Left Brain Right B - the DBS Vickers Securities Equities Research

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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