harnessing nature’s goodness with herbal medicines...
TRANSCRIPT
8 August 2014
Page | 1 MCI (P) 046/11/2013 Ref. No.: SG2014_0013
MCI (P) 046/11/2013 Ref. No.: INDO2014_0003
Industri Jamu dan Farmasi Sido Muncul Harnessing Nature’s Goodness with Herbal Medicines INDONESIA | CONSUMER GOODS | INITIATION
Rating: Neutral
Initiated with Neutral Company Background Sido Muncul is the largest herbal medicine company in Indonesia. Founded in 1940 in Yogyakarta. Two main Sido Muncul products are Tolak Angin and Kuku Bima Ener-G. Sido Muncul is the only herbal medicine manufacturer certified with pharmaceutical standards. Harnessing Nature’s Goodness with Herbal Medicines. Indonesia with its biodiversity has known herbal medicine for centuries. Jamu, the most well-known Indonesia original herbal medicine, has become part of the culture and nation’s pride. Herbal medicine industry uses 85% of raw material originating from Indonesia’s natural resources. The back to nature lifestyle increases demand for herbal medicine, leading to a promising larger market in the coming years. Investment Merits Market leader in herbal medicine for cold and energy drinks. Tolak Angin market share for cold herbal medicine reached 75%. Meanwhile Kuku Bima energy drink leads the market share of 60%. Focus on higher margins from herbal medicine products. Herbal medicine products generate much higher gross profit margin (2013: ~64%) than other of its business lines. Most of the raw materials for herbal medicine originate from domestic market. Key Risk Factors Fluctuations in Raw Material Prices. Because most of the raw materials come from local herbal plants, weather conditions can lead to fluctuations in raw material prices. Competition Risk. The competition in coming years will grow fiercely as the attractive market of herbal medicine business has prompted some players in the pharmaceutical industry to produce herbal medicines. Investment Action Using discounted cash flow method with WACC of 10% and terminal growth of
5%, we estimate the fair price of Sido Muncul shares for the end of this year at IDR
785 per share. Total dividend for financial year 2014 is estimated at Rp 14.8 per
share with a dividend payout ratio of 50%. Thus there is an implied potential gain
of 3.9%, compared to the closing price of Rp 770 per share on August 6, 2014.
Key Financial Summary
Source: Company, PSI estimates
Target Price (IDR)
Forecast Dividend (IDR)
Closing Price (IDR) 6 Aug 14
Potential Upside
Company Description
Company Data
Raw Beta (Past 2yrs weekly data) 0.50
Market Cap. (USD mn / IDR bn) 988 / 11625
Ent. Value (USD mn / IDR bn) 929 / 10933
3M Average Daily T/O (mn) 7.0
Closing Px in 52 week range 580 955
Major Shareholders (%)
40.5
8.1
3. Sofyan Hidayat 8.1
4. Johan Hidayat 8.1
5. Sandra Linata Hida jat 8.1
6. David Hidayat 8.1
19.0
Valuation Method
DCF (WACC: 10.0%; termina l g: 5.0%)
Analyst
Martha Christina
[email protected]+62 21 57900800
3.9%
1. Ny. Desy Sul i s tio
7. Publ ic, each less than 5%
Sido Muncul is the largest herba l medicine
company in Indones ia . Founded in 1940 in
Yogyakarta . Two main Sido Muncul products are
Tolak Angin and Kuku Bima Ener-G. Sido Muncul
is the only herba l medicine manufacturer
certi fied with pharmaceutica l s tandards .
2. Irwan Hidayat
785
15
770
0
20
40
60
80
100
500
600
700
800
900
1,000
Au
g-13
Au
g-13
Sep
-13
Oct-1
3
Oct-1
3
No
v-13
De
c-13
Jan-1
4
Jan-1
4
Feb
-14
Mar-1
4
Mar-1
4
Volume, mn SIDO IJ Equity JCI rebased
Analyst Phillip Research Team +65 65311240 [email protected]
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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INDUSTRY OVERVIEW
Indonesia has abundant biodiversity and ranks second next to Brazil in terms of
biodiversity. There are forty thousand species of plants worldwide and thirty
thousand of these species can be found in Indonesia. From this number, 9,600 of
them have medicinal benefits, and 400 species have been used as traditional
medicines.
