Consumer Sector 121210 OIR

Singapore | Consumer Sector
Asia Pacific Equity Research
CONSUMER SECTOR | NEUTRAL

10 Dec 2012 Sector Update
FAVOUR EM ALLOCATION
Broad sector does not outperform But exposure to EM Asia consumption pays off Maintain allocation; add defensive
NEUTRAL (maintain)
Analysts Lim Siyi (Lead) +65 6531 9824 limsiyi@ocbc-research.com Andy Wong +65 6531 9817 andywong@ocbc-research.com
Bright start; quiet fizzle The FTSE ST Consumer Services Index (FSTCS Index) started 2012 on a bright note before succumbing to global economic concerns (along with the Straits Times Index) in Apr. Although there was a subsequent rally fueled in part by a spate of M&A activity on consumer-related counters it failed to gather sufficient momentum and the FSTCS Index could potentially finish in negative territory for the second consecutive year. Exposure to EM Asia consumer demand a winning strategy While the broad sector index produced sputtering results, an investment strategy focused on riding the wave of emerging Asia consumer demand fared extremely well in 2012. Consumer-related counters with exposure to emerging markets such as Indonesia, the Philippines and Myanmar experienced sustained appreciation in their stock price throughout the year. With a tepid economic outlook for developed markets in 2013, EM Asia presents the best avenue for consumer-related growth and we advocate a similar strategy of selecting counters with such exposure in the coming year. Favour regional exposure over domestic Given the dynamics of Singapores economy, it remains vulnerable to lingering global economic concerns. In addition, its resident population lacks the size and ability to become a supportive factor for growth. Therefore, we continue to favour the growing domestic consumption of its regional peers. Our preferences within the region are Indonesia, the Philippines, Thailand and Myanmar. The extension of cheap credit and government spending on infrastructure projects and social initiatives has produced results in these countries, and 2013 will feature more of the same. In addition, armed with the comparatively healthier balance sheets, these EM nations have the flexibility to adopt more accommodative monetary policies, if needed, to support such initiatives. Recommendation: EM Asia consumer + defensive Historically, the FSTCS Index has mostly trailed the Straits Times Index in performance. Entering 2013, we expect that this trend will continue and, as such, we maintain our NEUTRAL outlook on the consumer sector. For EM Asia consumer exposure, our top picks are Petra Foods [BUY; FV: S$3.12] and Viz Branz [BUY; FV: S$0.74]. We also advocate a defensive allocation into Sheng Siong Group [BUY; FV: S$0.55] for its resilience against economic downturns and attractive dividend yield.
Relative total return Sector (%) STI-adjusted (%) Price performance chart
Sect or I ndex Lev el 1048
1m 2 -1
3m 1 -2
12m 3 -13
M ar k et I ndex Lev el 3500
984
3260
919
3020
`
855 2780
790
2540
726 Dec -11 M ar -12 FST CS J un-12 Sep-12 FSST I
2300
Sources: Bloomberg, OIR estimates
Stock coverage ratings BBRG Ticker SSG SP Equity VIZ SP Equity PETRA SP Equity BREAD SP Equity Price 0.52 0.71 2.87 0.65 Fair Value 0.55 0.74 3.12 0.49 Rating BUY BUY BUY SELL
Please refer to important disclosures at the back of this document.
MICA(P)041/06/2012
OCBC Investment Research Singapore Equities
Table of Contents Section A: Section B: 2012 in review 2013 Outlook Regional Views i. ASEAN-5 ii. Myanmar iii. China Section C: Section D: Recommendation & Sector Picks Company Reports i. ii. iii. iv. Section E: Sheng Siong Group Viz Branz Petra Foods BreadTalk Group 24 26 28 30 32 3 8
11 18 20 22
Disclaimer
Section A: 2012 in review Bright start; quiet fizzle 2012 got off to a bright start for the FTSE ST Consumer Services Index (FSTCS Index) but the rallys momentum began fizzling out in May. Although a spate of M&A activity later in the year revitalised the sector, the consumer services index failed to return to its earlier heights and has since retraced downwards. If investor sentiment deteriorates further on US fiscal cliff concerns, the FSTCS Index could end the year in negative territory for the second consecutive year (YTD: FSTCS Index +1.5% versus +17.4% for the Straits Times Index).
Exhibit 1: 2012 Index performance (Rebased = 100)
120 FSTCS 115 110 105 100 95

D ec -1 1 Ja n12 Fe b12 M ar -1 2 A pr -1 2 M ay -1 2 Ju n12 Ju l-1 2 A ug -1 2 Se p12 O ct -1 2 N ov -1 2
Source: Bloomberg, OIR
STI
Despite the sputtering performance of the consumer services index, companies exposed to consumer demand in emerging Asia markets proved to be the outperformers within the sector. Encouraged by the increasing promotion of domestic consumption within these markets and the political progress in countries such as Myanmar, investors rushed to obtain exposure to these markets through counters such as Super Group [Non-rated], Food Empire [Non-rated] and Petra Foods [BUY; FV: S$3.12].
Exhibit 2: 2012 selected performance (Rebased = 100)
300
200
100 FSTCS PETRA 0 SUPER SSG VIZ THBEV FEH
Rising costs in focus At the company level, revenue growth for consumer-related firms was tepid, which is hardly surprising, given the uncertain macro-environment. These companies also faced additional challenges from rising operating expenses particularly labour costs which increased pressures on operating margins.
The impact of recent government policies to reduce Singapores dependence on foreign labour (by charging higher foreign-worker levies and restricting employment numbers) was compounded by rising inflation (CPI +3.4% in 2012) and a tight labour market (unemployment rate 1.9%1), resulting in a manpower shortage and higher wage costs. A survey by DP Information Group found that more than seven in ten small and medium enterprises (SMEs) reported rising manpower costs as the main reason affecting their profitability2. although cost management was effective Despite rising operating costs, consumer-related companies still managed a respectable performance. Through a mix of cost-control measures managing inventory more effectively, purchasing raw materials in bulk, and altering pay structures to make them more variable the companies were able to reduce cost pressures, and in some cases even improve margins. Retail sales soft but improving Overall retail sales volume excluding the heavily weighted motor vehicle component rose 1.4% MoM in Sep (+3.9% YoY) to add to the previous months marginal gains of 0.6% MoM (+2.8% YoY). Similarly, the value of retail sales (ex. Motor vehicles) for Sep rose 0.7% MoM (+3.3% YoY), compared to a gain of 0.3% MoM in Aug (+2.3% YoY). Sales volume for telecommunication apparatus and computers provided the strongest support with a 19.3% MoM gain while other segments such as department store and supermarket sales volumes remained resilient with MoM gains of 0.4% and 1.1%, respectively. *Motor vehicles were excluded from our analysis due to the distortion effect of the COE auction process on automobile sales, and invariably, overall retail sales.
Exhibit 3a: Retail sales value (% change MoM) & selected categories
20.0 5.0
10.0
0.0
0.0
-10.0
-20.0
-5.0
11
12
12
12
12
12 /D ec
ar 12
12
12
12 /J ul
12 /J an
12 /M ay
eb
12 /M
12 /A
un
12 /F
12 /J
Fe b
Ja n
Ju n
Ju l
ay
ar
pr
ug
Departm ent stores Watches & jew ellery Total w /o MV (RHS)
Supermarkets Telecom m unications apparatus & com puters
Motor vehicles Medical goods & toiletries
Sources: Department of Statistics Singapore, OIR
1 2
Seasonally adjusted overall unemployment rate, Sep 2012, Ministry of Manpower
SMEs Embrace Productivity to Counter Rising Costs, DP Information Group, 26 Nov 2012, <http://www.dpgroup.com.sg/Attachments/108_SMEDS%202012%20Media%20Release%20FNL.pdf>
Se p
12 /
ug
pr
12
Exhibit 3b: Retail sales volume (% change MoM) & selected categories
30.0 5.0
20.0
10.0 0.0 0.0
-10.0
-20.0 Jan 12/ Dec 11 Feb 12/ Jan 12 Mar 12/ Feb 12 Apr 12/ Mar 12 May 12/ Apr 12 Jun 12/ May 12 Jul 12/ Jun 12 Department stores Watches & jew ellery Total w /o MV (RHS) Superm arkets Telecom munications apparatus & computers Aug 12/ Jul 12 Sep 12/ Aug 12
-5.0
Motor vehicles Medical goods & toiletries
Trend perking up The decent Sep retail sales figures have somewhat halted the downward trend exhibited in both the MoM and YoY figures. Although retail sales for 3QCY2012 still remain soft given the small improvement in MoM figures, the pace of MoM declines for segments that are more sensitive to economic conditions have slowed since May (which, coincidentally, was the worst performing month for the year). While retail sales for big-ticket items such as watches and jewellery remain affected by the uncertain economic outlook, retail sales in other segments such as department store spending, wearing apparel and footwear are recovering slowly and could receive a boost in the seasonally stronger 4QCY2012. But challenges to F&B services remain Despite deriving some positives from the 3QCY2012 retail sales figures, the outlook for the Food & Beverage (F&B) services sector is less obvious. Sales volume and value both fell MoM in Sep 2012, by 0.8% and 1.1%, respectively, reversing marginal improvements recorded in Aug. In particular, the restaurant segment remains weak after a third straight month of declines in both sales volume and value while fast food outlets and other eating places continue to exhibit mixed signals. This disconnect between the outlook for overall retail sales and F&B services seem to come from a trade-off in discretionary consumer spending, i.e. purchasing versus eating out. In our view, as the economic environment is still uncertain, consumers may not have the luxury of doing both activities, and have to allocate their resources accordingly whilst maintaining some semblance of prudence.
Exhibit 4a: F&B services value (% change MoM)

