Asia Pacific Equity Research 18 August 2014

Malaysia Strategy Special Focus: What if Petronas really cuts 2015 capex? This note analyses the implications of Petronas’ potential capex cut in 2015 from a country perspective. We believe it will be potentially positive from a near-term fiscal perspective, providing more leeway for successful fiscal deficit management. Also, it would not likely derail the country’s broad-based capex-led growth. While sentiment for the oil and gas sector may be impacted, we remain positive from a country perspective given the still stronger relative growth. However, we are more cautious now on Malaysia focused OSV companies and large fabrication yards (MMHE and Icon), which are likely to be most affected. Remain positive on downstream oil and gas companies (Dialog) on continued RAPID development.  Petronas may cut 2015 capex. According to Malaysia Reserve, Petronas is looking to lower capex in 2015 vs 2014, but no quantum was disclosed. This suggests some downside risk to our 2015 capex estimates of M$69B. Our Asean energy analyst Ajay Mirchandani does not believe the cut back will affect the broader investment theme for Petronas in Malaysia O&G in the medium term. However, Malaysia focused OSV companies and large fabrication yards are likely to be most affected, which includes MMHE and Icon. We expect downstream investments and EOR capex to remain intact, particularly those relating to the M$89B Refinery and petrochemical integrated development (RAPID) project. Dialog is a major beneficiary, in our view.  Malaysia’s broad-based capex growth not likely to be derailed. We believe Malaysia’s capex-led growth will not likely be derailed given the broad-based pipeline of unrealized investments under the Economic Transformation Programme (ETP) totaling M$179.7B or 18.3% of 2013 GDP. Bank Negara expects +12.6% growth in real private investments in 2014, to an expected 17.2% of GDP in 2014, from an average of 12.4% over the last 10 years. See “Malaysia Strategy Flash : ETP update: 2013 year in review”.  Some leeway in fiscal deficit management, but fiscal reforms resolve remains. If Petronas were to lower capex in 2015, we believe the government has a bit more leeway in fiscal deficit management. Petronas contributed 38.5% to total government revenue in 2012. Given that Malaysia’s tax base is still narrow, we expect Petronas to continue to play an important role in the government's ability to deliver a reduction in the fiscal deficit to 3.5% of GDP in 2014. However, going forward, government fiscal reforms including gradual subsidy rationalization and the upcoming GST in Apr 2015, will allow the Federal Government to wean off reliance on Petronas. We do not expect Petronas’ potential cut back in capex to delay the government’s fiscal reform efforts. The government has indicated its commitment to reforms and is mindful of the repercussions if credit rating agencies were to downgrade the country’s sovereign rating. The reigning in of Petronas’ capex in 2015 may also be positive on the current account.

Malaysia Hoy Kit Mak

AC

(60-3) 2718-0713 [email protected] Bloomberg JPMA MAK JPMorgan Securities (Malaysia) Sdn. Bhd. (18146-X)

Vanice Siew (603) 2718-0708 [email protected] JPMorgan Securities (Malaysia) Sdn. Bhd. (18146-X)

Aditya Srinath, CFA (62-21) 5291-8573 [email protected] PT J.P. Morgan Securities Indonesia

Adrian Mowat (852) 2800-8599 [email protected] J.P. Morgan Securities (Asia Pacific) Limited

FBMKLCI Index 1,950 1,900 1,850 1,800 1,750 1,700 1,650

Source: Bloomberg

See page 12 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Asia Pacific Equity Research 18 August 2014

