strategy 2011

Regional Market Focus

2011 Asia Equity Outlook DBS Group Research . Equity

27 December 2010

Riding the key themes in 2011

Regional Equity Strategist Joanne Goh +65 6878 5233 [email protected]

Investment Summary Page Index valuations and recommended weightings summary 2 Nine Themes for 2011 2 Macro-economic / asset allocation summary 3 High conviction picks 5 Macro Regional Strategy: Nine themes for 2011 Economy: Cutting ribbons Forex: Asia’s ascension begins

8 22 32

Regional countries HK / China: The glass is still (almost) half full Indonesia: The makeover continues Malaysia: Charting new frontiers Singapore: Bargain hopping Thailand: Re-rating should continue India: A year of rebalancing Korea: Inflation management becomes a priority Taiwan: Domestic economy on firmer footing Small / mid caps: Go with the flow

48 49 50 51 52 53 54 55 56

Regional sectors Airlines: Firm tailwinds Autos: More rational growth ahead Gaming: More excitement ahead F&B: Pricing power matters Banks: Bracing up for the next race Exchanges: Momentum driven Property: Stock picking year REITS: On a hunt for yields Coal: Focus on growth and delivery Plantations: Rosy Outlook in 2011 Steel & Metal: Focus on growth Tech: Stay mobile and go corporate Telcos: 3G and Mobile broadband Utilities/Power: Safe and sound

58 59 60 61 62 63 64 65 66 67 68 69 70 71

Country themes: Malaysia construction: MRT coming to fruition China autos: Market rewards luxury automakers Korea autos: Growth story intact Indonesia autos: Explosive growth ahead Singapore offshore marine: Renewal cycle gaining steam China/ HK Banks: Prefer large caps China Shipyards: Orders keep flowing China Telcos: Prefer equipment players China / HK Retail: Still in the spotlight China insurance: Riding up the rate cycle

74 75 76 77 78 79 80 81 82 83

Regional Earnings Guide

85

•

We have identified nine key themes in this report to guide investors through what we expect to be a mixed performance for Asian markets in 2011

•

We maintain a moderate risk stance for 1Q11 and a conservative 14% return for Asia equities for the full year

•

Growth outlook is even in Asia - no country will be left behind. Asia is headed back to a period of fast growth (akin to the early –90’s) but with a more pleasant end game

•

For the astrologists amongst us, the Year of the Rabbit has tended to be a less volatile year than its predecessor (see chart below and main body of report)

•

China inflation, policy intervention, USD/EUR confidence crisis and rising geopolitical tensions are tangible risks in 2011

•

We recommend investors to focus on yield plays and plays on our nine key themes contained in this report

•

Overweight Thailand, Indonesia and Taiwan; Underweight China, Hong Kong and Korea; Neutral in India, Malaysia, and Singapore

•

Industrials, commodities and consumer discretionary are our preferred sectors

•

High conviction stocks within our overweight markets include: Kasikorn Bank, Thai Oil, PTT Chemical, LPN Dev., Amata, Thai Airways, Major Cineplex, Thai Vegetable Oil, Adaro Energy, Astra Intl, BRI. (Please see inside for additional thematic / stock recommendations in each market) Fig. 1: Asia ex-Japan Index, log scale 1600 1400 1200 1000 800 600 400

200

20 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 0911

Source: Datastream. Return in USD using Datastream Asia ex-Japan total market index from 1973 - current. Vertical lines mark beginning of Year of Rabbit in 1975, 1987 and 1999. “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.”

www.dbsvickers.com Refer to important disclosures at the end of this report sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Investment Summary Index valuations and recommended weightings summary Returns in MSCI Asia ex-Japan were held back in 2010 by underperformance in MSCI Hong Kong, China, Singapore, Taiwan and Korea, all still between 5-36% from their peaks. MSCI China is still 56% off its previous high. The smaller ASEAN markets and India have already touched pre-crisis highs, brought about by strong liquidity flows diverted into these markets. Korea and Taiwan offer some potential of hitting new highs as they are just 5% and 14% respectively off their highs, whilst valuations are still cheap. The following would be our recommended weightings by market: Thailand Indonesia Taiwan China Korea India Singapore Malaysia

Overweight (improving economy, improving political environment) Overweight (stable economy, possible rerating) Overweight (stronger outlook, favourable political climate) Underweight (tightening concerns, policy risk) Underweight (rising political tensions). Neutral (falling inflation) Neutral (uncertainties over rate hikes and inflation) Neutral (fairly valued)

Nine Themes for 2011 We are advising investors to focus on the following nine sustainable investment themes to ensure outperformance in 2011.

Theme #1 - Asia’s consumerism Consumer affluence and energy consumption are long-term structural themes in Asia, with its a large population base, favorable demographics, urbanization and rising income levels. Low unemployment rates, rising income levels, cheap credit bolstered by low interest rates and strong bank liquidity all bode well for discretionary retail spending.

Theme #2 - China’s insatiable quest for energy Energy demand should remain robust gong into 2011. Although oil inventory levels suggest oil prices should remain stable near term, we are, however, forecasting a higher US$80 -100 per barrel in 2011 in line with our economist’s view of sustained economic growth in Asia. China, with its vast fiscal reserves will continue its global quest for energy security and this will benefit the coal,

natural gas and nuclear energy sectors. Offshore oil & gas and refineries should also benefit from firmer oil prices.

Theme #3 - China's prolonged spurt on commodities. China's ever growing appetite for commodities is the key global swing factor. Even rare earth metals and nuclear reactor fuels are emerging as additional commodity themes for next year. In food based commodities, demand for meat and grain brought about by China's huge population and rapid urbanization has fed a new agricultural boom. Recent price controls in China may be difficult to apply (especially on perishables) and climate change affecting harvest and production levels should bring logistics and food processing sectors into focus.

Theme #4 - Engineering excellence in Asia Recent high profile engineering mishaps (Rolls Royce) and product recalls (Toyota) emphasise the value in reliable industrial, engineering manufacturers as well as services providers. Companies which have sound track records and leading expertise in their respective industries should therefore gain market share at the expense of lower quality players (e.g. Singapore's offshore marine and aircraft servicing sector, Korean shipbuilders. leading Chinese heavy industry and engineering companies etc)

Theme #5 - Preparing for the unexpected Three “black swan” events could trigger a return to risk aversion. The first is heightened forex volatility (on the back of a worsening Euro crisis; worse than expected USD depreciation). The second black swan could be rising political tensions in Korea. The third black and final swan could contagion from a spreading Euro crisis. If the crisis spreads to Spain, we would expect a more precipitous fall in the Euro. The occurrence of two Euro bailouts in a single year does suggest that this particular black swan cannot be ignored. As a hedge against black swan events we remind investors in this report to focus on value as well as (defensive) dividend plays in Asia

Theme #6 - Investment push In China we expect the budget for railway equipment, low cost housing, and inner city infrastructure to see sharp increases in the next 5-year plan. Malaysia’s 10th Malaysia Plan (“10MP”) to improve public transportation systems will include projects such as LRT extensions, MRT and highways, as well as the new financial district. Tax incentives and investments in the oil and gas sector by Petronas are also planned in 2011. Indonesia should continue to gain from ongoing FDI flows into coal mining and commodities.

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Thailand has traditionally lagged in terms of infrastructure spending, the government is likely to tender out the ChinaThailand high speed train which will start work in 2011.Finally, in Singapore, following the completion of the two IRs, and the on-going extension of the MRT network, the recent spotlight has shifted to drainage, additional transportation systems, and medium to low cost housing to cater to Singapore’s growing population. We believe construction demand could be on the high end of the S$18bn and S$25bn 2011/12 forecast by the Building Construction Authority.

Theme #7 - Asia: Inflows and inflation, and capital controls Asian central banks/governments are likely to adopt a more measured mix of rate hikes, moderate increases in RRRs, phased currency appreciation, micro capital controls, and mild administrative measures to ward against overheating (notwithstanding the possibility of a more aggressive stance in China).

Theme #8 - Firms with pricing power Rising inflation has had a broad impact across the board on wages, higher raw material costs, foreign exchange and business operating costs. We predict a tougher operating environment next year and considerable pressure on margins. As such, we prefer companies dominant in their respective sectors, yielding stronger pricing power and economies of scale.

Theme #9 - Sector picking We expect strong overall growth in Asia next year and no country will be left behind. The growth outlook in China and US remain key macro drivers for the region. Despite continued economic growth regionally, different dynamics in each country provide for different opportunities by sector: 1.

Malaysia - infrastructure, plantations, banks

2.

Singapore - Laggard plays, offshore & marine

3.

China - Infrastructure, commodities, industrials

4.

Hong Kong - Banks

5.

Thailand - Top down macro, cheap valuations, energy, banks

6.

Indonesia - Coal, banks, consumer, mid caps

7.

Taiwan - Domestic sectors

8.

Korea - Currency watch

9.

India - 2011 wild card

Macro-economic and asset allocation overview China. We are downgrading China to Underweight mainly due to the impact of expected rate and RRR hikes, loan quota restrictions and administrative controls on food and property prices. Next year's growth is also going to be slower than this year's (9.5% vs 10%). Though real rates will remain low we do not have a hard landing view on China. Hong Kong. Hong Kong should continue to benefit from both a low interest rate environment and Hong Kong’s ongoing role as a major RMB offshore centre and gateway to China. Asset reflation will continue to be a main theme in Hong Kong with Hong Kong financials as a main beneficiary. Nevertheless, rate hikes and China policy risk underpin our Underweight stance on Hong Kong. Korea. Although Korea's inflation rate came off after October's spike up to 4.1%, it should still trend higher due to the closure of output gaps, capacity constraints, labour market tightening and rises in international commodity prices. Real rates remain negative, which give room for Korea to raise rates much more aggressively in Q1 if further evidence of a firming economy emerges. North Korea's repeated forays into South Korean territory underscore the market's PE discount to the region. Rate hikes, a slowing economy and geopolitical risk underlie our Underweight positioning in this market. Taiwan. In Taiwan the elections produced no nasty surprises with the ruling KMT winning 3 out of the 5 seats contested. In the near term we expect the overhang from the elections to be cleared and focus on ECFA benefits to resume. Taiwan's presidential elections will only be held in 2012 and we expect KMT to implement more positive policies to ensure its victory in the next election. Coupled with a more favourable economic climate, we are Overweight Taiwan in 2011. India. India is upgraded to Neutral from Underweight. India's inflation rate should drop to 6% by 1Q, giving adequate room for interest rates to subside. Singapore. Having registered 15% GDP growth this year, we forecast Singapore to grow at 7% in 2011, higher than the government's forecast of 4-6%. Singapore's October exports rebound suggested little possibility of technical recession in Singapore, and also reflected the resilience of the economy. There is upside bias for consensus earnings growth forecast of 10% for 2011 in our view. We maintain

Page 3 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

our Neutral stance in Singapore, and are overweight on O&M, plantations and the gaming sectors.

environment and high growth will continue to attract investors and support our Overweight position.

Malaysia. Malaysia should continue to perform in line with the region and we advocate a Neutral weighting in 2011. Monetary policy will remain accommodative as Malaysia has hiked rates three times in 2010, ahead of the other countries. We also expect the various infrastructure projects to kick-start in 2011 to be funded by private participation.

Thailand. Thailand is largely a valuation and turnaround play on a return to political stability after suffering from political uncertainty for the past 5 years. As a reflection of its turn around potential, foreign investors bought a net US$654 million of portfolio investments after the crisis, though less than half of the amount purchased in Indonesia. We are Overweight Thailand on our view that the economic and political environment will stablise further attracting a further market re-rating.

Indonesia. An investment upgrade, positive commodity prices and a stable rupiah all point to further upside for Indonesia, and revived interest from foreign investors. We believe attractive yield spreads, a stable investment

Page 4 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

High Conviction Stock Picks Company Big Caps (>$2bn) Keppel Corporation OCBC Singapore Airlines Gamuda Maybank Cosco Pacific MTR PICC Ping An Insurance SJM Holdings Bangkok Bank KASIKORNBANK Thai Oil XL Axiata Kia Motors Hynix Company

Exch KEP SP OCBC SP SIA SP GAM MK MAY MK 1199 HK 66 HK 2328 HK 2318 HK 880 HK BBL TB KBANK TB TOP TB EXCL IJ 000270 KS 000660 KS

SG SG SG MY MY HK HK HK HK HK TH TH TH IND KS KS

Sector Industrials Banks Consumer Services Industrials Banks Industrials Consumer services Financial Financial Consumer services Banks Banks Oil & Gas Telecommunications Consumer Goods Technology

Price 22 Dec 10 (LCY)

Target Price (LCY)

10.72 9.84 15.34 3.81 8.50 13.30 28.50 11.18 84.60 12.00 147.00 125.50 75.50 5,450 52,100 23,300

12.50 11.30 18.50 4.90 10.80 16.08 36.45 14.64 99.00 14.40 187.00 150.00 80.00 6,800 64,000 31,000

Upside (%)

% Chg -1w

% Chg since Entry Date

Date of Entry to List

Mcap US$m

3mths Avg Daily T/O US$m

17 15 21 29 27 21 28 31 17 20 27 20 6 25 23 33

1 2 -1 2 -1 0 -0 2 -2 -5 -1 -0 -6 2 1 -3

-1 7 -2 15 13 2 -2 -7 -5 -3 4 45 23 18 10 -4

29-Nov-10 15-Oct-10 3-Sep-10 28-Jun-10 12-Apr-10 6-Dec-10 6-Dec-10 8-Nov-10 15-Nov-10 6-Dec-10 23-Jul-10 1-Mar-10 15-Nov-10 4-Aug-10 8-Nov-10 22-Oct-10

13,163 25,159 14,055 2,494 19,255 4,636 20,988 4,967 31,085 8,207 9,304 9,959 5,107 5,125 17,942 11,950

41 40 21 9 22 15 15 25 125 32 25 23 30 1 146 219

Reasons for Picks / Potential Catalysts

Big Caps (>$2bn) Keppel Corporation

OCBC Bank

Singapore Airlines

Gamuda

Maybank

COSCO Pacific

MTR

PICC

Ping An Insurance

SJM Holdings

• Prefer KEPPEL for exposure to Petrobras contract wins • Keppel could win 4 to 11 rigs worth US$3.5b to US$8b from Petrobras. • We expect more contracts for KEPPEL, which has just secured a newbuild jackup rig contract from Standard Drilling with options for 2 more; its outstanding LOI with Mermaid for 2 newbuild • Strong growth potential in non-interest income (insurance and private banking), which is a key differentiating factor to its peers, could drive ROE higher. • OCBC seems more aggressive in its regional expansion plans especially in Malaysia, Indonesia and China. • OCBC's asset quality stacks up the best compared to its peers. • Rebound in earnings, driven by strong visitor arrivals and economic recovery in Singapore. • Operating numbers remain robust, improving numbers for both cargo and passenger carriage, with high load factors. • Firm balance sheet, with net cash of over S$3 per share. • RM36bn MRT project, a key milestone catalyst easily doubling orderbook with another 10 years earnings visbility. • Excellent proxy to Vietnam's positive long term structural shift in property market with RM16bn GDV (12% of SOP). • Resolution on Selangor State Water restructuring soon could see Gamuda reaping >RM600m in cash or RM0.28/share. • Strong domestic franchise for consumer and business loans, placing it in a solid position to ride on the economic recovery. Largest market share (22%) in domestic deposits. • Indonesian operation poised for robust 20% loans growth and 35% 3-year earnings CAGR. Sharp improvement emerging. • Major laggard being the only large cap bank trading below +1 SD. • Turnaround of new ports, driven by volume ramp up and potential tariff hike. • Profitablity from its container leasing and manufacturing businesses are expected to be further improved in 2011. • Undemanding valuation at 13x FY11 P/E and 1.2x FY11P/B. • Recurrent earnings going from strength to strength. • Good hedge against inflation. • Exploiting the value of land bank through skillful land premium negotiation. • Structural turnaround in underwriting to sustain. • A-share revival will be icing on the cake. • Re-rating to continue on improved ROE. • Balanced life premium growth amidst stable new business margin. • Continual market share gain in P&C market with improved combined ratio. • SDB deal resolution cleared overhang. • Promoting new premium mass table area in the Grand Lisboa that will open before the Chinese New Year, we expect solid performance and should see margin expansion. • Good defense against any VIP weakening with its well diversified VIP and Mass portfolio on the Macau Peninsula, stronghold for have highest market share of c.30% in the industry. • Strong balance sheet for potential acquisitions, valuation still lowest in the sector at 10x FY11F EV/EBITDA, Maintain BUY with TP HK$14.40.

Source: Bloomberg, DBS Vickers, Hanadaetoo Securities

Page 5 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Company

Reasons for Picks / Potential Catalysts

Big Caps (>$2bn) Bangkok Bank

• •

KASIKORNBANK

• • • • •

Thai Oil PCL

XL Axiata

Kia Motors

Hynix

• • • • • • • • • • • •

Higher loan growth of 6.0%, led by stronger demand for corporate and SMEs, with NIM at 3.0% and 7% fee income growth for FY11-12F . Transforming into regional bank, with diversified loan portfolio in both domestic and international markets (17% of total loans), specifically China. Highest NPL coverage ratio of 134% in the sector and strong capital base. Maintain BUY and Bt187.00 TP. Expect strong loan growth of 9% for FY11, and 8.5% for FY12F, with leading share in high-yield SME loans segment. Sustainable high NIM at 3.9%, 18% fee income growth for FY11-12F, and good asset quality with the lowest NPL ratio at 3.18% in 3Q10. Higher ROE to16.2% in 2011 vs 12.6% in 2009, premised on K-Transformation and channel expansion projects completion in 2011-12. Tight diesel market in next few months as China cuts power supply to reduce air pollution. Diesel accounts for 41% of TOP’s refinery output. Improving outlook due to rising oil prices, strong PX spreads. BUY, with TP of Bt80/sh based on 2x P/BV; potential re-rating to catch-up with peer, PTTAR. XL is the price leader for voice and bundled plans, likely to gain revenue share from Telkomsel. The growing popularity of mobile Internet plans is the key catalyst for smaller players. Cheap Chinese handsets are helping mobile Internet in a big way. Strong balance sheet and highest EBITDA growth in the sector. While 3Q10 is characterized by Korean auto sector's continued growth story, Kia's result was particularly impressive. The stock is still grossly undervalued (FY11 P/E of 8.2x) given the strong potential for a sustainable turnaround. Sustainable earnings growth and improving balance sheet will continue to boost sentiment towards Kia shares and trigger catch up to other KOSPI listed companies' and global peers' valuations. Growth in earnings estimates of Hanwha Chemical and YeoCheon NCC (FY11E OP +8.9%, FY12E +10.1%). New businesses of solar energy, biosimilar, and battery materials. PVC facilities in China will come on stream in 2011.

Source: Bloomberg, DBS Vickers, Hanadaetoo Securities

Company Small & Mid Caps (
Exch

Sector

Price 20 Dec 10 (LCY)

Target Price (LCY)

Upside (%)

% Chg -1w

% Chg since Entry Date

Date of Entry to List

Mcap US$m

3mths Avg Daily T/O US$m

SG SG MY MY HK HK HK HK HK

REIT Technology Industrials Industrials Industrials Industrials Industrials Industrials General Retailers

2.10 1.24 5.41 1.91 6.96 5.83 4.03 3.30 6.27

2.28 1.45 7.60 3.55 9.10 7.20 4.90 4.12 8.94

8 17 40 86 31 23 22 25 43

1 -1 -4 4 4 -9 -2 -2 -5

2 29 7 6 39 -3 -9 5 -15

29-Nov-10 3-Sep-10 4-Oct-10 13-Dec-10 23-Aug-10 11-Oct-10 3-Dec-10 13-Sep-10 22-Oct-10

1,539 485 1,628 1,182 441 764 1,887 451 1,359

3 1 2 6 2 1 6 2 2

TH TH TH IND KS KS KS

Real Estates Industrials Real Estates Consumer Goods Basic Material Healthcare Healthcare

14.30 35.25 2.12 3,025 35,400 141,500 87,800

20.00 39.00 3.04 4,400 45,000 210,00 0 190,00 0

40 11 43 45 27 48 116

-2 2 -5 1 1 5 -1

-12 16 -14 41 60 -1 -17

3-Sep-10 22-Oct-10 3-Sep-10 24-May-10 2-Aug-10 8-Nov-10 11-Oct-10

506 1,458 596 632 1,103 1,225 546

7 4 5 1 3 7 6

Page 6 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Company

Reasons for Picks / Potential Catalysts

Small & Mid Caps (<$2bn) CDL Hospitality Trusts

• Robust 12% DPU growth expected in 2011 on the back of expected bouyant tourist arrivals • Low gearing of 21% positions trust to acquire to grow portfolio, earnings • Maintain BUY and S$2.28

CSE Global

• 16%/15% earnings growth in 2010F/11F, driven by organic (order wins) and inorganic expansion (acquisition). • Trading around 10x average FY10F-11F PER, at 20% discount to historical average of 12.5x. • 4% dividend yield based on 40% payout ratio, annual dividends at the end of FY10F/11F.

Boustead Holdings

• GLC-linked conglomerate trades at attractive multiples and offers decent dividend yield. • Proactive management, morphing into GLCproperty proxy, and surging contract flows for BHIC. • Beneficiary of upswing in crude palm oil (CPO) prices.

DRB-Hicom

• We expect a significant rerating from its bargain basement PE and P/Bk valuations on the back of 3-year EPS CAGR of 79%. • The eventual divestment of 30% of Bank Muamalat could enable the group to expand its footprint regionally. Based on 1.4x NTA, similar to Hong Leong Bank offer for EON Bank's assets, this could raise RM600m. • A key catalyst is the conversion of Letter of • Intent (LOI) from the Ministry of Defence for 257 AV 8x8 armoured vehicles potentially worth c.RM8bn.

Anhui Expressway

• Above-expectation growth in toll revenue by 21% in 1H10. • Driven by robust traffic growth on key road assets. • Beneficiary of the policy to receive manufacturing industries from coastal provinces.

China Automation

• Attractive valuation and strong earnings growth outlook on huge order backlog. • Expect orders from railway and urban rail segments to provide positive earnings upside. • ·M&A strategy to further expand business scope.

China Everbright

• Unique market position with comprehensive exposure in environmental sector. • Strong deal flow. • Solid financial position with strong support from banks.

Dalian Port (PDA)

• Continues to ride on the increasing demands for oil to fuel economy and increasing automobiles. • More capacity added to facilitate growth. • Ra-rating driven by A-share listing as A-shares are trading at much higher multiples.

New World Dept Store

• Strong acquisition potentials given abundant net cash of c.HK$3bn. • Potential benefits from better consumption driven by Expo in major Shanghai market. • Undemanding valuation of c.14x ex-cash (adjusted for 2011 calendar year) against close peers.

Amata Corporation

• AMATA recently inked a 569 rai land deal with Canadoil. This helped boost YTD land sales to 1,099 rai, representing 92% of our land sales assumption of 1,200 rai this year. • Management maintains land sales target at 1,500 rai for this year, up sharply from 254 rai last year. • A prime beneficiary of the rising FDI in Thailand. Maintain BUY with a TP of Bt20 based on RNAV.

Delta Electronics Thai

• 3Q10 results more than doubled y-o-y, supported by rising sales and wider margins • Positive outlook intact. Earnings should continue to grow, with growth coming mainly from the new products in solar and automotive industries. • Solid balance sheet and attractive valuation. Maintain BUY with a TP of Bt40.00, based on 11x 2011F PE, in line with historical average.

Quality Houses

• Thailand’s leading property developer, with diversified revenue bases. • Improving outlook for all businesses; Langsuan condo should start to contribute from 4Q10. • Secured land plots for future launches in 2H10 and 2011. • Attractive valuation, trading at 2011F PE of only 8.7x and a deep discount to its RNAV of Bt3.04. • Maintain BUY; with a TP of Bt3.04 based on RNAV.

Sampoerna Agro

• Strongest production growth relative to Indonesian peers (i.e. 12.5% 5-year CAGR).. • While volume dropped 45% qoq in 1Q10 due to heavy rainfall, we expect seasonal recovery in subsequent quarters. • The least expensive upstream planter in our regional coverage.

Seah Besteel Corp

• Successful turnaround in FY10 • Promising growth outlook; revenue expected to double by 2015 • Maintain STRONG BUY, raised TP to KRW45,000

Green Cross

• Strong sales structure that is relatively less affected by regulation risks. • Earnings momentum will remain strong in 2011, considering: 1) the expected approval by the WHO on the company’s flu vaccine products in early 2011 should result in new export contracts worth more than W30bn; and 2) overseas OEM sales.

Hanmi Pharmarceutical

• Beijing Hanmi Pharmaceutical is likely to be the only overseas Korean pharmaceutical company to show significant growth in the Chinese pharmaceutical market in the coming years. • Long-term growth drivers from the completion of R&D projects with Esomezol entering the US market later this year; and several incrementally modified drugs (IMDs) planned for release abroad in 2011. • Our target price is based on 28x FY11E P/E, a 90% premium to the sector's P/E.

Source: Bloomberg, DBS Vickers, Hanadaetoo Securities

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Strategy (Joanne Goh, [email protected]) Markets underpinned by uncertainties in 2010 Asian equities returned 11% to date (6Dec). This wasn’t consistent with strong GDP and earnings growth recorded in the region. While last year's extraordinary return partly explained the lacklustre return this year, global macro uncertainties also dampened appetite for equities as an asset class in our view. Asia markets were mostly flat throughout the whole year until the onset of QE2 in the last quarter of 2010. Quarterly volatility ruled and markets were mainly affected by events in Europe and Euro's weakness, as well as double dip fears.

Indeed we look for 2011 as an extension of the economic recovery that began in early 2009. Headline growth should be lower than 2010 after the base effects are gone and should return to average or potential growth. DBS' and consensus forecasts for 2011 thus bear upside in our view. (Fig. 3) Main risk is in the uncertainty when policy support is withdrawn - interest rates are already higher and currencies are stronger than the beginning of this year, and we still expect them to rise in 2011. (Fig. 4-5) Fig. 2: Average annual return by Chinese Zodiac years

Performance was heavily skewed towards the smaller ASEAN markets. Indonesia, Thailand, Philippines and Malaysia were the best performing markets. Domestic demand gained traction. These economies have shown great resilience in the face of global uncertainties. Domestic liquidity was also strong, driven by low interest rates and fiscal investment push. Strong foreign capital flows also get deflected to these smaller, yet more open markets. The worst performing markets are the Greater China markets (Taiwan, Hong Kong and China) as well as Singapore. China's hard landing risk was the main concern amid rising inflationary and asset bubble threats. This came on the back of supercharged loan growth in the response to the global financial crisis the prior year. Taiwan failed to benefit from ECFA after its conclusion, mainly because of politics and a slowing external cycle. Singapore is in contention to record the strongest GDP growth globally in 2010, but its heavy weight financial sector was affected by low interest rates and sentiments on the property sector were impaired by potential regulatory controls. Korea, Malaysia and India performed in line with the region. Malaysia has always been a defensive play and PM Najib's New Economic Model spiced up hopes for stronger foreign interest in the market. Rising rate concerns in India and geopolitical tension in the Korea peninsular deflected what would otherwise another strong year for the two markets.

Outlook for 2011 — Year of the Rabbit According to the Chinese horoscope, the Rabbit brings a year in which we can catch our breaths and calm our nerves. Most Rabbit years are quiet, positive and inspiring. A placid year, it should be very much welcomed and needed after the ferocious year of the Tiger. Investors can look for reduced volatility after the dramatic 2010.

Rabbit Sheep Monkey Rooster Pig Dragon Tiger Rat Snake Dog Horse Ox % -20

0

20

40

60

Source: Datastream, DBS. Return in USD using Datastream Asia exJapan total market index from 1973 current. Rabbit years fall in 1975, 1987 and 1999

Fig. 3: GDP growth forecasts — DBS, consensus, average and long-term potential 2007 US 1.9 Japan 2.4 Eurozone 2.9 Indonesia 6.3 Malaysia 6.2 Singapore 8.2 Thailand 4.9 China 13.0 Hong Kong 6.4 Taiwan 6.0 Korea 5.1 India* 9.2

2008 0.0 -1.2 0.3 6.0 4.6 1.4 2.5 9.6 2.1 0.7 2.3 6.5

Consensus DBS 2009 2010F 2011F 2011F -2.6 2.8 2.8 2.4 -5.1 2.7 1.6 1.2 -4.0 1.7 1.5 1.5 4.5 6.0 5.8 6.1 -1.7 7.2 5.5 5.0 -1.3 15.0 7.0 4.7 -2.2 8.5 4.5 4.3 9.1 10.0 9.5 9.1 -2.7 6.6 5.0 4.6 -1.9 10.3 3.8 4.1 0.2 6.2 3.9 4.2 7.7 8.8 8.5 8.5

Avg 2003-7 2.7 2.2 2.3 5.4 5.9 7.2 5.5 11.7 6.4 5.0 4.5 8.6

LT potential 3.0 1.5 2.0 6.3 4.6 4.1 4.5 8.2 3.7 4.5 3.9 8.1

Source: Datastream, DBS, Consensus Economics Inc. * Fiscal year. Long term potential derived from Consensus Economics Inc. survey

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Fig. 5: Exchange rate, historical and forecasts

Fig. 4: Policy rates, historical and forecasts Actual, eop 4Q07 4Q08 4Q09 US Japan Eurozone Indonesia Malaysia Philippines Singapore** Thailand China* Hong Kong** Taiwan Korea India

4.50 0.50 4.00 8.00 3.50 5.25 2.38 3.25 7.47 3.45 3.38 5.00 6.00

1.00 0.10 2.50

0.25 0.10 1.00 6.50 2.00 4.00 0.68 1.25 5.31 0.14 1.25 2.00 3.25

9.25 3.25 5.00 0.96 2.75 5.31 0.96 2.00 3.00 5.00

current

4Q10

0.25 0.10 1.00 6.50

0.25 0.10 1.00 6.50 2.75 4.00 0.42 2.00

2.75 4.00 0.44

2.00 5.56 0.28 1.50 2.50 6.25

5.81 0.20

1.75 2.50 6.25

Forecast, eop 1Q11 2Q11 3Q11 0.25 0.10 1.00

0.25 0.10 1.00

7.00 3.00 4.25

7.75 3.25 4.50 0.41 3.00 6.31

0.41

2.50 6.06 0.25 2.00 3.00 6.50

0.25 0.10

1.25 8.00 3.25

4.75 0.50

0.50 0.20 1.50 8.00 3.25

0.25

0.25

2.25 3.25

2.50 3.75

5.00 0.67 3.25 6.81 0.55 2.75 4.00

6.50

6.50

6.50

3.00

6.56

2007

4Q11 US Japan Eurozone Indonesia Malaysia Philippines Singapore Thailand China Hong Kong Taiwan Korea India

Actual, period avg 2008 2009 2010TD current

117.8 110.6 1.37 1.42 9,141 9,404 3.44 3.39 46.1 45.3 1.51 1.46 32.3 32.6 7.61 7.28 7.80 7.79 32.9 32.2 930 1015 41.2 42.3

93.6 88.1 1.39 1.33 10,383 9,086 3.52 3.23 47.6 45.2 1.45 1.37 34.3 31.8 6.83 6.78 7.75 7.77 33.0 31.6 1275 1157 48.3 45.7

1Q11

Forecast, eop 2Q11 3Q11

… … … 84.0 82.0 82.0 1.33 1.38 1.42 9,008 8,850 8,800 3.14 3.08 3.04 43.7 43.0 42.0 1.31 1.28 1.26 30.0 29.5 29.1 6.65 6.56 6.50 7.76 7.75 7.75 30.1 30.2 30.0 1134 1040 1020 45.1 44.0 43.5

4Q11

… … 81.0 79.0 1.46 1.50 8,750 8,700 3.00 2.96 41.0 40.0 1.24 1.22 28.8 28.5 6.44 6.37 7.75 7.75 29.8 29.6 1000 980 43.0 42.5

Source: Bloomberg, DBS. ** 3-month interbank rate. * 1-yr lending rate. Shaded cells indicate higher rates from previous period.

Source: Datastream, DBS

We conservatively estimate 14% return for 2011 driven by 13% earnings growth in 2011 (which has been priced in) and 14% earnings growth in 2012. Asia valuations trade at 12.4x PE, which is slightly above its 10-year average. There is room for re-rating towards its one standard deviation if liquidity flows exceed expectations. (Fig. 6). Sideline monies available for equities remain strong as evidenced in high bond funds inflows, and domestic deposits. (Fig. 8-9)

Sentiment wise, we don't see support for a big rise in the market for further re-rating above one standard deviation. Lingering European debt concerns, China's ongoing fight with rising price levels, impact of US liquidity injection and high debt levels and uncertainty on USD direction are not going to disappear overnight. One reservation we have for more upside is the high price to book value multiples in Asia, which historically predicts a negative 12-month forward return. (Fig. 7)

Fig. 6: Asia ex-Japan 12-month forward P/E and deviation bands

Fig. 7: Asia ex-Japan: Price to book vs 12-month forward return (x )

(x )

17

(% )

3

16

2 .8

15

2 .6

14

2 .4

1 4 % re r a t in g

13 12

1 4% grow th

11

-2 0 0 -1 5 0 -1 0 0

2 .2

-5 0

2 0

1 .8

10

1 .6

9

1 .4

8

1 .2

7

5 0 1 00

1

01

02

03

04

0 5

06

07

08

0 9

10

11

1 50 93

9 5

97

99

0 1

03

0 5

07

09

Source: Datastream, DBS, IBES

Source: Datastream, DBS

Fig. 8: US mutual fund flows into global bond and equity funds

Fig. 9: Aggregate deposit size in Asia (ex-Japan) commercial banks

( U S $ b il ) 60

U S D tr il s 18

40

16 14

20

12

0

10 -20

8 6

-40

4

-60

2

Source: Datastream, DBS

2010

2009

2008

2007

2006

2005

2004

2003

2002

0 2001

09 10 B ond Fund

2000

08

1999

06 07 E q u i ty F u n d

1998

0 5

1997

-80

Source: CEIC, DBS

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

US outlook We believe at the end of the day growth outlook has to improve to support richer valuations. US growth will be coasting around 2.5%, which is much lower than potential level and unemployment rate is probably expected to stay stubbornly high. Monetary and fiscal support for the economy are likely to continue to send positive signals to the market until inflation expectations start rising rapidly. Investors remain mixed on the medium term impact of these policies and of the subsequent withdrawal when these policies expire.

structural drivers. Investors should remain exposed to Asia equity markets, which stand to benefit from the extension of the Asia economic recovery, which are evidently the strongest globally. We flag 9 themes and risks to the positive Asia outlook, which will shape relative performance in 2011.

9 Themes for 2011 We recommend buying into sustainable themes and to gain exposure to the extension of the recovery momentum.

Theme #1 - Asia’s consumerism Fig. 10: US GDP and domestic demand growth

Consumer affluence and energy consumption are long-term structural themes in Asia, banking on a large population base and favorable demographics, urbanization, rising income levels and climate change.

(% )

6 5 4 3 2

Given its enduring nature, investors will continue to seek out stocks which will benefit from rising consumption power into 2011. Low unemployment rates brought about by strong economic growth should ensure rising income levels, which bode well for discretionary retail spending.

1 0 -1 -2

D o m e stic D em a n d

-3

G D P

-4 F

F

2

20

01

2

10

08

2

20

00

6

4 0 20

2

20

0

00

0

2

-5

Source: Datastream, OECD hhistorical and forecasts data

The availability of cheap credit bolstered by low interest rates and strong bank liquidity would also continue to drive discretionary spending.

Fig. 11: US unemployment rate

Theme #2 - China’s quest for energy

(% ) 11

Demand for energy should remain strong into 2011 as the economy recovers. Oil price should remain well supported at current levels as inventories are adequate. We forecast a higher price range of US$80 -100 per barrel averaging at US$90 in 2011 in view of rising economic activities. The range reflects sensitivity of the oil price on equity markets and currency fluctuations.

10 9 8 7 6 5 4 3 2 00

01

02

03

04

0 5

06

07

0 8

09

10

Source: Datastream

Investors are worried to buy into the rally Strong inflows into Asia have propped up asset prices that camouflaged the underlying fear in view of the recent years' volatility in the equities market, lingering uncertainties of the European debt crisis, escalating US debt concerns, rising trade tensions and geopolitical risk. While we concur with the cautiousness, we believe Asia economies should stand out against developed market weakness, and domestic demand would flourish on

Long-term growth sustainability needs continuous investments into energy resources. China, with its vast fiscal strength, will continue its quest for energy resources and enhanced energy security. We like coal as an alternative energy play, as well as energy related sectors like offshore oil & gas sector and refinery to benefit from a firmer oil price. Technological innovation has opened the door to abundant new energy resources, such as natural gas. The use of nuclear energy as one of the means to combat greenhouse gas emissions may spur many countries to expand their nuclear industries.

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Theme #3 - China's prolonged spurt on commodities. What's next? Along with a firmer oil price, we should also see firmer commodity prices. China's prolonged spurt on commodities is very much well in play and movements in commodity prices nowadays are very sensitive to China's IP numbers! Looking forward rare earth metals and nuclear reactors could be a theme for next year. Fig. 12: Changes in China industrial production vs commodity prices, %YoY (% )

60

of grain or two thirds of all the grain harvested in the world in 2004. Food inflation remains a thorny issue in China. Recent price controls by the Chinese government may be difficult to apply on perishables like meat, vegetables and agriculture products. Moreover erratic climate changes are affecting harvest and production levels. Sectors in the areas of improving agricultural produce such as perishables logistics and food processing will benefit from the new agricultural revolution in China.

Theme #4 - Engineering expertise in Asia

50

Dramatic midair engine failures that struck several Boeing and Airbus aircraft and the recall exercise by major auto manufacturers provoke thoughts on the need for reliable industrial and engineering parts as well as expertise.

40 30 20 10 0 -10 -20 -30 -40 96 97 98 99 0 0 0 1 02 03 04 05 0 6 0 7 08 09 10 C h in a I P

C RB Spot

Source: Datastream

Fig. 13: Market Vectors Rare Earth / Strategic Metals Index

Along these lines we believe companies, which have track records and leading expertise should gain market share at the expense of lower-tiered players. We classified these companies as global champions. Notable ones are companies in Singapore's offshore marine sectors and aircraft servicing sector, Korean shipbuilders. Chinese leading heavy industry and engineering companies, leading machinery brands and distributors, construction companies should also continue to benefit from the uptick in infrastructure spending in the region.

16 00

Theme #5 - Preparing for the unexpected 14 00

We identify three black swan events that may trigger a massive risk aversion. One of them is forex volatility. Notwithstanding the European debt crisis, which may or may not need another bailout, the trade on a weak Euro or weak USD is never a one-way bet. Asian markets, like most risk asset class, may benefit from a weak USD environment. But massive USD devaluation could precipitate: -

12 00 10 00 8 00 6 00 4 00 2 00 Ja n -0 8

Ju l-0 8

Ja n-09

Ju l- 0 9

J a n -1 0

J u l -1 0

Source: Bloomberg, DBS

Besides commodity, an insatiable demand for meat and grain brought about by China's huge population and rapid urbanization creates the new agricultural boom, which has already begun. According to oneworld.net, if by 2031 the Chinese consume as much resources as the Americans do now, grain consumption per person would climb from around 600 pounds today to around 2000 pounds needed to sustain a typical western diet. This would equate to 1,352 million tons

(1) a confidence crisis on the USD, leading to a sell off in US treasuries and a spike up in treasury yields; (2) a repricing of risk when bond yields start rising rapidly, including a sell off in other risk asset class; (3) a sharp rise in commodity prices, which lead to hyperinflationary pressure This event could be triggered by talks of possible rating downgrades on US Treasuries in view of mounting US debt levels, and when QE2 ends and funding of US Treasury issuance becomes a problem.

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2011 Asia Equity Outlook The Year of the Rabbit

We believe commodities are good hedges against this scenario. Commodity should also be supported by a growing global and Chinese economy in the non-occurrence of such an event. The second black swan could be triggered by rising political tension in the Korea peninsular. At this time a war looks unlikely but the situation remains a big uncertainty. Domestic political developments and external China/US/Korea/Japan relationship all bear close watching in both North and South Korea, now that wikileaks have revealed all the real intentions! We are downgrading Korea to Underweight as we believe that re-rating in Korea is unlikely and volatility in Korea could rise in the near term.

Fig. 14: Dividend yield has increasingly been an important component of total market returns 300 250 200 150 100 50 0 00

Stress in that region would likely cause the Korean won and the equities market to sink, which may have repercussions in the regional markets. However the impact may be shortlived. The question is does this present a buying opportunity and make South Korean market even cheaper? Fundamentally we believe that the macro environment in Korea may be less favourable in 2011 compared to this year. Please see more discussion in Korea’s country section.

01

Valuations, valuations, valuations! As a hedge against black swan events (probability of occurrence of which is low but rising), we remind investors to focus on valuations. Asian markets are not as cheap as in the beginning of this year. A further upside of 28% would render market valuations on the more expensive side unless earnings provide positive surprise. Through the combination of easy money, leverage, momentum and herd behavior, market volatility will be high and upside target can easily be achieved within a short period of time. Our struggle with valuations is the need to justify higher price to book value. The ratio remains at very elevated levels and historically the current valuations could yield a negative return in the next 12 months. Dividend yield plays In the absence of attractive interest rates we believe dividend yields in Asia offer alternative returns with growth potential. In times of uncertainty and when stocks are stuck in a trading range, dividends provide a cushion. We believe this theme is sustainable into 2011.

03

04

05

06

07

D iv i d e n d In d e x

08

09

10

T o t a l re t u r n I n d e x

Source: Datastream

Fig. 15: Dividend yield gaps in Asia are trading towards the higher range of their historical bands 3

(% )

2 1

A third black swan is possibly a contagion impact from the Euro crisis. Media reports point to Portugal as a likely candidate to ask for a bailout. If the crisis does spread to Spain, then the fall in Euro will likely be severe. The occurrence of two bailouts in a year does suggest that this black swan cannot be ignored.

02

P r i c e In d ex

E q u i t ie s c h e a p

0 -1 -2 -3 -4

E q u i ti e s e x p e n s iv e

-5 -6 00

01

02

03

04

05

06

07

08

09

10

Source: Datastream

Theme #6 - Investment push Investment spending on infrastructure should extend beyond China and expand into the region. In China we expect budget for railway infrastructure spending to be revised upwards when China announced its next 5-year plan, considering the earlier than targeted completion of the railway network and the replacement of the slack from property developments in the FAI account. Investors could focus on related growth on locomotives and the real benefits from the completion of the railway transportation system such as the developments in the inner cities. Besides China is also targeting low cost housing to alleviate social dissatisfaction of rising property prices. Urbanization and infrastructure spending towards the inner cities can also be expected in the upcoming 5-year plan.

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Malaysia will also be embarking on its 10MP (10th Malaysia Plan) to improve public transportation systems with projects such as LRT extensions, MRT and highways, as well as the new financial district. Tax incentives and investments in the oil and gas sector by Petronas are also targeted to boost economic activities to raise income levels in Malaysia. Indonesia has been in the forefront in attracting FDI flows in the area of coal mining and commodities in the past few years. We expect this to continue. Infrastructure spending should also accelerate to improve productivity and ease bottlenecks, such as ports, rail roads and expressways. Thailand has been lagging behind in terms of infrastructure spending during the political crisis years, and has always been under-spending the budget. Confidence in new private spending will probably not be restored in the near term, but government pushed efforts should be reflected in many new projects out for tender. The China-Thailand high speed train will start work in 2011. In Singapore, since the near completion of the two IRs, infrastructure spending on amenities to support Singapore's future growth has never ceased. These include the ongoing works in the IRs, extension of the MRT lines, property developments on higher demand, as well as the laying of the nationwide super network. Recent flooding also exposed Singapore's weakness in its capacity constraints in many areas such as drainage, transportation systems, and housing, which will need to be upgraded to cater for a higher population target. The Building Construction Authority estimated the average annual construction demand in 2011/12 to range between S$18bn and S$25bn. We believe construction demand should speed up and be on the high end of the range. The record number of land sites rolled out in the recently released Government Land Sales program for 1H11 also augurs well for construction demand in coming years. Asian economies have been quick to recover from the crisis as responses have been swift to focus on domestic demand and infrastructure spending. With capital inflows likely to accelerate in the foreseeable future, we expect resources to be allocated to infrastructure spending as a means to digest the flows to avoid building up excesses in other parts of the economies. After all Asian economies have under invested in infrastructure in the past decade. Since the Asia financial crisis, Asian economies have focused on de-leveraging and building up reserves strength.

Theme #7 - Asia: Inflows and inflation, and capital controls There is room for interest rates to normalize, but it will be one of the macro dynamics that is too hard to forecast in 2011. One of the strong arguments for rates hikes is simply if growth has normalized to pre-crisis levels, then interest rates should also return to pre-crisis levels to pre-empt rising inflationary expectations. Real rates are at historical low levels, and in most countries, negative. There are many arguments against this. Firstly food and energy prices dominate the inflation basket in Asia. As long as these are under control, inflation should fall within expectations, or considered a one-off anomaly if there are supply disruptions. Secondly with the influx of hot capital flows due to attractive growth, bond yields and currency appreciation expectations, higher interest rates will fuel more liquidity flows, which will spiral asset inflation. As such central banks will be quite reluctant to raise rates without corresponding capital control mechanism in place, in our view. Thirdly growth momentum is expected to slow from last year on the absence of base effects, uneasy growth in DM, the winding off of the inventory cycle, and withdrawal of policy support. Policy support remains the best tool in ensuring growth sustainability while other factors are not within control. As such central banks will be very careful in making rate hike decisions in our view. In view of these factors, we believe a mix of mild rate hikes, increase in RRRs, currency appreciation, micro capital controls, and administration are the likely paths that central banks will take in monetary controls in our view. Our China economist however warned of a permanent rerating of the inflation outlook as the housing market has become the pivotal force to drive domestic demand. The excessive credit creation has probably manifested itself permanently into higher prices for food and housing, which in turn triggers stronger demand for wage growth to cope with rising inflation - a process that ramps up inflation expectation nationwide. Correspondingly it implies higher level of interest rates is required, and we expect a lot more tightening in China.

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Tighter capital controls would appear inevitable. Inflows into Asia are expected to remain strong amid attractive spreads and structural opportunities. The question is what is the level of threshold that investor confidence won't be compromised. Conventional tools like forex intervention, withholding taxes, lowering of foreign cap and increases in reserve requirements remain a real risk.

Theme #8 - Firms with pricing power Rising inflation has manifested themselves into high prices for everything, including wages, higher raw material costs, foreign exchange and costs of doing business. We expect a tougher operating environment next year in maintaining margin. As such we prefer companies which enjoy leading competitive position, strong pricing power and economies of scale. These would include the global and Asia champions that are already leading brand names.

Theme #9 - Country Themes We expect strong overall growth in Asia next year and no country will be left behind. Growth will most likely be halved next year but will still at near average or potential levels. The growth outlook in China and US remain key macro drivers for the region. Dynamics in individual countries provide opportunities in sector selections.

Fig. 16: MSCI Asia ex-Japan earnings and price index 2 50 2 30 2 10 1 90 1 70 1 50 1 30 1 10 90 70 0 5

0 6

0 7

08

09

In d e x

10 E PS

Source: Datastream, IBES

Fig. 17: MSCI Asia ex-Japan 12-month forward P/E Bands (Bands are 8, 11, 13, 16,18x) 800

800

700

700

600

600

500

500

400

400

300

300

200

200

100

1.

Malaysia - infrastructure, plantations, banks

2.

Singapore - Laggard plays, offshore marine

3.

China - Infrastructure, commodities, industrials

4.

Hong Kong - Banks

5.

Thailand - Top down macro, cheap valuations, energy, banks

6.

Indonesia - Coal, banks, consumer, mid caps

7.

Taiwan - Domestic sectors

8.

Korea - Currency watch

9.

India - 2011 wild card

Valuations, earnings growth and index targets 12 -month forward earnings continue to hit pre-crisis high, brought about by the strong economic recovery. The extension of the recovery into next year means that the MSCI Asia index has the potential to touch pre-crisis high again, which is just 16% away from current levels. One of the major challenges in 2011 will be for the major indices to touch pre-crisis high in our view.

100 2001

2002

2003

2004

Source: Datastream, IBES

2005

2006

2007

2008

2009 2010

Source: DATASTREAM

Returns in MSCI Asia ex-Japan were set back by the underperformance of MSCI Hong Kong, China, Singapore, Taiwan and Korea, which are all still about 5-36% from the peak. In 2007, liquidity was the main driver when these markets hit new peaks driving valuations to all time highs as well. Currently, the smaller ASEAN markets and India have already touched pre-crisis highs brought about by strong liquidity flows which were diverted into these markets. The challenges for the bigger markets to hit pre-crisis highs are myriad. Chinese liquidity played an important part then and will not repeat itself as in 2007 when QDIIs were first opened to foreign markets. On the contrary liquidity squeeze from China's tightening fears is the main concern right now. Moreover, for MSCI China, (which is still 56% away from previous high), valuations will be deemed too high and at a bubbly stage if it touches its previous high by next year.

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Korea and Taiwan possess some potential of hitting new highs as they are just 5% and 14% from new highs, and whilst valuations are still cheap. Conservatively, we forecast index targets for 2011 to have 14% upside from current levels based on the current index P/E of 12.4x and 2012 earnings growth assumption of 14%. We recommend underweighting China as markets are jittery on tightening concerns, and underweight for Korea on rising political tension in the peninsular. Taiwan is raised to overweight on a better outlook after the special provincial elections, and India is also raised to Neutral on falling inflation in the first quarter. We retain our overweight stance in the smaller ASEAN markets in Indonesia and Thailand. Singapore and Malaysia stay at Neutral. Fig. 18: Earnings growth and P/E valuations

Hong Kong HSI MSCI China MSCI HK Singapore Korea Taiwan India Malaysia Thailand Indonesia Asia ex-Japan

*10-yr Avg

-1SD

P/E 2010F

2011F

2012F

14.3 13.0 15.9 14.6 9.2 14.4 14.1 14.1 10.4 14.0 12.2

12.2 10.0 13.9 12.4 7.3 10.6 10.8 12.7 9.0 10.7 10.6

13.9 13.8 18.0 15.3 10.6 13.9 19.1 17.3 14.9 17.6 13.8

12.1 12.0 16.6 13.9 9.6 12.5 15.5 14.8 12.3 14.5 12.3

10.6 10.4 14.9 12.7 8.5 11.2 12.9 13.3 10.7 12.6 10.8

Earnings Growth 2010F 2011F 2012F 26.9 28.1 26.5 22.4 49.0 90.2 23.0 29.0 18.6 19.2 40.1

14.8 14.2 8.1 9.9 10.5 10.3 22.8 17.2 20.9 21.5 12.0

14.3 16.2 11.6 9.3 12.4 11.6 19.9 11.2 15.2 14.4 13.2

Source: Datastream, DBS, IBES. Shaded cells are less than -1SD. Numbers in bold are less than 10-year average.

