Investor Presentaiton

CAPITAL GOODS & BUILDING MATERIALS Alejandro Azar Wabi [email protected] +52 (55) 5480 5800 Ext. 4116 Laisha Zaack Carrillo [email protected] +52 (55) 5480 5700 Ext. 4116 GBM LAMOSA/CERAMIC: The road to growth is paved with tiles. LAMOSA Rating: Outperformer 2022e Price Target: P$130 CERAMIC Rating: Outperformer 2022e Price Target: P$75 We are initiating coverage on the ceramic tiles industry in Mexico and the leading players in the market-LAMOSA and CERAMIC. In this comprehensive report, we delve into the fundamentals that make this industry a secular growth story that has managed to outperform not only Mexico's GDP but also its construction GDP. In our view, there is clear evidence as to why this has happened, and more importantly, why this trend should continue over the next decade. . • • Housing deficits. At least -25% of households in Mexico continue to live in inadequate conditions, which include poor materials, overcrowding, and lack of infrastructure, among others. Mexico's Demographics. With ~66% of the population below 40 years of age-and growing- and with the rapid enlargement of urban areas, demand for housing and, thus, building materials such as ceramic tiles is set to rise. Noticeable shift towards hard flooring. With ~57% of households having dirt or concrete floors, there is still a huge opportunity for hard flooring materials, where ceramic tiles offer the perfect combination of versatility, low cost, and high durability versus other options. LAMOSA: 2022e price target of P$130/share (-85% upside potential) and a Market Outperformer rating. Value creation at its finest. LAMOSA's management has proven its quality through a disciplined organic and inorganic strategy that has yielded not only returns above the cost of capital but also even higher returns as new assets are integrated into its portfolio. At the same time, it has given back cash to shareholders via a steadily rising dividend payment, while it has repurchased -7% of its outstanding shares since 2019. Growth opportunities. Although LAMOSA is the second-largest ceramic tile producer in the world, it has only ~2% of the global market. In a fragmented industry, the company's profitability, FCF, and scale allow it to smoothly integrate small assets that complement its portfolio. This, on top of its organic growth story across its main markets. Attractive valuation. Despite the stock's low liquidity, a 4.2x EV/EBITDA and ~14% OFCF yield (2022e) seems like a once-in-a-lifetime opportunity to invest in a company with LAMOSA's operational track record and value creation. As such, we are placing LAMOSA as one of GBM's Top Picks. CERAMIC: 2022e price target of P$75/share (~40% upside potential) and a Market Outperformer rating. Vertically integrated business. CERAMIC has built an integrated operation across Mexico and the US, and it is the largest single distributor of ceramic tiles in Mexico, which means it has full control of its strategy, from production to commercialization. More importantly, it has educated its clientele on the quality of its products and positioned its brand "Interceramic" as top of mind. This has allowed it to attain a robust market share (+50%) in the premium ceramic tiles niche segment. Growth opportunities. With favorable industry fundamentals and a tight capacity across North America, we think CERAMIC will expand its capacity (-20%) in the next three years. Additionally, its strong FCF and balance sheet would back any plans to look for an M&A, where a brand already positioned with independent distributors would make perfect sense, as it would complement its retail distribution strategy. Attractive valuation. A 5.6x EV/EBITDA and -11% OFCF yield (2022e) seems attractive enough for a company with CERAMIC's distinctive value proposition around its retail distribution, not only in Mexico but also in the US, where the company has vast growth prospects. LAMOSA/CERAMIC: THE ROAD TO GROWTH IS PAVED WITH TILES. |1

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