Traffic growth supporting demand

China Aviation Oil 29 March 2018 Update
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China Aviation Oil (Singapore)

Traffic growth supporting demand

FY17 Results update

Aviation services

 

29 March 2018

Price

S$1.57

Market cap

S$1,350m

S$1.312/US$

Net cash (US$m) at end December 2017

180

Shares in issue

860.2m

Free float

29%

Code

G92

Primary exchange

SGX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.9)

(5.5)

2.0

Rel (local)

2.0

(5.0)

(4.8)

52-week high/low

S$1.8

S$1.5

Business description

China Aviation Oil (Singapore) Corporation (CAO) is the largest physical jet fuel supplier and trader in Asia. It holds the sole import licence for bonded jet fuel into China, and has nascent businesses in the US and Europe. Of its five associates, the most important is SPIA, which supplies all jet fuel to Shanghai Pudong Airport.

Next events

Q118 results

April 2018

Analysts

Andy Chambers

+44 (0)20 3681 2525

Annabel Hewson

+44 (0)20 3077 5700

China Aviation Oil (Singapore) is a research client of Edison Investment Research Limited

FY17 saw record core trading volumes, driven by continued strong demand in jet fuel markets and diversification into other oil products. While margin optimisation execution was more difficult in H217 as markets moved into backwardation, gross margins remained positive and partially recovered from the Q3 low by the year end. Combined with the improved associates’ contribution driven by strong air transport growth in China, prospects for renewed progress in FY18 are encouraging. The healthy balance sheet also positions the group to pursue development of its supply chain infrastructure globally, especially growth opportunities aligned with China’s One Belt, One Road trade route to Europe initiative. Our fair value currently stands at S$1.82.

Year end

Revenue (US$m)

PBT* (US$m)

EPS* (US$ c)

DPS (S$ c)

P/E (x)

Yield (%)

12/16

11,703

89.9

10.4

4.5

11.6

2.9

12/17

16,268

88.0

9.9

4.5

12.1

2.9

12/18e

18,405

96.0

10.8

4.8

11.1

3.1

12/19e

20,750

105.0

11.8

5.3

10.1

3.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY17 results

While core trading and supply operations experienced less favourable conditions in H217, Q4 saw meaningful improvement over Q3 despite the inability to optimise margins due to the less favourable trading environment. Trading volumes for the full year were up 15% to a record 37.3m tonnes with a 25% rise in trading of other oil products and a more moderate 8% increase in middle distillates. Revenues were 39% higher, aided by oil price rises. Associates net profit rose 5% but adjusted profit before tax fell 2%. Year end net cash fell by US$7m to US$180m reflecting timing of working capital requirements at the period end, which should unwind.

Strategy to expand capability and regionally

Despite the disruption to trading activities caused by backwardation (spot price is higher than forward price) market conditions, growth in air transport markets remains supportive of the strategy. The nature of the trading operation is predominantly to supply end customer demand thus the risk remains limited, albeit with constrained gross margin optimisation strategies due to lack of supply opportunities. CAO’s global supply chain remains an advantage in this regard, especially in contango (spot price is lower than forward price) supply markets. As CAO continues to grow its international trading and supply we expect further investment in the supporting infrastructure.

Valuation

We have rolled our peer group and DCF-based valuations forward a year and our fair value now stands at S$1.82 from S$1.88 previously. The decline reflects the forecast lower gross margin in the core oil trading and supply activity partly offset by increased returns from the associates, especially Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA). CAO is trading on 10.1x our FY19e EPS, at a modest discount to its closest peer World Fuel Services.

FY17 results summary

Exhibit 1: China Aviation Oil (Singapore) Q417 and FY17 results summary

Q416

Q417

% change

FY16

FY17

% change

Revenues

- Middle distillates

2,233.3

2,778.8

24%

7,754.1

233.2

32%

- Other oil products

1,042.4

1,282.0

23%

3,949.1

6,034.4

53%

Group revenue

3,275.7

4,060.7

24%

11,703.2

16,267.6

39%

Gross profit

10.6

8.3

27%

44.1

38.7

-12%

Gross margin

0.32%

0.21%

-36%

0.38%

0.24%

-37%

EBITDA

30.2

24.0

-20%

Associates (net income)

13.33

16.82

26%

60.5

63.6

5%

Profit before tax (reported)

18.3

17.4

-5%

91.9

92.2

0%

Profit before tax (adjusted)

89.9

88.0

-2%

Net income

17.9

14.0

-2%

88.9

85.3

-4%

EPS (c)

2.08

1.63

-22%

10.3

9.9

-4%

Net cash

187.3

180.0

-4%

Source: China Aviation Oil (Singapore) FY17 report

Total volumes increased by 14.6% y-o-y to 37.3m tonnes. This included healthy growth in core jet fuel supply and the growing diversified customer base. Exhibit 2 gives more detail.

