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DMG Research

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my 2my 2my 2my 2

In Focus: Consumer Staples One of the best performing sectors Who looks interesting?

It has been quite a year for consumer staples, with stock prices strongly

outperforming the general market as uncertainties loom. More recently, they

have also received a kicker from a flurry of M&As in the sector.

(CONTINUED ON PAGE 2)

Model PortfolioModel PortfolioModel PortfolioModel Portfolio Weekly WrapWeekly WrapWeekly WrapWeekly Wrap

Portfolio performance: 1.4% WoW, 29.3% YTD, +50.8% PTD

Best performers: Ezion (+5.4%), Osim (+3.3%) Worst performers: None (four stocks were flat) Changes to portfolio: Nil

Portfolio

Cost Previous Last Last Cost WoW

China Animal 0.266 0.275 0.275 226875 3.5% 0.0%

Ezion 0.685 0.925 0.975 268125 42.4% 5.4%

Osim 1.205 1.220 1.260 201600 4.6% 3.3%

Lian Beng 0.320 0.390 0.390 253500 21.9% 0.0%

SBI 0.230 0.210 0.210 136500 -8.7% 0.0%

Elite KSB 0.415 0.495 0.495 198000 19.3% 0.0%

Cash - - - 223588 - -

Total (With Realized Gain) 1508188 50.8% 1.4%

STI 1.8%

FSTS 1.4%

Price (S$) Market Value (S$) % Chg

Source: Bloomberg data

(CONTINUED ON PAGE 4)

ren

billionbillionbillionbillion&belowbelowbelowbelowSmall/Mid Cap WeeklySmall/Mid Cap WeeklySmall/Mid Cap WeeklySmall/Mid Cap Weekly

Index Performance

% Chg 1 wk 1mth 3mth 52 wkSTI 1.76 3.48 2.03 -1.79

Mid 1.04 2.48 3.35 -1.94Small 1.36 1.33 1.40 -8.78

Weekly Best/Worst Performers(DMG Universe)

Top 5 %

China MinZhong 17.54

Hi-P International 14.38

China Farm Equipment 12.50

Ezra 5.21

Ezion Holdings 4.84

Bottom 5 %

Yamada Green Resources -18.24

KSH Holdings -14.00Leader Environmental -13.33

Stamford Land -8.47

Sino Grandness -7.14

Whats Inside?

Model Portfolio - Weekly Wrap

Reports Recap

Broadway; Hi-P; Elec & Eltek; Ezion

Analysts Diaries

22 September 20096 Aug 2012

STRATEGY

Terence Wong, CFA+65 6232 [email protected]

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my 2

One of the best performing sectors. Consumer stable counters in Singapore were up33% YTD, outperforming STI's +15%, mainly driven up recent privatisation activities as wellas investors preference for the defensive sector in current uncertain times. Privatisationtargets APB Breweries and Cerebos Pacific were up +73% and 37% to close at S$49.50and S$6.55 respectively on 3Aug12, or close to the offer price of S$50.00 and S$6.60 from

their respective substantial shareholders. On the other, Viz Branz has jumped 115% YTDon speculation of a possible sale of stake by a key shareholder. Other consumption playshave also performed well, with Super Group at +56%, Thai Beverage at +39% and FoodEmpire at +38%. The sector currently trades at FY12F 15x PER and 3.1x PBR, withprojected dividend yield of 3.6%.

Figure 1: Peer Comparison

Figure 2: Stock Performance

Figure: YTD returns

Source: OSK|DMG estimates; Bloomberg

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my 2

Kicking off the M&A ball. The M&A scene first kicked into high gear when ThaiBev,controlled by Thailands second richest man, Charoen Sirivadhanabhakdi, purchased acombined stake of 22% in Fraser and Neave from OCBC, GE and the Lee family of OCBC,for S$2.8b. Separately, Kindest Place, owned by the son-in-law of the ThaiBev founderCharoen acquired an 8.6% stake in Asia Pacific Breweries for about S$1b. Perceiving a

potential threat to its position as the largest shareholder in APB, Heineken responded with aS$5.1b offer to buy over F&Ns 40% stake in APB. Excitement mounted during the week asThaiBev continued to build up its stake in F&N to 24.1% through open market purchaseswhile F&Ns board deliberated on whether to accept Heinekens offer. While Heinekensoffer represents an opportunity for F&N to realise significant value from its breweryoperations, APB accounts for over 30% of its operating profit and a sale would mean theloss of a significant earnings driver. By last Friday, the end of the two week deadline givenby Heineken, F&Ns board announced that it is accepting Heinekens offer. The deal will nowbe brought to F&N shareholders for approval in an EGM.

