Singapore Company Guide

M1
Version 15 | Bloomberg: M1 SP| Reuters: MONE.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 10 Apr 2018

HOLD (Upgrade from FULLY VALUED) Negatives are in the price

Last Traded Price ( 9 Apr 2018): S$1.72(STI : 3,449.96)
Price Target 12-mth:S$1.76 (2% upside) (Prev S$1.49)
Analyst
Sachin MITTAL+65 66823699sachinmittal@dbs.com
What’s New
• Circles.Life partnership and data revenue inflection
point imply room for FY18F/19F consensus earnings to
be lifted up
• New IoT solutions to account for ~10% of service
revenue in FY20F on top of Fixed services' ~20%
contribution
• Upgrade to HOLD with revised TP of S$1.76
Price Relative
S$
Upgrade to HOLD due to Circles.Life partnership, data revenue
inflection point and Internet of Things (IoT). After a long hiatus,
M1 is able to grow its service revenue (+6% y-o-y in 2H17) due
to its (i) partnership with Circles.Life and (ii) data revenue
reaching an inflection point of ~56% whereby data revenue
growth is outpacing voice and SMS revenue decline. Going
forward, we project Fixed services & IoT to contribute ~30% of
service revenue in FY20F (versus 16% now). Assuming TPG
enters in 2H18F and gains 7% mobile revenue share by 2022,
we project M1’s earnings to recover in FY21F.
Where we differ: We expect consensus to raise FY18F/19F
earnings and hence dividends by 5%/10%. We don’t think 700
MHz spectrum will be available before 2H19 as Malaysia &
Indonesia use this spectrum for Analogue TV, causing
interference. As such, we don’t project any amortisation of
S$180m spectrum price over the next 12-months. Consensus

also expects M1 to lose more revenue share than its peers to

Relative Index
222
202

TPG, which we think is unlikely due to the former's partnership

4.0
182
3.5 162

3.0
142
122 with Circles.Life.
2.5 102
82
2.0
62
1.5
Apr-14 Apr-15 Apr-16 Apr-17
42
Apr-18 Potential catalyst: 1Q18 and 2Q18 results. Revenue momentum
M1 (LHS) Relative STI (RHS) seen in 2H17 is likely to be carried forward in 1Q18, convincing
investors that M1’s business is tracking well versus its peers.
Forecasts and Valuation
FY Dec (S$ m) 2017A 2018F 2019F 2020F Valuation:
Revenue 1,071 1,076 1,098 1,129 Revised TP of S$1.76. Our FY18F target price based on DCF
EBITDA 302 296 288 291
Pre-tax Profit 163 152 137 133 valuation (WACC 7.1%, terminal growth 0%) has been raised
Net Profit 133 125 113 110 to S$1.76 on the back of slower decline in mobile revenue
Net Pft (Pre Ex.) 133 125 113 110 despite TPG’s entry, coupled with new revenue from IoT.
Net Pft Gth (Pre-ex) (%) (11.5) (5.5) (9.4) (3.4)
EPS (S cts) 14.3 13.5 12.2 11.8
EPS Pre Ex. (S cts) 14.3 13.5 12.2 11.8 Key Risks to Our View:
EPS Gth Pre Ex (%) (11) (6) (9) (3) Bear and Bull case scenario. TPG gaining 10% mobile revenue
Diluted EPS (S cts) 14.3 13.5 12.2 11.8 share by 2022 would lead to our bear case TP of S$1.49 while
Net DPS (S cts) 11.4 10.8 9.78 9.44
TPG gaining only 4% revenue share would lead to our bull-
BV Per Share (S cts) 46.2 48.3 49.7 51.7
PE (X) 12.0 12.8 14.1 14.6 case TP of S$1.95.
PE Pre Ex. (X) 12.0 12.8 14.1 14.6
P/Cash Flow (X) 6.2 6.2 6.4 6.3 At A Glance
EV/EBITDA (X) 6.6 6.7 7.0 7.2 Issued Capital (m shrs) 925
Net Div Yield (%) 6.6 6.3 5.7 5.5 Mkt. Cap (S$m/US$m) 1,591 / 1,213
P/Book Value (X) 3.7 3.6 3.5 3.3
Major Shareholders (%)
Net Debt/Equity (X) 0.9 0.8 0.9 1.0
Axiata Investments Ltd 28.7
ROAE (%) 31.8 28.5 24.9 23.3
Keppel Corp Ltd 19.3
Earnings Rev (%): 11 15 20
Singapore Press Holdings Ltd 13.5
Consensus EPS (S cts): 13.1 11.0 10.6
Other Broker Recs: B: 2 S: 8 H: 12 Free Float (%) 38.5
3m Avg. Daily Val (US$m) 1.6
Source of all data on this page: Company, DBS Bank,
Bloomberg Finance L.P ICB Industry :Telecommunications / Mobile Telecommunications

