Left Brain - the DBS Vickers Securities Equities Research

Equity Strategy and Large Cap Stock Picks
Brainwaves
DBS Vickers’ best ideas from across the region
Left Brain
Focuses on logical thinking and analysis
2Q 2009
DBS Group Research
27 March 2009
“In Singapore, this research report or research analyses may
only be distributed to Institutional Investors, Expert Investors
or Accredited Investors as defined in the Securities and
Futures Act, Chapter 289 of Singapore.”

Regional Equity Strategy 2Q 2009
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
Hong Kong / China
Alice Hui CFA Acting Co-Head of Research, Consumer alice_hui@hk.dbsvickers.com
Gideon Lo CFA Acting Co-Head of Research, Oil & Petrochemicals, gideon_lo@hk.dbsvickers.com
Pharmaceuticals, Shipping
Carol Wu China Properties carol_wu@hk.dbsvickers.com
Dennis Lam Electronics & Technology dennis_lam@hk.dbsvickers.com
Helen Wang Basic Materials helen_wang@hk.dbsvickers.com
Jasmine Lai Banking & Finance jasmine_lai@hk.dbsvickers.com
Jeff Yau CFA Conglomerates, Property jeff_yau@hk.dbsvickers.com
Mavis Hui Media & General Retail mavis_hui@hk.dbsvickers.com
Patricia Yeung Industrials patricia_yeung@hk.dbsvickers.com
Rachel Miu Infrastructure, Machinery, Agriculture Rachel_miu@hk.dbsvickers.com
Steven Liu CFA Software & Telecom steven_liu@hk.dbsvickers.com
Indonesia
Agus Pramono, CFA Strategy, Banking, Consumer, agus.pramono@id.dbsvickers.com
Conglomerate/Automotive, Cement
Yusuf Ade Winoto, CFA Basic Materials, Oil, Gas & Energy, Construction yusuf.winoto@id.dbsvickers.com
Research Team Telecommunications, Plantation 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
Tjen San Construction, Concessionaires tjensan@hwangdbsvickers.com.my
Yee Mei Hui Gaming, Property meihui@hwangdbsvickers.com.my
Research Team Small-Mid Caps, IPO/ Retail Product general@hwangdbsvickers.com.my
Consumer, Logistic, Motor, Plantation,
Shipping, Steel, Telecommunications,
Technology Services
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
Property, REITs, Transportation
Chirasit Vuttigrai 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
Food & Beverage
Nalyne Viriyasathien Construction Materials, Food and Beverage, nalynev@th.dbsvickers.com
Health Care, Transport
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 2Q 2009
Table of Contents
Table of Contents
Strategy Overview
Market Data 4
Stock Profiles Key Data 5
Strategy Overview: Asia Equity 6
Regional Data Monitor 34
Country Assessments & Stock Profiles
Singapore Trading opportunity 37
Ascendas REIT Sitting steady 52
City Developments Singapore property proxy 54
OCBC Sing-Malay bank proxy 56
SembCorp Marine Favored rig builder 58
SPH Attractive valuations 60
Venture Corporation Outstanding yield 62
Hong Kong / China Seek value amidst volatility 64
China Communications Construction Value play 76
China Mobile Fundamentals remain solid 78
HSBC Broken hearts 80
Malaysia Value hunting 82
IJM Corp Contract visibility improving 96
PLUS Expressway Steady as she goes 98
Thailand Lower downside risks 100
Advanced Info Service Defensive, with guaranteed yields 114
Banpu Solid growth 116
Bangkok Bank Strong balance sheet 118
Indonesia
Election season
120
Tambang Batubara The heat is still on! 128
DBS Vickers Securities
Singapore l Hong Kong / China l Thailand l Malaysia l Indonesia
Page 3

Regional Equity Strategy 2Q 2009
Market Data
Market Data
Relative Valuations & Performance
Stock Market Valuation – March 2009
Market Cap EPS Growth (%) PE (x)
(US$ bn) 2008 2009F 2010F 2008 2009F 2010F
Hong Kong 534 (35.7) (5.9) 17.4 11.5 12.2 10.4
China 754 (15.6) (1.5) 24.4 13.9 14.1 11.4
Singapore 216 (0.6) (15.7) 7.3 8.4 9.9 9.2
Malaysia 170 0.5 (8.3) 6.5 11.1 12.1 11.3
Philippines * 50 (12.5) 7.4 11.1 11.1 10.4 9.3
Thailand 66 (29.5) (3.6) 7.2 8.5 8.3 7.3
Indonesia 89 (0.3) (7.7) 1.7 10.9 9.7 9.5
Korea * 429 (32.7) (2.0) 48.5 13.2 13.2 8.9
Taiwan * 357 (54.0) (56.6) 208.6 17.5 42.8 14.5
Prices are as at 19 Mar 2009
Source: Bloomberg, DBS Vickers coverage, except * markets from Datastream Consensus
Market Performance (% change) – 19 March 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 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0
1-month ago 3-months ago YTD
Page 4

Regional Equity Strategy 2Q 2009
Stock Profiles Key Data
Stock Profiles
Key Data
Bloomberg Code
Company
Price & Index
(19 Mar 09)
Mkt Cap
(USDm)
PE
09 (x)
PE
10 (x)
EPS CAGR
08-10 (%)
EV/EBITDA
09 (x)
P/BV
09 (x)
ROE
09 (%)
SINGAPORE STI 1,585
AREIT SP Ascendas REIT ** S$1.15 1,277 13.0 * 10.5 * (11) 14.0 0.7 6.8
CIT SP City Development S$5.01 3,013 8.4 7.7 3 9.2 0.8 9.6
OCBC SP OCBC Bank S$4.53 9,368 10.2 9.2 1 n.a. 0.9 9.5
SMM SP SembCorp Marine S$1.49 2,042 6.7 6.0 4 5.2 1.9 31.8
SPH SP SPH S$2.49 2,622 9.2 10.1 (8) 6.7 1.9 20.5
VMS SP Venture Corporation S$4.72 856 7.1 6.7 8 3.3 0.7 9.5
* DPU
** FY10 & FY11 estimates
HONG KONG HSI / HSCEI 13131 / 7731
1800 HK China Comm Construction HK$8.45 4,825
13.6 10.4 29 7.6 2.0 15.3
941 HK China Mobile HK$66.70 172,596 9.6 8.8 9 4.0 2.4 26.7
5 HK HSBC (Sell)
HK$41.50 92,086 12.5 11.3 1 nm 0.9 6.9
# H share market cap
MALAYSIA KLCI 852
IJM MK IJM Corporation ** RM3.80 980 11.6 9.6 17 9.0 0.7 6.3
PLUS MK Plus Expressway RM2.88 3,942 12.6 12.0 6 8.8 2.4 19.6
** FY10 & FY11 estimates
THAILAND SET 428
ADVANC TB Advanced Info Service Bt84.50 7,260 14.1 13.3 7 5.6 3.5 24.6
BANPU TB Banpu Bt210.00 1,656 4.5 5.4 10 3.1 1.1 27.7
BBL TB Bangkok Bank Bt76.50 4,236 8.2 8.0 (5) na 0.8 9.9
INDONESIA JCI INDEX 1,342
PTBA IJ Tambang Batubara IDR6,550 1,268 5.6 11.2 (11) 3.2 2.6 54.6
Page 5

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Asia Equity
The bumpy road to recovery
The market rally driven by the US troubled asset buyout
plan has arrived earlier than we had expected. Positive
momentum could be sustained in the second quarter
amid constructive US Treasury marketing effort and short
covering against a backdrop of prevalent risk aversion.
Notwithstanding the lack of fundamental support, bear
market rallies can deliver respectable returns, powered by
the normalization of excessive equity risk premium.
Abundant USD liquidity from FED injection and low
interest rates are adding fuel to the fire.
An economic recovery should be on its way with all the aggressive stimulus and
monetary easing policies. The remaining catalyst should be when banks start to
lend again. Trying to pinpoint the timing of recovery remains challenging given
the magnitude and scope of this downturn. Nevertheless, Asia's sound
fundamentals and attractive valuations relative to potential growth , buttress
our conviction that a recovery in Asia is not a question of if, but when.
The more broadly investable markets should benefit from this liquidity driven
rally. We recommend overweighting cyclical stocks trading at or below their low
cycle P/Es for an eventual recovery. We prefer the developed markets of Asia
(Singapore and Hong Kong) and China, which should experience a quicker
recovery process due to their stronger fiscal balance. Potentially rising risk in
Eastern Europe substantiates our underweight in emerging ASEAN countries
and India against a backdrop of risk aversion. Taiwan and Korea is at Neutral as
external and domestic risks are balanced.
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 at the end of this report

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
A quarter of endless downgrades
Continued dismal economic data and poor equities
performance in the first quarter should not be a surprise. We
had expected the slew of bad economic news to continue
unabated, but the outcome has again underperformed the
worst of expectations.
What surprised us was the depth of the economic decline,
which prompted DBS economics team to further downgrade
2009 GDP forecasts (Fig. 1). Whether the downgrades are
sufficient remain questionable, as some of the economic data
had busted our previously forecast 'worst case' scenario. With
downside risks still high in the external environment - and
given the challenges that many Asian countries will face - we
believe the road to recovery will be a bumpy one.
Final capitulation?
Equities fell again this quarter, but less than in the previous
two quarters as a short rally at the beginning of the year offset
losses later in the quarter. Valuation, as measured by 12-
month forward price-earnings ratio, was at its lowest point at
the October capitulation. Following a 34% decline in earnings
expectations, we note that current valuations are higher now
than they were in October. We hope for a final capitulation in
2Q09, premised on expectations that 1Q09 will most likely be
the worst quarter in terms of economic performance, and the
result of US banks' stress test will clear some anxiety about
what US Treasury needs to do with the US banks. On the
valuation front, we note that the price to book value for Asia
ex Japan is approaching the lows seen during the recession in
1998 and 2002 (Fig. 2). A final sell down towards these levels,
could well trigger a strong market rally in Asia equities.
Economic recovery should be on its way
We expect fiscal and monetary stimulus policies in Asia to
generate a recovery in 2H09. We are also looking for a
rebound in the US and China to boost Asian economies.
Asia policy makers had been hard at work, cutting benchmark
rates at almost every other policy meeting. The lagged effects
of these rate cuts should begin to show in 2H09.
Fig. 1: 2009 GDP growth estimates vs 2002 and historical low
2009 forecasts as of 2002 Hist.
as of Dec08 Current Ch an ge growth Low
US 0.5 -0.3 -0.8 0.7 -1.9
Japan -0.2 -4 .5 -4.3 0.3 -2.4
Eurozone -0.3 -2.8 -2.5 0.9 -0.8
Indonesia 4.8 4.3 -0.5 3.8 -13.1
Malaysia 3.3 -1.2 -4.5 0.6 -7.4
Singapore -0.6 -4.8 -4.2 -2.4 -2.4
Thailand 1.5 -3.5 -5.0 2.2 -10.5
China 8 7.5 -0.5 7.3 3.8
Hong Kong -0.5 -3.5 -3.0 0.6 -5.0
Taiwan 1 -3.5 -4.5 -2.2 -2.2
Ko rea 1 .4 - 1 .9 - 3.3 3 .8 - 6.9
In dia 6.5 4.5 -2 4.0 -5.2
Source: CEIC, Datastream, DBS forecasts. Historical low since 1980
except Eurozone from 1992
Fig. 2: Asia ex-Japan Price to book value
(x)
2.8
2.6
2.4
2.2
2
1.8
1.6
1.4
1.2
1
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: Datastream. Shaded areas are recession periods 1997/98 and
2001/2
Fig. 3: Change in policy rate since October
Interest rate (%)
Beg. Sep 08 Current Cuts
US 2.0 0.25 1.75
EZ 4.25 1.5 2.75
Japan 0.5 0.1 0.4
Aus 7.25 3.25 4.0
China 7.47 5.31 2.16
India 9.0 5.0 4.0
Korea 5.25 2 3.25
Thai 3.75 1.5 2.25
Taiwan 3.625 1.25 2.38
Indonesia 9.25 7.75 1.5
Malaysia 3.5 2 1.5
Source: Datastream, CEIC
Page 7

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Asian governments have implemented stimulus packages that
are expected to add 1%-8% to 2009 GDP, lifting the chance
of a swift recovery, and positioning their economies to take
advantage of opportunities when global demand recovers.
Some stimulus programs are already in place and the effect of
it has been felt, especially in China, while others are there to
temporarily cushion against a hard landing. The major impact
will mostly be felt in the second half. That said, most Asian
governments are poised to inject more stimulus support should
their economies deteriorate further. Malaysia recently added a
second stimulus package equivalent to 9% of GDP. Finally,
Asian currencies have depreciated significantly, especially the
Korean won, and this should soon lift export competitiveness.
Fig 4: Asia countries’ stimulus package size and highlights
Country Size Highlights
China
Singapore
Hong Kong
Y4tril, or 16% of
GDP over
2009/2010
S$20.5bln and
largest ever 3.5%
deficit
2 triillion on large-scale infrastructure projects such as railways, roads, airports and the national grid,
rebuild areas ravaged by May's Sichuan earthquake. The rest of the stimulus money will be spent on an
affordable housing, rural welfare and infrastructure construction, medical and cultural development,
environmental protection as well as industrial restructuring.
Jobs Credit to help preserve jobs ; Special Risk-sharing Initiative (SRI) to stimulate bank lending; A wide
array of tax rebates, exemptions and grants for businesses to enhance business cash-flows and
competitiveness; support for households and Increase public sector construction spending to between SGD
18-20bn in 2009.
Budget deficit of Emphasise directions for developments and prospects on regional corperation, tourism and new economic
2.4% GDP, widened developments. Include: foster HK/Guangdong/Macao cooperation, three direct links" and exchanges with
from 0.3% last year Taiwan, expand coverage of Individual Visit Scheme, more progress under the "Shenzhen-Hong Kong
Innovation Circle", push ahead with public works projects, tax breaks and rental reduction.
Malaysia
Thailand
1st: MYR7bln or
1.1% of GDP;
2nd: MYR60bln or
9% of GDP over
2009/10
Bt116bn or 2% of
GDP
Reducing unemployment and increasing employment opportunities of about 63K jobs, easing the burden
of the rakyat, in particular vulnerable groups, assisting the private sector in facing the crisis with incentives
on the property, airlines, auto, plantations sector, and increased investments by Khazanah; infrastructure
spending.
Extended the economic relief package by another 6 months which includes free tap water and free public
transport; maintain village funding, replace the Small, Medium and Large enterprise (SML) fund with the
economic sufficiency fund. Govenment purchase schemes for farmers to cope with falling commodity
prices. Medium term joint investment program for infrastructure projects to be announced.
Indonesia IDR 71.3trn or 1.4%
of GDP
Korea KRW 14trn or 1.5%
of GDP
Tax changes for individuals and corporates including 2%-pt cut in corporate tax; Waived taxes and import
duties for busineses and certain households; Subsidies and government spending for businesses
Proposed a wide range of tax cuts including corporate tax and income tax, totaling KRW 20.7trn over five
years (2.2% of GDP); Spent KRW 8trn (0.8% of GDP) to help the construction industry, such as buying
construction firms’ unused land and unsold new homes.
Taiwan 2% of GDP A TWD 181bn fiscal stimulus program (1.3% of GDP), including public construction, tax breaks to private
investment, subsidies to low-income households and preferential housing loans; distributed consumer
shopping vouchers (TWD 83.5bn, 0.6% of GDP); 3) Increased budget for infrastructure investment over
the next four years (a total of TWD 420bn)
India 5% GDP or 6%
fiscal deficit, more
Defense spending, subsidy on items like food, fertilizers and petroleum, interest subsidy of two per cent on
pre-shipment and post shipment credit for employment-oriented sectors; tax rebates for SMES; increased
than twice budgeted approval on PPP infrastructure projects
Source: DBS, Official government websites
Page 8

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
… but risks of a delay remain
DBS economics team is looking for moderation in the pace of
decline from this quarter to set the stage for recovery in the
second half. While maintaining this baseline view, we
recognize that risks of a delay remain high. The global business
sector adjustment has been so intense that household
structural fundamentals on spending and savings patterns may
be impacted as income, home and equity prices decline. In
addition, the global financial system is fragile; credit availability
is influenced by perceptions of growth and potential
delinquencies as unemployment and bankruptcies rise.
In Asia, the contours of recent economic performance are
giving us mixed signals - a worse than expected collapse in
exports and manufacturing activities in 4Q08 is extending into
January, where weakness could have been distorted by the loss
of several working days during the lunar new year holidays.
Korea's February exports are higher than January's, but yearon-year
change continues to slide. Meanwhile, China's PMI
survey has continued to dip below 50 but has shown signs of
improvement, and new yuan lending in the first two months is
almost half the total new lending in 2008, leading to
suspicions about where the funds had been channelled to and
might prompt PBOC to halt further monetary easing.
Additionally, still high inventory levels across the region
indicate inventory is not drawing down fast enough because
global demand is deteriorating at a faster pace. It is against
this backdrop that we will stress test our views with upcoming
data releases.
Our faith in Asia's financial system keeps us believing that
credit availability will resume once we see some stability in the
economic data, and that should be the last set of drivers
needed for sustained recovery. Investors need to recognize
that banks cannot "avoid lending" forever, as their main
business is to give loans and earn a spread. Central banks have
urged or encouraged banks to lend, through varying stimulus
programs like risk sharing, providing low cost capital and
taking over banks' bad assets to improve banks' capital base.
At some point, when banks start feeling confident about the
economy and investors start feeling that investment returns are
higher than borrowing rates, the incentive to borrow and lend
will commence another economic cycle. While the still fragile
risk environment will no doubt cause banks to adopt a
cautious stance towards lending, there is anecdotal evidence
that the government risk-sharing scheme has had a positive
impact on bank lending.
Against this backdrop, markets will trade within a wide range
As long as the headwinds remain strong, consensus
expectations are likely to remain skewed towards a deeper and
more protracted recession. On the flip side, low valuations,
positive news on policy response, and government
interventions are providing a measure of resilience to Asian
markets against a weak global equities backdrop. On a relative
basis, Asia's sound economic fundamentals and stronger
corporate balance sheets will need to withstand the wave of
potential corporate and sovereign bankruptcies in other parts
of the world (including major developed countries, and in
Eastern Europe and Latin America.) If it is able to come
through these windstorms relatively unscathed, Asian markets
will emerge as a more attractive investment destination on the
path to recovery.
Moreover the heavy hedge fund selling in October may not
repeat itself, as that was in part possibly due to the closing out
of positions by Lehman and fear of the redemptions leading to
a negative asset price spiral.
All said, Asia markets could continue to move sideways within
a big range, pending a final capitulation move.
US bailout plan the wild card – the devil’s in the details
Whilst the US Treasury PPIP is a step in the right direction, the
ability of its efficacy to unfreeze credit remains in question.
Most importantly the pricing at which there will be willing
sellers have yet to be determined. So far a couple of potential
buyers have expressed interest in indicative pricing of 50-60cts
to a dollar but no “interested sellers” have emerged. The
actual pricing could bring more potential write-offs and further
capital raising may be needed by the sellers of these bad
assets. Buyers of these bad assets could potentially be stuck
with them for some time if the economy does not recover as
expected. Uncertainty and the impact of which will still remain
until the very first auction takes place in few weeks time. As of
now the time table is still not known but reports cited May 1
as the target date set by the US Treasury. Till then we believe
positive news on the PPIP, in part due to US Treasury
marketing efforts, and a suppressed risk appetite, could sustain
the current “PPIP” rally for some time. We believe the US
market will be the main driver for Asian equities in the second
quarter. We look at price to book valuations to determine the
trading range for the quarter. Broadly, the markets seem to be
finding support at -2SD away from mean (See appendix) as in
the last quarter.
Page 9

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
On a technical note, 2Q08 proved to be the best performing
quarter for the year. This followed the fire-sale of Bear Stearns
to JPMorgan at end March 08. Short-term investors may be
drawn in by the current positive momentum, thus attracting
more flows and reinforcing the positive feedback loop into the
current rally.
Our only concern is the equities market rising too much too
fast, implying that volatility and risks are still high amid a still
weak economic backdrop to attract serious long term investors
for a sustainable rally beyond the current euphoria. Our
recommendations to buy into cyclicals with low cycle P/E
where long term growth forecasts have been shaved remains
intact.
Fig 5: MSCI Asia ex-Japan and S&P500 – 2008 quarterly
performance
%
0
-5
-10
-15
appreciating course, we could easily see the outflow of
abundant USD liquidity into other countries and other asset
classes. This is however not our currency view for the first half
of 2009.
Fig 6: MSCI Asia ex-Japan, 50D and 100D moving averages
Index
750
700
650
600
550
500
450
400
350
300
250
J an-08 Apr-08 Jul-08 Oct-08 J an-09
MSCI AXJ 50D MAV 100D MAV
Source: Datastream
12
Fig 7: US M2 growth and Fed Funds rates
%
-20
AXJ
S&P500
10
-25
Q1 2008 Q2 2008 Q3 2008 Q4 2008
Source: Datastream
Liquidity – another wild card
At the conclusion of its two-day FOMC meeting on March 18
the Fed announced plans to purchase another $1.15trn of
assets, to further liquefy the financial system and promote
lending / economic growth. The plan is to purchase $300bn of
long-dated Treasuries over the next six months. By so doing it
is lowering long term interest rates and expanding the
monetary base. While we have doubts if the money will work
its way into the credit system to promote lending, the fact
remains that expansionary monetary policy at the bottom of a
cycle is like pushing on a string, as our chief economist termed
it. At the same time the greenback was dumped as it
reinforced the fear that Fed’s action would flood the market
with USDs. Recently, China has proposed to reform the
international financial system by using the IMF SDR currency,
further shaking the confidence of USD as a reserve currency
and its current safe haven status. If the USD reverses its
8
6
4
2
0
00 01 02 03 04 05 06 07 08 09
Source: Datastream
Page 10

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
VIX and hence risks aversion still high, but acceptable
Fig 8: VIX and standard deviation bands
(index)
85
75
65
55
lowest. Being defensive in nature, there is little upside to
growth prospects and P/E multiples are high. The debate on
defensive vs cyclicals, and external vs domestic demand on
some sectors like the Singapore Telcos will provide good entry
points through the cycle.
Fig 9: Asia ex-Japan Long-term earnings growth forecasts and
P/E Levels
(%) (x)
28
25
45
35
25
15
5
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
22
16
10
20
15
10
5
Source: Datastream. Shaded areas are recession periods in 1997/98
and 2001/2
VIX levels have once again risen above 50, way above the two
standard deviation range, suggesting the extreme re-testing of
nerves in the markets, but has now returned to the 40 levels.
Typically, the volatility index during recession episodes has
ranged between 17 and 42. We deemed levels within this
range acceptable under current economic backdrop.
Long term growth at historical low, but not P/E levels
Growth expectations have been reduced in anticipation of a
deteriorating economy. We attempt to look for cyclical sectors
trading at low cycle P/E that will benefit from a cyclical upturn.
In our stress test, we attempted to find sectors that are already
trading at low P/Es, combined with long-term growth forecasts
which had been downgraded by analysts to their historical
lows. The absence of such sectors supports our conclusion that
the final capitulation is not yet here. The sectors to watch for,
however, are the cyclical sectors in which long-term growth
expectations had been shaved to historic lows, but P/E levels
have not yet adjusted to reflect the lowered growth
expectations. These include the external cyclicals of Korean IT,
Taiwan IT, and Indian IT; domestic cyclicals of Singapore
Telcos, Korean Telcos, Malaysian Financials, and Taiwan
Financials, Taiwan Consumer Discretionary and Indian
Consumer Discretionary. Stimulus measures to boost
household demand through preventing job loss, tax cuts and
increased social spending should help demand with a smaller
time lag vs the external cyclicals. We will be cautious of
domestic defensives like Thai Utilities, Thai Energy, and
Malaysia Staples, where growth had been downgraded to the
4
0
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Growth (L)
Source: Datastream. Shaded areas are recession periods in 1997/98
and 2001/2
High correlation between countries and sectors
P/E (R)
The correlation between countries and sectors has risen to an
all time high, which implies that value-add from country and
sector selection has diminished significantly. There are several
reasons for this: (i) forced selling in the past, suspected due to
heavy fund redemptions, have led to the indiscriminate selling
of equities regardless of valuations and fundamentals; (ii) the
selling has resulted in valuations being generally inexpensive
across sectors and countries, and yet failing to provide support
compounds investor confidence, thus reducing the need for
diversification based on value; (iii) the synchronization of global
economic cycles, particularly the spike in global commodity
prices driving herd mentality last year and the current global
recession driving flight to quality; (iv) economic sensitivity on
sector earnings of domestic vs external, defensives vs cyclicals
is not as clear cut anymore as a result of the global
synchronization (v) a turn of events with the US bail out plan
will raise/ reduce risk appetite across the whole equities asset
class premised on a change in the perception of financial risk.
Page 11

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Fig. 10: Average correlation between Asia ex-Japan countries
(r)
0.8
0.7
0.6
0.5
0.4
0.3
0.2
96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: Datastream, DBS
Fig. 11: Average correlation between Asia ex-Japan sectors
(r)
0.9
0.8
0.7
We believe the risk of forced selling by hedge fund
redemptions are lower now than before. One, the capitulation
we saw was partly driven by closing out of positions by
Lehman and other financial institutions. Secondly, that
capitulation has driven valuations to historic lows and has
precipitated a bear market rally of around 29% (MSCI Asia ex-
Japan), with some share prices almost doubling during the
rally. Markets tend to have good hindsight, and if it does
happen again, long-term investors will be likely be more ready
to accumulate into the weakness. Thirdly, long-term investors,
including sovereign funds and pension funds, remain
formidable participants in today's market. US mutual funds,
which we use as a proxy for pension funds, have seen net sales
in December and January. National pension funds in Korea
and national stabilization funds in Taiwan are purportedly
intervening in market operations selectively. Our view is that
the de-risking in Asian equities is more or less over.
Fig. 12: US mutual fund emerging markets category - Monthly
net sales
US$bil
4
3
2
1
0.6
0.5
0.4
x
0
-1
-2
0.3
92 94 96 98 00 02 04 06 08
Source: Datastream, DBS
-3
00 01 02 03 04 05 06 07 08 09
Source: Datastream, Investment Company Institute
Page 12

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Ideas from global price assumptions
Major commodity prices are trading in line with the weak
economic outlook, with a slight downward bias. However,
with the bottoming out in November last year, we saw some
technical payback and hopes for a second half economic
recovery is limiting further downside to prices. That said, this
year's average will be significantly lower than last year's, and
we expect analysts (both in DBS and on the street) to
downgrade earnings forecasts on these global assumptions.
The negative earnings sensitivity following a drop in contract
prices and sale volume should outweigh the benefits of
softening raw material prices as an input cost due to the time
lag in inventory adjustment.
There is still no sight of a demand driver, but price volatility
due to supply cuts and contract price negotiations in April
may provide some trading opportunity.
Recent supply concerns and belief that China stimulus plans
will create demand have driven up CPO prices. DBSV analyst
Ben Santoso believes that this could be temporary and prices
could pull back by April. CPO price should be higher by the
end of the year due to supply constraints as a result of lower
soybean output, drought and La Nina, and flat yields. Ben
believes the plantation sector is already trading at low cycle
PE, but there could be a better buying opportunity when
prices pull back in April. We have recently revised up our
2009 average CPO price assumption by 25% to
RM1900/MT.
On refinery margins, DBSV analyst Vichitr Kuladejkhuna
believes that the short-term rally in refinery margins should
have ended. Temporary refining capacity cutback and
recovered gasoline demand had driven gasoline crack spread
to exceptionally strong levels (peaked at US$20), while
middle distillate (jet fuel and diesel) crack spread fell to
alarming levels (below US$10), due to the weak economy.
These led Singapore refining margins to peak at US$10 in
mid-Feb, but it recently fell back to US$4-$5 as gasoline
crack spread weakened to US$10 and middle distillate
remained weak. Looking forward, the global recession will
be a major threat to oil demand, which looks all the
ominous given that there will be new refining capacity
coming on-line. We remain cautious on the sector.
Fig. 13: CRB spot index
Index
500
450
400
350
300
250
Mar-08 May-08 J ul-08 Sep-08 Nov-08 J an-09
Source: Datastream, Commodities Bureau Research
For China spot coal price, DBSV analyst Helen Wang sees a
near-term downtrend in 2Q09 to reflect the traditionally low
season for coal consumption because of warmer weather.
Meanwhile, looking at fundamentals, coal inventory at
Qinghuangdao port – the biggest port in northern China for
coal transport – had picked up recently on slowing demand
from downstream end-users, particularly coal-fired utilities.
Growth in the power generation industry hinges on recovery in
the manufacturing sector in China. China's contract thermal
coal for 2009 is still under negotiation between coal suppliers
and IPPs. The results will be out next month at the earliest, but
there is still a big divergence on price outlook between the
parties. We are maintaining our assumption of a 10% YoY rise
in 2009 thermal coal contract price, but we might see 2-5ppt
downward revision if near term demand does not improve
significantly in China. Likewise for Indonesian coal, contract
negotiations for un-priced 2009 deliveries are getting tougher.
Some customers might scale back coal consumption in light of
the recent economic downturn, whereas cost will not drop
much because a large portion of cost comprises of mining
contractor fees, which is contracted for several years.
On Korean steel prices, DBSV analyst EunYoung Lee believes
raw material price negotiations in April with miners will include
cutting delivery of contracted volumes. That should mark the
end of the negative news flow for the sector, which could
imply an inflection point for POSCO.
Page 13

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
In line with the collapse in world trade, we expect the Baltic
Dry Index (BDI) to stay weak. DBSV analyst Wee Lee Chong
pointed out that freight rates are now vulnerable to downside
risks. The BDI recently surged to 2,099, significantly higher
than our projected average of 1,109 for 2009. We also observe
that the traditional high correlation of >0.9 between the BDI
and share prices of regional dry bulk shipping companies has
been reinstated since early February. Hence, we expect the
anticipated BDI retreat to exert downward pressure on share
prices of those companies (see Dry Bulk Shipping report,
"Mayday, Mayday", Wee Lee Chong et. al., 24 Feb 2009)
Fig. 14: BDI and World trade
%
250
200
150
100
50
0
-50
-100
-150
-30
87 89 91 93 95 97 99 01 03 05 07 09
BDI (yoy%, L)
World exports (R,%yoy)
Source: Datastream, IFS
Fig. 15: Global prices and 2009 assumptions
Refinery
margin
%
50
40
30
20
10
0
-10
-20
Current
2009 Avg
price YTD% Assumption
US$/barrel 1.81 -63.7 4
Coal US$/MT 63.0 -20.3 90
BDI Index 2271 193.8 1109
CPO M$/MT 2051 19.1 1900
Copper US$/MT 3589 11.1 3400
Nickel US$/MT 9800 -25.8 15000
Aluminim US$/MT 1339 -14.7 1800
Tin US$/MT 10750 -7.5 12500
Steel US$/MT 495 -5.7 630
Rising risk from Eastern Europe
We assess the risks to Asia from a potential meltdown in East
Europe from three main points:-
The direct impact of slower Asian exports to Eastern Europe
is minimal, because the region only accounts for minimal
c.3% of Asia's exports. Korea and China has the highest
export exposure to Eastern Europe among Asian countries, at
5-6% of total exports. This also means that with the exports
to the G3 majors already falling sharply, the additional
impact of falling demand from the Eastern European region
won't be great, but export recovery in the second half
sounds optimistic amid rising new risks.
The first derivative impact should be from heightened risk
aversion, as sovereign risk is again being scrutinized.
Countries with high external debt and negative current
account balance, such as Korea, India and Indonesia, fell into
the limelight again. This becomes more salient when robust
fiscal spending is required to cushion the impact of the crisis.
Countries with high budget deficits are subject to ratings
downgrades, and possibly raising costs of external
borrowings. Standard & Poors downgraded India's ratings
outlook last month, and if its budget deficit balloons further,
it risks being downgraded to junk bond status.
Fig. 16: Regional countries: Share of exports to Eastern Europe (%)
1990 1995 2000 2006 2007 2008
Hong Kong 0.7 0.7 0.7 1.2 1.4 1.3
Korea 0.5 2.7 2.1 5.8 7.0 5.6
Taiwan NA NA 0.0 0.0 0.0 0.0
Philippines 0.3 0.2 0.6 0.6 0.6 0.9
Singapore 1.5 1.1 0.4 0.7 0.8 0.7
Thailand 1.3 2.1 0.9 1.8 2.3 2.2
India 18.3 4.8 3.8 3.3 3.8 3.1
Indonesia 0.7 1.3 0.8 1.4 2.0 1.8
Malaysia 1.3 0.7 0.6 1.5 1.9 1.6
Asia ex Ch, Jp 1.9 1.5 0.9 2.0 2.5 2.2
Japan 1.6 0.7 0.8 2.6 3.3 3.1
US 1.8 1.6 1.3 1.9 2.3 2.5
Europe 5.0 6.8 7.7 12.0 13.2 11.8
China 5.6 2.5 2.9 5.8 6.9 6.1
Source: Bloomberg, DBS Vickers. Current as of Mar 11.
Page 14

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Fig. 17: Asian countries' current account and budget deficit
As % of GDP
C/A Balance
Fiscal Balance
2008 2009F 2007 2008 2009F
Indonesia 0.4 0.2 -1.1 -1.2 -2.9
Malaysia 11.4 7.8 -3.2 -5.1 -6.6
Philippines 2.3 2.9 -0.2 -0.8 -2.6
Singapore 13.5 14 3.4 0.8 -4.1
Thailand -0.1 -0.2 -2.4 -0.6 -4.2
China 10.2 6.1 0.6 -0.1 -3.6
Hong Kong 9.2 9.5 7.7 -2.1 -3.7
Taiwan 4.1 7.9 0.1 -1.7 -5.0
Korea -0.7 1.2 3.8 0.3 -3.5
India -3.6 -3.9 -2.8 -6 -6.1
Source: Datastream, EIU
Fig. 18: Asia countries external debt positions, 2009F
Foreign Foreign Debt Total Reserves
reserves Public Private ST / ST debt
Sector Sector Debt (x)
Indonesia 31 79.9 33.2 21.4 1.4
Malaysia 93 22.5 15.5 8.1 11.4
Philippines 24 41.1 16.3 4.4 5.5
Singapore 181 1.1 11.3 6.8 26.5
Thailand 99 11.9 23.4 17.3 5.7
China 1850 88.1 64.7 171.9 10.8
HK 132 2.2 41.9 27.2 4.8
Taiwan 266 0.4 12.8 55.2 4.8
Korea 151 51.5 63.0 65.4 2.3
India 230 96.9 49.5 25.1 9.2
Source: Datastream, EIU
The second derivative impact is exposure to the meltdown of
Eastern Europe. Western banks, especially Europeans banks,
have purportedly been funding Eastern Europe's past
development. Its collapse will worsen the credit crisis
especially for European banks, and in turn GCC, which also
gets a lot of funding from European banks. In Asia, funding
to countries with high external debt like Korea and Indonesia
will be affected by a further credit squeeze. Credit default
swaps for sovereigns are mostly higher now than in October
2008 (see Fig. 19).
Fig. 19: Credit default swap spreads for Sovereigns
Sovereign
Oct
2008
Beg
2009 Latest Sovereign
Oct
2008
Beg
2009 Latest
ECUADOR 2217 NA NA MALAYSIA 235 225 322
INDIA 206 NA NA NEW YORK/STATE OF 70 279 320
UKRAINE 2253 3093 4626 THAILAND 235 242 318
PAKISTAN 2522 3084 3084 NEVADA STATE OF 72 290 317
VENEZUELA 2100 3229 2441 NEW JERSEY 152 307 312
ICELAND 921 983 1097 CZECH REPUBLIC 153 170 300
LITHUANIA 450 596 847 CHILE 225 203 275
RUSSIAN FEDERATION 633 748 772 ISRAEL 183 162 273
DUBAI/EMIRATE OF 470 470 723 GREECE 135 240 265
INDONESIA 707 633 705 CHINA 163 186 247
BULGARIA 417 499 698 NEW ZEALAND 23 23 236
EGYPT SEN 700 598 688 FLORIDA 129 215 235
HUNGARY 315 419 638 SLOVENIA (REP.OF) 101 112 205
BAHRAIN (KINGDOM OF) 338 442 618 ITALY 117 171 199
EL SALVADOR 263 263 524 SLOVAKIA 150 155 195
TURKEY 475 410 520 TEMASEK HLDGS 124 135 170
COLOMBIA 325 308 495 UNITED KINGDOM 59 112 158
PHILIPPINES 468 386 475 HONG KONG 109 104 150
KOREA 370 311 458 SWEDEN 67 123 150
BRAZIL 319 300 412 SPAIN 83 106 149
ABU DHABI CITY OF 193 230 401 BELGIUM KINGDOM 56 80 148
POLAND 178 247 371 VIRGINIA 55 55 146
CALIFORNIA 143 357 339 DENMARK 66 122 142
TUNISIA 245 256 336 JAPAN 40 45 110
QATAR 189 219 335 FRANCE 42 55 96
MOROCCO 350 288 330 FINLAND 38 59 89
NEW YORK/CITY OF 178 283 325 NORWAY (KINGDOM OF) 27 38 62
Source: Datastream. Highlighted countries belong to Asia
Page 15

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Fig. 20: Japan's current account balance
US$bln
3500
3000
2500
2000
1500
1000
500
0
-500
96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: Datastream
The third derivative impact is from the exports collapse as a
result of further weaker growth and credit squeeze, which will
widen current account deficits. This could cause the USD to
appreciate further as a narrower trade balance means less
foreign currency earned. For the first time in 13 years, Japan
has chalked up a current account deficit, reflecting the dire
impact of plunging global demand. We expect further
weakness in Asia currencies.
Market recommendations
We focus on higher beta markets of Singapore, Hong Kong
and China to benefit from this liquidity rally. Fundamentally
these markets should experience a quicker recovery process
due to their stronger fiscal muscle. The India market generally
has high correlation to money supply growth, but we have we
have concerns on its weak fiscal position. Taiwan is raised to
Neutral as a lot of its cyclical sectors has emerged favorably
from our screening of lower P/E cyclical sectors where growth
has been cut aggressively.
Singapore - worst case estimates built-in, waiting for
capitulation
We are Overweight Singapore going into 2Q.
Underperformance over the past quarter was precipitated by
the unexpected sharp collapse in exports. Since then, we
believe the worst foreseeable case has been priced in. DBS
economist has downgraded Singapore's GDP growth from -
0.6% to -4.8%, which is substantially below the worst growth
of -2.2% recorded in 2002. Consensus earnings growth
expectations have also been slashed to -16%, in line with our
expectations of -16.9% for 2009 and -10% for 2010. DBSV
Singapore research team believes we are about 80% through
in terms of earnings reductions. 2009 earnings growth will be -
30% based on our coverage universe, if we include further
impairment charges from property companies this year. As it is,
the worst expectations have been built into stock prices -
99,000 jobs lost, unemployment rate rising to 5%, 20-50%
drop in property prices, banks' NPLs rose to 2.6%, and 15%
cancellation rate for shipping contract orders. The wild card
remains the external environment because of its high exports
dependence, but to us, there is no difference between a -5%
or -10% GDP growth this year. A weaker showing this year
would mean a stronger recovery next year. What is important
is that corporate balance sheets are strong enough to ride
through the crisis. Risk of relative US market derating could
also have a strong impact on Singapore due to its higher
liquidity. Our expectation for a final capitulation in 2Q09
suggests outperformance for this market where valuations and
growth forecasts already reflect low expectations.
We expect the upcoming events in Singapore to keep
Singapore bustling. These include the second F1 night race in
Singapore in September, after the first one last year received
rave reviews. The Singapore government has also waived hotel
occupancy and consumption levy for the fifth night in a bid to
help the hotel industry and attract more tourists. The Marina
Sands Integrated Resorts is on schedule for completion by the
end of the year, if not in time for the F1 race, and is
accelerating the recruitment drive to hire 10,000 workers. The
government is also assisting with training programs to equip
the jobless with relevant skills - an effort that is greatly
emphasized by the Singapore government in an effort to create
jobs and prevent job loss. Some of the measures include
subsidising training programs for companies to keep and retrain
workers for opportunities down the road instead of dismissing
workers during this downturn, as well as giving cash credit for
companies to keep workers.
Page 16

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Fig. 21: Singapore property sector price to book
(x)
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
93 95 97 99 01 03 05 07 09
Source: Datastream
A big overhang in Singapore would be the oversupply in the
office sector in the next few years, even if we see the economy
recovering from a recession. We are decidedly short in the
office sector. The uncertainty in the external environment,
(whether the worse will be over by first half this year,) is also
another potential risk for another down leg in property prices,
and the subsequent knock-on impact on banks. If this happens,
it may put a lid on Singapore's outperformance. Our analysts
have a forecasts drop of 20-50% currently (for mass to high
end residential from the peak for physical property prices in
their earnings models, which we believe the markets had that
priced in.
Fig. 22: Singapore 12-month forward PER and forward growth
(%) (X)
28
22
16
10
4
Growth (L)
Source: Datastream, IBES
PE (R)
5
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
25
23
21
19
17
15
13
11
9
7
Hong Kong - private consumption revival hinges on China's
stimulus
Hong Kong's private consumption took a dive in recent
quarters following the steep fall in property prices and stock
markets, which evaporated the wealth effect that had been
driving high consumption and GDP growth in the past
(consumption is 61% of GDP). While the revival remains to be
seen amid uncertainty in the stock market, tourist spending and
arrivals from China remain a key factor preventing a total
collapse of consumption in Hong Kong. We expect China to
relax the quota for visitors from mainland China to visit Hong
Kong in an effort to help maintain economic growth.
Fig 23: Hong Kong consumption vs Hang Seng Index, yoy%
(%) (%)
25
20
15
10
5
0
-5
PCE (L)
-10
88 90 92 94 96 98 00 02 04 06 08
Source: Datastream
HSI (R)
Fig 24: Hong Kong retail sales vs China tourist arrival
240
190
140
90
40
-10
-60
120
100
80
60
40
20
0
-20
-40
-60
% %
-10
-20
-30
01 02 03 04 05 06 07 08 09
Tourist arrivals from China (L)
40
30
20
10
0
Retail sales value (R)
Source: Datastream
Page 17

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
China – government still targeting 8% GDP growth
We expect the cumulative impact of the sizeable fiscal stimulus
and aggressive monetary loosening to be more prominent in
the second half of this year, and take 3Q09/4Q09 headline GDP
growth back to 8% YoY. For full year 2009, we are looking at
7.5% YoY GDP growth.
our analyst is concerned about deteriorating asset quality and
rising NPLs.
Fig. 25: China M2 and credit growth, %yoy
%
27
The external environment remains the biggest risk, in our view.
However, what sets China apart from other countries despite
the deteriorating trade performance is its strong fiscal muscle
and abundant liquidity. Looking beyond the numerical
significance of China targeting 8% growth, the more important
implication is the message that the central government will do
all it can to prevent a sharp downturn.
Headline GDP will fall by 0.5% for every 10% drop in exports,
assuming all other contributions are constant. The external
environment is uncontrollable, but China can, by virtue of its
strong reserves, lift domestic consumption and investment to
offset slowing exports. The two sectors where fiscal spending
will be concentrated are fixed asset investment, in particular
infrastructure spending, as well as to lift private consumption,
in particular rural spending. On top of that, the authority is also
aware of the difficulties experienced by SMEs in this tough
external environment - rising costs and competition. Hence,
China has unveiled stimulus plans for 10 industries, to buoy
confidence and support economic development. These are the
automobile, steel, shipbuilding, textiles, machinery, electronics
and information technology, light industry, petrochemicals,
nonferrous metals, and logistics industries.
Money supply and loan growth had accelerated in January as a
result of looser monetary controls and government calls to stepup
credit support to the economy. That should lead to a more
substantial pick-up in investment growth in mid-2009, which
should make up for some of the shortfall in other parts of the
economy. Jan09 PMI rose to 49 from a low of 38.8 in
November. Although still below 50, the improvement shows
that the fiscal stimulus is making an impact.
The China 'A' share market is the best performing market to
date. We expect the outperformance to continue and
recommend buying into the A share ETF to sail with the macro
tailwind. However, the 'H' share market, which is open to
foreign investors, had underperformed in line with the Hong
Kong market. We recommend buying into selective
infrastructure sectors that will benefit from the stimulus plan.
We also recommend buying into the banking sector on a macro
call to benefit from anticipated strong loan growth, although
22
17
12
7
M2
2
00 01 02 03 04 05 06 07 08 09
Source: Datastream
credit growth
2Q potential risks and drivers
The worse than expected showing on the economic front, and
apparent lack of progress on the financial bailout front have
driven markets through our low-end targets in the first quarter.
Announcements of fiscal stimulus and rate cuts in the
beginning of the year infused some excitement into the equities
market and sparked a technical rally as markets rebounded
from the October capitulation. But poor corporate results and
economic data took over the limelight, and fear of further US
major corporate bankruptcies and US banks’ nationalization
drove markets to a decade low in March.
Moving into the second quarter, the market is looking to find a
bottom on the economic front. Main risks ahead lie with the
external environment, which in turn will slow down domestic
investment while rising unemployment is a threat to private
consumption. The further need to de-leverage and the
perception of growth will determine the end of the credit
down-cycle. Exports, machinery orders, manufacturing index,
retail sales data and credit growth indicators remain to be
watched.
We see the broad market movements in the US as a main driver
for Asian equities in the second quarter. The anxiety over the
result of US banks’ stress test and the appropriate remedy to be
announced in April will hopefully throw a final capitulation,
thereby providing an opportunity for a widening in the
Page 18

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
valuation gap towards an inflection point. Strain in the Eastern
Europe’s economic and financial system is also a key risk to be
watched in the second quarter, which may worsen the financial
crisis of European banks and spark another round of risk
aversion.
In local markets the torrent of rights issues will create a near
term overhang on stocks. The rapid fall in interest rates and the
slew of fiscal stimulus already announced last quarter may
immobilize further market reaction. 1Q09 results season in US
and Asia will also be closely watched. So far Citigroup had
indicated it had a good beginning to the year. Hong Kong
market may take a breather from the results season as it is not
required of Hong Kong companies to report quarterly results. In
China we look for more assuring data that the stimulus plan is
working its way into the economy. We believe China ‘A’ shares
will benefit directly from the positive macro picture while in ‘H’
shares we believe targeted incentive sectors from the stimulus
plan will benefit. Commodity price contract negotiations in
April may induce some volatility in the coal and steel sector and
an inflection point that the worst may be over for negative
newsflow.
Coming elections in India and Indonesia may create volatility in
these markets as the situation is still fluid. Malaysia’s UMNO
elections and several by-elections may prove to be a non event
as the outcome of the current deputy prime minister (PM) being
the next PM is expected. Meanwhile impeachment motion
against the current PM in Thailand may bring Thai politics to
the spot light again but poor economic outlook has taken
precedence on the agenda right now. Our economist for
Thailand, Ramya Suryanarayanan believes the downside risk to
growth is high as the external environment remains fragile
while stimulus plan for domestic demand growth may not be
enough to offset the extreme weakness.
We believe the last leg of the bear market rally should be as
natural as the cycle itself - a potential pick up in demand and
credit, low valuations, concerted global effort in confronting
the financial crisis, and a plausible solution for US bad banks’
assets. At this juncture some conditions seem to be in place,
but all hinge on the US bailout plan and further steps to be
taken from the European central banks.
Page 19

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
SUMMARY OF MARCO OUTLOOK
(Excerpts from DBS Economics Markets Strategy 2Q09)
CHINA (Chris Leung, chrisleung@dbs.com)
• Bold and timely policies to counteract the global
financial crisis have shown promising results. State
banks have extended credit to support growth,
resulting in a rebound in money and loan growth in
the last few months
• The government has increased the budget deficit for
FY09/10 by more than four times from last year’s
CNY180bn to CNY950bn. This is equivalent to 3% of
GDP. High savings and low government debt will
allow China to sustain an expansionary fiscal
program more easily than other countries could
• The long anticipated second stimulus package may
have been postponed because of the better-thanexpected
economic figures and the fact that the
CNY4trn fiscal package has yet to be fully unleashed
• Our 2009 GDP forecast remains unchanged at 7.5%
YoY
• On the monetary policy front, the central bank may
not cut interest rates as drastically as last year
• The USD/CNY will remain stable at around 6.85
despite the general weakening of exchange rates in
Asia. A stable exchange rate is crucial in anchoring
macroeconomic stability not only for China, but also
for the rest of Asia
STIMULUS
Fiscal policy will remain as the key instrument for China to help
prevent an economic free fall, while buying time for
households and business enterprises to adjust their survival
strategies. In fact, China has all the prerequisites to achieve a
sustainable expansionary fiscal program. Firstly, aggregate
savings/gross domestic savings as a share of GDP is over 50%.
Secondly, public debt as a share of GDP is only estimated to
reach 20% in 2008 by the Ministry of Finance, and an even
lower projection of 15.7% by The World Factbook. The budget
deficit for FY09/10 will jump to around 3.0% of GDP to
CNY950bn (more than four times from last year’s CNY180bn),
compared to 1.1% and 1.9% in FY98/99 and FY99/00
respectively, the government can comfortably finance the
deficit by issuing more domestic bonds.
The fact that there was no introduction of a second stimulus
package during the National People’s Congress should be
viewed positively because: 1) the government is confident
China is on her way to achieve 8% YoY GDP growth; 2) the
impact of the CNY4trn fiscal package has yet to be fully
unleashed; 3) China can still afford to wait and ‘save for the
rainy days’ should the global economy remain in the doldrums
for a longer-than-expected period.
LIQUIDITY & INTERST RATES
The PBOC is unlikely to cut interest rates in 2009 as
aggressively as last year. FX reserves increment amounted to
only US$40bn in 4Q08, significantly smaller than the combined
sum of trade surplus and FDI (US$130bn in 4Q) points to the
likelihood of short-term capital outflow. State banks are also
shouldering the risk of high NPLs and more dramatic rate
reductions may significantly impair their profit margins. In any
case, interest rate cuts should not be viewed as the principle
policy response to the current situation.
CREDIT
What sets China apart from the rest of the world is the
absence of a credit crisis amongst state banks. State banks,
under direct instructions from the authority, have rushed to
extend credit to support economic growth. New loans made in
the first two months of 2009 have already exceeded CNY2trn,
representing over half of the total new lending in 2008.
Premier Wen expects new loan growth in 2009 to exceed
CNY5trn (around 15% of GDP).
IMPACT
With the current credit expansion under way, investment
growth will show a more substantial rise in the middle of the
year. The difference between M2 and M1, which is equivalent
to deposits that are easily convertible to cash, has jumped 26%
YoY in January. Quasi money has proved to be a good leading
indicator of fixed asset investment of state owned enterprises
in the past.
Consumption indicators have been holding up decently so far.
Chinese consumers are in a good position to withstand the
challenges ahead. Unlike other parts of the world, households
are backed by large savings and have minimal debt burden.
Easing inflationary pressure will also help support
consumption. These conditions should complement the
country’s consumption-boosting measures well.
As such, despite easing wage growth/rising unemployment, we
expect household consumption to weaken only in a gradual
manner. Nominal retail sales growth is forecasted to ease to
around 15% YoY in the first half of the year, and should show
signs of recovery in the latter half. Of note is also the
tremendous consumption potential from the rural areas, where
rural population accounts for over 50% of total population.
Page 20