Petronas to lower capex spending in 2015? According to Malaysia Reserve, Petronas is looking to lower capex in 2015 vs 2014, but no quantum was disclosed. Petronas President and CEO Tan Sri Shamsul Azhar Abbas commented that all oil companies are reducing capex (some have seen up to 30% reduction). This seems to us a move to preserve sustainability, after lumpy capex spending in 2014. In 1H2014, Petronas spent M$26.3B (64% is domestic v/s M$22B in 1H13 where 71% was domestic). Capex spent in 1H14 is 46.5% of total capex spent in 2013. Under the existing capex plans of M$300B over five years (from 2012), M$171.5B remains to be spent from 2H14 to end-2016, on our estimates. Figure 1: Petronas Capex trend M$ B 80 70 60 50 40 30 20 9.5 10 11.6 0 2006

13.5

17.6

17.8

10.3

16.9

14.1

24.9 69

14.7

20

26.2

26.8

24.3

31.5

31.7

2007

2008

2009

2010

2011

2012

2013

Domestic

9.5 16.8 1H14

2015E2016E*

International

Note: * Petronas' CAPEX is estimated to be on average of M$68.6B p.a. from 2015E-2016E based on existing plan; Source: Company data, J.P. Morgan estimates

While sentiment for the oil and gas sector may be impacted, we remain positive from a country perspective given the still stronger relative growth, at 10.9-36.1% for 2014 against the market’s growth of 5.6%.

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Asia Pacific Equity Research 18 August 2014

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Table 1: JPM CY14 EPS growth vs consensus As at: 18 Aug-14 DOMESTIC Construction Consumer Financials Gaming-Dom Infrastructure & Utilities Media O&G-Dom Property Dev REITs & Prop Inv Telecommunications EXTERNAL Diversified-Ext Gaming-Ext Healthcare O&G-Ext Petrochemicals Plantations Transportation

JPM basket weighting

Market cap (M$mn)

2.2% 1.9% 27.5% 2.8% 7.3% 1.8% 2.3% 3.0% 2.5% 16.2% 67.4% 5.3% 3.4% 4.3% 3.2% 4.9% 7.2% 4.4% 32.6%

J.P. Morgan basket FBM KLCI

JPM

Consensus CY14E EPS Contribution growth

JPM vs Consensus

CY14E EPS growth

Contribution

23,598 20,101 298,350 29,965 79,198 19,698 24,808 32,245 26,693 175,702 730,358

18.1% 2.4% 1.5% 4.3% 19.2% 14.9% 10.9% 8.6% 10.1% -2.9%

0.2% 0.2% 0.7% 0.1% 1.9% 0.1% 0.0% 0.1% 0.1% -0.3% 3.1%

-10.2% 8.5% 5.4% 0.0% 13.7% 51.0% -2.8% -31.9% -26.0% 7.5%

-0.2% 0.8% 2.2% 0.0% 1.5% 0.1% 0.0% -0.5% -0.4% 0.6% 4.2%

31.5% -5.6% -3.6% 4.3% 4.8% -23.9% 14.1% 59.5% 48.8% -9.6% -1.0%

57,670 36,426 46,205 34,514 52,800 78,595 47,781 353,990

4.0% 19.9% 14.3% 36.1% -4.4% 23.8% -3.3%

0.2% 0.6% 0.1% 0.4% -0.2% 1.4% -0.1% 2.4%

1.1% 14.1% 9.9% 49.3% 11.5% 26.3% -18.5%

0.1% 0.4% 0.1% 0.5% 0.4% 1.6% -0.6% 2.5%

2.9% 5.1% 3.9% -8.9% -14.3% -2.0% 18.7% -0.1%

1,084,351 1,053,227

5.6% 1.4%

5.6%

6.7% 1.4%

6.7%

-1.1%

Source: Bloomberg, J.P. Morgan estimates

Our Asean energy analyst Ajay Mirchandani does not believe the cut back will affect the broader investment theme for Petronas in Malaysia O&G in the medium term. However, Malaysia focused OSV companies and large fabrication yards are likely to be most affected, which includes MMHE and Icon. We expect downstream investments and EOR capex to remain intact, particularly those relating to the M$89B Refinery and petrochemical integrated development (RAPID) project. Dialog is a major beneficiary, in our view. See “Malaysia Oil & Gas: Petronas looking to cut 2015 capex but RAPID, EOR related spend largely in-tact in our view”.

