2

Company Update, 3 April 2015

Hartalega (HART MK) Neutral (from Buy)

Consumer Non-cyclical - Rubber Products Target Price: MYR8.48
Market Cap: USD1,853m Price: MYR8.50

Macro  
Risks  
The Gloves Come Off Growth 
3

.
2
 .
Value 0
0 3
0
.
2
0
0
Hartalega (HART MK) Hartalega has front-loaded its capex and we expect this to bring .
0
Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) forward their capacity expansion plans. Consequentially, management 0
8.9 141 has guided that Hartalega would be taking up a revolving credit facility 0
8.4 132
in FY16 (Mar) to ease cash flow for the firm. We switch our valuation to
DCF from one-year forward P/E. We downgrade to NEUTRAL (from Buy)
7.9 124 with a lower TP of MYR8.48 (vs MYR8.60), 0.3% downside.
7.4 115  Front-loading expansion. Hartalega has ramped up its capex, and
expects to commit up to MYR1.5bn for their Next Generation Complex
6.9 107
(NGC) between FY15 and FY17, which represents 70% of the initial
6.4 98 NGC forecast spend of MYR2.15bn vs the previous capex budget of
35% for the same duration. We expect this to bring forward their capacity
5.9 90
expansion plans and our analysis forecasts a larger earnings
5.4 81
contribution from FY17 onwards. Management expects the NGC to add
4
4 a total of 28.5bn pieces of gloves capacity by FY20.
3
3
 Capex inference. Consequently, management has guided that
2 Hartalega would need to draw down MYR100m-400m of a credit facility
2
1
in FY16 to ease cash flow for the firm. Our depreciation assumption has
Vol m

1 also increased by 1-13% for FY16-17.

 Forecasts and risks. Due to the front loading of capex, our FY15/16/17
Apr-14

Oct-14

Feb-15
Jun-14

Aug-14

Dec-14

earnings forecasts have changed by 1.1%/-5.2%/10% to

MYR213m/289m/372m. Key risks that might affect our forecasts include
Source: Bloomberg heightened competition within the rubber gloves industry that might
adversely affect margins and earnings.
Avg Turnover (MYR/USD) 4.11m/1.13m
Cons. Upside (%) -8.9
 Valuation basis. We switch our valuation analysis to DCF from a one-
year forward P/E. We believe this basis would better quantify the long-
Upside (%) -0.3
term expansionary strategy of Hartalega. In our analysis, we used
52-wk Price low/high (MYR) 5.74 - 8.69 conservative assumptions, specifically for its timing of capacity
Free float (%) 30 increases, average selling prices (ASP) and costs.
Share outstanding (m) 800  Downgrade to NEUTRAL on valuation grounds, with a revised TP of
Shareholders (%) MYR8.48 (0.3% downside, CAPM 8.9%, terminal growth rate 2%) vs
Hartalega Industries Sdn Bhd 50.5 MYR8.60. Hartalega’s share price has risen 22% since Sep 2014.
Employees Provident Fund 7.1 Although Hartalega’s growth prospects remain intact, we downgrade our
BNP Paribas Wealth 6.4 recommendation as we believe that much of the positive news has been
Management priced in at current prices. Hartalega trades at 23.8x FY16F P/E, above
its historical 2SD trading band of 22.2x, while its peers are trading at an
Share Performance (%) average of 14.7x.
YTD 1m 3m 6m 12m
Forecasts and Valuations Mar-13 Mar-14 Mar-15F Mar-16F Mar-17F
Absolute 20.9 6.3 21.4 20.7 29.0
Total turnover (MYRm) 1,032 1,107 1,142 1,598 2,072
Relative 17.2 5.8 17.2 21.3 30.4
Reported net profit (MYRm) 233 233 213 289 372
Recurring net profit (MYRm) 233 233 213 289 372
Shariah compliant Recurring net profit growth (%) 0.0 (0.2) (8.5) 35.5 28.8
Recurring EPS (MYR) 0.32 0.31 0.28 0.36 0.47
Alexander Chia +603 9207 7621 DPS (MYR) 0.15 0.15 0.12 0.16 0.21
alexander.chia@rhbgroup.com Recurring P/E (x) 26.7 27.0 30.7 23.3 18.1
P/B (x) 8.16 6.74 5.42 4.82 4.36
Malaysia Research +603 9207 7688 P/CF (x) 19.7 25.3 16.8 17.7 13.7
research2@rhbgroup.com Dividend Yield (%) 1.7 1.7 1.4 1.9 2.5
EV/EBITDA (x) 18.3 17.8 19.4 14.7 11.5
Return on average equity (%) 0.0 27.3 19.5 21.9 25.3
Net debt to equity (%) net cash net cash net cash net cash 1.1
Our vs consensus EPS (adjusted) (%) (1.4) 2.7 16.3

See important disclosures at the end of this report Source: Company data, RHB Powered by EFATM Platform 1
Hartalega (HART MK)
3 April 2015

Investment Case
Attractive earnings profile. Amidst the uncertain market environment, the rubber
glove sector offers investors a safe-haven earnings profile that exhibits resilience due
to the association with the healthcare sector, coupled with growth characteristics on
the back of aggressive capacity-led earnings expansion. Hartalega expects to
increase capacity to 42.5bn pieces by FY20 from 14bn pieces in FY14. We expect
EPS to grow at a CAGR of 30% in FY16-17F.
Front-loaded capex. Hartalega has ramped up its capex expenditure, and expects
to commit up to MYR1.5bn for their Next Generation Complex (NGC) between FY15
and FY17, which represents 70% of the initial NGC forecasted cost of MYR2.2bn vs
the previous capex budget of 35% for the same duration. We expect this to bring
forward their capacity expansion plans and our analysis forecasts a larger earnings
contribution from FY17 onwards
Favourable macro environment. Latex prices are at multi-year lows, trading at
MYR4.30/kg from a 5-year average of MYR6.36/kg, and we expect them to remain
subdued in the medium term due to an oversupply of rubber and a weaker global
automobile market. Likewise, nitrile prices are trading at multi-year lows at
USD0.89/kg from a 5-year average of MYR1.38/kg, and which we expect to stay
subdued due to lower oil prices. The strengthening of the USD benefits Hartalega as
>95% of its revenue is denominated in USD, while roughly 54% of their cost is
denominated in MYR. The recent fall in energy prices has led to cheaper utilities
input cost. Scheduled gas tariff hikes for 2015 were postponed by the Malaysian
government, while electricity tariffs were granted temporary relief (annualized 4%) in
Feb 2015.
Investment Risk
Heightened competition. While we believe that the oversupply concerns that hung
over the industry for much of 2014 were overplayed, we do anticipate heightened
competition among the rubber glove players that could potentially apply downward
pressure on earnings and margins. Our analysis shows that supply would increase
faster than demand between FY15 and FY17. Nevertheless, we believe that Malaysia
will continue to grow her global glove market share at the expense of other glove
manufacturing nations, due to: i) increasing technology efficiency of new production
lines (faster line speeds and more automation), and ii) more competitive advantage
from the weaker MYR. Hartalega, who has a proven track record of delivering high
margins from their technology innovations, will be relishing to lead the technology
efficiency charge, in our view.
Figure 1: Global demand and supply for gloves
Pieces (m) FY12 FY13 FY14 FY15F FY16F FY17F FY18F FY19F
Hartalega 9,746 11,053 14,000 15,750 23,450 29,750 33,950 38,150
Growth (%) 13.4 26.7 12.5 48.9 26.9 14.1 12.4
Kossan Rubber Industries 16,000 21,500 26,000 31,000 35,000 39,000
Growth (%) 34.4% 20.9% 19.2% 12.9% 11.4%
Top Glove 42,600 44,600 47,800 52,200 53,200 54,200
Growth (%) 4.7% 7.2% 9.2% 1.9% 1.9%
Supermax 18,000 24,000 33,000 33,000 33,000 33,000
Growth (%) 23.8% 26.9% 0.0% 0.0% 0.0%
Est. manufacturing capacity 93,600 107,850 130,250 145,950 155,150 164,350
Growth (%) 15.2% 20.8% 12.1% 6.3% 5.9%