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
SINGAPORE (Irvin Seah, irvinseah@dbs.com)
• The economy shrunk by 4.2% YoY (-16.4% QoQ
saar) in 4Q08, taking average growth to 1.1% in
2008
• Apart from the construction sector, which grew
20.3%, key manufacturing and services sectors
recorded slower growth of -4.1% and 4.7% last year
• Singapore is expected to experience its worst ever
economic performance this year with GDP growth
likely to register -4.8%
• Despite the dire economic conditions, we believe the
Monetary Authority of Singapore (MAS) will maintain
its current neutral exchange rate policy stance in the
forthcoming meeting in April
• A generous “Resilience Package” worth SGD 20.5bn
will help to soften the pain but will not enable the
economy to avert a deep recession
OUTLOOK
On account of the sharp collapse in global demand and export
sales, as well as the spillover effects from the financial
meltdown to the real economy, we have recently lowered our
growth for 2009 to -4.8%. This marks the worst recession in
Singapore’s history, surpassing the previous low of -3.8%
registered prior to independence in 1964. GDP growth will
likely be stuck in negative territory for the first three quarters
before reverting back to a mild positive growth in the fourth
quarter. In addition, the growth contraction in the first quarter
is expected to be the most severe at -7.8%, surpassing the
previous low of -6.5% registered in 3Q01. The outlook of the
Singapore economy will largely rest upon how the global
economy recovers from this recession.
STIMULUS
Fiscal policy will shoulder the responsibility of helping the
economy cope with the current economic downturn. And that
comes in the form of a generous “Resilience Package” worth
SGD 20.5bn to help companies and households tide over this
recession. Yet, despite innovative measures such as the Jobs
Credit, the Special Risk Initiative (SRI) and the wide array of tax
cuts, rebates, exemptions and grants, not to mention the sheer
magnitude of the fiscal package - the largest ever - the
economy is unlikely to escape the onslaught of this global
recession. The expansionary fiscal policy put forth will only
soften the pain but will not be able to help the economy avert
its worst ever recession.
LIQUIDITY
Despite the tremendous risks to growth, we expect the
Monetary Authority of Singapore (MAS) to stand pat on its
current neutral exchange rate policy stance. Demand weakness
is the key problem now, not export price competitiveness. A
weaker currency will not be effective in boosting export sales if
demand is not there to begin with. Furthermore, a weaker
currency may be counterproductive if it increases the costs of
imported materials for manufacturers who are already hit so
badly on the export front. In addition, a depreciation bias has a
tendency to increase expectations for more depreciation,
creating more difficulties for the government to build up its
foreign reserve. Asset prices will also come under pressure
from the Sing dollar weakness, resulting in capital outflows,
which will not be beneficial for the economy.
KNOCK-ON IMPACT
The manufacturing sector was battered as a result of the
collapse in exports, underpinned by a drastic contraction of
22.9% in 4Q08 in the electronics manufacturing segment. The
SEMI book-to-bill ratio, a leading indicator for global
electronics sales, has plunged to 0.48 in Jan09, from 0.96 in
Oct08. Growth in the services sector contracted by 1.3% YoY
in 4Q08, on the back of the sharp decline in the financial
services sector (-8.1%). With risk appetite unlikely to improve
any time soon, the financial services industry is expected to
continue to languish for most part of this year. In addition,
sectors such as the transport services, wholesale and retail
trade services will continue to bear the downward pressure
from the slowdown in global trade flows. Outlook for the real
estate services will be underpinned by the down-cycle in the
property market while the tourism related industry will be
affected by further decline in tourist arrivals. In short, the
services sector, traditionally a stable and robust pillar of growth
for Singapore, is expected to fare poorly this year. Full year
growth for the sector is expected to contract by 3.1%, down
from a growth of 4.7% last year. The construction sector
remains the only engine in the economy that is still running
hot. We expect the healthy pipeline of projects (e.g. Marina
Bay Financial Centre, IRs, MRT Downtown line, Marina Coastal
Expressway) as well as the injection from the government
projects arising from the recent budget will keep growth
buoyant in the sector going forward. This sector is expected to
grow by 20.9% this year.
Page 21

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
MALAYSIA (Irvin Seah, irvinseah@dbs.com)
• GDP in 4Q08 grew by a mere 0.1% YoY on the back
of the sharp decline in external demand and
investment
• All key sectors either moderated or contracted, with
manufacturing hit the hardest
• The economy is expected to dip into a technical
recession in 1H09 (two consecutive quarters of GDP
contraction) and will most likely register a full year
contraction of 1.2% this year
• Bank Negara is expected to continue current policy
rates by another 50bps (to 1.50%) in 2Q09
• A second stimulus package worth MYR 60bn will
cushion the blow but is unlikely to avert a recession
OUTLOOK
Chances are high that Malaysia will enter a technical recession
in 1H09 given current economic conditions. We expect the
Malaysia economy to experience a full-fledged recession with
growth of -1.2% in 2009 with the first three quarters likely to
be in negative year-on-year growth level. For 2010, we expect
the economy to revert back to positive territory, but growth
will likely be moderate at about 2.7%.
STIMULUS
In view of the deteriorating economic outlook, the Malaysia
government announced a second stimulus package worth
MYR 60bn in March. The package is equivalent to about 9%
of GDP and will be implemented over 2009 and 2010.
Although the stimulus package was significantly larger than
market expectations of MYR 15-30bn, our view is that even
with the best plans on the table, much will depend on the
effective implementation of those measures in order to achieve
the desired result. It is also crucial for the government to frontload
these measures, as GDP growth in 2009 will likely be
worse than in 2010. More importantly, while the package will
help to soften the pain on the ground, given the dire economic
conditions a recession appears inevitable.
LIQUIDITY & INTEREST RATES
The central bank initiated its easing cycle last November, when
inflation started to show clear signs of ebbing as growth,
especially on the external front, headed south. Increasing
downside risks to growth, as well as political impetus to
support growth, could convince the central bank to ease rates
further. We expect another 50bps cut to 1.50%, by end of
2Q09. Policy is likely to remain accommodative going into
2010, as inflation is expected to average a modest 1.50%.
KNOCK-ON IMPACT ON INVESTMENT AND CONSUMPTION
The financial meltdown in Sep08 essentially delivered a
massive shock wave across the global financial market and the
real economy. Apart from risk aversion and the credit crunch
choking the banking system, global demand froze as
consumers and businesses drastically cut back on expenditure.
That caused the sharp collapse in exports in many regional
economies. Malaysia was also affected. The sharp fall in
commodity prices and collapse in global demand has taken the
wind out of Malaysia’s sails. More importantly, the global
economy does not seem to be hitting a bottom any time soon,
judging from the recent economic numbers. External demand
will likely remain stuck in reverse gear, while domestic demand
will not be of much help as investors and consumers are likely
to rein in their expenditure and investments due to the gloomy
outlook. Domestic business and consumer sentiment have
deteriorated so rapidly that the indices compiled by the
Malaysia Institute of Economic Research have fallen like a rock
in 2H08. Couple with the political quagmire that has been
hoarding the limelight, and domestic demand will prove to be
evermore absent as the economy struggles to stay afloat amid
the global recession.
RISKS
With the inclusion of this stimulus package, the Federal
Government now expects the budget deficit as a percentage
of nominal GDP to increase to 7.6% this year, from an earlier
estimate of 4.8%. Nonetheless, the government is confident
that the deficit can be financed from domestic sources and
does not expect further deficit financing to crowd out privatesector
funding in the bond market. We believe that the
government should be able to manage this deficit increase
given Malaysia’s strong external position, significant foreign
reserves, and a robust current account surplus. However, credit
rating agencies will surely be monitoring Malaysia’s fiscal
position carefully for signs of further deterioration. Even before
the second stimulus package, Fitch had already placed
Malaysia’s long-term local currency outlook (currently at A+)
on negative watch. Our biggest concern is that the weakness
in crude oil and palm oil prices since Jul08 could lead to a
downward adjustment in revenue components like Petroleum
Income Tax (PIT) which is currently Malaysia’s single biggest
source of tax revenue. A decline in PIT revenues in 2009 and a
worse than expected GDP could worsen the government’s
fiscal position. We expect the fiscal deficit position to
eventually hit about 8.0% of nominal GDP by the end of FY09.
Page 22

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
HONG KONG (Connie Tse connietse@dbs.com)
• HK experienced its first year-on-year GDP
contracted since 2003 in 4Q08
• We expect a contraction of 5% YoY in Q2,
before the economy begins to recover in 2H09
• The 2009/10 budget focuses on measures that
will have longer-term implications for the
economy. A substantial boost in the near-term
is unlikely
• Going forward, China remains key. The country
has become an important driver in Asia.
Importantly, recovery in Asia will not have to
wait for a US recovery, as demonstrated in the
2000/01 crisis period. Given Hong Kong’s
integration with the mainland, the territory will
be among the first to benefit from recovery
there
• We expect the economy to contract by 3.5%
this year and to grow by 2.8% in 2010
STIMULUS
In the 2009/10 Budget presented last month, Financial
Secretary Tsang made clear that the territory does not lack
challenges. We take comfort in that the budget proposal lays
the ground for plenty of long-term economic developments,
ranging from fostering regional cooperation, pushing ahead
with infrastructure projects, to cradling a technology-based
economy. We expect further details to be slowly unveiled
throughout the year. However, to the disappointment of
some, the budget did not include substantial near-term
economic boosts.
LIQUIDITY & INTEREST RATES
Inflationary pressure has eased on the back of weaker
economic activity and lower commodity and oil prices. By
Jan09, underlying inflation (which strips out the effects of the
government’s one-off concessions/relief measures) fell to 4.5%
YoY, down from a cyclical peak of 6.3% YoY in Jul08. Going
forward, we expect disinflation to persist, which should give
consumer demand some support at this point of time. Apart
from lower consumer goods prices, we are likely to see added
downward pressure on private housing rentals amid the
housing downturn. The extended freeze on government fees
till 2010, together with other tax concessions, will also lessen
inflationary pressure.
Headline CPI inflation may dip into negative territory for a few
months in mid-09, but it is expected to edge up as the effects
of some of the previous concessionary measures fade out. Full
year 2009 CPI inflation is projected to average 1.0% YoY,
down from 4.3% YoY in 2008.
KNOCK-ON IMPACT
The second quarter is unlikely to be pretty. The real economy
will be plagued by the lagged impacts of the previous shock
caused by the credit crisis. We are likely to see steep rises in
unemployment, deeper contractions in consumer spending
and investments, and a further correction in housing prices.
We expect the economy to undergo a larger contraction of
over 5% YoY in Q2, before gradual recovery takes place in the
second half of the year.
One of the toughest challenges the territory will face is rising
unemployment. As an international financial and business
center, Hong Kong has been affected by the global business
cost cutting exercises amid the global downturn. The
deterioration in the labor market has been more rapid than
anticipated. Against this backdrop, the government has
allocated HK$1.6bn in the 2009/10 budget to generate jobs.
Although this is a step in the right direction, we are not
convinced that the generation of 62,000 jobs within a threeyear
time span will have a drastic impact on the trend of rising
unemployment. The grim global business outlook will continue
to weigh on the labor market. We should see a persistent rise
in the unemployment rate throughout the year, perhaps to as
high as 6.4% by end-09.
KEY DRIVER
In the next few months, we are likely to receive more
disappointing news from the G3, and a meaningful global
recovery will take time. Our eyes, however, will be focused on
China more than anywhere else. China has become an
important driver in Asia. Importantly, recovery in Asia will not
have to wait for a US recovery as demonstrated in the 2000/01
crisis period (please refer to our note on Feb 6, 2009 by David
Carbon: “Asia’s export collapse”). Given the increasing
economic integration between Hong Kong and mainland
China - be it through trade, financial/business services or
tourism - Hong Kong will no doubt be the main beneficiary of
China’s economic rebound.
Page 23

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
THAILAND (Ramya Suryanarayanan, ramya@dbs.com)
• Fourth quarter output dropped by a stunning 24%
(QoQ, saar), led by a dramatic 50% drop in exports.
We expect GDP to contract by 3.5% in 2009 and to
grow by 3.8% in 2010
• Since political uncertainties have curtailed domestic
reforms and growth in the last few years, growth is
almost entirely dependent on exports
• The flip side of this drawback is the comfortable
current account surplus position, low debt ratios and
well capitalised banks - all major positives in this
global turmoil
• Apart from global developments, inventory correction
is a major risk to the growth forecast. Unfortunately,
there is not much more room for monetary or fiscal
policy to counter the slowdown, going forward.
OUTLOOK
Fourth quarter output plunged a stunning 24% (QoQ, saar),
almost twice market expectations. In on-year terms, output fell
4.3% (YoY). This makes Thailand one of the worst hit
economies in Asia. The culprit was the dramatic drop in
exports which contracted 50% (QoQ, saar). Since political
uncertainties have curtailed domestic reforms and growth in
the last few years, Thailand depends almost entirely on exports
to drive growth. The flip side of this drawback is Thailand’s
comfortable current account surplus position, low debt ratios
and well capitalised banks – all positives in this global turmoil.
Going forward, much depends on the outlook for external
demand and uncertainty remains high. In addition, from a
supply-side perspective, inventory levels could prove to be a
major risk to growth. We expect another quarter of
contraction of 5% (QoQ, saar) in 1Q09 mainly on continued
inventory correction, followed by a rise in output of 5% (QoQ,
saar) from 2Q09-4Q09. As the effect of the low base wears
off, growth should slip to 3% (QoQ, saar) in 2010. This path
would imply annual average growth of -3.5% in 2009 and
3.8% in 2010.
STIMULUS, INTEREST RATES
Going forward, there is not much additional room for
monetary or fiscal policy. Rates are already low at 1.5%. We
expect at least another 50bps of rate cuts in 2Q09. While our
banking analyst Suggitra doesn’t forsee a sharp rise in nonperforming
loans, she also doesn’t expect banks to be able to
match the central bank’s rate cuts. On the fiscal side, shortfall
in revenues have already pushed January’s fiscal deficit (saar)
to a stunning 13% of GDP. This would make it hard for the
government to meet expenditure targets (though the deficit
should reach 4% of GDP). Debt management laws will likely
be a binding restriction on expenditure in the face of revenue
shortfalls.
KNOCK-ON IMPACT
The only thing booming in Thailand the last few years has
been exports, especially automobiles and electronics. These
account for half of manufacturing exports, and are highly
cyclical and dependent on credit. This may explain the
dramatic drop in exports in recent months. Another aspect of
the export dynamic is Thailand’s growing linkages with China
and other emerging markets. The share of exports heading to
China has doubled from 5% in 2002 to 10% in 2007. While
the recent fall-off in exports is broad-based, exports to China
and HK dropped significantly in Aug08, well before the
escalation of the financial crisis in mid-Sep08 and well before
the deterioration in exports to other countries. This suggests
that a post-Olympics bust in China is also a major factor
explaining the dramatic slowdown in Thai exports (see
economic overview). This provides some consolation as
demand from China could improve somewhat when the
‘Olympic effect’ wears off. Export levels already appear to have
stabilized in Dec08 and Jan09. We expect a sequential pick up
in exports going forward to restrict the annual average decline
in dollar exports to -15% in 2009 (vs -25% YoY in Jan09) and
for exports to register 7% growth in 2010. In contrast, imports
have room to drop and fell sharply lower in Jan09. This should
also help improve the net export readings and thus support
economic growth in 1Q09.
KEY RISK
Inventory correction poses a big risk to the growth outlook.
Shipments have fallen 30-40% but inventory levels have not.
The inventory-shipment ratio has, therefore, risen to over
140%. We cannot read too much from this data given its
dubious quality, but it appears to be a reasonable estimate, in
the present instance. After all, production has only fallen in
line with shipments. To run down inventories, or to bring it in
line with the new lower level of shipments, production would
have to fall faster than shipments. It is for this reason that we
pencil in a contraction in 1Q09 output, despite the sharp drop
in 4Q08 and a stabilization in exports. In fact, the risk is that
de-stocking is sharper than we think and lasts through 2Q09.
In this case, the hit to GDP growth in 2009 would be severe
(however, the up-turn when shipments pick up would be that
much sharper).
Page 24

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
INDONESIA (Lim Su Sian, limsusian@dbs.com)
• Given the sharp global downturn, it is inevitable that
growth will continue to slow. Still, owing to its low
export dependency, Indonesia should be able to
grow 4.3% this year. That’s the slowest pace since
2001, but still the third-fastest in the region behind
China and India
• As external demand continues to retreat, net exports
will contribute less to growth. This will continue to
have spill-over effects on consumer and business
spending, as was already seen in 4Q08
• Both fiscal and monetary policy will help ease the
blow. This year’s IDR 139.5trn budget deficit (2.5%
of GDP) includes a stimulus package of IDR 73.3trn.
The central bank will cut policy rates by another
100bps to 6.75%. An easing in inflation to 6% this
year should provide room for further policy
accommodation
• The key risk is external demand with data showing
no arrest in the free-fall of exports. Ideally, foreign
exchange reserves would be higher, though they
remain adequate. Risks on the political front remain
low. Political parties will coalesce with greater
intensity in the months ahead but President
Yudhoyono remains the favourite to win the July 8
election
OUTLOOK
In the coming quarters, we believe growth is likely to continue
losing traction at least until 4Q09. Our forecast is predicated
on the view that, as the commodity cycle continues to wind
down in tandem with the retreat in global economic activity,
exports will start to contract and remain in negative territory,
possibly up to the third quarter. Low as Indonesia’s exportdependency
is (it has an export-to-GDP ratio of around 30%),
this will continue to have spill-over effects on the domestic
economy, as the fourth-quarter GDP figures so clearly suggest.
STIMULUS, INTEREST RATES
Both monetary and fiscal policies have been expansionary. This
year’s budget deficit comes to IDR 139.5trn, or 2.5% of GDP.
This is the largest deficit since 2001, and a similar deficit-to-
GDP ratio in 2001 and in 1999, when the government needed
to recapitalize the banking system following the Asian financial
crisis. The deficit includes spending for a stimulus package of
IDR 73.3trn, effective March 1. While any stimulus is
welcomed at this point, we doubt there will be significant
multiplier effects from the package. 80% of the package will
likely be in the form of tax measures, which will not give much
bang for the buck considering Indonesia’s low tax –to-GDP
ratio of 12%. Furthermore, while the package takes a
business-centric approach with its focus on cost reduction,
measures with spillover effects into business and consumer
spending are lacking.
BI has slashed its policy rate by 175bps since Nov08, and the
overnight reference rate now stands at a record low of 7.75%.
Although tight liquidity conditions have prevented the rate
cuts from fully translating into lower money market or lending
rates, standing pat in the coming months is not an option.
Assuming the rupiah does not depreciate sharply (posing
upside risk to inflation), we expect it to cut rates by another
100bps, to 6.75%. Easing inflation will certainly provide room
for further policy accommodation. As GDP growth falls below
potential and global food and commodity prices remain much
lower when compared to a year ago, we look for headline CPI
to ease to 6.0% this year, from 9.3% in 2008.
KNOCK-ON IMPACT
We think the decline in Indonesia’s exports will start to have an
even more noticeable impact on the domestic economy.
Sustained output cuts by miners, manufacturers and related
industries will spill over into business spending decisions –
plant and equipment purchases, employment hires – with a
lag. As employers cut wages and even jobs, the exporttriggered
slowdown will spill further out to households. Key
indicators like retail and motorbike sales have softened quite
rapidly.
KEY RISK
Key risk pertains to the level of Indonesia’s FX reserves and its
adequacy in dealing with short-term capital outflows. Given
the elevated sense of risk aversion facing the rupiah – as well
as various other currencies in emerging Asia – the level of
foreign exchange reserves should ideally be higher. We believe
the level of reserves to be adequate. Following a USD 3bn
global bond issue in February, reserves have now risen again to
about USD 53.7bn, which is around 8.5 months of imports and
around 1.13x times of estimated short term external debt. For
now, risks to the economy stemming from political change also
appear to be low. Legislative elections have been set for April
9, after which presidential elections will take place on July 8.
Vice President Jusuf Kalla has already announced that he will
compete against President Yudhoyono in the presidential
election, but polls still tip the latter as a clear favourite,
regardless of his running mate.
Page 25

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
INDIA (Ramya Suryanarayanan, ramya@dbs.com)
• Growth will slow to 6.1% and 4.5% in FY08 and
FY09, compared to 9% clocked in previous years.
Yet, this is a lesser worry than the growing
imbalances, especially the twin deficits, and the
recent monetisation of debt
• In FY2008, the central government deficit (off-budget
items included) has widened to nearly 10% of GDP,
against an originally planned 2.5% of GDP. This is
not due to stimulus measures, but is a consequence
of the government’s choice of “populist” policies and
“short-term” solutions
• A large captive market (domestic banks), a high
savings rate and a comfortable external position
should limit the risks to growth and stability, but not
eliminate them
• Importantly, though, the positive experience with
growth and reforms in the past decade will keep
policies pointed in the right direction. We expect
growth to recover to 6.8% in FY10
• Though inflation is not an immediate concern, the
room for rate cuts has fallen substantially given
inflation risks from deficit financing
OUTLOOK
We expect GDP growth to slow to 6.1% and 4.5% in FY08
(ends Mar09) and FY09, substantially lower than the 9%
clocked in previous years. On the basis of our global growth
outlook as well as the domestic dynamics, we believe the
Indian economy should bottom in the first half of 2009. Yet,
this is a lesser worry than the growing imbalances, especially
the twin deficits.
STIMULUS
In the period spanning December-February, the government
has come up with three stimulus packages. The policy
measures consisted mainly of 200-600bps of cuts in excise
duty, central sales tax, services tax and VAT. Other measures
included loan guarantees, interest subsidies, a plan to boost
state bank capital ratios (average risk weighted capital
adequacy ratio already at 12%), temporary suspension of
interest ceilings on external commercial borrowings (ECB) and
higher limits on foreign investment in domestic corporate
bonds. Separately, the central bank has also introduced several
measures to ease liquidity and improve credit delivery, chief of
these being a forex swap facility to banks to meet dollar
liquidity requirements.
INTEREST RATES
Wholesale prices have fallen sharply since August in line with
commodity prices but in contrast, consumer prices have not
fallen at all. This restricts the manoeuvring room for the central
bank. As it is, the conversion of MSS bonds into government
debt would keep the central bank cautious in lowering rates.
We prefer not to forecast more than 50bps of rate cuts.
External commercial borrowings - an important source of credit
to corporates - has shown an encouraging pick up. The
average borrowings in December and January is almost twice
that in October and November. Domestic credit also has picked
up in recent weeks and months. Broad money growth remains
decent at circa 20% YoY supported by growth in credit to the
government. The on-year rate would increase going forward, if
the sequential growth rates are any indication. January and
February (data till mid-Feb) recorded 25-30% (MoM, saar)
expansion. Credit extended to the commercial sector has also
jumped by almost 25% (MoM, saar) in February after two
months of nearly no increase. We have also seen a big jump in
vehicle sales in February, probably a reflection of lower rates as
well as pent up demand.
RISK
While the justifications given for the fiscal deterioration is the
financial meltdown, the fiscal position was deteriorating even
before the slowdown began. The fiscal deficit is already in
double digits as a share of GDP. Deficits, at the minimum,
crowd out private investment and constrain much needed
social and physical investments. This, in turn, restricts the longterm
growth potential. Perhaps most importantly for the
outlook, the weakening fiscal position is actually a
consequence of the government’s choice of “populist” policies
and “short-term” solutions – itself, probably a consequence of
uneven growth and poor governance. These are not factors
that inspire confidence over sustainability of growth. Ratings
agencies have not downgraded the ratings (only the outlook
on the ratings has been revised to negative), waiting to see
post-election policy trend instead.
Page 26

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
KOREA (Ma Tie Ying, matieying@dbs.com)
• The outlook for domestic demand is worrisome given
the surge in banks’ external debt servicing costs and
the drop in incomes resulting from the export
collapse. Deleveraging looks set to continue
• Korea’s external position is likely to remain under
pressure in the near term, due to uncertainty over
foreign capital outflows amid prolonged global
financial market volatility. The situation will only
improve after global risk appetite recovers and/or the
current account returns to surplus
• Macro policies need to be carried out carefully.
Aggressive fiscal stimulus plans could tighten liquidity
and push up interest rates once again. Aggressive
monetary easing increases the risk of capital outflows
and currency depreciation
STIMULUS
Like most countries in the region, the Korean government has
introduced fiscal packages to counter the recession. The 2009
budget approved by the parliament in Dec08 included tax cuts
and higher government spending (mainly on infrastructure
projects) amounting to KRW 33trn (3.5% of GDP). The finance
ministry is now mulling a supplementary budget. We estimate
that the consolidated central government fiscal balance will
deteriorate from a small surplus of 0%-1% of GDP last year, to
a deficit of 3% of GDP this year.
LIQUIDITY & INTEREST RATES
The Bank of Korea (BOK) has cut rates by a total of 325bps
since Oct08, bringing the benchmark 7-day repo rate to a
record low of 2.0%. The BOK has also actively injected liquidity
into the financial system through more purchase of repos,
early redemption of monetary stabilization bonds and other
measures. Governor Lee said at the February policy meeting
that quantitative easing could be an option in the future.
The lingering weakness in the country’s external position and
downward pressure on the Korean won suggest that the BOK
must tread carefully. In particular, quantitative easing could
undermine investor confidence in local currency assets.
We think the door is still open for continued rate cuts in 2Q09,
assuming that the FX market will stabilize alongside a
continuous improvement in the current account balance. The
odds of the BOK cutting rates to zero and/or pursuing a
quantitative easing tack are low in our view. At the end of this
easing cycle, we may well find that the BOK had every
intention of maintaining an interest rate differential with the
world’s major central banks.
KNOCK-ON IMPACT
Going forward, the outlook for domestic demand is weak as
de-leveraging continues. Bank lending growth has been
slowing since 3Q08, a result of tightening credit to smallmedium
enterprises. As a result, broad money supply growth
has also been trending down, even as base money has
expanded on liquidity injections by the central bank.
Credit as a percentage of GDP continues to grow but whether
this will continue is doubtful. Banks’ balance sheets are under
pressure, owing to the surge in their external debt-servicing
costs. Credit risks are also increasing. A rising number of
companies (especially SMEs in the export-oriented industry) are
suffering profit declines and delinquency ratios are rising .
Households are also facing deteriorating labor market
conditions. Although the unemployment rate has risen only
marginally so far, it masks a very evident drop in the labor
participation rate . As such, a further downward correction in
the credit cycle appears likely. This would drive continued
weakness in domestic demand.
RISK
The country’s external position is likely to remain under
pressure in the near term. The collapse in exports has dealt a
blow to the current account balance, just when it had begun
to improve on the back of cheaper commodity imports. More
significantly, amid prolonged financial market volatility,
uncertainty remains high over whether foreign investors will
unload holdings of Korean financial assets and/or further cut
credit to Korean borrowers. So far, Korea’s sovereign credit
ratings remain stable, but risks remain that further economic
deterioration could lead to capital outflows and future
downgrades, as highlighted by Fitch’s Nov08 move. An
improvement in Korea’s external position (hence underpinning
the Korean won) requires a return of global risk appetite,
and/or dollar inflows secured through a current account
surplus. The former is difficult to predict. But the current
account should return to surplus in 2Q09. In our view, the
recent free-fall in exports may have been exaggerated by the
collapse in global sentiment following the financial market
meltdown. Meanwhile, imports should continue falling on the
back of weaker domestic demand and lower commodity prices.
An already-sizeable depreciation in the Korean won to-date
has also helped to narrow the services deficit, as expenditure
on services overseas (such as travel and education) has been
increasingly curbed by a more expensive US dollar . To that
end, we continue to project a current account surplus for 2009,
at around 2% of GDP.
Page 27

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
TAIWAN (Ma Tie Ying, matieying@dbs.com)
• The steep downturn in the economy owes to an
unprecedented collapse in exports. We do not expect
things to worsen further from 2Q09, as the plunge
may have been exaggerated due to fear / shock
factors, and more importantly, China’s demand
should improve this year
• But until exports recover, Taiwan is unlikely to
emerge from recession. The propensity to save is high
and public confidence is weak. The effectiveness of
macro stimulus policies will hence be limited
STIMULUS
Like many economies in the region, the Taiwanese government
has adopted a string of fiscal stimulus measures to combat
recession. The package includes distributing consumer
shopping vouchers, expanding public infrastructure
construction, offering various tax breaks and subsidies,
promoting job creation etc. All together, the government
estimates that these measures will reduce the contraction in
real GDP in 2009 by 2.77ppt.
We believe there is additional scope on the fiscal front, given
that government debt level is healthy at around 40% of GDP,
and abundant private sector savings and extremely low interest
rates. It remains to be seen whether the government will take
bolder moves in the next several months.
LIQUIDTY & INTEREST RATES
Taiwan’s central bank has cut rates by a total of 237.5bps
since Sep08, taking the benchmark rediscount rate to an alltime
low of 1.25%. The overnight interbank rate has even
fallen to almost zero (0.15% by mid-March). Liquidity is not
really a problem in Taiwan because of strong private sector
savings. Interestingly, liquidity supply has even expanded
alongside the deepening of global financial crisis, because of
rising funds inflows from Taiwanese residents repatriating their
overseas investment. In addition, despite the plunge in exports,
trade and current account balance continued to widen due to
even faster declines in imports. Money supply growth has
accelerated at the same time.
CREDIT
Banks still have low appetite to lend because of increasing
worries on loan quality deterioration. Excess reserves among
financial institutions have jumped to TWD 123.2bn in Jan09
from an average of TWD 20bn last year. Bank lending growth
– although there was no overheating to begin with - has fallen
since Dec08, led by loans to private enterprises especially those
in export industries.
To channel liquidity from banks to the productive areas in the
economy, the stimulus effects of rate cuts are tapering off. We
believe that Taiwan’s monetary easing cycle is already close to
an end. The policy focus is likely to shift to micro measures in
our view, such as providing credit-guarantees for new loans,
leading banks to arrange debt rescheduling with the existing
borrowers who suffered cash flow difficulties, and even
offering direct financial assistance to the troubled industries
(such as the latest bail-out for the DRAM industry).
KNOCK-ON IMPACT
Taiwan’s exports plunged by the most among all the Asian
economies we cover, led by demand from China, Taiwan’s
largest trade partner. In our view, the factors explaining this
sharp contraction in external trade are partly genuine - the
slowdown of China and the recession of developed
economies, and partly distorted and probably short-lived - the
payback in demand from China following the end of the
Aug08 Olympics and the collapse of global business sentiment
in the aftermath of the US financial meltdown in Sep/Oct08
(see “Asia’s export collapse”, Feb 6th). There is a good chance
for the Chinese economy to recover this year thanks to
aggressive stimulus policies. Several mega Taiwanese tech
companies recently announced that they have received new
orders from China, thanks to a government-backed scheme of
popularizing the use of electrical & electronics products in
China’s rural regions. We are relatively less pessimistic (than
the markets) on this front and expect exports and also the
overall economy to touch a bottom in 1Q09.
Until exports make a revival, Taiwan will find it hard to get out
of recession relying on domestic demand. The Taiwanese
economy holds persistently strong surplus savings. Taiwan’s
high saving propensity is associated with structural issues,
including slow wage growth and weak consumer confidence
due to the political environment. Although the new
government taking office last year has been striving to push
forward economic reforms, external conditions have
deteriorated rapidly and severely before things are given time
to change. In fact, the private sector – households in particular
– should have even more sufficient reasons to increase their
savings now due to the rise in job/income insecurity. The slump
in exports has heavily hit the island’s labor market.
Employment growth fell into negative territory since Nov08.
The jobless rate shot up to a seven year high of 5.3% (sa) by
Jan09, more than 1 percentage point higher than the stable
3.9% in 1Q-3Q08.
Page 28

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Appendix I – Forecast trading range established from
valuations. Valuation parameters are chosen from best indicator
from back testing in our valuations models. Asia ex-Japan
forecast return of 23% from current levels (fig 30).
Fig. 26: Singapore STI and price to book value trading bands
Fig. 28: Thailand SETI and price to book value trading bands
1800
1600
1400
4000
3500
+1SD
1200
1000
800
+1SD
Avg
3000
Avg
600
-1SD
2500
2000
1500
-1SD
-2SD
400
-2SD
200
0
93 95 97 99 01 03 05 07 09 11
1000
500
93 95 97 99 01 03 05 07 09 11
-2SD -1SD Average PTBV
Index range 1696 2274 2852
Source: Datastream, DBS. Shaded areas are recession periods. Bands
are ‘+1SD, Average, -1SD, and -2SD price to book value trends.
Current STI level: 1691, P/B 0.8x
-2SD -1SD Average PTBV
Index range 380 608 837
Source: Datastream, DBS. Shaded areas are recession periods. Bands
are ‘+1SD, Average, -1SD, and -2SD price to book value trends.
Current SET 438, P/B 1.2x
Fig. 29: Korea KOSPI and price to book value trading bands
2000
Fig. 27: Hong Kong HSI and price to book value trading bands
35000
30000
1800
1600
1400
1200
+1SD
Avg
25000
20000
+1SD
Avg
1000
800
600
-1SD
-2SD
15000
-1SD
400
10000
-2SD
200
93 95 97 99 01 03 05 07 09 11
5000
0
93 95 97 99 01 03 05 07 09
-2SD -1SD Average PTBV
Index range 10540 14117 17693
Source: Datastream, DBS. Shaded areas are recession periods. Bands
are ‘+1SD, Average, -1SD, and -2SD price to book value trends.
Current HSI level: 13622, P/B, 1.2x
-2SD -1SD Average PTBV
Index range 698 983 1269
Source: Datastream, DBS. Shaded areas are recession periods. Bands
are ‘+1SD, Average, -1SD, and -2SD price to book value trends.
Current KOSPI level: 1229, P/B 1.14x.
Page 29

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Fig. 30: MSCI AXJ index and price to book value trading bands
800
700
600
Fig. 32: H-share index and fwd PER trading band
16000
14000
12000
+1SD
500
400
+1SD
Avg
-1SD
10000
8000
6000
Avg
-1SD
300
200
-2SD
4000
2000
-2SD
100
93 95 97 99 01 03 05 07 09 11
-2SD -1SD Average PTBV
Index range 282 366 451
Source: Datastream, DBS. Shaded areas are recession periods. Bands
are ‘+1SD, Average, -1SD, and -2SD price to book value trend.
Current MSCI AXJ level: 366, P/B 1.38x.
0
93 95 97 99 01 03 05 07 09 11
-2SD -1SD Average fwd PE
Index range 2806 6308 9810
Source: Datastream, DBS. Shaded areas are recession periods. Bands
are ‘+1SD, Average, -1SD, and -2SD price-earnings trend. Current H-
share index level: 7967, fwd P/E 10.4x
Fig. 31: Taiwan TWI and historical P/E trading band
Fig. 33: Malaysia KLCI and dividend yield trading band
16000
2000
14000
+1SD
1800
Avg
12000
10000
8000
6000
Avg
-1SD
1600
1400
1200
1000
800
-1SD
-2SD
4000
-2SD
600
2000
400
0
93 95 97 99 01 03 05 07 09 11
-2SD -1SD AveragePE
Index range 3487 7290 11093
Source: Datastream, DBS. Shaded areas are recession periods. Bands
are ‘+1SD, Average, -1SD, and -2SD price-earnings trend. Current
TWI level: 5346, P/E 9.7x
200
93 95 97 99 01 03 05 07 09 11
-2SD -1SD Average DY
Index range 1040 1333 1854
Source: Datastream, DBS. Shaded areas are recession periods. Bands
are ‘+1SD, Average, -1SD, and -2SD price-earnings trend. Current
KLCI level: 879, fwd dividend yield 5.4%
Page 30

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Fig. 34: Indonesia JCI and dividend yield trading band
Fig. 35: India Sensex and and historical P/E trading band
3500
20000
3000
Avg
18000
16000
+1SD
2500
2000
-1SD
14000
12000
Avg
1500
-2SD
10000
8000
-1SD
1000
500
6000
4000
2000
-2SD
0
93 95 97 99 01 03 05 07 09 11
-2SD -1SD Average DY
Index range 1599 2084 2990
Source: Datastream, DBS. Shaded areas are recession periods. Bands
are ‘+1SD, Average, -1SD, and -2SD price-earnings trend. Current JCI
index level: 1419 and dividend yield 4.7%
0
93 95 97 99 01 03 05 07 09 11
-2SD -1SD Average PE
Index range 3002 7976 12949
Source: Datastream, DBS. Shaded areas are recession periods. Bands
are ‘+1SD, Average, -1SD, and -2SD price-earnings trend. Current H-
share index level: 9667, historical P/E 13.3x
Page 31

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Appendix II – Money supply growth and stock market
performance
Fig. 38: India Sensex and M2 money supply, %yoy (rsquare=46%)
Fig. 36: Singapore STI and M2 money supply, %yoy (rsquare=23%)
150
% %
30
100
80
60
40
20
0
-20
-40
% %
-60
00 01 02 03 04 05 06 07 08 09
40
35
30
25
20
15
10
5
0
-5
100
50
0
-50
-100
00 01 02 03 04 05 06 07 08 09
Stock Index (L)
Source: Datastream, DBS.
M2 growth (R)
25
20
15
10
5
0
Stock Index (L)
M2 growth (R)
Source: Datastream, DBS.
Fig. 37: Hong Kong HSI and M2 money supply, %yoy (rsquare=56%)
% %
100
80
60
40
20
0
-20
-40
-60
-80
00 01 02 03 04 05 06 07 08 09
Stock Index (L)
M2 growth (R)
35
30
25
20
15
10
5
0
-5
-10
Source: Datastream, DBS.
Page 32

Regional Equity Strategy 2Q 2009
Strategy Overview: Asia Equity
Disclaimer:
The information herein is published by DBS Bank Ltd (the "Company"). It is based on information obtained from sources believed
to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy,
completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any
recommendation contained here in does not have regard to the specific investment objectives, financial situation and the
particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to
be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The
Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special,
indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information
herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if
the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an
offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any
investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or
other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking,
investment banking and other banking or financial services for these companies. The information herein is not intended for
distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to
law or regulation.
Page 33

Regional Equity Strategy 2Q 2009
Regional Data Monitor
Funds Monitor
US Funds Flow into Asian Equities, by Country
US$m 4Q07 1Q08 2Q08 3Q08 4Q08
Hong Kong Net purchase of -7,674 -2,171 94 -8,592 -1,513
equities by US seller seller buyer seller seller
HSI 29,270 23,546 24,130 20,670 14,081
Singapore Net purchase of 2,021 -964 -897 543 -4,067
equities by US buyer seller seller buyer seller
STI 3,575 3,005 3,096 2,676 1,763
Malaysia Net purchase of 371 301 -155 -419 -248
equities by US buyer buyer seller seller seller
KLCI 1,419 1,333 1,248 1,094 869
Thailand Net purchase of 63 161 -731 89 -243
equities by US buyer buyer seller buyer seller
SET 871 816 812 652 423
Philippine Net purchase of 119 57 -7 -13 -95
equities by US buyer buyer seller seller seller
PCOMP 3,653 3,127 2,679 2,612 1,932
Indonesia Net purchase of -88 -364 385 11 98
equities by US seller seller buyer buyer buyer
JCI 2,693 2,599 2,366 2,101 1,285
Korea Net purchase of -1,245 1,850 -1,034 -3,526 -1,517
equities by US seller buyer seller seller seller
KOSPI 1,956 1,680 1,784 1,506 1,105
Taiwan Net purchase of 46 70 11 -881 -679
equities by US buyer buyer buyer seller seller
TWSE 8,935 8,169 8,354 6,596 4,641
Total US
Net purchase of Asian
Equity (US$m)
-6,387 -1,060 -2,334 -12,788 -8,264
US Dow Jones Index 13,522 12,393 12,269 11,257 8,977
US 10-yr bond yield 4.3 3.7 3.9 3.9 3.3
Source: US Treasury
UK Unit Trusts
US$m 1Q08 2Q08 3Q08 4Q08 1Q09
61.2 60.8 59.2 58.7 55.9
% of all Equities (276.7) (279.6) (251.7) (212.1) (206.7)
17.2 16.7 17.5 19.3 19.4
Funds Bonds (77.9) (76.8) (74.1) (69.9) (71.5)
6.2 6.3 6.1 5.8 6.3
% of Asia (x Japan) (17.2) (17.7) (15.4) (12.4) (13.0)
59.7 59.7 59.7 59.7 59.7
Equity Domestic (163.3) (163.9) (145.9) (116.8) (113.4)
34.8 35.1 35.9 39.1 38.8
Funds Others (96.3) (98.0) (90.4) (82.9) (80.2)
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. 1Q'09 data up to Jan only.
Page 34

Regional Equity Strategy 2Q 2009
Regional Data Monitor
Earnings Monitor
Revisions in Earnings Forecast
Forecast revisions during 1Q09
% Increase % Decrease % Net
Singapore 18 48 -30
Hong Kong 6 46 -40
China 8 36 -28
Msia 12 45 -33
Thailand 38 83 -45
Indonesia 13 23 -10
Notes: % increase (decrease) denote the % of companies’ earnings that were raised (lowered) during 1Q09.
Forecast revisions during 4Q08
% Increase % Decrease % Net
Singapore 17 37 -20
Hong Kong 8 70 -62
China 12 58 -46
Msia 9 100 -91
Thailand 20 80 -59
Indonesia 6 20 -14
Notes: % increase (decrease) denote the % of companies’ earnings that were raised (lowered) during 4Q08.
Revisions in Recommendation
Changes in recommendation during 1Q09
% Up % Down % Net
Singapore 11 18 -7
Hong Kong 6 17 -11
China 8 8 0
Msia 6 12 -6
Thailand 7 25 -18
Indonesia 7 20 -13
Notes: % increase (decrease) denote the % of recommendations that were raised (lowered) during 1Q09.
Changes in recommendation during 4Q08
% Up % Down % Net
Singapore 8 28 -20
Hong Kong 7 30 -23
China 11 22 -11
Msia 6 30 -24
Thailand 13 47 -33
Indonesia 14 34 -20
Notes: % increase (decrease) denote the % of recommendations that were raised (lowered) during 4Q08.
Page 35

Regional Equity Strategy 2Q 2009
Country Assessments & Stock Profiles
Country Assessments
&
Stock Profiles
Page 36

Regional Equity Strategy 2Q 2009
Country Assessment
Singapore
Trading opportunity
STI : 1,584.86
STI 3 / 12 mths Target : 1,800 / 2,150
Expected Return : +14% / +36%
The current bear market rally is being driven by a
normalisation of the equity risk premium as global risk
aversion subsides. This presents investors with a near
term trading opportunity. However, until there is a
convincing turn in the fundamentals, concerns remain
that the re-emergence of systemic risk factors could
curtail the nascent rebound.
Equity risk premium in normalisation mode as sentiment improves and economy
shows signs of bottoming. Sentiment seems to be improving with bad news well
absorbed by the market, as the market searches for signs of stability in the
financial market. Initial signs of the economy bottoming out in US and
Singapore will raise investors’ risk appetite. Equity risk premium (ERP) for the
Singapore market was close to its peak last quarter at 5.5%. A normalizing of
ERP closer to 3% could trigger the bear market rally, even as we wait for
confirmation of an eventual recovery in the economy.
Market bottoms when GDP bottoms – 2Q09 the inflexion point? Based on DBS
Economist’s forecasts, Singapore’s GDP will hit two more extreme negative
quarters – the weakest quarter is in 1Q09 -7.8%, –6.9% (2Q09) and –5.2% in
3Q09. We think 2Q09 holds a key inflexion point for a market bottom, and
volatility will persist – we expect a trading range of 1200 to 2000, providing
investors opportunity to accumulate as the market weakens.
Narrowing the valuation gap to 2100 assuming PE normalizes. At 1585, the
STI’s PE rises to 10.2x (09F) on earnings decline of 19%. Assuming PE rating
normalizes back to 1 standard deviation of 13.5x, the target STI will be 2100.
Our stock picks this quarter are early cyclicals trading on low cycle PE :
SembCorp Marine, City Developments, Venture Manufacturing, OCBC or stocks
trading on bombed out valuation SPH and A REIT.
Janice Chua . (65) 6398 7954 . janicechua@dbsvickers.com
www.dbsvickers.com
Refer to important disclosures at the end of this report
sa: TW
Page 37

Regional Equity Strategy 2Q 2009
Country Assessment
Market Data
Index Close Chng Net -1 mth% -3 mth -6 mth -12 mth 52 week
19 Mar 09 1m (%) (%) (%) (%) High Low
STI 1,585 (44) (2.7) (11.7) (38.1) (44.1) 3270 1455
FTSE Mid Cap 310 (23) (6.8) (14.2) (45.4) (56.9) 832 292
FTSE Small Cap 249 (24) (8.9) (16.5) (43.8) (58.6) 698 236
FTSE Financials 367 (20) (5.2) (16.6) (43.1) (49.5) 867 324
FTSE Real Estate 312 (6) (2.0) (18.3) (43.0) (56.1) 842 284
FTSE Re Hold & Dev 319 (1) (0.4) (17.3) (39.0) (54.3) 826 282
FTSE Re Invest Trust 304 (14) (4.3) (19.1) (49.0) (58.7) 877 276
FTSE Oil & Gas 227 (23) (9.1) (7.7) (51.0) (65.9) 829 168
FTSE Basic Materials 179 (25) (12.4) (17.2) (46.8) (64.5) 688 168
FTSE Industrials 328 (5) (1.6) (7.7) (41.6) (50.7) 792 286
FTSE Consumer Goods 354 (14) (3.7) (1.7) (27.9) (44.4) 843 249
FTSE Healthcare 368 (23) (5.8) (6.1) (34.6) (53.7) 868 335
FTSE Consumer Services 452 (21) (4.4) (18.7) (35.7) (40.3) 854 428
FTSE
Telecommunication 604 3 0.5 (3.8) (31.7) (38.0) 1003 493
FTSE Utilities 236 (48) (16.9) (19.2) (46.5) (68.1) 779 217
FTSE Technology 295 (78) (20.8) (18.9) (48.8) (56.7) 810 268
FTSE China 142 (27) (15.9) (25.0) (48.7) (63.7) 517 129
Transactions:
YTD
Volume (bn) 52
Value (S$bn) 49
Source: Bloomberg
MARKET REVIEW
Initial euphoria gave way to reality. The STI started the year
on a positive note, surging 9.3% by the second trading day,
led by gains in regional markets on hopes that the US
economy will stage a rebound after a dire 2008. However,
worries over possible weak 4Q earnings and global economic
uncertainties continued to plague the market.
External factors –weakness in US banks took centrestage. In
the US, President Obama’s swearing-in ceremony and the
US$787bn economic stimulus plan failed to support the
market. The lack of details on the overhaul of the banking
system as well as continued weakness in the US financial
system added to the woes.
Domestically, weak GDP numbers overshadowed a probusiness
budget dished out by the government. On the
economics front, a sharp plunge in January NODX (-35%
yoy), coupled with the 16.9% q-o-q drop in 4Q08 GDP led
the Singapore government to revise its forecast for
Singapore’s GDP to a range of –2% to –5%. Even a $20.5bn
pro-business budget which focuses on ‘saving jobs-saving
companies’ did not manage to arrest the decline of the STI,
which was swung by negative newsflow from the US.
Corporate scene hit by a barrage of bad news. The corporate
scene was splashed with a barrage of negative news –
ranging from contract cancellations and deferrals in
payments from the shipyards, poor earnings with some
slipping into the red, and corporate governance issues
erupting among S chips. Banks were the key culprit pulling
down the market in its final leg of selldown, due to derating
of global financial stocks and growing concerns over
corporate bankruptcies, and rise in NPLs and provision levels.
STI re-test October 2008’s low. The STI hit a low of 1456 in
mid-March , close to 2008’s intra-day low of 1474, before
the market staged a rebound to close at 1585 for the
quarter, down 9% from the previous quarter.
Page 38

Regional Equity Strategy 2Q 2009
Country Assessment
Index Key Events
3,900
3,800
3,700
3,600
3,500
3,400
3,300
3,200
3,100
3,000
2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
1,400
Dec-06
Jan-07
Liquidity led rally
triggered by
positive news
Feb-07
Led by 9%
fall in China
market
Mar-07
Apr-07
optimism in
property sector,
construction
recovery, RTOs,
small caps
outperform blue
chips
May-07
Jun-07
DC charge
raised from
50% to 70%
Jul-07
Subprime &
credit
market
crisis;
caution
about
property
Aug-07
Fed cut
discount
rate by
50pbs to
5.75%
Sep-07
Led by O&M
and energy
stocks as oil
price and
precious
metals rallied;
S-chips on
QDII
Oct-07
Nov-07
Inflation fears,
more subprime
related write-off
US recession fear,
margin squeezed;
further write-down
in CDO assets
Speculation of
US rate cut
Dec-07
Surprised 75pbs
rate cut by Fed
to 3.5%
Jan-08
Feb-08
Near-collapse of
Bear Stearns; Fed
cut discount rate
Mar-08
Apr-08
Rebound on hopes
that credit crisis has
eased
May-08
US bailout Freddie Mac
and Fannie Mae; fall in
oil prices
Collapse of Fed’s bailout plan,
failure of European banks
Rescue efforts by central banks,
including government guarantee
and ownership of banks
Central banks cut interest rates to boost
bank lending and economic growth
Jun-08
Jul-08
Aug-08
Inflation concerns;
slowdown in global
economies; more
financial institutions
collapsed
Sep-08
Oct-08
Collapse of Lehman
Brothers; US bailout AIG
Obama wins
presidency
Nov-08
Optimism about global
rate cuts and stimulus
packgage to revi ve
economy
US banks more
optimistic on outlook
Dec-08
Jan-09
US Treasury's
US$1 trn plan
to remove
banks' toxic
assets
Feb-09
Mar-09
Source: DBS Vickers
Our strategy in 1Q09 to stay defensive paid off. Our 1Q09
strategy to stay defensive with preference for companies
with resilient earnings and selling asset plays on strength
worked out well for investors. Top performing sectors were
consumer goods and telecommunications while Real Estate
and REITS were among the underperformers.
Worst performing sector were Asset plays (Real Estate and
REITS) on concerns over asset devaluation and refinancing
issues. Property stocks were weighed down by concerns over
potential cash calls, disappointing results, and write down of
the value of investment properties. REITS were affected by
refinancing issues and a possible reduction in DPU payout
going forward in light of an increasing challenging operating
environment.
Banks – underperformed due to concerns over the quality of
its loan books. This sector was the last to fall, resulting in a
final push of the index past its Oct 2008 low. Bank stocks
were hit by higher than expected provisions and concerns
over the quality of its loan books. Both OCBC and UOB
reported FY08 earnings that were below our expectations.
Going forward, the credit cycle is expected to be fragile.
SGX, on the other hand, was dragged down by softer
equities markets coupled with continued uncertainties in the
financial markets.
SPH and SIA a drag on Consumer Services performance. The
key drag on Consumer Services’ performance was the sharp
drop in SIA share price due to rapid decline in load factor,
leading to capacity cuts amounting to –14% over the past
quarter. Excluding SIA, the sector would have performed in
line with the broad market. SPH’s share price took a beating
on disappointing results due to the drop in Adex revenue,
higher newsprint costs and investment losses.
Rebound in CPO prices lifted consumer stocks- best
performing sector. Consumer Goods, which include
commodity stocks, performed well on the back of the
rebound in palm oil prices as the fall in inventory levels in
Malaysia. Overall, the sector registered positive return of 6%
for the month.
Venture – single boost to Technology’s performance. The
performance in Technology sector was boosted by Venture.
Venture gained 8% over the past quarter after its FY08
results shows that it continued to execute well in a tough
market, coupled with a bonanza dividend payout despite its
lackluster results.
Page 39

