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Singapore Company Focus

MIIF
Bloomberg: MIIF SP

Reuters: MIIF.SI

DBS Group Research . Equity

27 Feb 2012

BUY S$0.585 STI : 2,978.08


Price Target : 12-Month S$ 0.64 Reason for Report : Company update Potential Catalyst: Resolution of toll rate risk at HNE DBSV vs Consensus: Our DPS estimates are line with consensus Analyst Suvro SARKAR +65 6398 7973 suvro@dbsvickers.com

Risk/reward remains attractive


2H11 DPS of 2.75 Scts in line All key underlying assets achieved revenue growth in FY11; net dividend income for MIIF up 30% y-o-y Maintain BUY with TP of S$0.64; current dividend yield of 9.4% provides enough buffer against risk of toll rate cut at HNE
Decent organic growth at key assets. The fund generated net dividend income of S$48m in FY11, up 30% y-o-y owing to bigger stake in Taiwan Broadband Communications (TBC). MIIF declared an expected 2.75 Scts final DPS, taking total FY11 DPS to 5.5Scts. Underlying assets performance was satisfactory in FY11. Even Hua Nan Expressway (HNE) registered a surprise revenue growth of 1.3% despite the de-tolling of a competing expressway in Dec10. Revenue at Changshu Xinghua Port (CXP) grew by a strong 14%, on the back of continued strong growth in log volumes (up 52% y-o-y). TBC registered steady revenue growth of 3% on the back of stronger-than-expected growth in the digital TV segment (63% subscriber growth). This augurs well for higher investment income for MIIF in FY12. Going forward, the key risk is possible toll rate reduction at HNE Phase I, as the Guangdong government will be introducing uniform toll road standards. HNE Phase I toll rate may be cut by about 20% to be compliant with these new measures, which could be implemented by mid-2012. This could impact revenue by up to 15% over the next 2 years, and lead to one-off lower dividend income in FY13/14. But this should not come as a surprise. This well-known risk should be factored in the current share price. A worst-case impact from HNE toll rate cut could be a cut in FY12 DPU to 5.0Scts to smoothen out the effect. This still implies 8.6% yield. No change to our SOTP valuation of S$0.64, as we have already factored in downside at HNE (our valuation for HNE is 32% off management valuation). Maintain BUY for close to 20% total return potential. Share buyback activities will also continue to lend support to share price.
At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Abu Dhabi Invest (%) Macquarie Bank (%) Capital Rsch Mgm (%) Free Float (%) Avg. Daily Vol.(000) 1,189 696 / 554 10.3 8.6 6.5 74.6 2,090

Price Relative
S$ 1 .0 0 .9 0 .8 0 .7 0 .6 0 .5 0 .4 0 .3 0 .2 F e b -0 8 F e b -0 9 F e b -1 0 F e b -1 1 R e la tiv e In d e x 218 198 178 158 138 118 98 78 58 38 F e b -1 2

M IIF (L H S )

R e la t iv e S T I IN D E X (R H S )

Forecasts and Valuation


FY Dec (S$ m) 2010A 2011A 2012F 2013F

Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth (%) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus DPS (S cts): Other Broker Recs:

45 37 33 33 37 2.5 2.9 (41) (37) 2.5 3.0 80.2 23.3 20.4 40.0 10.3 5.1 0.7 CASH 3.1

59 48 48 48 48 3.8 3.8 52 33 3.8 5.5 76.6 15.4 15.3 11.3 14.9 9.4 0.8 CASH 4.8 5.5 B: 4

73 61 61 61 61 5.2 5.2 37 36 5.2 5.5 73.6 11.2 11.2 nm 11.3 9.4 0.8 CASH 6.7 5.5 S: 0

72 60 60 60 60 5.3 5.3 1 1 5.3 5.5 68.9 11.1 11.1 nm 11.1 9.4 0.8 CASH 7.3 5.5 H: 1

