Left Brain - the DBS Vickers Securities Equities Research

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Brainwaves
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Left Brain
Focuses on logical thinking and analysis
1Q 2010
DBS Group Research
18 December 2009
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only be distributed to Institutional Investors, Expert Investors
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Futures Act, Chapter 289 of Singapore.”

Regional Equity Strategy 1Q 2010
Research Team Directory
Research Team Directory
Analyst Sector E-mail
Regional
Timothy Wong Head, Group Research timothywongkc@dbsvickers.com
Joanne Goh Regional Equity Strategist joannegohsc@dbs.com
Paul Yong, CFA Singapore & China Industrial & Transport paulyong@dbsvickers.com
Ben Santoso Regional Plantation bensantoso@dbsvickers.com
Lim Sue Lin Singapore and Malaysia Banking suelin@hwangdbsvickers.com.my
June Ng China and Malaysia Power june@hwangdbsvickers.com.my
Hong Kong / China
Derek Cheung Head of Research, Strategy derek_cheung@hk.dbsvickers.com
Alice Hui CFA Deputy HOR, Consumer alice_hui@hk.dbsvickers.com
Gideon Lo CFA Deputy HOR, Oil & Petrochemicals, gideon_lo@hk.dbsvickers.com
Pharmaceuticals, Shipping
Carol Wu China Property carol_wu@hk.dbsvickers.com
Danielle Wang China Property danielle_wang@hk.dbsvickers.com
Dennis Lam Electronics & Technology dennis_lam@hk.dbsvickers.com
Jasmine Lai Banking & Finance jasmine_lai@hk.dbsvickers.com
Jeff Yau CFA Hong Kong Property jeff_yau@hk.dbsvickers.com
Mavis Hui Media & General Retail mavis_hui@hk.dbsvickers.com
Patricia Yeung Industrials patricia_yeung@hk.dbsvickers.com
Paul Yong Consumer Services, Transportation – Toll Roads paulyong@dbsvickers.com
Rachel Miu Infrastructure, Machinery, Agriculture rachel_miu@hk.dbsvickers.com
Steven Liu CFA Software & Telecom steven_liu@hk.dbsvickers.com
Titus Wu Consumer Services titus_wu@hk.dbsvickers.com
Indonesia
Agus Pramono, CFA Strategy, Banking, Conglomerate/Automotive, Cement agus.pramono@id.dbsvickers.com
Research Team
Basic Materials, Oil, Gas & Energy, Construction
Research Team Telecommunications, Plantation, Consumer research@id.dbsvickers.com
Malaysia
Wong Ming Tek Head of Research, Strategy mingtek@hwangdbsvickers.com.my
Goh Yin Foo, CFA Retail/ Technical Product yinfoo@hwangdbsvickers.com.my
June Ng Power, Oil & Gas, Conglomerates, REITs june@hwangdbsvickers.com.my
Lim Sue Lin Financial Services suelin@hwangdbsvickers.com.my
Yee Mei Hui Gaming, Property meihui@hwangdbsvickers.com.my
Juliana Ramli Aviation, Transport, Plantation juliana@hwang.dbsvickers.com.my
Chong Tjen-San, CFA Construction, Infrastructure tjensan@hwangdbsvickers.com.my
Kok Chiew Sia Consumer chiewsia@hwangdbsvickers.com.my
Lee Wee Keat Oil & Gas, IPO weekeat@hwangdbsvickers.com.my
Research Team Small-Mid Caps general@hwangdbsvickers.com.my
Telecommunications, Motor, Steel, Manufacturing
Other Financial Services, Building materials
Singapore
Janice Chua Head of Research, Strategy, Industrials janicechua@dbsvickers.com
Chong Wee Lee, CFA Industrials weelee@dbsvickers.com
Ho Pei Hwa Industrials peihwa@dbsvickers.com
Lock Mun Yee Property, Reits mumyee@dbsvickers.com
Adrian Chua Property adrianchua@dbsvickers.com
Derek Tan Reits derektan@dbsvickers.com
Jeremy Thia Industrials, Property jeremythia@dbsvickers.com
Andy Sim, CFA Consumer andysim@dbsvickers.com
Patrick Xu Consumer patrickxu@dbsvickers.com
Tan Ai Teng Electronics aiteng@dbsvickers.com
Sachin Mittal Telecom sachin@dbsvickers.com
Suvro Sarkar Electronics, Industrials survo@dbsvickers.com
Thailand
Chanpen Sirithanarattanakul Head of Research chanpens@th.dbsvickers.com
Strategy, Property, REITs, Transportation
Chirasit Vuttigrai Strategy, Telecom, Media chirasitv@th.dbsvickers.com
Vichitr Kuladejkhuna CFA Building Materials, Energy, Utilities, vichitrk@th.dbsvickers.com
Petrochemicals, Chemicals
Sugittra Kongkhajornkidsuk Banks, Securities sugittrak@th.dbsvickers.com
Parin Kitchatornpitak Automotive, Commerce, Electronics parink@th.dbsvickers.com
Nalyne Viriyasathien Construction Materials, Food and Beverage, nalynev@th.dbsvickers.com
Korea
Lee Eun Young Basic Materials, Utilities eunyoung@dbsvickers.com
Jung Sung Hoon Consumer sunghoon@dbsvickers.com
Jay (Jaehak) Kim Automotive Jay_kim@hk.dbsvickers.com
Page 2
“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd
(“DBSVR”), are to contact DBSVR at +65 6398 7954 in respect of any matters arising
from or in connection with this report.”

Regional Equity Strategy 1Q 2010
Table of Contents
Table of Contents
Strategy Overview
Market Data
4
Stock Profiles Key Data 5
Strategy Overview: Asia Equity
6
Regional Data Monitor
36
Country Assessments & Stock Profiles
Singapore
Clear blue skies?
Sembcorp Marine Orders coming back 52
SIA Engineering More wings in this recovery 54
Singapore Airport Terminal Svcs Beneficiary of travel and IR 56
SMRT Circle this counter 58
UOL Group Revving all engines 60
Wilmar International Capitalising on China presence 62
39
Hong Kong / China
All good news?!
64
Bank of East Asia The game is not over 82
Hang Seng Bank Value exists, awaiting catalysts 84
Henderson Land Land bank boost 86
The Link REIT Multiple growth drivers 88
Malaysia
On the verge of a transformation
90
CIMB Group Premium for being regional 104
Gamuda Being proactive 106
Thailand
Cautiously optimistic
108
Charoen Pokphand Foods Prospects remain bright 122
KASIKORNBANK Towards recovery in 2010 124
PTT Exploration & Production Worst is over 126
Indonesia
Shaky days
128
Bank Mandiri Greener pastures ahead 134
Telekomunikasi Indonesia Strong and steady 136
DBS Vickers Securities
Singapore l Hong Kong / China l Thailand l Malaysia l Indonesia
Page 3

Regional Equity Strategy 1Q 2010
Market Data
Market Data
Relative Valuations & Performance
Stock Market Valuation – December 2009
Market Cap Earnings Growth (%) PE (x)
(US$ bn) 2009E 2010F 2011F 2009E 2010F 2011F
Hong Kong 1,083 14.9 23.1 17.8 16.5 13.4 11.4
China 1,229 22.6 34.7 18.7 17.5 13.0 10.9
Singapore 438 (4.9) 16.1 16.5 17.1 14.7 12.7
Malaysia 284 (6.5) 18.0 11.4 18.1 15.4 13.8
Philippines * 77 19.0 15.0 13.9 17.0 14.8 13.0
Thailand 118 (28.5) 20.5 13.5 13.4 15.5 12.0
Indonesia 206
10.7 14.9 17.2 16.9 13.6 12.0
Korea * 748 54.9 32.6 11.6 12.9 9.7 8.7
Taiwan * 606 44.3 68.9 26.2 27.3 16.2 13.0
Prices are as at 10 December 2009
Source: Bloomberg, DBS Vickers coverage, except * markets from Datastream Consensus
Market Performance (% change) – 10 December 2009
Singapore (STI)
Hong Kong (HSI)
China (HSCCI/HSCEI)
Kuala Lumpur (KLCI)
Bangkok (SET)
Philippines (PCOMP)
Jakarta (JCI)
Taiwan (TAIEX)
Korea (KOSPI)
Tokyo (Nikkei 225)
New York (Dow Jones)
-20.0 0.0 20.0 40.0 60.0 80.0 100.0
1-month ago 3-months ago YTD
Source: Bloomberg
Page 4

Regional Equity Strategy 1Q 2010
Stock Profiles Key Data
Stock Profiles
Key Data
Bloomberg Code
Company
Price & Index
(10 Dec 09)
Mkt Cap
(USDm)
PE
10 (x)
PE
11 (x)
EPS CAGR
09-11 (%)
EV/EBITDA
10 (x)
P/BV
10 (x)
ROE
10 (%)
SINGAPORE STI 2,782
SMM SP Sembcorp Marine S$3.60 5,367 13.9 13.4 4 7.8 4.0 30.9
SIE SP SIA Engineering ** S$3.15 2,447 13.9 12.7 12 9.8 2.5 18.3
SATS SP Singapore Airport Terminal ** S$2.54 1,982 13.6 12.0 15 7.5 1.8 13.4
MRT SP SMRT ** S$1.80 1,965 15.1 14.3 4 7.8 3.3 22.9
UOL SP UOL Group S$3.82 2,154 9.2 8.8 6 9.7 0.7 7.9
WIL SP Wilmar International S$6.33 29,104 16.3 14.7 12 11.3 2.3 14.8
HONG KONG HSI / HSCEI 21,700 / 12,866
23 HK Bank of East Asia HK$32.00 7,635 18.8 16.5 18 nm 1.5 8.5
11 HK Hang Seng Bank HK$114.50 28,246 13.9 12.4 14 nm 3.7 27.1
12 HK Henderson Land # HK$57.05 15,803 32.1 19.7 2 31.9 0.8 ^ 4.6
823 HK The Link REIT HK$19.32 5,437 5.1 * 5.7 * nm nm 1.3 nm
# FY 09F and 10F, EPS CAGR 08-10
* Distribution Yield
^ P/NAV
MALAYSIA KLCI 1,260
CIMB MK CIMB Group RM12.86 13,560 14.2 12.0 21 na 2.1 15.8
GAM MK Gamuda ** RM2.70 1,603 12.2 12.1 27 12.3 1.5 13.0
THAILAND SET 695
CPF TB Charoen Pokphand Foods Bt10.70 2,427 8.8 8.1 (5) 6.6 1.4 16.2
KBANK TB KASIKORNBANK Bt83.00 5,990 12.0 10.0 18 na 1.5 12.9
PTTEP TB PTT Exploration & Production Bt131.00 13,086 10.8 8.2 46 4.3 2.5 25.0
INDONESIA JCI INDEX 2,486
BMRI IJ Bank Mandiri IDR4,625 10,270 11.8 10.4 17 na 2.4 21.8
TLKM IJ Telkomunikasi Indonesia IDR9,450 20,174 14.0 12.3 10 5.4 4.4 31.6
** FY11 & FY12 estimates
Source: DBS Vickers
Page 5

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Asia Equity
Baseline expectations and
wildcards for 2010
The Asia ex-Japan index rose 61% in 2009. With
valuations and equity risk premium at neutral levels, we
expect the index to be primarily driven by earnings
growth in 2010. Index returns are expected to be at least
16% for 2010, driven by earnings expectations of 27%
for 2010 which has been priced in, and 16% for 2011.
This should still keep valuations and equity risk premium
in neutral territory.
We remain positive about the first quarter as the catalysts for ERP compression
are obvious, which means the current rally in Asia equity markets could extend
into 1Q10. Conditions for Asia equities remain constructive. After 1Q10, the
most likely direction is for Asia market to slowly grind higher towards end of
2010 punctuated by periods of significant volatility.
We recommend Overweight Singapore, China and Taiwan. We lifted our
weighting for India to Neutral after the growth surprise in 3Q09. Hong Kong
and Korea are Neutral while Malaysia, Indonesia and Thailand are Underweight.
Joanne Goh • (65) 6878 5233 • joannegohsc@dbs.com
Page 6
www.dbsvickers.com
Refer to important disclosures at the end of this report
sa: TW
"This report has been re-printed with permission from DBS Group Research (Regional Equity Strategy) of DBS Bank Limited" disclosures on page 35 of this report

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Economic growth
After a sharp fall in 4Q08-1Q09 followed by a strong
rebound in 2Q-3Q09, we expect economic growth
momentum to moderate to low single digit annualized QoQ
growth rates for the quarters up to end 2010, and for YoY
growth to peak in 1Q10. We forecast growth to be driven by
all sectors at a low pace, with policy makers carefully doing
the balancing adjustments.
Asia's moderate growth is dependent on China's fortunes
and growth, which remain optimistic. As fiscal stimulus
administered last year begins to take shape in the form of
execution along the value chain, we forecast accelerating
quarterly growth for China. Growth should also be more
broad-based as the Chinese government improves policies to
spur consumption and ensure investment grows at a
reasonable and sustainable pace. We believe next year will
be critical, as it approaches the last year of China's 11th fiveyear
plan (2006-2010), and economic and social
developments during the year will lay the foundation for the
next five-year plan.
The wild card is still with the US. If DBS forecast of 2010 US
GDP growth of 2.9% is met, then there is upside risk to
Asia's forecast led by stronger export growth.
We also do not rule out the possibility of negative QoQ
growth in the coming quarters as the V-shaped recovery was
too sharp to begin with, especially in the higher beta
economies. A sharper and less desired moderation in
economic activities might take place in these economies.
Although at this stage, with the strong October data, our
economists think it is unlikely except for Singapore, which
due to its pharma sector volatility, may post a negative
quarter on quarter growth.
Interest rates
The market is focused on when the Fed rate hike cycle will
start. DBS forecasts that to be a second half affair and
expects 100bps at hikes by end-2010. This is 25bps more
than what the Fed funds futures have priced in after the
drop in the US unemployment rate to 10%, and the median
forecast in the latest Bloomberg survey.
Fig. 1: GDP growth forecast, %YoY
2008 2009 2010
2008 2009f 2010f Q4 Q1 Q2 Q3 Q4f Q1f Q2f Q3f Q4f
US** 0.4 -2.3 2.9 -5.5 -6.6 -0.7 2.8 3.3 3.0 3.3 3.0 2.7
Japan** -1.2 -5.3 2.0 -13.4 -16.2 2.2 1.3 2.1 1.9 2.3 1.5 2.0
Eurozone** 0.5 -3.9 1.1 -7.6 -9.6 -0.6 1.5 2.6 0.5 0.8 0.8 1.2
Indonesia 6.1 4.5 5.5 5.2 4.4 4.0 4.2 5.1 5.4 5.5 5.5 5.6
Malaysia 4.6 -2.4 5.0 0.1 -6.2 -3.9 -1.2 1.7 7.7 5.5 3.3 3.6
Philippines 3.8 1.0 4.8 5.3 0.4 1.5 0.8 1.7 5.2 4.6 4.8 4.7
Singapore 1.1 -1.9 6.0 -4.2 -10.1 -3.5 0.6 5.2 10.1 5.9 3.6 4.5
Thailand 2.6 -3.0 4.2 -4.2 -7.1 -4.9 -2.8 3.1 5.4 4.2 3.5 3.9
China 9.0 8.2 9.5 6.8 6.1 7.9 8.5 9.8 11.0 9.5 8.8 8.5
Hong Kong 2.4 -2.4 5.5 -2.5 -7.8 -3.8 -2.4 3.0 6.5 6.0 5.0 4.5
Taiwan 0.7 -2.7 6.3 -8.4 -10.2 -7.5 -1.3 6.4 10.2 6.4 5.4 3.3
Korea 2.2 0.5 5.6 -3.4 -4.3 -2.2 0.9 7.2 8.8 6.4 3.9 3.6
India* 6.7 6.5 7.5 5.3 5.8 6.1 7.9 6.2 6.2 7.6 5.3 8.5
Vietnam 6.2 5.1 5.2 5.5 3.1 4.4 5.2 7.0 8.0 5.8 5.3 6.2
AXJ Avg. 3.9 0.8 6.0 0.0 -2.9 -0.6 1.5 4.9 7.6 6.2 4.9 5.1
Ex-China, India 2.9 -0.8 5.4 -1.5 -5.1 -2.5 -0.2 4.2 7.4 5.6 4.4 4.2
We looked at past equity market performances when US
started to hike rates. There was no strong soften - Asia
performance was negative in two out of three past rate hike
cycles, while S&P performance was positive in two out of
three (Fig. 2). Markets are more focused on the uncertainty
brought upon by the rate hike than the impact of the rate
hike itself - reactions to potential rate hikes may be a "sell
on rumor buy on news affair". Signals from Fed are thus
important to watch, but we do not expect any until the end
of the QE purchases of MBS.
Source: DBS forecast.
** QoQ annualised growth for G3. Greyed cells indicate higher
number from previous period.
* Fiscal year for India’s annualised number
Fig. 2: Stock market performance in past three Fed rate hike cycle
Market performance
US Interest rate hikes S&P 500 MSCI Asia
Period From (%) To (%) Change (bps From To % From To %
04/02/1994 01/02/1995 3 6 300 481 470 -2% 409 308 -25%
30/06/1999 16/05/2000 4.75 6.5 175 1351 1466 8% 360 345 -4%
30/06/2004 29/06/2006 1 5.25 425 1136 1273 12% 297 413 39%
Source: Datastream, DBS
Page 7

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
There could be many uncertainties brought about by the first
rate hike action. Firstly, the onset of a US Fed rate hike
would provide a leeway for most countries to follow suit. For
instance, we believe China's policy makers are unlikely to
signal a shift to tightening until the Fed does, either
confidence for an export recovery is needed, or to prevent
hot money inflows from currency and interest rate
speculation.
In 1999, US' growth fell after stagnating for a while during
the onset of the tech bubble. Asia economies, being export
oriented, entered into a recession. This is a typical end of late
cycle boom with corresponding high yields, and strong
demand pushing inflation higher with rate hikes needed to
combat inflation. Today, higher inflation is not obvious as
demand is still weak and Asian economies have just emerged
from recession.
Secondly, the USD weakness is widely thought to be fuelling
carry trades for high yielding assets and rising currencies.
Nouriel Roubini (the economics professor who predicted the
current financial crisis) painted a frightening picture,
predicting "the biggest coordinated asset bust ever" when
the dollar stops falling and investors rush to sell their foreign
holdings and get back into dollars. The fear is that the start
of a US rate hike cycle may spark the USD short covering.
Current valuation levels do not provide much cushion for
Asia equities to prevent a major sell-off should such an
outcome develop.
Thirdly, the current steep US yield curve, which favors
duration, could see a selloff in US Treasuries once the front
end of the curve starts moving up. As risk trades (including
Asia equities) are generally benchmarked against US bond
yields, increased risk aversion could lead to sharp falls in
emerging markets. The currently tight credit spreads and low
VIX do not provide much cushion, in our view.
We thus see the bond market as the key source of risk from
a Fed rate hike. Our fixed income strategist sees bond yields
rising to 4.5% if our Fed's hike forecast is achieved, but will
not start rising until the end of the QE purchase program at
end March. As a hedge against bond risks, technology,
capital goods and transportation sectors which are leveraged
to economic growth should be the preferred sectors. A rise
in bond yields generally signifies economic growth.
Forecasting by analogy is a tempting thing to do, and we
caution that the circumstances surrounding each Fed rate
cycle are all different. In 1994, Asia valuations were
excessively high following the strong rally in 1993 as foreign
investors poured liquidity into Asia. When the expectation
that Asia's strong growth would be sustainable were not
met, and coupled with the Fed pushing the string on interest
rates, Asia markets corrected in a big way. While current
expectations for growth, albeit moderate, still remain tested,
the major difference between now and then is that
valuations are lower now.
In 2004, the normalization of Fed rates did not cause a spike
in US bond yields as US growth rate was declining. Asia, on
the other hand, was recovering from the 2001 tech bubble
recession and 2003 SARS-led recession. Fiscal stimulus,
especially in China was aggressive following the recession,
and monetary policies was also very accommodative. Asia
markets had a strong run despite US interest rate hikes from
1% to 5.25%.
In conclusion, we choose to believe that a US rate hike
coupled with a corresponding spike in US bond yields should
signal a potential recovery, which would be constructive for
Asian equities. We expect global policy makers to tread
carefully in sending rate hike signals and would not want to
feed expectations of early tightening as long as recovery
remains fragile.
Fig. 3: Junk Bond spread
%
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
J an-08 Aug-08 Mar-09 Oct-09
Source: Datastream, Moody’s BAA corporate bond minus US 10-
year bond yields
Page 8

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Fig. 4: VIX
80
75
70
65
60
55
50
45
40
35
30
25
20
15
J an-08 Aug-08 Mar-09 Oct-09
view. With speculators now targeting gold price, which is
less damaging to the economy when it rises, we believe that
oil price will find difficulty crossing beyond US$100. Oil at
US$147 was thought to be one of the triggers for the global
recession.
Risk to the view is a persistent USD weakness that will cause
oil price to overshoot on the upside. Our regression analysis
for oil price and dollar index (basket of currencies against
USD) shows oil price sensitivity of +2% for every -1% move
in the dollar index, which roughly means that for oil price to
reach US$100, the Euro will have to rise to USD2! But the r-
square is too weak for this equation to have any credibility.
Source: Datastream
Fig. 5: MSCI Asia ex-Japan index vs US bond yields vs
US GDP growth
1000
900
800
700
600
500
400
300
200
100
0
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: Datastream. Highlighted periods are during Fed funds rate
hike cycle
Commodity markets
Like most conventional assets, most commodity markets
posted bumper returns in 2009 after hitting lows earlier in
the year when recession fears impacted the demand
outlook. The earlier and stronger than expected recovery,
demand from fiscal expansion, a weak dollar, low interest
rates, and new investor flows helped to propel the
commodity recovery. The cyclical backdrop for most
commodities should be more favourable next year compared
to this year. In 2009, the global economy registered its worst
growth - a performance that is unlikely to be tested. IMF
expects a modest acceleration in global growth to a more
trend like 3.1% in 2010 and 4.2% in 2011.
We target for oil price to average US$80 a barrel in 2010,
with the range possibly between US$70-90. The long term
demand situation should support prices at such levels, in our
w
(1) (2) (3)
US %QoQ GDP growth (R) MSCI Asia ex-J Index (L) US 10-yr bond yields (L)
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
Middle Eastern geopolitical tension and weather conditions
disrupting supplies are also expected to raise oil price
volatility, but not materially pushing oil prices up
permanently unless the situation is prolonged. A severe
China macro tightening, which we view as highly unlikely,
will cause oil demand, and hence, price to drop. A big oil
field find that could increase supply will be a pleasant
surprise that would cause oil price to drop. China National
Petroleum Corp., the country's biggest oil and gas producer,
expects additional "important" overseas energy discoveries
this year after striking oil in Sudan, Chad and Kazakhstan.
We raised coal price assumptions for next year to a rise of
10% from this year's average. China's coal imports jumped
220% y-o-y to 11.1mt in October, or 170% higher
compared with the same period last year. The thirst for
Chinese companies to invest in Australian coal plants reflects
long tern strategic moves to quench long term energy
demand.
Fig. 6: Commodity price, 2009 to date
190
170
150
130
110
90
70
J an Mar May J ul Sep Nov
Source: Datastream
metals
oil
non-food
agricultural
food
Page 9

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Fig. 7: Oil price and long term trend
US$ / barrel
160
140
120
100
80
60
40
20
0
00 01 02 03 04 05 06 07 08 09
Source: Datastream, DBS
We believe the case for industrial metals are less compelling
before the economy reaches late cycle expansion.
Overcapacity remains a problem facing this industry. We
expect price increases to be moderate.
the speculative positions. Counterparty risks on these OTC
positions could grow if gold price pops one day. A case in
point is a recent article in a leading Chinese publication that
the government of China may be paving the way for stateowned
investment funds to walk away or default on OTC
commodity derivatives contracts held with foreign banks if
those contracts cause losses to the funds.
Against a backdrop of expected higher demand and prices,
the broad investment implications for commodity stocks
should be on the supply situation and managing seasonal
volatility. We expect commodity stocks to trend higher and
outperform the broader index, especially agricultural and
energy stocks.
Inflation outlook
We look for higher inflation generally across Asia next year.
Singapore recently raised its inflation target range to 2-3%,
significantly higher than the historical range of 1%, citing
higher property prices as the main price factor. This may be
the case for most Asian economies where property prices
have risen by 20-30% on average this year.
On agricultural prices, both food and non-food commodity
prices should continue to be supported by improvement in
lifestyles, urbanization, and economic recovery. The supply
situation for agricultural products is largely not within one's
control. According to the World Meteorological
Organization, an El Nino event currently established across
the tropical Pacific is very likely to continue at least through
the remainder of 2009 and into the first quarter of 2010.
According to the agency, decay of the El Nino event to nearneutral
conditions across the tropical Pacific during the
approximate March-May 2010 period is considered the most
likely further development. The possibility of a second year
of El Nino conditions or rapid transition to a La Nina situation
is considered unlikely at this time. Looking at recent unusual
climate patterns and significant climate extremes, the risk
management strategies of many countries are to invest in
agricultural land and supplies, and are a main source of
investor flow in this group of commodity.
We are of the view that gold price is in a speculative bubble.
The comfort level is that unlike oil, the higher prices do not
hurt the economy. But for central banks to diversify reserves
into gold is becoming more expensive unless their belief is
that gold price will keep rising. The amount of speculation
on gold related derivatives is also a worrying sign in that
world gold production may not be sufficient to back up all
The wild card remains food inflation, which can materially
change the outlook. Food components typically constitute
30% of a CPI basket.
Fig. 8: Inflation forecasts
2006 2007 2008 2009F 2010F
Indonesia 13.3 6.3 9.8 4.9 4.6
Malaysia 3.6 2.0 5.4 0.6 1.6
Philippines 6.3 2.8 9.3 3.3 4.0
Singapore 1.0 2.1 6.5 0.3 3.2
Thailand 4.6 2.2 5.5 -0.8 2.9
Vietnam 7.5 8.3 23.3 6.9 7.4
China 1.5 4.8 5.9 -0.8 3.0
Hong Kong 2.0 2.0 4.3 0.5 1.0
Taiwan 0.6 1.8 3.5 -0.7 0.9
Korea 2.2 2.5 4.7 2.7 2.9
India* 5.4 4.7 8.4 2.6 5.0
Average 4.4 3.6 7.9 1.8 3.3
Source: DBS. * FY for India
Earning outlook
Our base case is for earnings forecast to return to pre-crisis
levels by 2011. We believe this is a valid assumption since
GDP levels have, or are very likely to return to trend by 2010.
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Earnings forecast trend typically follows the GDP forecast
trend closely. (See Fig. 26 for GDP and earnings growth
forecast trend for Singapore). For countries which did not go
through a contraction like India, China and Indonesia,
earnings levels have already gone back to pre-crisis levels.
Singapore, Malaysia, Thailand and Taiwan had suffered the
deepest GDP contraction and likewise their earnings
forecasts have yet to return to pre-crisis levels. There are
concerns in Thailand and Korea, where earnings have
exceeded pre-crisis levels, and suggests a lot of the recovery
news may have already been priced in.
We ranked Taiwan and Singapore as countries with the
highest potential for earnings upgrade.
Fig. 9: Potential earnings upgrade
Source: DBS
Fig. 10: 12-month forward earnings integer - markets
with upgrade potential
(index)
180
160
140
120
100
80
60
40
20
05 06 07 08 09 10
Singapore MSHK Taiwan
Malaysia
Thai
Source: Datastream, DBS
Potential
Taiwan 32%
Singapore 16%
MSHK 11%
Malaysia 3%
AXJ 2%
Fig. 11: 12-month forward earnings integer - markets
above pre-crisis levels
(index)
250
230
210
190
170
150
130
110
90
70
05 06 07 08 09 10
India China Indon Korea
Source: Datastream, DBS
Currency outlook
Global imbalances to drive Asian currency higher
DBS currency strategist is expecting global imbalances to
drive the CNY to resume its appreciation path in 2010. This
will set the stage for further Asian currency appreciation
against the dollar. Against conventional wisdom that
Chinese policy makers may resist currency appreciation, as
that will hurt Chinese export recovery, there are reasons to
believe that China will let the CNY appreciate again. Firstly,
there is a general agreement (among G20) that the world
economy must be less reliant on the USD. Secondly, China's
major trading nations are increasingly intolerant that the
burden of adjustment (of global imbalances) is not being
shared by China. Thirdly, the CNY is expected to become
part of the IMF SDR from Jan 2011 onwards, through which
China will receive more voting rights in the IMF. Beijing is
thus expected to live up to its responsibility as a major
economy to address global imbalances.
Strong Asian currency attracts inflows and stem
inflation
Asia economies and stock markets should benefit from a
stronger currency. The benefits are twofold: (1) a strong
currency should attract steady inflow of investments, as
investors feel comfortable in markets where currencies are
stable, (2) a strong currency should allow for slower
inflationary pressures from imported goods, especially from
the potential damage of high oil prices.
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Fig. 12: 2010 currency forecasts
Fig. 14: USD REER undervalued vs JPY and EUR
End period forecasts
Changes
07-Dec 1Q10 2Q10 3Q10 4Q10 1Q10 4Q10
Korea 1158 1110 1090 1070 1050 4% 10%
Indonesia 9,413 9,100 8,950 8,850 8,700 3% 8%
Japan 90.1 87 86 85 84 4% 7%
India 46.3 45.1 44.6 44 43.5 3% 6%
Taiwan 32.2 31.6 31.2 30.9 30.5 2% 6%
Malaysia 3.39 3.32 3.29 3.27 3.24 2% 5%
Philippines 46 45.2 44.8 44.4 44 2% 5%
Singapore 1.39 1.37 1.36 1.35 1.34 1% 4%
Eurozone 1.487 1.51 1.52 1.53 1.54 2% 4%
China 6.83 6.81 6.74 6.68 6.62 0% 3%
Thailand 33.2 33.1 32.8 32.6 32.3 0% 3%
Hong Kong 7.75 7.75 7.75 7.75 7.75 0% 0%
Vietnam 18,481 19,300 19,410 19,530 19,640 -4% -6%
Source: DBS
(Index)
114
110
106
102
98
94
J an-08 May-08 Sep-08 J an-09 May-09 Sep-09
REER USD REER EUR REER JPY
We forecast most Asian currencies will appreciate (vs USD)
by 3 - 10% from current levels by next year-end. Equity
investors could look forward to currency gains as part of
portfolio returns.
The risks to us of a RMB revaluation story lifting Asian
currencies is the apparent absence of export recovery and
the overcapacity situation in China that will prevent policy
makers from allowing significant RMB appreciation. The PPI
has been dropping in China. The lagged performance of
Asian currencies this year (vs other emerging markets) also
reflects the unwillingness of Asia central banks to allow
currency appreciation. The regional equity team believes that
the moderate growth forecasts we have do not weigh
strongly towards a strong case for a RMB revaluation.
Fig. 13: China PPI vs lending rate
Source: CEIC, DBS
It would also be pure complacency to believe that the USD
weakness trend is a one way street. As the Yen and Euro hit
new highs against the dollar, and with all the world's central
banks holding foreign reserves in USD and US debts, calls are
for the US to uphold its strong USD policy.
Asset allocation strategy
Against a backdrop of improving fundamentals in Asian
economies, we expect all Asian markets to register positive
returns in 1Q10. The Dubai World debt crisis reaffirmed that
risks still remain in the financial markets, but the swift
recovery from the initial sell-off suggested that side-line
liquidity is still strong. We recommend staying with strong
liquid markets and big caps to mitigate downside risks from
any risk aversion sell off.
% (%)
115
110
105
100
95
90
05 06 07 08 09
Source: Datastream
1-yr lending
rate (R)
PPI (L)
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
With this in mind, we consider the following relative tradeoffs
in our asset allocation decisions:-
a. Prefer China to Hong Kong
We believe investor interests in Chinese stocks will be strong
for the next year. The policy concerns we had earlier had
been dismissed repeatedly by the PBOC. In her analysis, our
China Bank analyst also concluded that it would be unlikely
for capital adequacy ratios to be raised substantially. The
fiscal stimulus administered this year which involves handing
out a large number of contracts to the private sector also
implies that loan quotas are unlikely to shrink substantially to
ensure follow-through of benefits to the private sector.
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Moreover, loans are typically front-loaded in the beginning
of the year, which also means that loan growth will be less
subject to data disappointment in the first quarter.
We also pushed our Fed fund rate hikes to the second half
next year. We believe that China will be reluctant to raise
rates before the Fed does, for fear of more hot liquidity
flows. US Fed chief Bernanke has added weight to the idea
that administrative measures may be a better tool for dealing
with asset inflation. For example, the preferential rate given
to home buyers will be scrapped for non-first time home
buyers in China to ease asset over-heating concerns. We do
not rule out increases in property taxes and stamp duty. That
should relieve some concerns for calls on interest rate hikes.
We expect 20% loan growth in China next year.
We prefer the commercial property sector which is showing
signs of bottoming, and is expected to recover gradually in
2010 on the back of the economic recovery. New growth
drivers like insurance funds, trust REITs, and sovereign
wealth funds, are also at play. According to Jones Lang
LaSalle, the potential total investment size of insurance funds
in domestic real estate would be RMB236bn, equivalent to
2X and 165X the values of Shanghai and Tianjin's grade A
office markets, respectively.
GDP growth in China may surprise on the upside as exports
recover while the domestic economy fires on all cylinders.
After the surge in fixed asset investment this year, the
government is striving for higher growth in private
consumption, which will be a focus in 2010. One focus will
be the targeting of the tourism sector, especially in Shanghai
where the world expo will be held. Some of the temporary
measures to boost demand amid the deteriorating economy
earlier this year will be fine-tuned and extended next year.
For example, the low mortgage rates for first time home
buyers, the old for new home appliances subsidy, and auto
replacement subsidy, will most likely be extended when they
end in the following few months.
Some psychological hurdles like the World Expo in November
next year, and the reporting for the last year of the 11th year
plan (2006-2010) and setting the stage for the next 5-year
plan, should keep sentiment positive in the market.
After all, the Shanghai A-share market is still about half of
the record high achieved in 2007.
The outlook for China stocks look a lot more interesting than
Hong Kong stocks due to China's growth premium and
reform policies. Hong Kong private consumption is not
expected to pick up substantially due to the lower
purchasing power of the HKD and the absence of a broad
based economic recovery. Real GDP in Hong Kong only
advanced 1.6% (QoQ, saar) in 3Q09 compared with 13%
registered in the previous quarter, and significantly lower
than in other countries like Singapore, Taiwan and Korea
(Fig. 15).
Fig. 15: 3Q GDP growth
%YoY %QoQ
Hong Kong* -2.4 0.4
Thailand -2.8 1.3
Taiwan -1.3 2.0
Korea 0.9 3.2
Singapore 0.6 3.4
Source: Datastream. HK qsa by DBS
However, asset prices in Hong Kong will remain well
supported in the near term, given that the Fed will probably
not raise interest rates until 2H10. In order to keep the HKD
stable at 7.75, the HKMA has persistently injected liquidity
into the monetary system, thereby driving local inter-bank
rates to very low levels. Like elsewhere in Asia, threat of
policy intervention may cap the property price rise.
The Hong Kong property sector, like elsewhere in Asia, may
be reaching a bubble stage, which may subject it to policy
intervention. Meanwhile valuations for Hong Kong banks
have been extended by the M&A theme. Hong Kong stocks
with potential listings in China or Taiwan may be a better
solution for their re-rating. Singapore listed Jardine group of
companies are also better proxies for the Hong Kong
economic recovery.
We are upgrading China to Overweight, while maintaining
Hong Kong (MSCI HK) as Neutral. Hang Seng Index, which
has more than 50% Chinese-related stocks, is an
Overweight.
b. Prefer Singapore to Malaysia
During the last six months, Malaysia performed in line with
Singapore and the region, which worked against
conventional wisdom that the market will usually be left
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
behind when regional markets rally. This is due to a very
strong domestic liquidity environment propping up share
prices, in our view. Foreign participation was not obvious,
accounting for only 25% of total trading value. The odds
have indeed tilted towards Malaysia on a risk adjusted basis
(Fig. 16), and the valuations are now at par with Singapore
(Fig. 17). The calls were for a re-look at Malaysia.
by the government to keep fiscal deficit in check could
unwind the impact of the stimulus going forward. The
impact of fiscal stimulus in infrastructure spending remains
to be seen. Going forward, we believe that its recovery will
lag other higher beta markets, like Singapore.
Fig. 18: Singapore GDP growth forecast vs Malaysia
Fig. 16: Risk adjusted rolling 12-month return,
Singapore vs Malaysia
(%)
40
30
20
10
-10
-20
J an-05 Dec-05 Nov-06 Oct-07 Sep-08 Aug-09
Source: Datastream, DBS
Fig. 17: 12-month forward P/E, Singapore vs Malaysia
(x)
0
STI
KLCI
18
17
16
15
14
13
12
11
10
9
8
J an-05 Mar-06 May-07 Jul-08 Sep-09
Singapore
Malaysia
Singapore
Malaysia
%QoQ %YoY %QoQ %YoY
Q109 -12.2 -9.5 -17.7 -6.2
Q209 21.7 -3.3 12.5 -4.0
Q309 14.2 0.6 12.0 -1.2
Q409 2.0 5.2 2.8 1.7
Q110 3.6 10.1 3.2 7.7
Q210 4.2 5.9 3.5 5.5
Q310 4.6 3.5 3.7 3.3
Q410 5.1 4.5 4.0 3.6
2009 -1.9 -2.4
2010 6.0 5.0
Source: DBS
Our positive stance on the region for the first quarter makes
us less defensive, and we maintain an underweight
weighting in Malaysia. Even its defensive sectors like Telcos
and consumer staples are not cheaper than respective
sectors in Singapore. As a "domestic-buyer" put, we
recommend selected stocks in Malaysia with low foreign
holdings and high dividends to hedge against volatility (See
"What foreigners want?" Goh Yin Foo, 1 December 2009).
We maintain Overweight position in Singapore and
Underweight in Malaysia. Please refer to market outlook
section for our outlook for Singapore.
c. Prefer Taiwan to Korea
We prefer Taiwan to Korea on a risk adjusted basis, and the
upgrade potential for Taiwan is strong, in our view.
Source: Datastream
Not time yet
Domestic demand is strong and has been the main driver of
Malaysia's growth this year. This is due to not one, but two
fiscal stimulus packages administered. However, we are of
the view that the belt tightening measures to be employed
We have GDP growth for Taiwan at 6.3% vs consensus'
4.2% for 2010. Our economist notes that even without a
quarterly sequential growth, on year on year basis, GDP
growth would have already been 4%! That said, we believe
that the positive momentum following the MOU and
benefits from improving cross-straits relationship have been
underappreciated by most economists. The global recovery
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
which is underway, albeit patchy, was also not considered.
We expect upgrades by the street after data show a pick up
in domestic demand, which should follow after a hefty
improvement in Taiwan's export orders, which is also
evidence that Taiwan has been benefiting from the global
recovery and China thus far (Figs. 19, 20)
On earnings, although both cyclical, Korea's earnings integer
has surpassed its previous peak, while Taiwan is still 32%
below peak! (Fig. 22). Under the base case scenario, we
expect most earnings in Asia markets to return to their peaks
by end 2011, since GDP growth will also return to peaks by
2010. Potential for Taiwan earnings upgrade is high.
Fig. 19: Taiwan exports orders
Fig. 21: Taiwan vs Korea monetary conditions
(Index)
130
125
120
115
110
105
100
95
90
85
80
Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09
Source: CEIC
(%)
2.5
2
1.5
1
Source: Datastream
More aggressive easing
To reverse
going forward
0.5
J an-08 Sep-08 May-09 Jan-10 Sep-10
Korea / Taiwan interest rate spread
Korea/TWD exchange rate
46
44
42
40
38
36
34
32
30
28
Fig. 20: Taiwan exports orders by market
30
25
20
15
US CN+HK
10
5
0
-5
-10
Jan-09 Apr-09 J ul-09 Oct-09
Source: CEIC
Fig. 22: Taiwan vs Korea earnings expectations
(index)
160
140
120
100
80
60
40
20
05 06 07 08 09 10
Source: Datastream, DBS
Taiwan
Korea
We also note that Korea has been more aggressive in easing
monetary conditions vs Taiwan, as reflected in the exchange
rate depreciation and changes to interest rates (Fig. 21). We
expect the moderation in this aspect to show constraints on
Korea's growth going forward.
The risk in Korea is higher in our view. We expect that there
will be more government policy controls once the economy
returns to pre-crisis levels. This is in the context of Korea
having experienced the Asia financial crisis in 1998, the
credit card crisis in 2004, and the recent global financial
crisis in bad shape – the government would want to be
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
cautious, if not overly in preventing overheating risks. We
believe that controls surrounding credit growth, inflation and
capital flows will be there once signs of overheating emerge.
The property market has been the target of controls after
having risen only 1.2% this year, but had been persistently
on a rising trend for the last 10 years.
We are downgrading Korea to Neutral while maintaining
Taiwan at Overweight.
d. Prefer India to Thailand and Indonesia
The 3Q09 GDP growth surprise in India was masked by
strong growth in government and consumer spending,
which is not sustainable according to our economist. The
relatively high inflation rates and potential rate hikes will be
factors affecting consumer spending going forward. That
said, we believe underlying demand in India remains
potentially high in view of its huge population. And, taken
together with government reform measures, we may see
upside for India.
The push factor for reform measures is more ubiquitous than
before, given the big budget spending and high expectations
for the ruling government after the elections. In our view,
the focus of reform efforts should be in deploying domestic
capital and foreign direct investments for the various social
and economic programmes. Along these lines, pension
reforms, financial sector reform, relaxing FDI rules, and an
increase in FDI portfolio caps will be taken in a holistic view
despite the threat of hot liquidity inflows. The challenge is to
attract capital flows into productive assets.
Risks are still apparent in India, especially with regard to the
need to hike rates, as inflation is rising rapidly. And there is
always the risk of higher oil prices as nothing has been done
yet to the fuel subsidy reform.
Market outlook
Singapore
Our non-consensus Overweight on Singapore is based on its
cheaper valuations and accentuated cyclicality among its
Asian peers. Indeed, Singapore's 3Q GDP growth was the
highest in the region after the sharpest fall in 1Q09. Growth
for 2010 is estimated at 6%, which is next only to China's
and India's growth, and near Taiwan's 6.3% growth.
Growth drivers
Singapore's GDP grew 14.2% QoQ saar and 0.6% YoY in
3Q09 - the first quarter of positive year on year growth since
the financial crisis blew up last September. The growth
momentum was largely led by the robust pace of expansion
in the manufacturing and services sector, while the
construction sector showed slight moderation. We foresee
growth moderating to an average of 4% per quarter in the
coming quarters, amid volatility in the pharmaceutical sector,
a cautiously optimistic electronics sector, and a slowing
construction sector. The services sector will be the main
driver next year. GDP growth is forecast to grow 6% in
2010.
Integrated resorts to be the main domestic growth kicker
The two integrated resort will be ready in 2010, with
Universal Studio expected to draw in 4.5m visitors a year.
When Universal Studio was first opened in Japan in 2001, it
drew up to 11m visitors in its first year of operation, while
the other newly opened theme park in the region -
Disneyland Hong Kong - saw 5.2m visitors in its flagship year
back in 2005. Higher tourist arrivals translating into hotel
and retail receipts had been considered (+15% in 2010 vs -
5% in 2009) in our GDP forecast for next year, but we might
still see an upside surprise. The Orchard Road rejuvenation,
which the government kicked start in April 2008 is near the
completion stage.
We are raising India to Neutral as we see potential progress
in its reform. The recent rise in political risks facing Thailand
and Indonesia makes us prefer India to these two countries.
See market outlook section for Thailand and Indonesia.
In injecting new life into Singapore's most famous shopping
district, S$40m was spent to improve the pedestrian
walkway along Orchard Road. Enhancement works include
repaving of walkways, installation of coordinated street
furniture from Tanglin zone all the way down to Somerset
zones, and new multi-functional street-lamps and tree uplighting
to greatly improve the shopping experience. At the
same time, malls with improved concepts, new tenants and
brands have opened, or will be opened in the next six
months.
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
We believe tourists will be attracted to the many new
innovations in Singapore next year. We forecast 2010 tourist
arrival growth at 14%.
Manufacturing sector - structural vs cyclical
Singapore's electronics industry has been in the doldrums
since 4Q07 and the global recession in 2H08 — 1Q09
intensified the decline. While recent signs are pointing to an
upswing in the global electronics cycle, the structural decline
in Singapore's electronics industry continues to be the main
story. The share of electronics contributions to GDP and
NODX have decreased over the last three years (Fig. 23)
despite the fact that Singapore's electronics sector has been
moving up the value chain to high tech, high value-added
activities (i.e. semiconductor manufacturing). Given this, the
gains for Singapore from a cyclical improvement in global
electronics demand is likely to be smaller Fig. 23: Relative
importance fading than in previous years. In turn, new
growth sectors and new jobs need to be created. The
continuation of this "rejuvenation" process will enable
Singapore to retain its significance in the global economy
and keep incomes rising in the years ahead. (See "Singapore:
The electronics story", Irvin Seah, 1 October 2009)
Domestic transformation
Singapore's population reached 5m in June 2009 (+3.1%
yoy). In our base case scenario, we project that a 6.5m
population could be reached in 2027 at a growth rate of
1.5% p.a. The impact from a rise in Singapore's population
will be far reaching, especially on land transport, property
demand, healthcare, and related manpower needs. We
estimated 9% growth in rail ridership, 9,800 private
housing, 14,000 HDB flats, 350 doctors, and 1,700 nurses
are needed each year (see DBSV report "6.5m population -
What does it mean?", Andy Sim /Adrian Chua et al, 23 Nov
2009). The long term structural domestic transformation is
beginning to take shape.
Fig. 23: Relative importance fading
% share % share
12
75
% share of NODX
11
70
% share of GDP (LHS)
10
65
9
60
8
55
50
7
45
6
40
5
35
4
30
1998 2000 2002 2004 2006 2008
Source: DBS, CEIC
Singapore's valuations are not excessive
Fig. 24 shows the trading band of the STI at minus one
standard deviation, average, and plus one standard deviation
of the various indicators (x-axis: historical P/E, P/B, DY, 12-
month forward P/E and equity risk premium (ERP), and STI
level). The horizontal line shows where the current STI level
trades at, which are near the average level for most of the
indicators except historical P/E, which is over the top. We
believe that valuations for the Singapore market are not
excessively expensive. There could be upside surprise from
earnings upgrades.
Fig. 24: Singapore valuation range
Index
4500
(4130)
4000
(3705) (3764)
3500
(3051)
(3145)
3000
(2452)
2500
2000
(2167)
(2353) (2279) (2331)
1500
(1538)
1000
(1235)
500
Hist. P/E P/B DY F wd P/E ERP STI
Source: Datastream, DBS. The box range for each indicator shows
the indicative STI levels if it trades on +1SD, average and -1SD of the
respective indicator.
Historical calculations from 2001 to current. Data as of 7 Dec.
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Earnings upgrade
Our baseline expectations for earnings to return to pre-crisis
levels show that there is still upside of 16% for earnings.
Sectors include Banks, Industrials are still far from its
previous peak. With GDP growth already returning to peak
levels, this can be expected of the domestic economy. The
wild card for the external sectors is the speed of the global
recovery, which according to current forecasts, we don't
think it is pricing a lot of it.
Our forecast of 6% GDP growth is at the high end of the
government's forecasts of 4-6%. If growth stretches to 7-
8%, the levels near 2007, which is possible and some other
forecasters already have such forecasts, we believe the STI
could test its high of 3800 achieved in 2007. Our base case
scenario has a forecast of 3500 based on earnings growth of
9% in 2011, and 16% earnings upgrade potential.
The risks in 1Q10 include: 1) negative QoQ growth in
quarterly GDP. This could happen in view of the very strong
two previous quarters and volatility in the pharmaceutical
sector; and 2) the announcement of the delay of Marina
Sands, the other integrated resort. However, this should be
viewed as a win-win situation of better visitorship for the
Sentosa resort while Marina Sands prepares itself
inconjunction with the F1 event in the second half of the
year.
Fig. 25: Singapore nominal GDP level vs earnings
integer
(Index)
(Index)
30
70
28
26
65
24
60
22
20
55
18
50
16
14
45
12
10
40
8
35
02 03 04 05 06 07 08 09 10
12-month forward earnings integer (L)
Nominal GDP level (R)
Fig. 26: Forecast trend in 12-month forward GDP
growth and earnings growth
(%) (%)
8
6
4
2
0
-2
-4
-20
02 03 04 05 06 07 08 09
Source: Consensus economics Inc., IBES. December’sGDP growth
forecast from DBS, DBS
One of the risks concluded from our quantitative model is
the peaking of the stock market along with the peaking of
%YoY GDP growth. Our forecast for GDP to peak in 1Q10
implies that the STI could peak in 1Q10. We remain positive
about the first quarter, but will take the market in strides
after that. After all, growth peaking in 1Q10 should be
taken in the context of a very sharp contraction in 1Q last
year.
Fig. 27: Singapore year-on-year GDP growth vs year-on
year % change in STI
Source: Datastream, DBS
GDP growth (L)
Earnings growth (R)
(%) (%)
100
80
60
40
20
0
-20
-40
-60
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
STI %YoY (L)
%YoY Real GDP growth (R)
40
30
20
10
0
-10
15
10
5
0
-5
-10
-15
Source: Datastream, DBS
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Indonesia
Our downgrade for Indonesia this quarter works in the
current quarter as its performance was fairly muted. Some of
the positive catalysts we were looking for, including a better
investment environment and lower interest rate regime, did
not materialize, but instead high profile corruption
allegations affected investor sentiment. We believe that an
amiable resolution to the ongoing corruption investigation
may take some time and bears some political risk in the near
term. Against a backdrop of sharp V-shaped recoveries in
other Asia economies, economic performance in Indonesia
does not have the beta effect in comparison. There may not
be much room for ERP to compress in view of the
uncertainties surrounding the charges and higher valuations.
We are downgrading the market to underweight to better
capture the upside in other markets, such as India.
We are still optimistic about Indonesia's long-term economic
growth prospects led by infrastructure needs and private
consumption recovery, which is supported by positive
changes in its political environment. Three developments in
Indonesia are worth watching for before an upgrade to this
market is warranted: 1) the dismissal of the overhang from
the investigation, which could take some time to conclude
and a negative outcome could have a very high impact on
the market; 2) a lower lending rate regime which may need
central bank's moralsuasion for banks to cut lending rates;
and 3) a sustainable positive outlook for the Rupiah to
appreciate, which in terms of its real effective exchange rate,
is overvalued. We believe that investors would be more
inclined to invest in Indonesia's bond market, which offers
high yield of 10%, and higher liquidity and lesser volatility
amid a stable government and external balance sheet. The
view that policy rates will stay low in the first half of the year
should support the bond market, and the US-Rupiah interest
rate spread should keep the currency supported as well. The
equities market will have to offer higher growth prospects to
attract investors. With current earnings growth of 15% near
the low end of its historical range, we will need to see
potential for upgrades.
Fig. 28: Indonesia earnings growth and market
performance
(%) (%)
100
100
Source: Datastream, DBS
Fig. 29: Indonesia interest rates
18
16
14
12
10
8
6
4
80
60
40
20
0
-20
-40
-60
-80
-100
% %
18
2
06 07 08 09
Policy rate
Deposit rate
Lending rate
Inflation rate
Source: Datastream
91 93 95 97 99 01 03 05 07 09 11
Earnings growth (L)
80
60
40
20
0
Annual perf. (R)
-20
-40
-60
-80
-100
16
14
12
10
8
6
4
2
Page 19

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Thailand
Since our upgrade this quarter, Thailand has had a good run
and the SET index reached a high of 752, close to our target
of 760 for the quarter. Thereafter, the market took a turn
upon rumors about the King's health, and PTT group shares
were affected by a major explosion at one of its plants and
the unexpected court ruling which rejected 65 out of 76
projects by PTT due to environmental and health concerns.
Thaksin's appointment as Cambodia's financial adviser also
raised concerns about rising political risks. Despite all these,
the SET index is still above 700 - a level which it crossed this
quarter.
technology to curb green-house emissions. A an example
Commercial Times reported that China government will
expand "LED Street Light project" from "10 cities 10,000
LED Lights" to "50 cities 2 mn LED Lights". We also like
agricultural sector a proxy for hedge in demand recovery and
inflation.
Sector and stock valuation screening
Other than thematic plays, we recommend using price to
book value and earnings upgrade potential to screen for
sector and stock ideas.
Price to Book valuation
The economic outlook for Thailand remains positive as
exports recovery is on track. The government's push for
budget spending has also been gathering speed and recently
an FTA was concluded with Peru, which suggests that the
economy is moving forward despite the political chaos.
However, we think too much may have been priced into the
Thai market. Following the better than expected 2Q
earnings, analysts have been raising earnings forecasts in
Thailand. For a cyclical market like Thailand, earnings
expectations have already surpassed pre-crisis levels. It could
be due to two reasons: 1) the economy, both private and
public, has under-invested, during the politically chaotic
years of 2005-2008 that led to a depressed earnings
environment; 2) the provisioning by Thai Banks due to
accounting changes in the previous years. But the valuation
cushion may not be sufficient for any earnings
disappointment and political volatility, in our view. We
expect downgrade in PTT and SCC earnings following the
court ruling. While the negatives may have been priced-in,
we don’t expect upside for these stocks until a favourable
court ruling has been awarded. Our analyst expect it may be
in first quarter next year, but project delays to comply with
the new requirements means downside pressure on earnings
in the next few quarters.
We are downgrading Thailand to Underweight
Theme plays
We believe sectors which will benefit from China's private
consumption growth as that will be the main policy focus
next year. Environmental and clean energy growth sectors
will also be a global focus next year. As the largest and most
important UN climate change summit took place in
Copahagen, we expect a series of agreements, actions, and
Asia's price to book value is now above one standard
deviation and our valuation model indicates that the 12-
month forward return forecast may be negative. We believe
the chance of ERP compression is high in the first quarter as
liquidity remains abundant and the price to book valuation
could overshoot. We recommend sectors where price to
book values are still below average and risk appetite can still
improve in these sectors.
Last quarter, we recommended 23 sectors where traded
price to book values were lower than their historical trends.
Now we are left with 16 sectors. Notable, in terms of
deviation long term average P/B, Thai Oil & Gas sector is
now cheapest on the list following the correction after the
court ruling. The sectors which are no more in the cheap list
include: Singapore Banks which performed well after the 3Q
results; Taiwan Industrials and Chemical sectors; Hong Kong
Oil & Gas sector is also more expensive now following the
rise in crude price this quarter.
Fig. 30: Asia price to book value
(x) (%)
2.9
-60
2.6
-45
2.3
-30
2.0
-15
1.7
0
1.4
15
1.1
30
0.8
45
93 95 97 99 01 03 05 07 09
12-m fwd return (R, inv erse scale) AXJ P/B (L)
Source: Datastream, DBS
Page 20

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Fig. 31: Asia sectors: Price to book value less than one standard deviation
Current P/B
Average P/B
Standard
deviation
# of SD away
from avg
Thailand Oil & Gas 1.9 4.3 3.0 -0.8
Hong Kong Banks 1.9 2.3 0.5 -0.8
Taiwan Financials 1.3 2.5 1.7 -0.7
Hong Kong Utilities 2.2 2.5 0.6 -0.7
Singapore Telecoms 2.6 4.7 3.3 -0.6
Malaysia Telecoms 2.0 2.5 0.8 -0.6
Taiwan Tech 2.1 2.9 1.2 -0.6
Malaysia Utilities 1.5 1.8 0.5 -0.6
Hong Kong Telecoms 2.4 4.0 3.7 -0.4
Thai Telecoms 3.7 7.2 8.4 -0.4
Malaysia Travel & Leisure 1.9 2.2 0.9 -0.4
Thailand Banks 1.5 1.7 0.6 -0.3
India Tech 6.2 9.2 10.3 -0.3
Indonesia Banks 3.3 11.1 27.1 -0.3
Malaysia Oil & Gas 2.3 2.5 0.9 -0.2
Hong Kong Industrials 1.2 1.2 0.3 0.0
Source: Datastream, DBS
Fig. 32: Asia sectors: Price to book value more than one standard deviation
Current P/B
Average P/B
Standard
deviation
# of SD away
from avg
Korea Basic Resource 1.7 0.9 0.3 2.6
HK Pers & H/H Gds 6.0 3.9 0.9 2.4
India Basic Resource 4.9 2.0 1.2 2.4
Indonesia Utilities 13.3 6.6 3.2 2.1
Korea Pers & H/H Gds 2.9 2.0 0.5 2.1
India Banks 2.2 1.3 0.5 1.9
India Inds Gds & Svs 6.5 3.2 1.8 1.9
Indonesia Pers & H/H Gds 6.7 4.4 1.2 1.8
India Utilities 2.9 1.6 0.8 1.8
Indonesia Basic Resource 2.9 1.3 0.9 1.7
Hong Kong Technology 8.8 4.7 2.5 1.7
China Insurance 5.6 3.3 1.4 1.6
Taiwan Oil & Gas 4.0 3.0 0.6 1.6
Indonesia Auto & Parts 4.1 1.9 1.4 1.5
China Basic Resource 3.4 1.7 1.2 1.5
Korea Auto & Parts 1.5 0.9 0.4 1.5
Hong Kong Real Estae 1.4 1.0 0.3 1.4
China Banks 3.0 2.4 0.5 1.2
Source: Datastream, DBS
Page 21

