sugarsectoratoughyear_04122012_mbke

8/12/2019 sugarsectoratoughyear_04122012_mbke

1/12SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

Update 04/12/2012

Vietnam

Sugar IndustryA Tough YearA di ff icul t 2012-2013... 2012 has been a difficult year for Vietnamssugar industry. A 14% YTD fall in the market price of sugar, coupledwith rapidly rising production costs, resulted in a 45% YoY drop in theaverage 9M12 net profit of Vietnams six listed sugar companies (SBT,LSS, BHS, NHS, SEC and KTS). Next year will probably also be difficultbecause the industry will have to grapple with the imbalance betweensupply and demand. Domestic sugar production volume is projected toincrease 22% YoY to 1.59m tonnes in the 2012-2013 season, which

runs from October to April, while sugar demand is expected to remainflat at about 1.4-1.5m tonnes next year, leading to a 200,000 tonnessurpluss (including imported sugar, but not including smuggled sugarfrom Thailand).

But better prospects for 2014. We think the oversupply issue istemporary and expect the industry to rebound in 2014 (see p.2Business cycle of the sugar industry). In the medium-term, we expectan increase in sugar demand from food and beverage companies (57%of total demand), driven by the cyclical recovery in Vietnams economyand by the secular trend of Vietnams emerging middle-class. We alsobelieve that the ongoing consolidation in the sugar industry will improve

its efficiency so the medium-term outlook for the sugar industry ismoderately attractive.

Attractive Stocks. The six listed sugar companies are still quite

profitable despite the fall in the sugar price this year, with an averagegross margin of 16% and an average annualised ROE of 20% in 9M12.Their gearing is reasonable at 0.6x and the dividend yields of the listedsugar stocks remain high, and are expected to range between 11% and17% in 2013. Valuation is also attractive, with an average trailing PERof 3x, which is well below regional peers average PER of 8x.

Recommendation . We think its the right time for medium- and long-term investors to buy sugar stocks, given their current cheap valuations,

attractive annual dividend yields and healthy fundamentals. SBT is ourtop pick in the sector for its high yield and reasonable liquiditycompared to the other names in the sector. One caveat is the risk thatsugar import tariffs in the ASEAN will be reduced to 0% by either 2015or 2018, increasing competition in the domestic market.

MktCap($m)

Capacity(tonnes)

AnnualisedROE (%)

Gearingratio (x)

FY12Dividendyield (%)

TrailingPER (x)

Rating

SBT 85.9 9,800 19.5 0.2 24.3 4.6 BUY

LSS 31.2 10,500 7.7 0.8 19.3 3.4 N/A

BHS 22.4 6,000 16.9 1.4 20.0 3.2 N/A

NHS 20.3 3,400 24.0 0.6 20.0 1.8 N/A

SEC 12.2 3,500 30.0 0.7 12.6 5.8 N/A

Souce: Bloomberg, MBKE

Hoa [email protected]

(84) 8 4455.5888 (ext 8088)

Sugar sales vol ume 2010-2012 (tonne)

-

50,000

100,000

150,000

200,000

250,000

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

2010 2011 2012

Source: Ministry of Agriculture

Sugar ex-factory price, VAT (VND/kg)

-

5,000

10,000

15,000

20,000

25,000

Jan09

May09

Sep09

Jan10

May10

Sep10

Jan11

May11

Sep11

Jan12

May12

Sep12

Source: Ministry of Agriculture

London sugar price (USD/tonne)

400

450

500

550

600

650

700

750

800

850

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Oct11

Jan12

Apr12

Jul12

Oct12

Source: Bloomberg

Sugar supply and demand (000 tonnes)

-

500

1,000

1,500

2,000

2010 2011 2012 2013E

Production

Consumption

Source: Ministry of Agriculture, Bloomberg


2/1229/11/2012 Page 2 of 12

Sugar SectorHealthy fundamentals and cheap valuation

Despite industry-wide difficulties in 2012, Vietnams sugar companiesremain fundamentally strong. The average 9M12 gross margin of thesix listed sugar companies (SBT, LSS, BHS, NHS, SEC and KTS) isstill high at 16%. Moreover, their annualised ROE and ROA are still

attractive at 20% and 11%, respectively, and their average gearing ratioof 0.6x (as of 30 Sep 2012) is reasonable. These figures demonstratethe industrys resilience, even during challenging times.

