“In Singapore, this research report or research analyses may only be distributed “Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd to Institutional Investors, Expert Investors or Accredited Investors as defined in the (“DBSVR”), are to contact DBSVR at +65 6398 7954 in respect of any matters arising Securities and Futures Act, Chapter 289 of Singapore.” from or in connection with this report.”

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

BUY Bt38.00 SET : 1,042.41 (Initiating Coverage) Price Target : 12-Month Bt 55.00 Reason for Report : Initiating coverage Potential Catalyst: Growing demand from optical/photovoltaic (PV) industries, delay in start-up of new capacity Analyst Naphat Chantaraserekul +662 657 7826 naphatc@th.dbsvickers.com

Price Relative

2 .70

7 .70

12 .70

17 .70

22 .70

27 .70

32 .70

37 .70

42 .70

2007 2008 2009 2010 2011

Bt

86

186

286

386

486

586

686

786

Relative Index

Polyplex ( Thailand ) ( LHS ) Relative SET INDEX ( RHS ) Forecasts and Valuation FY Mar (Bt m) 2010A 2011F 2012F 2013F

Turnover 7,125 10,599 12,094 14,653 EBITDA 1,465 3,575 3,842 4,553 Pre-tax Profit 1,056 3,005 3,120 3,778 Net Profit 1,039 2,730 2,835 3,434 Net Pft (Pre Ex.) 977 2,730 2,835 3,434 EPS (Bt) 1.3 3.4 3.5 4.3 EPS Pre Ex. (Bt) 1.2 3.4 3.5 4.3 EPS Gth Pre Ex (%) 7 180 4 21 Diluted EPS (Bt) 1.3 3.4 3.5 4.3 Net DPS (Bt) 0.5 1.4 1.4 1.7 BV Per Share (Bt) 6.2 10.0 12.1 15.0 PE (X) 29.2 11.1 10.7 8.9 PE Pre Ex. (X) 31.1 11.1 10.7 8.9 P/Cash Flow (X) 21.8 9.6 8.9 7.4 EV/EBITDA (X) 22.2 9.4 8.7 6.8 Net Div Yield (%) 1.4 3.6 3.7 4.5 P/Book Value (X) 6.1 3.8 3.1 2.5 Net Debt/Equity (X) 0.4 0.4 0.3 0.0 ROAE (%) 21.7 42.1 32.1 31.6 Consensus EPS (Bt): 4.9 5.8 5.8 ICB Industry : Materials ICB Sector: Paper Packaging Principal Business: PTL is the world’s 4th largest PET film producer with 7% market share. The company has operations in Thailand and Turkey. Source of all data: Company, DBS Vickers, Bloomberg

At A Glance Issued Capital (m shrs) 800 Mkt. Cap (Btm/US$m) 30,400 / 1,011 Major Shareholders Polyplex (Asia) Pte. Ltd. (%) 43.5 Polyplex Corp. Ltd. (%) 16.5 Mr. Paiwan Chartpitan (%) 4.8 Free Float (%) 40.0 Avg. Daily Vol.(‘000) 26,582

DBS Group Research . Equity 5 Jan 2011

Thailand Company Focus

Polyplex (Thailand) Bloomberg: PTL TB | Reuters: PTL.BK

Packing a big punch in 2011

FY11F earnings is expected to grow almost 3-folds, pacifying doubts of sustainability of high spreads

Tight supply due to structural change in applications,lag of start-up new capacity, and benefiting from weakness in feedstock (MEG) prices

Thailand’s small cap proxy (added to FTSE Global Small Cap in Dec 2010); recommend BUY with Bt55/sh TP

Earnings growth supported by backward, forward expansion. This will be the key earnings driver that will support further run-up in PTL share price. Backward integration would improve efficiency, while forward expansion would allow PTL to command at least US$500/ton higher margin than for plain film. PTL, the world’s 4th largest film producer, will benefit from a structural change in film applications as well as demand growth (9% CAGR from 2009-2014). Tight supply will not be solved in 2011. This would be due to 3 main factors: (i) increase in global demand for non-packaging applications, such as electronic and photovoltaic/solar components, (ii) delay in start-up of new film capacity due to 2008-09 recession, (iii) anti-dumping measures against producers in China, Taiwan, S. Korea, India, and Brazil, forcing them to exit the US market. The US is one of two major net importers of PET film. BUY, DCF-based TP of Bt55/sh. Applying the DCF valuation on a cyclical business is challenging, but in PTL’s case, it is necessary because of the capacity expansion (completion in 2H FY12). Our TP implies 15x FY12F and 13x FY13F PER, and 0.3x PEG based on fully diluted PE vs 3-year EPS CAGR. PTL is a component of the FTSE Global Small Cap. Key risk is further divestment by its parent company. We would recommend buying PTL at below Bt40/sh.