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Earnings upgrade potential
For markets, we identify country sectors where earnings are
still below 2005-current peak levels, which means upgrade
potential is high.
Looking at the average Asia sectors in Fig.33, the sectors
which have high upgrade potential are mainly the cyclical
sectors, some of these sectors may have a genuine structural
issues which will probably depress earnings for some time.
An obvious example is an oversupply situation in the
shipping and shipbuilding sector, but we may expect M&A
to spice up this sector next year.
Possible surprise can be found in property and the airline
transportation sector. We expect abundant liquidity which
can continue to push up asset prices while analysts are still
concerned about government intervention to hit physical
property prices. The airline sector is already experiencing
month-on- month pick-up in cargo and passenger volume
while headwinds in terms of H1N1, higher fuel price,
potential levy on gas emissions are still pulling back analysts
forecasts
Details for individual countries may be found in Appendix 1
Fig. 33: Asia ex-Japan sectors which are below 2005-
current peak earnings level
Current earnings
above / (below) peak
Industry sector
Consumer Staples 11%
Consumer Discretionary 10%
Energy -1%
Financials 4%
Banks 9%
Insurance -4%
Real Estate -8%
Div. financials -23%
Health Care 4%
Industrials -17%
Capital Goods -5%
Div. Conglo -1%
Marine -73%
Transportation -48%
IT -7%
Materials -15%
Telecoms -6%
Utilities -9%
Asia ex-Japan -2%
Source: DBS, Datastream
Index targets
Our market recommendations and target returns are
summarised in Fig 34. Index targets are based on current
2010 and 2011 forecasts, or for earnings to return to peak
levels if 2011 forecasts are still below peak. Support levels
are at +1SD price to book value levels.
3-month target levels are pro-rated accordingly. But we
believe full year returns will most likely be front -loaded in
view of a strong liquidity environment and full year earnings
releases that are likely to show a lot of surprises.
Fig. 34: Index forecasts
Source: DBS
Levels below which 2010
09-Dec valuations are 3-mth Yr-end
Forecast
Return
Market Index Index Rec not excesive* Target Target 3-mth 2010
Singapore STI 2797 O/W 2992 2973 3500 6% 25%
Taiwan TWI 7797 O/W 7943 8386 10150 8% 30%
China 'H' H-sh 12899 O/W 12122 13897 16888 8% 31%
Hong Kong HSI 21742 O/W 23010 23608 29208 9% 34%
MSCI HK 10148 N 11408 10655 12178 5% 20%
Korea KOSPI 1634 N 1579 1732 2025 6% 24%
India Sensex 17125 N 15373 18465 22483 8% 31%
Thailand SET 695 U/W 814 728 828 5% 19%
Indonesia JCI 2481 U/W 2072 2611 3000 5% 21%
Malaysia KLCI 1256 U/W 1200 1304 1448 4% 15%
Page 22

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Appendix 1: Regional country sectors: Current earnings expectations away from peak level earnings
Current earnings Current earnings Current earnings
Singapore forecast - % deviation MSHK forecast - % deviation China forecast - % deviation
Industry sector from 2005 - current peak Industry sector from 2005 - current peak Industry sector from 2005 - current peak
C. Staples NA C. Staples NA C. Staples 19%
C. Discretionary -16% C. Discretionary -13% C. Discretionary -1%
Energy NA Energy NA Energy 4%
Financials -13% Financials 2% Financials 30%
Banks -2% Banks 1% Banks 36%
Insurance NA Insurance NA Insurance 5%
Real Estate -46% Real Estate 1% Real Estate -4%
Div. financials -15% Div. financials -18% Div. financials NA
Health Care NA Health Care NA Health Care NA
Industrials -21% Industrials -44% Industrials -26%
Capital Goods -20% Capital Goods -39% Capital Goods 8%
Div. Conglo -20% Div. Conglo -38% Div. Conglo 3%
Marine -68% Marine -85% Marine -81%
Transportation -26% Transportation -59% Transportation -58%
IT NA IT -55% IT -22%
Materials NA Materials NA Materials -19%
Telecoms 3% Telecoms NA Telecoms -11%
Utilities NA Utilities -10% Utilities 1%
Singapore -13% MS HK -10% China -21%
Current earnings Current earnings Current earnings
Malaysia forecast - % deviation Indonesia forecast - % deviation Thailand forecast - % deviation
Industry sector from 2005 - current peak Industry sector from 2005 - current peak Industry sector from 2005 - current peak
C. Staples -4% C. Staples 12% C. Staples 32%
C. Discretionary 7% C. Discretionary 36% C. Discretionary -20%
Energy -61% Energy NA Energy -11%
Financials 8% Financials 40% Financials 12%
Banks 8% Banks 56% Banks 14%
Insurance NA Insurance NA Insurance NA
Real Estate -15% Real Estate NA Real Estate 3%
Div. financials 9% Div. financials NA Div. financials NA
Health Care NA Health Care NA Health Care NA
Industrials -16% Industrials -13% Industrials NA
Capital Goods -23% Capital Goods -13% Capital Goods NA
Div. Conglo -30% Div. Conglo NA Div. Conglo NA
Marine -26% Marine NA Marine NA
Transportation -5% Transportation NA Transportation NA
IT NA IT NA IT NA
Materials 31% Materials -26% Materials -17%
Telecoms -13% Telecoms 1% Telecoms -24%
Utilities -9% Utilities 56% Utilities -18%
Malaysia -3% Indonesia 1% Thailand 0%
Current earnings Current earnings Current earnings
Korea forecast - % deviation Taiwan forecast - % deviation India forecast - % deviation
Industry sector from 2005 - current peak Industry sector from 2005 - current peak Industry sector from 2005 - current peak
C. Staples 20% C. Staples 3% C. Staples 28%
C. Discretionary 32% C. Discretionary -45% C. Discretionary 35%
Energy -9% Energy -47% Energy 13%
Financials -8% Financials -29% Financials 13%
Banks -13% Banks -34% Banks 41%
Insurance 23% Insurance -38% Insurance NA
Real Estate NA Real Estate 20% Real Estate NA
Div. financials -26% Div. financials -5% Div. financials -29%
Health Care NA Health Care NA Health Care 22%
Industrials 3% Industrials -54% Industrials 32%
Capital Goods 9% Capital Goods -43% Capital Goods 32%
Div. Conglo 2% Div. Conglo NA Div. Conglo 45%
Marine -87% Marine -71% Marine NA
Transportation -72% Transportation -71% Transportation NA
IT 20% IT -21% IT 9%
Materials 7% Materials -39% Materials 8%
Telecoms -4% Telecoms -15% Telecoms -45%
Utilities -38% Utilities NA Utilities -3%
Korea 14% Taiwan -24% India 17%
Source: IBES, DBS
Page 23

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
2010: Asia’s year (David Carbon, davidcarbon@dbs.com, extracted from “Economics – Markets – Strategy, 1Q10”
dated 10 December 2009)
• This is Asia’s year – when it becomes a bigger driver
of global growth than the US
• It couldn’t have come a moment too soon, what with
everyone fretting about a weak US and what that
means for global growth over the next 3-5 years
• For Asia, it doesn’t mean much. Asia will grow faster
over the next 5 years than it did in the 5 years
leading up to the 2009 recession
• In 2010, Asia will grow by 6%, almost average. To
do so, growth will have to slow down, not speed up
• Global imbalances will not keep Asia’s growth low.
On the contrary, Asia’s strong growth will help
reduce its external surpluses
• These, and other holiday hypotheses are explored
below
Happy Holidays
We’ve talked about Asia’s domestic demand growth a fair
amount over the years and we pick it up again briefly here for
two reasons. First, because it really is the biggest structural
change story going on in the global economy today and this is
Asia’s crossover year. Not to spend a paragraph or two
commemorating it would almost count as dereliction of duty.
Second, it sets the stage almost perfectly for this, the Holiday
Quarterly, where analysts are traditionally encouraged to run a
little outside the lane. What could be more outside the lane –
but still true – than Asia driving global growth more than the
US?
Asia 10 - – incremental domestic demand growth
converges on the US
Incremental Asian DD growth as % of same in US, structural terms
100
90
80
70
60
50
40
In 2010, for every
dollar of fresh
demand the US puts
on the global table,
Asia will put out
102cents
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
102
cents
In the event, we pick up this tradition below, as we did last
year, with twelve hypotheses, one for each month of the year.
As with last year, the free option on bragging rights applies –
full credit may be claimed for correct predictions; incorrect
ones are forgiven as holiday exuberance. A present of sorts for
the analysts.
Holiday Hypothesis
HH1: This is Asia’s year – it will become a bigger driver of
global growth than the US in 2010 (and it will never look back)
HH2: Asia’s V-shaped recovery will hit a brick wall very soon
HH3: Asia’s crash was driven mainly by China, not by the US.
Worries about the US being a brake on growth are misplaced
HH4: Asia’s upturn was not driven by government spending.
Asia will not stop growing when government money “runs
out”
HH5: Asia’s crash – and V-shaped recovery – was driven more
by shell shock than anything else. The shock has passed. The V-
shaped recovery is next
HH6: Supply constraints would act as a brick wall on growth if
demand continues
HH7: Policy will end the V-shaped recovery too. Monetary
tightening in Asia will be a key feature of 2010
HH8: Higher interest rates and the removal of fiscal stimulus
won’t kill the recovery – either in Asia or in the G3. Nor will it
kill markets
HH9: Inflows into Asia will accelerate and the capital control
debate will come onto the front burner once again
HH10: Global imbalances didn’t cause the US financial crisis. It
won’t prevent a recovery
HH11: Global imbalances won’t slow Asia’s growth
HH12: A stronger yuan isn’t going to bring global balance
HH13: Asia will grow 6% in 2010, on the way to faster growth
over the next 5 years than during the 5 years leading up to the
2009 recession. Corollary: Asia’s faster growth will help narrow
global imbalances
HH14: It’s not about being ahead of the curve. It’s about being
right at the end of the day
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24
"This report has been re-published with permission from
DBS Group Research” disclosures on page 35 of this report

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
China: Preparing for CNY appreciation (Chris Leung, chrisleung@dbs.com, extracted from “Economics –
Markets – Strategy, 1Q10” dated 10 December 2009)
• Asset prices continue to rise in China. Although the
capital account is still nominally closed, signs of hot
capital are returning
• Nonetheless, hot capital probably plays a minor role
in the generation of asset bubbles within China.
Credit and money supply growth are the main
culprits. Although new loans fell substantially in
2H09, money supply measures are growing rapidly
• Still, inflation should remain manageable at 3% next
year given the disinflationary force generated by
subdued manufacturing wages and overcapacity
• The most likely policy option to contain inflation
expectation will be to set the loans quota for 2010
at around CNY6-7trn, 30%-40% lower than the
level in 2009
• We expect GDP growth of 9.5% YoY in 2010
• The yuan will resume its appreciation against the
dollar in 2Q10
The resumption of CNY appreciation is important
Since end-08, CNY has depreciated by 7% in REER terms
owing to USD weakening. Many argue that this is unfair
because it has strengthened the competitiveness of Chinese
exporters, as evidenced by the larger bilateral trade surplus
with the US/EU in the past two quarters.
From the perspective of the US, it may seem like global
rebalancing cannot be achieved without committing China to
appreciating the CNY. Yet, if we look at the Japanese
experience, currency appreciation may not always be the
optimal solution. Back in the 1980s, Japan appreciated the Yen
by a total of 48% in 1985-1987 period. Domestic monetary
policy was loosened to strengthen domestic demand. However,
Japan's bilateral trade surplus with the US continued to
increase from US41bn in 1985 to US53bn in 1987. There was a
notable fall to US38bn in 1990 from US46bn in 1989, but that
was due to the bursting of the asset bubble! In the subsequent
10 years, the average bilateral trade surplus with the US
amounted to US44bn per year, not too much different from
the trade surplus in 1989.
The painful aftermaths following Japan's 1989 bubble burst is
a reminder for China not to follow its footsteps. Sharp
appreciation of the exchange rate alongside a loose monetary
policy will only create asset bubbles. Moreover, capital
movements nowadays are much more rampant than two
decades ago. This suggests that a mild appreciation of the
CNY- even in a controlled manner- alongside loose monetary
policy can easily generate the same risks in the asset market.
During the 2005-2007 period when the CNY was steadily
appreciating, hot capital- as proxied by the difference between
foreign reserves increment and the sum of trade surplus and
actual utilized FDI- totaled USD148bn despite the
inconvertibility of China's capital account.
That said, the appreciation pressure on the CNY this time
round is a lot larger than the 2005 episode. This is because: (1)
the US has a lot more political/economic incentive to persuade
China to appreciate the CNY; (2) China's neighbor, including
Japan has allowed their currencies to appreciate (Yen
appreciated by 12% since Apr09); (3) the elevation of China's
international status after the credit crisis meant that
international responsibility has risen; (4) China's potential
economic growth is still very strong. Consensus projection for
real GDP growth is around 9% YoY in 2010.
As a result, even within China, the expectation of an eventual
resumption of CNY appreciation is escalating. This has resulted
in a sharp fall in foreign exchange deposits growth by domestic
financial institutions from 29% YoY in 1Q09 to 8% in 3Q09.
On the other hand, the rapid growth of foreign exchange loans
by domestic financial institutions has jumped from -12% in
1Q09 to 28% in 3Q09. Given that the weakening of the USD
has intensified after Oct09, these figures will likely balloon
further in 4Q09.
The bottom line is that a lax monetary policy should not be
implemented alongside currency appreciation at this point of
time. China will probably do nothing on the currency front
until the following conditions are met: (1) domestic credit and
money supply growth slows; (2) export growth returns to the
positive turf, running between 5%-10% for at least three to
four consecutive months; (3) the US takes concrete actions to
relax restrictions of Hi-Tech exports to China.
The most ideal sequence of events is the following: China will
use administrative measures to slow credit/money supply
growth in 1H10. This may trigger some consolidation in the
asset market. However, this is not a bad development given
that asset prices have seen much growth in the last six months.
We expect China to resume appreciation of the yuan in 2Q10
and anticipate 3% appreciation by year-end.
"This report has been re-published with permission from
DBS Group Research” disclosures on page 35 of this report
Page 25

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
US: Growing again (David Carbon, davidcarbon@dbs.com, extracted from “Economics – Markets – Strategy, 1Q10”
dated 10 December 2009)
• GDP is growing again
• Housing, of all things, is contributing to growth for
the first time since mid-2006
• Consumption is grinding north, doing the job it
normally does. Investment growth is just around
the corner
• Labor markets have improved dramatically in
recent weeks. Much of that is due to seasonal
adjustment difficulties but no matter – positive job
growth is expected by Jan/Feb and could come in
December
• The Fed won’t wait as long as it normally does to
take back its monetary accommodation. That’s
because there is so much to take back
• We expect 100bps of tightening by end-10, only
slightly more than the market expects
Improvements in the monthly data flow seen since March-
April finally showed up in positive GDP growth in the third
quarter. The economy expanded by 2.8% (QoQ, saar) on
the back of solid consumption growth (2.9%), a positive
contribution from inventories and, of all things, positive
growth in the housing sector that, one way or another, was
at the epicenter of the financial crisis / economic downturn.
Housing has made a strong comeback since bottoming in
April. Existing home sales are up by 36% (nearly 50%
annualized) and new home sales are not far behind (up
31%; 41% annualized). The latter of course are more
important to the economic growth equation per se but
everything speaks of stronger activity in the sector.
Inventories have fallen to 6.7 months’ worth of sales, not far
from their 40 year average level of 6 months. Prices have
risen 5 months in a row and are now 5.5% higher than in
April.
All this has led to more construction, with starts up by 36%
(QoQ, saar) in the third quarter, and thus contributing to
GDP growth for the first time since 2Q06. Consumption
continues to grind north as it has since Dec08. It’s not
clawing back much lost ground but it is grinding out growth
with ‘core’ retail sales advancing at a 6% (saar) rate in
nominal terms. This translated into real consumption growth
in the GDP accounts of 2.9% (QoQ, saar) in the third
quarter and the monthly data flow continue to point to PCE
growth between 2% - 2.5% in the fourth quarter.
Business investment normally lags the turn in final demand
and this recession is no exception. The good news is
investment nearly stopped falling in the 3Q09 and the
monthly durable goods reports point to positive growth in
the fourth quarter. Inventories continue to be run down,
though at a slower and slower rate, and are now wafer thin
by any standard. With consumption continuing to grow and
investment now turning the corner, a significant boost to
headline GDP growth from restocking is anticipated in early-
2010.
Putting everything together, it looks like headline GDP
should grow by about 3.3% (QoQ, saar) in the fourth
quarter and remain at about that pace in the first two
quarters of 2010 even with consumption growth of only
about 2% pencilled in. Inventory restocking should provide
a significant lift in Q1and Q2 (and maybe in 4Q09) before
giving way in the second half of the year to stronger final
demand growth in the form of slightly higher consumption
growth and better investment figures. We expect the
current account deficit will widen out again as a percentage
of GDP as the recovery takes hold. Although we expect it
will remain at about 4% of GDP over the coming year or
two, that will subtract from GDP growth in the near-term
because it had fallen below 3% of GDP during the
recession.
Fed
We continue to think that the third quarter looks about
right for when the Fed will start to take back some of its
monetary expansion. We have pencilled in 50bps of hikes
then and another 50bps in the fourth quarter. That is a little
more aggressive than what the market currently has priced
in, which is 75bps of hikes by end-10.
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"This report has been re-published with permission from
DBS Group Research” disclosures on page 35 of this report

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Hong Kong: The making of a bubble (Chris Leung, chrisleung@dbs.com, extracted from “Economics –
Markets – Strategy, 1Q10” dated 10 December 2009)
• The Hang Seng Index and property prices have risen
steadily in recent months despite the absence of
rapid credit growth and payroll increases. Foreign
capital inflow appears to be the cause
• Inflow in the past year has prompted the HKMA to
repeatedly inject liquidity into the monetary system
by selling HKD to prevent the USD/HKD from
strengthening beyond 7.75. This has kept domestic
interest rates low. Local rates will remain low as long
as monetary policy in the US stays accommodative
• Low interest rates and the loose credit policy in China
will keep Hong Kong's asset market supported. An
open capital account and a currency peg mean the
authorities have little control over monetary policy
• GDP is expected to grow by 5.5% in 2010
External factors matter
Current asset price behavior in Hong Kong seems to be mainly
determined by external factors. The sharp acceleration of
money supply was not a result of loan growth, but the
persistent capital inflow. The HKMA has also repeatedly
injected liquidity into the monetary system to maintain the
currency peg. In response, interbank interest rates fell to very
low levels for an extended period of time. With domestic
interest rates near zero, thanks to the US monetary policy, risk
appetite has certainly increased. However, speculative
investments originating from the local population are unlikely
to be as strong this round- given the painful lesson from the
Asian Financial Crisis.
New loans extended by China in 2009 is likely to be around
CNY10trn (USD1.45trn) equivalent to around one-thirds of
China's GDP! Although it is difficult to prove that some of this
credit has leaked into Hong Kong and some other parts of
Asia, it is sort of an open secret. It is not uncommon to find
shoppers from mainland China who buy luxury properties in
Hong Kong who pay in full.
If China's lax credit policy is the major reason behind rising
property prices in Hong Kong, intuitively, this would mean that
it will be difficult for asset prices in Hong Kong to adjust
downward in a meaningful manner. I have repeatedly argued
that it will be an enormous challenge for China to reverse the
course of monetary policy (Refer to China report in this
quarterly). China can only carry it out slowly, and preferably
after the US embarks on a interest rate hike cycle. Assuming
that the exchange rate mechanism in Hong Kong stays intact,
and CNY resumes its appreciation path sometime in the near
future, HKD denominated assets will appear cheaper to
mainland Chinese investors. In fact, the HKD has depreciated
6% in NEER terms since from 1Q09 till 3Q09 due to the
weakening of the USD. If the world engages in global
rebalancing for the next few years, which is likely to be the
case, HKD will be held hostage by the interplay between the
USD and CNY, which is a function of future Sino-US
relationship.
As a result, asset prices may not correct too much next year,
given both China and US are unlikely to tighten too much. If
US economic fundamentals recover sooner than expected,
providing adequate justifications for Fed to hike interest rates,
the good news might outweigh the effects of the interest rate
hike. As Hong Kong is an extremely external-orientated
economy, the rapid recovery on the external economic front
would imply that domestic economic fundamentals have also
greatly improved. This is unless the Fed takes interest rates
beyond anticipated levels, the room for property price
correction will probably be limited. To many, Hong Kong is
simply a one way bet.
"This report has been re-published with permission from
DBS Group Research” disclosures on page 35 of this report
Page 27

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Singapore: Shifting gears (Irvin Seah, irvinseah@dbs.com, extracted from “Economics – Markets – Strategy,
1Q10” dated 10 December 2009)
• The double digit sequential growth pace will soon
give way to a more subdued pace of growth going
forward
• Signs of cooling off are emerging as the economy
shifts towards a flatter growth trajectory
• We now expect 6% GDP growth in 2010, up from
5.5% earlier
• The services sector is expected to take over from
the manufacturing sector as the key pillar of
growth
• Inflation is likely to rise to 3.2% in 2010
• The MAS is expected to maintain a neutral
exchange rate stance in April
Services - the key growth driver in 2010
As the manufacturing sector is likely to experience relatively
slower growth momentum next year, the key sectoral story
for 2010 is that the services sector could well pick up the
slack as the key driver of growth in the economy (Chart 8).
The services sector may not have recovered quickly in 2Q09
but its growth momentum has risen in the subsequent
quarter. Services recorded an acceleration from 7.9% QoQ
saar in 2Q09 to 10.8% in 3Q09. Not only does this highlight
the effects of the recovery broadening out from the
manufacturing to the services sector, it also suggests that
the latter may become the key pillar of growth in 2010 if its
current growth momentum persists.
A sustained global recovery going into 2010 will naturally
bring about stronger consumer and business spending on
overseas travel. While this will give rise to a steady inflow of
tourists going forward, the opening of the two integrated
resorts next year will certainly provide an additional boost to
the growth outlook of the tourism related industries. In
addition, the return of risk appetite since Mar09 which has
fuelled the recovery in the financial and asset markets is also
expected to persist going forward based on the economic
outlook. While the government may from time to time
imposed some necessary administrative controls to curb
asset inflation, we believe both the financial and business
services sectors will still be able to record strong growth in
the quarters ahead. In fact, we maintain the view that the
financial services sector will continue to lead pack,
essentially a reversal back to the trend seen prior to the
financial meltdown (Chart 9). Last but not least, the
resumption of global trade flows on the back of sturdier
economic conditions will surely lend support to growth in
the wholesale trade and transport services segments.
Based on the above assumptions, we expect the overall
services sector to record growth of 6.6% in 2010, which will
thus imply that 4.4%-pts of the 6% GDP growth next year
will be attributed to the services sector (Chart 8).
Chart 8: Services - the key pillar of growth in 2010
%-pt contribution
15
10
5
0
-5
-10
SPI
GPI
GDP growth
DBSf
Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Chart 9: Outlook for various services sectors
%-pt contribution
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
Biz services
Fin. services
Tpt services
Wholesale & retail
Others
Services growth
DBSf
Mar-07 Mar-08 Mar-09 Mar-10
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Malaysia: Steering the wheel (Irvin Seah, irvinseah@dbs.com, extracted from “Economics – Markets –
Strategy, 1Q10” dated 10 December 2009)
• The growth trajectory of the economy mirrors the
V-shaped recovery seen across the rest of the
region
• The recovery was supported by resilient domestic
consumption and an improvement on the external
front
• Our GDP forecast for 2009 was raised to -2.4%
from -2.8%. We continue to expect 5% growth in
2010
• Low inflation of 1.6% in 2010 suggests monetary
tightening will only start in 3Q10
Strong, broad-based recovery
Having already registered double-digit 12.5% (QoQ, saar)
growth in the 2Q09, the economy made it two in a row
with 12% growth in the third quarter. That brought
headline GDP growth figure to -1.2% YoY, a significant
improvement from -3.9% in 2Q09. Two quarters of sharp
decline followed by two subsequent quarters of double digit
expansion, the growth trajectory of Malaysia mirrors the V-
shaped recovery seen across the rest of the region.
Indeed, recovery in Malaysia is undeniably taking place and
nicely supported by a resilient domestic consumption and
the improvement on the external front. Private consumption
recorded growth of 1.8% YoY, up from 1.5% previously
while the expansionary fiscal policy has translated into a
9.8% expansion in government expenditure. As such, total
domestic consumption contributed 1.4%-pts to the GDP
growth and was the key reason for the improvement in the
headline number. On the other hand, while investment
growth remains in contraction mode, the drag on GDP has
became lesser as business outlook gradually improved.
Investment declined by 6.5% in the quarter, up from a fall
of 7.9% in 2Q09. Lastly, although net exports continue to
subtract from headline growth, it was largely due to
stronger imports rather than export weakness. The
improvement in imports outpaced that of exports, resulting
in a 1.5%-pts deduction from GDP growth. Nonetheless,
this probably reflects the underlying resilience of Malaysian
domestic demand.
Buoyant growth ahead for all key sectors
The recovery was clearly visible in key sectors such as
manufacturing, services and the construction sectors, which
in total constitute about 85% of GDP. In particular, the V-
shaped recovery is clearly evident in the growth profile of
the manufacturing sector, which saw a milder decline of
8.6% in 3Q09, up from the average 16.2% contraction in
1H09. The steady improvement in global economic
conditions and consumer demand has been key to the
turnaround on the external front. Exports and industrial
production have been grinding gradually northward since
the bottom in Jan09 and we could expect the
manufacturing sector to register an expansion of 3.7% in
2010, up from -10% this year.
On the other hand, the services sector recorded stronger
growth of 3.4% YoY, up from 1.6%. A rosier employment
outlook with unemployment rate coming down to 3.6%
should lend support to domestically driven industries such as
retail and real estate services. The return of risk appetite as
well as improvement in external demand are expected to
benefit services industries such as the financial, transport
and business services. With that, we expect this largest
sector of the economy to post a healthy 6.8% growth next
year, from 2.1% this year. Indeed, this will make the
services sector the key driver of the economy in 2010.
The construction sector continues to benefit from the
healthy slew of government developmental projects arising
from the stimulus packages. The sector posted an expansion
of 7.9% in the quarter, from 4.4% previously. In fact, this is
the strongest pace of growth for the sector for more than a
decade (since 2Q97), having been in the doldrums since the
Asian financial crisis. While we do not expect such pace of
growth to be sustainable in the longer term given that the
Federal government will be working on a tighter fiscal target
and lower spending, the near term outlook for this sector
should continue to remain buoyant on the back of the
existing policy stimulants.
"This report has been re-published with permission from
DBS Group Research” disclosures on page 35 of this report
Page 29

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Taiwan: A broader recovery (Ma Tie Ying, matieying@dbs.com, extracted from “Economics – Markets –
Strategy, 1Q10” dated 10 December 2009)
• We expect economic recovery to broaden next year.
A sustained export recovery is likely to accelerate
investment and employment growth in the
manufacturing sector. Continued promotion of crossstrait
opening policies would help create business
opportunities in the services industry, and encourage
wealth repatriation
• Broader recovery will lead to a review of monetary
policy. We expect the CBC to begin normalizing
interest rates from 3Q10, hiking the rediscount rate
by 50bps in 2H10
China effects
A substantial revival in the Taiwanese economy requires
structural reforms. The gap between export orders and exports
is wide, due to the high percentage of overseas production
(49% in Oct09). This phenomenon is particularly evident
during the post-crisis recovery, as the rebound in exports has
been largely contributed by demand from China – where
Taiwan’s offshore production is primarily based, and largely
driven by demand on electronics – of which the overseas
production ratio is the highest. In other words, rising global
demand on Taiwanese products can not be fully reflected in
domestic production and domestic employment. It is no doubt
in corporate earnings and shareholder returns, but many
rewarded entrepreneurs and shareholders may reside and
spend overseas rather than in Taiwan. This so-called
“hollowing out” has fundamentally constrained consumption
growth in Taiwan, which hovered around a poor 2-3% in the
past decade ever since 2001.
The liberalization of cross-strait relations should slow and may
over time reverse this trend. Convenient transportation links
are facilitating home visits of mainland-based Taiwanese
businessmen and professionals. Rising expectations of local
economic prospects and TWD asset revaluation are
encouraging the repatriation of offshore wealth. In the
financial account under the BOP, local residents’ holding of
currency & deposits have maintained an inflow for as long as
seven quarters ever since 1Q08 and accumulated at a sizeable
USD 38.9bn (10% of GDP), which could eventually be
channeled into the economy through financials and properties
Another reason for Taiwan’s economic malaise in the past
decade lies in the slow upgrade of services industry. Unlike
manufacturing, which has benefited from China’s growth by
expanding FDI there, the services industry has been inwardlooking
and constrained by a small domestic market. The
deregulation of cross-strait relations should increase business
opportunities in the services sector. Direct transportation links
have been set up with major cities in the mainland, Chinese
tourists are pouring into Taiwan, and Taiwanese financial
institutions will be allowed to operate businesses in China from
Jan10. More deregulation is expected next year based on the
signing of ECFA. Taiwan’s negotiators have listed financial
(market entry details for Taiwanese financial institutions
investing in China), logistics, computer-related and R&D
services under the early harvest program of ECFA.
Taiwan’s services trade with China is expected to grow. We
believe Taiwan has comparative advantages over China in
exporting knowledge-based services such as finance and
professional & technical services, because of stronger R&D
capacity and higher labor force quality. Language and cultural
affinity with the mainland puts Taiwan firms at an advantage
vis-a-vis other foreign investors when competing in China’s
services market.
Paradoxically perhaps, Taiwan’s expansion in China should
strengthen the services industry at home too. Whilst capital
spending requirements in services is traditionally smaller than in
manufacturing, their job creation effects are not low. Servicesproducing
industry accounts for near 60% of total
employment in Taiwan. Various services segments have also
contributed (more than manufacturing has) to the rise in job
demand so far this year, such as accommodation & eatingdrinking
(46% of total employment increase from Mar09 to
Oct09), finance & insurance (18%) and transportation &
storage (14%).
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Korea: Dichotomy (Ma Tie Ying, matieying@dbs.com, extracted from “Economics – Markets – Strategy, 1Q10”
dated 10 December 2009)
• Korea’s export outlook is good, taking into account a
still-favorable exchange rate and rapid technological
development
• We are less optimistic about private consumption.
Fiscal and monetary measures that stimulated
consumption this year will gradually be withdrawn.
The positive effects on the labor market stemming
from export and manufacturing recovery are also
expected to be limited
• The Bank of Korea is paying close attention to asset
prices and private borrowings. We expect the BOK to
begin normalisation of interest rates ahead of the
Fed, from 1Q10
Lacklustre consumption
The traditional argument is that export recovery will encourage
manufacturers to increase hiring which will in turn boost
private consumption. However, Korea’s job losses during the
2008 crisis were not concentrated in the manufacturing
industry (contributed 20% to the declines in non-agricultural
employment from Jul08 to Feb09), but in services sectors such
as business & personal services (27%), accommodation & food
services (23%) and finance & insurance (8%). This helps
explain the drop in labor participation rate, as the
manufacturing recovery cannot directly help the laid-off
workers from services industry. Some services workers may
have given up searching for jobs and exited the labor force as a
result. Declining labor participation has in fact exaggerated the
improvement in the labour market as unemployment rate
continues to decline.
The government has been aggressively creating jobs in the
public services sector to offset the private sector weakness.
Hirings in public administration, health & social works and
education contributed as much as 90% to the increase in
overall non-agricultural employment from February to October.
But the government needs to exit eventually and unwind its
fiscal stimulus measures. In the central government’s 2010
budget, total fiscal expenditures next year will be reduced by
3.3% and spending on welfare, labor and health will stay flat
from this year, so as to bring fiscal deficit down to 2.9% of
GDP from 5.0%.
alleviated interest burdens for the indebted households, and
hence acted as a major stimulus for consumer spending this
year. However, low interest rates again boosted the growth in
consumer borrowings associated with property investments
and caused further buildup of household debt levels. This has
raised official concerns over financial instability and has obliged
policymakers to interfere. The Financial Services Commission
has strengthened prudential regulations on financial
institutions’ mortgage lending in Seoul and its surrounding
areas since July (stricter requirements on debt-to-income ratio
and loan-to-value ratio). The Bank of Korea also recognized
that the further expansion in household debt and upward
trend in asset prices will be the foremost risks to monitor, as
said in its semiannual financial stability report issued in
November. The withdrawal of monetary stimulus – the roots
and sources of consumer leveraging – may not be far off. In
fact, a widespread consensus has been formed with regard to
central bank rate hikes in early-2010, which has automatically
raised market interest rates. The three month CD rate, as an
indicator reflecting banks’ funding costs, has increased by
more than 30bps from its bottom in August, which led to a
corresponding rise in bank lending rates.
Interest rate normalization is on the way
The extraordinary monetary and financial support measures
adopted in response to the 2008 crisis are gradually being
removed. The BOK’s liquidity support of broadening eligible
collateral for open market operations has already expired in
November. Whilst the government’s financing program offered
to troubled SMEs is still in place, controls on financial
institutions’ mortgage lending have been imposed since July.
It is widely expected that the BOK will normalize interest rates
as the next step of the monetary exit strategy. We think rate
normalization is best done early rather than late, in order to
pre-empt the risks of inflation and/or formation of asset
bubbles. Otherwise, comparatively more aggressive rate hikes
will be required one day if inflation and/or asset bubbles have
emerged. We forecast rate hikes from 1Q10, totaling 175bps
throughout 2010, which will lift the benchmark 7-day repo
rate to 3.75% in end-2010 from 2.0% currently.
Meanwhile, high debt load is likely to be a constraint to
consumption growth (the ratio of household debt to
disposable income has surpassed 140% since 2008). Drastic
monetary easing during the 2008 crisis has significantly
"This report has been re-published with permission from
DBS Group Research” disclosures on page 35 of this report
Page 31

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Thailand: Still mixed (Ramya Suryanarayanan, ramya@dbs.com, extracted from “Economics – Markets –
Strategy, 1Q10” dated 10 December 2009)
• Third-quarter GDP grew by 6% (QoQ, saar) and -
2.8% (YoY), lower than expectations, but still decent
in light of upward revisions to the data
• Recovery in exports and subpar domestic demand
growth should help the economy register growth of
4% (QoQ, saar) through 2010
• We pencil in rate hikes from 3Q10 but do not see the
central bank hurrying to hike ahead of major Asian
central banks and / or the Fed given that exports are
the key driver of growth
• The key risk to the outlook is still politics, where
recent developments remain mixed
Can domestic political uncertainty spread to exports?
While political instability has hurt domestic demand in the past
few years, exports have powered economic growth in 2005-
08. Indeed, even in the current economic recovery, exports
have risen in line with trends in the North Asian economies.
Manufacturing production, geared towards exports, has almost
reverted to peaks reached in 2008, driven especially by exports
to China. While we do expect exports to continue to drive
economic growth ahead, the cloud of political uncertainty is
now spreading to this sector too, with the suspension of
industrial projects in the Map Ta Phut industrial zone in the
eastern province of Rayong. The injunction to halt investment
projects in the province had to do with lack of adherence to
environmental regulation. But, it is probable that in a more
stable domestic political situation, policy uncertainty would be
lower and such irregularities would have been fewer. Indeed,
one of the main reasons companies did not comply with the
regulation introduced in the 2007 constitution is that the
institutional setup needed to comply with the regulation was
not in place. For example, the law requires approval from an
independent environmental body, but this has not yet been
established.
The projects halted in the zone are worth USD 8bn (3% of
GDP). The central bank has estimated that GDP could be
lowered by 0.5% of GDP if the projects remain closed for a
year. The government has constituted a committee
representing environmentalists, businesses, lawyers and civil
servants and headed by former premier and diplomat Anand
Panyarachun to work out short- and long-term solutions to
allow affected projects to comply. We believe successful
resolution of the issue may ultimately take 9-12 months from
the initial halting of projects in Sep 09 [1].
If projects in Map Ta Phut are only the tip of the iceberg and
there are several other projects that have not followed
environmental regulations, then the impact on exports and
growth could be significant. Indeed, such developments are
not captured in our GDP forecasts.
Domestic demand - little chance of strong recovery
Thai consumers have built a bigger cushion of savings in the
past few years by holding back consumption. The savings rate
has risen to over 12% in 2007 from 6%-7% in 2002-05.
Labour market data too shows a surprisingly contained
unemployment rate (1.6% sa peak). Notwithstanding these
positives, we are concerned that political uncertainties may
continue to keep consumers cautious for longer, thereby
keeping the savings rate elevated. Looking ahead, we pencil in
sub-potential consumer spending growth in 2010, similar to
trends seen in the last few years. Investment spending,
naturally, would be subject to even more caution than
consumer spending. Taken together, decent export growth,
sub-potential domestic demand and continued government
spending should help the economy register growth of about
4% (QoQ, saar) in 2010 (vs potential of 5%-5.5%).
.
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
Indonesia: Wildcard at Wimbledon (Lim Su Sian, limsusian@dbs.com, extracted from “Economics –
Markets – Strategy, 1Q10” dated 10 December 2009)
• One global financial crisis and one peaceful
presidential election later, Indonesia is now, like the
wildcard tennis player who made it to the
Wimbledon final, standing at the cusp of significant
opportunity
• It’s still a long way to victory but so far so good.
Growth in 2010 looks set to average 5.5%, from
4.5% this year. While output in most neighbouring
economies returns to pre-crisis levels, Indonesia is
already rubbing up against maximum capacity. As
slack in the economy disappears, investment and
employment will have to rise. GDP growth could be
higher than forecast if credit growth accelerates
• Inflation should average 4.6% YoY next year. Owing
to base-year effects, this is lower than the 2009
average. Sequentially, however, prices will be rising
faster. This will necessitate 150bps of policy-rate
hikes from Bank Indonesia from 3Q10. This would
put policy rates at 8% at year-end
• Risks to the outlook have risen, owing to the Bank
Century case and policymakers’ concerns over
foreign capital inflows
2010: Now for the long haul
To be sure, it will be a long ways yet before Indonesia can
claim victory. The to-do list is long; in the coming years, there
are still institutions to be strengthened, and infrastructure to be
improved, before the economy can reach a structurally higher
growth path. But as far as beginnings go, 2010 looks to be a
strong start.
Next year we expect real GDP growth of 5.5%, against 4.5%
this year. This may appear to lag the 6% growth we expect the
rest of Asia to average, but a crucial distinction needs to be
made – unlike some of its neighbours, where output is only
just returning to pre-crisis levels, output in Indonesia has far
exceeded that. In fact, thanks to its strong performance in
2009, Indonesia is now producing at nearly maximum capacity.
This is evident when we look at how high capacity utilization
levels have been running; note that in the developing economy
context, 75% is often equivalent to an 80%-90% reading in a
developed economy. Importantly, the same trend is evident in
our estimate of Indonesia’s trend (or long-term potential) GDP.
Investment, consumption to drive growth
There are two key implications here for the economy. First, as
slack in the economy continues to disappear in 2010, spending
on plant and equipment – in short, investment – will have to
rise. We expect investment growth to accelerate to nearly 9%
next year from around 4% this year, which should benefit
sectors such as construction and transport & communication.
This should account for 2.2%-pts of the overall rise in GDP.
In 3Q09, we witnessed a sharp sequential turnaround in
investment levels, as economic and political uncertainty
receded; likewise, supply-side GDP figures show an up-tick in
construction activity. In the coming quarters investment levels
should continue recovering, as the private sector looks towards
improving economic prospects. Public investment spending,
too, should rise, with the government having allocated nearly
IDR 94trn, or 9% of total budget expenditure, towards the
building of infrastructure in 2010.
Notably, foreign firms also look set to ramp up investment
spending. In part this will owe to the significant business
opportunities that are set to open up over the next four years.
The government has estimated that the country requires some
USD 140bn worth of infrastructure until 2014, and that more
than two-thirds of this will have to be financed by nongovernment
sources, including through public-private
partnerships (PPP). We expect foreign investment spending to
rise also owing to the global economic recovery. Since the peak
of the global financial crisis in Sep08, net foreign direct
investment into Indonesia has dwindled. This can be attributed
to a reduction in outlays from key investors such as Japan,
Singapore and Malaysia, where the effects of the crisis were
acutely felt. With some of these economies now clearly on the
mend, we would expect investment flows to at the very least
normalize.
Aside from higher investment, an economy operating at the
limits of its capacity would also have to lift employment. We
saw this happen during even the most intense months of the
global crisis – the unemployment rate fell a further 0.3%-pts to
a low of 8.1% in the six months between Sep08 and Mar09 –
so what more now that the economic outlook is on the mend?
As the labour market continues to tighten, consumer spending
will continue to rise. Assuming that consumer spending
sustains the kind of sequential growth seen in 2009 (of 1.2%
QoQ sa on average every quarter), then full-year consumer
spending should rise by 4.6%, accounting for 2.7%-pts of the
GDP headline.
"This report has been re-published with permission from
DBS Group Research” disclosures on page 35 of this report
Page 33

Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
India: Higher rates (Ramya Suryanarayanan, ramya@dbs.com, extracted from “Economics – Markets –
Strategy, 1Q10” dated 10 December 2009)
• GDP grew by nearly 8% YoY (12% QoQ saar) in 3Q,
much better than expectations and actual 2Q growth
of just over 6%
• We revise up our 2009-10 (Apr-Mar) GDP forecast to
6.5% and retain the 2010-11 forecast at 7.5% but
note the 3Q GDP exaggerates the recovery, driven as
it were by government spending and pent-up
consumption
• Rising inflation, including higher food prices, also
suggests not all of the pick up in growth is
sustainable
• As such, we are also more hawkish than consensus
and expect a total of 200bps of rate hikes in Jan-Dec
2010, with tightening starting in January
Getting better, but not as good as 3Q09 GDP suggests
We expect non-agriculture growth of 8.5% (QoQ, saar)
through 2010. This is a significant pick up from the 6.5% in
2008 but is less than the 10% average growth in 2004-2007.
However, we expect to first see a quarter or two of very weak
growth, as we think 3Q growth is artificially boosted and not
entirely sustainable. For one, government spending has played
a major role in supporting growth. About half of the sequential
growth (10% QoQ, saar in expenditure GDP) came from direct
government spending. In annual terms, about 2.2% -pts of the
7.9% YoY GDP growth came from government spending. This
estimate doesn’t even take into account the indirect effect of
revisions to government employees’ pay and other measures
such as excise duty cuts on consumer spending. Indeed, the
rapid pick up in consumer durable goods production suggests
some of the growth is led by pent-up demand that may
subside, especially as the central bank begins to lift rates.
Inflation - more than meets the eye
Rapidly rising WPI and CPI inflation (average Mar09-Sep09: 7%
and 15% MoM saar) may also be a sign that part of the recent
pick up in growth is unsustainable. Also, we think the doubledigit
(annual and sequential) food inflation is fanned by an
enduring demand-supply gap, and not mainly induced by the
recent drought (see “IN: risk of aggressive tightening”, 23 Oct
09). This probably explains the persistent rise in food prices
since 2006. A rough measure of drought-adjusted food
inflation confirms our view. As such, we expect WPI inflation
to remain elevated at about 5.0%-5.5% (MoM, saar) in 2010
and cross 5% (YoY) in Dec09 and 6.5% (YoY) by Mar09.
Monetary and fiscal policy
In light of our reading of the price situation, we are more
hawkish than consensus and expect rate hikes staring January
when we look for a 25bps hike in the repo, reverse repo and
cash reserve ratios (CRR). By Dec 2010, we expect 200bps of
hikes in repo and reverse repo rates and 150bps of hikes in
CRR. We do not envisage any further increases to the Statutory
Liquidity Ratio (SLR) in our central scenario though we do not
rule one out either, especially if tighter liquidity leads to a selloff
in government bonds and higher bond yields in the latter
part of 2010.
In light of the policy tightening, there is a risk that fiscal
stimulus (mainly excise duty cuts) are not withdrawn until later
in 2010. The government may be worried over the impact of
higher duties on manufacturing growth and inflation. While
rate hikes may not immediately lead to higher prime lending
rates (as rates did not track policy rates down either), it would
still push market interest rates, including bond yields higher,
and thereby affect cost of funds for corporates. Such could
naturally lead to a surge in external commercial borrowings
that may eventually prove destabilizing, besides compromising
the strength and independence of domestic monetary policy.
Therefore, we also expect the policymaker to gradually tighten
norms on these borrowings through 2010 (see “IN: RBI’s
stance on capital controls”, 30 Nov 09).
Downside and upside risks to the outlook
Downside risks to the economic outlook stem from greaterthan-expected
monetary tightening and inflation while upside
risks stem from an underestimation of growth and reform
momentum. As we have noted in the past, a slowdown in
growth, and limited room to ‘spend your way’ to votes and
growth should eventually led to a push for reforms. This is in
some sense what we are witnessing currently in India.
Nonetheless, the focus of the current government is more on
improving ‘inclusive’ element of growth than in taking risks
with market reforms. Save for tax reforms, we do not expect
any wholesale reforms but expect steady improvement /
progress in policy, especially on divestment, infrastructure,
special economic zones and education over the next couple of
years. In the meantime, growth remains vulnerable to external
shocks, such as oil spikes, especially given the burgeoning fiscal
deficit.
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"This report has been re-published with permission from
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Regional Equity Strategy 1Q 2010
Strategy Overview: Asia Equity
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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 35

Regional Equity Strategy 1Q 2010
Regional Data Monitor
Funds Monitor
US Funds Flow into Asian Equities, by Country
US$m 3Q08 4Q08 1Q09 2Q09 3Q09
Hong Kong Net purchase of -8,592 -1,513 -400 4,956 4,620
equities by US seller seller seller buyer buyer
HSI 20,670 14,081 13,222 17,357 20,418
Singapore Net purchase of 543 -4,067 -133 693 -886
equities by US buyer seller seller buyer seller
STI 2,676 1,763 1,680 2,194 2,642
Malaysia Net purchase of -419 -248 -16 147 475
equities by US seller seller seller buyer buyer
KLCI 1,094 869 883 1,037 1,184
Thailand Net purchase of 89 -243 -37 -59 153
equities by US buyer seller seller seller buyer
SET 652 423 434 550 665
Philippine Net purchase of -13 -95 -53 74 -28
equities by US seller seller seller buyer seller
PCOMP 2,612 1,932 1,895 2,310 2,828
Indonesia Net purchase of 11 98 146 -104 267
equities by US buyer buyer buyer seller buyer
JCI 2,101 1,285 1,351 1,889 2,377
Korea Net purchase of -3,526 -1,517 1,117 896 1,211
equities by US seller seller buyer buyer buyer
KOSPI 1,506 1,105 1,144 1,385 1,607
Taiwan Net purchase of -881 -679 -11 1,548 945
equities by US seller seller seller buyer buyer
TWSE 6,596 4,641 4,672 6,438 7,138
Total US
Net purchase of Asian
Equity (US$m)
-12,788 -8,264 613 8,151 6,757
US Dow Jones Index 11,257 8,977 7,558 8,372 9,460
US 10-yr bond yield 3.9 3.3 2.7 3.3 3.5
Source: US Treasury
UK Unit Trusts
US$m 4Q08 1Q09 2Q09 3Q09 4Q09
58.7 55.1 55.5 55.5 55.2
% of all Equities (212.1) (199.4) (223.4) (256.6) (266.5)
19.3 20.0 19.5 18.9 14.6
Funds Bonds (69.9) (72.4) (78.5) (87.5) (70.5)
5.8 6.5 7.3 7.7 7.7
% of Asia (x Japan) (12.4) (13.0) (16.3) (19.7) (20.5)
59.7 59.7 59.7 59.7 59.7
Equity Domestic (116.8) (111.7) (125.3) (141.9) (70.4)
39.1 37.4 36.6 37.0 65.9
Funds Others (82.9) (74.7) (81.7) (95.0) (175.5)
Source: Association of unit Trusts and investment funds.
Notes: Figures in parentheses denote value of funds in pounds bn. 'Others' Category include
US, Japan, International and emerging markets funds. 4Q'09 data up to Oct only.
Page 36

Regional Equity Strategy 1Q 2010
Regional Data Monitor
Earnings Monitor
Revisions in Earnings Forecast
Forecast revisions during 4Q09
% Increase % Decrease % Net
Singapore 28 22 6
Hong Kong 32 14 17
China 9 7 2
Msia 46 17 29
Thailand 56 20 36
Indonesia 8 8 0
Notes: % increase (decrease) denote the % of companies’ earnings that were raised (lowered) during 4Q09.
Forecast revisions during 3Q09
% Increase % Decrease % Net
Singapore 30 16 14
Hong Kong 50 48 2
China 36 13 23
Msia 60 18 43
Thailand 67 17 50
Indonesia 61 13 48
Notes: % increase (decrease) denote the % of companies’ earnings that were raised (lowered) during 3Q09.
Revisions in Recommendation
Changes in recommendation during 4Q09
% Up % Down % Net
Singapore 13 15 -2
Hong Kong 21 8 13
China 2 2 0
Msia 6 8 -3
Thailand 3 2 2
Indonesia 0 13 -13
Notes: % increase (decrease) denote the % of recommendations that were raised (lowered) during 4Q09.
Changes in recommendation during 3Q09
% Up % Down % Net
Singapore 11 19 -7
Hong Kong 29 15 15
China 16 7 10
Msia 15 12 3
Thailand 11 6 6
Indonesia 39 26 13
Notes: % increase (decrease) denote the % of recommendations that were raised (lowered) during 3Q09.
Source: DBS Vickers
Page 37

Regional Equity Strategy 1Q 2010
Country Assessments & Stock Profiles
Country Assessments
&
Stock Profiles
Page 38

Regional Equity Strategy 1Q 2010
Country Assessment
Singapore
Clear blue skies?
Integrated resorts, job creation, population growth, and
budget expectations, will sustain the market’s
momentum in 1Q10. Rate hike concerns and peaking of
growth momentum could start to weigh on market as
the first half progresses. Temporary hiccups aside, we
believe 2010 is a year where equity markets will gradually
grind higher, interspersed with periods of volatility.
Sweet spot for equities. Heading into 2010, equities is in a sweet spot, with low interest
rates, weak US$ fuelling liquidity into this region, economic recovery on track and
earnings rebounding to pre-crisis levels. For Singapore, several catalysts are in place
with strong macro fundamentals supporting equities. These include a) the re-making of
Singapore with the launch of integrated resorts in 1Q10, and b) structural upside from
population growth, job creation and immigrants fueling domestic consumption and
asset prices.
Temporary tops and hiccups. The stock market recovery in 2009 has lifted PE
valuations to historical average from oversold levels, currently trading at 14.5x(FY10F)
and 12.8x(FY11F). We see STI heading to around 3000 but a temporary top is seen in
line with a potential peaking of y-o-y GDP growth in 1Q10. Rate hike concerns could
start to weigh on the market. Temporary hiccups aside, we believe 2010 is a year where
equity markets will gradually grind higher. Our 12-month target for STI is 3500, pegged
to 16x on 2011 earnings.
Spinning the integrated resorts, consumption boost and order flows. We will focus on
themes that will sustain through next year – a) integrated resorts benefiting the
gaming, transport, hospitality and high end property stocks, b) consumption plays
leveraging on China’s consumption growth and Singapore’s population growth and c)
oil and gas riding on a resurgence of orders. The increase in tourist arrivals will benefit
SMRT, SATS, SIA Engineering while UOL is a laggard with 30% exposure into
hotels/retail. Wilmar is our key proxy for China’s consumption growth while in
Singapore, we see SMRT as a key beneficiary of the structural growth in the city-state’s
population base. SembCorp Marine is set to benefit from a recovery in new orders for
production platforms.
Janice Chua . (65) 6398 7954 . janicechua@dbsvickers.com
www.dbsvickers.com
Refer to important disclosures at the end of this report
sa: TW
Page 39

Regional Equity Strategy 1Q 2010
Country Assessment
Market Data
Index Close Chng Net -1 mth% -3 mth -6 mth -12 mth 52 week
10 Dec 09 1m (%) (%) (%) (%) High Low
FSSTI 2,782 74 2.7 3.7 16.3 52.7 2808 1455
FTSE Mid Cap 662 43 6.9 6.2 20.2 89.8 672 292
FTSE Small Cap 531 22 4.4 (4.5) 15.1 78.8 569 236
FTSE Financials 726 37 5.4 8.2 18.6 65.2 732 324
FTSE Real Estate 649 31 5.1 7.3 20.8 81.3 654 284
FTSE Re Hold & Dev 695 36 5.4 7.7 18.9 85.2 698 282
FTSE Re Invest Trust 576 25 4.4 6.7 25.2 76.4 589 276
FTSE Oil & Gas 622 58 10.3 6.3 16.3 157.0 637 207
FTSE Basic Materials 317 28 9.7 (2.5) 16.1 34.3 339 142
FTSE Industrials 603 21 3.5 4.0 18.0 69.8 611 308
FTSE Consumer Goods 707 (1) (0.1) (1.8) 17.3 88.4 756 324
FTSE Healthcare 815 78 10.6 29.3 53.2 115.0 818 356
FTSE Consumer Services 776 (7) (0.9) (1.8) 18.8 42.4 822 428
FTSE Telecommunication 730 11 1.5 (6.2) 0.8 10.8 853 592
FTSE Utilities 486 17 3.7 (2.5) 29.8 72.1 514 221
FTSE Technology 740 9 1.2 (3.3) 29.1 107.2 782 268
FTSE China 296 12 4.2 3.4 17.4 50.6 304 129
Transactions:
YTD
Volume (bn) 442
Value (S$bn) 352
Source: Bloomberg
MARKET REVIEW
Slow start. At the start of the quarter, the STI was capped
within a tight range, below 2700, as big caps took a
breather while small caps were weak, subjected to trading
curbs by broking houses. As market consolidates, investors
were mindful of a possible correction. Property stocks,
which had a good run in 2Q 09, stalled due to the
government’s move to cool property prices by removing the
interest absorption scheme and raising land supply. A
temporary rebound in the USD sparked fears of a rout in
Asian equities arising from an unwinding of USD ‘carry
trades’.
But re-rating on banks pushed the index past 2800, on a
sterling set of results, which surpassed market expectations.
Investors rotated into laggards such as healthcare and land
transport stocks.
Page 40

Regional Equity Strategy 1Q 2010
Country Assessment
Index Key Events
2850
Earnings-led Wall Street rally;
better than expected results
from local banks
Easing concerns over Dubai’s
debt crisis and strong
economic data
2800
Upbeat US corporate results; Spore
government raised GDP forecasts
2750
2700
Concerns that China may tighten
monetary policy; Spore's
industrial data weaker than
expected
Dubai debt crisis
2650
2600
Government announced property
market-related measures, a preemptive
move to avoid the
formation of a bubble
USD rebounded; weak new home
sales data
2550
Weak US job data
17-Sep
22-Sep
27-Sep
02-Oct
07-Oct
12-Oct
17-Oct
22-Oct
27-Oct
01-Nov
06-Nov
11-Nov
16-Nov
21-Nov
26-Nov
01-Dec
06-Dec
Source: DBS Vickers
Sector Performance (Sorted in Descending Order on 3 months Performance)
Sector 1 Mth Ago (%) 3 Mth Ago (%) 6 Mth Ago (%) 1 yr Ago (%)
Health Care 13 35 69 132
Industrials 6 10 22 75
Financials 6 9 17 57
Oil & Gas 8 9 33 137
REITS 4 6 23 77
DBSV Coverage 3 4 18 63
Basic Materials 14 4 22 90
Real Estate 7 4 13 97
Consumer Goods -1 1 25 120
Consumer Services -3 -1 23 44
Technology -2 -2 23 99
Telecommunications 2 -6 1 10
Source: DBS Vickers
Healthcare the star. Over the past quarter, the star sector
was healthcare, backed by a strong set of earnings, higher
margins and overseas contributions. As investors turn more
defensive, switching into laggards such as healthcare
became an obvious choice.
Industrials started to perform with re-rating on engineering
and water stocks. Outperformance was led by SIA
Engineering and ST Engineering, two stocks we upgraded
this quarter on the back of expected recovery in aircraft
repair and maintenance sector and re-rating on water stocks.
We initiated SATS, which performed well, riding on the
recovery in the aviation sector.
Banks’ results blew estimates leading to earnings upgrades
across the board and strong performance of the banks.
Results were boosted by lower than expected provisions, NPL
peaking and recovery of pre-provision profits to pre-crisis
levels.
Reits outperformed Real estate, as investors switched from
the property sector after the government announced a raft
Page 41

