131115 aio cimb shipping survey

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Transport │ Australia

November 15, 2013

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

Talking shipThe CIMB Australia Shipping Survey is a proprietary survey of themajor shipping lines servicing Australia, focusing on volume, pricing,and service trends relevant to AIO’s Container Termin als division.

While the volume outlook remainssubdued, a very positive response on AIO’s performance levels, combined with expectations that stevedoringrates are unlikely to decline materiallyin the near term, leads us to maintainour Outperform recommendation on AIO. We have made some long-termadjustments to our container volumeassumptions, but retain ourSOTP-based A$6.36 target price.

Volume outlook subduedIt is clear to us that the broadershipping industry remains underpressure, with more than 80% of

respondents believing the health of theshipping industry is still deteriorating. A driver of this has been pressure oncustomer rates, although we note morepositive expectations for pricing overthe next 12 months. More relevant for AIO, all respondents expect container volume growth to be “broadly flat” or“up 2 -5%” over the next 12 months,consistent with our expectations of 3%growth. While not part of the officialsurvey, expectations around long-term volume growth appear to be around

similar levels, at 3-5% annual growth.

Pricing may hold up? We were surprised to find that 70% ofrespondents expect stevedore pricingto be broadly flat or up marginally versus the previous 12 months, despiteHutchison being able to offer servicesin Brisbane and Sydney from the beginning of 2014. We think thisreflects multi-year contracts, CPIincreases, and performance bonuses.This suggests to us that pricing risk for AIO is minimal in the short term,although we still believe pricing risksare present over the long term,particularly as the third operator inMelbourne comes on line in 2016-17.

AIO outperforming DPW AIO’s productivity improvements have been reflected by the shipping linessurveyed, with over 80% ofrespondents indicating AIO isdelivering better service than DPW. We think this puts DPW at far greaterrisk of losing customers to Hutchisonthan AIO. Interestingly, no shippingline flagged having a national presenceat each major port as a majorconsideration in choosing a stevedore,

but service rated highly and we thinkthis will work to AIO’s advantage if itcan maintain performance levels overtime.

Asciano Group COMPANY NOTE AIO AU / AIO.AX

Current A$5.71 SHORT TERM (3 MTH) LONG TERM

Market Cap Avg Daily Turnover Free Float Target A$6.36

US$5,178m US$24.81m 100.0% Prev. Target A$6.36 A$5,569m A$26.58m 975.4 m shares Up/Downside 11.3%

Conviction| |

Notes from the Field

————————————————————————————————————————

Mark WILLIAMS

T (61) 2 9694 6065E [email protected]

Alexander LU T (61) 2 9694 6096E [email protected]

Company Visit Expert OpinionChannel Check Customer Views————————————————————————————————————————

‘‘‘ ‘ Container Terminalsservice performance has hitall-time highs with 97% on-timecoastal window performancereported for the first quarter. ’’

– John Mullen, CEO

92

98

104

110

116

122

4.0

4.5

5.0

5.5

6.0

6.5

Price Close Relative to S&P/ASX 200 (RHS)

Source: Bloomberg

5

10

1520

Nov-12 Feb-13 May-13 Aug-13

V o

l m

Financial SummaryJun-12A Jun-13A Jun-14F Jun-15F Jun-16F

Revenue (A$m) 3,399 3,678 3,998 4,140 4,313Operating EBITDA (A$m) 890 962 1,063 1,136 1,211Net Profit (A$m) 240.8 340.0 344.7 395.6 438.9Normalised EPS (A$) 0.29 0.34 0.37 0.41 0.45Normalised EPS Growth 36.5% 16.9% 7.3% 10.3% 11.0%FD Normalised P/E (x) 19.53 16.73 15.57 14.11 12.72DPS (A$) 0.08 0.12 0.14 0.17 0.19Dividend Yield 1.31% 2.01% 2.36% 2.98% 3.24%EV/EBITDA (x) 9.27 8.93 8.32 7.67 7.09

P/FCFE (x) NA NA 57.57 22.72 20.76Net Gearing 80.9% 83.7% 84.8% 76.2% 67.9%P/BV (x) 1.67 1.54 1.45 1.35 1.26ROE 8.8% 9.6% 9.6% 9.9% 10.3%% Change In Normalised EPS Estimates 0.0% 0.0% 0.0%Normalised EPS/consensus EPS (x) 0.97 0.98 0.98

5.71

6.36

4.21 6.21

Target

52-week share price range

Current

SOURCE: CIMB, COMPANY REPORTS



Asciano GroupNovember 15, 2013

2

PEER COMPARISON

Research CoverageBloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside

Asciano Group AIO AU AU OUTPERFORM 5,178 5.71 6.36 11.3% Aurizon Holdings AZJ AU AU NEUTRAL 9,240 4.65 4.94 6.2%Brambles BXB AU AU OUTPERFORM 13,405 9.25 9.84 6.3%Toll Holdings TOL AU AU NEUTRAL 3,840 5.76 5.26 -8.8%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Rolling P/BV (x)

Asciano Group Aurizon Holdings Brambles Toll Holdings

05

101520253035404550

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Rolling FD P/E (x)

Asciano Group Aurizon Holdings Brambles Toll Holdings

0%

3%

6%

8%

11%

14%

17%

19%

22%

25%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Peer Aggregate: P/BV vs ROE

Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

-40%

-27%

-14%

-1%

11%

24%

37%

50%

0

5

10

15

20

25

30

35


Peer Aggregate: FD P/E vs FD EPS Growth

FD P/E (x) (See Footnote) ( lhs) FD EPS Growth (See Footnote) (rhs)

ValuationFD P/E (x) (See Footnote) P/BV (x) EV/EBITDA (x)Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15

Asciano Group 16.12 14.80 13.39 1.49 1.40 1.30 8.61 7.98 7.38 Aurizon Holdings 20.53 18.06 16.55 1.51 1.47 1.44 9.60 8.51 7.90 Brambles 19.26 17.77 16.31 4.28 3.96 3.62 9.68 9.06 8.44 Toll Holdings 15.00 14.25 13.09 1.54 1.51 1.46 7.34 7.08 6.65