Company Focus

Polyplex (Thailand)

Page 2

SWOT Analysis

Strengths Weakness

PET film demand is resilient to economic cycles Packaging, industrial, and electronic segments (PTL’s key products) account for 92% of global PET film consumption Strong economies of scale through capacity expansion (world’s 4th largest PET film producer) Fully integrated PET film production lines (from PET resin to PET film) Low effective tax rate due to tax privilege for new plants 2 facilities in major regions (Thailand and Turkey)

Exposure to weak European economy

Opportunities Threats

Structural shift in PET film industry (some thin film capacities shifted to produce thick film) Strong 9% CAGR for packaging from 2010-2014 Declining key feedstock, MEG, prices due to oversupply situation Anti-dumping measures imposed by the US on producers in China, Taiwan, S. Korea, India, and Brazil

Increase in crude oil price would drive up feedstock cost Supply turning to surplus in 2012

Source: DBS Vickers Glossary: BOPET = Biaxially Oriented Polyethylene Terephthalate. CPP = Cast Polypropylene MEG = Mono Ethylene Glycol PET = Polyethylene Terephthalate PTA = Purified Terephthalic Acid PP = Polypropylene

Company Focus

Polyplex (Thailand)

Page 3

Company Background Polyplex (Thailand) (PTL) was established in April 2002 by Polyplex Corporation of India. The company commenced operation in April 2003 with 15k tons annual capacity for Polyethylene Terephthalate (PET) film in Thailand, and expanded capacity to 39K tons via a de-bottlenecking in 2005. But with utilization constantly exceeding 100%, PTL raised nameplate capacity for PET film to 42k tons in 2010. PTL set up operations in Turkey in 2005 with 24k tons annual capacity of PET film to serve demand in the Middle East and Europe. The company has been expanding upstream and downstream in Thailand and Turkey, including expanding into

extrusion coating film, and cast polypropylene plain and metallized film. PTL will be completing the silicone coating line in 2H FY2011-12, and expansion of PET resin, PET film and metallized film line in Turkey in 4Q FY2011-12. PTL’s PET films are used in 3 market segments - packaging, industrial, and electrical - which together represent 92% of global PET film consumption. PTL was listed on the SET in December 2004 with an IPO price of Bt6.9/sh.

PTL: Capacity breakdown (unit: tons)

Location Stake (%) Product 2007 2008 2009 2010F 2011F 2012F Note

Thailand 100% PET resin 52,500 52,500 52,500 52,500 52,500 52,500

PET film 39,000 39,000 42,000 42,000 42,000 42,000

Metallized film 4,800 10,500 11,000 11,000 11,000 11,000

Extrusion coating film (mil sqm) 150 150 150 150 150

Cast Polypropylene (CPP) film 10,000 10,000 10,000 10,000

Cast Polypropylene (CPP) Metallized film 4,200 4,200 4,200 4,200

Silicone coating – NEW (mil sqm) 400-600 400-600 Expansion to complete in 2H FY2011-12

Turkey 100% PET resin 57,600 57,600 57,600 79,200 79,200 Expansion to complete in 1H FY2011-12

PET film 24,000 29,000 58,000 58,000 89,000 89,000 Expansion to complete in 4Q FY2011-12

Metallized film 5,000 5,000 11,00 11,000 19,600 19,600 Expansion to complete in 4Q FY2011-12

Source: Company

Sales Trend Profitability Trend

02,0004,0006,0008,000

10,00012,00014,00016,000

2008A 2009A 2010A 2011F 2012F 2013F

Bt m

0

10

20

30

40

50

60%

Total Revenue Revenue Growth (%) (YoY)

0500

1,0001,5002,0002,5003,0003,5004,000

2008A 2009A 2010A 2011F 2012F 2013F

Bt m

Oper profit Pretax profit Net profit

Source: Company, DBS Vickers

Company Focus

Polyplex (Thailand)

Page 4

Shareholding structure. PTL is 60%-owned by Polyplex Corporation of India (PCL India), and the remaining 40% is owned by the public. The company also has 100% stake in distribution companies in China, and 80% stake in the US operations. The company has had a paid-up capital of Bt800m (Par Bt1) since IPO in December 2004.

In Nov 2010, PCL India divested 10% stake in PTL (through Polyplex (Asia) Pte. Ltd.). PTL said that this was to improve liquidity of the stock and PCL India wanted to use the proceeds to reduce debt in the parent company. PCL India has no plans to sell down its stake further.

PTL Corporate Structure

Source: Company, DBS Vickers

Polyplex Corporation Limited INDIA

Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Sirketi TURKEY

Private Investor Public

Institutional Shareholders

Polyplex (America) USA

Polyplex (Thailand)

THAILAND

Polyplex (Asia) Pte. Ltd.

SINGAPORE

Polyplex (Singapore) Pte. Ltd.

SINGAPORE

Polyplex Trading (Shenzhen) Co. Ltd.

CHINA

Manufacturing Company

Outside Interest

Investment Company

Distribution Company

100%

16.5% 9.88%

9.88%

80.24%

40%

100%

100%

100%

43.5%

Company Focus

Polyplex (Thailand)

Page 5

PTL’s products PTL produces biaxially oriented Polyethylene Terephthalate (BOPET), which is mainly split into ‘thin’ and ‘thick’ films. Thin film is 50 microns or less, while thick film is over 50 microns. Industry capacity is identified by film thickness. The major end uses of BOPET can be categorised into five segments - packaging, industrial, electrical, imaging, and magnetic media. Thin film accounts for almost 75% of total global PET film consumption, and the balance thick film. PTL produces ‘thin’ film ranging from 12 to 50 micron. These are used in three market segments - packaging, industrial, and electronics. PTL: PET film application

Application Products

1) Packaging Thin film is used in the packaging of consumer products e.g. coffee, snacks, fabric softener, detergents.

