21 March 2011

Americas / Brazil
Managed Care

Amil (AMIL3)
Rating OUTPERFORM*
Price (18 Mar 11, R$) 17.80
Target price (R$)
52-week price range
26.00¹
18.65 - 12.28
Superior cost management
Market cap. (R$ m) 6,419.75
Enterprise value (R$ m) 6,034.99 ■ Event: We are initiating coverage on Amil with an OUTPERFORM rating
*Stock ratings are relative to the relevant country benchmark. and a target price of R$26, yielding 46% upside potential. In our view Amil is
¹Target price is for 12 months.
well positioned in its markets and operationally prepared to grow
Research Analysts considerably through organic expansion, acquisitions, and new partnerships.
Natalia Lacava
55 11 3841 6324 ■ Investment case: Amil’s investment case is supported by its expertise when
natalia.lacava@credit-suisse.com it comes to managing costs, its ability to identify good market opportunities
Luiz Otavio Campos, CFA on the M&A front and for organic expansion, and management’s extensive
55 11 3841 6312 knowledge of the sector. We are confident that this company will lead the
luizotavio.campos@credit-suisse.com
sector’s growth in the next few years and that its scale will provide the tools
for offering the product with the highest cost-benefit.
■ Catalysts: The turnaround in Medial’s operations has been a concern for
investors for a while, but throughout 2010 the company has demonstrated its
ability to integrate such a large company by quickly improving Medial’s
margins. We are still not at the optimum level and thus expect further
improvements to continue in 2011. However, now we believe eyes should
also be on the company’s growth. In our view, after channeling all efforts into
integration, now Amil should resume its focus on top-line growth. The closer
relationship with DASA better equips the company to keep costs under
control, and we would expect Amil to replicate the type of partnership it has
in Sao Paulo in other regions in which it currently operates. G&A dilution
should come as a natural consequence of company expansion, leveraging
margins even further.
■ Valuation: We see the stock trading at 16.7x P/E 2011, an interesting level
considering the sector’s potential growth and the fact that we are not
factoring in any acquisitions. There has been not much talk about how new
partnerships with Dasa could be accretive for Amil, but further costs savings
are likely and should help Amil reduce its MLR over the next years.
Financial and valuation metrics
Year 12/10A 12/11E 12/12E 12/13E
Revenue (R$ m) 7,616.0 8,629.9 9,431.0 10,361.3
EBITDA (R$ m) 500.4 656.7 812.7 925.5
EBIT (R$ m) 286.3 434.7 576.4 684.5
Net income (R$ m) 185.7 383.9 507.1 594.7
EPS (CS adj.) (R$) 0.51 1.06 1.41 1.65
Dividend yield (%) — 2.7 5.5 8.6
P/E (x) 34.6 16.7 12.7 10.8
On 03/18/11 the Sao Paulo SE - Bovespa index closed at
EV/EBITDA 12.8 9.2 7.2 6.2
66879.89
P/B (x) 4.4 3.6 3.4 3.4
ROE stated - return on equity 12.9 21.5 26.7 31.3
ROIC (%) 14.38 23.31 32.51 41.53
Quarterly EPS Q1 Q2 Q3 Q4
Net debt (R$ m) -38 -385 -572 -665
2010A 0.13 0.13 0.13 0.13
Net debt/equity (12/11E, %) -2.6 -21.6 -30.1 -35.0
2011E 0.16 0.16 0.16 0.16
Capex (R$ m) 260 230 150 140
0.19 0.19 0.19 0.19
Source: Company data, Credit Suisse estimates.

Brazilian Healthcare 7
 21 March 2011

Exhibit 9: Amil fact sheet

R$ million, unless otherwise stated
BALANCE SHEET 2008 2009 2010e 2011e 2012e 2013e
ASSETS 2,470 100% 3,529 100% 4,262 100% 4,821 100% 5,084 100% 5,256 100%
Current assets 1,491 60% 1,299 37% 1,262 30% 1,669 35% 1,894 37% 2,031 39%
Cash and equivalents 1,150 47% 975 28% 922 22% 1,269 26% 1,456 29% 1,549 29%
Receivables from clients 191 8% 188 5% 200 5% 237 5% 259 5% 284 5%
Other current assets 150 6% 136 4% 140 3% 164 3% 179 4% 197 4%
Non-current assets 230 9% 370 10% 391 9% 444 9% 479 9% 521 10%
Fixed assets 749 30% 1,860 53% 2,609 61% 2,708 56% 2,711 53% 2,705 51%
PP&E 394 16% 851 24% 1,091 26% 1,190 25% 1,193 23% 1,187 23%
Goodwill 355 14% 1,009 29% 1,518 36% 1,518 31% 1,518 30% 1,518 29%
LIABILITIES 2,470 100% 3,529 100% 4,262 100% 4,821 100% 5,084 100% 5,256 100%
Technical provisions 401 16% 599 17% 434 10% 477 10% 513 10% 555 11%
Claims payable 184 7% 261 7% 320 8% 373 8% 405 8% 445 8%
Payables 187 8% 251 7% 347 8% 404 8% 436 9% 477 9%
Other operational accounts 160 6% 123 3% 283 7% 329 7% 357 7% 391 7%
Debt 72 3% 383 11% 884 21% 884 18% 884 17% 884 17%
Non-current liabilities 274 11% 651 18% 550 13% 571 12% 587 12% 602 11%
Stockholders' equity 1,193 48% 1,261 36% 1,443 34% 1,784 37% 1,901 37% 1,901 36%