Growth and ReturnsFD EPS Growth (See Footnote) ROE (See Footnote) Dividend Yield

Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15Asciano Group 11.6% 9.0% 10.5% 9.6% 9.8% 10.1% 2.19% 2.67% 3.11%

Aurizon Holdings 17.4% 13.7% 9.1% 7.4% 8.3% 8.8% 2.99% 3.66% 4.15%Brambles 4.7% 8.4% 8.9% 23.3% 23.4% 23.4% 3.49% 3.99% 4.43%Toll Holdings 1.7% 5.3% 8.9% 10.3% 10.8% 11.4% 4.86% 5.21% 5.55%


Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends.NPAT/EPS values for calculations and valuations are based on recurring and normalised values for GAAP and IFRS accounting standard companies respectively.




3

Growth in PN Coal andturnaround in the ContainerTerminals division driving8-9% pa EBIT growth overthe next few years

Cash flow trending positivelyover the next few years

Share price infoShare px perf. (%) 1M 3M 12M

Relative -5.4 2.7 14.6

Absolute -2.6 6.5 36.6

Major shareholders % held

CBA 11.0

Blackrock 7.1

UBS 6.8 0%1%2%4%5%6%7%8%10%11%12%

0.00.20.40.60.81.01.21.41.61.82.0


P/BV vs ROE

Roll ing P /BV (x) (lhs ) ROE (See Footno te ) ( rhs )

0%

750%

1,500%

2,250%

3,000%

3,750%

4,500%

0

10

20

30

40

50

60

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan -15

FD Normalised P/E vs FD Normalised EPSGrowth

Rolling FD Normalised P/E (x) (lhs)

Diluted Normalised EPS Growth (rhs)

Profit & Loss(A$m) Jun-12A Jun-13A Jun-14F Jun-15F Jun-16FTotal Net Revenues 3,457 3,728 4,014 4,155 4,329Gross Profit 933 995 1,104 1,177 1,252Operating EBITDA 890 962 1,063 1,136 1,211Depreciation And Amortisation -291 -307 -353 -364 -372Operating EBIT 599 655 710 772 839Total Financial Income/(Expense) -220 -200 -211 -221 -226Total Pretax Income/(Loss) from Assoc. 18 17 17 17 17Total Non-Operating Income/(Expense) 0 0 0 0 0Profit Before Tax (pre-EI) 396 473 516 568 630Exceptional ItemsPre-tax Profit 396 473 516 568 630Taxation -109 -137 -155 -171 -189Exceptional Income - post-tax -45 6 -14 0 0Profit After Tax 243 342 347 398 441

Minority Interests -2 -2 -2 -2 -2Preferred DividendsFX Gain/(Loss) - post taxOther Adjustments - post-taxPreference Dividends (Australia)Net Profit 241 340 345 396 439Normalised Net Profit 287 336 361 398 441Fully Diluted Normalised Profit 286 334 359 396 439

Cash Flow

(A$m) Jun-12A Jun-13A Jun-14F Jun-15F Jun-16FEBITDA 890 962 1,063 1,136 1,211

Cash Flow from Invt. & Assoc.Change In Working Capital 16 5 -2 -1 -1(Incr)/Decr in Total Provisions 0 0 0 0 0Other Non-Cash (Income)/Expense 0 0 -11 0 0Other Operating Cashflow 18 19 17 17 17Net Interest (Paid)/Received -234 -220 -211 -221 -226Tax Paid -46 -170 -143 -159 -178Cashflow From Operations 643 595 713 773 824Capex -819 -613 -765 -527 -555Disposals Of FAs/subsidiaries 42 28 0 0 0

Acq. Of Subsidiaries/investments -15 -39 -90 0 0Other Investing Cashflow 2 -13 0 0 0Cash Flow From Investing -790 -637 -855 -527 -555Debt Raised/(repaid) 0 10 239 0 0Proceeds From Issue Of Shares 0 0 24 31 33Shares RepurchasedDividends Paid -64 -90 -122 -154 -166Preferred DividendsOther Financing CashflowCash Flow From Financing -64 -80 142 -123 -133Total Cash Generated -210 -122 -1 123 136Free Cashflow To Equity -147 -32 97 246 269Free Cashflow To Firm 87 178 69 466 494

BY THE NUMBERS





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Margin expansion driven byimprovement in the ContainerTerminals division

Balance Sheet(A$m) Jun-12A Jun-13A Jun-14F Jun-15F Jun-16FTotal Cash And Equivalents 149 30 29 152 288Total Debtors 375 392 423 437 456Inventories 24 29 32 33 34Total Other Current Assets 27 43 43 43 43Total Current Assets 576 495 527 665 821Fixed Assets 3,582 3,926 4,453 4,655 4,873Total Investments 35 28 28 28 28Intangible Assets 2,750 2,794 2,749 2,710 2,674Total Other Non-Current Assets 219 400 400 400 400Total Non-current Assets 6,587 7,148 7,630 7,793 7,975Short-term Debt 0 0 0 0 0Current Portion of Long-Term DebtTotal Creditors 366 394 424 439 457Other Current Liabilities 374 317 327 339 354Total Current Liabilities 740 711 751 778 811Total Long-term Debt 2,858 3,071 3,310 3,310 3,310Hybrid Debt - Debt ComponentTotal Other Non-Current Liabilities 127 134 134 134 134Total Non-current Liabilities 2,985 3,205 3,444 3,444 3,444Total Provisions 89 93 93 93 93Total Liabilities 3,815 4,008 4,287 4,315 4,348Shareholders' Equity 3,335 3,620 3,852 4,124 4,427Minority Interests 13 15 17 19 22Total Equity 3,347 3,635 3,869 4,143 4,449

