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FLASH NOTE

Homebuilding
BBI Equity Research
Friday, July 11, 2014

Our Views on So Paulos New Master Plan

COMPANIES

In this report we intend to assess the main changes of the new master plan for So
Paulo city and the long-term consequences. We believe that the recently-approved
city master plan should transform the market as it will require changes in the available mix
of projects and increase costs mainly due to more expensive building permits. As the plan
is set to last until 2029 with a revision in 2021, the market will need to adapt to the new
conditions.
Smooth short-term transition; increased long-term uncertainties. Companies
pipelines and pre-existing land banks should provide some relief in the short term during
the transition period, while scarce land plots in So Paulo city may force companies
(especially turnaround players) to carry out faster launches under the new plan that would
result directly in more expensive and generally worse projects due to the restrictions of
the new plan (parking spots, size, etc).
The new plan aims to create conditions in which homebuilders develop their
projects near to the citys mass transportation system by allowing higher
verticalization in these areas (but with some restraints such as one parking spot and an
average size of 80m). Meanwhile, the plan reduces verticalization across other parts of
the city by limiting the max Floor Area Ratio (FAR) to 2x, compared to up to 4x in the
previous plan and fixing a height cap of 28m, with the exception being blocks that have
more than 50% of their area already occupied by buildings in which case the height
limitation is not valid.

INDUSTRY REPORT

Margin vs. Volumes. Because of the implied higher cost related to the new master plan,
we expect to see companies potentially reducing the annual size of launches, as lower
returns are not an option given that many players are already unable to deliver returns
even at the cost of equity. Moreover, companies that hold sizeable stakes in So Paulo
city (Even for instance) may be forced to start focusing more on metropolitan areas to
allow for a smoothly transition in the city of So Paulo, which will involve additional
challenges. Meanwhile, the situation for larger apartments and greenfield commercial
properties in premium neighborhoods still remains in question.
The sector is likely to rely on two key factors to avoid significant changes in the
long term: i) the contraction of land prices, and ii) some sort of income gain that allows
homebuyers to afford more expensive apartments in the city of So Paulo. Since both are
very uncertain, we believe that an operational size reduction is the most probable
scenario for players that are heavily dependent on projects in So Paulo city (not yet
reflected in our base case valuation). Thus, we currently see niche players that are
more focused on affordable projects such as EZTec and Helbor for medium and
high income projects as being the best positioned to deal with the full range of
ongoing challenges in the sector.

Brookfield
Cyrela
Direcional
Even
Eztec
Gafisa
Helbor
JHSF
MRV
PDG
Rossi
Tecnisa
Viver
BR Brokers
Lopes
Ticker
BISA3
CYRE3
DIRR3
EVEN3
EZTC3
GFSA3
HBOR3
JHSF3
MRVE3
PDGR3
RSID3
TCSA3
VIVR3
BBRK3
LPSB3

Rating
Under Review
Market Perform
Outperform
Outperform
Outperform
Market Perform
Outperform
Outperform
Market Perform
Market Perform
Market Perform
Outperform
Under Review
Market Perform
Market Perform
Last
Price*
1.48
14.11
10.64
6.47
23.43
3.49
6.32
3.88
7.27
1.41
1.63
6.98
0.14
3.25
9.09

Market
Cap
844
5,697
1,630
1,489
3,438
1,401
1,629
1,676
3,414
1,866
683
1,253
47
620
1,040

Target
Price
U.R
16.80
16.60
10.10
35.20
4.10
10.60
6.10
10.60
1.80
2.70
10.90
U.R
5.00
12.70

ADTV
(BRL)
4.94
42.46
5.85
13.30
11.74
18.92
2.64
1.27
32.55
23.90
7.64
5.41
0.16
7.19
4.15

Upside
2012
U.R
19.1%
56.0%
56.1%
50.2%
17.5%
67.7%
57.2%
45.8%
27.7%
65.6%
56.2%
U.R
53.8%
39.7%

*As of 7/11/14

- 55 11 2178 4223
lmgarcia@bradescobbi.com.br
Luiz Mauricio Garcia

(continued on the following pages)


EPS (BRL)
Ticker
CYRE3
DIRR3
EVEN3
EZTC3
GFSA3
HBOR3
JHSF3
MRVE3
PDGR3
RSID3
TCSA3
BBRK3
LPSB3

2013
1.77
1.49
1.21
3.99
2.08
1.18
0.74
0.89
-0.20
0.10
1.22
0.36
1.23

2014
1.86
1.69
1.29
3.61
0.25
1.12
0.16
0.90
0.02
0.09
1.47
0.21
0.47

P/E
2015
1.97
2.06
1.40
3.87
0.45
1.13
0.15
1.22
0.00
0.03
1.64
0.29
0.71

2013
8.0
7.1
5.3
5.9
1.7
5.4
5.2
8.1
-6.9
16.6
5.7
9.2
7.4

P/BV
2014
7.6
6.3
5.0
6.5
14.0
5.7
24.9
8.1
77.2
18.3
4.8
15.3
19.2

2013
1.05
1.10
0.76
1.64
0.46
1.34
0.76
0.84
0.40
0.29
0.90
0.89
1.65

ROAE
2014
0.96
1.04
0.68
1.45
0.45
1.21
0.75
0.82
0.40
0.28
0.83
1.01
1.62

2013
13.7%
16.3%
15.1%
31.2%
30.3%
27.0%
18.3%
10.7%
-5.6%
1.8%
16.2%
9.9%
24.5%

2014
13.2%
17.0%
14.2%
23.7%
3.2%
22.5%
3.0%
10.3%
0.5%
1.6%
18.1%
6.2%
8.5%

Net Earn.
3-yr. CAGR
8.0%
9.6%
12.4%
7.2%
53.4%
3.7%
39.9%
24.6%
130.8%
53.6%
12.9%
-3.5%
-17.5%

Bradesco Corretora Av. Paulista, 1.450 7th floor Sao Paulo Brazil 55 11 3556-3001
Bradesco S.A. Corretora de Ttulos e Valores Mobilirios (Bradesco Corretora) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
Bradesco Corretora and its affiliates 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.
For full disclaimer and definitions, please refer to the end of this report.