Regional Equity Strategy 1Q 2010
Country Assessment
of property market-related measures in mid September,
pitched as a pre-emptive move to avoid the formation of a
speculative bubble. The out-performance was mainly driven
by retail and hospitality Reits. Investors have been betting on
the positive impact from the opening of the two integrated
resorts and the anticipated increase in tourism arrivals.
GROWTH
GDP growth – shifting to lower gear
Singapore's GDP grew 14.2% QoQ saar and 0.6% YoY in
3Q09 - the first quarter of positive year on year growth since
the financial crisis blew up last September. The growth
momentum was largely led by the robust pace of expansion
in the manufacturing and services sector. After surging with
double digit qoq growth for the past two quarters, quarterly
growth will slow henceforth.
We expect yoy growth to peak at 10% in 1Q10, before it
moderates to an average of 4% per quarter in the coming
quarters, amid volatility in the pharmaceutical sector, a
cautiously optimistic electronics sector, and the construction
sector slowing down. The services sector will be the main
driver next year, and will rise in importance as the main
contributor to GDP, following the rebound in financial
services and new contributions from the integrated resorts –
hospitality sector. GDP is forecast to grow 6% in 2010.
Services - the key pillar of growth in 2010
%-pt contribution
15
10
5
0
-5
-10
SPI
GPI
GDP growth
DBSf
Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Source: DBS
Earnings upgrades
Net Profit 2010 (S$m) Change
Sector
As of June
2009
As of Dec
2009
Dec vs
Jun 09
Basic Materials 318 275 -13%
Consumer Goods 3,455 3,690 7%
Consumer Services 2,137 2,132 0%
Financials 5,923 7,727 30%
Health Care 177 196 11%
Industrials 5,085 5,213 3%
Oil & Gas 368 390 6%
Real Estate 3,115 3,556 14%
REITS 1,427 1,598 12%
Technology -86 -11 Loss
Telecom 4,687 4,390 -6%
Grand Total 26,604 29,155 9.6%
Source: DBS Vickers
Earnings upgrades for the past three quarters, led by Banks,
Real Estate and Healthcare. In line with the sharp recovery,
DBS Vickers equities team had raised earnings for our
universe of stocks since May 09, by 10% YTD for our 2010
forecasts. We saw earnings upgrades across all major
sectors, except for Basic Materials, Telecoms and Consumer
Services. Sectors with the highest upgrades for 2010 are led
by Banks (+30%), Real Estate(+14%), REITS (+12%) and
Healthcare (+11%).
Above consensus earnings growth of 22% for 2010, growth
to slow in 2011
Corporate earnings growth is expected to jump by 21.7% in
2010, up from our forecast of 18% in the previous quarter.
However, as recovery normalizes, earnings growth for 2011
is expected to be 12.4% for 2011.
07 earnings to 2010 earnings (pre – exceptional)
Net Profit (S$m)
Sector 2007A 2008A 2009E 2010F
Basic Materials 136 275 245 275
Consumer Goods 1,618 3,143 3,165 3,690
Consumer Services 3,136 1,894 674 2,132
Financials 7,014 6,080 5,944 7,727
Health Care 135 156 175 196
Industrials 5,432 6,307 5,280 5,213
Oil & Gas 143 234 272 390
Real Estate 2,924 2,902 3,650 3,556
REITS 1,095 1,459 1,523 1,598
Technology 542 31 -30 -11
Telecom 4,186 3,919 4,238 4,390
Grand Total 26,362 26,401 25,137 29,155
Source: DBS Vickers
Page 42

Regional Equity Strategy 1Q 2010
Country Assessment
2010 earnings to surpass pre-crisis levels in 2007
These upgrades led to overall earnings (pre-exceptionals) for
2010 surpassing 2007’s pre-crisis earnings by 10%, on the
back of a full swing recovery in the economy, our projected
GDP growth at 6% for 2010 vs a decline of 1.9% in 2009.
However, including exceptional gains, net earnings for 2010,
at $29.1bn, fall short of 2007’s earnings of S$34bn.
capital goods were dragged down by the shipping sub-sector
and absence of new orders for shipyards. The key drag for
consumer services are discretionary spending, including travel
and leisure, which should turnaround in 2010. Technology
sector is affected by structural changes in Singapore, as it
struggles to maintain competitiveness vs the region and
China.
In addition to the sharp recovery supporting earnings growth,
another key factor for Singapore’s rebound in earnings
growth is acquisitions, specifically for Consumer Goods and
REITS sectors. Real estate’s pre- exceptional earnings are
driven by strong volume sales and rise in sale prices in 2009,
benefiting 2010 earnings while Banks’ resilience in earnings
is a result of lower provisions and non-performing loans
peaking.
Earnings shortfall in Industrial, technology and consumer
services. All major sectors have surpassed 2007’s earnings
(pre-exceptional) except for Industrial, Consumer Services and
Technology. Earnings traction in the industrial and consumer
services are slow, being late cycle plays. Industrials and
But provides upside potential – With only three segments to
catch up on earnings, we expect upgrade momentum to
slow, following last year’s wild swings. Potential upgrades
will come from : Industrial - lifted by stronger than expected
order wins for shipyards, as we expect a resurgence of order
flows for production rigs, while water sector will benefit from
more order wins from China and MENA. The key to upgrade
in Consumer Services sector lies in the aviation sector – wild
card in fuel hedging cost vs the recovery in load factor and
yields. Technology will benefit from stronger corporate and
capex spending given high utilization rates and low inventory
levels.
Earnings Estimates by Sector
Eanings Growth PER Div Yield
Sector 2009E 2010F 2011F
CAGR
09-11 2009E 2010F 2011F 2009E
Basic Materials -11.1 12.4 74.6 40.1 16.1 14.3 8.2 2.5
Consumer Goods 0.7 16.6 14.7 15.6 17.2 14.7 12.9 1.2
Consumer Services -64.4 216.3 20.5 95.2 64.7 20.5 17.0 1.5
Financials -2.2 30.0 13.4 21.4 17.1 13.2 11.6 3.5
Health Care 12.2 12.0 3.9 7.9 25.3 22.5 21.7 2.1
Industrials -16.3 -1.1 9.3 4.0 14.8 15.0 13.7 4.2
Oil & Gas 16.6 43.2 25.6 34.1 13.3 9.3 7.4 1.0
Real Estate 25.8 -2.6 40.3 16.9 15.6 16.0 11.4 1.1
REITS 3.5 5.6 2.3 3.9 16.0 15.2 14.8 6.2
Technology Loss Loss NM NM NM NM NM 2.8
Telecom 8.1 3.6 9.3 6.4 12.4 12.0 11.0 5.0
DBSV Coverage (Before EI) -4.9 16.1 16.5 16.3 17.1 14.7 12.7 3.1
DBSV Coverage (After EI) -10.1 19.4 16.2 17.7 17.6 14.7 12.7
STI DBSV Forecast Avg (Before EI) -15.4 21.7 12.4 17.0 17.6 14.5 12.8
STI DBSV Forecast Avg (Aft EI) -16.3 16.6 12.4 14.5 16.8 14.4 12.8
STI Consensus Avg -15.5 16.0 10.6 13.3 16.9 14.6 13.2
Source: DBS Vickers, Bloomberg
Page 43

Regional Equity Strategy 1Q 2010
Country Assessment
SENTIMENT
Capricorn effect will keep sentiment firm in early 2010.
Sentiment is upbeat, given the favourable backdrop for
equities : a) strong Asian currency vs weak US$ fuelling
liquidity into this region, b) low interest rate environment
with 10 year treasury bond yield at 2.5% c) economic
upswing remaining intact, d) strong momentum in earnings
recovery e) year end capricorn effect will keep the market
firm in early 2010.
OUTLOOK
Equity markets in a sweet spot but watch for potenital
headwinds
Heading into 2010, equities is in a sweet spot, with low
interest rates, weak US$ fuelling liquidity into this region,
economic recovery on track and earnings rebounding to precrisis
levels. For Singapore, several catalysts are in place with
strong macro fundamentals supporting equities. These
include a) the re-making of Singapore with the launch of
integrated resorts in 1Q10, b) population growth, job
creation and immigrants fueling domestic consumption and
asset prices c) Singapore government’s commitment to
provide fiscal stimulus to support growth. However, key
risks for the market include a) US$ trend b) interest rates
hikes c) GDP growth peaking, which could trigger a
correction.
Catalysts for Singapore market
a) Integrated Resorts - multiplier effects for the economy
The two integrated resorts when ready in 1Q 2010 will spur
multiple benefits for the economy. Universal Studio, part of
Genting Singapore, is expected to draw in 4.5m visitors a
year. When Universal Studio was first opened in Japan in
2001, it drew up to 11m visitors in its first year of operation,
while the other newly opened theme park in the region -
Disneyland Hong Kong - saw 5.2m visitors in its flagship year
back in 2005.
We have imputed higher tourist arrivals translating into hotel
and retail receipts (+15% in 2010 vs -5% in 2009) in our
GDP forecast for next year, but we might still see an upside
surprise. The integrated resorts are expected to add 1.5% to
Singapore’s GDP, via the services sector, and together with a
recovery in financial sector, will lead to services sector
growing by 6.6% in 2010, implying that 4.4% of the 6%
GDP growth comes from services sector. We expect tourist
arrivals to grow by 22% to 11m for 2010, up from 9m last
year. Singapore government’s long term target is for tourist
arrivals to hit 15m by 2017.
Multiple spin-off benefits are widespread, ranging from
gaming, hospitality, property, retail, media and transport
providers. In addition to gaming revenue of US$3bn, hotel
revenue will surge 43% while the two projects will create
direct (10,000 for each resort) and indirect jobs – totalling
60,000.
Job creation on the rise
Singapore economy’s resilience in the recent downturn is
demonstrated in its ability to regenerate. Unemployment
rate is kept at a low 3.2%, and in 3Q09, Singapore’s labour
market turanround with overall employment expanding by
14,000, reversing losses from the first two quarters -6200
(1Q09) and –7700 in 2Q09.
b) Domestic transformation in progress - en-route to 6.5m
population by 2027
Singapore's population reached 5m in June 2009 (+3.1%
yoy) – a surprise as this was achieved in a year when
Singapore was navigating through a deep economic
downturn. This underscores our belief that Singapore is
capable of attracting immigrants, backed by the
government’s efforts to remake Singapore. In a recent
survey by Gallup, Singapore emerged as the country with
the highest potential net migration index. In our base case
scenario, we project that a 6.5m population could be
reached in 2027 representing a growth rate of 1.5% p.a.
The impact from a rise in Singapore's population will be far
reaching, especially on land transport, property demand,
healthcare, and related manpower needs. We estimated that
ridership will rise by 3 folds to 4.8m daily rides by 2020, in
line with the expansion of the rail network. By then, rail
ridership should account for 50% of public transport,
fuelling a 9% growth in rail ridership per year. In property,
we estimate about 9,800 private housing, 14,000 HDB flats
are required, compared to historical average of 6800 private
units and 8300 HDB units. Healthcare sector will need 350
doctors, and 1,700 nurses each year or 3-4 new hospitals,
adding another 1700 beds on top of those planned by the
government. The long term structural domestic
transformation is beginning to take shape and will be
positive for corporates.
Page 44

Regional Equity Strategy 1Q 2010
Country Assessment
c) Restructuring for productivity – budget expectations
Looking ahead into the 2010 Budget, which is expected in
February 2010, the Government had recently indicated that
budget spending will be stepped up next year -- even after
2009's impressive S$20.5bn stimulus package. Finance
Minister Tharman Shanmugaratnam had indicated that
unlike the 2009 budget where help measures for companies
were broad-based, the 2010 budget will be more targeted
and zero in on helping with restructuring and productivity
growth.
In view of this, and the fact that a 6-month extension to the
Jobs Credit Scheme until June 2010 had already been
announced back in October 2009, we expect that the
government may begin putting in place incentives and
assistance schemes for SMEs as well as other corporates in
restructuring their businesses and better compete on the
international stage. We do not expect a further corporate tax
rate cut as the government had dished out 1% tax cut to
17% in the last budget. However, sectors that could expect
a leg-up are likely to be more manufacturing and
technology-based, which could benefit from R&D funding
and other measures that encourage greater
entrepreneurship.
Otherwise, we see the Government continuing its
infrastructure development, with investment in land
transport, education and healthcare. The continued
improvement in the island's mass transit network is expected
to benefit the current operators (SMRT and ComfortDelgro)
in the long-run whilst keeping the construction industry
buoyant going forward, even as contracts level off postcompletion
of the Integrated Resorts.
Also, with improved growth expected in 2010 coupled with
higher interest rates, we expect inflation (our forecasts is
3.2% for 2010) to return and the Government could also
start addressing this by way of individual and household
rebates, though growth dividends are not likely given that
the economy is expected to run a deficit in FY09 and
potentially into FY10 as well. We believe that such rebates
are not likely to spur strong domestic spending, but could
play a part in maintaining resilience for the retail landlords
that are tapped into the mass market, like FCT and CMT.
On the property front, the Government had announced back
in September that budget assistance measures related to the
residential market that were introduced in 2009 will no
longer be extended in the new year. However, given that
office and industrial rents are expected to continue seeing
downward pressure, we could expect that the property tax
rebate for commercial and industrial properties could
remain. Another rebate introduced for 2009 -- the road tax
rebate for buses and taxes -- is also expected to be
withdrawn, though the impact to SMRT and ComfortDelgro
is insignificant (around S$0.2m and S$0.7m respectively).
Key Risks
a) US$ volatility and ‘carry trades’. DBS currency strategist is
expecting global imbalances to drive the CNY to resume its
appreciation path in 2010. This will set the stage for further
Asian currency appreciation against the dollar, fuelling USD
‘carry trades’ leading to liquidity flows into emerging
markets and commodities. ‘Carry trades’ are an uneasy
alliance.
Although we expect the US$ depreciation to extend into
2010 (albeit at a moderate pace), our currency strategist is
mindful of exit strategies for the US$, the volatility created
by the reinstatement of US rate hike bets in 2H10, which
could lead to an unwinding of carry trades.
b) Counter inflationary measures and interest rates hike
While USD weakness results in ‘hot money’ flowing into
emerging and commodity markets – positive for equities and
commodities, a continuation of this trend could raise worries
about asset bubbles especially in the property markets and
inflation. Counter-inflationary measures by governments in
this region - examples are recent measures by China, Hong
Kong and Singapore to cool the property markets could
create headwinds for the market.
With the current low interest rate environment, the key risk
to watch is for interest rates hikes – DBS Economics team
forecast that this will start in 2H10, given slow recovery in
the US and weaker than high unemployment rate of 10.2%
in the US. Our Regional strategist does not expect a rising
interest rates environment to affect Asia in a big way as
valuations are lower now compared to the previous rate hike
cycles and the expectation for growth is only moderate.
However, investors will be more focussed on the
uncertainties(unwinding of US$ and spikes in bond yields)
brought about by the rate hike rather than the impact of the
rate hike itself, prompting a ‘sell on rumour, buy on news’
reaction for the market. Signals from Fed are thus important
to watch, but we do not expect any until the end of the QE
purchases of MBS.
Page 45

Regional Equity Strategy 1Q 2010
Country Assessment
c) GDP growth to peak in 1Q10, slower growth in 2H10.
One of the risks concluded from our quantitative model is
the peaking of the stock market along with the peaking of
GDP growth (% yoy). Our forecast for GDP to peak in 1Q10
implies that the STI could peak in 1Q10 (see chart),
establishing a temporary top. We had used this chart to call
for a market bottom in April 09, when GDP bottoms. We
remain positive about the first quarter, but will take the
market in strides after that.
Singapore year-on-year GDP growth vs year-on year %
change in STI
(%) (%)
100
80
60
40
20
0
-20
-40
-60
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Datastream, DBS
VALUATION
STI %YoY (L)
%YoY Real GDP growth (R)
15
10
5
0
-5
-10
-15
for most of the indicators except historical P/E, which is over
the top. In the event of a correction, support indicators
based on –1 standard deviation using forward P/E, equity risk
premium and dividend yield points to an average of 2350 on
the STI.
Singapore valuation range
Index
4500
4000
3500
3000
2500
2000
1500
1000
500
(2452)
(1538)
(3051)
(2167)
(4130)
Source: Datastream, DBS. The box range for each indicator shows
the indicative STI levels if it trades on +1SD, average and -1SD of the
respective indicator.
Historical calculations from 2001 to current. Data as of 7 Dec.
MSCI Singapore 12m fwd P/E (x)
(3145)
(2353) (2279) (2331)
(3705) (3764)
(1235)
Hist. P/E P/B DY F wd P/E ERP STI
Near term STI target of 3080, 12 month at 3500, rolled
forward to 16x 2011 earnings. The STI’s valuation is not
excessive at 14.5x(FY10F) and 12.8x(11F). Our near term
bottom up target of 3080 translates into 16x on 2010
earnings, in line with its historical average. On a 12 month
basis – and projecting earnings growth of 12% for 2011,
our STI target based on 16x 2011 earnings will be 3500.
26.0
24.0
22.0
20.0
18.0
16.0
14.0
(x)
While we are positive on the market in the long term, we do
not rule out a temporary top in 1Q10 that is in line with the
anticipated peaking of GDP growth in 1Q, and for the
markets to grind higher for a better 2H towards year-end,
interrupted by periods of significant volatility.
-1 standard deviation yields support at 2350
The chart below indicates the trading band of the STI at
minus one standard deviation, average, and plus one
standard deviation of the various indicators (x-axis: historical
P/E, P/B, DY, 12-month forward P/E and equity risk premium
(ERP), and STI level). The horizontal line shows where the
current STI level trades at, which are near the average level
12.0
10.0
8.0
6.0
90 91 92 94 95 96 98 99 00 02 03 04 06 07 09
MSCI Singapore - 12MTH FWD PE
Source: Datastream
Page 46

Regional Equity Strategy 1Q 2010
Country Assessment
STRATEGY
We will focus on themes that will sustain through next year –
a) integrated resorts benefiting the transport, hospitality and
high end property stocks and b) consumption plays
leveraging on China’s consumption growth and Singapore’s
population growth c) oil and gas riding on a resurgence of
orders for production platforms.
a) Banking on the launch of integrated resorts. Genting
Singapore, the key proxy is trading at EV/EBITDA of 18.5x
(2010), 13.3x (2011), higher than the average for Macau at
12x (2010), 10x (2011). Our target price of $1.30 for Genting
Singapore offers 10% upside. We would go for indirect
proxies – SMRT will benefit from a rise in rail ridership while
SATS’ will benefit from increased tourists arrivals, and
opportunity for providing ancillary services such as supply
of meals, food materials, laundry, to the integrated
resorts. SIA Engineering is another indirect proxy thriving
on increase in air traffic, as its aircraft maintenance work
hinges on growth in flights through the Changi Airport.
UOL is a well-diversified property group and will benefit from
the rise in tourist arrivals, as one third of its RNAV is in
hotels/retails assets, 1/3 in residential projects and 20% in
office sector.
b) oil and gas – riding on the resurgence of orders and
acquisitions
We believe the cyclical backdrop for oil and most
commodities should be favourable next year, on the back of
recovery in demand vs supply constraints and the US$
weakness. Our house view is for oil price to range between
USD70-90pbl next year, averaging at USD80pbl, vs current
level of USD70pbl. We expect a resurgence of orders, led by
an upturn in orders for production related projects, unlike
the previous cycle which was spurred by exploration rigs. The
financial crisis had led to indiscriminate stalling of production
projects despite strong cash flows generated by oil majors.
We like Sembcorp Marine, Swiber and PEC for a potential
resurgence in orders. For asset owners, Ezra and Mermaid
can potentially outperform via growth through acquisitions.
c) Asia’s tigers – consumption on the rise
The biggest story in 2010 is that even though Asia is still
smaller than the US (about 44% as big), Asia’s faster growth
rate will see it unseating the US as the biggest driver of
global growth. For every $1 of new demand generated by
the US, Asia will generate $1.02. China is a key driver of
Asia’s V shaped recovery and consumption growth in China
will remain a key theme in 2010. We would overweight
Consumer Goods and Consumer Services sector on the back
of the Asian consumption story. Wilmar is our top pick for
its rice and flour milling investments in China and should
benefit from resilience in Chinese demand for staple foods.
Closer home, Singapore’s population growth, bright outlook
for new job additions and wage increases, coupled with
influx of tourists and immigrants will spur domestic demand
for Consumer Services - land transport, retail and property.
We focus on high end property plays given that the gap
between Hong Kong and Singapore has widened, and this
sector should benefit from a recovery in demand from
foreigners, the launch of integrated resorts will create
awareness for Singapore. SMRT is the key beneficiary riding
on the expansion in rail network, and Singapore’s potential
population growth, hitting 6.5m in 20 years.
Stock Picks
FYE Mkt Price Target ROE
Company Cap (S$) Price % PE (x) EV/EBITDA (x) P/BV (x) Div Yld (%)
(S$m) 10-Dec (S$) Upside Rcmd 10F 11F 10F 11F 10F 11F 10F 09E
Sembcorp Marine Dec 7,457 3.60 4.26 18% Buy 13.9x 13.4x 7.8x 7.2x 4.0x 3.4x 3.6% 35%
SIA Engineering * Mar 3,400 3.15 3.50 11% Buy 13.9x 12.7x 9.8x 9.0x 2.5x 2.3x 5.1% 17%
Singapore Airports Terminal * Mar 2,753 2.54 3.00 18% Buy 13.6x 12.0x 7.5x 6.5x 1.8x 1.7x 5.5% 12%
SMRT * Mar 2,731 1.80 2.08 16% Buy 15.1x 14.3x 7.8x 7.2x 3.3x 3.1x 4.7% 24%
UOL Group Dec 2,993 3.82 4.52 18% Buy 9.2x 8.8x 9.7x 10.6x 0.7x 0.7x 1.7% 13%
Wilmar Dec 40,439 6.33 7.30 15% Buy 16.3x 14.7x 11.3x 10.0x 2.3x 2.0x 1.2% 17%
Source: DBS Vickers
*FY11 & FY12 estimate
Page 47

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Banks & Finance
Overweight
With NPL and provisions taken care of, we expect a clearer translation of the end of
the provisioning cycle to banks' bottomline. Aside from slightly higher NIM (+2bps)
in 2010 owing to a SIBOR uptick and loan growth, lower provisions would be the
key driver for 2010 earnings growth of 29%. We have imputed close to 50%
decline in provision charge-off rates for 2010 from 2009 levels. Build up of noninterest
income would be crucial ammunition for operating profits. We believe loan
growth will start to recover towards 2H10, lagging the economy which is expected
to pick up in 4Q09 and the need for capital for investment and expansion will
increase as excess capacity starts to be utilized. We project 2010 loan growth to be
stronger, at 5% compared to anemic low single digit levels in 2009. We believe
banks, being large cap and liquid stocks, will continue to spur the STI. We prefer
UOB (Buy, TP S$21.20) for its higher long-term ROE with earnings coming mainly
from its core banking business, and strong provision recovery in 2010. OCBC (Buy,
TP S$9.50) on the other hand could see a 5% earnings surprise in 2010-11 with
IAPB's inclusion and ROE could rise to 13%.
UOB
Consumer Goods
Overweight
We expect plantation companies to book better earnings in 1Q10, as tightness in
global soybean oil supply should support strong soybean and palm oil prices.
We expect strong exports to India on continued zero import duties (as delayed
monsoon this year had caused rising food inflation); and we expect shipments for
Chinese New Year requirements to pick up next month. On the other hand, we
expect production to drop markedly in January and trough in February 2010 – before
the start of the Brazilian and Argentine soybean harvesting season. These factors are
fundamentally bullish near term price indicators. Wilmar International is our top pick
for its rice and flour milling investments (including a Brisbane port), which should
benefit from resilience in Chinese demand for staple foods. These divisions should
have meaningful growth prospects, given huge Chinese market potentials. We also
like First Resources, as its low cost structure and rising prices over the next quarter
have the most leverage amongst peers.
Wilmar International, First
Resources, China Fishery
For consumer staples, we see substantial earnings growth potential in China Fishery
in 1Q10 as well, mainly driven by a strong rebound of fishmeal prices and the
deployment of its flagship plant vessel in South Pacific. We expect the plant vessel to
reach its working waters near Indonesia in the S. Pacific by the end of 2009, and its
deployment is expected to exponentially optimize the operating efficiency of the
existing 12 trawlers in the area from 1Q10 onwards.
Consumer Services
Overweight
We retain our overweight rating on Consumer Services, being largely late cycle
recovery plays and that it has lagged the broader market since Mar'09. We see land
transport operators benefitting from higher ridership arising from the government's
push towards public transport usage, with rail continuing to inch up in its dominance
in this category. In this space, our preference is for SMRT given its resilient earnings,
coupled with contribution from retail rental and advertising revenue. Furthermore,
we like the fact that it has locked in its electricity contract till Sep'10, providing more
certainty from a cost perspective. We also believe there could be newsflow and
speculation pertaining to dates for Circle Line Stage 1 & 2 opening (11 stations, from
Dohby Ghaut through Esplanade/Promenade to Bartley), thereby stirring interest in
SMRT (which is the operator for Circle Line). With the impending opening of IR and
expected inflow of tourists arrivals, we also like SATS as it will be one of the key
beneficiaries arising from air travel recovery (but without direct oil price exposure to
investors) and potential provision of additional services (such as food catering
contracts, meals, food materials, laundry services, etc).
SMRT, SATS
Page 48

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Industrials
Neutral
We expect the resurgence in order flow to be led by production-related contracts in
1H10, which are the bottlenecks for oil companies’ cash flows after a pause in
capex in 2009. Our top picks are Sembcorp Marine (TP: S$4.26), PEC (S$0.88) and
Swiber (S$1.24).
Key dampener in this sector is dry bulk shipping, as we expect freight rates to
remain volatile in 2010 due to China’s interference. Any rebound will trigger
reactionary lower ship demolitions, more new shipbuilding orders, and lesser order
cancellations. These collective short-term reactions by ship owners and shipyards
are expected to lead to correction in freight rates. We expect this vicious cycle to
affect freight rates in 2010, with downward bias, which will in turn prolong the
shipbuilidng downturn for China yards.
With the aviation sector recovery well under way and higher tourist arrivals
expected in Singapore following the opening of the IRs in early 2010, we expect
demand for aircraft maintenance services to stage a strong recovery in 2010,
benefiting home-grown MRO service providers like SIA Engineering and ST
Engineering. Elsewhere, the prospects for the water sector remain bright as well,
with Hyflux steadily building its repuatation in the global desalination market and
finding alternative funding platforms to finance its growth. Epure is our other top
pick in the sector for its attractive valuations and execution track record.
Sembcorp Marine, Swiber,
SIA Engineering, Epure
Oil & Gas
Overweight
Oil and gas. Growth-by-acquisition of offshore assets. We believe that companies
that raised equity early in 2009 should benefit as the industry recovers. They are
well positioned to purchase in 1H 2010: 1) Distressed offshore vessels, and 2)
Smaller sized companies with the required skill sets, but weakened financials. Our
top picks for this theme are Ezra (TP:S$ 2.77) and Mermaid (S$1.11).
Ezra, Mermaid
Property
Neutral
While the sector is no longer cheap at 0.9x P/RNAV and 1.3x P/BV, we believe that
there is still value to be found in the mid/small-caps. Going into 2010, stock selection
is key and we advise investors to go for high-end residential developers over office
landlords as we expect that a recovery in the former is a nearer-term catalyst. Our
preference for the mid/small-caps is also premised on the fact that any landbanking
activities or ASP outperformance (two catalysts we see going into 2010) will have a
greater percentage impact on their RNAVs. Our top picks amongst residential
developers are SC Global, Ho Bee and Wing Tai.
SC Global, Ho Bee, Wing
Tai, UOL Group
For the office landlords, we believe the sector could see signs of a trend reversal
possibly later in the year, and we maintain a more neutral view. Our top pick
amongst office names would be diversified play UOL Group, which stands to benefit
from an improving hotel outlook and positive knock-on impact from an increased
value in its equity portfolio, aside from offering exposure to both the office and
residential sectors.
Page 49

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Reits
Neutral
The REIT sector yields have normalized back to a market cap weighted 7.4% FY10F
DPU, a 480 bps above the 10 year bond rate, which is in line with historical levels.
Hence, looking ahead, the sector is likely to trade in line with the broader market
with a total projected total return of 15.6%. Balance sheet has now been
recapitalized with the sector's average gearing down to 31%. We believe focus will
be on the REITs ability to grow both organically or through acquisitions. As such,
any further cash calls will likely to come turn opportunistic with a focus towards
expansion. Outperformance will hinge on the REITs ability to deliver superior
growth compared to its other peers. We continue to favor the hospitality & retail
sectors their healthy organic growth potential, fueled by the anticipated rebound in
tourism and retail sales post the opening of the 2 IRs. The industrial sector is also
attractive given their (i) relatively higher acquisition yields for industrial assets due to
their long lease profiles and (ii) the ability for industrial reits to undertake
development projects for growth. Our preferred picks in the sector include ART,
Suntec, AIT, MLT and FCT. Potential risk include an earlier-than-anticipated interest
rate hike.
ART, Suntec, AIT, MLT, FCT
Technology
Neutral
We are maintaining our Neutral stance on the Tech sector as we believe stock
valuations have mostly normalized to build in earnings recovery. Looking ahead, we
should see still see continued recovery into 1Q10 given the low base effect year-ago
and little pressure from a benign inventory channel. In fact, there could be some
pockets of rush orders for popular items like smartphones and netbooks if retailers
and OEMs begin to restock post year- end sellout. However, the scope for upside is
unlikely to be significant as Q1 is afterall a weak season and companies would still
be cautious in restoring massively. For now, our pick would be Venture as the stock
offers most upside among our universe and pays a decent yield of 5%.
Venture
Telecom
Underweight
We underweight the sector as we see competitive intensity going up rather than
coming down in 2010. M1 and StarHub have announced their entry into the iPhone
arena, and forced SingTel to adjust pricing plans downwards. The higher bundled
data usage may put pressure on capex, especially with M1 starting the 10
GB/month data trend. While the iPhone move may help M1 and StarHub preserve
market share better, we expect the margins to come under pressure in subsequent
quarters owing to iPhone subsidy, as was the case with SingTel, when it launched
iPhone. Elsewhere, we are concerned about (a) rising pay TV competition in the
sector as SingTel has ambitious cross-selling plans for its new pay TV subscribers
and (b) National Broadband Network (NBN) leading to the entry of retail players in
1Q10.
-
Page 50

Regional Equity Strategy 1Q 2010
Country Assessment
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Page 51

Regional Equity Strategy 1Q 2010
Sembcorp Marine
Bloomberg: SMM SP | Reuters: SCMN.SI
BUY S$3.60 STI : 2,781.86
Price Target : 12-month S$ 4.26
Potential Catalyst: Stronger new order flows in 2010
Analyst
Wee Lee CHONG CFA +65 6398 7971
weelee@dbsvickers.com
Price Relative
6.10
5.10
4.10
3.10
2.10
1.10
S$
Relative Index
2005 2006 2007 2008 2009
Sem bcorp M arine (LH S) R e la tive ST I IN D E X (R H S)
Forecasts and Valuation
FY Dec (S$ m) 2008A 2009F 2010F 2011F
Turnover 5,064 5,697 5,851 5,853
EBITDA 634 686 718 743
Pre-tax Profit 545 629 669 694
Net Profit 430 502 536 556
Net Pft (Pre Ex.) 474 510 536 556
EPS (S cts) 20.8 24.3 25.9 26.8
EPS Pre Ex. (S cts) 22.9 24.6 25.9 26.8
EPS Gth Pre Ex (%) 47 8 5 4
Diluted EPS (S cts) 20.4 23.8 25.4 26.4
Net DPS (S cts) 11.0 12.1 12.9 13.4
BV Per Share (S cts) 63.6 76.9 90.6 104.5
PE (X) 17.3 14.8 13.9 13.4
PE Pre Ex. (X) 15.7 14.6 13.9 13.4
P/Cash Flow (X) 17.3 13.6 13.0 12.7
EV/EBITDA (X) 8.9 8.3 7.8 7.2
Net Div Yield (%) 3.1 3.4 3.6 3.7
P/Book Value (X) 5.7 4.7 4.0 3.4
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 28.7 34.5 30.9 27.5
Earnings Rev (%): - - -
Consensus EPS (S cts): 25.7 24.5 22.2
ICB Industry : Industrials
ICB Sector: Industrial Engineering
Principal Business: Principal activities are ship repair, shipbuilding,
ship conversion rig building and offshore engineering.
Source of all data: Company, DBS Vickers, Bloomberg
219
199
179
159
139
119
99
79
Orders coming back
• Expect SMM to outperform its peers in 2010.
• The anticipated flow of new orders in the coming
year will be a key price catalyst.
• Possible upside surprise to profit margins, due to
delayed recognition for some projects.
• Maintain BUY rating on SMM, with 18% price
upside potential to our SOTP target price of
S$4.26.
New order flows in 2010 to drive the share price up.
We expect SMM’s share price to outperform its peers in
2010, driven by the anticipated flow of new orders. SMM
should benefit from offshore conversion/newbuild contracts
in 1H 2010, and Petrobras’ capex in mid-2010. SMM offers
better earnings visibility for its offshore conversion and rig
construction business, backed by its S$6.7bn order book.
We believe that earnings have yet to peak, if orders do
recover as expected in 2010.
SMM to remain cost competitive. SMM is also
expected to remain relatively more cost competitive, as it
could gain further operational efficiency from its focus on
the Friede & Goldman Ex-D design for semisubmersible
rigs; amidst clients’ likely request for lower newbuild costs
in 2010.
SMM may yet spring a surprise on profit margins in
2010. SMM is likely to have delayed the profit recognition
in 2009 for contracts relating to semisubmersible rigs
from Petromena (Petrorig II and Petrorig III), and jackup
rigs from Petroprod and Seadrill (West Elara), in favor of
conservative accounting. We believe that this may result
in higher operating margins, vs. that currently assumed in
our earnings model.
At A Glance
Issued Capital (m shrs) 2,071
Mkt. Cap (S$m/US$m) 7,457 / 5,367
Major Shareholders
Sembcorp Industries Ltd (%) 61.1
Free Float (%) 38.9
Avg. Daily Vol.(‘000) 4,430
Page 52
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: JS / sa: JC

Regional Equity Strategy 1Q 2010
Sembcorp Marine
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 5,064 5,697 5,851 5,853 Net Fixed Assets 698 691 684 676
Cost of Goods Sold (4,409) (4,960) (5,075) (5,061) Invts in Associates & JVs 270 279 300 326
Gross Profit 655 737 776 792 Other LT Assets 209 209 209 209
Other Opng (Exp)/Inc (153) (137) (155) (151) Cash & ST Invts 2,054 2,077 2,162 2,458
Operating Profit 502 599 621 640 Inventory 835 1,036 1,064 1,064
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 480 670 688 689
Associates & JV Inc 65 20 30 36 Other Current Assets 66 66 66 66
Net Interest (Exp)/Inc 22 17 18 18 Total Assets 4,612 5,029 5,174 5,487
Exceptional Gain/(Loss) (44) (8) 0 0
Pre-tax Profit 545 629 669 694 ST Debt 202 202 202 202
Tax (94) (108) (114) (118) Other Current Liab 2,909 3,033 2,874 2,879
Minority Interest (21) (18) (19) (20) LT Debt 20 20 20 20
Preference Dividend 0 0 0 0 Other LT Liabilities 120 120 120 120
Net Profit 430 502 536 556 Shareholder’s Equity 1,318 1,592 1,877 2,165
Net Profit before Except. 474 510 536 556 Minority Interests 42 60 80 100
EBITDA 634 686 718 743 Total Cap. & Liab. 4,612 5,029 5,174 5,487
Sales Gth (%) 12.2 12.5 2.7 0.0 Non-Cash Wkg. Capital (1,528) (1,261) (1,056) (1,060)
EBITDA Gth (%) 27.4 8.2 4.6 3.6 Net Cash/(Debt) 1,832 1,854 1,940 2,235
Opg Profit Gth (%) 43.8 19.5 3.6 3.1
Net Profit Gth (%) 78.4 16.8 6.6 3.8
Effective Tax Rate (%) 17.2 17.2 17.0 17.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 545 629 669 694 Gross Margins (%) 12.9 12.9 13.3 13.5
Dep. & Amort. 71 66 67 69 Opg Profit Margin (%) 9.9 10.5 10.6 10.9
Tax Paid (43) (167) (108) (114) Net Profit Margin (%) 8.5 8.8 9.2 9.5
Assoc. & JV Inc/(loss) (65) (20) (30) (36) ROAE (%) 28.7 34.5 30.9 27.5
Chg in Wkg.Cap. 1,398 (208) (211) 0 ROA (%) 9.5 10.4 10.5 10.4
Other Operating CF 11 0 0 0 ROCE (%) 20.6 26.8 24.0 21.7
Net Operating CF 1,917 300 387 614 Div Payout Ratio (%) 53.0 50.0 50.0 50.0
Capital Exp.(net) (96) (60) (60) (60) Net Interest Cover (x) NM NM NM NM
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 1.1 1.2 1.1 1.1
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 33.6 36.9 42.4 42.9
Div from Assoc & JV 10 10 10 10 Creditors Turn (avg days) 127.1 126.5 120.7 114.0
Other Investing CF 1 0 0 0 Inventory Turn (avg days) 100.7 69.8 76.5 77.8
Net Investing CF (85) (50) (50) (50) Current Ratio (x) 1.1 1.2 1.3 1.4
Div Paid (215) (228) (251) (268) Quick Ratio (x) 0.8 0.8 0.9 1.0
Chg in Gross Debt (220) 0 0 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues (82) 0 0 0 Net Debt/Equity ex MI (X) (1.4) (1.2) (1.0) (1.0)
Other Financing CF (2) 0 0 0 Capex to Debt (%) 43.1 27.0 27.0 27.0
Net Financing CF (518) (228) (251) (268) Z-Score (X) 2.3 2.3 3.5 3.7
Net Cashflow 1,314 23 86 296 N. Cash/(Debt)PS (S cts) 88.4 89.5 93.7 107.9
Opg CFPS (S cts) 25.1 24.5 28.9 29.6
Free CFPS (S cts) 87.9 11.6 15.8 26.7
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown / Key Assumptions
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009 FY Dec 2008A 2009F 2010F 2011F
Turnover 1,617 1,363 1,498 1,520 Revenues (S$ m)
Cost of Goods Sold (1,356) (1,217) (1,305) (1,314) Ship repair 795 735 742 824
Gross Profit 262 146 193 207 Conversion/Offshore 1,354 1,580 2,034 2,835
Other Oper. (Exp)/Inc (93) (12) (26) (33) Rig Building (newbuilds) 2,840 3,307 3,001 2,118
Operating Profit 169 135 167 174 Shipbuilding (newbuilds) 2 0 0 0
Other Non Opg (Exp)/Inc 0 0 0 0 Others 73 75 74 75
Associates & JV Inc (43) 15 12 8 Total 5,064 5,697 5,851 5,853
Net Interest (Exp)/Inc 6 1 7 1
Exceptional Gain/(Loss) (44) 0 (8) 0
Pre-tax Profit 88 151 179 183 Key Assumptions
Tax (11) (24) (33) (31) Order wins (S$ m) 2,000 5,000 5,500
Minority Interest (8) (7) (8) (7)
Net Profit 69 120 138 145
Net profit bef Except. 113 120 146 145
EBITDA 145 168 198 200
Sales Gth (%) 41.4 (15.7) 9.8 1.5
EBITDA Gth (%) (26.0) 16.4 17.3 1.3
Opg Profit Gth (%) 18.7 (20.2) 23.9 4.4
Net Profit Gth (%) (50.7) 73.1 14.9 4.8
Gross Margins (%) 16.2 10.7 12.9 13.6
Opg Profit Margins (%) 10.4 9.9 11.1 11.4
Net Profit Margins (%) 4.3 8.8 9.2 9.5
Source: Sembcorp Marine, DBS Vickers
Page 53

Regional Equity Strategy 1Q 2010
SIA Engineering
Bloomberg: SIE SP | Reuters: SIAE.SI
BUY S$3.15 STI : 2,781.86
Price Target : 12-Month S$ 3.50 (Prev S$ 3.20)
Potential Catalyst: M&A, capacity addition by airlines
Analyst
Suvro Sarkar +65 6398 7973
suvro@dbsvickers.com
Price Relative
5.40
4.90
4.40
3.90
3.40
2.90
2.40
1.90
1.40
S$
2005 2006 2007 2008 2009
SIA Engineering (LHS) R e la tive ST I IN D EX (R H S)
Forecasts and Valuation
R elativ e In d e x
FY Mar (S$ m) 2009A 2010F 2011F 2012F
Turnover 1,045 980 1,061 1,116
EBITDA 328 271 308 331
Pre-tax Profit 301 243 280 305
Net Profit 261 212 244 266
Net Pft (Pre Ex.) 261 212 244 266
EPS (S cts) 24.2 19.7 22.7 24.7
EPS Pre Ex. (S cts) 24.2 19.7 22.7 24.7
EPS Gth Pre Ex (%) 2 (19) 15 9
Diluted EPS (S cts) 24.0 19.5 22.5 24.5
Net DPS (S cts) 16.0 16.0 16.0 18.0
BV Per Share (S cts) 114.0 119.5 128.1 138.6
PE (X) 13.0 16.0 13.9 12.7
PE Pre Ex. (X) 13.0 16.0 13.9 12.7
P/Cash Flow (X) 26.1 30.6 24.9 22.6
EV/EBITDA (X) 9.3 11.3 9.8 9.0
Net Div Yield (%) 5.1 5.1 5.1 5.7
P/Book Value (X) 2.8 2.6 2.5 2.3
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 22.1 16.9 18.3 18.5
Earnings Rev (%): - -
Consensus EPS (S cts): 22.8 25.3
ICB Industry : Industrials
ICB Sector: Industrial Transportation
Principal Business: Provision of aviation maintenance, repair and
overhaul services
Source of all data: Company, DBS Vickers, Bloomberg
209
189
169
149
129
109
89
69
More wings in this recovery
• Continued economic recovery, supported by
upcoming IRs, to drive steady reversal of fortunes
• Flight numbers at Changi continue to grow, line
maintenance may provide upside surprises
• Limited downside risk to earnings – maintain
BUY; 15% total return upside to our TP of S$3.50
Aviation upturn on track. Both SIA’s Oct’09 operating
numbers (81.1% load factor) as well as latest figures from
IATA (global air travel demand up 6% from lows in March’09)
indicate that the aviation industry seems to have bottomed out
sometime in April-May this year and things are well on their
way up –– driven by the economic recovery.
Singapore IRs to provide the much-needed boost. The
targeted opening of the Integrated Resorts in 1Q-2010 should
bring more cheer to airlines flying into Singapore, as visitor
numbers are expected to shoot up by 20% over the next two
years. As SIA looks to add capacity and benefit from this slow
but sure upturn, SIE would stand to gain earlier – as it
performs checks and modifications on fleet being put back
into service. Increasing number of LCC flights at Changi will
be the other key driver, benefiting line maintenance activities.
Low risk to earnings. SIE’s 2Q10 numbers once again proved
the resilience of the business model as operating margins
rebounded sharply, in line with higher volumes. Line
Maintenance could still surprise on the upside in FY10-11 as
airport statistics have shown a healthy 2-3% y-o-y growth in
flight movements at Changi despite the industry downturn.
Valuations still not over the top. While the stock has
outperformed the STI index by about 15% since our upgrade
in October, we believe there is still room for further upside as
the aviation recovery story gains more momentum on the back
of higher tourist arrivals. Our TP is revised to S$3.50, as we roll
over our valuations to FY11. Trading at a forward PE of 14x,
SIE valuation still compares favourably with HAECO (15x FY10)
and STE (20x FY10). In addition, it promises a relatively secure
5% dividend yield to investors.
At A Glance
Issued Capital (m shrs) 1,079
Mkt. Cap (S$m/US$m) 3,400 / 2,447
Major Shareholders
Singapore Airlines Ltd (%) 80.6
Free Float (%) 19.4
Avg. Daily Vol.(‘000) 507
Page 54
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: JS / sa: JC

Regional Equity Strategy 1Q 2010
SIA Engineering
Income Statement (S$ m) Balance Sheet (S$ m)
FY Mar 2009A 2010F 2011F 2012F FY Mar 2009A 2010F 2011F 2012F
Turnover 1,045 980 1,061 1,116 Net Fixed Assets 313 321 328 336
Cost of Goods Sold (933) (895) (946) (986) Invts in Associates & JVs 530 589 650 712
Gross Profit 113 85 114 130 Other LT Assets 21 21 21 21
Other Opng (Exp)/Inc 0 0 0 0 Cash & ST Invts 373 371 404 454
Operating Profit 113 85 114 130 Inventory 84 98 106 112
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 82 98 106 112
Associates & JV Inc 173 144 151 158 Other Current Assets 99 99 99 99
Net Interest (Exp)/Inc 15 15 15 16 Total Assets 1,502 1,597 1,713 1,845
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 301 243 280 305 ST Debt 1 1 1 1
Tax (37) (29) (34) (37) Other Current Liab 221 254 277 292
Minority Interest (3) (2) (2) (2) LT Debt 0 0 0 0
Preference Dividend 0 0 0 0 Other LT Liabilities 25 25 25 25
Net Profit 261 212 244 266 Shareholder’s Equity 1,229 1,289 1,381 1,494
Net Profit before Except. 261 212 244 266 Minority Interests 27 29 31 33
EBITDA 328 271 308 331 Total Cap. & Liab. 1,502 1,597 1,713 1,845
Sales Gth (%) 3.5 (6.2) 8.2 5.2 Non-Cash Wkg. Capital 44 41 34 30
EBITDA Gth (%) 9.3 (17.4) 13.6 7.6 Net Cash/(Debt) 372 370 403 453
Opg Profit Gth (%) 9.4 (24.6) 34.8 14.0
Net Profit Gth (%) 2.7 (18.6) 15.2 8.9
Effective Tax Rate (%) 12.4 12.0 12.0 12.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Mar 2009A 2010F 2011F 2012F FY Mar 2009A 2010F 2011F 2012F
Pre-Tax Profit 301 243 280 305 Gross Margins (%) 10.8 8.7 10.8 11.7
Dep. & Amort. 43 43 43 43 Opg Profit Margin (%) 10.8 8.7 10.8 11.7
Tax Paid (20) (19) (29) (34) Net Profit Margin (%) 24.9 21.6 23.0 23.9
Assoc. & JV Inc/(loss) (173) (144) (151) (158) ROAE (%) 22.1 16.9 18.3 18.5
Chg in Wkg.Cap. (58) (7) 2 2 ROA (%) 17.9 13.7 14.8 15.0
Other Operating CF (6) 0 0 0 ROCE (%) 8.1 5.7 7.2 7.7
Net Operating CF 87 116 145 157 Div Payout Ratio (%) 66.2 81.3 70.5 72.9
Capital Exp.(net) (74) (50) (50) (50) Net Interest Cover (x) NM NM NM NM
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 0.7 0.6 0.6 0.6
Invts in Assoc. & JV 0 (20) (20) (20) Debtors Turn (avg days) 30.3 33.5 35.1 35.6
Div from Assoc & JV 127 105 110 116 Creditors Turn (avg days) 88.8 91.3 94.3 96.4
Other Investing CF 4 0 0 0 Inventory Turn (avg days) 29.9 39.0 41.2 42.1
Net Investing CF 57 35 40 46 Current Ratio (x) 2.9 2.6 2.6 2.6
Div Paid (226) (173) (172) (172) Quick Ratio (x) 2.0 1.8 1.8 1.9
Chg in Gross Debt 1 0 0 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 17 20 20 20 Net Debt/Equity ex MI (X) (0.3) (0.3) (0.3) (0.3)
Other Financing CF 1 0 0 0 Capex to Debt (%) 9,250.0 6,250.0 6,250.0 6,250.0
Net Financing CF (208) (153) (152) (152) Z-Score (X) 7.7 7.1 9.3 8.8
Net Cashflow (65) (2) 33 50 N. Cash/(Debt)PS (S cts) 34.5 34.3 37.4 42.0
Opg CFPS (S cts) 13.4 11.5 13.2 14.4
Free CFPS (S cts) 1.2 6.1 8.8 9.9
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown / Key Assumptions
FY Mar 3Q2009 4Q2009 1Q2010 2Q2010 FY Mar 2009A 2010F 2011F 2012F
Turnover 270 246 244 248 Revenues (S$ m)
Cost of Goods Sold (241) (219) (232) (213) Base maintenance 562 483 536 583
Gross Profit 29 27 12 35 Line maintenance 370 396 404 412
Other Oper. (Exp)/Inc 0 0 0 0 Fleet management 113 101 121 121
Operating Profit 29 27 12 35
Other Non Opg (Exp)/Inc 0 0 0 0 Total 1,045 980 1,061 1,116
Associates & JV Inc 42 48 36 32
Net Interest (Exp)/Inc 3 2 4 4 Cost Breakdown (S$ m)
Exceptional Gain/(Loss) 0 0 0 0 Staff Costs 430 422 437 452
Pre-tax Profit 74 77 52 71 Materials 230 216 233 246
Tax (10) (11) (7) (10) Overheads 231 216 233 246
Minority Interest (1) (1) 0 (1) Depreciation 43 43 43 43
Net Profit 63 66 45 61
Net profit bef Except. 63 65 45 61 Total 933 895 946 986
EBITDA 82 85 58 77 Costs as a % of Sales (%)
Staff Costs 41.1 43.0 41.2 40.5
Sales Gth (%) (3.3) (9.0) (0.7) 1.6 Materials 22.0 22.0 22.0 22.0
EBITDA Gth (%) (9.3) 4.3 (32.1) 32.6 Overheads 22.1 22.0 22.0 22.0
Opg Profit Gth (%) (26.7) (9.2) (53.9) 185.4 Depreciation 4.1 4.3 4.0 3.8
Net Profit Gth (%) (14.2) 4.0 (31.1) 35.5
Gross Margins (%) 10.9 10.9 5.0 14.1 Total 89.2 91.3 89.2 88.3
Opg Profit Margins (%) 10.9 10.9 5.0 14.1 Key Assumptions
Net Profit Margins (%) 23.3 26.6 18.5 24.6 Total manhours capacity (m) 3 3 4 4
Utilisation rate (%) 85 75 75 80
Revenue per manhour ($m) 197 187 191 194
Source: Company, DBS Vickers
Page 55

Regional Equity Strategy 1Q 2010
Singapore Airport Terminal Svcs
Bloomberg: SATS SP | Reuters: SIAT.SI
BUY S$2.54 STI : 2,781.86
Price Target : 12-Month S$ 3.00
Potential Catalyst: Air travel recovery, contract wins
Analyst
Andy SIM CFA +65 6398 7969
andysim@dbsvickers.com
Price Relative
3.50
3.00
2.50
2.00
1.50
1.00
S$
R e la tiv e In d e x
2005 2006 2007 2008 2009
Singapore Airport Term inal Services (LHS) R elative STI IN D EX (R H S)
Forecasts and Valuation
FY Mar (S$ m) 2009A 2010F 2011F 2012F
Turnover 1,062 1,476 1,581 1,666
EBITDA 248 314 347 382
Pre-tax Profit 184 218 252 286
Net Profit 147 174 202 229
Net Pft (Pre Ex.) 147 174 202 229
EPS (S cts) 13.6 16.1 18.7 21.2
EPS Pre Ex. (S cts) 13.6 16.1 18.7 21.2
EPS Gth Pre Ex (%) (18) 19 16 14
Diluted EPS (S cts) 13.6 16.1 18.7 21.2
Net DPS (S cts) 10.0 12.0 14.0 15.0
BV Per Share (S cts) 129.5 135.7 142.4 149.6
PE (X) 18.7 15.7 13.6 12.0
PE Pre Ex. (X) 18.7 15.7 13.6 12.0
P/Cash Flow (X) 14.5 11.8 10.5 9.5
EV/EBITDA (X) 10.9 8.6 7.5 6.5
Net Div Yield (%) 3.9 4.7 5.5 5.9
P/Book Value (X) 2.0 1.9 1.8 1.7
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 10.6 12.2 13.4 14.5
Earnings Rev (%): - - -
Consensus EPS (S cts): 16.4 18.3 20.0
ICB Industry : Industrials
ICB Sector: Industrial Transportation
Principal Business: SATS is a provider of integrated ground handling
and infreight catering services at Singapore Changi Airport.
Source of all data: Company, DBS Vickers, Bloomberg
207
187
167
147
127
107
87
67
47
Beneficiary of travel and IR
• Beneficiary of air travel recovery
• Positive impact from opening of IRs
• Offers exposure to air travel recovery, without
implications from oil price movements
• BUY, TP: S$3.00 (23% total return upside)
Beneficiary of further air travel recovery. Air passenger
and cargo traffic are continuing on their recovery track.
Latest statistics from Changi Airport show that number of
flights and passengers in October continued to grow, rising
6.7% and 6% yoy respectively. Growth in air freight
handled at Changi Airport turned positive, registering a 2%
yoy growth, a sharp reversal from Sept’s 12.5%
contraction.
..3 rd ground handling license a testament to recovery
trend. The interest in Changi Airport’s 3 rd ground handling
shows potential operators’ optimism in the air travel
recovery, which is just about 9 months after Swissport’s exit
earlier in ’09. In our view, while there would be challenges
to SATS, we do not see any major impact on the latter’s
operations or prospects.
Benefit from opening of Integrated Resorts (IR). We
expect SATS to benefit from the opening of the two IRs in
1Q10, arising from increased tourists arrivals, as well as
opportunity for providing ancillary services such as supply of
meals, food materials, laundry, and so on.
BUY, TP S$3.00. We believe the markets have yet to fully
appreciate SATS potential as a merged entity post-SFI
acquisition, as well as benefiting from air travel recovery
and opening of IRs. We also like SATS, given that it provides
exposure to the travel recovery theme without significant
exposure from oil price. Valuations are not excessive, given
its growth profile (CAGR 16%) coupled with a reasonable
prospective dividend yield of c.4.7% (74% payout
assumed) and its net cash position. TP S$3.00 based on
average of 13x PE and DCF (WACC 7.6%).
At A Glance
Issued Capital (m shrs) 1,084
Mkt. Cap (S$m/US$m) 2,753 / 1,982
Major Shareholders
Temasek Holdings (%) 44.2
Free Float (%)
55.8
Avg. Daily Vol.(‘000) 4,344
Page 56
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: JS / sa: JC

Regional Equity Strategy 1Q 2010
Singapore Airport Terminal Services
Income Statement (S$ m) Balance Sheet (S$ m)
FY Mar 2009A 2010F 2011F 2012F FY Mar 2009A 2010F 2011F 2012F
Turnover 1,062 1,476 1,581 1,666 Net Fixed Assets 608 605 573 540
Cost of Goods Sold 0 0 0 0 Invts in Associates & JVs 334 365 399 435
Gross Profit 1,062 1,476 1,581 1,666 Other LT Assets 508 482 455 429
Other Opng (Exp)/Inc (891) (1,284) (1,362) (1,416) Cash & ST Invts 298 117 217 324
Operating Profit 171 192 218 250 Inventory 57 82 88 93
Other Non Opg (Exp)/Inc (10) 0 0 0 Debtors 124 185 198 208
Associates & JV Inc 22 32 34 36 Other Current Assets 122 122 122 122
Net Interest (Exp)/Inc 0 (6) (1) (1) Total Assets 2,050 1,958 2,052 2,150
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 184 218 252 286 ST Debt 235 0 0 0
Tax (35) (41) (48) (54) Other Current Liab 258 299 319 336
Minority Interest (2) (2) (2) (3) LT Debt 17 50 50 50
Preference Dividend 0 0 0 0 Other LT Liabilities 124 124 124 124
Net Profit 147 174 202 229 Shareholder’s Equity 1,398 1,464 1,536 1,614
Net Profit before Except. 147 174 202 229 Minority Interests 18 20 23 25
EBITDA 248 314 347 382 Total Cap. & Liab. 2,050 1,958 2,052 2,150
Sales Gth (%) 10.9 39.0 7.1 5.4 Non-Cash Wkg. Capital 44 90 88 86
EBITDA Gth (%) (11.8) 26.7 10.3 10.3 Net Cash/(Debt) 46 67 167 274
Opg Profit Gth (%) (2.0) 12.3 13.9 14.5
Net Profit Gth (%) (24.7) 18.7 15.7 13.6
Effective Tax Rate (%) 19.1 19.0 19.0 19.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Mar 2009A 2010F 2011F 2012F FY Mar 2009A 2010F 2011F 2012F
Pre-Tax Profit 184 218 252 286 Gross Margins (%) 100.0 100.0 100.0 100.0
Dep. & Amort. 65 91 94 96 Opg Profit Margin (%) 16.1 13.0 13.8 15.0
Tax Paid (47) (54) (41) (48) Net Profit Margin (%) 13.8 11.8 12.8 13.7
Assoc. & JV Inc/(loss) (22) (32) (34) (36) ROAE (%) 10.6 12.2 13.4 14.5
Chg in Wkg.Cap. 21 (33) (5) (4) ROA (%) 7.5 8.7 10.1 10.9
Other Operating CF (16) (8) (2) (2) ROCE (%) 8.0 9.0 10.4 11.4
Net Operating CF 184 182 264 292 Div Payout Ratio (%) 73.5 74.3 75.0 70.7
Capital Exp.(net) (26) (61) (36) (36) Net Interest Cover (x) NM 31.2 215.2 483.3
Other Invts.(net) (458) 0 0 0 Asset Turnover (x) 0.5 0.7 0.8 0.8
Invts in Assoc. & JV (4) 0 0 0 Debtors Turn (avg days) 30.3 38.1 44.1 44.5
Div from Assoc & JV 18 0 0 0 Creditors Turn (avg days) 56.2 50.0 56.7 57.9
Other Investing CF 28 0 0 0 Inventory Turn (avg days) 15.6 21.2 24.4 24.9
Net Investing CF (442) (61) (36) (36) Current Ratio (x) 1.2 1.7 2.0 2.2
Div Paid (151) (108) (130) (151) Quick Ratio (x) 0.9 1.0 1.3 1.6
Chg in Gross Debt (13) (202) 0 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 1 0 0 0 Net Debt/Equity ex MI (X) 0.0 0.0 (0.1) (0.2)
Other Financing CF (2) 8 2 2 Capex to Debt (%) 10.4 122.0 72.0 72.0
Net Financing CF (164) (302) (128) (150) Z-Score (X) 3.4 5.6 5.6 5.6
Net Cashflow (423) (181) 100 107 N. Cash/(Debt)PS (S cts) 4.3 6.2 15.5 25.3
Opg CFPS (S cts) 15.1 19.9 24.9 27.5
Free CFPS (S cts) 14.6 11.2 21.1 23.7
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown / Key Assumptions
FY Mar 3Q2009 4Q2009 1Q2010 2Q2010 FY Mar 2009A 2010F 2011F 2012F
Turnover 242 327 352 362 Revenues (S$ m)
Cost of Goods Sold 0 0 0 0 Food solutions 541 983 1,063 1,122
Gross Profit 242 327 352 362 Airport services 508 480 504 529
Other Oper. (Exp)/Inc (198) (282) (307) (320) Corporate 13 14 14 15
Operating Profit 44 44 44 43
Other Non Opg (Exp)/Inc 0 0 0 0 Total 1,062 1,476 1,581 1,666
Associates & JV Inc 6 4 9 11
Net Interest (Exp)/Inc 0 (2) (2) (2) Operating profit (S$ m)
Exceptional Gain/(Loss) 0 0 0 0 Food solutions 97 123 145 172
Pre-tax Profit 50 47 52 51 Airport services 71 65 70 74
Tax (12) (3) (11) (10) Corporate 4 4 4 4
Minority Interest 0 (1) (1) 0
Net Profit 38 42 40 41 Total 171 192 218 250
Net profit bef Except. 38 42 40 41
EBITDA 65 69 76 80 Operating profit Margins (%)
Food solutions 17.8 12.6 13.6 15.3
Sales Gth (%) (2.7) 34.7 7.7 3.0 Airport services 13.9 13.5 13.9 14.0
EBITDA Gth (%) 14.6 7.0 10.6 4.7 Corporate 27.2 27.2 27.2 27.2
Opg Profit Gth (%) 28.9 0.0 0.5 (3.4)
Net Profit Gth (%) 16.0 12.2 (4.3) 1.2 Total 16.1 13.0 13.8 15.0
Gross Margins (%) 100.0 100.0 100.0 100.0
Opg Profit Margins (%) 18.2 13.5 12.6 11.8 Key Assumptions
Net Profit Margins (%) 15.5 12.9 11.5 11.3 Passengers Handled (m) 31 29 32 35
Unit Services ('000) 81 77 78 79
Cargo ('000 tonnes) 1,461 1,250 1,312 1,378
Unit Meals Produced (m) 20 18 20 22
Average no of employees 11,487 11,602 11,718 11,835
Source: Company, DBS Vickers
Page 57

