Company Focus Top Glove Corporation

Bloomberg: TOPG MK

Reuters: TPGC.KL

Malaysia Equity Research PP 11272/7/2008

14 Apr 2008

BUY RM4.66 KLCI : 1,246.79

(Initiating Coverage) Price Target : 12-Month RM 6.00 Reason for Report : Initiating coverage Potential Catalyst: Slashed stock price, firm demand growth for rubber gloves, healthcare sector; expanded capacity Analyst Malaysia Research Team +603 2711 2222 general@hwangdbsvickers.com.my

Size matters
Story: As the largest rubber glove manufacturer in the world, commanding 24% of global market share, Top Glove is set to capitalise on an expected 10% yearly surge in demand for rubber gloves, to be propelled by a growing, ageing world population and consequential increase in healthcare expenditure. Its aggressive expansion plan will culminate by end-FY09 and enable it to capture this rising trend of rubber glove use. We expect a strong CAGR of 21% from FY07-10, due to increased capacity and anticipation of higher economies of scale following expansion of the plants. Point: We believe Top Glove has been unfairly treated by the recent equity market rout, as its fundamentals have remained robust, and bolstered by the recent set of satisfactory 2Q08 results. Top Glove managed to register a 16.2% jump y-o-y in net profit despite the triple whammy facing the local rubber glove industry, of rising latex and fuel costs, and a depreciating USD. The strong results indicate Top Gloves ability to pass on the bulk of increase in costs.

Price Relative
RM 10.20 9.20 8.20 7.20 6.20 5.20 4.20 3.20 2.20 2004 2005 2006 2007 83 2008 133 183 283 233 Relative Index

Top Glove Corporation (LHS)

Relative KLCI INDEX (RHS)

Forecasts and Valuation

FY Aug (RM m) 2007A 2008F 2009F 2010F

Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (sen) EPS Pre Ex. (sen) EPS Gth Pre Ex (%) Diluted EPS (sen) Net DPS (sen) BV Per Share (sen) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Consensus EPS (sen):

1,229 178 119 104 104 34.7 34.7 19 34.7 6.9 205.6 13.4 13.4 9.3 8.1 1.5 2.3 0.0 23.1

1,532 179 144 125 125 41.6 41.6 20 41.6 8.3 238.8 11.2 11.2 9.4 8.2 1.8 2.0 0.1 18.7 39.7

1,974 209 175 151 151 50.3 50.3 21 50.3 10.1 279.1 9.3 9.3 8.0 7.2 2.2 1.7 0.1 19.4 48.5

2,278 276 242 192 192 64.0 64.0 27 64.0 12.8 330.3 7.3 7.3 6.5 5.1 2.7 1.4 0.1 21.0 55.5

Relevance: We initiate coverage on Top Glove with a BUY call and target price of RM6.00 apiece by pegging a P/E of 11x on CY09 EPS, which is at the lower end of the 1-year historical forward PE band of 8x-16x, or an implied 50% premium to the sector average PE of 7.2x. We believe the premium is justified, given Top Gloves liquidity (its market cap is 20% larger than that of its closest local peers combined). Top Glove is also trading at an attractive PE of 10x against its CY07-10 EPS CAGR of 21%.

At A Glance Issued Capital (m shrs) Mkt. Cap (RMm/US$m) Major Shareholders Lim Wee Chai (%) Overlook Partners Fund (%) Matthews Int Cap (%) Free Float (%) Avg. Daily Vol.(000)

301 1,402 / 446 29.0 6.5 6.1 61.4 361

Sector : Health Care Principal Business: Latex examination, nitrile and vinyl glove manufacturer

Refer to important disclosures at the end of this report

HWANGDBS

Company Focus Top Glove Corporation

Investment Highlights
i) Size matters indeed! Top Glove is the largest manufacturer of rubber gloves in the world, with an estimated 24% global market share. With annual production capacity of 29.8bn gloves as of March 2008, we expect Top Glove to benefit from economies of scale, especially in the purchase of its main raw material, latex. The company has also embarked on an aggressive expansion plan, which began in FY04 and will see annual production capacity boosted to 32b gloves in FY08, a 13.5% growth. The increased capacity should further enhance economies of scale and allow for better pass-through cost mechanisms. It will also enable the company to cater for the rising demand for rubber gloves, which is expected to grow at 10% p.a. and consolidate its current market leader role in the market. ii) Demand drivers intact. Even in light of fears of a slowing world economy, Top Gloves demand drivers have remained steady. With 80% of the companys products consumed by the medical segment, demand is poised to stay relatively inelastic even in a global recession and amidst an enlarging, ageing population as well as heavier focus on healthcare standards in developed countries will spur Top Gloves growth. iii) Malaysias competitive edge... Malaysia has a natural competitive advantage in the rubber glove market, controlling 60% of the market and producing 14% of the worlds rubber supply. Top Glove, holding the largest market share among Malaysian rubber glove producers in terms of market share capacity, will be able to take the largest share of Malaysias geographic advantage in being located close to rubber plantations and market share edge in being able to dictate rubber glove selling prices. iv) translates into pass-through ability With Top Gloves economies of scale and Malaysias hold on the rubber glove supply, we expect the company to be able to pass on the bulk of the cost increases in latex and fuel to customers, given that all the glove manufacturers, especially those in Malaysia, will be encountering the same problems. Latex commodity prices have been choppy in recent years, seeing average y-o-y growth of 16% over FY04-07, but even in the face of rising latex costs, increased fuel costs and a depreciated USD, Top Glove has been able to sustain EBITDA margins of 15.6% over FY07 compared to 14.0% in FY06. We have assumed a pass-through rate of 70% of increased latex costs, but understand that this number is at the lower end of Top Gloves target of 80%. v) Initiate with RM6.00 BUY recommendation. We initiate coverage on Top Glove with a BUY call and target price of RM6.00 apiece by pegging a P/E of 11x on CY09 EPS, which is at the lower end of the 1-year historical forward PE band of 8x-16x, or an implied 50% premium to the sector average PE of 7.2x. We believe the premium is justified, given Top Gloves liquidity (its market cap is 20% larger than that of its closest local peers combined). Top Glove is also trading at an attractive PE of 10x against its CY07-10 EPS CAGR of 21%.