INDUSTRY REPORT
BBI Equity Research Friday, July 11, 2014

The new city master plan for So Paulo has finally been approved. While it has not
diverged much from what the market has been expecting for the last few months, it is
definitely more restrictive and should increase costs in the medium to long term. The
zoning law is the next step of the process as it will detail each neighborhood individually
according to the master plans guidelines. The master plan established 180 days for this
law to be sent to the city council.
The main goals of the new plan are as follows:
Halt the horizontal expansion of the city, preserving the green belt and rural
areas surrounding it.
Reduce traffic and promote the use of mass transportation alternatives by
allowing the construction of higher buildings near subway stations and avenues
with bus services.
Reduce the average distance traveled by either encouraging people to live near
high-density commercial zones or giving benefits to companies that establish
offices in regions closer to residential areas.
Expand the mass transportation system.
Divide the city into macro zones with standardized rules for each (figure 1).
Figure 1: So Paulos Macro Zones

Figure 2: Mass Transportation System

Mass transportation area of


influence. FAR of 4x will be
allowed but some restrictions will
apply such as parking spot
limitation and average size of
80m

Well infrastructured area with job


saturation. Verticalization will be
restricted to 2x FAR
Needs to balance residential and
commercial area. Lots of under
used area. Will be the focus of
the next Urban Interventions
Residential
area
with
a
proportional
mix of buildings
and houses. Promote the use of
mass transportation system and
increase job offer.
Poor infrastructure area and low
income families. Promote the
urbanization and new houses;
increase
jobs
nearby
the
neighborhood.
Source: Municipality of So Paulo

Source: Municipality of So Paulo

The calculation of the building permit fee (outorga onerosa) has changed, as shown in
figure 3.
Figure 3: Building Permit Calculation

Previous Calculation:
=

New Calculation:
=

Where:
Pf = Planning Factor varies between 0 and 1.3. Regions that are to be stimulated have a lower multiple.
Sf = Social Factor varies between 0 and 1 depending on the income segment and other factors.
Land cost average cost of land according to the municipality
Base FAR Base Floor Area Ratio that will be reduced to 1x in the new plan.

Source: Municipality of So Paulo

INDUSTRY REPORT
BBI Equity Research Friday, July 11, 2014

The new formula should imply permit costs that are significantly higher that could
translate into a gross margin 150bps to 500bps lower for a large majority of projects.
There are even some cases of gross margins being whittled down by 1,100bps, mostly
related to commercial properties that are outside of the axis area and a few residential
areas.
The main change in the formula was the price of land, as a new table has been
introduced together with the master plan. This has revised land prices upwards from
150% to 398% (averaging 250bps). The adjustment criteria are still not clear. Another
key change was that the base FAR has been reduced to 1x, and thus some areas that
formerly required just a few permits or none (those with a base FAR of 2x or 3x) will now
need additional permits.
Figure 4: Effects of New Permits Calculation over Gross Margin

Price per m
20,000

18,000

16,000

14,000

12,000

10,000

8,000

Decrease in gross margin

0
200%

-200

Increase in
referenced
cost of land

-400

300%

-600
-800
High Density (a)

-1,000

Base FAR = 1x
Max FAR = 2.5x

Medium Density

-1,200

Base FAR = 1x
Max FAR = 2x

High Density (b)

-1,400

Base FAR = 2x
Max FAR = 2.5x

Source: Municipality of So Paulo

In this graph, we have summarized the three main zonings in So Paulo and show the impact of the permits new
calculations related to gross margins in relation to the prior zoning law. Some conclusions can be drawn:

The bigger the readjustment in the price, the bigger the impact on gross margins;

A higher the price per m, leads to less importance regarding the higher permit costs. Thus, the impact on gross
margins is smaller for the more pricy units;

The High Density zoning (b) is by far the most impacted as the base FAR was reduced to 1x under the new law.
This zoning is also common in more wealthy regions;

Medium density is more common in bordering neighborhoods.


The above scenario was designed for the Campo Belo neighborhood, where permits were already more expansive than
other areas as the neighborhood is relatively new. Therefore, we imagine that a slight upward shift could occur for other
regions.

Furthermore, the Planning Factor has also been changed:


Consolidated area (light red in figure 1): The planning factor for residential
usage was kept unchanged and dropped in some neighborhoods, while the
factor for commercial usage increased.
Area to be improved (orange in figure 1): The factor for residential remained
unchanged, while commercial decreased.
If only the formula had been changed (not the components), we could say that the
permit was actually getting cheaper as, in simple terms, the previous calculation divided
3

INDUSTRY REPORT
BBI Equity Research Friday, July 11, 2014

costs by the base FAR whereas the new calculation divides costs by the maximum FAR.
Nonetheless, these factors could be used to reduce the cost for permits if the conditions
become too restrictive in the market.
We also ran a simulation of a project that is migrating to the new law in the mass
transportation axis, as shown in figure 5. Basically, the incremental PSV would
compensate for the more expensive permits, although some key assumptions that we
have left unchanged, would affect the result materially, such as price, usable area ratio
(and this could improve in the new plan, for instance, as the corridor area is no longer
counted as usable area). Moreover, the max FAR that could be boosted in the new plan
through some incentives of the new plan, such as the public usage of the ground floor,
inclusionary zoning and commercial activity on the ground floor. We are also assuming
the same planning factor as the one from future Urban Interventions, as this point is not
clear in the master plan.
The conclusion is that such a migration should be studied on a case-by-case basis, in
order to address the multiple options for improvements related to buildable area and the
increase in FAR. We are not sure whether the same price is applicable as the project
tends to be of a lower quality (fewer parking spots and reduced area). Projects with
sustainable features should benefit from the new calculation. However, there are no
details available concerning this step yet.
Figure 5: Migrating Project to New Plan Standards
Previous Plan
2,000
1,200
1
0.7
2
2.5
5000

