Breadtalk Analysis

Executive Summary

This reports aims to establish the current issues that BreadTalk Group Limited is facing and how the issues will have an impact on their earnings and share valuations. In our report, a computation of DuPont ROE Analysis between BreadTalk, Food Junction and Auric Pacific was examined and it was noticed that BreadTalk’s ROE is predominantly higher than Food Junction and Auric Pacific over the years of our forecast from FY2012 to FY2015. Based on the calculations, several assumptions and limitations on BreadTalk’s intrinsic value of share price were analysed and consequently estimated with four models. These models are Dividend Valuation Model, Free Cash Flow to Equity Model, Price/Earnings Ratio Model and the Price/Book Value Model. Through the use of the mentioned models, we will conduct an in-depth analysis and evaluate on the results obtained to provide an assessment of the company’s current position and the future prospects.

Contents

Executive Summary1

1.Introduction to BreadTalk4

1.1Overview4

1.2Company Structure4

2.Economic Environment6

2.1Overview6

2.2Macroeconomic6

I.Commodity Price6

II.Gross Domestic Product (GDP)7

III.Inflation8

IV.consumer price Index (CPI)9

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V.Interest Rates10

3.Industry Analysis11

3.1Overview11

3.2Market Segmentation11

3.3SWOT Analysis12

I.Strength12

II.Weakness13

III.Opportunities13

IV.Threats14

4.Financial Analysis15

4.1Recent Financial Performance15

I.Diluted Earnings per Share (EPS)15

II.Dividends per Share16

III.Payout Ration16

4.2DuPont Analysis17

I.Return of Equity (ROE) Analysis17

II.Profit Margin Analysis19

III.Total Assets Turnover19

IV.Financial Leverage20

4.3Required Rate of Return21

I.Beta (β)21

II.Risk Free Rate24

III.Market Risk Premium24

IV.Capital Asset Pricing Model (CAPM)25

4.4Growth Rate25

5.Valuation Analysis27

5.1Dividend Discount Model (DDM)27

I.Dividend Forecast28

II.Intrinsic Share Price28

III.Evaluation of DDM29

IV.Sensitivity Analysis29

5.2Free Cash Flow to Equity Model (FCFE)30

I.FCFE Model31

II.FCFE Model Evaluation31

III.Sensitivity Analysis32

5.3Price-Earnings Ratio32

I.Price-Earnings Ratio Model32

II.Price-Earnings Ratio Model Evaluation33

III.Sensitivity Analysis34

5.4Price/Book Value Ratio34

I.P/BV Ratio Comparison34

II.Evaluation of P/BV Model36

III.Sensitivity Analysis36

6.Conclusion37

7.Reference List38

8.Appendix42

1. Introduction to BreadTalk

2.1 Overview

Established in July 2000, BreadTalk started out as a bakery outlet at Bugis Junction. Due to increasing popularity of their products, BreadTalk expanded their operations to five other retail outlets and made plans for franchising operations before being publicly listed in 2003. With their proprietary brands being BreadTalk, Toast Box, Food Republic, RamenPlay and The Icing Room as well as franchises from USA’s Carl’s Jr and Taiwan’s Michelin Star recipient Din Tai Fung. Having such accolade bakery, restaurant and food court, BreadTalk Group Limited became a prominent food and beverages (F&B) brand. Consequently, the Group/BreadTalk grew into a vast network of more than 15 countries, such as Mainland China, Singapore, Indonesia and Hong Kong. An operation of this scale is sustained by 6000 global employees managing over 500 outlets (BreadTalk 2012b).

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2.2 Company Structure

The BreadTalk Group board of directors consists of 5 key individuals who are equipped with rich experience from various expertise such as research and development , investment, strategic planning and management (BreadTalk 2012a).

The detailed structure along with the management report can be found in (BreadTalk 2011).

The directors overseeing the operations of BreadTalk consist of:

Katherine Lee Lih Leng| Deputy Chairman who is responsible for the Group’s research and development, oversees new concepts and ideas.| Ong Kian Min| Independent Director. The lead Independent Director who also chairs the Auditing and Nominating Committees, as well as a member of the Remuneration Committee of BreadTalk Group.| Chan Soo Sen| Independent Director who heads the Remuneration Committee. He is also a member of the Audit Committee and Nominating Committee of BreadTalk Group.| Dr Tan Khee Giap| Independent Director. A member of the Audit Committee, Dr Tan is also currently the Co-Director of Asia Competitiveness Institute and an Associate Professor of Public Policy at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He also chairs the Singapore National Committee for Pacific Economic Cooperation and holds directorships in a few listed companies in Singapore.|

2. Economic Environment

3.3 Overview

This section extends the overview of the macroeconomic factors that will impact BreadTalk Group. Macroeconomic factors refer to an aspect that resides outside the environment of the company where it involves the economy from both regional and national levels. These factors consist of inflation, labor cost, currency exchange rate and the global economic performance. BreadTalk may encounter various issues such as high labor cost and raw materials prices which may affect their operating expenses. These factors can be further analysed using the various macroeconomic issues mentioned below. 3.4 Macroeconomic

I. Commodity Price

Table 1: World Agriculture Pricing Summary

Data obtained from Monetary Authority of Singapore.

Table 2: Agriculture Consumption and Production.

The Essay on Inflation Increased The Wealth Gap

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief ...

Data obtained from Monetary Authority of Singapore.

Wheat prices increased greatly from the past 6 months but gradually decreasing at an average rate of 0.87% as of 13 September 2012 (MarketWatch 2012b).

However, crude oil prices decreased significantly during the first half of 2012. But from July onwards, it rose at an average of 14% for the next 3 months (MarketWatch 2012a).Similarly, the prices of sugar dropped moderately before rising at an average rate of 0.15% as of 13 September 2012 (MarketWatch 2012c).

In view of the above commodities fluctuations, we can understand that these essential raw materials greatly affects the operating cost for the businesses under the BreadTalk group as they are basic necessities for the input of their daily operations. II. Gross Domestic Product (GDP)

A recent quarterly Survey of Professional Forecasters released by Monetary Authority of Singapore (MAS) reveal that Singapore’s GDP will be expected to expand at a slower pace this year at 2.4% compared to a median of 3.0% estimated three months ago (AsiaOne 2012).