RAPID related capex likely to continue In our view, Petronas’ overall healthy Resource Replenishment Ratio of 2x in 2012 suggests that any cuts in capex may be E&P related, rather than downstream related. The cuts may also be on Petronas’ international projects. In our view, projects that contribute to higher oil and gas production are positive for the government’s fiscal position, including EOR projects. Without further capex to boost production, Petronas’ oil and gas production levels is expected to fall approximately 1-2% p.a. Malaysia needs the RAPID project for value added downstream production. M$60B is related to Petronas’ oil refinery, cracker, and petrochemical facilities; while M$29B is for related ancillary facilities and infrastructure. Petronas recently awarded M$30B worth of contracts (11 of them) for RAPID project to various contractors (Petrofac, Sinopec Engineering, Chiyoda). This came months after Petronas approved the final investment decision for the development of the Pengerang Integrated Complex (PIC) in Johor, estimated to cost US$27B, up from US$20B 3

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Asia Pacific Equity Research 18 August 2014

earlier. The refinery is expected to start up in early 2019. See “Malaysia Strategy Flash: Pengerang FID approved, important source of capex-led growth”. Our channel checks reveal that awards for petrochemical facilities will likely take place in 1H15. Figure 2: Location of Pengerang

Source: The Star

Not likely to derail Malaysia’s capex-led growth We believe Malaysia’s capex-led growth is not likely to be derailed given the broadbased pipeline of unrealized investments under the Economic Transformation Programme (ETP) totaling M$179.7B or 18.3% of 2013 GDP. Bank Negara expects +12.6% growth in real private investments in 2014, to an expected 17.2% of GDP in 2014, from an average of 12.4% over the last 10 years. See “Malaysia Strategy Flash : ETP update: 2013 year in review”. Petronas’ RAPID project accounts for about 27% of committed ETP investments, and EOR-related investments at 21.8% which we believe will continue. Business confidence index surges further. Forward indicator the MIER’s business conditions index (BCI) has risen further to 113 in 2Q14, from 103.1 in 1Q14, which suggests that businesses have turned even more optimistic on future outlook, suggesting positive investment momentum.

4

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Asia Pacific Equity Research 18 August 2014

Figure 3: Sizeable investments backlog (ETP projects) Unit 240 200 160 120 80 40 0

M$218

M$170 M$95 M$106 M$5

9

M$15

18

M$80

37

60

72

M$171 M$177

87

95

M$219

M$211 M$197 M$203

108

M$B 250 200 150

129

136

149

182

195

100 50 0

Update Update Update Update Update Update Update Update Update Update Update 1H13 Year 3 1 2 3 4 5 6 7 8 9 10 (Sep- 11 (Nov- review review (Oct-10) (Nov-10) (Jan-11) (Mar-11) (Apr-11) (Jun-11) (Sep-11) (Nov-11) (May-12) 12) 12) (Aug 13) (Dec 13)

Cumulative no. of projects (LHS)

New no. of projects (LHS)

Source: PEMANDU

Figure 4: Business condition index rebounded in 2Q14 135 125 115 105 95 85 75 65 55 45

Source: Malaysian Institute of Economic Research, CEIC

Fiscal position implications Petronas is a near-term important source of government revenues If Petronas were to lower capex in 2015, we believe the government will have a bit more leeway in fiscal deficit management. Petronas contributed 38.5% to total government revenue, and dividends account for 35% of total Petronas contribution to government revenue. This includes taxes, petroleum proceeds (we think this is partly in the form of royalties) and export duty. Given that Malaysia’s tax base is still narrow, we expect Petronas to continue to play an important role in the government's ability to deliver a reduction in the fiscal deficit to 3.5% of GDP in 2014.

