Chief Consultant of Innovation World-wide Group on sub-contracted mining projects between 2004 and 2009. Prof Lin's vast experience includes serving as Executive Advisor for the Bureau of Commerce and Chief Advisor for Cultural Exchange and Promotion Worldwide of Henan, China. He currently serves as the International Consultant for the New District in Eastern Part of Zhengzhou, Henan and is an Avisory Professor for East China Normal University. He is also the Chief Advisor of Kelantan-China International Trade.

Chee Chian Cheam Chief Financial Officer

Prior to his appointment in 2013, Mr Chee served as an audit manager with Deloitte Touche Tohmatsu (2006-2008) and LTC LLP (2008-2011). He was an accountant and project coordinator at UMW Oil & Gas from 2005-2006 and worked with various audit firms between 1993 and 2005 including PricewaterhouseCoopers, Malaysia; KPMG, Singapore; and Deloitte Touche Tohmatsu, Papua New Guinea. Mr Chee is a chartered accountant and a member of The Malaysian Association of Certified Public Accountants and the Malaysian Institute of Accountants.

Source: Company, Bloomberg Finance L.P., DBS Bank Regular dividend paid since 2013. While CNMC does not have a fixed dividend policy, the group has been increasing the frequency and level of dividend payouts, as evidenced by the 370% growth in DPS as earnings tripled between FY13 and FY15.

Management has committed to paying dividends of up to 30% of net profit. We expect CNMC to maintain a steady uptrend in dividend payments ahead, supported by higher expected earnings (PATMI) of US$14.7m by FY18F (from US$10.7m in FY15), and as cash flow generation continues to strengthen.

We also note that payout frequency has gradually increased over the years, from two (2Q and 4Q) in FY13 to three each (2Q, 3Q and 4Q) in FY14 and FY15. Special dividends, which were used to shore up overall payout levels over the last two years, will also likely be a regular feature going forward.

Dividend Payout


0.15 0.18 0.20.1

0.150.18

0.1

0.25 0.18

0.225

0.405

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

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0.8

0.9

1

FY13 FY14 FY15 1H16

Scts

Interim 2Q Interim 3Q Final (4Q) Special Dividend Payout Ratio

Page 44


Company Focus


Key competitive advantage lies in its low gold production cost. On a global scale, having substantially reduced its all-in costs from US$1,092/oz in 2Q13 to a low of US$487/oz in 1Q16, CNMC ranks among the lowest-cost producers of gold. Record Low “All-in” Costs of Production in 1Q16

Source: Company, DBS Bank The group saw an uptick in its all-in costs to US$728/oz in 3Q16, which was mostly due to partial payments (of about RM2m) incurred on the one-off mining licence extension fee. We believe that the remaining payment of c.RM18m will be paid in 4Q16, which will lead to a substantial but temporary spike in CNMC’s all-in cost in 4Q16. We believe that the group’s success in delivering all-in cost improvements thus far can be largely attributed to:

i. Economies of scale from higher gold production levels ii. Low diesel prices iii. Weaker Ringgit, in which the bulk of CNMC’s costs are

denominated, and iv. Superior style of mineralisation at Sokor, which affects

both production rates and leaching costs

Strategies to keep costs low ahead. Currently close to the lower end of the cost spectrum as compared to global peers, we expect costs to nudge up slightly ahead with the acquisition of Pulai, which is still in the exploration stage. However, given ongoing efforts to boost operating efficiency synergies between Sokor and Pulai, and CNMC’s more conservative approach to explorations, we do not expect the acquisition to weigh materially on costs and thus remain

confident in CNMC’s ability to keep all-in costs relatively low (around the US$600/oz level) on a sustained basis. Low-hanging fruits at Sokor. Nearly ten years into the Sokor project, as production gradually approaches steady-state, some low-hanging fruits CNMC can pick to drive organic growth at Sokor over the near term include: (i) Acceleration of exploratory works, which could

uncover new discoveries and mineralisation

(ii) Further increases to leaching capacity from 1.2m tonnes of ore p.a. currently - especially vat leaching, for which capacity remains relatively low at 0.2m tonnes of ore p.a.

(iii) Enhancements to the gold recovery process could improve the recovery rate of minerals. Gold recovery rate through the heap leaching process was reported at 67% for FY15

Potential for higher-grade ores. Higher-grade ores generally lie deeper underground. Still mining relatively close to the surface, we think that with time, CNMC could potentially gain access to these higher-grade, richer ores. Success in Pulai could propel earnings growth. Further down the road, should CNMC be successful in discovering new gold veins, and if the concentration of newfound gold proves to be commercially viable for extraction, contributions from Pulai could then propel the group's earnings growth. We have yet to incorporate potential contributions from Pulai in our forecasts. Beyond Pulai, still room to take on more projects. Armed with net cash of US$33.4m (as at 3Q16), CNMC remains on the lookout for suitable mining opportunities in Malaysia, other parts of Southeast Asia and Australasia. Given management’s familiarity with the operating landscape in Malaysia, we think CNMC will likely continue to give priority to brownfield (in which some exploratory work has been conducted by previous concession owners) opportunities in Malaysia, which could then allow the group to grow quickly.

1092

775

761

781

649

648

610616

517

564 555

487

500

728

1419

1306

1269

1275

1277

1310

12271205

1190

1198

1093

11561287

1345

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US

$/o

unc

e

All-in Costs Averaged Realized Gold Price

Page 45


Company Focus


Industry Prospects

Jewellery and investments remain largest sources of demand. The jewellery industry has traditionally been the largest source of demand, contributing between 44% and 78% of overall demand from 2006-2015. Of which, China and India are the largest demand markets. Meanwhile, investments typically form the second-largest source of gold demand, contributing c.29% of overall demand on average over the same period. Similar to jewellery consumption trends, China and India are also the two single largest source markets for investment demand. Investment demand for gold climbed to new high in 1H16. Investment demand (comprising investments in gold bars, coins and ETFs) for the asset rose to a historic high of 1,064 tonnes in the first half of 2016 – overtaking the previous high of 917 tonnes during the 2009 financial crisis, as pent-up demand (primarily among Western investors), flight to safety on Brexit concerns and low/negative interest rate policies fuelled demand for gold as a store of value. Investment Demand for Gold at All-time High in 1H16

Source: World Gold Council, Thomson Reuters, DBS Bank This brought overall demand for gold to 2,335 tonnes (+18% y-o-y), or the second highest first half on record, according to the World Gold Council. Gold bullion prices surged by 28.8% to US$1,368.74/oz during the year, catalysing gold production. Supported by higher gold prices, the recovery in gold price outlook (from that in 2014/2015), coupled with the impact of weaker currencies, is set to spur mining activity ahead as producing miners seek to capitalise on the gold price rally and maximise operating leverage.

Gold mining companies, including CNMC, were the prime beneficiaries of the sharp rise in gold prices earlier this year. Accentuated by expected improvements to their operating margins, investments in these leveraged plays (particularly in-production gold mining companies) offered higher potential returns on average, as opposed to returns from holding physical gold such as bars and coins and physically-backed gold ETFs. To illustrate: YTD Holding Period Return on Gold-related Investments

Investment Price (Dec-15)

Price (Oct-16)

%Chg

Spot Gold / oz t (Proxy for gold bars)

1062.38 1273.88 +19.9%

SPDR Gold Shares ETF (Proxy for ETFs)

101.46 121.94 +20.2%

Wilton Resources (SGX-listed Gold Miner)

0.058 0.074 +27.6%

CNMC Goldmine (SGX-listed Gold Miner)

0.186 0.510 +174.2%

Source: Thomson Reuters, DBS Bank Medium-term investment demand for gold underpinned by supportive market conditions. Even as gold prices have eased (-6.9%) from its 2016 peak, we believe that gold will likely retain its appeal as a safe-haven asset in the medium term given the low interest rate environment and geopolitical uncertainty, which reinforces our positive outlook for both the physical commodity and the broader gold mining industry. Barring unanticipated shocks, we have prudently assumed that gold prices will hold up around US$1,260/oz on a full-year basis for 2016 and nudge up slightly to US$1,270/oz in 2017. Despite the rally, opportunities remain for well-placed gold mining companies to ride the firm demand growth for gold. While much of the easy money has already been made on the back of the gold price rally, we still see opportunities for well-placed gold mining companies to leverage on operating strengths and company-specific catalysts to drive further earnings growth and re-rating. Given uncertainty in the current economic climate, our preferred SGX-listed proxy to ride the firm global investment demand for gold is low-cost, in-production gold mining company, CNMC.

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1H16

Jewellery InvestmentsTechnology Central BanksGold Bullion Prices at Year-end (U$/oz t)

Page 46


Company Focus


Competitive low-cost miner attractive as a less-risky leveraged gold play Estimated net cashflow from ore reserves at Sokor totalled US$93.1m as at 31 December 2015, and growing. With exploratory and gold production programmes running concurrently, CNMC offers upside potential from future discoveries while providing certainty of cashflows from the monetisation of in-ground reserves as they are gradually extracted, processed and sold. According to the economic evaluation conducted by independent resources and reserves estimation consultant, Optiro Pty Ltd, the estimated net cashflow from ore reserves at Sokor was US$93.1m, with a net present value of US$70m (based on a discount rate of 10%) as at 31 December 2015.The evaluation also assumed a gold price of US$1,100/ oz, the prevailing price then, which has since risen above US$1,300/oz levels as at early November 2016. Noting that there is no compulsion for newly discovered mineralisations to undergo third-party reviews before they can be extracted for sale, CNMC is primarily focused on monetising these new discoveries and delivering real returns rather than to grow less tangible reserve and resource numbers, which we believe allows the group to deliver growth beyond that indicated by its reserve estimates. Ranked among the lowest-cost producers of gold. As discussed in an earlier segment, CNMC’s all-in cash costs have declined substantially over the last few years - from US$1,092/oz in 2Q13 to as low as US$487/oz in 1Q16, which reflects the success of its ongoing efforts to improve operating efficiency.