Attractive dividend yields

The Vietnamese sugar industry tends to offer investors attractiveannual dividend yields. Over the 2010-2012 period, the annual cashdividend of the six listed Vietnamese sugar companies averagedVND2,200/share, with an average payout ratio of 47%.

We believe that their cash dividend policies are sustainable, mainlybecause (1) their profitability remains high (see above) and (2) theirannual capex needs are marginal, as their plants and equipment havebeen fully installed. We expect the annual dividend yield of these sixsugar companies to range between 11% and 16.8% in 2013, based on

their current share prices.

Cheap valuation

In addition to high dividend yields, Vietnams sugar companies areundervalued at the moment, with a trailing PER of about 3x, well below

their regiononal peers PER of 8x.

Peer comparison table

TickerMkt Cap

($m)Trailing P/E

(x)ROE (%)

Dividendyield (%)

TSML PA Equity 97.4 0.0

JDWS PA Equity 80.1 5.7 30.6 7.0

DSM IN Equity 62.0 11.1 2.0

BNRI IN Equity 164.8 10.4 13.7 1.0

ASG IN Equity 73.0 3.6 20.5 4.8

KCPS IN Equity 47.3 9.0 14.9 3.1

KSL TB Equity 673.1 9.0 23.5 3.8

KBS TB Equity 172.8 7.3 48.8 5.7Average 8.0 25.3 3.9

SBT VN Equity 85.9 4.8 22.3 24.3

LSS VN Equity 31.2 3.4 15.0 19.4

BHS VN Equity 22.4 3.2 25.3 20.0

NHS VN Equity 20.3 1.9 41.5 20.6

Average 3.3 26.0 21.1Source: Bloomberg

Business cycle of the sugar indust ry

The sugar industry in Vietnam typically has a four to five year businesscycle (see graph 1) and the sugar planting cycle lasts one year. Whenthe cycle reached its peak in 2007, sugarcane supply was at its highestlevel, but profits soon started to fall because of the increasingcompetition among suppliers. As a result, farmers progressivelydecreased their sugarcane areas in favor of crops with higher profit


3/1229/11/2012 Page 3 of 12

Sugar Sectormargins. In 2009, when the sugarcane areas reached their lowest level,the demand for sugar exceeded supply and profit in the industry startedto rise again. The increasing profits from sugarcane productionprompted farmers to expand their sugarcane areas, which led to anexpansion of Vietnams overall sugarcane farmland area between 2009and 2012.

Profits for both farmers and sugar companies subsequently started tofall again in 2012 as the business cycle reached its peak. Historicaldata shows that the sugarcane area decrease typically lasts one to twoyears (graph 2), so we expect that the sugar industry will endure atough year in 2013 and start picking up in 2014.

Graph 1: Vietnam cane areas and gro ss pr ofit of SBT and LSS 2005-2012

-

100

200

300

400

500

600

700

2005 2006 2007 2008 2009 2010 2011 2012

240

250

260

270

280

290

300Cane Areas SBT LSS

Source: MBKE, Bloomberg, Company Financial Statements

Graph 2: Vietnam cane areas 1999-2012

200

230

260

290

320

350

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Cane Areas

2 per. Mov. Av g. (Cane Areas)

Source: MBKE, Bloomberg

Disappointing indust ry-wide bottom lines in 9M12

The average 9M12 revenue of the six listed sugar companies increased6% YoY, driven by increased sales volumes (9M12 sales volume for thewhole sugar industry increased 12% YoY). However, their averagegross margin contracted from 26% in 9M11 to 16% in 9M12 becausethe market price of sugar fell 14% YTD, due to the falling global sugarprice and cheap imported Thai sugar. In addition, their production costsrose 20% YoY, due to higher sugarcane input expenses. As a result,the average 9M12 net profit for these six companies plunged 45% YoY.


4/1229/11/2012 Page 4 of 12

Sugar SectorHigh costs due to low sugarcane quality

The Vietnam Sugar Association points out that sugar production costsin Vietnam are about 40-50% higher than they are in Thailand. Thehigher costs are due to the poor quality of Vietnamese raw sugarcaneand the small scale of Vietnamese millers.