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HWANGDBS

Company Focus Top Glove Corporation

SWOT Analysis
Strengths Economies of scale: Worlds largest latex examination glove maker with 24% world market share Ability to pass on costs: Able to sustain a steady, average EBITDA margin of 14.9% from FY02-07 even as latex prices have risen an average of 20% in the same period Cost advantage: Operations in Malaysia and Thailand, which supply a combined 80% of the worlds rubber gloves Weakness Dependence on volatile commodity: The prices of Top Gloves main raw material, latex, experienced significant volatility in FY07, and have increased c. 14% since the beginning of FY08. Nonetheless, we are confident that Top Glove will be able to pass on the bulk of the cost increase, as evidenced by its stable FY07 EBIT margin of 10.8%. Currency exposure: A depreciating USD hits Top Gloves bottom line, as all of its sales are transacted in USD, while costs are in MYR. ASP increased c. 20% over FY07 to offset currency losses. Our sensitivity study shows us that a 1% change in our forex assumptions impact net profit by 9%. Threats Possible removal of fuel subsidy: The Malaysian Governments plans to remove the current gas subsidy could hike costs: a move, however, that will impact all of Top Gloves most comparable rubber glove peers equally. Possible US or global recession: Fears of a slowing economy could impact revenue. As rubber gloves are primarily used in the medical industry, demand should remain resilient in a global recession. Also a factor in mitigating this recession risk is the low average selling price of the products, at an average US$0.02 per piece in FY07.

Opportunities Capacity for expected surge in demand: Demand for rubber gloves is expected to grow by a healthy 10% annually from the current level of 130bn pieces p.a.; Top Gloves capex plan to hit 40bn pieces p.a. by FY10, will enable it to capture 26% FY10 market share. Healthcare surge: Beneficiary of the worldwide trend of increasing expenditure on and demand for healthcare, as the world population ages and governments and individuals spend more on the medical sector.
Source: DBS Vickers

HWANGDBS

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Company Focus Top Glove Corporation

Company Background Worlds largest rubber glove player. . Top Glove is a manufacturer of gloves, with the bulk of its operations producing latex examination gloves. Top Gloves products are used primarily in the medical profession and the food industry, with an estimated 80% of the companys products being consumed by end users in the healthcare sector. The company is based in Klang Valley with manufacturing facilities in Malaysia, Thailand and China, and a customer base spanning 180 countries and comprising 850 customers. Top Glove holds a significant 24% market share (based on capacity) in the rubber glove market, and is the largest rubber glove producer in the world. Its closest domestic competitor is Supermax, with a notably lower world market share of 17% and focuses more on dental rather than latex examination gloves; its production capacity is 20% smaller than Top Gloves. Fig. 1: Sales Trend

The company made its listing on Bursa Malaysias Second Board on 27 March 2001 before being promoted to the Main Board in May 2002, totalling over 15 years of experience in production of latex examination gloves. Fig. 3: Revenue breakdown by glove products PVC (Vinyl) 10% Nitrile 7% Others 3% Surgical 5% Latex Examination (Powdered) 50%

Latex Examination (Powder-free) 25%

Source: Company

2000 1800 1600 1400 1200 1000 800 600 400 200 0 2005A 2006A 2007A 2008F 2009F

58% 53% 48% 43% 38% 33% 28% 23%

Wide product range. As illustrated in Fig 3, Top Gloves product range spans the glove universe, consisting of both latex and non-latex products. The companys basic latex examination gloves are categorised into powdered, powder-free (polymer and chlorinated), coloured, flavoured or long length high risk varieties. The rest of the latex gloves are surgical, cleanroom, household, and industrial. Nitrile, vinyl, polyethelene gloves are not made from latex, but synthetic latex, an oil based component. Three-quarters of the companys revenue is derived from sales of powdered and non-powdered latex examination gloves alone, representing Top Gloves single most significant product, in which it is able to compete in production volume and price. A one-stop glove centre. The company offers the full range of services, from manufacturing glove products to packaging and branding as well as sales and distribution of finished glove products through its three primary sales offices in Klang, Malaysia; Azusa, California; and Duisburg, Germany. With 70% OBM (own brand manufacturing) and 30% OEM (original equipment manufacturing), Top Glove manufactures for the exporters and distributors of rubber gloves.

Total Revenue (+)

Revenue Growth (%) (YoY)

Fig. 2: Profitability Trend

RM

180 160 140 120 100 80 60 40 20 0 2005A 2006A 2007A 2008F 2009F Operating EBIT N t P fit Pre tax Profit

Source: Company, DBS Vickers

Good fundamentals. Established in 1991, the company began manufacturing gloves with three second-hand production lines. It has since grown to house 338 production lines with total annual production capacity of 29.7bn gloves.

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HWANGDBS

Company Focus Top Glove Corporation

Fig. 4: Details on glove products

Glove type Latex Powdered latex examination Powder-free latex examination Surgical Household Cleanroom Industrial Non-latex Nitrile Vinyl examination PE Medical, Industrial Medical, F&B F&B Malaysia China China Medical, consumer Medical, consumer Medical Consumer Industrial Industrial Malaysia, Thailand Malaysia, Thailand Malaysia Malaysia Malaysia Malaysia Industry Country of production

Source: Company, DBS Vickers

Inelastic latex gloves. Sold in USD, the current average selling price (ASP) of rubber gloves is US$22 per thousand pieces, though Top Glove sells a wide range of products, from higher-end, higher-margin (surgical and cleanroom gloves) that sell for US$75 and US$200 per thousand respectively, to latex examination gloves that are used in a variety of medical and consumer applications and cost less, at an average of US$22 per thousand. The company passes on rubber cost increases to its customers and is thus able to sustain gross margins of c. 18% over FY05-07; a move that it has been able to carry out, thanks to its formidable market size and strong demand for inelastic quality of latex examination gloves. Top Gloves main product, latex examination gloves, is a disposable necessity, representing the lowest-end product in the lucrative health industry. Because of the products relatively low cost, buyers are not sensitive to price and the company passes on 70-80% of cost increases. Broad customer base. With a wide customer base, Top Gloves geographical risk is well spread. The company distributes its products to a worldwide market of 180 countries and 850 customers, with 60% from North America and Western Europe. Higher living standards and increasing awareness of health and safety issues have fuelled glove use; the two regions combined consume more than half of Top Gloves products. Developing countries are also providing growth opportunities for Top Glove, as they have low levels of saturation by Top Glove. Currently, there is no single bulk customer that contributes to more than 5% of Top Gloves total revenue.