10.0 10.0
5.0 5.0
0.0
0.0 -5.0
-10.0 Jan 12/ Dec 11 Feb 12/ Jan 12 Mar 12/ Feb 12 Apr 12/ Mar 12 May 12/ Apr 12 Jun 12/ May 12 Jul 12/ Jun 12 Restaurants Fast food outlets Food caterers Other eating places Aug 12/ Jul 12 Sep 12/ Aug 12 Total (RHS)
-5.0
Exhibit 4b: F&B services volume (% change MoM)

15.0 10.0
10.0 5.0 5.0
0.0 0.0 -5.0
-10.0 Jan 12/ Dec 11 Feb 12/ Jan 12 Mar 12/ Feb 12 Apr 12/ Mar 12 May 12/ Apr 12 Jun 12/ May 12 Jul 12/ Jun 12 Restaurants Fast food outlets Food caterers Other eating places Aug 12/ Jul 12 Sep 12/ Aug 12 Total (RHS)
-5.0
Our sector coverage performance Within the sector, our coverage includes Sheng Siong Group [BUY; FV: S$0.55], Viz Branz [BUY; FV: S$0.74], BreadTalk Group [SELL; FV: S$0.49] and Petra Foods [BUY; FV: S$3.12].
Exhibit 5: YTD performance of coverage (Rebased = 100)
250 200 150 100 50

Dec11 12 Feb Apr12 12 JunAug12 O ct12
BREAD
VIZ
PETRA
SSG
Sheng Siong stable Given its defensive qualities a strong balance sheet and a natural resilience to economic downturns as well as its commitment to pay out 90% of its net profit as dividends, Sheng Siong Group proved to be the most stable in terms of equity performance. Its 9MFY12 operational results met our expectations and those of the street, so it was not surprising to see resilient interest from investors throughout the year. Viz Branz speculation beneficiary Our top performer was Viz Branz, which was the subject of takeover speculation for almost the entire year. A partial share sale to Lam Soon added fuel to the fire and the counter hit all-time highs. On a YTD basis, the counter doubled in value, compared to the overall sectors flattish performance. Petra Foods EM Asia darling As mentioned earlier, investors rewarded counters with strong exposure to emerging Asia consumer demand. Petra was a deserved recipient of this interest, with its sizeable market share in Indonesia and the Philippines. BreadTalk slow to ignite Still in the midst of its expansion phase, the counter continued to experience margin pressures. Without support from its profitable restaurant segment, BreadTalk would have recorded some declines in its overall business. Despite our cautious stance and downgrade of the counter, it managed to play catch-up at the end of the year to show a modest YTD appreciation.
Section B: 2013 outlook Singapore outlook Insipid growth a repeat of 2012 Similar to 2012s forecast, the Ministry of Trade and Industry (MTI) has placed Singapores 2013 growth in the 1-3% range (FY2012 growth expected at 1.5%), citing persisting weaknesses in the global economy. Meanwhile, the International Monetary Fund (IMF) has cut its growth outlook for most economies further in its most recent World Economic Outlook. It now forecasts that advanced economies such as the United States and developed Eurozone countries (e.g. Germany, France) will expand by just 1.5% in 2013, compared to its earlier projection of 1.8% growth3. The IMF also lowered its overall growth estimate for 2013 for emerging-market and developing economies to 5.6%, from 5.8% previously.
Exhibit 6: Selected IMF 2013 Projections Year over Year (%) Difference from Jul 2012 WEO 2012 2013 0.2 0.1 0.1 0.1 0.3 0.2 1.3 0 0.3 0.3 0.1 0.5 0.2 0.2 0.6 0.3
2010 World Output Advanced Economies United States Euro Area EM Economies China India ASEAN-5
Source: IMF World Economic Outlook Oct 2012
2011 3.8 1.6 1.8 1.4 6.2 9.2 6.8 4.5
Projections 2012 2013 3.3 1.3 2.2 0.4 5.3 7.8 4.9 5.4 3.6 1.5 2.1 0.2 5.6 8.2 6 5.8
5.1 3 2.4 2 7.4 10.4 10.1 7
ASEAN-5 includes Indonesia, the Philippines, Thailand, Vietnam and Malaysia
Given that the macro-economic uncertainty has not dissipated and that the global economy is expected to maintain its sluggish pace of recovery, there seems to be little cheer in store for the coming year. Tourism loses its appeal In its outlook, the MTI has highlighted transport engineering and the construction sector as potential support pillars for the economy in 2013. Surprisingly, tourism which was included in the previous years outlook has been omitted from mention. Although international arrivals and tourism receipts have grown YoY (according to the latest available 1H2012 figures from the Singapore Tourism Board), we suspect concerns over a possible slowdown in the coming months could have weighed on the overall projections. For instance, 2Q2012 saw a 5.2% QoQ decline in overall tourism receipts to S$5.5b, partly due to a 19.7% QoQ (-7% YoY) decline in sightseeing and entertainment (including gaming) receipts to S$1.19b. In fact, other than expenditure on items such as airfares, transportation, medical and education, all the main tourism components (i.e. shopping, accommodation, and F&B) also saw QoQ declines in expenditure.
IMF, World Economic Outlook October 2012, Page 2
Exhibit 7: QoQ declines in SG tourism expenditure
1,500 2Q12 1,000 (S$m ) 500 1Q12
0
Sh o p p i n g A c c o mmo d a t i o n Food & B ever age Si g h t s e e i n g & E n t e r t a i n me n t ( i n c l u d i n g G a mi n g ) Ot her T R C o mp o n e n t s
Source: STB Other TR components include expenditure on airfares, port taxes, local transportation, business, medical, education and transit visitors.
We believe that this decline in tourism expenditure can be attributed in part to the decreasing appeal of Singapores two Integrated Resorts (IRs), which have seen revenue taper off since the initial euphoria when they opened, as the global situation remains lethargic. For instance, Genting Singapore saw 3Q12 revenue fall 34% YoY, with the majority of the slide due to a reduction in gaming revenue. Therefore, we reverse our previous view that the IRs would prove to be supportive and acknowledge that further, significant drop-offs are possible if the economic downturn worsens and becomes detrimental to travel sentiment. But employment remains tight The employment situation in Singapore remains tight with unemployment currently at 1.9% (as at Sep 2012). This is a continued improvement from the recent high of 3% in 2009. The tight labour market has pushed up wages in Singapore (even after factoring in inflation).
Exhibit 8a: Qtrly avg wages since 1995 Exhibit 8b: % Change in total wages
5,000
8 6
4,000 S$
4 2 0
3,000
2,000
07 02 05 10 95 97 00 3Q 3Q 1Q 1Q 1Q 3Q 1Q 3Q 12
-2
20 0 20 0 0 20 1 0 20 2 0 20 3 04 20 0 20 5 0 20 6 07 20 0 20 8 0 20 9 1 20 0 11
Source: Ministry of Manpower
Source: Department of Statistics Singapore
Historically, average monthly earnings tend to spike in the first and last quarters of the year due to the pay-out of year-end/annual bonuses and taper off slightly in the middle two quarters. Fortunately, even with the lukewarm macro-economic environment, there has not been a wage decline similar to that seen during the 2001/02 dot-com bust or the 2009 financial crisis. We are optimistic that the stability in wages will translate into greater domestic consumption.
Alterations to cost structure As mentioned earlier, restrictions on foreign labour and rising wage pressures have increased the burden of operating expenses on companies. This downward pressure should persist into 2013, and with revenue growth likely to be challenging, consumer-related companies will have to reinforce cost-cutting initiatives and continue to tighten spending to help sustain bottom-line growth. Slowly improving retail sales As mentioned earlier, we see retail sales in Singapore slowly improving despite still-soft figures. We remain optimistic that with high employment and wage stability retail spending will continue to pick up and ultimately spur growth within the services producing industries in Singapore. We maintain our previous assertion that retail sales will not deteriorate to the low of 2009, and we are projecting mid to high singledigit YoY increases in spending for 2013.
10
Regional views i. ASEAN 5

