Top Down Strategy and Large Cap Stock Picks S - the DBS Vickers ...

DBS Group Research
Regional Equity Strategy 2Q 2008
28 March 2008
Top Down Strategy and Large Cap Stock Picks
The first quarter of 2008 was a tumultuous quarter. There was heavy selling in global equity
markets, as investors feared that the sub-prime crisis was beginning to strain the US economy.
Several markets in Asia were also affected by country specific events including the general elections
in Thailand and Malaysia, and presidential elections in Taiwan.
We remain cautious in 2Q 2008 as the build up of risks in the US credit market and economy,
work their way through earnings expectations. Meanwhile, trading volumes continue to contract,
exacerbating volatility in equity markets worldwide. We would avoid taking large high beta positions
until there is greater clarity on the US credit markets and macro front.
As such, we continue to build our near term equities strategy around defensive earnings quality,
domestic demand themes, low beta, and dividend yield protection. With our macro views little
changed from the first quarter, we are retaining most of our country weightings for the second
quarter; Overweight in Taiwan, Thailand and Hong Kong/China, and Benchmark-weight in
Singapore, Malaysia and Indonesia. We have moved India to an Underweight and maintain the
same for Korea.
“In Singapore, this research report may only be distributed to
Institutional Investors as defined in the Securities and Futures
Act, Chapter 289 of Singapore.”

Regional Equity Strategy Q2 2008
Research Team Directory
Research Team Directory
Analyst Sector E-mail
Sanjit Maitra Head, DBS Group Research sanjitmaitra@dbs.com
Regional
Timothy Wong Head, Regional Equity Research timothywongkc@dbsvickers.com
Joanne Goh Regional Equity Strategist Joanne gohsc@dbs.com
Hong Kong / China
Dr Peter So Head of Research, Strategy peter_so@hk.dbsvickers.com
Alice Hui CFA Dy Head of Research, Consumer alice_hui@hk.dbsvickers.com
Gideon Lo CFA Dy Head of Research, Oil & Petrochemicals, gideon_lo@hk.dbsvickers.com
Pharmaceuticals, Shipping
Carol Wu China Properties Carol_wu@hk.dbsvickers.com
Dennis Lam Electronics & Technology dennis_lam@hk.dbsvickers.com
Helen Wang Basic Materials helen_wang@hk.dbsvickers.com
Jasmine Lai Banking & Finance jasmine_lai@hk.dbsvickers.com
Jeff Yau CFA Conglomerates, Property jeff_yau@hk.dbsvickers.com
Johnson Yuen Technical Analysis johnson_yuen@hk.dbsvickers.com
Mavis Hui Media & General Retail mavis_hui@hk.dbsvickers.com
Patricia Yeung Industrials patricia_yeung@hk.dbsvickers.com
Rachel Miu Agricultural, Auto & Machinery Rachel_miu@hk.dbsvickers.com
Steven Liu CFA Software & Telecom steven_liu@hk.dbsvickers.com
Indonesia
Agus Pramono, CFA Strategy, Banking, Consumer , agus.pramono@id.dbsvickers.com
Automotive
Herry Dion Mahargono Cement, building materials & herry.mahargono@id.dbsvickers.com
construction; Plantation,
Basic Materials
Yusuf Ade Winoto, CFA Basic Materials, Oil, Gas & Energy yusuf.winoto id.dbsvickers.com
Andrey Wijaya Consumer, Property andrey.wijaya@id.dbsvickes.com
Devianita Tjandera Generalist devianita@id.dbsvickers.com
Ong Boon Leong, CFA Telecommunications boonleong@hwangdbsvickers.com.my
Malaysia
Wong Ming Tek Head of Research, Strategy mingtek@hwangdbsvickers.com.my
Construction, Concessionaires
Goh Yin Foo CFA Retail/ Technical Product yinfoo@hwangdbsvickers.com.my
Lim Sue Lin Banking suelin@hwangdbsvickers.com.my
Ong Boon Leong CFA Telecommunications, Technology Services boonleong@hwangdbsvickers.com.my
Chong Lee Len Motor, Gaming leelen@hwangdbsvickers.com.my
June Ng Power, Oil & Gas, Conglomerates, REITs june@hwangdbsvickers.com.my
Tan Siang Hing Property, Aviation sianghing@hwangdbsvickers.com.my
Ben Santoso Plantation bensantoso@dbsvickers.com
Azida Nor Azizi Steel azida@hwangdbsvickers.com.my
Kok Chiew Sia Consumer, IPO/ Retail Product chiewsia@hwangdbsvickers.com.my
Juliana Ramli Shipping, Logistic, Manufacturing, Plantation juliana@hwangdbsvickers.com.my
Iman Zaman Manufacturing iman@hwangdbsvickers.com.my
Singapore
Janice Chua Head of Research, Strategy, Industrials janicechua@dbsvickers.com
Jesvinder Sandhu Dy Head of Research, Industrials jesvinder@dbsvickers.com
Chong Wee Lee, CFA Industrials weelee@dbsvickers.com
Jeremy Thia Industrials, Property jeremythia@dbsvickers.com
Paul Yong, CFA Consumer paulyong@dbsvickers.com
Andy Sim, CFA Consumer andysim@dbsvickers.com
Tan Ai Teng Electronics aiteng@dbsvickers.com
Ho Pei Hwa Electronics peihwa@dbsvickers.com
Sachin Mittal Electronics, Telecom sachin@dbsvickers.com
Lim Sue Lin Financials suelin@hwangdbsvickers.com.my
Ben Santoso Plantations bensantoso@dbsvickers.com
Yeo Kee Yan Trader Spectrum keeyan@dbsvickers.com
Ling Lee Keng Trader Spectrum leekeng@dbsvickers.com
Thailand
Chanpen Sirithanarattanakul Head of Research chanpens@th.dbsvickers.com
Property
Chirasit Vuttigrai Telecoms, Entertainment chirasitv@th.dbsvickers.com
Vichitr Kuladejkhuna CFA Building Materials, Energy (Oil& Gas), vichitrk@th.dbsvickers.com
Petrochemicals, Chemicals
Sugittra Kongkhajornkidsuk Banks, Securities sugittrak@th.dbsvickers.com
Chaipat Thanawattano Transportation, Energy (electricity) chaipatt@th.dbsvickers.com
Parin Kitchatornpitak Automotive, Commerce, Electronics parink@th.dbsvickers.com
Page 2

Regional Equity Strategy Q2 2008
Table of Contents
Table of Contents
Strategy Overview
Market Data 4
Stock Profiles Key Data 5
Strategy Overview: Asian Equity 6
Regional Data Monitor 28
Country Assessments & Stock Profiles
Singapore Deceleration mode 32
Capitamall Trust Steadily growing 46
Cosco Catalysts ahead 48
SembCorp Marine Strong outlook ahead 50
Singapore Airlines
Too attractive not to pick up 52
Singapore Post Standout defensive play 54
Hong Kong / China Value is emerging 56
China Shenhua Energy Growth on track 70
China Telecom Re-rating and brighter outlook 72
CNOOC Ltd Having the upper hand 74
Li Ning Getting stronger 76
Parkson Positive outlook 78
Malaysia Winds of change 80
PLUS Expressways The route to higher dividends 90
Public Bank Remains a core holding 92
Thailand Focus on domestic plays 94
Banpu Opportunity to accumulate 100
BEC World Strong growth momentum to continue in 2008 102
KASIKORNBANK. Sustainable higher loan growth with good asset quality 104
Minor International Five - hospitality provider 106
PTT Exploration & Production Jump start new growth phase 108
Indonesia Break time 110
Astra International Diversifying into coal mining 118
Bumi Resources Undisputable leader 120
Indosat Capitalising on interconnect 122
Medco Energi Benefiting from strong oil price 124
PT Indo Tmbangraya Megah Heightened optimism 126
DBS Vickers Securities
Singapore l Hong Kong / China l Thailand l Malaysia l Indonesia
Page 3

Regional Equity Strategy Q2 2008
Market Data
Market Data
Relative Valuations & Performance
Stock Market Valuation -- March 2008
Market Cap EPS Growth (%) PE (x)
(US$ bn) 07 08F 09F 07 08F 09F
Hong Kong 1,026 27.4 (3.3) 7.8 14.5 15.0 13.9
China 1,142 40.1 16.2 11.7 17.9 15.4 13.8
Singapore 450 27.9 13.8 17.2 14.9 13.1 11.1
Malaysia 285 34.3 18.0 10.0 16.0 13.6 12.3
Philippines 161 0.2 7.3 12.2 13.8 13.3 18.7
Thailand 148 (2.7) 11.9 4.5 13.2 11.7 11.1
Indonesia 194 61.6 15.8 17.1 18.2 14.5 11.9
Korea 929 (10.5) 19.6 10.6 11.6 9.9 9.0
Taiwan 797 10.9 36.3 5.1 15.8 12.5 12.5
Prices are as at 25 March 2008
Market Performance (% change) -- 25 March 2008
Singapore (STI)
Hong Kong (HSI)
China (H SCCI/HSCEI)
Kuala Lumpur (KLCI)
Bangkok (SET)
Philippines (PCOMP)
Jakarta (JCI)
Taiwan (TAIEX)
Korea (KOSPI)
Tokyo (Nikkei 225)
New York (Dow Jones)
-30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0
1-month ago 3-months ago YTD
Page 4

Regional Equity Strategy Q2 2008
Stock Profiles Key Data
Stock Profiles
Key Data
Bloomberg Code
Company
Price & Index
(25 Mar 08)
Mkt Cap
(USDm)
PE
08 (x)
PE
09 (x)
EPS CAGR
07-09 (%)
EV/EBITDA
08 (x)
P/BV
08 (x)
ROE
08 (%)
SINGAPORE STI 3,000
CT SP Capitamall Trust S$3.41 4,109 22.8 21.2 10 24.0 1.5 6.5
COS SP Cosco Corporation S$3.44 5,579 15.2 11.5 41 7.8 5.9 45.4
SMM SP SembCorp Marine S$3.73 5,598 17.8 14.8 20 11.4 4.0 24.0
SIA SP Singapore Airlines
S$15.04 12,927 9.8 9.3 5 3.9 1.1 11.8
SPOST SP Singapore Post S$1.14 1,590 15.3 14.2 7 11.1 10.4 77.0
HONG KONG HSI / HSCEI 22,465 / 11,727
1088 HK China Shenhua Energy # HK$30.95 13,537 20.2 16.8 23 10.3 3.7 19.6
728 HK China Telecom # HK$4.96 8,872 10.6 9.6 17 4.4 1.5 14.5
833 HK CNOOC HK$10.70 61,450 10.8 8.8 24 6.4 2.7 27.2
2331 HK Li Ning HK$21.45 2,864 29.5 23.0 36 19.2 8.9 34.0
3368 HK Parkson HK$60.60 4,342 30.4 23.0 39 19.8 10.2 32.7
# H Market Cap only
Malaysia KLCI 1,230
PLUS MK PLUS Expressway RM3.10 4,851 14.7 13.9 (3) 10.2 2.8 19.2
PBKF MK Public Bank RM10.40 11,497 12.7 11.0 16 n.a. 3.3 26.2
THAILAND SET 820
BANPU TB Banpu Bt408.00 3,522 13.4 10.4 27 6.0 2.7 21.9
BEC TB BEC World Bt26.75 1,699 19.7 18.0 15 9.1 8.1 41.4
KBANK TB KASIKORNBANK Bt90.00 6,842 13.3 11.7 11 n.a. 1.9 15.3
MINT TB Minor International Bt16.40 1,660 24.9 21.0 20 12.6 4.6 19.7
PTTEP TB PTT Exploration & Production Bt154.00 16,135 13.3 11.6 24 6.0 3.8 31.8
INDONESIA JCI INDEX 2,420
ASII IJ Astra International IDR23,950 10,555 11.3 10.2 21 8.4 2.9 28.4
BUMI IJ Bumi Resources IDR6,100 12,885 18.5 9.5 19 7.7 7.4 47.8
ISAT IJ Indosat IDR6,950 4,111 14.4 11.2 30 5.3 2.1 15.3
MEDC IJ Medco Energi IDR3,375 1,224 11.0 12.0 19 3.8 1.9 17.8
ITMG IJ PT Indo Tambangraya Megah IDR20,100 2,472 10.5 6.6 153 6.0 3.7 41.2
Page 5

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Asian Equity
The name of the game
We remain cautious about the second quarter of 2008
because of the build up of risks in the US credit market
and economy. We expect earnings forecasts and
downgrades to bite, leading to further adjustment in
stock prices globally.
Given our expectations for a better second half US economic outlook, any
market weakness in the second quarter would theoretically represent a buying
opportunity. However our sense is that the negative news flow has yet to run
its course as risks continue to build up and is threatening our conviction for a
second half market recovery. As long as these risks remain in focus, we see
limited scope for risk appetite to return. We advise that investors should avoid
taking large positions until after April, after which time we expect greater
clarity on the US picture. We are Overweight in Thailand, Taiwan, Hong Kong /
China and Underweight in Korea and India. Singapore, Malaysia and Indonesia
are Benchmark-weight.
The conviction for a second half recovery now is not as high when compared
to the first quarter. Risks we are seeing now include: (i) magnifying of US
credit risk, (ii) balancing of US inflation risks that could lead to a lack of relief
from US rate cuts, (iii) little bearishness in terms of growth and earnings
forecasts, implying room for downward revisions; (iv) a potential Europe
slowdown that has not been priced in; (v) high correlation between US and
Asian equity markets; (vi) a slowdown in Asia’s growth on its own cyclical
dynamics. These views are not derived from our base case global economic
outlook but as long as these factors remain in focus, we see limited scope for
risk appetite to return
Defensive is still the name of the game. For the second quarter, we continue
to build our equities strategy around earnings defensiveness; domestic
demand themes, low beta, and dividend yield protection. Valuations and low
interest rates can provide support at best, but we do not see these as market
drivers at this juncture. We also provide an analysis on asset allocation
recommendation under our base case scenario versus a US recession and a US
recovery view
Joanne Goh • (65) 6878 5233 • joannegohsc@dbs.com
Page 6
www.dbsvickers.com
"This report has been re-printed with permission from DBS Group Research (Regional Equity
Strategy) of DBS Bank Limited"sclosures at the end of this report

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
We remain cautious about Asian equities in the
second quarter of 2008 on account of persistent
risks in the US credit market and economy. In our
view, new risks are building up, and have yet to be
priced in. As such, we see room for downgrades to
earnings forecasts , which will in turn lead to
further adjustment to stock prices.
Our expectations for a better second half would
suggest that investors could view the prevailing
weakness in the second quarter as a good buying
opportunity. The problem is that a lot can happen
before the negative news flow has fully run its
course.
Expectations for a second half recovery and a more
supportive external environment as the US economy
bottoms out have also become consensus views
now. As such equity markets could remain volatile
in the near term — reacting to the first tentative
signs of a bottoming, but subsequently retreating
as more negative news starts to emerge. Against
this backdrop, we still believe defensiveness is the
name of the game in the second quarter. The
conviction for a second half recovery now is not as
high as when compared to the 1Q when we
analyze market risks.
Fig. 1: US GDP forecasts, - 2H recovery now
becoming consensus
DBS Bloomberg survey
1Q08 1.1% 0.2%
2Q08 1.8% 0.6%
3Q08 2.5% 2.0%
4Q08 2.9% 2.0%
2008 2.1% 1.5%
2009 2.6% 2.2%
Source: DBS, Bloomberg
World equity markets performances are strongly
correlated to the 6-month change in the G7
composite leading indicator (CLI 6M-change), with a
regression r 2 of 37%. The indicator has not reached
the lows of 1990’s and 2000’s, but it is lagging and
the latest data available is for December.
Accordingly, when world equity indices fell to lows
recently on January 22, it suggested a CLI 6Mchange
of close to 2001 level of -4.5%. Our
regression model suggests that world equity
markets may retreat by another 6.5% from the
January 22 low. This will match the more modest
slowdown in 1990.
At this juncture, when there are further risks to the
US slowdown, cautiousness is still warranted.
Fig. 2: G7 Composite leading indicator 6-M change
vs YoY% equity performance
75
60
45
30
15
0
-15
-30
-45
-60
% %
10
-6.60%
-4.8%
Latest
Dec07 = -
1.98%
89 91 93 95 97 99 01 03 05 07
World equities performance (L)
indicator 6-months change at annual rate (R)
-10
Global equities market had also been very volatile,
which warrants further cautiousness. Meanwhile, a
less volatile market would indicate the return of risk
appetite. Looking at market rhetoric, volatility will
remain high in the medium term. Higher global
inflation from food and energy prices is not relieving
the current volatility.
Fig. 3: MSCI Asia ex-Japan historical volatility,
rolling 250day standard deviation of daily
returns
25
23
21
19
17
15
13
11
%
9
00 01 02 03 04 05 06 07 08
Historical US indicators data suggest the data could
get worse if US goes into recession, as in 1990-91
or 2001-02. Our base scenarios a very weak first
quarter followed by a slightly better second quarter
and a mild recovery in the second half.
8
6
4
2
0
-2
-4
-6
-8
Page 7

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Fig. 4: US annual GDP QoQ% annualised
10 %
DBS forecast
8
6
4
2
0
-2
-4
90 91 92 93 95 96 97 98 00 01 02 03 05 06 07 08
Fig. 6: US non-farm payroll vs S&P, YoY%
4
3
2
1
0
% %
0.7
-1
-1.4
-1.6
-2
90 92 94 96 98 00 02 04 06 08
50
40
30
20
10
0
-10
-20
-30
-40
-50
US EMPLOYED - NONFARM INDUSTRIES TOTAL (PAYR
SURVEY) VOLA
S&P 500 COMPOSITE - PRICE INDEX
In a study of several US key economic indicators
and their relationship to the S&P500, we observe
that most indicators have yet to touch the lows of
the recent two recessions. If a US recession occurs,
we would expect these indicators to continue to
trend down. Among these indicators, the US
University of Michigan consumer sentiment
index and payroll data have the most
statistical significance to the S&P500 Index.
As such, we expect the market to remain volatile as
investors monitor these data closely. The data
comes after the announcements of the US tax relief
and stimulus package and aggressive US fed rate
cuts. Any positive readings on the data front would
indicate the effectiveness of these measures in
stabilizing sentiment. Otherwise, it would suggest
escalating downside risks to US growth that could
trigger another round of US GDP growth downward
revisions.
Fig. 5: Sentiment index vs S&P, YoY%
40
30
% % 50
40
20
30
20
10
10
0
0
-10
-10
-20
-20
-30
-30
-23.4
-22.5-40
-40 -31.9
-50
90 92 94 96 98 00 02 04 06 08
US UNIVERSITY OF MICHIGAN CONSUMER SENTIME
INDEX VOLN
S&P 500 COMPOSITE - PRICE INDEX
Source: Datastream, DBS. R-sq = 21%
Source: Datastream, DBS. R-sq = 20%
Regression models indicate 5-10% downside for the
US market if indicators touch previous lows.
Risks to our view
US credit market stress magnifying, taking a
toll on US corporates and households; and
subsequent spill over to global financial
markets and economies
The biggest risk to our view is the knock-on impact
on the global economy from a potential US
recession. Global investment banks have already
suffered from the US subprime fallout with massive
provisions on CDOs, SIVs, and potentially more from
credit ratings downgrades, as well as value shrinking
from mark to market operations. A worsening
situation could then result in a contraction in
corporate profits and labor markets, and a resultant
spillover to business and household spending.
Growth vs inflation
At present, a growth slowdown is at least benefiting
from the relief brought about by monetary easing
courtesy of the US Fed. This has reduced the
likelihood that the US economy will enter into
recession.
Central banks will find it harder to follow an easing
path should inflation continue to accelerate in the
second half of the year. Core US inflation has been
edging higher - from 2.1% YoY in September to
2.5% YoY last month – which has caused some
worry amongst market watchers. US policy-makers
have acknowledged that downside risks to growth
right now are greater than upside risks to inflation.
With any luck, relatively benign inflation
expectations will not come unhinged, even as growth
stalls.
Page 8

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Equity markets down, but bearishness not
yet reflected in the numbers
As debate about the probability of a US recession
rages on, it may appear that most of the negatives
have been priced in, judging from the performance
of equity markets.
However, such expectations appear quite nebulous
as earnings and economic numbers have yet to be
downgraded significantly. Since talk of recession
started in November last year, the numbers have
barely changed. At the very least, one would expect
to see US GDP growth forecasts coming down to
1%, and negative or zero earnings growth.
This conflicting situation implies that there a fair
measure of hope amongst analysts and investors.
One reason for this divergence may be the lack of
conclusive evidence that a recession is imminent.
Fig. 7: Consensus US GDP 12m-forward growth
forecasts trend
The second reason could be that the risk-return
reward looks tempting enough to be cautiously
optimistic at this juncture. If our analysis is right, the
markets could see another 6% downside (assuming
indicators fall to 1990’s recession levels) from the
Jan 22 lows. The upside from these levels could be
significant, if the recession is quick and sharp and
growth moves quickly to a recovery phase, as in the
recession in 1990-91 and after a LTCM-induced
credit crunch in 1998. Against the backdrop of these
precedents, longer term funds may view the current
weakness as a bargain hunting opportunity.
But hope is not prediction. Given that the full extent
of the impact from the US credit crisis is difficult to
gauge, we would rather err on the side of caution,
given the high impact / low probability nature of a
“global spillover” scenario. Whilst many of the
negatives have been priced in, it is fear of the
unknown, which will keep investors at bay. The
scenario of a 2000-style recession of prolonged
economic and market weakness after the IT bubble
is most feared by investors right now.
3.6
3.4
3.2
3.0
2.8
2.6
2.4
2.2
2.0
%
Fig. 9: Performance six months after crisis
US Asia
1990-91 recession 26% 30%
1998 LTCM credit crisis 29% 40%
Fig. 10: Prolonged weakness in the 2000 recession
2.00
1600
1500
1.8
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
Fig. 8: Asia ex-Japan earnings: 3-month net revisions
in 12-month forward earnings
1.50
1.00
0.50
1400
1300
1200
1100
15
10
5
0
-5
%
0
-0.50
2000 2001 2002 2003
US QTRLY GDP GROWTH (L)
S&P 500 COMPOSITE (R)
Source: DATASTREAM
1000
900
800
700
-10
-15
-20
-25
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Page 9