Global demand 160,000 162,500 172,000 183,180 195,087 207,767 221,272 235,655
Growth (%) 1.6% 5.8% 6.5% 6.5% 6.5% 6.5% 6.5%
Source: Company data, RHB estimates

Delays in expansion plans. Unforeseen delays to upcoming capacity would

negatively impact potential revenue stream.
Weakening of the USD. A weaker USD would negatively impact earnings and
margins.
Rise in the price of raw materials. Stronger raw material prices would negatively
impact earnings and margins.

See important disclosures at the end of this report 2

Hartalega (HART MK)
3 April 2015

Valuation and Recommendation

Valuation through the DCFE method. Hartalega, through its Next Generation
Complex (NGC) intends to expand glove manufacturing capacity to 42.5bn pieces by
FY20 from 15.8bn pieces currently. To best capture this growth, we used the
Discounted Cash Flow to Equity (DCFE) method. By discounting Hartalega’s free
cash flow to equity with a cost of equity (CAPM) of 8.9% (4% risk-free rate, 5.4%
equity risk premium, 0.9x Beta) and applying a 2% terminal growth rate, we derive an
intrinsic value per share of MYR8.48 for the company which represents a 0.3%
downside from the current market price of MYR8.50. Our target price implies a
FY16F P/E of 23.6x.
Figure 2: DCF valuation
FYE 31 March (MYR m) FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F Terminal
Net income 288.8 372.0 418.8 473.3 521.0 554.5 561.3 576.8 592.5
+ share issuance proceeds 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
+ D&A 76.0 103.9 125.4 135.0 144.9 155.0 165.1 175.1 185.2
- ∆ in net working capital 175.2 72.1 (163.8) (139.8) (100.9) (61.8) (4.8) (4.1) (21.4)
- capital expenditure (425.0) (320.0) (140.0) (140.0) (140.0) (140.0) (140.0) (140.0) (140.0)
+ long term debt 19.8 (5.2) (5.2) (5.2) (5.2) (0.2) (0.2) (0.2) (0.2)
Free cash flow to equity (FCFE) 134.9 222.9 235.3 323.4 419.8 507.5 581.5 607.6 616.1 9,161.1
Discount factor 0.958 0.880 0.809 0.743 0.682 0.627 0.576 0.529 0.486 0.486
PV of FCFE 129.3 196.2 190.3 240.2 286.5 318.2 334.9 321.4 299.4 4,452.1
Risk-free 4.0%
Beta 0.90
Equity Risk Premium 5.4%
CAPM 8.9%
Terminal growth 2.0%
Number of shares 798.53
Fair Value (MYR) 8.48
Current Price (MYR) 8.50
Upside/Downside -0.3%
Source: RHB Estimates

Sensitivity analysis. We relied on our analysis on what we considered to be

reasonable and conservative estimations. In Figure 3, we show a sensitivity analysis
by varying the discount rate (CAPM) and the terminal growth to show the impact on
TP. We consider the 2% terminal growth rate we used as conservative. We
highlighted our current assumptions.

Figure 3: Sensitivity analysis

MYR/Share
Terminal growth
8.476371 1.0% 1.5% 2.0% 2.5% 3.0%
7.9% 9.01 9.51 10.10 10.80 11.64
CAPM 8.4% 8.32 8.74 9.22 9.79 10.46
8.9% 7.72 8.07 8.48 8.94 9.49
9.4% 7.19 7.49 7.83 8.22 8.67
9.9% 6.72 6.98 7.27 7.60 7.98
Source: RHB Estimates

In Figure 4, we show the impact on FY16F and FY17F earnings by applying various
USD/MYR exchange rate assumptions.

Figure 4: USD sensitivity analysis

USD/MYR Earnings (MYRm)
FY16F FY17F FY16F FY17F
3.35 3.31 280.39 361.19
3.45 3.41 284.60 366.61
3.55 3.51 288.82 372.03
3.65 3.61 293.03 377.45
3.75 3.71 297.24 382.87
Source: RHB Estimates