Regional Equity Strategy 1Q 2010
SMRT
Bloomberg: MRT SP | Reuters: SMRT.SI
BUY S$1.80 STI : 2,781.86
Price Target : 12-month S$ 2.08
Potential Catalyst: Higher ridership, retail space, contract wins
Analyst
Andy SIM CFA +65 6398 7969
andysim@dbsvickers.com
Price Relative
2.10
1.90
1.70
1.50
1.30
1.10
0.90
S$
2005 2006 2007 2008 2009
SM RT (LHS) R elative STI IN D EX (R H S)
Forecasts and Valuation
R e la tiv e In d e x
FY Mar (S$ m) 2009A 2010F 2011F 2012F
Turnover 879 876 923 987
EBITDA 298 332 345 367
Pre-tax Profit 186 210 216 227
Net Profit 163 176 181 190
Net Pft (Pre Ex.) 163 176 181 190
EPS (S cts) 10.7 11.6 11.9 12.6
EPS Pre Ex. (S cts) 10.7 11.6 11.9 12.6
EPS Gth Pre Ex (%) 8 8 3 5
Diluted EPS (S cts) 10.7 11.6 11.9 12.5
Net DPS (S cts) 7.8 8.3 8.5 9.0
BV Per Share (S cts) 47.6 50.2 53.9 58.0
PE (X) 16.8 15.5 15.1 14.3
PE Pre Ex. (X) 16.8 15.5 15.1 14.3
P/Cash Flow (X) 10.1 9.3 9.1 8.6
EV/EBITDA (X) 9.1 8.2 7.8 7.2
Net Div Yield (%) 4.3 4.6 4.7 5.0
P/Book Value (X) 3.8 3.6 3.3 3.1
Net Debt/Equity (X) CASH 0.0 CASH CASH
ROAE (%) 23.3 23.8 22.9 22.4
Earnings Rev (%): - - -
Consensus EPS (S cts): 11.6 12.1 13.1
ICB Industry : Consumer Services
ICB Sector: Travel & Leisure
Principal Business: Primarily involved in operating the main MRT line
in Singapore.
Source of all data: Company, DBS Vickers, Bloomberg
235
215
195
175
155
135
115
95
75
Circle this counter
• Resilient rail ridership
• Expectations of CCL 1 & 2 opening in mid 2010,
providing upside to ridership assumptions
• Retail space provides income supplement
• BUY, TP: S$2.08 (19% total return upside)
Continued growth in rail ridership. Rail ridership is
growing, rising 3.6% yoy in Nov and 3% YTD (FYE Mar).
We see rail as the preferred choice of public transport with
better connectivity and as the government pushes for
higher usage vis-à-vis private car usage.
Circle Line Stage 1&2 in mid-2010? Currently, only
Stage 3 of Circle Line (CCL3) is open (since May’09), with
an estimated daily ridership of 35,000. LTA expects the rest
of the stages to open progressively from 2010. With all the
11 stations along stage 1 & 2 expected to achieve TOP
status by end 2009, we believe expectations for the
opening by mid-2010 should build up around 1Q10. We
view this as positive since stages 1 & 2 serve key areas of
employment in the Suntec and Marina area, providing
potential upside to our ridership assumptions.
Retail space providing additional income. Along with
Esplanade Xchange (CCL) as well as refurbishment at
Orchard station and Jurong East Xchange, these will add
another c.6,000 sqm of retail space progressively over the
next 2 years (total retail space currently at 30,000 sqm),
which will supplement income to its fare revenues.
Currently, rental accounts for c.20% of the Group’s
operating profits.
BUY, TP: S$2.08. We see SMRT, being the operator of 3
MRT lines in Singapore, as the key beneficiary of the
government’s push towards public transport usage.
Furthermore, with its electricity contract locked in till
Sep’10, we believe there is upside risk to our earnings
forecasts in FY10F arising from higher ridership growth. TP
at S$2.08, based on average of 15x PE and DCF (WACC
7.2%)
At A Glance
Issued Capital (m shrs) 1,517
Mkt. Cap (S$m/US$m) 2,731 / 1,965
Major Shareholders
Temasek Holdings Pte Ltd (%) 54.4
Free Float (%) 45.6
Avg. Daily Vol.(‘000) 2,583
Page 58
www.dbsvickers.com
Refer to important disclosures at the end of this report
Verified: rma
ed: JS / sa: JC

Regional Equity Strategy 1Q 2010
SMRT
Income Statement (S$ m) Balance Sheet (S$ m)
FY Mar 2009A 2010F 2011F 2012F FY Mar 2009A 2010F 2011F 2012F
Turnover 879 876 923 987 Net Fixed Assets 1,062 1,030 1,017 1,001
Cost of Goods Sold 0 0 0 0 Invts in Associates & JVs 1 53 76 84
Gross Profit 879 876 923 987 Other LT Assets 46 46 46 46
Other Opng (Exp)/Inc (690) (664) (709) (763) Cash & ST Invts 279 243 275 337
Operating Profit 189 213 214 224 Inventory 31 40 42 45
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 72 63 66 70
Associates & JV Inc 0 2 7 7 Other Current Assets 11 11 11 11
Net Interest (Exp)/Inc (3) (5) (5) (5) Total Assets 1,501 1,486 1,534 1,594
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 186 210 216 227 ST Debt 150 0 0 0
Tax (23) (34) (35) (36) Other Current Liab 266 230 241 255
Minority Interest 0 0 0 0 LT Debt 100 250 250 250
Preference Dividend 0 0 0 0 Other LT Liabilities 263 244 226 210
Net Profit 163 176 181 190 Shareholder’s Equity 722 762 818 879
Net Profit before Except. 163 176 181 190 Minority Interests 0 0 0 0
EBITDA 298 332 345 367 Total Cap. & Liab. 1,501 1,486 1,534 1,594
Sales Gth (%) 9.6 (0.3) 5.3 6.9 Non-Cash Wkg. Capital (153) (117) (122) (129)
EBITDA Gth (%) 4.6 11.6 3.9 6.3 Net Cash/(Debt) 29 (7) 25 87
Opg Profit Gth (%) 6.0 12.7 0.5 4.6
Net Profit Gth (%) 8.5 8.4 2.7 5.1
Effective Tax Rate (%) 12.4 16.0 16.0 16.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Mar 2009A 2010F 2011F 2012F FY Mar 2009A 2010F 2011F 2012F
Pre-Tax Profit 186 210 216 227 Gross Margins (%) 100.0 100.0 100.0 100.0
Dep. & Amort. 109 118 124 136 Opg Profit Margin (%) 21.5 24.3 23.2 22.7
Tax Paid (36) (22) (34) (35) Net Profit Margin (%) 18.5 20.1 19.6 19.3
Assoc. & JV Inc/(loss) 0 (2) (7) (7) ROAE (%) 23.3 23.8 22.9 22.4
Chg in Wkg.Cap. 5 (47) 4 5 ROA (%) 11.1 11.8 12.0 12.2
Other Operating CF 20 (19) (18) (16) ROCE (%) 13.5 14.3 14.1 14.3
Net Operating CF 283 237 285 310 Div Payout Ratio (%) 72.2 70.9 71.1 71.7
Capital Exp.(net) (139) (106) (111) (119) Net Interest Cover (x) 58.4 46.7 42.9 48.7
Other Invts.(net) (15) 0 0 0 Asset Turnover (x) 0.6 0.6 0.6 0.6
Invts in Assoc. & JV 0 (50) (17) 0 Debtors Turn (avg days) 27.5 27.9 25.4 25.2
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 123.6 132.9 112.3 111.1
Other Investing CF 0 0 0 0 Inventory Turn (avg days) 19.7 23.6 25.5 25.2
Net Investing CF (153) (156) (128) (119) Current Ratio (x) 0.9 1.5 1.6 1.8
Div Paid (117) (118) (125) (129) Quick Ratio (x) 0.8 1.3 1.4 1.6
Chg in Gross Debt 0 0 0 0 Net Debt/Equity (X) CASH 0.0 CASH CASH
Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) 0.0 0.0 0.0 (0.1)
Other Financing CF 0 0 0 0 Capex to Debt (%) 55.4 42.3 44.5 47.6
Net Financing CF (117) (118) (125) (129) Z-Score (X) 3.8 3.3 4.0 4.0
Net Cashflow 13 (36) 32 62 N. Cash/(Debt)PS (S cts) 1.9 (0.5) 1.7 5.8
Opg CFPS (S cts) 18.3 18.8 18.6 20.1
Free CFPS (S cts) 9.5 8.7 11.5 12.6
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown / Key Assumptions
FY Mar 3Q2009 4Q2009 1Q2010 2Q2010 FY Mar 2009A 2010F 2011F 2012F
Turnover 219 217 216 229 Revenues (S$ m)
Cost of Goods Sold 0 0 0 0 MRT Operations 474 466 499 549
Gross Profit 219 217 216 229 LRT Operations 9 9 10 10
Other Oper. (Exp)/Inc (169) (180) (158) (166) Bus Operations 207 196 199 203
Operating Profit 50 37 58 63 Taxi Operations 72 74 74 74
Other Non Opg (Exp)/Inc 0 0 0 0 Others 117 131 140 150
Associates & JV Inc 0 0 0 0 Total 879 876 923 987
Net Interest (Exp)/Inc (1) (1) (1) (2)
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 50 36 57 62
Tax (8) 3 (9) (9)
Minority Interest 0 0 0 0
Net Profit 41 39 48 53
Net profit bef Except. 41 39 48 53
EBITDA 79 65 86 92
Sales Gth (%) (3.5) (1.0) (0.5) 6.3
EBITDA Gth (%) (2.1) (17.5) 33.0 6.6
Opg Profit Gth (%) (4.1) (25.9) 54.7 9.3
Net Profit Gth (%) (3.2) (6.2) 24.7 9.5
Gross Margins (%) 100.0 100.0 100.0 100.0
Opg Profit Margins (%) 23.0 17.2 26.8 27.6
Net Profit Margins (%) 18.8 17.8 22.3 23.0
Key Assumptions
MRT ridership growth (%) 9 3 6 10
Bus ridership growth (%) 4 (1) 1 1
Oil price (US$/bbl) 105 65 70 80
Chg in staff (%) 12 8 2 2
Source: Company, DBS Vickers
Page 59

Regional Equity Strategy 1Q 2010
UOL Group
Bloomberg: UOL SP | Reuters: UTOS.SI
BUY S$3.82 STI : 2,781.86
Price Target : 12-Month S$ 4.52
Potential Catalyst: Acquisition of more residential sites
Analyst
MunYee LOCK +65 6398 7972
munyee@dbsvickers.com
Price Relative
6.40
5.40
4.40
3.40
2.40
1.40
S$
Relative Index
2005 2006 2007 2008 2009
218
198
178
158
138
118
98
78
Revving all engines
• Good portfolio mix
• Value unlocking potential
• Maintain BUY with TP of $4.52
Well rounded property exposure. UOL has a well spread
exposure to all segments of the property market. Apart
from locked-in residential sales of c$1.2b to be recognized
over the next 2-3 years, the group has a remaining
landbank of 2.8msf of GFA in Singapore and overseas -
China and Malaysia. This will continue to underpin core
earnings growth over the medium term. Hotel activities are
through an 83% stake in the Pan Pacific Hotels Group.
Anticipated recovery in the hospitality segment due to an
uptick in corporate travel and opening of the 2 IRs in
Singapore should have a positive knock-on impact on the
group’s hotel earnings.
Forecasts and Valuation
UOL Group (LHS) Relative STI INDEX (RHS)
FY Dec (S$ m) 2008A 2009F 2010F 2011F
Turnover 899 1,068 1,164 1,040
EBITDA 401 517 533 499
Pre-tax Profit 210 611 466 433
Net Profit 147 477 331 345
Net Pft (Pre Ex.) 288 309 331 345
EPS (S cts) 18.5 59.9 41.6 43.3
EPS Pre Ex. (S cts) 36.2 38.9 41.6 43.3
EPS Gth Pre Ex (%) 209 7 7 4
Diluted EPS (S cts) 18.5 59.9 41.6 43.3
Net DPS (S cts) 6.5 6.5 6.5 6.5
BV Per Share (S cts) 426.4 511.0 546.1 582.9
PE (X) 20.7 6.4 9.2 8.8
PE Pre Ex. (X) 10.6 9.8 9.2 8.8
P/Cash Flow (X) 24.9 7.3 12.5 17.7
EV/EBITDA (X) 11.6 10.1 9.7 10.6
Net Div Yield (%) 1.7 1.7 1.7 1.7
P/Book Value (X) 0.9 0.7 0.7 0.7
Net Debt/Equity (X) 0.3 0.4 0.3 0.3
ROAE (%) 4.0 12.8 7.9 7.7
Earnings Rev (%): - - -
Consensus EPS (S cts): 44.4 32.8 32.3
ICB Industry : Financials
ICB Sector: Real Estate
Principal Business: United Overseas Land is a property investment
and development company. It has a 81.57% stake in Hotel Plaza
Ltd
Source of all data: Company, DBS Vickers, Bloomberg
Value unlocking potential. The company has an
attributable 1.16msf of commercial property portfolio,
comprising office assets as well as retail buildings in the
Novena area, making them one of the largest landlords in
this area. This segment of the business generates a stable
recurring income, accounting for 15-20% of the group’s
topline. In the longer run, these properties could offer value
unlocking potential.
RNAV of $5.02 is backed by $1.6b of equity
investment holdings including UOB shares. Strong stock
market performance had and will continue to have a
positive impact on UOL’s valuations. The stock is currently
trading at a 26% discount to see-through RNAV that is
adjusted for lower office values and marking the value of its
equity portfolio to our target price assumptions. Our target
price of $4.52 is based on a 10% discount to RNAV.
At A Glance
Issued Capital (m shrs) 784
Mkt. Cap (S$m/US$m) 2,993 / 2,154
Major Shareholders
CY Wee & Co Pte Ltd (%) 13.6
Wee Investment Pte Ltd (%) 10.3
United Overseas Bank (%) 10.0
Free Float (%) 51.7
Avg. Daily Vol.(‘000) 922
Page 60
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: JS / sa: JC

Regional Equity Strategy 1Q 2010
UOL Group
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 899 1,068 1,164 1,040 Net Fixed Assets 1,029 1,272 1,435 1,598
Cost of Goods Sold (447) (502) (580) (590) Invts in Associates & JVs 332 1,323 1,446 1,656
Gross Profit 452 566 585 451 Invt & Devt Properties 2,202 2,096 2,096 2,096
Other Opng (Exp)/Inc (153) (187) (215) (203) Other LT Assets 153 152 152 152
Operating Profit 299 379 369 248 Cash & ST Invts 636 482 581 525
Other Non Opg (Exp)/Inc 3 3 4 5 Dev Props held for sale 1,275 1,614 1,580 1,567
Associates & JV Inc 62 98 123 210 Inventory 3 9 10 9
Net Interest (Exp)/Inc (13) (37) (31) (30) Debtors 92 56 62 55
Exceptional Gain/(Loss) (141) 168 0 0 Other Current Assets 9 26 26 26
Pre-tax Profit 210 611 466 433 Total Assets 6,094 7,235 7,595 7,890
Tax (46) (66) (70) (65)
Minority Interest (17) (67) (65) (23) ST Debt 518 518 518 518
Preference Dividend 0 0 0 0 Other Current Liab 188 200 215 195
Net Profit 147 477 331 345 LT Debt 1,287 1,666 1,666 1,666
Net Profit before Except. 288 309 331 345 Other LT Liabilities 286 296 296 296
EBITDA 401 517 533 499 Shareholder’s Equity 3,395 4,068 4,347 4,640
Minority Interests 421 488 553 576
Sales Gth (%) 26.8 18.8 9.0 (10.7) Total Cap. & Liab. 6,094 7,235 7,595 7,890
EBITDA Gth (%) 25.8 29.0 3.1 (6.4)
Opg Profit Gth (%) 25.5 26.7 (2.6) (32.9) Non-Cash Wkg. Capital 1,192 1,504 1,462 1,462
Net Profit Gth (%) (80.6) 224.0 (30.6) 4.3 Net Cash/(Debt) (1,169) (1,702) (1,603) (1,659)
Effective Tax Rate (%) 22.0 10.9 15.0 15.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 210 611 466 433 Gross Margins (%) 50.3 53.0 50.2 43.3
Dep. & Amort. 37 37 37 37 Opg Profit Margin (%) 33.3 35.5 31.7 23.8
Tax Paid (109) (45) (66) (70) Net Profit Margin (%) 16.4 44.6 28.4 33.2
Assoc. & JV Inc/(loss) (62) (98) (123) (210) ROAE (%) 4.0 12.8 7.9 7.7
Chg in Wkg.Cap. (465) (334) 39 5 ROA (%) 2.4 7.2 4.5 4.5
Other Operating CF 118 0 0 0 ROCE (%) 3.9 5.2 4.4 2.8
Net Operating CF (270) 170 352 195 Div Payout Ratio (%) 35.1 10.8 15.6 15.0
Capital Exp.(net) (292) (379) (200) (200) Net Interest Cover (x) 23.6 10.2 11.9 8.4
Other Invts.(net) (13) 0 0 0 Asset Turnover (x) 0.1 0.2 0.2 0.1
Invts in Assoc. & JV 0 (273) 0 0 Debtors Turn (avg days) 35.0 25.4 18.5 20.4
Div from Assoc & JV 41 0 0 0 Creditors Turn (avg days) 123.7 108.3 93.8 90.9
Other Investing CF (6) 0 0 0 Current Ratio (x) 2.9 3.0 3.1 3.1
Net Investing CF (271) (652) (200) (200) Quick Ratio (x) 1.0 0.7 0.9 0.8
Div Paid (119) (52) (52) (52) Net Debt/Equity (X) 0.3 0.4 0.3 0.3
Chg in Gross Debt 530 379 0 0 Net Debt/Equity ex MI (X) 0.3 0.4 0.4 0.4
Capital Issues 0 0 0 0 Capex to Debt (%) 16.2 17.4 9.2 9.2
Other Financing CF (11) 0 0 0 Z-Score (X) 1.4 1.4 1.9 1.9
Net Financing CF 399 327 (52) (52) N. Cash/(Debt)PS (S cts) (146.8) (213.8) (201.3) (208.4)
Net Cashflow (142) (155) 100 (57) Opg CFPS (S cts) 24.4 63.4 39.2 23.8
Free CFPS (S cts) (70.7) (26.2) 19.0 (0.6)
Quarterly / Interim Income Statement (S$ m)
RNAV Breakdown
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009 Properties OMV ($m)
Turnover 260 197 214 324
Cost of Goods Sold (134) (101) (105) (196) Invt properties 1699.8
Gross Profit 126 96 109 128
Other Oper. (Exp)/Inc (182) (31) (36) (37)
less book value
Surplus/deficit
-1979.6
-279.8
Operating Profit (56) 65 73 91
Other Non Opg (Exp)/Inc 0 0 2 2 NPV of devt profits 357.2
Associates & JV Inc 16 24 7 48
Net Interest (Exp)/Inc (5) (19) (7) (6) Mark to TP value of quoted
Exceptional Gain/(Loss) (76) 278 (77) 0 Listed equities 1433.6
Pre-tax Profit (121) 348 (3) 135
Tax (10) (5) (6) (15)
Pan Pacific Hotels Grp
Total
660.7
2094.3
Minority Interest 17 (12) (11) (14) less book value -2250.2
Net Profit
Net profit bef Except.
(114)
(38)
332
54
(20)
57
106
106
Surplus -155.9
EBITDA (29) 100 91 152 Book NAV 4037.7
Sales Gth (%) (2.8) (24.4) 8.6 51.6
EBITDA Gth (%) (125.1) (442.3) (9.1) 66.0 RNAV 3959.2
Opg Profit Gth (%) (161.1) (217.4) 11.1 25.8 RNAV/share ($) 5.02
Net Profit Gth (%) (255.2) (390.6) (106.1) (624.4) Discount -10%
Gross Margins (%) 48.5 48.8 50.9 39.5 Price Target ($) 4.52
Opg Profit Margins (%) (21.4) 33.2 33.9 28.2
Net Profit Margins (%) (43.9) 168.7 (9.4) 32.6
Source: Company, DBS Vickers
Page 61

Regional Equity Strategy 1Q 2010
Wilmar International
Bloomberg: WIL SP | Reuters: WLIL.SI
BUY S$6.33 STI : 2,781.86
Price Target : 12 months S$ 7.30
Potential Catalyst: Strong FY09 results, stong palm and soybean oil
prices
Analyst
Ben SANTOSO +65 6398 7976
bensantoso@dbsvickers.com
Price Relative
7.30
6.30
5.30
4.30
3.30
2.30
1.30
0.30
S$
R e la tive In d ex
2005 2006 2007 2008 2009
W ilm ar In te rn atio n al (LH S) R e la tive ST I IN D EX (R H S)
Forecasts and Valuation
FY Dec (US$ m) 2008A 2009F 2010F 2011F
Turnover 29,145 24,856 28,128 31,622
EBITDA 2,251 2,506 2,746 3,039
Pre-tax Profit 1,789 2,151 2,221 2,480
Net Profit 1,531 1,781 1,829 2,029
Net Pft (Pre Ex.) 1,531 1,614 1,829 2,029
EPS (S cts) 33.4 37.9 38.9 43.2
EPS Pre Ex. (S cts) 33.4 34.4 38.9 43.2
EPS Gth Pre Ex (%) 164 3 13 11
Diluted EPS (S cts) 33.4 37.9 38.9 43.2
Net DPS (S cts) 5.2 7.6 7.8 8.6
BV Per Share (S cts) 209.4 247.4 278.6 313.7
PE (X) 19.0 16.7 16.3 14.7
PE Pre Ex. (X) 19.0 18.5 16.3 14.7
P/Cash Flow (X) 17.9 14.9 14.3 12.8
EV/EBITDA (X) 14.1 12.5 11.3 10.0
Net Div Yield (%) 0.8 1.2 1.2 1.4
P/Book Value (X) 3.0 2.6 2.3 2.0
Net Debt/Equity (X) 0.2 0.1 0.1 0.0
ROAE (%) 17.5 16.8 14.8 14.6
Earnings Rev (%): - - -
Consensus EPS (S cts):
36.5 38.1 43.1
ICB Industry : Consumer Goods
ICB Sector: Food Producers
Principal Business: Wilmar is an integrated agribusiness group with
one of the largest oil palm plantation land bank in the world,
significant share in China’s consumer edible oil market and large
merchandising and processing capacities in Asia’s expanding
economies.
Source of all data: Company, DBS Vickers, Bloomberg
1690
1490
1290
1090
890
690
490
290
90
Capitalising on China presence
• Rice and flour milling investments in China not yet
accounted for in current valuation
• Integrated business model still intact: Brisbane port and
vessel acquisitions to lock in low cost structure
• BUY call reaffirmed for c.15% upside to TP – our
preferred pick
China presence underappreciated. China remains Wilmar’s
main market with tremendous growth opportunities both in its
core businesses and potential adjacencies. We view the recent
lag in share price performance relative to peers has afforded an
excellent opportunity for more upside. Wilmar has sufficient
resources to undertake large capex over the next two years,
which we believe would enhance growth further than our
forecast assumptions.
Prospecting adjacencies. We believe Wilmar’s growth extends
beyond edible oils. In our view the group’s acquisition of
Brisbane Port facility in Sept 09 is an important step in building
up its flour milling operations in China, which we understand has
a market of c.100m MT p.a. The group’s established cooking oil
brands are another strength in branching out to adjacencies,
such as packaged rice in China, which we understand has a
market of c.140m MT p.a. Furthermore, expansion of the
group’s fleet mid 2009 should enable Wilmar to lock-in its longterm
transportation cost at a lower rate.
M&P margins back to normal levels. We expect Wilmar to
meet our FY09 earnings forecast of US$1,781.4m (+16.4% y-oy).
Soybean spot crush margins have averaged US$41/MT in
4Q09. This should bring Wilmar’s oilseeds pretax margin within
our expectation of US$41.9/MT for the full year. We also expect
palm & lauric pretax margins to ease to US$36.3/MT by the end
of the year, mainly due to rising CPO prices, which should
benefit the group’s plantation division.
Simply undervalued. We believe Wilmar deserves higher
valuation, notwithstanding its decision to suspend its China
subsidiary’s plans for a Hong Kong listing. The group is still
churning 14.1-14.3% ROE and forecast to grow earnings by
7.7% CAGR through 2012. Wilmar continues to be our
preferred pick for the sector with over c.15% upside.
At A Glance
Issued Capital (m shrs)
6,389
Mkt. Cap (S$m/US$m)
40,439 / 29,104
Major Shareholders
Wilmar Holdings Pte Ltd (%)
29.3
PPB Group Bhd (%) 18.4
Kerry Group Ltd (%) 8.4
Free Float (%)
43.9
Avg. Daily Vol.(‘000)
8,250
Page 62
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: JS / sa: JC

Regional Equity Strategy 1Q 2010
Wilmar International
Income Statement (US$ m) Balance Sheet (US$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 29,145 24,856 28,128 31,622 Net Fixed Assets 3,252 3,791 4,340 4,882
Cost of Goods Sold (25,585) (21,273) (24,150) (27,184) Invts in Associates & JVs 1,158 1,198 1,242 1,290
Gross Profit 3,560 3,583 3,978 4,437 Other LT Assets 5,165 5,304 5,441 5,583
Other Opng (Exp)/Inc (1,628) (1,375) (1,576) (1,792) Cash & ST Invts 2,932 3,143 3,567 4,178
Operating Profit 1,932 2,208 2,401 2,646 Inventory 2,468 2,529 2,871 3,231
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 2,077 1,891 2,140 2,406
Associates & JV Inc 111 40 44 48 Other Current Assets 816 816 816 816
Net Interest (Exp)/Inc (254) (264) (225) (214) Total Assets 17,869 18,671 20,417 22,386
Exceptional Gain/(Loss) 0 167 0 0
Pre-tax Profit 1,789 2,151 2,221 2,480 ST Debt 3,677 3,309 3,309 3,309
Tax (232) (331) (342) (382) Other Current Liab 2,246 1,940 2,148 2,381
Minority Interest (26) (38) (49) (69) LT Debt 1,606 1,006 1,006 1,006
Preference Dividend 0 0 0 0 Other LT Liabilities 364 383 402 422
Net Profit 1,531 1,781 1,829 2,029 Shareholder’s Equity 9,606 11,625 13,095 14,743
Net Profit before Except. 1,531 1,614 1,829 2,029 Minority Interests 369 407 456 525
EBITDA 2,251 2,506 2,746 3,039 Total Cap. & Liab. 17,869 18,671 20,417 22,386
Sales Gth (%) 77.0 (14.7) 13.2 12.4 Non-Cash Wkg. Capital 3,116 3,296 3,678 4,073
EBITDA Gth (%) 101.5 11.3 9.6 10.7 Net Cash/(Debt) (2,352) (1,173) (749) (138)
Opg Profit Gth (%) 108.8 14.3 8.8 10.2
Net Profit Gth (%) 163.8 16.4 2.7 10.9
Effective Tax Rate (%) 13.0 15.4 15.4 15.4
Cash Flow Statement (US$ m)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 1,789 2,151 2,221 2,480 Gross Margins (%) 12.2 14.4 14.1 14.0
Dep. & Amort. 208 258 300 346 Opg Profit Margin (%) 6.6 8.9 8.5 8.4
Tax Paid (232) (331) (342) (382) Net Profit Margin (%) 5.3 7.2 6.5 6.4
Assoc. & JV Inc/(loss) (111) (40) (44) (48) ROAE (%) 17.5 16.8 14.8 14.6
Chg in Wkg.Cap. 1,485 (209) (387) (412) ROA (%) 9.2 9.8 9.4 9.5
Other Operating CF 19 26 2 14 ROCE (%) 11.5 11.5 11.6 11.7
Net Operating CF 3,158 1,855 1,749 1,998 Div Payout Ratio (%) 15.7 20.0 20.0 20.0
Capital Exp.(net) (1,060) (933) (985) (1,027) Net Interest Cover (x) 7.6 8.4 10.7 12.4
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 1.7 1.4 1.4 1.5
Invts in Assoc. & JV (595) 0 0 0 Debtors Turn (avg days) 27.8 29.1 26.2 26.2
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 26.1 29.1 24.6 24.7
Other Investing CF (93) (1) (1) (1) Inventory Turn (avg days) 43.7 43.4 41.3 41.5
Net Investing CF (1,748) (934) (986) (1,028) Current Ratio (x) 1.4 1.6 1.7 1.9
Div Paid (240) (338) (360) (381) Quick Ratio (x) 0.8 1.0 1.0 1.2
Chg in Gross Debt 256 (968) 0 0 Net Debt/Equity (X) 0.2 0.1 0.1 0.0
Capital Issues 468 575 0 0 Net Debt/Equity ex MI (X) 0.2 0.1 0.1 0.0
Other Financing CF 33 18 19 20 Capex to Debt (%) 20.1 21.6 22.8 23.8
Net Financing CF 516 (712) (341) (361) Z-Score (X) 3.9 3.9 4.8 4.8
Net Cashflow 1,926 209 422 609 N. Cash/(Debt)PS (US cts.) (36.8) (17.9) (11.5) (2.1)
Opg CFPS (US cts.) 26.2 31.6 32.7 36.8
Free CFPS (US cts.) 32.8 14.1 11.7 14.8
Quarterly / Interim Income Statement (US$ m)
Segmental Breakdown / Key Assumptions
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009 FY Dec 2008A 2009F 2010F 2011F
Turnover 5,826 4,958 5,712 6,299 Revenues (US$ m)
Cost of Goods Sold (5,156) (4,141) (5,008) (5,576) M&P 25,560 21,371 24,236 27,217
Gross Profit 671 817 704 723 Plantations 1,321 1,216 1,365 1,534
Other Oper. (Exp)/Inc N/A N/A N/A N/A Consumer products 4,759 4,113 4,573 5,163
Operating Profit 361 562 539 688 Others 1,174 989 1,075 1,143
Other Non Opg (Exp)/Inc N/A N/A N/A N/A Elimination (3,668) (2,834) (3,122) (3,435)
Associates & JV Inc 31 13 2 17 Total 29,145 24,856 28,128 31,622
Net Interest (Exp)/Inc (31) (56) (17) 29 EBIT (US$ m)
Exceptional Gain/(Loss) N/A N/A N/A N/A M&P 1,486 1,550 1,699 1,847
Pre-tax Profit 361 519 524 735 Plantations 328 399 424 493
Tax 11 (110) (85) (76) Consumer products 94 247 265 292
Minority Interest 1 (29) (31) (6) Others 49 46 48 51
Net Profit 374 380 407 653 Unallocated costs (24) (35) (36) (38)
Net profit bef Except. 374 380 407 653 Total 1,932 2,208 2,401 2,646
EBITDA 454 635 602 769 EBIT Margins (%)
M&P 5.8 7.3 7.0 6.8
Sales Gth (%) (30.2) (14.9) 15.2 10.3 Plantations 24.8 32.8 31.1 32.2
EBITDA Gth (%) (32.6) 39.6 (5.2) 27.8 Consumer products 2.0 6.0 5.8 5.7
Opg Profit Gth (%) (34.0) 55.6 (4.2) 27.8 Others 4.2 4.6 4.5 4.4
Net Profit Gth (%) (22.6) 1.7 7.2 60.4
Gross Margins (%) 11.5 16.5 12.3 11.5 Total 6.6 8.9 8.5 8.4
Opg Profit Margins (%) 6.2 11.3 9.4 10.9 Key Assumptions
Net Profit Margins (%) 6.4 7.7 7.1 10.4 CPO price (RM/MT) 2,864.4 2,300.0 2,380.0 2,440.0
Oilseeds & grains pretax 44.4 41.9 42.3 42.8
Palm & lauric pretax 33.2 36.1 36.9 37.9
Consumer products vol. 3,062.0 3,337.2 3,616.5 3,979.6
Oil palm planted area (Ha) 223,258 249,761 269,761 289,761
Source: Company, DBS Vickers
Page 63

Regional Equity Strategy 1Q 2010
Country Assessment
Hong Kong/China
All good news?!
Hang Seng Index may remain within 20,000-23,000
range before our key correction catalysts kick in, which
could trigger a major correction. Well known positive
factors may remain, but one-off positive drivers start
dissipating while fear of quantitative easing exit has
emerged on investors’ radar screens..
Equity rally driven by non-stop USD weakening is rationalized with consensus
relative valuation upgrade and by looking only at “half-full”. While too early to
conclude on the reasonableness of significant consensus earnings upgrade,
excitement is already in stock prices
Stock market may continue to be supported in the short-term by (1) abundant
market liquidity due to weak USD and related carry trade; (2) improved sentiment
towards US conditions; (3) speculated favourable China policies; (4) sustained low
interest rate and (5) Rmb speculation. HS Index has performed exactly in line with
the inverse of USD exchange rate since the beginning of 2009.
The seemingly strong determination of all major governments to create another
bubble for offsetting the impact from the global financial crisis will continue to be
a powerful comfort factor for market liquidity. The author, however, continues to
believe in a major stock market correction (>30%) in 2010 despite our regional
strategist expectations for the HS Index to hit 29,208 by end-2010.
Speculating on beneficiaries of Chinese polices has been and will continue to be a
key equity strategy for many, meaning liquidity will continue to favour
Consumption sector, e.g. home appliances, department stores, autos and food,
Pharmaceutical and Environmental sector.
Among the big caps for long-only funds, we like Bank of East Asia (23 HK), Hang
Seng Bank (11 HK), Henderson Land (12 HK) and The Link REIT (823 HK). Pair
trade remains our preferred strategy given lack of market visibility.
Derek Cheung (852) 2971 1703 derek_cheung@hk.dbsvickers.com
Page 64
www.dbsvickers.com
Refer to important disclosures at the end of this report
Ed - LM/sa - TW

Regional Equity Strategy 1Q 2010
Country Assessment
Market Data
Index Close Chng -1 mth -3 mth -6 mth - 12 mth
52-Week
10-Dec-09 Net 1 m (%) (%) (%) (%) High Low
Hang Seng 21,700 -568 -3 0 16 39 23,100 11,345
HS China Ent 12,866 -501 -4 2 17 51 13,863 6,404
HS China Aff 4,004 -73 -2 -2 -2 16 4,457 2,750
HS Mid Cap 4,494 -37 -1 4 19 79 4,618 2,265
HS Small Cap 2,390 60 3 5 38 125 2,407 1,020
Transactions:
YTD
Volume (bn shs) 23,304
Value (HK$bn) 14,716
Source: Bloomberg
4Q09 Review
The Hang Seng Index (HS) remained flat while the Hang Seng
China Enterprises Index (HSCEI) gained 2% in 4Q09 due almost
entirely to non-stop USD weakening, which was triggered by
the following events:
- Australia interest rate hikes
- US extension of home-purchase-tax-subsidy policy to
April 2010
- India government purchase of 200 tons of gold from
International Monetary Fund
- US’s more-than-expected rise of unemployment rate to
10.2% in November from 9.8% in October.
- Various statements by senior G20, US and China
officials for maintaining their loose monetary policy.
- US health care reform bills being passed.
USD Index (DXY) fell 0.19% during the same period. The
recent improvement in U.S. economic data has prompted some
to believe U.S. may exit from quantitative easing in the next
few months, which brought about a moderate USD rebound.
There have been more explicit concerns among senior Chinese
government officials, eg Premier Wen, towards the overheating
in some economic sectors. Some favourable policies towards
property and auto sectors were removed or reduced, triggering
market concern about policy tightening. China economic
growth continues to be substantially driven by pump-priming
through fixed asset investment. Consumption growth remains
stable while exports and foreign direct investment (FDI) remain
weak.
Among HS Index constituent sectors, Commerce and Industry
and Properties were the best performing sectors, gaining 10%
and 1% in the quarter respectively.
HSI Sectors Performance - 4Q
Sector
% gain
Comm/Ind 10%
Properties 1%
Banking and Finance -1%
Hongs/Conglomerates -1%
Power, Infra & Utilities -2%
Telecom -10%
Source: DBS Vickers, Bloomberg
HS Index & HSCEI – Past 1 year
24,000
22,000
20,000
18,000
16,000
14,000
12,000
10,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
Dec-08 Mar-09 Jun-09 Sep-09 Dec-09
250-day MA
50-day MA
HSCEI
Dec-08 Mar-09 Jun-09 Sep-09 Dec-09
Source: Bloomberg
Page 65

Regional Equity Strategy 1Q 2010
Country Assessment
Market Outlook – All news are good news?!
Hang Seng Index may remain within the 20,000-23,000 range
in 1Q09 before our major correction catalysts kick in. Although
most of the positive stock market drivers will likely remain,
some of the one-off positive factors have started dissipating
and fear of exit from global quantitative easing have started
gaining weight.
The seemingly strong determination of all major governments
to create another bubble for offsetting the impact from the
global financial crisis will continue to be a strong comfort
factor, but the stock market will remain nervous and highly
volatile. This was reflected by the 4.8% fall in Hang Seng Index
on 27 November followed by 3.3% rise the next trading day.
Stock market will continue to be supported in the short-term
by:
(1) Weak USD / abundant liquidity;
(2) Improved sentiment towards US conditions
(3) Speculated favourable China policies;
(4) Sustained low interest rate
(5) Rmb speculation.
Assume 19x PER, tested in four previous bubbles, at elevated
consensus EPS, HS Index could hit 25,048 in the current
liquidity driven bubble if USD depreciation resumes.
USD carry trade
USD carry trade will remain a key determinant for stock market
performance as per our forecast in the 4Q09 Quarterly Strategy
issued in September 2009. Hang Seng Index has performed
almost exactly in line with the inverse of USD exchange rate
since the beginning of 2009. While this strong correlation will
likely hold at least in 1Q10 and shorting USD will remain a nobrainer
strategy for many, liquidity may remain favourable for
the stock market.
USD vs HS Index
0.0140
0.0135
0.0130
0.0125
0.0120
0.0115
0.0110
Jan-09
Feb-09
Mar-09
Source: Bloomberg
Apr-09
May-09
DXY Index (LHS)
Jun-09
Jul-09
Speculated favourable PRC policies
Sep-09
Oct-09
Nov-09
HSI (RHS)
24,000
22,000
20,000
18,000
16,000
14,000
12,000
10,000
While the market has started to be concerned about
removal/reduction in favourable policies introduced late
2008/early 2009, speculating on beneficiaries of Chinese
polices will continue to be a key equity strategy by many,
meaning liquidity will continue to favour Consumption sector,
e.g. autos, home appliances, department stores and food,
Pharmaceutical and Environmental sector. We continue to
believe the Chinese government will truly tighten only when
US is firmly on recovery path to avoid the risk of a U.S. doubledip
scenario.
The rumoured higher required Capital Adequacy Ratio (CAR)
among Chinese banks is more a policy to strengthen their
balance sheets for the next down cycle than a policy to tighten
their lending. Removal/reduction in some of the favourable
policies affecting the property and auto sectors don’t signal a
true tightening.
Sustained low interest rate
The author believes interest rate hike will be more remote and
milder than many believe, which is reflected by the fact that
interest rate hike as per Fed Fund futures remain a moving
target. DBS economic house view is expecting 54bp hike in
China benchmark rate and 100bp hike for Hong Kong
Interbank Offer rate (HIBOR) in 2010.
Page 66

Regional Equity Strategy 1Q 2010
Country Assessment
PBOC benchmark deposit rates
%
12
1-yr
10
6-mth
8
3-mth
6
4
Demand
2
0
1989 1993 1997 2001 2005 2009
Source: CEIC
Hong Kong 1-month HIBOR
%
6
5
4
3
2
1
0
Jan-08
Feb-08
Mar-08
May-08
Jun-08
Aug-08
Sep-08
Nov-08
Dec-08
Jan-09
Mar-09
Apr-09
Jun-09
Jul-09
Sep-09
Oct-09
Dec-09
Source: Bloomberg
interest rate hikes and India buying gold from International
Monetary Fund all served to further dampen market
confidence towards USD and therefore promote USD carry
trade, stock and commodity markets. While insignificant on
individual incident basis, investors need to pay careful attention
to the broader implications of the recent Dubai debt crisis to
countries with weak balance sheets and Vietnam currency
depreciation. The improvement in US financial results due
mainly to cost cutting, which has material economic
implications, and foreign exchange gains are ignored by the
stock market.
Recap of four major correction catalysts
We continue to believe the stock market has priced in
something that is too good to be true and expect major
correction in 2010 driven by (1) currently expensive valuation
and (2) appearance of either one of the following four events
in order of probability of happening (for more details, please
refer to page 66, Regional Equity Strategy 4Q 2009):
‣ US economic disappointment.
‣ China economic disappointment.
‣ China economic tightening.
‣ Exit from global quantitative easing.
Peak PER tested in four previous bubbles
The market argues that higher than historical PERs are justified
for falling intrinsic value of paper money, particularly USD. As a
beneficiary of rising HKD assets, the author wishes the market
is right this time. For each time there was a bubble, the market
argued that it was different then. However, the HS trailing PER
had peaked consistently at around 19x in the four previous
bubbles, in 1993, 1997, 2000 and 2007.
Hang Seng Index – PE Band
Major correction still unavoidable
While we continue to believe a major correction for the stock
market to happen, driven primarily by the four identified
catalysts (please see page 66, Regional Equity Strategy 4Q
2009), timing may however be later than our original forecast
of by earliest late 2009 / early 2010.
All newsflows, no matter whether these are indeed good or
bad, were treated as positive for stock market. For example,
Dubai debt concern and sharp rise in US official unemployment
rate were interpreted as an indication that exit from
quantitative easing will be delayed further. Repeated
statements by senior G20, US and China officials for
continuously loose monetary policy coupled with Australian
34,000
29,000
24,000
19,000
14,000
9,000
4,000
Jan-99
Aug-99
Mar-00
Oct-00
May-01
Dec-01
Jul-02
Feb-03
Sep-03
Apr-04
Nov-04
Jun-05
Jan-06
Aug-06
Mar-07
Oct-07
May-08
Dec-08
Jul-09
Feb-10
Source: Datastream, DBS Vickers
22x
19x
15x
12x
9x
Page 67

Regional Equity Strategy 1Q 2010
Country Assessment
Fixed asset investment remains key 2010 PRC growth driver
The “decoupling” of Chinese economy so far has substantially
been driven by significant credit expansion driving fixed asset
investment, which may be at the expense of creating
overcapacity problems in the long-run. Understanding the
stock market may find it too early to start pricing in the risk of
potential non-performing loans in a few years time, there
seems to be need for fine-tuning of the pace and intensity of
new credit creation.
China real GDP Growth
Yoy, %
14
13
12
11
10
9
8
7
6
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09F
3Q09F
4Q09F
1Q10F
2Q10F
3Q10F
4Q10F
Source: CEIC, DBS Economics Research
China fixed asset investments
RMB m
3,000,000
%
45
2,500,000
40
35
2,000,000
30
1,500,000
25
20
1,000,000
15
500,000
10
5
0
0
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Inflation coming back
It is not difficult to notice inflation is coming back, e.g.
MacDonald’s set meals, memory chip, supermarket, restaurant,
fresh food and rental rate, despite an economic environment
which remains challenging. Although official inflation data
remains mild, pace and magnitude could surprise many when it
does return, which could possibly bring about quick exit from
global quantitative easing even though economic recovery
remains fragile. DBS economic house view for 2010 China CPI
and GDP are 3% and 9.5%, respectively, and Hong Kong CPI
and GDP are 3% and 5.5% respectively.
Pre-mature for material tightening expectation
We continue to believe stock market fear towards material
liquidity tightening in China in the near future is pre-mature.
China will remain passive, awaiting concrete evidence of a
sustainable US economic recovery, in determining the timing of
liquidity tightening.
China export
US$m %
150,000
60
50
100,000
40
30
50,000
20
10
0
0
(10)
(50,000)
(20)
(30)
(100,000)
(40)
Jan-07
Source: CEIC,
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
China exports
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Yoy % growth
China FAI
Yoy % growth
Source: CEIC,
Page 68

Regional Equity Strategy 1Q 2010
Country Assessment
China utilized FDI
US$m %
27,000
120
22,000
100
17,000
80
60
12,000
40
7,000
20
2,000
0
(3,000)
(20)
(8,000)
(40)
(13,000)
(60)
Jan-07
Source: CEIC,
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
China utilized FDI
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Yoy % growth
China M1 and M2 growth
%
40
35
30
25
20
15
10
5
0
Jan-00
Oct-00
Source: CEIC
Jul-01
Apr-02
Jan-03
Oct-03
M1
Jul-04
Apr-05
Jan-06
Oct-06
Jul-07
M2
Apr-08
Jan-09
Oct-09
China loan growth
China retail sales
(RMBbn)
1,900
1,700
1,500
1,300
1,100
900
700
500
300
100
(100)
(300)
(500)
2008: 4,904
2009F: 9,300
2010F: 7,880
1Q09: 4,580 (50% of total)
2Q09: 2,787 (30% of total)
3Q09: 1,366 (14% of total)
4Q09F: 475 (6% of total)
804
243
283
464
319
332
382
272
375
182
477
772
1,617
1,070
1,892
592
665
1,530
356
410
517
253
295
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
RMB bn %
1,400
25
1,200
20
1,000
800
15
600
10
400
200
5
0
0
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
China Retail Sales Yoy % growth
Source: CEIC,
Retail
Medium/LT & other enterprise
Discounted bills
ST enterprise loans
Source: CEIC, DBS Vickers
Page 69

Regional Equity Strategy 1Q 2010
Country Assessment
Earnings upgrade
Our analysts have upgraded the earnings of Banking, Power,
and Properties sectors based on a mid-cycle outlook, which is
consistent with our regional strategist’s outlook.
Aggregate earnings for HSI
HK$m 2009
09F %
Chg 2010
10F %
Chg 2011
11F %
Chg
Earnings upgrade – Hang Seng Index constituents
2010F Earnings
Sector 4Q 1Q Chg
HK$m HK$m %
Banking and Finance 204,989 226,819 11
Power, Infra & Utilities 76,524 79,867 4
Properties 32,872 36,092 10
Hongs/Conglomerates 19,606 19,764 1
Comm/Ind 15,179 15,362 1
Telecom 45,968 46,001 0
Total 395,138 423,905 7
Finance 168,200 28 220,434 31 273,586 24
Infra & Utilities 64,449 -1 79,586 23 87,826 10
Properties 33,906 13 36,143 7 39,052 8
Conglomerates 17,527 64 19,498 11 23,704 22
Comm/Ind 10,749 40 15,362 43 19,131 25
Telecom & Media 44,029 -12 46,001 4 47,914 4
HSI Total 338,861 15 417,025 23 491,213 18
Source: DBS Vickers, Bloomberg
After the latest round of earnings upgrade based on our
regional strategist’s outlook, DBS expects 23% and 35% 2010
earnings growth for HS Index and HSCEI respectively.
Aggregate earnings for HSCEI
Source: DBS Vickers, Bloomberg
HK$m 2009
09F %
Chg 2010
10F %
Chg 2011
11F %
Chg
Earnings upgrade – HSCEI Index constituents
2010F Earnings
Sector 4Q 1Q Chg
HK$m HK$m %
Consumers 2,475 2,549 3
Energy 54,013 51,378 (5)
Financials 150,050 157,387 5
Industrial Goods 1,097 1,094 (0)
Information Technolgy 1,086 1,605 48
Materials 6,205 6,469 4
Utilities 2,205 2,204 (0)
Property & Construction 10,862 10,803 (1)
Services 980 767 (22)
Telecom & Technology 5,105 5,044 (1)
Total 234,078 239,302 2
Source: DBS Vickers, Bloomberg
Consumer 2,264 27 2,549 13 2,807 10
Energy 40,818 23 50,655 24 56,678 12
Financials 117,236 22 157,349 34 186,117 18
Industrial Goods 1,033 -20 1,094 6 1,253 15
Info Technology 1,178 162 1,605 36 2,418 51
Materials 3,029 183 7,196 138 8,855 23
Utilities 1,843 nm 2,204 20 2,564 16
Ppty & Construc 8,368 41 10,803 29 12,675 17
Services -1,942 -140 767 -139 4,250 454
Telecom & Tech 3,786 444 5,044 33 6,466 28
HSCEI Total 177,613 23 239,268 35 284,083 19
Source: DBS Vickers, Bloomberg
Valuations
The Hang Seng Index and HSCEI are now trading at 16.5x and
17.5x FY09 PER, respectively, versus 5-year, 10-year and 20-
year HSI average PER of about 14-15x. The PER for these also
compares with the peak PER of around 19x in 1997, 2000 and
2007 “bubbles”. Assuming the forecast 23% for HS Index and
35% for HSCEI earnings growth in 2010 is achievable, 2010
PER for HSI and HSCEI would then be 13.4x and 13.0x
respectively.
Page 70

Regional Equity Strategy 1Q 2010
Country Assessment
Hang Seng Index – PE Band
Hang Seng China Enterprises Index – PE Band
34,000
29,000
24,000
19,000
14,000
9,000
4,000
Jan-99
Aug-99
Mar-00
Oct-00
May-01
Dec-01
Jul-02
Feb-03
Sep-03
Apr-04
Nov-04
Jun-05
Jan-06
Aug-06
Mar-07
Oct-07
May-08
Dec-08
Jul-09
Feb-10
Source: Datastream, DBS Vickers
22x
19x
15x
12x
While normally being used as a benchmark for bottom-fishing
in a bear market, HS Index FY09 PBV is now trading at 1.95x,
versus 5-year and 10-year averages of 1.93x and 1.94x
respectively.
Hang Seng Index – PBV Band
41,000
36,000
31,000
26,000
21,000
16,000
11,000
6,000
Jan-99
Aug-99
Mar-00
Oct-00
May-01
Dec-01
Jul-02
Feb-03
Sep-03
Apr-04
Nov-04
Jun-05
Jan-06
Aug-06
Mar-07
Oct-07
May-08
Dec-08
Jul-09
Feb-10
9x
3.1x
2.6x
2.1x
1.6x
1.1x
25,500
20,500
15,500
10,500
5,500
500
Dec-01
Jul-02
Feb-03
Sep-03
Apr-04
Nov-04
Jun-05
Jan-06
Aug-06
Mar-07
Oct-07
May-08
Dec-08
Jul-09
Feb-10
Source: Bloomberg, DBS Vickers
28x
23x
18x
13x
HSCEI PER and PBV are now at 18.5x and 2.4x, versus the
respective averages of 17.2x and 1.74x since its inception in
2001.
Hang Seng China Enterprises Index – PBV Band
30,500
25,500
20,500
15,500
10,500
5,500
500
Jan-01
Aug-01
Mar-02
Oct-02
May-03
Dec-03
Jul-04
Feb-05
Sep-05
Apr-06
Nov-06
Jun-07
Jan-08
Aug-08
Mar-09
Oct-09
May-10
Source: Bloomberg, DBS Vickers
7x
4.5x
3.6x
2.6x
1.6x
0.6x
Source: Datastream, DBS Vickers
Page 71

Regional Equity Strategy 1Q 2010
Country Assessment
Hang Seng forward PE (consensus)
x
25
20
15
10
5
0
Average: 13.5x
Jan-80
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Source: DBS Vickers
Hang Seng forward PBV (consensus)
(x)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1993
1995
Source: Bloomberg
Strategy
1997
1999
+2SD
+1SD
Mean
2001
2003
-2SD
2005
-1SD
Market will remain highly volatile with lack of visibility in 1Q10.
Pair trades remain our preferred strategy while long-only funds
should adopt a defensive strategy.
Defensive despite continuously strong liquidity.
Among the big caps for long-only funds, we like Bank of East
Asia (23 HK), Hang Seng Bank (11 HK), Henderson Land (12
HK) and The Link REIT (823 HK). Speculating on beneficiaries of
Chinese polices has been and will continue to be a key equity
strategy for many, meaning liquidity will continue to favour the
2007
2009
Consumption sector, e.g. home appliances, department stores,
autos and food, Pharmaceutical and Environmental sector.
Property sector
We believe the housing market will take a breather in the next
few months after a sharp liquidity-driven rally in 2009. The
Hong Kong Monetary Authority has tightened mortgage
lending towards luxury homes while we believe that the
government prefers to maintain the status quo. No major
positive sector catalyst is anticipated for property developers.
We like Henderson Land (12 HK) which enlarged its land bank.
Office market is showing signs of bottoming out while retail
market continued its recovery. Swire Pacific’s (19 HK) planned
spin-off of its property division could boost the valuation of
landlords.
As for Chinese property sector, Chinese government’s decision
to support demand from first-time homebuyers and upgraders
means substantial correction in sales volume in 2010 is
unlikely. We believe sales volume would be kept at decent level
to maintain the growth of the sector, which in turn will
contribute to China’s economic growth. Investment and
speculative demand are likely to be controlled to prevent rapid
rise in property prices. While investment demand is likely to
retreat, the impact shall not be substantial. Investment demand
accounts for only 10% and 20% of total purchases in tier II
and tier I cities. In terms of property price outlook, we believe
tier II cities are likely to outperform tier I cities as China
continues to promote housing demand in small and mid-sized
cities. The substantial rise in ASP in Tier I cities might cap price
upside in 2010. Overall we foresee a normalization of sales
volume and price in 2010 after an exceptional growth in 2009.
We favour strong players with larger tier II and western China
exposure such as Shimao Property and CR land. We also
suggest investors to buy commercial plays given their attractive
valuations. Office and retail rents have begun to stabilize. With
insurance funds, trust REITs and sovereign wealth funds
starting to enter the market, we expect capital value to be on
an uptrend. In addition, commercial plays are also less exposed
to policy risk. Developers with strong investment property
exposure will benefit from cap rate compression. We like
Franshion (817 HK), Shui On land (272 HK), and Shimao
Property (813 HK).
Banking sector
We believe Bank of East Asia (BEA, (23 HK)), Dah Sing Financial
(440 HK) and Wing Hang (302 HK) would be the major
beneficiaries of ongoing M&A speculations. The sector is still
on a secular uptrend longer run, but ROE improvement would
be a slow process while NIM recovery will be in pace with rate
hikes in the US (which may only happen towards 4Q10). Loan
growth has recovered in 2H09 and should continue to recover
gradually next year. Asset quality remains benign but recovery
Page 72