Cost Structure Economies of scale. With the largest production capacity for latex gloves, economies of scale and strategic locations in two major rubber producing countries are the reasons behind Top Gloves lower cost structure against its peers. The company owns 13 factories in Malaysia, four in Thailand and two in China (see Fig. 5a). Its strategic locations in the former two nations are in close proximity to rubber estates from which it sources the core material, natural rubber. Fig. 5a: Production capacity by segment FY07
Country Malaysia Thailand^ China Total Number of Factories 13 4 2 19 Number of Production Lines 258 36 44 338 Capacity (billions, p.a.) 22.52 3.38 3.86 29.76

^ - Including two latex concentration plants

Source: Company, DBS Vickers

Fig. 5b: Historical production capacity

Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Production Capacity (bn pieces p.a.) 1.0 1.2 1.4 2.4 3.2 5.1 7.2 9.0 15.0 22.0 28.2 y-o-y change (%) 20.0 16.7 71.4 33.3 59.4 41.2 25.0 66.7 46.7 28.2

Source: Company

HWANGDBS

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Company Focus Top Glove Corporation

Latex costs fluctuating... The main cost component of production is latex raw material, which makes up 55% of production costs (see Fig 6). The rest are chemical and fuel costs, with which latex make up almost 75% of production costs. Latex costs have been fluctuating over the past four years, trending upwards, demonstrating a particularly volatile pattern in FY06 and FY07 (see Fig 7). Since the beginning of FY08, latex prices have risen by c. 14%. Fig. 6: Cost breakdown FY07
Overhead & Others , 11%

32%. Along with Indonesia, the three Southeast Asian countries accounted for 75% of the worlds natural rubber production in 2006. As Malaysia is the worlds largest manufacturer of rubber gloves with contribution of 60% (Thailand produces 20%, and Indonesia 10%), any latex price hike would hit all rubber glove producers equally. But although latex prices have been increasing at a rate of 20.8% over FY02-FY07, Top Glove's latex costs per glove over the same period has been remained flat. The company has been able to increase production efficiency and pass on costs to register either a fall in latex cost per glove, or at least cost increases that are relatively slower than latex cost increase. Economies of proximity. Natural rubber, in its raw state, cannot be transported over long distances without coagulating; and Top Gloves factories are located near rubber estates from which they source their latex. This also Top Glove avoid competition from China manufacturers. The companys China factories produce PVC (vinyl) and PE gloves, which are not latex-based. The company also enjoys a 3-5 sen discount from its various suppliers for purchasing latex in bulk quantities. Vertical integration. To mitigate the threat of unstable latex prices, the company has two latex concentration plants containing 65 latex centrifuge machines that centrifuge and process raw latex for internal use. The first plant was completed in July 2006, and the second in June 2007. The plants produce a total of 60,000 tonnes per annum and will be able to process 60% of the companys rubber supply and contribute cost savings of 2%, the effects of which should be fully recognised in FY08, as the plants kick in and cost savings filter through to the bottom line. We view the vertical integration move positively, as it highlights the companys cost-cutting and research and development initiatives. Steady margins. Top Glove has been able to sustain EBIT margins of 11% (see Fig. 8) and gross margins of 19.9% from FY02-07 by passing latex increases to customers. Such an advantage is mainly attributable to its presence in Malaysia (a global rubber glove manufacturing and latex producing market leader) combined with Top Gloves dominant market role in the world rubber glove market. EBIT margins have remained within a consistent band of 10%-11% over FY02-07 despite latex prices growing at an average 20% over this period. As iterated earlier, latex costs per glove have actually decreased although total latex costs have grown. Historically, the constant margins show that Top

Packaging, 7%

Labour, 9%

Latex, 55%

F uel, 8%

C hemicals , 10%

Source: Company

and set to rise.... Latex costs are expected to rise in FY08. China, the worlds largest consumer of natural rubber, will be the driving force behind latex price hikes: Chinas economy is forecast to grow by 10% in FY08. The International Rubber Study Group has predicted that total world rubber consumption will increase at an average rate of 4.7% over the next two years. The higher crude oil price may also bolster the argument for a rise in latex prices, as demand will move from synthetic rubber with a high crude oil component, to natural rubber. Fig. 7: Average latex price
Year 2002 2003 2004 2005 2006 2007 Natural Rubber Average Price (RM/kg) 2.06 2.88 3.31 3.81 5.10 5.14 % y-o-y change 21.28 39.41 14.99 15.12 33.90 0.78

Source: Malaysian Rubber Board

but Malaysia will able to weather the volatility. The Malaysian Rubber Board reports that Malaysia produces 14% of the worlds rubber supply, with Thailand contributing

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HWANGDBS

Company Focus Top Glove Corporation

Glove are able to pass on latex costs going forward, and we believe this will be the case going forward.

We have assumed 70% pass-through of price increases, though we understand this is a conservative estimate and lower than the companys internal targets.

Fig. 8: Rubber prices and Top Gloves EBIT margin trends

Sen/KG

700 600 500 400

% 12

11.5 11 10.5 10 9.5

300 200 100 0 2002

Source: DBS Vickers

9 8.5 8 7.5 7 2003 2004 2005 2006 EBIT Margin 2007 Rubber Price (Sen/Kg)

Management & Strategy Experienced, hands on management. Most members on the Board of Directors and key management staff have been holding their positions since Top Gloves inception, indicating solid working relationships. Several members also hold positions in various regional and national rubber associations. Malaysia is one of the largest global producers of rubber, and managements presence on these rubber boards highlights the boards collective rubber knowledge, and enables its management to be at the forefront of information on rubber prices and the rubber industry, as Malaysia itself contributes greatly to the economic mechanisms of the price of rubber. The boards long history in the rubber industry is notable, due to the highly volatile nature of rubber: Top Gloves management has seen and experienced various cycles of the rubber industry, and we are confident of their capabilities.