New Plan
2,000
4,200
1
1.2
1
4
8000

Permit per m
Total cost (R$mn)

420
0.420

1,260
7.6

Price per m
Usable area
R$mn
PSV
Construction cost
Land Cost
Permit Cost
Gross Profit
Gross Margin

15,000
4,000

15,000
6,400

60.0
17.5
12.6
0.42
29
49.1%

96.0
28.0
12.6
7.56
48
49.8%

Land area m
Reference Land Price m
Social Factor
Planning Factor
Base FAR
Max FAR
Built Area

Source: Municipality of So Paulo

The previous master plan had an inventory of permits per neighborhood for residential
and commercial projects. However, as some regions had already used up all of their
available licenses, launching new projects had become impossible. Until the new zoning
law is enacted, the new master plan will address this issue as follows: Projects within the
reach of public transportation will have no limitations while residential projects outside of
the transportation axis will not use such inventories as long as FAR does not exceed 2x.
Commercial projects, however, will have to continue using the inventory method.
Projects outside of the mass transportation axis have virtually no limitations regarding
parking spots but this is something that the zoning law may change. Furthermore, as the
mass transportation system expands, new areas will be subject to the same rules as
existing areas. The beginning of construction will therefore be the trigger to unlock
further building potential.

INDUSTRY REPORT
BBI Equity Research Friday, July 11, 2014

The inclusionary zoning clause was included in the new master plan (cota de
solidariedade). For projects of more than 20k m in area, 10% of it must be focused on
residential projects for low-income buyers; to compensate for this clause, a further 10%
expansion in total area is allowed as long as the additional permit fee is paid.
Alternatively, the company can develop the low income portion in a different land plot in
the same region, donate a land plot to the municipality amounting to 10% of the area of
the original land plot, or deposit the corresponding value of such a plot into a specific
account that will be used to buy a similar plot of land or as a subsidy.
The plan is intended to boost the production of new units for low income buyers,
especially those within the first income range of MCMV. It will allow a floor area ratio of
up to six times the area of the land plot and designate 25% of all resources coming from
Urban Interventions for the acquisition of new land plots for low-income projects as well
as for the mapping of new areas for this segment (117% expansion in area).
Furthermore, the new master plan will change how the land is used: 60% of all
designated areas will be used to construct projects for those earning 0-3x the minimum
wage (MW) while the remaining areas will go to those earning above 3x the MW. The
previous plan stipulated that 40% would be used for families making up to 6x the MW
while the remainder would be earmarked for families making up to 16x the MW.
Figure 6: Areas for Low Income Projects

Previous Plan

New Plan

ZEIS 1

ZEIS 2

ZEIS 3

ZEIS 4

New Plan
HIS 1

Up to 3 Minimum Wages

ZEIS
1

ZEIS
2

ZEIS
3

ZEIS
4
ZEIS
5

Previous Plan
Up to 6 Minimum Wages

HIS 2

Up to 6 Minimum Wages

HMP

Up to 10 Minimum Wages Up to 16 Minimum Wages

Source: Municipality of So Paulo

Urban Interventions now have a clear pipeline, as shown in figure 7. This could
represent a good opportunity for the sector as the areas are massive and feature large
unused land plots as such regions have previously contained industries and
warehouses. If the municipality does not follow the schedule (with a six-month grace
period), the area as a whole will be subject to the same rules as those near the mass
transportation system. On one side, this is good news as these interventions should
have been approved a long time ago and a fixed deadline would finally unlock their
5

INDUSTRY REPORT
BBI Equity Research Friday, July 11, 2014

potential. But, on the other side, a question mark remains as the Planning Factor (see
figure 3) of such regions has been fixed at punitive levels (1.2 for residential use and 1.3
for commercial usage). In addition, we calculated the permit for such regions to be
around R$1.1k per m, while there is no information on the CEPAC price. Therefore, we
do not take these interventions for granted.
Figure 7: Urban Interventions
City
Center
Ongoing
Noroeste
No clear
timeline

Arco
Tiet
2016

Arco Leste
No clear timeline

JacPssego
No clear
timeline

Vila
Leopoldina/
Jaguar
2018
Faria Lima guas
Espraidas Chucri Zaidan
Ongoing

Jurubatuba:
2017

Cupec:
No clear timeline

Tamanduate
2015

Source: Municipality of So Paulo

It should be very hard to find viable projects outside of the transportation axis. For
instance, in blocks where it will only be possible to build eight floors (28m height), the
land plot is generally formed by acquiring neighboring houses. However, this sort of
landowner is unlikely to sell his house if it cannot buy a better place or replace what
exists. In blocks where more than 50% of the area is already verticalized, it will be
possible to build up to the height of the neighboring building, but the FAR is restricted to
2x. Thus, a much larger area will be necessary, implying higher costs not to mention the
difficulty of the low availability of land in such areas. Nonetheless, neighborhoods where
the maximum FAR was already 2x could still provide viable projects.
The main question for the long term is whether or not the new areas will support all of
the players and provide the same volumes as today and what will be the cost of such
change. Players should naturally migrate to transportation axis as it will be easier to find
viable projects, thus, we could see increased competition over land and consequently
lower returns, until the market adjusts again. Another factor to be considered is that
market share should not change materially as non-listed players are well capitalized or
have strong support from their investors. The So Paulo market sees around R$17bn in
launches per year. While affordability is currently a constraint, five or six years down the
line, depending on income gains, it might be possible to find viable projects outside the
axis.