When making comparisons, it is useful to note that the reporting of gold production costs tends to be inconsistent across miners. “All-in sustaining” cost has historically been the predominant metric used in cash reporting, but the “all-in” cost metric – which includes exploration costs, provides a more prudent and accurate representation of the true cost of producing gold over the mining lifecycle (from exploration to closure). Notwithstanding one-off costs related to the extension of mining rights, which should lead to a substantial but temporary spike in all-in cost in 4Q16, we believe that CNMC should be well able to keep all-in costs relatively low (around the US$600/oz level, compared against the global average of >US$650/oz as at 1H16) on a sustained basis, to remain among the lowest-cost producers of gold. Strong balance sheet. Already cash-generative, CNMC’s strong balance sheet, backed by net cash of US$33.4m (or approximately 20% of current market cap) as at 3Q16, provides a buffer against near-term volatility in commodity prices, and can be readily deployed to finance the acquisition and/or development of mines, should suitable opportunities arise. Prefer CNMC as a less-risky, leveraged play on gold. Keeping in mind that the share price performance of gold mining companies are often susceptible to volatility in underlying gold prices, CNMC is our preferred leveraged play on gold given its cost-efficient, well-run business operations, steady cash flow generation and strong balance sheet.

Page 47


Company Focus


Key Risks

Mining activity could be hampered by Kelantan’s weather conditions. While Sokor benefitted from good weather conditions in FY15, the Kelantan region typically enters the monsoon season in the last quarter of each year, which generally results in lower production levels in Q1 and Q4. In the event of prolonged, adverse weather conditions in Kelantan, CNMC’s mining activity could be severely hampered – potentially weighing on the group’s profitability. Susceptibility to volatility in gold prices. While hedging affords protection, it does not eliminate risk for commodity producers such as CNMC, which are susceptible to prevailing prices. To prevent speculating on gold prices, CNMC does not practise producer hedging (i.e. selling of gold futures as a temporary substitute for selling in the local cash market). Instead, it has doubled the number of gold deliveries from 12 to 24 annually to smoothen out the effects of volatility in gold spot prices on its sales price.

Failure to secure 5-year extension to pioneer tax status. CNMC currently enjoys a pioneer tax status, which is set to expire on 30 June 2018. Its effective tax rate of 7% in FY15 was mainly due to tax expense incurred on interest income earned from the placement of fixed deposits and on withholding taxes accrued on management fees charged by the company during the quarter. Failure to secure a 5-year extension to its pioneer tax status upon expiry in mid-2018 could thus lift its effective tax rate to Malaysia’s corporate tax rate of 24% and potentially weigh on the group’s profits from FY18F onwards. No guarantees of commercially viable concentrations of gold at Pulai. Even if CNMC proceeds with the acquisition as planned, there are no guarantees that the group will be successful in uncovering gold deposits that are commercially viable for extraction and sale. As such, we have not factored in upside from Pulai in our forecasts and valuations.

Page 48


Company Focus


Forecasts and Assumptions Expect steady growth in production volumes. Following the record FY15 – which was partly helped by good weather, we expect a slight dip in production volume for FY16F, mainly as we do not expect similar favourable weather conditions and as the one-off 7-day Stop Work Order received in August 2016 hampered gold production and sale. Beyond FY16F, given the steadily expanding resource pool, and dedicated efforts toward exploratory work, we believe that the volume of fine gold produced will likely grow 10.9% and 13% y-o-y for FY17F and FY18F respectively, given the increase in capacity. Positive on medium-term gold prices. For 9M16, CNMC had an implied average gold price of c.US$1,262/oz. With prices currently hovering about the US$1,300/oz level, low interest rate environment and lingering geopolitical uncertainty, we believe that average prices will hold at US$1,260/oz on a full-year basis for FY16F and nudge up slightly to US$1,270/oz in

FY17F and US$1,280/oz in FY18F on higher investment demand, and higher inflationary pressure. Assume higher royalty and tribune fees of 14% ahead. Following the recent approval to the extension of its mining licence from 2018 to 2034, CNMC’s royalty fees were increased from 5% to 10% (as stipulated in Malaysia’s Minerals Act 2014) of total minerals produced at Sokor. In addition, the group may also be subject to an upward revision on tribute fees to 4%, from 3% currently, which is still pending review. In our forecasts, we have assumed a higher royalty and tribute fee of 14% with effect from 3Q16. Forecasts do not include any upside from Pulai. While we think that CNMC will likely proceed with the Pulai acquisition upon completion of its due diligence, we have not factored in potential upside from Pulai in our forecasts and valuations.

Forecasts and Key Assumptions

Currency US$ FY Dec (US$m) FY13 FY14 FY15 FY16F FY17F FY18F Revenue: Gold Mining 16.6 33.2 36.5 38.9 43.5 49.6 Total Revenue 16.6 33.2 36.5 38.9 43.5 49.6 Gold Resources and Production: Gold Resources (ounces) 465,000 506,000 618,000 729,000 824,000 906,000 Fine Gold Production (ounces) 12,649 26,122 31,206 30,900 34,263 38,728

% of Y-1 Gold Resources 3.1% 5.6% 6.2% 5.0% 4.7% 4.7%

Implied Average Gold Price (US$) 1,314 1,271 1,169 1,260 1,270 1,280 Operating Expenses: Changes in Inventories (0.1) (0.1) 0.3 0.3 0.3 0.3 Amortisation and Depreciation (1.8) (3.1) (4.0) (4.8) (5.2) (5.2) Contractor Expenses (0.0) 0.0 0.0 0.0 0.0 0.0 Employees' Compensation (1.2) (2.5) (2.7) (3.5) (3.7) (3.9) Key Management Remuneration (1.5) (2.0) (2.5) (2.8) (3.0) (3.1) Marketing and Publicity Expenses (0.1) (0.1) (0.2) (0.1) (0.1) (0.1) Office and Administrative Expenses (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) Professional Fees (0.7) (0.6) (0.6) (0.5) (0.5) (0.5) Rental Expense on Operating Lease (0.3) (0.5) (0.9) (0.9) (0.9) (1.0) Royalty Fee Expenses (1.3) (2.5) (2.7) (3.8) (6.1) (6.9)

% of Revenue 8% 8% 7% 10% 14% 14%

Site and Factory Expenses (3.5) (5.5) (5.8) (5.9) (6.3) (6.7) Travelling and Transportation Expenses (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) Other Expenses (0.4) (1.0) (3.1) (1.8) (1.8) (1.8) Total Operating Expense (11.4) (18.5) (22.6) (24.3) (27.9) (29.6) Effective Tax Rate 34% -3% 7% 7% 7% 15% Growth (%)

Revenue 100% 10% 7% 12% 14% Operating Expenses 62% 22% 7% 15% 6%

Margins (%)

EBIT 31% 45% 38% 40% 38% Source: Company, DBS Bank

Page 49


Company Focus


Income Statement Project 15% PATMI CAGR over FY15-18F. We project CNMC’s PATMI to rise from US$10.7m in FY15 to US$12.0m in FY16F and US$14.7m by FY18F, on higher gold production volumes and average gold prices.

Expiration of pioneer tax status in June 2018 could lift effective tax from 7% currently up to 15% for FY18F. CNMC currently enjoys a pioneer tax status, which is set to expire on 30 June 2018. Inability to secure an extension of its concessionary tax rate, could lead to an increase in the group’s effective tax rate from 7% currently to Malaysia’s corporate tax rate of 24% p.a. beyond FY18F. In our estimates, we have assumed a blended effective tax rate of 15% for FY18F. Income Statement (US$m)

FY Dec 2013A 2014A 2015A 2016F 2017F 2018F Revenue 16.6 33.2 36.5 38.9 43.5 49.6

Other Opng (Exp)/Inc (11.4) (18.4) (22.5) (23.5) (27.1) (28.8)

Operating Profit 5.22 14.8 14.0 15.4 16.4 20.8

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc (0.1) 0.04 0.46 0.81 1.15 1.48

Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 0.0

Pre-tax Profit 5.17 14.8 14.4 16.2 17.6 22.3

Tax (1.7) 0.49 (1.0) (1.1) (1.2) (3.3)

Minority Interest (0.8) (3.1) (2.8) (3.1) (3.3) (4.2)

Preference Dividend 0.0 0.0 0.0 0.0 0.0 0.0

Net Profit 2.68 12.2 10.7 12.0 13.0 14.7

Net Profit before Except. 2.68 12.2 10.7 12.0 13.0 14.7

EBITDA 7.02 17.9 18.0 20.2 21.6 26.1

Growth

Revenue Gth (%) (0.8) 99.8 9.8 6.8 11.8 13.9

EBITDA Gth (%) 143.5 154.1 0.6 12.5 6.7 20.9

Opg Profit Gth (%) 255.5 183.5 (5.5) 10.4 6.3 26.9

Net Profit Gth (Pre-ex) (%) 260.2 356.9 (12.9) 12.7 8.1 13.3

Margins & Ratio

Opg Profit Margin (%) 31.4 44.5 38.3 39.6 37.7 42.0

Net Profit Margin (%) 16.1 36.9 29.2 30.9 29.9 29.7

ROAE (%) 20.5 62.2 36.4 31.9 28.0 26.2

ROA (%) 14.3 45.2 27.9 23.9 20.5 18.8

ROCE (%) 18.8 55.0 32.7 28.4 24.7 22.9

Div Payout Ratio (%) 30.4 22.5 36.1 30.0 30.0 30.0

Net Interest Cover (x) 113.9 NM NM NM NM NM Source: Company, DBS Bank

Margins Trend

Page 50


Company Focus


Slightly weaker 3Q16 mostly due to stop-work order. CNMC was subjected to a temporary stop-work order issued by authorities in Kelantan (as part of the review process for the extension of its mining licence at Sokor). While the official stop-work order only spanned seven days, it took a further 14 days for the company to restart the production process, which resulted in reduced production output and one less gold pour (five instead of six scheduled gold pours) in 3Q16. Quarterly / Interim Income Statement (US$m)

FY Dec 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 Revenue 9.38 9.95 9.30 8.40 12.6 8.45

Other Oper. (Exp)/Inc (4.9) (7.6) (4.7) (2.7) (6.9) (6.2)

Operating Profit 4.44 2.33 4.60 5.66 5.71 2.24

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc 0.10 0.12 0.14 0.19 0.26 0.31

Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 0.0

Pre-tax Profit 4.54 2.45 4.74 5.85 5.97 2.54

Tax (0.1) (0.1) (0.7) (0.3) (0.1) (0.3)