Singapore’s official economic growth is set to be 1.5% to 2.5% this year with the growth of manufacturing and financial sectors adjusted down from 3.0% to 2.7% and 2.7% to 1.1% respectively. At the consumer end, retail sales reported significant growth in the first few months of January and February. The food and beverage services sector has seen an average increase in their sales of up to 2.6% month-on-month, largely contributed by the increase in number of locals and tourists who dined at restaurants and other food outlets (MAS 2012b).

Additionally, Singapore’s 2013 outlook on the median forecast of GDP growth is also reduced from 4.5% to 3.9%. Businesses are substantially affected by the economic activities, and BreadTalk is not spared. BreadTalk should take into account of the changing GDP as the increase spending by consumer can be reflected by a rise in GDP. By looking at the forecasted GDP for 2013, BreadTalk can look forward to higher spending by consumers. They can better strategise where they expansion plans can be consider during economic boom, or having contingencies plans such as minimizing operating costs when GDP growth is slow. III. Inflation

The slight increase in consumer prices in Q1 of 2012 is expected through the pass-through of cost pressures that are built up over 2010 and 2011. The overall inflation will remain firm with the subsequent price hikes, and will eventually ease towards the end of the year. Analysts have forecasted that the slight increase is just temporary and overall inflation will moderate to their historical average. The domestic food prices are likely to rise moderately for the rest of the year due to the increasing commodity prices that have yet to be taken upon by the consumers. For instance, the spike in commodity prices due to external shocks in 2010 and 2011 has yet to be fully reflected in retail prices where suppliers promises to hold house-brand prices stable until the end of June. Consumers will be affected later when companies pass these higher operating costs to them. Therefore, food inflation this year is projected to be 3.1% (MAS 2012b).

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Singapore’s core inflation outlook is currently targeted at 2.5%, which is 0.2% lower than the predicted figure of 2.7% three months ago. Core inflation excludes accommodation and transport factors that are mainly influenced by government policies. Moreover, inflation is also due to higher commodities prices as well as the increased wages for low-skilled workers. This is caused by the strict hiring restriction imposed by the government on foreign workers (MAS 2012c).

At the same time, overall global commodity prices remain below the previous year levels. This helps to keep domestic oil and food inflation controlled in the near future. Thus, MAS core inflation will continue to range between 2.5% – 3.0% or may be slightly lower in the next few months or even the whole year (MAS 2012a).

As for now, the adjusted projection for 2013 inflation is set at 3.2%, up by 0.2% where the targeted inflation of 3.0% is to be expected next year (AsiaOne 2012).

The increase in inflation will trigger the effect of rising prices for both products and services in the market. This will cause companies like BreadTalk to incur substantial costs for their day to day operations. In turn, BreadTalk will be pressurised to increase the prices for their products in order to offset these additional costs. However, the increase in prices may also jeopardise the sales of BreadTalk as customers may seek other cheaper alternatives. IV. Consumer Price Index (CPI)

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Consumer Price Index (CPI) is an instrument to measure the current consumer price inflation due to price changes in a fixed basket of consumption goods and services commonly purchased by the households over a certain period (Singstat 2012c).

It includes all consumption expenditure that are expanded by resident households, less other non-consumption expenditures such as purchase of securities, property and other financial assets. Resident households are defined as persons held by Singapore Citizen or Permanent Resident (PR).

In order to analyse BreadTalk further, it is important to gauge the CPI for the particular year. Whereas BreadTalk deals with the food and services sector such as restaurant and bakery, we can look into the basket of hawker food (including food courts), restaurants, sugar preserves and confectionery in the CPI basket. In the period of Jan – Jun 2011 to Jan – Jun 2012, the percentage increase in prices of these basket of items are 2.3%, 3.9% and 2.2% respectively (Singstat 2012c).

Inflationary pressures can be felt highest in restaurants. Further forecast towards the end of the year signals the overall consumer price index rising from 4.2% to 4.4% based on a polled by Survey of Professional Forecasters done by MAS (Singstat 2012c).

BreadTalk, being an international business, is able to utilise these CPI indexes to forecast the consumers’ expenditures of relevant countries and accommodate to the price sensitivity of the consumers by gauging the consumers’ current and future purchasing power. I.

II.

III.

IV.

V. Interest Rates

Prime lending rates remain stagnant at the percentage of 5.38 without any changes since 2008 (Singstat 2012a).

The increase in interest rates will cause a direct impact on BreadTalk as it has to depend on the banks to borrow money. In the businesses perspective, they will incur higher costs for loan repayments from the higher interest expenses.

1.

2.

3. Industry Analysis

3.

4.5 Overview

Graph 1: Business Life Cycle

The industry life cycle indicates that BreadTalk is currently in the rapid accelerating growth stage as they are still seeking expansion in the global and local market, due to the increasing demands from the consumers. The reasons for such increase is due to the population growth along with the growing GDP of developing countries like China and Indonesia, where consumers seek higher standards of living and with better purchasing power to buy or patronise quality products as well as services offered by BreadTalk. Market saturation in Singapore also suggests the reason why BreadTalk is developing plans for their global expansion in order to gain more market share. 4.6 Market Segmentation

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Market segmentation is the separation of consumers in the market based on their geographical, psychological, behavioural and demographic differences. Due to the different characteristics, we can identify potential consumers of BreadTalk. This is to allow formulation of a plan that will be able to stir their interest in order to increase sales and maximise revenue. 4.7 SWOT Analysis

I. Strength

Unique Branding

The unique branding as well as its innovative range of products from its bakeries appealed greatly to the consumer’s interest. Coupled with the company’s distinctive designs of its outlet consisting of a see-through glass window that allows customer to view the bakers at work, this displays a friendly environment for the consumers as well as portraying a contemporary image of the company. Products

Due to the dynamic taste and preferences from the consumers, BreadTalk seeks to constantly develop and introduce new products amounting to as much as 10 items every quarter as an addition to its existing 150 selections of pastries, cakes as well as breads. By revolutionizing the bread culture, BreadTalk has successfully gained awareness of its products through the recognition from various international interests due to its unique taste and physical appeal. Locally, BreadTalk had also gained recognition from various local awards such as the Singapore Promising Brand Award, which suggest the popularity of the products. Strategic Locations

Majority of BreadTalk outlets are located either in shopping malls or near to public transport hubs. Strategic placements of BreadTalk outlets at high traffic volume places attract potential customers. Thus, the location of the outlets plays an important element to drive high volume of sales. In addition, by placing the BreadTalk outlets near other popular retail stores, such as supermarkets and departmental stores, will further attract more potential customers. II. Weakness

Pricing

With its products being priced higher as compared to its competitors, budget conscious consumers will be put off to purchase BreadTalk products, especially with bread being a commodity. Selection of Products

Although having a broad assortment of products, BreadTalk’s assortment is confined to bread and cakes, as opposed to some of its competitors that extends its selection to include pastries and other concoctions. Rising Wages

In Singapore, the revision of employee policy by government might raise costs of the low skilled workers for employers. For example, employers are required to increase their contributions towards employees and levies of the foreign workers. Workers might also increase their wage expectations in future (Lim 2012).