Herbal Medicines in Indonesia
Indonesians have known herbal medicines for centuries. One famous example of
Indonesian original herbal medicine is Jamu, which are made from local plants.
Jamu has become part of the culture and the nation’s pride.
Based on the level of clinical trials, herbal medicine can be divided into three
categories:
Jamu (empirical-based herbal medicine)
Standardized Herbal Medicines (scientific-based herbal medicine)
Phytopharmaca (clinical-based herbal medicine)
To accomplish national and global standards, scientific research is absolutely
necessary to prove the efficacy of herbal medicines. Of the many herbal medicines
in Indonesia, only about 30 have been listed as standardized herbal medicines and
only five have been categorized as phytopharmaca. Jamu is the most well-known
herbal medicine in Indonesia. With better standards and efficacy testings,
Indonesian herbal medicines are expected to be accepted within and outside the
country.
Back to Nature
Advances in science and technology resulted in a shift in people's behavior. We are
seeing a change in consumers’ preference towards natural herbal medicinal
products that have minimal side effects, compared to pharmaceutical drugs.
This prompted an increase in demand for herbal medicines both within and
outside the country. The increase in demand has created the growth of the herbal
medicines industry (in this case Jamu) in Indonesia. Herbal products are becoming
increasingly varied and the use of technology in the industry is growing. The rapid
development of herbal industry triggered tight competitions, especially for
products with specific efficacy such as for curing colds, fatigue, stamina and others.
The higher price for pharmaceutical drugs is also considered by consumers. Weak
IDR exchange rate against the US dollar has weighed on pharmaceutical
companies, because 90% of raw materials for pharmaceutical industry in Indonesia
are still imported. On the other hand, the production cost for herbal medicines are
relatively cheaper, because many raw materials are available in the country.
.
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Jamu Industry in Indonesia
Jamu industry in Indonesia started from small home businesses in 1825 in
Ambarawa, Central Java. At that time, Jamu was used to fulfill demands for small-
scale treatments. In early 1900s, Jamu business was growing rapidly, marked by
the emergence of Jamu producers such as Jamu Jago, Jamu Jawa Asli Cap Nyonya
Meneer, Jamu Sidomuncul, Jamu Air Mancur, and others. (Fig.1)
Fig 1. Jamu (Herbal Medicine) Production in Indonesia
Source: Company, Capricorn Indonesia Consult
Based on the scale of production, herbal medicine business in Indonesia is divided
into three categories: Traditional Medicine Industry (“IOT”), Traditional Medicine
Small Business (“UKOT”), and Traditional Medicine Micro Business (“UMOT”).
Currently, there are 1,247 herbal medicine producers in Indonesia, including 132
companies in IOT categories. Based on data from the Food and Drug
Administration (“BPOM”) and the Herbal Medicine Association of Indonesia
(“GPJI”), the number of IOT have been increasing from year to year.
As technology advances and production capacity increases, some traditional
medicine products have made good progress, including Jamu, standardized
traditional medicines and phytopharmaca. In fact, some IOT companies have been
able to implement Good Manufacturing of Traditional Medicine (“CPOTB”) and
Good Manufacturing Practice (GMP) conducts.
Global herbal medicine market is expected to reach USD 100 billion by 2015.
Herbal medicine industry is one of the rapidly growing industries in the world.
Herbal medicine’s global market is still dominated by China and India as the biggest
exporters. WHO estimated 80% of the population in Asia and Africa chooses to use
herbal medicines as they are easier to obtain and cheaper than chemical drugs.
