Left Brain Right B - 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
4Q 2009
DBS Group Research
25 September 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 4Q 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
June Ng China and Malaysia Power june@hwangdbsvickers.com.my
Hong Kong / China
Derek Cheung Head of Research, Strategy derek_cheung@hk.dbsvickers.com
Alice Hui CFA Deputy HOR, Consumer alice_hui@hk.dbsvickers.com
Gideon Lo CFA Deputy HOR, Oil & Petrochemicals, gideon_lo@hk.dbsvickers.com
Pharmaceuticals, Shipping
Carol Wu China Property carol_wu@hk.dbsvickers.com
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 Hong Kong Property jeff_yau@hk.dbsvickers.com
Mavis Hui Media & General Retail mavis_hui@hk.dbsvickers.com
Patricia Yeung Industrials patricia_yeung@hk.dbsvickers.com
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, Conglomerate/Automotive, Cement agus.pramono@id.dbsvickers.com
Yusuf Ade Winoto, CFA Basic Materials, Oil, Gas & Energy, Construction yusuf.winoto@id.dbsvickers.com
Research Team Telecommunications, Plantation, Consumer research@id.dbsvickers.com
Malaysia
Wong Ming Tek Head of Research, Strategy mingtek@hwangdbsvickers.com.my
Goh Yin Foo, CFA Retail/ Technical Product yinfoo@hwangdbsvickers.com.my
June Ng Power, Oil & Gas, Conglomerates, REITs june@hwangdbsvickers.com.my
Lim Sue Lin Financial Services suelin@hwangdbsvickers.com.my
Yee Mei Hui Gaming, Property meihui@hwangdbsvickers.com.my
Juliana Ramli Aviation, Transport, Plantation juliana@hwang.dbsvickers.com.my
Chong Tjen-San, CFA Construction, Infrastructure tjensan@hwangdbsvickers.com.my
Kok Chiew Sia Consumer chiewsia@hwangdbsvickers.com.my
Lee Wee Keat Oil & Gas, IPO weekeat@hwangdbsvickers.com.my
Research Team Small-Mid Caps general@hwangdbsvickers.com.my
Telecommunications, Motor
Steel, Manufacturing, Other Financial Services
Building materials
Singapore
Janice Chua Head of Research, Strategy, Industrials janicechua@dbsvickers.com
Chong Wee Lee, CFA Industrials weelee@dbsvickers.com
Ho Pei Hwa Industrials peihwa@dbsvickers.com
Lock Mun Yee Property, Reits mumyee@dbsvickers.com
Adrian Chua Property adrianchua@dbsvickers.com
Derek Tan Reits derektan@dbsvickers.com
Jeremy Thia Industrials, Property jeremythia@dbsvickers.com
Andy Sim, CFA Consumer andysim@dbsvickers.com
Patrick Xu Consumer patrickxu@dbsvickers.com
Tan Ai Teng Electronics aiteng@dbsvickers.com
Sachin Mittal Telecom sachin@dbsvickers.com
Suvro Sarkar Electronics, Industrials survo@dbsvickers.com
Thailand
Chanpen Sirithanarattanakul Head of Research chanpens@th.dbsvickers.com
Strategy, Property, REITs, Transportation
Chirasit Vuttigrai Strategy, Telecom, Media chirasitv@th.dbsvickers.com
Vichitr Kuladejkhuna CFA Building Materials, Energy, Utilities, vichitrk@th.dbsvickers.com
Petrochemicals, Chemicals
Sugittra Kongkhajornkidsuk Banks, Securities sugittrak@th.dbsvickers.com
Parin Kitchatornpitak Automotive, Commerce, Electronics parink@th.dbsvickers.com
Nalyne Viriyasathien Construction Materials, Food and Beverage, nalynev@th.dbsvickers.com
Korea
Lee Eun Young Basic Materials, Utilities eunyoung@dbsvickers.com
Jung Sung Hoon Consumer sunghoon@dbsvickers.com
Jay (Jaehak) Kim Automotive Jay_kim@hk.dbsvickers.com
Page 2
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(“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 4Q 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 38
Country Assessments & Stock Profiles
Singapore Spinning the wheel 41
MobileOne Hitting the right buttons for NBN 54
Singapore Airlines Stronger prospects ahead 56
SPH Go for the cash 58
Suntec REIT More room to shine 60
UOB On track for recovery 62
Hong Kong / China Party continues 64
Bank of China Hong Kong Tighter cooperation with parent 80
Bank of China An undervalued big three bank 82
China Petroleum & Chem Up-cycle profit, mid-cycle value 84
China Railway Group Heading high growth phase 86
MTR Corporation Defensive growth stock 88
Malaysia Cherry-picking in the upcycle 90
Hong Leong Bank Flight to quality 106
MISC Improved outlook 108
Thailand Liquidity driven rally 110
Siam Cement Riding on economic recovery 124
Thai Airways Taking off in the high season 126
Total Access Communication Best 3G play 128
Indonesia Raising growth momentum 130
Bank Rakyat Indo Faster than the others 138
Bukit Asam Domestic play 140
DBS Vickers Securities
Singapore l Hong Kong / China l Thailand l Malaysia l Indonesia
Page 3

Regional Equity Strategy 4Q 2009
Market Data
Market Data
Relative Valuations & Performance
Stock Market Valuation – September 2009
Market Cap Earnings Growth (%) PE (x)
(US$ bn) 2008 2009F 2010F 2008 2009F 2010F
Hong Kong 975 (31.2) 9.4 22.7 19.0 17.4 14.2
China 1,190 (11.7) 19.5 35.6 21.6 18.1 13.3
Singapore 414 (2.5) (6.3) 15.1 15.6 16.6 14.5
Malaysia 259 (0.8) (8.2) 15.4 16.3 19.1 15.4
Philippines * 76 (16.4) 21.8 15.1 19.8 16.2 14.1
Thailand 120 (30.0) 24.0 16.6 16.4 12.5 10.7
Indonesia 189 (2.3) 9.7 13.0 25.7 16.3 13.3
Korea * 732 (38.6) 42.0 33.7 20.4 14.3 10.7
Taiwan * 579 (69.2) 20.1 80.8 38.5 32.1 17.8
Prices are as at 17 September 2009
Source: Bloomberg, DBS Vickers coverage, except * markets from Datastream Consensus
Market Performance (% change) – 17 September 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)
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0
1-month ago 3-months ago YTD
Source: Bloomberg
Page 4

Regional Equity Strategy 4Q 2009
Stock Profiles Key Data
Stock Profiles
Key Data
Bloomberg Code
Company
Price & Index
(17 Sep 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 2,673
M1 SP MobileOne S$1.78 1,126 10.9 10.2 2 5.9 6.4 65.8
SIA SP Singapore Airlines ** S$13.60 11,407 39.2 16.9 2 6.6 1.2 3.0
SPH SP SPH S$3.71 4,175 14.9 13.3 (2) 10.2 2.9 19.1
SUN SP Suntec REIT * S$1.12 1,289 9.5 7.8 (37) 18.3 0.5 3.5
UOB SP UOB S$17.00 18,314 15.5 13.2 0 nm 1.6 10.7
* Distribution Yield
HONG KONG HSI / HSCEI 21,769 / 12,668
2388 HK Bank of China HK HK$18.56 25,319 15.3 11.6 125 nm 2.1 14.7
3988 HK Bank of China # HK$4.38 42,963 12.8 9.5 28 nm 2.0 16.2
386 HK China Petroleum & Chem # HK$6.92 14,983 9.2 7.2 57 5.5 1.4 16.5
390 HK China Railway Group # HK$7.04 3,822 20.9 16.7 142 10.1 2.1 10.7
66 HK MTRC Corp HK$27.35 20,159 21.9 20.1 (3) 19.8 0.9 ^ 7.0
# H share market cap
^ P/NAV
MALAYSIA KLCI 1,219
HLBK MK Hong Leong Bank ** RM6.60 3,004 10.9 10.0 7 nm 1.6 15.8
MISF MK MISC ** RM8.95 9,591 23.3 18.6 13 10.8 1.6 6.8
THAILAND SET 709
SCC TB Siam Cement Bt229.00 8,152 12.9 11.8 13 8.4 2.8 22.8
THAI TB Thai Airways Bt21.70 1,094 7.3 5.2 nm 6.2 0.7 10.4
DTAC TB Total Access Communications Bt42.75 3,003 15.6 12.8 (17) 5.9 1.6 10.7
INDONESIA JCI INDEX 2,420
BBRI IJ Bank Rakyat Indonesia IDR7,450 9,286 13.1 10.2 23 nm 3.5 28.8
PTBA IJ Bukit Asam IDR14,800 3,446 10.6 12.0 29 6.7 5.4 62.1
Indo closing prices as of 15 Sep 09
** FY10 & FY11 estimates
Source: DBS Vickers
Page 5

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Asia Equity
In limp mode
The end of US recession in June sealed the end of the
financial crisis in our view and we continue to stay on the
positive side in the fourth quarter. At the very least,
investors can expect 7% return based on an average
quarterly performance, in view of the still positive
momentum. Longer term, we are looking at index gains
of close to 18% by end of 2010. We recommend staying
invested.
We acknowledge that Asia's valuations are getting stretched and that investors
are increasingly concerned about the withdrawal of stimulus packages and
formation of asset bubbles in Asia. Given the strong rally in the last six months,
these worries may serve as reasons for profit taking. However, support levels
using P/B at one standard deviation, suggests that the correction may not be
severe. We recommend portfolio re-balancing to exploit the opportunities and
mitigate risks for better upside this quarter
Export-oriented economies and markets with higher Industrials and Technology
exposure will benefit more from the upturn. We recommend Overweight in
Singapore, Thailand, Korea and Taiwan. These markets are also laggards where
valuations are still attractive. Hong Kong and China are downgraded to Neutral
from Overweight over higher volatility arising from uncertainty over forthcoming
macro policy changes in China. We reduce Indonesia and India by one notch to
Neutral and Underweight respectively. These two markets are the best
performing markets this year. We recommend taking profit to switch into
laggard markets. Malaysia remains an Underweight
Joanne Goh • (65) 6878 5233 • joannegohsc@dbs.com
Page 6
www.dbsvickers.com
Refer to important disclosures at the end of this report
sa: TW
"This report has been re-printed with permission from DBS Group Research (Regional Equity Strategy) of DBS Bank Limited" disclosures on page 37 of this report

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
For several months the stock market has made major gains,
adding up to what was probably the greatest bull market in
recent history. Our recommendation to stay positive in the
second quarter was straightforward as we had identified the
catalysts for valuation, economic growth and liquidity to
normalize. We stayed positive in the third quarter but were of
the view that the stock market's turbo charge might have
some lag as risk premium normalization had run its course and
markets would need time to justify recent gains. Third quarter's
performance was not as spectacular as the second quarter’s
but MSCI Asia ex-Japan still managed to surge 15%, making
both quarters two of the best performing quarters in
history.(Fig. 1)
Fig. 1: MSCI Asia ex-Japan quarterly performance
%
50
40
30
20
10
0
-10
-20
-30
88 90 92 94 96 98 00 02 04 06 08
Q1 Q2 Q3 Q4
Average 3.1 3.2 -1.6 6.7
2009 3.8 29.0 14.4
High 24.8 30.4 16.5 48.2
Low -21.0 -28.5 -24.5 -22.1
Source: Datastream. Average calculations from 1988
Setbacks, that appeared threatening, have proved to be
temporary and served merely as renewed buying opportunities
in an upwardly rising trend. The sharp correction in the China
'A' share market and its impact on the Hong Kong bourse and
other regional markets was a major setback this quarter and
has been one of the major risks in the market, which we had
highlighted last quarter.
The end of US recession in June marks the end of the financial
crisis in our view and we continue to stay on the positive side
in the coming quarter.
The fourth quarter has always been the best performing
quarter of the year with an average performance of 6.7%. In
an upwardly trending market amid positive news flow and
momentum, we believe this should be the least that can be
expected for this quarter. We recommend staying invested but
re-jigging portfolio positions to exploit the opportunities and
risks in the current quarter for better upside.
What will put an end to the bull market?
With the stock market already up so much in the last six
months, the inevitable implication is that the stock-market
boom must end. The focus now is one when the fiscal support,
which was thought to be the main pillar for the economic
recovery thus far, will be withdrawn. The bear side of the story
is that once the impact of the stimulus dissipates, the recovery
will not be sustainable. The stock market, which has been
building on high hopes of an economic recovery, will face a
major sell off soon.
No early exit
At this stage, we remain positive that there is little to worry
about in the short term. It is highly unlikely that huge stimulus
packages will be suddenly withdrawn because that would
threaten the fragile economic recovery.
Over the G20 meeting in early September, Alistair Darling, the
Chancellor of the Exchequer, warned that the world could be
dragged into a double-dip recession if governments stopped
stimulating their economies. As Dominique Strauss-Kahn,
managing director of the International Monetary Fund,
mentioned in the same meeting, withdrawal of stimulus will
need to be handled delicately, and not before households and
companies are up to the task of "taking the baton" of
supporting growth from the public sector.
In an opening address at Summer Davos in Dalian, China's
premier Wen Jianbao signalled that he will maintain
unprecedented government spending to drive recovery and
that "China's economic rebound is too unstable, unbalanced
and not yet solid" and " ... we cannot and will not change the
direction of our policies when the conditions are not
appropriate". We are of the view that there is no early exit in
sight and there are many justifications for that in Asia.
No bubble
Investors are worried about early signs of bubble markets in
Asia, as the early restoration of confidence, fiscal support, and
low interest rates have led to an asset boom. These are valid
concerns, but it is probably too early for policy makers to act
Page 7

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
on them. The fundamental checks are (1) whether asset price
inflation will eventually start spilling over onto the CPI and (2) if
there is cost push inflation, especially from the labor market,
raw materials and business costs, which will in turn compress
margins. China's CPI and PPI continued to fall in August,
suggesting there is still no price pressure in China.
Unemployment rate in Asia probably hasn't peaked yet. We
look at the formation of bubble markets from three aspects:
stock, property and credit markets. The conclusion is that
there may be premature signs of a bubble but not suggestive
of an imminent burst.
Stock market bubble
A stock market bubble is a type of economic bubble taking
place in stock markets when market participants drive stock
prices above their value in relation to some measures of stock
valuation.
Valuations
We should be worried about market valuations getting
excessive: Asia's price to book value is nearing one standard
deviation above the long-term average. Its relationship with
12-month forward return does not suggest an imminent
bursting of the bubble but Asia index would likely go nowhere
in the next 12 months. Ideally, we would not like to see an
overshooting of Asia's P/B above one standard deviation.
However, in view of the still abundant liquidity, this may be just
wishful thinking. It is possible to see an upward revision of
book value, mainly from property asset revaluation and banks'
provisions being ploughed back, which will render book value
less expensive. (Fig. 2)
Fig. 2: Asia ex-Japan P/B vs 12m forward return
2.9
2.6
2.3
2.0
1.7
1.4
1.1
(x) (%)
-60
0.8
93 95 97 99 01 03 05 07 09
12-m fwd return (R, inv erse scale) AXJ P/B (L)
Source: Datastream, DBS. Bands are plus/minus one standard deviation
bands.
Fig. 3: Asia markets: P/B and one standard deviation
targeted levels
Avg Std Current
# of
SD
One SD
PB
Target
upside
Current
Index
Potential
support
level
SET 1.8 0.3 1.9 0.1 2.2 16% 703 814
STI 1.3 0.2 1.3 0.2 1.5 13% 2,638 2,992
China A 2.9 1.1 3.5 0.6 4.0 13% 3,184 3,593
HSI 1.7 0.4 1.9 0.5 2.1 10% 20,866 23,010
TWI 1.9 0.3 2.0 0.4 2.1 8% 7,346 7,943
H-sh 1.8 0.8 2.6 1.0 2.6 0% 12,156 12,122
AXJ 1.7 0.3 2.0 1.0 2.0 -1% 536 533
KLCI 1.6 0.2 1.9 1.0 1.8 -1% 1,207 1,200
KOSPI 1.2 0.3 1.6 1.3 1.5 -4% 1,653 1,579
India 2.5 0.8 3.5 1.3 3.3 -7% 16,454 15,373
JCI 2.3 0.7 3.6 1.7 3.1 -14% 2,420 2,072
-45
-30
-15
0
15
30
45
Source: Datastream, DBS
Based on P/B at one standard deviation above average, there is
still upside for Hang Seng Index, A-share, SET, TWI and STI of
around 8-15% before these indices are considered excessively
overvalued.
Page 8

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Cash calls
Stock market bubbles frequently produce hot markets in Initial
Public Offerings, since investment bankers and their clients see
opportunities to float new stock issues at inflated prices. These
hot IPO markets mis-allocate investment funds to areas
dictated by speculative trends, rather than to enterprises
generating long-standing economic value.
We believe the bigger markets in Asia are still in the early stage
of cash calls. In Hong Kong, we have seen a steady mix of
rights issue, placements, IPOs among Hong Kong and Chinese
companies, raising a total of HK$300bil or 2.4% of market
cap. But this is still way below previous high levels, which
implies the stock market can still absorb the potential supply
stream. Additionally, liquidity remains abundant and we do not
foresee supply to be a major market dampener.
In Singapore, many big companies have placed rights issues
earlier in the year despite the lower valuations to strengthen
their balance sheets, in view of the uncertainty ahead and to
provide for business opportunities. However, some of these
companies have yet to utilize the cash raised or have called for
another round of cash. There were, however, only 9 new small
companies listed so far. We believe the market is hungry for
new stock ideas. Additional capital raising for promising
business acquisitions at attractive pricing should be welcomed
by investors.
In China, there were only 3 'A' share listings since the
government lifted the ban on IPO this June after a 10-month
suspension. Share sale by existing companies continue but we
do not see it as a major threat to the market in view of the still
abundant liquidity. Afterall, the market cap / GDP ratio of
China remains at comparable levels with US (largest economy
to the world) or India (similarly Asia emerging market). The
authority is also mulling a separate NASDAQ-like bourse in the
near future. We believe this should help diverge part of the
abundant liquidity and risk appetite in the market, thereby
causing less volatility in the mainboard.
Fig. 4: Cash calls in Hong Kong and Singapore
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1990 1993 1996 1999 2002 2005 2008
Singapore Hong Kong
Source: SGX, HKEX, CEIC, DBS
Fig. 5: Market cap / GDP : China , US, India
160%
140%
120%
100%
80%
60%
40%
20%
0%
2004 2005 2006 2007 2008 2009
US India China
Source: Bloomberg
Page 9

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Against this backdrop, we do not think there is an Asian stock
market bubble but investors should be wary of excessive
valuations. We recommend markets and sectors, which (1)
trade at cheaper price to book value compared to their
historical trends, and (2) have room for earnings upside in the
next 12 months. Any small positive news will have a long
lasting impact on the returns of these stocks.
Fig. 6: Asia sectors: Price to book value below long-term
average
Current
P/B
Average
P/B
Std Dev
P/B
# of SD away
from avg
Hong Kong Banks 1.7 2.3 0.5 -1.2
Taiwan Financials 1.2 2.5 1.7 -0.8
Taiwan Tech 2.1 2.9 1.2 -0.7
Malaysia Utilities 1.4 1.8 0.5 -0.7
Malaysia Telecom 2.0 2.5 0.9 -0.6
Singapore Telecom 2.7 4.8 3.3 -0.6
Thai Banks 1.4 1.7 0.6 -0.5
Singapore Banks 1.4 1.5 0.3 -0.4
Hong Kong Telecoms 2.5 4.0 3.7 -0.4
Malaysia Travel & Leisure 1.8 2.2 0.9 -0.4
Thai Telecoms 4.3 7.3 8.4 -0.4
India Tech 6.7 10.3 10.9 -0.3
Malaysia Oil & Gas 2.2 2.5 0.9 -0.3
Hong Kong Ind Gds & Svs 1.1 1.2 0.3 -0.2
Taiwan Inds Gd & Svs 2.7 2.8 0.7 -0.2
Malaysia Banks 1.9 2.1 0.7 -0.2
Singapore Ind Gds & Svs 0.9 1.0 0.3 -0.2
Hong Kong Utilities 2.4 2.5 0.6 -0.2
Taiwan Chemicals 1.9 1.9 0.5 -0.1
Indonesia Banks 3.3 3.7 3.4 -0.1
Hong Kong Oil & Gas 2.7 3.0 3.4 -0.1
Thailand Oil & Gas 2.1 2.2 0.9 -0.1
Taiwan Telecom 1.8 1.8 0.4 0.0
Source: Datastream, DBS. Highlighted rows are cyclical sectors with
earnings upgrade potential
Fig. 7: Asia sectors: Price to book value more than one
standard deviation
Current
P/B
Average
P/B
Std Dev
P/B
# of SD away
from avg
Korea Pers & H/H Gds 2.9 1.9 0.4 2.2
India Basic Resource 4.5 2.0 1.3 2.0
India Inds Gds & Svs 6.7 3.2 1.8 1.9
India Utilities 3.0 1.6 0.8 1.8
Korea Basic Resource 1.4 0.9 0.3 1.8
Taiwan Oil & Gas 4.0 3.0 0.6 1.8
Indonesia Utilities 11.4 6.4 3.0 1.7
Indonesia Basic Resource 2.8 1.2 0.9 1.7
Indonesia Pers & H/H Gds 6.0 4.3 1.2 1.4
India Oil & Gas 2.9 1.9 0.8 1.3
Korea Auto & Parts 1.4 0.9 0.4 1.3
Indonesia Auto & Parts 3.7 1.8 1.4 1.3
Hong Kong Technology 7.8 4.7 2.5 1.3
India Banks 1.8 1.2 0.5 1.2
China Basic Resource 2.8 1.5 1.1 1.2
Korea Inds Gds & Svs 1.8 1.2 0.6 1.1
China Insurance 4.7 3.3 1.4 1.1
Hong Kong Real Estate 1.3 1.0 0.3 1.0
Source: Datastream, DBS. Highlighted rows are defensive sectors
Is there a housing bubble?
Bubbles are hard to spot and economists can't agree on what
counts as a bubble. After the US housing debacle believed to
have been brought about by easy US monetary policy between
2003-2007, recent house price rises in Asia have investors
worried of another imminent housing bubble.
We believe that not all price rallies are unjustified. Pent-up
demand after the initial sharp contraction in anticipation of a
deep recession was the key driver of property prices in the
recent few months. Low interest rates, economic recovery and
inflationary concerns will continue to drive expectations of
higher property prices and thus demand. Our "bubble" check
focuses on affordability and assessment of policy tightening.
At this point our conclusion for most Asian markets is that
affordability levels remain healthy and falling inflation and still
weak demand growth means policy tightening will come only
next year. However, there are early signs of speculative
activities in some markets which may call for a fine-tuning of
government regulations on the property sector. We believe
that policy makers will be quick to respond to abnormal price
behaviour this time round to prevent the likes of the US
housing bubble.
For markets in Hong Kong, Singapore and China, there are
"physical signs" of a red hot property market, such as long
queues and units being snapped at new launches, significant
increase in take-up rate and "verbal" intervention by
governments to cool down the euphoria. Our analysts have
argued that housing affordability ratios (measured as a
proportion of mortgages to monthly household income) are
still lower than previous crisis levels. In Singapore, the
government has announced control measures to pre-empt
excessive property speculation.
Hong Kong: Housing remains much more affordable than at
any time between 1994-2000, primarily due to cheap
mortgages. As a result of keen competition among banks,
effective mortgage rates have fallen to 2.5% or lower, near the
lowest for almost 15 years. Tight future supply should also
support home prices.
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Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Fig. 8: Hong Kong: Affordability vs mortgage lending
rate
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Jan-94
Jun-95
Nov-96
Apr-98
Sep-99
Feb-01
Jul-02
Dec-03
May-05
Affordability ratio (LHS)
Oct-06
Mortgage lending rate (RHS)
Source: Centaline Property Agency, CEIC, DBS Vickers
Mar-08
12%
10%
China: We don't see a bubble across the board in China as the
nationwide affordability ratio is still lower than that in 2005
when most people viewed property prices as affordable.
However, some cities, such as Beijing, Shenzhen, Tianjin did
see affordability ratios rise to a level much higher than in 2005.
Having said that, housing prices in these cities are still more
affordable than those in 2007. As China statistics tend to
underestimate household incomes, we would believe actual
affordability is better than the reported numbers.
Jul-09
Fig. 9: Affordability ratio by different cities in China
Basd on price of
Jul 09 2007 2005
China 44% 52% 49%
Shanghai 61% 66% 61%
Beijing 89% 75% 61%
Shenzhen 53% 75% 45%
Tianjin 58% 57% 51%
Hangzhou 61% 72% 58%
Chengdu 46% 55% 45%
Chongqing 29% 38% 31%
Guangzhou 53% 67% 51%
Wuhan 47% 62% 49%
Source: CEIC, Soufun
8%
6%
4%
2%
0%
Singapore: Based on our affordability ratio calculations, where
we assume a 30-year loan tenure at an average 5.5% interest
cost (vs current rates at under 2%) for a 110 sqm mass-market
condominium unit, affordability still remains reasonable (about
40% of monthly income for the 85th percentile household)
even with a 20% increase in home prices from trough levels.
We have also assumed that household incomes fall 10% in
2009 and show zero growth in 2010. This is still a much
healthier ratio as compared to during the pre-Asian Financial
Crisis housing bubble.
Fig. 10: Singapore affordability ratio
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
Source: DBS Vickers
Credit
1996 1998 2000 2002 2004 2006 2008 2010F
Median Price of Mass Condo (LHS)
% Household Income for Mortgage (RHS)
65%
60%
55%
50%
45%
40%
35%
30%
25%
Economic bubbles are often referred to as credit bubbles as
credit is easily made available to everyone and deflated
through a subsequent tightening of credit. What we have
found in Asia is that credit growth is still way below past crisis
levels except for China where this year's credit growth has
been phenomenal and a credit tightening is on the cards. Our
China banking analyst believes that a slowdown in China's
lending growth in the second half of the year is consistent with
seasonality and should not be a major concern. Government
officials have clearly stated the "moderately loose" monetary
policy will remain, and only market tools (instead of
administrative measures) will be used when conducting
"dynamic fine-tuning". We believe market tools to be used
include open market operations or even mild hikes of RRR and
interest rates. While guidelines to ensure loans are directed to
the real economy are possible, administrative controls such as
loan quota policy is unlikely.
Page 11

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Fig. 11: Credit growth in Asia by markets, %YoY
Dec-07 Dec-08 Mar-09 Jun-09 Jul-09
HK 19.5 -6.6 -0.7 9.6 8.2
S'pore 19.9 16.6 8.6 4.2 2.3
Malaysia 8.5 15.8 15.4 11.9 12.5
Indonesia 26.4 30.7 26.1 19.2* NA
Thailand 4.9 9.3 6.4 3.2 2.7
Taiwan 4.0 3.6 1.1 -0.3 -0.8
Korea 14.9 14.1 12.1 8.8 7.7
China 16.2 15.9 27.1 31.9 31.4
India 20.4 22.3 17.4 16.3* NA
Source: Datastream. * Refers to May’s number
Fig. 12: Credit growth in China
(RMBbn)
4,000
3,600
3,200
2,800
2,400
2,000
1,600
1,200
800
400
0
568
414
442
422
247
452
231
303
284
136
Source: CEIC, DBSVickers
87
48
Opportunities and Risks
804
243
283
464
382
332
319
272
375
182
477
1Q09: 4,580 (50% of total)
2Q09: 2,787 (30% of total)
3Q09F: 1,100 (12% of total)
4Q09F: 742 (8% of total)
Our asset allocation strategy for the fourth quarter is based on
the premise that the index will remain in consolidation mode,
with an upside bias. The major resistance will come from
higher valuations and slower earnings upgrade momentum in
Asia. While the outlook for recovery remains bright in our view,
uncertainty of forthcoming macro policy changes remain the
key dampener for sentiment. We take the view that it is too
early to worry about this.
Investors can look forward to the following opportunities
whilst staying mindful of the following risks in the coming
quarter:-
1. Synchronised global upturn in the making. We believe
the global GDP data will improve sequentially,
beginning with Asia which had bottomed in 1Q, US in
2Q, and subsequently Europe in 3Q. The likelihood for
data to disappoint is low in our view and bottoming
may come in earlier than expected. Meanwhile, world
valuations are still at very low levels which mean there
is still room for P/E expansion. The potential for global
772
1,620
1,070
1,890
592
665
1,530
356
420
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
May-09
Jul-09
Sep-09
Nov-09
markets to re-rate in line with a sharp recovery in GDP
growth over the next 6-12 months should keep the
global equities market uptrend intact. Asia's growth,
being high in beta, should continue to benefit from
the positive trend in economic momentum.
2. Against this backdrop, Asia's valuation is high when
compared to the world, and given that economic
momentum will be slower. There is a threat of fund
flows favoring the rest of the world vs Asia since
emerging markets already had its fair share of
recovery gains earlier in the year. There are two
reasons to believe that Asia is still a good bet:-
a. Cash levels for allocation has dwindled near
towards the low pre crisis for both emerging
markets and global funds. From this angle the
easy allocation from cash to put money to work
is not available anymore - new money has to be
drawn into equity markets.
b. In terms of net sales, emerging market has been
able to attract more new sales when compared
to global and international funds. The
attractiveness of emerging market growth versus
growth in developed markets has been well
proven. Asia's growth has demonstrated a very
sharp v-shaped recovery and economic growth is
expected to exceed 6% in the next two years.
This is about 3 times the growth rate in G3. With
the ongoing uncertainty and herd mentality, we
continue to believe emerging markets including
Asia can continue to attract new flows.
Fig. 13: US mutual funds cash levels by fund category
%
%
12
11
10
Emerging (R)
9
Global (L)
8
7
6
International (R)
5
4
3
2
Jan-07
Mar-07
May-07
Current 2007TDAvg Low
Global 7.7% 7.4% 6.6%
International 3.6% 4.3% 4.1%
Emerging 4.5% 4.4% 4.5%
Source: Datasream, DBS
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
Page 12

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Fig. 14: US mutual funds cumulative (YTD) net new
sales by fund category
US$bil
8
6
4
2
Our US economist pointed out that with the
slowdown in US jobless claims we will be able to see
job loss turning into job gains in a few months time.
4. The impact of cash calls for US banks remain
uncertain as banks' balance sheets still need to be
strengthened. But from the market's point of view
share prices should remain steady before the cash
raising exercise.
0
(2)
(4)
(6)
Jan Feb Mar Apr May Jun Jul
Emerging Markets International Global
Source: Datasream, DBS
3. Third quarter's earnings results for the US still remain
uncertain when measured against upgraded
expectations. However, with the US leading indicator
turning decidedly upwards, we remain hopeful that
we continue to see US earnings being upgraded. (Fig.
15)
5. Remember that the Fed would probably end its
Treasury purchase programme in October and the
mortgage bond re-purchase programme in
December. The impact on the bond market is most
likely to be negative where bond yields are expected
to rise. Our fixed income strategist is of the view that
US 10-year interest rates should remain in the range
between 3-4% unless we see substantially higher
US GDP growth and core inflation.
6. Should US GDP growth rise higher than potential
(3% range) in the coming quarter, the bond market
should react with a spike up in yields. (Fig. 16)
Accordingly we forecast that Fed funds hike can
come as early as 2Q10. Even so, the negative impact
of a rate hike cycle is inclusive on the stock markets
based on the past four cycles. (Fig. 17)
Fig. 15: S&P 12m fwd EPS forecast vs US Leading
indicator
Fig. 16: US Bond yield vs real GDP growth
8
6
110
110
100
7
4
90
100
2
80
6
90
0
70
5
-2
60
80
50
4
-4
40
70
-6
30
3
60
-8
20
2
-10
10
50
92 94 96 98 00 02 04 06 08
85 87 89 91 93 95 97 99 01 03 05 07 09
US 10-year bond yield (LHS)
S & P 500 Index - 12Mth Fwd Wtd EPS (LHS)
US GDP growth minus 3% potential growth (RHS)
US Leading Economic Indicators Index (RHS)
Source: Datasream, DBS
Source: Datasream, IBES, DBS
Fig. 17: Stock market performance in past four FED rate hike cycles
Market performance
US Interest rate hikes S&P 500 MSCI Asia
From To Change (bps) From To % From To %
2/4/94 2/1/95 3 6 300 481 470 -2% 409 308 -25%
3/25/97 3/25/97 5.25 5.5 25 791 789 0% 378 380 1%
6/30/99 5/16/00 4.75 6.5 175 1351 1466 8% 360 345 -4%
6/30/04 6/29/06 1 5.25 425 1136 1273 12% 297 413 39%
Source: Datasream, DBS
Page 13

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
7. Timing is the soul of investing in China and some
investors hype it with China's 60th party anniversary
celebration. Our belief is that China will continue
with its reform policy and Premier Wen Jiabao made
it very clear during the Davos speech that the fiscal
stimulus is not about US$4t spending but a stimulus
programme to encourage domestic investment and
spending that would benefit China in the long term.
Not forgetting that China's exports demand should
also start to shift to recovery mode which would
accelerate China's growths in the next few quarters.
8. There are signs that the USD may start to weaken as
the recovery matures into the growth stage from the
"worst is over" stage. This should allow for Asian
currency appreciation. At this juncture, our currency
strategist expects Asian central banks to slow the
appreciation pace of their currencies and maintain a
modest USD depreciation profile. A weak USD
should favor commodities and Asian asset markets
9. With the abundant liquidity around, we believe
investors will be chasing for higher yields. Against
this backdrop, carry trades and high risk appetite
should favor Asian assets.
10. We are uncomfortable with the recent sharp rise in
the gold price:- It may be signaling an increase in
risk aversion or a rising fear of inflation, or the
collapse of the USD. All of which will add volatility
and will not be positive for Asian stock markets.
Asset allocation strategy
The coincident relationship between economic and stock
market cycles suggests that upward momentum will continue
as long as the economy remains on track. The powerful impact
of the synchronised global upturn could be under-estimated
the same way the synchronised global downturn came along.
We believe markets have the propensity to touch the pre-crisis
high levels. A clearing level would be for Asia earnings to
return to pre-crisis levels by 2010 as we have forecast for GDP
levels to return to pre-crisis levels by end 2010. We arrive at
2010 year end targets using this assumption.
We acknowledge that Asia's valuations are getting stretched
and investors may be concerned about the withdrawal of
stimulus packages and formation of asset bubbles in Asia.
Given the strong rally in the last six months, these worries may
serve as reasons for profit taking. Support levels using P/B at
one standard deviation calculations show correction may not
be severe. We recommend staying invested but re-jig the
portfolio to exploit the risks and opportunities in the coming
quarter.
We are making the following changes to our market strategy:-
a. Reduce our overweight in Hong Kong and China 'H'
to Neutral to mitigate China's macro policy risk
b. Reduce Singapore overweight to a slight overweight.
Early signs of housing bubble and government's
intervention may dampen positive sentiments in the
Singapore market in the short term. Like Hong Kong
and China 'H', these high beta markets have returned
in excess of 80% from the low on 9th March and will
be more prone to profit taking. Our slightly
overweight position is maintained on Singapore over
Hong Kong due to its cheaper valuations and strong
re-rating drivers in the coming quarter - a correction,
if any, will see Singapore holding better than Hong
Kong
c. We raise Taiwan and Korea to Overweight in view of
the synchronised global upturn. Taiwan and Korea
stock indices are heavily weighted towards Industrials
and Technology which will benefit from the upturn. A
stronger won forecast now also justifies the Korea
upgrade. Our preference in Taiwan over Korea is
maintained due to higher policy risk in Korea and
Taiwan's cheaper valuations (based on historical
standards). Taiwan's cyclical sectors like Chemicals,
Industrials, Telcos, Banks and Technology were
captured in the attractive P/B sector screen. Re-rating
potential in Taiwan is higher due to improving crossstraits
relationships while the North Korea threat will
always linger.
d. We raise Thailand to Overweight on the back of
attractive valuations. Big sector weights like Banks and
Oil & Gas sectors are still good value plays
e. We continue to believe in the longer term higher
potential growth of Indonesia and that the market can
re-rate further despite an already consensus
overweight position and higher valuations. The lower
interest rate and inflation scenarios may set another
growth regime for Indonesia on the back of a
constructive political environment. World Bank
recently upgraded Indonesia's GDP growth forecast to
6.5% next year, which will be near its potential level.
Indonesia's valuations, though high, are still
comparable with China's and India's - the other two
high growth economies in Asia. This quarter ,
however, we reduce it from Overweight to Neutral on
a tactical move to exploit better opportunities
elsewhere.
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Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
f. We reduce India to Underweight. We believe there
maybe downside surprise in India's economic growth
as the drought drags on, affecting agricultural output.
Inflationary pressure is building up on rising
commodity costs which may delay an economic
recovery as well as exerting pressure on the need for
rate hikes. Not forgetting that India's fiscal budget
spending is based on tax revenue collection from high
growth forecasts, fiscal position is also set to worsen
considerably.
Our market recommendations and target returns are summarised as follows:-
Fig. 18: Table of recommendations and index targets
Levels below which 2009 2010
16-Sep valuations are Yr-end Yr-end
Forecast
Return
Market Index Index Rec not excesive* Target Target 2009 2010
Singapore STI 2674 O/W 2992 2800 3400 5% 27%
Taiwan TWI 7440 O/W 7943 7943 10150 7% 36%
Korea KOSPI 1683 O/W 1579 1800 2025 7% 20%
Thailand SET 710 O/W 814 760 828 7% 17%
Hong Kong HSI 21403 N 23010 22608 28688 6% 34%
China 'H' H-sh 12525 N 12122 13000 16888 4% 35%
Indonesia JCI 2439 N 2072 2600 3000 7% 23%
Malaysia KLCI 1213 U/W 1200 1250 1448 3% 19%
India Sensex 16677 U/W 15373 17000 22483 2% 35%
Source: DBS. * Calculations from Fig. 3. - Indicate levels to add position for longer term gains if index is below. O/W: Overweight;
N: Neutral; U/W Underweight. 2010 levels based on existing forecast of FY11 EPS and +1SD forward P/E valuations. Assumption is
also for FY11 EPS to return to pre-crisis peak levels.
Page 15

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Market Outlook
Singapore's re-rating
We are maintaining our Overweight for Singapore despite the
risk of profit taking after the market had rebounded 80% from
the bottom. Singapore's valuations are among the most
attractive in the region. That should leave room for a re-rating
in the market as its P/E premium to the region looms near the
historical low end (Fig. 20). A look at Singapore's historical
market P/E vs GDP growth clearly establishes a strong case for
Singapore's current valuations to re-rate on the back of a
strong economic recovery. (Fig. 19)
Fig. 19: Singapore fwd PE vs. GDP growth
(% ) (x)
15
26
10
5
0
-5
-10
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Singapore real GDP growth (%YoY, LHS)
Singapore 12-month forward PER (x, RHS)
Source: Datasream, DBS, IBES
Fig. 20: Singapore P/E relative to the region
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
re-rate
(x)
Source: Datasream, DBS, IBES
re-rate
de-rate
93 95 97 99 01 03 05 07 09
24
22
20
18
16
14
12
10
8
Upturn after the downturn
The Singapore economy emerged from the recession with a big
bang by posting a remarkable 20.7% QoQ saar in the second
quarter, led by the manufacturing sector. Recovery in that
sector was broad based, while the recovery in services sector
was mainly from financial services. The impact of the recession
has also been less severe than initially feared, thanks to the
slew of "counter measures" introduced by the government.
Going forward, we believe Singapore can post better second
half growth vs the region as the synchronized global upturn
evolves.
Structural changes
It may be too early to declare success on fighting the recession.
But Singapore government has laid in place plans for structural
changes even before the downturn came, which partly
explained the speedy recovery we had so far. Some earlier
initiatives are geographical and products diversification in
exports, fiscal incentives for the development of the financial
services sector and promoting diversified industries in
establishing bases here in Singapore. In addition, the major
longer-term on-going structural transformation on population
targets to promote domestic demand for a self-sustaining
model.
The latest initiatives are the construction of integrated resorts,
which is estimated to add 1.5% to Singapore's GDP, creating
60,000 direct and spin-off jobs in the process. The ripple effect
from these two iconic developments is expected to be far
reaching, ranging from gaming, hospitality, property to service
providers such as retail, media and transport operators.
Stock market revamped
In line with the revamp of the financial services industry, we
also see major changes happening in the stock exchange as
well. Other than having stocks, which are exposed to the
domestic economy, the stock market now has sizeable
exposure to emerging markets in growth sectors such as palm
oil, coal, oil & gas; and other markets such as Indonesia, China,
India and Vietnam. Structurally, Singapore's P/E de-rating was
also largely due to its loss of luster as an emerging Asia
country as the economy matures and new emerging market
darlings like the BRICs markets, Taiwan and Korea were
attracting a lot of investors' interest and fund flows. With the
revamp, Singapore should now be more attractive to investors
who are interested in developed markets with emerging
markets' exposure. Singapore's P/E de-rating is also very much
evident in relation to Hong Kong - its closest developed market
peer in the region with similar dynamics. It now trades at a
discount to Hong Kong, which we believe is unjustifiable and
the market should re-rate accordingly. (Fig. 21)
Page 16

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Fig. 21: Singapore relative to Hong Kong fwd PE
(x)
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
93 95 97 99 01 03 05 07 09
However, EPS upgrade has been slower than expected vs the
rest of the region. (Fig. 22). This is mainly due to 1) dilutive
effect of the rights issues which we estimate at about 15%
overall dilution on the market, and 2) earnings for the
Industrials sector have yet to be upgraded. Singapore sectors
are highly cyclical, with about 55% exposed to domestic
cyclicals (financials, consumer discretionary), and 21%
externally (Industrials). We expect earnings for the domestic
cyclicals to be upgraded in line with the domestic economy and
for Industrials to be upgraded according with the improvement
in global IP. (Fig. 23 & 24)
Fig. 23: Singapore 12-mth forward GDP growth and
earnings growth forecast trend
8
6
(%) (%)
40
GDP growth (L)
30
Source: Datasream, DBS, IBES
High upgrade potential
4
20
We have upgraded our 2009 Singapore's economic growth
forecast to -3%, up from -5% in the previous quarter. 2010
forecast is now at 5.2% vs 4.8% previously. Net profit growth
for 2009 remains negative at -6% (based on DBSV coverage),
but was up from -12% in the last quarter.
2
0
-2
Earnings growth (R)
10
0
-10
Fig. 22: 12-month fwd EPS integer: Singapore, Hong
Kong and Asia ex-Japan
(index)
115
110
-4
02 03 04 05 06 07 08 09
Source: Consensus Economics Inc, DBS, IBES
Fig. 24: Global IP vs Singapore Industrials earnings
forecasts
-20
105
100
95
(index)
115
110
105
(index)
25
20
90
85
100
95
90
15
10
80
Jan Feb Mar Apr May Jun Jul Aug Sep
Singapore Hong Kong Asia ex-Japan
Source: Datasream, DBS, IBES
85
80
75
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Global Industrial Production Index (L)
MSCI Sing Industrials - 12-month forward EPS (R)
Source: Datasream
5
0
Page 17

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
2010 growth (%)
Risk premiums declining as risk appetites improve
Providing more fuel to our argument that Singapore's equity
valuations have more room for upside is the equity risk
premium (ERP). After the significant decrease in risk aversion
since March 2009, the ERP has reverted to its long-term
average levels of 4.2%. (Fig. 25)
Fig. 25: Singapore equity risk premium
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
(%)
1.0
0.0
01 02 03 04 05 06 07 08 09
Source: Datastream, DBS. Earnings yield minus Singapore 10-year bond
yield
Our sensitivity analysis points to a further 2% upside for the
FSSTI index if consensus forecasts of 18% earnings growth in
FY10 holds. We arrive at a target of 2800 for the next 3
months, where it will be supported by P/B and ERP calculations.
In 2010, we could be looking at support levels of up to 18%
from current levels if we expect “e” to return to pre-crisis levels
by 2011. (Fig. 26)
Fig. 26: Potential return from Interest rate / Growth
sensitivity analysis based on ERP mean revision
Singapore Long Bond yield (%)
1.5 1.75 2 2.25 2.5 2.75 3
18 11% 7% 2% -2% -5% -9% -12%
23 16% 12% 7% 3% 0% -4% -7%
28 21% 17% 12% 8% 5% 1% -2%
33 26% 22% 17% 13% 10% 6% 3%
38 31% 27% 22% 18% 15% 11% 8%
43 36% 32% 27% 23% 20% 16% 13%
48 41% 37% 32% 28% 25% 21% 18%
Current support
12-mth target
Source: Datastream. Based on current index of 2681 and bond yield of
2%
The regional strategy team is arriving at a STI index target of
3400 by end 2010. This is derived from a forward PER of 16.3x
on 2011 “e” returning to pre-crisis high in 2007. We believe it
is achievable for the “e” to return to pre-crisis level as
accordingly absolute GDP level will return to pre-crisis levels by
end of 2010 based on our nominal GDP growth forecasts.
Hong Kong / China downgraded to Neutral
Our Hong Kong strategist, Derek Cheung, is concerned of a
correction on a market which has been driven by (1) high
hopes of a US economic recovery, which may disappoint and
(2) huge PRC pump-priming, which may dissipate (See Hong
Kong strategy: “Wolatility, - wake up call"). While the regional
team agrees that a pull back as a result of profit taking is
probable, the downside should remain well supported at
average valuations as the anticipated earnings upgrade after
the result season has been on track. Derek's forecast for HSI at
14000 represents a worst-case scenario should negative events
converge on the market, which has thus far been more
focused on upside surprises.
Hong Kong's valuations are not excessive
HSI managed to hold steady despite the sharp correction in the
'A' share market in August. Calculations based on P/B and P/E
valuations showed strong support at current levels (Fig.
27&28). Bottom-up P/B screening also identify Hong Kong
banks and industrials as being attractive in terms of P/B
valuations (Fig. 29&30). With the recent M&A interests in
Hong Kong Banks, and the strength in China's PMI and global
IP, we expect these two sectors to drive the index higher.
Fig. 27: HSI 12month fwd PER
25
23
21
19
17
15
13
11
9
7
5
93 95 97 99 01 03 05 07 09
Source: Datastream
Page 18

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Fig. 28: Hong Kong: Price to book
3.0
2.5
2.0
1.5
1.0
0.5
93 95 97 99 01 03 05 07 09
Source: Datastream
Fig. 29: Hong Kong Banks Price to book
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
93 95 97 99 01 03 05 07 09
Source: Datastream
Fig. 30: Hong Kong Industrials Price to book
2.5
2.3
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
93 95 97 99 01 03 05 07 09
Source: Datastream
Accordingly our 3-month target is at 22608. On a 12-month
basis, we are looking at HSI potentially at 28688 by end of
2010, based on the peak cycle (plus one standard deviation)
P/E valuation and current earnings growth forecast of 14%.
More earnings upgrade potential
Earnings upgrade after the half-year result season has been
strong. 2010 earnings growth remains at 14% but 2009
forecast earnings growth has climbed steadily from -15% in
April to -5%. We believe it is quite likely that 2009 growth
estimates may turn positive in the next few months,
considering the strong half-year results. Our GDP growth for
Hong Kong was revised up from -6.5% to -2.4%. The nominal
GDP and earnings model indicate an upside growth of 40% for
2010F (consensus 14%, DBSV 22%), which we believe it is
likely that part of the growth will be front loaded to 2009.
Fig. 31: Hong Kong: 2009 EPS growth forecast trend and
3-month EPS revision trend
-4.0
-6.0
-8.0
-10.0
-12.0
-14.0
-16.0
Mar Apr May Jun Jul Aug Sep
2009 EPS growth forecast trend (LHS)
3-mth % revisions in FY1 EPS (RHS)
Source: DBS, Datastream
Fig. 32: Hong Kong GDP and EPS Index
750
650
550
450
350
250
150
50
(index)
90
92
94
96
GDP level
Source: DBS, Datastream
98
Forecasts to
return to precrisis
levels
00
02
04
06
08
EPS level
10
10
5
0
-5
-10
-15
-20
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Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Thailand - Poised for domestic and external upturn
Thai market has performed remarkably well since we upgraded
the market to Neutral last quarter. Improving economic
numbers, ample liquidity, easing political tension and strong
foreign funds flow contributed to the 16% performance for
the quarter. We continue to expect Thailand to trade in line
with the region given the low interest rate environment and
demand driven by fiscal boost. An improving external
environment should also lift Thailand's growth prospects. The
big picture we are expecting is one of a large sequential pickup
in GDP in 3Q, similar to that witnessed in 2Q, followed by a
moderation in growth pace to a circa 4% annual rate from 3Q
onwards. We recommend an increased position in Banks,
property and selected undervalued Energy stocks. We choose
Thailand as a valuation laggard and recommend Overweight in
the fourth quarter.
Taiwan and Korea benefiting from synchronized global
upturn
In view of the synchronized global upturn scenario, we are
raising our recommendation for Taiwan and Korea to
Overweight. This is in view of the proportionately larger
exposure in Industrials and technology, which should benefit
from the upturn. A stronger won forecast now also justifies an
upgrade in the Korean market as investors seek both currency
and stock gains which move closely in tandem in the relatively
more open financial account.
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Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Asia-vu (2): back to the ‘90s (David Carbon, davidcarbon@dbs.com, extracted from “Economics – Markets –
Strategy, 4Q09” dated 17 September 2009)
• Asia’s V-shaped recovery continues, with no help
from the US
• This has surprised the conventional wisdom (CW),
which thought the US would have to lead Asia out of
recession
• Rather than accept defeat, the CW has doubled its
bets: it now believes Asia will face slow growth for
several years
• We think the opposite: Growth in Asia over the next
5 years will be faster than average, not slower. More
generally, we think Asia is headed back to a period
that resembles the early-90s in many ways
• Besides faster growth, capital inflows and a marked
shift toward external deficit will be key features of
the next 5-10 years
• Structural, cyclical and ‘new world’ factors will drive
this shift
This report picks up where Asia-vu (1) left off (p3, DBS
Quarterly, Economics-Markets-Strategy, 15Jun07). As noted,
our bottom line is that everything seems poised to change back
again. In short, if we call the 10 years before and after the ‘97
crisis P1 and P2, Asia now appears on the verge of entering a
third period, P3, which looks an awful lot like P1 (first chart on
right). As Mr Berra might have said, Asia-vu again.
But what does it matter? And why bother with all this P1 and
P2? The answer to the first question is clear: if Asia is headed
back into boom times that’s worth knowing about. Why P1
and P2? Because, the longer-term perspective offers a clear
framework for understanding where Asia has been, where it is
going and why. And, because it makes it easy to dispatch with
some of the conventional wisdoms that interfere with that
understanding, including:
1. the premise that growth in Asia has been “fast” of
late and that little headroom remains for faster
growth ahead;
2. the premise that current account surpluses are
responsible for Asia’s “fast” growth and that deficits
would imply slower growth;
3. the premise that lower consumption / higher savings,
in the US for example, implies slower growth ahead;
and finally, the CW conclusion,
4. that Asia is destined for a period of slow growth
ahead.
Asia-vu: back to the 90s
Asian
financial
crisis
US
financial
crisis
Period 1 Period 2 Period 3
Capital inflow
Current acct deficits
Rising leverage
Rising external debt
Rapid fixed capital form'n
Above-avg GDP growth
Capital outflow
Current acct surpluses
De-leveraging
Repaying external debt
Paltry fixed capital form'n
Below-avg GDP growth
Asia-vu:
A return to period 1:
Capital inflow
External balance / deficit
Above-avg GDP growth
1987 1997 2007 2017
P1, P2 and the Asian myths
Let’s begin. There are 5-6 features of P1 and P2 that will help
us understand what is and is not going on. We considered
them in detail in Asia-vu (1) so let’s take the bullet point / chart
approach here:
Growth (chart below): The first myth to address is the idea
that growth in Asia has been unusually / unsustainably fast of
late. In fact, growth has been below average for the past ten
years. If you want to see fast growth, look at P1, the 10 years
leading up to the crisis. Growth averaged 8% per year in the
Asia-9 then. Since then, growth has averaged only 4.7%. Even
in the past 5 years it has averaged only 6%. That’s less than
the full period average of 6.3% and a full two points below
growth in P1. The next time someone tells you that growth out
here has been running too fast, look them in the face and say,
not really.
Asia 9 – average GDP growth
% per year, simple avg
9
8
7
6
5
4
3
2
8.0
Full period average: 6.3%
4.7
87-96 97-08 past 5 yrs
Current account balances: Perhaps the most noticeable
change between P1 and P2 was the swing in current account
balances. The Asia-9 ran deficits in the pre-crisis period
averaging 2% of GDP by 1995. The crisis-4 countries (TH, MY,
ID, KR) ran higher deficits of 6% of GDP and in some instances
6.0
“This report has been re-printed with permission from DBS Group Research
(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report
Page 21

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
(Malaysia and Thailand, mainly) deficits reached 8%-10% of
GDP.
That changed in mid-97. When the baht broke from its basket,
capital flight ensued in earnest and deficits turned to surplus
overnight. Foreigners no longer wanted to lend and locals no
longer wanted to borrow. Deficits jumped to surpluses
equivalent to 8% of GDP in the Asia-8 (10% in the crisis-4)
and averaged about 5% for the next decade.
Although China garnered the headlines, it’s important to note
that Asia’s current account surpluses were just a China affair –
as a percentage of GDP, Asia’s surpluses were about the same
whether China was included in the calculations or not.
So what about the conventional wisdom that Asia’s growth
has relied on running surpluses? And that absent those
surpluses, growth will fall?
Asia’s experience says the conventional wisdom has it
backwards. Asia ran big deficits in P1 and its growth was
above-average. It ran big surpluses in P2 and growth was much
lower. The truth is, you don’t need surpluses to generate fast
growth. In fact, they hold you down. Why? All that surplus
output could be driving local investment and faster growth at
home rather than abroad. If you want fast growth, borrow
from foreigners, don’t lend to them.
Capital inflow: Asia might have run big deficits in the precrisis
period but inflows more than financed them. Foreign
reserves rose in spite of the deficits and currencies faced
substantial appreciation pressure.
In the post-crisis period, capital flowed out of the country, first
as investors fled and later as locals paid down as much external
debt as they could (chart right top). Current account inflows
turned to capital account outflows almost on the spot.
More recently, current account surpluses more than offset
capital outflows and currencies have once again faced upward
pressure. Indeed, between 2003 and 2007, reserve increases as
a percentage of GDP were even greater than during the go-go
pre-crisis years (chart right center).
finance its current account deficits) and the high domestic
leverage ratios that came with it, then damn the torpedoes,
Asia didn’t need the IMF or anyone else telling it that things
had to change. Asia itself went about cutting external debt –
and the baggage that went with it – to the greatest extent
possible.
Over the next ten years, Asia’s debtor countries cut their
external debt from a peak of 40% of GDP to nearly zero by
2007 (chart bottom). Notably, Malaysia and Thailand became
net creditor countries during this decade, thanks to high
current account surpluses that funded the reduction in external
debt.
Asia -8 – capital outflow post - 1997
capital account balance as % of GDP
4
2
0
-2
-4
-6
-8
Risk aversion owing to US financial crisis
90 92 94 96 98 00 02 04 06 08
Asia 9 - buildup of foreign reserves as % of GDP
USD terms, official + fwd commitments, simple avg
12
10
8
6
4
2
0
-2
-4
90 92 94 96 98 00 02 04 06 08
Asia – net foreign debt as % of GDP
ext debt less reserves as % of GDP
50
40
Below, we explain why reserve accumulation and upward
pressure on currencies will again be key features in Asia over
the next 10 years.
External debt: The financial crisis drove home to Asia
Polonius’s adage to neither a borrower nor a lender be. If this
kind of crisis was the result of cheap foreign funds (foreigners
were, after all, sending far more funds to Asia it needed to
30
20
10
0
-10
-20
-30
net debtor
net creditor
Asia* ex-CH
Asia*:
CH, KR, MY, ID,
TH, PH, IN
90 92 94 96 98 00 02 04 06 08
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Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Two points here: First, Asia’s low debt burden at present
means it is well placed to handle the inflow (and implied higher
debt) we expect it will see over the next decade.
Second, the conventional wisdom of the past few years has
been that Asia’s current account surpluses have been the result
of mercantilist policies and that Asia’s “growth model” had to
change.
When viewed from this longer-term perspective, though, one
sees that Asia was simply paying down debt acquired in the
previous decade – debt which many who belong to the current
CW undoubtedly argued needed to be cut 10 years ago.
Consistency has never been a CW hallmark. Investment and
GDP growth: The downside to paying off old debts is that you
Investment and GDP growth: The downside to paying off
old debts is that you can’t buy new things, like capital
equipment. In the post-crisis decade, domestic investment in
Asia dropped to a shadow of its former self. In the Asia-8, for
example, gross fixed capital formation growth that averaged
12% per year between 1986 and 1996 dropped to 2% on
average between 1997-2007. In short, it took Asia nearly a
decade for investment to return to pre-crisis levels. As a
percentage of GDP, investment dropped by a third or more
(charts below).
Asia – real investment since 97 crisis
GFCF, 1997=100
120
110
100
90
80
70
Asia 8
Crisis-4
(TH, ID,
MY, KR)
60
95 97 99 01 03 05 07 09
Asia – domestic investment then and now
% of GDP, GFCF
44
40
36
32
28
1996 2006
Low investment means low growth. End of story. More than
anything else, this is what kept Asia’s GDP growth sub par in
the post-crisis decade. Current account surpluses went to pay
down old debts and there was little saving left over to fund
investment, hence growth. Dismal indeed be the facts of
economic life.
One constant: high savings
One thing didn’t change between P1 and P2 was Asia’s high
savings rate. All of Asia’s saving rates today are within a
whisker of where they were 12 years ago, save for India, where
in recent years higher savings have powered faster GDP
growth. Singapore and China continue to top the league tables
with gross domestic savings rates of about 50% of GDP,
followed by Malaysia (42%) and Thailand and Korea at about
34% (chart below).
India’s experience is worth noting – savings there rose by 10
percentage points of GDP between 1996 and 2008. This
helped lift GDP growth to 9% on average between 2003 and
2008 from 5.5% in the first half of the 1990’s.
Once again, Asia speaks to the conventional wisdom running
through the markets of late. One fear is that the US
consumption / savings balance needs to shift mightily toward
savings. And, it is said, higher savings will be bad for growth
there and, by extension, for Asia too.
High savings bad for growth? Come again? Not in India. Not in
China, either. Nor anywhere in Asia for that matter. On the
contrary, if there is any conventional wisdom that does stand
up to scrutiny, it is that high savings go hand-in-hand with
stronger growth. If it’s true in Asia, why would it be any
different in the US? The next time someone tells you the US
needs to save more and this will be bad for growth, ask them
“What about Asia?”
Asia savings rates – then and now
Gross dom saving (GFC + Net X) as % of GDP
50
40
30
20
10
1996 2008
24
20
16
0
Spore China Malay Thai Korea HK Indon Taiwan India Phils
12
TH MY KR SG HK ID PH TW CH
Page 23

