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January 31, 2013

AUSTRALIA

TRANSPORT

SHORT TERM (3 MTH)

LONG TERM

Conviction|

Transport playbook for 2013


Notes from the Field

The Transport sector has benefitted from the recent rally in the equity markets, with only VAH underperforming the S&P/ASX 200 over the previous month. In our view, the rally has not been predicated by improvement in underlying fundamentals across the sector, and we therefore see risks through reporting season as earnings and outlook commentary may fail to meet market expectations.
Figure 1: Transport sector summary
Current share Upside to price target price $1.50 $4.84 $4.00 $1.77 $0.43 $8.13 $5.27 21% 16% 9% 2% 2% -5% -7%
SOURCE: CIMB

Mark Williams
T +61 2 8259 6921 E mark.williams@cimb.com

Michael Newbold, CFA


T +61 2 9694 6066 E michael.newbold@cimb.com

Company Qantas Asciano Aurizon Qube Brambles Toll Holdings

Ticker QAN AIO AZJ QUB BXB TOL

Recommendation Prev Outperform Outperform Outperform Outperform Neutral Neutral Neutral New Outperform Outperform Outperform Neutral Neutral Underperform Underperform

Target Price Prev $1.46 $5.15 $4.09 $1.75 $0.44 $6.70 $4.61 New $1.81 $5.61 $4.34 $1.81 $0.44 $7.75 $4.92

Killian Murphy
T +61 2 9694 6098 E killian.murphy@cimb.com

The growth of means of transport has created a world market and an opportunity for division of labor embracing all the developed and most of the undeveloped states.
- Christian Lous Lange (Nobel Laureate)

Virgin Australia VAH

We have adjusted our recommendations to reflect CIMB Australias new recommendation structure based on expected relative performance compared with other stocks in the sector. We maintain QAN, AIO and AZJ as our key picks in the transport sector over the next 12 months, but we downgrade BXB and TOL to Underperform due to valuation concerns.

exposed to more recreational spend (which has performed better to date).

Sticking with rail


Of the sub-sectors in the Australian transport space, we prefer the rail/ports sector (AIO/AZJ). In our view the tangible improvements in coal exports justify the share price movements and we have grown more confident in our forecasts. We are broadly neutral on the airlines (QAN, VAH), although we believe QAN has more upside, with momentum building in 2013.

Cyclical recovery in 2013?


Highlighted Companies Qantas (QAN.AX)
QAN is facing long-term structural challenges, but we believe market expectations remain low enough that a more positive year in 2013 will be reflected in an ongoing share price re-rating. QAN is still cheap, in our view, on 0.6x P/B and 9x FY14 P/E.

Asciano (AIO.AX)
We believe there is significant valuation support for AIO as earnings continue to grow at mid-double-digit rates. In our view, AIOs P/E de-rating over the past three years has now passed and the share price will reflect earnings growth.

Aurizon (AZJ.AX)
AZJ may not be cheap on FY14F EV/EBITDA of 7.9x and P/E of 16.8x, but coal export markets are improving and AZJ retains the capacity for further capital management.

Our house view assumes the Australian economy will see a pick-up in consumer spending over 2013 as factors such as low unemployment, income growth, re-balanced household balance sheets and additional interest rate cuts create a more conducive spending environment. This would naturally benefit the transport sector, but indications early in the year suggest that not much has changed yet. We believe the impact on the sector will depend on where discretionary dollars are spent, with TOL, BXB, AIO and QUB leveraged to product spending, while QAN and VAH are

Logistics to underperform
We have downgraded our recommendations for the logistics operators (BXB, TOL and QUB) as we believe valuations have become too stretched relative to the underlying fundamentals of the economy, which we regard as still quite soft. A cyclical recovery would justify the re-ratings, but at this stage we are seeing little change in underlying fundamentals and we remain cautious on the potential for a meaningful recovery to take shape.

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

TRANSPORT
January 31, 2013

KEY CHARTS Transport sector has been outperforming the market recently as investors have gone in search of risk
TOL has yielded the greatest outperformance, beating the market by almost 10% over the past three months. QUB, BXB and QAN have also outperformed, while AIO and AZJ have largely moved with the market.

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Qantas Toll

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Asciano ASX 200

We have seen little fundamental improvement in operating conditions yet


As a proxy to volume growth in the transport industry, container port volume growth is stuck at 2-3% and the outlook is for growth to remain around those levels.

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Coal exports have been strong, though


Our preferences for AIO and AZJ stem from tangible improvements we can see in the coal export markets. December was a record month for coal exports and although Queensland has been hit by flooding from Cyclone Oswald in January, we dont believe the effects will be much more severe than those of an average wet season. We are therefore becoming more confident in our haulage-volume forecasts for AIO and AZJ.
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Will the consumer return in 2013?


A macro recovery would be positive for the transport sector given the operating leverage inherent in the companies. The airlines (QAN/VAH) would benefit the most from a 1% improvement in the top line.
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Increase in EBIT due to a 1% revenue increase

SOURCES: CIMB FORECASTS, COMPANY REPORTS

TRANSPORT
January 31, 2013

1. KEY TRANSPORT PICKS FOR 2013 1.1 Realigning our recommendation structure
We have realigned our recommendations across the sector to conform to the CIMB Australia recommendation structure, being a relative call against the other stocks that we cover in the sector. An outperform recommendation is thus a stock that we believe will outperform the rest of the sector over the next 12 months. We therefore end up with an even spread of recommendations across the sector. Given the disparate nature of companies in the Transport sector, we also try to maintain a preference within a particular sub-sector eg, rail/ports (AIO, AZJ), transport/logistics (BXB, TOL, QUB) and airlines (QAN, VAH).

1.2 AIO and QAN remain our key picks


We maintain AIO and QAN as our key picks in the sector, with more than 15% upside expected in each stock over the next 12 months. We also maintain an Outperform recommendation on AZJ, but we believe its potential upside is limited to less than 10% as we dont see the same magnitude of fundamental valuation upside as we do for QAN and AIO. We have downgraded the stocks in the logistics sub-sector (QUB from Outperform to Neutral; BXB and TOL from Neutral to Underperform) as we dont believe the underlying fundamentals justify the recent share price movements in each of the stocks. A cyclical recovery would benefit each of these names, but anecdotal feedback suggests operating conditions have not changed sufficiently at this stage to indicate improvement is coming through. We therefore regard these stocks as possessing greater earnings risk than others in the sector given the increasing expectations around those names. Across the sub-sectors, we rate rail/ports our top pick in 2013 as we believe underlying fundamentals are improving with coal export volumes increasing. As a result we maintain an Outperform recommendation on both AIO and AZJ. We are neutral on airlines given the over-capacity still in the system, although we believe further upside is likely in QAN as earnings momentum builds in 2013. The transport/logistics sub-sector (BXB, TOL, QUB) should fundamentally benefit from a consumer-spending-driven macro recovery, although we believe the share prices are already factoring in this improvement and are therefore at risk if little or no fundamental improvement takes place (which we believe is currently the case).
Figure 2: Transport sector summary
Current share Upside to price target price $1.51 $4.77 $4.06 $1.78 $0.43 $8.17 $5.18 20% 18% 7% 2% 2% -5% -5%
SOURCES: CIMB

Company Qantas Asciano Aurizon Qube Brambles Toll Holdings

Ticker QAN AIO AZJ QUB BXB TOL

Recommendation Prev Outperform Outperform Outperform Outperform Neutral Neutral Neutral New Outperform Outperform Outperform Neutral Neutral Underperform Underperform

Target Price Prev $1.46 $5.15 $4.09 $1.75 $0.44 $6.70 $4.61 New $1.81 $5.61 $4.34 $1.81 $0.44 $7.75 $4.92

Virgin Australia VAH

1.3 Subsector rail/ports


AIO Outperform; A$5.61 target price AZJ Outperform; A$4.34 target price With coal export volumes strengthening at the end of 2012 and into 2013 (albeit with a recent blip from Cyclone Oswald), we think the outlook for the coal rail haulage operators (AIO and AZJ) remains positive for 2013.

TRANSPORT
January 31, 2013

While 2012 saw disruption in the coal export markets from softer demand of metallurgical coal and supply issues in thermal coal markets, conditions improved towards the end of the year and this has continued into the start of 2013. Queensland finished the year with a monthly exports record of 18Mt in December (14% growth on pcp), led by record exports from Dalrymple Bay CT, while the Hunter Valley produced its own record of 13Mt (16% growth). On current trends, Queensland coal exports are on track to achieve our FY13 forecast of 173Mt (89Mt 1H13), while Hunter Valley exports are tracking ahead of our 139Mt forecast (71Mt 1H13) and could reach 145Mt if current growth is maintained. Much will depend on the remainder of the wet season (January to March), but to date we dont think the impact will be any g reater than in an average year. The effects of Cyclone Oswald will have some impact on exports from Queenslands Blackwater and Moura systems, but we dont think it will be material in the context of annual volumes (1-2%).
Figure 3: Annualised coal export rate
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Figure 4: Coal exports 12 months rolling


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SOURCE: PORT CORPORATIONS

SOURCE: PORT CORPORATIONS

In the container ports industry, the outlook for 2013 appears subdued, with most of the shipping lines we talk to suggesting they expect growth to remain around similar levels for the year. Typically container volumes grow at 2.0-2.5x GDP, suggesting growth should pick up to 5-6% in FY14. Despite this, we expect AIO to deliver EBIT improvement in the Terminals & Logistics division of 5% in FY13 and 8% in FY14 as cost efficiencies drive margin expansion. Hutchison will also begin to service volumes this year, although it appears less likely that operations will commence in Sydney until towards the end of 2013. We therefore think there is marginal upside risk to AIOs earnings in FY14.

1.4 Subsector transport/logistics


QUB Neutral; A$1.81 target price BXB Underperform; A$7.75 target price TOL Underperform; A$4.92 target price A cyclical recovery is clearly positive for transport/logistics operators, but our concern is that we have seen little fundamental improvement in operating conditions early in 2013 to justify the upwards movement in their share prices. Retailers reported a patchy Christmas trading period, while transport operators we have talked to have reported little underlying volume growth. The brightest positive we can see at the moment is the low inventory levels being reported by retailers, which could leave them scrambling for more products if consumer spending does indeed pick up from current levels. At this point we believe the market is re-rating stocks on the assumption that a cyclical recovery will occur and provide an earnings boost to these companies. We are concerned that this expectation will not be met in the short term and may also disappoint somewhat into next year. Given this disparity between
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TRANSPORT
January 31, 2013

share price movements and fundamentals, we see disappointment risk on the horizon so we have downgraded our recommendations.

1.5 Subsector airlines


QAN Outperform; A$1.81 target price VAH Neutral; A$0.44 target price The airlines did it tough in 2012, with a significant amount of capacity entering the domestic market. 1H13 earnings will suffer as a result, with yields declining relative to 1H12. However, we see 2013 as a better year in this regard as we see less incremental capacity coming into the market now that Tiger and VAH have largely completed their network capacity increases. We think it will be a more rational year in that regard as all domestic airlines work to improve profitability. There will still be a glut of capacity in the system for the first six months of the year, but we see demand growing into that capacity and yields strengthening as a result. While the capacity issue appears to be settling down, we expect competitive tensions to remain high as VAH and QAN continue to compete aggressively for higher-yielding corporate travellers. We expect VAH to continue picking up share from its low base, although we think the gains will likely moderate as it becomes incrementally harder to shift customers away from QAN. We also expect QAN to keep the pressure on VAH by using Jetstar to compete aggressively for the leisure market, which still contributes 80% of VAHs revenue base. Our preference in the airlines sub-sector for QAN stems from the valuation upside we still see in the stock (despite a 50% rise in the share price over the past six months), as it gains traction on the turnaround of its international business, benefits from improving dynamics in the domestic market and leverages off the growth of Jetstar into the Asian region. We also think the news cycle is more likely to be incrementally positive for QAN this year, with the Emirates alliance appearing to be moving towards final approval. If a cyclical recovery does begin to take shape, we think investors will continue to flock towards the stock in search of beta, particularly with the share price continuing to trade well below book value (0.6x). On the other hand, while we believe VAH is in a structurally better place than QAN over the medium term, we think expectations are fairly priced into the stock and, absent a material improvement in the macro economy, we think is likely to trade around current levels.

2. CYCLICAL RECOVERY TO BENEFIT THE SECTOR? 2.1 Macro outlook


US Elongated recovery continues Data from the US, coupled with anecdotal evidence, suggests the real economy in the US is continuing along its slow, but steady recovery. Housing data continues to exhibit exceptional growth (albeit from a very low base), with the Case Shiller Index showing house prices have risen 5% in the past 12 months. Auto sales have also shown strong growth, with the latest data for November indicating a run rate of 14.5m units on an SAAR basis, an increase of 7.5% compared to 2011. Not only is auto demand a strong indicator that the consumer is willing to spend but also, and more importantly, that he has access to credit. Forward-looking indicators are also moving in a positive direction, notably housing starts and the NAHB housing sentiment index, with the latter sitting at 47 points, its highest level since April 2006. Consumer confidence is also improving, as monetary-policy initiatives take hold.

TRANSPORT
January 31, 2013

Figure 5: US new-car sales show consumer sentiment is improving


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Figure 6: US housing starts continuing to recover

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SOURCE: US CENSUS BUREAU

SOURCE: NAHB

Europe still in for another challenging year Europe has limited options other than to pursue its policies of national austerity and household deleveraging, in our view. While the precise structure of the single-currency union going forward remains uncertain, bond yields for the periphery have retraced considerably, partly due to national policy initiatives, but primarily driven by ECB President Draghis comments in July that the institution would do whatever it takes to maintain the integrity of the euro. We expect Europe to report yet another year of slightly declining growth. The political arena seems the most likely candidate for downside risk. Italian elections in late February and German federal elections in September/October will be closely scrutinised to assess taxpayers appetite for continued austerity and support of the Eurozone. Australia consumers to come to the party? As mining investment rolls off from the second half of the year, domestic sectors such as housing and consumer spending will be relied on to pick up the slack created by the investment downturn. To date most of the RBAs stimulus measures have been used to pay down debt, so some growth has been lost. Softer domestic data prompted rate cuts in October and December, which, coupled with improving Chinese growth, led to a timely boost in market sentiment. Our Economics team anticipates further interest-rate cuts in 1QCY13 and 2QCY13, to 2.5%, on the back of further soft domestic data in 4QCY12. This level of easing should be sufficient to drive consumer activity, resulting in our economists forecasting a 2.9% increase in consumer spending in 2013 although, given the positive monetary policy outlook, risks are skewed to the upside.