Regional Equity Strategy 2Q 2009
Country Assessment
Sector Performance (Sorted in Descending Order on 3 months Performance)
Sector 1 Mth Ago (%) 3 Mth Ago (%) 6 Mth Ago (%) 1 yr Ago (%)
Consumer Goods 3 8 -9 -27
Telecommunications 0 -4 -30 -37
Technology -15 -6 -52 -65
Health Care -5 -7 -37 -60
Oil & Gas -11 -8 -57 -68
DBSV Coverage -3 -11 -38 -46
Industrials -4 -12 -45 -53
Basic Materials -12 -14 -49 -68
REITS 0 -15 -44 -55
Financials -7 -16 -45 -45
Consumer Services -5 -17 -32 -34
Real Estate -4 -22 -44 -58
Source: DBS Vickers
GROWTH
4Q08 earnings report card
(S$m) 4Q07 4Q08 4Q08 YoY
% Chng
Basic Material 16 -52 nm
Consumer Goods 599 833 39%
Consumer Services 882 591 -33%
Bank 1,425 772 -46%
Financial 179 66 -63%
Healthcare 39 52 34%
Industrials 1,450 793 -45%
Oil & Gas 195 -62 nm
Real Estate 5,084 -158 nm
Reits 276 322 17%
Technology 86 -134 nm
Telecommunication 98 89 -10%
Total 11,369 3,757 -67%
Source: DBS Vickers
Earnings cut by sector
(S$m) Bef Result Aft Result % Chng
Sector 2008 2009 2008 2009 2008 2009
Basic Material 77 65 78 52 0% -20%
Consumer
Goods 3,557 2,722 3,501 2,553 -2% -6%
Consumer
Services 2,518 2,402 2,364 1,851 -6% -23%
Bank 6,213 5,836 5,459 4,814 -12% -17%
Financial 524 418 527 419 1% 0%
Healthcare 129 140 139 140 8% 0%
Industrials 5,513 4,697 5,269 4,015 -4% -15%
Oil & Gas 589 602 528 541 -10% -10%
Real Estate 2,913 3,264 2,765 2,698 -5% -17%
Reits 1,224 1,223 1,308 1,203 7% -2%
Technology 275 -21 207 -237 -25% 1037%
Telecom 294 309 312 316 6% 2%
Plunge in 4Q08 earnings – down 67% yoy.
4Q08 was a disaster. Net earnings plunged 67% yoy and
44% qoq, led by financials, industrials and Consumer
Services (mainly SIA and SPH). 39% of companies reported
earnings below our expectations vs 14% above expectations.
Key trends noted in this set of results : a) deterioration in
banks’ loan books leading to higher NPLs and provision levels
b) impairment losses by property companies – which we
estimate at only 10% c) Decline in margins from consumer
companies, specifically China companies due to the negative
effects of operating leverage against weaker demand and
higher provisions for doubtful debts d) weak execution on
order book by shipyards including Cosco and Swiber e) forex
losses hit several oil and gas companies again this quarter.
Total 27,503 25,576 26,208 22,325 -5% -13%
Source: DBS Vickers
Earnings cut by 13% for 2009 – expect decline of 22%
In response to the cut in t Singapore’s GDP growth forecast
for 2009 to –4.8% by DBS Economist, our team has cut STI’s
EPS growth to –22% for 2009. As expected, the biggest
impact came from banks – earnings were cut on assumptions
of higher provisions/NPLs as well as lower fee based income.
SIA’s earnings were significantly affected by its loss-making
cargo business and aggressive cuts in passenger capacity over
Page 40

Regional Equity Strategy 2Q 2009
Country Assessment
the past quarter. Property sector was the other key sector
which dragged overall growth, on account of developers
pushing back property launches and provisions for doubtful
debts as well as lower ASPs. Including more write-downs in
the value of commercial buildings – (we estimate that
landlords had imputed only a 10% cut in the value of
commercial buildings vs our expectations of 30%), earnings
decline for 2009 could deteriorate to –30% for 2009. Weak
top line and margins negate the positive impact of job credits
and corporate tax cuts from the recent budget.
Including asset writedowns, earnings decline would have
been 35% for 2009.
We downgraded earnings for 2009 from +17% growth at
the start of 2008 to –22% currently, a swing of 39%.
Including write–downs in the value of properties, which will
hit 2009’s earnings, we expect earnings to decline by 35%
this year.
Earnings Estimates by Sector
Earnings Growth % CAGR PE (x)
2008 2009 2010 08-10 2008 2009 2010
Basic Materials 48.3 32.8 -16.0 5.6 4.4 3.3 3.9
Consumer Goods 81.7 -21.7 11.6 -6.5 7.3 9.3 8.4
Consumer Services -25.6 -22.0 1.4 -11.1 9.8 12.6 12.4
Financials -12.5 -12.5 8.8 -2.4 8.6 9.8 9.0
Health Care 5.9 0.5 8.0 4.2 12.5 12.5 11.5
Industrials 8.1 -23.8 -3.7 -14.4 6.4 8.4 8.7
Oil & Gas -30.4 2.6 6.5 4.5 4.2 4.1 3.8
Real Estate 2.1 -11.4 18.9 2.7 8.3 9.4 7.9
REITS 33.2 -4.4 2.0 -1.2 7.8 8.1 8.0
Technology nm nm nm nm 14.8 nm 42.8
Telecommunications -9.5 -2.8 2.3 -0.3 11.5 11.9 11.6
DBSV Coverage (Bef EI) -0.6 -15.7 7.3 -4.9 8.4 9.9 9.2
DBSV Coverage (Aft EI) -21.5 -16.1 5.2 -6.1 8.4 10.0 9.5
STI DBSV Forecast Float Factor Avg -26.8 -19.8 8.1 -6.9 8.2 10.2 9.5
STI Consensus Float Factor Avg -25.7 -19.2 9.4 -6.0 8.3 10.3 9.4
Source: DBS Vickers
Page 41

Regional Equity Strategy 2Q 2009
Country Assessment
VALUATION
Narrowing the valuation gap to 2100 assuming PE
normalizes. At 1585, the STI’s PE rises to 10.2x (09F) before
declining to 9.5x (10F). Assuming PE rating normalizes back
to 1 standard deviation of 13.5x, the target STI will be 2100.
Price to book at distress levels. Market traded at price to
book of 0.9x to 1.5x during previous recession cycles.
Currently, STI is trading at price to book of close to 0.79x,
which is lower than previous cycles. We note that the market
trades within A standard deviation of -1 and –2 during
recession years, implying a trading band of 1696 to 2274 on
the STI.
Bear target STI of 1200. Applying 1998’s valuation matrix to
target prices of key component stocks in the STI, we arrived
at a target downside of 1200.
How low can dividend yield (09) drop to? The 18% decline in
STI’s DPS in 2009 led to lower dividend yield of 5.6%(08),
declining to 4.5% in 2009(F) based on payout ratio of 47% -
fairly similar to 2008’s payout ratio of 48%. Previous down
cycles saw payouts lowering to 30% to 35% in initial
recovery years, which will translate into dividend yield of
3.4% - back to crisis low levels of 3 to 3.5% in previous
cycles. The recent selldown on dividend payout concerns
could have been discounted by the market.
Dividend Payout vs Yield
Forward PE
26.0
24.0
22.0
20.0
18.0
16.0
14.0
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 RATIO
Source: Datastream, DBS
P/BV
2.60
2.40
2.20
2.00
1.80
1.60
1.40
1.20
1.00
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
6.0%
5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
0.80
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: Datastream, DBS
0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
1.0%
Div Payout Ratio (LHS)
Div Yld (RHS)
Source: Bloomberg, DBS Vickers
Page 42

Regional Equity Strategy 2Q 2009
Country Assessment
OUTLOOK
STI and GDP Y-o-Y Growth
Singapore enters its worst recession in history. With
Singapore entering into its worst recession this year,
uncertainties loom. The plunge in exports will hurt
Singapore’s manufacturing and logistics sector. January’s
NODX tumbled 35%, worse than the 21 % fall in Dec 2008.
Industrial production slumped 29.1% last month following
the 12.8% slide in December 2008. The figure was the worst
since the data series began in 1984, exceeding the previous
record low of 22.3% contraction in September 2001. Over
the past six months, DBS economist cut Singapore’s GDP
growth for 2009 from +4.6% to –4.8% as of last month.
Exports and manufacturing are expected to return back to
positive growth only by end 2009, on the premise of a
pickup in global demand.
STI
4000
3500
3000
2500
2000
1500
1000
SARS
Asian Financial Crisis
500
Internet bubble & Sept 11
0
Dec-95
Jun-96
Dec-96
Jun-97
Dec-97
Jun-98
Dec-98
Jun-99
Dec-99
Jun-00
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Source: Bloomberg, DBS Vickers
GDP (%) STI
Dec-04
Jun-05
Dec-05
1Q09 forecast: -7.8%
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
15
10
5
0
-5
-10
GDP (%)
Worst recession in Singapore's history
% YoY
15
10
GDP growth
Catalysts for a bear market rally
Equity risk premium vs STI
7
5,000
5
6
4,500
0
Mfg recession,
Financial Crisis,
-5
1985/86
1998/99
1964 recession Dot.com bust, 2001
Current downturn
-10
1961 1967 1973 1979 1985 1991 1997 2003 2009
(%)
5
4
3
2
1
0
4,000
3,500
3,000
2,500
2,000
1,500
STI
Volatile market – difficult to catch the bottom
The selldown in the past quarter has led to valuations
overshooting on the downside. We expect the market will
remain volatile with the murky operating environment and
external risks from the U.S and stick to our trading range of
1200 (bear case) and 2150 (base case).
Market bottoms when GDP bottoms – 2Q09 is the inflexion
point. Based on DBS Economist’s forecasts, Singapore’s GDP
will hit two more extreme negative quarters – the weakest
quarter is in -7.8%(1Q09), –6.9% (2Q09) and in –5.2% in
3Q09. The chart below indicates that the market plunges
before GDP turns down and struggles to find a bottom when
GDP bottoms. We think 2Q09 holds a key inflexion point for
a market bottom.
-1
1,000
12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09
Source: JCF, DBS Vickers
Risk Premium
Early signs of economy bottoming out could lead to
normalizing of equity risk premium
Sentiment seems to be improving over the last two weeks.
Bad news is well absorbed by the market as the market
searches for signs of stability in the financial market on the
back of concerted efforts by governments and central
governments. Initial signs of the economy bottoming out in
US and Singapore will raise investors’ risk appetite. Equity
risk premium(ERP) for the Singapore market was close to its
peak last quarter, currently hovering at 5.5%. A normalizing
of ERP closer to 3% could trigger the long awaited bear
market rally, even as we wait for confirmations of an
eventual recovery in the economy.
STI
Page 43

Regional Equity Strategy 2Q 2009
Country Assessment
Singapore as SE Asia’s Most Open Economy – could be
among the first to rebound. Being the most open economy
in SE Asia, Singapore stands to benefit from a recovery in
consumer and business sentiment in the US. We believe
that improvements in data points on the US economy could
spur an outperformance for the STI vs the region, as
Singapore companies expect positive follow-through from
the improving outlook for the US economy.
Smaller decline in Singapore Manufacturing Output in
February An Early Indicator of bottoming out on the export
front? Manufacturing output in Singapore fell 22.4% in
February year on-year, due to declining global demand for
pharmaceutical and electronics products. However, this
follows a 29.1% slump in January, and is also a marginally
better result than the 23% expected by consensus. In other
words, the yoy decline has improved and the manufacturing
sector is outperforming (albeit very slightly) consensus
expectations. This gels with the data points coming in from
the US, given the extent of Singapore’s manufacturing sector
to global demand. This could be an early indicator that
manufacturing output could have already seen the darkest
day and further improvement in data points will be another
catalyst for equities as economic confidence improves.
Potential earnings upgrades for Singapore shipyards.
Earnings for Spore Shipyards could be upgraded in the event
order cancellations do not materialize over the next 3 months
as we see credit crunch easing for the oil/gas sector. The
recovery in oil price could add confidence to oil majors to
place new orders, for production platforms. In addition,
Singapore yards are looking to take over uncompleted
contracts at overseas yards which are in financial difficulties.
This could form the base for 2009’s new orders. We are
assuming that SembCorp Marine and Keppel Corp will
secure S$3bn each in the 2H09.
Oil Price
Downside Risks for the market
On the corporate front, key risks which could trigger
downside to the market are : 1) cash calls, 2) cuts in dividend
payouts and yields 3)earnings risks and 4)external risks. With
the recent rise in market, corporations looking to recapitalise
its balance sheets will be tempted to take the opportunity to
beef up its capital base. An example is Raffles Education,
which dished out a private placement of 80m new shares at
0.381cts, raising S$30m for the company.
Sucking out liquidity via cash calls. Over the past quarter, the
amount of liquidity sucked from the system via cash calls in
Singapore totaled S$7.9bn. We expect further
recapitalisation and refinancing exercises to put added
pressure on equity markets. The property and REITS sectors,
shipping companies, business trusts are the most vulnerable
due to the impact of asset devaluation hitting its balance
sheets. As it is, net gearing ratios of property and Reits
sectors are the highest at 45% and 58% respectively, which
could rise in the event of sharp impairment and revaluation
losses on assets.
Other sectors which may require funding are oil and gas
companies, including owners of offshore vessels (Jaya and
Swiber) as well as shipyards in the event of defaults in
payments or request for balloon payments instead of
progressive payments. As a result, net gearing in the
industrial sector is rising from 2% to 16% next year, given
that we expect a drastic drop in deposit payments coupled
with slower progressive payments from clients. We provide a
list of stocks which may require refinancing or recapitalisation
in the near future.
We expect an 18% cut in STI’s DPS in 2009, based on a
payout ratio of 47%, fairly similar to 2008’s 48%. This will
yield a lower yield of 4.5% in 2009, compared with 5.6% in
2008.
160
Methanol prices (USD / Ton)
140
120
100
80
60
40
20
0
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Source: Bloomberg
Page 44

Regional Equity Strategy 2Q 2009
Country Assessment
Stocks which may require refinancing/recapitalisation
Price/ Net
Mkt Price BV Debt/
Company Cap (S$) (x) Equity
(S$m) 19-Mar Rcmd 09F 08 (x)
We expect the banking sector to be pressured by writedowns
and provisioning arising from asset devaluation and
corp bankruptcy. Our numbers assume NPLs at 2.4-2.7%
compared to 8% in 1998, while average provision levels are
at 74basis pts, vs avg of 233 pts in 1998.
INDUSTRIALS
China XLX 285 0.29 Fully Valued 0.8x 0.32
Mercator Lines 156 0.13 Fully Valued 0.3x 0.48
SembCorp Industries 3,696 2.07 Hold 1.3x cash
STX Pan Ocean 1,908 9.27 Fully Valued 0.6x 0.05
Tat Hong 303 0.61 Fully Valued 0.7x 0.16
Environmental
Asia Environment 49 0.12 Hold 0.3x 0.25
Hyflux 756 1.44 Buy 2.1x 0.54
Oil and gas
Jaya Hldgs 162 0.21 Fully Valued 0.4x 0.41
Swiber Hldgs 134 0.32 Sell 0.4x 0.73
Banks NPL ratios
%
14.0
12.0
10.0
8.0
6.0
4.0
2.0
-
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
DBS UOB OCBC
FY07
FY08
FY09
FY10
Property
Guocoland 905 1.02 Fully Valued 0.5x 1.12
Ho Bee 229 0.31 Fully Valued 0.2x 1.23
Keppel Land 894 1.24 Hold 0.3x 0.52
SC Global 137 0.35 Fully Valued 0.3x 2.84
Reits
CapitaCommercial Trust 1,050 0.75 Hold 0.3x 0.37
CapitaRetail China Trust 409 0.66 Hold 0.5x 0.33
Frasers Commercial Trust 103 0.14 Hold 0.1x 0.56
Suntec REIT 829 0.53 Hold 0.2x 0.35
Source: DBS Vickers
Risks to earnings : rise in oil price, asset devaluation, quality
of loan books
The next reporting season which kicked off from April to mid
May will pose challenges for the market. With companies
operating in a tough environment in 1Q09, further earnings
downgrade is possible. Downside is likely to come from
banks, on rise in non-performing loans once the ill effects of
the recession and plunge in exports work into the real
economy, especially the manufacturing sector.
Source: DBS Vickers
Banks Provision charge-off rates
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
FY97
Average:
2.33%
FY98
FY99
Source: DBS Vickers
FY00
Average:
0.91%
FY01
FY02
Property stocks will be affected by further asset writedowns.
Rise in oil price raises risks to earnings of transport
companies. SIA is suffering from weak load factor. In Feb
2009, load factor plunged below 70% vs our assumption of
75%. The rise in oil price to US$53/bbl, if it continues above
US$60/bbl, will lead to downgrades, including land transport
companies SMRT and Comfort Delgro.
FY03
FY04
FY05
FY06
DBS UOB OCBC
FY07
FY08
FY09
FY10
Page 45

Regional Equity Strategy 2Q 2009
Country Assessment
STRATEGY
Accumulate early cyclicals trading on low cycle PE
Cyclicals have been sold down in the previous quarter and
offer value buys compared to defensive stocks, which are
trading at a premium to the market. With the possibility of a
lowering of equity risk premium, we recommend investors
accumulate early cyclicals trading on low cycle PE and beta
plays.
Upgraded early cyclicals – oil and gas to overweight,
Technology, Real estate, and Commodity plays to Neutral.
We have upgraded Oil and Gas to Overweight, on the back
of the rebound in oil prices to US$53/bbl, and potential
earnings upgrades as the prospect of order cancellations
reduces in line with easier credit. We have also upgraded
commodity plays, Real Estate and technology sectors to
Neutral on valuation grounds. We cut Telecoms from Neutral
to Underweight as we are bearish on Singtel due to potential
weakness in earnings from Bharti(India) and currency
volatility, and the threat of a cut in dividend payout.
Our stock picks this quarter are mainly cyclicals trading on
low cycle PE or stocks trading on bombed out valuation. The
list of stocks are sorted by beta.
Our large cap stock picks are :
SembCorp Marine (BUY, TP $1.88) which will ride on the
rebound in oil prices, has the highest beta and with potential
for earnings upgrade with reduced risks of order
cancellations due to credit crunch easing for oil and gas
sector. Stock is trading on historical low PE (lower than
regional crisis) and with an attractive dividend yield of
6.3%.
OCBC(BUY, TP $5.70) which has the highest Tier 1 capital in
Singapore and the region, and trading on bombed out
valuations after the recent selldown with attractive dividend
yield.
City Developments (BUY, TP $5.68) trading on trough
valuations and is the best Singapore Property proxy, backed
by a strong balance sheet and minimal downside to book
value.
SPH (BUY, TP $2.93) is trading at its lowest price to book of
1.8x over the past 20 years. It is a beneficiary of
government’s job credits dished out in recent budget and its
strong balance sheet, monopoly position will ride it through
this crisis. Dividend yield is attractive at >8% despite a
reduced dividend payout assumption of 74%.
Venture Manufacturing (BUY, TP $6.00) – An early cyclical
play with proven track record, this stock is well managed and
has a strong balance sheet to ride it through this down cycle.
Stock offers low cycle PE and attractive dividend yield of
11%.
Ascendas REIT (BUY, TP $1.51). Its balance sheet has been
strengthened with the recent placement, the stock offers
stability with 43% of its income locked in Long term lease.
Page 46

Regional Equity Strategy 2Q 2009
Country Assessment
Stock picks
Price/
Net
Mkt Price Target BV Debt/
Cap (S$) Price % EPS Gth (%) PE (x) (x) Div Yld (%) Equity
Company (S$m) 19-Mar (S$) Upside Rcmd 09F 10F 09F 10F 09F 08A 09F 08E (x) Beta
Large Cap (mkt cap >S$1bn)
SembCorp Marine 3,086 1.49 1.88 26% Buy -3% 11% 6.7x 6.0x 1.9x 6.3% 5.2% cash 1.51
City Development 4,556 5.01 5.68 13% Buy -2% 8% 8.3x 7.7x 0.8x 1.5% 1.0% 0.62 1.16
Venture Corporation 1,294 4.72 6.00 27% Buy 10% 6% 7.1x 6.7x 0.7x 10.6% 10.6% cash 1.13
Ascendas REIT 1,930 1.15 1.51 31% Buy 8% -14% 8.1x 9.4x 0.6x 0.0% 13.0% 38.3% 1.10
Wheelock Properties 1,077 0.90 1.24 38% Buy -29% 68% 7.2x 4.3x 0.5x 6.7% 9.8% cash 0.96
OCBC Bank 14,163 4.53 5.70 26% Buy -8% 11% 10.2x 9.2x 0.9x 6.2% 4.5% cash 0.90
SIA Engineering 1,725 1.60 2.10 31% Buy -5% -16% 7.1x 8.5x 1.5x 12.5% 11.9% cash 0.64
SPH 3,964 2.49 2.93 18% Buy -8% -8% 9.2x 10.1x 1.9x 11.0% 8.0% cash 0.54
Mid/Small Cap (mkt cap

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Banks & Finance
Neutral
Consumer Goods
Neutral
Some positive signs expected to emerge in 2Q09. We remain neutral on Singapore
banks although with a positive bias. While outlook for 2009 remains murky for
banks, from our visits with the banks recently, we gather signals that things are not
too bad. Positively, with banks incorporating risk into lending yields, as such, we
expect NIMs to hold up if not improve y-o-y. We also believe government measures
initiated would lend support to loan growth. However, we do expect asset quality
to deteriorate into 2009. We have forecasted NPL ratio ranging from 2.4-2.7% for
2009 and looking at higher provision charge-off rates averaging 74bps for 2009.
We believe NPLs would arise more from the corporate-SME segment rather than
consumers. We still do not think NPL ratios and charge-off rates will balloon up to
the levels attained during the Asian crisis, although possibly near the SARS period.
Banks are on a much stronger footing today coupled with more prudent risk
management practices. In addition, we believe corporates are also operating on
much lower gearing ratios and healthier interest cover ratios compared to the crisis
period. Our preferred pick for OCBC (Buy, TP S$5.70) remains as we favour OCBC's
strong Tier-1 CAR at 14.9%, sustainable absolute dividends and minimal risk for
equity call. Key risk to our call for sector would be a protracted global recession,
which could potentially see banks testing lower BV multiples experienced during the
Asian crisis.
We recently raised our 09F, 10F, and 11F CPO prices by 25%, 17% and 12% to
RM1,900, RM2,000 and RM2,200, respectively due to the effects of drought in
South America. However, most plantation stocks have more than priced this in and
we see downside potential in the near term, as CPO production volume rebounds
and exports slow down. When that happens, we recommend investors to pick up on
dips. Our top picks are Indofood Agri and First Resources, which are trading below
peer’s historical low-cycle PE, despite sound fundamentals. We see near term
correction for Wilmar on account of recent bull-run, higher soybean production
outlook, flat edible oil demand and Chinese government’s reserve build up.
For downstream consumer goods, we maintain our view that consumer discretionary
spending will likely contract with negative/slowing GDP growth. In terms of
consumer staples, whilst we believe demand for consumer staples will continue to
remain resilient especially in the PRC, the recent spate of negative developments for
s-chips will depress investor sentiment for the such counters. Recent developments
for S-chips relates to accounting irregularities (Fibrechem), fraud (Oriental Century),
pledging of shares by owner/major shareholder (Sino-Environment, Beauty China),
high capex spent in the face of upcoming CB cash call (Celestial NutriFoods) and
absent of dividends despite high cash level (China Hongxing).
OCBC
Indofood Agri, First
Resources
Page 48

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Consumer Services
Overweight
Industrials
Underweight
Oil & Gas
Overweight
We maintain our overweight recommendation on Consumer services. Our top pick
for this sector is SPH which we believe has priced in the weak economic outlook,
falling ad revenues and mitigated by recently announced wage cuts. Counter is
trading at an attractive 1.9x P/B. The last time it was this low was in 1998 at 1.95x
P/B. For transport providers, we expect public transport ridership to remain firm in
the downturn, albeit to retreat from ridership growth of >10% in 2008. While both
(SMRT and ComfortDelGro) are trading at relatively high valuations, we prefer
ComfortDelGro given its proven track record in the international arena. For SIA,
given the steep fall in load factors in Feb by 7.1ppt to 69.7%, we believe investors
are likely to remain cautious on SIA until they can see signs of improvement in
carriage and esp. load factors.
The Industrials sector is expected to be dragged down by weakness in Chinese
shipyards and dry bulk shipping. The dry bulk shipping will be affected by
weakening freight rates, due to: 1) A more inverted freight futures curve now (vs.
early 2009), 2) An unhealthy accumulation of iron ore inventory in China back to
early December 2008 level, and 3) Drop in steel output in China. The expected fall
in freight rates reinforce our view that the orders cancellation for Chinese shipyards
would correspondingly pick up momentum in 2Q09, vs. delivery delay news that
dominate the shipbuilding industry since 4Q08. As such, our picks for this sector is
SembCorp Marine [BUY, S$1.88], a world class rig builder, and Hyflux [BUY,
S$1.96], an integrated water and liquid treatment company specializing in
membrane technologies.
We remain contrarian with a POSITIVE rating on the Oil and Gas Sector. This is
backed by the strong 2009 capex commitment to-date by oil majors (-1%) and
national oil companies (+30%). We expect the overall AHTS to offshore drilling rig
ratio to be at higher end of the 2.3-2.6x in the 2004-08 boom periods, as reflected
in our scenario analyses for various water depths. These ratios may improve, given
our view that the probability of cancellations for AHTS would pick up momentum
by 4Q09, while the cancellation risk for offshore drilling rigs will drop after mid-
2009. We also expect the worst of oil demand destruction to be behind us, as oil
prices find support from a possible 1.2%-2.2% supply deficit as a percentage of
estimated demand for 2009. Our top pick in this sector is Ezra Holding [BUY,
S$1.19].
SPH
SembCorp Marine, Hyflux,
SIA Engg
Ezra Holding
Page 49

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Property
Neutral
Reits
Neutral
Technology
Neutral
Telecom
Underweight
We are upgrading our call on developers to Neutral. The sector continued to
underperform in 1Q09, reflecting our earlier cautious call, as a result of weaker
FY08 earnings and the commencement of asset writedowns. On a qoq basis, lower
valuations in 1Q09 relative to 4Q08 means even more bad news has now been
priced in. Sentiment in the physical market should continue to be affected by
negative macro newsflow like employment and economic data. On the equities
market though, we believe that developers may start to perform in line with the
market even though positive catalysts within the physical market will continue to be
lacking. In addition, rotational interest into beta plays could benefit the real estate
developers. In terms of stock selection, we had devised a balance sheet scorecard
(see sector report on 19 Mar 09) as we believe that balance sheet strength will be
the armour that will shield developers through this downcycle. Based on this, any
accumulation of property beta plays should continue to be focused on companies
with a strong balance sheet (like City Dev, Wheelock, Wing Tai), as we look forward
past the impending bottom to identify the survivors for the medium-term. Highlygeared
companies like SC Global, Ho Bee and Guocoland scored poorly on our
scorecard and should still be avoided for now.
We maintain our NEUTRAL stance on the S-reits sector. S-reits are currently trading
at an average 0.4 x P/BV and offering a yield of 15%, which in our view, is pricing
in a certain degree of recapitalization prospects in the face of an asset deflation
environment. These issues is likely to continue being the key overriding concerns to
share price performance for the sector in the immediate term. Catalyst and data
points to look out for in a re-rating, will likely hinge through S-reits addressing
these capital costs issues and the loosening of the current tight credit environment.
Our choice in the sector remains the S-reits with stronger balance sheet with little
short term refinancing and recapitalization requirements. We recommend A-REIT,
Frasers Centerpoint Trust and Parkway Life Reit.
We have upgraded our Tech sector view to Neutral from underweight as we noted
tentative signs that demand decline is easing, if not stabilizing. Our checks with
companies indicated some incremental orders bouncing off January lows, which we
believe was a result of restocking following sharp inventory correction in Nov/Dec
but not a real pick up in end demand yet. In fact, companies continue to see
challenging outlook for the rest of 2009 in general. Notwithstanding, we believe
the volume improvement sequentially, although still negative YoY, would boost
sentiment in the near term. However, we will stick to Venture and Hi-P, which we
think have dominant market positions to survive and emerge stronger from the
downturn, backed by strong cashflows, a flexible cost structure and a healthy
balance sheet.
Resilient earnings of the telecom sector are already reflected in valuations in our
view. The sector trades at 12.2x FY09 PER and 11.9x FY10 PER compared to
broader market at 10.6x and 9.9x respectively. Potential dividend yield of the sector
is 5.4% for FY09 compared to broader market’s 4.5%. We downgrade the sector
from neutral to underweight due to our bearish view on SingTel, as market could
be potentially disappointed with the performance of its Indian associate Bharti in
upcoming set of results, due to irrational competition in India. We prefer StarHub to
M1 on valuation grounds and sustainable 9% yield, payable on quarterly basis. in
our view, StarHub deserves at least 20% premium over M1 in terms of PER and
EV/EBITDA to reflect its better track record and fundamentals.
City Devt, Wheelock
A-REIT, Frasers Centerpoint
Trust and Parkway Life Reit
Venture, Hi-P
Starhub
Page 50

Regional Equity Strategy 2Q 2009
Country Assessment
This page has been left blank intentionally
Page 51

Regional Equity Strategy 2Q 2009
Ascendas REIT
Bloomberg: AREIT SP | Reuters: AEMN.SI
BUY S$1.15 STI : 1,584.86
Price Target: 12-Month S$ 1.51
Potential Catalyst: Improving Singapore economic data
Analyst
Derek Tan +65 6398 7966
derektan@dbsvickers.com
Sitting steady
Ascendas REIT (A-REIT) sits pretty well amongst its S-reit
peers post raising S$408m through a private placement
and preferential offering in the beginning of FY09. With
improved financial flexibility and a strengthened balance
sheet, we believe that A-REIT stands relatively clear of
any potential re-financing/ re-capitalization concerns
currently overhanging the S-reit sector. Maintain BUY,
TP S$1.51.
Price Relative
S$
3.50
3.00
2.50
2.00
Relative Index
204
184
164
144
124
Improved financial metrics. Gearing ratio improved to
33% currently (increasing to c37% with inclusion of its
development properties), which is one of the lowest
amongst the S-reits peers, with little major short-term
re-financing requirements. Interest cover should remain
healthy at c 4.2x over the next 2 financial years.
1.50
1.00
2005 2006 2007 2008 2009
Ascendas REIT (LHS) R e la tive ST I IN D E X (R H S)
Forecasts and Valuation
FY Mar (S$ m) 2008A 2009F 2010F 2011F
Gross Revenue 322 378 382 389
Net Property Inc 243 286 289 294
Total Return 669 197 192 192
Distribution Inc 187 212 206 208
EPU (S cts) 13.2 14.2 12.2 11.2
EPU Gth (%) 15 8 (14) (8)
DPU (S cts) 14.1 15.0 12.1 12.2
DPU Gth (%) 11 6 (19) 1
NAV per shr (S cts) 184.3 165.7 164.9 162.7
PE (X) 8.7 8.1 9.4 10.2
Distribution Yield (%) 12.3 13.0 10.5 10.6
P/NAV (x) 0.6 0.7 0.7 0.7
Aggregate Leverage (%) 38.3 37.9 37.2 37.7
ROAE (%) 7.9 7.5 6.8 6.9
104
84
64
43% of income secured on LT basis. AREIT’s income
stream is estimated to remain relatively stable, in the
coming two financial years as 43% of it is locked in on a
long-term basis (from its sale and lease back (SLB)
properties). Our forward FY10-11F DPU estimates of
12.1 –12.2 Scts reflect a 10-20% drop in rents coupled
with a 15% drop in occupancy for its multi-tenanted
(MTB) buildings.
Stable DPU 10.5% yield. We remain confident of A-
REIT’s ability to maintain a FY10-11F DPU yield of
10.5% through the current recession. Potential softness
in operational performance should be offset somewhat
from the progressive addition of its development
properties worth S$233.6m. Maintain BUY with a TP of
S$1.51 based on DCF.
Distn. Inc Chng (%): - - -
Consensus DPU (S cts): 14.9 13.4 13.3
ICB Industry : Financials
ICB Sector: Real Estate Investment Trust
Principal Business: AREIT's portfolio focussed on business space and
industrial properties.
At A Glance
Issued Capital (m shrs) 1,679
Mkt. Cap (S$m/US$m) 1,930 / 1,277
Major Shareholders
Ascendas Pte Ltd (%) 21.5
Fidelity Management (%) 5.2
Free Float (%) 73.3
Avg. Daily Vol.(‘000) 5,916
Page 52
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: YM / sa: JC

Regional Equity Strategy 2Q 2009
Ascendas REIT
Statement of Total Return (S$ m) Balance Sheet (S$ m)
FY Mar 2008A 2009F 2010F 2011F FY Mar 2008A 2009F 2010F 2011F
Gross revenue 322 378 382 389 Investment Properties 4,174 4,596 4,736 4,736
Property expenses (79) (92) (93) (95) Other LT Assets 6 15 24 33
Net Property Income 243 286 289 294 Cash & ST Invts 5 138 1 4
Other Operating expenses (28) (34) (38) (41) Inventory 0 0 0 0
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 14 16 17 17
Net Interest (Exp)/Inc (40) (55) (60) (61) Other Current Assets 6 6 6 6
Exceptional Gain/(Loss) 0 0 0 0 Total Assets 4,205 4,771 4,784 4,796
Net Income 175 197 192 192
Tax 0 0 0 0 ST Debt 236 366 391 416
Minority Interest 0 0 0 0 Other Current Liabilities 177 206 208 212
Preference Dividend 0 0 0 0 LT Debt 1,324 1,341 1,341 1,341
Net Income After Tax 175 197 192 192 Other LT Liabilities 30 30 30 30
Total Return 669 197 192 192 Unit holders’ funds 2,438 2,828 2,813 2,798
Non-tax deductible Items 12 15 15 16 Minority Interests 0 0 0 0
Net Inc available for Dist. 187 212 206 208 Total Funds & Liabilities 4,205 4,771 4,784 4,796
Revenue Gth (%) 13.9 17.4 1.1 1.6 Non-Cash Wkg. Capital (157) (184) (186) (189)
N Property Inc Gth (%) 15.8 17.5 1.1 1.6 Net Cash/(Debt) (1,554) (1,569) (1,731) (1,753)
Net Inc Gth (%) 17.9 12.4 (2.7) 0.4
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Mar 2008A 2009F 2010F 2011F FY Mar 2008A 2009F 2010F 2011F
Pre-Tax Income 175 197 192 192 Net Prop Inc Margins (%) 75.6 75.6 75.6 75.6
Dep. & Amort. 1 1 1 1 Net Income Margins (%) 54.3 52.0 50.1 49.5
Tax Paid 0 0 0 0 Dist to revenue (%) 58.1 56.0 53.9 53.6
Associates &JV Inc/(Loss) 0 0 0 0 Managers & Trustee’s fees 8.7 9.1 9.9 10.5
Chg in Wkg.Cap. (4) 27 2 3 to sales (%)
Other Operating CF 53 0 0 0 ROAE (%) 7.9 7.5 6.8 6.9
Net Operating CF 225 224 195 196 ROA (%) 4.7 4.4 4.0 4.0
Net Invt in Properties 0 (10) (10) (10) ROCE (%) 6.0 5.9 5.5 5.5
Other Invts (net) (249) (422) (141) 0 Int. Cover (x) 5.3 4.6 4.2 4.2
Invts in Assoc. & JV 0 0 0 0 Current Ratio (x) 0.1 0.3 0.0 0.0
Div from Assoc. & JVs 0 0 0 0 Quick ratio (x) 0.0 0.3 0.0 0.0
Other Investing CF (129) 0 0 0 Aggregate Leverage (%) 38.3 37.9 37.2 37.7
Net Investing CF (378) (432) (151) (10) Z-Score (X) NA 1.0 1.0 1.0
Distribution Paid (181) (212) (206) (208) Operating CFPS (S cts) 17.3 14.3 12.2 11.3
Chg in Gross Debt 334 147 25 25 Free CFPS (S cts) 17.0 15.5 11.7 10.9
New units issued 0 405 0 0
Other Financing CF 0 0 0 0
Net Financing CF 154 340 (181) (183)
Net Cashflow 1 132 (137) 3
Quarterly / Interim Income Statement (S$ m)
P/BV
FY Mar 4Q2008 1Q2009 2Q2009 3Q2009 (x)
Gross revenue 84 93 97 102
Property expenses (21) (23) (25) (28) 1.90
Net Property Income 64 70 73 74
Other Operating expenses
Net Interest (Exp)/Inc
(14)
(8)
(7)
(13)
(7)
(15)
(6)
(16)
Other Non Opg (Exp)/Inc
Exceptional Gain/(Loss)
0
0
0
0
0
0
0
0
1.60
1.30
Net Income 42 50 51 52
Tax 0 0 0 0 1.00
Minority Interest 0 0 0 0
Net Income after Tax 42 50 51 52 0.70
Total Return 536 50 51 52
Non-tax deductible Items 7 2 2 2 0.40
Net Inc available for Dist. 49 52 53 54
2005 2006 2007 2008
Revenue Gth (%) 5 10 5 5
N Property Inc Gth (%) 4 9 4 2
Net Inc Gth (%) (8) 18 3 2
Net Prop Inc Margin (%) 75.7 75.3 74.6 72.5
Dist. Payout Ratio (%) 100.0 100.0 100.0 200.0
Source: Company, DBS Vickers
Page 53

Regional Equity Strategy 2Q 2009
City Developments
Bloomberg: CIT SP | Reuters: CTDM.SI
BUY S$5.01 STI : 1,584.86
Price Target : 12-month S$ 5.68
Potential Catalyst: Pick-up in property market sentiment
Analyst
Adrian Chua +65 6398 7961
adrianchua@dbsvickers.com
Price Relative
19.70
17.70
15.70
13.70
11.70
9.70
7.70
5.70
3.70
S$
Relative Index
2005 2006 2007 2008 2009
City Developm ent (LHS) R ela tive STI IN D E X (R H S)
Forecasts and Valuation
FY Dec (S$ m) 2007A 2008A 2009F 2010F
Turnover 3,106 2,945 2,317 2,354
EBITDA 1,135 1,043 970 1,005
Pre-tax Profit 955 834 778 845
Net Profit 712 568 544 593
Net Pft (Pre Ex.) 686 560 544 593
EPS (S cts) 78.3 62.5 59.9 65.2
EPS Pre Ex. (S cts) 75.4 61.6 59.9 65.2
EPS Gth Pre Ex (%) 268 (18) (3) 9
Diluted EPS (S cts) 74.6 59.5 57.0 62.2
Net DPS (S cts) 28.2 7.5 4.8 5.2
BV Per Share (S cts) 571.7 597.1 649.5 709.9
PE (X) 6.4 8.0 8.4 7.7
PE Pre Ex. (X) 6.6 8.1 8.4 7.7
P/Cash Flow (X) 8.1 8.1 7.3 6.9
EV/EBITDA (X) 8.4 9.1 9.2 8.3
Net Div Yield (%) 5.6 1.5 1.0 1.0
P/Book Value (X) 0.9 0.8 0.8 0.7
Net Debt/Equity (X) 0.6 0.6 0.5 0.3
ROAE (%) 14.3 10.7 9.6 9.6
Earnings Rev (%): - -
Consensus EPS (S cts): 53.8 56.0
ICB Industry : Financials
ICB Sector: Real Estate
Principal Business: Principal activities are those of property
developer and owner and hotel owner and operator.
217
197
177
157
137
117
97
77
Singapore property proxy
City Dev is trading close to trough valuations of 0.64x
P/BV, and well below its long-term average of 2.1x P/BV.
Given its conservative accounting policy for valuation of
investment properties, downside to book value is limited.
Earnings resilience and a strong balance sheet make this
our top big-cap pick among the Singapore developers.
Largest Listed Landbank Owner in Singapore.
Among listed Singapore developers, City Dev has the
largest residential landbank in Singapore across a variety
of market segments, allowing it to take advantage of any
pick-up in market sentiment.
Trading Below Book. City Dev is also trading at 0.84x
P/BV. This is significantly below its long-term average of
2.1x P/BV, and close to its trough of 0.64x P/BV during
both the 1998 and 2003 downturns.
Limited Downside to Book Value. City Dev’s
traditionally conservative policy of accounting for its
investment portfolio at cost means writedowns on these
valuations are likely to be limited. A scenario analysis of a
potential writedown on its development landbank pegs
this at around 14 cents per share, or 2% of its current
book value.
Strong Balance Sheet. CDL’s balance sheet remains
healthy, with gearing at 0.5x, stronger than the 0.7x in
FY97 at the start of the Asian Financial Crisis downcycle.
Interest cover is at a robust 11x. If CDL adopted a
revaluation policy, gearing would be 0.3x. We continue
to like City Dev for its earnings resilience, balance sheet
strength and good management track record. Our TP of
S$5.68 is based on a 25% discount to its fair value
(RNAV) of S$7.58.
At A Glance
Issued Capital (m shrs) 909
Mkt. Cap (S$m/US$m) 4,556 / 3,013
Major Shareholders
Hong Leong Holdings (%) 16.4
Hong Leong Investment (%) 15.4
Aberdeen Asset Management 12.0
Free Float (%) 56.2
Avg. Daily Vol.(‘000) 3,148
Page 54
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: YM / sa: JC

Regional Equity Strategy 2Q 2009
City Developments
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Turnover 3,106 2,945 2,317 2,354 Net Fixed Assets 4,258 4,162 4,179 4,197
Cost of Goods Sold (1,478) (1,271) (735) (738) Invts in Associates & JVs 831 1,043 1,041 1,050
Gross Profit 1,628 1,674 1,582 1,616 Invt & Devt Properties 2,468 2,313 2,313 2,313
Other Opng (Exp)/Inc (890) (894) (792) (805) Other LT Assets 215 181 234 286
Operating Profit 738 780 790 812 Cash & ST Invts 779 796 1,443 2,110
Other Non Opg (Exp)/Inc (26) (8) 9 12 Dev Props held for sale 2,578 2,920 2,703 2,608
Associates & JV Inc 287 139 47 57 Inventory 15 11 6 7
Net Interest (Exp)/Inc (70) (85) (67) (36) Debtors 1,075 1,099 864 878
Exceptional Gain/(Loss) 26 8 0 0 Other Current Assets 0 0 0 0
Pre-tax Profit 955 834 778 845 Total Assets 12,219 12,524 12,783 13,448
Tax (65) (152) (124) (134)
Minority Interest (164) (101) (97) (105) ST Debt 796 860 860 860
Preference Dividend (13) (13) (13) (13) Other Current Liab 728 830 517 527
Net Profit 712 568 544 593 LT Debt 3,235 3,287 3,287 3,287
Net Profit before Except. 686 560 544 593 Other LT Liabilities 542 525 525 525
EBITDA 1,135 1,043 970 1,005 Shareholder’s Equity 5,199 5,430 5,906 6,455
Minority Interests 1,718 1,593 1,689 1,794
Sales Gth (%) 22.0 (5.2) (21.3) 1.6 Total Cap. & Liab. 12,219 12,524 12,783 13,448
EBITDA Gth (%) 43.1 (8.1) (7.0) 3.6
Opg Profit Gth (%) 45.4 5.6 1.3 2.8 Non-Cash Wkg. Capital 2,939 3,200 3,057 2,965
Net Profit Gth (%) 110.2 (20.2) (4.2) 9.0 Net Cash/(Debt) (3,253) (3,351) (2,704) (2,037)
Effective Tax Rate (%) 6.9 18.2 16.0 15.8
Cash Flow Statement (S$ m)
Rates & Ratio
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Pre-Tax Profit 955 834 778 845 Gross Margins (%) 52.4 56.8 68.3 68.7
Dep. & Amort. 136 132 124 124 Opg Profit Margin (%) 23.8 26.5 34.1 34.5
Tax Paid (98) (79) (167) (124) Net Profit Margin (%) 22.9 19.3 23.5 25.2
Assoc. & JV Inc/(loss) (287) (139) (47) (57) ROAE (%) 14.3 10.7 9.6 9.6
Chg in Wkg.Cap. (647) (312) 186 83 ROA (%) 6.1 4.6 4.3 4.5
Other Operating CF 202 12 0 0 ROCE (%) 6.3 5.5 5.5 5.4
Net Operating CF 260 448 875 870 Div Payout Ratio (%) 36.0 12.0 8.0 8.0
Capital Exp.(net) (496) (279) (142) (142) Net Interest Cover (x) 10.5 9.2 11.7 22.8
Other Invts.(net) (31) 19 (52) (52) Asset Turnover (x) 0.3 0.2 0.2 0.2
Invts in Assoc. & JV (183) (49) 0 0 Debtors Turn (avg days) 104.6 134.7 154.6 135.1
Div from Assoc & JV 67 67 48 48 Creditors Turn (avg days) 157.4 196.4 302.3 221.0
Other Investing CF 47 6 0 0 Current Ratio (x) 2.9 2.9 3.6 4.0
Net Investing CF (596) (237) (146) (146) Quick Ratio (x) 1.2 1.1 1.7 2.2
Div Paid (260) (236) (81) (56) Net Debt/Equity (X) 0.6 0.6 0.5 0.3
Chg in Gross Debt 725 158 0 0 Capex to Debt (%) 12.3 6.7 3.4 3.4
Capital Issues 0 0 0 0 Z-Score (X) 2.2 1.6 1.7 1.9
Other Financing CF (194) (69) 0 0 N. Cash/(Debt)PS (S cts) (357.7) (368.5) (297.4) (224.0)
Net Financing CF 271 (147) (81) (56) Opg CFPS (S cts) 99.8 83.6 75.7 86.6
Net Cashflow (65) 64 647 667 Free CFPS (S cts) (25.9) 18.5 80.6 80.1
Quarterly / Interim Income Statement (S$ m) RNAV Estimates (S$ m)
FY Dec 1Q2008 2Q2008 3Q2008 4Q2008
Turnover 759 781 688 718 Estimated Valuation of Investment Properties 4,123.6
Cost of Goods Sold (333) (338) (285) (315) Less: FY08 Book Value of Investment Properties (2,312.7)
Gross Profit 426 443 403 402 Surplus/(Deficit) (1) 1,811.0
Other Oper. (Exp)/Inc (233) (220) (240) (201)
Operating Profit 193 223 162 201 NPV Surplus of Development Properties (2) 1,732.0
Other Non Opg (Exp)/Inc 1 3 3 (15)
Associates & JV Inc 60 41 34 3 Market Valuation of listed subsidiaries 736.4
Net Interest (Exp)/Inc (17) (18) (27) (23) Less: Book Value (as of FY08) (2,481.3)
Exceptional Gain/(Loss) (4) (1) 48 (35) Surplus/(Deficit) (3) (1,745.0)
Pre-tax Profit 232 249 221 132
Tax (42) (47) (49) (14) Surplus from commercial projects (4) 218.4
Minority Interest (25) (37) (21) (17)
Net Profit 165 165 151 100 Book Shareholder's Equity (6) 5,429.7
Net profit bef Except. 169 166 103 135
EBITDA 287 301 232 222 Less: Outflow on preference share conversion (7) (211.8)
Sales Gth (%) (0.9) 2.9 (11.9) 4.3 RNAV (1+2+3+4+5+6+7) 7,234.4
EBITDA Gth (%) (8.8) 4.8 (22.9) (4.1) Fully Diluted Share base (m) 954.3
Opg Profit Gth (%) (18.0) 15.9 (27.3) 24.0
Net Profit Gth (%) (29.8) 0.1 (8.7) (33.7) RNAV per share ($) 7.58
Gross Margins (%) 56.1 56.8 58.5 56.0 Premium/(Discount) -25%
Opg Profit Margins (%) 25.4 28.6 23.6 28.1
Net Profit Margins (%) 21.7 21.2 21.9 13.9 Target Price (S$) 5.68
Source: Company, DBS Vickers
Page 55

Regional Equity Strategy 2Q 2009
OCBC
Bloomberg: OCBC SP | Reuters: OCBC.SI
BUY S$4.53 STI : 1,584.86
Price Target : 12-month S$ 5.70
Potential Catalyst: Upside from GEH contribution coupled with lower
than expected provisions
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
10.60
9.60
8.60
7.60
6.60
5.60
4.60
3.60
S$
2005 2006 2007 2008 2009
OCBC (LHS) Relative STI INDEX (RHS)
Forecasts and Valuation
Relative Index
FY Dec (S$ m) 2008A 2009F 2010F 2011F
Pre-prov. Profit 2,341 2,280 2,484 2,569
Net Profit 1,749 1,365 1,511 1,588
Net Pft (Pre Ex.) 1,486 1,365 1,511 1,588
EPS (S cts) 56.7 44.3 49.0 51.5
EPS Pre Ex. (S cts) 48.2 44.3 49.0 51.5
EPS Gth Pre Ex (%) (21) (8) 11 5
Diluted EPS (S cts) 56.7 44.3 49.0 51.5
PE Pre Ex. (X) 9.4 10.2 9.2 8.8
Net DPS (S cts) 27.9 20.4 22.6 23.7
Div Yield (%) 6.2 4.5 5.0 5.2
ROAE Pre Ex. (%) 10.3 9.5 10.0 10.0
ROAE (%) 12.2 9.5 10.0 10.0
ROA (%) 1.1 0.8 0.8 0.8
BV Per Share (S cts) 453 477 504 532
P/Book Value (x) 1.0 0.9 0.9 0.9
219
199
179
159
139
119
99
79
Sing-Malay bank proxy
We like OCBC for its relatively robust core banking
profit (ex-GEH) and higher capitalisation position relative
to peers. OCBC also provides a good exposure to both
the Singapore and Malaysia banking sector. Any upside
in GEH’s contribution could be another re-rating catalyst
for OCBC. Maintain BUY, TP at S$5.70.
Core banking operating parameters relatively
resilient. Excluding Great Eastern Holdings’ (“GEH”)
contribution to earnings, OCBC’s core banking revenues
are expected to remain relatively resilient. Close to 70%
of its revenue is expected to be derived from net interest
income. We expect GEH to contribute only 8.5% of
total revenue. Key drag to earnings would be provisions
as the credit cycle deteriorates.
Stressed asset quality assumptions. We have
imputed higher asset quality indicators in our
assumptions with NPL ratios inching up to 2.4% in 2009
from 2% in 2008. We have also assumed a higher
provision charge-off rate of 57bps in 2009 from 43bps
in 2008 (ex CDO provisions, provision charge-off rate
was approximately only 23bps). On a worst case, we
project NPL ratios to inch up to 3.8%. Based on our
sensitivity analysis, for every 1ppt increase in NPL ratio,
OCBC’s earnings would decline by 6.3%.
Still our preference for banks. Our BUY call for
OCBC is maintained with TP at S$5.70. Supporting our
call is OCBC’s dividends which we believe would be
sustainable at 28cents per year. OCBC’s Tier-1 CAR is by
far the highest compared to its peers. Aside from its
core banking business exposure in Singapore and
Malaysia which remains robust, key upside to our
numbers would be better than expected contribution
from GEH.
Earnings Rev (%): - - -
Consensus EPS (S cts): 39.5 46.1 53.1
ICB Industry : Financials
ICB Sector: Banks
Principal Business: OCBC is the largest financial institution in the
combined Singapore-Malaysia market, in terms of assets S$137
billion.
At A Glance
Issued Capital (m shrs) 3,127
Mkt. Cap (S$m/US$m) 14,163 / 9,369
Major Shareholders
Selat Pte Ltd (%) 11.2
Aberdeen Asset Management 5.0
Free Float (%) 83.9
Avg. Daily Vol.(‘000) 7,628
Page 56
“In Singapore, this research report or research analyses may only be distributed to
Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities
and Futures Act, Chapter 289 of Singapore.”
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: YM / sa: JC