In 2012, herbal medicine market size in Indonesia was IDR 13 trillion, or only about
2% of the total herbal medicine market in the world. This number has increased
significantly from 2008, when herbal medicine market was only IDR 7.2 trillion. This
means that within the last five years, herbal medicine market has grown almost
twice larger. (Fig.2)
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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Fig 2. Market Size of Jamu (Herbal Medicie) in Indonesia
Source: Company, Capricorn Indonesia Consult
Jamu Consumption in Indonesia
Herbal medicine consumption in Indonesia continues to increase from year to year,
with an average growth of 35.1% per annum from 2008 to 2012. Higher demand
for Jamu consumption has triggered rapid growth in herbal medicine industry in
Indonesia. Jamu in Indonesia are produced in three forms: powder, liquid and
tablets. (Fig.3)
Fig 3. Jamu Forms and Its Contribution
Source: Company, Capricorn Indonesia Consult
Along with the people's need for practical products in recent years, liquid Jamu
dominates with 67% contribution to the total national Jamu production, followed
by powder Jamu with 30% share and tablet Jamu with 2% share. The demand for
liquid Jamu and tablets will continue to rise in line with consumer demand for
practical products.
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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BUSINESS OVERVIEW
Sido Muncul Business
Sido Muncul is the biggest herbal manufacturer in Indonesia. Sido Muncul history
began in 1940 in Yogyakarta. Started as a household business, in 1975 PT Industri
Jamu dan Farmasi Sido Muncul established with its factory in Semarang.
To anticipate a surge in demand, Sido Muncul decided to build a larger and more
modern factory in an area of 30 hectares. With the modern plant, Sido Muncul
obtained the Good Manufacturing of Traditional Medicine (“CPOTB”) and Good
Manufacturing Practice (GMP) certificates, the equivalent of pharmaceutical
company certification. With these certificates, Sido Muncul has become the only
herbal medicine company in Indonesia with pharmaceutical standards.
In 2013, Sido Muncul held an initial public offering (IPO) in Indonesia Stock
Exchange (IDX) by issuing 1.5 billion shares (10%), with an offering price of IDR 580
per share. Sido Muncul raised IDR 870 billion from the IPO. Sido Muncul plans to
use the IPO proceeds for land purchase, contruction of new plants, and the
purchase of more modern production facilities.
Sido Muncul Subsidiaries
Fig 4. Sido Muncul and Subsidiaries
Source: Company
Semarang Herbal Indo Plant (“SHIP”)
SHIP is a subsidiary of Sido Muncul in which the company has 99.99% ownership.
SHIP is engaged in the extraction of herbs. Currently, the entire production is
dedicated to Sido Muncul. SIDO plans to use IDR 87 billion of the IPO proceeds to
purchase new extraction machines. With the operation of the new machine, SHIP’s
production capacity is expected to rise 300% by the end of 2014. With this
additional capacity, SHIP is expected to receive herb extraction demand from third
parties.
Muncul Mekar (“MM”)
MM is a subsidiary of Sido Muncul, in which the company has 99.99% stake. MM is
the sole distributor of Sido Muncul products. Its distribution channel is supported
by 108 sub-distributors that channel Sido Muncul’s products to 76 cities in
Indonesia.
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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Sido Muncul Business Lines
Sido Muncul categorizes its products into five business lines, namely:
Herbal Medicine
Energy Drink
Beverage and Confectionery
Health Drink
Herbal Supplement
Fig 5. Sido Muncul Products
Source: Company
In recent years, Sido Muncul’s revenues have been predominantly contributed by
two main products: Tolak Angin (from herbal medicine business) and Kuku Bima
(from energy drink business). At the end of 2013, herbal medicine business
accounted for 43% of the total revenue, and energy drinks business also accounted
for 43% of the total revenue.
In the coming years, Sido Muncul prefers to focus on the development of herbal
medicine business, as the company sees great potential and attractiveness of the
industry. Abundance in raw materials for herbal medicines in Indonesia and larger
profit margins are the reason for Sido Muncul to focus on herbal medicines.
Sido Muncul and Competitors
Jamu as an original product from Indonesia which has been around for hundreds of
years attracts many industry players. Sido Muncul as the largest herbal medicine
company in Indonesia faces several close competitors such as Bintang Toedjoe,
Deltomed Laboratories, and others. In addition, the similarity between the product
lines among players is causing tigher competitions.