2) Industrial Foil wrap is used to cover air conditioning pipes. 3) Electrical Wire/cable wrap, membrane switches, flexible

printed circuits, capacitors, motor insulation

Source: Company, DBS Vickers BOPET: Thin film application

Source: Company, DBS Vickers

BOPET: Thick film application

Source: Company, DBS Vickers The value chain PTL uses Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG) as main feedstock to produce PET resin. The resin is then processed into base film. To produce one ton of PET resin, it would require 87% of 1-ton PTA and 35% of 1-ton MEG. 76% of PTL’s 2009 group sales were for the packaging application. Packaging accounts for more than 50% of global thin film consumption. PTL produces a variety of thin films that feature high clarity and gloss, temperature control, and oxygen resistance. PTL: Production value chain

Source: Company, DBS Vickers

PTA Supplier

MEG Supplier

P

E

T

R

E

S

I

N

B

A

S

E

F

I

L

M

S

Coa

ting

Met

alliz

ing

Industrial Buyers

Converters

FMCG Companies

Company Focus

Polyplex (Thailand)

Page 6

PTL also uses polypropylene (PP) resin to produce cast polypropylene (CPP) plain film, which has feature of twist grade, metallized grade. PTL buys PP from external suppliers. PTL: Cast Polypropylene (CPP) value chain

Source: Company, DBS Vickers Expansion into high value-added products PTL recently diversified into higher value-added ‘silicone coating’ at its Thailand facilities. This product is used for label liners, graphic art, medical liners, and shingle tapes. The company has also received approval to expand capacities for PET resin, PET film, and metallized film at its Turkey plant. Both these projects would require a total of US$98.4m investment, which will be funded by debt and internal cash flow. The silicone coating line and expansion in Turkey are scheduled to be completed in 1H FY11-12 and 4Q FY11-12, respectively. PTL: Expansion projects

Project Silicone coating Capacity expansion Location Thailand Turkey Amount (US$m) 19.4 79

Capacity 10k tons

28k tons - PET resin 31k tons - thin film 8.6k tons - metallized film

Target market Europe, US, and Asia Europe, Asia

Completion 1H FY11-12 4Q FY11-12

Source: Company, DBS Vickers Value-added products command about US$500-1,600/ton more than normal plain film. Revenue contribution from value-added products has increased to 42% in 1H FY11, from 25% in FY06-07. Post expansion, we expect this to rise to 44% in FY12.

PTL: Increasing value added products 75% 71%

62%57% 56% 56%

63%

25% 29%37% 38% 43% 44% 44%

0%10%20%30%40%50%60%70%80%

FY06-

07FY07-

08FY08-

09FY09-10 FY10-11 FY11-12 FY12-13

Plain film Value added film

Source: Company, DBS Vickers Value added spread

0200400600800

1000120014001600

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

E

2011

E

2012

E

US$/ton

Source: Company, DBS Vickers Growth opportunities PET spreads reached a record high of US$2,500/ton at end 2010 driven by three main factors: (i) increase in global demand for non-packaging applications such as in electronics and photovoltaic / solar components, (ii) limited new film capacity due to 2008-09 recession, (iii) anti-dumping measures against producers in China, Taiwan, S. Korea, India, and Brazil, forcing these suppliers to exit the US market. 1) Structural shift in applications This has resulted from growing demand for thick films, which are used in flat screen TVs and touch screen panels, and for new applications such as in the optical industry / photovoltaic / solar components. This has prompted the conversion of thin film production lines into thick film lines to cater for the new applications. But it has also caused a severe shortage of thin film for packaging, industrial, and electrical applications. This structural change has driven PET film spreads to current US$2,500/ton, from US$1,158/ton in 2009.

Copolymer

Hamopolymer

Met

alliz

ing

Converters

For Lamination.

Printing, Pouch

Making Coating, Size &

Cutting etc. End

Customers

Lamination Grade film

MetallisableGrade film

Terpolymer

PP

res

in

Company Focus

Polyplex (Thailand)

Page 7

PET film prices and spread

1,0611,229 1,3181,402

1,092953 779 916

1,096 1,158

1,7892,1672,132

0500

1,0001,5002,0002,5003,0003,500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

E

2011

E

2012

EPET film price PTA & MEG cost PET film spread

US$/ton

Source: Company, DBS Vickers 2) Limited new film capacity in 2011 We estimate there will be 210k tons net capacity addition in 2011 but supply remains short of 55k tons. Hence, supply will remain tight in the next 12 months, as it normally takes 1.5-2 years to install new capacity while demand for thin film is expected to grow at 9% CAGR from 2009 to 2014. PET film demand vs. supply

(unit: k tons) 2010 2011F 2012F 2013F Demand 1,810 1,975 2,155 2,350 Supply 1,810 1,890 2,100 2,390 Demand growth 165 180 195 210 Net capacity addition 80 210 290 180 Supply - demand situation (85) (55) 40 10 Shortage Shortage Excess Balanced

Source: Company Note: Calendar year 3) Anti-dumping measures by the US The US government has imposed anti-dumping duties on PET film imported from China, Taiwan, S. Korea, India, and Brazil. This has substantially raised import duties to 70%-100%+ depending on film grade and country of origin. However, this has been enforced for several years now, and it is unclear when it would be lifted. The import duty for PTL’s products is at the normal rate of 4.2%, making its products competitive. Currently, the US and Japan are the two major net PET film importers. Western Europe is balanced. Going forward, PET film demand should be mainly driven by developing countries in Asia, the US, and Japan.