ed: TH / sa:DT, PY
Company Guide
M1

WHAT’S NEW

IoT to drive earnings recovery

Mobile service revenue has started to grow finally. In the
latest 4Q17 results, mobile service revenues grew 4% y-o-y
to S$165m. This was achieved despite much lower handset
sales and subsidies and we think revenue share from
Circles.Life could be a big factor here. Fixed revenues rose to
S$36m (+33% y-o-y) due to higher fiber customer base and
contributions from corporate segment projects and
comprised 17% of the total service revenue.
M1’s service revenue is not declining anymore
Mobile service revenue (S$m) has stablized
680
670
660
650
640
630
620
FY14 FY15 FY16 FY17
Source: Company, DBS Bank
We believe that M1, being the network provider of
Circles.Life, is benefitting from ~1% revenue share gained
by Circles.Life by virtue of its low-touch business model and
customisable plans. While the market is concerned about
TPG’s entry in late 2018, Circles.Life is quietly chipping away
market share under the radar.
M1 has reached an inflection point of data contributing to
~56% of service revenue. M1 is fast combating the threat of
declining legacy revenues, generating ~56% of its FY17
service revenue from data whereby data revenue growth is
outpacing voice and SMS revenue decline. Based on our
estimates data revenue is likely to reach ~70% over the next
three years.
M1’s data revenue growth to outpace legacy revenue
decline
Our findings from the Japanese market indicate that when
data revenues contribute over 60% to mobile service
revenues, declines in legacy revenues lose pace and mobile
service revenue growth stabilise. We believe a similar
scenario may transpire in M1 with mobile service revenues
stabilising once the contribution of data revenues exceeds
60% of service revenues.
Telco to smart communications provider. In 4Q17 M1
launched its nationwide Narrowband Internet of Things (NB-
IoT) network across Singapore with the aim of capturing
opportunities in IoT and the Smart Nation initiative. We
believe that the telco is poise to reap benefits from its
diversification efforts by entering into fast growing segments
such as NB-IoT leading to earnings trajectory tuning positive
from FY20 onwards.
We are of the opinion that IoT based business solutions will
contribute to ~10% of M1’s total revenue by FY20F
reducing the drag on revenues from the entry of TPG. Going
forward, M1 plans to scale up infocom technology (ICT)
capabilities and solutions over connectivity. The move to
newer pastures is to capture opportunities in IoT, cloud
computing, data analytics and Smart Nation initiative, and to
expand its digital services portfolio. Management sees ICT
and digital services as a potential growth catalyst and
envisages that this segment will contribute ~20% of service
revenue in the future.
M1 has already signed several MoUs to develop its IoT
business portfolio (smart power metering, smart
environmental monitoring, smart fleet & vehicles
management, smart waste management, smart logistics and
smart facilities management). Ex: OTTO Waste Systems and
SmartCity Solutions, Keppel Electric The telco is also on the
lookout for acquisition opportunities in complementary and
adjacent businesses to achieve the desired contribution from
ICT and digital business segment.

75.0% Data Revenue as a % of Mobile Service 70.2%

Revenue
66.2%
65.0% 62.2%
58.7%
55.7%
54.0%
55.0%

45.0%
2016 2017 2018F 2019F 2020F 2021F
Source: Company, DBS Bank

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 Company Guide
M1

Post paid ARPU

CRITICAL DATA POINTS TO WATCH
50.3
50.8 48.7 47.2 46.3 44.9
Revenue share and margins from success of IoT solutions to be 43.5