Besides competition among herbal medicine companies, competition also comes
from pharmaceutical companies. The attractive market of herbal medicine
business has also prompted some players in the pharmaceutical industry to
produce herbal medicines.
Sido Muncul Expansion Plan
Due to rapid growth in demand for herbal medicines, Sido Muncul has planned to
increase the production capacity of Tolak Angin liquid, which is a major contributor
to its herbal medicine business line. Around IDR 200 billion from the IPO proceeds
has been allocated for the construction of the new plant. The construction is
expected to be completed gradually until the end of 2016. Next year, with some
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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new machines being installed, the targeted production of liquid Tolak Angin jamu
can be increased by 100%.
Sido Muncul also plans to add extraction machines in its subsidiary SHIP.
Operations are expected to commence by the end of this year and will increase
production by about 300%. While for MM, Sido Muncul prepared IDR 77 billion to
purchase land and build warehouse. The land purchase and warehouse
construction is expected to be completed no later than 2016.
Sido Muncul will continue to focus in Jamu business and standardized herbal
medicine, as well as food and health drinks made from herbs. To increase public
awareness of herbal medicines, Sido Muncul will continue to provide education to
the community, to build people’s familiarity and confidence in the efficacy of
herbal medicines.
Sido Muncul Competitive Advantages
Sido Muncul is the largest producer of herbal medicine in Indonesia with
more than 70 years experience
Sido Muncul is the only herbal medicine manufacturer certified with
pharmaceutical standards.
Sido Muncul has its own raw material processing facility, and most of the
raw material originates from Indonesia.
Major products of Sido Muncul have been certified through researches to
test their safety and efficacy.
Sido Muncul continues to innovate to produce nutritious and high quality
products.
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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INVESTMENT MERITS
Market Leader in Herbal Medicines for Cold and Energy Drinks
Tolak Angin’s market share for cold herbal medicine reached 75.10%. Meanwhile,
the market share for the Kuku Bima energy drink reached 60.02%. Through
innovation that produces liquid Tolak Angin, Sido Muncul successfully introduced
herbal medicine that is more practical and meets the standards. It is of no wonder
that although many competitors tried to imitate the products, Tolak Angin is still
the market leader. (Fig.6)
Fig 6. Tolak Angin and Kuku Bima Market Share
Source: Company, Capricorn Indonesia Consult
Focus on Higher Margins from Herbal Medicine Products
In Indonesia, the pharmaceutical industry imports about 90% of its raw materials.
Meanwhile, herbal medicine industry uses 85% of raw materials originating from
Indonesia's natural resources. Hence, herbal medicine industry has the highest
gross profit margin than other similar business lines. In 2013, herbal medicine
business gross profit margin reaches 64%, while gross profit margin for energy
drinks business was only 24%.
Solid Financial Positions
Last year’s IPO strengthened Sido Muncul’s cash flow position. The IPO proceeds
will be used for the construction of a new plant, the purchase of machinery and
addtion to warehouse. Sido Muncul also does not have any interest-bearing debt.
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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KEY RISKS FACTORS
Fluctuations in Raw Material Prices
Because most of the raw materials come from local herbal plants, weather
conditions can lead to fluctuations in raw material prices. Raw material shortages
could also be caused by undeveloped and unmapped production centers for herbal
plants.
Competition Risk
The attractive herbal medicine market became the target of both herbal medicine
and pharmaceutical companies. Increasingly sophisticated technology and more
intensive researches have supported herbal medicine market growth. Not
surprisingly, the competition in the coming years will grow fiercely, especially
among the big players such as Deltomed Laboratories and Bintang Toedjoe. big
players.
Exchange Rate Fluctuations
Most of the raw materials for herbal medicine products are locally sourced. But
95% of raw materials for energy drink products are imported. Weakness in
Indonesian Rupiah (IDR) will increase production costs.