III. Opportunities

Nature of Products

Since bread is considered a staple and commodity in numerous countries, BreadTalk has potential for global growth as there is continual demand for bread; an opportunity for expanding its business internationally. Future developments of Shopping Centres

Shopping centres in new strategic location provides ample opportunities for BreadTalk to expand its ventures which will contribute to a larger market share in its operating industries. International Markets

BreadTalk ventures into other markets by forming partnerships with countries such as China, Indonesia, Philippines and Hong Kong.

IV. Threats

Product/Brand Concept Replication

The replication of BreadTalk’s product/brand concept is considered a weak threat in Singapore due to its current market share and presence. However, a greater threat would be the replication by bakeries in regions that have not been ventured into by BreadTalk, such as the States, Australia and Europe,

posing as a barrier of entry for BreadTalk; especially in China where replication is common. Competition

With the increase in emerging bakeries, BreadTalk encounters a tough competition against competitors like Delifrance along with other competitors in the food court industry such as Food Junctions. Fluctuations of raw material price

BreadTalk may be affected by fluctuations of the raw materials prices, such as wheat, sugar, crude oil and severe climatic conditions as this will lead to an increase in supply costs. These are some external factors which are beyond the control of the company.

4. Financial Analysis

5.8 Recent Financial Performance

Referring to Appendix IV, BreadTalk experienced positive growth in terms of revenue from 2007 to 2011. However, there was a decrease in revenue growth in 2009 and 2011, amounting a total of $246,493,000 and $365,904,000 respectively. The cause for this slow growth is due to the significant increase in expenditures from distributions and administrative expenses for both years. Despite the slower growth in revenues and the rise in expenses, BreadTalk is still making overall profit as the Earnings. Before Interest and Tax (EBIT) are displaying a positive percentage annually. As EBIT does not take into account of the different external factors such as the taxation policies and the financial interest, it can accurately calculate the overall profitability of the company as well as focusing on the company’s ability for profit generation based on its sales. In the case of BreadTalk, the EBIT margins indicated positive percentage annually but experienced a decrease in 2011. Due to factors such as rising flour prices during the drought in China, there were speculations that China may be required to import wheat (Coonan 2011).

Another factor was the lower profit generation from the Singapore and China bakery outlets which are compensated by the property disposal in China, which amounts to $4.2 million (BreadTalk 2012b).

I. Diluted Earnings per Share (EPS)

Diluted Earnings Per Share (EPS) is a measurement of the quality of a company’s earnings if all the company convertible securities were exercised (Reuters 2012).

These securities will result in an increase in the total outstanding shares. The earnings will be divided by all the company securities. Year| FY2008| FY2009| FY2010| FY2011|

Diluted EPS (cents)| 2.76| 3.94| 3.99| 4.10|

Increment (%)| -| 42.75%| 1.27%| 2.76%|

Table 3: Diluted EPS Table: From 2008 To 2011

The diluted EPS increment of 42.75% from FY2008 to FY2009 is due to the adjustment as BreadTalk issued bonus share in 2010 (BreadTalk 2011).

However, there is a steady increment from 2010 onwards. II. Dividends per Share

Dividends per share (DPS) measures the most recent dividend paid over total number of shares held by the company (Investopedia 2012).

It actually determines how much the shareholders receive by way of dividends and may also be used to calculate the dividend yield. This can be computed by the formula below:

D – Dividends paid to equity shareholders for a period (including interim dividends)

SD – Special Dividends, dividends that are issued once

S – Total number of outstanding issued equity shares

The total number of ordinary shares can be calculated using the weighted average over the reporting period.

Year| FY 2008| FY 2009| FY 2010| FY2011|

DPS (cents)| 0.55| 1| 1| 1|

Table 4: DPS table: From FY 2008 To FY 2011

As shown in table 3, dividends per share has slightly increased by $0.0045 from 2008 to 2009 and remained at constant rate of $0.01 per year from FY2009 to FY2011. III. Payout Ration

Payout ratio is use to illustrate how companies proportionate their earnings. For instance, a high payout ratio indicates that the company is giving out more of the company’s earnings to their investors. Whereas a lower payout ratio indicates that the company retain more of their earnings for future investments. It also acts as an indicator to how well the company’s earnings can support the dividend payouts. It is easier to disburse dividends of a smaller amount than a larger sum. Thus, it demonstrates the security of purchasing a share with a smaller payout ratio. The payout ratio is calculated as follows:

DPS – Dividends per Share

EPS – Earnings per Share

Year| FY 2008| FY 2009| FY 2010| FY 2011|

Earnings Per Share (cents)| 2.76| 3.95| 4.01| 4.12|

DPS (cents)| 0.55| 1| 1| 1|

Payout Ratio| 0.199275| 0.2531646| 0.2493766| 0.2427184| Table 5: Past Payout Ratio from Year 2008 to 2011.

Data obtained from BreadTalk Annual Report 2008 to 2011

Base on past dividends payouts from 2008 to 2009, there was a substantial increase in the payout ratio from 19% to 25% due to increment in both EPS and DPS that was given out as mentioned earlier. As from FY2009 to FY2011, the payout ratio remains stagnant at an average of 24%. 5.9 DuPont Analysis

I. Return of Equity (ROE) Analysis

Importance of ROE

The Return on Equity (ROE) refers to the rate of return that the management earned with the capital invested by the stockholders, after deducting the payments to all other capital suppliers. The calculated ratio is deemed important to the company as it will be used as an indicator for the company’s profitability, as well as for comparison with other competitors in the same industry.

DuPont Analysis

The breakdown of ROE will allow us to see the various factors which can influence the company’s performance. The analysis identified 3 factors that will influence ROE. These are known as Operating Efficiency, Asset-use Efficiency and Financial Leverage.

Chart 1: Comparison of ROE. Refer to Appendix III.