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
China: Fine-tuning (Chris Leung, chrisleung@dbs.com, extracted from “Economics – Markets – Strategy, 4Q09” dated
17 September 2009)
• The availability of new credit for the remainder of
the year will probably equate to around one-third of
the CNY7.3trn made in the first half of 2009.
Growth should remain intact as new loans in 1H09
were equivalent to 25% of GDP. It will take time for
this to filter into the economy. We have upgraded
our GDP forecast for 2009 and 2010 to 8% and 9%
• Heavy reliance on credit expansion to drive fixed
asset investment, and hence, GDP growth has
yielded almost instantaneous results. The worry is
that this has created overcapacity. Fine-tuning the
pace and intensity of new credit creation should be
expected
• Such a move should not be read as a prelude to a
full-fledged tightening because overcapacity also
reflects weak external demand. Although the US
economy is on the mend, policymakers will want to
see a stronger export recovery before making
significant policy changes
• Retail sales show widening asymmetries amongst
provinces. GDP growth of inner provinces is clearly
higher than in coastal provinces due to less exports
dependence
• Near-term monetary tightening seems unlikely.
Higher rates could jeopardize long-term fiscal
projects. We do not expect increases in interest
rates or in the reserve requirement ratio for the
remainder of the year.
• The CNY should remain stable and trade in a tight
range in 4Q09
Credit growth deceleration is unlikely to derail growth
momentum
Seeing that rampant lending growth has helped restore market
confidence and reinstate stability in the region, it is not difficult
to understand why investors' are concerned about possible
credit growth deceleration in the near future. By the second
quarter of this year, the real economy has rebounded strongly
to 7.9% YoY from the trough of 6.1% in the first quarter.
Growth was primarily driven by fixed asset investments, which
has contributed to 87.4% of GDP growth in the first half of
the year (Chart 1). China's investment frenzy has also lifted
demand for imports from the rest of Asia. Unrestrained credit
expansion may produce instantaneous results, but the flip side
is it can create long-term damages to the economy.
Numerous think-tanks have repeatedly warned about
inflationary risks that may come with a lax credit policy.
However, many have chosen to brush aside inflation concerns
amid a still falling CPI, and focus on the problems of
overcapacity. Rapid credit expansion has artificially driven up
the supply of products such as steel, cement and coal. Steel
prices, for instance, plunged 8.6% MoM in August in response
to the staggering increase in supply.
Either way, there is a need to fine tune the pace and intensity
of credit expansion before problems run deeper. However,
investors should not be too worried about this development.
There is a wealth of economic literature in China which shows
that credit growth will not create more real output in the longrun.
Similarly, deceleration of credit growth will not take
substantial tolls on economic growth. The most recent
empirical evidence was the episode in 2004-05 where loan
growth fell from 24% YoY in Aug03 to a low of 12.4% in
May05. Fixed asset investment growth only fell slightly to
26.8% in 2004 from 27.7% in 2003. Yet, real GDP growth
rose slightly from 10.0% in 2003 to 10.1% in 2004 and
10.4% in 2005.
Chinese authorities will probably focus on curbing short-term
loans with tenor of less than a year. The availability of shortterm
loans at low interest rates encourages individuals and
corporate to take speculative risks in both the equity and
property markets. The sharp 28% YoY jump in corporate
deposits alongside 27% fall in SOE's profit in the first half of
the year imply that the surge of funds at corporate accounts
most likely originated from bank credit.
We are confident the authority will not slow down medium-tolong
term loans (tenors ranging from 3yrs-5yrs) too much as
52% of outstanding loans in the state banking sector were
used for financing long-term fiscal projects. Sudden withdrawal
of credit support will jeopardize the progress of these projects
and create enormous amounts of economic wastage. In fact,
projects like railway constructions will not start to yield
economic value-added until they are completed and fully
functional.
Page 24
“This report has been re-printed with permission from DBS Group Research
(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Chart 1: State-driven investment fueled by loans
% YoY YTD
% YoY
35.0
50.0
45.0
30.0
Medium/Long Term Loans (RHS)
FAI by SOEs
40.0
35.0
25.0
30.0
25.0
20.0
20.0
15.0
15.0
10.0
Latest: Jun 09
5.0
10.0
0.0
Mar-04 Dec-04 Sep-05 Jun-06 Mar-07 Dec-07 Sep-08 Jun-09
Chart 2: Loan vs Corporate deposits
% YoY
35
30
25
20
15
10
5
Loan
Corporate Deposit
0
Apr-99 Apr-01 Apr-03 Apr-05 Apr-07 Apr-09
External trade recovering gradually
Unlike the rest of Asia which can count on China's
expansionary fiscal program to help lift exports, China's export
sector may take relatively longer to heal because of its
dependence on the US and EU. Although exports improved
gradually from 2.2% (MoM, sa) in Jun to 3.2% and 3.4% in
Jul and Aug respectively, performance measured in year-onyear
terms is not encouraging. Exports fell 22.2% YoY in Jan-
Aug. In fact, the rate of decline accelerated to 23.4% in Aug
from 22.8% in Jul.
Export of low-priced consumer products such as
handbags/travelling bags only stopped contracting in July,
registering an increase of 4.6% (MoM sa). General apparels
and footwear also edged up by 2.3% and 4.4% respectively
after declining most of the time in the second quarter. The
behavior of this group suggests consumer spending in the rest
of the world has just begun to improve. Policymakers will have
to witness more sustainable growth before considering "exit"
strategies.
With imports likely to improve faster than exports for the
remainder of the year, the trade surplus for 2009 is projected
to shrink to USD223bn from USD295bn in 2008 (accumulative
trade surplus in the first seven months fell 13.6% YoY to
USD108bn). Likewise, the country's current account surplus is
projected to fall to USD280bn in 2009 from USD450bn in
2008. In the first half of the year, the current account surplus
fell 32% YoY to USD130bn from USD191bn in the first half of
2008. As a share of GDP, it fell to 6.3% in 1H09 from 9.7% in
1H08. The data suggest China will unlikely restore the
appreciation bias on its currency anytime soon. The dominant
strategy is to maintain the status quo and keep the CNY stable
in a tight range.
Chart 3: Exports by destination
% YoY, 3mma
70
60
Asia Europe USA
50
40
30
20
10
0
-10
-20
Latest: Aug 09
-30
Jan-95 Aug-96 Mar-98 Oct-99 May-01 Dec-02 Jul-04 Feb-06 Sep-07 Apr-09
Conclusion
China has reached a point where the intensity and pace of
monetary stimulus should be reassessed. However, the present
macroeconomic landscape does not provide enough
justifications for pursuing a full-fledge monetary tightening.
Fiscal policy will work hand in hand with monetary policy.
Deceleration of credit expansion should not derail economic
growth. It will reduce the risk of inflation over the mediumterm
and mitigate growing overcapacity problems in certain
industries. The core part of the infrastructure program will not
be affected because they are mostly supported by medium-tolong
term loans. The economy is projected to advance 8% and
9% respectively in 2009 and 2010.
Private consumption cannot stand entirely on its own feet for
the time being. Although Chinese consumers are debt-free
with those in the services sector still enjoying wage growth, the
fact that they are saving even more than before suggests that
there are other structural restraints at play. Until exports show
a stronger recovery, the role of state-driven investment remains
pivotal. In this regard, we neither expect any hikes on interest
rates nor reserve requirement ratio for the remainder of the
year. The dominant strategy will continue to be
accommodative monetary policies, whilst keeping CNY stable.
Page 25

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
US: Recession over (David Carbon, davidcarbon@dbs.com, extracted from “Economics – Markets – Strategy, 4Q09”
dated 17 September 2009)
• Fed Chairman Bernanke thinks recession is over.
Central bank heads never say this kind of thing
until they have been sure for several months
• Recession is indeed over. The NBER will likely
declare June to have been the trough
• Consumption, investment, exports and housing
are all rising. The manufacturing sector is staging a
sharp V-shaped recovery
• We continue to think 2Q10 is the best target for
when the Fed will begin to hike rates.
Normalization will be brisk
• The real recession began with the collapse of
Lehman Brothers and lasted 9 months. That’s short
given the financial crisis was the worst in 100 years.
Don’t take home the wrong lesson from this:
bailing out banks is not the way forward. Reform
is needed
Strong data have pushed equity markets to new 2009 highs
and led Fed Chairman Bernanke to declare that “recession is
very likely over”. Although he hedged / prefaced his
statement with “from a technical perspective” it’s still a big
deal: central bank heads don’t say things like this until they
have been sure for months. There’s nothing to gain and lots
to lose.
But the supply side data is telling a pretty compelling story.
The V-shaped recovery in the manufacturing sector (chart
top right) is perhaps the sharpest on record and industrial
production has been rising since June. That’s big too, to the
folks at the NBER who are charged with the official dating
of US recessions. In 5 of the past 5 downturns, the NBER
has declared recession over once IP starts to rise. That would
put the bottom of the current recession in June and it’s very
likely that six months hence it will be officially declared so.
And it’s not all that technical either. On the demand side,
retail sales have been rising strongly since Dec08. This
underwrote a bottom in total consumption a couple of
months later. Durable goods orders and investment are
rising too. Ditto for exports. Even housing – the sector that
started it all – is headed north again. Sales have been rising
for six months, prices have been rising for three months and
housing starts are up 25% from their April bottom. The rise
on the supply side merely reflects / corroborates the rise
seen on the demand side. “Technical” or otherwise, it’s a
full-compass view.
US - ISM survey (prod'n and orders)
Index, 50="neutral" (no accel / decel)
65
Prod
60
55
50
45
Prod & orders
More than
40 sub-indices
a V-shaped
35 (55% of total)
recovery
30
Orders
25
20
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
US - retail sales (control group)
295
290
285
280
275
270
265
260
255
( g p)
US$bn/mth, sa, total less auto dealers and bldg mtrls
5.2% (saar)
trend growth since
2004
1H08 tax-rebate
upward distortion
Fin mkt
crash
Oct08
Nov08
Dec08
rebate
unwinds
Feb09
250
Jan-06 Jan-07 Jan-08 Jan-09
US – home sales
thous, saar
1400
1300
1200
1100
1000
900
800
700
600
500
400
300
200
existing
(RHS)
new
(LHS)
Sep09(f)
Grinding north
again at a 6%
saar pace
July09
mn, saar
3
05 06 07 08 09 10
The broadest economic compass out there is GDP and it
looks set to grow by about 4.5% (QoQ, saar) in the third
quarter, data for which will be released in another 5 weeks.
That’s far above potential (widely judged to be 2.75% to
3%) and it will likely remain that fast in Q4 too, as
underlying final demand growth triggers a release in pent
up inventory restocking. The inventory surge should not be
belittled as “technical” either. That’s the way all recoveries
start and, more importantly, inventory surges only occur
when businesses see and feel that the underlying final
8
7
6
5
4
Page 26
“This report has been re-printed with permission from DBS Group Research
(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
demand is there. No doubt, restocking won’t last forever
(it’s a zero-sum game over several quarters). We thus expect
above-average GDP growth in Q3 and Q4 will give way to
slower growth of 2.5% – 2.75% over the course of 2010.
Economic normalization is being aided by normalization in
financial markets. Equity markets are at 2009 highs, risktaking
is resuming and Libor spreads over expected policy
(OIS) rates – a key proxy for how frozen credit markets have
been since Aug07 – are now back below pre-crisis levels.
US – three month libor and spread over OIS
percent
6.0
5.0
4.0
3.0
2.0
1.0
3m libor
(LHS)
Spread over
3m OIS
(expected policy rate)
(RHS)
Back to
pre-crisis
levels
basis points
0.0
0
Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09
Fed
Economic and financial market normalization eventually
bring normalization from the Fed. The Fed has begun to talk
about its exit strategies and with the data coming as
strongly as it is, it won’t be long before the Fed has to walk
the talk.
The main, indeed the only thing holding the Fed back from
implementing an exit strategy right now is labor markets.
Jobs continue to be shed from the economy at a rate of
about 215k per month. Although this is far less than the
peak of 740k job losses back in Jan09, the unemployment
rate remains high at nearly 10%. It would be unacceptable
politically for the Fed to begin hiking while the
unemployment remains this high and while jobs continue to
be lost rather than gained.
Continued job losses in the early stages of a recovery are
normal and we expect nonfarm payrolls will not turn
positive until about November. Other things equal, this is
400
350
300
250
200
150
100
50
when the unemployment rate should peak as well and start
to fall thereafter. Historically, only when job growth has
become well entrenched has the Fed begun to tighten
policy.
We continue to think that the second quarter of 2010 is the
best target date for when the Fed is likely to begin raising
interest rates. That would be early by historical standards.
The Fed often waits a year or more after the unemployment
rate starts to fall before raising rates. But we have never
regarded this downturn as the garden-variety sort. Rather
we have looked at it as “shell-shock” arising mainly from
the panic associated with the Lehman Brothers debacle and
have always expected the sharp upswing that is now under
way. That upswing will continue, we think, leading the Fed
to tighten well before it has historically.
We expect 50bps of hikes in 2Q10 followed by another
50bps in 3Q10 and for rates to normalize / rise more quickly
thereafter.
Longer-term risks
The ‘real’ recession in the US began with the collapse of
Lehman Brothers a year ago. But if recession is over as
Bernanke believes and it ended in June or July as the NBER
will likely declare six months hence, the biggest financial
crisis in 100 years will have engendered a 9 month
recession. That’s about as short as US recessions come.
It’s tempting to say that this was all a tempest in a teacup
and that everything’s hunky dory nine months on. It’s not.
Bailing out banks schmoozed the US through this crisis but
that is not the correct lesson to take forward. Precisely the
opposite. Bailing out banks at public expense is bad
capitalism because it sews the seeds of a repeat crisis and
for the simple reason that it’s unfair to the taxpayer. Good
capitalism puts risk and reward on the same shoulders.
Reform of financial markets is needed and until it is
delivered risks will remain for a similar blowout in the
future. It’s not a near-term risk, mind you; memories are not
that short. But bailing out banks does not solve the problem
and the biggest risk out there may be that people come to
believe it is.
Page 27

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Hong Kong: Inadequate price adjustment (Chris Leung, chrisleung@dbs.com, extracted from
“Economics – Markets – Strategy, 4Q09” dated 17 September 2009)
• While a low-interest rate environment may be
instrumental in driving a quick economic turnaround
for Hong Kong, the strong inflow of liquidity from
mainland China as a partial result of its lax credit
policy may play even a bigger role. Downward price
adjustment in the current downturn have been the
mildest amongst other major crisis in the past decade
• Unlike the 97/98 Asian Financial Crisis where asset
prices endured a free fall, the quick turnaround in
asset prices this time round has helped prevent the
labor market from deteriorating rapidly. Following
the credit crisis, unemployment was widely expected
to climb in similar fashion to the Asian Financial Crisis.
However, this did not materialize. Stabilization of the
labor market has significantly reduced consumers'
fears
• The multi-year deleveraging process post-1997 and
the concomitant buildup of wealth in the past
decade have developed a strong cushion for Hong
Kong against exogenous shocks. The rise in the
current account surplus as a share of GDP from 4.1%
in 2000 to 14.2% in 2008 is one solid indication of
this wealth accumulation. Fiscal reserves as a share of
GDP also exceeded 30% in FY07/08 before the
onslaught of the credit crisis. Against this backdrop,
the Hong Kong economy should be able to weather
the storm, especially with support from the strong
Chinese economy
• In the near-term, both the Fed and the PBOC are
likely to refrain from raising interest rates, not until
they see sustainable domestic-demand recovery.
Assuming growth of 10% (QoQ, saar) and 5% in
3Q09 and 4Q09 respectively, our real GDP growth
projection for 2009 has been revised upward to -
2.4% YoY, from -6.5% previously. Growth should
come to 5.5% in 2010
• Once China restores the appreciation bias on the
CNY (possibly in 2010) inflows are likely to present
the usual problems for local inflation
Challenges ahead
Like the rest of the world, Hong Kong has been counting on
both the US and China to lead the global economy out of the
woods. In the latest G7 meeting, policymakers pledged to keep
monetary policy accommodative until they see sustainable
domestic-demand recovery. The PBOC will refrain from raising
interest rates too soon.
A low-interest rate environment alongside previous wealth
accumulation will continue to help support property prices. If
the real estate sector was able to sail through the recent crisis,
there is even less reason to expect a substantial downward
correction now that the global economy is on a recovery path.
If property prices do not adjust downward, other prices will
remain sticky. Many are projecting that CPI inflation will return
to the positive territory by the first quarter of next year. Once
China restores the appreciation bias of the CNY, possibly in
2010, inflows will present the usual inflation problems for
Hong Kong.
However, wage/salary growth will likely be absent for at least
two years. In fact, we will probably see downward adjustments
in future payroll data, as suggested by the popular adoption of
"no pay leave" by many business enterprises. Corporates must
see earnings improve visibly before they will want to hire again.
Salary growth will also only resume after corporate balance
sheets improve. In the meantime, the financial burden will fall
disproportionately on the middle class.
Under our growth assumptions of 10% (QoQ, saar) and 5% in
3Q09 and 4Q09 respectively, our full-year GDP projection for
2009 now comes to -2.4% YoY , up from a previous forecast
of -6.5% YoY. We expect the economy to grow a further
5.5% in 2010. However, these figures do not reveal the
structural challenges ahead.
Current Account balance
% of GDP
16
14
12
10
8
6
4
2
0
Latest: 2008
Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08
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(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Singapore: Break of dawn (Irvin Seah, irvinseah@dbs.com, extracted from “Economics – Markets – Strategy,
4Q09” dated 17 September 2009)
• The economy emerged from the recession with a
remarkable 20.7% (QoQ, saar) expansion in the
second quarter
• The recovery was largely led by the manufacturing
sector on the back of pharma and electronics
• The labour market has stabilised and job losses
have been lower than earlier expected
• GDP growth is expected to register -3.0% in 2009
and 5.2% next year
• Inflation should average 0.0% in 2009 and 1.7%
in 2010
• The exchange rate policy stance should remain
unchanged in the forthcoming policy review in
October
A broad-based turnaround in manufacturing
The turnaround in the manufacturing sector has been
nothing short of remarkable. After having hit the bottom
around Jan-Feb09, both NODX and the industrial production
index (IPI) have embarked on a “V-shape” recovery. While
the surge in pharmaceutical output (probably due to the
H1N1 outbreak) as well as restocking in the electronics
industry have been widely cited as the key reasons behind
the stronger manufacturing numbers, it should be noted
that the recovery in the manufacturing sector has in fact
been rather broad-based. All key manufacturing segments
have recorded significant improvements in output over the
last few months.
While the sustainability of the surge in pharmaceutical
output remains questionable, continued improvement in the
other industries going forward should be able to offset any
potential downside risks in the pharmaceutical industry. For
example, most recent PMI readings have remained above
the crucial 50 level, reflecting the expectation that the
manufacturing sector will continue to expand. In addition,
leading indicators for the electronics industry, namely the
electronics PMI as well as the US SEMI book-to-bill ratio,
have continued to point to stronger electronics
performance. In fact, the SEMI book-to-bill ratio has went
above the parity threshold for the first time since Jan07. This
could well signal the end of the doldrums for the electronics
sector. Nonetheless, some segments within Singapore’s
electronics industry have been plagued by a structural
“hollowing out” problem. The disk drive segment is a good
example, which saw disk drive maker, Seagate, announcing
the retrenchment of 2,000 workers as it continues the
relocation of its manufacturing operations out of Singapore.
Nonetheless, most recent (Jul09) NODX and IPI were up by
6.1% and 23.0% respectively as compared to the previous
month. Consumer sentiment worldwide has improved
significantly and as a result, NODX and IPI have continued to
trend higher. The manufacturing sector is now expected to
register a smaller decline of 5.4% YoY in 2009, up from -
10.2% previously. Forecast for NODX growth in 2009 has
also been lifted to -11.9%, up from -16.1%.
Growth forecasts lifted
Overall, the improving outlook in the external economic
environment should continue to underpin the recovery in
the Singapore economy. The fiscal and monetary measures
introduced by government around the world have helped to
“jump-start” the global economy. While downside risks
remain, such as the weakness in the labour markets of the
developed economies, improving fundamentals globally,
particularly in Asia, should help to sustain the recovery
process.
Domestically, in addition to the short-term policy responses
that have helped the economy to weather this recession
relatively well, measures to strengthen its longer term
competitiveness and moves to solidify the foundation of its
economic structure will further ensure continued robust
growth going forward. More importantly, the same
openness of the Singapore economy that has brought about
its deepest recession in decades should also enable it to
recover faster and stronger than many other countries. We
are maintaining our full-year GDP growth forecasts for 2009
and 2010 at -3.0% and 5.2% respectively.
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(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Malaysia: Bump and grind (Irvin Seah, irvinseah@dbs.com, extracted from “Economics – Markets – Strategy,
4Q09” dated 17 September 2009)
• GDP growth in the second quarter registered a
solid 13.4% QoQ saar
• The recovery was driven largely by domestic
demand
• Exports and industrial production continue to grind
north, pointing to a more robust recovery going
forward
• Full year GDP growth forecast for 2009 and 2010
are raised to -2.9% and 4.5% respectively
• Inflation is also likely to be higher at 0.7% in 2009
and 1.6% in 2010
• Bank Negara will likely start hiking rates in 3Q10
Outlook turning brighter
Economic data around the world have been heading up,
reflecting the improving fundamentals of the global
economy as recovery sets in. Despite the fact that headline
GDP growth has remained negative on a year-on-year basis,
the overall outlook of export dependent economies such as
Malaysia has improved significantly, in line with the more
favorable external economic conditions. Exports have been
grinding gradually northward, growing by an average of
about 2.3% MoM sa from Feb09 onwards after hitting a
bottom in Jan09. Likewise, industrial production is also
heading in a similar direction given the improvement in
export demand. In fact, the increase in imports of capital
goods (exclude transport equipment) in recent months
seems to suggest that producers are gearing up for stronger
orders ahead. And judging from the sharp spike-up in the
SEMI book-to-bill ratio, they have every reason to do so,
especially for electronics manufacturers and those in related
industries. The SEMI book-to-bill ratio went above the
crucial parity level for the first time since Jan07. A reading
above one indicates that the global semicon and to some
extent, the electronics industry are in expansion mode. And
the atest reading of 1.06 for Jul09 could well provide a hint
of better things to come for the electronics as well as the
overall manufacturing industry.
Domestic economic conditions have also made the turn and
are improving. While unemployment rate has risen to 4.0%
in 1Q09, up from 3.1% in 4Q09, higher frequency data are
in fact showing significant improvement in the domestic
economy. For example, motorcycle and car sales have
started to pick up after the slump earlier in the year. The
indices on business and consumer sentiment compiled by
the Malaysia Institute of Economic research (MIER), which
literally fell off the cliff in 4Q08 and 1Q09 have also turned
around. In addition, as the positive effects of the MYR 67bn
stimulus package continue to filter through the system,
consumer sentiment and business activity will certainly
improve further. And domestic demand, traditionally an
important engine of growth for Malaysia especially when
external demand is weak, should once again provide the
much needed support for the economy in the current
recovery phase.
Growth forecast raised
While the general growth outlook in the coming quarters is
expected to remain positive, the trajectory of the growth
profile is likely to be more subdued as compared the second
quarter. Global monetary policy direction is expected to
remain accommodative in the medium term while
governments around the world are also likely to persist with
their earlier expansionary fiscal policies until a more robust
recovery is secured. The positive impact of these policy
measures as well as the global recovery will continue to
cascade down to Malaysia’s export-oriented sectors.
Domestic driven industries will benefit from the fiscal
stimulus package introduced by the government as well as
the improving employment outlook and consumer
sentiments. Under such scenario, our full year GDP growth
forecast for 2009 of -4.0% was beginning to look rather
conservative. As such, we have revised this year’s GDP
growth forecast to -2.9%. Growth forecast for 2010 has also
been raised to 4.5%, from the earlier forecast of 3.8%.
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“This report has been re-printed with permission from DBS Group Research
(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Taiwan: Ideals vs reality (Ma Tie Ying, matieying@dbs.com, extracted from “Economics – Markets – Strategy,
4Q09” dated 17 September 2009)
• Taiwan’s recession was driven by exports. They are
now driving recovery. We expect the upturn in global
demand to continue and for this to translate into
further growth in production and employment
• There are high expectations about Taiwan’s longterm
economic prospects as a result of cross-strait
liberalization, which have triggered inflows and
revived asset markets. But achieving an ideal
structural recovery will take time
• The central bank will focus on the near-term
economic reality, i.e., the fact that recovery has been
export-driven and domestic demand remains weak.
We forecast no rate change in the rest of this year,
and only modest rate hikes in 1H10
Export driven recovery
The economy expanded 20.7% (QoQ, saar) in 2Q09, ending
four quarters of contraction with the second strongest growth
quarter on record.
Exports drove the recession and they are now driving recovery.
As of July, the volume of export orders has fully returned to its
peak level before global financial crisis broke out. Real exports
and industrial production have also each recouped one half of
their respective losses during the crisis. We expect the upturn
to be sustained. Chinese demand should continue to grow
steadily in 2H09, so long as China maintains an
accommodative fiscal and monetary policy stance. US demand
is improving and we expect above-potential growth in Q3 and
Q4.
The recovery in exports should lead to investment, especially
for manufacturers in the export-oriented tech industry.
Already, imports of machinery and electrical equipments have
made a decisive turn in 2Q09 and continued to edge up in July.
Gross fixed capital formation fell by 40% in the three quarters
ending 1Q09, even more than the 30% drop in exports. This
inspite of the fact there was little overcapacity to begin with.
Corporates have been unenthusiastic about capital spending
ever since 2001, preferring to invest in the mainland instead
following China’s accession to WTO. Political chaos at home
didn’t help either. Gross fixed capital formation grew by a
mere 0.9% per year between 2001-2007, far below GDP
growth of 3.8%. After the drastic capacity reduction during
the global crisis last year, the ratio of GFCF to GDP slipped
further 16.7%, a 20-year low. In short, we think the cut in
private sector investment had been excessive and look for a
significant rebound going forward.
A structural recovery still takes time
Uncertainties remain, such as the sustainability of policy
stimulus in the US and other advanced economies, and
inflation risk and earlier-than-expected tightening in the
emerging markets, most importantly in China. Meanwhile,
Taiwan’s structural problem of hollowing-out still exists. The
gap between export orders and exports is large and widening,
due to the high ratio of overseas production, especially in
China. To reduce its vulnerability to global shocks, Taiwan will
need to restructure its economy and nurture domestic growth
drivers.
The liberalization of cross-strait relations is widely viewed as a
possible solution. Since last year, cross-strait negotiations have
made good strides in the areas of transportation, tourism,
investment and financial sector cooperation. The two sides are
currently mulling further steps toward a formal Economic
Cooperation Framework Agreement that would allow free
trade in many goods and services and investment flows across
the strait. The effects from these policy initiatives so far are
mainly seen in fund flows and the asset markets. In the BoP
accounts, for example, local residents’ “currency & deposits”
have been the recipient of inflows for six quarters, with the
cumulative value reaching USD 31bn. Foreign portfolio inflows
have also increased since 2Q09, offsetting the rebound in
outward portfolio investment. The TAIEX is up 60% year-todate.
The volume of residential property transaction has also
risen since 1Q09, and home prices (as proxied by the Sinyi
index) have rebounded in 2Q09.
Still, the ideal scenario would be an expansion in real
investment. Moreover, one that would not be limited to the
export-oriented tech industry, but occur in a large number of
sectors linked to cross-strait liberalization such as
transportation, retail trade, tourism, finance and construction.
To encourage longer-term investment, ensuring the continuity
and timeliness of liberalization policies will be essential. In this
regard, it remains to be seen how well the new cabinet
executes a number of tasks including post-typhoon
reconstruction, H1N1 pandemic prevention, fiscal policy exit
strategy and the cross-strait negotiations related to a free trade
pact with China.
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“This report has been re-printed with permission from DBS Group Research
(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Korea: Growth vs quality (Ma Tie Ying, matieying@dbs.com, extracted from “Economics – Markets – Strategy,
4Q09” dated 17 September 2009)
• Korea’s growth numbers are undoubtedly strong,
thanks to the currency depreciation, fiscal expansion
and monetary easing
• But the quality of growth is a concern. Currency
depreciation helped exporters, but also eroded
businesses and consumers’ international purchasing
power. Moreover, there are doubts about whether
the recovery will be sustainined once fiscal and
monetary stimulus fades
• House prices, bank loans and household debt all
experienced fast growth over the past several years,
and are rising again. The authorities are worried
about a possible bubble in the property market and
problems in the banking and household sectors. The
central bank could raise rates as early as 1Q10
The Korean economy grew 11% QoQ saar in 2Q09 after a
0.5% gain in 1Q09. Compared to the -18.8% drop in GDP
during the outbreak of global financial crisis in 4Q08, the
recovery so far has amounted to about one half of the original
drop in output.
One key growth engine is exports. As of July, custom exports
have increased a cumulative 40% (sa) from the bottom in
January, and in real terms, exports have already approached
their peak levels seen in Sep08 (producers’ shipment index for
exports: 135.0 sa in Jul09, versus 137.1 in Sep08).
Going forward, we expect exports will continue to closely
follow the upturn in global demand. Korea has a high exposure
to the emerging markets which are leading the current global
recovery. As high as 44% of Korea’s exports head to ex-Japan
Asia (including 22% to China), and an additional 15% of
shipments are sold to Latin America and the Middle East.
More importantly, the price competitiveness of Korean
exporters remains intact as a result of currency weakness.
Although the Korean won has strengthened in the past several
months in tandem with a globally weaker US dollar, the
USD/KRW rate remains 20% away from the pre-crisis level of
1000. And we forecast only a gradual recovery in the won
going forward, similar to the trajectory witnessed after the
1997/98 Asian financial crisis (DBSf of USD/KRW: 1190 in end-
09 and 1120 in end-10. The dollar-denominated export prices
currently remain low relative to those of the major trade rivals
such as Japan and Taiwan, and such a price advantage is
unlikely to be eliminated soon.
Public investment is another source of growth. Public
construction orders have jumped since 1Q09, thanks to the
government’s decisive and aggressive fiscal actions to
counteract recession. The government has engaged in largescale
spending on civil engineering projects such as roads,
bridges and railways. Machinery orders in the public sector
have also soared, boosted by spending in transport and electric
power areas. As the newly started infrastructure projects
require certain amount of time to be completed, the growth in
public investment would remain robust and underpin growth
in the next several months.
Quality is not enough
Korea’s growth figures are undoubtedly strong. But we would
caution that the underlying quality of growth is still not great.
The strength in exports is partly due to currency weakness,
which also simultaneously erodes businesses and consumers’
international purchasing power and thus hurts domestic
demand. This is especially true if we consider Korea’s high
reliance on fuel imports and large external debt levels. The
negative effects of KRW weakness are currently masked, as the
plunge in global fuel prices has significantly lowered
production/living costs for manufacturers and consumers. The
drop in crude oil prices from USD 90/bbl in 2008 to USD 50/bbl
in 1H09 is estimated to help the economy to save an amount
equivalent to 4% of GDP on an annual basis. More recently,
the stabilization of international financial markets has allowed
Korean banks to roll over or refinance a large portion of their
external debt. The nation’s short-term external debt has
stopped falling in 2Q09 (USD 147.2bn in June, versus USD
146.1bn in March), and gross external debt has started to
increase once again due to higher long-term borrowings (USD
380.1bn in June, up from USD 369.1bn in March). The
potential negative effects from KRW depreciation should not
be completely dismissed, however, as global commodities
prices have bottomed out, and the repayment of external
obligations will still have to be done some day.
Moreover, the ongoing recovery largely relies on government
policy support. It remains to be seen if the recovery in the
private sector will be self-sustaining, once the government
exits. The rebound in private consumption in 1H09 was
primarily due to a surge in automobile sales, following the
government’s tax reduction on new car purchases. Retail sales
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(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
excluding automobiles actually showed little sign of
improvement. Obviously, this support to private consumption
from government policy is one-off and not sustainable.
Also, the labor market is mainly aided by a temporary job
creation program adopted by the government. The jobless rate
has fallen slightly, but the details show that employment
growth concentrated in the areas of public administration and
social work. In spite of the recovery in exports, the impact on
jobs might be limited. Because of gains in productivity,
manufacturing now accounts for only 17% of Korea’s total
employment, much less than its 26% share in the GDP
accounts; and employment growth in the manufacturing sector
has been persistently negative in the past four years (an
average of -1.3% in 2005-2008). Another fact is that 80% of
the country’s employed persons work in small-and-medium
sized enterprises that are undergoing debt rescheduling and
corporate restructuring. With these uncertainties lingering over
the outlook for the labor market, it would be difficult to expect
private consumption to drive the economy, in our view.
Monetary policy: asset inflation and credit/debt growth
on watch
Like elsewhere in the region, asset prices in Korea have risen
due to domestic monetary easing and renewed foreign fund
inflows. House prices corrected downward only slightly during
the crisis, and began to pick up once again in 2Q09, especially
in the metropolitan areas such as Seoul. Note that house prices
had been rising fast ever since the bottom in 2000 (6.3% per
annum in 2001-2008), although the authorities adopted
various measures to cool the market. The nation-wide house
prices do not appear to be overvalued, as judged by the priceto-rent
ratio which has stayed near the long-term average. But
housing valuation in Seoul is clearly high, and continues to
appreciate.
Moreover, the rebound in house prices is accompanied by a
renewed expansion in mortgage lending and a continued
buildup of household debt. Note that bank loans growth ran at
15% YoY in 2001-2008, persistently and significantly
outpacing nominal GDP growth of 6.9%. The growth of
households’ financial debt reaccelerated to 10% YoY in 2005-
2008 following a slowdown during the 2004 credit card crisis,
also much faster than the 4.6% growth in household
disposable income over the past four years.
It is no surprise that the authorities are now concerned about
the risks of a bubble in the property market and debt/credit
problems in the household and banking sectors. The Financial
Supervisory Service called on banks to lower the loan-to-value
ratio for mortgage lending in Seoul and its vicinity (Jul 7th),
and took further steps to impose a debt-to-income ratio on
mortgage lending for a wider range of areas around Seoul (Sep
7th). The Bank of Korea has also begun to withdraw the
liquidity it had injected into the financial system during the
crisis period. The outstanding amount of monetary stabilization
bonds has increased KRW 38trn from Nov08 to Jul09, and base
money growth has fallen markedly on a sequential basis. It is
widely anticipated that the BOK will raise interest rates as the
next step. In our rate forecast, we have penciled in a total of
100bps of hikes for next year, starting from 1Q10 (25bps per
quarter).
That said, the odds of immediate and / or aggressive rate hikes
(such as in 4Q09 or in 50bps increment) should be low. This is
because the real economy has not fully recovered and the
ability of the private sector to sustain the recovery remains a
question. Administrative regulation may still be preferred over
monetary tightening to cool the property and credit markets, in
the near term.
Currency outlook (by Philip Wee)
We see Korean policymakers pursuing two goals in managing
the exchange rate. First, they would probably prefer keeping
the KRW aligned with the currencies of its major trading
partners. This was best reflected by the high correlation
between KRW and SGD, a popular proxy for Asian currencies.
Second, they would probably continue to reduce exchange rate
volatility in order to provide a more conducive environment to
revive business investment. Besides, a less volatile exchange
rate would also be consistent with a stable USD/CNY. The EUR
will also be important given the target to finalize a free trade
pact between Korea and its second largest export market, the
European Union, by the end of 2009.
Finally, the KRW should also draw support from expectations
for Korea to be amongst the first countries to hike interest
rates. The Bank of Korea (BOK) is uncomfortable with its
exceptionally low base rate, which has stayed below inflation in
12 out of the past 15 months ending Aug09. With CPI inflation
likely to have bottomed at 1.6% YoY in Jul09, and rebounding
strongly to 2.2% in Aug09, the central bank is increasingly
worried about asset price inflation, especially in the real estate
sector, as the recovery picks up momentum.
Currency and interest rate forecasts
eop Close 4Q09 1Q10 2Q10 3Q10 4Q10
USD/KRW 1217 1190 1175 1155 1140 1120
7D repo 2.00 2.00 2.25 2.5 2.75 3.00
Page 33

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Thailand: Mixed (Ramya Suryanarayanan, ramya@dbs.com, extracted from “Economics – Markets – Strategy, 4Q09”
dated 17 September 2009)
• GDP grew by 9% (QoQ, saar) in the second quarter,
marking the end of recession; the breakdown was
not as encouraging
• One positive development was that government
investment spending finally rose sharply
• Political uncertainties continue to resurface,
depressing domestic demand. A recovery will,
therefore, have to come from exports
• After another quarter of strong growth of 7% (QoQ,
saar) in 3Q09, we expect growth momentum to drop
to 3% in 4Q09 and 2010. This translates to 2009
and 2010 GDP growth of -3.2% and 4%
• Inflation pressures are likely to be mild with the
economy currently operating significantly below
potential. We expect the central bank to start lifting
rates only from 3Q10, when we expect 25bps of rate
hikes
Government stimulus
There will be continued, albeit moderating support from fiscal
stimulus going forward. The fiscal deficit (including spending
on an additional stimulus package) is expected to average
around 5% of GDP in 2009/10 (Oct09-Sep10), up from an
estimated 4% of GDP in 2008/09. In 2010/11, the deficit will
rise by less, to 5.5% of GDP. One positive development
perhaps is that government investment spending finally rose
sharply in 2Q (60% QoQ, saar), though from low levels - a
possible sign that the government is committed to overcoming
the challenges to project implementation that arise from
political instability.
External demand
While exports did not stage a sharp recovery in Thailand in
value or in volume terms until July, there are reasons to believe
the outlook is not bleak. Export data already show a sharp
45% rise in exports to China and HK from the bottom, which
may simply mean that China is leading the recovery. At the
same time, imports are rebounding strongly, suggesting that
the outlook for orders per se must be encouraging, given the
large intermediate import content. Anecdotal evidence from
manufacturers also supports this view. As such, we expect to
see a significant rise in exports in 3Q09. This should restrict the
contraction in full-year (nominal) exports to 14% (YoY). This
should also be the key driver of GDP growth of 7% (QoQ, saar)
in 3Q09 and limit the full-year rate of contraction in GDP this
year to -3.2%.
Inflation and monetary policy
Inflation pressures are likely to be mild, with the economy
currently operating significantly below potential. Indeed, we do
not foresee output returning to the peak reached in 2008, until
the second half of 2010. Therefore, although the growth rate
of GDP is forecasted at 4% in 2010, a negative output gap
should remain over most of 2010. As such, we see little reason
for early monetary policy tightening. We see monthly prices
rising by less than 2% (MoM, saar) on average until end-2010.
This translates to average inflation of -1.1% and 2.1% in 2009
and 2010. Technical factors such as the unwinding of rebates
previously introduced as part of stimulus plans may push the
CPI higher, but this rise would be temporary and should not
materially alter the timing or quantum of rate hikes.
Consequently, we expect the central bank to start lifting rates
only from 3Q10, when we expect 25bps of rate hikes. Further
out, we reckon rate normalization should pick up pace with
rates being lifted to 2.00% by end-2010, and 3.25% by end-
2011.
Deficits and stability
The flip side of weak domestic demand growth over the past
five years is that the economy has significant room for higher
spending without hurting indicators of fiscal stability.
Importantly, from a currency perspective, the balance of
payments remains particularly strong supported by continued
current account surpluses and capital inflows. Running a large
fiscal deficit of circa 5% of GDP this year and the next also
does not alter the economy’s risk profile materially. Indeed, the
real risk for Thailand is still politics and under-spending on
infrastructure, rather than high fiscal deficits. The economy is
sensitive to higher oil prices in part due to its high oil intensity.
Building rail and road infrastructure is expected to ultimately
improve productivity and reduce dependence on oil.
.
Page 34
“This report has been re-printed with permission from DBS Group Research
(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
Indonesia: Upside risks (Lim Su Sian, limsusian@dbs.com, extracted from “Economics – Markets – Strategy, 4Q09”
dated 17 September 2009)
• Indonesia remains on track for 4.3% growth this year,
and 5.5% in 2010. The economy has not suffered a
major fall-out from the global financial crisis, thanks
to prompt policy response and strong domestic
demand
• Risks to now lie to the upside in 2010. Although BI
has concluded its rate cut cycle, lending rates should
fall 200bps in the coming months. This easing in
credit conditions will be bolstered by ongoing fiscal
stimulus
• Domestic and foreign investor sentiment should
continue to improve. President Yudhoyono and his
new cabinet are set to unveil more details about
longer-term plans for infrastructure spending in
October
Bank Indonesia caps deposit rates
On August 21, Bank Indonesia (BI) announced that fourteen
major banks had agreed to slash their deposit rates. Banks can
now at most pay 8% on deposits; in December this ceiling will
fall to 7%, or just 50bps above the policy rate. The agreement
significantly lowers the cost of funds for banks, and ultimately
aims to lower lending rates for borrowers.
Although BI had cut its policy rate by 300bps since Dec08,
lending rates had fallen by less than half that. This inefficiency
was a result of the liquidity crisis. Banks were also unable to
lower lending rates because their funding costs – or deposit
rates – were elevated, a legacy of those few months when
scarce rupiah liquidity resulted in intense competition for
deposits.
With a coordinated drop in deposit rates now in place, there
should be no major disruptions to flows within the banking
system. BI has also attained the support of state-owned
enterprise not to withdraw funds, and in any case stands ready
to provide liquidity to banks via a 3-mth repo facility.
Lending rates should fall
We believe BI’s decision should pay off soon enough in the
form of lower lending rates. Typically, lending rates have
closely tracked deposit rates, with very little lag. Assuming that
banks maintain the spread between deposit and lending rates,
lending rates could fall by some 200bps in the coming months,
from 13% to around 11%.
Implications for the real economy
An additional 200bp fall in lending rates will have stimulative
effects on the economy, even as we look to BI holding its
policy rate steady at 6.50% until end-2Q09.
Even under a constrained post-crisis credit environment,
economic momentum has managed to accelerate. This
acceleration is not apparent when looking at YoY GDP growth,
but according to our estimates, QoQ sa growth has in fact
gained every quarter post-crisis. Growth paused at nearly 0%
QoQ sa in 4Q08, but by 2Q09 had reached 1.3% QoQ sa
4.3% growth this year, 5.5% next year with upside risks
Our base case continues to be for the economy to achieve
growth of 4.3% this year, and 5.5% in 2010. Sequentially, this
reflects an acceleration in growth to a near-potential 1.5%
QoQ sa by 4Q09, as budget spending accelerates. In 2010, this
momentum then normalizes, slowing a touch to 1.3%-1.4%
QoQ sa each quarter.
As is clear from the discussion above, these assumptions may
well prove overly conservative, particularly for 2010. If lending
rates do fall as materially at the tail-end of this year, it would
pave the way for significant multiplier effects on the economy
in 2010. This could potentially see growth accelerating to over
6% next year.
This upside risk as yet appears to be under-appreciated by the
markets, representing an opportunity for investors. Consensus
polls show that the majority of banks made steep and
unwarranted cuts to their growth forecasts between March
and May, and have begun to lift them back up only in recent
months, and modestly at that.
We will consider upgrading our forecasts once the data
confirms a sustained acceleration in credit growth. A mitigating
concern, however, is the rise in inflation expectations. While
not yet at elevated levels, expectations have risen steadily since
Feb09, fuelled in part by buoyant economic conditions.
This could pose a risk to actual inflation. Based on our growth
forecasts it seems reasonable to project inflation of 5% this
year, and 5.4% in 2010. Any higher than that, and BI may
have to hike interest rates earlier than 3Q10. This may shorten
the recovery in the credit cycle.
Page 35
“This report has been re-printed with permission from DBS Group Research
(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report

Regional Equity Strategy 4Q 2009
Strategy Overview: Asia Equity
India: Risks remain (Ramya Suryanarayanan, ramya@dbs.com, extracted from “Economics – Markets – Strategy,
4Q09” dated 17 September 2009)
• The economy is rebounding faster than expected, led
by manufacturing
• But drought like conditions lead us to trim FY09 GDP
growth expectations to 5.7%. We have raised FY10
growth to 7.5% from 6.9%
• At projected sub-8% growth rates, we do not expect
price pressures to intensify for a while. But
expectations of higher prices will form and we expect
200bps of rate hikes in 2010.
• Wider deficits raise risks to economic and financial
stability. Higher than expected inflation could also
arise from these imbalances
• We maintain the view that a ratings downgrade is
possible. The longer term consequence of the higher
deficit could be higher inflation followed by
monetary tightening. Higher rates could “crowd
out” private sector investment and is a negative for
the long-term growth outlook
GDP review and outlook
The non-agricultural economy is rebounding faster than
expected, led by the manufacturing sector. At the same time,
the agriculture sector is facing a setback from the drought-like
conditions in nearly half of the country. While it is clear that
the spectre facing the agriculture sector is temporary, the
bigger question is if the recovery in manufacturing is durable.
Our take is that pent up demand is in part driving the rise in
consumer demand, and consumption is otherwise not on a
solid footing. At the same time, supply side constraints - partly
temporary and partly structural (such as infrastructure) - appear
to be pushing prices higher in the interim. We believe this
would have to be dealt with by the removal of policy
accommodation to prevent inflation expectations from
hardening.
All told, while we pencil in faster non-agricultural GDP growth
than a quarter ago, a sustainable return to 8-9% growth rates
is not envisaged in the near-term. At the same time, the wider
fiscal deficit announced in the July budget has further
worsened the risk profile of the economy.
Assuming a 2% drop in agriculture GDP as a result of the circa
20% deficiency in the monsoon, the direct hit on GDP from
the drought works to a 0.4%-pt reduction in overall GDP
growth. We do not expect any material indirect effect on
consumer demand from the drought.
What about prices ?
Constraints on the supply side and pressures from high food
prices have led to 5-7% (MoM, saar) rise in prices since
Mar09. While we expect the price increase to moderate to
circa 5% (MoM, saar) in the months ahead, the pace of rise in
prices clearly is at odds with the apparently sub-potential rate
of economic growth.
At these growth rates, we do not expect price pressures to
intensify like they did in 2007 or first half of 2008. However, a
removal of policy accommodation is warranted to prevent
inflation expectations from hardening. This is especially so after
the 5% rise in dearness allowance sanctioned last week to
central government employees.
Consequently, we expect 150bps of repo and reverse repo rate
hikes from Jan-June 2010 and another 50bps of rate hikes in
July-Dec 2010. This should take the repo rate to 6.75% and
reverse repo rate to 5.25% by Dec10. In addition, cash reserve
ratio (CRR) hikes would likely kick in simultaneously or ahead
of rate hikes to assist in withdrawal of liquidity and clamp
credit growth directly.
Risks assessment
We believe risks to economic and financial stability remain
significant especially after the July budget has revealed a
greater than expected fiscal deficit projection (6.8% of GDP),
and that even after optimistic revenue assumptions. We expect
the national fiscal balance to register a deficit of close to 10%
of GDP in FY09, over 1%-pt wider than the government’s
estimates, as commodity prices rise. Ratings agencies are
waiting at present for the 13th Finance Commission report out
late October for the government’s long-term strategy for fiscal
consolidation. We maintain the view that a ratings downgrade
is a real risk. The longer term consequence of the higher deficit
- in a benign scenario, as is our core scenario - might manifest
in higher inflation followed by higher rates. This, of course,
would point to a crowding out of private sector as a result of
the government’s fiscal profligacy. This is the ultimate risk lying
ahead for the economy.
Page 36
“This report has been re-printed with permission from DBS Group Research
(Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report

Regional Equity Strategy 4Q 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 37

Regional Equity Strategy 4Q 2009
Regional Data Monitor
Funds Monitor
US Funds Flow into Asian Equities, by Country
US$m 2Q08 3Q08 4Q08 1Q09 2Q09
Hong Kong Net purchase of 94 -8,592 -1,513 -400 4,956
equities by US buyer seller seller seller buyer
HSI 24,130 20,670 14,081 13,222 17,357
Singapore Net purchase of -897 543 -4,067 -133 693
equities by US seller buyer seller seller buyer
STI 3,096 2,676 1,763 1,680 2,194
Malaysia Net purchase of -155 -419 -248 -16 147
equities by US seller seller seller seller buyer
KLCI 1,248 1,094 869 883 1,037
Thailand Net purchase of -731 89 -243 -37 -59
equities by US seller buyer seller seller seller
SET 812 652 423 434 550
Philippine Net purchase of -7 -13 -95 -53 74
equities by US seller seller seller seller buyer
PCOMP 2,679 2,612 1,932 1,895 2,310
Indonesia Net purchase of 385 11 98 146 -104
equities by US buyer buyer buyer buyer seller
JCI 2,366 2,101 1,285 1,351 1,889
Korea Net purchase of -1,034 -3,526 -1,517 1,117 896
equities by US seller seller seller buyer buyer
KOSPI 1,784 1,506 1,105 1,144 1,385
Taiwan Net purchase of 11 -881 -679 -11 1,548
equities by US buyer seller seller seller buyer
TWSE 8,354 6,596 4,641 4,672 6,438
Total US
Net purchase of Asian
Equity (US$m)
-2,334 -12,788 -8,264 613 8,151
US Dow Jones Index 12,269 11,257 8,977 7,558 8,372
US 10-yr bond yield 3.9 3.9 3.3 2.7 3.3
Source: US Treasury
UK Unit Trusts
US$m 3Q08 4Q08 1Q09 2Q09 3Q09
59.2 58.7 55.1 55.5 55.3
% of all Equities (251.7) (212.1) (199.4) (223.4) (240.0)
17.5 19.3 20.0 19.5 19.2
Funds Bonds (74.1) (69.9) (72.4) (78.5) (83.4)
6.1 5.8 6.5 7.3 7.8
% of Asia (x Japan) (15.4) (12.4) (13.0) (16.3) (18.7)
59.7 59.7 59.7 59.7 59.7
Equity Domestic (145.9) (116.8) (111.7) (125.3) (133.1)
35.9 39.1 37.4 36.6 36.7
Funds Others (90.4) (82.9) (74.7) (81.7) (88.1)
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. 3Q'09 data up to Jul only.
Page 38

Regional Equity Strategy 4Q 2009
Regional Data Monitor
Earnings Monitor
Revisions in Earnings Forecast
Forecast revisions during 3Q09
% Increase % Decrease % Net
Singapore 30 16 14
Hong Kong 50 47 3
China 35 13 22
Msia 53 16 37
Thailand 92 25 67
Indonesia 52 4 48
Notes: % increase (decrease) denote the % of companies’ earnings that were raised (lowered) during 3Q09.
Forecast revisions during 2Q09
% Increase % Decrease % Net
Singapore 24 27 -4
Hong Kong 25 23 2
China 28 30 -1
Msia 94 9 85
Thailand 53 23 30
Indonesia 33 7 27
Notes: % increase (decrease) denote the % of companies’ earnings that were raised (lowered) during 2Q09.
Revisions in Recommendation
Changes in recommendation during 3Q09
% Up % Down % Net
Singapore 11 19 -7
Hong Kong 29 15 15
China 16 7 10
Msia 15 10 4
Thailand 15 8 7
Indonesia 30 17 13
Notes: % increase (decrease) denote the % of recommendations that were raised (lowered) during 3Q09.
Changes in recommendation during 2Q09
% Up % Down % Net
Singapore 19 22 -3
Hong Kong 25 18 7
China 15 14 1
Msia 12 3 9
Thailand 17 7 10
Indonesia 47 37 10
Notes: % increase (decrease) denote the % of recommendations that were raised (lowered) during 2Q09.
Source: DBS Vickers
Page 39

Regional Equity Strategy 4Q 2009
Country Assessments & Stock Profiles
Country Assessments
&
Stock Profiles
Page 40

Regional Equity Strategy 4Q 2009
Country Assessment
Singapore
Spinning the wheel
With the market’s near term upside capped at 2800, we
expect interest to rotate from early cyclical recovery plays
into large cap laggards with potential for earnings
upside, and undervalued yield plays. Our yield picks
include REITS, SPH and M1. Laggards include the Banks,
and selected Consumer discretionary plays. We expect
integrated resorts beneficiaries to remain in focus, as we
approach the launch of Resorts World Sentosa.
Market is fairly valued, a correction is healthy. The STI currently trading at PE of
17.5x(09F) and 14.8x(10F) and price to book at historical average multiples of
1.4x. With valuations at mid-cycle levels, the market needs a healthy correction
as it awaits signs of a recovery follow through on the earnings front. Assuming
support at –1 standard deviation from the current PE, the STI could potentially
correct to 2275 (based on 2010 earnings).
Go for yield : SPH, M1, and REITS. With the index 5% away from our target of
2800, we would rotate into stocks which provide yield support, with upside to
underlying earnings. SPH is our top pick, which will ride on the economic
recovery and launch of integrated resorts, with potential dividend yield upside to
6.5%. M1 offers the highest yield, and is a key beneficiary of the National
Broadband Network. Despite its sterling performance recently, we expect
potential upside from SREITS average yield of 6.5% via acquisitions and
stronger than expected organic growth, while the integrated resorts theme
provides an additional kicker to retail and hospitality reits.
Spearheading growth are Banks which will enjoy upside from buoyant capital
market activities and lower provisions, while Consumer Services’ spectacular
growth is driven by earnings recovery at SIA. SIA, has seen air traffic bottom,
and it will be a beneficiary of the global synchronized recovery and influx of
tourist arrivals with the launch of the integrated resorts. With the prospect of
weak US$ and rising commodity prices, we continue to like Olam and Noble.
Janice Chua . (65) 6398 7954 . janicechua@dbsvickers.com
www.dbsvickers.com
Refer to important disclosures at the end of this report
sa: TW
Page 41