Vietnams sugarcane yield was 61.7 tonnes/ha in the 2011-2012harvest, 25% below Thai yields. In addition, the cane commercial (CCS)rate, which is the percentage of recoverable sugar in sugarcane, was9.6% in Vietnam, about 9% lower than Thai CSS of 10.4%. As a result,sugarcane costs in Vietnam are higher and account for 80% ofproduction costs versus about 60% in Thailand. The quality ofVietnamese sugarcane is inferior because sugarcane farmland inVietnam is very fragmented. The average area of a sugarcane farm inVietnam is about 0.5-1 ha compared to 4 ha in Thailand. Larger farmsenable Thai sugarcane farmers to use mechanised sugarcane farmingsystems, leading to higher yields and a higher CCS.

Moreover, sugarcane refining capacity in Vietnam is too low, whichleads to higher fixed production costs per unit. The average capacity ofVietnams sugar refineries is about 3,200 tonnes of cane per day, wellbelow the critical 6,000-8,000-tonne threshold, above which economiesof scale start to kick in. By comparison, the average capacity of sugarrefineries in Thailand is 19,000 tonnes of cane per day, about 5.6 timeshigher than in Vietnam.

Comparision of Vietnam and Thailand sugar

Average cane

farmland area(ha)

Average

capacity/miller(tonne/day) CCS

Production

costs (VND/kg)

Vietnam 0.5-1 3,400 9.6 13,000-15,000

Thailand 4.0 19,000 10.4 About 10,000

Source: USDA, Vinasugar

Expected resul ts for the 2012-2013 refin ing season

According to the Ministry of Agriculture, Vietnams sugarcane farmlandwill expand 12% YoY to 268,728 ha and the sugarcane yield for

Vietnams farms is expected to increase 2.1% YoY to 63 tonnes/haduring the 2012-2013 refining season. As a result, sugarcane volume isestimated to increase 15% YoY to 16.7m tonnes during this period.Sugar production volume is forecast to grow 22% YoY to 1.59m tonnes,

implying a flat CCS of 9.5% in the 2012-2013 refining season.

Supply is expected to outpace demand in the 2012-2013 season

In addition to the domestic production volume outlined above, Vietnamimports sugar as part of its WTO commitments. The amount of importedsugar is limited by a quota imposed by the Vietnamese government.

The import quota for 2013 is estimated at 74,000 tonnes, 5.7% higherthan this year, which will bring the countrys total sugar supply to about1.7m tones in 2013.


5/1229/11/2012 Page 5 of 12

Sugar SectorVietnams economic outlook is expected to improve slightly next yearbut will still remain weak, which, to some extent, will limit the growth insugar consumed by industrial end users in the food and beverageindustry (57% of the demand). As a result, Vietnams sugar demand isforecast to rise only slightly, to about 1.4-1.5m tonnes, which will leavean expected sugar surplus of about 200,000 tonnes in 2013. Sugarinventories have already started building up this year, with a 90% YoYincrease in mid-October inventories.

Note that our estimates above do not take smuggled sugar intoaccount, which represents another source of sugar supply in Vietnamsmarket. Although there are no official statistics, it is estimated thatabout 300,000 tonnes of sugar per year is smuggled into Vietnam,which is equivalent to 20-25% of the total demand (most of thesmuggled sugar comes from Thailand). If these estimates are reliable,Vietnams sugar surplus will be even bigger next year.

Vietnam sugar s upply and demand 2005-2013

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2005

2006

2007

2008

2009

2010

2011

2012

2013E

Production

Consumption

Source: Vinasugar, MBKE and Bloomberg

A recovery i n sugar prices in 2013 seems unlikely

The difficulties in Vietnams sugar industry have been reflected in sugarprices, which have fallen about 14% YTD. However, we do not thinksugar prices will drop any further until after the Tet holiday, early nextyear. Food and beverage companies usually accelerate production forthe Tet celebration, which is the main holiday in Vietnam.