BY THE NUMBERS

Key Ratios

Jun-12A Jun-13A Jun-14F Jun-15F Jun-16FRevenue Growth 11.2% 8.2% 8.7% 3.5% 4.2%Operating EBITDA Growth 11.0% 8.1% 10.5% 6.9% 6.6%Operating EBITDA Margin 26.2% 26.2% 26.6% 27.4% 28.1%Net Cash Per Share (A$) -2.78 -3.12 -3.36 -3.24 -3.10BVPS (A$) 3.42 3.71 3.95 4.23 4.54Gross Interest Cover 2.54 3.02 3.34 3.43 3.52Effective Tax Rate 27.5% 28.9% 30.0% 30.0% 30.0%Net Dividend Payout Ratio 0.26 0.34 0.37 0.42 0.41

Accounts Receivables Days 38.97 38.09 37.20 37.91 37.89Inventory Days 3.34 3.55 3.82 3.93 3.97

Accounts Payables Days 49.94 50.75 51.27 52.85 53.28ROIC (%) 6.72% 7.35% 7.22% 7.35% 7.83%ROCE (%) 10.2% 10.4% 10.2% 10.6% 11.2%





5

CIMB Australia Shipping survey1. KEY POINTS FROM THE SURVEYThe CIMB Australia Shipping Survey is a proprietary survey designed tocapture the views of the shipping lines servicing the Australian market, focusedon trends in volumes, pricing, and performance of the stevedores.

The key points from the survey in relation to AIO are:

1) Container volume growth is expected to remain around 2-3%over the next 12 months. This is in line with our expectations, andmarginally above AIO management’s expectations for 1 -2% growth inFY14. Long-term volume growth expectations appear to be far moreconservative than the average 9% pa growth experienced prior to theglobal financial crisis, with many respondents indicating growth

expectations of 3-5% pa over the long-term.2) No consensus around the direction of stevedoring rates over

the next 12 months. We thought there may have been a greaterexpectation of declines given that Hutchison is competing forcustomers with operations now in Brisbane and Sydney. Instead, 70%of respondents expect stevedoring rates to be broadly flat to upmarginally. We forecast 2% nominal pricing declines for AIO over thenext three years, with no declines thereafter. We still consider pricingto be the greatest risk for AIO as Hutchison ramps up its offering in the Australian market, however the response in this survey gives us somegreater confidence that our forecasts are reasonable in the mediumterm.

3) AIO is clearly outperforming DPW in productivity , with over80% of shipping lines indicating AIO is delivering better service thanDPW currently. This is driving high levels of customer satisfaction with AIO and almost equally high levels of customer dissatisfaction withDPW. In our view this puts AIO in a much stronger position to retaincustomers than DPW as Hutchison looks to compete for morecontracts.

2. INAUGURAL CIMB AUSTRALIA SHIPPING SURVEY

2.1 Survey captures the majority of the shipping marketThe CIMB Australia Shipping survey is a bi-annual survey of the majorshipping lines servicing Australia, aimed at understanding their views onimportant trends in the industry that have relevance for AIO’s ContainerTerminals division. The survey includes questions regarding volumeexpectations, pricing, as well as impression on the service levels of thestevedores. The managers we spoke to also shared their views on expectationson the overall health of the shipping industry.

Our survey captures views from a cross-section of the market, from some of thesmaller shipping lines to some of the largest servicing Australia.




6

Figure 1: Percentage of survey respondents by size

0%

5%

10%

15%

20%

25%

30%

35%

0-250k TEUs 250-500k TEUs 500-700k TEUs 700-900k TEUs

SOURCE: CIMB

3. SHIPPING INDUSTRY STILL STRUGGLING

3.1 Over 80% believe the industry is still deterioratingThe overwhelming response from all survey participants was that it is achallenging environment with limited visibility on the outlook. 83% of shippinglines felt the health of the industry was ‘deteriorating significantly’ or‘deteriorating mildly ’ with overcapacity and too many players fighting for thesame amount of work.

Despite the negative views of the industry overall, a smaller percentage (50%)experienced declining profitability over the past six months due to strongcompetition and high shipping costs. High fuel costs were also one of thenegative factors mentioned by some respondents. Expectations for the next 12months were also mixed, with many conceding forecasting was becoming moredifficult and it was more important to stay nimble and adapt quickly tochanging conditions. One participant noted the next 12-18 months will becritical for the industry.

Figure 2 : The overall health of the shipping industry is… Figure 3: Profitability (EBIT) performance and expectations

Deterioratingsignificantly, 17%

Deterioratingmildly, 67%

About the sameas it has been,

17%

0%

5%

10%

15%

20%

25%

30%

35%

Declinesubstantially

Declinemarginally

Remain broadlyflat

Increasemarginally

Increasesubstantially

Last 6 months Next 12 months

SOURCE: CIMB SOURCE: CIMB




7

3.2 Pressure on container rates is a key cause … Intense competition and overcapacity have caused rates over the past year tofall, in some cases substantially. 100% of respondents experienced a decline inrates over the past 12 months, with one shipping line indicating that rates overthe period had fallen as much as 20%. Extreme volatility in rates was noted by anumber of respondents, adding to the sense of unease about the strength of theindustry.

Looking forward, we note a much greater degree of optimism around prices, with expectations from all shipping lines that pricing may increase slightly overthe next 12 months. Given the subdued volume growth and oversupply in themarket, we think there is risk to this outcome.

Figure 4: Rates charged to customers

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Decreased more than10%

Decreased 3-10% Remained broadly flat(-3% to +3%)

Increased 3-10% Increased more than10%


SOURCES: CIMB

3.3 …but industry consolidation not expectedDespite the tough conditions and oversupply putting pressure on pricing andprofitability, not one shipping line we spoke to expects any reduction in thenumber of shipping lines servicing Australian routes over the next 12 months.

