Australia & NZ First Edition 2017 06 19

Note: If the rating of a company shown on the cover of First Edition is in bold type, a rating change has taken place

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATIONTM

Client-Driven Solutions, Insights, and Access

EQUITY RESEARCH CREDIT SUISSE EQUITIES (AUSTRALIA) LIMITED ABN 35 068 232 708 ACN 068 232 708 | Participating Organisation of the Australian Stock Exchange

Australia & NZ Daily Research Monday, 19 June 2017

COMPANIES & SECTORS

Aussie Transport & Infrastructure 8 Week 24 – US Inventory growth remains weak

BSL BlueScope Steel OUTPERFORM 23 Arrium preferred bidder – a minor risk?

CSL CSL OUTPERFORM 25 China – same plasma, different economics?

FXL FlexiGroup NEUTRAL 31 Certegy presents uncertainty

SGM Sims Metal Management UNDERPERFORM 37 Schnitzer Q3, strong volumes but margin flat

S32 South 32 OUTPERFORM 42 Un-chartered waters?

SXL Southern Cross Media Group OUTPERFORM 44 Upgrade on improving industry landscape

ATM The a2 Milk Company OUTPERFORM 46 .NZ Selling them as fast as it is making them

RESULT PREVIEW

MTS Metcash OUTPERFORM 51 Difficult result to predict; reports on 26 June

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse 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.

MARKET EVENTS

New Motor Vehicle Sales YoY (May)

19 Jun

US, Chicago Fed President Charles Evans Speaks at NYU (with Q&A)

19 Jun

NZ, Westpac Consumer Confidence (2Q)

19 Jun

NZ, Performance Services Index (May)

19 Jun

CH, May Property Prices 19 Jun

UPCOMING CONFERENCES

Global Chemicals and Agriculture Conference – London

20 Jun

China Consumer Corporate Day – Hong Kong

22 Jun

For more scheduled conferences refer to page 2

TABLES

Credit Suisse Ratings – Australia 54

Top 100 Earnings & Dividends 57

Emerging Companies Earnings & Dividends

60

Sector Aggregates 63

Weekly Market Calendar 65

Featured Research

2016 Best Piece of New ESG Research – Get Inside the Carbon Black Box, Look Down the Carbon Value Chain This piece of research was announced as the winner of the Best Piece of New ESG research at the 2016 ESG RA awards on 9 May 2017. The report presents an innovative framework for analysing the important risk of climate change in the investment decision making process. Some comments from the ESG Research Australia Awards: “Substantial thought leadership in this piece. A futurist's dream.” “Incredibly original for a topic that is often focusing on emissions alone. A pragmatic and logical thought process which leads to actionable insights.” “The most interesting and thoughtful research of the year.” (Link)

IDP Education We initiate on IEL with A$4.00 target price, UNDERPERFORM rating. Despite attractive industry fundamentals in international education and a strong recent growth track record, we view IEL as expensive given exposure to regulatory changes in Student Placement and multiple risks in Testing. (Link)

Primary Health Care Flexible GP model has diluted ROIC: We believe PRY's move to implement flexible GP contracts has resulted in reduced billings, increased operating costs and diluted the return on invested capital for the GP business (which we estimate accounts for ~25% of group EBITDA). (Link)

Australian FTA TV Sector TV sector may be on the cusp of biggest shake-up in years. TEN’s financial position is looking increasingly difficult. Step up in market share for Seven and Nine. NEC best way to play the theme. (Link)

HGG We have updated our merger model for the merger documentation. In aggregate the shift to US GAAP and JNS restatements only impacted merged earnings by -3% (at the diluted EPS level). We remain supportive of the merger and

see its strategic and financial merits (~20% accretion by FY19E). (Link)

https://plus.credit-suisse.com/r/V6ZWEp2AF-WEqxCc

https://plus.credit-suisse.com/r/V6C2lF2AF-WEqxCc

https://plus.credit-suisse.com/r/V6AVEi2AF-WEqxCc

https://plus.credit-suisse.com/r/V68UvE2AF-WEqxCc

https://plus.credit-suisse.com/r/V68PkZ2AF-WEqxCc

Australia and NZ First Edition 2

Australia & NZ Market Reports Australia Index +/- %Day %Wk %Mth %YrRol

All Ordinaries 5808.2 11.5 0.2% 1.6% -0.2% 11.0% S&P/ASX 50 5728.9 10.4 0.2% 1.7% -0.6% 12.7% S&P/ASX 200 5774.0 10.8 0.2% 1.7% -0.2% 12.2% Banks 8320.8 0.0 0.0% 1.9% -2.8% 14.4% Insurance 4023.5 0.0 0.0% 1.3% 0.0% 14.3% REITs 1437.4 10.9 0.8% 4.3% 4.2% -0.7% Industrials 5868.9 -22.6 -0.4% 1.3% 3.2% 13.5% Materials 9637.9 -38.6 -0.4% -1.5% -1.1% 22.8% Cons. Discreet 2243.8 10.4 0.5% 2.6% 2.5% 9.6% Cons. Staples 9237.3 -5.4 -0.1% 1.9% -2.5% 11.8% NEW ZEALAND

NZX 50 7552.8 36.400 0.5% 1.6% 1.8% 9.6%

Currencies, Interest Rates & Gold

Index +/- %Day %Wk %Mth %YrRol

AUD/USD 0.759 0.002 0.2% 0.9% 2.2% 3.2% AUD/GBP 0.594 0.000 0.0% 0.6% 3.8% 14.6% EURAUD 1.470 0.000 0.0% -1.0% -2.0% -3.5% NZD/USD 0.722 0.002 0.2% 0.2% 4.1% 2.6% AUD/NZD 1.051 0.000 0.0% 0.7% -1.8% 0.6% TWI 0.649 0.005 0.8% 0.9% 1.6% 4.7% AU 10Y 2.424 0.088 3.8% -0.6% -2.3% 14.7% NZ 10Y 2.795 0.030 1.1% 0.4% -3.0% 13.8% US 10Y 2.172 0.036 1.7% -1.2% -2.8% 37.4% UK 10Y 1.040 0.114 12.3% 3.7% -2.1% DE 10Y 0.286 0.053 22.7% 12.2% -22.1% -1436.4% Gold Spot 1,254 -7.180 -0.6% -1.0% -0.5% -2.0%

Best Performers Worst Performers

Close % ‘000 Close % ‘000

RCG 0.83 12.2 5823 Monash IVF Group 1.67 -5.1 905 Baby Bunting Grp 1.82 12.0 490 AMA Group 0.94 -5.1 592

The a2 Milk Company 3.69 10.1 13088 Mineral Resources 10.21 -5.0 2951 Magnis Resources 0.56 9.8 1877 Liquefied 0.61 -4.7 844 CSG 0.59 9.3 598 Asaleo Care 1.47 -4.6 2051 Cardno 1.19 7.7 930 St Barbara Mining 2.83 -4.4 33791 Scottish Pacific 2.54 6.7 466 Beadell Resource 0.22 -4.4 75102 Sealink Travel 4.17 6.4 344 Aconex 4.11 -4.4 811 Ainsworth Game 2.48 6.0 1381 Gold Road 0.70 -4.1 554

Galaxy Rsrcs 1.64 5.8 11479 Servcorp 5.60 -3.9 207 Lynas Corp 0.09 5.6 27129 Reliance Worldwide 3.49 -3.9 2457 Nanosonics 2.68 5.5 2143 OceanaGold Corp 4.20 -3.9 1069

Source: ASX, Bloomberg, Reuters

Commodity Prices Spot* Forward Curve Credit Suisse Forecasts

3mth 15mth 2Q17 2017 2018

Bulks Iron Ore $/t 79.7 95.0 76.4 57.5 Coking Coal $/t 230.0 208.8 130.0 Thermal Coal $/t 61.8 80.0 77.9 68.0

Base Metals Aluminium USc/lb 84.4 84.7 86.1 83.9 83.7 75.7 Copper USc/lb 255.7 256.8 259.4 259.7 251.1 205.5 Nickel USc/lb 398.7 401.4 410.6 464.9 482.7 525.0 Zinc USc/lb 112.9 113.6 112.9 132.9 129.4 117.9 Lead USc/lb 94.0 94.9 96.2 99.8 95.7 86.2 Tin USc/lb 890.1 884.5 771.1 848.6 816.5

Precious Metals Gold US$/oz 1253.5 1300.0 1323.3 1375.0 Silver US$/oz 16.7 18.1 17.8 18.5 Platinum US$/oz 920.0 1500.0 1550.0 1750.0

Energy Oil (Brent) US$/bbl 46.2 47.5 49.9 56.0 58.4 65.0 Oil (WTI) US$/bbl 44.5 44.9 47.1 55.0 56.7 62.5

*Fiscal year averages used, Steel prices are contract prices. Spot as of 10PM AEST.

VIX (S&P 500 Options Implied Volatility)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Jan

-96

Au

g-9

6

Ap

r-97

Dec-9

7

Au

g-9

8

Ap

r-99

Dec-9

9

Au

g-0

0

Ap

r-01

Dec-0

1

Au

g-0

2

Ap

r-03

Dec-0

3

Au

g-0

4

Ap

r-05

Dec-0

5

Au

g-0

6

Ap

r-07

Dec-0

7

Au

g-0

8

Ap

r-09

Dec-0

9

Au

g-1

0

Ap

r-11

Nov-1

1

Jul-1

2

Ma

r-13

Nov-1

3

Jul-1

4

Ma

r-15

Nov-1

5

Jul-1

6

Ma

r-17

Daily VIX (S&P 500 Options Implied Volatility)

VIX Index Average -1 StDev +1 StDev

VIX – Current 1mth rol(avg) 3mth rol(avg) 6mth rol(avg) 10.90 10.92 11.70 11.69 Freight Spot 1 Wk (avg) 1 Mt (avg) 3 Mt (avg) 6 Mt (avg) 1 Yr (avg)

Baltic Dry 870.0 860 889 1083 985 906 Source: Bloomberg

Upcoming Credit Suisse Global Conferences New additions this week in bold.

Jun 2017 to Nov 2017

20-Jun 2017 Global Chemicals and Agriculture Conference – London

22 Jun 2017 China Consumer Corporate Day – Hong Kong

28-Jun 2017 Leisure & Transport Conference – London

2-3 Aug 2017 11th Annual Midsummer LathAm Conference – New York

15-16 Aug 2017 Indonesia Conference – Singapore

30-31 Aug 2017 Asia Internet C-Level Conference – Hong Kong

31 Aug-1 Sep 2017 European Telecoms Conference – London

31 Aug-1 Sep 2017 2nd Annual Kyoto Conference – Kyoto

6-8 Sept 2017 18th Annual Technology Conference – Taiwan

11-12 Sep 2017 Global Steel and Mining – London

11-13 Sep 2017 30th Annual Basic Materials Conference – New York

13-14 Sep 2017 HOLT Under Followed Opportunities – Boston / New York

13-14 Sep 2017 European Industrials Conference – London

19 Sep 2017 3rd Annual Chicago Consumer One-on-One Conference – Chicago

26-17 Sep 2017 3rd Annual Oilfield Services Bus Tour – Houston

11 Oct 2017 Global Credit Products Conference – London

12 Oct 2017 10th Annual European Prime Services Hedge Fund Leadership Conference – London

6-8 Nov 2017 26th Annual Credit Suisse Healthcare Conference – Scottsdale, Arizona

6-8 Nov 2017 8th China Investment Conference – China

7-9 Nov 2017 Boston Financials 1x1 Conference – Boston

27-30 Nov 2017 Technology, Media and Telecom Conference – Phoenix

28-30 Nov 2017 5th Annual Industrials Conference – Palm Beach, Florida

If you would like to attend any of the above conferences, please contact the Australian Corporate Access team: Cathy Kermond [email protected] or your Credit Suisse sales representative

Research Production Patricia Rocis – Supervisory Analyst 61 3 9280 1678

Web Access Research Distribution [email protected] Email: [email protected]

Database Jason Swinbourne 612 8205 4591

19 June 2017


At a Glance

Market and key sector metrics

As at 16 June 2017 PE (1)

PE Rel vs ASX 200(1)

EPS Growth % (1)

Div Yield % (1)

2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019

S&P/ASX 200 15.94 15.10 14.76 1.00 1.00 1.00 23.91 5.58 2.30 4.47 4.58 4.72

Emerging Companies (3) 17.36 14.55 13.01 1.09 0.96 0.88 16.43 19.29 11.85 3.19 4.08 4.43

Financials (2) 14.08 13.55 12.95 0.88 0.90 0.88 12.30 3.92 4.59 5.47 5.59 5.81

Banks (2) 13.28 12.88 12.40 0.83 0.85 0.84 9.52 3.14 3.86 5.81 5.88 6.05

Diversified Financials (2) 16.44 15.67 14.75 1.03 1.04 1.00 39.09 4.92 6.22 4.69 4.91 5.23

Insurance (2) 17.82 16.28 15.00 1.12 1.08 1.02 6.81 9.50 8.50 4.22 4.57 4.97

Real Estate (2) 16.93 16.10 15.23 1.06 1.07 1.03 3.95 5.13 5.75 4.57 4.80 5.02

Materials (2) 10.65 11.44 13.86 0.67 0.76 0.94 n.m -6.85 -17.50 4.89 4.55 3.76

Metals & Mining (2) 9.64 10.55 13.32 0.60 0.70 0.90 n.m -8.64 -20.80 5.25 4.77 3.72

Energy (2) 16.85 13.15 12.29 1.06 0.87 0.83 57.57 28.15 6.97 2.20 3.24 3.81

Industrials ex Infra (2) 19.92 17.83 17.18 1.25 1.18 1.16 -1.96 11.69 3.80 3.11 3.18 3.29

Infrastructure 68.35 61.39 46.39 4.29 4.07 3.14 14.05 11.33 32.33 4.20 4.58 5.20

Consumer Discretionary (2) 21.06 19.10 17.82 1.32 1.27 1.21 2.17 10.26 7.21 4.38 4.34 4.55

Consumer Staples (2) 18.43 18.08 17.02 1.16 1.20 1.15 12.18 1.99 6.21 3.77 3.96 4.14

(1) Includes all companies covered by Credit Suisse analysts. (2) All sectors are based on S&P/ASX200.Companies on restricted list are not included in aggregates (3) Emerging companies are all companies covered by Credit Suisse analysts excluding top 100 stocks.

Source: Company data, Credit Suisse Estimates, Thomson Reuters

Australia/NZ equities executive summary

COMPANIES & SECTORS

Week 24 – US Inventory growth remains weak Aussie Transport & Infrastructure

Welcome to our weekly analysis of the Aussie transport & infrastructure space. This series of notes includes a summary of the week's events, valuation tables, events calendar, and key value driver charts for each stock.

AZJ – Aurizon Network issued A$425mn 7-year notes priced at 177 basis points over the 7-year swap rate. Industry press speculates that WICET faces a restructure after Caledon entered administration in May. WICET has until September 2018 to refinance the debt, but may seek to refinance early. Aurizon has a 4mt p.a. above rail take-or-pay contract with Caledon. SYD – Off peak movements up 3% over the last 12 months as peak movements remain flat. Sydney Airport continues to be capacity constrained at 8am on weekdays, with 96% of the 80 slots used. In May, off-peak movements were flat, with peak movements up 1.5%. ABS overseas arrivals and departures data to Australia suggests Chinese nationals make up 6.7% of total international traffic to/from Australia (up from 6.4% 12 months ago). QAN – Domestic airline load factors up 1.6ppts in April, with strong improvement across each of the route types (Triangle, East West, Resources, Domestic Leisure and regional). QAN shares are trading in line with US Airlines at 10x P/E (12-month fwd) with European airlines at 7.0x P/E. Chart of the week – BXB – US retail inventories/sales continues to fall in April. US retail inventories recorded growth of 1.6% compared to sales growth of 4.6% in April. Lower inventory growth could mean lower pallet issues for Brambles as retailers potentially extend their de-stocking phase.

Paul Butler Research Analyst 61 2 8205 4309

https://plus.credit-suisse.com/r/V6OcNO2AD-WEqkbN

https://plus.credit-suisse.com/r/V6OcNO2AD-WEqkbN

mailto:[email protected]

19 June 2017


Arrium preferred bidder – a minor risk? BlueScope Steel (BSL.AX)

Arrium's receiver, KordaMentha, has advised that it has chosen a Korean consortium as the preferred bidder for the Arrium group of companies. The consortium is headed by Newlake Alliance Management and JB Asset Management and is supported by the Korean steel making company, Posco. Arrium group includes ATM (Australian Tube Mills), a business that Arrium had actively but unsuccessfully sought to divest as non-core and not integrated long before receivership. ARI's price expectation deterred buyers. BlueScope, in our view, is the logical owner of the ATM business and could extract meaningful transport synergies by acquiring and relocating the capacity from Brisbane to Port Kembla, removing two unnecessary transport legs (HRC from Port Kembla to Brisbane, conversion to tube in Brisbane, transport of tube back to the main markets in Sydney and Melbourne. ATM is currently a domestic customer for up to 150ktpa of BlueScope's HRC. While this is competitively priced and is BSL's lowest margin domestic product, the alternative market is to the export market at perhaps a US$100/t lower price, or a potential $15mn–$20mn EBIT (~1.5%) impact if the Posco consortium keeps the ATM business and supplies its own Korean HRC. Arrium also has a large domestic distribution business, focused on long products. This business could, and has in the past, also distribute the product range manufactured and distributed by BlueScope. 9Posco could use this business as an import channel, competing with BlueScope, but would have to be competitive with BSL's import parity pricing. While we highlight both Posco opportunities as minor risks, we see no reason to adjust our earnings, target price or rating and recognize the equal risk of a net positive outcome if ATM was to be divested to BSL.

Share Price 11.99 (AUD)

OUTPERFORM

Target Price 13.30 (AUD)

Michael Slifirski Research Analyst 61 3 9280 1845

China – same plasma, different economics? CSL (CSL.AX)

Exploring plasma differences: Following CSL's proposed entry into the domestic China plasma fractionation sector (via Ruide) we compare/contrast key operational and financial metrics of listed peers with the CSL Behring business and assess potential readthrough for Ruide. Listed China plasma fractionators generate robust operating margins, ahead of CSL Behring, despite only clearing one core plasma product in last litres (albumin) and selling far fewer specialty (infra-marginal) products. Local margins higher due to lower COGS: Our analysis shows that this is predominantly due to significantly lower COGS per litre of plasma utilised, with other operating expenses similar in total as a percentage of revenue. Within the COGS category, we highlight that despite having substantially higher donor fees per litre of plasma collected in China, this is more than offset by lower non-donor related COGS (e.g., logistics, storage, labour, testing, supplies). For CSL, we see significant longer-term upside to current Ruide revenues of ~US$30 mn (via organic growth and new product approvals). While at face value, this should lead to material improvement in fractionation economics, in our view, the revenue uplift will require investment in both non-donor COGS (i.e., plasma collection/fractionation processes) as well as core operating cost lines (R&D, sales and marketing). As a result, our current base case assumption for Ruide (~35% EBIT margin after five years) factors in minimal operating margin expansion from current levels (~30%). Catalysts: (1) Monthly PPTA data; (2) FDA regulatory decision on Haegarda (anticipated mid-year). Valuation: CSL currently trades on 29.3x 12-month forward consensus EPS, representing a 65% premium to the ASX200 Industrials ex. Financials (two-year averages of 24.5x and 42%, respectively).


OUTPERFORM


Saul Hadassin Research Analyst 61 2 8205 4679

https://plus.credit-suisse.com/r/V6OYfY2AD-WEqkbN


https://plus.credit-suisse.com/r/V6OcNi2AD-WEqkbN


19 June 2017


Certegy presents uncertainty FlexiGroup (FXL.AX)

Downgrade rating to Neutral: Our prior Outperform rating ($2.12 share price, February 2016) was based on cheap valuation and a view that FXL could start to grind out growth, despite residual risks. However, roll forward to today, and despite valuation ostensibly looking compelling (again), FXL is still in a downgrade cycle (-20% FY18 consensus revisions) and we are increasingly cautious on Certegy (36% of FY16 NPAT), which could offset growth in other areas (e.g. Australian Card). While FXL looks over-sold on a short-term view and valuation may offer support, we have low conviction on earnings and still see a downside risk—we would rather wait until growth concerns are alleviated. Challenges to Certegy: We believe that having had a niche credit space largely to itself, Certegy now has growing competitors (AFY.AX, ZML.AX) with strong digital offerings and brands that are resonating with retailers and consumers alike. The no-interest-ever product remains attractive, in our view, but increased competition translates to both margin and volume pressure for FXL, at the same time as a less certain outlook for the consumer generally. This has already impacted 2H17 (contributed to lowering FY17 guidance) and poses further risk to FY18-19. Where it could be better than we think: (1) New products (Oxipay) or categories (solar battery storage) offset pressures in Certegy; (2) NZ Card growth trajectory lifts (scheme card, better sales momentum); (3) Aust. Card is better than we expect (we forecast >70% growth FY17-19); (4) improved commercial finance lifts leasing growth; and (5) other geographies (Ireland). Where it could be worse than we think: (1) Further competition in other areas (e.g. Latitude, a potential IPO candidate according to press reports); (2) impairments rise more quickly than expected; (3) contract losses/failure to renew business; (4) regulatory/consumer focus further impacts POS leasing; and (5) Card receivables conversion to interest-bearing disappoints. EPS outlook: Negative revisions to EPS estimates (-8% FY18, -14% FY19) stem mainly from forecast declines in Certegy earnings and reflect our view that FXL could struggle to generate material growth over the next 2-3 years.


(from OUTPERFORM) NEUTRAL

Target Price (from 2.70) 1.85 (AUD)

Paul Buys Research Analyst 61 2 8205 4538

Schnitzer Q3, strong volumes but margin flat Sims Metal Management (SGM.AX)

Schnitzer MayQ preliminary result. Schnitzer’s scrap business (US Auto and Metals Recycling (AMR)) is expected to achieve operating income in the range of US$29 - $30mnn, or a sequentially flat operating income per ferrous ton of US$30 - $31 (equivalent to US$33-34/tonne). By contrast, SGM delivered US$8.40/t for its 1H17. Higher operating income, not margin. Schnitzer's operating income is expected to increase by approximately 12% sequentially and 10% from the prior year quarter, and would represent the best third quarter performance since fiscal 2012. Result not supportive of SGM's operating leverage thesis. SGM promote operating leverage with no increase in fixed cost as volumes rise. Schnitzer’s Q3 EBIT increase has followed its ferrous tonnage increase, showing no operating leverage, despite a materially higher ratio of non-ferrous. This appears to suggest (perhaps) an increase in buy price offsetting the otherwise expected operating leverage. Read-through for SGM earnings. If SGM’s 2H were to reflect Schnitzer’s volume profile, SGM’s 2H tonnage could be up by ~150kt on its 1H17, generating additional EBIT of ~A$13mn compared to what we forecast, if the guided operating leverage to volume was to be delivered. This hypothetical calculation would deliver FY17 EBIT of A$180mn once factoring in a contribution for guided optimise initiatives (at 50% realisation rate achieved in 2H17) and NPAT of ~$133mn. This is the scenario we have adopted in our modelling for FY17 driving our eps change. Valuation. Target price increased to $11.00/sh (from $10.50/sh) to align with our NPV. Rating remains Underperform on valuation.


UNDERPERFORM


Michael Slifirski Research Analyst 61 3 9280 1845

https://plus.credit-suisse.com/r/V6Odvm2AD-WEqkbN


https://plus.credit-suisse.com/r/V6OXa12AD-WEqkbN


19 June 2017


Un-chartered waters? South 32 (S32.AX)

New mining charter: South Africa’s Department of Mineral Resources has published the reviewed broad based black-economic empowerment charter for the South African mining and minerals industry. Mining companies are being asked to comply with a black-ownership threshold of 30%, up from the previous 26%, within the maximum of 12 months. The charter applies only to mining operations, as such S32’s Hillside aluminum smelter is exempt. We are far from legal experts, but if our understanding of the wording is correct (full charter doc here), the potential direct impact to S32 could be a 2.4% and 22% decrease to their effective interests in their South Africa Manganese and Energy Coal businesses respectively. Plenty of ambiguity: The Chamber of Mines, which represents ~90% of mines in South Africa, is likely to seek an injunction and the charter may be ultimately tested in the courts. As such, timing of implementation, if at all, is unclear to us. What is also not clear and most relevant for S32 is how historic transactions, which have seen it comply with previous charters, is ultimately taken into consideration. On face value, irrespective of historic adherence to the previous charter, a requirement to top up to 30% may well be required. But this is not entirely clear and the interpretation of points 2.1.2.1, 2.1.2.2 and 2.1.2.9 may be critical for S32 and specifically, their Energy Coal holding. Immaterial valuation impact: This is the third iteration of the mining charter and has reportedly been released with little consultation with the mining companies. It is relatively straight forward for us to run the scenario through our numbers (see comments below), but far more difficult to quantify the impact that comes from heightened geopolitical risk and what may be ongoing uncertainty for some time. Valuation: No change to TP or Rating. We carry $0.58/sh for the Manganese and Energy Coal businesses. If we adjusted for the potential change in effective stakes noted above, this would fall to ~$0.50/sh. The impact to FY18 and FY19 EBITDA would be 2% and 4% respectively.


OUTPERFORM


Sam Webb Research Analyst 61 2 8205 4535

Upgrade on improving industry landscape Southern Cross Media Group (SXL.AX)

SXL a major beneficiary of media reform: In our view SXL's current share price is not factoring in the potential upside from proposed regulatory changes: i) the abolition of licence fees could add ~8% to EPS and A$0.10 to our valuation after adjusting for new spectrum fees and a reduction in gambling ad revenue; and ii) the removal of the 75% audience reach rule, in combination with NEC's recent share price strength, could increase M&A possibilities. We note that both of these proposed changes are supported by the two major parties. TEN's issues = share upside for Nine…and by extension SXL: As Fraser

McLeish detailed in his recent note Changing channels – TV shake-up looming, TEN's deteriorating financial position (culminating in Wednesday's entry into voluntary administration) means that it is likely to cut programming spend in order to return to profitability. This creates the potential for long-term market share upside at the other networks. Any market share uplift at Nine would also drive market share improvements at SXL’s TV business. We estimate that each additional point of market share at SXL’s Nine-affiliated stations could add A$4-5m to revenue, equivalent to a ~A$2m EBITDA uplift or a ~1.5% boost to EPS. A 3% sustainable increase in SXL's regional TV market share could add A$0.05 to our valuation. Radio market back in the black in May: The metro radio market returned to positive territory in May with 5-city YoY growth of 0.5%, according to Commercial Radio Australia data. The market remains down 1.6% calendar year-to-date, however the base of comparison will ease in the second half. Upgrade to Outperform (from Neutral), A$1.35 Target Price (from A$1.30): We raise our SXL TP to A$1.35 and set it at a premium to our A$1.30 base case valuation to reflect upside from the likely removal of licence fees. We do not include any upside from a potential higher long-term TV market share. We view SXL as inexpensive on <11x FY18F P/E, falling to ~10x ex-licence fees, and move to an OUTPERFORM rating.


(from NEUTRAL) OUTPERFORM


Lucas Goode Research Analyst 61 2 8205 4431

https://plus.credit-suisse.com/r/V6OeSZ2AD-WEqkbN

http://www.chamberofmines.org.za/industry-news/media-releases/2017/send/22-downloads/445-reviewed-mining-charter-jun2017


https://plus.credit-suisse.com/r/V6OYhM2AD-WEqkbN

https://plus.credit-suisse.com/r/V68UvE2AF-WElY95


19 June 2017


Selling them as fast as it is making them The a2 Milk Company (ATM.NZ)

Earnings upgrade, again: On the back of a revised production schedule with the company’s infant formula (IF) contract manufacturer and ongoing strong demand for its product, ATM has raised its previous NZ$525mn revenue guidance to NZ$545mn compared with our NZ$534mn pre-trading update forecast for FY17F. The increased production and delivery of this IF stock by ATM to its distributors is a signal of the ongoing strong and previously unsatisfied demand in the market for its products. It is also an indication that the economic incentives on ATM’s IF remain attractive to its channel partners in the market. Coupled with changes in the phasing of the company’s marketing spend in China, we have upgraded our EBITDA forecast by 8% in FY17F and by c2% in FY18F and FY19F. The risk to our earnings forecasts in FY18F and FY19F remains to the upside driven by a combination of potential volume growth as well as higher gross margin. We maintain our OUTPERFORM rating with a revised NZ$4.10 TP. Evolving from a branded Australian liquid milk company to become a global dairy nutrition company: ATM’s A1/A2-type milk hypothesis and digestive benefit claims, coupled with its suite of patents and trademarks have provided the company with a marketing platform for premium-priced differentiated products. Our view on ATM is premised on successful rollout of the company's A2-type-based dairy products (including IF) in Australia, the UK, the US and China markets. Key to this is the successful management of channels-to-market and of regulatory changes over time. Catalysts in the next 12 months: These include ATM’s formulation registration process in China, ongoing infant formula trading conditions in China and the expansion of ATM’s footprint into the US fresh milk market. TP revised to NZ$4.10 (from NZ$3.92): This is based on our probability-weighted rolled forward sum-of-the-parts DCF adjusted for risks. On an adjusted NPAT basis (ex-UK/US losses), our TP implies FY17F and FY18F PEs of 27.0x and 22.5x, respectively. Our projected adjusted NPAT growth rates (ex-UK/US losses) are 19% and 17% in FY18F and FY19F, respectively.

Share Price 3.82 (NZD)

OUTPERFORM

Target Price (from 3.92) 4.10 (NZD)

Kar Yue Yeo Research Analyst 64 4 474 4462 This report is distributed in Australia by Credit Suisse Equities (Australia) Limited. Please see legal disclaimer and disclosure annex for further terms and information. Provided by First NZ Capital

RESULT PREVIEW

Difficult result to predict; reports on 26 June Metcash (MTS.AX)

Metcash reports on 26 June and with no company disclosure since November 2016, it is a difficult result to predict. If Metcash can limit a reduction in supermarket distribution sales to circa 5% and mitigate most of that downside with cost reduction, it is likely to meet or beat market expectations. Currently, the market appears to be pricing a circa 30% decline in supermarket distribution EBIT over the medium term. Liquor and hardware are positive stories as is the resumption of dividends in FY18. Earnings changes are due to a reduction in forecast sales for Supermarket distribution and upgrades to the outlook for Hardware and Liquor. Supermarket performance down. Pathway to stabilisation elusive. Independent retail sales are likely to have fallen circa 5% in the 2H17, based on ABS data. Acceleration in Woolworths' performance in 2017 has been as big a variable as Aldi in that outcome. We caution against interpreting the movement in market share to Woolworths as a trend; Woolworths market share improvement largely reflects catch-up after several years of under-performance. Independents continue a more active refurbishment program than in the past (which has been a successful element of the Metcash strategy). For independents, repositioning towards fresh and convenience seems the most likely route to sustainability. For Metcash, centralisation of state-based support activities is likely to have mitigated most of the sales downside in this period. Liquor and hardware are very positive stories. The independent sector continues to benefit from incumbency and regulatory barriers in liquor and another strong result is expected for Metcash. There is likely upside to current estimates from consolidation of Home Timber and Hardware and growth of the Mitre 10 brand over the medium term.


OUTPERFORM


Grant Saligari Research Analyst 61 3 9280 1720

https://plus.credit-suisse.com/r/V6OZh02AD-WEqkbN

https://plus.credit-suisse.com/r/V6OZh02AD-WEqkbN


https://plus.credit-suisse.com/r/V6OYeZ2AD-WEqkbN



19 June 2017

Asia Pacific/Australia Equity Research

Transportation

Aussie Transport & Infrastructure Research Analysts

Paul Butler

61 2 8205 4309

[email protected]

Gretel Janu

61 2 8205 4028

[email protected]

WEEKLY ANALYSIS

Week 24 – US Inventory growth remains weak

Welcome to our weekly analysis of the Aussie transport & infrastructure space. This series of notes includes a summary of the week's events, valuation tables, events calendar, and key value driver charts for each stock.

■ AZJ – Aurizon Network issued A$425mn 7-year notes priced at 177 basis points over the 7-year swap rate. Industry press speculates that WICET faces a restructure after Caledon entered administration in May. WICET has until September 2018 to refinance the debt, but may seek to refinance early. Aurizon has a 4mt p.a. above rail take-or-pay contract with Caledon.

■ SYD – Off peak movements up 3% over the last 12 months as peak movements remain flat. Sydney Airport continues to be capacity constrained at 8am on weekdays, with 96% of the 80 slots used. In May, off-peak movements were flat, with peak movements up 1.5%.

ABS overseas arrivals and departures data to Australia suggests Chinese nationals make up 6.7% of total international traffic to/from Australia (up from 6.4% 12 months ago).

■ QAN – Domestic airline load factors up 1.6ppts in April, with strong improvement across each of the route types (Triangle, East West, Resources, Domestic Leisure and regional).

QAN shares are trading in line with US Airlines at 10x P/E (12-month fwd) with European airlines at 7.0x P/E.

■ Chart of the week – BXB – US retail inventories/sales continues to fall in April. US retail inventories recorded growth of 1.6% compared to sales growth of 4.6% in April. Lower inventory growth could mean lower pallet issues for Brambles as retailers potentially extend their de-stocking phase.