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Fig. 11: Annual returns, MSCI Asia ex-Japan vs
S&P500
Asia US Asia US
1973 -41.3 -17.4 1991 12.9 26.3
1974 -56.4 -29.7 1992 7.3 4.5
1975 90.8 31.5 1993 82.2 7.1
1976 40.3 19.1 1994 -9.6 -1.5
1977 -3.1 -11.5 1995 -2.1 34.1
1978 28.3 1.1 1996 15.3 20.3
1979 61.4 12.3 1997 -32.0 31.0
1980 68.6 25.8 1998 -8.3 26.7
1981 -6.0 -9.7 1999 64.6 19.5
1982 -43.1 14.8 2000 -30.8 -10.1
1983 8.4 17.3 2001 -11.5 -13.0
1984 4.5 1.4 2002 -10.0 -23.4
1985 15.4 26.3 2003 45.6 26.4
1986 37.8 14.6 2004 15.9 9.0
1987 13.4 2.0 2005 17.3 3.0
1988 44.5 12.4 2006 33.0 13.6
1989 33.3 27.3 2007 42.2 3.5
1990 -25.2 -6.6
Fig. 12: 2-year rolling correlation of Asia vs US
daily returns (1-day lag for the US)
0.7
0.6
0.5
0.4
0.3
0.2
0.1
r
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Fig. 13: Correlation of Asia and US with different
US returns
0.44
0.42
0.4
0.38
0.36
0.34
0.32
0.3
r
negative US
return
positive US
return
Correlation when
All period
High correlation with US affects portfolio
allocation and flows
Correlation between the US and Asian markets has
remained high, despite the divergence in economic
performance. Historical evidence suggests that
Asian markets never deliver positive returns, and
rarely outperformed the US against the backdrop of
a falling US market (Fig. 11). Correlation analysis,
when broken down into different US return
scenarios, suggests that correlation is higher when
US market is weak than when US is strong (Fig. 13)
. The prevalent belief amongst US domiciled funds is
that emerging market growth will still depend on the
US, and in an environment of weak growth the likely
asset allocation decision is still to sell emerging
market assets, which are highly leveraged to US
growth.
Europe slowdown
While the US economy has been getting all the
attention, a downshift in European economic activity
cannot be taken lightly. External demand from US
and Europe are equal in Asia’s exports composition
by destination. With signals that UK house prices
have begun to fall, European banks hit with subprime
provisions and losses, and slowing retail sales
and industrial production collectively point to a more
cautious outlook. Together with a rising Euro,
inflation and interest rates in the past one-year,
economic growth for the Eurozone is expected to
slow. Meanwhile 4Q07 GDP growth in Eurozone was
dragged down by poor consumption and softer
investment and export growth. Our economist is
looking for a 2% GDP growth for 2008 vs 2.6%
recorded last year, but retains the view that
consumption growth should rebound.
Fig. 14: Asia exports breakdown by destination,
2007
Share of exports by destination (%), 2007
China US Europe Japan
Hong Kong 50.2 12.8 13.0 4.2
Korea 24.6 13.0 14.1 6.9
Taiwan 25.3 13.0 11.6 6.4
Philippines 25.0 14.2 10.9 12.6
Singapore 9.7 9.1 10.8 4.8
Thailand 9.5 12.7 14.1 12.0
India 7.9 15.3 22.1 2.6
Indonesia 8.8 11.1 12.5 18.5
Malaysia 8.6 15.9 13.0 9.0
Asia ex Ch, Jp 21.8 12.7 13.4 7.3
Europe 1.8 6.8 NA 1.1
US 5.5 NA 21.5 5.5
China NA 21.1 20.6 8.5
Japan 15.2 20.6 14.9 NA
Source: Datastream, IFS - direction of trade statistics
Page 10

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
What if Asia turns down….on its own
steam?
Much of the still sanguine tone in the global
economy lies in the belief that domestic demand
in emerging markets will cushion the setback from
the slowdown in developed economies. As such,
the prevailing optimism in Asia’s economies may
well be the last shoe to drop if more data confirms
that Asia economies are indeed not cushioned
from the slowdown. But thus far, 2007 data has
confirmed a very strong showing and the
momentum is spilling over to January this year.
The recent official government forecast
downgrades in Hong Kong and Singapore may
have raised some red flags. However, these need
to be seen in the context of the high base in
recent years, plus the fact that the lowered
estimates are still above potential growth levels.
Moreover, Asian governments have the benefit of
large foreign reserves and trade surpluses, giving
them policy flexibility to deal with further
deterioration in the external environment.
However one point to note is that domestic
confidence sentiment seems to be faltering in
some economies with the loss of wealth effect
from the property and stock markets. Wages are
failing to catch up with higher costs of living, which
sooner or later will filter through to domestic
consumption. Tightening credit from a
deterioration in household asset values and banks’
balance sheets need to be monitored to assess
the snowball impact of the US credit crisis.
Fig. 15: Domestic confidence sentiment proxy
2007 2007 2007
Avg Stock Latest Avg Unem-
Ppty market rise Inflat- Wage ployment
Prx rise 2007 2008TD ion growth rate
China 2.8 96 -21 8.7 20 4
HK 11 39 -18 3.3 2.3 3.4
Singapore 24 19 -18 6.6 6.2 1.6
Thailand 0 26 -6 5.4 4.8 0.8
Malaysia 3 32 -19 2.3 NA 3.1
Indonesia 4 52 -8 7.4 8.1 9.8
India NA 47 -22 5.1 NA NA
Korea 9 32 -14 3.6 5.8 3.3
Taiwan 4 9 -2 3.9 2.3 3.9
One major unanticipated risk is the downshift in
Asian economies due in part to the US slowdown, but
mainly emanating from the dissipation of the wealth
effect from property and stock market boom that had
been driving consumption, against a backdrop of
overheated asset prices and inflation. The confluence
of these factors may be a downshift in Asia’s
business cycle. This is not our central view and we
believe this has not been priced in. Many investors
still argue for an economic decoupling, with emphasis
on demand growth in Asia’s emerging markets. We
fear that a downshift in Asian economies, especially
China, could be the reason for a sell off in Asia, even
as the US economy recovers from a brief recession.
2Q Equity Strategy
We believe risk appetite is at very low levels due to
uncertainty in the market. It is this low level of risk
appetite that we believe will be the driver for equities
to deliver better performance in the second half when
most negative news has been digested over time.
Meanwhile, equities are supported by valuations and
situational interests.
So what are we waiting for?
Given our base case scenario, our conviction for a
second half market recovery is premised on the
following:
1. US economic growth in the region of 2% in
the second half; Rapid rate cuts and stimulus
package to save the US from drifting into recession;
2. Asian domestic demand should hold up in
the face of external weakness, underpinning
economic and earnings growth in the region;
3. Valuation becoming attractive again after
three years of multiple expansion; and
4. Asia’s strong growth and currencies should
continue to attract funds flow into the region.
To be sure, Asian economies still boast of large
current surpluses, solid domestic demand growth,
and lower external debts. With higher inflation but
lower US interest rates, the natural way to tame
inflation in Asia is through currency appreciation,
which is somewhat self fulfilling in attracting more
funds flow, leading to greater currency appreciation.
The appreciation of most Asian currencies YTD
despite ailing stock market performances is
testimony to capital flows being attracted to Asia
despite the rout in global equities.
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Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Fig. 16: Signs of risk aversion: Flight to quality
to US Treasuries and unwinding of Yen carry
trades
5.5
5.3
5.1
4.9
4.7
4.5
4.3
4.1
3.9
3.7
3.5
3.3
100
Mar-06 Sep-06 Mar-07 Sep-07 Mar-08
Fig. 17: Asia ex-Japan*: Cumulative net foreign
purchase
Fig. 18: CBOE VIX Index: Rising costs of portfolio
protection
35
30
25
20
15
10
50
40
30
20
10
0
% JPY/US
US$bil
US10-year bond yield (L)
JPY/USD (R)
-10
Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08
125
120
115
110
105
Source: Bloomberg. * includes Thailand, Indonesia, Philippines,
Korea, Taiwan, India
5
Mar-06 Sep-06 Mar-07 Sep-07 Mar-08
Fig. 19: Asia ex-Japan: Current account surplus,
foreign reserves / import values, external debt
as % of GDP
Current
account
(USDbil)
Foreign
reserves
(USDbil)
Mthly
Imports
(USDbil)
Resvs
/ Imp
Ext. debt
(% of
GDP)
China 162.9 1528 79.5 19.2 14%
HK 8.3 160 30.5 5.2 NA
Singapor 7.6 172 21.5 8.0 NIL
Thailand 1.4 90 11.6 7.8 22%
Malaysia 8.7 101 12 8.4 27%
Indonesi 2.9 57 9.3 6.1 30%
India -5.5 291 19.5 14.9 11%
Korea -2.6 262 29.3 8.9 28%
Taiwan 11.6 278 18.3 15.2 NIL
Fig. 20: Asia ex-Japan: YTD currency and equities
performance
Currency Equities
China 2.8 -22.4
HK 0.1 -18.4
Singapore 3.8 -18.2
Thailand -4.1 -6.0
Malaysia 3.4 -18.8
Indonesia 2.4 -6.0
India -2.5 -21.5
Korea -3.0 -14.3
Taiwan 5.8 -2.4
Timing is an issue and more bad news could come
before the good. We do not expect a pick up in risk
appetite until we see a more steady progression
good (or less negative) news. Our best guess of
when this inflexion point could occur would be in the
middle of the second quarter, when first quarter GDP
estimates and assessment of economic progress
can be made.
We discuss below the various strategy
considerations amidst the current state of affairs.
Growth vs Value?
We have found that regardless of whether equities
are considered cheap or expensive, a slowdown
never bodes well for equities. This is due to rising
risks of earnings downgrades, which renders
valuations less reliable. Our recommendation is
hence, to look into earnings defensiveness rather
than valuations. This is also one of the reasons why
P/E valuation has never been a good leading
indicator for the equities market. At best, valuations
will be supportive of markets for earnings to
turnaround later, but never a good indicator for
forward equity returns. All said, we do not expect a
big 1997 / 2000 style crash , unless we foresee
earnings suddenly being downgraded by more than
40%.
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Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Fig. 21: Asia ex-Japan - 12m forward PER
21
19
17
15
13
11
9
7
(x)
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Fig. 22: Asia ex-Japan - 12m forward Earnings
integer (index)
40
35
30
25
20
15
10
-90%
5
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Interest rate as support
-38%
Earlier in the first quarter, a larger than expected cut
in US Fed interest rates, prompted a mild rebound in
global markets. The theory that lower interest rates
would aid an economic recovery comes with a oneyear
lag. In this environment, interest rate cuts may
only offer temporary relief (and hence the volatility)
as the economy and corporate earnings disappoint.
Lower interest rates also render Asian equities more
attractive from a US bond yield / Asian earnings
yield perspective. Lower interest rates will also
encourage share buybacks and M&A activity, as
lower costs of funds make such moves viable for the
stronger players.
Exports vs Domestic demand
Many would agree that the uncertainty in the US
growth outlook has created a preference for
companies with domestically driven business
models. The assumption behind this trade is that
Asian economies will hold up in the face of a US
slowdown. In Asia, the need for fiscal stimulus in
certain economies should continue to drive
government spending, leading to private investment
spending in most Asian economies. Overheating
risks in Singapore, Hong Kong, India and China
keep us concerned on the ability of producers to
pass on higher input costs to consumers, while risks
of stagflation question the sustainability of demand
in Malaysia and Indonesia. Thailand and Taiwan
have the best demand recovery story in Asia, in our
view.
High vs low beta?
A second half recovery means 2Q weakness could
be a good entry point. This also means we should
favor high beta stocks and markets. But the fear is
that the US could be drifting into a deeper than
expected recession. Second, things could get worse
before it gets better. Hence, we recommend
avoiding high beta trades and markets, with
emphasis on markets, which are underpinned by
domestic drivers.
The risk to our recommendation is the sudden shift
in outlook towards growth. If that happens, we
believe volatility will remain high as uncertainty still
looms.
Dividend yield protection
Given falling interest rates and uncertain growth
prospects, stocks with high dividends should see
better support. But the risk is deteriorating earnings,
which will then have an impact on dividend payout
even if corporates maintain a fixed payout ratio. In
this case, investors should look for corporates with
high and stable free cash flow generation, and a
stable track record of dividend payouts.
In this aspect, Thailand and Taiwan offer the best
dividend yield protection.
Is the commodities bull sustainable?
The Fed’s pre-emptive move to ease monetary
conditions has helped to prolong the commodities
boom. Meanwhile fears of stagflation have also
prompted money flows into precious metal assets;
and energy and coal prices have continued to soar
in the first quarter of the year.
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Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
These conditions have given rise to multiple conflicts
in this trade. If the rise in oil prices and other energy
related commodity prices reflects a confidence that
real demand growth is sustainable, then we should
also see capex demand rise for oil rigs and equipment
services, and less fear of a slowdown in China and
India. In fact, the past few instances of stagflation in
the 1990s (mild) and 1970s were due to an oil price
shock from geopolitical tension. These caused oil
prices to rocket, putting a dampener on economic
activities. But it looks like the oil price rise today is
caused by a falling USD and liquidity from monetary
easing, as well as rising Middle East tension and bad
weather conditions triggering supply concerns. The
rapid rise in the oil price will end either at the end of
the Fed easing cycle, or with the onset of recession.
The risk is that we will not have a recession, whilst
supply concerns continue to be an overhang.
Either way, the direction of oil prices in the remainder
of the year will have a significant bearing on industrial
stocks, which are very sensitive to oil and commodity
prices. These include stocks such as shipping, airlines
and oil & gas equipment services. Metals and energy
stocks in Indonesia and China will also be impacted
by this view.
End of Fed easing cycle
Investors should start to contemplate the end of the
interest rate easing cycle considering the 225bps
decline in rates over the past six months, and rising
inflation. The Hong Kong market and the property
sector especially, have benefited from the Fed easing
cycle thus far. Our view calls for rate cuts to end by
April with another 50bps cuts each in the March Fed
meeting and 25bps in April.
Fig. 23: Asia ex-Japan sectors - Earnings protection profile
Defensiveness is the name of the game
Should a recession scenario occur, the sequential
deterioration in market expectations can be
generalised as follows:-
• Earnings cycle matures;
• Consensus generally remains complacent on the
cycle, expecting accelerating earnings growth for
key cyclical sectors;
• Downshift in economic activity;
• Earnings growth uncertain; and
• Earnings downgrade.
The defensive strategy in such a scenario would
then have to be towards:
• Seeking relative earnings protection;
• Avoid high cyclical exposure;
• Where consensus is already conservative,
disappointments are limited; and
• Dividend protection.
The table below shows MSCI Asia ex-Japan sector
indices with their respective earnings trend, and
the ranking according to earnings protection
profile.
In seeking earnings protection, we look at the
volatility (standard deviation) of earnings growth in
the last 12 years. Higher volatility implies higher
uncertainty in the forecasts. The dispersion of
earnings forecasts in 2008 against historical
growth forecasts would give an indication of the
degree of earnings disappointment if the trend of
downgrades starts rolling. In protecting against an
economic downshift, lower earnings correlation
with global IP is preferred. And lastly, dividend
yield protection is sought.
Asia ex-Japan sectors
Earnings protection ranking (1= favorable)
CAGR
(1995-
2007)
Earnings
growth
Std. Dev
2008
Earning
growth
Less
Earnings
disappoint
ment
Less
Earnings
volatility
Higher
Dividend
Yield
Less corr.
With
Global IP
Correlation
with global IP
Dividend
Yield
T/Cm Svs 2.9 21.8 -5.7 -0.25 2.3 2 1 4 1 8
Utilities 4.6 33.4 1.2 0.17 2.8 3 3 2 5 13
Energy 15.8 53.3 16.0 -0.01 2.6 4 4 3 2 13
Cons Staples 7.5 32.8 -3.1 0.04 1.6 1 2 9 4 16
Materials 7.8 64.9 8.1 0.02 2.9 5 7 1 3 16
Financials 5.3 308.1 10.8 0.24 2.2 6 10 5 6 27
Tch H/W/Eq 12.3 61.5 32.1 0.39 2.2 10 5 6 9 30
Industrials 1.5 64.5 8.7 0.49 1.7 7 6 7 10 30
Cons Discr 3.4 124.2 21.4 0.34 1.7 9 8 8 8 33
Health Care 1.8 138.3 18.4 0.25 1.4 8 9 10 7 34
Total Market 5.0 29.9 10.7 0.31 2.3
Scoring
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Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Sector comments
The Telco and Utilities sectors live up to their names
as defensive sectors and are ranked favorably as
key sectors to overweight in a deteriorating growth
scenario. Despite low growth, earnings predictability
is high and these sectors offer high yields.
Moreover, consensus has low expectations for
earnings compared to the historical growth trends,
and hence earnings disappointment will be less
significant. These two sectors are also notable for
their low correlation with global Industrial Production
(IP).
Surprisingly, the MSCI Energy sector, ranked
favorably on this front showing a very low correlation
to global IP. However, it has a high correlation with
oil prices. This sector in Asia is more sensitive to oil
prices, has a capex cycle of its own, and is not
correlated with global IP. A negative view on this
sector will largely stem from expectations of lower
oil prices, hence driving slower demand for oil
equipment and services, and a squeeze in refinery
margin. Demand shock recession can drive oil price
lower, but that will have to be in a deep global
recession scenario. However, we believe the high oil
prices we see today is more due to rising Middle
East tension and bad weather conditions triggering
supply concerns. If these factors ease, or at least
the former, we should be cheering for a more
peaceful world. Higher oil prices are also partly a
reflection of the falling USD.
The Materials sector also surprised with low
correlation with global IP. We also believe that this
sector might be facing less earnings downgrade risk
compared to the other more cyclical sectors, due to
(i) lower earnings volatility, (ii) 2008 earnings growth
forecast of 8% is close to long term CAGR, (iii)
consensus is also expecting an earnings slowdown
from 18% in 2007 to 8% this year, implying there is
already a general lack of optimism in the sector.
Fig. 24: Energy sector earnings growth vs YoY%
in oil price
200 %
% 200
150
100
50
0
-50
Energy
Oil
150
100
50
0
-50
Earnings volatility in the Financials sector is the
highest, mainly due to the inclusion of the financial
crisis period in calculations. This also suggests the
unpredictability of financial sector earnings due to
provisions and write-offs. We note that 2008
earnings growth appear high compared to long-term
average earnings growth, again suggesting possible
earnings disappointment if economic growth slows.
Asian financials are more exposed to domestic
economic cycles rather than global cycles, and are
more sensitive to domestic growth and interest
rates. A split in view for Asian banks hinges on
whether a US recession will trigger a slowdown in
Asia’s economies, and hence a slow down demand
for loans.
The Industrials and Consumer Discretionary sectors
are two more externally dependent cyclical sectors.
Potential for earnings disappointment is deemed to
be high due to above-par earnings forecasts relative
to historical average.
The more obvious anomalies are:
(i) Consumer staples, which tends to be
associated with defensiveness. Whilst this may be
the norm, higher food price inflation appears to
eroding away some of the defensive characteristics,
especially in the near term. In general, we would
prefer upstream to downstream consumer staples
on account of differentials in pricing power.
(ii) The Healthcare sector is also generally
associated with defensive earnings. However, but
Asia’s healthcare business is still in a growth stage
(e.g. hospitals expansion), resulting in higher
earnings volatility and regulatory uncertainties.
(iii) Tech stocks, usually susceptible to high
cyclicality, did not fair too badly in the ranking
because of comparatively lower earnings volatility
and higher dividend yields. That is to say the sector
is inexpensive relative to earnings expectations.
While the natural sensitvity of top line to global
demand is obvious, we would be more cautious in
putting on shorts in the sector given where we are
in the valuation cycle.
(iv) Property assets typically represent a good
hedge against inflation in countries where domestic
demand is still strong. But be mindful of rising
interest rates at the end of the current rate cuts,
when inflation will remain high and rapid rate cuts
should not be expected in the future. Moreover
capital squeeze in overheating economies is likely
to dampen demand.
-100
96 97 98 99 00 01 02 03 04 05 06 07 08
-100
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Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Country exposure on these sectors
The following tables show market cap exposure of
the different sectors, as well as sensitivity to
economic and commodity cycles and interest rate
exposure. We believe that market performance will
largely depend on sector performance other than the
inherent market macro drivers.
Fig. 25: Asia ex-Japan countries’ sector exposure
T/Cm
Svs Utilities
Cons
Staples Energy Materials Financials IT Industrials
Cons
Discr
Health
Care
Hong Kong 1% 11% 1% 1% 56% 4% 13% 12%
China 23% 2% 2% 21% 7% 27% 1% 13% 3%
Singapore 15% 3% 1% 49% 1% 24% 6% 1%
Malaysia 6% 11% 15% 3% 1% 30% 0% 22% 13%
Thailand 6% 3% 2% 41% 9% 32% 1% 4% 2%
Indonesia 20% 5% 7% 24% 8% 21% 4% 10% 1%
Korea 4% 2% 6% 2% 13% 17% 20% 26% 9% 1%
Taiwan 5% 0% 1% 15% 17% 56% 4% 2%
Philippines 29% 12% 2% 2% 42% 11% 2%
Far East ex-J 9% 4% 4% 9% 8% 29% 15% 15% 6% 1%
Fig. 26: Asia ex-Japan countries’ exposure to economic
sensitive sectors
Defensive
sectors
Cyclical
exposure
Global
Price
exposure
Interest
rate
exposure
Hong Kong 13% 30% 1% 56%
China 27% 18% 28% 27%
Singapore 18% 31% 1% 49%
Malaysia 32% 35% 3% 30%
Thailand 11% 7% 50% 32%
Indonesia 32% 14% 32% 21%
Korea 12% 55% 15% 17%
Taiwan 5% 61% 17% 17%
Philippines 43% 13% 2% 42%
Far East ex-J 17% 37% 18% 29%
Source: IBES, Datastream, DBS. Note: Defensive includes T/cm
svs, Utilities, Staples; Cyclicals includes IT, Industrials and
Consumer Discretionary; Global price includes Energy and
Materials; Interest rate exposure are the Financials
Base on our discussion and analysis above, we
present our recommendations under the three
different scenarios.
(i) 2008 Base case
Slowdown in 1H and mild recovery in 2H; 25bps cuts
in two Fed meetings in March & April; Asia domestic
demand remains strong
(ii) 2008 Pessimistic Case
Prolonged slowdown in US economy to below
potential level and credit markets remain stressed;
Forecasts for Asia economies downgraded to reflect
external weakness and impact but GDP still above
potential levels as domestic demand remain firm due
to policy flexibility
(iii) 2008 Optimistic Case
Clearer US picture on confirmation of no US
recession and slowdown, and signs of credit stress
dissipating; 2H recovery to above potential level
Page 16