Accredited and certified. The company holds various quality accreditations from the countries to which it exports, including Germany and the US, which (with the rise in the number of developed countries placing higher premium than developing countries on healthcare quality) have stricter regulations. 20-30% dividend payout policy. Top Glove has been having a steadily increasing dividend payout policy since its listing in 2001 (see Fig. 9). Top Gloves capex has been lowered from RM120m over FY06-FY07 to RM100m in FY08, as the bulk of capex financing has been completed. As a result, we expect Top Glove to maintain its stable dividend policy, as it now has more cash to reward its shareholders.

HWANGDBS

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Company Focus Top Glove Corporation

Fig. 9: Dividend payout track record

Dividend Payout (% of par value) 2002 6 2003 12 2004 14 2005 16 2006 18 2007 20

Source: Company

Industry prospects 10% demand growth for rubber gloves. The global market for rubber gloves was estimated to be 120bn gloves in FY07. With an expected annual growth of 10%, the glove market should expand in tandem with the healthcare sector. The companys key customers are medical companies and hospitals, with growing demand for gloves, due to an enlarging and aging population with longer life expectancies. In developing countries particularly, there has been growing awareness of healthcare standards and more stringent government regulations on industries in which latex examination gloves are used, such as food and beverage industries. According to the Organization for Economic Cooperation and Development, health care spending per capita in its 30 member nations, primarily from Europe and North America, has been increasing at a rate of 3% since 2001. The US example. Though the US is a saturated market (in terms of medical sector and rubber gloves), the US statistics are worth noting, as developing countries are striving to catch up with US living standards. In 2005, nearly US$2tr was spent on healthcare in the US, and health expenditure there grew at a rate that is three times faster than GDP from 2000 to 2005. Spending on health care stands at 15% of US GDP. The Center for Medicare and Medicaid Services (CMS) projects that by 2016, health care will account for c. 20% of US GDP, or US$4.1tr. Driven by medical consumption. Out of Top Gloves total revenue, 80% is derived from gloves that are primarily used by the medical sector, so we expect the company to benefit from the increased global expenditure trend on healthcare, as illustrated in Fig 10. Market statistics show that expenditure on health and healthcare in most OECD member countries has been rising dramatically, up from an average of 7.8% in 1997 to 8.5% in 2002. Even when discounting the US, health expenditure across other OECD countries outpaced economic growth by 1.7 times. The rapid growth over the current period stands in contrast to the earlier five-year period of 19921997, during which GDP proportion spent on health remained almost unchanged.

OECD attributes the rise in healthcare spending to a combination of rapid advances in medical technology and population aging. Rubber gloves sit on the lower, less costly end of the healthcare expenditure chain: a fact that we believe will enable Top Glove to ride on the increasing healthcare expenditure while being buffered against any possible slowdown in healthcare demand. Fig. 10: Upward healthcare spending trend
Healthcare expenditure, as % of GDP 14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 YTD

Source: Various sources; DBS Vickers

North America

Europe

Asia

An ageing world population. According to data collected by the United Nations, the worlds population aged above 80 has been increasing at a rapid rate of 3% over the past 20 years (see Fig. 11). Going forward, the UN predicts growth rate to plateau over the next 25 years, but the worlds population will continue to age as the 21st century will witness more rapid ageing than in the past century. An increasing ageing population is strongly correlated to the rise in healthcare expenditure, but the UN expects that while more than half of the worlds population above 80 years now live in developed regions, by 2025, the statistics will be reversed, with 57% living in less developed countries. The surge in healthcare expenditure for developing nations as opposed to developed countries again reinforces our positive view on demand for Top Glove products in the long-term.

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Company Focus Top Glove Corporation

Fig. 11: Worldwide ageing population

Population (m) 400 Average annual population growth rate (%) 4.5

26bn capacity after its FY07 acquisition of local rubber glove manufacturer APLI ) and Kossan (RM500m sales, 9bn capacity). Large consumer base opportunities. Top Glove is also looking to move into the higher margin surgical glove segment, through leveraging on its customer base, and surgical gloves contribution to revenue increased from 3% in FY06 to 5% in FY07, as the company has used its large consumer base and contacts to cross-sell. With a larger base that enables it to spread cost increases, the company has the competitive edge of being able to pass costs on to customers. Key Risks Commodity price fluctuations. Latex, like most commodities, is prone to speculation and price instabilities. These could affect prices and impact our price forecast, which is currently set at an average increase of 12.9% p.a. over FY08-11 (refer to Fig. 12). We believe such an estimate is realistic, as latex prices fluctuate according to rubber plantation seasons. We expect Top Glove to be capable of passing on the cost increase; such an assumption is justified by the following factor: Malaysia and Thailand contribute to 45% of the worlds rubber supply, and Malaysia produces 60% of the worlds supply of rubber gloves. Latex price fluctuations will affect Malaysian and MNC rubber glove producers equally, enabling the hike to be passed on to consumers. Latex effects. Based on our sensitivity analysis (refer to Fig. 13), every 1% increase in the price of latex would result in a 2% decrease in FY08F net profit while gross margins would be shaved by 0.2 ppt. For a 5% increase in latex prices, it would hit Top Glove harder, cutting FY08 net profit by 9% and margins by 1ppt. The company has the customer scope and market presence to pass on the costs, a fact that is proven by the companys sustained margins since 2002. Recall that the company also gains 2% cost savings from processing latex internally in its two latex concentration plants in Thailand, and a 3-5 sen discount per kg purchase through its suppliers. Over the past five years, latex costs have risen by an average of 20%, but Top Gloves EBIT margins remained steady , within a band of 10-11% over that same period.