A recovery in sugar prices in 2013 seems unlikely for two reasons: (1)

the expected sugar surplus in the domestic market as mentioned aboveand; (2) less favourable prospects in the global sugar market. The Foodand Agriculture Organisation estimates that global sugar production willoutpace consumption in 2013, with supply increasing 2.2% YoY to177m tons and consumption increasing 1.9% YoY to 172m tons. As aresult, global sugar ending stocks are predicted to go up 4.8% to 62mtonnes in 2013.

Cross-holding issue in Vietnams sugar industry

The byzantine structure of Vietnams sugar industry is mainly due the

cross-holding of Thanh Thanh Cong (TTC) and its affiliates. TTC, ahuge Vietnamese sugar trader, is controlled by Mrs. Huynh Bich Ngoc,the wife of the former Chairman of Sacombank (STB), and her family.TTC was exclusively a sugar and molasses trader until it started movingupstream by buying a 68.41% stake in SBT from the France-based


6/1229/11/2012 Page 6 of 12

Sugar SectorSociete De Bourbon Group in 2010. Since then, TTC and its affiliateshave strengthened their presence in the industry by buying stakes inmany other Vietnamese sugar producers.

Based on publicly disclosed information, we know that TTC and itsaffiliates directly and indirectly hold stakes in eight sugar companies

(see chart below), including five listed companies Bourbon Tay NinhSugar (SBT), Bien Hoa Sugar (BHS), Ninh Hoa Sugar (NHS), Gia LaiCane Sugar Thermalelectricity (SEC) and 333 Sugar. And TTCpartially owns two unlisted companies La Nga Sugar and Phan RangSugar. The companies which TTC has stakes in produce about 22% ofVietnams sugar in aggregate. Moreover, TTC and BHS are thecountrys leading sugar traders, so including both production andimport/trading volume, TTC and its affiliates hold an even larger marketshare of Vietnams sugar industry.

Cross-holding of TTC and its affili ates

Source: MBKE, Bloomberg, Company Financial Statements

Cross-holding and industry fragmentation to propel consolidation

Vietnams sugar industry is very fragmented. Millers and sugarcane

farmers operate on a small, inefficient scale (see above), so sugarproduction costs in Vietnam are 40-50% higher than in Thailand. Thismakes Thai sugar more price competitive than Vietnamese sugar, evenwhen transportation costs are included, so an increasing volume ofThai sugar is being smuggled into Vietnam. We think that consolidationis inevitable and that it will improve the industrys operating efficiency.

In order for the industry to reap economies of scale, the average sugarmillers refining capacity must be at least 6,000-8,000 tonnes of caneper day (Vietnams average refining capacity is only 3,200 tonnes). Weestimate that Vietnams sugar industry needs to undergo aconsolidation to reduce the number of millers from 40 to 21, in order to

increase efficiency.

The average size of a sugarcane farm has to increase 3-4 fold, to 3-4ha, as it is in Thailand, before farmers can benefit from mechanisedsugarcane farming systems that will improve the quality of sugarcane.


7/1229/11/2012 Page 7 of 12

Sugar SectorHowever, increasing the size of Vietnams indivual sugar cane farms isdifficult because local farmers are quick to switch to substitute crops,such as cassava or rubber whenever those crops offer higher profits.

In contrast, consolidation of the sugar refining industry, which wouldresult in larger scale refineries seems feasible via a reduction in the

number of sugar millers. The government has greater degree of controlover sugar millers than it has over farmers so it can force small andinefficient millers to aggregate.

Also, TTC and its affiliates have increased their involvement in theoperations of several sugar companies along with its increasedownership stakes in those companies: SBT, BHS, La Nga Sugar andPhan Rang Sugar in the Southeast region and in SEC, 333 Sugar andNHS in the Central Highland region. For example, SBT and BHS havebeen able to coordinate their sugarcane inputs as their mills andfarmland are adjacent. In the Mekong Delta, one sugar refiner shutdown recently, suggesting that consolidation has also begun in that

region as well.

Consolidation should help alleviate the intense competition forsugarcane input materials. Currently, Vietnams sugarcane supply doesnot fulfill the demand from its millers, so the millers compete to securesugarcane input materials, which pushes up the sugarcane price andhurts the industrys profits. Also, the aggregation of small millers willhelp reduce fixed production costs per unit. LMC International, a well-known sugar research entity, estimates that the processing costs perunit of an 8,000-tonne miller are about 25% lower than that of a 2,000-tonne miller. Therefore, if the consolidation process continues, thecompetitiveness of Vietnamese sugar wil l be much improved.