Fig. 19: Index targets and recommendations Current 2011 Index Index target Hong Kong HSI MSCI China MSCI HK Singapore Korea Taiwan India Malaysia Thailand Indonesia Asia ex-Japan

23321 68 12314 3172 1957 8624 19967 1501 1034 3696 636

26891 80 13089 3642 2065 9810 25483 1663 1354 4679 725

Upside 15% 17% 6% 15% 6% 14% 28% 11% 31% 27% 14%

3-month Index target

Upside

Recommendation

23767 69 12411 3290 1984 9217 21346 1582 1114 3942

2% 2% 1% 4% 1% 7% 7% 5% 8% 7%

Underweight Underweight Underweight Neutral Underweight Overweight Neutral Neutral Overweight Overweight Overweight vs DM

Source: Datastream, DBS

Asset allocation The changing outlook on the domestic front drives our asset allocation revisions for the coming quarter. We are upgrading India and Taiwan and downgrading China, Hong Kong and Korea The downgrade in China is mainly for 1Q where we believe the tightening pace will accelerate before the Lunar New Year festive seasons. Interest rate hikes, RRR hikes, loan quota restrictions and administrative controls on food and property prices are highly possible. Next year's growth is going to be slower than this year's (9.5% vs 10%). Real rates will still be low and this will fuel hard landing talks amid negative sentiments on tightening. We believe the emphasis for the next 5-year plan will be on controlling inflationary pressure. We do not have a hard landing view on China. Hong Kong should continue to benefit from both a low interest rate environment and China. Hong Kong as a major RMB offshore centre will further enhance its status as a major financial centre and gateway to China. A lot of Chinese and foreign companies will be attracted to set up headquarters in Hong Kong, thus continue to encourage domestic demand and liquidity flows. We believe asset reflation will continue to be a main theme in Hong Kong with Hong Kong Financials as a main beneficiary. Korea's inflation came off after October's spike up to 4.1%. Inflation in 2011 should be higher considering closure of output gap, capacity constraints, labour market tightening and rises in international commodities prices. Real rates remain negative, which give room for Korea to raise rates much more aggressively in Q1 after affirming that economic growth has sustained momentum. The risk of negative impact from policy withdrawal is high. To be sure Korea is one of the countries that resist raising rates until December and the Korean won was also flat from last year. With rising inflationary pressure and capital move, there will be increasing pressure for interest rates and won to move higher. Besides North Korea's repeated provocations into South Korea's territory underpin the market's PE discount to the region. Latest action diminishes the re-rating hope, in our view. We are downgrading Korea to Underweight.

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2011 Asia Equity Outlook The Year of the Rabbit

The elections in Taiwan produced no nasty surprises with the ruling party KMT winning 3 out of the 5 seats contested. According to Taiwan media, total KMT winning votes, however, if aggregated as they were for presidential elections today, will reflect a defeat by KMT. In the near term we expect the overhang from the elections to be cleared and focus on ECFA benefits to resume. Taiwan's presidential elections will only be held in 2012 and we expect KMT to implement more positive policies to ensure its victory in the next election. India is ungraded to Neutral from Underweight. We believe that India's inflation will drop to 6% by 1Q. This should give adequate room for interest rate talks to subside, and in contrast with China tightening in the 1Q. Short of an overweight on fundamental justification, the uncertainty over oil and food prices where India's inflation is most vulnerable makes this an uncomfortable bet for a sustainable fall in inflation. Weather aside, structural issues in food distribution are the main harbingers. Budget in February is not going to show any positive surprise either. Recent corruption scandals and scam will undermine the ruling coalition efforts for reforms in our view. Targeted spending to improve infrastructure bottlenecks was not achieved and objectives missed, which implies that further efforts to raise infrastructure spending will be undermined. Still recent state elections reflect the maturity of voters that favour improved governance and development. Political volatility will rise in the near term in our view, thus setting back the many agendas in India. However we expect the budget deficit to fall from last year. After having registered 15% growth this year, we forecast Singapore to grow at 7% in 2011, higher than the government's forecast of 4-6%. Singapore's October exports rebound suggested little possibility of technical recession in Singapore, and also reflected the resilience of the economy. There is upside bias for consensus earnings growth forecast of 10% for 2011 in our view. Singapore was never a strong performer among regional markets historically. Short of a positive stance on the financial sector, we maintain our Neutral stance in Singapore, and are overweight on O&M, plantations and the gaming sectors. Malaysia should still continue to perform in line with the region in 2011. Monetary policy will remain accommodative as Malaysia has hiked rates three times in 2010, ahead of the other countries. While the other regional countries continue to control inflows through various measures, Malaysia has reiterated that capital controls are not necessary. Indeed what Malaysia need are the inflows. We expect the various infrastructure projects to kick-start in

2011 to be funded by private participation. The positive outlook for Malaysia banks, construction sector, property and plantations should see these sectors outperformance. The outlook for Indonesia remains positive. Against a backdrop of positive outlook for the region we expect Indonesia to continue its outperformance. The re-rating in Indonesia still has room to attempt its previous high PE multiple of 16x. An investment upgrade, positive commodity price and a stable rupiah all point to further avenue of new demand by foreign investors. Domestic investors are concerned about capital outflow. We believe attractive yield spread, stable investment environment and high growth will continue to attract and keep investors. Thailand largely remains a macro story on cheap valuations and potential to be unleashed after suffering from political uncertainty for the past 5 years. Domestic investors have returned to the fore when sentiments bottomed after the worst riots in history. Foreign investors net bought US$654 million after the crisis, less than half of the net bought in Indonesia. FDI flows from Japan continue to be strong under a strong Yen environment. Thailand's GDP contracted both in 2Q and 3Q, technically a "recession", but that was attributed to the riots at end June as well as a softening in exports after the strong first half. We expect growth to normalise from 4Q onwards. Public and private investments will spur growth on top of exports in the coming quarters. This soft run of economic data coupled with domestic political uncertainties does provide enough arguments for the central bank to stay put on rates, but as a testimony to its confidence on the growth outlook, Bank of Thailand raised rates for the second time this year. At 2%, interest rates are still stay far below pre-crisis levels of xx% and are one of the lowest among South East Asian economies. If growth return to pre-crisis levels, our forecast of 3% policy rates still remain accommodative. A major political overhang in the market has been cleared when the Constitution Court dismissed the Democrat dissolution case. No House dissolution is expected until mid2011 and we expect the government to focus on budget spending in the following few months before the elections.

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2011 Asia Equity Outlook The Year of the Rabbit

Sector weightings

COUNTRY VIEWS

Under a macro outlook of strong growth, modest interest rate hikes and strong liquidity, reflation remains the buzz word. The broad trend should support Consumer Discretionary spending arising from higher income growth, without the risk of regulatory controls.

Singapore (Sustainability is the key - Neutral)

We continue to see robust economic growths, which should drive consumer spending. Rising income level and wealth effect from a boisterous property and stock market should improve confidence levels. Confidence levels were at neutral levels, should rise against a backdrop of improving economic recovery. Income levels, confidence, GDP growth, property market, stock market Industrials sector will benefit from tight capacity and underinvestment in Asia led by an improving demand outlook. Leverage and a low interest rate environment will drive investments into capex. Money flows in the commodity sector will be easy, supported by China's quest for energy resources. Defensive sectors like Telecoms, Utilities and Consumer Staples should be least favoured. The competitive and regulatory landscape is not conducive for Telecoms, which make stock pick highly selective. Utility stocks lack pricing power and are under the mercy of regulatory controls, while rising prices will only benefit upstream Consumer Staples. We are selective on Financials, Healthcare and Oil & Gas, but stock selection should not be difficult. Earnings growth in the financial sector should benefit from a low interest rate environment driving loan growth. Interest rates, which are already low this year, are still expected to rise this year, albeit at small increments. Stock selection based on wide interest rate margins, low cost base and less competition benefit those banks in emerging Asia. Regulatory environment are less certain in China, as well as developed markets in Singapore and Hong Kong, which tend to follow US interest rates quite closely. Likewise with the property sector, overheating risks are lesser in emerging Asia than in China, Hong Kong and Singapore. HealthCare is supported by long term structural dynamics but regulatory risks bear watch. Oil & Gas sector is subject to the volatility in oil prices but underlying fundamental demand should still be positive.

We see risk on the upside for Singapore's GDP to grow further, to be driven mainly by the services sector. The sector is now 65% of GDP and is growing at a consistent healthy rate amid double digit contractions and volatility from the other two key sectors (manufacturing and construction). Our calculations show that out of the 140K job creation for next year, 104K will be from the services sector which will then bring about further increase in wages. (See “Singapore: Above expectations”, Irvin Seah, Economics-Markets-Strategy, 9 Dec 2010) The two international resorts (IR) have added 1.6ppts to GDP growth. With the resorts yet to run at full capacity and anecdotal evidence suggesting that Singapore is now the top tourist destination in Asia, we expect contribution to growth from the benefits brought about by the IR to exceed expectations. We now forecast GDP growth for 2011 to be 7%, higher than the government forecast range of 4-6%. On markets, we expect three sectors to provide newsflow and near term catalysts for outperformance in 1H: a) Offshore Marine; b) hospitality; and c) Commodity and plantation stocks. We expect offshore and marine sector to create waves in the next few months as the cycle turns up. With oil prices hovering above US$60/barrel, oil majors are expected to increase exploration and production capex in 2011, after two years of low investment in capital spending due to the global crisis and tight credit environment. Singapore, being the new playground of Asia, will continue to attract strong tourist arrivals. YTD October, Singapore has seen new record of 8.6 m visitors, +21% YoY. We believe the growth rate is sustainable into 2011 as the global economic recovery becomes broad-based combined with the gradual opening of rides and attractions, expanded meetings facilities, and tables at the IRs. Direct beneficiaries are the IRs, airlines and hotels. Both supply and demand dynamics favour the outlook for agricultural commodities in 2011. Continued USD weakening and weather disruptions should boost cotton, wheat sugar and rubber prices next year. Coupled with strong demand from China, other than seasonal effects, we should see a firmer price uptrend in the 1H. Direct beneficiaries are the upstream plantation counters.

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2011 Asia Equity Outlook The Year of the Rabbit

Drivers:•

•

of the lowest in the region, Singapore banks may increase their risk profile, relying on non interest income, stronger loan growth or M&As. Uncertainty around these moves is underpinning the underperformance of Singapore banks relative to the regional banks in our view and the underperformance will probably continue in 2011.

Real rates will continue to be negative in Singapore driving asset reflation. We believe physical property prices will remain supported as the economy is expected to grow at 7% next year resulting in low unemployment rate and higher income. At this stage we do not see a property market bubble to warrant any government control measures after the last round, as evidenced by the stealthy property price rise and a manageable affordability ratio. A healthy property market will help sustain the wealth effect and consumer spending.

Malaysia (Welcoming the flows - Neutral) We expect Malaysia to outperform the region in 2011, driven by accommodative monetary policies and investment drive to boost growth. We expect Malaysia to further delay rate hikes since growth and inflation have slowed. Threat of property bubble is also not apparent in Malaysia. Malaysia has also reiterated that capital controls won't be necessary. Indeed we believe inflows will best be used to fund infrastructure spending under the new economic model (NEM).

Having peaked in 2Q10, it is generally expected that GDP growth momentum will moderate in the coming quarters and markets will need a lot of positive surprises to move higher. Growth in 4Q is likely going to surprise with strong tourist arrivals and exports growing at strong rates, dispelling concerns of a "technical recession". We have upgraded our GDP growth to 7% in 2011 and inflation is raised to 3.2%. We believe there is still room for upside surprises and hence for the Singapore market to re-rate.

Fig. 20: Singapore GDP growth and P/E valuations 25

(%)

(x)

20

30 25

15

Other than the RM40bn Mass Rapid Transit (MRT) project which will be implemented in 2011, there were also several initiatives for public-private partnerships including six new highway projects including the West Coast Highway. Other mega projects also include RM26bn financial district to start in 2011, PNB's RM5bn 100-storey tower. Petronas has privatised two of its subsidiaries this year and plans to invest M$64b in the oil & gas sector.

20

10 5

15

0

10

We also see value enhancing opportunities from the development of strategic government land.

-5 5

-10

0

-15 90

92

94

96

98

GDP growth (L)

00

02

04

06

08

10

Avg P/E (R)

Source: Datastream, DBS

Risks:•

•

Singapore faces strong competition from Hong Kong as a regional financial hub. Hong Kong is benefiting as a gateway to China and a major CNY offshore centre, which stands to attract many international companies to set up regional headquarters. We believe the competition will continue in 2011 and that Singapore will have to step up efforts to be ahead of the competition. A positive surprise will be if Singapore will also be appointed as a CNY clearing centre. This is not entirely impossible. Singapore's interest rates are going to stay low for an extended period of time resulting in NIM compression. In an attempt to improve ROEs which are already one

Direct beneficiaries are the construction, banks, property and oil & gas sectors. Earnings growth is forecast to be around 17% for 2011 and 11% for 2012, one of the highest in the region. Trading at a P/E multiple of 14x which is near the 10-year average, we believe strong growth could lead KLCI to chart new high in 2011.

Finding Indonesian and ASEAN proxies in Malaysia As a key member of ASEAN, Malaysia can benefit from the region's growth. With Indonesia companies trading at higher multiples, Malaysia has a handful of companies leveraged to the region's growth and some of which trade at cheaper valuations, such as the banks, CPO stocks and the gaming stocks. Growing integration within the region means a lot more opportunities for Malaysian companies in our view.

Drivers:•

Upcoming elections act as a major near term catalyst for the market as well as accelerating PM Najib's economic plans.

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2011 Asia Equity Outlook The Year of the Rabbit

• • •

Robust development activities bolster M&A. Three rate hikes in 2010 probably implies pausing in 2011. The economy continues to strive under accommodative fiscal policy environment.

Fig. 21: India WPI vs repo rate 12 10 8

Risks:•

•

• •

Malaysia's key export sectors are palm oil and rubber. It is still vulnerable to external demand weakness should the global demand outlook weaken. Revenue budgeted for development spending relies heavily on the fortunes of this sector. Budget spending is always a constraint with Malaysia. It is one of the highest in Asia after India, but of course still shy of European countries. FDI needs to follow through to finance a lot of the infrastructure projects. Political risk cannot be ruled out if BN continues to lose votes in the upcoming elections.

6 4 2 0 -2 06

This is in contrast to China, which our economist believes will strengthen its grip on monetary tightening, with further interest rate hikes, increase in RRR and a lower loan quota for next year. Administrative measures to control inflationary pressure before the Lunar New Year festive season is also possible. We are upgrading India on a tactical move. We recommend a switch out of China into India in 1Q10. There is still a lot of disbelief in India's recent good fortune. The fall in the inflation rate is likely unsustainable and should rise pretty soon as structural issues play an important role, thus warranting rate hikes again. Strong 2Q GDP (fiscal year) will probably need to be paid back in the next quarter. The budget in February would probably not able to surprise In 2Q

07

08

09

10

Source: Datastream

Drivers:• •

India (Reprieve in 1Q - Neutral) The outlook for India in the next 3 months is positive. Our India economist estimates that inflation will probably fall to around 5-6% by March which would dispel talks of the need for further interest rate hikes. So far this year, the Indian market has been perturbed by tightening concerns. A falling headline inflation number should bode well for the market in our view.

(% )

Big population as well as high growth in middle income population support a high nominal GDP growth. Democracy allows checks on progress in economic development.

Risks:• • • •

Rising inflation calling for rate hikes is always a high risk to consumer spending and corporate earnings growth. Budget spending needs to be controlled to meet deficit targets. Rising political pressure on the coalition government due to scandals Twin deficit place India at same category of risks as some countries in the Eurozone

Hong Kong / China (Tightening fears ahead Underweight) We made a tactical move to downgrade China in 1Q10. Since inflation rose to 4.4% last month, our economist believe that China will probably tighten aggressively in the coming quarter. Measures like increase in policy rates, RRR, administrative controls on property, financial sector and the food sector is highly possible. These could in fact occur before the Chinese New Year, a period where inflationary pressure generally increases. We recommend investors focus on beneficiaries of long term structural sectors, and mid caps industrial sector which are less subject to macro drivers.

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2011 Asia Equity Outlook The Year of the Rabbit

Drivers:• •

• •

Strong growth which we forecast to be near 10% in 2011. Rebalancing of economic policy towards domestic demand should continue to result in high income levels, thus favouring discretionary spending. Infrastructure spending to lead FAI growth, offsetting the weakness in property development. Low real rates imply still strong liquidity environment for driving up asset prices.

Risks:•

Asset inflation bubble

Thailand (Window of opportunity - Overweight) We view the next six months as an attractive opportunity for investment into Thailand. The latest court decision which ruled in favour of the ruling DPP should remove political risk for now until the next elections which is likely to take place at the end of next year. During this period we expect the ruling coalition to work on budget spending and work to resuscitate FDI flows into the country. These should bode well for the stock market. Indeed the country has shown great resiliency to the series of political upheavals, thanks to the recovery of exports and the strength of agricultural produce. We continue to see this as a tailwind for Thailand in 2011. Valuations are very attractive and one of the lowest in the region. Generally driven by top-down macro input, a perceived more stable political environment will drive rerating.

Drivers:•

•

• •

Resilient in the face of political disruptions, which means that politics will become less of a concern over time. Agriculture exports sector is a structurally strong sector in Thailand, which is more stable amid exports cyclicality. Domestic demand to lead growth in 2011. Low real rates imply still strong liquidity environment.

Risks:• •

Indonesia (Best risk return profile - Overweight) Indonesia shows the best risk return profile among all Asian countries. It has outperformed the region in 7 out of the past 10 years and gained on average of 32% vs the region's 14%. As it is still one of the smallest markets in Asia, we believe that the demand for Indonesia equities and assets should grow if it achieves an investment status rating by credit agencies. Before then we expect Indonesia equities to continue to outperform the region. The equities market currently trades at 12-month forward P/E of 14.5x. We expect it to test its recent high range of 16x PE, which translates to 4700 for JCI - a 27% increase from current levels. Key drivers are domestic as well as foreign liquidity which are attracted to the consumer story in Indonesia, brought about by rising incomes level thanks to the commodity boom. Direct proxies are the banks, consumer and the commodity sectors. A stable Rupiah is also what investors are looking for in Indonesia, which guarantees the spread in its credit market and hence further enhances attractiveness of its bond market. Inflation has remained benign for most of 2010, but is expected to rise next year when demand continues to pick up. Even if rates rise we expect it to be minimal which should not cause a major bond outflow.

Drivers:•

• • •

A country blessed with rich natural resources is currently benefiting from a commodity upcycle and strong China demand. Stable political environment until at least 2013 - next general elections is in 2014. Possible investment upgrade by 2012 which should bring bond rates down if it rises in the near term. Interest rates are low compared to last 10 years and should continue to support a domestic investment cycle.

Risks:• •

Rising interest rates, but still low compared to pre-crisis levels. Capital control measures as a response to strong inflows.

Rising interest rates, but still low compared to pre-crisis levels. Capital control measures as a response to strong inflows.

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2011 Asia Equity Outlook The Year of the Rabbit

Korea (Rising political tension a key risk Underweight)

• •

We believe there are two major headwinds in Korea which may defer its re-rating. Firstly, the political uncertainty has again come to the fore with tension rising in the North / South Korea border. Although it may look no different from previous conflicts, we believe the new leadership and the discovery of advanced nuclear facility in North Korea should raise the risk of a major conflict happening this time. In South Korea domestic politics as to the creditability of the current President will also be up for challenge under a strained North / South Korea relationship.

Taiwan (Sky is clear - Overweight)

Secondly Korea may not enjoy as much fiscal stimulus than before in 2011. The Korean Won has weakened 21% in between 2008 till now since the credit crisis, and interest rates has been raised once in Korea. We forecast that the Korean Won should strengthen in 2011 against a backdrop of rising Asian currencies and current account surplus. Moreover inflation has risen beyond BoK's comfort range and remains on watch. The government is also targeting a budget surplus, meaning that a lot of government stimulus may be withdrawn slowly. All these will mean that growth momentum could slow in the coming quarters. We are downgrading Korea to Underweight and upgrading Taiwan to Overweight. Fig. 22: Korea won and policy rates % 6

KRW 1 80 0

We do not expect much disruption from political noise before the next presidential elections in 2012. We believe that Taiwanese are warming up to the idea of economic cooperation after seeing improvements in the domestic economy, especially the tourism sector and a pick-up in fixed asset investments, and a sequential drop in unemployment rate. We continue to see broadening of the domestic demand recovery to bring down the jobless rate.

Drivers:-

4

1 40 0

•

3

1 20 0

2

1 00 0

O /n ra t e

KR W

1

8 00

0

6 00 00

01

02

03

04

05

06

07

08

09

10

Source: Datastream

Drivers:-

•

Taiwan's GDP will most probably surprise on the upside in 2010 and the positive momentum is expected to extend to 1H 2011. This is largely due to a bottoming of the global demand as well a strong growth outlook in China. Benefits from ECFA is expected to bear fruit in 2011 as many bilateral investments have been progressively made across the Straits since the conclusion of agreement this year. Improving labour market, stronger consumer confidence, still-tight manufacturing capacity, and the enhancement of business operating environment can be expected driving domestic demand growth in 2011.

1 60 0

5

•

Exports sector which is sensitive to Won strength. The real estate market may continue to be depressed due to negative sentiment on the geopolitical risks and threat of rising interest rates. Wealth effect may still be missing in Korea, as opposed to other Asian countries which have gained on rising asset prices

Established companies with strong global brands to sustain growth. Government intervention is a plus in the face of global uncertainty.

• • • •

Benefits from ECFA to broaden domestic demand recovery. Loan growth to benefit from improved economic activities and low interest rates. Diversified and innovative tech sector to offset cyclicality in industry dynamics and short product life cycle. Benefits from a Taiwan / Korea allocation switch in view of rising political risks in Korea. Capital control rules to benefit equities market in retaining long term investments.

Risks:• Vulnerabl

Risks:•

Highly cyclical industries which are vulnerable to external downturn.

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2011 Asia Equity Outlook The Year of the Rabbit

Economics

Cutting ribbons

David CARBON +65 6878 9548 [email protected]

• Asia delivered 21 rate hikes in 2010. The Fed gave us QE2

(Extracted from “Economics-Markets-Strategy, 9 Dec 2010”) GDP growth forecasts 2007

2008

2010f

2011f

0.0 -1.2 0.3

2009 % YoY -2.6 -5.1 -4.0

US Japan Eurozone

1.9 2.4 2.9

2.8 2.7 1.7

2.8 1.6 1.5

Indonesia Malaysia Philippines Singapore Thailand Vietnam

6.3 6.2 7.1 8.2 4.9 8.4

6.0 4.6 3.8 1.4 2.5 6.2

4.5 -1.7 0.9 -1.3 -2.2 5.3

6.0 7.2 6.2 15.0 8.5 6.7

5.8 5.5 5.0 7.0 4.5 6.9

China Hong Kong Taiwan Korea

13.0 6.4 6.0 5.1

9.6 2.1 0.7 2.3

9.1 -2.7 -1.9 0.2

10.0 6.6 10.3 6.2

9.5 5.0 3.8 3.9

India*

9.2

6.5

7.7

8.8

8.5

2007

2008

2010f

2011f

US Japan Eurozone

2.9 0.1 2.1

3.8 1.4 3.3

2009 % YoY -0.3 -1.4 0.3

1.6 -0.4 1.5

1.8 0.5 1.5

Indonesia Malaysia Philippines Singapore Thailand Vietnam

6.4 2.0 2.8 2.1 2.2 8.3

9.8 5.4 9.3 6.4 5.5 23.1

4.8 0.6 3.3 0.6 -0.8 7.0

5.1 1.8 4.0 2.8 3.3 9.0

6.5 2.4 4.4 3.2 3.6 10.0

China Hong Kong Taiwan Korea

4.8 2.0 1.8 2.5

5.9 4.3 3.5 4.7

-0.7 0.5 -0.9 2.8

4.0 2.4 0.9 2.9

4.0 4.0 1.4 3.4

India*

4.7

8.4

3.6

8.0

5.6

Inflation rate forecasts

* India data & forecasts refer to fiscal years beginning April; inflation is WPI Source: CEIC and DBS Research

Interest rate forecasts current

1Q11

2Q11

3Q11

4Q11

US Japan Eurozone

0.25 0.10 1.00

0.25 0.10 1.00

0.25 0.10 1.00

0.25 0.10 1.25

0.50 0.20 1.50

Indonesia Malaysia Philippines Singapore Thailand Vietnam^

6.50 2.75 4.00 n.a. 2.00 9.00

7.00 3.00 4.25 n.a. 2.50 9.50

7.75 3.25 4.50 n.a. 3.00 10.00

8.00 3.25 4.75 n.a. 3.00 10.00

8.00 3.25 5.00 n.a. 3.25 10.00

China* Hong Kong Taiwan Korea

5.56 n.a. 1.50 2.50

6.06 n.a. 2.00 3.00

6.31 n.a. 2.25 3.25

6.56 n.a. 2.50 3.75

6.81 n.a. 2.75 4.00

India

6.25

6.50

6.50

6.50

6.50

• If that’s not a picture of two scissor blades cutting in opposite directions, nothing is • Is Asia decoupling? No – Asia is driving the global economy, and more clearly than ever before. Same train, new locomotive • The US economy is in far better shape than most reckon. QE2 will not go the distance • Asia is headed back to a period of fast growth very much the early-90s. But the endgame will be much more pleasant • These and other Holiday Heresies are explored below Asia hiked interest rates (or shifted currency regimes to tighten monetary policy) 21 times in 2010. The Fed gave us QE2. That’s about as clear a picture of the new world we live in as there could be. Asia growing at such a fast pace that inflation is now 2.5 to 3 times above the post 97/98 crisis average in countries ranging from China to Singapore to India. The US growing at such a slow pace that core CPI inflation is at a historic low of 0.6% YoY. Almost as if the world were being cut in two by a sharp pair of scissors. No, the world is not decoupling. Indeed, the opposite is occurring: economies are becoming ever more tightly linked. But Asia is powering its own growth like never before and with the US so weak it has never been easier to see. Twenty-one hikes in Asia; a giant cut in the US. That’s pretty clear. Asia’s driving. And where’s it going in 2011? Don’t be fooled by the “slower growth in 2011” headlines that are popping up everywhere. That is nothing but deceptive arithmetic. Yes, annual average GDP growth – the way they report things in Asia – will be lower than in 2010. But that’s only because (annual average) GDP growth was extraordinarily high – 8.4% – in 2010. On the margin, growth in the smaller Asian countries is slowing down. But compared to what? Supernormal double-digit sequential growth for the past 5-6 quarters. That could never last, as we explained here last quarter (“The kink in the curve”, 9Sep10). Growth is returning to normal and that’s to be expected, not feared.

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www.dbsvickers.com “This report has been re-published with permission from DBS Group Research” disclosures on page 102 of the report sa: TW

2011 Asia Equity Outlook The Year of the Rabbit

Asia 2011: how the scissors cut We’ve never liked the word ‘decoupling’. It makes you think economies are letting go of one another when exactly the opposite is true. Most of the world’s economies – save perhaps for North Korea’s – are becoming more and more integrated as time goes by. That’s surely one of the key aspects of globalization, isn’t it? Ever tighter linkages in economic supplies and demands? And nobody argues that globalization is receding. Quite the contrary. But what most people mean by decoupling is absolutely true. What most people mean is that the US economy doesn’t matter like it used to to the rest of the world. The US is becoming relatively less important – compared to, say, China or the Asia-10 – than it was 5 years ago, 10 years ago and so on. Not so long ago, one had to debate endlessly how and why and even whether this was truly the case. No longer. The global financial crisis ended that debate once and for all. Compared to 3Q08, when Lehman Brothers collapsed and the global financial crisis began in earnest, the Asia10 economies are nearly 10% bigger. On the same time frame, the US economy is not a single dollar bigger. Asia and US – monetary tightening moves in 2010 # of rate hikes (or ccy regime shifts) 25

But if you really want to see the stark difference between the US and Asia, consider this: in 2010, Asian central banks gave us 21 rate hikes (or currency regime shifts, table below). What did the Fed give us? QE2. If that’s not a picture of two scissor blades shearing in opposite directions, nothing is. The Asia blade is moving up, trying to cut inflation. The US blade is moving down, trying to cut unemployment. Two pieces of cloth slip silently to the floor. But hold on. Isn’t this picture of severance even more dramatic / permanent than decoupling? Not really. Asia is leading the recovery and the monetary normalization, that’s all. The US and the Fed will soon follow. The cloth will be whole again before you know it. “But...but... what do you mean, that’s ‘all’? Asia’s leading the recovery? That’s huge”. Yes it is. The scissors have never cut this way before. Asia is driving its own growth to an overheated state while the Fed resorts to QE2. That’s a first. And the debate is finally over. Asia is not decoupling but it sure is driving and that’s all people really meant to say in the first place. Policy Interest rates, - eop percent current

4Q09

2Q11

tightening moves yr to date

Indonesia Malaysia Philippines Singapore Thailand

6.50 2.75 4.00 n.a. 1.75

6.50 2.00 4.00 n.a. 1.25

7.75 3.25 4.75 n.a. 3.00

2* 3 0 2 2

3 2 3 1 5

5 5 3 3 7

China Hong Kong Taiwan Korea

5.56 n.a. 1.50 2.50

5.31 n.a. 1.25 2.00

6.31 n.a. 2.25 3.50

1** n.a. 2 2

3 n.a. 6 4

4 n.a. 8 6

India

6.25

4.75

6.50

21

20 15 10 5 0 -5

QE2

-10 -15 -20 -25 Asia

US

Total

Remember all that talk about global imbalances and the worry that if the US did not consume then Asia, which purportedly lived off the US, could not grow? Oops. Since 3Q08, US consumption has grown by 1%, or by a paltry $27bn. Asia’s consumption has grown by 22%, or $225bn. That’s an expansion 8x bigger than in the US. With new consumption demand running 8:1 in Asia’s favor, it’s simply no longer credible to claim that Asia’s growth depends on the US or that failure to fix some ‘imbalance’ puts global growth in peril. It doesn’t. US growth may be in peril – and we stress the word may (see HH5-HH8 below) – but that’s another kettle of fish: one that had everything to do with explosive leverage and abysmal risk management and nothing to do with current account surpluses or deficits.

further moves by 2Q11

total hikes by 1Q11

6

1

7

20

28

48

* ID initiated a 300bps rise in the RRR ratio, estimated to be equivalent to two 25bps hikes ** Excluding increases in the RRR

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2011 Asia Equity Outlook The Year of the Rabbit

Holiday Heresies If it all sounds a bit heretical, it shouldn’t. We’ve been talking about the structural shift in who drives global growth for years. Calculating this, charting that. Arguing from the front and from the back. But what finally ended the debate wasn’t any of this. It was the global financial crisis. Or rather, Asia’s recovery from it. Asia completely recovered precrisis output levels 18 months ago, while the US was still falling. How many monetary tightenings did Asia engineer this year? Twenty? While the US pursued QE2? It’s these sorts of audacious facts that finally end the debate. How could they not? And you know what? If it still sounds heretical, that’s okay. Because it’s the end of the year – the time when analysts are encouraged to be a little heretical, to drive a little over the line, to stick their necks out a little more than propriety permits between January and November. In that tradition, we offer an additional eleven Holiday Hypotheses for 2011 below. That makes twelve in all, one for each month of the year. As in past years, full credit may be claimed for correct predictions, yet no penalties are to be assessed for incorrect ones. Everyone deserves some kind of present at year end and this one is ours. Before jumping into 2011, though, the first tradition is to take a quick look at last year’s onions and orchids. Orchid: Given they’re supposed to be heretical, an unusual number of hypotheses came true in 2010. One of them was HH7, which posited that monetary tightening would be a key feature of 2010. Twenty-one hikes in 2010. Tick that box. But Holiday Heresy 9 was the clear winner: “Inflows into Asia will accelerate and the capital control debate will come to the front burner once again”. Tick another box: foreign exchange reserves have soared by 12% of 13% of GDP in the Asia-10 this year. That’s more than at any time in history, including the run-up to the 1997/98 Asian financial crisis. Thailand, Korea, Taiwan, Indonesia have all imposed some sort of inflow control and the only surprise on this front has been the lack of debate about them. Even the IMF and World Bank have changed their positions, acknowledging for the first time that controls can be useful / beneficial. Onion: Unlike last year, we didn’t have any awful bloopers in 2010. Hopefully this is not because we lost our courage after our errors in 2009. In the event, our worst prediction was probably HH13: Asia would grow 6% in 2010. At the

time (Dec09), 6% was a notch higher than consensus (5.5%). But Asia humbled both DBS and consensus, growing by 8.4% this year [1]. How fragrant is this onion? Pretty. When you’re talking about annual average numbers – the way they report GDP growth in Asia – an error of 2.4 percentage points is, quite frankly, huge. But this just underscores how strong Asia’s recovery was last year, especially juxtaposed against a US so weak the Fed had to resort to QE2. Twenty-ten was a monster year for Asia – which makes it a little difficult to come up with really heretical sounding hypotheses for 2011. But it’s the end of the year and you never snuff tradition, so here goes.

HH2: Capital inflows into Asia are not just, or even mainly, about the Fed and QE2. There are long-term, “structural” for reasons for capital to flow to Asia that are probably more important and will anyway prove longer-lasting There’s no doubt capital is flooding into Asia. Between Apr09 and Oct10, stockpiles of foreign reserves at the Asia10 central banks have risen by US$1.4trn, or by about US$2.4bn per day. That equates to some 12% - 13% of GDP for the countries of the Asia-10. Some of that buildup is of course due to Asia’s current account surpluses. But we estimate that current account surpluses will only come to around 2.5% of GDP on average in the Asia-10 this year, which leaves the lion’s share of the buildup in reserves owing to ‘pure’ capital inflows of one stripe or another (equity purchases, bond purchases, FDI, bank borrowings, etc). Conventional wisdom has it that most of this inflow is due to the Fed and its quantitative easing policies, QE1 and QE2 – the Fed has flooded the markets with liquidity and that money is not staying where it was put. US rates are low. US growth is slow. The dollar is falling. Putting your money somewhere else is almost guaranteed to yield a higher return. So the money moves. Much of it to Asia. No doubt the Fed’s easy money is one factor behind the inflows. But it’s by no means the only factor and maybe not even the main one. One way to see this is to think about the Fed’s QE2 program. When you ask people if they think QE2 is going to “work”, most say no. Why? Because QE1 didn’t really ‘work’ so why would QE2? But why didn’t QE1 work? Because all the money that the Fed supposedly pumped into the economy didn’t really go into the economy. It stayed in the vaults at the Fed. The Fed bought $1.5trn worth of lousy housing assets and Treasuries from the banks

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2011 Asia Equity Outlook The Year of the Rabbit

but the banks didn’t take that money and lend it into the economy. They left it on deposit at the Fed, where it earns almost zero interest. But if all that QE1 money never went into the US economy, how can it then be flooding into Asia? The answer is, it can’t. And it’s not. What’s really going on is the Fed has driven rates to zero, bond yields are very low and the money that was already in the economy has said, ‘to heck with it, let’s go somewhere else where we get paid more’.

Real global consumption 3Q08=100, seas adj

120 116 112 108 104 100

Does it make a difference whether the money leaving the US for Asia was old money or QE1/QE2 money? After all, a dollar’s a dollar. Yes, it makes a big difference. If all the inflows into Asia are, so far, just old money, what will they look like when the QE1 and QE2 money actually do start to enter the economy? But there’s a bigger factor still behind the inflows into Asia – a longer-term “structural” reason for money to come to Asia that is probably bigger than the Fed and will anyway persist long after the Fed has normalized policy. Asia is where the growth in the world is now taking place. Asia is where the new dollars of demand are being generated each year. It’s those dollars (or euros or yen) that are the very measure of GDP growth and Asia is now generating more of them each year than any other economy in the world. If you’re a businessman, where do you want to invest? Where the growth is. That’s how you make money. Take a look at the chart below. It shows where private consumption demand has gone in the past two years in Asia, the US, Japan and Europe. In the G3, consumption expenditure is about the same as it was two years ago. In Asia, it’s up by 22%. How many dollars worth of growth does that 22% represent? About US$225bn. And how many dollars of consumption growth has the US generated in the past two years? About $27bn – one-eighth as many.

Asia-10

124

The growth that came "from nowhere"

JP US EU16

96 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10

If you’re a businessman trying to grow your business, where would you put your money, in Asia or the US? Yes, of course you can still grow in the US – if you knock someone else out of the picture. But that’s difficult. And messy. In Asia, you don’t have to knock someone else off the pedestal, you just have to be there. Now ask yourself if there is a reason, over and above the Fed, for money to be flowing from West to East? You bet. Probably the best reason of all: Asia is where the growth is.

HH3: Money won’t rush out of Asia back to the US when the Fed starts to normalize policy The biggest reason for capital to be flowing from West to East is that Asia is where the world’s growth is taking place. As of 2010, Asia generates more new dollars of demand than any other economy in the world. Businesses want to be where the growth is. It’s that simple. But Asia has only just surpassed the US as a generator of new dollars of demand; the gap will be wider next year and wider yet the year after that. This is the biggest structural change underway in the global economy today and it is not going away any time in the next two decades, nor probably the next five. Among other things, this means that capital inflow into Asia is likely to persist for a long time. It’s not going to go away just because the Fed starts to normalize monetary policy. Sure, temporarily there will be some backwash when the Fed starts to hike rates. But the longer-term structural trend is for inflow into Asia and bucking the trend is usually a money losing proposition.

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2011 Asia Equity Outlook The Year of the Rabbit

HH4: The Fed’s QE2 program is far less exciting than most think

HH5: The US recovery is far stronger than most think

The Fed’s QE2 program has brought much hyperbole from all sides. Some are adamant that it won’t work. Some, perhaps many judging from soaring gold prices, are adamant that soaring inflation will result. Mysteriously, some are adamant about both: “QE2 won’t help the real economy – all it will do is cause inflation”.

When US GDP growth dropped to 1.7% (QoQ, saar) in the second quarter of 2010, fears of a double dip soared and the Fed pulled a U-turn: talk of exit strategies turned to QE2 almost overnight and the latter was delivered in earlyNovember. The worry was that falling US demand would spell trouble not just in the US but elsewhere in the world too.

The first assertion isn’t very heretical. Not many believe that QE2 will have a big impact on growth or employment and we fall into this camp. As mentioned in HH2 above, the $1.5 trn from QE1 never entered the economy (it sat at the Fed in the form of excess reserves) so why would QE2 be any different? Any impact it does have would probably come through the currency. But most research suggests it takes a lot of depreciation and a long time to bring even a small shift in trade flows. So it’s not clear that QE2 would have much of an impact even via this route, especially with Japan nearing the end of its tolerance for a stronger yen and the euro falling again on fears of further bank / economic trouble in the GIIPS countries [2]. But neither is QE2 likely to lead to inflation, if only because it seems unlikely to impact the real economy in the first place. For QE2 to bring inflation, it has to lead to demand in the real economy – people start demanding more (than the economy can produce) and prices start rising. Now wouldn’t that be nice! Indeed, our view is that if we do start to see inflation, we ought to be jumping for joy, not fretting that it’s going to get out of hand. And what if it did start to get out of hand? Would it take the Fed a long time to rein in QE2 and then QE1 before it could raise interest rates to cool inflation? Not at all. The Fed could raise interest rates with a snap of its thumb. All it has to do is pay interest on the (excess) deposits sitting in its vaults. Remember, the money from QE1 and QE2 has not gone into the economy. And if inflation started to rise, it would be because banks had started to take those reserves out of the Fed’s vaults and put them to use in the economy.

The thing is, demand wasn’t falling at all, supply was. GDP growth may have dropped to 1.7% but US demand had accelerated to a growth rate of 5.3%, the fastest rate of US demand growth since 3Q03! What’s the difference between supply (GDP) and US demand? Foreign demand, or net exports – the trade balance had turned south (thanks in no small way to the exceptionally strong US demand recorded then). While everyone was fretting about a double-dip in US demand, Americans were, in fact, buying up boatloads of everything, including an awful lot of imports. Investors and markets alike were thrown off guard by the most fundamental distinction in all of economics: the difference between supply and demand. Of course Bernanke wouldn’t get thrown off guard by such basic distinctions. Or would he? He duly noted in his Jackson Hole speech (of Aug 27) that what was needed for sustained recovery was growth in private sector final demand (PSFD). Can’t argue with that. So throw out the government and throw out the inventories and see what are you left with: private sector final demand that has also accelerated to 5 year highs. US - domestic demand growth % QoQ, saar, 2qma

2Q10 3Q10 4.8% 4.8%

6.0 4.0 3.9%

2.0 0.0

And how do you put a stop to that? By paying interest on the reserves. Bottom line? Inflation is highly unlikely and anyway ought to be greeted with a big smile rather than a rush to buy gold.

-2.0 -4.0 -6.0 -8.0 Mar04

Mar05

Mar06

Mar07

Mar08

Mar09

Mar10

Mar11

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2011 Asia Equity Outlook The Year of the Rabbit

US – private final demand growth % QoQ, saar, 2qma 6.0

2Q05 3.8%

3Q10 2Q10 3.6% 3.3%

4.0 2.0 0.0

Why should hiring look better now? Perhaps a better way to answer that is to ask why hiring stopped cold between April and September after rising more rapidly than in any other postwar recovery between Jan09 and Apr10. Why did things go haywire in May?

-2.0 -4.0 -6.0 -8.0 Mar04

The improvement is visible elsewhere too. The manufacturing and service sector ISM labor components have continued to rise and, as of November, are back at 2005 levels. And the ADP gauge of private sector payrolls has continued to rise and, indeed, surprised to the upside in November.

Mar05

Mar06

Mar07

Mar08

Mar09

Mar10

Mar11

So why didn’t Bernanke actually look at the data and tell his audience what he saw? The short answer is markets would have revolted. Markets were waiting for him to say the Greenspan put, or now the Bernanke put, was alive and well – that QE2 would be there if it was needed. If Bernanke had said, “look guys, demand is actually very strong, stronger than anytime in the past 5 years”, markets would have taken it very poorly and democratic politicians concerned about the unemployment rate would have been furious. A simple distinction between supply and demand. Investors did not see it, Bernanke did not acknowledge it, if in fact he saw it. Yet the data show it plain as day. The graph above left shows total domestic demand (now through 3Q10) accelerating further to 5-year highs. The graph above right takes out the inventories and government spending and shows PSFD, also accelerating further to 5-year highs. Either way you cut it, US demand is a lot stronger than most people think, including perhaps the Fed chairman himself.

HH6: US labor markets are making a turn for the better. Nonfarm payrolls will touch 350k by June and the unemployment rate will drop to 8% by December HH6 may sound especially heretical after November nonfarm payrolls plunged to 39k and the unemployment rose to 9.8%. Yet over the past 6-8 weeks, the broader body of labor market data has in fact made a significant turn for the better. Weekly jobless claims have fallen to 435k, an 80k improvement over August / Jackson Hole levels. Historically, a 100k improvement in jobless claims is associated with a 250k improvement in nonfarm payrolls.

Hiring stopped cold in May because that’s when the European debt crisis erupted. Sentiment soured and when it comes to economic fundamentals, there is nothing more sensitive to sentiment than hiring. Why? Because firing workers is a very emotional event, not just for the person getting laid off but for the manager who has to do the firing too. It’s an awful experience for all involved so managers don’t hire new workers until they are sure they will be able to keep them. Shake that confidence and hiring stops cold. So private sector payrolls collapsed in May, falling to 51k from 241k in April. Later, the threat of a US double dip and the possible need for QE2 took over the headlines and hiring continued to sideways at best. By October, though, fears of double-dip had begun to recede and private sector job growth had again risen to 159k. Unless the European debt crisis spills over into USD libor markets – a seemingly unlikely event – US job growth should continue to rise from here. US – nonfarm payrolls Private

payrolls x1000/month, sa 600

Total

400 200 0 Nov10

-200

8300k jobs lost

-400 -600 -800 Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

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2011 Asia Equity Outlook The Year of the Rabbit

How far could payrolls (and the unemployment rate) go? With GDP growth running just shy of 3% and labor truly stretched to the limit (labor productivity is four standard deviation above trend), payrolls of 300k to 350k could be seen by June. The unemployment rate, now at 9.8%, could drop to 8% by Dec11. Heretical? Not really. Remember, demand growth is at a five-year high and hiring has been postponed twice. Something’s gotta give.

HH7: QE2 won’t go the distance The Fed’s second round of quantitative easing amounts to $600bn and is scheduled to run through June 2011. Will all those dollars really get out the Fed door? Not if the improvement in the labor market continues. A lot of people are worried, rightly or wrongly (the latter in our view) that QE2 will only lead to inflation. They have “put up” with it only because inflation is so low (0.6% YoY for core CPI) and the unemployment rate is so high (9.8%). Even then, worries about inflation have pushed interest rates higher since QE2 was launched, not lower, as the Fed had intended. Yields on 10Y Treasuries are currently 3.22%, some 74bps higher than when QE2 was announced (4Nov); yields on 30Y Treasuries (4.43%) are 50bps higher than when QE2 was announced and 92bps higher than when Bernanke first spoke at length about QE2 at Jackson Hole on 27Aug. When the unemployment rate starts to tick lower – and that should be soon – concerns about inflation will jump and yields will too, probably sharply so. The Fed will be obliged to shift its focus to “maintaining inflation expectations”. It won’t be able to wait until the unemployment rate falls to 5% because inflation expectations will move immediately. And if there is one thing we have learned about the Fed and the markets since August 2007, it is that the former does not like to upset the latter. On the contrary, the Fed seems to do everything in its power to keep markets happy. When yields go up, Treasury purchases go down. QE2 won’t go the distance.

HH8: The Fed will be hiking rates by 4Q11 Ending QE2 is not the same as normalizing monetary policy. There is still some $1.75trn of QE1 that has to be soaked up again before things are back to normal. As noted in HH2, most, if not all of that $1.75trn is sitting on deposit at the Fed in the form of excess reserves – reserves which banks are free to withdraw and put to use in the economy anytime they wish.

When will that be? Probably when the unemployment rate starts to tick downward. That is typically the last piece of the recovery puzzle to fall into place and that traditionally rings the “all-clear bell” signalling it is safe for banks to start lending again. Can the Fed reverse $1.75trn of Treasury sales faster than the banks can spend the money handed to them in that exercise? Probably not. It’s surely quicker and easier simply to raise the interest rate paid on those deposits. If banks are keen to lend into the real economy at a 5% rate, then a risk-free Fed rate of 4% would make them a lot less keen. If the economy offers a 6% rate, the Fed can counter with a 5% rate, controlling lending much the same as in days gone by when it raised or lowered the Fed funds rate. The point is, the Fed does not have to – and seems unlikely to – reverse all the QE2 and QE1 before it starts to raise interest rates. This means that investors should ignore how much QE money is out there when they try to gauge when interest rates may rise. What they should consider instead is simply how strong or weak the economy is and what that means for employment and inflation, just as in days gone by. We continue to think the Fed will be hiking interest rates by 4Q11, in contrast to markets, which do not have a Fed hike fully priced in until 2Q12. Heretical? Not at all. This past summer, the Fed switched from exit strategizing to QE2 in a matter of 2-3 months. It can switch back again just as quickly.

That’s a lot of Hypotheses centered around the US. It’s time to return to Asia.

HH9: Asia’s central banks remain far behind the curve. There will be another 24 rate hikes in the Asia-10 by June Growth continues to run very strongly in Asia, notwithstanding the sharp “slowdown” in many countries in 3Q10. That slowdown, remember, is just a normalization after 5-6 quarters of supernormal growth that followed the collapse of late-08 early-09. Moreover, growth in China, India – the large domestically driven economies that did not go through the sharp swings that the rest of Asia did in late2008 – hasn’t slowed at all in 3Q10 — it has accelerated. China’s economy grew by 11% (QoQ, saar) in the third quarter, India’s by 19%! Not for nothing has inflation risen rapidly in the Asia-10 over the course of 2010. In China, inflation is now running at 4.4% YoY, some three times higher than the average rate that has prevailed since the Asian financial crisis of

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2011 Asia Equity Outlook The Year of the Rabbit

1997/98. In India, inflation is running at 8.6%, about 2.5 times the average rate that has prevailed since 97/98. And in Singapore, traditionally home to Asia’s lowest inflation, it is running at 3.7%, almost three times the average rate that has prevailed since 97/98. Above average growth combined with high and accelerating inflation can mean only one thing: Asia’s central banks remain behind the curve. Some (China, Indonesia, Thailand) are far behind the curve; some (India, Malaysia, Singapore) are only a little behind the curve. But more rate hikes and/or currency appreciation is needed in all countries if growth and inflation are to be kept on a steady keel. We saw 21 hikes or currency moves in Asia in 2010; we expect another 24 in the first two quarters of 2011 (table below). China and Indonesia, the two countries which remain the furthest behind the curve in our view, are expected to hike rates by 75bps to 125bps by then.

If guessing at projected future expenditures was impossible, looking back at actual expenditures is easy. And when you do this you find almost no change in government spending growth following the Lehman Brothers collapse in Sep08. In China, expenditure growth remained steady until Jan09 and then began to fall! (chart below). China – government expenditure growth %YoY, 12mma 35 30

Policy Interest rates, eop percent hikes hikes hikes in 4Q10 in 1Q11 in 2Q11

total hikes by 2Q11

current

4Q10

1Q11

2Q11

Indonesia Malaysia Philippines Singapore Thailand

6.50 2.75 4.00 n.a. 2.00

6.50 2.75 4.00 n.a. 2.00

7.00 3.00 4.25 n.a. 2.50

7.75 3.25 4.50 n.a. 3.00

0.00 0.00 0.00

0.50 0.25 0.25

0.75 0.25 0.25

1.25 0.50 0.50

0.00

0.50

0.50

1.00

China* Hong Kong Taiwan Korea

5.56 n.a. 1.50 2.50

5.81 n.a. 1.75 2.50

6.06 n.a. 2.00 3.00

6.31 n.a. 2.25 3.25

0.25

0.25

0.25

0.75

0.25 0.00

0.25 0.50

0.25 0.25

0.75 0.75

India

6.25

6.25

6.50

6.50

0.00

0.25

0.00

0.25

10

0.81 23

Average Asia-10 Total number of 25bps hikes

been spent, next year’s spending already in the budget and a small amount of true additional spending. Trying to figure out which was which was nigh impossible. The mumbo jumbo was so thick in China that it simply became conventional wisdom to talk about a package worth 15 percentage points of GDP. Nothing of the sort ever materialized there or anywhere else in Asia.