Regional Equity Strategy 2Q 2009
OCBC
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 2,783 2,900 3,199 3,363 Cash/Bank Balance 7,028 7,978 8,456 8,964
Non-Interest Income 1,458 1,428 1,494 1,588 Government Securities 13,992 16,517 19,497 23,014
Operating Income 4,241 4,329 4,693 4,951 Inter Bank Assets 15,353 15,219 16,139 17,137
Operating Expenses (1,900) (2,048) (2,209) (2,382) Total Net Loans & Advs. 79,808 84,550 89,663 95,207
Pre-provision Profit 2,341 2,280 2,484 2,569 Investment 10,174 12,682 13,449 14,281
Provisions (447) (484) (499) (485) Associates 132 138 144 150
Associates 6 6 6 6 Fixed Assets 2,391 2,355 2,355 2,355
Exceptionals 263 0 0 0 Goodwill 3,376 3,334 3,334 3,334
Pre-tax Profit 2,163 1,803 1,991 2,090 Other Assets 204,204 222,051 234,617 248,517
Taxation (264) (306) (339) (355) Life Ass Fund Inv Assets 38,877 38,877 38,877
Minority Interests (111) (93) (102) (107) Total Assets 181,385 194,332 205,363 217,600
Preference Dividend (39) (39) (39) (39) Customer Deposits 94,078 99,723 105,706 112,048
Net Profit 1,749 1,365 1,511 1,588 Inter Bank Deposits 10,113 13,948 17,126 21,040
Net Profit bef Except 1,486 1,365 1,511 1,588 Debts/Borrowings 6,010 6,010 6,010 6,010
Others 181,723 196,478 207,544 219,830
Minorities 2,686 2,779 2,881 2,988
Shareholders' Funds 4,582 4,674 4,777 4,884
Life Ass Fund Liabs 39,736 39,736 39,736
Total Liab& S/H’s Funds 181,385 194,332 205,363 217,600
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 4.29 4.04 4.11 4.11 Loan-to-Deposit Ratio 86.5 86.7 86.9 87.2
Avg Cost Of Funds 2.18 2.14 2.16 2.21 Net Loans / Total Assets 44.0 43.5 43.7 43.8
Spread 2.11 1.90 1.96 1.90 Investment / Total Assets 5.6 6.5 6.5 6.6
Net Interest Margin 2.27 2.20 2.25 2.20 Cust . Dep./Int. Bear. Liab. 85.4 83.3 82.0 80.6
Cost-to-Income Ratio 44.8 47.3 47.1 48.1 Interbank Dep / Int. Bear. 9.2 11.7 13.3 15.1
Employees ( Year End) 20,402 22,442 24,687 27,155 Asset Quality
Effective Tax Rate 12.2 17.0 17.0 17.0 NPL / Total Gross Loans 1.7 2.4 2.6 2.3
Business Mix NPL / Total Assets 0.7 1.1 1.2 1.0
Net Int. Inc / Opg Inc. 65.6 67.0 68.2 67.9 Capital Strength
Non-Int. Inc / Opg inc. 34.4 33.0 31.8 32.1 Total CAR 15.2 15.2 15.5 15.6
Fee Inc / Opg Income 18.3 18.5 18.1 18.2 Tier-1 CAR 14.9 14.7 14.7 14.6
Oth Non-Int Inc/Opg Inc 16.1 14.5 13.7 13.8 Growth
Profitability Total Net Loans 12 6 6 6
ROAE Pre Ex. 10.3 9.5 10.0 10.0 Customer Deposits 6 6 6 6
ROAE 12.2 9.5 10.0 10.0
ROA Pre Ex. 0.9 0.8 0.8 0.8
ROA 1.1 0.8 0.8 0.8
Quarterly / Interim Income Statement (S$m)
Segmental Breakdown
FY Dec 1Q2008 2Q2008 3Q2008 4Q2008
Net Interest Income 639 678 684 783
Non-Interest Income 377 361 462 259
Operating Income 1,016 1,039 1,146 1,042
Operating Expenses (438) (485) (504) (475)
Pre-Provision Profit 578 554 642 567
Provisions 8 (55) (156) (243)
Associates 2 3 5 (3)
Exceptionals 165 44 0 (51)
Pretax Profit 753 546 491 270
Taxation (111) (115) (81) 20
Minority Interests (20) (6) (8) (40)
Net Profit 622 425 402 250
(S$)
12.00
10.00
8.00
6.00
4.00
2.00
0.00
97
98
99
00
01
02
03
04
05
06
07
08
09
PBV 2.0x
PBV 1.7x
PBV 1.3x
PBV 0.9x
PBV 0.5x
Source: Company, DBS Vickers
Page 57

Regional Equity Strategy 2Q 2009
SembCorp Marine
Bloomberg: SMM SP | Reuters: SCMN.SI
BUY S$1.49 STI : 1,584.86
Price Target : 12-month S$ 1.88
Potential Catalyst: Easing of credit crunch
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$
2005 2006 2007 2008 2009
Sem bCorp M arine (LHS) Relative STI INDEX (RHS)
Forecasts and Valuation
R elative In d ex
FY Dec (S$ m) 2007A 2008A 2009F 2010F
Turnover 4,513 5,064 5,159 5,454
EBITDA 497 634 615 677
Pre-tax Profit 365 545 567 628
Net Profit 241 430 462 513
Net Pft (Pre Ex.) 321 474 462 513
EPS (S cts) 11.7 20.8 22.3 24.8
EPS Pre Ex. (S cts) 15.6 22.9 22.3 24.8
EPS Gth Pre Ex (%) 51 47 (3) 11
Diluted EPS (S cts) 11.5 20.4 21.9 24.4
Net DPS (S cts) 8.7 9.3 7.8 8.7
BV Per Share (S cts) 81.1 63.6 76.6 93.6
PE (X) 12.7 7.2 6.7 6.0
PE Pre Ex. (X) 9.5 6.5 6.7 6.0
P/Cash Flow (X) 13.6 7.2 6.5 6.1
EV/EBITDA (X) 5.6 2.0 5.2 3.9
Net Div Yield (%) 5.9 6.3 5.2 5.8
P/Book Value (X) 1.8 2.3 1.9 1.6
Net Debt/Equity (X) CASH CASH 0.0 CASH
ROAE (%) 16.0 28.7 31.8 29.1
Earnings Rev (%): - -
Consensus EPS (S cts): 23.7 22.1
ICB Industry : Industrials
ICB Sector: Industrial Engineering
Principal Business: Principal activities are ship repair, shipbuilding,
ship conversion rig building and offshore engineering.
250
230
210
190
170
150
130
110
90
Favored rig builder
SMM has not seen any customer asking for order
cancellation y-t-d. If this scenario persists past mid-
2009, we believe that there is upside potential to our
earnings forecast, as our 15% orders cancellation
assumption is removed from the earnings model. We
believe that the rig cancellation risk will be smaller after
mid-2009, as most of the contracts would have
experienced >50% cash collection by then, making
order cancellation an undesirable choice for clients. We
maintain BUY on SMM, with fair value of S$1.88.
Lower cancellation risks. SMM has not seen any
customer asking for order cancellation y-t-d, which is
good news. We believe that the rig cancellation risk will
be smaller after mid-2009, as most of the contracts would
have experienced >50% cash collection by then, making
order cancellation an undesirable choice for clients.
Likelihood of more cash payment re-scheduling is
low. We believe that cash payment re-scheduling risks
are now lower than previous expectation; after SMM
updates that its work progress for all rigs is on-schedule,
with high cash payment collected to date.
New orders for conversions to remain healthy. While
acknowledging that the pickup in new rig orders is
dependent on the lifting of credit crunch, SMM is
confident that 2009 is unlikely to be a barren year for
new orders. The group is still getting good enquiries on
offshore conversion jobs, and is exploring the possibility
of getting contracts on uncompleted units from clients.
Upside potential to earnings forecast. As mid-2009
approaches, we believe that there is upside potential to
our earnings forecast, as our 15% orders cancellation
assumption is removed from the earnings model. We
maintain BUY on SMM. Our fair value of S$1.88 uses
SOTP valuation metric, with 8.4x implied FY09 PE.
At A Glance
Issued Capital (m shrs) 2,071
Mkt. Cap (S$m/US$m) 3,086 / 2,042
Major Shareholders
Sembcorp Industries Ltd (%) 60.8
Free Float (%) 39.2
Avg. Daily Vol.(‘000) 8,862
Page 58
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: YM / sa: JC

Regional Equity Strategy 2Q 2009
SembCorp Marine
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Turnover 4,513 5,064 5,159 5,454 Net Fixed Assets 676 698 691 684
Cost of Goods Sold (4,102) (4,409) (4,538) (4,766) Invts in Associates & JVs 206 270 315 379
Gross Profit 411 655 620 688 Other LT Assets 736 209 209 209
Other Opng (Exp)/Inc (62) (153) (127) (153) Cash & ST Invts 753 2,054 544 716
Operating Profit 349 502 493 535 Inventory 1,561 835 1,735 1,834
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 451 480 938 992
Associates & JV Inc 82 65 56 74 Other Current Assets 81 66 66 66
Net Interest (Exp)/Inc 14 22 18 19 Total Assets 4,463 4,612 4,498 4,880
Exceptional Gain/(Loss) (80) (44) 0 0
Pre-tax Profit 365 545 567 628 ST Debt 260 202 202 202
Tax (113) (94) (88) (96) Other Current Liab 2,138 2,909 2,161 2,522
Minority Interest (11) (21) (17) (19) LT Debt 182 20 370 20
Preference Dividend 0 0 0 0 Other LT Liabilities 178 120 120 120
Net Profit 241 430 462 513 Shareholder’s Equity 1,680 1,318 1,586 1,938
Net Profit before Except. 321 474 462 513 Minority Interests 26 42 59 77
EBITDA 497 634 615 677 Total Cap. & Liab. 4,463 4,612 4,498 4,880
Sales Gth (%) 27.3 12.2 1.9 5.7 Non-Cash Wkg. Capital (45) (1,528) 578 370
EBITDA Gth (%) 55.0 27.4 (2.9) 10.0 Net Cash/(Debt) 312 1,832 (28) 493
Opg Profit Gth (%) 52.9 43.8 (1.7) 8.5
Net Profit Gth (%) 1.1 78.4 7.4 11.2
Effective Tax Rate (%) 31.0 17.2 15.6 15.3
Cash Flow Statement (S$ m)
Rates & Ratio
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Pre-Tax Profit 365 545 567 628 Gross Margins (%) 9.1 12.9 12.0 12.6
Dep. & Amort. 64 71 66 67 Opg Profit Margin (%) 7.7 9.9 9.6 9.8
Tax Paid (45) (43) (167) (88) Net Profit Margin (%) 5.3 8.5 9.0 9.4
Assoc. & JV Inc/(loss) (82) (65) (56) (74) ROAE (%) 16.0 28.7 31.8 29.1
Chg in Wkg.Cap. 91 1,398 (2,027) 200 ROA (%) 6.1 9.5 10.1 10.9
Other Operating CF (181) 11 0 0 ROCE (%) 11.5 20.6 20.6 19.3
Net Operating CF 212 1,917 (1,617) 733 Div Payout Ratio (%) 74.9 45.0 35.0 35.0
Capital Exp.(net) (58) (96) (60) (60) Net Interest Cover (x) NM NM NM NM
Other Invts.(net) 229 0 0 0 Asset Turnover (x) 1.1 1.1 1.1 1.2
Invts in Assoc. & JV (1) 0 0 0 Debtors Turn (avg days) 35.5 33.6 50.2 64.6
Div from Assoc & JV 13 10 10 10 Creditors Turn (avg days) 104.5 127.1 113.7 101.0
Other Investing CF 0 1 0 0 Inventory Turn (avg days) 124.5 100.7 104.9 138.6
Net Investing CF 182 (85) (50) (50) Current Ratio (x) 1.2 1.1 1.4 1.3
Div Paid (231) (215) (193) (162) Quick Ratio (x) 0.5 0.8 0.6 0.6
Chg in Gross Debt 51 (220) 350 (350) Net Debt/Equity (X) CASH CASH 0.0 CASH
Capital Issues 24 (82) 0 0 Capex to Debt (%) 13.1 43.1 10.5 27.0
Other Financing CF (1) (2) 0 0 Z-Score (X) 3.6 2.6 2.9 2.9
Net Financing CF (157) (518) 157 (512) N. Cash/(Debt)PS (S cts) 15.0 88.4 (1.4) 23.8
Net Cashflow 237 1,314 (1,510) 172 Opg CFPS (S cts) 5.9 25.1 19.8 25.7
Free CFPS (S cts) 7.5 87.9 (81.0) 32.5
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown
FY Dec 1Q2008 2Q2008 3Q2008 4Q2008 FY Dec 2007A 2008A 2009F 2010F
Turnover 916 1,386 1,144 1,617 Revenues (S$ m)
Cost of Goods Sold (819) (1,248) (986) (1,356) Ship repair 731 795 823 852
Gross Profit 97 138 159 262 Conversion/Offshore 1,131 1,354 1,450 2,556
Other Oper. (Exp)/Inc (17) (26) (16) (93) Rig Building 2,499 2,840 2,810 1,972
Operating Profit 79 111 142 169 Shipbuilding 82 2 0 0
Other Non Opg (Exp)/Inc 0 0 0 0 Others 71 73 75 74
Associates & JV Inc 34 39 35 (43) Total 4,513 5,064 5,159 5,454
Net Interest (Exp)/Inc 2 11 4 6
Exceptional Gain/(Loss) 0 0 0 (44)
Pre-tax Profit 115 161 181 88
Tax (21) (28) (34) (11)
Minority Interest (3) (5) (6) (8)
Net Profit 91 128 141 69
Net profit bef Except. 91 128 141 113
EBITDA 129 167 196 145
Sales Gth (%) (31.5) 51.3 (17.4) 41.4
EBITDA Gth (%) (24.3) 29.1 17.1 (26.0)
Opg Profit Gth (%) (37.3) 40.3 27.5 18.7
Net Profit Gth (%) 11,432.7 40.4 9.9 (50.7)
Gross Margins (%) 10.6 10.0 13.9 16.2
Opg Profit Margins (%) 8.7 8.0 12.4 10.4
Net Profit Margins (%) 10.0 9.3 12.3 4.3
Source: Company, DBS Vickers
Page 59

Regional Equity Strategy 2Q 2009
SPH
Bloomberg: SPH SP | Reuters: SPRM.SI
BUY S$2.49 STI : 1,584.86
Price Target : 12-month S$ 2.93
Potential Catalyst: Lower than expected drop in AdEx.
Analyst
Andy Sim CFA +65 6398 7969
andysim@dbsvickers.com
Attractive valuations
P/B at c.1.8x is at lowest point in the last 20 years.
Previous lowest P/B was 1.95x, in 1998. Recently
announced wage cuts savings will mitigate fall in ad
revenues. We believe SPH’s share price (-30% since
Jan’09) has already factored in the weaker economic
outlook. Dividend yield is attractive at >8%. TP: S$2.93
reflects a c.21% total returns upside.
Price Relative
S$
5.10
4.60
4.10
3.60
R e la tiv e In d e x
208
188
168
148
128
Wage cuts savings... SPH will be cutting wages by
2%-10% for 3,000 staff from 1 Apr. The estimated
savings from this and profit-related bonuses is an
estimated 20% in wage bill for its core operations.
Wages account for c.25% of revenue and c.40% of the
Group’s costs. We view this as positive for the Group, to
help mitigate the fall in ad revenues.
3.10
2.60
2.10
2005 2006 2007 2008 2009
Forecasts and Valuation
SPH (LHS) R e la tive ST I IN D E X (R H S)
FY Aug (S$ m) 2007A 2008A 2009F 2010F
Turnover 1,160 1,301 1,301 1,201
EBITDA 509 582 557 513
Pre-tax Profit 576 522 522 479
Net Profit 499 437 428 393
Net Pft (Pre Ex.) 499 464 428 393
EPS (S cts) 31.5 27.6 27.0 24.8
EPS Pre Ex. (S cts) 31.5 29.3 27.0 24.8
EPS Gth Pre Ex (%) 37 (7) (8) (8)
Diluted EPS (S cts) 30.4 26.7 26.1 23.9
Net DPS (S cts) 26.3 27.3 20.0 20.0
BV Per Share (S cts) 137.6 131.9 131.4 136.1
PE (X) 7.9 9.0 9.2 10.1
PE Pre Ex. (X) 7.9 8.5 9.2 10.1
P/Cash Flow (X) 7.1 7.9 8.1 8.8
EV/EBITDA (X) 7.0 6.3 6.7 7.1
Net Div Yield (%) 10.5 11.0 8.0 8.0
P/Book Value (X) 1.8 1.9 1.9 1.8
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 23.6 20.5 20.5 18.5
Earnings Rev (%): 0.0 0.0
Consensus EPS (S cts): 25.1 24.3
ICB Industry : Consumer Services
ICB Sector: Media
Principal Business: Publishes newspapers in Singapore and owns the
Paragon
108
88
68
48
Offsets drop in ad revenues. According to latest data
from Nelsen Media Research, advertising revenues
(AdEx) for the period from Sep’08 to Feb ’09 fell by
c.9.1% y-o-y. AdEx for Feb were down only 1% y-o-y, a
sharp improvement from the deterioration in Jan when
it fell by 25% y-o-y. We have assumed a 20% yoy drop
for FY09F. This offsets our estimated savings from the
wage cuts.
Expect a weak 2Q. We expect SPH’s 2Q09 results to be
weak on a c.20% fall in ad revenues, coupled with high
newsprint costs. We have taken this into account in our
estimates.
Outlook priced in, lowest P/B in 20 years. We
believe the current share price (-30% since Jan’09) has
already priced in the weak economic outlook. Valuations
are very attractive at 1.8x P/B with a dividend yield of
>8%, based on our 20cents DPS assumption.
BUY, TP: S$2.93. Our sum-of-parts derived target price
is $2.93, based on 12x on FY09F newspaper operations,
RNAV for its properties and its net cash/investment. We
believe its dominant position in print in Singapore, the
low valuation on a P/B basis and its attractive dividend
yield of >8% should provide support for the share price.
At A Glance
Issued Capital (m shrs) 1,592
Mkt. Cap (S$m/US$m) 3,964 / 2,622
Free Float (%) 100.0
Avg. Daily Vol.(‘000) 6,142
Page 60
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: YM / sa: JC

Regional Equity Strategy 2Q 2009
SPH
Income Statement (S$ m) Balance Sheet (S$ m)
FY Aug 2007A 2008A 2009F 2010F FY Aug 2007A 2008A 2009F 2010F
Turnover 1,160 1,301 1,301 1,201 Net Fixed Assets 499 490 479 469
Cost of Goods Sold (557) (611) (636) (579) Invts in Associates & JVs 82 61 75 89
Gross Profit 604 690 665 623 Other LT Assets 1,484 1,461 1,461 1,461
Other Opng (Exp)/Inc (156) (169) (173) (173) Cash & ST Invts 937 854 749 856
Operating Profit 448 521 492 450 Inventory 19 36 37 34
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 151 224 289 240
Associates & JV Inc 3 (1) 4 4 Other Current Assets 19 24 24 24
Net Interest (Exp)/Inc 125 29 26 25 Total Assets 3,191 3,151 3,115 3,175
Exceptional Gain/(Loss) 0 (27) 0 0
Pre-tax Profit 576 522 522 479 ST Debt 1 1 1 1
Tax (78) (86) (94) (86) Other Current Liab 359 367 366 350
Minority Interest 0 2 0 0 LT Debt 574 574 544 544
Preference Dividend 0 0 0 0 Other LT Liabilities 75 108 108 108
Net Profit 499 437 428 393 Shareholder’s Equity 2,180 2,089 2,084 2,160
Net Profit before Except. 499 464 428 393 Minority Interests 3 12 12 12
EBITDA 509 582 557 513 Total Cap. & Liab. 3,191 3,151 3,115 3,175
Sales Gth (%) 13.6 12.1 0.0 (7.7) Non-Cash Wkg. Capital (170) (82) (15) (51)
EBITDA Gth (%) 18.0 14.3 (4.3) (7.9) Net Cash/(Debt) 362 279 205 312
Opg Profit Gth (%) 17.3 16.3 (5.6) (8.6)
Net Profit Gth (%) 16.5 (12.4) (2.2) (8.1)
Effective Tax Rate (%) 13.5 16.5 18.1 18.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Aug 2007A 2008A 2009F 2010F FY Aug 2007A 2008A 2009F 2010F
Pre-Tax Profit 576 522 522 479 Gross Margins (%) 52.0 53.1 51.1 51.8
Dep. & Amort. 58 62 61 60 Opg Profit Margin (%) 38.6 40.0 37.8 37.4
Tax Paid (86) (84) (92) (94) Net Profit Margin (%) 43.0 33.6 32.9 32.7
Assoc. & JV Inc/(loss) (3) 1 (4) (4) ROAE (%) 23.6 20.5 20.5 18.5
Chg in Wkg.Cap. 14 (49) (69) 44 ROA (%) 16.0 13.8 13.7 12.5
Other Operating CF (139) 5 0 0 ROCE (%) 13.9 15.5 14.6 13.2
Net Operating CF 420 457 418 484 Div Payout Ratio (%) 83.3 98.9 74.2 80.7
Capital Exp.(net) (59) (55) (50) (50) Net Interest Cover (x) NM NM NM NM
Other Invts.(net) 46 133 0 0 Asset Turnover (x) 0.4 0.4 0.4 0.4
Invts in Assoc. & JV 30 (13) (10) (10) Debtors Turn (avg days) 39.5 52.6 72.0 80.4
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 70.5 70.7 64.4 67.7
Other Investing CF 0 0 0 0 Inventory Turn (avg days) 19.7 18.5 23.3 25.1
Net Investing CF 16 65 (60) (60) Current Ratio (x) 3.1 3.1 3.0 3.3
Div Paid (383) (433) (433) (317) Quick Ratio (x) 3.0 2.9 2.8 3.1
Chg in Gross Debt (40) 0 (30) 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 28 19 0 0 Capex to Debt (%) 10.2 9.6 9.2 9.2
Other Financing CF 0 (19) 0 0 Z-Score (X) 0.0 5.8 4.3 4.3
Net Financing CF (395) (433) (463) (317) N. Cash/(Debt)PS (S cts) 22.9 17.6 12.9 19.6
Net Cashflow 41 89 (105) 107 Opg CFPS (S cts) 25.6 31.9 30.7 27.7
Free CFPS (S cts) 22.8 25.4 23.2 27.4
Quarterly / Interim Income Statement (S$ m)
FY Aug 2Q2008 3Q2008 4Q2008 1Q2009 2007A 2008A 2009F 2010F
Turnover 298 344 346 340 Key Assumptions
Cost of Goods Sold (137) (148) (149) (145) Adex growth y-o-y (%) 7.2 7.6 -20.0 2.0
Gross Profit 162 196 197 195 Newsprint costs (US$/mt) 604 601 800 680
Other Oper. (Exp)/Inc (45) (57) (64) (62) Average US$/S$ 1.53 1.41 1.53 1.51
Operating Profit 117 140 133 133
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 3 (1) (1) (2)
Net Interest (Exp)/Inc 0 21 2 (39) Sum-of-parts
Exceptional Gain/(Loss) 0 0 (27) 0
Pre-tax Profit 120 160 108 92
Tax (20) (27) (16) (21)
Minority Interest 0 1 1 2
Net Profit 100 133 93 73
Net profit bef Except. 100 133 119 73
EBITDA 135 154 148 148
Sales Gth (%) (4.5) 15.5 0.6 (1.8)
EBITDA Gth (%) (6.9) 14.0 (3.7) (0.3)
Opg Profit Gth (%) (11.3) 20.0 (4.9) (0.1)
Net Profit Gth (%) (11.0) 33.9 (30.6) (21.1)
Gross Margins (%) 54.2 57.1 56.9 57.4
Opg Profit Margins (%) 39.1 40.6 38.4 39.1
Net Profit Margins (%) 33.4 38.7 26.7 21.5
Source: Company, DBS Vickers
Newspaper &
Magazine
Properties
Cash and
Investment Holdings
Methodology Val. (S$m) Value (S$)
12x PER 2,264 1.43
DBSV RNAV
1,933 1.22
Estimate
As at end 1Q09A 1,165 0.74
less: debt at end
(724) (0.46)
1Q09A
Total 4,638 2.93
Page 61

Regional Equity Strategy 2Q 2009
Venture Corporation
Bloomberg: VMS SP | Reuters: VENM.SI
BUY S$4.72 STI : 1,584.86
Price Target : 12-month S$ 6.00
Potential Catalyst: Stronger than expected quarterly results
Analyst
Ai Teng Tan +65 6398 7967
AiTeng@dbsvickers.com
Price Relative
17.50
15.50
13.50
11.50
9.50
7.50
5.50
3.50
S$
R e la tive In d e x
2005 2006 2007 2008 2009
Venture Corporation (LHS) R e la t iv e S T I IN D E X (R H S )
Forecasts and Valuation
FY Dec (S$ m) 2007A 2008A 2009F 2010F
Turnover 3,873 3,784 2,911 3,056
EBITDA 380 246 263 277
Pre-tax Profit 295 173 194 205
Net Profit 300 167 183 194
Net Pft (Pre Ex.) 300 167 183 194
EPS (S cts) 110.0 60.8 66.8 70.8
EPS Pre Ex. (S cts) 110.0 60.8 66.8 70.8
EPS Gth Pre Ex (%) 25 (45) 10 6
Diluted EPS (S cts) 110.0 60.8 66.8 70.8
Net DPS (S cts) 58.0 50.0 50.0 50.0
BV Per Share (S cts) 691.2 691.8 708.6 729.4
PE (X) 4.3 7.8 7.1 6.7
PE Pre Ex. (X) 4.3 7.8 7.1 6.7
P/Cash Flow (X) 3.6 5.6 5.2 4.9
EV/EBITDA (X) 3.3 3.8 3.3 2.8
Net Div Yield (%) 12.3 10.6 10.6 10.6
P/Book Value (X) 0.7 0.7 0.7 0.6
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 16.5 8.8 9.5 9.8
Earnings Rev (%): - -
Consensus EPS (S cts): 665 771
ICB Industry : Industrials
ICB Sector: Electronic & Electrical Equipm
Principal Business: Venture is a global EMS player with strength in
printing & imaging, PC peripherals, networking & comms & retail
store solutions products.
210
190
170
150
130
110
90
70
50
30
Outstanding yield
Venture has proven that it continues to execute well in a
tough market. While not recession proof, Venture is
financially strong and ready to capture new opportunities
and gain market share when competitors fail in this
environment. Stock is trading at near trough valuations of
6-7x FY09 PER and 0.7x P/NTA, backed by a 11%
dividend yield. Maintain BUY with TP of S$6.00.
Not without challenges but Venture strives to stay
focus. Looking into Q1, historical seasonal revenue
patterns will be exacerbated by the global recession,
resulting in weaker than usual results. In fact, outlook
statements from tech bellwethers point to 10-30%
sequential decline in Q1. But, Venture intends to stay
focus on expense control and operational efficiency to
help cushion margin pressure.
HP business impact could be less than expected. The
addition of Foxconn to HP’s supplier base is bad news to
existing suppliers but it will not be a complete loss for
Venture because low value consumer printer is not a
major part of HP business for Venture. In fact, in giving
away non-ODM, which could be c. 10% of FY09
operating profits or lesser if the relocation is phased out
through FY10, Venture will see improvement in its
working capital and profitability in the long run. Venture
will maintain a stronghold on HP’s ODM business. In fact,
our channel checks indicated that HP has parked new
ODM projects with them.
Good cash preservation, keeps dividend. Contrary to
market’s fear of lower payout in difficult times, Ventures
maintained its S$0.50 dividend, rewarding shareholder
with a whopping 11% yield. Moving forward,
management will maintain a tight rein on working capital
management. Venture generated S$200m of FCF for Q4
and exited FY08 with net cash of S$192m.
At A Glance
Issued Capital (m shrs) 274
Mkt. Cap (S$m/US$m) 1,294 / 856
Major Shareholders
Aberdeen Asset Management 17.1
Sprucegrove Inv (%) 8.1
Ngit Liong Wong (%) 7.0
Free Float (%) 67.8
Avg. Daily Vol.(‘000) 1,118
Page 62
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: YM / sa: JC

Regional Equity Strategy 2Q 2009
Venture Corporation
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Turnover 3,873 3,784 2,911 3,056 Net Fixed Assets 207 196 163 124
Cost of Goods Sold (3,388) (3,315) (2,576) (2,705) Invts in Associates & JVs 112 114 114 115
Gross Profit 484 469 335 351 Other LT Assets 992 822 802 782
Other Opng (Exp)/Inc (206) (305) (143) (151) Cash & ST Invts 539 672 508 541
Operating Profit 278 164 192 201 Inventory 547 539 529 556
Other Non Opg (Exp)/Inc 32 17 5 5 Debtors 619 537 582 611
Associates & JV Inc 5 0 0 0 Other Current Assets 32 37 37 37
Net Interest (Exp)/Inc (20) (8) (4) (1) Total Assets 3,048 2,916 2,735 2,765
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 295 173 194 205 ST Debt 251 202 4 4
Tax 8 (5) (10) (10) Other Current Liab 593 667 686 709
Minority Interest (3) (1) (1) (1) LT Debt 259 120 70 20
Preference Dividend 0 0 0 0 Other LT Liabilities 49 29 29 29
Net Profit 300 167 183 194 Shareholder’s Equity 1,885 1,896 1,942 1,999
Net Profit before Except. 300 167 183 194 Minority Interests 11 3 4 5
EBITDA 380 246 263 277 Total Cap. & Liab. 3,048 2,916 2,735 2,765
Sales Gth (%) 23.9 (2.3) (23.1) 5.0 Non-Cash Wkg. Capital 604 446 462 494
EBITDA Gth (%) 26.7 (35.1) 6.9 5.4 Net Cash/(Debt) 29 350 434 518
Opg Profit Gth (%) 27.7 (41.1) 16.9 4.8
Net Profit Gth (%) 25.4 (44.4) 9.8 5.9
Effective Tax Rate (%) N/A 2.9 5.0 5.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Pre-Tax Profit 295 173 194 205 Gross Margins (%) 12.5 12.4 11.5 11.5
Dep. & Amort. 65 65 66 71 Opg Profit Margin (%) 7.2 4.3 6.6 6.6
Tax Paid (5) (16) (1) (10) Net Profit Margin (%) 7.7 4.4 6.3 6.3
Assoc. & JV Inc/(loss) (5) 0 0 0 ROAE (%) 16.5 8.8 9.5 9.8
Chg in Wkg.Cap. 81 34 (24) (33) ROA (%) 9.9 5.6 6.5 7.0
Other Operating CF (7) 109 20 20 ROCE (%) 11.4 6.8 8.5 9.3
Net Operating CF 424 365 254 253 Div Payout Ratio (%) 52.7 82.2 74.9 70.7
Capital Exp.(net) (37) (33) (33) (33) Net Interest Cover (x) 14.0 19.7 52.1 142.1
Other Invts.(net) 39 36 0 0 Asset Turnover (x) 1.3 1.3 1.0 1.1
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 58.6 55.8 70.2 71.3
Div from Assoc & JV 2 0 0 0 Creditors Turn (avg days) 50.4 51.1 64.3 63.6
Other Investing CF 38 (12) 0 0 Inventory Turn (avg days) 62.0 61.0 77.7 75.2
Net Investing CF 41 (8) (33) (33) Current Ratio (x) 2.1 2.1 2.4 2.4
Div Paid (155) (137) (137) (137) Quick Ratio (x) 1.4 1.4 1.6 1.6
Chg in Gross Debt (121) (189) (248) (50) Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 22 0 0 0 Capex to Debt (%) 7.3 10.1 44.3 138.3
Other Financing CF (47) (10) 0 0 Z-Score (X) 4.6 3.3 3.4 3.5
Net Financing CF (301) (337) (385) (187) N. Cash/(Debt)PS (S cts) 10.7 127.9 158.6 188.9
Net Cashflow 164 20 (164) 33 Opg CFPS (S cts) 125.7 120.7 101.4 104.3
Free CFPS (S cts) 141.9 121.4 80.6 80.3
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown
FY Dec 1Q2008 2Q2008 3Q2008 4Q2008 FY Dec 2007A 2008A 2009F 2010F
Turnover 939 973 966 907 Revenues (S$ m)
Cost of Goods Sold (817) (853) (847) (797) Printing & Imaging 1,072 1,037 839 881
Gross Profit 122 119 119 109 Computer Peripherals/Data 712 711 532 559
Other Oper. (Exp)/Inc (66) (53) (78) (108) Networking/Comms 711 708 497 522
Operating Profit 56 66 41 2 Retail Store solutions 793 751 607 638
Other Non Opg (Exp)/Inc 5 6 3 2 Others 585 577 435 457
Associates & JV Inc 0 0 (1) 2 Total 3,873 3,784 2,911 3,056
Net Interest (Exp)/Inc (2) (2) (2) (2)
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 59 69 41 4
Tax (2) (3) (1) 1
Minority Interest 0 0 0 0
Net Profit 56 66 40 5
Net profit bef Except. 56 66 40 5
EBITDA 77 86 58 6
Sales Gth (%) (2.5) 3.6 (0.7) (6.1)
EBITDA Gth (%) (20.8) 12.8 (33.3) (90.4)
Opg Profit Gth (%) (23.5) 17.5 (37.8) (96.1)
Net Profit Gth (%) (24.2) 16.5 (38.9) (88.6)
Gross Margins (%) 13.0 12.2 12.3 12.1
Opg Profit Margins (%) 5.9 6.7 4.2 0.2
Net Profit Margins (%) 6.0 6.7 4.2 0.5
Source: Company, DBS Vickers
Page 63

Regional Equity Strategy 2Q 2009
Country Assessment
Hong Kong/China
Seek value amidst
volatility
HSI : 13,131
HSCEI : 7,731
HSI 3 / 12 mths Target : 15,490 / 17,790
Expected Return : +18.0% / +35.5%
HSCEI 3 / 12 mths Target : 8,560 / 10,700
Expected Return : +10.7% / +38.4%
Our bear-case analysis suggests strong support for the HS
Index at 11,120 points. This is a level at which investors
can find long-term value. A bear market rally may
continue to unfold in the early part of Q2, as investors
weigh efforts to unclog the US financial system, and
policy direction in China. Even as this volatility gives rise
to short-term trading opportunities, our investment stance
remains defensive, given the still fragile macro backdrop,
and the market’s hyper-sensitivity to news flow.
In 2Q09, the markets will continue to gyrate with the news flow emanating from
the financial sector in the US and Europe, and in response to economic data
releases and disappointing results. However, the HK/China market will continue to
be more resilient than other markets in the region, given the strong policy flexibility
of the Chinese government. Against this backdrop, we expect the HS Index to
trade within a broad range in Q2.
Given the two forceful tests of the HK/China cycle trough in the past 6 months, our
bear-case 1x book value for HS Index and 1.2x for HSCEI have proven to be
attractive entry levels for long-term investors. These fundamental support levels are
based on our bear-case analysis of the market P/B and required earnings yield gaps
during previous crisis periods. We estimate the upper end of the bear-rally range to
be 1.4x and 1.6x book value for HS Index and HSCEI respectively.
Still fragile macro fundamentals warrant a defensive investment stance. China
infrastructure construction, the prime beneficiary of China’s massive stimulus
package, remains our favoured sector. We stay positive on telecom equipment and
pharmaceutical, while toll roads and consumer staples continued to be good
choices for those looking for resiliency. Oil and gas was upgraded to positive as
risk-return profile became more attractive. We remain neutral on HK and China
property, and cautious on the banks.
Alice Hui, CFA (852) 2971 1960 · alice_hui@hk.dbsvickers.com
Gideon Lo, CFA (852) 2863 8880 · gideon_lo@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 2Q 2009
Country Assessment
Market Data
Index Close Chng -1 mth -3 mth -6 mth - 12 mth
52-Week
19-Mar-09 Net 1 m (%) (%) (%) (%) High Low
Hang Seng 13,131 108 1 -13 -32 -40 26,387 10,676
HS China Ent 7,731 465 6 -8 -22 -32 14,783 4,792
HS China Aff 3,025 27 1 -12 -19 -36 5,967 2,173
HS Mid Cap 2,525 71 3 -1 -26 -41 4,942 2,065
HS Small Cap 1,063 -72 -6 -5 -41 -54 2,780 832
Transactions:
YTD
Volume (bn shs) 3,916
Value (HK$bn) 2,239
Source: Bloomberg
A review of 1Q09
After a short-lived rally in December, the HK/China market felt
the pinch of selling pressure again, as the global credit crisis
has yet to see the light at the end of the dark tunnel. The fear
continued to overrule greed in front of a series of bad news
flow from disappointing corporate results, the drop of a series
of economic data to multi-years-or-decades low and a new
round of capitulation in the US market. Hang Seng Index and
HSCEI fell 13% and 8% respectively in 1Q09.
Among HS Index constituent sectors, Banking was the worst
performing sector, due to the disappointing results of major
banks and HSBC’s record-sized rights issues. The 46% collapse
in the share price of HSBC has caused the HSI to fall 1,009
points, accounting for 62% of the total index loss. The
Commercial & Industrial and Property sub-index also fell 6.6%
and 2.3%, respectively, while the utility sector outperformed
on its resilient growth outlook.
Economic data around the world continued to deteriorate
sharply in 1Q09. Against this backdrop, China stood out for its
still positive growth and debt free status. Amidst the current
global financial crisis, China’s strong flexibility in fiscal and
monetary policies has become the last anchor for investors to
maintain their confidence in the HK/China equity market.
Against the backdrop of strong government policy support, the
broader HK/China market (ex HSBC) proved relatively resilient
compared with other markets during the past quarter. In
contrast to the touch of new lows in the US market in early
March, the HK/China market stayed clearly above the trough
levels marked in last October. The A-share market was one of
the best performing equity markets in the world, with the
Shanghai Composite Index up 15.9%. In Hong Kong, HSCEI
also outperformed the HS Index by 5%.
HS Index & HSCEI – Past 1 year
28,000
26,000
24,000
22,000
20,000
18,000
16,000
14,000
12,000
10,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
HSI
100-day MA
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09
Source: Bloomberg
HSCEI
100-day MA
Page 65

Regional Equity Strategy 2Q 2009
Country Assessment
MARKET OUTLOOK
Global equity markets rallied in late March on hopes that
concerted central bank reflation, and with the release of early
details of the US Treasury’s PPIP plan. While momentum may
be sustained in the short term, the still fragile global macro
environment, and continued uncertainty over the actual
effectiveness of the US Treasury’s plans to unclog the US
financial system suggests that a cautious investment stance
towards the HK/China equity market is still warranted.
Investors will need to get past further weakness in yet-toreleased
economic data points to be released in 2Q09. This
includes a further slump in China’s exports, deterioration in
deflation and the continued slowdown in GDP growth
momentum. Markets will also be buffeted by the unfolding of
disappointing corporate earnings amid the results season in
Hong Kong. Nevertheless, China’s policy flexibility would
provide a cushion for HK/China market, and position it more
favourably compared to the debt-laden countries in Europe
and America.
Our bear case analysis of HK/China market valuation suggests a
strong support level of the HS Index at 11,120 points, which is
equivalent to 1x 2009 book value and implied earnings yield
gap of c.9%. This should be an attractively low level for longterm
investors. However, further bad news flow pertaining to
the weakening economic figures and disappointing corporate
results in 2Q09 will exert profit-taking pressure amidst the
current bear market rally.
With the new wild card from the US bailout plan, we expect
the market to enlarge its trading range in 2Q09. This rangetrading
pattern will continue until the market can see more
convincing recovery signals in the future. In 2Q09, we expect
the HS Index to trade in the range of 11,120 to 15,490, based
on 1-1.4x forward book value. The target range for HSCEI is
6,420 to 8,560, based on 1.2-1.6x forward book value.
China M1 and M2 growth China real GDP growth China electricity output growth
%
25
20
15
10
5
0
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
M1
Jan-05
Jan-06
Jan-07
Jan-08
M2
Jan-09
Yoy, %
16
14
12
10
8
6
4
2
0
1Q97
3Q98
1Q00
3Q01
1Q03
3Q04
1Q06
3Q07
1Q09F
Yoy, %
30
25
20
15
10
5
0
(5)
(10)
(15)
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Source: CEIC Source: CEIC, DBS Economics Research Source: CEIC
Growth and liquidity
In March, the HS Index successfully defended its previous
trough of 11,016 points, which was marked in last October,
despite the heavy sell-off activities in major equity markets with
the US market reaching a new six-year low on renewed worries
about the outlook of the banking sector and fears of a
prolonged recession/depression. However, from this
attractively low level, the market has suddenly staged a new
round of rally in late March, driven by the US government’s
announcement of the PPIP plan to free up US banks from toxic
assets. Nevertheless, given the still-fluid nature of
developments, it is still too early to conclude that this brief rally
marks the end of the persistent bear market.
In China, the solid M2 growth and recovery in the Purchasing
Managers’ Index (PMI) in China are positive signs that the
expansionary fiscal and monetary policies have started to take
effect in certain economic segments. Banks’ reported record
growth in new Rmb loans during Jan-Feb also suggests credit
expansion in China in 1Q09, versus the persistent deleveraging
pressure in the world’s financial markets.
In February, China’s M2, the broadest measures of money
supply, posted 20.5% y-o-y growth, the fastest climb in the
past five years. The growth of M1, the narrow measure of
money supply, has also pulled up to 10.9% in February from its
cycle trough of 6.7% in January. The money supply growth
was mainly driven by the strong new Rmb loan growth of
nearly Rmb2.7 trillion in the first two months this year.
Page 66

Regional Equity Strategy 2Q 2009
Country Assessment
As the central banks pledged to generate not less than Rmb5
trillion new loans in 2009, we believe the M1 growth has
already reached its cycle trough in January, and should return
to a new expansion cycle. We expect the aggressive loosening
of monetary policy to help alleviate the pressure from the
global credit crisis on the contracting export sectors and
domestic enterprises in China. However, the banks’ new loan
growth may slow in 2Q09, as the central government should
reserve its options for further policy support, if necessary, till
2H09.
In contrast to the balance-sheet recession risk faced by the US
economy, China should see more effective monetary measures
to revive its domestic economic growth, given its relatively debt
free position and young consumer base. As such, we are
optimistic that China’s GDP growth will recover to over 8% in
2H2009, despite the lacklustre near-term economic outlook in
2Q2009. This is especially the case in view of the high
correlation between China’s money supply and its domestic
growth in previous economic cycles.
China PMI
%
70
60
50
40
30
20
10
0
Jan-05
Aug-05
Mar-06
Source: DBS Group Research
Oct-06
The expansionary monetary measures appear to have mitigated
the contraction pressure in domestic manufacturing activities.
This is reflected in the recovery of the PMI for the past three
consecutive months, from the record low of 38.8 in November
to 49 in February. The recovery of Chinese electricity output to
positive growth in February added to the positive signals. These
positive figures suggest that the country’s manufacturing
activities are almost back to expansionary mode.
Dissecting the PMI sub-indexes in February, the expansionary
signals (PMI more than 50) can be found in the activities
relating to new orders (50.4), production (51.2) and supplier
delivery (51.3), while the contractionary pressure (PMI less than
50) remained in activities relating to employment (46.1),
inventories (45.6 – 47.7) and new export orders (43.4).
May-07
Dec-07
Jul-08
Feb-09
Indeed, the PMI sub-indexes suggest that the key challenges to
economy in 2Q09 should come from the following:
1) The slump in overseas demand will exert heavy earnings
pressure to enterprises and industries in the coastal regions,
which depends mainly on the exports to overseas. China’s
export value pulled back by nearly 21% y-o-y in the first two
months this year.
2) While the employment growth will lag behind the recovery
in manufacturing activities, we expect the unemployment rates
to deteriorate continuously in the coming few months. This
will adversely affect the domestic consumption markets.
3) The high inventory levels imply that de-stocking activities
will continue, which means further deflationary pressure in
China. At the micro level, this will further exert pressure on
enterprises’ profit in the form of impairment losses on
inventory cost.
China CPI and PPI
Yoy, %
12
10
8
6
4
2
0
-2
-4
-6
2001
2002
2003
PPI
2004
CPI
2005
Source: DBS Group Research
Against this macro backdrop, corporate profits will continue to
be under pressure, especially for those companies in cyclical
sectors with serious problems of excess capacity. However, as
the fall of PPI is faster than the CPI, it will improve the profit
margin of companies in defensive sectors, like healthcare, Food
& Beverage and utilities, given their resilient growth outlook
and firm pricing power.
Compared to China, Hong Kong’s economy (domestically
oriented stocks) remains more vulnerable to the global financial
crisis and recession, given its relatively small and open
characteristics. Moreover, the new government budget for
2009/10 has been viewed as being too conservative to
revitalize the economy and prevent a continuous spiral of the
unemployment rate in the territory. Nevertheless, the
HK/China equity market performance is hinged more to the
Chinese economy than to HK economy.
2006
2007
2008
2009
Page 67

Regional Equity Strategy 2Q 2009
Country Assessment
In the first three months of this year, we have cut the
aggregate earnings forecast for the HS Index by 20% and 26%
in 2008 and 2009, respectively, which reflected mainly the
bearish near-term earnings outlook for the banking and oil
sectors. We cut the 2009 earnings forecast of the banking
sector by 34% after major Hong Kong banks announced their
disappointing results in March. We also cut the earnings
forecast of the three major oil counters by 26-39% in 2009
due to the lower crude oil price targets. After the latest round
of earnings revisions, we expect the aggregate earnings for the
HS Index to fall 35.7% in 2008 and 5.9% in 2009.
Aggregate Earnings for HSI
HK$m 2008
08E
%
Chg 2009
09F
%
Chg 2010
10F
%
Chg
Finance 143,943 -48.3 139,041 -3.4 156,452 12.5
Infra & Utilities 60,816 -16.5 48,152 -20.8 62,128 29.0
Properties 28,328 -25.0 26,448 -6.6 29,727 12.4
Conglomerates 11,021 -67.8 15,290 38.7 18,820 23.1
Comm/Ind 11,161 -41.5 13,749 23.2 20,966 52.5
Telecom & Media 52,995 41.9 47,540 -10.3 52,566 10.6
HSI Total 308,263 -35.7 290,220 -5.9 340,660 17.4
Source: DBS Vickers
We also cut the aggregate earnings forecast of HSCEI by 15%
and 18%, respectively, in 2008 and 2009. The downgrades
were across all sectors, with especially heavier weight from the
earnings decline in oil and commodities counters due to the
reflection of more bearish effects from economic recession to
global commodities’ prices. After the earnings downgrades,
we forecast HSCEI earnings will decline 15.6% in 2008 and
1.5% in 2009.
Aggregate Earnings for HSCEI
HK$m 2008
08E
%
Chg 2009
09F
%
Chg 2010
10F
%
Chg
Consumer 1,597 1.7 1,577 -1.2 1,735 10.0
Energy 32,322 -20.7 30,109 -6.8 40,226 33.6
Financials 63,446 9.7 62,159 -2.0 69,998 12.6
Industrial Goods 1,381 -16.8 1,244 -10.0 1,311 5.4
Materials 3,490 -66.1 3,907 11.9 9,787 150.5
Utilities -608 -121.3 1,966 nm 2,509 27.6
Ppty & Construc 5,995 3.1 7,959 32.8 10,105 27.0
Services 8,640 -31.6 2,387 -72.4 2,304 -3.5
Telecom & Tech 671 -87.0 3,836 471.8 5,257 37.0
HSCEI Total 116,934 -15.6 115,145 -1.5 143,231 24.4
Valuations
Post the meltdown in Oct 2008 and the recent re-test of the
lows again in March 2009; we believe the 11,000 level
represents an attractive entry point for value investors. It is
probably too early to call start of a new bull trend, and we see
the current rebound as a bear market rally, which could last
into the early part of 2Q09. The bounce off the 11,000 level is
consistent with fundamental support levels seen during
previous crises periods.
The market will remain volatile amid the extremely poor
earnings visibility in market. As such, we try to explore the
bearish scenario of the market support level, with stress test, in
order to seek an attractive entry point for long-term investors.
While the PE method will lose its reliability amid a bear market,
we have conducted a study to gauge the possible valuation
downside in the market based on our P/BV and earnings yield
analysis.
Admittedly, the recent sell-off in the market, and persistently
low interest rates has led to a very attractive earnings yield gap
for the HS Index despite our earnings downgrades for 2008
and 2009. We find that the yield gap, which is the difference
between the earnings yield and the three-month HIBOR, for
the HS Index has increased to a record high of nearly 8% in
2009, which is well above the historical mean and the peak
level of about 5-6% during previous crises.
In our view, the current high yield gap should be attractive
enough for long-term investors. This may reflect the higher
risk premium required by investors for equity investment amid
a bearish market. Nevertheless, the current high yield gap has
already exceeded all the peak levels during previous major
crises, like the Asian Financial crisis and SARS period, in the
Hong Kong market. Based on +1 SD of the historical range, or
c. 6% required earnings yield gap, we believe the fair HS index
level would sit at around 15,900, or 14.5x 2009 PE.
The risk of our earnings yield gap analysis may come from
possible further earnings downgrade of index stocks or a sharp
rise of funding costs from the current low level. However,
even if we further cut our earnings forecast and raise the
target PE for HS Index from current 12x to 15x, the earnings
yield gap will remain at c. 5-6%, which is still high compared
to historical levels. Regarding the funding cost, we do not see
high risk of sharp rise in HIBOR in the coming 12 months due
to the current bank deposit protection plan in Hong Kong.
Source: DBS Vickers
Page 68

Regional Equity Strategy 2Q 2009
Country Assessment
Earnings Yield Gap for the Hang Seng Index
Historical PB for the Hang Seng Index
%
12
10
8
6
4
2
0
(2)
(4)
(6)
(8)
(10)
Yield Gap
(Earnings Yield - 3-mth HIBOR)
+1 SD
Mean
-1 SD
x
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Sep-93
Sep-95
Sep-97
Sep-99
Mean
+2SD
+1SD
Sep-01
Sep-03
-1SD
-2SD
Sep-05
Sep-07
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: Bloomberg
Bands are +/- SD and average from 1993
Source: Datastream, DBS Vickers
Price to book is another reliable valuation metric amid a bearish
market with low earnings visibility. Over the past 15 years, the
HS Index has been trading in a wide range of c. 1 – 3.5x P/B
value. The current P/BV has already fallen to its previous
trough of 1x during the Asian Financial crisis in 1998. At 1x
P/BV, the HS Index has also been as low as minus two standard
deviations, which we believe is an attractively low level for
long-term investors. We also apply the 1x P/BV to derive
11,120 points as the bottom level for the HS Index.
Notwithstanding the above analysis for the HS Index, the same
analysis has limitations for HSCEI given the relatively shorter
history of H shares in Hong Kong. However, we believe the
HSCEI should trade at a valuation premium over the HS Index,
as China-related companies should be the direct and major
beneficiaries from the government’s policy support. While we
set our P/BV range at 1-1.4x for HS Index, we believe the HSCEI
should deserve a higher range of 1.2-1.6x in 2Q2009.
Historical PB of HSCEI to HSI
(x)
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
Oct-01
+2SD
+1SD
Mean
Oct-02
Source: Bloomberg
Oct-03
Oct-04
Oct-05
Oct-06
-1SD
-2SD
Admittedly, we face the risk of possible dislocation of the fair
market value from its historical trend due to the existing global
economic crisis. As such, the predictability of our P/BV will also
have its limitation, stemming from the possible risk of
depletion in index companies’ book value. However, our basis
of –2SD in setting our index trough target should be prudent
enough to reflect the identified market risk, due to the
following reasons:
Oct-07
Oct-08
1) Despite the risk of further earnings downgrades, we believe
the aggregate index book value would likely continue to
increase as long as the constituent companies maintain positive
overall profitability.
2) The overall earnings and balance sheet quality of index
companies have also improved, reflected by their higher
existing ROE and lower net gearing ratios, compared to those
in previous crises.
Page 69