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Fig. 27: Proforma sector recommendation under differing scenarios
2008 Base case 2008 Pessimistic Case 2008 Optimistic Case
Slowdown in 1H and mild recovery
in 2H; 25bps cuts in two Fed
meetings in March & April ; Asia
domestic demand remains strong
Prolonged slowdown in US
economy to below potential level
and credit markets remain
stressed; Forecasts for Asia
economies downgraded to reflect
external weakness and impact but
GDP still above potential levels as
domestic demand remain firm due
to policy flexibility
Clearer US picture on confirmation
of no US recession and slowdown,
and signs of credit stress
dissipating; 2H recovery to above
potential level
Assumption
US markets continue to react
negatively to weak economic data
and outcome. Asia markets’
correlation with the US remains
high. Volatility still exists at least
up to end of April when a clearer
picture of the US economy can be
established, through release of 1Q
data as well as through the
passage of time with the natural
log of volatility.
US markets continue to react
negatively to weak economic data
and outcome. Asia markets’
correlation with the US remains
high. Volatility still exists but
downside risks to index
performance have escalated to
price in a full recession view. Fear
that the credit crunch could cause
recession to be worse than 1990’s
and 2001 levels, with extended
period of slow growth; Fear that
Asia’s domestic sentiment could be
impacted by loss of multiplier from
stock market
US markets disregard US growth
risks and rebound strongly from a
weak 1Q. Rises are intermittently
stopped by risks of Feds taking
back rate cuts, but the belief is that
growth is strong enough for the
Fed to withdraw easy money. Asian
markets rise on high correlation
with the US, and Asian demand
fires up on all cylinders with relief
from the US.
Themes
Defensive and low beta.
Concentrate on Domestic demand
and/or driver, low beta
Defensive and low beta.
Concentrate on non-economic
sensitive drivers, such as politics,
regulatory changes, M&A
potential; domestic demand driver
High beta, cyclical exposure to US
economic recovery, and Asia
domestic demand strength; Avoid
overheating risks in Asia
T/Cm Svs
Utilities
Cons Staples
Energy
Materials
Less earnings risk and dividend
yield protection; regulatory
reforms in China
SECTORS
+ + -
Asia consumer demand growth
could slow but sector earnings and
hence, dividends are secured;
regulatory reforms in China
Defensive sector, less leveraged to
economic recovery
+ + -
Less earnings risk On earnings and yield protection Defensive sector, less leveraged to
economic recovery
Less earnings volatility, but high
food inflation is a major concern
now. Prefer upstream to
downstream.
Fed in insurance mode gives rise to
liquidity and commodity boom.
= + -
Defensive and recession-proof
earnings
Defensive sector, less leveraged to
economic recovery
+ = =
Asia growth still strong driving
demand for energy
Strong cyclical sector but risks of
overheating
+ - -
Coal, CPO price, building materials,
precious metals
Lower energy demand due to weak
growth; risks of overcapacity in an
economic downturn; precious
metals
Demand picks up but capacity
remains high and slower leverage
to economic recovery
Page 17

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Fig. 27: Proforma sector recommendation under differing scenarios, cont’d
2008 Base case 2008 Pessimistic Case 2008 Optimistic Case
Slowdown in 1H and mild recovery
in 2H; 25bps cuts in two Fed
meetings in March & April ; Asia
domestic demand remains strong
Prolonged slowdown in US
economy to below potential level
and credit markets remain
stressed; Forecasts for Asia
economies downgraded to reflect
external weakness and impact but
GDP still above potential levels as
domestic demand remain firm due
to policy flexibility
Clearer US picture on confirmation
of no US recession and slowdown,
and signs of credit stress
dissipating; 2H recovery to above
potential level
Materials
Financials
Tch H/W/Eq
Industrials
Cons Discr
Healthcare
SECTORS - cont'd
+ - -
Coal, CPO price, building materials,
precious metals
Stress from subprime debts.
Economic uncertainty, weak
lending capacity and willingness
dampen loan growth
Lower energy demand due to weak
growth; risks of overcapacity in an
economic downturn; precious
metals
Demand picks up but capacity
remains high and slower leverage
to economic recovery
- = +
Supported by low valuations;
should outperform industrials
Pick up in economic activities
driving loan growth; write-back of
provisions to boost sentiments
toward financial stocks
= - +
Supported by low valuations and Poor global consumer demand Leveraged to cyclical pick up
bottoming of earnings cycle outlook
- - +
Delay impact of economic Slow capex spending
Leveraged to cyclical pick up
uncertainty on capex plans
- - =
Delay impact of economic
uncertainty on spending. Higher
inflation feeds down to spending
in countries where consumer
sentiment is weak.
Government spending and
concentration; negative on generic
drugs manufacturers
Weak consumer sentiments
affecting discretionary spending
Leveraged to cyclical pick up but
high valuations is always a key
concern
+ + =
recession proof; negative on
generic drugs manufacturers
Most exposed to government
spending
Page 18

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Fig. 28: Proforma country recommendation under differing scenarios
Hong Kong
China
Singapore
Malaysia
Thailand
Indonesia
Korea
Taiwan
India
2008 Base case 2008 Pessimistic Case 2008 Optimistic Case
COUNTRIES
+ = =
Negative interest rate environment
and direct beneficiary of US Fed
cuts
US Monetary easing (on hold or no
rate hikes); economy mostly geared
to wealth multiplier effect from
Property and stock market, which
will be affected by slowdown
US rate cut cycle ended, direct
loser of improving China / Taiwan’s
cross straits relationship. Chinese
stocks in the HSI universe should
still do well
+ + +
Strong domestic demand and External demand slowdown; but High beta
flexible policy actions
domestic driver continue to be
strong
= - =
Open economy faces uncertainty
of global slowdown; attractive
funds flow destination on US dollar
weakness hedge
Economy to keep going with 9MP
spending; domestic sentiment
facing uncertainty post-election
from lack of boosting measures
and high oil prices
Economic recovery on improving
sentiments post elections on new
elected government and pent-up
demand
Commodity prices still holding up
in Fed’s pre-emptive monetary
easing; falling consumer
confidence on higher oil prices
Policy flexibility and fiscal stimulus
to keep economy going but
insufficently represented in the
stock market; industrials affected
by global slowdown; uncertainty in
property sector
High beta, but uncertin outlook on
big heavyweight property sector
poses drag on market movements
= + -
Tactical defensiveness, low beta
Low beta markets to benefit less
from upswing
+ + =
Strong domestic demand to offset
external weahness; exports sector
represented in the SET index is
minimal
Positive domestic sentiments to
persist; benefitting from
improvement in global risk
appetite, but lower beta than
other markets
= + +
Commodity and energy prices still
holding up due to strong Asia
demand
High beta; expect pump priming
and sentiment boosting measures
for 2009 elections
- - =
Exposed to external demand and
yet weak domestic buffer
Exposed to external demand and
yet weak domestic buffer
High market beta; relatively large
cyclical exposure
+ = +
Underperformance in the last 5
years; domestic demand expected
to pick up on improving cross
straits relationship
Underperformance in the last 5
years limit downside ; domestic
demand expected to pick up on
improving cross straits relationship
High market beta; relatively large
cyclical exposure; increasingly
leverged to China's growth
- - -
Least exposed to external demand Growing uncertainty, and low risk
in terms of numbers, but
appetite for markets with higher
uncertainty with regard to domestic risks
unsourcing trends and FDI flows'
impact on labor market yet to be
determined; politics is the main risk
causing volatility as well as less
effective policies to address
economic problems
Better growth outlook but
overheating risks; inflation and
rates to rise
Page 19

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Hong Kong / China (Maintain Overweight)
This is the only Overweight call that did not work
out in the first quarter. We pointed out risk aversion
in the Chinese market as one of the reasons to be
cautious in the first quarter, but expected
(somewhat pre-maturely in retrospect) that markets
would stabilize in March as the growth
fundamentals are still intact. With Hong Kong being
one of the higher beta markets, it was expected to
rebound smartly when risk appetite returns.
However, the persistent bearish conditions in the US
have lasted longer than we had expected.
We like Hong Kong / China for the following
reasons:
1. Strong economic performance in Hong Kong
driven by domestic demand, and China’s growth;
2. Aggressive interest rate cuts in the US that
support reflation in Hong Kong;
3. Presence of top down macro drivers in China,
including negative interest rates, RMB appreciation,
and strong liquidity, will continue to support
Chinese stocks listed in Hong Kong
Despite the weaker than expected showing in the
first quarter, our views have not changed. The high
volatility in Hong Kong makes it even more tempting
to continue our Overweight stance. This is the only
market for which we are prepared to add beta, to
benefit from return of risk appetite due to better
transparency and flexibility in China’s policy actions
while growth is very much intact.
Indeed, in the recently held National People’s
Congress that was ongoing at the time of writing
this report, China’s Premier Wen stressed that
macro control would be kept reasonably flexible in
order to achieve “stable and relatively faster
growth” policies. The government’s GDP growth
target is 8% and inflation at 4.8%. A slowdown
from 11% last year to 8% should be regarded as
“well-intended” to avoid overheating risks and for
the long-term sustainability of the growth prospects.
In particular we continue to like Hong Kong’s Retail,
Hotel, Tourism, and Consumer sectors. These will
benefit from several subsidies and tax concessions
announced in this year’s budget. The Property
sector will benefit from the negative interest rate
environment brought about by rate cuts in the US,
and better affordability due to robust economic
growth.
Our major concern for the Property sector is the
rapid rise in property prices potentially affecting
affordability, and our expectation of an end to the
US rate cut cycle by end-April. We think economic
growth in Hong Kong has improved demand for
housing by expatriates as well as bigger family
nucleus. We agree that affordability has been
partially impaired by rising property prices,
especially the big lump sum deposit. But the rental
market remains sufficiently robust. Rental yields
are still higher than interest rate costs. Even with
an end to the US interest rate cut, as long as US
interest rates stay low, the negative interest rate
environment will continue to support property prices
at least for the next six months.
Speculation of a possible HKD de-peg from the USD
in 2009 will also be a main driver for Hong Kong
dollar assets. However, the de-peg story is not our
house view as of yet.
On Chinese stocks, we believe that macro policies
will be flexible in view of external uncertainties.
Interest rate hikes this year will be less rapid and
frequent than last year, (there are two rate hikes
totalling 54bps pencilled in for this year, compared
to 135bps last year). Reserve requirement ratio will
also not be hiked as much as feared after hitting a
high of 15% last year. Instead, soft targeting of
selected sectors for supply / de-supply of loans is
encouraged to avoid overheating, and to manage
long-term sustainability of resources. As such, we
are comfortable with the China’s policy direction.
The report by our Hong Kong research team
highlights the themes to benefit from these policy
actions (see “Profit from market anomalies”, Dr
Peter So and Hong Kong research team, 7
December 2007).
One inherent risk to the sustainability of strong
domestic demand in Hong Kong is the threat of it
becoming an unintended “victim” of better crossstraits
relations between China and Taiwan. In
particular, direct transportation between China and
Taiwan will bypass trans-routes to Hong Kong,
resulting in economic losses. We will be selectively
short in Airlines and Shipping stocks. However, we
believe that better opportunities provided to Taiwan
will enhance economic collaboration in the Greater
China region, and offset any economic loss for
Hong Kong.
Page 20

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Singapore (maintain Benchmark-weight)
Higher inflation and depreciating asset prices with
regard to the stock and property markets were the
main issues in Singapore in the last three months.
2008 earnings growth has been downgraded to 13%
from 22% in the beginning of the year. Reasons for
the downgrades include lower loan growth, lower
net interest margins, and a lower long term growth
assumption for the Banking sector; expected slower
order flow and margin squeeze for the Marine and
Oil & Gas sector; and delay in earnings recognition
for the Property sector as a result of construction
delays and weak sentiment. Other than that, the
Singapore government has trimmed its GDP forecast
from 4.5%-6.5% range to 4%-6% range. Our
economist has downgraded the GDP forecast from
6.5% to 6%, while consensus forecasts stood at
5.6%.
So what’s next for Singapore? We are maintaining
our Benchmark-weight for Singapore (downgraded
last quarter). Support will come from low valuations
and strong economic fundamentals. The economy is
doing fine, with government-led investment spending
and sound policies to negate the impact of a global
slowdown. Tourism, Integrated resorts, Marina
Bayfront Financial Centre, The Singapore Flyer,
Formula One and the World Youth Olympics 2010
are some of them. Exports and services sectors have
also been diversified to promote pharmaceuticals,
petrochemicals, aviation, financials and tourism
sectors. Huge budget and fiscal surplus built up in
2007 ensures a cushion for more fiscal stimulus in
later years if the economy gets worse.
However, as one of the most open economies in
Asia, Singapore is susceptible to a global slowdown.
If US credit risk magnifies – Singapore cannot
decouple completely from the US. Singapore suffers
more from global risk aversion than the other Asian
markets. The uncertain outlook for the Singapore
property market as well as execution risks for yards
is also another dampener to the earnings outlook for
Singapore corporates.
The recent market correction has made valuations
look attractive again. Relative P/Es ( both historical
and forward are at all time low since 1973. We
believe Singapore will be supported by valuations
and long term funds attracted to its sound
fundamentals. Foreign funds have been attracted to
park monies here as evidenced by the strengthening
USD/SGD rate. We believe that once risk appetite
returns, monies parked here will flow into the stock
market again.
The view is based on a base case scenario, where a
US slowdown will not extend beyond the second
quarter. And we expect risk appetite to return once
fears of the US economy show signs of abating.
Fig. 29: Singapore relative market P/E valuations
to the region at all time low
(x)
3.0
2.5
2.0
1.5
1.0
0.5
Rel. hist. P/E (L)
Rel. fwd P/E (R)
(x)
2.0
1.8
1.6
1.4
1.2
1.0
0.8
73 78 83 88 93 98 03 08
Thailand (Maintain Overweight)
Our Overweight call for Thailand is beginning to pay
off following the creation of the new government.
Thailand’s 4Q GDP surprised on the upside with a
7.2% QoQ annualized increase. The strong growth
numbers reaffirms our above consensus forecast of
5.6% growth for 2008. Following the lifting of capital
controls, tax relief and stimulus package, the risks to
our growth forecasts is now judged to the upside.
We expect consensus to follow with upgrades.
We reiterate our Overweight rating for Thailand
despite a relative out-performance in the first
quarter. But it was a quarter not without volatility -
political volatility was high but it soon proved that
economic fundamentals would take precedence due
to strong pent-up demand, and given that the various
political factions are unanimous in their desire to
make things work for the country.
The Thai equity market generated 25% average
returns in 2007 despite the high political uncertainty.
Only five large caps managed to outperform, namely
the PTT group of companies, KBank and AIS.
We believe the macro trends in Thailand, which had
been supporting our positive view for the country, will
be in place this year. The broad category of 2007
winners and losers can be classified as:
1. Energy and basic materials sector that generally
performed well in 2007 and in line with global
performance due to higher oil prices and strong
global demand;
2. Banks, where there is quality differentiation;
3. Winners and losers resulting from a series of
regulatory changes including the Telecoms, Media
and Retail acts, foreign capital controls, and foreign
ownership rules;
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Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
4. Property and Construction sectors, which are direct
beneficiaries of a potential pick-up in domestic demand;
5. Building materials including cement and steel had
mixed fortunes; and
6. Losers of an appreciating Thai baht.
The Energy and Materials sectors make up 40% of the
total market capitalization. Hence, Thailand’s market
index performance will be affected by these two sectors,
which are strongly correlated to oil price movements.
Our still sanguine global growth outlook underpins a
favorable outlook for the energy sector.
Malaysia (Maintain Benchmark weight)
It would be unfair to say that nothing was done to the
economy; after all GDP grew 6.3% last year. In
particular, the fourth quarter year on year expansion of
7.3% was the highest since 2004, and domestic
demand had taken over as the engine of growth. The
market benefitted from the slew of initiatives such as
the 9MP projects, promotion of the southern Johor
Iskandar Development Region (IDR), de-regulation in the
property and the banking sectors, promotion of Islamic
Banking business, GLCs reform, and in particular the
creation of Synergy Drive, the world’s biggest palm oil
plantation stock, corporate tax cuts, and a substantial
increase in civil servants’ pay. We do not expect any
changes to the economic policy after the election. But
thereafter, execution remains the main risk. This is
especially so after the surprising loss of 2/3 majority
mandate of Barisan Nasional (BN) coalition government
in the March 8 elections.
We are maintaining our neutral stance for Malaysia for
the following reasons:-
1. While short term sentiment in Malaysia will be
affected negatively by the election results, but in the
medium term, there should be optimism that things
would turn out for the better following a change in the
political system. Political uncertainty is expected to
remain volatile in the near term. A possible change
within UMNO’s leadership in the anticipated UMNO
elections cannot be ruled out, which should again boost
sentiment within BN. It will consolidate its efforts to
work towards the next elections five years later, and
possibly translate into better policy execution. In the last
two general elections (GE), the UMNO elections were
held six months after the GE. The return of Anwar
Ibrahim, the ex-Finance Minister and deputy Prime
Minister, expected some time after April could unravel
another round of political uncertainty. Anwar has been
highly critical of the government’s economic policies,
and should help to bring changes to some of them. Both
his wife and daughter won seats in this election.
2. Many companies in the construction and
building materials sectors are benefiting from the 9MP
projects, which are slowly rolling out. The palm
oil plantation sector is benefiting from higher
CPO price. The risk in the near term lies in the
sell-down of stocks with a political agenda.
While the risk that some of the 9MP projects
destined for the states which BN had lost could
be delayed or put on hold, it remains to be seen
how the new government in these states will
work this out. It should be viewed as a
challenge and great opportunity for the
opposition parties to show that they are
better. At this juncture, we are not downgrading
our real GDP forecast of 6.2% for 2008. We
remain optimistic that with the new mandate
given to the new state governments, things will
move in the positive direction.
3. Malaysia has proven itself to be a safe
haven, outperforming its regional peers up until
the elections, which confirms its defensive
nature. While there is a threat of foreign
outflows following BN’s loss of two third
majority, we believe Malaysia is relatively underowned
versus the region and the threat of
foreign outflows should be minimal. The real
threat is selling by domestic players, who were
believed to be supporting the market all the
way up , driven by pump priming news. We
believe sentiment in the near term could be
affected, but the expected changes brought
about by the election results, namely to
emphasise on policies concerning social
issues, should lift sentiment in the medium
term. The threat of Malaysia being seen as
politically unstable and therefore shunned by
FDIs is not valid because BN still has a large
majority in the federal government.
4. In light of rising global uncertainties, we
continue to maintain Malaysia at Neutral
premised on our belief that Malaysia should be
able to uphold its defensive nature. However we
will be prepared to switch to higher beta
markets in the expense of Malaysia when there
are signs of risk appetite returning.
Indonesia (Maintain Benchmark-weight)
We are maintaining our Benchmark weight for
Indonesia. Our view hinges on two main
factors: the rupiah and FDI. We are feeling
increasingly comfortable with the management
of monetary policies in the country and the
stability of the rupiah. Higher inflation has
prevented Bank Indonesia from lowering interest
rates. Instead BI has allowed the overnight rate
to increase steadily – this will soon be the
official policy rate instead of the higher 1-month
policy rate. This has added to the attractiveness
Page 22

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
of the rupiah, thereby strengthening the currency
and simultaneously helping to rein in inflation. At
the same time, by increasing the funding costs for
local bonds, banks that are thought to be big
players of the bond market will be forced to look
into more productive use of funds such as increase
lending activities. The higher overnight policy rates
also leaves room for interest rate cuts when it
becomes the official policy rate and when inflation
starts falling in the middle of the year from year-onyear
base effects.
We believe the fiscal policy should be expansionary
in 2008, but with elections in 2009, most big
budget spending will be put on hold. However, fiscal
spending to improve consumer sentiment towards
election year can be expected. We recommend
Energy and Materials sector (coal, metals mining
and palm oil), and the Consumer discretionary
sector that should benefit from the government’s
sentiment boosting measures.
The risk to our call lies in our view for global energy
demand, especially in emerging markets, to remain
strong despite a US slowdown. Our view that the
commodities bull market is being amplified by the
Fed’s pre-emptive rate cuts, and that it will end at
the end of Fed’s rate cut cycle is also a concern.
Indonesia has been one of Asia’s top performing
markets in the last 5 years. Another major risk is a
deterioration in US markets that could prompt a
sell-off in better performing markets to meet
redemptions. We recommend a Neutral stance for
Indonesia to offset these risks.
Taiwan (Maintain overweight)
We remain positive on Taiwan with the expectations
that cross-straits relations will improve after the
presidential election. So far, Taiwan’s election
campaigning has focused on the degree of
openness in economic co-operation rather than proindependence
talks, which is an encouraging sign.
External weakness remains the highest risk factor for
Taiwan now, as both the market and economy are
highly exposed to the external sector. With the
completion of elections on March 22, whether
interest and funds flow into Taiwan can be sustained
is questionable. We remain optimistic. Taiwan’s
underperformance vis-a-vis the Asian region for the
last five years in terms of currency and stock
markets will limit downside. Moreover, better
operational efficiencies and cost savings for Taiwan
corporates will greatly improve margins and
generate better ROEs. Liquidity conditions in Taiwan
have also greatly improved as sentiment improved in
the hope of better prospects after a change in
leadership. Market turnover has risen following an
increase in local and foreign transactions.
We expect a re-rating in the market to be driven by
improving ROE’s and foreign liquidity.
Fig. 31: Net foreign flows chart
US$bil
30
25
20
Fig. 30: Energy and metals prices index vs
Jakarta Compostie Index
300
250
200
150
100
Relative JCI
performance (L)
S&P GS Energy &
metals index (R)
50
00 01 02 03 04 05 06 07 08
550
500
450
400
350
300
250
200
150
100
15
10
5
0
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
Fig. 32: Average daily turnover
250
NTDbil
200
150
100
50
Jan-05 Jan-06 Jan-07 Jan-08
Page 23