Industry outlook Film demand to grow at 9% CAGR from 2009 to 2014 The packaging, industrial and electric segments (PTL’s main products) accounted for 92% of global PET film consumption in 2009, against 83% in 2004. We expect this to increase to 96% in the next 4 years or by 2014. PET Demand for each segment

43%52%

55%

24%

26%

28%

17%

14%

12%

4%

7%

12%5%

1%

-500

1,0001,5002,0002,5003,0003,5004,000

2004 2009 2014E

K tons

Packaging Other Industrial Electrical Imaging Magnetic Tape

Source: Company, DBS Vickers The Electrical segment is expected to register the highest CAGR of 13%, driven by demand for flat screen TVs and touch screen panels. The packaging segment should grow at 10% CAGR during the same period. Overall, thin film consumption should grow at 9% CAGR. PET film demand is resilient to the economic cycle, as reflected in the growth in 2008-2009 during the global crisis. Demand growth for PET film

1149 1249474 524 568 616 638 617

659 710 766820

868

202 222 255 293 333 338389

444 508575

630

211 198 181 178 172 167160

154147

140137

94 55 42 32 28 2217

1511

97

951

1392

842

1545 16981863 2030

7341046

-

1,000

2,000

3,000

4,000

2004

2005

2006

2007

2008

2009

2010

E

2011

F

2012

F

2013

F

2014

F

k tons

Packaging Other Industrial ElectricalImaging Magnetic Tape

Expected 9% CAGR

7% CAGR

Source: Company, DBS Vickers

Company Focus

Polyplex (Thailand)

Page 8

Key Risks Excess supply in 2012 There is a total of 1.8m tons of PET film capacity globally, while demand is at similar levels. We estimate demand will grow by 180k tons in 2011, slightly below the 210k tons of net new capacity. But due to the lead-time to ramp up new capacity, we believe the market should remain tight for 2011. However, in 2012, an estimated 290k tons of net new capacity will enter the market. This would outpace demand growth by 40k tons. Hence, we expect PET film spreads to soften but remain high at US$2,100/ton levels, compared to US$1,158 in 2009. The more balanced demand-supply dynamics should support spreads at current levels until 2013. PET film demand vs. supply

(unit: k tons) 2010 2011F 2012F 2013F Demand 1,810 1,975 2,155 2,350 Supply 1,810 1,890 2,100 2,390 Demand growth 165 180 195 210 Net capacity addition 80 210 290 180 Supply - demand situation (85) (55) 40 10 Shortage Shortage Excess Balanced

Source: Company Note: Calendar year

Stake divestment by major shareholder. Polyplex Corporation of India (PCL India) divested 10% stake in PTL (through Polyplex (Asia) Pte. Ltd.) in Nov 2010, reducing its holding to 60%. PCL India has no plans to sell down further, but if PTL’s share price continues to do well, PCL India may decide to raise liquidity by divesting more. We believe it will not dilute its shareholding to below 50% in order to retain control of PTL.

Company Focus

Polyplex (Thailand)

Page 9

Segmental Analysis Rising contribution from value-added products. These value-added products include chemically coated film, metallized film (PET, CPP), and thermal laminated film. They command higher selling prices than plain film. PTL is expanding the silicone coating film capacity at its Thailand facilities, and is expanding capacity (upstream and downstream) at its Turkey plant. We forecast revenue contribution from value-added products will increase to 44%

in FY12 from 37% last year. We assumed PET film price of US$3,300/ton for FY12-13 and spreads of about US$2,100/ton for both years. Operating profit margin should soften in FY12 and FY13 to 26.3% and 26%, respectively (from 29.3% in 2011), premised on anticipated higher feedstock prices (PTA, MEG).

Segmental Analysis

FY Mar 2010A 2011F 2012F 2013F

Revenues (Bt m) PET film 4,489 6,074 6,725 8,275 Value added film 2,636 4,525 5,369 6,379 Total 7,125 10,599 12,094 14,653 Sales breakdown (%) PET film 63 57 56 56 Value added film 37 43 44 44 Total 100 100 100 100 Margins (%) Cash profit margin 29.3 43.3 41.1 40.5 Gross profit margin 24.3 39.3 36.3 36.0 Operating profit margin 14.0 29.3 26.3 26.0 Net profit margin 14.6 25.8 23.4 23.4 EBITDA margin 20.6 33.7 31.8 31.1 Source: Company, DBS Vickers Key Assumptions

