Deutsche Bank AG Russia2011 Narrowing the EM gap
Deutsche Bank AG Russia-2011: Narrowing the EM gap Yaroslav Lissovolik // +7 495 933 92 47 // yaroslav. lissovolik@db. com Ilya Piterskiy // +7 495 922 92 30 // ilya. piterskiy@db. com June 2011 All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 007/05/2010
I. Global factors: economy and equities Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 1
Global outlook Sources: National authorities, DB Global Markets Research Deutsche Bank 12/25/2021 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 2
Energy price outlook Source: Bloomberg Finance LP, Deutsche Bank Source: IEA, Deutsche Bank 12/25/2021 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template Source: Deutsche Bank Source: IEA, Deutsche Bank 3
US Equity Outlook: buy on growth n Our 2011 RTS Index target of 2300@2011 is supported by S&P 500 end-2011 target and the current beta of 1. 2 x vs the US equity market n Our US equity strategists expect S&P 500 at 1, 550 (16. 4 x P/E) by the end-2011, +18% upside from current levels n Sales increasingly the driver of strong earnings growth Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 4
II. Global factors: commodities and FX Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 5
Oil vs the dollar Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n Historically, oil prices are strongly correlated with USD. A depreciation in USD is associated with stronger nominal oil prices, and vice versa. n However, throughout the 2010 wave of USD appreciation the oil price decoupled and remained relatively stable Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 6
III. Russia‘s economy Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 7
Economic indicators: recovery driven by consumption Source: Rosstat, Deutsche Bank Global Markets Research n By the beginning of 2010 all key economic indicators returned into Yo. Y positive zone n In 2011 we continue to see consumption as a major driver of economic growth Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 8
Consumer confidence in Russia weaker in Q 1 2011 Source: Nielsen consumer survey, Deutsche Bank Global Markets Research Deutsche Bank 12/25/2021 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 9
Deutsche Bank A consumer driven recovery n n n n n Lower inflation Rouble appreciation, particularly versus the Euro A saving reservoir preserved in the course of the gradual devaluation Rapid decline in unemployment Budget spending prioritizes the social sphere and hence household consumption Interaction of political and economic cycle to continue to favor current outlays Cash-for-clunkers program extended Lower interest rates and a recovery in consumer lending Regulated tariff increases for households contained The return of the migrants from the near abroad Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 10
External debt, USD bn Source: CBR, Deutsche Bank Global Markets Research n Corporate external debt remains a risk factor for Russia… n … with state debt stable on the back of high fiscal revenues Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 11
Debt repayment schedule, USD bn Source: CBR, Deutsche Bank Global Markets Research Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 12
Non-oil budget deficit at nearly 10% of GDP in 2011 Source: Economic Expert Group, Deutsche Bank Global Markets Research Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 13
Government assets for sale n Government plans to step up privatization in the coming 3 -5 years n Government plans to extract up to USD 30 bn from the sale of assets n Proceeds are expected to be used for financing the budget deficit Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 14
Targeting superior investment climate – president Medvedev’s initiatives n General Prosecutor to prepare draft legislation on anti-corruption measures – 15 April 2011 n Lowering of outlays on state procurement by 15% via raising transparency and efficiency, with a n n n deadline of 15 May 2011 Legislation on the narrowing of the scope of strategic enterprises, with a deadline of 15 May 2011 Adopt the schedule of privatization for 2011 -13 – deadline 15 May 2011 Facilitation of information on public-sector companies for minority shareholders, with a deadline of 1 June 2011 Lowering of social security contributions by businesses, starting from 2012, deadline for the submission of the relevant amendments being 1 June 2011 (delayed) Exclude federal ministers from the boards of directors of state public companies – 1 July 2011 Exclude other civil servants with their replacement by independent directors – 1 October 2011 Reduction in costs in procurement and services by public-sector companies by 10% in the next three years – 1 October 2011 with subsequent monitoring on a quarterly basis Presidential administration to introduce procedures on the regular coordination and discussion of draft legislation with the business community Assist the private sector in implementing investment projects with respect to their coordination and interaction with state bodies The government to prepare measures to improve the quality of services, pertaining to Russia’s investment climate, including registration and visa requirements foreign specialists Representatives of the presidential administration to be present in all Russian regions to receive complaints and feedback on the actions (or lack thereof) of state bodies Deutsche Bank 12/25/2021 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 15
Reserve Fund and National-Well-Being Fund n. At the peak the size of the two oil funds amounted to USD 220 bn n. Currently funds were reduced to around USD 120 bn Source: Ministry of Finance of the Russian Federation, Deutsche Bank Global Markets Research n At the start of 2010 the government planned to reduce the fund to about USD 10 bn over the year, but due to more favourable conditions than initially projected, the Fund ended 2010 at about USD 25 bn (USD 15 bn was spent to finance the budget deficit in December) n According to the most recent budget strategy, the fund is planned to double over 2011 topping USD 50 bn Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 16