Minority Interest (0.8) (0.6) (0.8) (1.1) (1.2) (0.5)

Net Profit 3.59 1.83 3.27 4.55 4.70 1.76

Net profit bef Except. 3.59 1.83 3.27 4.55 4.70 1.76

EBITDA 4.44 2.33 4.60 5.66 5.71 2.24

Growth

Revenue Gth (%) 19.5 6.1 (6.5) (9.6) 50.2 (33.0)

EBITDA Gth (%) 69.8 (47.5) 97.3 23.3 0.9 (60.9)

Opg Profit Gth (%) 69.8 (47.5) 97.3 23.3 0.9 (60.9) Net Profit Gth (Pre-ex) (%)

81.9 (49.1) 78.5 39.4 3.3 (62.5)

Margins

Opg Profit Margins (%) 47.3 23.4 49.4 67.4 45.3 26.5

Net Profit Margins (%) 38.3 18.4 35.1 54.2 37.3 20.9

Revenue Trend


Page 51


Company Focus


Balance Sheet

Primed for acquisitions. The group further strengthened its net cash position to US$33.4m as at 3Q16, which represents >20% of current market cap. Apart from a one-off RM20m fee payable for the extension of its mining licence at Sokor, we believe CNMC’s strong cash balance puts the company in good stead for the funding of potential acquisitions. Balance Sheet (US$m)

FY Dec 2013A 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 11.8 14.1 17.8 21.8 25.7 27.4

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 0.0

Other LT Assets 4.20 4.99 2.08 2.08 2.08 2.08

Cash & ST Invts 3.00 12.3 22.1 31.3 40.1 55.0

Inventory 1.09 0.80 0.87 1.00 1.08 1.10

Debtors 1.25 0.61 0.83 0.77 0.86 0.98

Other Current Assets 0.0 0.0 0.0 0.0 0.0 0.0

Total Assets 21.3 32.8 43.7 57.0 69.8 86.6

ST Debt

1.15 0.07 0.04 0.04 0.04 0.04

Creditor 3.43 3.16 3.00 3.69 3.98 4.05

Other Current Liab 1.87 1.07 1.26 2.38 2.47 4.59

LT Debt 0.01 0.18 0.10 0.10 0.10 0.10

Other LT Liabilities 0.33 0.54 1.25 1.25 1.25 1.25

Shareholder’s Equity 14.2 25.2 33.5 41.9 51.0 61.3

Minority Interests 0.33 2.65 4.55 7.64 11.0 15.2

Total Cap. & Liab. 21.3 32.8 43.7 57.0 69.8 86.6

Non-Cash Wkg. Capital (3.0) (2.8) (2.6) (4.3) (4.5) (6.6)

Net Cash/(Debt) 1.83 12.1 22.0 31.2 40.0 54.8

Debtors Turn (avg days) 22.5 10.2 7.2 7.5 6.8 6.8

Creditors Turn (avg days) (735.0) (393.7) (281.8) (255.6) (271.4) (279.3)

Inventory Turn (avg days) (213.8) (113.3) (76.5) (71.5) (73.7) (75.8)

Asset Turnover (x) 0.9 1.2 1.0 0.8 0.7 0.6

Current Ratio (x) 0.8 3.2 5.5 5.4 6.5 6.6

Quick Ratio (x) 0.7 3.0 5.3 5.3 6.3 6.4

Net Debt/Equity (X) CASH CASH CASH CASH CASH CASH

Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH CASH Source: Company, DBS Bank

Asset Breakdown

Page 52


Company Focus


Cash Flow Statement

Strong cash flow generation supports dividend and future expansion plans. Owing to its short cash conversion cycle (typically 3-5 days from date of gold production), CNMC’s strong cash flow generation capability has helped grow the group’s cash balance substantially over the last few years, which has allowed it to consistently pay dividends from FY13 onwards. We project the group to pay out US$3.6m of dividends in FY16F (assuming payout ratio of 30%), which we think will be easily met by the cash generated from its operations at Sokor. Cash Flow Statement (US$m)

FY Dec 2013A 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 5.17 14.8 14.4 16.2 17.6 22.3

Dep. & Amort. 1.81 3.05 3.99 4.77 5.15 5.25

Tax Paid (0.1) (0.3) (0.3) 0.0 (1.1) (1.2)

Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 0.0

Chg in Wkg.Cap. (2.1) (0.5) (0.9) 0.62 0.12 (0.1)

Other Operating CF 0.09 0.82 3.00 0.0 0.0 0.0

Net Operating CF 4.87 18.0 20.2 21.6 21.7 26.3

Capital Exp.(net) (2.2) (2.1) (1.3) (4.0) (9.0) (7.0)

Other Invts.(net) (3.0) (2.8) (2.9) (4.8) 0.0 0.0

Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 0.0

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 0.0

Other Investing CF 0.0 0.0 0.0 0.0 0.0 0.0

Net Investing CF (5.2) (4.9) (4.2) (8.8) (9.0) (7.0)

Div Paid (0.5) (1.6) (2.9) (3.6) (3.9) (4.4)

Chg in Gross Debt 1.23 (0.3) 0.0 0.0 0.0 0.0

Capital Issues 0.0 0.0 (0.1) 0.0 0.0 0.0

Other Financing CF 0.0 (0.1) (0.1) 0.0 0.0 0.0

Net Financing CF 0.74 (2.1) (3.1) (3.6) (3.9) (4.4)

Currency Adjustments 0.0 (0.9) (3.2) 0.0 0.0 0.0

Chg in Cash 0.39 10.1 9.79 9.21 8.80 14.8

Opg CFPS (S cts) 2.42 6.38 7.32 7.28 7.48 9.12

Free CFPS (S cts) 0.94 5.51 6.58 6.11 4.40 6.67 Source: Company, DBS Bank

Capital Expenditure

Page 53


Company Focus


Valuation Target price of S$0.65, based on a blend of 14x FY17F PE and DCF. CNMC currently trades at just 11x FY17F PE - close to its historical average. CNMC Goldmine Forward P/E Band (x)

Source: Bloomberg Finance L.P., DBS Bank Given the volatile nature of gold process and its potential impact on near-term earnings, we base our TP on a blend of DCF (which assumes WACC of 10.7% and terminal growth

of 1%) and PE (using 14x FY17F PE) metrics, which we believe better reflects CNMC’s superior cash flow generation, already competitive cash costs and steadily growing gold production. Despite its smaller scale (as compared to larger global peers), we opine that the peer average of 14x PE is fair, as we see opportunities for the company to maximise operating leverage in the current environment on the expectation of higher gold production and sustained competitive cash costs ahead. We also note that 14x PE is reasonable against the projected 10% EPS CAGR over FY15-FY17F. Additionally, the group’s well-run operations, strong balance sheet and cashflow generation capabilities further enhance its attractiveness as a less-risky, leveraged play on gold. Note: We focus on production rather than reserves, as the former is a more relevant metric for in-production gold mining companies, while the latter tends to be of greater interest to exploration-stage companies in search of external financing.

Peer Comparables for CNMC Goldmine (as at 11 Nov 2016)

Source: Thomson Reuters, DBS Bank

Mkt Cap Crnt DPS

Company US$m His t Crnt Forw His t Crnt Forw His t Crnt His t Crnt Yie ld Payout

BARRICK GOLD (NYS) USD 14.84 17,295 47.9 21.1 14.9 5.5 6.1 5.3 1.7 2.2 3.7% 10.5% 0.5% 11.4%

NEWMONT MINING USD 31.59 16,766 28.0 18.5 16.5 5.5 7.7 6.8 1.4 1.4 5.0% 7.8% 0.4% 7.2%

NEWCREST MINING AUD 22.47 12,988 42.9 20.8 18.2 9.9 8.0 7.1 1.8 1.7 4.3% 8.4% 1.0% 21.1%

GOLDCORP (NYS) USD 13.14 11,217 119.5 42.9 20.2 6.9 9.5 7.0 0.6 0.8 0.5% 1.9% 1.0% 41.5%

KINROSS GOLD (NYS) USD 3.25 4,046 -54.2 25.8 14.6 3.7 4.9 3.7 0.8 0.9 -1.5% 3.6% 0.0% 0.0%

GOLD FIELDS ZAR 51.1 2,924 36.6 10.6 8.3 3.5 3.8 3.4 0.8 1.0 2.1% 9.0% 2.8% 29.5%

SARACEN MINERAL HDG. AUD 1.195 727 29.9 10.3 7.8 7.1 n.a. n.a. 3.6 2.8 12.1% 27.1% 1.0% 10.3%

RICHMONT MINES CAD 8.8 382 48.9 31.8 13.6 21.3 n.a. n.a. 3.2 2.7 6.6% 8.5% 0.0% 0.0%

CNMC GOLDMINE * SGD 0.505 146 13.9 12.1 10.1 n.a. n.a. n.a. n.a. 29.9 n.a. 326.0% 2.5% 23.0%

Average 34.8 21.5 13.8 7.9 6.7 5.6 1.8 4.8 4.1% 44.8% 1.0% 16.0%

Average (ex-CNMC) 37.4 22.7 14.3 7.9 6.7 5.6 1.8 1.7 4.1% 9.6% 0.8% 15.1%

Las t Px

------------- PER ---------------- EV/EBITDA Price-to-Book ROE

Page 54


Company Focus


DCF Implies Equity Value of S$0.67


Sensitivity to Gold Prices in FY17F

*based on blend of DCF and 14x FY17F PE Source: Company, DBS Bank

Dis counted Cas h Flow ValuationPeriod 0 1 2 3 4 5 Termina lFYE Dec (S$m) FY16F FY17F FY18F FY19F FY20F FY21F Va lueOperating profit 15.4 16.4 20.8 23.3 23.4 22.6Add Depreciation and Amortisation 4.8 5.2 5.2 5.6 6.1 6.9Less Tax Provision (1.1) (1.2) (3.3) (6.1) (6.2) (6.2)Less Capex (4.0) (9.0) (7.0) (7.0) (7.0) (7.0)Add changes in Working Capital 0.6 0.1 (0.1) 0.1 0.3 0.4Total FCF to the Firm 15.7 11.5 15.7 15.9 16.6 16.8 175.4Discounted Cash Flow 15.7 10.3 12.8 11.7 11.1 10.1