Failure in Marketing Campaigns
To introduce new products to the public, the Company needs to continuously
educate its consumers through intensive campaigns, whereby the costs are
expensive. Failure in the marketing campaign may cause the Company to miss the
expected goals.
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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SWOT ANALYSIS
Strength
Safe and quality products with tested results
Well-known brands with more than 70 years experience in herbal
medicine industry. decades
Innovative products that are widely known by the public
Only herbal medicine manufacturer certified with pharmaceutical
standards
Weakness
Focused distribution network in Java
Export markets that have not been exploited
Dependence on two products, while Sido Muncul have more than 200
products
Opportunity
Back to nature lifestyle
Increasingly expensive chemical drug prices to cause consumers to turn to
more economical herbal medicines.
The society is more susceptible to herbal products
Technological advances enable the development of standardized herbal
medicines
Threat
Threats from imported herbal medicines
Lack of information about herbal medicines from medical professionals
The industry gives inadequate attention to scientific research of products
and market developments
Lack of standardizations in products, for example for materials used,
manufacturing methods, efficacy and product safety
Lack of public education about the advantages of herbal medicines
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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FINANCIAL AND VALUATION
1H-2014 Financial Result Update
Sido Muncul financial performance in the first half of 2014 was below
expectations. Compared to the 1H-2013, Sido Muncul booked lower sales in the
1H-2014 by 1.7%. The decrease in sales occured in energy drinks business and
beverage and confectionary business.
Fig 7. Sido Muncul Financial Result 1H-2014
Source: Company, PSI estimates
Sales of energy drinks fell by almost 10.0%. The decline in sales of energy drinks
was due to the cool weather in the first half of this year. Meanwhile, intense
competition in the beverage business caused sales from beverage and
confectionery business decrease 23.8%.
In terms of net income, Sido Muncul posted 37.4% net profit growth. The increase
in net profit is supported by decreased advertising fees and increased financial
income. (Fig.7)
Earning Forecast
For the end of 2014, we project Sido Muncul’s revenue to decrease by 2.4%, as
sales of the energy drink business decreases. Despite the decline in sales, net
income is projected to grow 10.5%. Rising contribution of herbal medicines that
has higher profit margins can increase Sido Muncul’s net profit.
In 2013, the contribution of herbal medicine business and energy drinks each
accounted for 43.0% of the Sido Muncul’s total revenue. This year, we expect
herbal medicine business to contribute about 48.0%, while revenue contribution
from energy drinks would drop to 37.0%.
In the coming years, Sido Muncul aims for revenue contribution from herbal
medicine business to reach above 50.0% of the company’s total sales. With higher
profit margins and greater market potential in herbal medicine business, Sido
Muncul’s profit growth will be higher.
In 2015, Sido Muncul’s sales are projected to increase. The new plant operation
will increase production of Tolak Angin. Estimated revenue growth is 11.3%, with
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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net profit growth of 20.3%. Tolak Angin will remain a major contributor of Sido
Muncul sales with a contribution portion of 56%.
Dividend
As a newly listed company, Sido Muncul distributed cash dividends for the fiscal
year 2013 with dividend payout ratio (DPR) of almost 100%. For fiscal year 2014,
Sido Muncul’s DPR can be expected to be lower than the previous year. We are
projecting a payout ratio of 50%, with a dividend of IDR 14.8 per share. The decline
in payout ratio is due to increasing capital expenditure requirements for the
expansion of the new plant or the acquisition of other companies.
Valuation
Along with the trend of "back to nature", public preference slowly began to shift
from chemical drugs to herbal medicines. Herbal medicine is perceived to be
better and have less side effects as it is derived from natural ingredients. To
increase public awareness of the benefits of herbal medicines, the Company needs
continuous education. On the other hand, it is necessary for industry players to
have good manufacturing practice (GMP) standard and clinical proof of the efficacy
of herbal medicines.
Herbal medicine consumption growth is expected to continue for the next years.
Sido Muncul has the opportunity to continue increasing production, expanding
market share and generating bigger sales value.