a decisive factor. The success of M1’s partnerships with digital 36.3

solution companies to capture opportunities in the Smart Nation 29.0

project powered by IoT is a turning point for future growth of 21.8

the company. We project that IoT will contribute to ~10% of 14.5

total revenue and generate ~10-15% operating margins in 7.3

FY20. Competition from existing and new IoT players in 0.0
Singapore will have to be monitored closely as their offerings 2016A 2017A 2018F 2019F 2020F

could erode M1’s revenue share and margins thus eliminating Net Handset Subsidy
M1’s competitive advantage as the first commercial NB-IoT
260.5 255
connectivity provider in Singapore.
208.4
Circles.Life partnership, data revenue inflection point and fixed
line services revenue failing to meet expected targets. Our TP 156.3
121 124
forecast is based on fixed services contributing to ~20% of 111 111
104.2
revenue in FY20F and Circles.Life partnership gaining traction.
In addition, we have factored in the data revenue reaching an 52.1
inflection point of ~60% in FY19 where data revenue growth
outpaces voice and SMS revenue decline. Failure to meet these 0.0
2016A 2017A 2018F 2019F 2020F
targets are likely to have an adverse impact on M1's share price.
Postpaid subscribers (K)
Dividends to be impacted if IoT and fixed services fail to meet 1292 1286
1317.84 1247 1279 1273
expectations coupled with cost escalations
1054.27
Cash distributions per share
25.0 790.70

20.0 527.14
7.1
15.0
S cents

263.57
11.9
10.0 7.1 8.3
5.9 0.00
6.2
2016A 2017A 2018F 2019F 2020F
5.0
6.8 7.0 7.0 7.0 5.2 Source: Company, DBS Bank
-
2013 2014 2015 2016 2017

Interim Final Special

Source: M1, DBS Bank

Even though M1 has maintained its dividend payout ratio at

~80% over last three years, the absolute dividend per share has
declined due to the fall in earnings of the carrier. If the entry of
TPG in 2018 stirs up competition in the low-end segment where
M1 is dominant, it could adversely affect M1’s earnings. NB-IoT
initiatives and fixed services revenue failing to meet revenue
expectations due to competition and low enterprise customer
net additions, coupled with potential cost escalations (staff and
project-related costs to grow enterprise business), could cause
earnings to be pushed down further, resulting in lower
dividends.

Page 3
 Company Guide
M1

IoT initiatives by M1 can also be analysed through M1’s data analytics platform to
help the waste management companies further streamline
Pioneer in commercial NB-IoT – M1 is Southeast Asia’s first their operations. In November 2017, M1 entered into a MoU
commercial nationwide NB-IoT network to offer hyper- with OTTO Waste Systems and SmartCity Solutions to
connectivity to millions of devices and sensors to support implement the first intelligent waste management system in
Singapore’s transformation into a Smart Nation. NB-IoT can Singapore utilising NB-IoT technology.
be defined as a standards-based low power wide area
technology developed to enable a wide range of IoT devices
and services. It focuses specifically on indoor coverage, low
cost and long battery life. NB-IoT can operate on 2G, 3G,
and 4G mobile networks. It also benefits from security
features of mobile networks such as user identity
confidentiality, entity authentication, data integrity, and
mobile equipment identification. The global rollout of NB-IoT
is expected in FY18.

Smart power metering. This allows commercial and

residential customers to effectively monitor their energy
usage and at the same time, facilitates sustainable planning
and reduction of carbon footprint. With the expected full
liberalisation of the electricity market in FY18, the launch of Source: Company
smart power metering services through M1’s NB-IoT
network is a timely development.
M1 and Anacle Systems, an enterprise application software
and energy management company, jointly launched NB-IoT
energy management and utilities metering solutions in
Singapore for Keppel Electric in August 2017.

Source: Company

Smart Fleet & Vehicle Management. A chip is embedded in

mobile assets such as vehicles, containers and cargo to track
the fleet's movement. The tracker consumes low power and
can operate for months in battery mode in hard-to-access
places. M1, in collaboration with Comcentric Solutions, an
advanced fleet management company in Singapore,
launched smart fleet management solutions in August 2017.
Source: Company
Smart Logistics. This is a tracking platform integrated with
real-time chips to disseminate location signals with door
Smart waste management. This generates real time signals
access status. Robust, tamper- and weather-proofed, GPS
from the fill level sensors embedded in trash bins about the
lock is designed to be mounted onto shipping container or
waste level of dust bins. When the appropriate level of
logistics vehicle doors for remote locking and unlocking. The
waste is reached, waste management companies can make
keyless design eliminates the risk of loss of keys.
arrangements for efficient cleaning. This reduces wasted
resources such as manpower and fuel by only clearing
containers that require immediate attention, thus improving
operational efficiency. The waste data collected from bins