25 20 Lehman Brothers collapse Sep08

15 10 5 0

2

11

* 1-yr lending rate

HH10: Private sectors have been driving growth in Asia. Growth will not slow when government stimulus packages “expire” When we tell people another 24 rate hikes are coming down the pipe, polite smiles often appear. ‘But won’t growth stop when all the government stimulus packages expire?’ is the question that follows. ‘What government stimulus packages?’, is our response. Sure, a lot of officials promised this and that back in late-08 and early-09 when output was dropping like a rock. Mostly, that was just talk. Politicians said what politicians are supposed to say in times of crisis: we’ll be there, we’ll spend X, we’ll build Y. What else could they do? But look at what governments actually spent and you’ll find it was a lot different from what was promised. In fact, in most cases, you couldn’t tell what had been promised in the first place. The numbers thrown about were pure mumbo jumbo – a mixture of last year’s allocations that hadn’t yet

03

04

05

06

07

08

09

10

11

Take a look at Asia’s GDP growth over the recovery period since 2Q09 (chart top of next page). Growth has been strong over the past six quarters, as we all know. But has it been powered by government spending? Not at all. Take out government spending and the private sector growth you’re left with has been even stronger (than total GDP growth) in 6 of the Asia-10 countries. On average, private sector GDP growth (8.3%) has been stronger than total GDP growth (8%). The idea that Asia’s recovery was driven by government spending is a myth. What happens when mythical expenditures disappear? Not much.

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2011 Asia Equity Outlook The Year of the Rabbit

HH11: Asian currencies will appreciate 5% per year against the dollar for the next 5 years, maybe for longer

Singapore – official and effective FX reserves US$bn, effective = official + forward commitments

Asia is being inundated with inflows. Between Apr09 and Oct10, foreign exchange reserves in the Asia-10 rose by US$1.3trn, or about US$2.4bn per day. In October alone, Singapore’s effective foreign exchange reserves [3] jumped by US$17bn, equivalent to 90% of October GDP. Little wonder the central bank was forced to shift the currency regime for a second time this year toward faster appreciation. On average, since Apr09, the rise in foreign reserves amounts to some 12% - 13% of GDP in the Asia10, the fastest 18 month rise in history.

275

225 $90bn

200 175

12

13

125 100 75 Jan-03

Total Ex-Govt

11 10 10

10

10

10 9 7 7

8

7

8

7 7

7 6

6

6 6

6 5

4 2 0 Spore

China

Twan

India

Thai

Malay

HK

Korea

Phils

official reserves

150

% QoQ, saar, avg 2Q09 – 3Q10 12

Fwd mkt intervention: US$77bn

250

Asia GDP growth – total and ex-government 14

effective reserves

300

Indon

As noted in HH2, these inflows are not just, or even mainly about the Fed. Asia is where the growth in the global economy is taking place and this is the most fundamental reason there could possibly be to expect inflows to continue. There are many ways that countries will deal with inflows [4] but we think currency appreciation is likely to be the dominant one. With Asia expected to increasingly drive global growth over the coming decade and inflows expected to remain strong for this and other reasons, currencies could easily appreciate by 5%-6% per year against the US dollar for the next 5-6 years. Would that kill the goose that laid the golden egg, Asia’s exporters? No. First of all, most if not all of Asia’s currencies are likely to head north as a group. That means no Asian country would be disadvantaged vis-a-vis another. Foreign buyers might cringe at higher prices coming from India but running to Thailand would not help. A 25% appreciation is much easier to accept when your neighbors’ currencies have moved by the same amount.

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Second, such currency appreciation would be occurring as part and parcel of the growth process. Five percent per year appreciation may sound like a lot but GDP growth has been averaging 7% per year in Asia for many years. Half or more of that 7% GDP growth is coming from productivity growth – whether embedded in imported capital equipment, or in higher skills and education levels of blue and white collar labor, or in more efficient management or better infrastructure that allows goods and services to flow more freely. In this light, a 5% nominal appreciation of the currency could well be 1% or less in ‘real’ terms, when productivity gains are taken into account. Another way of saying the same thing is that stronger currencies are one way in which rising real incomes manifest themselves. They shout ‘it’s payday’ for Asia, after a hard day’s work. Finally, don’t forget that stronger currencies are great for everyone who is not an exporter and that’s still a lot of people in Asia. Stronger currencies lower the import prices of everything from consumer goods to crude oil cheaper and that helps keep inflation low and real incomes high.

HH12: The next ten years in Asia will look a lot like the ten years that led up to the Asian financial crisis of 1997/98. With luck, we’ll avoid the endgame that prevailed back then Capital inflows bring a lot more than currency appreciation. They tend to keep interest rates below normal, they tend to push investment and GDP growth above normal. Ditto for inflation. External balances tend to move toward deficit and leverage tends to rise. If all this sounds like Asia in the 5-10 years leading up to the financial crisis of 1997/98 to you, it does to us too. It is a scenario (see stylized chart below) we have envisioned for more than a year now and in fact discussed here briefly a year ago (HH13). In short, we think Asia is headed into a multi-year period of above average growth and releveraging

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2011 Asia Equity Outlook The Year of the Rabbit

Asia has spent the past ten years deleveraging and paying down the debt that was built up in the 1900s (Period 2 below). Thus Asia seems well placed to endure a multi-year period of releveraging.

– Period 3 in the chart below – even while growth in the G3 (US, JP, EU) is expected to be sub-par. The question of course is: will it all end the way did in 1997/98? We think not. First of all, we have argued that Asia-vu: back to the 90s

Asian financial crisis

US financial crisis

Period 1

Period 2

Capital inflow Current acct deficits Rising leverage Rising external debt Rapid fixed capital form'n Above-avg GDP growth

Capital outflow Current acct surpluses De-leveraging Repaying external debt Paltry fixed capital form'n Below-avg GDP growth

1987

1997

The other reason that the endgame is likely to be different this time is that Asia’s policymakers still have the experience of 1997/98 engraved in their minds and are very reluctant to move toward anything that smacks of the 90s. That means, among other things, that capital inflows will be monitored and controlled more tightly – this time with the blessing and support of the IMF / international financial community – with an eye toward keeping inflows digestible and economies on an even keel. With better communications

Period 3

Asia-vu: A return to period 1: Capital inflow External balance / deficit Above average capital form'n Above-avg GDP growth

2007

2017

and planning, it shouldn’t be too hard to convince investors that “filters” on inflows are in their interests as much as the interests of the capital receiving countries. Most investors would much prefer a trajectory of long and steady growth over a boom/bust period that generates no more total growth or return. With such a vision of stronger and steadier growth ahead, we wish everyone the best of luck in 2011.

Endnotes [1] Fourth quarter GDP growth has not yet been reported so full year average growth could be slightly different than the 8.4% mentioned. [2] Greece, Iceland, Ireland, Portugal and Spain [3] “Effective reserves” include not just actual dollar holdings but also commitments to purchase dollars at a future date in the forward market. Such intervention is now reported by most IMF member countries as part of the reforms introduced in the aftermath of the Asian financial crisis of 1997/98. Forward market intervention has the same impact on the currency as spot purchases even though it does not (yet) appear in official reserve figures. The earlier lack of transparency was judged to have contributed to the crisis, particularly in the case of Thailand, where reported reserves appeared substantial but were, in effect, already zero because they had been sold forward in the forward currency market. The US$17bn increase in Singapore’s reserves in Oct10 is comprised of $8.2bn of spot purchases and $8.6bn of forward purchases. [4] See “Asia: the six ways to absorb capital inflow”, 26Oct10. Sources: Data for all charts and tables come from CEIC and Bloomberg. Page 31 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

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2011 Asia Equity Outlook The Year of the Rabbit

Forex

Asia’s ascension begins

Philip WEE +65 6224 5521 [email protected]

• Asia: Emerging Asia is set to embrace its role as the world’s growth pole in the next five year 2011-15

(Extracted from “Economics-Markets-Strategy, 9 December 2010”)

• 2009-2010 was about emerging from the global crisis

Exchange rate forecasts current

1Q11

2Q11

3Q11

4Q11

US Japan Eurozone

… 83.8 1.335

… 82 1.38

… 81 1.42

… 80 1.46

79 1.50

Indonesia Malaysia Philippines Singapore Thailand Vietnam^

9,012 3.13 43.8 1.30 30.0 19,495

8,850 3.08 43.0 1.28 29.5 20,100

8,800 3.04 42.0 1.26 29.1 20,100

8,750 3.00 41.0 1.24 28.8 20,100

8,700 2.96 40.0 1.22 28.5 20,520

China* Hong Kong Taiwan Korea

6.65 7.77 29.9 1147

6.56 7.75 30.2 1040

6.50 7.75 30.0 1020

6.44 7.75 29.8 1000

India

44.9

44.0

43.5

43.0

CNY:

Ascension begins in earnest

HKD:

Peg to USD remains relevant

6.37 7.75 29.6 980

TWD:

Undervalued & moving to strong currency policy

KRW:

Fundamentals vs Korean peninsula tensions

42.5

SGD:

Firm with inflation amidst resilient growth

MYR:

More liberalization, not more controls

THB:

Emerging stronger after the global crisis

IDR:

Building on recovering foreign investor confidence

PHP:

Attractive on improving fundamentals

INR:

Appreciation with constraints

VND:

Odd man out on imminent devaluation risks

USD:

Foreign reserve diversification risks

JPY:

Neutral-to-modest appreciation

EUR:

Balancing between anti-dollar role and EU crisis

AUD:

Parity and beyond

NZD:

Not as strong as the Oz

^ prime rate; * 1-yr lending rate

Currencies have generally benefited from CNY de-peg since June 2010 15

13.4

% change vs USD 7 Dec 2010 vs 19 Jun 2010

10.0

10

7.9

7.5

7.4

6.6

6.1

5.9 4.6

5

3.5

2.7

2.7 0.9

• Having traded back to pre-Lehman levels, emerging Asian currencies may return to preAsian crisis levels

0.2

0 -3.1

-5 Note: USD is performance of DXY index

-7.1

-10 AUD

JPY

THB

EUR

NZD TWD SGD KRW PHP

MYR

INR

CNY

IDR

HKD VND USD

Source: DBS

Page 32 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.”

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

www.dbsvickers.com “This report has been re-published with permission from DBS Group Research” disclosures on page 102 of the report sa: TW

2011 Asia Equity Outlook The Year of the Rabbit

Emerging Asia – the dynamic growth story has only just begun The year 2011 will mark the start of emerging Asia moving towards a more dynamic and better-balanced growth profile over the next five years. This should pave the way for emerging Asian currencies to appreciate back to their preAsian crisis levels. In our view, the appreciation of emerging Asian over the past two years reflected only the region’s emergence from the global crisis. 2010 was really about these economies exiting their loose monetary/fiscal policies put in place earlier to combat the global crisis. Compared to a jobless recovery in the US, a sovereign debt crisis in the Eurozone, and a Japan struggling with deflation, this was important in cementing emerging Asia’s position as the growth pole of world. Many emerging Asian countries have started to shift their economic growth driver from fiscal stimulus to private sector investment. To boost competitiveness, some countries, notably Thailand and Malaysia, are seeking to raise consumer taxes in order to cut corporate and personal income taxes. The more export-dependent economies have also started looking at developing non-trade sectors and boosting household consumption to insulate their economies from external shocks, in particular, volatility from the indebted developed nations. Overall, these are progrowth policies that will improve fiscal finances and lead to more upgrades in sovereign credit ratings in the region.

By and large, we believe that most emerging Asian governments favor strong currency policies that reflect improving fundamentals and attract productive investment capital for growth and development. We view capital controls in some countries more as policy responses to unstable hot monies unleashed by an ultra-accommodative monetary policies in the US, as well as a weak US dollar policy persistently targeting faster appreciation in the Chinese yuan and other surplus emerging economies. Ironically, currency appreciation in emerging Asia will probably be determined more, and not less by capital inflows going forward. Players banking on narrowing current account surpluses to stifle currency appreciation are also likely to be disappointed. A narrowing current account surplus, especially when coupled with improving fiscal finances, is a strong testimony of value-added growth led by the private investment and rising consumer demand. This is important for one simple reason. After the global crisis, foreign investors place a premium on investment destinations that encourages domestic demand. That’s why these countries tend to be the ones with stock markets that outperform too. The best way to deal with capital inflows is not to chase them away, but to deepen capital markets and improve intermediation in financial markets.

Emerging Asian currencies – back to pre-Asian crisis in the next five years

220

USD vs AXJ currencies* Indexed: July 1997

200 180

Emergence from global crisis

160 140

Asian crisis

120

Ascension of Asian currencies

100 * CNY, HKD, TWD, KRW, SGD, MYR, THB, IDR, PHP

80 1995

2000

2005

2010

2015

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Notable themes developing in emerging Asia China’s 12th five-year plan for 2011-15 underscores the ascension of the Chinese yuan in exchange rate markets in the next five years. The transformation of the yuan into a more market-based and internationally accessible currency will have positive implications not only for China, but for the global economy as a whole. More importantly, the yuan will pave the way for China and emerging Asia to become a more dynamic regional bloc that is set to be comparable to the US in size over the next five to ten years. The yuan’s appreciation will reflect the development, restructuring and transformation of the Chinese economy towards more better-balanced, stable and quality growth. One of the most exciting stories in Asia has been the rapid growth and development of the CNH market in Hong Kong. That said, it is too early for the territory to consider a monetary union with the mainland. Hong Kong’s vibrancy as a financial center depends on capital account convertibility and the availability and accessibility of funding, a role that the US dollar provides without restraint as the world’s dominant reserve currency. The Taiwan dollar has scope to abandon its wide 30-35 range established after the 1997/98 Asian crisis. As one of the region’s most undervalued currencies, USD/TWD has scope to trade back to the 24.5-27.5 range seen before 1997. Our optimism is based on Taiwan’s strategy to

TWD to follow emerging Asia stronger 36

reposition its post-global crisis economy by developing nontrade sectors and promoting its financial sector. To lower its unemployment rate, Taiwan wants to attract investments from China and Asia. Herein lies the policymakers’ preference to keep the Taiwan dollar aligned to the appreciation trend of its Asian peers. Malaysia will move closer towards liberalizing the Malaysian ringgit for financial activities. The challenge here appears not whether, but rather how to translate the benefits of this liberalization into a vibrant foreign exchange market that stays in Malaysia. Only then will Malaysia officially lift the ban on offshore ringgit trade. In August 2010, Malaysia allowed settlement of international trade in goods and services in ringgit between residents and nonresidents. Not every currency story in emerging Asia is about appreciation. The Vietnam dong is set to devalue again after the Communist Party National Congress in January 2011 charts the country’s course for the next five years. Since November 2009, the dong was devalued three times by more than 10% in total. Today’s devaluation pressures come from double-digit inflation, a widening trade deficit and fiscal worries. We reckon the dong will be devalued by 3% after the meeting, and by a total 5% for the whole of 2011.

Market discounting another VND devaluation

USD/TWD

21500

USD/VND

21000

34

20500

Unofficial exchange rate

20000

32

19500

30

19000

Post-Asian crisis 30-35 range

28

18500 Central bank official rate

18000 17500

26

17000

24 1990

1995

2000

2005

2010

2015

16500 Jan-09

Jul-09

Jan-10

Jul-10

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

G20 agenda in 2011 – a “win win” solution for USD, CNY & EUR?

boost exports and savings is increasingly undermined by widening trade and current account deficits.

In 2010, it did not pay to be too bearish or too bullish in either the US dollar or the euro. The first five months (January-May) was characterised by a collapse in the euro from the Eurozone sovereign debt crisis. The next five months (June-October) was led by a US dollar sell-off on the US pushing China for more yuan appreciation, as well as the Fed delivering a second round of quantitative easing measures (QE2).

This was probably why the US Treasury proposed, at the G20 summit in November, to limit current account balances to 4% of GDP. The Treasury also declared that rebalancing the global economy required multilateral efforts, and was not solely the responsibilities of the US and China. In short, the US has started to push for a broadbased depreciation in the US dollar against its major trading partners.

Since early June, the weak US dollar appeared to have returned as the underlying trend. Unfortunately, the path was also volatile because Europe’s problems did not go away. So far, the experience has been two months of US dollar selling, followed by one month of euro weakness. Nonetheless, corrections can be deep and painful, as witnessed during the Irish crisis in November, even if Europe’s problems failed to reverse the US dollar’s downtrend. Inasmuch as the market has not given up on the EU contagion risks spreading to Portugal and Spain, neither have the Americans relented in pushing China hard to deliver more yuan appreciation. After suffering heavy losses at the US midterm elections, the Obama administration will be looking at the presidential elections in 2012. Apart from Capitol Hill’s preoccupation with the US jobless recovery, the Obama administration is also aware that its pledge to

Allocation of world’s foreign reserves

Against this backdrop, the G20 agenda to reform the international monetary system in 2011 has increased the downside risks for the US dollar. Essentially, France and Germany agree with China that today’s increasingly multipolar world economy is inconsistent with a financial system dominated by the US dollar. France, who is chairing the G20 in 2011, has recommended reducing the greenback’s share in world’s reserves holdings. Interestingly, during its five-year review in November, the IMF reduced the weight of the US dollar and increased the euro in its Special Drawing Right (SDR). In summary, this will fit in with China’s diversification needs when the US pressures the dollar lower against the yuan, which in turn will provide support for the euro as Eurozone fixes its problems. Sounds like a win-win solution, right?

IMF reduced USD weight in SDR 50

as at 2Q10

% share

40 2005 review 2010 review

30

EUR, 27%

20 USD, 0.62

GBP, 4%

10 JPY, 3% Others, 4%

0 USD

EUR

GBP

JPY

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2011 Asia Equity Outlook The Year of the Rabbit

Guarding against complacency Emerging Asia is right to guard against complacency regarding capital inflows. Recent history suggests that US economic policy has a tendency for the sector it priortized to lead recovery and growth to enter into boom-and-bust cycle. For example, corporate America led growth in the late 1990s, during which it extracted wealth from “irrational exuberance” in the US stock market boom. As US corporates became ransomed to the rising stock prices, accounting standards lapsed and led to the corporate malfeasance crisis. During the last expansion between 2002 and 2008, it was the US consumer that extracted wealth from the housing sector. No need to elaborate on how that ended in tears. Going forward, the US has been relentless in pushing for surplus economies to spend more and import more. Yes, the sector the US wants to lead growth for this cycle after the global crisis is not within America itself. It lies outside the US, targeting mainly China and emerging Asia. One need not look far to see the record high foreign reserves and stock indices achieved by many countries in the region. The challenge is compounded by the ultra-loose monetary policies in the four SDR economies – US, Eurozone, Japan and UK. Understandably, some Asian countries have decided to implement capital controls to minimize mis-allocation of resources into unproductive uses and to discourage speculation in asset markets. Unfortunately, there is no way

China gets 3rd loudest voice in the IMF 20

of knowing whether these measures merely treat the symptoms or address the causes. The lesson from most crises is that they originate from deleveraging in a sector with a weakened balance sheet. This could be triggered by an economic slowdown, a funding squeeze or a turnaround in the asset prices supporting or driving the sector. The next question is whether the fallout from this sector is severe enough to threaten the stability of the financial system. If it does, the end game often leads to a bailout by the government, debt monetization and more regulation. On a macro level, these weak sectors often turn up in countries that become too addicted to high economic growth policies. The ones at risk tend to have fiscal surpluses and current account deficits, which together imply an overleveraged private sector. The most vulnerable countries are those that need the current account deficit to keep widening to sustain the growth rate. They are also the ones who need to maintain high rates to attract capital inflows to fund the savings-investment shortfall. For emerging Asian countries, this is not a problem today because the US is “printing money” and pushing the dollar weaker against their currencies. The lesson from the 1997/98 Asian crisis is that trouble starts when the US decides to hike rates again and return to a strong dollar policy.

INR derives its support from capital inflows 120

Voting right in IMF, %

$ billion

100 2010 IMF review

15

80

Current account

60

Capital account

2005 IMF review

40

10

20 0

5

-20

2010 is 1H data

-40

0 US

JP

CH

GE

UK

FR

IT

IN

RU

BR

99 00 01 02 03 04 05 06 07 08 09 10

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2011 Asia Equity Outlook The Year of the Rabbit

US dollar – foreign reserve diversification risks The depreciation of the US dollar is an integral component of the US’s economic recovery strategy. One high potential risk next year is more foreign reserve diversification away from the greenback. The fall will be broadbased despite the headline focus on the Chinese yuan, and will be deeper if US’s weak fiscal finances become a dominant worry in financial markets. The agenda for G20 summits in 2011 will be the reform of the USD-centric international monetary system to accommodate an increasingly more multi-polar world economy. To achieve this, France – the G20 chair next year – has recommended reducing the dominance of the greenback in the world’s foreign reserves. It was probably no coincidence that the IMF reduced the USD’s weight in its Special Drawing Right at its five-year review in November. According to France, China has agreed to host the first working seminar on this reform in spring. China has been supportive of EU’s fiscal austerity efforts to address its sovereign debt crisis, and critical of US’s intention to rein the fiscal deficit only after the recovery is fully established. This position was reinforced by the Fed’s second round of quantitative easing measures (QE2) that runs from November 2010 into June 2011. As a result, we have pushed out the Fed Funds Rate hike from the third into the final quarter of 2011.

US trade deficit is deteriorating sharply again

Interestingly, the US is not likely to be too concerned. The US believes that rebalancing the global economy is a multilateral challenge that is not confined solely to US-China trade imbalances. At the G20 summit in November 2010, the US Treasury proposed that countries keep their current account balances to 4% of GDP. To be sure, the Obama administration is frustrated that instead of boosting exports and savings, the current account deficit has started to deteriorate again. Worse, its bilateral trade deficits with other trading partners have widened too. Herein lies its unspoken desire for a more broadbased depreciation in the US dollar beyond the Chinese yuan. The US probably dismissed the greenback’s fall during JuneOctober as returning unwanted gains from the EU sovereign debt crisis. The reference point for the start of the adjustment process is probably the dollar’s level when the G20 formally replaced the G7 as the world’s chief international economic/financial forum. Today’s situation is similar to the global recovery from the First Oil Shock in the latter 1970s. The G7 was formed to engage Japan and Germany to allow the dollar to fall against their currencies, when the US trade deficit deteriorated quickly with the recovery. Hence, it is clear why the G20 is important to engage China today. So, don’t expect US lawmakers to stop politicizing the yuan issue.

Like 1970s, weaker USD on widening trade deficit

0

15

125

Bretton woods end

-100

120 10

-200 -300

DXY (USD) index (rhs)

115

G7 formed in 1975

5

110

-400

105 0

-500 4Q

-600

95

-5

3Q

-700 -800

100

2Q $ billion

1st trade deficit

-10

Goods balance ($ bn, lhs)

-15

00

01

02

03

04

05

06

07

08

09

10

90 85

1Q

-900

Oil Shock Recession

71

72

73

74

75

76

77

78

80 79

80

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Euro – balancing between anti-dollar role and EU crisis EUR/USD is expected to trade above 1.40 and move towards 1.50 in 2011. Our view is based on a weaker US dollar as opposed to a weaker euro, brought about by foreign reserve diversification away from the US dollar (see G20 agenda in USD section). That said, we are also mindful of sharp euro corrections whenever focus returns to the EU sovereign debt crisis, especially amidst disappointing growth data in major world economies. Ever since the US dollar resumed its fall in June, we have witnessed one month of euro weakness after two months of selling in the US dollar. As long as this trend persists, euro should continue to trend higher albeit high volatility. The euro is the world’s second largest liquid reserve currency after the US dollar. According to IMF data, the US dollar still holds a whopping 62% share of the world’s allocated foreign reserves compared to 27% in the euro. The euro is important to China as an alternative reserve currency when it allows the US dollar to depreciate against the Chinese yuan. Following the Greek and Irish crisis, we believe that EU leaders and policymakers have also started to view China’s reserve diversification efforts favorably to maintain confidence in the single currency. With France chairing the G20 in 2011, and working with China (joined by Germany) on how to reform the world

REER EUR is more fairly valued than overvalued 140

monetary system, expect the fiscal debate to shift from Eurozone to the US. The main criticism will be directed at US’s insistence to collectively pursue loose fiscal, monetary and exchange rate policies to ensure a sustainable US recovery that is not jobless. That said, we remain mindful that France and Germany also believe that China should appreciate its yuan. On a real effective exchange rate (REER) basis, the euro is considered to be more fairly valued than overvalued. Euro is viewed as too strong or too weak when its REER deviates about 1.5-2.0 times from its lifetime average. The REER is important because it is one of the main components of the ECB’s monetary conditions index. Notably, the REER did not appreciate as fast as the EUR/USD from June, as they fell together during the Greek-led EU crisis in January-May. The reason was straightforward. There was broadbased US dollar weakness in the former, and broadbased euro weakness in the latter. This is important for one simple reason. If the REER EUR appreciates to the 1.5-2.0 standard deviation threshold on the back of broadbased US dollar weakness, EUR/USD can rise above 1.50 again, and even surpass its record high of 1.60 seen in 2008. REER was last reported at 0.67 standard deviation from its lifetime average in November.

REER EUR vs EUR/USD 126 124

+2 std dev

130

122 +1 std dev

120 110

1.55 Broad-based USD weakness

REER, lhs

120

1.45

118

1.40

116 Lifetime average

100

1.35

114

1.30

112 90

-1 std dev

80

-2 std dev

70 99 00 01 02 03 04 05 06 07 08 09 10

1.50

110 Broad-based EUR weakness

108 106 104 Jan-09

1.25 EUR/USD rhs

1.20 1.15

Jul-09

Jan-10

Jul-10

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Japanese yen – neutral to modest appreciation Despite an underperforming Japanese economy, we have decided to position for a neutral to stronger Japanese yen in 2011. The main support will come from the emerging Asia growth story shifting into higher gear. The drag will come from renewed interest in yen carry trades. Overall, we see USD/JPY still consolidating between 80 and 85 in 2011; and look for a move below 80 when emerging G20 nations become more comfortable with currency appreciation reflecting stronger fundamentals. Japan is still primarily export-dependent until it successfully exits its deflation trap. Hence, Japan’s current account surplus improves when demand in emerging Asia improves, leading the yen to appreciate with emerging Asian currencies. The only exception was during the Chinese yuan appreciation in 2005-08 when yen carry trades became popular. This was possible because of the US rate hike cycle in 2004-06 and convincing interventions that prevented USD/JPY from falling below its psychological 100 level. These two factors are missing today. In our view, the yen carry trades that normally accompany a growth story are unlikely to result in a higher USD/JPY. It could simply be a case of the yen appreciating at a slower pace compared to other more volatile currencies such as the euro and other commodity currencies. This happened during

Foreign reserves rise vs stable external debt 1200

the world’s emergence from the Great Recession in 2009, when the US dollar was depreciating on the back of the first round of quantitative easing (QE) in the US. Today, the Fed’s second round of QE that started in November 2010 is expected to run into mid-2011. Japan’s surprise currency intervention on September 15 was considered to be “just shock, no awe”. Interestingly, both these policies were heavily criticized by other countries. Looking ahead, Japan will increasingly need to respond the challenge of a more competitive emerging Asia with relatively high growth strategies. It did not help that the fiscal consolidation agenda of the ruling Democratic Party of Japan (DPJ) was undermined by its defeat at the July Upper House elections. Some Southeast Asian countries want to hike the value-added tax in order to lower their corporate taxes. September‘s currency intervention was also viewed as a policy response to a strong yen pushing Japanese companies to relocate production overseas. The finance ministry, in particular, wants to discourage further yen appreciation against emerging Asian countries. That said, Japan is looking into relaxing its restrictive policy to accept more foreign workers. Apart from addressing its declining population, this push to open its borders will also help Japan integrate with the East Asian region.

Current account surpluses, no capital inflows 30

$ billion

JPY trillion

Foreign reserves

1100

20

1000 10

900 800

External debt

0

700 -10

600 500

-20

400

Capital & financial a/c Current account

2010 is Jan-Sep total

-30

300 03

04

05

06

07

08

09

10

00

01

02

03

04

05

06

07

08

09

10

Page 39 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Chinese yuan – the ascension story begins in earnest The ascension of the Chinese yuan will dominate exchange rate markets for the next five years. The transformation of the yuan into a more market-based and internationally accessible currency will have positive implications not only for China, but for the global economy as a whole. More importantly, the yuan will pave the way for China and Emerging Asia to become a more dynamic regional bloc that is set to be comparable to the US in size over the next five to ten years. China's 12th Five-Year Program (FYP) for Economic and Social Development for 2011-2015 will be important in putting the world economy onto a more sustainable growth path. The 12th FYP is China's strategic response to the critical challenges of rebalancing the global economy constrained by an international financial system dominated by reserve currencies with deep debt/deficit burdens. Looking ahead, China will be aiming for its yuan to be included into the IMF's Special Drawing Right (SDR) at the next IMF review in 2015. China recognizes that the yuan needs to be part of the SDR in order to gain clout and credibility in discussions to reform the world international financial system. This is not any different from the US realizing that a G7 without China will be less effective in advancing efforts to rebalance the global economy.

Very strong international liquidity position 3000

The 12th FYP will continue to favor an appreciating yuan. China's increased clout on the world stage in the last five years has been predicated on a fast expanding economy and high surpluses underlined by currency appreciation expectations. While maintaining relatively high growth will continue to be important, the focus in the next five years will be about development, restructuring and transformation to move China towards better-balanced, stable and quality growth. To facilitate this transformation, the 12th FYP is expected to build on efforts over the past couple of years to promote the yuan as a more international currency. The gradual move towards increasing capital account convertibility should see the yuan being used more (and more), not only in cross-border trade settlements, but also in international investments. By and large, the yuan is likely to continue appreciating in the next five years, but we expect more volatility compared to the previous 2005-2008 experience. Back then, the export/investment model consistently resulted in rapidly widening trade surpluses, which in turn, led the yuan to appreciate at an accelerating pace. So, in theory, the new emphasis on household consumption in the 12th FYP should lead to narrower current account surpluses and decelerating yuan appreciation. The reality is, however, suggesting that the yuan needs to appreciate more first before it can slow down its gains.

Capital inflows + current account surpluses 500

$ billion

$ billion

Foreign reserves

2500

Capital & financial a/c

400

Current account

2000

300 2010 is 1H data

1500

200 1000 Foreign debt 500

100 0

0 03

04

05

06

07

08

09

10

01

02

03

04

05

06

07

08

09

10

Page 40 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Korean won – fundamentals vs Korean peninsula tensions The Korean won is underpinned by improving domestic economic fundamentals underscored by its rising interest rate cycle. The balance of payments suggests that its appreciation is derived more by its robust current account surpluses, than by excessive capital inflows. In our view, capital controls are not aimed at discouraging inflows but in encouraging a better mix between portfolio and direct investments. The main risk to this reassessment remains the unquantifiable risk of an escalation in the tensions between South and North Korea. The positive outlook for the Korean economy is best reflected in the central bank’s latest monetary policy statement on November 16. In assessing that inflation is maintaining an upward trend above 3% alongside solid economic growth, the Bank of Korea (BOK) longer deemed it necessary to keep an accommodative stance in the conducting monetary policy. Although the 7-day repo rate rose to 2.50% from 2.00% this year, it remained well below CPI inflation of 4.1% YoY in Oct10. The policy rate should eventually be lifted to 4.00% by end-2011. The won is supported by an improving international liquidity position. Apart from the disappointing $1.3bn surplus in 1Q10, Korea’s current account surpluses have exceeded $10bn every quarter since 3Q09. While foreign reserves hit a new record high of $293bn in Oct10, short-term external

Not the strongest of international liquidity position 450

debt have stabilized and eased to $146bn in 3Q10 from $149bn in 4Q09. Unlike many Asian countries, we remain mindful that Korea’s foreign reserves are still below gross external debt (3Q10: $415bn), which has risen with longterm external debt. Korea’s issue with capital inflows appears to be less worrisome compared to its Asian peers. In the first ten months of 2010, the $23bn in rise in foreign reserves was in line with its total current account surplus of $29bn. The capital and financial account reported a $3bn deficit for the same period, which was also a stark contrast to the $23bn surplus in Jan-Oct 2009. A breakdown of the financial account suggests that the concern lies more with the fact that Korea has been attracting portfolio investment instead of direct investment. Herein lies the rational for the macroprudential measures (a.k.a., capital controls) to encourage longer-term capital that is more productive to the economy. Nonetheless, the won’s outlook is admittedly clouded by one unquantifiable risk – increased tensions between South and North Korea. This year has witnessed a marked increase in incidents between the two sides – the sinking of a SK navy corvette in March and the NK artillery shelling a SK military base on Yeonpyeong island. With Asia’s largest economies located in the northeast, it will not be positive for the world in general if conflict breaks out on the peninsula.

BOP shjows CA surplus strength, not capital 80

$ billion Gross external debt

400 350

$ billion

60 40 FX reserves

300

20

250

0

200

-20

150 Short-term external debt

100 50

-40

Capital & financial a/c

-60

Current account

2010 data is Jan-Oct total

-80

0 00

01

02

03

04

05

06

07

08

09

10

00

01

02

03

04

05

06

07

08

09

10

Page 41 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Singapore dollar – firm with inflation amidst resilient growth Inflation should continue to take precedence over slowing economic growth in Singapore’s exchange rate policy. Unless inflation starts to temper from its stable to firm path, the door remains open for another tightening at the next policy review in April 2011. Based on our assumption for a weaker US dollar, USD/SGD should continue to trend lower towards 1.20 next year. In 2010, Singapore witnessed the most aggressive policy tightening in its exchange rate policy. The Monetary Authority of Singapore (MAS) implemented “twin tightenings” at both semiannual policy reviews in April and October. At the first review, the SGD NEER (nominal effective exchange rate) policy band was re-centered higher and returned to a modest and gradual appreciation path. The pace of this path was slightly increased at the second review, alongside a slight widening in the band. Looking ahead, the MAS wants to cap inflation at 2-3% in 2011 from 2.5-3.0% in 2010 to ensure medium-term price stability. Seasonally-adjusted CPI inflation averaged 2.5% YoY in the first ten months. With the exception of communication, price pressures remained firm in the other components of the CPI basket. Both the domestic supply price index and the manufacturing production price index appeared to have bottomed in Sep10. On average, inflation

Foreign reserves almost as large as economy 300

in Singapore’s major trading partners also started to move higher again in September 10. The main challenge to inflation in Asia, not just Singapore, is the persistent weakness of the US dollar against the region’s currencies. The inverse relationship between the weak dollar and commodity prices poses another challenge. It was also no coincidence that inflation stabilized in 2Q10 when investors sought safety in the dollar during the EU sovereign debt crisis. Inflation rose above 3.5% again in Sep/Oct10, for the first time since Jan09, when the US dollar fell sharply and led to record inflows in many Asian countries. The authority will remain vigilant to bubble risks, especially in the real estate sector, from hot capital inflows. As for the real economy, Singapore is on track to reporting the fastest growth rate globally in 2010. With manufacturing output surging 31% YoY in Oct10, and nonoil domestic export levels hitting a new record high in the same month, earlier worries of a technical recession have abated. Despite the strong Sing dollar this year, Singapore continues to benefit from China and emerging Asia becoming the growth pole of the world. The Sing dollar has also remained competitive because of concurrent appreciation in other Asian currencies. Hence, the appreciation trend of the Sing dollar is expected to remain resilient in 2011.

BOP is more about current account surpluses 100

SGD billion Nominal GDP

SGD billion

80

Capital & financial a/c

60

250

Current account

40 20 200 Foreign reserves

0 -20

150

-40 -60 2010 is Jan-Sep total

-80

100 99 00 01 02 03 04 05 06 07 08 09 10

00

01

02

03

04

05

06

07

08

09

10

Page 42 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Malaysian ringgit – more liberalization, not more controls Slowly but surely, Malaysia has, and should, continue to make good progress to reintegrate the Malaysian ringgit with the international financial system. In August, Bank Negara Malaysia (BNM) allowed settlement of international trade in goods and services between residents and nonresidents in ringgit, during which China also started onshore trading of the yuan against the ringgit. It was also reported that Malaysia bought yuan-denominated for its foreign reserves. Although Malaysia has not lifted the ban on offshore ringgit trade, it appears to be moving towards liberalizing the ringgit for financial activities. The challenge appears not whether to do so, but rather how to translate the benefits of this liberalization into a vibrant foreign exchange market that stays in the country, as well as boosting its ambition to become a premier hub for Islamic finance. To reposition Malaysia after the global crisis, the New Economic Model has laid the path for more meritocracy and transparency to move the country towards developed nation status by 2020. To shift the growth driver from fiscal stimulus towards private investment, policies have been steering towards restoring Malaysia’s competitiveness to attract foreign investments. That’s probably why PM Najib, who is a staunch supporter of free trade, believes that a

Econ needs to shift from fiscal to pte investment 450

strong ringgit benefits Malaysia. Unlike some other Asian countries, Malaysia is clearly moving towards more liberalization, and not more controls, on its exchange rate. Malaysia’s balance of payments have started to reflect the benefits from its policy intentions on the exchange rate. Unlike its Asian peers, Malaysia’s foreign reserves have yet to recover to its precrisis high. Until recently, reserves have been languishing at post-crisis lows during this recovery. Despite strong current account surpluses, the capital and financial account (CFA) remained in deficits. It was, therefore, significant in 2Q10, that the CFA reported its first surplus since 1Q08. Based on the capital inflows reported into local ringgit bonds and the Malaysian stock index hitting its precrisis high, the CFA surplus is likely to be stronger in 2Q10. This was best reflected by the sharp surge in reserves to $94.8bn in Oct10 from $85.1bn in Aug10. Looking ahead, Malaysia is expected to hold general elections in 2011. A strong mandate for PM Najib Razak will allow his government to move towards fiscal consolidation via tax reforms. A goods and services tax would not only widen the tax base, but also provide the scope for more corporate tax cuts and as well as incentives to develop and deepen financial sector activities. In boosting the investment environment, this will improve the outlook for Malaysia’s sovereign credit ratings outlook.

Malaysia has no problem with capital inflows 150

MYR billion

400

Foreign reserves

MYR billion

100

350 300

50

250

0

200 Domestic govt debt

150

-50 Capital & financial a/c

100 External govt debt

50 0

-100

Current account 2010 is 1H data

-150 00

01

02

03

04

05

06

07

08

09

10

00

01

02

03

04

05

06

07

08

09

10

Page 43 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Thai baht – emerging stronger after the global crisis The Thai baht has emerged from the 2008 global crisis as one of the strongest currencies in Asia ex Japan (AXJ). Having more than recovered their losses from this global crisis, both the baht and Thai equities should continue their journey to return to their pre-Asian crisis highs. The rapid improvement in Thailand’s international liquidity position has been impressive. Foreign reserves surged to $171bn in Oct10, almost double the $87.0bn at end-2007. This was sufficient to cover some 11 months of imports, above the general 5-8 months during the previous 2002-08 global expansion. Most importantly, foreign reserves was 1.8 times of external debt (Sep10: $90bn). After the Asian crisis, external debt fell to 27.8% of GDP in 2009 vs 76.5% in 1999. The Thai baht is likely to remain a key beneficiary of global rebalancing efforts in 2011. After China, the US’s next largest bilateral trade deficit with an AXJ country was Thailand. Having totalled $8.7bn in the first nine months, this year’s US-Thai trade deficit is likely come in close to last year’s $12.2bn. So, don’t expect the Thai baht to be excluded in next year’s push for more appreciation in the yuan and other emerging market currencies.

Solid international liquidity position 180

Then again, the current account surplus alone cannot fully explain this year’s double-digit appreciation. Looking ahead, the capital and financial accounts will probably be better gauges of the baht’s strength, like in the first half of the 1990s when AXJ was also leading world growth. In fact, foreign investors would probably view a simultaneous narrowing in both the current account surplus and the budget deficit as positive evidence of the growth drivers shifting from public spending towards the private sector. In this regard, the general elections due in 2011 will be important in setting the right tone going forward. The current government led by PM Abhisit Vejjajiva is reportedly working on tax reforms to boost Thailand’s competitiveness. The strategy is relatively straightforward – lift the valueadded tax rate from the current 7% in order to lower the corporate and personal income tax rates from 30% and 37% respectively. Taking everything into consideration, Thailand is simply trying not to encourage hot money as it works towards improving the climate for foreign investment.

Strongest capital inflows since pre-Asian crisis 40

$ billion Foreign reserves

160

The current account surplus has started to narrow with the economic recovery, as imports caught up with the initial rebound in exports. This has brought the current account surplus down from 8.3% of GDP in 2009 to 4.0% in 3Q10. Coincidentally, this happened to be the same 4% target for current account balances proposed by the US Treasury at the last G20 summit in November.

$ billion Capital & financial a/c

30

Current account

140

20

120

10

100 80

0

60

External debt

40

-10 2010 is extrapolated

20

-20 99 00 01 02 03 04 05 06 07 08 09 10

92

94

96

98

00

02

04

06

08

10

Page 44 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Indonesian rupiah – building on recovering foreign investor confidence The Indonesian rupiah is expected to remain attractive as Asia’s highest yielding currency as long as the US rate outlook remains dovish. Apart from a weak US dollar environment, the rupiah should also draw strength from the government’s progressive economic policies to rely more on the private sector and foreign investors to grow and develop the economy and financial sector. In the first ten months, foreign reserves increased by $25.7bn to $91.8bn, which was the fastest rise on record. The bulk of the contribution came from the capital and financial account (CFA) surplus, which outpaced the current account (CA) surplus by a ratio of 3:1 in the first three quarters of this year. This was a reversal of the situation in the same period last year, when the CA surplus was more than triple the CFA surplus. Despite this trend, Indonesia is not leaning towards strict capital controls. The capital measures introduced earlier in June were not aimed at encouraging capital outflows or at discouraging inflows but at persuading capital inflows to stay longer. Although portfolio investment contributed most to the CFA surplus, the increase in direct investment this year was notably the strongest after the 1997/98 Asian financial crisis. Looking ahead, the government is keen to encourage the private sector, particularly foreign investors,

International liquidity position stable 200

to play a larger contributory role to the growth and development of the economy. In fact, the central bank wants to encourage foreign banks to participate towards deepening its financial markets including promoting an onshore foreign exchange market. To the credit of the central bank, money supply growth has been stable around 12-13% despite the 40% jump in foreign reserves. This has helped to prevent CPI inflation from rising above BI’s reference rate this year, allowing rates to stay unchanged at 6.50% throughout 2010. While acknowledging stronger inflationary pressures in 2011, BI’s preference is for rate inaction again in 2011 and 2012 by keeping CPI inflation within a 4-6% stable range. In the end, the pressure for higher rates will probably come from demand-side pressures reflected by the rising core inflation. In our view, BI’s prudence in managing money supply helped to keep the rupiah stable during periods of risk aversion. Even so, we remain mindful that the rupiah has greatly benefited from the ultra-loose monetary policies in the US and other weak developed economies. Apart from encouraging foreigners to seek higher yields in local bonds and money market securities, the locals have also increased their appetite for cheap external funding. So, unless the US surprises by hiking rates sooner-than-expected, the rupiah should remain stable to strong in 2011.

Strongest balance of payments in years 25

$ billion

180

Capital & financial a/c

20

Gross external debt

160

$ billion Current account

15

140 120

10 Foreign reserves

100

5

80 60

0

40 Short-term external debt

20 0

-5 2010: Jan-Sep total

-10 02

03

04

05

06

07

08

09

10

2004

2005

2006

2007

2008

2009

2010

Page 45 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Australian dollar – to parity and beyond The Australian dollar is set to trade above parity against the US dollar in 2011. Our view is based on the near-perfect correlation between the Oz and Asia ex Japan equities. This reflected how Australia’s economic fortunes have become increasingly intertwined with those of China and emerging Asia after the global crisis. This is a good thing considering that the region has become the growth pole of the world. The Reserve Bank of Australia (RBA) resumed tightening monetary policy in November 2010, when the cash target rate was raised by 25bps to 4.75%. The policy rate was previously hiked six times between October 2009 and May 2010 to normalize rates from its all-time low of 3.00% to 4.50%. The Australian economy is likely to perform better, not only in terms of growth rates, but also in quality. The RBA expects real GDP growth of 3.5% in 2011 and 2012, higher than the 2.6% YoY and 3.3% growth rate witnessed in 1Q10 and 2Q10 respectively. More importantly, the growth driver is shifting from government spending towards private sector investment. Externally, Australia is benefiting from robust growth in Asia ex Japan as well as ultraaccommodative monetary policies in the developed economies. Hence, the jobs market is likely to be stronger than what the unemployment rate, which has been languishing between 5.1% and 5.4% this year, suggests.

AUD joins emerging Asian currencies higher 110

FX vs USD Indexed: 15 Jul 08

100

Asia ex Japan currencies

The labor force participation rate hit an all time high 65.9 in Oct10 from its post-crisis low of 65.1 in May10. Against this strengthening growth outlook, inflation is unlikely to be far behind. During this recovery, CPI inflation rose to an average 2.9% YoY in the first three quarters compared to 1.9% for the whole of 2009. Looking ahead, two key factors will be important in determining when rate hike pressures will intensify. The first will be the unemployment rate falling below 5% towards 4%; the participation rate hit a new record high in Oct10. The second will be renewed broadbased US dollar depreciation pressures pushing up commodity prices. Australia is set to post its first trade surplus since 2001. For the first ten months, the trade surplus totaled AUD12.5bn, which was already more than double the total AUD5.0bn surplus in 2001. The year 2010 is also the third straight year that the trade balance has improved. More importantly, the top contributors were from Northeast Asian countries – Japan, China, Korea and Taiwan. Collectively, Japan, China, Hong Kong, Korea, Taiwan and ASEAN accounted for almost 54% of total exports in Jan-Oct10, compared to 49.1% in 2008. This goes some way to explain why the Australian dollar has been highly correlated with the MSCI Asia ex Japan equity index throughout its recovery from the 2008 global crisis.

AUD/USD vs AXJ stocks – near identical twins AUD

460

MSCI Asia ex Japan equity index (lhs)

AUD/USD (rhs)

420

0.85

340 Major currencies

80 70 60 Jan-08

Jan-09

Jan-10

0.95 0.90

380

90

1.00

0.80

300

0.75

260

0.70

220

0.65

180 Jan-09

0.60 Jul-09

Jan-10

Jul-10

Page 46 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

REGIONAL COUNTRIES

Page 47 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

China / Hong Kong

The glass is still (almost) half full

Derek CHEUNG· (852) 2971 1703 · [email protected]

•

Bbg Code

Rec

TP (LCY)

Autos Dong Feng Motors

489 HK

Buy

17.5

•

Banks China Construction Bank ICBC

939 HK 1398 HK

Buy Buy

8.81 7.17

•

Food & Beverages China Foods China Mengniu China Yurun Little Sheep

506 HK 2319 HK 1068 HK 968 HK

Buy Buy Buy Buy

7.60 25.30 35.50 6.60

Retail Giordano Parkson New World Dept Store Beijing Jingkelong Oriental Watch

709 HK 3368 HK 825 HK 814 HK 398 HK

Buy Buy Buy Buy Buy

5.50 15.19 9.52 10.84 6.13

Insurance Ping An PICC

2318 HK 2328 HK

Buy Buy

99.00 14.64

Telecom China Telecom

728 HK

Buy

4.90

Source: DBS Vickers

PE band chart 22x

34,000 29,000

19x

24,000

15x

19,000

12x

14,000

9x

9,000 Jan-10

Dec-10

Feb-09

Apr-07

Mar-08

May-06

Jul-04

Jun-05

Sep-02

Aug-03

Oct-01

Nov-00

Jan-99

Dec-99

4,000

Source: Bloomberg, DBS Vickers

China M2 vs GDP growth

Targetting 15% HSI upside in 2011 to 26,891 (14.4x FY11 PER). Global liquidity and China economic performance still in play but policy risk especially in China an increasing swing factor. Preferred sectors: HK Landlord, China Property, Financials, Telecom and Tech. Equipment Supplier, China Railway Equipment Supplier and Consumption.

Room for upside despite risks Despite China policy risks and uncertainty over the impact of a withdrawal of global liquidity measures in 2011, our HSI target of 26,891 is realistic considering its historic long-term sustainable PER level of 15X (or a level of 28,000) 2010 reality check We have stuck to our more realistic view that the global financial crisis is not firmly behind us although economic conditions have improved. The fear towards European debt crisis causing the 1Q-2Q10 correction will continue to be in play while the upswing in 2H10 was due more to excess global liquidity (esp. via QE2). Double-edged sword Excess liquidity and low interest rates have clearly benefited the business environment. However, if developed economies delay tightening monetary policy and China hesitates in getting its own house in order, the resultant excess liquidity could push the HSI to a bubble bursting 35,000 level (19X FY11 PER). China catches up Inflation has a nasty habit of catching governments on the hop (see our 11 Oct 10 report - “Super-inflation”). Although China is rushing to catch up with inflation, over-capacity, resources misallocation and an M2 stubbornly higher than nominal GDP, the current consensus FY11 profit forecast does not appear to reflect the risks of policy delay or failure nor possible overreaction The glass is “half-full” Recent US economic data releases in 4Q10 and 1H11 forecasts may provide more tangible evidence of sustainable economic recovery. Possible US interest rate hikes may be given a more positive gloss if they are prompted by an improved US outlook rather than stagflation.

Yoy, % 35 30 25 20 15 10 5 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10

0

Real GDP growth

M2 growth

Sector outperformers We recommend sectors that will continue to be supported by China policies, will benefit from interest rate hikes and/or have already priced in material tightening: HK Landlord, China Property, Financial, Telecom and Tech. Equipment Supplier, China Railway Equipment Supplier and Consumption.