Regional Equity Strategy 4Q 2009
Country Assessment
Market Data
Index Close Chng Net -1 mth -3 mth -6 mth -12 mth 52 week
17 Sep 09 1m (%) (%) (%) (%) High Low
FSSTI 2,673 127 5.0 17.7 71.4 10.5 2707 1455
FTSE Mid Cap 620 45 7.8 19.5 102.8 14.4 629 292
FTSE Small Cap 554 52 10.4 30.9 127.1 29.4 564 236
FTSE Financials 670 41 6.6 17.5 89.1 9.6 681 324
FTSE Real Estate 601 53 9.7 18.2 96.0 13.6 611 284
FTSE Re Hold & Dev 627 33 5.6 12.6 95.3 26.4 654 282
FTSE Re Invest Trust 559 86 18.3 30.2 96.0 (6.5) 619 276
FTSE Oil & Gas 601 57 10.5 15.3 169.7 40.3 614 168
FTSE Basic Materials 328 27 8.8 27.3 84.2 10.1 357 142
FTSE Industrials 580 27 4.9 19.7 78.7 8.4 588 286
FTSE Consumer Goods 706 8 1.1 25.7 98.5 55.6 756 249
FTSE Healthcare 629 48 8.3 25.2 67.1 18.3 635 335
FTSE Consumer Services 780 62 8.6 26.3 72.0 13.4 801 428
FTSE Telecommunication 775 8 1.1 5.6 29.1 (6.2) 885 493
FTSE Utilities 493 52 11.7 35.1 104.6 12.0 512 217
FTSE Technology 759 111 17.2 36.8 162.4 37.9 775 268
FTSE China 283 21 7.9 21.1 101.6 13.1 289 129
Transactions:
YTD
Volume (bn) 341
Value (S$bn) 264
Source: Bloomberg
MARKET REVIEW
The STI took a breather in June and part of July after
registering strong gains from March. Concerns that shares
are too expensive relative to earnings prospects, uncertainty
about global economic recovery and lack of fresh catalysts
started to surface. In mid July, the market sprang to life
again on the back of strong primary home sales for June,
and the over-whelming interest in new property launches.
Property stocks led the gains, which soon filtered down to
other blue chips. Rotational interest into mid/small caps was
evident while the blue chips took a back seat towards the
close of the quarter, capping the STI at 2700. This resulted in
strong gains for mid/small caps, especially those in the O&M
and technology sectors.
Cash calls continued to surface. Companies continued to
cash in on the rising market. The euphoria has now shifted
to the mid/small cap segments. Significant cash calls in 3Q
were placements from Yanlord (S$249.6m), Midas (S$90m),
Areits (S$314.5m), First Ship Lease (S$42m), Sinomem
(S$31m) and Sinotel (S$14m). Rights issue include Genting
(S$1.6bn), Fortune Reit (S$351m), CitySpring Trust
(S$235m), FCOT (S$214m), Starhill Global Trust (S$337m),
Mermaid Maritime (S$156m) and Otto Marine (S$119m).
These issues were well absorbed with ample liquidity in the
market, as investors reacted positively to additional capital
raising for potential business acquisitions.
Revival in M&A market. M&A activity is coming back as more
countries emerged from recession. Abu Dhabi’s ATIC $5.6bn
bid for Chartered announced recently is the biggest M&A
deal since 2001, when UOB acquired OUB. More deals are
expected, as confidence returns to the market and liquidity is
still ample. Other smaller deals in 3Q include the takeover of
DMX and Sihuan Pharmaceutical.
Page 42

Regional Equity Strategy 4Q 2009
Country Assessment
Index Key Events
2800
2700
Economic recovery hopes
and strong showing from
market leaders like US and
China
Government said to monitor
closely speculative activities in
property market
Sharp correction in SSEC;
weaker-than-expected US
consumer sentiment report
2600
2500
FED funds rate unchanged and
FED commented that this would
stay at exceptionally low levels’
for ‘an extended period’
Singapore 2Q09 GDP came
in higher than initial estimate
Jul industrial production
expanded 12.4% yoy; raised
09 GDP growth forecast to -
3.0% and 2010 to 5.2%
Rosy US job
report
2400
2300
Property stocks rallied;
positive sentiment filtered to
other big caps; small caps
surged
2200
2100
Government announced
proposal to amend income
tax rule associated with
property sales
Better than expected 2Q09
GDP growth; strong primary
home sales for June
18-Jun
23-Jun
28-Jun
03-Jul
08-Jul
13-Jul
18-Jul
23-Jul
28-Jul
02-Aug
07-Aug
12-Aug
17-Aug
22-Aug
27-Aug
01-Sep
06-Sep
11-Sep
16-Sep
Source: DBS Vickers
Sector Performance (Sorted in Descending Order on 3 months Performance)
Sector 1 Mth Ago (%) 3 Mth Ago (%) 6 Mth Ago (%) 1 yr Ago (%)
Health Care 10 32 78 26
Consumer Goods 3 30 110 114
REITS 18 29 96 -5
Consumer Services 10 28 61 16
Technology 12 25 120 8
Basic Materials 6 23 136 56
DBSV Coverage 6 18 78 15
Financials 5 17 86 5
Oil & Gas 10 15 173 31
Industrials 5 15 76 4
Real Estate 6 12 112 26
Telecommunications 1 6 28 -5
Source: DBS Vickers
Rotational interest from early cyclical plays into defensive
sectors and laggards. With the broader STI index capped in a
trading range since August, the market switched from high
beta picks to laggards and defensive sectors such as health
care, REITS and Consumer Services Sectors.
Switch from Property into REITS towards the latter half.
Investors switched from property sector into REITS which
was a laggard while property stocks had a good run in the
previous two quarters. REITS outperformed the market in
3Q, the sector has been substantially recapitalized while
better than expected earnings in 2Q drove a re-rating of the
sector. The out-performance was mainly driven by retail and
Page 43

Regional Equity Strategy 4Q 2009
Country Assessment
hospitality REITS. Investors have been betting on the positive
impact from the opening of the two IRs and the anticipated
increase in tourism arrivals.
Technology stocks surged as outlook improved. Tech stocks
did well on the back of upbeat earnings from US tech
counters like Intel, IBM, Apple and Yahoo. Margin
improvement as seen in 2Q09 results led to more upside
surprises. Most of the tech stocks in our coverage registered
>30% gain, except for Hi-P and CSM.
Developers registered strong gains in the early part of 3Q
but came under profit taking on the government’s antispeculation
measures. Residential stocks reaped handsome
returns in 3Q, ranging from 20% to 80% gain, on positive
market data and over-whelming interest in new property
launches. Most of the gains were seen in July to August
period. With the recently announced measures by the
government to deflate some of the speculative froth in the
property market, property stocks came under profit taking.
Small cap oil and gas plays were in focus. SPC’s takeover
offer capped performance of the oil and gas sector but
attention was focused on small/mid cap stocks like Swissco
and Ezra which registered sterling gains on the back of the
global economic recovery. Swissco doubled while Ezra was
up >50%. Our new initiations, Ezion and Mermaid,
performed well and rose 40% and 85% respectively over the
past three months.
GROWTH
Recovery intact; GDP growth forecasts lifted. On the
economics front, 2Q GDP growth of 20.4% Q-o-Q and –
3.7% y-o-y has beaten market consensus by a wide margin.
The government has revised up full year 2009 GDP estimate
to 4%-6% contraction, vs earlier estimate of 6%-9%
contraction. DBS’ economist has recently raised full-year real
GDP growth forecast for 2009 to -3.0%, up from -5.0%
previously. GDP growth forecast for 2010 has also been lifted
to 5.2%, from the earlier estimate of 4.8%. This revision
essentially takes into account the significant upward revision
in the headline GDP growth in 1H09 as well as assumes that
the recovery process will continue to gain momentum in the
quarters ahead.
2Q09 earnings report card
(S$m) 2Q08 2Q09
2Q09
YoY
2Q09
QoQ
% Chng % chng
Basic Materials 92 50 -45% -32%
Consumer Goods 804 886 10% 19%
Consumer Services 639 -81 nm nm
Financials 1,777 1,722 -3% 19%
Health Care 42 56 32% 63%
Industrials 1,483 1,576 6% 68%
Oil & Gas 256 104 -59% nm
Real Estate 1,152 -251 nm nm
REITS 363 352 -3% -4%
Technology 120 0 nm nm
Telecommunications 982 1,060 8% 3%
DBSV Coverage 7,709 5,475 -29% 0%
Source: DBS Vickers
Sales growth and Ebit margin
Sales Growth Ebit Margin
Sector
y-o-y
chng
q-o-q
chng 2Q08 1Q09 2Q09
Basic Materials 5% 23% 26% 31% 28%
Consumer Goods -25% 14% 13% 13% 12%
Consumer Services -23% -8% 14% 5% 1%
Financials 1% 38% 60% 56% 63%
Health Care 9% 9% 16% 14% 17%
Industrials -14% 9% 12% 9% 13%
Oil & Gas -44% 19% 15% 8% 8%
Real Estate 27% 62% 24% 28% 32%
REITS 9% 0% 58% 61% 68%
Technology -21% 14% 4% -9% 1%
Telecommunications 1% 7% 18% 21% 18%
DBSV Coverage -16% 12% 15% 13% 15%
Source: DBS Vickers
2Q09 Net Earnings down 29% yoy due mainly to one-off
items and asset write-downs. 2Q09 earnings fell 29% yoy
but was flat qoq – key drag in earnings came from Basic
Materials, Consumer Services, Oil and Gas and Real estate.
Basic Materials and Oil and Gas sectors were affected by oneoff
exceptional charges for Straits Asia Resources and SPC
respectively. Similarly, the decline in real estate earnings was
due to write down in values of investment properties
specifically for Singland, UIC and Capitaland.
Recovery underway with sequential improvement in core
earnings over 1Q09. Technology posted a remarkable
turnaround from 1Q09 losses of $148m, driven by sales
recovery ahead of the year end restocking and launch of new
products. In addition margins recovered with cost cutting
measures in place. Industrials and Healthcare showed a
marked improvement of >60% from 1Q09. Financials’
sterling performance was driven by strong fee based income
Page 44

Regional Equity Strategy 4Q 2009
Country Assessment
with NPLs and provisions stabilizing. Consumer Goods
earnings were bolstered by higher CPO prices for plantation
stocks listed on SGX.
Driven by topline growth and recovery in margins. Overall
sales showed a sequential improvement (+12%) over 1Q09,
led by Real Estate, Basic Materials, Oil and Gas and Financials.
EBIT margins recovered from 1Q09 lows to previous year’s
level of 15%, following cost cutting measures undertaken
and improvement in top line. Margin recovery was evident in
Healthcare, Industrials, Reits and Technology sectors.
Earnings revisions by sector
(S$m) Pre-Results Post-Result % Chng
Sector 2009 2010 2009 2010 2009 2010
Basic Materials 366 318 265 323 -27% 2%
Consumer Goods 2,753 3,046 3,197 3,569 16% 17%
Consumer Services 1,820 1,934 1,398 1,861 -23% -4%
Financials 5,196 5,865 5,253 6,374 1% 9%
Health Care 140 151 151 166 8% 10%
Industrials 3,860 3,806 4,118 3,858 7% 1%
Oil & Gas 591 582 621 604 5% 4%
Real Estate 2,671 3,037 3,280 3,293 23% 8%
REITS 1,427 1,427 1,477 1,501 4% 5%
Technology -158 -11 -5 45 nm nm
Telecommunications 4,223 4,687 4,310 4,707 2% 0%
DBSV Coverage 22,888 24,842 24,065 26,300 5% 6%
Source: DBS Vickers
Recovery in earnings
%
Negative earnings
50
growth most likely in
40
recession years, but
followed by sharp
30
rebound on recovery
20
10
0
-10
-20
Earnings growth
-30 GDP growth
-40
-50
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09F10F
Source: Datastream, DBS Vickers
More room for earnings upgrades. Earnings have bottomed,
in line with the economy and we expect the recovery
momentum to remain intact. We have raised earnings by 5%
and 6% for FY09F and FY10F respectively, led by Consumer
Goods (plantation stocks), Financials, Healthcare, Real Estate
and REITS. Currently, our EPS growth for STI stocks at 18%
for 2010 is a far cry from the recovery years of 1999 and
2003, where we saw earnings growth of >40%. We believe
there is potential upside to earnings growth for 2010, which
will underpin the longer term recovery plays.
Expect a better 2H09 - earnings upgrades across the board.
Unlike 1Q09 where upgrades were focused in the telcoms
and plantation sectors, we note earnings upgrades across all
sectors for 2010. We expect 2H09 to post a strong 26% yoy
growth, after the 29% yoy fall in 1H09, mainly due to the
low base in 4Q08, particularly asset based companies which
suffered from write down in value of investments.
Page 45

Regional Equity Strategy 4Q 2009
Country Assessment
Earnings Estimates by Sector
Eanings Growth
PER
Sector 2008 2009F 2010F
CAGR
08-10 2008 2009F 2010F
Basic Materials 96.7 -8.7 20.8 5.0 13.0 14.2 11.7
Consumer Goods 83.8 6.1 16.9 11.4 16.8 15.8 13.5
Consumer Services -38.8 -40.5 103.2 10.0 22.8 38.3 18.8
Financials -13.3 -12.8 21.1 2.8 15.1 17.4 14.3
Health Care 10.0 5.5 15.4 10.3 20.0 19.0 16.5
Industrials 9.4 -20.0 -5.1 -12.9 11.4 14.2 15.0
Oil & Gas -25.0 13.7 16.0 14.9 13.1 11.6 10.0
Real Estate -1.7 22.0 5.4 13.4 18.7 15.3 14.5
REITS 33.2 2.0 3.0 2.5 15.6 15.3 14.9
Technology -74.7 Loss Loss nm 45.0 nm nm
Telecommunications -6.4 10.0 9.2 9.6 14.2 12.9 11.9
DBSV Coverage (Before EI) -2.5 -6.3 15.1 3.8 15.6 16.6 14.5
DBSV Coverage (After EI) -23.2 -10.8 18.8 2.9 15.4 17.3 14.5
STI DBSV Forecast Avg (Before EI) -18.7 -18.9 18.3 -2.1 14.2 17.5 14.8
STI DBSV Forecast Avg (Aft EI) -20.7 -20.6 15.1 -4.4 13.6 16.9 14.7
STI Consensus Avg -18.7 -21.9 18.3 -3.9 13.6 17.5 14.8
Source: DBS Vickers
VALUATION AND OUTLOOK
DBS Economist has upgraded our 2009 and 2010 GDP
forecasts to –3% and +5.2% respectively. Providing the
additional kicker to GDP growth is the upcoming launch of
the integrated resorts, which will add at least 1.5% to
Singapore’s GDP, creating 60,000 jobs. The ripple effects are
wide, ranging from gaming, property, hospitality, property
to service providers such as retail, media and transport
operators.
Singapore 12-mth forward GDP growth and earnings
growth forecast trend
(%) (%)
8
40
GDP growth (L)
6
4
2
30
20
10
0
0
-2
Earnings growth (R)
-10
-4
02 03 04 05 06 07 08 09
-20
Source: Consensus Economics Inc, DBS, IBES
Page 46

Regional Equity Strategy 4Q 2009
Country Assessment
2010 growth (%)
While we have upgraded earnings growth from 12% to
18% for 2010, EPS upgrade is slower than the region, due
to 1) dilutive effect of recent rights issues and cash calls, and
2) earnings for industrial sector, a late cycle play which has
yet to be upgraded. Singapore earnings are highly cyclical,
with 55% exposed to domestic cyclicals (Financials,
consumer discretionary) and 21% externally via industrials.
As such, we expect earnings upgrade curve to be steep, in
line with the V shaped recovery in Singapore and the region.
Following the decrease in risk aversion since March 2009,
Equity Risk premium has normalized to its long term average
of 4.2%. Assuming ERP at 4.2%, our sensitivity analysis
points to a further 2% upside for the FSSTI Index if our
growth forecasts stay at 18% in FY2010. We arrive at a
target of 2800 over the next 3 months, supported by price
to book and average PE of 16x on FY10 earnings.
Singapore equity risk premium
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
(%)
0.0
01 02 03 04 05 06 07 08 09
Source: Datastream, DBS. Earnings yield minus Singapore 10-year
bond yield
Potential return from Interest rate / Growth sensitivity
analysis based on ERP mean revision
Singapore Long Bond yield (%)
1.5 1.75 2 2.25 2.5 2.75 3
18 11% 7% 2% -2% -5% -9% -12%
23 16% 12% 7% 3% 0% -4% -7%
28 21% 17% 12% 8% 5% 1% -2%
33 26% 22% 17% 13% 10% 6% 3%
38 31% 27% 22% 18% 15% 11% 8%
43 36% 32% 27% 23% 20% 16% 13%
48 41% 37% 32% 28% 25% 21% 18%
Based on our nominal GDP growth forecasts, absolute GDP
level will return to pre-crisis levels by end of 2010. Assuming
earnings return to pre-crisis levels, this will translate to
earnings growth of 38% from current, which will lead to a
12 month target of 3160.
Possible correction presents opportunities to accumulate.
With valuations at mid-cycle levels, the market needs a
healthy correction as it awaits clearer signs of a recovery on
the economic and earnings front. In our view, the equity
market in 2009 mirrors the recovery cycle in 1998. In 1998,
the equity market surged 60% from its low, corrected by 1/3
in the 2Q of recovery before resuming its uptrend(see chart
on Singapore market recovery in previous crisis). Assuming
support at –1 standard deviation from the current average
PE, the STI could potentially correct to 2275 (based on 2010
earnings).
In our view, key risk factors are a) unforeseen external
shocks leading to a rise in equity risk premium b) inflation
concerns if commodity and oil prices continued its rise, due
to supply shortage and slide in US$ c) concerns over
overheating in China; and d) fear of rising interest rates
given that the next move from the current low levels will be
up.
MSCI Singapore 12m fwd P/E (x)
MSCI Forward PE
26.0
24.0
22.0
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
(x)
90 91 92 94 95 96 98 99 00 02 03 04 06 07 09
MSCI Singapore - 12MTH FWD PE RATIO
Source: Datastream
Current support 12-mth target
Source: Datastream. Based on current index of 2681 and bond yield
of 2%
Page 47

Regional Equity Strategy 4Q 2009
Country Assessment
Singapore Market Price / Book
P/BV
(x)
2.60
2.40
2.20
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
Source: Datastream, DBS
Singapore market recovery trades in previous crisis –
correction in the 3Q of recovery in 1998/1999 before
resuming its uptrend
240
220
200
180
160
140
120
100
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Correction in
3Q of recovery
Current 2009
profile
80
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12
Months before and after market bottomed
1998 economic
recovery
1985
economic
recovery
2003: fiscal and
monetary
easing
environment
2001: tech
bubble recovery
STRATEGY
1. Go for yield: SPH, M1, and REITS. With the index 5%
away from our target of 2800, we would rotate into stocks
which provide yield support with upside from organic
growth. Appended below are a list of stocks with yields of
>5%, compared to the market’s average yield of 3%. SPH is
our top pick, we now expect Adex growth to rise from 2%
to 4% with economic recovery kicking in and an increase in
adex once the integrated resorts commence in 1Q10. In
addition, we expect upside surprise in its payout this quarter
when it reports its final results, raising dividend yield to
6.5%.
Among telcos, we prefer M1, which is a key beneficiary of
the National Broadband Network offering yield of 8%.
Sreits – acquisitions will spice up growth. SREITS have
outperformed over the past two months, average yield
hovering at its long term average of 6.5%. Despite this,
yield spread is decent at >300bp and DBS’ economists
expect interest rates to be low in the near term, before we
see the first sign of a rise in interest rates in 2Q10. Upside
for SREITS’ yield comes from acquisition potential as well as
improvements in operational performance. Indeed, the
recent re-rating was sparked off by stronger than expected
results in 2Q, demonstrating the resilience of these assets.
REITS which are primed for acquisitions are Fraser
Centrepoint, CDL HT, Parkway REIT and Mapletree Logistics
Trust.
Source: Datastream, DBS Vickers
Stock picks with div yields (>US$1 bn, > 5% yield and buys)
FYE Mkt Price Target ROE
Company Cap (S$) Price % PE (x) EV/EBITDA (x) P/BV (x) Div Yld (%)
(S$m) 17-Sep (S$) Upside Rcmd 09F 10F 09F 10F 09F 10F 09F 09F
Suntec REIT Dec 1,824 1.12 1.23 10% Buy 14.3x 18.0x 18.3x 18.7x 0.5x 0.6x 9.5% 4%
A-REIT Mar 3,385 1.81 1.84 2% Buy 12.5x 14.0x 15.6x 15.6x 1.0x 1.1x 8.4% 8%
StarHub Limited Dec 3,700 2.16 2.50 16% Buy 11.7x 11.7x 6.6x 6.4x 31.4x 29.6x 8.3% 280%
MobileOne Dec 1,593 1.78 2.05 15% Buy 10.9x 10.2x 5.9x 5.5x 6.4x 5.7x 7.6% 66%
Singapore Post Mar 1,772 0.92 1.05 14% Buy 12.0x 11.7x 9.1x 9.0x 7.1x 6.4x 6.8% 65%
Venture Corporation Dec 2,526 9.21 9.40 2% Buy 15.3x 14.1x 9.5x 8.7x 1.3x 1.3x 5.4% 9%
SPH Aug 5,907 3.71 4.21 13% Buy 14.9x 13.3x 10.2x 9.6x 2.9x 2.7x 5.4% 19%
Source: DBS Vickers
Page 48

Regional Equity Strategy 4Q 2009
Country Assessment
2. Rotate into growth leaders with upside potential –
Consumer Goods, Consumer Services and Financial. We
advocate investors rotate from early cyclical plays into
growth leaders with upside potential. These are largely
Consumer stocks (both goods and services) and the financial
sector.
Consumer Services sector is poised for a dramatic recovery,
due to the recovery in load factors for SIA. Our top picks in
this sector are SIA and SPH – both are beneficiaries of the
economic recovery. With a global synchronized recovery,
SIA’s premier global positioning will place it in a favourable
position even as air traffic has bottomed, and is poised for
an upturn.
Financial sector is poised for further upside in earnings
growth (currently +21%), as we expect lower provisioning
and strong growth from fee-based income, amidst active
capital market activities, M&A transactions. Among financial
stocks, our preference lies with UOB as its valuations hinges
in the recovery of its book value. In the longer term, UOB's
ROE stacks up better than its peers at 13%.
Recent weakness in the US$, if it continues, will benefit
commodity prices and the Consumer Goods sector. In
particular, we expect CPO prices to recover from RM2300 to
Rm2440 over the next 12 - 18 months, in anticipation of
tighter edible oils inventory, higher crude oil prices and lower
US$. Together with volume growth and acquisitions, this will
underpinned earnings growth of 17% next year. Our top
picks are Olam and Noble.
3. Integrated Resorts theme
We would expect IR plays to remain in vogue, as we
approach the upcoming launch of Resorts World Sentosa,
which could happen as early as January 2010. Separately,
Marina Bay Sands is targeting to soft launch by Feb 2010.
This will usher in the influx of tourists benefiting hospitality
related companies. Apart from the gaming operators and
hotel related companies, (CDL HT, Ascott Residencel Trust)
indirect beneficiaries include SIA, SPH, Comfort Delgro,
Suntec REIT and Starhill Global REIT.
Stock Picks
FYE Mkt Price Target ROE
Company Cap (S$) Price % PE (x) EV/EBITDA (x) P/BV (x) Div Yld (%)
(S$m) 17-Sep (S$) Upside Rcmd 09F 10F 09F 10F 09F 10F 09F 09F
MobileOne Dec 1,593 1.78 2.05 15% Buy 10.9x 10.2x 5.9x 5.5x 6.4x 5.7x 7.6% 66%
Singapore Airlines Mar 16,137 13.60 15.25 12% Buy 17.5x 39.2x 4.9x 6.6x 1.2x 1.2x 2.9% 7%
SPH Aug 5,907 3.71 4.21 13% Buy 14.9x 13.3x 10.2x 9.6x 2.9x 2.7x 5.4% 19%
Suntec REIT Dec 1,824 1.12 1.23 10% Buy 14.3x 18.0x 18.3x 18.7x 0.5x 0.6x 9.5% 4%
UOB Dec 25,909 17.00 18.60 9% Buy 15.5x 13.2x na na 1.6x 1.5x 3.2% 11%
Source: DBS Vickers
Page 49

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Banks & Finance
Overweight
Consumer Goods
Overweight
Consumer Services
Overweight
We believe that loan demand is picking up especially for the consumer segment
with positive signs in the rejuvenation of housing loans. We also understand that
loan approvals have improved. For the rest of 2009, loan growth should
predominantly be driven by the remaining drawdown from the Integrated Resorts
loans, SME loans from the SPRING scheme and recovery of mortgage loans
following the euphoria in property launches over the last few months. However,
with corporate repayments outweighing the quantum of new loans, loan growth
for 2009 may remain relatively subdued. We note that loan spreads for the
corporate and SMEs having peaked while loan rates for consumer loans, especially
housing loans remain competitive and as such NIM upside may be capped. We
expect provisions to trend down for the rest of the year and we believe the worst of
spiking NPLs is over with NPLs to peak by this year end. Capital ratios for banks
remain robust while dividends remain intact. In terms of picks, we prefer UOB (Buy,
TP S$18.60) as its valuation lies in the recovery of its book value. In the longer term,
UOB's ROE of 13% stacks up better than its peers. Meanwhile, we have a Hold call
for OCBC with TP at S$8.00 as we believe most good news have been priced in.
For plantation, we expect 4Q09 palm oil price to rebound on seasonally slower palm
oil supply growth and run down in US soybean oil inventory by 1Q10. Recent pause
in some plantation stock prices means that there is more upside on the horizon once
palm oil prices do recover. In the mean time, we recommend investors pick those
with significant volume growth potential. Our top pick is Kencana Agri, given decent
upsides to our DCF valuations.
We are turning positive to the consumer goods sector as the world economy is
gradually trekking out of recession. We’ve been seeing reports of shortages of
workers for factories in China’s coastal provinces since 3Q09, and stats show that
YoY growth of retail sales in China has improved from its lowest point at 11.6% in
Feb 2009 to 15.4% in Aug 2009. Our top pick for the downstream consumer goods
is Pacific Andes Resources. We believe it will benefit from a robust domestic
consumption demand from the PRC, given that PRC contributes more than 50% of
the Group’s revenue. Valuations are undemanding at c.5.3x on FY10F PER, which is
at a significant discount from peers. Furthermore, its 65% stake in China Fishery
Group is worth about S$816m, more than the market capitalization Pacific Andes
itself (S$765m).
We raise this sector to overweight largely on the defensiveness of earnings (land
transport), and recovery of operational earnings (for SPH and SIA). For land
transport, we take the view that with a market correction likely, after the market
rally for 6 months, the preference is for defensive counters like ComfortDelGro. We
like CD given its resilient earnings, coupled with good operational peformance
continuing into 3Q results (from 2Q) on lower oil prices yoy and stronger GBP and
AUD qoq. We believe SPH's ad revenues has seen its worst drop earlier this year and
this is poised to recover in 4Q09/1Q10 in line with the economy. Furthermore, there
could be upside surprise to our final DPS expectation of 13cents, up to a potential of
16 cents. For SIA, we expect demand to improve gradually along with the economy,
boosted by the upcoming opening of Singapore's two Integrated Resorts. Load
factor and yield should also see an uptrend, as supply has been trimmed industrywide.
UOB
Kencana Agri and Pacific
Andes; Olam, Noble
SIA, SPH and
ComfortDelGro.
Page 50

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Industrials
Underweight
Oil & Gas
Neutral
Property
Neutral
We believe that the market’s hope for early Petrobras’ contracts may disappoint as
we expect Petrobras’ award of its first batch of 28 offshore rigs (7-9 units) to occur
only in 1H 2010. This is due to: 1) Still high equipment cost, 2) High local content
requirement, 3) Petrobras has the benefit of “time” to sit out for better prices, 4)
Lower margins for yards, 5) Tight credit market, 6) Probe by Brazilian Congress on
past deals. Hence, there is potential risks of earnings downgrades in the event
contract win assumptions are too optimistic for 2009. However, we believe that the
offshore/rig newbuilding activities would pick up in 2H 2010 as credit normalizes
upon economic recovery, and equipment prices decline as suppliers relent on
diminished order books. For dry bulk shipping, the oversupply situation is now
aggravated by the higher-than-expected deliveries since mid-2009 and the credit
slowdown in 2H 2009 in China. This will be negative for China shipyards, and the
momemtum for contract cancellations could continue. Within industrial, our
preference is for water and environmental plays, as we expect Hyflux and Epure to
benefit from more contract wins resulting in further earnings upgrades. Our stock
picks for industrial sector are Hyflux and Epure.
Our industry analysis and channel checks show that offshore deepwater activities
are holding up relatively well. We expect the ratio of mid-large AHTS (>8,000 bhp)
to floater to be 2.3-2.6x in the 2009-13 periods, contrary to market’s concern on
severe oversupply issues. This is at the lower half of the theoretical 2-3x healthy
range. We expect day rates for mid-large AHTS to drop another 5-10% from
current levels, at most. This represents a decline of about 20% or less from peak
levels in 2008. The outlook is stronger for subsea vessels, as the utilisation rates
have improved since late 2Q 2009, and charter rates have stabilised at

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Reits
Overweight
Technology
Neutral
Telecom
Overweight
Sreits had generally performed well in 3Q09, particularly the Integrated Resort
thematic plays. The sector is currently yielding c7% FY10 earnings. Looking into Q4,
we expect Sreits to hold up relatively better than developers as investor attention
shift towards more defensive targets with good dividend yields as we see little room
for significant RNAV upgrades for developers in the short term. Our strategy for
Sreits this quarter would be to prefer those with potential for growth from new
acquisitions as well as attractive valuations. Our preferred picks are FCT, ART and
Suntec.
Our optimism on the Technology sector since April has paid off with an average of
80% appreciation vs broader market 41% gain. We believe earnings will continue
to improve in the near term, per our view that 4Q09 would be the first quarter of
on-year growth considering the low base in 4Q08. However, we do not expect
much earnings upsides compared to the last two quarters since most of the
production ramp for this year would have been completed by Q3 if not early Q4. In
fact, most tech stocks have normalized to historical means and thus have priced in
most of the earnings recovery for now. Pending more concrete signs of end
demand absorbing past quarters' seasonal buildup, we see little price upside for the
sector hereon. As such, we have downgraded our rating on the sector to NEUTRAL.
Nevertheless, we remain positive on Venture as 2H ramp up is bolstered by new
customers as well as market share gain from a competitor's hiccup. Another
catalyst would be its CDO writeback ( c. 50cts/share) end of the year.
Mobile ARPU, after its recent sharp decline, is on recovery path as roaming
contribution is starting to come back. Pay TV and broadband ARPU may take longer
time to recover as consumers may not upgrade to the high-end plans in the near
term. Higher take-up of mobile data plans provides opportunity to raise mobile
ARPU over the longer term. M1, being a pure mobile player is likely to benefit
more than others, and is the only beneficiary of National Broadband Network (NBN)
from FY10F onwards. Potentially high cost of sports content is already refelcted in
StarHub's stock price and the possibility of content-sharing could lift the stock price.
M1 and StarHub offer dividend yields of 8% and 8.5% respectively, highest in the
Asian telecom space. Top pick -M1
Frasers Centrepoint Trust,
Ascott Residencel Trust and
Suntec Reit
Venture
M1
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Regional Equity Strategy 4Q 2009
Country Assessment
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Page 53

Regional Equity Strategy 4Q 2009
MobileOne
Bloomberg: M1 SP | Reuters: MONE.SI
BUY S$1.78 STI : 2,672.60
Price Target : 12-Month S$2.05
Potential Catalyst: Clear strategy for NBN in place
Analyst
Sachin Mittal +65 6398 7950
sachin@dbsvickers.com
Price Relative
2.50
2.30
2.10
1.90
1.70
1.50
1.30
1.10
S$
2005 2006 2007 2008 2009
M o b ile O n e (LH S) R e la tive ST I IN D E X (R H S)
Forecasts and Valuation
R elative In d ex
FY Dec (S$ m) 2008A 2009F 2010F 2011F
Turnover 801 780 794 804
EBITDA 314 302 312 313
Pre-tax Profit 185 182 190 192
Net Profit 150 151 156 158
Net Pft (Pre Ex.) 150 146 156 158
EPS (S cts) 16.9 17.0 17.5 17.7
EPS Pre Ex. (S cts) 16.9 16.4 17.5 17.7
EPS Gth Pre Ex (%) (13) (3) 7 1
Diluted EPS (S cts) 16.8 17.0 17.4 17.7
Net DPS (S cts) 13.5 13.6 14.0 14.2
BV Per Share (S cts) 24.1 27.6 31.5 35.2
PE (X) 10.6 10.5 10.2 10.0
PE Pre Ex. (X) 10.6 10.9 10.2 10.0
P/Cash Flow (X) 5.8 5.9 5.9 5.9
EV/EBITDA (X) 5.8 5.9 5.5 5.3
Net Div Yield (%) 7.6 7.6 7.9 8.0
P/Book Value (X) 7.4 6.4 5.7 5.1
Net Debt/Equity (X) 1.1 0.8 0.5 0.3
ROAE (%) 72.1 65.8 59.1 53.1
Earnings Rev (%): - - -
Consensus EPS (S cts): 16.4 16.6 17.4
ICB Industry : Telecommunications
ICB Sector: Mobile Telecommunications
Principal Business: MobileOne is one of the main
telecommunication operators in Singapore.
Source of all data: Company, DBS Vickers, Bloomberg
214
194
174
154
134
114
94
74
54
Hitting the right buttons for NBN
• M1’s acquisition of Qala demonstrates a clear
strategy of leveraging on corporate broadband
opportunities through National Broadband Network
(NBN).
• Execution has evidently improved under the new
CEO, who came on board in Jan 09.
• BUY for 18% potential upside, 8% regular yield and
likelihood of an additional 10% yield in FY10F,
through capital management.
Qala acquisition demonstrates M1’s clear broadband
strategy. M1’s recent acquisition of Internet service
provider Qala is likely to help achieve its target of at least
20% broadband market share by 2015. By acquiring
corporate data capability through Qala, M1 should be able
to secure some market share among SMEs, given Qala’s 9
years experience in the space. We estimate M1’s top line
and bottom-line to grow by at least 20% and 10%
respectively in the next five years from broadband alone.
Most importantly, broadband offering would allow
bundling multiple services together, which could lower the
churn rate for the operator.
Better execution under the new CEO. Ms Karen Kooi
has set a clear goal of defending the market share and she
delivered on her goal by arresting market share decline in
2Q09, without hurting the margins. Management is likely
to achieve S$10m cost savings in FY09F through
renegotiation of contract with network vendor and
outsourcing of call centre operations. There is another
S$10m backhaul cost savings in FY10F as M1 uses its own
backhaul rather than leasing the network from SingTel.
M1 remains our top sector pick. Our target price is
S$2.05, pegged to 12x average FY09F-10F EPS, at 10%
discount to our 13x target PER for StarHub. If M1
demonstrates solid execution on the NBN front, 10%
discount to StarHub may potentially be removed.
At A Glance
Issued Capital (m shrs) 895
Mkt. Cap (S$m/US$m) 1,593 / 1,126
Major Shareholders
Axiata Group (%) 29.7
Keppel T&T Ltd (%) 20.0
Singapore Press Holdings (%) 13.9
Free Float (%) 36.4
Avg. Daily Vol.(‘000) 927
Page 54
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: JS / sa: JC

Regional Equity Strategy 4Q 2009
MobileOne
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 801 780 794 804 Net Fixed Assets 611 589 569 557
Cost of Goods Sold (490) (478) (493) (501) Invts in Associates & JVs 0 0 0 0
Gross Profit 311 302 302 303 Other LT Assets 83 83 83 83
Other Opng (Exp)/Inc (118) (117) (104) (103) Cash & ST Invts 18 65 124 172
Operating Profit 193 184 197 200 Inventory 8 8 8 8
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 81 78 80 81
Associates & JV Inc 0 0 0 0 Other Current Assets 3 3 3 3
Net Interest (Exp)/Inc (8) (8) (8) (8) Total Assets 804 826 868 904
Exceptional Gain/(Loss) 0 6 0 0
Pre-tax Profit 185 182 190 192 ST Debt 0 0 0 0
Tax (35) (31) (34) (35) Other Current Liab 233 224 230 233
Minority Interest 0 0 0 0 LT Debt 250 250 250 250
Preference Dividend 0 0 0 0 Other LT Liabilities 107 107 107 107
Net Profit 150 151 156 158 Shareholder’s Equity 215 246 280 314
Net Profit before Except. 150 146 156 158 Minority Interests 0 0 0 0
EBITDA 314 302 312 313 Total Cap. & Liab. 804 827 868 904
Sales Gth (%) (0.4) (2.6) 1.8 1.2 Non-Cash Wkg. Capital (141) (134) (139) (141)
EBITDA Gth (%) (1.9) (3.8) 3.3 0.4 Net Cash/(Debt) (232) (185) (126) (78)
Opg Profit Gth (%) (5.4) (4.4) 6.9 1.3
Net Profit Gth (%) (12.6) 0.9 2.7 1.4
Effective Tax Rate (%) 18.9 17.0 18.0 18.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 185 182 190 192 Gross Margins (%) 38.8 38.7 38.0 37.7
Dep. & Amort. 121 117 114 113 Opg Profit Margin (%) 24.1 23.7 24.8 24.9
Tax Paid (48) (35) (31) (34) Net Profit Margin (%) 18.7 19.4 19.6 19.6
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 72.1 65.8 59.1 53.1
Chg in Wkg.Cap. 0 (3) 2 1 ROA (%) 18.2 18.6 18.4 17.8
Other Operating CF (3) 0 0 0 ROCE (%) 26.9 26.1 26.1 25.1
Net Operating CF 255 262 275 273 Div Payout Ratio (%) 80.0 80.0 80.0 80.0
Capital Exp.(net) (95) (95) (95) (101) Net Interest Cover (x) 24.3 24.3 26.0 26.4
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 1.0 1.0 0.9 0.9
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 36.8 37.2 36.4 36.5
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 195.5 197.0 187.2 185.2
Other Investing CF (2) 0 0 0 Inventory Turn (avg days) 8.3 8.4 7.9 7.9
Net Investing CF (97) (95) (95) (101) Current Ratio (x) 0.5 0.7 0.9 1.1
Div Paid (128) (120) (121) (124) Quick Ratio (x) 0.4 0.6 0.9 1.1
Chg in Gross Debt (35) 0 0 0 Net Debt/Equity (X) 1.1 0.8 0.5 0.3
Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) 1.1 0.8 0.5 0.3
Other Financing CF 0 0 0 0 Capex to Debt (%) 38.0 38.0 38.0 40.2
Net Financing CF (163) (120) (121) (124) Z-Score (X) 3.5 3.5 3.4 3.5
Net Cashflow (5) 47 59 48 N. Cash/(Debt)PS (S cts) (26.1) (20.8) (14.2) (8.8)
Opg CFPS (S cts) 28.6 29.8 30.7 30.5
Free CFPS (S cts) 17.9 18.8 20.2 19.3
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown / Key Assumptions
FY Dec 3Q2008 4Q2008 1Q2009 2Q2009 FY Dec 2008A 2009F 2010F 2011F
Turnover 197 195 186 191 Revenues (S$ m)
Cost of Goods Sold (123) (116) (110) (112) Post Paid Cellular 538 512 522 528
Gross Profit 74 79 76 78 Pre Paid Cellular 68 63 66 68
Other Oper. (Exp)/Inc (29) (32) (31) (32) IDD Revenue 140 144 146 147
Operating Profit 44 47 46 47 Equipment Sales revenues 55 61 61 61
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 0 0 0 0 Total 801 780 794 804
Net Interest (Exp)/Inc (2) (2) (2) (2) (S$ m)
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 42 45 44 45 Key Assumptions
Tax (8) (9) (2) (8)
Minority Interest 0 0 0 0
Net Profit 34 37 42 37
Net profit bef Except. 34 37 42 37
EBITDA 44 47 46 47
Sales Gth (%) (4.2) (1.0) (4.3) 2.2
EBITDA Gth (%) (47.2) 6.1 (2.1) 1.7
Opg Profit Gth (%) (16.5) 6.1 (2.1) 1.7
Net Profit Gth (%) (16.3) 6.4 14.5 (11.5)
Gross Margins (%) 37.4 40.3 40.9 41.0
Opg Profit Margins (%) 22.4 24.0 24.6 24.5
Net Profit Margins (%) 17.5 18.8 22.5 19.5
5% yoy decline in post-paid ARPU, 2% yoy decline in post-paid subscriber
base in FY09F
3% yoy decline in prepaid ARPU, 6% decline in pre-paid subscriber base in
FY09F
EBITDA margins stable at 39% in FY09F
EBITDA margins rise to 39.5% in FY10F due to backhaul cost savings
Source: Company, DBS Vickers
Page 55

Regional Equity Strategy 4Q 2009
Singapore Airlines
Bloomberg: SIA SP | Reuters: SIAL.SI
BUY S$13.60 STI : 2,672.60
Price Target : 12-Month S$ 15.25
Potential Catalyst: Improving demand and yield
Analyst
Paul YONG CFA +86 21 6888 3372
paulyong@dbsvickers.com
Stronger prospects ahead
• We expect demand to improve gradually along
with the economy, boosted by the upcoming
opening of Singapore’s two Integrated Resorts
• Load factor and yield should also see an uptrend,
as supply has been trimmed industry-wide
• Key risks: jet fuel costs and pandemic.
• BUY, TP S$15.25, based on 1.4x P/B.
Price Relative
17.40
15.40
13.40
11.40
9.40
7.40
S$
Relative Index
2005 2006 2007 2008 2009
Sing apore A irlines (LH S) Relative STI IN DEX (RH S)
Forecasts and Valuation
FY Mar (S$ m) 2008A 2009A 2010F 2011F
Turnover 15,973 16,063 12,563 12,972
EBITDA 3,998 2,888 2,254 2,986
Pre-tax Profit 2,547 1,337 527 1,238
Net Profit 2,049 1,062 415 974
Net Pft (Pre Ex.) 2,049 923 415 974
EPS (S cts) 173.0 89.5 34.7 80.7
EPS Pre Ex. (S cts) 173.0 77.8 34.7 80.7
EPS Gth Pre Ex (%) 18 (55) (55) 133
Diluted EPS (S cts) 166.7 86.3 33.7 79.2
Net DPS (S cts) 100.0 40.0 25.0 30.0
BV Per Share (S cts) 1,276.8 1,174.6 1,119.3 1,174.2
PE (X) 7.9 15.2 39.2 16.9
PE Pre Ex. (X) 7.9 17.5 39.2 16.9
P/Cash Flow (X) 4.7 6.2 8.4 6.6
EV/EBITDA (X) 3.2 4.9 6.6 4.8
Net Div Yield (%) 7.4 2.9 1.8 2.2
P/Book Value (X) 1.1 1.2 1.2 1.2
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 13.6 7.3 3.0 7.1
Earnings Rev (%): - -
Consensus EPS (S cts): 15.3 73.3
ICB Industry : Consumer Services
ICB Sector: Travel & Leisure
Principal Business: Singapore Airlines owns and operates SIA and
Silk Air, and has two airline associates (Tiger, Virgin Atlantic). Other
businesses include ground operations (SATS) and aircraft
maintenance operations (SIA Engineering).
Source of all data: Company, DBS Vickers, Bloomberg
203
183
163
143
123
103
83
Demand and yields should improve on healthier
economy and IRs. SIA’s operating statistics in July and
August indicate that the decline in demand has
bottomed and with capacity having been cut by over
12%, load factors have also rebounded to above 78%
in July and August, compared with an average of under
70% in the preceding 5 months. Looking ahead, we
expect both load factor and yield to improve as 1)
demand improves along with economy, 2) excess
capacity has been removed from the industry, and 3)
upcoming Integrated Resorts in Singapore should boost
tourist arrivals, which is positive for SIA.
Earnings to rebound strongly in FY11, key risks
being jet fuel costs and pandemic. Although SIA was
unprofitable in 1Q10, we project a stronger second half
to help SIA into the black for the full year, with net
earnings of S$415m. FY11’s PAT is projected to further
improve, on stronger load factor and yield, to S$974m.
BUY, TP S$15.25. With improving earnings prospects,
we peg our target price for SIA to 1.4x Price-to-Book,
which is at the 50 th percentile of its historical trading
range. This translates to a target price of S$15.25 for
SIA. Catalysts for re-rating include a rebound in
demand, yields and the completion of the upcoming
Integrated Resorts in Singapore.
At A Glance
Issued Capital (m shrs) 1,187
Mkt. Cap (S$m/US$m) 16,137 / 11,407
Major Shareholders
Temasek Holdings Pte Ltd (%) 54.5
Free Float (%) 45.5
Avg. Daily Vol.(‘000) 1,962
Page 56
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: MY / sa: JC

Regional Equity Strategy 4Q 2009
Singapore Airlines
Income Statement (S$ m) Balance Sheet (S$ m)
FY Mar 2008A 2009A 2010F 2011F FY Mar 2008A 2009A 2010F 2011F
Turnover 15,973 16,063 12,563 12,972 Net Fixed Assets 16,474 15,992 15,327 15,242
Cost of Goods Sold (13,848) (15,160) (12,213) (11,952) Invts in Associates & JVs 1,216 983 778 918
Gross Profit 2,125 904 349 1,020 Other LT Assets 512 1,007 482 482
Other Opng (Exp)/Inc 0 0 0 0 Cash & ST Invts 5,583 4,504 3,409 4,123
Operating Profit 2,125 904 349 1,020 Inventory 508 503 394 406
Other Non Opg (Exp)/Inc 181 114 15 35 Debtors 2,117 1,727 1,351 1,395
Associates & JV Inc 161 175 180 200 Other Current Assets 105 102 102 102
Net Interest (Exp)/Inc 81 6 (17) (17) Total Assets 26,515 24,819 21,842 22,668
Exceptional Gain/(Loss) 0 138 0 0
Pre-tax Profit 2,547 1,337 527 1,238 ST Debt 58 309 90 90
Tax (410) (190) (79) (186) Other Current Liab 5,810 5,610 4,348 4,276
Minority Interest (88) (85) (34) (79) LT Debt 1,689 1,514 1,514 1,514
Preference Dividend 0 0 0 0 Other LT Liabilities 3,329 2,896 2,199 2,244
Net Profit 2,049 1,062 415 974 Shareholder’s Equity 15,125 13,931 13,393 14,167
Net Profit before Except. 2,049 923 415 974 Minority Interests 504 560 299 378
EBITDA 3,998 2,888 2,254 2,986 Total Cap. & Liab. 26,515 24,819 21,842 22,668
Sales Gth (%) 10.2 0.6 (21.8) 3.3 Non-Cash Wkg. Capital (3,080) (3,277) (2,502) (2,372)
EBITDA Gth (%) 29.3 (27.8) (21.9) 32.5 Net Cash/(Debt) 3,836 2,681 1,805 2,520
Opg Profit Gth (%) 61.6 (57.5) (61.4) 192.3
Net Profit Gth (%) (3.7) (48.2) (60.9) 134.8
Effective Tax Rate (%) 16.1 14.2 15.0 15.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Mar 2008A 2009A 2010F 2011F FY Mar 2008A 2009A 2010F 2011F
Pre-Tax Profit 2,547 1,337 527 1,238 Gross Margins (%) 13.3 5.6 2.8 7.9
Dep. & Amort. 1,531 1,695 1,710 1,730 Opg Profit Margin (%) 13.3 5.6 2.8 7.9
Tax Paid (196) (300) (348) (79) Net Profit Margin (%) 12.8 6.6 3.3 7.5
Assoc. & JV Inc/(loss) (161) (175) (180) (200) ROAE (%) 13.6 7.3 3.0 7.1
Chg in Wkg.Cap. 780 (873) (506) (236) ROA (%) 7.8 4.1 1.8 4.4
Other Operating CF (378) (308) 0 0 ROCE (%) 8.6 3.9 1.6 4.8
Net Operating CF 4,123 1,376 1,203 2,453 Div Payout Ratio (%) 57.8 44.7 72.1 37.2
Capital Exp.(net) (1,574) (1,138) (1,600) (1,600) Net Interest Cover (x) NM NM 21.0 60.5
Other Invts.(net) (49) (466) 0 0 Asset Turnover (x) 0.6 0.6 0.5 0.6
Invts in Assoc. & JV (16) (4) 0 0 Debtors Turn (avg days) 46.5 43.7 44.7 38.6
Div from Assoc & JV 111 134 60 60 Creditors Turn (avg days) 93.3 92.4 116.1 107.0
Other Investing CF 226 127 0 0 Inventory Turn (avg days) 15.4 13.7 15.6 14.3
Net Investing CF (1,301) (1,347) (1,540) (1,540) Current Ratio (x) 1.4 1.2 1.2 1.4
Div Paid (1,370) (1,260) (474) (299) Quick Ratio (x) 1.3 1.1 1.1 1.3
Chg in Gross Debt (169) (68) 0 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues (1,212) (5) 100 100 Net Debt/Equity ex MI (X) (0.3) (0.2) (0.1) (0.2)
Other Financing CF (47) 24 0 0 Capex to Debt (%) 90.1 62.4 99.8 99.8
Net Financing CF (2,797) (1,309) (374) (199) Z-Score (X) 2.5 2.5 2.2 2.5
Net Cashflow 25 (1,280) (712) 714 N. Cash/(Debt)PS (S cts) 323.8 226.1 150.9 208.8
Opg CFPS (S cts) 282.2 189.6 142.8 222.9
Free CFPS (S cts) 215.2 20.1 (33.2) 70.7
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown / Key Assumptions
FY Mar 2Q2009 3Q2009 4Q2009 1Q2010 FY Mar 2008A 2009A 2010F 2011F
Turnover 4,379 4,160 3,321 2,871 Revenues (S$ m)
Cost of Goods Sold (4,148) (3,807) (3,349) (3,191) Airline Operations 15,264 15,240 12,011 12,595
Gross Profit 232 353 (28) (319) SATS 958 1,062 352 0
Other Oper. (Exp)/Inc (3) (6) (2) (2) SIA Engineering 1,010 1,045 954 1,034
Operating Profit 229 348 (30) (321) Others 207 207 207 207
Other Non Opg (Exp)/Inc 23 54 (4) 2 Eliminations (1,466) (1,492) (962) (864)
Associates & JV Inc 142 15 (86) 39 Total 15,973 16,063 12,563 12,972
Net Interest (Exp)/Inc 10 10 10 10 EBIT (S$ m)
Exceptional Gain/(Loss) 0 0 138 0 Airline Operations 1,845 611 233 923
Pre-tax Profit 404 426 29 (270) SATS 174 171 44 0
Tax (59) (71) 37 (19) SIA Engineering 103 113 71 96
Minority Interest (22) (22) (23) (18) Others (23) (1) (15) (20)
Net Profit 324 334 42 (307) Total 2,148 905 364 1,040
Net profit bef Except. 324 334 (96) (307) EBIT Margins (%)
EBITDA 828 850 312 157 Airline Operations 12.1 4.0 1.9 7.3
SATS 18.2 16.1 12.4 N/A
Sales Gth (%) 6.0 (5.0) (20.2) (13.5) SIA Engineering 10.2 10.8 7.4 9.3
EBITDA Gth (%) (8.2) 2.7 (63.3) (49.6) Others NM NM NM NM
Opg Profit Gth (%) (34.2) 51.9 (108.5) 980.8 Total 13.4 5.6 2.9 8.0
Net Profit Gth (%) (9.7) 3.0 (87.4) (832.9)
Gross Margins (%) 5.3 8.5 (0.8) (11.1)
Opg Profit Margins (%) 5.2 8.4 (0.9) (11.2)
Net Profit Margins (%) 7.4 8.0 1.3 (10.7)
Source: Company, DBS Vickers
Page 57

Regional Equity Strategy 4Q 2009
SPH
Bloomberg: SPH SP | Reuters: SPRM.SI
BUY S$3.71 STI : 2,672.60
Price Target : 12-month S$ 4.21 (Prev S$ 3.97)
Potential Catalyst: Recovery in Ad revenues; special dividends and/or
capital distribution
Analyst
Andy SIM CFA +65 6398 7969
andysim@dbsvickers.com
Price Relative
5.10
4.60
4.10
3.60
3.10
2.60
2.10
S$
2005 2006 2007 2008 2009
Forecasts and Valuation
SPH (LHS) R e la tive ST I IN D E X (R H S)
R elativ e In d e x
FY Aug (S$ m) 2008A 2009F 2010F 2011F
Turnover 1,301 1,299 1,263 1,106
EBITDA 582 564 578 463
Pre-tax Profit 522 490 541 429
Net Profit 437 395 443 353
Net Pft (Pre Ex.) 464 395 443 353
EPS (S cts) 27.6 24.9 27.9 22.3
EPS Pre Ex. (S cts) 29.3 24.9 27.9 22.3
EPS Gth Pre Ex (%) (7) (15) 12 (20)
Diluted EPS (S cts) 26.7 24.0 27.0 21.5
Net DPS (S cts) 27.3 20.0 24.0 20.0
BV Per Share (S cts) 131.9 129.3 137.2 135.5
PE (X) 13.4 14.9 13.3 16.7
PE Pre Ex. (X) 12.7 14.9 13.3 16.7
P/Cash Flow (X) 11.7 13.0 11.8 14.4
EV/EBITDA (X) 9.6 10.2 9.6 11.9
Net Div Yield (%) 7.4 5.4 6.5 5.4
P/Book Value (X) 2.8 2.9 2.7 2.7
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 20.5 19.1 20.9 16.3
Earnings Rev (%): 0.1 9.8 8.5
Consensus EPS (S cts): 23.9 26.7 23.2
ICB Industry : Consumer Services
ICB Sector: Media
Principal Business: Publishes newspapers in Singapore and owns the
Paragon
Source of all data: Company, DBS Vickers, Bloomberg
210
190
170
150
130
110
90
70
50
Go for the cash
• Our final dividend assumed (13cents DPS) could
have upside surprise (to 17cents) in FY09 results
(12 Oct)
• Raise FY10F earnings by +10% on higher AdEx
growth assumptions, along with revised GDP
(+5.2% in 2010)
• Ad revenues to ride on media-worthy activities in
2010 (IRs, YOG, etc)
• BUY, sum-of-parts TP at S$4.21
Upside surprise on cash dividends. Our conservative
expectations of a final+special DPS of 13 Scents could
surprise on the upside (bringing full year DPS to 20Scents)
when SPH announces its FY09 results on 12 Oct. Assuming
a payout of 76% of operating profits, the final dividend
could be 16cents, bringing full year to 24cents. This
equates to an immediate yield of 3.5% - 4.5% before the
year’s end.
Raise FY10F by 10% on better GDP... Historically, ad
revenues track closely to GDP growth. We revised our
FY10F earnings up by 10% as we assumed a better ad
revenue growth rate (4%, vs 2% previously) along with our
economist’s revision of 2010 GDP to 5.2%. We also made
a slight adjustment to the development property
(Sky@Eleven) profit recognition towards FY10F.
…and more media worthy events. We also expect ad
revenues to pick up along with more media worthy events
next year and the lead up to it. The opening of the two
Integrated Resorts and Youth Olympics Games (YOG) are
just two examples. Furthermore, we saw a slump in ad
revenues in early 09 (c. -20% yoy) following the global
crisis and this should magnify any reasonable growth next
year.
Go for the cash; BUY, TP: S$4.21. Our sum-of-parts TP is
raised to S$4.21 as we revised up our FY10F earnings. We
believe the prospect of a higher than expected final cum
special dividend is an attractive investment thesis, along
with improving operational prospect in the near term.
At A Glance
Issued Capital (m shrs) 1,592
Mkt. Cap (S$m/US$m) 5,907 / 4,175
Major Shareholders
Free Float (%) 100.0
Avg. Daily Vol.(‘000) 3,622
Page 58
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: JS / sa: JC