Pro-cyclical fiscal policy Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 17
The new electoral cycle starts in 2011 Source: Economic Expert Group, Deutsche Bank Global Markets Research Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 18
Expenditures on key international infrastructure projects, n Sochi 2014 is the key project for Russia in the medium term n Another infrastructural “hot spot” is the Far East (one of the most depressed regions in Russia currently) n In the longer term the most important will be the 2018 FIFA World Cup Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 19
CBR reserves have already recovered by USD 130 bn Source: CBR, Deutsche Bank Global Markets Research n CBR reserves recovered by more than USD 110 bn since the bottom of the crisis peaking above USD 520 bn… n …Euro weakness and capital outflows are among the main driver for decreases in reserves, while current account surpluses and capital inflows increase the reserves Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 20
Foreign direct investment into Russia Source: CBR, Deutsche Bank Global Markets Research Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 21
Net capital inflows, $ bn vs RTS Index Source: Bloomberg Finance LP, CBR, Deutsche Bank Global Markets Research n Q 1 2011 continued the trend of capital flight from Russia (an outflow of more than USD 21 bn) n The outflow came despite favourable oil prices (USD 105. 5/bbl on average for Brent) and did not stop the RTS Index from gaining 15% over the quarter Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 22
Flows into funds investing into the Russian equities Total, including ETFs only n Institutional funds investing into the Russian equities attracted USD 3. 6 bn of inflows in 2011 with a majority of inflows coming through ETFs Deutsche Bank 12/25/2021 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 23
Inflation in Russia is a monetary phenomenon Source: CBR, Rosstat, Deutsche Bank Global Markets Research Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 24
Liquidity and interest rates Source: CBR, Deutsche Bank Global Markets Research n Low Interbank interest rates are coming on the back of excess liquidity in the system n Starting from the first quarter of 2009 they declined towards the current value of 2 -3% n Most recently the effect of the CBR rate increase coupled with end-of April liquidity shortage caused a liquidity squeeze and a short-term hike in overnight rates in early May Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 25
Inflation vs refinancing rate Source: CBR, Rosstat, Deutsche Bank Global Markets Research n After 13. 3% in 2008, Russian inflation dropped to 5. 5% Yo. Y as of July 2010 n Since 1 Q 09 CBR reduced the refinancing rate from 13% to 7. 75% n Inflation started to recover reaching 9. 6% Yo. Y by the end of January 2011 and stabilizing around these levels… n Starting from late December 2010 the CBR raised refinancing rate by 50 bp to 8. 25%, and deposit rate by 75 bp to 3. 25% Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 26
Capacity utilization rates are recovering n Capacity utilization is currently below its pre-crisis level albeit breaking through the moving average as well as the 9 -year average on the upside Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 27
Basket/Rouble exchange rate and Urals price, USD/bbl Source: CBR, Deutsche Bank Global Markets Research n The recent strength in oil prices suggests further rouble appreciation n One of the factors of the rouble weakness, which is now gone, was the weak euro n We forecast USD/rouble rate at 27. 5 at end-2010 and 27. 3 at end-2011 (31. 2 and 30. 4 for the basket) Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 28
Politics: Margin of support for Putin, Medvedev remains stable n According to the recent polls the popularity ratings of Putin and Medvedev remain above 65% albeit recent decline n The ratings became equal in May 2011 for the first time since the start of the poll Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 29
Politics: elections to support the equity market Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n It is common for the Russian equity market, as well as the US equity market, to reveal strong trends before the presidential elections n Given that 2012 elections are scheduled to take place in 1 Q, we expect this factor to be one of the driver for the equities already in 2 H 11 Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 30
Politics: stronger rouble coming from the electoral cycle Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n Two previous electoral cycles were characterized by rouble’s appreciation vs the US dollar n We expect the 2011 -2012 electoral cycle to be one of the positive factors for the rouble Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 31
Russia’s diarchy in the making Medvedev as President: n Liberal credentials, no ties with the hardliners n Loyalty to Putin n Looks to forging ties with Europe Putin as Russia’s Prime Minister: n Has a keen interest in the pursuit of the Asian model n Looks at Asia as a promising venue for expanding energy supplies/cooperation n Considers Asia as a counterbalance to Europe/West Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 32
Number of bureaucrats Source: Rosstat, Deutsche Bank Global Markets Research n Number of bureaucrats was rising at a pace of 4. 5% per year throughout 20002009… n … and stays now at all-time-high levels Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 33
Doing Business in Russia Source: World Bank, IFC, Deutsche Bank Global Markets Research n The World bank and IFC made joint project on evaluating easiness of doing business in Russia n In 2011 vs 2010 doing business became more difficult with the major deterioration in registering property and closing a business n Survey comprises 183 countries Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 34