2.2 Stocks to benefit the most


Given the different exposures transport companies have, it is important to consider which companies would benefit most from macro recoveries in each of the major regions. An Australian domestic recovery would be beneficial to most companies in the sector, although it would have only a small impact on BXB given its minor percentage of earnings generated from Australia. If the recovery was purely consumer driven, then it would also have little impact on AZJ given its business is predominantly focused on bulk commodities. Its intermodal business would receive a benefit, but it has not been an earnings contributor to the group previously and would likely be only marginally profitable, in our view.

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TRANSPORT
January 31, 2013

The impact on the remainder of the companies (QAN, VAH, TOL, QUB and AIO) would depend on the nature of the recovery. To date, consumers have been more reluctant to spend on physical products, preferring recreational activities or services instead (eg, holidays, cafes etc). If this trend continued, we would expect QAN and VAH to be the prime beneficiaries. However, if there is a shift back towards spending on products then TOL, AIO and QUB would be the major beneficiaries. Inventory levels appear in the retail supply chain, providing a potential boost to transport/logistics providers if a replenishment is required. A more sustained improvement in the key global economies (the US, Europe) would be most beneficial for BXB given its significant earnings contributions from those regions, but it appears unlikely that Europe will register much improvement in 2013. At best we think the region will not deteriorate any further. Signs of life in the US economy are encouraging for BXB, although we continue to caution that underlying volume growth appears to remain somewhat subdued. However, as it is one of the few listed Australian stocks with significant US earnings exposure, continued improvement and optimism in the US economy has the potential to provide ongoing support to BXBs share price.

2.3 Earnings sensitivities


With a cyclical recovery a potential theme in 2013, we have assessed the earnings sensitivity of the transport stocks to an improvement in top-line growth. The transport sector is positively leveraged to a cyclical improvement given the (typically) asset-intensive nature and high-fixed-cost bases of the companies involved. Underlying growth typically runs at 2.0-2.5x GDP. A sensitivity analysis of the companies in the sector indicates the airlines (QAN and VAH) would see the greatest earnings leverage to a 1% increase in top-line revenue. TOL exhibits high leverage due to its low-margin earnings base, but we dont think the leverage in reality is quite as strong as the estimates below suggest. In our view, the variable-cost nature of sub-contractor use by TOL would likely erode some of the margin benefits as TOL scales up to handle more volumes.
Figure 7: Transport sector sensitivity to a 1% revenue increase, FY13F
AIO Revenue Sensitivity Revenue increase EBITDA % fixed costs EBITDA - after EBITDA increase EBIT % fixed costs EBIT - after EBIT increase PBT PBT - after PBT increase 3,792 1.0% 37.9 1,042 62.0% 1,070 2.6% 695 66.3% 723 4.0% 475 503 5.8% AZJ 4,044 1.0% 40.4 1,325 61.8% 1,355 2.3% 807 67.5% 837 3.7% 707 737 4.2% BXB 5,871 1.0% 58.7 1,643 48.4% 1,680 2.2% 1,059 55.1% 1,096 3.5% 923 960 4.0% TOL 8,811 1.0% 88.1 700 40.8% 740 5.7% 417 42.7% 457 9.6% 384 424 10.4% QUB 1,081 1.0% 10.8 170 53.9% 177 3.9% 124 53.9% 130 5.2% 91 97 7.1% QAN 16,139 1.0% 161.4 1,913 58.4% 2,015 5.3% 428 62.0% 530 23.8% 234 336 43.4% VAH 4,295 1.0% 42.9 403 52.6% 428 6.1% 152 55.8% 177 16.2% 106 131 23.2%

SOURCE: CIMB FORECASTS

TRANSPORT
January 31, 2013

3. COMPANY 1H PREVIEWS 3.1 Asciano Outperform recommendation


We maintain our Outperform recommendation on AIO as we continue to believe that the company is fundamentally undervalued at current levels. With forecast EPS growth of 16% pa through FY15F, we think the stock is a standout in the Australian transport sector given it is trading on a forward P/E multiple (12 months) of only 12.8x, representing a 5% discount to the broader market (S&P/ASX 200) and a 15% discount to the S&P/ASX 200 Industrials index. For a company with strong, tangible earnings growth (driven largely by the growth of the coal business), we believe this is an attractive investment opportunity.
Figure 8: AIO P/E multiple 12 months forward
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Figure 9: AIO P/E premium to S&P/ASX 200


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SOURCES: DATASTREAM

SOURCES: DATASTREAM

Outlook Our Economics team expects that as mining investment rolls off from the second half of the year, domestic sectors such as housing and consumer spending will be relied on to pick up the slack created by the investment downturn. Should this view of the economy eventuate, AIO should see some volume improvement coming through in its container businesses. At this stage we remain cautious about assuming any material improvement in consumer spending as it hasnt happened to date, despite cash rates being lowered to 3.0%. Coal volumes will remain a key growth driver and, after a soft start to FY13, the December quarter was relatively strong and provided a good lead into 2013. On current trends, Queensland coal exports are on track to achieve our FY13 forecast of 173Mt (89Mt 1H13), while Hunter Valley exports are tracking ahead of our 139Mt forecast (71Mt 1H13) and could reach 145Mt if current growth is maintained. Much will depend on the remainder of the wet season (January to March), but to date there has been less weather-related impact than in previous years. We continue to believe the long-term outlook for coal demand remains strong. We believe a strengthening Chinese economy will drive improved demand for metallurgical coal exports from Queensland, while thermal coal will continue to be driven by Asian energy requirements. Target price increases to A$5.61 Our DCF valuation increases marginally from A$5.54 to A$5.56. Our SOTP valuation increases more materially, from A$5.15 to A$5.61, as we roll forward the earnings base from FY13F to FY14F. With our target price based on our SOTP valuation, our 12-month target price also increases from A$5.15 to A$5.61.

TRANSPORT
January 31, 2013

Figure 10: AIO sum-of-the-parts valuation


FY14F EBITDA Valuation (A$m) multiple (x) Terminals & Logistics Bulk & Auto PN Coal PN Rail Corporate/Other Enterprise Value Net Debt Equity Value Diluted shares (m) Valuation per share 247.2 89.2 492.9 350.4 (41.0) 1,138.6 9.0 7.5 7.7 6.3 7.0 7.6 Valuation (A$m) Comment 2,224 -10% premium to global port peer average 669 -25% premium to global port peer average 3,795 10% premium to global rail peer average 2,208 -10% premium to global rail peer average (287) 0% premium to All Industrials average 8,609 3,138 5,471 975 $5.61
SOURCE: CIMB ESTIMATES

1H preview Reporting date 19 February Earnings guidance No official earnings guidance has been issued by the company, but management continues to stick to its 15% pa EBIT growth target through FY16; 15% growth in FY13F would equate to EBIT of A$709m. Consensus Bloomberg consensus FY13F EBIT is A$697m, in line with our forecast of A$695m.
Figure 11: AIO 1H earnings forecast summary
(A$m) Total revenue - Terminals & Logistics - Bulk & Auto - PN Coal - PN Rail - Other Total operating costs Total EBITDA Dep. & amort EBIT - Terminals & Logistics - Bulk & Auto - PN Coal - PN Rail - Corporate/Other - Associates Net interest expense PBT Income tax expense Minority interests NPAT Significant items Reported NPAT EPS DPS EBIT margin - Terminals & Logistics - Bulk & Auto - PN Coal - PN Rail 1H12A 1692.8 355.5 215.2 459.2 640.5 22.4 -1264.1 428.7 -142.0 294.9 93.8 18.4 100.4 104.5 -30.3 8.1 -120.0 174.8 -51.9 -0.7 122.2 -9.2 113.0 11.6 3.5 17.4% 26.4% 8.6% 21.9% 16.3% 2H12A 1758.9 328.9 272.0 474.1 653.7 30.2 -1297.5 461.4 -149.0 321.8 74.8 31.9 122.9 108.1 -25.4 9.5 -100.4 221.5 -57.0 -1.2 163.3 -35.5 127.8 13.1 4.0 18.3% 22.7% 11.7% 25.9% 16.5% FY12A 3456.7 684.4 487.2 933.3 1294.2 57.6 -2566.6 890.1 -291.0 616.7 168.6 50.3 223.3 212.6 -55.7 17.6 -220.4 396.3 -108.9 -1.9 285.5 -44.7 240.8 24.7 7.5 17.8% 24.6% 10.3% 23.9% 16.4% 1H13F 1870.8 363.8 266.4 554.4 677.1 9.2 -1382.9 487.9 -154.5 341.6 94.1 26.2 127.0 113.8 -27.8 8.2 -108.1 233.5 -67.7 -1.0 164.8 0.0 164.8 16.9 4.5 18.3% 25.9% 9.8% 22.9% 16.8% 2H13F 1920.7 335.9 299.3 581.7 694.6 9.2 -1411.4 509.3 -160.6 353.6 82.7 32.6 146.7 114.6 -27.8 4.9 -112.0 241.6 -70.1 -1.0 170.6 0.0 170.6 17.5 5.0 18.4% 24.6% 10.9% 25.2% 16.5% FY13F 1H13F vs 1H12A FY13F v FY12A 3791.5 699.7 565.7 1136.1 1371.7 18.3 -2794.3 997.2 -315.1 695.2 176.8 58.9 273.7 228.4 -55.7 13.1 -220.1 475.1 -137.8 -1.9 335.4 0.0 335.4 34.4 9.5 18.3% 25.3% 10.4% 24.1% 16.7% 10.5% 2.3% 23.8% 20.7% 5.7% -59.2% 9.4% 13.8% 8.8% 15.8% 0.3% 42.5% 26.5% 8.9% -8.1% 1.8% -9.9% 33.6% 30.6% 35.7% 34.8% -100.0% 45.9% 45.9% 28.6% 0.8pt -0.5pt 1.3pt 1.0pt 0.5pt 9.7% 2.2% 16.1% 21.7% 6.0% -68.2% 8.9% 12.0% 8.3% 12.7% 4.9% 17.0% 22.6% 7.4% 0.0% -25.6% -0.1% 19.9% 26.5% 0.0% 17.5% -100.0% 39.3% 39.3% 26.7% 0.5pt 0.6pt 0.1pt 0.2pt 0.2pt