Regional Equity Strategy 1Q 2010
Country Assessment
in wealth management remains slow. We like BEA (23 HK) and
Dah Sing Financial (440 HK)
We remain POSITIVE on Chinese banks, despite concerns over
capital-raising and Dubai World’s potential default. Most banks
still expect slight positive growth in 4Q09 and are guiding
reasonable loan growth next year. We expect mild rate hike of
81bps starting 2Q10 to drive NIM and ROE recovery of banks.
Banks’ valuations have historically expanded amidst rising
interest rates, which usually accompany a positive economic
outlook and improving NIM. Chinese banks are only at midcycle
valuations, while Asian peers have already exceeded that.
Our top picks are China Construction Bank (CCB (939 HK)) and
Bank of China (BOC (3988 HK)), and we prefer China
Merchant Bank (CMB (3968 HK)) among small banks.
Telecoms Sector
The China telecom sector has been a laggard sector given
market concerns on competition, capex, handset subsides etc.
The situation should stabilize next year given 1) stabilizing 2G
competition 2) Capex should have peaked and would be
declining going forward and 3) the whole 3G value chain has
matured in China. Valuations wise, China Mobile (CM (941 HK))
is most attractive and China Unicom (CU (762 HK)) has the
highest (over 18x) PE multiples. CM offers the best earnings
visibility over the next two years while China Telecom (CT (728
HK)) offers the most upside with limited downside and we
remain cautious on CU. We recommend CM and CT.
We remain positive on the telecom equipments sector with 3Gdriven
growth momentum to extend to at least 1H10 while
long-term growth is sustainable on gaining global market
share. We like China Telecom (CT (728 HK)), Comba (2342 HK)
and China Comservice (CCS (552 HK)).
The Hong Kong telecom sector has seen stabilized competition
in the local mobile telecom market although local telecom
operators are increasingly pressured on handset subsidies.
Mobile operators are also now in another rush to upgrade
networks towards 4G in the coming few years. We prefer City
Telecom (1137 HK), which is a leading pure fixed-line,
broadband, and IPTV provider.
Consumer - F&B
Margin improvement seen in 3Q09 from lower raw material
cost should continue into the 4Q before waning off in FY10.
F&B players should still offer decent earnings visibilities given
resilient demand for their products and their proven ability to
ride out impact of higher costs. Our top pick is China Mengniu,
(2319 HK) which is expected to report record high earnings
with valuation still lagging behind other peers.
Consumer - Retail
China retail sales growth rose by 15.8% for Nov 09. Selective
export-oriented provinces like Guangdong saw improving
performance trend while inner China remained the stronger
growth region. Share price of certain retail plays could
potentially consolidate while operators with stronger
fundamentals could also re-emerge for better growth
prospects. We also like valuation laggards as more consistent
performances are expected across the retail sector ahead. We
like Li-Ning (2331 HK) and New World Dept Store (825 HK).
Retail sales growth in HK returned to positive territory in
September after falling for seven consecutive months. The
momentum will likely continue going forward. In this segment,
we like Sa Sa (178 HK) which is on track for a solid sales
recovery as well as Café de Coral (341 HK) which provides
better earnings visibilities.
Toll Road Sector
Highway traffic in China continued to show improvement in
traffic volume and toll revenue growth, even higher than
China’s resilient GDP growth. Going forward, we are positive
on the country’s highway traffic growth, considering the high
correlation between highway traffic and GDP growth. Our top
picks are Jiangsu Expressway (177 HK) and Shenzhen
Expressway (548 HK).
Oil
The market has recently focused on the timing of the natural
gas price reforms in China, amid the recent shortage of gas
supply in the peak demand season which has affected the
share price performance of two major beneficiaries, Petrochina
and Sinopec.
The latest speculation of change in natural resource tax has
also cast a shadow over the earnings outlook of domestic oil
companies. However, the government has yet to confirm the
rumours and we believe any possible earnings pressure from
new natural resource tax will be largely offset by possible
earnings upside from natural gas price reform and higher crude
oil price.
This is attractive opportunity to bottom fish Sinopec (386 HK),
given its appealing valuation. We also recommend investor to
Buy Petrochina (857 HK), as the natural gas price reform may
be delayed, but not derailed.
Page 73

Regional Equity Strategy 1Q 2010
Country Assessment
Pharmaceutical
The sector has seen strong re-rating impetus from the policy
reform and IPO of Sinopharm at high PE multiples. We believe
the re-rating of the sector has just begun and has a long road
ahead. The pharmaceutical industry has shown that its growth
is resilient to any unpredictable economic risk ahead. We
maintain Buy on Sino Biopharmaceutical (1177 HK),
Guangzhou Pharmaceutical (874 HK) and China Shineway
(2877 HK).
Shipping
We are looking for the possible second dips in the sector’s
performance after the technical rebound in 4Q09. The current
4,000 BDI level is not expected to sustain given high level of
newbuilds delivery in 2010-11 and possible end of re-stocking
of iron ore in China. Smaller vessels should perform better
given their less severe over-capacity problem. We maintain
Hold rating for Pacific Basin Shipping (2343 HK) and Sell rating
for China COSCO (1919 HK), as well as Fully valued for China
Shipping Development (1138 HK).
For the container shipping counters, we expect the current
freight rates will come down again very soon, as the demand
has started to fall after the peak season. We remain negative
for the sector on their fragile earnings fundamental and
maintain Sell on CSCL (2866 HK) and Hold on OOIL (316 HK).
Fertilizer
Demand is projected to rise in the coming spring planting
seasons which should see average selling price of fertilizers
improve in tandem. Overall, the positive government policy to
further boost the agriculture sector and better develop the
rural areas should provide some support for fertilizer demand.
The current oversupply across different fertilizer types is
improving. We like China Bluechem (3983 HK)
Construction & Infrastructure
2009 saw new orders at a record high and new projects
momentum is expected to continue into 2010 which is positive
on backlogs providing earnings visibility for the next 3 years.
We expect new investments on infrastructure projects to peak
towards end 2010 or early 2011. New project starts in 1H09
should start generating profits starting 2H. We like China
Railway Construction (1186 HK).
Power
Volatility in the market would bring interest to HK power
companies for their resilient earnings whilst offering a good
dividend yield. Earnings are highly visible and regulated under
the Scheme of Control (SOC) agreement. The widening spread
between Hong Kong’s government bond yield and HK power
companies’ dividend yield offers investors an attractive entry
point. We like CK Infrastructure (1038 HK).
Tariff concerns have led to China IPPs being oversold, although
earnings are only marginally impacted. But resultant decline in
share price is good buying opportunity into the IPPs. We
believe that current valuations do not account for the stronger
fundamentals and IPPs’ strong 1H09 results. We like CR Power
(836 HK).
Industrial
US retail sales on Black Friday and the weekend after
Thanksgiving showed a growth of 0.5% while shoppers at
stores and on internet over the holiday weekend increased to
195m from 172m a year ago. The apparent willingness of
consumers to spend on bargains would be positive for discount
stores and budget retailers. We like Li & Fung (494 HK) which
offers procurement services at competitive prices to most
budget retailers.
Technology
3Q results have shown recovery strength mainly from the
consumer side. Cost cutting and restructuring efforts seen in
4Q08 and 1Q09 continue to bear fruit seen from companies’
improving expense to revenue ratios. Stable average selling
prices have seen some companies returning to pre-crisis level of
sales and profitability.
We like ASM Pacific (522 HK) for its strong order book, solid
market position, and its ability to gain share in the current
business environment. We also like AAC Acoustics (2018 HK)
as the Company continues to expand its market share in Global
mobile brands’ supply chain.
Page 74

Regional Equity Strategy 1Q 2010
Country Assessment
Economic Indicators
2006A 2007A 2008A 2009F 2010F 2011F
China
GDP Growth (%) 11.6 13.0 9.0 8.2 9.5 9.0
FDI (US$bn) 73 84 108 80 100 80
Exports (yoy %) 27 26 17 -21.0 15 18
Retail Sales (yoy %) 13.7 16.8 21.6 16.0 17.5 17.0
CPI (yoy %) 1.5 4.8 5.9 -1.0 3.0 3.0
Hong Kong
GDP Growth (%) 7.0 6.4 2.4 -2.4 5.5 5.0
CPI (yoy %) 2.0 2.0 4.3 -0.1 3.0 3.0
Source: DBS Economics Research
Valuation – HSI
Index Earnings Growth (%) PE (x) Yield (%)
10-Dec 09E 10F 11F 09E 10F 11F 09E 10F 11F
Finance 28 31 24 16.9 12.9 10.4 2.9 3.9 4.6
Power, Infrastructure & Utilities -1 23 10 14.5 11.8 10.7 3.1 3.5 3.7
Properties 13 7 8 17.4 16.3 15.1 2.2 2.3 2.4
ex Cheung Kong 0 18 3 22.0 18.7 18.1 2.0 2.2 2.3
Hongs/Conglomerates 64 11 22 18.9 17.0 14.0 2.5 2.6 2.8
ex Hutchison 544 0 15 18.3 18.3 16.0 2.0 2.2 2.5
Comm/Ind 40 43 25 34.8 24.3 19.5 1.6 2.0 2.4
Telecom & Media -12 4 4 11.4 10.9 10.4 3.8 4.0 4.1
HSI 21700 15 23 18 16.5 13.4 11.4 2.8 3.5 3.9
HSI ex Cheung Kong and Hutchison 16 24 18 16.7 13.4 11.4 2.8 3.5 4.0
Source: DBS Vickers
Valuation – HSCEI
Index Earnings Growth (%) PE (x) Yield (%)
10-Dec 09E 10F 11F 09E 10F 11F 09E 10F 11F
Consumer 27 13 10 21.2 18.8 17.1 1.2 1.4 1.5
Energy 23 24 12 16.2 13.0 11.6 2.1 2.6 2.9
Financials 22 34 18 15.5 11.6 9.8 1.6 2.2 2.7
Industrial Goods -20 6 15 10.3 9.7 8.5 1.8 1.9 2.1
Information Technology 162 36 51 46.3 34.0 22.6 1.6 1.9 3.5
Materials 183 138 23 87.0 36.6 29.7 0.5 0.9 1.0
Utilities nm 20 16 13.3 11.2 9.6 4.1 4.9 5.7
Property & Construction 41 29 17 16.2 12.6 10.7 1.4 1.8 2.2
Services -140 -139 454 -47.8 121.0 21.8 0.9 1.0 1.2
Telecom & Technology 444 33 28 14.3 10.7 8.4 1.7 2.4 3.2
HSCEI 12866 23 35 19 17.5 13.0 10.9 1.6 2.2 2.6
Ex oil * 20.8 36.3 19.9 18.8 13.8 11.5 1.5 2.0 2.4
* Ex 386, 857
Source: DBS Vickers
Page 75

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stock picks for Hong Kong
SECTOR REMARKS STOCK SELECTION
Property
Neutral
Banking and Finance
NEUTRAL
Telecom
Neutral
Industrial
Neutral
Home prices ceased to rise from October with market activities to slow down. We
believe that the housing market will take a breather in the next few months after a
sharp liquidity-driven rally in 2009. The Hong Kong Monetary Authority has tightened
mortgage lending towards luxury homes. Policy risk is increasing but we believe that the
government prefers to maintain the status quo provided that it is not under strong
public pressure to cool down the market. Nevertheless, no major positive sector catalyst
is anticipated for property developers. Within the sector, we like Henderson Land which
enlarged its land bank after it agreed on land premium for its Wu Kai Sha project. Office
market is showing signs of bottoming out while retail market continued its recovery.
Swire Pacific’s planned spin-off of its property division could boost the valuation of
landlords.
M&A is the dominating theme for Hong Kong banks given most of the improved
fundamentals for this year should have been priced. We believe BEA, Dah Sing and
Wing Hang are the major beneficiaries of ongoing M&A rumour. As for BEA, the M&A
speculation is a win-win game for Guoco & minority shareholders regardless of whether
Guoco can ultimately take control of BEA. As long as Guoco does not cut its BEA stake
any time soon, M&A speculation will linger on. The Li family and/or its “friends” may
also raise stakes in BEA. The sector is still on a secular uptrend longer run but ROE
improvement would be a slow process while NIM recovery will be in contingent with the
pace of rate hikes in the US (which may only happen towards 4Q10). Loan growth has
recovered in 2H09 and should continue to recover gradually next year. Asset quality
remains benign but recovery in wealth management remains slow.
Though competition in the local mobile telecom market has stabilized, local telecom
operators are facing growing pressure on handset subsidies in the wake of the
increasing popularity of smart phones that need higher subsidies. Meanwhile, mobile
operators are in another rush to upgrade networks towards 4G in the coming few years.
In this regard, we do not expect earnings surprises despite steady ARPU expansion.
Instead, we see breathing room in the broadband market. As capex on broadband
fixed-line networks has stabilized, ARPU is on the uptrend with enriching contents. In
companies, we prefer City Telecom, which is a leading pure fixed-line, broadband, and
IPTV provider.
Thanks to discounts on electronics and toys, US retail sales on Black Friday and the
weekend after Thanksgiving showed a growth of 0.5%, according to the National Retail
Federation. The number of shoppers at stores and on internet over the holiday weekend
increased to 195m from 172m a year ago. These evidenced consumers were willing to
spend for a bargain and this would be positive for discount stores and budget retailers.
As such, we like Li & Fung which offers procurement services at competitive prices to
most budget retailers. In addition, we expect Li & Fung to announce more acquisitions
which will be good share price catalyst.
China South Locomotive & Rolling Stock (CSR) should benefit from the accelerated
railway development program by the Ministry of Railway and high demand for
technically advanced train vehicles following the construction of new high-speed train
tracks. CSR has secured a large order this year and the attributable amount is
RMB58.7bn. We believe CSR will continue to win big projects as the new tracts are
completed in coming years.
Henderson Land (12 HK)
Swire Pacific “A” (19 HK)
BEA (23 HK)
Dah Sing Financial (440 HK)
City Telecom (1137 HK)
Li & Fung (494 HK)
China South Locomotive & Rolling
Stock (1766 HK)
Page 76

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stock picks for Hong Kong (Cont’d)
SECTOR REMARKS STOCK SELECTION
Consumer
Neutral
Helped by improving tourist arrivals and better consumer sentiment, retail sales growth
in HK trended back to positive territory in September after falling for seven consecutive
months. Going forward, with more favourable base effect and continual macro
improvement, the momentum will likely continue. While better demand should bring in
some relief to local retailers, the rebound is likely to be mild, which coupled with
sustaining high costs (both on rental and production costs as inflation kicks in), means
limited upside on margin. In this segment, we like Sa Sa which is on track for a solid
sales recovery as well as Café de Coral which provides better earnings visibilities.
Sa Sa (178 HK)
Café de Coral (341 HK)
Power
Volatility in the market would bring interest to HK power companies for their resilient
earnings whilst offering good dividend yield. Earnings are highly visible and regulated
under the Scheme of Control (SOC) agreement. The widening spread between Hong
Kong’s government bond yield and HK power companies’ dividend yield offers investors
an attractive entry point. Cheung Kong Infrastructure is our top pick in this sector as it is
most leveraged to M&A growth considering its strong balance sheet and a cash war
chest of HK$10b.
Cheung Kong Infrastructure
(1038 HK)
Page 77

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stock picks for China
SECTOR REMARKS STOCK SELECTION
Banking
Positive
Basic Materials –
Specialty Chemicals
Neutral
We remain POSITIVE on Chinese banks, despite short-term sentiment is affected by concerns
over capital-raising and Dubai World’s potential default. We have recently raised our 2010-
11F EPS (HK$) and target prices, after imputing 3% RMB appreciation and faster-thanexpected
loan growth next year. We now project RMB7.9trn new RMB loan in 2010
(original: RMB6.5trn) or 20% sectoral loan growth (original: 15.5%). Most banks still expect
slight positive growth in 4Q09 and are guiding reasonable loan growth next year. CBRC
immediately denied the rumoured 13% new total CAR requirement. Options exist to
mitigate full equity-raising: (1) No dividend for 2009-10 (2) issuance of T2 capital. Even if
banks are to reach 10% T1 CAR and 13% total CAR, equity dilution impact would only be <
10% (except BoComm & Minsheng), below 24% 3-year earnings CAGR. We expect mild
rate hike of 81bps starting 2Q10 to drive NIM and ROE recovery of banks. History shows
banks’ valuations kept re-rated when interest rates are hiked, as rate hikes usually go along
with good economic outlook and improving NIM. Chinese banks are only at mid-cycle
valuations, while Asian peers have already exceeded that. Our top picks are CCB and BOC,
and we prefer CMB among small banks.
The coming spring planting seasons should augur well for the fertilizer sector, as demand is
projected to rise. The average selling price of fertilizers should also improve in tandem with
rising demand. Overall, the positive government policy to further boost the agriculture sector
and better develop the rural areas should provide some support for fertilizer demand. The
current oversupply across different fertilizer types is improving.
CCB (939 HK)
BOC (3988 HK)
China BlueChem (3983
HK)
Construction &
Infrastructure
Positive
2009 has been a bountiful year for the infrastructure construction companies, with new
orders at record high. New project momentum is expected to continue into 2010, hence
positive on backlogs with earnings visibility for the next 3 years. We expect new investments
on infrastructure projects to peak towards end 2010 or early 2011. Judging from the new
project starts in 1H09 by the three major players, the momentum was rapid and has resulted
in some upfront costs expensed but as projects have not reached profit recognition stage,
mismatch in profit and cost has dragged blended GP margins slightly lower. We expect these
projects to start generating profits from 2H09. We believe China Railway Construction’s
strong overseas presence will fill the earnings gap when the domestic construction sector
slows.
China Railway
Construction (1186 HK)
Page 78

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stock picks for China (Cont’d)
SECTOR REMARKS STOCK SELECTION
Telecoms
Neutral – Telco
Services
Positive –
Hardware and
infrastructure
Property
Neutral
The China telecom sector has been a laggard sector in the past few months, as the market
continues to be concern over competition, capex, handset subsides etc. However, we believe
the situation will be stabilizing next year. First of all, 2G competition has stabilized as evident
from stabilizing 2G ARPU. Second, capex should have peaked this year, and should be
declining going forward. Thirdly, the whole 3G value chain has become mature in China.
Valuation on the three China telcos are divergent with China Mobile offering the most
attractive valuation (low-teen FY10 PE) and China Unicom highest (over 18x) PE multiples. In
fundamentals, CM offers the best earnings visibility over the next two years. Though CM has
lagged behind in 3G network coverage, it has taken a lead in terms of 4G LTD planning,
development of new 3G business and innovation of new business model (like Ophone). In
this regard, CM would continue to maintain its 2G dominance while the long-term outlook is
also promising. For China Telecom, we believe its wireline business (fixed-line and
broadband) will regain growth from next year, while its mobile business is gaining growth
momentum as seen from accelerating mobile user growth. Hence, CT offers the most upside
with limited downside. We remain cautious on China Unicom. By business segments, CU is
losing strength in 2G mobile business due to declining capex (shifted to 3G) while it might
take long time to integrate its wireline and mobile business. At the meanwhile, opex led by
depreciation will be soaring in the coming few years. In stock picks, we continue to
recommend CM and CT.
We remains positive on the telecom equipments sector, as we expect the 3G-driven strong
growth momentum to extend to 1H10 at least, while long-term growth is sustainable on
gaining global market share. By companies, ZTE and Comba’s share prices have seen some
correction in the past few weeks, which might provide good opportunities to accumulate on
the counters. CCS has been a laggard, while Citic 1616 has been re-rated over the past few
months. Looking ahead, we expect continued re-rating on ZTE, Comba and Citic 1616 for
their gaining global market share. We expect a catch-up in CCS for gaining market share in
northern China areas.
Chinese government’s decision to support demand from first-time homebuyers and
upgraders means substantial correction in sales volume in 2010 is unlikely. We believe sales
volume would be kept at decent level to maintain the growth of the sector, which in turn
will contribute to China’s economic growth. Investment and speculative demand are likely to
be controlled to prevent rapid rise in property prices. While investment demand is likely to
retreat, the impact shall not be substantial. Investment demand accounts for only 10% and
20% of total purchases in tier II and tier I cities. In terms of property price outlook, we
believe tier II cities are likely to outperform tier I cities as China continues to promote housing
demand in small and mid-sized cities. The substantial rise in ASP in Tier I cities might cap
price upside in 2010. Overall we foresee a normalization of sales volume and price in 2010
after an exceptional growth in 2009. We favour strong players with larger tier II and western
China exposure such as Shimao Property and CR land. We also suggest investors to buy
commercial plays given their attractive valuations. Office and retail rents have begun to
stabilize. With insurance funds, trust REITs and sovereign wealth funds starting to enter the
market, we expect capital value to be on uptrend. In addition, commercial plays are also less
exposed to policy risk. Developers with strong investment property exposure will benefit
from cap rate compression. We like Franshion and Shui On Land.
China Telecom (728 HK)
Comba (2342 HK)
CCS (552 HK)
Franshion Property (817
HK)
Shimao Property (813
HK)
Shui On Land (272 HK)
Page 79

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stock picks for China (Cont’d)
SECTOR REMARKS STOCK SELECTION
China Consumer -
Food & Beverages
Neutral
China Consumer -
Retail
Neutral
Industrial
Transportation -
Marine
Cautious
Industrial
Transportation -
Toll Road
Positive
Lower raw material costs continued to benefit F&B players’ margins in the Q309. The margin
improvement should continue into the Q4 as most players should have largely locked in raw
material costs for the rest of the year. The impact, however, is expected to wane off FY10 as
some rebounds in a few soft commodities as well as in fuel costs lately. Despite this, F&B players
should still offer investors decent earnings visibilities considering resilient demand for their
products and their proven ability to ride out impact of higher costs. As such, we expect the
valuation premium to sustain though we are taking a more selective view on stock
recommendation considering the strong run in the past few months. Our top pick is China
Mengniu, which is expected to report record high earnings with valuation still lagging behind
other peers.
Retail sales growth in China accelerated to rise by 16.2% for Oct09, in part due to the late arrival
of National Day Golden Week holiday and longer holiday duration of 8 days versus 7 days in
2008. While inner China remained the stronger growth region, selective export-oriented provinces
like Guangdong also saw an improving performance trend. For the first 10 months this year, retail
sales growth reached 15.3%, edging up 0.2ppt against the growth in 9M09. While the share
price of certain retail plays could potentially consolidate following the good run in 2009, we
expect operators with stronger fundamentals to re-emerge for better growth prospects on the
back of an improving Chinese consumer market and a lower base in 1Q09. We also like valuation
laggards as more consistent performances are expected across the retail sector ahead.
We are looking for the possible second dips of the sector’s performance after the technical
rebound in 4Q09. Looking forward, the current 4,000 BDI level is not expected to sustain amid
the high level of newbuilds delivery in 2010-11 as well as the possible end of re-stocking iron ore
in China. We believe the smaller vessels should perform better than the large vessels, given their
less severe over-capacity problem. In this regard, we maintain our Hold rating for Pacific Basin
Shipping and Sell rating for China COSCO. We maintain Fully valued for China Shipping
Development, which will start the negotiation of new contract rates for coastal shipment early
next year. In view of the recent strength in BDI, we believe the cut of new contract rates may
probably be less than previously expected.
For the container shipping counters, we expect the current freight rates will come down again
very soon, as the demand has started to fall after the peak season. Although shipping companies
have applied different measures, such as vessel lay-up and super slow steaming, to mitigate the
over-capacity problem, we maintain a negative view to the sector on their fragile earnings
fundamental. We remain Sell on CSCL and Hold on OOIL.
Highway traffic in China continued to show improvement in traffic volume and toll revenue
growth, with 9M09 passenger traffic and cargo traffic growth at 20% and 14% y-o-y
respectively, even higher than China’s resilient GDP growth. Going forward, we are positive on
the country’s highway traffic growth, considering the high correlation between highway traffic
and GDP growth. Our top picks are Jiangsu Expressway and Shenzhen Expressway. Jiangsu
Expressway’s core asset – Huning Expressway, between Shanghai and Nanjing, is a matured toll
road with steady growth in traffic driven by the two economic engines in the Yangtze River, which
assures the defensive nature of the counter together with its sizable market cap of > US$5b and
consistent payout ratio of > 80%. Shenzhen Expressway, the only counter in the toll road sector
trading below its book value, was aggressively sold down during last cycle as China’s export front
was most severely hit. We hold the view that its current valuations reflect unnecessary worries
about its high gearing and over pessimism on its toll revenue growth prospects. In fact, Shenzhen
Expressway is approaching the end of its capex cycle and its new projects are ramping up better
than expected. So, in a scenario of stronger export recovery, Shenzhen Expressway would be the
biggest beneficiary, especially with its above average leverage.
China Mengniu
(2319 HK)
Li-Ning (2331 HK)
New World Dept
Store (825 HK)
OOIL (316 HK)
Pacific Basin
Shipping (2343 HK)
Shenzhen
Expressway (548
HK)
Jiangsu Expressway
(177 HK)
Page 80

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stock picks for China (Cont’d)
SECTOR REMARKS STOCK SELECTION
Oil & Gas
Positive
The market has recently focused on the timing of the natural gas price reform in China, amid the
recent shortage of gas supply in the peak demand season. As the government said it is unlikely to
see the new pricing reform by the end of this year, the speculation sentiment calmed down and
adversely affected the share price performance of two major beneficiaries, Petrochina (857 HK)
and Sinopec (386 HK). Moreover, when the crude price has approached US$80 a barrel, the
policy concern over domestic refining margin also led to underperformance of Sinopec.
The latest speculation of change in natural resource tax has also overshadowed the earnings
outlook of domestic oil companies. This would probably increase the tax burden of Sinopec and
Petrochina, and drive down their earnings by 5% and 9% in 2010 respectively. However, we
should not overstate the risk, as the government at this stage has not confirmed this rumour.
Moreover, we believe the possible earnings pressure from new natural resource tax will be largely
offset by possible earnings upside from natural gas price reform and higher crude oil price.
We expect the disappointment about delay in natural gas pricing reform and risk of new natural
resource tax will adversely the short-term share price performance of oil companies. However, we
consider this an attractive opportunity to bottom fish Sinopec, given its appealing valuation.
Moreover, we expect Sinopec to acquire the parent's overseas E&P assets in next couple of
months, which will be a catalyst for its share price. We also recommend investor to Buy
Petrochina, as the natural gas price reform may be delayed, but not derailed.
Sinopec (386 HK)
Petrochina (857 HK)
Pharmaceutical and
Healthcare
Positive
Technology
Power
Positive
Positive
As expected, we have seen strong re-rating impetus of the sector from the policy reform and IPO
of Sinopharm at high PE. For those major counters under our coverage, we identified several have
already reached historical new high in 4Q09, such as Sino Biopharmaceutical and China Shineway.
However, given their promising growth outlook, attractive value, strong balance sheet and
favourable policy support, we believe the re-rating of the sector has just begun and has a long
road ahead. Indeed, the pharmaceutical industry has shown that its growth is resilient to any
unpredictable economic risk ahead. In the sector, we maintain Buy on Sino Biopharmaceutical,
Guangzhou Pharmaceutical and China Shineway.
3Q results have been encouraging with more evidence of recovery strength mainly from the
consumer side. Although we have yet to see real action in the corporate markets, most industry
players have pointed to upgrade in demand in mid 2010 as further pent up demand is
released. The cost cutting and restructuring efforts seen in 4Q08 and 1Q09 continue to help
companies improve their expense to revenue ratios. Average selling prices have mostly remained
stable, as component supplies capacities have been well controlled. Under this environment, we
have seen some companies returning to pre-crisis level of sales and profitability. In turn, stock
prices have continued to trade favourably and valuation have started to show signs of
stretching. We believe the improvement will continue and earnings upgrade will continue in the
next quarter.
For exposure in this sector, we continue to like ASM Pacific (522 HK) for its strong order book,
solid market position, and its ability to gain share in the current business environment. We also
like AAC Acoustics as the Company continue to expand its market share in Global mobile brands’
supply chain.
We believe that China IPPs have been oversold due to tariff concerns. We understand that the
IPPs’ earnings will only be marginally impacted but the resultant average c.20% decline in share
price over the last 2 months presents a good buying opportunity into the IPPs. We believe that
current valuations do not account for the stronger fundamentals led by demand recovery, and
IPPs’ strong 1H09 results. We like CR Power and Huaneng for their relatively higher leverage to a
demand recovery due to their sheer presence size in China. Datang which is the least affected by
the tariff cut also offers attractive valuation at current share price.
China Shineway
(2877 HK)
ASM Pacific (522
HK)
AAC Acoustics
(2018 HK)
CR Power (836 HK)
Page 81

Regional Equity Strategy 1Q 2010
Bank of East Asia
Bloomberg: 23 HK | Reuters: 0023.HK
BUY HK$32.00 HSI : 21,700
Price Target : 12 HK$ 42.30
Potential Catalyst: Continued speculation on M&A, and recovery in
China and HK economy
Analyst
Jasmine Lai +852 2971 1926
jasmine_lai@hk.dbsvickers.com
Price Relative
HK$
55.10
50.10
45.10
40.10
35.10
30.10
25.10
20.10
15.10
10.10
Relative Index
2005 2006 2007 2008 2009
Bank of East Asia (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (HK$ m) 2008A 2009F 2010F 2011F
Pre-prov. Profit 678 3,876 4,492 4,969
Pre-prov. Profit Gth (%) (84) 472 16 11
Pretax Profit 8 3,281 4,066 4,683
Net Profit 39 2,581 3,212 3,698
EPS (HK$) 0.02 1.39 1.70 1.94
EPS Gth Pre Ex (%) (99) 6,427 23 14
PE (X) 1,499.1 23.0 18.8 16.5
DPS (HK$) 0.28 0.76 1.02 1.16
Div Yield (%) 0.9 2.4 3.2 3.6
BV Per Share (HK$) 17.47 19.21 20.88 22.61
P/Book Value (x) 1.8 1.7 1.5 1.4
ROAE (%) 0.1 7.6 8.5 8.9
ROAE (ex-exceptional (0.6) 7.0 8.2 8.6
ROA (%) 0.00 0.63 0.74 0.79
Earnings Rev (%): - - -
Consensus EPS (HK$): 1.34 1.58 2.02
ICB Industry: Financials
ICB Sector: Banks
Principal Business: BEA is the fifth largest bank in Hong Kong in
terms of total assets, with group operations primarily focusing on
SAR and Mainland China
Source of all data: Company, DBSV, Bloomberg, HKEX
221
201
181
161
141
121
101
81
61
The game is not over
• Win-win game for Guoco & minority shareholders
regardless of whether it can take control on BEA
• As long as Guoco does not cut its BEA stakes any time
soon, M&A speculation will linger on. Li family and/or
its “friends” may also raise stakes in BEA
• Our 12-month target price is based on 2.0x Dec-10
BVPS which included 30% M&A premium to fair
value. This offers decent upside of 32% from current
price. Maintain BUY.
Guoco still benefits with or without M&A. While it may
want to acquire BEA, Guoco should only do so at a reasonable
price (e.g. below 3.2x P/B, the price it sold Dao Heng). Guoco
also knows hostile-bidding BEA is no easy task. First, despite
we estimate it only hold 20-25% BEA, Li family has supports
from many “friends” (e.g. Criteria Caixa) and probably even
Beijing (e.g. BOC HK) as well. Second, minorities are unwilling
to sell BEA now amid the M&A rumours. Guoco will need to
pay more for further BEA stake and the price should increase
as it buys more. In fact, Guoco also welcomes such rumours
with value of its existing BEA stake rising further, even though
it may not successfully take control of BEA.
Limited downside. Guoco is a long-term value investor. Given
BEA is only at 1.6x 2010 P/B (way below previous peak of 3.1x
P/B in Dec-07), Guoco is unlikely to take profit on its BEA stake
so early even though its 4.5% stake may have been purchased
at a very low level before 2009. It has continuously raised its
BEA stake by 3.5% stake so far this year to 8.01%. The latest
purchases were 18.8m shares (1.0% stake) at HK$25-30
during late Aug and late Oct-09. We do not rule out the
possibilities that Guoco may buy more BEA. Besides, the Li
family or its “friends” and “associates” may further raise their
BEA stakes to secure the family’s control over BEA.
Deserve premium. Our 12-month target price of HK$42.30 is
based on 2.0x Dec-10 book which included 30% M&A
premium to fair value. We maintain our BUY recommendation.
At A Glance
Issued Capital (m shrs) 1,849
Mkt Cap (HK$m/US$m) 59,175 / 7,635
Major Shareholders (%)
Dr. David Li and associate (Est.) 20-25
Criteria CaixaCorp 8.17
Guoco Management Company 8.01
BOC (HK) 4.19
Free Float (%) 57.13
Avg Daily V olume (m shrs) 6.2
Page 82
www.dbsvickers.com
Refer to important disclosures at the end of this report
sa- AH

Regional Equity Strategy 1Q 2010
Bank of East Asia
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 6,793 6,566 7,416 8,232 Cash/Bank Balance 28,105 21,922 22,470 23,144
Non-Interest Income (336) 3,543 3,631 3,722 Government Securities 0 0 1 1
Operating Income 6,457 10,110 11,047 11,954 Inter Bank Assets 96,574 91,745 94,956 96,856
Operating Expenses (5,779) (6,234) (6,555) (6,985) Total Net Loans & Advs. 244,889 258,514 278,911 303,912
Pre-provision Profit 678 3,876 4,492 4,969 Investment 31,133 44,064 46,487 50,671
Provisions (954) (960) (722) (593) Associates 2,486 2,610 2,741 2,878
Associates 53 164 176 188 Fixed Assets 9,146 11,734 14,386 17,790
Exceptionals 231 200 120 120 Goodwill 2,734 4,110 4,110 4,110
Pre-tax Profit 8 3,281 4,066 4,683 Other Assets 187 187 201 219
Taxation 96 (621) (761) (873) Total Assets 415,254 434,887 464,261 499,579
Minority Interests (65) (78) (94) (112) Customer Deposits 323,802 338,373 363,751 394,670
Preference Dividend 0 0 1 1 Inter Bank Deposits 27,045 24,341 25,558 26,835
Net Profit 39 2,581 3,212 3,698 Debts/Borrowings 16,527 15,711 16,497 17,258
Net Profit bef Except (192) 2,381 3,093 3,579 Others 15,395 20,258 18,596 17,095
Minorities 339 373 380 388
Shareholders' Funds 32,146 35,831 39,479 43,332
Total Liab& S/H’s Funds 415,254 434,887 464,261 499,579
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Margins, Costs & Efficiency
Balance Sheet Structure
Yld. On Earnings Assets 4.45 3.13 3.24 3.31 Loan-to-Deposit Ratio 76.0 76.9 77.3 77.6
Avg Cost Of Funds 2.98 1.68 1.68 1.67 Net Loans / Total Assets 59.0 59.4 60.1 60.8
Spread 1.48 1.45 1.57 1.65 Investment / Total Assets 7.5 10.1 10.0 10.1
Net Interest Margin 1.73 1.60 1.72 1.79 Cust . Dep./Int. Bear. Liab. 88.1 89.4 89.6 90.0
Cost-to-Income Ratio 89.5 61.7 59.3 58.4 Interbank Dep / Int. Bear. 7.4 6.4 6.3 6.1
Employees ( Year End) 10,863 12,058 13,384 14,857 Asset Quality
Effective Tax Rate N/A 18.9 18.7 18.6 NPL / Total Gross Loans (%) 0.6 1.0 0.9 0.9
Business Mix Specific provision/NPL (%) 34.4 42.6 55.7 63.3
Net Int. Inc / Opg Inc. 105.2 65.0 67.1 68.9 General provision ratio (%) 0.2 0.3 0.3 0.3
Non-Int. Inc / Opg inc. (5.2) 35.0 32.9 31.1 Total provision/NPL (%) 67.8 68.6 83.0 92.4
Fee Inc / Opg Income 34.8 23.1 22.9 23.2 Capital Strength
Oth Non-Int Inc/Opg Inc (40.0) 11.9 9.9 7.9 Total CAR 13.8 14.3 14.3 14.3
Profitability Tier-1 CAR 9.2 9.1 9.2 9.3
ROAE Pre Ex. (0.6) 7.0 8.2 8.6
ROAE 0.1 7.6 8.5 8.9 Growth
ROA Pre Ex. (0.02) 0.59 0.71 0.77 Gross Loans 4 6 8 9
ROA 0.00 0.63 0.74 0.79 Customer Deposits 14 5 8 9
Z-Score (X) CASH CASH CASH CASH
Interim Income Statement (HK$m)
Key Assumptions
FY Dec 2H2007 1H2008 2H2008 1H2009 FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 3,215 3,483 3,310 3,234 NIM (%) 1.85 1.72 1.84 1.90
Non-Interest Income 1,121 202 (538) 1,717 Loan growth (%) 4 6 8 9
Operating Income 4,336 3,685 2,772 4,951 Net fee growth (%) 0 0 9 10
Operating Expenses (2,512) (2,764) (3,015) (3,041) Cost-to-income (%) 89.5 61.7 59.3 58.4
Pre-Provision Profit 1,824 921 (243) 1,910 Credit cost (%) 0.23 0.38 0.27 0.20
Provisions (350) (320) (634) (493)
Associates 40 95 (42) 79
Exceptionals 1,244 377 (146) 171
Pretax Profit 2,757 1,073 (1,065) 1,667
Taxation (447) (252) 348 (462)
Minority Interests (44) (36) (29) (36)
Net Profit 2,267 785 (746) 1,169
Source: Company, DBS Vickers
Page 83

Regional Equity Strategy 1Q 2010
Hang Seng Bank
Bloomberg: 11 HK | Reuters: 0011.HK
BUY HK$114.50 HSI : 21,700
Price Target : 12-Month HK$ 135.0
Potential Catalyst: Any US rate hike towards 4Q10 and further recovery
of HK economy
Analyst
Jasmine Lai +852 2971 1926
jasmine_lai@hk.dbsvickers.com
Price Relative
180
160
140
120
100
80
60
HK$
Relative Index
2005 2006 2007 2008 2009
Hang Seng Bank (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (HK$ m) 2008A 2009F 2010F 2011F
Pre-prov. Profit 16,501 14,959 16,604 18,057
Pre-prov. Profit Gth (%) (10) (9) 11 9
Pretax Profit 15,878 16,013 18,433 20,578
Net Profit 14,099 13,686 15,785 17,674
EPS (HK$) 7.37 7.16 8.26 9.24
EPS Gth Pre Ex (%) (23) (3) 15 12
PE (X) 15.5 16.0 13.9 12.4
DPS (HK$) 6.30 6.12 7.05 7.90
Div Yield (%) 5.5 5.3 6.2 6.9
BV Per Share (HK$) 27.00 29.80 31.20 32.75
P/Book Value (x) 4.2 3.8 3.7 3.5
ROAE (%) 26.1 25.2 27.1 28.9
ROAE (ex-exceptional 25.4 24.7 26.6 28.5
ROA (%) 1.87 1.72 1.85 1.97
Earnings Rev (%): - - -
Consensus EPS (HK$): 6.88 7.81 8.93
ICB Industry: Financials
ICB Sector: Banks
Principal Business: The third largest bank in Hong Kong, after
HSBC and BOCHK
Source of all data: Company, DBSV, Bloomberg, HKEX
221
201
181
161
141
121
101
81
61
Value exists, awaiting catalysts
• NIM is below-expected and still under slight
pressure in 2H09. NIM recovery may be delayed
with US rate hike likely to happen later than
expected
• Asset quality, though remains well below normal
level, continues to improve in 2H09.
• HSB remains undervalued with ROE recovery and
attractive dividend yield.
NIM down and loan up h-o-h in 2H09. NIM in 2H09
should still be under some pressure (we project 5bps h-o-h
decline vs 1H09’ 23bps fall). Persistent low Hibor continues to
drag return on free funds and deposit spread. Keen
competition in mortgage loans also put further NIM pressure.
Treasury NIM remains flat h-o-h, as HSB is not willing to take
interest rate and credit risks. It appears that NIM could remain
low throughout most of 2009, as any US interest rate hike
could be delayed until 4Q10 at the earliest.
Loan growth has recovered so far in 2H09 (low single-digit h-oh
growth), driven by mortgage, some pick-up in corporate loan
(particularly property investment) and recovery in China loan.
We forecast loan growth of 2.6% h-o-h in 2H09 (1H09: -1%)
and 1.5% for the full-year.
Provision down h-o-h in 2H09. As expected, NPL and hence
provision charge fell so far in 2H09 vs 1H09. Resilient property
price, low private sector debt, low interest rate and loose
monetary policy in China all contributed to benign asset quality
for HK banks in general. It is HSB’s strategy not to comment on
whether it has any Dubai exposure but we believe its exposure
would be insignificant if there is any.
Slow fee recovery. Wealth management business has
recovered mildly h-o-h in 2H09, though still low (about one-fifth
of the peak level). The recovery is driven by insurance, stockbroking
and some pick-up in unit trust sales. We only expect
slow recovery, as the SFC, the customers and the Bank are
cautious in approving, buying and cross-selling products amid
the Lehman mini-bond incident respectively.
Undemanding. HSB lacks share price catalyst in the shortterm,
as this hinges on US interest rate hike potential and hence
NIM outlook. Nonetheless, the counter is still below mid-cycle
valuation at 13.9x 2010 P/E and 3.7x 2010 P/B against high ROE
of 27%, HSB is still undervalued medium-term.
At A Glance
Issued Capital (m shrs) 1,912
Mkt Cap (HK$m/US$m) 218,906 / 28,246
Major Shareholders (%)
HSBC Holdings 62.14
Free Float (%) 37.86
Avg Daily Volume (m shrs) 2.2
Page 84
www.dbsvickers.com
Refer to important disclosures at the end of this report
sa- AH

Regional Equity Strategy 1Q 2010
Hang Seng Bank
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 16,232 14,763 16,038 17,322 Cash/Bank Balance 69,579 57,055 60,478 63,502
Non-Interest Income 7,064 6,883 7,350 7,925 Government Securities 0 0 0 0
Operating Income 23,296 21,645 23,388 25,248 Inter Bank Assets 24,822 52,126 55,254 58,016
Operating Expenses (6,795) (6,687) (6,784) (7,191) Total Net Loans & Advs. 329,121 333,652 346,242 360,775
Pre-provision Profit 16,501 14,959 16,604 18,057 Investment 304,450 345,088 365,793 384,083
Provisions (2,776) (1,093) (793) (693) Associates 8,870 10,478 12,485 14,991
Associates 1,807 1,897 2,372 2,965 Fixed Assets 10,234 14,145 14,385 17,712
Exceptionals 346 250 250 250 Goodwill 3,385 3,621 3,621 3,621
Pre-tax Profit 15,878 16,013 18,433 20,578 Other Assets 11,707 15,404 15,404 15,404
Taxation (1,779) (2,327) (2,648) (2,904) Total Assets 762,168 831,569 873,662 918,104
Minority Interests 0 0 0 0 Customer Deposits 562,183 618,401 649,321 681,787
Preference Dividend 0 0 0 0 Inter Bank Deposits 11,556 12,249 12,984 13,763
Net Profit 14,099 13,686 15,785 17,674 Debts/Borrowings 9,309 9,309 9,309 9,309
Net Profit bef Except 13,753 13,436 15,535 17,424 Others 127,494 134,639 142,403 150,631
Minorities 0 0 0 0
Shareholders' Funds 51,626 56,970 59,644 62,613
Total Liab& S/H’s Funds 762,168 831,569 873,662 918,104
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Margins, Costs & Efficiency
Balance Sheet Structure
Yld. On Earnings Assets 3.66 2.35 2.39 2.45 Loan-to-Deposit Ratio 58.9 54.4 53.7 53.3
Avg Cost Of Funds 1.70 0.50 0.50 0.50 Net Loans / Total Assets 43.2 40.1 39.6 39.3
Spread 1.95 1.85 1.89 1.95 Investment / Total Assets 39.9 41.5 41.9 41.8
Net Interest Margin 2.27 1.94 1.98 2.04 Cust . Dep./Int. Bear. Liab. 96.0 96.0 96.0 96.0
Cost-to-Income Ratio 29.2 30.9 29.0 28.5 Interbank Dep / Int. Bear. 2.0 1.9 1.9 1.9
Employees ( Year End) 9,764 9,569 9,377 9,190 Asset Quality
Effective Tax Rate 11.2 14.5 14.4 14.1 NPL / Total Gross Loans (%) 1.0 1.0 0.9 0.8
Business Mix Specific provision/NPL (%) 36.5 46.8 50.7 52.4
Net Int. Inc / Opg Inc. 69.7 68.2 68.6 68.6 General provision ratio (%) 0.2 0.3 0.3 0.3
Non-Int. Inc / Opg inc. 30.3 31.8 31.4 31.4 Total provision/NPL (%) 60.0 73.9 83.4 90.1
Fee Inc / Opg Income 26.8 22.6 23.0 23.3 Capital Strength
Oth Non-Int Inc/Opg Inc 3.5 9.2 8.4 8.1 Total CAR 10.9 13.2 13.4 13.6
Profitability Tier-1 CAR 8.8 9.4 9.7 10.1
ROAE Pre Ex. 25.4 24.7 26.6 28.5
ROAE 26.1 25.2 27.1 28.9 Growth
ROA Pre Ex. 1.83 1.69 1.83 1.95 Gross Loans 7 2 4 4
ROA 1.87 1.72 1.85 1.97 Customer Deposits 3 10 5 5
Z-Score (X) CASH CASH CASH CASH
Interim Income Statement (HK$m)
Key Assumptions
FY Dec 2H2007 1H2008 2H2008 1H2009 FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 8,023 8,252 7,980 7,275 NIM (%) 2.36 2.03 2.07 2.13
Non-Interest Income 6,025 4,368 2,696 3,301 Loan growth (%) 7 2 4 4
Operating Income 14,048 12,620 10,676 10,576 Fee growth (%) 11 25 25 8
Operating Expenses (3,736) (3,320) (3,475) (3,215) Cost-to-income (%) 29.2 30.9 29.0 28.5
Pre-Provision Profit 10,312 9,300 7,201 7,361 Credit cost (%) 0.87 0.33 0.23 0.19
Provisions (296) (188) (2,588) (621)
Associates 682 943 864 763
Exceptionals 555 475 (129) 115
Pretax Profit 11,253 10,530 5,348 7,618
Taxation (1,715) (1,466) (313) (1,167)
Minority Interests (163) 0 0 0
Net Profit 9,375 9,064 5,035 6,451
Source: Company, DBS Vickers
Page 85

Regional Equity Strategy 1Q 2010
Henderson Land
Bloomberg: 12 HK | Reuters: 0012.HK
BUY HK$57.05 HSI: 21,700
Price Target : 12-Month HK$HK$ 66.2
Potential Catalyst: Land acquisition
Analyst
Jeff Yau CFA· (852) 2820 4912 ·
Jeff_yau@hk.dbsvickers.com
Price Relative
HK$
80.50
70.50
60.50
50.50
40.50
30.50
Relative
Index
20.50
63
2005 2006 2007 2008 2009
Henderson Land (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (HK $m) 2007A 2008A 2009F^ 2010F
Turnover 8,356 13,492 12,323 11,222
EBITDA 3,188 4,568 4,557 4,604
Pretax Profit* 7,783 7,033 6,843 8,038
Net Profit* 5,883 5,707 5,723 6,225
EPS (HK$) 3.10 2.78 2.67 2.90
EPS Gth (%) 6.9 (10.4) (4.2) 8.8
PE (x) 18.4 20.5 32.1 19.7
P/Cash Flow (x) 131.7 1,182.5 (112.4) (69.3)
EV/EBITDA (x) 45.6 31.8 31.9 31.6
DPS (HK$) 1.10 1.10 1.30 1.10
Div Yield (%) 1.9 1.9 1.5 1.9
Net Gearing (%) 9.5 16.5 19.6 21.9
ROE (%) 6.9 5.3 4.6 4.6
Est. NAV (HK$) 68.7 73.6
Discount to NAV (%) (17) (22)
Consensus EPS (HK$) n.a. n.a.
Financial year-end for FY07 and 08 is Jun
* Exclude fair value changes on investment properties.
^ FY09 PE and dividend yield is based on annualised EPS and DPS
as FY09 comprises 18-month results (Jul08-Dec09) after the
company changed financial year-end to Dec from Jun
ICB Industry: Financials
ICB Sector: Real Estate Holding & Development
Principal Business: Property development, real estate
management, and property rental
Source of all data: Company, DBSV, Bloomberg, HKEX
203
183
163
143
123
103
83
Land bank boost
• Concludes premium for Wu Kai Sha project and
acquisition of old buildings for redevelopment,
boosting land bank.
• Lucrative projects, 39 Conduit Road and Hill Paramount,
should be earnings driver.
• Maintain BUY with TP of HK$66.2.
Expanding land bank via farmland conversion and
redevelopment of old buildings. Henderson Land Development
(HLD) has finally concluded the land premium for Wu Kai Sha
project, at HK$9.6bn (HK$3,253psf). Located near Wu Kai Sha
MTR Station with a panoramic seaview, this large development
will offer c.3,000 residential units with 2.95m sf GFA. HLD has
56.8% effective stake (1.67m sf). Break-even cost is estimated at
HK$4,800psf, assuming marketable GFA is 15% larger than
quoted GFA. And assuming HK$6,200psf ASP, it should generate
23% pre-tax margin and HK$2.7bn attributable pre-tax profit to
HLD. HLD is also negotiating land premium for two Yuen Long
sites - at Tai Tong Road and Wo Sang Wai. When concluded
(likely in 2010), these two projects will offer a combined 1.79m sf
of attributable GFA to HLD. Elsewhere, HLD acquired majority
stakes in nine old buildings that will offer combined 0.95m sf of
GFA upon redevelopment. The total acquisition cost is reasonable
at HK$4.2bn (average HK$4430psf). These projects should offer c.
30% pre-tax margin.
Lucrative projects will dominate development earnings. HLD
launched 39 Conduit Road in Mid-levels in Oct and has sold 25
units (38% of total) at ASP of c.HK$40,000psf. One duplex
fetched over HK$71,000psf, a global record for apartments. We
estimate this luxury project, if fully sold, could generate HK$3.5bn
attributable pre-tax earnings. Coupled with Hill Paramount in
Shatin, it should dominate HLD’s development earnings in the
next two years. HLD has also been growing its recurrent income
base. In 2007, it acquired Hong Kong China Gas stake from
Henderson Investment. The addition of Kwun Tong 223 and
Beijing World Financial Centre should augment rental earnings,
implying better earnings quality ahead.
Maintain BUY. HLD is trading at 17% discount to our assessed
current NAV. This is inexpensive given improving growth
prospects. We applied 10% discount to our Dec 2010 NAV
estimate to derive a HK$66.2 target price, implying 16% upside
potential. There could be upside to NAV and share price arising
from further land bank expansion.
At A Glance
Issued Capital (m shrs) 2,147
Mkt Cap (HK$m/US$m) 122,472 / 15,803
Major Shareholders (%)
Lee Shau-Kee 53.88
Third Avenue Management 7.01
Free Float (%) 39.11
Avg Daily V olume (m shrs) 3.5
Page 86
www.dbsvickers.com
Refer to important disclosures at the end of this report
sa- AH

Regional Equity Strategy 1Q 2010
Henderson Land
Income Statement (HK$m)
FY Dec 2007A 2008A 2009F^ 2010F
Turnover 8,356 13,492 12,323 11,222
EBITDA 3,188 4,568 4,557 4,604
Depr/Amort (115) (173) (272) (186)
Opg Profit 3,073 4,395 4,284 4,418
Associates Inc 4,804 3,171 3,689 4,070
Interest (Exp)/Inc (239) (533) (1,130) (450)
Exceptionals 145 - - -
Pre-Tax Profit 7,783 7,033 6,843 8,038
Tax (395) (678) (946) (1,111)
Minority Interest (1,505) (648) (175) (702)
Net Profit 5,883 5,707 5,723 6,225
Sales Growth (%) 23.4 61.5 (8.7) (8.9)
Net Profit Gr (%) 11.7 (3.0) 0.3 8.8
EBITDA Mgn (%) 38.2 33.9 37.0 41.0
Opg Mgn (%) 36.8 32.6 34.8 39.4
Tax Rate (%) 5.1 9.6 13.8 13.8
Balance Sheet (HK$m)
FY Dec 2007A 2008A 2009F 2010F
Fixed Assets 52,831 59,912 66,837 73,405
Other LT Assets 35,116 51,637 54,546 59,397
Cash/ST Investments 9,588 15,829 12,270 7,973
Other Current Assets 35,363 47,536 53,958 61,335
Total Assets 132,897 174,914 187,611 202,110
ST Debt 3,007 3,307 3,707 4,107
Other Current Liab 5,134 5,468 5,568 5,718
LT Debt 15,263 32,319 33,919 34,519
Other LT Liab 8,749 9,622 10,788 12,142
Minority Interests 8,525 2,978 3,562 4,634
Shareholders' Equity 92,219 121,220 130,068 140,990
Total Capital 132,897 174,914 187,611 202,110
Share Capital (m) 1,943 2,147 2,147 2,147
Net Cash/(Debt) (8,750) (19,951) (25,510) (30,807)
Working Capital 36,809 54,590 56,953 59,483
Net Gearing (%) 9 16 20 22
Cash Flow Statement (HK$m)
FY Dec 2007A 2008A 2009F^ 2010F
EBIT 3,073 4,395 4,284 4,418
Tax Paid (298) (592) (946) (1,111)
Depr/Amort 115 173 272 186
Chg in Wkg Cap (2,083) (3,928) (5,802) (6,527)
Othr Non-Cash (194) (490) 250 250
Operational CF 614 (442) (1,941) (2,784)
Capex (911) 235 (229) (250)
Assoc, MI, Invsmt 8,967 (1,558) 880 920
Investment CF 8,056 (1,323) 651 670
Net Chg in Debt (2,542) 14,096 2,000 1,000
New Capital 5,508 - -
Dividend (7,321) (2,494) (2,369) (1,783)
Other financing CF (2,469) (4,402) (1,900) (1,400)
Financing CF (6,825) 7,200 (2,269) (2,183)
Chg in Cash 1,845 5,435 (3,559) (4,297)
Chg in Net Cash 4,387 (8,661) (5,559) (5,297)
Segmental Breakdown (HK$m)/Key Assumptions
FY Dec 2007A 2008A 2009F^ 2010F
Property trading 4,658 9,173 6,670 6,465
Property investment 2,484 2,625 4,086 3,141
Building construction 101 317 333 349
Infrastructure 189 272 150 158
Hotel operation 133 186 140 140
Others 791 919 944 969
Total sales 8,356 13,492 12,323 11,222
Key assumptions (%)
Property trading growth 72.0 96.9 (27.3) (3.1)
Property investment
growth 9.9 5.7 55.6 (23.1)
Note:
Financial year-end for FY07 and 08 is Jun
^ FY09 comprises 18-month results (Jul08-Dec09) after the company changed financial year-end to Dec from Jun
Source: Company, DBS Vickers
Page 87

Regional Equity Strategy 1Q 2010
The Link REIT
Bloomberg: 823 HK EQUITY | Reuters: 0823.HK
BUY HK$19.32 HSI: 21,700
Price Target : 12-Month HK$HK$ 22.5
Potential Catalyst: Effective cost control, asset enhancement
initiatives
Analyst
Jeff Yau CFA· (852) 2820 4912 ·
Jeff_yau@hk.dbsvickers.com
Price Relative
HK$
20.50
18.50
16.50
14.50
12.50
10.50
2005 2006 2007 2008
Relative
Index
Link REIT (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Mar (HK$m) 2008A 2009A 2010F 2011F
Gross revenue 4,199 4,503 4,963 5,315
Net property income 2,537 2,805 3,296 3,612
Net Profit 5,139 622 2,194 2,443
Distribution income 1,602 1,819 2,144 2,393
DPU (HK$) 0.744 0.840 0.983 1.097
DPU Gth (%) 10.4 12.9 17.1 11.6
Div Yield (%) 3.9 4.3 5.1 5.7
Gross Gearing (%) 24.2 23.7 20.9 21.0
Book NAV (HK$) 14.16 13.48 15.25 15.89
P/Book NAV (x) 1.4 1.4 1.3 1.2
Consensus DPU (HK$) 0.96 1.03
I ICB Industry: Financials
ICB Sector: REIT
Principal Business: Leasing of retail and carpark facilities in Hong
Kong
Source of all data: Company, DBSV, Bloomberg, HKEX
213
193
173
153
133
113
93
73
53
Multiple growth drivers
• Asset enhancement programs to steer growth
• Cost containment efforts to give an extra boost to
bottom-line
• Reiterate BUY with DDM-based TP of HK$22.5
Asset enhancement works bearing fruit. The Link REIT has
been unlocking the hidden value of its under-rented retail property
portfolio with the aid of asset enhancement works over the past
years. So far, The Link REIT has completed 13 asset enhancement
projects which contributed c.21% of revenue (excluding car park
income) in 1HFY10. The refurbished retail centres usually register
significant rental growth with improved trade and tenant mix. The
three newly completed asset enhancement projects at Kwai Fong,
Wo Che and Wong Tai Sin achieved 16-25% return on investment.
The Link REIT is scheduled to complete three more asset
enhancement projects in 2HFY10 and four in FY11. Overall, asset
enhancement projects should play an increasingly important role in
driving The Link REIT’s rental revenue, which is forecast to rise 10%
in FY10 followed by 7% growth in FY11.
Cost containment initiatives provide additional growth
impetus. Even including provisions for car park wavier fee, property
expenses unexpectedly fell 3.9% in 1HFY10, driven by considerably
lower utility cost. From Nov 09, The Link assumed the direct property
management for all of its retail facilities. This should not only enable
The Link REIT to provide better services to tenants but also save on
operating expenses (estimated HK$40m p.a.). All considered, we
estimate cost-to-income ratio will improve to 33.6% in FY10 and
32% in FY11, from FY09’s 37.7%.
Maintain BUY. With distribution yields of 5.1% for FY10 and
5.7% for FY11, The Link REIT remains attractive in view of its resilient
income and promising growth prospects. Positive retail rental
reversions and asset enhancement works should boost rental receipts
while cost containment initiatives should lower property expenses.
These should lead to rising distribution income. Our DDM-based
target price of HK$22.5 suggests a total return of 21% and hence
our BUY call.
At A Glance
Issued Capital (m shrs) 2,181
Mkt Cap (HK$m/US$m) 42,134 / 5,437
Major Shareholders (%)
Franklin Mutual Advisers 8.02
The Children's Investment Master Fund 7.99
Commonwealth Bank of Australia 5.02
Free Float (%) 78.97
Avg Daily Volume (m shrs) 8.4
Page 88
www.dbsvickers.com
Refer to important disclosures at the end of this report
sa- AH