Regional Equity Strategy 2Q 2009
Country Assessment
Strategy
Until there are concrete signs of a resolution to the current
financial crisis, market sentiment should continue to be
overshadowed by the ongoing economic uncertainty and
possibility of further deterioration in macro data. We
recommend investors to stay defensive in Q209, and stick to
sectors that are relatively resilient to the economic downturn or
those with policy support and potential for industry
restructuring. This includes transport infrastructure, telecom
equipment, pharmaceutical, toll roads, environment protection
and consumer staples.
The transport Infrastructure sector, which is a clear beneficiary
of PRC’s Rmb4tr stimulus package, remains our favourite. We
have highlighted our positive views towards railway
infrastructure plays in our last quarterly report, considering the
low penetration of railway and huge investment in this
segment going forward in the PRC. While we continue to
favour this sector, our top pick for this quarter is China
Communication Construction, considering its more attractive
valuation and earnings upside from a potential speed-up in
port projects within the Bohai region.
We also maintain our positive stance on the China Telecom
Equipment sector, in which growth should be secured by the
heavy capex on 3G with longer term potential from expanding
overseas exposure. ZTE, our pick in last quarter, has grabbed a
handsome return of over 52%. Considering the strong
performance, we recommend that investors shift to its smaller
peer Comba, as we see better re-rating potential given its
strong earnings growth and growing global presence.
Meanwhile, we are maintaining our Neutral stance on telecom
services due to ongoing industry risks, but we continue to
recommend China Mobile (details in company profile) which
should offer better earnings visibility with downside limited by
its attractive valuation.
The pharmaceutical and healthcare sector is positioned to
benefit from China’s stimulus plans and healthcare reforms.
The latter would benefit market leaders. A sustainable 15-
20% CAGR in market size aside, the sector offers resilient
earnings against the economic slowdown as well as attractive
valuation (less than 0.2x PEG and low single-digit PE).
The other defensive sectors are toll roads and consumer staples
(see featured stock China Yurun) considering their relatively
resilient earnings. We are also positive on environmental
protection plays, given the supportive government policy and
benefits from the stimulus plan.
We have raised our rating for oil & gas sector to Positive.
Despite a weaker global environment, crude prices should find
strong fundamental support at US$40 a barrel, a level which
would motivate sizable cut in output as well as providing
higher incentives for government to build strategic oil reserves.
Valuations of China’s oil majors have already reached attractive
levels for longer-term investors.
We maintain our Cautious stance on China banking but have
upgraded Hong Kong banks to Neutral in January, though risks
could mount should the global financial crisis deteriorate
further. In HK, the deepening global recession could lead to
more severe capital outflow and export shrinkage than that
experienced in the Asian crisis, with MTM losses to remain as a
lingering concern. We have in fact downgraded HSBC to a Sell
after its result and rights issue announcement in March (see
stock profile). For China banks, looming NPL risks alongside
the aggressive lending spurt, coupled with continual NIM
pressure and uncertainties relating to further stake sales by
foreign strategic investors would likely to remain a key
overhang.
While we are maintaining a Neutral stance on both the HK and
China property sectors, we are slightly more positive on the
latter. For China property, news flow may remain negative in
the near term, especially with possible disappointment in
earnings and potential for further price cuts from developers.
A solid recovery may still take time but the strong rebound in
sales in recent months should help ease pressure on inventory.
We have also seen stronger players outperforming their
competitors and recording strong sales performance. After the
sell-offs in past few months, investment value has started to
become compelling for some quality plays, with our favourites
being China Overseas and CR Land.
Meanwhile, we expect the HK property market to continue its
downward spiral in view of anticipation of further economic
deterioration. We expect residential prices to fall 20% in
2009, retail rents to drop 10-20% while office rents will
plunge a total of 40-50% before end-2010. Further downside
risk on asset value has prompted us to maintain a Neutral
stance on HK property counters despite the fact that most of
their valuations have already fallen to levels seen during the
previous market trough.
For the remaining sectors, we are Neutral on base materials
with a positive bias on coal given sound financial position of
coal counters and attractive valuations. The still fragile global
macro environment has prompted us to stay cautious on
shipping, industrial and technology sectors.
Page 70

Regional Equity Strategy 2Q 2009
Country Assessment
Economic Indicators
2005A 2006A 2007A 2008A 2009F 2010F
China
GDP Growth (%) 10.4 11.6 13.0 9.0 7.5 8.0
FDI (US$bn) 72 73 84 108 87 80
Exports (yoy %) 28 27 26 17 0 15
Retail Sales (yoy %) 12.9 13.7 16.8 21.6 16.0 17.5
CPI (yoy %) 1.8 1.5 4.8 5.9 0.0 2.5
Hong Kong
GDP Growth (%) 7.1 7.0 6.4 2.5 -3.5 2.8
CPI (yoy %) 0.9 2.0 2.0 4.3 1.0 1.0
Source: DBS Economics Research
Valuation – HSI
Index Earnings Growth (%) PE (x) Yield (%)
19-Mar 08E 09F 10F 08E 09F 10F 08E 09F 10F
Finance -48.3 -3.4 12.5 11.9 12.4 11.0 7.0 4.4 4.7
Power, Infrastructure & Utilities -16.5 -20.8 29.0 10.3 13.0 10.0 4.1 3.4 4.2
Properties -25.0 -6.6 12.4 12.1 13.0 11.5 3.5 3.4 2.4
ex Cheung Kong -8.0 -12.5 13.5 12.9 14.8 13.0 3.4 3.3 1.7
Hongs/Conglomerates -67.8 38.7 23.1 17.7 12.8 10.4 4.4 4.3 4.5
ex Hutchison -82.5 209.9 4.7 33.5 10.8 10.3 4.5 4.3 4.5
Comm/Ind -41.5 23.2 52.5 18.1 14.7 9.6 3.9 4.0 4.7
Telecom & Media 41.9 -10.3 10.6 8.6 9.6 8.7 4.0 4.4 4.9
HSI 13131 -35.7 -5.9 17.4 11.5 12.2 10.4 5.4 4.1 4.4
HSI ex Cheung Kong and Hutchison -34.9 -5.5 16.8 11.5 12.2 10.4 5.5 4.1 4.4
Source: DBS Vickers
Valuation – HSCEI
Index Earnings Growth (%) PE (x) Yield (%)
19-Mar 08E 09F 10F 08E 09F 10F 08E 09F 10F
Consumer 1.7 -1.2 10.0 9.7 9.8 8.9 2.0 2.1 2.3
Energy -20.7 -6.8 33.6 13.4 14.4 10.8 2.8 2.4 3.1
Financials 9.7 -2.0 12.6 12.3 12.6 11.2 2.1 1.8 2.0
Industrial Goods -16.8 -10.0 5.4 4.6 5.1 4.8 3.4 3.1 3.5
Materials -66.1 11.9 150.5 37.3 33.3 13.3 1.1 0.9 1.3
Utilities -121.3 nm 27.6 nm 14.8 11.6 0.3 3.1 3.9
Property & Construction 3.1 32.8 27.0 21.1 15.9 12.5 1.1 1.5 1.9
Services -31.6 -72.4 -3.5 6.2 22.6 23.4 4.0 1.7 1.5
Telecom & Technology -87.0 471.9 37.0 77.3 13.5 9.9 2.3 1.8 2.6
HSCEI 7731 -15.6 -1.5 24.4 13.9 14.1 11.4 2.2 1.9 2.2
Ex oil * -8.9 0.1 19.9 14.7 14.7 12.2 2.0 1.8 2.0
* Ex 386, 857
Source: DBS Vickers
Page 71

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stock picks for Hong Kong
SECTOR REMARKS STOCK
SELECTION
Property
Neutral
Since last December, housing market has shown signs of stabilization with price having
recovered slightly. However, any optimism on residential market outlook should be unjustified
in view of deteriorating economic fundamentals. We project a 20% decline in home prices in
2009. Office vacancy has been rising as corporate continued to downsize their operations
resulting in lower office demand. We forecast office rentals to decline 40-50% before end-
2010, after declining 11% in 4Q08. No catalyst is thus expected for sustainable re-rating for
property developers and investors. This is despite the fact that their current valuations are by
no means demanding from historical perspective. The Link REIT and Fortune REITs remain our
preferred stocks in the sector, in view of its income resilience.
The Link REIT (0823)
Banking and Finance
Neutral
Telecom
Neutral
Industrial
Cautious
Consumer
Neutral
We upgraded HK banks to NEUTRAL from very CAUTIOUS in Jan-09. But we may downgrade
it back to CAUTIOUS again in future if the global financial crisis deepens. Capital outflow and
export shrinkage this time should be more severe than the Asian crisis on severe global
financial de-leveraging. Hence, we believe HK banks should trade below the trough P/B
during Asian financial crisis. Bond prices on asset-backed securities and those issued by banks
& financial institutions have fallen YTD, meaning there may be further MTM losses this year.
Although the peak loan provision should be lower than that of the Asian crisis thanks to low
private sector debts, low interest rates and a healthier property market, the problem of MTM
losses will continue to be a lingering concern.
Competition in the local Hong Kong telecom market has subsided somewhat since mid-2008,
which was partly due to the limited room for further tariff cuts and clearer differentiated
services and customer positioning among telcos. In terms of corporate activity, we think
PCCW would eventually go through its privatization plan. Meanwhile, HIIL has planned to
spin off its Hong Kong and Macau business in May09. Given the many uncertainties with
PCCW and HITL, Smartone remains the only telecom company that could offer stable
business operations. Going forward, Smartone would continue to face margin pressure, in
view of its aggressive handset subsidy and capex plan on network upgrade. However,
Smartone remains a good yield play and appealing to long investors.
We remain cautious on the industrial sector as we believe negative surprises in the coming
FY08 results season will dampen investors’ appetite. Surprises are expected to come from
lower than expected margin (due to squeeze in selling prices) and higher than expected
inventory write-off (due to drop in commodity prices). In addition, the business prospects of
most exporters are still overshadowed by global recession. On the other hand, we believe
those manufacturers that serve the domestic market will fare better, on continual strong
domestic demand, positive policy and regulatory controls and strong market
positioning. Among the industrial companies that benefit from these parameters are China
South Locomotive & Rolling Stock (who will benefit from the accelerated railway development
program by the Ministry of Railway and stronger demand for technically advanced train
vehicles following the construction of new high-speed train tracks) and China Everbright
International (who will benefit from increasing investments to strengthen the environmental
and ecological infrastructure).
The deteriorating economy has continued to affect local consumer sentiments. While January
retail sales showed 7.4% yoy growth, this was largely due to impact of an earlier Chinese
New Year, which fell in January this year instead of the usual February. With unemployment
expected to remain on an uptrend, consumers should likely continue to trade down and be
more price sensitive. As such, the more aggressive discounting and promotions seen in the
past few months should likely continue, meaning increasing margin pressure for retailers.
While most listed retailers are already trading at undemanding valuation and their strong cash
position should continue to support decent dividend yield ahead, catalyst is certainly lacking
and earnings uncertainty remains. Hence we maintain NEUTRAL, with a preference towards
those in staple products.
Wing Hang Bank (302)
(Fully Valued)
Smartone (315)
China South Locomotive &
Rolling Stock (1766)
China Everbright
International (257)
Café de Coral (341)
Page 72

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stock picks for China
SECTOR REMARKS STOCK
SELECTION
Banking
Cautious
New loan made in Feb-09 continued to beat expectation even after strong growth during Nov.08
and Jan.09, which shall lead to upward revisions in loan growth and delay in NPL formation. The
government may also want to leave more "bullets" for later use by delaying interest rate cuts, and
hence we may need to raise our NIM assumptions. However, these positives are offset by the
negative impact due to further hike in CBRC's requirement on provision coverage to 150% from
130% for big five banks. Aggressive loan approvals may cast doubts on how banks conduct risk
management in such a short period which may result in higher NPL in future. Global investors
have already paid decent premiums to Chinese banks for the more resilient economic outlook of
China. NIM pressure, further stake sales by foreign strategic investors and asset quality risks,
together with negative implications for fund flows due to global financial de-leveraging, remain
our key concerns for the sector. We stick to our view that investors can only start bottom-fishing
when the share prices of the Chinese banks trade close to the lowest end of the trading band we
suggested. We maintain our SLIGHTLY CAUTIOUS view and recommend a long on ICBC and a
short on BOC as a pair trade
ICBC (1398 HK)
Basic Materials
Positive
Coal
Neutral
Cement
Neutral
Steel
Cautious
Base metals
Construction &
Infrastructure
Positive
We remain POSITIVE on the coal sector in 2009, though we admit the traditionally low season for
coal in 2Q will lead to a short-term downward pressure on spot coal prices. 2009 domestic
thermal coal contract price talk will come to a result in due course and we keep forecast of 10%
contract price rise. We like China coal companies on their sound financial position and potentially
high dividend yield. Meanwhile, expectations of mass start-up of large-scale state infrastructure
projects in 2Q09 should help underscore sustainable demand for construction materials
particularly cement in central/west China. Nevertheless, we retain our NEUTRAL stance on cement
and steel, to reflect unattractive valuation on Anhui Conch Cement and concerns over unexciting
1H09 earnings prospect for steel counters. As for base metals, we maintain our CAUTIOUS rating
for 2Q09. Amidst lacking concrete signs of demand pickup from industrial end-users, we
recommend investors to keep sidelined from China material stocks. Our top pick for 2Q09 is Asia
Cement (China) Holdings. Target price is set at HK$4.95.
The recent refinement of the stimulus package should not affect total investment in railway
construction significantly. This is because there are still unspent portions on railway development
under the current 11 th 5-year plan, which has a total budget of Rmb1.25tr. The amount allocated
for infrastructure sector (including railway, roads/expressway, waterways, power grids, etc) under
the revised stimulus plan is reduced to Rmb1.5tr, compared to Rmb1.8tr previously announced.
The new railway project momentum has been strong since after the stimulus package was
announced. The major railway constructors have secured some Rmb400bn worth of new
contracts last year.
Although railway has been the main focus under the accelerated infrastructure development
program, we reckon the long-term plan is to develop new port facilities in Tianjin. The
government is likely to kick start a new port project in Tianjin this year, which should benefit
major port constructor, China Communications Construction (CCC). Besides, the Chinese
government is also supportive on the HK-Zhuhai-Macau bridge project, which is scheduled to start
by end of this year. Again, CCC, which has a strong track record in bridge construction, is
expected to secure a portion of the project.
Asia Cement
(China) Holdings
(743 HK)
China
Communications
Construction
(1800)
Page 73

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stock picks for China
SECTOR REMARKS STOCK
SELECTION
Telecoms
Neutral – Telco
Services
Positive –
Hardware and
infrastructure
Property
Neutral
China Consumer -
Food & Beverages
Neutral
China Consumer -
Retail
Neutral
China Mobile (CM)’s FY08 results were in line with our and market expectations. But declines in
ARPU and EBITDA margin also pointed to the difficulty CM has to face this and next year. CM
raised its capex budgets to RMB130bn-RMB136bn for each of FY08-10, which would lift
depreciation expenses and jeopardize profitability. The situations are not much better off for
China Telecom and China Unicom. While CT is expected to suffer big loss from CDMA due to
aggressive handset subsidy plan, CU’s self-borne capex on both 2G and 3G has prolonged
impacts on its profitability. Hence, we have maintained our Neutral view on the sector. However,
we remain positive on the sector’s long-term outlook, underpinned by the still low mobile (50%)
and internet (23% penetration rates. The launches of 3G services will be driver for future ARPU
expansion, which should start from 2H10. Instead, the sector valuation is on the low-end of major
global telcos’ valuation, pretty much reflective of the many negatives on the sector. CM remains
our sector top pick for its better earning visibility and attractive valuation.
We downgraded ZTE from Buy to Hold, mainly on valuation concern. However, we remain positive
on ZTE’s growth outlook and its improving fundamentals. We see high possibility to upgrade ZTE
to Buy should share prices pull back to around HK$25. We have maintained our Positive view on
the China telecom equipments sector. For sector picks, we have shifted our sector pick from ZTE
to Comba, as we think the smaller players should deserve a new round of re-rating in the near
term.
Sales volume has picked up over the past three months due to policy support and aggressive price
cuts. While investors are still worried about the sustainability of recent rebound in transaction
volume, many investors have turned more positive and agreed with us that the outlook of the
sector in 2H would turn better. While we are still concerned on the impact from slowing economy
on the housing market, we have turned slightly more positive on the outlook of the sector. In our
view, the pick up in demand shall sustain into 2Q as developers push out more new products in
this traditional high sales season. Affordability shall be further improved as developers cut prices
further. On the supply side, we foresee production volume to fall in 2009 and 2010 as developers
continue to cut production volume, driven by current high inventory level. We have begun to see
inventory level decline at a more meaningful pace lately. In our view, inventory is likely to drop in
2H as demand continues to pick up and new supply starts to fall. We estimated asset prices will
continue to fall and stabilize in 4Q. We also anticipated more M&A activities in 2H09 as asset
prices bottom out, while better economic data shall improve market confidence. If these good
signs don’t happen, in the worse case scenario, we foresee a new round of new policy to be
introduced from central government level to boost housing demand. In our view, the next round
of new policies will be more investor-friendly, which traditionally have been proven to be more
effective than mass-market focus policies. Our top picks for the sector are China Overseas Land,
China Resources Land, and SOHO China.
We expect the F&B sector to remain a defensive choice, which offer investors some earnings
resiliency at times of economic uncertainties. Relatively stable demand coupled with benefits from
lower raw material costs should help drive earnings growth, with the sector expected to record
c.20% average earnings growth for FY09. Among sub-segments, we expect those with
discretionary demand, such as beer, would be more vulnerable to any economic downturn, hence
our Cautious stance towards brewers. We are also negative on dairy company Mengniu
considering the industry’s uncertainties and looming margin pressure. We prefer those involved in
staple products such as China Yurun and Tingyi.
As expected, total retail sales in China slowdown significantly to grow by 15.2% y-o-y in 2M09,
down from 19% growth in December 2008 and 20.8% growth in November 2008. We believe
operating environment for 1H09 could remain tough, especially on a high base from 1H08’s
21.4% retail sales growth. At this stage, most major general retailers in China have sustained
fairly steady performances from 4Q08 onwards. However, it could still be too early to draw the
conclusion as visibility for 2Q09 remains low. While we expect operating environment to stay
challenging in the near-term, current valuations are far from demanding, prompting us to
maintain our NEUTRAL view on the sector. For the full year of 2009, our economist expects CPI to
stay fairly flat, and total retail sales in China to rise by 16% y-o-y to RMB12.6bn.
China Mobile
(941)
Comba (2342)
China Overseas
Land (688)
China Resources
Land (1109)
SOHO China
(410)
China Yurun
(1068)
Li Ning (2331)
Page 74

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stock picks for China (Cont’d)
SECTOR REMARKS STOCK SELECTION
Industrial
Transportation -
Marine
Cautious
The recent rally in the BDI from trough does not change the gloomy earnings outlook of HK/China
listed shipping companies in 2009-10, as we have yet to find solid fundamental reasons to see a
sustained BDI rally at above breakeven levels for most of bulk carriers. Moreover, there have been
mixed signals from the FFA market, where the long-term forward FFA contracts are at lower
rates than the near-term contracts. This reflects the persistent cautious view to the freight rate
outlook in the coming 12 months. We believe the recent share price run-up to be an opportunity
for investors to sell into strength. Maintain Cautious stance on the HK/China Shipping Sector.
Industrial
Transportation - Toll
Road
Positive
We retain our Positive view on the China Toll Roads sector, which has done well relative to the
MSCI China Index in 1Q09. In particular, our BUY calls on Anhui Expressway (+17%) and Zhejiang
Expressway (+13%) stood out whilst our HOLD calls on Shenzhen Expressway (-7%) and Hopewell
Highway (-2%) also proved to be justified. In the mean time, we continue to like the sector for its
relatively more defensive earnings profile and sustainable dividend yields, as evidenced by recent
results from Anhui Expressway (60% payout) and Zhejiang Expressway (70% payout), both of
which did not disappoint with their dividends. Our top picks are Anhui Expressway (BUY, TP
HK$4.47) and Zhejiang Expressway (BUY, TP HK$5.83).
Anhui Expressway
(995)
Zhejiang
Expressway (576)
Oil & Gas
Positive
Pharmaceutical and
Healthcare
Positive
Technology
Cautious
Given the weaker global economic growth, we expect further negative news flow to overshadow
the crude oil market until the end of 2009. Negative news will be mainly on corporate earnings,
stemming from the contracted market demand, adverse effects from lower crude price to profit
margins, as well as impairment loss on high-cost inventory for the next quarter. However, we
believe the crude price should find strong fundamental support at US$40 a barrel, which we
deem as a cycle-trough price, to motivate sizeable cut in oil output, stimulate government’s
incentive to build strategic oil inventory and induce market speculation on gold / oil arbitrage. We
believe the current sector’s P/BV should already provide an attractive risk / reward balance for
long-term investors to accumulate the three oil majors in China.
The Chinese announced a Rmb850bn three-year budget to reform the healthcare market, which
should sustain the promising growth of pharmaceutical sector. The pharmaceutical industry has
shown that its growth is resilient to an economic slowdown. Moreover, trading at less than 0.2x
PEG and low single-digit PE, the pharmaceutical sector is deeply undervalued despite concerns
about low trading liquidity. Despite concerns about the small-mid cap counters being illiquid, their
distressed values and promising growth prospects justify our POSITIVE stance for the sector.
The knee jerk reaction to the global economic crisis was keenly felt in 4Q 2008 and the early part
of 2009. Fear prevailed as orders came to a screeching halt across all areas of the technology
supply chain. This means full year 4Q 2008 results as well as 1Q 2009 results are likely to be
dismal. The sales outlook for the industry remains negative as both consumers and businesses will
be cautious in their spending. We expect overall industry margins to decline on the back of
lowered ASPs and underutilization of capacity. Guidance from major global technology
companies remains unanimously cautious, indicating a continued subdued demand. On the
positive side, the drastic action by customers meant that channel inventories are healthy.
Stock valuations have reacted to the current situation, and have reached a low compared to past
years. We believe significant downside is unlikely, as the market has digested much of the
negative news. This can be reflected in the lowered industry estimates, as well as companies
lowering their capex plans and scale of operation. That being said, a significant rebound in the
short term is unlikely given a lack of catalysts and any improvement in fundamentals. Thus our
sector view is Cautious. For exposure in this sector, we prefer leading companies such as ASM
Pacific (522 HK) that are financially healthy, and will benefit from market consolidation as well as
any market turnaround.
Petrochina (857)
Sinopec (386)
Sino
Biopharmaceutical
(1177 )
China
Pharmaceutical
(1093 )
China Shineway
(2877)
ASM Pacific (522)
Page 75

Regional Equity Strategy 2Q 2009
China Communications
Construction
Bloomberg: 1800 HK | Reuters: 1800.HK
BUY HK$8.45 HSI : 13,131
Price Target : 12-month HK$ 11.22
Potential Catalyst: new port project
Analyst
Rachel Miu +852 2863 8843
rachel_miu@hk.dbsvickers.com
Price Relative
HK$
23.60
18.60
13.60
8.60
3.60
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08
Relative Index
China Communications Construction (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (RMB m) 2007A 2008E 2009F 2010F
Turnover 150,601 188,012 217,145 256,550
EBITDA 13,130 14,808 19,395 24,102
Pre-tax Profit 9,623 9,879 12,698 16,535
Net Profit 6,032 6,402 8,127 10,582
Net Pft (Pre Ex.) 6,032 6,402 8,127 10,582
EPS (RMB) 0.41 0.43 0.55 0.71
EPS (HK$) 0.46 0.49 0.62 0.81
EPS Gth (%) 39.5 6.1 26.9 30.2
Diluted EPS (HK$) 0.46 0.49 0.62 0.81
DPS (HK$) 0.10 0.12 0.16 0.20
PE (X) 18.3 17.2 13.6 10.4
P/Cash Flow (X) 13.1 10.8 8.4 6.9
EV/EBITDA (X) 9.9 9.3 7.6 6.3
Net Div Yield (%) 1.2 1.5 1.8 2.4
P/Book Value (X) 2.4 2.2 2.0 1.7
P/Book Value (X) 2.4 2.2 2.0 1.7
Net Debt/Equity (X) 0.2 0.3 0.4 0.3
ROAE (%) 15.7 13.5 15.3 17.6
Earnings Rev (%): - -
Consensus EPS (HK$): 0.65 0.95 1.29
ICB Industry: Industrials
ICB Sector: Construction & Materials
Principal Business: The largest port construction company in China
and is leveraging on its construction expertise to venture
into railway line construction.
369
319
269
219
169
119
69
19
Value play
CCC is likely to be the key beneficiary of the mega port
project in Tianjin. Also, the commencement of the HK-
Zhuhai-Macau bridge project at end 2009 will be another
earnings catalyst.
Tianjin new port development. The Tianjin
government is planning a large port project south of
Tianjin, which should stretch over several years. CCC
being the largest port constructor, should benefit from
the port construction (including dredging) as well as
provision of port machinery via its 47%-owned Shanghai
Zhenhua Port Machinery. The local government’s
growing influence on port projects is seen as positive,
particularly when the overall port development is vital in
rejuvenating the local industries. In addition, future port
development is extended beyond containers, to include
bulk, dangerous goods and others.
Major bridge project coming along. CCC is part of
the consortium involved in the design of the HK-Zhuhai-
Macau bridge project. We believe CCC is a strong
contender for the construction role, given its past
involvement in several major bridge projects in China like
the Donghai Bridge (31km length) and Runyang Yangtze
River Bridge (35.7km).
Cheap valuation. CCC is the cheapest listed
infrastructure stock on the HKEx, at 13.6x on FY09
earnings. We believe the current valuation has not
factored in the potential catalysts from the Tianjin port
and bridge projects. Given its positive earnings outlook
(with 2008-10 earnings CAGR of 29%) and potential
out-performance in share price, we see the current
valuation attractive. Maintain BUY and TP of HK$11.22.
At A Glance
Issued Capital - H shares (m shs) 4,428
- Non H shrs (m shs) 10,398
H shs as a % of Total 30
H Mkt Cap (HK$m/US$m) 37,412 / 4,825
Major Shareholders (%)
CCCG 70.13
Major H Shareholders (%)
Social Security Fund 9.16
Barclay s PLC 7.03
J P Morgan 5.99
Morgan Stanley 5.25
UBS AG 5.31
H Shares-Free Float (%) 67.26
Avg Daily Volume (m shrs) 39.8
Page 76
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-LM / sa- GL

Regional Equity Strategy 2Q 2009
China Communications Construction
Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2007A 2008E 2009F 2010F FY Dec 2007A 2008E 2009F 2010F
Turnover 150,601 188,012 217,145 256,550 Net Fixed Assets 26,503 34,003 35,708 37,721
Cost of Goods Sold (135,033 (168,901) (194,403) (228,137 Invts in Assocs & JVs 3,592 5,703 7,506 9,427
Gross Profit 15,568 19,111 22,742 28,413 Other LT Assets 34,553 40,809 46,378 50,593
Other Opng (Exp)/Inc (4,982) (7,873) (8,335) (9,770) Cash & ST Invts 23,616 21,358 18,138 20,998
Operating Profit 10,586 11,238 14,408 18,642 Inventory 5,863 8,945 9,164 10,837
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 44,782 53,087 59,947 73,599
Associates & JV Inc 91 (120) (30) (4) Other Current Assets 28,488 32,761 37,675 41,443
Net Interest (Exp)/Inc (1,054) (1,238) (1,679) (2,104) Total Assets 167,397 196,666 214,516 244,618
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 9,623 9,879 12,698 16,535 ST Debt 21,828 24,011 26,412 29,053
Tax (2,049) (1,877) (2,540) (3,307) Other Current Liab 71,758 89,704 94,600 109,483
Minority Interest (1,542) (1,600) (2,032) (2,646) LT Debt 12,633 14,528 15,981 17,579
Preference Dividend 0 0 0 0 Other LT Liabilities 7,216 7,706 8,277 8,674
Net Profit 6,032 6,402 8,127 10,582 Shareholder’s Equity 45,145 49,946 56,042 63,978
Net Profit before Except. 6,032 6,402 8,127 10,582 Minority Interests 8,817 10,771 13,205 15,851
EBITDA 13,130 14,808 19,395 24,102 Total Cap. & Liab. 167,397 196,666 214,516 244,618
Sales Gth (%) 31.1 24.8 15.5 18.1 Non-Cash Wkg. Cap 7,375 5,089 12,187 16,396
EBITDA Gth (%) 50.8 12.8 31.0 24.3 Net Cash/(Debt) (10,845) (17,181) (24,255) (25,634)
Opg Profit Gth (%) 63.2 6.2 28.2 29.4
Net Profit Gth (%) 88.6 6.1 26.9 30.2
Effective Tax Rate (%) 21.3 19.0 20.0 20.0
Cash Flow Statement (RMB m)
Rates & Ratio
FY Dec 2007A 2008E 2009F 2010F FY Dec 2007A 2008E 2009F 2010F
Pre-Tax Profit 9,623 9,879 12,698 16,535 Gross Margins (%) 10.3 10.2 10.5 11.1
Dep. & Amort. 2,453 3,691 5,018 5,463 Opg Profit Margin (%) 7.0 6.0 6.6 7.3
Tax Paid (1,094) (1,542) (1,600) (2,032) Net Profit Margin (%) 4.0 3.4 3.7 4.1
(Pft)/ Loss on disposal of FAs (418) 0 0 0 ROAE (%) 15.7 13.5 15.3 17.6
Assoc. & JV Inc/(loss) (91) 120 30 4 ROA (%) 4.1 3.5 4.0 4.6
Chg in Wkg.Cap. (7,813) 1,475 (8,595) (5,952) ROCE (%) 9.9 9.0 10.2 11.7
Other Operating CF (1,063) (1,112) (1,053) (1,313) Div Payout Ratio (%) 21.6 25.0 25.0 25.0
Net Operating CF 1,597 12,510 6,499 12,705 Net Interest Cover (x) 10.0 9.1 8.6 8.9
Capital Exp.(net) (9,067) (10,974) (6,369) (6,711) Asset Turnover (x) 1.0 1.0 1.1 1.1
Other Invts.(net) (1) (1,662) (1,828) (1,006) Debtors Turn (avg days) 94.0 95.0 95.0 95.0
Invts in Assoc. & JV (1,533) (2,226) (1,830) (1,920) Creditors Turn (avg days) 148.0 155.4 154.0 143.4
Div from Assoc & JV 217 0 0 0 Inventory Turn (avg days) 13.6 16.4 17.5 16.4
Other Investing CF (5,172) (3,830) (3,325) (4,179) Current Ratio (x) 1.1 1.0 1.0 1.1
Net Investing CF (15,556) (18,692) (13,353) (13,815) Quick Ratio (x) 0.7 0.7 0.6 0.7
Div Paid (1,021) 0 0 0 Net Debt/Equity (X) 0.2 0.3 0.4 0.3
Chg in Gross Debt 4,099 4,078 3,854 4,239 Capex to Debt (%) 26.3 28.5 15.0 14.4
Capital Issues 0 0 0 0 Z-Score (X) CASH CASH CASH CASH
Other Financing CF 2,561 (225) (302) (332) N.Cash/(Debt)PS (RMB) (0.8) (1.3) (1.9) (2.0)
Net Financing CF 5,639 3,853 3,552 3,907 Opg CFPS (RMB) 0.72 0.84 1.16 1.43
Net Cashflow (8,320) (2,329) (3,302) 2,797 Free CFPS (RMB) (0.57) 0.12 0.01 0.46
Interim Income Statement (RMB m)
Segmental Breakdown
FY Dec 1H2007 2H2007 1H2008 2H2008 FY Dec 2007A 2008E 2009F 2010F
Turnover 58,674 91,927 75,749 112,263 Revenues (RMB m)
Cost of Goods Sold (52,200) (82,833) (68,289) (100,612 Construction 100,452 125,753 144,754 170,998
Gross Profit 6,474 9,094 7,460 11,651 Design 6,434 7,474 8,380 9,648
Other Oper. (Exp)/Inc (1,681) (3,301) (3,286) (4,587) Dredging 14,259 18,537 21,321 25,172
Operating Profit 4,793 5,793 4,174 7,064 Port Machinery 22,694 27,396 31,573 37,356
Other Non Opg (Exp)/Inc 0 0 0 0 Others 6,762 8,852 11,116 13,377
Associates & JV Inc 45 46 (89) (31) Total 150,601 188,012 217,145 256,550
Net Interest (Exp)/Inc (413) (641) (530) (708) Gross Profit (RMB m)
Exceptional Gain/(Loss) 0 0 0 0 Construction 7,303 9,535 10,965 13,456
Pre-tax Profit 4,425 5,198 3,555 6,324 Design 1,792 1,687 2,061 2,567
Tax (974) (1,075) (694) (1,183) Dredging 2,570 2,649 3,481 4,621
Minority Interest (707) (835) (661) (939) Port Machinery 3,343 4,138 5,086 6,389
Net Profit 2,744 3,288 2,200 4,202 Others 560 1,103 1,149 1,379
Net profit bef Except. 2,744 3,288 2,200 4,202 Total 15,568 19,111 22,742 28,413
EBITDA 5,914 7,216 5,590 9,218 Gross Profit Margins (%)
Construction 7.2 7.5 7.5 7.8
Sales Gth (%) 24.3 35.8 29.1 22.1 Design 27.1 22.0 24.0 26.0
EBITDA Gth (%) 64.6 41.1 (5.5) 27.7 Dredging 17.7 14.0 16.0 18.0
Opg Profit Gth 90.4 45.9 (12.9) 21.9 Port Machinery 14.7 15.1 16.1 17.1
Net Profit Gth (%) 153.1 55.5 (19.8) 27.8 Others 7.8 12.0 10.0 10.0
Gross Margins (%) 11.0 9.9 9.8 10.4 Total 10.3 10.2 10.5 11.1
Opg Profit Margins (%) 8.2 6.3 5.5 6.3
Net Profit Margins (%) 4.7 3.6 2.9 3.7
Source: Company, DBS Vickers
Page 77

Regional Equity Strategy 2Q 2009
China Mobile
Bloomberg: 941 HK | Reuters: 0941.HK
BUY HK$66.70 HSI : 13,131
Price Target : 12-month HK$83.0
Potential Catalyst: Progress in TD-SCDMA development, faster-thanexpected
increase in TD-SCDMA users.
Analyst
Steven Liu CFA, +852 2971 1780
steven_liu@hk.dbsvickers.com
Price Relative
163
143
123
103
83
63
43
HK$
Relative Index
23
89
2005 2006 2007 2008 2009
China Mobile (LHS) R elative H SI IN D EX (R H S)
Forecasts and Valuation
FY Dec (RMB bn) 2007A 2008A 2009F 2010F
Turnover 357 412 458 500
EBITDA 194 217 240 262
Pre-tax Profit 129 150 163 178
Net Profit 87 113 124 136
Net Pft (Pre Ex.) 87 113 124 136
EPS (RMB) 4.35 5.63 6.15 6.70
EPS (HK$) 4.94 6.39 6.98 7.61
EPS Gth (%) 31.1 29.3 9.3 9.0
Diluted EPS (HK$) 4.86 6.29 6.87 7.49
DPS (HK$) 2.26 2.73 3.05 3.34
BV Per Share (HK$) 21.18 24.02 28.37 33.04
PE (X) 13.5 10.4 9.6 8.8
P/Cash Flow (X) 7.6 6.4 5.8 5.3
EV/EBITDA (X) 5.1 4.6 4.0 3.5
Net Div Yield (%) 3.4 4.1 4.6 5.0
P/Book Value (X) 3.1 2.8 2.4 2.0
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 25.1 28.2 26.7 24.8
Earnings Rev (%): - -
Consensus EPS (HK$): 6.82 7.20
ICB Industry: Telecommunications
ICB Sector: Mobile Telecommunications
Principal Business: Leading mobile services provider in Mainland
China
289
239
189
139
Fundamentals remain solid
Among the three telcos in China, CM offers the best nearterm
earnings visibility. Its fundamentals remain solid,
evidenced by its unrivaled 2G/2.5G network coverage and
RMB180bn net cash. Backed by the government, we
remain optimistic about CM’s TD-SCDMA endeavor.
Lowered forecasts. CM has less than 400,000 TD-SCDMA
users currently, and is targeting 30m users in three years’
time. The TD-SCDMA based 3G voice tariffs are similar to its
2G voice tariffs, while 3G data services are still in the early
stage. We estimate revenue contribution from TD-SCDMA,
net of lease fee and handsets subsidy, at less than 1% by
2010. Instead, CM’s higher capex budget (RMB130bn-
RMB136bn for FY09-10) and opex will eat into its bottom
lines in the next few years. Though we recently lowered our
forecasts to include 3G assumptions, we see upward
revision potential from faster-than-expect progress in the
TD-SCDMA.
Fundamentals remain solid. Despite the gloomy nearterm
outlook, CM’s earning visibility remains the best
among the three China telcos. Besides, its unrivaled
network coverage and dominance in the rural market is
least threatened by the other two telcos in the foreseeable
near future. With strong government support, CM has a
winning edge with its TD-SCDMA endeavor. Its strong
financial position (RMB180bn net cash as at Dec08) and
strong R&D ability give it leeway in this rapid-evolving
global telecoms market (like its self-launched Fetion mobile
IM platform, and to-be-launched ‘Ophone’).
Undemanding valuation. We have maintained our
forecasts and target price at HK$83.0. Looking ahead, we
expect CM to be more aggressive in its TD-SCDMA efforts,
including platform, terminals and contents, etc. This could
be a share price catalyst. The counter is trading at 9.6x
FY09F PE, which is undemanding relative to major global
peers’ valuations. Maintain BUY.
At A Glance
Issued Capital (m shrs) 20,055
Mkt Cap (HK$m/US$m) 1,337,672 / 172,596
Major Shareholders (%)
China Mobile (HK) Group 74.28
Free Float (%) 25.72
Avg Daily Volume (m shrs) 22.7
Page 78
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-SGC / sa- RM

Regional Equity Strategy 2Q 2009
China Mobile
Income Statement (RMB bn)
Balance Sheet (RMB bn)
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Turnover 357 412 458 500 Net Fixed Assets 257 323 372 410
Cost of Goods Sold (233) (270) (300) (329) Invts in Assocs & JVs 0 0 0 0
Gross Profit 124 143 157 171 Other LT Assets 99 94 94 93
Other Opng (Exp)/Inc 3 3 2 2 Cash & ST Invts 189 193 236 298
Operating Profit 127 145 160 174 Inventory 3 4 4 5
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 10 11 12 13
Associates & JV Inc 0 0 0 0 Other Current Assets 6 7 7 8
Net Interest (Exp)/Inc 2 4 3 5 Total Assets 563 632 725 828
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 129 150 163 178 ST Debt 2 2 2 2
Tax (42) (37) (39) (42) Other Current Liab 153 169 184 201
Minority Interest 0 0 0 0 LT Debt 10 10 10 10
Preference Dividend 0 0 0 0 Other LT Liabilities 24 24 24 24
Net Profit 87 113 124 136 Shareholder’s Equity 374 426 505 589
Net Profit before Except. 87 113 124 136 Minority Interests 0 1 1 1
EBITDA 194 217 240 262 Total Cap. & Liab. 563 632 725 828
Sales Gth (%) 20.9 15.5 11.0 9.3 Non-Cash Wkg. Cap (134) (148) (160) (175)
EBITDA Gth (%) 21.8 11.5 10.6 9.1 Net Cash/(Debt) 177 182 224 286
Opg Profit Gth (%) 33.6 14.4 10.0 8.7
Net Profit Gth (%) 31.9 29.6 10.0 9.3
Effective Tax Rate (%) 32.5 24.6 23.8 23.8
Cash Flow Statement (RMB bn)
Rates & Ratio
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Pre-Tax Profit 129 150 163 178 Gross Margins (%) 34.8 34.6 34.4 34.3
Dep. & Amort. 68 72 80 88 Opg Profit Margin (%) 35.6 35.2 34.9 34.7
Tax Paid (36) (37) (39) (42) Net Profit Margin (%) 24.4 27.4 27.1 27.1
(Pft)/ Loss on disposal of FAs 3 4 5 5 ROAE (%) 25.1 28.2 26.7 24.8
Assoc. & JV Inc/(loss) 0 0 0 0 ROA (%) 16.5 18.9 18.3 17.5
Chg in Wkg.Cap. 2 14 12 15 ROCE (%) 22.3 25.1 24.2 22.7
Other Operating CF 2 (3) (2) (3) Div Payout Ratio (%) 45.8 42.9 43.8 44.0
Net Operating CF 169 198 219 241 Net Interest Cover (x) NM NM NM NM
Capital Exp.(net) (99) (136) (134) (131) Asset Turnover (x) 0.7 0.7 0.7 0.6
Other Invts.(net) 0 0 0 0 Debtors Turn (avg days) 10.0 9.4 9.3 9.3
Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 133.6 124.8 126.3 130.6
Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) 6.9 6.5 6.7 6.7
Other Investing CF 3 6 5 6 Current Ratio (x) 1.3 1.3 1.4 1.6
Net Investing CF (96) (130) (129) (125) Quick Ratio (x) 1.3 1.2 1.3 1.5
Div Paid (34) (63) (48) (54) Net Debt/Equity (X) CASH CASH CASH CASH
Chg in Gross Debt (3) 0 0 0 Capex to Debt (%) 829.8 1,147.6 1,127.1 1,102.5
Capital Issues 2 2 2 2 Z-Score (X) 6.8 (24.9) (20.8) (17.3)
Other Financing CF (2) (2) (2) (2) N.Cash/(Debt)PS (RMB) 10.0 10.2 12.6 16.0
Net Financing CF (38) (63) (48) (54) Opg CFPS (RMB) 9.46 10.5 11.6 12.7
Net Cashflow 35 5 42 63 Free CFPS (RMB) 3.98 3.52 4.81 6.18
Interim Income Statement (RMB bn)
Segmental Breakdown
FY Dec 2H2006 1H2007 2H2007 1H2008 FY Dec 2007A 2008A 2009F 2010F
Turnover 158 167 190 196 Revenues (RMB m)
Cost of Goods Sold (108) (113) (120) (127) Voice business 265 299 325 347
Gross Profit 50 54 71 70 SMS 42 50 56 61
Other Oper. (Exp)/Inc 1 2 1 1 Non SMS data 30 41 53 67
Operating Profit 51 55 72 71 Voice VAS 19 22 24 26
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 0 0 0 0 Total 357 412 458 500
Net Interest (Exp)/Inc 1 1 1 2
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 52 56 73 73
Tax (16) (18) (24) (18)
Minority Interest 0 0 0 0
Net Profit 36 38 49 55
Net profit bef Except. 36 38 49 55
EBITDA 81 90 104 104
Sales Gth (%) 23.3 21.6 20.2 17.9
EBITDA Gth (%) 14.1 14.7 28.6 16.1
Opg Profit Gth 20.2 25.4 40.7 29.2
Net Profit Gth (%) 21.5 25.7 37.1 44.7
Gross Margins (%) 31.6 32.1 37.1 35.6
Opg Profit Margins (%) 32.3 33.0 37.8 36.2
Net Profit Margins (%) 22.6 22.8 25.8 27.9
Source: Company, DBS Vickers
Page 79

Regional Equity Strategy 2Q 2009
HSBC
Bloomberg: 5 HK | Reuters: 0005.HK
SELL HK$41.50 HSI : 13,131
Price Target : 12-Month HK$25.00
Potential Catalyst: Any financial crisis in Eastern & Central Europe, and
volatility in the global banking system
Analyst
Jasmine Lai · +852 2971 1926 ·
jasmine_lai@hk.dbsvickers.com
Price Relative
HK$
149.70
129.70
109.70
89.70
69.70
49.70
29.70
2005 2006 2007 2008
Relative
Index
HSBC Holdings (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (US$m) 2007A 2008A 2009F 2010F
Pre-prov. Profit 39,951 43,147 42,459 43,945
Pre-prov. Profit Gth (%) 25.6 8.0 -1.6 3.5
Pretax Profit 24,212 9,307 10,112 12,548
Net Profit 19,133 5,728 6,645 8,265
EPS (HK$) 12.80 3.64 3.31 3.68
EPS Gth (%) 17.8 (71.5) (9.1) 11.2
PE (x) 3.2 11.4 12.5 11.3
DPS (HK$) 7.02 5.00 2.18 2.22
Div Yield (%) 16.9 12.0 5.3 5.4
Book Value (HK$) 84.0 60.0 44.7 45.8
P/Book Value (x) 0.5 0.7 0.9 0.9
ROE (%) 16.2 5.2 6.9 8.2
ROE (ex exceptional) (%) 16.2 14.7 10.9 11.4
ROA (%) 0.91 0.23 0.25 0.29
- Earnings Rev (%)
- -
Consensus EPS (HK$) 4.01 4.78
228
178
128
78
28
Broken hearts
We have cut our 2009 book value forecast by 14%, and
2009-10 net profit forecasts by 16% and 31% respectively.
HSBC’s book value remains highly vulnerable to further MTM
losses on securities and continued drag from HSBC Finance.
Our 12-month target price is cut to HK$25.0 (from HK$40.0),
based on 0.56x Mar-10 book.
Further provision on HSBC Finance & MTM losses. HSBC
still have US$272bn in exposure to relatively risky securities.
Besides, the run-off loan portfolio at HSBC Finance remains
high at US$100bn and it will continue its credit card business
which still has US$46.6bn receivables outstanding. These
exposures are very high compared with US$94bn in book
value as at Dec-08. The fact that HSBC’s book value shrank
27% in 2008 highlighted that it is susceptible to further
deepening of global financial tsunami. For every 10% MTM
loss on its US$272bn investment securities and 10%
provisioning on the US$100bn run-off portfolio, it would
result in US$37.2bn (or 40%) reduction in book value which
is equivalent to more than double the rights issue size of
US$17.7bn.
Further goodwill impairment on HSBC Finance. We
estimate the fair value of HSBC Finance should be negative
US$9.3bn. This together with the US$14.1bn acquisition cost
means that impairment on HSBC Finance could reach c.
US$23.4bn ultimately. Given HSBC has already made
US$10.6bn goodwill impairment in 2008, we expect further
impairment of US$12.9bn on HSBC Finance over the next five
years (i.e. when the non-core loan portfolio probably fully run
off by 2013). The negative P/L impact would therefore further
reduce its book value in future.
Being marginalized. With more banks being nationalized or
receiving capital injection from governments, privately owned
banks like HSBC may be marginalized and it may need to
maintain an above-peers’ CAR. We project its tier I CAR to fall
back to 8.3% as at Dec-09 (Dec-08 proforma after rights
issue: 9.8%; Dec-07: 8.3%), which is slightly below the
median of its target range of 7.5-10%. Hence, further fundraising
need cannot be ruled out.
ICB Industry : Financials
ICB Sector : Banks
Principal Business: HSBC Holdings plc is the holding company for
the HSBC Group. The Company provides a variety of international
banking and financial services, including retail and corporate
banking, trade, trusteeship, securities, custody, capital markets,
treasury, private and investment banking, and insurance. The Group
operates worldwide.
At A Glance
Issued Capital (m shrs) 17,205
Mkt Cap (HK$m/US$m) 714,000 / 92,086
Major Shareholders (%)
No Substantial Shareholder
Free Float (%) 100.00
Avg Daily Volume (m shrs) 42.6
Page 80
www.dbsvickers.com
Refer to important disclosures at the end of this report
Sa-GL

Regional Equity Strategy 2Q 2009
HSBC
Income Statement (US$m)
Income Statement (YoY%)
FY Dec 2007A 2008A 2009F 2010F
Net interest income 37,795 42,563 41,143 40,135
Non-interest income 41,198 39,119 36,547 38,262
Operating income 78,993 81,682 77,690 78,397
Operating expenses (39,042) (38,535) (35,231) (34,452)
Pre-provision profit 39,951 43,147 42,459 43,945
Provision charge (17,242) (24,937) (29,950) (29,505)
Associates 1,503 1,661 1,467 1,329
Excep. (Impairment on
HI)
0 (10,564) (3,864) (3,220)
Profit before tax 24,212 9,307 10,112 12,548
Taxation & MI (5,079) (3,579) (3,467) (4,283)
Attributable profit 19,133 5,728 6,645 8,265
Core earnings 19,133 16,292 10,509 11,486
PBT & Loan breakdown by geography (US$m)
FY Dec 2007A 2008A 2009F 2010F
Net interest income 9.6% 12.6% -3.3% -2.5%
Non-interest income 33.4% -5.0% -6.6% 4.7%
Operating income 20.8% 3.4% -4.9% 0.9%
Operating expenses 16.4% -1.3% -8.6% -2.2%
Pre-provision profit 25.6% 8.0% -1.6% 3.5%
Provision charge 63.1% 44.6% 20.1% -1.5%
Profit before tax 9.6% -61.6% 8.7% 24.1%
Attributable profit 21.2% -70.1% 16.0% 24.4%
Core earnings 21.2% -70.1% 16.0% 24.4%
Key financial ratio
2008 2009F 2007A 2008A 2009F 2010F
(As %
(As % (YoY
Net cust loans (YoY%) 13.0 (5.0) (4.9) (2.7)
(US$m) Total) (YoY%) (US$m) Total) %) Non-interest income ratio 52.2 47.9 47.0 48.8
Pre-tax profit breakdown
Cost-to-income ratio 49.4 47.2 45.3 43.9
Europe 10,869 117% 26% 7,907 78% -27% Prov charge / Avg loans 1.9 2.6 3.3 3.4
North America (15,528) -167% -17164% (9,087) -90% -41% Effective tax rate 15.5 30.2 25.0 25.0
Hong Kong 5,461 59% -26% 4,468 44% -18% Dividend payout (%) 55.5 134.5 72.6 60.0
Rest of Asia 6,468 69% 8% 5,618 56% -13% ROE 16.2 5.2 6.9 8.2
Latin America 2,037 22% -6% 1,207 12% -41% ROE (ex exceptional) 16.2 14.7 10.9 11.4
TOTAL 9,307 100% -62% 10,112 100% 9% ROA 0.91 0.23 0.25 0.29
Loan breakdown
Europe 426,191 46% -6% 409,143 46% -4%
Hong Kong 100,220 11% 12% 97,715 11% -3%
Rest of Asia 107,956 12% 6% 113,354 13% 5%
North America 256,214 27% -12% 225,468 25% -12%
Latin America 42,287 5% -12% 41,018 5% -3%
TOTAL 932,868 100% -5% 886,698 100% -5%
Interim Income Statement (US$m)
Rolling P/B chart (x)
1H07 2H07 1H08 2H08
P&L items:
Net interest income 18,230 19,565 21,178 21,385
Non-interest income 20,263 20,935 18,297 20,822
Operating income 38,493 40,500 39,475 42,207
Operating expenses (18,611) (20,431) (20,140) (18,395)
Pre-provision profit 19,882 20,069 19,335 23,812
Prov. & other (6,346) (10,896) (10,058) (14,879)
Associates 623 880 970 691
Excep. (Impairment on
HI) 0 0 0 (10,564)
Profit before tax 14,159 10,053 10,247 (940)
Taxation & MI (3,264) (1,815) (2,525) (1,054)
Attributable profit 10,895 8,238 7,722 (1,994)
x %
4.0
25
3.5
Current = 0.92x
3.0
20
2.5
15
2.0
1.5
10
1.0
0.5
0.68
5
0.0
0
Jan-95
Jan-97
Jan-99
P/B
Jan-01
Jan-03
Jan-05
Jan-07
ROE
Jan-09
Source: Company, DBS Vickers
Page 81

Regional Equity Strategy 2Q 2009
Country Assessment
Malaysia
Value hunting
KLCI Current : 852.18
KLCI 3 /12 mths Target
Expected Return
:
:
800 / 900
-6% / +6%
By end-March 2009, the KLCI would have seen a
downtrend stretching five quarters, close to 1997/98’s
five and half quarters. In our view, further market dips
are likely in the near term, but for stocks that have
experienced early capitulation, there should be relatively
less downside. We see value in selected stocks following
indiscriminate selldowns. We also like defensive plays
that provide attractive yields.
We expect GDP to contract over the next three quarters and 2009 GDP
contraction of -1.2%. Earnings are still on the downtrend. Our forecast is for
earnings in our stock universe to fall 8.3% this year. That said, we believe
Malaysia is on a stronger footing compared to the Asian crisis. Given the pressure
on near term growth, we believe the government is likely to accelerate the pumppriming
that will help revive fortunes in the construction industry, where our top
pick is IJM Corp.
We are keen on:- (i) defensive stocks such as PLUS, Litrak, YTL Power, Public Bank,
KLCCP where yields are sustained by resilient cash flows with good visibility,
utility-type business models and/or superior asset quality; and (ii) oversold/value
stocks including Resorts, Genting, IJM Corp, MAHB, AMMB and EON Capital.
Although there may still be downside to earnings in some cases, we believe the
bad news for these stocks are in the price. Our top sells/FVs are Sime Darby
(expensive), BCHB (weak capital markets) and Bursa Malaysia (high valuations).
Wong Ming Tek (603) 2711 0956 mingtek@hwangdbsvickers.com.my
Malaysia Research Team
Page 82
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SCG / sa: TW