FY Mar (Bt m) 2010A 2011F 2012F 2013F

FX (Bt/US$) 33.5 32.3 31.6 30.7 Utilization rate (%) 97.0 100.0 100.0 100.0 PET film price (US$/ton) 2,430 2,130 3,000 3,300 Valued added: Metallized film (US$/ton) 2,730 3,800 4,100 4,100 PTA (US$/ton) 900 820 900 900 MEG (US$/ton) 800 850 1,000 1,100 PP resin (US$/ton) 1,150 1,170 1,250 PET film spread (US$/ton) 1,158 1,989 2,167 2,132 CAPEX (US$m) 11 56 57 10 Source: Company, DBS Vickers

Company Focus

Polyplex (Thailand)

Page 10

Quarterly / Interim Performance Best quarter yet to come. Despite record profit of Bt762m (EPS Bt0.95) in 2QFY11, we expect stronger quarterly earnings in 3Q and 4Q FY11 led by a surge in demand and tight supply. This demand-supply imbalance had driven PET film prices to US$3,500-4,000/ton currently, from US$2,100 last year (FY09-10). PTL will benefit as raw material prices have increased only marginally.

Stellar earnings in 2HFY11. For 2HFY11, we expect PTL to register Bt1.6bn profit (EPS: Bt1.98), up 36% h-o-h. This would take full-year earnings growth to 165%.

Quarterly / Interim Income Statement (Bt m)

FY Mar 3Q2010 4Q2010 1Q2011 2Q2011

Turnover 1,804 1,821 2,040 2,546 Cost of Goods Sold (1,377) (1,354) (1,488) (1,532) Gross Profit 426 467 551 1,015 Other Oper. (Exp)/Inc (194) (198) (191) (192) Operating Profit 232 269 360 823 Other Non Oper. (Exp)/Inc 25 28 13 15 Associates & JV Inc 0 0 0 0 Net Interest (Exp)/Inc (27) (23) (22) (22) Exceptional Gain/(Loss) 20 86 80 (24) Pre-tax Profit 251 360 431 792 Tax 6 (9) (14) (22) Minority Interest 3 (3) (5) (7) Net Profit 260 348 412 762 Net profit bef Except. 239 262 332 786 EBITDA 257 298 373 838 Sales Gth (%) 4.8 1.0 12.0 24.8 EBITDA Gth (%) 1.4 15.8 25.4 124.5 Operating Profit Gth (%) 2.3 16.1 33.7 128.7 Net Profit Gth (%) 29.6 34.0 18.5 84.8 Gross Margins (%) 23.6 25.7 27.0 39.9 Operating Margins (%) 12.9 14.8 17.6 32.3 Net Profit Margins (%) 14.4 19.1 20.2 29.9 Source: Company, DBS Vickers

Company Focus

Polyplex (Thailand)

Page 11

Financials – Income Statement Earnings growth through to FY13F. We forecast earnings growth will ease to 4% in FY12 premised on forecast higher raw material prices. But earnings should grow by 21% following year when value-added projects in Thailand and expanded capacity in Turkey commence operations (2HFY12). Low effective tax rate. We expect PTL’s effective tax rate to rise to 9% in FY11-13F, from 1% in the past 5 years. This is because the tax privilege for plain film line 1 will expire in April 2011, and for plain film line 2 and PET resin, it will expire in Nov 2011. As a result, PTL’s tax rate will rise to an

estimated 15% for these projects in the following 5 years, raising its effective tax to 9%. Healthy margins. We forecast operating margins will peak at 29% in FY11 before softening to 26% in FY12-13F, due to improving balance of demand and supply and our expectation that raw material prices would increase once the oversupply situation for MEG eases.

FY Mar (Bt m) 2008A 2009A 2010A 2011F 2012F 2013F

Turnover 6,399 6,860 7,125 10,599 12,094 14,653 Cost of Goods Sold (4,950) (5,079) (5,394) (6,435) (7,698) (9,380) Gross Profit 1,449 1,781 1,731 4,164 4,396 5,273 Other Opg (Exp)/Inc (598) (704) (734) (1,060) (1,209) (1,465) Operating Profit 851 1,077 997 3,104 3,187 3,808 Other Non Opg (Exp)/Inc 111 75 111 50 80 80 Associates & JV Inc 0 0 0 0 0 0 Net Interest (Exp)/Inc (91) (219) (115) (150) (147) (110) Exceptional Gain/(Loss) (46) 128 63 0 0 0 Pre-tax Profit 826 1,061 1,056 3,005 3,120 3,778 Tax (9) (14) (12) (270) (281) (340) Minority Interest (3) (5) (4) (4) (4) (4) Preference Dividend 0 0 0 0 0 0 Net Profit 814 1,042 1,039 2,730 2,835 3,434 Net profit before Except. 859 914 977 2,730 2,835 3,434 EBITDA 1,187 1,495 1,465 3,575 3,842 4,552.9 Sales Gth (%) 35.6 7.2 3.9 48.8 14.1 21.2 EBITDA Gth (%) 92.3 25.9 (2.0) 144.1 7.5 18.5 Operating Profit Gth (%) 151.7 26.5 (7.4) 211.5 2.7 19.5 Net Profit Gth (%) 138.0 28.1 (0.2) 162.6 3.8 21.1 Effective Tax Rate (%) 1.1 1.3 1.2 9.0 9.0 9.0 Source: Company, DBS Vickers