Regional Equity Strategy 4Q 2009
SPH
Income Statement (S$ m) Balance Sheet (S$ m)
FY Aug 2008A 2009F 2010F 2011F FY Aug 2008A 2009F 2010F 2011F
Turnover 1,301 1,299 1,263 1,106 Net Fixed Assets 490 479 469 461
Cost of Goods Sold (611) (627) (575) (533) Invts in Associates & JVs 61 75 89 103
Gross Profit 690 672 687 574 Other LT Assets 1,461 1,461 1,461 1,461
Other Opng (Exp)/Inc (169) (173) (173) (173) Cash & ST Invts 854 897 1,056 1,134
Operating Profit 521 499 514 401 Inventory 36 37 36 32
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 224 289 253 111
Associates & JV Inc (1) 4 4 4 Other Current Assets 24 24 24 24
Net Interest (Exp)/Inc 29 (13) 22 24 Total Assets 3,151 3,262 3,388 3,326
Exceptional Gain/(Loss) (27) 0 0 0
Pre-tax Profit 522 490 541 429 ST Debt 1 1 1 1
Tax (86) (95) (98) (75) Other Current Liab 367 366 367 332
Minority Interest 2 0 0 0 LT Debt 574 724 724 724
Preference Dividend 0 0 0 0 Other LT Liabilities 108 108 108 108
Net Profit 437 395 443 353 Shareholder’s Equity 2,089 2,051 2,176 2,149
Net Profit before Except. 464 395 443 353 Minority Interests 12 12 12 12
EBITDA 582 564 578 463 Total Cap. & Liab. 3,151 3,262 3,388 3,326
Sales Gth (%) 12.1 (0.2) (2.8) (12.4) Non-Cash Wkg. Capital (82) (16) (54) (165)
EBITDA Gth (%) 14.3 (3.1) 2.5 (19.9) Net Cash/(Debt) 279 173 331 409
Opg Profit Gth (%) 16.3 (4.2) 3.2 (22.1)
Net Profit Gth (%) (12.4) (9.8) 12.2 (20.2)
Effective Tax Rate (%) 16.5 19.4 18.1 17.6
Cash Flow Statement (S$ m)
Rates & Ratio
FY Aug 2008A 2009F 2010F 2011F FY Aug 2008A 2009F 2010F 2011F
Pre-Tax Profit 522 490 541 429 Gross Margins (%) 53.1 51.7 54.5 51.9
Dep. & Amort. 62 61 60 58 Opg Profit Margin (%) 40.0 38.4 40.7 36.2
Tax Paid (84) (92) (95) (98) Net Profit Margin (%) 33.6 30.4 35.1 31.9
Assoc. & JV Inc/(loss) 1 (4) (4) (4) ROAE (%) 20.5 19.1 20.9 16.3
Chg in Wkg.Cap. (49) (69) 34 134 ROA (%) 13.8 12.3 13.3 10.5
Other Operating CF 5 0 0 0 ROCE (%) 15.5 14.2 14.2 11.0
Net Operating CF 457 386 536 519 Div Payout Ratio (%) 98.9 80.4 86.0 89.8
Capital Exp.(net) (55) (50) (50) (50) Net Interest Cover (x) NM 38.1 NM NM
Other Invts.(net) 133 0 0 0 Asset Turnover (x) 0.4 0.4 0.4 0.3
Invts in Assoc. & JV (13) (10) (10) (10) Debtors Turn (avg days) 52.6 72.0 78.2 59.9
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 70.7 65.4 69.8 70.1
Other Investing CF 0 0 0 0 Inventory Turn (avg days) 18.5 23.7 25.9 26.0
Net Investing CF 65 (60) (60) (60) Current Ratio (x) 3.1 3.4 3.7 3.9
Div Paid (433) (433) (317) (381) Quick Ratio (x) 2.9 3.2 3.6 3.7
Chg in Gross Debt 0 150 0 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 19 0 0 0 Net Debt/Equity ex MI (X) (0.1) (0.1) (0.2) (0.2)
Other Financing CF (19) 0 0 0 Capex to Debt (%) 9.6 6.9 6.9 6.9
Net Financing CF (433) (283) (317) (381) Z-Score (X) 4.3 4.3 4.8 4.8
Net Cashflow 89 43 159 78 N. Cash/(Debt)PS (S cts) 17.6 10.9 20.9 25.8
Opg CFPS (S cts) 31.9 28.7 31.6 24.3
Free CFPS (S cts) 25.4 21.2 30.6 29.6
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown / Key Assumptions
FY Aug 4Q2008 1Q2009 2Q2009 3Q2009 FY Aug 2008A 2009F 2010F 2011F
Turnover 346 340 287 327 Revenues (S$ m)
Cost of Goods Sold (166) (159) (145) (152) Newspaper ops 1,046 927 954 988
Gross Profit 180 181 142 176 Rental 117 117 120 118
Other Oper. (Exp)/Inc (47) (48) (43) (39) Property devt. 138 255 189 0
Operating Profit 133 133 99 137 Others N/A N/A N/A N/A
Other Non Opg (Exp)/Inc 0 0 0 0 Total 1,301 1,299 1,263 1,106
Associates & JV Inc (1) (2) (4) (2)
Net Interest (Exp)/Inc 2 (39) (6) 12 Opg Profit (S$ m)
Exceptional Gain/(Loss) (27) 0 0 0 Newspaper ops 325 218 279 302
Pre-tax Profit 108 92 90 147 Rental 82 83 85 84
Tax (16) (21) (4) (21) Property devt. 99 182 135 0
Minority Interest 1 2 1 1 Others 15 15 15 15
Net Profit 93 73 87 127 Total 521 499 514 401
Net profit bef Except. 119 73 87 127
EBITDA 148 148 112 152 Opg Profit Margins (%)
Newspaper ops 31.0 23.5 29.2 30.5
Sales Gth (%) 0.6 (1.8) (15.6) 13.9 Rental 70.1 71.0 71.0 71.0
EBITDA Gth (%) (3.7) (0.3) (24.4) 35.9 Property devt. 71.6 71.6 71.6 N/A
Opg Profit Gth (%) (4.9) (0.1) (25.2) 37.6 Others N/A N/A N/A N/A
Net Profit Gth (%) (30.6) (21.1) 19.2 45.6 Total 40.0 38.4 40.7 36.2
Gross Margins (%) 52.0 53.2 49.4 53.7
Opg Profit Margins (%) 38.4 39.1 34.6 41.8 Key Assumptions
Net Profit Margins (%) 26.7 21.5 30.3 38.7 Adex growth rate (%) 8 (17) 4 5
Newprint (US$/mt) 601 760 580 580
Ave US/SGD 1.4138 1.5300 1.5100 1.4900
Source: Company, DBS Vickers
Page 59

Regional Equity Strategy 4Q 2009
Suntec REIT
Bloomberg: SUN SP | Reuters: SUNT.SI
BUY S$1.12 STI : 2,672.60
Price Target : 12-Month S$ 1.23
Potential Catalyst: Faster recovery of the office sector
Analyst
MunYee LOCK +65 6398 7972
munyee@dbsvickers.com
More room to shine
• Portfolio diversity offers resilience
• Balancing weaker office rents with steadier retail
rents
• BUY with TP of $1.23
Price Relative
2.20
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
S$
2005 2006 2007 2008 2009
Forecasts and Valuation
Suntec REIT (LHS) Relative STI INDEX (RHS)
Relative Index
FY Dec (S$ m) 2008A 2009F 2010F 2011F
Gross Revenue 294 233 231 232
Net Property Inc 220 172 169 170
Total Return (88) 122 101 102
Distribution Inc 201 167 145 145
EPU (S cts) 15.4 7.8 6.2 6.0
EPU Gth (%) 140 (49) (21) (4)
DPU (S cts) 13.0 10.6 8.7 8.4
DPU Gth (%) 60 (18) (18) (3)
NAV per shr (S cts) 197.7 204.5 203.5 200.3
PE (X) 7.3 14.3 18.0 18.6
Distribution Yield (%) 11.6 9.5 7.8 7.5
P/NAV (x) 0.6 0.5 0.6 0.6
Aggregate Leverage (%) 34.7 35.0 35.0 35.2
ROAE (%) 6.5 3.5 2.9 2.9
218
198
178
158
138
118
98
78
58
Diversified portfolio. Suntec has a well-entrenched
presence in the 3 core growth corridors of Marina
Centre, Raffles Place and Bras Basah areas. Its diversified
portfolio of 2.9msf of retail and office properties provide
a well balanced exposure to the 2 major property subsectors
while limiting the volatility from the more
commoditised office market.
Weaker office rents offset by steadier retail rents.
Office rents are expected to continue sliding but the
pace of decline is likely to decelerate. With expiring rents
averaging $6.64psf/mth, lease renewals are likely to
remain positive in FY09, although at a smaller reversion
gap than before. The anticipated opening of the 2 Circle
Line MRT stations from mid 2010 is expected to improve
Suntec Mall’s accessability. In addition, opening of the
Marina Bay IR should provide a new potential pool of
shopper traffic.
Maintain BUY, TP $1.23. We continue to like Suntec
for its healthy balance sheet with gearing of 35% and
lack of near term refinancing risks. Valuation is
inexpensive at 7.8% FY10 yield. Our DCF-backed TP of
$1.23, based on WACC of 7.7%, beta 0.97x and
terminal growth of 1.5% offers potential 10% upside
from here. Maintain BUY.
Distn. Inc Chng (%): (1.0) (5.8) (5.3)
Consensus DPU (S cts): 10.4 8.6 7.4
ICB Industry : Financials
ICB Sector: Real Estate Investment Trust
Principal Business: Suntec REIT is has a portfolio of office and retail
properties in Suntec City, Park Mall and Chjimes, managed by ARA
Trust Management Ltd.
Source of all data: Company, DBS Vickers, Bloomberg
At A Glance
Issued Capital (m shrs) 1,629
Mkt. Cap (S$m/US$m) 1,824 / 1,289
Major Shareholders
Asean Investment (%) 5.7
Schroder Investment (%) 4.7
UBS AG (%) 4.5
Free Float (%) 85.1
Avg. Daily Vol.(‘000) 8,566
Page 60
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: JS / sa: JC

Regional Equity Strategy 4Q 2009
Suntec REIT
Statement of Total Return (S$ m) Balance Sheet (S$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Gross revenue 294 233 231 232 Investment Properties 5,304 5,334 5,353 5,346
Property expenses (75) (61) (61) (63) Other LT Assets 61 73 73 73
Net Property Income 220 172 169 170 Cash & ST Invts 54 59 71 82
Other Operating expenses (39) (25) (25) (24) Inventory 0 0 0 0
Other Non Opg (Exp)/Inc 2 4 4 3 Debtors 10 19 18 19
Net Interest (Exp)/Inc (52) (41) (61) (62) Other Current Assets 3 3 3 3
Exceptional Gain/(Loss) (1) 0 0 0 Total Assets 5,432 5,487 5,518 5,523
Net Income 232 124 103 104
Tax (3) (2) (2) (2) ST Debt 824 824 824 824
Minority Interest 0 0 0 0 Other Current Liabilities 71 70 70 76
Preference Dividend 0 0 0 0 LT Debt 1,037 1,070 1,078 1,086
Net Income After Tax 229 122 101 102 Other LT Liabilities 44 44 44 44
Total Return (88) 122 101 102 Unit holders’ funds 3,456 3,479 3,502 3,493
Non-tax deductible Items 73 45 44 44 Minority Interests 0 0 0 0
Net Inc available for Dist. 201 167 145 145 Total Funds & Liabilities 5,432 5,487 5,518 5,523
Revenue Gth (%) 54.7 (20.8) (1.1) 0.7 Non-Cash Wkg. Capital (58) (49) (49) (55)
N Property Inc Gth (%) 56.1 (21.6) (1.7) 0.3 Net Cash/(Debt) (1,807) (1,835) (1,831) (1,828)
Net Inc Gth (%) 161.1 (46.6) (17.5) 0.8
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Income 232 124 103 104 Net Prop Inc Margins (%) 74.5 73.8 73.3 73.1
Dep. & Amort. 31 31 31 31 Net Income Margins (%) 77.7 52.4 43.7 43.8
Tax Paid 0 (3) (5) (5) Dist to revenue (%) 68.3 71.8 63.0 62.5
Associates &JV Inc/(Loss) (104) (14) (16) (17) Managers & Trustee’s fees 13.4 10.7 10.7 10.5
Chg in Wkg.Cap. 23 (11) 0 0 to sales (%)
Other Operating CF 83 45 44 44 ROAE (%) 6.5 3.5 2.9 2.9
Net Operating CF 265 172 157 157 ROA (%) 4.6 2.2 1.8 1.8
Net Invt in Properties (99) (8) (8) (8) ROCE (%) 3.6 2.7 2.6 2.6
Other Invts (net) (91) (25) 0 0 Int. Cover (x) 3.5 3.6 2.4 2.3
Invts in Assoc. & JV (763) 0 0 0 Current Ratio (x) 0.1 0.1 0.1 0.1
Div from Assoc. & JVs 0 0 0 0 Quick ratio (x) 0.1 0.1 0.1 0.1
Other Investing CF 30 0 0 0 Aggregate Leverage (%) 34.7 35.0 35.0 35.2
Net Investing CF (924) (33) (8) (8) Z-Score (X) 1.1 1.0 1.0 1.1
Distribution Paid (187) (167) (145) (145) Operating CFPS (S cts) 16.3 11.7 9.7 9.2
Chg in Gross Debt 955 33 8 8 Free CFPS (S cts) 11.1 10.5 9.2 8.8
New units issued 0 0 0 0
Other Financing CF (71) 0 0 0
Net Financing CF 696 (134) (137) (137)
Net Cashflow 37 5 12 11
Quarterly / Interim Income Statement (S$ m)
FY Dec 3Q2008 4Q2008 1Q2009 2Q2009
Gross revenue 61 63 65 65
Property expenses (16) (16) (16) (16)
Net Property Income 46 48 49 49
Other Operating expenses (8) (9) (7) (7)
Other Non Opg (Exp)/Inc 6 7 7 7
Net Interest (Exp)/Inc (17) (11) (9) (6)
Exceptional Gain/(Loss) (7) (9) (6) (19)
Net Income 24 (40) 36 24
Tax 0 (1) (1) (1)
Minority Interest 0 0 0 0
Net Income after Tax 23 (40) 35 23
Total Return 56 (369) 35 23
Non-tax deductible Items (12) 19 11 25
Net Inc available for Dist. 44 44 46 48
Revenue Gth (%) 4 3 2 (1)
N Property Inc Gth (%) (1) 5 3 (1)
Net Inc Gth (%) (60) (274) (187) (34)
Net Prop Inc Margin (%) 74.2 75.5 75.7 75.6
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0
P/Bk NAV
(x)
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
2006 2007 2008 2009
Source: Company, DBS Vickers
Page 61

Regional Equity Strategy 4Q 2009
UOB
Bloomberg: UOB SP | Reuters: UOBH.SI
BUY S$17.00 STI : 2,672.60
Price Target : 12-month S$ 18.60
Potential Catalyst: Book value recovery, room for lower provisions and
ROE to normalise.
Analyst
Sue Lin Lim +603 2711 0971
suelin@hwangdbsvickers.com.my
Price Relative
25.40
23.40
21.40
19.40
17.40
15.40
13.40
11.40
9.40
7.40
S$
2005 2006 2007 2008 2009
UOB (LHS) Relative STI INDEX (RHS)
Forecasts and Valuation
Relative Index
FY Dec (S$ m) 2008A 2009F 2010F 2011F
Pre-prov. Profit 3,190 3,117 3,179 3,348
Net Profit 1,937 1,657 1,946 2,340
Net Pft (Pre Ex.) 1,937 1,657 1,946 2,340
EPS (S cts) 128.1 109.6 128.7 154.7
EPS Pre Ex. (S cts) 128.1 109.6 128.7 154.7
EPS Gth Pre Ex (%) (7) (14) 17 20
Diluted EPS (S cts) 128.1 109.6 128.7 154.7
PE Pre Ex. (X) 13.3 15.5 13.2 11.0
Net DPS (S cts) 59.7 54.8 64.4 77.4
Div Yield (%) 3.5 3.2 3.8 4.6
ROAE Pre Ex. (%) 12.6 10.7 11.4 12.9
ROAE (%) 12.6 10.7 11.4 12.9
ROA (%) 1.1 0.9 1.0 1.2
BV Per Share (S cts) 943 1,097 1,161 1,238
P/Book Value (x) 1.8 1.6 1.5 1.4
Earnings Rev (%): - - -
Consensus EPS (S cts): 113.4 132.8 150.2
ICB Industry : Financials
ICB Sector: Banks
Principal Business: Financials
Source of all data: Company, DBS Vickers, Bloomberg
219
199
179
159
139
119
99
79
On track for recovery
• Operationally sound with selective interest in
regional expansion.
• ‘Normalised’ provisions levels should lift earnings
and ROEs.
• Key near term catalyst lies in the re-rating of its
book value.
Operationally sound. UOB remains operationally sound
with pre-provision profits remaining robust up to 1H09
despite going through a tough operating environment
over the last 6-12 months. NIMs are expected to remain
flattish for the rest of the year with competition reemerging
and corporate and SME loan spreads peaking.
Positively, specific provisions have begun to taper off and
we believe NPLs would peak by year-end. UOB remains
selective in its regional expansion. It has a well-established
exposure in Malaysia and Indonesia, while it aims to
entrench its presence in China.
Conservatism in provisions will pay off. UOB remains
conservative as it continues to build its collective
impairment reserves for the year. However, with the
impending economic recovery, we believe collective
impairments would not be a feature in FY10, which
implies a strong earnings recovery in FY10. This would be
a key re-rating for UOB’s earnings and ROEs. Our FY10-11
provision charge-off rate assumptions of 74bps and 40bps
may still appear high compared to UOB’s historical
‘normalised’ levels of 26bps.
ROE re-rating by 2011. We expect FY09 earnings to
remain sluggish with collective impairment building up.
But, 2010 could be a year of earnings recovery, and we
believe earnings and ROEs should normalize by 2011.
UOB’s sustainable ROE of 13% stacks up better than its
peers. UOB’s near term catalyst lies in its book recovery.
Up to 1H09, UOB’s book value has recovered by 12%
since it deteriorated in 4Q08. UOB’s stronger domestic
market share for loans bodes well with the economic
recovery play in 2010.
At A Glance
Issued Capital (m shrs) 1,524
Mkt. Cap (S$m/US$m) 25,909 / 18,314
Major Shareholders
Wee Investment (%) 7.4
Wah Hin & Co Pte (%) 5.3
Free Float (%) 87.3
Avg. Daily Vol.(‘000) 3,493
Page 62
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: YM / sa: TW

Income Statement (S$ m) Balance Sheet (S$ m)
Regional Equity Strategy 4Q 2009
UOB
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 3,576 3,773 4,000 4,280 Cash/Bank Balance 20,290 20,884 22,346 23,910
Non-Interest Income 1,675 1,632 1,708 1,864 Government Securities 11,310 12,215 13,192 14,247
Operating Income 5,251 5,405 5,708 6,144 Inter Bank Assets 15,196 16,828 17,791 18,888
Operating Expenses (2,061) (2,288) (2,529) (2,796) Total Net Loans & Advs. 99,840 102,549 108,417 115,102
Pre-provision Profit 3,190 3,117 3,179 3,348 Investment 15,813 16,244 17,171 18,226
Provisions (807) (1,112) (799) (461) Associates 1,096 1,188 1,271 1,346
Associates 103 92 83 75 Fixed Assets 2,094 2,020 2,020 2,020
Exceptionals 0 0 0 0 Goodwill 4,211 4,211 4,211 4,211
Pre-tax Profit 2,486 2,097 2,464 2,961 Other Assets 13,091 5,127 5,421 5,755
Taxation (521) (398) (468) (563) Total Assets 182,941 181,266 191,839 203,706
Minority Interests (27) (42) (49) (59) Customer Deposits 118,171 126,443 135,294 144,765
Preference Dividend 0 0 0 0 Inter Bank Deposits 28,452 23,638 24,034 24,293
Net Profit 1,937 1,657 1,946 2,340 Debts/Borrowings 6,246 6,246 6,246 6,246
Net Profit bef Except 1,937 1,657 1,946 2,340 Others 14,353 6,850 7,153 8,062
Minorities 146 188 237 296
Shareholders' Funds 15,573 17,901 18,875 20,044
Total Liab& S/H’s Funds 182,941 181,266 191,839 203,706
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 4.36 3.25 3.28 3.29 Loan-to-Deposit Ratio 86.3 83.3 82.3 81.5
Avg Cost Of Funds 2.14 1.04 1.08 1.07 Net Loans / Total Assets 54.6 56.6 56.5 56.5
Spread 2.21 2.20 2.20 2.22 Investment / Total Assets 8.6 9.0 9.0 8.9
Net Interest Margin 2.27 2.28 2.30 2.32 Cust . Dep./Int. Bear. Liab. 77.3 80.9 81.7 82.6
Cost-to-Income Ratio 39.2 42.3 44.3 45.5 Interbank Dep / Int. Bear. 18.6 15.1 14.5 13.9
Employees ( Year End) 24,323 26,756 29,431 32,374 Asset Quality
Effective Tax Rate 21.0 19.0 19.0 19.0 NPL / Total Gross Loans 2.0 2.7 3.0 2.9
Business Mix NPL / Total Assets 1.1 1.6 1.7 1.7
Net Int. Inc / Opg Inc. 68.1 69.8 70.1 69.7 Capital Strength
Non-Int. Inc / Opg inc. 31.9 30.2 29.9 30.3 Total CAR 12.5 14.9 15.2 15.2
Fee Inc / Opg Income 20.9 20.0 20.1 20.1 Tier-1 CAR 8.7 10.6 10.7 10.9
Oth Non-Int Inc/Opg Inc 11.0 10.2 9.9 10.2 Growth
Profitability Total Net Loans 8 3 6 6
ROAE Pre Ex. 12.6 10.7 11.4 12.9 Customer Deposits 10 7 7 7
ROAE 12.6 10.7 11.4 12.9
ROA Pre Ex. 1.1 0.9 1.0 1.2
ROA 1.1 0.9 1.0 1.2
Quarterly / Interim Income Statement (S$m)
FY Dec 3Q2008 4Q2008 1Q2009 2Q2009
Net Interest Income 893 957 949 908
Non-Interest Income 320 391 435 550
Operating Income 1,213 1,348 1,384 1,458
Operating Expenses (507) (533) (493) (523)
Pre-Provision Profit 706 815 891 935
Provisions (158) (381) (378) (465)
Associates 32 14 10 32
Exceptionals 0 0 0 0
Pretax Profit 580 448 523 502
Taxation (97) (109) (112) (23)
Minority Interests (9) (7) (2) (8)
Net Profit 475 332 409 470
Rolling Forward P/BV Band
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
97 98 99 00 01 02 03 04 05 06 07 08 09
+2 SD
+1 SD
Mean
-1 SD
-2 SD
Source: Company, DBS Vickers
Page 63

Regional Equity Strategy 4Q 2009
Country Assessment
Hong Kong/China
Party continues
While becoming a new stock market driver, the latest
USD carry trade may quicken the return of inflation and
then exit from Quantitative Easing. High volatility will
continue, substantially driven by speculation of
government policies, still mixed economic data points
and USD direction. While we continue believing stock
market expectation is too good to be true, pair trade
remains our preferred strategy.
Triggered by the Qualified Foreign Institutional Investor (QFII) news, although
basically irrelevant, the resumption of speculation of favourable policies before
China’s 60 th anniversary has brought about another major short-squeeze. While the
widespread USD carry trade came as a surprise, USD direction will become a major
determinant of stock market performance in 4Q09.
We continue to expect the earliest time for major correction to be late 2009 or
early 2010 for the fact that economic statistics will continue to be satisfactory
before then while it is pre-mature for any tightening to emerge on investors’ radar
screen.
Without one of the four major catalysts kicking in, there continue to be strong
liquidity support at around 18,000-19,000 Hang Seng Index level. However, 14,000
level continues to be our “worst case” 12-month support level when these
catalyst(s) emerge.
Among the big caps for long-only funds, we like MTRC (66 HK), Sinopec (386 HK),
China Railway Group (390 HK), Bank of China Hong Kong (2388 HK) and Bank of
China (3988 HK)
Derek Cheung (852) 2971 1703 derek_cheung@hk.dbsvickers.com
Page 64
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: LM / sa: TW

Regional Equity Strategy 4Q 2009
Country Assessment
Market Data
Index Close Chng -1 mth -3 mth -6 mth - 12 mth
52-Week
17-Sep-09 Net 1 m (%) (%) (%) (%) High Low
Hang Seng 21,769 1631 8 20 69 23 21,930 10,676
HS China Ent 12,668 1273 11 18 69 46 12,815 4,792
HS China Aff 4,080 -28 -1 7 37 26 4,457 2,173
HS Mid Cap 4,317 337 8 20 76 27 4,326 2,065
HS Small Cap 2,284 306 15 31 115 28 2,295 832
Transactions:
YTD
Volume (bn shs) 16,897
Value (HK$bn) 10,821
Source: Bloomberg
3Q09 Review
Volatility of Hang Seng (HS) Index increased substantially driven
initially by further improvement in sentiment towards US
economic outlook, followed by fear towards China liquidity
tightening, then by speculation of favourable policies before
the 60 th anniversary of China and by the further weakening of
USD. Beside stretched valuation, probably due to large number
of IPOs, and concern about exit timing/strategy from global
quantitative easing, market turnover has continued to fall. USD
carry trade has become a new source of funding for the equity
market.
The Hang Seng Index and Hang Seng China Enterprises Index
(HSCEI) gained 20% and 18% respectively in 3Q09. From the
trough in Oct 08, the HSI and HSCEI have rebounded by over
98% and 154% respectively.
China economic growth continues to be substantially driven by
pump-priming through fixed asset investment. Consumption
growth remains stable while exports and foreign direct
investment (FDI) remain in downward trend. The August FDI
showed 7% YoY growth, first positive growth in 7 months, but
the PRC government officials indicated this was due more to
the low-base effect.
Among HS Index constituent sectors, Commerce and Industry
and Hongs/Conglomerates were the best performing sectors,
gaining 35% and 28% in the quarter respectively.
HSI Sectors Performance - 3Q
Sector
% gain
Comm/Ind 35%
Hongs/Conglomerates 28%
Properties 24%
Banking and Finance 22%
Power, Infra & Utilities 11%
Telecom 4%
Source: DBS Vickers, Bloomberg
HS Index & HSCEI – Past 1 year
26,000
24,000
250-day MA
HSI
22,000
20,000
18,000
16,000
14,000
12,000
50-day MA
10,000
Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
16,000
14,000
250-day MA
HSCEI
12,000
10,000
8,000
6,000
50-day MA
4,000
Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
Source: Bloomberg
Page 65

Regional Equity Strategy 4Q 2009
Country Assessment
Market Outlook – Meaningful correction unavoidable
We continue to believe the stock market is due for a
meaningful correction (Hang Seng Index returning to around
14,000) as the equity market has been way too much ahead of
the fundamentals driven by (1) expensive valuation and (2)
appearance of either one of the following four events (in order
of probability) happening:
US economic disappointment. Market may become less
optimistic on global economic outlook causing
significant flight to safety, ie US Treasuries. The resulting
USD technical rebound then brings down equity and
commodity markets. This chain reaction was seen in the
17 August correction.
China economic disappointment. Although our
economist believes China is on a recovery path, any sign
that China may not be able to decouple from the US and
that its 2010 economic growth may be slower could
trigger a meaningful correction. Although we believe
China can still increase its pump-priming through its
significant amount of reserves, it would likely happen
after a major or a series of disappointment in the US or
its economic conditions in order to avoid further inflating
the stock and property market overheating.
US economic data remains mixed. No government would
do anything, ie liquidity remains abundant supporting
the currently over-valued stock market. However, the
stock market will continue to be volatile and range
bound.
The widespread USD carry trade came as a surprise,
which has provided significant amount of new liquidity
to the stock market. If the USD continues to weaken, we
will likely see a longer stock market rally. However, the
resulting inflationary pressure will make interest rate hike
more pending.
As discussed in the recent extensive roadshow, economic data
will continue to be satisfactory in 3Q2009 while it is still premature
for any tightening to be implemented. The earliest time
for major correction will only be towards the end of 2009 or
early 2010.
Differing from our regional strategist’s view, the author
continues to believe in W-shape recovery. Even if the author
were wrong, it would likely be that the correction may be more
remote (> 12 months) than he had anticipated, not whether
there would be a meaningful correction or not.
2010 GDP growth should be the focus
China economic tightening. Although the policy
direction has certainly reversed towards tightening, we
continue to believe China will remain passive and any
meaningful tightening will happen only after China is
comfortable US is firmly on a recovery path.
Exit from global quantitative easing. There seems to be
more talks about exit strategy and timing both in the
media and by some US officials. With the experience
learnt from the US Great Depression and Japanese
bubble burst, we continue to believe this will likely be
more remote than many believe. The situation would be
even worse if the exit is driven by return of inflation as
some fear for, rather than economic recovery.
Attaining 8% GDP growth for China in 2009 is probably a
done deal. The market focus will gradually shift towards
whether 2010 GDP growth outlook will maintain or grow. DBS
economist expects 8% and 9% GDP growth in 2009 and 2010
respectively.
China real GDP Growth
Yoy, %
14
13
12
11
Strong support except for the above catalysts
We acknowledge that there is a significant amount of liquidity
in the system. If we do not see major catalyst like any of the
above, there would be strong support for the Hang Seng Index
at 18,000-19,000 level.
Scenarios that could make our call wrong
10
9
8
7
6
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09F
3Q09F
4Q09F
1Q10F
2Q10F
Sharp V-shape global recovery. If this were to happen,
the excitement towards global economic outlook will
more than offset the negative impact from liquidity
tightening by China and global central banks.
Source: CEIC, DBS Economics Research
The “decoupling” of Chinese economy so far has substantially
been driven by significant credit expansion driving fixed asset
investment, which may be at the expense of creating
Page 66

Regional Equity Strategy 4Q 2009
Country Assessment
overcapacity problems in the long-run. Understanding the
stock market may find it too early to start pricing in the risk of
potential non-performing loans in a few years time, there
seems to be a need for fine-tuning of the pace and intensity of
new credit creation.
China fixed asset investments
RMB m %
3,000,000
45
2,500,000
40
35
2,000,000
30
1,500,000
25
20
1,000,000
15
500,000
10
5
0
0
Source: CEIC,
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
China FAI
Yoy % growth
Pre-mature for material tightening expectation
We continue to believe stock market fear towards material
liquidity tightening in China in the near future is pre-mature.
China will remain passive, awaiting concrete evidence of a
sustainable US economic recovery, in determining the timing of
liquidity tightening.
China export
US$m %
150,000
60
50
100,000
40
30
50,000
20
10
0
0
(10)
(50,000)
(20)
(30)
(100,000)
(40)
Source: CEIC,
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
China exports
Yoy % growth
China utilized FDI
US$m %
27,000
120
22,000
100
17,000
80
60
12,000
40
7,000
20
2,000
0
(3,000)
(20)
(8,000)
(40)
(13,000)
(60)
Source: CEIC,
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
China utilized FDI
Yoy % growth
The availability of short-term loans at low interest rates
encourages individuals and corporates to take speculative risks
in both the equity and property markets, which will likely be
the focus of any Chinese policy shift. The sharp 28% YoY jump
in corporate deposits alongside the 27% YoY fall in SOE profits
in the first half of the year imply that the surge of funds at
corporate accounts most likely originated from bank credit.
China loan growth
2008: 4,904
2009F: 9,208
2010F: 6,524
(RMBbn)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
(200)
(400)
1Q09: 4,580 (50% of total)
2Q09: 2,787 (30% of total)
3Q09F: 1,100 (12% of total)
4Q09F: 742 (8% of total)
804
243
283
464
319
332
382
272
375
182
477
772
592
665
356
410
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Source: CEIC, DBS Vickers
1,620
1,070
1,890
Retail
Medium/LT & other enterprise
Discounted bills
ST enterprise loans
1,530
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Regional Equity Strategy 4Q 2009
Country Assessment
Our economist is confident that the Chinese authorities will not
slow down medium-to-long term loans (tenors ranging from
3yrs-5yrs) too much as 52% of outstanding loans in the state
banking sector were used for financing long-term fiscal
projects. Sudden withdrawal of credit support will jeopardize
the progress of these projects and create enormous amounts
of economic wastage. In fact, projects such as railway
construction will not start to yield economic value-added until
they are completed and fully functional. As such, our
economist does not expect as increase in interest rates nor
reserve requirement ratio for the remainder of the year. The
CNY should also remain stable and trade in a tight range in
4Q09.
China M1 and M2 growth
%
30
25
20
15
10
5
0
Jan-00
Jan-01
Source: CEIC
Jan-02
Jan-03
Jan-04
M1
Jan-05
Jan-06
Retail consumption growth remains stable
Jan-07
M2
Jan-08
Jan-09
Retail sales growth has been relatively stable at around 15%
YoY in the past few months despite a series of favourable
policies, eg subsidizing home appliance purchases for rural
areas.
Chinese consumers are still saving despite economic and wage
growths. Saving deposits are still advancing at an average rate
of 29% YoY in the first seven months of this year, up
significantly from 11.3% YoY in the same period last year.
Such strong saving bias amidst a low interest rate environment
suggests that it is difficult to rely solely on private consumption
to propel economic growth in the short-run.
China retail sales
RMB bn %
1,200
25
1,000
800
600
400
200
0
Jan-07
Source: CEIC,
Apr-07
Jul-07
Oct-07
Jan-08
China Retail Sales
Hong Kong quick turnaround
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Yoy % growth
While a low-interest rate environment may be instrumental in
driving a quick economic turnaround, the strong inflow of
liquidity from mainland China as a partial result of its lax credit
policy may play an even bigger role. Downward price
adjustment in the current downturn has been the mildest
amongst other major crisis in the past decade
In the near-term, both the Fed and the PBOC are likely to
refrain from raising interest rates, not until they see sustainable
domestic-demand recovery. Under the growth assumptions of
10% (QoQ, saar) and 5% (QoQ, saar) in 3Q09 and 4Q09
respectively, projection of real GDP growth for 2009 has been
revised upward by our economist to -2.4% YoY from the
previous forecast of -6.5% YoY. It is expected to continue to
grow at 5.5% YoY in 2010.
Jul-09
Material earnings upgrade based on mid-cycle outlook
Our analysts have upgraded the earnings of various sectors
based on mid-cycle outlook, which is consistent with our
regional strategist’s outlook. Within the HS Index, the biggest
upward adjustment came from Banking and Property sectors
while Commodity, Banking and Consumer sectors were
upgraded the most among the HSCEI constituents.
20
15
10
5
0
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Regional Equity Strategy 4Q 2009
Country Assessment
Earnings upgrade – Hang Seng Index constituents
Aggregate earnings for HSI
2010F Earnings
Sector 3Q 4Q Chg
HK$m HK$m %
HK$m 2008
08A
%
09F % 10F %
Chg 2009 Chg 2010 Chg
Banking and Finance 171,594 204,989 19
Power, Infra & Utilities 71,912 76,524 6
Properties 31,597 32,872 4
Hongs/Conglomerates 17,723 19,606 11
Comm/Ind 14,592 15,179 4
Telecom 49,893 45,968 (8)
Total 357,311 395,138 11
Source: DBS Vickers, Bloomberg
Earnings upgrade – HSCEI Index constituents
2010F Earnings
Sector 3Q 4Q Chg
HK$m HK$m %
Consumers 2,029 2,373 17
Energy 49,801 54,013 8
Financials 109,959 150,050 36
Industrial Goods 1,192 1,097 (8)
Information Technolgy n.a. 1,086 n.a.
Materials 4,206 6,205 48
Utilities 2,206 2,205 (0)
Property & Construction 10,606 10,862 2
Services 1,695 980 (42)
Telecom & Technology 5,272 5,105 (3)
Total 186,967 233,976 25
Source: DBS Vickers, Bloomberg
Finance 131,154 -42 158,148 21 204,959 30
Infra & Utilities 65,118 -10 60,938 -6 76,524 26
Properties 29,212 -23 31,671 8 32,872 4
Conglomerates 10,701 -69 15,510 45 19,465 25
Comm/Ind 7,918 -57 11,264 42 15,170 35
Telecom & Media 49,975 34 44,263 -11 45,968 4
HSI Total 294,079 -31 321,794 9 394,957 23
Source: DBS Vickers, Bloomberg
After the latest round of earnings upgrade based on our
regional strategist’s outlook, DBS expects 23% and 36% 2010
earnings growth for HS Index and HSCEI respectively.
Aggregate earnings for HSCEI
HK$m 2008
08A
%
Chg 2009
09F %
Chg 2010
10F %
Chg
Consumer 1,720 9 2,124 23 2,382 12
Energy 33,322 -19 38,757 16 48,917 26
Financials 95,759 17 114,244 19 150,014 31
Industrial Goods 1,297 -22 1,037 -20 1,097 6
Info Technology 450 -36 815 81 1,086 33
Materials 1,068 -90 3,606 238 11,304 213
Utilities -888 -130 1,844 nm 2,205 20
Ppty & Construc 5,936 -2 8,354 41 10,862 30
Services 4,921 -61 -1,998 -141 980 -149
Telecom & Tech 696 -87 3,686 430 5,105 39
HSCEI Total 144,281 -12 172,468 20 233,953 36
Source: DBS Vickers, Bloomberg
Valuations
The Hang Seng Index and HSCEI are now trading at 17.5x and
18.1x FY09 PER, respectively, versus 5-year, 10-year and 20-
year HSI average PER of about 14-15x. The PER for these also
compares with the peak PER of around 19x in 1997, 2000 and
2007 “bubbles”. Assuming the forecast 23% for HS Index and
36% for HSCEI earnings growth in 2010 is achievable, 2010
PER for HSI and HSCEI would then be 14.2x and 13.3x
respectively.
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Regional Equity Strategy 4Q 2009
Country Assessment
Hang Seng Index – PE Band
Hang Seng China Enterprises Index – PE Band
33,000
28,000
23,000
18,000
13,000
8,000
3,000
Dec-90
Dec-91
Dec-92
Dec-93
Dec-94
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
22x
19x
15x
12x
9x
25,500
20,500
28x
23x
15,500
18x
10,500
13x
5,500
7x
500
Dec-01
Jul-02
Feb-03
Sep-03
Apr-04
Nov-04
Jun-05
Jan-06
Aug-06
Mar-07
Oct-07
May-08
Dec-08
Jul-09
Feb-10
Source: Datastream, DBS Vickers
While normally being used as a benchmark for bottom-fishing
in bear market, HS Index FY09 PBV is now trading at 2.04x,
versus 5-year and 10-year averages of 1.93x and 1.94x
respectively.
Hang Seng Index – PBV Band
Source: Bloomberg, DBS Vickers
HSCEI PER and PBV are now at 18.5x and 2.4x, versus the
respective averages of 17.2x and 1.74x since its inception in
2001.
Hang Seng China Enterprises Index – PBV Band
36,000
31,000
26,000
21,000
16,000
11,000
6,000
Jan-99
Aug-99
Mar-00
Oct-00
May-01
Dec-01
Jul-02
Feb-03
Sep-03
Apr-04
Nov-04
Jun-05
Jan-06
Aug-06
Mar-07
Oct-07
May-08
Dec-08
Jul-09
Feb-10
Source: Datastream, DBS Vickers
3.1x
2.6x
2.1x
1.6x
1.1x
30,500
25,500
20,500
15,500
10,500
5,500
500
Jan-01
Aug-01
Mar-02
Oct-02
May-03
Dec-03
Jul-04
Feb-05
Sep-05
Apr-06
Nov-06
Jun-07
Jan-08
Aug-08
Mar-09
Oct-09
May-10
Source: Bloomberg, DBS Vickers
4.5x
3.6x
2.6x
1.6x
0.6x
Lack momentum post earnings upgrades
While it is not always reliable to use forward PER and PBV as an
investment tool given that consensus tends to overreact when
the market is up as well as down, the following charts show
you the current consensus forward PER and PBV versus history.
Besides, share prices rises post material consensus earnings
upgrades in 3Q09 had been dis-proportionally small implying
stock market had priced these upgrades in way before actual
upgrades.
Page 70

Regional Equity Strategy 4Q 2009
Country Assessment
Hang Seng forward PE (consensus)
x
25
20
15
10
5
0
Average: 13.5x
Jan-80
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Source: DBS Vickers
Hang Seng forward PBV (consensus)
(x)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1993
1995
Source: Bloomberg
Strategy
1997
1999
+2SD
2001
+1SD
Mean
2003
-2SD
2005
-1SD
Market will remain highly volatile with lack of visibility in 4Q09.
Pair trades remain our preferred strategy while long-only funds
should adopt a defensive strategy.
Defensive despite continuously strong liquidity.
The railway construction sector will likely outperform even
when the expected stock market correction and USD technical
rebound present, given that RMB600bn has been earmarked
for railway infrastructure development this year. Infrastructure
investment is expected to peak towards end 2010 or early
2011. 1H09’s project starts should start to generate profits in
2007
2009
2H09 which should in turn lift overall GP margin. We like
China Railway Group (390 HK) for this sector.
Property sector
The Hong Kong property sector should remain relatively
resilient as any meaningful interest rate hike is unlikely in the
foreseeable future. Luxury projects have been in the spotlight
and local investors and speculators have been returning,
boosting both prices and take-up rate. Developers should
return to expansion mode soon. Office rents remain on the
decline albeit on a moderating path. Capital values have
rebounded while property investors are fairly priced in terms of
valuation. We like MTRC (66 HK) for this sector.
As for Chinese property sector, we believe the Chinese
government’s real estate policy will remain favourable as it
aims to increase new supply to control the pace of property
price growth. The recovery of the domestic economy would
support the growth of the sector going forward. Given that
property prices will be on a moderate uptrend rate while sales
volume will remain above the monthly average of 2007, this
will pave way for decent 2010 earnings growth for majority of
developers. We like CR Land (1109 HK), Shimao (813 HK) and
Shui On Land (272 HK).
Banking sector
Most Hong Kong banks have guided for a more optimistic
2H09 and 2010, especially with opportunities for their China
operations given an expected slowdown in loan growth among
Chinese banks in 2H09. Resilient asset quality and more write
backs on securities are expected. We believe some mild rate
hikes in the US sometime next year, as per our economist’s
forecast, should help improve Hong Kong banks’ NIM going
forward.
Our banking analyst believes Chinese banks can expect
‘moderately loose’ monetary policies to remain and only
market tools rather than administrative measures to be used to
fine-tune sector. Loan quota policy is unlikely and any loan
decelerating in 2H09 should not be regarded as tightening of
policy. Banks’ valuations will re-rate despite interest rate hikes,
as rate hikes usually go along with good economic outlook and
improving NIM. Chinese banks are still cheap at below midcycle
valuations. We like Bank of China HK (2388 HK) and
Bank of China (3988 HK).
Telecoms Equipment Sector
The China telecom equipment sector shows promising growth
potential given the hundreds of billions of RMB in the telecom
equipment market which we believe will give the sector scope
for continuous re-rating. The sector has been trading at a
discount in terms of valuation.
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Regional Equity Strategy 4Q 2009
Country Assessment
CCS (552 HK) is our sector top pick, for its attractive valuation
and great long-term growth potential from the tower sharing
measure in China. We also like CITIC 1616 (1883 HK) , for its
steady earnings growth and low risk exposure. Comba (2342
HK) is our long-term sector pick, as we see sustainable earnings
growth for the next five years.
Consumer - F&B
Our analyst believes current valuation premiums for China F&B
are likely to remain. 1H09 F&B results were generally inline or
above expectations. Besides lower material costs, improvement
in product mix was also seen especially in market leaders.
Rebounds in raw material prices and fuel costs were noted but
their levels were still below that of last year, hence positive
margin impact should sustain into 2H09. Better earnings
visibility is also seen with resilient demand for most F&B
products. We recommend investors to focus on those with
lagging valuations such as China Yurun (1068 HK) and China
Mengniu (2319 HK).
Consumer - Retail
For retail in China market, sales expansion of most sectors has
been seen, indicating the Chinese retail environment continues
to recover. As fundamental improvement sets in, current
valuations of selective retailers could potentially consolidate to
remerge for better share price performance in the medium
term.
Retail sales in Hong Kong however, remains in the doldrums.
As improvement seen in the local stock and property markets
has yet to translate into real benefits for the economy. Given
lack of any clear catalyst, our preference remains on those with
better earnings visibilities such as Café de Coral (341 HK).
Toll Road Sector
The PRC toll road sector is becoming more promising given its high
correlation to the macro economy and in anticipation of a full-scale
economic recovery from 4Q09 onward. We like Sichuan Expressway
(107 HK) and Jiangsu Expressway (177 HK).
Telcos
Despite the tough challenges faced by China’s telcos in 2009,
such as rising competition, heavy capex and growing opex, as
well as the unfavourable economic conditions, we remain
positive on the sector’s long-term outlook, given the low
penetration of mobile and broadband users and potential
ARPU expansion. We see great re-rating potential, due to its
promising long-term growth outlook as well as industry
deregulation. We like China Mobile (941 HK) but we are not
positive on China Telecom (728 HK) and China Unicom (762
HK). Competition in the local Hong Kong telecom market has
subsided somewhat since mid-2008, partly due to the limited
room for further tariff cuts and clearer differentiated services
and customer positioning among telcos. Hutchtel (215 HK )
might continue to gain high-end market share while earnings
outlook for other telcos continue to look gloomy.
Oil
With possible USD technical rebound and renewed market
concern over the US recovery, we believe the near-term crude
price lacks fundamental catalyst to increase materially from
current level in 4Q09, especially given the weak recovery from
world’s oil demand in market. The government’s decision to
improve the domestic product oil price flexibility and the
relatively stable crude price level around US$70 should benefit
Sinopec (386 HK).
Pharmaceutical
The strong interim results and the possible IPO of Sinopharm at
high PE are the key catalysts for the market to re-rate the
pharmaceutical counters. Several major counters under our
coverage have already reached their historical high share price.
Given the promising growth outlook, attractive value, strong
balance sheet and favourable policy support, we believe the rerating
of the sector has just begun and has a long road ahead.
Our top picks are Sino Biopharmaceutical (1177 HK),
Guangzhou Pharmaceutical (874 HK) and China Shineway
(2877 HK).
Shipping
We expect the marine transportation sector rally upside should
be capped at the mid-cycle valuation level while looking for
possible second dips in the sector’s performance The high level
of iron ore inventory and possible cut of domestic steel output
may pressure freight rates in 2H09. We recommend to sell
overvalued dry bulk shipping companies, except for Pacific
Basin (2343 HK). For container shipping counters, any recovery
is unlikely to be sustainable given high level of idle vessels.
We maintain Sell on CSCL (2866 HK) , but recommend
investors to buy OOIL (316 HK) on weakness, given its
attractive hidden value from properties in China.
Fertilizer
The overall fertilizer sector has been stabilizing although
average selling prices remain weak. Certain fertilizer prices
might remain or decline from current level for the rest of the
year as stocking would have completed by 3Q. Weak methanol
prices are expected to recover gradually in 2H given rising
demand as alternative energy application. The positive
government policy to further boost the agriculture sector and
better develop rural areas should provide some support for
fertilizer demand. The current oversupply across different
fertilizer types is unlikely to improve significantly in the nearterm
but condition is expected to gradually improve.
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Regional Equity Strategy 4Q 2009
Country Assessment
Basic Materials
We have a mixed bag for this sector amidst acceleration of
construction activities expectations of a fall in coal prices, rising
steel inventory and expectation of hedging against inflation.
We like Asia Cement (China) Holdings (743 HK) for this sector.
Technology
savings measures executed earlier in the year. Improved
optimism in 2H guidance is seen and point to a resilient
consumer market. We believe corporate spending will pick up
given the recent stability in the business environment. Stock
valuations have continued to improve in general in 3Q,
reflecting the increased optimism in the sector. We like AAC
Acoustics (2018 HK) and ASM Pacific (522 HK).
The sector is bouncing back on more than mere restocking
activities. More significant earnings impact is seen from cost
Page 73

Regional Equity Strategy 4Q 2009
Country Assessment
Economic Indicators
2005A 2006A 2007A 2008A 2009F 2010F
China
GDP Growth (%) 10.4 11.6 13.0 9.0 8.0 9.0
FDI (US$bn) 72 73 84 108 70 80
Exports (yoy %) 28 27 26 17 -21.0 22
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 -1.0 3.0
Hong Kong
GDP Growth (%) 7.1 7.0 6.4 2.4 -2.4 5.5
CPI (yoy %) 0.9 2.0 2.0 4.3 -0.1 1.0
Source: DBS Economics Research
Valuation – HSI
Index Earnings Growth (%) PE (x) Yield (%)
17-Sep 08A 09F 10F 08A 09F 10F 08A 09F 10F
Finance -42 21 30 21.6 18.0 13.9 3.6 2.7 3.7
Power, Infrastructure & Utilities -10 -6 26 14.3 15.3 12.1 3.0 3.1 3.6
Properties -23 8 4 20.1 18.5 17.8 2.1 2.1 1.9
ex Cheung Kong -6 -10 22 22.5 24.9 20.5 2.0 2.0 1.7
Hongs/Conglomerates -69 45 25 31.7 21.9 17.5 2.5 2.4 2.5
ex H utchison -90 515 4 116.2 18.9 18.1 2.2 2.0 2.2
Com m/Ind -57 42 35 43.3 30.4 22.6 2.0 2.0 2.4
Telecom & Media 34 -11 4 11.1 12.6 12.1 3.2 3.4 3.6
HSI 21769 -31 9 23 19.0 17.4 14.2 3.2 2.7 3.3
HSI ex Cheung Kong and Hutchison -30 10 24 19.3 17.5 14.2 3.2 2.7 3.3
Source: DBS Vickers
Valuation – HSCEI
Index Earnings Growth (%) PE (x) Yield (%)
17-Sep 08A 09F 10F 08A 09F 10F 08A 09F 10F
Consumer 9 23 12 19.2 15.6 13.9 0.8 1.5 1.7
Energy -19 16 26 20.6 17.7 14.0 1.8 2.0 2.6
Financials 17 19 31 18.4 15.5 11.8 1.7 1.7 2.2
Industrial Goods -22 -20 6 9.0 11.2 10.6 1.8 1.6 1.7
Information Technology -36 81 33 110.7 61.1 45.9 0.0 1.1 1.1
Materials -90 238 213 258.8 76.6 24.4 0.5 0.4 0.8
Utilities -130 nm 20 nm 17.9 15.0 2.3 3.0 3.6
Property & Construction -2 41 30 26.8 19.0 14.6 0.7 1.2 1.6
Services -61 0 0 18.4 -45.3 92.3 2.1 1.1 1.1
Telecom & Technology -87 430 39 92.0 17.4 12.5 1.8 1.4 2.1
HSCEI 12668 -12 20 36 21.6 18.1 13.3 1.6 1.6 2.1
Ex oil * -6.6 19.2 36.1 22.8 19.2 14.1 1.5 1.5 2.0
* Ex 386, 857
Source: DBS Vickers
Page 74

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stock picks for Hong Kong
SECTOR REMARKS STOCK SELECTION
Property
Neutral
Banking and Finance
Positive
Telecom
Neutral
Industrial
Neutral
Consumer
Neutral
Housing market further heated up in 3Q09, with luxury projects in the spotlight. The
release of The HarbourSide, The Cullinan and The Masterpiece drew significant buying
interest. Local investors and speculators have been returning to the market, boosting
the prices and take-up rate. Residential price has risen 26.9% YTD, surpassing the levels
just before the collapse of Lehman Brothers. Following the strong rally, We expect the
housing market to be relatively stable in 4Q09. Having sold substantial number of
primary units, developers should return to expansion mode soon. Given the
government’s tight land supply policy, we favour MTRC which boasts a huge
development land bank in Hong Kong. Office rents remain on the downtrend given lack
of new demand but the decline has been moderating. On the other hand, capital values
rebounded on strong market liquidity. Valuation wise, property investors are largely
fairly priced.
Hong Kong banks are still on a secular uptrend despite the rallies YTD. Most Hong Kong
banks guided a more optimistic outlook for the 2H09 and 2010. They see strong loan
pipelines in 2H09, especially relating to their China operation. An expected slowdown in
loan growth among Chinese banks in 2H09 offers opportunities for Hong Kong and
foreign banks to re-gain their market shares in China. All of them also believe the worst
is over in terms of NPLs and provision charge, and they expect resilient asset quality
going forward, thanks to rising property price and stabilization in the global and China
economy. After some MTM write-backs, we expect more write-backs on securities in
2H09 on the back of continued improvement in capital market sentiment. Most banks
also believe NIM has bottomed and we believe some mild rate hikes in the US sometime
next year should help improve Hong Kong banks’ NIM going forward.
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 companies, Hutchtel
HK gained high-end market share helped by the iPhone. On the other hand, Smartone
suffered a big decline in earnings as its international roaming revenue was hit hard by
the economic recession. Looking ahead, we believe Hutchtel might continue to gain
high-end users market share, while earnings outlook for other telcos would continue to
be gloomy.
Bottomed in December 08 / January 09, US retail sales have shown a gradual uptrend.
The latest retail sales as at Aug showed as strong as 2.7% gain, above market
expectation. Stripping out autos, sales were up 1.1%, much stronger than market
estimate of 0.4%. We believe such retail sales trend is encouraging, though it is still far
from a V-shaped recovery. We, thus, suggest investors to cherry pick industry leaders
who should be the first to enjoy the rebound. We like Yue Yuen, which is the largest
OEM athletic shoes manufacturer. In addition, it has underperformed HSI by 14.5% in
the past 1 month.
Despite the improving export outlook, we believe those manufacturers that serve the
domestic market will remain strong on continual buoyant domestic demand for
transport equipments from the government. China South Locomotive & Rolling Stock
should benefit from the accelerated railway development program by the Ministry of
Railway and high demand for technically advanced train vehicles following the
construction of new high-speed train tracks. Listing of China Northern on the Shanghai
A-share market should be positive on the valuation of China South Locomotive.
The improvement seen in the local stock and property markets has obviously failed to
translate into real benefits for the economy as yet. For the year till July, HK retail sales
recorded 4.6% decline. Discretionary spending such as on apparels, motor vehicles and
electrical goods remained relatively sluggish. Discounting and promotions continued to
be the norm though the magnitude appeared to be less severe than that in early this
year. Retailers, however, are still far from being out of the doldrums and unless a
consistent recovery in sales can be noted, their performance should likely continue to
lag. Given lack of any clear catalyst, our preference remains on those with better
earnings visibilities such as Café de Coral.
MTRC (66)
BOC HK (2388)
Dah Sing Financial (440)
Hutchtel HK (215)
Yue Yuen (551)
China South Locomotive & Rolling
Stock (1766)
Café de Coral (341)
Page 75