Reported revenues were US$16,268m (FY16 US$11,703m) against our estimate of US$15,834m and up 39% y-o-y on higher trading volume and oil prices.

Reported gross profit US$38.7m (FY16 US$44.1m) against our estimate of US$42.0m and down 12% y-o-y on backwardation effects plus supply disruptions (including weather and refineries outage). This affected gross profit margin, which declined 37%.

Adjusted pre-tax profit US$88.0m (FY16 US$89.9m) against our estimate of US$89.1m.

Net income US$85.3m (FY16 US$89.9m) with a rising tax expense, compared to our estimate of US$88.2m.

Reported EPS of US9.92c (FY16 US10.34c) down 4.1% y-o-y, against our estimate of US$10.2c.

Reported DPS maintained at S$0.045 (FY16 US$0.03).

Volume development remained strong in FY17, up 15% at 37.3m tonnes. However, there was sequential and y-o-y weakness visible in Q417. Supply volumes saw a greater annual uplift in other oil products, up 25% y-o-y to 17.51m tonnes, resulting in a more evenly split performance for the full year. This demonstrates the diversification strategy in action. However, even here the strong momentum demonstrated by the other oils segment in the first nine months (up 36%) was more subdued in Q417, falling back 8%.

Revenues benefited from rising oil product prices in 2017 which augmented the volume growth. Group revenues rose 39% to US$16.3bn, reflecting a 32% improvement in Middle Distillates and a very strong 53% expansion in Other Oil Products, However, the more difficult trading environment was reflected in much reduced year-on-year growth rates in H217 compared to H117. Group revenues grew by 29% in the second half compared to 56% in the first. Similar trends were seen in each division. Middle Distillates slowed to 20% in H217 from 32% in H1 17, while growth in Other Oil Products slowed to 42% from 79%.

The impact of the difficult trading environment was more apparent in gross margins. Gross margin for Middle Distillates fell to 0.35% in FY17 from 0.54%. Performance continued to benefit from the cost plus a fixed contribution per barrel for oil supplied into China, which acts as both an enhancement and a stabilising influence. The Other Oil Products area has been more variable historically. Since suspension of petrochemical operations in 2015 a move into profit has been sustained, helped by the increased scale of the activity and its product diversification. While narrower than the Middle Distillates, it produced a positive margin of 0.05% in FY17 (FY16 0.06%).

CAO now supplies 48 airports outside of China as well as being the monopoly supplier of jet fuel for international flights from all of China. International connectivity from China continues to expand and now extends to 176 airports in 65 countries as demand continues to increase rapidly and from record levels.

Exhibit 2: Volume of oil products traded

mt

Q416

Q417

% change

FY16

FY17

% change

- Jet fuel

4.07

3.81

-6%

14.96

16.12

8%

- Other middle distillates

0.75

1.25

67%

3.6

3.68

2%

Middle distillates

4.82

5.06

5%

18.56

19.80

7%

Other oil products

3.43

3.14

-8%

13.99

17.51

25%

Total

8.25

8.20

-1%

32.55

37.31

15%

Source: China Aviation Oil (Singapore) FY17 report

Net cash flow in 2017 was modestly negative but the year end working capital position had a negative effect, as did a US$4m increase in tax paid and an US$8m increase in the dividend payment. The nature of the trading and supply operation means that the period end trade debtors and trade receivables can vary significantly due to the timing of invoices and payments. As the position normally unwinds relatively quickly in the normal course of trade, the underlying position is more neutral. There was an increase in inventories held for trading which rose by US$39m. Net cash finished the year at US$180m compared to US$187m at the start of the year.