Source: CEIC Page 48 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: JW / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Indonesia

The makeover continues

Indonesia Research Team +6221 39835428 [email protected]

• Possible sovereign re-rating and capital inflows to drive JCI index up in 2011

Top Picks

Bbg Code

Rec

Adaro Energy Astra International Bank Rakyat Indonesia Sampoerna Agro

ADRO IJ ASII IJ BBRI IJ SGRO IJ

Buy Buy Buy Buy

TP (Rp) 2,800 65,000 13,900 4,400

Source: DBS Vickers

JCI vs region indices 160.0 J CI 140.0

SET

120.0

KLCI STI

100.0

H Seng

80.0 Dec-09

F eb-10

Apr-10

J un-10

Aug-10

Oct-10

Rpbn 22,000 16,000 10,000 4,000 (2,000) Mar-10

May-10

J ul-10

Sep-10

• Top picks: ADRO, ASII, BBRI and SGRO Sovereign re-rating and capital inflows to drive up JCI in 2011. Indonesia‘s equity market has been a star performer in 2010, with the JCI index climbing over 40% YTD and reaching new highs in early December at 3,786. Much of this has come from foreign capital inflows, with net foreign purchases to date up 57% compared to 2009. We expect this trend to continue on the back of Indonesia’s positive outlook and stable macro environment. These factors, along with a possible credit re-rating, should see a further 27% uptick in the JCI in 2011. Robust Economic Growth. A combination of rising domestic incomes, foreign investment and commodity exports are the main drivers behind our 5.8% GDP growth forecast for Indonesia in 2011. Although, regionally, this rate of growth is not the highest, it still compares favourably with all except China and India. Rising inflation. Strong likelihood that further commodity price increases along with a planned reform of fuel subsidies could stoke inflation in 2011. If inflation breaches the 6+% target rate in 2010, interest rates could rise alot earlier than expected. The challenge for policy makers will be to keep inflation in check without dampening growth.

Cumulative net foreign purchase

J an-10

• Growth intact, but rising inflationary pressures

Nov -10

Top picks. Our top picks are: a) Adaro Energy (price recovery and growing demand in 2011); b) Astra International (proxy on Indonesia’s economy with a solid track record and leading market shares); c) Bank Rakyat Indonesia (top micro lender in the country); and d) Sampoerna Agro (volume recovery play with the strongest volume growth among upstream plantation companies).

Source: Bloomberg

Page 49 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: SGC/JW / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Malaysia

Charting new frontiers

WONG Ming Tek +603 2711 0956 [email protected]

• 2011 KLCI target of 1,663 (10% upside)

Malaysia & Research Team [email protected] Top picks Large caps Maybank Sime Darby RHB Capital Gamuda Small-mid caps SP Setia Boustead Holdings DRB-Hicom Jobstreet

Bbg Code

Rec

TP (RM)

MAY MK SIME MK RHBC MK GAM MK

Buy Buy Buy Buy

10.80 10.20 10.00 4.90

SPSB MK BOUS MK DRB MK JOBS MK

Buy Buy Buy Buy

*Above bolded stocks are High Conviction Picks Source: HwangDBS Vickers Research

KLCI gains as Ringgit appreciates 1,800

3.90

1,600

3.70 3.50 3.30

1,200

3.10

1,000

2.90

Jul-11

Jul-10

Jul-09

Jul-08

Jul-07

2.50 Jul-06

2.70

600 Jul-05

800

FBMKLCI Index (LHS)

USDMYR (RHS)

Source: DBS, HwangDBS Vickers Research

KLCI by sector weighting: Potential beneficiary of higher CPO prices given plantations account for 19% Power 8%

Conglomerate / Others 4%

Oil&Gas 2% Transportation 6% Consumer 1%

Banking 35%

Construction 2%

Telecommunications 14%

Gaming 9%

• High conviction picks: Maybank, Gamuda, Boustead Holdings, DRB-Hicom Uptrend intact. Positive domestic and regional factors (transformation program, strong CPO prices, resilient economic growth, impending Sarawak state elections) underpin our cautiously optimistic view on the market. Near term, the January effect should also come into play; the KLCI has chalked up average gains of 2.4% in January in 8 out of the last 10 years. Our 2010 year-end KLCI target is 1,520. For 2011, we expect the KLCI to chart new highs with our year-end target at 1,650 (14x forward earnings).

7.00 7.60 3.55 3.30

1,400

• Positive domestic / regional factors (tranformation program, CPO prices) along with reasonable valuations and earnings upgrades offer good stock picking opportunities

Plantations 19%

Source: HwangDBS Vickers Research

Optimistic on prospects of transformation program. The push to improve public transportation should result in the award of the RM40bn high impact strategic MRT project by July 2011. Potential beneficiaries are Gamuda (High Conviction Buy; TP: RM4.90) and MMC (Buy; TP: RM3.85). We also see value-enhancing opportunities from the redevelopment of strategic government land. Potential beneficiaries are MRCB (Buy; TP: RM2.90), and Boustead (High Conviction Buy; TP: RM7.60). Support from strong CPO prices. With palm oil related stocks accounting for 19% of the KLCI, strong CPO prices are a positive for the market. Sime Darby (Buy; TP: RM10.20) has the most to gain from strong CPO prices with the highest proportion of mature plantations (within our universe) as well as recovering yields in Indonesia. Diversified conglomerate Boustead will also benefit from strong CPO prices. Fair valuations could see further upside. The market has gained 19% YTD, partly supported by a stronger ringgit. Going into 2011, we expect the ringgit to continue to strengthen. We have also seen substantial earnings upgrades, resulting in robust earnings growth of 22.8% for 2010 and 20.3% forecast for 2011. This implies a market trading on 14x forward earnings, which we believe leaves scope for further upside. High conviction stock picks. These include : Maybank, Gamuda, Boustead Holdings, DRB-Hicom.

Page 50 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: SGC/JW / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Singapore

Bargain-hopping

Janice CHUA· (65) 6398 7954 [email protected]

• A good start to the new year but uncertainties over inflation and interest rate hikes could surface towards 2H

Top picks

Bbg Code

Rec

TP (S$)

Large caps Cosco Corp Indofood Agri Keppel Corp OCBC Bank Venture Corp

COS SP IFAR SP KEP SP OCBC SP VMS SP

Buy Buy Buy Buy Buy

2.76 3.20 12.50 11.30 11.80

Small-mid caps ARA Asset Mgmt CSE Global ConscienceFood Midas Hldgs PEC Ltd

ARA SP CSE SP CSF SP MIDAS SP PEC SP

Buy Buy Buy Buy Buy

1.70 1.45 0.38 1.20 1.58

Regional Market Data Singapore Malaysia HK HSI HK HSCCI (Red) HK HSCEI (H) Thailand

Indonesia

PE (x) 10F 15.6 17.8 14.4 16.2 12.8 12.8 19.0

11F 13.9 14.8 12.5 14.2 11.0 12.0 14.7

Source: DBS Vickers

MSCI SG 12-month forward PE 25.0

(x)

23.0 21.0 +2sd

19.0 17.0

+1sd

15.0

Ave ra ge

13.0

-1sd

11.0

-2sd

9.0 7.0 00

01

02

03

04

05

06

07

08

09

10

MSCI SINGAPORE - 12MTH FWD P/E RTIO

Source: Datastream, DBS Vickers

STI gains as S$ appreciates 1.7

4000

1.6

3500

1.5

3000

1.4

2500

1.3 1.2

2000

1.1

STI Index (LHS)

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

Jul-06

Jul-05

Jan-06

1.0 Jan-05

1500

• Tortoises – time for laggards with banks to play catch up with the region A good start but watch for potential headwinds. Strong liquidity inflows spurred by the strong S$, a low interest rate environment, and buoyant economic growth sets the backdrop for a positive ride into the new year. Potential headwinds halting the market’s ascent towards second half could come from an earlier than expected interest rate hike or anti-inflationary moves from the government.

Source: Bloomberg, DBS Vickers Earnings Gth (%) 10F 11F 20.3 12.4 22.8 20.3 30.0 15.3 24.0 13.9 27.4 16.7 33.0 7.1 19.7 23.5

• Hares – oil-related and CPO proxies will rise with ‘inflationary boom’, while offshore and marine sector will benefit from resumption of capex spending

Valuation inexpensive, lags the region. Earnings growth for DBSV coverage is 20.4% in FY10 before normalising to 12.3% in FY11, translating into PE of 13.9x on FY11 earnings. Singapore’s equities have lagged emerging countries in the region, trading at average PE vs the region trending at close to or above +1 SD. In terms of PE, Singapore is cheaper than Malaysia and Indonesia. We maintain our STI target at 3500 based on +0.5SD or 15.8x FY11 earnings. Bet on Hares – beta plays enjoy the ride up... As we enter into an ‘inflationary boom’, demand for capital goods and basic materials should pick up as companies tackle capacity constraints. The Offshore and Marine sector will benefit from a sustained recovery of orders for new rigs and production platforms, even as oil prices rise. Plantation companies will ride on the rise in CPO prices in 1H2011 due to demand drivers coinciding with low yields and weather disruptions. ...and Tortoises – banks are laggards with potential catalysts. Singapore banks are laggards trading at 1.4x P/B, an unjustifiable discount to ASEAN peers. We advocate accumulating Singapore banks for their strength in asset quality and capital vs. ASEAN peers. Continuous regionalization efforts and build up in non-interest income generating activities will provide ROE upside. The key reason for overlooking Singapore banks is its low NIM vs. ASEAN peers, and hence slower earnings growth. While our view is for SIBOR to rise only in 4Q11, the possibility of an earlier SIBOR uptick due to inflationary pressure will provide the catalyst. In addition, there is upside to our loan growth assumption of 8% given the robust GDP outlook.

USDSGD (RHS)

Source: Bloomberg, DBS Vickers Page 51 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: JS / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Thailand

Re-rating should continue

Chanpen SIRITHANARATTANAKUL +66 0 2657 7824 [email protected] Chirasit VUTTIGRAI +66 0 2657 7836 [email protected] Top picks

•

In 2011, the Thai market will be driven by (i) ample liquidity, (ii) easing political tension, and (iii) rising corporate earnings

•

Key themes for 2011 are higher commodity prices and increased investment spending

Bbg Code

Rec

TP (Bt)

Large caps KASIKORNBANK Krung Thai Bank PTT Chemical Thai Airways Thai Oil PCL

•

KBANK TB KTB TB PTTCH TB THAI TB TOP TB

Buy Buy Buy Buy Buy

150.00 21.00 210.00 64.50 80.00

Our SET Index target is 1213 based on bottom-up approach, implying 14.5x FY11PE

•

Overweight Banks, Energy, Petrochemical, and soft commodities

Small-mid caps Amata Corporation L.P.N. Development Major Cineplex Thai Vegetable Oil

AMATA TB LPN TB MAJOR TB TVO TB

Buy Buy Buy Buy

20.00 12.62 19.50 38.25

Source: DBS Vickers

Thailand: Market Valuation 08A

09E

10F

11F

EPS growth (%)

33.0

7.1

12.8

12.0

P/E (x)

20.4

17.2

12.8

12.0

P/BV (x)

2.7

2.4

2.2

1.9

Yield (%)

2.6

2.9

3.6

3.7

EV/EBITDA (x)

9.1

8.7

7.3

6.1

Source: DBS Vickers

General election in 3Q11? Although the current government’s term will expire in Dec 2011, P.M. Abhisit Vejjajiva confirmed he would call an early election if domestic political conditions are right. This suggests he might call for a House dissolution mid-year, allowing for general elections to take place in 3Q11. Higher commodity prices key driver in 2011. Inflation in 2011 will continue to rise as a result of extremely low interest rates globally and continued quantitative easing in developed economies. As a result, global commodity prices will continue to rise into 2011, meaning that commodity-related sectors, which account for one-third of Thailand’s total market capitalization, should be a key investment theme in 2011.

Regional: Market 2010 PE vs. dividend yield

FY 10 PE (x)

Expensive 19 Indonesia Malaysia 18 17 16 Singapore 15 Hong Kong 14 13 Thailand China H 12 11 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 FY 10 Dividend yield (%)

Easing political tension. The recent Court ruling to dismiss two cases involving the Democrat Party is positive for the market, as it has helped to clear a major overhang. Despite the possibility of more protests by the Red-Shirts, we do not expect riots, as occurred in Apr-May of this year. Most of the hardcore Red-Shirt leaders have been arrested, and unlike Apr-May, the pro-Thaksin Puea Thai Party is unlikely to get involved for fear of losing their supporters. In addition, any riots would only delay the long-awaited general election.

Cheap 3.6

3.8

Source: DBS Vickers

Increased investment spending. Domestic banks should benefit from a new investment cycle prompted by stretched capacity utilization rates across many sectors and continued growth in consumption and exports. Best ideas. We are overweight Banks, Energy, Petrochemicals, and Soft Commodities. Our top picks include KASIKORNBANK (KBANK TB), Krung Thai Bank (KTB TB), Thai Oil (TOP TB), PTT Chemical (PTTCH TB), L.P.N. Development (LPN TB), Amata Corporation (AMATA TB), Thai Airways International (THAI TB), Major Cineplex Group (MAJOR TB) and Thai Vegetable Oil (TVO TB).

Page 52 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: SGC/JW / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

India

A year of rebalancing

Ramya SURYANARAYANAN +65 6878 5282 [email protected]

• We maintain our expectation for above-trend growth of 9% (QoQ, saar) through 2011/12 (Apr-Mar). This works to annual average growth of 8.5%

(Extracted from “Economics-Markets-Strategy, 9 December 2010”) Key economic indicators % Yoy

2009 2010F 2011F 3Q10 4Q10f 1Q11f 2Q11f 3Q11f 4Q11f

GDP

7.2 0.2 10.2 8.5 8.4 -4.0 -3.0 3.6 4.75

Agriculture Industry Services Construction Merc X Merc I WPI (per. avg) Policy (eop)

8.8 5.6 8.0 9.4 10.4 24.0 14.0 8.0 6.25

8.5 8.9 3.3 4.4 8.8 9.0 9.8 9.8 10.4 8.8 20.0 19.0 28.0 21.0 5.6 9.0 6.5 6

9.2 8.3 6.8 8.8 13.2 18.0 7.0 8.0 6.25

8.2 5.3 5.0 10.2 9.2 23.0 0.0 5.0 6.5

8.8 4.7 8.8 10.0 6.9 15.0 16.0 5.0 6.5

6.3 3.3 8.0 7.4 10.1 27.0 26.0 6.0 6.5

9.2 2.5 9.1 10.5 12.0 19.0 36.0 5.0 6.5

GDP expenditure – edging above trend % YoY, fiscal year starting April 11 10 9 10.5

8

10.2

9.4

9.3

8.9

8.8

8.2

7

11.0

7.5

7.0

GDP ex- agri

F

E

11 20

10

20

20

09

08

07

20

06

20

04

05

20

20

03

20

20

20

02

6

2001-09 avg (8.6%)

WPI manufacturing (a proxy for core) 2004/05, SA

% YoY Level

145

% YoY

10 8

135

6 125 4 115 2 105

0

Latest: Oct10 95 Mar-04

Mar-06

Mar-08

Mar-10

-2 Mar-12

Source: Data for all charts and tables come from CEIC and Bloomberg, forecasts are DBS’ forecasts.

• Growth could be higher than 9% if not for several imbalances and bottlenecks in the economy • Headwinds from tighter liquidity, higher input costs and wider trade and fiscal deficits will all restrain growth in 2011 • We have no rate hikes pencilled in beyond 6.50% on the repo rate and beyond Mar11. But tighter liquidity, either occurring automatically or engineered by reserve ratio hikes, will probably lead to higher borrowing costs in 2011 Strong domestic demand. Consumption and investment spending should broadly maintain momentum from 2010. We have pencilled in a 7.5% (QoQ, saar) rise in consumption spending and a 14% (QoQ, saar) rise in investment spending through 2011/12, faster than trend rates of 6.5% and 12.5% respectively. Anecdotal evident clearly points to a firming up of the labour market, which should support continued strong growth in consumption. After three years of sub-par capacity expansion, utilisation rates are also likely high in many sectors, supporting a strong pick up in investment. Headwinds from trade imbalances, tight liquidity present. However, higher bank lending rates and higher input costs are likely to restrain full-year growth and keep it from exceeding 9%. The policy repercussions from the wider deficits should especially not be underestimated. In a scenario of faster than expected rise in crude oil prices, it can, for example, force the authorities to pass on the price rise to the consumer (to prevent a rise in deficits). It can also increase the central bank’s tolerance level for tight liquidity conditions (or ‘crowding out’ of private spending). In other words, 2011 may also turn out to be ‘a year of reckoning’ for the imbalances that have been building up, or at least, ‘a year of re-balancing or acting responsibly’. Higher core inflation and rates. We do not yet have any rate hikes pencilled in beyond 6.50% on the repo rate and beyond Mar11. But tighter liquidity, either occurring automatically or engineered by reserve ratio hikes, will probably lead to higher borrowing costs in 2011.

Page 53 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.”

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

www.dbsvickers.com “This report has been re-published with permission from DBS Group Research” disclosures on page 102 of the report sa: TW

2011 Asia Equity Outlook The Year of the Rabbit

Korea MA Tieying +65 6878 2408 [email protected]

Inflation management becomes a priority

(Extracted from “Economics-Markets-Strategy, 9 December 2010”)

• Real GDP growth is forecasted to moderate to 3.9% in 2011 from 6.2% this year

Key economic indicators

• CPI inflation, however, will likely stay above the 3% mark for most months in 2011, averaging 3.4% for the whole year

% Yoy

2009 2010F 2011F 3Q10 4Q10f 1Q11f 2Q11f 3Q11f 4Q11f

0.2 0.2 Govt C 5.0 GFCF -0.2 Merc X -13.9 Merc I -25.8 CPI (per. avg) 2.8 Policy (eop) 2 GDP

Pte C

6.2 4.2 3.5 7.2 27.8 31.2 2.9 2.5

3.9 4.4 3.6 3.3 2.8 2.8 3.9 6.6 13.9 23.7 17.2 24.5 3.4 2.9 4 2.25

5.1 3.7 4.1 6.0 21.0 23.0 3.5 2.5

4.1 3.8 0.6 5.2 15.4 14.1 3.3 3

3.6 3.8 2.7 5.0 13.3 15.0 3.6 3.25

3.9 3.3 3.2 3.1 17.4 24.2 3.5 3.75

4.2 3.3 4.4 2.7 10.1 15.6 3.0 4

Inventory overhang in electronics industry 2005=100, sa 220

Ratio, sa 2.0

Inventory / Shipment (RHS) Production Shipment

1.6

180

Latest: Oct10 1.2 140 0.8 100

60 Jan-04

0.4 0.0 Jan-06

Jan-08

Jan-10

BOP: portfolios have been strong USD bn 15 10 5 0 -5 -10 -15

Current Account Portfolio Investment Direct Investment Other Investment

-20 -25

Latest: Oct10 -30 Jan-08 Jul-08 Jan-09

Jul-09

Jan-10

Jul-10

Source: Data for all charts and tables come from CEIC and Bloomberg, forecasts are DBS’ forecasts

• The Bank of Korea is expected to give policy priority to inflation management, normalizing interest rates at a faster pace in 2011 Growth is stable but unexciting in 2011. Our long-held GDP growth forecast of 3.9% for 2011 is still on track. The growth momentum in exports is unlikely to be as strong as in 2009-2010. Amongst Korea’s major trade partners, China is expected to cool off as a result of greater inflation threats and more serious policy tightening, whilst the G3 economies are anticipated to grow only slowly in 2011. Meanwhile, the currency stimulus effects on Korean exports stemming from a weak won may gradually subside in 2011. The won’s recovery from the 2008 crisis is only halfway thus far. There is near consensus view that the won will appreciate further next year and outperform major Asian currencies, against the global backdrop of dollar weakness. The BOK will give policy priority to inflation. The Bank of Korea (BOK) has raised the benchmark 7-day repo rate by a cumulative 50bps thus far this year, moving slowly by 25bps each quarter in 3Q and 4Q respectively. Rate levels remain far from neutral. The benchmark rate of 2.5% is still lower than the previous rate bottom of 3.25% seen in 2005, and also lower than the current inflation level of 3% plus. Judging from inflation dynamics – the key determinant for interest rate policy, we expect the BOK to hike rates at a somewhat faster pace in 2011, by 25bps once every two months. The balance of payments outlook. The current account looks set to reach a surplus of USD 27bn (2.7% of GDP) this year, and is forecasted to post a smaller surplus of USD 18bn (1.5% of GDP) in 2011, due to slower export growth and more expensive commodities imports. Whilst the current account balance is not strong by regional standards, portfolio capital inflows into Korea’s bond and equity markets have been buoyant and underpin the overall external balance. There are widespread perceptions among foreign investors that the Korean won is undervalued and is going to appreciate. The real effective won is 10% below its long term average.

Page 54 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.”

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

www.dbsvickers.com “This report has been re-published with permission from DBS Group Research” disclosures on page 102 of the report sa: TW

2011 Asia Equity Outlook The Year of the Rabbit

Taiwan MA Tieying +65 6878 2408 [email protected]

Domestic economy on firmer footing

(Extracted from “Economics-Markets-Strategy, 9 December 2010”)

• GDP growth is expected to ease to 3.8% in 2011 from 10.3% this year

Key economic indicators

• The outlook for domestic demand is positive, despite softer exports

% Yoy

2009 2010F 2011F 3Q10 4Q10f 1Q11f 2Q11f 3Q11f 4Q11f

-1.9 1.1 Govt C 3.9 GFCF -11.0 Exports -8.7 Imports -12.8 CPI (per. avg) -0.9 Policy (eop) 1.25 GDP

Pte C

10.3 3.4 0.9 23.4 25.0 28.1 0.9 1.5

3.8 9.8 2.7 4.5 0.5 0.4 5.9 23.7 6.8 20.1 5.3 22.8 1.4 0.4 2.75 1.5

6.0 1.9 -0.3 13.2 13.1 13.6 0.9 1.75

2.9 3.2 -0.3 9.2 8.1 5.7 0.8 2

3.2 2.6 0.6 5.8 4.0 4.6 1.0 2.25

4.3 2.5 0.6 4.5 6.8 5.2 1.7 2.5

4.5 2.4 0.8 4.7 8.2 6.0 1.9 2.75

The ease of doing business (global rank, 183 couuntries)

SG HK KR TH MY TW CN VN ID IN PH

2009

2010

1 3 23 12 21 61 86 91 129 132 141

1 3 19 12 23 46 89 93 122 133 144

2010 2011 (revised) t t u 4 t v 2 u 15 v 3 v 2 u 7 v 1 v 3

1 2 15 16 23 34 78 88 115 135 146

t t v 1 v 3 u 2 u 1 v 1 u 10 v 6 u 1 v 2

1 2 16 19 21 33 79 78 121 134 148

Source: The World Bank

Taiwan’s wage costs are the lowest in Asian NIEs USD / per month 3000 2500 2000 1500 1000 500 0 SG

KR

HK

TW

CN

Source: Data for all charts and tables come from CEIC and Bloomberg, forecasts are DBS’ forecasts, unless otherwise stated.

• The ultra low interest rate environment is inconsistent with current fundamentals. The central bank should accelerate the pace of policy normalization in 2011 A better outlook for domestic demand in 2011. Export growth is unlikely to repeat the strong performance of 2010. We are constructive on the outlook for domestic demand in 2011. The reduction of cross-strait economic barriers has improved the business operating environment in Taiwan. Taiwan’s ranking in the World Bank’s ease of doing business index was lifted by a solid 15 notches for 2010 and another one notch for 2011, making it the top reformer in the Asia region. The existence of cross-strait barriers had been a major factor weighing down investor confidence on Taiwan over the past decade, deterring away foreign investors and obliging local firms to relocate overseas. The normalization of economic ties with China should accordingly rebuild Taiwan’s competitiveness, reviving the investment interest of foreign enterprises and also Taiwanese firms staying offshore. Furthermore, R&D capability in Taiwan remains strong, and the supply chain in the high-tech industry is well established. The labor quality is high while the labor costs are the lowest among Asia’s Newly Industrialized Economies. Aided by the improvement in business environment, Taiwan should become a more attractive investment destination in the region for businesses in the technology and knowledge intensive industries. Consumption growth expected to be stable. Meanwhile, domestic private consumption is expected to maintain a stable growth path in 2011. The cyclical recovery in the labor market remains on track, as worker productivity reaches its potential and employers need to increase hiring. The seasonally-adjusted unemployment rate has dropped to a 23 month low of 5.0% as of Oct10, with employment growth outpacing labor force growth persistently and significantly. Consumer spending should also remain positive next year thanks to wealth effects from property appreciation. The property boom has not morphed into a full-fledged bubble, and the spill-over effects of asset prices inflation are not severe.

Page 55 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.”

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

www.dbsvickers.com “This report has been re-published with permission from DBS Group Research” disclosures on page 102 of the report sa: TW

2011 Asia Equity Outlook The Year of the Rabbit

Regional Small Mid cap

Go with the flow

TAN Ai Teng +65 63987967 [email protected]

• Ride on positive market trends when picking small mid caps in 2011

Bbg Code

Rec

TP (LCY)

Singapore Conscience Food Hi-P

CSF SP HIP SP

Buy Buy

0.38 1.30

Hong Kong Anhui Expressway Beijing Ent. Water China Automation

995 HK 371 HK 569 HK

Buy Buy Buy

9.10 3.70 7.20

Malaysia DRB Hicom SP Setia Boustead

DRB MK SPSB MK BOUS MK

Buy Buy Buy

3.55 7.00 7.60

Thailand Delta Electronics MCOT

DELTA TB MCOT TB

Buy Buy

40.00 39.50

Indonesia Sampoerna Agro

SGRO IJ

Buy

4400

Source: DBS Vickers

2011 theme and small mid cap picks Th e me Play on Asia consumerism

To p p i c ks Conscience Food ( Indon instant noodle), Hi-P (smartphone/tablets), MCOT (ad spending), DRB Hicom (Msia auto sales)

Govt spending/ SP Setia ( Msia govt re-development), Beijing Ent. infrastructure development Water ( China pollution control), Anhui Expressway ( China toll road), China Automation (China rail network)

Dividend yield

Delta (strong fundamentals, 5% yield), Boustead (GLC property proxy with 6% yield)

Source: DBS Vickers

• Asia consumption is still a growing trend while government spending & infrastructure development remain key drivers • Dividend can enhance return in the absence of attractive interest rate Follow positive trends when stock picking for 2011. Regional small and mid caps, up 17% and 27% YTD, had done well in absolute terms. Mid caps in particular have outperformed large caps (+19%). Entering 2011, the regional broad markets do not expect big rises but trends are aplenty (our strategist quoted nine) and we advocate picking small mid caps that will benefit from trends positive to Asia outlook. Gainers of Asia consumption story. DRB Hicom, a proxy to Malaysia auto sales is the country’s cheapest conglo (5.5x PE, 0.6x P/BV) and a potential multi-bagger with 95% expected return. Conscience Food, Indonesia’s 3rd largest instant noodle manufacturer is poised to grow from strong expansion plans; stock trades at 5x PE vs next closest peer of 11x. Hi-P is a cheap Apple smartphones/ tablets play at 8.5x FY11 PE. MCOT will benefit from robust advertising spending in Thailand and ad rate hikes. Sampoerna Agro in Indonesia will gain from strong volume growth upstream and higher CPO prices. Sampoerna also trades at a discount to other Indonesian plantations at 2.9x P/BV and 12.7x FY11 PE. Beneficiaries of government spending/ infrastructure development. China’s development of inner land bodes well for Anhui Expressway, which is also the cheapest toll road play in HK at 9x PE with 5-6% yield. China Automation is positioned to secure more railway contracts as China continues its rail network expansion. SP Setia is a GLC landlord in Kuala Lumpur to benefit from government redevelopment projects. Beijing Enterprise Water’s aggressive expansion is underpinned by tighter pollution control in China. Dividend yield plays. Delta, a power supply manufacturer in Thailand, currently sits on Bt7.6bn net cash, which accounts for 18% of its market cap. Based on 50% payout, dividend yield is decent 5%. Boustead a GLC property proxy in Malaysia also pays 6% dividend yield.

Page 56 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

ed: JS / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

REGIONAL SECTORS

Page 57 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Airlines

Firm tailwinds

Paul YONG, CFA +65 6398 7951 [email protected]

• Momentum from strong earnings rebound in 2010 looks sustainable into 2011

Blg Code

Rec

TP (LCY)

Hong Kong Air China Cathay Pacific China Eastern China Southern

753 HK 293 HK 760 HK 1055 HK

Buy Buy Hold Buy

11.45 27.30 4.00 6.75

Singapore Spore Airlines Tiger Airways

SIA SP TGR SP

Buy Hold

18.50 1.90

Malaysia AirAsia Malaysian Air

AIRA MK MAS MK

Buy Hold

3.20 1.85

Thailand Thai Airways

THAI TB

Buy

64.5

Valuations remain reasonable for the sector as a whole Company

----- PER ---FY10 FY11

Price to Book FY10 FY11

----- ROAE ----FY10 FY11

Spore Airlines Tiger Airways AirAsia Malaysian Airlines Air China Cathay Pacific China Eastern Air China Southern Air Thai Airways

13.3 15.4 10.9 NA 8.1 8.3 6.9 6.6 11.7

12.0 12.0 9.3 17.1 9.0 7.6 9.1 6.6 9.8

1.3 4.6 2.0 4.4 2.8 1.7 2.8 1.5 1.5

1.2 3.3 1.6 3.5 2.2 1.5 2.2 1.2 1.3

10.1% 35.1% 21.2% NA 41.2% 23.2% NA 31.0% 13.8%

Median Average

9.6 10.2

9.3 10.3

2.0 2.5

1.6 2.0

23.2% 20.9% 25.1% 21.6%

10.3% 32.1% 19.1% 23.0% 27.3% 20.9% 26.8% 20.6% 14.5%

Prices as of 9 Dec 2010 Source: DBS Vickers

• Valuations still reasonable even as share prices re-rated in 2010 • Top picks: SIA (net cash S$3.80/share), CSA (FY11 PE 6.6x), CX (1.5x P/B vs 21% ROE in FY11) and AirAsia (preferred proxy for budget travel). Firm earnings performance in ‘10 to sustain into ‘11. All nine regional carriers under our coverage are projected to show significant improvement in core earnings in 2010 with only MAS still loss-making (with losses narrowing substantially). With robust air travel demand, regional carriers should continue to be highly profitable. With the exception of SIA (ROE 10.3%) and Thai Airways (ROE 14.5%), all other regional airlines are projected to post ROE of close to at least 20% with 7 of the 9 companies showing improvement in core earnings as well in 2011. Plenty of reasons to buy into regional airlines. We like Thai Airways and China Southern Airlines for their continued earnings growth momentum into 2011, both of which are projected to post at least 20% growth for the year. Air China is poised to remain as China’s best-run and most profitable carrier and AirAsia should continue to consolidate its position as Asia’s leading budget carrier with 18% profit growth in 2011. We also favour Cathay Pacific as it rides on HK’s position as a key financial hub and gateway to China to sustain an average ROE of over 20% from 2010 to 2012. Last but not least, we believe that Singapore Airlines, flushed with net cash of c. S$4.5bn, could return surplus cash to shareholders and/or make an acquisition to boost its long-term earnings prospects. Valuations still reasonable. With the exception of Tiger Airways and MAS, the other airlines have seen their share price increase by at least 12% to as much as over 100% (AirAsia and Thai Airways) since end May 2010. Despite this, the sector is still trading at an average of only 10.1x FY10 PE and 10.2x FY11 PE (9.4x FY11 PE excluding MAS), which is at a reasonable level. Demand and competition are key risks ahead. With a fair amount of new capacity being added in 2011, obvious potential pitfalls for the sector lie in 1) lower than expected demand to fill the seats; and/or 2) intensifying competition in the form of more capacity (lowering load factors) or price competition (lower yields).

Page 58 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com Refer to important disclosures at the end of this report ed: JS / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

More rational growth ahead

Regional Autos

• Auto demand growth to retreat to normal but firm levels of 12-16% for full year 2011

Jay KIM +852 2971 1921 [email protected]

• Given slower growth, we advocate a selective investment approach to the sector, i.e. seek attractive value plays with near-term earnings upside from cost-cut initiatives

Rachel MIU +852 2863 8843 [email protected] Indonesia Research Team +6221 3983 2668 Bbg Code

Rec

TP (LCY)

Indonesia Astra Int’l

ASII IJ

Buy

65,000

Malaysia Proton

PROH MK

Buy

6.60

China / HK Dongfeng Motor Brilliance China Geely Automobile

489 HK 1114 HK 175 HK

Buy Buy Hold

17.50 6.30 4.40

005380 KS 000270 KS 012330 KS 000240 KS 043370 KS

Buy Buy Buy Buy Buy

240,000 64,000 330,000 37,000 19,000

Korea Hyundai Motor Kia Motors Hyundai Mobis Hankook Tire Pyeong Hwa Automotive (PHA)

Carmakers’ FY valuations

11F Indonesia Astra Int'l Malaysia Proton # HK

Korea

PEG Yield P/BK

EV/ ROE EBITDA

11F

11F

11F

11F

0.8

3.0

3.7

8.6

29.6

8.2 n.m.

3.1

0.5

2.4

5.8

13.6

More cautious on tyre stocks

FY11 outlook. We expect regional sales volume growth to moderate due to this year’s high base effect and governments’ attempts to cool overheated automotive markets (i.e. lower incentives, higher auto-related taxes).

Source: DBS Vickers

PE

•

11F

Dongfeng

10.7

(1.6)

0.9

2.3

4.5

24

Brilliance

20.1

0.7

0.0

3.7

12.5

21

Geely Auto

12.5

0.7

1.6

2.5

7.0

22

Hyundai Motor

8.6

0.5

0.5

1.5

7.1

20

Kia Motors

8.4

0.4

0.5

1.8

7.7

24

Selective investment approach. As demand growth moderates to more rational levels, automakers’ earnings growth trends will start to diverge and only the most competitive that are able to implement effective cost cutting measures, improve market shares, and meet new consumer demands, will be rewarded handsomely. Recommend more caution towards tyre stocks. Near term growth for the sector will be muted due to (i) limited capacity addition, and (ii) margin pressure from higher raw material costs. Extremely volatile natural rubber prices may continue to play a negative role in the sector. We would focus on a few counters that are likely to be able to weather margin pressure via major capacity additions and change in product mix (e.g. Multistrada (MASA IJ). Best idea (s). We like Chinese auto dealers, which should benefit from more lucrative and higher-margin vehicle maintenance services, and hence, should continue to command richer valuations. Indeed, this sub-sector is valued as a consumer play with FY11 PE ranging between 15x and 35x compared to automakers. Auto dealers include Dah Chong Hong (1828 HK), Zhongsheng (881 HK), and Zhengtong (1728 HK) and Sparkle Roll (970 HK). Among auto stocks, we highlight cost leaders which earnings growth potential will outshine competitors’ amid slowing automotive demand in the region. Our top picks are Dong Feng Motors (489 HK) and Kia Motors (000270 KS).

# FY 12F

Source: DBS Vickers

Page 59 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Gaming

More excitement ahead

YEE Mei Hui +603 2711 1332 [email protected]

• Asian gaming appetite is insatiable, supported by positive macro factors

Bbg Code

Rec

TP (LCY)

Singapore Genting Singapore

GENS SP

Buy

2.70

Malaysia Genting Berhad Genting Malaysia Berjaya Sports Toto

GENT MK GENM MK BST MK

Buy Hold Hold

14.60 3.70 4.25

Macau SJM Galaxy Entertainment Sands China Wynn Macau

880 HK 27 HK 1928 HK 1128 HK

Buy Buy Buy Hold

14.40 9.00 18.80 15.90

• Singapore and Macau offer largest potential • Maintain positive view; top picks: Genting Bhd, Genting Singapore, SJM, Galaxy Outlook remains rosy. We expect the Asian gaming market to grow at 2-year CAGR of 15%, on the back of low gaming penetration, rising discretionary spending, and improved connectivity. There could be opportunities from new casino licences (Japan, Taiwan) and spin-offs (Pagcor’s casinos in Manila), and players with proven track record, financial muscle and potential synergies will have the upper hand. There are policy risks and risk of rising regional competition, but regulators are expected to be pragmatic, and not all new supply are credible threats.

Source: DBS Vickers

Game has only just begun in Singapore. Despite MBS ramping up, GENS remains the market leader with c.53% share of net revenue and EBITDA. Competition could intensify, but Singapore’s gaming market is still in its infancy and gross gaming revenue should continue to grow strongly (2011F: US$5.0b vs 2010F: US$3.5b), with potential upside from junkets (first licence likely in 1Q11) and new markets.

Genting Bhd offers the deepest value in the region 2011-12F EV/EBITDA 16 Wynn Macau 14

GENS Sands China

12 10

Sector average SJM

8 6

Galaxy

GENT

GENM

4 2 2010-12F earnings CAGR 0 0%

10%

20%

30%

40%

50%

Source: DBS Vickers

New supply coming to Macau, but supported by improved infrastructure. Galaxy Macau is slated to open at Cotai in 1Q11, and Sands China’s Phase 5 & 6 likely in 2012. Table supply growth should remain in check given the 5,500-table cap (up to 2013) vs 4,838 currently. Demand especially mass market - is expected to pick up with the full opening of Guangzhou-Zhuhai MRT by mid-11 and expansion of Gongbei Gate by Aug11. We expect 2011F GGR growth to moderate to 14% (US$28b) from 2010F’s 53% (US$24b). Valuation undemanding for strong growth. The sector is trading at 10.1x EV/EBITDA for 2-year earnings CAGR of 17%. Top picks: a) Genting Bhd (deepest value at 6x EV/EBITDA); b) Genting Singapore (best proxy to Singapore’s strong GGR growth and highest profitability in the sector, 13x EV/EBITDA valuation comparable to big-cap Macau operators); c) SJM (less affected by rising supply at Cotai and rising competition in VIP segment); and d) Galaxy (re-rating with opening of Galaxy Macau).

Page 60 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: SGC / sa: WMT

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Food & Beverages

Pricing power matters

Alice HUI, CFA, +852 2971 1960 [email protected]

• Cost environment stays challenging • But margins should start stabilizing as costs are gradually pass on • Market consolidation and M&A activities continue • Prefer players with strong pricing ability and robust growth. BUY China Food, China Yurun, China Mengniu, Little Sheep and China Minzhong

Titus WU · +852 2820 4611 · [email protected] Andy SIM +65 6398 7969 [email protected] Singapore Research Team +65 6533 9688 [email protected] Bbg Code

Rec

TP (LCY)

HK/China China Foods China Mengniu China Yurun Little Sheep

506 HK 2319 HK 1068 HK 968 HK

Buy Buy Buy Buy

7.60 25.30 35.50 6.60

Singapore China Minzhong

MINZ SP

Buy

1.60

Cost & policy concerns. The surge in prices of soft commodities throughout 2010 has affected margins of most F&B players. Without any clear signs of costs abating amid abundant liquidity in the market, cost pressures are likely to remain a concern for F&B players in 2011. In PRC, possible implementation of price control measures has also cast some uncertainties on the sector.

Source: DBS Vickers

Valuation Upside/ FY11F Target Price (downside) Rec om PE HK$ % x

Mkt Cap U S$m

Company

Price HK$

Ajisen (538 HK)

13.48

13.0

(4)

Hold

25.9

1,856

Café de Coral 19.40 (341 HK)

18.7

(4)

Hold

20.9

1,404

China Foods (506 HK)

5.40

7.6

41

Buy

19.1

1,939

China Mengniu (2319 HK)

21.50

25.3

18

Buy

19.1

4,806

China Yurun (1068 HK)

26.70

35.5

33

Buy

17.3

6,220

Tingyi (322 HK)

20.15

18.0

(11)

Hold

27.8

14,479

Tsingtao Brewery (168 HK)

42.40

40.0

(6)

Hold

29.2

3,572

Want Want (151 HK)

6.80

6.3

(7)

Hold

26.0

11,555

Dynasty Fine Wines (828 HK)

4.46

3.70

(17)

FV

27.0

716

China MinZhong (MINZ SP)

1.37

1.60

17

Buy

7.7

567

Source: DBS Vickers

ASP & product mix. Despite the challenging operating environment, we expect margins, following the drop in 2010, should start stabilizing in FY11. Most listed players, given their strong market position, should be able to pass on some of the cost increases gradually to consumers. Since Q3, F&B players such as Mengniu and Tingyi have already raised prices on selected products. Coupled with continual product mix enhancement and improving production efficiency, some of the cost pressures should be alleviated. The exception could be certain necessities such as edible oil, where prices are likely to be closely monitored by the PRC authorities. Market consolidation and M&A. The challenging cost environment, in our view, could lead to an acceleration in market consolidation. Bigger players, given stronger scale benefits, should be able to weather the cost increases better than their smaller peers. This is illustrated by the robust sales growth posted by most listed players to date. This also creates more M&A opportunities – the latest being Mengniu’s acquisition of Junlebao, and Tsingtao’s purchase of Silver Wheat. Stock picks. We are positive on the wine sector considering its strong growth and discretionary nature, hence better pricing ability. BUY China Food (506.HK). The same argument applies for catering stocks such as Little Sheep (968 HK). We also like China Yurun (1068.HK) as its business is partly inflationhedged through exposure in upstream slaughtering operation, and it should remain a key beneficiary of market consolidation. We like China Minzhong (MINZ SP) with growth driven by its increased land cultivation and processing capacity. Dairy players, following sluggish performance in 2010, are trading on undemanding valuations, with organic growth to stay robust. BUY China Mengniu (2319.HK).

Page 61 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Asean Banks

Bracing up for the next race

LIM Sue Lin +603 2711 0971 [email protected]

• Singapore banks are our key focus • Emerging ASEAN banks to continue to do well.

Sugittra KONGKHAJORNKIDSUK +662 657 7825 [email protected]

• Top picks: OCBC, MAY, KBANK, BBRI

HON Seow Mee +603 2711 2222 [email protected] Bbg Code

Rec

TP (LCY)

Singapore DBS OCBC* UOB

DBS SP OCBC SP UOB SP

NR Buy Buy

NA 11.30 21.50

Malaysia Alliance Financial Grp AMMB Holdings CIMB Group EON Capital Hong Leong Bank Maybank* Public Bank-F RHB Capital

AFG MK AMM MK CIMB MK EON MK HLBK MK MAY MK PBKF MK RHBC MK

Buy Hold Buy Buy Buy Buy Hold Buy

3.85 6.50 10.10 7.30 10.50 10.80 13.10 10.00

Indonesia Bank Central Asia Bank Danamon Bank Mandiri Bank Negara Indonesia Bank Rakyat Indonesia* Bank Tabungan Negara

BBCA IJ BDMN IJ BMRI IJ BBNI IJ BBRI IJ BBTN IJ

Thailand Bank of Ayudhya Bangkok Bank KASIKORNBANK* Krung Thai Bank Siam Commercial Bank Thanachart Capital Tisco Bank

BAY TB BBL TB KBANK TB KTB TB SCB TB TCAP TB TISCO TB

Hold Fully Valued Hold Buy^ Buy Buy

Hold Buy Buy Buy Buy Hold Hold

7,100 6,000 7,200 4,300^ 13,900 2,500

24.40 187.00 150.00 21.00 121.50 42.00 44.00

* Top picks for each country ^ TP revised post rights issue; recommendation under review

ASEAN banks YTD performance 80% 70% 60%

Indonesia

50% 40% 30%

Thailand Malaysia

20% 10% 0%

Singapore

-10% -20% J an-10 Feb-10 Mar-10 Apr-10 May-10 J un-10 J ul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10

Welcome back to “normal”-land. 2011 will be a normalised year after the strong earnings recovery seen in 2010 from lower provisions and high loan growth. Banks are showing healthy asset quality levels and sturdy capital with only Indonesian banks indulging in rights offerings for growth. The key differentiation in earnings drivers in 2011 would be the banks’ ability to reap extra ROE mileage. Banks with higher non-interest income capabilities would see better ROE prospects amid the competitive NIM outlook. Singapore banks on top of the radar. Singapore banks remain laggards at unjustifiable valuation discounts to ASEAN peers. We advocate accumulating Singapore banks for their strength in asset quality and capital vs. ASEAN peers. Continuous regionalization efforts and build up in non-interest income generating activities will provide ROE upside. Our preferred pick for Singapore is OCBC. Upside risks to our estimates would be positive surprises in loan growth. Emerging ASEAN banks will continue to do well. Malaysia banks are reaching new highs given strong deal flow in the capital markets. Creation of regional champions and M&A activities would provide excitement. Thailand’s positive macro view coupled with the recovery mode in its investment cycle bodes well for Thailand banks. Easing of political tensions could add flavour to Thailand valuations. Since valuations have gapped up for Indonesian banks, we are now more selective. Nevertheless, its low loan-to-GDP ratio remains appealing for its longer-term upside as an emerging force among ASEAN banks. Best ideas: OCBC, MAY, KBANK and BBRI. We like OCBC for its asset quality and growth potential from its regional efforts coupled with positive traction in non-interest income growth from insurance and private banking. We continue to like Malaysia’s regional champions and pick MAY for its improving domestic business efficiency and increasing positive traction from its Indonesia investments as a multiyear growth story. KBANK remains our favourite in Thailand with increasing ROE prospects from non-interest income and as a key beneficiary of stronger loan demand by corporates and SMEs. Our Indonesian pick is now BBRI, the country’s top micro lender.

Source: DBS Vickers

Page 62 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: MY / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Exchanges

Momentum driven

LIM Sue Lin +603 2711 0971 [email protected]

• Turnover values and velocity heading north • Internationalisation is a key theme

Alexander LEE Ho Wan +852 2971 1930 [email protected]

• SGX is the cheapest Asian bourse proxy

HON Seow Mee +603 2711 2222 [email protected]

Hong Kong Exchange Singapore Exchange Bursa Malaysia

Bbg Code

Rec

TP (LCY)

388 HK SGXSP BURSA MK

Buy Buy Buy

238.00 11.40 9.60

Strong momentum ahead. Global liquidity conditions are conducive for a bull market ahead, which will be positive for exchanges. We expect turnover values and velocities to head north in 2011 on the back of strong IPO and stock market activities. HKEX provides a strong proxy for the domestic growth within Hong Kong and growing China opportunities, while SGX provides avenues for a more holistic Asian play for both equities and derivatives. SGX’s ongoing merger talks with ASX could spice up interests. Bursa on the other hand is primarily domestic driven and will largely only appeal to Malaysian investors.

Source: DBS Vickers

Velocity differentials for HKEX, SGX and Bursa 160% 140% 120%

HKEX

100% 80% SGX

60% 40%

Bursa

20% 0% J an-09

Mar-09 May -09

J ul-09

Sep-09

Nov-09 J an-10

Mar-10 May-10

J ul-10

Sep-10

Source: DBS Vickers

Key assumptions for HKEX, SGX and Bursa FY Dec

2009

2010F

2011F

2012F

SGX Ave Daily T/over Value (S$m)

1,540

1,997

2,197

2,343

59

65

70

75

Velocity (%) HKEX Average Daily Value (HK$bn) Velocity (%) Bursa Average Daily Value (RMm) Velocity (%)

62

73

125

144

114

120

125

125

1,121 35

1,228 30

1,456 35

1,674 40

Source: Companies; DBS Vickers

HKEX provides an attractive proxy to ride on the RMB appreciation. We believe HKEX will open gates for international money inflows to take advantage of the RMB appreciation. Its strong IPO pipeline, which will largely be dominated by mainland China companies, will bolster revenues and earnings growth for HKEX. We believe HKEX will continue to trade at high multiples given lofty expectations for the Hong Kong stock market. All eyes on SGX-ASX merger. Lots of buzz surrounded SGX especially with the listings of ADRs in Oct 10. But the excitement reached a climax when SGX announced its merger talks with ASX. While there are short-term uncertainties especially with regulatory approvals, we believe that the long-term positives of the merger should prevail. Bursa, largely domestic driven. Bursa is expected to benefit from the Malaysia Economic Transformation Plan in terms of structural changes. Bursa would appeal to investors who prefer a pure Malaysian play. Bursa offers CPO futures products which neither HKEX nor SGX offers. The pipeline for IPOs is expected to remain healthy but would largely be domestic-centric. Best idea – SGX, cheapest bourse in Asia. We like SGX as an Asian exchange proxy in terms of valuations, outlook and reach. A slew of new product offerings especially for derivatives and its Asian Gateway Strategy make it a onestop venue for international investors and clearly differentiate SGX from its regional peers. While HKEX’s IPO pipeline by size may overwhelm SGX’s, SGX provides a wider range of offerings particularly by countries and products. Derivatives contribute to a higher 45% of SGX’s revenue compared to HKEX (25%) and Bursa (12%).

Page 59 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: MY / sa: WMT

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Property

Stock picking year

LOCK Mun Yee +65 6398 7972 [email protected]

• Thai and Msia outperformers YTD • Valuation inexpensive but policy risk overhang

Bbg Code

Rec

Malaysia SP Setia Bolton

TP (LCY)

SPSB MK BOL MK

Buy Buy

7.00 1.50

China China Overseas Land Agile Shimao Franshion

688 HK 3383 HK 813 HK 817 HK

Buy Buy Buy Buy

19.00 14.93 14.30 2.88

Thailand Amata Supalai LPN

AMATA TB SPALI TB LPN TB

Buy Buy Buy

20.00 14.30 12.62

Hong Kong Cheung Kong Sino Land

1 HK 83 HK

Buy Buy

135.00 18.74

Singapore Keppel Land UOL Capitaland

KPLD SP UOL SP CAPL SP

Buy Buy Buy

4.96 5.23 4.96

Source: DBS Vickers

Property Stocks Performance by Country Country

1-mth

3-mth

6-mth

9-mth

YTD

Malaysia

2.3%

18.6%

32.0%

30.9%

30.8%

Thailand

-0.5%

-5.2%

31.7%

33.5%

29.0%

Hong Kong

-7.0%

5.1%

18.9%

7.8%

7.0%

Singapore

-3.8%

2.2%

11.7%

8.2%

4.8%

China

-2.9%

3.6%

17.3%

-7.2%

-13.0%

Source: DBS Vickers

• Prefer commercial plays and maintain Malaysia as our top country pick. Top picks: SP Setia, Bolton, COLI, Agile, Franshion, Cheung Kong, KepLand, Amata Emerging markets the best performers YTD. Malaysia and Thailand were the outperformers this year, rising by 30.8% and 29% respectively as lack of policy concerns and catalysts from planned government redevelopment land activities boosted the former while a strong recovery in demand post-political tensions in Thailand lifted sentiment, earnings outlook and prices of property stocks. Commercial still the way to go. For 2011, we maintain a preference for commercial over residential, particularly in HK, on dwindling new supply and improving demand. There is also less risk on the policy front in this segment as office rents are still way below the previous peak. We expect the return of rental pricing power and uplift in capital values to continue. Landlords’ NAV should continue to increase as the upcycle comes through. Valuations have factored in caution but overhang prevails. We anticipate Malaysia to continue outperforming in 2011 and move our underweight stance on China to Neutral on valuation grounds. In Malaysia, we see catalysts from the government redevelopment land sales, establishment of new MRT lines and potential M&A activities, driving interest and valuations further. In China, wider-than-average NAV discounts and low PE multiples indicate that much of the market caution has been priced in and we would look for opportunities in market leaders, volume players, non-Tier 1 city developers and commercial landlords. While there is a persistent overhang of policy risk in HK and Singapore, valuation at mid-cycle levels are not expensive. We retain our Neutral stance for Thailand, with a preference for industrial players. Stock selection key to outperformance. We see stock performance as being affected by macroeconomic newsflow regionally and adopt a stock-picking stance for outperformance. We continue to like office plays such as Swire Pacific, Keppel Land and UOL. In terms of developers, we remain upbeat on Malaysian developer SP Setia and Bolton. In China and Hong Kong, our top picks would be Agile, COLI, Franshion and Cheung Kong while in Thailand, we most prefer Amata.