Best and worst regions to do business in Russia n Variations across cities show potential to learn from the existing local best practices Source: World Bank, IFC, Deutsche Bank Global Markets Research Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 35
IV. Russia‘s market: current issues Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 36
Russian market vs other assets YTD performance Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n Following the downturn in May, Russian equities underperform the US, but still outperform EM equities year-to-date n Brent crude oil continues to be one of the best performing assets Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 37
Russian market 2011 sectoral performance n Oil & gas is the only sector in the positive zone YTD n Small caps show weak dynamics n Consumer goods & retail ( -6%) was one of the worst sectors after an impressive 83% gain in 2010 Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n Electric utilities are the worst performers losing 10% YTD Key sector drivers: n Oil & gas, metals & mining: Strong commodity prices n Consumer goods & retail: Rising consumer confidence, fiscal outlays n Industrials, metals & mining: Economic recovery in manufacturing and construction Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 38
Russian exporters: relative performance to market Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n Oil & gas has been underperforming the RTS Index for two consecutive years (20092010) n At the same time, the second major exporting sector (metals & mining) has been outperforming the RTS Index during this period Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 39
Large caps catching up n MICEX Index Large Cap / Small Cap ratio experienced an almost 2 year downward trend… n … which continued following 3 -months of recovery of large caps vs small caps in Q 2 2010 n Large caps outperform small caps by 16 pp YTD Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research Drivers for a catch-up play in blue chips in 2011: n 15 -20 pp gap in the large-small cap performance n Returning flow of funds into Russia Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 40
Russia’s 2011 performance vs EM countries Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n After catching up with EM in late 2010, Russia continues to outperform EM in 2011 n We see further scope for Russia’s catch-up vs EM given longer-term past underperformance Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 41
Russia’s performance relative to MSCI EM Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n Until the end of April 2010, Russia outperformed EM by 5 -7 pp on a YTD horizon n The May-June 2010 sell-off pushed Russia back to 4 pp YTD underperformance vs EM n Due to the year-end rally, Russia managed to catch up with EM by the end of 2010 n Throughout 2011 Russia has been outperforming the EM n The May 2011 sell-off narrowed the YTD outperformance to 4 pp Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 42
RTS Index drivers Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n The correlation of the RTS Index vs global factors stays slightly below historical highs: n 75% vs S&P 500, proving US market being the key driver for the Russia’s equities n 66% vs oil prices – up from 61% on average in 2010 n 65% vs the rouble rate n Another important factor, the euro rate, is becoming less important (28% correlation) for Russian equities Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 43
Seasonality in RTS Index Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n May is one of the worst months for the Russian equity markets in terms of seasonality n The RTS Index showed strong returns in January despite its seasonally weak nature on the basis of strong oil prices and the QE 2 effect n April, a seasonally stronger month, showed weaker returns in 2011 n In line with our expectations, May was a weak month for the Russian equities Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 44
May 2011 correction - too long since peak in April n The correction since the peak of 8 April to the recent trough of 23 May lasted for 45 days and was as deep as 17% n According to our analysis, on average the corrections lasted for 33 days with only 22% lasting for more than 40 days n On average, after reaching its trough (we looked at 45 correction episodes of 13% and deeper) the RTS Index outperforms the S&P 500 by more than 20% on a 3 month horizon Deutsche Bank 12/25/2021 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 45
V. Russia‘s equities and valuation Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 46
The discount of Russia’s P/E to EM Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n Russia historically trades with a 33% long-term average discount to EM n In most cases the discount fluctuates within 1 S. D. from the LT average n Russia currently trades on a discount close to the lower border of the 1 S. D. band Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 47
Relative valuation of Russia vs other countries Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n On a 12 M forward-looking P/E basis Russia is the cheapest market in the EM space trades at 6. 1 x (7. 1 x without Gazprom), while EM and BRIC at 9. 9 x n Russia’s 2011 E-2012 E eps growth rate (29%; 30% without Gazprom) is one of the largest across GEM (22%) Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 48
Valuation dichotomy between sectors Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n The pattern of recovery was not the same for different sectors n Retail trades around pre-crisis multiples n Oil & gas names, especially Gazprom, are trading well below n The 2011 strong performance of energy names vs consumer stocks narrowed the valuation premium of the latter, but there is still scope for outperformance for oil & gas vs retail Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 49
Relative valuation of Russian sectors vs GEM Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research n While Russian Energy, Telecoms, Utilities and Banks are undervalued, consumer names are slightly more expensive Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 50