FY17 net income fell 4% to US$85.3m (FY26 US$88.9m), having risen 0.4% in the first nine months of the year.

Associates

Exhibit 3: Share of associates’ contribution to profit before tax (US$m) – Q417 and FY17

Associate

Stake

Activity

Q416

Q417

Change %

FY16

FY17

Change %

SPIA

33%

Sole jet fuel supplier and all infrastructure at Shanghai Pudong International Airport in China

13.6

16.3

20%

60.64

64.17

6%

TSN-PEKCL

49%

Pipeline transportation of jet fuel to Beijing Capital and Tianjin Binhai international airports

-0.34

0.10

-131%

2.18

2.61

20%

Xinyuan

39%

Tank storage facilities in Guangdong province in China

0.06

0.25

346%

0.31

0.60

94%

OKYC

26%

Largest independent storage tank terminal in South Korea

0.23

0.41

76%

4.14

4.95

20%

CNAF HKR

39%

Plane refuelling at Hong Kong International Airport at Chek Lap Kok

-0.23

-0.23

-1%

-0.91

-0.80

-13%

Total

13.33

16.82

26%

66.36

71.53

8%

Source: Source: China Aviation Oil (Singapore) FY17 report

The share of profits from associates increased by 26% in Q417 over the prior year, more than reversing the 1% decline that was apparent at the half year stage. This resulted in FY17 growth of 8%. It is expected that following SPIA’s lower payout ratio in FY16 (dividend received by CAO in FY17) to help fund investment at Shanghai Pudong airport, the payout for FY17 should revert to 80%.

SPIA remains the largest associate by a distance in terms of contribution to profits and dividend receipts. Its performance was constrained in 2017 as additional required capacity at the airport was under construction, but these are now starting to lift as the new fifth runway comes into operation this year. Not only should volumes start to grow more rapidly, but with lower capital investment requirements its dividend payout ratio is expected to return to 80% in FY18.

Outlook

The company believes that the oil trading market will continue to be affected by geopolitical uncertainties and re-balancing in global oil demand and supply. As such, CAO will continue to exercise stringent risk management to mitigate trading risks. However, core to the company strategy is globalisation, expanding the footprint into key aviation hubs. M&A is also a strong consideration as market opportunities arise to invest in synergetic businesses.

In terms of the core trading operation, the return to backwardation positions in oil product markets in H217 reduced the opportunity to optimise margins. Supply strategies became more limited with stocks being consumed more rapidly as future prices are less attractive than spot. The situation was exacerbated by some weather-related refinery outages in Asia that also increased costs of contract fulfilment. So, despite the favourable impact on revenues from rising oil prices and stronger fundamental demand, margins faced pressure. The situation in the early months of 2018 remains uncertain with a backwardation market in January in jet fuel returning to a contango position in February, which is currently maintained. We take encouragement from the partial gross margin recovery in Q4 that while the H118 gross margin performance is likely to be lower than in H117, the overall performance should remain respectably profitable.

We expect accelerating growth from the associates, especially in FY19. The fifth runway at Shanghai Pudong International Airport will be operational early this year, with the new terminal hub still expected later in the year. Thus, the capacity constraints that have limited growth in 2017 of SPIA, the monopoly fuel supplier to the airport in which CAO has a 33% stake, should resolve. SPIA is by far the largest of CAO’s five associate and joint venture interests. While we still expect some drop in utilisation for the South Korean storage associate this year due to market conditions, we expect this to be less significant. While tax costs are increasing, we expect a return to an overall payout ratio of 80% from this year, boosting the cash dividend stream to CAO significantly.

CAO‘s commitment to a 30% payout ratio from 2015, as opposed to the fixed dividend previously, is improving shareholder returns. However, following a 50% dividend rise in FY16, the payment was held at S$0.045 in 2017, with a reduced level of cover which we see as a sign of confidence of an improvement in FY18 earnings. We expect dividend growth to resume as CAO secures resilient and progressive growth, in line with the Vision 2020 strategy.

Our revenue estimate for FY18 reflects the growth in trading volumes and the higher oil price. However, the decline in our profitability estimates are a factor of the still difficult trading environment for the core operations although an increased contribution from the associates, especially SPIA, is anticipated. The EPS is further impacted by a higher tax charge. We introduce FY19 forecasts, as per below.