SOURCES: CIMB FORECASTS, COMPANY REPORTS

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January 31, 2013

Figure 12: AIO financial summary


YE June (A$m) Income statement Divisional sales Total revenue EBITDA Depreciation EBITA Amortisation/impairment EBIT Share of associate's NPAT EBIT(incl associate profit) Net interest expense Pre-tax profit Income tax expense After-tax profit Minority interests NPAT Significant items NPAT post abnormals Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr/(decr) in equity Incr/(decr) in debt Ordinary distribution paid Other financing cash flow Cash flow from fin (5) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2) Balance sheet Cash & deposits Trade debtors Inventory Investments Goodwill Other intangible assets Fixed assets Other assets Total assets Short-term borrowings Trade payables Long-term borrowings Net Debt Other liabilities Total liabilities Share capital Other reserves Retained earnings Total equity Minority interest Total shareholders' equity Total liabilities & SE AIFRS 2011A 3056.1 3093.3 818.1 219.1 597.7 58.6 539.1 15.2 554.3 -249.6 289.5 79.0 210.5 -1.2 209.3 -40.5 168.8 2011A 801.6 8.7 -204.5 -4.2 -27.1 497.5 -404.0 39.1 -5.4 -364.4 0.0 84.8 -29.3 -5.4 50.1 183.2 93.5 2011A 398.5 348.6 22.2 20.7 2551.2 255.0 5994.6 795.9 6790.5 300.0 322.2 2358.4 2259.9 336.5 3591.0 8607.4 -449.9 3188.9 10.6 3199.5 6790.5 AIFRS 2012A 3399.1 3456.7 933.4 241.5 666.2 49.5 616.7 17.6 634.3 -220.4 396.3 108.9 287.4 -1.9 285.5 -44.7 240.8 2012A 890.1 0.0 -233.5 -46.4 0.0 607.8 -819.3 16.8 -3.4 -790.0 0.0 0.0 -63.5 -3.4 -66.9 -249.1 -211.5 2012A 149.4 375.2 23.8 35.3 2551.2 199.1 6586.6 575.6 7162.2 0.0 366.4 2858.2 2708.8 196.0 3814.8 8604.7 -306.1 3334.9 12.5 3347.4 7162.2 AIFRS 2013F 3773.2 3791.5 1042.2 273.0 737.4 42.2 695.2 13.1 708.3 -220.1 475.1 137.8 337.3 -1.9 335.4 0.0 335.4 2013F 997.2 -4.7 -220.1 -131.8 0.0 654.7 -748.1 0.0 0.0 -803.4 16.6 208.7 -82.9 0.0 142.3 -6.4 -93.4 2013F 143.0 382.4 24.4 35.3 2551.2 156.9 7074.9 576.9 7651.9 0.0 353.4 3066.9 2923.9 205.8 4027.2 8621.3 -63.3 3610.2 14.4 3624.6 7651.9 AIFRS 2014F 4154.6 4172.9 1171.0 297.8 840.8 37.0 803.8 8.6 812.4 -236.7 567.1 170.1 397.0 -1.9 395.1 -21.0 374.1 2014F 1130.0 -5.4 -236.7 -158.6 -41.0 699.0 -831.4 0.0 0.0 -831.4 20.5 222.8 -102.4 0.0 140.8 8.5 -132.4 2014F 178.0 469.3 32.6 35.3 2551.2 103.5 6961.5 707.1 7668.6 0.0 401.8 3289.6 3111.7 230.1 4346.3 8653.5 357.3 3305.1 17.3 3322.3 7668.6 AIFRS 2015F 4424.6 4442.9 1272.8 319.8 920.6 32.6 888.0 8.6 896.6 -255.1 632.9 189.9 443.1 -1.9 441.2 0.0 441.2 2015F 1231.8 -3.8 -255.1 -178.1 0.0 806.5 -667.6 0.0 0.0 -667.6 26.3 88.5 -131.7 0.0 -16.8 122.1 138.9 2015F 273.5 448.1 28.5 35.3 2551.2 87.3 7856.6 777.3 8634.0 0.0 414.1 3378.1 3104.6 215.5 4428.3 8668.1 508.1 4187.5 18.2 4205.7 8634.0 Divisional sales revenue Terminals & Logistics Bulk & Auto PN Rail PN Coal Total Divisional EBIT Terminals & Logistics Bulk & Auto PN Rail PN Coal Total 2012A 684.4 487.2 1294.2 933.3 3399.1 2012A 168.6 50.3 212.6 223.3 654.8 2013F 699.7 565.7 1371.7 1136.1 3773.2 2013F 176.8 58.9 228.4 273.7 737.8 2014F 735.6 618.5 1418.6 1381.8 4154.6 2014F 190.7 65.7 233.0 356.9 846.2 2015F 760.2 618.6 1467.2 1578.6 4424.6 2015F 204.0 70.2 232.5 423.2 929.8 Financial Metrics Net debt (A$m) Net debt/equity (%) EBIT/Net Interest cover (x) Net Debt /EBITDA 2012A 2708.8 38% 2.8 3.3 2013F 2923.9 38% 3.2 3.1 2014F 3111.7 41% 3.4 3.0 2015F 3104.6 36% 3.5 2.7 Operating performance Asset turnover (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on net assets (%) Returns Analysis ROIC (%) ROCE (%) Return on average equity (%) 2012A 47.5% 27.0% 17.6% 8.4% 4.3% 2012A 6.7% 10.2% 8.7% 2013F 49.3% 27.5% 18.1% 8.9% 4.7% 2013F 7.7% 10.7% 9.6% 2014F 54.2% 28.1% 18.4% 9.5% 5.7% 2014F 8.3% 11.6% 11.4% 2015F 51.2% 28.6% 19.3% 10.0% 5.6% 2015F 8.6% 12.1% 11.7% Growth ratios Sales growth EBITDA growth EBITA growth Divisional EBIT growth Terminals & Logistics Bulk & Auto PN Rail PN Coal 8.5% 57.2% 13.3% 26.6% 4.9% 17.0% 7.4% 22.6% 7.8% 11.6% 2.0% 30.4% 7.0% 6.8% -0.2% 18.6% 2012A 11.7% 14.1% 11.5% 2013F 9.7% 11.7% 10.7% 2014F 10.1% 12.4% 14.0% 2015F 6.5% 8.7% 9.5% Per share data No. shares No. shares (FD) EPS (reported) EPS (normalised) (c) Dividend per share (c) Dividend payout ratio (%) Dividend yield (%) 2012A 974.8 975.5 24.7 29.3 3.7 15% 1% 2013F 974.1 976.7 34.4 34.3 8.3 24% 2% 2014F 973.8 976.3 38.4 40.5 11.0 29% 2% 2015F 975.9 975.9 45.2 45.2 12.0 27% 2% At target price EV/EBITDA (x) PE (pre-goodwill) (x) 2012A 12.3 16.5 2013F 11.5 14.1 2014F 10.2 12.0 2015F 10.0 10.7 Multiples Enterprise value (A$m) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) PE (pre-goodwill) (x) 2012A 10774.3 3.1 11.5 17.5 16.5 2013F 3.0 10.8 16.2 14.1 2014F 2.7 9.5 13.9 12.0 2015F 2.7 9.5 13.6 10.7 11263.2 11147.0 12033.8 Closing price (A$) 4.84 Price target (A$) 5.61

-4968.6 -4963.7 -4947.7 -5705.7 -4988.7

SOURCES: CIMB FORECASTS, COMPANY REPORTS

10

TRANSPORT
January 31, 2013

3.2 Aurizon Outperform


We maintain an Outperform recommendation on AZJ. The stock may not look cheap, but we believe an FY14F EV/EBITDA multiple of 7.9x and P/E of 16.8x are reasonable given the earnings growth we expect to come through (EBIT growth of 38% in FY13, 11% in FY14 and 13% in FY15). Improvement in coal export volumes also shifts the balance of earnings risk to the upside, in our view, and should provide momentum to the stock in the short term. Our 12-month target price increases from A$4.12 to A$4.34 as we roll forward our earnings base to FY14F.
Figure 13: AZJ one-year forward P/E
(x)

Figure 14: AZJ P/E premium to S&P/ASX 200 (one year forward)
90% 80%

22

Title: Source:

20 70% 18
60%

Please fill in the values above to have them entered in your rep

50% 16 40% 14 30% 20% 12 10% 10 Jan-11 0% Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

SOURCE: DATASTREAM

SOURCE: DATASTREAM

When we upgraded our recommendation to Outperform (from Neutral) at the FY12 result, we believed management deserved credit for delivering cost-out ahead of our expectations. With voluntary redundancy programs still to wash through and further opportunity to streamline the business, we think AZJ is going to be an ongoing story of earnings surprise and growth. While the business has been more exposed than AIO to volume shortfalls due to lack of full take-or-pay protections on its coal contracts, we believe it is also therefore more leveraged to an improvement in coal haulage volumes. We think it is too early to be sure if the pick-up in Queensland coal exports at the end of 2012 will be sustained into 2013, but it provides an opportunity for AZJ to prove the additional leverage it has put into the business by removing unnecessary costs. Outlook Softer demand of metallurgical coal and supply issues in thermal coal markets disrupted the coal export markets in 2012, but conditions improved towards the end of the year and this has continued into the start of 2013. Queensland finished the year with a monthly export record of 18Mt in December (14% growth on pcp), led by record exports from Dalrymple Bay CT, while the Hunter Valley produced its own record of 13Mt (16% growth). On current trends, Queensland coal exports are on track to achieve our FY13 forecast of 173Mt (89Mt 1H13), while Hunter Valley exports are tracking ahead of our 139Mt forecast (71Mt 1H13) and could potentially reach 145Mt if current growth is maintained. Much will depend on the remainder of the wet season (January to March), but to date there has been less weather-related impact than in previous years. We continue to believe the outlook for coal demand remains strong. We believe a strengthening Chinese economy will drive improved demand for metallurgical coal exports from Queensland, while thermal coal will continue to be driven by Asian energy requirements.

11

TRANSPORT
January 31, 2013

1H preview Reporting date 20 February Earnings guidance No official earnings guidance has been issued by the company, but management has indicated it expects coal-haulage volume growth at the lower end of 195-205Mt. Consensus Bloomberg consensus FY13F EBIT is A$802m, 1% below our forecast of A$807m.
Figure 15: AZJ 1H earnings forecasts
(A$m) Total revenue - Coal - Network - Freight Total operating costs EBITDA Depreciation & Amortisation EBIT - Coal - Network - Freight - Corporate/Other Net interest expense PBT Income tax expense Normalised NPAT Significant items Reported NPAT EPS DPS EBIT margin - Coal - Network - Freight 1H12A 1765.4 949.9 595.4 731.8 -1297.7 467.7 -216.3 251.4 139.0 155.6 28.5 -71.7 -14.7 236.7 -68.4 168.3 21.0 189.3 6.9 3.7 14.2% 14.6% 26.1% 3.9% 2H12A 1918.3 877.7 614.7 791.8 -1337.8 580.5 -247.4 333.1 118.0 185.8 71.4 -42.1 -24.3 308.8 -57.2 251.6 0.0 251.6 10.3 4.6 17.4% 13.4% 30.2% 9.0% FY12A 3634.1 1827.6 1210.1 1523.6 -2585.9 1048.2 -463.7 584.5 257.0 341.4 99.9 -113.8 -39.0 545.5 -125.6 419.9 21.0 440.9 17.2 8.3 16.1% 14.1% 28.2% 6.6% 1H13F 2040.3 1048.1 706.9 767.3 -1396.1 644.2 -259.8 384.4 187.2 208.0 43.3 -54.0 -36.7 347.7 -104.3 243.4 -52.5 190.9 10.6 5.0 18.8% 17.9% 29.4% 5.6% 2H13F 2003.7 1020.6 711.8 753.3 -1323.2 680.5 -258.2 422.4 158.2 247.3 63.0 -46.1 -63.3 359.0 -107.7 251.3 0.0 251.3 11.8 6.0 21.1% 15.5% 34.7% 8.4% FY13F 4044.0 2068.7 1418.7 1520.5 -2719.3 1324.8 -518.0 806.8 345.4 455.3 106.3 -100.2 -100.1 706.7 -212.0 494.7 -52.5 442.2 21.6 11.0 20.0% 16.7% 32.1% 7.0% 1H13F v 1H12A 15.6% 10.3% 18.7% 4.8% 7.6% 37.7% 20.1% 52.9% 34.7% 33.7% 52.0% -24.6% 149.9% 46.9% 52.5% 44.6% -350.0% 0.8% 54.2% 35.1% 4.6pt 3.2pt 3.3pt 1.8pt FY13F v FY12A 11.3% 13.2% 17.2% -0.2% 5.2% 26.4% 11.7% 38.0% 34.4% 33.3% 6.4% -12.0% 156.6% 29.6% 68.8% 17.8% -350.0% 0.3% 25.6% 32.5% 3.9pt 2.6pt 3.9pt 0.4pt

SOURCES: CIMB FORECASTS, COMPANY REPORTS

12

TRANSPORT
January 31, 2013

Figure 16: AZJ - financial summary


YE June (A$m) Income statement Divisional sales Total revenue EBITDA Depreciation EBITA Amortisation/impairment EBIT Share of associate's NPAT EBIT(incl associate profit) Net interest expense Pre-tax profit Income tax expense After-tax profit Minority interests NPAT Significant items NPAT post abnormals Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr/(decr) in equity Incr/(decr) in debt Ordinary distribution paid Other financing cash flow Cash flow from fin (5) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2) Balance sheet Cash & deposits Trade debtors Inventory Investments Goodwill Other intangible assets Fixed assets Other assets Total assets Short-term borrowings Trade payables Long-term borrowings Other liabilities Total liabilities Share capital Other reserves Retained earnings Total equity Minority interest Total shareholders' equity Total liabilities & SE Net Debt 117.1 473.5 177.6 0.5 0.3 24.6 8275.7 92.4 9161.7 0.0 310.2 803.2 1056.6 2170.0 6111.9 -2.3 882.1 6991.7 0.0 6991.7 9161.7 686.1 98.8 548.1 215.8 78.0 0.0 16.6 9037.2 17.3 10020.5 0.0 349.6 1201.6 1175.1 2726.3 6119.1 -2.0 1177.1 7294.2 0.0 7294.2 10020.5 1102.8 48.6 664.8 215.8 78.0 0.0 16.6 9696.3 17.3 10746.1 0.0 415.5 2551.3 1308.4 4275.1 5068.7 -2.0 1404.3 6471.0 0.0 6471.0 10746.1 2502.7 304.8 677.2 215.8 78.0 0.0 16.6 10301.4 17.3 11619.8 0.0 423.2 3094.8 1358.8 4876.9 5068.7 -2.0 1676.2 6742.9 0.0 6742.9 11619.8 2790.0 537.0 732.0 215.8 78.0 0.0 16.6 10752.7 17.3 12358.2 0.0 457.5 3501.6 1369.5 5328.7 5068.7 -39.2 2000.0 7029.5 0.0 7029.5 12358.2 2964.6 Divisional EBIT Coal Freight Network Corporate 2012A 257.0 99.9 341.4 -113.8 2013F 345.4 106.3 455.3 -100.2 2014F 393.6 133.5 454.2 -86.2 2015F 443.6 145.1 504.7 -86.5 Divisional sales revenue Coal Freight Network Corporate Total 2012A 1827.6 1523.6 1210.1 154.1 2013F 2068.7 1520.5 1418.7 160.7 2014F 2186.9 1614.1 1321.6 166.5 2015F 2331.4 1726.5 1415.8 172.4 Financial metrics Net debt (A$m) Net debt/equity (%) Net debt/Net debt+equity (%) Net Debt/EBITDA Net interest/EBIT cover (x) 2012A 1102.8 15.1% 13.1% 1.1 15.0 2013F 2502.7 38.7% 27.9% 1.9 8.1 2014F 2790.0 41.4% 29.3% 2.0 5.1 2015F 2964.6 42.2% 29.7% 1.9 4.4 813.5 22.6 -231.3 -2.3 -48.2 554.3 -1299.9 -10.2 -0.5 -1310.6 0.0 0.0 -86.4 0.0 865.7 109.4 -745.6 1048.2 -73.4 -78.2 0.0 27.8 924.4 -1110.5 0.0 -41.2 -1151.7 0.0 0.0 -180.6 0.0 209.4 -17.9 -186.1 1324.8 -50.8 -135.3 -94.8 -75.0 968.9 -1099.7 0.0 0.0 -1099.7 1.0 0.0 -219.1 1.0 80.2 -50.6 -130.8 1428.0 -4.7 -201.3 -165.9 0.0 1056.2 -1087.1 0.0 0.0 -1087.1 2.0 0.0 -256.5 2.0 287.1 256.2 -30.9 1600.4 -20.6 -236.5 -233.8 0.0 1109.5 -1017.0 0.0 0.0 -1017.0 3.0 0.0 -267.2 3.0 139.6 232.2 92.6 Operating performance Asset turnover (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on net assets (%) ROIC (%) ROCE (%) Return on average equity (%) 2012A 36.3% 28.8% 16.1% 11.6% 4.7% 5.1% 6.9% 5.9% 2013F 37.6% 32.8% 16.1% 12.2% 5.4% 6.2% 8.8% 7.2% 2014F 35.5% 34.7% 20.0% 12.3% 5.6% 6.4% 9.1% 7.6% 2015F 36.0% 35.9% 21.7% 12.3% 5.9% 6.8% 9.5% 7.9% Growth ratios Sales growth EBITDA growth EBITA growth Divisional EBIT growth Coal Freight Network Corporate 61.8% 226.5% 19.9% 6.3% 34.4% 6.4% 33.3% -12.0% 14.0% 25.6% -0.2% -13.9% 12.7% 8.7% 11.1% 0.3% 2012A 10.4% 28.9% 43.5% 2013F 11.3% 26.4% 26.3% 2014F 1.9% 7.8% 7.0% 2015F 8.1% 12.1% 9.6% AIFRS 2011A 3196.7 3291.0 813.5 313.4 500.1 133.0 367.1 0.0 367.1 -137.9 229.2 -56.8 172.4 0.0 172.4 177.1 349.5 AIFRS 2012A 3634.1 3634.1 1048.2 330.7 717.5 133.0 584.5 0.0 584.5 -39.0 545.5 -125.6 419.9 0.0 419.9 21.0 440.9 AIFRS 2013F 4044.0 4044.0 1324.8 418.2 906.6 99.8 806.8 0.0 806.8 -100.1 706.7 -212.0 494.7 0.0 494.7 -52.5 442.2 AIFRS 2014F 4119.6 4119.6 1428.0 458.0 970.0 74.8 895.2 0.0 895.2 -174.1 721.1 -216.3 504.8 0.0 504.8 0.0 504.8 AIFRS 2015F 4453.1 4453.1 1600.4 537.4 1063.0 56.1 1006.9 0.0 1006.9 -227.5 779.4 -233.8 545.6 0.0 545.6 0.0 545.6 Per share data No. shares No. shares (FD) EPS (reported) EPS (normalised) (c) Dividend per share (c) Dividend payout ratio (%) Dividend yield (%) 2012A 2440.0 2440.0 18.1 17.2 3.7 20% 0.9% 2013F 2137.3 2288.6 20.7 21.6 8.3 40% 2.1% 2014F 2137.3 2137.3 23.6 23.6 11.0 47% 2.8% 2015F 2137.3 2288.6 25.5 23.8 12.0 47% 3.0% At target price EV/EBITDA (x) PE (pre-goodwill) (x) 2012A 11.2 25.2 2013F 8.9 20.1 2014F 8.5 18.4 2015F 7.7 18.2 Multiples Enterprise value (A$m) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) PE (pre-goodwill) (x) 2012A 10862.8 3.0 10.4 18.6 23.2 2013F 11051.8 2.7 8.3 13.7 18.5 2014F 11339.2 2.8 7.9 12.7 16.9 2015F 11513.8 2.6 7.2 11.4 16.8 Closing price (A$) 4.00 Price target (A$) 4.34