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Fig. 33: Expectations of relaxation of cross-straits economic relations
Current policy Proposed policy Benefits
Direct transportation
Enlarged scope of charter flights
and direct air links
Tourism
Taiwanese
investment in
China
4 times / year direct charter flights,
direct cargo flights case by case basis,
direct shipping between China’s
Fujian and Taiwan’s Kinmen, Matsu
and Penghu
Quota of 1,000 persons per day,
although only 200 persons per day.
Raised quota to 3,000, and to
10,000 within four years; direct air
links will facilitate these inflows
40% investment cap Investment cap to be removed;
Taiwanese banks allowed to invest
in China ( subject to China’s 20%
foreign participation)
Savings on travel and shipping costs
about 0.3% of GDP.
Direct tourism effects c. 0.4% GDP;
as a comparison, daily arrival of
China tourists in HK was more than
40,000 in 2007
Banks, manufacturing companies;
Hollowing out effect on-going and
“inevitable”, but benefits should
outweigh costs.
China
investment in
Taiwan
Allowed in property sector, but
subject to strict procedure
Relaxation, easier visa policies for
Chinese businessmen
Source: DBS. For details, please refer to “ New year resolutions”, Tie-ying Ma, Feb 19
Property sector, high Tech sector.
Fig. 34: Taiwan stock market and currency relative
performance to the region (TWD / ADXY (RHS),
TWI/MSCI AXJ (LHS))
120
110
100
90
80
70
TWI
TWD
60
03 04 05 06 07 08
108
106
104
102
100
Korea (Maintain Underweight)
We continue to be underweight Korea. So far Korea
has not been able to convince that it has a strong
domestic buffer to counterbalance external
uncertainties.
Signs of sluggish domestic demand can be seen in
credit card issuance and outstanding loans which
remain relatively flat in the past three months.
Unlike most ASEAN economies where fiscal stimulus
is present to lead investments, high hopes have
been pinned on the newly elected President and his
administration to stimulate expansion in the
economy to revive sentiment. Until then, we are still
convinced that domestic demand will not rebound.
Our modelling for the KOSPI shows that the 12-
month forward return is sensitive to earnings growth
(positive), 12-month forward P/E (negative), changes
in USD/KRW exchange rate (positive) and changes in
real rates (negative). And contrary to popular belief,
98
96
94
92
90
Fig. 35: Korea: No, of credit cards issued and outstanding
loans
KRW bils
200
180
160
140
120
100
80
60
40
no. of cards
issued (R)
Credit card
expenditure (L)
mils
20
00 01 02 03 04 05 06 07
110
100
movements in oil price are not statistically
significant. We believe this is due mainly to the
composition of the KOSPI – it is made up of the
export sector and banks, which are sensitive to
exchange rate and real rates, respectively. If the
relationship holds going forward, earnings risk and
strong exchange rate from a weak dollar view could
be reasons for being cautious of Korea. Recent
weakness in the won has lifted hopes for exporters.
But we think the weakness is temporary due to
shortage of USD liquidity in the system.
We expect real rates to normalise in the middle of
the year after inflation starts to peak. We also
recently turned cautious on the shipping sector, the
main pillar of KOSPI’s gains last year as slowing
orders, weak USD and rising steel prices are
expected to hurt the sector’s margins. All in all
drivers for better 12-month forward returns seem to
be absent.
90
80
70
60
50
40
Page 24

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
We believe the earnings risk from an external
slowdown in Korea is high. Sector exposure to
cyclical and global price sectors made up 70% of
the market, the highest among Asian countries
except Taiwan. Although export numbers continued
to grow strongly in February, we believe that this
was due to very strong shipping orders contracted
last year. Despite strong exports, Korea has a
current account deficit due to higher oil prices; the
January deficit was the largest since January 1997.
Falling risk appetite does not bode well for a
country with a current account deficit. Foreign
investors had been net selling Korea and the won
has depreciated amid strengthening Asian
currencies.
Local liquidity is also insufficient to support the
market. Since the government liberalised capital
outflows last year, investments by overseas funds
had been increasing vs local funds. We believe
local risk appetite may not return so soon with a
weaker stock market and currency.
In terms of valuation, Korea is not cheap given that
its discount to the region has narrowed from nearly
50% in 2000 to 20% now.
Fig. 36: Korea net portfolio flows (from BOP accounts)
-100
-150
-200
-250
-300
Fig. 37: Korean P/E discount to the region
0
-10
-20
US$bil
0
-50
-350
02 03 04 05 06 07
%
Risks to our Underweight call are: (i) shift in US
growth expectations if 1Q08 GDP data shows a
serious US slowdown can be avoided, and (ii)
accelerating economic expansion plans by the new
government. According to our assessment, talk by
the new president to implement regulatory changes
and stimulus packages to boost domestic demand
will take at least another year to implement. And
they look ambitious.
India (Downgrade to Underweight)
We are downgrading India to Underweight due to
uncertainties about policy actions solving many
unsettling issues that have arisen in the last three
months. Volatility in the market had been extremely
high. Without a long term policy stance and a stable
government, it remains very difficult to assess the
government’s move on those unsettling issues.
Our view on the growth prospects in India remains
unchanged and that it should be able to sustain
growth at 8-9%. Strong labour market and capacity
constraints should continue to support consumption
and investment demand respectively.
However we see that managing large capital inflows
remains a challenging task to RBI. So far evidence is
that RBI seems to be struggling. The move to
control foreign inflows late last year, the volatility in
the INR and the rapid rate hikes last year are not
helping with ensuring stability. Meanwhile inflation
and rates are likely to rise further which makes
monetary policies even more difficult to manage .
Fig. 38: India repo rate and INR/USD
%
8.00
7.75
7.50
7.25
7.00
6.75
6.50
6.25
INR (R)
Repo rate (L)
INR/USD
48
6.00
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
47
46
45
44
43
42
41
40
39
-30
-40
-50
-60
00 01 02 03 04 05 06 07 08
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Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Index targets and expected return
We continue to look for 2Q weakness amid
volatility and uncertainty, and a recovery in the
second half. Our expectation is for the US
weakness to bottom out in 2Q, even as aggressive
rate cuts help to stabilise global markets. The risk
to this view is for prolonged US weakness, and due
to high correlation with the US market, Asia
markets may continue to drift downwards.
Our year end target is based on sensitivity analysis
to growth and de-/ re-rating drivers, as discussed in
the previous sections.
Fig. 39: 2008 year end Index Targets
11-Mar
Current Target
%
Target
Level 2008 Return
Hong Kong 22995 28000 22
H-share 12589 16000 27
Thailand 820 1040 27
Singapore 2861 3400 19
Malaysia 1207 1360 13
India 16123 17500 9
Indonesia 2524 3040 20
Korea 1641 1800 10
Taiwan 8382 11000 31
Asia ex-J 583 698 20
Page 26

Regional Equity Strategy Q2 2008
Strategy Overview: Asian Equity
Disclaimer:
The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained
from sources believed to bereliable, but the Company does not make any representation or warranty, express
or implied, as to its accuracy, completeness, timeliness orcorrectness for any particular purpose. Opinions
expressed are subject to change without notice. Any recommendation contained hereindoes not have
regard to the specific investment objectives, financial situation and the particular needs of any specific
addressee. Theinformation herein is published for the information of addressees only and is not to be taken
in substitution for the exercise of judgementby addressees, who should obtain separate legal or financial
advice. The Company, or any of its related companies or any individualsconnected with the group accepts no
liability for any direct, special, indirect, consequential, incidental damages or any other loss ordamages of any
kind arising from any use of the information herein (including any error, omission or misstatement herein,
negligent orotherwise) or further communication thereof, even if the Company or any other person has been
advised of the possibility thereof. Theinformation herein is not to be construed as an offer or a solicitation of
an offer to buy or sell any securities, futures, options or otherfinancial instruments or to provide any
investment advice or services. The Company and its associates, their directors, officers and/oremployees may
have positions or other interests in, and may effect transactions in securities mentioned herein and may also
perform orseek to perform broking, investment banking and other banking or financial services for these
companies. The information herein is notintended for distribution to, or use by, any person or entity in any
jurisdiction or country where such distribution or use would be contrary tolaw or regulation.
Page 27

Regional Equity Strategy Q2 2008
Regional Data Monitor
Funds Monitor
US Funds Flow into Asian Equities, by Country
US$m 4Q06 1Q07 2Q07 3Q07 4Q07
Hong Kong Net purchase of 11,372 -641 -100 -2,525 -7,674
equities by US buyer seller seller seller seller
HSI 19,083 19,853 20,909 24,771 29,270
Singapore Net purchase of 1,256 2,789 1,810 -524 2,021
equities by US buyer buyer buyer seller buyer
FS STI 2,778 3,080 3,401 3,485 3,575
Malaysia Net purchase of 956 1,170 546 -379 371
equities by US buyer buyer buyer seller buyer
KLCI 1,055 1,211 1,341 1,328 1,419
Thailand Net purchase of 242 83 114 69 63
equities by US buyer buyer buyer buyer buyer
SET 714 668 738 839 871
Philippine Net purchase of 237 40 194 163 119
equities by US buyer buyer buyer buyer buyer
PCOMP 2,827 3,170 3,469 3,480 3,653
Indonesia Net purchase of -283 310 211 -229 -88
equities by US seller buyer buyer seller seller
JCI 1,702 1,776 2,074 2,301 2,693
Korea Net purchase of -586 33 2,244 -1,207 -1,245
equities by US seller buyer buyer seller seller
KOSPI 1,410 1,410 1,662 1,918 1,956
Taiwan Net purchase of 655 108 -71 562 46
equities by US buyer buyer seller buyer buyer
TWSE 7,471 7,829 8,301 9,249 8,935
Total US
Net purchase of Asian
Equity (US$m)
13,849 3,892 4,948 -4,070 -9,227
US Dow Jones Index 12,255 12,415 13,366 13,488 13,522
US 10-yr bond yield 4.6 4.7 4.8 4.7 4.3
Source: US Treasury
UK Unit Trusts
US$m 1Q07 2Q07 3Q07 4Q07 1Q08
68.1 64.9 63.4 63.0 60.8
% of all Equities (299.1) (311.2) (302.1) (307.7) (273.4)
16.1 16.3 16.5 16.3 17.8
Funds Bonds (71.3) (78.0) (78.5) (79.7) (80.1)
4.6 4.8 5.6 6.2 6.1
% of Asia (x Japan) (13.7) (15.0) (16.9) (19.0) (16.6)
60.2 61.1 60.5 59.7 59.4
Equity Domestic (180.0) (190.1) (182.8) (183.8) (162.3)
35.2 34.1 33.9 34.1 34.6
Funds Others (105.4) (106.1) (102.3) (104.9) (94.5)
Source: Association of unit Trusts and investment funds.
Notes: Figures in parentheses denote value of funds in pounds bn. 'Others' Category include
US, Japan, International and emerging markets funds. 1Q'08 data up toJan only.
Page 28

Regional Equity Strategy Q2 2008
Regional Data Monitor
Earnings Monitor
Revisions in Earnings Forecast
Forecast revisions during 1Q08
% Increase % Decrease % Net
Singapore 26 50 -24
Hong Kong 63 27 37
China 67 21 46
Msia 24 53 -29
Thailand 37 34 3
Indonesia 63 0 63
Notes: % increase (decrease) denote the % of companies’ earnings that were raised (lowered) during 1Q08.
Forecast revisions during 4Q07
% Increase % Decrease % Net
Singapore 46 45 1
Hong Kong 61 8 53
China 31 53 -22
Msia 58 19 39
Thailand 43 35 7
Indonesia 44 10 34
Notes: % increase (decrease) denote the % of companies’ earnings that were raised (lowered) during 4Q07.
Revisions in Recommendation
Changes in recommendation during 1Q08
% Up % Down % Net
Singapore 7 17 -10
Hong Kong 3 7 -3
China 13 0 13
Msia 8 14 -6
Thailand 17 11 6
Indonesia 13 25 -13
Notes: % increase (decrease) denote the % of recommendations that were raised (lowered) during 1Q08.
Changes in recommendation during 4Q07
% Up % Down % Net
Singapore 5 5 0
Hong Kong 21 11 11
China 3 13 -9
Msia 8 14 -6
Thailand 9 13 -4
Indonesia 20 27 -7
Notes: % increase (decrease) denote the % of recommendations that were raised (lowered) during 4Q07.
Page 29

Regional Equity Strategy Q2 2008
Regional Data Monitor
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Page 30

Regional Equity Strategy Q2 2008
Country Assessments & Stock Profiles
Country Assessments
&
Stock Profiles
Page 31

Regional Equity Strategy Q2 2008
Country Assessment
Singapore
Deceleration mode
FS STI : 3,000
FS STI 3 / 12 mths Target : 2,650 / 3,450
Expected Return : -12% / +15%
Our strategy to stay defensive paid off last quarter,
underpinned by strong performance of SingTel, SPH and
REITS. We are turning cautiously optimistic, as P/E
valuations have hit a three-year low, and we would
bargain hunt on market dips for recovery in 2H08. We
have cut our 12 month target to 3450 for the FSSTI,
representing PEG of 1x.
Cuts in GDP growth and EPS downgrades. We expect earnings growth to
slow to 13.8% in 2008 from 28% last year, following earnings downgrades on
the back of the slower GDP growth of 6%. The most significant cuts in earnings
came from the property division, due to the delay in new launches and
expectations of lower ASPs. In addition, we have shaved margin assumptions for
consumer goods and basic materials sector given the inflationary environment,
while rising steel cost and the weak US$ will be negative for shipyards.
Cautiously optimistic, positioned for 2H08 recovery. Following the selldown
in 1Q08, we are turning cautiously optimistic on the market, although we
expect volatility to continue to rule in 2Q08 as confidence has yet to be
restored, in the face of continued uncertainties from the US. The market is
trading at P/E of 13x(FY08F) and 11x(09F), making it the cheapest in the region.
This is also below its average rolling forward P/E of 14.9x. However, we believe
EPS downgrades have yet to fully run its course. Investors will be watching the
release of the 1Q08 results closely, which is unlikely to bring cheer given drastic
changes in operating dynamics and the rising cost environment. We expect
volatility and uncertainties to prevail in 2Q08, which will present opportunities
for bargain hunting in 2H08. Following our earnings cuts, we have cut our 12
month target for FSSTI to 3450, on a bottom-up basis. This translates into 13.8x
on FY09 earnings, which we believe is fair at this juncture in the earnings cycle
(implied PEG of 1x). Our stock picks this quarter reflects a balanced approach,
featuring stocks with stable cash flows (Sing Post) and REITS (CMT), while our
beta picks are Cosco, SMM and SIA, which are value buys after the sell-down
last quarter.
Janice Chua . (65) 6398 7954 . janicechua@dbsvickers.com
Page 32
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Country Assessment
Market Data
Indices
Closed
25 Mar 08
Chng Net
-1 mth
-1 mth
(%)
-3 mth
(%)
-6 mth
(%)
52-Week
-12 mth
(%) High Low
FSSTI 3,000 -65 -2 -12 -16 -5 3,831 2,746
FTSE Mid Cap 747 -56 -7 -15 -20 -16 1,031 693
FTSE Small Cap 625 -89 -13 -25 -32 -23 1,045 587
FTSE Financials 771 -12 -1 -13 -19 -14 1,008 700
FTSE Real Estate 751 -39 -5 -13 -23 -21 1,045 695
FTSE Re Hold & Dev 733 -42 -5 -15 -24 -21 1,017 682
FTSE Re Invest Trust 786 -33 -4 -10 -20 -20 1,110 677
FTSE Oil & Gas 697 -88 -11 -24 -22 25 1,089 558
FTSE Basic Materials 549 -163 -23 -31 -33 -16 1,012 465
FTSE Industrials 697 -51 -7 -19 -25 -1 1,026 652
FTSE Consumer Goods 701 -125 -15 -25 -21 -21 1,025 619
FTSE Healthcare 800 26 3 -14 -15 -5 1,087 764
FTSE Consumer Services 794 -43 -5 -14 -18 -10 1,039 743
FTSE Telecommunication 991 25 3 5 4 22 1,027 812
FTSE Utilities 727 -45 -6 -32 -9 17 1,227 571
FTSE Technology 682 -69 -9 -24 -31 -34 1,115 658
Transactions:
YTD
Volume (bn) 779
Value (S$bn) 702
Source: Bloomberg
MARKET REVIEW
Jan 10 marked the launch of the revamped FS ST
index and 18 sectoral indices and the start of decline
of Singapore market. The index closed at 3000 points
on 25 March 2008, in line with our 3 month target for
FSSTI when we started the year downgrading the
Singapore market to Neutral. The 20% decline in the
index was precipitated by spillover effects of the US
credit crunch, inflationary pressures globally, collapse
of S chips due to credit tightening measures in China,
high oil prices, the weak US$ and earnings
downgrades for corporates.
This is despite the US Federal Reserve adopting an
aggressive stance to cut the Fed Funds rate three times
in the past quarter, bringing it down from 4.25% at
the start of the year to the current 2.25%. S Chips
paced the weakness in Shanghai A shares and HK H
shares. They were sold down on fears over rising
commodity costs affecting margins of consumer and
related stocks. Stocks that disappointed on earnings as
well as weak corporate governance eroded investors’
confidence in S chips. The fact that the China
government indicated that it would allow banks to
invest in Singapore stocks through the QDII program
did not manage to stem the outflow of funds from S
Chips. The MAS has signed a supervisory cooperation
agreement with the China Banking Regulatory
Commission (CBRC) to allow Chinese commercial
banks to conduct investments for their clients under
the QDII program.
Closer home, the market was dampened by weak
4Q07 GDP growth of --4.8% qoq saar, and the
government’s subsequent downgrade of Singapore’s
GDP growth to a lower band of 4% to 6% for 2008
vs 4.5% to 6.5% previously. This is a marked
slowdown compared to GDP growth rates of 7.7%
achieved for 2007 and 8.2% for 2006. Inflation was
the other concern, which hit the roof at 6.6% in
January, its record high in 25 years, and is projected to
hit 5% in 1H08. The result is a strong S$ vs US$ which
has a net negative impact on shipyards, and the
technology sector. Singapore’s 2008 budget offered
little upside surprises for the market, except for the
abolishment of the estate duty tax. The removal of the
estate duty tax will provide a boost for the wealth
management industry and will lend support to highend
property prices, benefiting Bank stocks and highend
property plays.
Page 33

Regional Equity Strategy Q2 2008
Country Assessment
Index Key Events
3,900
3,800
3,700
3,600
3,500
Spore secured F1
hosting rights for 5
years starting 2008
MAS raises
Singapore 07
GDP to 5.7%
2Q Advance GDP
estimates
Led by O&M and
energy stocks as oil
price and precious
metals rallied, S-chips
on
Inflation fears, more
subprime related
write-off, concerns
about slowdown in
US economy
3,400
3,300
3,200
3,100
3,000
2,900
2,800
Liquidity led rally
triggered by
positive news
China Market falls
9% in a single day
on 27 Feb
Continued optimism
in the property
sector, construction
recovery, RTOs, small
caps outperform
blue chips
DC charge for new
building projects
raised from 50% to
70%
US subprime &
credit market
crisis, banks CDO,
caution about
property
Fed cut
discount
rate by
50pbs to
5.75%
Speculation of
US rate cut
Surprised 75pbs
rate cut by Fed
to 3.5%
US recession fear, margin
squeezed by escalating oil
and commodity prices;
further write-down
in CDO assets by banks
2,700
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Source: DBS Vickers
Our strategy to stay defensive focusing on high dividend
yield plays and REITS proved timely. Among our top
picks, SingTel and the Telecoms sector performed well,
outperforming the market by 19% YTD. REITS held up
well, declining 7% vs the overall market decline of 13%.
Among the worst hit were S Chips, reflected in the
decline of Basic Materials (-42%) and Consumer Goods
(-21%) due to disappointing 4Q07 results on rising cost
leading to margin pressure. Sentiment in S Chips was
affected by the selldown in the SSEC Index (-32% YTD)
and HSCEI Index, prompted by the Chinese
government’s aggressive stance to rein in inflation by
capping prices of consumer goods, and credit tightening
measures which affected the property sector.
The offshore and marine sector was badly hit by rising
challenges in its operating environment, following the
declining US$ and rising steel cost which will erode
margin post FY08. The sector was de-rated, due to
concerns over execution risks, despite the sector sitting
on record order books. The fears were compounded
by Keppel Corp, which kickstarted the reporting
season with a disappointing set of results due to cost
overruns pertaining to P52. Investors were also
concerned that order books may have peaked,
particularly for shipbuilders. As a result, Yangzijiang(-
53% YTD) and Cosco Corp(-39% YTD) were among
the top decliners.
The Property sector suffered another round of fresh
selling, after URA’s 4Q07 private home prices index
showed its first sign of slowdown, with growth
registering only 6.8% vs 8.3% a year ago, and vs
2007’s full year growth of 31%. The withdrawal of
the Deferred Payment Scheme and sub-prime woes in
4Q07 took its toll on the sector, resulting in few new
launches and a quiet secondary market. Kuwait
Investment Office dropped another bombshell when it
failed to exercise options for 97 units Goodwood
Residences at $3200psf,a project developed by
Guocoland. This confirmed investors’ fears that highend
property prices could go downhill, as the option
was struck at the higher end of the price range of
$2500psf to $4000psf for that area.
Separately, takeover offers remain a key feature in
1Q08, notably for Robinsons, Asiapharm, Delong,
Straits Trading, and Kim Eng, indicating that private
equity funds and trade-buyers are still on the prowl to
bargain hunt for value buys.
Page 34

Regional Equity Strategy Q2 2008
Country Assessment
Sector Performance (Sorted in Descending Order on 3 month Performance)
Sector 1 Mth Ago (%) 3 Mth Ago (%) 6 Mth Ago (%) 1 yr Ago (%)
Telecommunications 3 6 5 23
REITS -3 -7 -17 -17
Consumer Services -2 -8 -12 -6
Financials 2 -11 -15 -9
Grand Total -4 -13 -17 -5
Health Care 10 -15 -20 -1
Technology -4 -17 -30 -35
Real Estate -5 -18 -28 -23
Consumer Goods -17 -21 -5 19
Industrials -10 -24 -27 -2
Oil & Gas -11 -25 -21 5
Basic Materials -26 -42 -48 -42
Telecommunications 3 6 5 23
Source: DBS Vickers
GROWTH
Cut in Singapore’s GDP growth estimate to 6%
for 2008. DBS Economics team has cut Singapore’s
GDP growth from 6.5% to 6% on the back of an
expected decline in manufacturing sector and exports,
as we expect the global economic slowdown to persist
particuarly in the first half. The slowdown in the US
will continue through 1H08, precipitated by weak
consumer confidence, job cuts, decline in housing
prices before a better 2H08 kicks in.
To combination of a high base, coupled with the
ongoing turmoil in global financial markets, may
dampen near term growth propsects for this sector.
The dismal showing in 4Q07 GDP growth : +5.4% yoy
but --4.8% qoq saar was the first quarterly decline
since 2Q03. Weak external demand from the US and
EU was the key drag on exports but overall
performance was shored up by the construction sector
which grew by 24.3% in 4Q07.
Downside to Singapore’s numbers could come from
the financial services sector, which grew at 16.9% in
2007, its fastest pace since the Asian Financial crisis.
Earnings Estimates by Sector
EPS Growth % CAGR PATMI S$m PE (x)
2007 2008 2009 07-09 2007 2008 2009 2007 2008 2009
Basic Materials 4.5 16.3 42.1 29 157 183 260 9.4 8.1 5.7
Consumer Goods 34.0 14.1 15.2 15 1,928 2,199 2,534 19.0 16.7 14.5
Consumer Services 12.1 11.9 -1.0 5 2,963 3,316 3,282 12.0 10.8 10.9
Financials 21.3 10.0 9.3 10 7,000 7,702 8,422 13.2 12.0 11.0
Health Care 10.8 11.9 17.7 15 163 183 215 24.2 21.6 18.4
Industrials 21.0 23.4 16.5 20 4,110 5,071 5,908 16.7 13.6 11.6
Oil & Gas 54.4 9.7 5.6 8 704 772 815 8.5 7.8 7.3
Real Estate 97.7 16.4 44.0 29 4,821 5,612 8,082 13.8 11.9 8.2
REITS 48.9 25.2 15.2 20 852 1,067 1,229 23.5 18.8 16.3
Technology 53.7 -3.7 34.7 14 717 691 931 11.1 11.6 8.6
Telecommunications 2.2 10.5 11.2 11 4,208 4,648 5,170 16.8 15.2 13.7
Grand Total 27.9 13.8 17.2 15 27,623 31,444 36,848 14.9 13.1 11.1
Total Ex Property & Reits 18.1 12.8 11.2 12 21,949 24,765 27,536 14.8 13.1 11.8
Source: DBS Vickers
Page 35