5

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Asia Pacific Equity Research 18 August 2014

Figure 5: Petronas’ contribution to government revenue 48%

46.6%

46% 44% 42% 40% 38.5%

38%

38.5% 36.1%

36%

35.4%

34.5%

34% 32% 30% 2007

2008

2009

2010

2011

2012

14%

14%

16%

32%

38%

52%

46%

2010

2011

Source: Petronas, Bank Negara, CEIC

Figure 6: Breakdown of Petronas contribution to government revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

15%

17%

42%

40%

33%

39%

41%

2007

2008

2009

18%

45%

Dividend

Taxes

Petroleum proceeds

48%

35% 2012

Export Duty

Source: Company data

However, going forward, government fiscal reforms including gradual subsidy rationalization and the upcoming GST in Apr 2015, will allow the Federal Government to wean off reliance on Petronas.

Subsidy rationalization and GST to addresses fiscal imbalance The current tax base is too narrow, as only 1MM people are eligible to pay tax, out of a total workforce of 13.1MM people in 2012. Broadening the tax base through the GST is a credible option, in our view. Note also that government revenue growth is moderating since 2011 in our view due to diminishing returns on collection efficiency gains. We also expect less volatility in a consumption based tax system. Additional revenues can be potentially channeled to the lower income households as financial aid. The government is mindful of the over reliance on Petronas as a source of government revenue. Government revenue accretion is expected to be M$3.8B in 2015 (0.4% of GDP) and M$9B in 2016. The proposed GST is part of the government’s efforts at fiscal reform, in addition to gradual subsidy removals. The government aims to lower the fiscal deficit to 3.5% of GDP in 2014 and 3% in 2015 from 3.9% in 2013, much of this through subsidy rationalization and the introduction of GST.

6

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Asia Pacific Equity Research 18 August 2014

Figure 7: Federal government revenue growth moderating 230 210 190 170 150 130 110 90 70 50

35% 30% 25% 20% 15% 10% 5% 0% -5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total revenue (LHS)

Y/Y growth (RHS)

Source: Bank Negara, CEIC

Figure 8: Malaysia fiscal deficit position 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% 2007

2008

2009

2010

2011

2012

2013

2014E

2015E

Source: Bank Negara, Ministry of Finance

Table 2: Malaysia: Federal government revenue Tax revenue Direct tax Companies PITA Individual Indirect tax Excise duties Sales tax Non-tax revenue Licences and permits Investment income Total revenue % of GDP

2011 134,885 102,242 46,888 27,748 20,203 32,643 11,517 8,577 50,534 11,190 34,005 185,419 21.0%

2012 151,643 116,937 51,288 33,934 22,977 34,706 12,187 9,496 56,270 13,570 36,736 207,913 22.1%

2013 155,952 120,523 58,175 29,753 23,055 35,429 12,193 10,068 57,417 13,418 35,306 213,370 21.7%

2014F 171,970 133,148 65,729 28,275 28,746 38,822 13,442 10,986 52,124 13,149 32,065 224,094 21.2%

Source: Bank Negara, CEIC, Ministry of Finance

Introduction of GST would lead to a gradual lowering of corporate and personal income taxes, which would raise Malaysia's competitiveness. Malaysia has one of the highest corporate and personal tax rates in the region. See Figure 9 below for the Singapore experience, reflecting declining corporate and personal income tax levels as GST increases.

7

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Asia Pacific Equity Research 18 August 2014

Figure 9: Singapore historical tax rates 8%

35% 30%

6%

25% 4% 20% 2% 0% 1993

15% 10% 1995

1997

1999 GST

2001 2003 Corporate

2005 2007 2009 Personal (upper band)

2011

Source: Inland Revenue Authority of Singapore, Singapore Ministry of Finance.