350

3.5 300 3 250 2.5 200 2 150 1.5 100

50

0.5

0 1950 1975 2000 2025 2050 World population aged 80 or over

0 Average annual population growth rates: 80 years or older

Source: United Nations Department of Economic and Social Affairs; DBS Vickers

Malaysias consolidated market. The Malaysian Rubber Glove Manufacturers Association lists 40 local rubber glove makers as members. However, this number is expected to be consolidated to between 10-15 in the next five years, as smaller manufacturers are forced out of the market, due to their inability to weather fluctuating latex costs and pass them on to consumers. Top Glove is the largest manufacturer of rubber gloves in Malaysia: the combined market cap of Supermax, Kossan and Adventa make up only 85% of Top Gloves market cap. On an international scale, foreign competitors Ansell and Kimberly-Clark are Top Gloves most comparable peers, though (unlike Top Glove) they produce a wide range of medical products and do not concentrate solely on rubber gloves. The two MNCs that had factories in Malaysia have since outsourced production to other countries or companies. As the rubber glove industry consolidates, we expect fewer, larger players to emerge; but Top Gloves current market share implies that the company will remain as the largest and thus, the most dominant. Top Glove has a significant market share in the industry, and largest 28bn production capacity and over RM1bn in sales, against its nearest local competitors, Supermax (RM400m,

HWANGDBS

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Company Focus Top Glove Corporation

Fig. 12: Latex price assumptions

Latex (Bulk) Average price (RM/Kg) 2006A 5.10 2007A 5.14 2008F 5.89 2009F 6.78 2010F 7.59 2011F 8.35

Increase (%) Source: Malaysian Rubber Board, DBS Vickers

33.9

0.8

14.7

15.0

12.0

10.0

Fig. 13: Sensitivity table; latex price

Latex Price Increase % Change per year +1 +5 -1 -5 Latex Price Increase % Change per year +1 +5 -1 -5 Net Profit (RMm) 2008F 122.3 113.4 126.8 135.8 2008F 16.7 15.9 17.1 17.9 2009F 140.8 100.5 160.6 199.5 Gross Margins (%) 2009F 15.6 13.0 16.8 19.3 2010F 16.1 11.8 18.2 22.4 2008F -0.2 -1.0 0.2 1.0 2010F 173.5 98.3 209.5 278.6 2008F -1.8 -9.0 1.8 9.0 Change (%) 2009F -6.6 -33.3 6.6 32.4 Change (ppt) 2009F -0.6 -3.1 0.6 3.2 2010F -9.5 -48.7 9.3 45.4 2010F -1.1 -5.3 1.1 5.3

Source: DBS Vickers

Natural gas concerns. The rising price of crude oil is pressuring the Malaysian Government into considering removing the current natural gas subsidy, and the Government has indicated that the subsidies will end soon. Though no timetable has been set, the gas subsidy remains as a serious concern, something to be weathered equally by all Malaysian rubber producers. However, given that Malaysian producers supply an estimated 60% of the rubber glove market, the cost hike should be able to be passed on to customers. Fuel costs also make up just 8% of the companys total production costs, and thus do not expect a revoking of the gas subsidy to significantly impact our projections. In addition, to lessen the natural gas risk, Top Glove is eyeing other forms of energy two of its latex plants in Thailand and two in Malaysia (out of a total of 17 production plants) are using biomass energy. Based on our sensitivity analysis in Fig. 14, every 1% increase in Top Gloves fuel costs would only cause a cumulative 2% decrease in net profit. Tillotson lawsuit. Top Gloves ongoing court case with Tillotson Corporation is expected to come to a close this FY08. We understand that the parties involved are currently arguing a few points of contention, but that one point of contention has been fully resolved and ruled in favour of Top Glove.

For the other points of contention, the US International Trade Commission (ITC) has asked Tillotson and the sued parties to attempt to settle the dispute out of court before they make a final decision. Top Glove is set to discuss the case with Tillotson this week. Recall that, Tillotson Corporation, an American rubber glove manufacturer, filed a complaint to the US ITC last year against more than 30 rubber glove manufacturers, including MNC and Malaysian players, over an alleged infringement of a patent of nitrile gloves owned by Tillotson. Although the compensation sought by Tillotson has not yet been confirmed, we understand it will be based on sales on nitrile gloves in the US. Nitrile gloves contribute to 7% of Top Gloves total sales, with only 3% of this going to the US. Based on FY07 revenue, this translates to an estimated RM2.6m p.a. Despite the ongoing case, Top Gloves nitrile glove sales to the US have not been affected. All the Malaysian rubber players, excluding Supermax, which has already paid an out-of-court settlement to Tillotson, will be affected by the ITCs decision. Aggressive share buyback. Top Gloves stock price has experienced a 33% drop since the beginning of the year. Top Glove has bought back 1.43m shares in the past month alone, and 5.0m since January 2008, buying back shares between RM6.55 and RM3.90.

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Company Focus Top Glove Corporation

Fig. 14: Sensitivity table; ASP & Fuel

Factor ASP Fuel Price % Change (each year) +1 -1 +1 -1 Net Profit (RMm) 2008F 122.6 126.5 123.7 125.5 2009F 146.2 155.4 148.5 153.2 2010F 185.7 197.5 187.8 195.4 2008F 1.6 -1.6 -0.7 0.8 Change (%) 2009F 3.0 -3.1 -1.5 1.6 2010F 3.1 -3.1 -2.0 2.0

Source: DBS Vickers

Appreciating ringgit a concern. Top Glove sells its products in US dollars, and an appreciating ringgit will corrode profits. We have used our DBS inhouse forecast of 3.15, 2.99 and 2.98 for FY08, FY09 and FY10 respectively. Our sensitivity table (see Fig. 16) charts the effect of an exchange rate change on net profit and gross margins. A 5% y-o-y change to our assumed exchange rates hits Top Glove hard, depleting up to 42.2% of net profit in FY09. This currency Fig. 15: Major assumptions
2008F Annual Production Capacity (bn pieces) Utilization Rate (%) Pieces per hour per line Ex Rate: MYR vs USD^ 31.5 77 10,382 3.15

sensitivity, however, does not take into account any ASP increases to mitigate currency exposure. With 850 customers, we understand that the company will be able to reprice aggressively if needed; as we understand that FY08 ASP has already been raised by 2-3%. The company is also proposing to switch pricing to Euros from USD. Not surprisingly, existing customers are reluctant to move away from USD pricing, but new customers from Europe will be charged ASP in Euros.