Regional Equity Strategy 2Q 2009
Country Assessment
Market Data
Indices Closed Chg Net -1 mth -3 mth -6 mth -12 mth 52-Week
-1 mth (%) (%) (%) (%) High Low
KLCI 852 (47) (5) (3) (17) (28) 1,301 829
KLCON Index 163 (5) (3) (1) (9) (28) 247 135
KLCSU Index 280 (4) (1) 0 (3) (8) 338 262
KLFIN Index 6,315 (817) (11) (7) (24) (31) 10,058 6,136
KLIND Index 2,054 (59) (3) (2) (7) (17) 2,741 1,995
KLPRO Index 64 (3) (4) (5) (23) (30) 109 64
KLPLN Index 4,386 (6) (0) 6 (9) (35) 8,034 3,119
KLPRP Index 500 (39) (7) (3) (20) (31) 824 495
KLSER Index 114 (5) (4) (3) (18) (26) 172 112
KLTEC Index 12 (2) (12) (13) (33) (45) 23 12
FBM2B Index 3,835 (167) (4) (4) (23) (33) 5,965 3,794
FBMSC Index 6,093 (530) (8) (8) (25) (36) 10,874 6,024
Transactions:
YTD
Volume (billion) 20
Value (RM billion) 30
Source: Bloomberg
Market Review
The KLCI greeted the New Year positively with a bounce to
hit a recent high of 927 points in January, but subsequently
spiralled downwards to 852 pts (-4.6%). This was largely on
poor investor sentiments in a weak economic environment.
During the quarter, Bank Negara Malaysia cut its benchmark
interest rate twice. The first was in January, when the
Overnight Policy Rate (OPR) was reduced by 75 bps to 2.5%,
while the Statutory Reserve Requirement (SRR) for banks was
lowered to 2%, from 3.5%. In February, the bank further
slashed the OPR by 50 bps to 2%, and the SRR from 2% to
1%.
In March, Deputy Prime Minister Dato Sri Najib Tun Razak
tabled the second stimulus package valued at RM60b over a
two year period, raising the government budget deficit to
7.6% from 4.8% of GDP. The headline number of RM60b
over two years was on the higher end of expectations. It
included measures to stimulate domestic demand
(acceleration of 9MP construction projects) and cushion
effects of economic slowdown (reducing unemployment).
The official government GDP growth forecast has been
lowered to between +1 and -1% (from 3.5%).
The Industrial Production Index (IPI) for Dec 2008 dropped
15.6% y-o-y, after slipping 8.2% (revised) in November.
Malaysia’s exports in January slid 27.8% y-o-y to RM38.3b
as electrical and electronic and crude petroleum exports fell.
Total imports fell 32% y-o-y to RM29.47b.
The ruling coalition Barisan Nasional (BN) took over the Perak
state administration after gaining the support of four
opposition assemblymen.
On the corporate front, both TM International Bhd (TMI) and
Maybank announced plans to raise RM5.25b and RM6b,
respectively via rights issues to lower their total debts. Both
large caps saw heavy selldowns before regaining some
ground. Meanwhile, the 4Q08 results season saw 30% of
companies in our universe report disappointing earnings.
This percentage remains relatively high, although lower than
3Q08’s 34%.
For the quarter, crude oil prices gained 7% to USD52 per
barrel. Malaysian crude palm oil futures followed this trend
and rose 13% to RM1,911/MT. The Ringgit weakened
against the US dollar, losing 5% at the end of 1Q09 at
RM3.653/USD.
The country’s latest trade figures showed that the current
economic downturn could be more severe than anticipated.
Page 83

Regional Equity Strategy 2Q 2009
Country Assessment
Kuala Lumpur Composite Index key events
1600
1500
1400
1300
J un 08
4 - Subsidies revamp
18 - SAPP's vote of no
confidence agst PM
26 - 9MP mid-term review
29 - Anwar Ibrahim's
sodomy case no.2
Jul 08
10 - PM to hand over
power to Najib in 2010
Aug 08
23 - Fuel prices reduced
28 - Anwar sworn in as MP
29 - Budget 2009
Sep 08
11 - IPP windfall tax changed
for 1 year only
12 - 3 ISA arrests
15 - Lehman Brothers
bankrupt, while Merrill Lynch
sold to Bank of America
16 - Congressional leaders
proposed US$700b allocation
to buy bad assets of troubled
banks
Oct 08
8 - PM announced resignation
in Mar 09
11 - Koh Tsu Koon became
Gerakan president after
winning uncontested
15 - Hindraf banned
19 - MCA party election
Nov 08
2 - Deputy PM won the Umno
president post uncontested
4 - RM7b stimulus package
announced
25 - Bank Negara cuts OPR to
3.25%
Dec 08
3 - Zaid Ibrahim sacked from
Umno
J an 09
9 - BNM cuts OPR to 2.5%
17 - PAS won T'ganu byelection
F eb 09
6 - BN took over Perak
11 - Power tariff revised
18 - Perak MB and
assemblymen suspended
23 - Govt vetoed East@Labu
airport
24 - BNM cuts OPR to 2.0%
27 - Toll hike defered
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 - UMNO General Assembly
Index pts
1200
1100
1000
900
800
700
Mar-08 Apr-08 May-08 J un-08 J ul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 J an-09 Feb-09 Mar-09
Source: DBS Vickers
Fifth quarter of market decline; GDP growth trending down
The current downtrend would have stretched close to five
quarters by end March 2009. The benchmark KLCI has lost
44% from its all-time high of 1,516 points on 11 Jan 2008
to current levels of 852 points. This is the third longest
downtrend over the last 30 years. The more recent 1998
Asian Financial Crisis saw a stock market decline of 79%
over 5.5 quarters.
In quarterly GDP terms, we have seen slower growth in the
last three quarters compared to 1Q08’s 7.4% growth. DBS
expects quarterly GDP to deteriorate and contract y-o-y in
the coming three quarters (1Q-3Q09) with 2009 GDP
contraction of -1.2% (from 2008’s +4.6%). This is on the
back of weaker manufacturing sales. Despite the weak
outlook in the coming quarters, we believe Malaysia is on a
much stronger footing compared to the Asian Financial
Crisis period, when GDP contracted 7.4% in 1998.
Expect GDP contraction this year
MY R mn
% Y oY
GDP
170000
10
GDP growth
150000
DBS f 8
6
130000
4
110000
2
90000
0
-2
70000
-4
50000
-6
Mar- 05 Mar- 06 Mar- 07 Mar- 08 Mar- 09
Source: DBS
Page 84

Regional Equity Strategy 2Q 2009
Country Assessment
Growth
On a slippery slope. Earnings are still on a downtrend. Our
universe earnings fell 38% y-o-y and 9% q-o-q in 4Q08. This is
a smaller drop compared to 3Q08 earnings, which fell 29% y-oy
and 30% q-o-q. We saw: (i) declining commodity prices
squeeze Plantation and the Steel sectors, which booked higher
provisions q-o-q. Sime Darby accounted for the largest absolute
drop in net profit q-o-q (down 68% to RM278.5m for 4Q08 vs
RM867.0m in 3Q08) on significantly weaker plantation earnings
and weaker property and industrial divisions; and (ii) lumpy
recognition of impairment on investments (Resorts), FX losses
(IOI, Sime), and unwinding of fuel hedging contracts (AirAsia).
Relatively high percentage of disappointments. In the recent
4Q08 results season, the proportion of companies that reported
disappointing earnings were still relatively high at 30% although
lower than 3Q08’s 34%. Several large caps disappointed. This
included IOI Corp (realized and unrealized FX losses), TMI (weak
Rupiah, FX losses and lumpy provisions), KL Kepong (investment
and inventory write-down), AirAsia (unwinding of fuel hedging
contracts and interest rate swaps), and MISC (liner losses).
Earnings still on downtrend
(RMm)
12,000
10,000
8,000
6,000
4,000
2,000
-
Source: DBS Vickers
4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08
Another downward revision. Since the last quarter, our 2008
universe earnings growth is lowered by 5.1%. Meanwhile, 2009
earnings are cut by another 4.7%. The biggest cuts were in
Plantation (lower resource-based manufacturing margins, FX
losses), Telecommunications (weak rupiah and slower revenue
growth), Steel (lower prices and volume), Financials (lower loan
growth, NII, higher provisions) and Oil & Gas (slower new order
flows, lower margins).
Lower y-o-y net profit performance
(RMm) 4Q07 3Q08 4Q08 % chg
y-o-y
% chg
q-o-q
Banking 2,483 2,532 2,498 1 -1
Non-bank financial 50 20 14 -73 -33
Consumer 228 320 215 -6 -33
Manufacturing 185 214 202 9 -6
Motor 188 245 57 -70 -75
Oil & Gas 118 178 167 42 -3
Conglomerate 907 1,074 573 -37 -47
Construction 437 322 154 -65 -52
Concessionaires 417 267 320 -23 20
Gaming 1,080 529 937 -13 16
Plantation 1,111 763 509 -54 -35
Power 1,518 -103 711 -53 307
Property 315 183 226 -28 24
Telecommunication 1,039 338 405 -61 20
Transportation 875 286 69 -92 -73
Total 10,983 6,887 6,806 -38 -8
Source: DBS Vickers
Weaker operating cashflows. In terms of operating cashflow,
the motor industry saw a sharp q-o-q contraction, as earnings
fell and inventories rose (Proton, UMW). Sime Darby’s operating
cashflow deteriorated following an abrupt surge in inventories,
likely car and downstream palm oil inventories. Sectors with
relatively strong cashflows for the quarter include
Telecommunications (better collection at Telekom), Gaming
(resilient cashflow from Genting & Resorts), and Plantation
(lower inventory for IOI).
Weaker operating cashflow
(RMm) 2Q08 3Q08 4Q08 % chg
q-o-q
Non-bank financial (346) 334 (146) -143.6
Consumer 131 502 575 14.6
Manufacturing (162) (207) 364 -276.2
Motor 862 746 (66) -108.8
Oil & Gas 485 (292) 233 -179.8
Conglomerate 2,084 (193) (626) 224.1
Construction 287 217 56 -74.2
Concessionaires 545 461 585 26.8
Gaming 1,495 1,786 1,351 -24.4
Plantation 889 947 1,547 63.3
Power 1,300 2,731 786 -71.2
Property 477 240 288 20.0
Telecommunication 1,232 1,427 2,454 72.0
Transportation 1,667 458 582 27.0
Total 11,002 9,199 7,970 -13.4
Source: DBS Vickers
Page 85

Regional Equity Strategy 2Q 2009
Country Assessment
Earnings contraction this year. Following our earnings eursion,
we expect 8.3% earnings contraction in 2009. The key drag on
earnings will come from Plantation and Conglomerates (Sime
Darby and PPB Group), on lower CPO price assumptions. We
also expect weaker earnings for Banking (due mainly to weaker
non-interest income), and Manufacturing (lower steel prices).
Below consensus. Comparing our 2009 net profit forecast for
each company against consensus, the sum of our universe profit
is 11% below consensus. This indicates that our forecasts is
relatively more conservative. Although our forecasts are broadly
lower across most sectors, the biggest variances are from the
plantation, bank and transport (largely MISC) sectors.
Nevertheless, given the weaker GDP growth outlook for 1Q09
and 2009, we believe there could still be downside risk to our
earnings.
Downside to earnings from banks. Despite the constant
downgrades last year, we believe there could still be
downside to earnings. Banks, accounting for 29% of our
universe earnings, could see higher provision charge-off rates
as NPLs increase with the weaker economic outlook.
For every 10 bps increase in provision charge-off rates (current
average at 77 bps), our bank sector earnings will fall by 5%.
This is equivalent to a 10 bps increase in net NPLs to 2.4%
from 2.3% (based on our universe). The higher charge-off
rates will reduce our universe earnings by 1ppt.
Page 86

Regional Equity Strategy 2Q 2009
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 10,348.8 9,578.4 10,112.5 5.0 (7.4) 5.6 9.3 10.1 9.6
Consumer 1,098.8 1,192.1 1,300.8 10.6 8.5 9.1 15.5 14.3 13.1
Manufacturing/Industrial 910.3 481.4 545.5 45.9 (47.1) 13.3 3.1 5.9 5.2
Motor 652.3 249.7 494.6 367.8 (61.7) 98.1 11.4 29.8 15.0
Oil & Gas 620.5 766.5 831.3 41.9 23.5 8.4 4.9 4.0 3.7
Conglomerate 4,531.3 3,023.0 2,934.9 55.4 (33.3) (2.9) 9.7 14.6 15.0
Construction 1,177.9 1,192.4 1,383.0 20.6 1.2 16.0 10.8 10.7 9.2
Concessionaires 1,169.6 1,225.8 1,286.1 (8.8) 4.8 4.9 13.1 12.5 11.9
Gaming 2,912.0 3,078.4 3,157.8 (12.4) 5.7 2.6 10.5 9.9 9.7
Plantation 4,022.3 2,520.5 2,820.5 40.4 (37.3) 11.9 9.9 15.9 14.2
Power 3,598.4 3,190.4 3,443.6 (25.7) (11.3) 7.9 10.6 11.9 11.0
Property 723.8 824.5 865.2 (0.5) 13.9 4.9 10.5 9.2 8.8
Telecommunication 2,488.3 2,509.1 2,619.1 (35.5) 0.8 4.4 15.2 15.0 14.4
Transportation/Logistic 1,450.3 2,892.9 3,032.0 (42.9) 99.5 4.8 28.0 14.0 13.4
HDBSVR’s universe 35,862.6 32,892.3 35,025.6 0.5 (8.3) 6.5 11.1 12.1 11.3
Notes: (1) Companies with financial year ending Jan – Mar have been classified as preceding year’s results.
(2) Earnings exclude exceptional items.
Source: DBS Vickers
Net Profit Change by Sector
RMm 2009 2010
1,000
586
725
500
-
(500)
93
95146
199
109 69
80
41
(16)
(398)
(188)
192 166
14 4877 79
253
253
10649 110 139
21
(408)
(1,000)
(772)
(1,500)
(2,000)
(1656)
(2056)
(2,500)
Financial
Consumer
Manufacturing/Industrial
Media
Motor
Oil & Gas
Conglomerate
Construction
Concessionaires
Gaming
Plantation
Power
Property
Telecommunication
Transportation/Logistic
Source: DBS Vickers
Page 87

Regional Equity Strategy 2Q 2009
Country Assessment
Remaking the KLCI
Effective 6 July 2009, Bursa Malaysia will restructure its primary
benchmark index by swapping the prevailing Kuala Lumpur
Composite Index (KLCI) with the FTSE Bursa Malaysia KLCI (FBM
KLCI). The 30-member FBM KLCI will capture the largest
companies by market capitalization listed on the Main Board
that will be free-float adjusted.
The changeover is expected to prompt investors – especially
index-tracking funds – to realign their portfolios. Probable
winners are: (i) stocks presently in the FBM30 but not in the
KLCI, namely Resorts, YTL Power and Parkson; and (ii) stocks
whose relative weightings are higher in the FBM30 than in the
KLCI, such as Public Bank, Bumiputra-Commerce and Sime
Darby. On the other hand, Petronas Gas, MISC and RHB Capital
should see lower relative weightings. With the change, we
should see a more sensitive benchmark index. Banks should see
a similar weighting (23%) while plantations (19% from 16%)
and power (16% from 13%) should have higher weightings.
week of March. In addition, the media reported in March that
the Ministry of Finance approached the consortium led by
Shimizu Corp (which put in a bid of RM1.3bn) for the tunnelling
portion of the Pahang-Selangor Interstate Water transfer project
after scrutinising bids. Other members of the consortium include
IJM Corp, UEM Group and Nishimatsu Construction Co. We
expect the acceleration of government awards to benefit the
construction industry.
Since the beginning of 2008, construction sector share prices
experienced one of the sharpest drops (-63%). In February
2008, Gamuda MD Dato’ Lin sold 70m shares (3.5%) in
Gamuda. Since then, Gamuda has lost 58% in share value.
The shocking results of the 12th General Election in March
2008 resulted in the postponement of several mega projects,
including the Penang Monorail and the Penang Outer Ring
Road. Construction margins collapsed with record high steel
and other material prices. Property sales slowed with waning
consumer confidence.
FBM’s market capitalization by sector
Sharp drop in steel prices
Consumer
3%
Gaming
8%
Infra
3%
Shipping
5%
Oil & Gas
3%
Telco
9%
Power
16%
Property
0%
Others
3%
Banking/
Finance
23%
Plantation
19%
US$/MT
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
-
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
Heavy Melting Scrap Average bar prices Average rod prices
Source: DBS Vickers
Expect pump-priming to accelerate
Going forward, we expect government pump-priming to
accelerate. On top of a record RM53.7bn development
expenditure (+16% from RM46.3bn) announced in Budget
2009, the government has announced two stimulus packages –
RM7bn in November 2008 and RM60bn over two years in
March 2009. The second stimulus package reiterates the
government’s commitment towards pump-priming to stimulate
domestic demand with the planned acceleration of RM8.4bn
worth of Ninth Malaysia Plan (9MP) projects.
Source: DBS Vickers
The investment case for the sector has since improved. Steel
prices fell almost as fast as it increased. The record high
development expenditure (with lower cost) and two stimulus
packages point to more and greater acceleration of
government project awards. Valuations are below or close to
average 1998 levels. There could still be some near-term
earnings weakness ahead. However, with valuations at 0.7x
bk value for IJM Corp, our top pick in the sector, we believe
the weakness has been priced in.
Newsflow on the sector is gaining momentum. Deputy Prime
Minister Datuk Seri Najib Tun Razak announced that the
government will award RM3.2bn worth of projects in the last
Page 88

Regional Equity Strategy 2Q 2009
Country Assessment
Further OPR cuts
KLCI forward PE
In the first quarter of this year, the central bank has already cut
the overnight policy rate (OPR) twice, by 125 bps to 2% (January
75 bps; February 50 bps). BLR has fallen by c. 95 bps while fixed
deposit rates lower by c.100 bps. SRR has also been reduced to
1%.
We expect a further 50 bps cut in OPR to 1.5% by end 2Q09.
Exact impact to bank earnings depends on the resulting moves
in the BLR and FD rates. We estimate that every 10bps drop in
lending yields would lower NIM by 11bps on average, and
earnings by 7.7%. Meanwhile, every 10bps drop in cost of funds
would raise NIM by 9bps and earnings by 7.4%. Hence, if BLR
and FD rates dropped by the same quantum, NIM would fall
2bps and earnings by a marginal 0.3%.
35
30
25
20
15
10
5
-
Dec-97
Nov-98
Sep-99
Jul-00
Source: DBS Vickers
Jun-01
Apr-02
Feb-03
Jan-04
Forward PE (LHS)
Nov-04
Sep-05
Aug-06
KLCI Index (RHS)
Jun-07
May-08
M ar-09
1,600
1,400
1,200
1,000
800
600
400
200
-
Sensitivity analysis: For every 10bps decline in lending yields:
AMMB BCHB EON Cap HLBank Maybank Public RHB Cap
Average lending yield 4.91% 5.39% 4.83% 4.11% 4.73% 4.38% 4.61%
NIM 2.39% 2.54% 2.30% 1.77% 2.09% 1.86% 2.26%
Net profit 920.0 1,675.4 332.0 692.4 2,232.8 2,434.0 859.3
% change
NIM -0.10% -0.11% -0.10% -0.09% -0.16% -0.10% -0.10%
Net profit -6.3% -7.9% -8.9% -7.7% -8.6% -5.8% -8.6%
Sensitivity analysis: For every 10bps decline in cost of funds:
AMMB BCHB EON Cap HLBank Maybank Public RHB Cap
Average cost of funds 2.48% 2.74% 2.59% 2.39% 2.33% 2.57% 2.45%
NIM 2.59% 2.74% 2.49% 1.95% 2.29% 2.06% 2.45%
Net profit 1,042.1 1,954.4 394.4 809.9 2,653.0 2,726.0 1,014.1
% change
NIM 0.10% 0.10% 0.09% 0.09% 0.04% 0.10% 0.09%
Net profit 6.1% 7.5% 8.2% 7.9% 8.7% 5.5% 7.9%
Source: Company data; DBS Vickers
The rate cuts are positive for the property sector. We estimate
this would boost affordability by 5.8% and reduce risk of nonperforming
loans/ fire-sales which could depress selling prices.
However, we do not expect it to reverse the weak demand in
the near-term, given economic uncertainties and dampened
sentiments.
Strategy
The benchmark KLCI remains one of the better performers in the
region YTD. However, its valuations are also among the highest
at 12x 2009 earnings (11x 2010). Against its historical range,
valuations are attractive, trading at close to trough PE levels. In
terms of P/Bk, since 1997, only 1997-98 levels were lower. Our
12-month KLCI target stands at 900, based on 12x 2010. This is
close to post-crisis trough levels.
In terms of sectors, apart from construction, we like
concessionaires and power. Toll roads saw share prices drop in
August 2008 on talks that the government plans to
renegotiate toll agreements while IPPs fell in June 2008 when
the windfall tax was first announced. Although toll
renegotiations did not materialize and the IPP windfall tax is
now only imposed for a year, share prices did not recover.
Their earnings stand out as being relatively more resilient
compared to many other sectors. Cashflows are strong,
leading to sustainable dividends that are above market. PLUS,
Litrak, YTLP and Tanjong have yields above 4.9%.
On a stock-specific basis, we advocate:- (i) stocks with resilient
earnings that provide sustainable yields; and (ii) bombedout/value
stocks. Although there may still be downside to
earnings, we believe the bad news for these stocks are in the
price. For example, potential drop in passenger traffic for
MAHB and higher provisions for EON Capital. However, we
believe this has already been more than priced in with the
respective stock’s low valuations.
On the other hand, we see further downside for Sime Darby,
being the most expensive in the sector at 15.8x FY10F EPS
and projected earnings and dividends contracting for the next
two years. BCHB remains Fully Valued on continued weak
capital market activities. There could be further increases in
operating expenses resulting from the consolidation of its
acquisitions (i.e. Lippo-Niaga merger). We foresee weak near
term earnings outlook for Bursa Malaysia, which continues to
trade above regional peers.
Page 89

Regional Equity Strategy 2Q 2009
Country Assessment
FY09F Regional PE
YTD change for regional bourses
16.0
10.0
YTD % chg
52-wk % chg
14.0
5.0
12.0
-
09F PE (x)
10.0
8.0
6.0
4.0
(5.0)
(10.0)
(15.0)
(20.0)
(25.0)
Singapore
Hong Kong
Philippines
Thailand
Malaysia
China
Indonesia
Korea
2.0
(30.0)
0.0
Korea
Malaysia
Hong Kong
Philippines
Singapore
China
Indonesia
(35.0)
(40.0)
(45.0)
Source: DBS Vickers, Bloomberg, Datastream
Defensive and yielding picks
Company Mkt Cap Price TP Rec PE(x) P/BV (x) Div Yield (%)
(RMm) (RM) (RM) 09F 10F 09F 10F 09F 10F
Public Bank - Foreign 26,489 7.50 11.90 B 8.6 7.9 2.3 2.1 9.3 10.1
PLUS 14,400 2.88 3.30 B 12.6 12.0 2.4 2.2 5.5 5.5
BAT 12,635 44.25 45.70 B 15.7 15.3 25.4 21.4 5.8 5.9
YTL Power 11,107 1.89 2.05 B 13.4 12.5 1.9 1.8 5.3 5.3
Tanjong 5,767 14.30 19.25 B 10.2 9.0 1.6 1.5 5.0 5.3
KLCC Prop 2,784 2.98 3.40 B 12.4 11.6 0.8 0.7 3.8 4.0
MAHB 2,739 2.49 3.20 B 8.4 8.0 0.8 0.8 5.9 6.3
Litrak 943 1.90 2.40 B 10.5 11.9 2.4 2.5 13.2 10.5
Axis REIT 328 1.28 1.80 B 8.3 8.4 0.7 0.7 11.4 11.3
Prices as at 19 Mar. Source: DBS Vickers
Page 90

Regional Equity Strategy 2Q 2009
Country Assessment
Top Sells/FV
Company Mkt Cap Price TP Rec PE(x) P/BV (x) Div Yield (%)
(RMm) (RM) (RM) 09F 10F 09F 10F 09F 10F
Sime Darby 32,752 5.45 4.00 S 15.4 15.8 1.5 1.4 3.3 3.2
BCHB 22,542 6.30 5.50 FV 12.5 11.5 1.3 1.3 2.9 2.9
Bursa Malaysia 2,556 4.86 4.00 FV 24.0 22.1 3.5 3.4 3.8 4.1
Prices as at 19 Mar. Source: DBS Vickers
Bombed-out/value stock picks
Company Mkt Cap Price TP Rec PE(x) P/BV (x) Div Yield (%)
(RMm) (RM) (RM) 09F 10F 09F 10F 09F 10F
Genting 12,519 3.38 4.20 B 9.1 8.3 1.0 0.9 1.3 1.4
Resorts 11,391 1.93 2.60 B 9.2 10.4 1.4 1.2 3.3 2.9
AMMB 6,671 2.45 2.90 B 7.9 7.9 0.9 0.8 3.2 3.2
IJM Corp 3,579 3.80 4.60 B 13.2 11.6 0.7 0.7 2.4 2.4
MAHB 2,739 2.49 3.20 B 8.4 8.0 0.8 0.8 5.9 6.3
EON Capital 1,892 2.73 3.00 B 8.9 7.9 0.6 0.5 2.2 2.2
Prices as at 19 Mar. Source: DBS Vickers
Page 91

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Aviation & related
Underweight
Banks
Neutral
Construction
Overweight
Concessionaires
Overweight
Outlook for the sector remains bleak. While the sharp drop in crude oil prices could
provide some relief, we expect weaker air travel demand given the global economic
slowdown. Additional capacity coming from AirAsia and more route liberalizations
may also intensify competition between the airlines in the domestic and regional
markets. Our top pick is Malaysia Airports (Buy; PT RM3.20) for its increasing nonaeronautical
business contribution (mainly rental) which could cushion earnings (hit
by weak passenger traffic growth). Additionally, we expect MAHB to benefit from
the financial restructuring, with FY09F-10F earnings likely to be lifted by 1-3% due
to net increase in government compensation. MAHB also offers sustainable net
dividend yield of 6%.
Earnings outlook is on a downward bias with uncertainties lingering in asset quality
indicators. We believe that banks are unlikely to experience credit costs and NPL
ratios experienced during the Asian financial crisis but would nevertheless see inch
ups after several good years of recoveries. On a stress test, we believe industry net
NPL ratio could see a high of 3.8% from 2.2% in 2008. We expect operating
income to remain relatively healthy although some banks may suffer from net
interest margin compression as the impact from the recent OPR cuts sink in. Key
beneficiary to the OPR cut is AMMB while the bank expected to be hit the most
would be Hong Leong Bank. We project loan growth of 4% for 2009.
We remain Neutral on the banking sector despite uncertain the international
financial environment. Key risks to our calls would be higher than expected NPLs
and credit cost charges should the economy take a longer time to recover. Our top
pick remains Public Bank (Buy, TP RM11.90), while BCHB has the most downside to
our price target (Fully Valued; TP RM5.50). We upgraded Maybank to Buy with
price target of RM4.60 after a significant oversold position.
We expect the acceleration of contract flows and more conducive cost environment
to be earnings kickers for the sector in 2009. Construction related works from the
second stimulus package amounted to RM15bn vs the first stimulus package of
RM4bn. Still, even when combined this is just 36% of 2009’s committed
development expenditure. While 3Q08 was the trough for construction margins,
meaningful recovery will likely only occur in 2H09 and underpin future profitability
of contractors.
We expect newsflow on award of contracts to pick up momentum post transition
of power end March 2009. Key risks for the sector are execution and delay in
contract awards, the ability to raise financing and the lack of transparency in
awarding contracts. But we do expect a flight to quality contractors as the smaller
and less efficient players get weeded out. A case in point is the cancellation of
PECD Construction Sdn Bhd’s RM528m KL Flood Mitigation project which has to be
reawarded. Our picks are IJM (Buy, PT RM4.60) as a strong recovery story and
MRCB (Buy, PT RM1.10) as GLC proxy construction stock. Gamuda and WCT
remain as Fully Valued.
Our positive view on the toll concessions is premised upon its strong free cash flows
and resilient dividends. We think in an environment of falling interest rates and
earnings volatility, these attributes stand out. We think key issues for the sector
such as the 2009 scheduled toll rate increases and nationalisation are non events.
For PLUS scheduled 2009 toll rate increase, we understand compensation will be
via cash. Hence, there will be no disruption to its FCF generating ability.
Nationalisation of PLUS and Litrak are remote, in our view. We estimate the
government will have to fork out RM28bn to nationalise PLUS while it is also highly
unlikely that the ruling government will yield to the fancies of the opposition
government. Our large cap liquid pick is PLUS which will yield 5.5% for 2009 based
on its 16 sen KPI. Litrak’s 20 sen final dividend recently went ex. We do not expect
the stock to generate a lot of interest until it draws closer its next dividend date.
Malaysia Airports
Public Bank, AMMB,
Maybank
IJM, MRCB
Litrak, PLUS
Page 92

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Gaming
Overweight
Logistics
Underweight
Motor
Underweight
Oil & gas
Neutral
We upgrade Genting (TP: RM4.20, based on SOP) and Resorts (TP: RM2.60, based
on 14.2x forward PE) to Buy from Hold, as we see limited downside with valuations
hitting 911/SARS trough (10x 2010 PE). If we exclude Resorts’ RM4.8b cashpile
(0.76sen/share), market is valuing its gaming business at only 6.5x 2010 PE.
Similarly, investors would be getting the rest of Genting’s non-listed business
(power, oil & gas, property) for free. We advocate investors to switch out from BST
(Fully Valued) as it is priced to perfection, with high hopes of a 75% dividend
payout and special dividend, which would unlikely materialize. There is also limited
upside as BST's share price would likely be kept below RM5.16 in order not to
trigger Berjaya Land's exchangeable bondholders to convert into BST shares.
We are positive on the sector given resilient visitor arrivals and NFO spending. Risks:
high foreign shareholding, corporate governance and potential cash call by Star
Cruises, which we believe have been priced-in, given the massive 75% discount
implied on Resorts’ net cash.
We expect the correction in petroleum tanker rates to persist as the supply of new
vessels should continue to pressure rates until 2010 when the mandatory scrapping
of single hull vessels deadline approaches as well as softer oil demand. Meanwhile,
the outlook for container shipping remains challenging as the supply demand gap
is projected to widen further in 2009F-10F on 12% jump in new capacity p.a.
Container trade volume growth is predicted to slow down to 3% y-o-y (from
historical average of 11% p.a) this year on expectation that global economy would
continue to weaken. We expect MISC’s (Fully Valued; PT RM7.15), earnings to
continue to be dragged down by the weakness in petroleum tanker and container
shipping rates.
We recently downgraded our forecast 2009 total industry volume (TIV) to 408k
units vs. 450k previously, following a downgrade in Malaysia’s GDP. We remain
CAUTIOUS on the sector given a weak consumption outlook. Also, the weak MYR
vs. the USD and the Yen continues to pressure margins of auto companies.
UMW is our top FULLY VALUED stock given its large downside potential of 30% vs.
only 4% net yield. It risks shifting into a net debt position (from net cash currently)
considering its active investments into the oil & gas industry. Proton remains our
sole BUY call in the auto sector, for its battered down valuations, with a revised
price target of RM2.60.
There is a lack of near term catalyst for the oil and gas sector as we expect oil price
to rebound only towards 4Q09. Nevertheless, we see this as a short term blip and
longer term fundamentals of the sector are intact, supported by resilient Petronas’
capex and continuous project flow after the cost review and retendering process.
Malaysia’s oil and gas players are also less vulnerable to the crude oil price as they
are mainly services and equipment providers and vessel owners and operators that
benefit from increased production activities. Our pick is Alam for its attractive
margins, undemanding valuations and good earnings visibility. We maintain Hold
calls for other stocks such as KNM, WSC, Petra and Toff given their attractive
valuations that have priced in the risk from the plunge in crude oil price. Key risks
for the sector are: -1) prolonged decline in crude oil price, and 2) delay in contract
due to volatile commodity prices.
Genting
Resorts World
MISC
Proton
Alam Maritim
Page 93

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Plantations
Underweight
Property
Underweight
We raised our 09F, 10F, and 11F CPO prices by 25%, 17% and 12% to RM1,900,
RM2,000 and RM2,200, respectively due to the effects of drought in South
America. However, most plantation stocks have more than priced this in and we
see downside potential in the near term, as CPO production volume rebounds and
exports slow down. Our top Sell/Fully Valued call is Sime Darby (for lofty multiples
and earnings deterioration) and IOI Corporation (on expectations of more FX losses,
potential further write-downs on its Singapore property projects and slow recovery
in resource-based manufacturing).
We expect 2009 property sales to fall by 25% back to 2005-06’s more sustainable
levels of ~RM60b, with rising concerns over job/ income security, selective lending
by banks and weak sentiments. Developers’ margins are also expected to decline
with higher contribution from more affordable products and increased marketing/
financing expenses.
Although sector valuation is depressed, it may stay cheap for a while given no
significant near-term catalyst in sight. We prefer asset owners over developers
given their more defensive earnings. Pockets of opportunities may emerge in the
form of M&As, privatisation and land deals.
KLCC Property
Steel
Neutral
Telco
Underweight
The local steel producers posted losses for 4Q08 mainly on inventory writedowns
and forex loss. We do not anticipate further writedowns in the coming quarters as
we believe the companies have completed their de-stocking activities. Outlook for
the local steel industry seems promising supported by the second stimulus package
where we expect steel demand to be revived when construction projects resume.
However, we are concerned with two issues that may hamper progress: (i) timing –
project delays, and (ii) pricing – steel prices are not likely to return to previous
highs. We remain Neutral on the sector and recommend a Hold on Kinsteel (TP
RM0.45). Current valuations are undemanding at 0.3x FY10F NTA or 2.6x FY10F
EPS.
While the market would be excited about Maxis launching the first official iPhone
plan in Malaysia on the 20 th March, we think it would not have a lasting effect since
the iPhone is already losing its novelty. Nevertheless, we expect competition to
remain keen in Malaysia with the possibility of high prepaid tariff (relative to
postpaid rates) to fall. Competition in the mobile data segment is also expected to
intensify with Digi launching its 3G services by end-Mar09 and WiMAX operator,
Green Packet, having just awarded its Phase II rollout to ZTE. Fixed line operator,
TM, would be the prime victim as we expect wireless operators to target their data
services at TM’s customers.
Kinsteel
Power
Overweight
We prefer IPPs over TNB for their defensive earnings base and attractive dividend
yield supported by strong cashflow. YTLP is poised for further acquisition growth
given the still high gross cash of RM7b after Power Seraya acquisition. We expect
potential lower returns from Wessex after tariff adjustment in 2010 to be
compensated by maiden contribution from Power Seraya from 4Q09 onwards. We
also see low risk in Tanjong’s power investments in Egypt, Bangladesh, Pakistan
and Sri Lanka as the capacity payments are guaranteed by the respective
governments, and electricity generation remains the key infrastructure need in
these countries given the low reserve margins. Tanjong is also on track for net
dividend of 5% supported mainly by the NFO operation. Key risks include:- 1) forex
changes due to high proportion of overseas earnings for YTLP and Tanjong, and 2)
Overhang concerns on Malaysia PPA negotiation.
YTL Power, Tanjong PLC
Page 94

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
REITs
Neutral
M-REIT will focus on organic growth given the weak equity market and low
appetite for new equity raising exercises. New acquisition is unlikely to be yield
accretive as a result of the high average gross yield of 11%. Financing concern is
manageable as Malaysian banks are still keen to restructure short term loans to a
longer tenure, and interest rate differential is small at between 0.5-1.0% ppt.
Malaysian banks are also unlikely to pull back credit lines from loans with stable
rental income, strong sponsors and high collateral values, given the ample liquidity
in the banking system. Other key risks include:- 1) Potential asset devaluation that
may stretch REITs’ gearing ratio closer to the 50% limit, and 2) potential increase
in loan spread from banks due to higher risk aversion towards property related
companies. Our pick is Axis Risk for its attractive yield, attractive asset valuation
and low refinancing risk.
Axis REIT
Page 95

Regional Equity Strategy 2Q 2009
IJM Corp
Bloomberg: IJM MK | Reuters: IJMS.KL
BUY RM3.80 KLCI : 852.18
Price Target : 12-Month RM 4.60
Potential Catalyst: Improving margins and new contract wins
Analyst
Chong Tjen-San, CFA +603 2711 2295
tjensan@hwangdbsvickers.com.my
Price Relative
RM
10.20
9.20
8.20
7.20
6.20
5.20
4.20
3.20
2.20
Relative Index
2005 2006 2007 2008 2009
IJM Corp (LHS) Relative KLCI INDEX (RHS)
Forecasts and Valuation
FY Mar (RM m) 2008A 2009F 2010F 2011F
Turnover 4,637 4,231 3,852 4,141
EBITDA 851 860 816 905
Pre-tax Profit (145) 558 485 588
Net Profit (420) 309 308 371
Net Pft (Pre Ex.) 294 271 308 371
EPS (sen) (48.9) 32.8 32.7 39.4
EPS Pre Ex. (sen) 34.3 28.8 32.7 39.4
EPS Gth Pre Ex (%) 1 (16) 14 20
Diluted EPS (sen) (48.7) 32.1 32.0 38.5
Net DPS (sen) 0.0 9.3 9.3 9.3
BV Per Share (sen) 538.6 511.6 535.3 565.7
PE (X) nm 11.6 11.6 9.6
PE Pre Ex. (X) 11.1 13.2 11.6 9.6
P/Cash Flow (X) nm 8.1 8.2 7.2
EV/EBITDA (X) 7.9 8.6 9.0 8.0
Net Div Yield (%) 0.0 2.4 2.4 2.4
P/Book Value (X) 0.7 0.7 0.7 0.7
Net Debt/Equity (X) 0.4 0.5 0.4 0.4
ROAE (%) (11.6) 6.5 6.3 7.2
Earnings Rev (%): - - -
Consensus EPS (sen): 36.0 36.0 38.7
ICB Industry : Industrials
ICB Sector: Construction & Materials
Principal Business: Construction, property development, plantations
207
187
167
147
127
107
87
67
47
Contract visibility improving
IJM remains our top pick as a strong recovery play to the
construction sector. We think visibility of new contract wins
remain bright with a potential of up to RM5.8bn worth of
new jobs after clinching RM1.2bn for the first 3-months of
2009. Reiterate BUY with TP of RM4.60, based on 12x
CY10 EPS.
Brighter prospects for new contract wins. In our view,
IJM is a prime beneficiary from the acceleration of
government awards. Besides the RM2.3bn worth of new
jobs which we understand IJM is vying for, we think it has a
fair chance of clinching up to RM3.5bn worth of other new
jobs (RM2bn LCCT, RM1.3bn Intermark redevelopment and
RM250m Penang airport). This is after bagging some
RM1.2bn in new jobs for 1QCY09. Also, the recent 40%
take up for IJM Land’s Summer Place in Penang should
instil confidence that its maiden launch of ‘Light
development’ in Jelutong in June should do well.
Rerating catalysts. We think catalysts for a further
rerating will be progressive improvement in construction
margins from 2QFY09’s trough of 0.9% and acceleration
of new contract wins from the 9MP. 4QFY09 margins
should continue to show further improvement from
3QFY09’s 1.3%. Also, our FY10 orderbook replenishment
assumption of RM1bn (excluding RM649m Besraya)
appears conservative vis a vis the potential pipeline of
RM5.8bn.
Still below 1998 levels. In spite of IJM outperforming the
KLCI YTD, valuations remain at a bargain, trading at 11.7x
FY10 and 0.7x NTA, below 1998 average levels of 13.6x
and 0.8x NTA. Our FY10 EPS is 10% below consensus.
At A Glance
Issued Capital (m shrs) 942
Mkt. Cap (RMm/US$m) 3,579 / 980
Major Shareholders
EPF (%) 21.9
Zelan (%) 9.6
Free Float (%) 78.0
Avg. Daily Vol.(‘000) 1,603
Page 96
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: LM / sa: MT

Regional Equity Strategy 2Q 2009
IJM Corp
Income Statement (RM m) Balance Sheet (RM m)
FY Mar 2008A 2009F 2010F 2011F FY Mar 2008A 2009F 2010F 2011F
Turnover 4,637 4,231 3,852 4,141 Net Fixed Assets 1,180 1,261 1,244 1,228
Cost of Goods Sold (3,653) (3,431) (3,107) (3,295) Invts in Associates & JVs 1,059 1,078 1,097 1,118
Gross Profit 984 801 745 846 Other LT Assets 3,880 3,969 4,057 4,146
Other Opng (Exp)/Inc (275) (91) (77) (88) Cash & ST Invts 735 652 885 1,181
Operating Profit 709 710 668 758 Inventory 342 513 564 620
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 2,179 3,268 3,595 3,954
Associates & JV Inc 18 19 19 20 Other Current Assets 1,774 1,774 1,774 1,774
Net Interest (Exp)/Inc (157) (209) (202) (191) Total Assets 11,148 12,515 13,216 14,022
Exceptional Gain/(Loss) (715) 38 0 0
Pre-tax Profit (145) 558 485 588 ST Debt 847 847 847 847
Tax (155) (127) (121) (147) Other Current Liab 1,851 2,760 3,032 3,332
Minority Interest (120) (121) (56) (70) LT Debt 2,383 2,533 2,683 2,833
Preference Dividend 0 0 0 0 Other LT Liabilities 503 503 503 503
Net Profit (420) 309 308 371 Shareholder’s Equity 4,628 4,815 5,038 5,324
Net Profit before Except. 294 271 308 371 Minority Interests 936 1,057 1,113 1,183
EBITDA 851 860 816 905 Total Cap. & Liab. 11,148 12,515 13,216 14,022
Sales Gth (%) 100.6 (8.7) (9.0) 7.5 Non-Cash Wkg. Capital 2,443 2,795 2,901 3,017
EBITDA Gth (%) 93.0 1.1 (5.1) 10.9 Net Cash/(Debt) (2,495) (2,728) (2,645) (2,498)
Opg Profit Gth (%) 93.9 0.1 (5.9) 13.5
Net Profit Gth (%) (316.4) (173.5) (0.3) 20.3
Effective Tax Rate (%) N/A 22.8 25.0 25.0
Cash Flow Statement (RM m)
Rates & Ratio
FY Mar 2008A 2009F 2010F 2011F FY Mar 2008A 2009F 2010F 2011F
Pre-Tax Profit (145) 520 485 588 Gross Margins (%) 21.2 18.9 19.3 20.4
Dep. & Amort. 142 150 148 147 Opg Profit Margin (%) 15.3 16.8 17.3 18.3
Tax Paid (155) (127) (121) (147) Net Profit Margin (%) (9.1) 7.3 8.0 9.0
Assoc. & JV Inc/(loss) (18) (19) (19) (20) ROAE (%) (11.6) 6.5 6.3 7.2
Chg in Wkg.Cap. 50 (352) (106) (116) ROA (%) (4.9) 2.6 2.4 2.7
Other Operating CF 435 209 202 191 ROCE (%) 10.2 5.8 5.0 5.4
Net Operating CF 307 380 589 642 Div Payout Ratio (%) N/A 28.2 28.2 23.5
Capital Exp.(net) (499) (320) (220) (220) Net Interest Cover (x) 4.5 3.4 3.3 4.0
Other Invts.(net) (43) 0 0 0 Asset Turnover (x) 0.5 0.4 0.3 0.3
Invts in Assoc. & JV 223 0 0 0 Debtors Turn (avg days) 155.0 234.9 325.2 332.7
Div from Assoc & JV 12 0 0 0 Creditors Turn (avg days) 158.8 252.6 353.0 365.0
Other Investing CF 129 0 0 0 Inventory Turn (avg days) 29.9 47.5 66.4 68.7
Net Investing CF (179) (320) (220) (220) Current Ratio (x) 1.9 1.7 1.8 1.8
Div Paid (56) (85) (85) (85) Quick Ratio (x) 1.1 1.1 1.2 1.2
Chg in Gross Debt 160 (59) (52) (41) Net Debt/Equity (X) 0.4 0.5 0.4 0.4
Capital Issues 77 0 0 0 Capex to Debt (%) 15.5 9.5 6.2 6.0
Other Financing CF 105 0 0 0 Z-Score (X) 1.5 1.3 1.3 1.3
Net Financing CF 286 (143) (137) (126) N. Cash/(Debt)PS (sen) (290.3) (289.8) (281.1) (265.5)
Net Cashflow 415 (83) 233 297 Opg CFPS (sen) 30.0 77.8 73.8 80.6
Free CFPS (sen) (22.4) 6.4 39.3 44.9
Quarterly / Interim Income Statement (RM m)
Segmental Breakdown
FY Mar 4Q2008 1Q2009 2Q2009 3Q2009 FY Mar 2008A 2009F 2010F 2011F
Turnover 1,313 1,221 1,158 1,044 Revenues (RM m)
Cost of Goods Sold (1,011) (964) (924) (817) Construction 2,152 1,591 1,465 1,515
Gross Profit 302 258 234 227 Property 928 882 749 862
Other Oper. (Exp)/Inc (32) (58) (27) (50) Manufacturing & quarry 811 967 1,016 1,067
Operating Profit 270 200 207 177 Plantation 478 511 327 388
Other Non Opg (Exp)/Inc 0 0 0 0 Others 267 281 295 310
Associates & JV Inc 5 10 5 (1) Total 4,637 4,231 3,852 4,141
Net Interest (Exp)/Inc (45) (43) (44) (50) PBT excl Except. (RM m)
Exceptional Gain/(Loss) 0 0 0 0 Construction 166 47 93 128
Pre-tax Profit 229 166 169 125 Property 107 106 120 138
Tax (10) (37) (48) (38) Manufacturing & quarry 97 159 165 174
Minority Interest (38) (38) (33) (29) Plantation 191 173 71 108
Net Profit 181 91 88 58 Others 9 35 36 39
Net profit bef Except. 181 91 88 58 Total 570 520 485 588
PBT excl Except. Margins (%)
Construction 18.4 2.2 5.8 8.8
Sales Gth (%) 19.0 (7.0) (5.2) (9.8) Property 11.5 12.0 16.0 16.0
Opg Profit Gth (%) 0.4 (26.0) 4.0 (14.7) Plantation 40.0 33.9 21.7 27.8
Net Profit Gth (%) 35.7 (49.6) (3.7) (34.5) Others 3.5 12.5 12.3 12.6
Gross Margins (%) 23.0 21.1 20.2 21.8 Total 12.3 12.3 12.6 14.2
Opg Profit Margins (%) 20.6 16.3 17.9 16.9
Net Profit Margins (%) 13.8 7.5 7.6 5.5
Source: Company, DBS Vickers
Page 97

Regional Equity Strategy 2Q 2009
PLUS Expressway
Bloomberg: PLUS MK | Reuters: PLUE.KL
BUY RM2.88 KLCI : 852.18
Price Target : 12-Month RM 3.30
Potential Catalyst: Higher traffic volume growth and potential
acquistions
Analyst
Chong Tjen-San, CFA +603 2711 2295
tjensan@hwangdbsvickers.com.my
Price Relative
3.70
3.50
3.30
3.10
2.90
2.70
2.50
2.30
RM
Relative Index
2005 2006 2007 2008 2009
PLUS Expressway (LHS) Relative KLCI INDEX (RHS)
Forecasts and Valuation
FY Dec (RM m) 2008A 2009F 2010F 2011F
Turnover 2,969 2,989 3,079 3,531
EBITDA 2,544 2,537 2,624 2,966
Pre-tax Profit 1,516 1,549 1,625 1,966
Net Profit 1,079 1,146 1,203 1,455
Net Pft (Pre Ex.) 1,079 1,146 1,203 1,455
EPS (sen) 21.6 22.9 24.1 29.1
EPS Pre Ex. (sen) 21.6 22.9 24.1 29.1
EPS Gth Pre Ex (%) (8) 6 5 21
Diluted EPS (sen) 21.6 22.9 24.1 29.1
Net DPS (sen) 16.0 16.0 16.0 16.0
BV Per Share (sen) 113.6 120.5 128.6 141.8
PE (X) 13.3 12.6 12.0 9.9
PE Pre Ex. (X) 13.3 12.6 12.0 9.9
P/Cash Flow (X) 9.8 9.5 9.0 7.5
EV/EBITDA (X) 8.9 8.8 8.5 7.4
Net Div Yield (%) 5.5 5.5 5.5 5.5
P/Book Value (X) 2.5 2.4 2.2 2.0
Net Debt/Equity (X) 1.4 1.3 1.2 1.1
ROAE (%) 19.6 19.6 19.3 21.5
Earnings Rev (%): - - -
Consensus EPS (sen): 21.9 22.9 30.6
ICB Industry : Industrials
ICB Sector: Industrial Transportation
Principal Business: Toll road concessionaire
222
202
182
162
142
122
102
82
62
Steady as she goes
PLUS is an excellent liquid proxy to stable, high quality free
cash flow and rising dividends, with its concession
agreement running to 2038. It has been raising dividends
since its listing from 7 sen in FY03 to 16 sen in FY08. 2009
KPI is for DPS of 16 sen, translating to a 5.5% yield, above
our market yield of 3.8%. Dividend payout ratio has been
raised to 70% from 40-60% previously. BUY with a DCFbased
target price of RM3.30.
2009 KPIs realistic. PLUS exceeded its 2008 KPIs. It has set
realistic KPIs for 2009 : 1) to meet balance 4.4% increase in
lane-km, 2) minimum revenue growth of 5%, and 3)
minimum dividend of 16 sen. It also raised its payout policy
to 70% vs 40-60% previously. We are modelling +1%
traffic volume growth in 2009, tying in with our in house
GDP forecast of -1.2%. We view it highly improbable that
PLUS’s traffic volume will test 1998’s -6.3% (GDP -7.4%).
In this scenario, PLUS’s FCF per share will fall by 10% to
27.0 sen, still enough to support our DPS of 16 sen.
Resilient cashflows support dividends. The government
has put PLUS’s toll rate increase on hold indefinitely. Even
assuming if toll rates stay at 13.6sen/km with a one year
delay in cash compensation, PLUS FY09 FCF will fall by
10% to 27.1 sen, more than enough to support our DPS of
16 sen in FY09 or yield of 5.5%. In any case, we expect the
government to honour the concession agreement and that
compensation will be via cash (similar to 2008). There could
be some upside to FCF from the restructuring of ELITE’s
BAIDS that will release RM200m cash (4 sen per PLUS
share).
Risk of expropriation low, privatization possible? We
view any risk of expropriation as low given cost and priority
issues. Based on our estimates, expropriation will cost the
government RM28bn. A potential privatization involving
Khazanah may appear cheaper at a hypothetical RM14bn
(assuming 15% premium to market price and assumption
of related debt) but this, in our view, will be deemed as
unfair use of government’s resources as it will not benefit
the whole nation.
At A Glance
Issued Capital (m shrs) 5,000
Mkt. Cap (RMm/US$m) 14,400 / 3,942
Major Shareholders
Khazanah Nasional (%) 63.9
EPF (%) 11.2
Free Float (%) 36.0
Avg. Daily Vol.(‘000) 2,241
Page 98
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: LM / sa: MT