Exhibit 9a: IMF 2013 Projections Year over Year (%) Projections 2011 2012 2013 4.5 9.2 6.8 6.5 3.9 5.1 5.9 0.1 5.5 4.9 5.4 7.8 4.9 6 4.8 4.4 5.1 5.6 6.5 2.1 5.8 8.2 6 6.3 4.8 4.7 5.9 6 6.3 2.9
2010 ASEAN-5 China India Indonesia Philippines Malaysia Vietnam Thailand Myanmar Singapore
Source: IMF World Economic Outlook Oct 2012
7 10.4 10.1 6.2 7.6 7.2 6.8 7.8 5.3 14.8
The lessons learnt from the Asian Financial Crisis back in the late 1990s have taught Asian economies the importance of maintaining balanced budgets and shoring up their balance sheets. This fiscal prudence has resulted in a healthy position where the respective Central Banks can exercise accommodative monetary policies in an effort to stimulate the economy at times of stress. Given the weakness and slowdown in exports, we see more EM economies extending cheap credit or spending directly on infrastructure projects and social initiatives such as building schools to provide jobs and to improve their citizens well-being. By encouraging domestic activity, the respective governments enrich their citizens via new jobs and increases in discretionary income.
Exhibit 9b: Asian equity index performance (Rebased = 100)
140
120
100
80 Dec-11
Feb-12 PCOMP SET
Apr-12 Jun-12 Aug-12 JCI STI SHCOMP VN
Oct-12 KLCI
11
Indonesia stellar growth to continue With a burgeoning middle class and growing GDP per capita, Indonesia stands out as a giant within the ASEAN 5. The country has emerged pretty much unscathed from the macro-economic uncertainty, and our previous forecast of sustained consumption growth in 2012 has been proven correct.
Exhibit 10: Growth in minimum wage (IDR 000s)
1,200
1,000
800
600
400 2004
Source: CEIC, OIR
2005
2006
2007
2008
2009
2010
2011
2012
The IMF has projected that Indonesias economy will expand by over 6% this year (faster than other Asean countries such as Malaysia and Thailand at ~5% each)4, aided by infrastructure spending and increases in minimum wages. With domestic demand resilient, the economy is projected to grow a further 6.3% in 2013. The base beneficiaries of this sustained level of spending will be consumer staples-related companies, followed by those in the discretionary spending category. Some of these beneficiaries include automobiles, where sales have touched record levels, and modern retail such as personal care, telecommunications and electronics.
Exhibit 11: % of average income per capita on non-food expenditure
60
50 (%) 40 30 1999 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Badan Pusat Statistik (Central Bureau of Statistics Indonesia)
4
12
In addition, Indonesias insulation from global woes has also led to an increase of foreign direct investment (FDI) into the country, which will further support the growth outlook for 2013 and beyond. For instance, in 1H2012, FDI into Indonesia grew 30.3% on an annual basis to US$11.9b. We expect the government to continue its efforts to attract more FDI. Indonesia also has the worlds largest work force, and with its improving infrastructure, the countrys outlook is bright.
Exhibit 12: Quarterly foreign investments (US$m)
8,000 6,000 4,000 2,000 0
05
05
06
06
07
07
08
08
09
09
10
10
11
11
12 1Q 11
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
Source: CEIC, OIR
Philippines darling of South-East Asia No longer the sick man of Asia, the Philippines equity market has been one of the top performing markets globally in 2012 (Philippines Stock Exchange PSEi Index +32.5% YTD). Its attractiveness has stemmed from an increase in government spending on infrastructure projects and social initiatives, as well as strong domestic demand. Coupled with an improving export situation (exports rose by more than 22% YoY in Sep 2012) and the elevation of its credit rating by Standard & Poors (to one level below investment grade), the Philippines has been able to attract more FDI to supplement its growth.
Exhibit 13: Approved foreign direct investment (PHP'000s)
150,000
100,000
50,000
09
3Q 2Q 12
06
96
98
97
99
01
02
03
04
07
08
1Q
2Q
1Q
2Q
Source: CEIC, OIR
1Q
3Q
4Q
13
2Q
3Q
4Q
3Q
4Q
12
Exhibit 14: Non-agricultural minimum daily wage (PHP)
400 Real (LHS) 350 Nom inal (RHS)
600 450 300
300 150 250

94 96 98 00 02 04 06 08 10 12 Jan- Jan - Jan- Jan- Jan- Jan- Jan - Jan - Jan - JanSource: CEIC, OIR
Confident of its ability to sustain growth factors moving into 2013, the government recently set high growth targets for both 2013 and 2014 (67% for 2013 and 6.5-7.5% for 2014). It has set a record infrastructure budget of more than US$9b in 2013 to be spent on major upgrades of airports and access roads in order to maintain and attract a high level of foreign investment. Strong remittances are also expected to continue, which will support domestic consumer spending.
Exhibit 15: Total income & expenditure (all income classes)
4,000 (PHPb)
90.0%
2,000
80.0%
0 1991 1994 1997 2000 2003 2006 2009

Overall total Incom e (LHS) Overall total expenditure (LHS) % expenditure (RHS)
Source: CEIC, OIR
70.0%
14
Thailand environment remains conducive The success of the recovery and rebuilding process following the devastating floods has accelerated Thailands growth in 2012. Its equity barometer, the SET50 Index, is also one of the top performing equity indices in the world so far (+30.2% YTD).
Exhibit 16a: Average monthly wages Exhibit 16b: Value of total investments approved
12,000
300,000 (THBm) 150,000 0

