Valuation - DCF

Total Number of Shares Outstanding (in Millions) 32.3

Diluted Shares Outstanding (in Millions) 4.04

Weighted Average Cost of Capital (WACC)

Cost of Debt (assumed - No Leverage) -
Risk Free Rate 3.60%
Market Risk (Assumed) 6.50%
Beta (Average) 1.43
WACC 13%

Base Case 2004A

Period
Operating Profit (Loss) 11.1
Less: Taxes 0.5
NOPAT 10.6
Add: Depreciation & Ammortization 10
Add: Share based compensation 16.5
Working Capital -42.2
Less: Changes in WC
Less: Capital Expenditures 39.5

FCFF
NPV of 5 Year Forecast ¥ 1,126.64

Terminal Value:
Long Term Growth Rate 5.3%
WACC 12.9%
Free Cash Flow ¥ 667
Terminal Value ¥ 8,751
PV of Terminal Value ¥ 4,767

Enterprise Value: ¥ 5,894

Net Cash ¥ 935
Equity Value - RMB Millions ¥ 6,829
Exchange Rate 8.11
Equity Value - USD Millions ¥ 842
Total no. of shares outstanding 32.30
Equity Value/Share $ 26.07

Case - Optimistic 2004A

Period
Operating Profit (Loss) 11.1
Less: Taxes 0.5
NOPAT 11
Add: Depreciation & Ammortization 10
Add: Share based compensation 16.5
Working Capital -42.2
Less: Changes in WC
Less: Capital Expenditures 39.5

FCFF
NPV of 5 Year Forecast ¥ 1,713.55

Terminal Value:
Long Term Growth Rate 5.3%
WACC 13%
Free Cash Flow ¥ 1,605
Terminal Value ¥ 21,069
PV of Terminal Value ¥ 11,478

Enterprise Value: ¥ 13,191

Net Cash
Equity Value - RMB Millions
Exchange Rate
Equity Value - USD Millions
Total no. of shares outstanding
Equity Value/Share
¥ 935
¥ 14,126
8.11
¥ 1,742
32.30
$ 53.93

Case - Pessimistic 2004A

Period
Operating Profit (Loss) 11.1
Less: Taxes 0.5
NOPAT 10.6
Add: Depreciation & Ammortization 10
Add: Share based compensation 16.5
Working Capital -42.2
Less: Changes in WC
Less: Capital Expenditures 39.5

FCFF
NPV of 5 Year Forecast ¥ 364.90

Terminal Value:
Long Term Growth Rate 5.3%
WACC 13%
Free Cash Flow ¥ 260
Terminal Value ¥ 3,412
PV of Terminal Value ¥ 1,858

Enterprise Value: ¥ 2,223

Net Cash ¥ 935
Equity Value - RMB Millions ¥ 3,158
Exchange Rate 8.11
Equity Value - USD Millions ¥ 389
Total no. of shares outstanding 32.30
Equity Value/Share $ 12.06

Weighted Average of the Three Scenarios (Base,

Optimistic & Pessimistic) Equity Value/Share
Base Case $ 26.07
Optimistic Case $ 53.93
Pessimistic Case $ 12.06
Equity Value/Share (Weighted Average Basis) $ 35.81
ation - DCF

2005E 2006E 2007E 2008E 2009E 2010E

1 2 3 4 5 6
29 129 228 327 557 723
5 15 30 62 98 125
24 114 198 265 459 598
35 55 65 67 71 79
31 44 50 52 55 58
-68 -98 -132 -164 -184 -213
-25.8 -30 -34 -32 -20 -29
81 61 84 94 115 131

¥ 34.80 ¥ 182.00 ¥ 263.00 ¥ 322.00 ¥ 490.00 ¥ 633.00

2005E 2006E 2007E 2008E 2009E 2010E

1 2 3 4 5 6
20 98 206 435 926 1819
 5 20 40 82 171 330
15 78 166 353 756 1489
35 55 65 67 71 79
31 44 50 52 55 58
-68 -98 -132 -164 -184 -213
-25.8 -30 -34 -32 -20 -29
81 61 84 94 115 131

¥ 25.87 ¥ 145.87 ¥ 230.94 ¥ 409.68 ¥ 786.71 ¥ 1,523.98

2005E 2006E 2007E 2008E 2009E 2010E

1 2 3 4 5 6
20 43 12 -15 44 182
-5 -7 -4 -2 -11 -30
15 50 16 -13 55 212
35 55 65 67 71 79
31 44 50 52 55 58
-68 -98 -132 -164 -184 -213
-25.8 -30 -34 -32 -20 -29
81 61 84 94 115 131