Sales Trend Operating Cost Trend Profitability Trend

02,0004,0006,0008,000

10,00012,00014,00016,000

2008A 2009A 2010A 2011F 2012F 2013F

Bt m

0

10

20

30

40

50

60%

Total Revenue Revenue Growth (%) (YoY)

0

2,000

4,000

6,000

8,000

10,000

12,000

2008A 2009A 2010A 2011F 2012F 2013F

Bt m

Cost of Goods Sold Other Operating Expenses

0

1,000

2,000

3,000

4,000

2008A 2009A 2010A 2011F 2012F 2013F

Bt m

(50)

0

50

100

150

200%

Net Profit (After extraordinaries)Net Profit Growth (%) (YoY)

Company Focus

Polyplex (Thailand)

Page 12

Financials – Balance Sheet Deleveraging B/S. This would be the result of strong operations in FY11-13F. Assuming CAPEX does not exceed what PTL had announced, the company could turn net cash by FY14. 0.4x net debt/equity. This would give PTL substantial flexibility to acquire more assets if it needs to. We estimate

PTL can invest up to US$200m in new projects annually over the next three years while capping its net debt/equity at 0.5x. If there are no new investments, PTL‘s net debt/equity will drop to 0.3x next year and 0.1x in FY13F. Note that PTL’s debt service coverage ratio (DSCR) was at 6.8x at end Sep 2010.

FY Mar (Bt m) 2008A 2009A 2010A 2011F 2012F 2013F

Net Fixed Assets 5,899 5,599 5,618 9,825 11,049.6 10,684 Invts in Assocs & JVs 0 0 0 0 0 0 Other LT Assets 24 80 88 88 88 88 Cash & ST Invts 87 781 711 494 870 1,859 Inventory 767 960 1,116 1,153 1,366 1,671 Debtors 1,442 1,386 1,167 1,273 1,394 1,541 Other Current Assets 82 74 166 204 233 282 Total Assets 8,299 8,881 8,867 13,037 15,000 16,125 ST Debt

330 402 506 300 300 300 Other Current Liab 985 994 991 1,237 1,453 1,774 LT Debt 2,653 2,886 2,353 3,500 3,500 2,000 Other LT Liabilities 2 2 4 4 4 4 Shareholder’s Equity 4,315 4,576 4,993 7,971 9,714 12,014 Minority Interests 14 20 20 24 29 33 Total Cap. & Liab. 8,299 8,881 8,867 13,037 15,000 16,125 Leverage Analysis (x) Net Interest Cover 9.3 4.9 8.7 20.8 21.7 34.7 EBITDA Gross Interest Cover 13.0 6.8 12.8 23.9 26.2 41.5 Total Debt to EBITDA 2.5 2.2 2.0 1.1 1.0 0.5 Total Debt to Total Assets 0.4 0.4 0.3 0.3 0.3 0.1 Total Debt to Capital 0.7 0.7 0.6 0.5 0.4 0.2 Net Debt to Equity 0.7 0.5 0.4 0.4 0.3 0.0 Net Debt to Equity ex MI 0.7 0.5 0.4 0.4 0.3 0.0 Capex to Debt 0.7 0.0 0.1 1.2 0.5 0.1 Liquidity Analysis (x) Cash Ratio 0.1 0.6 0.5 0.3 0.5 0.9 Current Ratio 1.8 2.3 2.1 2.0 2.2 2.6 Quick Ratio 1.2 1.6 1.3 1.1 1.3 1.6

Source: Company, DBS Vickers

Breakdown of Assets (2011) Breakdown of Capital (2011) Financial Leverage & Net Debt to Equity

Net Fixed Assets

80 %

Inventory

8%

Debtors

9%

Bank Cash and

Liquid Assets

3%

ST Debt

3%

LT Debt

30%

Shareholders' Equity

67%

0500

1,0001,5002,0002,5003,0003,500

2008A 2009A 2010A 2011F 2012F 2013F

Bt m

0.0

0.2

0.4

0.6

0.8

1.0%

Net Debt (Cash)Net Debt to Equity (x) (RHS)Financial Leverage (x) (RHS)

Company Focus

Polyplex (Thailand)

Page 13

Financials – Cash Flow

Rising FCF. PTL has budgeted US$98.4m to expand into high value-added products in Thailand and capacity expansion in Turkey. This CAPEX will be spent over FY11-12. Hence, FCF should be negative Bt1.4bn (operating CF less CAPEX) in FY11. But once the new projects start commercial production, we forecast FCF to increase to Bt1.5bn in FY12F and to Bt3.6bn in FY13F.

Maintenance CAPEX of US$10m p.a. PTL expects to spend a total of US$6m p.a. in maintenance CAPEX for its Thailand and Turkey plants. We assume US$10m p.a. (Bt300m) once its expansion projects are up and running.