Figure 1: Chart of the week – BXB – US retail inventories/sales fall

What's on next

Tue 20-Jun SYD - May traffic

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

US

re

tail

tra

de

inve

nto

rie

s/sa

les

Source: Thomson Reuters

19 June 2017


Our view

Figure 2: Credit Suisse Transport and Infrastructure summary

Stock AZJ BXB QUB QAN VAH TCL MQA SYD ASX200*

CS rating UP UP UP OP N OP N UP

CS target price 4.75 8.90 2.28 5.00 0.21 12.60 5.90 6.50

Current share price 5.41 10.21 2.68 5.32 0.19 12.43 5.88 7.35 5,678

Upside vs target -12% -13% -15% -6% 11% 1% 0% -12%

12 mth fwd PE 20.6x 19.2x 30.4x 10.2x 37.0x 62.2x 22.3x 44.3x 19.5x

12 mth fwd EV/EBITDA 9.0x 9.4x 16.8x 4.1x 5.1x 22.4x 33.3x 18.6x 10.5x

*PE and EV/EBITDA is for ASX200 Industrials (ex financials)

Source: Credit Suisse estimates

Share price performance

Figure 3: Aussie transport & infrastructure share price performance

Price performance AZJ BXB QUB QAN VAH TCL MQA SYD ASX200

1 week -0.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

2 weeks -4.4% -2.7% 0.8% 3.1% 8.8% -1.7% -3.8% -4.3% -1.9%

1 month -0.6% -2.3% 3.8% 9.2% 2.8% 4.2% 5.6% 1.4% -1.9%

2 months 2.3% 6.9% 4.6% 36.4% -2.6% 3.8% 12.4% 5.8% -3.6%

3 months 0.2% 12.9% 9.7% 40.4% -5.1% 11.7% 19.8% 15.2% -2.1%

6 months 10.4% -15.1% 13.4% 60.2% -15.9% 21.5% 22.0% 14.5% 2.6%

9 months 24.4% -12.3% 18.4% 63.7% -21.3% 16.4% 18.5% 14.0% 8.4%

1 year 18.4% -16.7% 22.7% 86.7% -27.5% 5.8% 17.4% 5.0% 10.3%

2 years 3.0% -6.3% 7.9% 64.7% -57.0% 24.9% 75.5% 41.9% 1.5%

3 years 10.6% 13.1% 21.3% 306.1% -57.0% 60.8% 80.4% 71.7% 5.1%

5 years 62.0% 79.3% 79.2% 360.6% -50.5% 122.3% 305.5% 147.5% 39.9%

10 years -14.2% -7.5% -91.1% 55.8% 82.8% -10.9%

52 week share price performance

Source: Credit Suisse Rav e

0.5

0.7

0.9

1.1

1.3

1.5

1.7

Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17

Sha

re p

rice

(reb

ased

)

AZJ BXB QUB QAN VAH TCL MQA SYD ASX200

19 June 2017


Stock estimates and valuation ratios

Figure 4: Credit Suisse estimates and valuation ratios

FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19

Business performance

Rev. growth -1.4% 0.7% 2.7% -0.1% 2.8% 4.2% 6.7% 5.3% 6.2% -1.1% 2.1% 1.2% -0.3% 4.9% 5.1%

EBITDA margin 41.7% 43.7% 45.5% 27.0% 27.7% 27.9% 17.4% 19.3% 20.8% 18.8% 18.7% 16.8% 10.2% 10.9% 10.2%

EBIT margin 24.9% 27.1% 29.4% 17.1% 17.7% 17.9% 9.6% 11.6% 13.5% 10.1% 10.1% 8.2% 3.9% 4.7% 4.1%

EPS growth -6.2% 14.2% 15.4% -6.4% 7.7% 5.5% -10.1% 26.7% 15.7% -1.7% 17.9% -9.5% -93% 59% -52%

FCF growth 38.8% 19.4% 19.3% 9.8% 9.0% -0.3% 9.3% -16.2% 15.4% -29.5% 7.3% -12.5% 130% -164% -78%

Div growth 0.0% 6.4% 4.2% 1.4% -0.5% -0.5% -1.8% 0.0% 0.0% 114.3% 6.7% 0.0% na na na

Inv. capital turns 0.4x 0.4x 0.4x 0.9x 0.9x 0.9x 0.4x 0.4x 0.4x 1.8x 1.7x 1.8x 1.5x 1.6x 1.6x

ROIC (post tax) 7.5% 8.4% 9.4% 11.5% 12.2% 12.6% 4.1% 4.7% 5.2% 14.6% 13.9% 11.7% 7.2% 7.3% 6.9%

ROE 10.4% 9.8% 11.2% 15.3% 19.3% 18.6% 4.1% 5.2% 5.9% 23.5% 24.1% 19.5% 1.7% 2.7% 1.3%

Balance sheet strength

Net debt/EBITDA* 2.3x 2.1x 1.8x 1.6x 1.4x 1.2x 3.9x 3.8x 3.7x 1.9x 1.7x 1.8x 8.6x 8.0x 8.6x

EBITDA Interest cover 7.8x 8.5x 9.7x 14.9x 16.1x 15.8x 14.9x 11.4x 10.2x 14.5x 14.9x 22.7x 3.4x 3.9x 3.6x

EBIT Interest cover 4.6x 5.3x 6.3x 9.5x 10.3x 10.1x 8.2x 6.9x 6.6x 7.8x 8.0x 11.0x 1.3x 1.7x 1.5x

Valuation

@share price 5.41 5.41 5.41 10.21 10.21 10.21 2.68 2.68 2.68 5.32 5.32 5.32 0.19 0.19 0.19

EV/IC 1.5x 1.5x 1.5x 2.3x 2.3x 2.2x 1.5x 1.4x 1.4x 7.1x 6.6x 7.4x 1.1x 1.0x 1.0x

P/B 2.0x 2.0x 2.0x 4.3x 3.9x 3.6x 1.7x 1.7x 1.6x 2.6x 2.2x 2.0x 0.8x 0.8x 0.8x

EV/EBITDA 10.2x 9.7x 9.0x 10.3x 9.7x 9.3x 19.3x 16.5x 14.5x 5.2x 5.1x 5.6x 11.8x 10.6x 10.8x

P/E 23.6x 20.7x 17.9x 21.6x 20.0x 19.0x 40.6x 32.0x 27.7x 11.3x 9.6x 10.6x 46.6x 29.3x 61.0x

FCF yield 5.1% 6.0% 7.2% 4.0% 4.3% 4.3% 4.9% 4.1% 4.7% 11% 11% 10% -26.3% 16.9% 3.8%

Div yield 4.5% 4.8% 5.0% 2.7% 2.7% 2.7% 2.0% 2.0% 2.0% 2.7% 2.9% 2.9% 0.0% 0.0% 0.0%

*QAN & VAH Net debt adjusted to include capitalised operating leases

FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19

Business performance

Rev. growth 7.3% 5.5% 5.4% 10.2% 8.9% 7.9% 10.1% 6.9% 3.2%

EBITDA margin 80.8% 81.4% 81.8% 75.9% 77.2% 78.7% 67.9% 69.1% 70.9%

EBIT margin 55.7% 56.7% 58.4% 48.2% 48.9% 51.2% 45.6% 46.1% 50.2%

EPS growth 3.8% 8.9% 8.4% nm 16.0% 55.1% -76.1% 3.0% 53.6%

FCF growth 10.4% 7.3% 5.4% 35.6% -10.1% 18.4% 6.5% -6.5% 45.7%

Div growth 9.7% 5.9% 6.9% 13.2% 10.7% 14.9% 11.1% 17.5% 38.1%

Inv. capital turns 0.2x 0.2x 0.2x 0.1x 0.1x 0.2x 0.1x 0.1x 0.1x

ROIC (post tax) 7.9% 8.4% 9.2% 5.6% 6.0% 7.2% 4.5% 5.3% 6.6%

ROE 48% nm nm 6.2% 7.7% 15.3% 3.4% 3.8% 6.1%

Balance sheet strength

Net debt/EBITDA 7.3x 7.1x 6.8x 8.5x 8.4x 8.2x 9.6x 9.2x 8.7x

EBITDA interest cover 2.7x 2.7x 2.7x 2.4x 2.4x 2.4x 4.4x 4.5x 4.8x

EBIT interest cover 1.8x 1.9x 1.9x 1.5x 1.5x 1.6x 3.0x 3.0x 3.4x

Valuation

@share price 7.35 7.35 7.35 12.43 12.43 12.43 5.88 5.88 5.88

EV/IC 2.7x 2.7x 2.8x 1.6x 1.6x 1.6x 1.0x 1.0x 1.0x

P/B 23.8x nm nm 5.8x 6.3x 7.9x 2.1x 2.2x 2.2x

EV/EBITDA 20.9x 19.7x 18.6x 31.3x 28.9x 26.9x 14.0x 13.1x 12.4x

P/E 49.4x 45.4x 41.9x 93.0x 80.2x 51.7x 58.2x 56.5x 36.7x

FCF yield 4.7% 5.0% 5.3% 5.0% 4.5% 5.3% 8.7% 8.1% 11.9%

Div yield 4.6% 4.9% 5.2% 4.0% 4.5% 5.1% 3.4% 3.9% 5.4%

*Proportional EBIT, EBITDA estimates

QAN VAH

SYD TCL* MQA*

AZJ BXB QUB

Source: Company data, Credit Suisse estimates

19 June 2017


Infra yields

Figure 5: Australia infrastructure spreads and yields

-2

-1

0

1

2

3

4

5

6

7

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Yie

ld &

spr

ead

(%)

TCL fwd yield spread on AU 10y MQA fwd yield spread on AU 10y SYD fwd yield spread on AU 10y AU 10Yr bond yield

Source: Datastream, Company data, Credit Suisse estimates

Airline valuation chart

Figure 6: Qantas vs US and European airlines earnings yield

-10%

0%

10%

20%

30%

40%

50%

1992 1993 1994 1995 1996 1997 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Ear

ning

s yi

eld

(12m

th fw

d)

Qantas Airways US Airlines (Delta, United, American) average Europe Airlines Average

Source: DataStream, Company data, Credit Suisse estimates

Figure 7: Qantas vs Airline peers 12mth fwd P/E

Qantas

Airways IAG Lufthansa Air France

American

Airlines

United

Airlines

Delta

Airlines JetBlue Southwest

US Hub

Carrier

Average

Europe

Average

12mth fwd PE 10.1 7.1 7.1 6.9 9.7 10.0 9.4 11.8 14.1 9.7 7.0

Source: DataStream, Company data, Credit Suisse estimates

19 June 2017


Credit Suisse vs. consensus

Figure 8: CS vs. Consensus revenue growth Figure 9: CS vs. Consensus EBITDA growth

-10%

-5%

0%

5%

10%

15%

20%

AZJ BXB QUB QAN VAH TCL SYD MQA

FY

17 R

even

ue g

row

th

Cons +/- 1 sd Cons High/Low Cons mean CS

-20%

-10%

0%

10%

20%

30%

40%


FY

17 E

BIT

DA

gro

wth


Source: IBES, Credit Suisse estimates Source: IBES, Credit Suisse estimates

Figure 10: CS vs. Consensus EBIT growth Figure 11: CS vs. Consensus EPS growth

-40%

-20%

0%

20%

40%

60%

80%


FY

17 E

BIT

gro

wth

Cons +/- 1 sd Cons High/Low Cons Mean CS

-20%

-10%

0%

10%

20%

30%

40%


FY

17 E

PS

gro

wth


Source: IBES, Credit Suisse estimates Source: IBES, Credit Suisse estimates

Figure 12: Consensus EPS changes (12mth fwd)

Consensus EPS change AZJ BXB QUB QAN VAH TCL SYD MQA

1 week -0.3% 1.6% 0.2% -1.0% -1.2% 1.8% 0.5% -0.7%

2 weeks 0.0% 1.7% 0.4% -1.0% 0.4% 2.3% 0.7% -0.3%

1 month -0.1% 2.1% 0.9% 2.1% -26.2% 0.1% 1.0% 6.4%

3 months -2.6% 0.8% 3.4% 1.8% -37.6% 2.4% 3.0% 7.8%

6 months -3.2% -7.6% -9.9% 1.6% -52.5% 7.5% 1.6% 11.9%

9 months -1.8% -5.9% -12.7% -6.1% -62.7% 9.9% 4.0% 25.9%

12 months -3.7% -5.4% -10.9% -14.0% -83.9% 8.3% 17.6% 49.7%

Source: IBES

19 June 2017


Upcoming events

Figure 13: Upcoming events

Date Stock/Industry data Event

Stock events

20-Jun-17 SYD May traffic

19-Jul-17 AZJ 4Q Above rail volumes

20-Jul-17 MQA 4Q traffic and revenue data

20-Jul-17 SYD June traffic

Industry data

14-Jul-17 ABS OAD data May Overseas arrivals and departures data

20-Jul-17 ABS Labour hours June labour hours data by state

Macro data

04-Jul-17 RBA RBA cash rate decision

25-Jul-17 FOMC FOMC meeting

Source: Company data

Links to our latest research

Aurizon

Intermodal exit is short-term accretive – Aurizon is running a sale process for its loss

making intermodal rail business (~A$300mn revenue). Qube and a Genesse Wyoming

and Macquarie consortium are reported to be shortlisted, final bids at end June. A sale at

A$200mn would be 5% earnings accretive for Aurizon by FY19, but even giving it away

could be ~3% accretive.

Risk of dividend decline in FY17 – Management's new guidance range of $800-$850mn

of EBIT suggests underlying business performance and/or the cost out program is weaker

than previously expected. We forecast flat dividend for FY17, but at 120% payout ratio.

There is the risk that the board sticks with 70-100% payout ratio and cuts the dividend.

Cyclone Debbie impact higher than expected – Aurizon's QLD coal could be closed for

an average of 3½ weeks. We estimate the financial impact for Aurizon at ~$100mn of

EBIT in FY17. However, $80mn of this is in the Network business, and Aurizon is likely to

recover much of this via regulated price increases in FY19.

Brambles

Beware the six missing days in 4Q FY17 – There are six less days in Brambles 4Q

FY17 than in 4Q FY16. Consensus has underlying revenue growth for 4Q FY17 at ~10%

(adjusted for trading days, FX & divestments), well above the underlying ytd growth of

~5% (CSe 5%). Brambles reaffirmed underlying EBIT guidance at flat YoY at constant

currency. Our EBIT estimate is ~3% below this.

Higher US lumber price to hit margins – US lumber prices up 14% since January on the

prospect US begins taxing Canadian softwood imports ~30%. The US sources ~30% of its

softwood requirement from Canada. We estimate a 10% increase in lumber costs could

reduce Pallets America's EBIT by ~5% (or ~2% group EBIT).

Qube

Who's going to Moorebank? – We value the 850k sqm of warehousing at Moorebank at

~A$690mn (net of ~A$980mn capex) based on a A$120/sqm lease rate, 5.75% cap rate

and fully let in ten years. We estimate the current share price (A$2.62) is discounting a

lease rate of A$150/sqm and warehousing fully let closer to five years. We view this

valuation as too stretched, and we downgrade out rating to UNDERPERFORM.

https://plus.credit-suisse.com/r/V6LYUb2AF-WElY95

http://www.theaustralian.com.au/business/dataroom/gw-macquarie-in-race-for-aurizons-intermodal-business/news-story/1cb8d079e839f21e3f5681f083c0356a

https://plus.credit-suisse.com/r/V6A5Ce2AF-WEqsED

https://plus.credit-suisse.com/r/V68Ato2AF-WElY95

https://plus.credit-suisse.com/r/V6AQJS2AF-WEqsED

https://plus.credit-suisse.com/r/V67Dep1AF-WElY95

https://plus.credit-suisse.com/r/V6FbNM2AF-WEqsED

19 June 2017


Resources improving, but Patricks under pressure – The opening of a third Melbourne

terminal operator, VICT is likely to increase competition, hit margins and we forecast

Patricks' market share to decline to 39% by 2021. Shipping consolidation allows larger

ships and reduced frequencies and there is downside risk for Patricks.

Qantas

Shares at $7.0 if Qantas gets to FY2020 targets – Management set targets for airline

ROIC >10% through FY2020. To reach the target over the next three years it needs to

maintain higher capital efficiency. The higher domestic market share and higher exposure

to Asia (more point-to-point) may give it a structural advantage to achieve this.

Momentum turning positive – Management is bullish on the outlook for each business.

We forecast Qantas domestic 2H RASK up 2% with management's plan for 2% capacity

reduction and we forecast the International 1H RASK decline (8.9%) to moderate to -3.3%

in 2H.

Sydney Airport

Competition offset by mix shift to international – Following Sydney Airport passing up

the challenged option to build and operate WSA, we raise our target price to A$6.5 (from

A$5.5). This is due to eliminating the risk of SYD taking on the dilutive WSA project and

our change of view on the extent of the competition risks from WSA.

Monopoly going to duopoly – We estimate SYD would destroy A$1.5bn of value by

taking on the WSA project. The Government may be the toughest competitor and may

measure success by passenger volumes rather than profitability.

Transurban

35 minute time saving on 395 Express Lanes – We estimate value from the US$460mn

395 Express Lanes project in the range of A$c20-65 per share and include it in our SOTP

valuation at A$c40 per share. The I-395 is far more congested than the I-95 and there

could be potential for revenue per lane mile to be twice the level of 95 Express Lanes.

WestConnex and fresh equity for growth – We value the entire WestConnex project at

$3.0bn, with Stage 1 at $3.5bn and Stage 2 at $2.9bn, but Stage 3 (M4-M5 Link) has

negative value of $3.4bn due to high tunnel construction costs and low toll price levels.

Transurban is likely to be keen and has advantages over other bidders (better traffic

knowledge and owns South-West M5 until 2026 that is part of Stage 2).

Macquarie Atlas

Get more APRR cheap vs raising to pay for it – APRR stake is up for sale in 2H 2017.

MQA is likely to get the additional 9.7% stake in APRR at an attractive price. In our base

case scenario, buying at this level may require an equity raising of A$550mn (16% of market

cap). We raise target price to A$5.90 (from A$5.70) but downgrade rating to NEUTRAL.

D-G a steal at 28% discount to fair value – MQA bought the remaining 50% stake in

Dulles Greenway for US$445mn. With 100% ownership, MQA could create additional

value by negotiating more transparent toll regulation.

https://plus.credit-suisse.com/r/V6gSnW1AF-WElY95

https://plus.credit-suisse.com/r/V6D5Ly2AF-WEqsED

https://plus.credit-suisse.com/r/V629eL1AF-WElY95

https://plus.credit-suisse.com/r/V6CAJr2AF-WEqsED

https://plus.credit-suisse.com/r/V6o2ha1AF-WElY95

https://plus.credit-suisse.com/r/V632S41AF-WElY95

https://plus.credit-suisse.com/r/V6txqO1AF-WElY95

https://plus.credit-suisse.com/r/V6Is5p2AF-WElY95

https://plus.credit-suisse.com/r/V629gd1AF-WElY95

19 June 2017


Notes of interest from our offshore colleagues

Singapore Airlines: More needs to be done: SIA announced it has set up a dedicated

Transformation Office to conduct a wide-ranging review to address structural challenges in

the industry. The focus will be on (1) optimising the portfolio’s network with consideration

of current and upcoming fleet, (2) identifying new revenue generation opportunities, (3)

strengthening product and services positioning, and (4) reshaping the business to raise

productivity while enhancing cost efficiency. We believe a sale of its 78% stake in SIAEC

to STE could net them up to S$4.0bn in proceeds, and could provide liquidity headroom in

light of the growing capex requirements.

Shenzhen Airport: New arrival duty-free contract slightly positive: In SZAC's new

duty free contract, SZAC will take the higher amount of guaranteed rentals and shared

revenues (35% commission rate). The first annual guaranteed rental is set at Rmb45mn,

and next few years' rental growth will refer to half of SZAC's international traffic growth

(max 10% per annum). Our analysts estimate arrival duty-free will enhance SZAC's

FY17/18/19E earnings by 2%/3.6%/3.6%.

https://plus.credit-suisse.com/r/V6MHwX2AF-WElY95

https://plus.credit-suisse.com/r/V6MHze2AF-WElY95

19 June 2017


Figure 14: AZJ key stock drivers

Met and thermal coal price Updated 16-Jun Iron Ore price Updated 16-Jun

Source: Thomson Reuters Source: Thomson Reuters

Total QLD coal export volumes growth Updated 07-Jun QLD coal export volumes growth by terminal Updated 07-Jun

Source: Queensland Ports, Port of Gladstone Source: Queensland Ports, Port of Gladstone

BMA's coal volumes - higher is +ive for AZJ Updated 26-Apr Glencore's coal volumes - higher is +ive for AZJ Updated 04-May

Source: Company data Source: Company data

Yancoal's coal volumes - higher is +ive for AZJ Updated 21-Apr

Source: Company data

40

90

140

190

240

290

340

Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Coa

l pric

e (U

S$/

t)

Met Coal (USD) Thermal Coal (USD)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2014 2015 2016 2017

Coa

l pro

duct

ion

grow

th (y

oy %

)

Glencore thermal coal Glencore met coal

-60%

-40%

-20%

0%

20%

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

QLD

coa

l ex

port

grow

th (%

)

FY16 FY17

Cy clone Debbie

30

40

50

60

70

80

90

100

May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17

Iron

Ore

63.

5% s

pot p

rice

(US

$/t)

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

J F M A M J J A S O N D J F M A M

2016 2017

Coa

l ex

port

grow

th (%

)

Abbott Point Hay Point DBCT Gladstone

Cy clone Debbie

-20%

-10%

0%

10%

20%

30%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2014 2015 2016 2017

Coa

l pro

duct

ion

grow

th (y

oy %

)

BMA BHP Billiton Mitsui Coal

-20%

-10%

0%

10%

20%

30%

40%

50%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2014 2015 2016 2017

Coa

l pro

duct

ion

grow

th (y

oy %

)

19 June 2017


Figure 15: BXB key stock drivers

US retail trade inventories/sales Updated 15-Jun US inventory and sales growth Updated 15-Jun

Source: US Census Bureau Source: US Census Bureau

US consumer staples unit data Updated 30-May Western Europe consumer staples unit data Updated 23-May

Source: AC Nielsen Source: AC Nielsen

Lumber costs - higher costs negative for BXB Updated 15-Jun US trucking costs - lower costs +ive for BXB Updated 1-Jun

Source: Datastream Source: CASS

Major FX moves Updated 15-Jun

Source: Datastream

1.10

1.20

1.30

1.40

1.50

1.60

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

US

reta

il tra

de

inv

ento

ries/

sale

s

-15%

-10%

-5%

0%

5%

10%

15%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Inv

ento

ry a

nd s

ales

gro

wth

(y

oy) %

US Retail Inventories US Retail Sales

200

250

300

350

400

450

2010 2011 2012 2013 2014 2015 2016 2017

US

D p

er 1

000

boar

d fe

et

105

110

115

120

125

130

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May JunCas

s tru

cklo

ad

lineh

aul

inde

x

FY12 FY13 FY14FY15 FY16 FY17

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05


FX

(reb

ased

)

AUDUSD EURUSD GBPUSD

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

27-D

ec-1

5

24-J

an-1

6

21-F

eb-1

6

20-M

ar-1

6

17-A

pr-1

6

15-M

ay-1

6

19-J

un-1

6

17-J

ul-1

6

14-A

ug-1

6

11-S

ep-1

6

09-O

ct-1

6

06-N

ov-1

6

04-D

ec-1

6

01-J

an-1

7

29-J

an-1

7

26-F

eb-1

7

26-M

ar-1

7

23-A

pr-1

7

Wes

tern

Eur

ope

cons

umer

sta

ples

-u

nit s

ales

Total Sales Food Household care Personal care

-6%

-4%

-2%

0%

2%

4%

05-D

ec-1

5

02-J

an-1

6

30-J

an-1

6

27-F

eb-1

6

26-M

ar-1

6

23-A

pr-1

6

21-M

ay-1

6

18-J

un-1

6

16-J

ul-1

6

13-A

ug-1

6

10-S

ep-1

6

08-O

ct-1

6

05-N

ov-1

6

03-D

ec-1

6

31-D

ec-1

6

28-J

an-1

7

25-F

eb-1

7

25-M

ar-1

7

22-A

pr-1

7

20-M

ay-1

7

US

con

sum

er s

tapl

es -

unit

sale

s

Total sales Packaged food Household & personal care

19 June 2017


Figure 16: QUB key stock drivers

Total container volume growth Updated 07-Jun Container volume growth by ports Updated 07-Jun

Source: Ports Australia Source: Ports Australia

Iron ore price - higher price +ive for QUB Updated 15-Jun Atlas Iron Ore shipped Updated 18-Apr

Source: Thomson Reuters Source: Company data

Wheat price - weaker prices -ive for QUB Updated 15-Jun Quattro Grain shipments Updated 15-Jun

Source: Thomson Reuters Datastream Source: Quattro Grain

Zinc price - weaker prices -ive for QUB Updated 15-Jun Copper price - weaker prices -ive for QUB Updated 15-Jun

Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream

-20%

-10%

0%

10%

20%

J F M A M J J A S O N D J F M A

2016 2017

Tot

al C

onta

iner

s gr

owth

(%

YoY

)

Port Botany Port of Brisbane Fremantle Ports Port of Melbourne

3

4

5

6

7

8

9

10

2010 2011 2012 2013 2014 2015 2016 2017

Whe

at p

rice

(US

$/t)

0.0

1.0

2.0

3.0

4.0

5.0

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

Jun-

15

Sep

-15

Dec

-15

Mar

-16

Jun-

16

Sep

-16

Dec

-16

Mar

-17

Ore

tonn

es s

hipp

ed (W

MT

)

0

50

100

150

200

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Iron

Ore

(Fe

63.5

%) U

S$/

t

1.5

2.0

2.5

3.0

3.5

2014 2015 2016 2017

Cop

per p

rice

(US

$/lb

)

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

2014 2015 2016 2017

Zin

c pr

ice

(US

$/lb

)

-12%

-8%

-4%

0%

4%

8%

12%

16%

J F M A M J J A S O N D J F M A M J J A S O N D J F M A

2015 2016 2017

Tot

al c

onta

iner

s gr

owth

ac

ross

4 p

orts

(%

YoY

)

0

50

100

150

200

M A M J J A S O N D J F M A M J

2016 2017

Vol

umes

(tho

usan

d to

nnes

)

Wheat Barley Canola Fertiliser

19 June 2017


Figure 17: QAN & VAH key stock drivers

AUDUSD Updated 15-Jun Brent and Jet fuel prices Updated 15-Jun

Source: Thomson Reuters Source: Thomson Reuters

Airline revenue growth vs labour hours worked Updated 15-Jun Airline revenue growth vs ASX200 Updated 15-Jun

Source: Thomson Reuters, BITRE Source: Thomson Reuters, BITRE

Domestic airlines load factor change Updated 16-Jun Domestic airline capacity growth Updated 05-Apr

Source: BITRE Source: Company data, Credit Suisse estimates, Diio-Mi

Airline peers capacity growth Updated 24-May Airline peers change in load factor Updated 24-May

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2005 2007 2009 2011 2013 2015 2017

Labo

ur h

ours

wor

ked

grow

th

Dom

estic

airl

ines

reve

nue

grow

th

Revenue growth Labour hours worked growth

0.68

0.70

0.72

0.74

0.76

0.78

0.80


AU

DU

SD

20

40

60

80

100

120


US

D /b

bl

Brent (USD) Jet (USD)Brent (AUD) Jet (AUD)

3000

3500

4000

4500

5000

5500

6000

6500

7000

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2004 2006 2008 2010 2012 2014 2016

AS

X 2

00

Dom

estic

airl

ines

reve

nue

grow

th

Revenue growth ASX200

-10%

-5%

0%

5%

10%

15%

20%

3Q FY16 4Q FY16 1Q FY17 2Q FY17 3Q FY17 4Q FY17

Dom

estic

airl

ine

capa

city

gro

wth

Qantas domestic VA Domestic Jetstar Tigerair

-5%

0%

5%

10%

15%


2015 2016 2017

Cap

acity

gro

wth

(yoy

)

Air NZ Short Haul Singapore Air Cathay Pacific (SW & Pacific)

-10

-5

0

5

10

15


2015 2016 2017

Load

fact

or c

hang

e (p

pt)

Air NZ Short Haul Singapore Air Cathay Pacific (SW & Pacific)

-0.5

0.0

0.5

1.0

1.5

2.0


2015 2016 2017

Load

fact

or c

hang

e (p

pt)

19 June 2017


Figure 18: SYD key stock drivers

Domestic pax - higher +ive for SYD Updated 19-May International pax - higher +ive for SYD Updated 19-May


SYD Slot utilisation Updated 15-Jun Growth in aircraft movements Updated 19-May

Source: AirServices Australia, Credit Suisse estimates Source: AirServices Australia, Credit Suisse estimates

Foreign arrivals to Australia growth (by nationality) Updated 13-Jun SYD China visitor arrivals (lagged 9m) vs CS ind #1 Updated 27-Apr

Source: Company data, ABS, Credit Suisse estimates Source: Company data, Credit Suisse estimates

China visitor active evaluation (CS-SYD ind #1) Updated 27-Apr China visitor commitment (CS-SYD ind #2) Updated 27-Apr

Source: Credit Suisse estimates Source: Credit Suisse estimates

0%

20%

40%

60%

80%

100%

120%

6:00

7:00

8:00

9:00

10:0

0

11:0

0

12:0

0

13:0

0

14:0

0

15:0

0

16:0

0

17:0

0

18:0

0

19:0

0

20:0

0

21:0

0

22:0

0

% o

f max

imum

(80

mov

emen

ts)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

NZ

Chi

na

US

A

UK

Sin

gapo

re

Japa

n

Mal

aysi

a

Kor

ea

Indi

a

HK

Ger

man

y

Indo

nesi

a

Can

ada

Tai

wan

Fra

nce

Oth

er

For

eign

arr

ival

s gr

owth

(% y

oy)

0.7

1.7

2.7

3.7

4.7

5.7

-

100

200

300

400

500

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

CS

-S

YD

Chi

na v

isito

r in

dica

tor

#1

Chi

nese

vis

itor

arriv

als

to S

ydne

y

Chinese pax arrivals SYD (lagged 9 months)

CS - SYD China visitor indicator #1 - visitor active evaluation

0%

20%

40%

60%

80%

100%

6:00

7:00

8:00

9:00

10:0

0

11:0

0

12:0

0

13:0

0

14:0

0

15:0

0

16:0

0

17:0

0

18:0

0

19:0

0

20:0

0

21:0

0

22:0

0

% o

f max

imum

(80

mov

emen

ts)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

NZ

Chi

na

US

A

UK

Sin

gapo

re

Japa

n

Mal

aysi

a

Kor

ea

Indi

a

HK

Ger

man

y

Indo

nesi

a

Can

ada

Tai

wan

Fra

nce

Oth

er

For

eign

arr

ival

s gr

owth

(% y

oy)

0.7

1.7

2.7

3.7

4.7

5.7

6.7

-

100

200

300

400

500

Jan-13 Aug-13 Mar-14 Oct-14 May-15 Dec-15 Jul-16 Feb-17

CS

-S

YD

Chi

na v

isito

r in

dica

tor

#1

Chi

nese

vis

itor

arriv

als

to S

ydne

y

Chinese pax arrivals SYD (lagged 9 months)

CS - SYD China visitor indicator #1 - visitor active evaluation

1,800

1,900

2,000

2,100

2,200

2,300

2,400

2,500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Dom

estic

pas

seng

ers

2013 2014 2015 2016 2017

-5%

0%

5%

10%

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M

2015 2016 2017

Gro

wth

in a

ircra

ft m

ovem

ents

(Y

oY)

Peak Off-peak

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700


Inte

rnat

iona

l pas

seng

ers

2013 2014 2015 2016 2017

0

2

4

6

8

10

12

14


CS

-S

YD

Chi

na in

dica

tor

#2 -

visi

tor

com

mit

2013 2014 2015 2016 2017

0.6

1.6

2.6

3.6

4.6

5.6

6.6


CS

-S

YD

Chi

na in

dica

tor

#1 -

visi

tor

activ

e ev

alua

tion

2013 2014 2015 2016 2017

19 June 2017


Figure 19: TCL key stock drivers

NSW traffic growth Updated 13-Apr NSW labour hours worked Updated 15-Jun

Source: Company data Source: ABS

VIC traffic growth Updated 13-Apr VIC labour hours worked Updated 15-Jun


QLD traffic growth Updated 13-Apr QLD labour hours worked Updated 15-Jun


US traffic growth Updated 13-Apr Virginia non-farm payrolls Updated 26-May

Source: Company data Source: US Bureau of Labor Statistics

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


2015 2016 2017

Virg

inia

non

-farm

pay

rolls

gr

owth

(% y

oy)

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%


2015 2016 2017

VIC

labo

ur h

ours

wor

ked

grow

th

(% y

oy)

-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%


2015 2016 2017

QLD

labo

ur h

ours

wor

ked

grow

th

(% y

oy)

-10%

0%

10%

20%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Tra

ffic

grow

th (%

yoy

)

Hills M2 Lane Cove TunnelCross City Tunnel M1 Eastern DistributorM5

-2%

-1%

0%

1%

2%

3%

4%

5%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

Tra

ffic

grow

th (%

yoy

)

CityLink

-20%

-10%

0%

10%

20%

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17

Tra

ffic

grow

th (%

yoy

)

Gateway Motorway Logan MotorwayClem7 Go Between Bridge

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%


2015 2016 2017

NS

W la

bour

hou

rs w

orke

d gr

owth

(% y

oy)

0%

5%

10%

15%

20%

25%

30%

35%

4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17

Tra

ffic

grow

th (%

yoy

)

495 Express Lanes 95 Express Lanes

19 June 2017


Figure 20: MQA key stock drivers

APRR heavy vehicle economic indicators Updated 04-May APRR light vehicle economic indicators Updated 04-May

Source: Company data, Thomson Reuters Datastream Source: Company data, Thomson Reuters Datastream

APRR traffic growth Updated 19-Apr APRR heavy vehicle traffic vs. GDP growth Updated 19-Apr

Source: Company data Source: Company data, Thomson Reuters Datastream

Dulles Greenway traffic growth Updated 19-Apr Virginia non-farm payrolls growth Updated 26-May

Source: Company data Source: Bureau of Labour statistics

MQA Listed debt Updated 15-Jun Stock price vs benchmark Updated 15-Jun

Source: Company data, Bloomberg Source: Company data, Credit Suisse estimates

80

85

90

95

100

105

110

115

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Consumer confidence Disposable income LV Traffic

70

80

90

100

110

120

130

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Imports Manufacturing HV Traffic

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Mid

-yie

ld to

mat

urity

(%)

1000mn EUR - 5% 2017 500mn EUR - 5.125% 2018500mn EUR - 4.875% 2019 500mn EUR - FRN 2019500mn EUR - FRN 2020 500mn EUR - 2.25% 2020700mn EUR - 1.125% 2021 500mn EUR - 1.5% 2024

-10%

-5%

0%

5%

10%

1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17

Tra

ffic

grow

th (%

yoy

)

Dulles Greenway

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 2Q12 2Q13 2Q14 2Q15 2Q16

Tra

ffic

grow

th (%

yoy

)

LVT HVT APRR Traffic growth

-20%

-15%

-10%

-5%

0%

5%

10%

2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 2Q12 2Q13 2Q14 2Q15 2Q16

Tra

ffic

grow

th (%

yoy

)

HVT GDP growth

0.80

0.90

1.00

1.10

1.20

1.30

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Pric

e (r

ebas

ed)

MQA Benchmark

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


2015 2016 2017

Virg

inia

non

-farm

pay

rolls

gro

wth

(%

yoy

)


19 June 2017


Steel

BlueScope Steel

(BSL.AX / BSL AU) Rating OUTPERFORM*

Price (16-Jun,A$) 11.99

Target Price (A$) 13.30

Target price ESG risk (%) NA

Market cap (A$mn) 6,786.5

Yr avg. mthly trading (A$mn) 717.4

Projected return:

Capital gain (%) 10.9

Dividend yield (net %) 0.9

Total return (%) 11.9

Target price is for 12 months.