Page 4

Smart toilets. Sensors that alert cleaners when toilets need
to be cleaned enable building owners and cleaning
companies to deliver a more pleasant on-premise
experience, reduce tenant complaints, and enhance
operational efficiency.
Accordingly, wash rooms will be equipped with “electronic
nose” sensors that monitor odour levels including ammonia
and hydrogen sulphide to alert building managers and
cleaning companies when toilets need to be cleaned. This
solution will prompt cleaning resources to be dispatched as
needed, rather than via traditional fixed cleaning schedules.
Smart Environmental Monitoring. Smart environmental
monitoring helps to improve the quality of the environment
and provide advance warning of potential environmental
hazards integrating affordable IoT sensors with low-power
WAN networks, cloud computing and data analytics, to
make large-scale environmental monitoring a reality.
Potential immediate-term practical applications include flood
monitoring, water and gas pipe monitoring for leakages and
agricultural applications such as monitoring soil moisture
and temperature.
Company Guide
M1
Smart elderly care services. The elderly care service helps
caregivers remotely monitor the safety of their elderly family
members living alone at home. Activity sensors are deployed
in the home to track the movement of the seniors. When no
activity has been detected past a pre-set period or activity is
occurring at abnormal intervals, a text message alert will be
sent to the caregiver, to prompt the caregiver to check on
the senior or alert emergency services. In April 2016, M1
launched its smart elderly care services in Yuhua households
in Singapore as part of a Housing & Development Board’s
programme to introduce smart living.
IoT solutions, coupled with advanced data analytics through
the Next-Generation Unified Operations Monitoring Centre
of M1, has the potential to keep M1 ahead of peers, giving
the carrier a competitive advantage.
Page 5
 Company Guide
M1

Appendix 1: A look at Company's listed history – what drives its share price?

Dividends per share and Handset Subsidies are critical factors for M1. Changes in M1’s dividends exhibit a strong correlation of
0.7 with the stock’s past price movements. M1’s dividend policy to pay out 80% of net profits has made interim and final
dividend payouts strong proxies for expected changes in the operator’s earnings. For example, the downward adjustment of
interim dividends from 7.0 Scts to 5.2 Scts in 2Q17 helps explain M1's recent price declines as investors readjust their expectations
for lower earnings for FY18. Changes in handset subsidies (defined as the cost of equipment less revenues from handset sales)
also help explain M1's share price movements. Increasing handset subsidies for example, often heralds intense competition and
squashed margins, leading to investors readjusting their expectations.

230 14%

210
12%
190
10%
170

150 8%

130 6%
110
4%
90
2%
70

50 0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

M1 M1 Handset subs as a % of Mobile rev.

Source: Company, DBS Bank

230 0.20

210 0.18

190 0.16
0.14
170
0.12
150
0.10
130
0.08
110
0.06
90 0.04
70 0.02
50 -
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

M1 M1 DPS

Source: Company, DBS Bank

Page 6
 Company Guide
M1

Leverage & Asset Turnover (x)

1.0
Balance Sheet:
1.20
1.0
1.00
Capex spend to stabilise. M1’s balance sheet has remained 0.9

strong with its relatively consistent capital expenditure and 0.80

0.9
dividend payments. The company expects to incur S$120m in 0.60

capex in FY18. M1 will also incur another S$188m in FY19/20 0.40

0.8

for 700 MHz spectrum acquired in the 2017 General Spectrum 0.20 0.8

Auction. We believe M1’s cash generation and flexibility to 0.00 0.7

further lever its balance sheet and that the company will be able 2016A 2017A 2018F 2019F 2020F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
to easily support current and future spectrum needs and
network expansion plans. Capital Expenditure
S$m
250.0
Share Price Drivers:
200.0
Successful partnership with Circles.Life, data revenue inflection
point and IoT segment drive up TP. With revenue growth 150.0

stemming from successful partnership with Circles.Life, IoT 100.0

solutions and M1 reaching data revenue inflection point, we
expect earnings to recover and offset the impact of declining 50.0