The DuPont Analysis indicates that BreadTalk is outperforming its competitors like Auric Pacific Ltd as well as Food Junction. Judging from Chart 1, the reason for the decrease in ROE from BreadTalk is mainly due to the increase in operating expenses of 54.42% from $117,952,000 in FY2009 to $182,146,000 in FY2011. Over the period of 3 financial years, BreadTalk experienced a rather constant ROE with their ROE decreased by 3.41% from 2009 to 2011. The constant ROE that BreadTalk experience is relatively normal in comparison with other companies in the same industry. However, due to higher cost of goods and expenses of Auric which exceeded the generated revenue, there is a negative impact on the computed ROE. II. Profit Margin Analysis

The profit margin is defined as the extent of the company’s ability to manage the generation of revenues from cost control. This includes the considerations of the company’s operating efficiency which constitutes part of their strategy (Fairfield & Yohn 2001).

Chart 2: Comparison of Profit Margin. Refer to Appendix III. BreadTalk had a lower profit margin as compared with Food Junction in FY2009 and FY2010. Both are decreasing from FY2009 to FY2011. However, the decrease of BreadTalk profit margin is considered to be moderate as compared with the drastic drop of Food Junction profit margin. From the chart above, BreadTalk remains in a strong position in comparison with their competitors in FY2011. III. Total Assets Turnover

The Asset Turnover is the measurement of the company’s effectiveness to generate revenues from their assets. This will reflect the company’s asset utilisation.

Chart 3: Comparison of Total Assets Turnover. Refer to Appendix III. BreadTalk had the highest productivity as compared with Food Junction and Auric Pacific. We can notice a slight decrease of 0.23%, from 1.48% in FY2010 to 1.25% in FY2011 while the percentage movement for Food Junction and Auric Pacific remains insignificant. This implies that Food Junction and Auric Pacific is more efficient in generating stable assets turnover. Information on the future profitability of BreadTalk can also be observed from the change in asset turnover (Fairfield & Yohn 2001).

IV. Financial Leverage

Financial Leverage Analysis is the study of the degree whereby the company leverage on the common equity in order to borrow money to acquire assets. A company with a low leverage ratio will be perceived as less risky when compare with another company with a higher leverage ratio (Guo, Wang & Wu 2011).

Chart 4: Comparison of Financial Leverage. Refer to Appendix III. The BreadTalk high leverage ratio indicates a higher risk over their competitors. During the boom period, the high leverage is beneficial as it permits the company to achieve greater earnings. In contrast, the company will encounter cash flow problems during the recession periods, as the company might not be able to pay off the interest repayments with the sales revenue. 5.10 Required Rate of Return

I. Beta (β)

Beta is defined as having a linear relationship corresponding to the rate of return of an investment as well as the market index. Beta basically measures the degree of an asset’s volatility to the market or the volatility of the fund to the benchmark. Stocks with beta larger than 1 are considered aggressive stocks and being more volatile than the market index while beta with less than 1 are considered as defensive stocks that are less volatile than the market index (Tofallis 2008).

Graph 2: Beta Computation. Refer to Appendix I.

The formula to derive the Beta using the characteristic line is:

RBreadTalk = a + bBreadTalk (RSTI) + e

whereby:

RBreadTalk| = realized returns of BreadTalk|

RSTI| = realized returns of STI Index 1|

a| = intercept return independent of the market|

b| = slope of the characteristic line|

e| = unsystematic risk (averages to zero)|

The assumption is that the returns of the STI Index are to be used as a proxy for the market portfolio. When the above formula is rewritten and applied in similar terms with the CAPM formula, the Beta of BreadTalk is: βBreadTalk= Covarance (RBreadTalk . RSTICovariance of RSTI

BreadTalk Raw Beta is computed using the regression analysis based on market portfolio of STI and BreadTalk’s monthly realized returns for the period of September 2011 to August 2012. Based on the data collected, the concept of Holding Period Yield (HPY) is applied based on annualized calculation in order to find out how much yield can obtain from an investment in a same period. This HPY figures calculated are then further used to plot the regression graph in order to develop a best fit characteristic line to study the correlation between the returns. The slope/gradient of the regression curve will then indicate the Raw Beta of BreadTalk. As shown in the above chart, the scattered graph shows a linear relationship between the HPY of STI and BreadTalk. The Raw Beta from the gradient is at 1.0047 where the correlation coefficient is found to be 0.7149 (refer to Appendix I).

However, this raw beta might not be accurate as other factors such as market proxy and time interval may affect the beta significantly. Therefore, it is necessary to adjust the raw beta. Using the adjusted beta formula:

Adjusted beta = (2/3) (raw beta) + (1/3) (1.0)

Therefore, the forecasted beta of BreadTalk is:

(2/3) (1.0047) + (1/3) (1.0) = 1.00313

It is assumed that the historical Beta is an accurate reflection of the risk in a stock. This shows that any stock returns that is out of line with the

market returns will be adjusted into line with the market. II. Table [ 6 ]: Yield for Singapore Government Securities (Reference from IMF) Risk Free Rate

We will be using the 10 years government bonds yield as the market risk free rate to act as a standard of measurement for all financial sectors, because it is simpler to handle countries that do not issue Treasury bills in a consistent manner. The risk free rate based on 17 Sep 2012 will be 1.55. III. Market Risk Premium

Market risk premium determines the level of compensation that risk-averse investor can expect to receive from investing in a volatile market by deducting the expected returns from prevailing risk free rate (Han 2011)).

It deals with factors that include market systematic risk and market volatility. Therefore, it is essential to take into account the risk premium that is link with volatility risk in order to examine the relationship between market risk and returns. Risk Premium= Rm- Rf

Rm=Market Return

Rf=Risk Free Rate

Since our forecast is based on share price of a local stock listed on STI, we decided to use the 10-years securities issued by the Singapore government in order to align with market with consistency. Base on this assumption, the 10-years securities is used in computing the geometric risk return. We obtained 0.0735 to be used for our market return for risk premium calculation (refer to Appendix V).

Therefore, the risk premium is calculated to be 0.058 based on the market return and risk free rate. IV. Capital Asset Pricing Model (CAPM)

Capital asset pricing model (CAPM) is use in evaluating risky stocks or portfolios of stocks as well as elaborating the relationship between the expected return and systematic risk in the market (Chen, Lin & Yu 2012).