2009F 36.6 78 10,648 2.99

2010F 38.8 79 10,725 2.98

Source: DBS Vickers ^ - DBS inhouse MYR-USD forecasts

Fig. 16: Forex sensitivity

Ex Rate Change -1% -5% +1% +5% Net Profit (RMm) 2008F 113.0 66.9 136.1 182.2 2009F 138.1 87.2 163.5 214.3 2010F 178.9 128.0 204.4 255.3 Net Profit Change (%) 2008F -9.3 -46.3 9.3 46.3 2009F -8.5 -42.2 8.4 42.1 2010F -6.6 -33.2 6.6 33.2 2008F 16.1 12.8 17.6 20.6 Gross Margins (%) 2009F 15.5 12.7 16.8 19.4 2010F 16.5 14.0 17.8 20.1

Source: DBS Vickers

HWANGDBS

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Company Focus Top Glove Corporation

Segmental Analysis Malaysia and Thailand main revenue segments. Fifteen out of 17 of Top Gloves glove factories operate in Malaysia and Thailand, which comprised 91% of the companys FY07 revenue. Thailand and Malaysia produce latex examination, nitrile, cleanroom, surgical and household gloves, while the companys two China factories produce vinyl and PE gloves, which use synthetic rather than natural rubber. Segmental Analysis
FY Aug 2007A 2008F 2009F 2010F

The company also operates two latex concentrate plants in Thailand. The Malaysian and Thai operations generate 85% of revenue in FY06, a trend that continued in FY07, which we expect would remain in future because of the companys strategic locations in these two major rubber producing countries.

Revenues (RM m) Malaysia Thailand China Others Eliminations Total EBIT (RM m) Malaysia Thailand China Others Eliminations Total EBIT Margins (%) Malaysia Thailand China Others Eliminations Total

985 263 92 63 (175) 1,229 132 6 (8) 2 0 132 13.4 2.4 (9.2) 3.3 (0.1) 10.8

1,335 220 141 63 (227) 1,532 180 7 7 2 0 196 13.5 3.0 5.0 3.5 0.0 12.8

1,724 241 187 73 (250) 1,974 231 13 12 3 0 258 13.4 5.3 6.5 3.6 0.0 13.1

2,009 257 216 84 (287) 2,278 269 14 14 3 0 300 13.4 5.3 6.5 3.6 0.0 13.2

Source: Company, DBS Vickers

Fig. 17: Revenue breakdown by geographic segment

35%

30%

25%

20%

15%

10%

5%

0% North America Europe Latin America Asia Rest of the World

Source: Company; NB: Rest of the world includes Eastern Europe and Australasia

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Company Focus Top Glove Corporation

Quarterly / Interim Performance Profit, growth, sustained. Top Gloves most recent 2Q08 results saw a 2.9% y-o-y growth in revenue; which we take comfort from given the current industry situation of heightened latex costs, increasing crude oil and fuel costs, and an appreciating RM. We understand that the revenue would have been higher if sales of latex concentrate from their Thailand latex concentration plants, had been maintained. Top Glove chose to use the latex concentrate for internal raw materials uses in an effort to cut costs. Net profit increased 16.2% y-o-y, which we also find heartening. Mediflex update. Mediflex has been making losses before its acquisition by Top Glove in March 2007. We understand this was due to management problems and inefficiencies. Top Glove has been cutting production costs and upgrading machinery, the results of which are being realized earlier than expected. Mediflex turned around and contributed positively to revenue in 1Q08, however; earlier than Top Gloves earlier recommendation of March 2008. Quarterly / Interim Income Statement (RM m)
FY Aug 3Q2007 4Q2007 1Q2008 2Q2008

Note that Mediflex is a manufacturer of cleanroom and latex examination glove listed in Singapore, of which Top Glove acquired 60% stake in March 2007 for RM28m. The acquisition was funded by internal funds and borrowings. Two manufacturing plants were absorbed, with a total of 27 lines and a capacity of 1.6b gloves, and the move indicate Top Gloves intention to penetrate the higher end glove market. We understand that Mediflex is due to start making profits by endFY08. China issues addressed. We understand that the oversupply issue in China, which also contributed to the slow 5% net profit growth in 4Q07, has improved, as the smaller manufacturers that pushed PVC gloves prices to a low have shut down. These smaller producers were unable to compete with the larger glove players, and ASP for vinyl gloves have been stabilising at US$15 per thousand. On an EBIT level, China contributed a strong RM1.6m while in 1Q08 it had just returned to the black, contributing RM0.1m.

Turnover Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Oper. (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Sales Gth (%) EBITDA Gth (%) Operating Profit Gth (%) Net Profit Gth (%) Gross Margins (%) Operating Margins (%) Net Profit Margins (%)

302 (271) 31 1 31 0 0 (2) 0 29 (4) 0 25 25 53 (3.1) 25.2 (3.1) (0.1) 10.2 10.4 8.4

308 (279) 29 4 33 0 0 (2) 0 30 (4) 1 27 27 33 2.0 (38.2) 4.4 5.8 9.4 10.6 8.7

336 (302) 35 2 37 0 0 (3) 0 35 (5) 0 29 29 37 9.3 13.7 12.8 9.5 10.3 11.0 8.7

321 (289) 32 2 34 0 0 (2) 0 32 (3) 1 29 29 34 (4.7) (7.8) (8.0) 0.3 10.1 10.6 9.2

Source: Company, DBS Vickers

HWANGDBS

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Company Focus Top Glove Corporation