[V] = Stock Considered Volatile (see Disclosure Appendix)

Research Analysts

Michael Slifirski

61 3 9280 1845

[email protected]

Nick Herbert, CFA

61 3 9280 1754

[email protected]

COMMENT

Arrium preferred bidder – a minor risk?

■ Arrium's receiver, KordaMentha, has advised that it has chosen a Korean

consortium as the preferred bidder for the Arrium group of companies.

■ The consortium is headed by Newlake Alliance Management and JB Asset

Management and is supported by the Korean steel making company, Posco.

■ Arrium group includes ATM (Australian Tube Mills), a business that Arrium

had actively but unsuccessfully sought to divest as non-core and not

integrated long before receivership. ARI's price expectation deterred buyers.

■ BlueScope, in our view, is the logical owner of the ATM business and

could extract meaningful transport synergies by acquiring and relocating the

capacity from Brisbane to Port Kembla, removing two unnecessary transport

legs (HRC from Port Kembla to Brisbane, conversion to tube in Brisbane,

transport of tube back to the main markets in Sydney and Melbourne.

■ ATM is currently a domestic customer for up to 150ktpa of BlueScope's HRC.

While this is competitively priced and is BSL's lowest margin domestic

product, the alternative market is to the export market at perhaps a US$100/t

lower price, or a potential $15mn–$20mn EBIT (~1.5%) impact if the Posco

consortium keeps the ATM business and supplies its own Korean HRC.

■ Arrium also has a large domestic distribution business, focused on long

products. This business could, and has in the past, also distribute the product

range manufactured and distributed by BlueScope. 9Posco could use this

business as an import channel, competing with BlueScope, but would have

to be competitive with BSL's import parity pricing.

■ While we highlight both Posco opportunities as minor risks, we see no

reason to adjust our earnings, target price or rating and recognize the equal

risk of a net positive outcome if ATM was to be divested to BSL.

Total return forecast in perspective

Share Price CS Target Rtn Mean

12mth Volat ility

52 Week Hi-Lo

*Target return

- 49%

- 29%

- 9%

11%

31%

51%

Source: Company data, Thomson Reuters, IBES, Credit

Suisse estimates

Performance 1M 3M 12M Absolute (%) 4.53 -8.26 90.02 Relative (%) 4.93 -7.63 78.02

Financial and valuation metrics

Year 6/16A 6/17E 6/18E 6/19E

Revenue (A$ mn) 9,183 10,495 10,377 10,393

EBITDA (A$ mn) 955 1,502 1,547 1,519

EBIT (A$ mn) 567 1,115 1,162 1,133

Net Income (Adj.) (A$ mn) 290 671 712 690

EPS (Adj.) (A$) 0.49 1.14 1.20 1.17

Change from previous EPS (%) n.a. 0.0 0.0 0.0

EPS growth (%) 113.2 129.6 5.8 (3.0)

Consensus EPS (A$) 0.50 1.15 1.15 1.10

P/E (x) 24.2 10.6 10.0 10.3

Dividends (Ac) 6.00 8.00 11.43 11.43

Dividend yield (%) 0.5 0.7 1.0 1.0

Price/Book (x) 1.5 1.4 1.2 1.1

Net debt/EBITDA (x) 0.8 0.2 (0.2) (0.6)

Source: Company data, Thomson Reuters, Credit Suisse estimates

19 June 2017


BlueScope Steel (BSL.AX / BSL AU) Price (16 Jun 2017): A$11.99; Rating: OUTPERFORM [V]; Target Price: A$13.3; Analyst: Michael Slifirski

Income Statement 6/16A 6/17E 6/18E 6/19E

Revenue 9,183 10,495 10,377 10,393

EBITDA 955 1,502 1,547 1,519

Depr. & Amort. (388) (387) (386) (386)

EBIT 567 1,115 1,162 1,133

Associates - - - -

Net interest exp. (90) (83) (66) (61)

Other 0 0 0 0

Profit before tax 477 1,032 1,095 1,072

Income tax (125) (281) (298) (292)

Profit after tax 352 751 797 780

Minorities (63) (80) (85) (89)

Preferred dividends - - - -

Associates & Other 0 0 0 0

Normalised NPAT 290 671 712 690

Unusual item after tax 61 (1) 0 0

Net profit (Reported) 351 670 712 690

Balance Sheet 6/16A 6/17E 6/18E 6/19E

Cash & equivalents 550 665 1,295 1,919

Inventories 1,392 1,501 1,484 1,486

Receivables 1,158 1,364 1,349 1,351

Other current assets 106 120 119 119

Current assets 3,206 3,650 4,247 4,875

Property, plant & equip. 3,834 3,828 3,849 3,858

Intangibles 1,762 1,786 1,786 1,786

Other non-current assets 346 361 361 361

Non-current assets 5,943 5,974 5,996 6,004

Total assets 9,149 9,624 10,242 10,879

Payables 1,481 1,629 1,589 1,597

Interest bearing debt 1,328 975 975 975

Other liabilities 1,355 1,411 1,403 1,395

Total liabilities 4,163 4,015 3,968 3,968

Net assets 4,985 5,609 6,275 6,911

Ordinary equity 4,497 5,041 5,621 6,169

Minority interests 488 568 653 742

Preferred capital - - - -

Total shareholder funds 4,985 5,609 6,275 6,911

Net Debt 778 310 (320) (944)

Cash Flow 6/16A 6/17E 6/18E 6/19E

EBIT 567 1,115 1,162 1,133

Net Interest (105) (71) (61) (58)

Depr & Amort 388 387 386 386

Tax Paid (50) (202) (182) (162)

Change in Working capital 209 (167) (7) 4

Other cash and non-cash items (58) (49) 7 7

Operating cash flow 952 1,013 1,303 1,308

Capex (279) (416) (407) (394)

Capex - expansionary (46) (184) (176) (163)

Capex - Maintenance (233) (232) (231) (232)

Acquisitions & Invest (1,049) 0 0 0

Asset sale proceeds 0 0 0 0

Other - - - -

Investing cash flow (1,290) (416) (407) (394)

Dividends paid (34) (40) (46) (66)

Equity raised 0 0 0 0

Net borrowings 441 (388) (134) (135)

Other financing cash in/(outflows) (39) (54) (85) (89)

Financing cash flow 368 (482) (265) (290)

Total cash flow 30 116 630 624

Adjustments 1 0 0 0

Movement in cash/equivalents 31 116 630 624

Earnings 6/16A 6/17E 6/18E 6/19E

Equiv. FPO (period avg) (mn) 586 591 592 592

EPS (CS adj.) (c) 49.5 113.6 120.2 116.6

EPS growth (%) 113.2 129.6 5.8 (3.0)

DPS (c) 6.0 8.0 11.4 11.4

Dividend Payout (%) 12.1 7.0 9.5 9.8

Free CFPS (c) 122.8 132.2 181.0 181.9

Valuation 6/16A 6/17E 6/18E 6/19E

P/E (CS) (x) 24.2 10.6 10.0 10.3

PEG (x) 0.2 0.1 1.7 (3.4)

EV/EBIT (x) 13.3 6.4 5.6 5.2

EV/EBITDA (x) 7.9 4.7 4.2 3.8

Dividend Yield (%) 0.5 0.7 1.0 1.0

FCF Yield (%) 10.2 11.0 15.1 15.2

Price to book (x) 1.5 1.4 1.2 1.1

Returns 6/16A 6/17E 6/18E 6/19E

Return on Equity (%) 6.4 13.3 12.7 11.2

Profit Margin (%) 3.2 6.4 6.9 6.6

Asset Turnover (x) 1.0 1.1 1.0 1.0

Equity Multiplier (x) 2.0 1.9 1.8 1.8

Return on Assets (%) 3.2 7.0 6.9 6.3

Return on Invested Cap. (%)

7.3 13.7 14.2 13.8

Gearing 6/16A 6/17E 6/18E 6/19E

ND/ND+E (%) 13.5 5.2 Net Cash

Net Cash Net Debt to EBITDA (x) 0.8 0.2 Net

Cash Net

Cash Int Cover (EBITDA) (x) 10.6 18.1 23.3 24.7

Int Cover (EBIT) (x) 6.3 13.5 17.5 18.5

Capex to Sales (%) 3.0 4.0 3.9 3.8

Capex to Depr (%) 71.8 107.5 105.6 102.1

MSCI IVA Rating A

Global Local Country Stock

Environment Social Governance

0

1

2

3

4

5

6

7

8

GL

C

S

G

LCS

G

LC

S

TP ESG Risk (%): 0.00 TP Risk Comment: Neutral risk. Ongoing concerns around viability of long-term domestic steel making industry is represented through a conservative profile to 'mid-cycle' earnings rather than a quantitative NPV discount factor. MSCI IVA Risk: Neutral MSCI IVA Risk Comment: MSCI upgraded its rating for BSL to 'A' (from 'BBB') in November 2016 citing BlueScope's industry leading safety performance with consistently low lost time injury rates and safety performance link to executive pay, despite the company’s strong cost cutting drive at its Australian steel plant. Tempering their view is that BlueScope lacks an emissions reduction target and has an emissions intensity at the industry average level and rising.


On 16-Jun-2017 the S&P ASX 200 Index closed at 5763.19 On 16-Jun-2017 the spot exchange rate was A$1.32/US$1

Source: Company Data, Credit Suisse Estimates, MSCI ESG Research


19 June 2017


Biotechnology

CSL

(CSL.AX / CSL AU) Rating OUTPERFORM*

Price (16-Jun,A$) 139.00


Target price ESG risk (%) -1.0


Yr avg. mthly trading (A$mn) 2,292.3

Projected return:

Capital gain (%) -3.6


Total return (%) -2.0


Research Analysts

Saul Hadassin

61 2 8205 4679

[email protected]

David Bailey

61 2 8205 4739

[email protected]

COMPANY UPDATE

China – same plasma, different economics?

■ Exploring plasma differences: Following CSL's proposed entry into the

domestic China plasma fractionation sector (via Ruide) we compare/contrast

key operational and financial metrics of listed peers with the CSL Behring

business and assess potential readthrough for Ruide. Listed China plasma

fractionators generate robust operating margins, ahead of CSL Behring,

despite only clearing one core plasma product in last litres (albumin) and

selling far fewer specialty (infra-marginal) products.

■ Local margins higher due to lower COGS: Our analysis shows that this is

predominantly due to significantly lower COGS per litre of plasma utilised,

with other operating expenses similar in total as a percentage of revenue.

Within the COGS category, we highlight that despite having substantially

higher donor fees per litre of plasma collected in China, this is more than

offset by lower non-donor related COGS (e.g., logistics, storage, labour,

testing, supplies). For CSL, we see significant longer-term upside to current

Ruide revenues of ~US$30 mn (via organic growth and new product

approvals). While at face value, this should lead to material improvement in

fractionation economics, in our view, the revenue uplift will require

investment in both non-donor COGS (i.e., plasma collection/fractionation

processes) as well as core operating cost lines (R&D, sales and marketing).

As a result, our current base case assumption for Ruide (~35% EBIT margin

after five years) factors in minimal operating margin expansion from current

levels (~30%).

■ Catalysts: (1) Monthly PPTA data; (2) FDA regulatory decision on

Haegarda (anticipated mid-year).

■ Valuation: CSL currently trades on 29.3x 12-month forward consensus EPS,

representing a 65% premium to the ASX200 Industrials ex. Financials (two-

year averages of 24.5x and 42%, respectively).



12mth Volat ility

52 Week Hi-Lo

*Target return

- 34%

- 14%

6%

26%


Suisse estimates

Performance 1M 3M 12M Absolute (%) 4.79 12.70 27.15 Relative (%) 4.99 13.14 14.95


Year 6/16A 6/17E 6/18E 6/19E

Revenue (US$ mn) 5,910 6,623 7,147 7,731

EBITDA (US$ mn) 1,749 2,111 2,484 2,803

EBIT (US$ mn) 1,529 1,846 2,192 2,492

Net Income (Adj.) (US$ mn) 1,157 1,359 1,639 1,872

EPS (Adj.) (US$) 2.50 2.98 3.60 4.10


EPS growth (%) (15.6) 19.3 20.7 13.9

Consensus EPS (US$) 2.49 2.99 3.63 4.12

P/E (x) 42.2 35.4 29.3 25.8

Dividends (US$) 1.24 1.34 1.68 1.91

Dividend yield (%) 1.2 1.3 1.6 1.8

Price/Book (x) 18.8 16.3 12.4 9.7

Net debt/EBITDA (x) 1.5 1.4 1.3 1.1


19 June 2017


CSL (CSL.AX / CSL AU) Price (16 Jun 2017): A$139.0; Rating: OUTPERFORM; Target Price: A$134; Analyst: Saul Hadassin


Revenue 5,910 6,623 7,147 7,731

EBITDA 1,749 2,111 2,484 2,803

Depr. & Amort. (220) (265) (292) (311)

EBIT 1,529 1,846 2,192 2,492

Associates - - - -

Net interest exp. (58) (79) (90) (92)

Other 0 0 0 0

Profit before tax 1,471 1,767 2,102 2,400

Income tax (314) (407) (462) (528)

Profit after tax 1,157 1,359 1,639 1,872

Minorities - - - -



Normalised NPAT 1,157 1,359 1,639 1,872

Unusual item after tax 85 0 (10) 0

Net profit (Reported) 1,243 1,359 1,629 1,872


Cash & equivalents 557 484 636 906

Inventories 2,152 2,246 2,383 2,515

Receivables 1,107 1,177 1,295 1,395


Current assets 3,818 3,918 4,324 4,826


Intangibles 943 923 1,144 1,084



Total assets 7,563 8,149 9,472 10,553

Payables 996 963 987 1,011

Interest bearing debt 3,143 3,529 3,881 3,881

Other liabilities 856 717 717 717


Net assets 2,567 2,939 3,887 4,944

Ordinary equity 2,567 2,939 3,887 4,944




Net Debt 2,587 3,045 3,245 2,975

Cash Flow 6/16A 6/17E 6/18E 6/19E

EBIT 1,529 1,846 2,192 2,492

Net Interest (61) (82) (90) (92)

Depr & Amort 220 265 292 311

Tax Paid (326) (464) (462) (528)

Change in Working capital (454) (178) (230) (208)

Other cash and non-cash items 271 (142) (10) 0

Operating cash flow 1,179 1,245 1,691 1,975

Capex (495) (741) (858) (889)



Acquisitions & Invest (245) 0 (352) 0


Other - - - -

Investing cash flow (810) (798) (1,210) (889)

Dividends paid (579) (601) (681) (815)

Equity raised (631) (335) 0 0

Net borrowings 847 449 352 0

Other financing cash in/(outflows) 0 0 0 0

Financing cash flow (362) (487) (329) (815)

Total cash flow 6 (40) 152 270

Adjustments (5) (32) 0 0

Movement in cash/equivalents 1 (71) 152 270

Earnings 6/16A 6/17E 6/18E 6/19E


EPS (CS adj.) (c) 249.9 298.0 359.8 409.7

EPS growth (%) (15.6) 19.3 20.7 13.9

DPS (c) 124.0 134.0 168.0 191.0

Dividend Payout (%) 49.6 45.0 46.7 46.6

Free CFPS (c) 217.1 224.4 320.2 377.3

Valuation 6/16A 6/17E 6/18E 6/19E

P/E (CS) (x) 42.2 35.4 29.3 25.8

PEG (x) (2.7) 1.8 1.4 1.9

EV/EBIT (x) 33.0 27.6 23.3 20.4

EV/EBITDA (x) 28.9 24.1 20.6 18.2

Dividend Yield (%) 1.2 1.3 1.6 1.8

FCF Yield (%) 2.1 2.1 3.0 3.6

Price to book (x) 18.8 16.3 12.4 9.7

Returns 6/16A 6/17E 6/18E 6/19E

Return on Equity (%) 45.1 46.2 42.2 37.9

Profit Margin (%) 19.6 20.5 22.9 24.2



Return on Assets (%) 15.3 16.7 17.3 17.7


23.3 23.7 24.0 24.5

Gearing 6/16A 6/17E 6/18E 6/19E

ND/ND+E (%) 50.2 50.9 45.5 37.6

Net Debt to EBITDA (x) 1.5 1.4 1.3 1.1

Int Cover (EBITDA) (x) 30.3 26.7 27.5 30.4

Int Cover (EBIT) (x) 26.5 23.3 24.3 27.1

Capex to Sales (%) 8.4 11.2 12.0 11.5

Capex to Depr (%) 269.2 361.2 369.2 353.8

MSCI IVA Rating BBB



0

1

2

3

4

5

6

7

8

G

L

CS

GLC

S

G

L

C

S

TP ESG Risk (%): -1.00 TP Risk Comment: Low risk. In our view CSL has a strong corporate governance framework and its impact on the environment from plasma protein fractionation is minimal (ethanol recycling at the Bern plant is an example of this). Recent product recalls (paediatric Fluvax, Australian albumin) adds only marginal risk to the stock in our view (we factor in -1% to our valuation) – these events were not due to lack of good manufacturing principles or employee error. Given the high volume of potentially high risk biological agents produced each year, CSL has an enviable track record in terms of safety outcomes. MSCI IVA Risk: Neutral MSCI IVA Risk Comment: Current 'BBB' rating. Lacks a top rating due to average safety and product quality following 2010 TGA recall of Fluvax in Australia. Whilst we do not believe these events were material to the group we maintain a NEUTRAL risk




19 June 2017


China – same plasma, different economics?

CSL Behring vs domestic operators

■ Using listed China plasma operators, China Biologics (CPBO) and Hualan Biological

Engineering Inc (002007), as representatives of the domestic China plasma industry,

we compare/contrast key operational and financial metrics with the CSL Behring

plasma business and assess potential readthrough for Ruide.

Revenues and costs per litre

■ Based on company data, we have derived revenue and COGS per litre of plasma

fractionated for the three businesses (Figure 1).

■ We note CSL has higher revenue per litre, due to the larger number of products

(particularly specialty) fractionated. Notwithstanding, a ~25% higher price point for

albumin (i.e. $/gram) in China relative to the US allows local fractionators to also

generate reasonable revenues per litre.

■ In terms of COGS, CSL Behring has roughly twice the total cost per litre of plasma

processed versus local China peers, which we explore in more detail below.

■ With regard to last litres, we note well balanced core plasma product sales for CSL

Behring (IG and albumin), while for local operators, albumin is the only product

extracted from last litres (Figure 2).

Figure 1: CSL has higher revenue and COGS/L… Figure 2: …with balanced last litres (core products).

Revenue and COGS per litre based on FY16 results Litres required for albumin and IG sales

0

50

100

150

200

250

300

350

400

450

500

CSL Behring CBPO Hualan

US

$

Revenue per litre COGS per litre

0.0

2.0

4.0

6.0

8.0

10.0

12.0


Pla

sma

litre

s m

n

Albumin IG

Source for both charts: Company data, Credit Suisse estimates

COGS explored – some stark differences

■ We note several significant differences with regard to CSL Behring COGS and those of

domestic China fractionators (Figure 3, Figure 4 and Figure 5).

■ These include:

− Total COGS per litre is materially higher for CSL Behring versus local peers

(US$211 versus US$97-111).

− However, donor fees on a per litre of plasma basis for local operators are almost

twice as high as CSL Behring (US$69 versus US$37.50). We understand this is partly

due to nutrition fees paid to donors, as noted by CBPO in their 2016 annual report:

"In an effort to increase plasma collection volume and expand our donor base,

we increased the nutrition fees paid to donors consistent with the industry

19 June 2017


practice. We expect the nutrition fees to be paid to donors will continue to

increase as a result of improving living standards in China. Consequently, future

improvements on margins will need to be derived from increases in product

pricing, yields and manufacturing efficiency, as well as from optimizing the

product mix."

− This implies that non-donor fee COGS are materially lower for local China

participants versus CSL Behring (~US$28-42 versus US$177).

− CSL Behring plasma centres are more efficient in terms of utilisation with ~67k litres

of plasma collected per centre versus ~42k-49k for local operators.

Figure 3: Plasma collection costs and centre utilisation—CSL versus China peers

Using FY16 results CSL Behring CBPO Hualan

Plasma COGS (US$mn) 2,067.9 124.0 106.0

Litres collected (mn) 9.82 1.28 0.96

COGS/litre (US$) 211 97 111

Cost per donation (US$) 30.0 40.0 40.0

Volume per donation (litres) 0.8 0.6 0.6

Donor cost per litre (US$) 37.5 69.0 69.0

Non-donor cost per litre (US$) 176.5 28.1 41.8

Plasma centres 144 16 23

Litres per centre 67109 49438 41593


Figure 4: CSL Behring lower donor fees, higher non-

donor COGS…

Figure 5: …despite much higher utilisation of

plasma centre networks

Donor and non-donor COGS per litre (US$) based on 2016 results Number of plasma centres and utilisation (litres collected per centre)

0

20

40

60

80

100

120

140

160

180

200


US

$

Donor cost per litre (US$) Non-donor cost per litre (US$)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

0

20

40

60

80

100

120

140

160


Plasma centres LHS Litres per centre RHS


■ In Figure 6, we show a breakdown of plasma collection and fractionation costs for

global players; Figure 7 shows these costs for Hualan (adapted from their 2016 annual

report). Whilst difficult to compare due to categorisation differences, one area of

discrepancy (apart from the donor fee) seems to be associated with labour costs.

■ This may be partially due to lower average wages for staff but could also represent

relative differences in numbers of engineering/biomedical staff in key functions (quality

control, quality assurance). There also appear to be differences in logistics and testing

costs. Implications for CSL (via the Ruide acquisition) are addressed below.

19 June 2017


Figure 6: Labour costs at least 10%... Figure 7: …but only 2.6% for Hualan

Global player plasma COGS breakdown Hualan plasma COGS breakdown – 2016 results

Donor fees16%

Logistics3%

Testing4%

Support and Fixed12%

Supplies and other variables

10%Labour

10%

Fractionation cost45%

Donor fee62%

Other direct material costs

16%

Direct Labour3%

Power Cost4%

Depreciation5%

Other10%


Comparing operating margins

■ Key operating margins and costs as a percentage of revenue for CSL Behring and

CBPO are shown in Figure 8, Figure 9 and Figure 10. For CSL Behring, we have

excluded recombinant clotting factor sales and COGS, and have allocated divisional

D&A across key operating cost lines in order to undertake a like-for-like assessment.

■ We note that CBPO generates a higher gross margin versus CSL (~64% and ~57%

respectively) despite clearing only one product (albumin) from last litres, and

generating lower revenue per litre. As discussed above, this is due to materially lower

non-donor fee related COGS.

Figure 8: Margins higher for local player… Figure 9: …with several opex lines lower (% sales)

Gross margin and EBIT margin for plasma businesses (2016) Costs as % of sales – D&A included in key costs lines (2016)

0%

10%

20%

30%

40%

50%

60%

70%

Gross margin EBIT margin

CSL Behring

CBPO

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

COGS S&M G&A R&D Opex

CSL Behring

CBPO


19 June 2017


Figure 10: CSL Behring vs CBPO

FY16 US$mn CSL Behring CBPO

Plasma product revenues US$mn 4843.4 341.2

Plasma product COGS US$mn -2,067.9 -124.0

Sales/Marketing US$ -413.3 -11.7

G&A US$ -198.5 -54.5

R&D US$ -408.8 -7.0

D&A US$ -172.9 -12.7

Total opex US$ -1,020.6 -73.2

EBIT 1755.0 143.9

Gross margin % 57.3% 63.6%

EBIT margin % 36.2% 42.2%

% of sales

COGS % 42.7% 36.4%

S&M % 8.5% 3.4%

G&A % 4.1% 16.0%

R&D % 8.4% 2.1%

D&A % 3.6% 3.7%

Opex % 21.1% 21.5%


Implications for CSL and Ruide

■ While we see significant longer term upside to current Ruide revenues of ~US$30mn

(consistent with CSL management guidance) from continued organic growth in albumin/IG

and via new product approvals (coagulation factors), in our view, this will require

investment in both non-donor COGS (i.e., plasma collection systems, fractionation

processes), as well as core operating cost lines (R&D, sales and marketing).

■ One area of opportunity for CSL appears to be in increasing plasma centre utilisation in

China, noting CSL Behring collects on average ~40-60% more plasma per centre;

however, as noted above, this will likely require additional capital and operating

expense investment. Hence our base case assumptions for Ruide do not factor in

significant operating margin expansion from current levels (i.e., ~30% EBIT margin).


19 June 2017


Consumer Finance

FlexiGroup

(FXL.AX / FXL AU) Rating (from OUTPERFORM) NEUTRAL*

Price (16-Jun,A$) 1.70

Target Price (A$) (from 2.70) 1.85


Market cap (A$mn) 633.0


Projected return:





Research Analysts

Paul Buys

61 2 8205 4538

[email protected]

DOWNGRADE RATING

Certegy presents uncertainty

■ Downgrade rating to Neutral: Our prior Outperform rating ($2.12 share

price, February 2016) was based on cheap valuation and a view that FXL

could start to grind out growth, despite residual risks. However, roll forward

to today, and despite valuation ostensibly looking compelling (again), FXL is

still in a downgrade cycle (-20% FY18 consensus revisions) and we are

increasingly cautious on Certegy (36% of FY16 NPAT), which could offset

growth in other areas (e.g. Australian Card). While FXL looks over-sold on a

short-term view and valuation may offer support, we have low conviction on

earnings and still see a downside risk—we would rather wait until growth

concerns are alleviated.

■ Challenges to Certegy: We believe that having had a niche credit space

largely to itself, Certegy now has growing competitors (AFY.AX, ZML.AX)

with strong digital offerings and brands that are resonating with retailers and

consumers alike. The no-interest-ever product remains attractive, in our

view, but increased competition translates to both margin and volume

pressure for FXL, at the same time as a less certain outlook for the

consumer generally. This has already impacted 2H17 (contributed to

lowering FY17 guidance) and poses further risk to FY18-19.

■ Where it could be better than we think: (1) New products (Oxipay) or

categories (solar battery storage) offset pressures in Certegy; (2) NZ Card

growth trajectory lifts (scheme card, better sales momentum); (3) Aust. Card

is better than we expect (we forecast >70% growth FY17-19); (4) improved

commercial finance lifts leasing growth; and (5) other geographies (Ireland).

■ Where it could be worse than we think: (1) Further competition in other

areas (e.g. Latitude, a potential IPO candidate according to press reports);

(2) impairments rise more quickly than expected; (3) contract losses/failure to

renew business; (4) regulatory/consumer focus further impacts POS leasing;

and (5) Card receivables conversion to interest-bearing disappoints.

■ EPS outlook: Negative revisions to EPS estimates (-8% FY18, -14% FY19)

stem mainly from forecast declines in Certegy earnings and reflect our view

that FXL could struggle to generate material growth over the next 2-3 years.



12mth Volat ility

52 Week Hi-Lo

*Target return

- 100%

0%

100%

200%


Suisse estimates

Performance 1M 3M 12M Absolute (%) -7.86 -27.66 -5.56 Relative (%) -7.65 -27.22 -17.76


Year 6/16A 6/17E 6/18E 6/19E Revenue (A$ mn) 393 440 455 480 EBITDA (A$ mn) 203 235 244 253 EBIT (A$ mn) 189 222 230 240 Net Income (Adj.) (A$ mn) 97 92 93 95 EPS (Adj.) (A$) 0.28 0.25 0.25 0.26 Change from previous EPS (%) n.a. (3.4) (8.3) (13.9) EPS growth (%) (5.1) (12.1) 1.3 2.4 P/E (x) 6.1 6.9 6.8 6.7 Dividend (A$) 0.15 0.08 0.08 0.08 Dividend yield (%) 8.5 4.7 4.8 4.9 Price/Book (x) 1.0 0.9 0.9 0.9 Net debt/equity (%) 289.7 284.5 300.2 281.4


19 June 2017


FlexiGroup (FXL.AX / FXL AU) Price (16 Jun 2017): A$1.7; Rating: (from OUTPERFORM) NEUTRAL; Target Price: (from A$2.7) A$1.85; Analyst: Paul Buys


Revenue 391 439 454 479

EBITDA 203 235 244 253

Depr. & Amort. (14) (14) (14) (14)

EBIT 189 222 230 240

Associates 0 0 0 0

Net interest exp. (76) (98) (104) (110)

Other 0 0 0 0

Profit before tax 113 124 126 129

Income tax (20) (36) (37) (38)


Minorities - - - -




Unusual item after tax (47) (1) 0 (1)




Inventories 1 1 1 1

Receivables 1,285 1,426 1,635 1,593


Current assets 1,477 1,594 1,717 1,679

Property, plant & equip. 6 6 5 5

Intangibles 400 432 403 433



Total assets 2,680 2,886 2,945 3,071

Payables 49 46 48 50

Interest bearing debt 1,949 2,069 2,095 2,145



Net assets 612 673 676 737

Ordinary equity 612 673 676 737



Net assets 612 673 676 737

Net Debt 1,774 1,916 2,030 2,074

Cash Flow 6/16A 6/17E 6/18E 6/19E

EBIT 189 222 230 240

Net Interest (79) (105) (106) (112)

Depr & Amort 14 14 14 14

Tax Paid (44) (22) (20) (36)

Change in Working capital (396) (144) (207) 44

Other cash and non-cash items 463 210 247 2

Operating cash flow 147 175 158 151

Capex (24) (22) (16) (14)

Capex - expansionary 0 0 0 0


Acquisitions & Invest (187) (2) 0 0


Other - - - -

Investing cash flow (269) (268) (385) (278)

Dividends paid (54) (41) (29) (31)


Net borrowings 76 113 147 75


Financing cash flow 165 72 117 45

Total cash flow 43 (21) (110) (82)

Adjustments 1 0 0 0

Movement in cash/equivalents 44 (21) (110) (82)

Earnings 6/16A 6/17E 6/18E 6/19E


EPS (CS adj.) (c) 28.0 24.6 24.9 25.5

EPS growth (%) (5.1) (12.1) 1.3 2.4

DPS (c) 14.5 8.0 8.1 8.3

Dividend Payout (%) 51.8 32.5 32.5 32.5

Free CFPS (c) 35.6 41.1 38.1 36.8

Valuation 6/16A 6/17E 6/18E 6/19E

P/E (CS) (x) 6.1 6.9 6.8 6.7

EV/EBIT (x) 12.8 10.9 10.5 10.0

EV/EBITDA (x) 11.9 10.2 9.9 9.5

Dividend Yield (%) 8.5 4.7 4.8 4.9

FCF Yield (%) 20.9 24.2 22.4 21.6

Price to book (x) 1.0 0.9 0.9 0.9

Returns 6/16A 6/17E 6/18E 6/19E

Return on Equity (%) 15.8 13.6 13.7 12.9

Profit Margin (%) 24.8 20.9 20.4 19.8



Return on Assets (%) 3.6 3.2 3.2 3.1


6.5 6.1 6.0 6.0

Gearing 6/16A 6/17E 6/18E 6/19E

ND/ND+E (%) 74.3 74.0 75.0 73.8



Int Cover (EBIT) (x) 2.5 2.3 2.2 2.2

Capex to Sales (%) 6.2 5.0 3.5 2.9

Capex to Depr (%) 896.3 782.1 582.7 525.5

MSCI IVA Rating B



0

2

4

6

8

G

L

C

S

G

LC

S

G

LC S

TP ESG Risk (%): 0.00 TP Risk Comment: For FXL, outside of the consumer services ESG risk factors we do not include any ESG impact in our base valuation. We highlight key ESG risk areas for FXL as 1) protection and management of personal information; and 2) social responsibility for providing product and services. MSCI IVA Risk: Positive MSCI IVA Risk Comment: We believe the MSCI rating is not appropriate for FXL given that it highlights access to finance and human capital management as key area of concern. FXL has doubled the number of funding providers since the GFC, has increased its facilities and completed a $270mn securitisation in June 2015. FXL remains and employer of choice in Australia.




19 June 2017


Challenges facing Certegy

■ We believe that having had a niche credit space ('no-interest-ever') largely to itself for a

number of years, Certegy now finds itself with materially increased competition. These

come in the form of Afterpay (AFY.AX) and zipMoney (ZML.AX), both of which are

young companies with strong digital offerings and growing brand awareness.

■ zipMoney is a digital retail finance and payments provider that offers point-of-sale

credit and digital payment services to the retail, education, health and travel industries.

It offers two products, ZipPay (digital wallet up to A$1,000) and ZipMoney (digital wallet

up to $20,000), and also operates a mobile budgeting application called Pocketbook.

■ Afterpay was founded in 2014 and is a retail payments platform that facilitates

commerce between retail merchants and their end-customers. Its product is targeted at

lower value transactions (current average ~$150-200, 85% of customers use debit

cards) and allows the consumer to purchase an item and pay for it in four equal value

instalments across a 6-8 week time frame.

■ AFY and ZML have enjoyed very strong growth in retailer and customer take-up, as

well as transaction volumes, with products that have been differentiated from more

traditional credit offerings through factors like digital solutions, integration with retailer

websites, reduced paperwork and increased speed of sign-up driving improved

conversion rates. Both have secured committed funding facilities from major banks.