Terminal Growth (assumed) 1%Sum of PV of FCF 64.8PV of Terminal Value 105.7Enterprise Value 170.6 1% 1% 1%Add : Net Cash (Debt) 22.0Equity Value (S$m) 192.6

No of shares (diluted) 407.693

Equity Va lue Per Share (US$) 0.47Equity Va lue Per Share (S$) 0.67

as at FY15

1250 1260 1270 1280 1290FY17F Net Profit(US$ m) 12.6 12.8 13.0 13.2 13.4

% Chg -3.4% -1.7% 1.8% 3.5%

1250 1260 1270 1280 129012-month TP* 0.63$ 0.64$ 0.65$ 0.65$ 0.66$

% Chg -1.9% -0.9% 1.0% 1.9%

Gold Prices (US$/oz)

Gold Prices (US$/oz)

Page 55

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: JC, PY

BUY Last Traded Price ( 14 Nov 2016): S$0.455 (STI : 2,787.27) Price Target 12-mth: S$0.56 (23% upside) Potential Catalyst: Earnings-accretive acquisitions Analyst Lee Keng LING +65 6682 3703 [email protected]

What’s New 1H17 earnings doubled; North Asia accounted for

71% of 1H17 revenue

UnUsUal to strengthen network

Cinemas to build recurring income base

Maintain BUY with TP of S$0.56

Price Relative

Forecasts and Valuation FY Mar (S$ m) 2016A 2017F 2018F 2019F Revenue 38.3 99.2 143 174 EBITDA 19.4 31.6 41.7 47.9 Pre-tax Profit 9.99 22.2 29.9 36.2 Net Profit 8.90 18.4 24.9 30.0 Net Pft (Pre Ex.) 8.90 18.4 24.9 30.0 Net Pft Gth (Pre-ex) (%) 73.4 107.1 34.9 20.8 EPS (S cts) 0.98 1.76 2.37 2.86 EPS Pre Ex. (S cts) 0.98 1.76 2.37 2.86 EPS Gth Pre Ex (%) 59 79 35 21 Diluted EPS (S cts) 0.98 1.76 2.37 2.86 Net DPS (S cts) 0.0 0.0 0.0 0.0 BV Per Share (S cts) 4.00 6.93 9.31 12.2 PE (X) 46.2 25.9 19.2 15.9 PE Pre Ex. (X) 46.2 25.9 19.2 15.9 P/Cash Flow (X) nm 30.4 20.3 14.6 EV/EBITDA (X) 21.2 14.6 11.6 9.8 Net Div Yield (%) 0.0 0.0 0.0 0.0 P/Book Value (X) 11.4 6.6 4.9 3.7 Net Debt/Equity (X) CASH CASH 0.1 CASH ROAE (%) 32.1 33.8 29.2 26.7 Earnings Rev (%): - - NEW Consensus EPS (S cts): 1.80 2.20 2.30 Other Broker Recs: B: 2 S: 0 H: 0


Growth intact

Growth supported by core business; cinemas to build recurring income. We project mm2 to grow at an EPS CAGR of 50% from FY16-FY19, underpinned by growth in productions, expansion into the China market, and contributions from cinema operations and entertainment company, UnUsUal Group. Contribution from the newly proposed acquisition of 13 cinemas in Malaysia, which would propel mm2 Asia to become a top four player in Malaysia, is expected to be from FY18F onwards. In terms of its core production business, we expect North Asia, including China, Hong Kong and Taiwan, to contribute >70% of core revenue from FY17F, up from 23% in FY16. Upside to earnings could come from more projects, especially in China where budgets are much higher. 1H17 earnings doubled. mm2 reported a net profit of S$8.9m (+97% y-o-y) for 1H17. We expect a stronger 2H, mainly from the full impact from UnUsUal and the Mega cinemas acquired. UnUsUal listing. The successful listing of UnUsUal, which mm2 acquired at 10.2x PE back in February 2016, would enable mm2 to crystallise gains and unlock value, and allow UnUsUal to tap on public funds for expansion. Valuation:

Maintain BUY and TP of S$0.56. We maintain our earnings forecasts for FY17F and FY18F but we have removed the revenue from the Distribution segment, to be in line with the group’s reporting format. We have also added forecasts for FY19F. Maintain BUY. Our TP of S$0.56 is pegged to FY18F earnings and peers’ average of 24x. Key Risks to Our View:

No long-term financing arrangements for productions. The commencement of each production is dependent on mm2’s ability to secure funding. Availability of good scripts. Lack of good scripts for production may lead to less support from stakeholders. At A Glance Issued Capital (m shrs) 1,029 Mkt. Cap (S$m/US$m) 468 / 331 Major Shareholders (%) Wee Chye Ang 45.9 Yeo Khee Seng 9.2 Starhbu Ltd 8.6

Free Float (%) 36.4 3m Avg. Daily Val (US$m) 1.2 ICB Industry : Consumer Services / Media



mm2 Asia Version 8 | Bloomberg: MM2 SP | Reuters: MM2A.SI Refer to important disclosures at the end of this report

68

168

268

368

468

568

668

768

868

968

0.0

0.1

0.1

0.2

0.2

0.3

0.3

0.4

0.4

0.5

0.5

Dec-14 Jun-15 Dec-15 Jun-16

Relative IndexS$

mm2 Asia (LHS) Relative STI (RHS)


Company Guide

mm2 Asia

WHAT’S NEW

mm2 Asia – 1H17 results in line

Results highlights

1H17 earnings doubled. mm2 reported a net profit of S$8.9m (+97% y-o-y) for 1H17, which accounted for 48% of our FY17F earnings of S$18.4m. We expect a stronger 2H, mainly from full impact from UnUsUal and the Mega cinemas acquired. Revenue surged 176% to S$35m. The increase in revenue was mainly due to newly acquired UnUsUal and additional revenue generated from the cinema business. On top of that, the revenue of its core business increased by 104.7% to approximately S$21.7m in 1H17.

In terms of segmental breakdown, the core business of production and distribution accounted for 62% of total revenue; 15% was contributed by UnUsUal; cinemas accounted for 17% and the balance 6% from post-production activities. In 1H16, there were only two segments – core business and post-production, which accounted for83% and 17% of total revenue respectively.

North Asia accounted for 71% of 1H17 revenue. In terms of geographical breakdown for its core business, North Asia accounted for 71% of 1H17 revenue, which includes one TV series and two movies. The balance 29% were from Singapore and Malaysia, contributed by three movies. In 1H16, North Asia accounted for only 21% of total revenue.

Outlook

Increasing focus on North Asia. We expect North Asia, including China, Hong Kong and Taiwan, to contribute >70% of core revenue from FY17F, up from 23% in FY16. Of the 35 projects slated for production from April 2016 to September 2017, 18 are from North Asia. Production budgets and

margins in North Asia, especially China, are generally better than local productions.

UnUsUal to strengthen network. UnUsUal has a strong presence in Asia and a network of regional artistes to synergise with mm2’s growth in North Asia. The successful listing of UnUsUal, which mm2 acquired at 10.2x PE back in February 2016, would enable mm2 to crystallise gains and unlock value.

Cinemas to build recurring income base. On 7 November 2016, mm2 proposed the acquisition of 13 cinemas in Malaysia. Upon completion of the proposed acquisition, the group will own a total of 133 cinema screens in Malaysia, elevating it to the 4th largest cinema operator in the Malaysian market, with a market share of about 14% in terms of number of screens. Besides building recurring income, this acquisition would enable the group to scale up for better synergies and cost savings.

Expansion in area of new media. mm2 will continue to expand in the area of new media content. With an Over-the-top (OTT) content platform in development and the recent proposed acquisition of RINGS.TV to offer more diverse content and an additional platform for broadcast, mm2 is in a position to produce, distribute and exhibit transmedia content and enter new market segments.

Maintain BUY and TP of S$0.56. We maintain our earnings forecasts for FY17F and FY18F but we have removed the revenue from the Distribution segment, to be in line with the group’s reporting format. We have also added forecasts for FY19F. Maintain BUY. Our TP of S$0.56 is pegged to FY18F earnings and peers’ average of 24x.


Company Guide

mm2 Asia

Interim Income Statement (S$m)


1H16 2H16 1H17% chg

y oy % chg hoh

Revenue 12.7 25.6 35.0 175.9 36.6Cost of Goods Sold (4.3) (15.6) (15.3) 254.9 -2.4Gross Prof it 8 .4 10.0 19.8 135.4 97.7Other Oper. (Exp)/Inc (3.0) (5.4) (8.9) 195.1 64.3Operat ing Prof it 5 .4 4.6 10.9 102.2 136.9Other Non Opg (Exp)/Inc 0.0 (0.0) (0.0) -276.0 76.0Associates & JV Inc 0.0 0.0 0.0 - -Net Interest (Exp)/Inc 0.0 0.0 0.0 - -Exceptional Gain/(Loss) 0.0 0.0 0.0 - -Pre- tax Prof it 5 .4 4.6 10.9 100.4 137.2Tax (0.9) (0.2) (2.0) 118.7 1011.7Minority Interest 0.0 0.0 0.0 - -Net Prof it 4 .5 4.4 8.9 96.6 101.4Net profit bef Except. 4.5 4.4 8.9 96.6 101.4EBITDA 6.7 4.6 13.5 102.0 193.0

Growth

Revenue Gth (%) (13) 102 37EBITDA Gth (%) 45 (31) 193Opg Profit Gth (%) 161 (15) 137Net Profit Gth (Pre-ex) (%) 208 (2) 101Margins

Gross Margins (%) 66.1 39.0 56.4Opg Profit Margins (%) 42.4 17.9 31.1Net Profit Margins (%) 35.5 17.1 25.3


Company Guide

mm2 Asia


Earnings Drivers:

Acquisitions to strengthen competitive edge and build income base mm2 has made several acquisitions to maintain its competitive advantage. The latest is the acquisition of 13 cinemas in Malaysia. Upon completion likely in February next year, mm2 will own a total of 18 cinemas with a market share of about 14% in terms of number of screens, propelling the company to become a top four player in Malaysia. The ownership of cinemas will provide a source of recurring income to the group and cost savings in the longer term, as mm2 usually has to pay about 50% of its gross intake for rental of cinemas. Cinema operation is a profitable business, and could be profitable even with less than 50% of the seats occupied.