Using discounted cash flow method with WACC of 10% and terminal growth of 5%,
we estimate the fair price of Sido Muncul shares for the end of this year at IDR 785
per share. Total dividend for financial year 2014 is estimated at Rp 14.8 per share
with a dividend payout ratio of 50%. Thus there is potential gain of 3.87%,
compared to the closing price of Rp 770 per share on August 6, 2014.
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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Total Returns Recommendation Rating> +20% Buy 1+5% to +20% Accumulate 2-5% to +5% Neutra l 3-5% to -20% Reduce 4<-20% Sel l 5
We do not base our recommendations entirely on the above quanti tative
return bands . We cons ider qual i tative factors l ike (but not l imited to) a s tock's
ri sk reward profi le, market sentiment, recent rate of share price appreciation,
presence or absence of s tock price cata lysts , and speculative undertones
surrounding the s tock, before making our fina l recommendation
Ratings History
PSR Rating System
Remarks
12345
500.00
600.00
700.00
800.00
900.00
1,000.00
1,100.00
1,200.00
De
c-13
Jan
-14
Fe
b-1
4
Ma
r-14
Ma
r-14
Ap
r-14
Ap
r-14
Ma
y-14
Jun
-14
Jun
-14
Jul-1
4
Au
g-1
4
Au
g-1
4
Se
p-1
4
Oct-1
4
Oct-1
4
No
v-14
De
c-14
Source: Bloomberg, PSR
Market Price
Target Price
Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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Industri Jamu dan Farmasi Sido Muncul 8 August 2014
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Website: www.poems.com.my
HONG KONG Phillip Securities (HK) Ltd
11/F United Centre 95 Queensway Hong Kong
Tel +852 2277 6600 Fax +852 2868 5307
Websites: www.phillip.com.hk
JAPAN
Phillip Securities Japan, Ltd. 4-2 Nihonbashi Kabuto-cho Chuo-ku,
Tokyo 103-0026 Tel +81-3 3666 2101 Fax +81-3 3666 6090
Website: www.phillip.co.jp
INDONESIA PT Phillip Securities Indonesia
ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A Jakarta 10220 – Indonesia
Tel +62-21 5790 0800 Fax +62-21 5790 0809
Website: www.phillip.co.id
CHINA Phillip Financial Advisory (Shanghai) Co Ltd
No 550 Yan An East Road, Ocean Tower Unit 2318,
Postal code 200001 Tel +86-21 5169 9200 Fax +86-21 6351 2940
Website: www.phillip.com.cn
THAILAND Phillip Securities (Thailand) Public Co. Ltd
15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak,
Bangkok 10500 Thailand Tel +66-2 6351700 / 22680999
Fax +66-2 22680921 Website www.phillip.co.th
FRANCE King & Shaxson Capital Limited
3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France
Tel +33-1 45633100 Fax +33-1 45636017
Website: www.kingandshaxson.com
UNITED KINGDOM King & Shaxson Capital Limited
6th Floor, Candlewick House, 120 Cannon Street, London, EC4N 6AS
Tel +44-20 7426 5950 Fax +44-20 7626 1757
Website: www.kingandshaxson.com
UNITED STATES Phillip Futures Inc
141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building
Chicago, IL 60604 USA Tel +1-312 356 9000 Fax +1-312 356 9005
AUSTRALIA PhillipCapital
Level 12, 15 William Street, Melbourne, Victoria 3000, Australia
Tel +61-03 9629 8288 Fax +61-03 9629 8882
Website: www.phillipcapital.com.au
SRI LANKA Asha Phillip Securities Limited
2nd Floor,Lakshmans Building, No.321, Galle Road, Colombo 03, Sri Lanka
Tel: (94) 11 2429 100 Fax: (94) 2429 199 Website: www.ashaphillip.net
INDIA
PhillipCapital (India) Private Limited No. 1, C‐Block, 2nd Floor, Modern Center , Jacob
Circle, K. K. Marg, Mahalaxmi Mumbai 400011 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955
Website: www.phillipcapital.in