− ZML project an annualised transaction volume run rate of A$360mn amongst its

~4,000 retail partners using the platform both online and in store. Its customer base

of ~600,000, utilising both the zipMoney and Pocketbook products, is expanding

rapidly, with ~1,200 customers being added every day. ZML has companies such

as Adairs, Kathmandu, Webjet Exclusives and Harris Farm in its portfolio.

− AFY estimate annualised underlying sales greater than A$1bn (noting higher

turnover of lower ticket value items) across its 5,000+ retailer portfolio. AFY’s recent

(31 May 2017) business update suggested its +700,000 unique end-customer base

is growing at a rate of an additional 2,500 customers per day. Noteworthy additions

to the AFY platform include Myer, Premier Investments, Big W and Officeworks.

■ We believe that the no-interest-ever product will remain attractive for consumers and

retailers alike, but that increased competition is already, and will continue to, create

both margin and volume pressure for Certegy—for the reasons that competitors have

built attractive product offerings unencumbered by legacy systems and because

retailers and consumers both have more choice.

■ This step up in competition for Certegy coincides with tougher conditions for retailers

generally, given factors like discounting and increased online shopping putting

pressure on margins, especially for more traditional bricks and mortar sites.

■ The pressures impacting Certegy have already affected 2H17 (contributing to lowering

FY17 guidance) and pose further risk to FY18-19 earnings, in our view—at this stage,

we envisage the combination of lower volumes and reduced margins could see

reductions in Certegy's earnings over the next two years.

Where FXL could perform better than we think

■ Certegy may benefit to the extent that FXL can successfully launch new products to

offset competitive pressures described above, such as Oxipay, which is planned for

market launch in 4Q17 (update expected at upcoming strategy day, 22 May 2017).

While this obviously will not help the fact that there are more choices on offer for

retailers and consumers, and FXL may suffer from the perception that it has been late

with digital product innovation, Oxipay could help drive incremental volume for Certegy.

19 June 2017


■ As is well known, Certegy has benefitted materially from growth in solar rooftop panel

installations in the past, and has a strong partner-vendor and customer base as a

result. To the extent that solar battery storage develops and offers additional finance

options and/or further spurs growth in rooftop solar, this could be positive for Certegy.

■ We believe the growth in the New Zealand Card business has been lower than

anticipated at the time of acquisition, which we understand FXL ascribe in part to sales

culture. It is possible that initiatives such as scheme cards (e.g. Q Master Card) and

increased marketing efforts improve sales momentum and lift the growth trajectory.

■ We already expect strong growth in Australian Card, driven by strong volume growth to

date which should translate into earnings growth as a greater proportion of the book

becomes interest-bearing. However, this growth could be stronger than our estimates –

while our FY17-19 forecast growth is >70%, the FY17 base is depressed by the

investment (~$3mn) to roll-out the Flight Centre contract.

■ FXL has been focusing on revitalising its SME leasing business, with 1H17 volumes

increasing strongly (~85%, albeit off a small base). Growth in this area, which includes

a focus on managed services offerings, could offset some of the challenges facing

POS consumer leasing.

■ FXL is due to launch a broader finance offering in Ireland in 4Q17, having operated

there for ~8 years to date (POS rental/lease). While clearly early days and carrying

inherent risks associated with a venture into an offshore market, a sensible, prudent

approach could yield earnings benefits for FXL.

Where FXL could perform worse than we think

■ We have discussed increased competition in the no-interest-ever space for Certegy,

but note the potential for similar threats in other areas, such as the Australian cards

business. According to press reports (AFR, 19 January 2017, 'Latitude eyes hefty

securitisation program then IPO') Latitude (consumer finance operation formerly part of

GE Money in Australia & New Zealand) could be a potential IPO candidate.

■ The environment for credit impairments has been fairly benign, and in recent years in

particular, funding costs have been supportive for FXL. We do not expect these factors

to become materially negative in the short-term, but there is an inherent risk that either

or both rise more quickly than expected, due to a change in factors like deteriorating

economic conditions (e.g. unemployment), FXL-specific factors (e.g. taking on riskier

business in a more competitive environment) or from reduced funder risk appetite.

■ Again, while an outcome that we do not regard as likely, material contract losses

and/or failure to renew business could negatively impact FXL. We regard the business

as reasonably well diversified across its retail customer, but in certain areas (e.g.

consumer POS leasing ad NZ leasing), customer exposure is fairly concentrated.

■ We believe FXL has become more proactive with regard to the regulatory landscape in

POS leasing, which has improved the risk profile in our view. It has also come at a cost

to profitability—such as changes to end-of-lease process that had an estimated $4mn

impact on FY17 NPAT. While FXL now appears to be aligned with current regulatory

requirements, there is a risk that further change, or the need to make amendments to

lease products to manage consumer perception, negatively impacts profitability.

■ Given the natural progression from strong volumes, which are initially interest-free, into

interest-bearing receivables in the Cards business, we expect material growth in

earnings. The risk here is that the rate of conversion to interest-bearing disappoints

(e.g. greater consumer propensity to pay down debt), or the credit risk profile increases

as FXL expands into new areas.

http://www.afr.com/street-talk/latitude-eyes-hefty-securitisation-program-then-ipo-20170118-gtu87c

http://www.afr.com/street-talk/latitude-eyes-hefty-securitisation-program-then-ipo-20170118-gtu87c

19 June 2017


Earnings revisions

■ Our FY17 estimates move in line with FXL revised FY17 guidance in May (cash NPAT

$90-93mn, from $90-97mn previously, as per the 1H17 result).

■ One of the reasons cited for lower FY17 NPAT was Certegy being behind expectations

—we believe this implies a materially weaker 2H17, which together with pressures as

described above, we expect to flow into FY18/19.

■ Lower Certegy forecasts (reduced margin and volume growth assumptions) account for

the bulk of our negative EPS revisions for FY18 (-10%) and FY19 (-17%), with the

balance due to slightly reduced forecasts on Leasing (due to a more cautious view on

consumer conditions).

■ Our forecasts on the other business (NZ Card & Leasing, Australian Card) are not

substantially changed; neither are our estimates for impairments and funding costs.

Investment view

■ Having declined materially in the past six weeks or so (~-28%), FXL could potentially

be over-sold on a short-term basis. Valuation looks very undemanding—6.8x FY18 PE,

~1.0x P/B—even on our revised EPS estimates which now assume only ~1-2% growth

for FY18-19.

■ This valuation may offer support or even some short-term upside from current levels,

and those with a value-bias may take the view that even with a flat growth outlook, the

stock is too cheap.

■ As discussed above, we identify areas where FXL may exceed our expectations, in

which case the growth outlook may be better than we anticipate.

■ However, given the challenges facing Certegy, a generally tough retail environment,

lackluster growth to date in New Zealand Cards and various areas where competition

is intensifying, overall we think there is sufficient uncertainty around the growth outlook

for the market to largely 'look through' current valuation.

■ Acknowledging potential for a short-time bounce on any sign of less negative news, we

struggle to envisage a catalyst for a meaningful re-rate, and prefer to wait on the

sidelines until we can gain more conviction around the earnings outlook.

■ The FY18 dividend yield is ~4.8%—supportive, but not overly compelling in our view

(noting major banks trading on dividend yields >5%).

■ Our rating moves from Outperform to NEUTRAL with our target price declining from

$2.70 to $1.85.

19 June 2017


Figure 1: FXL – historic and forecast segmental data *

FY12 FY13 FY14 FY15 1H16 2H16 FY16 1H17 2H17F FY17F FY18F FY19F

Volumes

AU Leasing 340 300 338 285 130 116 246 103 99 202 207 212

NZ Leasing 0 29 38 62 46 55 101 46 55 101 104 107

NZ Card 0 0 0 0 0 132 132 310 310 620 629 642

Certegy 434 490 507 552 281 254 535 278 251 529 527 533

AU Card 141 88 200 237 161 171 332 238 265 503 563 603

Total loan volume 915 907 1,083 1,136 618 728 1,346 975 980 1,955 2,031 2,097

Volumes, % ch

Australia Leasing 6% -12% 13% -16% -18% -9% -14% -21% -15% -18% 3% 2%

NZ leasing n/a n/a 31% 63% 70% 57% 63% 0% 0% 0% 3% 3%

NZ card n/a n/a n/a n/a n/a n/a n/a n/a 135% 370% 1% 2%

Certegy 16% 13% 3% 9% -2% -5% -3% -1% -1% -1% 0% 1%

AU Card 207% -38% 127% 19% 39% 41% 40% 48% 55% 52% 12% 7%

Total loan volume 23% -1% 19% 5% 5% 33% 18% 58% 35% 45% 3.9% 3.3%

Ave receivables

Australia Leasing 465 521 540 573 539 509 523 477 466 475 464 471

NZ Leasing 0 17 59 101 171 188 181 197 192 195 189 194

NZ card 0 0 0 0 0 0 0 636 657 644 673 696

Certegy 317 397 440 469 481 477 477 474 480 477 477 480

AU Card 22 100 197 220 252 291 271 350 424 386 537 643

Total 812 1,036 1,236 1,364 1,442 1,775 1,659 2,133 2,218 2,176 2,284 2,485

Ave receivables, % ch

Australia Leasing 18% 12% 4% 6% -8% -10% -9% -12% -8% -9.3% -2% 2%

NZ Leasing n/a n/a 238% 72.7% 147.1% 58.0% 78.3% 15.5% 2% 8% -2.8% 2.4%

NZ card n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 4.5% 3.4%

Certegy 37% 25% 11% 7% 4% 0% 2% -1% 0.6% -0.2% 0.1% 0.6%

AU Card 313% 355% 97% 12% 18% 29% 23% 39% 45.6% 42.3% 39.0% 19.9%

Total 24.8% 27.6% 19.3% 10.3% 8.3% 28.0% 21.7% 47.9% 24.9% 31.2% 5.0% 8.8%

Impairments/ANR

Australia Leasing 2.4% 2.7% 2.7% 3.9% 3.9% 13.6% 8.6% 3.4% 3.4% 1.7% 3.5% 3.7%

NZ Leasing n/a 2.9% 1.0% 1.0% 0.9% 0.4% 0.7% 0.2% 0.2% 0.2% 0.3% 0.4%

NZ card n/a 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.3% 2.2% 2.2% 2.4% 2.5%

Certegy 3.2% 2.9% 3.1% 3.1% 4.0% 4.3% 4.2% 3.9% 4.0% 3.9% 4.0% 4.3%

AU Card 0.0% 1.0% 2.7% 3.0% 3.3% 3.0% 3.1% 3.4% 3.4% 3.4% 3.5% 3.7%

Total impairments/ANR 2.9% 2.6% 2.8% 3.3% 3.5% 6.1% 4.7% 2.8% 2.9% 2.5% 3.1% 3.2%

Revenue

Australia Leasing 164 153 149 162 77 74 151 50 52 102 98 100

NZ Leasing 0 14 17 22 19 19 38 21 20 40 39 40

NZ card 0 0 0 0 0 42 42 65 67 132 137 142

Certegy 82 100 108 115 58 58 117 57 55 112 106 104

AU Card 0 17 42 42 23 26 49 27 30 57 77 96

Total 246 284 317 341 177 220 396 220 223 443 457 482

Revenue, % ch

Australia Leasing 0.8% -6.7% -2.4% 8.2% -1.5% -11.0% -6.4% -34.9% -30.5% -32.8% -3.6% 2.1%

NZ Leasing n/a n/a 22.6% 30.1% 90.9% 55.2% 71.0% 8.5% 2.7% 5.5% -3.5% 2.1%

NZ card n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 4.2% 3.4%

Certegy 35.9% 22.3% 7.5% 6.3% 3.9% -0.3% 1.7% -2.2% -5.4% -3.8% -5.5% -1.7%

AU Card n/a n/a 150% 0% 11% 19% 15% 20% 14.1% 16.9% 35.2% 24.6%

Total 10.3% 15.5% 11.4% 7.6% 7.4% 24.6% 16.3% 24.3% 1.6% 11.8% 3.3% 5.4%

Cash NPAT *

Australia Leasing 39.3 37.6 36.1 38.4 16.0 13.4 29.4 9.5 7.0 16.5 16.6 16.3

NZ Leasing 0.0 4.3 5.6 7.0 5.2 6.5 11.7 5.6 6.8 12.4 12.7 13.0

NZ card 0.0 0.0 0.0 0.0 0.0 9.3 9.3 13.3 13.4 26.7 26.7 27.1

Certegy 21.9 27.5 32.3 34.4 17.5 17.9 35.4 17.6 15.4 33.0 29.6 28.5

AU Card 0.1 2.7 11.0 12.3 6.2 7.8 14.0 5.0 5.0 10.0 14.3 17.1

Corporate debt n/d n/d n/d n/d -0.6 -2.2 -2.8 -3.5 -3.5 -7.0 -7.0 -7.0

Total 61.3 72.1 85.0 90.1 44.3 52.7 97.0 47.5 44.2 91.7 92.8 95.1

Cash NPAT, % ch

Australia Leasing 0.4% -4.3% -4.0% 6.4% -6.4% -37.1% -23.4% -40.6% -47.5% -43.8% 0.2% -1.6%

NZ leasing n/a n/a 30.2% 25.0% 62.5% 71.1% 67.1% 7.7% 5.0% 6.2% 2.5% 2.0%

NZ Card n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.0% 1.5%

Certegy 59.3% 25.6% 17.5% 6.5% 5.4% 0.6% 2.9% 0.6% -14.0% -6.8% -10.3% -3.5%

AU Card n/a n/a 307% 11.8% 10.7% 16.4% 13.8% -19.4% 10.0% -28.6% 42.5% 20.2%

Total NPAT, % ch 15.8% 17.6% 18.0% 6.0% 4.2% 10.7% 7.7% 7.2% -16.2% -5.5% 1.3% 2.4%

Cash NPAT/ANR

Australia Leasing 8.5% 7.2% 6.7% 6.7% 5.9% 5.3% 5.6% 4.0% 3.0% 3.5% 3.6% 3.5%

NZ leasing n/a 24.8% 9.5% 6.9% 6.1% 6.9% 6.5% 5.7% 7.1% 6.4% 6.7% 6.7%

NZ Card 4.2% 4.1% 4.1% 4.0% 3.9%

Certegy 6.9% 6.9% 7.3% 7.3% 7.3% 7.5% 7.4% 7.4% 6.4% 6.9% 6.2% 5.9%

AU Card 0.5% 2.7% 5.6% 5.6% 4.9% 5.4% 5.2% 2.9% 2.4% 2.6% 2.7% 2.7%

Total NPAT/ANR 7.5% 7.0% 6.9% 6.6% 6.1% 5.9% 5.8% 4.5% 4.0% 4.2% 4.1% 3.8%

Source: Company data, Credit Suisse estimates, * excluding discontinued businesses from 1H17 onwards


19 June 2017


Diversified Metals & Mining

Sims Metal Management

(SGM.AX / SGM AU) Rating UNDERPERFORM*

Price (16-Jun,A$) 13.79





Projected return:

Capital gain (%) -20.2


Total return (%) -17.4


Research Analysts

Michael Slifirski

61 3 9280 1845

[email protected]

Nick Herbert, CFA

61 3 9280 1754

[email protected]

INCREASE TARGET PRICE

Schnitzer Q3, strong volumes but margin flat

■ Schnitzer MayQ preliminary result. Schnitzer’s scrap business (US Auto

and Metals Recycling (AMR)) is expected to achieve operating income in the

range of US$29 - $30mnn, or a sequentially flat operating income per ferrous

ton of US$30 - $31 (equivalent to US$33-34/tonne). By contrast, SGM

delivered US$8.40/t for its 1H17.

■ Higher operating income, not margin. Schnitzer's operating income is

expected to increase by approximately 12% sequentially and 10% from the

prior year quarter, and would represent the best third quarter performance

since fiscal 2012.

■ Result not supportive of SGM's operating leverage thesis. SGM promote

operating leverage with no increase in fixed cost as volumes rise. Schnitzer’s

Q3 EBIT increase has followed its ferrous tonnage increase, showing no

operating leverage, despite a materially higher ratio of non-ferrous. This

appears to suggest (perhaps) an increase in buy price offsetting the

otherwise expected operating leverage.

■ Read-through for SGM earnings. If SGM’s 2H were to reflect Schnitzer’s

volume profile, SGM’s 2H tonnage could be up by ~150kt on its 1H17,

generating additional EBIT of ~A$13mn compared to what we forecast, if the

guided operating leverage to volume was to be delivered. This hypothetical

calculation would deliver FY17 EBIT of A$180mn once factoring in a

contribution for guided optimise initiatives (at 50% realisation rate achieved in

2H17) and NPAT of ~$133mn. This is the scenario we have adopted in our

modelling for FY17 driving our eps change.

■ Valuation. Target price increased to $11.00/sh (from $10.50/sh) to align with

our NPV. Rating remains Underperform on valuation.



12mth Volat ility

52 Week Hi-Lo

*Target return

- 46%

- 26%

- 6%

14%

34%

54%


Suisse estimates



Year 6/16A 6/17E 6/18E 6/19E

Revenue (A$ mn) 4,661 4,975 5,018 4,965

EBITDA (A$ mn) 184 292 330 363

EBIT (A$ mn) 58 180 215 251


EPS (Adj.) (Ac) 18.74 67.25 76.81 90.20


EPS growth (%) (62.2) 258.8 14.2 17.4

Consensus EPS (Ac) 18.60 63.90 75.50 85.70

P/E (x) 73.6 20.5 18.0 15.3

Dividends (Ac) 22.00 38.27 38.41 45.10

Dividend yield (%) 1.6 2.8 2.8 3.3

Price/Book (x) 1.5 1.4 1.3 1.3

Net debt/EBITDA (x) (1.3) (0.9) (1.0) (1.1)


19 June 2017


Sims Metal Management (SGM.AX / SGM AU) Price (16 Jun 2017): A$13.79; Rating: UNDERPERFORM; Target Price: (from A$10.5) A$11; Analyst: Michael Slifirski


Revenue 4,661 4,975 5,018 4,965

EBITDA 184 292 330 363

Depr. & Amort. (126) (112) (115) (113)

EBIT 58 180 215 251

Associates - - - -

Net interest exp. (10) (7) (4) (3)

Other 0 0 0 0


Income tax (10) (40) (59) (69)


Minorities - - - -




Unusual item after tax (255) 20 0 0

Net profit (Reported) (216) 153 152 178



Inventories 398 447 452 447

Receivables 398 422 426 422


Current assets 1,081 1,189 1,237 1,327

Property, plant & equip. 985 1,044 1,097 1,108




Total assets 2,571 2,738 2,839 2,941

Payables 433 468 469 460

Interest bearing debt 6 6 6 6


Total liabilities 738 774 774 766

Net assets 1,833 1,964 2,064 2,175

Ordinary equity 1,833 1,964 2,064 2,175




Net Debt (242) (277) (316) (416)

Cash Flow 6/16A 6/17E 6/18E 6/19E

EBIT 58 180 215 251

Net Interest (8) (7) (7) (4)

Depr & Amort 126 112 115 113

Tax Paid (20) (10) (40) (59)

Change in Working capital (18) (38) (8) 1

Other cash and non-cash items (8) 38 8 (1)


Capex (109) (171) (167) (124)

Capex - expansionary (7) (54) (42) 0


Acquisitions & Invest 0 0 0 0


Other - - - -


Dividends paid (47) (63) (76) (76)

Equity raised (60) (62) 0 0

Net borrowings (5) 0 0 0



Total cash flow (76) 35 39 100

Adjustments 8 0 0 0

Movement in cash/equivalents (68) 35 39 100

Earnings 6/16A 6/17E 6/18E 6/19E


EPS (CS adj.) (c) 18.7 67.2 76.8 90.2

EPS growth (%) (62.2) 258.8 14.2 17.4

DPS (c) 22.0 38.3 38.4 45.1

Dividend Payout (%) 117.4 56.9 50.0 50.0

Free CFPS (c) 14.7 80.3 79.2 89.1

Valuation 6/16A 6/17E 6/18E 6/19E

P/E (CS) (x) 73.6 20.5 18.0 15.3

PEG (x) (1.2) 0.1 1.3 0.9

EV/EBIT (x) 42.9 13.6 11.2 9.2

EV/EBITDA (x) 13.5 8.4 7.3 6.4

Dividend Yield (%) 1.6 2.8 2.8 3.3

FCF Yield (%) 1.1 5.8 5.7 6.5

Price to book (x) 1.5 1.4 1.3 1.3

Returns 6/16A 6/17E 6/18E 6/19E

Return on Equity (%) 2.1 6.8 7.4 8.2

Profit Margin (%) 0.8 2.7 3.0 3.6



Return on Assets (%) 1.5 4.9 5.3 6.1


2.9 8.2 8.9 10.3

Gearing 6/16A 6/17E 6/18E 6/19E

ND/ND+E (%) Net Cash

Net Cash

Net Cash

Net Cash Net Debt to EBITDA (x) Net

Cash Net

Cash Net

Cash Net

Cash Int Cover (EBITDA) (x) 19.0 40.4 77.4 126.9

Int Cover (EBIT) (x) 6.0 24.9 50.5 87.5

Capex to Sales (%) 2.3 3.4 3.3 2.5

Capex to Depr (%) 96.0 167.2 159.8 120.1

MSCI IVA Rating AAA



0

2

4

6

8

GL

C

S

GLC

S

G

LC

S

TP ESG Risk (%): 0.00 TP Risk Comment: No ESG risk factored into our TP, consistent with MSCI 'AAA' rating. MSCI IVA Risk: Neutral MSCI IVA Risk Comment: As SGM is not involved in production of steel or Iron Ore, and is not anticipated too, we expect low risk of a MSCI rating downgrade




19 June 2017


The Schnitzer read-through conundrum

■ Schnitzer’s MayQ scrap result presents a conundrum, with no clear read-through for

SGM. The positive is that MayQ ferrous tonnes were up a material 12% and materially

higher margin no-ferrous tonnes were up a massive 32%. From a SGM investment

thesis this appears to be a big positive, with an implied big volume increase on a fixed

cost based and a richer margin mix with a higher proportion of high margin non-ferrous.

The logical read through is a significant step up in $/t margin. This was not however the

case for Schnitzer which reported a sequentially flat margin on its FebQ.

■ This is intuitively illogical unless it reflects the traditional challenge of the scrap

industry, that of a buy price that is difficult to control when there is increased

competition for scrap, and this buy-price pressure is now fully offsetting the operating

leverage.

■ If we want to set a positive bias for SGM to back fill earnings to part explain the share

price, we would give SGM the same volume increment as Schnitzer, but also give them

the fixed cost leverage via a higher $/t margin outcome. If we want to be negative, we

would just give then the volume benefit, but no fixed cost leverage.

■ Given SGM’s robust reinforcement of ifs volume leverage story last week, we feel it is

appropriate to give them the full leverage benefit of higher volumes on the fixed cost

based. SGM, after all, had the opportunity to refresh their message last week, but did

not. The volume leverage story was reinforced so we have to assume it remains the

case. However, we have seen this cycle before, where rising volumes are an outcome

of turf battles as scrap aggregators seeking fixed cost leverage by increasing market

share, only to deliver profitless prosperity through no margin expansion.

■ We do note that SGM revised down their cost out achievement since FY13 by $22mn

from $234m at 1H17 to now $212mn. Perhaps Schnitzer’s MayQ is also reflecting a

step increase in the controllable cost base, and this is part of the explanation for their

disappointing lack of operating leverage.

■ We remain cautious of the recent disconnect between scrap and the cost of making pig

iron. Iron ore and coking coal prices have retreated, as expected. Scrap remains

robust. US steel makers are complaining of margin pressure. Perhaps scrap has

indeed peaked and is due to correct. The relationship between scrap prices and

volumes, short term, is established. A weaker scrap price would reduce scrap volumes

and contribute negative operating leverage.

Schnitzer Q3 result continued…

■ Schnitzer’s Q3 (MayQ) ferrous sales volumes are expected to be approximately 12%

higher sequentially and 14% higher compared to the prior year quarter. SGM operate

broadly in the sale East and West coast markets, so should be experiencing the same

trading conditions, but Schnitzer has generally been able to deliver superior margin

than SGM.

■ Schnitzer’s Non-ferrous sales volumes are expected to be approximately 32% higher

both sequentially and compared to the prior year quarter. This would be a favourable

boost to SGM earnings if also achieved.

■ Average ferrous and nonferrous selling prices are expected to approximate second

quarter levels and increase approximately 20% and 12%, respectively, compared to

the prior year quarter.

■ AMR’s third quarter results are expected to include an immaterial impact from average

inventory accounting, which compares to a favorable impact of $4 million and $3 million

in the second quarter and prior year quarter, respectively.

19 June 2017


■ In the Steel Manufacturing Business (SMB), operating performance is expected to be

approximately break-even, which would be an improvement of approximately $2 million

sequentially and slightly below prior year operating income of $1 million. Sales volumes

are expected to increase by approximately 33% sequentially and 6% from the prior

year quarter. Average selling prices are expected to increase by approximately 5%

sequentially and 9% from the prior year quarter. During the quarter, improved seasonal

demand positively impacted sequential results, while continued pressure from low-

priced imports limited increases in selling prices in a period of rising raw material costs

which compressed SMB’s operating margins.

■ Schnitzer is breakeven at steel making, reflecting high priced scrap while Chinese steel

makers selling the same products are generating strong earnings because they are not

adversely impacted by elevated scrap prices.

Figure 1: Schnitzer ferrous volumes and EBIT/t margin. Note the 13% increase

MayQ ferrous tonnage on the prior qtr., but no change to operating margin

inferring a lack of operating leverage to higher volumes.

-40

-20

0

20

40

60

80

100

120

140

0

200

400

600

800

1000

1200

1400

1600

1800

Nov

Q 0

4F

ebQ

05

May

Q 0

5A

ugQ

05

Nov

Q 0

5F

ebQ

06

May

Q 0

6A

ugQ

06

Nov

Q 0

6F

ebQ

07

May

Q 0

7A

ugQ

07

Nov

Q 0

7F

ebQ

08M

ayQ

08

Aug

Q 0

8N

ovQ

08

Feb

Q09

May

Q 0

9A

ugQ

09

Nov

Q 0

9F

ebQ

10M

ayQ

10A

ugQ

10

Nov

Q 1

0F

ebQ

11M

ayQ

11A

ugQ

11

Nov

Q11

Feb

Q12

May

Q12

Aug

Q12

Nov

Q12

Feb

Q13

May

Q13

Aug

Q13

Nov

Q13

Feb

Q14

May

Q14

Aug

Q 1

4N

ovQ

14F

ebQ

15M

ayQ

15A

ugQ

15

Nov

Q15

Feb

Q16

May

Q16

Aug

Q 1

6N

ovQ

16F

ebQ

17M

ayQ

17

ton

nes

SCHN recycling tonnes (LHS) vs EBIT/t margin (RHS)

Processed - ferrous k tonnes EBIT/Fe tonne


19 June 2017


Valuation

Figure 2: EBITDA multiples (historic & CS forecasts)

11.00

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

Jun 9

8

Jun 9

9

Jun 0

0

Jun 0

1

Jun 0

2

Jun 0

3

Jun 0

4

Jun

05

Jun 0

6

Jun 0

7

Jun 0

8

Jun 0

9

Jun 1

0

Jun 1

1

Jun 1

2

Jun

13

Jun 1

4

Jun 1

5

Jun 1

6

Jun 1

7

Jun 1

8

Jun 1

9

Jun 2

0

A$/shEBITDA Multiple bands (CS Estimates)

3 x 4 x 5 x 6 x 7 x 8 x 9 x 10 x Share Price TP Projection


■ SGM has historically traded on 5x EBITDA multiple, but is currently on a more

expensive ~8.5x FY17F and ~7.5x FY18F.

Figure 3: SGM – NPV

Operational

A$mn

(t = 1-3 yrs)

A$mn

(terminal) (2) A$mn

Risk weighting

factor A$/sh (1)

North America Metals 146 1,080 1,226 75% 4.66

ANZ Metals 70 396 467 100% 2.36

Europe Metals 65 252 318 100% 1.61

Global E-recycling 27 129 156 100% 0.79

Sub-Total 309 1,858 2,167 9.42

Non-Operational

Net Cash / (debt) 311 0 311 1.57

Sub-Total 311 0 311 1.57

Total 620 1,858 2,478 11.00

Notes & assumptions

1) Shares on issue 197.4 mn

2) Terminal grow th rate 2.0 %

Target price 11.00

NAV


■ We set our target price at our $11.00/sh NPV, rating remains Underperform on

valuation.


19 June 2017


Diversified Metals & Mining

South 32

(S32.AX / S32 AU / S32.L) Rating OUTPERFORM*





Yr avg. mthly trading (A$mn) 1,155.3

Projected return:






Research Analysts

Sam Webb

61 2 8205 4535

[email protected]

Christian Prendiville

612 8205 4012

[email protected]

COMPANY UPDATE

Un-chartered waters?

■ New mining charter: South Africa’s Department of Mineral Resources has

published the reviewed broad based black-economic empowerment charter

for the South African mining and minerals industry. Mining companies are

being asked to comply with a black-ownership threshold of 30%, up from the

previous 26%, within the maximum of 12 months. The charter applies only to

mining operations, as such S32’s Hillside aluminum smelter is exempt. We

are far from legal experts, but if our understanding of the wording is correct

(full charter doc here), the potential direct impact to S32 could be a 2.4% and

22% decrease to their effective interests in their South Africa Manganese

and Energy Coal businesses respectively.

■ Plenty of ambiguity: The Chamber of Mines, which represents ~90% of

mines in South Africa, is likely to seek an injunction and the charter may be

ultimately tested in the courts. As such, timing of implementation, if at all, is

unclear to us. What is also not clear and most relevant for S32 is how historic

transactions, which have seen it comply with previous charters, is ultimately

taken into consideration. On face value, irrespective of historic adherence to

the previous charter, a requirement to top up to 30% may well be required. But

this is not entirely clear and the interpretation of points 2.1.2.1, 2.1.2.2 and

2.1.2.9 may be critical for S32 and specifically, their Energy Coal holding.

■ Immaterial valuation impact: This is the third iteration of the mining charter

and has reportedly been released with little consultation with the mining

companies. It is relatively straight forward for us to run the scenario through

our numbers (see comments below), but far more difficult to quantify the

impact that comes from heightened geopolitical risk and what may be

ongoing uncertainty for some time.

■ Valuation: No change to TP or Rating. We carry $0.58/sh for the

Manganese and Energy Coal businesses. If we adjusted for the potential

change in effective stakes noted above, this would fall to ~$0.50/sh. The

impact to FY18 and FY19 EBITDA would be 2% and 4% respectively.



12mth Volat ility

52 Week Hi-Lo

*Target return

- 47%

- 22%

3%

28%

53%

78%


Suisse estimates

Performance 1M 3M 12M Absolute (%) -2.25 -6.79 65.19 Relative (%) -2.04 -6.34 52.99


Year 6/16A 6/17E 6/18E 6/19E Revenue (US$ mn) 6,136 7,077 6,864 6,720 EBITDA (US$ mn) 1,131 2,502 2,218 2,115 EBIT (US$ mn) 356 1,749 1,468 1,329 Net Income (Adj.) (US$ mn) 184 1,203 961 844 EPS (Adj.) (USc) 3.45 22.39 18.31 16.91 Change from previous EPS (%) n.a. 0.0 0.0 0.0 EPS growth (%) (73.5) 548.3 (18.2) (7.6) Consensus EPS (USc) 2.60 21.80 19.20 16.90 P/E (x) 57.4 8.9 10.8 11.7 Dividends (USc) 0.00 8.99 7.26 6.66 Dividend yield (%) 0.0 4.5 3.7 3.4 Price/Book (x) 1.1 1.0 1.0 1.0 Net debt/EBITDA (x) (0.3) (0.6) (0.8) (0.8)


http://www.chamberofmines.org.za/industry-news/media-releases/2017/send/22-downloads/445-reviewed-mining-charter-jun2017

19 June 2017


South 32 (S32.AX / S32 AU) Price (16 Jun 2017): A$2.61; Rating: OUTPERFORM [V]; Target Price: A$2.95; Analyst: Sam Webb


Revenue 6,136 7,077 6,864 6,720

EBITDA 1,131 2,502 2,218 2,115

Depr. & Amort. (775) (753) (751) (786)

EBIT 356 1,749 1,468 1,329

Associates 23 0 0 0

Net interest exp. (29) (47) (47) (47)

Other (96) (98) (100) (100)

Profit before tax 254 1,605 1,321 1,182

Income tax (93) (402) (359) (337)

Profit after tax 161 1,203 961 844

Minorities 23 -0 -0 -0



Normalised NPAT 184 1,203 961 844

Unusual item after tax (1,753) 141 0 0

Net profit (Reported) (1,569) 1,344 961 844


Cash & equivalents 1,225 2,521 2,819 2,803




Current assets 2,701 4,082 4,346 4,285



Other non-current assets 1,734 1,658 1,658 1,658


Total assets 13,374 14,294 14,359 14,045

Payables 676 580 566 548

Interest bearing debt 914 1,048 1,048 1,048

Other liabilities 2,346 2,392 2,392 2,392


Net assets 9,425 10,274 10,353 10,057

Ordinary equity 9,426 10,274 10,353 10,057

Minority interests (1) 0 0 0



Net Debt (311) (1,473) (1,771) (1,755)

Cash Flow 6/16A 6/17E 6/18E 6/19E

EBIT 356 1,749 1,468 1,329

Net Interest (19) (17) 0 0

Depr & Amort 775 753 751 786

Tax Paid (52) (300) (359) (337)

Change in Working capital 505 (181) 21 27

Other cash and non-cash items (535) (359) (98) (127)

Operating cash flow 1,030 1,645 1,782 1,677

Capex (554) (370) (530) (510)

Capex - expansionary 0 (6) 0 0


Acquisitions & Invest 33 (32) (22) (22)


Other - - - -


Dividends paid 0 (53) (508) (337)


Net borrowings (127) (9) 0 0

Other financing cash in/(outflows) (3) (124) (424) (824)

Financing cash flow (99) (39) (932) (1,161)

Total cash flow 589 1,294 298 (16)

Adjustments (8) 2 0 0

Movement in cash/equivalents 581 1,296 298 (16)

Earnings 6/16A 6/17E 6/18E 6/19E

Equiv. FPO (period avg) (mn) 5,328 5,374 5,250 4,993 EPS (CS adj.) (c) 3.5 22.4 18.3 16.9 EPS growth (%) (73.5) 548.3 (18.2) (7.6) DPS (c) 0.0 9.0 7.3 6.7 Dividend Payout (%) 0.0 40.2 39.7 39.4 Free CFPS (c) 8.9 23.8 23.8 23.4

Valuation 6/16A 6/17E 6/18E 6/19E

P/E (CS) (x) 57.4 8.9 10.8 11.7 PEG (x) (0.8) 0.0 (0.6) (1.5) EV/EBIT (x) 28.4 5.1 5.9 6.5 EV/EBITDA (x) 9.0 3.6 3.9 4.1 Dividend Yield (%) 0.0 4.5 3.7 3.4 FCF Yield (%) 4.5 12.0 12.0 11.8 Price to book (x) 1.1 1.0 1.0 1.0

Returns 6/16A 6/17E 6/18E 6/19E

Return on Equity (%) 2.0 11.7 9.3 8.4 Profit Margin (%) 3.0 17.0 14.0 12.6 Asset Turnover (x) 0.5 0.5 0.5 0.5 Equity Multiplier (x) 1.4 1.4 1.4 1.4 Return on Assets (%) 1.4 8.4 6.7 6.0 Return on Invested Cap. (%)

2.5 14.9 12.4 11.4

Gearing 6/16A 6/17E 6/18E 6/19E

ND/ND+E (%) Net Cash

Net Cash

Net Cash

Net Cash Net Debt to EBITDA (x) Net

Cash Net

Cash Net

Cash Net

Cash Int Cover (EBITDA) (x) 39.0 53.7 47.0 44.8 Int Cover (EBIT) (x) 12.3 37.6 31.1 28.2 Capex to Sales (%) 9.0 5.2 7.7 7.6 Capex to Depr (%) 71.5 49.2 70.6 64.9

MSCI IVA Rating A



0

1

2

3

4

5

6

7

GL

C

S

G

LCS G

LC

S

TP ESG Risk (%): 0.00 TP Risk Comment: We do not include an ESG impact in our valuation for South 32. However we note that our 10% WACC compares with 8.5% used for BHP the parent which takes into account, partly, higher risks from its South African operations. Balancing this concern, we note that S32 will inherit many of BHP's operating standards in relation to managing environmental issues, safety, engaging with local communities and host governments which we generally view to be best practice. MSCI IVA Risk: A MSCI IVA Risk Comment: Overall, South32's business profile is more highly exposed to ESG risks compared to BHPB, particularly with regard to labor unrest, safety and corruption issues. As part of the spinoff, South32 inherited BHPB's aluminium, coal, manganese, nickel and silver assets concentrated in South African, South American and Australian geographies.