Rf=0.0155|

Rm=0.058|

(Rm- Rf)=0.058|

β=1.00313|

CAPM FORMULA

Through the use of the CAPM equation above, we are able to determine the required rate of return on the stocks for BreadTalk to be 7.37%. 5.11 Growth Rate According to our industry analysis, BreadTalk is still in the expansion phase with the aim of 1000 outlets within the next 2 to 3 years, from 2012 onwards. BreadTalk went into a joint venture, with Japanese Ajinomoto Bakery Co. Ltd, which was opened on January 2012 in Shanghai. We foresee that this joint venture as well as the 1000 outlets mission will lead to a supernormal growth in the future DPS of 25% in FY2012 and 33% for FY2013 to FY2014. We would expect the supernormal growth to stabilize and eventually reduce to a constant rate of 3.4%. The derivation of 3.4% growth rate is based on the following assumption. The forecasted Singapore GDP for 2015 is 3.7% and we would expect the constant growth rate to be lower than the forecasted GDP as well as the required rate of return of 7.37% (IMF 2012).

Phase 1: Low to Moderate Growth Stage2012| Phase 2: High Growth Rate2013-2014| Phase 3: Constant Growth Rate2015 onwards| Forecasted growth rate of 25%. Joint ventures with Japanese Ajinomoto Bakery Co. LtdIncrease of outlet by 144, from 534 to 678 (refer to Appendix II )| Forecasted growth rate of 33%.Venturing into new market such as Taiwan.Further increase of outlet to 1000 by 2014.| Forecasted growth rate of 3.4%.Stable economy.Reaching the stage of maturity, stable income stream, reduced capital required/| Table 7: Forecasted growth rate

5. Valuation Analysis

6.12 Dividend Discount Model (DDM)

All the present values of the expected future shareholders dividend payout by the company is being determined by the DDM model. The appropriate discount rate being employed is the cost of equity. For instance, the stock will be considered overvalued if the value obtained from the DDM is lower than the current stock value. This model will not work if the company does not pay out dividends. It is good to note that not all companies issue dividends even if they experience increasing growth rate as these earnings may be used to reinvest back in the company (Brown 2009).

Even though DDM is beneficial for evaluating mature companies, this does not apply to BreadTalk because they do not belong to the mature phase of their life cycle. The dividends are not expected to grow at a constant rate as shown in the equation below:

In fact, having a constant growth rate is relatively unrealistic. Changes in a firm’s business strategies or experiencing situations will cause the prospects of the firm to be adjusted. Taking this into consideration, the multi-levelled dividend growth rate model maintains the likelihood of different levels dividend growth. As shown by the equation below.

I. Dividend Forecast

We will forecast the dividend per share for 2012 to 2015 based on the assumption of the future growth rate as discussed in growth rate under section 4 of the report. | FY2011A| FY2012F| FY2013F| FY2014F| FY2015F|

Dividend Growth Rate (DGR)| -| 25%| 33%| 33%| 3%|

DPS ($)| 0.0100| 0.0125| 0.0166| 0.0221| 0.0229|

Table 8: Forecasted Dividends for 2012 to 2015

Given the forecasted dividend from 2012 to 2015 along with the expected constant growth rate of 3.4% and required rate of return of 7.37%, we will be able to forecast the share price of BreadTalk based on the formula below. II. Intrinsic Share Price

Given the forecasted dividend from 2012 to 2015 along with the expected constant growth rate of 3.4% and required rate of return of 7.37%, we will be able to forecast the share price of BreadTalk based on the formula below.

III. Evaluation of DDM

In comparison to BreadTalk share price of $0.55 on 18th September 2012, the computed share price of $0.50919 suggests that BreadTalk share price is slightly OVERVALUED (SGX 2012).

Therefore, the DDM implies a SELL decision.

IV. Sensitivity Analysis

As the required rate of return calculation is based on past performance with some forecasting and the growth rate is based on assumption, there will be chances that actual performance will not match the desired outcome. Thus, we will be using sensitivity analysis to predict the performance in case the situation did not turn out to be as predicted based on ± 1% for required rate of return and the growth rate.

Table 9: Computed Data for DDM’s Sensitivity Model

From the comparison of Table 7, we can understand that higher growth rate will result in higher share prices whereas the higher required rate of return will result in a lower share prices. Required rate of return can be affected by the risk factor (β).

Thus, if the required return for BreadTalk increases by 1%, there will be a notable drop of share price given a constant growth rate. 6.13 Free Cash Flow to Equity Model (FCFE)

In order to evaluate the share price of BreadTalk by using the Free Cash Flow Equity (FCFE) model, we have forecasted the income statements of BreadTalk from 2012 to 2015 (refer to Appendix VI & VII).

We need to consider a few assumptions when forecasting. Assumption for Revenue

The corporate aim of BreadTalk is to become a strong brand internationally and locally with its rapid expansion plans to achieve its target of 1000 outlets within the next three years (BreadTalk 2011).

In the global outlay, the number of bakeries found in 43 cities in mainland China has increased by 5 outlets over the past year. With the outlook for Mainland China remaining positive, BreadTalk has capitalised on its lucrative prospects. For instance in January 2012, BreadTalk has entered into a collaborative venture with leading player in bakery dough products, Japanese Ajinomoto Bakery Co. Ltd, to invest in a frozen dough factory in Shanghai (BreadTalk 2011).

BreadTalk has also added a total of 3 iconic Din Tai Fung outlets that includes the opening of a 7,200 sq ft outlet at Central World Mall in Bangkok, a duplex restaurant at 112 Katong shopping centre and Marina Bay Sands in Singapore (BreadTalk 2011).

Assumptions for operating expenses

With a larger scale of BreadTalk operations globally and locally, we are assuming that there will be a rise in expenditures and costs from commodities, labour wages and property rentals. This includes the expenses from the distributions and selling expenses along with other business administrative expenditures. Additionally, taxes may also be affected by the changes in the government policies in the respective countries. The FCFE model can be referred to as the cash flow available for repaying the firm’s common stockholder after deducting capital expenditure and debt payments (Brown & Reilly 2009).

II. FCFE Model

Similar to the DDM model, the discounted FCFE model is used to evaluate the intrinsic value of a company’s share price. It is appropriate to use this model in situations where the company does not pay a continuous flow of dividends or in worst case, no dividends pay out at all. Hence, this is to measure the company’s present values of the expected FCFE available to shareholders in the future. The formula as represented:

Using the formula, the FCFE was computed to be:

FY2012F: 0.00042

FY2013F: 0.00327

FY2014F: 0.00227

FY2015F: 0.03362

(Refer to Appendix VIII)

III. FCFE Model Evaluation

Using the FCFE with the growth rate of 3.4% and 7.37% required rate of return, the intrinsic value for BreadTalk share is computed to be $0.68922. Comparing with the market value of $0.55 based on 18 September 2012, it can be seen that BreadTalk share price is UNDERVALUED. This will lead to higher demand for BreadTalk Share, which will eventually reduce the required rate of return and bringing the actual share price back to computed equilibrium, $0.68922. Thus, the position of this would be to BUY. IV. Sensitivity Analysis

However, similar to DDM, we will be using ± 1% for required rate of return and the growth rate for the sensitivity analysis.