Source: CEIC, OIR
Ja n Ja -01 n Ja -02 nJa 03 n Ja -04 nJa 05 n Ja -06 nJa 0 n 7 Ja -08 n Ja -09 n Ja -10 n Ja -11 n12
(THB)
10,000
8,000
6,000
Source: CEIC, OIR
Entering 2013, the outlook remains positive for Thailand. Its low interest rate environment should remain conducive for growth while business confidence in Thailand has also improved significantly in the past few months. In addition, growing income prospects from increasing farm output (related to government subsidies) and higher wages (surveys have projected higher salary increases in 2013 of ~6% versus 5.7% in 2012) should translate into greater domestic consumption.
Exhibit 17: Overall business sentiment index
60
50
40
30
Source: CEIC, OIR
Ja n0 M 8 ay -0 Se 8 p08 Ja n0 M 9 ay -0 Se 9 p09 Ja n1 M 0 ay -1 Se 0 p10 Ja n1 M 1 ay -1 Se 1 p11 Ja n1 M 2 ay -1 Se 2 p12
15
Ja nJa 94 nJa 96 nJa 98 n Ja -00 nJa 02 nJa 04 nJa 06 n Ja -08 nJa 10 n12
Malaysia lingering election concerns Growth in Malaysia is expected to moderate to 4.4% in 2012 (from 5.1% in 2011) following anaemic global growth5. However, much of the support came from domestic-led growth, which helped to offset the dropoff from external-related sectors. In addition, increasing government infrastructure spending and various growth initiatives (e.g. Iskandar Malaysia in Johor) that are part of the Economic Transformation Programme provided further investment impetus.
Exhibit 18: Average monthly household expenditure
2010
2005
1999
1994 0
Source: CEIC, OIR
500
1,000 (MYR) 1,500
2,000
2,500
Nonetheless, there are some jitters over the impending elections that have to be called by April 2013. The pre-election posturing amongst the two main political alliances is likely to remain a distraction for now, although most market participants have priced in an outcome of no regime change.
Exhibit 19a: Unemployment rate (%) Exhibit 19b: Mean household income
4.50
5 4
4.00
(MYR '000s)
3 2 1 0 1997 1999 2002 2004 2007 2009
3.50
3.00
2.50 Jan-09 Nov-09 Sep-10 Jul-11 May-12

Source: CEIC, OIR
Source: CEIC, OIR
Once the election cycle has ended and in all likelihood the Barisan Nasional is returned to power we can expect private investment to continue and wage growth to persist on the back of greater job creation.
16
Vietnam challenges ahead The IMF-projected growth rate in 2012 of 5.1% is close to our estimates at end-2011 of less than 6% growth4. However, compared to its regional peers, Vietnam continues to face a tougher set of issues. Although Vietnam has been successful so far in lowering its fiscal deficit, improving its balance of payments and broadly stabilising its exchange rate through its monetary policy, there remain key downsides high inflation, low reserves and vulnerability to capital outflows. While demand for its exports has been resilient, government policies remain the main risk for its growth. Furthermore, if the government lowers interest rates too quickly, it could unsettle the foreign exchange market. Challenges notwithstanding, business confidence has still improved significantly over the past six months. On the domestic front, retail sales and consumer spending are still on the uptrend while businesses are factoring in double-digit salary growth in 2013. If this increase in wages does materialise, we can expect to see a corresponding rise in consumer spending.
17
ii. Myanmar Gradual lifting of economic sanctions Since embarking on major political and economic reformation in 2011, Myanmar has been embraced by the global community. The adoption of outward-looking policies has seen foreign participation in the economy increase via private investments and assistance from supranational agencies. The government has also proposed a five-year development plan to achieve a 7.7% annual GDP growth, a GDP per capita increase of 1.7x by 2015, and a shift away from agriculture towards the industrial sector as the main contributor to GDP. With the progress, economic sanctions put in place previously have started to unwind gradually. Well-positioned between India and China Bordering both India and China, Myanmar will benefit greatly from jostling between the two giants. The competition to include Myanmar within their respective spheres of influence will result in the offering of favourable investment packages and industrial expertise to develop its various sectors and infrastructure. This increased importance on the geopolitical front will allow Myanmar to receive the support it needs as it addresses sorely needed infrastructure requirements.
Exhibit 20a: Foreign Direct Investment (US$m) Exhibit 20b: Myanmar's borders
10,000 8,000 (US$m) 6,000 4,000 2,000 0
Source: CEIC, OIR
0 Ja 5 n0 Ja 6 n0 Ja 7 n0 Ja 8 n0 Ja 9 n1 Ja 0 n1 Ja 1 n12
Ja n-
Source: Google Maps
Untapped consumer market On a more pragmatic note, there is still a lot to be done before Myanmar can achieve the growth targets it has set. In addition, the transition from agriculture towards the industrial sector may take a while, given the availability of other low-cost regions such as Bangladesh.
18
Exhibit 21: Average monthly household expenditure
100,000 80,000 (Kyat) 60,000 40,000 20,000 0 1989 1997 2001 Household Expenditure % F&B/Expenditure (RHS)
Source: CEIC, OIR
76% 72% 68% 64% 60% 56% 2005 2006 F&B Expenditure
Nonetheless, with a population of more than 60m, Myanmar offers an immense, untapped consumer market. Companies that already have an established presence in Myanmar have experienced encouraging growth and this trend will likely persist. Although official data is scarce, preliminary sources indicate a high proportion of F&B expenditure in average monthly household spending. In addition, if Myanmar is able to sort out the repatriation of funds into the country in the near term, remittances from its sizeable overseas work force could help to fuel domestic consumption much like the Philippines.
19
iii. China Higher growth in 2013 Given that Europe is Chinas largest trading partner, 2012 has been a relatively difficult period for China, although its economy started to turn higher from the middle of the year. The initial growth forecasts of >8% have proved to be over-optimistic, due mainly to weakness in export demand, but 2012 growth is now expected to come in at around 7.8%, supported by public investment in infrastructure projects.
Exhibit 22: China GDP growth
15
12
(%)
9 6 2005 2006 2007 2008 2009 2010 2011 2012E 2013E
Source: Bloomberg, IMF
While China has recently seen a leadership change, no significant changes to its economic policies are expected. Goals set up in the 12th five-year plan should continue unabated, and the transitioning towards a domestic consumption-driven growth model will remain the key aim. That said, we expect China to maintain its prudent monetary policy (liquidity management with relatively unchanged interest rate environment) in concert with a supportive fiscal policy (via sustained infrastructure investment and wage gains). The IMF projects Chinas 2013 growth to come in at 8.2%6.
Exhibit 23: YoY % growth in retail sales
25 20 (%)
6
15 10 5
Jan-
06 O ct-06 Jul-07 pr-08 an-09 O ct-09 Jul-10 pr-11 an-12 O ct-12 J A J A
Source: CEIC, OIR
20
Overcapacity issues balance out inflationary pressures Although Chinas PMI expanded for the first time in 13 months a promising sign, especially given seasonal weaknesses much of the improvement came on the back of increasing household spending. Industries such as steel and machinery are still plagued by overcapacity issues and excess inventory levels. While it will take some time before the overcapacity issues moderate, inflationary pressures should ease in the meantime.
Exhibit 24: Monthly % change CPI
12 8 (% Chg) 4 0 -4
Jan06 O ct-06 Jul-07 p r-08 an -09 O ct-09 Ju l-10 pr-11 an-12 O ct-12 A J A J
Source: CEIC, OIR
21
Section C: Recommendation & Sector Picks