During the week, another M&A which occurred involved the privatisation of Cerebos, thehealth supplement company best known for its Brands Essence of Chicken, by its majorshareholder Suntory. Suntory, which currently holds a 82.5% stake in Cerebos, offeredS$6.60/share for the rest of the outstanding shares in Cerebos, representing a 23%

premium to the last traded price and an EV/EBITDA of 10.6x (FY11).

Given the keen interest in the F&B sector, all eyes are now on other potential acquisitiontargets.

Who looks interesting? I think companies like Eu Yan Sang, a Traditional ChineseMedicine (TCM), will have its fair share of suitors (DISCLAIMER: This is pure speculation onmy part). The company may have been hit over the past few quarters due to its Aussieassociate, but core business remains steady. Since Eu Kong founded the company some130 years ago, it has grown to become the largest player in Singapore, Malaysia and evenHong Kong with over 150 stores. It is also in the process of expanding its footprint in China.CEO Richard Eu, the great-grandson of the founder and man of multiple hyphenates(lawyer-banker-stockbroker-venture capitalist-water ski champion), has been at the helm

since 1989 and is credited for transforming a company that almost fell into the hands ofconstruction firm Lum Chang back in 1990. He has since grown the brand equity andmodernised the company by injecting scientific approach to quality control, which wasunheard of back then. With regards to a buy-out, much still depends on the Eu family, whichholds 60% of the listco.

I also like OSIM International, which is my top pick within the consumer sector. It is focusedon building good consumer brands, which I believe will catch the eyes of global brandspecialists. However, it is unlikely that founder Ron Sim, who holds close to 70% of thecompany, will let go of his grip anytime soon. In fact, having built up an enviable war chest ofclose to S$200m, OSIM is more likely to be on the prowl for acquisition targets.

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Model Portfolio Weekly Wrap

My Small cap model portfolio was up by 1.4% last week, matching the FSTS but behindSTI's 1.8%. The portfolio was driven by Ezion Holdings and OSIM International, while theremaining four stocks remained flat. Ezion outperformed on the back of yet another newdeal. This time, it is a US$71m deal to provide logistics and support services for the

Australia Pacific LNG (APLNG) project. This is the fourth LNG related contract secured since2009. Analyst Jason Saw upped both his estimates and TP (See Reports Recap).

Figure 1: Portfolio Return

Portfolio

Cost Previous Last Qty Cost Previous Last Cost WoW

China Animal 0.266 0.275 0.275 825000 219125 226875 226875 3.5% 0.0%

Ezion 0.685 0.925 0.975 275000 188250 254375 268125 42.4% 5.4%

Osim 1.205 1.220 1.260 160000 192800 195200 201600 4.6% 3.3%

Lian Beng 0.320 0.390 0.390 650000 208000 253500 253500 21.9% 0.0%

SBI 0.230 0.210 0.210 650000 149500 136500 136500 -8.7% 0.0%

Elite KSB 0.415 0.495 0.495 400000 166000 198000 198000 19.3% 0.0%

Cash - - - - - 223588 - -

Total (With Realized Gain) 1508188 50.8% 1.4%

Price (S$) Market Value (S$) % Chg

Source: Bloomberg data and OSK|DMG estimates

Figure 2: Portfolio vs STI & FSTS

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2/3 9/3 16/ 3 23/ 3 30/ 3 6/4 13/ 4 20/ 4 27/ 4 4/5 11/ 5 18/ 5 25/ 5 1/6 8/6 15/ 6 22/ 6 29/ 6 6/ 7 13/ 7 20/ 7 27/ 7 3/8

2-Mar

9-Mar

16-Mar

23-Mar

30-Mar

6-Apr13-Apr

20-Apr

27-Apr

4-May

11-May

18-May

25-May

1-Jun8-Jun15-Jun

22-Jun

29-Jun

6-Jul13-Jul

20-Jul

27-Jul

3-Aug

Portfolio 36.2 36.6 41.0 42.5 44.7 45.7 44.2 41.8 40.7 40.4 37.5 33.5 36.6 38.4 36.4 40.3 40.6 47.2 50.4 49.6 50.5 48.8 50.8

STI 1.2% 0.2% 1.8% 1.1% 1.8% 1.0% 1.0% 1.2% 0.8% 1.1% -2.5 -6.0 -6.3 -7.2 -7.4 -5.0 -4.4 -2.7 0.7% 1.3% 2.0% 1.4% 3.2%

FSTS -14. -14. -12. -13. -12. -12. -13. -13. -15. -15. -19. -23. -22. -21. -22. -20. -19. -17. -14. -14. -14. -15. -14.