Figure 5: Expectations of the number of carriers servicing Australia over the next12-months

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Decrease Remain the same Increase

SOURCE: CIMB




8

From an AIO perspective, on one hand we view this positively as it suggeststhere will be ongoing sea freight capacity that will need to be filled and willlikely keep a lid on sea freight rates. This should continue to make theimportation of containers reasonably cheap versus air freight and thereforesupport volumes. On the other hand, continued pressure on shipping line

earnings caused by lack of consolidation means AIO may itself experiencehigher levels of pressure from customers on the rates it charges shipping lines.

4. SUBDUED CONTAINER GROWTH EXPECTED

4.1 Expectations of 2-3% growth in container volumes All shipping lines surveyed had broadly flat to positive container volume growthover the past six months , suggesting that market share hasn’t changedmaterially between the carriers. One large participant noted growing demandfor transportation of smaller bulk commodities such as grain.

A few shipping lines indicated that this year’s pre-Christmas period has notseen the usual peaks of previous years, with the fragile economic environmentcausing retailers to be very conservative with forward ordering. They noted theretailers were getting stock in as late as possible to mitigate the risk of having todiscount heavily to clear excess inventory post-Christmas. If Christmasexperiences a strong pick-up in consumer spending, we believe the airfreightoperators (such as TOL) will benefit more so than AIO as speed to market becomes important for the retailers.

Expectations for container volumes over the next 12 months remain subdued, with 100% of respondents expecting growth between 0-5%. This is broadlyconsistent with AIO management expectations of 1-2% volume growth in FY14and CIMB’s forecast of 3%. Showing how tough the market is at the moment, anumber of respondents indicated they believe long-term container volumegrowth will be below historical levels, at around 3-5% pa.

Figure 6: Container volume growth expectations

0%

10%

20%

30%

40%

50%

60%

Declined more than 5% Declined 2-5% Broadly flat (-2% to+2%)

Increased 2-5% Increased more than 5%


SOURCE: CIMB

5. STEVEDORE RATES MAY HOLD UP

5.1 No consensus on the direction of stevedore ratesIn general, rates charged by stevedores over the past 12 months have been

broadly in line with CPI increases, with all respondents indicating pricing has been flat to up slightly.

Interestingly, views on the direction of stevedore rates over the next 12 months was varied, with some expecting material declines (>5%) and others expectingmild increases (2-5%). We think some of the increases reflect CPI growth, the




9

continuation of multi-year contracts, and/or the presence of bonus paymentsfor stevedore performance.

Nevertheless, with Hutchison entering the Brisbane and Sydney markets, weexpected there to have been a greater weighting towards potential pricedecreases over the next 12 months as shipping lines utilise the presence ofHutchison to negotiate lower rates with AIO or DPW. We think thehigher-than-expected pricing levels partly reflect the longer term nature ofsome of the shipping line contracts with the incumbents, but we think it alsosuggests that Hutchison may not have as significant an impact on stevedorepricing as some in the equity markets expect, at least over the next couple of years. One respondent noted the “game will change” once the new containerterminal operator in Melbourne comes online in 2016-17, so it is possible thatstevedore pricing remains relatively unchanged for another three to four years.

Figure 7: Rates charged by stevedores

0%

10%

20%

30%

40%

50%

60%

Decreased more than5%

Decreased 2-5% Remained broadly flat(-2% to +2%)

Increased 2-5% Increased more than 5%


SOURCE: CIMB

The responses give us a level of comfort around our pricing assumptions for AIO over the next few years. We assume 1-2% nominal pricing declines throughFY16. Where we still see risk is beyond this timeframe (i.e. FY17 onwards) in which we don’t assume any further declines.

6. AIO OUTPERFORMING DPW CURRENTLY

6.1 Patrick lifting its gameIn response to questions on productivity and service levels of the twostevedores, over 80% of the shipping lines we spoke to believe that Patrick (AIO)is performing best on both measures. While AIO management has previouslyindicated its productivity levels are at the highest levels it has ever been, we view it positively for AIO that this is being reflected by almost the entireshipping industry, whether they are AIO or DPW customers. One respondentnoted that Patrick productivity was now comparable to that in Asia, which isthe first time we have heard a shipping line being so complimentary of an Australian stevedore.

Anecdotally, we believe the difference in productivity and service levels hasincreased over the past 12 months. We attribute part of this to an improvementfrom AIO’s side, but also a deter ioration in DPW’s performance as it has

struggled with operational and management issues. In our view, this puts DPWat greater risk than AIO in losing customers to Hutchison.

When considering the two key determinants for a shipping line to switch toanother stevedore, the majority of participants indicated price and service asthe two most important factors. Interestingly, no-one flagged the presence at all




10

ports as a key requirement. This suggests that the shipping lines don’t seeHutchison’s lack of ope rations in Melbourne and Fremantle as a hindrance to winning customers for its Sydney and Brisbane terminals. If Hutchison is ableto offer a better price than AIO or DPW and provide better service, then thisfeedback suggests it may be in a position to win customers from the

incumbents.

Figure 8: Which stevedore offers the best level of productivityand service?

Figure 9: The two most important factors in considering apotential switch to another stevedore

DP World, 17%

Patrick, 83%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Price Service - ability to getin and out of theterminal quickly

Terminal capacity toservice ships on

schedule

National presence ateach major port

SOURCE: CIMB SOURCE: CIMB

7. IMPLICATIONS FOR AIO

7.1 Low volume growth environment expected to continue We forecast 3% industry container volume growth for FY14, and based on thefeedback from shipping lines through this survey, we think that is a reasonablelevel to maintain. There is minor risk to the downside with container port volumes running at 2.0% YTD through September, and AIO managementexpecting 1-2% growth.

In regards to our volume growth assumptions for AIO, we have reduced ourlong-term industry volume growth rate from 6.0% to 4.5% pa, from FY16onwards, representing a reduction in GDP multiplier from 2.0x to 1.5x. Withcontainerisation largely having run its course in our view, and a substantialportion of manufacturing already offshored, we think container growth ratesare more likely to reflect GDP and population growth.