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stock picks for China
SECTOR REMARKS STOCK SELECTION
Banking
Positive
Basic Materials –
Industrial Metals
and Mining
Positive
Cement
Neutral
Coal
Slightly
Cautious
Steel
We remain positive on Chinese banks. Government officials have clearly stated the
“moderately loose” monetary policy will remain, and only market tools (instead of
administrative measures) will be used when conducting “dynamic fine-tuning”. Such market
tools may include open market operations or even mild hikes of RRR and interest rates (we
expect 81bps of rate hikes in 2Q10). While guidelines to ensure loans are directed to the real
economy are possible, administrative controls such as loan quota policy is unlikely. Any loan
deceleration in 2H09 due to seasonality is well expected and should not be regarded as a
tightening policy. Recent proposal to exclude subordinated debt in CAR calculation is only in
line with global trend to raise tier I capital (or equity) amid the financial tsunami, rather than
a monetary tightening. Historical trend shows banks’ valuations will re-rate despite interest
rate hikes, as rate hikes usually go along with good economic outlook and improving NIM.
Chinese banks are still cheap at below mid-cycle valuations.
We are POSITIVE on the cement sector, which will benefit from acceleration of construction
activities along with seasonal factor in 4Q09. This will point to a pickup on cement prices –
serving a catalyst to cement stocks. By region, we prefer cement market in central / west
China, of which cement demand will benefit from the industrialization / urbanization move
in central and reconstruction activities in west, particularly Sichuan. Meanwhile, we are
NEUTRAL on coal sector, expecting coal prices will fall into a range-bound trading, against a
mixed picture of rising supply following the resumption of small coal mines in Shanxi and
traditionally peak season of coal demand in 4Q. We return SLIGHTLY CAUTIOUS on steel, to
reflect concerns of rising steel inventory amid strong pickup on China steel output which will
bring a downward pressure on steel prices in the near term. As for base metals, we become
NEUTRAL for 4Q09 on expectation of high metal prices largely spurred by market interest on
investing metals to hedge against inflation. This is in spite of unattractive metal equity
valuation which is in the proximity of historical peak-cycle trading range. Our top pick for
4Q09 is Asia Cement (China) Holdings. Target price is set at HK$7.56.
BOC (3988)
CCB (939)
Asia Cement (China)
Holdings (743)
Neutral
Base metals
Basic Materials –
Specialty Chemicals
Neutral
Construction &
Infrastructure
Positive
The overall fertilizer sector has reached the bottom in early 2009 and is showing signs of
stabilizing. The average selling price of certain fertilizers though still weak, has inched up
slightly in 1H09. We expect fertiliser prices of certain types might remain at current level or
decline slightly for the rest of the year, as stocking would have completed by 3Q. The weak
methanol prices in 1H are expected to gradually recover in 2H, because of rising demand
especially as an alternative energy application. Overall, the positive government policy to
further boost the agriculture sector and better development of the rural areas should provide
some support for fertilizer demand. The current oversupply across different fertilizer types is
unlikely to improve significantly in the near-term but condition is expected to gradually
improve.
Since the announcement of the stimulus package in 4Q08, new contracts momentum
continued to be strong in 2009. In 1H09, the major infrastructure construction companies
have secured close to RMB500bn worth of new construction projects. It was reported some
RMB600bn has been earmarked for railway infrastructure development alone this year. We
expect the infrastructure investment on construction phase to peak towards end 2010 or
early 2011, which should provide 3-4 years of earnings support to these companies. Judging
from the new project starts in 1H09 by the three major players, the momentum was rapid
and has resulted in some upfront costs expensed but these projects have not reached profit
recognition stage, hence a mismatch in profit and cost, dragging blended GP margins slightly
lower. We expect these projects to start generating profits in 2H and that should lift the
overall GP margin. We have switched our top pick to China Railway Group (390) as the
company is improving on its overseas operations with a potential US$7.4bn construction
project in Venezuela and a strong domestic orderbook.
China BlueChem (3983)
China Railway Group
(390)
Page 76

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stock picks for China (Cont’d)
SECTOR REMARKS STOCK SELECTION
Telecoms
Neutral – Telco
Services
Positive –
Hardware and
infrastructure
Property
Positive
2009 remains a tough year for China’s telcos, which have faced growing challenges from
rising competition (especially in the 3G market), heavy capex and growing opex, as well as
the unfavourable economic conditions. By companies, China Mobile (CM) is suffering from
slower growth, due to increasing penetration and growing threats from China Unicom (CU)
and China Telecom (CT). CT is facing threats from CU in its fixed-line and broadband
business in the southern areas, while it remains a big challenge for CT to fulfil its target of
30m new CDMA subscribers this year. For CU, its huge capex and growing opex would eat
into its earnings over the next couple of years. However, we remain positive on the sector’s
long-term outlook, which would be driven by the low penetration of mobile and broadband
users and potential ARPU expansion. Meanwhile, we see great re-rating potential, which is
partly due to its promising long-term growth outlook as well as industry deregulation. CM
remains our sector top pick this year, for its best earnings visibility and dominance in the 2G
market which would continue into the mainstream technology in China in the next two
years, in our view. However, we are not as positive on CT and CU, on concerns over low
near-term earnings visibility.
We remain positive on the telecom equipment sector. Due to the relatively smaller size
compared to overseas peers, the sector has been trading at some discount in valuation.
However, their promising growth potential underpinned by the hundreds of billions of RMB
in the telecom equipment market, we believe the sector deserves continuous re-rating going
forward. CCS is our sector top pick, for its attractive valuation and great long-term growth
potential from the tower sharing measure in China. We also like Citic 1616, for its steady
earnings growth and low risk exposure. Comba is our long-term sector pick, as we see
sustainable earnings growth for the next five years.
While policy remains a major overhang, we believe Chinese government’s real estate policy
will remain favourable as it aims to increase new supply to control the pace of property price
growth. In addition, our affordability analysis shows that there is no urgent need for a reply
of austerity measures. In our analysis, housing prices in majority of cities are still affordable
despite asset bubbles appearing in some cities, which often catch press attentions. We also
analyzed the impact of previous tightening measures on share prices of China property
stocks and concluded that the impact from austerity measures is somehow overstated. Our
analysis shows that property sales performance is more related to economic growth than
tightening policies. In our view, the recovery of domestic economy would support the
growth of the sector going forward. We foresee slight volume growth in 4Q due to lower
new supply and depletion of pent-up demand. Property prices will still be on uptrend yet at
moderate rate. Having said that, we believe sales volume will remain above the monthly
average of 2007 when the market was good. This shall pave way for decent 2010 earnings
growth for majority of developers. After recent earnings/NAV upgrades and share price
correction, the sector is now trading at 12XFY10 P/E and 16% discount to NAV. Valuations
remain attractive. We like CR Land and Shimao in anticipation of more positive news flow.
Their 2H sales are likely to remain decent, despite many of their peers facing potentially
slower sales in the period due to the lack of new launches. We also like Shui On Land as its
strategic shift to be volume focus and its prime location focus will ensure its growth potential
going forward.
China Mobile (941)
CCS (552)
CITIC 1616 (1883)
China Resources Land
(1109)
Shimao Property (813)
Shui On Land (272)
Page 77

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stock picks for China (Cont’d)
SECTOR REMARKS STOCK SELECTION
China Consumer -
Food & Beverages
Neutral
China Consumer -
Retail
Neutral
Industrial
Transportation -
Marine
Cautious
The 1H09 results reported by F&B players were in general in line or above expectations, especially
on the margin front where margin expansion was stronger than previously forecasted. Better
impact from lower material costs aside, this also indicated improvement on product mix, which
has been especially notable for market leaders. Despite some rebounds in raw material prices and
in fuel costs were noted in recent months, their levels are still lower than of last year and hence
positive margin impact should sustain in the 2H09. This, coupled with resilient demand for most
of the F&B products (hence better earnings visibilities), should likely support current valuation
premiums. We recommend investors to focus on those with lagging valuations such as China
Yurun and China Mengniu.
Retail sales growth in China stabilised at a mid-teens y-o-y rate and grew 15.4% for Aug09 and
15.1% for 8M09. For enterprises above designated size, retail sales expansion of most sectors
registered a supportive trend. They included a growth of 34.5% for automobile, 23.3% for
clothing, 12.7% for grain & oil, and 10.9% for household electric appliances. All these data firmly
indicate that the Chinese retail environment continues to recover. While fundamental
improvement kicks in, current valuations of selective retailers could potentially consolidate to reemerge
for better share price performance in the medium-term.
After the disappointing 2Q09 results and the pull back of Baltic Dry Index again, we expect the
sector rally upside should be capped at the mid-cycle valuation level. We are looking for the
possible second dips of the sector’s performance after the technical rebound in 2Q09. Looking
forward, the high level of iron ore inventory and the possible cut of domestic steel output will
probably give pressure to freight rates in 2H09. We recommend investors to Sell the overvalued
dry bulk shipping companies like China COSCO and China Shipping Development, but hold Pacific
Basin Shipping for pair-trade given its stronger internal management. For the container shipping
counters, a short-term rally may arise from the seasonal recovery of freight rates and higher
season demand in 3Q09. Nevertheless, as the recovery is unlikely to be sustainable due to the high
level of idle vessels. We maintain Sell on CSCL, but recommend investors to buy OOIL on
weakness, given its attractive hidden value from properties in China.
China Yurun (1068)
China Mengniu
(2319)
Gome (493)
OOIL (316)
Industrial
Transportation - Toll
Road
Positive
We have become more confident of the sector given its high correlation to the macro economy in
anticipation of a full-scale economic recovery from 4Q09 onward. Our top picks are Sichuan
Expressway (BUY, TP HK$4.26) and Jiangsu Expressway (BUY, TP HK$8.07). Sichuan Expressway
has good acquisition opportunities and at the same time enjoys higher traffic growth than its
peers. Jiangsu Expressway has quality road assets linking metropolises Nanjing and Shanghai,
which provides the Group with strong cash flow and resilient traffic growth. In addition, we
upgraded Shenzhen Expressway recently (BUY, TP HK$ 4.43), in anticipation of stronger recovery
of export in the Pearl River Delta.
Sichuan Expressway
(107)
Jiangsu Expressway
(177)
Page 78

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stock picks for China (Cont’d)
SECTOR REMARKS STOCK SELECTION
Oil & Gas
Positive
Pharmaceutical and
Healthcare
Positive
Technology
Power
Positive
Positive
We continue to recommend investors to switch their investment focus from the upstream plays,
Petrochina and CNOOC, to the downstream play, Sinopec in 4Q09. In view of the revival of
market concern over the US recovery, we believe the near-term crude price lacks fundamental
support to increase materially from current level in 4Q09, especially given the weak recovery from
world’s oil demand in market. Sinopec remains our top pick in the sector, in view of its attractive
mid-cycle valuation but at up-cycle earnings level in 2009-10. Given the recent positive
government’s decision to improve the domestic product oil price flexibility and the relatively stable
crude price level around US$70, we believe it is the most favourable condition for Sinopec to
maintain high refining margin in 2009.
As expected, the strong interim results and the possible IPO of Sinopharm at high PE are the key
catalysts for the market to re-rate the pharmaceutical counters. For those major counters under
our coverage, we identified several have already reached their share prices to historical highest
level, such as Sino Biopharmaceutical, China Shineway and China Pharmaceutical. However, given
their promising growth outlook, attractive value, strong balance sheet and favourable policy
support, we believe the re-rating of the sector has just begun and has a long road ahead.
Indeed, the pharmaceutical industry has shown that its growth is resilient to any unpredictable
economic risk ahead. In the sector, our top picks are Sino Biopharmaceutical, Guangzhou
Pharmaceutical and China Shineway.
1H 2009 results have generally revealed a more sustained recovery of demand, as it is clear that
the bounce back is more than mere restocking of inventories. As expected, we have seen marked
improvement in 2Q QoQ growth figures as well as improved optimism in 2H guidance. In terms of
earnings, we are starting to see the cost savings measure executed earlier in the year to have more
significant impact. The recovery of demand has also improved profitability of underutilized
capacities. The results and guidance from industry players have mostly pointed to a resilient
consumer market, whilst corporate customers are still mostly in defensive mode. We believe this is
likely to change, as the recent stability in the business environment will likely spur the relaxing of
some corporate spending. Stock valuations have continued to improve in general in 3Q, reflecting
the increased optimism in the sector.
For exposure in this sector, we continue to like AAC Acoustics (2018 HK), which should enjoy
market share gains in major customers such as Nokia as well as ASP and margin improvements
from volume shipments of new platforms. Despite recent pullbacks, we also like ASM Pacific (522
HK) for its strong market position, strong balance sheet and its ability to benefit from the
improved business environment.
A more volatile market should benefit Chinese IPPs because they offer resilient domestic earnings.
Improving earnings outlook for IPPs is evident in the stronger 1H09 results and we continue to
expect sustainable growth ahead with stronger demand and stable coal price. CR Power and
Huaneng remain our picks for their relatively higher leverage to a demand recovery and still
attractive valuations. We also upgraded Datang to Buy recently as the sell-down provides an
excellent opportunity to accumulate.
Sinopec (386)
Sino
Biopharmaceutical
(1177 )
Guangzhou
Pharmaceutical
(874 )
ASM Pacific (522)
AAC Acoustics
(2018)
CR Power (836)
Huaneng (902)
Page 79

Regional Equity Strategy 4Q 2009
Bank of China Hong Kong
Bloomberg: 2388 HK | Reuters: 2388.HK
BUY HK$18.56 HSI : 21,769
Price Target : 12-month HK$ 20.00
Potential Catalyst: Further improvement in bond market and economic
recovery in HK and China
Analyst
Jasmine Lai +852 2971 1926
jasmine_lai@hk.dbsvickers.com
Price Relative
HK$
25.70
20.70
15.70
10.70
5.70
Relative Index
2005 2006 2007 2008 2009
Bank of China Hong Kong (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (HK$ m)
2008A 2009F 2010F 2011F
Pre-prov. Profit 16,755 16,790 21,349 23,328
Pre-prov. Profit Gth (%) (14) 0 27 9
Pretax Profit 4,078 15,833 20,860 22,785
Net Profit 3,343 12,842 16,983 18,525
EPS (HK$) 0.32 1.21 1.61 1.75
EPS Gth Pre Ex (%) (78) 284 32 9
PE (X) 56.8 15.3 11.6 10.6
DPS (HK$) 0.44 0.79 1.04 1.14
Div Yield (%) 2.4 4.3 5.6 6.1
BV Per Share (HK$) 7.82 8.67 9.24 9.85
P/Book Value (x) 2.4 2.1 2.0 1.9
ROAE (%) 3.8 14.7 17.9 18.4
ROAE (ex-exceptional 3.9 14.1 17.9 18.4
ROA (%) 0.27 1.14 1.45 1.51
Earnings Rev (%): - - -
Consensus EPS (HK$): 1.10 1.41 1.65
ICB Industry: Financials
ICB Sector: Banks
Principal Business: Offers a range of financial products and
services to retail and corporate customers and is one of the three
banknote issuing banks in Hong Kong
Source of all data: Company, DBSV, Bloomberg, HKEX
208
188
168
148
128
108
88
68
48
Tighter cooperation with parent
• News about Vice Chairman selling c. 623K shares and
recent exclusion from FTSE red-chip index should only
have short-term negative impact on BOC HK’s share
price
• Closer co-operation with its parent brings in more
cross-border businesses
• More MTM loss write-backs possible and NIM should
gradually recover
• ROE will almost return to peak level by 2010,
justifying further re-rating
More cross-border business referrals. BOC HK will continue
to be a major beneficiary of rising economic integration
between HK and China. This should enable its stock-broking,
RMB businesses and other cross-border services to continue
outperforming bank peers. In 1H09, BOC HK’s stock-broking
fee was strong (+44% h-o-h vs industry’s +2%), thanks to
referrals of mainland retail and institutional investors from
parent, as well as, fund flows from China into HK. BOC HK also
has niches in RMB trade settlement, trade financing and
deposit-taking businesses, given it is the only designated
settlement bank in HK and Macau. Besides, BOC HK can also
provide cash management, custody and other cross-border
services to corporate customers referred by its parent.
Growing beyond HK in loan syndication. In early 2008,
BOC HK was appointed by its parent as a Syndicated Loan
Centre in the Asia Pacific. This paved way for BOC HK to
expand its strength in loan syndication beyond HK, which saw
the bank outdo bank peers in terms of growth in loan (+3% h-
o-h) and loan fee (+59% h-o-h) during 1H09.
Still cheap. We peg its target P/B at 2.2x Sep-10 book (vs 0.8-2.7x
historically). BOC HK should trade well above mid-cycle P/B, given
its ROE will be almost back to peak level by 2010. This will be
driven by: 1) gradual NIM recovery as Hibor should normalize over
time (we forecast 50bps US rate hike starting 2Q10) and 2) abovepeers
growth in loan and fee in light of closer collaboration with
parent. Trading at 11.6x 2010 P/E and 2.0x 2010 P/B, the counter
is still cheap.
At A Glance
Issued Capital (m shrs) 10,573
Mkt Cap (HK$m/US$m) 196,231 / 25,319
Major Shareholders (%)
Bank of China 66.06
Free Float (%) 33.94
Avg Daily Volume (m shrs) 20.9
Page 80
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed- LM / sa- RM

Regional Equity Strategy 4Q 2009
Bank of China Hong Kong
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 20,157 18,280 19,700 21,456 Cash/Bank Balance 153,269 114,952 120,699 127,338
Non-Interest Income 5,369 9,674 11,377 12,426 Government Securities 0 0 0 0
Operating Income 25,526 27,954 31,076 33,882 Inter Bank Assets 89,718 116,633 123,048 129,816
Operating Expenses (8,771) (11,164) (9,728) (10,554) Total Net Loans & Advs. 469,493 492,073 515,648 543,007
Pre-provision Profit 16,755 16,790 21,349 23,328 Investment 389,321 389,583 409,062 429,515
Provisions (12,573) (1,485) (493) (550) Associates 88 61 64 67
Associates 7 4 5 6 Fixed Assets 30,522 38,882 40,991 44,633
Exceptionals (111) 524 0 0 Goodwill 0 0 0 0
Pre-tax Profit 4,078 15,833 20,860 22,785 Other Assets 14,833 16,316 16,969 17,648
Taxation (1,071) (2,612) (3,442) (3,759) Total Assets 1,147,244 1,168,500 1,226,482 1,292,024
Minority Interests 336 (378) (435) (500) Customer Deposits 802,577 838,693 880,628 929,062
Preference Dividend 0 0 0 0 Inter Bank Deposits 88,779 79,901 83,896 88,091
Net Profit 3,343 12,842 16,983 18,525 Debts/Borrowings 27,339 28,706 30,141 31,648
Net Profit bef Except 3,454 12,318 16,983 18,525 Others 144,017 127,583 132,160 136,982
Minorities 1,813 1,904 1,999 2,099
Shareholders' Funds 82,719 91,714 97,658 104,142
Total Liab& S/H’s Funds 1,147,244 1,168,500 1,226,482 1,292,024
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Margins, Costs & Efficiency
Balance Sheet Structure
Yld. On Earnings Assets 3.33 2.22 2.30 2.36 Loan-to-Deposit Ratio 58.8 59.1 59.1 59.1
Avg Cost Of Funds 1.64 0.65 0.65 0.65 Net Loans / Total Assets 40.9 42.1 42.0 42.0
Spread 1.68 1.56 1.64 1.70 Investment / Total Assets 33.9 33.3 33.4 33.2
Net Interest Margin 1.90 1.65 1.72 1.78 Cust . Dep./Int. Bear. Liab. 84.2 85.2 85.3 85.5
Cost-to-Income Ratio 34.4 39.9 31.3 31.1 Interbank Dep / Int. Bear. 9.3 8.1 8.1 8.1
Employees ( Year End) 13,463 13,194 12,930 12,671 Asset Quality
Effective Tax Rate 26.3 16.5 16.5 16.5 NPL / Total Gross Loans (%) 0.5 0.4 0.4 0.4
Business Mix Specific provision/NPL (%) 37.4 96.8 144.5 183.6
Net Int. Inc / Opg Inc. 79.0 65.4 63.4 63.3 General provision ratio (%) 0.3 0.3 0.3 0.3
Non-Int. Inc / Opg inc. 21.0 34.6 36.6 36.7 Total provision/NPL (%) 107.6 180.1 221.0 257.1
Fee Inc / Opg Income 20.3 21.0 21.5 22.1 Capital Strength
Oth Non-Int Inc/Opg Inc 0.7 13.6 15.1 14.6 Total CAR 16.2 17.4 17.7 18.1
Profitability Tier-1 CAR 10.9 11.5 11.9 12.3
ROAE Pre Ex. 3.9 14.1 17.9 18.4
ROAE 3.8 14.7 17.9 18.4 Growth
ROA Pre Ex. 0.28 1.10 1.45 1.51 Gross Loans 12 5 5 5
ROA 0.27 1.14 1.45 1.51 Customer Deposits 1 5 5 6
Z-Score (X) CASH CASH CASH CASH
Interim Income Statement (HK$m)
Key Assumptions
FY Dec 1H2007 2H2007 1H2008 2H2008 FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 8,903 10,492 10,029 10,128 NIM 2.0% 1.7% 1.8% 1.9%
Non-Interest Income 3,157 4,702 4,010 1,359 Loan growth 11.9% 5.0% 5.0% 5.5%
Operating Income 12,060 15,194 14,039 11,487 Fee growth -17.5% 13.1% 13.9% 12.0%
Operating Expenses (3,418) (4,355) (4,088) (4,683) Cost-to-income 34.4% 39.9% 31.3% 31.1%
Pre-Provision Profit 8,642 10,839 9,951 6,804 Credit cost 2.8% 0.3% 0.1% 0.1%
Provisions 166 (1,614) (2,227) (10,346)
Associates (2) 5 8 (1)
Exceptionals 421 669 702 (813)
Pretax Profit 9,227 9,899 8,434 (4,356)
Taxation (1,599) (1,710) (1,253) 182
Minority Interests (162) (209) (93) 429
Net Profit 7,466 7,980 7,088 (3,745)
Source: Company, DBS Vickers
Page 81

Regional Equity Strategy 4Q 2009
Bank of China
Bloomberg: 3988 HK | Reuters: 3988.HK
BUY HK$4.38 HSI : 21,769
Price Target : 12-Month HK$ 5.30
Potential Catalyst: Any rate hike potential and further improvement of
bond market
Analyst
Jasmine Lai +852 2971 1926
jasmine_lai@hk.dbsvickers.com
Price Relative
5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
HK$
2006 2007 2008 2009
Relative Index
Bank of China (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (HK$ m)
2008A 2009F 2010F 2011F
Pre-prov. Profit 131,484 128,242 155,759 188,138
Pre-prov. Profit Gth (%) 20 (2) 21 21
Pretax Profit 87,179 105,779 142,522 165,378
Net Profit 64,360 77,946 105,207 121,864
EPS (HK$) 0.28 0.34 0.46 0.53
EPS Gth Pre Ex (%) 14 21 35 16
PE (X) 15.5 12.8 9.5 8.2
DPS (HK$) 0.14 0.18 0.24 0.27
Div Yield (%) 3.3 4.0 5.4 6.3
BV Per Share (HK$) 2.04 2.20 2.42 2.68
P/Book Value (x) 2.1 2.0 1.8 1.6
ROAE (%) 14.5 16.2 20.0 21.0
ROAE (ex-exceptional 14.5 16.2 20.0 21.0
ROA (%) 0.99 1.02 1.17 1.18
Earnings Rev (%): - - -
Consensus EPS (HK$): 0.33 0.40 0.49
ICB Industry: Financials
ICB Sector: Banks
Principal Business: One of the big four state-owned
commercial banks in China; offers a range of financial
products and services to retail and corporate customers
Source of all data: Company, DBSV, Bloomberg, HKEX
219
169
119
69
19
An undervalued big three bank
• BOC’s steep discount to ICBC and CCB unjustified
given similar franchise
• Its earnings growth can beat peers due to: 1) more
MTM write-backs 2) niche in investment banking and
3) benign asset quality resulting from significant
improvement from BOC HK
Steep discount unjustified. Its HK-listed subsidiary, BOC
(HK), is already trading at 2.0x 2009 P/B. Stripping out BOC
(HK)’s valuation, investors would be paying only 1.76x P/B for
BOC’s domestic China operation. Given that BOC’s banking
franchise is similar to ICBC’s and CCB’s, we believe its steep
P/B discount to these two big banks and the sector are
unjustified (ICBC: 2.77x; CCB: 2.52x; Sector: 2.46x).
Further MTM write-backs & sharper decline in loan
provision. BOC’s steep valuation discount in the past was
mainly due to its relatively high exposure to overseas debt
securities and hence uncertainties over further MTM losses.
However, BOC should now be a prime beneficiary of a
significant improvement in global bond market since Mar-09,
where bond prices have continued to rise in recent months.
Some MTM write-backs were booked under “other
impairment charge” and “trading gains” in 2Q09.
Management does not rule out further MTM write-backs.
Besides, its asset quality and loan provision should be more
resilient than peers, thanks to significant improvement from
BOC (HK).
Niche in investment banking. Similar to ICBC and CCB,
exceptional strength was seen in investment banking
businesses including underwriting for government & corporate
bonds, investment consulting and financial advisory. In
addition, its investment banking arm in HK, BOCI, has also
been one of the most active equity underwriters in HK with
long-established track-records.
At A Glance
Issued Capital - H shares (m shs) 76,020
- Non H shrs (m shs) 177,819
H shs as a % of Total 30
H Mkt Cap (HK$m/US$m) 332,969 / 42,963
Major Shareholders (%)
Central SAFE Inv 67.5
Major H Shareholders (As % of H shares)
Temasek 13.7
Social Security Fund 11.0
RBS China 10.7
Asian Development Bank 0.7
H Shares-Free Float (%) 64.0
Avg Daily Volume (m shrs) 370.7
Page 82
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-LM / sa-RM

Regional Equity Strategy 4Q 2009
Bank of China
Income Statement (HK$ m) Balance Sheet (HK$ m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 162,936 158,839 193,469 228,983 Cash/Bank Balance 72,533 134,186 154,314 172,832
Non-Interest Income 65,960 68,085 79,865 96,781 Government Securities 74,518 85,696 90,837 96,288
Operating Income 228,896 226,924 273,334 325,764 Inter Bank Assets 1,696,078 1,734,884 2,006,914 2,323,884
Operating Expenses (97,412) (98,682) (117,575) (137,625) Total Net Loans & Advs. 3,189,652 4,232,124 4,895,628 5,659,992
Pre-provision Profit 131,484 128,242 155,759 188,138 Investment 1,282,378 1,607,622 1,822,369 2,052,766
Provisions (45,031) (23,043) (13,876) (23,463) Associates 7,376 8,482 9,331 11,197
Associates 726 581 639 703 Fixed Assets 101,873 116,672 128,339 151,674
Exceptionals 0 0 0 0 Goodwill 0 0 0 0
Pre-tax Profit 87,179 105,779 142,522 165,378 Other Assets 527,272 478,743 526,617 558,711
Taxation (21,285) (25,916) (34,918) (40,518) Total Assets 6,951,680 8,398,409 9,634,349 11,027,342
Minority Interests (1,534) (1,918) (2,397) (2,996) Customer Deposits 5,102,111 6,428,660 7,457,245 8,613,118
Preference Dividend 0 0 0 0 Inter Bank Deposits 658,989 724,888 833,621 958,664
Net Profit 64,360 77,946 105,207 121,864 Debts/Borrowings 140,295 141,898 143,582 145,349
Net Profit bef Except 64,360 77,946 105,207 121,864 Others 560,398 573,328 617,531 666,922
Minorities 25,629 29,473 30,947 32,494
Shareholders' Funds 464,258 500,161 551,423 610,794
Total Liab& S/H’s Funds 6,951,680 8,398,409 9,634,349 11,027,342
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 4.63 3.65 3.69 3.72 Loan-to-Deposit Ratio 64.6 67.7 67.4 67.4
Avg Cost Of Funds 2.18 1.61 1.56 1.51 Net Loans / Total Assets 45.9 50.4 50.8 51.3
Spread 2.45 2.04 2.13 2.22 Investment / Total Assets 18.4 19.1 18.9 18.6
Net Interest Margin 2.63 2.16 2.24 2.31 Cust . Dep./Int. Bear. Liab. 80.2 82.7 83.3 83.8
Cost-to-Income Ratio 42.6 43.5 43.0 42.2 Interbank Dep / Int. Bear. 10.4 9.3 9.3 9.3
Employees ( Year End) N/A N/A N/A N/A Asset Quality
Effective Tax Rate 24.4 24.5 24.5 24.5 NPL / Total Gross Loans (%) 2.7 1.8 1.7 1.6
Business Mix Specific provision/NPL (%) 58.5 59.0 57.6 56.8
Net Int. Inc / Opg Inc. 71.2 70.0 70.8 70.3 General provision ratio (%) 1.7 1.6 1.6 1.6
Non-Int. Inc / Opg inc. 28.8 30.0 29.2 29.7 Total provision/NPL (%) 121.7 147.6 151.7 159.4
Fee Inc / Opg Income 17.5 21.6 22.7 23.7 Capital Strength
Oth Non-Int Inc/Opg Inc 11.4 8.4 6.6 6.0 Total CAR 13.4 12.6 12.1 11.8
Profitability Tier-1 CAR 10.8 10.1 9.8 9.5
ROAE Pre Ex. 14.5 16.2 20.0 21.0
ROAE 14.5 16.2 20.0 21.0 Growth
ROA Pre Ex. 0.99 1.02 1.17 1.18 Gross Loans 16 32 16 16
ROA 0.99 1.02 1.17 1.18 Customer Deposits 16 26 16 16
Z-Score (X) CASH CASH CASH CASH
Interim Income Statement (HK$m)
Key Assumptions
FY Dec 1H2007 2H2007 1H2008 2H2008 FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 71,027 81,718 81,523 81,413 NIM 2.6% 2.2% 2.2% 2.3%
Non-Interest Income 18,759 23,471 37,341 28,619 Loan growth 15.6% 32.0% 15.5% 15.5%
Operating Income 89,786 105,189 118,864 110,032 Fee growth 12.4% 23.0% 26.1% 24.7%
Operating Expenses (33,062) (52,216) (44,875) (52,537) Cost-to-income 42.6% 43.5% 43.0% 42.2%
Pre-Provision Profit 56,724 52,973 73,989 57,495 Credit cost 1.5% 0.6% 0.3% 0.4%
Provisions (6,409) (13,854) (17,144) (27,887)
Associates 605 658 516 210
Exceptionals 0 0 0 0
Pretax Profit 50,920 39,777 57,361 29,818
Taxation (18,538) (10,123) (12,716) (8,569)
Minority Interests (2,839) (2,949) (2,464) 930
Net Profit 29,543 26,705 42,181 22,179
Source: Company, DBS Vickers
Page 83

Regional Equity Strategy 4Q 2009
China Petroleum & Chem
Bloomberg: 386 HK | Reuters: 0386.HK
BUY HK$6.92 HSI : 21,769
Price Target : 12 months HK$ 7.98
Potential Catalyst: New high earnings, M&A, attractive value
Analyst
Gideon Lo CFA +852 2863 8880
gideon_lo@hk.dbsvickers.com
Price Relative
HK$
12.80
10.80
8.80
6.80
4.80
2.80
Relative Index
2005 2006 2007 2008 2009
China Petroleum & Chem (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (RMB bn) 2008A 2009F 2010F 2011F
Turnover 1,452 1,265 1,734 1,954
EBITDA 81 135 163 187
Pre-tax Profit 24 79 100 118
Net Profit 30 58 73 86
Net Pft (Pre Ex.) 30 58 73 86
EPS (RMB) 0.34 0.67 0.84 0.99
EPS (HK$) 0.39 0.76 0.96 1.13
EPS Gth (%) (47.3) 93.8 26.8 17.8
Diluted EPS (HK$) 0.39 0.76 0.96 1.13
DPS (HK$) 0.14 0.23 0.29 0.34
BV Per Share (HK$) 4.30 4.83 5.50 6.29
PE (X) 17.8 9.2 7.2 6.1
PE Pre Ex. (X) 17.8 9.2 7.2 6.1
P/Cash Flow (X) 7.0 5.0 4.2 3.7
EV/EBITDA (X) 8.3 5.5 4.6 3.9
Net Div Yield (%) 2.0 3.3 4.2 4.9
P/Book Value (X) 1.6 1.4 1.3 1.1
Net Debt/Equity (X) 0.4 0.5 0.5 0.3
ROAE (%) 9.4 16.5 18.5 19.1
Earnings Rev (%): - -
Consensus EPS (HK$): 0.75 0.83 0.89
ICB Industry: Oil & Gas
ICB Sector: Oil & Gas Producers
Principal Business: The second largest vertically integrated oil
company in China
Source of all data: Company, DBSV, Bloomberg, HKEX
207
187
167
147
127
107
87
Up-cycle profit, mid-cycle value
• While crude price remains below US$80,
Sinopec remains our top pick in the sector
• The robust recovery in refining margin is set to
push up profit to record high in 2009
• Potential injection of parent’s overseas assets
will be the future earnings driver
• Its mid-cycle valuation is attractive, while the
profit has already recovered to up-cycle level
Profit will see record high in 2009. After the strongerthan-expected
earnings recovery in 1H09, we expect
Sinopec to see its profit reaching new record high of
Rmb57.7bn, up 94% y-o-y, in 2009. Though the
abnormally high 2Q profitability may not be sustainable
in 2H, Sinopec should be the first oil company in China
to revive to up-cycle earnings, riding on the
normalization of refining and chemical profitability.
Top pick at current crude price level. With the startup
contribution from its new refining and chemical
facilities in Fujian and Tianjin, as well as the Puguang Gas
projects, Sinopec will see healthy pick-up in volume
growth in 2H09 along with the sustainable growth of
economy in China. Longer term, we expect the potential
injection of parent’s overseas E&P assets will be a driver
for future earnings growth and valuation.
Mid-cycle value, up-cycle profit. Sinopec is trading at
mid-cycle PE of 9x and P/BV of 1.4x, which is not only at
a 20-30% discount to sector peers in China but also
lower than its historical average. After the recent profittaking
activities, it should be an attractive entry level
again for investors, given its promising earnings outlook.
Indeed, Sinopec’s profit visibility is the best among the
three major oil companies if the crude price maintains at
level at or below US$80 a barrel Maintain BUY.
At A Glance
Issued Capital - H shares (m shs) 16,780
- Non H shrs (m shs) 69,922
H shs as a % of Total 19
H Mkt Cap (HK$m/US$m) 116,121 / 14,983
Major Shareholders (%)
Sinopec Group 75.84
Major H Shareholders (%)
J.P. Morgan Chase 8.84
Barclays Global Investors UK Holdings 5.98
H Shares-Free Float (%) 85.18
Avg Daily Volume (m shrs) 187.4
Page 84
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed- LM / sa- SL

Regional Equity Strategy 4Q 2009
China Petroleum & Chem
Income Statement (RMB bn)
Balance Sheet (RMB bn)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 1,452 1,265 1,734 1,954 Net Fixed Assets 525 587 641 700
Cost of Goods Sold (1,428) (1,144) (1,579) (1,779) Invts in Assocs & JVs 0 0 0 0
Gross Profit 24 121 155 175 Other LT Assets 78 79 80 82
Other Opng (Exp)/Inc 11 (38) (48) (50) Cash & ST Invts 8 19 53 83
Operating Profit 35 83 106 125 Inventory 95 76 100 107
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 17 14 19 21
Associates & JV Inc 1 2 2 3 Other Current Assets 45 45 45 45
Net Interest (Exp)/Inc (11) (6) (9) (9) Total Assets 768 821 938 1,038
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 24 79 100 118 ST Debt 40 32 39 40
Tax 2 (20) (25) (29) Other Current Liab 234 161 187 221
Minority Interest 4 (1) (2) (2) LT Debt 90 184 214 217
Preference Dividend 0 0 0 0 Other LT Liabilities 54 54 54 54
Net Profit 30 58 73 86 Shareholder’s Equity 329 369 420 481
Net Profit before Except. 30 58 73 86 Minority Interests 21 22 24 26
EBITDA 81 135 163 187 Total Cap. & Liab. 768 821 938 1,038
Sales Gth (%) 20.5 (12.9) 37.0 12.7 Non-Cash Wkg. Cap (78) (26) (23) (48)
EBITDA Gth (%) (39.4) 66.7 21.1 14.7 Net Cash/(Debt) (123) (196) (200) (173)
Opg Profit Gth (%) (59.9) 141.0 27.5 17.1
Net Profit Gth (%) (47.3) 93.8 26.8 17.8
Effective Tax Rate (%) N/A 25.0 25.0 25.0
Cash Flow Statement (RMB bn)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 24 79 100 118 Gross Margins (%) 1.6 9.6 8.9 9.0
Dep. & Amort. 46 50 55 60 Opg Profit Margin (%) 2.4 6.6 6.1 6.4
Tax Paid (21) (9) (22) (27) Net Profit Margin (%) 2.1 4.6 4.2 4.4
(Pft)/ Loss on disposal of FAs 6 6 6 6 ROAE (%) 9.4 16.5 18.5 19.1
Assoc. & JV Inc/(loss) (1) (2) (2) (3) ROA (%) 4.0 7.3 8.3 8.7
Chg in Wkg.Cap. 9 7 (6) 1 ROCE (%) 6.7 10.5 11.3 11.9
Other Operating CF 11 6 9 9 Div Payout Ratio (%) 34.9 30.0 30.0 30.0
Net Operating CF 75 137 139 165 Net Interest Cover (x) 3.2 12.8 12.2 13.2
Capital Exp.(net) (108) (112) (108) (119) Asset Turnover (x) 1.9 1.6 2.0 2.0
Other Invts.(net) (5) 0 0 0 Debtors Turn (avg days) 6.6 4.5 3.5 3.8
Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 23.7 22.3 16.9 18.5
Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) 27.9 28.6 21.1 22.0
Other Investing CF 16 (40) (10) (9) Current Ratio (x) 0.6 0.8 1.0 1.0
Net Investing CF (97) (152) (118) (128) Quick Ratio (x) 0.1 0.2 0.3 0.4
Div Paid (13) (14) (20) (24) Net Debt/Equity (X) 0.4 0.5 0.5 0.3
Chg in Gross Debt 45 47 41 27 Capex to Debt (%) 82.7 51.9 42.8 46.5
Capital Issues 0 0 0 0 Z-Score (X) 3.1 3.1 3.5 3.1
Other Financing CF (11) (7) (9) (10) N.Cash/(Debt)PS (RMB) (1.6) (2.6) (2.6) (2.3)
Net Financing CF 21 26 13 (7) Opg CFPS (RMB) 0.86 1.71 1.90 2.15
Net Cashflow (1) 12 34 30 Free CFPS (RMB) (0.44) 0.33 0.40 0.60
Interim Income Statement (RMB bn)
Segmental Breakdown (RMB bn) / Key Assumptions
FY Dec 1H2007 2H2007 1H2008 2H2008 FY Dec 2008A 2009F 2010F 2011F
Turnover 551 653 722 730 Revenues (RMB)
Cost of Goods Sold (490) (596) (743) (686) Exploration & Production 197 151 208 247
Gross Profit 61 58 (20) 44 Refining 819 623 874 986
Other Oper. (Exp)/Inc (7) (26) 30 35 Chemicals 241 206 278 310
Operating Profit 54 32 10 79 Marketing & distribution 807 760 1,042 1,178
Other Non Opg (Exp)/Inc N/A 0 N/A 0 Others (611) (475) (668) (767)
Associates & JV Inc 2 2 3 (3) Total 1,452 1,265 1,734 1,954
Net Interest (Exp)/Inc (4) (3) (5) (6) Operating income (RMB)
Exceptional Gain/(Loss) 0 0 0 0 Exploration & Production 67 16 37 45
Pre-tax Profit 53 31 8 71 Refining (62) 31 36 40
Tax (15) (10) 0 2 Chemicals (13) 16 11 12
Minority Interest (1) (1) 0 4 Marketing & distribution 38 23 27 31
Net Profit 36 20 8 76 Others (2) (2) (3) (3)
Net profit bef Except. 36 20 8 76 Total 28 83 106 125
EBITDA 76 58 36 100 Operating income Margins
Exploration & Production 33.9 10.4 17.6 18.4
Sales Gth (%) N/A N/A 31.0 11.7 Refining (7.5) 5.0 4.1 4.0
EBITDA Gth (%) N/A N/A (52.5) 72.0 Chemicals (5.4) 7.9 3.9 3.8
Opg Profit Gth N/A N/A (81.2) 145.2 Marketing & distribution 4.7 3.0 2.6 2.6
Net Profit Gth (%) N/A N/A (77.3) 277.1 Others 0.3 0.5 0.5 0.5
Gross Margins (%) 11.1 8.9 (2.8) 6.0 Total 1.9 6.6 6.1 6.4
Opg Profit Margins (%) 9.8 4.9 1.4 10.8 Key Assumptions
Net Profit Margins (%) 6.6 3.1 1.1 10.4 Realized crude price 73.8 47.0 65.0 70.0
Crude output (m bbls) 296.8 301.0 305.6 308.6
Gas output (bcfs) 293.1 323.4 395.3 503.1
Refining EBIT margin (7.5) 5.0 4.1 4.0
Chemical EBIT margin (5.4) 7.9 3.9 3.8
Source: Company, DBS Vickers
Page 85

Regional Equity Strategy 4Q 2009
China Railway Group
Bloomberg: 390 HK | Reuters: 0390.HK
BUY HK$7.04 HSI: 21,769
Heading high growth phase
Price Target : 12-Month HK$8.40
Potential Catalyst: New contracts from the stimulus package
Analyst
Rachel Miu +852 2863 8843
rachel_miu@hk.dbsvickers.com
• Orders on hand surging to record high
• Gross margin improvement ahead
• Maintain BUY, TP HK$8.4
Price Relative
HK$
12.90
10.90
8.90
6.90
4.90
Relative Index
219
169
119
69
New contracts to be boosted by overseas projects.
A potential overseas project worth US$7.5bn from
parent should boost China Railway Group (CRG)
orderbook value. Coupled with a rapidly growing
domestic infrastructure market, we estimate backlog to
hit RMB531bn by end of the year, rising to RMB634bn
next year, which is a strong indicator to its future
earnings outlook. By 1H09, the group has secured
RMB257bn worth of new contracts.
2.90
Dec-07 May-08 Oct-08 Mar-09 Aug-09
China Railway Group (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (RMB m) 2008A 2009F 2010F 2011F
Turnover 225,029 300,639 359,062 423,598
EBITDA 6,052 13,595 16,148 17,791
Pre-tax Profit 2,300 9,000 11,534 13,395
Net Profit 1,350 6,306 7,907 9,162
Net Pft (Pre Ex.) 1,350 6,306 7,907 9,162
EPS (HK$) 0.07 0.34 0.42 0.49
EPS Gth (%) (65.9) 367.1 25.4 15.9
DPS (HK$) 0.02 0.08 0.11 0.12
BV Per Share (HK$) 2.98 3.32 3.74 4.23
PE (X) 97.9 20.9 16.7 14.4
P/Cash Flow (X) 169.4 8.5 13.2 3.8
EV/EBITDA (X) 23.3 10.1 8.6 6.3
Net Div Yield (%) 0.3 1.2 1.5 1.7
P/Book Value (X) 2.4 2.1 1.9 1.7
Net Debt/Equity (X) 0.1 0.0 Cash Cash
ROAE (%) 2.4 10.7 11.9 12.3
19
Margins expansion further enhances earnings
prospects. New projects which commenced in 1H09
should start contributing to profits from 2H, thus a
positive driver to gross margins. Expansion in gross
margins to 7.1% this year and the strong orders on hand
are positive contributors to its earnings outlook. Besides,
raw material prices are still at low levels although the
RMB4tr stimulus package might result in some increase
in raw material costs. However, we believe the
magnitude of any increase should be manageable.
Reiterate BUY. We estimate net earnings CAGR at 21%
(FY09-11) based on the fast expanding infrastructure
sector in China. The growth outlook is impressive for
CRG. We maintain BUY and CRG is our top pick in the
infrastructure construction sector. The company is
diversifying its business base ahead of the possible
normalization of the infrastructure spending after the
RMB4tr budget is completed.
Earnings Rev (%) Nil Nil Nil
Consensus EPS (HK$) 0.30 0.40 0.53
ICB Industry: Industrials
ICB Sector: Construction & Materials
Principal Business: The company engages in infrastructure
construction such as railways, roads, bridges and others in China
At A Glance
Issued Capital - H shares (m shs) 4,207
- Non H shrs (m shs) 17,093
H shs as a % of total 20
H Mkt Cap (HK$m/US$m) 29,620 / 3,822
Major Shareholders (%)
CRECG 58.30
Major H Shareholders (%)
Social Security Fund 9.09
Barclays Global Investors 6.96
H Shares-Free Float (%) 83.95
Avg Daily Volume (m shrs) 30.0
Page 86
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-SGC / sa-AH

Regional Equity Strategy 4Q 2009
China Railway Group
Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2008A 2009F 2010F 2011F
FY Dec 2008A 2009F 2010F 2011F
Turnover 225,029 300,639 359,062 423,598
Cost of Goods Sold (208,534) (279,223) (333,081) (393,060)
Gross Profit 16,495 21,416 25,982 30,538
Other Opg (Exp)/Inc (13,496) (10,885) (12,940) (15,828)
Operating Profit 2,999 10,531 13,041 14,710
Other Non Opg (Exp)/Inc - - - -
Associates & JV Inc 92 98 104 111
Net Interest (Exp)/Inc (791) (1,630) (1,612) (1,426)
Pre-tax Profit 2,300 9,000 11,534 13,395
Tax (631) (2,070) (2,768) (3,215)
Minority Interest (319) (624) (859) (1,018)
Net Profit 1,350 6,306 7,907 9,162
Net Profit before Except. 1,350 6,306 7,907 9,162
EBITDA 6,052 13,595 16,148 17,791
Sales Gth (%) 26.9 33.6 19.4 18.0
EBITDA Gth (%) (16.0) 124.6 18.8 10.2
Opg Profit Gth (%) (29.3) 251.2 23.8 12.8
Effective Tax Rate (%) 27.4 23.0 24.0 24.0
Cash Flow Statement (RMB m)
Net Fixed Assets 22,685 27,847 30,980 32,149
Invts in Assocs & JVs 4,280 4,378 4,483 4,594
Other LT Assets 32,550 34,431 36,192 37,943
Cash & ST Invts 49,376 48,269 43,700 66,147
Other Current Assets 143,028 159,987 175,498 198,089
Total Assets 251,919 274,912 290,852 338,922
ST Debt 36,594 19,148 20,003 19,687
Other Current Liab 128,954 150,017 162,192 205,081
LT Debt 16,829 29,275 23,420 18,736
Other LT Liabilities 8,618 8,618 8,618 8,618
Shareholder's Equity 55,995 62,301 70,208 79,370
Minority Interests 4,929 5,553 6,412 7,430
Total Cap. & Liab. 251,919 274,912 290,852 338,922
Non-Cash Wkg. Cap 14,074 9,969 13,306 (6,992)
Net Cash/(Debt) (4,047) (154) 277 27,724
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F
FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 2,300 9,000 11,534 13,395
Dep. & Amort. 3,196 3,064 3,107 3,081
Tax Paid (886) (631) (2,070) (2,768)
Assoc. & JV Inc/(loss) (92) (98) (104) (111)
Non-Cash Wkg. Cap. (9,066) 2,666 (4,035) 19,850
Other Operating CF 5,328 1,630 1,612 1,426
Net Operating CF 780 15,630 10,043 34,873
Capital Exp. (net) (6,511) (8,000) (6,000) (4,000)
Other Invts. (net) (6,685) (2,000) (2,000) (2,000)
Invts. in Assoc. & JV (2,048) - - -
Div from Assoc. & JV - - - -
Other Investing CF (4,939) 1,171 1,143 1,029
Net Investing CF (20,183) (8,829) (6,857) (4,971)
Div Paid (32) - - -
Chg in Gross Debt 10,648 (7,801) (7,755) (7,455)
Capital Issues 1,119 - - -
Other Financing CF (121) (108) - -
Net Financing CF 11,614 (7,909) (7,755) (7,455)
Net Cashflow (7,789) (1,107) (4,568) 22,447
Gross Margin (%) 7.3 7.1 7.2 7.2
Opg Profit Margin (%) 1.3 3.5 3.6 3.5
Net Profit Margin (%) 0.6 2.1 2.2 2.2
ROAE (%) 2.4 10.7 11.9 12.3
ROA (%) 0.6 2.4 2.8 2.9
ROCE (%) 2.0 6.8 8.2 9.0
Div Payout Ratio (%) 0.3 0.2 0.3 0.3
Interest Cover (x) 3.8 6.5 8.1 10.3
Asset Turnover (x) 1.0 1.1 1.3 1.3
Debtors Turn (days) 73.9 74.0 74.0 75.0
Creditors Turn (days) 106.1 100.0 100.0 109.0
Inventory Turn (days) 25.3 21.0 21.0 21.0
Current Ratio (x) 1.2 1.2 1.2 1.2
Quick Ratio (x) 1.1 1.2 1.1 1.1
Net Debt/Equity (X) 0.1 0.0 Cash Cash
Capex to Debt (%) (0.1) (0.2) (0.1) (0.1)
N. Cash/(Debt)PS (HK$) (0.2) (0.0) 0.0 1.5
Opg CFPS (HK$) 0.0 0.8 0.5 1.9
Free CFPS (HK$) 0.4 1.3 0.9 2.1
Interim Income Statement (RMB m) Segmental Breakdown (RMB m)
FY Dec 1H07 2H07 1H08 1H08
Turnover 73,450 103,941 93,088 131,941
Cost of Goods Sold (67,894) (96,765) (85,646) (122,888)
Gross Profit 5,556 7,176 7,442 9,053
Other Oper. (Exp)/Inc (4,008) (4,480) (4,358) (9,138)
Operating Profit 1,548 2,696 3,084 (85)
Other Non Opg (Exp)/Inc - - - -
Associates & JV Inc (8) 16 5 87
Net Interest (Exp)/Inc (347) (521) (230) (561)
Pre-tax Profit 1,193 2,191 2,859 (559)
Tax (378) (171) (651) 20
Minority Interest (158) (189) (289) (30)
Net Profit 657 1,831 1,919 (569)
Net profit bef Except. 657 1,831 1,919 (569)
EBITDA 2,852 4,351 4,932 4,932
Sales Gth (%) 21.7 11.5 26.7 26.9
EBITDA Gth (%) 22.4 3.6 72.9 13.4
Opg Profit Gth (%) 27.0 (4.6) 99.2 (103.2)
Net Profit Gth (%) 36.0 17.1 192.1 (131.1)
Gross Margins (%) 7.6 6.9 8.0 6.9
Opg Profit Margins (%) 2.1 2.6 3.3 (0.1)
Source: Company, DBS Vickers
FY Dec 2008A 2009F 2010F 2011F
Revenues
Infrastructure construction 203,299 274,454 329,344 388,626
Survey, design and consulting
services 4,354 5,443 5,987 6,585
Engineering equip &
comp mfg 6,944 8,888 10,488 12,586
Property development 3,805 3,995 4,794 5,513
Other business 10,696 13,370 15,777 18,932
Inter-segment eliminations (4,069) (5,511) (7,328) (8,645)
Total 225,029 300,639 359,062 423,598
Gross Profit
Infrastructure construction 11,907 16,931 20,749 24,483
Survey, design and consulting
services 1,207 1,633 1,796 1,943
Engineering equip &
comp mfg 1,011 1,600 1,888 2,265
Property development 1,145 1,199 1,438 1,654
Other business 1,225 2,139 2,524 3,029
Inter-segment elimination (2,086) (2,414) (2,837)
Total 16,495 21,416 25,982 30,538
Page 87

Regional Equity Strategy 4Q 2009
MTR Corporation
Bloomberg: 66 HK | Reuters: 0066.HK
BUY HK$27.35 HSI: 21,769
Price Target : 12-Month HK$30.65
Potential Catalyst: Favourable land supply, project tender, significant
network expansion
Analyst
Jeff Yau CFA· (852) 2820 4912 ·
Jeff_yau@hk.dbsvickers.com
Ken Chen · (852) 2863 8923 ·
ken_chen@hk.dbsvickers.com
Price Relative
HK$
36.80
31.80
26.80
21.80
16.80
11.80
2005 2006 2007 2008
Relative
Index
MTR (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation
FY Dec (HK$m) 2007A 2008A 2009F 2010F
Turnover 10,690 17,628 17,747 18,125
EBITDA 5,912 9,325 9,257 9,542
Pre-tax Profit 10,254 9,173 8,432 9,292
Underlying Profit * 8,571 8,185 7,068 7,787
EPS (HK$) 1.54 1.45 1.25 1.36
EPS Gth (%) 42.1 (5.5) (14.1) 9.3
DPS (HK$) 0.45 0.48 0.48 0.48
PE (X) 17.8 18.8 21.9 20.1
P/Cash Flow (X) 25.5 16.2 17.0 16.2
EV/EBITDA (X) 31.0 19.6 19.8 19.2
Net Div Yield (%) 1.6 1.8 1.8 1.8
Net Debt/Equity (X) 0.4 0.3 0.2 0.2
ROAE (%) 10.2 8.7 7.0 7.4
NAV (HK$) 30.0 31.9
Disc. To NAV (%) -9% -14%
Earnings Rev (%) Nil Nil
Consensus EPS (HK$) 1.23 1.30
209
189
169
149
129
109
* Excluding fair value change on investment properties
ICB Industry : Consumer services
ICB Sector : Travel & Leisure
Principal Business: Operate pre-dominantly a rail-based
transportation system in HK with exposure to residential and
commercial markets
89
69
Defensive growth stock
• Network expansion to boost railway earnings, it
had been resilient amid the economic downturn
• Large land bank to drive development earnings,
which are secured in the near term
• Valuation remains attractive; Maintain BUY
Railway earnings – “Defensive growth”. Patronage of
domestic and cross boundary services was stable YTD
despite a slower local economy and swine flu. The drop in
Airport Express passenger volume has moderated since
August. These imply resilient fare revenue. Significant
network expansion in the coming decade should widen its
catchment area, and hence, competitive edge over other
public transport operators. This should cement its market
dominance and provide room for long-term railway
earnings growth.
Secured near-term development earnings. In 1H09,
MTRC recognized HK$2.15bn property development
earnings, mainly relating to provision write-back for The
Palazzo and The Capitol and final profit split for The
HarbourSide. Lake Silver, which has been substantially sold,
should take centre stage in 2H09. Profit sharing of Le
Prestige, based on “sharing in kind” will be accounted for
upon project completion either in late 2009 or early 2010.
Profits from these two projects, which represent the bulk of
near-term development profits, are well secured.
Sizeable land reserve to support growth. Armed with a
large development land bank mainly for residential use,
MTRC will be a prime beneficiary of the government’s
favourable land policy. With an improving balance sheet, it
can afford to exploit the potential of its future property
projects by increasing capital contribution in return for
higher profit share.
Attractively valued. The stock is now trading at 9%
discount to our appraised current NAV. This remains
attractive given its defensive railway earnings and long-term
growth prospects. In the next six months, MTRC plans to
offer Kowloon Southern Link Sites C&D for tender. If it
secures favourable terms, there could be upside to the stock.
We re-iterate our BUY call and HK$30.65 target price.
At A Glance
Issued Capital (m shrs) 5,713
Mkt Cap (HK$m/US$m) 156,239 / 20,159
Major Shareholders (%)
The Financial Secretary Incorporated 76.75
Free Float (%) 23.25
Avg Daily Volume (m shrs) 4.3
Page 88
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-SGC / sa- RM