See important disclosures at the end of this report 3

Hartalega (HART MK)
3 April 2015

Revenue assumptions (Figure 5). There are two main parts of our revenue
assumptions:
1) Capacity expansion. Hartalega’s management has projected their capacity
to expand to 42.5bn by FY20 from 14bn pieces in FY14. Nevertheless, in
our modelling, to be conservative and to account for unforeseen delays, we
assumed that this goal would only be achieved in FY22. Management has
also guided that capacity utilization would be around a more comfortable
level of 82% going forward, from an average of 88% for the first three
quarters of FY15. We have also maintained their production split between
nitrile and latex gloves of roughly 90:10.
2) Average selling price (ASP). In our modelling, we assumed a CAGR
increase of 0.1% and 1% from FY15-FY24 for nitrile and latex gloves ASP
respectively. As part of the cost-sharing basis between Hartalega and their
customers, a portion of savings/losses from forex as well as raw material
movements are passed back to their customers. Our assumptions are:
 The MYR is assumed to recover to 3.21 in FY24F from 3.60 currently.
This represents a CAGR increase of 1.27% over our DCF duration. A
recovery in the MYR will increase ASP as Hartalega pass on losses
from forex.
 Nitrile prices are assumed to recover to their 10-year average of
USD1.27/kg. This represents a CAGR increase of 2.7% over our DCF
duration. A rise in prices of nitrile feedstock will increase ASP as
Hartalega passes on losses from increase in COGS.
 Latex prices are assumed to recover to their 10-year average of
USD1.75/kg. This represents a CAGR increase of 3.9% over our DCF
duration. A rise in prices of latex feedstock will increase ASP as
Hartalega passes on losses from increase in COGS.
The rise in our nitrile and latex ASPs assumptions are lower than the CAGR
rise of the respective forex and raw material prices as we factored in a
CAGR decrease of 1.3% in ‘real’ ASPs until FY24 to account for the
heightened competition that we expect in the glove manufacturing industry.
Figure 5: Revenue assumptions
FYE 31 March (MYRm) FY14 FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F
Capacity
Bestari Jaya 14,000 14,000 14,000 14,000 14,000 14,000 14,000 14,000 14,000 14,000 14,000
NGC 0 1,750 9,450 15,750 19,950 24,150 26,950 28,500 28,500 28,500 28,500
YE Capacity (m pcs) 14,000 15,750 23,450 29,750 33,950 38,150 40,950 42,500 42,500 42,500 42,500
Effective Annual Capacity (m pcs) 13,345 14,263 20,154 27,213 32,258 36,458 39,783 42,217 42,500 42,500 42,500
Production
Utilization (%) 84.4 86.5 85.0 84.0 82.0 82.0 82.0 82.0 82.0 82.0 82.0
Total production (m pcs) 11,267 12,337 17,131 22,859 26,452 29,896 32,622 34,618 34,850 34,850 34,850
Production split (%)
Nitrile 91.3 91.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0
Latex 8.7 9.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0
Production split (m pcs)
Nitrile 10,289 11,231 15,418 20,573 23,807 26,906 29,360 31,156 31,365 31,365 31,365
Latex 978 1,106 1,713 2,286 2,645 2,990 3,262 3,462 3,485 3,485 3,485
ASP (USD/1,000 pcs)
Nitrile 30.8 27.6 26.2 25.8 25.8 25.7 25.9 26.1 26.5 27.1 27.7
Latex 29.4 28.4 26.9 26.5 26.6 26.9 27.5 28.1 28.9 29.9 30.9
USD/MYR 3.20 3.35 3.55 3.51 3.46 3.42 3.38 3.33 3.29 3.25 3.21
Latex price (USD/Kg) 1.66 1.24 1.27 1.29 1.32 1.37 1.44 1.51 1.59 1.67 1.75
Nitrile price (USD/Kg) 1.04 1.00 1.02 1.04 1.06 1.08 1.10 1.14 1.17 1.22 1.27
Revenue (MYRm)
Nitrile 1,015.1 1,036.4 1,434.0 1,859.2 2,123.0 2,367.7 2,562.6 2,709.0 2,732.1 2,761.2 2,790.8
Latex 92.0 105.2 163.7 212.7 243.5 274.9 302.8 324.5 331.7 338.5 345.6
Total gloves revenue 1,107.1 1,141.6 1,597.7 2,072.0 2,366.4 2,642.6 2,865.4 3,033.4 3,063.7 3,099.7 3,136.4
Source: RHB Estimates

Cost assumptions (Figure 6). Roughly 46% of Hartalega’s cost is quoted directly or
indirectly in USD, which primarily includes nitrile, latex and chemical expenses.
Although latex prices are usually quoted in MYR, the commodity itself, much like
other commodities, is sensitive to variations in the USD.

See important disclosures at the end of this report 4

Hartalega (HART MK)
3 April 2015

Using the same assumptions we used for the revenue stream: i) USD/MYR of 3.21 in
FY24F from 3.60 currently, ii) nitrile prices to USD1.27/kg in FY24F from USD1.00/kg
in FY15F, iii) latex prices to USD1.75/kg in FY24F from USD1.24/kg in FY15F and iv)
an assumed CAGR of 1.4% increase in production technology efficiency, we arrive at
the cost profile of Hartalega. Raw material such as nitrile and latex would constitute a
higher proportion of COGS over the years, reflecting the higher raw materials prices
in our assumption. We also forecast depreciation to increase to 8.3% of COGS by
FY24F from 6% in FY14 to reflect the front loading of capex. Further details of the
depreciation is explained in our Depreciation & Amortization table (Figure 10).
Figure 6: Cost assumptions
FYE 31 March (MYRm) FY14 FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F
Total Cost
COGS (739.2) (793.3) (1,118.4) (1,460.6) (1,680.4) (1,876.4) (2,031.9) (2,154.3) (2,181.0) (2,200.6) (2,220.7)
Distribution expenses (14.6) (15.0) (21.0) (27.3) (31.2) (34.8) (37.7) (39.9) (40.5) (41.0) (41.5)
Administrative expenses (42.6) (43.9) (61.5) (79.7) (91.0) (101.6) (110.2) (116.7) (118.4) (119.8) (121.2)
Other expenses (11.6) (12.0) (16.8) (21.8) (24.9) (27.8) (30.1) (31.9) (32.3) (32.7) (33.1)
As % of COGS
Direct Material 57.3% 57.1% 59.2% 60.0% 59.8% 60.1% 60.3% 60.4% 60.0% 59.6% 59.2%
Latex 5.8% 4.7% 5.5% 5.6% 5.6% 5.8% 5.9% 6.1% 6.2% 6.2% 6.3%
Nitrile 35.5% 36.0% 37.4% 38.0% 38.0% 38.3% 38.4% 38.6% 38.5% 38.5% 38.5%
Chemical 10.3% 10.6% 10.6% 10.6% 10.5% 10.4% 10.3% 10.1% 9.9% 9.5% 9.2%
Packaging 5.8% 5.8% 5.6% 5.7% 5.7% 5.7% 5.6% 5.6% 5.5% 5.3% 5.2%
Labour 12.5% 12.3% 10.9% 9.8% 9.5% 9.5% 9.4% 9.4% 9.6% 9.8% 10.0%
Utilities 9.0% 10.1% 8.8% 8.9% 9.1% 9.1% 9.1% 9.0% 8.8% 8.6% 8.3%
Gas 4.5% 4.9% 4.4% 4.5% 4.6% 4.6% 4.5% 4.5% 4.4% 4.3% 4.2%
Electricity 4.5% 5.2% 4.4% 4.5% 4.6% 4.6% 4.5% 4.5% 4.4% 4.3% 4.2%
D&A 6.1% 6.2% 6.8% 7.1% 7.5% 7.2% 7.1% 7.2% 7.6% 8.0% 8.3%
Overhead/Others 15.1% 14.4% 14.3% 14.2% 14.1% 14.1% 14.1% 14.1% 14.1% 14.2% 14.2%
Source: RHB Estimates