Table 10: Computed Data for FCFE’s Sensitivity Model

Based on the table, we can notice the trend of higher growth rate or reduced required of return for BreadTalk lead to the increase of intrinsic price exponentially. Therefore, wrongly forecasted of risk factors which can affect the required rate of return will result in wrong decision. Given 3.4% growth rate, using 7.37% required rate of return will suggest a buy decision given the share price of $0.55. But an increase of 1% required rate of return would state that the stock is overvalued. 6.14 Price-Earnings Ratio

I. Price-Earnings Ratio Model

Price Earnings Ratio measures how much an investor is willing to offer for per dollar of reported profits (Brown & Reilly 2009).

It can be simply put as the number of times the investors are willing to pay for the stock, multiplied by the forecasted earnings for the following year. For instance, a high P/E ratio would indicate that investors will be expecting higher growth of earnings in comparison with a lower P/E ratio. Consequently, it is an added advantage for an investor to compare the various ratios between two companies within the same industries, market or even its own historical price earnings records. Therefore, the P/E ratio would not be useful for investors if they are comparing companies of different industries as prospects differ from each industries. The formula as shown below:

Table 11: Price Earnings Ratio Computation and Comparisons.

The P/E value of BreadTalk in 2012 can be calculated using the formula as of below:

V2012 = P/E 2012F x EPS 2013F

V2012 = 11.33086115 X 0.06188

= 0.7012

Value of BreadTalk for 2012 was calculated to be S$0.70

II. Price-Earnings Ratio Model Evaluation

The P/E ratio of BreadTalk is higher in comparison to its competitors. The value of BreadTalk computed using the Price/Earnings Ratio is higher than the current share price. We believe it is due our strong forecasted earnings and the assumption that the number of shares remained the same. For example, if BreadTalk decided to increase the number of shares to fund for their future expansion, the computed value of BreadTalk’s share would decrease. Thus, this would cause the overall earnings per share to decrease. Our computed P/E ratio of 11.33 suggests that investors are willing to pay $11.33 for every $1 of earnings that the company generates. Furthermore, the P/E ratio is decreasing which indicates BreadTalk stocks are experiencing superior risk-adjusted results relative to the market performance. The share price of $0.70 justifies this assumption that BreadTalk’s growth potential is being UNDERVALUED. Therefore, this is an indicator to BUY.

III. Sensitivity Analysis

Sensitivity analysis allows us to determine the sensitivity of share price value to changes in P/E ratio and EPS. For this sensitivity analysis, the EPS and the P/E ratio are varied at ± 1 for observation of the trends in the share price.

Table 12: Computed Data for P/E Ratio’s Sensitivity Model

Looking at the trend from the figure, we can infer that EPS has a substantial bearing on the intrinsic value of BreadTalk shares. In other words, a larger increase in the intrinsic value of the share is due to the increase in EPS. Therefore, the EPS forecasted affects the accuracy of the valuation of the P/E ratio. 6.15 Price/Book Value Ratio

I. P/BV Ratio Comparison

The Price/Book (P/B) value ratio is being used for the comparison of the company’s stock market value to its book value. Even though a low P/B ratio may possibly indicates that the stock is undervalued which may attract investors, it can also reflect that the company is facing certain fundamental problems such as the company assets earning poor or even negative return (Brown & Reilly 2009).

The Price/Book value ratio can be calculated by using the formula below: Book Value: Total Asset – Intangible

Asset – Total Liability

Book Value per Share = Book value / no. of outstanding shares

Price/Book Value Ratio 2011 = Market Value / Book Value

We can therefore value the share price of BreadTalk for the financial year (FY) using the formula: Value = P/BVFY2012 x NAVFY2013

Assumptions:

1. Market Share price remains constant at $0.55

2. No. of Outstanding Shares remains the same at 281,197,676 3. Income Statement amount are forecasted from the year 2012 to 2015 4. The growth rate is assumed to be zero.

Value of BreadTalk for 2012 was computed to be around S$0.60. II. Evaluation of P/BV Model

From the table above, we can clearly see that the values of BreadTalk computed using the Price/Book Value Ratio is slightly higher than the current market price and is increasing at a moderate rate. We evaluated that this is due our strong forecasted income statement performances as well as the assumption of the outstanding number of shares and market prices remaining constant. Therefore, the P/BV ratio indicates the decision to BUY. III. Sensitivity Analysis

The sensitivity analysis is used to analyse the relationship between the P/BV ratios to various values of the NAV. For this sensitivity analysis, the P/BV ratio and the NAV are varied at ± 1 for observation of the trends.

Table 13: Computed Data for P/BV Ratio’s Sensitivity Model

Looking at the trend from the figure, we can determine that the P/BV ratio has a positive relationship with the NAV. This is evident when the value of the P/BV ratio increases, the value of NAV increases as well. The main objective is to compute the sensitivity and accuracy of the P/BV ratio to the various NAV. An accurate NAV forecast will result in the accurate analysis of the P/BV ratio. Hence, in order to accurately predict P/BV

ratio, accurate NAV forecast is crucial.

6. Conclusion

Models| Forecasted Price (SGD)| Actual Price (As of 18 September 2012)| Evaluation| Decision| Dividend Discount Model (DDM)| $0.51| $0.55| Overvalued| SELL| Free Cash Flow to Equity (FCFE)| $0.69| $0.55| Undervalued| BUY| Price / Earnings Ratio (P/E)| $0.70| $0.55| Undervalued| BUY| Price / Book Value Ratio (P/BV)| $060| $0.55| Undervalued| BUY| Table 14: Comparisons and Summarized Data for Different Models. Based on our findings from the 4 valuations models and analysis, our group recommends an overall BUY decision for BreadTalk’s stocks. Through our detailed analysis on the forecasted results, we concluded that the valuations should not be used independently as assumptions are also taken into consideration when computing the results. Therefore, it may not be a true reflection of the reality. Lastly, we believe that BreadTalk’s share price will rise within the next few years. However, due to uncertainties in the future, we would advise investors to take on a proactive approach by following BreadTalk’s financial performance regularly.