Regional Equity Strategy 4Q 2009
MTR Corporation
Income Statement (HK$m)
Balance Sheet (HK$m)
FY Dec 2007A 2008A 2009F 2010F
Turnover 10,690 17,628 17,747 18,125
EBITDA 5,912 9,325 9,257 9,542
Depr/Amort (2,739) (2,930) (2,958) (2,986)
EBIT 3,173 6,395 6,299 6,555
Property development
profit 8,304 4,670 3,648 4,413
Assoc 99 159 166 173
Interest (Exp)/Inc (1,316) (1,998) (1,670) (1,850)
Exceptionals (6) (53) (10) -
Pre-Tax Profit 10,254 9,173 8,432 9,292
Tax (1,681) (992) (1,364) (1,505)
Minority Interest (2) 4 - -
Underlying Profit 8,571 8,185 7,068 7,787
Sales Growth (%) 12.0 64.9 0.7 2.1
Net Profit Gr (%) 43.7 (4.5) (13.6) 10.2
EBITDA Mgn (%) 55.3 52.9 52.2 52.6
Opg Mgn (%) 29.7 36.3 35.5 36.2
Tax Rate (%) 16.4 10.8 16.2 16.2
Cash Flow Statement (HK$m)
FY Dec 2007A 2008A 2009F 2010F
EBIT 3,173 6,395 6,299 6,555
Tax Paid (1) (577) (1,364) (1,505)
Depr/Amort 2,739 2,930 2,958 2,986
Chg in Wkg Cap 11 113 (140) 110
Othr Non-Cash 52 60 (10) -
Operational CF 5,974 8,921 7,743 8,147
Capex (2,481) (5,807) (8,500) (8,200)
Assoc, MI, Invsmt (6,012) 3,268 11,585 6,590
Investment CF (8,493) (2,539) 3,085 (1,610)
Net Chg in Debt 5,542 (3,538) (7,000) 1,000
New Capital 23 26 - -
Dividend (1,168) (1,265) (2,708) (2,726)
Other financing CF (1,609) (1,445) (1,101) (1,333)
Financing CF 2,788 (6,222) (10,809) (3,058)
Chg in Cash 269 160 19 3,479
Chg in Net Cash (5,273) 3,698 7,019 2,479
Source: Bloomberg, Company, DBS Vickers
FY Dec 2007A 2008A 2009F 2010F
Fixed Assets 132,417 131,004 131,838 129,179
Other LT Assets 14,945 15,998 19,884 23,225
Cash/ST Investments 909 1,264 1,283 4,762
Other Current Assets 7,397 11,072 5,334 5,274
Total Assets 155,668 159,338 158,338 162,440
ST Debt 509 1,705 1,269 1,429
Other Current Liab 6,804 6,745 6,685 6,735
LT Debt 33,541 29,584 23,020 23,860
Other LT Liab 23,777 23,482 23,607 23,248
Minority Interests 23 21 21 21
Shareholders' Equity 91,014 97,801 103,737 107,147
Total Capital 155,668 159,338 158,338 162,440
Share Capital (m) 5,611 5,661 5,661 5,661
Net Cash/(Debt) (33,474) (30,496) (23,477) (20,998)
Working Capital 993 3,886 (1,337) 1,872
Net Gearing (%) 37 31 23 20
Segmental Breakdown (HK$m)
FY Dec 2007A 2008A 2009F 2010F
Fare revenue 7,115 11,467 11,470 11,775
Station commercial and
rail related revenue 1,741 3,449 3,361 3,415
Rental, management and
other revenue 1,834 2,712 2,916 2,934
Total sales 10,690 17,628 17,747 18,125
Page 89

Regional Equity Strategy 4Q 2009
Country Assessment
Malaysia
Cherry-picking in the upcycle
We believe the longer term uptrend for equities is intact.
This should be supported by more positive domestic
newsflow in the coming months. That said, after a stellar
45% gain from the March low, we believe the
benchmark index is vulnerable to a correction in the near
term. We are keen on banks, construction and property
and recommend being selective in stock picks.
On the macro front, we expect to see further strengthening of the economic
recovery with the worst of the financial crisis behind us. Reforms initiated by the
new Prime Minister should continue in the coming months. We believe the
upcoming 2010 Budget will indicate a lower y-o-y deficit on lower operating
expenses while higher development expenditure will help boost the economic
recovery. We foresee a narrower 2.9% GDP contraction in 2009 but a fairly
strong 4.5% rebound in 2010.
In terms of picks, CIMB, Public Bank, AMMB and Hong Leong Bank trade at 13x
forward earnings, relatively undemanding compared to the other index
heavyweights and KLCI’s 15x. We are optimistic that there should be upside for
IJM Corp and Gamuda as the government pump-priming accelerates and
construction contracts are rolled out over the next 12 months. Continued strong
take-ups, margin upside and positive newsflow should lift valuations for property
developers like SP Setia, E&O and DNP. Other picks include Malaysia Airports and
our contrarian Buy on MISC.
Wong Ming Tek (603) 2711 0956 mingtek@hwangdbsvickers.com.my
Malaysia Research Team
Page 90
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: LM / sa: WMT

Regional Equity Strategy 4Q 2009
Country Assessment
Market Data
Indices Closed Chg Net -1 mth -3 mth -6 mth -12 mth 52-Week
17 Sep 2009 -1 mth (%) (%) (%) (%) High Low
KLCI 1,219 50 4 14 4 22 1,219 829
KLCON Index 235 10 4 13 9 31 235 135
KLCSU Index 366 15 4 14 21 28 367 262
KLFIN Index 9,962 507 5 16 8 22 9,962 6,136
KLIND Index 2,663 88 3 14 7 23 2,664 1,995
KLPRO Index 91 1 1 5 (2) 9 93 64
KLPLN Index 5,980 41 1 11 (17) 28 6,067 3,119
KLPRP Index 796 16 2 5 7 27 809 495
KLSER Index 159 6 4 13 2 19 159 112
KLTEC Index 16 (0) (1) 10 (21) (5) 17 11
FBMSC Index 9,947 26 0 5 5 22 10,355 6,024
Transactions:
YTD
Volume (billion) 176
Value (RM billion) 204
Source: Bloomberg
MARKET REVIEW
For the quarter, the KLCI continued its strong momentum
and went on to achieve YTD highs. At the close, the
benchmark index gained 13% to 1219 points (as at 17 Sep),
fuelled by a combination of improving economic activities,
investor sentiment and risk appetite.
2Q09 GDP contracted 3.9% y-o-y, better than expected. It
was a broad-based improvement as all sectors recorded
better growth. The construction sector grew faster, possibly
on the back of greater progress on government projects
while recovery in the equity market helped lift financial
services performance. On a q-o-q basis, the economy
expanded 13.4%, indicating the end of the recession.
We believe the market moved up in anticipation of stronger
2Q09 corporate earnings, which was announced by end-
August. We saw good gains for the banking sector that beat
market expectations.
The improved stock market performance since March, cheap
financing and incentives packages resulted in strong takeups
for physical properties. The likes of SP Setia, E&O and
IJM chalked up impressive sales within a few months. This in
turn helped propel share prices of property counters on the
stock market.
On politics, it was another eventful quarter. The ruling
Barisan Nasional coalition lost the Manek Urai, Kelantan (in
July) and the Permatang Pasir, Penang (in August) state seat
by-elections. There were also more developments on the
Port Klang Free Zone (PKFZ) controversy and a tussle in MCA
leading to an extraordinary general meeting (EGM) on 10
October that will see balloting on resolutions including a noconfidence
motion against party president Datuk Seri Ong
Tee Keat.
For the quarter, crude oil prices gained 5% to USD72 per
barrel. However, Malaysian crude palm oil futures slipped
4% to RM2,182/MT. The Ringgit strengthened against the
US dollar, appreciating 1% at the end of 3Q09 to
RM3.47/USD.
Page 91

Regional Equity Strategy 4Q 2009
Country Assessment
Kuala Lumpur Composite Index Key Events
Index pts
1500
1400
1300
1200
1100
1000
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
Feb 09
6 - BN took over Perak
11 - Power tariff rev ised
18 - Perak MB and
assembly men suspended
23 - Govt vetoed East@Labu
airport
24 - BNM cuts OPR to 2.0%
27 - Toll hike defered
Mar 09
3 - Perak's PKR held
emergency sitting under a
tree
5 - Anwar's sodomy trial
transferred to High Court
10 - RM60b 2nd stimulus
package unveiled
24-28 - UMNO General
Assembly--Najib won No.1
post, Muhyiddin No.2
Apr 09
3 - Najib sworn in as new
PM
7 - BN retained Btg Ai, PR
regained Bkt Gantang &
Bkt Selambau
8 - Cabinet re-shuffle
22 - Removal of 30% bumi
equity for 27 service subsector
27 - Liberalisation for
finance sector
May 09
7 - Chaotic Perak State Assembly
13 - First H1N1 case
22 - Court of Appeal overturned
High Court decision of declaring
Nizar as valid Menteri Besar
27 - 1Q09 GDP contracted 6.2%
31 - PKR won Penanti byelection
J un 09
3 - PAS agreed on unity
government talks
13 - Zaid Ibrahim joined PKR
16 - 1st stimulus package spent
22 - First school closed due to
H1N1 virus. 50 cases to date.
22 - Anwar sodomy trial on 1 &
8 J uly.
Jul 09
6 - FBMKLCI index rebranding
11 - Najib annouced additional
measures in conjuction with his
100th day as PM
16 - Death of Teoh Beng Hock
21 - First H1N1 death
Aug 09
27 - 2Q09 GDP contracted 3.9%
26 - PAS won Permatang Pasir byelection
27 - Dr Chua sacked from MCA
Sep 09
4 - Bagan Pinang state
assemblyman died, 9th byelection
on Oct 11
16 - MCA's EGM fixed on 10/10
18 - Maxis IPO exposure draft out
900
800
700
600
Mar-
08
Apr-
08
May-
08
J un-
08
Jul-
08
Aug-
08
Sep-
08
Oct-
08
Nov-
08
Dec-
08
Jan-
09
Feb-
09
Mar-
09
Apr-
09
May-
09
Jun-
09
Jul-
09
Aug-
09
Sep-
09
Source: DBS Vickers, various media
Page 92

Regional Equity Strategy 4Q 2009
Country Assessment
2010 Budget: Shoring up growth
Expect lower deficit. The 2010 Budget will be presented in
Parliament on 23 October amidst a challenging economic
environment. The Prime Minister will need to steer the economy
towards robust economic growth while keeping the lid on a
ballooning fiscal deficit. We expect a lower deficit in 2010 at
6.8% of nominal GDP versus 8.5% this year on lower operating
expenses.
Higher development expenditure. To help shore up growth, we
expect a record allocation of RM55b-RM58b from RM53.7b in
2009. As pump-priming remains a cornerstone to drive
economic growth, there will likely be renewed emphasis on the
upcoming mega projects such as the LCCT, LRT extension and
Interstate Water Transfer – which should start latest by next
year-end. The focus should be on implementation of these key
projects and as such, we do not expect many other new mega
projects.
Likely another raise in tobacco tax this year. In our opinion, there
is good chance of higher excise duty for cigarette makers.
Historically, the government increased sin taxes for the tobacco
sector in eight out of the past eleven years. Our sensitivity
analysis based on excise tax increase of 10%-40% indicates that
the impact to BAT’s earnings would range from -1.7% to -
18.1% for FY10F (assuming full price pass through) and our fair
value would fall to a range of RM36.70 – 44.00 per share (from
RM44.80)
In our opinion, there is a possibility of small incremental
corporate tax cut, in line with the longer term objective to
attract foreign investment. However, we think chances of
individual tax cuts are low. The introduction of Goods and
Services Tax (GST), which will broaden the tax base, is also
unlikely next year given the economy is just recovering and
the required preparations for implementation. But this
budget could provide a timeframe for GST implementation
in the future.
In terms of GDP, we expect a contraction of 2.9% in 2009
with the manufacturing sector still in contraction mode. For
2010, we forecast 4.5% growth, driven by improvement in
all sectors and a big swing in manufacturing. As part of the
country’s longer term growth strategy, we also look for
incentives/measures to stimulate investments in R&D,
education and training. This will help upgrade our
manufacturing capabilities and drive growth in selected
services and sectors where we can achieve leadership, such
as Islamic banking/securities business. Potential beneficiaries
here would include CIMB, AMMB, Maybank.
Construction growth and development expenditure
RM billion
60
50
40
30
20
10
-
%
20
15
10
5
0
-5
-10
-15
-20
-25
-30
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Development Expenditure
2003
2004
2005
2006
2007
2008
Construction Growth
2009F
Source: Economic Report 2008/2009, Statistics Department
Page 93

Regional Equity Strategy 4Q 2009
Country Assessment
Expectations/wish list for 2010 Budget
Sector
Details
Deficit Lower deficit in 2010 at 6.8% of nominal GDP versus 8.5% in 2009.
Development Higher allocation of RM55b-RM58b from RM53.7b in 2009. Emphasis on implementation of key mega projects. Potential
expenditure beneficiary: Construction sector; picks: IJM Corp, Gamuda.
Tobacco
Higher excise duty. Potential loser: BAT.
Taxes
Incremental corporate tax cut. Timeframe for implementation of Goods & Services Tax (GST) in future.
Property
Review of bumiputera policies for consistency and transparency. Redevelopment of more government land. Government to
takeover provision of low-cost housing while developers contribute funds. Potential beneficiary: Property sector; picks: SP
Setia, E&O, DNP.
REITs
Incentives to encourage cross-border acquisitions. Incentives for asset enhancement and/or asset acquisition. Relaxation of
REIT ownership to encourage listing of foreign REITs in Msia. Further reduction in withholding tax. Potential beneficiary:
REITs; pick: Axis REIT.
Airlines
Incentives such as rebates for airlines that achieve certain passenger growth. Waiver on landing charges for new foreign
and existing airlines that add new destinations or flight frequencies for a number of years (after which discounts will be
given). New parking charges after the first three hours of free parking. Potential beneficiary: Malaysia Airports.
Financials Incentives/measures in selected sectors where we can achieve leadership such as Islamic banking/securities business.
Potential beneficiaries: CIMB, AMMB, Maybank.
Auto
Incentives to attract foreign investment. We view it positively should the NAP offer incentives for foreign auto companies to
take-up under-utilized capacity in Malaysia. Potential beneficiaries: Proton, APM.
Source: DBS Vickers, various media
Page 94

Regional Equity Strategy 4Q 2009
Country Assessment
Outlook: Growth gaining momentum
Recovery to strengthen. In the coming quarter, we expect GDP
growth to continue. We look for 3Q09 GDP contraction to
narrow to 2.5% and post a positive y-o-y growth of 1.0% in
4Q09. This could lead to potential for earnings to surprise on
the upside.
We have seen signs of the expansion gaining momentum.
Loan approvals for the banking system turned positive and
grew 10.3% y-o-y (+7.0% m-o-m) to RM27.2b in June 09
after nine months of y-o-y contractions, led by the household
(+14.1% y-o-y) and business (+6.8% y-o-y) segments.
Mortgage approvals grew a hefty 33.8% y-o-y (+16.0% m-om)
to RM7.1bn, reflecting the acceleration of launches by
developers and better take-ups resulting from low financing
rates and attractive financing packages. The absolute amount
of RM7.1b is a three-year high and exceeds pre-crisis levels.
Our economist has also highlighted the increase in imports of
capital goods (exclude transport equipment) that suggests
producers are gearing up for stronger orders ahead.
Expect recovery to strengthen in coming quarters
% YoY, % QoQ
15
10
5
0
-5
DBSf
Loan approvals: Positive growth in June & July after nine
months of contraction
140%
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Loan Approvals (y-o-y % change)
Source: Bank Negara; DBS Vickers
12-month M.A. (y-o-y % change)
Loan applications and approvals: Loan appetite reviving;
nearing pre-crisis high
RM bil
55.0
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
-10
-15
-20
Mar-05 Mar-06 Mar-07 Mar-08 Mar-09
Total Loan Application
Source: Bank Negara; DBS Vickers
Total Loan Approval
GDP growth % QoQ saar
GDP growth %YoY
Source: CEIC; DBS
Page 95

Regional Equity Strategy 4Q 2009
Country Assessment
Mortgage approvals: 3-year high; exceeds pre-crisis levels
RMm
8,000
Brighter outlook for manufacturing: Increasing imports of
capital goods
7,000
6,000
RMm 2005=100
6000
120
5,000
4,000
3,000
2,000
1,000
0
5500
5000
4500
4000
3500
115
110
105
100
95
90
85
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
3000
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
80
Mortgages Hire-purchase Construction
Source: Bank Negara; DBS Vickers
Source: CEIC; DBS
Imports of capital goods (ex trspt eqmt)
Industrial production (RHS)
Potential / Upcoming Events
Date
Events
10 Oct 09 MCA Extraordinary General Meeting that will see balloting on resolutions including a no-confidence motion against party
president Datuk Seri Ong Tee Keat.
11 Oct 09 Bagan Pinang, Negeri Sembilan state by-election
23 Oct 09 Tabling of 2010 Budget in Parliament
end Oct 09 Tender for Low Cost Carrier Terminal (LCCT) contracts and prequalification tender for LRT contracts expected to be called
by end of Oct.
end Oct 09 National Automotive Policy (NAP) to be concluded with the aim of further improving existing guidelines, policies and
incentives.
26 Nov 09 3Q09 GDP to be announced. DBS expects 2.5% y-o-y contraction. This follows 2Q09's 3.9% contraction.
end Dec 09
Target for EPU to review toll concessions.
Source: DBS Vickers, various media
GROWTH
Sequential earnings growth. We have seen corporate earnings
growing strongly on a q-o-q basis to normalized levels. Our
2Q09 universe earnings grew 29% q-o-q (-17% y-o-y), gaining
further momentum after 1Q09’s 17% q-o-q growth that
marked the inflection point for corporate earnings (from 4Q08’s
8% drop q-o-q).
Broad-based q-o-q expansion. We saw a big q-o-q swing in Sime
Darby and IOI’s profits. From a weak 3Q09, both registered
strong rebound in most key operating units such as plantation,
property, manufacturing and industrial. For the banks, a sharp
surge in non-interest income more than offset noticeable
increase in provisions. There was also q-o-q improvement from
Axiata, driven by its Indonesian operations and Celcom. This
offset weaker earnings from Tenaga dragged by higher power
generation cost.
Banks beat expectations. The proportion of companies that
disappointed earnings dropped to 18% in 2Q09 from 28%
in 1Q09. 18% beat expectations (vs 17% in 1Q09), while
64% (vs 55%) reported earnings that were within
expectations. The key sector that beat expectations this
quarter were the banks. BCHB, Hong Leong Bank, EON
Capital and RHB Capital beat ours and consensus forecasts
(largely on better non-interest income). While the
percentage of companies with disappointing earnings fell
versus 1Q09, we saw notable disappointments. Excluding its
bumper impairment for BII, Maybank’s loan loss provisions
almost doubled from 3Q09 – which we believe, to some
extent, involved the “clean up” for BII. Other big-cap
disappointments came from Digi, Genting, UMW, MAS and
KL Kepong.
Page 96

Regional Equity Strategy 4Q 2009
Country Assessment
Stronger quarterly net profit growth
(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 1Q09 2Q09
5.0% upgrade in 2009 universe earnings. Following the 2Q09
results season, we lift 2009 and 2010 universe earnings by 5.0%
and 7.5% respectively. This was much stronger than upgrades in
1Q09 (+0.1% for 2009 and 3.4% for 2010). The big lift came
from the banks - BCHB, Hong Leong Bank, AMMB and EON
Capital – and Sime Darby and PPB Group for reasons mentioned
earlier.
2Q09 Net Profit Growth
(RMm) 2Q08 1Q09 2Q09 % chg
y-o-y
%
chg
q-o-q
Banking 2,345.1 2,400.9 2,660.2 13 11
Non-bank financial 28.6 15.5 35.0 22 126
Consumer 300.0 475.7 501.6 67 5
Manufacturing/Industrial 415.9 (62.2) 36.3 -91 -158
Media (2.6) (28.9) 34.5 nm -219
Motor 244.3 127.6 162.0 -34 27
Oil & Gas 166.8 202.3 144.8 -13 -28
Conglomerate 1,354.4 422.4 1,381.5 2 227
Construction 319.9 258.8 285.3 -11 10
Concessionaires 300.3 298.0 281.3 -6 -6
Gaming 709.6 646.3 605.8 -15 -6
Plantation 1,073.1 223.7 716.6 -33 220
Utility 1,053.5 1,307.1 931.0 -12 -29
Property 188.1 104.4 187.1 -1 79
Telecommunication 774.8 468.1 778.5 0 66
Transportation/Logistic 766.5 (356.4) (380.4) -150 7
Total 10,038.2 6,503.3 8,361.1 -17 29
Source: DBS Vickers
Earnings contraction this year reduced. Following our earnings
upgrade, we expect 8.2% 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 of RM2,300/t versus RM2,864/mt in 2008,
as well as one-offs (forex losses for IOI). We also expect
weaker earnings for Genting (Spore pre-operating expenses,
lower plantation earnings) and Manufacturing (lower steel
prices).
Rebound next year. In 2010, we expect a 15.4% rebound in
earnings, largely on lower provisions and higher noninterest
income (recovery in capital markets) for banks,
absence of forex losses (for plantation) and a recovery in
power demand for Tenaga.
Page 97

Regional Equity Strategy 4Q 2009
Country Assessment
Malaysia Universe: Earnings Growth by Sector
Net profit ex EI Earnings Growth %) PE (x)
2008 2009F 2010F 2008 2009F 2010F 2008 2009F 2010F
Financial 10,362 10,539 11,885 5.2 1.7 12.8 16.0 15.7 14.0
Consumer 1,677 1,796 1,925 1.3 7.1 7.2 16.6 15.5 14.4
Manufacturing/Industrial 575 371 520 (16.4) (35.4) 40.0 9.4 14.6 10.4
Media 158 164 192 (49.0) 3.7 17.3 42.3 40.8 34.8
Motor 613 487 693 8.5 (20.6) 42.3 16.9 21.3 15.0
Oil & Gas 624 699 760 42.0 11.9 8.7 11.1 9.9 9.1
Conglomerate 4,799 3,686 4,102 64.5 (23.2) 11.3 14.6 19.1 17.1
Construction 1,161 1,183 1,559 17.8 1.9 31.8 19.5 19.1 14.5
Concessionaires 1,182 1,261 1,316 (7.9) 6.7 4.4 15.1 14.2 13.6
Gaming 2,842 1,924 2,523 4.0 (32.3) 31.1 14.4 21.3 16.2
Plantation 4,070 2,079 2,987 46.3 (48.9) 43.7 13.9 27.3 19.0
Power 4,991 4,746 5,031 (22.0) (4.9) 6.0 14.9 15.7 14.8
Property 691 776 887 (9.3) 12.3 14.3 17.8 15.9 13.9
Telecommunication 2,503 2,528 2,813 (35.1) 1.0 11.3 22.0 21.8 19.6
Transportation/Logistic ^ 1,220 2,171 2,498 (51.8) 78.0 15.1 33.2 18.7 16.2
HDBSVR’s universe 37,467 34,408 39,690 (0.8) (8.2) 15.4 16.4 17.8 15.5
Notes: (1) Companies with financial year ending Jan – Mar have been classified as preceding year’s results.
(2) Earnings exclude exceptional items.
(3) Excludes MAS
Source: DBS Vickers
Net Profit Change by Sector Ex-MAS
RM'm 2009 2010
2,000
1,500
1,000
500
-
(500)
(1,000)
(1,500)
(2,000)
(2,500)
1346
177
Financial
119 129 149 6 28
(204)
Consumer
Manufacturing/Industrial
Media
206
(126)
Motor
61 416
74
(1113)
Oil & Gas
Conglomerate
376
22 79
56
Construction
Concessionaires
(918)
599
Gaming
908
(244)
(1991)
Plantation
Power
285
85111
Property
951
285 327
24
Telecommunication
Transportation/Logistic
Source: DBS Vickers
Page 98

Regional Equity Strategy 4Q 2009
Country Assessment
VALUATIONS
Impressive gains todate. Since the stock market’s recovery in
March 2009, the benchmark KLCI has gained a hefty 45%.
With that, the KLCI has regained 57% of the points lost in
the crisis and is now 20% from its all-time high of 1,516
points achieved in January 2008.
Despite the stellar performance, the KLCI has lagged key
regional markets in the run-up. And yet, at 15x forward
earnings, the KLCI remains the most expensive compared to
its peers because it did not drop as much in the crisis.
At normalized valuations. At 15x forward earnings and 1.7x
book value, the KLCI is at its historical average (since 1997;
range: 10-19x earnings) levels. Post 1998 crisis, the KLCI’s
historical average is 14x earnings (and 1.7x book value).
To move up from here on, there needs to be stronger
earnings upgrades. This could come from: (i) stronger than
expected capital market activities, lower provision chargeoff
rates and NPLs for banks; (ii) higher crude palm oil (CPO)
prices; (iii) faster progress billings on property sales; and (iv)
for construction: faster margin recovery and bigger sized
contract wins.
We believe 14x forward earnings is a fair multiple for the
KLCI, given that post-1998 crisis the KLCI had only traded
above 15x earnings from mid-June 2007 in the run-up to hit
its all-time high of 1,516 in January 2008. Given the
prospects of earnings upgrades, if we assume 5% upgrade
in our 2009-11 universe earnings, we derive an end-2010
target of 1,300 (without earnings upgrade end-2010:
1,240).
Malaysia: Broader Market Underperformed YTD
120.0
Malaysia: Relatively High 2010 PE Multiples
100.0
80.0
60.0
40.0
10F PE (x)
16.0
14.0
12.0
10.0
8.0
20.0
6.0
-
4.0
Indonesia
China
Thailand
Hong Kong
Korea
YTD chg (%) Since 1Mar09 chg (%)
Singapore
Philippines
Malaysia
2.0
Korea
Thailand
China
Indonesia
Hong Kong
Philippines
Singapore
Malaysia
Source: DBS Vickers
KLCI forward PE
KLCI forward P/BV
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
Dec-97
Dec-98
Nov-99
Nov-00
Oct-01
Oct-02
Sep-03
Sep-04
Aug-05
Aug-06
Jul-07
Jul-08
Jun-09
1,600
1,400
1,200
1,000
800
600
400
200
-
F orward PE (LHS) Mean 1 Std Dev +/ - 6.4x FBMKLCI Index
3.0
2.5
2.0
1.5
1.0
0.5
-
Dec-97
Dec-98
Nov-99
Nov-00
Oct-01
Oct-02
Sep-03
Sep-04
Aug-05
Aug-06
Jul-07
Jul-08
Jun-09
1,600
1,400
1,200
1,000
800
600
400
200
-
Forward PBV (LHS) Mean 1 Std Dev +/ - 0.3x FBMKLCI Index
Source: DBS Vickers
Page 99

Regional Equity Strategy 4Q 2009
Country Assessment
STRATEGY
Banks: Positive Outlook. We expect: (i) stronger non-interest
income on the back of improved pipeline of debt and equity
deals in 2H09; (ii) possible capital repayment and/or higher
dividend payouts could be a feature given that banks are
generally well capitalized; (iii) stronger growth with lower
provisions and better loans growth.
Among the heavyweights on the index, this sector is trading
at relatively low PE multiples with Public Bank and BCHB
trading on 13x forward earnings (although the common
and our preferred valuation benchmark is P/Bk). Within our
coverage, only Maybank trades above 16x forward earnings.
Large caps sorted by PE: banks at relatively lower multiples
(x)
25.0
20.0
15.0
10.0
5.0
-
Telekom
Axiata
Petronas Gas
Sime Darby
Source: DBS Vickers
MISC-F
IOI Corporation
KL Kepong
Maybank
BAT
Average
In terms of picks, we like: (i) Public Bank for its superior
asset quality, extraordinary loans growth and inspiring ROEs
of above 23%; (ii) capital market recovery plays: AMMB and
BCHB; (iii) high quality laggard such as Hong Leong Bank
that also has impressive ROEs and EON Capital, which is the
cheapest bank in our universe at 0.9x book value.
Digi.Com
Tenaga Nasional
Genting Malaysia
Genting
AMMB Holdings
CIMB
Public Bank
YTL Power
PPB Group
PLUS Expressway
Hong Leong Bank
RHB Capital
Construction pump-priming: a sustainable theme. We
remain optimistic about the construction sector and expect
positive newsflow in the coming 12 months. The upcoming
Budget in October would likely focus on key mega projects
in the pipeline such as the LCCT, remaining phases of the
inter-state water transfer and LRT extensions. The sector
had been one of the better performers in the market
rebound. As a result, some profit-taking is bound to
happen. Yet, we believe this would be good opportunity to
accumulate stocks as we expect further upside. We believe
our and market assumptions for potential new orders are
conservative, in our opinion.
Our large cap picks in the sector are IJM Corp and Gamuda.
As the excitement in the sector heats up, there may be
attractive upside for the small-mid cap contractors – which
have smaller orderbooks and earnings base. Our picks in this
space includes MRCB and Sunway Holdings. Fajarbaru (Not
Rated) could be an upstart to watch for specific projects
such as the LCCT.
Property: Room for more upside. We have seen continued
warm response for recent launches in KL and Penang.
Developers are now resuming launches (including high-end),
compared to their earlier focus on clearing inventories.
Selling prices may be raised soon and incentives gradually
pulled-back, resulting in margin expansion. We expect
continued positive newsflow, ample liquidity and underinvestment
in the sector to drive valuations higher.
Our picks: large cap sector leader SP Setia and high-end
niche developers E&O and DNP.
Updates on key mega projects
Project Est value (RMbn) Comment Potential beneficiaries
Remaining portions of Interstate
2-3 Prequalification for Kelau Dam expected to commence IJM, UEM
water transfer
soon; actual award likely towards 2Q10.
Low Cost Carrier Terminal 2.0 Prequalification closed end-July. Tender likely in October
2009.
WCT, Fajarbaru, IJM
Southern stretch of double
tracking rail
7-9 Mentioned by PM as project that the govt would consider
awarding to Chinese companies. Nevertheless, Msian
contractors may get subcontracts.
LRT extension 6-7 Syarikat Prasana Negara expected to call for civil works
prequalification next month.
New LRT lines 10-20 Talk on intended work commencement in 4Q09, although
likely to be delayed given the preparations required
(design, determining alignment).
Source: Bursa Malaysia, DBS Vickers
IJM, WCT
IJM, MRCB, Gamuda, WCT, UEM
IJM, MRCB, Gamuda, WCT, UEM
Page 100

Regional Equity Strategy 4Q 2009
Country Assessment
Large cap Buys
Company Mkt Cap Price TP PE(x) P/BV (x) Div Yield (%)
(RMm) (RM) (RM) 09F 10F 09F 10F 09F 10F
CIMB 40,051 11.18 12.10 15.5x 13.4x 2.1x 1.9x 1.7% 1.7%
Public Bank 36,026 10.20 11.10 14.3x 13.2x 3.2x 3.0x 5.6% 6.0%
Tenaga 36,214 8.35 9.00 17.4x 15.2x 1.3x 1.3x 2.2% 2.3%
MISC-F 33,106 8.90 9.60 23.6x 23.1x 1.6x 1.6x 3.9% 3.9%
PLUS Expressway 16,450 3.29 3.80 13.9x 13.3x 2.7x 2.5x 4.9% 4.9%
Genting Msia 16,409 2.78 3.40 13.2x 15.0x 1.8x 1.6x 2.3% 2.0%
AMMB Holdings 12,961 4.30 5.20 13.6x 14.3x 1.5x 1.4x 1.4% 2.4%
Hong Leong Bank 10,113 6.40 8.00 11.2x 10.6x 1.8x 1.6x 2.8% 2.8%
Gamuda 6,604 3.28 4.25 32.8x 19.8x 2.1x 2.0x 1.8% 2.3%
Tanjong 6,355 15.76 19.25 13.7x 9.4x 1.9x 1.7x 4.3% 4.9%
IJM Corp 6,048 6.42 7.00 20.8x 18.3x 1.3x 1.2x 3.4% 1.4%
Source: DBS Vickers
Small-mid cap Buys
Company Mkt Cap Price TP PE(x) P/BV (x) Div Yield (%)
(RMm) (RM) (RM) 09F 10F 09F 10F 09F 10F
SP Setia 4,454 4.38 5.00 23.6x 21.7x 2.2x 2.1x 2.5% 2.8%
Msia Airports 3,905 3.55 4.50 12.7x 11.7x 1.2x 1.1x 3.9% 4.3%
EON Capital 3,674 5.30 6.00 11.2x 10.9x 1.1x 1.0x 1.5% 1.1%
KNM Group 3,103 0.78 1.10 7.8x 7.6x 1.4x 1.2x 0.5% 0.5%
KLCC Property 3,026 3.24 3.70 13.6x 12.6x 0.9x 0.8x 3.2% 3.5%
Top Glove 2,170 7.15 7.00* 14.1x 12.7x 2.7x 2.4x 2.1% 2.4%
MRCB 1,243 1.37 1.50 59.1x 22.1x 1.9x 1.8x 0.4% 1.1%
Sunrise 1,060 2.14 2.60 7.7x 7.4x 1.1x 1.0x 1.3% 1.4%
Alam Maritim 892 1.80 2.00 9.0x 8.0x 1.9x 1.5x 0.3% 0.3%
Sunway Holdings 779 1.42 1.70 9.1x 7.1x 1.2x 1.0x 0.0% 0.0%
E&O 895 1.49 2.10 n.m. 45.3x 1.1x 0.8x 0.0% 0.0%
DNP 528 1.65 2.60 38.7x 9.7x 0.7x 0.7x 2.9% 3.6%
Axis REIT 466 1.82 1.90 11.3x 11.3x 1.0x 1.0x 8.4% 8.4%
AEON Credit 467 3.89 4.50 9.6x 8.2x 2.2x 1.8x 3.9% 4.2%
Evergreen 446 0.87 1.10 11.2x 10.3x 0.7x 0.6x 0.0% 1.6%
APM Auto 407 2.02 2.20 8.3x 7.2x 0.7x 0.6x 5.2% 5.2%
*Under review; Source: DBS Vickers
Top Sell/Fully Valued Calls
Company Mkt Cap Price TP PE(x) P/BV (x) Div Yield (%)
(RMm) (RM) (RM) 09F 10F 09F 10F 09F 10F
Sime Darby 51,321 8.54 7.45 23.3x 20.1x 2.4x 2.2x 2.0% 2.5%
Axiata 26,771 3.17 2.70 26.4x 22.4x 1.5x 1.4x 0.0% 0.0%
UMW Holdings 7,024 6.34 4.20 19.5x 16.4x 1.9x 1.8x 3.5% 3.5%
MAS 4,997 2.99 1.80 -2.3x 27.7x -3.6x -8.9x 0.0% 0.0%
Bursa Msia 4,132 7.83 6.05 34.9x 32.8x 5.5x 5.4x 2.6% 2.7%
AirAsia 3,231 1.36 1.25 7.5x 8.7x 1.3x 1.1x 0.0% 0.0%
Source: DBS Vickers
Page 101

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Aviation & related
Underweight
Banks
Overweight
Construction
Overweight
Although we expect a slight pickup in air travel demand in 2H09 against 1H09,
overall demand is still projected to remain weak y-o-y. We also remain cautious on
the potential downside risk following the recent H1N1 virus outbreak. Meanwhile,
additional capacity coming from AirAsia and more route liberalizations may
intensify competition between the airlines in the domestic and regional markets.
Airlines’ earnings could also be hit by rising jet fuel prices.
We expect MAS to continue to record hedging losses given that it had hedged its
jet fuel requirement at higher prices compared to our forecast spot prices.
Meanwhile, cash flow remains an issue for AirAsia given its huge capital
commitment and potential downside risk to load factor and yield. Our top pick is
Malaysia Airports (Buy; PT RM4.50) for its increasing non-aeronautical business
contribution (mainly rental), which could cushion weak passenger traffic growth.
We believe MAHB’s recent restructuring enhances long-term earnings visibility and
improves ROE with its increasing benchmark PSC formula and variable costs
mechanism.
We expect non-interest income to be the driving force for earnings given strong
pipeline for debt and equity capital market activities. AMMB and BCHB are best
proxies for capital market plays, although we prefer AMMB over BCHB for
valuations. We believe that asset quality would remain resilient as banks are in a
much stronger position now in terms of capital, ability to manage NPLs and risk
management. We expect banks to continue hoarding capital in a still uncertain
environment in 2009, with possible capital repayment and/or higher dividend
payouts only next year. We believe BCHB, AMMB, Hong Leong Bank and Maybank
could turn more active in capital management.
We project earnings growth of 2% for 2009 driven by higher non-interest income.
However, we remain conservative on our provision assumptions, which would
mitigate the extent of earnings growth for 2009. Nevertheless, we expect a
recovery in 2010 with earnings growth of 13% with a further decline in provisions
and higher non-interest income. Our top picks remain as AMMB for valuations and
Public Bank for resilience and dividends. We like Hong Leong Bank as a laggard
quality play. We suggest switching out of Maybank to BCHB for Indonesia exposure
and also for the relative PBV-ROE parametric among big cap bank plays. Even Hong
Leong Bank (although its shares are less liquid) stacks up better in terms of PBV-
ROE compared to Maybank. For a small cap bank play, EON Cap looks attractive
being the cheapest bank in our universe at 1.0x FY10 BV with limited downside
risk.
After some delay in the mega contract rollouts, newsflow has certainly picked up.
Syarikat Prasnana Negara Bhd (SPNB), the State Infrastructure Company had
recently indicated that it will call for prequalification tenders for the RM6-7bn LRT
extensions next month. Construction works will likely commence in 2010 after
obtaining final approval from the Transport Ministry. The RM2bn LCCT appears to
be the only mega contract which is PFI-based to be awarded by end-2009. Going
into 2010, the last year of rollout for the Ninth Malaysian Plan, we expect contract
awards to accelerate. Other likely projects are the RM9bn undersea cables for
Bakun Hydroelectric plant, RM7bn Gemas to Johor Bahru double tracking and
other portions of the Pahang Selangor Water Transfer project.
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. We think these
risks are being managed with evidence of financing raised for some of the projects
such as the LRT extensions and recent contract wins have been via open tender
system to the lowest bidder. Our top pick is IJM (Buy, PT RM7.00) as the more
diversified pick to the sector with a presence in public and private sector. Valuations
are also the cheapest. Our other picks are Gamuda (Buy, PT RM4.25) and MRCB
(Buy, PT RM1.50) as GLC proxy construction stock.
Malaysia Airports
AMMB,
Public Bank,
Hong Leong Bank
IJM, Gamuda, MRCB
Page 102

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Concessionaires
Overweight
Gaming
Overweight
Shipping
Neutral
Motor
Underweight
The July 2009 deadline for the Economic Planning Unit (EPU) to address the
potential future increases in toll rates has since been extended to end-2009. Of
late, Asas Serba Sdn Bhd a private company submitted a proposal to the Works
Ministry to buy all the toll concessionaire companies in the country for RM50bn. It
has promised to cut toll rates by 20% in return for an extension in the concession
period for the concessions. We think the probability of this occurring is low given
financing a purchase consideration of RM50bn has to be government backed as
the private sector will unlikely be able to swallow such a colossal amount.
We do not think the government will privatise PLUS, based on the Prime Minister’s
recent statements that PLUS is an important company for the government and a
cash cow. Also its listed status is a key positive for the Malaysian equity market and
its overseas ventures. Having said that, with the government paring down its stakes
in other GLCs, there is always the odd possibility of this happening. We recently
downgraded our rating on Litrak to Hold as we think the privatisation angle at
current price is increasingly difficult to execute. All in, we are confident that any
decision will be at least NPV neutral for the concessions.
Our pick is PLUS, which will yield 5% based on its KPI dividend of 16 sen and is
strong liquid proxy to stable free cash flows.
Gaming operations should remain robust given its inelastic demand and being a
small ticket item. Despite the H1N1 outbreak, visitor arrivals to Genting Highlands
held up (during SARS outbreak in 2003, visitor arrivals grew 1.3%).
The soft launch of Resorts World at Sentosa (RWS) may come as early as end-09.
We expect Genting Highlands’ operations to remain largely resilient given 87% of
visitor arrivals consist of locals (70% day-trippers) while Singaporeans 5%.
Risks: a) Strict regulation on junket operators may affect RWS’ VIP business; b)
viability of Genting Malaysia’s potential M&As with its RM5b cashpile.
We expect petroleum tanker rates to improve from end 2009 onwards and grow by
c.25% y-o-y in 2010 in anticipation of better tonnage demand and supply growth
balance prospect. Downside risks to tanker rates could be limited as demand and
supply growth gap is likely to narrow in 2010. Meanwhile, we also believe
downside risk to container freight rates is limited, after touching its lowest level
since 1993 and considering the supply-demand gap will narrow next year. We
project average container freight rates to be unchanged y-o-y in 2010, supported
by an expected recovery in demand. Our top pick is MISC (Buy; PT RM9.60). We
like MISC given its better earnings outlook and it still lags the market despite its
3.7% weighting in the FBM KLCI.
Improving consumer sentiment continues to lend support for auto sales. Aug09 TIV
(total industry sales) recorded the first y-o-y growth of 2.8% (-6.5% m-o-m) since
Oct08. We expect Sep09 sales to remain firm for the Hari Raya season, before
entering the seasonally low fourth quarter. The NAP (National Automotive Policy),
which has been postponed till Oct09, was speculated to offer incentives to foreign
car manufacturers to use Malaysia as their export hub while Proton is rumoured to
be getting a foreign partner (speculated to be VW) who can help to take up
Proton’s excess capacity. The downside risks are that the NAP could disappoint
(especially when it comes to execution) and that Proton may not secure a new
partner.
PLUS
Genting
MISC
APM
Page 103

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Oil & gas
Overweight
Plantations
Underweight
Property
Overweight
Steel
Neutral
Telco
Underweight
We remain positive on the outlook of Malaysia oil and gas sector given Petronas’
resilient capex and recovery of crude oil price. The key concern for the sector is on
the rollout of new projects, which has been delayed over the last few months.
Nevertheless, we expect stronger contract flow in 4Q09 as Petronas has
traditionally awarded most of the new projects towards year end. The continuous
contract flow will help to enhance earnings visibility and benefit oil and gas players,
especially those with captive market (such as Alam for Malaysian flagged vessels)
and those with niche market such as KNM and Wah Seong for their exposure in
process equipment and deep water pipe coating. Valuation of oil and gas stocks is
reasonable, trading closer to their respective normalised mid-cycle valuation, but
still decent at sector average 9x CY10 PE against sector average CY06-10 CAGR of
22%.
We expect 4Q09 palm oil price to rebound on seasonally slower palm oil supply
growth and run down in US soybean oil inventory. However, as most plantation
stocks have not moved in-tandem with CPO price’s current correction, we
recommend investors to remain selective.
Sales expected to remain robust driven by record low mortgage rates, incentives
offered by developers, and improving consumer sentiments. Developers may bring
forward launches and raise ASPs – leading to faster earnings recovery.
Potential risks: a) Sustainability of sales if interest rates rise and developers pull-back
incentives, and b) Higher construction cost as raw material prices recover –
potential margin squeeze if not passed on to buyers.
Steel demand is improving underpinned by re-stocking activities, which is expected
to last another 4 months (till the end of the year). Most steel mills have increased
their plant utilisation (for example, Kinsteel's upstream utilisation was lifted from
50% to 100% and, Southern Steel’s overall utilisation was also raised from the
previous low of 50%). In terms of new demand expected from government pump
priming, we think meaningful contributions will flow in only next year. Overall, the
current healthy steel demand would support steel prices. Our key concern remains
the timely award and execution of the various government projects. We
recommend Hold on Kinsteel (TP RM0.85) and Southern Steel (TP RM1.75).
While competition in 1H09 centred on new broadband plans as well as iPhones and
BlackBerrys, focus shifted back to prepaid voice plans in 3Q09. Celcom launched
new plans that offer very cheap 12 sen/minute calls that led Digi to react in similar
fashion. As usual, terms and conditions apply. Meanwhile, TuneTalk launched its
cellular voice service in Aug09, with very attractive 25 sen/minute tariff. However,
TuneTalk has limited distribution channel currently.
We expect telcos to register a spike in volume during the Hari Raya season in
Sep09, with even larger traffic volume in the seasonally high 4Q09. The key
concern now is that a potential change in management of U Mobile could disrupt
the competitive landscape in Malaysia, which is still rational. Among the telco
stocks, we prefer TM for its commitment of 20 sen net DPS or c. 6% yield.
However, Maxis, which is expected to be listed before the year-end, could put
downward pressure on telco stock prices as investors rebalance their telco exposure
in Malaysia towards Maxis.
Alam Maritim
KL Kepong
SP Setia
E&O
DNP
Southern Steel
TM
Page 104

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Power
Overweight
REITs
Neutral
We expect stronger earnings ahead for TNB on the back of improved power
demand following stronger economic activities and lower coal cost. As for the IPPs,
our pick is now on Tanjong PLC for upside from potential new NFO game and
attractive valuation backed by resilient power and gaming operations. While YTLP
offers a higher yield of 7% against 5% for Tanjong, we expect investors to
gradually switch out from YTLP to Tanjong given that YTLP’s Wimax investment will
increase its risk profile and unlikely to be earnings accretive to the group over the
next 3-5 years.
We expect improving investment interest in MREIT given the stronger credit market
that allows fund and equity raising activities for MREIT to enhance asset base and
earnings growth going forward. The stronger economic activities also ease
concerns on rental renewal and property vacancy rate. While we expect share
prices of MREITs to perform in line with the market given their attractive net yield
of c.10%, MREITs are unlikely to outperform due to their low liquidity and
unexciting growth. Our pick is Axis Risk for its attractive yield, attractive asset
valuation and proven acquisition track record.
Tanjong PLC
Axis REIT
Page 105

Regional Equity Strategy 4Q 2009
Hong Leong Bank
Bloomberg: HLBK MK | Reuters: HLBB.KL
BUY RM6.60 KLCI : 1,218.80
Price Target : 12-Month RM 8.00
Potential Catalyst: Higher dividend payout, sustainable earnings
Analyst
Sue Lin Lim +603 2711 0971
suelin@hwangdbsvickers.com.my
Price Relative
7.40
6.90
6.40
5.90
5.40
4.90
4.40
RM
Relative Index
2005 2006 2007 2008 2009
Hong Leong Bank (LHS) Relative KLCI INDEX (RHS)
Forecasts and Valuation
FY Jun (RM m) 2009F 2010F 2011F 2012F
Pre-prov. Profit 1,222 1,352 1,480 1,654
Net Profit 905 954 1,043 1,170
Net Pft (Pre Ex.) 905 954 1,043 1,170
EPS (sen) 57.3 60.4 66.0 74.1
EPS Pre Ex. (sen) 57.3 60.4 66.0 74.1
EPS Gth Pre Ex (%) 20 5 9 12
Diluted EPS (sen) 57.3 60.4 66.0 74.1
PE Pre Ex. (X) 11.5 10.9 10.0 8.9
Net DPS (sen) 18.0 18.0 18.0 18.0
Div Yield (%) 2.7 2.7 2.7 2.7
ROAE Pre Ex. (%) 16.7 15.8 15.4 15.4
ROAE (%) 16.7 15.8 15.4 15.4
ROA (%) 1.2 1.2 1.2 1.2
BV Per Share (sen) 363 404 452 508
P/Book Value (x) 1.8 1.6 1.5 1.3
Earnings Rev (%): - - -
Consensus EPS (sen): 57.3 65.1 72.3
ICB Industry : Financials
ICB Sector: Banks
Principal Business: Banking and Finance
Source of all data: Company, DBS Vickers, Bloomberg
222
202
182
162
142
122
102
82
62
Flight to quality
• On track for growth with resilient ROEs, good
asset quality and robust capital.
• On a regional expansion mode; its associate,
Chengdu Bank is already contributing to profits
just after a year since acquisition.
• Additional catalyst includes a possible capital
management play in future. Maintain BUY and
TP of RM8.00.
Strong operations. Hong Leong Bank’s strength is
derived from its strong deposit franchise and conservative
lending policies. Its lowest loan-to-deposit ratio among its
peers allows ample room for growth in the future. Aside
from its robust net interest income and NIM, operating
income is driven by trading and forex income, which has
proven sustainable given its solid treasury operations. Its
NIM was marginally lower in its recent financial year end
despite 75% variable rate loans and 55% fixed deposits,
after imputing the full impact of the OPR cuts, which
exemplifies the bank’s strong asset-liability management
amidst re-pricing and competitive pressures. Meanwhile,
capital ratios are robust with Tier-1 CAR and RWCAR at
14.7%, among the highest in the industry.
Improving earnings ahead. We expect Hong Leong
Bank to propel ahead with earnings improvement from
lower provision charge-off rates. NIM should remain flat at
1.8%, while non-interest income is expected to remain
strong. Its 19.99% associate, Chengdu Bank, made its full
year maiden contribution of RM100m in FY09 and we
expect further improvement. Hong Leong Bank is still
scouting for regional acquisitions. Its wholly-owned
banking subsidiary in Vietnam is expected to start
operations in Oct09. We do not discount a higher dividend
payout once it completes its regional acquisitions.
Attractive valuations. We believe Hong Leong Bank
offers attractive value proposition with a sustainable
15% ROE, in addition to a 3% stable dividend yield with
an upside potential. Maintain BUY with TP of RM8.00.
At A Glance
Issued Capital (m shrs) 1,580
Mkt. Cap (RMm/US$m) 10,429 / 3,004
Major Shareholders
Hong Leong Financial Group 63.5
Employees Provident Fund (%) 9.6
Free Float (%) 26.9
Avg. Daily Vol.(‘000) 865
Page 106
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Refer to important disclosures at the end of this report
ed:LM / sa: WMT

Income Statement (RM m) Balance Sheet (RM m)
Regional Equity Strategy 4Q 2009
Hong Leong Bank
FY Jun 2009F 2010F 2011F 2012F FY Jun 2009F 2010F 2011F 2012F
Net Interest Income 1,353 1,447 1,521 1,634 Cash/Bank Balance 18,344 19,474 21,400 23,563
Non-Interest Income 570 614 675 743 Government Securities 369 1,510 1,644 1,790
Islamic Banking Income 176 194 213 235 Inter Bank Assets 5,417 5,959 6,555 7,210
Operating Income 2,099 2,255 2,410 2,612 Total Net Loans & Advs. 34,795 36,462 39,396 42,559
Operating Expenses (877) (903) (930) (958) Investment 17,517 19,269 21,195 23,315
Pre-provision Profit 1,222 1,352 1,480 1,654 Associates 0 0 0 0
Provisions (190) (190) (211) (227) Fixed Assets 319 325 332 339
Associates 99 110 121 133 Goodwill 30 30 30 30
Exceptionals 0 0 0 0 Other Assets 2,397 2,442 2,488 2,534
Pre-tax Profit 1,132 1,272 1,390 1,560 Total Assets 79,405 85,710 93,302 101,629
Taxation (228) (318) (348) (390) Customer Deposits 67,583 72,990 79,559 86,719
Minority Interests 0 0 0 0 Inter Bank Deposits 2,404 2,524 2,651 2,783
Preference Dividend 0 0 0 0 Debts/Borrowings 730 730 730 730
Net Profit 905 954 1,043 1,170 Others 2,693 2,826 2,964 3,110
Minorities 43 43 43 43
Shareholders' Funds 5,734 6,380 7,138 8,026
Total Liab& S/H’s Funds 79,405 85,710 93,302 101,629
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Jun 2009F 2010F 2011F 2012F FY Jun 2009F 2010F 2011F 2012F
Margins, Costs & Efficiency
Balance Sheet Structure
Yld. On Earnings Assets 3.92 3.87 3.83 3.80 Loan-to-Deposit Ratio 52.7 51.2 50.7 50.3
Avg Cost Of Funds 2.24 2.17 2.17 2.17 Net Loans / Total Assets 43.8 42.5 42.2 41.9
Spread 1.68 1.71 1.66 1.63 Investment / Total Assets 22.1 22.5 22.7 22.9
Net Interest Margin 1.81 1.84 1.79 1.76 Cust . Dep./Int. Bear. Liab. 95.6 95.7 95.9 96.1
Cost-to-Income Ratio 41.8 40.0 38.6 36.7 Interbank Dep / Int. Bear. 3.4 3.3 3.2 3.1
Employees ( Year End) 0 0 0 0 Asset Quality
Effective Tax Rate 20.1 25.0 25.0 25.0 NPL / Total Gross Loans 2.2 2.4 2.3 2.0
Business Mix NPL / Total Assets 1.0 1.0 1.0 0.9
Net Int. Inc / Opg Inc. 64.5 64.2 63.1 62.6 Capital Strength
Non-Int. Inc / Opg inc. 27.1 27.2 28.0 28.4 Total CAR 15.9 16.4 16.9 17.5
Fee Inc / Opg Income 14.2 14.6 15.0 15.2 Tier-1 CAR 15.8 16.3 16.8 17.4
Oth Non-Int Inc/Opg Inc 12.9 12.7 13.0 13.2 Growth
Profitability Total Net Loans 1 5 8 8
ROAE Pre Ex. 16.7 15.8 15.4 15.4 Customer Deposits 8 8 9 9
ROAE 16.7 15.8 15.4 15.4
ROA Pre Ex. 1.2 1.2 1.2 1.2
ROA 1.2 1.2 1.2 1.2
Quarterly / Interim Income Statement (RMm)
FY Jun 1Q2009 2Q2009 3Q2009 4Q2009
Net Interest Income 357 363 328 305
Non-Interest Income 150 163 129 129
Operating Income 550 564 491 494
Operating Expenses (217) (217) (218) (224)
Pre-Provision Profit 333 347 273 270
Provisions (44) (26) (28) (91)
Associates 27 19 24 29
Exceptionals 0 0 0 0
Pretax Profit 316 340 269 208
Taxation (74) (83) (62) (9)
Minority Interests 0 0 0 0
Net Profit 242 257 207 199
Rolling forward PBV band
3.0
2.5
2.0
1.5
1.0
0.5
0.0
97 98 99 00 01 02 03 04 05 06 07 08 09
2nd Dev
1st Dev
Mean
1st Dev
2nd Dev
Source: Company, DBS Vickers
Page 107

Regional Equity Strategy 4Q 2009
MISC
Bloomberg: MISF MK | Reuters: MISC.KL
BUY RM8.95 KLCI : 1,218.80
Price Target : 12 months RM 9.60
Potential Catalyst: Higher tanker and container rates, new oil & gas
contract wins
Analyst
Juliana Ramli +603 2711 2222
juliana@hwangdbsvickers.com.my
Improved outlook
• We believe downside to container and tanker
rates is limited after hitting record lows
• Expect FY11F-12F earnings to grow 25% and 9%
respectively y-o-y, driven by smaller liner losses
and higher tanker rates
• Maintain BUY with TP of RM9.60 based on sumof-parts
method.
Price Relative
RM
11.00
10.50
10.00
9.50
9.00
8.50
8.00
7.50
7.00
6.50
2005 2006 2007 2008 2009
MISC (LHS) Relative KLCI INDEX (RHS)
Forecasts and Valuation
Relative Index
FY Mar (RM m) 2009A 2010F 2011F 2012F
Turnover 15,783 13,543 15,034 16,025
EBITDA 3,668 3,848 4,323 4,558
Pre-tax Profit 1,595 1,713 2,066 2,213
Net Profit 1,405 1,432 1,789 1,956
Net Pft (Pre Ex.) 1,405 1,432 1,789 1,956
EPS (sen) 37.8 38.5 48.1 52.6
EPS Pre Ex. (sen) 37.8 38.5 48.1 52.6
EPS Gth Pre Ex (%) (37) 2 25 9
Diluted EPS (sen) 37.8 38.5 48.1 52.6
Net DPS (sen) 35.0 35.0 35.0 35.0
BV Per Share (sen) 563.3 566.8 579.9 597.5
PE (X) 23.7 23.3 18.6 17.0
PE Pre Ex. (X) 23.7 23.3 18.6 17.0
P/Cash Flow (X) 10.8 10.7 9.2 8.6
EV/EBITDA (X) 11.4 10.8 9.7 9.0
Net Div Yield (%) 3.9 3.9 3.9 3.9
P/Book Value (X) 1.6 1.6 1.5 1.5
Net Debt/Equity (X) 0.4 0.4 0.4 0.3
ROAE (%) 7.1 6.8 8.4 8.9
Earnings Rev (%): - - -
Consensus EPS (sen): 36.6 47.2 61.1
ICB Industry : Industrials
ICB Sector: Industrial Transportation
Principal Business: LNG, petroleum, bulk, chemical and container
shipping and related business.
Source of all data: Company, DBS Vickers, Bloomberg
216
196
176
156
136
116
96
76
56
Tanker and container rates may have bottomed out
after hitting record lows. We believe downside risks for
rates are now limited, given improved demand-supply
growth balance outlook for next year. We expect tanker
rates to rise by 25% in FY11F on slower tonnage supply
growth and recovering global oil demand. Meanwhile, the
liner division could post smaller losses going forward, as
MISC reduces capacity and withdraws from the Grand
Alliance consortium.
Offshore and heavy engineering segments will
cushion earnings. We expect these divisions to account
for 37%-44% of MISC’s pre-tax profit in FY10F- FY11F.
Existing long-term offshore contracts and its current large
heavy engineering orderbook provide good earnings
visibility for the divisions for at least 2-3 years. The heavy
engineering division should remain busy for the next 2-3
years with its current orderbook at c.RM9.3bn (average
completion of 12-30 months).
A laggard. Apart from better earnings outlook, we
believe MISC is worth a buy because it is still lagging the
market despite its 3.7% weighting in the FBM KLCI.
MISC’s share price YTD-09 has underperformed the
market, rising only 7% against the FBM KLCI’s 36%.
At A Glance
Issued Capital (m shrs) 3,720
Mkt. Cap (RMm/US$m) 33,292 / 9,591
Major Shareholders
Petronas (%) 62.4
EPF (%) 5.8
Free Float (%) 31.8
Avg. Daily Vol.(‘000) 586
Page 108
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Refer to important disclosures at the end of this report
ed:LM / sa: WMT

