Left Brain Right B - the DBS Vickers Securities Equities Research

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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
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Left Brain Right B - the DBS Vickers Securities Equities Research

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