SOURCES: CIMB FORECASTS, COMPANY REPORTS

13

TRANSPORT
January 31, 2013

3.3 Brambles downgraded to Underperform


We continue to believe that BXBs prospects over the long term are positive, but we think BXB has been more a beneficiary of positive broader market sentiment in the short term that has seen its share price rise to levels not seen since September 2009. We dont believe underlying market conditions justify that strength at present. Macro conditions in the US are improving in areas, but Europe remains largely in recession. We are also concerned that market expectations for FY13 earnings are too optimistic, with Bloomberg consensus forecasts sitting at the top end of management guidance (EBIT of US$1,010m-1,080m as at 30 June 2012 exchange rates). We therefore see a risk of disappointment at result time as the market adjusts future earnings expectations. Given the recent strength in the share price, we downgrade BXB to Underperform (from Neutral) on a 12-month view, despite an increase in our target price from A$6.70 to A$7.75, as we roll forward to FY14F earnings. In our view, BXBs share price is likely to underperform relative to the other transport stocks in the sector over the next 12 months given the expectations already being factored into the share price.
Figure 17: BXB 12-months forward P/E
35

Figure 18: BXB P/E premium vs S&P/ASX 200 Industrials


60% 50%

(x)

Title: Source:

30 40% 25 30% 20% 10% 15 0% -10% -20% 5 -30% 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 -40% 03 04 05 06 07 08 09 10 11 12 13

Please fill in the values above to have them entered in your rep

20

10

SOURCE: DATASTREAM

SOURCE: DATASTREAM

Outlook The outlook for the US and European economies is the key driver for BXBs underlying business given 75-80% of its earnings come from those regions. Signs of improvement are coming through in the US data (eg, housing) that make us optimistic about a consumer recovery throughout 2013, but we expect Europe to remain largely be in recession this year. We therefore see the broader macro environment as largely unchanged for BXB in 2013. As a better indication of the underlying fundamentals of the BXB business, we track quarterly volume growth of global fast moving consumable goods (FMCG) companies that form the majority of the Pallet divisions customer base (67% of BXB group earnings). In our view, this is a better proxy for BXBs business than retail sales growth as it eliminates the impact of pricing on sales growth. Broadly speaking, FMCG companies are reporting mild volume growth in North America (0-2%), while Europe continues to experience volume declines (-1-3%). Quarterly results for 4Q2012 are due out over the next couple of weeks, but we expect little change. Given the broader macro outlook noted above, we do not expect significant growth in BXBs underlying businesses in 2013. However, earnings growth should still be achieved, in our view, via new customer wins, and growth in new product categories and emerging markets. As a result, we forecast 9% EPS growth for FY14.
14

TRANSPORT
January 31, 2013

1H preview Reporting date 21 February Earnings guidance BXB has guided to FY13 EBIT of US$1,010m-1,080m, based on 30 June 2012 currency rates (EUR/USD 1.24, GBP/USD 1.55, and AUD/USD 1.00). On an equivalent basis, we forecast FY13 EBIT of US$1,054m. Consensus Bloomberg consensus FY13F EBIT is US$1,083m, 2% above our forecast of US$1,065m. On a comparable basis to management guidance, we estimate consensus is around US$1,070m.
Figure 19: BXB 1H earnings forecasts
(US$m) Sales - Pallets Americas - Pallets EMEA - Pallets Asia-Pacific - RPCs - Containers - Recall EBITDA Depreciation & Amortisation EBIT - Pallets Americas - Pallets EMEA - Pallets Asia-Pacific - RPCs - Containers - Recall - Corporate Net interest PBT Tax NPAT Significant items - net Reported NPAT EPS DPS EBIT Margin - Pallets Americas - Pallets EMEA - Pallets Asia-Pacific - RPCs - Containers - Recall 1H12A 2,783.0 983.8 672.8 187.0 386.7 135.2 417.5 723.3 281.2 452.5 158.3 135.9 36.0 54.2 16.4 71.2 (15.7) (83.8) 368.7 106.5 262.2 (22.7) 239.5 17.6 13.0 16.3% 16.1% 20.2% 19.3% 14.0% 12.1% 17.1% 2H12A 2,842.0 1,057.5 654.0 188.8 372.8 141.4 427.5 833.1 271.0 557.6 205.3 138.9 40.6 71.3 16.4 103.0 (22.1) (68.2) 489.4 125.7 363.7 (26.9) 336.8 24.4 13.0 19.6% 19.4% 21.2% 21.5% 19.1% 11.6% 24.1% FY12A 5,625.0 2,041.3 1,326.8 375.8 759.5 276.6 845.0 1,556.8 552.2 1,010.1 363.6 274.8 76.6 125.5 32.8 174.2 (37.8) (152.0) 858.1 232.2 625.9 (49.6) 576.3 42.0 26.0 18.0% 17.8% 20.7% 20.4% 16.5% 11.9% 20.6% 1H13F 2,888.7 1,072.0 658.8 198.0 405.6 145.2 409.2 806.4 322.7 486.4 188.5 132.9 38.3 60.8 16.1 72.2 (22.3) (68.6) 417.8 117.0 300.8 (5.4) 295.4 19.3 13.5 16.8% 17.6% 20.2% 19.3% 15.0% 11.1% 17.6% 2H13F 2,981.9 1,082.7 652.3 197.2 426.6 178.8 444.3 836.9 261.6 578.1 215.7 139.3 42.2 82.1 20.8 100.2 (22.3) (67.3) 510.7 143.0 367.7 (5.4) 362.3 23.4 14.4 19.4% 19.9% 21.4% 21.4% 19.3% 11.6% 22.6% FY13F 5,870.6 2,154.7 1,311.1 395.2 832.1 324.0 853.5 1,643.3 584.3 1,064.5 404.2 272.2 80.4 143.0 36.9 172.4 (44.6) (135.9) 928.6 260.0 668.6 (10.8) 657.8 42.7 27.9 18.1% 18.8% 20.8% 20.4% 17.2% 11.4% 20.2% 1H13F v 1H12A FY13F v FY12A 3.8% 9.0% -2.1% 5.9% 4.9% 7.4% -2.0% 11.5% 14.7% 7.5% 19.1% -2.2% 6.3% 12.2% -2.0% 1.4% 42.1% -18.1% 13.3% 9.9% 14.7% -76.2% 23.4% 9.9% 3.9% 0.6pt 1.5pt 0.0pt 0.1pt 1.0pt -1.1pt 0.6pt 4.4% 5.6% -1.2% 5.2% 9.6% 17.1% 1.0% 5.6% 5.8% 5.4% 11.2% -1.0% 5.0% 13.9% 12.5% -1.0% 18.0% -10.6% 8.2% 12.0% 6.8% -78.2% 14.1% 1.7% 7.2% 0.2pt 0.9pt 0.0pt 0.0pt 0.7pt -0.5pt -0.4pt

SOURCES: CIMB FORECASTS, COMPANY REPORTS

15

TRANSPORT
January 31, 2013

Figure 20: BXB financial summary


YE June (A$m) Income statement Divisional sales Total revenue EBITDA Depreciation EBITA Amortisation/impairment EBIT Share of associate's NPAT EBIT(incl associate profit) Net interest expense Pre-tax profit Income tax expense After-tax profit Minority interests NPAT Significant items NPAT post abnormals Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr/(decr) in equity Incr/(decr) in debt Ordinary distribution paid Other financing cash flow Cash flow from fin (5) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2) Balance sheet Cash & deposits Trade debtors Inventory Investments Goodwill Other intangible assets Fixed assets Other assets Total assets Short-term borrowings Trade payables Long-term borrowings Other liabilities Total liabilities Share capital Other reserves Retained earnings Total equity Minority interest Total shareholders' equity Total liabilities & SE Net Debt 138.5 664.9 56.5 16.8 1694.3 403.7 6454.5 1313.5 7768.0 325.6 1264.3 2811.7 102.9 5316.6 14370.2 -14716.8 2797.6 14370.2 0.0 2451.4 7768.0 2998.8 174.2 667.7 48.2 17.1 1607.4 362.2 6193.4 1352.3 7545.7 86.4 1176.8 2777.7 46.5 4805.3 6484.1 -6689.1 2945.4 6484.1 0.0 2740.4 7545.7 2689.9 150.8 645.8 58.7 194.1 1607.4 293.8 6850.5 1317.5 8167.9 86.4 1264.4 2993.1 46.5 5107.6 6581.4 -6703.0 3182.0 6581.4 0.0 3060.4 8167.9 2928.7 180.8 620.4 62.0 194.1 1607.4 221.9 7092.4 1325.4 8417.8 86.4 1461.9 2793.1 46.5 5100.0 6581.4 -6708.5 3444.9 6581.4 0.0 3317.8 8417.8 2698.8 175.2 648.7 64.9 194.1 1607.4 146.8 7342.1 1351.0 8693.1 86.4 1529.9 2693.1 46.5 5063.0 6581.4 -6714.0 3762.7 6581.4 0.0 3630.1 8693.1 2604.3 EBIT Pallets Americas Pallets EMEA Pallets AP Recall RPCs Containers Corporate Total 363.6 274.8 76.6 168.7 125.5 32.8 -37.8 1010.1 404.2 272.2 80.4 166.9 143.0 36.9 -44.6 1064.5 437.1 284.1 83.2 171.9 179.8 50.1 -43.7 1168.0 480.8 300.8 94.7 177.1 207.3 60.0 -42.8 1283.3 Divisional Split Revenue Pallets Americas Pallets EMEA Pallets AP Recall RPCs Containers Total 2041.3 1326.8 375.8 845.0 759.5 276.6 5625.0 2154.7 1311.1 395.2 853.5 832.1 324.0 5870.6 2258.4 1323.3 400.8 879.1 946.6 395.9 6204.0 2354.9 1339.2 410.3 905.4 1042.0 435.5 6487.3 2012A 2013F 2014F 2015F 1331.5 300.9 5.1 -222.2 -232.8 1013.5 -764.7 -663.9 0.0 -1762.5 231.1 696.6 -224.0 -9.5 694.2 -54.8 248.8 1556.8 -81.9 5.8 -215.1 -11.4 1089.2 -949.4 -855.9 0.0 -932.8 326.6 11.5 -397.7 4.6 -55.0 101.4 139.8 1643.3 99.1 3.7 -260.0 0.0 1341.5 -1079.4 -1079.4 0.0 -1256.4 97.3 215.4 -421.2 0.0 -108.5 -23.4 262.1 1779.3 219.5 2.1 -285.9 0.0 1560.9 -858.8 -858.8 0.0 -858.8 0.0 -200.0 -472.2 0.0 -672.2 29.9 702.2 1922.4 36.8 5.3 -313.3 0.0 1476.5 -894.2 -894.2 0.0 -894.2 0.0 -100.0 -487.8 0.0 -587.8 -5.5 582.2 Financial Metrics Net debt (A$m) Net debt/equity (%) Net debt/Net Debt+equity (%) Net Debt/EBITDA EBIT/Net Interest cover (x) 2012A 2689.9 98.2% 49.5% 1.7 6.6 2013F 2928.7 95.7% 48.9% 1.8 7.8 2014F 2698.8 81.3% 44.9% 1.5 7.9 2015F 2604.3 71.7% 41.8% 1.4 7.8 Operating performance Asset turnover (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on net assets (%) Return on average equity (%) ROIC (%) 2012A 74.5% 27.7% 18.2% 11.1% 8.3% 21.0% 15.7% 2013F 71.9% 28.0% 17.9% 11.4% 8.2% 21.5% 17.0% 2014F 73.7% 28.7% 18.0% 11.9% 8.7% 22.2% 17.8% 2015F 74.6% 29.6% 18.7% 12.4% 9.3% 22.2% 19.2% Growth ratios Sales growth EBITDA growth EBITA growth 2012A 20.4% 16.9% 20.1% 2013F 4.4% 5.6% 4.8% 2014F 5.7% 8.3% 9.5% 2015F 4.6% 8.0% 9.6% AIFRS 2011A 4672.2 4672.2 1331.5 435.5 896.0 43.9 850.8 6.4 858.1 -127.5 730.6 203.4 527.2 0.1 527.1 -51.8 475.3 AIFRS 2012A 5625.0 5625.0 1556.8 480.8 1076.0 71.4 1004.2 5.5 1010.1 -152.0 858.1 232.2 625.9 0.0 625.9 -49.6 576.3 AIFRS 2013F 5870.6 5870.6 1643.3 515.9 1127.4 68.4 1059.0 5.5 1064.5 -135.9 928.6 260.0 668.6 0.0 668.6 -10.8 657.8 AIFRS 2014F 6204.0 6204.0 1779.3 544.9 1234.4 71.9 1162.5 5.5 1168.0 -146.9 1021.1 285.9 735.2 0.0 735.2 0.0 735.2 AIFRS 2015F 6487.3 6487.3 1922.4 569.5 1352.8 75.1 1277.8 5.5 1283.3 -164.4 1118.8 313.3 805.6 0.0 805.6 0.0 805.6 Per share data No. shares No. shares (FD) EPS (reported) EPS (normalised) (c) Dividend per share (c) Dividend payout ratio (%) Dividend yield (%) 2012A 1482.3 1482.3 38.9 42.2 26.0 66.9% 3.2% 2013F 1552.9 1552.9 42.4 43.1 27.9 65.8% 3.4% 2014F 1553.4 1553.4 47.3 47.3 30.6 64.7% 3.8% 2015F 1553.4 1553.4 51.9 51.9 32.9 63.4% 4.0% At target price EV/EBITDA (x) PE (pre-goodwill) (x) 2012A 7.4 18.3 2013F 7.3 18.0 2014F 6.8 16.4 2015F 9.7 14.9 Multiples Enterprise value (A$m) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) PE (pre-goodwill) (x) 2012A 12051.1 2.1 7.7 12.0 19.3 2013F 12625.4 2.2 7.7 11.9 18.9 2014F 12629.3 2.0 7.1 10.9 17.2 2015F 19210.6 3.0 10.0 15.0 15.7 Closing price (A$) Valuation metrics 8.13 Price target (A$) 7.75