Rating agencies watching fiscal reforms closely We do not expect Petronas’ potential cut back in capex to delay the government’s fiscal reform efforts. That is because the government has indicated commitment to reforms and is mindful of the repercussions if credit rating agencies were to downgrade the country’s sovereign rating. See Table 3 on fiscal reforms progress. Note that Fitch Ratings in Jul 2013 downgraded Malaysia’s outlook from stable to negative on the back of rising debt levels and lack of budgetary reform. Fitch cited that Malaysia is at risk of downgrade in 18-24 months unless it improves its fiscal position. Table 3: Timeline of subsidy rationalisation Date 3-Sep-13 25-Oct-13 26-Oct-13 1-Jan-14 1-May-14

Details RON 95 and diesel subsidy reduction by 20sen/liter Government announced its target to lower the fiscal deficit to 3.5% of GDP in 2014 and to 3% in 2015 through subsidy rationalization and introduction of GST on 1st April 2015 Removal of sugar subsidy of M$0.34/kg Electricity tariff hike of 15% 19% hike on natural gas tariff hike for the non power sector

Source: Budget 2014, company, The Star

8

Asia Pacific Equity Research 18 August 2014

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Table 4: Malaysia’s sovereign rating Rating agency

Current rating

Comments

Moody's

A3

Positive

Standard & Poor (S&P)

A-

Stable

Maintain outlook for at least the next 12 months based on the country’s resilience in the face of the less supportive external conditions No intention of changing current ratings for the next 12 months, noting in particular the country’s efforts at reducing its subsidies and household debt levels

Fitch

A-

Negative

Affirmed A- outlook in Jul-14, citing public finances are Malaysia's key sovereign credit weakness and remain a source of downward pressure on the ratings

Source: S&P, Moody’s, Fitch

Also may help to rein in potential current account deficit The reining in of Petronas’ capex in 2015 may also be positive for the current account. During the construction phase of RAPID/PIC, one would expect higher imports of capital goods, where Bank Negara has forewarned earlier that there may be bouts of monthly current account deficit in 2014, but overall expects the current account to remain in surplus in 2014 at 3%. We concur with this view. See “Malaysia Strategy Flash: Bank Negara’s outlook for 2014”. We also expect positive medium term implications on exports and hence the current account. See “Malaysia Strategy: Special Focus: Deep dive on exporters”. Figure 10: Malaysia current account surplus to GDP M$B 140 120

14.4%

16.1%

17.1% 15.4%

15.5%

100

10.9%

11.6%

80 60

6.9%

5.8% 4.0%

40 20 0 2005

2006

2007

2008

2009

2010

2011

2012

2013

18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

1H14

Source: Bank Negara, Department of Statistics, CEIC

Malaysia Oil & Gas sector implications Ajay Mirchandani AC (65) 6882-2419 [email protected] J.P. Morgan Securities Singapore Private Limited

Extracted from Ajay Mirchandani's note “Malaysia Oil & Gas: Petronas looking to cut 2015 capex but RAPID, EOR related spend largely in-tact in our view” Petronas looking to lower 2015 capex vis-à-vis 2014: According to Malaysian Reserve (14 Aug), Petronas is planning to cut its 2015 capex (vs 2014) but did not disclose the quantum or areas where it will be lowered. Petronas President and CEO Tan Sri Shamsul Azhar Abbas commented that all oil companies are reducing capex (some have seen up to 30% reduction). In 1H2014, Petronas had spent RM26.3bn (64% is domestic v/s RM22 bn in 1H13 where 71% was domestic) with 2H14 capex limited to replacing old pipelines. Last week, Petronas awarded RM30bn worth of contracts (11 of them) for RAPID project (Pengerang) to various contractors (Petrofac, Sinopec Engineering, Chiyoda).