MSCI Index rebalancing n The MSCI Russia Index currently has 29 constituents n In May, LSR Group was included into the index and OGK-4 was excluded. n Rostelecom ords, Mechel prefs, Holding MRSK ords and UC Rusal are candidates future inclusion Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 51
Russia’s dividend plays (1/2) n The dividend yield gap between Russia and EM is narrowing, but still substantial (30%) n The dividend factor will be one of the key market drivers in the next several months and may feature safer plays amidst the increased volatility in global markets n Q 1 is the best time to invest in dividend stocks – seasonal patterns suggest the biggest outperformance vs the market in Q 1 Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 52
Russia’s dividend plays (2/2) n Other features pointing on good investment opportunities: fundamental upside, liquidity, presence of pref shares, large cap status and growth n Basket: Sberbank Rusal, Evraz, Gazprom, LUKoil, MMK, MTS, Norilsk Nickel, Surgutneftegaz, Tatneft, TNK-BP, X 5, Bashneft, Gazpromneft, Kazmunai Gas Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 53
Key drivers of our year-end target n Our positive view on Russian equities (RTS target 2300) is due the following factors: n (i) Weak relative performance: While performing in line in 2010 and stronger than EM in 2011 so far, the Russian equity market still underperforms EM on longer horizons, given heavier losses during the crisis n (ii) Cheap valuation: Russia trades at close to 7 x 12 M forward P/E, which is one of the cheapest in the EM space. At the same time, Russia offers a 2010 -11 E EPS CAGR of 30%, which is more than the EM average; n (iii) Strong performance of global markets: Our US strategists believe in strong 2011 performance of the US market, which would be driven by both economic and corporate recovery. Deutsche Bank’s S&P 500 2011 year-end target of 1, 550 offers 18% upside potential – supporting our 2011 RTS target of 2, 300 given the current beta of 1. 2 x n (iv) Further mitigation of risks regarding the situation in Europe, and recovery of the European currency; n (v) Russia enters the 2011 -2012 electoral cycle, which will support the rouble and the equity market n We recommend focusing on blue chip names, which have been substantially underperforming second-tier names for more than 2 years. n In terms of sectors, we highlight oil & gas and financials – the weakest performers of 2010 which, in our opinion, have scope for catch-up with the market Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 54
Drivers at the macro level: n Fiscal spending to boost consumption n High oil prices: Deutsche Bank projects USD 117. 5/bbl in 2011 with oil recently peaking well above USD 110/bbl n n n Rouble appreciation Greater capital inflows/ investor interest, FDI Recovery in construction WTO accession Sovereign issuance and credit rating upgrades Lending growth Increase in dividend payouts Privatization, M&A and IPOs picking up Administrative reforms The return of the Russian investor base Increased use of RDRs by Russian corporates Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 55
Risks: n Unstable tax regime (unified social tax, export duties on oil products) n Domestic political risks n Greater pressure from domestic opposition generating hardline pressures that may harm investment climate n Potential terrorist risks in the Caucasus n Significant changes in the Kremlin (Putin deciding to step down) n Political elite becoming too “defensive” with the onset of a new electoral cycle n Risks for the global economy n Further mounting of the European sovereign debt crisis n Negative effects for capital inflows into Russia, given strong investment and trade links with EU n High corporate debt burden n Excessive fiscal spending renders Russia more sensitive to oil price fluctuations n Corporate governance still a problem: corporate conflicts in Norilsk Nickel, treatment of minorities in MTS/Comstar deal n Further increase in inflation Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 56
VI. Top picks Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 57
Top picks by sectors n n n Oil & gas: Rosneft, LUKoil Metals & Mining: Norilsk Nickel, Severstal Real Estate: PIK, LSR Banks: Sberbank Consumer goods & Retail: MVideo Source: Deutsche Bank Global Markets Research estimates Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 58
Oil – Rosneft and LUKoil n Rosneft offers a good combination of attractive valuation and production growth n Rosneft outperformed LUKoil by 5 pp in 2010, by 3 pp in 2011 n LUKoil, in turn, stayed flat in 2010 while the RTS Index added 23% (added 28% while RTS gained 7. 5% in 2011) n LUKoil is trading at extremely cheap valuations – 3. 2 x 2011 P/E n DB is above consensus for 2011 E oil prices and earnings Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 59
Taxation – current issues and newsflow Export duties and mineral extraction taxes account for 65 -70% of costs The average marginal tax rate for Russian VICs is ~75%: ~90% in the crude exports segment ~55% in the refined product exports segment ~45% in the sales of domestic refined products segment Tax concessions: ■ Differentiation of the mineral extraction tax: tax discounts of up to 70% for fields with more than 80% depletion (in effect from 1 January 2007) ■ Tax holidays of 10 -15 years or until cumulative production reaches 25 m tonnes for new fields in Eastern Siberia (in effect from 1 January 2009) ■ Export duty holidays for oil exports from East Siberia fields; we incorporate holidays for 1 H 10 only, reduced export duty from 2 H 10 E Single export duty for heavy and light products at 60% level in 2013: ■ LUKoil is one of the main potential beneficiaries ■ Smaller effect on Rosneft as it is behind in refinery upgrades Introduction of Excess Profit Tax (EPT)/supplementary tax: ■ ■ ■ First proposal by end of 1 Q 11 Likely to be applied to new projects Likely to come into effect in 2012 -13 Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 60