Regional Equity Strategy 2Q 2009
PLUS Expressway
Income Statement (RM m) Balance Sheet (RM m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 2,969 2,989 3,079 3,531 Net Fixed Assets 12,428 12,401 12,351 12,241
Cost of Goods Sold (899) (914) (941) (1,029) Invts in Associates & JVs 0 0 0 0
Gross Profit 2,070 2,075 2,138 2,502 Other LT Assets 204 204 204 204
Other Opng (Exp)/Inc 91 85 85 4 Cash & ST Invts 2,298 2,256 2,326 1,620
Operating Profit 2,161 2,160 2,224 2,506 Inventory 0 0 0 0
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 57 57 57 57
Associates & JV Inc 0 0 0 0 Other Current Assets 2,033 2,588 3,159 4,249
Net Interest (Exp)/Inc (645) (611) (599) (540) Total Assets 17,021 17,507 18,098 18,372
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 1,516 1,549 1,625 1,966 ST Debt 952 952 952 952
Tax (436) (403) (423) (511) Other Current Liab 279 278 278 278
Minority Interest 0 0 0 0 LT Debt 9,522 9,316 9,140 8,307
Preference Dividend 0 0 0 0 Other LT Liabilities 573 916 1,278 1,730
Net Profit 1,079 1,146 1,203 1,455 Shareholder’s Equity 5,678 6,026 6,431 7,088
Net Profit before Except. 1,080 1,146 1,203 1,455 Minority Interests 19 19 19 19
EBITDA 2,544 2,537 2,624 2,966 Total Cap. & Liab. 17,022 17,507 18,098 18,372
Sales Gth (%) 30.1 0.7 3.0 14.7 Non-Cash Wkg. Capital 1,811 2,367 2,939 4,029
EBITDA Gth (%) 27.7 (0.3) 3.4 13.0 Net Cash/(Debt) (8,175) (8,012) (7,765) (7,638)
Opg Profit Gth (%) 27.7 0.0 2.9 12.7
Net Profit Gth (%) (13.5) 6.2 4.9 21.0
Effective Tax Rate (%) 28.7 26.0 26.0 26.0
Cash Flow Statement (RM m)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 1,516 1,549 1,625 1,966 Gross Margins (%) 69.7 69.4 69.4 70.9
Dep. & Amort. 360 377 401 460 Opg Profit Margin (%) 72.8 72.3 72.2 71.0
Tax Paid (436) (60) (60) (60) Net Profit Margin (%) 36.4 38.4 39.1 41.2
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 19.6 19.6 19.3 21.5
Chg in Wkg.Cap. 10 0 0 0 ROA (%) 6.6 6.6 6.8 8.0
Other Operating CF 366 (2) (33) (591) ROCE (%) 9.5 9.4 9.4 10.3
Net Operating CF 1,816 1,864 1,933 1,774 Div Payout Ratio (%) 73.9 69.6 66.4 54.9
Capital Exp.(net) (538) (350) (350) (350) Net Interest Cover (x) 3.3 3.5 3.7 4.6
Other Invts.(net) (117) 0 0 0 Asset Turnover (x) 0.2 0.2 0.2 0.2
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 7.1 7.0 6.8 5.9
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 103.4 94.6 94.0 89.2
Other Investing CF (219) 58 60 41 Inventory Turn (avg days) 0.0 0.0 0.0 0.0
Net Investing CF (874) (292) (290) (309) Current Ratio (x) 3.6 4.0 4.5 4.8
Div Paid (725) (798) (798) (798) Quick Ratio (x) 1.9 1.9 1.9 1.4
Chg in Gross Debt (412) (817) (774) (1,374) Net Debt/Equity (X) 1.4 1.3 1.2 1.1
Capital Issues 0 0 0 0 Capex to Debt (%) 5.1 3.4 3.5 3.8
Other Financing CF (2) 0 0 0 Z-Score (X) 1.9 2.0 2.0 2.0
Net Financing CF (1,139) (1,615) (1,572) (2,172) N. Cash/(Debt)PS (sen) (163.5) (160.2) (155.3) (152.8)
Net Cashflow (197) (42) 71 (706) Opg CFPS (sen) 36.1 37.3 38.7 35.5
Free CFPS (sen) 25.5 30.3 31.7 28.5
Quarterly / Interim Income Statement (RM m)
FY Dec 1Q2008 2Q2008 3Q2008 4Q2008
Turnover 719 738 717 793
Cost of Goods Sold (199) (220) (229) (232)
Gross Profit 521 519 488 561
Other Oper. (Exp)/Inc (4) (6) (7) (6)
Operating Profit 516 512 482 554
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc (132) (132) (141) (144)
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 384 381 341 410
Tax (109) (114) (99) (113)
Minority Interest 0 0 0 (1)
Net Profit 276 266 242 296
Net profit bef Except. 275 266 242 296
Sales Gth (%) 13.4 2.6 (2.9) 10.6
Opg Profit Gth (%) (3.1) (0.8) (6.0) 15.1
Net Profit Gth (%) (29.8) (3.4) (9.1) 22.4
Gross Margins (%) 72.4 70.2 68.1 70.7
Opg Profit Margins (%) 71.8 69.4 67.2 69.9
Net Profit Margins (%) 38.3 36.0 33.7 37.3
Source: Company, DBS Vickers
Page 99

Regional Equity Strategy 2Q 2009
Country Assessment
Thailand
Lower downside risks
SET Current : 427.72
SET 3 / 12 mths Target : 480 / 510
Expected Return
: +12% / +19%
With the SET Index having fallen 52% from its recent
peak, we believe most of the bad news has been priced
in. In addition, the political scene has stabilized since
the new government took office. Hence, we are seeing
lower downside risks to the market. Uncertainties,
however, remain particularly from external
developments. For 2Q09, we still favor defensive plays
and recommend increasing exposure in domestic
counters that will benefit from the government’s
expansionary fiscal and monetary policies.
The Bank of Thailand had cut policy rate drastically from 3.75% to 1.50% in
three bold moves since Dec08, and we expect another 50bps rate cut to 1.0%
in 2Q09. The government has also introduced several fiscal stimulus measures to
lessen the impact of the global economic slowdown. The positive effects of
these expansionary policies should be felt in 2H09. We recommend investors to
increase exposure in Banking, Energy & Utilities, Consumer Staples, Contractor,
and Property counters. Our top Banking pick is Bangkok Bank (BBL) for its strong
balance sheet and highest NPL coverage ratio of 109% at YE08, while there is
good value in Banpu (BANPU) and Thai Tap Water Supply (TTW) in the Energy &
Utilities sector. CP All (CPALL) remains our top pick in the Consumer Staple
sector, and we are turning more positive on contractors, particularly Ch.
Karnchang (CK) and Sino-Thai Engineering (STEC), in anticipation of higher
government spending on infrastructure development. In Property, we like
Central Pattana (CPN) for its strong recurring income base, and Preuksa Real
Estate (PS), Asian Property (AP) and Supalai (SPALI) for their large backlogs
(which imply earnings visibility) and attractive valuations.
Chanpen Sirithanarattanakul +66 (0) 2657 7824 chanpens@th.dbsvickers.com
Page 100
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SGC: sa: TW

Regional Equity Strategy 2Q 2009
Country Assessment
Market Data
52-Week
Indices
Close
19-Mar-09
Chg Net
-1 mth
-1 mth
(%)
-3 mth
(%)
-6 mth
(%)
-12 mth
(%)
High
(%)
Low
(%)
SET 428 (3.8) (0.9) (4.9) (28.3) (47.6) 887 380
SET 50 297 (2.4) (0.8) (6.1) (28.8) (49.4) 644 261
SET 100 631 (4.6) (0.7) (5.9) (29.6) (50.2) 1,388 553
SET Banks 147 (2.3) (1.6) 3.8 (30.0) (50.5) 318 124
SET Construction Materials 2,626 (85.0) (3.1) (7.6) (26.0) (53.4) 5,823 2,306
SET Communication 63 0.7 1.1 2.6 (9.1) (28.0) 93 49
SET Energy 9,845 (30.7) (0.3) (11.0) (30.7) (49.0) 22,979 8,453
SET Electronics 312 (23.7) (7.1) (14.3) (39.6) (57.5) 763 305
SET Property 55 (0.2) (0.4) (8.5) (37.1) (59.9) 206 82
Transactions:
YTD
Volume (bn shares) 2,304
Value (Bt bn) 8,536
Source: Bloomberg
MARKET REVIEW
The SET Index fell 4.9% QTD. Despite easing domestic
political tension, the Thai market was overshadowed by
concerns about the global economic recession, weaker-thanexpected
economic numbers e.g. dismal exports, weakerthan-expected
4Q08 GDP growth, and poor corporate
results. The SET Index slightly under-performed its regional
peers, as measured by the MSCI Far East Asia (ex. Japan)
that fell 3.5% during the period.
Regional Comparison
600
500
400
300
200
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Source: Bloomberg, DBS Vickers
MSCI F ar East ex-japan Index
SET Index (RHS)
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
900
800
700
600
500
400
300
Electronics and Energy sectors led the decline, falling 14.3%
and 11.0%, respectively. The Electronics sector was hardest
hit as electronics exports fell dramatically as a result of
weakening global demand; this had led to layoffs at several
electronics companies. The Energy sector also plunged as oil
and commodities companies booked huge inventory losses.
Property share prices fell 8.5% on concerns about the sharp
drop in housing demand amidst falling consumer
confidence. However, Banking and Communications were
the only two that emerged unscathed, with the index rising
3.8% and 2.6% QTD, respectively, thanks to Thai banks’
strong capital base and relatively resilient earnings at the
Communications sector.
Foreign investors remained net sellers of stocks valued at
Bt8.9bn QTD (vs. Bt37.2bn in 4Q08), on continued concerns
about the global economic recession and its potential impact
on the Thai economy. What’s positive is that foreign
investors just turned net buyers of Thai stocks during the
past one week.
Thailand Stock Market: Foreign Net Buy (Sell) Position
Btm
50,000
30,000
10,000
-10,000
-30,000
-50,000
Jan-07
Apr-07
Net Foreign
Jul-07
Source: SET, DBS Vickers
SET Index (RHS)
Oct-07
Jan-08
Apr-08
As of 19 Mar 09
Jul-08
Oct-08
Jan-09
SET
1,000
900
800
700
600
500
400
Page 101

Regional Equity Strategy 2Q 2009
Country Assessment
Thai economy contracted 6% (QoQ, sa) and 4.3% (YoY) in
4Q08, far worse than our and market expectations. This made
Thailand one of the worst hit economies in Asia. The
contraction was attributed to the general deterioration of the
global economy, which caused Thai exports (which made up
72% of the country’s GDP) to drop dramatically. Additionally,
the rapid deterioration was exacerbated by political uncertainty
and frequent change of government in the country. This
domestic uncertainty has delayed the disbursement of
government budget and implementation of public projects.
Thailand: Real GDP Growth – sharp contraction in 4Q08
Real GDP Growth 1Q08 2Q08 3Q08 4Q08 2008
(% Chg y-o-y)
Private
2.7 2.5 2.7 2.2 2.5
Consumption
Govt Consumption -0.4 -3.7 -2.9 10.4 0.4
GFCF 5.4 1.9 0.6 -3.3 1.1
Private 6.5 4.3 3.5 -1.3 3.2
Public 1.9 -5.2 -5.5 -10.2 -4.8
Change in
377.0 -123.0 241.4 65.4 1,063.6
Inventories
Exports 8.9 11.9 11.2 -8.6 5.5
Imports 9.3 6.7 13.1 1.0 7.5
GDP 6.2 5.5 3.8 -4.3 2.6
Source: NESDB, DBS Vickers
2008 real GDP grew only 2.6% y-o-y. Thailand’s GDP
slowed down significantly from 4.9% growth in 2007 to
only 2.6% in 2008. This was below market expectation,
which had expected 3.6% growth for the year.
Exports hit badly in 2M09. According to Ministry of Commerce
statistics, Thailand’s exports was hit badly, tumbling 19.2% y-o-
y in US dollars in the first two months of this year. Exports fell
sharply in all major categories, and in all major markets.
Thailand: Exports
US$bn
200
150
100
50
0
2002 2003 2004 2005 2006 2007 2008 2M09
Exports (US$bn)
y-o-y growth (RHS)
Source: Ministry of Commerce, DBS Vickers
30%
20%
10%
0%
-10%
-20%
-30%
4Q08 earnings tumbled due to inventory losses. Aggregate
4Q08 bottom line of listed companies under DBSV coverage
tumbled to Bt39bn net loss due to (i) a deteriorating economy,
(ii) large Bt76bn inventory loss booked by oil and commodities
companies, and (iii) extra losses of Bt12.2bn and Bt3.6bn,
booked by THAI and ADVANC, respectively. Full year 2008 SET
earnings fell 28%. Excluding Bt92bn inventory and extra
losses, SET earnings plunged 46% y-o-y and 24% q-o-q in
4Q08, but fell only 2.8% for full year 2008.
DBSV Universe: Quarterly aggregate net profit growth*
Thailand: Contribution to Real GDP (2008)
Chg in
Inv entories
1%
Investment
22%
Net Exports
15%
Govt
Consumption
9%
Source: NESDB, DBS Vickers
Stat.
Discrepancies
1%
Private
Consumption
52%
Btbn %
120
80
100
40
80
60
0
40
-40
20
-80
0
-20
-120
-40
-160
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
Banks Energy Telecom
Property Building mat. Others
Growth (RHS)
Note: * Only stocks under our coverage, excludes new listing
Source: SET and DBS Vickers
Page 102

Regional Equity Strategy 2Q 2009
Country Assessment
Sectors: growth vs. contraction. In 4Q08, sectors that
reported growth y-o-y were Commerce (+35% y-o-y, +8.2%
q-o-q), Property (+16.4%, 0.9%), Banks (+5.8%, -19%) and
Media (+0.2%, -7.5%). Contractors experienced narrower
losses in the quarter, while the rest reported y-o-y earnings
contraction. The sectors that reported aggregate net losses
were (i) Transportation, (ii) Energy, (iii) Construction
Materials, (iv) Telecom, and (v) Petrochemical.
DBSV Universe: Aggregate 4Q08 SET net profit
YE Dec
(Btm)
4Q07 3Q08 4Q08 Chg
y-o-y
Chg
q-o-q
Banking 14,926 19,593 15,784 6% -19%
Finance 1,094 740 356 -67% -52%
Petrochem. 298 276 -308 -203% -212%
Con. Mat. 6,391 6,147 -5,746 -190% -193%
Property 3,836 4,428 4,466 16% 1%
Contractors -356 -2,146 -177 Nm. Nm.
Ind. estate 895 919 450 -50% -51%
Energy 46,736 21,598 -42,595 -191% -297%
Commerce 1,309 1,639 1,773 35% 8.2%
Media 1,126 1,220 1,129 0% -8%
Transport 7,781 4,009 -15,418 -298% -485%
Telecom 7,386 5,099 -157 -102% -103%
Electronics 2,166 2,105 1,175 -46% -44%
Others 2,577 3,531 270 -90% -92%
Total 96,166 69,159 -38,996 -141% -156%
Source: Companies and DBS Vickers
Improving political scene YTD. In our view, the Democrat-led
coalition government seems to be acceptable to both the
anti-Thaksin group, led by the People's Alliance for
Democracy (PAD), and the military. More importantly, we feel
that most citizens would like to give the Democrats a chance.
So far, there had been no serious issues that would cause
them to lose popularity.
Government stimulus packages. The Thai government has
introduced several fiscal stimulus packages to lessen the
impact of the global economic recession and restore domestic
economic growth. These include (i) supplementary budget of
Bt116.7bn, (ii) tax measures to stimulate spending in target
sectors e.g. property, (iii) plans to utilize Special Financial
Institutions (SFI) to support and guarantee loans in order to
increase credit in the system by Bt300bn. In addition, the
government plans to expedite disbursement of budget, and
push forward investment projects e.g. mega projects worth
Bt1.6tr. We are positive about these measures, many of which
are expected to help domestic consumption recover from
2Q09 onwards. The government plans to borrow up to
US$2bn (Bt70bn) from World Bank, Asian Development Bank
(ADB), and Japan International Cooperation Agency (JICA) to
revive the economy and for infrastructure development.
Impact on Thailand’s economy. The fiscal stimulus measures
will be positive for the economy. Some of the near-term
measures focus on boosting confidence and local consumption
e.g. Bt2,000 handout to those earning less than
Bt15,000/month, and Bt500m/month handout to citizens over
60 years old. The beneficiaries of this move will be Consumerrelated
counters, including CP All (CPALL), Big C Supercenter
(BIGC) and Advanced Info Service (ADVANC). The medium
term stimulus measure is to push forward investment projects,
and beneficiaries of these spending plans will be constructioncontractors.
We expect actual construction to commence
mostly from next year onwards, but there should be more
progress for bids and contract signing this year for some
projects. This means there should be positive news flow from
2Q09 onwards. Coupled with falling construction material
costs, which should ease margin pressure, we upgraded the
Contractor sector to Neutral from Cautious. Our top picks for
the sector are Ch. Karnchang (CK) and Sino-Thai Engineering
& Construction (STEC).
Public debt/GDP will rise but remain manageable. Thailand’s
public debt to GDP currently stands at 38%. But with the
planned borrowings for various spending by the
government, Thailand’s public debt to GDP is expected to
rise to 42.7% and 44.7% by end-Oct 2009 and Oct 2010,
respectively. However, these would still be within the
sustainable fiscal framework at 50% of GDP.
Public Debt to GDP will rise, but still sustainable
Bt bn
12,000
10,000
8,000
6,000
4,000
2,000
0
2003
2004
2005
2006
2007
2008
2009F
2010F
50%
48%
46%
44%
42%
40%
38%
36%
34%
32%
30%
Public Debt (Bt bn) GDP Public Debt/GDP (RHS)
Source: Public Debt Management Office, DBS Vickers
Page 103

Regional Equity Strategy 2Q 2009
Country Assessment
Fiscal Stimulus Measures
Remarks
Btm
1. Supplementary budget (Bt116.7bn)
1.1 Bt2,000 handout for those earning less than Bt15,000/month Recipients:
18,970
8.1m Social Security Fund members
1.3m civil servants (including retirees)
1.2 Extend 5 public service subsidy program for 6 months 11,409
1.3 1-month training and 3-months wage subsidy Recipients – around 240,000 people 6,900
1.4 Free education for 15 years Recipients – around 10m students 19,000
1.5 Bt600 per month stipend for community healthcare workers Recipients - around 830,000 workers 3,000
1.6 Improve standards of 2,609 health service stations 1,095
1.7 Sufficient Economy Fund to improve quality of life Recipients - 78,358 villages 15,200
1.8 Old-age support payment of Bt500 per month Recipients - around 5m people 9,000
1.9 Infrastructure development Rural irrigation network 2,000
Small reservoir construction 760
Rural road construction 1,500
1.10 Public housing estate for low-ranked police force Total of 532 public housing estates 1,808
1.11 Support tourism industry 1,000
1.12 Ministry of Commerce measures to reduce living expenses 1,000
1.13 Development of food industry and SMEs 500
1.14 Rebuilding confidence in and image of Thailand 325
1.15 For emergency use or as necessary 4,091
1.16 Funds to cover treasury account withdrawals 19,140
Total 116,698
2. Tax measures
2.1 Real Estate Payment for new residential properties is tax deductible up to
Bt300,000, provided that the units are transferred in 2009
Extension of property tax-cut package to 28 Mar 2010
Mortgage interest expense is tax-deductible up to Bt100,000
2.2 SMEs Increase minimum taxable revenue to Bt1m (from Bt0.6m)
2.3 Community Businesses Increase minimum taxable revenue to Bt1.8m (from Bt1.2m)
2.4 Venture Capital Minimum investment requirement in SME for 1 st year is
waived for registered venture capital firms
Tax on transfer of SME shares is waived
2.5 Tourism Expenses related to domestic seminars in 2009 (including
hotel rooms) are tax-deductible at twice actual value
2.6 Debt Restructuring Taxes and fees are waived for income from debt reduction or
retirement, and from transfer of assets in connection to debt
restructuring (2009)
2.7 Business Re-organization Taxes and fees related to transfer under partial business
reorganization are waived (2009)
Page 104

Regional Equity Strategy 2Q 2009
Country Assessment
Fiscal Stimulus Measures (Continued)
Remarks
Btm
3. Special Financial Institutions
3.1 Government Savings Bank Small personal loans
Non-collateralized loans for small businesses
3.2 Bank for Agriculture & Agricultural Co-operatives Small personal loans 10,000
Non-collateralized loans for small businesses 25,000
Support rubber prices 4,000
Increase subsidies for agriculture 10,000
3.3 EXIM Bank Export credit insurance scheme 150,000
3.4 SME Bank Soft loan to banks to encourage lending 100,000
3.5 Small Business Guarantee Corp Provide partial guarantees on loans to small bus. 12,000
4. Expedite Budget Disbursements
4.1 State budget 1,835,000
4.2 State-Owned-Enterprises Investment budget 308,000
4.3 Municipal investment budget 366,000
5. Push forward investment projects
Mega projects plan worth Bt1.6 trillion during 2010-2012
5.1 Mass transit
5.2 Airport Link
5.3 Transportation
5.4 Water Resources
5.5 Education
5.6 Healthcare
5.7 Housing
Source: Ministry of Finance, DBS Vickers
Page 105

Regional Equity Strategy 2Q 2009
Country Assessment
LIQUIDITY
Thailand: Policy rate likely to fall further
Easing inflation concerns. Inflation has been falling steadily
since 2H08, with headline CPI contracting 0.4% and 0.1%
y-o-y in Jan and Feb 2009, respectively. The sharp drop in
headline CPI was attributed to (i) lower global oil prices, and
(ii) government’s 6-month fiscal package (e.g. free electricity
and water for low volume household users, free bus and
train rides). Meanwhile, core CPI rose 1.6% and 1.8% in Jan
and Feb 2009, respectively. We expect headline inflation to
rise in 2H09, and lift 2009 annual average inflation rate to
contract 0.7% vs 5.5% increase in 2008.
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09F
2Q09F
Thailand: Inflation is no longer a concern
Source: Bank of Thailand, DBS Vickers
% (y-o-y)
10
8
6
4
2
0
-2
Jan-07
Headline CPI
Core CPI
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Source: Ministry of Commerce, DBS Vickers
Sep-08
Nov-08
Jan-09
Thai baht vs US dollar
Bt
42
40
38
36
34
32
30
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
MPC prompted to cut policy rate by 125bps in 1Q09
following 100bps cut in 4Q08. Falling inflation has given
room for the Bank of Thailand to implement an
expansionary monetary policy. On 14 Jan and 25 Feb 2009,
the Monetary Policy Committee (MPC) cut 1-day repurchase
rate (policy rate) by 75bps and 50bps, respectively, to 1.50%
with immediate effect. The MPC said the easing monetary
policy was mainly to support an economic recovery, as the
economy is facing domestic and external risks. We expect
another 50bps rate cut to reduce policy rate to 1% by end-
2Q09. This would be the lowest in Thailand’s history.
Source: Reuters
Thailand: International Reserve
US$bn
120
100
80
60
40
20
Thai baht performance. The Thai baht performed relatively
better than many of its Asian counterparts. The Thai baht
has depreciated 3.7% YTD (to 4 Mar), which is below the
5.7% average depreciation for the 11 Asian currencies we
monitor. And Thailand’s international reserve has grown
steadily in the past 10 years, from only US$25bn at end
2007 to US$113bn at end Feb 2009. Our economist expects
Thai baht to end the year at Bt35.5 to the USD.
0
1997
1998
1999
2000
2001
2002
2003
2004
Source: Bank of Thailand, DBS Vickers
2005
2006
2007
2008
Feb-09
Page 106

Regional Equity Strategy 2Q 2009
Country Assessment
GROWTH and VALUATION
Thailand’s GDP growth cut to -3.5% for 2009. With
continued bleak export outlook, DBS economist expects
1Q09 to register 6.2% contraction (y-o-y), mainly due to
inventory adjustments. We then should see y-o-y GDP
contraction for another two quarters (-5.6% in 2Q09 and –
4.9% in 3Q09), before returning to positive growth of
+2.7% in 4Q09. This implies full year average growth of -
3.5% for 2009, and +3.8% for 2010.
Thailand: GDP Growth (y-o-y)
Commerce (+17.4%) led by CPALL, and Transportation
(+11.4%) led by THAI following heavy losses last year. Other
sectors will likely see EPS fall on the back of the slowing
global and domestic economies. The hardest hit would be
Electronics (-46.5%), which depends on export, and demand
has contracted sharply since late last year.
Our estimated EPS contraction for 2009 is in line with regional
peers, which EPS is expected to contract by an average of 8%,
before rebounding 8% in 2010.
Regional Earnings Growth
6%
4%
2%
0%
-2%
-4%
-6%
-8%
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09F
2Q09F
3Q09F
4Q09F
%
30
25
20
15
10
5
0
(5)
(10)
(15)
(20)
China H
Thailand
Hongkong
Indonesia
09F
Malaysia
10F
Singapore
Source: NESDB, DBS Vickers
Thailand: Annual GDP Growth (y-o-y)
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009F
Source: NESDB, DBS Vickers
Expect 2009 EPS to contract by 3.6%, in line with regional
peers. Aggregate EPS for DBSV Thailand universe tumbled
29.5% in 2008, due mainly to huge inventory losses at
energy and construction material (particularly steel)
companies. Looking forward, we expect another 3.6% EPS
contraction in 2009, before a rebound to 7.2% growth in
2010. In 2009, sectors that will see strong earnings growth
are Energy (+18.7%) after huge inventory losses last year,
Petrochemicals (+19.9%) led by IRP’s capacity expansion,
Source: DBS Vickers
But listed companies are in much better shape now than
before. Most Thai-listed companies are in much better
financial position now than they were 10 years ago. The
following chart shows the total liabilities/total equity ratio of
these companies; the ratio has improved steadily since 10
years ago, when Thai companies had large US dollar loans.
Total Liabilities/Equity Ratio is Falling Steadily
(x)
12
10
8
6
4
2
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: Stock Exchange of Thailand , DBS Vickers
2006
2007
2008
Page 107

Regional Equity Strategy 2Q 2009
Country Assessment
Current market P/BV is close to 1997-8 crisis level. The Thai
market is now trading at 0.9x P/BV, the lowest since Sep
1998, when Thailand was the epicenter of the 1997-8 Asian
crisis. However, most Thai companies are in much better
shape now compared to 10 years ago, with much stronger
balance sheets, lower gearing, and limited exposure to
offshore borrowings.
Thailand: Market P/BV is now close to 1997-8 crisis level
X
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
Jan-07
Thai market is still cheap relative to regional peers. The chart
below shows that valuations in the Thai market are still
cheap compared to regional peers. It is now trading at 2009
PE of 8.3x vs 10.1x regional PE. It also offers generous 2009
dividend yield of 5.5% vs regional average of 4.2%.
Regional valuation comparison
09 PE (x)
14
12
10
8
6
Expensive
China H
Malaysia
Hong Kong
Singapore
Indonesia
Thailand
Cheap
1.5 2.5 3.5 4.5 5.5 6.5
09 Dividend yield (%)
Source: DBS Vickers
Source: SET, DBS Vickers
Earnings Estimates by Sector
EPS Growth %
PE (x)
2008A 2009F 2010F 2008A 2009F 20109F
Banking 20.8 (16.0) (2.3) 6.9 7.8 7.4
Construction Materials (47.6) (14.3) 7.4 6.3 6.7 6.5
Chemicals & Plastics 43.9 19.9 33.4 4.2 3.5 2.6
Commerce 51.0 17.4 11.2 13.3 11.3 10.1
Communication (14.2) (31.2) 8.8 14.2 13.4 12.3
Electronics Components (18.6) (46.5) 17.0 3.6 6.1 5.2
Energy (43.2) 18.7 23.8 9.0 7.6 6.1
Entertainment & Recreation (0.4) (10.2) 7.8 11.0 12.1 11.2
Finance & Securities (29.2) 7.0 15.6 8.2 7.6 6.6
Food and Beverage (11.2) (0.6) 17.6 9.6 9.8 8.3
Property Development (0.3) (2.0) 2.9 7.8 7.9 7.7
Transportation 2.7 11.4 5.5 8.2 7.4 7.0
Others 41.2 (8.8) 5.6 8.3 9.1 8.6
DBSV Universe (29.5) (3.6) 7.2 8.5 8.3 7.3
Source: DBS Vickers
Page 108

Regional Equity Strategy 2Q 2009
Country Assessment
INVESTMENT STRATEGY
Most bad news priced in. With the SET Index having fallen
51.7% from its recent peak (887 points in May 2008) to
427.72 as at 19 Mar 2009, we believe most of the bad news
has been priced in. In addition, the political scene has
stabilised since the new government took office. Hence, we
are seeing lower downside risk to the Thai market. However,
there are still uncertainties stemming from external
developments.
Increase exposure in domestic counters that will benefit
from expansionary fiscal and monetary policies. We still
favor defensive plays, and recommend investors increase
exposure in domestic counters that will benefit from the
government’s expansionary fiscal and monetary policies. The
positive impact of these policies should be felt in 2H09. We
recommend increasing exposure in Banking, Energy &
Utilities, Consumer Staples, Contractor, and Property
counters.
Our top banking pick is Bangkok Bank (BBL) for its strong
balance sheet and highest NPL coverage ratio of 109% at
YE08, while for Energy & Utilities, we see good value in
Banpu Coal (BANPU) and Thai Tap Water Supply (TTW).
CP All (CPALL) remains our top pick in the Consumer Staple
sector. We are turning more positive on contractors,
particularly Ch. Karnchang (CK) and Sino-Thai Engineering
(STEC), as we expect positive newsflow relating to
potentially higher government spending on infrastructure
development.
For Property, we like Central Pattana (CPN) for its strong
recurring income base. We also like Preuksa Real Estate (PS),
Asian Property (AP) and Supalai (SPALI) for their large
backlogs (which imply clearer earnings visibility) and
attractive valuations.
Bottom-up approach suggests 19% upside for SET Index by
end-2009. We derived a SET Target Index of 510 based on
a bottom-up approach. This suggests 19% upside for the
Thai market from current levels.
3 main investment themes for the Thai stock market. These
are (i) defensive plays, (ii) undervalued plays, and (iii)
beneficiaries of expansionary fiscal and monetary policies.
3 Main investment Themes and Key Picks
Theme
Stock
1. Defensive plays ADVANC, BEC, CPALL,
TTW
2. Undervalued stocks SPALI, IRP
3. Beneficiary of government policies
- Banks BBL, KBANK
- Commerce BIGC, CPALL
- Telecom ADVANC
- Construction contractor CK, STEC
- Property
PS, AP
Source: DBS Vickers
Maintain quality defensive plays as core holding. Our top
picks based on this theme are stocks that are less sensitive to
the global and local economic slowdown. They are also
leaders in their respective markets and earnings visibility is
high. These include ADVANC, BEC, CPALL, and TTW.
Defensive Plays
Stock Mkt Cap Price TP Upside Div. Yield
(%)
(US$m) (Btm) (Btm) 2009F
ADVANC TB 7,260 84.50 93.00 10% 7.5
BEC TB 1,108 19.10 20.50 7% 7.2
CPALL TB 1,616 12.40 14.89 20% 6.4
TTW TB 528 4.56 5.84 28% 5.8
Source: DBS Vickers
Increase exposure in undervalued stocks. We also
recommend investors accumulate selected stocks which had
been beaten down, and are now trading at extremely
attractive valuations. These include IRP, and SPALI. Both are
now trading at 2009 PE of only 3-4x, while offering
generous dividend yields of 8.5% and 14.5%, respectively.
Undervalued Counters
Bloomberg Mkt.
Cap.
Price TP Upside Share
price
drop
Code (US$m) (Bt) (Bt) -12M
IRP TB 188 4.70 6.70 43% -47%
PS TB 248 3.90 6.44 65% -58%
Source: DBS Vickers
Page 109

Regional Equity Strategy 2Q 2009
Country Assessment
Accumulate stocks that will benefit from expansionary fiscal
and monetary policies. These include Banking, Commerce,
Contractor, and Property counters. Our top picks here are
BIGC, CPALL, BBL, KBANK, CK, STEC, AP, and PS.
Beneficiaries of Government Policies
Bloomberg Mkt. Cap. Price TP Upside Share
price drop
Code (US$m) (Bt) (Bt) -12M
BIGC TB 895 38.50 43.95 14% -17.7%
CPALL TB 1,616 12.40 14.89 20% 12.8%
BBL TB 4,236 76.50 88.00 15% -40.2%
KBANK TB 3,020 43.50 62.00 43% -48.8%
CK TB 133 3.18 3.50 10% -57.9%
STEC TB 116 3.36 3.88 15% -32.5%
AP TB 150 2.22 2.25 1% -67.3%
PS TB 248 3.90 6.44 65% -57.8%
Source: DBS Vickers
Stock picks for 2Q09. We feature six companies in 2Q09
strategy. Three of them (BBL, BANPU, and ADVANC) are bigcap
counters, and the rest (IRP, PS, and TUF) are mid-cap.
Advanced Info Service (ADVANC TB) will be less affected
by the slowing economy as telecom services have low
elasticity of demand, and ADVANC has quality
subscribers. Further, its minimum Bt6.3 DPS policy for
each of FY09F and FY10F translates into guaranteed 7.5%
yield for those years. The award of 3G licenses, expected
in 4Q09, could be a medium term share price catalyst.
Reiterate BUY with a DCF-based target price of Bt93.
Bangkok Bank (BBL TB). The bank aims to rein in loan
growth and focus more on asset quality amidst a weaker
economy in Thailand. Hence, we forecast loans will
contract 1.0% (from +13.4% in 2008) in FY09F vs its
internal 2-4% growth target. This is premised on slower
demand for corporate and SME loans and higher
repayment of working capital loans in 2009. We also
expect FY09F net profit to contract 15.0% after imputing
(i) higher LLP of 0.75% of total loans, and (ii) 27 bps
narrower NIM. However, BBL has a strong capital base to
support potentially weaker asset quality and high liquidity
to compete for deposits. Maintain BUY with a target price
of Bt88.00, based on 0.9x 2009 P/BV.
Banpu (BANPU TB). 57% of BANPU’s Indonesian target
coal sales volume for 2009 has been secured at
US$79/tonne, and its coal hedging contracts (15% of
sales target) should help to mitigate downside risk arising
from weak spot coal prices (currently below US$65/tonne,
- 50% y-o-y). Its power business should continue to
provide stable cash flow. Following 39% profit growth in
FY08, FY09F net profit is expected to surge 36% driven by
higher coal sales volume, improved ASP and margins,
lower expenses (hedging loss and high tax expense in
2008), and full year contribution from AACI.
Preuksa Real Estate (PS TB). PS is currently our top pick in
the residential property sector, thanks to its competent
management, large product range, solid balance sheet
(net gearing of only 0.2x), and attractive valuation. Its
market share has been increasing steadily in all product
segments, thanks to its successful marketing and
segmentation strategies. Its prospects remain positive
despite the relative weak industry outlook that could lead
to weaker bookings this year. However, we believe PS will
continue to outperform the industry. The stock now offers
a hefty 65% upside to our target price.
Indorama Polymers (IRP TB). Despite the poor global
economic outlook and the petrochemicals industry being
in a down cycle, we are convinced PET demand and
spread will not be as severe as for upstream
petrochemicals for the following reasons: (i) limited new
supply and closure of old capacities, (ii) PET is a necessary
daily use product, and (iii) the lower PET price should help
sustain demand. We expect PET sales volume and spread
to be more resilient than other upstream petrochemicals,
and net profit should surge 202% and 33% in FY09-10F,
respectively, driven by capacity expansion.
Thai Union Frozen Products (TUF TB). We remain
optimistic about TUF’s growth prospect despite the global
economic slowdown. In FY09, its core strategy is to
integrate operations between group companies in order
to save costs and strengthen its supply chain. Additionally,
TUF will try to expand sales in markets which currencies
are strong and economies less vulnerable to the global
downturn. It will also launch new products to improve
margins and expand market share.
Page 110

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Banks & Finance
Neutral
Commerce
Overweight
Communication
Neutral
Construction Materials
Underweight
Contractor
Neutral
(Upgrade from Underweight)
We reiterate our Neutral stance for the Thai Banking sector. We forecast
2009 loans will contract 0.2% (from +10.9% in 2008), based on revised
3.5% GDP contraction for Thailand, and inorganic growth at BAY and
TISCO. Excluding inorganic growth, industry loans should contract 1.5% in
2009, due mainly to lower demand for working capital loans and higher loan
repayment by corporates and SMEs. We are also concerned about asset
deterioration in 2009 following a slower-than-expected economy that could
result in higher credit costs in 2009. However, we do not expect Thai banks’
fundamentals to fall to the Asian crisis levels because they are now in a much
stronger position, with stronger risk management systems via stricter credit
approval processes and diversified loan portfolios. Thai corporates are also in
much better financial health with lower average gearing ratio compared to
10 years ago. Our top picks are BBL and KBANK. We like BBL for its strong
balance sheet with the highest NPL coverage ratio and strong capital base to
cover rising NPL with little need for re-capitalization. KBANK has good asset
quality with the lowest NPL ratio among peers and attractive valuation.
Despite the falling consumer confidence, we maintain Overweight for the
Commerce sector. All three companies under our coverage (CPALL, BIGC,
and HMPRO) are major players in their respective markets. We expect them
to continue to grow revenue and earnings impressively this year and next, led
by continuous network expansion and effective cost control. Our top pick is
CPALL for its strong balance sheet, and earnings growth prospects led by
continued store expansion and the recent successful divestment of lossmaking
Lotus Supercenter business in China.
The Telecom sector will be less affected by the economy turmoil compared to
other sectors in the market, because telecom services have low elasticity of
demand. Given its subscriber quality, ADVANC’s revenue should be the least
affected, followed by DTAC. Meanwhile, TrueMove would be hurt the most.
Valuations in the Thai Telecom sector are undemanding. But there is no share
price catalyst in the near term, except for the award of 3G licenses on
2.1GHz, expected in 4Q09. But there is risk of further delays. Hence, we
reiterate our Neutral stance on the Thai Telecom sector. Until there is clearer
visibility of the award of 3G licenses (on 2.1GHz), our recommendation is to
stick with defensive stock like ADVANC, still our top pick in the sector.
The global economic outlook has continued to deteriorate. DBS’ latest
forecast for Thailand’s GDP growth is –3.5% for 2009 vs +2.6% for 2008.
Demand from both consumer and commercial sectors are expected to
tumble. Despite the government’s plan to push forward infrastructure
spending, the real impact on construction materials demand will only surface
next year at the earliest. Meanwhile, the poor demand could lead to more
intense competition among cement producers, but we do not expect a price
war that is as fierce as in 2002, although margins could be under pressure if
the economic slump prolongs. We remain Cautious on the sector.
We upgrade the sector to Neutral from Underweight for two main reasons.
Firstly, we expect more public construction projects to be open for bids from
this year onwards, given that the government seriously needs to spend to
boost the country’s economy amidst the global economic recession.
Secondly, construction material prices have fallen sharply since 2H08, which
means less pressure on contractors’ margins. The Mass Rapid & Transit
Authority (MRTA)’s decision to open bids for the Purple line is a step in the
right direction. Our top picks for the sector are Ch. Karnchang (CK), which
had recently been declared the lowest bidder for the first Purple line contract
worth about Bt16bn, and Sino-Thai Engineering (STEC), which should see
earnings jump this year on the back of margin improvement.
BBL, KBANK
CPALL
ADVANC
-
CK, STEC
Page 111

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Electronics Components We maintain Underweight on the Electronics sector, as the sharp drop in -
Underweight
global demand could reduce sales volumes in the next few quarters. Thai
electronics exporters have tried to diversify away from the US, but given that
the slowdown is now global, Thai exporters are unlikely to escape the
downturn. 2M09 total electronics export value fell 35.5% y-o-y. Exports to
major markets have dropped sharply e.g. USA (-30.5%), China (-44.5%),
Japan (-35.4%). Outlook remains poor. There had been layoffs by several
operators e.g. Hana Microelectronics (HANA), K.C.E. Electronics (KCE).
Although the weakening baht against the greenback is positive for the
industry, it is insufficient to offset the impact of weakening demand.
Energy
We believe crude oil price may have hit bottom at US$40/bbl, barring further PTT, BANPU
Overweight
(Upgrade from Neutral)
shocking economic news. But it could still move range bound, as we expect
continued negative news flow throughout 1H09. We expect Brent crude oil
price to average US$50/bbl in 2009 vs US$97 in 2008. Earnings outlook for
Oil & Gas companies for 2Q09 remains uninspiring given the strong earnings
base in the past year as both crude oil price and refining margin peaked in
2Q08. However, their fundamentals are sound with strong balance sheets
and undemanding valuations. Due to slipping share prices, some counters
that were previously deemed unattractive are now offering better value, such
as ESSO (upgrade to HOLD from FV) and PTTEP (upgrade to BUY from Hold).
PTT and BANPU remain our top picks in the sector. We still like PTT for its
solid fundamentals and attractive long-term growth prospect. BANPU should
continue to deliver strong earnings growth in 2009, and we expect its strong
management to seize the opportunity amid the economic weakness to grow
its coal reserves via attractive acquisitions. We upgrade the sector to Positive
from Neutral given the lower risks and improved valuations.
Entertainment
Thailand’s ad spending has continued to contract, from -5.5% in Jul 2008 to MCOT
Neutral
-7.3% in December. Earnings risk remains high because a deteriorating
economy will lead to cost cutting by corporates (including ad budgets) and
weaker consumer purchasing power. For example, ADVANC plans to cut its
ad budget by 20% in 2009 to save costs. The sector’s valuations are
undemanding, but there is no near term share price catalyst. The economic
turmoil is likely to last another 2-3 quarters, which means earnings risk will
continue to drag down investors’ sentiment and delay a market upturn until
there is sign of an economic recovery, possibly in 2H09.
The concerns could also cap upside potential for equities share price for
another two quarters. Hence, we prefer stocks with limited downside risks
such as MCOT, for its: (i) recurring income, (ii) higher bargaining power
against content providers, and (iii) strong balance sheet. Compared to BEC,
MCOT has lower downside risk because of its low earnings base in 2008, and
higher dividend yield (FY09:11.2% for MCOT vs. 7.2% for BEC).
Property Development
Neutral
(Upgrade from Underweight)
Political uncertainty, weakening consumer confidence, and slowing economic
growth will have a negative impact on overall property demand. Presales
have slowed sharply, while cancellation rates are also rising as homebuyers
re-assess their ability to repay mortgages, which are long-term commitments.
In addition, banks are more stringent in extending credit, which has resulted
in higher loan reject rates.
Nonetheless, the good news is the stimulus measures by the government to
boost demand, as well as the sharp drop in local interest rates. Both should
help lessen the impact of weak demand. In addition, most bad news has
been priced in, reflected in the sharp 59% drop in the Property Sector Index
in the last twelve months.
Our top picks are Central Pattana (CPN) and CPN Retail Growth Property
Fund (CPNRF) for their strong recurring incomes. For residential properties,
our top picks are Preuksa Real Estate (PS), Asian Property (AP), and Supalai
(SPALI), which have large backlog on hand (which means clearer earnings
visibility) and are now trading at deep discounts to their RNAVs.
CPN, CPNRF, AP, PS, SPALI
Page 112

Regional Equity Strategy 2Q 2009
Country Assessment
This page has been left blank intentionally
Page 113

Regional Equity Strategy 2Q 2009
Advanced Info Service
Bloomberg: ADVANC TB | Reuters: ADVA.BK
BUY Bt84.50 SET : 427.72
Price Target : 12-Month Bt 93.00
Potential Catalyst: Tariff rate hike and bid for 3G license on 2.1GHz
Analyst
Chirasit Vuttigrai +66 0 26577836
Chirasitv@th.dbsvickers.com
Price Relative
116
106
96
86
76
66
56
Bt
2005 2006 2007 2008 2009
Advance Info Service ( LHS ) Relative SET INDEX ( RHS )
Forecasts and Valuation
Relative Index
FY Dec (Bt m) 2007A 2008A 2009F 2010F
Turnover 108,454 110,792 110,638 112,979
EBITDA 44,172 46,912 46,702 48,690
Pre-tax Profit 23,860 26,735 25,336 26,747
Net Profit 16,290 16,409 17,809 18,802
Net Pft (Pre Ex.) 16,347 18,820 17,809 18,802
EPS (Bt) 5.51 5.54 6.01 6.35
EPS Pre Ex. (Bt) 5.53 6.35 6.01 6.35
EPS Gth Pre Ex (%) 0.7 15.0 (5.4) 5.6
Diluted EPS (Bt) 5.5 5.5 6.0 6.3
Net DPS (Bt) 6.30 6.30 6.30 6.35
BV Per Share (Bt) 25.31 24.62 24.19 24.21
PE (X) 15.3 15.3 14.1 13.3
PE Pre Ex. (X) 15.3 13.3 14.1 13.3
P/Cash Flow (X) 6.9 8.4 6.5 6.2
EV/EBITDA (X) 6.2 5.8 5.6 5.2
Net Div Yield (%) 7.5 7.5 7.5 7.5
P/Book Value (X) 3.3 3.4 3.5 3.5
Net Debt/Equity (X) 28.5 27.6 16.1 0.0
ROAE (%) 21.5 22.2 24.6 26.2
Earnings Rev (%): - -
Consensus EPS (Bt): 5.9 6.2
Sector: Telecom
Principal Business: ADVANC is the largest cellular operator in
Thailand with 45% market share. Its 51%-held subsidiary, ADC, is a
leading provider of data in the country.
220
200
180
160
140
120
100
80
60
Defensive, with guaranteed
yields
Advanced Info Service (ADVANC TB) should be less
affected by the slowing economy as telecom services
have low elasticity of demand, and it has quality
subscribers. Further, its minimum Bt6.3 DPS for each of
FY09F and FY10F translates into compelling guaranteed
7.5% dividend yield for those years. The award of 3G
licenses, expected in 4Q09, should be a share price
catalyst in the medium term. Reiterate BUY with a DCFbased
target price of Bt93.
Signs of easing price cuts. DTAC and TRUE’s
management have said they would try to avoid a pricing
strategy as the market is close to saturation. Further,
price cuts during the economic turmoil could worsen
their bottomlines. In our view, Hutch’s entry into the IC
scheme, expected by mid-2009, should also ease price
competition as the termination rate would be the floor
for off-net tariff rate.
Market in favour of defensive counters. The
economic downturn is expected to stretch over the next
2-3 quarters, which means the market might continue
to favour defensive plays like ADVANC, which has
recurring income and less volatile core profit.
Maintain BUY. ADVANC has a policy to pay 100% of
its earnings as dividends or maintain absolute DPS at
Bt6.30, whichever is higher. The minimum Bt6.30 DPS
for FY09F and FY10F implies guaranteed 7.5% dividend
yield for those years. Reiterate BUY with a revised DCFbased
target price of Bt93.
At A Glance
Issued Capital (m shrs) 2,962
Mkt. Cap (Btm/US$m) 250,268 / 7,260
Major Shareholders
Shin Corporation (%) 42.7
Singtel Strategic Investment (%) 19.2
HSBC (SINGAPORE) NOMINEES PTE LTD (%) 4.0
Free Float (%) 36.0
Avg. Daily Vol.(‘000) 5,497
Page 114
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SCG / sa: CS

Regional Equity Strategy 2Q 2009
Advanced Info Service
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Turnover 108,454 110,792 110,638 112,979 Fixed assets 87,088 81,189 72,708 62,527
EBITDA 44,172 46,912 46,702 48,690 Other LT Assets 21,268 19,934 19,258 18,594
Depr/Amort (19,252) (19,378) (20,901) (22,110) Cash/ST Investments 8,440 16,527 3,400 1,940
Opg Profit 24,920 27,534 25,801 26,580 Other Current Assets 12,146 10,431 10,417 10,637
Asso & Other Inc 286 422 420 429 Total Assets 128,942 128,081 105,782 93,698
Interest (Exp)/Inc (1,345) (1,221) (886) (262) ST Debt 5,037 7,038 5,000 2,000
Pre-Tax Profit 23,860 26,735 25,336 26,747 Other Current Liabilities 23,120 17,822 18,570 19,353
Tax (7,562) (7,860) (7,474) (7,890) LT Debt 25,324 29,786 10,011 11
Minority Interest 48 (55) (52) (55) Minority Interests 576 513 565 620
Extra & Forex (56) (2,411) - - Shareholders' equity 74,884 72,923 71,636 71,713
Net Profit 16,290 16,409 17,809 18,802 Total Capital 128,942 128,081 105,782 93,698
Sales Growth (%) 18.6 2.2 (0.1) 2.1 Share Capital (m) 2,958 2,962 2,962 2,962
Net Profit Gr (%) 0.2 0.7 8.5 5.6 Net cash/(debt) (21,526) (20,285) (11,600) (60)
EBITDA Mgn (%) 40.7 42.3 42.2 43.1 Working capital 7,742 4,532 5,151 5,564
Tax Rate (%) 31.7 29.4 29.5 29.5 Gearing (%) 28.5 27.6 16.1 0.0
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
EBITDA 44,172 46,912 46,702 48,690 ROE (%) 21.5 22.2 24.6 26.2
Change in W/C (3,578) (3,930) (147) (385) ROA (%) 12.4 12.8 15.2 18.9
Taxes paid (3,620) (12,577) (7,427) (7,637) Net Margin (%) 15.0 14.8 16.1 16.6
i) Operating FCF 36,974 30,405 39,128 40,669 Div. Coverage (x) 0.9 0.9 1.0 1.0
Net interest payment (743) (683) (558) (122) Interst Coverage (x) 14.9 17.4 25.5 67.5
ii) Net FCF 36,231 29,722 38,570 40,546 Asset Turnover (x) 0.8 0.9 1.0 1.2
Investing cashflow (19,169) (9,932) (10,788) (10,282) Asset/Debt (x) 4.3 3.5 7.1 46.8
iii) Residual cashflow 17,062 19,790 27,782 30,264 Gearing (%) 39.7 50.1 20.8 2.8
Cashflow fr equity (18,437) (18,549) (19,097) (18,724) Net Gearing (%) 0.3 0.3 0.2 0.0
Change in net cash (1,375) 1,241 8,685 11,540 Debt/EBITDA (x) 0.7 0.8 0.3 0.0
Ending net cash (21,526) (20,285) (11,600) (60) Debt/ Market Cap (x) 0.1 0.1 0.1 0.0
Gross CF/Shr (Bt) 11.9 11.9 12.9 13.7 Capex/Debt (x) 0.6 0.3 0.8 5.8
CF Opera/Shr (Bt) 11.5 12.0 13.5 14.0 Capex/Sales (x) 0.2 0.1 0.1 0.1
Net FCF/Shr (Bt) 12.2 10.0 13.0 13.7 EV (Btbn) 272 271 262 251
CF Int. Cover (x) 21.5 18.7 37.8 101 EV/EBITDA (x) 6.2 5.8 5.6 5.2
Quarterly / Interim Income Statement (Bt m)
Revenue Breakdown (Btm)
FY Dec 1Q2008 2Q2008 3Q2008 4Q2008 FY Dec 2007A 2008A 2009F 2010F
Turnover 28,648 28,345 27,528 26,270 -Post-paid Service 20,733 19,643 19,361 19,443
EBITDA 12,382 12,323 11,702 10,505 -Prepaid Service 50,594 55,317 55,019 56,543
Depr/Amort (4,721) (4,999) (4,978) (4,680) -IR 3,702 3,702 3,591 3,878
Opg Profit 7,661 7,323 6,725 5,825 -Interconnection 16,530 16,213 16,604 16,937
Asso & Other Inc 192 205 184 (158) -Others 3,251 4,712 5,419 5,853
Interest (Exp)/Inc (374) (394) (417) (36) -Handset Sales 13,644 11,206 10,645 10,326
Pre-Tax Profit 7,478 7,134 6,491 5,631 Total Revenues 108,454 110,792 110,638 112,979
Tax (2,199) (2,035) (1,942) (1,683) Regulatory (19,691) (20,021) (19,730) (20,086)
Minority Interest (21) (25) 6 (15) Amortization (16,686) (17,898) (19,338) (20,470)
Extra & Forex (134) 1,259 (23) (3,513) Base Station (2,312) (2,513) (2,550) (2,515)
Net Profit 5,124 6,333 4,533 420 Maintenance (1,872) (1,825) (1,850) (1,796)
Sales Growth (%) 21.9 25.0 22.9 (34.1) Interconnection (14,054) (15,476) (16,011) (16,491)
Net Profit Gr (%) 28.6 72.9 29.1 (91.8) Others (3,517) (3,773) (3,750) (3,593)
EBITDA Mgn (%) 43.2 43.5 42.5 40.0 Handset cost (12,624) (10,534) (9,992) (9,472)
Tax Rate (%) 29.4 28.5 29.9 29.9 Total COGS (70,757) (72,039) (73,220) (74,423)
Source: Company, DBS Vickers
Page 115