INCOME STATEMENT 2008 2009 2010e 2011e 2012e 2013e

Net sales 4,320 100.0% 4,699 100.0% 7,616 100.0% 8,630 100.0% 9,431 100.0% 10,361 100.0%
(-) Total Costs (3,071) -71.1% (3,426) -72.9% (5,651) -74.2% (6,348) -73.6% (6,893) -73.1% (7,575) -73.1%
Gross profit 1,249 28.9% 1,273 27.1% 1,965 25.8% 2,281 26.4% 2,538 26.9% 2,787 26.9%
(-) SG&A expenses (1,052) -24.3% (1,158) -24.6% (1,678) -22.0% (1,847) -21.4% (1,962) -20.8% (2,102) -20.3%
Operating profit 197 4.6% 116 2.5% 286 3.8% 435 5.0% 576 6.1% 685 6.6%
Net financial revenues (expenses) 78 1.8% 49 1.0% (29) -0.4% 20 0.2% 51 0.5% 52 0.5%
Non-operating revenues (expenses) (1) 0.0% - 0.0% (18) -0.2% - 0.0% - 0.0% - 0.0%
Net income before income tax 274 6.3% 164.4 3.5% 239.1 3.1% 454.4 5.3% 627.5 6.7% 737.0 7.1%
(-) Income tax and social cotribution (41) -1.0% (20) -0.4% (70) -0.9% (114) -1.3% (157) -1.7% (184) -1.8%
(+) Adj. for Interest on equity 0 0.0% - 0.0% - 0.0% - 0.0% - 0.0% - 0.0%
(-) Minority interest (13) -0.3% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Net income 220 5.1% 145 3.1% 169 2.2% 341 3.9% 471 5.0% 553 5.3%
Adjusted net income * 249 5.8% 170 3.6% 186 2.4% 384 4.4% 507 5.4% 595 5.7%

SIMPLIFIED CASH FLOW 2008 2009 2010e 2011e 2012e 2013e

Operational profit 197 5% 116 2% 286 3.8% 435 5.0% 576 6.1% 685 6.6%
(+) Depreciation 69 2% 31 1% 109 1.4% 131 1.5% 147 1.6% 146 1.4%
(+) Technical provisions (5) 0% 26 1% 17 0.2% 43 0.5% 36 0.4% 42 0.4%
(+) Past-due payment penalties 17 0% 18 0% 42 0.6% 48 0.6% 53 0.6% 53 0.5%
(+) Non-recurring expenses 79 2% 131 3% 46 0.6% - 0.0% - 0.0% - 0.0%
EBITDA ** 357 8.3% 321 6.8% 500 6.6% 657 7.6% 813 8.6% 926 8.9%
(+/-) Change in working capital (118) -2.7% 397 8.5% 178 2.3% 42 0.5% 19 0.2% 31 0.3%
(-) Investment in PP&E (230) -5.3% (250) -5.3% (260) -3.4% (230) -2.7% (150) -1.6% (140) -1.4%
(-) Income tax and social contribution (41) -1.0% (20) -0.4% (70) -0.9% (114) -1.3% (157) -1.7% (184) -1.8%
(+) Other Financial revenues 129 3.0% 111 2.4% 99 1.3% 133 1.5% 150 1.6% 120 1.2%
(-) Financial expenses (68) -1.6% (81) -1.7% (148) -1.9% (141) -1.6% (135) -1.4% (106) -1.0%
(+/-) Other non-financing changes in cash (1) 0.0% - 0.0% (18) -0.2% - 0.0% - 0.0% - 0.0%
(+/-) Increase (decrease) in debt - 0.0% - 0.0% - 0.0% - 0.0% - 0.0% - 0.0%
Free cash flow to equity holders 29 0.7% 480 10.2% 281 3.7% 347 4.0% 540 5.7% 646 6.2%
(+) Subscription - 0.0% - 0.0% - 0.0% - 0.0% - 0.0% - 0.0%
(-) Dividends + ROC distributed (55) -1.3% - 0.0% (42) -0.6% (170) -2.0% (353) -3.7% (553) -5.3%
Change in cash position (26) -0.6% 480 10.2% 239 3.1% 176 2.0% 187 2.0% 94 0.9%