Risk of tariff rebates

Sugar is classified as a sensitive product in Vietnam, so thegovernment currently imposes a tariff on raw and white sugar imports.As part of Vietnams WTO commitments, both raw and refined sugarimports from countries outside ASEAN are now subject to a duty of15%. Up until April 2011, the duties on raw sugar and refined sugarwere 25% and 40%, respectively. In addition, as part of the 1999Protocol on the Special Arrangement for Sensitive and Highly SensitiveProducts, Vietnam had to cut taxes on sugar imports from ASEAN

countries to 0-5% from January 2010. Note that these duties apply tosugar volumes that are within the import quota limits. Any additionalimported raw sugar and white sugar are subject to a duty of 80% and100%, respectively.

Furthermore, under the ASEAN Economic Community Blueprint, allnon-tariff barriers have to be eliminated by 2015 (2018 for the latejoiners Vietnam, Laos, Cambodia and Myanmar) and there is a risk thatsugar import tariffs between ASEAN countries will be reduced to 0% byeither 2015 or 2018.

Appendix: Overview of Vietnams sugar industry

There are four main sugar-producing regions in Vietnam: the NorthernCentral, Central Highland, Central Coastal, and Southeast and MekongDelta regions. The refining season normally lasts from


8/1229/11/2012 Page 8 of 12

Sugar SectorOctober/November to the following April. In the 2011-2012 season, thecountrys 40 mills had a total refining capacity of 129,200 tonnes ofsugarcane per day. These mills were fed by 240,000 ha of sugarcanefarmland and produced 1.3m tonnes of sugar, a 13.5% YoY increase.

The sugar is categorised as refined sugar (RE, about 30% of the

output), direct mill white sugar (RS) or brown sugar. RE is the highestquality sugar (and thus the most expensive) and is used in industrialfood and beverage manufacturing while RS and brown sugar are mostly

consumed by households.

Vietnams sugar distribution

About two-thirds of Vietnams sugar is consumed in the south of thecountry. The Vietnamese sugar market is highly underdeveloped, withno formal distribution systems. Most of the RE sugar is sold directly tolarge industrial end-users and most of the RS sugar is sold to smaller

industrial end-users and retailers through around 40-50 sugardistributors. The industrial end-users account for around 57% of totalsugar demand. Branded sugar sold in supermarkets accounts foraround 15% of the RS sugar.


9/1229/11/2012 Page 9 of 12

Sugar SectorRESEARCH OFFICES

REGIONALPKBASURegional Head, Research & Economics

(65) 6432 1821 [email protected]

WONGChew Hann, CAActing Regional Head of Institutional Research

(603) 2297 8686 [email protected]

THAMMun HonRegional Strategist(852) 2268 0630 [email protected]

ONGSeng YeowRegional Products & Planning(852) 2268 0644 [email protected]

ECONOMICSSuhaimi ILIASChief Economist

Singapore | Malaysia(603) 2297 8682 [email protected]

Luz LORENZOEconomist Philippines | Indonesia

(63) 2 849 8836 [email protected]

MALAYSIAWONGChew Hann, CA Head of Research(603) 2297 8686 [email protected] Strategy Construction & InfrastructureDesmond CHNG, ACA(603) 2297 8680 [email protected] Banking - RegionalLIAWThong Jung(603) 2297 8688 [email protected] Oil & Gas Automotive ShippingONGChee Ting, CA(603) 2297 8678 [email protected] Plantations

Mohshin AZIZ(603) 2297 8692 [email protected] Aviation Petrochem PowerYINShao Yang, CPA(603) 2297 8916 [email protected] Gaming Regional Media PowerTAN CHI WEI, CFA(603) 2297 8690 [email protected] Construction & Infrastructure PowerWONGWei Sum, CFA(603) 2297 8679 [email protected] Property & REITsLEEYen Ling(603) 2297 8691 [email protected] Building Materials Manufacturing Technology