Regional Equity Strategy Q2 2008
Country Assessment
Contributions to earnings growth by sector 2008
Technology
2%
REITS
5%
Real Estate
20%
Contributions to earnings growth by sector 2009
Technology
4%
REITS
3%
Telecome
11%
Oil & Gas
2%
Real Estate
45%
Telecome
10%
Source: DBS Vickers
Basic Materials
1%
Indust rials
25%
Consumer Goods
7%
Basic M at erials
1%
Consumer Goods
6%
Consumer Services
1%
Oil & Gas
1%
Consumer Serv ices
9%
Financials
18%
Healt h Care
0.5%
Financials
13%
Health Care
1%
Indust rials
15%
Strong earnings growth of 28% in 2007, led by
property and REITS sector. At the close of the
reporting period for 2007, SGX-listed companies
under our coverage grew by 28%, led by property and
REITS division on account of profits from pre-sold
developments since the upcycle in 2005. Consumer
sector performed well with growth of 34% while
Financials expanded 20% on the back of record loans
growth and the bullish stock market. Excluding
property and REITS, the market grew by a still
impressive 18.1%.
But earnings growth to slow to 13.8% following
downgrades in earnings. Going forward, we have
cut our EPS growth for 2008 from 22% to 13.8%, the
most significant cuts came from the property division,
due to the delay in new launches since 4Q07 and our
assumptions of lower ASPs for unsold projects as well
as lower margins due to the rise in building materials
and other construction related costs. Growth for 2008
in the property sector was scaled back from 63% to
only 14% this year.
Cuts in earnings growth for the Basic Materials sector
from 57% to only 16% came from Jiutian and Midas.
These were mainly due to lower margins and delays in
the commencement of new plants and project
deliveries, resulting in stronger growth in 2009.
While growth for the Industrial sector remained largely
in tact at 24% for 2008, we have cut 2009 earnings
growth from 30% to only 18% due to rising steel cost
and the weaker US$ which will impact margins from
2009. Shipyards are likely to lock in steel cost for one
year while deliveries beyond the next 12 months are
subject to rising cost.
SENTIMENT
In just a quarter, the mood in the market has swung
from gaurded optimism to extreme bearishness, as
renewed concerns of the sub-prime woes in the US
took centrestage. After the initial selldown in January,
stockmarket volume started to decline. Persistent
downside arising from negative developments from
companies, eroded confidence in the market,
specifically S chips, which has seen a more than 50%
erosion in market values since Sep 07. As a result, the
average daily traded volume on SGX has declined by
29% to 1694m units and down 46% compared to the
euphoria in 3Q07.
Despite the FSSTI falling 20% YTD, sentiment remains
fragile, as the market lacks a near term catalyst for
outperformance. Rebounds are on low volume,
signaling a lack of investors’ confidence in the market.
While a rebound could materialize, we expect that
fear will prevail at this stage, and until the market has
stabilized, we do not expect a strong rebound of the
market at this juncture.
Page 36

Regional Equity Strategy Q2 2008
Country Assessment
Singapore Stock Market Turnover
USD – SGD Money Market Yield Trands
(m shrs)
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08
Source: Bloomberg, DBS Vickers
4.00
3.50
%pa
%pa
3.00
2.50
3M SGD SOR
2.00
12M SGD SOR
12M USD Libor (RHS)
1.50
1.00
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08
Source: Bloomberg, DBS Vickers
6
5.5
5
4.5
4
3.5
3
2.5
2
1.5
LIQUIDITY
Inflation risks remain a key concern, which is expected
to hit 5%, a 25-year record high. Rising rentals, oil
prices and commodity prices translating into higher
consumer prices will remain a key feature this year. As
such, DBS currency strategist expects SGD to continue
to strengthen this year to end the year at 1.31 -- 1.35,
vs the US$, given the weak outlook for the US
economy. The strong currency has been a prime driver
for the Singapore market as it attracts capital inflow
and helps to keep inflation low. The weak
performance of recent IPO issues -- 9 were launched in
1Q08 (vs 66 in 2007) of which two-thirds are below its
subscription price, is a function of poor market
sentiment and investors avoiding small caps.
12 month SIBOR took a dive from 4% to the current
1.5% due to capital outflows from the equities
market, indicating that the monetary system is still
flushed with ample liquidity, supported by the strong
S$.
VALUATION
At the 3000 index level, the Singapore stockmarket is
trading at P/E of 13x(FY08F) and 11x(09F), maing it
the cheapest market in the region and putting it below
its average rolling forward P/E of 14.9x.
However, we believe EPS downgrades have yet to run
its course and expect more downside in the face of
deteriorating operating conditions. Street estimates
are still high, with 54 upgrades in recommendations
and only 22 downgrades in the past quarter,
compared to DBS’ upgrades of 10 stocks and 25
downgrades in recommendations. Investors will be
watching for the release of 1Q08 results reporting
season, which is unlikely to bring cheer given drastic
changes in operating dynamics and rising costs, which
will impact margins.
Our target downside of 2650, translating into P/E of
12x(FY08F) and 10.6x, could be triggered if conditions
in the US deteriorate beyond what is currently
expected. Our base assumption is for the US economy
to slow to as low as 1.1% growth during 1Q before
picking up to 2.5% in 3Q08. Meanwhile, we expect
volatility and uncertainties to prevail in 2Q08, which
will present opportunities for bargain hunting in
anticipation of a recovery in 2H08.
Following our earnings downgrade in 1Q08, we have
cut our bottom-up 12-month target for FSSTI to 3450.
This translates to a PE of 13.8x on FY09 earnings,
which we believe is fair based on PEG of 1x the
market’s EPS growth.
Page 37

Regional Equity Strategy Q2 2008
Country Assessment
FS STI Rolling forward PE chart
(x)
30.0
25.0
20.0
Avg Rolling Forward PE at 15x
15.0
10.0
5.0
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Source: DBS Vickers
Spore Market Price to Book
(x)
2.8
2.6
INVESTMENT STRATEGY
Over the past quarter, the team has been trimming
back corporate earnings forecasts, target valutions and
recommendations, in the face of what is seen to be an
increasingly challenging operating environment.
Significantly for the Singapore market, our
marine/industrial and banking sectors calls were
downgraded to Neutral. In the case of the former,
value has emerged for selected stocks after the selldown
and we would prefer rig-builders and offshore
plays to pure shipbuilders.
We have also reset our target prices for the property
sector, applying a steeper discount given the more
muted expectations in the physical property prices.
Property developers now offer lower expected returns
of 21% vs 44% for REITS, underscoring our
preference for the latter.
Following the de-rating of ‘S’ chips last quarter,
average P/Es were halved to 10x (FY08F) and 8x(FY09),
vs growth of 39% for 2008 and 29% for 2009. As
such, S chips provide the highest returns (mostly
represented in the Basic materials and Consumer
Goods sectors). However, given the lack of confidence
in S chips, we would be cautiously optimistic and stick
to stocks with a proven execution track record and
sustainable business model. Among ‘S’ chips, we like
are Cosco Corp, Ferro China, China Sky, Hsu Fu Chi
and Hongguo.
2.4
2.2
2.0
1.8
1.6
1.4
1.2
1.0
Source: Datastream
Avg P/Book at 1.7x
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
In terms of price to book ratio, the market is trading at
2.15xcurrently, despite the recent correction. This is
above its historical average of 1.7x, which if
referenced, translates to a downside target of 2400.
However, the price-to-book support level will only be
relevant if the earnings picture were to deteriorate
signifcantly.
Expected Returns Next 12 Months by Sector
140.0%
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
Basic Materials
Consumer Goods
REITS
Source: DBS Vickers
Consumer Services
Oil & Gas
Industrials
Marine sector -- Prefer rigbuilders to shipbuilders
Health Care
We have downgraded the marine sector to a NEUTRAL
rating, due to higher execution risks and lowered
investors’ risk appetite. We note that the key concern
for the marine sector in 2008 is the ability for
companies to execute on their record order books,
amidst a depreciating US Dollar, higher labour costs,
and rising steel prices. Also, forex hedging will always
be an issue for the marine sector, as long as US Dollar
remains the de facto transactional currency, especially
Grand Total
Real Estate
Technology
Telecommunications
Financials
Page 38

Regional Equity Strategy Q2 2008
Country Assessment
after unexpected forex losses at SembCorp Marine and
Labroy Marine.
We believe that investors should be selective in the
marine sector, focusing more on oil and gas plays at
reasonable valuations, whilst staying circumspect on
shipbuilders like Yangzijiang. In our view, the
fundamentals of oil and gas stocks remain positive,
supported by record high order books, and high day
charter rates. On the contrary, for the shipbuilding
industry, besides relatively higher execution risk to
deliver order backlog of up to 5 years, we are also
seeing signs of slowing new orders for the pure play
shipbuilders in 2008. Among the blue chips, we now
like SembCorp Marine and Cosco due to their
defensive ship repair business, and still growing
offshore construction business. We also like Ezra and
Swiber for their growth stories, for investors with
higher risk profiles. For value investors, we have
singled out Jaya and Swissco as attractive takeover
plays.
Adjusted fair values and earnings estimates using more conservative valuation metrics and assumptions
Marine sector Share
price*
FYE Adj Net
Profit (1)
Adj Net
Profit (2)
Old valuation
metric
Change
in
New valuation
metric
Changes (3)
(%)
(S$)
(%) (S$m) (as of end 2007) valuation
metrics
Blue Chips
Cosco Corporation 3.44 Dec -6% 507 Ship repair/offshore Yes
Ship
conversion:
repair/offshore
30x FY09 PE
Shipbuilding: 30x
FY09 PE
Keppel Corporation 10.02 Dec -7% 1,154 Sum-of-parts
valuation -
Offshore: 18x FY09
PE
Conglomerate
discount: 5%
SembCorp
Industries
4.10 Dec -8% 511 Sum-of-parts
valuation -
Offshore: 18x FY09
PE
Conglomerate
discount: 5%
SembCorp Marine 3.73 Dec 8% 434 Sum-of-parts
valuation -
Offshore: 18x FY09
PE
0.92
Yes
Yes
Yes
conversion:
20x FY09 PE
Shipbuilding: 15x
FY09 PE
Sum-of-parts
valuation -
Offshore: 18x
FY09 PE
Conglomerate
discount: 10%
Sum-of-parts
valuation -
Offshore: 18x
FY09 PE
Conglomerate
discount: 20%
Sum-of-parts
valuation
Offshore: 18x
FY09 PE
New fair
value (S$)
Call
-43% 5.40 Buy
-24% 12.56 Buy
-38% 4.47 Fully
Valued
-13% 4.50 Buy
Yangzijiang Dec -12% 222 28x FY09 PE Yes 16x FY09 PE -52% 1.45 Hold
(1)
Adjustment to net profit estimates since 31st Dec 2007 (%)
(2)
New net profit estimates (Yr 1) (S$m)
(3)
Changes in fair value since 31st Dec 2007 (%)
* As of 25 March 2008
Source: DBS Vickers
Page 39

Regional Equity Strategy Q2 2008
Country Assessment
Adjusted fair values and earnings estimates using more conservative valuation metrics and assumptions (continued)
Marine sector
Share
price*
(S$)
FYE
Adj Net
Profit (1)
Adj Net
Profit (2)
Old valuation
metric
(as of end 2007)
(%) (S$m)
Mid-Tier
Ezra Holdings 1.84 Aug - 60 Chartering: 15x
FY09 PE
Jaya Holdings 1.42 Jun 5% 149 Chartering: 15x
blended FY08/09 PE
KS Energy 1.67 Dec -26% 68 Chartering: 18x
FY08 PE
Distribution: 15x
FY08 PE
Change in
valuation
metrics
Yes
New valuation
metric
Chartering: 12x
FY09 PE
EOC: 20x FY09 PE No EOC: 15x FY09 PE
Yes
Yes
Chartering: 15x
blended FY08/09
PE
Chartering: 15x
FY08 PE
Distribution: 8x
FY08 PE
Changes (3)
(%)
New fair
value (S$)
Call
-21% 3.15 Buy
0% 2.15 Buy
-46% 3.00 Buy
Swiber 2.40 Dec 12% 99 18x FY08 PE 15x FY08 PE -17% 3.49 Buy
Small Caps
Aqua-Terra 0.31 Dec -21% 15 15x FY08 PE Yes 8x FY08 PE -58% 0.35 Fully
Valued
Beng Kuang Marine 0.225 Dec -9% 8 16x FY08 PE Yes 10x FY08 PE -43% 0.21 Fully
Valued
See Hup Seng 0.30 Dec -29% 16 18x FY08 PE Yes 9x FY08 PE -66% 0.40 Hold
Sinwa 0.28 Dec -39% 10 Marine supply: 10x
FY08 PE
Chartering: 15x
FY08 PE
Yes
Marine supply: 8x
FY08 PE
Chartering: 9x
FY08 PE
SSH Corporation 0.26 Jun 4% 23 15x FY08 PE Yes 8x blended
FY08/09 PE
Swissco 0.82 Dec -4% 12 Sum-of-parts Yes Sum-of-parts
International
valuation -
valuation -
Chartering: 13x
FY08 PE
Chartering: 10x
FY08 PE
-51% 0.39 Hold
-43% 0.37 Buy
-21% 1.41 Buy
(1)
Adjustment to net profit estimates since 31st Dec 2007 (%)
(2)
New net profit estimates (Yr 1) (S$m)
(3)
Changes in fair value since 31st Dec 2007 (%)
* As of 25 March 2008
Source: DBS Vickers
Page 40

Regional Equity Strategy Q2 2008
Country Assessment
Property -- Prefer REITS
Our neutral stance for the property sector remains in
place, with a preference for S-reits over developers.
We believe investors should remain defensive, and
prefer yields plays to high beta cyclicals in the absence
of physical market and policy catalysts in the near
term.
That said, valuation of property development stocks
are inexpensive, trading at an average 37% discount
to our 2008 revalued asset backing and midway
between the 2001/2008 trough-peak range of 10%
premium to 57% discount, indicating that much of
the anticipated correction in the real estate market
could have been priced in.
In so far as the physical market is concerned, looming
supply across the luxury residential and office sectors
over the next 2 years are likely to weigh down on
sentiment and limit capital value upside. The
upcoming Master Plan 2008 may provide some
excitement but any impact is anticipated to be location
specific rather than broad sweeping. Within the office
sector, the pace of office rents upswing is likely to be
more muted this year with slower pace of office
demand and more resistance from tenants to higher
rent adjustments. However, reversions are likely to
remain positive owing to the large spread between
new and expiring leases. The star performer this year is
likely to be the hospitality sector as robust demand
and tight supply underpin Revpar performance.
In view of the dampened outlook, we have trimmed
ASP assumptions and have factored in a slower pace
of new sales as well as delays in new project launches.
This has resulted in a 0-21% downward revision in our
RNAV estimates. In terms of price targets, we have
used a wider discount of 10-30% to asset backing
compared to 10% premium to parity to RNAV
previously due to higher risks to equity valuations and
real market pricing. Among the property stocks, our
picks are Allgreen for its mass-market exposure, UOL
and UEL.
Property Valuations
Company Share Price (S$) RNAV +/- to Target Upside
25-Mar-08 Previous Current RNAV (%) Price ($) (%)
Recommendation
Allgreen 1.22 2.11 2.07 -41.1% 1.66 36.1% Buy
City Dev 10.90 14.91 13.68 -20.3% 11.62 6.6%
Hold
Guocoland 4.08 5.60 4.87 -16.2% 4.14 1.5% Hold
Ho Bee 0.92 2.32 1.74 -47.4% 1.22 33.3% Hold
Keppel Land 5.54 8.55 8.55 -35.2% 6.84 23.5% Buy
SC Global 1.39 3.99 2.70 -48.5% 1.89 36.0% Hold
Wheelock 1.75 3.18 2.56 -31.6% 1.79 2.3% Hold
Wing Tai 2.20 3.49 3.09 -28.8% 2.31 5.0% Hold
Singapore Land 6.65 12.90 12.72 -47.7% 10.81 62.6% Buy
UIC 2.62 3.56 3.22 -18.6% 3.22 22.9% Hold
UOL 3.84 6.88 6.82 -43.7% 5.46 42.2% Buy
Amara 0.54 1.01 1.01 -47.0% 0.81 51.4% Buy
Yanlord 1.95 4.21 3.90 -50.0% 3.12 60.0% Buy
Hotel Properties 2.86 5.03 3.98 -28.1% 3.38 18.2% Hold
United Engineers 3.85 5.71 5.65 -31.9% 4.52 17.4% Buy
Source: DBS Vickers
Page 41

Regional Equity Strategy Q2 2008
Country Assessment
Reits Sector
The S-reit sector outperformed the FSSTI in 1Q08 by
6% as investors continue the hunt for yield. We
continue to like S-reits for their strong and stable
cashflow from rental proceeds and attractive dividend
yields. The sector is trading at an average FY08 yield of
c6.7%, with retail reits trading at the lower end of the
range, at about 5.6% and industrial S-reits at the
higher end of the band at 7.3% FY08 earnings.
In particular, we prefer those exposed to the more
resilient retail sector as well as the upbeat hotel
segment. Given ongoing concerns of a global credit
crunch affecting the ability of these REITS from raising
capital, we prefer those with a strong organic growth
drivers and low gearing such as CMT and CDL HT.
Historically, with the exception of the Asian Crisis
period in 1998-99, retail rents have trended up, in
tandem with economic growth. Looking ahead, we
anticipate retail rents to continue its upcycle thanks to
the moderated but still positive GDP outlook and
greater retail spending from the projected strong
tourist influx. In addition to organic earnings
expansion through positive rental renewals, retail reits
such as CMT’s aggressive asset enhancement
programme should translate to a further boost to
bottomline.
The hotel sector gave a robust showing in 1Q08 with
average room rates (ARR) in Singapore jumping 30.5%
yoy to an all time high of $237per room night and
occupancy levels maintained in the mid-80s. Looking
ahead, various government initiatives to position
Singapore as a leading tourist destination, strong
demand for short-stay lodging and a tight supply
situation should continue to underpin room and
occupancy rates. CDL HT, the largest single owner of
hotel rooms in Singapore, with 8% of total stock, is a
major beneficiary of this upswing.
Reits Valuation
Comapny Share Price (S$) DPU Yield Target % upside
25-Mar-08 FY08 FY09 FY08 FY09 Price
Allco Commercial Reit 0.82 6.6 6.8 8.1% 8.3% 1.23 51%
Ascendas India Reit 1.00 6.2 7.3 6.2% 7.3% 1.84 85%
A-REIT 2.23 13.9 15 6.2% 6.7% 2.80 26%
CapitaCommercial Reit 2.08 10.7 13 5.1% 6.3% 3.08 48%
CapitaMall Trust 3.41 14 15.2 4.1% 4.5% 3.93 15%
CDL Hospitality Trusts 2.08 11 13.1 5.3% 6.3% 2.90 39%
Frasers Centrepoint Trusts 1.17 7.5 7.8 6.4% 6.7% 1.71 46%
Mapletree Logistics 0.96 6.7 6.9 7.0% 7.2% 1.40 46%
MM Prime 1.21 7.4 7.7 6.1% 6.4% 1.63 35%
Parkway Life 1.22 6.4 6.8 5.2% 5.6% 1.50 23%
Suntec Reits 1.48 9.0 9.8 6.1% 6.6% 1.98 34%
Source: DBS Vickers
Page 42

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Banks & Finance
Neutral
Neutral. We believe fair values for Singapore banks should hover at around
mid-cycle valuations over the next 6-12 months, but near term price
performance is being driven by external factors. We think until and unless
Singapore and its neighbours show recessionary signs, trough valuations on
Singapore banks should not prevail at this juncture. We believe the worse
was over after Singapore banks made higher provisions for their respective
CDO exposures in the recent round of financial results. But now equity
markets are plagued by global and regional fears of an economic slowdown.
Given the soft equity market sentiment, Singapore banks would at best
perform in line with the STI. We maintain our Buy call for OCBC (TP S$9.00)
but downgrade UOB to Hold (TP S$19.30). We switch our preference to
OCBC from UOB because OCBC appears more defensive and its operating
parameters are strong. We think UOB now carries a premium. Despite being
conservative in the past, which has been priced in, UOB’s future earnings
could be hurt by compressed NIMs.
OCBC
Consumer Goods
Overweight
We maintain our Overweight rating on consumer goods sector, which is now
trading at an undemanding PER of about 7x on FY08F earnings. F&B stocks
were sold down on concerns of cost inflationary pressure and the potential
impact of the snowstorms in China. We believe this has been priced in with
the recent correction. Amongst the F&B consumer stocks, we prefer to
‘‘cherry-pick’’ those with a strong management team and branding and
continue to like Hsu Fu Chi. We also highlight Celestial NutriFoods to watch
for in the later half of 2Q on the premise that it could re-rate up as
commodity prices (soybean) abate. Celestial has not disappointed to-date
and the counter is trading at attractive valuations -- parity to book value and
at a low historical prospective PE of 4
In the branded consumer goods space, we also like China Hongxing and
Hongguo International, both of which rank amongst the top 5 and top 3
domestic players respectively and are trading at substantial discounts to HKlisted
peers, with valuations halved from 6 months ago.
Hsu Fu Chi,
Celestial NutriFoods,
China Hongxing,
Hongguo International
Page 43