Exhibit 25: Historical STI & FSTCS Index performance (Rebased = 100)
FSTCS 140
STI
90
40
Au 2 1 0 9 8 7 6 5 4 3 2 1 0 9 g- 9 ug-0 ug- 0 ug- 0 ug- 0 ug-0 ug- 0 ug- 0 ug- 0 ug-0 ug-0 ug- 1 ug- 1 ug-1 A A A A A A A A A A A A A
Source: Bloomberg
Maintain NEUTRAL Historically, the FSTCS Index has mostly trailed the Straits Times Index in performance. The consumer sector is also often overlooked in favour of the oil & gas or property sectors, which tend to consist of larger, more stable corporations. Entering 2013, we expect that this trend will continue and, as such, we maintain our NEUTRAL outlook on the consumer sector. Favour regional exposure over domestic Given the dynamics of Singapores economy, it remains vulnerable to lingering global economic concerns. In addition, its resident population lacks the size and ability to become a supportive factor for growth. Therefore, we continue to favour the growing domestic consumption of its regional peers. Our preferences within the region are Indonesia, the Philippines, Thailand and Myanmar. The extension of cheap credit and government spending on infrastructure projects and social initiatives has produced results in these countries, and 2013 will feature more of the same. In addition, armed with the comparatively healthier balance sheets, these EM nations have the flexibility to adopt more accommodative monetary policies, if needed, to support such initiatives. Therefore, for consumer counters with a diversified geographical revenue stream, we like Viz Branz [BUY; FV: S$0.74] and Petra Foods [BUY; FV: S$3.12]. We like Viz Branz for its exposure to high growth markets such as China and Myanmar, and Petra Foods for its dominant market share and position in Indonesia and the Philippines. Within the domestic space, we favour Sheng Siong Group [BUY; FV: S$0.55] for its defensive qualities against economic downturns and unhindered top-line growth prospects. Armed with an attractive dividend policy, SSG provides investors with a stable return proposition as well. Our least favoured pick remains BreadTalk Group [SELL; FV: S$0.49]. As it is still in its expansion stage, the group continues to experience margin pressures and will not be able to reward investors with attractive dividends. While the counter will in time achieve its expansion target of having China account for 50% of its top line, we believe that there are more appealing investment choices available at the moment.
22
Coverage highlights Sheng Siong Group: Strong growth ahead We upgrade Sheng Siong Groups (SSG) FY13/14 revenue growth to 10% (previously 5% and 3%, respectively) on the back of full-year contributions from the eight new stores opened in FY12. The absence of further price competition amongst the Big 3 supermarket chains and lingering doubts over the macro-environment will also provide support for this defensive counter. In addition, we anticipate a continuation of the 90% net profit dividend payout policy, which will further enhance its attractiveness in FY13 and beyond. Maintain BUY at an unchanged fair value estimate of S$0.55. Viz Branz: Another step forward Viz Branzs (VB) former CEO has unreservedly withdrawn all his previous allegations of impropriety about a series of payments involving the company. We view this development as a positive event that coincides with the possibility of a general offer (GO) by Lam Soon Cannery. Taken together, the resolution of an outstanding family dispute and the absence of a dividend declaration for FY12 suggest that preparations are being made for an impending offer. While the counter has fluctuated in recent trading, we urge investors to keep the faith and reiterate our stance that a GO will materialise. In addition, the investment case for VB remains sound with its strong fundamentals and FY13 growth projections. We maintain BUY with an unchanged fair value estimate of S$0.74. Petra Foods: Pickup in 2013 Since our initiation report on Petra Foods, the counter has appreciated by 7.5% to continue on its amazing ascension in 2012 (YTD: +55%). Our valuation of Petra pegged at 24x 12-month forward PE is at a premium to its global peers but the desire of investors to gain exposure to emerging Asia consumer demand clearly vindicates it. For 2013, we project a modest top-line growth of 3.8%, mainly on the back of the Branded Consumer division, while we also anticipate margin improvements from the 7.6% in FY11 to ~9% by FY13F. We remain sanguine over Petras growth prospects in the coming year, and in light of Petras recent appreciation, we raise our multiple to 25x 12-month forward PE (approaching one standard deviation above its six-year average forward PE. This increases our fair value to S$3.12 from S$2.98 previously. Maintain BUY. BreadTalk Group: Take profit now Despite experiencing a sharp fall in May this year, BreadTalk Groups (BTG) share price managed to recover gradually, and is now poised to end the year with a modest gain (YTD: +20.5%). While BTGs revenue grew alongside store expansion, the performance came at the expense of operating margins. With this trend likely to persist into FY13 and the absence of an offsetting, attractive dividend we see no catalyst for the group and urge investors to take profit at current levels. Reinforcing our overvalued assertion, BTG is also currently trading at close to one standard deviation above its six-year average forward rolling PE of 11.4x. We reiterate our SELL call for BTG at an unchanged fair value estimate of S$0.49.
23
Singapore | Food & Staples Retailing
SHENG SIONG GRP | BUY

MARKET CAP: USD 589M AVG DAILY TURNOVER: USD 1M 10 Dec 2012 Company Update
STRONG GROWTH AHEAD

More stores to come Price competition won't return Maintain BUY
BUY (maintain)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast S$0.55 S$0.03 S$0.52 11%
Double-digit growth to continue We upgrade Sheng Siong Groups (SSG) FY13/14 revenue growth to 10% (previously 5% and 3% respectively). Full-year contributions from the eight new stores opened in FY12 representing an increase of 14% in gross retail space justify this adjustment. Furthermore, SSGs strategy of opening stores in under-represented areas (i.e. those with a growing or sizeable resident population) has allowed the group to benefit from the build-up in pent-up consumer demand. This is demonstrated by the success of its Geylang and Bukit Batok stores, which broke-even only after a month of operations. Macro-environment remains conducive Being a counter with defensive qualities, lingering macro uncertainty will continue to prove supportive for the segment as consumers exercise prudence in dining habits. Threat of price competition diminished With rising operating expenses (due mainly to wage pressures), we deem the re-occurrence of price competition amongst the Big 3 supermarket chains to be remote. It is not in the interest of the Big 3 to cut into their margins further by waging an unnecessary price war. Instead, it is likely that a tacit agreement to maintain status quo exists amongst the Big 3. 90% dividend payout policy likely to remain FY12 will the last year SSG commits to paying out 90% of its PAT as dividends. However, in our opinion and earnings projections, SSG should have no difficulties if it chooses to persist on its 90% PAT dividend payout commitment. Its cash balances have remained above S$100m since 3Q11 despite a significant increase in its store network, increasing inventory requirements, and no borrowings, which clearly signify that store expansion is unhindered. Maintain BUY While SSG will experience a seasonally weaker 4Q12, it is still on track to finish the year out strongly. As we roll our projections forward, we maintain our BUY rating at an unchanged fair value estimate of $0.55.
Key financial highlights Year ended 31 Dec (S$m) Revenue Cost of sales Gross profit margin (%) Net profit EPS (SG cents) Cons. EPS (S cts) Adj. Net profit margin (%) NTA per share (SG cents) ROE (%) Dividend yield (%) FY10 628.4 -491.7 21.8 42.6 3.2 na 5.3 4.8 48.0 0.0 FY11 578.4 -450.6 22.1 27.3 2.0 na 4.7 10.7 25.7 3.4 FY12F 635.0 -496.0 21.9 42.6 3.1 2.4 6.7 11.0 28.3 5.3 FY13F 698.5 -543.5 22.2 37.1 2.7 2.7 5.3 11.3 24.0 4.6
Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$719 / USD589 S$1 / USD1 14.1 0.375 - 0.53 28.4 1,383.5 SGX SSG SP SHEN.SI OV8 Consumer Staples Food & Staples Retailing SS Holdings 32.4% 1m 7 5 3m 9 6 12m na na
Relative total return Company (%) STI-adjusted (%) Price performance chart
Shar e Pr ice (S$ ) 0.60 0.56 0.52 0.48 0.44 0.40 Jun-12 Sep-12
`
Index Level 4200 3900 3600 3300 3000 2700 Dec-12
Fair Value
SSG SP
FSSTI
Industry-relative metrics
P er c ent i l e 0t h 25t h 50t h 75t h 100t h
M k t Cap B et a ROE PE PB
Company
I ndust r y A v er age
Note: Industry universe defined as companies under identical GICS classification listed in the same exchange. Sources: Bloomberg, OIR estimates
MICA (P) 035/06/2012
Company financial highlights
Income statement Year ended 31 Dec (S$m) Revenue Cost of sales Distribution costs Administrative expenses Net other operating income Operating profit Net finance income Profit before tax Income tax expense Net profit
FY10 628.4 -491.7 -4.4 -98.3 14.6 48.7 0.0 48.7 -6.1 42.6
FY11 578.4 -450.6 -4.1 -91.6 2.1 34.3 -0.1 34.2 -7.0 27.3
FY12F 635.0 -496.0 -4.1 -98.2 13.9 50.6 0.7 51.4 -8.8 42.6
FY13F 698.5 -543.5 -4.9 -110.4 4.2 44.0 0.7 44.7 -7.6 37.1
Balance sheet As at 31 Dec (S$m) Bank and cash balances Property, plant, and equipment Other assets Total assets Debt Current liabilities ex. debt Non-current liabilities ex. debt Total liabilities Shareholders equity Total equity and liabilities
FY10 85.9 58.3 31.1 175.3 22.3 88.6 0.6 111.5 63.9 175.3
FY11 122.1 72.1 47.0 241.2 0.0 91.8 1.1 92.9 148.3 241.2
FY12F 133.8 76.6 32.5 242.9 0.0 89.7 0.6 90.3 152.6 242.9
FY13F 142.9 77.0 35.8 255.6 0.0 98.6 0.7 99.3 156.3 255.6
Cash flow statement Year ended 31 Dec (S$m) Op profit before working cap. chg. Working cap, taxes and int Net cash from operations Purchase of PP&E Other investing flows Investing cash flow Financing cash flow Net cash flow Cash at beginning of year Cash at end of year
FY10 43.2 -9.2 34.0 -38.4 31.1 -7.3 20.1 46.8 39.1 85.9
FY11 40.4 -12.3 28.1 -23.6 -19.9 -43.5 51.6 36.2 85.9 122.1
FY12F 56.6 -6.7 49.9 -6.5 0.0 -6.5 -32.4 11.0 122.1 133.8
FY13F 50.1 -2.4 47.7 -6.5 0.0 -6.5 -32.8 8.4 133.0 142.9
Key rates & ratios EPS (SG cents) NTA per share (SG cents) Gross profit margin (%) Adj. Operating profit margin (%) Adj. Net profit margin (%) PER (x) Price/NTA (x) Dividend yield (%) ROE (%) Debt/equity (x) Sources: Company, OIR forecasts
FY10 3.2 4.8 21.8 6.3 5.3 16.4 10.9 0.0 48.0 net cash
FY11 2.0 10.7 22.1 5.9 4.7 26.4 4.9 3.4 25.7 net cash
FY12F 3.1 11.0 21.9 8.0 6.7 16.9 4.7 5.3 28.3 net cash
FY13F 2.7 11.3 22.2 6.3 5.3 19.4 4.6 4.6 24.0 net cash
Singapore | Consumer Staples
VIZ BRANZ LIMITED | BUY