INDUSTRY REPORT
BBI Equity Research Friday, July 11, 2014

Figure 8: So Paulo Market

# units ('000)
39.0

38.2

PSV (R$bn)
19.4

38.1

34.5
Avg
22.6

Avg
24.9

25.7

17.5

33.2
34.5
31.6

31.6

12.8

28.5

Avg

9.8

7.8

6.8

Avg
14.4

14.5

11.5

12.4

9.7

3.7

6.3

2004

2005

2006

2007

2008

2009

2010

2011

2012

16.4

2013 4 mo
2014

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013 4 mo
2014

6.0
Tecnisa ex-jdp
Cyrela

5.0

EZTec

Pipeline (years)

Helbor

4.0

Tecnisa

3.0
Gafisa

2.0
PDG

Even

1.0

0.0
0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Dependency ratio (Launches in So Paulo City)


Source: Municipality of So Paulo

Our take. The new master plan will obviously change the game in So Paulo, but
companies land banks will provide short-term support and ease the transition. We
believe that it would even be wise for companies to retain one or two projects for better
opportunities in the future (such as a building with two parking spots per unit among
several with one only). Obviously those companies with few liquid land plots in their land
bank (mostly turnaround names) are likely to suffer the most in this transition phase as,
despite higher costs, they will have an inferior product.
Another issue is that after the master plan has been formally approved by the mayor, it
will be necessary to approve the zoning law, which gives more specific and in-depth
details about the master plans guidelines. The master plan has established that the
zoning law needs to be enacted within 180 days from the approval of the master plan
but if it takes longer, as happened last time (712 days), we could see a shortage in new
projects after the current pipeline is launched. Indeed, this is a major risk for Even that is
dependent on one of the lowest landbank pipelines in So Paulo.
All of the players seem to agree that land prices rarely drop, as most land owners do not
need to sell their properties. For instance, players used to pay a lot for land plots located
in high density (b) areas (figure 4) because the expense of permits was small, and thus,
this behavior certainly seemed to create a sort of price index for land in such regions. On
the other hand, unit prices seem to have reached a cap in some locations. Thus, we
could see low supply in some prime neighborhoods that could result in pent-up demand
as affordability is likely to stop higher prices. Meanwhile, the more affordable mid- to
high-income units (up to the R$750k mark) should continue to sell well.
We also believe that the following trends will be observed:
7

INDUSTRY REPORT
BBI Equity Research Friday, July 11, 2014

The existence of inclusionary zoning may lead to smaller projects for all
companies and it is certainly harder to have a larger number of projects than a
smaller number with the same volume of launches.
The limitation of unit sizes near mass transportation systems (average of 80m)
and the restrictions on new construction within these neighborhoods (eight-floor
limit) may cause a price increase in larger units with a couple of parking spots
in the medium term.
Companies could migrate to cities in the metropolitan area a business area in
which EZtec is a front-runner.
Selective geographic diversification (such as deployed by Helbor) in which
players that have strong local partners operating locally should also benefit, as
such players can easily reduce their launches in So Paulo city.
The benefit of having small rental space on the ground floor, which potentially
reduces permit costs and is mandatory for projects above 10k m in the mass
transportation axis, could lead to a wave of empty retail spaces and higher
condominium fees just for the sake of lower permit prices. Some distinction
between neighborhoods could prevent such an effect.
The future looks even more difficult for greenfield commercial properties in
prime locations as we expect replacement costs to skyrocket due to more
expensive permits, while the demand for commercial properties in the regions
that the municipality intends to stimulate remains a question mark. Retrofitting
could offer very interesting opportunities, especially in the city center.

How will this affect the companies under our coverage? As mentioned above,
companies that have a sufficient land bank will find the transition easier than
those without available land plots, recalling that names such as Cyrela, Even and
Eztec have increased their land acquisitions sharply over the past six months or
so (while Even continues to have notably reduced inventory compared to its
peers). However, as new projects may face serious constraints, names heavily exposed
to So Paulo city may face higher challenges after the usage of such land.
In the medium to long term, the question remains whether or not there will be enough
available land for all of the companies to maintain their current sizes and the implicit cost
of the new plan. Companies will have to rely on the incentivized axis and Urban
Interventions that should increase competition related to land and lead to falling returns.
If such areas are not sufficient to support all companies, we will certainly see lower sizes
that should initially impact the largest players in So Paulo city first (Even and Gafisa).
Meanwhile, we expect companies such as EZtec and Helbor to suffer less as they
are focused on regions where FAR is already at 2x as well as the metropolitan
area, and in the case of Helbor other regions beyond So Paulo (with a healthy
local partner).
A pass-through in price is very unlikely as price increases in real terms are unlikely to
take place due to affordability constraints in the short to medium term. Since the
companies cannot afford lower margins or returns, we could see most of the players
making a reduced amount of launches in the medium to long term depending on the
macroeconomic conditions. This is likely up until we see renewed balance between
supply and demand to adjust to this scenario. Meanwhile, our cautious view on
turnaround players is supported by the various challenges that such names will
face if they are disposed to expanding (or recovering) their stakes in So Paulo
city.
Companies smaller sizes mean more cash flow distribution in the long term, except for
highly leveraged players. Thus, we could see a major part of the listed companies
8

INDUSTRY REPORT
BBI Equity Research Friday, July 11, 2014

paying out large dividends as is already being done by Helbor (a 50% payout and a yield
of 8.8%) and Direcional (40% of FCF was paid as dividends, leading to a yield of 7.9%).
As dividend yields may not be enough to offset the risk of dealing with a smaller
size, we currently see players that have more affordable projects such as EZTec
and Helbor in middle and high income segment as being better positioned to
deal with all of the ongoing challenges in the sector (especially macroeconomic
concerns, followed by factors such as the new master plan for So Paulo).