ICB Industry : Financials ICB Sector: Equity Investment Instruments Principal Business: MIIF is an Asia-focused owner and operator of private infrastructure businesses

Source of all data: Company, DBS Vickers, Bloomberg

Note: The revenue and earnings shown above are on an adjusted basis and represent the earnings of MIIF from its key investments that underpin the dividend flow to shareholders, and are not in accordance with accounting standards.

www.dbsvickers.com Refer to important disclosures at the end of this report ed: JS / sa: YM

Company Focus MIIF

Results Summary and Comments


FY Dec (S$m) Revenue Investment Income Interest Income Net foreign exchange gain Net gain on financial assets Other income Other Operating Income Base Management Fees Performance Fees Directors' fees Finance Costs Lending fees Others Total Operating Expenses Net Adjusted Income (Pre-Ex) Transaction Costs Net Adjusted Income Distribution Summary TBC dividends HNE dividends CXP dividends Miaoli dividends Net expenses Net cash inflow Net holding company cash Dividends declared DPU (Scts) FY10 44.6 42.2 1.6 0.8 0.0 0.0 0.0 (4.5) (0.4) (0.3) (2.2) (7.4) 37.2 (4.7) 32.5 13.1 21.3 4.6 0.0 (6.5) 32.5 485.4 38.9 3.0 FY11 59.2 57.7 0.8 0.7 0.0 0.0 0.0 (7.9) (0.4) (1.1) (1.6) (11.0) 48.2 (0.3) 47.9 29.9 22.5 5.3 0.0 (9.8) 47.9 116.2 69.4 5.5 78% 83% YoY Chg 33% 37% -52% -4% Remarks Higher stake in TBC Annual interest rate of 0.4% on cash Realisation of some distribution hedges

nm 75% ! -8% 308% -27% 49% 30% -94% 47% 128% 6% 15% nm 51% 47% Increased market cap in FY11 and decrease in cash balance led to higher net investment value

Includes credit facility renewal fee of S$1m Higher due diligence activity in FY10

Higher transaction costs in FY10 related to disposal of interest in Arqiva

Higher stake in TBC (47.5% vs. 20% in FY10) Organic growth in asset Organic growth in asset Higher management fees

Source: Company, DBS Vickers Note: The revenue and earnings shown above are on an adjusted basis and represent the earnings of MIIF from its key investments that underpin the dividend flow to shareholders, and are not in accordance with accounting standards.

Page 2

Company Focus MIIF

Snapshot of asset diversification at MIIF as of end-FY11


Geographic al Spread - Dec 2011 Cash 11% Taiwan 53% CXP 11% Port f olio Composit ion - Dec 2011 Cash 11% TBC 53%

China 36% HNE 25%

Source: Company, DBS Vickers

CXP Cargo Throughput Trends


Cargo Volumes Steel (tons) Logs (tons) Other non-steel (tons) Paper & Pulp (tons) Total general cargo (tons) Growth Container (TEU) Growth 87,763 07 3,028,095 692,291 1,834,540 5,554,926 08 2,600,770 788,161 1,893,519 5,282,450 -4.9% 95,522 8.8% 09 2,315,743 831,219 378,155 2,094,048 5,619,165 6.4% 81,893 -14.3% 10 2,217,018 1,297,735 647,302 2,138,717 6,300,772 12.1% 90,163 10.1% 11 2,333,917 1,977,178 552,027 2,140,347 7,003,469 11.2% 82,493 -8.5%

Source: Company, DBS Vickers

CXP Revenue and EBITDA Trends


FY Dec (m) Revenue (RMB m) Revenue growth EBITDA (RMB m) EBITDA Margin Distributions to MIIF (S$) 07 214.7 10% 120.8 56% 5.7 08 209.6 -2% 84.0 40% 5.1 09 217.2 4% 119.1 55% 1.5 10 263.6 21% 127.4 48% 4.6 11 301.1 14% 152.5 51% 5.3