Regional Equity Strategy 1Q 2010
The Link REIT
Income Statement (HK$m)
FY Mar 2008A 2009A 2010F 2011F
Gross revenue 4,199 4,503 4,963 5,315
Property expenses (1,662) (1,698) (1,668) (1,703)
Net property income 2,537 2,805 3,296 3,612
Other expenses (102) (134) (137) (146)
Interest (Exp)/Inc (526) (474) (516) (522)
Exceptionals 4,265 (1,865) - -
Pre-Tax Profit 6,174 332 2,643 2,943
Tax (1,035) 290 (449) (500)
Minority Interest - - - -
Net Profit 5,139 622 2,194 2,443
Distribution income 1,602 1,819 2,144 2,393
Sales Growth (%) 6.2 7.2 10.2 7.1
Distr. Inc Gr (%) 11.2 13.6 17.9 11.6
DPU Growth (%) 10.4 12.9 17.1 11.6
Cash Flow Statement (HK$m)
FY Mar 2008A 2009A 2010F 2011F
Pre-tax income 6,174 332 2,643 2,943
Tax Paid (113) (183) (449) (500)
Depr/Amort 14 16 16 16
Chg in Wkg Cap 159 375 45 (25)
Othr Non-Cash (3,717) 2,354 516 522
Operational CF 2,517 2,894 2,771 2,956
Capex (495) (849) (760) (670)
Assoc, MI, Invsmt (200) 1,080 210 109
Investment CF (695) 231 (550) (561)
Net Chg in Debt - (654) (488) 500
New Capital - - - -
Dividend (1,154) (1,570) (1,750) (2,266)
Other financing CF (604) (510) (526) (531)
Financing CF (1,758) (2,734) (2,764) (2,297)
Chg in Cash 64 391 (543) 98
Chg in Net Cash 64 1,045 (55) (402)
Balance Sheet (HK$m)
FY Mar 2008A 2009A 2010F 2011F
Fixed Assets 44,353 43,320 48,390 50,493
Other LT Assets 3,988 3,988 3,988 3,988
Cash/ST Investments 1,870 1,230 487 485
Other Current Assets 137 142 127 137
Total Assets 50,348 48,680 52,991 55,103
ST Debt 2,199 - - -
Other Current Liab 1,282 1,689 1,719 1,704
LT Debt 9,986 11,538 11,050 11,550
Other LT Liab 6,323 6,252 6,966 7,205
Minority Interests - - - -
Unitholders' Fund 30,558 29,201 33,256 34,644
Total Capital 50,348 48,680 52,991 55,103
Share Capital (m) 2,159 2,167 2,181 2,181
Gross Debt (12,185) (11,538) (11,050) (11,550)
Working Capital (1,474) (317) (1,105) (1,082)
Book NAV (HK$) 14.16 13.48 15.25 15.89
Gross Gearing (%) 24 24 21 21
Segmental Breakdown (HK$m)/Key Assumptions
FY Mar 2008A 2009A 2010F 2011F
Rental income from retail
properties 3,017 3,260 3,687 4,011
Gross rental receipts from
carparks 934 982 995 1,015
Other revenues 248 261 282 289
4,199 4,503 4,963 5,315
Key assumptions (%)
Rental income from retail
properties growth 6.5 8.1 13.1 8.8
Gross rental receipts from
carparks growth 6.1 5.1 1.3 2.0
Source: Company, DBS Vickers
Page 89

Regional Equity Strategy 1Q 2010
Country Assessment
Malaysia
On the verge of a transformation
We foresee that the longer term uptrend for equities is
intact, supported by further strengthening of the
economic recovery, robust liquidity, positive domestic
news flow and projected appreciation of the Ringgit.
Nevertheless, there would likely be intermittent profittaking
in the near term following the benchmark index’s
impressive 50% gain from the March low. We
recommend being selective in stock picks.
We expect a sharp rebound in GDP growth of 5% in 2010 (from -2.4% in 2009).
Reforms and initiatives introduced by the new Prime Minister to attract
investments, stimulate growth and transform into a high income economy should
continue in 2010. We are keen on potential opportunities for private sector
participation with government land sales and privatization projects. Stake sales in
government linked companies should help improve liquidity and weightings. By
end-2010, we expect the Ringgit to appreciate c.5% against the USD. This could
boost foreign fund ownership, which is at its lowest since end-2004.
In terms of themes and picks, we are excited over the value-enhancement
opportunities from redevelopment of strategic government land. MRCB would be
well-positioned for such prospects with proceeds from its rights issue, in our view.
Players with a strong balance sheet and excellent track record such as SP Setia
could also participate in such projects. 2010 should also mark the award of several
mega projects where potential beneficiaries include Gamuda, IJM Corp and
MRCB. We like banks as proxies to the strengthening of the economic recovery.
Our picks are CIMB, Public Bank, Hong Leong Bank and EON Capital. Other picks
include Tenaga, Tanjong, MISC, Malaysia Airports, E&O, DNP and Alam Maritim.
Wong Ming Tek (603) 2711 0956 mingtek@hwangdbsvickers.com.my
Malaysia Research Team
Page 90
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: LM / sa: TW

Regional Equity Strategy 1Q 2010
Country Assessment
Market Data
Indices Closed Chg Net -1 mth -3 mth -6 mth -12 mth 52-Week
10 Dec 09 -1 mth (%) (%) (%) (%) High Low
KLCI 1,219 50 4 14 4 22 1,219 829
KLCON Index 235 10 4 13 9 31 235 135
KLCSU Index 366 15 4 14 21 28 367 262
KLFIN Index 9,962 507 5 16 8 22 9,962 6,136
KLIND Index 2,663 88 3 14 7 23 2,664 1,995
KLPRO Index 91 1 1 5 (2) 9 93 64
KLPLN Index 5,980 41 1 11 (17) 28 6,067 3,119
KLPRP Index 796 16 2 5 7 27 809 495
KLSER Index 159 6 4 13 2 19 159 112
KLTEC Index 16 (0) (1) 10 (21) (5) 17 11
FBMSC Index 9,947 26 0 5 5 22 10,355 6,024
Transactions:
YTD
Volume (billion) 176
Value (RM billion) 204
Source: Bloomberg
Market Review
The year 2009 saw the rebranded FBM KLCI enjoy what has
been the local bourse’s greatest rally in over a decade, with
year-to-date index performance chalking up 379 points
(+43%) to 1,260. From the low of 838 points in Mar 09, the
KLCI gained 50%. Investor sentiment improved over the last
few quarters with the economic recovery, evident from the
improving macro data and positive news flow.
In tandem with the rising equity markets, commodities, too,
jumped on the bandwagon with crude oil price recouping
from its YTD low of US$34/bbl to US$71/bbl. Similarly,
Malaysian crude palm oil futures, recovered from its bottom
of RM1,735/MT to RM2,521/MT. The Ringgit showed an
overall improvement to RM3.40/USD from RM3.47/USD
since the beginning of the year.
The key sector that helped drive the KLCI’s performance in
the recovery (from March low) was the banks. This sector
accounted for c.39% of the KLCI’s market capitalization
gains. Within the sector, the best performer was CIMB
Group, which saw a sharp recovery in non-interest income
from the revival of capital market activities. Maybank saw a
massive re-rating after being oversold on the back of its BII
acquisition. Public Bank and AMMB also registered
impressive performances in the year.
heavyweights Sime Darby, IOI Corp, KL Kepong and PPB
Group recorded remarkable gains. Gaming conglomerate
Genting surged ahead on expectations of the Integrated
Resorts opening in Sentosa.
During the quarter, Bank Negara announced 3Q09 GDP
contracted 1.2% y-o-y, which was better than expected and
indicates an impressive 12% q-o-q growth. The Government
has since revised its GDP estimates to -3% (from -4 to -5%
earlier) for 2009 and +2 to +3% for 2010. We expect -2.9%
for 2009 and +4.5% for 2010. Corporate earnings grew 6%
q-o-q in 3Q09, marking three quarters of consecutive
growth, driven mainly by the banking and gaming sectors.
This reflects better capital and economic conditions.
In October, Prime Minister Datuk Seri Najib Tun Razak
unveiled his first budget since taking over the country’s
premiership on 3 April. Measures included a lower deficit
forecast of 5.6% for 2010 driven by reduction in operating
and development expenditure, a 5% real property gain tax;
and liberalization of commission-sharing agreement in the
stockbroking industry, amongst others. The Budget intends
to shift the economy towards a knowledge-based economy,
driven by innovation and high value-added activities.
The plantation sector was the second biggest driver for the
KLCI’s recovery. Helped by robust liquidity, index
Page 91

Regional Equity Strategy 1Q 2010
Country Assessment
Best performers in the KLCI
From Mar low (%) 4Q09 (%)
Genting 122 Hong Leong Bank 24
AMMB 111 AMMB 16
CIMB Group 107 CIMB Group 15
Axiata Group 86 KL Kepong 13
MayBank 86 Tanjong 10
Astro 84 Public Bank 7
MMC Corp 79 Sime Darby 7
Sime Darby 71 IOI Corp 4
PPB Group 70 Tenaga Nasional 4
Public Bank 58 PPB Group 4
KL Kepong 57 RHB Capital 3
Hong Leong Bank 56 Genting 3
Parkson Holdings 53 DiGi.Com 3
IOI Corp 50 MAS 2
RHB Capital 48 Parkson Holdings 2
KLCI 50 KLCI 5
Source: DBS Vickers, Bloomberg
Biggest contributors to the KLCI’s gain from March 2009 low
Telco, 8%
Power, 7%
Gaming,
10%
Others, 7%
Plantation,
25%
Source: DBS Vickers, Bloomberg
Banks, 39%
Kuala Lumpur Composite Index Key Events
Dec 08
3 - Zaid Ibrahim sacked from Umno
Jan 09
9 - BNM cuts OPR to 2.5%
17 - PAS won Kuala Terengganu
by- election seat
Feb 09
6 - BN took ov er Perak
11 - Power tariff rev ised
18 - Perak MB and assembly men
suspended
23 - Govt vetoed East@Labu airport
24 - BNM cuts OPR to 2.0%
27 - Toll hike defered
Index pts
1500
1400
1300
1200
1100
1000
900
Mar 09
3 - Perak's PKR held emergency
sitting under a tree
5 - Anwar's sodomy trial
transferred to High Court
10 - RM60b 2nd stimulus
package unveiled
24-28 - UMNO General
Assembly--Najib won No.1 post,
Muhyiddin No.2
Apr 09
3 - Najib sworn in as new PM
7 - BN retained Btg Ai, PR
regained Bkt Gantang & Bkt
Selambau
8 - Cabinet re-shuffle
22 - Removal of 30% bumi
equity for 27 service sub-sector
27 - Liberalisation for finance
sector
May 09
7 - Chaotic Perak State Assembly
13 - First H1N1 case
22 - Court of Appeal overturned High
Court decision of declaring Nizar as
v alid Menteri Besar
27 - 1Q09 GDP contracted 6.2%
31 - PKR won Penanti by-election
J un 09
3 - PAS agreed on unity government
talks
13 - Zaid Ibrahim joined PKR
16 - 1st stimulus package spent
22 - First school closed due to H1N1
virus. 50 cases to date.
22 - Anwar sodomy trial on 1 & 8 July
30 - FIC deregulation
Jul 09
6 - FBMKLCI index rebranding
11 - PM announced national KPI
11 - Najib annouced additional
measures in conjuction with his 100th
day as PM
16 - Death of Teoh Beng Hock
21 - First H1N1 death
Aug 09
1 - Launch of 1Malaysia Fund
27 - 2Q09 GDP contracted 3.9%
26 - PAS won Permatang Pasir byelection
27 - Dr Chua sacked from MCA
Sep 09
4 - Bagan Pinang state
assemblyman died, 9th byelection
on Oct 11
16 - MCA's EGM fixed on 10/10
18 - Maxis IPO exposure draft out
18 - Chicago Merchantile
Exchange buys 25% of Bursa
Derivatives
Oct 09
11 - BN retained Bagan Pinang
23 - Budget 2010
29 - National Automotive Policy
2010
Nov 09
12 - Anwar was appointed as
Selangor's economic adviser
19 - Maxis debuted on the Main
Market
20 - 3Q09 GDP contracted 1.2%
20 - ICBC became the first foreign
bank to receive banking license.
Dec 09
2 - MCA AGM postponed
800
700
600
Mar-
08
Apr-
08
May-
08
Jun-
08
Jul-
08
Aug-
08
Sep-
08
Oct-
08
Nov-
08
Dec-
08
Jan-
09
Feb-
09
Mar-
09
Apr-
09
May-
09
Jun-
09
Jul-
09
Aug-
09
Sep-
09
Oct-
09
Nov-
09
Dec-
09
Source: DBS Vickers, various media
Page 92

Regional Equity Strategy 1Q 2010
Country Assessment
More private sector participation to drive growth
Since Datuk Seri Najib Tun Razak became the new Prime
Minister, we have seen several liberalization announcements.
The significant policy changes include repealing the guidelines
that cover the acquisition of equity stakes, mergers and
takeovers, and easing bumiputera requirements for listings and
property transactions. In addition, foreign ownership limits for
stockbroking and fund management companies were increased.
We view such changes positively. The Prime Minister has
indicated that there will be more of such measures.
The 10th Malaysia Plan (10MP), scheduled to be tabled in
Parliament in June 2010, will outline the macroeconomic
framework and strategies for 2011-2015. During this period, the
government has targeted real GDP growth of 5.5%/year. For the
10MP period, a ceiling development expenditure of RM180bn
has been set compared to RM230bn for the Ninth Malaysia Plan
(2006-2010). Despite the lower expenditure, the government
intends to facilitate greater private sector participation to help
drive growth over the next 5 years.
Stake sale in GLCs: To lift liquidity
Prime Minister Datuk Seri Najib Tun Razak has instructed
state investment funds including Khazanah Nasional to
sell down their stakes in listed companies. Given that
components of the KLCI are free-float weighted, lower
government stakes would lift the weighting of the
Government Linked Companies (GLCs) on the index.
Higher free floats could also help lift liquidity and
valuations for these companies.
In certain companies, Khazanah’s stakes are high such as
its 67.7% in Malaysia Airports, 86.8% in Pharmaniaga
and 77.1% in UEM Land. In particular, we believe a prime
candidate for further stake disposals would be Malaysia
Airports. Recall in 2001, Minister of Finance Inc. was in
negotiations to sell a 30% stake in Malaysia Airports to
Schiphol International BV. However, negotiations fell
through. Now that the Malaysia Airports’s restructuring
has been completed, Khazanah may look to realize value
in its investment by paring down its stake.
In November, the Naza Group clinched a privatization deal
involving the construction and development of the Matrade
Center. In return for construction of a RM628m exhibition and
convention center, the Naza Group will get to develop 65-acre
plot of land in Jalan Duta. We understand SP Setia is finalizing
the privatization for the development of the 24-acre leasehold
commercial project at Abdullah Hukum that will be jointly
developed with landowner Kuala Lumpur City Hall.
We expect to see government land sales/privatization deals in
2010. Some of the talked about projects include government
land in Ampang and Jalan Cochrane. Other areas identified
include Brickfields, Jalan Stonor, Bukit Ledang and Sungai Buloh.
Government linked companies (GLCs) such as MRCB, 30%
owned by EPF, and players with stronger balance sheets could
be strong contenders for such projects. In some cases,
government related entities that own the land could get
partners to help develop the project. For example, SP Setia,
which is 33% owned by PNB and has strong development track
record, could participate as partners in projects where PNB is
landowner.
Khazanah’s recent GLC stake sales
Khazanah/MOF’s stakes in listed companies
Companies Stake (%) Market
capitalization (RMm)
Pharmaniaga 86.8 471
UEM Land 77.1 3,618
MAS 69.3 5,197
Msia Airports 67.7 4,235
PLUS 59.5 16,300
Time Engineering 45.0 322
Axiata 44.5 25,504
Proton 42.7 2,142
Telekom 41.8 10,732
Tenaga 35.8 36,455
Pos Msia 32.2 1,171
CIMB Group 28.0 46,070
Astro 21.4 6,267
EON Capital 10.0 4,249
*Updated as at 10 Dec 09; Source: Bursa, Khazanah
Date Company % sold Number of shares (m) Proceeds Price Stake Remaining
11 Dec 2009 TNB 2.0% 87 703 8.10 35.8%
10 Sep 2009 MAHB 5.0% 55 182 3.30 67.7%
Oct-Nov 2009 PLUS 2.7% 136 n.a. n.a. 19.3% (direct) 40.2% indirect
Source: DBS Vickers, Bloomberg
Page 93

Regional Equity Strategy 1Q 2010
Country Assessment
Ringgit appreciation
By end-2010, we expect the Ringgit to appreciate c.5% against
the USD (to RM3.24/USD). Beneficiaries will include aviation
(MAS, AirAsia) and the steel (Southern Steel, Kinsteel) sector
where there is a high proportion of USD-denominated costs.
Losers will include exporters (Evergreen Fibreboard) and MISC.
Rubber glove manufacturers (Top Glove, Kossan) price their
products in USD. However, we understand players usually adjust
prices to factor in currency movements. The prospect of an
appreciating Ringgit could further boost returns for foreign
investors.
Selected winners & losers of Ringgit appreciation
Winners
Company Earnings impact* Remark
MAS
+7 USD-denominated jet fuel
Kinsteel
+2 USD-denominated scrap & iron
Southern Steel
+2 USD-denominated scrap
Tenaga
+2 USD-denominated coal cost, loan mix
AirAsia
+1 USD-denominated jet fuel
*on 1% appreciation in RM/USD
Losers
Evergreen
-7 Products/services priced in USD
Kossan
-6 As above
Top Glove
-4 As above
MISC
-3 As above
Source: DBS Vickers, Bloomberg
Higher interest rates
With the domestic economic conditions improving and price
pressures being subdued, there is little need for Bank Negara
Malaysia to tighten monetary policy in the near term. Our
economic team looks for monetary tightening to begin only in
3Q2010, when both growth and inflation conditions have
normalized, with a 25bps rate hike followed by a 50bps increase
in 4Q10. The key sectors to be most affected are banks and
property.
KLCI performance against KLIBOR
1,600
1,400
1,200
1,000
800
600
400
200
0
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Banks with a higher proportion of variable rate loans such as
Hong Leong Bank and RHB Capital should benefit from an
interest rate hike. This is because BLR-based loans tend to
be repriced within a week of the rate hike. Deposit rates
tend to increase to some extent with guidance from the
central bank on a floor but the impact would only be felt
later as deposits are divided into time buckets.
Approximately 70% of the fixed deposits mature within 3
months. Hence, the entire impact on deposit re-pricing can
stretch up to 3 quarters. Savings deposit rates usually do not
change with rate hikes or cuts. (Savings deposit rate
0.89%).
For the property sector, higher mortgage rates would
dampen sentiment. The mass residential segment will be
less affected as those who need to buy properties would still
do so. Demand should be supported by improving economic
outlook, rising income levels, inflationary fears (property is a
good hedge against inflation), and a young population
(50% below 21 years of age).
For the broader market, before year 2000 the KLCI had
been negatively correlated to interest rate movements.
During this period, there have been sharp swings in interest
rates. After year 2000, interest rate movements have been
much less volatile and do not appear to have a strong
correlation to the KLCI. Although the hike could be a short
term dampener for market sentiment, we do not expect
significant earnings changes, given the relatively mild rate
increases expected in 2010.
%
12.0
10.0
8.0
6.0
4.0
2.0
0.0
FBMKLCI Index (LHS)
3-mth KLIBOR (RHS)
Source: DBS Vickers, Bloomberg
Page 94

Regional Equity Strategy 1Q 2010
Country Assessment
Low foreign ownership
Foreign investors were conspicuously absent from the scene
when the Malaysian stock market jumped 50% between mid-
Mar 09 and now. This was evident in the insignificant level of
trading activity by foreign investors (just 25% of trading value
in Jan-Sep 09) and the persistent net portfolio investment
quarterly outflows (since 3Q07) with foreign ownership
standing at a five-year low.
Foreign ownership is at its lowest since end-2004
Foreign Ownership Based on Market Capitalisation (end-of-period)
23.1%
21.8%
19.5%
18.5%
18.1%
18.1%
21.2%
21.6%
24.2%
26.2%
21.3%
20.9%
20.8%
21.0%
20.7%
20.5%
20.7%
20.7%
20.8%
20.8%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Source: Bursa Malaysia
That may change soon. Coming off from a depleted base,
foreign funds could trickle back into Malaysia, especially if
global equities turn increasingly volatile ahead. As the riskreward
profile tilts in the opposite direction because of
stretched valuations, strategists may be tempted to make a
gradual tactical switch to more defensive low-beta markets
like Malaysia to diversify risks. The prospect of an appreciating
Ringgit is an added appeal for investors in search of
incremental investment returns.
Combing through our Buy list of big and mid-cap companies,
under-owned stocks – with foreign shareholdings far below
their recent peaks – that could increasingly come under the
investment radar of foreign investors again are CIMB (33%
foreign shareholding in June 09), IJM Corp (34%), MRCB
(19%), SP Setia (28%) and Tenaga (11%).
Selected companies (on DBSV Buy list) that is under-owned by
foreign investors
Stock name
Foreign shareholdings as of end-
Jun 07 Dec 07 Jun 08 Dec 08 Jun 09
CIMB Group 53.8% 49.7% 41.2% 32.0% 33.2%
IJM Corporation 61.9% 53.8% 40.9% 30.4% 33.9%
MRCB 43.7% 38.4% 25.5% 11.5% 18.8%
SP Setia 55.9% 43.7% 34.4% 27.3% 27.8%
Tenaga Nasional 28.0% 23.3% 18.6% 13.1% 10.7%
Source: Bursa Malaysia, Companies
Growth
We have seen corporate earnings growing further on a q-oq
basis to closer normalized levels. Our 3Q09 universe
earnings grew 6% q-o-q (10% y-o-y), being the third
consecutive quarter of growth after 4Q08’s 8% drop q-o-q.
Following the 3Q09 results season, we raised 2009 and
2010 universe earnings by 1.7% and 4.4%, respectively.
This was much lower than our upgrades post-2Q09 results
(+5.0% for 2009 and +7.5% for 2010). The big lift came
from banks – Maybank, RHB Capital, AMMB and EON
Capital.
This would be the second consecutive quarter of upgrades
driven by banks. The other more significant upgrades this
quarter would be for auto and manufacturing stocks, which
offset cuts for oil & gas.
Following our earnings upgrade, we expect a smaller 7.0%
earnings contraction for 2009. The key drag on earnings will
come from Plantation and Conglomerates (Sime Darby), on
lower CPO price assumptions of RM2,300/t versus
RM2,864/mt in 2008, as well as one-offs (forex losses for
IOI). We also expect weaker earnings for Genting (Singapore
pre-operating expenses, lower plantation earnings) and
Manufacturing (lower steel prices).
In 2010, we now expect a 18.1% rebound in earnings
largely on lower provisions and higher non-interest income
(recovery in capital markets) for banks, absence of forex
losses (for plantation), and a recovery in power demand for
Tenaga. The following year, 2011 earnings are forecast to
rise by 11%, driven largely by the banks.
Stronger quarterly net profit growth
(RMm)
12,000
10,000
8,000
6,000
4,000
2,000
-
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
Source: DBS Vickers
Page 95

Regional Equity Strategy 1Q 2010
Country Assessment
Malaysia Universe: Earnings Growth by Sector
Net profit ex EI Earnings Growth %) PE (x)
2008 2009 2010 2008 2009 2010 2008 2009 2010
Financial 10,362 10,893 13,001 5.2 5.1 19.4 17.4 16.5 13.8
Consumer 1,677 1,795 1,839 1.4 7.0 2.5 16.3 15.2 14.8
Manufacturing/Industrial 575 439 562 (16.4) (23.7) 28.0 11.5 15.1 11.8
Media 158 164 192 (49.0) 3.7 17.3 39.6 38.2 32.6
Motor 699 748 867 23.7 7.0 15.9 14.7 13.7 11.8
Oil & Gas 624 547 639 42.0 (12.5) 16.9 9.9 11.3 9.7
Conglomerate 4,799 3,768 4,319 64.5 (21.5) 14.6 15.2 19.3 16.9
Construction 1,161 1,184 1,538 17.8 2.0 29.9 18.1 17.7 13.6
Concessionaires 1,183 1,309 1,347 (7.8) 10.6 2.9 14.9 13.5 13.1
Gaming 2,842 1,924 2,523 4.0 (32.3) 31.1 14.2 21.0 16.0
Plantation 4,070 2,065 3,052 46.3 (49.3) 47.8 15.0 29.7 20.1
Power 4,991 4,880 5,209 (22.0) (2.2) 6.8 15.1 15.4 14.4
Property 691 802 912 (9.3) 16.1 13.7 15.8 13.6 12.0
Telecommunication 2,503 2,504 2,775 (35.1) 0.0 10.8 21.3 21.3 19.3
Transportation/Logistic ^ 1,220 1,917 2,495 (51.8) 57.2 30.2 32.7 20.8 16.0
HDBSVR’s universe 37,555 34,938 41,270 (0.5) (7.0) 18.1 16.8 18.0 15.2
Notes: (1) Companies with financial year ending Jan – Mar have been classified as preceding year’s results.
(2) Earnings exclude exceptional items.
(3) Excludes MAS
Source: DBS Vickers
Net Profit Change by Sector Ex-MAS
2,500
2,000
1,500
1,000
500
-
(500)
(1,000)
(1,500)
(2,000)
(2,500)
RM'm 2009 2010
2108
532
Financial
117
44 123 6 49119
28
Consumer
(136)
Manufacturing/Industrial
Media
Motor
(78)
Oil & Gas
92
551
(1031)
Conglomerate
354
23 126
38
Construction
Concessionaires
(918)
Gaming
599
986
(2005)
Plantation
(111)
330 111110
Power
Property
271
1
Telecommunication
697578
Transportation/Logistic
Source: DBS Vickers
Page 96

Regional Equity Strategy 1Q 2010
Country Assessment
Valuations
Longer term uptrend intact. The KLCI is now trading at 15x
2010 earnings (above its post-crisis average of 14x) and 1.8x
book value (above its post-crisis average of 1.7x). Following
strong GDP growth in the last two quarters, we upgraded
our projected GDP growth to 5.0% for 2010 - a turnaround
from -2.4% in 2009. Corporate earnings in the last two
quarters have been upgraded by 6.7% for 2009 and 11.9%
for 2010. With that, we expect 2010 earnings to exceed
pre-crisis levels.
On the back of strong growth and positive market drivers,
the longer term upward trend is intact. And riding on strong
liquidity, multiples could be higher over the longer term.
Our end 2010 KLCI target of 1,448 is based on higher 16x
2011 earnings, achieved in the 2007 upswing. Compared to
markets in the region, KLCI’s valuations remain higher
compared to Singapore and Hong Kong. This could result in
Malaysia lagging regional markets in an upswing.
That said the stellar 50% gain from the March low is likely
to result in intermittent profit-taking. In 1998 and 2001, the
stock market rebounded (following GDP contraction) by 26-
136% over five months. After the initial rebound, the KLCI
corrected 15-20% over two months in both cases. In this
recovery, the KLCI is up 50% from the low in March, and
the sharpest correction since was only a 6% drop. In 1998
and 2001, the market went on to reach new record highs
post-correction.
KLCI forward PE
KLCI forward P/BV
35.0
1,600
30.0
1,400
25.0
1,200
20.0
1,000
800
15.0
600
10.0
400
5.0
200
-
-
Dec-97
Dec-98
Nov-99
Nov-00
Oct-01
Oct-02
Sep-03
Sep-04
Aug-05
Aug-06
Jul-07
Jul-08
Jun-09
Forward PE (LHS) Mean 1 Std Dev +/ - 6.4x FBMKLCI Index
Source: DBS Vickers, Bloomberg
3.0
2.5
2.0
1.5
1.0
0.5
-
Dec-97
Dec-98
Nov-99
Nov-00
O ct-01
O ct-02
Sep-03
Sep-04
Aug-05
Aug-06
Jul-07
Jul-08
Jun-09
1,600
1,400
1,200
1,000
800
600
400
200
-
Forward PBV (LHS) Mean 1 Std Dev +/ - 0.3x FBMKLCI Index
KLCI:1998 recovery
800
KLCI: 2001 recovery
800
700
600
500
750
700
From low of 553.34pts on 9 Apr 01,
KLCI rebounded 26% over 5 months
400
KLCI dropped 20%
over 2 months
650
300
200
100
Worst quarterly GDP (-11.2%) in 4Q98
From low of 262.33pts on 1 Sept 98,
KLCI rebounded 136% over 5 months
600
550
Worst quarterly GDP (-0.4%) in 3Q01
KLCI dropped 15%
over 2 months
0
Feb-98 Apr-98 Jun-98 Aug-98 Oct-98 Dec-98 Feb-99 Apr-99
500
Nov-00 J an-01 Mar-01 May-01 J ul-01 Sep-01 Nov-01 J an-02 Mar-02
Source: DBS Vickers, Bloomberg
Page 97

Regional Equity Strategy 1Q 2010
Country Assessment
Strategy
Banks: We remain keen on banks despite the share price
appreciation during the quarter. The banks are key
beneficiaries of the economic recovery, and the increasing
momentum in capital market activities point to stronger
non-interest income. Asset quality remains resilient and
net NPLs are trending lower and close to record low at
2.1%. With the economic recovery strengthening, we
expect provisions to drop further in the coming quarters.
We are also seeing regionalization as Malaysian banks
expand abroad to capture better margins and growth. In
the last two quarters, we had seen strong upgrades for
the sector. As a result, banks generally remain cheap in
terms of PE multiples relative to other large-cap sectors.
There could be further room for earnings upgrade for
selected banks such as Hong Leong Bank and RHB Capital
when Overnight Policy Rate (OPR) rates move up due to
their higher proportion of variable rate loans.
We like: (i) CIMB as a capital market recovery play, cheaper
proxy for Indonesian exposure and regional aspirations; (ii)
Public Bank for its superior asset quality, extraordinary loans
growth, attractive 6% dividend yields and inspiring ROEs of
above 23%; (iii) high quality plays such as Hong Leong Bank
that has impressive ROEs and EON Capital, which is the
cheapest bank in our universe at 1.1x book value.
Large caps sorted by 2010 PE: Banks relatively cheap
30.0
25.0
20.0
15.0
10.0
5.0
(x)
conservative. In terms of stock picks, players with larger
balance sheets such as IJM Corp and Gamuda, and GLCs
such as MRCB, may benefit from the Government’s plan to
secure greater private sector participation. A key earnings
and share price driver for these players would be margin
recovery, as new projects secured achieve a greater level of
completion.
Property: Although sentiment for the sector has been
affected by the reintroduction of property gains tax and
rising mortgage rates, we see value in selected stocks.
Demand should be supported by improving economic
outlook, developers’ financing scheme, rising income levels,
inflationary fears (property is a good hedge), and a young
population. Property stocks have consolidated from recent
peaks; as a result current valuations are undemanding at
near mid-cycle levels. Our top picks are SP Setia, DNP and
E&O. Potential positive policy changes include
redevelopment of government land, announcement of new
EPF withdrawal scheme in January 2010 and potential
review of the property gains tax.
Power: We like Tenaga as a beneficiary of the economic
recovery. Earnings are sensitive to demand growth. Every
1% improvement in electricity demand would raise earnings
by 9%. Furthermore, Tenaga could receive a base tariff hike
by January 2010 following higher capacity payment to
Jimah after full commencement in July 09. Also within the
power sector, we favour Tanjong as a value play. The stock
is trading at 10x FY10 earnings and offers 4.2% yield.
Other favourites include MISC, PLUS Expressways, Malaysia
Airports, Alam Maritim and SP Setia.
Large caps sorted by dividend yield
-
RHB Capital
PPB Group
YTL Power
PLUS
Public Bank
Hong Leong
CIMB
Genting
Tenaga
Digi.Com
AMMB
Source: Bloomberg, DBS Vickers
Maybank
BAT
Genting
IOI
Sime Darby
Petronas
Axiata
KL Kepong
7.0%
6.0%
5.0%
4.0%
3.0%
Construction: Share prices of selected contractors saw some
weakness over worries of the Vietnam dong devaluation
and Middle East exposure. But this could be a good
opportunity to accumulate stocks. There should be further
upside when the contract awards gain momentum.
Furthermore, our assumptions for potential new orders are
2.0%
1.0%
0.0%
Telekom
YTL Power
Public Bank
Btoto
BAT
Digi.Com
Source: Bloomberg, DBS Vickers
PLUS
Tanjong
Lafarge
PGas
PetDag
MISC
Page 98

Regional Equity Strategy 1Q 2010
Country Assessment
Large cap Buys
Company Mkt Cap Price TP PE(x) P/BV (x) Div Yield (%)
(RMm) (RM) (RM) 09F 10F 09F 10F 09F 10F
CIMB 46,070 12.86 15.20 17.4x 14.2x 2.3x 2.1x 1.5% 1.5%
Public Bank 38,498 10.90 12.20 15.2x 13.3x 3.4x 3.2x 5.3% 6.0%
Tenaga Nasional 36,455 8.40 9.60 16.9x 15.4x 1.4x 1.3x 1.5% 1.7%
MISC 31,991 8.60 9.60 22.8x 26.0x 1.5x 1.5x 4.1% 4.1%
Genting 26,267 7.09 8.80 30.2x 17.4x 2.0x 1.9x 1.7% 2.9%
Genting Malaysia 16,532 2.80 3.50 13.3x 15.1x 1.8x 1.7x 2.3% 2.0%
PLUS Expressway 16,300 3.26 4.00 13.3x 12.9x 2.7x 2.5x 4.9% 4.9%
AMMB Holdings 14,950 4.96 5.50 15.7x 15.8x 1.7x 1.6x 1.2% 2.2%
Hong Leong Bank 12,830 8.12 9.50 14.2x 13.4x 2.2x 2.0x 2.2% 2.2%
RHB Capital 11,500 5.34 6.80 9.6x 8.3x 1.3x 1.2x 2.3% 2.7%
Tanjong 6,621 16.42 19.25 14.3x 9.8x 2.0x 1.8x 4.1% 4.7%
IJM Corp 6,018 4.55 6.00 20.7x 19.5x 1.3x 1.2x 4.8% 2.0%
Gamuda 5,445 2.70 4.20 28.0x 19.5x 1.7x 1.6x 2.2% 2.7%
Parkson Holdings Bhd 5,379 5.19 6.30 20.4x 16.8x 3.1x 2.7x 2.0% 2.4%
Source: DBS Vickers
Small-mid cap Buys
Company Mkt Cap Price TP PE(x) P/BV (x) Div Yield (%)
(RMm) (RM) (RM) 09F 10F 09F 10F 09F 10F
EON Capital 4,249 6.13 6.30* 11.9x 10.8x 1.2x 1.1x 2.4% 2.4%
Malaysia Airports 4,235 3.85 4.50 13.8x 12.7x 1.3x 1.2x 3.6% 4.0%
SP Setia 3,650 3.59 4.80 21.1x 17.7x 1.8x 1.7x 2.8% 3.4%
KLCC Property 3,036 3.25 3.70 13.7x 12.6x 0.9x 0.9x 3.2% 3.5%
Proton 2,142 3.90 4.60 -20.6x 8.7x 0.4x 0.4x 1.3% 1.3%
MRCB 1,189 1.31 1.80 40.7x 25.9x 1.8x 1.5x 0.6% 1.0%
TA Enterprise 1,164 0.68 1.90 10.6x 10.9x 0.5x 0.5x 5.0% 4.6%
Alam Maritim 947 1.87 2.30 9.2x 7.3x 1.9x 1.5x 0.3% 0.3%
Kinsteel 843 0.90 1.30 12.0x 9.5x 1.0x 0.9x 1.6% 1.6%
Southern Steel 809 1.93 2.40 152.2x 9.4x 1.1x 1.0x 1.3% 3.2%
Sunway Holdings 775 1.29 1.95 8.3x 6.5x 1.1x 0.9x 0.0% 0.0%
Eastern & Oriental 722 1.00 1.40 -19.2x 16.1x 0.9x 0.7x 0.0% 0.0%
Evergreen Fibreboard 687 1.34 1.60 9.9x 9.3x 1.0x 0.9x 0.0% 1.0%
Axis REIT 605 1.97 2.60 14.7x 13.6x 1.3x 1.3x 6.5% 7.0%
Pelikan International 480 1.40 1.70 9.6x 8.1x 0.8x 0.8x 1.8% 2.1%
AEON Credit 479 3.99 4.40 9.8x 8.5x 2.2x 1.9x 3.8% 4.1%
APM Automotive 478 2.37 2.75 9.7x 8.4x 0.8x 0.7x 4.4% 4.4%
DNP Holdings 425 1.32 2.60 17.8x 8.3x 0.6x 0.6x 1.1% 1.1%
*Under review; Source: DBS Vickers
Top Sell/Fully Valued Calls
Company Mkt Cap Price TP PE(x) P/BV (x) Div Yield (%)
Axiata 25,504 3.02 3.00 25.2x 21.3x 1.4x 1.4x 0.0% 0.0%
Petronas Gas 19,392 9.80 8.80 20.9x 20.3x 2.4x 2.4x 4.6% 4.6%
Petronas Dagangan 8,723 8.78 7.40 15.1x 12.5x 2.1x 1.9x 3.8% 4.1%
UMW Holdings 7,059 6.32 5.20 17.8x 15.3x 1.9x 1.8x 3.6% 3.6%
Astro 6,267 3.24 3.10 39.6x 38.2x 7.8x 8.4x 3.1% 3.1%
MAS 5,197 3.11 1.80 -2.4x 28.8x -3.8x -9.2x 0.0% 0.0%
Bursa Malaysia 4,220 7.99 6.55 35.6x 30.9x 5.6x 5.5x 2.5% 2.9%
AirAsia 3,640 1.32 1.10 9.6x 9.8x 1.3x 1.1x 0.0% 0.0%
Source: DBS Vickers
Page 99

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Aviation & related
Underweight
Banks
Overweight
Construction
Overweight
Although we expect a slight pickup in air travel demand in 1Q10, overall demand is
still projected to remain weak y-o-y. Additionally, yields are expected to remain
under pressure due to the continued price war between local airlines, i.e. MAS and
AirAsia. Additional capacity coming from AirAsia may further intensify competition
between the airlines in the domestic and regional markets. Meanwhile, airlines’
earnings could also be hit by rising jet fuel prices.
We expect MAS to continue to record hedging losses given that it had hedged its
jet fuel requirement at higher prices compared to our forecast spot prices.
Meanwhile, cash flow remains an issue for AirAsia given its huge capital
commitment and potential downside risk to load factor and yield. Our top pick is
Malaysia Airports (Buy; PT RM4.50) for its increasing non-aeronautical business
contribution (mainly rental). We believe MAHB’s recent restructuring enhances
long-term earnings visibility and improves ROE with its increasing benchmark PSC
formula and variable costs mechanism.
We expect stronger earnings growth of 19% in 2010, premised on lower provisions
supported by overall improved operating income. We believe that corporates have
started moving over to the corporate bond market for funding, which is the
impetus for the strong pipeline for capital market activities leading to more room
for non-interest income expansion. We forecast a 10% growth in non-interest
income in 2010. We expect consumer loans to drive loan growth in 2010 as
corporates turn to the bond market to raise funds. We also expect SME loans
utilization to recover in 2010. Judging from the loan application and approvals by
banks, we gather that the pipeline would be healthy. We project 2010 loan growth
at 8-9%.
Our top pick for Malaysian banks remain Public Bank (Buy; TP: RM12.20) for tried
and tested earnings resilience, and more importantly, asset quality, CIMB (Buy; TP:
RM15.20) is a key proxy to Malaysian capital markets and its regional aspirations.
We also like Hong Leong Bank (Buy; TP: RM9.50) for its reach in China, which
could spice up earnings growth. EON Capital (Buy; TP: RM6.30 under review) is the
cheapest bank in our universe at 1.1x book value.
The sector is at the cross roads with the last year of the 9MP in 2010 and tabling of
the 10MP in June 2010. Any potential shortfall in government development
expenditure from the 10MP is expected to be met from more PFI, public private
partnerships and foreign participation. The rollout of the mega projects has kicked
off with WCT winning the earthworks portion of the LCCT while Syarikat Prasana
Negara Bhd has called for the prequalification tenders for the LCCT. We expect the
official award of the other more lucrative portions of the LCCT (terminal and
runway) and other segments of the Pahang Selangor Water Transfer project in
2010. The government has also said the RM7bn Gemas to Johor Bahru double
tracking will be awarded to Chinese parties but we expect some spillover to our
local contractors.
Key risks for the sector are unexpected rise in raw materials costs, execution and
delay in contract awards, the ability to raise financing and the lack of transparency
in awarding contracts. We think these risks are being managed as the government
will likely leverage on foreign and private sector funding while recent contract wins
such as the LCCT earthworks have been via open tender system to the lowest
bidder. Our top pick is IJM (Buy, PT RM7.00) as the more diversified pick to the
sector with a presence in public and private sector. Our other picks are Gamuda
(Buy, PT RM4.25) and MRCB (Buy, PT RM1.80) as GLC proxy construction stock.
Malaysia Airports
Public Bank, CIMB,
Hong Leong Bank
IJM, Gamuda, MRCB
Page 100

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Concessionaires
Overweight
Gaming
Overweight
Shipping
Neutral
Motor
Neutral
We expect some clarity on the Economic Planning Unit’s (EPU) decision on future
increases in toll rates to surface in late December 2009. News flow on Asas Serba
has also somewhat waned and it is unclear if the company will be a party to EPU’s
decision. Asas Serba Sdn Bhd is a private company which has submitted a proposal
to the Works Ministry to buy all the toll concessionaire companies in the country for
RM50bn. It has promised to cut toll rates by 20% in return for an extension in the
concession period for the concessions. In our view, we think the probability of this
occurring is low as financing is a key issue while it is also in the government’s
interest to keep PLUS listed.
Our pick is PLUS, which is government backed and thus has more muted risk from
an unfavourable outcome following EPU’s decision. Traffic volume for YTD October
2009 of 6.9% has been very strong and provides some upside to its KPI dividend of
16 sen (5% yield).
Gaming operations should remain robust given its inelastic demand and being a
small ticket item. Despite the H1N1 outbreak, 9M09 casino patronage has risen by
5% y-o-y. Visitor arrivals are expected to remain resilient despite the soft launch of
Resorts World at Sentosa in Jan 2010 as locals constitute 85% of visitors (70% daytrippers,
Singaporeans 5%) and Genting Highlands offers an attractive value
proposition.
Risks: a) Strict regulation on junket operators may affect RWS’ VIP business; b)
Viability of Genting Malaysia’s potential M&As with its RM5b cashpile; c) Increased
competition from potential new game for Tanjong (Magnum has been given
approval for its first lotto game while BST replaced Toto 6/42 to Power Toto 6/55).
We expect average petroleum tanker rates to grow by c.25% y-o-y next year given
the better tonnage demand and supply growth balance prospect. Downside risks to
tanker rates could be limited after the Baltic Dirty Tanker Index hit a record low of
453 in mid-Apr 09. The index had since rebounded by more than 51%. Meanwhile,
we also believe downside risk to container freight rates is limited, after touching its
lowest level since 1993. We project average container freight rates to be
unchanged y-o-y in 2010, supported by an expected recovery in demand. Our top
pick is MISC (Buy; PT RM9.60). We like MISC given its better earnings outlook and
it still lags the market despite its 3.4% weighting in the FBM KLCI.
The turnaround in consumer sentiment in 2Q09 helped to lift TIV (total industry
vehicle) sales. YTD Oct09 TIV sales recorded strong 441.6k units, which is only a
slight 5% drop y-o-y. Given the high base in 2009 (forecast TIV of 521k), we expect
2010 to register minimal growth of only 2.4% in TIV unit sales to 533k. While
Proton and Perodua would feel full year impact in 2010 from maiden MPV launches
this year, we expect new models from Toyota and Nissan next year to sustain
buying interest. We reiterate our BUY calls on Proton and APM with price targets of
RM4.60 and RM2.75 respectively. Like other auto companies, parts manufacturer
APM would also benefit from higher TIV sales and stable currency.
PLUS
Genting
Genting Malaysia
MISC
Proton, APM
Page 101

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Oil & gas
Neutral
Plantations
Underweight
Property
Overweight
Steel
Overweight
Telco
Neutral
We believe that oil and gas sector outlook remain favourable due to sustainable
Petronas’ capex. However, slower-than-expected project rollout may drag earnings
for the listed o&g players till 2Q10. As such, we expect minimal upside to earnings
for o&g stocks under our coverage, as the current valuation may have partly
reflected the potential new project wins in 2010. Our pick for the sector is Alam for
its attractive valuation and resilient earnings supported by its Malaysian flagged
vessels.
Plantation companies are to book better earnings in 1Q10, as tightness in global
soybean oil supply should support strong soybean and palm oil prices. However,
prospective jump in South American soybean harvests and crush in February-June
next year should ease the supply tightness (subject to dryness in Argentina, USD
and crude oil price movements). While we subscribe to strong CPO prices in 1Q10,
we note that plantation stocks are already trading at lofty multiples. Based on
current prices, Malaysian planters are trading between 17x and 24x CY10F
earnings. This suggests high expectations, particularly on continued rise in CPO
prices. We view stock prices are more or less at a plateau; and we do not
recommend adding positions.
Sentiment has been affected by the reintroduction of real property gains tax (RPGT)
and rising mortgage rates, but mass market should be more resilient. Demand to
be supported by developers’ financing scheme, better economic outlook, rising
affluence, inflationary fears (property is a good hedge) and a young population.
Potential positive policy changes include announcement of new EPF withdrawal
scheme in Jan 2010, review of RPGT and redevelopment of government land.
We are positive that the recovery in construction activities would drive stronger
steel demand in 2010. Since Apr-09, the monthly consumption for steel bars and
rods has recorded decent y-o-y improvements. This is underpinned largely by restocking
activities. Correspondingly, we saw higher capacity utilization for Southern
Steel and Kinsteel. Looking ahead in 2010, steel players should record better
performances premised on (i) firmer steel prices, (ii) higher capacity utilization from
stronger demand and (iii) stronger cashflows position on the back of improved
inventory levels (current 3-4 months vs 4-6 months, a year ago) and lower gearing.
Our key concern remains the timely award and execution of the mega projects. We
maintain our Buy call for Southern Steel (TP: RM2.40) and Kinsteel (TP: RM1.30).
Going forward, revenue in 4Q09 should be seasonally stronger q-o-q for all telcos
during the holiday period. This is driven by more holiday greetings (especially SMS)
and international roaming by vacationers. For FY10, we expect the WBB segment
to show greater revenue contribution, amounting to c. 10% of total celco revenues
of the Big 3. This means that GSM revenue still features prominently next year.
However, this segment is expected to register modest earning growth in 2010.
Taking Digi’s potential special dividend into account, yield could rise to 8% net vs.
5% regular dividend yield. Hence, Digi is our top pick for the sector. TM comes in
second with 7% net yield for its committed 20 sen net DPS. We retain our Hold
ratings for Digi and TM.
Alam Maritim
SP Setia
Southern Steel
Kinsteel
Digi
Page 102

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Power
Overweight
REITs
Neutral
We like Tanjong PLC for upside from potential new NFO games and attractive
valuation backed by resilient power and gaming operations. While YTLP offers a
higher yield of 6% against 5% for Tanjong, we expect valuation gap between the
two IPPs to narrow given that YTLP’s Wimax investment will increase its risk profile
and unlikely to be earnings accretive to the group over the next 3-5 years. We also
expect stronger earnings ahead for TNB on the back of improved power demand
and potential base tariff hike come Jan 2010.
Improving credit market has led to increased new acquisition for MREITs. The
improving economic activities also ease concerns on rental renewal and property
vacancy rate. However, MREITs are unlikely to outperform despite its attractive
average yield of c.7%, due to their low liquidity and unexciting growth. Our pick is
Axis Risk for its attractive yield, attractive asset valuation and proven acquisition
track record.
Tanjong PLC, TNB
Axis REIT
Page 103

Regional Equity Strategy 1Q 2010
CIMB Group
Bloomberg: CIMB MK | Reuters: CIMB.KL
BUY RM12.86 KLCI : 1,259.90
Premium for being regional
Price Target : 12-Month RM 15.20
Potential Catalyst: Regionalisation efforts bearing fruit
Analyst
Sue Lin Lim +603 2711 0971
suelin@hwangdbsvickers.com.my
“Recipients of this report, received from DBS Vickers Research
(Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6398 7954
in respect of any matters arising from or in connection with this report.”
Price Relative
RM
14.90
12.90
10.90
8.90
6.90
4.90
Relative Index
2005 2006 2007 2008 2009
CIMB Group Hldgs (LHS) Relative KLCI INDEX (RHS)
208
188
168
148
128
108
88
• Malaysian business would be the base earnings
driver with boosts from Indonesia and Thailand
operations.
• Bullish on earnings to reflect higher capital
markets income given strong pipeline ahead and
higher contribution from CIMB Niaga.
• Historical valuations not a good indicator given
that it has evolved into a regional bank for which
it deserves a premium.
Domestic operations key support to near term
earnings growth. Aside from consumer banking, we
expect capital market driven activities to spur earnings
growth for FY09-10. We believe CIMB is well positioned to
benefit from the strong pipeline in debt and equity
issuances. Our estimates assume that Malaysian noninterest
income comprises 25-30% of total revenue.
Including CIMB Niaga, we estimate that non-interest
income to increase to 40% of total revenue by FY11F.
Forecasts and Valuation
FY Dec (RM m) 2008A 2009F 2010F 2011F
Pre-prov. Profit 3,619 4,889 5,548 6,267
Net Profit 1,952 2,650 3,243 3,853
Net Pft (Pre Ex.) 1,952 2,650 3,243 3,853
EPS (sen) 56.2 74.0 90.5 107.6
EPS Pre Ex. (sen) 56.2 74.0 90.5 107.6
EPS Gth Pre Ex (%) (13) 32 22 19
Diluted EPS (sen) 54.6 74.0 90.5 107.6
PE Pre Ex. (X) 22.9 17.4 14.2 12.0
Net DPS (sen) 18.5 18.8 18.8 18.8
Div Yield (%) 1.4 1.5 1.5 1.5
ROAE Pre Ex. (%) 12.1 14.7 15.8 16.7
ROAE (%) 12.1 14.7 15.8 16.7
ROA (%) 1.0 1.3 1.5 1.6
BV Per Share (sen) 477 551 611 699
P/Book Value (x) 2.7 2.3 2.1 1.8
Earnings Rev (%): - - -
Consensus EPS (sen): 68.2 81.3 98.1
ICB Industry : Financials
ICB Sector: Banks
Principal Business: Banking and Finance
Source of all data: Company, DBS Vickers, Bloomberg
Playing the CIMB Niaga trump card. To achieve
higher contribution from Indonesia, CIMB aims to
leverage on its higher margins and treasury business.
Synergistic benefits are likely to emerge from cost
savings given use of similar platform and infrastructure
as its Malaysia treasury operations. We expect CIMB
Niaga to contribute up to 30% to CIMB Group’s
earnings by FY11F. CIMB also provides a cheaper entry
into the Indonesia banking front which currently
averages at 3.5x forward BV.
Proxy for regional play and capital markets. Our TP
for CIMB of RM15.20 (implying a 2.5x FY10 BV) imputes
earnings contribution from its regional footprint,
especially from Indonesia. We have also assumed that
CIMB Thai will begin to contribute to the group’s
earnings from FY10. Further catalyst to ROEs would arise
from capital management.
At A Glance
Issued Capital (m shrs) 3,582
Mkt. Cap (RMm/US$m) 46,070 / 13,560
Major Shareholders
Khazanah Nasional (%) 22.1
Employee Provident Fund (%) 9.3
Free Float (%) 68.6
Avg. Daily Vol.(‘000) 5,348
Page 104
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Refer to important disclosures at the end of this report
ed: LM / sa: WMT

Regional Equity Strategy 1Q 2010
CIMB Group Hldgs
Income Statement (RM m) Balance Sheet (RM m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 4,661 5,469 5,957 6,345 Cash/Bank Balance 24,203 14,973 15,974 18,670
Non-Interest Income 2,642 3,613 4,137 4,843 Government Securities 3,517 3,693 3,878 4,072
Islamic Banking Income 438 657 788 946 Inter Bank Assets 4,063 4,470 4,917 5,408
Operating Income 7,741 9,738 10,881 12,134 Total Net Loans & Advs. 117,382 134,085 146,072 158,164
Operating Expenses (4,122) (4,849) (5,334) (5,867) Investment 39,702 41,400 43,182 45,054
Pre-provision Profit 3,619 4,889 5,548 6,267 Associates 914 914 914 914
Provisions (861) (1,280) (1,139) (1,036) Fixed Assets 1,769 1,702 1,736 1,771
Associates (42) 10 10 10 Goodwill 7,156 7,156 7,156 7,156
Exceptionals 0 0 0 0 Other Assets 8,039 9,433 10,820 12,456
Pre-tax Profit 2,716 3,619 4,419 5,240 Total Assets 206,745 217,825 234,650 253,664
Taxation (703) (905) (1,105) (1,310) Customer Deposits 153,425 165,699 178,955 193,271
Minority Interests (61) (65) (71) (77) Inter Bank Deposits 7,119 7,474 7,848 8,241
Preference Dividend 0 0 0 0 Debts/Borrowings 10,354 10,354 10,354 10,354
Net Profit 1,952 2,650 3,243 3,853 Others 17,485 13,198 14,178 15,257
Net Profit bef Except 1,952 2,650 3,243 3,853 Minorities 1,098 1,163 1,234 1,312
Shareholders' Funds 19,461 22,262 24,548 27,852
Total Liab& S/H’s Funds 206,745 217,825 234,650 253,664
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Margins, Costs & Efficiency
Balance Sheet Structure
Yld. On Earnings Assets 5.40 5.45 5.49 5.44 Loan-to-Deposit Ratio 80.0 85.2 85.2 85.2
Avg Cost Of Funds 2.79 2.64 2.63 2.63 Net Loans / Total Assets 56.8 61.6 62.3 62.4
Spread 2.61 2.81 2.86 2.81 Investment / Total Assets 19.2 19.0 18.4 17.8
Net Interest Margin 2.63 2.82 2.89 2.85 Cust . Dep./Int. Bear. Liab. 89.8 90.3 90.8 91.2
Cost-to-Income Ratio 53.2 49.8 49.0 48.4 Interbank Dep / Int. Bear. 4.2 4.1 4.0 3.9
Employees ( Year End) 0 0 0 0 Asset Quality
Effective Tax Rate 25.9 25.0 25.0 25.0 NPL / Total Gross Loans 4.9 5.9 5.4 4.9
Business Mix NPL / Total Assets 2.9 3.8 3.5 3.2
Net Int. Inc / Opg Inc. 60.2 56.2 54.7 52.3 Capital Strength
Non-Int. Inc / Opg inc. 34.1 37.1 38.0 39.9 Total CAR 14.7 15.0 15.4 16.1
Fee Inc / Opg Income 23.4 22.3 24.0 25.8 Tier-1 CAR 9.7 10.6 11.6 12.7
Oth Non-Int Inc/Opg Inc 10.7 14.8 14.0 14.1 Growth
Profitability Total Net Loans 22 14 9 8
ROAE Pre Ex. 12.1 14.7 15.8 16.7 Customer Deposits 20 8 8 8
ROAE 12.1 14.7 15.8 16.7
ROA Pre Ex. 1.0 1.3 1.5 1.6
ROA 1.0 1.3 1.5 1.6
Quarterly / Interim Income Statement (RMm)
Rolling forward PBV band
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009
Net Interest Income 1,286 1,407 1,502 1,595
Non-Interest Income 466 946 924 969
Operating Income 1,882 2,514 2,589 2,787
Operating Expenses (1,096) (1,327) (1,414) (1,439)
Pre-Provision Profit 787 1,187 1,175 1,348
Provisions (300) (352) (299) (367)
Associates (39) 4 3 20
Exceptionals 0 0 0 0
Pretax Profit 448 839 879 1,001
Taxation (151) (175) (171) (219)
Minority Interests 22 (50) (45) (55)
Net Profit 319 614 663 727
Source: Company, DBS Vickers
3.0
2.5
2.0
1.5
1.0
0.5
0.0
97 98 99 00 01 02 03 04 05 06 07 08 09
2nd Dev
1st Dev
Mean
1st Dev
2nd Dev
Page 105