¥ 25.87 ¥ 118.06 ¥ 81.08 ¥ 44.43 ¥ 85.72 ¥ 246.77

Weights
50%
40%
10%
35.81
 Valuation - EVA
Total Number of Shares Outstanding (in Millions) 32.3
Diluted Shares Outstanding (in Millions) 4.04

Weighted Average Cost of Capital (WACC)

Cost of Debt (assumed - No Leverage) -
Risk Free Rate 3.60%
Market Risk (Assumed) 6.50%
Beta (Average) 1.43
WACC 13%

Base Case 2005E 2006E

Period 1 2
Operating Profit (Loss) 29 129
Less: Taxes 5 15
NOPAT 24 114
Capital Invested (Debt + Equity) 963 1136
Debt 0 0
Equity 963 1136
WACC 13% 13%
Economic Profit -100.4 -32.7
Discounted Economic Profit ¥ 115

Terminal Value of EP:

Long Term Growth Rate 5.3%
WACC 13%
Free Cash Flow ¥ 233
Terminal Value ¥ 3,060
PV of Terminal Value ¥ 1,476

Enterprise Value: ¥ 1,591

Initial Capital Invested in 2004 ¥ 44
Equity Value - RMB Millions ¥ 1,635
Exchange Rate 8.11
Equity Value - USD Millions ¥ 202
Total no. of shares outstanding 32.30
Equity Value/Share $ 6.24

Optimistic Case 2005E 2006E

Period 1 2
Operating Profit (Loss) 20 98
Less: Taxes 5 15
NOPAT 15 83
Capital Invested (Debt + Equity) 963 1136
Debt 0 0
Equity 963 1136
WACC 13% 13%
Economic Profit -109.8 -64.2
Discounted Economic Profit ¥ 863

Terminal Value of EP:

Long Term Growth Rate 5.3%
WACC 13%
Free Cash Flow ¥ 1,387
Terminal Value ¥ 18,209
PV of Terminal Value ¥ 8,785

Enterprise Value: ¥ 9,648

Initial Capital Invested in 2004
Equity Value - RMB Millions
Exchange Rate
Equity Value - USD Millions
Total no. of shares outstanding
Equity Value/Share
¥ 44
¥ 9,692
8.11
¥ 1,195
32.30
$ 37.00

Pessimistic Case 2005E 2006E

Period 1 2
Operating Profit (Loss) 30 49
Less: Taxes 5 15
NOPAT 25 34
Capital Invested (Debt + Equity) 963 1136
Debt 0 0
Equity 963 1136
WACC 13% 13%
Economic Profit -99.3 -112.5
Discounted Economic Profit ¥ -793

Terminal Value of EP:

Long Term Growth Rate 5.3%
WACC 13%
Free Cash Flow ¥ -316
Terminal Value ¥ -4,152
PV of Terminal Value ¥ -2,003

Enterprise Value: ¥ -2,795

Initial Capital Invested in 2004 ¥ 44
Equity Value - RMB Millions ¥ -2,752
Exchange Rate 8.11
Equity Value - USD Millions ¥ -339
Total no. of shares outstanding 32.30
Equity Value/Share -$ 10.50

Weighted Average of the Three Scenarios (Base,

Optimistic & Pessimistic) Equity Value/Share Weights
Base Case $ 6.24 50%
Optimistic Case $ 37.00 40%
Pessimistic Case -$ 10.50 10%
Equity Value/Share (Weighted Average Basis) $ 16.87
A

2007E 2008E 2009E 2010E

3 4 5 6
228 327 557 723
30 62 98 125
198 265 459 598
1405 1755 2309 2916
0 0 0 0
1405 1755 2309 2916
13% 13% 13% 13%
16.5 38.3 160.8 221.4

2007E 2008E 2009E 2010E

3 4 5 6
206 435 926 1819
30 62 98 125
176 373 828 1694
 1405 1755 2309 2916
0 0 0 0
1405 1755 2309 2916
13% 13% 13% 13%
-5.3 146.2 530.0 1317.1

2007E 2008E 2009E 2010E

3 4 5 6
29 14 73 201
30 62 98 125
-1 -48 -25 76
1405 1755 2309 2916
0 0 0 0
1405 1755 2309 2916
13% 13% 13% 13%
-182.2 -274.5 -323.4 -300.3