Page 64 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: JS / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Reits

On a hunt for yields

LOCK Mun Yee +65 6398 7972 [email protected]

• HK and Msia Reits outperformed

Bbg Code

Rec

Malaysia Axis Reit

TP (LCY)

AXRB MK

Buy

2.35

Hong Kong The Link Reit Fortune Reit

823 HK 778 HK

Buy Buy

28.15 4.60

Singapore CDL Hospitality Trust Frasers Centrepoint Trust Mapletree Logistics Trust Parkway Life Reit

CDREIT SP FCT SP MLT SP PREIT SP

Buy Buy Buy Buy

2.28 1.74 1.01 1.38

Thailand CPN Retail Growth Property CPNRF TB Fund

Buy

12.79

Source: DBS Vickers

Comparison of Reit Yields Across The Region % 9 8 7 6 5 4 3 2 1 0 US

HK

Japan

Spore

Aust

Thai

Msia

Source: DBS Vickers

• Inflation hedging and acquisition growth in Asia - key themes for 2011 • Leverage on booming hospitality in Singapore • Prefer healthcare, retail, industrial and hospitality plays. Hong Kong and Malaysia best performing Reit markets. Hong Kong, largely due to Link Reit, was the best performing Reit market in Asia with a 30% price appreciation YTD, followed closely by Malaysia. Despite this, M-Reits continued to offer yields of c.8% while HK-Reits offered average market-cap weighted yield of 4.9% due to compression in Link Reit’s yield on share price appreciation. Going into 2011, we believe Reits will continue to find favour with investors on the hunt for yields amid low interest rates. New developments such as incentivising Thai PFPOs to turn into Reit structures could also raise interests in these markets. Key risk to Asian Reits’ performance would be a sooner than expected rise in long bond yields, currently expected at end 2011. Inflation-hedging, growth via acquisitions – key themes for 2011. As inflation becomes a talked-about topic in the coming year, we believe Reits that offer inflation hedging rental structures would outperform both in terms of upside surprise to earnings and share price. In Singapore, healthcare Reit, Parkway Life, whose topline is based on the higher of percentage of hospital turnover or CPI would give investors the greatest delta between earnings growth and inflation. Retail Reits, which generally derive part of revenue from gross turnover and industrial Reits with leases where escalation clauses are inflation-pegged would also benefit in this environment. Acquisition growth prevails but accretion dependent on cost of capital. As asset cycles bottom out and capital values stabilise, Reits are turning back to acquisitions as growth drivers. We believe buying assets at this part of the cycle would be positive for Reits in terms of through-thecycle NAV and earnings but the degree of accretion would be dependent on the cost of capital. We think industrial Sreits would enjoy the largest spread between property yields and WACC, given the current low funding cost in Singapore. Selective stock picking. Our top stock picks would include Parkway Life Reit and retail Reits such as Link, Fortune Reit, FCT and CPNRF while in the industrial space we continue to like MLT. In tandem with the buoyant Singapore hospitality sector, we also retain our Buy call on CDL HT.

Page 65 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: MY / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Coal

Focus on growth and delivery

June NG +603 2711 2222 [email protected]

• Winter supply shortages and higher 2011 coal contract prices are key catalysts

Ariyanto KURNIAWAN +6221 3983 2668 [email protected]

• Focus on stocks with strong earnings growth, good delivery, and leverage on coal prices

HO Pei Hwa +65 6398 7968 [email protected]

• Yanzhou and Adro are our top picks; we also favor Shenhua, China Coal, ITMG and Banpu

Naphat CHANTARASEREKUL +662 657 7826 [email protected] Suvro SARKAR +65 6398 7973 [email protected] Bbg Code

Rec

TP (LCY)

China China Coal China Shenhua Yanzhou

1898 HK 1088 HK 1171 HK

Buy Buy Buy

17.10 44.40 26.00

Indonesia Adaro Energy Indo Tambangraya Tambang Batubara

ADRO IJ ITMG IJ PTBA IJ

Buy Buy Buy

2,800 58,000 23,600

Thailand Banpu

BANPU TB

Buy

853.00

Singapore Straits Asia

SAR SP

Hold

2.30

Source: DBS Vickers

Relative performance of coal stocks against HIS and JCI 600 500

Chinese coal stocks oversold on fears of price cap. The cap on domestic prices is the key risk for Chinese miners. However, intervention may affect periodic coal prices, but not long term coal prices due to strong demand and limited supply growth. Coal miners can also increase spot exposure to compensate for lower contract prices. Yanzhou would be the least affected by a price cap due to its 53% spot exposure against 40% for Shenhua and 26% for China Coal. Chinese stocks are trading at cheaper valuations of 12x FY11F PE and 2x PBV against the Indonesians’ 13x and 4x, respectively, despite registering higher FY09-12F net earnings CAGR of 25% against 15% for Indonesian coal companies. Production shortfall due to heavy rainfall is the key risk for Indonesian miners. Attractive entry point. Coal stocks offer strong average FY09-12F net profit CAGR of 20%, supported by higher coal prices, production growth from new mines, and further upside from M&As. Valuation is attractive at average of 12x FY11F PE and 3x P/BV, which is 1SD above the last 5 years’ historical sector averages of 9x and 2x, respectively.

400 300 200 100 0 Jan-09

Expect higher coal contract prices in 2011. Winter supply shortages and higher 2011 coal contract prices are the key catalysts for the coal sector next year. We recently raised average coal price forecasts for FY11/12F by c.3% to US$103 and US$105/ton, backed by current higher spot prices (YTD average US$97) and seasonally stronger demand up to 1Q 2011. The multi-year uptrend for the coal sector is intact, driven by resilient Asia coal demand from China, India and Indonesia, and tight supply growth next few years.

May-09 HSI Index

Sep-09 JCI Index

Jan-10

May-10

HK Coal

Sep-10 Indo Coal

Source: Bloomberg, DBS Vickers

Pick stocks for growth and delivery. Yanzhou is our top pick for its strong FY09-12F net earnings CAGR of 32% and high leverage to increases in spot prices. Adro is our pick for Indonesia for its superior infrastructure. We also like stocks with strong earnings growth potential such as China Coal (+26%), and those with high leverage to coal prices such as ITMG (every 1ppt increase in average spot coal price would raise FY11F net earnings by 2.1%) and Banpu (+1.2%).

Page 66 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: SGC / sa: WMT

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Plantation

Rosy Outlook in 2011

Ben SANTOSO +65 6398 7976 [email protected]

• Riding on strong CPO prices in 1QCY11 • Pick volume recovery plays for 2011

Bbg Code

Rec

TP (LCY)

Indonesia Astra Agro Lestari London Sumatra Indonesia Sampoerna Agro

AALI IJ LSIP IJ SGRO IJ

Buy Buy Buy

27,400 13,600 4,400

Malaysia Genting P. IJM Plantation IOI Corporation KL Kepong Sime Darby TSH Resources

GENP MK IJMP MK IOI MK KLK MK SIME MK TSH MK

Buy Buy Hold Hold Buy Buy

11.00 3.80 6.00 21.00 10.20 2.95

Singapore First Resources Indofood Agri Resources Kencana Agri Wilmar Int’l

FR SP IFAR SP KAGR SP WIL SP

Buy Buy Hold Hold

1.55 3.20 0.46 6.60

Source: DBS Vickers

Assumed planting targets Expansion target (k. ha) - own

Planting schedule

49.3 17.0 40.0

FY10F-FY14F FY10F-FY12F FY10F-FY15F

30.0 28.0 40.0 15.0 10.0 31.0

FY10F-FY12F FY10F-FY16F FY10F-FY14F FY10F-FY12F FY10F-FY12F FY10F-FY17F

38.0 90.0 66.0 143.0 597.3

FY10F-FY13F FY10F-FY14F FY10F-FY20F FY10F-FY20F

Indonesia Astra Agro Lestari London Sumatra* Sampoerna Agro Malaysia Genting Plantations IJM Plantations IOI Corporation** KL Kepong Sime Darby TSH Resources Singapore First Resources Indofood Agri R.* Kencana Agri Wilmar International Total

Source: DBS Vickers estimates

• Downcycle to start in 2HCY11 • Key risks: currency, crop yield, regulations Seasonal momentum with unusual circumstances. We expect CPO prices to start on a strong note, assuming (i) USD to weaken further in 1H11 due to QE2 leading to higher soybean and soybean oil prices, (ii) sharper-thanusual seasonal drop in Malaysian FFB yields due to lagged impact of severe drought in Jan-Feb 10, (iii) seasonally higher palm oil demand due to Chinese New Year, compounded by efforts to secure as much supply as possible to cool inflation in China. Leverage on volume/business recovery plays: We recommend investors to increase exposure to upstream planters to capitalise on CPO price strength in 1QCY11. Based on current visibility and analysis of both palm oil refining and soybean crushing margins, we believe upstream planters offer better value through 2HCY11 visà-vis processors such as IOI and Wilmar. FFB yields in Malaysia and Indonesia should reflect diverging trends as Malaysia experienced severe drought in Jan-Feb 10, while Indonesia was pounded by rain. We therefore expect oil palm yields in Indonesia to be comparatively higher. Our top picks reflect this dichotomy, leveraging on strongest volume recovery: Sampoerna Agro, Genting Plantations, and IndoAgri. We also like Sime Darby on strong business recovery. 2HCY11 CPO price downcycle to remain mild. About 892k ha of oil palm estates in Indonesia and Malaysia matured this year. We expect these estates to contribute c.1m MT of CPO volume of 3.6m MT global growth forecast for 2011 (2010: c.1.7m MT growth). Relative to soybean oil, which is expected to decline in 2011, the boost in palm oil supply should widen CPO price discount. Still, tighter soybean oil supply, weak USD and steady demand (mostly incremental demand from Asia) should continue to support palm oil prices. Key risks. Key risks are (i) the reversal of weak USD trend, (ii) significant CNY revaluation, worse-thanexpected soybean yields in South America, and (iii) uncertainties over stricter Indonesian forestry and planting regulations to be issued in early 2011 (of which proposed regulations include a 2-year moratorium on forestry conversion and stricter implementation of timber exploitation licenses), which could affect new planting activities.

Page 67 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: MY / sa: WMT

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Steel & Metal

Focus on growth

LEE Eun Young +65 6398 7964 [email protected]

• Global steel demand growth to decelerate and market competition to intensify

Bbg Code

Rec

TP (LCY)

Korea POSCO Hyundai Steel Seah Besteel Dongkuk Steel Korea Zinc PoongSan

005490 KS 004020 KS 001430 KS 001230 KS 010130 KS 001430 KS

Buy Buy Buy Buy Buy Buy

600,000 130,000 45,000 29,000 390,000 60,000

China Angang Steel Maanshan Iron Steel Sinoref

347 HK 323 HK 1020 HK

Hold Hold Buy

12.99 4.97 1.69

Malaysia Kinsteel

KSB MK

Buy

1.25

Indonesia Aneka Tambang

ANTM IJ

Fully Valued

1,655

Thailand Tata Steel

TSTH TB

Buy

2.48

Source: DBS Vickers

HRC Price vs. China imported Iron Ore price (US$/ton) 1200

World Hot Rolled Coil Price Tracker China Import Indian Iron Ore 63% Fe (CFR)

(US$/ton) 250

1000

200

800

150

600 100

400

50

200

0

0 05.1

05.12 06.11 07.10

08.9

09.8

10.7

Source: Bloomberg, DBS Vickers

• Steel prices to remain in a band; profit to improve backed by more stable raw material prices. • Top Picks: Hyundai Steel, Seah Besteel Decelerating demand and competitive market. Global steel demand growth is estimated to decelerate to 5.3% in FY11 from 13.1% in FY10 following growth from China demand moderating to 3.5% from 6.7%. Korean steel demand is projected to grow only 1% in FY11 from 22% in FY10. China is estimated to increase the crude steel capacity by c 60m tonnes or 9.5% during 2010 and 2011. Korea will also see an increase in crude steel capacity of c 8% in 2011 with the commencement of Hyundai Steel’s #2 blast furnace and POSCO’s new heavy plate plant and new steel making plant. Coupled with over-capacity in China, capacity expansion in China and Korea would result in a more competitive steel market environment in Asia. Hence we expect benchmark HRC prices to fluctuate within the US$500/ton ~ 700/ton band in FY11. Controlling supply will lead to less volatility in raw material prices. There could be some positive developments ahead to control supply and this may include policy measures from the Chinese government to eliminate over-capacity and restructuring in the Japanese steel industry where domestic demand accounts for only 60% of production. If implemented, these could lead to more stable raw material prices and therefore positive to steel companies’ margins and profit. Strong momentum on the metal sector. Share price momentum for commodity stocks is likely to strengthen in the near term supported by improving fundamentals for metals and liquidity. However, the risk factor will be any tightening policies by the governments, which will impact the sector negatively. Stock picks : Mid/Small caps with growth We recommend Hyundai Steel and Seah Besteel as our top picks given that 1) their top and bottom line are projected to register the highest growth among regional peers; 2) growth will be driven by capacity expansion and contribution from the new plants; and 3) undemanding valuations – Hyundai Steel is trading at only 1.3x FY11 P/BV while Seah Besteel is trading at 1.1x FY11 P/BV.

Page 68 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: JS / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Tech

Stay mobile and go corporate

TAN Ai Teng +65 6398 7967 [email protected]

• We are selective on the tech sector in view of moderated growth outlook owing to tepid economic recovery and rising costs

Bbg Code

Rec

Singapore Venture Hi-P

TP ($)

VMS SP HIP SP

Buy Buy

11.80 1.30

Hong Kong AAC Acoustic

2018 HK

Buy

24.20

Thailand Delta Electronics Stars Microelectronics

DELTA TB SMT TB

Buy Buy

40.00 22.40

Source: DBS Vickers

Regional technology: growth and valuation Earnings Growth (%) FY10 FY11

PE (x) FY10

FY11

Hong Kong Tech sector DBSV HK universe Consensus Hang Seng Index

71.3 14.4 30.0

16.9 12.6 15.3

18.0 31.5 14.6

15.4 13.8 12.6

Singapore Tech sector DBSV Spore universe Consensus FSSTI

131.4 20.4 18.7

19.5 12.3 7.8

16.5 15.6 15.3

13.8 13.9 14.2

Thailand Tech sector DBSV Thai universe Consensus SET

37.9 33.0 14.4

-1.7 7.1 19.8

12.6 12.8 14.7

12.8 12.0 12.2

Source: DBS Vickers

• Make money out of smartphones, tablets and corporate equipment/devices • Large cap dividend stocks can also enhance returns Moderate growth in 2011; key to cherry pick. We expect the tech sector to continue growing in 2011 but believe the pace would moderate given a backdrop of weak US/Europe consumer recovery compounded by the prospect of further tightening across Asia. Tech valuations are not exactly cheap at 14x FY11 but upsides are possible if supported by earnings upgrade. We advocate cherry picking companies that will benefit from today’s hottest tech trends. Trend 1: Smart mobile devices are gaining traction. Smartphones will remain the sweet spot for fast growth in the next two years whereas substantial growth potential of media/PC tablets has just taken off and will continue to gain traction with consumers/businesses. Buy AAC Acoustics, HiP and Star Microelectronics for smartphones and tablet plays. TCL is also a beneficiary of smartphones Trend 2: Corporate demand continues. Corporate IT demand should carry momentum into 2011. The unanimous consensus amongst tech bellwethers in their latest earnings announcements underscores our positive outlook for the enterprise segment. Among companies with corporate focus, we prefer Venture to Lenovo. Large cap dividend yielding stocks to enhance returns. In a sector that is not expected to grow by leaps and bounds, investors can also enhance their returns with high yield large cap names such as Delta and ASM Pacific at a lower entry level as the latter has done very well in the past one year. Key risks are further weakening of USD, margin erosion from higher than expected raw material and rising labour costs in China.

Page 69 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: JS / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Asean Telcos

3G and Mobile broadband

Sachin MITTAL +65 6398 7950 [email protected]

• Declining phone price to encourage 3G adoption

Malaysia Digi.Com Maxis Bhd Telekom Axiata Group

Bbg Code

Rec

TP (LCY)

DIGI MK Maxis MK T MK AXIATA MK

Hold Hold Hold Buy

22.90 5.10 3.35 5.10

Singapore M1 SingTel Starhub

M1 SP ST SP STH SP

Buy Buy Sell

2.50 3.55 2.20

Thailand Advanced Info Service Total Access True Corporation

ADVANC TB DTAC TB TRUE TB

Buy Buy Buy

122.00 50.40 9.60

Indonesia Indosat XL Axiata PT Telekom

ISAT IJ EXCL IJ TLKM IJ

Buy Buy Hold

7,000 6,800 8,900

Hong Kong / China China Mobile China Telecom China Unicom

941 HK 728 HK 762 HK

Fully Valued Buy Hold

69.00 4.90 10.0

Source: DBS Vickers

Asian Telcos relative performance versus market

• Limitations of mobile broadband may be evident in 2011. • BUY XL & Indosat for growth, M1 & DTAC for yield. Phone prices to spur adoption of 3G in 2011. The advent of 3G era (all countries expect Thailand) brings the burden of buying expensive 3G phones, which are becoming cheaper thanks to Chinese phone vendors. Most operators are looking at 3G phones below US$50 as the sweet spot for 3G adoption. China is the only developing country, which has adopted the handset subsidy model while other countries are still avoiding the trap of handset subsidy model. Mobile broadband’s shortcomings evident in 2011. In most developing countries, operators offer mobile broadband to connect to Internet for news, web surfing, chatting, facebook etc. However, investors need to be mindful of players, who are offering mobile broadband over notebooks and laptops, as cellular networks may not be able to handle huge data traffic due to technological limitations. In developed markets like Singapore, smartphones like iPhones generate huge data traffic and stimulating more network investments. Best ideas

20%

16%

(i) XL prefers mobile devices while discouraging notebooks for mobile broadband. Indosat is securing high-end customers led by its new Chief Commercial Officer. We like XL & Indosat for higher-growth prospects but relatively cheaper valuations.

15% 10% 5%

2%

0.3%

0% -5% -10%

-4.3%

-4% -8%

-15% -17%

-20% 2004

2005

2006

2007

2008

2009

Dec-2010

Source: DataStream, DBS Vickers

(ii) M1 expects single-digit earnings growth in the next 2-3 years with its entry into the broadband segment. We like M1 for its 6.5% yield and capital management potential. (iii) Thai telcos are set to witness stable competition pending 3G license. We prefer DTAC for lower regulatory risks and its 2G-concession fee would expire later than others. DTAC is trading at only 10x FY11F PE, 4.0x FY11F EV/EBITDA, and over 7% FY11F dividend yield based on 70% payout ratio.

Page 70 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: MY / sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Regional Power/Utilities

Safe and sound

June NG +603 2711 2222 [email protected]

• Key themes are M&A driven growth, resilient earnings and good yields

Bbg Code

Rec

TP (LCY)

836 HK 991 HK 902 HK

Buy Hold Hold

19.80 2.95 4.80

2 HK 1038 HK

Fully Valued Buy

55.20 44.20

6 HK

Hold

54.40

Malaysia Tenaga Nasional YTL Power

TNB MK YTLP MK

Buy Hold

10.10 2.75

Indonesia Perusahaan Gas

Pgas IJ

Buy

4,800

China CR Power Datang Huaneng Hong Kong CLP Holdings Cheung Kong Infrastructure HK Electric (HKE)

• CKI is our top pick for upside from M&A, YTLP for resilient yields • We also like Pgas for its leverage on rising energy demand in Indonesia, and TNB as proxy to strong GDP growth in Malaysia • Negative on Chinese IPPs Conducive environment for M&A – CKI. We expect more M&As to be finalised in 2011 given more realistic asset pricing, weaker Euro and GBP, an accommodative interest rate environment, and easy access to funding for acquisition of regulated asset. The recently completed EDF acquisition is the fourth major acquisition for Cheung Kong Infrastructure (CKI) over the last 12 months, and we expect more to come given CKI’s and Hongkong Electric (HKE)’s strong balance sheets. Assuming CKI raises net gearing to 40%, employs 60:40 debt/equity structure, 5% net finance cost and 8% ROE of 8%, the new acquisitions could enhance CKI’s FY11F net earnings by 16%.

Source: DBS Vickers

PE band for regional power stocks PE (x) 45 40

+2sd

35 30

+1sd

25

Avg

20 15

-1sd

10

-2sd

5 0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Bloomberg, DBS Vickers

Resilient earnings and good yield – YTLP and CKI. Power companies with regulated assets offer resilient earnings premised on strong operating cashflows and regulated returns that allow the transfer of fuel cost risks. Stocks with strong parentage and matured assets such as YTL Power (YTLP) and CKI offers 5% p.a. net yield. Less promising outlook for Chinese power stocks. The outlook for Chinese IPPs is less promising due to the lack of fuel cost pass through. Chinese players suffer from low profitability (c.50% of power plants are loss-making at current coal prices), coal prices are still rising (+21% YTD), and interest costs are surging. Chinese IPPs have high average net gearing of 2.4x due to large capex to fund new generation capacity and coal-related investments. A tariff hike could provide short term relief, but Chinese IPPs face a structural problem of being unable to offset higher costs. Pgas and TNB are attractive proxies to rising energy demand. We favour Pgas for its attractive valuation and promising outlook premised on new gas supply. We expect adjustments to gas selling prices to go hand-in-hand with the new supply contracts. Meanwhile, TNB is a market laggard and beneficiary of stronger Ringgit and GDP growth in Malaysia. Both Pgas and TNB are trading at 13x FY11F PE against regional peers’ average of 16x.

Page 71 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: SGC / sa: WMT

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

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2011 Asia Equity Outlook The Year of the Rabbit

COUNTRY THEMES

Page 73 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Malaysian Construction

MRT coming to fruition

CHONG Tjen-San, CFA + 603-2711 2295 [email protected]

• Focus on rollout of jobs in 2011 • MMC-Gamuda JV expected to be PDP

Bbg Code GAM MK IJM MK MMC MK WCT MK MRC MK SGW MK TRC MK

Gamuda IJM Corp MMC Corp WCT MRCB Sunway Holdings TRC Synergy

Rec Buy Buy Buy Buy Buy Buy Buy

TP (RM) 4.90 6.75 3.85 3.60 2.90 2.60 1.85

• Gamuda remains a high conviction BUY 2011 a year of project rollouts and execution. This is hot on the heels of 2010, a year of planning and tabling of the 10MP and Budget 2011. And the pump priming story ties in with the widely anticipated general elections this year. We highlight RM221bn worth of jobs that include RM100bn transport-related projects, and envisage the government playing this trump card to create the ‘feel good factor’ by aggressively rolling out new contracts. A case in point is the MRT project, which is expected to contribute RM8-10bn p.a. in GNI based on 2.5-3.5x multiplier effect, and is vital to the economy of Greater KL. The first phase of the LRT extension worth RM1.7bn had been awarded to TRC and Bina Puri.

Source: DBS Vickers

KL Construction Index at mean levels 30.00 25.00 +2SD 20.00 +1SD 15.00

mean

10.00

-1SD

5.00

-2SD

Jan -1 0

M ay-1 0

Sep -0 9

M ay-0 9

Jan -0 9

Sep -0 8

M ay-0 8

Jan -0 8

Sep -0 7

Jan -0 7

M ay-0 7

Sep -0 6

M ay-0 6

Jan -0 6

0.00

Source: Bloomberg, DBS Vickers

All eyes still on RM40bn MRT project, Malaysia’s largest contract thus far. It has received the nod from the Economic Council, which is as good as receiving cabinet approval. The recent statement by Malaysia’s PM that he wanted the project to start by July 2011 may be an indication it will not be opened to foreign contractors to avoid delays. In view of this and the expertise of the MMC-Gamuda JV, we believe it will clinch the RM14bn tunnelling contract. This would add RM1.36/share and RM1.02/share to Gamuda and MMC’s SOP value, respectively, based on our DCF value (2011-1016 cashflows, 8.3% blended pretax margins, and 10% discount rate). We only factored in 50% of the DCF value into both MMC and Gamuda’s SOP value. Gamuda is our high conviction BUY. To gain the most leverage to the MRT project, we reiterate our high conviction BUY for Gamuda (TP RM4.90). An alternative direct MRT proxy is MMC Corp (TP RM3.85). We also like MRCB (TP RM2.90) for the MRCB-IJM Land merger, which will offer minorities the opportunity to leverage on IJM Land’s strength in township development to minimise risks with the eventual development of the 3,400 acres of RRIM land. IJM (TP RM6.75) will also emerge a winner from the IJM Land-MRCB merger with NAV accretion and synergies from the enlarged property entity. It may also be able to carve out a portion of MRCB’s lucrative construction and concession business with its niche in environmental jobs.

Page 74 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: SGC / sa: WMT

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

China Autos

Market rewards luxury automakers

Rachel MIU · +852 2863 8843· [email protected]

Dongfeng Motor Brilliance China Geely Automobile Guangzhou Auto BYD Co Ltd Dah Chong Hong Zhongsheng China ZhengTong Sparkle Roll

Bbg Code

Rating

TP (LCY)

489 HK 1114 HK 175 HK 2238 HK 1211 HK 1828 HK 881 HK 1728 HK 970 HK

Buy Buy Hold Not Rated Not Rated Not Rated Not Rated Not Rated Not Rated

17.50 6.30 4.40 -

• Expiry of stimulus policy will lead to normalised growth rate • Luxury segment to outperform • Valuation to reflect growth normalisation Expect sales growth to normalize, as stimulus policy expires. Growth normalisation will benefit long-term development of auto industry. We project low-teens auto sales growth in next two years, supported by untapped markets from 3rd and 4th tier cities, with rising disposal incomes but relatively low penetration rates of 50 vehicles per 1000 people.

Source: DBS Vickers

Auto dealers’ profile

Dah Chong Hong Zhongsheng China ZhengTong Sparkle Roll

No. of outlets 09 10F

11F

1828 HK

40

n.a.

881 HK

47

83 100-120

1728 HK

17

24

50

970 HK

3^

20

n.a.

61*

Revenue (HK$m) FY09A FY10F % growth Dah Chong Hong Zhongsheng China ZhengTong Sparkle Roll#

1828 HK

22,131

29,213

881 HK

16,010

28,717

32 79

1728 HK

5,812

n.a.

n.a.

970 HK

1,219

2,662

118

Net Profit (HK$m) FY09A FY10F % growth Dah Chong Hong Zhongsheng China ZhengTong Sparkle Roll#

1828 HK

710

947

33

881 HK

549

1,267

131

1728 HK

170

n.a.

n.a.

970 HK

113

190

68

* China only ^ Dealership # FY09: FY3/10A; FY10: FY3/11F Exchange rate: RMB1 = HK$1.17 Source: Bloomberg, Companies

Luxury car sales remain robust next year. The luxury car segment will maintain its solid performance in 2011 with new model roadmap and strong income growth in tier-1 and 2 cities. Luxury car buyers are generally not affected by the tightening of liquidity as they usually pay cash upfront and auto financing is still not widely accepted within the industry. Auto dealers the lagged beneficiaries. Auto dealers are benefitting from the more lucrative and higher margins vehicle maintenance services and hence should command richer valuation. Besides, this sub-sector is valued as consumer play, where FY11PE range between 15x and 34x compared to the automakers. Auto dealers include Dah Chong Hong (1828 HK), Zhongsheng (881 HK), and Zhengtong (1728 HK) and Sparkle Roll (970 HK). Most cost effective automakers will benefit. Effective cost controls is key for automakers amid rising production cost environment (driven by higher materials and labour cost). This is even more crucial for 3rd and 4th cities, where demand is mainly focused on 1.6L or below displacement cars. Given the lower sales value and thinner margins, efficient automakers will benefit most, given their tight cost structure. Valuation levelling off on normalised growth projections. We suggest investors to be selective given that the auto sector has outperformed for two consecutive years. As such, we recommend to focus on the luxury car segment (both dealers and automakers) and strong auto groups that have consistently delivered strong earnings performances. Our pick is Dongfeng Motor (489HK; TP HK$17.5).

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Korean Autos

Growth story intact

Jay KIM · +852 2971 1921 [email protected]

• Despite rapid expansion over the past two years, current valuations at 8-10x FY11F P/E on the back of +17% average earnings growth imply the accelerated growth prospects are not fully priced in

Bbg Code

Rec

TP (KRW)

Automakers Hyundai Motor Co. Kia Motors

005380 KS 000270 KS

Buy Buy

240,000 64,000

Auto-parts Hyundai Mobis Pyeong Hwa

012330 KS 043370 KS

Buy Buy

330,000 19,000

Tire manufacturers Hankook Tire

000240 KS

Buy

37,000

• Effective cost control, improving brand perception, and a favourable won/yen rate will continue to boost automakers’ earnings • We remain positive on Korea’s auto sector; top pick – Kia Motors Strong cost reduction potential. For 2011, a key earnings driver for Korean automakers – relative to regional peers under our coverage - is significant cost savings arising from lower manufacturing costs with the integration of manufacturing platforms for new models. Both Hyundai Motor Co. (HMC) and Kia are expected continue to make strong progress in platform integration and component commonality. The marginal cost savings will be the key earnings driver for these automakers.

Source: DBS Vickers

Global production unit 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0

HMC Korea Kia Korea

2012F

2011F

2010F

2009

2008

2007

2006

2005

2004

2003

Auto-parts manufacturers to follow suit. Record high global utilization rates, global market share gains, and continued push upscale by HMC and Kia will bode well for Korean auto-parts makers. The Korean auto-parts makers’ solid earnings momentum coupled with potential customer base expansion will re-rate the sector upward.

HMC overseas Kia Overseas

Source: Company, DBS Vickers

More cautious on Korean tire stocks in the near term. Despite expectations for Hankook Tire to deliver strong FY11 earnings, is it premised on natural rubber prices falling by c.15% from current record high levels. And without capacity additions scheduled for Korean tire manufacturers in 2011, we do not believe the imminent tire price hikes alone will be sufficient to prompt healthy earnings growth. We prefer Indonesian tire manufacturers over Korean tire makers since the former can overcome expected margin pressure via stronger volume growth. Top pick remains Kia Motors, despite the share price having risen 61% in the last 6 months. The counter is still grossly undervalued given its strong potential for a sustainable turnaround. Strong growth prospects and rapid deleveraging will continue to boost sentiment towards Kia and trigger a catch up to global peers’ valuations.

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Explosive growth ahead

Indonesian Autos Jay KIM +852 2971 1921 [email protected]

• Still low vehicle penetration rate means ample room for auto demand to grow

Indonesia Research Team +6221 3983 2668

• Per capita income will soon hit inflexion point to stimulate explosive demand growth

Automakers Astra Int’l

Bbg Code

Rec

TP IDR

ASII IJ

Buy

65,000

Source: DBS Vickers

Auto penetration

2009

2007

2005

2003

2001

1999

1997

1995

24.5% 22.5% 20.5% 18.5% 16.5% 14.5% 12.5% 10.5% 8.5% 6.5% 4.5% 2.5% 0.5% 1993

1991

1989

person (mn)

1987

250 240 230 220 210 200 190 180 170 160 150

Indonesia Population (LHS) 4W Penetration (RHS) 2W Penetration (RHS) Source: BPS, CEIC, Gaikindo, AISI

units 75,000 70,000 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 4W Sales (RHS)

units 750,000 700,000 650,000 600,000 550,000 500,000 450,000 400,000 350,000 300,000 250,000

2W Sales (RHS)

• Tire industry – volume-led growth Expect another year of solid growth for Indonesia auto industry. Unit sales are expected to grow 13% y-oy to 766K vehicles (2-year CAGR of 26%) given the nation’s economy and motorization process are poised to trend up. Even after this year’s record growth, as long as economic growth remains buoyant and low interest rates make auto-financing affordable, the current low penetration rate of less than 46 vehicles per 1000 people means there is still ample room for vehicle ownership to rise Fears of tax rate changes excessive. Although there are concerns over Jakarta and other state governments’ potentially implementing a new progressive tax rate and higher registration tax for new vehicles, we believe these will have relatively limited impact on overall market growth. It is important to note that automotive demand growth in emerging markets has historically been much more sensitive to overall economic sentiment (i.e. private consumption, auto financing affordability, and inflationary pressure) than government-driven policies. Growing private consumption will keep Indonesia’s automotive market on solid growth path. Indonesia’s average per capita income expected to reach US$3,000 by end 2011. Based on trends in other emerging markets, this level of per capita income is the inflexion point where private car purchases start to see explosive growth. Tire industry – better positioned. Despite fears of rising raw material costs, Indonesian tire makers are betterpositioned to benefit due to stronger bargaining power as a result of their geographical proximity to plantations, and lower logistics costs compared to global competitors. We have exceptional expectations for tire maker Multistrada (MASA IJ) since it will benefit from 40% expansion in capacity to 13.7m tires/year in 2011. Accordingly, despite weaker margins expectations, core earnings momentum for tire manufacturers will remain strong in FY11 driven by larger sales volumes and improving economies of scale.

Source: Gaikindo

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Singapore Offshore & Marine

Renewal cycle gaining steam

Janice CHUA +65 398 7954 [email protected]

• Spurt in new orders since 4Q10 to sustain

Jeremy THIA +65 6398 7974 [email protected]

• Asset replacement triggered by stricter requirements for rigs vs an aged rig fleet

Bbg Code

Rec

• Potential in new markets: drillships & wind farm vessels provide new growth drivers.

TP (S$)

Large Caps Keppel Corp Ltd SembCorp Industries SembCorp Marine Ltd Cosco Corp

KEP SP SCI SP SMM SP COS SP

Buy Buy Buy Buy

12.50 5.60 6.08 2.76

Small / Mid Caps ASL Marine Holdings Ltd CH Offshore Ltd Ezion Holdings Jaya Holdings Ltd Mermaid Maritime PCL Swiber Holdings Ltd

ASL SP CHO SP EZI SP JAYA SP MMT SP SWIB SP

Hold Hold Buy Buy Hold Buy

0.96 0.60 1.00 1.15 0.49 1.28

Source: DBS Vickers

Annual order wins vs. Oil price – positively correlated S$ m 8,000

US$/bbl 120

7,000

100

6,000

80

5,000 4,000

60

3,000

40

2,000

20

1,000 0

0 2003

2004

KEP

2005

2006

2007

2008

2009

SMM

2010 YTD Oil price

Source: Keppel Corp, Sembcorp Marine, Bloomberg, DBS Vickers

Oversupply persists – Utilisation rates for global AHTS fleet to stay subdued in 2011 AHTS to rig ratio (x)

2010F

2011F

2012F

2013F

69% 79%

69% 80%

62% 84%

65% 88%

66% 89%

62% 75%

69% 83%

69% 84%

Implied utilisation of small AHTS (<8,000bhp)

2.6x 3.0x

62% 71%

60% 69%

Implied utilisation of large AHTS (>8,000bhp)

1.7x 2.3x

63% 86% Implied utilisation of global AHTS fleet 2.3x 63% 2.8x 76%

NB: AHTS to rig ratio based on historical ratios estimated over the 2004-2009 period. Source: DBS Vickers, ODS Petrodata, Clarksons

• Prefer shipyards to offshore vessel owners/operators. Buy Keppel Corp (KEP), SembCorp Marine (SMM) and Cosco Corp, target prices adjusted up to factor in higher contract wins. Rigbuilders to benefit from fleet renewal cycle. The global offshore rig fleet is highly aged, with 70% >20 years old. This implies a growing technical supply/demand mismatch amid increasingly stringent safety and environmental standards and tougher offshore conditions. Post Macondo, there has been an increased focus on safety among oil and gas companies, along with enhanced safety requirements imposed by the US government. We believe this has kick-started the renewal cycle, which was stalled by the onset of the global financial crisis. Indeed, the divergence in utilisation and day rates with preference for younger vs. older rigs has led to renewed interests among operators to seek newbuilds. Recovery in new rig orders, evidenced since 4Q10, will sustain its momentum on the back of resumed capex spending. New wings of growth from drillships and tapping on offshore wind energy potential. International drillers are scouting for deepwater rigs, including drillships. KEP and SMM have unveiled new drillship designs with ultradeepwater and drilling capabilities of up to 40,000 feet. We believe the relatively lower building and operating costs for KEP’s and SMM’s compact design differentiate them from the Korean competitors. Separately, KEP has also secured a wind farm installation vessel order of the KFELS MPSEP design to tap on the projected growth in the global offshore wind energy market. Offshore vessel operators still face headwinds from oversupply issues. While vessel operators have reported a pick up in activity levels globally, the supply situation remains unfavourable with awards of firm charters slow to materialise. Based on our estimates, utilisation rates of small and mid/large AHTS alike should recover more evidently only from 2012 onwards. Till then, we do not expect a meaningful recovery in earnings for vessel operators. Prefer shipyards to asset owners/operators. We expect yards to benefit from the asset replacement cycle, with more orders in the offing for newbuild rigs and production units. Vessel owners, on the other hand, could see flat earnings yo-y, with downside bias on poor visibility of contract coverage.

Page 78 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: MY sa: TW

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

China / Hong Kong Banks

Prefer large caps

Alexander LEE, CFA +852 2971 1930 [email protected]

China CCB ICBC ABC CMB BoCom CNCB CMBC BOC Hong Kong Hang Seng BEA BOCHK

• NIM expansion and Rmb appreciation are key re-rating themes for Chinese banks in 2011

Bbg Code

Rec

Tp (LCY)

939 HK 1398 HK 1288 HK 3968 HK 3328 HK 998 HK 1988 HK 3988 HK

Buy Buy Buy Buy Buy Buy Buy Buy

8.81 7.17 4.93 24.50 10.70 6.04 8.09 4.76

11 HK 23 HK 2388 HK

Buy Hold Hold

123.60 34.00 24.60

*shown in order of preference Source: DBS Vickers

Chinese banks’ PB vs. 1-yr lending rate x

% 8.0

6.0

7.5

5.0

7.0 4.0

6.5 6.0

3.0

5.5

2.0

5.0 1.0

4.5

0.0

4.0 06

07

08

09

10

11

Average sector PB (LHS) 1-yr lending rate (RHS)

Chinese banks’ PB vs. Rmb x

US$/Rmb

6.0

0.160

5.0

0.150

4.0

0.140

3.0

0.130

2.0

0.120

1.0

0.110

0.0

0.100 06

07

08

09

10

• Prefer larger Chinese banks as they face less regulatory uncertainties • 2011 will be a year of low margins but high asset growth for HK banks Early tightening cycle is positive for Chinese banks. Chinese banking stocks will perform well in 2011, as China begins its tightening cycle. Net interest margin expansion and Rmb appreciation will be key re-rating themes. Capital raising activity is also largely completed. However, sentiment may be shaky in early 2011 due to fears of overtightening and profit taking after rights issues in Dec 2010. Confidence should strengthen once policy makers lay out a concrete policy road map. Moderate EPS growth even with dilution. We expect Chinese banks to achieve average EPS growth of 12% in 2011, even with IPO and rights dilution effects. Key drivers will include NIM expansion, moderate asset growth, and robust fees. These positives can eclipse higher credit cost due to prudent regulatory changes. Prefer large cap Chinese banks. Although smaller Chinese banks stand to benefit more from expected interest rate hikes, they are weighed by higher regulatory risks. Mid-cap banks face higher credit cost risk due to likely adoption of a new 2.5% provision to loans requirement. In addition, mid-cap banks also face greater capital pressure compared to large-cap banks. More selective on HK banks. Hong Kong banks have potential to re-rate further on improving sector’s ROE. However, this may be challenging, as margins will remain low in 2011 with quantitative easing flooding the banking system with liquidity. Meanwhile, credit and operating cost savings are difficult to attain at current levels. Conviction plays are CCB and ICBC. The two largest banks in China have the most bounce in 2011. Both are well capitalized and have built up prudent provisions. We also like their attractive FY11 PE and P/BV levels of 9x and 1.8x respectively against projected ROE levels of 21+%.

11

Average sector PB (LHS) US$ / Rmb (RHS)

Source: Bloomberg, DBS Vickers

Page 79 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com sa: JC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

China Shipyards

Orders keep flowing

HO Pei Hwa +65 6398 7968 [email protected]

• Offshore, containers and tankers’ order flows will gain momentum.

Janice CHUA +65 6398 7954 [email protected]

• Continued strong government support to stimulate shipbuilding industry.

Bbg Code Cosco Corp Yangzijiang JES

Rating

COS SP YZJ SP JES SP

TP ($)

Buy BUY BUY

2.76 2.60 0.50

Source: DBS Vickers

Robust order flow and healthy book-to-bill ratio Cos c o

Yangzijiang

J ES

Or de r book (US D bln) As of Nov 2010

US D 6.1 bn

US D 5.3 bn

US D 0.8 bn

Deliv ery s chedule

2010 - 2013

2010 - 2013

2010 - 2012

Book-to-bill ratio

2.3x

2.4x

1.8x

Ne w or de r s YT D

US D 1.9bn

US D 1.0bn

US D0.9bn

Source: DBS Vickers

Price Relative Performance 210

170

130

90

50 Dec-09

Feb-10

Apr-10 Cosco Corp

Jun-10 Yangzijang

Aug-10

Oct-10

JES Int'l

• BUY into leading Chinese yards: Cosco and Yangzijiang Revival in orders for containers and tankers will offset the slowdown in bulk carrier orders. The order flow for Chinese shipbuilders is expected to remain strong in 2011. A likely slowdown in bulk carriers order after a robust 2010 could be mitigated by the revived interest for containers and tankers. In addition, offshore contract flow is gaining momentum as well, in particular, FPSO, jack up rigs and wind turbine vessels. We estimate global ship orders to grow 15% yoy in 2011, of which, containers and tankers are expected to grow 125% and 45% respectively on the back of declining orderbook-to-fleet ratio, attractive newbuild prices and profitable charter rates. Government support a key advantage. Government’s support will continue to be a trump card for Chinese shipbuilders especially the SOE and larger private yards, sharpening their competitive advantage over Korean and Japanese yards. In particular, the financing enabled the established shipyards and shipowners to take on new orders and pull in a significant number of owners who would have otherwise headed to South Korea. For instance, Chinese government’s recent US$5bn fund to Greek shipowners could create orders for up to 140 Panamax-equivalent vessels or 11m dwt (2% of current fleet) for Chinese shipyards. Leaders of the pack. We recommend investors to increase exposure to leading Chinese yards to tap into the robust order flow. Cosco is our top pick for its offshore positioning, being one of the few shipyards that has a track record in offshore projects and the first to secure full turnkey project. Yangzijiang is a prime beneficiary of revived containership orders being the largest privately owned containership builder in China. Revenue visibility is high as book-to-bill ratio are >2x for both yards.

Source: DBS Vickers

Page 80 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com ed: MY / sa: TW

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

China / Hong Kong Banks

Prefer large caps

Alexander LEE, CFA +852 2971 1930 [email protected]

China CCB ICBC ABC CMB BoCom CNCB CMBC BOC Hong Kong Hang Seng BEA BOCHK

• NIM expansion and Rmb appreciation are key re-rating themes for Chinese banks in 2011

Bbg Code

Rec

Tp (LCY)

939 HK 1398 HK 1288 HK 3968 HK 3328 HK 998 HK 1988 HK 3988 HK

Buy Buy Buy Buy Buy Buy Buy Buy

8.81 7.17 4.93 24.50 10.70 6.04 8.09 4.76

11 HK 23 HK 2388 HK

Buy Hold Hold

123.60 34.00 24.60

*shown in order of preference Source: DBS Vickers

Chinese banks’ PB vs. 1-yr lending rate x

% 8.0

6.0

7.5

5.0

7.0 4.0

6.5 6.0

3.0

5.5

2.0

5.0 1.0

4.5

0.0

4.0 06

07

08

09

10

11

Average sector PB (LHS) 1-yr lending rate (RHS)

Chinese banks’ PB vs. Rmb x

US$/Rmb

6.0

0.160

5.0

0.150

4.0

0.140

3.0

0.130

2.0

0.120

1.0

0.110

0.0

0.100 06

07

08

09

10

• Prefer larger Chinese banks as they face less regulatory uncertainties • 2011 will be a year of low margins but high asset growth for HK banks Early tightening cycle is positive for Chinese banks. Chinese banking stocks will perform well in 2011, as China begins its tightening cycle. Net interest margin expansion and Rmb appreciation will be key re-rating themes. Capital raising activity is also largely completed. However, sentiment may be shaky in early 2011 due to fears of overtightening and profit taking after rights issues in Dec 2010. Confidence should strengthen once policy makers lay out a concrete policy road map. Moderate EPS growth even with dilution. We expect Chinese banks to achieve average EPS growth of 12% in 2011, even with IPO and rights dilution effects. Key drivers will include NIM expansion, moderate asset growth, and robust fees. These positives can eclipse higher credit cost due to prudent regulatory changes. Prefer large cap Chinese banks. Although smaller Chinese banks stand to benefit more from expected interest rate hikes, they are weighed by higher regulatory risks. Mid-cap banks face higher credit cost risk due to likely adoption of a new 2.5% provision to loans requirement. In addition, mid-cap banks also face greater capital pressure compared to large-cap banks. More selective on HK banks. Hong Kong banks have potential to re-rate further on improving sector’s ROE. However, this may be challenging, as margins will remain low in 2011 with quantitative easing flooding the banking system with liquidity. Meanwhile, credit and operating cost savings are difficult to attain at current levels. Conviction plays are CCB and ICBC. The two largest banks in China have the most bounce in 2011. Both are well capitalized and have built up prudent provisions. We also like their attractive FY11 PE and P/BV levels of 9x and 1.8x respectively against projected ROE levels of 21+%.

11

Average sector PB (LHS) US$ / Rmb (RHS)

Source: Bloomberg, DBS Vickers

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

China / Hong Kong Retail

Still in the spotlight

Mavis HUI +852 2863 8879 [email protected]

• Multiple growth drivers from macro and micro fronts continue to fuel fundamental performance of sector

Bbg Code

Rec

TP (LCY)

Food retailers Beijing Jingkelong Lianhua Supermarket Wumart

814 HK 980 HK 8277 HK

Buy Buy Hold

10.84 40.74 19.21

Department stores Golden Eagle Lifestyle New World Dept Store Parkson

3308 HK 1212 HK 825 HK 3368 HK

Hold Hold Buy Buy

24.09 19.83 9.52 15.19

Discretionary retailers Giordano Gome Oriental Watch Sa Sa

709 HK 493 HK 398 HK 178 HK

Buy Buy Buy Hold

5.50 3.69 6.13 5.57

Target prices based on projected RMB:HKD forex rate of 1.21:1 by end-2011 Source: DBS Vickers

Average wage in China escalated

• Decent valuation to sustain over the medium-term, while global economic concerns could trigger brief corrections • Maintain positive view and opt for valuation laggards and yield. Macro outlook stays positive. Chinese retailers remain wellpoised to benefit from the government’s rebalance of growth towards consumption. Accelerated expansion in household income along with better purchasing power as Renminbi continues to appreciate should support decent performance across the sector. Retailers’ cost-plus strategies should also help to hedge against an inflationary environment. Over the mediumterm, operators that capture discretionary spending, including retailers of cosmetics, clothing & luxury merchandises should show even better growth prospects as living standard boom in China. Micro drivers lift growth further. In view of ample room for expansion, most Chinese retailers have expedited organic growth plans to more swiftly capture better economies of scale and operating efficiency. This is especially found in 2nd and 3rd-tier cities of China that still offer lower average start-up costs. Coupled with their abundant cash on hand and an open mind on acquisitions to boost growth, the sector should comfortably sustain double-digit revenue growth for 2011.

RMB 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1959

1969

1979

1989

1999

2009

Note: Latest 10-year CAGR for 2000-09 reached 15% Source: CEIC, DBS Vickers

A strong sector while valuation matters. Riding on positive industry outlook and better purchasing power of the Mainlanders, Chinese retailers as well as tourist retail plays in Hong Kong should continue to stand out as defensive choices in fundamental terms. While sector valuation will sustain at a good level over the medium-run, we could not rule out possible brief corrections that could set off by lingering global uncertainties. Together with share prices of growth stocks running ahead of peers and become less attractive for now, we prefer valuation laggards including Parkson, New World Dept Store, Beijing Jingkelong and Oriental Watch. Counters offering a better yield across the sector, such as Giordano (c.5%) could also serve as good picks under the current environment.

Page 82 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com sa: DC

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

China Insurance

Riding up the rate cycle

Dennis LAM +852 2971 1922 [email protected]

• Chinese insurance sector offers secular growth opportunities that are less impacted by China’s tightening environment.

China China Life Ping An Insurance China Pacific Insurance PICC

Bbg Code

Rec

TP (LCY)

2628 HK 2318 HK 2601 HK 2328 HK

Hold Buy Buy Buy

38.00 99.00 43.00 14.64

• Investment returns to improve in an interest rate upcycle. • Premium growths for both life and non life businesses remain strong • Attractive valuation as the interest rate cycle moves out of its trough.

Annual Insurance Data

Beneficiary of the interest rate upcycle. After a challenging 2010 with low investment yields, 2011 looks set to be a better year as the interest rate upcycle resumes. We believe insurers’ performance will be more favourable in a rising interest rate environment where returns from deposits and fixed income instruments will be higher.

RMB m 1,200,000 1,000,000 800,000 600,000 400,000 200,000

P&C

2010E

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

0

Life and Health insurance

Source: CIRC

Premium growth remains strong. Premium remained very robust for the insurance industry in 2010 with c.30% yoy growth. We expect FY11 life premiums to continue to be driven by participating products whilst auto insurance will drive non-life premiums growth. The start of the rate upcycle may rekindle some interest in investment-linked products as well. Valuation still reasonable. Insurers typically perform well on the interest rate upcycle. We continue to think Chinese insurers are still trading at very reasonable valuations as we are just moving out of the cycle trough. We maintain our preference on Ping An for its more balanced premium growth and profitability profile on the life side. We also like PICC for the improving underwriting profitability of its nonlife business.