Other than cinemas, mm2 has recently entered into an MOU to acquire up to 30% stake in RINGS.TV, a leading interactive live streaming broadcast platform for S$4.5m in a bid to beef up its OTT (over-the-top) platform. In February 2016, mm2 acquired a 51% stake in UnUsUal Group, one of Asia’s largest promoters and organisers of shows and entertainment acts, for S$26m.

Consolidating its position in local market; tapping on StarHub’s strong brand name As the industry leader, mm2 is poised for more opportunities ahead. With the entry of StarHub with a 9.05% stake, mm2 can tap on the former's strong brand name and this could raise its profile and pave the way for bigger opportunities ahead. mm2 could also leverage on StarHub to attract more sponsorship for its productions. StarHub can choose to tap on mm2’s cineplex business to showcase its content, as well as gain access to top-rated concerts and artistes through UnUsUal, in which mm2 owns a 51% stake.

Going for niche markets in North Asia; adaptation of successful movies. In terms of strategy in China, instead of competing directly with the local big boys, mm2’s strategy is to go for small, niche markets and replicate its proven business model that it has in Singapore. For example, remaking successful titles like “The Journey” or Jack Neo’s “I not Stupid” movie in a specific province like Sichuan, which has a population of about 80m, which is >10x bigger than Singapore. mm2 can adapt the movie to the local setting, which would be more appealing to the locals there. Besides production of movies, mm2 can also produce variety shows, either on its own or via tie-ups with one of its shareholders, Hesheng Media, which is one of the largest integrated media companies in China.

Distribution of movies, another core competency of mm2 apart from production and advertising, is also another channel that can broaden mm2’s income in China.

Business Model – The Film Budget

Business Model – Gross Receipts (Box Office)

Revenue Breakdown by Segment

FY16 Revenue Breakdown by Country

Profitability Trend


S$29.8m

S$61.9m

S$66.7m S$82.7m

S$4.9m

S$14.0m

S$36.0m S$43.2m

S$18.3m S$35.8m S$42.9m

S$3.6m S$5.0m S$5.0m S$5.0m

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

16 17F 18F 19F

Vividthree

UnUsUal

Cinema

Core business

Singapore59%Malaysia

19%

China15%

Taiwan4%

Hong Kong3%

0

5

10

15

20

25

30

35

40

45

2014A 2015A 2016A 2017F 2018F 2019F

EBIT Pre tax Profit Net Profit

S$m

Net profit CAGR: 58%

Equals

less

less

less

less

Producer’s Fee

Script Rights

Director’s Fee

Production Team / Crew Fees

Production Cost

Post - Production Cost

Prints & Advertising Cost

Income to mm2

Box Office Receipts

Exhibitors’ Cost

Distribution Commission

Marketing Costs

Producer Bonus *

Net Receipts

Income to mm2

Return to Stakeholders (mm2 may also be a stakeholder)

* only when return is higher than stakeholders’ ROI


Company Guide

mm2 Asia

Balance Sheet:

Net cash position. mm2 was in a net cash position as at September 2016. Though we do not rule out the possibility of the group taking on more debt, as it is constantly on the lookout for acquisitions that can complement its existing business and also to build its recurring income base, the full impact from its recent acquisitions should lead to stronger earnings and equity base.

Asset-light business model. More than half of its assets are current assets, comprising mainly cash and receivables, even with the acquisition of cinemas and UnUsUal.


UnUsUal listing. The successful listing of UnUsUal, which mm2 acquired at 10.2x PE back in February 2016, would enable mm2 to crystallise gains and unlock value, and allow UnUsUal to tap on public funds for expansion.

Growing production and distribution income. Its core business, which includes production, distribution and sponsorship, is expected to account for at least 70% of total revenue going forward. In terms of production project pipeline, we expect more than half of the production to come from North Asia. In China, we are expecting the group to also produce dramas, which will have a much bigger production budget than movies. Even for movies in China, their production budgets and margins are also better than local productions.

mm2 has also entered into an agreement to acquire the exclusive licensed rights to produce and broadcast The Voice for the Singapore/Malaysia version. The Voice is a popular format show currently being watched by more than 500m viewers. mm2, together with Clover Films, has also clinched the distribution rights for 19 movies in Singapore and Malaysia. Though distribution margins are much lower than production, at about 3% vs ~40%, it is very scalable.

Key Risks:

No long-term financing arrangements for productions. The commencement of each production is dependent on mm2’s ability to secure funding. Availability of good scripts. Lack of good scripts for production may lead to less support from stakeholders. Unable to predict the commercial success of movies produced. The commercial success of its productions is primarily determined by inherently unpredictable audience reactions.

Company Background mm2 Asia is a leading producer of films and TV/online content in Asia. As a producer, mm2 provides services over the entire film-making process – from financing and production to marketing and distribution, and thus has diversified revenue streams. mm2 also owns entertainment company, UnUsUal Group, and cinemas in Malaysia.

Number of Titles (Production & Distribution)

Year Number of Titles

(Production) Number of Titles

(Distribution) FY Mar 2012 3 2 FY Mar 2013 6 8 FY Mar 2014 6 18 FY Mar 2015 9 26 FY Mar 2016 14 24

Apr 16 to Sep 17* 35 * projection

Details of cinemas acquiredCinema Place Capacity

Cathay Cineplex City Square Johor Bahru 14 screens, 2,826 seats

Cathay Cineplex Damansara Damansara 16 screens, 2,472 seats

Mega Cineplex Prai Penang 6 screens, 1,420 seats

Mega Cineplex Langkawi Langkawi 3 screens 536 seats

Mega Cineplex Bertam Bertam 4 screens 756 seats

LFS 1 Plaza, Kuala Selangor Selangor 5 screens, 733 seats

LFS Seri Iskandar Perak 7 screens, 1,349 seats

LFS 1 Segamat Johor 8 screens, 1,703 seats

LFS Prangin Mall Penang 8 screens, 1,490 seats

LFS Bahau Negeri Sembilan

6 screens, 1,036 seats

LFS Shaw Centre, Point Klang

Selangor 4 screens, 875 seats

LFS Riverside, Kuching Sarawak 4 screens, 585 seats

LFS IOI Kulai Johor 6 screens, 920 seats

LFS Kerian Sentral Mall Perak 8 screens, 1,183 seats

LFS Summer Mall Sarawak 12 screens, 2,038 seats

LFS Mahkota Parade Malacca 4 screens, 645 seats

LFS Bukit Jambul Penang 6 screens, 1,167 seats

LFS Kampar Perak 6 screens, 846 seats

Forward PE Band (x)

PB Band (x)


Avg: 12.7x

+1sd: 17.4x

+2sd: 22x

‐1sd: 8x

‐2sd: 3.4x3.0

8.0

13.0

18.0

23.0


(x)

Avg: 5.31x

+1sd: 7.01x

+2sd: 8.71x

‐1sd: 3.62x

‐2sd: 1.92x1.7

2.7

3.7

4.7

5.7

6.7

7.7

8.7


(x)


Company Guide

mm2 Asia

Segmental Breakdown

FY Mar 2015A 2016A 2017F 2018F 2019F

Revenues (S$m)

Core Business 24.3 29.8 61.9 66.7 82.7 Production 51.9 56.7 72.7 TV Content 10.0 10.0 10.0 Cinema 4.9 14.0 36.0 43.2 UnUsUal 18.3 35.8 42.9 Vividthree 3.6 5.0 5.0 5.0

Total 24.3 38.3 99.2 143.4 173.8 Gross profit (S$m)

Core Business 9.6 13.1 22.3 24.2 30.6 Production 20.8 22.7 29.1 TV Content 1.5 1.5 1.5 Cinema 2.8 7.7 19.8 23.8 UnUsUal 6.8 13.2 15.9 Vividthree 2.5 3.5 3.5 3.5

Total 9.6 18.4 40.2 60.7 73.7 Gross profit Margins (%)

Core Business 39% 44% 36% 36% 37% Production 40% 40% 40% TV Content 15% 15% 15% Cinema 57% 55% 55% 55% UnUsUal 37% 37% 37% Vividthree 69% 70% 70% 70%

Total 39% 48% 41% 42% 42%


FY Mar 2015A 2016A 2017F 2018F 2019F

Revenue 24.3 38.3 99.2 143 174 Cost of Goods Sold (14.7) (20.0) (59.0) (82.7) (100) Gross Profit 9.58 18.4 40.2 60.7 73.7 Other Opng (Exp)/Inc (3.0) (8.0) (17.7) (28.0) (34.8) Operating Profit 6.62 10.4 22.6 32.7 38.9 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.00 (0.4) (0.4) (2.8) (2.8) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 6.58 9.99 22.2 29.9 36.2 Tax (1.5) (1.1) (3.8) (5.1) (6.1) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 5.08 8.90 18.4 24.9 30.0 Net Profit before Except. 5.13 8.90 18.4 24.9 30.0 EBITDA 9.92 19.4 31.6 41.7 47.9 Growth

Revenue Gth (%) 50.7 57.9 158.8 44.5 21.2 EBITDA Gth (%) 38.5 95.2 63.0 32.2 14.9 Opg Profit Gth (%) 78.3 56.7 117.6 44.9 19.0 Net Profit Gth (Pre-ex) (%) 68.1 73.4 107.1 34.9 20.8 Margins & Ratio

Gross Margins (%) 39.5 48.0 40.6 42.3 42.4 Opg Profit Margin (%) 27.3 27.1 22.8 22.8 22.4 Net Profit Margin (%) 20.9 23.2 18.6 17.3 17.3 ROAE (%) 44.5 32.1 33.8 29.2 26.7 ROA (%) 18.5 16.7 17.0 13.3 12.0 ROCE (%) 37.7 27.3 28.4 19.5 17.5 Div Payout Ratio (%) 0.0 0.0 0.0 0.0 0.0 Net Interest Cover (x) NM 26.8 58.3 11.7 14.0