Income statement. With the estimated revenues and costs, we built our income
statement (Figure 7). Management had guided that effective tax rate would fall to low
20%. As such, we assumed a gradual fall to 20% by FY24F (from 24.5% in FY14).
Figure 7: Income statement
FYE 31 March (MYRm) FY14 FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F
Revenue 1,107.1 1,141.6 1,597.7 2,072.0 2,366.4 2,642.6 2,865.4 3,033.4 3,063.7 3,099.7 3,136.4
less COGS (739.2) (793.3) (1,118.4) (1,460.6) (1,680.4) (1,876.4) (2,031.9) (2,154.3) (2,179.5) (2,199.0) (2,219.1)
Gross profit 367.8 348.3 479.4 611.4 686.0 766.2 833.5 879.2 884.2 900.7 917.2
Other Income 5.3 3.7 5.2 7.8 8.1 9.2 10.2 10.6 10.7 10.9 11.0
Distribution expenses (14.6) (15.0) (21.0) (27.3) (31.2) (34.8) (37.7) (39.9) (40.3) (40.8) (41.3)
Administrative expenses (42.6) (43.9) (61.5) (79.7) (91.0) (101.6) (110.2) (116.7) (117.8) (119.2) (120.6)
Other expenses (11.6) (12.0) (16.8) (21.8) (24.9) (27.8) (30.1) (31.9) (32.2) (32.6) (32.9)
Operating profit 304.4 281.1 385.3 490.4 547.1 611.2 665.6 701.2 704.6 719.0 733.4
Finance income 4.9 3.9 5.8 5.9 5.2 6.2 7.2 8.1 8.4 8.4 8.7
Finance cost (0.3) (0.2) (8.2) (6.6) (4.9) (3.3) (1.7) (0.1) (0.0) (0.0) 0.0
Exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
PBT 309.0 284.8 382.9 489.8 547.3 614.1 671.1 709.3 712.9 727.4 742.1
Tax expenses (75.7) (71.2) (93.6) (117.0) (127.7) (139.9) (149.1) (153.7) (150.5) (149.5) (148.4)
Tax rate (%) 24.5 25.0 24.4 23.9 23.3 22.8 22.2 21.7 21.1 20.6 20.0
PAT 233.3 213.6 289.3 372.8 419.6 474.2 522.0 555.6 562.4 577.9 593.7
Minority interest (0.5) (0.4) (0.5) (0.7) (0.8) (0.9) (1.0) (1.1) (1.1) (1.1) (1.1)
PATAMI 232.8 213.1 288.8 372.0 418.8 473.3 521.0 554.5 561.3 576.8 592.5
EBITDA 349.6 329.9 461.3 594.4 672.5 746.3 810.5 856.2 869.7 894.1 918.6
Source: RHB Estimates

See important disclosures at the end of this report 5

Hartalega (HART MK)
3 April 2015

Figure 8: Revenue growth (%)

45%

40% 40.0%

35%
29.7%
30%

25%

20%

15% 14.2% 11.7%

7.3% 8.4%
10%
5.9%
5%
3.1% 1.0% 1.2%
1.2%
0%
FY14 FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F

Source: RHB estimates

Figure 9: EBIT margin evolution (%)

29%

27.5%
27%

24.6%
25% 24.1%
23.7%
23.1% 23.0%
23.4%
23%
23.1% 23.2% 23.1% 23.2%
21%

19%

17%

15%
FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F

Source: RHB estimates

See important disclosures at the end of this report 6

Hartalega (HART MK)
3 April 2015

Depreciation & amortisation schedule (Figure 10). Management has guided that
Hartalega has ramped up its capex expenditure and expects to commit up to 70% of
their NGC budget between FY15F and FY17F vs the previous capex budget of 35%
for the same duration. We have assumed a marginally less aggressive capex
expenditure that commits 54% of their NGC budget between FY15F and FY17F. As
such, our analysis forecasts depreciation to increase to MYR185m in FY24F from
MYR44.8m in FY14. We do not foresee material changes to intangibles and as such,
maintain Hartalega’s existing amortization schedule.

Figure 10: Depreciation & amortisation schedule

FYE 31 March (MYRm) FY14 FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F
Property, plant & equipment
Fixed assets at book value - BOY 657.6 850.1 900.1 1,325.1 1,750.1 2,070.1 2,210.1 2,350.1 2,490.1 2,630.1 2,770.1
Changes
Freehold Land 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Long term leasehold land 90.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Buildings 31.7 17.5 191.3 182.8 131.2 54.6 51.8 49.0 49.0 49.0 49.0
Plant and machinery 58.2 27.5 191.3 199.8 156.8 71.4 74.2 77.0 77.0 77.0 77.0
Equipment, furniture and fittings 12.9 5.0 42.5 42.5 32.0 14.0 14.0 14.0 14.0 14.0 14.0
Motor Vehicles (0.5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Renovations 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total fixed assets at book value 850.1 900.1 1,325.1 1,750.1 2,070.1 2,210.1 2,350.1 2,490.1 2,630.1 2,770.1 2,910.1
Accumulated depreciation
Freehold Land 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Long term leasehold land 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Buildings 13.0 16.1 23.1 33.7 46.9 61.2 76.5 92.8 110.1 128.4 147.7
Plant and machinery 174.0 211.9 269.0 346.1 438.9 538.7 646.1 761.1 883.8 1,014.2 1,152.3
Equipment, furniture and fittings 24.6 30.9 41.5 56.4 74.4 93.9 114.7 137.0 160.6 185.7 212.1
Motor Vehicles 3.0 3.7 4.5 5.3 6.1 6.8 7.6 8.4 9.1 9.9 10.7
Renovations 1.1 1.2 1.4 1.6 1.7 1.9 2.1 2.2 2.4 2.6 2.8
Total depreciation 44.8 48.4 75.6 103.4 125.0 134.6 144.4 154.5 164.6 174.7 184.8
Fixed assets at book value - EOY 634.5 636.1 985.6 1,307.1 1,502.2 1,507.6 1,503.1 1,488.6 1,464.0 1,429.3 1,384.6
Intangible assets
Intangible assets at book value - BOY 7.2 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3
Changes
Patent rights 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Golf club membership 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total intangible assets at book value 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3
Accumulated amortisation
Patent rights 0.6 1.1 1.5 2.0 2.4 2.9 3.4 3.8 4.3 4.7 5.2
Golf club membership 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1
Total amortisation 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Total Intangible asset at book value -
EOY 6.7 6.2 5.7 5.3 4.8 4.3 3.9 3.4 2.9 2.5 2.0
Source: RHB Estimates

Balance sheet (Figure 11). Based on the company’s historical ratios, coupled with
the forward estimates we derive the assumptions for the components of the working
capital, which we used in building up the balance sheet items. We have assumed that
Hartalega will incur 45 days in account receivables (49.3 days in FY14) and pay its
creditors in 50 days (account payables 46.6 days in FY14)