Valuation Steady three-year CAGR of 24.8% over FY08-10F. We have projected earnings to grow by 24.8% over FY08-10, which will be fuelled by the companys expanded production capacity from 32bn at end-FY08 to our conservative estimate of 38bn at end-FY09. Rubber glove demand, projected to grow at 10% p.a., will also drive earnings. Top Gloves size and market leader position in a country that dominates world rubber glove production should also enable the company to mitigate costs more effectively than its competitors. Top Gloves size and market leader position in a country that dominates world rubber glove production should also enable the company to mitigate costs more effectively than its competitors. Initiating coverage with BUY and target price at RM6.00. We have derived a target price of RM6.00, by pegging a P/E multiple of 11x on CY09 EPS, which is at the lower end of Fig .18: Peer valuation
Company Top Glove Supermax Kossan Rubber Adventa Sector Average* Price (RM) 4.66 1.63 3.66 1.21 Mkt Cap (RMm) 1,352.1 427.9 585.1 155.8 3 Yr EPS Growth (%) 73 82 74 81 78 2008 10.1 5.6 8.9 7.4 8.9 PER (x)* 2009 8.2 4.9 7.2 5.5 7.2 2010 6.6 4.0 6.5 5.9 6.1 2007 22.8 17.5 22.7 15.5 19.6 ROE (%) 2008 19.0 21.5 25.7 22.1 2009 19.7 22.9 25.9 22.8 EBIT (%) 10.6 11.4 9.2 11.9 10.8 Expected Production Capacity at end 2008 (b pcs) 32.0 26.1 8.5 2.8

the 1-year historical forward PE band of 8x-16x (refer to Fig.19), or an implied 40% premium to the sector average PE of 7.7x. We believe the premium is justified, given Top Gloves liquidity (its market cap is 20% larger than that of its closest local peers combined) and production capacity (with FY07 production capacity 90% that of its combined peers). The stocks current PE of 10x is attractive against its historical PE high of 26x (refer to Fig. 19). 29% upside. Our target price implies 29% upside to the current share price. Though share price saw a sudden spike last week (as much as 15% over 3 days), we believe this was because the stock was undervalued at its previous price levels, which did not accurately reflect its strong fundamentals. The stock is a value play in the rubber glove sector, a market in which Malaysia is internationally dominant.

Source: DBS Vickers, Bloomberg * Sector averages are weighted by market cap

Fig. 19: Historical PE band

14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Sep-03 Sep-04 Sep-05 Sep-06 May-03 May-04 May-05 May-06 May-07 Sep-07 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 9.5 20.5 16.5

1 -ye a r fo rwa rd PE B a n d
25.5

3.0

Source: DBS Vickers, Bloomberg

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Company Focus Top Glove Corporation

Financials Income Statement

Revenue growth. FY07 revenue growth was capped by problems in its Mediflex operations and losses incurred at its China factories; growing only a modest 26% compared to the robust average of 55% over FY04-06. We expect 29% revenue growth in FY08, to be driven by expanded capacity and continued strong demand for its latex examination glove products. The slowed growth compared to
Sales Trend
60% 2000 1500 1000 500 0 2006A 2007A 2008F 2009F 2010F 55% 50% 45% 40% 35% 30% 25% 20% 15%

the blazing pace of earlier years is because Top Glove has expanded to such a size that revenue growth is necessarily slowed by the fact that its revenue base is now significantly larger.

Operating Cost Trend

2000 1500 1000 500 0 2006A 2007A 2008F 2009F 2010F
Other Operating Expenses (-) Cost of Goods Sold (-)

Profitability Trend
200 150 100 50 0 2006A 2007A 2008F 2009F 2010F Net Profit (After-extraordinaries) Net Profit Growth (%) (YoY) 9.0% 8.8% 8.6% 8.4% 8.2% 8.0% 7.8% 7.6% 7.4% 7.2% 7.0%

Total Revenue (+)

Revenue Growth (%) (YoY)

FY Aug

2007A

2008F

2009F

2010F

Turnover Cost of Goods Sold Gross Profit Other Opg (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net profit before Except. EBITDA Sales Gth (%) EBITDA Gth (%) Operating Profit Gth (%) Net Profit Gth (%) Effective Tax Rate (%)

1,229 (1,014) 215 (82) 132 0 0 (13) 0 119 (16) 1 0 104 104 178 23.8 37.8 30.5 32.4 13.3

1,532 (1,274) 258 (104) 154 0 0 (10) 0 144 (19) (1) 0 125 125 179 24.7 0.2 16.6 20.0 13.0

1,974 (1,655) 319 (134) 185 0 0 (10) 0 175 (23) (1) 0 151 151 209 28.8 17.1 19.8 21.0 13.0

2,278 (1,887) 391 (139) 252 0 0 (10) 0 242 (48) (2) 0 192 192 276.5 15.4 32.1 36.3 27.1 20.0

Source: Company, DBS Vickers

HWANGDBS

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Company Focus Top Glove Corporation

Financials Balance Sheet

Strong balance sheet. Top Gloves capex plan is to be financed by its recent capital placement and borrowings, with a low total net gearing of 0.1x in FY08. As the plant expansions will be completed by FY09, we expect a stronger balance sheet for FY10.

Breakdown of Assets
Debtors 16.7% Inventory 12.0% Net Fixed Assets 55.1% Bank, Cash and Liquid Assets 16.2%

Breakdown of Capital

Financial Leverage & Net Debt to Equity

230 220 210 200 190 180 170 160 150 140 130 2006A 2007A 2008F 2009F 2010F 2.53 2.03 1.53 1.03 0.53 0.03

ST Debt 7.9%

LT Debt 15.8%

Common Shareholder s' Equity 76.3%

Net Debt/(Cash) Financial Leverage (X) (R.H.S)

Net Debt to Equity (X) (R.H.S)

FY Aug

2007A

2008F

2009F

2010F

Net Fixed Assets Invts in Assocs & JVs Other LT Assets Cash & ST Invts Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholders Equity Minority Interests Total Cap. & Liab. Leverage Analysis (x) Net Interest Cover EBITDA Gross Interest Cover Total Debt to EBITDA Total Debt to Total Assets Total Debt to Capital Net Debt to Equity Capex to Debt Liquidity Analysis (x) Cash Ratio Current Ratio Quick Ratio

558 9 21 164 300 1,052 64 193 127 31 616 21 1,052

636 9 18 143 377 1,183 64 224 127 31 715 23 1,183

734.1 9 16 102 486 1,346 64 265 127 31 836 24 1,346

736 9 13 212 557 1,526 64 290 127 31 989 25 1,526

9.8 13.3 1.1 0.2 0.3 0.0 0.5 0.6 1.8 1.3

15.8 16.1 1.1 0.2 0.3 0.1 0.5 0.5 1.8 1.3

18.6 18.9 0.9 0.1 0.2 0.1 0.6 0.3 1.8 1.2

24.5 24.9 0.7 0.1 0.2 0.1 0.1 0.6 2.2 1.5

Source: Company, DBS Vickers

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Company Focus Top Glove Corporation