19 June 2017


Radio & TV Broadcasting

Southern Cross Media Group

(SXL.AX / SXL AU) Rating (from NEUTRAL) OUTPERFORM*




Market cap (A$mn) 892.1


Projected return:





Research Analysts

Lucas Goode

61 2 8205 4431

[email protected]

UPGRADE RATING

Upgrade on improving industry landscape

■ SXL a major beneficiary of media reform: In our view SXL's current share

price is not factoring in the potential upside from proposed regulatory

changes: i) the abolition of licence fees could add ~8% to EPS and A$0.10 to

our valuation after adjusting for new spectrum fees and a reduction in

gambling ad revenue; and ii) the removal of the 75% audience reach rule, in

combination with NEC's recent share price strength, could increase M&A

possibilities. We note that both of these proposed changes are supported by

the two major parties.

■ TEN's issues = share upside for Nine…and by extension SXL: As Fraser

McLeish detailed in his recent note Changing channels – TV shake-up

looming, TEN's deteriorating financial position (culminating in Wednesday's

entry into voluntary administration) means that it is likely to cut programming

spend in order to return to profitability. This creates the potential for long-

term market share upside at the other networks. Any market share uplift at

Nine would also drive market share improvements at SXL’s TV business. We

estimate that each additional point of market share at SXL’s Nine-affiliated

stations could add A$4-5m to revenue, equivalent to a ~A$2m EBITDA uplift

or a ~1.5% boost to EPS. A 3% sustainable increase in SXL's regional TV

market share could add A$0.05 to our valuation.

■ Radio market back in the black in May: The metro radio market returned to

positive territory in May with 5-city YoY growth of 0.5%, according to

Commercial Radio Australia data. The market remains down 1.6% calendar

year-to-date, however the base of comparison will ease in the second half.

■ Upgrade to Outperform (from Neutral), A$1.35 Target Price (from

A$1.30): We raise our SXL TP to A$1.35 and set it at a premium to our

A$1.30 base case valuation to reflect upside from the likely removal of

licence fees. We do not include any upside from a potential higher long-term

TV market share. We view SXL as inexpensive on <11x FY18F P/E, falling to

~10x ex-licence fees, and move to an OUTPERFORM rating.



12mth Volat ility

52 Week Hi-Lo

*Target return

- 36%

- 16%

4%

24%

44%

64%


Suisse estimates

Performance 1M 3M 12M Absolute (%) -11.11 -10.77 -7.94 Relative (%) -10.72 -10.14 -19.93


Year 6/16A 6/17E 6/18E 6/19E Revenue (A$ mn) 642 695 666 677 EBITDA (A$ mn) 167 167 158 170 EBIT (A$ mn) 139 136 131 144 Net Income (Adj.) (A$ mn) 89 84 83 92 EPS (Adj.) (Ac) 11.63 10.95 10.80 11.99 Change from previous EPS (%) n.a. 0.0 0.0 0.0 EPS growth (%) 30.3 (5.8) (1.4) 11.1 Consensus EPS (Ac) 10.10 11.20 11.40 11.70 P/E (x) 10.0 10.6 10.7 9.7 Dividends (Ac) 6.75 7.00 7.75 8.25 Dividend yield (%) 5.8 6.0 6.7 7.1 Price/Book (x) 0.8 0.8 0.8 0.8 Net debt/EBITDA (x) 2.2 2.1 1.8 1.5




19 June 2017


Southern Cross Media Group (SXL.AX / SXL AU) Price (16 Jun 2017): A$1.16; Rating: (from NEUTRAL) OUTPERFORM; Target Price: (from A$1.3) A$1.35; Analyst: Lucas Goode


Revenue 642 695 666 677

EBITDA 167 167 158 170

Depr. & Amort. (29) (30) (27) (26)

EBIT 139 136 131 144

Associates - - - -

Net interest exp. (25) (18) (13) (12)

Other 0 0 0 0


Income tax (37) (34) (35) (39)


Minorities -0 -0 -0 -0




Unusual item after tax 12 0 0 0




Inventories 0 0 0 0



Current assets 237 210 149 167


Intangibles 1,290 1,298 1,298 1,298



Total assets 1,688 1,654 1,549 1,557

Payables 86 93 88 89



Total liabilities 708 644 515 492

Net assets 980 1,010 1,034 1,065

Ordinary equity 1,057 1,087 1,111 1,142



Total shareholder funds 980 1,010 1,034 1,065

Net Debt 375 353 285 249

Cash Flow 6/16A 6/17E 6/18E 6/19E

EBIT 139 136 131 144

Net Interest (29) (20) (13) (12)

Depr & Amort 29 30 27 26

Tax Paid (33) (40) (35) (39)

Change in Working capital (22) (4) 3 (1)

Other cash and non-cash items 110 (2) (4) (4)


Capex (23) (28) (26) (26)

Capex - expansionary 0 0 0 0


Acquisitions & Invest 16 13 45 10


Other - - - -

Investing cash flow (7) (23) 19 (16)

Dividends paid (34) (56) (60) (62)


Net borrowings (200) (60) (120) (20)

Other financing cash in/(outflows) (0) (0) 0 0


Total cash flow (48) (37) (52) 16

Adjustments 0 0 0 0

Movement in cash/equivalents (48) (37) (52) 16

Earnings 6/16A 6/17E 6/18E 6/19E


EPS (CS adj.) (c) 11.6 10.9 10.8 12.0

EPS growth (%) 30.3 (5.8) (1.4) 11.1

DPS (c) 6.8 7.0 7.8 8.3

Dividend Payout (%) 58.1 63.9 71.8 68.8

Free CFPS (c) 22.2 9.5 10.7 11.3

Valuation 6/16A 6/17E 6/18E 6/19E

P/E (CS) (x) 10.0 10.6 10.7 9.7

PEG (x) 0.3 (1.8) (7.7) 0.9

EV/EBIT (x) 9.1 9.1 9.0 7.9

EV/EBITDA (x) 7.6 7.5 7.5 6.7

Dividend Yield (%) 5.8 6.0 6.7 7.1

FCF Yield (%) 19.2 8.2 9.2 9.7

Price to book (x) 0.8 0.8 0.8 0.8

Returns 6/16A 6/17E 6/18E 6/19E

Return on Equity (%) 8.4 7.8 7.5 8.1

Profit Margin (%) 13.8 12.1 12.5 13.6



Return on Assets (%) 5.3 5.1 5.4 5.9


6.9 7.1 7.0 7.7

Gearing 6/16A 6/17E 6/18E 6/19E

ND/ND+E (%) 27.7 25.9 21.6 19.0



Int Cover (EBIT) (x) 5.6 7.4 10.1 11.7

Capex to Sales (%) 3.6 4.1 3.9 3.8

Capex to Depr (%) 80.6 93.6 98.0 100.0

MSCI IVA Rating

Global Local Country


0

2

4

6

8

10G

L C

GL

CG

L

C

TP ESG Risk (%): 0.00 TP Risk Comment: No major ESG risks MSCI IVA Risk: Neutral MSCI IVA Risk Comment: SXL has faced issues over high profile employees in its metro radio division which has resulted in its MSCI rating being downgraded from ‘A’ to ‘BB’. Further issues could impact future ratings or incur legal costs, however we believe that these risks are already incorporated into the current rating.





19 June 2017

Asia Pacific/New Zealand Equity Research Packaged Foods

The a2 Milk Company

(ATM.NZ / ATM NZ) Rating OUTPERFORM* Price (16-Jun,NZ$) 3.82 Target Price (NZ$) (from 3.92) 4.10 Target price ESG risk (%) Market cap (NZ$mn) 2,777.1 Yr avg. mthly trading (NZ$mn) 109.3 Projected return: Capital gain (%) 7.3 Dividend yield (net %) 0.0 Total return (%) 7.3



Research Analysts

Kar Yue Yeo

64 4 474 4462

[email protected]

This report is distributed in Australia by Credit

Suisse Equities (Australia) Limited. Please see legal

disclaimer and disclosure annex for further terms

and information.

Provided by First NZ Capital

INCREASE TARGET PRICE

Selling them as fast as it is making them ■ Earnings upgrade, again: On the back of a revised production schedule

with the company’s infant formula (IF) contract manufacturer and ongoing

strong demand for its product, ATM has raised its previous NZ$525mn

revenue guidance to NZ$545mn compared with our NZ$534mn pre-trading

update forecast for FY17F. The increased production and delivery of this IF

stock by ATM to its distributors is a signal of the ongoing strong and

previously unsatisfied demand in the market for its products. It is also an

indication that the economic incentives on ATM’s IF remain attractive to its

channel partners in the market. Coupled with changes in the phasing of the

company’s marketing spend in China, we have upgraded our EBITDA

forecast by 8% in FY17F and by c2% in FY18F and FY19F. The risk to our

earnings forecasts in FY18F and FY19F remains to the upside driven by a

combination of potential volume growth as well as higher gross margin. We

maintain our OUTPERFORM rating with a revised NZ$4.10 TP.

■ Evolving from a branded Australian liquid milk company to become a

global dairy nutrition company: ATM’s A1/A2-type milk hypothesis and

digestive benefit claims, coupled with its suite of patents and trademarks

have provided the company with a marketing platform for premium-priced

differentiated products. Our view on ATM is premised on successful rollout of

the company's A2-type-based dairy products (including IF) in Australia, the

UK, the US and China markets. Key to this is the successful management of

channels-to-market and of regulatory changes over time.

■ Catalysts in the next 12 months: These include ATM’s formulation

registration process in China, ongoing infant formula trading conditions in

China and the expansion of ATM’s footprint into the US fresh milk market.

■ TP revised to NZ$4.10 (from NZ$3.92): This is based on our probability-

weighted rolled forward sum-of-the-parts DCF adjusted for risks. On an

adjusted NPAT basis (ex-UK/US losses), our TP implies FY17F and FY18F

PEs of 27.0x and 22.5x, respectively. Our projected adjusted NPAT growth

rates (ex-UK/US losses) are 19% and 17% in FY18F and FY19F, respectively.


On 16-Jun-2017 the NEW ZEALAND EXCH NZSX 50

FREE IDX closed at 7516.35

On 16-Jun-2017 the spot exchange rate was

NZ$1.39/US$1



Year 6/16A 6/17E 6/18E 6/19E

Adjusted Earnings (NZ$ mn) 30 84 111 154

EPS Adjusted (NZc) 4.4 11.7 15.5 21.4

EPS Growth (%) n.m 164.4 32.2 37.9

P/E (x) 86.2 32.6 24.7 17.9

CPS (NZc) 3.2 10.5 13.4 18.7

P/CF (x) 121.1 36.2 28.5 20.5

EV/EBITDA (x) 49.6 19.8 15.1 11.0

Net DPS (NZc) 0.0 0.0 0.0 0.0

Imputation (%) 0.0 0.0 0.0 0.0

Net Yield (%) 0.0 0.0 0.0 0.0

Gross Yield (%) 0.0 0.0 0.0 0.0


19 June 2017


Figure 1: The a2 Milk Company financial summary

Sector: Food, Beverage & Tobacco NZX Code: ATM

PROFIT & LOSS ($m) BALANCE SHEET ($m)Year to 30 Jun 2015A 2016A 2017F 2018F 2019F Year to 30 Jun 2015A 2016A 2017F 2018F 2019F

Operating Rev enue 155 353 546 696 881 Cash & Equiv alents 6.1 69.4 143 237 369

Operating Ex penses -150 -298 -412 -528 -663 Debtors & Inv entories 44.8 98.0 116 153 202

Operating EBITDA 4.8 54.6 133 168 218 Other Current Assets 9.7 15.1 15.1 15.1 15.1

Depreciation -1.2 -2.7 -3.2 -2.8 -2.7 Current Assets 60.5 182 274 406 586

Amortisation -0.8 0.0 0.0 0.0 0.0 Fix ed Assets 9.3 8.1 6.8 6.3 6.5

Operating EBIT 2.9 51.8 130 165 216 Inv estments 0.0 0.0 0.0 0.0 0.0

Other Income 0.0 0.0 0.0 0.0 0.0 Intangibles 17.2 16.3 14.1 14.1 14.1

Abnormals -1.7 0.0 -2.2 0.0 0.0 Other Non-Current Ass. 1.8 3.3 3.3 3.3 3.3

Reported EBIT 1.2 51.8 128 165 216 Total Assets 88.9 210 298 429 610

Net Interest 0.1 0.5 1.3 2.4 3.7

Pretax Profit 1.3 52.3 129 168 219 Interest Bearing Debt 0.0 0.0 0.0 0.0 0.0

Tax -3.4 -21.9 -47.0 -56.2 -65.8 Other Liabilities 30.3 77.1 83.2 103 129

Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Liabilities 30.3 77.1 83.2 103 129

Equity Accounted Profit 0.0 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 0.0 0.0 0.0

Reported NPAT -2.1 30.5 82.1 111 154 Conv ertible Capital 0.0 0.0 0.0 0.0 0.0

Abnormals (net of tax ) -1.7 0.0 -2.2 0.0 0.0 Ordinary Equity 58.6 133 215 327 480

Adjusted Earnings -0.4 30.5 84.3 111 154 Total Funds Emp. 88.9 210 298 429 610

RATIOS AND CAPITAL STRUCTURE CASH FLOW ($m)Year to 30 Jun 2015A 2016A 2017F 2018F 2019F Year to 30 Jun 2015A 2016A 2017F 2018F 2019F

Profitability & Growth

EBITDA/Op Rev % 3.1 15.5 24.4 24.1 24.8 Operating EBITDA 4.8 54.6 133 168 218

EBIT/Op Rev % 1.8 14.7 23.8 23.7 24.5 Other Cash Income -1.7 0.0 0.0 0.0 0.0

Effectiv e Tax Rate % 263 41.8 36.4 33.5 30.0 Interest Paid 0.1 0.5 1.3 2.4 3.7

Return On Equity % -0.7 31.8 48.4 41.1 38.1 Tax Paid -2.6 -9.7 -47.0 -56.2 -65.8

ROCE % 6.0 89.2 192 206 215 Working Capital / Other -7.3 -23.7 -11.6 -17.8 -22.0

EPS Adjusted c. -0.1 4.4 11.7 15.5 21.4 Operating Cash Flow -6.6 21.7 75.8 96.4 134

EPS Grow th % -7,483 164 32.3 37.9

Net DPS c. 0.0 0.0 0.0 0.0 0.0 Total Capex -1.0 -1.2 -1.8 -2.3 -2.9

Div idend Cov er x Acquisitions 0.0 0.0 0.0 0.0 0.0

Asset Backing & Capital Structure Div estments 0.0 0.0 0.0 0.0 0.0

Net Cash (Debt) $m 6.1 69.4 143 237 369 Div idends 0.0 0.0 0.0 0.0 0.0

NTA / Share $ 0.1 0.2 0.3 0.4 0.6 Equity Raised 0.0 44.3 0.0 0.0 0.0

Equity / Tot Assets % 66.0 63.3 72.1 76.1 78.8 Other -2.6 -0.9 0.0 0.0 0.0

Net Debt / EBITDA x -1.3 -1.3 -1.1 -1.4 -1.7 Change in Net Debt -10.2 63.9 74.0 94.1 131

Interest Cov er x -28.6 -110 -99.2 -70.3 -57.7

Shares on Issue Capex /Depn % 85.5 42.7 57.5 83.4 108

Ordinary m 655 687 719 719 719 Capex /Rev % 0.6 0.3 0.3 0.3 0.3

Fully Diluted m 655 687 719 719 719

VOLUME ASSUMPTIONS EBITDA COMPOSITION BY MARKET (NZD)Year to 30 Jun 2015A 2016A 2017F 2018F 2019F Year to 30 Jun 2015A 2016A 2017F 2018F 2019F

Sales Vol. Aus - m/L 58.7 54.66 56.43 58.24 60.1 EBITDA - Aus 29 85 154 177 196

Sales Vol. UK - m/L 0.89 3.77 6.01 12.74 31.42 EBITDA - China -3 9 30 37 49

Sales Vol. China - tn 220.5 1678.44 3571.43 5621.69 7027.12 EBITDA - UK/US -12 -20 -25 -20 1

Sales Vol. US - m/L 0.13 4.82 9.11 23.1 54.27 Corporate & Others -9 -19 -25 -26 -27

EBITDA - Total 5 55 133 168 218

Source: Company data, NZX, First NZ Capital estimates

19 June 2017


Key points from the ATM trading update

ATM’s second trading update in two months, in our view, signals the following:

■ An indication of unsatisfied demand for ATM’s IF product: It has been well

broadcast in the market that ATM had experienced significant IF stock shortages

relative to demand since December 2016 due to previously under-ordering of products

from its contract manufacturer. The risk for ATM during this period was that some of its

channel partners and end-customers could have permanently abandoned ATM’s IF

and shifted to other brands in the market. Judging by the sales momentum in the past

few months from ATM’s revenue upgrades, this has not occurred. The brand appears

to be gaining rather than losing momentum.

■ The overachievement continues to surprise even ATM: The ever changing

dynamics in the domestic Australia and China IF market landscape means it is difficult

to predict business outcomes with a high degree of accuracy. For ATM, the success

achieved to date has been a combination of externalities as well as good management

foresight and execution in response to changing market conditions. The company has

successfully capitalised on the emergence of the daigou and cross border e-commerce

channels, as well as mis-steps by some of its competitors in the market place. ATM

has also executed very well as far as establishing and improving the economic

incentives to maintain ongoing support from its channel partners. The fact that ATM

has had to return to the market twice in four months (and a second time in two months)

after reporting its half-year result in February indicates either management and the

board continue to maintain a conservative approach to guidance or the business

continues to beat ATM’s own internal expectations.

High level observations from our channels checks:

■ Overall volume: Overall IF volume for all brands sold by retail channels in Australia

appears to be down c5% YoY in the past twelve months. That said, on our forecasts,

ATM sales volume across all channels (Australia retail, daigou and direct export to

China/HK) is projected to rise by c80% YoY to c 18,100 tonnes in FY17F compared

with an estimated 10,000 tonnes in FY16A. We think the company’s IF volume

recorded through the retail channels has grown slightly below this overall 80% YoY

growth rate.

■ Market share: By default, ATM has been gaining share at the expense of other brands

in Australia.

■ Pricing and gross margin for channel partners: We observed that the headline

retail prices for ATM’s IF product have risen by c4% (cA$1 per can) since mid-March

across all grocery and pharmacy stores. We also note that prices on TMall and Taobao

webstores operated by ATM’s channel partners have also increased by c10% (cA$4

per can). This implies the gross margin for some channel partners has expanded.

Interestingly, we note that the higher pricing has so far occurred without negatively

impacting on demand for the product in the past few months.

Earnings revisions

■ We have raised our EBITDA forecasts for ATM by 8% in FY17F and by c 2% in FY18F

and FY19F based on the trading update for the company. This reflects a combination

of higher volume forecasts and also higher marketing costs in FY18F and beyond (see

Figure 2).

■ Our terminal year volume assumption has risen by approximately 1,000 tonnes (c3%)

from previously 31,000 tonnes to 32,000 tonnes.

19 June 2017


What to do with the stock?

We maintain our OUTPERFORM rating with a revised 12-month rolled forward DCF-based

risk adjusted NZ$4.10 target price (from previously NZ$3.92). This reflects higher

valuations for ANZ and China operations driven by our assumption of higher IF sales

volumes both in the short and long term but partially offset by higher sales and marketing

costs also. The risk to our assessment for ATM’s gross margin in FY18F is to the upside

as the cost for one of the primary inputs for IF now appears to have receded from the high

level observed between November 2016 and February 2017.

Our current valuation for ATM assumes that the company can achieve 32,000 tonnes of IF

sales by FY25F compared with currently 18,100 tonnes projected for FY17F.

While it is not our base case, should the company continue to take share in the current

950,000 tonnes p.a. China IF market that is projected to grow at c5%–10% p.a. (of which

half is from imports) and lift its overall IF sales to 45,000 tonnes by FY25F, it would imply a

lift in our spot DCF valuation from NZ$4.09 to NZ$5.10.

Figure 2: Earnings revision

NZ$mn FY16A FY17F FY18F FY19F

Act'l New Old Chg New Old Chg New Old Chg

ANZ 296 441 430 3% 504 490 3% 553 537 3%

China/Other Asia 38 76 76 0% 123 116 6% 155 146 6%

UK/US 18 28 28 0% 70 70 0% 173 173 0%

Others

Revenue 353 546 534 2.2% 696 675 3.2% 881 857 2.9%

ANZ 84.7 153.9 148.9 3.4% 177.2 171.3 3.4% 195.9 189.4 3.4%

Asia 9.2 29.9 25.0 19.7% 36.8 39.7 -7.3% 49.4 50.7 -2.6%

UK & US -20.5 -25.4 -25.4 0.0% -19.7 -19.7 0.0% 0.5 0.5 0.0%

Corporate -18.8 -25.4 -25.4 0.0% -26.4 -26.4 0.0% -27.4 -27.4 0.0%

EBITDA (pre-abn'l) 54.6 133.1 123.2 8.1% 168.0 165.0 1.8% 218.4 213.2 2.4%

EBIT (pre-abn'l) 51.8 129.9 120.0 8.3% 165.2 162.3 1.8% 215.7 210.6 2.4%

NPAT (pre-abn'l) 30.4 84.2 77.3 9.0% 111.4 109.3 1.9% 153.6 149.9 2.5%

Operating CF 21.7 75.8 70.1 8.2% 96.4 95.4 1.1% 134.3 131.2 2.4%

Capex -1.2 -1.8 -1.8 2.2% -2.3 -2.2 3.2% -2.9 -2.8 2.9%

Free cash flow 20.5 74.0 68.3 8.3% 94.1 93.2 1.0% 131.4 128.4 2.4%

Net debt / (cash) -69.4 -143.4 -137.7 4.1% -237.5 -230.9 2.9% -368.9 -359.3 2.7%

EPS (c) 4.4 11.4 10.4 9.3% 15.5 15.2 1.9% 21.4 20.8 2.5%

EBIT Margin 14.7% 23.8% 22.5% 1.3% 23.7% 24.0% -0.3% 24.5% 24.6% -0.1%

EBITDA Margin 15.5% 24.4% 23.1% 1.3% 24.1% 24.4% -0.3% 24.8% 24.9% -0.1%

ANZ liquid (mn litres) 54.7 56.4 56.4 0% 58.2 58.2 0% 60.1 60.1 0%

ANZ IF (tonnes) 8325 14570 14153 3% 16901 16418 3% 18591 18060 3%

UK (mn litres) 3.8 6.0 6.0 0% 12.7 12.7 0% 31.4 31.4 0%

US (mn litres) 4.8 9.1 9.1 0% 23.1 23.1 0% 54.3 54.3 0%

China IF (tonnes) 1678 3571 3571 0% 5622 5291 6% 7027 6614 6%

Total IF (tonnes) 10004 18141 17725

22522 21709

25618 24673

Total IF (NZ$mn) 214 387 375

491 470

565 540

Fresh Milk (NZ$mn) 121 135 135

180 180

289 289

Others (NZ$mn) 18 23 23

25 25

28 28

Total revenue 353 546 534

696 675

881 857

Source: Company data, FNZC estimates

19 June 2017


Figure 3: Revised Risk-Adjusted Sum-of-The-Parts Valuation for ATM Per share values Spot 12-mth forward Probability

weighting

Probability weighted

12-mth forward

Prob. Weighted

value (spot)

Australia value 2.73 3.08 100% 3.08 2.73

A2 UK value 0.33 0.37 20% 0.07 0.07

China value 1.08 1.22 100% 1.22 1.08

USA value ps 0.27 0.30 30% 0.09 0.08

Capitalised corp. expense -0.42 -0.47 100% -0.47 -0.42

Cash on hand 0.10 0.11 100% 0.11 0.10

DCF value per share (NZ$) 4.09 4.61 89% 4.10 3.63


Figure 4: Risk-Adjusted Sum-of-The-Parts Valuation for ATM prior to revision Per share values Spot 12-mth forward Probability

weighting

Probability weighted

12-mth forward

Prob. Weighted

value (spot)

Australia value 2.69 3.03 100% 3.03 2.69

A2 UK value 0.33 0.37 20% 0.07 0.07

China value 0.96 1.08 100% 1.08 0.96

USA value ps 0.27 0.30 30% 0.09 0.08

Capitalised corp. expense -0.42 -0.47 100% -0.47 -0.42

Cash on hand 0.10 0.11 100% 0.11 0.10

DCF value per share (NZ$) 3.93 4.43 88% 3.92 3.47



19 June 2017


Food Retail

Metcash

(MTS.AX / MTS AU) Rating OUTPERFORM* Price (16-Jun,A$) 2.18 Target Price (A$) 2.54 Target price ESG risk (%) NA Market cap (A$mn) 2,126.9 Yr avg. mthly trading (A$mn) 168.3 Projected return: Capital gain (%) 16.5 Dividend yield (net %) 6.2 Total return (%) 22.7


Research Analysts

Grant Saligari

61 3 9280 1720

[email protected]

Annabelle Diamond

61 3 9280 1837

[email protected]

PRE RESULTS COMMENT

Difficult result to predict; reports on 26 June

■ Metcash reports on 26 June and with no company disclosure since

November 2016, it is a difficult result to predict. If Metcash can limit a

reduction in supermarket distribution sales to circa 5% and mitigate most of

that downside with cost reduction, it is likely to meet or beat market

expectations. Currently, the market appears to be pricing a circa 30% decline

in supermarket distribution EBIT over the medium term. Liquor and hardware

are positive stories as is the resumption of dividends in FY18. Earnings

changes are due to a reduction in forecast sales for Supermarket distribution

and upgrades to the outlook for Hardware and Liquor.

■ Supermarket performance down. Pathway to stabilisation elusive.

Independent retail sales are likely to have fallen circa 5% in the 2H17, based

on ABS data. Acceleration in Woolworths' performance in 2017 has been as

big a variable as Aldi in that outcome. We caution against interpreting the

movement in market share to Woolworths as a trend; Woolworths market

share improvement largely reflects catch-up after several years of under-

performance. Independents continue a more active refurbishment program

than in the past (which has been a successful element of the Metcash

strategy). For independents, repositioning towards fresh and convenience

seems the most likely route to sustainability. For Metcash, centralisation of

state-based support activities is likely to have mitigated most of the sales

downside in this period.

■ Liquor and hardware are very positive stories. The independent sector

continues to benefit from incumbency and regulatory barriers in liquor and

another strong result is expected for Metcash. There is likely upside to

current estimates from consolidation of Home Timber and Hardware and

growth of the Mitre 10 brand over the medium term.



12mth Volat ility

52 Week Hi-Lo

*Target return

- 46%

- 26%

- 6%

14%

34%

54%


Suisse estimates

Performance 1M 3M 12M Absolute (%) 5.83 -3.54 2.35 Relative (%) 6.22 -2.91 -9.65


Year 4/16A 4/17E 4/18E 4/19E

Revenue (A$ mn) 13,541 13,969 14,402 14,386

EBITDA (A$ mn) 329 349 381 403

EBIT (A$ mn) 268 283 312 331


EPS (Adj.) (Ac) 19.19 19.91 22.19 24.52

Change from previous EPS (%) n.a. 0.6 (2.2) (1.4)

EPS growth (%) 0.3 3.7 11.5 10.5

Consensus EPS (Ac) 19.20 19.20 20.80 21.60

P/E (x) 11.4 11.0 9.8 8.9

Dividends (Ac) 0.00 0.00 13.32 14.71

Dividend yield (%) 0.0 0.0 6.1 6.7

Price/Book (x) 1.0 1.2 1.1 1.1

Net debt/EBITDA (x) 0.9 0.3 0.0 (0.1)


19 June 2017


Metcash (MTS.AX / MTS AU) Price (16 Jun 2017): A$2.18; Rating: OUTPERFORM; Target Price: A$2.54; Analyst: Grant Saligari


Revenue 13,541 13,969 14,402 14,386

EBITDA 329 349 381 403

Depr. & Amort. (60) (65) (69) (72)

EBIT 268 283 312 331

Associates - - - -

Net interest exp. (27) (22) (13) (0)

Other 0 0 0 0


Income tax (68) (77) (90) (99)


Minorities (2) (1) -0 -0




Unusual item after tax 38 (29) (14) 0





Receivables 981 1,046 1,043 1,042


Current assets 1,724 1,964 2,046 2,087


Intangibles 1,128 1,125 1,125 1,125



Total assets 3,348 3,605 3,723 3,802

Payables 1,357 1,440 1,432 1,429




Net assets 1,369 1,626 1,771 1,873

Ordinary equity 2,127 1,711 1,856 1,958




Net Debt 289 114 7 (36)

Cash Flow 4/16A 4/17E 4/18E 4/19E

EBIT 268 283 312 331

Net Interest (22) (17) (13) (0)

Depr & Amort 60 65 69 72

Tax Paid (64) (80) (90) (99)

Change in Working capital 10 (55) 17 (1)

Other cash and non-cash items (87) 62 (34) (20)


Capex (65) (49) (97) (102)



Acquisitions & Invest 42 (126) 0 0


Other - - - -

Investing cash flow 237 (172) (97) (102)

Dividends paid 0 0 (57) (137)


Net borrowings (450) (61) 0 0

Other financing cash in/(outflows) (11) (1) 0 0

Financing cash flow (460) 31 (57) (137)

Total cash flow (57) 117 107 43

Adjustments 0 0 0 0

Movement in cash/equivalents (57) 117 107 43

Earnings 4/16A 4/17E 4/18E 4/19E


EPS (CS adj.) (c) 19.2 19.9 22.2 24.5

EPS growth (%) 0.3 3.7 11.5 10.5

DPS (c) 0.0 0.0 13.3 14.7

Dividend Payout (%) 0.0 0.0 60.0 60.0

Free CFPS (c) 13.3 23.9 21.9 23.6

Valuation 4/16A 4/17E 4/18E 4/19E

P/E (CS) (x) 11.4 11.0 9.8 8.9

PEG (x) 40.2 3.0 0.9 0.9

EV/EBIT (x) 9.0 7.9 6.8 6.3

EV/EBITDA (x) 7.4 6.4 5.6 5.2

Dividend Yield (%) 0.0 0.0 6.1 6.7

FCF Yield (%) 6.1 10.9 10.1 10.8

Price to book (x) 1.0 1.2 1.1 1.1

Returns 4/16A 4/17E 4/18E 4/19E

Return on Equity (%) 8.4 11.1 11.7 12.2

Profit Margin (%) 1.3 1.4 1.5 1.7



Return on Assets (%) 5.3 5.3 5.8 6.3


11.6 11.5 12.3 12.6

Gearing 4/16A 4/17E 4/18E 4/19E

ND/ND+E (%) 17.4 6.6 0.4 Net Cash Net Debt to EBITDA (x) 0.9 0.3 0.0 Net Cash Int Cover (EBITDA) (x) 12.2 15.8 29.1 899.6

Int Cover (EBIT) (x) 9.9 12.8 23.8 739.3

Capex to Sales (%) 0.5 0.4 0.7 0.7

Capex to Depr (%) 183.9 133.1 247.2 250.3

EBIT Segmentals 04/16A 04/17E 04/18E 04/19E

Food distribution 179.9 172.8 175.4 176.1

% chg (17.0) (4.0) 1.5 0.4

ALM 62.1 65.0 67.4 70.0

% chg 7.8 4.6 3.8 3.8

Hardware and automotive 32.8 48.6 71.6 87.8

% chg 9.0 48.3 47.3 22.6

Corporate (6.5) (3.1) (2.8) (2.9)

% chg (36.9) (53.0) (8.1) 1.9

Total EBIT 268.3 283.3 311.6 331.0

MSCI IVA Rating A



0

1

2

3

4

5

6

7

8

G

L

C

S

G

L

C

S

G

L

C

S

TP ESG Risk (%): 0.00 TP Risk Comment: We do not explicitly incorporate ESG factors in our target price. MSCI IVA Risk: Neutral MSCI IVA Risk Comment: Metcash has an 'A' rating. MSCI believes that the company has initiatives in place to manage product quality and safety due to certification of its facilities to the HACCP food safety standard. The company lags better performing peers in managing carbon intensity and in the area of nutrition.