MARKET CAP: USD 205M AVG DAILY TURNOVER: USD 0.4M 10 Dec 2012 Company Update
DISCLAIMER NOT A CONCERN

Perplexing development Allegations withdrawn; no CAD investigations VB may see sell-offs; buy on dips
BUY (maintain)
Non-issue for VB In a surprise development, Viz Branz (VB) announced that its appointed auditors, Ernst & Young (EY), will not express an audit opinion for its recently concluded FY12 financial statements. The basis for this disclaimer of opinion stems from earlier allegations of impropriety over a series of payments involving the company made by VBs former CEO and current top shareholder, Mr. Chng Khoon Peng, which have since been unreservedly withdrawn. After reviewing the auditors note and speaking with management, we deem this development to be a non-issue for VB. Lack of access to CAD investigations, if any, cited as cause EY cites the lack of access to the earlier complaints lodged with the Commercial Affairs Department (CAD) as one of the reasons for this disclaimer. In addition, EY stated they were unable to perform audit procedures to ascertain the nature of transactions alleged to have been irregular, and if the transactions were properly recorded and presented. But CAD investigations did not even commence From our understanding and confirmed with management investigations into the allegations were not even initiated by the CAD nor was there any indication that it was in the process. Furthermore, the allegations were about irregular payments to the CEO and not fraudulent revenue/profit recognition procedures. Audit reaction a bit of an overkill Since its establishment in 1988, this is the first instance where a disclaimer has been issued. Management stands by their FY12 financial statements and stressed that the figures present a true and fair view of the company as at end-FY12. VB operations will continue unhindered in the meantime. Focus still on GO; maintain BUY While this development may cause some short-term weakness in VBs share price, we stand by our assertion that an impending GO is likely. A possible dip in the counter should open up buying opportunities for investors. We maintain our BUY rating with an unchanged fair value of S$0.74.
Key financial highlights Year Ended 30 Jun (S$m) Revenue Gross Profit Net Profit Net Earnings Growth (% YoY) EPS (SG cents) Cons. EPS (S cts) PER (x) NAV per share (SG cents) ROE (%) Dividend Yield (%) FY11 165.7 52.5 12.2 -27.8 3.3 na 21.5 26.4 13.2 3.5 FY12 172.7 59.0 17.9 83.9 4.8 na 14.8 26.7 18.8 4.7 FY13F 186.1 61.4 18.5 -1.5 4.9 4.9 14.3 28.3 18.4 3.5 FY14F 201.3 66.4 19.8 7.0 5.3 5.3 13.3 31.1 17.9 3.5
Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$250 / USD205 S$0.5 / USD0.4 3.8 0.315 - 0.75 14.7 354.9 SGX VIZ SP VIZB.SI L5J Consumer Staples Food Products Chng Khoon Peng 38.3% 1m 6 4 3m 1 -2 12m 128 112
Shar e Pr ice (S$ ) 0.89 0.77 0.65 0.53 0.42 0.30 Jan-12 Apr -12 Jul -12
`
Index Level 7600 6580 5560 4540 3520 2500 Oct-12
Fair Value
VIZ SP
FSSTI
Company
MICA (P) 035/06/2012
Income statement Year Ended 30 Jun (S$m) Revenue Cost of Sales Gross Profit Operating expenses EBITDA Depreciation & Amortisation EBIT Net Interest & Other Costs Income Tax Expense Net Profit
FY11 165.7 -113.2 52.5 -34.8 21.5 -3.3 18.2 -0.4 -5.6 12.2
FY12 172.7 -113.8 59.0 -34.1 28.3 -3.1 25.2 0.0 -7.3 17.9
FY13F 186.1 -124.7 61.4 -35.2 29.9 -3.1 26.8 -0.4 -7.9 18.5
FY14F 201.3 -134.9 66.4 -38.3 32.0 -3.2 28.8 -0.5 -8.5 19.8
Balance sheet As at 30 Jun (S$m) Cash Inventories & Other Assets Accounts Receivables Fixed & Intangible Assets Total Assets Debt Accounts Payable Total Liabilities Shareholders Equity Total Liabilities and Equity
FY11 33.7 36.9 28.3 45.6 144.6 23.9 26.5 50.4 94.2 144.6
FY12 39.8 50.6 22.4 42.9 155.6 33.1 26.0 59.1 96.5 155.6
FY13F 46.5 40.6 37.2 41.8 166.1 31.4 31.3 62.8 103.3 166.1
FY14F 52.6 43.9 40.3 40.6 177.4 29.9 33.3 63.2 114.2 177.4
Cash flow statement Year Ended 30 Jun (S$m) Operating Profit Working Capital Changes Net Interest & Taxes Net Cash from Operations Purchase of PPE Investing Cash Flow Financing Cash Flow Net Cash Flow Cash at beginning of year Cash at end of year
FY11 19.2 6.2 -6.3 19.1 -1.8 -1.7 -10.3 7.1 26.6 33.7
FY12 29.4 1.5 -5.2 25.8 -1.9 -0.6 -19.2 6.1 33.7 39.8
FY13F 29.7 -14.6 -8.1 7.0 -2.0 -2.0 1.7 6.7 39.8 46.5
FY14F 31.8 -3.6 -8.8 19.4 -2.0 -2.0 -11.2 6.1 46.5 52.6
Key rates & ratios Net Earnings Growth (% YoY) EPS (SG cents) PER (x) NAV per share (SG cents) Price/NAV (x) EV/EBITDA (x) Dividend Yield (%) ROIC (%) ROE (%) ROA (%) Sources: Company, OIR forecasts
FY11 -27.8 3.3 21.5 26.4 2.7 9.3 3.5 10.5 13.2 8.4
FY12 83.9 4.8 14.8 26.7 2.6 6.6 4.7 14.0 18.8 11.5
FY13F -1.5 4.9 14.3 28.3 2.5 6.5 3.5 14.0 18.4 11.1
FY14F 7.0 5.3 13.3 31.1 2.3 5.9 3.5 14.1 17.9 11.2
Singapore | Consumer Staples
PETRA FOODS | BUY