Exhibit 4: Revisions table

Year end 31 December

FY17E

FY17A

%

FY18E (prior)

FY18E (new)

%

FY19 (new)

Revenue (US$m)

15,834

16,268

2.7%

17,792

18,406

3.5%

20,750

Profit before tax (US$m)(norm)

89.1

88.0

-1.2%

97.5

96.0

-1.5%

105.0

EPS (US cents)(norm)

10.2

9.9

-2.9%

11.2

10.8

-3.6%

11.8

Source: Company accounts, Edison Investment Research

Valuation

While CAO is quoted in Singapore, exposure to the Chinese air transport market presents both an opportunity and a risk for investors. The opportunity is the rapid growth of air travel, but the potential for disruption to performance due to policy changes in China must be considered. Today, the opportunity would appear to far outweigh the risk, despite the relatively restricted free float.

CAO has few direct peers as competition often comes from much larger international oil companies, banks and more general commodity traders. The closest comparison is with World Fuel Services, which currently trades at a modest discount to CAO. In our opinion, this is justified by CAO’s unique exposure to the faster-growing Chinese aviation market.

The core CAO operations can be valued on a DCF basis given the relative stability provided by being a physical jet fuel supplier as well as a trader. The paper trading of oil contracts is limited to 10% of total trade volume, with 90% backed by physical contracts substantially de-risking the activity. In addition, the cost plus per barrel nature of the sole source import supply contract to China provides further stability as well as a gross margin premium return compared to normal trading activity. Using our calculated WACC of 8.9% implies a core CAO valuation (including US$180m FY17 year-end net cash) of US$0.58 (S$0.76) per share, to which must be added a value for the associates and joint ventures. The reduction since our initiation note last year reflects the reduced gross margin assumptions caused by the less favourable trading environment for margin optimisation.

In FY17 the five associate and joint venture entities generated 75% of net income and $45m of free cash flow, whereas the core operations consumed c $25m largely due to year end timing in trade working capital at the year end. Valuing the sustainable growth of the associates’ cash stream appropriately is therefore important. Applying net income at the group FY18 P/E multiple of 11.0x is conservative in our view given peer multiples and growth rates. Thus, we consider three cash-based valuations of the dividend stream to provide a composite value, which currently stands at US$0.81 (S$1.07) per share. Our total DCF-based estimate of fair value for CAO overall is thus currently US$1.38 (S$1.82) per share, a modest premium to the current share price.

The average of our various peer and cash-based valuations methodologies is also S$1.82 per share, down 3% from S$1.88 previously, and still suggesting continued potential for the shares following the performance in 2017.

Exhibit 5: CAO average DCF value sensitivity to changes in WACC and terminal growth

WACC

8%

9%

10%

11%

12%

13%

14%

15%

Terminal growth rate

0%

1.50

1.38

1.29

1.21

1.15

1.09

1.05

1.01

1%

1.55

1.42

1.32

1.23

1.16

1.11

1.06

1.02

2%

1.61

1.47

1.35

1.26

1.19

1.12

1.07

1.03

3%

1.70

1.53

1.39

1.29

1.21

1.14

1.09

1.04

Source: Edison Investment Research estimates: Note: Core DCF is calculated at a WACC of 8.9%.

Exhibit 6: Valuation methodology summary

Valuation basis (US$m)

EV

Cash

JVs

Market cap

Value per share US$

Value per share S$

Current valuation FY17 PER 12.1x

82

180

767

1,029

1.20

1.57

FY18 PER of World Fuel Service (10.6x)

70

180

733

984

1.14

1.50

FY18 PER of peer group 10% discount (15.1x)

177

180

1,045

1,402

1.63

2.14

DCF (A)

315

180

767

1,263

1.47

1.93

DCF (B)

315

180

684

1,179

1.37

1.80

DCF (C)

315

180

644

1,139

1.32

1.74

Average

1.39

1.82

Source: Bloomberg data, Edison Investment Research estimates. Note: Priced at 27 March 2017.

Exhibit 7: Financial summary

US$m

2015

2016

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

8,987

11,703

16,268

18,406

20,750

Cost of Sales

(8,952)

(11,659)

(16,229)

(18,365)

(20,703)

Gross Profit

35.4

44.0

38.7

40.5

47.0

EBITDA

 

 

25.9

30.2

24.1

26.8

31.2

Operating Profit (before amort. and except.)