19 June 2017


Figure 1: Earnings changes

A$mn FY17F FY18F FY19F

New Previous Earnings

change %


change %


change %

Food distribution 173 175 -1% 175 186 -6% 176 195 -10%

ALM 65 65 0% 67 66 2% 70 66 6%

Hardware and automotive 49 45 9% 72 69 4% 88 77 14%

Corporate -3 -3 0% -3 -3 0% -3 -3 0%

Group EBIT 283 282 1% 312 318 -2% 331 335 -1%

Group NPAT 191 190 1% 217 222 -2% 239 242 -1%



19 June 2017

Asia Pacific/Australia

Equity Research

Credit Suisse Ratings – Australia

Research Analysts

Jason Swinbourne

+61 2 8205 4591

[email protected]

RATINGS

As of Friday, 16 June 2017

Figure 1: Credit Suisse stock ratings – distribution

OUTPERFORM, 38%

NEUTRAL, 41%

UNDERPERFORM, 21%

0% 20% 40% 60% 80% 100%

See Figure 3 for ratings on each stock covered by Credit Suisse, ranked by expected total return.

Source: Credit Suisse estimates

Stock ratings

Individual stock ratings are determined by the projected total return on a stock

relative to absolute return benchmarks.

Analysts project a 12-month target share price for each stock. The capital gain

or loss implied by the 12-month target share price, along with the analyst’s

projected prospective dividend yield, generates the analyst’s projected total

return for a given stock.

The absolute return required to achieve an Outperform rating is greater than or

equal to 7.5%, and to achieve an Underperform rating is less than or equal to

5.0%. A Neutral rating requires a projected total return within the range of -

5.0% and +15.0%. Thus, there is an overlapping range for the Neutral rating

band (see Figure 2). The overlapping rating range allows analysts to assign a

rating that puts their projected total return in the context of associated risks.


19 June 2017


Figure 2: Rating system parameters

ETR Range

Outperform >= 7.5%

Neutral (overlaps with Outperform and Underperform) -5% - 15.0%

Underperform =< 5.0%

Source: Credit Suisse Research, Australia

Given the dynamic nature of share prices an analyst's rating can become out of sync with

the projected total return as the share price moves. The rating must only be viewed as

valid with respect to projected total return at the time of rating or target price changes.

19 June 2017


Figure 3: Ranking by projected total return Code Share Price Target Price Total Return** Rating^

SYR.AX $2.59 $7.45 188% OUTPERFORM

PRU.AX $0.32 $0.85 166% OUTPERFORM

AQG.AX $2.22 $5.30 141% OUTPERFORM

ICQ.AX $0.27 $0.60 122% NEUTRAL

TEN.AX $0.16 $0.35 119% NEUTRAL

KGD.AX $0.03 $0.06 93% OUTPERFORM

AOH.AX $0.14 $0.26 86% OUTPERFORM

FAR.AX $0.08 $0.14 82% OUTPERFORM GFY.AX $0.64 $0.95 67% NEUTRAL

WSA.AX $1.93 $2.90 55% NEUTRAL

FMG.AX $4.70 $6.50 47% OUTPERFORM

MYX.AX $1.10 $1.55 42% NEUTRAL

IGO.AX $3.21 $4.30 38% OUTPERFORM

HT1.AX $2.43 $3.20 36% OUTPERFORM

WHC.AX $2.81 $3.60 35% OUTPERFORM

APO.AX $4.50 $5.85 35% NEUTRAL

SGR.AX $4.99 $6.45 32% OUTPERFORM

SWM.AX $0.67 $0.81 29% NEUTRAL

AQZ.AX $0.92 $1.15 29% OUTPERFORM STO.AX $3.03 $3.80 27% OUTPERFORM

CTX.AX $32.09 $39.70 27% OUTPERFORM

SCG.AX $4.37 $5.30 26% OUTPERFORM

AHY.AX $1.47 $1.75 26% NEUTRAL

TGR.AX $4.00 $4.85 26% OUTPERFORM RIO.AX $60.08 $72.00 26% OUTPERFORM

MTS.AX $2.15 $2.54 24% OUTPERFORM

ING.AX $3.32 $3.90 23% OUTPERFORM SDA.AX $3.77 $4.50 23% OUTPERFORM

ISU.AX $2.01 $2.40 22% OUTPERFORM

NAB.AX $29.83 $34.50 22% OUTPERFORM

PMV.AX $13.09 $15.38 22% OUTPERFORM SXL.AX $1.17 $1.35 22% OUTPERFORM

BOQ.AX $11.08 $12.75 22% NEUTRAL

ECX.AX $3.64 $4.25 21% OUTPERFORM CSR.AX $4.27 $4.90 21% NEUTRAL

BHP.AX $22.99 $26.50 20% NEUTRAL

CAJ.AX $0.26 $0.30 19% OUTPERFORM

CCL.AX $9.03 $10.30 19% OUTPERFORM

AHG.AX $3.22 $3.60 18% OUTPERFORM

NEC.AX $1.35 $1.50 18% OUTPERFORM WBC.AX $30.53 $34.00 18% NEUTRAL

VAH.AX $0.18 $0.21 17% NEUTRAL

HUO.AX $5.00 $5.80 17% OUTPERFORM BEN.AX $10.78 $11.90 17% UNDERPERFORM

S32.AX $2.61 $2.95 17% OUTPERFORM

AUB.AX $13.01 $14.70 16% OUTPERFORM

BPT.AX $0.62 $0.70 16% OUTPERFORM

ANZ.AX $28.12 $31.00 16% NEUTRAL MQG.AX $90.35 $100.00 16% NEUTRAL

ORA.AX $2.84 $3.15 15% NEUTRAL

OML.AX $4.48 $4.95 14% OUTPERFORM

PLG.AX $0.87 $0.92 14% OUTPERFORM TAH.AX $4.57 $5.00 14% OUTPERFORM

AGL.AX $25.55 $28.00 14% NEUTRAL

CBA.AX $81.86 $89.00 14% NEUTRAL AMP.AX $5.08 $5.50 14% NEUTRAL

ILU.AX $8.26 $9.40 14% NEUTRAL

AWE.AX $0.44 $0.50 14% NEUTRAL FXL.AX $1.70 $1.85 14% NEUTRAL

CYB.AX $4.68 $5.25 13% NEUTRAL SDF.AX $2.81 $3.10 13% OUTPERFORM

ORG.AX $7.17 $8.10 13% NEUTRAL

BKL.AX $91.92 $100.00 12% NEUTRAL TWR.AX $1.09 $1.15 12% NEUTRAL

IAG.AX $6.46 $6.90 11% OUTPERFORM

BSL.AX $12.10 $13.30 11% OUTPERFORM

WPP.AX $1.20 $1.25 11% OUTPERFORM

HVN.AX $3.90 $4.08 10% NEUTRAL

WES.AX $40.70 $42.95 10% NEUTRAL

MTR.AX $2.98 $3.15 10% NEUTRAL WFD.AX $8.73 $9.25 10% NEUTRAL

PGH.AX $6.10 $6.45 10% NEUTRAL

LLC.AX $16.67 $17.50 10% OUTPERFORM

MGR.AX $2.33 $2.44 9% OUTPERFORM

OSH.AX $6.78 $7.25 9% OUTPERFORM

CWN.AX $12.83 $12.50 9% NEUTRAL

NHF.AX $5.23 $5.50 9% UNDERPERFORM

SIG.AX $0.88 $0.90 8% OUTPERFORM ANN.AX $24.41 $25.80 8% NEUTRAL

AAD.AX $2.13 $2.25 8% OUTPERFORM

CAR.AX $11.54 $12.00 8% OUTPERFORM

MYO.AX $3.37 $3.50 8% NEUTRAL

IRE.AX $12.35 $12.70 7% OUTPERFORM JHX.AX $20.08 $20.85 7% OUTPERFORM

ALU.AX $9.15 $9.50 7% OUTPERFORM

MPL.AX $2.74 $2.80 7% UNDERPERFORM

NHC.AX $1.53 $1.60 7% NEUTRAL GPT.AX $5.26 $5.35 6% OUTPERFORM

APE.AX $7.82 $8.00 6% NEUTRAL

API.AX $1.86 $1.90 6% UNDERPERFORM

PRG.AX $1.87 $1.90 6% NEUTRAL

Source: ASX, CS estimates. Correct as of 9PM AET on 16 June 2017. **Projected capital gain or loss plus gross dividend yield.

Figure 3: Ranking by projected total return (continued) Code Share Price Target Price Total Return** Rating^

HSN.AX $3.55 $3.70 6% NEUTRAL

IDX.AX $1.69 $1.70 6% OUTPERFORM

CGF.AX $13.20 $13.50 5% OUTPERFORM

ABC.AX $5.66 $5.70 5% NEUTRAL

GDI.AX $1.09 $1.06 5% OUTPERFORM

ALL.AX $23.09 $23.50 4% NEUTRAL

SUN.AX $14.57 $14.50 4% NEUTRAL AOF.AX $2.16 $2.10 4% NEUTRAL

BLD.AX $7.01 $7.05 4% OUTPERFORM

TTS.AX $4.19 $4.20 4% NEUTRAL

RHC.AX $71.69 $73.00 4% NEUTRAL

NXT.AX $4.54 $4.70 4% OUTPERFORM

SXY.AX $0.29 $0.30 3% OUTPERFORM TCL.AX $12.74 $12.60 3% OUTPERFORM

PTM.AX $4.64 $4.50 3% UNDERPERFORM

OZL.AX $7.06 $7.15 3% UNDERPERFORM

CMW.AX $1.03 $0.97 3% UNDERPERFORM

SGP.AX $4.86 $4.73 3% NEUTRAL MQA.AX $5.96 $5.90 3% NEUTRAL

NUF.AX $10.02 $10.10 3% NEUTRAL

NWS.AX $18.44 $18.50 2% NEUTRAL

AST.AX $1.76 $1.70 2% NEUTRAL

RIC.AX $1.38 $1.35 2% NEUTRAL

MFG.AX $28.27 $27.50 1% OUTPERFORM

CPU.AX $14.54 $14.30 1% OUTPERFORM

BTT.AX $11.85 $11.40 1% NEUTRAL

REA.AX $65.63 $65.00 1% NEUTRAL RWH.AX $1.35 $1.30 1% NEUTRAL

OGC.AX $4.20 $4.20 1% OUTPERFORM

IPL.AX $3.46 $3.37 0% UNDERPERFORM

DOW.AX $6.05 $5.90 0% NEUTRAL AMC.AX $16.35 $15.70 0% NEUTRAL

QBE.AX $13.23 $12.60 -1% UNDERPERFORM

ALQ.AX $6.92 $6.70 -1% NEUTRAL ARB.AX $16.05 $15.45 -1% NEUTRAL

IOF.AX $4.75 $4.48 -1% NEUTRAL

RMD.AX $10.05 $9.70 -2% OUTPERFORM SBM.AX $2.83 $2.60 -2% OUTPERFORM

CSL.AX $139.00 $134.00 -2% OUTPERFORM ASX.AX $52.14 $49.00 -2% UNDERPERFORM

WOW.AX $26.25 $24.83 -2% UNDERPERFORM

HSO.AX $2.22 $2.10 -2% UNDERPERFORM GWA.AX $3.14 $2.90 -3% NEUTRAL

CQR.AX $4.42 $4.00 -3% UNDERPERFORM

FLT.AX $37.50 $34.90 -3% OUTPERFORM SHL.AX $24.11 $22.60 -3% NEUTRAL

TLS.AX $4.38 $4.00 -3% UNDERPERFORM PPT.AX $55.49 $51.00 -3% NEUTRAL

SUL.AX $8.28 $7.56 -3% NEUTRAL

VCX.AX $2.92 $2.65 -3% UNDERPERFORM

GNC.AX $10.08 $9.48 -3% NEUTRAL WEB.AX $12.63 $12.00 -3% OUTPERFORM

BWP.AX $3.20 $2.92 -3% UNDERPERFORM

AWC.AX $1.87 $1.70 -3% UNDERPERFORM EVN.AX $2.43 $2.30 -4% OUTPERFORM

TPM.AX $5.59 $5.25 -4% UNDERPERFORM

NVT.AX $4.40 $4.00 -5% UNDERPERFORM IFL.AX $9.76 $8.70 -5% NEUTRAL

MYR.AX $0.92 $0.82 -5% NEUTRAL GMG.AX $8.66 $7.92 -5% NEUTRAL

PRY.AX $3.73 $3.40 -6% UNDERPERFORM

MMS.AX $13.97 $12.50 -6% OUTPERFORM ORI.AX $20.45 $18.71 -6% NEUTRAL

QAN.AX $5.50 $5.00 -6% OUTPERFORM

TWE.AX $13.53 $12.35 -7% NEUTRAL

SYD.AX $7.36 $6.50 -7% UNDERPERFORM

AZJ.AX $5.41 $4.75 -7% UNDERPERFORM

WPL.AX $30.51 $26.80 -8% UNDERPERFORM

RRL.AX $3.55 $3.05 -8% UNDERPERFORM SEK.AX $16.69 $14.70 -9% NEUTRAL

SCP.AX $2.40 $2.04 -9% UNDERPERFORM

SKI.AX $2.84 $2.40 -10% NEUTRAL

APA.AX $9.61 $8.10 -11% UNDERPERFORM

DXS.AX $10.75 $9.10 -11% UNDERPERFORM

NST.AX $4.84 $4.15 -11% NEUTRAL

COH.AX $154.34 $133.90 -11% UNDERPERFORM

CWY.AX $1.43 $1.23 -12% NEUTRAL DLX.AX $7.16 $6.05 -12% UNDERPERFORM

NCM.AX $21.28 $18.20 -12% UNDERPERFORM

QUB.AX $2.66 $2.28 -12% UNDERPERFORM

BRG.AX $11.01 $9.30 -13% OUTPERFORM

JBH.AX $23.30 $18.68 -15% UNDERPERFORM

ACX.AX $4.11 $3.50 -15% NEUTRAL

CHC.AX $5.92 $4.71 -15% UNDERPERFORM

SGM.AX $13.47 $11.00 -15% UNDERPERFORM

SFR.AX $5.72 $4.65 -16% UNDERPERFORM IEL.AX $5.00 $4.00 -17% UNDERPERFORM

GUD.AX $13.48 $10.45 -19% NEUTRAL

CIM.AX $38.97 $28.00 -25% UNDERPERFORM

WOR.AX $11.40 $8.50 -25% NEUTRAL

WTC.AX $7.75 $4.80 -38% NEUTRAL

Source: ASX, CS estimates. Correct as of 9PM AET on 16 June 2017. **Projected capital gain or loss plus gross dividend yield.

19 J

un

e 2

017

Au

stra

lia a

nd

NZ

Firs

t Ed

ition

57

Top 100 Earnings & Dividends

Research Analyst

Jason Swinbourne

612 8205 4591

[email protected]

As at 16 June 2017 Ticker Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg Analyst

to Price Tgt Cap 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2018 Name

$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Energy

Caltex Australia CTX 31-Dec OPFM 32.09 39.70 8,369 597.7 555.9 584.9 229.0 213.0 224.1 14.0 15.1 14.3 93.1 102.1 95.8 114.5 106.5 112.1 3.6 3.3 3.5 8.0 8.2 7.7 100 Mark Samter

Origin Energy ORG 30-Jun NTRL 7.17 8.10 12,585 592.2 1,164.7 1,585.1 33.8 66.4 90.4 21.2 10.8 7.9 141.0 73.1 53.1 0.0 0.0 27.0 0.0 0.0 3.8 8.2 5.5 4.4 100 Mark Samter

Oil Search OSH 31-Dec OPFM 6.78 7.25 7,845 323.4 462.0 474.9 21.2 30.2 31.1 24.3 17.0 16.6 161.6 115.3 110.8 8.5 12.1 12.5 1.6 2.4 2.4 10.3 8.5 8.5 0 Mark Samter

Santos Ltd STO 31-Dec OPFM 3.03 3.80 4,793 419.8 504.4 493.4 20.4 24.2 23.7 11.3 9.5 9.7 74.9 64.4 65.0 0.0 9.7 9.5 0.0 4.2 4.1 4.6 4.0 3.9 100 Mark Samter

Woodside Petroleum WPL 31-Dec UPFM 30.51 26.80 19,519 980.0 1,160.8 1,097.3 116.3 137.8 130.2 19.9 16.8 17.8 132.3 113.9 119.0 93.1 110.2 104.2 4.0 4.8 4.5 8.2 7.0 6.7 100 Mark Samter

Sector Aggregate 18.2 13.9 12.8 2.4 3.2 3.9 7.8 6.4 5.9

Materials - Chemicals

Dulux Group DLX 30-Sep UPFM 7.16 6.05 2,787 141.0 138.3 142.1 35.8 34.9 35.7 20.0 20.5 20.1 132.8 138.8 134.3 26.0 26.0 26.0 3.6 3.6 3.6 13.2 12.4 12.0 100 Andrew Peros

Incitec Pivot IPL 30-Sep UPFM 3.46 3.37 5,838 353.7 360.5 346.5 20.9 21.1 20.1 16.6 16.4 17.2 110.1 111.0 115.4 10.5 10.6 10.1 3.0 3.1 2.9 8.9 8.0 7.8 87 Grant Saligari

Orica ORI 30-Sep NTRL 20.45 18.71 7,693 400.4 407.0 461.8 106.2 107.9 122.4 19.3 19.0 16.7 127.9 128.4 111.8 53.4 59.7 67.6 2.6 2.9 3.3 10.4 9.4 8.6 30 Grant Saligari


Materials - Construction Materials

Adelaide Brighton ABC 31-Dec NTRL 5.66 5.70 3,681 202.2 207.4 207.0 31.1 31.9 31.9 18.2 17.7 17.8 120.8 120.1 118.9 23.0 23.0 23.0 4.1 4.1 4.1 10.8 10.2 10.0 100 Andrew Peros

Boral BLD 30-Jun OPFM 7.01 7.05 8,218 321.6 422.4 495.1 32.0 36.0 42.2 21.9 19.4 16.6 145.5 131.8 111.0 26.0 25.0 29.0 3.7 3.6 4.1 10.0 9.8 8.7 80 Andrew Peros

CSR CSR 31-Mar NTRL 4.27 4.90 2,154 183.8 204.7 153.9 36.3 41.2 31.0 11.8 10.4 13.8 78.1 70.2 92.3 26.0 26.0 22.0 6.1 6.1 5.2 5.6 5.2 6.1 50 Andrew Peros

James Hardie Industries plc JHX 31-Mar OPFM 20.08 20.85 6,723 248.6 278.9 332.2 56.0 62.8 74.8 27.2 24.3 20.4 180.9 164.4 136.3 38.0 42.0 53.0 2.5 2.8 3.5 16.2 15.0 12.9 0 Andrew Peros


Materials - Containers & Packaging

Amcor AMC 30-Jun NTRL 16.35 15.70 14,380 702.8 780.9 856.2 60.1 66.8 73.2 20.7 18.6 17.0 137.3 126.0 113.5 43.0 49.0 55.0 3.5 3.9 4.4 12.6 11.5 10.7 0 Larry Gandler

Orora ORA 30-Jun NTRL 2.84 3.15 3,427 182.2 201.3 210.5 15.0 16.6 17.3 18.9 17.2 16.4 125.4 116.2 109.8 10.7 11.6 12.1 3.8 4.1 4.3 10.0 8.9 8.5 50 Larry Gandler

Materials - Metals & Mining

Alumina Limited AWC 31-Dec UPFM 1.87 1.70 4,079 266.3 261.7 236.9 9.2 9.1 8.2 15.3 15.6 17.2 101.8 105.6 115.2 7.5 8.4 8.9 5.3 5.9 6.3 15.2 15.5 17.2 100 Christian Prendiville

BHP Billiton BHP 30-Jun NTRL 22.99 26.50 87,359 8,664.4 8,586.4 6,545.7 161.6 160.1 124.0 10.8 10.9 14.1 71.8 73.9 94.2 91.0 80.6 62.4 5.2 4.6 3.6 4.5 4.5 5.6 100 Sam Webb

BlueScope Steel BSL 30-Jun OPFM 12.10 13.30 6,849 671.1 711.7 690.5 113.6 120.2 116.6 10.7 10.1 10.4 70.8 68.2 69.4 8.0 11.4 11.4 0.7 0.9 0.9 4.8 4.2 3.9 0 Michael Slifirski

Evolution Mining Limited EVN 30-Jun OPFM 2.43 2.30 4,089 272.5 381.0 427.4 16.4 22.6 25.4 14.8 10.7 9.6 98.6 72.8 64.1 3.9 4.3 4.2 1.6 1.8 1.7 6.1 4.3 3.7 0 Michael Slifirski

Fortescue Metals Group Ltd FMG 30-Jun OPFM 4.70 6.50 11,114 2,417.7 2,006.8 1,018.1 77.6 64.4 32.7 4.6 5.5 10.9 30.5 37.5 73.1 33.9 32.2 13.1 9.5 9.0 3.7 2.8 3.0 4.6 100 Sam Webb

Iluka Resources ILU 31-Dec NTRL 8.26 9.40 3,458 88.1 292.8 262.0 21.0 69.9 62.6 39.3 11.8 13.2 261.0 80.0 88.3 0.0 0.0 24.0 0.0 0.0 2.9 12.1 6.5 6.2 100 Christian Prendiville

Newcrest Mining NCM 30-Jun UPFM 21.28 18.20 12,397 479.1 761.8 840.3 62.1 98.7 108.9 26.0 16.4 14.8 172.9 110.9 99.3 15.0 40.0 50.0 0.9 2.5 3.1 9.5 7.1 6.3 0 Michael Slifirski

Northern Star Resources Ltd NST 30-Jun NTRL 4.84 4.15 2,907 196.9 306.4 349.5 32.6 50.8 57.9 14.8 9.5 8.4 98.5 64.6 55.9 8.6 15.2 16.7 1.8 3.1 3.4 6.0 3.9 3.2 0 Michael Slifirski

OZ Minerals OZL 31-Dec UPFM 7.06 7.15 2,109 128.2 8.3 14.4- 42.5 2.7 -4.8 16.6 n.m n.m 110.4 n.m n.m 12.0 12.0 12.0 1.7 1.7 1.7 3.5 7.0 8.3 100 Michael Slifirski

Rio Tinto RIO 31-Dec OPFM 60.08 72.00 73,505 9,691.0 6,730.4 4,783.9 548.1 398.0 294.6 8.3 11.5 15.5 55.3 77.7 103.6 285.4 232.9 173.5 6.3 5.1 3.8 4.0 5.6 7.1 100 Sam Webb

South 32 S32 30-Jun OPFM 2.61 2.95 10,437 1,203.1 961.2 844.3 22.4 18.3 16.9 8.9 10.8 11.7 58.8 73.3 78.4 9.0 7.3 6.7 4.5 3.7 3.4 3.6 3.9 4.1 100 Sam Webb


Industrials - Capital Goods

CIMIC Group Limited CIM 31-Dec UPFM 38.97 28.00 12,636 670.3 656.6 657.6 212.0 216.2 219.9 18.4 18.0 17.7 122.1 122.1 118.6 127.2 129.6 133.0 3.3 3.3 3.4 9.3 9.2 8.6 0 Ian Randall


Industrials - Commercial & Professional Services

ALS Ltd ALQ 31-Mar NTRL 6.92 6.70 3,489 112.7 146.7 172.4 22.3 29.0 34.1 31.1 23.9 20.3 206.4 161.7 135.9 13.5 17.3 20.4 2.0 2.5 2.9 15.7 13.0 11.3 50 Peter Wilson

Brambles BXB 30-Jun UPFM 10.51 8.90 12,685 453.2 627.9 662.8 37.0 39.8 42.0 21.6 20.0 19.0 143.4 135.7 127.1 29.0 29.0 29.0 2.7 2.7 2.7 10.1 9.5 8.9 0 Paul Butler

Downer EDI DOW 30-Jun NTRL 6.05 5.90 3,598 168.9 187.1 195.4 28.4 31.5 32.9 21.3 19.2 18.4 141.6 130.2 123.2 24.0 16.0 18.0 4.0 2.6 3.0 5.4 5.0 4.7 100 Peter Wilson

Seek SEK 30-Jun NTRL 16.69 14.70 5,840 194.2 219.5 256.6 55.4 62.1 71.9 30.1 26.9 23.2 200.3 182.2 155.3 44.0 47.0 50.0 2.6 2.8 3.0 16.6 14.5 12.7 100 Fraser McLeish


Industrials - Transportation

Aurizon AZJ 30-Jun UPFM 5.41 4.75 11,100 566.3 537.0 619.8 22.9 26.2 30.2 23.6 20.7 17.9 156.8 140.0 119.9 24.6 26.2 27.3 4.5 4.8 5.0 10.1 9.5 8.7 15 Paul Butler

Macquarie Atlas MQA 31-Dec NTRL 5.96 5.90 3,415 57.0 61.9 96.0 10.2 10.6 16.2 58.2 56.5 36.7 386.4 382.5 245.9 20.0 23.5 32.5 3.4 3.9 5.4 25.8 21.7 18.7 0 Paul Butler

Qantas QAN 30-Jun OPFM 5.50 5.00 9,945 903.4 1,002.6 851.8 48.5 57.1 51.7 11.3 9.6 10.6 75.4 65.2 71.2 15.0 16.0 16.0 2.7 2.9 2.9 5.2 5.0 5.4 0 Paul Butler

Qube Holdings Limited QUB 30-Jun UPFM 2.66 2.28 4,131 92.1 120.9 139.9 6.6 8.3 9.6 40.6 32.0 27.7 269.5 216.8 185.2 5.4 5.4 5.4 2.0 2.0 2.0 20.8 18.2 16.4 0 Paul Butler

Sydney Airport SYD 31-Dec UPFM 7.36 6.50 16,559 335.0 364.7 395.5 14.9 16.2 17.6 49.4 45.4 41.9 328.4 307.6 280.2 34.0 36.0 38.5 4.6 4.9 5.2 21.3 20.2 19.3 0 Paul Butler

Transurban TCL 30-Jun OPFM 12.74 12.60 26,146 278.9 328.0 515.9 13.7 15.9 24.6 93.0 80.2 51.7 618.1 543.3 346.0 51.5 57.0 65.5 4.0 4.5 5.1 24.7 21.9 19.8 12 Paul Butler


EPS

Source: Company data, Credit Suisse estimates, Thomson Reuters

Au

stra

lia a

nd

NZ

Firs

t Ed

ition

58

19 J

un

e 2

017

Top 100 Earnings & Dividends (continued) As at 16 June 2017 Ticker Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg Analyst


$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Consumer Discretionary - Consumer Durables & Apparel

Consumer Discretionary - Consumer Services

Aristocrat Leisure ALL 30-Sep NTRL 23.09 23.50 14,744 563.3 655.7 753.6 88.1 102.4 117.7 26.2 22.5 19.6 174.2 152.7 131.2 35.0 72.0 82.0 1.5 3.1 3.6 15.5 13.5 11.7 15 Larry Gandler

Crown CWN 30-Jun NTRL 12.83 12.50 9,234 387.0 400.7 446.9 53.2 56.8 64.8 24.1 22.6 19.8 160.2 153.1 132.6 143.0 143.0 142.0 11.1 11.1 11.1 10.8 11.7 12.0 70 Larry Gandler

Flight Centre FLT 30-Jun OPFM 37.50 34.90 3,789 216.0 252.5 271.0 213.3 249.3 267.6 17.6 15.0 14.0 116.8 101.9 93.8 133.5 153.3 164.7 3.6 4.1 4.4 8.9 7.6 7.0 100 Grant Saligari

Navitas Ltd NVT 30-Jun UPFM 4.40 4.00 1,577 83.3 84.5 97.9 23.1 23.5 27.2 19.0 18.8 16.2 126.3 127.1 108.4 19.2 18.7 21.8 4.4 4.3 5.0 11.1 11.0 9.7 100 Lucas Goode

Star Entertainment Group SGR 30-Jun OPFM 4.99 6.45 4,120 204.9 237.1 274.1 24.8 28.7 33.2 20.1 17.4 15.0 133.6 117.7 100.6 15.0 15.0 17.0 3.0 3.0 3.4 9.6 8.5 7.5 100 Larry Gandler

Tabcorp Holdings TAH 30-Jun OPFM 4.57 5.00 3,817 165.0 429.5 473.5 19.7 22.4 24.6 23.2 20.4 18.6 154.3 138.1 124.5 24.5 22.0 24.0 5.4 4.8 5.3 10.7 6.9 6.3 100 Larry Gandler

Tatts Group TTS 30-Jun NTRL 4.19 4.20 6,153 228.1 233.2 197.9 15.6 15.9 13.5 26.9 26.3 31.0 178.8 178.4 207.7 37.5 15.5 13.0 8.9 3.7 3.1 16.2 16.0 17.5 100 Larry Gandler


Consumer Discretionary - Media

Fairfax Media FXJ 30-Jun RSTR 1.22 2,805 151.1 138.6 143.0 6.5 6.0 6.2 18.7 20.4 19.8 124.3 138.1 132.3 4.0 4.0 4.0 3.3 3.3 3.3 10.4 10.7 10.2 100 Fraser McLeish

REA Group REA 30-Jun NTRL 65.63 65.00 8,644 230.6 306.7 362.3 175.1 232.8 275.1 37.5 28.2 23.9 249.1 191.0 159.7 88.0 120.0 137.0 1.3 1.8 2.1 23.0 18.2 15.5 100 Fraser McLeish


Consumer Discretionary - Retailing

Harvey Norman HVN 30-Jun NTRL 3.90 4.08 4,341 378.6 385.2 354.8 34.0 34.6 31.9 11.5 11.3 12.2 76.2 76.4 81.9 31.0 22.3 20.5 8.0 5.7 5.3 7.6 7.4 7.7 100 Grant Saligari

JB Hi-Fi JBH 30-Jun UPFM 23.30 18.68 2,666 209.2 225.4 206.0 184.5 191.4 174.9 12.6 12.2 13.3 83.9 82.5 89.1 117.2 120.3 110.0 5.0 5.2 4.7 8.7 7.7 8.1 100 Grant Saligari


Consumer Staples - Food & Drug Retailing

Wesfarmers WES 30-Jun NTRL 40.70 42.95 46,147 3,007.2 2,811.3 2,930.9 266.1 248.1 258.7 15.3 16.4 15.7 101.6 111.1 105.3 204.2 184.3 185.0 5.0 4.5 4.5 9.0 9.5 9.1 100 Grant Saligari

Woolworths WOW 26-Jun UPFM 26.25 24.83 33,978 1,409.6 1,633.9 1,801.4 109.5 125.8 138.7 24.0 20.9 18.9 159.3 141.4 126.7 70.0 86.0 95.0 2.7 3.3 3.6 11.0 9.8 9.0 100 Grant Saligari


Consumer Staples - Food Beverage & Tobacco

Coca-Cola Amatil CCL 31-Dec OPFM 9.03 10.30 6,895 416.9 422.9 438.1 56.1 58.0 60.1 16.1 15.6 15.0 107.0 105.4 100.5 46.0 48.0 49.0 5.1 5.3 5.4 8.6 8.4 8.1 50 Larry Gandler

Graincorp GNC 30-Sep NTRL 10.08 9.48 2,307 149.0 149.6 109.0 65.0 65.4 47.6 15.5 15.4 21.2 103.0 104.5 141.7 23.5 31.2 29.1 2.3 3.1 2.9 7.2 6.9 7.7 100 Grant Saligari

Treasury Wine TWE 30-Jun NTRL 13.53 12.35 9,987 298.2 340.4 399.9 40.0 45.6 53.6 33.8 29.7 25.3 224.7 200.9 169.0 26.0 30.0 35.0 1.9 2.2 2.6 17.7 15.8 13.7 20 Larry Gandler


Health Care

Ansell Limited ANN 30-Jun NTRL 24.41 25.80 2,735 151.9 141.2 172.0 101.2 98.0 124.6 18.3 18.9 14.9 121.6 128.1 99.6 44.8 46.8 52.0 2.4 2.5 2.8 11.9 11.5 9.7 0 Saul Hadassin

Cochlear COH 30-Jun UPFM 154.34 133.90 8,863 224.5 266.9 313.8 387.1 457.1 533.7 39.9 33.8 28.9 264.9 228.7 193.5 273.0 323.0 377.0 1.8 2.1 2.4 26.0 21.4 18.4 100 Saul Hadassin

CSL Ltd CSL 30-Jun OPFM 139.00 134.00 47,905 1,359.3 1,639.2 1,871.7 298.0 359.8 409.7 35.4 29.3 25.8 235.3 198.7 172.4 134.0 168.0 191.0 1.3 1.6 1.8 24.1 20.6 18.2 0 Saul Hadassin

Healthscope HSO 30-Jun UPFM 2.22 2.10 3,854 182.4 181.2 189.9 10.5 10.4 10.9 21.2 21.3 20.4 140.8 144.6 136.3 7.0 6.9 7.3 3.1 3.1 3.3 12.9 12.7 12.0 100 Saul Hadassin

Primary Health Care PRY 30-Jun UPFM 3.73 3.40 1,945 91.3 101.2 117.7 17.5 19.4 22.6 21.3 19.2 16.5 141.5 130.2 110.6 10.8 12.0 14.0 2.9 3.2 3.8 8.8 8.4 7.9 100 Saul Hadassin

Ramsay Health Care RHC 30-Jun NTRL 71.69 73.00 14,487 535.6 581.1 646.2 257.8 280.3 312.4 27.8 25.6 22.9 184.7 173.3 153.6 132.0 144.0 160.0 1.8 2.0 2.2 13.1 12.3 11.4 100 Saul Hadassin

ResMed Inc. RMD 30-Jun OPFM 10.05 9.70 10,821 366.7 403.5 453.8 25.7 28.2 31.8 29.7 27.1 24.0 197.3 183.4 160.6 13.5 14.7 15.9 1.8 1.9 2.1 19.3 17.4 15.7 0 Saul Hadassin