Taxation – recent proposals upstream vs. downstream ■ The government may shift the tax burden from the upstream to downstream, making upstream projects more attractive. Today, taxes in the downstream are smaller than those in the upstream. ■ The maximum rate of crude oil export duty may fall from 65% to 60%. This would positively impact netbacks in crude oil exports and domestic crude oil sales. ■ Simultaneously, export duties on refined products may increase to 66% of crude oil export duties from the currently approved 60% level. ■ We assume Russian oil companies would find more upstream projects value-accretive and make a bigger number of positive FIDs as a result of the tax changes. ■ The bigger upstream tax base is to compensate for the potential losses in the Russian budget that may be incurred as a result of the reduction in the crude oil export duty rate. For the new fields, the Russian government's consultants have proposed a supplementary tax rather than a windfall tax. The proposed rate is 27%. ■ In the UK, a supplementary tax represents a 10% hike in the basic corporation tax. Thus, where UK CT is 30%, the tax increased to 40% in the 1990 s and to 50% in 2006. ■ Offsetting this are more generous capital allowances, and there are exemptions and incentives to drill and develop. ■ Along the same lines, in Russia, a 27% hike in the basic CT of 20% would equal 47%. At USD 70/bbl it is now 65%, at USD 80/bbl 68% and at USD 90/bbl 70%. ■ We are unable to assess the impact on the Russian oil sector as the scale of capital allowances, exemptions and incentives is unclear. Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 61
Base Metals – Norilsk Nickel n Deutsche Bank is bullish on metal Strong correlation with the commodity basket prices – both base and PGM n Historically, Norilsk closely follows it’s commodity basket (R 2 at 80%) n Main drivers – Copper and Palladium n Attractive valuation – Norilsk is trading at a discount to peers n An increasing share of PGM revenues would boost Norilsk’s fair value – PGM companies generally trade on higher valuations than diversified miners Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research Source: Deutsche Bank Global Markets Research estimates Deutsche Bank 12/25/2021 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 62
Steels - Severstal n Deutsche Bank is bullish on steel prices n Attractive valuation – Severstal is one of the cheapest stocks in the Russian steel universe – trades at 7. 7 X 2011 P/E 12 -month forward EV/EBITDA for the Russian steel companies vs steel price Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research Deutsche Bank 12/25/2021 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 63
Real Estate – PIK and LSR Continue to be positive on the sector n Signs of pick up in physical real estate market n Stocks trade ex-’solvency risk’, declining risk premiums priced-in; however, n Valuation upside remains on further re-valuation of land banks; P/NAV discounts still meaningful. Prefer residential, quality retail as least oversupplied segments and construction materials as exposure to recovery in construction PIK LSR n A play on demand recovery for mass market residential property; best leverage to recovery in consumer demand for cheap housing n Restructuring is nearly complete n Additional financing from Sberbank now available (RUR 12. 75 bn) n New projects have commenced: over 3. 0 m sqm of projects are open for pre-sales n Triggers: restructuring of Nomos Bank debt and deleveraging through SPO, leading to lower financial costs, discount rates and higher asset valuation property and construction materials that we expect to lead the recovery; exposure to state contracts (USD 700 m+) n Construction materials: poor performance in 1 Q 10, stabilization in 2 Q 10 -3 Q 10, expect recovery in 4 Q 10 n 2010 -2012 3 -yr CAGR of 27% in sales and 60% in EBITDA on increased capacity utilization n Land bank - mostly residential developments represents future upside; regional diversification with a flurry of new contracts in Moscow and region n SPO in April adds financial stability and provides acquisition currency Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 64
Banks - Sberbank n Credit growth has returned with a strong dynamics in recent months… n Credit costs in 2011/12 will depend on growth, write-offs and write-back potential n Sberbank has the strongest coverage and cash flows and hence the potential for lowest credit costs n Sberbank is also one of the best plays on rouble appreciation, given that more of its asset base is roubledenominated n Sberbank will also likely be one of the better plays on favourable liquidity conditions and the high fiscal spending in the social sphere ahead of the elections VTB trades at almost the same 1. 6 x norm 2012 E P/B despite: n Structurally lower ROE due to wholesale funding and focus on low-margin loans n Lower quality earnings due to high dependence on IB and trading gains n Inferior asset quality Why does VTB trade on the same P/B and what is going to change it? n Only DR that offers exposure to Russian banks - DR listing of SBER planned for 1 H 11 n Higher beta due to IB and upside in non-core assets - IB acquisition by Sberbank (2011) Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 page 65 Ilya Piterskiy// +7 495 933 92 30 June 2011 65
Consumer Goods & Retail - M. video - Well positioned for consumer recovery, cheap on multiples ■We expect the electronics market to start to recover in 2011 -12 given a supportive macro environment for consumer spending, delayed demand a desire to replace old goods with new ones as consumers’ purchasing power strengthens. ■M. video is traded at a big discount to EM and DM peers Source: Bloomberg Finance LP, Deutsche Bank Global Markets Research estimates Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 66