Regional Equity Strategy 2Q 2009
Banpu
Bloomberg: BANPU TB | Reuters: BANP.BK
BUY Bt210.00 SET : 427.72
Price Target : 12-month Bt 264.00
Potential Catalyst: robust earnings growth, asset acquisitions
Analyst
Vichitr Kuladejkhuna CFA +66 0 26577826
vichitrk@th.dbsvickers.com
Price Relative
561
511
461
411
361
311
261
211
161
111
Bt
2005 2006 2007 2008 2009
Banpu ( LHS) Relative SET INDEX ( RHS )
Forecasts and Valuation
Relative Index
FY Dec (Bt m) 2007A 2008A 2009F 2010F
Turnover 32,442 50,530 62,699 61,857
EBITDA 9,289 16,988 24,810 20,677
Pre-tax Profit 8,415 14,329 20,845 16,657
Net Profit 6,654 9,228 12,587 10,488
Net Pft (Pre Ex.) 5,036 9,230 12,587 10,488
EPS (Bt) 24.5 34.0 46.3 38.6
EPS Pre Ex. (Bt) 18.5 34.0 46.3 38.6
EPS Gth Pre Ex (%) 86 83 36 (17)
Diluted EPS (Bt) 24.5 34.0 46.3 38.6
Net DPS (Bt) 8.5 12.0 16.0 16.0
BV Per Share (Bt) 126.3 149.0 185.5 208.1
PE (X) 8.6 6.2 4.5 5.4
PE Pre Ex. (X) 11.3 6.2 4.5 5.4
P/Cash Flow (X) 15.8 9.4 4.9 5.6
EV/EBITDA (X) 7.2 4.6 3.1 3.5
Net Div Yield (%) 4.0 5.7 7.6 7.6
P/Book Value (X) 1.7 1.4 1.1 1.0
Net Debt/Equity (X) 0.1 0.4 0.2 0.1
ROAE (%) 23.7 24.7 27.7 19.6
Earnings Rev (%): - -
Consensus EPS (Bt): 40.0 37.2
ICB Industry : Basic Materials
ICB Sector: Mining
Principal Business: Investment in coal and power businesses in
Thailand, Indonesia, and China.
317
267
217
167
117
67
Solid growth
BANPU is among a few companies that are expected to
continue to deliver robust 36% earnings growth in
2009 amid the global economic slump. The earnings
drivers will be (i) higher coal sales volume, (ii) sustained
ASP and margins, (iii) improved earnings from China
ventures (full year consolidation of AACI and improved
earnings from China power business), and (iv) lower
expenses (hedging loss and high tax expense in 2008).
Downside risks should be mitigated by the early lock-in
of coal contracts and coal hedging contracts. Maintain
BUY with sum-of-parts target price of Bt264.
Mitigating risks. Despite falling spot coal price, we
believe our assumed US$78 ASP for 2009 is achievable.
57% of its Indonesian coal sales target for 2009 has
been locked in at US$79/tonne. Downside risks are
further mitigated by coal hedging contracts, which
currently account for c. 15% of sales target at an
estimated US$90/tonne.
Short term sentiment may be negative, as spot coal
price continued to slide, hitting US$61.5/tonne on 19
Mar09. However, this could be an opportunity to
accumulate the stock, given BANPU’s sound
fundamentals and since coal price is near bottom. At
worst, we still expect flat or moderate earnings growth
in 2009. The power business should continue to
generate stable cashflow.
Bright prospects. BANPU’s coal reserves were raised
by 59% in 2008 following the acquisition of AACI and
reserves revaluation, which extended its mine life to c.15
years. We also expect BANPU to seize attractive
acquisition opportunities amid the economic turmoil.
At A Glance
Issued Capital (m shrs) 272
Mkt. Cap (Btm/US$m) 57,067 / 1,656
Major Shareholders
Thai NVDR (%) 9.1
State Street Bank And Trust Company, For London (%) 6.3
Littledown Nominees Limited9 (%) 4.9
Free Float (%) 91.9
Avg. Daily Vol.(‘000) 2,597
Page 116
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SCG / sa: CS

Regional Equity Strategy 2Q 2009
Banpu
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Turnover 32,442 50,530 62,699 61,857 Net Fixed Assets 14,719 17,579 22,637 25,617
Cost of Goods Sold (20,964) (28,110) (34,433) (37,991) Invts in Associates & JVs 11,303 26,373 26,373 26,373
Gross Profit 11,478 22,419 28,265 23,866 Other LT Assets 16,018 18,037 18,107 18,038
Other Opng (Exp)/Inc (8,390) (11,729) (9,771) (9,164) Cash & ST Invts 13,304 12,850 12,877 8,790
Operating Profit 3,088 10,691 18,494 14,702 Inventory 1,851 1,651 2,066 2,279
Other Non Opg (Exp)/Inc (238) (960) (49) (44) Debtors 3,665 6,350 6,997 6,903
Associates & JV Inc 4,504 4,946 3,425 2,819 Other Current Assets 4,192 6,521 4,066 4,120
Net Interest (Exp)/Inc (1,037) (836) (1,514) (1,581) Total Assets 65,051 89,361 93,123 92,121
Exceptional Gain/(Loss) 1,619 (2) 0 0
Pre-tax Profit 8,415 14,329 20,845 16,657 ST Debt 4,086 11,242 10,153 8,634
Tax (1,492) (3,768) (5,366) (4,138) Other Current Liab 7,702 13,240 10,561 10,770
Minority Interest (269) (1,333) (2,892) (2,031) LT Debt 14,435 17,832 13,713 5,850
Preference Dividend 0 0 0 0 Other LT Liabilities 330 1,513 359 359
Net Profit 6,654 9,228 12,587 10,488 Shareholder’s Equity 34,309 40,487 50,398 56,538
Net Profit before Except. 5,036 9,230 12,587 10,488 Minority Interests 4,188 5,047 7,939 9,970
EBITDA 9,289 16,988 24,810 20,677 Total Cap. & Liab. 65,051 89,361 93,123 92,121
Sales Gth (%) (2.8) 55.8 24.1 (1.3) Non-Cash Wkg. Capital 2,005 1,280 2,569 2,532
EBITDA Gth (%) 12.3 82.9 46.0 (16.7) Net Cash/(Debt) (5,217) (16,224) (10,990) (5,694)
Opg Profit Gth (%) (31.5) 246.2 73.0 (20.5)
Net Profit Gth (%) 84.3 38.7 36.4 (16.7)
Effective Tax Rate (%) 17.7 26.3 25.7 24.8
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Pre-Tax Profit 8,415 14,329 20,845 16,657 Gross Margins (%) 35.4 44.4 45.1 38.6
Dep. & Amort. 1,456 1,821 2,451 2,439 Opg Profit Margin (%) 9.5 21.2 29.5 23.8
Tax Paid (2,166) (1,552) (5,366) (4,138) Net Profit Margin (%) 20.5 18.3 20.1 17.0
Assoc. & JV Inc/(loss) (4,504) (4,946) (3,425) (2,819) ROAE (%) 23.7 24.7 27.7 19.6
Chg in Wkg.Cap. 1,192 (495) (1,289) 37 ROA (%) 11.6 12.0 13.8 11.3
Other Operating CF (1,320) (1,089) 1,882 92 ROCE (%) 5.1 11.8 17.3 13.5
Net Operating CF 1,313 7,939 15,098 12,268 Div Payout Ratio (%) 34.7 35.3 34.5 41.5
Capital Exp.(net) (3,313) (4,825) (7,509) (5,420) Net Interest Cover (x) 3.0 12.8 12.2 9.3
Other Invts.(net) 583 97 (685) (564) Asset Turnover (x) 0.6 0.7 0.7 0.7
Invts in Assoc. & JV (1,737) (14,024) (685) (564) Debtors Turn (avg days) 43.2 36.2 38.9 41.0
Div from Assoc & JV 1,702 2,561 3,615 3,341 Creditors Turn (avg days) 12.2 17.1 20.3 21.9
Other Investing CF 296 1,251 615 632 Inventory Turn (avg days) 32.7 24.3 21.2 22.3
Net Investing CF (2,469) (14,940) (4,648) (2,574) Current Ratio (x) 2.0 1.1 1.3 1.1
Div Paid (2,154) (3,136) (3,261) (4,348) Quick Ratio (x) 1.4 0.8 1.0 0.8
Chg in Gross Debt (393) 10,318 (7,160) (9,434) Net Debt/Equity (X) 0.1 0.4 0.2 0.1
Capital Issues 0 0 0 0 Capex to Debt (%) 17.9 16.6 31.5 37.4
Other Financing CF 12,211 (636) 0 0 Z-Score (X) 3.1 2.9 3.5 3.9
Net Financing CF 9,664 6,547 (10,421) (13,782) N. Cash/(Debt)PS (Bt) (19.2) (59.7) (40.4) (21.0)
Net Cashflow 8,508 (455) 28 (4,088) Opg CFPS (Bt) 0.4 31.0 60.3 45.0
Free CFPS (Bt) (7.4) 11.5 27.9 25.2
Quarterly / Interim Income Statement (Bt m)
Segmental Breakdown
FY Dec 1Q2008 2Q2008 3Q2008 4Q2008 FY Dec 2007A 2008A 2009F 2010F
Turnover 8,637 11,068 14,352 16,473 Revenues (Bt m)
Cost of Goods Sold (5,789) (6,488) (8,079) (7,754) Coal 28,429 45,976 58,699 57,857
Gross Profit 2,848 4,580 6,273 8,719 Power 3,865 4,460 4,000 4,000
Other Oper. (Exp)/Inc (1,871) (2,444) (3,212) (4,202) Others 148 94 0 0
Operating Profit 977 2,135 3,061 4,517 Total 32,442 50,530 62,699 61,857
Other Non Opg (Exp)/Inc 117 209 (175) (1,111) Gross profit (Bt m)
Associates & JV Inc 1,282 866 1,707 1,091 Coal 10,467 21,982 27,345 22,786
Net Interest (Exp)/Inc (103) (137) (320) (276) Power 956 397 920 1,080
Exceptional Gain/(Loss) 253 0 0 (255) Others 55 40 0 0
Pre-tax Profit 2,526 3,323 4,513 3,967 Total 11,478 22,419 28,265 23,866
Tax (326) (642) (920) (1,880) Gross profit Margins (%)
Minority Interest (126) (382) (481) (343) Coal 36.8 47.8 46.6 39.4
Net Profit 2,074 2,299 3,111 1,744 Power 24.7 8.9 23.0 27.0
Net profit bef Except. 1,821 2,299 3,111 1,999 Others 37.1 43.1 0 0
EBITDA 5,401 3,998 5,380 4,978 Total 35.4 44.4 45.1 38.6
Sales Gth (%) (6.0) 28.1 29.7 14.8
EBITDA Gth (%) 277.9 (26.0) 34.6 (7.5)
Opg Profit Gth (%) 68.5 118.6 43.4 47.6
Net Profit Gth (%) 4.6 10.8 35.3 (44.0)
Gross Margins (%) 33.0 41.4 43.7 52.9
Opg Profit Margins (%) 11.3 19.3 21.3 27.4
Net Profit Margins (%) 24.0 20.8 21.7 10.6
Source: Company, DBS Vickers
Page 117

Regional Equity Strategy 2Q 2009
Bangkok Bank
Bloomberg: BBL TB | Reuters: BBL.BK
BUY Bt76.50 SET : 427.72
Price Target : 12-Month Bt 88.00
Potential Catalyst: (i) Strong franchise, (ii) good relationship with
corporate clients, and (iii) highest NPL coverage ratio at 109% is
sufficient to cover rising NPLs.
Analyst
Sugittra Kongkhajornkidsuk +662 657 7825
sugittrak@th.dbsvickers.com
Price Relative
153
133
113
93
73
53
Bt
2005 2006 2007 2008 2009
Bangkok Bank ( LHS ) Relative SET INDEX ( RHS)
Forecasts and Valuation
Relative Index
FY Dec (Bt m) 2007A 2008A 2009F 2010F
Pre-prov. Profit 33,443 38,959 34,312 36,383
Net Profit 19,218 20,243 17,795 18,335
Net Pft (Pre Ex.) 19,218 20,243 17,795 18,335
EPS (Bt) 10.1 10.6 9.3 9.6
EPS Pre Ex. (Bt) 10.1 10.6 9.3 9.6
EPS Gth Pre Ex (%) 8 5 (12) 3
Diluted EPS (Bt) 10.1 10.6 9.3 9.6
PE Pre Ex. (X) 7.6 7.2 8.2 8.0
Net DPS (Bt) 3.0 3.0 2.5 2.5
Div Yield (%) 3.9 3.9 3.3 3.3
ROAE Pre Ex. (%) 12.2 11.9 9.9 9.5
ROAE (%) 12.2 11.9 9.9 9.5
ROA (%) 1.3 1.2 1.1 1.1
BV Per Share (Bt) 87 92 98 105
RNAV per shr (Bt) N/A N/A N/A N/A
P/Book Value (x) 0.9 0.8 0.8 0.7
Earnings Rev (%): - -
Consensus EPS (Bt): 10.0 10.7
ICB Industry : Financials
ICB Sector: Banks
Principal Business: Banking and financial services.
203
183
163
143
123
103
83
Strong balance sheet
Bangkok Bank (BBL) is the largest bank in Thailand. It
has a strong franchise network and good relationships
with corporates and large & medium size SME clients.
We forecast FY09F loan growth at minus 1.0% (2008:
+13.4%) vs BBL’s internal target of 2-4%. Our
assumption is premised on lower loan demand as a
result of the economic slowdown. But BBL has a strong
capital base to support potentially weaker asset quality
and high liquidity to compete for deposits. Maintain
BUY and Bt88.0 target price.
Expect loans to contract in 2009. BBL aims to rein in
loan growth and focus more on asset quality amidst a
weaker domestic economy. Hence, we expect loans to
contract 1.0% in FY09F vs its internal 2-4% target,
premised on slower demand for corporate and SME loans
and higher repayment of working capital loans in 2009.
We also expect FY09F net profit to contract 12.0% after
imputing (i) higher LLP of 0.75% of total loans, and (ii) 23
bps narrower NIM.
Highest NPL cover. We are concerned about its foreign
loans (16% of total loans) despite its still low NPL ratio;
that could rise due to the global financial turmoil. BBL
faces higher risk of asset deterioration in 2009, although
it has the highest NPL coverage ratio of 109% at YE08
and Bt26bn excess loan loss reserve requirement. We
expect BBL to book Bt8.8bn LLP for FY09F, implying
0.75% of total loans. The bank’s CAR was 13.8%, with
Tier-1 capital at 11.2% at YE08 (complied with Basel II).
The bank believes that its current capital is sufficient for
business growth and to cover rising NPLs.
Maintain BUY, Bt88.0 target price. We value BBL at
0.9x 2009 P/BV. BBL now offers 15% upside to our
Bt88.0 target price and 3.3% dividend yield for FY09F.
At A Glance
Issued Capital (m shrs) 1,909
Mkt. Cap (Btm/US$m) 146,026 / 4,236
Major Shareholders
SET (%) 12.0
Thai NVDR (%) 10.0
HSBC (Singapore) Nominees Pte Ltd (%) 2.9
Free Float (%) 97.2
Avg. Daily Vol.(‘000) 3,685
Page 118
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SCG / sa: CS

Regional Equity Strategy 2Q 2009
Bangkok Bank
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Net Interest Income 47,013 52,927 50,464 52,557 Cash/Bank Balance 35,715 41,506 33,387 34,009
Non-Interest Income 22,462 24,457 25,309 27,214 Government Securities 10,200 0 0 0
Operating Income 69,475 77,384 75,773 79,771 Inter Bank Assets 177,365 138,897 183,628 191,298
Operating Expenses (36,033) (38,425) (41,461) (43,388) Total Net Loans & Advs. 977,698 1,124,272 1,096,638 1,110,206
Pre-provision Profit 33,443 38,959 34,312 36,383 Investment 311,680 283,441 260,417 269,411
Provisions (5,579) (6,578) (8,800) (10,400) Associates 321 401 6,677 6,908
Associates 93 92 115 130 Fixed Assets 30,189 30,823 30,823 30,823
Exceptionals 0 0 0 0 Goodwill 0 0 0 0
Pre-tax Profit 28,558 29,490 25,827 26,513 Other Assets 49,768 57,772 57,772 57,772
Taxation (9,220) (9,165) (7,932) (8,098) Total Assets 1,592,936 1,677,111 1,669,342 1,700,426
Minority Interests (120) (81) (100) (80) Customer Deposits 1,277,371 1,322,287 1,335,487 1,362,187
Preference Dividend 0 0 0 0 Inter Bank Deposits 64,156 55,899 51,888 52,501
Net Profit 19,218 20,243 17,795 18,335 Debts/Borrowings 42,715 69,127 65,972 54,001
Net Profit bef Except 19,218 20,243 17,795 18,335 Others 42,056 54,194 29,169 31,345
Minorities 657 630 650 650
Shareholders' Funds 165,979 174,973 186,175 199,740
Total Liab& S/H’s Funds 1,592,936 1,677,111 1,669,342 1,700,426
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Margins, Costs & Efficiency
Balance Sheet Structure
Yld. On Earnings Assets 5.26 5.00 4.68 4.60 Loan-to-Deposit Ratio 81.8 89.6 87.8 87.8
Avg Cost Of Funds 2.46 1.95 1.83 1.67 Net Loans / Total Assets 61.4 67.0 65.7 65.3
Spread 2.80 3.05 2.84 2.93 Investment / Total Assets 19.6 16.9 15.6 15.8
Net Interest Margin 3.08 3.28 3.06 3.14 Cust . Dep./Int. Bear. Liab. 94.2 94.9 95.2 95.3
Cost-to-Income Ratio 51.4 51.6 54.5 54.0 Interbank Dep / Int. Bear. 4.7 4.0 3.7 3.7
Employees ( Year End) 20,074 N/A N/A N/A Asset Quality
Effective Tax Rate 32.3 31.1 30.7 30.5 NPL / Total Gross Loans 7.9 4.6 5.3 5.1
Business Mix NPL / Total Assets 5.2 3.3 3.7 3.6
Net Int. Inc / Opg Inc. 67.7 68.4 66.6 65.9 Capital Strength
Non-Int. Inc / Opg inc. 32.3 31.6 33.4 34.1 Total CAR 15.8 13.8 15.6 16.4
Fee Inc / Opg Income 24.0 23.7 26.2 26.8 Tier-1 CAR 12.0 11.2 13.0 13.8
Oth Non-Int Inc/Opg Inc 8.3 7.9 7.2 7.3 Growth
Profitability Total Net Loans 9 15 (2) 1
ROAE Pre Ex. 12.2 11.9 9.9 9.5 Customer Deposits 4 4 1 2
ROAE 12.2 11.9 9.9 9.5
ROA Pre Ex. 1.3 1.2 1.1 1.1
ROA 1.3 1.2 1.1 1.1
Quarterly / Interim Income Statement (Btm)
P/BV
FY Dec 1Q2008 2Q2008 3Q2008 4Q2008
Net Interest Income 12,783 13,131 13,511 13,501
Non-Interest Income 6,513 6,045 6,028 5,923
Operating Income 19,296 19,176 19,539 19,424
Operating Expenses (9,267) (9,769) (9,688) (9,752)
Pre-Provision Profit 10,029 9,407 9,851 9,672
Provisions (1,564) (1,587) (1,038) (2,389)
Associates 40 19 22 11
Exceptionals 0 0 0 0
Pretax Profit 8,327 7,747 6,316 7,099
Taxation (2,669) (2,699) (1,979) (1,818)
Minority Interests (32) (15) (21) (14)
Net Profit 5,626 5,033 4,316 5,268
1.6
1.4
1.2
1.0
0.8
0.6
2005 2006 2007 2008
Source: Company, DBS Vickers
Page 119

Regional Equity Strategy 2Q 2009
Country Assessment
Indonesia
Election season
JCI : 1,341.6
JCI 3 / 12 mths Target : 1,448/1,583
Expected Return : 8% / 18%
1Q09 was a quiet quarter with trading volume and value falling
50.1% y-oy and 75.4% y-oy, respectively, implying low investor risk
appetite. We believe the high risk aversion is due to the impact of
global economic uncertainties on Indonesia, as well as domestic
political tension due to the coming elections. Political developments
could be the main focus for the market going forward. The market
could move sideways in 2Q09 and early 3Q09 until uncertainties
caused by the upcoming presidential election are cleared. Given
these short-term uncertainties, we stick to our previous quarter’s
strategy, preferring companies with strong balance sheet and good
earnings visibility.
Indonesia will hold parliamentary election on 9 April and presidential election on
8 July 2009. Political tension is heating up with parties on the move to build and
bargain for a coalition. In the parliamentary election, 38 parties will be
competing at national level. A recent poll shows the dominant parties are Partai
Demokrat, PDIP and Golkar. However, a black horse could emerge. Some
candidates had been announced for the presidential election, but a coalition is
possible. Up to now, polls still tip Yudhoyono as the most popular candidate for
president. Only time will tell.
The DBS economic team estimates GDP growth will slow down in 2009. It
believes that fiscal and monetary policies will help to ease the impact of global
recession. The government’s Rp73.3tn stimulus package as well as further
interest rate cuts should stimulate the economy. The team estimates private
consumption will grow 4%, government consumption 11.4%, and gross capital
formation 2.5% in 2009.
During the election season, we expect the market to move sideways. But there
are risks of earnings downgrade as consensus seems to be still bullish. We prefer
stocks that are resilient to the crisis, have strong balance sheets and high
earnings visibility. Our top pick for large cap is PTBA and ITMG for small cap.
Agus Pramono, CFA (6221) 39832668 . agus.pramono@id.dbsvickers.com
Page 120
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: GC / sa: TW

Regional Equity Strategy 2Q 2009
Country Assessment
Market Data
Close Chg net % Change 52 week
19-Mar -09 -1mth -1mth -3mth -6mth -12mth High Low
JCI 1,341.6 17.9 1.4 (0.5) (29.1) (42.3) 2,511.0 1,111.4
LQ45 262.7 4.8 1.9 (2.3) (32.2) (47.3) 539.3 206.7
Agriculture 999.9 (50.7) (4.8) 10.8 (30.9) (63.7) 3,077.2 615.0
Basic Industries 125.0 (1.3) (1.0) (6.5) (23.9) (31.1) 225.1 99.7
Consumer 342.4 (8.3) (2.4) 4.6 (8.6) (14.4) 422.7 279.5
Finance 160.4 3.1 2.0 (8.3) (24.1) (25.9) 233.9 125.9
Infrastructure 474.6 6.5 1.4 (3.2) (17.0) (38.1) 788.0 370.6
Manufacturing 249.7 10.4 4.3 5.3 (17.6) (26.1) 364.9 189.1
Mining 939.1 (23.9) (2.5) 6.0 (53.7) (64.8) 3,526.5 770.7
Misc. Industry 265.8 48.1 22.1 21.4 (21.8) (33.7) 939.1 164.7
Property 97.5 (0.5) (0.5) (1.4) (31.9) (48.8) 265.8 94.0
Trade & Service 150.5 1.2 0.8 4.6 (44.5) (55.7) 385.7 97.5
Transactions (DBSV Universe):
YTD
Vol (bln shrs) 99.7
Val Rptr) 76.3
Source: IDX
MARKET REVIEW
The JCI was flat in 1Q09 as investors preferred to wait for
positive signals from global financial markets. In IDR terms,
JCI lost 0.5% in 1Q09, better than its regional peers. But it
under-performed regional markets in US$, losing 8.9%.
JCI and regional indices performance
Local Currency (%) 1Q08 4Q08 1Q09
Hang Seng -19.1 -21.7 -13.2
Strait Times Index -15.0 -29.8 -11.7
SET Thailand 0.3 -28.5 -4.3
JCI Jakarta -12.6 -28.7 -0.5
US$ (%)
Hang Seng -18.8 -21.4 -13.2
Strait Times Index -9.9 -31.8 -15.3
SET Thailand 1.5 -27.4 -1.7
JCI Jakarta -10.3 -43.4 -8.9
Source: Bloomberg, DBSVI
Indonesia: Domestic and foreign transactions
Rptr Transactions (Rptr) Transactions (bn shares)
Foreign Domestic Total Foreign Domestic Total
1Q08 78.5 239.0 317.4 35.8 160.3 196.0
4Q08 62.1 84.0 146.1 56.5 141.4 197.9
2008 294.7 769.9 1,064.5 164.5 623.3 787.8
1Q09* 20.0 58.0 77.9 13.5 84.3 97.9
1Q09 vs
1Q08 (%) -74.6 -75.7 -75.4 -62.2 -47.4 -50.1
* As of 19Mar09
Source: IDX
Despite controversy behind the acquisitions of some
companies, Bumi Resources remained the most liquid stock
on the JSX, followed by Bakrieland Development. Bapepam
has not decided on Bumi’s proposed acquisition. The Mining
sector was the best performer in 1Q09, posting 6.0% return
as mining stocks rebounded from their lows in 4Q08.
In 1Q09, the JSX trading volume fell 50.1% while traded
value slid 75.4% from the same period last year. Meanwhile,
participation of foreign investors fell to 13.8% of total
volume from 18.2% in 1Q08.
Page 121

Regional Equity Strategy 2Q 2009
Country Assessment
LIQUIDITY
Inflation had softened to 0.14% for 2M09 (0.07% deflation
in Jan09 and 0.21% inflation in Feb09), driven by deflation
in transportation and communication. The government had
lowered fuel price by 20% from Rp5,000 to Rp4,000 in
Jan09 after international crude price fell in 4Q08.
Meanwhile, inflationary pressures elsewhere were also
easing. But with the weaker rupiah and raw material prices
mostly in US$, prices of discretionary consumer goods have
crept up.
Indonesia: BI rate and deposit rate
14.0%
12.0%
10.0%
ELECTION
Political tension is rising as the parliamentary election date
draws near, with parties moving to build and bargain for a
coalition. The parliamentary election is scheduled for 9 April
2009, with 38 parties participating at national level. Based
on a recent poll by polling agencies, Partai Demokrat, PDIP
and Golkar are the dominant parties. We do not expect the
landscape to change significantly, but a black horse could
emerge in the election.
The presidential election is scheduled for 8 July 2009, and
newspapers are reporting coalition possibilities between
presidential candidates. Although Vice President Jusuf Kalla
has been nominated by Golkar at its regional office meeting
to run for president, a statement by Golkar’s central
committee implies that this could be a bargaining strategy to
build a coalition with candidates from other parties. Up to
now, the polls still tip Yudhoyono as the most popular
candidate for president. Only time will tell.
8.0%
6.0%
Source: BI
2005 2006 2007 2008 2009
BI rate
1M Deposit Rate
Bank Indonesia (BI) had cut BI rates by 150bps in 1Q09 due
to two factors: (i) slower inflation, and (ii) to stimulate
economic growth under the shadow of the global recession.
However, interest rates in the financial market were firm as
liquidity in the banking and financial system remained tight.
Although the government is pressuring the banking sector
to lower interest rates, the government itself has to issue
US$ and rupiah bonds at high rates. It issued 5 and 10-year
US$ bonds at 10.5% and 11.75%, respectively, and 3-year
IDR sukuk bonds at 12%.
Indonesia: Top 5 Election Poll Results
Political Parties surveys
Presidential surveys
Lembaga Survei Indonesia (LSI)
Survey period: 10-22 Dec08 Survey period: Dec08
% %
Demokrat 23.0 Susilo Bambang Y 43.0
PDIP 17.1 Megawati 19.0
Golkar 13.3 Prabowo Subianto 5.0
PKB 4.8 Sri Sultan HB X 5.0
PKS 4.0 Wiranto 3.0
Indo Barometer
Survey period: 9 Jul08
Survey period: Jun08
PDIP 23.8 Megawati 26.1
Golkar 12.0 Susilo Bambang Y 19.1
Demokrat 9.6 Wiranto 7.8
PKS 7.4 A. Wahid 5.3
PKB 7.4 Sri Sultan HB X 4.8
Source: Lembaga Survei Indonesia (LSI), Indo Barometer
Page 122

Regional Equity Strategy 2Q 2009
Country Assessment
GROWTH
Bank Indonesia used to be more optimistic than private
sector economists, but it is now more bearish on the
economy. BI Governor Budiono said GDP growth could
drop to 4% this year with high downside risk. BI had also
lowered its loan growth estimate to 15% from 18-20%
previously, after it received business plans from banks.
The DBS economics team is maintaining its GDP growth
estimate at 4.3% for FY09, in line with market expectation
on the back of Indonesia’s low export dependency. Private
consumption spending accounts for 61% of GDP while netexports
account for only 1%.
Indonesia: Export slow in line with commodity cycle
% YoY % YoY
50
25
40
30
20
20
15
10
Indonesia: GDP components (2008)
Less Import
Goods and
services, 29%
Exports of
Goods &
Services, 30%
Chg in Stock,
0% General Govt
Gross Domestic
Expenditures,
Fixed Cap
8%
Formation, 28%
Source: BPS
Indonesia: Budget deficit since 1999
Surp/def % of GDP
0.0
Private
Consumption
Expenditures,
61%
10
0
-10
5
0
-5
-1.0
-20
Rtrs/Jeff CRB comm px index
-30
GDP gds exports (RHS)
Latest: 4Q08
-40
Mar-01 Mar-03 Mar-05 Mar-07
Source: DBS, CEIC
-10
-15
-20
DBS economics team believes that the fiscal and monetary
policies will help to ease the impact of the global recession.
Specifically, (i) an expansive budget with a deficit of 2.5%
including the Rp73.3tr stimulus package, and (ii) the BI
interest rate policy - the rate had been cut to 7.75% in
Mar09 and is expected to be cut by another 100bps to
6.75%. As such, private consumption is estimated to grow
4%, government consumption 11.4%, and gross capital
formation up 2.5% in FY09.
-2.0
-3.0
-4.0
-2.8
-2.5
Govt forecast -2.5
1999 2001 2003 2005 2007 2009
Source: DBS, CEIC
There was some optimism after the release of better than
expected Feb09 car and motor cycle sales data – sales had
risen 9.1% and 12.7% m-o-m, respectively. But checks with
some bankers indicate that most are still conservative,
estimating flat loan growth under a best-case scenario. We
estimate loans will grow 10% this year on the back of
continuing growth in the economy, albeit at a slower pace,
and the government stimulus package.
Page 123

Regional Equity Strategy 2Q 2009
Country Assessment
Indonesia: 4W, 2W and cement sales
6.0%
higher risk aversion is driven by: (i) global economic
uncertainties, (ii) its impact on Indonesia’s economy, and (iii)
political tension due to the coming election. We believe
political tension is the most dominant factor currently.
3.0%
0.0%
Given the uncertainties, the JCI is also facing risks of earnings
downgrades as the market seems to be too bullish on
economic fundamentals. We had downgraded our FY09F
earnings by 1.6% in 1Q09, but we think there is risk of further
downgrades.
-3.0%
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09
Source: Gaikindo, ASI
2W 4W Ce me nt
The current global economic turbulence has raised
uncertainties about the economic and business environment.
Nevertheless, we see a global economic recovery on the way,
and with it recovery in Asia. But determining the timing of the
recovery is challenging. As such, we remain cautiously
optimistic that we are currently facing a left fat tail.
VALUATION AND STRATEGY
Valuation of the JCI has fallen from 15.9x PER in 1Q08 to 9.7x
in 1Q09. At current level, the JCI is trading at a discount to
regional markets except Thailand. We believe rising risk
aversion had caused a further de-rating. In our opinion, the
We continue to prefer stocks that are resilient to the financial
crisis from the business and financial perspectives. Companies
with strong balance sheets and competitive advantages will
benefit when the economy recovers. Among the sectors under
our coverage, coal will be less affected by cyclicality because of
its importance in generating electricity and as fuel for
industries. At the same time, coal’s selling price will be
adjusted up in 2009 as the majority price negotiations took
place at the end of 2008 when coal price was still high.
We feature only two stocks in our 2Q09 quarterly because risk
aversion should remain high during the election season. PTBA
is our top pick in the large cap category and ITMG in the
small/medium cap category. Our selection is premised on the
companies’ strong balance sheets and high earnings visibility.
Both companies have locked in more than 50% of their 2009
sales volume at higher prices.
Earnings Estimates by Sector
EPS Growth (%) CAGR (%) PATMI (Rpbn) PER (x)
07A 08F 09F 07-09 07A 08F 09F 07A 08F 09F
Conglomerate/Automotive 31.3 (31.1) 1.2 (16.5) 8,557 5,896 5,969 6.8 9.9 9.7
Infrastructure 24.9 (22.9) 9.4 15.4 3,604 2,779 3,039 10.8 9.2 8.0
Consumer 23.8 (1.5) 14.5 15.5 2,270 2,235 2,559 5.4 5.3 4.5
Banks 14.7 9.5 14.2 11.8 19,594 21,463 24,511 10.9 9.9 8.6
Plantation 40.2 (30.8) (7.2) (19.9) 3,559 2,463 2,284 7.0 10.2 11.9
Basic Materials (54.8) (46.1) (18.5) (33.7) 9,482 5,110 4,165 3.9 7.2 9.5
Oil, Gas & Energy 43.6 11.3 (6.2) 2.2 20,335 22,638 21,242 14.7 7.7 7.8
Telecommunications (11.0) (10.6) 0.7 (5.1) 13,256 11,849 11,938 14.7 7.7 7.8
Source: DBS Vickers
Page 124

Regional Equity Strategy 2Q 2009
Country Assessment
Sector recommendation and stocks for Indonesia
SECTOR REMARKS STOCK SELECTION
Conglomerate/
Automotive
Neutral
Cement and Construction
Neutral
Consumer Goods
Neutral
Banking
Neutral
Plantation
Neutral
Basic Materials
Cautious
We maintain our Neutral view on the Automotive sector on the back
of higher interest rates and weakening purchasing power. We had
lowered our car sales growth forecast to 35% and motorcycle sales
growth to 20%. Despite the BI rate being cut from 9.25% in Dec08
to 8.25%, banks and financing companies are still risk averse and
financing for automotives has dried up. Meanwhile, Astra
International (ASII)’s subsidiaries, United Tractors (UNTR) and Astra
Agro Lestari (AALI), should also see slower sales.
Cement sales is expected to drop in 2009 due to two reasons: (i) last
year’s sales were abnormally high, and (ii) the economy slowdown
should dampen cement sales. However, we expect sales to recover
next year in anticipation of the government’s plan to accelerate
spending on infrastructure. We like Semen Gresik (SMGR) for its
strong balance sheet and its leading position in the industry.
Our Consumer sector is dominated by Indofood (INDF), for which we
have a Hold call. We expect raw material/commodity prices to
remain firm this year, which means little scope for consumer
companies to significantly reduce prices. And as the global recession
drags on, purchasing power, down trading and market share erosion
remain our top concerns. Against this backdrop, there is little
excitement in terms of returns for the sector, other than dividend
yield. We recommend to wait for more attractive entry levels and to
accumulate on sell-downs.
We maintain our Neutral view on the Banking sector because the
sector faces risks of slowing loan growth as well as rising NPL ratio.
A falling BI rate will help the sector, but amid the global financial
crisis, the transmission of monetary policy may take longer. We like
Bank Mandiri (BMRI) for its relatively high CAR, its liquidity, and
attractive valuation.
We recently upgraded the Plantation sector to Neutral and raised
FY09-11F CPO price assumptions by 20%, 13% and 8% to US$590,
US$630 and US$690, respectively, due to the drought effect.
However, most plantation stocks have priced this in, and we see
downside potential in the near term as exports are expected to slow
down. When that happens, we recommend accumulating plantation
counters on dips. Our top Sell call is AALI on valuation concerns.
We remain Cautious on the Basic Materials sector, as prices remain
weak and demand for metals has not shown signs of improvement.
The slowdown in the global economy has reduced demand for
metal, including nickel and tin; producers of these commodities are
experiencing faster revenue declines than drops in production cost,
which means there will be margin pressure. As such, we expect
metal producers such as Aneka Tambang (ANTM), International
Nickel (INCO) and Timah (TINS) to face earnings pressure going
forward.
-
SMGR
-
BMRI
-
-
Page 125

Regional Equity Strategy 2Q 2009
Country Assessment
SECTOR REMARKS STOCK SELECTION
Energy
Neutral
Telecommunications
Cautious
We maintain our Neutral stance on the Energy sector, on the back of
weak demand for energy-related commodities. Led by weak oil
price, prices of other energy commodities such as coal and gas will
also be under pressure. An economy recovery will be the key catalyst
for a recovery in energy prices, but currently it seems a recovery is
unlikely in the near term.
Despite this, we are still positive on counters with company specific
growth factors, such as Indo Tambangraya (ITMG) and Bukit Asam
(PTBA). Both companies will still experience healthy earnings growth
in FY09F, and have solid balance sheets to support their long-term
strategies. Thus, they are our top picks for the sector.
We downgraded the Telecommunications sector to Cautious on the
back of weak economic outlook, and lower revenue growth and
EBITDA margin y-o-y. Also, aggressive capex spending last year could
result in the full year impact of depreciation and interest charges this
year. PT Telkom’s (TLKM IJ) revenue is expected to grow c. 5% y-o-y,
less than the industry average due to the drag effect from its
lethargic fixed line business. However, Indosat (ISAT IJ) is expected to
register c. 8% y-o-y revenue growth, driven by its cellular division.
Following the end of a tender offer by Qtel for 24% of ISAT shares,
the latter’s share price has fallen by >20%. We reiterate our BUY call
for ISAT with a DCF-based price target of Rp5,000. ISAT’s net
debt/EBITDA remains manageable, at only 1.8x FY09F.
ITMG, PTBA
ISAT
Page 126

Regional Equity Strategy 2Q 2009
Country Assessment
This page has been left blank intentionally
Page 127

Regional Equity Strategy 2Q 2009
Tambang Batubara
Bloomberg: PTBA IJ | Reuters: PTBA.JK
BUY Rp6,550 JCI : 1,341.60
Price Target : 12-Month Rp 8,359
Potential Catalyst: Coal price recovery
Analyst
Yusuf Winoto CFA +6221 3983 2668
yusuf.winoto@id.dbsvickers.com
Price Relative
Rp
17,170
15,170
13,170
11,170
9,170
7,170
5,170
3,170
1,170
Relative Index
2005 2006 2007 2008 2009
Tambang Batubara (LHS) Relative JCI INDEX (RHS)
Forecasts and Valuation
FY Dec (Rp bn) 2007A 2008A 2009F 2010F
Turnover 4,124 7,216 10,097 8,279
EBITDA 1,053 2,514 3,875 2,278
Pre-tax Profit 1,058 2,552 3,741 1,804
Net Profit 760 1,708 2,684 1,345
Net Pft (Pre Ex.) 760 1,708 2,684 1,345
EPS (Rp) 330 741 1,165 584
EPS Pre Ex. (Rp) 330 741 1,165 584
EPS Gth Pre Ex (%) 57 125 57 (50)
Diluted EPS (Rp) 330 741 1,165 584
Net DPS (Rp) 105 165 371 582
BV Per Share (Rp) 1,215 1,735 2,529 2,531
PE (X) 19.8 8.8 5.6 11.2
PE Pre Ex. (X) 19.8 8.8 5.6 11.2
P/Cash Flow (X) 18.1 8.5 5.4 9.8
EV/EBITDA (X) 12.2 4.8 3.2 6.6
Net Div Yield (%) 1.6 2.5 5.7 8.9
P/Book Value (X) 5.4 3.8 2.6 2.6
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 29.9 50.2 54.6 23.1
Earnings Rev (%): (0.3) (0.4)
Consensus EPS (Rp): 1,148 865
ICB Industry : Energy
ICB Sector: Coal
Principal Business: Coal Mining
475
425
375
325
275
225
175
125
75
The heat is still on!
Following robust growth in FY08 that saw revenue
and earnings jump 75% and 135% y-o-y, respectively,
Bukit Asam (PTBA) is on track for another record year
in FY09. This would be driven by its ability to secure
42% of FY09 coal volume at higher prices than last
year. Meanwhile, the power plant projects under its
strategic long term plan are progressing well and will
fully utilize its vast coal reserves and resources.
Maintain BUY.
Ending 2008 on a strong note. PTBA reported FY08
net profit of Rp1,707bn (+135% y-o-y) as revenue
soared 75% y-o-y. The key drivers were higher sales
prices (+46% y-o-y) and sales volume (+18% y-o-y). Its
balance sheet was also solid, with net-cash of
Rp3,042bn.
2009 looks even more promising. Having locked in
6.5mn tons (45% of total FY09F sales volume) of coal
for the domestic market in FY09 at Rp884k/ton, 74%
higher than FY08’s average domestic price, PTBA
should be able to grow revenue and net profit by
43% and 53%, respectively.
Long term strategy progressing well. PTBA’s long
term plan to boost production and utilize its vast
reserves includes improving and enhancing its railway
transportation capacity and building coal-fired power
plants near its mines. The projects are progressing as
planned, and are expected to commence operations
between 2011 and 2013. PTBA also upgraded its coal
reserves by 200mn tons to 2bn tons after an
independent valuation by IMC Group Consulting Ltd
from the UK that complies with US Geological Survey
(USGS) valuation guidelines. The huge reserves will
underpin PTBA’s growth going forward.
Maintain BUY call for PTBA. This is premised on its
strong earnings, stable balance sheet and promising
outlook. Our target price is Rp8,359, based on DCF
methodology with 17.3% WACC.
At A Glance
Issued Capital (m shrs) 2,304
Mkt. Cap (Rpbn/US$m) 15,092 / 1,268
Major Shareholders
Govt. of Indonesia (%) 65.0
Free Float (%) 35.0
Avg. Daily Vol.(‘000) 4,988
Page 128
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: GC / sa: AP

Regional Equity Strategy 2Q 2009
Tambang Batubara
Income Statement (Rp bn)
Balance Sheet (Rp bn)
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Turnover 4,124 7,216 10,097 8,279 Net Fixed Assets 361 583 1,940 4,828
Cost of Goods Sold (2,474) (3,686) (4,505) (4,708) Invts in Associates & JVs 0 0 0 0
Gross Profit 1,650 3,530 5,593 3,571 Other LT Assets 487 574 591 609
Other Opng (Exp)/Inc (704) (1,036) (1,817) (1,490) Cash & ST Invts 2,223 3,042 4,067 3,658
Operating Profit 946 2,494 3,775 2,081 Inventory 271 420 602 629
Other Non Opg (Exp)/Inc 33 (51) 0 0 Debtors 561 1,377 1,982 1,625
Associates & JV Inc 0 1 1 1 Other Current Assets 26 112 112 112
Net Interest (Exp)/Inc 79 108 (36) (278) Total Assets 3,928 6,107 9,294 11,462
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 1,058 2,552 3,741 1,804 ST Debt 0 0 0 0
Tax (297) (837) (1,047) (451) Other Current Liab 695 1,353 1,395 1,400
Minority Interest (1) (7) (10) (8) LT Debt 0 0 1,282 3,441
Preference Dividend 0 0 0 0 Other LT Liabilities 422 676 710 710
Net Profit 760 1,708 2,684 1,345 Shareholder’s Equity 2,799 3,998 5,828 5,831
Net Profit before Except. 760 1,708 2,684 1,345 Minority Interests 12 80 80 80
EBITDA 1,053 2,514 3,875 2,278 Total Cap. & Liab. 3,928 6,107 9,294 11,462
Sales Gth (%) 16.7 75.0 39.9 (18.0) Non-Cash Wkg. Capital 163 555 1,301 966
EBITDA Gth (%) 59.4 138.7 54.1 (41.2) Net Cash/(Debt) 2,223 3,042 2,785 217
Opg Profit Gth (%) 44.0 163.7 51.4 (44.9)
Net Profit Gth (%) 56.6 124.6 57.1 (49.9)
Effective Tax Rate (%) 28.1 32.8 28.0 25.0
Cash Flow Statement (Rp bn)
Rates & Ratio
FY Dec 2007A 2008A 2009F 2010F FY Dec 2007A 2008A 2009F 2010F
Pre-Tax Profit 1,058 2,552 3,741 1,804 Gross Margins (%) 40.0 48.9 55.4 43.1
Dep. & Amort. 74 70 99 196 Opg Profit Margin (%) 22.9 34.6 37.4 25.1
Tax Paid (297) (837) (1,047) (451) Net Profit Margin (%) 18.4 23.7 26.6 16.2
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 29.9 50.2 54.6 23.1
Chg in Wkg.Cap. 286 (995) (746) 335 ROA (%) 21.6 34.0 34.9 13.0
Other Operating CF 19 845 (27) (26) ROCE (%) 23.0 42.0 43.0 17.4
Net Operating CF 1,141 1,628 2,019 1,858 Div Payout Ratio (%) 48.0 32.0 50.0 50.0
Capital Exp.(net) (300) (429) (1,456) (3,084) Net Interest Cover (x) NM NM 105.1 7.5
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 1.2 1.4 1.3 0.8
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 59.1 49.0 60.7 79.5
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 8.8 8.5 7.5 9.2
Other Investing CF 54 0 34 0 Inventory Turn (avg days) 40.5 34.9 42.3 49.8
Net Investing CF (246) (429) (1,422) (3,084) Current Ratio (x) 4.4 3.7 4.8 4.3
Div Paid (243) (380) (854) (1,342) Quick Ratio (x) 4.0 3.3 4.3 3.8
Chg in Gross Debt 0 0 1,282 2,159 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 0 0 0 0 Capex to Debt (%) N/A N/A 113.6 89.6
Other Financing CF 277 0 0 0 Z-Score (X) 12.2 11.4 8.3 4.7
Net Financing CF 34 (380) 428 817 N. Cash/(Debt)PS (Rp) 965 1,320 1,209 94
Net Cashflow 928 819 1,025 (409) Opg CFPS (Rp) 371 1,138 1,200 661
Free CFPS (Rp) 365 520 245 (532)
Quarterly / Interim Income Statement (Rp bn)
Quarterly Cash Flow Statement (Rp bn)
FY Dec 1Q2008 2Q2008 3Q2008 4Q2008 FY Dec 1Q2008 2Q2008 3Q2008 4Q2008
Turnover 1,234 1,654 2,079 2,249 Cash Flow From Operations
Cost of Goods Sold (670) (860) (975) (1,181) Net income 286 424 611 386
Gross Profit 564 794 1,103 1,068 Deprec & Amortization 11 26 21 17
Other Oper. (Exp)/Inc (171) (229) (294) (343) Oth Non-Cash Adj (362) 122 (51) 118
Operating Profit 394 566 809 725 Cash Flow From Operations (65) 573 580 521
Other Non Opg (Exp)/Inc (6) 7 28 (80) Cash Flow From Investing
Associates & JV Inc 0 0 0 1 Disposal Of Fixed Asst - - 55 -
Net Interest (Exp)/Inc 19 23 29 37 Capital Ex/Prop Add (10) (102) - (30)
Exceptional Gain/(Loss) 0 0 0 0 Oth Investing Activities (41) (0) (234) (67)
Pre-tax Profit 407 596 866 683 Cash Flow From Investing (51) (102) (179) (98)
Tax (121) (174) (254) (288) Cash Flow From Financing
Minority Interest 0 3 (1) (9) Dividends Paid - (380) - -
Net Profit 286 424 611 386 Inc(Dec) In ST Borrow - - - -
Net profit bef Except. 286 424 611 386 Increase: LT borrow - - - -
EBITDA 388 573 837 646 Reimburse Of LT Borrow - - - -
Inc capital stock - - - -
Sales Gth (%) 11.0 34.1 25.7 8.2 Decrease In Cap Stocks - - - -
EBITDA Gth (%) 58.3 47.6 46.0 (22.8) Oth Financing Activities (2) (6) 4 22
Opg Profit Gth (%) 67.6 43.7 43.1 (10.4) Cash Flow From Financing (2) (386) 4 22
Net Profit Gth (%) 44.0 48.0 44.1 (36.8) Net Changes In Cash (117) 85 405 446
Gross Margins (%) 45.7 48.0 53.1 47.5
Opg Profit Margins (%) 31.9 34.2 38.9 32.2
Net Profit Margins (%) 23.2 25.6 29.4 17.2
Source: Company, DBS Vickers
Page 129

Regional Equity Strategy 2Q 2009
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 (0-15% total return over the next 12 months for small caps, 0-10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
* Share price appreciation + dividends
DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson
(www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg
(DBSR GO). For access, please contact your DBSV salesperson.
GENERAL DISCLOSURE/DISCLAIMER
This document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities
(Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). [This report is
intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form by any means or (ii)
redistributed without the prior written consent of DBSVR.]
The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty as to its
accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation.
Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular
needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of
judgement by addressees, who should obtain separate legal or financial advice. DBSVR accepts no liability whatsoever for any direct or consequential
loss arising from any use of this document or further communication given in relation to this document. This document is not to be construed as an
offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its
affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR,
DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities
mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a
manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures
in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her
compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of
27 Mar 2009, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the
securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the securities
recommended in this report as of 26 Mar 2009.
3. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered
broker-dealer, beneficially own a total of 1% or more of any class of common equity securities of the Suntec Reit, CSE
Global as of 27 Mar 2009.
4. Compensation for investment banking services:
DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12
months, and within the next 3 months may receive or intends to seek compensation for investment banking
services from CapitaRetail China Trust, City Development, Mapletree logistic, ASL Marine and Parkway Life
DBSVUSA does not have its own investment banking or research department, nor has it participated in any
investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing
to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction
in any security discussed in this document should contact DBSVUSA exclusively.
Page 130

Regional Equity Strategy 2Q 2009
RESTRICTIONS ON DISTRIBUTION
General
This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or
resident of or located in any locality, state, country or other jurisdiction where such distribution, publication,
availability or use would be contrary to law or regulation.
Australia
Hong Kong
Singapore
United Kingdom
Dubai/
United Arab Emirates
United States
Other jurisdictions
This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to
hold an Australian financial services licence under the Corporation Act 2001 [“CA] in respect of financial services
provided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [“MAS”]
under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for
“wholesale investors” within the meaning of the CA.
This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and
regulated by the Hong Kong Securities and Futures Commission.
This report is being distributed in Singapore by DBSVR, which holds a Financial Adviser’s licence and is regulated
by the MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No.
198600294G), which is an Exempt Financial Adviser as defined under the Financial Advisers Act. Any research
report produced by a foreign DBS Vickers entity, analyst or affiliate is distributed in Singapore only to
“Institutional Investors”, “Expert Investors” or “Accredited Investors” as defined in the Securities and Futures
Act, Chap. 289 of Singapore. Any distribution of research reports published by a foreign-related corporation of
DBSVR/DBSVS to “Accredited Investors” is provided pursuant to the approval by MAS of research distribution
arrangements under Paragraph 11 of the First Schedule to the FAA.
This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the
meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research
distributed in the UK is intended only for institutional clients.
This report is being distributed in Dubai/United Arab Emirates by DBS Bank Ltd, Dubai (PO Box 506538, 3 rd Floor,
Building 3, Gate Precinct, DIFC, Dubai, United Arab Emirates) and is intended only for clients who meet the
DFSA regulatory criteria to be a Professional Client. It should not be relied upon by or distributed to Retail
Clients. DBS Bank Ltd, Dubai is regulated by the Dubai Financial Services Authority.
Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person
except in compliance with any applicable U.S. laws and regulations.
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for
qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such
jurisdictions.
DBS Vickers Research (Singapore) Pte Ltd – 8 Cross Street, #02-01 PWC Building, Singapore 048424
Tel. 65-6533 9688, Fax: 65-6226 8048
Company Regn. No. 198600295W
Page 131