4.

5.

6.

7. Reference List

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8. Appendix

Appendix I

| BreadTalk| STI|

Period| Return| HPY| Return| HPY|

Aug-11| 0.5500| -| 2885.26| -|

Sep-11| 0.4750| -0.13636| 2675.16| -0.07282|

Oct-11| 0.5150| 0.08421| 2855.77| 0.06751|

Nov-11| 0.5500| 0.06796| 2702.46| -0.05368|

Dec-11| 0.5400| -0.01818| 2646.35| -0.02076|

Jan-12| 0.5600| 0.03704| 2906.69| 0.09838|

Feb-12| 0.5650| 0.00893| 2994.06| 0.03006|

Mar-12| 0.5800| 0.02655| 3010.46| 0.00548|

Apr-12| 0.5550| -0.04310| 2978.57| -0.01059|

May-12| 0.4750| -0.14414| 2772.45| -0.06920|

Jun-12| 0.5000| 0.05263| 2878.45| 0.03823|

Jul-12| 0.5400| 0.08000| 3036.40| 0.05487|

Aug-12| 0.5500| 0.01852| 3025.46| -0.00360|

| σ =| 0.07351| σ =| 0.05231|

| Correl:| 0.714929| | |

| Beta:| 1.004727| | |

Appendix II

| 2007| 2008| 2009| 2010| 2011| 2012 2Q| 2012F| 2013F| 2014F| Bakeries| 170| 241| 301| 395| 471| 530| 603| 757| 899| Food Court| 24| 29| 33| 32| 37| 41| 42| 49| 56|

Restaurant| 6| 8| 8| 21| 26| 28| 33| 39| 45|

Total| 200| 278| 342| 448| 534| 599| 678| 845| 1,000|

Appendix III

| Net Income| Net Sales| Total Assets| Common Equity| Profit Margin| Total Assets Turnover| Financial Leverage| Return on Equity (ROE)| Industry Average ROE | FY 2011|

BreadTalk| $11,592| $365,904| $292,305| $77,970| 0.03168 | 1.25179 | 3.74894 | 0.14867 | 0.07131 | Food Junction| $828| $56,986| $51,450|

$30,404| 0.01453 | 1.10760 | 1.69221 | 0.02723 | | Auric Pacific| $8,566| $383,415| $368,978| $225,193| 0.02234 | 1.03913 | 1.63850 | 0.03804 | | FY 2010|

BreadTalk| $11,266| $302,888| $204,197| $68,562| 0.03720 | 1.48331 | 2.97828 | 0.16432 | 0.09252 | Food Junction| $2,645| $48,226| $50,181| $31,169| 0.05485 | 0.96104 | 1.60997 | 0.08486 | | Auric Pacific| $6,302| $381,814| $374,478| $221,960| 0.01651 | 1.01959 | 1.68714 | 0.02839 | | FY 2009|

BreadTalk| $11,092| $246,493| $172,085| $60,662| 0.04500 | 1.43239 | 2.83678 | 0.18285 | 0.09207 | Food Junction| $3,248| $48,788| $44,963| $29,800| 0.06657 | 1.08507 | 1.50883 | 0.10899 | | Auric Pacific| -$3,405| $405,964| $362,793| $217,952| (0.00839)| 1.11900 | 1.66455 | (0.01562)| |

| BreadTalk| Food Junction| Auric Pacific|

| 2009| 2010| 2011| 2009| 2010| 2011| 2009| 2010| 2011| Revenue| $246,493 | $302,888 | $365,904 | $47,274 | $47,362 | $55,712 | $405,964 | $381,814 | $383,105 | % change| -| 22.88%| 20.81%| -| 0.19%| 17.63%| -| -5.95%| 0.34%| | | | | | | | | | |

Cost of Sales| ($112,334)| ($137,646)| ($165,846)| ($8,538)| ($7,930)| ($9,294)| ($252,970)| ($225,249)| ($225,128)| | | | | | | | | | |

Gross Profit| $134,159 | $165,242 | $200,058 | $266 | $39,432 | $46,418 | $152,994 | $156,565 | $157,977 | | | | | | | | | | |

Gross Profit Margin (%)| 54.43%| 54.56%| 54.67%| 0.56%| 83.26%| 83.32%| 37.69%| 41.01%| 41.24%| | | | | | | | | | |

Operating Expenses & other income| ($117,952)| ($147,919)| ($182,146)| ($36,402)| ($36,967)| ($45,706)| ($154,672)| ($146,964)| ($147,191)| | | | | | | | | | |

EBIT | $16,207 | $17,323 | $17,912 | ($36,136)| $2,465 | $712 |

($1,678)| $9,601 | $10,786 | | | | | | | | | | |

Operating Profit Margin (%)| 6.58%| 5.72%| 4.90%| -76.44%| 5.20%| 1.28%| -0.41%| 2.51%| 2.82%| Appendix IV

Appendix V

Period| STI index| HPR|

30/8/2002| 1488.5| -|

29/8/2003| 1599.25| 1.074404|

31/8/2004| 1918.34| 1.199525|

31/8/2005| 2275.43| 1.186145|

31/8/2006| 2482.39| 1.090954|

31/8/2007| 3392.91| 1.366792|

29/8/2008| 2739.95| 0.807552|

31/8/2009| 2592.9| 0.946331|

31/8/2010| 2950.33| 1.13785|

31/8/2011| 2885.26| 0.977945|

31/8/2012| 3025.46| 1.048592|

Geometric Mean| 0.0735| |

Appendix VI

Income Statements| | | | | |

| | | | | | |

| 2011A| 2012F| 2013F| 2014F| 2015F| |

| $’000| $’000| $’000| $’000| $’000| |

Revenue| 365,904 | 428,108 | 539,416 | 690,452 | 716,903 | | Cost of sales| (165,846)| (197,221)| (254,416)| (330,740)| (350,154)| | Gross profit| 200,058 | 230,887 | 285,000 | 359,712 | 366,749 | | | | | | | | |

Other items of income| | | | | | |

Interest income| 824 | 764 | 756 | 862 | 983 | |

Other income| 7,875 | 8,943 | 10,016 | 10,718 | 10,910 | | Share of results of joint ventures| 93 | 633 | 753 | 979 | 1,003 | | | | | | | | |