Regional Equity Strategy 1Q 2010
Gamuda
Bloomberg: GAM MK | Reuters: GAMU.KL
BUY RM2.70 KLCI : 1,259.90
Price Target : 12-month RM 4.20
Potential Catalyst: Government pump priming, Sale of Splash
Being proactive
• Bidding for more overseas and local jobs
• Strong earnings recovery in FY10-FY11F
Analyst
Chong Tjen-San, CFA +603 2711 2295
tjensan@hwangdbsvickers.com.my
“Recipients of this report, received from DBS Vickers Research
(Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6398 7954
in respect of any matters arising from or in connection with this report.”
Price Relative
6.20
5.20
4.20
3.20
2.20
1.20
RM
Relative Index
2005 2006 2007 2008 2009
Gamuda (LHS) Relative KLCI INDEX (RHS)
Forecasts and Valuation
FY Jul (RM m) 2009A 2010F 2011F 2012F
Turnover 2,727 3,075 4,350 4,214
EBITDA 192 314 545 554
Pre-tax Profit 282 390 618 620
Net Profit 194 278 446 448
Net Pft (Pre Ex.) 194 278 446 448
EPS (sen) 9.6 13.8 22.2 22.3
EPS Pre Ex. (sen) 9.6 13.8 22.2 22.3
EPS Gth Pre Ex (%) (41) 44 60 0
Diluted EPS (sen) 9.6 13.8 22.2 22.3
Net DPS (sen) 5.9 7.4 7.4 7.4
BV Per Share (sen) 157.3 164.0 179.0 194.1
PE (X) 28.0 19.5 12.2 12.1
PE Pre Ex. (X) 28.0 19.5 12.2 12.1
P/Cash Flow (X) 79.1 32.0 16.4 16.5
EV/EBITDA (X) 30.0 20.3 12.3 12.7
Net Div Yield (%) 2.2 2.7 2.7 2.7
P/Book Value (X) 1.7 1.6 1.5 1.4
Net Debt/Equity (X) 0.1 0.3 0.3 0.4
ROAE (%) 6.2 8.6 13.0 11.9
Earnings Rev (%): (16.2) (2.6) -
Consensus EPS (sen): 16.6 19.8 23.1
ICB Industry : Industrials
ICB Sector: Construction & Materials
Principal Business: Construction, property development and
operation of toll roads
Source of all data: Company, DBS Vickers, Bloomberg
212
192
172
152
132
112
92
72
• BUY with SOP-derived PT of RM4.20
Flurry of contracts in 2010. In spite of having the highest
executable orderbook in the industry at RM6.2bn, Gamuda is
not resting on its laurels and is actively bidding for some
RM3bn projects in the Middle East and another RM1bn locally,
apart from the 3 mega projects worth RM17-18bn. Hence,
there could be a flurry of contract wins in 1HCY10.
Earnings to rebound FY10F. FY09 was a kitchen sinking
year for Gamuda. We expect earnings to rebound strongly in
FY10F-FY11F driven by improvement of margins for its double
tracking project and expectation of new order wins over the
next two financial years. Local property sales have also been
robust, with 1QFY10 sales of RM250, implying the RM600m
FY10 sales target will likely be breached.
Key concerns in the price. Two key concerns – Devaluation
of Vietnam Dong and Splash have weighed down the stock.
Overall, we think the Dong weakness is net positive as 30% of
the outstanding construction work in Yenso Park of RM1.1bn
is priced in Dong and will be cheaper in Ringgit terms while
the balance 70% is priced in USD and should be neutral. The
RM8bn GDV property portion is priced in USD and will only be
launched in 2QCY10. The sale of Splash is still in limbo and is
now awaiting a new offer from the Federal government. This
should be approximately equal to the Selangor State’s offer of
RM631m for its 40% stake. Collectively, Yenso Park and
Splash contribute RM0.62 of our SOP value of RM4.20.
Reiterate BUY, PT RM4.20. Gamuda remains a must have
large cap construction pick for exposure to the pump priming
theme. Its RM6.2bn executable orderbook remains the largest
and most resilient in our universe. Earnings growth in FY10 is
also the most pronounced at +44% coming from a lower
base.
At A Glance
Issued Capital (m shrs) 2,017
Mkt. Cap (RMm/US$m) 5,445 / 1,603
Major Shareholders
Employees Provident Fund (%) 10.9
Generasi Setia Sdn (%) 10.3
Free Float (%) 78.8
Avg. Daily Vol.(‘000) 6,486
Page 106
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Refer to important disclosures at the end of this report
ed: LM / sa: WMT

Regional Equity Strategy 1Q 2010
Gamuda
Income Statement (RM m) Balance Sheet (RM m)
FY Jul 2009A 2010F 2011F 2012F FY Jul 2009A 2010F 2011F 2012F
Turnover 2,727 3,075 4,350 4,214 Net Fixed Assets 364 440 512 580
Cost of Goods Sold (2,465) (2,683) (3,672) (3,538) Invts in Associates & JVs 1,287 1,919 2,563 3,215
Gross Profit 262 393 678 675 Other LT Assets 948 948 948 948
Other Opng (Exp)/Inc (88) (103) (161) (154) Cash & ST Invts 1,255 1,066 1,141 1,201
Operating Profit 174 289 517 522 Inventory 101 106 90 77
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 1,080 1,134 964 819
Associates & JV Inc 143 133 143 152 Other Current Assets 844 844 844 844
Net Interest (Exp)/Inc (35) (32) (42) (53) Total Assets 5,878 6,457 7,061 7,683
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 282 390 618 620 ST Debt 328 728 1,128 1,528
Tax (78) (102) (161) (161) Other Current Liab 1,099 1,134 1,025 933
Minority Interest (10) (11) (11) (11) LT Debt 1,211 1,211 1,211 1,211
Preference Dividend 0 0 0 0 Other LT Liabilities 33 33 33 33
Net Profit 194 278 446 448 Shareholder’s Equity 3,161 3,294 3,596 3,899
Net Profit before Except. 194 278 446 448 Minority Interests 47 58 69 80
EBITDA 192 314 545 554 Total Cap. & Liab. 5,878 6,457 7,061 7,683
Sales Gth (%) 13.5 12.8 41.4 (3.1) Non-Cash Wkg. Capital 925 950 873 807
EBITDA Gth (%) (39.4) 63.6 73.9 1.5 Net Cash/(Debt) (284) (873) (1,198) (1,538)
Opg Profit Gth (%) (41.6) 66.6 78.7 0.9
Net Profit Gth (%) (40.4) 43.6 60.5 0.3
Effective Tax Rate (%) 27.6 26.0 26.0 26.0
Cash Flow Statement (RM m)
Rates & Ratio
FY Jul 2009A 2010F 2011F 2012F FY Jul 2009A 2010F 2011F 2012F
Pre-Tax Profit 282 390 618 620 Gross Margins (%) 9.6 12.8 15.6 16.0
Dep. & Amort. 18 24 28 32 Opg Profit Margin (%) 6.4 9.4 11.9 12.4
Tax Paid (106) (102) (161) (161) Net Profit Margin (%) 7.1 9.0 10.3 10.6
Assoc. & JV Inc/(loss) (143) (133) (143) (152) ROAE (%) 6.2 8.6 13.0 11.9
Chg in Wkg.Cap. 376 (24) 77 66 ROA (%) 3.3 4.5 6.6 6.1
Other Operating CF 183 (29) (31) (33) ROCE (%) 2.6 4.2 6.7 6.0
Net Operating CF 609 127 388 372 Div Payout Ratio (%) 61.4 53.5 33.3 33.2
Capital Exp.(net) (57) (100) (100) (100) Net Interest Cover (x) 5.0 9.1 12.2 9.8
Other Invts.(net) (81) 0 0 0 Asset Turnover (x) 0.5 0.5 0.6 0.6
Invts in Assoc. & JV (21) (500) (500) (500) Debtors Turn (avg days) 160.6 131.4 88.0 77.2
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 108.8 97.3 67.2 59.4
Other Investing CF 208 29 31 33 Inventory Turn (avg days) 15.8 14.2 9.8 8.7
Net Investing CF 50 (571) (569) (567) Current Ratio (x) 2.3 1.7 1.4 1.2
Div Paid (60) (145) (145) (145) Quick Ratio (x) 1.6 1.2 1.0 0.8
Chg in Gross Debt (297) 400 400 400 Net Debt/Equity (X) 0.1 0.3 0.3 0.4
Capital Issues 8 0 0 0 Net Debt/Equity ex MI (X) 0.1 0.3 0.3 0.4
Other Financing CF 79 0 0 0 Capex to Debt (%) 3.7 5.2 4.3 3.7
Net Financing CF (270) 255 255 255 Z-Score (X) 2.2 2.6 2.4 2.4
Net Cashflow 389 (189) 75 60 N. Cash/(Debt)PS (sen) (14.1) (43.4) (59.6) (76.5)
Opg CFPS (sen) 11.6 7.5 15.5 15.2
Free CFPS (sen) 27.5 1.3 14.3 13.5
Quarterly / Interim Income Statement (RM m)
Segmental Breakdown / Key Assumptions
FY Jul 1Q2009 2Q2009 3Q2009 4Q2009 FY Jul 2009A 2010F 2011F 2012F
Turnover 614 592 579 942 Revenues (RM m)
Cost of Goods Sold (572) (556) (540) (913) Construction 2,220 2,681 3,852 3,763
Gross Profit 42 35 40 29 Property development 407 290 390 343
Other Oper. (Exp)/Inc 6 8 9 16 Infrastructure 100 104 108 108
Operating Profit 48 43 48 45 Total 2,727 3,075 4,350 4,214
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 35 35 29 44 Pretax (RM m)
Net Interest (Exp)/Inc (11) (11) (14) (9) Construction 63 215 425 430
Exceptional Gain/(Loss) 0 0 0 0 Property development 84 87 109 102
Pre-tax Profit 72 67 63 80 Infrastructure* 180 159 168 176
Tax (15) (16) (14) (33) Others (45) (71) (84) (87)
Minority Interest (2) (2) (2) (4) Total 282 390 618 620
Net Profit 55 49 46 43
Net profit bef Except. 55 49 46 43 Pretax Margins (%)
Construction 2.8 8.0 11.0 11.4
Property development 20.7 30.1 28.0 29.8
Sales Gth (%) (27.9) (3.6) (2.1) 62.6 Infrastructure n.m. n.m. n.m. n.m.
Opg Profit Gth (%) (45.4) (10.5) 11.7 (7.0) Total 10.3 12.7 14.2 14.7
Net Profit Gth (%) (21.6) (10.9) (5.6) (6.5)
Gross Margins (%) 6.9 6.0 6.8 3.1 Key Assumptions
Opg Profit Margins (%) 7.8 7.3 8.3 4.7 Construction orderbook N/A 1,623.0 2,500.0 3,000.0
Net Profit Margins (%) 9.0 8.3 8.0 4.6 *Includes associates
Source: Company, DBS Vickers
Page 107

Regional Equity Strategy 1Q 2010
Country Assessment
Thailand
Cautiously optimistic
We expect the SET Index to regain its positive momentum
in 1Q10 following a minor consolidation in 4Q09. This
should be supported by clearer signs of a global
economic recovery, fiscal stimulus packages, positive
corporate earnings momentum, the weak US dollar, and
still ample liquidity in the market amidst the low interest
rate environment. Nonetheless, our key concern is
potential rise in political risks while delay of 65 projects in
Map Ta Phut could continue to be an overhang. For
1Q10, we recommend overweight position in Banks,
Food, and upstream energy sectors. We downgrade the
Property sector to Neutral given the potential expiration
of the property-tax cut package at end-Mar 2010.
We expect the Thai economy to register 4.2% GDP growth in 2010, a strong
turnaround from the estimated 3.0% contraction in 2009. Benign inflationary
pressure should keep interest rates low at least in 1H10, which should be
positive for the equity market. We recommend investors increase exposure in
Banks. Our top picks are KASIKORNBANK (KBANK) and Bangkok Bank (BBL). We
recommend Selective Buys on Property, where our top picks include Preuksa
Real Estate (PS) and Quality Houses (QH), both of which should report strong
earnings growth next year. We also like upstream Energy stocks, with our top
pick being PTT Exploration & Production (PTTEP), and the Food sector with
Charoen Pokphand Foods (CPF) and Minor International (MINT) as our top picks.
Chanpen Sirithanarattanakul +66 (0) 2657 7824 chanpens@th.dbsvickers.com
Page 108
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed:-SGC / sa-TW

Regional Equity Strategy 1Q 2010
Country Assessment
Market Data
52-Week
Indices
Close
9-Dec-09
Chg Net
-1 mth
-1 mth
(%)
-3 mth
(%)
-6 mth
(%)
-12 mth
(%)
High
(%)
Low
(%)
SET 695 5.6 0.8 (3.1) 16.3 54.4 759 409
SET 50 487 3.8 0.8 (4.8) 13.3 54.0 542 282
SET 100 1,052 9.0 0.9 (4.7) 14.7 56.7 1,169 598
SET Agribusiness 113 (0.3) (0.3) 33.3 90.8 160.8 120 43
SET Banks 283 (1.0) (0.3) 3.0 23.3 99.7 302 139
SET Construction Materials 5,638 (147.5) (2.5) (2.3) 40.4 98.3 6,108 2,564
SET Communication 72 2.0 2.8 (11.4) 2.2 16.6 85 57
SET Energy 14,917 110.4 0.7 (8.9) 2.9 34.9 17,328 9,156
SET Electronics 602 12.9 2.2 (1.7) 29.6 65.6 659 305
SET Finance 657 3.4 0.5 (2.5) 11.3 55.3 730 393
SET Petrochemicals 457 1.1 0.3 (3.2) 28.8 96.7 530 190
SET Transport 87 2.9 3.4 (6.9) 26.2 83.5 102 41
SET Property 112 1.9 1.7 (3.6) 32.9 87.2 125 53
MSCI Far East ex-japan Index 444 12.7 2.9 4.8 23.6 63.5 446 230
Transactions:
YTD
Volume (bn shares) 3,766
Value (Bt bn) 18,166
Source: Bloomberg
MARKET REVIEW
SET Index eased 3.1% QTD. This was mainly the result
of (i) concerns about the health of His Majesty the
King, (ii) news of the Central Administrative Court’s
temporary injunction to suspend the development of
76 industrial projects in Map Ta Phut area and vicinity,
and (iii) profit taking. The SET Index under-performed
its regional peers, as measured by the MSCI Far East
(ex. Japan) which rose 4.8% during the same period.
SET Index vs MSCI Far East Asia ex-Japan Index
600
500
400
300
200
Jun-08
Aug-08
Oct-08
Dec-08
MSCI F ar East ex-japan Index
SET Index (RHS)
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
900
800
700
600
500
400
300
Communication and Energy led the decline, falling
11.4% and 8.9% QTD, respectively. The
Communications sector tumbled following further
delays in the award of 3G licenses – we believe it could
be delayed at least until the Council of State rules on
the National Telecommunication Committee (NTC)’s
legitimacy to issue 3G licenses, possibly in mid-2010.
The Energy sector also fell sharply on concerns about
the potentially negative impact of the injunction to
temporarily suspend 76 projects in the Map Ta Phut
area and the vicinity. The Administrative Court’s
decision to uphold the lower court’s temporary
injunction to halt industrial development projects in
Map Ta Phut and nearby areas, except for 11 projects,
is also viewed negatively because it means the start-up
of these 65 projects could be delayed by at least 6-9
months.
Foreigners turned net sellers QTD with a net selling
position of Bt14.8bn (vs. heavy net buy position of
Bt25.7bn in 2Q09 and Bt35.0bn in 3Q09). YTD,
foreigners remained net buyers in the Thai market with
total Bt40.5bn net buying.
Source: Bloomberg, DBS Vickers
Page 109

Regional Equity Strategy 1Q 2010
Country Assessment
Thailand Stock Market: Foreign Net Buy (Sell) Position
Contribution to Thai GDP Growth (at 1988 prices)
Btm
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
(30,000)
(40,000)
Foreign net buy (sell)
Avg Daily Turnover (RHS)
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
As of 9 Dec 09
May-09
Jul-09
Sep-09
Nov-09
Btm
30,000
25,000
20,000
15,000
10,000
5,000
-
(%) 3Q08 4Q08 1Q09 2Q09 3Q09
GDP 2.9 -4.2 -7.1 -4.9 -2.8
Domestic Demand 2.2 1.0 -4.1 -2.8 -1.6
Private Consumption 1.4 1.1 -1.2 -1.2 -0.7
Government Consumption 0.4 1.0 0.5 0.7 0.5
Gross Fixed Capital Formation 0.4 -1.1 -3.4 -2.3 -1.4
Net Exports -1.1 -7.5 4.6 -1.2 3.2
Exports 7.2 -6.6 -11.7 -16.1 -11.7
Imports 8.3 0.9 -16.4 -14.9 -15.0
Change in Inventories 1.7 2.4 -7.2 -0.8 -4.5
Source: SET, DBS Vickers
3Q09 GDP growth showed continued recovery.
According to data released by the Office of the National
Economic and Social Development Board (NESDB),
Thailand’s GDP contracted 2.8% y-o-y in 3Q09, an
improvement from the 4.9% contraction in 2Q09. This
was contributed by a 4.7% increase in government
expenditure and net exports. Although household
consumption and investments fell 1.3% and 6.3%
respectively, these had improved from the previous
quarter. Exports improved while imports were flat,
which resulted in improved net exports q-o-q, and was
the main driver of 3Q09 GDP.
Seasonally adjusted GDP grew 1.3%, expanding for
two consecutive quarters. This is a slower pace than
2.2% in 2Q09, but implies a technical recovery in the
Thai economy.
By Sector
Agriculture 0.2 0.0 0.2 -0.1 -0.2
Manufacturing 2.2 -2.7 -5.9 -3.6 -2.4
Construction -0.2 -0.3 -0.2 0.0 0.0
Services 0.7 -1.2 -1.3 -1.2 -0.3
Total 2.9 -4.2 -7.2 -4.9 -2.9
Source: NESDB, DBS Vickers
3Q09 corporate earnings eased q-o-q but grew 19% y-
o-y. 3Q09 aggregate SET earnings were Bt82bn, down
11% from the previous quarter. This was due mainly to
the Energy sector, where 3Q09 profit was dragged
down by (i) weak refining margins at major refineries
like TOP, PTTAR, and ESSO, (ii) absence of stock gains,
and (iii) expenses related to the Montara oil leak
incident at PTTEP. Nonetheless, aggregate net profit
grew 19% y-o-y from a low base in 3Q08. The y-o-y
aggregate earnings growth (see chart below) has
improved for three consecutive quarters, indicating that
the market is in an earnings up-cycle.
Thailand: Real GDP Growth – Further recovery in 3Q09
Real GDP Growth 3Q08 4Q08 1Q09 2Q09 3Q09
(% Chg y-o-y)
Private
2.7 2.1 -2.5 -2.2 -1.3
Consumption
Government
3.3 13.5 5.9 7.8 4.7
Consumption
GFCF 1.9 -5.0 -15.9 -10.2 -6.3
Private 6.0 -3.4 -17.8 -16.1 -12.2
Public -7.0 -10.3 -9.0 8.7 8.0
Exports 9.8 -9.3 -16.7 -21.7 -15.0
Imports 14.7 1.7 -30.5 -25.6 -23.8
GDP 2.9 -4.2 -7.1 -4.9 -2.8
Source: NESDB, DBS Vickers
Page 110

Regional Equity Strategy 1Q 2010
Country Assessment
Quarterly aggregate net profit growth*
Btbn %
120
100
80
60
40
20
0
-20
-40
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
Note: * Only stocks under our coverage
Source: SET and DBS Vickers
Aggregate 3Q09 SET net profit
YE Dec (Btm) 3Q08 2Q09 3Q09 Chg
y-o-y
Chg
q-o-q
Banking 20,169 20,560 23,015 14% 12%
Finance 164 328 380 131% 16%
Petrochem 276 658 239 -13% -64%
Con. Mat. 6,147 6,669 7,226 18% 8%
Property 4,435 5,051 5,133 16% 2%
Contractor -1,737 51 -111 -94% -318%
Ind. estate 919 366 688 -25% 88%
Energy 23,673 46,788 31,312 32% -33%
Commerce 1,639 2,078 2,150 31% 3%
Media 1,220 1,026 1,302 7% 27%
Transport 741 -4,909 -3,553 -579% -28%
Telecom 5,100 7,068 6,043 18% -15%
Electronics 2,105 1,265 1,802 -14% 42%
Others 3,529 5,173 6,065 72% 17%
Total 68,380 92,173 81,690 19% -11%
Source: Companies and DBS Vickers
Slower pace of further earnings upgrades? After two
consecutive quarters of positive earnings surprises, we
believe the market has built in expectations of strong
earnings recovery. This is reflected in the narrowing gap
between actual results and our estimates, from 15% in
2Q09 to 2.5% in 3Q09.
120
80
40
0
-40
-80
-120
-160
Banks Energy Telecom
Property Building mat. Others
Growth (RHS)
Actual aggregate earnings vs DBSV forecast
%
20
15
10
5
0
-5
-10
-15
-20
+16%
+11%
0%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
Note: 4Q03 earnings were negative
Source: SET, DBS Vickers
About the Map Ta Phut case
-254%
+6%
+15%
+2.5%
Lower court temporary injunction will halt development
projects in Map Ta Phut and nearby areas. On 29 Sep
2009, the Central Administrative Court issued a
temporary injunction to suspend construction and
operation of 76 industrial projects in Map Ta Phut and
nearby areas in Rayong province until the final ruling is
concluded. The court’s ruling cited that these projects
might be in violation of Article 67 of the Constitution,
which requires (i) environmental impact assessment (EIA),
(ii) health-impact assessment (HIA), (iii) public consent,
and (iv) approval from an independent environmental
body (not yet established). The injunction will remain in
force pending a judgment on the case. Projects that were
approved before the constitution took effect on 24 Aug
2007 would be allowed to proceed.
Supreme Administrative Court upholds lower court
temporary injunction. On 2 Dec 2009, the Supreme
Administrative Court issued a temporary injunction to halt
industrial development projects in Map Ta Phut and
nearby areas, except for 11 projects. These projects would
be suspended until the Central Administrative Court issues
a final ruling. However, companies can apply to remove
projects from the suspension list if they are able to comply
with the requirements afterwards.
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Regional Equity Strategy 1Q 2010
Country Assessment
11 projects allowed to proceed. The Supreme
Administrative Court also ruled that for some projects,
such as to control or reduce pollution, or minor upgrades
that would not severely affect the community would be
exempted from the temporary injunction. The Supreme
Administrative Court has identified 11 such projects to be
allowed to proceed, comprising 7 industrial projects and 4
logistics-related projects.
Implication
What will happen to suspended projects? These projects
will be suspended until they can comply with the new
regulations. All the projects have received EIA approval,
but lack the HIA, public consent, and approval from an
independent environmental body due to the lack of
organic laws relevant to Article 67 of the Constitution.
Four-party panel to oversee Map Ta Phut and
environmental issues. The government had earlier set up a
four-party panel, chaired by ex-PM Mr. Anand
Panyarachun, to seek a solution to the Map Ta Phut and
environmental issues. The panel comprises representatives
from the government, private, public, and academic
institutions. The panel’s responsibilities are to propose
short and long term solutions to the Map Ta Phut issue. It
aims to come up with a short-term solution by January
and resolve the issue within the next 4-5 months.
Setting up of the independent environmental body will
determine project delays. The panel will propose
regulations that will allow companies to comply with
Article 67 of the Constitution, which involves HIA
standard and the establishment of an independent
environmental body. In our view, that will probably be
done in a relatively short period of 1-2 months.
Meanwhile, companies that are affected by the injunction
have started the HIA and public consent processes, which
should be concluded within 3-6 months. In our view, the
key issue is to establish an independent environmental
body that is well accepted. This process will take the
longest, and will be the key determinant of how long
projects would be delayed. We estimate the suspended
projects will be able to proceed by 3Q10, or 6-9 months
later than their original schedules.
The 65 affected projects involve Bt230bn investment.
These are mostly energy, petrochemicals, steel, power
plants, and hazardous waste management projects.
According to a study by the Fiscal Policy Office, Ministry of
Finance, the suspension of the 65 projects will hurt
Thailand’s 2010 GDP by 0.2-0.5%. This is in line with the
Bank of Thailand’s estimate that this could hurt 2010 GDP
by 0.2%.
Impact on listed companies
Limited impact on PTTAR. PTTAR’s condensate residue
splitter (CRS or Upgrading complex), which is listed as
“clean fuel and product upgrading” and vapor recovery
units are exempted from the injunction. However, PTTAR
will be indirectly affected by the suspension of PTT Utility’s
projects. PTT Utility is a supplier of utility, including
electricity and steam, to PTTAR’s AR3 (Aromatics II)
complex. However, PTTAR has devised a solution to obtain
alternative electricity supply (buying from EGAT) and
steam (install own boiler) if PTT Utility is unable to
operate. Thus, the impact on PTTAR should be limited.
No impact on IRP. IRP is not directly involved in any
projects in Map Ta Phut. The air pollution control project
there belongs to Indorama Petrochemical, which is a
subsidiary of IRP’s major shareholder. The project is
exempted from the injunction.
Major impact on SCC, PTTCH, and mild on PTT. Among
the affected companies, the suspension should affect SCC
(second naphtha cracker and downstream projects) and
PTTCH (new ethane cracker and downstream projects) the
most as these new expansion projects are their key
growth drivers. PTT (GSP#6) should have mild impact due
to its large earnings base. These expansion projects were
scheduled to start up in 1Q10. These projects could now
be delayed by 6-9 months, which will have a significant
on FY10F earnings.
Also negative on STEC. Note that Sino-Thai Engineering
(STEC) currently has a few petrochemical projects being
affected by the court injunction. This means the company
will see potential delay in revenue from these affected
projects as construction will likely be delayed.
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Regional Equity Strategy 1Q 2010
Country Assessment
LIQUIDITY
Benign inflationary pressure. Thailand’s headline CPI rose
1.9% y-o-y in Nov 2009, compared to only 0.4% in Oct,
led by higher energy prices. This also represents the
second consecutive month of positive inflation.
Meanwhile, core CPI inched up 0.1% y-o-y in Nov 2009,
vs 0.1% contraction in October. For 11M09, headline CPI
contracted 1.2% y-o-y while core CPI inched up 0.3%.
Full year 2009 inflation should come in slightly higher at -
0.8% (vs earlier forecast of -1.1%) and 2010 inflation is
expected to be 2.9% (vs earlier forecast of 2.1%).
Thailand: Inflation no longer a concern
% (y-o-y)
10
8
6
4
2
0
-2
-4
-6
Jan-07
May-07
Headline CPI
Core CPI
Sep-07
Jan-08
May-08
Sep-08
Source: Ministry of Commerce, DBS Vickers
Jan-09
May-09
Sep-09
Policy rate should remain at 1.25% over the next six
months. The Monetary Policy Committee (MPC) kept 1-
day repurchase rate (policy rate) unchanged at 1.25% at
its policy meeting on 2 Dec 2009. It re-affirmed the
earlier view that “policy rates remain appropriate and
supportive of the economic recovery” but dropped the
part that said current rates did not generate inflationary
pressure.
After the sharp rise in inflation in November to 1.9%
YoY from 0.4% YoY in October (up 10% MoM, saar),
we think the central bank is simply being cautious in its
assessment. This does not mean rate hikes are any closer
than before. As we said before, most of the price rise
was a result of higher oil and transport prices. Indeed,
the central bank noted the same and assessed that the
“pressure of demand on inflation remains subdued” and
it will “closely monitor future developments”. It is only
natural that the BoT is more vigilant about inflation than
before, as global commodity prices and headline
inflation pushes higher.
We think the key point is that economic growth will be
primarily driven by exports as domestic demand
continues to be constrained by unstable domestic
politics. This should constrain overall domestic demand
even as the government pushes for greater public
investment spending.
Our economist therefore believes the BOT will keep
policy rate unchanged at 1.25% until 3Q10, when we
expect a 25bps rate hike. Consensus expectations for the
first rate hike by the BoT are split evenly between 1H10
and 2H10.
Thailand: Policy rate likely to be stable
5%
4%
3%
2%
1%
0%
Source: Bank of Thailand, DBS Vickers
Thai baht performance. The Thai baht has strengthened
from Bt33.4/USD at end-3Q09 to Bt33.2 on 9 Dec.
Thailand’s international reserve has also grown, from only
US$25bn at end 2007 to US$136.9bn as of 20 Nov 2009.
DBS expects the Thai baht to strengthen further and end
the year 2010 at Bt32.3/USD.
Thai baht vs US dollar
Bt
42
40
38
36
34
32
30
1Q07
3Q07
Source: Reuters
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1/2/06
3/27/06
6/19/06
9/11/06
12/4/06
2/26/07
5/21/07
8/13/07
11/5/07
1/28/08
4/21/08
7/11/08
10/3/08
12/26/08
3/20/09
6/12/09
9/4/09
11/27/09
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Regional Equity Strategy 1Q 2010
Country Assessment
Thailand: International Reserve
Thailand: Annual GDP Growth (y-o-y)
US$bn
160
140
120
100
80
60
40
20
0
1997
1999
2001
2003
2005
2007
20-Nov-09
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
1998
2000
2002
2004
2006
2008
2010F
Source: Bank of Thailand, DBS Vickers
GROWTH and VALUATION
Minor revision to our GDP growth forecasts. We
estimate GDP growth at –3.0% for 2009 vs -3.2%
earlier, and nudged up 2010 GDP growth to 4.2% from
4.0%.
On the whole, growth is picking up driven by
normalising exports. Domestic demand, although
recovering, remains sub-potential. The renewed political
tension should continue to constrain the recovery from
meeting its true potential. This should keep core
inflation benign and make room for the Bank of
Thailand (BoT) to keep rates low for a significant period
and hike rates starting 3Q10. We also think the BoT
might wait for some major advanced economies or
Asian central banks to lift rates before it makes its move
– afterall, due to political instability, growth is primarily
driven by external demand now.
Thailand: Quarterly GDP Growth (y-o-y)
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
1Q07
2Q07
3Q07
4Q07
1Q08
Source: NESDB, DBS Vickers
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09F
Source: NESDB, DBS Vickers
Strong corporate EPS growth for 2009. We expect
strong earnings growth of 20% for listed companies in
our coverage in 2009. This is one of the highest in the
region, supported by (i) Petrochemicals sector led by
IRP’s capacity expansion, (ii) Energy after huge
inventory losses last year, (iii) Food & Beverage
supported by strong earnings recovery at MINT, and (iv)
Finance in the absence of investment losses booked last
year.
But growth will decelerate in 2010. We expect earnings
to continue to grow in 2010 on the back of an
improving economy, albeit at a slower pace of 14%.
The following chart shows Thai listed companies’ 2009-
2010 EPS growth vs regional peers.
Regional Earnings Growth
%
40
30
20
10
0
(10)
China H
Thailand
Source: DBS Vickers
Hongkong
Indonesia
09E
Malaysia
10F
Singapore
Valuations remain low. The chart below shows that the
SET valuation remains low compared to its long-term
historical average P/BV. We believe the P/BV multiple is a
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Regional Equity Strategy 1Q 2010
Country Assessment
more appropriate valuation metric than PE or dividend
yield currently, when market earnings are abnormally
low (at the bottom of the earnings and economic cycle).
SET: Current P/BV is still below historical average
x
3.0
2.5
2.0
1.5
1.0
0.5
End 02
End 03
End 04
+1 sd
-1 sd
End 05
End 06
End 07
End 08
the region. It also offers generous 2010 dividend yield
of 4.4% vs the regional average of 3.2%.
Regional valuation comparison (2010 PE vs Div. Yield)
10 PE (x)
16
15
14
13
12
11
10
9
Expensive
China H
Indonesia
Malaysia
Singapore
Hong Kong
Thailand
Cheap
2.0 2.3 2.6 2.9 3.2 3.5 3.8 4.1 4.4
10 Dividend yield (%)
Source: SET, DBS Vickers
Source: DBS Vickers
Thai market is still cheap relative to regional peers.
Compared to other markets in the region, the Thai
market is still the cheapest in terms of PE and dividend
yield. It is now trading at 2010 PE of 10.3x vs 13.4x for
Earnings Estimates by Sector
EPS Growth %
PE (x)
2009E 2010F 2011F 2009E 2010F 2011F
Banking (0.6) 14.7 13.3 12.7 11.0 9.7
Construction Materials 21.7 0.3 3.1 11.6 11.5 11.2
Chemicals & Plastics 54.8 22.5 7.4 7.2 5.9 5.5
Commerce 6.8 13.4 8.8 17.0 15.0 13.8
Communication (27.9) 11.3 4.6 13.9 12.5 12.0
Electronics Components (24.1) 7.6 7.5 9.4 8.2 7.6
Energy 38.1 19.1 18.2 10.9 9.2 7.8
Entertainment & Recreation (13.6) 16.0 12.7 16.9 14.2 12.6
Finance & Securities 33.9 (17.8) 11.8 10.8 12.8 11.7
Food and Beverage 33.8 14.7 15.7 11.9 10.5 9.0
Property Development 32.3 (3.6) 6.6 11.5 11.4 10.2
Transportation n.m. 103.0 18.3 13.3 6.5 5.5
Others 163.0 (15.0) 9.0 8.3 9.8 9.0
DBSV Universe 20.4 13.6 13.4 11.8 10.3 9.1
Source: DBS Vickers
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Regional Equity Strategy 1Q 2010
Country Assessment
INVESTMENT STRATEGY
Positive view for 1Q10. We maintain a positive view on the
Thai market for 1Q10. This should be supported by clearer
signs of a global economic recovery, fiscal stimulus
packages, positive corporate earnings momentum, the
weak US dollar, and still ample liquidity in the market
amidst the low interest rate environment.
DBS view: Weak US$. DBS Currency Strategist believes the
real downward adjustment in the USD probably only
started during the G20 summit in September, and could
last the next few years. The USD depreciation between
March and September should be viewed as the USD losing
its safe haven status, or currencies taking back what they
lost during the global crisis.
They also believe that as long as the Fed affirms low rates
for an extended period of time, the USD will be the
preferred currency for carry-trades. This will also
encourage other central banks to continue diversifying
their foreign reserves away from the US dollar.
Strong negative correlation between the USD and SET
Index. The USD Index (DXYO) has strong negative
correlation with the Asian equity market, including the SET
Index. The weaker the USD, the stronger the tendency for
investors to shift weighting to markets with stronger
currencies, like Asia. This is to enable them to enjoy the
benefits of both currency and share price appreciation.
SET Index vs. Dollar Index
Interest rates should stay low. We noted in our strategy
piece “Event analysis of post-crisis rallies” published on 12
Oct that SET rallies post-economic crisis always ended close
to the first interest rate hike of each cycle. As our economic
team does not expect an interest rate hike (in Thailand and
the US) until 3Q10, there is a chance for further market
appreciation until 2Q10.
Risks. Key risks for the market in 1Q10 would be (i)
sudden eruption of political turmoil, and (ii) earlier-thanexpected
interest rate hike. Note that the red-shirt
protesters have threatened to stage a new rally early next
year to overthrow the current government. The antigovernment
rally is speculated to be tied to the upcoming
court ruling on former prime minister Thaksin’s Bt76bn
asset seizure case, expected in 1Q10. This implies that
political tension could rise before the ruling.
Buy Banks, Food-related and Upstream Energy stocks.
Banks should see higher loan growth, higher fee income
and lower loan loss provision in 2010, amidst a recovering
economy. Our top picks in the Banking sector are
Kasikornbank (KBANK TB) for its good asset quality,
lowest NPL ratio among peers, and attractive valuation,
and Bangkok Bank (BBL TB) for its strong balance sheet,
highest NPL coverage ratio, and strong capital base.
In the Energy sector, we prefer upstream plays like PTT
Exploration & Production (PTTEP), which will directly
benefit from a strong crude oil price. However, the
refining industry should remain under pressure due to
oversupply, but valuations are undemanding.
70
75
80
85
90
95
100
105
Jan-06
May-06
Dollar Index
SET Index (RHS)
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
1200
1100
1000
900
800
700
600
500
400
300
We also recommend overweight on the Food sector, with
Charoen Pokphand Foods (CPF) and Minor International
(MINOR) as our two top picks in the sector.
We downgrade Property sector to Neutral this quarter,
given slower earnings growth in 2010, based on our
assumption that property tax cut measure will not be
extended. Our top picks for the sector, however, remain
Preuksa Real Estate (PS), and Quality Houses (QH) for their
strong earnings growth next year.
Source: Bloomberg, DBS Vickers
SET Index target of 828. We derived a 12-month SET Index
target of 828 following the bottom-up approach. At this
level, the market would be trading at 2010 PE of 12.3x.
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Regional Equity Strategy 1Q 2010
Country Assessment
SET performance after economic crisis
%
30
25
20
15
10
5
0
Fed Funds rate Thai Interbank Policy rate SET Index (RHS)
Econ. crisis
1800
1600
1400
1200
1000
800
600
400
200
0
Dec 82
Dec 84
Dec 86
Dec 88
Dec 90
Dec 92
Dec 94
Dec 96
Dec 98
Dec 00
Dec 02
Dec 04
Dec 06
Dec 08
Dec 10
Note: Inflation targeting regime introduced on 23 May 2000
Source: Federal Reserve, NBER, BoT, Bloomberg and DBS Vickers
Stock picks for 1Q10. We feature six companies for 1Q10.
Three of them (PTTEP, KBANK and CPF) are big-cap
counters, and the rest (MINT, QH, and TTW) are mid-caps.
• PTT Exploration & Production (PTTEP). We believe the
worst should be over for PTTEP. While 2009 was hit by
weak oil prices and the Montara oil leak, 2010 earnings
should be boosted by stronger oil price, volume growth,
and insurance claims. We expect 2010 net profit to surge
62%, led by stronger crude oil price of US$80, an 18%
increase in production volume to 271k boed, and receipt
of insurance claims. FY11F net profit should grow by
another 31% on the back of higher crude oil price of
US$85 and 10% increase in production. PTTEP’s
valuations are undemanding at 10.8x 2010 PE, 4.3x
EV/EBITDA, and 2.5x P/BV. There is 32% upside to our
Bt173.00 TP, maintain Buy.
• KASIKORNBANK (KBANK) is one of our top picks among
Thai banks, for its prudent management and high degree
of transparency. We see strong earnings growth of 17%
for the bank next year, supported by higher loan growth,
higher fee-income growth, sustainable high net interest
margin, and lower loan loss provision amid a recovering
economy. The bank also has the lowest NPL ratio in the
system, at 3.7%. We value KBANK at 1.7x FY10F BV or
Bt94.50.
• Charoen Pokphand Foods (CPF) CPF is Thailand’s leading
agro-industrial conglomerate that specializes in farming
and processed meat products. It registered strong FY09
earnings, and earnings should remain strong going
forward given strong margins from locked in low major
raw material costs (until Apr 10 for soybean and 1H10 for
corn) and freight costs (until Sep 10) which limit the
impact of raw material price hikes. Meanwhile, there
should be increased aquatic productivity and contribution
from the high margin food business. There should also be
growth from its overseas operations and higher associate
income. The counter is trading at attractive 8.1x FY10F PE.
Hence, we reiterate our Buy call for CPF with a target
price of Bt13.50.
• Minor International (MINT) MINT’s hotels experienced a
difficult year in FY09, but we expect operation to improve
from 4Q09 onwards. 4Q09 is the high tourism season.
Apart from this, net earnings are expected to jump 59%
in FY10F and 15% in FY11F, supported by (i) continued
strong food earnings as it continues to expand its network
by 80-120 outlets p.a., and improving same-store-sales
(SSS) following menu re-engineering, effective cost
management, and recovering consumer confidence, and
(ii) booking of revenue for c. Bt60m/unit (total 53 units)
St.Regis residence from 4Q10 onwards. Given improving
prospects, attractive expansion plans, well-diversified
earnings, a robust balance sheet, and hefty 39% upside
to our DCF-based target price of Bt15.60 (8.7% WACC,
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Regional Equity Strategy 1Q 2010
Country Assessment
2% terminal growth rate), we reiterate our Buy call for
MINT.
• Quality Houses (QH) is one of our top picks in the
residential property sector for its strong earnings growth
next year that is supported by the transfer of two
condominium projects, products that cater to customers’
needs, and capable management team. Its current net
gearing is high, but should come down sharply next year
in anticipation of strong cash inflow from the transfer of
the two condominium projects. The stock is now trading
at a discount to its RNAV of Bt3.04.
• Thai Tap Water Supply (TTW) is Thailand’s largest private
tap water supplier. The stock is a good defensive play
that offers strong growth. The group’s long-term water
purchase agreements with the Provincial Waterworks
Authority (PWA) offer steady long term cash flow with
minimum offtake quantity and annual water tariff
adjustments that are linked to CPI. We expect strong net
profit growth of 16% CAGR for 2009-11, supported by
moderate top line growth and falling interest expenses.
Maintain Buy and DCF-based target price of Bt5.93,
suggesting 43% upside from current levels.
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Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Banks
Overweight
Commerce
Neutral
Communication
Neutral
We expect the Thai banking sector to report strong 15% EPS growth for
2010, sharply higher than the estimated 0.6% contraction in 2009. This
should be supported by stronger loan growth, higher fee income, and lower
loan-loss provision in line with a recovering economy.
KBANK and BBL are our top picks. We like KBANK for its good asset quality,
lowest NPL ratio among peers, and attractive valuation, and BBL for its strong
balance sheet, highest NPL coverage ratio, and strong capital base to cover
rising NPL without the need to raise capital.
The Consumer Confidence Index (CCI) has improved further in Nov09. We
retain our view that the three companies under our coverage (CPALL, BIGC,
and HMPRO) are still strong in their respective markets, and their revenues
are considered resilient to the weak economic conditions compared to other
sectors. They are expected to continue to grow revenue and earnings this
year and next, led by continuous network expansion and effective cost
control. Moreover, the government has extended several stimulus measures
to enhance purchasing power, e.g. lowering cost of living for low-income
earners, which should be positive for the sector. These companies also have
strong balance sheets.
We remain positive on the convenience store business as we are convinced
that this format will grow the fastest in Thailand for the following reasons: (i)
convenient and quick service, (ii) favorable locations, (iii) availability of valueadded
services such as bill payments, (iv) good store management.
Our top pick remains CPALL for its strong balance sheet, and earnings
growth prospects led by (i) continued store expansion, (ii) increasing highmargin
food products contribution, and (iii) good cost and SGA control.
We believe the issue of 3G licenses may be delayed until the COS rules on
NTC’s legitimacy to issue the 3G licenses, which is expected in mid-2010. The
NTC might try to complete the Information Memorandum (IM) by the end of
this year to be ready to commence the auction once the COS rules in favour
of the regulator. With the 3G licenses, cellular operators would be able to
reduce their regulatory cost from 25-30% of service income (current
concession fee rate) to c.6.5% (2.5% 3G licensing fee + 4% USO). This
implies that they will save up to 18.5-23.5% of their 3G service income. The
MoF may impose excise tax on the 3G services, but the rate should range
between 5-10%, not close to 18.5-23.5%, because cellular operators have to
pay for auction fees and invest more in the network.
ADVANC is our top pick. Although DTAC will benefit the most from the 3G
licenses, we believe ADVANC is a preferred choice for the current uncertain
period. Its share price does not yet reflect the potential benefit from the 3G
licenses and its dividend yield of 7.8% for FY09 and 8.0% for FY10 is
compelling and will limit downside.
KBANK and BBL
CPALL
ADVANC
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Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Construction Materials
Neutral
(Downgrade from
Overweight)
Contractor
Neutral
Energy
Overweight
While we believe the sector should be a prime beneficiary of a domestic
economic recovery and the government’s 2 nd economic stimulus package, we
are concerned about the near-term outlook as the implementation of the
stimulus packages had been slower than the market expected.
Siam Cement (SCC), the largest company in the sector, will be negatively
affected by the recent court ruling on MTP. We revised down FY10F net
profit by 8% assuming its 2nd naphtha cracker and related downstream
projects would be delayed by 6 months to 3Q10. Despite the downgrade,
SCC remains a Buy for its attractive valuation. SCC and Tata Steel (Thailand)
(TSTH) are our top picks for the sector, being prime beneficiaries of an
economic recovery.
We believe contractors will be the prime beneficiary of government pump
priming, especially the Stimulus Package 2 (SP 2), which focuses on
infrastructure construction, but the delay in projects implementation remains
a key risk for the sector. We are also concerned about the relatively poor
balance sheets of the two largest contractors, Italian-Thai Development (ITD)
and Ch. Karnchang (CK).
While Sino-Thai Engineering (STEC)’s balance sheet looks the strongest with
a net cash position, the company’s outlook has been tarnished by the recent
court ruling on MTP, given that some of its current backlog (mostly
petrochemical plants) are among the 65 projects ordered to halt operations.
Prospect for a global oil demand recovery continues to improve along with
an anticipated global economic recovery next year. And taking into account
DBS economists’ view that USD could remain weak for the next few years,
we recently raised our crude oil price targets by US$5/bbl for 2010-12, to
US$80, US$85, and US$90, respectively, while the long term target remains
pegged to US$90. We continue to favor upstream E&P play to downstream
refineries. Refining margin averaged only US$1.5/bbl in Oct and Nov, an
exceptionally low level since 2002. But we expect the prolonged weak
refining margin to force less competitive refineries to cut production or
shutdown, which should eventually lift refining margin from the lows after
4Q09.
Stocks in the sector were hit by several events in the past few months, i.e.
PTTEP by the Montara oil leak incident, PTT group by the MTP injunction, and
refineries by weak refining margin. However, we believe these have now
been largely priced in and we expect improvement going forward. Costs
related to the oil leak incident should be fully booked in 2009, while strong
crude oil price, volume growth, and insurance claims should fuel PTTEP’s
earnings growth in 2010. Although the recent court ruling to halt several
projects in the MTP area, including PTT group’s, was negative in the short
term, we believe these projects will eventually proceed after a 6-9 months
delay, and the group’s long term fundamentals remain intact. Although this
has led us to revise down PTT’s FY10F net profit, y-o-y growth remains strong
driven by strong crude oil price trend and volume growth. PTTEP remains our
top pick for its outstanding earnings growth. We continue to rate PTT a Buy,
but the pending MTP case may be a near term overhang. PTTAR and TOP’s
valuations are undemanding and offer attractive dividend yields, and thus are
also on our Buy list.
SCC, TSTH
-
PTTEP
Page 120

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Electronics Components
Neutral
We are still positive about a demand recovery in the Electronics sector from
2Q09 onwards, and believe that global demand had bottomed out in 1Q09.
This is mainly supported by (i) depleted inventories, and (ii) stronger global
demand outlook.
Key risk for the sector is the strong baht, which could hurt margins of these
exporters, given that their revenue are mostly in US dollar.
HANA, DELTA
Entertainment
Neutral
(Upgrade from Underweight)
According to Nielsen Media Research, Thailand’s overall ad spending rose 8.3%
y-o-y in Nov 2009, led by Internet (+275%), cinema (+75%) and TV (+12%). For
11M09, overall ad spending eased 0.5% YTD. TV ad spending grew 2.8% from
its low base in 2008, but ad spending through Magazines, Radio and
Newspaper fell 12.6%, 11.5% and 8.8%, respectively, YTD. The market had
expected the strong y-o-y increase in Nov 2009 ad spending because the global
economy deteriorated substantially in 4Q08 and domestic political tension
peaked in Thailand during the quarter. Nonetheless, the 8.3% rise in November
ad spending was slightly better than expectation, possibly attributed to the
overall economic recovery. Following stronger-than-expected November ad
spending and continued momentum in December, full year 2009 ad spending
should be better than our estimated 2.0% contraction for the year.
MCOT
Property Development
Neutral
(Downgrade from
Overweight)
Securities
Underweight
Vehicles & Parts
Neutral
In our view, the sector is a good proxy to an economic recovery, as ad spending
growth is strongly correlated with the country’s GDP growth. In addition, the
sector offers attractive dividend yield of 6.5% for FY10F, which should limit
downside risks. MCOT remains our top pick in the sector for its attractive
valuation.
We downgrade the Thai Property sector from Overweight to Neutral this
quarter, considering the weaker earnings growth outlook in 2010, following
the expiration of the tax-cut package by end Mar 2010. Our top residential
property picks, however, remain Preuksa Real Estate (PS) and Quality Houses
(QH), which are expected to deliver strong earnings growth next year, despite
our conservative assumption of no tax-cut extension.
On Industrial property front, recent court ruling on Mab-Ta Phut could
undeniably shake investors’ confidence and negatively affect potential FDI in
Thailand.
The SET will introduce new brokerage fee structure (sliding scale) that starts at a
minimum rate of 0.25% for trades less than or equal to Bt5.0m, and will fall as
the trading amount grows. This will be effective Jan 1, 2010. We believe Thai
securities companies will see negative impact on their net profit, due to lower
brokerage fee rate. We estimate 2010F sector net profit will contract 11.0%,
after imputing SET average daily turnover of Bt18.0bn, and lower average
brokerage fee rate to 0.15%.
Toyota Motor Thailand Co. Ltd. reported that Thailand’s domestic car sales
were 9.5% stronger m-o-m with 53,271 units sold in Oct 2009. This takes
10M09 domestic sales to 419,755 units, down 17.7% y-o-y. but clearly,
domestic car sales have been recovering in the past few months in line with
improving consumer confidence.
In our view, domestic car sales will continue to improve, and we remain
optimistic about Thailand’s auto sector outlook. We believe that domestic car
sales could strengthen y-o-y in 4Q09 due to the low base effect in 4Q08.
Looking forward, we expect 2010 domestic sales to be strong relative to the
year before as the sector had bottomed out in 2Q09.
PS, QH
-
AH
Page 121

Regional Equity Strategy 1Q 2010
Charoen Pokphand Foods
Bloomberg: CPF TB | Reuters: CPF.BK
BUY Bt10.70 SET : 694.71
Price Target : 12-Month Bt 13.50
Potential Catalyst: Growth from overseas investments and increase
contribution from high margin food business.
Analyst
Nalyne Viriyasathien +662 657 7823
nalynev@th.dbsvickers.com
Prospects remain bright
• Changing business model towards more highmargin
food business.
• Positive outlook with locked in raw material price,
strong margins, and improved overseas business.
• Maintain BUY for attractive valuation and 26%
upside potential to our Bt13.50 TP.
Price Relative
12 . 50
10 . 50
8 . 50
6 . 50
4 . 50
2 . 50
Bt
2005 2006 2007 2008 2009
Charoen Pokphand Foods ( LHS) Relative SET INDEX ( RHS )
Forecasts and Valuation
Relative Index
FY Dec (Bt m) 2008A 2009E 2010F 2011F
Turnover 156,238 163,279 174,731 184,439
EBITDA 10,384 19,487 18,036 19,268
Pre-tax Profit 3,442 13,044 10,784 11,835
Net Profit 3,128 10,639 8,731 9,553
Net Pft (Pre Ex.) 3,046 10,129 8,731 9,553
EPS (Bt) 0.4 1.5 1.2 1.3
EPS Pre Ex. (Bt) 0.4 1.4 1.2 1.3
EPS Gth Pre Ex (%) 202 233 (14) 9
Diluted EPS (Bt) 0.4 1.5 1.2 1.3
Net DPS (Bt) 0.2 0.7 0.6 0.7
BV Per Share (Bt) 6.3 7.3 7.7 8.1
PE (X) 24.6 7.2 8.8 8.1
PE Pre Ex. (X) 25.3 7.6 8.8 8.1
P/Cash Flow (X) 11.6 5.4 6.3 5.8
EV/EBITDA (X) 11.7 6.1 6.6 6.1
Net Div Yield (%) 1.8 6.9 5.7 6.2
P/Book Value (X) 1.7 1.5 1.4 1.3
Net Debt/Equity (X) 1.0 0.8 0.7 0.7
ROAE (%) 7.1 21.9 16.2 16.7
Earnings Rev (%): - - -
Consensus EPS (Bt): 1.4 1.2 1.2
ICB Industry : Consumer Goods
ICB Sector: Food Producers
Principal Business: Thailand's leading agro-industrial conglomerate
that specialises in animal farming and the production of processed
meat products.
Source of all data: Company, DBS Vickers, Bloomberg
217
197
177
157
137
117
97
77
57
Improving business model. CPF is Thailand’s leading
agro-industrial conglomerate that specializes in farming
and production of processed meat products. Due to high
exposure to volatile prices in the farming business, the
group plans to increase contribution from its food
business that should result in higher margins going
forward. It is targeting one-third contribution from food
within five years (from 19% currently).
Earnings will remain strong. We estimate FY10F
earnings could ease 18% y-o-y to Bt8.7bn because of
exceptional FY09F earnings, but will remain strong, led by
(i) CPF has locked in low main raw material (until 4M10
for soybean, and 1H10 for corn) and freight (until 9M10)
cost, limiting risks of raw material price hikes, (ii) there
should be larger contribution from high-margin food
business, (iii) it should register higher associate income
from oversea business growth and stake in CPALL, and (iv)
improved aquatic productivity.
Reiterate BUY. Our target price remains Bt13.50 based
on 11x FY10F PE, and its valuation remains
undemanding at 8.8x FY10F PE. And given strong
operations and potential growth, coupled with 26%
upside potential, we reiterate our BUY call for CPF.
At A Glance
Issued Capital (m shrs) 7,520
Mkt. Cap (Btm/US$m) 80,463 / 2,427
Major Shareholders
Charoen Pokphand Group (%) 21.1
Charoen Pokphand Holding (%) 16.1
Charoen Pokphand Foods (%) 6.3
Free Float (%) 49.6
Avg. Daily Vol.(‘000) 83,862
Page 122
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SGC / sa: CS

Regional Equity Strategy 1Q 2010
Charoen Pokphand Foods
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2008A 2009E 2010F 2011F FY Dec 2008A 2009E 2010F 2011F
Turnover 156,238 163,279 174,731 184,439 Net Fixed Assets 44,706 44,260 43,981 42,435
Cost of Goods Sold (135,738) (133,889) (145,900) (153,822) Invts in Associates & JVs 0 0 0 0
Gross Profit 20,500 29,390 28,831 30,617 Other LT Assets 15,543 16,822 18,227 18,227
Other Opng (Exp)/Inc (16,983) (17,471) (19,046) (20,104) Cash & ST Invts 3,453 7,281 4,721 5,016
Operating Profit 3,517 11,919 9,785 10,513 Inventory 27,888 30,070 33,087 34,342
Other Non Opg (Exp)/Inc 1,059 1,169 1,229 1,292 Debtors 14,115 15,857 15,259 18,596
Associates & JV Inc 1,162 1,452 1,743 1,917 Other Current Assets 1,804 1,804 1,804 1,804
Net Interest (Exp)/Inc (2,378) (2,006) (1,972) (1,887) Total Assets 107,510 116,094 117,080 120,421
Exceptional Gain/(Loss) 82 509 0 0
Pre-tax Profit 3,442 13,044 10,784 11,835 ST Debt 29,117 27,566 22,675 19,732
Tax (218) (2,281) (1,963) (2,154) Other Current Liab 10,792 11,351 11,807 13,105
Minority Interest (96) (124) (91) (128) LT Debt 18,365 20,848 22,848 24,849
Preference Dividend 0 0 0 0 Other LT Liabilities 3,685 3,685 3,685 3,685
Net Profit 3,128 10,639 8,731 9,553 Shareholder’s Equity 45,053 52,147 55,567 58,552
Net Profit before Except. 3,046 10,129 8,731 9,553 Minority Interests 498 498 498 498
EBITDA 10,384 19,487 18,036 19,268 Total Cap. & Liab. 107,510 116,094 117,080 120,421
Sales Gth (%) 15.9 4.5 7.0 5.6 Non-Cash Wkg. Capital 33,016 36,380 38,344 41,637
EBITDA Gth (%) 35.9 87.7 (7.4) 6.8 Net Cash/(Debt) (44,029) (41,133) (40,802) (39,565)
Opg Profit Gth (%) 244.6 239.0 (17.9) 7.4
Net Profit Gth (%) 145.3 240.1 (17.9) 9.4
Effective Tax Rate (%) 6.3 17.5 18.2 18.2
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2008A 2009E 2010F 2011F FY Dec 2008A 2009E 2010F 2011F
Pre-Tax Profit 3,442 13,044 10,784 11,835 Gross Margins (%) 13.1 18.0 16.5 16.6
Dep. & Amort. 4,646 4,946 5,280 5,546 Opg Profit Margin (%) 2.3 7.3 5.6 5.7
Tax Paid 0 0 0 0 Net Profit Margin (%) 2.0 6.5 5.0 5.2
Assoc. & JV Inc/(loss) (1,162) (1,452) (1,743) (1,917) ROAE (%) 7.1 21.9 16.2 16.7
Chg in Wkg.Cap. (3,550) (3,365) (1,964) (3,293) ROA (%) 3.0 9.5 7.5 8.0
Other Operating CF (191) (2,281) (1,963) (2,154) ROCE (%) 3.5 9.8 7.6 8.1
Net Operating CF 3,186 10,892 10,394 10,017 Div Payout Ratio (%) 43.7 50.0 50.0 50.0
Capital Exp.(net) (5,382) (4,500) (5,000) (4,000) Net Interest Cover (x) 1.5 5.9 5.0 5.6
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 1.5 1.5 1.5 1.6
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 32.3 33.5 32.5 33.5
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 21.7 22.3 21.8 22.8
Other Investing CF 0 0 0 0 Inventory Turn (avg days) 76.6 82.0 82.0 83.0
Net Investing CF (5,382) (4,500) (5,000) (4,000) Current Ratio (x) 1.2 1.4 1.6 1.8
Div Paid (1,458) (3,496) (5,064) (4,780) Quick Ratio (x) 0.4 0.6 0.6 0.7
Chg in Gross Debt 3,204 932 (2,891) (942) Net Debt/Equity (X) 1.0 0.8 0.7 0.7
Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) 1.0 0.8 0.7 0.7
Other Financing CF 824 0 0 0 Capex to Debt (%) 11.3 9.3 11.0 9.0
Net Financing CF 2,570 (2,564) (7,955) (5,722) Z-Score (X) 2.3 2.3 3.1 3.2
Net Cashflow 374 3,828 (2,560) 295 N. Cash/(Debt)PS (Bt) (6.1) (5.7) (5.7) (5.5)
Opg CFPS (Bt) 0.9 2.0 1.7 1.9
Free CFPS (Bt) (0.3) 0.9 0.8 0.8
Quarterly / Interim Income Statement (Bt m)
Segmental Breakdown / Key Assumptions
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009 FY Dec 2008A 2009E 2010F 2011F
Turnover 40,053 34,779 40,613 44,022 Revenues (Bt m)
Cost of Goods Sold (34,909) (29,673) (32,726) (35,221) Livestock 98,012 99,860 104,649 108,213
Gross Profit 5,144 5,107 7,888 8,801 Aquaculture 33,968 35,547 37,368 38,907
Other Oper. (Exp)/Inc (4,545) (3,886) (4,324) (4,545) Overseas - Livestock 16,045 17,606 19,367 21,304
Operating Profit 598 1,221 3,564 4,256 Overseas - Aquaculture 8,213 10,266 13,346 16,015
Other Non Opg (Exp)/Inc 275 207 289 259
Associates & JV Inc (21) 200 445 565 Total 156,238 163,279 174,731 184,439
Net Interest (Exp)/Inc (610) (701) (373) (395) Revenue (%)
Exceptional Gain/(Loss) (24) 27 4 479 Livestock 63% 61% 60% 59%
Pre-tax Profit 219 953 3,928 5,164 Aquaculture 22% 22% 21% 21%
Tax 107 (166) (678) (1,027) Overseas - Livestock 10% 11% 11% 12%
Minority Interest (21) (17) (56) (22) Overseas - Aquaculture 5% 6% 8% 9%
Net Profit 305 771 3,194 4,116
Net profit bef Except. 329 744 3,190 3,636 Total 100% 100% 100% 100%
EBITDA 2,008 2,762 5,433 6,216
Sales Gth (%) (7.4) (13.2) 16.8 8.4
EBITDA Gth (%) (41.9) 37.6 96.7 14.4
Opg Profit Gth (%) (62.4) 104.0 191.9 19.4
Net Profit Gth (%) (78.1) 153.0 314.5 28.9
Gross Margins (%) 12.8 14.7 19.4 20.0
Opg Profit Margins (%) 1.5 3.5 8.8 9.7
Net Profit Margins (%) 0.8 2.2 7.9 9.3
Source: Company, DBS Vickers
Page 123