9

Asia Pacific Equity Research 18 August 2014

Hoy Kit Mak (60-3) 2718-0713 [email protected]

But RAPID to still have another M$30B to go with EOR projects in pipeline as well. While the capex cut in 2015 is a negative and is likely to have a near term negative sentiment affect on Malaysia O&G related stocks, we do not believe this affects the broader investment theme for Petronas in Malaysia O&G in the medium term. Whilst Petronas highlighted that there will be some marginal fields affected due to rising costs, given the recent RM30 bn RAPID –related project announcements and other EOR projects in pipeline, we believe this emphasizes the continued investment in the O&G space in Malaysia. We think that 2015 will likely be a “breather” year i.e. lower capex (albeit temporarily) when compared to 2013/14, where we saw awards like the RM10bn Pan Malaysia T&I contract, RM10bn Pan Malaysia HUCC contract, 3 RSC contracts (Tembikai, Tanjung Baram, Ophir field) and RAPID contracts. Number of upstream /EOR projects still remain in the pipeline. According to Upstream (May 2014), Petrofac have recently started work on engineering studies on the pioneering Shell and Petronas’ CEOR project at the St. Joseph field off Sabah which is scheduled to start-up in mid-2015. Other EOR projects in the pipeline also include Petronas' full-field Angsi CEOR project, Guntong, Dulang and Bokor fields of which Petronas expects to make a FID this year. Malaysia focused OSV companies and large fabrication yards likely to be most affected. We think that Malaysian large fabricators (MMHE) and pure play OSV players (Icon) are likely to be most affected given concerns on Petronas’ ‘15E capex cut from a stock performance standpoint. We see limited impact on rig owners (Perisai, UMWOG), but given Perisai’s pure Malaysia exposure, they may be slightly more affected than UMWOG. With the recent RAPID announcement, we see limited impact on Dialog. For SAKP, the impact is also limited given its long term contracts and diversified portfolio. Table 5: Petronas capex M$B No. of Months Demographical Segments Domestic International Progress Energy Acquisition Total

Mar-07 12

Mar-08 12

Mar-09 12

Mar-10 12

Mar-11 12

14.7 13.5

20.0 17.6

26.2 17.8

26.8 10.3

23.4 11.5

28.2

37.6

44.0

37.1

34.9

Dec-11 9

Dec-12 12

Dec-13 12

Jun-14 6

32.3 24.3

16.8 9.5

30.8

31.5 14.1 17.8 63.4

56.6

26.3

Source: Petronas

Figure 11: Malaysian historical and forecasted offshore O&G capex US$MM

6000 5000 4000 3000 2000 1000 0 2010

2011

2012

2013E

2014E

Deep water (500-1499m) Source: Icon prospectus; Infield systems

10

2015E

2016E

2017E

Shallow water (0-499m)

2018E

2019E

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Asia Pacific Equity Research 18 August 2014

Figure 12: Oil, Gas & Energy (OGE) sector related investment under Malaysia's ETP RM billions

Petrol pump related & others, 11.6

Power sector related, 83.2

Sabah Urea Ammonia Project (SAMUR), 5 Refinery & Petchem Integrated Development (RAPID), 60

Oil Services Unit / Fabricator consolidation, 10.8 Oil Storage terminal / LNG regas terminal, 8.7 Intensify Malaysia exploration, 18.4

International E&P, 79

Marginal fields, 13.3

EOR, 68.6

Source: Pemandu, J.P. Morgan Research

Table 6: Investments committed to the Oil, Gas & Energy (OGE) Sector under the ETP till date Date Nov-10

Investor Tanjong Agas

Invt (M$B) 3.0

Nov-10 Nov-10 Jan-11 Jan-11 Jan-11 Jan-11 Mar-11 Mar-11 Mar-11 Apr-11 Jun-11 Jun-11 Nov-11 Nov-11 Sep-12 Nov-12 Total

Tenaga Petroleum Tax Incentives Exxon Mobil Dialog Vopak Pengerang Shell MNPC Muhibbah, Peruding Ranhill Worley RG Gas & Chemical SapuraKencana - Petrofac Malaysia Petroleum Resources Corp RAPID Project SAVE Project RoC Oil - Dialog - Petronas Carigali Global Incentive for Trading (GIFT) programme Royal Vopak - Dialog - Johor state