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Consumer Services
Overweight
Excluding Robinsons, which jumped 60% on a takeover offer, our consumer
services coverage largely performed in line with the market, which fell by
12% in the last 3 months. The peformance of our top picks for the 1st
quarter was quite mixed, with SPH outpeforming the broader market by
13%, SIA performing in line and Raffles Education underperforming the
index by 19%.
We are maintaining our overweight call for this sector, as we begin to see
attractive valuations emerging after recent declines in the last quarter. In
particular, we are strongly advocating Singapore Airlines, which is now
trading just above book value and at the low end of its EV/EBITDA range
despite continuing to report record earnings and strong operating numbers.
Furthermore, with net cash of over S$2 per share and strong profit numners,
there is a strong possibility that SIA could repeat its S$1 dividend when it
reports its full year results in May. We also like ComfortDelgro and SPH, both
of which not only offers attractive valuations with PER in the low teens with
strong balance sheets, but also defensive net dividend yields of over 5%.
SIA, SPH and
ComfortDelgro
Industrials
Neutral
We downgraded the sector to Neutral from Overweight due to higher
execution risks and lowered investors’ risk appetite. The fundamentals for the
oil and gas stocks remain positive, supported by record high order books and
high day charter rates but we are seeing slowing new orders for the pure
play shipbuilders in 2008. In 2008, the key concern would be the ability to
execute on record order books amidst the depreciating US dollar, higher
labour cost and rising steel prices. As such, a red flag is raised on shipbuilders
like Yangzijiang who have to execute on an order backlog of five years based
on prices contracted in the past two years when raw material prices were
much lower. We believe the rig builders are better able to manage cost
inflation as a significant portion of the cost of sales such as drilling package,
high tensile steel as well as other steel costs are locked in at the time that the
contract is signed. Among the blue chips, we like Cosco and SembCorp
Marine due to their defensive shiprepair business; and for SMM, its
leadership position in the offshore construction business as well. We like Ezra
and Swiber for their strong growth outlook. We have singled out Jaya and
Swissco as attractive takeover plays.
Other themes that we like are construction and water treatment. In
Singapore, BCA forecasts construction demand to hit a new zenith of $23-
27bn in 2008. Construction output in terms of certified progress payment is
projected to hit S$19-21bn in 2008 from S$16.5bn in 2007. We prefer the
building material suppliers such as Hong Leong Asia and Pan United Corp
which should benefit from higher prices and increase in construction activity
and niche subcontractors like KSH who should be able to pass on the higher
building material prices to the developers. Amongst the S-Chips building
material stocks, we like FerroChina, which is expected to benefit from higher
volume sales of cold rolled steel coils which are currently in short supply and
are commanding attractive margins Elsewhere in the industrial space, we like
Epure; we are confident of its success in securing more EPC contracts in the
months ahead, given China’s increasing focus on environmental issues and
its leading industry position.
Cosco, SMM, Ezra, Swiber,
Epure and Ferro-China
Page 44

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stocks for Singapore
SECTOR REMARKS STOCK SELECTION
Property
Neutral
Our neutral stance for the property sector remains, with a preference for S-
reits over developers. We believe investors would likely remain defensive and
prefer yields plays to high beta performers in the absence of physical market
and policy catalysts in the near term. That said, valuation of property
development stocks are inexpensive, trading at an average 37% discount to
our 2008 revalued asset backing and midway between 2001/2008 troughpeak
range of 10% premium to 57% discount, indicating that much of the
anticipated correction in the real estate market could have been priced in. In
so far as the physical market is concerned, looming supply across the luxury
residential and office sectors over the next 2 years are likely to drag on
sentiment and limit capital value upside. However, we are still upbeat about
the hotel sector as robust demand and tight supply underpin Revpar
performance.
Allgreen Properties
Reits
Overweight
The S-reit sector outperformed the FSSTI in 1Q08 by 4% as investors
continue to hunt for yields. We continue to like S-reits for their strong and
stable cashflow from rental proceeds and attractive dividend yields. The
sector is trading at an average FY08 yield of c6.7%, with retail reits trading
on the lower end of the range, at about 5.6% and industrial S-reits at the
higher end of the band at 7.3% FY08 earnings. In particular, we prefer those
exposed to the more resilient retail sector as well as the upbeat hotel
segment and with a strong organic engine and low gearing such as CMT and
CDL HT.
CDL HT, CapitaMall Trust
Technology
Underweight
We maintain our Underweight stance on the tech sector as some of the key
challenges we highlighted early this year have lingered and we are of the
opinion that these will pose increasing downside risks on corporate earnings.
Near term, we think the tech sector would remain pressured by sustained
high material costs, further weakening of USD on the one hand, and
prolonged macroeconomic uncertainty that will continue to threaten
consumer spending and cloud end demand for electronics products on the
other. We see a reversal in USD and/or raw material price trends as well as
news of business improvements in the seasonally stronger second half year as
catalysts for stock prices. Nevertheless, long term investors can take
advantage of share price weakness to accumulate solid companies at good
value such as Unisteel and CSE Global.
Unisteel and CSE Global.
Telecom
Overweight
Singapore Telcos should continue to be defensive. A fair regulator, rational
competition and healthy cash flow are the attractive features of the
Singapore telecom sector. We like SingTel for its growth prospects from
developing Asia along with defensive cash flow from Singapore & Australia.
SingTel is benefiting from strong Australian dollar and is expected to
announce special dividends with its 4Q08 results over and above its regular
annual dividend yield of 3.5%. We also view StarHub as defensive due to its
attractive yield but with single-digit growth prospects.
SingTel and Starhub
Page 45

Regional Equity Strategy Q2 2008
Capitamall Trust
Bloomberg: CT SP | Reuters: CMLT.SI
BUY S$3.41 FSSTI : 3,000.19
Price Target : 12-Month S$ 3.93 (Prev S$ 4.05)
Potential Catalyst: Update of target price and earnings estimates
Analyst
Singapore Research Team +65 6533 9688
research@dbsvickers.com
Price Relative
4.80
4.30
3.80
3.30
2.80
2.30
1.80
S$
R e la tiv e In d e x
1.30
90
2004 2005 2006 2007 2008
Capitam all Trust (LH S) R elative FSSTI IN D EX (R H S)
Forecasts and Valuation
FY Dec (S$ m) 2006A 2007A 2008F 2009F
Gross Revenue 332 408 473 515
Net Property Inc 218 297 348 385
Total Return 420 498 243 267
Distribution Inc 169 219 256 282
EPU (S cts) 11.7 13.2 15.0 16.1
EPU Gth (%) 24 12 14 7
DPU (S cts) 11.7 13.8 15.4 17.0
DPU Gth (%) 14 18 11 10
NAV per shr (S cts) 190.5 235.5 223.0 222.2
PE (X) 29.1 25.9 22.8 21.2
Distribution Yield (%) 3.4 4.1 4.5 5.0
P/NAV (x) 1.8 1.4 1.5 1.5
Aggregate Leverage (%) 34.1 34.3 36.1 37.4
ROAE (%) 6.4 6.2 6.5 7.2
Consensus DPU (S cts): 14.7 16.1
Sector : REITS
Principal Business: Real estate investment trust with a portfolio of
five major shopping malls located in suburban areas in Singapore,
and Class E Bonds issue
210
190
170
150
130
110
Steadily growing
Story: CMT offers investors exposure to the relatively
more resilient retail sector with earnings upside coming
from positive organic rental growth and asset
enhancement initiatives. Its attractiveness is also
underpinned by a strong acquisition pipeline visibility
from its sponsor, which should enable the group to
retain its pole position as the largest listed Singaporecentric
retail S-reit over the medium term.
Point: Historically, retail rents have remained fairly
stable, trending in line with economic growth. In view of
the moderated but still positive economic growth
outlook, we anticipate retail rents to continue its
upcycle. This should benefit CMT with 55% of its gross
revenue due for renewal over FY08-09. CMT’s asset
enhancement activities are well known and is estimated
to account for up to 35% of DPU growth since listing. It
has earmarked capex of S$153m in FY08 and a further
S$112m in FY09, largely to be spent at Lot One,
Sembawang Shopping Centre, IMM Buillding, Raffles
City and Jurong Entertainment Centre. With a low
gearing of 35%, these AEI should not stretch its balance
sheet. When completed, it could add $39m or 13% pa
to NPI. In the longer run, new buildings such as ION
Orchard, Clarke Quay and One North, could be injected
into the reit, to expand its asset base towards its target
of S$7b by 2009.
Relevance: The investment case for CMT is its
consistently strong growth story, thanks to robust
organic and acquisition expansion. The stock is trading
at FY08 and FY09 yields of 4.5% and 5.0% respectively
or about 240-270 bps spread above the risk free rate.
Our DCF-backed price target of S$3.93 offersa potential
14% upside. Maintain Buy.
At A Glance
Issued Capital (m shrs) 1,663
Mkt. Cap (S$m/US$m)
5,672 / 4,109
Major Shareholders
CapitaLand Ltd (%) 29.3
NTUC Fairprice Co-op (%) 4.9
Free Float (%) 65.8
Avg. Daily Vol.(‘000) 5,005
Page 46
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Capitamall Trust
Statement of Total Return (S$ m) Balance Sheet (S$ m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Gross revenue 332 408 473 515 Investment Properties 4,575 5,778 5,945 6,071
Property expenses (114) (110) (125) (130) Other LT Assets 171 99 104 111
Net Property Income 218 297 348 385 Cash & ST Invts 47 69 68 65
Other Operating expenses (23) (32) (34) (36) Other Current Assets 18 11 13 14
Other Non Opg (Exp)/Inc 0 0 0 0 Total Assets 4,811 5,957 6,130 6,260
Net Interest (Exp)/Inc (42) (63) (76) (88)
Exceptional Gain/(Loss) 0 0 0 0 ST Debt 256 150 150 150
Net Income 167 207 243 267 Other Current Liabilities 95 118 135 148
Tax 0 0 0 0 LT Debt 1,434 1,893 2,062 2,190
Minority Interest 0 0 0 0 Other LT Liabilities 51 75 75 75
Preference Dividend 0 0 0 0 Unit holders’ funds 2,976 3,722 3,708 3,698
Net Income After Tax 167 207 243 267 Minority Interests 0 0 0 0
Total Return 420 498 243 267 Total Funds & Liabilities 4,811 5,957 6,130 6,260
Non-tax deductible Items 2 12 13 15
Net Inc available for Dist. 169 219 256 282 Non-Cash Wkg. Capital (76) (107) (123) (134)
Net Cash/(Debt) (1,643) (1,974) (2,143) (2,275)
Revenue Gth (%) 36.5 22.9 16.0 9.0
N Property Inc Gth (%) 41.3 36.6 17.1 10.5
Net Inc Gth (%) 43.1 23.8 17.2 10.1
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Pre-Tax Income 167 207 243 267 Net Prop Inc Margins (%) 65.6 72.9 73.7 74.7
Dep. & Amort. 1 2 2 2 Net Income Margins (%) 50.5 50.8 51.4 51.9
Tax Paid 0 0 (1) 0 Dist to revenue (%) 51.1 53.7 54.2 54.8
Associates &JV Inc/(Loss) (14) (5) (5) (6) Managers & Trustee’s fees 6.9 7.8 7.3 7.0
Chg in Wkg.Cap. 12 30 17 11 to sales (%)
Other Operating CF 48 74 0 0 ROAE (%) 6.4 6.2 6.5 7.2
Net Operating CF 214 308 256 274 ROA (%) 4.0 3.8 4.0 4.3
Net Invt in Properties (856) 0 (153) (112) ROCE (%) 4.9 5.1 5.4 5.9
Other Invts (net) (77) (115) 0 0 Int. Cover (x) 4.7 4.2 4.1 4.0
Invts in Assoc. & JV (93) (274) 0 0 Current Ratio (x) 0.2 0.3 0.3 0.3
Div from Assoc. & JVs 0 3 0 0 Quick ratio (x) 0.2 0.3 0.3 0.3
Other Investing CF 6 4 0 0 Aggregate Leverage (%) 34.1 34.3 36.1 37.4
Net Investing CF (1,021) (383) (153) (112) Operating CFPS (S cts) 14.2 17.7 14.7 15.8
Distribution Paid (143) (224) (256) (282) Free CFPS (S cts) (45.0) 19.6 6.3 9.7
Chg in Gross Debt 602 55 169 128
New units issued 395 352 0 4
Other Financing CF (40) (87) (16) (16)
Net Financing CF 815 96 (103) (166)
Net Cashflow 8 22 0 (4)
Quarterly / Interim Income Statement (S$ m)
PE (x)
FY Dec 1Q2007 2Q2007 3Q2007 4Q2007
(x)
Gross revenue 97 104 114 116 35.0
Property expenses (31) (37) (38) (39)
Net Property Income 67 67 77 77
Other Operating expenses (7) (7) (8) (8) 30.0
Other Non Opg (Exp)/Inc 0 0 0 0
Net Interest (Exp)/Inc (16) (16) (21) (18)
Exceptional Gain/(Loss) 0 0 0 0 25.0
Net Income 45 77 49 55
Tax 0 0 0 (1)
Minority Interest 0 0 0 0 20.0
Net Income after Tax 45 77 49 54
Total Return 45 368 49 145
15.0
Revenue Gth (%) 1 7 10 1
N Property Inc Gth (%) 4 1 15 1
Net Inc Gth (%) (16) 73 (36) 11
10.0
Net Prop Inc Margin (%) 68.3 64.5 67.1 66.6 2004 2005 2006 2007 2008
Source: Company, DBS Vickers
Page 47

Regional Equity Strategy Q2 2008
Cosco
Bloomberg: COS SP | Reuters: COSC.SI
BUY S$3.44 FSSTI : 3,000.19
Price Target : 12-month S$ 5.40
Potential Catalyst: M&A activities, contract wins
Analyst
Janice Chua +65 6398 7954
janicechua@dbsvickers.com
Price Relative
8.30
7.30
6.30
5.30
4.30
3.30
2.30
1.30
0.30
S$
Relative Index
2004 2005 2006 2007 2008
Cosco Corporation (LH S) R e la tive FSST I IN D E X (R H S)
Forecasts and Valuation
FY Dec (S$ m) 2006A 2007A 2008F 2009F
Turnover 1,216 2,262 4,936 7,270
EBITDA 358 576 943 1,214
Pre-tax Profit 302 498 863 1,104
Net Profit 205 337 507 667
Net Pft (Pre Ex.) 181 337 507 667
EPS (S cts) 9.5 15.0 22.6 29.8
EPS Pre Ex. (S cts) 8.4 15.0 22.6 29.8
EPS Gth Pre Ex (%) 23 80 51 32
Diluted EPS (S cts) 9.5 15.5 23.3 30.7
Net DPS (S cts) 4.1 7.0 7.3 8.2
BV Per Share (S cts) 30.9 42.0 57.6 80.2
PE (X) 36.4 22.9 15.2 11.5
PE Pre Ex. (X) 41.2 22.9 15.2 11.5
P/Cash Flow (X) 28.0 18.5 12.7 9.6
EV/EBITDA (X) 21.9 12.4 7.8 5.9
Net Div Yield (%) 1.2 2.0 2.1 2.4
P/Book Value (X) 11.1 8.2 6.0 4.3
Net Debt/Equity (X) 0.1 0.1 CASH CASH
ROAE (%) 34.5 41.8 45.4 43.3
Consensus EPS (S cts): 23.2 30.0
Sector : Industrials
Principal Business: Cosco Corp's core businesses include ship
repair, shipbuilding, offshore and marine engineering, dry bulk
shipping and shipping agency.
979
879
779
679
579
479
379
279
179
79
Catalysts ahead
Story: Cosco Corp offers a strong value proposition. By 2009,
the group’s earnings profile will be transformed from primarily
a shiprepair group into one with a diversified mix of 40% in
shiprepair, 30% in shipbuilding and 30% in offshore
engineering. This positioning ensures the stability of its revenue
stream.
Point: Order book remains strong at US$6.5bn, of which 80%
are shipbuilding orders with completion stretching up to 2011.
We expect the group to focus on clinching offshore and
rigbuilding projects this year, due to the opening of its new
rigbuilding yard at Qitong in phases. Qitong, when fully
completed by 2010, will be capable of building up to six rigs
annually.
In our view, the recent de-rating of shipyard sector has opened
up a window of opportunity for the management of Cosco
Corp to negotiate with its parent /sister company to buy over
the remaining 19% stake in Cosco Shipyard Group at a
reasonable valuation which will be EPS accretive for Cosco
Corp. Assuming the deal is transacted at 10x to 15x on cash
terms, we estimate this will raise earnings for the group by
16% to 18% for 2008, providing upside to our earnings
forecast.
Relevance: We see strong near term catalysts coming from
the possibility of Cosco raising its stake in its crown jewel,
Cosco Shipyard Group, and more oil and gas project wins.
Maintain BUY, the stock offers an attractive upside of 55%,
trading at P/E of 15.2x (FY08) vs its EPS CAGR of 41%. Our
SOP value of S$5.40 is pegged to 20x for the higher margin,
and less cyclical repair and offshore conversions earnings in
FY09, and 15x on the lower margin shipbuilding earnings. In
our opinion, the expected rise in steel prices in 2008 will pose
the single biggest risk to Cosco. With 20% of its shipbuilding
cost in steel, a 10% rise in steel prices will impact its net
At A Glance
Issued Capital (m shrs) 2,238
Mkt. Cap (S$m/US$m)
7,700 / 5,579
Major Shareholders
China Ocean Shipping (%) 53.4
SembCorp Marine (%) 5.0
Free Float (%) 41.6
Avg. Daily Vol.(‘000) 13,741
Page 48
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Cosco
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Turnover 1,216 2,262 4,936 7,270 Net Fixed Assets 1,122 1,479 1,827 2,142
Cost of Goods Sold (838) (1,652) (3,951) (5,984) Invts in Associates & JVs 2 2 3 3
Gross Profit 378 610 984 1,286 Other LT Assets 12 55 55 55
Other Opng (Exp)/Inc (82) (115) (144) (208) Cash & ST Invts 278 1,083 1,190 1,717
Operating Profit 295 495 840 1,078 Other Current Assets 470 1,349 1,985 2,828
Other Non Opg (Exp)/Inc 0 0 0 0 Total Assets 1,884 3,967 5,059 6,745
Associates & JV Inc 1 1 1 1
Net Interest (Exp)/Inc (18) 3 22 25 ST Debt 128 112 112 112
Exceptional Gain/(Loss) 24 0 0 0 Other Current Liab 548 2,446 2,895 3,717
Pre-tax Profit 302 498 863 1,104 LT Debt 284 65 65 65
Tax (23) (20) (64) (78) Other LT Liabilities 4 42 42 42
Minority Interest (74) (142) (293) (359) Shareholder’s Equity 670 940 1,290 1,795
Preference Dividend 0 0 0 0 Minority Interests 250 363 655 1,014
Net Profit 205 337 507 667 Total Cap. & Liab. 1,884 3,967 5,059 6,745
Net Profit before Except. 181 337 507 667
EBITDA 358 576 943 1,214 Non-Cash Wkg. Capital (78) (1,097) (909) (889)
Net Cash/(Debt) (134) 906 1,013 1,541
Sales Gth (%) 39.2 86.1 118.2 47.3
EBITDA Gth (%) 27.1 61.1 63.7 28.7
Opg Profit Gth (%) 31.2 67.6 69.8 28.3
Net Profit Gth (%) 28.0 63.9 50.5 31.7
Effective Tax Rate (%) 7.6 3.9 7.4 7.1
Cash Flow Statement (S$ m)
Rates & Ratio
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Pre-Tax Profit 302 498 863 1,104 Gross Margins (%) 31.1 27.0 19.9 17.7
Dep. & Amort. 62 81 102 135 Opg Profit Margin (%) 24.3 21.9 17.0 14.8
Tax Paid (19) (23) (20) (64) Net Profit Margin (%) 16.9 14.9 10.3 9.2
Assoc. & JV Inc/(loss) (1) (1) (1) (1) ROAE (%) 34.5 41.8 45.4 43.3
Chg in Wkg.Cap. 46 1,007 (231) (35) ROA (%) 12.5 11.5 11.2 11.3
Other Operating CF (6) 24 0 0 ROCE (%) 27.3 40.4 47.9 42.2
Net Operating CF 385 1,586 714 1,140 Div Payout Ratio (%) 43.5 46.5 32.1 27.6
Capital Exp.(net) (258) (462) (250) (250) Net Interest Cover (x) 16.6 40.5 80.5 589.0
Other Invts.(net) 1 0 (200) (200) Asset Turnover (x) 0.7 0.8 1.1 1.2
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 62.7 88.4 71.2 68.1
Div from Assoc & JV 3 1 0 0 Creditors Turn (avg days) 172.4 318.9 235.7 192.2
Other Investing CF 6 14 0 0 Inventory Turn (avg days) 67.4 76.0 60.5 62.0
Net Investing CF (248) (447) (450) (450) Current Ratio (x) 1.1 1.0 1.1 1.2
Div Paid (44) (119) (157) (163) Quick Ratio (x) 0.8 0.8 0.8 0.9
Chg in Gross Debt 23 (230) 0 0 Net Debt/Equity (X) 0.1 0.1 CASH CASH
Capital Issues 11 27 0 0 Capex to Debt (%) 62.6 262.0 141.6 141.6
Other Financing CF (10) (13) 0 0 N. Cash/(Debt)PS (S cts) (6.2) 40.5 45.3 68.8
Net Financing CF (20) (334) (157) (163) Opg CFPS (S cts) 15.6 25.9 42.2 52.5
Net Cashflow 117 805 107 527 Free CFPS (S cts) 5.9 50.2 20.7 39.8
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown
FY Dec 1Q2007 2Q2007 3Q2007 4Q2007 FY Dec 2006A 2007A 2008F 2009F
Turnover 356 512 547 847 Revenues (S$ m)
Cost of Goods Sold (263) (360) (364) (664) Shiprepair and conversion 1,029 1,503 1,522 1,643
Gross Profit 93 152 183 182 Shipbuilding 0 325 2,354 3,972
Other Oper. (Exp)/Inc (23) (13) (40) (39) Offshore 0 203 862 1,488
Operating Profit 69 139 143 144 Shipping & Agency 186 230 198 167
Other Non Opg (Exp)/Inc 0 0 0 0 Others 0 0 0 0
Associates & JV Inc 0 0 0 0 Total 1,215 2,261 4,936 7,270
Net Interest (Exp)/Inc (3) (1) 1 6
Exceptional Gain/(Loss) 2 0 0 (2)
Pre-tax Profit 67 139 144 148
Tax (7) (18) (4) 9
Minority Interest (19) (41) (43) (40)
Net Profit 42 80 98 117
Net profit bef Except. 40 80 98 118
EBITDA 88 156 167 168
Sales Gth (%) (2.5) 44.0 6.8 54.8
EBITDA Gth (%) (7.5) 78.2 6.7 0.4
Opg Profit Gth (%) (9.8) 101.3 2.5 0.6
Net Profit Gth (%) (7.4) 91.6 21.6 19.2
Gross Margins (%) 26.0 29.7 33.5 21.5
Opg Profit Margins (%) 19.5 27.2 26.1 17.0
Net Profit Margins (%) 11.8 15.7 17.9 13.8
Source: Company, DBS Vickers
Page 49