LEECheng Hooi Head of Retail

[email protected] Technicals

HONG KONG / CHINAEdward FUNGHead of Research(852) 2268 0632 [email protected] ConstructionIvan CHEUNG(852) 2268 0634 [email protected] Property IndustrialIvan LI(852) 2268 0641 [email protected] Banking & FinanceJacqueline KO(852) 2268 0633 [email protected] Consumer Staples

An dy POON(852) 2268 0645 [email protected] Telecom & equipment

Al ex YEUNG(852) 2268 0636 [email protected] Industrial

INDIA

Jigar SHAHHead of Research(91) 22 6623 2601 [email protected] Oil & Gas Automobile Cement

Anu bhav GUPTA(91) 22 6623 2605 [email protected] .in Metal & Mining Capital goods PropertyGanesh RAM(91) 226623 2607 [email protected] .in Telecom Contractor

SINGAPOREStephanie WONGHead of Research(65) 6432 1451 [email protected] Strategy Small & Mid CapsGregory YAP(65) 6432 1450 [email protected] Technology & Manufacturing Telcos - RegionalWilson LIEW(65) 6432 1454 [email protected] Hotel & Resort Property & ConstructionJames KOH(65) 6432 1431 [email protected] Logistics

Resources Consumer Small & Mid CapsYEAKChee Keong, CFA(65) 6433 5730 [email protected] Healthcare Offshore & Marine

Ali son FOK(65) 6433 5745 [email protected] Services S-chipsBernard CHIN(65) 6433 5726 [email protected] Transport (Land, Shipping & Aviation)ONGKian Lin(65) 6432 1470 [email protected] REITs / PropertyWei Bin(65) 6432 1455 [email protected] S-chips Small & Mid Caps

INDONESIAKatarina SETIAWANHead of Research

(62) 21 2557 1125 [email protected] Consumer Strategy TelcosLucky ARIESANDI,CFA(62) 21 2557 1127 [email protected] Base metals Coal Oil & GasRahmi MARINA(62) 21 2557 1128 [email protected] Banking MultifinancePandu ANUGRAH(62) 21 2557 1137 [email protected] Auto Heavy equipment Plantation Toll road

Adi N. WICAKSONO(62) 21 2557 1130 [email protected] Generalist

Anth ony YUNUS(62) 21 2557 1134 [email protected] Cement Infrastructure Property

Arw ani PRANADJAYA(62) 21 2557 1129 [email protected] Technicals

PHILIPPINESLuz LORENZOHead of Research(63) 2 849 8836 [email protected] StrategyLaura DY-LIACCO(63) 2 849 8840 [email protected] Utilities Conglomerates TelcosLovell SARREAL(63) 2 849 8841 [email protected] Consumer Media CementKenneth NERECINA(63) 2 849 8839 kenneth_nerecina@maybank-atrke .com Conglomerates Property Ports/ LogisticsKatherine TAN(63) 2 849 8843 kat_tan@maybank-a trke.com Banks ConstructionRamon ADVIENTO(63) 2 849 8842 [email protected] Mining

THAILANDMayuree CHOWVIKRANHead of Research(66) 2658 6300 ext 1440 [email protected] Strategy

Maria BRENDA SANCHEZLAPIZ Co-Head of ResearchDir (66) 2257 0250 | (66) 2658 6300 ext [email protected] Consumer/ Big Caps

An drew STOTZ Strategist(66) 2658 6300 ext [email protected]

Suttatip PEERASUB (66) 2658 6300 ext 1430 [email protected] Media Commerce

Sutthichai KUMWORACHAI(66) 2658 6300 ext 1400 [email protected] Energy PetrochemTermporn TANTIVIVAT(66) 2658 6300 ext 1520 [email protected] PropertyWoraphon WIROONSRI(66) 2658 6300 ext 1560 [email protected] Banking & FinanceJaroonpan WATTANAWONG(66) 2658 6300 ext 1404 [email protected] Transportation Small cap.Chatchai JINDARAT(66) 2658 6300 ext 1401 [email protected] ElectronicsPongrat RATANATAVANANANDA(66) 2658 6300 ext 1398 [email protected] Services/ Small Caps