Regional Equity Strategy 4Q 2009
MISC
Income Statement (RM m) Balance Sheet (RM m)
FY Mar 2009A 2010F 2011F 2012F FY Mar 2009A 2010F 2011F 2012F
Turnover 15,783 13,543 15,034 16,025 Net Fixed Assets 27,385 27,994 28,841 28,421
Cost of Goods Sold (12,986) (10,699) (11,693) (12,435) Invts in Associates & JVs 315 409 499 562
Gross Profit 2,797 2,844 3,342 3,590 Other LT Assets 1,673 1,698 1,853 1,988
Other Opng (Exp)/Inc (836) (774) (933) (1,027) Cash & ST Invts 3,725 1,847 1,175 1,927
Operating Profit 1,961 2,070 2,409 2,563 Inventory 442 327 363 387
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 3,217 2,202 2,445 2,606
Associates & JV Inc 37 94 90 63 Other Current Assets 0 0 0 0
Net Interest (Exp)/Inc (403) (450) (433) (413) Total Assets 36,757 34,479 35,177 35,891
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 1,595 1,713 2,066 2,213 ST Debt 3,104 3,104 3,104 3,104
Tax (68) (112) (115) (110) Other Current Liab 3,482 2,987 3,316 3,535
Minority Interest (123) (170) (161) (147) LT Debt 8,748 6,641 6,228 5,802
Preference Dividend 0 0 0 0 Other LT Liabilities 129 153 286 406
Net Profit 1,405 1,432 1,789 1,956 Shareholder’s Equity 20,953 21,083 21,570 22,224
Net Profit before Except. 1,405 1,432 1,789 1,956 Minority Interests 341 511 672 819
EBITDA 3,668 3,848 4,323 4,558 Total Cap. & Liab. 36,757 34,479 35,177 35,891
Sales Gth (%) 21.9 (14.2) 11.0 6.6 Non-Cash Wkg. Capital 177 (458) (509) (542)
EBITDA Gth (%) (11.6) 4.9 12.3 5.4 Net Cash/(Debt) (8,127) (7,897) (8,157) (6,980)
Opg Profit Gth (%) (26.9) 5.5 16.4 6.4
Net Profit Gth (%) (42.0) 1.9 25.0 9.3
Effective Tax Rate (%) 4.2 6.5 5.6 4.9
Cash Flow Statement (RM m)
Rates & Ratio
FY Mar 2009A 2010F 2011F 2012F FY Mar 2009A 2010F 2011F 2012F
Pre-Tax Profit 1,595 1,713 2,066 2,213 Gross Margins (%) 17.7 21.0 22.2 22.4
Dep. & Amort. 1,707 1,779 1,914 1,995 Opg Profit Margin (%) 12.4 15.3 16.0 16.0
Tax Paid (68) (112) (115) (110) Net Profit Margin (%) 8.9 10.6 11.9 12.2
Assoc. & JV Inc/(loss) (37) (94) (90) (63) ROAE (%) 7.1 6.8 8.4 8.9
Chg in Wkg.Cap. (157) 635 50 34 ROA (%) 4.3 4.0 5.1 5.5
Other Operating CF 368 368 368 368 ROCE (%) 6.3 6.0 7.2 7.6
Net Operating CF 3,409 4,289 4,193 4,437 Div Payout Ratio (%) 92.7 90.9 72.8 66.6
Capital Exp.(net) (3,982) (2,358) (2,730) (1,543) Net Interest Cover (x) 4.9 4.6 5.6 6.2
Other Invts.(net) 23 23 23 23 Asset Turnover (x) 0.5 0.4 0.4 0.5
Invts in Assoc. & JV (22) 0 0 0 Debtors Turn (avg days) 64.6 73.0 56.4 57.5
Div from Assoc & JV 3 3 3 3 Creditors Turn (avg days) 100.8 132.4 117.6 119.8
Other Investing CF 48 75 37 23 Inventory Turn (avg days) 13.6 15.7 12.9 13.1
Net Investing CF (3,930) (2,258) (2,667) (1,494) Current Ratio (x) 1.1 0.7 0.6 0.7
Div Paid (1,367) (1,352) (1,352) (1,352) Quick Ratio (x) 1.1 0.7 0.6 0.7
Chg in Gross Debt 3,264 (2,107) (413) (425) Net Debt/Equity (X) 0.4 0.4 0.4 0.3
Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) 0.4 0.4 0.4 0.3
Other Financing CF 384 (450) (433) (413) Capex to Debt (%) 33.6 24.2 29.3 17.3
Net Financing CF 2,282 (3,909) (2,198) (2,191) Z-Score (X) 2.6 2.5 2.6 2.7
Net Cashflow 1,761 (1,878) (673) 752 N. Cash/(Debt)PS (sen) (218.5) (212.3) (219.3) (187.6)
Opg CFPS (sen) 95.9 98.2 111.4 118.4
Free CFPS (sen) (15.4) 51.9 39.3 77.8
Quarterly / Interim Income Statement (RM m)
Segmental Breakdown / Assumptions
FY Mar 2Q2009 3Q2009 4Q2009 1Q2010 FY Mar 2009A 2010F 2011F 2012F
Turnover 4,456 3,679 3,999 3,893 Revenues (RM m)
Cost of Goods Sold (3,983) (3,318) (3,807) (3,633) Shipping 8,024 7,668 8,495 8,627
Gross Profit 473 362 192 260 Integrated Liner Logistics 4,550 2,023 2,487 3,371
Other Oper. (Exp)/Inc 124 49 101 95 FPSO/FSO 692 807 807 782
Operating Profit 597 411 293 355 Heavy Engineering 2,518 3,045 3,245 3,245
Other Non Opg (Exp)/Inc 0 0 0 0 Others 0 0 0 0
Associates & JV Inc 1 6 31 16 Total 15,784 13,543 15,034 16,025
Net Interest (Exp)/Inc (100) (104) (99) (88) Pre-tax profit (RM m)
Exceptional Gain/(Loss) 0 0 0 (8) Shipping 2,038 1,829 1,855 1,904
Pre-tax Profit 498 312 225 273 Integrated Liner Logistics (877) (724) (422) (285)
Tax (14) (32) (12) (2) FPSO/FSO 251 382 380 341
Minority Interest (34) (30) (32) (38) Heavy Engineering 349 365 389 389
Net Profit 450 250 182 233 Others (166) (139) (136) (136)
Net profit bef Except. 450 250 182 242 Total 1,595 1,713 2,066 2,213
Pre-tax profit Margins (%)
Sales Gth (%) 22.1 (17.4) 8.7 (2.6) Shipping 25.4 23.9 21.8 22.1
Opg Profit Gth (%) (9.5) (31.1) (28.6) 20.9 Integrated Liner Logistics (19.3) (35.8) (17.0) (8.4)
Net Profit Gth (%) (13.9) (44.6) (27.1) 28.4 FPSO/FSO 36.3 47.4 47.1 43.6
Gross Margins (%) 10.6 9.8 4.8 6.7 Heavy Engineering 13.9 12.0 12.0 12.0
Opg Profit Margins (%) 13.4 11.2 7.3 9.1 Others N/A N/A N/A N/A
Net Profit Margins (%) 10.1 6.8 4.5 6.0 Total 10.1 12.7 13.7 13.8
Key Assumptions
New LNG ships 3.0 0.0 0.0 1.0
Change in tanker rate (%) 34.3 (54.4) 25.4 4.6
Change in container rate (33.3) (42.0) 0.0 5.0
MYR/USD 3.4 3.6 3.4 3.3
Source: Company, DBS Vickers
Page 109

Regional Equity Strategy 4Q 2009
Country Assessment
Thailand
Liquidity driven rally
There could be a consolidation in the near term following
the SET Index’s 85% surge from its trough and 58% rise
YTD (up to 17 Sep). But the magnitude should be limited
due to an improving economic outlook and ample
liquidity. We tracked the market back to 1982, and
found that SET rallies post-economic crisis always ended
close to the first interest rate hike of each cycle, implying
possible further market appreciation until 2Q10. For
4Q09, we recommend increasing exposure in Banks,
Property, upstream Energy and Construction Materials.
We believe the macro conditions are quite favorable for the Thai equity market.
While the economy has bottomed out, benign inflationary pressure should keep
interest rates low for another two to three quarters at least. We recommend
investors increase exposure in Banks. Our top picks are KASIKORNBANK (KBANK
TB) and Bangkok Bank (BBL TB).
We maintain our Overweight positions on Property, where our top picks include
Preuksa Real Estate (PS TB), Quality Houses (QH TB), Supalai (SPALI TB) and Asian
Property (AP TB). We also remain Overweight on upstream Energy stocks, with
PTT Exploration & Production (PTTEP) and PTT (PTT) as our top picks.
We upgrade Construction Material to Overweight with Siam Cement (SCC TB)
and Tata Steel Thailand (TSTH TB) as our top picks for the sector.
Chirasit Vuttigrai +662 657 7836 chirasitv@th.dbsvickers.com
Page 110
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Refer to important disclosures at the end of this report
ed-SGC / sa-TW

Regional Equity Strategy 4Q 2009
Country Assessment
Market Data
52-Week
Indices
Close
17 Sep -09
Chg Net
-1 mth
-1 mth
(%)
-3 mth
(%)
-6 mth
(%)
-12 mth
(%)
High
(%)
Low
(%)
SET 709 56.0 8.6 18.7 64.4 18.9 720 380
SET 50 508 40.7 8.7 18.0 69.2 21.8 516 261
SET 100 1,092 89.5 8.9 19.2 71.4 21.7 1,110 553
SET Agribusiness 77 7.7 11.0 29.9 69.9 48.8 79 39
SET Banks 263 14.3 5.8 14.6 77.6 25.2 269 124
SET Construction Materials 5,797 792.6 15.8 44.3 118.6 63.4 5,912 2,306
SET Communication 82 10.9 15.2 16.8 31.4 18.0 84 49
SET Energy 16,567 1,186.3 7.7 14.2 65.5 16.6 16,860 8,453
SET Electronics 612 (4.2) (0.7) 31.6 96.9 18.6 631 305
SET Finance 660 39.0 6.3 11.9 62.6 6.2 670 380
SET Petrochemicals 502 65.6 15.0 41.5 130.1 24.7 530 190
SET Transport 93 9.7 11.7 35.5 101.3 31.2 95 38
SET Property 112 11.6 11.5 33.1 105.1 28.7 206 82
Transactions:
YTD
Volume (bn shares) 5,675
Value (Bt bn) 28,439
Source: Bloomberg
MARKET REVIEW
SET Index surges 18.7% QTD. The strong run-up in the
market is attributed to (i) improving economic numbers, (ii)
ample liquidity, (iii) easing political tension, and (iv) strong
foreign funds flow. The SET Index performed slightly better
than its regional peers, as measured by the MSCI Far East
(ex. Japan) which rose 18.2% during the same period.
SET Index vs MSCI Far East Asia ex-Japan Index
600
500
400
300
200
MSCI F ar East ex-japan Index
SET Index (RHS)
900
800
700
600
500
400
Construction Materials, Petrochemicals and Transport led
the rally, surging 44.3%, 41.5%, and 35.5% QTD,
respectively. The Construction Material sector outperformed
the market led by Siam Cement (SCC TB). The counter
surged due to (i) recovering cement demand with the
economy having bottomed out, and (ii) brighter outlook for
its petrochemical unit. The Petrochemicals sector
outperformed the market due to (i) stronger-than-expected
prices and spreads, (ii) inventory restocking, (iii) strong
demand from China, and (iv) tight supply in some products,
such as Benzene. The Transportation sector rose following a
sharp earnings recovery at Thai Airways (THAI TB).
Foreign funds continue to flow in with a net buying position
of Bt11bn QTD (vs. Bt5.5bn net sell in 1Q09 and Bt26bn net
buy in 2Q09). This was attributed to (i) investors’ increasing
risk appetite following signs of economic green shoots, and
(ii) a weak US$ compared to Asian currencies.
100
300
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Source: Bloomberg, DBS Vickers
Page 111

Regional Equity Strategy 4Q 2009
Country Assessment
Thailand Stock Market: Foreign Net Buy (Sell) Position
Btm
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
(30,000)
(40,000)
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Source: SET, DBS Vickers
Foreign net buy (sell)
Avg Daily Turnover (RHS)
As of 17 Sep 09
Btm
30,000
25,000
20,000
15,000
10,000
5,000
2Q09 growth marks the end of recession. 2Q09 GDP grew
9.2% (QoQ, saar), within consensus expectations but lower
than our 12% forecast, and marking the end of the
recession. Y-o-y contraction was in between our forecast (-
4.6%) and consensus forecast (-5.2%), due to revisions to
preceding quarters’ data.
The second quarter expansion comes after two quarters of
negative output growth – minus 24% (QoQ, saar) and minus
7% (QoQ, saar). This implies that the 30% drop in output
since Oct08 has recovered. In other words, output dropped
7.5% from the peak in 3Q08 and has grown by 2.3% from
the bottom reached in 1Q09.
A breakdown by expenditure revealed the turnaround in
second quarter was driven mainly by a pause in inventory
drawdown and a large rise in public investment spending
(60% QoQ, saar). In fact, stocks contributed a full 20 ppts
(QoQ, saar) to second quarter growth. We note the difficulty
of implementing public investment projects (because of
political uncertainties) has been one of the key constraints of
Thailand’s growth in the past few years. From this
perspective, the acceleration in government investment
spending is positive.
However, two aspects within the positive growth data
disappointed; they are exports and domestic consumer
spending. Exports fell a disappointing 9% (QoQ, saar)
marking the fourth consecutive quarter of contraction.
Private consumption rose only 3% (QoQ saar), following the
shocking 14% (QoQ, saar) drop in the previous quarter.
-
Thailand: Real GDP Growth – recovery in 2Q09
Real GDP Growth 2Q08 3Q08 4Q08 1Q09 2Q09
(% Chg y-o-y)
Private
2.5 2.7 2.1 -2.6 -2.5
Consumption
Government
-3.7 -2.9 11.0 2.8 5.9
Consumption
GFCF 1.9 0.6 -3.3 -15.8 -10.1
Private 4.3 3.5 -1.3 -17.7 -16.1
Public -5.2 -5.5 -10.2 -9.1 +9.6
Exports 11.9 11.2 -8.9 -16.4 -21.8
Imports 6.7 13.1 1.0 -31.4 -25.4
GDP 5.5 3.8 -4.2 -7.0 -4.9
Source: NESDB, DBS Vickers
July data continues to point to recovery. July supply and
demand side data point to continued strong recovery in
output in the third quarter. Sequential (seasonally adjusted),
manufacturing output, private consumer spending and
investor spending rose 1.9%, 3.4% and 1.6%, respectively.
Export and import volumes grew 1.9% and 3.5%,
respectively in July. On the whole, we expect c.7% (QoQ,
saar) growth in 3Q – not far from the over 9% (QoQ, saar)
growth in 1Q - which should help to restrict the 2009
growth to close to our forecast of -3.2%. The big picture we
are expecting is the large sequential pick up in GDP in 3Q,
like that witnessed in 2Q, followed by a moderation in
growth to c.4% p.a. from 4Q onwards.
Corporate earnings recovered further in 2Q09. Aggregate
2Q09 net profit grew 17% q-o-q to Bt92bn, but it is still
20% below 2Q08 profit, the peak of the previous earnings
cycle. Aggregate 2Q09 earnings exceeded our and
consensus forecasts by 15% and 11%, respectively. Strong
results were seen for most sectors, except Contractors and
Media. Other key observations are: (i) earnings of most
commodity companies continued to recover from 1Q09 led
by higher product prices and stock gains; (ii) consumer
staples (Commerce) were still resilient; (iii) exporters
(Electronics and Food) are turning around significantly; and
(iv) Banks reported solid 2Q09 results.
Page 112

Regional Equity Strategy 4Q 2009
Country Assessment
Quarterly aggregate net profit and y-o-y growth*
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
1Q09
2Q09
Banks Energy Telecom
Property Building mat. Others
Growth (RHS)
Note: * Only stocks under our coverage, excludes new listing
Source: SET and DBS Vickers
Sectors with positive y-o-y growth in 2Q09
Contractors (+122%): Sector earnings turned positive
from a huge loss (from ITD) a year ago.
Petrochem (+53%): Sales recovery, widening margins and
stock gains.
Commerce (+25%): Aggressive branch expansion in 2H08
and rising SSS.
Property (+11%): Higher sales and margins following the
continued drop in interest rates and the government’s
incentive measures.
Sectors with y-o-y earnings contraction in 2Q09
Transport (-100%): Lower freight rates and weak tourism
numbers.
Industrial estate (-53%): Weak FDI resulting in a sharp drop
in land sales.
Media (-29%): A sharp drop in ad income at MAJOR and
BEC’s c.Bt110m extra expenses for donation and events for
its 39th anniversary.
Construction Material (-28%): 2Q08 was when commodity
product prices peaked.
Energy (-32%): 2Q08 was when commodity product prices
peaked.
Electronics (-29%): Product prices declined throughout
2008 and only recently picked up in 2Q09.
Aggregate 2Q09 SET net profit
YE Dec
(Btm)
2Q08 1Q09 2Q09 Chg
y-o-y
Chg
q-o-q
Banking 20,988 21,190 20,340 -3.1% -4.0%
Finance 340 82 328 -3.5% 302%
Petrochem. 429 681 658 53% -3.4%
Con. Mat. 9,316 5,206 6,669 -28% 28%
Property 4,572 4,201 5,076 11% 21%
Contractors -230 392 51 122% -87%
Ind. estate 788 209 367 -53% 76%
Energy 65,952 24,151 44,731 -32% 85%
Commerce 1,663 2,216 2,078 25% -6.2%
Media 1,444 888 1,026 -29% 16%
Transport -1,301 10,289 -2,606 -100% -125%
Telecom 7,335 5,754 7,068 -3.6% 23%
Electronics 1,789 815 1,265 -29% 55%
Others 2,742 2,416 5,173 89% 114%
Total 115,828 78,490 92,224 -20% 17%
Source: Companies and DBS Vickers
POLITICS
Recent demonstrations were peaceful. After postponing
demonstrations twice (to 30 Aug and 5 Sep), the pro-Thaksin
red-shirt protesters gathered at the Royal Plaza on 19 Sep,
which is also the 3 rd year anniversary of the Coup (19 Sep
2006). The demonstration was peaceful and ended around
midnight. However, the leaders warned of another
demonstration in October.
Pro-Thaksin protests losing momentum. We reiterate our
view that political tension has eased and the probability of
future protests turning violent is low for three reasons.
First, the pro-Thaksin rally is losing momentum after the
riots in April. Ex-PM Thaksin has lost credibility due to that.
The fact that the planned rallies had to be rescheduled twice
also supports our view that they are losing momentum.
Second, there is no compelling reason for a demonstration
for the time being. And the longer the gap between
demonstrations, the more difficult it will be to gather
support for the next rally.
Third, PM Abhisit Vejjajiva has bought more time by
proposing that a constitution drafting assembly be set up to
handle changes in the constitution. He claims they should
come up with a single charter amendment draft, which they
could agree upon and be tabled in parliament for a vote.
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Regional Equity Strategy 4Q 2009
Country Assessment
After which, a public referendum could be held to approve
them.
LIQUIDITY
Benign inflationary pressure. Thailand’s headline CPI
contracted 1.0% y-o-y in Aug 2009, while 8M09 headline
inflation fell 1.9%. Meanwhile, core CPI contracted 0.2% y-
o-y in Aug 2009 but grew 0.4% in 8M09. In sequential
terms, August inflation rose 0.4% m-o-m due to higher fuel
prices. Retail diesel prices rose 5% (MoM, sa) as a result of
the over 10% rise in crude oil price. On a y-o-y basis,
inflation has bottomed and should be in positive territory by
November. But given the large excess capacity, core inflation
could remain benign in 2009 and 2010.
Thailand: Inflation no longer a concern
% (y-o-y)
10
8
6
4
2
0
-2
-4
-6
Jan-07
Apr-07
Headline CPI
Core CPI
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Source: Ministry of Commerce, DBS Vickers
Policy rate should remain at 1.25% over the next six
months. The Monetary Policy Committee (MPC) kept 1-day
repurchase rate (policy rate) unchanged at 1.25% at its
policy meeting on 26 Aug 2009. Following the meeting, the
central bank stated clearly that further accommodation
would be necessary only if the economy weakens further.
We certainly do not expect the economy to weaken further.
Instead, we foresee a recovery in the months ahead, even if
only a weak one. The pick up in exports and non-oil imports
recently also strengthen our view that it would only be a
matter of time before Thai exports picked up along with the
region. The pick up in oil price also supports our view of a
recovery. Given these, the central bank is unlikely to change
rates in the near future.
As a result, DBS economist has removed the remaining
25bps rate cut in our policy trajectory, and expects rates to
be unchanged at 1.25% for the next six months.
Oc t- 08
Jan-09
Apr-09
Jul-09
Thailand: Policy rate likely to be stable
5%
4%
3%
2%
1%
0%
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
Source: Bank of Thailand, DBS Vickers
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09F
Thai baht performance. The Thai baht has strengthened
from Bt34.02/USD at end-2Q09 to Bt33.69/USD on 17 Sep.
Thailand’s international reserve has grown steadily, from
only US$25bn at end 2007 to US$127bn at end Aug 2009.
DBS economist expects the Thai baht to strengthen further
and end the year at Bt33.6/USD.
Thai baht vs US dollar
Bt
42
40
38
36
34
32
30
1/2/06
3/27/06
6/19/06
9/11/06
12/4/06
2/26/07
5/21/07
8/13/07
11/5/07
1/28/08
Source: Reuters
Thailand: International Reserve
US$bn
140
120
100
80
60
40
20
0
1997
1999
2001
2003
Source: Bank of Thailand, DBS Vickers
4/21/08
7/11/08
10/3/08
12/26/08
3/20/09
6/12/09
9/4/09
2005
2007
11-Sep-09
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Regional Equity Strategy 4Q 2009
Country Assessment
GROWTH and VALUATION
Thailand’s 2009 GDP still expected to contract by 3.2%. The
recent economic data has reaffirmed our view that the Thai
economy had hit its trough in 1Q09. DBS economist expects
strong third quarter growth (7-9% QoQ, saar) to make up
for the weaker than expected second quarter. We also
expect 4Q09 economic growth to revert to positive territory
y-o-y. Hence, DBS economist is retaining Thailand’s GDP
growth projections at -3.2% for 2009 and +4.0% for 2010.
Thailand: Quarterly GDP Growth (y-o-y)
6%
4%
2%
0%
-2%
-4%
-6%
-8%
Source: NESDB, DBS Vickers
Thailand: Annual GDP Growth (y-o-y)
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
1Q07
1998
2Q07
3Q07
2000
4Q07
Source: NESDB, DBS Vickers
1Q08
2002
2Q08
3Q08
2009 EPS growth raised to 24.2%. Following better-thanexpected
2Q09 results and an improving economic outlook,
our EPS growth assumption for Thailand was raised from
18.7% (as of Jun 2009) to 24.0%. The impressive EPS
growth for 2009 would be driven by (i) Petrochemicals
(+69.8%) led by IRP’s capacity expansion, (ii) Energy
(+42.9%) after huge inventory losses last year, (iii) Food &
Beverage (+31.0%) led by strong earnings recovery at MINT,
and (iv) Finance (+25.1%) in the absence of investment
2004
4Q08
1Q09
2006
2Q09
3Q09F
2008
4Q09F
2010F
losses booked last year. For 2010, we expect market EPS to
rebound by 13.0% on the back of an improving economy.
The following chart shows Thai listed companies’ 2009-2010
EPS growth vs regional peers.
Regional Earnings Growth
%
40
30
20
10
0
(10)
(20)
Source: DBS Vickers
Consensus earnings upgrade underway. Following the
downgrade of consensus EPS forecasts in 2H08, we saw the
first up-tick in the same in early 1Q09. This is an encouraging
sign. In our view, the worst is behind us, and room for
earnings disappointment is narrowing following lower
market expectations. Actual 1H09 aggregate net profit (of
stocks under our coverage) makes up 53% of our full year
forecast and 55% of consensus’ forecast. Hence, there is
little room for 2H09 earnings to disappoint.
SET: Consensus earnings revision
130
120
110
100
90
80
70
60
Feb-07
China H
Thailand
Sep-07
Source: IBES, DBS Vickers
Hongkong
2009
Apr-08
Indonesia
09F
Nov-08
Malaysia
2010
10F
Singapore
Jun-09
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Regional Equity Strategy 4Q 2009
Country Assessment
Valuations remain low. Despite the strong run-up in the past
four months, the SET valuations remain low compared to its
long-term historical averages. We believe P/BV multiple is a
more appropriate valuation metric than PE or dividend yield
currently, when market earnings are abnormally low (at the
bottom of the earnings and economic cycle).
The current 12-month trailing P/BV is still below its long-term
average, which is not demanding.
SET: Current P/BV is still below historical average
x
4
3
2
1
0
+1 sd
-1 sd
End 94
End 95
End 96
End 97
End 98
End 99
End 00
End 01
End 02
End 03
End 04
End 05
End 06
End 07
End 08
Source: SET, DBS Vickers
Thai market is still cheap relative to regional peers.
Compared to other markets in the region, the Thai market is
still the cheapest in terms of PE and dividend yield. It is now
trading at 2009 PE of 12.5x vs 16.3x for the region. It also
offers generous 2009 dividend yield of 3.4% vs the regional
average of 2.8%.
Regional valuation comparison
09 PE (x)
20
19
18
17
16
15
14
13
12
Expensive
China H
1.4 1.7 2.0 2.3 2.6 2.9 3.2 3.5 3.8
09 Dividend yield (%)
Source: DBS Vickers
Hong Kong
Indonesia
Malaysia
Singapore
Thailand
Cheap
Earnings Estimates by Sector
EPS Growth %
PE (x)
2008A 2009F 2010F 2008A 2009F 2010F
Banking 44.6 (4.2) 16.3 11.8 12.3 10.6
Construction Materials (35.8) 9.6 16.5 15.0 13.7 11.7
Chemicals & Plastics 43.9 69.8 11.8 11.1 6.5 5.9
Commerce 51.9 9.0 12.2 20.7 16.9 15.1
Communication (14.2) (26.7) 9.2 18.0 16.1 14.8
Electronics Components (18.6) (30.1) 4.5 7.5 10.5 9.5
Energy (50.5) 42.9 20.3 16.9 9.8 9.3
Entertainment & Recreation (0.4) (18.2) 17.5 12.8 16.0 13.3
Finance & Securities (29.7) 25.1 (12.0) 16.3 13.1 14.6
Food and Beverage (10.0) 32.6 13.5 14.9 11.4 10.1
Property Development (0.2) 24.9 7.4 16.4 13.1 12.3
Transportation n.m. n.m. 32.2 mn 7.5 5.7
Others 41.2 88.2 9.5 15.5 8.3 7.5
DBSV Universe (30.0) 24.0 16.6 16.4 12.5 10.7
Source: DBS Vickers
Page 116

Regional Equity Strategy 4Q 2009
Country Assessment
INVESTMENT STRATEGY
Possible mild correction before next upturn. Given the 85%
surge in the SET Index from its trough on 29 Oct 2008 and
58% YTD, a mild market correction would not be surprising.
But the magnitude of the correction should be limited, as
investors who missed the boat in the recent run-up are
waiting to buy shares during a correction. Foreign investors
registered Bt162bn net selling in 2008, but their position
YTD is net buying of only Bt51bn.
Given (i) improving economic conditions, (ii) ample liquidity,
and (iii) attractive valuations, our positive view on the Thai
market is intact. A market correction will be a good
opportunity for investors to increase exposure in the Thai
market to capture the market recovery.
We tracked the market back to 1982, and found that SET
rallies post-economic crisis always ended close to the first
interest rate hike of each cycle. As DBS economist does not
expect a rate hike before 2Q10, the market could appreciate
further over the next 6 months.
Buy Banks, Property, upstream Energy and Construction
Materials. Banking and Property counters should benefit
from government pump priming and the current low
interest rate environment. The Energy sector should benefit
from the rebound in oil price, while we have also seen an
up-tick in construction material sales volume.
Our top picks in the Banking sector are Kasikornbank
(KBANK TB) for its good asset quality, lowest NPL ratio
among peers, and attractive valuation, and Bangkok Bank
(BBL TB) for its strong balance sheet, highest NPL coverage
ratio, and strong capital base.
Our top picks for the Property sector are Preuksa Real Estate
(PS TB), Asian Property Development (AP TB) and Supalai
(SPALI TB) for their large backlogs, attractive valuations and
high dividend yields. Quality Houses (QH TB) is also rated a
Buy for its attractive valuation and strong earnings growth
next year due to condominium transfers.
In the Energy sector, we prefer upstream plays like PTT
Exploration & Production (PTTEP TB) and PTT (PTT TB), which
will directly benefit from strong crude oil price. However, the
refining industry should remain under pressure due to
oversupply, and valuations appear unattractive.
We upgraded the Construction Material sector to
Overweight after seeing a recovery in domestic sales
volumes of cement and steel. The sector will also be a prime
beneficiary of the government’s economic stimulus package.
Our top picks are Siam Cement (SCC) and Tata Steel
(Thailand) (TSTH).
SET Index target of 774. We derived a SET target of 774
based on the bottom-up approach.
SET performance after economic crisis
%
30
25
20
15
10
5
0
Fed Funds rate Thai Interbank Policy rate SET Index (RHS)
Econ. crisis
1800
1600
1400
1200
1000
800
600
400
200
0
Dec 82
Dec 84
Dec 86
Dec 88
Dec 90
Dec 92
Dec 94
Dec 96
Dec 98
Dec 00
Dec 02
Dec 04
Dec 06
Dec 08
Dec 10
Note: Inflation targeting regime introduced on 23 May 2000
Source: Federal Reserve, NBER, BoT, Bloomberg and DBS Vickers
Page 117

Regional Equity Strategy 4Q 2009
Country Assessment
Stock picks for 4Q09. We feature six companies for 4Q09.
Three of them (SCC TB, DTAC TB, and THAI TB) are big-cap
counters, and the rest (TISCO TB, IRP TB, and TSTH TB) are
mid-caps.
Siam Cement (SCC TB) is Thailand’s largest conglomerate
with core businesses in cement, petrochemical, paper, and
building products. Despite the petrochemical down cycle,
SCC’s expanding capacity will cushion against the impact
of weakening product spreads. Its non-chemical
businesses should be prime beneficiaries of the economic
recovery and the government’s economic stimulus
package. SCC’s solid balance sheet will strengthen further
after the end of major capex for the new naphtha cracker.
We recommend Buy with a target price of Bt252, based
on 13x 2010 PE.
Total Access Communication (DTAC TB) will be a prime
beneficiary of 3G licenses, with potential 54% NPV
enhancement (from Bt43.00 to Bt66.00). Its current
valuations (12.8x FY10 PE and 5.0x EV/EBITDA) reflect
only the value of its 2G operations. Reiterate BUY with a
revised DCF-based target price of Bt54.50 (50%
probability of 3G license).
Thai Airways (THAI TB) is Thailand’s national flag carrier. It
operates 870 international and domestic flights per week.
Its prospects are brighter due to (i) continued cost cuts, (ii)
better management of fuel surcharge vs fuel cost, and (iii)
expectations that the new president (DD) will turn THAI
around. Cabin factor is improving m-o-m, and THAI
should benefit from the high tourist season in 4Q09.
Liquidity risk is also easing as it continues to secure
funding as planned and successfully delays A380 delivery
to Aug 2012. THAI should turn in Bt5bn net profit in
FY09F compared to the large Bt21bn loss last year.
Tisco Financial Group (TISCO TB) has a strong niche in
consumer finance, asset management, brokerage, and
investment banking. It is the third largest hire purchase
bank in Thailand by turnover, with double-digit loan
growth in the past three years. TISCO’s prospects are
turning positive following the domestic automotive
market recovery in 2H09, which will boost hire purchase
loan growth. Nonetheless, TISCO’s increased penetration
rate in the captive market and successful inorganic growth
in 1H09 lead us to believe that it will again post the
strongest hire purchase loan growth among peers. We
estimate FY09F and FY10F loan growth at 13.5% and
13.0%, respectively. We value TISCO at 1.4x FY10F P/BV,
which a target price of Bt26.00.
Indorama Polymers (IRP TB) will become the world’s 2nd
largest PET producer after the completion of its AlphaPet
project in 4Q09. The current PET industry rationalization
and IRP’s timely expansion allow the group to gain market
share as several competitors were forced to shut down
inefficient facilities. Earnings growth will be driven mainly
by new capacity and lower interest expense. Core net
profit should jump 327% (70% net profit growth) in
2009, and continue to grow by 12% and 7%,
respectively, in 2010-11F.
Tata Steel Thailand (TSTH TB) is the largest and most
efficient long steel producer in Thailand. It should be a
prime beneficiary when mega projects kick off in 4Q09F.
Rebar price has already picked up following signs of
demand recovery, rising 14% from 1QFY10 average to c.
Bt19.5/kg currently. Sales volume inched up 9% from
1H09 average to c. 90,000 tons/month in July and
August, thanks to higher exports and recovering demand.
Going forward, we remain positive on steel prices and
believe that it will continue to pick up, and enhance group
margins. TSTH’s new mini blast furnace that will start
ramping up production in Sep09 is also expected to help
save costs and lift group margins further.
Page 118

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Banks & Finance
Overweight (Upgrade from
Neutral)
Commerce
Neutral
Communication
Neutral
Under Thailand’s 1st and 2nd stimulus packages, the government plans to
borrow from the domestic financial market from 2H09 onwards - this should
benefit banks largely in terms of credit growth. In addition, large and blue
chip corporates are switching from foreign to domestic banks for funding,
which should create opportunities for domestic banks, and seasonally stronger
demand from SMEs. Following this, we forecast FY09F loan growth at 2.2%,
including inorganic growth at BAY and TISCO, and 4.8% growth for FY10F. In
terms of asset quality, NPL ratio should improve to 6.6% by YE09F from 6.9%
by YE08, with most banks still trying to reduce NPLs through write-offs and
sale the rest of the year.
KBANK and BBL are our top picks. We like KBANK for its good asset quality,
lowest NPL ratio among peers, and attractive valuation, and BBL for its strong
balance sheet, highest NPL coverage ratio, and strong capital base to cover
rising NPL without the need to raise capital.
The Consumer Confidence Index has improved for 3 consecutive months
since June 2009, and our optimistic view of the Commerce sector is
unchanged. We are maintaining our view that the three companies under
our coverage (CPALL, BIGC, and HMPRO) are still strong in their respective
markets, and their revenues are considered resilient to the weak economy
relative to other sectors on the SET. We expect them to grow revenue and
earnings continuously this year and next, led by continuous network
expansion and effective cost control. Moreover, the government has
extended several stimulus measures to boost consumption, e.g. cash
handouts for low-income earners, which should be positive for the sector.
These companies also have strong balance sheets.
In our view, the convenience store format will grow the fastest in Thailand
for the following reasons: (i) as the name implies, they offer convenient and
quick services to clients, (ii) favorable locations, (iii) availability of value-added
services such as bill payments, (iv) they are profitable because most work
under a franchise model with good store management.
Our top pick remains CPALL for its strong balance sheet, and earnings
growth prospects led by (i) continued store expansion, (ii) increasing highmargin
food products contribution, and (iii) positive impact from the full-year
de-consolidation of loss-making Lotus Supercenter business in China this
year.
Thai Telecom sector underperformed the SET Index in Mar-Jun 2009 because
cyclicals led the early phase of the market recovery. Nonetheless, the sector
outperformed the market lately due to the progress of 3G license awarding.
We believe the sector is attractive, and the next share price catalyst would be
the award of 3G licenses. The National Telecommunication Commission
approved the first draft of the 3G regulation on 9 Sep. The trial auction and
final public consultation will be held in late September. The next few steps
would be announcing the final 3G regulation in October and awarding the
licenses awarded in early 2010. In our view, the replacement of four NTC
commissioners is unlikely to take place before the 3G regulation is officially
announced, and the NBTC is also unlikely to be set up before 2H 2010.
All the major cellular operators will benefit from 3G licenses, but DTAC will
benefit the most. DTAC is trading at only 12.8x FY10 PE and 5.0x EV/EBITDA,
Its current valuations reflect only the value of its 2G operations. We also
reiterate our Trading BUY call for TRUE.
KBANK and BBL
CPALL
DTAC
Page 119

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Construction Materials
Overweight
(Upgrade from Neutral)
Contractor
Neutral
Electronics Components
Neutral
Domestic cement sales volume turned positive y-o-y for two consecutive
months in June and July, up 5% and 3%, respectively. Steel sales volume is
also improving, and positive economic growth expectations should support
steel prices. Rebar price has inched up 15% in Aug from 2Q09 average.
Meanwhile, although the Consumer Confidence Index remains near a 7-year
low, August data has ticked up for 3 consecutive months since May. In
addition, the 2nd stimulus package, worth Bt1.43 trillion and covers the
government’s fiscal years October 2010-12, should accelerate domestic
construction activities. 73% of the package is earmarked for infrastructurerelated
projects. All the above factors point to signs of recovering demand
for construction materials from 4Q09 onwards. Our top picks for the Sector
are Siam Cement (SCC) and Tata Steel (Thailand) (TSTH).
Contractors will be the prime beneficiary of government pump priming,
especially its Stimulus Package 2 (SP 2), which will be focusing on
infrastructure. The package will commence in Oct 2009 (fiscal 2009/2010),
and spending should be seen in early 2010.
Further, the sector will also benefit from falling construction material prices,
which should result in margin expansion. Our top pick in the sector is Sino-
Thai Engineering (STEC) for four reasons. First, the company has a large
backlog (e.g. the second Purple line contract). Second, its net cash position
will enable the company to bid for more projects. Third, its margins should
improve considerably due to the end of its loss-making Airport link project.
Lastly, the company has good connections with the government.
We remain positive about a demand recovery in the Electronics sector from
2Q09 onwards, and that global demand had bottomed out in 1Q09.
Following 12 months of manufacturers consuming their chip stockpiles due
to slack demand in the face of the recession, inventories are now depleted to
the point where new orders are needed. At the end of 2Q09, iSuppli
estimates inventory value has fallen to US$24.9bn from US$32.6bn in 2Q08.
Moreover, the economic stimulus programs in China, including incentives for
purchasing consumer products and investments in 3G/TDSCDMA
communications infrastructure, have helped to drive semiconductor sales in
the world’s largest chip market. Hence, sales volume should start to improve
q-o-q, and have a positive impact on Thailand’s Electronics sector. Further,
Hana Microelectronics (HANA) has hired over 600 new employees since
Apr09 following its 19% workforce reduction between Oct08 and Mar09
(from 9,120 to 7,364). It is likely to hire another 400-500 staff in 2H09. This
is a positive development because it reflects expectations of a demand
recovery since 2Q09 (compared to sharp drops in production orders in 4Q08
and 1Q09).
The current outlook for electronics export orders remains strong, and 2H09
prospects remain positive h-o-h. This will be led by (i) continued
replenishment of the supply chain (following reduced capacity of
manufacturers in 4Q08), (ii) increasing orders as demand improves, (iii) peak
season in 3Q, and (v) low base in 4Q08.
SCC and TSTH
STEC
DELTA, HANA and CCET
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Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Energy
Overweight
Entertainment
Underweight
(Downgrade from Neutral)
Property Development
Overweight
We expect crude oil price to remain volatile at around US$70, but should
move upward towards year-end supported by seasonally stronger demand
for heating oil in winter. Although refining margin has bottomed out,
continued high inventory levels and new refining capacities should remain an
overhang and cap refining margin gains. Refining margin bottomed out at
US$2.4/bbl average in July, but has since recovered to US$3-4. We expect
margins to hover at US$3-5 going forward.
Refinery stocks strongly outperformed the SET and domestic and regional
peers in 3Q09. This was fuelled by speculations about upcoming merger
plans between PTT’s refinery and petrochemical affiliates. In our view,
refinery share prices have risen ahead of a fundamental recovery. Therefore,
we continue to favor upstream and integrated plays, like PTT Exploration &
Production (PTTEP) and PTT, which are direct beneficiaries of rising crude oil
price.
Overall ad spending for 7M09 fell 4.3%, while TV ad spending for the same
period softened only 1.0%. Despite minimal ad spending recovery currently,
the dispute between Ch7 and Unilever has resulted in ad migration from Ch7
to other channels, especially BEC’s Ch3 and MCOT’s Ch9. And with the
dispute expected to continue throughout the year, the ad migration will
continue into 2H09. This, coupled with the recent recovery of overall ad
spending, means BEC and MCOT will still enjoy strong loading even during
the low season (August). Generally, ad income in 3Q is lower than 2Q, but
now it seems 3Q09 ad income could buck the trend. We expect earnings to
be relatively strong in 4Q09 for three reasons: (i) 4Q is a high season for ad
spending in Thailand; (ii) the economy should have improved by then; and (iii)
positive impact of ad migration from Ch7 should continue into the quarter.
We reiterate our BUY rating for BEC and MCOT. BEC remains our top pick in
the sector.
Thai Property sector reported 3% y-o-y and 22% q-o-q earnings growth in
2Q09 led by (i) stronger sales, (ii) wider gross margins, and (iii) relatively flat
SG&A expenses. Most property companies still have healthy balance sheets
with average net gearing of 70% at end-2Q09. Prospects for the sector
remain positive in 2H09, supported by (i) the low interest rates environment,
(ii) rebounding consumer confidence, (iii) improving economy, and (iv) falling
supply particularly from small & non-listed developers. Several companies
have also secured large backlogs, which should ensure revenue streams this
year and next. Major companies are also planning to launch more projects in
2H09 and 2010, which should result in higher bookings and revenue.
Share prices in the sector have risen 87% YTD, out-performing the SET
Index’s 58% gain. But several stocks are still trading at below historical
valuations while offering very generous dividend yields. We recommend
investors focus on companies with strong balance sheets, large quality
backlogs (implying clearer earnings visibility), diversified portfolios, and
attractive valuations. Our top picks are Preuksa Real Estate (PS TB), Asian
Property Development (AP TB) and Supalai (SPALI TB) for their large backlogs,
attractive valuations and high dividend yields. Quality Houses (QH TB) is also
rated a Buy for its attractive valuation and strong earnings growth next year
due to condominium transfers.
PTTEP and PTT
BEC and MCOT
PS, AP, SPALI and QH
Page 121

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Vehicles & Parts
Neutral
(Upgrade from Underweight)
Toyota Motor Thailand Co. Ltd. reported that Thailand’s domestic car sales
were stable m-o-m with 43,251 units sold in Aug 2009, but fell 8% y-o-y.
This takes 8M09 domestic sales to 317,835 units, which implies 23% y-o-y
contraction. However, domestic car sales have been improving in the past
few months, in line with improving consumer confidence.
In our view, domestic car sales will continue to improve the rest of this year,
and we remain optimistic about Thailand’s auto sector outlook. We believe
that domestic car sales could strengthen y-o-y in 4Q09 due to the low base
effect in 4Q08. Looking forward, we expect Aug-Oct 2009 domestic sales to
be stable m-o-m before rising in the last three months of the year. Thailand’s
auto sector outlook for late-2009 looks positive as we expect the sector to
bottom out in 2Q-3Q 2009.
AH
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Regional Equity Strategy 4Q 2009
Country Assessment
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Page 123

Regional Equity Strategy 4Q 2009
Siam Cement
Bloomberg: SCC TB | Reuters: SCC.BK
BUY Bt229.00 SET : 709.23
Price Target : 12-month Bt 252.00
Potential Catalyst: Sustained petrochemical spreads, economic recovery
Analyst
Vichitr Kuladejkhuna CFA +66 2657 7826
vichitrk@th.dbsvickers.com
Price Relative
280
230
180
130
80
Bt
Relative Index
2005 2006 2007 2008 2009
Siam Cement ( LHS ) Relative SET INDEX ( RHS )
Forecasts and Valuation
FY Dec (Bt m) 2008A 2009F 2010F 2011F
Turnover 293,230 235,563 295,249 312,934
EBITDA 38,981 50,637 55,076 53,175
Pre-tax Profit 20,968 29,864 33,268 31,458
Net Profit 16,771 21,262 23,238 21,521
Net Pft (Pre Ex.) 16,507 21,262 23,238 21,521
EPS (Bt) 14.0 17.7 19.4 17.9
EPS Pre Ex. (Bt) 13.8 17.7 19.4 17.9
EPS Gth Pre Ex (%) (36) 29 9 (7)
Diluted EPS (Bt) 14.0 17.7 19.4 17.9
Net DPS (Bt) 7.5 8.5 10.0 10.0
BV Per Share (Bt) 72.7 82.4 92.5 100.5
PE (X) 16.4 12.9 11.8 12.8
PE Pre Ex. (X) 16.6 12.9 11.8 12.8
P/Cash Flow (X) 11.3 9.8 8.9 9.7
EV/EBITDA (X) 10.7 8.4 7.5 7.6
Net Div Yield (%) 3.3 3.7 4.4 4.4
P/Book Value (X) 3.1 2.8 2.5 2.3
Net Debt/Equity (X) 1.1 1.0 0.8 0.6
ROAE (%) 19.3 22.8 22.1 18.6
Earnings Rev (%): - - -
Consensus EPS (Bt): 17.5 18.6 22.3
ICB Industry : Industrials
ICB Sector: Construction & Materials
Principal Business: Thailand’s largest conglomerate with core
businesses in cement, petrochemical, paper, and building materials.
Source of all data: Company, DBS Vickers, Bloomberg
219
199
179
159
139
119
99
79
59
Riding on economic recovery
• Sustainable demand and delay in new capacity
will keep petrochemical spreads at healthy levels
• Latest data on domestic cement sales and
Consumer Confidence Index are encouraging
• Petrochemical may not have bottomed out, but its
non-chemical business should recover in tandem
with the economy in 2010
• Maintain BUY and Bt252 TP (13x 2010 PE).
Resilient petrochemical spreads, early recovery
signs in non-chemical business. HDPE and PPnaphtha
spreads remained at above US$600/tonne,
supported by firm regional demand attributed to
economic stimulus packages across the region, the
industry’s low inventory level, and delay in new capacity.
SCC’s new naphtha cracker capacity should cushion
against weaker petrochemical spreads in 2010.
Improving prospects for non-chemical businesses.
Domestic cement sales turned around to grow y-o-y
starting in June, while the Consumer Confidence Index
had ticked up for 3 consecutive months since May. The
government’s 2nd stimulus package should accelerate
domestic construction activities from 2010 onwards.
Maintain BUY. SCC’s prospects will improve, led by an
economic recovery, better than previously expected
petrochemical outlook, strong balance sheet, and solid
cash flow. Hence, we maintain a BUY rating, with a
14% total return to our Bt252 target price.
At A Glance
Issued Capital (m shrs) 1,200
Mkt. Cap (Btm/US$m) 274,800 / 8,152
Major Shareholders
The Crown Property Bureau (%) 30.0
Thai NVDR (%) 8.9
Chase Nominees Limited 42 (%) 3.7
Free Float (%) 67.9
Avg. Daily Vol.(‘000) 2,757
Page 124
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-SGC / sa-CS

Regional Equity Strategy 4Q 2009
Siam Cement
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 293,230 235,563 295,249 312,934 Net Fixed Assets 137,261 158,500 147,796 133,615
Cost of Goods Sold (248,096) (185,515) (241,314) (260,661) Invts in Associates & JVs 0 0 0 0
Gross Profit 45,135 50,048 53,935 52,273 Other LT Assets 64,630 68,348 76,570 85,572
Other Opng (Exp)/Inc (27,273) (24,210) (26,899) (27,987) Cash & ST Invts 26,714 24,129 27,084 33,466
Operating Profit 17,862 25,837 27,036 24,286 Inventory 30,107 27,827 33,784 36,492
Other Non Opg (Exp)/Inc 4,262 4,000 4,000 4,000 Debtors 19,313 21,201 23,620 25,035
Associates & JV Inc 4,669 7,039 8,222 9,002 Other Current Assets 7,692 6,609 6,109 6,109
Net Interest (Exp)/Inc (6,089) (7,012) (5,989) (5,830) Total Assets 285,717 306,614 314,963 320,288
Exceptional Gain/(Loss) 264 0 0 0
Pre-tax Profit 20,968 29,864 33,268 31,458 ST Debt 38,180 28,500 27,500 62,500
Tax (4,562) (6,193) (6,214) (6,471) Other Current Liab 26,373 30,802 33,684 35,511
Minority Interest 365 (2,409) (3,816) (3,465) LT Debt 108,127 118,841 109,341 64,841
Preference Dividend 0 0 0 0 Other LT Liabilities 1,650 3,013 3,026 3,038
Net Profit 16,771 21,262 23,238 21,521 Shareholder’s Equity 87,257 98,920 111,058 120,579
Net Profit before Except. 16,507 21,262 23,238 21,521 Minority Interests 24,129 26,538 30,354 33,819
EBITDA 38,981 50,637 55,076 53,175 Total Cap. & Liab. 285,717 306,614 314,963 320,289
Sales Gth (%) 9.5 (19.7) 25.3 6.0 Non-Cash Wkg. Capital 30,739 24,835 29,828 32,125
EBITDA Gth (%) (27.3) 29.9 8.8 (3.5) Net Cash/(Debt) (119,593) (123,212) (109,757) (93,875)
Opg Profit Gth (%) (29.4) 44.6 4.6 (10.2)
Net Profit Gth (%) (44.7) 26.8 9.3 (7.4)
Effective Tax Rate (%) 21.8 20.7 18.7 20.6
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 20,968 29,864 33,268 31,458 Gross Margins (%) 15.4 21.2 18.3 16.7
Dep. & Amort. 12,188 13,761 15,818 15,886 Opg Profit Margin (%) 6.1 11.0 9.2 7.8
Tax Paid (4,562) (6,193) (6,214) (6,471) Net Profit Margin (%) 5.7 9.0 7.9 6.9
Assoc. & JV Inc/(loss) (4,669) (7,039) (8,222) (9,002) ROAE (%) 19.3 22.8 22.1 18.6
Chg in Wkg.Cap. (2,722) 9,217 (4,981) (2,284) ROA (%) 6.3 7.2 7.5 6.8
Other Operating CF 9,362 1,869 0 0 ROCE (%) 5.9 7.7 7.9 6.8
Net Operating CF 30,566 41,479 29,669 29,588 Div Payout Ratio (%) 53.7 48.0 51.6 55.8
Capital Exp.(net) (34,864) (35,000) (5,115) (1,705) Net Interest Cover (x) 2.9 3.7 4.5 4.2
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 1.1 0.8 1.0 1.0
Invts in Assoc. & JV 4,578 0 0 0 Debtors Turn (avg days) 28.4 31.4 27.7 28.4
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 27.6 30.5 29.1 29.9
Other Investing CF 2,305 0 0 0 Inventory Turn (avg days) 52.0 61.6 49.9 52.4
Net Investing CF (27,981) (35,000) (5,115) (1,705) Current Ratio (x) 1.3 1.3 1.5 1.0
Div Paid (15,503) (9,600) (11,100) (12,000) Quick Ratio (x) 0.7 0.8 0.8 0.6
Chg in Gross Debt 39,942 536 (10,500) (9,500) Net Debt/Equity (X) 1.1 1.0 0.8 0.6
Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) 1.4 1.2 1.0 0.8
Other Financing CF (4,455) 0 0 0 Capex to Debt (%) 23.8 23.8 3.7 1.3
Net Financing CF 19,983 (9,064) (21,600) (21,500) Z-Score (X) 2.0 2.0 2.7 3.0
Net Cashflow 22,568 (2,585) 2,954 6,383 N. Cash/(Debt)PS (Bt) (99.7) (102.7) (91.5) (78.2)
Opg CFPS (Bt) 27.7 26.9 28.9 26.6
Free CFPS (Bt) (3.6) 5.4 20.5 23.2
Quarterly / Interim Income Statement (Bt m)
Segmental Breakdown / Key Assumptions
FY Dec 3Q2008 4Q2008 1Q2009 2Q2009 FY Dec 2008A 2009F 2010F 2011F
Turnover 79,313 55,062 55,211 56,880 Revenues (Bt m)
Cost of Goods Sold (65,466) (51,127) (42,369) (43,760) Cement 49,999 47,646 49,131 49,393
Gross Profit 13,847 3,936 12,842 13,120 Petrochemicals 136,527 98,000 162,004 177,033
Other Oper. (Exp)/Inc (7,142) (6,570) (6,035) (6,220) Paper 47,110 41,510 44,532 45,423
Operating Profit 6,704 (2,634) 6,807 6,900 Building products 23,351 24,752 26,732 28,336
Other Non Opg (Exp)/Inc 902 850 916 1,504 Others 36,243 23,656 12,849 12,749
Associates & JV Inc 1,786 (1,636) 1,171 2,044 Total 293,230 235,563 295,249 312,934
Net Interest (Exp)/Inc (1,325) (1,995) (1,633) (1,335) Net profit (Bt m)
Exceptional Gain/(Loss) (27) 43 (134) (46) Cement 6,006 6,444 6,895 7,126
Pre-tax Profit 8,040 (5,372) 7,126 9,068 Petrochemicals 6,136 10,800 11,691 8,936
Tax (1,531) 128 (1,183) (1,366) Paper 1,658 1,902 2,197 2,621
Minority Interest (570) 1,764 (755) (865) Building products 778 1,310 1,775 2,022
Net Profit 5,940 (3,480) 5,188 6,837 Others 2,193 806 680 816
Net profit bef Except. 5,967 (3,524) 5,322 6,882 Total 16,771 21,262 23,238 21,521
EBITDA 12,533 (256) 12,104 13,441 Net profit Margins (%)
Cement 12.0 13.5 14.0 14.4
Sales Gth (%) (1.2) (30.6) 0.3 3.0 Petrochemicals 4.5 11.0 7.2 5.0
EBITDA Gth (%) (8.6) (102.0) (4,832.7) 11.0 Paper 3.5 4.6 4.9 5.8
Opg Profit Gth (%) (3.8) (139.3) (358.4) 1.4 Building products 3.3 5.3 6.6 7.1
Net Profit Gth (%) (17.4) (158.6) (249.1) 31.8 Others 6.0 3.4 5.3 6.4
Gross Margins (%) 17.5 7.1 23.3 23.1 Total 5.7 9.0 7.9 6.9
Opg Profit Margins (%) 8.5 (4.8) 12.3 12.1 Key Assumptions
Net Profit Margins (%) 7.5 (6.3) 9.4 12.0 Cement - sales (m tonnes) 18.2 17.0 17.6 18.2
Paper - sales (m tonnes) 1.7 1.9 2.0 2.1
Polyolefins - sales (m tonnes) 1.1 1.0 1.5 1.8
HDPE spread (US$/tonne) 660 588 520 426
Source: Company, DBS Vickers
Page 125