INDUSTRY REPORT
BBI Equity Research Friday, July 11, 2014

Analyst Certification
Each analyst responsible for the preparation and content of this report hereby certifies, pursuant to SEC Regulation AC and applicable law s and regulations of other jurisdictions, that:
(i)

the view s expressed herein accurately and exclusively reflect his or her personal view s and opinions about the subject company(ies) and its or their securities;

(ii)

no part of his or her compensation w as, is, or w ill be paid directly or indirectly, related to the specific recommendation or view s expressed by that analyst in this report; and
pursuant to Brazilian securities exchange commission (Comisso de Valores Mobilirios CVM) Instruction 483/10:

(i)

the recommendations indicated in this report solely and exclusively reflect his or her personal opinions, and w ere prepared independently and autonomously, including in relation
to Bradesco Corretora and its affiliates;

(ii)

his or her compensation is based on the profitability of Bradesco Corretora and its affiliates, w hich includes investment banking revenues;

Company disclosures pursuant to Brazilian securities exchange commission (Comisso de Valores Mobilirios CVM) Instruction 483/10:
(i) Banco Bradesco S.A. beneficially ow ns 5% or more of equity securities issued by Cielo S.A.. Bradseg Participaes Ltda., a subsidiary of Banco Bradesco, indirectly ow ns 5% or
more of equity securities issued by Fleury S.A.. BRADESPAR S.A., w hose controlling group is comprised of the same shareholders that control Banco Bradesco S.A., indirectly ow ns
5% or more of equity securities issued by VALE S.A.
(ii) gora, Bradesco Corretora, Bradesco BBI and Bradesco Group companies have relevant financial and commercial interests in relation to the subject company(ies) or the subject
security(ies).
(iii) Bradesco BBI S.A. is acting as an underw riter in a public offering of equity securities of JBS Foods S.A. and Companhia de Saneamento do Paran - SANEPAR.
(iv) Bradesco BBI have managed or co-managed a public offering of equity and/or debt securities for the follow ing companies w ithin the past 12 months: Abril Educao, Banco BTG
Pactual, Banco do Brasil, BB Progressivo II - FII, BB Seguridade, Biosev, BHG, BNDESPAR, BR Malls, Bradespar, Brasil Telecom, CEDAE, Chemical VII, Chemical VIII, Colinas, Comgs,
CPFL Energias Renovveis, Daycoval, Ecovias, Embratel, Estcio, Fleury, Iguatemi, JBS, Marfrig, MPX, Multiplan, OAS, OI, Petropar, Razen Energia, Restoque (Le Lis Blanc), Rodobens,
Sabesp, Smiles, Vale and Via Varejo. BBI also acted as a financial advisor for Alpargatas in the deal w ith Osklen.
(v) gora and/or Bradesco Corretora participated in the public offering of equity and/or debt securities for the follow ing companies w ithin the past 12 months: Abril Educao, Alupar,
Autoban, Brazilian Securities, BNDESPAR, Banco BTG Pactual, BB Progressivo II - FII, BB Seguridade, Biosev, BHG, Comgs, CPFL Energias Renovveis, CVC, Estcio, Fator IFIX - FII,
FII BTG Pactual Corporate Office Fund, FII - General Shopping Ativo e Renda, Fator Verit FII, Fibria, FII Brasil Plural Absoluto Fundo de Fundos, FII TB Office, FII TRX, Iguatemi, Iochpe
Maxion, GAEC Educao, Linx, Marfrig, Multiplan, OI, Rodovias do Tiet, Santander Agncias FII, Senior Solution, SDI Logstica Rio - FII, Ser Educacional, Smiles, SP Dow ntow n - FII,
Tringulo do Sol, Tupy, Vale, Via Varejo and XP Corporate Maca - FII.
(vi) Bradesco Corretora receives compensation for making a market in the equity securities of Alpargatas (ALPA4), General Shopping (GSHP3), Helbor (HBOR3) and Odontoprev
(ODPV3). Bradesco receives compensation for making a market in the in the fixed income securities of BNDESPAR and USIMINAS, and shares of Fundo Imobilirio BB Progressivo II.

Important Disclosures
Company-specific regulatory disclosures
X

Bradesco Corretora and/or its affiliates beneficially ow n one percent or more of any class of common equity securities of the subject company(ies). This position
reflects information available as of the business day prior to the date of this report;

Bradesco Corretora and/or its affiliates have managed or co-managed a public or Rule 144A offering of the subject companys(ies) securities in the tw elve months
preceding the date of this report;

Bradesco Corretora and/or its affiliates have received compensation for investment banking services from the subject company(ies) in the tw elve months preceding the
date of publication of the research report and/or expects to receive or intends to seek compensation for investment banking services from the subject company(ies) in the
three months follow ing the date of this report;

Bradesco Corretora and/or its affiliates w ere making a market in the subject companys(ies) equity securities at the date of this report;

Any other actual material conflict of interest of Bradesco Corretora and/or its affiliates know n at the date of this report.

Bradesco Corretora research ratings distribution


Rating

Definition

Coverage

BR

Outperform

Expected to outperform the Ibovespa by more than 10%.

50%

98%

Market Perform

Expected to perform in the range of 10% above or below the Ibovespa.

43%

100%

Underperform

Expected to underperform the Ibovespa more than 10%.