Regional Equity Strategy Q2 2008
SembCorp Marine
Bloomberg: SMM SP | Reuters: SCMN.SI
BUY S$3.73 FSSTI : 3,000.19
Price Target : 12-month S$ 4.50
Potential Catalyst: order wins, favorable ruling on unauthorised forex
loss
Analyst
Jesvinder Sandhu +65 6398 7965
jesvinder@dbsvickers.com
Price Relative
5.60
4.60
3.60
2.60
1.60
S$
R e la tiv e In d e x
0.60
83
2004 2005 2006 2007 2008
Sem bCorp M arine (LH S) R elative FSSTI IN D EX (R H S)
Forecasts and Valuation
FY Dec (S$ m) 2006A 2007A 2008F 2009F
Turnover 3,545 4,513 5,496 6,224
EBITDA 321 497 631 746
Pre-tax Profit 311 365 564 678
Net Profit 238 241 434 524
Net Pft (Pre Ex.) 218 362 434 524
EPS (S cts) 11.7 11.7 21.0 25.3
EPS Pre Ex. (S cts) 10.7 17.6 21.0 25.3
EPS Gth Pre Ex (%) 85 65 19 21
Diluted EPS (S cts) 11.4 11.5 20.6 24.9
Net DPS (S cts) 8.9 8.7 14.7 17.7
BV Per Share (S cts) 65.3 81.1 93.4 104.0
PE (X) 31.9 31.8 17.8 14.8
PE Pre Ex. (X) 34.9 21.2 17.8 14.8
P/Cash Flow (X) 31.4 34.0 20.4 18.3
EV/EBITDA (X) 23.4 14.8 11.4 9.5
Net Div Yield (%) 2.4 2.3 3.9 4.7
P/Book Value (X) 5.7 4.6 4.0 3.6
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 19.8 16.0 24.0 25.6
Consensus EPS (S cts): 22.2 26.6
Sector : Industrials
Principal Business: Principal activities are ship repair, shipbuilding,
ship conversion rig building and offshore engineering.
433
383
333
283
233
183
133
Strong outlook ahead
Story: SembCorp Marine should benefit from the expected
pick up in order flow momentum for offshore equipment.
Operating margins are on track to improve yoy.
Point: Order flows should pick up in the months ahead
given the strong level of enquiries for both drilling and
production equipment and could even match last years’
level of S$5.4bn. In terms of costs, SMM is hedged against
cost inflation for the significant portion of its cost of sales.
Major cost components such drilling package, high tensile
steel as well as other steel costs are locked in at the time
that the contract is signed. Thus, SMM is only exposed to
labour costs over and above some buffer and overheads
which account for around 20% of cost of sales for rig
building. Operating margins should be trending up as an
increasing portion of the better priced contracts are being
recognized combined with the completion of P-54, a
turnkey project where the procurement portion of the
contract had the effect of compressing margins. In 4Q07,
SMM made a US$208m provision and the balance
US$50.7m was disclosed as a contingent liability in respect
of the unauthorized forex losses. Management stressed that
steps have been taken to ensure that this will not recur.
Relevance: Maintain Buy with a TP of S$4.50 based on
SOTP. Order book is currently S$7.4bn; underpinning 82%
(FY08F) and 52% (FY09F) of revenue forecast ex
shiprepair. There is potential of earnings upgrade from :
(i) higher than expected order wins - our forecast assumes
S$4.0bn of new orders this year; and (ii) higher margins -
conservatively, we have assumed operating margin of 8%
(FY08F) and 8.2% (FY09F) compared to 7.7% in FY07.
At A Glance
Issued Capital (m shrs) 2,071
Mkt. Cap (S$m/US$m)
7,726 / 5,598
Major Shareholders
Sembcorp Industries Ltd (%) 60.9
Free Float (%) 39.2
Avg. Daily Vol.(‘000) 5,466
Page 50
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
SembCorp Marine
Income Statement (S$ m) Balance Sheet (S$ m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Turnover 3,545 4,513 5,496 6,224 Net Fixed Assets 679 676 699 723
Cost of Goods Sold (3,250) (4,102) (4,975) (5,619) Invts in Associates & JVs 147 206 313 466
Gross Profit 295 411 520 606 Other LT Assets 417 736 736 736
Other Opng (Exp)/Inc (67) (63) (78) (94) Cash & ST Invts 504 753 1,040 1,139
Operating Profit 228 349 442 512 Other Current Assets 1,683 2,093 2,508 2,830
Other Non Opg (Exp)/Inc 0 0 0 0 Total Assets 3,429 4,463 5,296 5,893
Associates & JV Inc 44 82 123 168
Net Interest (Exp)/Inc 11 14 (1) (1) ST Debt 140 260 260 260
Exceptional Gain/(Loss) 28 (80) 0 0 Other Current Liab 1,551 2,138 2,713 3,072
Pre-tax Profit 311 365 564 678 LT Debt 251 182 182 182
Tax (62) (113) (113) (136) Other LT Liabilities 118 178 165 165
Minority Interest (10) (11) (17) (19) Shareholder’s Equity 1,338 1,680 1,933 2,153
Preference Dividend 0 0 0 0 Minority Interests 32 26 43 62
Net Profit 238 241 434 524 Total Cap. & Liab. 3,429 4,463 5,296 5,893
Net Profit before Except. 211 321 434 524
EBITDA 321 497 631 746 Non-Cash Wkg. Capital 133 (45) (206) (242)
Net Cash/(Debt) 113 312 598 697
Sales Gth (%) 73.0 27.3 21.8 13.3
EBITDA Gth (%) 75.4 55.0 26.9 18.2
Opg Profit Gth (%) 83.3 52.9 26.7 15.7
Net Profit Gth (%) 96.4 1.1 80.1 20.7
Effective Tax Rate (%) 20.0 31.0 20.0 20.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Pre-Tax Profit 311 365 564 678 Gross Margins (%) 8.3 9.1 9.5 9.7
Dep. & Amort. 48 64 66 66 Opg Profit Margin (%) 6.4 7.7 8.0 8.2
Tax Paid (29) (45) (115) (113) Net Profit Margin (%) 6.7 5.3 7.9 8.4
Assoc. & JV Inc/(loss) (44) (82) (123) (168) ROAE (%) 19.8 16.0 24.0 25.6
Chg in Wkg.Cap. (364) 91 163 13 ROA (%) 8.3 6.1 8.9 9.4
Other Operating CF (22) (181) (13) 0 ROCE (%) 14.7 15.7 19.2 19.5
Net Operating CF (101) 212 542 478 Div Payout Ratio (%) 76.7 75.0 70.0 70.0
Capital Exp.(net) 3 (58) (90) (90) Net Interest Cover (x) NM NM 442.1 511.7
Other Invts.(net) (62) 229 0 0 Asset Turnover (x) 1.2 1.1 1.1 1.1
Invts in Assoc. & JV (8) (1) 0 0 Debtors Turn (avg days) 34.2 35.5 34.2 36.2
Div from Assoc & JV 2 13 15 15 Creditors Turn (avg days) 82.9 102.9 112.4 116.2
Other Investing CF 0 0 0 0 Inventory Turn (avg days) 102.5 122.5 125.0 128.0
Net Investing CF (66) 182 (75) (75) Current Ratio (x) 1.3 1.2 1.2 1.2
Div Paid (124) (231) (181) (304) Quick Ratio (x) 0.6 0.5 0.6 0.6
Chg in Gross Debt 242 51 0 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 21 24 0 0 Capex to Debt (%) (0.7) 13.1 20.4 20.4
Other Financing CF 0 (1) 0 0 N. Cash/(Debt)PS (S cts) 5.5 15.1 28.9 33.7
Net Financing CF 138 (157) (181) (304) Opg CFPS (S cts) 13.0 5.9 18.3 22.4
Net Cashflow (28) 237 287 99 Free CFPS (S cts) (4.8) 7.5 21.8 18.7
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown
FY Dec 1Q2007 2Q2007 3Q2007 4Q2007 FY Dec 2006A 2007A 2008F 2009F
Turnover 954 1,052 1,171 1,337 Revenues (S$ m)
Cost of Goods Sold (873) (971) (1,080) (1,178) Shiprepair 612 731 734 740
Gross Profit 80 80 92 159 Shipbuilding 211 82 21 0
Other Oper. (Exp)/Inc (6) (6) (17) (32) Shipconversion/Offshore 913 1,131 1,304 1,720
Operating Profit 74 74 74 127 Rig Building 1,729 2,499 3,366 3,695
Other Non Opg (Exp)/Inc 0 (1) (1) (78) Others 80 71 70 70
Associates & JV Inc 11 26 21 25 Total 3,545 4,513 5,496 6,224
Net Interest (Exp)/Inc 0 8 2 3
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 85 107 96 77
Tax (10) (19) (13) (72)
Minority Interest (1) (3) (2) (5)
Net Profit 74 85 81 1
Net profit bef Except. 74 85 81 1
EBITDA 98 114 113 93
Sales Gth (%) (28.4) 10.3 11.4 14.1
EBITDA Gth (%) (23.4) 15.7 (0.4) (18.1)
Opg Profit Gth (%) (16.1) 0.1 0.0 71.3
Net Profit Gth (%) (22.7) 15.5 (4.5) (99.0)
Gross Margins (%) 8.4 7.6 7.8 11.9
Opg Profit Margins (%) 7.8 7.0 6.3 9.5
Net Profit Margins (%) 7.7 8.1 6.9 0.1
Source: Company, DBS Vickers
Page 51

Regional Equity Strategy Q2 2008
Singapore Airlines
Bloomberg: SIA SP | Reuters: SIAL.SI
BUY S$15.04 FSSTI : 3,000.19
Price Target : 12-Month S$ 22.50 (Prev S$ 24.00)
Potential Catalyst: Earnings growth & execution; oil price decline.
Analyst
Paul Yong CFA +65 6398 7951
paulyong@dbsvickers.com
Price Relative
20.50
18.50
16.50
14.50
12.50
10.50
8.50
S$
Relative Index
2004 2005 2006 2007 2008
Singapore Airlines (LHS) R e la tive FSST I IN D E X (R H S)
Forecasts and Valuation
FY Mar (S$ m) 2007A 2008F 2009F 2010F
Turnover 14,494 15,571 16,674 17,512
EBITDA 3,092 3,635 3,920 4,320
Pre-tax Profit 2,285 2,331 2,504 2,816
Net Profit 2,129 1,830 1,964 2,183
Net Pft (Pre Ex.) 1,708 1,830 1,964 2,183
EPS (S cts) 183.5 154.0 161.5 175.4
EPS Pre Ex. (S cts) 147.2 154.0 161.5 175.4
EPS Gth Pre Ex (%) 35 5 5 9
Diluted EPS (S cts) 183.5 148.4 159.3 177.0
Net DPS (S cts) 107.1 53.6 53.6 53.6
BV Per Share (S cts) 1,301.3 1,345.3 1,448.1 1,562.7
PE (X) 8.2 9.8 9.3 8.6
PE Pre Ex. (X) 10.2 9.8 9.3 8.6
P/Cash Flow (X) 5.3 5.9 5.6 5.2
EV/EBITDA (X) 4.6 3.9 3.5 3.0
Net Div Yield (%) 7.1 3.6 3.6 3.6
P/Book Value (X) 1.2 1.1 1.0 1.0
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 14.9 11.8 11.7 11.8
Consensus EPS (S cts): 158.0 149.1 161.0
Sector : Consumer Services
Principal Business: Singapore Airlines owns and operates SIA and
Silk Air, and has two airline associates (Tiger, Virgin Atlantic)
212
192
172
152
132
112
92
72
Too attractive not to pick up
Story: We take a look at various valuation metrics,
including PE, P/B and EV/EBITDA, which suggests that SIA
is trading at close to historical lows despite being at the
higher end of its historical profitability.
Point: SIA is currently trading at about 10.5x FYE Mar ’08
earnings, which will decline to less than 10x earnings with
FY09 soon upon us. This is at the low end of its historical,
normalized trading range of 10x-15x. In terms of price-tobook,
SIA has historically traded at between 1x -- 1.5x P/B
and with share price currently trading at 1.19x FY08 P/B
and 1.08x FY09 P/B, we believe that there is significantly
more upside risk than downside risk to the stock at this
level. Last but not least, with new cash of over S$2 per
share, SIA is currently trading at 4.2x EV/EBITDA, which is
close to its historical low. Again, based on EV/EBITDA, we
believe there is more upside risk to the share price than on
the downside, especially if SIA embarks upon a capital
management exercise, be it through a special dividend
(FY07: S$1 net dividend) or a capital reduction exercise,
both of which would also help improve the Group’s ROE.
In terms of fundamentals, we believe that SIA can
continue to manage its yields and load factors well to
maintain a good level of profitability in a high oil price
environment.
Relevance: Our new 12-month target price of S$22.50
is pegged at 6x FYE Mar ‘09 EV/EBITDA, at the Group’s
7-year EV/EBITDA average and below that of Cathay
Pacific’s, currently trading at well over 7x current
EV/EBITDA. Excluding the current market value of SATS
and SIA EC, investors are only paying 7.5x FY09 earnings
for the rest of SIA. Maintain BUY.
At A Glance
Issued Capital (m shrs) 1,186
Mkt. Cap (S$m/US$m)
17,842 / 12,927
Major Shareholders
Temasek Holdings Pte Ltd (%) 54.4
Free Float (%) 45.6
Avg. Daily Vol.(‘000) 2,242
Page 52
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Singapore Airlines
Income Statement (S$ m) Balance Sheet (S$ m)
FY Mar 2007A 2008F 2009F 2010F FY Mar 2007A 2008F 2009F 2010F
Turnover 14,494 15,571 16,674 17,512 Net Fixed Assets 16,312 17,026 17,622 18,097
Cost of Goods Sold (13,180) (13,542) (14,490) (15,059) Invts in Associates & JVs 984 1,084 1,194 1,314
Gross Profit 1,314 2,028 2,184 2,453 Other LT Assets 447 447 447 447
Other Opng (Exp)/Inc 0 0 0 0 Cash & ST Invts 5,714 5,977 7,030 8,448
Operating Profit 1,314 2,028 2,184 2,453 Other Current Assets 2,535 2,720 2,909 3,053
Other Non Opg (Exp)/Inc 355 65 65 66 Total Assets 25,992 27,255 29,203 31,359
Associates & JV Inc 137 160 170 180
Net Interest (Exp)/Inc 58 77 85 117 ST Debt 98 98 98 98
Exceptional Gain/(Loss) 421 0 0 0 Other Current Liab 5,161 5,490 5,754 6,016
Pre-tax Profit 2,285 2,331 2,504 2,816 LT Debt 1,806 1,806 1,806 1,806
Tax (82) (420) (451) (535) Other LT Liabilities 3,385 3,351 3,317 3,283
Minority Interest (74) (81) (89) (98) Shareholder’s Equity 15,100 15,987 17,615 19,446
Preference Dividend 0 0 0 0 Minority Interests 443 524 613 711
Net Profit 2,129 1,830 1,964 2,183 Total Cap. & Liab. 25,992 27,255 29,203 31,359
Net Profit before Except. 1,708 1,830 1,964 2,183
EBITDA 3,092 3,635 3,920 4,320 Non-Cash Wkg. Capital (2,626) (2,770) (2,845) (2,963)
Net Cash/(Debt) 3,810 4,074 5,127 6,545
Sales Gth (%) 8.6 7.4 7.1 5.0
EBITDA Gth (%) 8.9 17.6 7.8 10.2
Opg Profit Gth (%) 8.3 54.3 7.7 12.3
Net Profit Gth (%) 71.6 (14.0) 7.3 11.1
Effective Tax Rate (%) 3.6 18.0 18.0 19.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Mar 2007A 2008F 2009F 2010F FY Mar 2007A 2008F 2009F 2010F
Pre-Tax Profit 2,285 2,331 2,504 2,816 Gross Margins (%) 9.1 13.0 13.1 14.0
Dep. & Amort. 1,286 1,382 1,501 1,622 Opg Profit Margin (%) 9.1 13.0 13.1 14.0
Tax Paid (12) (318) (420) (451) Net Profit Margin (%) 14.7 11.8 11.8 12.5
Assoc. & JV Inc/(loss) (137) (160) (170) (180) ROAE (%) 14.9 11.8 11.7 11.8
Chg in Wkg.Cap. 514 43 44 33 ROA (%) 8.6 6.9 7.0 7.2
Other Operating CF (881) 0 0 0 ROCE (%) 8.6 10.4 10.3 10.4
Net Operating CF 3,054 3,277 3,460 3,840 Div Payout Ratio (%) 58.4 34.8 33.2 30.5
Capital Exp.(net) (1,473) (2,130) (2,130) (2,130) Net Interest Cover (x) NM NM NM NM
Other Invts.(net) 1,112 0 0 0 Asset Turnover (x) 0.6 0.6 0.6 0.6
Invts in Assoc. & JV (20) 0 0 0 Debtors Turn (avg days) 44.9 47.5 47.5 48.0
Div from Assoc & JV 61 60 60 60 Creditors Turn (avg days) 86.0 95.3 95.7 98.1
Other Investing CF 42 0 0 0 Inventory Turn (avg days) 14.6 14.9 15.0 15.3
Net Investing CF (278) (2,070) (2,070) (2,070) Current Ratio (x) 1.6 1.6 1.7 1.9
Div Paid (687) (1,243) (637) (652) Quick Ratio (x) 1.5 1.5 1.6 1.8
Chg in Gross Debt (362) 0 0 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 342 300 300 300 Capex to Debt (%) 77.4 111.9 111.9 111.9
Other Financing CF (103) 0 0 0 N. Cash/(Debt)PS (S cts) 328.4 342.8 421.5 525.9
Net Financing CF (810) (943) (337) (352) Opg CFPS (S cts) 218.9 272.2 280.8 305.9
Net Cashflow 1,966 264 1,053 1,418 Free CFPS (S cts) 136.3 96.5 109.3 137.4
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown
FY Mar 4Q2007 1Q2008 2Q2008 3Q2008 FY Mar 2007A 2008F 2009F 2010F
Turnover 3,671 3,622 3,967 4,276 Revenues (S$ m)
Cost of Goods Sold (3,338) (3,159) (3,449) (3,602) Airline Operations 13,786 14,873 15,866 16,597
Gross Profit 334 463 519 675 SATS 946 977 1,075 1,182
Other Oper. (Exp)/Inc 57 41 24 18 SIA Engineering 977 1,009 1,058 1,058
Operating Profit 391 504 543 692 Others 228 228 228 228
Other Non Opg (Exp)/Inc 92 5 32 1 Others (1,473) (1,516) (1,552) (1,552)
Associates & JV Inc 13 37 74 45 Total 14,464 15,571 16,674 17,512
Net Interest (Exp)/Inc 10 10 10 10 EBIT (S$ m)
Exceptional Gain/(Loss) 0 0 0 0 Airline Operations 1,051 1,757 1,907 2,167
Pre-tax Profit 506 557 658 748 SATS 153 161 169 177
Tax 179 (110) (127) (138) SIA Engineering 102 102 100 100
Minority Interest (14) (22) (24) (21) Others 28 28 28 28
Net Profit 671 424 508 590 Others (19) (19) (19) (19)
Net profit bef Except. 671 424 508 590 Total 1,314 2,028 2,184 2,453
EBITDA 849 900 1,001 1,091 EBIT Margins (%)
Airline Operations 7.6 11.8 12.0 13.1
Sales Gth (%) (3.2) (1.3) 9.5 7.8 SATS 16.2 16.5 15.7 15.0
EBITDA Gth (%) (1.2) 5.9 11.3 9.0 SIA Engineering 10.4 10.1 9.4 9.4
Opg Profit Gth (%) (18.9) 29.0 7.6 27.5 Others 12.1 12.1 12.1 12.1
Net Profit Gth (%) 13.9 (36.8) 19.7 16.2 Others 1.3 1.3 1.2 1.2
Gross Margins (%) 9.1 12.8 13.1 15.8 Total 9.1 13.0 13.1 14.0
Opg Profit Margins (%) 10.6 13.9 13.7 16.2
Net Profit Margins (%) 18.3 11.7 12.8 13.8
Source: Company, DBS Vickers
Page 53