FY Mar (Bt m) 2008A 2009A 2010A 2011F 2012F 2013F

Pre-Tax Profit 826 1,061 1,056 3,005 3,120 3,778 Dep. & Amort. 224 343 357 421 575 665 Tax Paid (37) (80) (47) (315) (325) (373) Assoc. & JV Inc/(loss) 0 0 0 0 0 0 Chg in Wkg.Cap. (427) (122) (33) 65 (146) (180) Other Operating CF 154 (176) (34) 28 1 (10) Net Operating CF 740 1,027 1,299 3,203 3,225 3,880 Capital Exp.(net) (2,069) 14 (376) (4,610) (1,757) (257) Other Invts.(net) 0 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 0 Div from Assoc & JV 0 0 0 0 0 0 Other Investing CF 0 0 0 0 0 0 Net Investing CF (2,069) 14 (376) (4,610) (1,757) (257) Div Paid (136) (640) (372) (140) (1,092) (1,134) Chg in Gross Debt 1,342 305 (429) 941 0 (1,500) Capital Issues 0 0 0 0 0 0 Other Financing CF 80 (11) (193) 389 0 0 Net Financing CF 1,287 (346) (994) 1,190 (1,092) (2,634) Net Cashflow (43) 694 (70) (218) 376 989 Opg CFPS (Bt) 1.5 1.4 1.7 3.9 4.2 5.1 Free CFPS (Bt) (1.7) 1.3 1.2 (1.8) 1.8 4.5 Source: Company, DBS Vickers

Cash Flow Trend Free Cash Flow Per Share Free Cash Flow As At Year End

(5,000)(4,000)(3,000)(2,000)(1,000)

01,0002,0003,0004,000

2008A 2009A 2010A 2011F 2012F 2013F

Bt m

CF from Op CF from Invt CF from Fin

(2)

0

2

4

6

2008A 2009A 2010A 2011F 2012F 2013F

Bt/sh

Free Operating Cash Flow Per ShareFree Cash Flow Per Share

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

2008A 2009A 2010A 2011F 2012F 2013F

Bt m

Company Focus

Polyplex (Thailand)

Page 14

Financials – ROE Drivers Volume growth, low conversion cost, low effective tax rate. All of PTL’s existing capacities were greenfield projects. The average age of PTL’s plants are less than 10 years old, with 50% of capacity built in the last 5 years. Therefore, PTL’s conversion cost should be more competitive than peers’. However, its tax privilege will start to expire in FY11, which

would raise its effective tax rate to 9% in the next three years. ROE to exceed 30% through to FY13F. This is premised on 40% dividend payout. However, it is possible that ROE could beat our forecast if PTL raises its dividend payout and funds future investments, if any, with 100% debt.

FY Mar 2008A 2009A 2010A 2011F 2012F 2013F

Profitability Ratios Sales Growth (%) 35.6 7.2 3.9 48.8 14.1 21.2 Gross Margin (%) 22.6 26.0 24.3 39.3 36.3 36.0 Operating Margin (%) 13.3 15.7 14.0 29.3 26.3 26.0 Net Profit Margin (%) 12.7 15.2 14.6 25.8 23.4 23.4 ROAE (%) 20.8 23.4 21.7 42.1 32.1 31.6 ROA (%) 11.5 12.1 11.7 24.9 20.2 22.1 ROCE (%) 13.5 14.0 12.5 28.7 22.9 24.8 Activity Ratios Debtors Turn (average days) 63.6 75.2 65.4 42.0 40.3 36.6 Creditors Turn (average days) 51.2 49.5 47.8 53.8 54.0 53.2 Inventory Turn (average days) 55.2 66.5 75.2 68.9 64.6 63.6 Total Asset Turnover (x) 0.9 0.8 0.8 1.0 0.9 0.9 Fixed Asset Turnover (x) 1.3 1.2 1.3 1.4 1.2 1.3 Source: Company, DBS Vickers

ROAE / ROAA Trend (%) Margin Trend (%) Total Debt & Gross Interest Cover

0%

10%

20%

30%

40%

50%

2008A 2009A 2010A 2011F 2012F 2013F

%

ROAE ROAA

0%5%

10%15%20%25%30%35%40%

2008A 2009A 2010A 2011F 2012F 2013F

%

EBITDA Margin EBIT MarginNet Income Margin

0

1,000

2,000

3,000

4,000

2008A 2009A 2010A 2011F 2012F 2013F

Bt m

0

10

20

30

40%

Total Debt (Btm)Gross Interest Cover (x) (YoY)

Company Focus

Polyplex (Thailand)

Page 15

Valuation Recommend BUY with Bt55 TP. Applying the DCF method to value a cyclical business is challenging, but in PTL’s case, it is necessary because of its capacity expansion. We also crosscheck against valuation derived from earnings-based valuation metric and against regional peers’ earnings. We concluded that valuation based on earnings in the next 12 months would underestimate PTL’s intrinsic value as it does not capture the value-added expansion projects. Our model generated 9.6% WACC based on the following assumptions: 6% LT risk free rate, 12% required market return, 1.0x beta, and projected debt and equity weightings for next year. We assumed 1.0x beta because the 0.7x beta from Bloomberg is based on historical 6-year data (since its IPO), which is too short. We also assumed 3% terminal growth, comprising 2% inflation rate and 1% nominal terminal growth. We derive a fair value of Bt55/sh for PTL based on the DCF methodology, implying 15x FY12F and 13x FY13F PE. PTL’s spread may be affected by crude price movement because its feedstock is naphtha, which price is highly correlated to crude price. Our sensitivity analysis shows that every US$100/ton change in PET film spread would affect FY12F EPS by 7% or Bt0.25. PTL: DCF valuation Btm 2011F 2012F 2013F 2014F 2015F Perpetuity