0%

0%

Under Review

This indicates that both the target price and the rating are currently being revised.

8%

100%

Restricted

The analyst cannot express his/her view s on the company.

0%

0%

(1)

Percentage of companies under coverage globally w ithin this rating category. As of 07/11/14 Bradesco Corretora had 127 companies under coverage globally.

(2)

Percentage of companies w ithin this rating category for w hich [investment banking] services w ere provided w ithin the past 12 months.

Bradesco Corretora ratings


Bradesco Corretora ratings are constantly revised and any temporary inconsistencies betw een the upside potential that gave rise to any such rating and the upside potential in
connection w ith the target price are at all times deliberate. The official rating shall prevail.
Any differences betw een the rating and the target price may occur especially due to the analysts expectations to the effect that any short/medium term factors that cannot be priced-in
yet might lead to inconsistencies betw een Bradeco Corretora valuation and the stock behavior. The factors Bradeco Corretora considered include, but are not limited to: Any
expectations in connection w ith quarterly results, market conditions, ow nership issues and any expectations involving mergers and acquisitions.
The ratings reflect only the analysts expectation on the future performance of the relevant stock. A Outperform rating does not necessarily represent that the analyst approves of
the company and its management w hilst a Underperform rating does not necessarily means that the analyst has a negative view on the company. Within Bradeco Corretora coverage
universe there are sound companies, w ith good fundamentals as per the market consensus, and fair priced stock, and w ould not be Bradeco Corretora investment pick.

Price target and rating history


Price target, rating history chart(s), valuation/method used to determine price target, and our policy for managing conflicts of interest in connection w ith investment research are
available upon request. You may obtain this information by contacting your representative or by sending an email to bradescocorretora@infobradesco.com.br.

10

INDUSTRY REPORT
BBI Equity Research Friday, July 11, 2014

Additional Disclosures
With the exception of investment company funds, Bradesco Corretoras internal policy prohibits ow nership of securities in their respective area of coverage to analysts as w ell as to
the associates reporting to the analysts. Analysts are paid in part based on the profitability of Bradesco Corretora and its affiliates, w hich includes investment banking revenues.
Bradesco Corretora policy prohibits its analysts and associates reporting to the analysts from serving as an officer or director, advisory board member or employee of any company in
the analysts area of coverage.
The follow ing disclosures are required under or based on the law s of the jurisdiction indicated, except to the extent already made above w ith respect to United States law s and
regulations. Brazil: This report is distributed in Brazil by Bradesco Corretora. Any investor in Brazil w ho receives this report and w ishes to conduct transactions w ith stocks
analyzed herein should contact and request execution of orders through Bradesco Corretora at (55 11) 3556-3001.
United Kingdom and European Econom ic Area: In the United Kingdom and elsew here in the European Economic Area, this report may be made or communicated by Bradesco
Securities UK Limited ("Bradesco UK"). Bradesco UK is authorized and regulated by the Financial Services Authority and its registered office is at: 20-22 Bedford Row , London, WC1R
4JS. This report is for distribution only to persons w ho:
(i)

are persons that are eligible counterparties and professional clients of Bradesco UK;

(ii)

have professional experience in matters relating to investments falling w ithin Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as
amended, the "Financial Promotion Order");

(iii)

are persons falling w ithin Article 49 (2) (a) to (d) ("high net w orth companies, unincorporated associations etc") of the Financial Promotion Order;

(iv)

are outside the United Kingdom, or

(v)

are persons to w hom an invitation or inducement to engage in investment activity (w ithin the meaning of section 21 of the Financial Services and Markets Act 2000) in connection
w ith the issue or sale of any securities to w hich this report relates may otherw ise law fully be communicated or caused to be communicated (all such persons together being
referred to as "relevant persons").

This report is directed only at relevant persons and must not be acted on or relied on by persons w ho are not relevant persons. Any investment or investment activity to w hich this
report relates is available only to relevant persons and w ill be engaged in only w ith relevant persons. No public offer of any securities to w hich this report relates is being made by
Bradesco UK or Bradesco Corretora in the United Kingdom or elsew here in the European Economic Area.
United States: This report is distributed in the United States by Bradesco Securities Inc. Bradesco Securities Inc., a U.S. registered broker-dealer and a w holly-ow ned subsidiary of
Banco Bradesco S.A., is a member of FINRA/SIPC. All U.S. recipients of this report w ishing to effect transactions in securities discussed should contact and place orders through
Bradesco Securities Inc. at (212) 888-9141.
Bradesco Corretora has no officers (or persons performing similar functions) or employees in common w ith Bradesco Securities, Inc. In addition, Bradesco Securities, Inc. maintains
and enforces w ritten procedures reasonably designed to prevent Bradesco Securities, Inc., any controlling persons, officers (or persons performing similar functions), and employees
of Bradesco Securities, Inc. from influencing the activities of the analyst w ho prepared this research report and the content of this research report prepared by said analyst.
The non-US research analysts are not associated persons of Bradesco Securities, Inc. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on
communications w ith a subject company, public appearances and trading securities held by a research analyst account.
Hong Kong: In Hong Kong, this report may be distributed by Bradesco Securities Hong Kong Limited (Bradesco HK). Bradesco HK is licensed by the Securities and Future
Commission (SFC) to carry on Type 1 and Type 4 regulated activities as defined in the Securities and Future Ordinance (Cap. 571 of the Law s of Hong Kong) (SFO) in Hong Kong,
subject to conditions published on the w ebsite of the SFC from time to time. Except for Bradesco HK, none of its affiliates, including Bradesco Corretora, carry out or is
licensed/authorized to carry out any regulated activities as defined in the SFO in Hong Kong and each of these affiliates is prohibited from carrying on any regulated activities, including
but not limited to dealing in securities and advising in securities (as defined in the SFO), in Hong Kong. This report is directed to you by Bradesco HK based on your interest and
preference in the relevant underlying securities that you have previously communicated to Bradesco HK. You agree that this report is not intended for the promotion of any services or
products of any of Bradesco HKs affiliates in Bradesco group, including those of Bradesco Corretora. All Hong Kong recipients of this report w ishing to effect transactions in
securities discussed should contact and place orders through Bradesco HK at (852) 22518716 or (852) 22518718.
This report is intended for distribution only to non-Hong Kong residents or professional investors as defined in the SFO. It is provided solely for informational purposes and do not
constitute an offer to buy or sell or a solicitation of an offer to buy or sell any security, product, service or investment to the public w ithin the meaning of the Companies Ordinance (Cap.
32 of the Law s of Hong Kong) or to professional investors w ithin the meaning of the SFO. It has not been review ed by the SFC or any regulatory authority in Hong Kong.
Other Countries: This report, and the securities discussed herein, may not be eligible for distribution or sale in all countries or to certain categories of investors. In general, this
report may be distributed only to professional and institutional investors.