Statements of risk for following the recommendations (1/3) LUKOIL (LKOH. RTS, TP USD 117. 00, price 59. 61, rating: Buy) Issues: LUKoil is Russia's second-largest oil company in terms of reserves and production. We believe that owing to its recent heavy investment in greenfield operations, the company will be able to maintain growth rates above the Russian average. On the financial front, a healthy balance between upstream and downstream segments makes LUKoil one of the most profitable oil companies in Russia. LUKoil also enjoys the most comprehensive international exposure of all Russian oil companies, which brings its status closer to that of international peers. LUKoil stands out as one of the most likely of the oil companies to benefit from the expansion of the unregulated Russian gas sector. We rate LUKoil Buy; the company enjoys strong fundamentals and we believe that its shares are currently undervalued. Evaluation: Our 12 -month target price is derived on the basis of DCF valuation. We use APT-based discounted cash flow valuation as we believe it provides a superior tool for estimating company-specific risks compared with the CAPM model. It also enables us to account for a much wider range of fundamental factors than comparable multiples valuation, which often fails to account for differences in capex plans, capital structure and growth rates. The key assumptions of our DCF model are an RWACC of 13. 2% (RROE of 13. 5%, including a standard equity risk premium of 6. 0% [2. 5% is idiosyncratic, which accounts for a high risk of volatility in the Russian oil companies' cashflow due to changes in commodity prices and RUR/USD exchange rate], a liquidity risk premium of 0%, and a corporate governance risk premium of 1. 5%) and a long-term nominal growth rate of 2% - a function of expected increases in the prices of crude and refined products, inflation, and the availability of proved, probable, and possible reserves in the companies' portfolios beyond our forecast horizon (2010 -2020 E). Risks: We highlight the downside risks associated with commodity prices, cost inflation, and, more important, the execution of long-term investment projects. We continue to believe that LUKoil's management is one of the most professional in the sector but it will now have to devise strategies to overcome the recent negative operating trends. M. Video (MVID. RTS, TP USD 11. 6, price 8. 82, Rating: Buy) Issues The demand for the major types of electronics is elastic. The main drivers behind market growth are therefore rising GDP per capita, rising incomes, declining unemployment and rising consumer confidence and loans. Given that we forecast positive trends for all of these, we expect spending on electronic goods to increase and the market to grow by 18% and 16% in 2011 -12 respectively. We view MVideo, the leading player in the market, as one of the best plays on the consumer recovery in Russia. Buy Valuation We use DCF methodology to derive MVideo's target price as this is growth story and in our view a DCF model reflects the company's growth potential. In addition, there are only two comparable names in the EM peer group, making a multiples-based valuation difficult. Using DCF methodology, we derive a target price of USD 11. 6 for MVideo, implying substantial upside potential to the current price. Our WACC of 13. 1% is based on a terminal growth rate of 3. 5%, a risk-free rate of 6% and an equity risk premium of 6%. Our beta for MVideo is 1. 2 since electronics is a high-beta sector and we make an adjustment due to the stock's low liquidity. Risk The main risks to our call include, but are not limited to, strong forex fluctuations (as it impacts consumer behavior), a slower-than-expected consumer recovery, aggressive development by international players and increasing unemployment. . Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 67
Statements of risk for following the recommendations (2/3) LSR (LSRGq. L, TP USD 12. 80, price 9. 25, rating: Buy) Issues: LSR has been a favorite real estate stock for the market that has so far focused on financial stability and, ultimately, survival among real estate names. In the current environment, we believe LSR offers good exposure to state expenditure on both infrastructure and social housing through its tenders with the Ministry of Defense and the St. Petersburg administration, while medium term, LSR should be a beneficiary not only of demand revival for residential real estate but also construction materials, which we expect to lead a recovery in the construction sector beginning in 2011. With more capital coming from the company's SPO, LSR will be well positioned to capitalize on recovery in demand for residential housing. Geographical diversification of sales away from the company's base in St. Petersburg (LSR is already present in Yekaterinburg and has recently signed a number of deals in Moscow and Moscow region), vertical integration with pre-fab manufacturing facilities and building materials as well as prudent financial management will be key to success. We continue to see upside in the company's share price as land bank gets developed and the currently implied by the share price discount to market value of the land bank narrows. Thus we rate the shares a Buy. Evaluation: Our valuation of LSR Group is based on SOTP approach. We value LSR's yielding properties, residential and office properties already constructed and currently under development, DSKs and building materials businesses using DCF with a WACC of 12. 3% (13. 3% Co. E, 11. 5% cost of debt and 25% debt-to-equity target ratio; we use a 3% terminal growth rate for building materials, reflecting long-term GDP trends) while we base our valuation for land bank on the last available DTZ valuation, assigning a 20 -40% discount to projects yet to be developed. We adjust the resulting valuation of LSR's assets by net debt, minorities and NPV of corporate overhead costs to arrive at YE 10 e NAV of USD 12. 