Op. FCF 1,614 3,743 3,483 3,472 54,218 NPV 47,222 Btm Bt/sh

Core operating assets 47,222 59.0

Cash & liquid assets 494 0.6

Investments 0 0.0

Entity valuation 47,715 59.6 Debt 3,800 4.8 Minorities 24 0.0

Residual ordinary equity 43,891 54.9

Source: DBS Vickers

PTL: Sensitivity analysis of DCF value (Bt/sh)

Terminal growth rate (%)

2.0 3.0 4.0

8.6 56.4 65.6 78.7 9.1 52.0 59.8 70.5 9.6 48.3 54.9 63.7

10.1 44.9 50.6 58.1

WA

CC

(%)

10.6 42.0 46.9 53.3

Source: DBS Vickers Peers comparison

5

15

25

35

45

55

1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.010FY P/BV (x)

10FY

RO

E (%

)

PTTCH TB

051910 KS

1301 TT386 HK

SCC TB

338 HK6505 TT363 HK

RIL IN

DOW US

PTL TB

8058 JT3402 JT

3401 JT

DD US

Source: Bloomberg, DBS Vickers Peers comparison

5

8

11

14

17

20

23

26

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.010FY Dividend yield (%)

10FY

PE

(x)

PTTCH TB

051910 KS

1301 TT

386 HK

SCC TB338 HK

6505 TT

363 HK

RIL IN

DOW US3402 JT

3401 JTDD US

8058 JT

PTL TB

Source: Bloomberg, DBS Vickers

Company Focus

Polyplex (Thailand)

Page 16

Peers comparison

Market PE P/BV EV/EBITDA Divi Yield ROE Share Price

Cap (x) (x) (x) (%) (%) Performance

BB Ticker Name US$ 10F 11F 10F 11F 10F 11F 10F 10F 1M 3M 1Y YTD

PTTCH TB Equity PTT CHEMICAL PCL 7,557 22.5 12.5 2.1 1.9 13.1 8.5 2.1 9.9 (5.1) 13.6 44.2 2.0

PTL TB Equity POLYPLEX PCL 1,011 11.1 10.7 3.8 3.1 9.4 8.7 3.6 42.0 (1.3) 68.9 315.3 4.1

SCC TB Equity SIAM CEMENT PUBLIC CO LTD 13,934 14.7 13.1 3.3 2.8 11.5 9.9 2.9 24.6 2.0 7.7 31.7 2.3

1301 TT Equity FORMOSA PLASTICS CORP 20,333 14.3 13.4 2.3 2.2 14.8 12.6 5.4 18.2 3.1 24.5 45.6 (0.8)

6505 TT Equity FORMOSA PETROCHEMICAL CORP 31,677 25.8 22.2 3.9 3.8 17.9 17.0 3.5 14.9 11.3 19.8 23.3 (2.1)

363 HK Equity SHANGHAI INDUSTRIAL HLDG LTD 4,676 8.8 10.7 1.2 1.1 9.8 7.9 3.4 15.9 (0.1) (16.7) 8.9 0.1

338 HK Equity SINOPEC SHANGHAI PETROCHEM-H 7,511 10.6 10.5 1.7 1.5 12.6 11.8 2.1 13.9 0.7 25.3 40.0 0.7

386 HK Equity CHINA PETROLEUM & CHEMICAL-H 103,348 8.1 7.5 1.6 1.4 5.9 5.4 2.7 17.1 5.8 10.3 23.7 3.2

051910 KS Equity LG CHEM LTD 23,389 12.5 11.5 3.7 2.9 7.7 7.1 1.0 33.2 - 21.7 38.6 1.0

DOW US Equity DOW CHEMICAL CO/THE 40,602 18.8 14.3 1.9 1.7 8.7 7.9 1.7 11.0 4.9 27.3 52.3 2.5

DD US Equity DU PONT (E.I.) DE NEMOURS 45,672 16.1 14.1 5.1 4.3 9.4 8.6 3.3 34.3 1.6 12.6 46.9 0.3

RIL IN Equity RELIANCE INDUSTRIES LTD 78,288 16.4 13.8 2.2 1.9 10.0 8.8 0.8 14.2 7.0 5.7 0.7 1.6

3402 JT Equity TORAY INDUSTRIES INC 9,805 18.9 16.8 1.3 1.2 8.3 7.8 1.0 8.3 5.1 7.4 16.0 1.9

8058 JT Equity MITSUBISHI CORP 47,276 8.9 8.0 1.2 1.1 11.9 10.3 2.6 13.3 5.9 16.7 25.4 4.2

3401 JT Equity TEIJIN LTD 4,241 16.2 12.8 1.2 1.1 6.3 6.0 1.1 7.9 3.8 27.8 39.4 2.0

Average (simple) 14.9 12.8 2.4 2.1 10.5 9.2 2.6 18.6

Source: Bloomberg, DBS Vickers

Company Focus

Polyplex (Thailand)

Page 17

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:

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Company Focus

Polyplex (Thailand)

Page 18

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