SOURCES: CIMB FORECASTS, COMPANY REPORTS

16

TRANSPORT
January 31, 2013

3.4 Toll downgraded to Underperform


TOL has had a good run since the start of the year but, in our view, it is too much, too soon. While TOL should benefit from a broad-based cyclical recovery, we have seen little evidence of this to date and we remain cautious about the extent of an improvement through 2013. We therefore downgrade our recommendation from Neutral to Underperform as we believe TOL has the least upside potential compared to the rest of the transport sector under our coverage over the next 12 months. We dont believe underlying fundamentals have changed materially enough to justify the recent share price strength and we therefore think there is disappointment risk going into the 1H result. Our 12-month target price increases from A$4.61 to A$4.92 as we roll forward to FY14F earnings, based on an 11.5x P/E multiple.
Figure 21: BXB one-year-forward P/E Figure 22: BXB P/E premium to S&P/ASX 200 (one year forward)
100%

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25 60%

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0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

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SOURCE: DATASTREAM

SOURCE: DATASTREAM

Outlook Our house view for 2013 is that consumer spending will pick-up over the year. Our Economics team believes that as mining investment rolls off from the second half of the year domestic sectors such as housing and consumer spending will be relied on to pick up the slack created by the investment downturn. Policy efforts to stimulate consumer activity are coming through RBA interest rate cuts and Federal tax cuts. To date most of these stimuli have been used to pay down debt by households, so some growth has been lost. Our Economics team anticipates further interest rate cuts in 1QCY13 and 2QCY13, to 2.5%, on the back of further soft domestic data in 4QCY12. This level of easing is expected to be sufficient to drive consumer activity resulting in our economists forecasting a 2.9% increase in consumer spending in 2013. A pick-up in consumer spending would clearly benefit TOL given its broad-based exposure to discretionary and non-discretionary retail. However, we remain cautious as anecdotal feedback from transport operators early in 2013 suggests there has been little in the way of improvement in the short term. We are therefore wary that any recovery may be more gradual than generally expected. We believe margin pressure on the supply chain will continue for now, while the slowdown in mining and resources activity will also likely negatively affect TOL in the short term

17

TRANSPORT
January 31, 2013

1H preview Reporting date 20 February Earnings guidance No official earnings guidance has been provided by management. Consensus Bloomberg consensus FY13F EBIT is A$430m (range of A$405m-445m), 1% below our forecast of A$433m. Consensus forecasts indicate 5% earnings growth vs pcp.

Figure 23: BXB 1H earnings forecasts


1H12A Revenue - Global Express - Domestic Forwarding - Specialised & Dom Freight - Global Logistics - Global Resources - Global Forwarding - Other EBITDA Depreciation & Amortisation (ex acq amort) EBITA (pre-acquisition amortisation) - Global Express - Domestic Forwarding - Specialised & Dom Freight - Global Logistics - Global Resources - Global Forwarding - Other Income from associates Acquisition Amortisation EBIT (inc-associates) Net interest PBT Tax Minorities NPAT Significant items Reported NPAT Normalised EPS (cps) DPS (cps) EBITDA margin (%) EBIT margin -ex Associates (%) - Global Express - Domestic Forwarding - Specialised & Dom Freight - Global Logistics - Global Resources - Global Forwarding EBIT margin - total (%) NPAT margin pre sigs (%) 4444.1 1135.0 584.2 692.3 709.0 552.0 751.6 23.6 379.8 -124.1 255.6 76.4 35.3 58.4 49.2 53.0 10.1 -26.8 7.3 -14.8 248.2 -20.0 228.2 66.9 3.1 158.2 -0.3 157.9 21.8 11.5 8.5% 5.8% 6.7% 6.0% 8.4% 6.9% 9.6% 1.3% 5.9% 3.6% 2H12A 4284.8 1098.9 566.7 629.7 710.7 554.8 699.0 32.3 301.4 -113.3 171.6 52.3 21.4 29.3 38.9 49.3 6.4 -26.0 4.9 -13.8 162.7 -16.0 146.8 32.7 3.2 110.8 -195.0 -84.2 15.2 13.5 7.0% 4.0% 4.8% 3.8% 4.7% 5.5% 8.9% 0.9% 4.1% 2.6% FY12A 8728.9 2233.9 1150.9 1322.0 1419.7 1106.8 1450.6 34.2 681.2 -254.0 427.2 128.7 56.7 87.7 88.1 102.3 16.5 -52.8 12.2 -28.6 410.8 -37.0 373.8 99.6 6.3 267.9 -203.3 64.6 37.4 25.0 7.8% 4.9% 5.8% 4.9% 6.6% 6.2% 9.2% 1.1% 5.0% 3.1% 1H13F 4484.0 1161.0 561.4 728.7 672.9 561.6 774.8 23.6 366.4 -120.6 245.8 76.9 34.5 58.3 42.6 51.5 10.8 -28.8 8.4 -13.1 241.0 -17.8 223.2 64.5 3.2 155.6 35.0 190.6 21.3 11.5 8.2% 5.5% 6.6% 6.1% 8.0% 6.3% 9.2% 1.4% 5.7% 3.5% 2H13F 4326.5 1115.4 538.0 672.6 672.9 561.6 744.5 32.3 333.4 -120.6 197.0 62.8 21.5 37.0 40.8 51.5 7.4 -24.0 8.0 -12.5 192.5 -14.9 177.6 47.0 3.2 127.5 0.0 127.5 17.5 13.5 7.7% 4.6% 5.6% 4.0% 5.5% 6.1% 9.2% 1.0% 4.7% 2.9% FY13F 8810.5 2276.4 1099.4 1401.3 1345.9 1123.2 1519.3 34.2 699.8 -257.3 442.5 139.8 56.0 95.3 83.1 102.9 18.2 -52.8 16.4 -25.6 433.2 -32.7 400.5 111.4 6.3 282.8 35.0 317.8 39.4 25.0 7.9% 5.0% 6.1% 5.1% 6.8% 6.2% 9.2% 1.2% 5.2% 3.2% 1H13F v 1H12A 0.9% 2.3% -3.9% 5.3% -5.1% 1.7% 3.1% 0.0% -3.5% -2.8% -3.8% 0.7% -2.3% -0.2% -13.5% -2.9% 7.4% 7.4% 15.0% -11.3% -2.9% -11.0% -2.2% -3.7% 1.6% -1.6% -11766.7% 20.7% -2.4% 0.0% -0.4pt -0.3pt -0.1pt 0.1pt -0.4pt -0.6pt -0.4pt 0.1pt -0.2pt -0.1pt FY13F v FY12A 0.9% 1.9% -4.5% 6.0% -5.2% 1.5% 4.7% 0.0% 2.7% 1.3% 3.6% 8.6% -1.2% 8.7% -5.7% 0.6% 10.5% 0.0% 34.2% -10.4% 5.5% -11.6% 7.2% 11.8% 0.0% 5.6% -117.2% 392.0% 5.3% 0.0% 0.1pt 0.1pt 0.4pt 0.2pt 0.2pt 0.0pt -0.1pt 0.1pt 0.2pt 0.1pt

SOURCES: CIMB FORECASTS, COMPANY REPORTS

18

TRANSPORT
January 31, 2013

Figure 24: TOL financial summary


YE June (A$m) Income statement Divisional sales Total revenue EBITDA Depreciation EBITA Amortisation/impairment EBIT Share of associate's NPAT EBIT(incl associate profit) Net interest expense Pre-tax profit Income tax expense After-tax profit Minority interests NPAT Significant items NPAT post abnormals Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr/(decr) in equity Incr/(decr) in debt Ordinary distribution paid Other financing cash flow Cash flow from fin (5) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2) Balance sheet Cash & deposits Trade debtors Inventory Investments Goodwill Other intangible assets Fixed assets Other assets Total assets Short-term borrowings Trade payables Long-term borrowings Other liabilities Total liabilities Share capital Other reserves Retained earnings Total equity Minority interest Total shareholders' equity Total liabilities & SE Net Debt AIFRS 2011A 8224.5 8253.2 638.7 201.7 437.0 28.8 395.4 16.0 411.4 -35.4 376.0 101.9 274.1 5.1 269.0 20.4 281.4 2011A 638.7 -31.7 13.9 -77.0 40.7 540.0 -506.5 135.9 0.0 -696.9 0.2 688.4 -134.1 0.0 85.7 -71.2 33.5 2011A 496.5 1129.3 48.4 111.7 1683.5 165.4 4087.9 1762.6 5850.5 920.6 881.6 595.8 223.7 3046.9 2946.3 -117.3 -55.6 2946.3 35.0 2803.6 5850.5 1019.9 AIFRS 2012A 8707.2 8728.9 681.2 237.4 443.8 28.6 398.6 12.2 410.8 -37.0 373.8 99.6 274.2 6.3 267.9 -215.4 64.6 2012A 681.2 44.0 12.0 -98.8 -43.9 555.8 -478.6 28.8 11.3 -454.8 0.2 469.9 -167.3 0.0 -70.1 30.9 77.2 2012A 569.1 1129.2 53.3 121.9 1635.3 159.8 4119.5 1921.4 6040.9 288.5 892.9 1419.8 217.2 3294.5 2976.7 -68.2 -176.9 2976.7 19.3 2746.4 6040.9 1139.2 AIFRS 2013F 8788.8 8810.5 699.8 241.3 458.5 25.6 416.9 16.4 433.2 -32.7 400.5 111.4 289.1 6.3 282.8 44.0 317.8 2013F 699.8 -21.6 14.3 -120.4 52.4 577.5 -422.2 0.0 0.0 -209.1 0.0 0.0 -179.3 0.0 -297.2 71.2 155.2 2013F 640.3 1158.6 53.8 -24.9 1609.7 143.8 4112.0 2022.5 6134.5 288.5 901.2 1301.8 225.6 3193.3 2976.7 -18.2 -38.4 2976.7 25.6 2941.2 6134.5 950.1 AIFRS 2014F 9589.5 9611.2 767.5 263.0 504.5 23.3 466.8 16.8 483.6 -45.9 437.7 122.1 315.6 6.3 309.3 0.0 309.3 2014F 767.5 -28.3 13.3 -122.1 8.8 580.1 -460.2 0.0 0.0 -668.6 0.0 208.3 -193.6 0.0 14.7 -73.8 119.8 2014F 566.5 1263.9 58.7 200.2 1586.4 129.3 4496.6 2058.9 6555.5 288.5 983.1 1510.1 234.4 3492.3 2976.7 -18.2 77.3 2976.7 31.9 3063.2 6555.5 1232.2 AIFRS 2015F 10271.5 10293.2 852.4 286.7 565.7 21.2 531.6 17.2 548.7 -54.6 494.1 138.3 355.8 6.3 349.5 0.0 349.5 2015F 852.4 -24.1 12.2 -138.3 9.2 644.6 -573.3 0.0 0.0 -688.1 0.0 214.8 -208.0 0.0 6.8 -36.7 71.3 2015F 529.8 1353.6 62.9 332.1 1565.2 116.4 4881.1 2116.0 6997.1 288.5 1052.9 1724.9 243.6 3786.1 2976.7 -18.2 218.8 2976.7 38.2 3211.0 6997.1 1483.7
SOURCES: CIMB FORECASTS, COMPANY REPORTS