legacy revenues. However, Singapore is moving towards an era 0.0

2016A 2017A 2018F 2019F 2020F
of price competition with the entry of new telcos and MVNOs
Capital Expenditure (-)
which adds volatility to the market. In FY17, ~60% of M1’s
revenue was generated from mobile services. Hence M1 is at ROE (%)
risk of higher volatility in earnings over the next 1-3 years until 35.0%

revenue share from ICT and digital initiatives pick up. 30.0%

25.0%

Bear-case valuation for M1 is S$1.49. In our bear case scenario, 20.0%

we have assumed aggressive competitive action from TPG 15.0%
gaining 10% mobile revenue share by 2022 versus our base 10.0%
case assumption of 7% share.
5.0%

0.0%
Bull-case valuation for M1 is S$ 1.95. In our bull case, we have 2016A 2017A 2018F 2019F 2020F

assumed muted competition from TPG gaining only 4% mobile

revenue share by 2022 versus our base case assumption of 7% Forward PE Band (x)
(x)
share
22.6

+2sd: 21.2x
20.6
Key Risks:
TPG being aggressive in its network rollout and advertising. 18.6 +1sd: 18.9x

Any potential competitive action by TPG such as handset 16.6 Avg: 16.5x
subsidies to poach subscribers could negatively affect the 14.6
-1sd: 14.2x
company’s stock price. TPG aims to commence operations in 12.6
Singapore in 2H18 and has already announced its first mobile -2sd: 11.9x
10.6
product aimed at senior citizens. Apr-14 Apr-15 Apr-16 Apr-17 Apr-18

Company Background PB Band (x)

(x)
M1 is the smallest of the three telecom operators in Singapore. 10.4

M1 provides mobile services and has also started to provide 9.4 +2sd: 9.66x

fixed broadband services by riding on the National Broadband 8.4

+1sd: 7.92x
Network. 7.4

6.4
Avg: 6.18x
5.4

4.4 -1sd: 4.45x

3.4

2.4
-2sd: 2.71x
Apr-14 Apr-15 Apr-16 Apr-17 Apr-18

Source: Company, DBS Bank

Page 7
 Company Guide
M1

Key Assumptions
FY Dec 2016A 2017A 2018F 2019F 2020F
Post paid ARPU 50.3 48.7 47.2 46.3 44.9
Net Handset Subsidy 255 111 111 121 124
Postpaid subscribers (K) 1,247 1,292 1,286 1,279 1,273

Segmental Breakdown
FY Dec 2016A 2017A 2018F 2019F 2020F
Revenues (S$m)
Post Paid Cellular 570 582 566 541 522
Pre Paid Cellular 70.3 60.2 58.0 62.6 62.0
IDD Revenue 61.3 55.9 51.4 47.8 44.9
Fixed network services 104 130 148 163 175
Others 255 243 236 235 234
Total 1,061 1,071 1,076 1,098 1,129

Income Statement (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F
Revenue 1,061 1,071 1,076 1,098 1,129
Cost of Goods Sold (754) (770) (782) (811) (840)
Gross Profit 307 301 294 287 289
Other Opng (Exp)/Inc (122) (128) (132) (137) (142)
Operating Profit 185 173 162 150 147
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 0.0 (0.3) 0.0 0.0 0.0
Net Interest (Exp)/Inc (6.7) (9.9) (10.4) (12.2) (14.1)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 179 163 152 137 133
Tax (28.9) (30.1) (26.5) (24.1) (23.2)
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 150 133 125 113 110
Net Profit before Except. 150 133 125 113 110
EBITDA 312 302 296 288 291
Growth
Revenue Gth (%) (8.3) 1.0 0.4 2.0 2.9
EBITDA Gth (%) (8.7) (3.1) (2.2) (2.5) 0.8
Opg Profit Gth (%) (17.0) (6.7) (6.2) (7.6) (1.9)
Net Profit Gth (Pre-ex) (%) (16.1) (11.5) (5.5) (9.4) (3.4)
Margins & Ratio
Gross Margins (%) 28.9 28.1 27.3 26.1 25.6
Opg Profit Margin (%) 17.5 16.1 15.1 13.6 13.0
Net Profit Margin (%) 14.1 12.4 11.6 10.3 9.7
ROAE (%) 36.7 31.8 28.5 24.9 23.3
ROA (%) 13.4 11.0 9.8 8.5 7.7
ROCE (%) 17.3 14.7 13.2 11.6 10.5
Div Payout Ratio (%) 80.0 80.0 80.0 80.0 80.0
Net Interest Cover (x) 27.7 17.5 15.7 12.3 10.4
Source: Company, DBS Bank