Source: Company, DBS Vickers

Page 3

Company Focus MIIF

HNE - Traffic Volume Trends


Traffic ('000) Passenger Vehicles Minibus/ Light Truck Medium Bus/ Truck Large Bus/ Large Truck Heavy Duty Truck/ Trailer Total Vehicles Growth 07 27,827 2,973 7,359 628 1,613 40,400 08 30,110 2,490 6,370 599 1,304 40,873 1.2% 09 34,936 2,427 6,864 618 1,485 46,330 13.4% 10 38,550 2,414 7,086 654 1,828 50,532 9.1% 11 38,646 1,854 5,938 530 1,814 48,782 -3.5%

Source: Company, DBS Vickers

HNE - Revenue and EBITDA Trends


FY Dec (m) Revenue (RMB m) Revenue growth EBITDA (RMB m) EBITDA Margin Distributions to MIIF (S$) 07 459.2 08 446.7 -2.7% 353.8 79% 13.2 09 484.4 8.4% 393.4 81% 14.2 10 523.4 8.1% 428.6 82% 21.3 11 530.1 1.3% 425.2 80% 22.5

381.6 83%

Source: Company, DBS Vickers

TBC - Subscriber Number Trends


Subscribers Basic Cable TV Basic Digital Penetration rate Broadband Penetration rate Subscriber Growth Basic Cable TV Basic Digital Broadband 07 688,860 19,373 2.8% 111,177 16.1% 08 712,895 18,958 2.7% 128,605 18.0% 09 724,628 25,012 3.5% 140,227 19.4% 10 738,072 55,619 7.5% 152,369 20.6% 11 748,759 90,632 12.1% 164,625 22.0%

3.6% 21.0% 19.9%

3.5% -2.1% 15.7%

1.6% 31.9% 9.0%

1.9% 122.4% 8.7%

1.4% 63.0% 8.0%

Source: Company, DBS Vickers

TBC Revenue and EBITDA forecasts


FY Dec (m) Revenue (NT$ m) Revenue growth EBITDA (NT$ m) EBITDA Margin Distributions to MIIF (S$)* 07 6,157.3 08 6,408.4 4.1% 3902.0 60.9% 18.2 09 6,646.1 3.7% 4078.1 61.4% 16.6 10 6,909.6 4.0% 4287.2 62.0% 13.1 11 7,127.7 3.2% 4543.1 63.7% 29.9

3672.6 59.6%

Source: Company, DBS Vickers Note: Ownership change for MIIF in 2011-12 from 20% stake previously to current 47.5% stake

Page 4

Company Focus MIIF

Details of share buy backs in FY11


Date Shares Purchased (m) Value (S$m) Share cap Share cap after Market volume Buybacks as a % of Per share (S$) before purchase purchase (m) market volume

1Q11 2Q11 3Q11 4Q11 FY11

8.6 21.9 20.7 49.9 101.1

5.1 13.0 11.4 26.1 55.6

0.60 0.59 0.55 0.52 0.55

1,297.8 1,289.2 1,267.3 1,246.6 1,297.8

1,289.2 1,267.3 1,246.6 1,196.7 1,196.7

263.5 146.4 162.5 146.3 718.7

3% 15% 13% 34% 14%

Since last mandate Maximum allowed till next AGM

92.1

50.2

0.55

1,288.8

1,196.7

444.6

21%

128.9

Source: Company, DBS Vickers

MIIFs aggregate and asset level gearing ratios (debt/ asset)


Equity TBC HNE CXP Miaoli Total Corporate level cash Total (incl. Cash) 854.5 508.8 244.2 101.5 0.0 854.5 Net Debt 472.7 412.5 25.2 65.3 975.7 (110.0) 865.7 0.50x Net Gearing 0.48x 0.63x 0.20x 1.00x 0.53x