4.0 10.0 5.0 5.1 1.1 1.0 2.6 60 2.55 4.08 1.02 99.4

Basic Details Design and construct an Oil Terminal at TASBMS’s industrial park site at Port Tanjong Agas in Pahang with initial storage capacity oif 3 mn cbm expandable to 8 mn cbm. Infrastructure Investment related No investment bt a GNI impact of RM50 billion EOR Development Regional Oil storage & trading Hub – storage of 5 million cubic meters Infrastructure Investment with RM2.9 billion GNI impact Nuclear Power Plant Unlocking latent gas demand Integrated Oil & Gas Hub Developing Marginal Field GNI Impact of RM320 million Refinery & Petrochemical Integrated Development (RAPID) - GNI impact of RM45 billion Savings achieved via Energy Efficiency (SAVE) - GNI impact of RM5.1 billion Balai Cluster field related I incentives designed to encourage trading companies to use Malaysia as their regional base Pengerang LNG terminal - one of 1st independent LNG trading terminals in Asia Project to focus on storage, blending, transit of petroleum products

Source: Pemandu, J.P. Morgan Research

11

Asia Pacific Equity Research 18 August 2014

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Companies Discussed in This Report (all prices in this report as of market close on 18 August 2014) Dialog Group Bhd (DIAL.KL/M$1.78/Overweight) Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.

Important Disclosures



Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Dialog Group Bhd.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan– covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected]. Dialog Group Bhd (DIAL.KL, DLG MK) Price Chart

Date

Rating Share Price Price Target (M$) (M$)

04-Apr-07

6 OW M$1.35

5

OW M$2.03 OW M$1.78 OW M$1.74 4

OW M$3.3 OW M$3

OW M$1.07 OW M$1.2 OW M$2.8 OW M$3 OW OW M$2.9 M$2.8 OW M$3 OW M$3.35 OW M$4

Price(M$) 3

2

1

0 Mar 07

Sep 08

Mar 10

Sep 11

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Apr 04, 2007.

Mar 13

OW

1.25

2.03

21-Aug-07 OW

1.11

1.78

15-Apr-08

OW

0.98

1.74

20-Jul-08

OW

0.80

1.35

13-Oct-08

OW

0.66

0.85

12-May-09 OW

0.82

1.07

07-Mar-10 OW

1.01

1.20

12-Jan-11

OW

2.17

2.80

28-Apr-11

OW

2.56

3.00

01-Jun-11

OW

2.82

3.30

27-Sep-11 OW

2.04

2.90

06-Oct-11

OW

2.26

3.00

07-Nov-11 OW

2.35

3.20

09-Jan-12

OW

2.43

2.80

OW

2.40

3.00

28-May-13 OW

2.98

3.35

13-Jan-14

3.40

4.00

Sep 14 05-Nov-12

OW

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com. 12

Hoy Kit Mak (60-3) 2718-0713 [email protected]

Asia Pacific Equity Research 18 August 2014

Coverage Universe: Mak, Hoy Kit: Berjaya Sports Toto (BSTB.KL), Gamuda (GAMU.KL), IJM Corporation (IJMS.KL), MMC Corporation Berhad (MMCB.KL), Malaysia Airports Holdings Berhad (MAHB.KL), WCT Holdings Bhd (WCTE.KL) J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2014

J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*

Overweight (buy) 45% 55% 46% 75%

Neutral (hold) 43% 49% 47% 66%

Underweight (sell) 11% 34% 7% 54%

*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

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Hoy Kit Mak (60-3) 2718-0713 [email protected]

Asia Pacific Equity Research 18 August 2014

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Hoy Kit Mak (60-3) 2718-0713 [email protected]

Asia Pacific Equity Research 18 August 2014

"Other Disclosures" last revised June 21, 2014.

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