Regional Equity Strategy 1Q 2010
KASIKORNBANK
Bloomberg: KBANK TB | Reuters: KBAN.BK
BUY Bt83.00 SET : 694.71
Price Target : 12-Month Bt 94.50
Potential Catalyst: (i) Continued loan growth by this market leader in
the SME segment and higher fee income growth, (ii) highest NIM
among Thai commercial banks, and (iii) lowest NPL ratio of 3.7%
among peers.
Analyst
Sugittra Kongkhajornkidsuk +662 657 7825
sugittrak@th.dbsvickers.com
Price Relative
95
85
75
65
55
45
35
Bt
2005 2006 2007 2008 2009
Forecasts and Valuation
KASIKORNBANK ( LHS ) Relative SET INDEX ( RHS )
Relative Index
FY Dec (Bt m) 2008A 2009E 2010F 2011F
Pre-prov. Profit 28,405 28,783 31,823 37,375
Net Profit 15,333 14,200 16,550 19,885
Net Pft (Pre Ex.) 15,333 14,200 16,550 19,885
EPS (Bt) 6.4 5.9 6.9 8.3
EPS Pre Ex. (Bt) 6.4 5.9 6.9 8.3
EPS Gth Pre Ex (%) 2 (7) 17 20
Diluted EPS (Bt) 6.4 5.9 6.9 8.3
PE Pre Ex. (X) 13.0 14.0 12.0 10.0
Net DPS (Bt) 2.0 2.0 2.5 3.0
Div Yield (%) 2.4 2.4 3.0 3.6
ROAE Pre Ex. (%) 14.4 12.0 12.9 14.2
ROAE (%) 14.4 12.0 12.9 14.2
ROA (%) 1.3 1.1 1.3 1.5
BV Per Share (Bt) 47 51 56 62
P/Book Value (x) 1.7 1.6 1.5 1.3
218
198
178
158
138
118
98
78
Towards recovery in 2010
• Targeting stronger loan growth of 7-9% for
FY10F.
• Sustainable high NIM, fee income growth and
good asset quality.
• Market leader in the SME segment, which loans
offer high yields.
• Maintain BUY, with target price of Bt94.5.
Recovery intact. KBANK is targeting stronger loan
growth of 7-9% for FY10F following the economic
recovery, with stronger focus on SME and retail loans. In
addition, it is targeting fee income growth of >25%, and
wider net NIM of 3.7-3.8% for FY10F vs 3.6% in 9M09 in
anticipation of a rising interest rate trend in 2H10, and
lower LLP of Bt2.0-2.3bn per quarter amid a recovering
economy. We conservatively forecast loan growth at
5.0% for FY10F. Following the expansion of its service
channels and continued high capex for K-Transformation
projects, the bank expects cost-to-income ratio to increase
to 55-58% next year.
NIM & fee income growth remains high. KBANK is the
market leader in the SME segment, which loans offer high
yields. Hence, its NIM remained high at 3.6% in 9M09.
However, we expect NIM to improve to 3.82% in FY10F
in anticipation of a rising interest trend in 2H10. We
believe the bank will post the highest fee income growth
among peers, due to the acquisition of MTFH and higher
fees from retail business. The bank has good asset quality,
with the lowest NPL ratio among peers at 3.7%; it
managed NPLs well amid the economic slow down.
Maintain BUY. KBANK is one of our top picks among
Thai banks, for its highest fee income growth among
peers, stronger loan growth with good asset quality and
lowest NPL ratio, and strong SME base. We value KBANK
at 1.7x FY10F BV or Bt94.50.
Earnings Rev (%): - - -
Consensus EPS (Bt): 5.9 7.2 8.8
ICB Industry : Financials
ICB Sector: Banks
Principal Business: Banking and financial services.
Source of all data: Company, DBS Vickers, Bloomberg
At A Glance
Issued Capital (m shrs) 2,393
Mkt. Cap (Btm/US$m) 198,641 / 5,990
Major Shareholders
Thai NVDR (%) 17.5
State Street Bank And Trust Company (%) 11.1
Chase Nominees Limited 42 (%) 4.1
Free Float (%) 67.3
Avg. Daily Vol.(‘000) 7,893
Page 124
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SGC / sa: CS

Regional Equity Strategy 1Q 2010
KASIKORNBANK
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2008A 2009E 2010F 2011F FY Dec 2008A 2009E 2010F 2011F
Net Interest Income 42,436 43,252 45,658 48,555 Cash/Bank Balance 27,751 18,648 19,376 21,449
Non-Interest Income 21,040 24,580 29,457 34,933 Government Securities 0 0 0 0
Operating Income 63,476 67,832 75,115 83,488 Inter Bank Assets 198,734 70,862 73,629 121,544
Operating Expenses (35,071) (39,049) (43,292) (46,113) Total Net Loans & Advs. 875,722 889,345 927,603 967,865
Pre-provision Profit 28,405 28,783 31,823 37,375 Investment 102,731 173,176 179,939 227,645
Provisions (7,834) (9,425) (9,400) (9,700) Associates 214 870 904 1,144
Associates 36 28 90 90 Fixed Assets 29,657 32,508 32,508 32,508
Exceptionals 0 0 0 0 Goodwill 0 0 0 0
Pre-tax Profit 22,178 20,210 23,313 28,165 Other Assets 68,745 57,777 57,777 57,777
Taxation (6,844) (6,010) (6,763) (8,279) Total Assets 1,303,554 1,243,185 1,291,737 1,429,933
Minority Interests 0 0 0 0 Customer Deposits 967,950 953,390 996,340 1,041,240
Preference Dividend 0 0 0 0 Inter Bank Deposits 18,911 33,628 28,958 19,239
Net Profit 15,333 14,200 16,550 19,885 Debts/Borrowings 138,159 84,071 86,875 125,056
Net Profit bef Except 15,333 14,200 16,550 19,885 Others 64,873 49,852 46,163 97,087
Minorities 0 0 0 0
Shareholders' Funds 113,663 122,244 133,400 147,311
Total Liab& S/H’s Funds 1,303,554 1,243,185 1,291,737 1,429,933
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2008A 2009E 2010F 2011F FY Dec 2008A 2009E 2010F 2011F
Margins, Costs & Efficiency
Balance Sheet Structure
Yld. On Earnings Assets 5.66 4.75 4.79 4.93 Loan-to-Deposit Ratio 93.5 96.8 97.3 97.8
Avg Cost Of Funds 1.77 1.18 1.05 1.32 Net Loans / Total Assets 67.2 71.5 71.8 67.7
Spread 3.89 3.58 3.74 3.61 Investment / Total Assets 7.9 13.9 13.9 15.9
Net Interest Margin 3.99 3.65 3.82 3.75 Cust . Dep./Int. Bear. Liab. 93.2 91.4 92.0 92.9
Cost-to-Income Ratio 53.9 56.9 57.0 54.9 Interbank Dep / Int. Bear. 1.8 3.2 2.7 1.7
Employees ( Year End) 13,560 N/A N/A N/A Asset Quality
Effective Tax Rate 30.9 29.7 29.0 29.4 NPL / Total Gross Loans 3.7 3.8 3.5 3.3
Business Mix NPL / Total Assets 2.6 2.8 2.6 2.3
Net Int. Inc / Opg Inc. 66.9 63.8 60.8 58.2 Capital Strength
Non-Int. Inc / Opg inc. 33.1 36.2 39.2 41.8 Total CAR 15.1 17.5 19.0 19.3
Fee Inc / Opg Income 26.7 29.3 31.8 34.9 Tier-1 CAR 9.8 11.6 12.3 12.4
Oth Non-Int Inc/Opg Inc 6.4 6.9 7.4 7.0 Growth
Profitability Total Net Loans 19 2 4 4
ROAE Pre Ex. 14.4 12.0 12.9 14.2 Customer Deposits 23 (2) 5 5
ROAE 14.4 12.0 12.9 14.2
ROA Pre Ex. 1.3 1.1 1.3 1.5
ROA 1.3 1.1 1.3 1.5
Quarterly / Interim Income Statement (Btm)
PBV Band
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009
Net Interest Income 10,829 10,756 10,750 10,694
Non-Interest Income 5,682 5,491 5,671 6,476
Operating Income 16,511 16,246 16,421 17,169
Operating Expenses (10,793) (8,600) (9,333) (9,510)
Pre-Provision Profit 5,717 7,646 7,087 7,659
Provisions (2,084) (2,360) (2,547) (2,218)
Associates 1 5 1 (1)
Exceptionals 0 0 0 0
Pretax Profit 4,358 5,467 4,828 5,602
Taxation (1,568) (1,667) (1,124) (1,882)
Minority Interests 0 0 0 0
Net Profit 2,790 3,800 3,705 3,720
Source: Company, DBS Vickers
PBV (x)
6.0
5.0
4.0
3.0
2.0
1.0
-
98 99 00 01 02 03 04 05 06 07 08 09
+2 sd
+1 sd
Mean
-1 sd
-2 sd
Page 125

Regional Equity Strategy 1Q 2010
PTT Exploration & Production
Bloomberg: PTTEP TB | Reuters: PTTE.BK
BUY Bt131.00 SET : 694.71
Price Target : 12-month Bt 173.00
Potential Catalyst: Rising crude oil price, clear assessment of oil leak
damage
Analyst
Vichitr Kuladejkhuna CFA +66 0 26577826
vichitrk@th.dbsvickers.com
Price Relative
228
208
188
168
148
128
108
88
68
Bt
2005 2006 2007 2008 2009
Forecasts and Valuation
PTT Exploration & Production (LHS) Relative SET INDEX (RHS)
Relative Index
FY Dec (Bt m) 2008A 2009E 2010F 2011F
Turnover 136,752 117,058 152,996 191,376
EBITDA 97,355 73,167 109,985 133,756
Pre-tax Profit 74,177 43,135 74,477 95,597
Net Profit 41,675 24,803 40,218 52,578
Net Pft (Pre Ex.) 41,675 24,803 40,218 52,578
EPS (Bt) 12.6 7.5 12.1 15.9
EPS Pre Ex. (Bt) 12.6 7.5 12.1 15.9
EPS Gth Pre Ex (%) 46 (41) 62 31
Diluted EPS (Bt) 12.6 7.5 12.1 15.9
Net DPS (Bt) 5.4 2.9 4.6 6.0
BV Per Share (Bt) 40.6 43.9 53.2 64.5
PE (X) 10.4 17.5 10.8 8.2
PE Pre Ex. (X) 10.4 17.5 10.8 8.2
P/Cash Flow (X) 6.7 8.1 5.9 4.8
EV/EBITDA (X) 4.2 6.5 4.3 3.5
Net Div Yield (%) 4.1 2.2 3.5 4.6
P/Book Value (X) 3.2 3.0 2.5 2.0
Net Debt/Equity (X) CASH 0.3 0.2 0.2
ROAE (%) 34.6 17.8 25.0 27.0
Earnings Rev (%): 1.6 6.5 6.9
Consensus EPS (Bt): 8.3 11.3 13.0
ICB Industry : Oil & Gas
ICB Sector: Oil & Gas Producers
Principal Business: Explore and produce natural gas, crude oil and
condensate
Source of all data: Company, DBS Vickers, Bloomberg
206
186
166
146
126
106
86
Worst is over
• 2009 was hit by weak oil prices and Montara oil
leak. But 2010 will be boosted by stronger oil
prices, volume growth, and insurance claims.
• 2010 volume will be boosted by full year
production at Arthit North and MTJDA, and from
Montara in 2011.
• We forecast 46% earnings CAGR during 2009-11.
Maintain BUY and Bt173.00 TP.
Montara damage being assessed. The oil leak at
Montara project, which started on 21 Aug, was stopped
on 3 Nov. The actual damage is being assessed. PTTEP
has booked US$156m loss related to the oil leak
(US$100m actual damage in 3Q09 plus US$56m
estimated damages) but we assumed additional
US$100m to be booked in 4Q09 due to the subsequent
fire. Most of the damage should be covered by
insurance, for up to US$267m.
46% CAGR earnings growth for 2009-11. We expect
FY09F net profit to drop 41% to a 4-year low due to the
weak oil price (Brent: US$97 in 2008, US$62 in 2009)
and Montara oil leak. But FY10F net profit should surge
62% led by stronger crude oil price of US$80, 18%
increase in production volume to 271k boed, and receipt
of insurance claims. FY11F net profit should rise by
31% on the back of higher crude oil price of US$85 and
10% higher production.
Maintain BUY.
Although the actual damage remains
unknown, we believe the worst is over and strong
earnings growth should drive the share price from here.
Valuations are undemanding at 10.8x 2010 PE, 4.3x
EV/EBITDA, and 2.5x P/BV. Given 32% upside to our
Bt173.00 TP, we maintain a BUY rating for PTTEP.
At A Glance
Issued Capital (m shrs) 3,313
Mkt. Cap (Btm/US$m) 433,945 / 13,086
Major Shareholders
PTT (%) 65.5
Nortrust Nominees Ltd. (%) 2.8
The Bank Of New York (Nominees) Limited (%) 2.0
Free Float (%) 34.4
Avg. Daily Vol.(‘000) 10,770
Page 126
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Refer to important disclosures at the end of this report
ed: SGC / sa: CS

Regional Equity Strategy 1Q 2010
PTT Exploration & Production
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2008A 2009E 2010F 2011F FY Dec 2008A 2009E 2010F 2011F
Turnover 136,752 117,058 152,996 191,376 Net Fixed Assets 167,326 251,328 279,103 308,411
Cost of Goods Sold (59,420) (60,327) (77,706) (88,400) Invts in Associates & JVs 0 0 0 0
Gross Profit 77,332 56,731 75,290 102,976 Other LT Assets 3,988 3,145 3,145 3,145
Other Opng (Exp)/Inc (4,663) (4,870) (5,584) (7,081) Cash & ST Invts 43,995 27,508 21,216 23,132
Operating Profit 72,669 51,861 69,706 95,895 Inventory 6,736 4,760 7,831 8,607
Other Non Opg (Exp)/Inc 1,409 (7,543) 6,380 600 Debtors 11,527 10,292 13,452 16,826
Associates & JV Inc (12) 0 0 0 Other Current Assets 4,696 4,696 4,696 4,696
Net Interest (Exp)/Inc 112 (1,183) (1,608) (898) Total Assets 238,267 301,729 329,443 364,817
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 74,177 43,135 74,477 95,597 ST Debt 2,986 29,500 20,000 20,000
Tax (32,502) (18,332) (34,260) (43,019) Other Current Liab 46,464 51,981 58,879 61,408
Minority Interest 0 0 0 0 LT Debt 18,500 39,000 39,000 35,500
Preference Dividend 0 0 0 0 Other LT Liabilities 36,214 35,920 35,449 34,447
Net Profit 41,675 24,803 40,218 52,578 Shareholder’s Equity 134,104 145,327 176,114 213,462
Net Profit before Except. 41,675 24,803 40,218 52,578 Minority Interests 0 0 0 0
EBITDA 97,355 73,167 109,985 133,756 Total Cap. & Liab. 238,267 301,729 329,443 364,817
Sales Gth (%) 45.4 (14.4) 30.7 25.1 Non-Cash Wkg. Capital (23,506) (32,234) (32,901) (31,279)
EBITDA Gth (%) 43.5 (24.8) 50.3 21.6 Net Cash/(Debt) 22,509 (40,992) (37,784) (32,368)
Opg Profit Gth (%) 44.0 (28.6) 34.4 37.6
Net Profit Gth (%) 46.5 (40.5) 62.2 30.7
Effective Tax Rate (%) 43.8 42.5 46.0 45.0
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2008A 2009E 2010F 2011F FY Dec 2008A 2009E 2010F 2011F
Pre-Tax Profit 74,177 43,135 74,477 95,597 Gross Margins (%) 56.5 48.5 49.2 53.8
Dep. & Amort. 23,376 28,848 33,900 37,261 Opg Profit Margin (%) 53.1 44.3 45.6 50.1
Tax Paid (32,502) (18,332) (34,260) (43,019) Net Profit Margin (%) 30.5 21.2 26.3 27.5
Assoc. & JV Inc/(loss) 12 0 0 0 ROAE (%) 34.6 17.8 25.0 27.0
Chg in Wkg.Cap. (21,757) 8,006 696 (1,592) ROA (%) 19.5 9.2 12.7 15.1
Other Operating CF 38,554 (14,125) (500) (732) ROCE (%) 23.5 13.5 14.5 18.4
Net Operating CF 82,265 48,316 74,314 87,515 Div Payout Ratio (%) 43.0 38.0 37.9 37.8
Capital Exp.(net) (48,984) (93,917) (61,675) (66,569) Net Interest Cover (x) NM 43.8 43.3 106.8
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 0.6 0.4 0.5 0.6
Invts in Assoc. & JV (1,235) 0 0 0 Debtors Turn (avg days) 32.3 34.0 28.3 28.9
Div from Assoc & JV 83 0 0 0 Creditors Turn (avg days) 19.8 27.0 23.0 23.7
Other Investing CF (140) 0 0 (300) Inventory Turn (avg days) 57.2 66.6 52.5 58.7
Net Investing CF (50,277) (93,917) (61,675) (66,869) Current Ratio (x) 1.4 0.6 0.6 0.7
Div Paid (14,964) (17,900) (9,431) (15,231) Quick Ratio (x) 1.1 0.5 0.4 0.5
Chg in Gross Debt 2,906 47,014 (9,500) (3,500) Net Debt/Equity (X) CASH 0.3 0.2 0.2
Capital Issues 574 0 0 0 Net Debt/Equity ex MI (X) (0.2) 0.3 0.2 0.2
Other Financing CF (522) 0 0 0 Capex to Debt (%) 228.0 137.1 104.5 119.9
Net Financing CF (12,006) 29,114 (18,931) (18,731) Z-Score (X) 3.1 3.1 2.9 3.4
Net Cashflow 19,982 (16,487) (6,292) 1,916 N. Cash/(Debt)PS (Bt) 6.8 (12.4) (11.4) (9.8)
Opg CFPS (Bt) 31.5 12.2 22.2 26.9
Free CFPS (Bt) 10.1 (13.8) 3.8 6.3
Quarterly / Interim Income Statement (Bt m)
Segmental Breakdown / Key Assumptions
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009 FY Dec 2008A 2009E 2010F 2011F
Turnover 29,925 26,018 28,567 30,546 Revenues (Bt m)
Cost of Goods Sold (16,594) (13,496) (14,626) (15,782) Gas 132,621 113,058 148,796 187,176
Gross Profit 13,331 12,522 13,941 14,764 Pipeline sales 4,131 4,000 4,200 4,200
Other Oper. (Exp)/Inc (1,567) (1,354) (1,061) (1,113) Total 136,752 117,058 152,996 191,376
Operating Profit 11,764 11,168 12,880 13,651
Other Non Opg (Exp)/Inc 846 (39) 49 (5,392) Key Assumptions
Associates & JV Inc 5 (7) (1) 13 Brent crude oil price, 97 62 80 85
Net Interest (Exp)/Inc 84 (98) (356) (493) Sales volume, '000 BOED 219 230 271 298
Exceptional Gain/(Loss) 0 0 0 0 ASP, US$/BOED 50 39 44 50
Pre-tax Profit 12,699 11,024 12,571 7,780
Tax (5,910) (5,278) (6,075) (2,521)
Minority Interest 0 0 0 0
Net Profit 6,789 5,746 6,496 5,259
Net profit bef Except. 6,789 5,746 6,496 5,259
EBITDA 18,953 17,616 20,125 16,236
Sales Gth (%) (28.5) (13.1) 9.8 6.9
EBITDA Gth (%) (36.7) (7.1) 14.2 (19.3)
Opg Profit Gth (%) (49.8) (5.1) 15.3 6.0
Net Profit Gth (%) (47.7) (15.4) 13.1 (19.0)
Gross Margins (%) 44.5 48.1 48.8 48.3
Opg Profit Margins (%) 39.3 42.9 45.1 44.7
Net Profit Margins (%) 22.7 22.1 22.7 17.2
Source: Company, DBS Vickers
Page 127

Regional Equity Strategy 1Q 2010
Country Assessment
Indonesia
Shaky days
2009 has been a very good year after the crash in 2008,
with the JCI gaining 83.5% YTD. But the market has
been docile since early 4Q09, driven by JCI valuation and
because of the intensifying political climate. Some of the
recent political developments may have raised risks to
economic outlook and dampened strong growth
momentum. We remain optimistic about Indonesia’s
long-term economic outlook, but are cautious about the
near-term performance of the JCI. As such, we prefer
sectors that are defensive, stocks that offer cheap
valuation, and export-oriented stocks.
During its first 50 days, the new administration, contrary to our
expectation, it had been busy trying to resolve the Corruption Eradication
Committee (KPK) alleged incrimination case. And now it is also faced
with the more sensitive and high profile Bank Century case that is being
investigated by the Inquiry Committee of the House. Investors may prefer
to remain sidelined until there are clearer indications of how the new
government would handle the Bank Century case. The bailout would
involve the Ministry of Finance as the chairman of Financial System
Stabilitation Committee (KSSK) and Vice President, who is the former
governor of Bank Indonesia (BI).
In order to capture the strong growth outlook amid rising risks in the
short-term, we prefer sectors that will be defensive in the event of the
worst expected outcome for Bank Century, strong-growth stocks with
cheap valuation, as well as export-oriented stocks. As such, we feature
Telekomunikasi Indonesia and Bank Mandiri as our top picks for 1Q10.
Agus Pramono, CFA (6221) 39832668 . agus.pramono@id.dbsvickers.com
Page 128
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SGC / sa: TW

Regional Equity Strategy 1Q 2010
Country Assessment
Market Data
Close Chg net % Change 52 week
10-Dec-09 -1mth -1mth -3mth -6mth -12mth High Low
JCI 2,487.3 105.4 4.4 3.1 18.0 89.0 2,528.1 1,256.1
LQ45 491.6 23.4 5.0 4.6 19.4 87.4 498.1 242.5
Agriculture 1,818.5 82.8 4.8 1.4 6.3 109.4 1,913.6 868.4
Basic Industries 263.6 3.6 1.4 14.4 32.3 124.0 266.3 114.0
Consumer 648.1 50.4 8.4 13.9 42.7 100.2 661.6 307.6
Finance 297.9 5.2 1.8 1.0 18.5 82.0 318.8 142.6
Infrastructure 724.7 40.8 6.0 5.5 14.0 45.0 729.4 444.3
Manufacturing 508.7 26.4 5.5 10.4 37.0 125.8 509.9 215.6
Mining 2,186.6 184.6 9.2 0.2 4.7 140.5 2,324.5 871.0
Misc. Industry 575.3 33.3 6.2 3.2 35.1 168.8 604.6 204.3
Property 144.8 (8.3) (5.4) (12.3) (2.8) 43.7 166.2 95.2
Trade & Service 257.6 2.7 1.0 (5.6) 14.4 84.2 283.8 139.8
Transactions (JSX):
YTD
Vol (bln shrs) 1,492.5
Val Rptr) 945.2
Source: Bloomberg
MARKET REVIEW
The JCI was relatively quiet in early 4Q09, inching up 3.1%
relative to the 83.5% gain YTD, following an unfavorable
political climate in 3Q09. Trading activities were relatively
stable in 4Q09, but there was a shift in interest towards big
cap stocks as our small cap universe fell 13.0% in the
quarter against the 1.4% decline for big caps..
If the market had priced in the victory of SBY-Boediono in
3Q09, then the announcement of the new cabinet line-up
would not be a surprise. There are no significant changes to
the economic team as Sri Mulyani and Mari Pangestu remain
the Minister of Finance and Minister of Trade & Industry,
respectively. The rest of the cabinet line-up was mostly
within expectation.
Markets turned cautious as if weighted implications of the
KPK and Bank century cases in early 4Q09. The KPK alleged
incrimination case started to emerge and support to the KPK
leader led the President to form a fact finding team called
Team 8 to investigate the alleged framing. The team’s
conclusion that there was insufficient evidence to proceed
with the case created doubts about the independence of the
justice system. But even as the KPK case subsides, the public
continued to watch developments in Bank Century, which
we believe has more impact on the economy and market.
DBSVI Universe Big & Small Caps Performance
YTD -3 mths Peak Rel to JCI
DBSV Big Caps 84.0 8.2 0.9 3.8
DBSV Small Caps 65.4 -4.0 -8.9 (8.2)
JCI 83.5 3.1 0.1
Source: DBSV, BEI
LIQUIDITY
BI is maintaining the current low BI rate that touched a low
of 6.5% in Aug 09. Liquidity has also eased as banks cap
deposit rates at a maximum of 150bps above BI rate.
Deposit rates had fallen from 9.9% on average in 1Q09 to
7.9% in 4Q09, and the liquidity difference between large
and small banks has gradually disappeared.
BI rates and inflation
%
16.0
12.0
8.0
4.0
0.0
Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09
Source: BI
YoY
1m SBI
Page 129

Regional Equity Strategy 1Q 2010
Country Assessment
Inflation remained benign up to Nov 2009 at 2.45%, but
DBS’s economics is maintaining its view that BI will keep the
BI rate at the current level before its starts to hike rates in
3Q10. This may be contrary to consensus expectations, but
DBS economist believes that sub-potential demand and lack
of supply-side pressure especially in areas like food, imply
that inflation should remain mild. Nevertheless, DBS
economist foresees BI raising rates to 8% by end 2010 as
inflation could reach 6% driven by economic growth.
GDP growth
%-pt contrib to YoY GDP growth
10
8
6
4
2
0
DBSf
Rupiah vs USD
8,000
9,000
IDR/USD
-2
Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
Consumptn Govt spendg Investment
Net exports GDP YoY
Source: DBS estimates
10,000
11,000
12,000
13,000
Jan-08
Source:
Jan-09
The rupiah strengthened 5.3% q-o-q in 2Q09, from
Rp9,934/USD in September to Rp9,435 in December. We
think this was driven by both external and internal factors,
the USD weakening against major currencies and the
successful election that had improved investors’ confidence
in Indonesia. These are reflected in DBS’ expectation for the
rupiah to strengthen to Rp8,700/USD in 4Q10.
GROWTH
We remain upbeat about the long-term potential for
Indonesia’s economy – it is still sound and the outlook
remains bright. Indonesia has successfully weathered the
global financial crisis thus far, and its 2010 economic
outlook is better than many other economies in the region.
DBS economics team believes that in 2010, Indonesia will be
operating at levels of output closer to longer-term potential,
while other countries may only return to pre-crisis levels. As
such, the team believes that Indonesia’s GDP should grow at
5.5% in 2010 vs 4.3% this year. Although this appears
slower than the regional average, its starting point is
significantly different.
Therefore, spare capacity in the economy will be used up
and investment will return to the fore as a key theme. We
expect investment growth to accelerate as consumption and
net exports recover, but it will be partly offset by fading
fiscal stimulus measures. The key long-term driver of
accelerating development is FDI, and the economic recovery
in the region will bring FDI back to Indonesia, particularly
into infrastructure projects.
FDI
% share of FDI GDP growth
(DBS estimates)
2007 2008 1H09 2009f 2010f
Japan 16.2 18.0 14.0 -5.2 2.0
US 15.8 11.7 11.9 -2.4 2.9
Europe 37.8 15.6 21.1 -3.8 1.0
Asia 10 18.6 41.6 42.2 1.0 6.0
China 1.7 5.0 4.8 8.2 9.5
Singapore 12.1 24.4 9.5 -1.9 6.0
Malaysia 3.3 8.7 2.6 -2.4 5.0
Source: BI
We believe that financing for investments next year will be
available at lower cost of funds and expect loan growth to
accelerate driven by declining interest rates, new banking
lending rules, and stronger economic growth. And since
inflation has been mild, we foresee a shrinking gap between
lending and BI rates, especially since large banks have
agreed to cap deposit rates at 150bps above the BI rate. At
the same time, BI will push banks to lend more by
implementing new banking rules that will give incentives to
banks that can meet certain LDRs, and disincentives for
those that lag in lending.
Page 130

Regional Equity Strategy 1Q 2010
Country Assessment
We are cautious about the political situation following the
recent KPK and Bank Century cases. They could temporarily
dampen growth momentum in the short-term. Although we
expect an amicable settlement in the Bank Century case, it
may take awhile as the investigation by the Inquiry
Committee of the House of Representative (DPR) could take
months. And the case could affect the perceived
effectiveness of the administration as the bailout decision
will involve the Ministry of Finance and Vice President, who
was the governor of Bank Indonesia (BI) then.
PE Band
3,000
2,500
2,000
1,500
1,000
500
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: DBSV
15x
13x
11x
9x
7x
5x
STRATEGY
The JCI has outperformed other markets in Asia because
Indonesia’s economy has fared better than others and it had
successfully completed its elections. Although the JCI is
currently trading at 13.6x FY10 PER, which is more
expensive than only the SET, we expect the index to decline
in 1Q10 amid domestic political uncertainly. This will in turn
cause consumer confidence and spending to decline, while
foreign investors would prefer to wait for the outcome of
the Bank Century case. A positive resolution would have a
positive effect on the domestic political scene, and could be
a positive catalyst for the market.
We prefer sectors that are more defensive in the current
fragile political climate and economic cycle, and exportoriented
sectors. And with the JCI trading at 13.6x FY10
PER, we also like stocks with cheap valuations but strong
growth potential.
Telecommunication, mining, and export-oriented sectors
should be able to weather any unfavorable developments.
Meanwhile, we also like BMRI for its exposure to Indonesia’s
long-term growth and its relatively cheap valuation. We are
positive on cement, construction and energy sectors, as they
are in a position to capture Indonesia’s long-term growth
opportunities.
Earnings Estimates by Sector
EPS Growth (%) EPS PATMI (Rpbn) PER (x)
CAGR
09A 10F (%) 09F 10F 11F 09A 10F 11F
Conglomerate/Automotive (4.4) 21.3 15.5 8,785 10,660 11,715 15.3 12.6 11.5
Infrastructure 25.4 14.6 15.7 5,351 6,135 7,169 16.9 14.8 12.4
Consumer 12.0 23.6 22.8 1,950 2,410 2,941 22.1 17.5 14.9
Banks 22.7 11.2 14.2 22,802 25,364 29,743 15.3 14.1 12.1
Plantation (29.3) 17.4 12.8 2,825 3,316 3,592 19.2 16.4 15.2
Basic Materials (70.4) 206.4 86.2 1,805 5,532 6,262 39.9 13.2 11.8
Oil, Gas & Energy 41.3 4.6 13.4 23,801 24,904 30,604 14.1 13.6 11.7
Telecommunication 9.0 1.4 6.6 13,622 13,815 15,491 14.1 13.6 11.7
Source: DBS Vickers
Page 131

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Indonesia
SECTOR REMARKS STOCK SELECTION
Conglomerate/
Automotive
Neutral
Cement and Construction
Overweight
Consumer Goods
Neutral
Banking
Overweight
Plantation
Neutral
Astra International (ASII) has outperformed the JCI by 5.6% YTD,
driven by recovering car and motorcycle sales, and improving
performance of its subsidiaries such as United (UNTR) and Astra
Agro Lestari (AALI). As such, expectations for a full recovery of ASII’s
business have been priced in. We foresee 20% and 27.5% y-o-y
growth in car and motorcycle sales, respectively, with auto sales
surpass 2008 levels to reach a historical high in 2011.
11M09 cement sales fell 1.2% y-o-y, but is a significant improvement
from the 5.8% decline in 1Q09. The quick recovery was driven by the
infrastructure and property sectors. This is reflected in strong cement
sales in South Sulawesi, where infrastructure development had
accelerated in the last few years. We forecast cement sales to grow
6% y-o-y in 2010 to 42m tonnes
1Q10 is a seasonally low volume quarter for consumer companies
because of the lack of major festivities to boost demand. Hence, we
do not expect meaningful price increases this quarter despite rising
commodity prices, which means margins could be squeezed.
Nevertheless, Indofood’s plan to list its Consumer Branded Products
separately could be a catalyst to support share prices.
We remain positive on banks as a proxy to an improving economy,
supported by the recovery in loan growth. Better asset quality
coupled with sustainable NIMs and lower provisions would be the
key earnings growth drivers. Asset quality was probably at its worst
in 3Q09, and we expect only improvement in 2010. We expect
another round of NIM expansion in 4Q09 with the cap on time
deposits set at 7% (reduced from 8%). Although lending rates are
expected to be revised downwards across segments, the strong loan
growth could boost net interest income in 2010. Banks may turn to
raising capital, but we believe that would be a function of growth
propulsion rather than lack of capital. BMRI and BBRI make good
proxies to the economic recovery and loan growth.
We expect plantation companies to book better earnings in 1Q 2010,
as tight global soybean oil supply will support the strong soybean and
palm oil prices. However, an anticipated jump in South American
soybean harvests and crushing in February-June next year should ease
the supply tightness. Based on current prices, we believe stock prices
are more or less at a plateau;, and do not recommend adding
positions except for Sampoerna Agro, which remains undervalued.
-
-
INDF
BMRI
SGRO
Page 132

Regional Equity Strategy 1Q 2010
Country Assessment
Sector recommendation and stocks for Indonesia
SECTOR REMARKS STOCK SELECTION
Basic Materials
Neutral
Although prices of metals such as nickel and tin have risen by 23.3-
31.6% YTD, we continue to believe price will remain stable going
into 2010, supported by expectations of a global economic recovery.
PT Timah (TINS) is our top pick in this sector, as the share price
upside potential is justified by expected stronger tin prices and sales
volume going forward.
TINS
Energy
Overweight
Telecommunications
Overweight
The outlook for the energy sector, particularly coal, remains positive
given the potential for rising domestic demand following the
completion of the government’s coal-fired power plant program.
Given current low electrification ratio of 62% and frequent power
outages in Indonesia, there is an urgent need for new generation
capacity, with more than 9% p.a. electricity demand growth
projected by the State Electricity Company (PLN). The government
aims to develop 35.7 GW of power plants by 2018 and a fast-track
program has been rolled-out in 2008 to build 10,000 MW power
plants (mostly coal-fired) that is expected to be completed in 2010.
This could raise coal consumption by c.35-40mn tons p.a., or 70-
80% increase from current consumption of about 50mn tons p.a.
Bukit Asam (PTBA) is our top pick in the Energy sector because its
upside potential remains attractive. PTBA should be the main
beneficiary of rising coal demand, driven by its strong exposure in
the domestic coal market. It also has several projects going on to
ramp up production going forward.
TLKM has carefully capitalized on elasticity to grow its 3Q09
revenues. Despite a 7% q-o-q drop in 3Q09 GSM revenue, ARPU
increased by 5%. Essentially, TLKM benefited from higher effective
tariff as a result of easing competitive pressure. In its latest
statement to the media, TLKM disclosed that it now had 82m GSM
subscribers, which is in line with our FY09F forecast of 84m and
reinforces our confidence in the company. We have a BUY call for
TLKM with a DCF-based price target of Rp10,700.
ISAT, on the other hand, disappointed for the second consecutive
quarter in 3Q09, prompting us to cut core net profits by 29%-62%.
Consequently, we slashed our DCF-based price target to Rp4,000
from Rp5,200. Its more aggressive price hike (effective tariff) had
proven to be a costly affair in the price sensitive market.
We continue to like TLKM as we expect it to take advantage of
ISAT’s weakness to gain market share. We forecast positive earnings
growth for TLKM vs. contraction at ISAT. Besides, TLKM’s 14x FY10F
PE and 5x EV/EBITDA valuations are more reasonable than ISAT’s
27x and 6x, respectively. We recommend switching from ISAT to
TLKM.
PTBA
TLKM
Page 133

Regional Equity Strategy 1Q 2010
Bank Mandiri
Bloomberg: BMRI IJ | Reuters: BMRI.JK
BUY Rp4,625 JCI : 2,486.44
Price Target : 12-Month Rp 6,000
Potential Catalyst: Proxy to the Indonesia economy
Analyst
Sue Lin Lim +603 2711 0971
suelin@hwangdbsvickers.com.my
Price Relative
5,571
5,071
4,571
4,071
3,571
3,071
2,571
2,071
1,571
1,071
Rp
Relative Index
2005 2006 2007 2008 2009
Bank Mandiri (LHS) Relative JCI INDEX (RHS)
Forecasts and Valuation
FY Dec (Rp bn) 2008A 2009F 2010F 2011F
Pre-prov. Profit 10,505 12,482 13,109 14,331
Net Profit 5,313 6,693 8,111 9,185
Net Pft (Pre Ex.) 5,313 6,693 8,111 9,185
EPS (Rp) 256 323 391 443
EPS Pre Ex. (Rp) 256 323 391 443
EPS Gth Pre Ex (%) 19 26 21 13
Diluted EPS (Rp) 256 323 391 443
PE Pre Ex. (X) 18.1 14.3 11.8 10.4
Net DPS (Rp) 189 90 113 137
Div Yield (%) 4.1 1.9 2.4 3.0
ROAE Pre Ex. (%) 17.8 20.6 21.8 21.2
ROAE (%) 17.8 20.6 21.8 21.2
ROA (%) 1.6 1.8 2.1 2.2
BV Per Share (Rp) 1,471 1,655 1,933 2,239
P/Book Value (x) 3.1 2.8 2.4 2.1
Earnings Rev (%): 1.5 13.8 21.2
Consensus EPS (Rp): 305 369 444
ICB Industry : Financials
ICB Sector: Banks
Principal Business: Banking
Source of all data: Company, DBS Vickers, Bloomberg
210
190
170
150
130
110
90
70
Greener pastures ahead
• ROE profile lifted by lower cost of funds and
lower provisions.
• Loan growth gearing up, coupled with improving
asset quality adds to appeal.
• With its involvement in infrastructure and
agribusiness, BMRI is a good proxy to an
economic recovery.
Building up momentum. 3Q09 result indicated robust
loan growth which we believe was broad-based. YTD loan
growth is 8%. An improving global and domestic
environment could cause loan demand to surge again and
improve asset quality. Despite the small scale, the growing
microfinance business and exploitation of opportunities in
the auto segment are likely to support NIM improvement.
The decline in provisions was also an indication that asset
quality has stabilized, given upgrades to performing loan
status and likely resolution of NPLs. We expect provisions
to decline and gross NPL ratio will fall to 4% in 2010.
Good proxy to recovery. We believe that BMRI is poised
to benefit from government infrastructure projects given
that it is the largest state-owned bank. We expect BMRI’s
4Q09 result to be strong, driven by lower provisions and
lower cost of funds. We adjusted our provisions and NPL
forecasts for FY09-11 in anticipation of an improved macro
environment. We also lifted loan growth assumptions to
11% (from 10%) for FY09 and 15-20% (from 12.5%) for
FY10-11. With these adjustments, we raised earnings by 2-
21% for FY09-11.
Attractive valuation for a large cap bank with upside
potential. BMRI’s valuation is still below the average P/BV
multiple of the top 5 listed banks. Given its scale and
reach, improving fundamentals, and improving ROE
profile, BMRI should trade at higher multiples. Our
Rp6,000 target price is based on the Gordon Growth
Model with implied 3.1x FY10 BV. Additional earnings
upside could come from a 5ppt reduction in the effective
tax rate if the government chooses to divest at least 7% of
BMRI’s stake and lift free float to 40%.
At A Glance
Issued Capital (m shrs) 20,969
Mkt. Cap (Rpbn/US$m) 96,981 / 10,270
Major Shareholders
Govt. of Indonesia (%) 66.8
Free Float (%) 33.2
Avg. Daily Vol.(‘000) 25,843
Page 134
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Refer to important disclosures at the end of this report
ed: SGC / sa: AP

Regional Equity Strategy 1Q 2010
Bank Mandiri
Income Statement (Rp bn)
Balance Sheet (Rp bn)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 15,285 17,822 19,171 20,639 Cash/Bank Balance 64,189 80,554 82,323 85,913
Non-Interest Income 4,600 4,603 4,600 5,070 Government Securities 88,878 85,468 84,249 81,658
Operating Income 19,885 22,425 23,772 25,709 Inter Bank Assets 15,666 7,908 5,536 3,875
Operating Expenses (9,380) (9,943) (10,663) (11,377) Total Net Loans & Advs. 162,638 179,708 207,813 247,674
Pre-provision Profit 10,505 12,482 13,109 14,331 Investment 3,483 3,351 3,413 3,478
Provisions (2,595) (2,820) (1,715) (1,417) Associates 0 0 0 0
Associates 0 0 0 0 Fixed Assets 4,601 4,526 4,416 4,269
Exceptionals 0 0 0 0 Goodwill 0 0 0 0
Pre-tax Profit 8,069 9,847 11,592 13,127 Other Assets 18,984 18,071 18,994 19,598
Taxation (2,753) (3,151) (3,478) (3,938) Total Assets 358,439 379,586 406,744 446,466
Minority Interests (2) (3) (4) (4) Customer Deposits 289,112 306,694 328,382 361,928
Preference Dividend 0 0 0 0 Inter Bank Deposits 7,718 6,564 7,141 6,853
Net Profit 5,313 6,693 8,111 9,185 Debts/Borrowings 5,260 5,073 4,901 4,741
Net Profit bef Except 5,313 6,693 8,111 9,185 Others 25,807 26,898 26,193 26,466
Minorities 28 31 35 39
Shareholders' Funds 30,514 34,325 40,093 46,439
Total Liab& S/H’s Funds 358,439 379,586 406,744 446,466
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Margins, Costs & Efficiency
Balance Sheet Structure
Yld. On Earnings Assets 9.45 10.61 10.35 10.07 Loan-to-Deposit Ratio 60.4 63.1 67.8 72.5
Avg Cost Of Funds 4.38 5.23 4.83 4.65 Net Loans / Total Assets 45.4 47.3 51.1 55.5
Spread 5.07 5.38 5.52 5.42 Investment / Total Assets 1.0 0.9 0.8 0.8
Net Interest Margin 5.28 5.61 5.71 5.63 Cust . Dep./Int. Bear. Liab. 98.2 98.4 98.5 98.7
Cost-to-Income Ratio 47.2 44.3 44.9 44.3 Interbank Dep / Int. Bear. 2.6 2.1 2.1 1.9
Employees ( Year End) 0 0 0 0 Asset Quality
Effective Tax Rate 34.1 32.0 30.0 30.0 NPL / Total Gross Loans 4.9 4.0 3.8 3.6
Business Mix NPL / Total Assets 2.4 2.0 2.1 2.1
Net Int. Inc / Opg Inc. 76.9 79.5 80.6 80.3 Capital Strength
Non-Int. Inc / Opg inc. 23.1 20.5 19.4 19.7 Total CAR 15.9 16.8 16.4 16.0
Fee Inc / Opg Income 17.2 12.3 12.4 12.7 Tier-1 CAR 16.1 15.9 16.1 15.9
Oth Non-Int Inc/Opg Inc 5.9 8.2 6.9 7.1 Growth
Profitability Total Net Loans 30 10 16 19
ROAE Pre Ex. 17.8 20.6 21.8 21.2 Customer Deposits 17 6 7 10
ROAE 17.8 20.6 21.8 21.2
ROA Pre Ex. 1.6 1.8 2.1 2.2
ROA 1.6 1.8 2.1 2.2
Quarterly / Interim Income Statement (Rpbn)
Rolling forward PBV band
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009
Net Interest Income 4,276 4,394 4,267 4,088
Non-Interest Income 1,531 1,207 1,398 1,392
Operating Income 5,807 5,601 5,665 5,480
Operating Expenses (2,651) (2,211) (2,696) (2,627)
Pre-Provision Profit 3,156 3,390 2,969 2,853
Provisions (796) (1,375) (600) (442)
Associates 0 0 0 0
Exceptionals 0 0 0 0
Pretax Profit 2,354 2,074 2,427 2,621
Taxation (994) (664) (892) (921)
Minority Interests 0 (9) (9) (7)
Net Profit 1,360 1,400 1,526 1,693
3.000
2.500
2.000
1.500
1.000
0.500
0.000
03 04 05 06 07 08 09
2nd Dev
1st Dev
Mean
1st Dev
2nd Dev
Source: Company, DBS Vickers
Page 135

Regional Equity Strategy 1Q 2010
Telekomunikasi Indonesia
Bloomberg: TLKM IJ | Reuters: TLKM.JK
BUY Rp9,450 JCI : 2,486.44
Price Target : 12-Month Rp 10,700
Potential Catalyst: Lower capex and strong revenue growth
Analyst
Indonesia Research Team +6221 3983 2668
Price Relative
Rp
13,500
12,500
11,500
10,500
9,500
8,500
7,500
6,500
5,500
4,500
Relative Index
2005 2006 2007 2008 2009
Telekomunikasi Indonesia (LHS) Relative JCI INDEX (RHS)
Forecasts and Valuation
215
195
175
155
135
115
95
75
55
Strong and steady
• TLKM has cautiously capitalized on elasticity in
3Q09, which resulted in revenue growth despite
lower MOU.
• Expect Telkomsel to gain market share at the
expense of Indosat.
• Maintain BUY for TLKM with Rp10,700 TP.
Recommend switching from ISAT.
Telkomsel gained market share in 3Q09 vs. Indosat’s
(ISAT IJ) GSM division. Telkomsel’s (Tsel) 7.4% q-o-q
revenue growth exceeded ISAT’s 5.6% growth. Tsel
grew it subscriber base by 5% to 79.8m, while ISAT
suffered a 0.5% q-o-q decline. Although Tsel’s MOU fell
6.6% q-o-q to 32.7b minutes, 3Q09 ARPU is estimated
to have increased by 5% as Tsel pursued higher-value
minutes. At the group level, TLKM grew revenue by
2.7% q-o-q vs. only 1.5% achieved by ISAT.
FY Dec (Rp bn) 2008A 2009F 2010F 2011F
Turnover 63,953 68,410 72,921 78,606
EBITDA 34,165 38,033 40,684 44,925
Pre-tax Profit 20,313 23,568 23,597 26,748
Net Profit 10,619 12,103 12,782 14,599
Net Pft (Pre Ex.) 10,436 12,542 13,345 15,162
EPS (Rp) 538 613 647 739
EPS Pre Ex. (Rp) 528 635 676 768
EPS Gth Pre Ex (%) (18) 20 6 14
Diluted EPS (Rp) 538 613 647 739
Net DPS (Rp) 297 338 357 408
BV Per Share (Rp) 1,738 1,952 2,138 2,395
PE (X) 17.6 15.4 14.6 12.8
PE Pre Ex. (X) 17.9 14.9 14.0 12.3
P/Cash Flow (X) 8.6 7.5 6.7 6.0
EV/EBITDA (X) 6.1 5.7 5.4 4.9
Net Div Yield (%) 3.1 3.6 3.8 4.3
P/Book Value (X) 5.4 4.8 4.4 3.9
Net Debt/Equity (X) 0.3 0.3 0.2 0.1
ROAE (%) 31.2 33.2 31.6 32.6
Earnings Rev (%): - - -
Consensus EPS (Rp): 602 681 748
ICB Industry : Telecommunications
ICB Sector: Telecommunications
Principal Business: Fixed and cellular telecommunication services
Source of all data: Company, DBS Vickers, Bloomberg
TLKM remains healthy. While TLKM is expected to
register positive earnings growth, its competitor ISAT is
projected to record earnings contraction (due to high
capex spending vs. low profit margins). We maintain
FY09F revenue growth at 11% for TLKM and 63%
EBITDA margin (consistent with 9M09 result).
Reiterate BUY, with a DCF-based price target of
Rp10,700. TLKM’s 14x FY10F PE and 5x EV/EBITDA
valuations are more reasonable than ISAT’s 26x and 6x
respectively. We recommend switching from ISAT to
TLKM. We expect TLKM to continue to gain market
share. Also, the IDR has strengthened 13% vs. the USD
YTD-Sep09, which should keep capex and international
interconnect costs low.
At A Glance
Issued Capital (m shrs) 20,160
Mkt. Cap (Rpbn/US$m) 190,512 / 20,174
Major Shareholders
Govt. of Indonesia (%) 51.0
Free Float (%) 49.0
Avg. Daily Vol.(‘000) 13,769
Page 136
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Refer to important disclosures at the end of this report
ed: SGC / sa: AP

Regional Equity Strategy 1Q 2010
Telekomunikasi Indonesia
Income Statement (Rp bn)
Balance Sheet (Rp bn)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 63,953 68,410 72,921 78,606 Net Fixed Assets 71,066 80,155 86,334 92,082
Cost of Goods Sold (29,788) (30,377) (32,238) (33,681) Invts in Associates & JVs 0 0 0 0
Gross Profit 34,165 38,033 40,684 44,925 Other LT Assets 5,568 6,162 6,132 6,100
Other Opng (Exp)/Inc (11,070) (12,802) (14,968) (16,262) Cash & ST Invts 7,157 7,157 7,157 7,157
Operating Profit 23,096 25,231 25,716 28,663 Inventory 512 243 257 269
Other Non Opg (Exp)/Inc (1,105) 511 179 0 Debtors 3,510 3,680 3,922 4,228
Associates & JV Inc 20 (30) (31) (32) Other Current Assets 3,444 2,400 2,543 2,659
Net Interest (Exp)/Inc (910) (1,535) (1,516) (1,133) Total Assets 91,256 99,797 106,345 112,494
Exceptional Gain/(Loss) (788) (610) (750) (750)
Pre-tax Profit 20,313 23,568 23,597 26,748 ST Debt 7,100 11,345 9,068 4,161
Tax (5,640) (6,599) (5,899) (6,687) Other Current Liab 19,898 15,533 16,222 17,178
Minority Interest (4,054) (4,866) (4,915) (5,462) LT Debt 11,445 11,000 10,555 10,110
Preference Dividend 0 0 0 0 Other LT Liabilities 8,816 8,816 8,816 8,816
Net Profit 10,619 12,103 12,782 14,599 Shareholder’s Equity 34,314 38,554 42,220 47,303
Net Profit before Except. 10,803 12,542 13,345 15,162 Minority Interests 9,684 14,549 19,465 24,927
EBITDA 34,165 38,033 40,684 44,925 Total Cap. & Liab. 91,256 99,797 106,345 112,494
Sales Gth (%) 2.3 7.0 6.6 7.8 Non-Cash Wkg. Capital (12,433) (9,211) (9,499) (10,022)
EBITDA Gth (%) (5.1) 11.3 7.0 10.4 Net Cash/(Debt) (11,388) (15,188) (12,466) (7,114)
Opg Profit Gth (%) (12.8) 9.2 1.9 11.5
Net Profit Gth (%) (17.4) 14.0 5.6 14.2
Effective Tax Rate (%) 27.8 28.0 25.0 25.0
Cash Flow Statement (Rp bn)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 20,313 23,568 23,597 26,748 Gross Margins (%) 53.4 55.6 55.8 57.2
Dep. & Amort. 11,070 12,802 14,968 16,262 Opg Profit Margin (%) 36.1 36.9 35.3 36.5
Tax Paid (8,551) (5,689) (6,074) (6,490) Net Profit Margin (%) 16.6 17.7 17.5 18.6
Assoc. & JV Inc/(loss) (20) 30 31 32 ROAE (%) 31.2 33.2 31.6 32.6
Chg in Wkg.Cap. 5,157 (4,132) 463 326 ROA (%) 12.3 12.7 12.4 13.3
Other Operating CF (3,652) 0 0 0 ROCE (%) 24.2 23.3 22.1 23.2
Net Operating CF 24,316 26,578 32,985 36,878 Div Payout Ratio (%) 55.2 55.2 55.2 55.2
Capital Exp.(net) (15,636) (21,891) (21,147) (22,010) Net Interest Cover (x) 25.4 16.4 17.0 25.3
Other Invts.(net) (158) (624) 0 0 Asset Turnover (x) 0.7 0.7 0.7 0.7
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 19.6 19.2 19.0 18.9
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 186.0 208.6 172.6 180.1
Other Investing CF (752) 0 0 0 Inventory Turn (avg days) 7.1 7.8 5.3 5.5
Net Investing CF (16,546) (22,516) (21,147) (22,010) Current Ratio (x) 0.5 0.5 0.5 0.7
Div Paid (11,766) (7,863) (9,116) (9,516) Quick Ratio (x) 0.4 0.4 0.4 0.5
Chg in Gross Debt 2,505 3,800 (2,722) (5,352) Net Debt/Equity (X) 0.3 0.3 0.2 0.1
Capital Issues (2,087) 0 0 0 Net Debt/Equity ex MI (X) 0.3 0.4 0.3 0.2
Other Financing CF 327 0 0 0 Capex to Debt (%) 84.3 98.0 107.8 154.2
Net Financing CF (11,021) (4,063) (11,838) (14,868) Z-Score (X) 3.8 3.8 4.1 4.2
Net Cashflow (3,251) 0 0 0 N. Cash/(Debt)PS (Rp) (577) (769) (631) (360)
Opg CFPS (Rp) 970 1,555 1,647 1,851
Free CFPS (Rp) 440 237 599 753
Quarterly / Interim Income Statement (Rp bn)
P/BV
FY Dec 4Q2008 1Q2009 2Q2009 3Q2009
Turnover 16,921 15,446 16,696 17,152
Cost of Goods Sold (7,817) (7,193) (7,462) (7,481)
(x)
Gross Profit 9,104 8,253 9,233 9,671 8.0
Other Oper. (Exp)/Inc (3,187) (2,965) (3,084) (3,154)
Operating Profit
Other Non Opg (Exp)/Inc
5,917
(1,368)
5,288
(155)
6,149
826
6,517
311
7.0
Associates & JV Inc 18 1 (4) (18)
Net Interest (Exp)/Inc (404) (379) (328) (423)
6.0
Exceptional Gain/(Loss) (788) 0 140 0
Pre-tax Profit 3,375 4,755 6,783 6,387 5.0
Tax (818) (1,399) (1,893) (1,705)
Minority Interest (858) (898) (1,305) (1,284) 4.0
Net Profit 1,700 2,458 3,586 3,397
Net profit bef Except. 2,488 2,458 3,446 3,397
EBITDA 9,104 8,253 9,233 9,671
3.0
Sales Gth (%) 9.9 (8.7) 8.1 2.7
EBITDA Gth (%) 23.4 (9.3) 11.9 4.7
Opg Profit Gth (%) 25.6 (10.6) 16.3 6.0
Net Profit Gth (%) (35.2) 44.6 45.9 (5.3)
Gross Margins (%) 53.8 53.4 55.3 56.4
Opg Profit Margins (%) 35.0 34.2 36.8 38.0
Net Profit Margins (%) 10.0 15.9 21.5 19.8
2.0
2006 2006 2007 2008 2008 2009
Source: Company, DBS Vickers
Page 137

Regional Equity Strategy 1Q 2010
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
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(DBSR GO). For access, please contact your DBSV salesperson.
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The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty as
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Regional Equity Strategy 1Q 2010
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