See important disclosures at the end of this report 7

Hartalega (HART MK)
3 April 2015

Figure 11: Balance sheet

FYE 31 March (MYRm) FY14 FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F
Current assets
Cash and equivalent 170.6 218.9 358.9 227.1 291.8 325.8 392.5 415.5 419.7 424.6 446.8
Accounts receivable 149.4 156.4 218.9 283.8 324.2 362.0 353.3 374.0 377.7 382.2 386.7
Tax assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other current assets 1.9 2.0 2.8 3.6 4.2 4.6 5.0 5.3 5.4 5.4 5.5
Inventory 98.2 108.7 153.2 200.1 230.2 257.0 278.3 295.1 298.6 301.2 304.0
Total current assets 420.1 486.0 733.8 714.6 850.3 949.5 1,029.2 1,090.0 1,101.4 1,113.4 1,143.0
Non-current assets
Property, plant and equipment 634.5 636.1 985.6 1,307.1 1,502.2 1,507.6 1,503.1 1,488.6 1,464.0 1,429.3 1,384.6
Capital work-in-progress 50.3 425.3 425.3 320.3 140.3 140.3 140.3 140.3 140.3 140.3 140.3
Intangible asset 6.7 6.2 5.7 5.3 4.8 4.3 3.9 3.4 2.9 2.5 2.0
Deferred tax assets 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Total non-current assets 691.9 1,068.1 1,417.1 1,633.2 1,647.7 1,652.7 1,647.8 1,632.8 1,607.7 1,572.6 1,527.4
Total assets 1,112.1 1,554.1 2,150.9 2,347.8 2,498.0 2,602.2 2,676.9 2,722.8 2,709.1 2,686.0 2,670.4
Current liabilities
Accounts payable 94.4 203.3 284.5 369.0 389.0 398.2 431.8 415.5 419.7 424.6 429.6
Derivative financial liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Accrued taxes 12.2 45.2 63.3 82.1 93.7 104.7 113.5 120.1 121.3 122.8 124.2
Other current liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Short term debt 3.0 2.7 302.4 227.1 151.8 76.5 1.2 0.9 0.6 0.3 0.0
Total current liabilities 109.7 251.2 650.2 678.1 634.5 579.4 546.5 536.6 541.6 547.7 553.9
Non-current liabilities
Long-term debt 1.8 1.7 21.5 16.3 11.1 5.9 0.7 0.6 0.4 0.2 0.0
Deferred tax liabilities 57.0 58.8 82.3 106.7 121.8 136.1 147.5 156.2 157.7 159.6 161.5
Total non-current liabilities 58.8 60.4 103.7 123.0 132.9 142.0 148.3 156.7 158.1 159.8 161.5
Equity
Share capital 373.5 395.9 395.9 395.9 395.9 395.9 395.9 395.9 395.9 395.9 395.9
Other reserves 59.3 59.3 59.3 59.3 59.3 59.3 59.3 59.3 59.3 59.3 59.3
Retained earnings 509.4 785.9 939.8 1,089.0 1,272.5 1,422.4 1,523.6 1,570.6 1,550.5 1,519.7 1,496.1
Non-controlling interests 1.3 1.3 1.9 2.4 2.8 3.1 3.4 3.6 3.6 3.7 3.7
Total equity 943.6 1,242.5 1,396.9 1,546.7 1,730.5 1,880.8 1,982.2 2,029.4 2,009.3 1,978.6 1,955.0
Total liabilities + equity 1,112.1 1,554.1 2,150.9 2,347.8 2,498.0 2,602.2 2,676.9 2,722.8 2,709.1 2,686.0 2,670.4
Source: RHB Estimates

Debt schedule. We understand that Hartalega intends to draw down between

MYR100m-400m of a credit facility in FY16F for working capital needs and intends to
repay the loan by FY19. We have assumed that Hartalega would borrow MYR400m
and repay the loan in FY20.

Figure 12: Debt schedule

FYE 31 March (MYR m) FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F
Existing debt (assumed 10 years)
Current debt 2.7 2.4 2.1 1.8 1.5 1.2 0.9 0.6 0.3 0.0
Non-current debt 1.7 1.5 1.3 1.1 0.9 0.7 0.6 0.4 0.2 0.0
Total outstanding existing debt 4.3 3.9 3.4 2.9 2.4 1.9 1.4 1.0 0.5 0.0
Capital repayment (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5)
Interest rate (%) 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5
Interest expense 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.0 0.0 0.0
New debt (assumed 5 years)
New debt issued 0.0 400.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total outstanding new debt 0.0 400.0 320.0 240.0 160.0 80.0 0.0 0.0 0.0 0.0
Capital repayment 0.0 (80.0) (80.0) (80.0) (80.0) (80.0) 0.0 0.0 0.0 0.0
Current debt 0.0 300.0 225.0 150.0 75.0 0.0 0.0 0.0 0.0 0.0
Non-current debt 0.0 20.0 15.0 10.0 5.0 0.0 0.0 0.0 0.0 0.0
Interest rate (%) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Interest expense 0.0 8.0 6.4 4.8 3.2 1.6 0.0 0.0 0.0 0.0
Total debt
Current debt 2.7 302.4 227.1 151.8 76.5 1.2 0.9 0.6 0.3 0.0
Non-current debt 1.7 21.5 16.3 11.1 5.9 0.7 0.6 0.4 0.2 0.0
Total debt 4.3 323.9 243.4 162.9 82.4 1.9 1.4 1.0 0.5 0.0
Interest expense 0.2 8.2 6.6 4.9 3.3 1.7 0.1 0.0 0.0 0.0
Interest income 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Cash 218.9 358.9 227.1 291.8 325.8 392.5 415.5 419.7 424.6 446.8
Interest rate (%) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Source: RHB Estimates

See important disclosures at the end of this report 8

Hartalega (HART MK)
3 April 2015

Financial Exhibits
Profit & Loss (MYRm) Mar-13 Mar-14 Mar-15F Mar-16F Mar-17F
Total turnover 1,032 1,107 1,142 1,598 2,072
Cost of sales (685) (739) (793) (1,118) (1,461)
Gross profit 347 368 348 479 611
Gen & admin expenses (34) (43) (44) (61) (80)
Selling expenses (13) (15) (15) (21) (27)
Other operating costs (1) (12) (12) (17) (22)
Operating profit 299 299 277 380 483
Operating EBITDA 331 344 326 456 587
Depreciation of fixed assets (32) (45) (48) (76) (103)
Amortisation of intangible assets (0) (0) (0) (0) (0)
Operating EBIT 299 299 277 380 483
Other recurring income 2 5 4 5 8
Interest income 4 5 4 6 6
Interest expense (1) (0) (0) (8) (7)
Pre-tax profit 304 309 285 383 490
Taxation (71) (76) (71) (94) (117)
Minority interests (0) (0) (0) (1) (1)
Profit after tax & minorities 233 233 213 289 372
Reported net profit 233 233 213 289 372
Recurring net profit 233 233 213 289 372
Source: Company data, RHB

Cash flow (MYRm) Mar-13 Mar-14 Mar-15F Mar-16F Mar-17F

Operating profit 299 299 277 380 483
Depreciation & amortisation 32 45 49 76 104
Change in working capital 37 (36) 91 (26) (27)
Other operating cash flow 16 12 38 46 50
Operating cash flow 384 320 456 476 609
Interest received 4 5 4 6 6
Interest paid (1) (0) (0) (8) (7)
Tax paid (71) (76) (71) (94) (117)
Cash flow from operations 317 249 389 380 492
Capex (194) (196) (425) (425) (320)
Other investing cash flow 0 (8) - - -
Cash flow from investing activities (194) (204) (425) (425) (320)
Dividends paid (99) (108) (99) (135) (223)
Proceeds from issue of shares 7 50 184 - -
Increase in debt (12) (7) (0) 320 (80)
Other financing cash flow (0) (0) (0) 0 (0)
Cash flow from financing activities (104) (65) 85 185 (304)
Cash at beginning of period 163 182 171 219 359
Total cash generated 19 (21) 48 140 (132)
Forex effects 0 10 - - -
Implied cash at end of period 182 171 219 359 227
Source: Company data, RHB