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“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

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2011 Asia Equity Outlook The Year of the Rabbit

REGIONAL EARNINGS GUIDE

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SINGAPORE : EARNINGS GUIDE Company BASIC MATERIALS China XLX Midas Holdings Xinren Aluminum Straits Asia

FYE

Dec Dec Dec Dec

Sector CONSUMER GOODS China Fishery Group China Minzhong ConscienceFood Hldgs First Resources Indofood-Agri Kencana Agri Olam International Pacific Andes Petra Food Wilmar

Sep Jun Dec Dec Dec Dec Jun Sep Dec Dec

Sector CONSUMER SERVICES Asiatravel.com Banyan Tree ComfortDelgro Genting Singapore Raffles Education Singapore Airlines Singapore Press SMRT Tiger Airways

Sep Dec Dec Dec Jun Mar Aug Mar Mar

595 1,145 549 1,842

453 871 418 1,262

4,131

3,004

2,165 726 99 2,100 3,923 494 6,503 966 990 38,051

1,648 553 75 1,598 2,986 376 4,949 735 753 28,956

102 868 3,238 25,456 656 18,269 6,333 3,053 1,009

58,983

Dec Dec

Sector Non-Bank Financials ARA Asset Cityspring Infrastructure First Ship Lease Pacific Shipping Trust Rickmers Maritime Singapore Exchange

Mkt Cap (US$m)

56,018

Sector FINANCIALS Banking OCBC Bank UOB Bank

Mkt Cap (S$m)

32,408 27,864

60,272 Dec Mar Dec Dec Dec Jun

Sector

1,027 544 266 275 161 9,084

11,357

Price (S$) 16-Dec

Target Price (S$)

% Upside

Rcmd

Share Price Performance (%) 3M 6M 12M

0.60 0.94 0.50 2.45

0.66 1.20 0.70 2.30

10% 28% 40% -6%

Buy Buy Buy Hold

3 (8) 0 7

2.16 1.35 0.25 1.43 2.71 0.43 3.06 0.34 1.62 5.95

2.38 1.60 0.38 1.55 3.20 0.46 3.60 0.48 1.59 6.60

0.41 1.14 1.55 2.09 0.25 15.26 3.97 2.01 1.86

0.40 1.18 1.79 2.70 0.25 18.50 4.37 1.88 1.90

10% 19% 52% 8% 18% 7% 18% 41% -2% 11%

Hold Buy Buy Buy Buy Hold Buy Buy Hold Hold

13 (2) 11 31 20 6 1 6 27 (7)

8 0 0 20

13 19 0 30 24 41 18 13 35 2

(9) 6 0 5

67 0 0 53 26 51 15 21 51 (6)

Avg 6-mth Vol (m) 4.2 7.3 38.8 5.4

0.3 1.8 8.2 1.7 6.3 5.5 7.2 3.8 0.4 8.5

42,628 78 661 2,464 19,372 499 13,903 4,819 2,323 768

-2% 3% 15% 29% 0% 21% 10% -6% 2%

Hold Hold Buy Buy FV Buy Hold FV Hold

(13) 37 1 0 (12) (5) (5) (3) (11)

1 39 8 87 (17) 5 4 (8) 4

(37) 50 (3) 82 (37) 7 10 10 0

0.6 0.3 3.8 123.2 9.6 1.9 3.7 1.9 3.3

44,885

24,662 21,204

9.70 17.86

11.30 21.50

16% 20%

Buy Buy

10 (4)

14 (9)

12 (10)

4.8 2.9

45,866 781 1.47 414 0.56 203 0.45 209 US$ 0.36 123 0.38 6,912 8.48

1.70 0.58 0.45 US$0.39 0.36 11.40

15% 4% 1% 11% -6% 34%

Buy Hold Hold Buy Hold Buy

29 (9) 5 20 1 0

36 (6) 19 25 1 11

104 (3) (25) 37 10 5

0.9 0.9 0.6 0.2 0.4 4.0

8,642

HEALTHCARE Biosensors Int'l Mar China Animal Healthcare Dec Raffles Medical Dec

1,275 629 1,231

970 478 936

Sector

3,134

2,385

1.16 0.40 2.34

1.20 0.41 2.40

4% 4% 3%

Hold Buy Hold

21 27 4

50 36 26

50 80 60

11.4 11.0 0.4

Net Profit (Before EI) (S$m) 09 10F 11F

EPS (Scts) 10F

24 38 60 175

34 48 73 110

45 73 98 208

3.4 4.6 6.6 9.8

297

265

425

124 59 11 148 222 22 183 124 32 2,253

153 72 14 135 188 10 272 131 52 1,905

186 86 16 184 246 20 354 150 63 2,280

3,178

2,933

11F

CAGR 09-11 (%)

10F

11F

4.5 6.0 8.9 18.5

39 20 15 9

17.4x 20.5x 7.6x 25.1x

13.1x 15.7x 5.6x 13.3x

15.6x

9.7x

14.1x 10.0x 5.3x 15.5x 20.8x 47.4x 22.7x 7.4x 19.1x 20.0x

11.6x 8.5x 4.7x 11.4x 16.0x 25.0x 18.3x 6.4x 15.8x 16.7x

3,583

19.1x

15.6x

6 3 220 (39) 82 1,062 422 163 (51)

2 6 230 843 47 216 485 163 37

5 15 244 1,114 37 1,416 383 158 64

1,866

2,028

3,436

1,859 1,792

2,253 2,447

2,550 2,614

3,651

4,700

5,164

48 (50) 11 36 61 306

64 8 1 36 37 316

62 (22) (3) 38 42 434

411

462

550

14 31 38

41 38 44

58 55 54

83

124

167

15.3 13.5 4.7 9.2 13.0 0.9 13.5 4.6 8.5 29.8

18.5 15.9 5.4 12.5 17.0 1.7 16.8 5.3 10.3 35.7

13 20 20 12 5 (12) 26 9 30 1

PE (x)

EV/EBITDA (x) 10F 11F

Price/ BV (x) 10F

Price/ Sales (x) 10F

Div Yld (%) 10F 11F

Net Debt/ Equity 09(x)

ROA 09

ROE 09

Analyst

Disclosure Legend

9.7x 10.8x 6.2x 17.1x

7.5x 8.0x 4.9x 9.3x

1.9x 1.8x 2.2x 4.2x

1.0x 5.3x 0.5x 3.1x

1.1% 1.1% 0.0% 2.4%

1.5% 2.1% 0.0% 4.5%

0.56 cash 4.84 0.32

4% 11% 7% 14%

8% 14% 80% 31%

Ho Pei Hwa Paul Yong Paul Yong Suvro Sarkar

9.2x 4.7x 2.2x 8.8x 11.1x 17.9x 16.4x 6.7x 12.3x 15.5x

7.6x 4.1x 1.6x 7.0x 8.8x 13.2x 12.5x 5.7x 11.0x 12.1x

2.4x 1.6x 1.2x 2.3x 2.5x 2.0x 3.5x 0.8x 2.6x 2.4x

3.1x 2.6x 0.9x 5.6x 2.5x 2.1x 0.6x 0.8x 0.5x 0.8x

2.3% 0.0% 9.1% 1.5% 0.0% 0.0% 1.6% 4.0% 2.5% 1.0%

2.8% 0.0% 4.3% 2.6% 0.0% 0.0% 1.6% 4.7% 2.5% 1.2%

0.82 cash cash 0.18 0.40 0.50 2.49 0.71 2.02 0.36

12% 24% 30% 13% 7% 8% 4% 6% 3% 9%

26% 35% 54% 24% 18% 13% 30% 15% 13% 18%

Andy Sim Andy Sim Andy Sim Santoso Santoso Santoso Santoso Santoso Santoso Santoso

20.4x 58.2x 13.3x 22.8x 17.9x 12.8x 16.5x 19.2x 15.5x

19.1x 16.8x 5.8x 19.8x 9.0x 7.4x 10.2x 9.4x 25.6x

11.8x 14.1x 5.3x 13.7x 11.7x 4.1x 13.0x 9.5x 14.2x

3.2x 1.6x 1.8x 4.5x 1.2x 1.4x 2.8x 4.0x 6.6x

1.1x 2.7x 1.0x 8.1x 3.5x 1.4x 4.6x 3.4x 1.5x

1.5% 0.0% 3.5% 0.0% 0.0% 0.8% 6.8% 4.3% 0.0%

3.0% 0.0% 3.7% 0.0% 0.0% 2.6% 6.0% 4.3% 0.0%

cash 0.44 0.05 0.22 0.08 cash cash cash cash

16% 0% 6% (4%) 5% 4% 13% 11% (29%)

27% 1% 14% (8%) 11% 7% 20% 23% 69%

Suvro Sarkar Derek Tan Andy Sim Research Team Andy Sim Paul Yong Andy Sim Andy Sim Paul Yong

n.a. n.a.

n.a. n.a.

1.7x 1.5x

n.a. n.a.

3.4% 3.5%

3.8% 3.4%

cash cash

nm nm

12% 12%

Research Team Research Team

Note 1

Note 2

0.7 0.8 11.0 6.9 1.8 18.1 30.5 10.7 9.3

2.0 2.0 11.7 9.2 1.4 118.8 24.0 10.5 12.0

(17) 122 5 nm (37) 15 (5) (1) na

55.6x 146.5x 14.0x 30.1x 14.0x 84.3x 13.0x 18.7x 20.0x

29.1x

17.2x

69.8 161.8

79.0 172.9

16 21

13.9x 11.0x

12.3x 10.3x

12.8x

11.7x 16.2x nm nm 7.3x 3.8x 20.9x

13.0x 15.5x 6.9x 7.2x 6.5x 20.7x

12.8x 15.0x 7.2x 8.0x 6.0x 14.7x

6.4x 1.1x 0.6x 0.9x 0.4x 11.1x

9.6x 1.2x 2.0x 3.4x 0.8x 14.2x

3.3% 8.3% 12.9% 9.4% 8.0% 3.1%

3.3% 7.6% 11.5% 9.9% 8.3% 4.3%

cash 9.74 1.13 0.82 1.68 cash

35% (2%) 1% 6% 4% 18%

47% (20%) 2% 12% 11% 37%

Derek Tan Suvro Sarkar Suvro Sarkar Suvro Sarkar Suvro Sarkar Research Team

22.7x 8.7x 18.7x

14.6x 5.6x 15.6x

6.5x 3.2x 4.4x

8.1x 4.7x 4.8x

0.0% 0.6% 1.5%

0.0% 0.9% 1.7%

cash cash cash

(1%) 23% 12%

(1%) 27% 16%

Andy Sim Research Team Andy Sim

9.3 0.9 0.2 6.1 8.8 29.5

9.1 (2.3) (0.6) 6.4 10.0 40.5

14 (53) na 2 (16) 19

15.8x 60.5x 280.4x 7.6x 4.3x 28.8x

24.6x

20.6x

3.9 2.4 8.4

5.5 3.5 10.3

103 32 19

29.8x 16.2x 27.8x

21.1x 11.4x 22.7x

25.4x

18.8x

Note 3

Note 2 Note 2

Note 2, 4 Note 2

Note 2

Note 3

Note 2

SINGAPORE : EARNINGS GUIDE Company

FYE

INDUSTRIALS Asia Environment Dec ASL Marine Jun Boustead Singapore Mar Broadway Dec China Merchant HoldingsDec Cosco Corp Dec Ezion Holdings Dec Fraser and Neave Sep Hiap Seng Mar Hyflux Dec Jaya Holdings Jun Jes International Dec Keppel Corporation Dec Neptune Orient Lines Dec Noble Dec OKP Holdings Dec Pan-United Corporation Dec PEC Ltd Jun SembCorp Industries Dec SembCorp Marine Dec SIA Engineering Mar Mar SATS Ltd Singapore Post Mar Sound Global Dec ST Engineering Dec Swiber Dec Tat Hong Mar Tiong Seng Holdings Dec Yangzijiang Dec Yongnam Holdings Dec

Sector OIL & GAS CH Offshore Mermaid Maritime

Mkt Cap (US$m)

Price (S$) 16-Dec

Target Price (S$)

% Upside

Rcmd

Share Price Performance (%) 3M 6M 12M

103 292 574 220 428 4,658 493 8,566 196 1,259 562 391 17,136 5,580 12,476 147 283 286 8,856 10,284 4,721 3,098 2,239 1,077 9,869 508 467 195 7,252 361

79 223 437 168 326 3,544 375 6,518 149 958 428 297 13,040 4,246 9,494 112 216 217 6,739 7,826 3,592 2,358 1,704 820 7,510 387 355 149 5,519 275

0.20 0.97 1.11 1.06 0.74 2.08 0.69 6.10 0.65 2.20 0.73 0.34 10.68 2.16 2.07 0.56 0.51 1.14 4.95 4.95 4.33 2.80 1.16 0.84 3.25 1.00 0.94 0.26 1.89 0.29

0.15 0.96 1.00 1.34 1.08 2.46 1.00 6.90 0.82 3.20 1.15 0.50 12.50 2.50 2.60 0.70 0.62 1.58 5.70 6.08 5.10 3.13 1.17 0.94 3.85 1.28 1.08 0.36 2.60 0.47

-24% -1% -10% 27% 47% 18% 45% 13% 26% 45% 57% 50% 17% 16% 26% 26% 21% 39% 15% 23% 18% 12% 1% 13% 18% 28% 15% 40% 38% 62%

FV Hold Hold Hold Buy Buy Buy Hold Buy Hold Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Hold Hold Buy Buy Hold Buy Buy Buy

8 3 19 (12) 3 21 3 (1) (2) 7 7 52 17 7 16 19 2 10 12 24 (2) 1 (4) 9 (2) (5) (6) (4) 7 9

102,578 Jun Sep

Sector PROPERTY Allgreen Properties Dec Bukit Sembawang Mar Capitaland Dec CapitaMalls Asia Dec City Development Dec Global Logistics Mar Guocoland Jun Ho Bee Dec Keppel Land Dec SC Global Dec Singapore Land Dec United Industrial Corpora Dec UOL Group Dec Wheelock Properties Dec Wing Tai Hings Jun Yanlord Dec Ying Li International Dec

Sector

Mkt Cap (S$m)

(31) 8 51 86 21 94 (12) 47 1 2 46 116 33 41 5 16 (3) 68 38 34 36 10 18 20 2 3 (10) 0 64 14

0.6 0.2 0.5 1.2 0.1 16.3 6.3 2.6 0.9 1.0 3.9 13.8 4.7 13.0 26.5 0.7 0.3 3.0 2.5 5.1 0.5 2.2 3.8 8.0 2.4 4.5 0.4 0.9 15.3 6.4

78,060

338 334

258 254

672

511

1,877 1,135 15,601 7,185 11,985 9,554 3,041 1,136 6,700 672 3,065 3,334 3,491 2,369 1,334 3,207 822

1,428 864 11,872 5,468 9,120 7,271 2,314 864 5,099 511 2,332 2,537 2,657 1,803 1,015 2,441 625

76,507

33 15 37 (4) 18 39 4 23 2 0 11 97 25 6 11 19 9 49 22 26 10 6 6 (9) 4 (1) (1) 4 45 16

Avg 6-mth Vol (m)

58,220

0.48 0.43

0.60 0.49

24% 15%

Hold Hold

(9) (6)

(9) (23)

(27) (48)

0.8 2.7

Net Profit (Before EI) (S$m) 09 10F 11F 7 51 60 32 59 110 20 475 13 75 172 (21) 1,265 (974) 565 14 35 21 683 712 261 147 146 55 444 11 69 43 452 40

8 40 43 44 51 198 39 583 31 79 120 12 1,283 508 635 15 20 45 790 758 230 181 147 53 473 41 39 30 559 53

6 39 55 46 79 275 62 586 26 75 61 36 1,218 573 907 18 28 31 644 655 271 207 151 96 507 77 45 38 647 58

5,040

7,109

7,516

59 30

49 (28)

44 (4)

89 1.18 4.64 3.66 1.85 13.18 2.12 2.57 1.54 4.62 1.62 7.43 2.42 4.49 1.98 1.68 1.65 0.38

1.34 5.25 4.96 2.59 13.26 2.76 2.08 2.20 4.96 2.19 8.30 2.21 5.23 2.32 2.05 1.71 0.52

14% 13% 36% 40% 1% 30% -19% 43% 7% 35% 12% -9% 16% 17% 22% 4% 37%

Hold Hold Buy Buy FV Buy Hold Buy Buy Buy Buy Hold Buy Buy Hold Hold Buy

3 (1) (8) (14) 14 0 18 (3) 14 4 8 7 5 4 (2) (10) (8)

7 2 (2) (14) 25 0 25 2 22 2 13 14 19 7 4 (5) (11)

3 (7) (12) (30) 22 0 24 (3) 40 (2) 15 18 17 (2) (6) (26) (41)

2.3 0.0 16.1 4.7 1.5 41.9 0.2 1.1 3.5 0.3 0.1 0.1 0.8 0.6 1.4 5.6 4.6

169 13 872 388 594

21

EPS (Scts) 10F

11F

CAGR 09-11 (%)

2.0 13.2 8.4 21.5 5.9 8.8 5.5 41.8 10.4 14.8 15.5 1.0 80.5 19.7 10.7 5.6 3.6 18.0 44.3 36.6 21.3 16.6 7.7 3.6 15.7 8.1 6.8 3.9 14.6 4.3

1.5 12.9 10.7 22.4 9.2 12.3 8.3 42.1 8.4 14.1 7.9 3.1 76.4 22.2 15.2 6.8 5.1 12.4 36.1 31.6 25.1 18.9 7.9 6.5 16.8 15.1 7.9 5.0 16.9 4.7

(2) (13) (4) 21 na na 74 11 41 0 (40) nm (2) nm 2 8 (10) 21 (3) (4) 2 18 2 23 7 159 (24) (6) 17 20

7.0 (3.1)

6.2 (0.5)

(14) #NUM!

40

61 424 281 57 343 516 294 158 134 205 (10)

209 13 704 350 634 290 98 226 342 111 169 229 381 184 155 332 (11)

296 97 917 233 834 309 128 232 467 152 179 217 417 308 147 353 60

4,499

4,415

5,344

13.1 6.0 16.6 9.0 69.8 6.4 11.0 30.6 23.9 28.1 41.0 16.6 47.8 15.4 19.5 17.1 (0.6)

18.6 45.1 21.6 6.0 91.7 6.9 14.4 31.5 32.6 38.5 43.3 15.7 52.3 25.7 18.5 18.2 3.1

32 94 (0) (23) 18 nm 45 (26) 16 63 (28) (35) 19 40 5 29 nm

PE (x) 10F

11F

10.2x 7.3x 13.3x 4.9x 12.4x 23.5x 12.6x 14.6x 6.2x 14.9x 4.7x 33.4x 13.3x 11.0x 19.4x 10.0x 14.0x 6.3x 11.2x 13.5x 20.3x 16.9x 15.1x 23.4x 20.7x 12.3x 13.9x 6.5x 13.0x 6.7x

13.1x 7.5x 10.4x 4.7x 8.0x 16.9x 8.3x 14.5x 7.6x 15.6x 9.3x 11.0x 14.0x 9.7x 13.6x 8.2x 10.0x 9.2x 13.7x 15.6x 17.2x 14.8x 14.7x 12.9x 19.3x 6.6x 11.9x 5.1x 11.2x 6.2x

14.4x

13.6x

6.9x nm

7.7x nm

31.7x

16.9x

9.0x 77.2x 22.1x 20.6x 18.9x 32.9x 23.3x 5.0x 19.3x 5.8x 18.1x 14.5x 9.4x 12.9x 8.6x 9.7x nm

6.3x 10.3x 17.0x 30.9x 14.4x 30.9x 17.9x 4.9x 14.2x 4.2x 17.1x 15.4x 8.6x 7.7x 9.1x 9.1x 12.2x

17.3x

14.3x

EV/EBITDA (x) 10F 11F

Price/ BV (x) 10F

Price/ Sales (x) 10F

Div Yld (%) 10F 11F

Net Debt/ Equity 09(x)

ROA 09

ROE 09

Analyst

8.1x 4.9x 6.2x 3.1x 14.9x 9.6x 11.4x 9.8x 4.5x 12.6x 4.4x 19.6x 8.8x 6.2x 14.2x 3.2x 6.2x 2.1x 5.7x 8.5x 15.3x 9.0x 11.3x 11.1x 12.0x 11.2x 6.6x 3.4x 9.4x 5.6x

9.4x 4.1x 4.4x 2.7x 6.8x 7.0x 7.2x 10.3x 4.5x 12.2x 7.2x 4.7x 9.3x 6.1x 10.3x 2.3x 4.9x 2.4x 6.4x 9.9x 12.5x 8.2x 10.8x 5.3x 11.3x 8.1x 6.4x 1.9x 7.9x 5.4x

0.5x 0.9x 2.7x 0.9x 0.8x 3.8x 2.1x 1.4x 2.5x 2.8x 1.2x 1.2x 2.5x 1.3x 2.5x 2.2x 1.0x 1.6x 2.3x 4.3x 3.7x 2.1x 8.0x 2.4x 5.8x 1.2x 1.1x 1.1x 4.0x 1.5x

0.8x 0.6x 1.3x 0.4x 7.6x 1.3x 3.6x 1.5x 0.8x 2.3x 1.6x 1.0x 1.8x 0.5x 0.2x 1.1x 0.7x 0.6x 1.0x 2.2x 4.6x 2.0x 4.7x 3.7x 1.7x 0.9x 1.1x 0.6x 3.1x 1.0x

0.0% 2.3% 5.0% 4.2% 5.9% 2.3% 0.7% 2.8% 6.2% 2.3% 0.0% 0.3% 4.3% 1.8% 1.3% 5.4% 5.9% 3.1% 3.3% 4.0% 4.2% 4.6% 5.6% 0.9% 4.3% 0.0% 2.7% 0.0% 2.3% 2.2%

0.0% 2.2% 4.1% 4.2% 6.6% 3.0% 0.6% 3.1% 7.0% 2.3% 0.0% 1.4% 3.6% 2.1% 1.8% 5.4% 5.9% 2.2% 2.9% 3.2% 4.6% 5.0% 5.8% 1.6% 4.7% 0.0% 2.5% 0.0% 2.7% 2.4%

0.70 0.33 cash 0.25 cash cash 0.65 0.51 cash 0.59 0.72 cash cash 0.21 0.86 cash 0.04 cash cash cash cash cash 0.65 cash cash 0.84 0.37 cash cash 0.76

2% 11% 14% 8% 5% 2% 6% 3% 12% 8% 0% (3%) 10% (14%) 6% 14% 7% 10% 8% 15% 18% 8% 20% 12% 7% 4% 8% 12% 12% 9%

4% 27% 33% 17% 5% 10% 11% 6% 26% 23% 0% (6%) 31% (28%) 23% 29% 13% 21% 23% 44% 22% 11% 65% 20% 28% 14% 18% 54% 43% 24%

Tan Ai Teng Jeremy Thia Tan Ai Teng Tan Ai Teng Paul Yong Janice Chua Jeremy Thia Andy Sim Ho Pei Hwa Tan Ai Teng Jeremy Thia Ho Pei Hwa Janice Chua Suvro Sarkar Santoso Santoso Ho Pei Hwa Jeremy Thia Tan Ai Teng Janice Chua Janice Chua Andy Sim Sachin Mittal Tan Ai Teng Janice Chua Janice Chua Ho Pei Hwa Derek Tan Ho Pei Hwa Santoso

5.8x 24.2x

4.9x 8.1x

1.2x 0.7x

4.1x 2.5x

2.9% 0.0%

3.2% 0.0%

cash 0.07

31% 5%

34% 7%

Jeremy Thia Jeremy Thia

8.8x 85.4x 15.8x 18.2x 14.0x 32.0x 28.3x 6.7x 16.3x 9.2x 14.7x 14.0x 9.0x 8.6x 7.5x 5.6x nm

6.6x 10.5x 12.8x 27.9x 11.8x 25.5x 23.0x 6.6x 11.4x 5.0x 13.9x 14.8x 9.0x 4.5x 8.8x 7.4x 10.8x

0.7x 1.3x 1.1x 1.2x 1.8x 3.7x 1.1x 0.8x 1.6x 1.1x 0.8x 1.0x 0.8x 0.9x 0.8x 1.2x 1.7x

2.6x 15.2x 4.3x 28.7x 3.6x 17.6x 3.7x 2.4x 7.1x 0.7x 5.8x 3.9x 2.9x 4.6x 1.6x 1.9x 86.8x

2.8% 1.0% 1.5% 0.5% 0.7% 0.0% 1.3% 1.3% 1.7% 1.9% 2.7% 1.2% 2.2% 3.0% 2.9% 1.0% 0.0%

2.8% 1.9% 1.5% 0.5% 0.8% 0.0% 1.7% 1.3% 1.7% 1.4% 2.7% 1.2% 2.2% 3.0% 3.3% 1.1% 0.0%

0.34 2.19 0.08 cash 0.50 cash 1.12 0.19 0.22 2.18 0.11 0.20 0.30 cash 0.47 0.02 0.13

4% (4%) 4% 7% 4% nm (1%) 17% 4% 2% (5%) (2%) 6% 9% 1% 6% 2%

7% (11%) 9% 11% 10% nm (4%) 32% 10% 14% (7%) (5%) 11% 12% 1% 15% 4%

Lock Mun Yee Derek Tan Lock Mun Yee Lock Mun Yee Lock Mun Yee Lock Mun Yee Lock Mun Yee Lock Mun Yee Lock Mun Yee Derek Tan Lock Mun Yee Lock Mun Yee Lock Mun Yee Derek Tan Lock Mun Yee Derek Tan Paul Yong

Disclosure Legend

Note 2

Note 2

Note 2 Note 2

Note 2

Note 2

Note 2, 3 Note 2, 4 Note 2

Note 2

Note 2

SINGAPORE : EARNINGS GUIDE Company

FYE

REITS Ascendas India Trust Mar Ascendas REITS Mar Ascott Residence Dec CDL Hospitality Dec Cache Logistics Trust Dec Cambridge Industrial TrusDec Capitacommercial Trust Dec Capitamall Trust Dec CapitaRetail China Trust Dec Frasers Centrepoint Trust Sep Frasers Commercial Trust Sep K-Reit Dec Mapletree Industrial TrustMar Mapletree Logistics Trust Dec Parkway Life REIT Dec Starhill Global Reits Dec

Sector TECHNOLOGY Creative Technology CSE Global Hi-P International Longcheer Meiban Group Venture Corporation

Mkt Cap (S$m)

Mkt Cap (US$m)

704 3,802 1,352 1,982 596 539 4,122 6,114 763 1,113 512 1,895 1,550 2,256 986 1,185

536 2,894 1,029 1,509 453 410 3,137 4,652 581 847 390 1,442 1,180 1,717 750 902

29,472 Jun Dec Dec Jun Dec Dec

229 486 675 213 78 1,910

Sector

4,719

3,591

TELECOMMUNICATION MobileOne Dec Singapore Telecom Mar Starhub Dec

2,087 49,239 4,494

1,588 37,470 3,420

SGD/USD Exch rate:

55,821 1.314

Target Price (S$)

% Upside

Rcmd

Share Price Performance (%) 3M 6M 12M

0.92 2.03 1.22 2.07 0.94 0.51 1.46 1.92 1.22 1.45 0.17 1.41 1.06 0.93 1.63 0.61

1.08 2.19 1.38 2.28 1.11 0.58 1.47 2.09 1.30 1.74 0.19 1.20 1.16 1.01 1.84 0.76

18% 8% 13% 10% 18% 14% 1% 9% 7% 20% 13% -15% 9% 9% 13% 25%

Hold Hold Buy Buy Buy Buy Hold Buy Hold Buy Hold Hold Buy Buy Buy Buy

(8) (7) 6 (8) (6) (7) 6 (2) (2) (5) 10 12 0 9 (1) 4

(7) 8 7 14 (2) 2 25 1 2 10 18 29 0 10 n.a n.a

5 7 4 25 0 25 26 7 (6) 12 22 36 0 30 n.a n.a

Avg 6-mth Vol (m) 1.0 6.6 1.9 2.0 1.6 1.8 7.9 5.2 1.1 0.9 6.6 0.8 22.5 3.1 1.3 1.5

22,427

301 639 887 280 103 2,509

Sector

Price (S$) 16-Dec

4.01 1.25 1.00 0.71 0.32 9.15

2.32 3.09 2.62

3.51 1.45 1.30 1.11 0.30 11.80

2.50 3.55 2.20

-13% 16% 30% 57% -5%

29% 8% 15% -16%

FV Buy Buy Buy Hold Buy

Buy Buy Sell

(1) 20 12 (11) (6) 3

5 (1) 5

(7) 37 96 0 11 7

9 1 16

(33) 53 49 33 11 6

26 1 28

42,478

0.0 1.3 1.7 1.6 1.1 0.4

0.9 18.8 1.9

Net Profit (Before EI) (S$m) 09 10F 11F 57 211 45 76

118 47 75

58 235 55 102 35 44 222 305 52 59 34 93 91 130 52 76

53 253 91 121 53 53 192 314 53 60 38 108 99 167 64 84

1,337

1,642

1,806

(114) 43 54 29 15 142

(55) 54 62 31 12 196

(45) 62 99 38 15 215

44 199 282 49 47 17 71

169

300

383

145 3,454 320

160 3,907 249

168 3,862 280

3,918

4,317

4,309

EPS (Scts) 10F

11F

CAGR 09-11 (%)

5.6 14.0 4.7 10.0 4.5 4.2 6.7 8.8 7.3 6.8 0.2 5.1 5.9 6.1 8.1 3.9

6.4 12.8 6.8 11.4 7.5 4.4 6.3 9.3 7.5 7.2 0.8 4.0 6.7 6.6 9.5 4.9

(7) (6) 15 21 na 0 (3) 12 7 1 182 8 na 10 15 1

(73.9) 10.5 7.4 8.9 3.8 71.4

18.0 24.6 14.5

(60.2) 12.1 11.9 10.7 4.5 78.4

18.8 24.3 16.3

(37) 16 38 14 (1) 23

8 6 (6)

PE (x) 10F

11F

16.4x 14.5x 26.1x 20.8x 20.9x 12.3x 21.7x 21.8x 16.8x 21.2x 72.7x 27.4x 17.9x 15.4x 20.2x 15.5x

14.3x 15.9x 17.9x 18.1x 12.6x 11.7x 23.0x 20.7x 16.2x 20.1x 21.5x 35.5x 15.9x 14.1x 17.2x 12.6x

17.9x

16.3x

nm 11.9x 13.5x 7.9x 8.4x 12.8x

nm 10.3x 8.4x 6.6x 7.0x 11.7x

15.7x

12.3x

12.9x 12.6x 18.0x

12.3x 12.7x 16.1x

12.9x

13.0x

EV/EBITDA (x) 10F 11F

Price/ BV (x) 10F

Price/ Sales (x) 10F

Div Yld (%) 10F 11F

Net Debt/ Equity 09(x)

ROA 09

ROE 09

Analyst

12.7x 16.0x 24.9x 20.7x 22.4x 13.0x 18.8x 22.2x 16.0x 22.0x 20.7x 31.1x 21.0x 18.8x 22.2x 17.6x

12.0x 18.1x 16.9x 19.4x 14.8x 13.4x 20.2x 21.0x 15.1x 21.1x 18.5x 51.2x 19.4x 16.8x 20.2x 14.9x

1.0x 1.2x 0.9x 1.4x 1.1x 0.8x 1.0x 1.2x 1.1x 1.1x 0.6x 1.0x 1.3x 1.1x 1.2x 0.7x

5.8x 7.9x 4.6x 14.2x 15.1x 6.2x 10.5x 10.4x 6.3x 9.7x 4.3x 18.3x 8.7x 8.8x 12.5x 7.1x

8.2% 6.5% 6.1% 5.2% 5.9% 9.6% 5.4% 4.8% 6.8% 5.7% 6.7% 4.9% 5.9% 6.5% 5.3% 6.4%

7.6% 6.7% 6.7% 5.8% 8.9% 9.8% 4.6% 5.3% 6.9% 5.6% 7.1% 5.5% 6.4% 7.1% 6.0% 7.1%

9.2% 35.7% 41.7% 19.0% cash 42.9% 32.9% 31.3% 35.0% 30.2% 38.9% 28.3% cash 36.4% 28.3% 16.0%

0% 5% 2% 4% nm 3% 3% 3% 3% 3% 0% 1% nm 4% 4% 3%

0% 8% 3% 6% nm 5% 5% 5% 6% 5% 0% 1% nm 6% 5% 4%

Derek Tan Derek Tan Derek Tan Derek Tan Derek Tan Derek Tan Lock Mun Yee Lock Mun Yee Derek Tan Derek Tan Derek Tan Lock Mun Yee Derek Tan Derek Tan Andy Sim Derek Tan

nm 7.5x 3.9x 4.1x 1.8x 7.1x

nm 6.5x 2.2x 3.2x 1.2x 6.1x

0.8x 3.1x 1.4x 1.7x 0.7x 1.3x

0.8x 1.2x 0.9x 0.3x 0.3x 0.9x

2.2% 3.4% 1.5% 5.4% 6.3% 5.5%

2.2% 3.9% 2.4% 5.4% 6.3% 5.5%

cash 0.36 cash cash cash cash

(22%) 13% 7% 13% 6% 5%

(34%) 36% 9% 24% 11% 8%

Tan Ai Teng Sachin Mittal Tan Ai Teng Tan Ai Teng Tan Ai Teng Tan Ai Teng

7.3x 7.5x 8.8x

7.0x 7.6x 8.2x

7.3x 2.2x 84.9x

2.2x 2.9x 2.0x

6.2% 4.6% 7.6%

6.5% 5.5% 7.6%

0.91 0.29 5.66

18% 10% 19%

66% 17% 278%

Sachin Mittal Sachin Mittal Sachin Mittal

Legend

Note 1 As at 24 Dec 2010, DBSVS and its affiliates has a proprietary position in these companies. Note 2 DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services Note 3 DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA beneficially own a total of 1% or more of any class of common equity securities of these companies. Note 4 DBSVS has been appointed as the designated market maker of structured warrant(s) for these companies issued by DBS Bank Ltd.

Disclosure Legend

Note 2 Note 2, 3 Note 1, 2 Note 3 Note 2 Note 2, 3 Note 2 Note 2 Note 2 Note 2

Note 2

MALAYSIA : EARNINGS GUIDE FYE Company Banks Alliance Financial Group AMMB Hldgs CIMB Group Hldgs EON Capital Hong Leong Bank Maybank Public Bank-Foreign RHB Capital

Mar Mar Dec Dec Jun Jun Dec Dec

Sector Non-Bank Financials Bursa Malaysia TA Enterprise

Dec Jan

Feb Dec Dec Jun Dec Nov

Sector Healthcare Faber Group

Mkt Cap (US$m)

Price (RM) 16-Dec

Target Price (RM)

% Upside

Rcmd

Share Price Avg Performance (%) 6-mth 3M 6M 12M Vol (m)

4,582 20,014 63,327 4,811 14,853 60,234 45,209 18,412

1,464 6,393 20,227 1,537 4,744 19,239 14,440 5,881

2.96 6.64 8.52 6.94 9.40 8.51 12.80 8.55

3.85 6.50 10.10 7.30 10.50 10.80 13.10 10.00

30% -2% 19% 5% 12% 27% 2% 17%

Buy Hold Buy Hold Buy Buy Hold Buy

(6) 14 3 (1) 4 (3) 0 21

231,442

Sector Consumer AEON Credit Service (M) British American Tobacco JobStreet Corp Parkson Hldgs Bhd Pelikan International Zhulian Corporation

Mkt Cap (RMm)

Dec

4,097 1,301

1,309 416

5,398

1,724

449 12,849 914 6,212 615 810

143 4,104 292 1,984 197 259

21,848

6,979

958

306

306

Manufacturing/ Industrial Boustead Holdings Dec Engtex Group Dec Evergreen Fibreboard Dec Hiap Teck Jul Kossan Rubber Dec Kinsteel Bhd Dec Masterskill Education Dec Notion Vtec Sep Petronas Dagangan Mar Southern Steel Dec Top Glove Aug

5,209 183 739 383 1,033 798 857 250 11,723 931 3,166

1,664 58 236 122 330 255 274 80 3,744 297 1,011

Sector

25,272

8,072

Media Astro

Jan

Sector Motor APM Automotive MBM Resources Proton UMW Hldgs

Dec Dec Mar Dec

Sector Oil & Gas Alam Maritim Dayang Enterprise Holding KNM Group Perisai Petroleum Petra Perdana Tanjung Offshore Wah Seong

Dec Dec Dec Dec Dec Dec Dec

Sector Conglomerates DRB-Hicom PPB Group Sime Darby

Sector

Mar Dec Jun

13 34 30 8 14 26 18 61

2.2 4.3 9.1 0.1 0.3 8.5 1.2 1.7

73,924

958

Sector

6 34 23 (1) 11 14 10 47

8,396

2,682

8,396

2,682

1,109 811 2,598 7,916

354 259 830 2,528

12,433

3,971

812 961 2,643 354 410 429 1,549

259 307 844 113 131 137 495

7,158

2,286

3,402 20,130 52,583

1,087 6,430 16,795

72,713

23,225

Net Profit (Before EI) 09 10F 229 861 2,807 341 905 2,311 2,517 1,201

11,173 7.71 0.76

3.74 45.00 2.87 5.68 1.20 1.76

2.64

5.54 0.93 1.44 1.17 3.23 0.84 2.09 1.62 11.80 2.22 5.12

4.29

5.50 3.34 4.73 6.87

1.04 2.73 2.64 0.54 0.91 1.47 2.14

1.76 16.98 8.75

9.60 1.25

4.60 40.00 3.30 6.60 1.40 2.85

2.90

7.60 1.05 2.10 1.35 2.80 1.25 4.90 2.30 10.15 2.50 4.60

4.30

4.80 4.80 6.60 7.40

1.00 3.40 3.50 0.70 0.90 1.35 1.90

3.55 15.75 10.20

25% 64%

23% -11% 15% 16% 17% 62%

10%

37% 14% 46% 15% -13% 50% 134% 42% -14% 13% -10%

0%

-13% 44% 40% 8%

-4% 25% 33% 31% -1% -8% -11%

102% -7% 17%

Buy Buy

Buy FV Buy Buy Buy Buy

Hold

Buy Hold Buy Hold FV Buy Buy Buy Hold Hold FV

Hold

FV Buy Buy Buy

FV Buy Buy Buy Buy Hold Hold

Buy FV Buy

(1) 15

(4) (5) 33 (2) 6 (8)

(17)

18 (4) (6) (6) 1 (2) (42) (7) 6 10 (13)

0

16 5 (5) 6

(2) 35 50 7 (12) (22) 3

48 (5) 7

10 13

(6) 3 38 6 6 (11)

(10)

45 (10) (7) (3) (13) 1 (44) (47) 30 16 (20)

0

43 15 4 11

(11) 32 32 1 (25) 23 (4)

71 4 11

(4) 11

(5) 6 95 9 (14) 52

73

61 (11) 12 (19) 29 (5) 0 (37) 35 19 8

0

129 37 24 8

(18) 90 (12) 3 (25) 47 (10)

76 6 (3)

0.8 3.5

0.1 0.1 0.1 0.8 0.4 0.3

0.7

1.0 0.3 0.7 0.5 0.6 2.1 1.1 0.6 0.2 0.2 1.7

NA

0.2 0.2 0.4 1.6

0.8 0.6 15.5 1.9 2.5 0.9 0.7

7.2 0.7 5.5

301 1,009 3,553 438 988 3,818 2,959 1,376

14,443

11F 401 1,308 4,277 486 1,086 4,346 3,349 1,581

EPS (Sen) 10F 11F 19.5 33.5 50.3 63.2 62.5 53.9 88.2 63.9

25.9 43.4 60.5 70.1 68.7 61.4 99.8 73.4

CAGR 09-11 (%) 32 17 24 19 10 37 15 15

16,833

102 92

128 95

150 75

24.5 5.6

194

223

226

49 747 27 263 36 82

55 724 36 284 60 94

65 45.9 719 253.5 43 11.4 346 27.4 78 11.7 109 20.5

1,204

1,254

28.7 4.4

54.0 251.9 13.7 31.9 15.2 23.7

22 (17)

15 (2) 27 12 20 15

1,361

75

94

98

75

94

98

342 23 71 43 67 19 97 36 579 17 169

379 33 119 51 109 29 99 35 753 111 245

595 35 134 60 111 93 115 46 795 119 201

1,462

1,962

2,303

25.8

40.3 16.8 23.1 15.5 34.0 3.1 24.1 22.9 75.8 27.0 39.7

158

282

256

158

282

256

14.6

74 66 (153) 469

113 146 219 683

119 184 320 756

456

1,161

1,378

91 45 261 38 17 3 121

59 67 170 25 (66) 11 50

73 7.6 96 19.2 227 17.0 26 3.7 33 (14.6) 31 4.0 81 6.6

576

317

566

661 1,616 2,280

472 1,031 727

539 1,235 3,242

3,896

1,758

4,478

57.3 59.5 39.9 61.0

24.4 87.0 12.1

27.0

63.2 17.7 26.2 18.3 34.7 9.8 28.2 28.3 80.0 29.0 32.5

13.2

60.2 74.8 58.2 67.6

9.4 27.2 22.6 4.0 6.4 11.1 10.7

27.9 104.2 54.0

14

30 24 37 18 29 121 9 5 17 163 9

27

26 66 nm 26

(12) 46 (7) (27) 6 198 (18)

(10) (13) 19

PE (x) 10F 11F 15.2x 19.8x 16.9x 11.0x 15.0x 15.8x 14.5x 13.4x

11.4x 15.3x 14.1x 9.9x 13.7x 13.9x 12.8x 11.6x

16.0x

13.7x

31.5x 13.7x

26.9x 17.3x

31.5x

26.9x

8.1x 17.7x 25.2x 20.7x 10.2x 8.6x

6.9x 17.9x 20.9x 17.8x 7.9x 7.4x

17.4x

16.1x

10.2x

9.8x

10.2x

9.8x

13.7x 5.5x 6.2x 7.6x 9.5x 27.3x 8.7x 7.1x 15.6x 8.2x 12.9x

8.8x 5.2x 5.5x 6.4x 9.3x 8.5x 7.4x 5.7x 14.8x 7.7x 15.8x

12.9x

11.0x

29.5x

32.5x

29.5x

32.9x

9.6x 5.6x 11.9x 11.3x

9.1x 4.5x 8.1x 10.2x

10.7x

9.0x

13.7x 14.2x 15.5x 14.3x nm 36.4x 32.6x

11.1x 10.0x 11.7x 13.4x 14.3x 13.2x 20.1x

22.6x

12.6x

7.2x 19.5x 72.3x

6.3x 16.3x 16.2x

41.4x

16.2x

EV/EBITDA Price/ (x) BV (x) 10F 11F 10F

Price/ Sales (x) 10F

Div Yld (%) 10F 11F

Net Debt /Equity 09E (x)

ROA 09E

ROE 09E

Analyst

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

1.6x 2.1x 2.7x 1.2x 2.3x 2.2x 3.4x 1.9x

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

2.2% 1.2% 2.7% 1.9% 1.9% 4.8% 3.5% 2.2%

3.1% 2.3% 2.5% 2.1% 1.9% 4.3% 3.9% 2.6%

cash cash cash cash cash cash cash cash

0.8% 1.0% 1.4% 0.8% 1.2% 0.3% 1.2% 1.1%

9% 12% 16% 10% 17% 3% 24% 15%

Lim Sue Lin Lim Sue Lin Lim Sue Lin Lim Sue Lin Lim Sue Lin Lim Sue Lin Lim Sue Lin Lim Sue Lin

12.9x 13.2x

10.8x 11.3x

4.7x 0.8x

11.9x 3.0x

2.9% 2.5%

3.4% 2.9%

cash cash

10% 3%

23% 4%

Lim Sue Lin San

9.7x 12.4x 17.7x 7.6x 8.7x 5.4x

8.5x 1.8x 12.3x 24.7x 14.9x 6.3x 6.3x 3.1x 7.1x 0.8x 4.5x 2.3x

2.0x 3.2x 7.8x 2.2x 0.3x 2.3x

4.3% 5.1% 2.0% 2.1% 1.7% 7.0%

5.0% 5.0% 2.4% 2.2% 2.2% 8.1%

2.93 1.10 cash 0.01 0.54 cash

6% 51% 18% 9% 2% 23%

25% 177% 23% 18% 6% 27%

Sia Sia Sia Sia Mee Sia

5.1x

4.5x

2.1x

1.1x

1.9%

2.0%

cash

10%

23%

San

9.4x 5.5x 4.5x 5.1x 5.9x 11.3x 5.2x 4.6x 8.3x 5.2x 7.9x

6.8x 5.3x 3.5x 5.0x 5.5x 7.9x 4.2x 3.3x 8.0x 4.7x 8.5x

1.3x 0.7x 0.9x 0.6x 2.3x 1.0x 1.7x 1.2x 2.6x 1.1x 2.9x

0.9x 0.3x 0.8x 0.4x 1.0x 0.4x 2.8x 1.1x 0.6x 0.5x 1.5x

4.8% 1.1% 3.5% 1.1% 2.3% 0.7% 5.8% 2.8% 3.8% 3.7% 3.1%

5.8% 1.1% 3.5% 1.4% 2.3% 2.4% 6.7% 3.5% 5.1% 3.9% 2.5%

0.60 0.70 0.42 0.37 0.45 0.93 cash 0.24 cash 0.97 cash

4% 5% 7% 4% 10% 0% 28% 15% 8% 1% 15%

10% 11% 13% 7% 20% 2% 40% 24% 14% 2% 23%

San Mee Juliana Ramli Mee Mee Mee Sia Chiew Sia / Sia Mee Mee

11.2x

11.9x

9.3x

2.5x

2.3%

2.6%

0.59

(14%) (44%)

team

4.2x 12.7x 1.5x 6.0x

3.7x 11.0x 2.4x 5.5x

1.5x 0.8x 0.5x 1.8x

0.9x 0.6x 0.3x 0.6x

2.7% 2.5% 4.2% 3.3%

2.7% 2.5% 4.2% 3.3%

cash cash cash 0.08

9% 6% (4%) 5%

12% 8% (6%) 12%

Sia Sia Sia Sia

10.8x 11.1x 16.1x 9.7x nm 13.6x 13.0x

9.9x 7.9x 11.9x 9.1x 8.2x 9.9x 10.0x

1.5x 2.6x 1.2x 1.3x 0.7x 1.2x 1.7x

3.1x 3.2x 1.6x 4.4x 1.7x 0.7x 1.1x

0.2% 1.8% 0.0% 0.0% 0.0% 0.9% 0.7%

0.2% 1.8% 0.0% 0.0% 0.0% 0.9% 1.1%

0.96 0.16 0.34 1.01 0.73 1.76 0.26

7% 11% 6% 6% 2% 0% 6%

21% 14% 14% 15% 5% 1% 14%

Lee Wee Keat Lee Wee Keat Lee Wee Keat Lee Wee Keat Lee Wee Keat Lee Wee Keat Lee Wee Keat

nm 16.6x 20.7x

nm 14.5x 9.9x

0.7x 1.3x 2.6x

0.5x 8.4x 1.6x

1.7% 5.5% 0.3%

2.9% 1.8% 3.1%

cash cash 0.10

4% 11% 6%

19% 12% 11%

San San Ben Santoso

Disclosure Legend

MALAYSIA : EARNINGS GUIDE FYE Company Construction Gamuda IJM Corp Lafarge Malayan Cement MMC Corporation Malaysian Resource Sunway Hldgs TRC Synergy WCT

Jul Mar Dec Dec Dec Dec Dec Dec

Sector Concessionaires Litrak PLUS Expressway

Mar Dec

Sector Gaming Berjaya Sports Toto Genting Bhd Genting Malaysia

Apr Dec Dec

Sector Plantation Genting Plantations CB Industrial IJM Plantation IOI Corporation KL Kepong TSH Resources

Dec Dec Mar Jun Sep Dec

Sector Power Petronas Gas Tenaga Nasional YTL Power

Mar Aug Jun

Sector Property Axis REIT Bolton Berhad Eastern & Oriental Bhd KLCC Property Quill Capita Trust SP Setia Sunrise Berhad Sunway City Wing Tai Malaysia

Dec Mar Mar Mar Dec Oct Jun Dec Jun

Sector Telecommunication Axiata Group Digi.Com Maxis Bhd Telekom

Dec Dec Dec Dec

Sector Transport AirAsia Malaysia Airlines

Mkt Cap (RMm)

Mkt Cap (US$m)

7,628 8,498 6,611 8,526 2,790 1,364 263 2,493

2,437 2,714 2,111 2,723 891 436 84 796

38,173

12,193

1,859 21,800

594 6,963

23,659

7,557

5,728 39,209 19,757

1,830 12,524 6,310

64,694

20,664

6,678 508 2,420 38,850 22,482 1,144

2,133 162 773 12,409 7,181 365

72,082

23,023

22,439 36,058 17,374

7,167 11,517 5,549

75,871

24,234

887 340 974 3,167 421 5,643 1,501 2,054 600

283 109 311 1,011 135 1,803 479 656 192

14,987

4,787

38,932 19,329 39,525 12,092

12,435 6,174 12,625 3,862

109,877 Dec Dec

Sector Logistics Malaysia Airports Malaysia Bulk Carriers MISC

Dec Dec Mar

Sector RM/USD Exch rate:

3.13

Price (RM) 16-Dec

Target Price (RM)

% Upside

Rcmd

3.73 6.29 7.78 2.80 2.02 2.25 1.38 3.17

4.90 6.75 5.40 3.85 2.90 2.60 1.85 3.60

31% 7% -31% 38% 44% 16% 34% 14%

Buy Buy FV Buy Buy Buy Buy Buy

3.70 4.36

4.24 10.56 3.34

8.80 3.69 3.02 5.80 21.06 2.76

11.34 8.27 2.39

2.36 1.06 1.18 3.39 1.08 5.55 3.03 4.37 1.86

4.61 24.86 5.27 3.38

3.65 4.60

4.25 14.60 3.70

11.00 4.40 3.80 6.00 21.00 2.95

10.80 10.10 2.75

2.35 1.50 1.40 3.70 1.55 7.00 3.00 5.10 2.25

5.10 22.90 5.10 3.35

-1% 6%

0% 38% 11%

25% 19% 26% 3% 0% 7%

-5% 22% 15%

0% 42% 19% 9% 44% 26% -1% 17% 21%

11% -8% -3% -1%

Hold Hold

Hold Buy Hold

Buy Buy Buy Hold Hold Buy

Hold Buy Hold

Buy Buy Buy Hold Buy Buy Buy Buy Buy

Buy Hold Hold Hold

Share Price Avg Performance (%) 6-mth 3M 6M 12M Vol (m) (0) 26 (2) 1 6 30 33 9

5 3

3 6 4

16 (1) 19 4 23 26

5 (8) 0

10 12 5 (0) 5 27 47 13 22

1 1 (1) 0

24 30 18 14 30 47 17 17

21 30

(3) 48 20

28 46 22 16 31 52

15 (1) 7

17 49 27 12 5 38 59 11 49

19 9 (1) 2

40 37 24 18 58 79 1 24

32 35

1 47 19

44 23 21 5 32 40

15 (2) 9

24 67 18 3 7 54 42 44 41

52 15 (2) 13

7.5 3.5 0.9 2.5 4.5 1.0 0.2 2.0

0.2 7.6

1.6 6.1 7.8

0.7 0.3 0.4 6.8 0.9 0.2

0.7 6.0 4.5

0.1 0.6 4.3 0.6 0.2 1.6 2.2 0.4 0.4

13.2 0.4 3.9 5.7

35,096

7,401 6,584

2,364 2,103

13,985

4,467

6,600 2,880 36,469

2,108 920 11,649

45,949

14,677

2.67 1.97

6.00 2.88 8.17

3.20 1.85

7.60 2.30 8.90

20% -6%

27% -20% 9%

Buy Hold

Buy FV Hold

30 (10)

8 (4) (7)

109 (5)

22 (3) (4)

102 (22)

55 (8) (3)

7.6 2.0

0.4 0.3 1.2

Net Profit (Before EI) 09 10F

11F

EPS (Sen) 10F 11F 13.9 25.1 38.0 11.0 2.9 26.3 10.4 19.3

194 290 412 237 35 109 27 147

281 333 323 334 40 158 20 152

404 421 376 527 71 166 35 178

1,451

1,640

2,179

102 1,185

86 1,254

92 1,540

1,287

1,340

1,632

414 1,146 1,385

382 2,459 1,425

350 2,985 1,479

2,944

4,266

4,814

233 42 123 984 666 51

300 61 79 2,036 902 60

313 78 119 2,462 997 84

2,098

3,439

4,052

929 2,157 1,090

941 2,546 1,212

1,381 2,902 1,160

4,175

4,699

5,443

43 18 (7) 223 32 171 137 223 24

53 28 36 222 222 252 134 177 49

63 30 45 267 34 289 151 191 54

841

1,124

1,070

955 1,000 2,232 613

2,637 1,136 2,252 480

3,093 31.2 1,184 146.2 2,500 30.0 468 13.4

4,801

6,505

7,245

472 (2,293)

677 (862)

17.3 25.1

28.5 66.4 24.1

39.5 44.6 9.9 33.0 84.5 14.6

47.6 58.6 16.7

14.2 8.6 4.9 24.9 8.6 24.8 27.0 37.9 15.2

799 24.5 405 (25.8)

(1,821)

(186)

1,204

285 188 1,405

307 307 703

335 335 1,507

1,878

1,317

2,177

33.1 21.9 15.8

20.0 31.8 44.3 17.3 5.2 27.6 18.5 22.6

18.5 30.8

26.1 80.6 25.1

41.2 56.4 14.6 38.6 93.4 20.2

69.8 66.7 16.0

16.7 9.3 6.1 28.6 8.8 28.4 30.5 40.8 17.0

36.6 152.2 33.3 13.1

29.0 12.1

38.5 22.1 33.8

CAGR 09-11 (%) 44 20 (4) 23 14 10

(5) 14

(8) 61 3

16 36 (13) 53 22 28

22 16 0

3 28 nm 9 3 30 5 (8) 50

71 9 6 (13)

nm nm

22 9 (5)

PE (x) 10F 11F 26.9x 25.1x 20.5x 25.5x 69.3x 8.5x 13.2x 16.4x

18.7x 19.8x 17.6x 16.2x 38.7x 8.2x 7.4x 14.0x

23.3x

17.5x

21.4x 17.4x

19.9x 14.2x

17.7x

14.5x

14.9x 15.9x 13.8x

16.2x 13.1x 13.3x

15.2x

13.4x

22.3x 8.3x 30.4x 17.6x 24.9x 19.0x

21.4x 6.5x 20.7x 15.0x 22.5x 13.7x

21.0x

17.8x

23.8x 14.1x 14.3x

16.2x 12.4x 14.9x

16.1x

13.9x

16.7x 12.3x 23.9x 13.6x 12.5x 22.4x 11.2x 11.5x 12.2x

14.1x 11.4x 19.2x 11.8x 12.3x 19.5x 9.9x 10.7x 10.9x

13.3x

14.0x

14.8x 17.0x 17.6x 25.3x

12.6x 16.3x 15.8x 25.8x

16.9x

15.2x

10.9x nm

9.2x 16.3x

nm

11.6x

18.1x 13.2x 51.9x

15.6x 13.0x 24.2x

34.9x

21.1x

Legend

Note 3

DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA beneficially own a total of 1% or more of any class of common equity securities of these companies.