Sonic Healthcare SHL 30-Jun NTRL 24.11 22.60 10,107 444.9 499.1 549.0 106.3 118.4 128.9 22.7 20.4 18.7 150.7 138.0 125.1 76.0 81.0 87.0 3.2 3.4 3.6 14.1 12.5 11.5 20 Saul Hadassin


Financials - Banks

ANZ Banking Group ANZ 30-Sep NTRL 28.12 31.00 82,561 6,892.7 7,251.4 7,530.0 226.2 236.4 245.1 12.4 11.9 11.5 82.6 80.6 76.8 163.0 165.0 173.3 5.8 5.9 6.2 2.2 1.8 1.5 100 Jarrod Martin

Bendigo and Adelaide Bank BEN 30-Jun UPFM 10.78 11.90 5,146 453.2 470.7 484.1 84.4 86.2 87.8 12.8 12.5 12.3 84.9 84.7 82.1 68.0 70.0 70.0 6.3 6.5 6.5 6.2 5.9 5.7 100 James Ellis

Bank of Queensland BOQ 31-Aug NTRL 11.08 12.75 4,340 355.0 383.5 411.3 88.2 93.1 97.9 12.6 11.9 11.3 83.5 80.6 75.8 76.0 76.0 76.0 6.9 6.9 6.9 7.6 7.0 6.6 100 James Ellis

Commonwealth Bank Australia CBA 30-Jun NTRL 81.86 89.00 141,607 9,883.1 10,352.8 10,919.1 557.3 578.7 604.7 14.7 14.1 13.5 97.6 95.8 90.6 423.0 435.0 456.8 5.2 5.3 5.6 6.3 6.0 5.5 100 Jarrod Martin

Clydesdale Bank CYB 30-Sep NTRL 4.68 5.25 2,084 183.9 211.0 253.8 20.8 23.8 28.6 13.4 11.7 9.7 88.8 79.1 65.1 2.0 4.0 12.5 0.7 1.4 4.5 n.m n.m n.m 0 Jarrod Martin

National Australia Bank NAB 30-Sep OPFM 29.83 34.50 79,808 6,651.3 6,834.4 7,030.0 240.5 244.4 249.0 12.4 12.2 12.0 82.4 82.7 80.2 198.0 198.0 198.0 6.6 6.6 6.6 3.8 3.5 3.3 100 Jarrod Martin

Westpac WBC 30-Sep NTRL 30.53 34.00 102,477 8,086.1 8,312.5 8,696.6 233.7 237.9 247.8 13.1 12.8 12.3 86.8 86.9 82.4 188.0 188.0 188.0 6.2 6.2 6.2 6.9 6.6 6.3 100 Jarrod Martin


EPS


Au

stra

lia a

nd

NZ

Firs

t Ed

ition

59

19 J

un

e 2

017

Top 100 Earnings & Dividends (continued) As at 16 June 2017 Ticker Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg Analyst


$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Financials - Diversified Financials

AMP AMP 31-Dec NTRL 5.08 5.50 14,870 968.6 1,029.8 1,132.8 33.0 34.8 38.3 15.4 14.6 13.3 102.3 98.8 88.8 28.5 30.0 33.0 5.6 5.9 6.5 25.8 24.5 22.5 90 Andrew Adams

ASX ASX 30-Jun UPFM 52.14 49.00 10,094 430.9 435.4 450.6 222.6 224.9 232.8 23.4 23.2 22.4 155.6 157.1 149.9 200.3 202.4 209.5 3.8 3.9 4.0 12.0 11.5 11.0 100 Andrew Adams

Challenger Limited CGF 30-Jun OPFM 13.20 13.50 7,550 389.3 438.6 481.9 66.0 73.3 80.2 20.0 18.0 16.5 132.9 122.1 110.2 33.5 37.0 40.5 2.5 2.8 3.1 14.5 12.5 10.9 100 Andrew Adams

IOOF Holdings IFL 30-Jun NTRL 9.76 8.70 2,929 164.1 187.9 206.0 54.6 62.5 68.5 17.9 15.6 14.2 118.8 105.9 95.3 51.0 57.0 62.0 5.2 5.8 6.4 12.0 10.4 9.3 100 Andrew Adams

Magellan Financial Group MFG 30-Jun OPFM 28.27 27.50 4,865 224.4 262.7 297.5 130.5 152.5 172.5 21.7 18.5 16.4 144.0 125.6 109.6 94.8 110.2 123.6 3.4 3.9 4.4 16.2 13.8 12.2 100 James Cordukes

Macquarie Group MQG 31-Mar NTRL 90.35 100.00 30,751 2,217.0 2,267.3 2,332.1 644.5 653.2 668.2 14.0 13.8 13.5 93.1 93.7 90.5 470.0 475.0 490.0 5.2 5.3 5.4 7.8 7.6 7.2 45 James Ellis

Perpetual Limited PPT 30-Jun NTRL 55.49 51.00 2,584 135.6 146.9 157.3 290.5 314.0 336.4 19.1 17.7 16.5 126.9 119.7 110.4 265.0 285.0 305.0 4.8 5.1 5.5 11.4 10.5 9.7 100 James Cordukes


Financials - Insurance

Insurance Australia Group IAG 30-Jun OPFM 6.46 6.90 15,294 827.7 907.9 1,059.3 33.1 36.4 42.4 19.5 17.7 15.2 129.7 120.1 102.1 27.0 29.0 33.5 4.2 4.5 5.2 13.3 11.5 10.0 100 Andrew Adams

Medibank Private Limited MPL 30-Jun UPFM 2.74 2.80 7,546 420.4 412.7 429.1 15.3 15.0 15.6 17.9 18.3 17.6 119.2 123.9 117.7 11.9 12.1 12.5 4.3 4.4 4.6 10.4 10.5 10.1 100 Andrew Adams

QBE Insurance Group QBE 31-Dec UPFM 13.23 12.60 13,785 839.1 941.5 975.4 60.9 69.6 73.2 16.5 14.4 13.7 109.5 97.8 91.8 52.6 60.7 63.9 4.0 4.6 4.8 15.8 14.1 13.7 30 Andrew Adams

Suncorp Group Limited SUN 30-Jun NTRL 14.57 14.50 18,835 1,093.5 1,188.6 1,271.7 83.7 90.6 96.8 17.4 16.1 15.1 115.7 108.9 100.8 68.0 71.0 77.0 4.7 4.9 5.3 16.2 15.7 15.0 100 Andrew Adams


Financials - Real Estate

Dexus Property Group DXS 30-Jun UPFM 10.75 9.10 10,405 618.1 608.5 619.1 63.9 62.9 64.0 16.8 17.1 16.8 111.8 115.9 112.5 45.3 46.2 47.0 4.2 4.3 4.4 17.9 18.4 18.0 0 Mikhail Mohl

Goodman Group GMG 30-Jun NTRL 8.66 7.92 15,494 776.4 833.3 892.4 43.1 46.1 49.1 20.1 18.8 17.6 133.4 127.3 118.0 25.9 27.6 29.5 3.0 3.2 3.4 16.8 15.8 15.6 0 Ian Randall

GPT Group GPT 31-Dec OPFM 5.26 5.35 9,477 548.7 574.2 602.2 30.5 31.8 33.3 17.3 16.5 15.8 114.7 111.9 105.6 24.6 25.6 26.7 4.7 4.9 5.1 19.3 19.3 18.0 0 Mikhail Mohl

Investa Office Fund IOF 30-Jun NTRL 4.75 4.48 2,917 179.5 185.3 189.6 29.2 30.2 30.9 16.2 15.7 15.4 107.9 106.6 102.9 20.0 21.1 21.2 4.2 4.4 4.5 17.8 17.8 17.1 0 Ian Randall

Lend Lease LLC 30-Jun OPFM 16.67 17.50 9,726 777.5 878.3 927.5 133.5 150.7 159.1 12.5 11.1 10.5 83.0 74.9 70.1 66.7 79.9 87.5 4.0 4.8 5.3 8.9 8.1 7.2 0 Ian Randall

Mirvac Group MGR 30-Jun OPFM 2.33 2.44 8,634 533.7 561.0 576.1 14.4 15.2 15.6 16.2 15.4 15.0 107.3 104.1 100.1 10.4 11.1 11.4 4.5 4.8 4.9 16.0 15.6 15.4 0 Mikhail Mohl

Scentre Group SCG 31-Dec OPFM 4.37 5.30 23,267 1,294.6 1,370.0 1,450.1 24.4 25.8 27.3 17.9 16.9 16.0 119.1 114.8 107.1 21.7 22.5 23.3 5.0 5.1 5.3 18.3 17.8 17.2 0 Ian Randall

Stockland Group SGP 30-Jun NTRL 4.86 4.73 11,753 707.8 748.8 795.7 29.4 31.1 33.1 16.5 15.6 14.7 109.7 105.8 98.4 25.6 27.1 28.8 5.3 5.6 5.9 18.8 18.3 17.4 0 Ian Randall

Vicinity Centres VCX 30-Jun UPFM 2.92 2.65 11,559 747.1 775.2 798.9 18.9 19.6 20.2 15.5 14.9 14.5 102.8 101.0 96.8 17.6 18.2 18.7 6.0 6.2 6.4 17.1 17.0 16.7 0 Mikhail Mohl

Westfield Corporation WFD 31-Dec NTRL 8.73 9.25 13,777 704.6 738.6 836.2 33.9 35.5 40.2 19.6 18.7 16.5 129.9 126.4 110.3 25.5 25.9 27.8 3.8 3.9 4.2 25.8 22.7 20.9 0 Ian Randall


Information Technology

carsales.com.au CAR 30-Jun OPFM 11.54 12.00 2,790 119.0 132.2 149.2 49.2 54.5 61.3 23.5 21.2 18.8 155.9 143.5 126.0 40.0 44.1 48.0 3.5 3.8 4.2 16.7 15.1 13.5 100 Fraser McLeish

Computershare CPU 30-Jun OPFM 14.54 14.30 6,032 301.5 346.0 394.8 55.2 63.3 72.3 20.0 17.4 15.3 133.0 118.1 102.2 34.0 39.0 42.0 2.3 2.7 2.8 13.4 11.5 10.2 25 Andrew Adams


Telecommunication Services

Telstra Corporation TLS 30-Jun UPFM 4.38 4.00 52,093 3,971.3 4,103.5 3,997.6 32.9 34.8 34.5 13.3 12.6 12.7 88.4 85.2 84.8 31.0 25.0 25.0 7.1 5.7 5.7 6.2 6.1 6.1 100 Fraser McLeish

TPG Telecom TPM 31-Jul UPFM 5.59 5.25 5,169 402.0 335.9 215.1 45.7 36.3 23.3 12.2 15.4 24.0 81.2 104.2 160.8 15.5 13.4 9.1 2.8 2.4 1.6 7.3 8.4 9.3 100 Fraser McLeish

Vocus Communications VOC 30-Jun RSTR 3.62 2,256 160.3 142.2 148.2 26.2 23.0 24.0 13.8 15.7 15.1 91.9 106.6 101.1 10.0 10.0 10.8 2.8 2.8 3.0 8.9 8.9 8.2 100 Fraser McLeish


Utilities

AGL Energy AGL 30-Jun NTRL 25.55 28.00 16,811 772.0 1,016.9 1,283.2 116.3 156.8 199.3 22.0 16.3 12.8 146.0 110.4 85.8 87.0 118.0 150.0 3.4 4.6 5.9 10.8 8.9 7.4 85 Peter Wilson

APA Group APA 30-Jun UPFM 9.61 8.10 10,708 206.9 221.4 269.3 18.6 19.9 24.2 51.7 48.4 39.8 343.8 327.7 266.1 43.5 45.7 46.8 4.5 4.8 4.9 14.1 13.7 13.1 15 Peter Wilson

AusNet Services AST 31-Mar NTRL 1.76 1.70 6,324 255.1 234.2 222.9 7.1 6.5 6.1 24.6 27.1 28.7 163.2 183.5 191.8 9.8 9.3 9.6 5.6 5.3 5.5 11.8 12.3 12.5 0 Peter Wilson

Spark Infrastructure Group SKI 31-Dec NTRL 2.84 2.40 4,777 81.6 97.5 85.3 4.8 5.8 5.1 58.6 49.0 56.0 389.2 331.8 374.7 15.3 16.0 16.6 5.4 5.6 5.9 20.9 19.2 21.0 0 Peter Wilson


Report Average 15.1 14.8 14.9 4.6 4.6 4.6 6.7 6.3 6.1

EPS


19 J

un

e 2

017

Au

stra

lia a

nd

NZ

Firs

t Ed

ition

60

Emerging Companies Earnings and Dividends

Research Analyst

Jason Swinbourne

612 8205 4591

[email protected]

As at 16 June 2017 Ticker Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg Analyst


$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Energy

AWE Limited AWE 30-Jun NTRL 0.44 0.50 232 15.7- 17.5 19.6 -2.9 3.2 3.6 n.m 13.6 12.2 n.m 92.3 89.2 0.0 0.0 0.0 0.0 0.0 0.0 14.8 4.9 4.1 0 Sam Webb

Beach Energy BPT 30-Jun OPFM 0.62 0.70 1,162 140.9 208.2 204.6 7.6 11.2 11.0 8.2 5.6 5.7 48.2 37.6 41.5 2.0 2.0 2.0 3.2 3.2 3.2 2.8 1.9 1.7 100 Mark Samter

FAR Limited FAR 31-Dec OPFM 0.08 0.14 421 24.1- 20.7- 6.4- -0.5 -0.4 -0.1 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0 Sam Webb

New Hope Corporation NHC 31-Jul NTRL 1.53 1.60 1,267 150.8 183.0 73.3 18.1 22.0 8.8 8.4 6.9 17.3 49.5 46.9 127.0 5.5 2.0 2.0 3.6 1.3 1.3 3.3 2.4 7.9 100 Sam Webb

Senex Energy Limited SXY 30-Jun OPFM 0.29 0.30 418 11.6- 12.4 18.7 -0.9 0.9 1.4 n.m 31.0 20.6 n.m 209.6 151.3 0.0 0.0 0.0 0.0 0.0 0.0 37.3 9.2 6.8 100 Mark Samter

Whitehaven Coal WHC 30-Jun OPFM 2.81 3.60 2,883 412.4 410.6 323.2 40.2 40.0 34.3 7.0 7.0 8.2 41.1 47.5 60.2 0.0 20.0 17.1 0.0 7.1 6.1 4.1 3.4 4.2 100 Sam Webb

WorleyParsons WOR 30-Jun NTRL 11.40 8.50 2,816 130.0 161.1 215.1 52.4 65.0 86.8 21.7 17.5 13.1 127.9 118.7 96.4 0.0 0.0 0.0 0.0 0.0 0.0 10.9 9.0 6.5 21 Mark Samter


Materials - Chemicals

Nufarm NUF 31-Jul NTRL 10.02 10.10 2,675 127.7 164.2 185.2 47.8 61.2 68.8 21.0 16.4 14.6 123.3 110.7 106.9 14.0 18.0 21.0 1.4 1.8 2.1 8.1 7.2 6.6 0 Grant Saligari

Materials - Construction Materials

Materials - Containers & Packaging

Pact Group Holdings PGH 30-Jun NTRL 6.10 6.45 1,825 105.2 116.4 122.8 35.4 38.9 41.0 17.3 15.7 14.9 101.5 106.1 109.1 23.0 25.0 29.0 3.8 4.1 4.8 10.4 9.3 8.8 78 Larry Gandler

Materials - Metals & Mining

Altona Mining Limited AOH 30-Jun OPFM 0.14 0.26 75 4.3- 4.4- 1.7- -0.8 -0.8 -0.3 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m 7.4 0 Michael Slifirski

Alacer Gold Corp. AQG 31-Dec OPFM 2.22 5.30 494 146.8 80.9 159.0 49.8 27.5 53.9 3.4 6.1 3.1 19.9 41.5 22.9 0.0 9.1 19.0 0.0 5.4 11.3 5.7 4.9 1.6 0 Michael Slifirski

Independence Group NL IGO 30-Jun OPFM 3.21 4.30 1,883 58.1 258.7 322.8 10.6 44.1 55.0 30.3 7.3 5.8 178.3 49.3 42.8 2.0 15.0 22.0 0.6 4.7 6.9 10.3 3.1 2.2 100 Michael Slifirski

Kula Gold KGD 31-Dec OPFM 0.03 0.06 11 5.1- 8.3- 25.7 -1.6 -2.5 7.9 n.m n.m 0.4 n.m n.m 2.8 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m 2.5 0 Michael Slifirski

OceanaGold Corporation OGC 31-Dec OPFM 4.20 4.20 1,962 251.9 185.0 99.3 41.2 30.3 16.3 7.7 10.5 19.6 45.5 71.3 144.0 2.0 2.0 2.0 0.6 0.6 0.6 4.0 3.7 3.5 0 Michael Slifirski

Perseus Mining PRU 30-Jun OPFM 0.32 0.85 331 20.2- 21.3 79.3 -1.9 2.0 7.3 n.m 16.3 4.4 n.m 110.6 32.3 0.0 0.0 0.0 0.0 0.0 0.0 27.0 2.9 0.5 0 Michael Slifirski

Regis Resources Limited RRL 30-Jun UPFM 3.55 3.05 1,779 122.7 182.6 207.6 24.4 36.2 41.2 14.6 9.8 8.6 85.7 66.4 63.3 15.0 21.7 24.7 4.2 6.1 7.0 6.9 4.6 3.8 100 Michael Slifirski

St Barbara Mining SBM 30-Jun OPFM 2.83 2.60 1,407 152.3 200.8 215.9 29.3 38.5 41.4 9.7 7.3 6.8 56.8 49.7 50.2 0.0 19.3 20.7 0.0 6.8 7.3 4.1 3.0 2.4 0 Michael Slifirski

Sandfire Resources NL SFR 30-Jun UPFM 5.72 4.65 903 82.6 67.9 29.3 52.4 43.1 18.6 10.9 13.3 30.7 64.2 89.8 225.7 17.9 12.9 2.5 3.1 2.3 0.4 3.4 3.8 4.5 100 Michael Slifirski

Sims Metal Management SGM 30-Jun UPFM 13.47 11.00 2,666 132.9 151.8 178.3 67.2 76.8 90.2 20.0 17.5 14.9 117.8 118.7 109.6 38.3 38.4 45.1 2.8 2.9 3.3 8.2 7.1 6.2 40 Michael Slifirski

Syrah Resources SYR 31-Dec OPFM 2.59 7.45 519 10.8- 48.6 154.0 -4.1 18.4 58.4 n.m 10.7 3.4 n.m 72.2 24.7 0.0 0.0 0.0 0.0 0.0 0.0 n.m 6.3 1.8 0 Michael Slifirski

Western Areas WSA 30-Jun NTRL 1.93 2.90 524 2.7 54.4 63.1 1.0 19.9 23.0 n.m 9.7 8.4 n.m 65.6 61.4 0.0 8.0 9.3 0.0 4.2 4.8 6.2 2.6 2.1 100 Michael Slifirski


Materials - Paper & Forest Products

Sector Aggregate n.m n.m n.m

Industrials - Capital Goods

GWA GROUP Limited GWA 30-Jun NTRL 3.14 2.90 829 53.1 50.3 47.9 20.1 19.1 18.2 15.6 16.5 17.3 91.8 111.4 127.0 17.0 16.0 15.0 5.4 5.1 4.8 10.7 10.9 11.1 100 Andrew Peros


EPS


Au

stra

lia a

nd

NZ

Firs

t Ed

ition

61

19 J

un

e 2

017

Emerging Companies Earnings and Dividends (continued) As at 16 June 2017 Ticker Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg Analyst


$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Industrials - Commercial & Professional Services

Cleanaway Waste Management CWY 30-Jun NTRL 1.43 1.23 2,270 70.5 85.5 98.4 4.4 5.4 6.2 32.1 26.5 23.1 188.9 179.6 169.4 2.0 2.5 3.0 1.4 1.8 2.1 8.6 8.2 7.8 100 Matthew Nicholas

McMillan Shakespeare MMS 30-Jun OPFM 13.97 12.50 1,162 86.2 92.8 99.9 103.4 111.6 120.1 13.5 12.5 11.6 79.5 84.7 85.4 64.5 68.0 72.8 4.6 4.9 5.2 10.8 10.9 10.9 100 Paul Buys

Programmed Maintenance Services PRG 31-Mar NTRL 1.87 1.90 481 41.3 44.4 49.3 16.2 17.3 19.2 11.5 10.8 9.8 67.8 73.3 71.6 7.0 8.7 10.2 3.7 4.7 5.4 7.1 6.3 5.7 100 Matthew Nicholas

Royal Wolf Holdings RWH 30-Jun NTRL 1.35 1.30 136 8.6 8.4 10.8 8.5 8.4 10.7 15.8 16.1 12.6 93.2 108.7 92.2 5.5 5.9 7.4 4.1 4.3 5.5 6.3 6.1 5.5 100 Paul Buys

SmartGroup Corporation Ltd SIQ 31-Dec OPFM 6.90 7.45 849 57.5 65.3 70.6 46.5 52.6 56.8 14.8 13.1 12.1 87.3 88.8 89.2 28.6 32.1 34.7 4.1 4.7 5.0 10.1 8.8 8.0 100 Paul Buys


Industrials - Transportation

Alliance Aviation Services Limited AQZ 30-Jun OPFM 0.92 1.15 112 14.3 18.4 19.8 11.7 15.2 16.3 7.8 6.1 5.7 46.1 41.0 41.5 2.0 4.0 8.2 2.2 4.3 8.9 3.7 3.1 2.7 100 Paul Buys

Virgin Australia VAH 30-Jun NTRL 0.18 0.21 1,480 31.8 50.5 24.3 0.4 0.6 0.3 46.6 29.3 61.0 274.1 198.3 447.5 0.0 0.0 0.0 0.0 0.0 0.0 11.5 10.6 11.2 0 Paul Butler


Consumer Discretionary - Automobiles & Components

ARB Corp ARB 30-Jun NTRL 16.05 15.45 1,271 50.0 56.6 62.9 63.1 71.5 79.5 25.4 22.4 20.2 149.6 151.8 148.3 35.7 40.4 44.9 2.2 2.5 2.8 15.6 13.8 12.4 100 Paul Buys

Consumer Discretionary - Consumer Durables & Apparel

Breville Group BRG 30-Jun OPFM 11.01 9.30 1,432 54.1 56.4 59.4 41.6 43.4 45.7 26.5 25.4 24.1 155.7 171.7 176.9 30.0 32.0 34.0 2.7 2.9 3.1 15.4 14.4 13.5 65 Matthew Nicholas

G.U.D. Holdings GUD 30-Jun NTRL 13.48 10.45 1,156 53.4 60.0 63.0 61.6 69.1 72.6 21.9 19.5 18.6 128.7 132.1 136.3 45.5 51.1 53.7 3.4 3.8 4.0 14.3 12.9 12.2 100 Paul Buys


Consumer Discretionary - Consumer Services

Ardent Leisure Group AAD 30-Jun OPFM 2.13 2.25 999 19.0 39.9 61.6 4.1 8.5 13.1 52.5 25.0 16.2 309.0 169.4 119.2 3.0 6.0 9.5 1.4 2.8 4.5 13.5 10.3 8.4 100 Matthew Nicholas

IDP Education Limited IEL 30-Jun UPFM 5.00 4.00 1,251 44.4 51.6 58.7 17.4 20.2 23.0 28.7 24.7 21.7 168.8 167.1 159.5 13.0 15.0 17.5 2.6 3.0 3.5 18.2 15.1 13.1 50 Lucas Goode

iSelect Limited ISU 30-Jun OPFM 2.01 2.40 457 18.7 22.7 26.3 8.0 10.1 11.7 25.1 20.0 17.1 147.6 135.1 125.6 4.5 6.0 7.2 2.2 3.0 3.6 12.2 10.3 9.1 100 Paul Buys

Mantra Group Limited MTR 30-Jun NTRL 2.98 3.15 886 51.3 56.8 61.2 17.3 19.1 20.6 17.2 15.6 14.5 101.4 105.5 106.3 10.0 13.0 13.5 3.4 4.4 4.5 9.3 8.4 7.8 100 Matthew Nicholas


Consumer Discretionary - Media

APN Outdoor Group Limited APO 30-Dec NTRL 4.50 5.85 750 53.5 60.5 65.0 32.1 36.3 39.0 14.0 12.4 11.5 82.4 83.8 84.6 20.0 22.0 24.0 4.5 4.9 5.3 8.9 7.9 7.3 0 Matthew Nicholas

Here There & Everywhere HT1 31-Dec OPFM 2.43 3.20 749 60.0 64.0 69.7 19.5 20.8 22.7 12.5 11.7 10.7 73.2 79.0 78.7 9.8 10.4 13.6 4.0 4.3 5.6 7.1 6.5 6.0 100 Lucas Goode

iCar Asia Ltd ICQ 31-Dec NTRL 0.27 0.60 87 11.7- 9.2- 6.7- -4.4 -3.2 -2.3 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 100 Lucas Goode

Nine Entertainment NEC 30-Jun OPFM 1.35 1.50 1,176 93.0 95.5 92.1 10.6 10.9 10.5 12.7 12.4 12.8 74.7 83.7 94.2 8.5 9.3 8.9 6.3 6.9 6.6 7.8 6.8 7.2 100 Fraser McLeish

oOh!media Limited OML 31-Dec OPFM 4.48 4.95 735 44.9 52.4 56.0 27.3 31.9 34.1 16.4 14.0 13.1 96.4 94.9 96.3 16.5 19.0 20.5 3.7 4.2 4.6 9.4 8.0 7.4 0 Matthew Nicholas

Seven West Media SWM 30-Jun NTRL 0.67 0.81 1,003 150.6 159.2 177.8 10.0 10.6 11.8 6.7 6.3 5.6 39.2 42.6 41.4 4.0 5.0 7.0 6.0 7.5 10.5 5.7 5.2 4.6 100 Fraser McLeish

Southern Cross Media Group SXL 30-Jun OPFM 1.17 1.35 900 84.3 83.2 92.4 10.9 10.8 12.0 10.7 10.8 9.8 62.9 73.3 71.6 7.0 7.8 8.3 6.0 6.6 7.1 7.5 7.5 6.8 100 Lucas Goode

Ten Network Holdings TEN 31-Aug NTRL 0.16 0.35 58 50.3- 42.7- 57.0- -12.9 -10.9 -14.6 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0 Fraser McLeish

WPP AUNZ WPP 31-Dec OPFM 1.20 1.25 1,018 86.4 94.2 101.7 10.1 11.1 11.9 11.8 10.8 10.0 69.3 73.1 73.5 7.0 8.0 9.0 5.9 6.7 7.5 7.8 7.2 6.8 100 Matthew Nicholas


Consumer Discretionary - Retailing

Automotive Holdings Group Ltd AHG 30-Jun OPFM 3.22 3.60 1,068 89.7 96.2 102.7 27.7 29.7 31.8 11.6 10.8 10.1 68.3 73.3 74.4 20.1 20.1 21.5 6.2 6.3 6.7 9.3 8.8 8.4 100 Paul Buys

AP Eagers Limited APE 31-Dec NTRL 7.82 8.00 1,492 90.5 94.7 98.9 46.4 48.5 50.7 16.9 16.1 15.4 99.2 109.1 113.3 31.8 32.9 34.4 4.1 4.2 4.4 13.4 12.9 12.3 100 Paul Buys

Godfreys Group Limited GFY 30-Jun NTRL 0.64 0.95 26 5.8 8.8 9.8 14.1 21.7 24.1 4.5 2.9 2.6 26.5 19.8 19.4 5.0 10.8 12.0 7.9 17.0 19.0 2.8 2.0 1.6 0 Matthew Nicholas

Myer Holdings MYR 30-Jul NTRL 0.92 0.82 751 65.0 68.1 66.4 7.9 8.3 8.1 11.6 11.0 11.3 68.3 74.6 83.0 7.0 4.6 4.4 7.7 5.0 4.9 4.5 4.5 4.6 100 Grant Saligari

Premier Investments PMV 29-Jul OPFM 13.09 15.38 2,064 113.2 127.2 143.9 71.4 80.2 90.8 18.3 16.3 14.4 107.9 110.4 105.8 55.3 61.8 69.6 4.2 4.7 5.3 11.9 10.3 9.0 100 Grant Saligari

Super Retail Group SUL 2-Jul NTRL 8.28 7.56 1,633 128.7 135.5 134.3 64.7 68.1 67.5 12.8 12.2 12.3 75.3 82.2 90.1 42.0 47.3 46.9 5.1 5.7 5.7 7.0 6.7 6.5 100 Grant Saligari

Webjet WEB 30-Jun OPFM 12.63 12.00 1,243 40.4 49.1 58.8 40.1 48.8 58.5 31.5 25.9 21.6 185.1 175.2 158.5 18.0 24.0 29.0 1.4 1.9 2.3 18.2 15.3 12.4 100 Matthew Nicholas


EPS


Au

stra

lia a

nd

NZ

Firs

t Ed

ition

62

19 J

un

e 2

017

Emerging Companies Earnings and Dividends (continued) As at 16 June 2017 Ticker Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg Analyst


$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Consumer Staples - Food & Drug Retailing

Metcash MTS 30-Apr OPFM 2.15 2.54 2,098 190.7 216.5 239.2 19.9 22.2 24.5 10.8 9.7 8.8 63.5 65.5 64.4 0.0 13.3 14.7 0.0 6.2 6.8 6.3 5.5 5.1 100 Grant Saligari


Consumer Staples - Food Beverage & Tobacco

Huon Aquaculture Group Limited HUO 30-Jun OPFM 5.00 5.80 437 22.2 32.4 38.7 25.5 37.1 44.4 19.6 13.5 11.3 115.5 91.3 82.7 1.5 4.5 8.5 0.3 0.9 1.7 8.0 6.4 5.4 47 Paul Buys

Inghams Group Limited ING 25-Jun OPFM 3.32 3.90 1,262 104.2 114.9 124.4 27.4 30.2 32.7 12.1 11.0 10.1 71.2 74.3 74.5 11.5 19.6 21.2 3.5 5.9 6.4 8.3 7.4 6.9 100 Paul Buys

Ridley Corporation Limited RIC 30-Jun NTRL 1.38 1.35 423 23.5 28.9 31.9 7.7 9.4 10.4 18.0 14.6 13.3 105.7 99.0 97.4 4.0 4.9 5.2 2.9 3.5 3.8 8.6 7.3 6.8 100 Paul Buys

Tassal Group Limited TGR 30-Jun OPFM 4.00 4.85 680 40.8 55.1 60.9 26.1 32.7 36.2 15.3 12.2 11.1 90.3 82.8 81.2 15.1 18.0 20.6 3.8 4.5 5.2 9.3 7.6 7.0 88 Paul Buys


Consumer Staples - Household & Personal Products

Asaleo Care Limited AHY 31-Dec NTRL 1.47 1.75 796 65.2 67.1 66.7 12.0 12.4 12.3 12.2 11.9 11.9 71.9 80.2 87.5 10.0 10.0 10.0 6.8 6.8 6.8 7.9 7.7 7.6 30 Larry Gandler

Blackmores Ltd BKL 30-Jun NTRL 91.92 100.00 1,583 57.5 70.6 80.6 330.8 405.9 463.5 27.8 22.6 19.8 163.5 153.2 145.6 260.0 320.0 370.0 2.8 3.5 4.0 17.4 14.6 13.0 100 Larry Gandler


Health Care

Australian Pharmaceutical Ind API 31-Aug UPFM 1.86 1.90 911 55.2 58.1 59.1 11.2 11.8 12.0 16.7 15.8 15.6 98.0 107.1 114.2 7.0 8.2 9.0 3.8 4.4 4.8 7.8 7.5 7.2 100 Saul Hadassin

Capitol Health Limited CAJ 30-Jun OPFM 0.26 0.30 207 5.6 9.0 13.1 0.9 1.1 1.6 26.8 23.0 15.8 157.9 155.6 116.1 0.0 0.0 0.0 0.0 0.0 0.0 11.4 7.8 6.7 100 Matthew Nicholas

Integral Diagnostics Limited IDX 30-Jun OPFM 1.69 1.70 243 15.5 17.6 20.4 10.7 12.2 14.1 15.8 13.9 12.0 93.0 93.8 87.9 6.5 8.4 9.9 3.8 5.0 5.9 8.5 7.3 6.5 100 Matthew Nicholas

Mayne Pharma MYX 30-Jun NTRL 1.10 1.55 1,656 114.2 123.4 142.3 7.6 8.2 9.5 14.4 13.3 11.6 84.6 90.1 84.8 0.0 0.0 0.0 0.0 0.0 0.0 8.1 6.7 5.6 0 Saul Hadassin

Sigma Pharmaceuticals SIG 31-Jan OPFM 0.88 0.90 946 66.9 63.7 62.2 6.2 5.9 5.8 14.1 14.8 15.2 82.9 100.2 111.2 5.5 5.3 5.3 6.3 6.0 6.0 8.8 9.8 9.7 100 Saul Hadassin


Financials - Diversified Financials

BT Investment Management Limited BTT 30-Sep NTRL 11.85 11.40 3,729 172.6 224.3 263.3 55.1 71.1 83.5 21.5 16.7 14.2 126.4 112.8 104.2 47.0 59.0 69.0 4.0 5.0 5.8 16.7 12.7 10.6 33 James Cordukes

Eclipx Group ECX 30-Sep OPFM 3.64 4.25 966 66.9 72.9 78.5 25.1 27.4 29.5 14.5 13.3 12.3 85.2 89.9 90.6 15.5 16.0 17.0 4.3 4.4 4.7 24.1 23.4 23.0 100 Paul Buys

FlexiGroup Limited FXL 30-Jun NTRL 1.70 1.85 633 91.7 92.8 95.1 24.6 24.9 25.5 6.9 6.8 6.7 40.6 46.1 48.9 8.0 8.1 8.3 4.7 4.8 4.9 10.8 10.9 10.7 100 Paul Buys

IRESS IRE 31-Dec OPFM 12.35 12.70 2,111 81.2 90.4 99.4 50.4 56.1 61.7 24.5 22.0 20.0 144.2 149.0 147.0 49.0 54.6 60.0 4.0 4.4 4.9 17.4 15.7 14.4 40 Paul Buys