Other items of expense| | | | | | |

Marketing and distribution expenses| (145,900)| (162,114)| (194,536)| (237,334)| (240,869)| | Administrative expenses| (45,038)| (57,656)| (73,799)| (95,496)| (98,651)| | Profit before interest and tax| 17,912 | 21,457 | 28,190 | 39,441 | 40,125 | | Interest expenses| (785)| (959)| (873)| (1,039)| (1,221)| | Profit before tax| 17,127 | 20,498 | 27,317 | 38,402 | 38,904 | | Income tax expense| (5,370)| (6,641)| (9,560)| (12,672)| (12,835)| | Profit after tax| 11,757 | 13,857 | 17,757 | 25,730 | 26,069 | | | | | | | | |

Attributable to:| | | | | | |

Shareholders of the Company| 11,592 | 13,648 | 17,401 | 25,293 | 25,603 | | Non-controlling interests| 165 | 209 | 356 | 437 | 466 | | Profit After Tax| 11,757 | 13,857 | 17,757 | 25,730 | 26,069 | | | | | | | | |

No. of shares| 281,197,676 | 281,197,676 | 281,197,676 | 281,197,676 | 281,197,676 | | EPS| 0.04122 | 0.04854 | 0.06188 | 0.08995 | 0.09105 | | Dividend Per Share| 0.0100 | 0.0125 | 0.0166 | 0.0221 | 0.0229 | | | | | | | | |

Appendix VII

Balance Sheet| | | | | | |

| 2011A| 2012F| 2013F| 2014F| 2015F| |

| $’000| $’000| $’000| $’000| $’000| |

Assets| | | | | | |

| | | | | | |

Non-current asset| | | | | | |

Property,plant and equipment| 88,898 | 120,381 | 145,542 | 201,398 | 233,812 | | Intangible assets| 9,214 | 9,841 | 12,912 | 12,331 | 14,629 | | Investment in associates and joint ventures| 12,091 | 13,109 | 19,001 | 18,712 | 19,982 | | Other receivables| 1,389 | 5,336 | 8,901 | 8,172 | 9,181 | | Deferred tax assets| 2,120 | 3,441 | 3,562 | 3,781 | 3,776 | | Total Non-Current Asset| 113,712 | 152,108 | 189,918 | 244,394 | 281,380 | | | | | | | | |

Current assets| | | | | | |

Inventories| 7,397 | 13,881 | 17,920 | 17,092 | 25,082 | | Trade receivables| 7,792 | 9,018 | 9,382 | 10,981 | 12,019 | | Other receivables| 39,008 | 43,483 | 48,019 | 49,682 | 50,918 | | Prepayments| 5,389 | 6,582 | 7,098 | 8,910 | 10,920 | | Tax recoverable| 230 | 291 | 367 | 554 | 608 | |

Amount due| 1,717 | 1,841 | 1,990 | 2,181 | 2,894 | | Cash and cash equivalents| 87,060 | 72,810 | 70,091 | 63,719 | 53,361 | | Total Current Assets| 148,593 | 147,906 | 154,867 | 153,119 | 155,802 | | | | | | | | |

Total assets| 262,305 | 300,014 | 344,785 | 397,513 | 437,182 | | | | | | | | |

Equity and liabilities| | | | | | |

| | | | | | |

Current liabilities| | | | | | |

Trade payables| 22,896 | 25,091 | 32,091 | 34,481 | 35,772 | | Other payables| 51,178 | 52,091 | 55,049 | 53,627 | 52,511 | | Other liabilities| 41,124 | 42,141 | 40,901 | 43,298 | 40,729 | | Provision| 5,871 | 6,591 | 7,801 | 7,762 | 6,859 | | Amount due| 395 | 1,987 | 2,593 | 2,273 | 2,674 | | Finance lease obligations, secured| 37 | 14 | 26 | 48 | 56 | | Loans and borrowings| 24,360 | 23,019 | 20,091 | 20,038 | 20,928 | | Tax payable| 5,623 | 6,891 | 7,670 | 9,018 | 10,943 | | Total Current Liabilities| 151,484 | 157,825 | 166,222 | 170,545 | 170,472 | | | | | | | | |

Non-current liabilities| | | | | | |

Loans and borrowings| 16,038 | 40,869 | 68,912 | 100,283 | 105,912 | | Deferred tax liabilities| 2,276 | 2,760 | 2,891 | 3,172 | 3,091 | | Other payables and liabilities| 7,039 | 9,291 | 11,928 | 11,729 | 13,981 | | Total Non-Current Liabilities| 25,353 | 52,920 | 83,731 | 115,184 | 122,984 | | | | | | | | |

Total liabilities| 176,837 | 210,745 | 249,953 | 285,729 | 293,456 |

| | | | | | | |

Net assets| 85,468 | 89,269 | 94,832 | 111,784 | 143,726 | | | | | | | | |

Equity attributable to owners of the company| | | | | | | Share capital| 33,303 | 33,303 | 33,303 | 33,303 | 33,303 | | Treasury shares| (609)| (781)| (819)| (981)| (1,029)| | Accumulated profits| 41,558 | 45,695 | 51,409 | 67,962 | 98,301 | | Other reserves| 3,178 | 3,391 | 3,041 | 3,281 | 3,232 | | | 77,970 | 81,608 | 86,934 | 103,565 | 133,807 | | | | | | | | |

Non-controlling interests| 7,498 | 7,661 | 7,898 | 8,183 | 9,919 | | Total equity| 85,468 | 89,269 | 94,832 | 111,748 | 143,726 | | Total equity and liabilities| 262,305 | 300,014 | 344,785 | 397,477 | 437,182 | | | | | | | | |

Appendix VIII

FREE CASH FLOW TO EQUITY| | | | |

| 2011A| 2012F| 2013F| 2014F| 2015F|

| | | | | |

Net income / EPS| 11,757 | 13,857 | 17,757 | 25,730 | 26,069 | Depreciation expense| 23,920| 27,657 | 30,987 | 37,870 | 39,882 | – Capital expenditures| | 38,396 | 37,810 | 54,476 | 36,986 | – Change in working capital| | (7,028)| (1,436)| (6,071)| 2,756 | – Principal debt repayments| 13,532| 10,029| 11,452| 14,556| 16,753| New debt issues| -| -| -| -| -|

| | | | | |

FCFE| 35,677 | 117 | 918 | 639 | 9,456 |

No. of shares| 281,197,676 | 281,197,676 | 281,197,676 | 281,197,676 | 281,197,676 | FCFE per shares| -| 0.00042| 0.00327| 0.00227| 0.03362|