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 Company Guide
M1

Quarterly / Interim Income Statement (S$m)

FY Dec 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017

Revenue 314 261 252 252 307

Cost of Goods Sold (243) (182) (179) (176) (233)
Gross Profit 70.6 78.3 73.1 75.2 74.5
Other Oper. (Exp)/Inc (31.9) (30.9) (31.2) (32.3) (34.0)
Operating Profit 38.7 47.4 41.9 42.9 40.5
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 0.0 0.0 (0.1) 0.0 (0.1)
Net Interest (Exp)/Inc (2.0) (2.0) (2.1) (2.9) (2.9)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 36.7 45.4 39.7 40.0 37.5
Tax (4.9) (9.1) (7.3) (7.2) (6.6)
Minority Interest 0.0 0.0 0.0 0.0 0.0
Net Profit 31.8 36.3 32.5 32.7 31.0
Net profit bef Except. 31.8 36.3 32.5 32.7 31.0
EBITDA 72.1 79.1 73.4 75.6 74.4

Growth
Revenue Gth (%) 26.0 (16.9) (3.5) 0.0 22.1
EBITDA Gth (%) (3.4) 9.7 (7.2) 3.0 (1.6)
Opg Profit Gth (%) (9.4) 22.5 (11.6) 2.4 (5.6)
Net Profit Gth (Pre-ex) (%) (7.6) 14.2 (10.5) 0.6 (5.2)
Margins
Gross Margins (%) 22.5 30.0 29.1 29.9 24.3
Opg Profit Margins (%) 12.3 18.2 16.7 17.1 13.2
Net Profit Margins (%) 10.1 13.9 12.9 13.0 10.1

Balance Sheet (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F

Net Fixed Assets 742 762 764 767 772

Invts in Associates & JVs 2.95 2.70 2.70 2.70 2.70
Other LT Assets 174 191 175 248 313
Cash & ST Invts 11.0 46.5 77.4 88.2 111
Inventory 23.0 49.8 50.0 51.0 52.5
Debtors 166 163 164 167 172
Other Current Assets 27.8 53.4 53.4 53.4 53.4
Total Assets 1,147 1,269 1,287 1,377 1,476

ST Debt 151 0.0 0.0 0.0 0.0

Creditor 165 209 210 215 221
Other Current Liab 58.7 60.1 58.1 55.7 54.8
LT Debt 250 450 450 525 600
Other LT Liabilities 118 121 121 121 121
Shareholder’s Equity 403 429 448 461 480
Minority Interests 0.0 0.0 0.0 0.0 0.0
Total Cap. & Liab. 1,147 1,269 1,287 1,377 1,476

Non-Cash Wkg. Capital (7.8) (3.0) (1.0) 1.53 2.46

Net Cash/(Debt) (390) (404) (373) (437) (489)
Debtors Turn (avg days) 57.0 56.0 55.5 55.1 54.9
Creditors Turn (avg days) 90.5 106.9 118.2 115.4 114.1
Inventory Turn (avg days) 21.7 20.7 28.1 27.4 27.1
Asset Turnover (x) 1.0 0.9 0.8 0.8 0.8
Current Ratio (x) 0.6 1.2 1.3 1.3 1.4
Quick Ratio (x) 0.5 0.8 0.9 0.9 1.0
Net Debt/Equity (X) 1.0 0.9 0.8 0.9 1.0
Net Debt/Equity ex MI (X) 1.0 0.9 0.8 0.9 1.0
Capex to Debt (%) 51.2 38.2 26.7 40.7 35.7
Z-Score (X) 2.9 2.8 2.4 2.4 2.4
Source: Company, DBS Bank

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 Company Guide
M1

Cash Flow Statement (S$m)

FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Profit 179 163 152 137 133

Dep. & Amort. 127 130 134 139 144
Tax Paid (33.2) (24.4) (28.5) (26.5) (24.1)
Assoc. & JV Inc/(loss) 0.0 0.30 0.0 0.0 0.0
Chg in Wkg.Cap. 62.7 (9.4) 0.0 (0.1) (0.1)
Other Operating CF 0.0 0.0 0.0 0.0 0.0
Net Operating CF 335 259 257 250 253
Capital Exp.(net) (205) (172) (120) (214) (214)
Other Invts.(net) (11.9) (7.3) 0.0 0.0 0.0
Invts in Assoc. & JV (3.0) 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 18.8 0.0 0.0 0.0
Net Investing CF (220) (161) (120) (214) (214)
Div Paid (142) (103) (106) (100) (90.7)
Chg in Gross Debt 47.2 49.0 0.0 75.0 75.0
Capital Issues (18.6) (8.7) 0.0 0.0 0.0
Other Financing CF 0.0 (0.1) 0.0 0.0 0.0
Net Financing CF (114) (63.0) (106) (25.1) (15.7)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 1.04 35.5 30.9 10.8 22.5
Opg CFPS (S cts) 29.2 28.9 27.7 26.9 27.2
Free CFPS (S cts) 13.9 9.37 14.7 3.87 4.12
Source: Company, DBS Bank

Target Price & Ratings History

S$
2.32 12- mt h
Dat e of Closing
S.No. T arget Rat ing
Report Price
2.22 2 Price
3 1: 18 Apr 17 2.12 1.97 HOLD
2.12 2: 28 Apr 17 2.17 2.54 BUY
1 3: 03 May 17 2.24 2.54 BUY
2.02 4: 19 J ul 17 1.94 1.78 FULLY V ALUED
4 5: 16 Oct 17 1.81 1.49 FULLY V ALUED
1.92 6 6: 24 J an 18 1.87 1.49 FULLY V ALUED
7: 25 J an 18 1.89 1.49 FULLY V ALUED
1.82 7

5
1.72

1.62
Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

Analyst: Sachin MITTAL

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 Company Guide
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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: 10 Apr 2018 17:12:46(SGT)

Dissemination Date: 11 Apr 2018 08:08:00(SGT)

Sources for all charts and tables are DBS Bankunless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank 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”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research 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, 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
(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.

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 Company Guide
M1

DBSVUSA, a US-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 research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. 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. 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. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates have a
proprietary position in M1 recommended in this report as of 28 Feb 2018.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.

3. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued
share capital in M1 recommended in this report as of 28 Feb 2018.

Compensation for investment banking services:

4. 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.

Directorship/trustee interests:
5. Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Director / Chairman of M1 as of 31 Dec 2017.

Disclosure of previous investment recommendation produced:

6. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which
1

the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
2

new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term
does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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 Company Guide
M1

RESTRICTIONS ON DISTRIBUTION
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”). DBS holds Australian Financial Services Licence no. 475946.

DBSVS is 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. DBSVS is 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 has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to
carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance
(Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers
Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the
regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of
Hong Kong).
For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at equityresearch@dbs.com.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

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.

United This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore.
Kingdom
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.

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 Company Guide
M1

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

United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined
Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes
only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell
any financial product. It does not constitute a personal recommendation or take into account the particular investment
objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment
adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the
information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This
report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

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

DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE

DBS Vickers (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd
Contact: Paul Yong Contact: Wong Ming Tek (128540 U) Contact: Janice Chua
18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard,
68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3
Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982
Tel: 65 6878 8888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888
Fax: 65 65353 418 Tel.: 603 2604 3333 Fax: 65 65353 418
e-mail: equityresearch@dbs.com Fax: 603 2604 3921 e-mail: equityresearch@dbs.com
Participant of the Stock Exchange of Hong Kong e-mail: general@alliancedbs.com Company Regn. No. 196800306E

INDONESIA THAILAND
PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd
Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul
DBS Bank Tower 989 Siam Piwat Tower Building,
Ciputra World 1, 32/F 9th, 14th-15th Floor
Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan,
Jakarta 12940, Indonesia Bangkok Thailand 10330
Tel: 62 21 3003 4900 Tel. 66 2 657 7831
Fax: 62213003 4943 Fax: 66 2 658 1269
e-mail: research@id.dbsvickers.com e-mail: research@th.dbsvickers.com
Company Regn. No 0105539127012
Securities and Exchange Commission, Thailand

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