General Disclosures
1)

This report has been prepared solely by Bradesco Corretora and is being provided exclusively for informational purposes. The information, opinions, estimates and projections
constitute the judgment of the author as of the current date and are subject to modifications w ithout prior notice. Bradesco Corretora has no obligation to update, modify or
amend this report and inform the reader accordingly, except w hen terminating coverage of the issuer of the securities discussed in this report.

2)

This report, including the estimates and calculations of Bradesco Corretora, is based on publicly available information that it consider reliable, but it do not represent it is
accurate or complete, and should not be relied upon as such.

3)

This report is not an offer or a solicitation for the purchase or sale of any financial instrument. It is not intended to provide personal investment advice and it does not take into
account the specific investment objectives, financial situation and the particular needs of any specific person w ho may receive this report. Investors should seek financial advice
regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this report and should understand that
statements regarding future prospects may not be realized.

4)

Investors should note that income from securities or other investments, if any, referred to in this report may fluctuate and that price or value of such securities and investments
may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Bradesco Corretora
and its affiliates do not accept responsibility for any direct or indirect loss arising due to use of this report. Investors should consider w hether any advice or recommendation in
this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Exchange rate movements could have adverse
effects on the value or price of, or income derived from, certain investments.

5)

Bradesco Corretoras and its affiliates salespeople, traders and other professionals may provide oral or w ritten market commentary or trading strategies to their clients and
their proprietary trading desks that reflect opinions that are contrary to the opinion expressed in this report. Such market commentary or trading strategies reflect the different
time frames, assumptions, view s and analytical methods of the persons w ho prepared them, and Bradesco Corretora and its affiliates are under no obligation to ensure that
such market commentary or trading strategies are brought to the attention of any recipient of this report.

6)

From time to time, Bradesco Corretora or its affiliates and officers, directors and employees, not including its analysts may, to the extent permitted by law , hold long or short
positions, or otherw ise be interested in transactions in assets directly or indirectly related to this report.

7)

Non-US research analysts w ho have prepared this report are not registered or qualified as research analysts w ith FINRA but instead have satisfied the registration and
qualification requirements or other research-related standards of a non-US jurisdiction.
Any additional information may be obtained by contacting your representative or by sending an email to bradescocorretora@infobradesco.com.br

No portion of this docum ent m ay be (i) copied, photocopied or duplicated in any form , or by any m eans, or (ii) redistributed w ithout prior consent from Bradesco
Corretora.

11

Bradesco Corretora Research Team


Economics & Research Director
Dalton Gardimam

55 11 2178 4275

dalton@bradescobbi.com.br

(Chief Economist)

Denis Blum
Tarik Migliorini

Head of Equity Research


Carlos Firetti, CFA
Banking and Insurance
Carlos Firetti, CFA
Bruno Chemmer, CFA
Rafael Frade, CFA
Gabriel Gusan, CFA

55 11 2178 4224

denis@bradescobbi.com.br

55 11 2178 4230

tarik.migliorini@bradescobbi.com.br

55 11 2178 5321

luis.azevedo@bradescobbi.com.br

55 11 2178 4527

tales@bradescobbi.com.br

55 11 2178 5321

luis.azevedo@bradescobbi.com.br

55 11 2178 4527

tales@bradescobbi.com.br

55 11 2178 5326

rboiati@bradescobbi.com.br

(Senior Economist)

Telecom, Media and Technology


55 11 2178 5363

carlosfiretti@bradescobbi.com.br

Luis Azevedo
Tales Freire

55 11 2178 5363

carlosfiretti@bradescobbi.com.br

Education

55 11 2178 4903

bruno.chemmer@bradescobbi.com.br

55 11 2178 4056

rafaelf@bradescobbi.com.br

Luis Azevedo
Tales Freire

55 11 2178 5329

gabriel.gusan@bradescobbi.com.br

Financial Services
Rafael Frade, CFA
Gabriel Gusan, CFA

55 11 2178 4056

rafaelf@bradescobbi.com.br

55 11 2178 5329

gabriel.gusan@bradescobbi.com.br

Healthcare
Rafael Frade, CFA
Gabriel Gusan, CFA

55 11 2178 4056

rafaelf@bradescobbi.com.br

Oil & Gas, Petrochemicals and Sugar & Ethanol

55 11 2178 5329

gabriel.gusan@bradescobbi.com.br

Auro Rozenbaum

55 11 2178 5315

auro@bradescobbi.com.br

55 11 2178 5466

alanglezer@bradescobbi.com.br

55 11 2178 6104

arthur.suelotto@bradescobbi.com.br

Fixed Income
Altair Pereira
Caio Lombardi

55 11 2178 4279

altair@bradescobbi.com.br

55 11 2178 4225

lombardi@bradescobbi.com.br

Consumer Goods and Retail


Ricardo Boiati

Steel, Mining, Pulp & Paper


Alan Glezer, CFA
Arthur Suelotto, CFA

Transportation, Logistics, Malls and Commercial Properties


Edigimar Maximiliano Jr.
Luiz Peanha
Andr Mazini
Leandro Fontanesi
Homebuilding
Luiz Mauricio Garcia