MARKET CAP: USD 1.44B AVG DAILY TURNOVER: USD 1M 10 Dec 2012 Company Report
PICKUP IN 2013
Premium justified Revenue growth with margin improvement in FY13 Fair value raised
BUY (maintain)
Continued ascension justifies premium Since our initiation report on Petra Foods, the counter has appreciated by 7.5% to continue on its amazing ascension in 2012 (YTD: +55%). Our valuation of Petra previously pegged at 24x 12-month forward PE is at a premium to its global peers but the desire of investors to gain exposure to emerging Asia consumer demand clearly vindicates it. Top-line pickup in FY13 For 2013, we project a modest top-line growth of 3.8%, mainly on the back of the Branded Consumer division. Consumption growth in its key markets of Indonesia and the Philippines should fuel the Branded Consumer division, and we expect revenue growth to come in at 10%. While this figure is partially offset by weaknesses in the Cocoa Ingredients division and we have factored in a conservative 1.8% revenue decline we agree with managements assessment that the headwinds could dissipate by end-FY13. Margin improvements Since the lows of 2008, Petras EBITDA margin has remained fair stable. This stability can be attributed to the groups dual-engine growth model, which allows one division to pick up the slack of the other in times of operational difficulties. For instance, the recent woes surrounding the Cocoa Ingredients division led to the lowest segmental EBITDA margin in more than three years. However, the stellar performance of the Branded Consumer division via a combination of higher-margin product mix, ASP increases and favourable raw material costs helped to offset the decline. We anticipate an easing of the yield pressure in the Cocoa Ingredients division in the comng months, and we expect margins to improve from the 7.6% in FY11 to ~9% by FY13F. That said, we predict bottom-line growth in FY13F of 5.8%. Increase multiple to 25x We remain sanguine over Petras growth prospects in the coming year, and in light of Petras recent appreciation, we raise our multiple to 25x 12-month forward PE (approaching one standard deviation above its six-year average forward PE). This increases our fair value to S$3.12 from S$2.98 previously. Maintain BUY.
Key financial highlights Year ended 31 Dec (US$m) Revenue EBITDA Depreciation & amortization PATMI EPS (SG cents) Cons. EPS (S cts) EBITDA margin (%) Net profit margin (%) Dividend yield (%) ROA (%) FY10 1,566.0 108.4 23.7 44.5 9.4 na 6.9 2.8 1.1 4.6 FY11 1,702.2 129.6 24.3 60.6 12.1 na 7.6 3.6 1.5 5.8 FY12F 1,493.4 131.4 26.9 59.0 11.8 9.2 8.8 4.0 1.6 5.2 FY13F 1,550.1 139.7 29.7 62.4 12.5 10 9.0 4.0 1.5 5.2
Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$1,754 / USD1,436 S$1 / USD1 0.9 1.7 - 2.87 39.2 611.2 SGX PETRA SP PEFO.SI P34 Consumer Staples Packaged Foods & Meats Berlian Enterprises 50.5% 1m 9 6 3m 20 16 12m 70 54
Shar e Pr i ce (S$ ) 3.60 3.20 2.81 2.41 2.02 1.62 Dec-11 Mar -12 Jun-12
`
Index Level 5400 4780 4160 3540 2920 2300 Sep-12
Fair Value
PETRA SP
FSSTI
Company
Note: Industry universe defined as companies under identical GICS classification listed in the developed Asia exchanges. Sources: Bloomberg, OIR estimates
MICA (P) 038/06/2012
Income statement Year ended 31 Dec (US$m) Revenue EBITDA Depreciation & amortization EBIT Net interest Associates and exceptional items Profit before tax Income tax expense Minority interests PATMI
FY10 1,566.0 108.4 23.7 84.8 -25.9 0.3 58.5 -14.0 0.0 44.5
FY11 1,702.2 129.6 24.3 105.3 -27.4 0.4 78.7 -18.2 -0.1 60.6
FY12F 1,493.4 131.4 26.9 104.5 -26.9 0.0 77.7 -18.6 0.0 59.0
FY13F 1,550.1 139.7 29.7 110.1 -27.9 0.0 82.2 -19.7 0.0 62.4
Balance sheet As at 31 Dec (US$m) Bank and cash balances Property, plant, and equipment Inventories Other assets Total assets Debt Lliabilities excluding debt Total liabilities Shareholders equity Total equity and liabilities
FY10 42.8 255.6 491.4 264.1 1,053.8 549.1 210.6 759.7 294.1 1,053.8
FY11 19.1 280.4 477.9 269.9 1,047.2 521.1 229.2 750.3 296.9 1,047.2
FY12F 110.8 307.3 537.6 262.9 1,218.6 642.1 209.3 851.5 367.1 1,218.6
FY13F 75.0 297.1 558.1 272.0 1,202.1 587.0 210.5 797.5 404.6 1,202.1
Cash flow statement Year ended 31 Dec (US$m) Op profit before working cap. chg. Working cap, taxes and int Net cash from operations Purchase of PP&E Other investing flows Investing cash flow Financing cash flow Net cash flow & adjustments Cash at beginning of year Cash at end of year
FY10 112.1 -169.3 -57.2 -13.5 -12.8 -26.3 101.4 24.4 18.3 42.8
FY11 125.1 -23.3 101.7 -52.4 1.0 -51.3 -40.9 -23.7 42.8 19.1
FY12F 131.4 -87.1 44.4 -55.0 0.0 -55.0 70.1 91.8 19.1 110.8
FY13F 139.7 -47.2 92.5 -20.0 0.0 -20.0 -108.4 -35.9 110.8 75.0
Key rates & ratios EPS (SG cents) NTA per share (SG cents) EBITDA margin (%) Net profit margin (%) PER (x) Price/NTA (x) ROA (%) ROE (%) Dividend yield (%) Net gearing (%) Sources: Company, OIR forecasts
FY10 9.4 54.2 6.9 2.8 28.3 6.0 4.6 17.7 1.1 175.9
FY11 12.1 50.3 7.6 3.6 22.1 6.5 5.8 20.5 1.5 173.7
FY12F 11.8 64.5 8.8 4.0 22.7 5.1 5.2 17.8 1.6 149.2
FY13F 12.5 72.0 9.0 4.0 21.4 4.5 5.2 16.2 1.5 131.2
Singapore | Food & Staples Retailing
BREADTALK GROUP | SELL

MARKET CAP: USD 148M AVG DAILY TURNOVER: USD 0.1M 10 Dec 2012 Company Update
TAKE PROFIT NOW