Platinum Asset Management PTM 30-Jun UPFM 4.64 4.50 2,722 188.0 170.8 176.5 32.0 29.1 30.1 14.5 15.9 15.4 85.2 107.9 113.2 30.0 29.0 30.0 6.5 6.3 6.5 9.9 11.1 10.7 100 James Cordukes


Financials - Insurance

AUB Group Limited AUB 30-Jun OPFM 13.01 14.70 831 36.4 41.3 42.7 56.8 63.6 64.6 22.9 20.5 20.1 134.8 138.4 147.8 40.5 45.0 46.0 3.1 3.5 3.5 12.8 11.2 10.6 100 Andrew Adams

NIB Holdings Limited NHF 30-Jun UPFM 5.23 5.50 2,296 121.7 123.7 126.9 27.7 28.2 28.9 18.9 18.6 18.1 111.0 125.6 132.8 17.6 17.8 18.2 3.4 3.4 3.5 13.3 12.8 12.0 100 Andrew Adams

Steadfast SDF 30-Jun OPFM 2.81 3.10 2,107 89.6 98.7 114.9 11.9 13.1 15.3 23.6 21.4 18.4 138.6 144.8 135.0 6.6 7.5 9.0 2.3 2.7 3.2 19.2 17.3 14.5 100 Andrew Adams

Tower Limited TWR 30-Sep NTRL 1.09 1.15 193 2.3 22.4 22.7 1.4 13.7 13.8 82.1 8.4 8.3 482.9 56.8 60.8 0.0 10.2 10.4 0.0 8.9 9.0 6.1 4.8 4.5 0 Andrew Adams


Financials - Real Estate

Australian Unity Office Fund AOF 30-Jun NTRL 2.16 2.10 303 23.4 24.0 24.0 16.7 17.1 17.1 13.0 12.6 12.6 76.3 85.4 92.9 14.8 15.4 15.4 6.9 7.1 7.1 15.5 15.3 15.3 0 Mikhail Mohl

BWP Trust BWP 30-Jun UPFM 3.20 2.92 2,056 111.9 115.7 120.2 17.4 17.8 18.4 18.4 18.0 17.4 108.5 121.6 127.4 17.3 17.8 18.4 5.4 5.6 5.8 18.6 18.0 17.5 0 Mikhail Mohl

Charter Hall Group CHC 30-Jun UPFM 5.92 4.71 2,757 151.0 166.1 166.3 35.8 35.9 35.9 16.5 16.5 16.5 97.1 111.6 120.9 30.0 30.9 30.9 5.1 5.2 5.2 15.3 14.5 14.5 0 Ian Randall

Cromwell Property Group CMW 30-Jun UPFM 1.03 0.97 1,806 150.2 146.3 158.4 8.5 8.3 8.9 12.0 12.4 11.5 70.7 83.9 84.5 8.3 8.5 8.7 8.1 8.3 8.4 15.6 16.2 14.6 0 Mikhail Mohl

Charter Hall Retail REIT CQR 30-Jun UPFM 4.42 4.00 1,795 124.8 130.2 136.5 30.7 31.7 32.9 14.4 13.9 13.4 84.7 94.3 98.6 28.3 29.4 30.6 6.4 6.7 6.9 16.3 15.1 14.5 0 Mikhail Mohl

GDI Property Group GDI 30-Jun OPFM 1.09 1.06 583 48.0 49.7 51.8 8.9 9.2 9.6 12.2 11.8 11.3 71.6 79.6 82.9 7.7 7.4 7.7 7.1 6.8 7.1 13.1 13.3 12.9 0 Ian Randall

Propertylink Group PLG 30-Jun OPFM 0.87 0.92 524 43.4 47.1 49.0 7.2 7.8 8.1 12.1 11.1 10.7 71.0 75.3 78.6 6.9 7.4 7.7 7.9 8.5 8.8 14.9 13.8 13.4 0 Mikhail Mohl

SCA Property Group SCP 30-Jun UPFM 2.40 2.04 1,783 106.4 112.0 116.4 14.5 15.2 15.7 16.6 15.8 15.3 97.4 106.9 112.2 13.0 13.5 14.0 5.4 5.6 5.8 19.1 18.0 17.4 0 Mikhail Mohl


Information Technology

Aconex ACX 30-Jun NTRL 4.11 3.50 817 4.0 9.1 13.6 1.9 4.3 6.4 n.m 94.5 64.1 n.m 639.7 470.2 0.0 0.0 0.0 0.0 0.0 0.0 46.7 32.7 23.2 0 Lucas Goode

Altium ALU 30-Jun OPFM 9.15 9.50 905 29.6 35.0 43.3 22.7 26.9 33.2 30.6 25.9 20.9 180.0 175.0 153.5 21.9 26.3 32.5 2.4 2.9 3.5 24.2 20.5 16.5 0 Lucas Goode

Hansen Technologies HSN 30-Jun NTRL 3.55 3.70 646 30.7 33.2 35.5 16.7 17.8 18.9 21.3 19.9 18.8 125.2 134.9 137.7 5.5 5.4 6.0 1.5 1.5 1.7 12.9 11.3 10.1 60 Lucas Goode

MYOB Group Ltd MYO 31-Dec NTRL 3.37 3.50 2,044 104.6 113.9 118.1 17.1 18.6 19.3 19.7 18.1 17.5 116.0 122.6 128.2 12.0 13.0 13.5 3.6 3.9 4.0 12.4 11.3 10.7 100 Lucas Goode

NextDC NXT 30-Jun OPFM 4.54 4.70 1,290 13.8 7.6 28.6 4.7 2.5 9.5 95.6 n.m 47.8 562.3 n.m 351.0 0.0 0.0 0.0 0.0 0.0 0.0 28.3 24.3 15.5 0 Lucas Goode

WiseTech Global Pty Ltd WTC 30-Jun NTRL 7.75 4.80 2,254 26.9 37.5 47.3 9.3 12.9 16.3 83.6 60.0 47.6 492.0 406.2 349.5 2.0 2.5 3.5 0.3 0.3 0.5 41.3 31.0 24.9 100 Lucas Goode


Telecommunication Services

Speedcast International SDA 31-Dec OPFM 3.77 4.50 680 45.6 63.3 74.1 19.1 26.4 30.8 15.0 10.9 9.3 88.4 73.4 68.1 10.2 14.1 16.5 2.7 3.7 4.3 8.2 6.6 5.8 0 Lucas Goode


Utilities

Sector Aggregate n.m n.m n.m n.m n.m n.m

Report Average 16.2 14.1 13.0 3.1 4.0 4.3 9.4 7.7 6.7

EPS


19 J

un

e 2

017

Au

stra

lia a

nd

NZ

Firs

t Ed

ition

63

Sector Aggregates

Research Analyst

Jason Swinbourne

612 8205 4591

[email protected]

As at 16 June 2017 PE Rel vs ASX 200(1)

EPS Growth % (1)

Div Yield % (1)

EBIT Multiple (1)

EBITDA Multiple (1)

2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 Top 200 Top 300

Energy (2) 16.9 13.2 12.3 16.9 12.9 11.3 1.1 0.9 0.8 57.6 28.1 7.0 2.2 3.2 3.8 12.3 9.7 9.2 7.4 6.0 5.6 3.97% 3.83%

Materials (2) 10.7 11.4 13.9 16.6 13.3 14.4 0.7 0.8 0.9 136 -7 -17 4.9 4.5 3.8 7.0 7.7 9.4 4.9 5.2 6.0 20.19% 19.49%

Chemicals (2) 18.6 17.9 16.9 19.6 17.7 17.0 1.2 1.2 1.1 11 4 6 2.7 2.9 3.1 13.6 12.3 11.5 9.8 8.9 8.4 1.07% 1.04%

Construction Materials (2) 21.0 18.9 17.5 20.0 18.6 17.2 1.4 1.3 1.2 0 11 8 3.5 3.6 4.0 14.9 13.8 12.9 10.9 10.3 9.6 1.29% 1.25%

Containers & Packaging (2) 20.0 17.8 16.3 18.9 17.2 16.4 1.3 1.2 1.1 4 12 9 3.6 4.1 4.5 16.0 14.2 13.1 12.0 10.7 10.0 1.37% 1.32%

Metals & Mining (2) 9.6 10.5 13.3 14.7 10.6 10.5 0.6 0.7 0.9 174 -9 -21 5.2 4.8 3.7 6.3 7.1 8.9 4.4 4.7 5.5 16.46% 15.89%

Paper & Forest Products (2) 18.6 17.9 16.9 19.6 17.7 17.0 1.2 1.2 1.1 11 4 6 2.7 2.9 3.1 13.6 12.3 11.5 9.8 8.9 8.4 1.07% 1.04%

Industrials (2) 27.6 24.7 22.8 26.9 22.3 19.5 1.8 1.7 1.5 0 12 8 3.5 3.7 4.0 19.1 17.7 16.8 11.9 11.1 10.6 6.66% 6.43%

Capital Goods (2) 18.2 17.9 17.7 17.0 17.2 17.5 1.2 1.2 1.2 19 1 1 3.4 3.4 3.5 13.1 13.2 12.8 9.4 9.3 8.7 0.76% 0.73%

Commercial Services & Supplies (2) 23.4 21.1 19.4 25.8 21.9 19.5 1.5 1.4 1.3 -9 11 9 2.8 2.7 2.9 16.1 14.5 13.2 10.1 9.3 8.7 1.87% 1.80%

Transportation (2) 33.6 29.1 26.4 45.0 38.7 32.2 2.2 2.0 1.8 1 15 10 3.9 4.2 4.7 23.1 21.2 20.5 13.7 12.8 12.4 4.03% 3.89%

Consumer Discretionary (2) 21.1 19.1 17.8 18.7 17.4 15.0 1.4 1.3 1.2 2 10 7 4.4 4.3 4.6 14.6 12.9 11.9 10.6 9.5 8.9 5.06% 4.88%

Automobiles & Components (2) 25.4 22.4 20.2 25.4 22.4 20.2 1.7 1.5 1.4 10 13 11 2.2 2.5 2.8 18.2 15.9 14.1 15.6 13.8 12.4 0.07% 0.07%

Consumer Durables & Apparel (2) 24.2 22.4 21.3 24.2 22.5 21.3 1.6 1.5 1.4 14 8 5 3.0 3.3 3.5 16.5 15.2 14.3 14.9 13.7 12.9 0.15% 0.14%

Hotels Restaurants & Leisure (2) 23.7 21.0 19.0 23.2 20.4 16.2 1.6 1.4 1.3 -1 13 11 5.2 5.1 5.3 16.2 14.3 13.0 12.2 10.9 10.1 2.56% 2.47%

Media (2) 23.0 20.7 19.1 13.4 12.4 12.2 1.5 1.4 1.3 -2 11 9 2.4 2.8 3.2 14.8 12.4 11.2 9.4 8.2 7.5 1.50% 1.45%

Retailing (2) 13.4 12.8 13.0 12.6 12.2 12.3 0.9 0.9 0.9 13 5 -2 5.7 5.1 5.0 10.6 9.8 9.8 8.4 7.9 7.8 0.78% 0.75%

Consumer Staples (2) 18.4 18.1 17.0 15.5 15.6 15.7 1.2 1.2 1.1 12 2 6 3.8 4.0 4.1 13.4 13.1 12.3 9.9 9.7 9.1 5.91% 5.70%

Food & Drug Retailing (2) 17.8 17.7 16.6 15.3 16.4 15.7 1.2 1.2 1.1 11 1 7 3.9 4.1 4.2 13.0 12.8 12.0 9.6 9.4 8.9 4.65% 4.49%

Food Beverage & Tobacco (2) 21.7 20.2 19.4 15.8 15.5 18.1 1.4 1.4 1.3 24 7 4 3.1 3.5 3.7 15.6 14.5 13.7 11.3 10.6 10.0 1.12% 1.08%

Health Care (2) 29.6 26.0 23.0 21.3 20.4 18.7 2.0 1.8 1.5 8 14 13 1.7 2.0 2.2 22.6 19.9 17.5 18.2 16.2 14.5 6.99% 6.75%

Financials (2) 14.1 13.5 13.0 15.9 15.1 13.9 0.9 0.9 0.9 12 4 5 5.5 5.6 5.8 5.7 5.0 4.4 5.2 4.6 4.1 31.95% 30.84%

Banks (2) 13.3 12.9 12.4 12.8 12.2 12.0 0.9 0.9 0.8 10 3 4 5.8 5.9 6.1 4.7 4.1 3.6 4.3 3.8 3.4 23.71% 22.89%

Diversified Financials (2) 16.4 15.7 14.8 18.5 16.3 14.8 1.1 1.1 1.0 39 5 6 4.7 4.9 5.2 13.1 12.4 11.5 11.4 10.8 10.0 4.74% 4.57%

Insurance (2) 17.8 16.3 15.0 17.9 17.7 15.2 1.2 1.1 1.0 7 10 9 4.2 4.6 5.0 15.4 14.1 13.1 14.4 13.3 12.4 3.50% 3.38%

Real Estate (2) 16.9 16.1 15.2 16.5 15.8 15.4 1.1 1.1 1.0 4 5 6 4.6 4.8 5.0 17.3 16.6 15.8 17.1 16.4 15.6 7.44% 7.18%

Information Technology (2) 23.7 21.0 18.1 27.0 23.6 19.8 1.6 1.4 1.2 1 13 16 2.4 2.7 2.9 17.6 15.4 13.3 15.4 13.5 11.7 0.91% 0.88%

Telecommunication Services (2) 13.2 12.9 13.3 13.3 15.4 15.1 0.9 0.9 0.9 0 3 -3 6.5 5.3 5.3 10.7 10.7 11.1 6.4 6.3 6.4 3.36% 3.25%

Utilities (2) 29.5 24.4 20.5 38.2 37.7 34.2 1.9 1.7 1.4 2 21 19 4.3 4.9 5.5 17.9 15.5 13.5 12.5 11.3 10.1 2.18% 2.11%

20 Leaders 13.8 13.9 14.3 15.9 15.3 15.0 0.9 0.9 0.96 37 -1 -3 5.2 5.0 4.9 6.9 6.5 6.2 5.6 5.4 5.2 na na

50 Leaders 14.5 14.3 14.6 17.9 16.5 15.5 1.0 1.0 1.0 36 1 -2 4.8 4.8 4.7 7.8 7.4 7.1 6.3 6.0 5.7 na na

ASX 100 15.1 14.8 14.9 18.9 17.2 16.4 1.0 1.0 1.0 33 2 -1 4.6 4.6 4.6 8.3 7.9 7.5 6.7 6.3 6.1 na na

MidCap 50 19.8 18.2 17.5 19.0 18.0 16.5 1.3 1.2 1.2 9 8 4 3.8 3.8 4.0 14.5 13.1 12.4 10.8 9.9 9.4 na na

S&P/ASX 200 - Industrials 17.2 16.3 15.4 18.4 17.2 16.4 1.1 1.1 1.0 8 6 6 4.5 4.6 4.9 9.0 8.1 7.3 7.7 6.9 6.3 na na

S&P/ASX 200 - Resources 10.5 11.0 13.1 14.7 10.7 10.5 0.7 0.7 0.9 152 -4 -16 4.7 4.5 3.7 6.9 7.5 8.9 4.7 4.9 5.5 na na

S&P/ASX 200 - Ind excl BIP 21.5 19.8 18.4 20.1 18.3 17.0 1.4 1.3 1.2 8.8 8.5 7.6 3.7 3.8 4.0 16.0 14.7 13.7 11.4 10.6 10.0 na na

S&P/ASX 200 15.2 14.8 14.9 18.1 16.4 15.3 1.0 1.0 1.0 32 3 -1 4.5 4.6 4.6 8.5 8.0 7.6 6.8 6.4 6.1 na na

S&P/ASX 300 - Industrials 17.3 16.3 15.4 18.2 16.9 16.2 1.1 1.1 1.0 8 6 6 4.5 4.6 4.8 9.1 8.1 7.3 7.7 7.0 6.3 na na

S&P/ASX 300 - Resources 10.5 11.0 13.1 11.0 10.7 10.5 0.7 0.7 0.9 154 -4 -16 4.6 4.4 3.7 7.0 7.5 8.8 4.7 4.9 5.4 na na

S&P/ASX 300 - Ind excl BIP 21.5 19.8 18.4 19.9 18.1 16.6 1.4 1.3 1.2 8.8 8.7 7.6 3.7 3.8 4.0 16.0 14.7 13.7 11.4 10.6 10.0 na na

S&P/ASX 300 15.2 14.8 14.8 17.4 16.3 15.1 1.0 1.0 1.0 32 3 -1 4.5 4.6 4.6 8.5 8.0 7.6 6.8 6.4 6.1 na na

Small Companies (4) 16.9 14.8 13.5 14.9 14.0 13.2 1.1 1.0 0.9 22 14 10 3.0 3.9 4.2 12.9 10.3 8.7 9.2 7.6 6.4 na na

Small Industrials 18.4 16.8 15.5 16.5 15.6 14.4 1.2 1.1 1.0 2 10 8 3.5 4.0 4.4 14.1 12.5 11.4 10.6 9.5 8.7 na na

Small Resources 12.8 10.0 8.8 7.9 10.1 8.3 0.8 0.7 0.6 163 28 14 1.1 3.3 3.6 9.7 6.1 4.5 5.9 4.1 3.1 na na

(1) Includes all companies covered by Credit Suisse analysts (3) No weighting applicable

(2) All sectors are based on S&P/ASX200.Companies on restricted list are not included in aggregates (4) Emerging companies are all companies covered by Credit Suisse excluding top 100 stocks.

Source: Company data, Credit Suisse Estimates, Thomson Reuters

Sector Weight PE (1)

Median PE (1)(3)

19 J

un

e 2

017

Au

stra

lia a

nd

NZ

Firs

t Ed

ition

64

Interest rates Economic forecasts

US Current 2017Q2 2017Q3 2017Q4 2018Q1 US 2017Q2 2017Q3 2017Q4 2018Q1 2017 2018

2yr 1.36 1.45 1.65 1.75 GDP QoQ% ann 3.1 2.3 2.4 2.3

5yr 1.77 2.00 2.15 2.30 Consumer Spending QoQ% ann 2.6 2.3 2.5 2.4

10yr 2.17 2.45 2.60 2.80 Business Investment QoQ% ann 4.2 3.7 3.1 4.6

30yr 2.78 3.10 3.20 3.35 Industrial Production QoQ% 4.6 2.0 1.7 2.5

2-10 0.81 1.00 0.95 1.05 Europe

10-30 0.62 0.65 0.60 0.55 GDP QoQ% ann 2.0 2.0 2.0 2.0

Europe Private Consumption QoQ% ann 1.8 1.6 1.6 1.7

2yr -0.64 Real Investment QoQ% ann 3.9 3.8 3.8 3.9

5yr -0.38 Industrial Production QoQ% ann 2.7 2.7 2.7 2.9

10yr 0.30 Japan

30yr 1.13 GDP QoQ% ann 1.4 -1.5 -1.1 0.8

2-10 0.94 Consumer Spending QoQ% ann 0.3 0.2 0.3 0.6

10-30 0.82 Non-Res. Investment QoQ% ann 0.0 -2.0 -3.0 1.9

Japan Industrial Production YoY% 4.7 2.5 -0.4 2.7

2yr -0.11 China

5yr -0.07 GDP YoY% 6.8 6.5

10yr 0.05 Private Consumption YoY% 7.4 7.3

30yr 0.81 Fixed Investment YoY% 6.0 5.6

2-10 0.16 CPI Inflation YoY% 2.7 2.2

10-30 0.76

Comdty Current 2017Q2 2017Q3 2017Q4 2018Q1 FX rates Current 3M 12M

Aluminium $/lb 0.83 0.84 0.82 0.85 0.77 USDJPY 111.1 107.0 107.0

Copper $/lb 2.52 2.60 2.50 2.30 2.10 EURUSD 1.12 1.15 1.15

Lead $/lb 0.93 1.00 0.90 0.90 0.86 GPBUSD 1.28 1.28 1.28

Nickel $/lb 3.92 4.65 5.00 5.00 5.25 AUDUSD 0.76 0.72 0.70

Zinc $/lb 1.11 1.33 1.32 1.27 1.18 USDCHF 0.97 0.95 0.94

USDCAD 1.33 1.30 1.36

Iron Ore Fines (CFR) $/t 79.70 95.00 70.00 55.00 60.00

Hard Coking Coal $/t 230.00 170.00 150.00 130.00

LV PCI $/t 161.00 125.00 115.00 105.00

Thermal Coal $/t 61.80 80.00 75.00 75.00 68.00

Oil (brent) $/bbl 46.92 56.00 61.00 62.00 65.00

Oil (WTI) $/bbl 44.46 55.00 60.00 60.00 62.50

US Natural Gas $/mmbtu 3.06 3.25 3.75 3.50 3.75

Uranium $/lb 35.00 35.00 35.00 45.00

Gold $/oz 1,254 1,300 1,375 1,400 1,375

Silver $/oz 16.7 18.1 17.7 18.6 18.5

Platinum $/oz 920 1,500 1,600 1,600 1,700

Palladium $/oz 870 900 925 925 950

Source: Reuters, Credit Suisse estimates

-8

-6

-4

-2

0

2

4

6

8

10 Credit Suisse Risk Appetite Index

Global Risk appetite Panic level Euphoria level

19 J

un

e 2

017

Au

stra

lia a

nd

NZ

Firs

t Ed

ition

65

Weekly Market Calendar

Research Analysts

Jason Swinbourne

612 8205 4591 [email protected]

Monday, 19 June 2017 Tuesday, 20 June 2017 Wednesday, 21 June 2017 Thursday, 22 June 2017 Friday, 23 June 2017

Credit Suisse Events LendLease market briefing, international operations (Americas, Asia, Europe)

Site Tours Amcor USA analyst tour

Economics AUSTRALIA New Motor Vehicle Sales MoM (May) (Prev 0.30%) New Motor Vehicle Sales YoY (May) (Prev 0.10%) UNITED STATES Chicago Fed President Charles Evans Speaks at NYU (with Q&A) NEW ZEALAND Westpac Consumer Confidence (2Q) (Prev 111.9) Performance Services Index (May) (Prev 52.8) CHINA China May Property Prices


Results Sydney Airport May sales and revenue release, traffic results

Economics AUSTRALIA ANZ Roy Morgan Weekly Consumer Confidence Index (Jun-18) (Prev 112.9) House Price Index QoQ (1Q) (Mkt 2.70%, Prev 4.10%) House Price Index YoY (1Q) (Mkt 8.90%, Prev 7.70%) RBA June Rate Meeting Minutes NEW ZEALAND ANZ Consumer Confidence Index (Jun) (Prev 123.9) ANZ Consumer Confidence MoM (Jun) (Prev 1.80%) CHINA Conference Board China May Leading Economic Index


AGM Evolution Mining (EGM) Hilton Hotel, 2/488 George Street, Sydney, 10:00am

Economics AUSTRALIA Westpac Leading Index MoM (May) (Prev -0.12%) Skilled Vacancies MoM (May) (Prev 0.10%) UNITED STATES Existing Home Sales Level SAAR (May) (CS 5.50M, Mkt 5.55M, Prev 5.57M) Existing Home Sales MoM (May) (CS -1.30%, Mkt -0.40%, Prev -2.30%)


AGM CSR Northside Conference Centre, cnr Oxley Street and Pole Lane, Crows Nest, NSW, 11:00am

Ex Div (div¢@fkg% pay date) TIL 4.2661 0 30-Jun-17

Economics UNITED STATES Initial Jobless Claims (Week Ending June 17) (Prev 237K) Kansas City Fed Manufacturing Index (Jun) (Prev 8) NEW ZEALAND RBNZ Official Cash Rate (Jun-22) (Mkt 1.75%, Prev 1.75%) Net Migration SA (May) (Prev 5780) Credit Card Spending MoM (May) (Prev 0.90%) Credit Card Spending YoY (May) (Prev 6.40%)


Economics UNITED STATES New Home Sales Level SAAR/MoM% (May) (CS 590K / 3.7%, Mkt 598K / 5.0%, Prev 569K / -11.4%) Cleveland Fed President Loretta Mester Speaks

ASX code changes over the past week (PNO) PharmaNet Group to (CAI) Calidus Resources (HGG) Henderson Group PLC to (JHG) Janus Henderson Group PLC

Market estimates are preliminary and subject to change. Information correct as at 15 June 2017. NZ company comment and valuation provided by First NZ Capital. Source: ASX, Bloomberg, IRESS, Reuters and Credit Suisse estimates

19 June 2017


Companies Mentioned (Price as of 16-Jun-2017)

Air France-KLM (AIRF.PA, €10.97) Air New Zealand (AIR.NZ, NZ$3.19) ^ American Airlines Group Inc. (AAL.OQ, $49.11) BHP Billiton (BLT.L, 1160.0p) Cathay Pacific (0293.HK, HK$12.38) China Biologic Products, Inc. (CBPO.OQ, $109.02) China Southern (1055.HK, HK$6.29) China Southern (600029.SS, Rmb8.89) Delta Air Lines, Inc. (DAL.N, $51.56) Genesee & Wyoming, Inc. (GWR.N, $66.94) Glencore (GLEN.L, 283.05p) Hualan Biological Engineering Inc. (002007.SZ, Rmb35.71) IAG (ICAG.MC, €6.698) JetBlue Airways Corporation (JBLU.OQ, $23.03) Lufthansa (LHAG.F, €18.556) POSCO (005490.KS, W272,000) Schnitzer Steel (SCHN.OQ, $18.9) South 32 (S32.L, 156.75p, OUTPERFORM[V], TP 180.0p) Southwest Airlines Co. (LUV.N, $60.11) The a2 Milk Company Limited (ATM.NZ, NZ$3.82, OUTPERFORM[V], TP NZ$4.1) ^ ^ Denotes a First NZ Capital covered company

For details of Australian companies covered by Credit Suisse refer to the Top 100 and Emerging Companies earnings & dividends sheets.

Disclosure Appendix

Important Global Disclosures

The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views

expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her

compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total

revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage uni verse which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most att ractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including

an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24

months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or

valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

19 June 2017


Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 44% (65% banking clients) Neutral/Hold* 40% (61% banking clients) Underperform/Sell* 14% (53% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

For a history of recommendations for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to https://rave.credit-suisse.com/disclosures/view/report?i=42348&v=-50txlrtp0uzijzbtahf61rjee .

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Credit Suisse has entered into a strategic partnership with First NZ Capital ("FNZC"). Pursuant to this agreement, Credit Suisse makes available to

its clients certain research produced by FNZC. Credit Suisse is not responsible for the content of such research and provides such research for

informational purposes only.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important

disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research

analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the

NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a

research analyst account.

Important MSCI Disclosures

The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of

MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create and financial products,

including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI,

its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of

originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of

the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any

liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.

The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

https://rave.credit-suisse.com/disclosures/view/report?i=42348&v=-50txlrtp0uzijzbtahf61rjee

EQUITIES

Mark Malouf 612 8205 4708 Head of Equities

RESEARCH Paul Buys 612 8205 4538 Head of Research

Resources

Commodities Matthew Hope 612 8205 4669

Energy (Oil & Gas) Mark Samter 612 8205 4537 David Hewitt 65 6212 3064 Sam Webb 612 8205 4535 Christian Prendiville 612 8205 4012

Diversified Resources, Coal, Iron Ore, Nickel Sam Webb 612 8205 4535 Christian Prendiville 612 8205 4012

Copper, Gold, Steel Michael Slifirski 613 9280 1845 Nick Herbert, CFA 613 9280 1754

Industrials

Food & Beverage, Packaging, Agriculture, Casinos & Gaming Larry Gandler 613 9280 1855

Media & Telecoms Fraser McLeish 612 8205 4069 Lucas Goode 612 8205 4431

Retail, Chemicals Grant Saligari 613 9280 1720 Annabelle Diamond 613 9280 1837

Health Care Saul Hadassin 612 8205 4679 David Bailey 612 8205 4739

Utilities & Infrastructure Peter Wilson 612 8205 4107

Building Materials, Developers & Contractors Andrew Peros 612 8205 4013

Transport Paul Butler 612 8205 4309 Gretel Janu 612 8205 4028

email: [email protected]

Financials

Banks Jarrod Martin 612 8205 4334 James Ellis 612 8205 4531 Brendon Ferreira 612 8205 4072

Insurance & Diversified Financials Andrew Adams 612 8205 4106 James Ellis 612 8205 4531 James Cordukes 612 8205 4858 Kateryna Argyrou 612 8205 4874

Real Estate Ian Randall 612 8205 4580 Mikhail Mohl 612 8205 4413 Martin Patz 612 8205 4018

Macro

Investment Strategy Hasan Tevfik 612 8205 4284 Damien Boey 612 8205 4615 Peter Liu 612 8205 4071

ESG Sandra McCullagh 612 8205 4729 Zoe Whitton 612 8205 4613

Research Database Jason Swinbourne 612 8205 4591

Emerging Companies Research Paul Buys 612 8205 4538 Matthew Nicholas 612 8205 4210 Andrew Dodds 612 8205 4610 Specialist Sales Jonas Fitzgerald 612 8205 4326

CORPORATE ACCESS Cathy Kermond 612 8205 4488 Janice Evangelista 613 9280 1762

EQUITY CAPITAL MARKETS Ian Arnold 612 8205 4415 Head of Syndication

Credit Suisse HOLT®

Scott Chessum 613 9280 1662 Head of Australia

Peter Jabour 613 9280 1702

SALES AND TRADING

SYDNEY – Research Sales Mark Malouf 612 8205 4708 Head of Research Sales

John Fessey 612 8205 4417 Rowan Parchi 612 8205 4636 Michael van Elst 612 8205 4419 Sophie Robertson 612 8205 4249

Sales Trading Jason Cooper 612 8205 4364 Head of Sales Trading & Execution

James Hogan 612 8205 4043 Jim Bromley 612 8205 4715 David Robb 612 8205 4820

Facilitation John Manchee 612 8205 4479

Electronic & Portfolio Sales Andrew Bruce 612 8205 4474

Hedge Fund Sales & Trading Peter van Beek 852 2101 6270 Sujit Dey 612 8205 4256

Real Estate Specialist Sales Jason Cooper 612 8205 4364 Bhupen Master 612 8205 4792

MELBOURNE Research Sales

Chris Tolj 613 9280 1727 Sales Trading

John Ryan 613 9280 1644 Joe Zhang 613 9280 1691

UK/EUROPE Barnaby Hall 1 212 325 0655 Head of APAC Sales

Yvonne Voon 4420 7888 1663

USA Annie Zachara 1 212 325 9114 Head of APAC Sales

William Allen 1 212 325 9480 Amandae Baey 1 212 538 7188 Jonathan Chow 1 415 836 8686

ASIA Rowan Parchi 612 8205 4636 Head of Asian Sales

Tim Usasz 852 2101 7503

EXECUTION Paul Marosa 612 8205 4425 Head of DTR

Rohan Congues 612 8205 4728

PRIME SERVICES Jared Lewis 612 8205 4831 Head of Australia Prime Services

James Persson 612 8205 4938 Warren Goward 612 8205 4453 Nigel Watts 612 8205 4845

Research & Sales Responsibilities

This report is produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who-we-are This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates.The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk.

This report is issued and distributed in European Union (except Switzerland): by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Germany: Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). United States and Canada: Credit Suisse Securities (USA) LLC; Switzerland: Credit Suisse AG; Brazil: Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; Mexico: Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); Japan: by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau ( Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; Hong Kong: Credit Suisse (Hong Kong) Limited; Australia: Credit Suisse Equities (Australia) Limited; Thailand: Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok10500, Thailand, Tel. +66 2614 6000; Malaysia: Credit Suisse Securities (Malaysia) Sdn Bhd; Singapore: Credit Suisse AG, Singapore Branch; India: Credit Suisse Securities (India) Private Limited (CIN no.U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India as Research Analyst (registration no. INH 000001030) and as Stock Broker (registration no. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777; South Korea: Credit Suisse Securities (Europe) Limited, Seoul Branch; Taiwan: Credit Suisse AG Taipei Securities Branch; Indonesia: PT Credit Suisse Securities Indonesia; Philippines:Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Additional Regional Disclaimers Hong Kong: Credit Suisse (Hong Kong) Limited ("CSHK") is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an Australian financial services licence (AFSL) and is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (the Act) under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Act). Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Australia (to the extent services are offered in Australia): Credit Suisse Securities (Europe) Limited (“CSSEL”) and Credit Suisse International (“CSI”) are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority under UK laws, which differ from Australian Laws. CSSEL and CSI do not hold an Australian Financial Services Licence (“AFSL”) and are exempt from the requirement to hold an AFSL under the Corporations Act (Cth) 2001 (“Corporations Act”) under Class Order 03/1099 published by the Australian Securities and Investments Commission (“ASIC”), in respect of the financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act). This material is not for distribution to retail clients and is directed exclusively at Credit Suisse's professional clients and eligible counterparties as defined by the FCA, and wholesale clients as defined under section 761G of the Corporations Act. Credit Suisse (Hong Kong) Limited (“CSHK”) is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an AFSL and is exempt from the requirement to hold an AFSL under the Corporations Act under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act). Credit Suisse Securities (USA) LLC (CSSU) and Credit Suisse Asset Management LLC (CSAM LLC) are licensed and regulated by the Securities Exchange Commission of the United States under the laws of the United States, which differ from Australian laws. CSSU and CSAM LLC do not hold an AFSL and is exempt from the requirement to hold an AFSL under the Corporations Act under Class Order 03/1100 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act). Malaysia: Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. Singapore: This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore Branch to overseas investors (as defined under the Financial Advisers Regulations). Credit Suisse AG, Singapore Branch may distribute reports produced by its foreign entities or affiliates pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact Credit Suisse AG, Singapore Branch at +65-6212-2000 for matters arising from, or in connection with, this report. By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore Branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the “FAA”), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore Branch may provide to you. UAE: This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available to Professional Clients or Market Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United Arab Emirates. EU: This report has been produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-US customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. US customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the US. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials,management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2017 CREDIT SUISSE AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

https://www.credit-suisse.com/who-we-are

Documents

Australia & NZ First Edition 2017 06 19