See important disclosures at the end of this report 9

Hartalega (HART MK)
3 April 2015

Financial Exhibits
Balance Sheet (MYRm) Mar-13 Mar-14 Mar-15F Mar-16F Mar-17F
Total cash and equivalents 182 171 219 359 227
Inventories 87 98 109 153 200
Accounts receivable 129 149 156 219 284
Other current assets 0 2 2 3 4
Total current assets 398 420 486 734 715
Tangible fixed assets 535 685 1,061 1,411 1,627
Intangible assets 7 7 6 6 5
Total other assets 0 1 1 1 1
Total non-current assets 543 692 1,068 1,417 1,633
Total assets 940 1,112 1,554 2,151 2,348
Short-term debt 8 3 3 302 227
Accounts payable 99 94 203 285 369
Other current liabilities 16 12 45 63 82
Total current liabilities 122 110 251 650 678
Total long-term debt 5 2 2 21 16
Other liabilities 49 57 59 82 107
Total non-current liabilities 53 59 60 104 123
Total liabilities 176 168 312 754 801
Share capital 367 374 396 396 396
Retained earnings reserve 384 509 786 940 1,089
Other reserves 13 59 59 59 59
Shareholders' equity 764 942 1,241 1,395 1,544
Minority interests 1 1 1 2 2
Other equity 0 (0) (0) 0 (0)
Total equity 765 944 1,242 1,397 1,547
Total liabilities & equity 940 1,112 1,554 2,151 2,348
Source: Company data, RHB

Key Ratios (MYR) Mar-13 Mar-14 Mar-15F Mar-16F Mar-17F

Revenue growth (%) 0.0 7.3 3.1 40.0 29.7
Operating profit growth (%) 0.0 (0.1) (7.2) 37.0 27.0
Net profit growth (%) 0.0 (0.2) (8.5) 35.5 28.8
EPS growth (%) 0.0 (1.1) (11.9) 31.7 28.8
Bv per share growth (%) 0.0 21.1 24.3 12.4 10.7
Operating margin (%) 29.0 27.0 24.3 23.8 23.3
Net profit margin (%) 22.6 21.0 18.7 18.1 18.0
Return on average assets (%) 0.0 22.7 16.0 15.6 16.5
Return on average equity (%) 0.0 27.3 19.5 21.9 25.3
Net debt to equity (%) (22.2) (17.6) (17.3) (2.5) 1.1
DPS 0.15 0.15 0.12 0.16 0.21
Recurrent cash flow per share 0.43 0.34 0.50 0.48 0.62
Source: Company data, RHB

See important disclosures at the end of this report 10

Hartalega (HART MK)
3 April 2015

SWOT Analysis
 World’s largest nitrile gloves producer  Heightened
competition in
 Owns several patents for in-house proprietary
the rubber
machines
gloves industry
 Highly automated production processes could apply
pressure on
margins and
earnings

 Increasing
exports to
emerging
markets such
as China and
India

 Heavily reliant on nitrile gloves production

P/E (x) vs EPS growth P/BV (x) vs ROAE

35 35% 9.0 30%
8.0 27%
30 28%
7.0 23%
25 21%
6.0 20%
20 14% 5.0 17%

15 6% 4.0 13%
3.0 10%
10 -1%
2.0 7%
5 -8%
1.0 3%
0 -15% 0.0 0%
Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs)

Source: Company data, RHB Source: Company data, RHB

Company Profile
Hartalega is the largest nitrile gloves producer in the world with an annual gloves capacity of 14bn pieces in FY14 (Mar).

See important disclosures at the end of this report 11

Hartalega (HART MK)
3 April 2015

Recommendation Chart
Price Close
9 Recommendations & Target Price

7.93
8.89

9.29

5.64

6.14

6.19

6.10

5.07
7.19

7.37

4.38
4.47

5.07

6.26
6.26
8.04
7.95

7.95

7.40

6.61

6.95
7.70
7.50
8.04
8.60
8

6.19

6.06

5.07
7

7.12
6
5
4
3
2
Buy Neutral Sell Trading Buy Take Profit Not Rated
1
Apr-10 Jul-11 Oct-12 Jan-14

Source: RHB, Bloomberg

Date Recommendation
Target Price Price
2015-02-11 Buy 8.60 7.70
2014-12-31 Buy 8.04 7.03
2014-11-19 Buy 7.50 6.90
2014-09-25 Buy 7.70 6.97
2014-08-03 Neutral 6.95 6.65
2014-05-07 Neutral 6.61 5.92
2014-02-12 Neutral 7.40 7.05
2013-11-13 Neutral 7.95 7.54
2013-09-10 Buy 7.95 7.04
2013-08-07 Buy 8.04 6.85

Source : RHB, Bloomberg

See important disclosures at the end of this report 12

RHB Guide to Investment Ratings

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

Investment Research Disclaimers

RHB has issued this report for information purposes only. This report is intended for circulation amongst RHB and its affiliates’ clients generally or such
persons as may be deemed eligible by RHB to receive this report and does not have regard to the specific investment objectives, financial situation and
the particular needs of any specific person who may receive this report. This report is not intended, and should not under any circumstances be construed
as, an offer or a solicitation of an offer to buy or sell the securities referred to herein or any related financial instruments.

This report may further consist of, whether in whole or in part, summaries, research, compilations, extracts or analysis that has been prepared by RHB’s
strategic, joint venture and/or business partners. No representation or warranty (express or implied) is given as to the accuracy or completeness of such
information and accordingly investors should make their own informed decisions before relying on the same.

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 the applicable laws or regulations. By accepting
this report, the recipient hereof (i) represents and warrants that it is lawfully able to receive this document under the laws and regulations of the jurisdiction
in which it is located or other applicable laws and (ii) acknowledges and agrees to be bound by the limitations contained herein. Any failure to comply with
these limitations may constitute a violation of applicable laws.

All the information contained herein is based upon publicly available information and has been obtained from sources that RHB believes to be reliable and
correct at the time of issue of this report. However, such sources have not been independently verified by RHB and/or its affiliates and this report does not
purport to contain all information that a prospective investor may require. The opinions expressed herein are RHB’s present opinions only and are subject
to change without prior notice. RHB is not under any obligation to update or keep current the information and opinions expressed herein or to provide the
recipient with access to any additional information. Consequently, RHB does not guarantee, represent or warrant, expressly or impliedly, as to the
adequacy, accuracy, reliability, fairness or completeness of the information and opinion contained in this report. Neither RHB (including its officers,
directors, associates, connected parties, and/or employees) nor does any of its agents accept any liability for any direct, indirect or consequential losses,
loss of profits and/or damages that may arise from the use or reliance of this research report and/or further communications given in relation to this report.
Any such responsibility or liability is hereby expressly disclaimed.

Whilst every effort is made to ensure that statement of facts made in this report are accurate, all estimates, projections, forecasts, expressions of opinion
and other subjective judgments contained in this report are based on assumptions considered to be reasonable and must not be construed as a
representation that the matters referred to therein will occur. Different assumptions by RHB or any other source may yield substantially different results
and recommendations contained on one type of research product may differ from recommendations contained in other types of research. The
performance of currencies may affect the value of, or income from, the securities or any other financial instruments referenced in this report. Holders of
depositary receipts backed by the securities discussed in this report assume currency risk. Past performance is not a guide to future performance. Income
from investments may fluctuate. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the
interest of investors.