EV/EBITDA Price/ (x) BV (x) 10F 11F 10F

Price/ Sales (x) 10F

Div Yld (%) 10F 11F

Net Debt /Equity 09E (x)

ROA 09E

ROE 09E

Analyst

29.7x 13.7x 11.4x 9.1x 28.8x 6.9x 2.0x 12.8x

17.8x 12.8x 10.1x 8.1x 23.8x 6.5x 0.9x 11.1x

2.3x 1.6x 2.0x 1.3x 2.4x 1.4x 0.9x 1.8x

3.1x 2.1x 2.7x 1.0x 2.0x 0.6x 0.8x 1.5x

2.4% 1.3% 3.2% 1.3% 0.4% 1.0% 1.9% 2.4%

2.4% 1.3% 3.7% 1.4% 0.6% 1.0% 3.4% 2.4%

0.09 0.48 cash 1.68 1.19 0.57 cash 0.19

3% 3% 10% 1% 1% 5% 6% 3%

6% 7% 13% 4% 5% 16% 10% 12%

San San Yee Mei Hui San San San San San

10.5x 11.0x

10.4x 9.5x

4.3x 3.4x

5.9x 6.4x

4.6% 4.2%

4.6% 4.2%

2.56 1.31

5% 7%

15% 20%

San San

10.1x 7.7x 7.0x

11.4x 12.7x 6.4x 2.5x 6.3x 1.8x

1.7x 2.5x 3.7x

13.6% 1.2% 1.7%

4.6% 1.4% 1.8%

0.05 cash cash

39% 3% 12%

102% 8% 13%

Yee Mei Hui Yee Mei Hui Yee Mei Hui

15.5x 8.5x 14.7x 12.5x 15.0x 13.2x

14.6x 6.7x 11.7x 10.8x 13.9x 11.6x

2.4x 1.7x 2.1x 3.6x 3.7x 1.5x

6.1x 1.7x 5.9x 2.9x 3.0x 1.2x

1.0% 3.0% 1.7% 2.4% 2.1% 1.8%

1.0% 3.8% 0.9% 3.1% 2.3% 1.8%

cash 0.44 cash 0.35 0.08 0.67

9% 8% 12% 6% 7% 5%

10% 18% 15% 12% 11% 10%

Ben Santoso Sia Ben Santoso Ben Santoso Ben Santoso Ben Santoso

11.2x 6.2x 9.4x

7.9x 5.8x 10.0x

2.8x 1.2x 2.4x

7.0x 1.2x 1.3x

4.4% 1.7% 5.5%

4.4% 1.7% 5.5%

cash 0.63 2.77

9% 1% 2%

12% Lee Wee Keat June Ng 4% June Ng 10%

18.7x 6.8x 13.8x 11.1x 15.0x 25.7x 10.0x 5.6x 8.2x

16.4x 7.8x 8.3x 11.1x 14.8x 15.3x 9.0x 5.6x 8.0x

1.2x 0.8x 0.8x 0.8x 0.9x 2.6x 1.4x 0.8x 0.8x

10.0x 1.3x 2.4x 3.6x 6.2x 3.2x 2.5x 1.9x 1.7x

5.9% 2.1% 0.0% 3.2% 7.6% 2.7% 1.6% 8.0% 3.2%

7.0% 2.3% 0.0% 3.7% 7.7% 3.1% 1.8% 1.9% 3.2%

33.1% 0.28 0.81 0.32 0.60 0.18 0.46 0.37 0.09

8% 2% (2%) 5% 4% 5% 9% 10% 2%

12% Lee Wee Keat Yee Mei Hui 5% Yee Mei Hui (5%) Yee Mei Hui 12% Lee Wee Keat 7% Yee Mei Hui 9% Yee Mei Hui 18% Yee Mei Hui 29% Yee Mei Hui 2%

6.2x 8.7x 9.8x 5.1x

5.2x 1.9x 8.3x 14.6x 9.1x 4.6x 5.0x 1.8x

2.4x 3.7x 4.4x 1.4x

2.0% 6.9% 6.7% 5.8%

2.4% 6.1% 7.4% 5.8%

0.55 0.32 0.44 0.41

4% 21% 21% 3%

10% 59% 41% 7%

9.5x nm

8.0x 9.5x

2.0x 4.2x

2.1x 0.5x

0.0% 0.0%

0.0% 0.0%

2.57 cash

5% 12%

26% Juliana Ramli 133% Juliana Ramli

10.0x 12.4x 13.2x

9.9x 12.0x 10.7x

1.9x 1.6x 1.5x

3.5x 7.3x 2.6x

2.8% 4.7% 4.3%

3.2% 4.8% 4.3%

0.13 cash 0.38

7% 10% 4%

12% 13% 7%

Juliana Ramli Juliana Ramli Juliana Ramli Juliana Ramli

Juliana Ramli Juliana Ramli Juliana Ramli

Disclosure Legend

Note 3

HONG KONG BLUE CHIPS : EARNINGS GUIDE FYE Company

Banking and Finance Bank of Communications Bank of China Bank of China HK Bank of East Asia China Life Hang Seng Bank HSBC Holdings HK Exchanges & Clearing ICBC Ping An

Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec

10.70 4.76 24.60 34.00 38.00 123.60 n.a. 238.00 7.17 99.00

Dec Dec Dec Dec Dec Dec Dec Dec Dec

152 63 105 791 133 105 164 203 119 1,836

20 8 13 102 12 14 21 26 15 231

63.05 13.44 30.85 17.70 18.58 49.20 28.35 9.64 7.12

55.20 19.80 44.40 n.a. 18.50 54.40 36.45 n.a. n.a.

-12 47 44 n.a. 0 11 29 n.a. n.a.

review B B NR H review B NR NR

3 -22 1 21 -5 3 0 13 12

14 -16 2 35 2 6 6 10 14

21 -10 -20 48 5 17 8 3 6

Dec Dec Dec Jun Dec Jun Jun Jun

264 121 73 155 115 57 326 79

34 16 9 20 15 7 42 10

113.90 14.76 13.54 34.80 52.95 14.58 126.90 15.06

135.00 19.00 19.10 36.50 58.20 16.78 142.00 18.54

19 29 41 5 10 15 12 23

B B B H review review review B

10 -16 -19 -7 6 9 8 4

27 -2 -10 19 11 16 18 12

15 -13 -26 19 -9 -12 8 -1

1,191

153

332 71 149

43 9 19

806

104

27 110 85 48 35 49 38 174 319

4 14 11 6 5 6 5 22 41

886

114

1,532 268

197 34

1,800

231

Dec Dec Dec

Dec Dec Dec Dec Dec Jun Dec Dec Dec

Dec Dec

Sector ^ underlying profit P /NAV for Property companies *10A

77.90 28.90 54.25

6.93 13.00 21.70 11.74 13.02 37.85 5.37 43.30 173.80

Sector P/Es are calendarised % - fully diluted EPS

76.35 11.38

n.a. 33.03 48.00

n.a. n.a. 27.30 17.10 14.88 40.90 n.a. 45.00 n.a.

69.00 10.00

37 17 -4 5 20 -4 n.a. 36 25 21

Share Price Performance (%) Rcmd 3M 6M 12M

689

Sector Telecom China Mobile China Unicom

7.81 4.06 25.60 32.35 31.70 128.70 79.90 175.30 5.75 82.00

% Upside

5,357

Sector Comm/Ind Aluminium Corp of China Belle Int'l Cathay Pacific China Coal Energy COSCO Pacific Esprit Holdings * Foxconn Int'l Li & Fung Tencent

Target Price (HK$)

27 44 35 8 30 32 182 24 64 30

Sector Hongs/Conglomerates Hutchison China Merchants Hldgs Wharf Holdings #

Price (HK$) 16-Dec

207 340 271 66 236 246 1,413 189 499 234

Sector Power, Infra & Utilities CLP Holdings China Resources Power China Shenhua Energy CNOOC HK & China Gas HK Electric MTR ^ # PetroChina Sinopec Sector Properties Cheung Kong # China Overseas # China Resources Land # Hang Lung Properties # ^ Henderson Land # ^ New World Dev # SHK Properties # ^ Sino Land #*

Mkt Mkt Cap Cap (HK$bn) (US$bn)

n.a. 14 -12

n.a. n.a. 26 46 14 8 n.a. 4 n.a.

-10 -12.1

B B H H review review NR B B B

NR B review

NR NR B B B review NR review NR

review review

-8 5 13 1 3 15 -2 27 -1 13

27 1 16

4 -10 5 0 12 -9 -2 -1 12

-2 -3

-6 8 47 13 -8 23 8 45 1 31

62 17 39

10 22 38 8 42 -14 -5 18 36

0 17

-9 3 46 3 -18 12 -10 28 -7 20

52 26 33

-20 32 49 -16 32 -24 -30 32 9

7 12

Avg 6-mth Vol (m)

352 1,253 454 93 1,670 215 1,813 1,095 1,737 727

PAT/MI (HK$m) 09A 10F

11F

EPS (HK$) 10F 11F

35,142 94,591 13,760 2,565 32,881 13,138 45,505 4,704 150,105 16,187

43,163 115,390 15,379 3,679 36,451 14,251 107,484 5,241 192,348 21,912

53,241 127,467 18,846 4,465 46,132 16,207 140,893 7,976 226,032 27,878

533,144

716,721

862,905

147 133 629 960 113 133 103 836 601

7,484 5,317 36,827 34,420 5,175 6,697 7,303 120,689 72,096 296,009

8,449 5,781 43,821 59,199 4,976 7,343 8,616 155,346 82,067 375,599

8,737 6,429 54,004 65,358 5,376 8,250 8,536 171,166 87,788 415,643

3.51 1.30 2.20 1.33 0.69 3.44 1.49 0.85 0.95

3.63 1.44 2.72 1.49 0.75 3.87 1.48 0.94 1.02

545 405 203 371 231 165 707 211

19,886 7,469 4,409 27,355 6,088 2,084 12,415 3,601

22,251 9,302 4,173 6,674 4,024 11,613 13,883 3,506

140,893 10,388 4,941 4,508 5,086 5,117 17,086 4,086

9.61 1.14 0.83 1.61 1.86 1.57 5.41 0.72

10.32 1.27 0.98 1.06 2.35 1.31 6.65 0.83

83,307

75,426

192,104

14,168 124,437 7,817

14,565 3,552 7,807

20,069 4,089 7,488

163,760

49,515

52,373

-5,420 2,957 4,694 9,128 1,338 184,275 300 3,369 6,018

1,278 3,952 12,824 11,839 2,798 4,226 -979 5,037 9,566

4,041 4,894 12,310 15,020 2,718 3,692 510 6,635 12,684

206,660

50,541

62,504

134,461 10,585

139,857 4,549

146,647 7,918

145,046

144,406

154,565

1,008 153 196

249 217 148 389 115 277 71 310 799

2,269 375

0.83 0.43 1.45 1.76 1.47 7.45 6.04 4.86 0.56 2.98

3.49 1.46 2.83

0.09 0.47 3.26 0.89 1.09 3.35 -0.15 1.33 5.20

6.97 0.19

0.99 0.45 1.78 2.10 1.87 8.48 7.76 7.38 0.64 3.80

4.73 1.68 2.72

0.29 0.58 3.13 1.13 1.00 2.87 0.08 1.67 6.92

7.31 0.33

CAGR 09-11 (%)

19 11 17 23 18 11 72 30 20 31

PE (x) 10F

11F

EV/ EBITDA (x) 10F 11F

P/BV (x) 10F

P/Sales (x) 10F

Div Yld (%) (%) 10F 11F

Latest Rpt Data (%) Gear ROA ROE

n.a. n.a. n.a. n.a. 2.6 n.a. n.a. n.a. n.a. 2.9

n.a. n.a. n.a. n.a. 2.4 n.a. n.a. n.a. n.a. 2.4

1.6 1.5 2.4 1.6 3.9 3.6 1.3 27.2 2.1 5.3

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

3.0 4.1 3.6 3.3 2.4 4.0 3.3 2.5 3.8 0.9

3.8 4.5 4.4 3.9 1.5 4.9 4.3 3.8 4.5 1.1

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

9.5 9.4 17.6 18.4 21.5 17.3 13.2 36.0 10.3 27.5

7.9 8.9 14.4 15.4 17.0 15.2 10.3 23.7 8.9 21.6

13.3

11.0

8 10 21 39 -2 11 7 20 11

18.0 10.4 14.0 13.3 26.8 14.3 19.0 11.4 7.5 12.8

17.4 9.3 11.4 11.9 24.8 12.7 19.2 10.2 7.0 11.6

9.5 9.4 7.7 7.3 22.0 14.6 17.0 7.9 5.6

8.9 9.1 6.2 6.4 22.2 14.1 16.8 7.1 5.2

2.1 1.4 2.7 3.3 3.8 1.9 0.8 1.6 1.2

2.9 1.4 3.8 4.1 8.8 10.1 5.7 1.2 0.3

3.9 2.9 2.5 2.7 1.9 4.5 2.0 3.9 3.5

3.9 3.2 3.1 3.0 2.0 5.1 2.0 4.4 3.8

10 18 4 36 -18 54 17 6

11.9 13.0 16.3 21.6 28.5 9.3 23.4 20.9

11.0 11.6 13.8 32.9 22.5 11.2 19.1 18.1

18.6 8.3 10.8 18.1 108.4 15.7 24.5 22.4

16.1 8.4 11.3 26.7 44.4 19.0 21.3 31.9

1.0 0.9 0.6 1.1 0.7 0.5 0.8 0.7

6.8 2.5 3.5 12.9 19.1 1.9 9.8 10.3

2.4 1.6 1.2 2.0 1.9 2.6 2.1 2.7

16.5

15.2

22.3 19.8 19.1

16.5 17.2 20.0

13.0 15.3 16.2

11.1 13.9 15.1

1.1 2.0 0.9

1.6 15.1 7.7

18.0

17.0

75.1 27.8 6.7 13.1 11.9 11.3 n.a. 32.5 33.4

24.2 22.5 6.9 10.4 13.0 13.2 69.1 26.0 25.1

13.0 38.6 5.3 7.7 13.0 9.4 30.5 26.7 26.1

9.2 31.0 4.8 6.1 11.4 7.9 13.3 21.6 19.3

1.5 5.4 1.6 1.8 1.3 3.0 1.4 8.5 16.8

22.1

18.3

11.0 59.5

10.4 34.2

4.4 4.9

3.9 4.3

2.3 1.1

12.0

11.3

19 22 -2

n.a. 28 62 28 30 -13 n.a. 35 44

4 -14

Analyst

1% 19% 1% 17% 1.2% 15% 0.6% 7.6% 21% 9% 2% 24% 0.2% 5% 9% 61% 1% 20% 1.7% 17.5%

Alexander Lee Alexander Lee Alexander Lee Alexander Lee Dennis Lam Alexander Lee n.a. Alexander Lee Alexander Lee Dennis Lam

44% 111% 5% cash 19% 14% 26% 16% 58%

5% 5% 11% 19% 9% 9% 4% 9% 8%

11% 16% 20% 18% 16% 13% 7% 13% 18%

June Ng June Ng J Ng / P H Ho n.a. W K Lee / J Ng J Ng / W K Lee Jeff Yau n.a. n.a.

2.5 1.7 1.5 2.0 1.9 2.6 2.5 2.7

9% 23% 20% Cash 19% 46% 15% 16%

6% 7% 5% 3% 4% 1% 4% 4%

7% 20% 13% 4% 5% 3% 6% 6%

Jeff Yau Carol Wu Carol Wu Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau

2.4 2.2 1.8

2.6 2.5 1.8

70% 32% 19%

2% 6% 4%

6% 10% 7%

n.a. Ken He /P Yong Jeff Yau

0.89 3.91 1.0 2.0 9.6 1.4 0.7 1.4 15.5

0.3 1.7 4.6 1.2 3.3 3.7 0.0 2.5 0.4

1.2 1.6 4.6 1.5 3.1 4.5 0.0 3.1 0.5

104% 1.3% -8.8% cash 13.2% 15.9% 68% -7% -20% cash 10% 16% 38% 7% 10% Cash 35% 46% cash 2% 4% 13% 8% 22% cash 38% 54%

2.7 1.4

3.9 1.6

4.1 1.6

cash 30%

16% 2%

24% 4%

n.a. n.a. Paul Yong P H Ho / J Ng Ken He /P Yong Alice Hui n.a. Patricia Yeung n.a.

TszWang Tam TszWang Tam

DBSV UNIVERSE: HONG KONG FYE Company Banking and Finance (China) Agricultural Bank of China Bank of China Bank of Communications China CITIC Bank China Merchants Bank China Minsheng Bank ICBC

Dec Dec Dec Dec Dec Dec Dec

Sector Banking and Finance (HK) Bank of China HK Bank of East Asia Dah Sing Financial Hang Seng Bank HK Exchanges & Clearing HSBC Holdings Wing Hang

Dec Dec Dec Dec Dec Dec Dec

125 340 207 62 77 27 499

16128 43659 26639 7990 9937 3535 64177

271 66 15 246 189 1413 31

2271 Dec Dec Dec Dec Dec Dec

Sector Conglomerates-HK Wharf Holdings # Wheelock #

Mkt Cap (US$m)

2995

Sector Basic Materials Angang Steel China BlueChem China Coal Energy China Shenhua Energy Maanshan I & S Yanzhou Coal

Mkt Cap (HK$bn)

Dec Dec

Sector

Price (HK$) 16-Dec

Target Price (HK$)

4.08 4.93 4.06 4.76 7.81 10.70 5.01 6.04 19.76 24.50 6.66 8.09 5.75 7.17

% Upside 21 17 37 21 24 21 25

Share Price Avg Performance (%) 6-mth Rcmd 3M 6M 12M Vol (m) B B B B B B B

5 5 (8) 0 (1) (5) (1)

8 8 (6) 1 7 2 1

3 3 (9) (23) 5 (10) (7)

n.a. 1,253 352 249 470 157 1,737

385076 34806 8495 1939 31641 24303 181717 4044

1620 1243 6200 13483 911 5490

225

28947

149 61

19212 7891

321

41216

30 41 27

3885 5237 3445

75834 94591 35142 16988 21277 14123 150105

162829 25.60 32.35 51.50 128.70 175.30 79.90 106.50

24.60 34.00 n.a. 123.60 238.00 n.a. n.a.

(4) 5 n.a. (4) 36 n.a. n.a.

H H NR review B NR NR

13 1 (5) 15 27 (2) 17

47 13 25 23 45 8 45

46 3 25 12 28 (10) 40

454 93 11 215 1,095 1,813 34

11.60 5.46 11.74 30.85 4.09 21.80

12.99 6.40 17.10 44.40 4.97 26.00

12 17 46 44 22 19

review B B B review B

(10) (4) (0) 1 (11) 28

17 13 8 2 17 26

(34) 23 (16) (20) (30) 30

206 39 389 629 124 355

292056

13 10 48 105 7 43

PAT/MI (HK$m) 09A 10F

13760 2565 626 13138 4704 45505 1205

67704 877 1127 9128 36827 458 4797

1127 54.25 48.00 30.20 29.70

(12) (2)

review review

16 24

39 40

33 24

26 26

7817 4442

4442

107135 115390 43163 23369 31069 16558 192348

690455 15379 3679 1163 14251 5241 107484 1596

148792 5277 1493 11839 43821 1639 9409

73478 7807 5004

27910

EPS (HK$) 11F 10F 11F 145223 127467 53241 22453 37653 20315 226032

0.37 0.43 0.83 0.60 1.49 0.62 0.56

0.47 0.45 0.99 0.57 1.82 0.76 0.64

CAGR 09-11 (%) 28 11 19 15 30 12 20

826151 18846 4465 1436 16207 7976 140893 2067

1.45 1.76 4.47 7.45 4.86 6.04 5.36

1.78 2.10 5.52 8.48 7.38 7.76 6.95

17 23 51 11 30 72 31

0.73 0.32 0.89 2.20 0.21 1.91

0.85 0.43 1.13 2.72 0.25 1.98

166 33 28 21 106 42

191891 6185 1988 15020 54004 1937 9735

88869 7488 5578

2.83 2.46

2.72 2.75

(2) 12

24224

PE (x) 10F

11F

11.1 9.4 9.5 8.4 13.2 10.7 10.3

8.8 8.9 7.9 8.7 10.9 8.7 8.9

10.2

8.9

17.6 18.4 11.5 17.3 36.0 13.2 19.9

14.4 15.4 9.3 15.2 23.7 10.3 15.3

15.1

11.9

15.9 16.9 13.1 14.0 19.2 11.4

13.6 12.7 10.4 11.4 16.3 11.0

13.5

11.3

19.1 12.3

20.0 11.0

14.6

16.2

23.6 9.8 14.4

18.6 10.5 12.2

EV/ EBITDA (x) 10F 11F

P/BV (x) 10F

P/Sales (x) 10F

Div Yld (%) (%) 10F 11F

Latest Report Data (%) Gear ROA ROE

Analyst

n.a. n.a. n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a. n.a. n.a.

2.1 1.5 1.6 1.4 2.7 1.5 2.1

n.a. n.a. n.a. n.a. n.a. n.a. n.a.

4.3 4.1 3.0 3.0 1.8 1.4 3.8

4.0 4.5 3.8 2.9 2.3 1.7 4.5

n.a. n.a. n.a. n.a. n.a. n.a. n.a.

0.8% 1.0% 1.0% 0.9% 1.1% 1.0% 1.2%

20.5% 16.6% 19.2% 13.0% 21.2% 17.1% 20.2%

Alexander Lee Alexander Lee Alexander Lee Alexander Lee Alexander Lee Alexander Lee Alexander Lee

n.a. n.a. n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a. n.a. n.a.

2.4 1.6 1.1 3.6 27.2 1.3 2.3

n.a. n.a. n.a. n.a. n.a. n.a. n.a.

3.6 3.3 0.0 4.0 2.5 3.3 0.9

4.4 3.9 0.0 4.9 3.8 4.3 3.0

n.a. n.a. n.a. n.a. n.a. n.a. n.a.

1.2% 0.0% 0.7% 1.7% 8.7% 0.2% 0.9%

14.8% 0.1% 5.9% 23.9% 61.4% 5.2% 10.4%

Alexander Lee Alexander Lee n.a. Alexander Lee Alexander Lee n.a. n.a.

7.2 8.4 7.5 7.7 4.6 7.8

6.1 6.2 6.0 6.2 3.9 6.4

1.3 2.1 1.8 2.7 1.0 2.6

0.8 3.2 2.0 3.8 0.4 3.0

3.2 1.7 1.2 2.5 2.6 2.6

3.7 2.3 1.5 3.1 3.1 2.7

57% cash cash 5% 36% 48%

0.8% 7.6% 8.1% 10.8% 0.6% 8.7%

1.4% 9.9% 12.8% 19.9% 1.5% 14.7%

E Y Lee / A Dai Rachel Miu P H Ho / J Ng J Ng / P H Ho E Y Lee / A Dai J Ng / P H Ho

16.2 8.3

15.1 7.2

0.9 0.8

7.7 2.5

1.8 0.4

1.8 0.4

19% 27%

4.4% 1.2%

7.3% 3.6%

Jeff Yau Jeff Yau

13.3 4.5 8.7

11.4 4.3 6.8

4.3 2.8 2.9

10.3 0.9 9.1

0.0 1.0 1.2

0.0 1.0 1.6

cash cash cash

-11.4% -29.6% 8.6% 25.3% 8.2% 22.4%

Rachel Miu Rachel Miu Rachel Miu

Disclosure Legend Note 2

Consumer Goods

Automobiles and Parts Brilliance China Dongfeng Motor Group Geely Automobile

Dec Dec Dec

Sector Food and Beverages China Foods China Mengniu China Yurun Dynasty Fine Wines Kingway Brewery Tingyi Holding Tsingtao Brewery Vitasoy Want Want China Sector

6.05 6.30 14.26 17.50 3.60 4.40

4 23 22

review B review

41 5 22

140 63 37

159 28 (18)

143 351 288

(1901) 7268 1353

1281 12592 1827

1625 11745 2156

0.26 1.46 0.25

0.33 1.36 0.29

n.a. 27 23

98

12566

6719

15700

15525

13.4

12.7

Dec Dec Dec Dec Dec Dec Dec Mar Dec

14 36 48 5 3 109 27 6 87 336

1864 4671 6137 674 414 13981 3525 802 11179 43246

5.19 20.90 26.35 4.20 1.88 19.46 41.85 6.12 6.58

7.60 25.30 35.50 3.70 1.45 18.00 40.00 6.20 6.30

46 21 35 (12) (23) (8) (4) 1 (4)

B B B FV review H H H H

(10) (13) (7) 21 (17) (2) (5) (1) 3

15 (14) 10 24 11 5 10 5 2

(28) (22) 29 83 1 1 4 18 20

34 156 208 10 3 113 66 5 115

568 1302 1745 156 31 2971 1433 217 2431 10804

487 1497 2405 177 69 3687 1763 260 2793 13138

792 1950 2798 206 95 4039 1976 289 3453 15598

0.17 0.86 1.38 0.14 0.04 0.66 1.30 0.26 0.21

0.28 1.12 1.54 0.17 0.06 0.72 1.46 0.28 0.26

18 19 19 15 76 17 16 15 19

29.8 24.3 19.1 29.6 46.5 29.5 32.1 23.9 31.1 26.5

18.3 18.6 17.1 25.4 33.7 26.9 28.6 21.6 25.1 22.4

13.4 12.1 14.1 15.0 10.0 13.9 16.0 12.1 22.3

9.5 9.2 12.2 12.5 8.4 12.0 14.1 11.2 17.6

2.5 3.2 3.5 2.7 1.0 8.0 5.2 4.6 10.8

0.8 1.0 2.5 3.0 1.9 2.1 2.5 2.1 5.1

1.2 0.8 1.4 1.5 0.0 1.7 0.5 4.3 2.7

2.1 1.1 1.6 1.8 0.0 1.9 0.6 4.6 3.4

cash cash cash cash 2% cash cash cash cash

5.0% 7.9% 16.4% 6.9% -1.0% 12.0% 17.5% 16.8% 20.5%

10.7% T Wu / A Hui 17.1% A Hui / T Wu 25.7% A Hui / T Wu 8.8% itus Wu / Alice Hui -1.4% Alice Hui 28.7% Alice Hui 17.5% itus Wu / Alice Hui 16.8% Alice Hui 32.6% A Hui / T Wu

Dec Dec Dec Dec Dec Mar Sep

82 174 22 2 3 13 47

10579 22394 2870 257 440 1699 6086

67.20 43.30 21.20 3.14 3.73 9.78 28.70

75.00 45.00 33.00 3.50 6.90 9.70 26.00

12 4 56 11 85 (1) (9)

B review B review B review H

(8) (1) (10) 18 (28) 22 4

11 18 (18) 10 (20) 27 21

18 32 (21) 138 (32) 29 31

136 310 131 9 16 15 57

2118 3369 1080 96 158 860 3606

2437 5037 1313 111 243 1007 3613

3043 6635 1602 195 420 1101 4271

2.00 1.33 1.25 0.18 0.27 0.76 2.19

2.50 1.67 1.53 0.30 0.46 0.82 2.59

19 35 21 37 54 12 9

33.6 32.5 16.9 17.4 14.0 12.9 13.1

26.9 26.0 13.9 10.4 8.1 11.9 11.1

23.4 26.7 9.9 9.7 7.8 8.8 8.9

18.8 21.6 7.9 5.7 5.7 7.8 8.0

8.1 8.5 5.8 2.1 1.0 2.9 1.8

6.2 0.1 0.2 1.8 2.0 1.3 1.1

1.9 2.5 2.4 2.3 1.8 4.9 3.4

2.4 3.1 2.9 3.8 3.1 5.5 4.1

cash 13% cash cash cash 2% 10%

13.3% 8.5% 20.3% 9.3% 4.5% 14.6% 9.4%

20.7% 21.6% 39.6% 12.4% 5.5% 26.2% 16.9%

Patricia Yeung Patricia Yeung Alice Hui Patricia Yeung Patricia Yeung Alice Hui Patricia Yeung

345

44325

24.0

19.5

34 131 67 87

4352 16807 8674 11234

25.5 24.0 19.2 23.2

16.3 20.1 15.5 18.9

19.3 14.9 12.3 17.1

12.3 12.5 10.1 13.7

3.7 3.8 6.6 11.3

1.7 3.9 1.2 4.0

0.0 0.0 2.6 4.5

0.0 0.0 3.2 2.1

15% 52% cash 74%

4.7% 3.0% 4.3% 15.5%

11.7% 8.7% 11.5% 91.8%

Research Team Research Team Research Team Research Team

319

41066

22.7

18.2

Household/Personal Hengan Li & Fung Li Ning Ming Fai Neo-Neon Texwinca * Yue Yuen

Sector

11198

13763

17267

Consumer Services

Gambling Galaxy^ Sands China SJM Wynn Macau

Sector

Dec Dec Dec Dec

8.56 9.00 16.24 18.80 12.44 14.40 16.84 15.90

5 16 16 (6)

review B B H

28 27 52 23

134 44 102 40

146 57 174 87

52 141 178 109

113 1658 907 2069

4746

1320 5456 3539 3769

14084

2070 6495 4363 4634

17561

0.34 0.68 0.65 0.73

0.53 0.81 0.80 0.89

329 98 119 50

Note 2

DBSV UNIVERSE: HONG KONG FYE Company

Mkt Cap (HK$bn)

Mkt Cap (US$m)

4 2 49 7 4 43 48 7 34 11 2 35 14 11

548 221 6272 871 481 5521 6117 957 4415 1405 252 4537 1788 1369

270

34754

3 2 18

326 252 2292

22

2870

13 38 11 85 13 12 20 5 4

1721 4864 1369 10977 1618 1563 2508 671 465

197

25292

30 20 24 20 21

3798 2617 3095 2613 2708

115

14830

6 6 6 18 35 27 53 2 3

746 780 790 2327 4454 3425 6870 208 414

Price (HK$) 16-Dec

Target Price (HK$)

% Upside

15.96 10.84 40.90 5.50 3.06 18.36 3.69 36.85 16.80 8.94 4.93 14.71 4.91 17.01

(3) 15 8 21 (13) (17) 29 3 (18) 38 18 17 (1) (14)

Share Price Avg Performance (%) 6-mth Rcmd 3M 6M 12M Vol (m)

PAT/MI (HK$m) 09A 10F

EPS (HK$) 11F 10F 11F

CAGR 09-11 (%)

PE (x) 10F

11F

EV/ EBITDA (x) 10F 11F

P/BV (x) 10F

P/Sales (x) 10F

Div Yld (%) (%) 10F 11F

Latest Report Data (%) Gear ROA ROE

Analyst

Disclosure Legend

Retailers Aeon Stores Beijing Jingkelong % Esprit Holdings * Giordano Glorious Sun Golden Eagle % Gome Elec Appliances % Lianhua Supermarket Lifestyle New World Dept Stores * Oriental Watch * Parkson Sa Sa Wumart

Dec Dec Jun Dec Dec Dec Dec Dec Dec Jun Mar Dec Mar Dec

Sector Media Next Media Pico Far East TVB

Mar Oct Dec

Sector Travel & Leisure Ajisen China Air China Cafe de Coral * Cathay Pacific China Eastern Airlines China Southern Airlines HK & Shanghai Hotels Little Sheep Tai Cheung * #

Dec Dec Mar Dec Dec Dec Dec Dec Mar

Sector Construction and Materials China Comm Construction China Railway Construction China Railway Group China South Locomotive China State Construction

Dec Dec Dec Dec Dec

Sector Industrial AMVIG China Automation China High Precision Automation * China High Speed Huabao * Lee and Man Paper * Nine Dragons * Sinoref Solargiga Energy

Dec Dec Jun Dec Mar Mar Jun Dec Dec

Sector Infrastructure, Environmental Beijing Enterprises Water % China Everbright Intl New Environmental Energy % Tianjin Cap Environmental Sector Insurance China Life China Pacific Insurance PICC Ping An

Sector

13 (5) (9) (2) 23 11 20 18 10 (12) 31 (11) 67 11

46 18 (14) 37 18 36 9 22 33 (0) 118 (2) 65 32

27 44 (24) 105 28 43 1 71 45 (12) 156 (12) 109 56

1 4 277 13 2 50 376 20 18 13 15 60 34 17

280 173 4745 288 260 809 1643 581 1142 547 100 1066 316 502

12452 1.05 1.09 1.62 1.91 40.70 45.17

4 18 11

review B B

1 17 4

(11) 20 14

3 (2) 13

2 2 47

12.50 8.29 18.92 21.70 3.60 4.35 13.18 5.06 5.85

13.00 11.45 18.70 27.30 4.00 6.75 12.90 6.60 6.37

4 38 (1) 26 11 55 (2) 30 9

H B H B H B H B review

11 (10) (14) 5 (17) 5 2 (3) 15

51 1 (2) 38 6 28 5 18 34

82 47 6 49 29 69 16 23 28

23 167 11 148 88 115 6 5 2

6.67 8.00 9.80 12.60 5.72 7.77 10.04 8.90 7.07 7.20

20 29 36 (11) 2

B B B review review

(7) (10) (4) 42 57

(5) 2 11 81 213

(8) 2 (5) 87 117

133 133 120 75 62

(12) 21 13 60 29 34 48 25 29

H B review B B B B B B

24 9 43 (23) (4) (5) (6) 87 3

34 12 21 (22) 11 (5) 9 n.a. 29

86 6 38 (29) 36 12 (11) n.a. (13)

12 9 22 195 53 90 138 n.a. 7

20925

13 15 1 1 29

1615 1926 86 124 3751

2.75 4.10 0.66 2.84

3.70 4.90 2.10 2.61

35 20 218 0

B B B H

12 17 32 11

5 24 (20) 27

11 11 (72) 3

23 33 7 4

Dec Dec Dec Dec

236 67 36 234

30333 8671 4658 30134

31.70 29.15 10.48 82.00

38.00 43.00 14.64 99.00

20 48 40 21

review B B B

3 1 3 13

(8) (5) 35 31

(18) n.a. 51 20

1,670 274 191 727

574

73796

Dec Dec Dec

63 9 13

8149 1173 1619

1282

1544

1669

314 5667 442 4694 197 385 2298 181 211

428 14724 513 12824 6450 7234 445 228 275

558 13323 517 12310 4909 7318 593 304 448

8229 7669 8004 1947 613

85

10941

Dec Dec Dec Dec

152 133 105 79

19509 17161 13503 10102

469

60275

47 7 17

B H review

(22) (18) (14)

(16) (16) (6)

(10) (17) (6)

133 78 100

63.05 18.58 49.20 34.85

(12) (0) 11 27

review H review B

3 (5) 3 12

14 2 6 26

21 5 17 20

147 113 133 44

10349 5940 9646 2981 901

29816

365 247 234 1103 1110 302 1926 82 (114)

551 339 266 1609 1340 1833 2512 158 235

6098

9616

1.08 0.49 2.87 0.37 0.28 0.68 0.17 1.38 0.79 0.38 0.41 0.58 0.18 0.65

25 8 (13) 38 7 27 34 21 17 8 15 23 26 26

0.13 0.15 2.51

0.10 0.15 2.82

(1) 22 17

0.40 1.14 0.92 3.26 0.57 0.74 0.30 0.22 0.45

0.52 1.03 0.93 3.13 0.44 0.75 0.40 0.29 0.72

33 49 8 62 na 294 na 29 46

0.70 0.48 0.45 0.25 0.30

0.82 0.93 0.55 0.32 0.44

22 22 21 40 39

39832 12206 11503 11688 3800 1290

40486 564 467 395 1893 1619 1775 3507 177 411

0.60 0.34 0.29 1.29 0.43 0.40 0.56 0.13 0.13

0.61 0.46 0.38 1.52 0.52 0.39 0.76 0.15 0.23

35 35 10 31 20 142 31 28 n.a.

15.1 19.2 13.2 12.3 12.7 32.4 17.1 26.1 26.0 17.1 10.2 21.8 27.5 30.5

21.9

18.9

7.9 11.0 16.2

10.0 10.5 14.5

14.4

13.1

31.2 7.3 20.5 6.7 6.3 5.9 43.6 22.9 13.1

24.0 8.0 20.4 6.9 8.3 5.8 32.7 17.2 8.1

8.3

8.7

9.6 20.4 12.6 40.0 23.2

8.1 10.5 10.4 31.3 16.2

15.6

11.7

10.5 17.7 20.7 10.2 25.5 14.1 20.6 10.3 13.5

10.3 12.8 15.5 8.7 21.3 14.6 15.1 9.1 7.7

8.8 9.2 9.4 7.6 5.1 24.5 7.7 11.3 18.8 8.1 10.2 16.3 51.5 19.8

7.0 8.1 8.0 6.8 n.a. 18.9 5.8 8.9 15.1 7.5 8.1 12.4 39.4 15.5

3.3 2.2 3.0 2.8 1.7 11.9 2.9 6.8 5.0 2.2 1.2 6.7 11.6 5.9

0.5 0.2 1.4 1.5 0.6 15.8 0.8 0.7 0.8 5.5 0.3 6.8 1.3 1.6

2.6 2.9 3.7 5.8 4.9 0.7 1.0 1.1 1.4 2.3 1.1 1.6 2.8 1.0

3.3 2.6 4.5 6.5 5.5 0.9 1.3 1.3 1.6 2.6 1.9 2.1 2.5 1.3

cash 73% Cash cash cash cash cash cash cash cash 16% cash cash cash

6.9% 3.3% 51.6% 10.7% 27.3% 14.2% 4.5% 3.5% 10.0% 12.2% 6.3% 8.9% 24.7% 6.9%

20.3% 10.9% 27.7% 14.5% 4.3% 40.8% 13.8% 20.5% 20.2% 19.2% 8.5% 27.0% 32.9% 18.6%

Mavis Hui Mavis Hui Alice Hui Alice Hui Alice Hui Mavis Hui Mavis Hui Mavis Hui Mavis Hui Mavis Hui Mavis Hui Mavis Hui Mavis Hui Mavis Hui

3.7 4.9 8.8

5.0 4.7 7.9

0.7 1.8 2.9

0.8 0.7 3.9

0.0 4.6 4.0

0.0 4.7 4.5

cash cash cash

11.3% 6.4% 13.1%

15.4% 13.5% 15.8%

Mavis Hui Mavis Hui Mavis Hui

16.7 6.1 11.9 5.3 6.1 5.0 n.a. 12.6 10.3

12.6 6.1 11.4 4.8 6.2 4.5 n.a. 9.6 5.9

5.0 2.5 3.7 1.6 2.6 1.3 0.7 3.9 0.5

5.1 1.1 2.2 1.0 0.4 0.4 4.5 2.3 6.4

1.4 0.0 3.3 4.6 0.0 0.0 0.7 1.7 4.6

1.9 cash 0.0 251% 3.4 cash 4.6 62% 0.0 2563% 0.0 409% 0.8 9% 2.3 cash 5.1 Cash

11.7% 4.7% 17.7% 4.1% 0.2% 0.4% 0.7% 12.8% 6.6%

13.7% 22.1% 19.6% 11.9% -2.8% 3.8% 10.5% 15.8% 7.0%

T Wu / A Hui P Yong / T Hsu Alice Hui Paul Yong P Yong / T Hsu P Yong / T Hsu Ken Chen T Wu / A Hui Jeff Yau

6.7 5.1 6.8 20.4 15.7

5.1 2.8 5.7 16.4 11.5

1.4 1.8 1.5 5.3 4.2

0.3 0.2 0.3 1.3 1.4

2.1 1.2 1.6 0.7 1.3

2.5 2.2 1.9 0.9 1.9

55% cash 6% cash cash

3.0% 2.6% 2.4% 3.3% 5.5%

15.0% 13.1% 11.8% 10.1% 17.9%

Rachel Miu Rachel Miu Rachel Miu Rachel Miu Rachel Miu

5.4 12.1 11.9 8.4 21.1 11.7 14.7 5.8 10.9

4.5 8.8 9.7 6.8 17.2 12.0 11.7 5.0 6.6

1.2 3.4 3.0 2.6 9.1 2.5 2.4 2.6 1.7

2.1 3.3 7.9 2.1 14.6 2.4 2.6 4.2 1.5

2.8 1.3 0.8 2.8 1.9 2.4 1.2 2.9 2.6

2.9 1.9 0.8 3.3 1.4 1.7 1.7 3.3 4.5

1% cash cash 74% cash 81% 83% cash 9%

4.5% 11.9% 31.9% 10.3% 31.2% 11.4% 5.0% 47.8% -5.1%

6.7% 19.4% 53.5% 23.7% 40.4% 19.7% 11.3% 59.1% -7.4%

Patricia Yeung Rachel Miu Patricia Yeung Dennis Lam Patricia Yeung Patricia Yeung Patricia Yeung E Y Lee / A Dai Dennis Lam

15.3

12.3

407 539 238 299 1482

816 768 377 271 2233

0.09 0.15 0.10 0.21

0.18 0.21 0.13 0.19

110 36 n.a. (1)

29.3 27.7 6.6 13.6 25.5

15.3 19.4 4.9 15.0 16.3

21.5 18.8 5.6 4.1

15.3 14.9 6.0 3.6

3.4 2.9 0.3 0.9

2.1 5.5 0.8 0.9

0.0 0.5 0.0 1.1

0.0 0.8 0.0 1.0

77% 25% 95% 78%

3.1% 5.0% -3.7% 3.3%

8.8% 10.1% -9.8% 7.6%

Patricia Yeung Patricia Yeung Patricia Yeung Patricia Yeung

32881 8203 2073 16187

36451 8645 5687 21912

46132 10201 7656 27878

1.47 1.01 0.51 2.98

1.87 1.19 0.69 3.80

18 12 92 31

21.5 29.0 20.5 27.5

17.0 24.5 15.3 21.6

2.6 2.1 n.a. 2.9

2.4 1.8 n.a. 2.4

3.9 2.4 4.7 5.3

2.9 2.7 36.4 -52.0

2.4 1.0 0.0 0.9

1.5 1.2 0.0. 1.1

n.a. n.a. n.a. n.a.