Partial contributions from UnUsUal

Includes contribution from latest acquisition of Lotus cinemas


Company Guide

mm2 Asia


FY Mar 1H15 2H15 1H16 2H16 1H17

Revenue 9.7 14.6 12.7 25.6 35.0 Cost of Goods Sold (4.0) (10.7) (4.3) (15.6) (15.3) Gross Profit 5.7 3.9 8.4 10.0 19.8 Other Oper. (Exp)/Inc (1.2) (1.8) (3.0) (5.4) (8.9) Operating Profit 4.5 2.1 5.4 4.6 10.9 Other Non Opg (Exp)/Inc 0.0 (0.0) 0.0 (0.0) (0.0) Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 4.5 2.0 5.4 4.6 10.9 Tax (0.9) (0.6) (0.9) (0.2) (2.0) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 3.6 1.5 4.5 4.4 8.9 Net profit bef Except. 3.6 1.5 4.5 4.4 8.9 EBITDA 5.3 4.6 6.7 4.6 13.5

Growth

Revenue Gth (%) 51 (13) 102 37 EBITDA Gth (%) (13) 45 (31) 193 Opg Profit Gth (%) (54) 161 (15) 137 Net Profit Gth (Pre-ex) (%) (60) 208 (2) 101

Margins

Gross Margins (%) 58.7 26.7 66.1 39.0 56.4 Opg Profit Margins (%) 46.7 14.1 42.4 17.9 31.1 Net Profit Margins (%) 37.4 10.0 35.5 17.1 25.3

Balance Sheet (S$m)

FY Mar 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 0.10 3.65 4.84 18.3 23.8 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 6.36 26.1 33.2 57.3 62.9 Cash & ST Invts 5.76 4.74 29.6 36.5 49.1 Inventory 4.77 9.83 21.6 30.3 36.6 Debtors 20.6 24.4 58.2 84.2 102 Other Current Assets 0.0 0.26 0.26 0.26 0.26 Total Assets 37.6 69.0 148 227 275

ST Debt 0.22 0.20 0.20 0.20 0.20 Creditor 14.7 23.8 56.9 79.8 96.6 Other Current Liab 1.46 4.21 4.93 6.25 7.31 LT Debt 0.09 2.85 11.2 41.2 41.2 Other LT Liabilities 1.92 0.75 0.75 0.75 0.75 Shareholder’s Equity 19.2 36.2 72.6 97.5 128 Minority Interests 0.0 0.98 0.98 0.98 0.98 Total Cap. & Liab. 37.6 69.0 148 227 275

Non-Cash Wkg. Capital 9.19 6.49 18.2 28.6 35.0 Net Cash/(Debt) 5.45 1.69 18.2 (5.0) 7.64 Debtors Turn (avg days) 240.0 214.2 152.0 181.2 195.5 Creditors Turn (avg days) 417.3 640.7 294.6 338.5 353.4 Inventory Turn (avg days) 100.2 243.0 114.7 128.4 134.0 Asset Turnover (x) 0.9 0.7 0.9 0.8 0.7 Current Ratio (x) 1.9 1.4 1.8 1.8 1.8 Quick Ratio (x) 1.6 1.0 1.4 1.4 1.5 Net Debt/Equity (X) CASH CASH CASH 0.1 CASH Net Debt/Equity ex MI (X) CASH CASH CASH 0.1 CASH Capex to Debt (%) 645.4 279.3 150.7 112.4 48.3 Z-Score (X) 13.1 8.6 4.0 3.8 3.8


Volatile margins mainly due to different stages of revenue recognition


Company Guide

mm2 Asia


FY Mar 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 6.58 9.99 22.2 29.9 36.2 Dep. & Amort. 3.29 8.98 8.98 8.98 8.98 Tax Paid (1.5) (1.1) (3.1) (3.8) (5.1) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (12.0) (22.6) (12.5) (11.7) (7.4) Other Operating CF 1.00 0.0 0.0 0.0 0.0 Net Operating CF (2.6) (4.7) 15.7 23.4 32.6 Capital Exp.(net) (2.0) (8.5) (17.3) (46.6) (20.0) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (2.0) (8.5) (17.3) (46.6) (20.0) Div Paid 0.0 0.0 0.0 0.0 0.0 Chg in Gross Debt 2.94 2.35 8.40 30.0 0.0 Capital Issues 7.75 9.10 18.0 0.0 0.0 Other Financing CF (1.6) (0.7) 0.0 0.0 0.0 Net Financing CF 9.05 10.7 26.4 30.0 0.0 Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 4.44 (2.5) 24.9 6.86 12.6 Opg CFPS (S cts) 1.13 1.98 2.68 3.35 3.82 Free CFPS (S cts) (0.6) (1.5) (0.2) (2.2) 1.21



Source: DBS Bank

Analyst: Lee Keng LING

S.No.Date of Report

Closing Price

12-mth Target Price

Rat ing

1: 05 Jan 16 0.19 0.26 BUY

2: 04 Feb 16 0.18 0.26 BUY

3: 23 Mar 16 0.27 0.26 BUY

4: 24 Mar 16 0.26 0.31 BUY

5: 25 May 16 0.31 0.37 BUY

6: 10 Jun 16 0.35 0.37 BUY

7: 01 Jul 16 0.34 0.41 BUY

8: 13 Sep 16 0.39 0.47 BUY

9: 09 Nov 16 0.47 0.56 BUY

Note : Share price and Target price are adjusted for corporate actions.

1

2

3

4

5

6

7

89

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

Nov-15 Mar-16 Jul-16 Nov-16

S$

Issue of shares to finance recent acquisitions

Assume partial debt financing for the acquisition of cinemas

FY17 and FY18 - Acquisition of cinemas and RINGS.TV

ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa:JC, PY

BUY Last Traded Price: S$1.20 (STI : 2,869.82) Price Target 12-mth: S$1.50 (26% upside) Potential Catalyst: Successful new recruits of medical practitioners and expansion into new complementary medical services Where we differ: One of the few with research coverage on this stock Analyst Rachel TAN +65 6682 3713 [email protected] Andy SIM CFA +65 6682 3718 [email protected]

What’s New 1H16 net profit almost doubled to S$5.2m

Earnings from organic operations jumped 41% y-

o-y, new dermatology unit contributed 28% to

earnings

EBIT margin expanded 2ppts; cancer unit turns

profitable

Price Relative

Forecasts and Valuation FY Dec (S$ m) 2015A 2016F 2017F 2018F Revenue 16.4 28.6 32.9 38.0 EBITDA 6.30 11.3 13.3 15.3 Pre-tax Profit 6.18 10.8 12.4 14.3 Net Profit 5.34 9.32 10.7 12.3 Net Pft (Pre Ex.) 5.34 9.32 10.7 12.3 Net Pft Gth (Pre-ex) (%) 25.7 74.6 14.8 15.2 EPS (S cts) 2.45 3.91 4.49 5.17 EPS Pre Ex. (S cts) 2.45 3.91 4.49 5.17 EPS Gth Pre Ex (%) 1 60 15 15 Diluted EPS (S cts) 2.45 3.91 4.49 5.17 Net DPS (S cts) 2.14 3.41 3.92 4.51 BV Per Share (S cts) 11.0 15.8 16.4 17.0 PE (X) 48.8 30.6 26.6 23.1 PE Pre Ex. (X) 48.8 30.6 26.6 23.1 P/Cash Flow (X) 40.8 30.2 24.2 21.1 EV/EBITDA (X) 37.5 23.1 19.6 17.1 Net Div Yield (%) 1.8 2.9 3.3 3.8 P/Book Value (X) 10.8 7.6 7.3 7.0 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 29.8 30.2 27.9 30.9 Earnings Rev (%): 13 11 8 Consensus EPS (S cts): 3.60 4.10 4.80 Other Broker Recs: B: 3 S: 0 H: 0

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.

Strong growth from all fronts Maintain BUY rating, raised TP to S$1.50. We maintain our buy rating and remain positive on Singapore O&G (SOG)’s growth prospects. Key potential catalysts are i) better-than-expected growth from its cancer and dermatology divisions, ii) expansion into new specialisations such as paediatrics, and iii) better-than-expected improvement in margins. Strong 1H16 results from all divisions. 1H16 net profit almost doubled to S$5.2m (+91% y-o-y), from both forming 62% of streets’ FY16 estimates. The growth was partially contributed by the consolidation of Dr Joyce Lim’s dermatology medical practice and partially from strong organic growth (+41% y-o-y). Key positives: i) margins expanded 2 ppts, ii) increase in obstetrician & gynecology (O&G) division’s market share, and iii) cancer division has turned profitable. Expanding into higher-margin complementary specialised services. With the O&G business now achieving >1,500 births per annum, management believes that O&G would be able to support a new paediatrics division. Management hopes to start the new division in 2017, subject to successful recruitment of competent pediatricians. Management continues to explore new expansion opportunities both in new specialisations and/or new markets. We believe other complementary services to explore include in-vitro fertilization (IVF). High dividend payout. SOG has a high dividend payout policy of 90%, to align the interests of its medical practitioners (who together own a 78% stake), offering dividend yields of 3-4%. Valuation:

We increase our FY16F-FY18F earnings by 6%-11% by raising our EBIT margins and assuming higher contributions from its cancer division. We raised our target price to S$1.50 (from S$1.05), based on the average of PE multiple (raised PE multiple to 30x at 15% discount to peer) and DCF valuation. Key Risks to Our View:

Key risks that could derail our thesis includes i) Execution risks due to lack of track record, ii) highly dependent on a few key doctors, and iii) low liquidity. At A Glance Issued Capital (m shrs) 238 Mkt. Cap (S$m/US$m) 285 / 212 Major Shareholders (%) Tung Lan Heng 29.4 Keen Whye Lee 18.9 Suan Tiong Beh 10.2

Free Float (%) 24.3 3m Avg. Daily Val (US$m) 0.19 ICB Industry : Health Care / Health Care Equipment & Services

DBS Group Research . Equity 12 Aug 2016


Singapore O&G Version 1 | Bloomberg: SOG SP | Reuters: SINP.SI Refer to important disclosures at the end of this report


Company Guide

Singapore O&G

WHAT’S NEW

Strong growth from all fronts

Strong 1H16 results from both organic and inorganic growth. Singapore O&G (SOG) delivered a strong set of results. 1H16 net profit almost doubled to S$5.2m (+91% y-o-y); 62% of streets’ FY16 estimates. This was partially contributed by the consolidation of Dr Joyce Lim’s aesthetics and dermatology medical practice that was acquired at end-2015 and partially from strong organic growth. Excluding the new dermatology division, net profit grew 41% y-o-y.