This report does not purport to be comprehensive or to contain all the information that a prospective investor may need in order to make an investment
decision. The recipient of this report is making its own independent assessment and decisions regarding any securities or financial instruments referenced
herein. Any investment discussed or recommended in this report may be unsuitable for an investor depending on the investor’s specific investment
objectives and financial position. The material in this report is general information intended for recipients who understand the risks of investing in financial
instruments. This report does not take into account whether an investment or course of action and any associated risks are suitable for the recipient. Any
recommendations contained in this report must therefore not be relied upon as investment advice based on the recipient's personal circumstances.
Investors should make their own independent evaluation of the information contained herein, consider their own investment objective, financial situation
and particular needs and seek their own financial, business, legal, tax and other advice regarding the appropriateness of investing in any securities or the
investment strategies discussed or recommended in this report.

This report may contain forward-looking statements which are often but not always identified by the use of words such as “believe”, “estimate”, “intend”
and “expect” and statements that an event or result “may”, “will” or “might” occur or be achieved and other similar expressions. Such forward-looking
statements are based on assumptions made and information currently available to RHB and are subject to known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievement to be materially different from any future results, performance or
achievement, expressed or implied by such forward-looking statements. Caution should be taken with respect to such statements and recipients of this
report should not place undue reliance on any such forward-looking statements. RHB expressly disclaims any obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or circumstances after the date of this publication or to reflect the occurrence of
unanticipated events.

13
The use of any website to access this report electronically is done at the recipient’s own risk, and it is the recipient’s sole responsibility to take precautions
to ensure that it is free from viruses or other items of a destructive nature. This report may also provide the addresses of, or contain hyperlinks to,
websites. RHB takes no responsibility for the content contained therein. Such addresses or hyperlinks (including addresses or hyperlinks to RHB own
website material) are provided solely for the recipient’s convenience. The information and the content of the linked site do not in any way form part of this
report. Accessing such website or following such link through the report or RHB website shall be at the recipient’s own risk.

This report may contain information obtained from third parties. Third party content providers do not guarantee the accuracy, completeness, timeliness or
availability of any information and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results
obtained from the use of such content. Third party content providers give no express or implied warranties, including, but not limited to, any warranties of
merchantability or fitness for a particular purpose or use. Third party content providers shall not be liable for any direct, indirect, incidental, exemplary,
compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in
connection with any use of their content.

The research analysts responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his or
her personal views and opinions about any and all of the issuers or securities analysed in this report and were prepared independently and autonomously.
The research analysts that authored this report are precluded by RHB in all circumstances from trading in the securities or other financial instruments
referenced in the report, or from having an interest in the company(ies) that they cover.

RHB and/or its affiliates and/or their directors, officers, associates, connected parties and/or employees, may have, or have had, interests in the securities
or qualified holdings, in subject company(ies) mentioned in this report or any securities related thereto and may from time to time add to or dispose of, or
may be materially interested in, any such securities. Further, RHB and/or its affiliates may have, or have had, business relationships with the subject
company(ies) mentioned in this report and may from time to time seek to provide investment banking or other services to the subject company(ies)
referred to in this research report. As a result, investors should be aware that a conflict of interest may exist.

The contents of this report is strictly confidential and may not be copied, reproduced, published, distributed, transmitted or passed, in whole or in part, to
any other person without the prior express written consent of RHB and/or its affiliates. This report has been delivered to RHB and its affiliates’ clients for
information purposes only and upon the express understanding that such parties will use it only for the purposes set forth above. By electing to view or
accepting a copy of this report, the recipients have agreed that they will not print, copy, videotape, record, hyperlink, download, or otherwise attempt to
reproduce or re-transmit (in any form including hard copy or electronic distribution format) the contents of this report. RHB and/or its affiliates accepts no
liability whatsoever for the actions of third parties in this respect.

The contents of this report are subject to copyright. Please refer to Restrictions on Distribution below for information regarding the distributors of this
report. Recipients must not reproduce or disseminate any content or findings of this report without the express permission of RHB and the distributors.

The securities mentioned in this publication may not be eligible for sale in some states or countries or certain categories of investors. The recipient of this
report should have regard to the laws of the recipient’s place of domicile when contemplating transactions in the securities or other financial instruments
referred to herein. The securities discussed in this report may not have been registered in such jurisdiction. Without prejudice to the foregoing, the
recipient is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this
report.

RESTRICTIONS ON DISTRIBUTION

Malaysia
This report is issued and distributed in Malaysia by RHB Research Institute Sdn Bhd. The views and opinions in this report are our own as of the date
hereof and is subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a
recipient, our obligations owed to such recipient therein are unaffected. RHB Research Institute Sdn Bhd has no obligation to update its opinion or the
information in this report.

Thailand
This report is issued and distributed in the Kingdom of Thailand by RHB OSK Securities (Thailand) PCL, a licensed securities company that is authorised
by the Ministry of Finance, regulated by the Securities and Exchange Commission of Thailand and is a member of the Stock Exchange of Thailand. The
Thai Institute of Directors Association has disclosed the Corporate Governance Report of Thai Listed Companies made pursuant to the policy of the
Securities and Exchange Commission of Thailand. RHB OSK Securities (Thailand) PCL does not endorse, confirm nor certify the result of the Corporate
Governance Report of Thai Listed Companies.

Indonesia
This report is issued and distributed in Indonesia by PT RHB OSK Securities Indonesia. This research does not constitute an offering document and it
should not be construed as an offer of securities in Indonesia. Any securities offered or sold, directly or indirectly, in Indonesia or to any Indonesian citizen
or corporation (wherever located) or to any Indonesian resident in a manner which constitutes a public offering under Indonesian laws and regulations
must comply with the prevailing Indonesian laws and regulations.

14
Singapore
This report is issued and distributed in Singapore by RHB Research Institute Singapore Pte Ltd and it may only be distributed in Singapore to accredited
investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as
amended from time to time. By virtue of distribution to these categories of investors, RHB Research Institute Singapore Pte Ltd and its representatives are
not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of RHB Research Institute Singapore
Pte Ltd ’s interest and/or its representative's interest in securities). Recipients of this report in Singapore may contact RHB Research Institute Singapore
Pte Ltd in respect of any matter arising from or in connection with the report.

Hong Kong
This report is issued and distributed in Hong Kong by RHB OSK Securities Hong Kong Limited (興業僑豐證券有限公司) (CE No.: ADU220) (“RHBSHK”)
which is licensed in Hong Kong by the Securities and Futures Commission for Type 1 (dealing in securities) and Type 4 (advising on securities) regulated
activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact RHB OSK Securities Hong Kong
Limited.

United States
This report was prepared by RHB and is being distributed solely and directly to “major” U.S. institutional investors as defined under, and pursuant to, the
requirements of Rule 15a-6 under the U.S. Securities and Exchange Act of 1934, as amended (the “Exchange Act”). RHB is not registered as a broker-
dealer in the United States and does not offer brokerage services to U.S. persons. Any order for the purchase or sale of the securities discussed herein
that are listed on Bursa Malaysia Securities Berhad must be placed with and through Auerbach Grayson (“AG”). Any order for the purchase or sale of all
other securities discussed herein must be placed with and through such other registered U.S. broker-dealer as appointed by RHB from time to time as
required by the Exchange Act Rule 15a-6.