Closing price (A$) Multiples Enterprise value (A$m) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) PE (pre-goodwill) (x) At target price EV/EBITDA (x) PE (pre-goodwill) (x) Per share data No. shares No. shares (FD) EPS (reported) EPS (normalised) (c) Dividend per share (c) Dividend payout ratio (%) Dividend yield (%) Growth ratios Sales growth EBITDA growth EBITA growth Operating performance Asset turnover (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on net assets (%) Return on average equity (%) ROIC (%) Financial metrics Net debt (A$m) Net debt/equity (%) EBIT/Net Interest cover (x) Net Debt/EBITDA Net Debt/EBIT Divisional Revenue Global Express Domestic Forwarding Specialised & Dom Freight Global Logistics Global Resources Global Forwarding Other Divisional EBITA Global Express Domestic Forwarding Specialised & Dom Freight Global Logistics Global Resources Global Forwarding Other

5.27 2012A 3794.2 0.4 5.6 9.5 14.1 2012A 5.2 13.2 2012A 716.3 716.3 9.0 37.4 23.4 259% 4.4% 2012A 6% 7% 2% 2012A 144% 7.8% 4.8% 3.1% 6.7% 9.7% 7.1% 2012A 1139.2 41% 10.8 1.7 2.9 2012A 2233.9 1150.9 1322.0 1419.7 1106.8 1450.6 23.3 2012A 128.7 56.7 87.7 88.1 102.3 16.5 -52.8

Price target (A$) 2013F 3808.9 0.4 5.4 9.1 13.4 2013F 5.1 12.5 2013F 717.9 717.9 44.3 39.4 25.0 56% 4.7% 2013F 1% 3% 3% 2013F 143% 7.9% 4.6% 3.2% 6.8% 10.0% 7.4% 2013F 950.1 32% 12.7 1.4 2.3 2013F 2276.4 1099.4 1401.3 1345.9 1123.2 1519.3 23.3 2013F 139.8 56.0 95.3 83.1 102.9 18.2 -52.8 2014F 3839.5 0.4 5.0 8.2 12.3 2014F 4.7 11.5 2014F 722.5 722.5 42.8 42.8 26.8 63% 5.1% 2014F 9% 10% 10% 2014F 146% 8.0% 4.7% 3.2% 7.4% 10.4% 8.0% 2014F 1232.2 40% 10.2 1.6 2.6 2014F 2324.8 1132.4 1485.4 1440.0 1190.6 1992.9 23.3 2014F 154.9 56.6 101.0 89.4 113.1 27.9 -52.8

4.92 2015F 3885.6 0.4 4.6 7.3 11.0 2015F 4.3 10.3 2015F 730.1 730.1 47.9 47.9 28.5 60% 5.4% 2015F 7% 11% 12% 2015F 147% 8.3% 4.9% 3.4% 7.8% 11.3% 8.7% 2015F 1483.7 46% 9.7 1.7 2.8 2015F 2399.0 1166.4 1574.5 1541.5 1262.0 2304.8 23.3 2015F 172.3 58.3 107.1 95.6 126.2 46.1 -52.8

19

TRANSPORT
January 31, 2013

3.5 Qube Holdings downgraded to Neutral


For valuation reasons we downgrade our recommendation from Outperform to Neutral with the stock already trading through our 12-month target price only two months after we initiated coverage. The longer-term outlook remains positive but, due to the recent share price movement (up 23% since early December), we see less upside potential in QUB over the next 12 months relative to other companies that we cover in the transport sector. Our target price increases to A$1.81 (from A$1.75) as we roll-forward to FY14F earnings. After the recent upward movement in the share price, QUB is now trading on a P/E of 21x FY13F and 18x FY14F. We attribute most of this re-rating to broader positive market sentiment as, in our view, the underlying operating environment has not changed materially enough to justify earnings upgrades. While QUB should benefit from any potential cyclical recovery through its Logistics business, we still take a somewhat cautious view on the outlook this year, with port container growth stuck at around 3%. We would view positively any material contract wins in the Bulk business, but we capture some of this expectation in our 17% NPAT growth forecast for FY14.
Figure 25: QUB one-year forward P/E
30

Figure 26: QUB P/E premium relative to S&P/ASX 200


120% 100%

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SOURCE: DATASTREAM

SOURCE: DATASTREAM

Outlook Despite our more neutral stance on the stock in the short term, we believe the outlook for QUB remains positive, and that the company is well positioned to leverage off the growing freight task and modal shift from road to rail. The recently completed Southern Sydney Freight Line should assist in this, as it separates freight trains from the passenger network. Further track infrastructure upgrades are required to achieve this completely, but intermodal terminal capacity at Moorebank is also a critical piece of infrastructure, in our view, to achieving a meaningful shift of freight onto rail. However, in the short term we believe underlying growth in the logistics business will be relatively muted in 2013 as port container growth is stuck at around 3% and doesnt appear to be improving. Our Economics team believes a cyclical recovery is likely to begin forming in 2013, which would assist top-line growth, if it occurs. However, we remain cautious for the time being. We do expect earnings growth ahead of revenue growth though as management streamlines the business further and leverages greater economies of scale. Despite the soft conditions in the logistics business, QUBs growing exposure to bulk commodities should continue to drive earnings growth in the Bulk & Ports division. Volumes at Utah Point appear solid and QUB should benefit from the ramping up of new contracts (Sandfire Resources) and recent acquisitions (Giacci).

20

TRANSPORT
January 31, 2013

1H preview Reporting date 26 February Earnings guidance Management indicated at the FY12 result that it expected revenue and earnings growth in FY13, although at a slower rate than in FY12. Proportionate EBIT growth in FY12 was 53% and we forecast proportionate EBIT growth of 44% in FY13. Consensus Bloomberg consensus FY13F NPAT is A$78m, in line with our forecast. Consensus NPAT indicates 13% growth on FY12.

Figure 27: QUB 1H earnings forecasts


(A$m) Total Revenue - Logistics - Ports & Bulk - Strategic Assets Operating Costs EBITDA (inc assoc) D&A EBIT (inc assoc) - Logistics - Ports & Bulk - Strategic Assets - Corporate Net Interest Expense Pre-tax Profit Taxation Minorities Normalised NPAT Abnormals (net of tax) Reported NPAT EPS DPS EBIT margin - Logistics - Ports & Bulk 1H12A 397.5 244.5 150.4 2.7 333.0 64.5 16.7 47.8 22.8 23.9 3.9 -2.7 -5.7 42.1 -10.3 0.0 31.8 -23.6 8.2 4.2 2.0 12.0% 9.3% 15.9% 2H12A 439.2 232.3 202.9 3.9 371.1 68.1 20.9 47.2 16.3 35.7 1.2 -6.2 -7.4 39.8 -9.8 -0.3 29.7 -40.4 -10.7 3.3 2.1 10.7% 7.0% 17.6% FY12A 836.7 476.8 353.3 6.6 704.1 132.6 37.6 95.0 39.2 59.6 5.1 -8.9 -13.1 81.9 -20.1 -0.3 61.5 -64.0 -2.5 7.5 4.1 11.4% 8.2% 16.9% 1H13F 534.6 298.4 222.3 13.9 450.9 96.5 22.6 73.9 29.2 38.6 10.1 -3.9 -16.6 57.4 -17.2 -1.5 38.7 0.0 38.7 4.2 2.3 13.8% 9.8% 17.4% 2H13F 546.6 286.7 240.9 13.9 459.8 86.8 24.0 75.6 25.5 43.9 10.1 -3.9 -16.7 58.9 -17.7 -1.5 39.7 0.0 39.7 4.3 2.4 13.8% 8.9% 18.2% FY13F 1081.2 585.0 463.2 27.9 910.8 196.1 46.6 149.5 54.7 82.5 20.1 -7.9 -33.3 116.2 -34.9 -3.0 78.4 0.0 78.4 8.5 4.7 13.8% 9.3% 17.8% 1H13F v 1H12A 34.5% 22.0% 47.8% 415.8% 35.4% 49.6% 35.2% 54.6% 27.6% 61.6% 156.7% 43.8% 190.6% 36.2% 67.1% n/m 21.5% n/m n/m -1.2% 15.0% 1.8pt 0.4pt 1.5pt FY13F v FY12A 29.2% 22.7% 31.1% 319.4% 29.4% 47.9% 23.9% 57.3% 39.6% 38.5% 292.1% -11.5% 153.9% 41.9% n/m n/m 27.4% n/m n/m 13.2% 14.6% 2.5pt 1.1pt 1.0pt

SOURCES: CIMB FORECASTS, COMPANY REPORTS *Note FY12A figures represent pro-forma earnings reported by QUB, adjusting for the change in structure to a corporate entity during the year

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January 31, 2013

Figure 28: QUB financial summary


YE June (A$m) Income statement Divisional sales Total revenue EBITDA Depreciation EBITA Amortisation/impairment EBIT Share of associate's NPAT EBIT(incl associate profit) Net interest expense Pre-tax profit Income tax expense After-tax profit Minority interests NPAT Significant items NPAT post abnormals Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr/(decr) in equity Incr/(decr) in debt Ordinary distribution paid Other financing cash flow Cash flow from fin (5) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2) Balance sheet Cash & deposits Trade debtors Inventory Investments Goodwill Other intangible assets Fixed assets Other assets Total assets Short-term borrowings Trade payables Long-term borrowings Net Debt Other liabilities Total liabilities Share capital Other reserves Retained earnings Total equity Minority interest Total shareholders' equity Total liabilities & SE AIFRS 2011A 190.8 278.7 79.9 7.0 72.9 0.4 72.5 0.0 72.5 -1.2 71.4 -5.9 65.5 3.6 61.8 0.0 61.8 2011A 79.9 -28.1 -5.9 0.4 -22.1 24.2 -8.0 0.3 0.0 -10.7 152.0 10.0 -14.0 -102.0 40.1 53.7 16.2 2011A 78.9 63.6 2.0 0.0 191.7 6.8 728.7 152.0 880.8 7.6 37.2 103.1 31.8 0.0 194.4 0.0 20.6 63.3 583.9 18.6 686.4 880.8 AIFRS 2012A 776.8 782.0 105.1 29.9 75.2 6.3 68.9 13.2 82.1 -11.8 70.4 0.3 70.7 1.1 69.6 -72.2 -2.5 2012A 105.1 -7.1 -10.5 -20.7 -13.7 53.2 -77.8 0.0 -3.2 -291.3 83.8 438.3 -29.1 0.0 277.8 39.7 -24.6 2012A 118.6 141.8 3.6 462.2 599.7 0.0 1453.0 267.9 1720.9 19.3 94.5 423.9 324.6 21.2 629.7 0.0 -34.1 27.9 1019.6 77.9 1091.2 1720.9 AIFRS 2013F 1076.1 1081.2 170.5 40.3 130.2 6.3 123.9 25.6 149.5 -33.3 116.2 -34.9 81.4 3.0 78.4 0.0 78.4 2013F 170.5 -11.9 -33.3 -34.9 0.0 116.0 -53.3 0.0 0.0 -168.3 8.7 127.0 -43.4 0.0 80.5 28.2 62.7 2013F 146.8 177.7 3.6 482.2 593.4 0.0 1586.5 332.0 1918.5 19.3 118.5 550.8 423.4 21.2 780.6 0.0 -34.1 62.8 1028.3 80.9 1137.8 1918.5 AIFRS 2014F 1186.3 1191.5 194.5 45.2 149.3 6.3 143.0 26.9 169.9 -34.0 135.9 -40.8 95.1 3.0 92.1 0.0 92.1 2014F 194.5 -6.0 -34.0 -40.8 0.0 140.5 -53.2 0.0 0.0 -71.2 9.9 0.0 -49.3 0.0 -49.4 19.9 87.3 2014F 166.6 195.9 3.6 482.2 587.1 0.0 1616.2 370.0 1986.2 19.3 130.6 550.8 403.5 21.2 792.7 0.0 -34.1 105.6 1038.2 83.9 1193.5 1986.2 AIFRS 2015F 1269.8 1274.9 213.3 48.7 164.7 6.3 158.4 28.4 186.7 -32.5 154.2 -46.3 107.9 3.0 104.9 0.0 104.9 2015F 213.3 -4.6 -32.5 -46.3 0.0 158.3 -57.5 0.0 0.0 -57.5 11.4 0.0 -57.1 0.0 -74.2 26.7 100.8 2015F 193.3 209.6 3.6 482.2 580.8 0.0 1627.2 410.4 2037.6 19.3 139.7 530.8 356.8 21.2 781.8 0.0 -34.1 153.4 1049.6 86.9 1255.8 2037.6 Operating performance Asset turnover (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on net assets (%) Net debt (A$m) Net debt/equity (%) Net debt/(Net Debt +equity) (%) Net interest/EBIT cover (x) Return on average equity (%) 2012A 53% 13% 38% 9% 131% 324.6 69% 23% 585% -9% 2013F 68% 16% 9% 7% 68% 423.4 31% 27% 372% 125% 2014F 73% 16% 12% 8% 66% 403.5 18% 25% 420% 87% 2015F 78% 17% 12% 8% 66% 356.8 13% 22% 487% 68% Divisional Margins Ports and Bulk Logistics Strategic Development Assets 2012A 11% 8% 71% 2013F 13% 9% 71% 2014F 13% 10% 71% 2015F 14% 10% 71% Divisional EBIT Ports and Bulk Logistics Strategic Development Assets 2012A 40.4 38.9 4.7 2013F 58.0 54.1 19.7 2014F 67.8 62.0 21.4 2015F 74.5 70.6 22.0 Divisional Revenue Ports and Bulk Logistics Strategic Development Assets 2012A 353.3 476.8 6.6 2013F 463.2 585.0 27.9 2014F 520.0 636.1 30.2 2015F 550.1 688.7 31.0 Growth ratios Sales growth EBITDA growth EBITA growth EPS Growth Divisional EBIT growth Ports and Bulk Logistics Strategic Development Assets n/m 34% 29% n/m 23% 319% 12% 9% 9% 6% 8% 3% 2012A 181% 32% 3% n/m 2013F 38% 62% 73% n/m 2014F 10% 14% 15% 17% 2015F 7% 10% 10% 13% Per share data No. shares No. shares (FD) EPS (reported) EPS (normalised) (c) Dividend per share (c) Dividend payout ratio (%) Dividend yield (%) 2012A 821.6 821.6 -0.3 8.5 3.5 n/m 2% 2013F 924.4 924.4 8.5 8.5 4.7 55% 3% 2014F 930.3 930.3 9.9 9.9 5.3 54% 3% 2015F 936.7 936.7 11.2 11.2 6.1 54% 3% At target price EV/EBITDA (x) PE (pre-goodwill) (x) 2012A 13.4 20.6 2013F 9.3 20.6 2014F 8.2 17.7 2015F 7.7 15.6 Multiples Enterprise value (A$m) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) PE (pre-goodwill) (x) 2012A 1420.1 1.8 13.5 20.6 20.9 2013F 1602.1 1.5 9.4 12.9 20.9 2014F 1612.5 1.4 8.3 11.3 17.9 2015F 1658.0 1.3 7.8 10.5 15.8 Closing price (A$) Valuation metrics 1.77 Price target (A$) 1.75