1H16 EBIT margins expanded 2ppts y-o-y to 44%.EBIT margins expanded 2 ppts y-o-y to 44%, contributed by the increase in the average prices for its O&G division and the cancer division turning profitable, recording a net margin of 21%. The new dermatology division posted a good margin of 34%.

O&G division: babies delivered rose 7% y-o-y to 801. O&G division’s revenue grew 7.9% to S$8.4m, comprising 60% of the group’s revenue (SOG’s largest division). In 1H16, SOG recorded 801 deliveries vs 749 deliveries in 1H15. SOG’s market share improved marginally from 3.9% as at end-FY15 to 4% (based on total number of births in Singapore). According to management, most of the doctors recorded higher deliveries. Dr Natalie Chua recorded the largest improvement with the number of deliveries increasing by 67%. Her contribution to SOG’s numbers improved from 9% to 15%.

Dermatology division: Second largest division at 31% of group’s revenue. SOG’s new dermatology division recorded 1H16 revenue and net profit of S$4.3m and S$1.5m respectively, comprising 31% and 28% of the group’s revenue and net profit respectively, on track to meet Dr Joyce’s Lim’s S$2.5m profit guarantee. The dermatology division is now SOG’s second largest division.

Cancer division: Turned profitable. The cancer division continues to record strong revenue growth, expanding 34% h-o-h. The cancer division has turned profitable with a decent net margin of 21%. Albeit small (9% of group revenue), we believe the cancer division will continue to show strong growth with a new breast surgeon, Dr Lim Siew Kuan who just joined in May 2016.

Potential entry into Paediatrics in 2017. With the O&G business now achieving >1,500 births per annum, management believes that O&G would be able to support a new paediatrics division. Management hopes to start the new division in 2017 subject to successful recruitment of competent pediatricians. Management continues to explore new expansion opportunities both in new specialisations and/or new markets.

Interim dividend of 1.53 Scents. SOG declared an interim dividend of 1.53 Scents, representing a dividend payout of 70%.

Maintain BUY, raised TP to S$1.50. We increase our FY16F-FY18F earnings by 6%-11% by raising our EBIT margins to 37% (assuming flat margins y-o-y) and assuming higher contributions from its cancer division. We raised our target price to S$1.50 from S$1.05 previously, based on the average of PE multiple (raised our target PE multiple to 30x; reducing the discount to its peer to 15% from 28% previously following SOG’s strong performance thus reducing its execution risks) and DCF valuation.

We maintain our buy rating and remain positive on SOG’s growth prospects. Key potential catalysts are i) better-than-expected growth from its cancer and dermatology divisions, ii) expansion into new specialisations such as paediatrics, andiii) better-than-expected margin improvement.


Company Guide

Singapore O&G

Interim Income Statement (S$m)

FY Dec 1H2015 2H2015 1H2016 % chg yoy % chg hoh

Revenue 8 9 14 80.5 60.5

Gross Profit 8 9 14 80.5 60.5

Other Oper. (Exp)/Inc (4) (6) (8) 72.9 31.8

Operating Profit 3 3 6 91.0 120.5

Other Non Opg (Exp)/Inc 0 0 0 - -

Associates & JV Inc 0 0 0 - -

Net Interest (Exp)/Inc 0 0 0 - -

Exceptional Gain/(Loss) 0 0 0 - -

Pre-tax Profit 3 3 6 91.0 114.2

Tax (1) 0 (1) 92.3 275.3

Minority Interest 0 0 0 - -

Net Profit 3 3 5 90.7 96.7

Net profit bef Except. 3 3 5 90.7 96.7

EBITDA 3 3 6 89.2 108.6

Margins (%)

Opg Profit Margins 42.0 32.3 44.4

Net Profit Margins 35.1 30.3 37.1



Company Guide

Singapore O&G


Earnings Drivers:

Growing its market share in O&G. Singapore O&G (SOG) is a chain of medical practices, specialising in women’s health. It derives 60% of its revenue from its obstetrics and gynaecology (O&G) services, leveraging on the healthcare segment which is predominantly served by the private sector (57% of babies are delivered through the private sector).

In its effort to increase fertility rate, the Singapore government continues to provide incentives including baby bonus, tax benefits and more recently, the extension of paternal leave. SOG currently has five doctors specialising in O&G and has plans to further expand its market share in this segment via the recruitment of new doctors. SOG is well positioned to benefit from the potential increase in birth rate.

Diversifying into higher-margin complementary services. SOG has the potential to grow its women’s cancer-related, and newly acquired dermatology and aesthetics businesses by leveraging on referrals from its existing bread-and-butter O&G business. SOG aims to achieve equal revenue contributions from four key segments in the medium term. In line with its goal to be an integrated women’s health medical practice, we believe other complementary services to explore includes paediatrics, IVF and child care services.

Expanding into new markets. In the longer-term, SOG aspires to have a regional presence and continues to explore overseas opportunities in countries including Indonesia, Myanmar, IndoChina, Malaysia and China.

Up to 8-year service agreements with key doctors. SOG signed 5-year service agreements with key doctors who were 'acquired' together with the doctors’ medical practices (‘acquired’ doctors), mostly expiring in Dec 2019. The ‘acquired’ doctors receive two-fold remunerations, i.e. a basic salary and bonus of up to 20% on earnings generated above a minimum targeted earnings.

Number of clinics have doubled to 10. SOG currently operates ten clinics in six locations. SOG’s O&G specialist medical practitioners are accredited to perform deliveries and O&G surgeries in all major private hospitals in Singapore including Parkway Group of Hospitals, Mount Alvernia Hospital and Thomson Medical Centre. Similarly, its women cancer specialists are accredited to perform surgeries in all major private hospitals including Parkway Group of Hospitals, Mount Alvernia Hospital and Raffles Medical Hospital, and public hospitals including Khoo Teck Phuat Hospital.

Market share of babies delivered (%)

No. of doctors

No. of patient visits

Revenue breakdown by business segment

Revenue (S$’m) and net margin (%)


O&G91%

Cancer-re lated

9%

FY15A Revenue breakdown

O&G61%

Aesthetics31%

Cancer-re lated

8%

FY16F Revenue breakdown

31.4 32.5 32.6 32.5 32.4

15.0

17.0

19.0

21.0

23.0

25.0

27.0

29.0

31.0

33.0

35.0

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

2014 2015 2016F 2017F 2018F

Ne

t m

argi

n (%

)

Re

venu

e (S

$'m

)

Revenue Net margins


Company Guide

Singapore O&G

Balance Sheet:

Net cash. SOG has the ability to generate positive free cash flow as recurring capex requirements are small. It is currently in net cash position. While a more efficient capital structure may benefit the company better, it now provides SOG with ample war chest for acquisition of medical practices to expand its business and potential expansion into regional markets.


Strong organic earnings growth. As a newly listed company (in 2015) coupled with the lack of historical earnings growth, we believe consistent strong organic earnings growth would be a strong testament to its ability to execute its strategy and to deliver earnings growth.

Successful inorganic growth. With the lack of a track record in acquisitions, we believe the ability to achieve earnings growth from its acquisitions would instill more confidence in future M&A activities.

High dividend payout. With SOG’s high dividend payout policy, dividends will continue to grow as earnings expand. We believe sustainable high dividend yields would be a catalyst for the share price.

Key Risks:

Execution risks; lacks track record. SOG lacks a track record in quality recruitment, successful retention of doctors, and successful acquisitions of new medical practices.

Dependent on key doctors. SOG is dependent on its key doctors and there could be earnings risk should it fail to renew their service contracts which expire in 2019.

Low liquidity. With a market cap of US$141m and ADV of US$0.05m, SOG is a small cap with liquidity risks.

COMPANY BACKGROUND

Medical practice specializing in Women’s Health. Singapore O&G (SOG) is a chain of medical practices, specialising in women’s health mainly in obstetrics and gynaecology (O&G). It currently operates ten clinics in six locations with nine medical practitioners. Currently, SOG offers 3 major women’s specialised medical services, namely, obstetrics and gynaecology, women’s cancer-related and dermatology and aesthetics.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)



Company Guide

Singapore O&G

Key Assumptions

FY Dec 2014A 2015A 2016F 2017F 2018F

Market share of babies 0.06 0.07 0.07 0.09 0.10 No. of doctors 7.00 7.00 10.0 12.0 14.0 No. of patient visits 9,726 10,067 11,275 12,966 14,911

Segmental Breakdown

FY Dec 2014A 2015A 2016F 2017F 2018F

Revenues (S$m)

O&G 13.5 14.9 17.5 20.7 24.6 Cancer-related 0.09 1.54 2.15 2.80 3.63 Dermatology 0.0 0.0 8.93 9.38 9.84

Total 13.6 16.4 28.6 32.9 38.0 Operating profit (S$m) O&G 5.09 6.13 7.00 8.29 9.82 Cancer-related (0.1) (0.1) 0.49 0.64 0.84 Dermatology 0.0 0.0 3.13 3.28 3.45

Total 5.04 6.06 10.6 12.2 14.1 Operating profit Margins

O&G 37.9 41.2 40.0 40.0 40.0 Cancer-related (57.4) (4.6) 23.0 23.0 23.0 Dermatology N/A N/A 35.0 35.0 35.0

Total 37.2 36.9 37.2 37.1 37.1


FY Dec 2014A 2015A 2016F 2017F 2018F

Revenue 13.6 16.4 28.6 32.9 38.0 Cost of Goods Sold 0.0 0.0 0.0 0.0 0.0 Gross Profit 13.6 16.4 28.6 32.9 38.0 Other Opng (Exp)/Inc (8.5) (10.4) (18.0) (20.7) (23.9) Operating Profit 5.04 6.06 10.6 12.2 14.1 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.0 0.13 0.17 0.18 0.17 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 5.04 6.18 10.8 12.4 14.3 Tax (0.8) (0.8) (1.5) (1.7) (1.9) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 4.25 5.34 9.32 10.7 12.3 Net Profit before Except. 4.25 5.34 9.32 10.7 12.3 EBITDA 5.23 6.30 11.3 13.3 15.3 Growth