21.2% 2.1% 1.2% 1.7%

8.6% 10.0% 8.6% 17.5%

Dennis Lam Dennis Lam Dennis Lam Dennis Lam

24.3

19.2

10.4 15.1 9.7

9.3 11.2 8.9

9.2 11.1 9.3

8.9 10.7 9.1

1.4 1.0 1.0

1.4 0.5 0.5

2.9 3.4 3.1

3.2 4.6 3.4

111% 398% 244%

5.4% 0.9% 2.7%

16.4% 6.1% 12.5%

June Ng June Ng June Ng

18.0 26.8 14.3 16.5

17.4 9.5 24.8 23.9 12.7 14.6 12.9 122.1

9.3 22.2 14.1 124.1

2.1 3.8 1.9 1.8

2.9 8.8 10.1 31.9

3.9 1.9 4.5 3.7

3.9 2.0 5.1 4.0

44% 19% 14% cash

7.7% 8.8% 11.5% 11.5%

16.4% 16.3% 16.8% 14.1%

June Ng W K Lee / J Ng J Ng / W K Lee June Ng

18.4

16.5

5317 1856 5675

7484 5175 6697 5568

24924

72696 5781 2141 5104

13026 8449 4976 7343 4750

25519

11744

19.0 18.8 11.3 13.7 14.2 41.6 22.1 31.1 30.1 22.7 13.7 28.5 36.1 39.1

193 372 (94) 278 650

12849 55.20 18.50 54.40 44.20

42846

0.86 0.50 3.35 0.33 0.25 0.53 0.13 1.16 0.68 0.29 0.30 0.44 0.14 0.51

15347 252 184 1233

59344 13.44 19.80 2.75 2.95 4.12 4.80

13601

282 262 3692 548 294 1308 2978 857 1311 707 159 1613 503 833

270 177 1097

26462 6.28 5.50 5.95 7.20 5.92 6.70 13.16 21.00 11.00 14.20 5.68 7.60 11.46 17.00 1.35 1.69 1.78 2.30

273 222 4226 493 264 1018 2303 720 1135 570 113 1235 381 650

257 124 900

13864

163

Sector Power, Infra & Utilities CLP Holdings HK & China Gas HK Electric Cheung Kong Infrastructure

review B review B H review B review review B B B review review

Dec Dec Dec Dec

Sector Power (China) China Resources Power Datang Intl Huaneng Power

16.38 9.45 37.85 4.53 3.53 22.10 2.85 35.95 20.45 6.48 4.18 12.56 4.97 19.84

91868 6429 2904 5558

1.30 0.18 0.42

1.44 0.25 0.46

10 25 (1)

3.51 0.69 3.44 2.11

3.63 0.75 3.87 2.71

8 (2) 11 5

14890 8737 5376 8250 6111

28475

10.6

9.4

Note 2

Note 2

DBSV UNIVERSE: HONG KONG FYE Company Properties-China Agile Property CC Land # China Overseas # China Resources Land # Franshion Properties # Shimao Property # Shui On Land # Sino-Ocean Land # Soho China # SPG Land #

Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec

Sector Properties-HK Cheung Kong # Great Eagle # Hang Lung Group # ^ Hang Lung Properties # ^ Henderson Land # ^ Hongkong Land ^ # @ Hysan Development # K Wah Intl Kerry Properties # MTR ^ # New World Dev # SHK Properties # ^ Sino Land #* Tai Cheung * #

Dec Dec Jun Jun Dec Dec Dec Dec Dec Dec Jun Jun Jun Mar

Sector Transportation - Toll Road Anhui Expressway Jiangsu Expressway Hopewell Highway* Shenzhen Expressway Sichuan Expressway Zhejiang Expressway

Mkt Cap (US$m)

39 7 121 73 22 41 20 29 30 4

5055 905 15512 9379 2780 5301 2614 3683 3883 488

339

43640

264 14 67 155 115 123 36 7 58 164 57 326 79 4

33925 1858 15803 19995 14816 15868 4633 932 7479 21043 7346 41939 10187 465

1471 Dec Dec Jun Dec Dec Dec

443 1259 2220 439 616 1348

49

6325

8 71 35 4 11 1

981 9134 4540 459 1425 189

130

16728

Dec Dec Mar Dec

27 33 50 11

3411 4207 6426 1445

120

15489

Dec Dec Dec

1532 268 55

197002 34481 7031

Dec Dec Dec Dec Dec Dec

Sector

Price (HK$) 16-Dec

Target Price (HK$)

% Upside

Share Price Avg Performance (%) 6-mth Rcmd 3M 6M 12M Vol (m)

11.32 2.75 14.76 13.54 2.36 11.62 3.90 5.08 5.82 3.61

14.93 2.31 19.00 19.10 2.88 14.30 3.95 5.49 6.18 3.14

32 (16) 29 41 22 23 1 8 6 (13)

B FV B B B B H review H H

18 (15) (16) (19) (0) (13) 1 (5) 8 (2)

44 2 (2) (10) 6 (2) 17 (12) 34 16

2 (25) (13) (26) (14) (23) (12) (29) 47 (28)

148 19 405 203 21 214 52 86 46 4

113.90 23.20 50.05 34.80 52.95 7.05 34.20 2.84 40.50 28.35 14.58 126.90 15.06 5.85

135.00 26.60 42.90 36.50 58.20 6.25 32.00 3.89 50.15 36.45 16.78 142.00 18.54 6.37

19 15 (14) 5 10 (11) (6) 37 24 29 15 12 23 9

B B review H review review review B B B review review B review

10 2 2 (7) 6 15 25 (3) (1) 0 9 8 4 15

27 13 25 19 11 35 61 18 18 6 16 18 12 34

15 11 32 19 (9) 42 51 (1) (2) 8 (12) 8 (1) 28

545 19 43 371 231 12 44 27 100 103 165 707 211 2

PAT/MI (HK$m) 09A 10F 2175 (58) 7469 4409 1174 4105 3119 1817 3850 779

25885

189161

3 10 17 3 5 10

Sector Transportation - Services Beijing Capital Intl Airport China Merchants Hldgs COSCO Pacific Dalian Port Tianjin Port Xiamen Int'l Port

Mkt Cap (HK$bn)

19886 1276 1454 2388 6088 777 1113 916 2146 7303 2084 12415 3601 211

29578 6.98 8.01 5.83 4.57 5.35 7.31

9.10 9.32 5.96 5.02 5.84 7.52

4.06 5.30 28.90 33.03 13.02 14.88 3.36 4.07 1.80 1.84 1.49 1.61

30 16 2 10 9 3

31 14 14 21 2 8

B B H review H H

B B B B H H

36 1 1 15 (5) 5

4 1 12 6 3 1

59 13 11 32 24 3

(8) 17 42 9 4 11

30 17 24 25 34 (1)

(17) 26 32 18 (37) 6

12 34 8 13 13 50

35 153 115 11 19 6

5603 27 9302 4173 972 4332 2275 2319 3663 409

27062 22251 1351 3695 6674 4024 801 1157 789 2914 8616 11613 13883 3506 275

81550

EPS (HK$) 11F 10F 11F 4153 412 10388 4941 815 4424 1268 2290 1694 1372

CAGR 09-11 (%)

1.59 0.01 1.14 0.83 0.11 1.21 0.45 0.41 0.71 0.40

1.20 0.16 1.27 0.98 0.09 1.23 0.25 0.41 0.22 1.34

41 n.a. 18 4 (22) 4 (38) 12 (46) 33

9.61 2.17 2.76 1.61 1.86 0.36 1.10 0.32 2.03 1.49 1.57 5.41 0.72 0.45

10.32 2.13 2.24 1.06 2.35 0.26 1.15 0.62 2.83 1.48 1.31 6.65 0.83 0.72

10 2 43 36 (9) (13) 4 29 37 7 54 17 6 46

26232 23898 1329 2999 4508 5086 588 1213 1525 4057 8536 5117 17086 4086 448

80476

775 2350 1059 631 947 2097

887 2877 956 734 1336 1987

1208 2948 824 833 1794 2078

7859

8778

9685

350 3238 1338 707 (48) 235

558 3552 2798 746 560 288

789 4089 2718 890 683 324

5820

8502

9493

718 935 (1755) 1095

1154 3074 1003 1184

1626 2952 2149 1392

0.53 0.57 0.32 0.34 0.44 0.46

0.13 1.46 1.09 0.26 0.09 0.11

0.73 0.59 0.28 0.38 0.59 0.48

0.18 1.68 1.00 0.30 0.11 0.12

25 12 (12) 15 31 (0)

50 22 30 12 n.a. 17

PE (x) 10F

11F

EV/ EBITDA (x) 10F 11F

P/BV (x) 10F

P/Sales (x) 10F

4.9 1.6 8.4 7.7 3.1 7.2 15.2 0.9 5.5 1.3

0.5 0.6 0.9 0.6 0.6 0.6 0.6 0.7 0.8 0.5

1.5 3.8 2.5 3.5 3.1 1.7 3.1 2.0 1.7 0.8

3.5 0.0 1.6 1.2 0.9 3.2 2.5 2.0 3.6 3.3

2.6 1.2 1.7 1.5 0.7 3.5 1.8 2.0 1.1 11.1

42% 4% 23% 20% 72% 51% 34% 18% Cash 18%

4.7% -0.3% 7.5% 5.3% 2.7% 2.0% 6.8% 3.4% 10.3% 5.2%

16.1 10.9 9.3 26.7 44.4 25.4 27.0 5.7 29.4 16.8 19.0 21.3 31.9 5.9

1.0 0.5 0.9 1.1 0.7 1.1 0.9 0.5 0.7 0.8 0.5 0.8 0.7 0.5

6.8 3.0 5.4 12.9 19.1 11.3 20.4 2.2 2.8 5.7 1.9 9.8 10.3 6.4

2.4 2.3 1.5 2.0 1.9 2.3 2.0 3.9 2.2 2.0 2.6 2.1 2.7 4.6

2.5 2.3 1.5 2.0 1.9 2.3 2.0 4.9 3.0 2.0 2.6 2.5 2.7 5.1

9% 12% 5% Cash 19% 19% 6% 37% 18% 26% 46% 15% 16% Cash

6.8% 4.9% 1.5% 6.7% 3.3% 4.2% 2.6% 6.0% 2.6% 4.3% 1.2% 4.4% 4.1% 6.6%

8.5% 6.3% 3.9% 8.5% 4.8% 6.5% 3.4% 11.3% 4.4% 7.2% 2.8% 6.0% 6.1% 7.0%

Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau Jeff Yau

6.9 8.8 12.4 12.2 7.4 6.8

5.1 8.4 13.3 10.8 7.5 6.2

1.7 2.1 2.1 1.0 1.7 1.9

2.9 5.5 8.9 2.0 5.2 4.3

3.8 5.4 5.5 3.6 3.3 4.4

5.2 5.6 4.7 4.1 4.4 4.6

34% 45% 28% 108% 11% cash

7.2% 8.6% 11.4% 2.7% 6.7% 7.2%

12.7% 13.6% 17.7% 7.1% 10.0% 14.1%

P Yong / T Hsu P Yong / T Hsu P Yong / T Hsu P Yong / T Hsu P Yong / T Hsu P Yong / T Hsu

12.3 15.0 13.0 9.7 9.5 6.3

11.2 13.5 11.4 8.1 8.5 5.6

1.2 2.0 1.3 1.3 1.3 0.9

2.7 17.1 7.9 4.6 0.2 1.7

1.0 2.2 3.3 3.2 2.0 4.7

1.5 2.5 3.1 3.6 2.5 5.3

165% 32% 41% 30% 18% cash

0.8% 6.3% 3.9% 5.7% -0.9% 3.1%

2.4% 10.1% 6.5% 9.3% -1.3% 5.4%

T Hsu / P Yong Ken He /P Yong Ken He /P Yong Ken He /P Yong Ken He /P Yong Ken He /P Yong

16.3 8.3 10.0 5.8

11.4 8.2 7.2 5.3

5.4 6.3 3.9 0.9

11.6 6.1 0.4 0.2

1.7 5.2 1.1 3.2

2.4 5.0 1.6 3.7

Cash cash cash cash

15.5% 21.9% 1.7% 3.8%

18.5% 29.8% 8.9% 9.8%

Steven Zhang Steven Zhang Steven Zhang Steven Zhang

4.4 4.9 4.3

3.9 4.3 3.9

2.3 1.1 1.2

2.7 1.4 1.2

3.9 1.6 2.2

4.1 1.6 2.2

cash 30% 32%

16.4% 2.4% 3.1%

24.3% 4.4% 6.1%

TszWang Tam TszWang Tam TszWang Tam

nmf nmf nmf nmf

nmf nmf nmf nmf

0.8 0.7 0.7 1.4

11.8 8.0 8.7 10.8

5.0 6.1 6.4 4.0

4.7 6.3 6.9 4.5

32% 23% 33% 24%

8.5% 3.2% 1.6% n.a.

14.6% 4.5% 5.6% n.a.

Jeff Yau Jeff Yau Jeff Yau Jeff Yau

7.1 257.5 13.0 16.3 22.3 9.6 8.6 12.3 8.2 9.1

9.5 5.8 17.1 160.7 11.6 8.3 13.8 10.8 26.5 11.4 9.4 10.1 15.5 16.6 12.5 11.8 26.7 4.3 2.7 7.8

11.6

12.2

11.9 10.7 18.1 21.6 28.5 19.8 31.1 8.9 19.9 19.0 9.3 23.4 20.9 13.1

11.0 18.6 10.9 11.0 22.3 31.9 32.9 18.1 22.5 108.4 27.0 22.1 29.6 28.3 4.6 10.3 14.3 18.4 19.2 17.0 11.2 15.7 19.1 24.5 18.1 22.4 8.1 10.3

17.7

16.5

13.1 14.0 18.1 13.6 12.2 16.0

9.6 13.7 20.9 12.0 9.1 15.3

15.6

14.4

31.5 19.8 11.9 13.2 19.8 14.1

22.3 17.2 13.0 11.0 16.2 12.6

16.8

15.7

23.0 10.6 45.4 9.5

16.3 11.1 22.1 8.1

17.1

14.6

11.0 59.5 18.8

10.4 34.2 15.0

12.6

11.7

nmf nmf nmf nmf

nmf nmf nmf nmf

nmf

nmf

Div Yld (%) (%) 10F 11F

Latest Report Data (%) Gear ROA ROE

Analyst

Disclosure Legend

13.8% Carol W / Andy Y -0.6% Carol Wu 19.8% Carol Wu 13.0% Carol Wu 7.8% Carol Wu 4.5% Carol Wu 13.9% Carol Wu 7.9% Carol Wu 21.1% Carol Wu 19.1% Carol Wu

Technology

Hardware & Equipment AAC Acoustics ASM Pacific Lenovo Group * TPV Technology

Sector Telecom China Mobile China Unicom China Telecom

Sector Real Estate Investment Trust ** Champion REIT Fortune REIT Prosperity REIT The Link REIT *

Sector ^ underlying profit # P /NAV for Property companies Sector P/Es are calendarised % - fully diluted EPS * 10A ~ Core profit and EPS

1855 Dec Dec Dec Mar

21.60 22.55 82.95 82.30 4.99 5.70 4.79 5.35

4 (1) 14 12

review review review H

37 26 6 4

101 35 14 4

78 19 12 4

60 59 217 10

76.35 69.00 11.38 10.00 3.94 4.90

(10) (12) 24

review review B

(2) (3) (6)

(0) 17 2

7 12 20

2,269 375 226

238514

22 7 2 54

2885 848 299 6929

89

11431

4023

6415

8120

134461 10585 15494

139857 4549 17001

146647 7918 21189

170108 4.55 3.86 3.95 4.60 1.74 1.95 24.30 28.15

(15) 16 12 16

review B B B

Note 2:

Note 3: Note 4: Note 5:

15 2 7 6

28 14 24 22

44 31 34 30

24 4 3 150

161407

0.94 7.80 0.11 0.50

1.32 7.49 0.23 0.59

50 78 n.a. 7

6.97 0.19 0.21

7.31 0.33 0.26

4 (14) 17

175754

1242 338 145 1819

1068 399 148 2134

1036 417 162 2408

3814

3936

4234

n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a.

DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from these companies. DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA beneficially own a total of 1% or more of any class of common equity securities of these companies. DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA beneficially own a total of 5% or more of any class of common equity securities of these companies. Dual listing in Singapore under FRT SP

Note 2, 3, 4, 5

THAILAND : EARNINGS GUIDE FYE Company AGRO & FOOD INDUSTRY Food and Beverage Minor International Charoen Pokphand Foods Thai Vegetable Oil Thai Union Frozen Products

Dec Dec Dec Dec

Sector FINANCIALS Banks Bank of Ayudhya Bangkok Bank KASIKORNBANK Krung Thai Bank Siam Commercial Bank Thanachart Capital Tisco Financial Group

Dec Dec Dec Dec Dec Dec Dec

Sector Finance Kim Eng Securities Phatra Securities

Dec Dec

Sector INDUSTRIAL Petrochemicals & Chemicals Indorama Ventures PTT Chemical

Dec Dec

Sector PROPERTY & CONSTRUCTION Construction Materials Tata Steel (Thailand)** Siam Cement

Mar Dec

Sector Property Amata Corporation Dec Asian Property Development Dec Ch. Karnchang Dec Central Pattana Dec CPN Retail Growth Leasehold PropertyDec Italian-Thai Development Dec Hemaraj Land And Development Dec Land & Houses Dec L.P.N. Development Dec Preuksa Real Estate Dec Quality Houses Dec Rojana Industrial Park Dec Sansiri Dec Supalai Dec Samui Airport Property Fund Dec Sino-Thai Engineering & Con. Dec

Sector RESOURCES Energy Banpu PTT PTT Exploration & Production Thai Oil PCL

Dec Dec Dec Dec

Sector SERVICES Commerce Big C Supercenter CP ALL Home Products Center

Sector

Dec Dec Dec

Mkt Cap (Btm)

Mkt Price Cap (Bt) (US$m) 16-Dec

40,453 178,223 22,547 51,403

1,344 5,919 749 1,707

292,625

9,719

141,528 284,418 296,764 194,623 356,977 49,659 28,933

4,700 23.30 9,446 149.00 9,856 124.00 6,464 17.40 11,856 105.00 1,649 37.25 961 39.75

1,352,903

44,932

8,733 5,818

290 193

14,551

483

249,221 221,058

12.40 23.70 30.00 53.75

15.30 27.25

8,277 57.50 7,342 146.00

470,279

15,619

13,478 414,000

448 1.65 13,750 345.00

427,478

14,197

16,112 14,880 16,443 63,730 12,661 19,459 19,216 67,675 13,503 42,150 18,481 10,366 8,273 18,024 9,120 16,726

535 494 546 2,117 421 646 638 2,248 448 1,400 614 344 275 599 303 555

366,818

12,183

217,942 910,661 558,990 152,492

7,238 802.00 30,244 320.00 18,565 168.50 5,064 74.75

1,840,085

61,112

68,719 180,849 36,783

2,282 6,006 1,222

286,351

9,510

15.10 6.35 9.95 29.25 11.60 4.64 1.98 6.75 9.15 19.10 2.18 10.70 5.55 10.50 9.60 14.10

85.75 40.25 8.45

Target Price (Bt)

% Upside

Rcmd

16.20 24.90 38.25 64.00

31% 5% 28% 19%

B H B B

24.40 187.00 150.00 21.00 121.50 42.00 44.00

18.50 38.00

68.00 210.00

2.48 366.00

20.00 7.80 11.30 28.75 12.79 5.30 2.36 6.50 12.62 25.00 3.04 10.84 6.97 14.30 9.94 16.56

853.00 372.00 169.00 80.00

79.00 48.50 11.80

5% 26% 21% 21% 16% 13% 11%

21% 39%

18% 44%

50% 6%

32% 23% 14% -2% 10% 14% 19% -4% 38% 31% 39% 1% 26% 36% 4% 17%

6% 16% 0% 7%

-8% 20% 40%

H B B B B H H

B B

B B

B B

B B B H B H B FV B B B FV B B B B

B B H B

B B B

Share Price Avg Performance (%) 6-mth 3M 6M 12M Vol (m)

4 (4) 27 (7)

10 2 15 16 14 (1) 7

2 6

130 24

(12) 10

(1) (18) 8 (2) 6 21 5 (6) (9) (21) (17) (7) (3) (15) 1 10

24 12 18 48

34 3 (7)

22 20 71 15

19 24 34 36 27 43 47

35 51

176 36

(1) 35

96 26 54 55 10 59 40 27 17 12 8 14 10 23 7 106

26 27 14 69

63 40 52

12 108 69 92

8 31 47 77 24 67 na

24 60

na 109

(15) 53

100 12 72 41 27 60 157 6 28 16 (16) 0 29 79 20 139

35 40 22 78

104 71 128

9.1 50.8 6.4 3.5

22.2 5.5 6.9 61.8 10.7 15.2 4.5

3.6 1.8

27.4 8.9

21.0 2.6

17.6 30.3 34.7 3.2 1.3 121.6 55.0 30.5 15.6 6.6 120.4 2.3 7.8 15.9 0.7 31.9

1.9 7.1 7.4 12.4

0.4 9.7 12.8

09E

Net Profit (Btm) 10F

11F

1,400 10,190 1,623 3,344

1,425 13,157 1,629 3,950

2,316 13,798 2,064 4,582

16,558

20,161

22,760

6,659 20,764 14,892 12,189 20,760 5,109 1,988

8,515 24,420 19,005 15,202 23,655 5,545 2,920

9,760 25,820 23,645 20,220 27,030 5,860 3,135

82,361

99,263

115,472

715 426

788 1,094

811 530

1,141

1,881

1,342

4,824 6,802

8,725 11,706

14,308 17,464

11,626

20,431

31,771

81 24,346

(54) 38,492

1,141 34,731

24,426

38,437

35,872

318 1,866 90 4,952 1,452 (1,774) 575 3,908 1,359 3,622 1,716 757 1,610 2,476 656 305

855 2,058 (294) 1,831 1,647 47 1,180 3,985 1,678 3,644 2,085 720 1,486 2,692 391 411

1,368 2,271 783 2,082 1,787 321 1,170 4,148 1,863 4,597 2,138 865 1,853 2,916 544 786

23,888

24,415

29,490

14,229 59,548 22,154 12,062

25,256 80,054 36,868 11,083

16,661 81,352 41,217 10,439

107,992

153,260

149,669

2,868 4,992 1,143

3,223 6,318 1,577

3,725 8,381 1,978

9,003

11,118

14,085

EPS (Bt) 10F

11F

CAGR 08-10 (%)

0.4 2.0 2.0 4.5

0.7 2.1 2.5 4.6

29 17 4 10

1.4 12.8 7.9 1.4 7.0 4.2 4.0

1.4 5.1

2.0 7.8

(0.0) 32.1

0.8 0.9 (0.2) 0.8 1.0 0.0 0.1 0.4 1.1 1.7 0.2 0.6 0.9 1.6 0.9 0.3

92.9 28.2 11.1 5.4

4.0 1.4 0.4

1.6 13.5 9.9 1.8 8.0 4.4 4.3

1.4 2.5

3.0 11.6

0.1 28.9

1.3 1.0 0.5 1.0 1.0 0.1 0.1 0.4 1.3 2.1 0.3 0.7 1.2 1.7 1.0 0.7

61.3 28.7 12.4 5.1

4.6 1.9 0.5

21 12 26 29 14 7 25

6 12

44 60

275 19

107 10 176 (35) 4 nm 43 3 17 13 12 (7) 3 9 5 61

8 17 36 (7)

14 30 21

PE (x) 10F

11F

28.2 12.0 14.9 12.0

17.4 11.4 11.8 11.7

14.5

12.9

16.6 11.6 15.6 12.8 15.1 9.0 9.9

14.5 11.0 12.6 9.6 13.2 8.5 9.2

13.6

11.7

11.1 5.3

10.8 11.0

7.7

10.8

28.6 18.7

19.4 12.5

23.0

14.8

nm 10.8

11.8 11.9

11.1 18.8 7.2 nm 34.8 12.2 412.1 16.3 17.0 8.0 11.6 8.9 18.4 6.0 6.7 10.2 40.7

EV/EBITDA (x) 10F 11F

P/ P/ BV x Sales x 10F 10F

Div. Yield Net Debt /Equity (%) 10F 11F 09A

ROA

ROE

09A

09A

Analyst

12.7 9.6 9.4 8.6

10.6 8.9 7.8 8.1

3.1 2.7 4.5 2.2

2.2 1.0 0.9 0.7

1.1 4.0 4.7 4.2

1.7 4.4 5.9 2.2

94.7 0.6 37.4 53.4

5.3 9.1 19.3 8.8

12.3 21.0 42.3 21.8

V Nalyne V Nalyne V Nalyne V Nalyne

na na na na na na na

na na na na na na na

1.4 1.2 2.2 1.5 2.3 1.4 2.0

na na na na na na na

1.9 3.3 2.4 2.9 2.9 3.4 3.8

2.4 3.4 3.2 3.8 3.3 3.6 4.4

na na na na na na na

0.9 1.2 1.1 0.8 1.6 1.2 1.5

7.5 11.2 12.6 11.3 15.5 17.1 16.7

K Sugittra K Sugittra K Sugittra K Sugittra K Sugittra K Sugittra K Sugittra

na na

na na

1.9 1.7

na na

7.7 11.7

7.9 8.4

na na

11.5 8.5

16.4 13.7

K Sugittra K Sugittra

23.3 11.6

13.2 8.2

8.5 2.1

2.7 2.2

0.8 2.3

1.6 3.9

172.0 33.8

6.7 4.4

32.2 7.0

C Naphat C Naphat

17.7 8.9

5.7 6.9

0.9 3.3

0.6 1.5

3.0

2.1 4.3

12.8 92.3

0.3 8.1

0.5 25.4

V Nalyne C Naphat

11.9

2.0

15.6

23.0

14.8

11.8 11.8 6.6 7.8 21.0 165.4 30.6 16.3 11.7 7.4 60.5 14.2 16.4 15.4 16.3 15.2 7.2 5.6 9.2 10.5 8.6 9.4 15.2 11.6 4.8 6.6 6.2 5.1 9.7 10.3 21.3 33.1

7.4 6.5 15.3 15.0 7.1 8.8 14.7 14.8 4.7 9.1 9.4 12.6 6.4 4.8 9.8 19.6

2.8 1.6 2.7 3.3 1.1 1.8 2.1 2.5 2.3 2.7 1.4 1.9 0.8 2.0 0.9 3.6

4.0 1.1 2.6 6.3 5.8 0.6 4.9 3.8 1.3 1.8 1.3 1.3 0.5 1.6 9.8 2.1

2.1 5.5 1.1 8.5 3.1 4.7 6.7 2.6 6.7 3.9 6.7 6.7 9.8 1.2

3.4 6.1 2.2 1.3 8.8 3.0 4.9 7.5 3.3 6.8 4.7 8.4 7.3 10.3 2.3

83.0 77.6 219.9 74.4 2.0 187.4 37.2 53.5 cash cash 94.0 186.7 61.4 37.2 cash cash

2.5 10.2 0.3 10.5 9.6 (3.2) 4.2 8.4 16.0 20.6 6.0 3.6 6.6 17.3 5.9 2.9

6.4 25.2 1.7 29.9 10.4 (15.8) 7.3 15.0 27.9 31.3 14.3 10.5 16.9 39.4 6.0 6.8

S Chanpen S Chanpen S Chanpen S Chanpen S Chanpen S Chanpen A Sombut S Chanpen S Chanpen S Chanpen S Chanpen A Sombut A Sombut S Chanpen S Chanpen A Sombut

9.0 6.4 5.6 9.4

5.6 5.5 5.3 8.0

3.1 1.9 3.3 2.0

3.5 0.4 4.0 0.6

2.2 3.1 2.9 2.2

2.7 3.1 3.0 3.4

16.0 46.2 8.8 47.7

14.9 6.0 8.2 8.9

32.0 14.7 16.0 19.2

C Naphat C Naphat C Naphat C Naphat

9.0 14.8 12.4

7.8 11.2 10.0

3.3 8.8 5.3

1.0 1.3 1.5

2.3 3.5 2.1

2.7 3.3 2.7

cash cash 13.0

7.7 11.8 8.4

15.8 28.1 22.3

V Nalyne V Nalyne V Nalyne

15.0

12.4

8.6 11.3 15.1 13.8

13.1 11.1 13.5 14.6

12.0

12.3

21.3 28.6 23.3

18.4 21.6 18.6

25.8

20.3

Disclosure Legend

Note 1 Note 1

Note 1

Note 1

THAILAND : EARNINGS GUIDE FYE Company Entertainment Asiasoft Corporation BEC World Major Cineplex MCOT Workpoint Entertainment PCL

Dec Dec Dec Dec Dec

Sector Transport Bangkok Expressway Thoresen Thai Agencies Thai Airways

Dec Sep Dec

Sector TECHNOLOGY Communications Advanced Info Service CS Loxinfo True Corporation Total Access Communications

Dec Dec Dec Dec

Sector Electronics Cal-Comp Electronics Delta Electronics Thai Hana Microelectronics

Dec Dec Dec

Sector OTHER Others Bumrungrad Hospital

Sector

Dec

Mkt Cap (Btm)

Mkt Price Cap (Bt) (US$m) 16-Dec

3,206 63,000 11,465 18,895 2,380

106 2,092 381 628 79

98,946

3,286

14,784 15,222 109,139

491 506 3,625

139,145

4,621

256,169 3,023 57,207 100,632

8,508 100 1,900 3,342

423,661

14,070

13,945 43,035 22,423

463 1,429 745

79,403

2,637

23,853

792

23,853

792

10.20 31.50 13.00 27.50 11.90

19.20 21.50 50.00

86.25 5.10 6.75 42.50

3.42 34.50 27.00

32.75

Prices quoted in US$ converted to Bt at 30.11 to calculate ratios. SB = Strong Buy, B = Buy, H = Hold, FV = Fully Valued, S = Sell, NR = No Rating * Under Revision

Target Price (Bt)

% Upside

Rcmd

13.75 43.00 19.50 39.50 11.00

35% 37% 50% 44% -8%

B B B B H

23.37 38.40 64.50

122.00 5.75 9.60 50.40

3.54 40.00 25.60

37.25

22% 79% 29%

41% 13% 42% 19%

4% 16% -5%

14%

B B B

B B B B

B B H

B

Share Price Avg Performance (%) 6-mth 3M 6M 12M Vol (m) (2) (19) 0 (7) 6

4 (9) 28

2 9 32 9

(8) 23 3

(11)

36 28 42 16 69

8 (8) 89

10 52 115 17

2 60 4

7

57 31 52 15 70

(8) (19) 154

16 68 119 19

10 91 33

9

0.4 3.1 5.5 1.2 0.5

2.3 9.8 8.4

7.7 2.8 248.3 10.1

7.4 2.8 2.2

1.0

09E

Net Profit (Btm) 10F

11F

178 2,635 334 1,389 73

255 3,248 752 1,450 144

274 3,676 795 2,000 151

4,609

5,848

6,897

1,702 1,814 7,344

1,851 1,063 14,813

1,311 1,704 12,384

10,860

17,726

15,399

17,055 287 1,228 6,628

19,883 317 3,136 10,607

21,269 322 1,614 9,815

24,727

34,084

33,496

1,301 2,189 2,043

1,607 4,376 2,641

1,760 4,508 2,424

5,534

8,624

8,691

1,246

1,211

1,425

1,246

1,211

1,425

EPS (Bt) 10F

11F

CAGR 08-10 (%)

0.8 1.6 0.9 2.1 0.7

0.9 1.8 0.9 2.9 0.8

22 18 54 20 44

2.4 1.5 6.8

6.7 0.5 0.4 4.5

0.4 3.5 3.1

1.7

1.7 2.4 5.7

7.2 0.5 0.2 4.1

0.4 3.6 3.0

2.0

(12) (3) 15

12 10 15 22

13 43 15

7

PE (x) 10F

11F

12.7 19.4 15.2 13.0 16.5

11.8 17.1 14.4 9.4 15.7

16.9

14.3

8.0 14.3 7.4

11.3 8.9 8.8

7.8

9.0

12.9 9.4 16.7 9.5

12.0 9.3 32.5 10.3

12.4

12.6

8.7 9.8 8.7

8.1 9.6 9.0

9.2

9.1

19.7

16.7

19.7

16.7

EV/EBITDA (x) 10F 11F

P/ P/ BV x Sales x 10F 10F

Div. Yield Net Debt (%) /Equity 10F 11F 09A

5.2 9.1 6.5 5.8 6.8

4.9 7.8 5.7 4.8 6.2

2.6 8.4 2.1 2.5 2.2

2.2 5.4 1.8 3.6 1.9

7.5 5.2 5.9 6.5 4.2

8.1 5.8 6.2 9.0 4.5

cash cash 59.5 cash cash

10.5 30.2 3.2 14.8 6.4

5.5 3.8 5.5

5.9 2.4 4.7

0.8 0.6 1.3

1.9 0.7 0.6

6.3 1.7 3.4

4.4 2.7 3.0

115.9 cash 262.6

4.0 4.3 2.8

5.5 4.4 5.3 4.1

5.1 4.2 5.1 3.9

6.4 2.5 4.0 1.4

2.4 1.2 0.9 1.4

14.4 9.0 7.4

8.3 9.1 6.8

16.6 2.3 1,131.7 90.3

13.5 13.7 1.1 6.5

23.6 29.1 15.9 10.9

V Chirasit V Chirasit V Chirasit V Chirasit

5.8 6.5 4.6

4.8 5.7 4.1

0.8 2.1 1.6

0.1 1.3 1.3

3.7 5.1 5.7

3.9 5.2 5.6

0.3 cash Cash

2.5 8.1 13.6

8.4 12.7 16.1

S Chanpen S Chanpen S Chanpen

10.4

8.9

3.9

2.4

2.7

3.1

22.5

14.9

24.1

V Nalyne

ROA

ROE

09A

09A 14.3 36.9 6.2 19.0 7.4

Disclosure Legend

V Chirasit V Chirasit V Chirasit V Chirasit V Chirasit

10.1 S Chanpen 7.1Wee Lee Chong 14.9 V Nalyne

16 December 10 Note 1: As at ,DBSVS and its affiliates hold a proprietary position in these companies. Note 2: DBSVR,DBSVS,DBS Bank Ltd and/or other affiliates of DBSVUSA,within the past 12 months,have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from these companies. Note 3: DBSVR,DBSVS,DBS Bank Ltd and/or other affiliates of DBSVUSA beneficially own a total of 1%or more of any class of common equity securities of these companies. Note 4: DBSVR,DBSVS,DBS Bank Ltd and/or other affiliates of DBSVUSA,within the past 12 months,have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from related of these companies.

Analyst

Note 1

INDONESIA : EARNINGS GUIDE Company

FYE

Mkt Cap Rpbn

Mkt Cap USDm

Conglomerate/Automotive Astra International Dec

202,215

22,379

Sector

202,215

22,379

Property Intiland Development

Dec

Sector Consumer Kalbe Farma Indofood Sukses Bank Bank Central Asia Bank Mandiri Bank Danamon Bank Tabungan Negara Bank Rakyat Indo Bank Negara Indonesia

Dec Dec

Dec Dec Dec Dec Dec Dec

Sector Plantation Astra Agro Lestari Sampoerna Agro London Sumatra

Dec Dec Dec

Sector Basic Materials Aneka Tambang INCO Timah

Dec Dec Dec

Sector Oil, Gas and Energy Bukit Asam United Tractors Adaro Energy Indo Tambangraya Perusahaan Gas

Dec Dec Dec Dec Dec

Sector Telecommunications Indosat Sarana Menara Nusantara XL Axiata Telekomunikasi Indonesia

Sector

Dec Dec Dec Dec

4,095

453

4,095

453

31,484 39,731

3,484 4,397

71,215

7,881

157,792 135,406 48,401 14,285 127,723 68,068

17,288 14,827 5,302 1,565 14,115 6,169

551,674

59,267

37,873 5,528 15,829

4,191 612 1,752

59,230

6,555

22,415 44,962 13,086

2,481 4,976 1,448

80,463

8,905

47,119 76,851 80,765 56,270 103,026

5,215 8,505 8,938 6,227 11,402

364,032

40,287

28,528 13,570 45,092 156,240

3,157 1,502 4,990 17,291

243,430

26,940

Price (Rp) 16-Dec

49,950

395

3,100 4,525

6,400 6,450 5,750 1,640 10,350 3,650

24,050 2,925 11,600

2,350 4,525 2,600

20,450 23,100 2,525 49,800 4,250

5,250 13,300 5,300 7,750

Target Price (Rp)

% Upside

Rcmd

65,000

30%

B

725

3,275 5,925

7,100 7,200 6,000 2,500 13,900 4,500

27,400 4,400 13,600

1,655 3,979 2,300

23,600 25,000 2,800 58,000 4,800

7,000 15,000 6,800 8,900

84%

6% 31%

11% 12% 4% 52% 34% 23%

14% 50% 17%

-30% -12% -12%

15% 8% 11% 16% 13%

33% 13% 28% 15%

B

H B

H H FV B B B

B B B

FV H FV

B H B B B

B B B H

Share Price Performance (%) 3M 6M 12M

-9

-25

23 (11)

(2) (7) 2 (13) (0) 1

16 8 18

1 (3) (9)

11 12 17 29 4

(3) 118 (5) (16)

7

-32

51 16

14 12 6 15 16 60

16 23 35

15 14 17

23 24 28 30 8

4 472 29 (3)

45

78

137 27

33 42 28 106 35 93

0 10 36

7 25 38

17 47 44 57 8

9 0 179 (21)

Avg 6-mth Vol (m)

PAT/MI (Rpbn) 09A 10F 11F

3.6 10,210 13,484 15,784

20.4

24.6 23.3

8.9 17.1 5.4 22.0 12.3 26.1

1.7 3.8 3.6

27.6 14.7 26.6

3.0 3.3 67.1 1.3 31.2

3.3 0.1 1.5 23.3

26

929 2,076

6,807 7,155 1,533 490 7,308 2,483

1,661 282 707

423 910 314

2,728 3,818 4,367 3,031 6,229

506

1,176 2,889

511

1,411 3,360

8,380 9,448 8,930 10,900 3,044 3,835 792 1,145 9,043 11,368 3,961 4,850

1,602 389 1,135

1,205 2,861 712

2,216 4,128 2,408 2,494 6,704

2,085 469 1,329

1,452 2,975 971

3,650 5,025 5,557 4,310 7,990

1,503 1,292 1,559 589 182 330 1,709 2,785 3,464 11,332 12,069 12,726

EPS (IDR) 10F 11F

3331

49

125 329

340 430 363 91 734 259

1,017 206 831

126 288 142

962 1,241 75 2,207 282

238 178 327 605

3899

49

151 383

383 525 458 131 922 318

1,324 248 974

152 299 193

1,584 1,510 174 3,814 336

287 323 407 638

CAGR 09-11 (%)

24

145

25 27

18 23 58 52 25 40

12 29 37

85 81 76

16 15 13 19 13

2 -25 31 6

PE (x) 10F 11F

15.0

12.8

42.6

36.4

P/ BV x 10F

P/ Sales x 10F

8.1

4.2

2.1

23.0

11.8

EV/EBITDA (x) 10F 11F

9.4

8.1

8.0

7.9

5.1

1.1

8.1

8.0

7.9

5.1

1.1

24.7 13.8

20.6 11.8

13.8 7.7

11.8 6.8

5.7 3.2

18.6

15.7

9.0

4.3

18.8 15.0 15.8 18.0 14.1 14.1

16.7 12.3 12.6 12.5 11.2 11.5

-

4.9 3.3 2.7 2.3 3.7 2.6

15.9

13.2

23.6 14.2 14.0

18.2 11.8 11.9

20.2

15.9

18.6 15.7 18.4

15.4 15.1 13.5

17.0

14.9

21.3 18.6 33.5 22.6 15.1

12.9 15.3 14.5 13.1 12.6

21.9

13.7

22.1 74.6 16.2 12.8

18.3 41.2 13.0 12.2

18.0

14.7

-

Div Yld (%) 10F 11F

Net Gear

2.3 3.1341

26.9

12.0

28.0

JK

49.0

1.2

2.2

AD

Note 1

Note 1 Note 1

2.3 10.6

ROA RONW (%) 09 09 09

Analyst

Disclosure Legend

3.1

3.7

3.7

3.7

3.7

3.5 1.1

1.4 1.6

1.7 2.2

cash 80.5

15.2 5.2

23.4 22.2

AD BS

-

2.2 1.9 3.2 1.0 2.1 1.3

2.7 2.3 4.0 1.7 2.7 2.1

-

2.6 1.9 1.6 0.9 2.6 -

26.6 21.8 11.6 11.5 29.5 14.4

SL SL SL SL SL SL

5.6 2.7 3.4 4.7

5.1 3.0 4.9

2.8 1.8 1.8

2.7 2.5 2.2

cash cash cash

23.6 12.8 14.5

29.2 17.0 20.2

BS BS BS

Note 1

2.3 7.9 1.7

2.2 0.6 2.7

2.6 1.9 3.7

cash cash cash

3.8 5.7 5.9

5.3 6.7 8.7

AK AK AK

Note 1 Note 1 Note 1

10.0

2.5 2.8 3.2 2.8

8.5 8.3 6.7 8.0 7.7

7.0 4.8 4.5 7.4 6.8

5.3 2.6 3.0 4.1 5.7

2.6 2.7 2.2 3.2 3.3

2.1 3.0 1.5 2.7 4.0

cash 7.2 26.2 cash 34.2

38.5 16.2 11.5 31.0 23.0

56.2 30.6 27.8 48.5 66.2

AK AK AK AK JN

Note 1 Note 1 Note 1

7.7

6.0

4.6 13.0 5.3 4.4

1.5 10.5 4.0 3.8

1.6 12.5 3.2 2.3

2.3 0.0 1.3 4.3

2.7 0.0 1.6 4.5

123.8 420.3 144.4 28.0

2.8 9.3 6.1 12.0

8.5 72.3 26.1 30.9

SM SM SM SM

Note 1 Note 1

5.1

3.9

Note 1 Note 1 Note 1 Note 1

3.7 13.8 8.4 9.6

11.1 7.0 8.5

10.0 8.9 8.6 9.4

15.0 10.4 12.7 14.0 9.1

5.2 15.7 6.3 4.9

7.0 7.8 7.0

Legend: Note 1 As at DBSVI and its affiliates hold a proprietary position in these companies. 16-Dec-10 Note 2 DBSVR, DBSVI, DBS Bank and/or other affiliates of DBSVUSA, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services Note 3 DBSVR, DBSVI, DBS Bank and/or other affiliates of DBSVUSA beneficially own a total of 1% or more of any class of common equity securities of these companies Note 4 DBSVI has been appointed as the designated market maker of structure warrant(s) for these companies issued by DBS Bank Note 5 DBSVR, DBSVI, DBS Bank and/or other affiliates of DBSVUSA beneficially own a total of 5% or more of any class of common equity securities of these companies

Note 1

Note 1

Note 1

KOREA : EARNINGS GUIDE FYE Company

Mkt Cap (KRWbn)

Mkt Cap (US$m)

Price (KRW) 09-Dec

Target Price % (KRW) Upside

Rcmd

Share Price Performance (%) 3M 6M 12M

Avg 6-mth Vol (m)

Net Profit (Before EI) (bn) 09 10F 11F

EPS (KRW) 10F 11F

CAGR 09-11 (%)

PE (x) 10F

11F

EV/EBITDA (x) 10F 11F

Price/ BV (x) 09

Price/ Sales (x) 09E

Div Yld (%) 10F 11F

Net Debt /Equity 09

ROA 09

ROE 09

Analyst Lee Eun Young

Basic Materials Dongkuk Steel Mill Co

Dec

1,932

1,671

31,250

29,000

-7%

Buy

21

43

14

401

50

203

291

3,276.4

4,706.8

141

9.5x

6.6x

5.5x

4.7x

0.7x

0.4x

1.9%

1.9%

0.22

1%

2%

Hyundai Steel Co.

Dec

9,896

8,561

116,000

120,000

3%

Buy

3

30

41

743

1,152

858

957

10,103.5

11,269.8

(9)

11.5x

10.3x

10.4x

8.0x

1.5x

1.0x

0.4%

0.4%

0.66

8%

20%

Lee Eun Young

Poongsan Corporation

Dec

1,394

1,206

49,750

60,000

21%

Buy

24

68

130

364

147

166

181

5,938.9

6,454.5

11

8.4x

7.7x

7.7x

6.7x

1.4x

0.6x

1.6%

1.6%

0.63

9%

19%

Lee Eun Young

POSCO

Dec

40,978

35,446

470,000

600,000

28%

Buy

(8)

(0)

(21)

266

3,172

4,523

4,895

51,872.6

56,142.7

24

9.1x

8.4x

6.4x

6.2x

1.2x

1.3x

1.7%

2.1%

cash

8%

11%

Lee Eun Young

SeAh Besteel Co

Dec

1,225

1,059

34,150

45,000

32%

Strong Buy

33

76

118

94

(39)

133

163

3,715.7

6,454.5

nm

9.2x

7.5x

6.2x

5.0x

1.3x

0.6x

2.9%

2.9%

0.85

(2%)

(5%)

Lee Eun Young

55,425

47,944

4,483

5,883

6,486

Jay Kim

Sector

9.4x

8.5x

Consumer Goods Hankook Tire %

Dec

4,847

4,207

31,850

37,000

16%

Buy

6

18

29

18,295

351

426

487

2,801.1

3,201.0

18

11.4x

9.9x

8.5x

7.3x

2.1x

1.4x

1.1%

1.1%

0.10

12.4%

19%

Kia Motors %

Dec

20,101

17,445

50,700

64,000

26%

Buy

50

59

159

158,571

1,450

5,149

6,260

5,148.7

6,259.5

32

9.8x

8.1x

8.5x

7.4x

2.2x

0.9x

0.5%

0.5%

0.36

9.0%

22%

Jay Kim

Hyundai Mobis

Dec

29,154

25,302

299,500

330,000

10%

Buy

24

48

83

76,559

1,615

2,376

2,784

24,408.1

28,597.1

31

12.3x

10.5x

15.8x

12.6x

3.1x

2.1x

0.5%

0.5%

Cash

17.1%

24%

Jay Kim

Hyundai Motor %

Dec

39,209

34,028

178,000

240,000

35%

Buy

17

22

60

155,420

2,962

5,329

6,227

18,384.7

21,510.7

46

9.7x

8.3x

9.2x

6.8x

1.8x

1.1x

0.5%

0.5%

Cash

8.8%

14%

Jay Kim

Pyeong Hwa Automotive

Dec

323

281

15,400

19,000

23%

Buy

4

35

101

3,387

31

41

47

1,970.4

2,252.9

23

7.8x

6.8x

9.7x

9.7x (1.8x)

0.9x

0.9%

1.1%

Cash

12.4%

21%

Jay Kim

97,328

85,342

6,409

13,321

15,806

11.0x

9.4x

Sector

2011 Asia Equity Outlook The Year of the Rabbit Research Team Directory Analyst

Sector

E-mail

Regional Timothy Wong Joanne Goh Paul Yong, CFA Ben Santoso Sachin Mittal Lim Sue Lin June Ng

Head, Group Research Regional Equity Strategist Singapore & China Industrial & Transport Regional Plantation Telecom Singapore, Indonesia and Malaysia Banking China and Malaysia Power

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Hong Kong / China Derek Cheung Alice Hui, CFA Addison Dai Carol Wu Dennis Lam Alexander Lee, CFA Jeff Yau, CFA Ken He Mavis Hui Patricia Yeung Paul Yong, CFA Rachel Miu Steven Zhang Tam Tsz-Wang, CFA Terry Hsu Titus Wu

Head of Research, Strategy Deputy HOR, Consumer Metal China Property Insurance Banking & Finance Hong Kong Property Port & Shipping Consumer Environmental Airline, Port & Toll Road Automobile, Infrastructure, Machinery Technology Telecom & Internet Airline & Toll Road Consumer

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Indonesia Maynard Arif Ariyanto Kurniawan Research Team

Head of Research, Strategy Basic Materials, Oil, Gas & Energy Plantation, Consumer

[email protected] [email protected] [email protected]

Malaysia Wong Ming Tek Goh Yin Foo, CFA June Ng Lim Sue Lin Yee Mei Hui Juliana Ramli Chong Tjen-San, CFA Kok Chiew Sia Lee Wee Keat Hon Seow Mee Research Team

Head of Research, Strategy Retail/ Technical Product Power, Conglomerates Banking Gaming, Property Aviation, Transport, Plantation, Telecommunications Construction, Infrastructure, Conglomerates Consumer , Retail, Technology, Motor Oil & Gas, IPO, REITs Steel, Rubber Gloves, Financials Small-Mid Caps

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Singapore Janice Chua Ho Pei Hwa Lock Mun Yee Derek Tan Jeremy Thia Andy Sim, CFA Tan Ai Teng Suvro Sarkar

Head of Research, Strategy, Industrials Industrials Property, Reits Reits Industrials, Property Consumer Electronics Electronics, Industrials

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Naphat Chantaraserekul Research Team

Head of Research Strategy, Property, REITs, Transportation Strategy, Telecom, Media Banks, Securities Construction Materials, Food and Beverage, Healthcare, Hotel, Commerce, Building Materials, Energy, Utilities, Petrochemicals, Chemicals, Automotive, Electronics

Korea Lee Eun Young Jay (Jaehak) Kim

Basic Materials, Utilities Automotive

Thailand Chanpen Sirithanarattanakul Chirasit Vuttigrai Sugittra Kongkhajornkidsuk Nalyne Viriyasathien

[email protected] [email protected] [email protected] [email protected]

[email protected] [email protected]

Page 99 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10 to +15% total return over the next 12 months for small caps, -10 to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson (www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg (DBSR GO). For access, please contact your DBSV salesperson. GENERAL DISCLOSURE/DISCLAIMER This document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). [This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of DBSVR.] The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. DBSVR accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a whollyowned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. The assumptions for commodities in this report are for the purpose of forecasting earnings of the companies mentioned herein. They are not to be construed as recommendations to trade in the physical commodities or in futures contracts relating to the commodities mentioned in this report. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 27 Dec 2010, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions). COMPANY-SPECIFIC / REGULATORY DISCLOSURES DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the mentioned company 1. as of 24 Dec 2010 DBS Vickers Securities (Thailand) Co., Ltd. and its subsidiaries do not have a proprietary position in the mentioned company as of 24 Dec 2010 Except ADVANC, BAY,BBL and SCC. PT. DBS Vickers Securities Indonesia ("DBSVI") has a proprietary position in Astra Agro Lestari, Aneka Tambang, Bank Central Asia, Bank Negara Indonesia, Bank Rakyat Indo, Bank Danamon, Indosat, London Sumatra, Perusahaan Gas, Tambang Batubara Bukit Asam, Telekomunikasi Indonesia recommended in this report as of 27 December 2010. 2.

DBS Bank Ltd has been appointed as the designated market maker of structured warrant(s) for Genting Singapore issued by DBS Bank Ltd.

3.

DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.registered broker-dealer, beneficially own a total of 1% or more of any class of common equity securities of the China Minzhong, Capitaland, Fortune REIT, CDL HT, Frasers Centrepoint Trust as of 27 Dec 2010. DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.registered broker-dealer, beneficially own a total of 5% or more of any class of common equity securities of Fortune REIT (778 HK) mentioned in this document as of 27 Dec 2010.

Page 100 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit 4.

Compensation for investment banking services: (1)

DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Keppel Corp, ARA, SIA, Tiger Airways, Genting Singapore, Keppel Land, Capitaland, Fortune REIT, CDL HT, Frasers Centrepoint Trust, Mapletree Logistics Trust, Parkway Life REIT, Singtel, ASL Marine. DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Beijing Jingkelong (814 HK), Agricultural Bank of China (1288 HK), Sands China (1928 HK) , Beijing Enterprises Water (371 HK) and Fortune REIT (778 HK) mentioned in this document.

(2)

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia

This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to hold an Australian financial services licence under the Corporation Act 2001 [“CA] in respect of financial services provided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [“MAS”] under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong

This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Singapore

This report is being distributed in Singapore by DBSVR, which holds a Financial Adviser’s licence and is regulated by the MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No. 198600294G), which is an Exempt Financial Adviser as defined under the Financial Advisers Act. Any research report produced by a foreign DBS Vickers entity, analyst or affiliate is distributed in Singapore only to “Institutional Investors”, “Expert Investors” or “Accredited Investors” as defined in the Securities and Futures Act, Chap. 289 of Singapore. Any distribution of research reports published by a foreign-related corporation of DBSVR/DBSVS to “Accredited Investors” is provided pursuant to the approval by MAS of research distribution arrangements under Paragraph 11 of the First Schedule to the FAA.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research distributed in the UK is intended only for institutional clients.

Dubai/ United Arab Emirates

This report is being distributed in Dubai/United Arab Emirates by DBS Bank Ltd, Dubai (PO Box 506538, 3rd Floor, Building 3, Gate Precinct, DIFC, Dubai, United Arab Emirates) and is intended only for clients who meet the DFSA regulatory criteria to be a Professional Client. It should not be relied upon by or distributed to Retail Clients. DBS Bank Ltd, Dubai is regulated by the Dubai Financial Services Authority.

United States

Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Vickers Research (Singapore) Pte Ltd – 8 Cross Street, #02-01 PWC Building, Singapore 048424 Tel. 65-6533 9688 Company Regn. No. 198600295W

Page 101 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit

Disclaimer: The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.

Page 102 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”

2011 Asia Equity Outlook The Year of the Rabbit Asian Equities Sales, Sales Trading and Research Contacts

Sales Heads

Tel:

Email:

Lim Kok Ann Chai Szue Yin Andrew Au Graham Booth Elaine Yu Tasamol Wittayarksul Lindda Gozali

65-6398 6900 65-6398 7319 852-2820 4992 44-20-7618 1881 1-212-826 3553 662-657 7000 62 21 390 3389

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Sales Trading Contacts

Tel:

Email:

Loh Chong Jin Franco Law Charles Davies Brenda Wong

65-6398 6927 852-2971 1828 44 20 7618 1883 1 212 826 3558

[email protected] [email protected] [email protected] [email protected]

Research Contacts

Tel:

Email:

Timothy Wong Janice Chua Derek Cheung Wong Ming Tek Chanpen Sirithanarattanakul Maynard Priajaya Arif

65-6398 7952 65-6398 7954 852-2971 1703 603-2711 0956 662-657 7824 6221-3983 5428

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Regional Singapore Hong Kong London New York Thailand Indonesia

Singapore Hong Kong London New York

Regional Singapore Hong Kong Malaysia Thailand Indonesia

DBS Vickers Securities – Regional Offices HONG KONG DBS Vickers (Hong Kong) Ltd 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 852-2820 4888 Fax: 852-2868 1523 Member of Stock Exchange of Hong Kong

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Page 103 “In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.” www.dbsvickers.com

“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in connection with this report.”