SOURCES: CIMB FORECASTS, COMPANY REPORTS

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TRANSPORT
January 31, 2013

3.6 Qantas Outperform, A$1.81 target price


We reiterate our Outperform rating on Qantas, with an upgraded target price of A$1.81 (from A$1.46) as, with the balance sheet concerns resolved, we believe the risk remains firmly to the upside. This positive outlook is supported by managements recently implemented share buyback scheme. With the news flow surrounding the company becoming incrementally more positive; such as the recently announced Emirates deal, and the union issues dealt with for now, we expect sentiment towards the stock to become more positive. We believe the domestic capacity issue affecting the market will continue to settle down as VAH and Tiger have both largely concluded their incremental capacity additions. We expect growth from here to be more rational and in line with market demand.
Figure 29: QAN one-year-forward P/E
20 18 16 1.7 14 12 10 8 6 0.7 4 2 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Price to NTA (x) Long-run ave 3 year ave 0.4
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Figure 30: QAN one-year-forward price-NTA


(x)

(x)

2.2 1.9

Title: Source:

Please fill in the values above to have them entered in your rep

1.4 1.2 0.9

SOURCE: DATASTREAM

SOURCE: DATASTREAM

2013 outlook capacity, capacity, capacity The only determinant of profitability that airlines as an industry have any influence over is capacity, as the other key drivers are influenced by the broader macro environment. In 2012 an undisciplined approach towards capacity additions on the key domestic routes resulted in yield erosion, to the detriment of profitability. We do not expect to see such a stark increase in capacity in 2013 but rather anticipate a more moderate, low-single-digit increase. This relative decline in capacity increases in 2013 should translate into a better yield profile than in 2012. As mining investment peaks in mid-2013 and the RBA continues to ease monetary policy, the stage is nicely set for growth in consumption, which we believe will support an increase in demand. This, coupled with benign capacity growth environment, should lead to improved profitability for QAN, especially given the high level of operating leverage inherent in airlines operating models. In addition, with the US economy continuing along its path to recovery, albeit more slowly than usual, the political environment in Europe becoming more accepting of the present situation and an improving growth trajectory in China, the outlook for the global economy is becoming more positive (from a very depressed base). An improvement in the global economic outlook should be positive for high-beta stocks like Qantas. Target price increased to A$1.81 We maintain our Outperform recommendation on the stock, with an upgraded target price of A$1.81 (from A$1.46), based on an 11x FY14F P/E multiple. QANs historical average P/E multiple is closer to 10x, but we believe there is more upside risk to our earnings than downside risk. Our target price remains at a 20% discount to 1.0x FY14F P/B, so we believe there is further upside from current levels.
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TRANSPORT
January 31, 2013

1H preview Reporting date 21 February Earnings guidance QAN has guided to 1H underlying PBT of A$180m-230m, including the compensation payments from Boeing (US$140m). Consensus Bloomberg consensus FY13F PBT is A$312m, 33% above our forecast of A$235m. We forecast QAN will achieve 1H PBT at the top end of its guidance range, but we believe QAN will find it challenging to achieve a profit in the 2H given the typical 1H earnings skew. Removing the benefit of the Boeing compensation payments in the 1H, underlying PBT is therefore only about A$100m, which we think equates to a break-even 2H. We believe the market is therefore overly optimistic on QANs 2H earnings.
Figure 31: QAN 1H earnings forecast summary
1H12A Total Revenue Operating Costs Operating EBITDAR Non-cancellable operating leases Operating EBITDA D&A Operating EBIT - Qantas - Jetstar - Freight - QFF - Corporate/Other Net Interest Expense PBT Taxation Minorities Normalised NPAT Abnormals (net of tax) Reported NPAT EPS DPS EBITDAR margin EBIT margin PBT margin NPAT margin 8,048.0 6,815.0 1,233.0 277.0 956.0 679.0 277.0 66.0 147.0 38.0 119.0 (93.0) (75.0) 202.0 59.2 0.0 142.8 (100.8) 42.0 6.3 0.0 15.3% 3.4% 2.5% 1.8% 2H12A 7,676.0 6,711.0 965.0 272.0 693.0 705.0 (12.0) (87.0) 56.0 7.0 112.0 (100.0) (95.0) (107.0) (32.6) (1.0) (75.4) (211.6) (287.0) -3.3 0.0 12.6% -0.2% -1.4% -1.0% FY12A 15,724.0 13,526.0 2,198.0 549.0 1,649.0 1,384.0 265.0 (21.0) 203.0 45.0 231.0 (193.0) (170.0) 95.0 26.6 (1.0) 67.4 (312.4) (245.0) 3.0 0.0 14.0% 1.7% 0.6% 0.4% 1H13F 8,220.8 6,848.1 1,372.8 294.7 1,078.0 746.6 331.4 0.4 127.9 35.0 127.8 40.3 (98.7) 232.7 69.8 (0.5) 162.4 (50.0) 112.4 7.2 0.0 16.7% 4.0% 2.8% 2.0% 2H13F 7,918.4 6,792.0 1,126.4 291.5 834.9 738.4 96.6 (24.9) 85.3 18.3 117.9 (100.0) (94.8) 1.8 (4.2) (0.5) 5.4 (50.0) (44.6) 0.2 0.0 14.2% 1.2% 0.0% 0.1% FY13F 1H13F v 1H12A FY13F v FY12A 16,139.2 13,640.1 2,499.2 586.2 1,912.9 1,485.0 427.9 (24.5) 213.2 53.3 245.7 (59.7) (193.4) 234.5 65.7 (1.0) 167.8 (100.0) 67.8 7.5 0.0 15.5% 2.7% 1.5% 1.0% 2.1% 0.5% 11.3% 6.4% 12.8% 10.0% 19.6% -99.4% -13.0% -7.9% 7.4% -143.4% 31.5% 15.2% 17.9% n/m 13.7% -50.4% 167.6% 5.0% nm 1.4pt 0.6pt 0.3pt 0.2pt 2.6% 0.8% 13.7% 6.8% 16.0% 7.3% 61.5% 16.7% 5.0% 18.4% 6.4% -69.1% 13.8% 146.8% 146.8% 0.0% 149.0% -68.0% -127.7% 19.6% nm 1.5pt 1.0pt 0.8pt 0.6pt

SOURCES: CIMB FOTRECASTS, COMPANY REPORTS

What to focus on: Domestic capacity outlook Our investment thesis on the stock is that the capacity additions we saw in 2012 will not be repeated, so the yield environment should become more favourable throughout the year. This expectation is supported by the recent trends observed in the CAPA data. Given the significant level of operating leverage in the Qantas model, an up-tick in yields would have a substantially positive impact on profits. Any confirmation of these trends from management should be well received by the market. Qantas International Short-term capacity fluctuations aside, the core investment case for Qantas is successfully returning the International business to profitability. To achieve this, various cost-cutting initiatives are under way. Incremental progress in these areas would provide the market with further confidence that these targets can be realised. Further discussion around the Emirates alliance would also be taken positively, in our view.

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TRANSPORT
January 31, 2013

Figure 32: QAN financial summary


YE June (A$m) Income statement Divisional sales Total revenue EBITDA Depreciation EBITA Amortisation/impairment EBIT Share of associate's NPAT EBIT(incl associate profit) Net interest expense Pre-tax profit Income tax expense After-tax profit Minority interests NPAT Significant items NPAT post abnormals Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr/(decr) in equity Incr/(decr) in debt Divestments Other financing cash flow Cash flow from fin (5) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2) Balance sheet Cash & deposits Trade debtors Inventory Investments Goodwill Other intangible assets Fixed assets Other assets Total assets Short-term borrowings Trade payables Long-term borrowings Net Debt (inc off b/s) Other liabilities Total liabilities Share capital Other reserves Retained earnings Total equity Minority interest Total shareholders' equity AIFRS 2011A 14894 14894 1893 1197 696 52 644 0.0 644 -92 552 137 415 1.0 416 -229 250 2011A 1893 -4 -59 2 -50 1782 -2497 0.0 0.0 -697 -65 -784 19 0.0 -188 -188 -715 2011A 3496 1027 372 476 219 3.0 20447 411 20858 577 1738 5454 6316 0.0 14707 4729 85 1405 4 6151 20858 AIFRS 2012A 15724 15724 1649 1325 324 59 265 1.0 266 -170 95 27 68 -1.0 67 -444 -245 2012A 1649 50 -115 -1 227 1810 -2304 0.0 0.0 -473 -50 -566 22 0.0 -118 -118 -494 2012A 3398 1111 376 457 219 23 20741 437 21178 1119 1876 5430 6995 0.0 15289 4729 36 1162 4 5889 21178 AIFRS 2013F 16139 16139 1913 1411 502 74 428 2.0 430 -193 234 66 169 -1.0 168 -100 68 2013F 1913 10 -247 -66 0 1611 -1816 0.0 337 545 -100 0 413 0.0 -205 -205 -205 2013F 3193 1140 386 457 219 23 20546 437 20983 469 1926 5430 6733 0.0 14689 4629 473 1230 5 6295 20983 AIFRS 2014F 16635 16635 2228 1503 725 67 658 3.0 661 -165 493 138 355 -1.0 354 0 354 2014F 2228 12 -264 -138 0 1839 -1974 0.0 78 -57 0.0 0.0 0.0 0.0 -57 -57 -135 2014F 3136 1175 398 457 219 23 21039 437 21476 469 1985 5430 7299 0.0 14748 4629 551 1584 6 6728 21476 AIFRS 2015F 17573 17573 2535 1580 955 60 895 4.0 899 -188 708 198 510 -1.0 509 0 509 2015F 2535 23 -254 -198 0 2107 -1810 0.0 0.0 262 0.0 0.0 0.0 0.0 262 262 297 2015F 3398 1242 420 457 219 23 21625 437 22062 469 2097 5430 7854 0.0 14860 4629 551 2058 7 7203 22062
SOURCES: CIMB FORECASTS, COMPANY REPORTS

Closing price (A$) Valuation metrics Multiples Enterprise value (A$m) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) PE (pre-goodwill) (x) At target price EV/EBITDA (x) PE (pre-goodwill) (x) Per share data No. shares No. shares (FD) EPS (reported) EPS (normalised) (c) Growth ratios Sales growth EBITDA growth EBITA growth EBIT PBT NPAT EPS (normalised) Divisional EBIT Qantas Jetstar Frequent Flyer Freight Divisional EBIT Growth Qantas Jetstar Frequent Flyer Freight Operating performance Asset turnover (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on net assets (%) Return on average equity (%) ROIC (%) Debt Metrics Net debt - inc off b/s (A$m) Net debt/equity (%) Net debt/Net debt+equity (%) Net Debt/EBITDA Net interest/EBIT cover (x)

1.50

Price target (A$)

1.81

2012A 3401.7 0.2 2.1 12.8 50.4 2012A 2.5 60.9 2012A 2265.1 2265.1 -10.8 3.0 2012A 6% -13% -53% 38% 46% 66% n/m 2012A -21.0 203.0 231.0 45.0 2012A n/m 20% -32% -27% 2012A 74% 10.5% 4.3% 0.4% 1.3% 1.1% 1.7% 2012A 6995.0 119% 54% 4.2 1.6

2012A 3345.0 0.2 1.7 7.8 19.9 2013F 2.1 24.0 2013F 2226.7 2226.7 3.0 7.5 2013F 3% 16% 55% -59% -83% -84% 153% 2013F -24.5 213.2 245.7 53.3 2013F n/m 5% 6% 18% 2013F 77% 11.9% 1.7% 1.0% 2.0% 2.8% 2.6% 2013F 6733.3 107% 52% 3.5 2.2

2012A 3230.6 0.2 1.5 4.9 9.1 2014F 1.8 11.0 2014F 2149.7 2149.7 16.5 16.5 2014F 3% 16% 44% 61% 147% 149% 118% 2014F 267.0 245.1 258.0 55.2 2014F n/m 15% 5% 4% 2014F 77% 13.4% 2.7% 2.1% 3.1% 5.4% 4.1% 2014F 7299.1 108% 52% 3.3 4.0

2012A 10317.3 0.6 4.1 11.5 6.1 2015F 4.3 7.4 2015F 2076.5 2076.5 24.5 24.5 2015F 6% 14% 32% 54% 110% 111% 49% 2015F 422.0 269.6 270.9 57.2 2015F 58% 10% 5% 4% 2015F 80% 14.4% 4.0% 2.9% 4.1% 7.3% 5.3% 2015F 7853.9 109% 52% 3.1 4.8