Revenue Gth (%) 56.8 21.2 74.1 15.1 15.6 EBITDA Gth (%) 35.9 20.4 78.9 18.2 14.8 Opg Profit Gth (%) 35.5 20.1 75.4 15.0 15.4 Net Profit Gth (Pre-ex) (%) 36.1 25.7 74.6 14.8 15.2 Margins & Ratio

Opg Profit Margin (%) 37.2 36.9 37.2 37.1 37.1 Net Profit Margin (%) 31.4 32.5 32.6 32.5 32.4 ROAE (%) 45.6 29.8 30.2 27.9 30.9 ROA (%) 36.5 25.1 21.6 18.3 21.3 ROCE (%) 45.6 30.4 27.2 24.5 29.8 Div Payout Ratio (%) 34.9 87.2 87.2 87.2 87.2 Net Interest Cover (x) NM NM NM NM NM


Acquired an aesthetics business at end-2015

Assumptions based on net margin of 28%

Earnings growth from the consolidation of aesthetics business


Company Guide

Singapore O&G


FY Dec 2H2014 1H2015 2H2015 1H2016

Revenue 6.92 7.72 8.69 13.9 Cost of Goods Sold 0.0 0.0 0.0 0.0 Gross Profit 6.92 7.72 8.69 13.9 Other Oper. (Exp)/Inc (4.9) (4.5) (5.9) (7.8) Operating Profit 1.98 3.24 2.81 6.20 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.0 0.02 0.10 0.04 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 Pre-tax Profit 1.98 3.27 2.91 6.24 Tax (0.3) (0.6) (0.3) (1.1) Minority Interest 0.0 0.0 0.0 0.0 Net Profit 1.71 2.71 2.63 5.17 Net profit bef Except. 1.71 2.71 2.63 5.17 EBITDA 2.17 3.36 3.05 6.36

Growth Revenue Gth (%) 4.5 11.6 12.5 60.5EBITDA Gth (%) (30.8) 55.1 (9.3) 108.6Opg Profit Gth (%) (35.3) 63.8 (13.4) 120.5Net Profit Gth (%) (32.7) 58.8 (3.1) 96.7 Margins Gross Margins (%) 100.0 100.0 100.0 100.0Opg Profit Margins (%) 28.6 42.0 32.3 44.4Net Profit Margins (%) 24.7 35.1 30.3 37.1

Balance Sheet (S$m)

FY Dec 2014A 2015A 2016F 2017F 2018F

Net Fixed Assets 0.60 0.68 1.93 1.23 0.44 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 0.84 0.99 26.0 26.0 26.0 Cash & ST Invts 11.3 24.2 24.7 24.1 24.1 Inventory 0.20 0.28 0.42 0.48 0.56 Debtors 1.93 1.48 2.97 3.42 3.95 Other Current Assets 0.0 0.0 2.74 2.74 2.74 Total Assets 14.9 27.6 58.7 58.0 57.7

ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 1.75 1.65 2.96 3.41 3.94 Other Current Liab 1.24 1.89 9.98 11.4 13.1 LT Debt 0.0 0.0 0.0 0.0 0.0 Other LT Liabilities 0.01 0.09 8.09 4.09 0.09 Shareholder’s Equity 11.9 24.0 37.7 39.1 40.6 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 14.9 27.6 58.7 58.0 57.7

Non-Cash Wkg. Capital (0.9) (1.8) (6.8) (8.2) (9.8) Net Cash/(Debt) 11.3 24.2 24.7 24.1 24.1 Debtors Turn (avg days) 44.8 37.9 28.4 35.4 35.3 Creditors Turn (avg days) (2,454.3) (2,584.3) (1,306.0) (1,055.0) (1,126.2) Inventory Turn (avg days) (411.6) (367.5) (198.2) (150.0) (160.2) Asset Turnover (x) 1.2 0.8 0.7 0.6 0.7 Current Ratio (x) 4.5 7.3 2.4 2.1 1.8 Quick Ratio (x) 4.4 7.3 2.1 1.9 1.6 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH



Company Guide

Singapore O&G


FY Dec 2014A 2015A 2016F 2017F 2018F

Pre-Tax Profit 5.04 6.18 10.8 12.4 14.3 Dep. & Amort. 0.19 0.24 0.64 1.10 1.19 Tax Paid (0.5) (0.2) (1.5) (1.5) (1.7) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 0.42 0.38 (0.3) (0.1) (0.1) Other Operating CF (0.2) (0.2) (0.2) (0.2) (0.2) Net Operating CF 4.92 6.39 9.43 11.8 13.5 Capital Exp.(net) (0.4) (0.3) (0.4) (0.4) (0.4) Other Invts.(net) 0.0 0.0 (6.0) (4.0) (4.0) Invts in Assoc. & JV 2.51 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.04 0.17 0.18 0.17 Net Investing CF 2.13 (0.3) (6.2) (4.2) (4.2) Div Paid (2.2) (3.4) (2.7) (8.1) (9.3) Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0 Capital Issues 0.0 10.2 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF (2.2) 6.81 (2.7) (8.1) (9.3) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 4.87 12.9 0.46 (0.6) 0.0 Opg CFPS (S cts) 2.58 2.76 4.09 4.97 5.71 Free CFPS (S cts) 2.61 2.79 3.79 4.77 5.51



Source: DBS Bank

Analyst: Rachel TAN, Andy SIM CFA

Staggered payment for the acquisition of aesthetics business

Market Focus

Small Mid Cap

Page 21

DBS Bank Equity Explorer return ratings reflect return expectations based on an assumed earnings profile and valuation parameters:

1 (>20% potential returns over the next 12 months)

2 (0 - 20% potential returns over the next 12 months)

3 (negative potential return over the next 12 months)

The risk assessment is qualitative in nature and is rated as either high, low or moderate risk. (see section on risk assessment)

Note that these assessments are based on a preliminary review of factors deemed salient at the time of publication. DBSV does not commit to ongoing coverage and updated assessments of stocks covered under the Equity Explorer product suite. Such updates will only be made upon official initiation of regular coverage of the stock.

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 20 Nov 2016 9:50:22

Dissemination Date: 20 Nov 2016 10:20:280

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

COMPANY GUIDES

Market Focus

Small Mid Cap

Page 22

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 21 Nov 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates have proprietary positions in Ascendas Hospitality Trust, Ascott Residence Trust, Cache Logistics Trust, Cambridge Industrial Trust, CapitaLand Retail China Trust, CDL Hospitality Trusts, Cosco Corporation, Croesus Retail Trust, Ezra Holdings, Far East Hospitality Trust, Frasers Centrepoint Trust, Frasers Commercial Trust, Frasers Hospitality Trust, Frasers Logistics & Industrial Trust, Indofood Agri, Keppel DC REIT, Keppel Infrastructure Trust, M1, Manulife US REIT, Mapletree Greater China Commercial Trust, Mapletree Logistics Trust, Midas Holdings, Noble Group, OUE Hospitality Trust, Parkway Life Real Estate Investment Trust, Sheng Siong Group, Soilbuild Business Space Reit, SPH REIT, Venture Corporation , YTL Starhill Global REIT recommended in this report as of 31 Oct 2016.

2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in Ascott Residence Trust, CDL Hospitality Trusts, Croesus Retail Trust, Frasers Commercial Trust, Frasers Hospitality Trust, Frasers Logistics & Industrial Trust, Keppel DC REIT, M1, Manulife US REIT, Mapletree Greater China Commercial Trust, Mapletree Logistics Trust, RHT Health Trust, Soilbuild Business Space Reit, YTL Starhill Global REIT recommended in this report as of 31 Oct 2016.

4. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of Ascott Residence Trust, CDL Hospitality Trusts, Croesus Retail Trust, Frasers Commercial Trust, Frasers Hospitality Trust, Frasers Logistics & Industrial Trust, Keppel DC REIT, M1, Manulife US REIT, Soilbuild Business Space Reit, YTL Starhill Global REIT as of 31 Oct 2016.

5. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 5% of any class of common equity securities of Croesus Retail Trust, CapitaLand Retail China Trust as of 31 Oct 2016. Compensation for investment banking services:

6.

DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Ascendas Hospitality Trust, Ascott Residence Trust, Cache Logistics Trust, Courts Asia, Croesus Retail Trust, Ezra Holdings, Frasers Commercial Trust, Frasers Hospitality Trust, Frasers Logistics & Industrial Trust, Japfa Ltd, Manulife US REIT, Mapletree Greater China Commercial Trust, Mapletree Logistics Trust, Nam Cheong, Noble Group, OUE Commercial REIT, OUE Hospitality Trust, Pacific Radiance Ltd, Parkway Life Real Estate Investment Trust, Perennial Real Estate Holdings, Procurri Corporation, RHT Health Trust, Soilbuild Business Space Reit, YTL Starhill Global REIT as of 31 Oct 2016.

7. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek compensation for investment banking services from Keppel DC REIT as of 31 Oct 2016.

Market Focus

Small Mid Cap

Page 23

8. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Ascendas Hospitality Trust, Ascott Residence Trust, Cache Logistics Trust, Courts Asia, Croesus Retail Trust, Frasers Commercial Trust, Frasers Hospitality Trust, Frasers Logistics & Industrial Trust, Manulife US REIT, Mapletree Greater China Commercial Trust , Mapletree Logistics Trust, Noble Group, OUE Hospitality Trust, Pacific Radiance Ltd, Perennial Real Estate Holdings, Procurri Corporation, Soilbuild Business Space Reit, YTL Starhill Global REIT in the past 12 months, as of 31 Oct 2016

9. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

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General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.) For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

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Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

Market Focus

Small Mid Cap

Page 24

United Kingdom

This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States This report was prepared by DBS Bank Limited. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3

Singapore 018982 Tel. 65-6878 8888

e-mail: [email protected] Company Regn. No. 196800306E

Singapore Market Focus Small Mid Cap Monthly...Zhongmin Baihui 234.4 1.19 (8%) 54.0 6.88 12.6 1,088,500 0.6% 17-Nov-16 Leveraged Companies Poh Tiong Choon Logistics 284.0 1.33 94%

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