Regional Equity Strategy 4Q 2009
Thai Airways
Bloomberg: THAI TB | Reuters: THAI.BK
BUY Bt21.70 SET : 709.23
Price Target : 12-month Bt 23.80
Potential Catalyst: Recovering traffic volume
Analyst
Nalyne Viriyasathien +662 657 7823
nalynev@th.dbsvickers.com
Taking off in the high season
• Passenger traffic will grow during the high
tourism season in 4Q09
• Expect a turnaround from losses last year, with an
effective recovery plan, recovering traffic, and
lower fuel cost y-o-y
• Trading at attractive valuation with 11% upside
to our Bt23.80 TP, maintain BUY.
Price Relative
55 .80
45 .80
35 .80
25 .80
15 .80
5 .80
Bt
Relative Index
2005 2006 2007 2008 2009
Thai Airways ( LHS ) Relative SET INDEX ( RHS )
Forecasts and Valuation
FY Dec (Bt m) 2008A 2009F 2010F 2011F
Turnover 200,118 154,981 167,127 177,404
EBITDA 5,568 29,030 35,838 38,849
Pre-tax Profit (23,600) 5,563 7,823 9,184
Net Profit (21,379) 5,017 7,154 8,471
Net Pft (Pre Ex.) (16,908) 2,400 7,154 8,471
EPS (Bt) (12.6) 3.0 4.2 5.0
EPS Pre Ex. (Bt) (10.0) 1.4 4.2 5.0
EPS Gth Pre Ex (%) (521) nm 198 18
Diluted EPS (Bt) (12.6) 3.0 4.2 5.0
Net DPS (Bt) 0.0 0.0 1.1 1.3
BV Per Share (Bt) 26.8 29.8 34.0 37.9
PE (X) nm 7.3 5.2 4.4
PE Pre Ex. (X) nm 15.4 5.2 4.4
P/Cash Flow (X) nm 1.4 1.2 1.1
EV/EBITDA (X) 31.7 6.2 4.9 4.2
Net Div Yield (%) 0.0 0.0 5.1 6.0
P/Book Value (X) 0.8 0.7 0.6 0.6
Net Debt/Equity (X) 3.0 2.8 2.4 1.9
ROAE (%) (37.7) 10.4 13.2 13.9
Earnings Rev (%): - - -
Consensus EPS (Bt): 1.3 2.3 2.7
ICB Industry : Consumer Services
ICB Sector: Travel & Leisure
Principal Business: THAI operates domestic, regional and
intercontinental flights to key destinations around the world and
within Thailand.
Source of all data: Company, DBS Vickers, Bloomberg
204
184
164
144
124
104
84
64
44
24
Improving operation. July passenger cabin factor
showed signs of a turnaround at 71% compared to
average of 66% in 2Q09, due to successful marketing
and recovering traffic demand. 2H09 is expected to be
profitable and traffic should be favorable for THAI
during the peak tourist season in 4Q09.
Positive outlook. Prospects are brighter with its plan to
cut costs further (especially fixed costs), better
management of fuel surcharge vs fuel cost, and
expectations that the new president (DD) will turn THAI
around. We expect THAI to post Bt5bn net profit for
FY09F compared to Bt21bn loss last year. FY10F earnings
should grow 43% to Bt7.2bn on the back of an improving
economy and rising tourist arrivals. Its liquidity risk is
easing as it continues to secure funding as planned and
successfully rolls over its short-term facilities, and delays
A380 delivery to Aug 2012.
Undemanding valuation. THAI’s share price rose 280%
YTD on improving sentiment. Despite this, it is still trading
at attractive 0.6x P/BV and 4.9x EV/EBITDA (2010), still the
cheapest compared to regional peers’ averages of 1.1x
and 10.1x, respectively. Coupled with an 11% upside
potential to our target price of Bt23.80, based on 0.7x
2010 P/BV, we reiterate our BUY call for THAI.
At A Glance
Issued Capital (m shrs) 1,699
Mkt. Cap (Btm/US$m) 36,866 / 1,094
Major Shareholders
Ministry Of Finance (%) 51.0
Yayupak Fund1 (%) 17.1
Thai NVDR (%) 4.5
Free Float (%) 27.4
Avg. Daily Vol.(‘000) 11,447
Page 126
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed-SGC / sa-CS

Regional Equity Strategy 4Q 2009
Thai Airways
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 200,118 154,981 167,127 177,404 Net Fixed Assets 207,064 218,297 223,806 218,268
Cost of Goods Sold (190,154) (133,134) (140,029) (148,483) Invts in Associates & JVs 1,337 1,331 1,364 1,398
Gross Profit 9,964 21,846 27,098 28,921 Other LT Assets 9,015 8,865 8,875 8,487
Other Opng (Exp)/Inc (25,342) (15,260) (16,073) (17,034) Cash & ST Invts 8,024 4,975 4,541 4,902
Operating Profit (15,378) 6,586 11,025 11,887 Inventory 6,779 4,419 4,612 4,858
Other Non Opg (Exp)/Inc 1,307 1,695 1,838 1,951 Debtors 15,829 14,745 15,900 16,878
Associates & JV Inc (65) (12) 67 68 Other Current Assets 11,486 11,256 11,031 10,479
Net Interest (Exp)/Inc (4,992) (5,323) (5,107) (4,723) Total Assets 259,535 263,888 270,128 265,271
Exceptional Gain/(Loss) (4,471) 2,617 0 0
Pre-tax Profit (23,600) 5,563 7,823 9,184 ST Debt 40,764 38,280 29,792 17,656
Tax 2,285 (484) (604) (648) Other Current Liab 57,819 60,536 63,517 66,718
Minority Interest (65) (62) (65) (65) LT Debt 106,417 109,957 114,404 111,729
Preference Dividend 0 0 0 0 Other LT Liabilities 8,652 4,153 4,236 4,321
Net Profit (21,379) 5,017 7,154 8,471 Shareholder’s Equity 45,603 50,620 57,773 64,376
Net Profit before Except. (16,908) 2,400 7,154 8,471 Minority Interests 279 341 406 471
EBITDA 5,568 29,030 35,838 38,849 Total Cap. & Liab. 259,535 263,888 270,128 265,271
Sales Gth (%) 1.4 (22.6) 7.8 6.1 Non-Cash Wkg. Capital (23,725) (30,116) (31,974) (34,503)
EBITDA Gth (%) (79.8) 421.4 23.5 8.4 Net Cash/(Debt) (139,157) (143,263) (139,655) (124,483)
Opg Profit Gth (%) (268.3) nm 67.4 7.8
Net Profit Gth (%) (736.8) nm 42.6 18.4
Effective Tax Rate (%) N/A 8.7 7.7 7.1
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit (23,600) 5,563 7,823 9,184 Gross Margins (%) 5.0 14.1 16.2 16.3
Dep. & Amort. 19,704 20,761 22,909 24,942 Opg Profit Margin (%) (7.7) 4.2 6.6 6.7
Tax Paid (1,478) 2,285 (484) (604) Net Profit Margin (%) (10.7) 3.2 4.3 4.8
Assoc. & JV Inc/(loss) 65 12 (67) (68) ROAE (%) (37.7) 10.4 13.2 13.9
Chg in Wkg.Cap. (1,506) 3,622 1,737 2,485 ROA (%) (7.9) 1.9 2.7 3.2
Other Operating CF 18,087 (7,104) 9 409 ROCE (%) (7.4) 3.0 5.0 5.5
Net Operating CF 11,273 25,139 31,927 36,348 Div Payout Ratio (%) N/A 0.0 26.1 26.1
Capital Exp.(net) (21,403) (31,925) (28,349) (19,336) Net Interest Cover (x) (3.1) 1.2 2.2 2.5
Other Invts.(net) 18 (5) (2) (2) Asset Turnover (x) 0.7 0.6 0.6 0.7
Invts in Assoc. & JV 131 6 (33) (34) Debtors Turn (avg days) 31.6 36.0 33.5 33.7
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 18.4 23.4 23.2 23.1
Other Investing CF 944 0 0 0 Inventory Turn (avg days) 13.8 18.2 14.1 14.0
Net Investing CF (20,309) (31,924) (28,385) (19,372) Current Ratio (x) 0.4 0.4 0.4 0.4
Div Paid (765) 0 0 (1,869) Quick Ratio (x) 0.2 0.2 0.2 0.3
Chg in Gross Debt 3,661 3,674 (4,042) (14,811) Net Debt/Equity (X) 3.0 2.8 2.4 1.9
Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) 3.1 2.8 2.4 1.9
Other Financing CF (12,179) 62 65 65 Capex to Debt (%) 14.5 21.5 19.7 14.9
Net Financing CF (9,283) 3,736 (3,977) (16,615) Z-Score (X) 0.5 0.5 0.6 0.8
Net Cashflow (18,319) (3,050) (434) 361 N. Cash/(Debt)PS (Bt) (81.9) (84.3) (82.2) (73.3)
Opg CFPS (Bt) 7.5 12.7 17.8 19.9
Free CFPS (Bt) (6.0) (4.0) 2.1 10.0
Quarterly / Interim Income Statement (Bt m)
Segmental Breakdown / Key Assumptions
FY Dec 3Q2008 4Q2008 1Q2009 2Q2009 FY Dec 2008A 2009F 2010F 2011F
Turnover 53,669 41,310 40,683 34,362 Revenues (Bt m)
Cost of Goods Sold (52,611) (41,551) (32,482) (32,851) Air Transportation 191,072 146,298 158,270 168,370
Gross Profit 1,058 (241) 8,201 1,511 Business Units 7,948 7,551 7,702 7,856
Other Oper. (Exp)/Inc (4,386) 843 (3,796) (3,774) Other Activities 1,098 1,132 1,155 1,178
Operating Profit (3,328) 602 4,405 (2,263) Total 200,118 154,981 167,127 177,404
Other Non Opg (Exp)/Inc 408 334 513 226
Associates & JV Inc (60) 24 (1) 31
Net Interest (Exp)/Inc (1,242) (1,385) (1,376) (1,382)
Exceptional Gain/(Loss) 4,734 (12,230) 4,522 (1,905)
Pre-tax Profit 512 (12,654) 8,064 (5,294)
Tax (72) (2,102) (177) (92)
Minority Interest (14) (12) (18) (17)
Net Profit 426 (14,768) 7,869 (5,403)
Net profit bef Except. (4,308) (2,538) 3,346 (3,498)
EBITDA 2,109 5,565 9,990 3,165
Sales Gth (%) 6.7 (23.0) (1.5) (15.5)
EBITDA Gth (%) (33.4) 163.9 79.5 (68.3)
Opg Profit Gth (%) 41.3 nm 631.3 nm
Net Profit Gth (%) (104.6) nm nm nm
Gross Margins (%) 2.0 (0.6) 20.2 4.4
Opg Profit Margins (%) (6.2) 1.5 10.8 (6.6)
Net Profit Margins (%) 0.8 (35.7) 19.3 (15.7)
Source: Company, DBS Vickers
Page 127

Regional Equity Strategy 4Q 2009
Total Access Communication
Bloomberg: DTAC TB | Reuters: DTAC.BK
BUY Bt42.75 SET : 709.23
Price Target: 12-month Bt54.50
Potential Catalyst: Tariff rate hike and award of 3G licenses
Analyst
Chirasit Vuttigrai +66 2657 7836
chirasit@th.dbsvickers.com
Price Relative
58 . 90
53 . 90
48 . 90
43 . 90
38 . 90
33 . 90
28 . 90
23 . 90
18 . 90
Bt
Jun - 07 Dec - 07 Jun - 08 Dec - 08 Jun - 09
Relative Index
Total Access Communication ( LHS ) Relative SET INDEX ( RHS )
Forecasts and Valuation
219
169
119
69
19
Best 3G play
• Prime beneficiary of a 3G license, expected in
1Q 2010. NPV could be enhanced by 54% from
Bt43 to Bt66
• Based on 50% probability of securing a 3G
license, DTAC’s target price is Bt54.50, implying
an attractive 28% upside potential
• Reiterate BUY for DTAC, which remains our top
pick in the sector and one of our top 10 picks in
the Thai market.
Prime beneficiary of 3G license. We estimate DTAC’s
NPV will be enhanced by 54% (from Bt43 to Bt66) if it
secures a 3G license. First, DTAC is a pure cellular
operator. Second, it has more room to reduce regulatory
fees than ADVANC (DTAC: from 30% after Oct 2011 to
c.6%; ADVANC: from 24% to c.6%), and third, DTAC
has higher financial gearing than ADVANC (c. 0.16x vs.
0.24x at end-2009). The increase in cash flow of a highergeared
company results in a larger increase in equity
value.
FY Dec (Bt m) 2008A 2009F 2010F 2011F
Turnover 67,695 66,672 68,616 70,154
EBITDA 20,773 19,581 21,602 22,306
Pre-tax Profit 10,122 8,699 10,615 12,114
Net Profit 9,329 6,491 7,922 8,348
Net Pft (Pre Ex.) 7,568 6,491 7,922 8,348
EPS (Bt) 3.94 2.74 3.35 3.53
EPS Pre Ex. (Bt) 3.20 2.74 3.35 3.53
EPS Gth Pre Ex (%) 21.3 (14.2) 22.1 5.4
Diluted EPS (Bt) 3.94 2.74 3.35 3.53
Net DPS (Bt) 1.50 0.82 1.00 1.06
BV Per Share (Bt) 25.1 26.3 28.9 31.4
PE (X) 10.9 15.6 12.8 12.1
PE Pre Ex. (X) 13.4 15.6 12.8 12.1
P/Cash Flow (X) 5.3 6.3 5.6 5.6
EV/EBITDA (X) 5.9 5.9 5.0 4.6
Net Div Yield (%) 3.5 1.9 2.3 2.5
P/Book Value (X) 1.7 1.6 1.5 1.4
Net Debt/Equity (X) 35.3 23.9 11.4 1.3
ROAE (%) 16.8 10.7 12.1 11.7
Earnings Rev (%): - - -
Consensus EPS (Bt): 2.6 2.9 2.7
ICB Industry : Telecommunications
ICB Sector: Mobile Telecommunications
Principal Business: DTAC is the second largest cellular operator in
Thailand with a subscriber base market share of 30%.
Clearer visibility of 3G license award. The draft 3G
Information Memorandum (IM) was approved on 9 Sep.
The final IM should be announced in October, and the
auction should be carried out in January. The award is
expected early 2010.
Reiterate BUY. DTAC’s current valuations (12.8x FY10
PE and 5.0x EV/EBITDA) reflect only the value of its 2G
operations. Reiterate BUY with a DCF-based target price
of Bt54.50, based on a 50% probability of securing a
3G license.
At A Glance
Issued Capital (m shrs) 2,368
Mkt. Cap (Btm/US$m) 101,224 / 3,003
Major Shareholders
Telenor Asia Pte Ltd (%) 35.0
Thai Telco Holdings Limited (%) 30.0
TOT (%) 14.9
Free Float (%) 29.1
Avg. Daily Vol.(‘000) 7,657
Source of all data: Company, DBS Vickers, Bloomberg
Page 128
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Refer to important disclosures at the end of this report
ed-SGC / sa-CS

Regional Equity Strategy 4Q 2009
Total Access Communication
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 67,695 66,672 68,616 70,154 Fixed assets 82,972 79,867 78,742 78,011
EBITDA 20,773 19,581 21,602 22,306 Other LT Assets 4,860 5,057 5,310 5,575
Depr/Amort (9,293) (9,668) (10,205) (9,835) Cash/ST Investments 7,082 6,100 5,711 7,034
Opg Profit 11,480 9,912 11,398 12,471 Other Current Assets 9,521 10,303 10,603 10,841
Asso & Other Inc 38 63 80 104 Total Assets 104,435 101,327 100,366 101,461
Interest (Exp)/Inc (1,396) (1,277) (863) (461) ST Debt 11,097 3,000 - -
Pre-Tax Profit 10,122 8,699 10,615 12,114 Other Current Liabilities 16,484 17,601 18,184 18,826
Tax (2,558) (2,212) (2,697) (3,770) LT Debt 17,291 18,300 13,785 8,271
Minority Interest 4 3 4 4 Minority Interests 41 38 34 29
Extra & Forex 1,761 - - - Shareholders' equity 59,450 62,389 68,364 74,335
Net Profit 9,329 6,491 7,922 8,348 Total Capital 104,435 101,327 100,366 101,461
Sales Growth (%) 3.2 (1.5) 2.9 2.2 Share Capital (m) 2,368 2,368 2,368 2,368
Net Profit Gr (%) 59.7 (30.4) 22.1 5.4 Net cash/(debt) (20,990) (14,900) (7,789) (966)
EBITDA Mgn (%) 30.7 29.4 31.5 31.8 Working capital 6,963 7,297 7,581 7,985
Tax Rate (%) 25.4 25.3 25.3 31.0 Gearing (%) 47.2 33.6 19.7 10.8
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
EBITDA 20,731 19,538 21,557 22,259 ROE (%) 16.8 10.7 12.1 11.7
Working Capital 2,880 (354) (362) (272) ROA (%) 9.1 6.3 7.9 8.3
Taxes Paid (3,526) (2,231) (2,583) (3,576) Net Margin (%) 13.8 9.7 11.5 11.9
(i) Operatiing FCF 20,085 16,953 18,612 18,411 Div. Coverage (x) 2.6 3.3 3.3 3.3
Net Interest Payment (911) (875) (575) (233) Interst Coverage (x) 6.6 6.9 11.3 19.8
(ii) Net FCF 19,173 16,078 18,037 18,177 Asset Turnover (x) 0.6 0.7 0.7 0.7
Cash Flow from Investing (10,729) (6,436) (8,979) (8,978) Asset/Debt (x) 3.7 4.8 7.4 12.7
(iii) Residual Cash Flow 8,444 9,642 9,058 9,200 Gearing (%) 47.2 33.6 19.7 10.8
Cash Flow from Equity (1,749) (3,552) (1,947) (2,377) Net Gearing (%) 35.3 23.9 11.4 1.3
Change in Net Cash/Debt 6,695 6,090 7,111 6,823 Debt/EBITDA (x) 1.4 1.1 0.6 0.4
Ending Net Cash/Debt (20,990) (14,900) (7,789) (966) Debt/ Market Cap (x) 0.3 0.2 0.1 0.1
Gross CF/Shr (Bt) 7.8 6.8 7.6 7.6 Capex/Debt (x) 0.3 0.3 0.7 1.1
CF Opera/Shr (Bt) 8.3 7.4 8.1 8.0 Capex/Sales (x) 0.1 0.1 0.1 0.1
Net FCF/Shr (Bt) 8.1 6.8 7.6 7.7 EV (Btbn) 122 116 109 102
CF Int. Cover (x) 0.2 11.5 18.0 28.5 EV/EBITDA (x) 5.9 5.9 5.0 4.6
Quarterly / Interim Income Statement (Bt m)
Revenue Breakdown (Btm)
FY Dec 3Q2008 4Q2008 1Q2009 2Q2009 FY Dec 2008A 2009F 2010F 2011F
Turnover 16,725 16,391 16,501 16,029 -Post-paid Service 9,511 9,611 9,510 9,422
EBITDA 5,130 4,465 4,792 4,761 -Prepaid Service 29,455 29,303 30,115 30,450
Depr/Amort (2,377) (2,523) (2,447) (2,616) -VAS 7,464 8,210 8,867 9,399
Opg Profit 2,752 1,942 2,345 2,144 -IR 2,334 2,217 2,395 2,538
Asso & Other Inc 11 16 18 25 -IC 14,878 13,560 13,832 14,315
Interest (Exp)/Inc (305) (272) (361) (335) -Others 2,958 2,781 2,892 3,007
Pre-Tax Profit 2,458 1,685 2,002 1,835 -Sales & Others 1,095 989 1,005 1,022
Tax (620) (464) (521) (474) Total Revenues 67,695 66,672 68,616 70,154
Minority Interest (2) 5 10 5
Extra & Forex (3) 18 (12) 4 -Access Charge - - - -
Net Profit 1,834 1,244 1,480 1,369 -Concession Fee (13,933) (13,840) (14,095) (15,051)
Sales Growth (%) 2.3 (2.7) (6.8) (5.0) -Deprec. & Amor. (7,963) (8,260) (8,606) (8,271)
Net Profit Gr (%) 34.6 (21.6) (36.9) (64.9) -IC (15,033) (14,294) (14,309) (14,561)
EBITDA Mgn (%) 30.7 27.2 29.0 29.7 -COS & Others (7,712) (8,165) (8,406) (8,574)
Tax Rate (%) 25.4 27.5 26.0 26.0 Total Cost of Good Sold (44,643) (44,559) (45,416) (46,459)
Source: Company, DBS Vickers
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Regional Equity Strategy 4Q 2009
Country Assessment
Indonesia
Raising growth momentum
Indonesia has officially entered a new era with an established
democratic culture, which leads us to remain upbeat on long-term
prospects. The completion of presidential polls and the victory of SBY-
Boediono team mark Indonesia’s coming of age as a democratic
country. We believe this will provide a base for a long-term sustainable
economic development. At the same time, GDP growth of 4% in 1H09
also shows that Indonesia’s domestically driven economy is in a better
economic position than its peers. Meanwhile, the progress of
infrastructure projects and commitment from the elected government
to accelerate infrastructure development will increase growth
opportunities in Indonesia. This is just the beginning of the renewed
growth momentum.
The presidential polls were completed with SBY-Boediono winning the election
with significant 61.7% of the votes. With this margin, the election did not have
to go through to a second round. We believe the completion of the presidential
polls shows an established democratic culture that sets a base for a sustainable
economic development for Indonesia. On the economic front, Indonesia grew
4.0% yoy in 2Q09 (+4.4% in 1Q), and economic data including cement and
auto sales have shown a recovery, marking acceleration in growth momentum.
Meanwhile, we believe that the new government will maintain the same
economic policies with prudence and accommodative policies.
JCI has outperformed other markets in the region; it was one of the best
performers in the global market YTD. JCI posted a 78.6% return YTD, and is
currently trading at 13.3x FY10 PER. We believe that the investment theme for
4Q09 onwards should be based on increasing economic growth momentum, a
low interest rate environment and a pick-up in infrastructure related sectors. As
such, we are positive on banking, cement & construction, energy and
telecommunication sectors. We pick BBRI and PTBA as our top picks in 4Q09 on
the back of expected stronger revenue growth.
Agus Pramono, CFA (6221) 39832668 . agus.pramono@id.dbsvickers.com
Page 130
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Refer to important disclosures at the end of this report
Ed: LM / sa: TW

Regional Equity Strategy 4Q 2009
Country Assessment
Market Data
Close Chg net % Change 52 week
15-Sep-09 -1mth -1mth -3mth -6mth -12mth High Low
JCI 2,420.1 83.1 3.6 19.2 82.7 39.4 2,420.1 1,111.4
LQ45 472.5 15.7 3.4 19.9 82.7 36.5 472.5 206.7
Agriculture 1,745.1 (112.7) (6.1) 9.4 71.5 33.5 1,913.6 615.0
Basic Industries 235.7 11.2 5.0 24.4 90.8 52.1 235.7 99.7
Consumer 573.1 (13.7) (2.3) 23.2 67.2 54.8 601.2 279.5
Finance 289.5 19.5 7.2 19.4 83.6 45.0 294.9 125.9
Infrastructure 686.3 7.1 1.1 12.0 45.8 29.0 709.1 370.6
Manufacturing 475.1 26.1 5.8 30.7 94.8 64.9 475.1 189.1
Mining 2,236.8 (34.5) (1.5) 13.1 137.9 33.2 2,577.2 770.7
Misc. Industry 592.4 83.8 16.5 46.0 139.3 90.7 592.4 164.7
Property 162.4 7.7 5.0 14.2 68.0 17.7 165.2 94.0
Trade & Service 267.6 16.3 6.5 23.3 80.3 9.0 295.3 129.1
Transactions (JSX):
YTD
Vol (bln shrs) 1,202.6
Val Rptr) 705.0
Source: Bloomberg
MARKET REVIEW
JCI registered another good quarter in 3Q09 by posting a
19% return during the quarter. However, we did not see
election euphoria in the market even though SBY, who was
widely expected to win the election, achieved a victory JCI
had priced in the election outcome.
In 3Q09, miscellaneous industry, manufacturing and
consumer sectors were the market drivers. We also noted a
performance surprise from the consumer sector that was a
laggard in the previous quarter. We believe that recovery in
the sector was driven by higher confidence in the economy,
impact from the election campaign as well as seasonality
factor from the fasting season. Bakrie Group stocks still
dominated trading activities and BUMI and BNBR posted
55% and 47% q-o-q gains, respectively, during the period.
In terms of trading liquidity, there was a slight drop in
average trading value. On average, trading value dropped
5% from previous quarter. However, it was due to
seasonality as we approached Eid Festival holidays.
Meanwhile, some small cap stocks that were laggards in
2Q09 became more active during 3Q09.
LIQUIDITY
Bank Indonesia (BI) finally lowered BI rate to a historic low
of 6.5% in Aug 09 following further easing in inflation. This
marked the ninth straight month of rate-cutting since Dec
08, bringing the cumulative reduction to 300bp. The central
bank took the decision, on the expectation that inflation will
remain benign in FY09 due to lower inflation expectations.
Deposit, lending rates could fall 200bps
% Spread (RHS)
bps
25
Ave time depo rate 1000
20
15
10
5
BI 7% deposit ceiling
Latest: Aug09
0
Jan-03 Jan-05 Jan-07 Jan-09
Source: BI
Ave base lending rate
900
800
700
600
500
400
300
200
100
0
Inflation was still benign in Aug09 with 2.8% y-o-y.
However, in m-o-m terms, there were signs of rising
inflationary pressure. CPI was up 0.6% m-o-m, driven by
inflation in food prices, while it may still rise again driven by
the Eid Festival. BI foresees the potential of rising inflation
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Regional Equity Strategy 4Q 2009
Country Assessment
next year, driven by recovery in domestic demand and
elevated global commodity prices. Nevertheless, according
to DBS economists, core inflation remains benign as the
economy is still experiencing some excess capacity. As such,
the DBS economic team estimates that BI may start to
moderately elevate the benchmark rate in 3Q10.
Despite BI’s decision to lower benchmark rates in nine
consecutive months since Nov 09, the banking sector
lowered lending rates at a much slower pace. As such, BI
pushed banks to lower lending rate by setting the highest
deposit rate, as the sector always used high cost of funds as
a reason for keeping lending rate high. Last month, BI made
an informal agreement with 14 domestic big banks to cap
deposit rates by 150bp from the BI Rate starting 1 Sep 09
and by 50bp starting 1 Dec 09. As such, we believe that
liquidity should improve further going forward and loan
growth should also accelerate.
Election
The completion of the presidential election has marked a
new era for Indonesia, in that a democratic system and
culture has been established in the country. We believe this
sets a base for a sustainable economic development for
Indonesia. Despite some weakness in the system that
resulted in a legal battle between non-winning candidates
against the election committee, the legal battle itself shows
that any disagreement would have to go through the
constitutional system for a solution.
SBY-Boediono won the presidential election by a significant
61.7% of votes. As such, the election did not have to go
through a second round. The absolute victory of SBY-
Boediono also signalled that the elected president will have
a strong government with more independence from its
coalition parties in selecting ministers, which are expected to
be filled by bureaucrats and professionals rather than
politicians.
Election result
SBY-Boediono
Megawati-
Prabowo
JK-Wiranto
Source: KPU
5.0% 15.0% 25.0% 35.0% 45.0% 55.0% 65.0%
The victory also gives expectations that there will be no
significant change in the new economic team with its
prudent and accommodative economic policies. The new
government is also expected to accelerate the development
of badly needed infrastructure in Indonesia, which is a
significant problem for the country. However, once the
development is realized, it will drive the economy faster
given the expected US$34bn expected to be spent on
infrastructure projects for 2009- 2017, as indicated by the
National Planning Agency (Bapenas) data.
New surprise development from JORR project in West Jakarta – infrastructure development will be accelerated
Source: Kompas
Page 132

Regional Equity Strategy 4Q 2009
Country Assessment
Infrastructure project
Province Quantity Project cost (US$m)
North Sumatra 7 1,954.0
West Sumatra 2 1,213.0
Riau 1 845.0
Riau Archipelago 1 220.0
South Sumatra 5 1,578.0
Lampung 4 1,723.0
Banten 4 1,201.0
DKI Jakarta 10 5,945.0
West Java 20 3,711.0
Central Java 6 2,326.0
D.I. Yogyakarta 2 842.0
East Java 3 1,556.0
Bali 3 198.0
Central Kalimantan 10 9,009.0
East Kalimantan 3 878.5
North Sulawesi 3 726.0
South Sulawesi 2 212.0
Papua 1 2.0
Total 87 34,139.5
Sector/sub-sector Quantity Project cost (US$m)
Air transportation 3 1,416.5
Land transportation 2 94.0
Marine transportation 5 947.0
Railways 15 11,960.0
Toll roads 32 15,248.0
Water resources 0 -
Water supply 20 659.0
Solid waste and sanitation 2 120.0
Telecommunication 0 -
Power 8 3,695.0
Oil and gas 0 -
Total 87 34,139.5
Source: State Ministry of National Development Planning/National
Development Planning Agency
GROWTH
Indonesia is in a enviable position amid the global
contraction with its domestically driven economy. The
Indonesian economy grew 4.0% yoy in 2Q09 (+4.4% in
1Q), within expectation, which marks further acceleration in
growth momentum. Nevertheless, the growth appears to
have relied heavily on fiscal policies as consumer spending
was weaker than expected. Consumer spending rose 4.8%
y-o-y, lower than the 1Q09 growth of 6%. On the contrary,
government spending rose 17% y-o-y for the rest of the
year, recovery in consumer and investment spending will
take over as the main engines of growth.
GDP growth
%-pt contrib to QoQ sa growth
4
3
2
1
0
-1
Latest: 2Q09
-2
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09
PCE GCE Capex
Stocks Net X GDP QoQ sa
Source: DBS estimates
DBS Economics believes that Bank Indonesia and the
government will maintain accommodative monetary and
fiscal policies. As such, DBS Economics foresees that BI rate
will remain at 6.5% until 2Q10 before gradually being raised
to compensate for the inflation rate. However, the rise in BI
rate will be at a manageable level for business and capital
markets.
Lending was relatively flat in 6M09 with 1.3% YTD growth.
However, with strong growth in the agribusiness sector as
well as the consumer segment, we believe that loan growth
should accelerate in 2H09. This view is also supported by the
surprising strength of BBRI’s 2Q09 loan growth of 11.7% q-
o-q, driven by SME and consumer segments. At the same
time, the agreement between 14 banks to lower deposit
rates is expected to boost lending as the banks will be able
to offer a lower lending rate. We are positive on the banking
sector.
Loan growth
32.0%
24.0%
16.0%
26.0%
30.8%
8.0%
0.0%
Source: BI
1.3%
2007 2008 Ytd09
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Regional Equity Strategy 4Q 2009
Country Assessment
Loan growth by economic sector
2008 1Q09 Q-o-Q 1Q09 Y-o-Y Jun09 Y-o-Y Jun09 Ytd
Total 30.8% -0.4% 26.1% 15.9% 1.3%
Agriculture 18.6% 1.8% 22.5% 19.3% 8.0%
Mining 20.5% -5.9% 4.0% -8.3% -12.5%
Manufacturing Industry 32.1% -1.8% 24.9% 6.2% -8.3%
Trade 21.0% 0.1% 22.5% 15.3% 4.7%
Services 45.4% -1.7% 36.4% 22.9% 0.3%
Electricity, Gas and Water 143.0% 6.4% 99.6% 115.7% 18.0%
Construction 32.9% 0.0% 31.8% 18.5% 5.4%
Transportation 70.0% -1.2% 52.1% 37.5% 2.9%
Business Services 39.4% -3.7% 28.8% 12.9% -5.1%
Social Services 13.6% -0.6% 22.7% 16.5% 3.0%
Others 30.0% 1.2% 24.4% 19.1% 6.6%
Source: BI
Infrastructure, the old story that was very slow to
materialize, has started to attract attention with the progress
of some toll roads that were previously overlooked. The
progress of Jakarta outer ring road (JORR) and some toll
roads in West Java have convinced investors that
infrastructure development will accelerate in SBY’s second
term. The infrastructure project developments will create a
multiplier effect on other sectors. Cement sector is a direct
beneficiary of infrastructure development.
VALUATION AND STRATEGY
YTD, JCI has outperformed other markets in the region. It
even featured as one of the best performers in the global
market, with JCI posting a 78.6% return YTD, and is currently
trading at 13.3x FY10 PER. The strong performance is
supported by the fact that i) Indonesia’s economy is in a better
position with GDP growth of 4% in 2Q09, ii) from the 2Q09
results of companies under our universe, 26% of the
companies’ FY09 estimates had to be revised up to anticipate
better than expected FY09 performance.
JCI PER band
3,000
2,500
2,000
1,500
1,000
500
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: Bloomberg
We believe that the investment theme for 4Q09 onwards
should be based on increasing economic growth momentum,
a low interest rate environment and a pick up in infrastructure
related sector. As such, we are positive on banking, cement &
construction, energy and telecommunication sectors. We pick
BBRI and PTBA as our top picks in 4Q09 on the back of
expected stronger revenue growth. BBRI will benefit from
faster growth in corporate (infrastructure), SME and consumer
segments, while its NIM will also stabilize with the decline in
cost of funds. PTBA is a beneficiary of rising domestic demand,
especially with the development of infrastructure and power
plant projects.
15x
13x
11x
9x
7x
5x
Page 134

Regional Equity Strategy 4Q 2009
Country Assessment
Earnings Estimates by Sector
EPS Growth (%) EPS PATMI (Rpbn) PER (x)
09F 10F CAGR (%) 09F 10F 09F 10F
Conglomerate/Automotive (4.4) 21.3 15.5 8,785 10,660 15.6 12.9
Infrastruct. 25.4 14.6 15.7 5,351 6,135 14.2 12.4
Consumer 12.0 23.6 22.8 1,950 2,410 18.2 14.5
Banks 21.5 9.0 11.9 22,567 24,591 15.0 14.0
Plantation (25.6) 8.7 8.3 2,646 2,877 15.9 14.7
Basic Materials (66.9) 181.4 75.9 2,074 5,836 38.0 13.9
Oil, Gasn & Energy 35.1 6.0 14.0 23,475 24,886 14.2 13.2
Telecomm. 10.3 (0.3) 7.0 13,783 13,746 14.2 13.2
Source: DBS Vickers
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Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Indonesia
SECTOR REMARKS STOCK SELECTION
Conglomerate/
Automotive
Neutral
Cement and Construction
Overweight
Consumer Goods
Neutral
Banking
Overeweight
Plantation
Neutral
Auto sales have shown a recovery since May09 and the latest auto
sales data indicate that the decline in car and motorcycle sales could
be lower than our estimate. However, on motorcycle sales, Astra
may have lost its domination as Yamaha has reached the same
market share. While data on ASII and its subsidiaries have shown
positive developments, its valuation has become demanding and all
positive expectation have been priced in on ASII stock price.
We are upbeat on the sector on the back of the expected demand
recovery, demand from infrastructure as well as continued
improvement exercised by cement producers. We expect cement
sales to fully recover next year on the back of faster economic growth
with recovery in the property sector. We pick SMGR as our top pick
as we believe that the company still offers more upside potential
from efficiency programs. At the same time, the construction
commencement of SMGR’s two cement plants will ensure the
company’s leading position in the market.
The outlook for consumer goods companies should get a boost from
lower borrowing costs in 4Q09, as banks look set to lower
borrowing rates. Stable commodity and fuel prices as well as lower
consumer borrowing rates should be together maintain momentum
for consumer staples and discretionary in 4Q09, despite a seasonally
lower demand post-Eid festival. However, recent jump in stock prices
has priced in these expectations.
We are positive on the banking sector as we have seen there is a
recovery in the sector. A strong sign of recovery in loan growth is
seen from some banks preparing to issue sub-debts. At the same
time, loan quality should improve in 3Q09. The agreement between
14 banks and BI also signal that banks will temporarily enjoy higher
NIM as deposit rates fall faster than lending rates, although we
believe that the latter will follow deposit rate but with some time
lag. At the end, the lower lending rate that is expected to start in
4Q09 will increase demand for loan from all segments.
We expect 4Q09 palm oil price to rebound on seasonally slower palm
oil supply growth and run down in US soybean oil inventory.
However, as most plantation stocks have not moved in-tandem with
CPO price’s current correction, we recommend investors to remain
selective. We currently have Hold calls on both Astra Agro Lestari and
London Sumatra.
-
SMGR
KLBF
BBRI
-
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Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Indonesia
SECTOR REMARKS STOCK SELECTION
Basic Materials
Neutral
Energy
Overweight
Telecommunications
Overweight
Metal prices such as nickel and tin have rebounded strongly
followed by sharp increases in metal producer share price (+114%
ytd). However, for nickel producers, the share price has already
increased, implying much higher commodity prices compared to
current level, thus valuation is rich. Yet, for one company, Timah
(TINS), we believe the upside remains attractive. TINS is the one of
the top tin producers in the world, and is thus well positioned to
directly benefit from rising tin price.
We remain positive on energy sector, especially coal, as rising
domestic demand will play a more prominent role going forward.
Development of the 10,000MW coal-fired power plants continues to
progress with estimated completion in 2010. The power plants will
demand c.35-40mn tons of coal p.a. on top of current domestic
consumption of about 50mn tons p.a. This will provide plenty of
growth opportunities for coal producers in our view.
Having said that, we pick Bukit Asam (PTBA) as our top pick in the
sector underpinned by its strong exposure in domestic market and
the several projects underway (incl. transportation infrastructure
enhancement, power plant projects and acquisition) to ramp up its
production going forward.
TLKM reported higher than expected 2Q09 earnings on the back of
strong margins, which we believe is due to the rising effective tariff
environment in the Indonesian telco industry. While this benefited
telcos in general (including Excelcomindo), ISAT departed from the
norm by reporting disappointing 2Q09 results. Following a change in
management (after Qtel has taken control of ISAT), the company
raised its effective tariff aggressively with the aim of shifting its focus
to high ARPU subscribers. In a price sensitive market, ISAT suffered
13% q-o-q fall in subscriber base while 1H09 ARPU drop 17% y-o-y.
Looking ahead, we think its competitors would take advantage of
ISAT’s weakness to gain market share while ISAT continues to churn
out customers. We remain optimistic on TLKM given its strong track
record in the cellular business as well as its strong balance sheet
(FY10F: 0.3x net gearing). We reiterate our BUY call on TLKM with a
DCF-based price target of Rp10,500.
TINS
PTBA
TLKM
Page 137

Regional Equity Strategy 4Q 2009
Bank Rakyat Indo
Bloomberg: BBRI IJ | Reuters: BBRI.JK
BUY Rp7,450 JCI : 2,420.11
Price Target : 12-Month Rp 10,400
Potential Catalyst: Lower cost of fund
Analyst
Agus Pramono CFA +6221 3983 2668
agus.pramono@id.dbsvickers.com
Price Relative
9,093
8,093
7,093
6,093
5,093
4,093
3,093
2,093
Rp
Relative Index
2005 2006 2007 2008 2009
Bank Rakyat Indo (LHS) Relative JCI INDEX (RHS)
Forecasts and Valuation
FY Dec (Rp bn) 2008A 2009F 2010F 2011F
Pre-prov. Profit 11,190 13,636 16,006 18,796
Net Profit 5,958 7,022 9,010 11,087
Net Pft (Pre Ex.) 5,958 7,022 9,010 11,087
EPS (Rp) 484 570 731 900
EPS Pre Ex. (Rp) 484 570 731 900
EPS Gth Pre Ex (%) 23 18 28 23
Diluted EPS (Rp) 484 570 731 900
PE Pre Ex. (X) 15.4 13.1 10.2 8.3
Net DPS (Rp) 242 285 366 450
Div Yield (%) 3.2 3.8 4.9 6.0
ROAE Pre Ex. (%) 28.5 28.8 30.9 31.5
ROAE (%) 28.5 28.8 30.9 31.5
ROA (%) 2.6 2.6 2.9 3.0
BV Per Share (Rp) 1,814 2,142 2,588 3,123
P/Book Value (x) 4.1 3.5 2.9 2.4
211
191
171
151
131
111
91
71
Faster than the others
• Loan growth should accelerate
• Loan quality will recover in 4Q09
• NIM should stop declining
• Undemanding valuation, maintain BUY rating and
Rp10,400 TP.
The worst is over. BBRI posted 14.6% YTD loan
growth, the highest in the sector. Going forward, with
recovering domestic consumption, extensive marketing
efforts and outlet expansion, BBRI should be able to
register stronger loan growth. Meanwhile, although
BBRI’s gross NPL ratio increased in 2Q09 to 3.7%, loan
quality should improve in 4Q09. The management
expects NPL to inch up in 3Q09 before falling in 4Q09;
the rise in NPL in 3Q09 will be due to higher loan
growth, conservative provisioning policy, as well as full
provision for loans to high risk segments.
NIM should stabilise. BBRI should be a beneficiary of
lower deposit and lending rates. It has some fixed rate
loans or fixed income loans which should not be
affected by falling lending rates. The bank should also
benefit from the agreement between banks to lower
deposit rates. We think that its cost of funds could fall
by 110bps in 2H09, slightly more than asset yield.
Undemanding valuation. We raised our target price
to Rp10,400 based on 4x FY10 PBV. If we use the DDM
method with 25% sustainable ROE, 12.5% sustainable
growth and 14.5% required rate of return, we arrive at
6.2x PBV. The stock is currently trading at 2.9x FY10
PBV, but deserves a higher valuation for its high ROE
and strong growth.
Earnings Rev (%): - - -
Consensus EPS (Rp): 549 676 817
ICB Industry : Financials
ICB Sector: Banks
Principal Business: Banking
Source of all data: Company, DBS Vickers, Bloomberg
At A Glance
Issued Capital (m shrs) 12,334
Mkt. Cap (Rpbn/US$m) 91,885 / 9,286
Major Shareholders
Govt of Indonesia (%) 59.0
Free Float (%) 41.0
Avg. Daily Vol.(‘000) 17,332
Page 138
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SGC / sa: TW

Income Statement (Rp bn)
Balance Sheet (Rp bn)
Regional Equity Strategy 4Q 2009
Bank Rakyat Indo
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Net Interest Income 19,648 21,601 25,994 31,706 Cash/Bank Balance 50,843 54,193 57,330 61,982
Non-Interest Income 2,385 3,371 3,242 2,329 Government Securities 20,929 24,068 25,272 26,535
Operating Income 22,033 24,972 29,237 34,035 Inter Bank Assets 1,561 2,491 2,989 3,587
Operating Expenses (10,843) (11,335) (13,231) (15,238) Total Net Loans & Advs. 153,103 186,450 233,024 279,535
Pre-provision Profit 11,190 13,636 16,006 18,796 Investment 9,486 11,121 11,955 12,830
Provisions (2,844) (4,129) (3,945) (3,949) Associates 0 0 0 0
Associates 0 0 0 0 Fixed Assets 1,346 928 489 12
Exceptionals 0 0 0 0 Goodwill 0 0 0 0
Pre-tax Profit 8,822 10,031 12,690 15,615 Other Assets 8,809 7,440 8,441 8,199
Taxation (2,864) (3,009) (3,680) (4,528) Total Assets 246,077 286,693 339,501 392,681
Minority Interests 0 0 0 0 Customer Deposits 201,537 235,445 278,854 325,977
Preference Dividend 0 0 0 0 Inter Bank Deposits 3,428 2,520 2,974 2,747
Net Profit 5,958 7,022 9,010 11,087 Debts/Borrowings 4,067 8,716 11,625 11,597
Net Profit bef Except 5,958 7,022 9,010 11,087 Others 14,687 13,613 14,149 13,881
Minorities 0 0 0 0
Shareholders' Funds 22,357 26,399 31,898 38,480
Total Liab& S/H’s Funds 246,077 286,693 339,501 392,681
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 15.35 14.77 14.61 14.72 Loan-to-Deposit Ratio 79.9 83.4 88.0 90.3
Avg Cost Of Funds 4.50 5.40 5.34 5.29 Net Loans / Total Assets 62.2 65.0 68.6 71.2
Spread 10.85 9.37 9.27 9.43 Investment / Total Assets 3.9 3.9 3.5 3.3
Net Interest Margin 10.73 9.45 9.43 9.66 Cust . Dep./Int. Bear. Liab. 98.0 96.4 96.0 96.6
Cost-to-Income Ratio 49.2 45.4 45.3 44.8 Interbank Dep / Int. Bear. 1.7 1.0 1.0 0.8
Employees ( Year End) 0 0 0 0 Asset Quality
Effective Tax Rate 32.5 30.0 29.0 29.0 NPL / Total Gross Loans 2.8 3.7 3.5 3.5
Business Mix NPL / Total Assets 1.8 2.5 2.5 2.6
Net Int. Inc / Opg Inc. 89.2 86.5 88.9 93.2 Capital Strength
Non-Int. Inc / Opg inc. 10.8 13.5 11.1 6.8 Total CAR 13.3 13.9 13.1 13.0
Fee Inc / Opg Income 8.0 8.5 5.7 5.7 Tier-1 CAR 13.7 12.3 11.9 11.7
Oth Non-Int Inc/Opg Inc 2.8 5.0 5.4 1.1 Growth
Profitability Total Net Loans 43 22 25 20
ROAE Pre Ex. 28.5 28.8 30.9 31.5 Customer Deposits 22 17 18 17
ROAE 28.5 28.8 30.9 31.5
ROA Pre Ex. 2.6 2.6 2.9 3.0
ROA 2.6 2.6 2.9 3.0
Quarterly / Interim Income Statement (Rpbn)
FY Dec 3Q2008 4Q2008 1Q2009 2Q2009
Net Interest Income 14,702 19,648 5,402 10,980
Non-Interest Income 1,354 2,484 820 1,830
Operating Income 16,056 22,132 6,223 12,809
Operating Expenses (7,462) (10,942) (2,974) (5,293)
Pre-Provision Profit 8,594 11,190 3,249 7,516
Provisions (2,317) (2,844) (886) (2,675)
Associates 0 0 0 0
Exceptionals 0 0 0 0
Pretax Profit 6,310 8,822 2,377 4,891
Taxation (2,072) (2,864) (658) (1,399)
Minority Interests 0 0 0 0
Net Profit 4,238 5,958 1,719 3,492
Source: Company, DBS Vickers
Loan growth
Rptr
200.0
150.0
100.0
50.0
-
184.6
161.1
33.7
113.9 30.8 13.8
90.3
12.5
75.5
19.8
52.9
62.4
44.5
12.0 8.4
4.7
9.9 7.4 31.1
24.4
30.5
36.2
2.9 8.5
17.5 21.6
14.4 16.5 19.2 22.0
19.2 22.8 27.3 32.6 42.8 48.0
2004 2005 2006 2007 2008 Jun-09
Micro Consumer Commercial
Medium Corporate Total
Page 139

Regional Equity Strategy 4Q 2009
Bukit Asam
Bloomberg: PTBA IJ | Reuters: PTBA.JK
BUY Rp14,800 JCI : 2,420.11
Price Target : 12-Month Rp 18,550
Potential Catalyst: Higher coal price
Analyst
Yusuf Winoto CFA +6221 3983 2668
yusuf.winoto@id.dbsvickers.com
Domestic play
• Beneficiary of rising domestic demand
• Projects are underway to boost production
• Plenty of reserves to support growth
• BUY with Rp18,550 TP.
Price Relative
Rp
17,395
15,395
13,395
11,395
9,395
7,395
5,395
3,395
1,395
Relative Index
2005 2006 2007 2008 2009
Tambang Batubara (LHS) Relative JCI INDEX (RHS)
Forecasts and Valuation
FY Dec (Rp bn) 2008A 2009F 2010F 2011F
Turnover 7,216 10,097 10,781 12,168
EBITDA 2,514 4,620 4,288 5,237
Pre-tax Profit 2,552 4,485 3,814 4,210
Net Profit 1,708 3,220 2,851 3,146
Net Pft (Pre Ex.) 1,708 3,220 2,851 3,146
EPS (Rp) 741 1,397 1,237 1,366
EPS Pre Ex. (Rp) 741 1,397 1,237 1,366
EPS Gth Pre Ex (%) 125 89 (11) 10
Diluted EPS (Rp) 741 1,397 1,237 1,366
Net DPS (Rp) 165 371 699 619
BV Per Share (Rp) 1,735 2,762 3,300 4,047
PE (X) 20.0 10.6 12.0 10.8
PE Pre Ex. (X) 20.0 10.6 12.0 10.8
P/Cash Flow (X) 19.2 10.3 11.2 9.6
EV/EBITDA (X) 12.4 6.7 7.6 6.6
Net Div Yield (%) 1.1 2.5 4.7 4.2
P/Book Value (X) 8.5 5.4 4.5 3.7
Net Debt/Equity (X) CASH CASH CASH 0.0
ROAE (%) 50.2 62.1 40.8 37.2
Earnings Rev (%): - - -
Consensus EPS (Rp): 1,301 1,116 1,339
ICB Industry : Energy
ICB Sector: Coal
Principal Business: Coal Mining
431
381
331
281
231
181
131
81
Rising domestic demand. The 10,000MW coal-fired
power plant expected to be completed by 2010 will
raise coal demand by 35-40mn tons annually, on top of
the current domestic consumption of c.50mn tons p.a.
PTBA produces the type of coal that is suitable for use
by power plants and its strong exposure to the domestic
market (74% of total sales) will allow it to benefit
directly from rising domestic demand.
Boosting production with infrastructure and power
plant projects. PTBA’s ongoing and future projects
include enhancing its current transportation
infrastructure (2 projects) and building up mine-mouth
power plants (2 projects) that will utilize its vast coal
reserves. These projects are slated for completion
between 2012 and 2013, and will raise coal production
by 36mn tons annually when fully completed. Note that
PTBA has c.2bn tons of coal reserves and produces only
14.5m tons (FY09F) p.a. Thus, PTBA is well positioned to
capture the growing domestic coal market.
Reiterate BUY recommendation. Our target price for
PTBA of Rp18,550 implies 15x FY10 PE. This is derived
based on DCF valuation, and assuming 12.6% WACC
(ERP=5%, RF=9.5%, LTG=0%).
At A Glance
Issued Capital (m shrs) 2,304
Mkt. Cap (Rpbn/US$m) 34,101 / 3,446
Major Shareholders
Govt. of Indonesia (%) 65.0
Free Float (%) 35.0
Avg. Daily Vol.(‘000) 5,860
Source of all data: Company, DBS Vickers, Bloomberg
Page 140
www.dbsvickers.com
Refer to important disclosures at the end of this report
ed: SGC / sa: TW

Income Statement (Rp bn)
Balance Sheet (Rp bn)
Regional Equity Strategy 4Q 2009
Bukit Asam
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Turnover 7,216 10,097 10,781 12,168 Net Fixed Assets 583 1,940 4,828 8,033
Cost of Goods Sold (3,686) (3,962) (4,750) (5,144) Invts in Associates & JVs 0 0 0 0
Gross Profit 3,530 6,135 6,031 7,024 Other LT Assets 574 591 609 627
Other Opng (Exp)/Inc (1,036) (1,616) (1,941) (2,190) Cash & ST Invts 3,042 4,663 4,936 5,643
Operating Profit 2,494 4,520 4,090 4,834 Inventory 420 529 635 687
Other Non Opg (Exp)/Inc (51) 0 0 0 Debtors 1,377 1,982 2,116 2,389
Associates & JV Inc 1 1 2 2 Other Current Assets 112 112 112 112
Net Interest (Exp)/Inc 108 (36) (278) (625) Total Assets 6,107 9,817 13,236 17,491
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 2,552 4,485 3,814 4,210 ST Debt 0 0 0 0
Tax (837) (1,256) (954) (1,053) Other Current Liab 1,353 1,382 1,401 1,411
Minority Interest (7) (10) (10) (12) LT Debt 0 1,282 3,441 5,966
Preference Dividend 0 0 0 0 Other LT Liabilities 676 710 710 710
Net Profit 1,708 3,220 2,851 3,146 Shareholder’s Equity 3,998 6,364 7,605 9,326
Net Profit before Except. 1,708 3,220 2,851 3,146 Minority Interests 80 80 80 80
EBITDA 2,514 4,620 4,288 5,237 Total Cap. & Liab. 6,107 9,817 13,236 17,491
Sales Gth (%) 75.0 39.9 6.8 12.9 Non-Cash Wkg. Capital 555 1,241 1,462 1,777
EBITDA Gth (%) 138.7 83.7 (7.2) 22.1 Net Cash/(Debt) 3,042 3,381 1,495 (322)
Opg Profit Gth (%) 163.7 81.2 (9.5) 18.2
Net Profit Gth (%) 124.6 88.5 (11.5) 10.4
Effective Tax Rate (%) 32.8 28.0 25.0 25.0
Cash Flow Statement (Rp bn)
Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F
Pre-Tax Profit 2,552 4,485 3,814 4,210 Gross Margins (%) 48.9 60.8 55.9 57.7
Dep. & Amort. 70 99 196 402 Opg Profit Margin (%) 34.6 44.8 37.9 39.7
Tax Paid (837) (1,256) (954) (1,053) Net Profit Margin (%) 23.7 31.9 26.4 25.9
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 50.2 62.1 40.8 37.2
Chg in Wkg.Cap. (995) (686) (220) (315) ROA (%) 34.0 40.4 24.7 20.5
Other Operating CF 838 (27) (28) (30) ROCE (%) 42.0 49.3 30.3 26.0
Net Operating CF 1,628 2,615 2,809 3,214 Div Payout Ratio (%) 22.3 26.5 56.5 45.3
Capital Exp.(net) (429) (1,456) (3,084) (3,606) Net Interest Cover (x) NM 125.9 14.7 7.7
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 1.4 1.3 0.9 0.8
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 49.0 60.7 69.4 67.6
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 8.5 7.9 8.6 9.4
Other Investing CF 0 34 0 0 Inventory Turn (avg days) 34.9 44.9 46.7 50.9
Net Investing CF (429) (1,422) (3,084) (3,606) Current Ratio (x) 3.7 5.3 5.6 6.3
Div Paid 0 (854) (1,610) (1,425) Quick Ratio (x) 3.3 4.8 5.0 5.7
Chg in Gross Debt 0 1,282 2,159 2,524 Net Debt/Equity (X) CASH CASH CASH 0.0
Capital Issues 0 0 0 0 Net Debt/Equity ex MI (X) (0.8) (0.5) (0.2) 0.0
Other Financing CF (380) 0 0 0 Capex to Debt (%) N/A 113.6 89.6 60.5
Net Financing CF (380) 428 549 1,099 Z-Score (X) 7.7 7.7 9.5 6.4
Net Cashflow 819 1,621 273 707 N. Cash/(Debt)PS (Rp) 1,320 1,467 649 (140)
Opg CFPS (Rp) 1,138 1,433 1,315 1,532
Free CFPS (Rp) 520 503 (120) (170)
Quarterly / Interim Income Statement (Rp bn)
Segmental Breakdown / Key Assumptions
FY Dec 3Q2008 4Q2008 1Q2009 2Q2009 FY Dec 2008A 2009F 2010F 2011F
Turnover 2,079 2,249 2,330 2,171 Revenues (Rp bn)
Cost of Goods Sold (975) (1,181) (874) (952) Domestic 4,242 6,833 6,506 6,638
Gross Profit 1,103 1,068 1,457 1,218 Export 2,974 3,264 4,275 5,530
Other Oper. (Exp)/Inc (294) (343) (271) (319)
Operating Profit 809 725 1,186 900 Total 7,216 10,097 10,781 12,168
Other Non Opg (Exp)/Inc 28 (80) 40 (17)
Associates & JV Inc 0 1 0 0
Net Interest (Exp)/Inc 29 37 65 63 Key Assumptions
Exceptional Gain/(Loss) 0 0 0 0 Sales Volume-mn tons 12 14 16 18
Pre-tax Profit 866 683 1,291 946 Price Domestic (IDR'000/ton) 544 723 678 656
Tax (254) (288) (371) (273)
Minority Interest (1) (9) 1 (1)
Net Profit 611 386 921 672
Net profit bef Except. 611 386 921 672
EBITDA 837 646 1,226 883
Sales Gth (%) 25.7 8.2 3.6 (6.9)
EBITDA Gth (%) 46.0 (22.8) 89.7 (28.0)
Opg Profit Gth (%) 43.1 (10.4) 63.5 (24.1)
Net Profit Gth (%) 44.1 (36.8) 138.3 (27.0)
Gross Margins (%) 53.1 47.5 62.5 56.1
Opg Profit Margins (%) 38.9 32.2 50.9 41.4
Net Profit Margins (%) 29.4 17.2 39.5 30.9
Source: Company, DBS Vickers
Page 141

Regional Equity Strategy 4Q 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 (-10 to +15% total return over the next 12 months for small caps, -10 to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
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Page 142

Regional Equity Strategy 4Q 2009
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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
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