VIETNAMMichael KOKALARI,CFA Head of Research

(84) 838 38 66 47 [email protected] StrategyNguyen Thi Ngan Tuyen(84) 844 55 58 88 x 8081 [email protected] Food and Beverage Oil and GasNgo Bich Van(84) 844 55 58 88 x 8084 [email protected] BankingTrinh Thi Ngoc Diep(84) 844 55 58 88 x 8242 [email protected] Technololy Utilities ConstructionDang Thi Kim Thoa(84) 844 55 58 88 x 8083 [email protected] ConsumerNguyen Trung Hoa+84 844 55 58 88 x 8088 [email protected] Steel Sugar Resources


10/1229/11/2012 Page 10 of 12

Sugar Sector

APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS

This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as anoffer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and thateach securitys price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings.Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-relatedinformation extracted from the relevant jurisdictions stock exchange in the equity analysis. Accordingly, investors returns may be less than the original suminvested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does nottake into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investorsshould therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed orrecommended in this report.

The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by MaybankInvestment Bank Berhad, its subsidiary and affiliates (collectively, MKE) and consequently no representation is made as to the accuracy or completeness ofthis report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees(collectively, Representatives) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of thisreport. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.

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MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, fromtime to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit businessfrom such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investmentsrelated thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. MKE may, to the extent permitted by law,act upon or use the information presented herein, or the research or analysis on which they are based, before the material is published. One or more directors,officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report.

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MalaysiaOpinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamentalratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa MalaysiaSecurities Berhad in the equity analysis.

Singapore

This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (MaybankKERPL) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contactMaybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor,expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for thecontents of this report, with such liability being limited to the extent (if any) as permitted by law.

Thailand

The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of theOffice of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailandand the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from theperspective of a third party. It is not an evaluation of operation and is not based on inside information.The survey result is as of the date appearing in the

Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand)Public Company Limited (MBKET) does not confirm nor certify the accuracy of such survey result.

Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of MBKET.MBKET accepts no liability whatsoever for the actions of third parties in this respect.

US

This research report prepared by MKE is distributed in the United States (US) to Major US Institutional Investors (as defined in Rule 15a-6 under theSecurities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (Maybank KESUSA), a broker-dealer registered in the US(registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA inthe US shall be borne by Maybank KESUSA. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in theUS. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. Youshould satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevantlegislation and regulations.

UK

This document is being distributed by Maybank Kim Eng Securities (London) Ltd (Maybank KESL) which is authorized and regulated, by the FinancialServices Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial

Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take anyresponsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered asconstituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.


11/1229/11/2012 Page 11 of 12

Sugar Sector

DISCLOSURES

Legal Entities Disclosures

Malaysia:This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938-H) which is a Participating Organization of BursaMalaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This material is issuedand distributed in Singapore by Maybank KERPL (Co. Reg No 197201256N) which is regulated by the Monetary Authority of Singapore. Indonesia: PT KimEng Securities (PTKES) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Thailand:

MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities andExchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by theSecurities and Exchange Commission. Vietnam: Maybank Kim Eng Securities JSC (License Number: 71/UBCK-GP) is licensed under the State SecuritiesCommission of Vietnam.Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng SecuritiesIndia Private Limited (KESI) is a participant of the National Stock Exchange of India Limited (Reg No: INF/INB 231452435) and the Bombay Stock Exchange(Reg. No. INF/INB 011452431) and is regulated by Securities and Exchange Board of India. KESI is also registered with SEBI as Category 1 Merchant Banker(Reg. No. INM 000011708) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA Broker ID 27861. UK: Maybank KESL(Reg No 2377538) is authorized and regulated by the Financial Services Authority.

Disclosure of Interest

Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further actas market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment bankingservices, advisory and other services for or relating to those companies.

Singapore: As of 7 December 2012, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this researchreport.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in theresearch report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connectedparties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong:KESHK may have financial interests in relation to an issuer or a new listing applicant referred to as defined by the requirements under Paragraph16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

As of 7 December 2012, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market inissues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investmentservices in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies coveredin this report.

OTHERS

Analyst Cert if icati on of Independ enc e

The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of

the research analysts compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.Reminder

Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capableof understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and politicalfactors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of anyissuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its ownprofessional advisers as to the risks involved in making such a purchase.