55 11 2178 5327

maximiliano@bradescobbi.com.br

55 11 2178 5324

pecanha@bradescobbi.com.br

55 11 2178 5109

andre.mazini@bradescobbi.com.br

55 11 2178 4274

leandro.fontanesi@bradescobbi.com.br

55 11 2178 4223

lmgarcia@bradescobbi.com.br

Electric Utilities, Water & Sewage


55 11 2178 5323
Paulo Ferreira
55 11 2178 4273
Renata Cristovo

paulo.ferreira@bradescobbi.com.br
renata.cristovao@bradescobbi.com.br

Food, Beverages, Tobacco & Agribusiness


Gabriel Lima
Rodrigo Coelho

55 11 2178 5313

gabriel.lima@bradescobbi.com.br

55 11 2178 5317

rodrigo.coelho@bradescobbi.com.br

Each analyst whose name is in bold print is the principal analyst responsible for the content of reports on the respective sector, as well as fulfillment of the provisions of Art. 16 of CVM
Instruction 483/10.

Bradesco Corretora CTVM S.A. | So Paulo


Sales - 55 11 3556 3001
Juvenal Neves
Tiago Valent

Sales Trading - 55 11 3556 3001


juvenal@bradescobbi.com.br
tiagovalent@bradescobbi.com.br

Sales - Fixed Income - 55 11 2178 6959


Fernanda Weber Bratz
Lucila Sakakura

fernanda@bradescobbi.com.br
lucila@bradescobbi.com.br

Sales - Local Fixed Income - 55 11 3556 3005


Rogrio Queiroz
Dauro Zaltman
Denise Chicuta
Patricia Cruz Bilezikjian, CFA
Traders
Agnaldo Ishikava
Douglas Vieira Corazza
Eduardo Tosin Bueno
Joao Batista Tamassia Santos Junior
Marcelo Matias Boneri
Paulo Silva do Carmo
Pedro Fonseca de Souza
Sandoval Marcos Iorio

rogerio@bradescobbi.com.br
dauro@bradescobbi.com.br
denise.chicuta@bradescobbi.com.br
patricia.bile@bradescobbi.com.br

agnaldo@bradescobbi.com.br
douglas.corazza@bradescobbi.com.br

Head of Trading
Orlando Cardoso

Traders
Cssio Garcia
Fbio Brisola
Gustavo Ize
Ingrid Amorim
Julio Cesar Rossi
Mauricio Sanchez
Peter Gil
Silene Zinhani
Stock Loans Desk - 55 11 3556 3001
Marcio Aguiar
Wilson Pereira

orlandocardoso@bradescobbi.com.br

cssio@bradescobbi.com.br
fabio@bradescobbi.com.br
gustavopereira@bradescobbi.com.br
ingrid@bradescobbi.com.br
cesarrossi@bradescobbi.com.br
mauricio@bradescobbi.com.br
peter@bradescobbi.com.br
silene@bradescobbi.com.br

marcio@bradescobbi.com.br
wilson@bradescobbi.com.br

eduardo.bueno@bradescobbi.com.br
joo.batista@bradescobbi.com.br
boneri@bradescobbi.com.br
paulo.carmo@bradescobbi.com.br

BM&F Trading Desk - 55 11 3556 3350

pedro.fonseca@bradescobbi.com.br

Jos Lzaro Ferreira - Head


Lilian Osti - Commercial Manager

sandoval@bradescobbi.com.br

lazaro@bradescobbi.com.br
lilian.osti@bradescobbi.com.br

Institutional Sales Team - USA, UK & HK


Bradesco Securities, Inc. | New York (FINRA/SIPC Member)

Bradesco Securities Hong Kong Ltd.

Sales 01 212 888 9141

Sales (852) 2251 8716

Marcelo Cabral
Juan Briano

mcabral@bradescosecurities.com

DeWayne Shaw
Paulo Pereira
Vielcka Mansukhani

dewayne@bradescosecurities.com

jbriano@bradescosecurities.com

paulo.pereira@bradescosecurities.com
Vielcka@bradescosecurities.com

Luiz Fernando Silva


Jae Choi

luiz@bradescosecurities.com
jaechoi@bradescosecurities.com

Sales - Fixed Income (852) 2251


8718 Paulo Loyola
Joo

jployola@bradescosecurities.com

Amex Lee

amexlee@bradescosecurities.com

Sales - Fixed Income 01 212 888 9143


Brent Matson
Leonardo Jafet
Sales Trading 01 212 888 9141
Robert Vespa
Christopher Barresi
Sean Harte

brent@bradescosecurities.com

Sales 44 207 382 0070


Robert Hulme

rhulme@bradescosecurities.com

Sales - Fixed Income 44 207 382


0074
Guilherme
Zraick

gzraick@bradescosecurities.com

robert@bradescosecurities.com
cbarresi@bradescosecurities.com
sean@bradescosecurities.com

Sebastian Almquist Tangen


Raymond Ressy

Syndicate Desk 01 646 432 6642


Shin Fukui
David Pereira

Bradesco Securities UK, Ltd

ljafet@bradescosecurities.com

shin@bradescosecurities.com
david@bradescosecurities.com

salmquist-tangen@bradescosecurities.com
ressy@bradescosecurities.com