However, our long-term growth rate reductions are partly offset by the lowerrisk of AIO losing customers to Hutchison relative to DPW. We maintain ourassumption that Hutchison wins market share up to 30% in each port (over afive-year period). We previously assumed Hutchison would win that marketshare evenly from AIO and DPW. However, with AIO’s greater capacityadvantage in Sydney and its productivity performance significantly better thanDPW (reflected in this survey), we now assume AIO retains a greater level ofmarket share than DPW in Sydney. This results in AIO’s long -term marketshare forecast being 2 percentage points higher than that of DPW.




11

Figure 10: AIO volume forecasts and annual growth

-4%

14% 0%

3%

4%2% -0%

3% 1% -0%2%

3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2.4

2.6

2.8

3.0

3.2

3.4

3.6

FY10E FY11E FY12E FY13E FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F

mt

AIO volumes Hutchison market share (RHS)

SOURCE: CIMB ESTIMATES

Figure 11: 4-port capacity share projections Figure 12: 4-port market share projections

0%

10%

20%

30%

40%

50%

60%

AIO DPWorld Hutchison

0%

10%

20%

30%

40%

50%

60%

AIO DPWorld Hutchison

SOURCES: PORT CORPORATIONS, CIMB ESTIMATES SOURCE: CIMB ESTIMATES

7.2 Pricing risks but surprise on the upside? We believe the greatest risk to our forecasts for the Container Terminalsdivision relates to pricing. We forecast 2% pa nominal pricing declines throughto FY17, with no nominal declines thereafter. The survey response has providedus with increased comfort that our assumptions are reasonable over the shorterterm.

Despite the survey responses, we still believe the greatest risk to AIO’s earningsare from pricing discounts as Hutchison grows into the Australian market. Withmost of AIO ’s customers on medium-term contracts, we see the greatest riskoccurring when the third terminal operator begins in Melbourne (mid 2016 onthe official Port of Melbourne timetable although we believe it will be closer tomid 2017).

8. CONTAINER TERMINALS FINANCIALS

Our forecasts for AIO’s Container Terminals division assumes mild revenuegrowth over the next five years, with volume growth offset by pricing declinesas Hutchison competes for new contracts. However, we forecast animprovement in EBIT with margin expansion driven by lower costs from theautomation introduced into the Port Botany terminal from FY15 onwards. Withcompetitive risks increasing from FY17 onwards as the third operator in




12

Melbourne comes on stream, we assume EBIT margins will decline to capturesome of the earnings risk.

Figure 13: AIO Container Terminals division forecasts

FY11A FY12A FY13A FY14F FY15F FY16F FY17F FY18F

Revenue (A$m) 647 715 677 717 726 725 722 742 - growth -8.8% 10.5% -5.3% 5.9% 1.2% -0.1% -0.4% 2.8%EBIT (A$m) 157 170 150 169 183 196 193 192 - growth 20.4% 8.5% -11.9% 12.5% 8.4% 7.0% -1.2% -0.8% - margin 24.3% 23.8% 22.2% 23.5% 25.2% 27.0% 26.8% 25.9%

Container volumes - lifts (m) 1.76 1.97 1.94 2.03 2.08 2.11 2.10 2.16 - growth -4.3% 11.8% -1.4% 4.6% 2.7% 1.4% -0.4% 2.6%Container volumes - TEUs (m) 2.56 2.91 2.91 3.05 3.13 3.17 3.16 3.24 - growth -4.4% 13.6% 0.0% 4.6% 2.7% 1.4% -0.4% 2.6%

Industry container volume growth (TEUs) 5.8% 5.3% 1.3% 3.0% 5.0% 4.5% 4.5% 4.5%

AIO nominal revenue growth per TEU -2.4% -2.7% -5.3% 1.3% -1.4% -1.5% 0.0% 0.0% SOURCES: CIMB, COMPANY REPORTS

9. VALUATION AND RECOMMENDATIONOn a SOTP basis, we value AIO at A$6.36 per share and maintain our 12-monthtarget price in line with this valuation.

Figure 14: FY15 SOTP valuation

FY15FEBITDA

(A$m)Valuation

multiple (x)Valuation

(A$m) Comme ntTerminals & Logistics 234.9 10.0 2,343 5% discount to global port peer average

Bulk & Auto 122.2 8.4 1,026 20% discount to global port peer averagePN Coal 518.5 8.0 4,148 0% premium to global rail peer averagePN Rail 318.8 6.8 2,168 15% discount to global rail peer averageCorporate/Other (41.0) 8.0 (328)Enterprise Value 1,153.4 8.1 9,357Net Debt 3,158Equity Value 6,199Diluted shares (m) 975

NPV per share $6.36 SOURCE: CIMB




13

Figure 15: Global Port & Rail peersTicker CIMB Recom Div Yield

(%)EV /EBIT

(x)EV/

EBITDAFY1 (x)

EV/EBITDAFY2 (x)

P/EFY1 (x)

P/EFY2 (x)

P/B(x)

P/CF(x)

2 YR FWDEBITDA

CAGR

2 YR FWDEPS CAGR

Gearing(ND/ND+E)

Year e nd

Asciano Group AIO AU OUTPERFORM 2.3 12.1 8.2 7.6 15.7 14.3 1.5 8.0 6.9% 10.2% 45.6% Jun-2014