8, which is also our 12 -month target price for GDRs. We set our 12 -month TP for local shares at a historical 20% discount to GDRs at RUB 1, 459/share and prefer more liquid GDRs. Risks: The company largely faces industry-related risks, including exposure to GDP recovery, consumption growth and demand for real estate, price fluctuations, FX (rouble-related) as well as credit availability from the banks. In addition to these, completion of projects, including commissioning of over 40 development projects and of a cement plant in Slantsy, that meaningfully varies from our expectations could negatively affect our valuation of the company Norilsk Nickel (GMKN. RTS, TP USD 300. 00, price 243. 00, rating: Buy) Issues: Norilsk Nickel is the global cost leader in the nickel industry and looks likely to retain its leadership because of its unique ore body where nickel and copper are combined with platinum group metals. As the largest and lowest-cost producer of nickel in the world, Norilsk should benefit from what we expect to be strong nickel prices in 2011 and 2012. We also see potential for a longer-term shift of the industry supply curve, as low-cost and low-risk sources of nickel are gradually replaced by more expensive. Norilsk is also the largest palladium producer in the world. We expect palladium to perform as a result of what we see as an ongoing substitution of platinum by palladium and growing autocat demand, waning Russian stockpiles and supply constraints. Norilsk's PGM production offers, in our view, a diversfication into more defensive metals and could attract a premium to Norilsk's valuation. Norilsk has, in our view, a strong balance sheet and strong cash flows. At the same time, Norilsk offers no near-term and only remote long-term growth. It also carries company specific risks related to a shareholder conflict, government involvement, social commitments and environmental challenges. On balance though, we believe the market does not fully appreciate the potential of Norilsk's resources: Buy. Evaluation: We value Norilsk using a DCF with a terminal growth period. Our DCF model is based on a WACC of 11. 2% (with a cost of equity of 12. 6%, a pre-tax cost of debt 7% and a 25% long-term D/E) and a terminal growth rate of 3%. Our terminal growth rate captures the longer-term cash flow opportunities of Norilsk's unique ore body and also the growth potential of expansion plans beyond our explicit forecasting period, like the project underway in the Chita region. Our DCF yields a 12 -month target price of USD 300/share, which on our current earnings forecasts implies target multiples of 4. 9 x 2011 E EBITDA and 7. 5 x 2011 E net income. On a flat price scenario, the implied target multiples grow to 5. 9 x and 9. 3 x, which is in line with the peer group's long-term historical average. Risks: Commodity prices represent the largest downside risk for our valuation of Norilsk Nickel. Rouble appreciation also represents a materal risk for Norilsk Nickel given its rouble cost base and dollar revenues. Due to a longstanding shareholder conflict and lack of transparency, Norilsk has significant corporate governance risks. We also note that Norilsk, as a mono-employer, has special social commitments and is subject to government interference and involvement. Like many mining companies, Norilsk faces risks related to export duties, although these have recently been reduced by the announcement of new levels. There also cash flow and sentiment risks related to the company's environmental program. Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 68
Statements of risk for following the recommendations (3/3) PIK (PKGPq. L, TP USD 7. 50, price 3. 79, rating: Buy) Issues: We continue to see upside in PIK shares as the company offers the best leverage to recovery in consumer demand for cheap housing, first evidence of which we saw in 4 Q 09. We expect the trend to continue, and expect it to translate into an increase in cash collections by PIK. Recovery in demand should also allow the company to commence new projects this year after receiving additional financing from Sberbank that will provide cash flow over 2010 -2012 period. We continue to see PIK largely as a play on volumes (as opposed to prices), but geography of its on-going and planned projects (Moscow and Moscow region) may offer additional upside if prices react positively to anticipated supply/demand imbalance as inventory of completed housing is depleted and new construction takes time to hit the market with additional supply. Given the above and the substantial upside based upon our price target we rate the shares a Buy. Evaluation: We value PIK via SOTP approach based on DCF analysis of the actual cash flows from core construction and development business, and net book value of the remaining assets and liabilities not captured elsewhere in the above mentioned analysis. We discount cash flows and terminal value at 13. 8%. Our WACC reflects RROE of 14. 0% (based on 6. 5% sovereign RFR, 7. 0% standard equity risk premium and 1. 0% premium for corporate governance risk) and 16. 5% cost of debt and target debt/capital ratio of 25%. We do not include the valuation of land bank in this approach as we assume it will be used to build and sell property in the interim forecasting period and beyond. We arrive at NAV estimate of USD 7. 5/share at YE 10, which is also our 12 -month TP. Risks: One of the major risks for PIK remains restructuring of Nomos Bank debt. Since the company does not have an ability to pay this debt in full at the moment, failure to reach an agreement with the bank will put PIK's faith in jeopardy once again. We are inclined to believe that Nafta-Moskva-friendly Nomos Bank will be willing to restructure company's debt, removing such a risk. Other risks are largely industry-specific: slower-than-forecasted recovery in GDP, consumption growth and demand for real estate, a more-than-anticipated decline in prices as well as lack of credit markets recovery (both corporate and consumer). Rosneft (ROSN. RTS, TP USD 14. 00, price 7. 