 

 

25.2

29.6

23.4

26.1

30.5

Intangible Amortisation

(0.7)

(0.5)

(0.3)

(0.2)

(0.3)

Net income from associates

38.6

60.5

63.6

69.2

73.4

Exceptionals

(0.8)

(0.3)

(0.0)

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Operating Profit

62.3

89.2

86.7

95.1

103.6

Net Interest

(0.7)

0.3

1.2

0.9

1.4

Profit Before Tax (norm)

 

 

62.4

89.9

88.0

96.0

105.0

Profit Before Tax (FRS 3)

 

 

61.6

89.5

87.9

96.0

105.0

Tax

(0.4)

(0.6)

(2.6)

(2.9)

(3.2)

Profit After Tax (norm)

62.0

89.2

85.4

93.1

101.9

Profit After Tax (FRS 3)

61.3

88.9

85.3

93.1

101.9

Average Number of Shares Outstanding (m)

860.2

860.2

860.2

860.2

860.2

EPS - normalised (c)

 

 

7.2

10.4

9.9

10.8

11.8

EPS - normalised fully diluted (c)

 

 

7.2

10.4

9.9

10.8

11.8

EPS - (IFRS) (c)

 

 

7.1

10.3

9.9

10.8

11.8

Dividend per share (c)

2.1

3.40

3.40

3.7

4.0

Gross Margin (%)

0.4

0.4

0.2

0.2

0.2

EBITDA Margin (%)

0.3

0.3

0.1

0.2

0.2

Operating Margin (before GW and except.) (%)

0.3

0.3

0.1

0.1

0.1

BALANCE SHEET

Fixed Assets

 

 

273.7

288.2

327.9

335.4

341.3

Intangible Assets

1.8

1.6

1.5

1.6

1.6

Tangible Assets

6.2

5.7

5.2

4.7

4.2

Investments

265.6

281.0

321.2

329.1

335.5

Current Assets

 

 

571.9

1,056.2

1,584.8

1,750.3

1,927.4

Stocks

56.8

170.7

209.6

230.0

251.6

Debtors

296.0

540.2

993.5

1,090.3

1,192.3

Cash

170.5

287.3

300.0

338.4

381.0

Other

48.5

57.9

81.6

91.6

102.5

Current Liabilities

 

 

(246.7)

(688.4)

(1,181.2)

(1,171.3)

(1,288.4)

Creditors

(246.7)

(588.4)

(1,061.2)

(1,171.3)

(1,288.4)

Short term borrowings

0.0

(100.0)

(120.0)

0.0

0.0

Long Term Liabilities

 

 

(6.2)

(6.3)

(7.9)

(129.4)

(128.0)

Long term borrowings

0.0

0.0

0.0

(121.5)

(120.1)

Other long term liabilities

(6.2)

(6.3)

(7.9)

(7.9)

(7.9)

Net Assets

 

 

592.6

649.7

723.6

785.0

852.3

CASH FLOW

Operating Cash Flow

 

 

92.7

37.8

22.5

68.3

78.5

Net Interest

(2.8)

(0.7)

0.3

1.2

0.9

Tax

(0.5)

(0.4)

(2.6)

(2.9)

(3.2)

Capex

(0.4)

(0.4)

(0.4)

(0.5)

(0.6)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Financing

0.0

0.0

0.0

0.0

0.0

Dividends

(12.8)

(19.3)

(27.7)

(29.3)

(31.7)

Other

(0.1)

(0.4)

0.6

0.0

0.0

Net Cash Flow

76.2

16.8

(7.2)

36.8

44.0

Opening net debt/(cash)

 

 

(94.3)

(170.5)

(187.3)

(180.0)

(216.9)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

(0.0)

0.0

(0.0)

(0.0)

0.0

Closing net debt/(cash)

 

 

(170.5)

(187.3)

(180.0)

(216.9)

(260.9)

Source: Company accounts, Edison Investment Research

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Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney, NSW 2000

Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney, NSW 2000

Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by China Aviation Oil (Singapore) and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney, NSW 2000

Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney, NSW 2000

Australia

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