PortsDP World DPW DU 1.7 14.4 10.3 9.1 19.9 16.5 1.5 10.1 12.1% 17.3% 24.7% Dec-2014Hutchison Port Holdings HPHT SP 62.6 21.0 12.7 12.0 22.5 n/a 0.1 1.1 5.8% 6.5% 21.2% Dec-2014Port of Tauranga POT NZ 3.6 17.3 14.7 13.7 22.8 21.8 2.2 17.9 7.4% 5.5% 19.2% Jun-2014China Merchants 144 HK 3.0 26.8 19.0 17.4 15.2 13.7 1.4 13.2 8.7% 11.5% 21.0% Dec-2014Xiamen International 3378 HK 3.9 6.5 4.7 4.6 8.7 11.6 n/a n/a 2.5% 0.0% 6.6% Dec-2014Dalian Port Co. 2880 HK 3.9 15.1 9.7 9.5 7.7 9.7 0.6 5.0 4.6% 6.5% 38.9% Dec-2014Shanghai International 600018 CH 3.0 17.2 13.3 12.8 18.5 17.6 1.9 13.0 3.6% 6.6% 18.6% Dec-2014Tianjin Port 3382 HK 3.9 10.8 7.3 6.9 9.6 9.3 n/a 2.6 7.5% 6.4% 22.0% Dec-2014Cosco Pacific 1199 HK 0.4 18.3 10.5 9.9 11.0 77.2 6.7 57.4 9.9% -7.1% 31.6% Dec-2014Hamburger Hafen HHFA GR 3.5 9.4 5.4 5.0 19.3 16.1 2.1 5.7 7.9% 19.9% 28.3% Dec-2014Intl Container Term ICT PM 0.0 16.9 12.3 10.8 27.3 n/m n/m n/m 17.3% 22.5% 33.3% Dec-2014Average 8.1 15.8 10.9 10.2 16.6 21.5 2.0 14.0 7.9% 8.7% 24.1%Median 3.5 16.9 10.5 9.9 18.5 16.1 1.7 10.1 7.5% 6.5% 22.0%

Rail Aurizon AZJ AU NEUTRAL 3.3 14.4 9.0 7.8 19.3 16.1 1.5 10.1 13.0% 16.5% 26.7% Jun-2014 America Latina Logistica ALLL3 BZ 1.3 6.2 4.7 4.2 13.3 9.9 1.1 4.0 10.9% 65.3% 49.1% Dec-2014Union Pacific UNP US 2.0 9.8 8.0 7.4 14.8 13.2 3.1 9.9 8.9% 13.1% 28.5% Dec-2014Norfolk Southern Corp NSC US 2.5 9.9 7.8 7.2 13.7 12.3 2.4 8.2 8.5% 12.1% 45.1% Dec-2014CSX Corp CSX US 2.3 9.7 7.4 6.9 13.8 12.3 2.5 8.2 6.6% 10.0% 48.5% Dec-2014Canadian Pacific Railway CP CN 1.0 14.0 11.2 10.0 18.8 15.8 3.9 12.6 15.0% 23.9% 46.1% Dec-2014Genesee & Wyoming GWR US 0.0 14.1 10.8 9.7 18.6 16.2 2.4 10.0 13.5% 16.4% 48.6% Dec-2014Canadian Natl Railway CNR CN 1.6 13.0 10.5 9.8 16.7 15.1 3.9 12.0 8.1% 12.0% 38.0% Dec-2014Kansas City Southern KSU US 0.7 17.3 13.5 11.9 24.5 20.6 3.5 15.3 17.0% 22.1% 31.1% Dec-2014Average 1.7 12.0 9.2 8.3 17.1 14.6 2.7 10.0 11.3% 21.3% 40.2%Median 1.6 13.0 9.0 7.8 16.7 15.1 2.5 10.0 10.9% 16.4% 45.1%

SOURCES: BLOOMBERG, PRICED AS AT 15 NOVEMBER 2013




14

Financial summaryAsciano Group Year end June Closing price (A$) 5.71 6.36Income statement (A$m) 2012A 2013A 2014F 2015F 2016F Valuation metricsDivisional sales 3,399 3,678 3,998 4,140 4,313 Preferred methodology Valuation 6.36Total revenue 3,457 3,728 4,014 4,155 4,329 DCF valuation inputsEBITDA 890.1 961.8 1,062.8 1,136.1 1,210.9 Rf 4.25% 10-year rate 4.25%

Associate i ncome 17.6 17.3 17.3 17.3 17.3 Rm-Rf 6.00% Margin 2.0%Depreciation (241.5) (261.9) (308.7) (324.7) (336.8) Beta 1.13 Kd 6.25%EBITA 648.6 699.9 754.1 811.3 874.1 CAPM (Rf+Beta(Rm-Rf)) 11.0% Ke 11.0%

Amortisation/impairment (49.5) (44.9) (44.5) (39.8) (35.5) E/EV*Ke+D/EV*Kd(1-t) NPV cash flow (A$m) 8437.0EBIT 599.1 655.0 709.5 771.6 838.5 Equity (E/EV) 50.0% Minority interest (A$m) 14.8EBIT(incl associate profit) 616.7 672.3 726.8 788.9 855.8 Debt (D/EV) 50.0% Net debt (A$m) 3041.2Net interest expense (220.4) (199.6) (211.1) (220.5) (225.5) Interest rate 6.3% Investments (A$m) 28.4Pre-tax profit 396.3 472.7 515.8 568.4 630.3 Tax rate (t) 30.0% Equity market value (A$m) 5409.4Income tax expense (108.9) (136.8) (154.7) (170.5) (189.1) WACC 7.7% Diluted no. of shares (m) 975.4

After-tax profit 287.4 336.0 361.0 397.9 441.2 DCF valuation (A$) 5.55Minority interests (1.9) (2.3) (2.3) (2.3) (2.3)NPAT (normalised) 285.5 333.7 358.7 395.6 438.9 Multiples 2013A 2014F 2015F 2016FSignificant items (44.7) 6.4 (14.0) 0.0 0.0 Enterprise value (A$m) 8,610.7 8,850.4 8,727.6 8,591.4NPAT (reported) 240.8 340.0 344.7 395.6 438.9 EV/Sales (x) 2.3 2.2 2.1 2.0

EV/EBITDA (x) 9.0 8.3 7.7 7.1Divisional revenue (A$m) 2012A 2013A 2014F 2015F 2016F EV/EBIT (x) 13.1 12.5 11.3 10.2Terminals & Logistics 684.4 676.2 716.1 725.0 723.9 PE (normalised) (x) 16.7 15.6 14.1 12.7Bulk & Auto 487.2 674.7 730.7 745.8 782.0 PEG (normalised) (x) 1.0 2.1 1.4 1.2PN Rail 1,294.2 1,330.8 1,282.7 1,308.9 1,344.7 Price/Book (x) 1.54 1.45 1.35 1.26PN Coal 933.3 996.1 1,268.5 1,360.0 1,462.7