79, rating: Buy) Issues: We rate Rosneft a Buy. The company combines substantial reserves with rapid production growth, implying fast monetisation of assets. Rosneft has been demonstrating some of the lowest unit costs in the industry and a highly efficient capital expenditure. The company acquired Yukos' assets and has integrated them successfully. We forecast Rosneft to increase production by nearly 5% in 2010 y-o-y, which is well above the industry average. Sizeable benefits stemming from export duty holidays in East Siberia should enable Rosneft to grow its EBITDA considerably in 2010. Evaluation: Our 12 -month target price is derived on the basis of DCF valuation. We use APT-based discounted cash flow valuation as we believe it provides a superior tool for estimating company-specific risks compared with the CAPM model. It also enables us to account for a much wider range of fundamental factors than comparable multiples valuation, which often fails to account for differences in capex plans, capital structure and growth rates. The key assumptions of our DCF model are an RWACC of 12. 6% (RROE of 13. 5%, including a standard equity risk premium of 6. 0% [2. 5% is idiosyncratic, which accounts for a high risk of volatility in the Russian oil companies' cash flows due to changes in commodity prices and RUR/USD exchange rate], a liquidity risk premium of 0%, and a corporate governance risk premium of 1. 5%) and a long-term nominal growth rate of 4% - a function of expected increases in the prices of crude and refined products, inflation, and the availability of proved, probable, and possible reserves in the company's portfolio beyond our forecast horizon (2010 -20 E). Risks: Downside risks for Rosneft include lower-than-expected oil prices, failure to negotiate access to Gazprom's pipelines, dry-hole drilling at prospective resource areas and Yukos-related litigation. We also note the execution risk the company faces: Rosneft's management might be unable to deliver on its targets or successfully implement its planned investment projects. Sberbank (SBER. RTS, TP USD 5. 50, price 3. 21, rating: Buy) Issues: We rate Sberbank a Buy. Accelerating economic growth, spurred by strong commodity prices, SME growth and mass-adoption of standard retail banking products like mortgages and CCs should propel 20% annual sector growth. Sberbank's dominant market shares (20 -50%), unrivalled distribution power through its network of 20, 000 branches and an underutilized captive client base are unique assets to capitalize on this market opportunity. Additional impetus to earnings growth should come from efficiency gains. Evaluation: We value CEEMEA banks using a two-stage Gordon Growth Model that bases the target price on discounted terminal value, and adds back the value of discounted interim dividends. For Sberbank we assume a mid-cycle ROE of 23%, cost of equity of 13. 0%, and terminal growth of 5%. The cost of equity is derived from a 6. 5% RFR, a 6. 5% ERP and a beta of 1. 0. Our USD 5. 3 PT implies a 2012 E normalized P/BV of 2. 0 x and a 2012 E normalized PE of 11. 8 x. Risks: The main downside risks for Sberbank are declining commodity prices, which would result in a slowdown in economic growth and cause renewed asset quality deterioration. Another risk is continued margin pressure which may arise from, amongst others, a slowdown in credit demand, even fiercer competition from bond market conditions, a significant increase in demand for FX loans and / or monetary tightening. A weakening of the ruble would cause investors to favor Russian exporters and could adversely affect the share price performance of Sberbank. The main company specific risks include, but are not limited to, execution on the business transformation, poor cost control and potential integration issues of an acquisition in IB. Deutsche Bank Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 69
Appendix 1 Important Disclosures Additional Information Available upon Request For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http: //gm. db. com/ger/disclosure/Disclosure. Directory. eqsr. Deutsche Bank 25/12/2021 03: 36: 46 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 70
Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Yaroslav Lissovolik Deutsche Bank 25/12/2021 03: 36: 46 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 71
Equity Rating Key Equity Rating Dispersion and Banking Relationships Buy: Based on a current 12 -month view of total shareholder return (TSR = percentage change in share price from current price to projected target price plus projected dividend yield), we recommend that investors buy the stock. Sell: Based on a current 12 -month view of total shareholder return, we recommend that investors sell the stock. Hold: We take a neutral view on the stock 12 months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12 -month period Hold: Expected total return (including dividends) between -10% and 10% over a 12 -month period Sell: Expected total return (including dividends) of -10% or worse over a 12 -month period Deutsche Bank 25/12/2021 03: 36: 46 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 72
Regulatory Disclosures 1. Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https: //gm. db. com/equities under the “Disclosures Lookup” and “Legal” tabs. Investors are strongly encouraged to review this information before investing. 2. Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank’s existing longer term ratings. These trade ideas can be found at the SOLAR link at http: //gm. db. com. 3. Country-Specific Disclosures Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank. EU countries: Disclosures relating to our obligations under Mi. Fi. D can be found at http: //globalmarkets. db. com/riskdisclosures. Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration number Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered as rating agency in Japan unless specifically indicated as Japan entities of such rating agencies. New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of the New Zealand Securities Market Act 1988. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation. Deutsche Bank 25/12/2021 03: 36: 47 Yaroslav Lissovolik// +7 495 933 92 47 Ilya Piterskiy// +7 495 933 92 30 June 2011 2010 DB Blue template 73
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