No part of this material may be copied, photocopied or duplicated in any form b y any means or redistributed without the prior c onsent of MKE.

Stephanie Wong | CEO, Maybank Kim Eng Research

Definition of Ratings

Maybank Kim Eng Research uses the following rating system:

BUY Return is expected to be above 10% in the next 12 months (excluding dividends)

HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends)

SELL Return is expected to be below -10% in the next 12 months (excluding dividends)

Appl icabili ty of Rat ing s

The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are onlyapplicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratingsas we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear):

Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings

BV = Book Value FV = Fair Value PEG = PE Ratio To Growth

CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio

Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter

CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset

DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity

DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders Funds

EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital

EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year

EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date

EV = Enterprise Value PBT = Profit Before Tax


12/12

Sugar Sector

MalaysiaMaybank Investment Bank Berhad(A Participating Organisation ofBursa Malaysia Securities Berhad)33rd Floor, Menara Maybank,

100 Jalan Tun Perak,50050 Kuala LumpurTel: (603) 2059 1888;Fax: (603) 2078 4194

SingaporeMaybank Kim Eng Securities Pte Ltd Maybank Kim Eng Research Pte Ltd9 Temasek Boulevard#39-00 Suntec Tower 2

Singapore 038989

Tel: (65) 6336 9090Fax: (65) 6339 6003

LondonMaybank Ki m Eng Securities(London) Ltd6/F, 20 St. Dunstans HillLondon EC3R 8HY, UK

Tel: (44) 20 7621 9298Dealers Tel: (44) 20 7626 2828Fax: (44) 20 7283 6674

New YorkMaybank Kim Eng SecuritiesUSA Inc777 Third Avenue, 21st FloorNew York, NY 10017, U.S.A.

Tel: (212) 688 8886Fax: (212) 688 3500

Stockbroking Business:Level 8, Tower C, Dataran Maybank,No.1, Jalan Maarof59000 Kuala LumpurTel: (603) 2297 8888Fax: (603) 2282 5136

Hong KongKim Eng Securities (HK) LtdLevel 30,Three Pacific Place,1 Queens Road East,Hong Kong

Tel: (852) 2268 0800Fax: (852) 2877 0104

IndonesiaPT Kim Eng SecuritiesPlaza BapindoCitibank Tower 17thFloorJl Jend. Sudirman Kav. 54-55Jakarta 12190, Indonesia

Tel: (62) 21 2557 1188Fax: (62) 21 2557 1189

IndiaKim Eng Securities India Pvt Ltd2nd Floor, The International 16,Maharishi Karve Road,Churchgate Station,Mumbai City - 400 020, India

Tel: (91).22.6623.2600Fax: (91).22.6623.2604

PhilippinesMaybank ATR Ki m Eng SecuritiesInc.17/F, Tower One & Exchange Plaza

Ayala Triangle, Ayala AvenueMakati City, Philippines 1200

Tel: (63) 2 849 8888Fax: (63) 2 848 5738

ThailandMaybank Kim Eng Securities(Thailand) Public CompanyLimited999/9 The Offices at Central World,20th- 21stFloor,Rama 1 Road Pathumwan,Bangkok 10330, Thailand

Tel: (66) 2 658 6817 (sales)Tel: (66) 2 658 6801 (research)

VietnamIn association with

Maybank Ki m Eng Securities JSC1st Floor, 255 Tran Hung Dao St.District 1Ho Chi Minh City, Vietnam

Tel : (84) 844 555 888Fax : (84) 838 38 66 39

Saudi ArabiaIn association with

An faal Capi talVilla 47, Tujjar JeddahPrince Mohammed bin AbdulazizStreet P.O. Box 126575Jeddah 21352

Tel: (966) 2 6068686Fax: (966) 26068787

South Asia Sales TradingConnie [email protected]: (65) 6333 5775US Toll Free: 1 866 406 7447

North Asia Sales TradingEddie [email protected]: (852) 2268 0800US Toll Free: 1 866 598 2267

www.maybank-ke.com | www.kimengresearch.com.sg

sugarsectoratoughyear_04122012_mbke

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