Source: Company, DBS Vickers estimates

Page 5

Company Focus MIIF

Sum-of-the-parts Valuation for MIIF


Attributable to MIIF CXP HNE TBC Miaoli Management Fees Holding company cash Total No of shares (m) end FY DCF Valuation (S$m) 92.4 166.2 482.7 0.0 (86.1) 116.2 771.4 Per share (S$) 0.08 0.14 0.40 0.00 -0.07 0.10 0.64 % of Valuation 12% 22% 63% 0% -11% 15% Remarks WACC 12% WACC 10% WACC 9%, terminal growth 1%

Estimated future value of annual fee outflows As of end FY11

1196.7

MIIF Peer Valuation Summary


Mkt Cap (US$m) 6706 3024 447 DPU FY11 0.06 0.08 0.03 DPU FY12 0.06 0.08 0.03 Yield FY11 7.3% 6.1% 8.6% 7.6% 0.585 553 0.06 0.06 9.4% Yield FY12 7.8% 6.1% 8.9% 7.7% 9.4% DPU Growth 6.4% 1.3% 3.1% 1.5% 0.0% EV/EBITDA FY11 12.9 10.6 14.8 12.7 14.9 EV/EBITDA FY12 12.2 9.9 15.3 12.6 11.3

Company HPH Trust SP Ausnet CitySpring Average MIIF

Price 0.77 1.32 0.37

Source: Bloomberg, DBS Vickers

MIIF Dividend Yield Trading Band currently trading below mean valuations
1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 5% 7% 9% 11% 13%

Source: Bloomberg, DBS Vickers

Page 6

Company Focus MIIF


Segmental Breakdown of Investment Income
FY Dec 2009A 2010A 2011F 2012F 2013F

Revenues (S$ m) CXP HNE TBC Miaoli Others Total Income Statement (S$ m)
FY Dec

2 14 17 0 31 64

5 21 13 0 6 45

5 23 30 0 1 59

6 20 45 0 1 73

6 18 46 0 1 72

Income from HNE impacted by toll rate cut Full year impact of higher stake

2009A

2010A

2011F

2012F

2013F

Investment Income Fund Expenses Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Adjusted Income Net Adj Inc Pre Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins & Ratio Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%)

64 (7) 56 0 0 0 (3) 53 0 0 0 53 56 56 (52.8) (51.4) (51.4) (53.0)

45 (7) 37 0 0 0 (5) 33 0 0 0 33 37 37 (30.1) (33.9) (33.9) (39.0)

59 (11) 48 0 0 0 0 48 0 0 0 48 48 48 32.8 29.6 29.6 47.4

73 (12) 61 0 0 0 0 61 0 0 0 61 61 61 23.4 26.6 26.6 27.4

72 (12) 60 0 0 0 0 60 0 0 0 60 60 60 (1.0) (1.0) (1.0) (1.0)

Margins Trend

89.0% 84.0% 79.0% 74.0% 69.0% 2009A 2010A 2011F 2012F 2013F Operating Margin % Net Income Margin %

FY10 income was affected by divestment of assets

88.3 83.6 4.6 4.1 4.4 70.2

83.4 72.9 3.1 2.7 3.2 119.7

81.4 81.0 4.8 4.3 4.3 144.7

83.6 83.6 6.7 5.9 6.0 105.6

83.5 83.5 7.3 6.4 6.5 104.4

Source: Company, DBS Vickers Note: The revenue and earnings shown above are on an adjusted basis and represent the earnings of MIIF from its key investments that underpin the dividend flow to shareholders, and are not in accordance with accounting standards.

Page 7

Company Focus MIIF


Quarterly / Interim Income Statement (S$ m)
FY Dec 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011

Revenue Trend
60 50 40 30 20 10 0 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 9000% 8000%

Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

1 0 1 (1) (1) 0 0 0 0 (1) 0 0 (1) (1) (1)

10 0 10 (2) 8 0 0 0 0 7 0 0 7 8 8

1 0 1 (4) (3) 0 0 0 0 (3) 0 0 (3) (3) (3)

48 0 48 (2) 46 0 0 0 0 46 0 0 46 46 46

1 0 1 (3) (2) 0 0 0 0 (2) 0 0 (2) (2) (2)