Source: Company data, Credit Suisse estimates

Brazilian Healthcare 8
 21 March 2011

Exhibit 10: Amil fact sheet

R$ million, unless otherwise stated
BASICS COMPANY DESCRIPTION
Sector Healthcare Ticker AMIL3 Amil is the largest MCO in Brazil in terms of plan members and revenues. The company is present
Price (R$) 17.8 mainly in the center-south region of Brazil offering healthcare and dental plans to its clients thorugh a
Target (R$) 26.0 very large network.
Recommendation OUTPERFORM
Mkt. cap. (R$ mn) 6,420 POSITIVES
Free Float (R$ mn) 2,002 (i) strong management team; (ii) vast acquisition track record; (iii) healthy balance sheet; and (iv)
strict cost control
SHAREHOLDER STRUCTURE ON TOTAL
Edson Bueno/Dulce Bueno(*) 230.2 64% 230 64%
Management 18.0 5% 18 5%
Free Float 112.5 31% 112 31% NEGATIVES
(i) increase in competition and deterioration in prices; (ii) failure in integrating the acquired
companies; (iii) stricter regulation; (iv) poor macro enviroment could lead to a slowdown in demand
TOTAL 360.7 100% 360.7 100% growth and a higher churn ratio.
(*) through J.P.L.S.P.E. Empreendimentos e Participações S.A
PLAN MEMBERS AND MLR OWNERSHIP STRUCTURE

7,000 Plan members Adj. MLR 73.2%

5,953
6,000 5,608 72.6%
5,134 72.5%
72.0% Others p.l.s.p.e. Emp e Partic Management
5,000
3,190 71.8%
71.3% 71.4% 64% 5%
4,000 71.2% 31%
3,185 70.8%
3,000
70.0% 70.2%
2,000
69.6%
1,000 69.0%
0 68.4%
2008A 2009E 2010E 2011E 2012E

FINANCIAL METRICS (R$ mn) 2008A 2009E 2010E 2011E 2012E 2013E OPERATING METRICS 2008A 2009E 2010E 2011E 2012E 2013E
Revenues 4,320 4,699 7,616 8,630 9,431 10,361 Plan members 3,185 5,134 5,235 5,608 5,953 6,293
COGS (3,071) (3,426) (5,651) (6,348) (6,893) (7,575) Adj. MLR 70.0% 71.2% 72.5% 71.8% 71.3% 71.3%
SG&A (1,052) (1,158) (1,678) (1,847) (1,962) (2,102) Average ticket (R$/month) 116.26 92.62 119.16 128.13 131.43 136.32
EBIT 197 116 286 435 576 685
EBIT margin 5% 2% 4% 5% 6% 7%
EBITDA 357 321 500 657 813 926
EBITDA margin 8% 7% 7% 8% 9% 9%
Adj. EBITDA 357 321 500 657 813 926
Net financial expenses 78 49 (29) 20 51 52 LEVERAGE 2008A 2009E 2010E 2011E 2012E 2013E
Taxes (41) (20) (70) (114) (157) (184) Net debt/ Adj. EBITDA (3.0) (1.8) (0.1) (0.6) (0.7) (0.7)
Adj. Net income 249 170 186 384 507 595 Net debt / Equity -90% -47% -3% -22% -30% -35%
Net margin 6% 4% 2% 4% 5% 6%
# shares ('000) 361 361 361 361 361 361 Capex / Operat.Cash Flow (1.2) (0.4) (0.4) (0.4) (0.2) (0.2)
EPS (R$) 0.69 0.47 0.51 1.06 1.41 1.65 EBITDA/Net Interest Exp. 4.6 6.6 (17.1) 33.3 15.9 17.6
NOPAT 158 102 202 326 432 513
Depreciation 69 31 109 131 147 146 RETURN / YIELD 2008A 2009E 2010E 2011E 2012E 2013E
Capex (230) (250) (260) (230) (150) (140) ROIC 20.1% 5.3% 8.5% 13.3% 17.8% 21.4%
FCFE - 480 281 347 540 646
Dividends/ IOE - 0 42 170 353 553 Cost of Equity (ke) 11.9% 11.9% 11.9% 11.9% 11.9% 11.9%
Total assets 2,470 3,529 4,262 4,821 5,084 5,256 ROE 18% 11% 12% 19% 25% 29%
Cash 1,150 975 922 1,269 1,456 1,549 FCF Yield - 7.5% 4.4% 5.4% 8.4% 10.1%
OCF 198 699 608 585 675 772 Div. Yield - 0% 1% 3% 5% 9%
Change in working capital (118) 397 178 42 19 31
Net debt (1,078) (592) (38) (385) (572) (665) VALUATION 2008A 2009E 2010E 2011E 2012E 2013E
Book value 1,193 1,261 1,443 1,784 1,901 1,901 EV / Adj. EBITDA 14.9 18.1 12.8 9.2 7.2 6.2
Market cap. 6,420 6,420 6,420 6,420 6,420 6,420 EV / IC 6.8 3.0 2.7 2.5 2.4 2.4
EV 5,342 5,828 6,382 6,035 5,848 5,755 P/E 25.8 37.7 34.6 16.7 12.7 10.8
Invested capital 789 1,919 2,389 2,447 2,431 2,394 P/B 5.4 5.1 4.4 3.6 3.4 3.4
Source: Company data, Credit Suisse estimates

Brazilian Healthcare 9