At target price 2013A 2014F 2015F 2016FEV/EBITDA (x) 9.6 8.9 8.2 7.6PE (normalised) (x) 18.6 17.3 15.7 14.2

Comparable company data (x) 2014F 2015F 2016FDivisional EBIT (A$m) 2012A 2013A 2014F 2015F 2016F Aurizon Holdings EV/EBITDA 9.0 8.1 7.7Terminals & Logistics 170.4 150.1 168.8 183.0 195.7 Y/E June EV/EBIT 14.3 12.6 11.7Bulk & Auto 66.1 89.0 96.6 98.2 102.9 PE 19.4 16.9 16.2PN Rail 212.6 216.8 203.2 207.5 214.2 PEG 1.5 1.2 3.4PN Coal 223.3 266.4 316.2 357.0 398.7 Toll Holdings EV/EBITDA 7.7 7.3 6.9Corporate (55.7) (50.0) (58.0) (56.8) (55.6) Y/E June EV/EBIT 12.7 11.8 11.0

PE 14.9 13.7 12.5PEG 7.5 1.6 1.3

Per share data 2013A 2014F 2015F 2016FCash flow (A$m) 2012A 2013A 2014F 2015F 2016F No. shares 978.8 977.6 977.6 977.6EBITDA 890.1 961.8 1,062.8 1,136.1 1,210.9 EPS (normalised) (cps) 34.2 36.8 40.6 45.0Change in working capital 15.7 4.8 (2.2) (1.1) (1.3) EPS (dil. normalised) (cps 34.1 36.7 40.5 44.9Net interest (pd)/rec (233.5) (219.9) (211.1) (220.5) (225.5) Dividend per share (cps) 11.5 13.5 17.0 18.5Taxes paid (46.4) (170.4) (143.1) (158.9) (177.5) Franking (%) 100% 100% 100% 100%Other oper cash items 17.5 18.6 17.3 17.3 17.3 Dividend payout ratio (%) 33.7% 36.8% 42.0% 41.2%Cash flow from ops (1) 643.4 594.9 712.7 772.9 823.8 Dividend yield (%) 2.0% 2.4% 3.0% 3.2%Capex (2) (819.3) (613.2) (764.9) (527.2) (555.0)Disposals/(acquisitions) (14.6) (39.0) (90.0) 0.0 0.0 Growth ratios 2013A 2014F 2015F 2016FOther investing cash flow 1.5 (13.1) 0.0 0.0 0.0 Sales growth 8.2% 8.7% 3.5% 4.2%Cas h flow from invest (3) (790.0) (637.0) (854.9) (527.2) (555.0) Operating cos t growth 7.8% 6.7% 2.3% 3.3%Incr/(decr) in equity 0.0 0.2 24.4 30.7 33.2 EBITDA growth 8.1% 10.5% 6.9% 6.6%Incr/(decr) in debt 0.0 10.0 239.2 0.0 0.0 EBITA growth 7.9% 7.7% 7.6% 7.7%Ordinary dividend paid (63.5) (90.4) (121.9) (153.6) (165.8) EBIT growth 9.3% 8.3% 8.7% 8.7%Preferred dividends (4) 0.0 0.0 0.0 0.0 0.0 Reported NPAT growth 41.2% 1.4% 14.7% 11.0%Other financing cash flow 0.0 0.0 0.0 0.0 0.0 Normalised NPAT growth 16.9% 7.5% 10.3% 11.0%Cash flow from fin (5) (63.5) (80.2) 141.6 (122.9) (132.7) Reported EPS growth 41.1% 1.3% 14.8% 11.0%Forex and disc ops (6) 0.0 0.0 0.0 0.0 0.0 Normalised EPS growth 16.8% 7.5% 10.3% 11.0%Inc/(decr) cash (1+3+5+6) (210.1) (122.3) (0.5) 122.8 136.2Equity FCF (1+2+4) (175.9) (18.3) (52.2) 245.7 268.8 Divisional EBIT growth