7000% 6000% 5000% 4000% 3000% 2000% 1000% 0% -1000%

Revenue

Revenue Growth % (QoQ)

Most of the dividend income is received in 3Q (97.7) (101.9) (101.9) (101.9) 100.0 (80.4) (80.4) 1,139.3 (1,278.5) (1,278.5) (1,261.2) 100.0 76.4 75.3 (94.2) (141.0) (141.0) (143.9) 100.0 (538.7) (568.1) 8,213.4 (1,566.9) (1,566.9) (1,491.1) 100.0 95.1 95.1 (98.3) (103.9) (103.9) (103.9) 100.0 (212.8) (212.8)

Source: Company, DBS Vickers Note: The revenue and earnings shown above are on an adjusted basis and represent the earnings of MIIF from its key investments that underpin the dividend flow to shareholders, and are not in accordance with accounting standards.

Page 8

Company Focus MIIF


Balance Sheet (S$ m)
FY Dec 2009A 2010A 2011F 2012F 2013F

Asset Breakdown (2011) 930 0 94 176 0 3 0 1,202 6 17 80 5 1,066 29 1,202 (15) 90 37.7 N/A N/A 0.0 7.7 7.7 CASH (0.1) (195.0) NA 581 0 89 486 0 13 0 1,170 6 12 74 6 1,041 31 1,170 1 406 65.6 N/A N/A 0.0 27.3 27.3 CASH (0.4) (417.5) NA 880 0 81 116 0 4 1 1,081 26 12 45 5 965 27 1,081 (7) 45 54.5 N/A N/A 0.1 3.2 3.2 CASH 0.0 448.9 NA 807 0 75 91 0 4 1 977 26 12 45 5 862 27 977 (7) 21 21.1 N/A N/A 0.1 2.6 2.5 CASH 0.0 0.0 NA 734 0 70 97 0 4 1 905 26 12 45 5 790 27 905 (7) 26 21.3 N/A N/A 0.1 2.7 2.7 CASH 0.0 0.0 NA
Bank, Cash and Liquid Assets 10.5%

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholders Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

Associates'/J Vs 0.0%

Inventory 0.0% Debtors 1.4%

Net Fixed Assets 88.1%

About S$320m cash deployed to raise stake in TBC from 20% to 47.5%

Cash Flow Statement (S$ m)


FY Dec 2009A 2010A 2011F 2012F 2013F

Capital Expenditure
400

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)

(117) 6 (1) 0 (1) 170 57 167 0 0 0 0 167 (58) (25) 0 0 (84) 0 140 4.6 18.0

33 6 (1) 0 (16) (3) 19 335 0 0 0 0 335 (39) (6) 0 0 (45) 0 310 2.7 27.3

46 6 0 0 9 5 65 (317) 0 0 0 0 (317) (54) (8) (56) 0 (117) 0 (369) 4.5 (20.0)

(9) 6 0 0 0 0 (4) 0 0 0 73 0 73 (64) 0 (30) 0 (94) 0 (25) (0.3) (0.3)

(9) 6 0 0 0 0 (3) 0 0 0 72 0 72 (63) 0 0 0 (63) 0 6 (0.3) (0.3)

350 300 250 200 150 100 50 0 2009A 2010A 2011F 2012F 2013F

Capital Expenditure (-)

Share buyback programme in place

Source: Company, DBS Vickers

Page 9

Company Focus MIIF

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends


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ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 27 Feb 2012, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (interest includes direct or indirect ownership of securities, directorships and trustee positions).

Page 10

Company Focus MIIF

COMPANY-SPECIFIC / REGULATORY DISCLOSURES DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned as 1. of 23 Feb 2012 2. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered brokerdealer, may beneficially own a total of 1% or more of any class of common equity securities of the company mentioned as of 27 Feb 2012. Compensation for investment banking services: i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months receive or intends to seek compensation for investment banking services from Hutchison Port Holdings Trust. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

3.

ii.

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