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Figure 3: Portfolio historical performance

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2/3 9/3 16/3 23/3 30/3 6/4 13/4 20/4 27/4 4/5 11/5 18/5 25/5 1/6 8/6 15/6 22/6 29/6 6/7 13/7 20/7 27/7 3/8

2-Mar 9-Mar 16-Mar 23-Mar 30-Mar 6-Apr 13-Apr 20-Apr 27-Apr 4-May 11-May 18-May 25-May 1-Jun 8-Jun 15-Jun 22-Jun 29-Jun 6-Jul 13-Jul 20-Jul 27-Jul 3-Aug

WoW -2.2% 0.3% 3.2% 1.1% 1.5% 0.6% -1.0% -1.6% -0.8% -0.2% -2.1% -2.9% 2.3% 1.3% -1.4% 2.9% 0.2% 4.7% 2.2% -0.5% 0.6% -1.1% 1.4%

Ptd 36.2% 36.6% 41.0% 42.5% 44.7% 45.7% 44.2% 41.8% 40.7% 40.4% 37.5% 33.5% 36.6% 38.4% 36.4% 40.3% 40.6% 47.2% 50.4% 49.6% 50.5% 48.8% 50.8%

o d


Figure 4: Portfolio vs STI & FSTS (YTD)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2/3 9/3 16/3 23/3 30/3 6/4 13/4 20/4 27/4 4/5 11/5 18/5 25/5 1/6 8/6 15/6 22/ 6 29/6 6/7 13/7 20/7 27/7 3/8

2-Mar 9-Mar 16-Mar 23-Mar 30-Mar 6-Apr 13-Apr 20-Apr 27-Apr 4-May 11-May 18-May 25-May 1-Jun 8-Jun 15-Jun 22-Jun 29-Jun 6-Jul 13-Jul 20-Jul 27-Jul 3-Aug

Portfolio 16.8% 17.1% 20.8% 22.2% 24.1% 24.8% 23.6% 21.6% 20.6% 20.4% 17.9% 14.5% 17.1% 18.6% 16.9% 20.2% 20.5% 26.2% 28.9% 28.3% 29.0% 27.5% 29.3%

STI 13.1% 12.0% 13.8% 13.0% 13.8% 12.8% 12.9% 13.2% 12.7% 13.0% 9.0% 5.0% 4.8% 3.8% 3.5% 6.2% 6.9% 8.8% 12.6% 13.2% 14.0% 13.3% 15.3%

FSTS 15.6% 15.2% 18.1% 16.9% 17.7% 17.7% 17.1% 16.7% 14.6% 13.8% 9.0% 3.5% 5.4% 6.1% 5.1% 8.1% 9.2% 11.8% 15.2% 16.0% 15.0% 13.8% 15.4%

Port folio STI FSTS


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Broadway is the No. 2 manufacturerof actuator arms for the HDD

industry, with a market share of

around 20%...

Hi-P International is an integrated

contract manufacturing services

provider specialising in precision

plastic injection moulding, moulddesign and fabrication, assembly,

ancillary value-added services and

precision metal stamping

REPORT RECAP

Broadway Industrial (NEUTRAL, TP: S$0.35) 31 Jul 12

Edison Chen (+65 6232 3892, [email protected])

Terence Wong, CFA (+65 6232 3896, [email protected])

Reason for report: 2QFY12 Results Review

Key points: Broadway reported 2Q12 earnings of S$5.7m (+49.1% YoY) on the back ofsales of S$173.5m (+20.6% YoY, +10.0% QoQ). Taking off the exceptional items, 1Hcore earnings of S$6.6m came in within our expectation. Despite the strong sales, costsescalated as the production facilities were running at 20% more than the optimised 100%utilisation level. Moving on, the group plans to increase its capex spending further inpreparation for another ramp up next year. We expect 2H results to be better than 1H asthe group is expecting to manufacture for new customers. While management appearsoptimistic, we remain cautious in view of Seagates disappointing results and weakoutlook guidance.

Valuation/Recommendation: Maintain NEUTRAL, with an unchanged TP of S$0.35

based on 8.7x (5-yr historical average) blended FY12/13 earnings.