Margin pressure to continue No attractive dividends to offset Overvalued; lock in gains
SELL (maintain)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast S$0.49 S$0.01 S$0.65 -22%
Time to reap the gains Despite experiencing a sharp fall in May this year, BreadTalk Groups (BTG) share price managed to recover gradually, and is now poised to end the year with a modest gain (YTD: +20.5%). While BTGs revenue grew alongside store expansion, the performance came at the expense of operating margins. With this trend likely to persist into FY13, we see no catalyst for the group and urge investors to take profit at current levels. Margin pressure to continue BTGs main goal is to achieve an overseas revenue contribution of more than 50%, and by our projection, this target will not materialise in the near term. That said, its operating and net profit margins have continued to suffer declines for the past two years, and look set to make it three in a row for FY12. In addition, even the traditional stability of its gross profit margin has been eroded as cost-saving initiatives reach their limits. No attractive dividends To fuel this expansion, dividend payments will remain a non-priority for the group. Given the reinvestment requirements, we project an unattractive dividend payout of ~25% of PATMI for FY13 onwards, similar to the average of 26% from FY06 to FY10. Although FY11 saw a higher payout of ~36% (and potentially FY12 could, too), in our view, it was more to reward long-suffering investors than the start of a sustainable payout trend. Overvalued; maintain SELL BTG is also currently trading at close to one standard deviation above its six-year average forward rolling PE of 11.4x. Given the absence of catalysts in the near term and weakening demand for its bakery and food court operations, BTGs valuation is expensive in our view. We reiterate our SELL call for BTG at an unchanged fair value estimate of S$0.49.
Key financial highlights Year ended 31 Dec (S$m) Revenue Gross Profit Net operating expenses PATMI EPS (SG cents) Cons. EPS (S cts) EBITDA Growth (% YoY) Net Profit Growth (% YoY) ROE (%) Dividend Yield (%) FY10 302.9 165.2 -148.7 11.3 4.0 na 16.4 -4.1 17.4 1.6 FY11 365.9 200.1 -183.1 11.6 4.1 na -1.7 5.3 15.8 2.3 FY12F 447.2 239.2 -221.4 11.4 4.1 4.3 -2.6 2.7 14.0 2.3 FY13F 516.8 273.9 -256.3 11.4 4.0 4.4 -5.0 -5.8 12.8 1.6
Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$181 / USD148 S$0.1 / USD0.1 1.7 0.46 - 0.645 41.7 280.6 SGX Bread SP Bread.SI 5DA Consumer Staples Food & Staples Retailing Quek TM - 34.1% 1m 8 5 3m 17 14 12m 24 9
Shar e Pr i ce (S$ ) 0.70 0.64 0.59 0.54 0.48 0.43 Dec-11 Mar -12 Jun-12
`
Index Level 3500 3220 2940 2660 2380 2100 Sep-12
Fair Value
Br ead SP
FSSTI
Company
MICA (P)038/06/2012
Income statement Year ended 31 Dec (S$m) Revenue Gross Profit Net operating expenses EBIT Net Interest Associates & JVs Pre-tax Proft Income Tax Expense Minority Interest PATMI
FY10 302.9 165.2 -148.7 16.6 0.0 0.2 16.7 -5.5 -0.1 11.3
FY11 365.9 200.1 -183.1 17.0 0.0 0.1 17.1 -5.4 0.2 11.6
FY12F 447.2 239.2 -221.4 17.9 -0.4 0.4 17.9 -5.8 0.7 11.4
FY13F 516.8 273.9 -256.3 17.6 0.0 0.5 18.1 -6.7 0.0 11.4
Balance sheet As at 31 Dec (S$m) Cash Inventories Accounts Receivables Fixed & Intangible Assets Total Assets Debt Accounts Payable Total Liabilities Shareholders Equity Total Liabilities and Equity
FY10 71.1 6.1 26.3 82.4 204.2 19.1 60.8 129.1 75.1 204.2
FY11 87.1 7.4 49.5 98.1 262.3 39.4 74.0 176.8 85.5 262.3
FY12F 113.8 8.9 36.2 109.7 294.7 60.4 91.7 201.4 93.3 294.7
FY13F 117.2 10.3 41.4 122.8 317.8 62.0 105.9 217.3 100.5 317.8
Cash flow statement Year ended 31 Dec (S$m) Operating Profit Working Capital Changes Net Cash from Operations Purchase of PPE Purchase of Intangible Asset Investing Cash Flow Financing Cash Flow Net Cash Flow Cash at beginning of year Cash at end of year
FY10 37.9 5.9 39.7 -30.8 -0.5 -27.8 0.8 12.7 58.4 71.1
FY11 43.3 10.6 49.0 -37.2 -0.6 -49.9 16.8 15.9 71.1 87.1
FY12F 36.9 21.1 46.6 -30.0 -0.2 -35.3 15.5 26.7 87.1 113.8
FY13F 35.2 7.7 36.1 -30.0 -0.2 -29.2 -3.6 3.4 113.8 117.2
Key rates & ratios Gross Profit Growth (% YoY) Operating Profit Growth (% YoY) EBITDA Growth (% YoY) Net Profit Growth (% YoY) EPS (SG cents) PER (x) Dividend Yield (%) ROIC (%) ROE (%) ROA (%) Sources: Company, OIR forecasts
FY10 23.2 1.9 16.4 -4.1 4.0 16.1 1.6 10.0 17.4 5.9
FY11 21.1 2.6 -1.7 5.3 4.1 15.6 2.3 7.5 15.8 5.0
FY12F 19.6 5.3 -2.6 2.7 4.1 15.9 2.3 5.4 14.0 4.3
FY13F 14.5 -1.8 -5.0 -5.8 4.0 16.0 1.6 5.4 12.8 3.7
SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report hold NIL shares in the above security.
DISCLAIMER FOR RESEARCH REPORT This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally. Privileged / confidential information may be contained in this document. If you are not the addressee indicated in this document (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this document that do not relate to the official business of OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations shall not be understood as neither given nor endorsed.
RATINGS AND RECOMMENDATIONS: - OCBC Investment Researchs (OIR) technical comments and recommendations are short-term and trading oriented. - OIRs fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIRs BUY rating indicates a total return in excess of 10% given the current price; a HOLD trading indicates total returns within +/-10% range; a SELL rating indicates total returns less than -10%. - For companies with less than S$150m market capitalization, OIRs BUY rating indicates a total return in excess of 30%; a HOLD trading indicates total returns within a +/-30% range; a SELL rating indicates total returns less than -30%.
Co.Reg.no.: 198301152E Carmen Lee Head of Research For OCBC Investment Research Pte Ltd
Published by OCBC Investment Research Pte Ltd
Important disclosures

Consumer Sector 121210 OIR

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Consumer Sector 121210 OIR

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Singapore | Consumer Sector

Asia Pacific Equity Research

CONSUMER SECTOR | NEUTRAL

M ar k et I ndex Lev el 3500

726 Dec -11 M ar -12 FST CS J un-12 Sep-12 FSST I

Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

OCBC Investment Research Singapore Equities

OCBC Investment Research Singapore Equities

120 FSTCS 115 110 105 100 95

100 FSTCS PETRA 0 SUPER SSG VIZ THBEV FEH

Source: Bloomberg, OIR

OCBC Investment Research Singapore Equities

Departm ent stores Watches & jew ellery Total w /o MV (RHS)

Supermarkets Telecom m unications apparatus & com puters

Motor vehicles Medical goods & toiletries

Sources: Department of Statistics Singapore, OIR

Seasonally adjusted overall unemployment rate, Sep 2012, Ministry of Manpower

OCBC Investment Research Singapore Equities

10.0 0.0 0.0

Motor vehicles Medical goods & toiletries

Sources: Department of Statistics Singapore, OIR

OCBC Investment Research Singapore Equities

Exhibit 4a: F&B services value (% change MoM)

Sources: Department of Statistics Singapore, OIR

Exhibit 4b: F&B services volume (% change MoM)

10.0 5.0 5.0

0.0 0.0 -5.0

Sources: Department of Statistics Singapore, OIR

OCBC Investment Research Singapore Equities

250 200 150 100 50

OCBC Investment Research Singapore Equities

2011 3.8 1.6 1.8 1.4 6.2 9.2 6.8 4.5

5.1 3 2.4 2 7.4 10.4 10.1 7

ASEAN-5 includes Indonesia, the Philippines, Thailand, Vietnam and Malaysia

IMF, World Economic Outlook October 2012, Page 2

OCBC Investment Research Singapore Equities

Exhibit 7: QoQ declines in SG tourism expenditure

1,500 2Q12 1,000 (S$m ) 500 1Q12

Source: Department of Statistics Singapore

OCBC Investment Research Singapore Equities

OCBC Investment Research Singapore Equities

Regional views i. ASEAN 5

7 10.4 10.1 6.2 7.6 7.2 6.8 7.8 5.3 14.8

Feb-12 PCOMP SET

Apr-12 Jun-12 Aug-12 JCI STI SHCOMP VN

Source: Bloomberg, OIR

OCBC Investment Research Singapore Equities

IMF, World Economic Outlook October 2012, Page 72

OCBC Investment Research Singapore Equities

8,000 6,000 4,000 2,000 0

Source: CEIC, OIR

Source: CEIC, OIR

OCBC Investment Research Singapore Equities

Exhibit 14: Non-agricultural minimum daily wage (PHP)

400 Real (LHS) 350 Nom inal (RHS)

600 450 300

300 150 250

0 1991 1994 1997 2000 2003 2006 2009

OCBC Investment Research Singapore Equities

300,000 (THBm) 150,000 0

Source: CEIC, OIR

Source: CEIC, OIR