Financials Cash Flow

Cash Flow Trend

222 172 122 72 22 -28 -78 -128 -178 2006A 2007A 2008F 2009F CF from Fin 2010F
0.03 0.23 0.43 0.83

Free Cash Flow Per Share

Free Cash Flow As At Year End

0.63

200 150 100 50

(0.17) 2006A 2007A 2008F 2009F 2010F

Free Cash Flow Per Share Free Operating Cash Flow Per Share

CF from Op

CF from Invt

2006A

2007A

2008F

2009F

2010F

FY Aug

2007A

2008F

2009F

2010F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Net Cashflow Opg CFPS (sen) Free CFPS (sen)

119 46 (14) 0 (38) (9) 105 (105) 1 (16) 0 2 (118) (21) (114) 255 (1) 119 105 47.6 0.0

144 25 (19) 0 (47) 0 104 (100) 0 0 0 0 (100) (25) 0 0 0 (25) (21) 50.2 1.2

175 25 (23) 0 (67) 0 109 (120) 0 0 0 0 (120) (30) 0 0 0 (30) (41) 59.0 (3.6)

242 25 (48) 0 (46) 0 172 (24) 0 0 0 0 (24) (38) 0 0 0 (38) 110 72.7 49.4

Source: Company, DBS Vickers

HWANGDBS

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Company Focus Top Glove Corporation

Financials ROE Drivers

ROAE / ROAA Trend (%)
20%
30.0% 25.0% 20.0% 15.0% 10.0% 2006A 2007A 2008F 2009F 2010F Ret on Avg Equity (ROAE) % Ret on Avg Assets (ROAA) %

Margin Trend (%)

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2006A EBITDA Margin % 2007A 2008F 2009F 2010F EBIT Margin % Net Income Margin %

Total Debt & Gross Interest Cover

300 250 200 18.3x 150 100 50 0 2006A 2007A 2008F 2009F 2010F
Total Debt (+) Gross Interest Cover (X) (YoY)

24.3x 22.3x 20.3x

16.3x 14.3x 12.3x 10.3x 8.3x

FY Aug

2007A

2008F

2009F

2010F

Profitability Ratios Sales Growth (%) Gross Margin (%) Operating Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Activity Ratios Debtors Turn (average days) Creditors Turn (average days) Inventory Turn (average days) Total Asset Turnover (x) Fixed Asset Turnover (x)

23.8 17.5 10.8 8.4 23.1 11.4 19.7

24.7 16.9 10.1 8.1 18.7 11.1 18.5

28.8 16.2 9.4 7.6 19.4 11.9 18.5

15.4 17.2 11.1 8.4 21.0 13.3 20.5

47.3 35.5 40.2 1.4 2.5

45.2 32.1 39.8 1.4 2.6

44.5 32.0 39.8 1.6 2.9

46.8 34.2 42.3 1.6 3.1

Source: Company, DBS Vickers

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Company Focus Top Glove Corporation

Appendix: Key Management Team

Management Tan Sri Dr. Lim Wee-Chai (Appointed Chairman in 2000, aged 49) Tan Sri Datuk (Dr.) Arshad Bin Ayub (Appointed in 2000, aged 79) Puan Sri Tong Siew Bee (Appointed in 2000, aged 49) Lim Hooi Sin (Appointed in 2003, aged 45) Sekarajasekaran Arasaratnam (Appointed 2000, aged 79) Lau Boon Ann (Appointed 2000, aged 53) Quah Chin Chye (Appointed 2001, aged 52) Lee Kim Meow (Appointed 2000, aged 48) Lim Cheong Guan (Joined in 2005, aged 42) Executive Director Independent NonExecutive Director Executive Director Non-Executive Director a/l Independent NonExecutive Director Executive Director Executive Director Independent NonExecutive Director Current position Chairman Previous experience Founded Top Glove in 1991, totalling 26 years of experience in the latex industry. Former president of the Malaysian Rubber Glove Manufacturers' Association (MARGMA), board member of the Malaysian Rubber Board, and Director of the Association of Malaysia Medical Industries. Former Deputy Governor of Bank Negara Malaysia, and current Chairman, President and member of various Malaysian rubber insitutions, namely the Malaysia Rubber Export Promotion Counci (MREPC)l, the Rubber Products Manufacturers Association and the Rubber Board. Previously worked with United Overseas Bank and Utama Bank, with over 10 years of experience in operational systems in banking. Possesses more than 14 years of sales experience with Metlife Financial Services in the US, and is the founder of one of Top Gloves subsidiary companies, Top Glove Medicial USA. Has held various engineering positions in government public works and utilities departments over the span of 20 years, and the Boards environmental engineering consutlant. Involved in the real estate and property development setor, with over 10 years of marketing and consultancy experience with various property companies. Has held various senior management positions over his 10 years of work experience. Has more than 12 years of experience in financial services and credit control operations with OCBC Finance and Asia Commercial Finance. He is currently a member of MARGMA, MREPC, as well the Asean Rubber Glove Manufacturers Association (ARGMA). Responsible for the accounting, corporate finance and investor relations of the company, with over 10 years of accounting and auditing experience, including a stint at PricewaterhouseCoopers.

Source: Company Annual Report 2007

HWANGDBS

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Company Focus Top Glove Corporation

This document is published by HWANGDBS Vickers Research Sdn Bhd (HDBSVR), a subsidiary of HWANGDBS Investment Bank Berhad (HDBS) and an associate of DBS Vickers Securities Holdings Pte Ltd (DBSVH). The research is based on information obtained from sources believed to be reliable, but we 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 legal or financial advice. HDBSVR accepts no liability whatsoever for any direct or consequential loss arising from any use of this document 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. DBS Vickers Securities Holdings Pte Ltd is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd 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. HDBSVR, HDBS, DBSVH, DBS Bank Ltd, and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other banking services for these companies. HDBSVR, HDBS, DBSVH, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc (DBSVUSA), a U.S.-registered broker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of the subject company mentioned in this document. HDBSVR, HDBS, DBSVH, DBS Bank Ltd and/or other affiliates of DBSVUSA may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager 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. DBS Vickers Securities (UK) Ltd is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research distributed in the UK is intended only for institutional clients.

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