Hi-P International (BUY, TP: S$1.15) 3 Aug 12




Key points: Hi-Ps 2Q results came in within our expectation. It reported a net loss of

S$2.1m on the back of S$251.8m revenue (+9.5% YoY). Taking off the one-off charges ofclosing down its non-core production facility in Mexico, it would have achieved breakeven.Gross margin remain at a low of 7.1% similar to that of the 1Qs mainly attributable to 1)performing low-margin assembly work that bundled with the lucrative component orderscoming in the 2H, 2) increased labour costs and 3) overheads expenses in preparation forthe 2H ramp up.

Valuation/Recommendation: Going forward, as 1) equipments necessary for the 2Hramp up are in place, 2) production yield for the new products are at satisfactory level and3) managements upbeat confidence in delivering strong profitability in 2H, while takingResearch in Motion (RIM)s further decline of contribution into consideration, we believethat the stock is currently undervalued. Reiterate BUY with an unchanged TP of S$1.15,pegging blended FY12/13 earnings to 11x peers average P/E.

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Elec and Eltek is one of the largest

manufacturers of printed circuitboards (PCB) and PCB materials in

the world.

Ezion is involved in the provision of

offshore and marine logistics and is

owner of one of the largest liftboats

in the world.

Elec & Eltek (NEUTRAL, TP: US$2.77) 3 Aug 12




Key points: Elec and Eltek (E&E)s 2Q12 results came in below our expectations onceagain with PATMI of US$11.8m (-4.1% YoY) on the back of sales of US$135.8m (-19.1%YoY). Revenue continued to disappoint as the strong performance from the groups HighDensity Interconnect (HDI) business has not done enough to offset the woes of itstraditional PCB business. Gross margin remained soft at 15.4% (-2 ppt YoY) largely dueto higher minimum labour costs in China and Thailand as well as weakening pricingpower. Moving on, we are concerned over the groups ability in keeping up their marginson the back of intense pricing competition and escalating wages and utility costs.

Valuation/recommendation: We cut our FY12 and FY13 earnings estimates by 22.9%and 25% to US$42.6m and US$53m respectively and downgrade our recommendation toNEUTRAL. Our new TP of US$2.77 (previously US$3.37) is derived by pegging blendedFY12/13 PATMI to 11x industry peers average.

Ezion Holdings (BUY), TP: S$1.32) 2 Aug 12

Jason Saw (+65 6232 3871, [email protected])

Reason for report: Company Update

Key points: Ezions US$71m contract win to provide logistics and support services forthe Australia Pacific LNG (APLNG) project is a strong testament to its project execution

capabilities. This is the fourth LNG related contract secured since 2009 (including one bythe OMSA JV). The initial contract value of US$71m covers the haulage of equipment andmodules for the first two LNG trains on Curtis Island. We understand that the projectowner could develop up to four trains and the value of the logistics contract could go up toUS$140m. The initial contract is expected to commence in 2Q13 for a period of 20months. Following the win, we raise FY13-14F net profit estimates by 1-2% and TP toS$1.32 (old: S$1.31).

Valuation/recommendation: Maintain BUY with a revised TP of S$1.32 based on 10xblended FY12/13 FD EPS We tweak our TP upwards to reflect the new contract. Our TPimplies 40% upside from its last closing price.

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DMG & Partners Research Guide to Investment Ratings

ANALYSTS DIARIES

Event Company Date

Results United Overseas Bank 7 Aug

Neptune Orient Lines Ltd 8 Aug

Starhub Ltd 8 Aug

Genting Singapore 10 Aug

Fraser & Neave Ltd 10 Aug

Noble Group Ltd 13 Aug

Wilmar International Ltd 14 Aug

Singapore Telecom 14 Aug

City Developments 14 Aug

Olam International 28 Aug

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Buy: Share price may exceed 10% over the next 12 months

Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain

Neutral: Share price may fall within the range of +/- 10% over the next 12 months

Take Profit: Target price has been attained. Look to accumulate at lower levels

Sell: Share price may fall by more than 10% over the next 12 months

Not Rated: Stock is not within regular research coverage

DISCLAIMERS

This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specificinvestment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluateparticular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to anysecurities or investment instruments mentioned in this report.

The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty noraccept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject tochange without notice.

This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities.

DMG & Partners Research Pte Ltd is a wholly owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK InvestmentBank Berhad and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Memberof the Singapore Exchange Securities Trading Limited.

DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in thesecurities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporationswhose securities are covered in the report.

As of the day before 6 August 2012, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do nothave proprietary positions in the subject companies, except for:

a) Nilb) Nil

As of the day before 23 July 2012, none of the analysts who covered the stock in this report has an interest in the subject companies covered in thisreport, except for:

Analyst Companya) Nilb) Nil

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