25

TRANSPORT
January 31, 2013

Virgin Australia remaining Neutral


We remain Neutral on VAH on valuation grounds. With the stock trading above book value and on a 12-month forward P/E of 13x, we think a good portion of the upside in VAH is captured in the share price. While operational improvements are certainly in train as management continues to alter the focus of the company in order capture a greater proportion of the high-yield, high-margin corporate market, we believe there is more earnings risk in VAH relative to QAN given the higher expectations generated by the turnaround. VAH benefited from competitor issues in FY12, with Tiger grounded for a period and QAN facing industrial action, but FY13 will likely be more challenging as yields are being negatively affected by the increased capacity. We therefore believe VAHs 1H result is likely to be below 1H12 and could therefore lead to earnings forecasts being trimmed by the market.
Figure 33: VAH one-year-forward P/E
20 18 16 14 12 2.5 10 8 6 4 2 0 04 05 06 07 08 09 10 11 12 Price to NTA (x) Long-run ave 3 year ave 2.0 1.5
1.0

Figure 34: VAH price-to-NTA


(x)

(x)

5.0 4.5 4.0 3.5 3.0

Title: Source:

Please fill in the values above to have them entered in your rep

0.5 0.0
03 04 05 06 07 08 09 10 11 12

SOURCE: DATASTREAM

SOURCES: DATASTREAM, COMPANY REPORTS

2013 outlook capacity, capacity, capacity Similar to Qantas, we think the greatest swing factor in Virgins earnings will be yield performance, which will be driven most significantly by the level of capacity in the market. In 2012, an undisciplined approach towards capacity additions on the key domestic routes resulted in yield erosion, to the detriment of profitability. We do not expect to see such a stark increase in capacity in 2013 but rather anticipate a more moderate low-single-digit increase. This relative decline in capacity increases in 2013 is supported by the CAPA data and should translate into a better yield profile than last year. As mining investment peaks in mid-2013 and the RBA continues to ease monetary policy, the stage is nicely set for growth in consumption, which should lead to an increase in demand. This, coupled with benign capacity-growth environment, should lead to strong margin expansion, especially given the high level of operating leverage inherent in airlines operating models. In addition, with the US economy continuing along its path to recovery, albeit more slowly than usual, the political environment in Europe becoming more accepting of the present situation and an improving growth trajectory in China, the outlook for the global economy is becoming more positive (from a very depressed base). An improvement in the global economic outlook should be positive for high-beta stocks like Virgin. Target price remains at A$0.44 Our 12-month target price remains at A$0.44, based on a 9.5x FY14F P/E multiple, the average one-year-forward P/E multiple that VAH has traded on over the past three years.

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TRANSPORT
January 31, 2013

1H preview Reporting date 26 February Guidance Management has provided no official guidance for FY13, but it has indicated that it expects underlying earnings growth from FY12 levels. Consensus Bloomberg consensus FY13F PBT is A$121m, 14% above our forecast of A$106m.

Figure 35: VAH 1H earnings preview


(A$m) Revenue - Domestic - International Operating costs EBITDAR Operating lease expense EBITDA D&A EBIT - Domestic - International - Other Income from associates Net interest PBT Tax NPAT Significant items Reported NPAT Normalised EPS (cps) DPS (cps) EBIT margin (%) - Domestic - International 1H12A 2006.1 1482.8 551.7 -1674.1 332.0 -79.2 252.8 -125.6 127.2 92.4 35.1 0.3 0.3 -22.1 105.4 -33.9 71.5 -19.7 51.8 3.2 0.0 6.3% 6.2% 6.4% 2H12A 1913.2 1465.1 501.7 -1705.4 207.8 -106.1 101.7 -106.9 -5.2 23.2 0.3 -29.3 -0.1 -17.6 -22.9 12.9 -10.0 -19.0 -29.0 -0.4 0.0 -0.3% 1.6% 0.1% FY12A 3919.3 2947.9 1053.4 -3379.5 539.8 -185.3 354.5 -232.5 122.0 115.6 35.4 -29.0 0.2 -39.7 82.5 -21.0 61.5 -38.7 22.8 2.8 0.0 3.1% 3.9% 3.4% 1H13F 2203.6 1586.6 617.9 -1853.9 349.7 -114.6 235.1 -120.5 114.6 74.2 40.4 0.0 0.3 -23.2 91.7 -27.5 64.2 0.0 64.2 2.9 0.0 5.2% 4.7% 6.5% 2H13F 2091.3 1554.6 532.6 -1836.1 255.1 -86.9 168.2 -130.6 37.7 29.4 8.3 0.0 -0.1 -22.9 14.7 -4.4 10.3 0.0 10.3 0.5 0.0 1.8% 1.9% 1.6% FY13F 4294.9 3141.2 1150.5 -3690.1 604.8 -201.5 403.3 -251.1 152.2 103.6 48.7 0.0 0.2 -46.1 106.4 -31.9 74.5 0.0 74.5 3.4 0.0 3.5% 3.3% 4.2% 1H13F vs 1H12A 9.8% 7.0% 12.0% 10.7% 5.3% 44.8% -7.0% -4.0% -9.9% -19.7% 15.0% n/m 0.0% 4.8% -13.0% -18.9% -10.2% -100.0% 23.9% -9.7% n/m -1.1pt -1.6pt 0.2pt FY13F vs FY12A 9.6% 6.6% 9.2% 9.2% 12.0% 8.8% 13.8% 8.0% 24.8% -10.4% 37.5% n/m 0.0% 16.0% 28.9% 52.0% 21.0% -100.0% 226.6% 21.7% n/m 0.4pt -0.6pt 0.9pt

SOURCES: CIMB FORECASTS, COMPANY REPORTS

With VAH coming off a strong 1H in the prior period (benefiting from Tigers grounding and QANs industrial relations issues) and current yields under pressure from capacity increases, we expect 1H13 PBT to be 13% lower than 1H12. However, we still expect the full-year result to be ahead of FY12 as the 2H benefits from lower earnings seasonality impacts due to growing (and more stable) earnings contributions from corporate travel. We expect Domestic to account for most of the decline in earnings versus the prior period, as it was the business segment directly benefiting from competitors issues in 1H12. What to focus on Corporate customer growth VAH is focused on increasing its exposure to the high-yield, high-margin corporate market. Having achieved its target of 20% of customers a year ahead of target, should the company provide a new ambitious target it may give the share price a boost on the day. However, the low-hanging fruit in this initiative has already been completed (cabin and entertainment upgrade completed), so we expect only incremental shifts in the product mix from here. Costs Naturally VAH has had to invest in its offering in order to attract the corporate market. While yield growth from the changing customer mix has been strong, well be keen to see if VAH can maintain a yield-growth advantage over its unit-cost growth.

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Figure 36: VAH financial summary


YE June (A$m) Income statement Divisional sales Total revenue EBITDA Depreciation EBITA Amortisation/impairment EBIT Share of associate's NPAT EBIT(incl associate profit) Net interest expense Pre-tax profit Income tax expense After-tax profit Minority interests NPAT Significant items NPAT post abnormals Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr/(decr) in equity Incr/(decr) in debt Ordinary distribution paid Cash flow from fin (5) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2) Balance sheet Cash & deposits Trade debtors Inventory Investments Goodwill Other intangible assets Fixed assets Total assets Short-term borrowings Trade payables Long-term borrowings Net Debt Other liabilities Total liabilities Share capital Other reserves Retained earnings Total equity Total shareholders' equity Total liabilities & SE AIFRS 2011A 3268.3 3270.8 200.8 225.8 -25.0 0.0 -25.0 0.2 -24.8 -48.2 -73.0 -20.5 -52.5 0.0 -52.5 -15.3 -67.8 2011A 200.8 111.6 -55.1 0.0 -7.7 249.6 -507.6 202.2 -16.1 -321.5 0.0 3.0 0.0 3.0 -68.9 -258.0 2011A 731.3 199.5 5.1 7.5 81.1 60.2 3700.0 3841.3 227.3 395.9 1412.6 908.6 45.6 2915.0 633.3 72.8 220.2 926.3 926.3 3841.3 AIFRS 2012A 3916.4 3919.3 354.5 232.5 122.0 0.0 122.0 0.2 122.2 -39.7 82.5 21.0 61.5 0.0 61.5 -38.7 22.8 2012A 354.5 93.6 -50.8 0.0 -82.9 314.4 -648.7 460.0 -46.1 -234.8 0.0 -0.8 0.0 -0.8 78.8 -334.3 2012A 802.6 202.8 14.9 7.7 101.0 85.5 3808.7 3995.2 254.0 505.5 1420.1 871.5 36.1 3065.5 633.3 53.4 243.0 929.7 929.7 3995.2 AIFRS 2013F 4291.7 4294.9 403.3 251.1 152.2 0.0 152.2 0.2 152.4 -46.1 106.4 31.9 74.5 0.0 74.5 0.0 74.5 2013F 403.3 107.4 -46.1 -31.9 0.0 432.8 -417.8 0.0 0.0 -417.8 0.0 0.0 0.0 0.0 15.0 15.0 2013F 817.6 220.4 2.5 7.9 101.0 85.5 3995.8 4182.3 254.0 493.9 1420.1 856.5 36.1 3178.2 633.3 53.4 317.5 1004.2 1004.2 4182.3 AIFRS 2014F 4480.9 4484.2 489.0 259.2 229.8 0.0 229.8 0.2 230.0 -80.7 149.3 44.8 104.5 0.0 104.5 0.0 104.5 2014F 489.0 56.0 -80.7 -44.8 0.0 419.5 -359.2 0.0 0.0 -359.2 0.0 69.4 0.0 69.4 129.7 60.3 2014F 947.3 230.1 2.6 8.1 101.0 85.5 4235.5 4422.0 254.0 515.7 1489.5 796.1 36.1 3313.4 633.3 53.4 422.0 1108.7 1108.7 4422.0 AIFRS 2015F 4661.8 4665.3 549.2 267.3 281.9 0.0 281.9 0.2 282.1 -68.8 213.3 64.0 149.3 0.0 149.3 0.0 149.3 2015F 549.2 44.3 -68.8 -64.0 0.0 460.7 -347.8 0.0 0.0 -347.8 0.0 0.0 0.0 0.0 112.9 112.9 2015F 1060.2 239.4 2.7 8.3 101.0 85.5 4438.6 4625.1 254.0 536.5 1489.5 683.2 36.1 3367.1 633.3 53.4 571.3 1258.0 1258.0 4625.1
SOURCES: CIMB FORECASTS, COMPANY REPORTS

Closing price (A$) Valuation metrics Multiples Enterprise value (A$m) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) PE (pre-goodwill) (x) At target price EV/EBITDA (x) PE (pre-goodwill) (x) Per share data No. shares No. shares (FD) EPS (reported) EPS (normalised) (c) Dividend per share (c) Dividend payout ratio (%) Dividend yield (%) Growth ratios Sales growth EBITDA growth EBITA growth

3.67

Price target (A$)

4.00

2012A 8145.4 2.1 23.0 66.8 131.8 2012A 25.0 131.8 2012A 2209.6 2209.6 1.0 2.8 0.0 0% 0% 2012A 20% 77% n/m

2013F 11287.5 2.6 28.0 74.2 108.9 2013F 29.8 108.9 2013F 2209.6 2209.6 3.4 3.4 0.0 0% 0% 2013F 10% 14% 25%

2014F 11422.7 2.5 23.4 49.7 77.6 2014F 24.9 77.6 2014F 2209.6 2209.6 4.7 4.7 0.0 0% 0% 2014F 4% 21% 51%

2015F 11476.4 2.5 20.9 40.7 54.3 2015F 22.2 54.3 2015F 2209.6 2209.6 6.8 6.8 0.0 0% 0% 2015F 4% 12% 23%

Operating performance Asset turnover (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on net assets (%) Net debt (A$m) Net debt/equity (%) Net debt/(ND+equity) (%) Net interest/EBIT cover (x) ROIC (%) ROCE (%) Return on average equity (%) Divisional Revenue Domestic International Expenses Breakdown Aircraft operating costs Airport Charges Maintenance Commissions and other A&P Fuel and oil Labour and staff Other expenses Total

2012A 1542% 9% -1% 2% 2% 871.5 22% 48% 3.1 7% 6% 7% 2012A 2864.1 1052.3 2012A 217.1 669.0 186.2 275.7 1043.8 841.4 331.6 3564.8

2013F 869% 9% 3% 2% 2% 856.5 20% 46% 3.3 7% 7% 7% 2013F 3141.2 1150.5 2013F 236.7 722.2 204.9 300.5 1141.8 899.4 386.0 3891.6

2014F 869% 11% 4% 2% 2% 796.1 18% 42% 2.8 9% 9% 9% 2014F 3284.0 1196.9 2014F 246.2 751.3 215.3 318.8 1130.3 935.7 397.6 3995.3

2015F 869% 12% 5% 3% 3% 683.2 15% 35% 4.1 12% 11% 12% 2015F 3416.7 1245.1 2015F 254.6 776.9 222.7 329.7 1167.2 957.9 407.1 4116.1

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Distribution of stock ratings and investment banking clients for quarter ended on 31 December 2012 821 companies under coverage Rating Distribution (%) Outperform/Buy/Trading Buy Neutral Underperform/Sell/Trading Sell 54.5% 34.1% 11.5% Investment Banking clients (%) 9.0% 3.4% 8.6%

Recommendation Framework #1 *

Stock
OUTPERFORM: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 3 months. relevant relevant relevant relevant relevant

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Korea Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

Recommendation Framework #2 **

Stock
OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months. NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months.

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.

UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months. TRADING BUY: Expected positive total returns of 10% or more over the next 3 months. TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

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TRANSPORT
January 31, 2013

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.
AAV not available, ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH - Good, BEC - Very Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Very Good, ITD - Good, IVL - Very Good, JAS Very Good, KAMART not available, KBANK - Excellent, KK Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM Very Good, TICON Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good, WORK Good.

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