Terminals & Logistics -11.9% 12.5% 8.4% 7.0%Balance sheet (A$m) 2012A 2013A 2014F 2015F 2016F Bulk & Auto 34.6% 8.5% 1.7% 4.8%Cash & deposits 149.4 29.7 29.2 151.9 288.1 PN Rail 2.0% -6.3% 2.1% 3.2%Trade debtors 375.2 392.4 422.5 437.4 455.7 PN Coal 19.3% 18.7% 12.9% 11.7%Inventory 23.8 29.3 31.5 32.7 34.0 Corporate 10.2% -16.0% 2.1% 2.0%Investments 35.3 28.4 28.4 28.4 28.4Goodwill 0.0 0.0 0.0 0.0 0.0Other int angible as set s 2,750.3 2,793.8 2,749.3 2,709.5 2,674.0Fixed assets 3,581.7 3,926.4 4,452.6 4,655.0 4,873.2Other assets 246.5 443.1 443.1 443.1 443.1 Operating performance 2013A 2014F 2015F 2016FTotal assets 7,162.2 7,643.1 8,156.5 8,458.1 8,796.6 Asset turnover 11.5% 11.6% 12.0% 12.0%Short-term borrowings 0.0 0.0 0.0 0.0 0.0 EBITDA margin 26.2% 26.6% 27.4% 28.1%Trade payables 366.4 393.6 423.8 438.8 457.1 EBIT margin 17.8% 17.7% 18.6% 19.4%Long-term borrowings 2,858.2 3,070.9 3,310.1 3,310.1 3,310.1 Net profit margin 9.1% 9.0% 9.6% 10.2%Provisions 89.4 93.1 93.1 93.1 93.1 Return on net assets 18.0% 18.3% 18.6% 18.8%Other liabilities 500.8 450.7 460.5 472.6 487.3 Net debt (A$m) 3041.2 3280.9 3158.1 3022.0Total liabilities 3,814.8 4,008.3 4,287.4 4,314.6 4,347.5 Net debt/equity 83.7% 84.8% 76.2% 67.9%Preference shares 0.0 0.0 0.0 0.0 0.0 Net interest/EBIT cover (x) 3.3 3.4 3.5 3.7Hybrid equity 0.0 0.0 0.0 0.0 0.0 ROIC 7.4% 7.2% 7.4% 7.8%Share capital 8,604.7 8,606.1 8,630.5 8,661.2 8,694.4Other reserves (4,963.7) (4,703.5) (4,708.9) (4,697.3) (4,685.8) Internal liquidity 2013A 2014F 2015F 2016FFCTR 0.0 0.0 0.0 0.0 0.0 Current ratio (x) 0.7 0.7 0.9 1.0Unrealised gains/losses 0.0 0.0 0.0 0.0 0.0 Receivables turnover (x) 8.9 9.0 9.3 9.3Retained earnings (306.1) (282.6) (69.5) 160.2 418.7 Payables turnover (x) 6.6 6.6 6.8 6.7Other equity 0.0 0.0 0.0 0.0 0.0Total equity 3,334.9 3,620.0 3,852.0 4,124.1 4,427.3 Assumptions 2013A 2014F 2015F 2016FMinority interest 12.5 14.8 17.1 19.4 21.7 AUD/USD 1.022 0.897 0.890 0.901Total shareholders ' equity 3,347.4 3 ,634.8 3 ,869.1 4 ,143.5 4 ,449.0Total liabilities & SE 7, 162.2 7,643.1 8,156.5 8,458.1 8,796.6

Target price (A$)

SOTP

SOURCES: CIMB FORECASTS, COMPANY REPORTS




15

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Spitzer Chart for stock being researched ( 2 year data )

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Recommendations & Target Price

Outperform Neutral Underperform Trading Buy Trading sell Not Rated

Rating Distribution (%) Investment Banking clients (%)

Outperform/Buy/Trading Buy 49.8% 7.1%

Neutral 34.0% 5.7%Underperform/Sell/Trading Sell 16.2% 4.6%

Distribution of stock ratings and investment banking clients for quarter ended on 31 October 20131252 companies under coverage

Recommendation Framework #1 *Stock Sector

OUTPERFORM: The stock's total return is expected to exceed a relevantbenchmark's total return by 5% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, isexpected to outperform the relevant primary market index over the next 12 months.

NEUTRAL: The stock's total return is expected to be within +/-5% of a relevantbenchmark's total return.

NEUTRAL:The industry, as defined by the analyst's coverage universe, is expectedto perform in line with the relevant primary market index over the next 12 months.

UNDERPERFORM: The stock's total return is expected to be below a relevantbenchmark's total return by 5% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, isexpected to underperform the relevant primary market index over the next 12 months.

TRADING BUY: The stock's total return is expected to exceed a relevantbenchmark's total return by 5% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, isexpected to outperform the relevant primary market index over the next 3 months.

TRADING SELL: The stock's total return is expected to be below a relevantbenchmark's total return by 5% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, isexpected 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 SecuritiesExchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outsidethe 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 Sector

OUTPERFORM: Expected positive total returns of 10% or more over the next 12months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has ahigh number of stocks that are expected to have total returns of +10% or better overthe next 12 months.

NEUTRAL: Expected total returns of between -10% and +10% over the next 12months. 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 returnsthat will range from +10% to -10%; both over the next 12 months.

UNDERPERFORM: Expected negative total returns of 10% or more over the next 12months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has ahigh number of stocks that are expected to have total returns of -10% or worse overthe next 12 months.

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

TRADING BUY: The industry, as defined by the analyst's coverage universe, has ahigh number of stocks that are expected to have total returns of +10% or better overthe next 3 months.

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

TRADING SELL: The industry, as defined by the analyst's coverage universe, has ahigh number of stocks that are expected to have total returns of -10% or worse overthe next 3 months.

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

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2012.AAV – not available,ADVANC - Excellent,AEONTS – Good, AMATA - Very Good,ANAN – not available,AOT - Excellent,AP - Very Good,BANPU - Excellent ,BAY - Excellent ,BBL - Excellent,BCH – not available,BCP - Excellent,BEC - Very Good, BGH - not available,BJC – Very Good, BH - Very Good,BIGC - Very Good, BTS - Excellent,CCET -Good, CENTEL – Very Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent,DELTA - Very Good, DTAC - Very Good, EGCO – Excellent,ERW – Excellent,GLOBAL - Good, GLOW - Very Good,GRAMMY – Excellent,HANA - Very Good,HEMRAJ - Excellent,HMPRO - Very Good,INTUCH – Very Good, ITD – Very Good,IVL - Very Good,JAS – Very Good, KAMART – not available,KBANK - Excellent,KK – Excellent,KTB - Excellent,LH - Very Good,LPN - Excellent,MAJOR - Good, MAKRO – Very Good, MCOT - Excellent,MINT - Very Good, PS - Excellent,PSL - Excellent,PTT - Excellent,PTTGC - Excellent,PTTEP - Excellent,QH - Excellent,RATCH - Excellent,ROBINS - Excellent,RS – Excellent,SAMART – Excellent,SC – Excellent,SCB - Excellent,SCC - Excellent,SCCC - Very Good,SIRI - Good, SPALI - Very Good,SRICHA – notavailable, SSI – not available, STA - Good, STEC - Very Good, TCAP - Very Good, THAI - Excellent,THCOM – Very Good, TICON – Very Good, TISCO - Excellent,TMB -Excellent,TOP - Excellent,TRUE - Very Good,TTW – Very Good,TUF - Very Good,VGI – not available,WORK – Good.

131115 aio cimb shipping survey

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