This report is confidential and not intended for distribution to, or use by, persons other than the recipient and its employees, agents and advisors, as
applicable.

Additionally, where research is distributed via Electronic Service Provider, the analysts whose names appear in this report are not registered or qualified
as research analysts in the United States and are not associated persons of Auerbach Grayson AG or such other registered U.S. broker-dealer as
appointed by RHB from time to time and therefore may not be subject to any applicable restrictions under Financial Industry Regulatory Authority
(“FINRA”) rules on communications with a subject company, public appearances and personal trading.

Investing in any non-U.S. securities or related financial instruments discussed in this research report may present certain risks. The securities of non-U.S.
issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on non-U.S. securities
or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements
comparable to those in the United States.
The financial instruments discussed in this report may not be suitable for all investors.

Transactions in foreign markets may be subject to regulations that differ from or offer less protection than those in the United States.

OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST

Malaysia
RHB does not have qualified shareholding (1% or more) in the subject company (ies) covered in this report except for:
a) -

RHB and/or its subsidiaries are not liquidity providers or market makers for the subject company (ies) covered in this report except for:
a) -

RHB and/or its subsidiaries have not participated as a syndicate member in share offerings and/or bond issues in securities covered in this report in the
last 12 months except for:
a) -

RHB has not provided investment banking services to the company/companies covered in this report in the last 12 months except for:
a) -

Thailand
RHB OSK Securities (Thailand) PCL and/or its directors, officers, associates, connected parties and/or employees, may have, or have had, interests
and/or commitments in the securities in subject company(ies) mentioned in this report or any securities related thereto. Further, RHB OSK Securities
(Thailand) PCL may have, or have had, business relationships with the subject company(ies) mentioned in this report. As a result, investors should
exercise their own judgment carefully before making any investment decisions.

15
Indonesia
PT RHB OSK Securities Indonesia is not affiliated with the subject company(ies) covered in this report both directly or indirectly as per the definitions of
affiliation above.
Pursuant to the Capital Market Law (Law Number 8 Year 1995) and the supporting regulations thereof, what constitutes as affiliated parties are as follows:

1. Familial relationship due to marriage or blood up to the second degree, both horizontally or vertically;

2. Affiliation between parties to the employees, Directors or Commissioners of the parties concerned;

3. Affiliation between 2 companies whereby one or more member of the Board of Directors or the Commissioners are the same;

4. Affiliation between the Company and the parties, both directly or indirectly, controlling or being controlled by the Company;

5. Affiliation between 2 companies which are controlled, directly or indirectly, by the same party; or

6. Affiliation between the Company and the main Shareholders.

PT RHB OSK Securities Indonesia is not an insider as defined in the Capital Market Law and the information contained in this report is not considered as
insider information prohibited by law.

Insider means:
a. a commissioner, director or employee of an Issuer or Public Company;

b. a substantial shareholder of an Issuer or Public Company;

c. an individual, who because of his position or profession, or because of a business relationship with an Issuer or Public Company, has access to
inside information; and

d. an individual who within the last six months was a Person defined in letters a, b or c, above.

Singapore
RHB Research Institute Singapore Pte Ltd and/or its subsidiaries and/or associated companies do not make a market in any securities covered in this
report, except for:
(a) -

The staff of RHB Research Institute Singapore Pte Ltd and its subsidiaries and/or its associated companies do not serve on any board or trustee positions
of any issuer whose securities are covered in this report, except for:
(a) -

RHB Research Institute Singapore Pte Ltd and/or its subsidiaries and/or its associated companies do not have and have not within the last 12 months had
any corporate finance advisory relationship with the issuer of the securities covered in this report or any other relationship (including a shareholding of 1%
or more in the securities covered in this report) that may create a potential conflict of interest, except for:
(a) -

Hong Kong
RHBSHK or any of its group companies may have financial interests in in relation to an issuer or a new listing applicant (as the case may be) the securities
in respect of which are reviewed in the report, and such interests aggregate to an amount equal to or more than (a) 1% of the subject company’s market
capitalization (in the case of an issuer as defined under paragraph 16 of the Code of Conduct for Persons Licensed by or Registered with the Securities
and Futures Commission (the “Code of Conduct”); and/or (b) an amount equal to or more than 1% of the subject company’s issued share capital, or issued
units, as applicable (in the case of a new listing applicant as defined in the Code of Conduct). Further, the analysts named in this report or their associates
may have financial interests in relation to an issuer or a new listing applicant (as the case may be) in the securities which are reviewed in the report.

RHBSHK or any of its group companies may make a market in the securities covered by this report.
RHBSHK or any of its group companies may have analysts or their associates, individual(s) employed by or associated with RHBSHK or any of its group
companies serving as an officer of the company or any of the companies covered by this report.
RHBSHK or any of its group companies may have received compensation or a mandate for investment banking services to the company or any of the
companies covered by this report within the past 12 months.

Note: The reference to “group companies” above refers to a group company of RHBSHK that carries on a business in Hong Kong in (a) investment
banking; (b) proprietary trading or market making; or (c) agency broking, in relation to securities listed or traded on The Stock Exchange of Hong Kong
Limited.
16
 Kuala Lumpur
RHB Research Institute Sdn Bhd
Level 11, Tower One, RHB Centre
Jalan Tun Razak
Kuala Lumpur
Malaysia
Tel : +(60) 3 9280 2185
Fax : +(60) 3 9284 8693
Jakarta
PT RHB OSK Securities Indonesia RHB OSK (China) Investment Advisory Co. Ltd.
Wisma Mulia, 20th Floor
Jl. Jend. Gatot Subroto No. 42
Jakarta 12710, Indonesia
Tel : +(6221) 2783 0888
Fax : +(6221) 2783 0777
Hong Kong
RHB OSK Securities Hong Kong Ltd.
th
12 Floor
World-Wide House
19 Des Voeux Road
Central, Hong Kong
Tel : +(852) 2525 1118
Fax : +(852) 2810 0908
Shanghai
Suite 4005, CITIC Square
1168 Nanjing West Road
Shanghai 20041
China
Tel : +(8621) 6288 9611
Fax : +(8621) 6288 9633
Bangkok
RHB OSK Securities (Thailand) PCL
10th Floor, Sathorn Square Office Tower
98, North Sathorn Road, Silom
Bangrak, Bangkok 10500
Thailand
Tel: +(66) 2 862 9999
Fax : +(66) 2 862 9799
Singapore
RHB Research Institute Singapore
Pte Ltd (formerly known as DMG & Partners Research
Pte Ltd)
10 Collyer Quay
#09-08 Ocean Financial Centre
Singapore 049315
Tel : +(65) 6533 1818
Fax : +(65) 6532 6211
Phnom Penh
RHB OSK Indochina Securities Limited
No. 1-3, Street 271
Sangkat Toeuk Thla, Khan Sen Sok
Phnom Penh
Cambodia
Tel: +(855) 23 969 161
Fax: +(855) 23 969 171
17