Regional Equity Strategy Q2 2008
Singapore Post
Bloomberg: SPOST SP | Reuters: SPOS.SI
BUY S$1.14 FSSTI : 3,000.19
Price Target : 12-month S$ 1.35
Potential Catalyst: Completion of HQ building sale, special dividends
Analyst
Sachin Mittal +65 6398 7950
sachin@dbsvickers.com
Price Relative
1.40
1.30
1.20
1.10
1.00
0.90
0.80
S$
0.70
62
2004 2005 2006 2007 2008
Singapore Post (LHS) R e la tive FSSTI IN D E X (R H S)
Forecasts and Valuation
Relative Index
FY Mar (S$ m) 2006A 2007A 2008F 2009F
Turnover 413 436 466 499
EBITDA 188 198 212 222
Pre-tax Profit 154 166 185 187
Net Profit 123 140 151 153
Net Pft (Pre Ex.) 123 134 141 153
EPS (S cts) 6.5 7.3 8.0 8.0
EPS Pre Ex. (S cts) 6.5 7.1 7.4 8.0
EPS Gth Pre Ex (%) 16 9 5 8
Diluted EPS (S cts) 6.5 7.3 8.0 8.0
Net DPS (S cts) 15.5 6.2 6.8 6.8
BV Per Share (S cts) 7.7 9.7 10.9 12.1
PE (X) 17.6 15.5 14.3 14.2
PE Pre Ex. (X) 17.6 16.1 15.3 14.2
P/Cash Flow (X) 15.5 13.6 12.6 12.6
EV/EBITDA (X) 13.1 12.2 11.1 10.4
Net Div Yield (%) 13.6 5.5 5.9 6.0
P/Book Value (X) 14.8 11.7 10.4 9.4
Net Debt/Equity (X) 2.0 1.3 0.9 0.6
ROAE (%) 51.6 84.2 77.0 69.5
Consensus EPS (S cts): 7.9 7.9
Sector : Consumer Services
Principal Business: A dominant provider of domestic and
international postal services.
222
202
182
162
142
122
102
82
Standout defensive play
Story: Singpost stands out as a defensive play with high
visibility of domestic earnings and good dividend yield.
Point: Singpost should continue to outperform the
market given its steady earnings growth prospects and
potential catalyst from sale of HQ building. Operating
margins have already bottomed out in 3Q08 and
management expects to maintain margins, going
forward.
Relevance: Maintain BUY with one-year target price of
S$1.35, based on breakup valuation. Even if HQ sales do
not materialize in the near term, downside risk is limited
due to its healthy dividend yield. Acquisitions, if any, can
be funded with the sale of its HQ building and we expect
dividends to remain at about 6% in the near future.
Breakup valuation of Singpost is S$1.35. As indicated
earlier, sale of the HQ building could result in divestment
gains of S$700m-S$1b. After surrendering 10% of sale
revenue to HDB as per contract, cash generated from sale
of HQ works out to be S$900m to S$1170m or about 47
- 60 cents per share. Without HQ building, Singpost
would lose its rental income of an estimated S$21.5m
and need to incur rental expenses for leasing back its
owner-occupied space. As a result, we estimate FY09 net
income would be lowered by 28% to S$110m. If we
value its postal business at 15x earnings (historical PE of
15x-18x), it works out to be S$1.65 billion or 85 cents a
share. Adding the two parts together, the total value of
the company would be S$1.32 -- S$1.45.
Building sale could result in bumper dividend yield.
Given that Singpost has S$300m debt retiring in 2013,
we believe that it should still have S$400m-S$500m of
cash from sale of building available for acquisitions and
dividends. As such, we expect bumper dividend yield from
Singpost, as Singpost has a track record of rewarding its
shareholders with special dividends.
At A Glance
Issued Capital (m shrs) 1,925
Mkt. Cap (S$m/US$m)
2,194 / 1,590
Major Shareholders
Singapore Telecom (%) 26.0
Capital Rsch Mgmt (%) 5.6
Free Float (%) 68.5
Avg. Daily Vol.(‘000) 4,529
Page 54
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Singapore Post
Income Statement (S$ m) Balance Sheet (S$ m)
FY Mar 2006A 2007A 2008F 2009F FY Mar 2006A 2007A 2008F 2009F
Turnover 413 436 466 499 Net Fixed Assets 513 492 478 463
Cost of Goods Sold (281) (293) (310) (332) Invts in Associates & JVs 87 88 94 100
Gross Profit 132 143 156 166 Other LT Assets 1 1 1 1
Other Opng (Exp)/Inc 18 20 21 21 Cash & ST Invts 53 69 133 179
Operating Profit 149 163 176 188 Other Current Assets 56 70 53 56
Other Non Opg (Exp)/Inc 5 2 2 2 Total Assets 711 719 759 800
Associates & JV Inc 8 7 6 6
Net Interest (Exp)/Inc (9) (11) (9) (9) ST Debt 0 0 0 0
Exceptional Gain/(Loss) 0 5 10 0 Other Current Liab 179 192 200 212
Pre-tax Profit 154 166 185 187 LT Debt 349 316 316 316
Tax (30) (26) (33) (34) Other LT Liabilities 32 22 30 36
Minority Interest (1) 0 (1) (1) Shareholder’s Equity 146 185 208 231
Preference Dividend 0 0 0 0 Minority Interests 3 4 4 5
Net Profit 123 140 151 153 Total Cap. & Liab. 711 719 759 800
Net Profit before Except. 123 134 141 153
EBITDA 188 198 212 222 Non-Cash Wkg. Capital (123) (122) (147) (155)
Net Cash/(Debt) (296) (247) (183) (137)
Sales Gth (%) 9.8 5.7 6.8 7.0
EBITDA Gth (%) 6.5 5.5 6.7 4.9
Opg Profit Gth (%) 14.3 9.0 8.3 6.5
Net Profit Gth (%) 11.5 13.4 8.4 0.8
Effective Tax Rate (%) 19.7 15.7 18.0 18.0
Cash Flow Statement (S$ m)
Rates & Ratio
FY Mar 2006A 2007A 2008F 2009F FY Mar 2006A 2007A 2008F 2009F
Pre-Tax Profit 154 166 185 187 Gross Margins (%) 31.9 32.7 33.4 33.4
Dep. & Amort. 25 27 27 25 Opg Profit Margin (%) 36.2 37.4 37.9 37.7
Tax Paid (31) (26) (41) (33) Net Profit Margin (%) 29.9 32.0 32.5 30.6
Assoc. & JV Inc/(loss) (8) (7) (6) (6) ROAE (%) 51.6 84.2 77.0 69.5
Chg in Wkg.Cap. (9) 1 32 8 ROA (%) 16.1 19.5 20.5 19.6
Other Operating CF 19 0 0 0 ROCE (%) 26.1 31.1 34.8 40.1
Net Operating CF 150 161 197 181 Div Payout Ratio (%) 239.4 85.0 85.0 85.0
Capital Exp.(net) (10) (8) (9) (10) Net Interest Cover (x) 17.2 15.3 18.6 19.8
Other Invts.(net) 0 1 0 0 Asset Turnover (x) 0.5 0.6 0.6 0.6
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 39.9 48.6 43.3 35.6
Div from Assoc & JV 9 6 0 0 Creditors Turn (avg days) 210.7 215.7 220.4 220.6
Other Investing CF 3 8 5 5 Inventory Turn (avg days) 0.0 0.1 0.1 0.1
Net Investing CF 1 7 (4) (5) Current Ratio (x) 0.6 0.7 0.9 1.1
Div Paid (314) (106) (129) (130) Quick Ratio (x) 0.6 0.7 0.9 1.1
Chg in Gross Debt 49 (40) 0 0 Net Debt/Equity (X) 2.0 1.3 0.9 0.6
Capital Issues 5 4 0 0 Capex to Debt (%) 2.9 2.7 2.9 3.2
Other Financing CF 2 (10) 0 0 N. Cash/(Debt)PS (S cts) (15.6) (13.0) (9.6) (7.2)
Net Financing CF (257) (152) (129) (130) Opg CFPS (S cts) 8.3 8.4 8.7 9.1
Net Cashflow (106) 16 64 46 Free CFPS (S cts) 7.3 8.0 9.9 9.0
Quarterly / Interim Income Statement (S$ m)
Segmental Breakdown
FY Mar 4Q2006 1Q2007 2Q2007 3Q2007 FY Mar 2006A 2007A 2008F 2009F
Turnover 105 105 107 122 Revenues (S$ m)
Cost of Goods Sold (72) (71) (73) (83) Mail 319 337 354 367
Gross Profit 33 34 34 39 Logistics 60 68 71 75
Other Oper. (Exp)/Inc 6 5 5 7 Retail 51 57 68 75
Operating Profit 39 39 39 47 Others 5 5 6 6
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 3 1 2 1 Total 435 467 499 522
Net Interest (Exp)/Inc (3) (2) (2) (2) (S$ m)
Exceptional Gain/(Loss) 0 1 5 0 Mail 129 144 156 163
Pre-tax Profit 39 39 44 45 Logistics 9 11 13 14
Tax (8) (7) (8) (8) Retail 6 8 9 11
Minority Interest 0 0 0 0 Others 7 6 6 5
Net Profit 31 31 36 37
Net profit bef Except. 31 30 31 37 Total 151 170 184 194
EBITDA 50 47 49 54 Margins (%)
Mail 40.3 42.7 43.9 44.5
Sales Gth (%) (2.8) 0.1 1.5 14.5 Logistics 15.5 16.9 18.5 19.4
EBITDA Gth (%) (0.7) (5.9) 4.7 11.0 Retail 12.1 13.7 13.9 14.5
Opg Profit Gth (%) (5.3) 0.7 0.4 18.9 Others
Net Profit Gth (%) (5.6) 0.8 14.7 2.6
Gross Margins (%) 31.6 32.5 31.6 32.3 Total 34.8 36.3 36.9 37.2
Opg Profit Margins (%) 36.9 37.1 36.7 38.1
Net Profit Margins (%) 29.5 29.7 33.6 30.1
Source: Company, DBS Vickers
Page 55

Regional Equity Strategy Q2 2008
Country Assessment
Hong Kong/China
Value is emerging
HSI : 22,465
HSCEI : 11,727
HSI 3 / 12 mths Target : 24,200 / 28,600
Expected Return : +7.7% / +27.3%
HSCEI 3 / 12 mths Target : 13,400 /16,800
Expected Return : +14.3% / +43.3%
Our analysis based on required returns, PE and price-tobook
ratios (P/B) during critical periods in Hong Kong
market suggests that there would be strong support for
the Hang Seng Index (HSI) at c.18,000 (a worst case
scenario). We believe the fundamentals of Hong Kong
and China companies are much better than in the past
critical periods, and HSI and HSCEI have the potential of
reaching 27,300 and 16,600 in 2008, even after
considering the possible profit cuts and added risk
premium in 2H08. Current level provides good entry for
medium-term investment.
With the release of 2007 profit data in March/April and 1Q08 earnings results for
China shares in 2Q08, uncertainties overhanging the stock market would gradually
fade unless the US economy deteriorates at a pace beyond market expectations.
Supported by buoyant local consumption and high economic growth in China, the
domestically focused sectors (telecom, pharmaceutical, and consumer/retailing) in
the Mainland should see better growth prospects and attract investment interests.
We dislike exporters, industrial, and commodities sectors, as they will continue to
suffer from rising earnings risks. Three themes to watch in 2Q08: (1) rising crossstraits
trade/investment after Taiwan’s presidential election; (2) beneficiaries of the
Olympic Games (which will be held in August 2008); (3) easing of implementation
of austerity measures in China as inflation rates may peak during the quarter.
Dr. Peter So · (852) 2820 4619 · peter_so@hk.dbsvickers.com
Page 56
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Country Assessment
Market Data
Index Close Chng -1 mth -3 mth -6 mth - 12 mth
52-Week
25-Mar-08 Net 1 m (%) (%) (%) (%) High Low
Hang Seng 22,465 -805 -3 -20 -15 14 21,017 15,435
HS China Ent 11,727 -1476 -11 -29 -28 23 11,444 6,036
HS China Aff 4,890 -407 -8 -21 -12 44 3,807 2,075
HS Mid Cap 4,431 -77 -2 -20 -17 0 4,691 3,010
HS Small Cap 2,372 -244 -9 -24 -25 -5 2,741 2,077
Transactions:
YTD
Volume (bn shs) 8,707
Value (HK$bn) 5,559
Source: Bloomberg
MARKET OUTLOOK
A review of 1Q08
Affected by the volatility in global equities, earnings cuts
for listed corporations and higher risk premium for
equity investments; the HSI and HSCEI fell by 20% and
29% respectively in 1Q08.
We believe the sharp fall in these markets were
attributed to the following factors:
a. Panic selling (triggered by sub-prime issues in the
US) on the back of deteriorating sentiment for
financial stocks, which account for a high
proportion of the market capitalisation of HSI and
HSCEI.
b. Continued implementation of austerity measures
(such as the rising reserve requirement ratio)
amidst rising inflation in China, which created
earnings uncertainties in the property, financial,
industrial, power, energy and selected consumer
stocks.
c. Falling A-share market, which lowered
expectations for Hong Kong-listed red chips or H
shares to raise funds by offering A shares in the
Mainland, and for approval of individual
investment overseas schemes in the near-term.
d. Credit tightening and slowing exports, which
affected many exporters and industrial companies
in both Hong Kong and China.
The financial, property and manufacturing stocks were
hard hit in 1Q08.
HSI
33,000
31,000
29,000
27,000
25,000
23,000
21,000
19,000
17,000
15,000
Mar-07 Jun-07 Sep-07 Dec-07 Mar-08
Source: Bloomberg
HSCEI
22,000
20,000
18,000
16,000
14,000
12,000
10,000
8,000
100-day MA
HSI
Mar-07 Jun-07 Sep-07 Dec-07 Mar-08
Source: Bloomberg
HSCEI
100-day MA
Page 57

Regional Equity Strategy Q2 2008
Country Assessment
When to bottom-fish?
Falling interest rates in the US and Hong Kong should be
positive to equity investment. Weakness of the HSI in
1Q08 could be attributed to a sharp increase in
investment premium and weaker earnings outlook.
The Hong Kong market experienced this type of critical
environment in 1997-99 (during the financial crisis in
Asia) and in 2003 (when it was affected by SARS).
We have conducted a study on the effects from
investment behaviour on HSI during critical times and
valuation of the market on the basis of required returns,
PE and P/B.
In summary, these three methods suggest that strong
support for HSI would be found at 16,500 -- 18,000
levels should real economic conditions deteriorate
dramatically in the course of the year.
We believe the likelihood for HSI to fall to significantly
below the 18,000-level is small, in view of China’s still
robust economic growth prospects. Investors should
start to accumulate (especially defensive stocks) at the
current level.
(1) HSI yielding increasing excess returns
Despite our analysts’ cutting of earnings forecast for HSI
for 2008, the sharp fall in interest rates has made
earnings yields on HSI quite attractive, relative to the
funding cost (e.g. based on three-month HIBOR). The
yield gaps or required excess returns (i.e. earnings yields
minus three-month HIBOR) for HSI have been expanding
in the past few months.
We believe the weak performance of the HSI was a
result of additional risk premium required by equity
investors. The premium expanded at a rate faster than
the recent fall in HIBOR or Fed rates.
We saw a similar situation in the Asian financial crisis in
1997-99, when risk premium in Asia expanded relative
to the US market as shown by higher HIBOR over Fed
rates. During the financial crisis, the additional risk
premium had expanded beyond 8% (but stayed mostly
between 1% - 4%).
Three-month HIBOR over Fed rates
18
16
14
12
10
8
6
4
2
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
Source: Bloomberg
3M HIBOR(LHS)
HIBOR-Fed Rate(RHS)
We have performed a sensitivity analysis using different
risk premiums and earnings integers for HSI using the
yield gap model (with 3-month HIBOR at 1.8%, and HSI
earnings integer at 1,475), and the results are as follows:
12
10
8
6
4
2
0
-2
-4
Yield gap
% Yield Gap
10.0
(Earnings Yield - 3-mth HIBOR)
8.0
+1 SD
6.0
4.0
Mean
2.0
0.0
(2.0)
-1 SD
(4.0)
(6.0)
(8.0)
(10.0)
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: Bloomberg, DBS Vickers, DBS Bank
Page 58

Regional Equity Strategy Q2 2008
Country Assessment
Target Hang Seng Index at different risk premiums and earnings integer
Risk Premium added to HIBOR
-0.50% 0% 0.50% 1% 2% 3% 4%
Equivalent funding rate 1.30% 1.80% 2.30% 2.80% 3.80% 4.80% 5.80%
HSI - Earnings
integer adjusted by
HSI - Earnings
integer ------------------------------------------------------ Target HSI -------------------------------------------------------
5% 1,580 36,738 32,911 29,806 27,237 23,231 20,253 17,951
2% 1,505 34,988 31,344 28,387 25,940 22,125 19,288 17,097
0% 1,475 34,302 30,729 27,830 25,431 21,691 18,910 16,761
-2% 1,446 33,616 30,115 27,274 24,922 21,257 18,532 16,426
-4% 1,388 32,272 28,910 26,183 23,926 20,407 17,791 15,769
-8% 1,277 29,690 26,597 24,088 22,011 18,774 16,368 14,508
-10% 1,149 26,721 23,937 21,679 19,810 16,897 14,731 13,057
Source: DBS Vickers
The results suggest that the implicit risk premium based
on the current index levels is around 2% (which may fall
if US uncertainties fade). In the worst-case scenario like
that in the Asian financial crisis, risk premium may
expand to 4%, which would put HSI at 16,761.
We target the HSI to reach 27,300 in 2008 (which is
equivalent to 2009 PE of 16.7x), assuming a risk
premium of 0.5% and a 2% cut in index earnings in
2H08. Further cuts in US interest rates in the coming
months may lift HSI target to higher levels, should there
be no more deterioration in earnings.
Page 59

Regional Equity Strategy Q2 2008
Country Assessment
(2) PE valuation of HSI
The recent sharp drop in both HSI and HSCEI has forced
the valuation down to more reasonable levels.
during the Asian financial crisis, and 1.5x- 1.8x during
the SARS outbreak.
Price-to-book ratio for HSI
Forward PE for HSI
(x)
4.5
(x)
30
4.0
3.5
25
20
3.0
2.5
2.0
1.5
15
1.0
0.5
10
0.0
5
1993
1995
1997
1999
2001
2003
2005
2007
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
Source: Bloomberg, DBS Vickers
Source: Bloomberg, DBS Vickers
Forward PE for HSI reached a range of 8-10x during the
financial crisis in 1997-99, and 12-13x during the SARS
period in 2003.
We believe the HSI’s strong support on a PE basis
should be well above the 10x experienced during the
critical period in 1997-1999, as:
• the current interest rate environment is better
than that in 1997-99;
• the component stocks have better earnings
prospects and financial position than at the time
of the Asian financial crisis;
• more earnings are derived from China (over 50%
of index earnings) than in the past (of less than
10%).
Thus, we estimate the HSI to be supported at around
17,700 -- 19,100 at a forward PE of 12-13x.
(3) P/B valuation of HSI at a time of crisis
With more solid earnings bases, strongly capitalised
Chinese companies and less reliance on the US
economy, we believe HSI’s P/B should see strong
support at higher level (say 2x), even when the
international environment weakens further. At a P/B
ratio of 2x, the HSI should be valued at 16,500.
The above three valuation approaches imply the HSI
should find strong support at 16,500 to 18,000 levels
even with further deterioration in the macro and
equities environment. Actual support should be higher
than the 18,000 levels because:
• HSI may not reach the support levels (estimated for
critical periods), as the economic environment for
Hong Kong and China is much better shapre.
• risk premium may contract from the current level (in
contrast to expansion), should US equity market
stabilise on introduction of rescue packages by the
US Government.
• Current interest rate environment is more favourable
than in the past.
P/B ratios for HSI traded in a wide range of 1.3x -- 3.5x
over the past 10 years, as the composition if component
stocks changed. The P/B ratio touched a low of 1x
Page 60

Regional Equity Strategy Q2 2008
Country Assessment
Themes to prevail in 2Q08
We believe investors will also focus on following major
developments in 2Q08:
• Improving relationship between China and
Taiwan, as the newly elected Taiwanese President, Ma
Yingjeou, takes up his position. Heavier focus will be
placed on cross-straits trading and investment
development. If Taiwan relaxes the constraint for
Taiwanese corporations to invest in China or vice versa,
we believe both regions will benefit.
• In addition, those providing infrastructure (e.g.
airlines and ports), financial vehicles (e.g. banks) or
tourism services (e.g. China Travel) between the regions
will benefit.
• Moreover, Taiwanese companies listed in Hong Kong
may receive more support from their parents in Taiwan
to expand in China. For instance, Fubon Bank plans to
acquire significant stakes in Xiamen Commercial Bank,
which will provide financial services to many Taiwanese
corporations in Hong Kong. The following is a list of
major Taiwanese-backed companies listed in China.
Taiwanese companies listed in Hong Kong
Company name
Code
Key
Business
Mkt Cap
(HK$ bn)
2008
PE (x)
Major
shareholder Source of revenues
Country revenue
breakdown
FOXCONN INTERNATIONAL
2038 HK
manufacturing services
provider for the handset
industry worldwide 81 10
Hon Hai Precision
Industry:72%
mostly from
handset
Asia 62%, Europe
17%, America 22%
TCC INTL
TINGYI
YUE YUEN INDUSTRIAL
UNI-PRESIDENT CHINA
TPV TECHONOLOGY
FUBON BANK
SAMSON
TOMSON GROUP
DACHAN FOOD ASIA
1136 HK
322 HK
551 HK
220HK
903 HK
636 HK
531 HK
258 HK
3999 HK
manufacture,imports and
distribute cement 80 34
manufactures and sells
instant noodles,baked
goods and beverages 55 28.8 Ting Hsin:37%
manufactures and markets
casual and outdoor
footwear 39 10.7
manufactures and sells
instant noodles,baked
goods and beverages 15 23.1
CTR-based and LCD-based
computer monitors 9 6.4
banking and financial
services 6 12.8
manufacture furniture and
exports 5 7.3
Taiwan cement
corporation:44% 100% from cement
Pou Chen
Corp:50%
Uni-president
75%
Konginklijke
Philips Electr:13%
Fubon Financial
Holdings:75%
Advent
Group:71%
develops and invests in
properties and operates
hospitality and lesisure
businesses 3 NA Feng Hsu:43%
produce chicken feed and
hatches,slaughters and
processes chicken 2 10.4
instant noodle
44%, drink 50%,
others 6%
mainly from
footware
drink 74%, instant
noodle 26%
mainly from
computer monitor
Retail
41%,wholesale
31%, financial
markets 30%
mainly from
furniture
HK 8%,China
86%,Philippines
1%,Taiwan 4%
mostly from China
U.S.A. 35%, Canada
2%, Europe 24%,Asia
34%,others 6%
mostly from China
North America
28%,Europe
23%,China 28%,
Others 22%
more than 85% from
HK
90% from U.S.A.
property 42%,
industrial 10%,
leisure 26%,
securities trading
23% mostly from China
meat 61%, animal
Great Wall feed 49%, China 80%, Japan 3%,
Enterprise:52% processed food 6% Vietnam 17%
Source: DBS Vickers, Bloomberg
Page 61

Regional Equity Strategy Q2 2008
Country Assessment
• Preparation for the Beijing Olympics in August.
We expect expenditure (e.g. on advertisement,
distribution, travelling, media, hotel, sporting goods,
F&B, etc.) to rise in the period leading up to the
Olympics, to be held in China in August this year.
Thus, investment sentiment towards stocks in
corresponding beneficiary sectors (e.g. Jingjiang Hotel,
Beijing Jingkelong, Wumart, China Travel) will
improve.
Easing of inflation. Investment sentiment may
improve in 2Q08, as inflation rate in China will peak,
which may lead to expectation that China may ease
the stringent implementation of austerity measures.
CPI in China started to accelerate from around
April/May 2007, due to skyrocketing prices for
agricultural produce and meat. With a higher base
effect and China’s increasing supply of products in
shortage (partly via higher imports), it is likely that the
upward momentum for CPI in China would ease from
2Q08.
China CPI expected to ease in 2Q08
%
10
9
8
7
6
5
4
3
2
1
0
Jan
2008
Feb
Source: CEIC
Mar
Apr
May
Jun
Jul
Aug
Sep
2007
2006
Oct
Nov
Dec
INVESTMENT STRATEGY
Despite the continued uncertainties in overseas
markets, we believe downside risk at the current level
is limited. Should there be more signs of stabilisation
of overseas equity markets, we anticipate a strong
rebound in the Hong Kong/China markets.
We recommend investors to accumulate defensive
stocks from the following sectors now:
• Telecom (e.g. China Mobile and China Telecom).
The earnings of these companies are unlikely to be
significantly affected by economic deterioration in the
overseas markets. Telecom equipment manufacturers
are also expected to benefit from the increasing
demand should China issue 3G licences in 2008. We
however maintain a Neutral rating on Hong Kong’s
telecom sector, which sees little room for growth.
• Consumer (particularly retailing) sector. China
targets to rely more on domestic consumption than
exports to drive economic growth. It has been
implementing policies to drive consumption growth,
e.g. raising tax allowance and subsidies to farmers.
After 2004, China’s retail sales growth has been
accelerating, despite slowing growth in exports.
China export vs retail sales growth
Yoy, %
60
50
40
30
20
10
0
-10
-20
-30
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
China Exports growth (LHS)
China retail sales growth (RHS)
2007
Yoy, %
25
2008
20
15
10
5
0
Source: CEIC
Page 62

Regional Equity Strategy Q2 2008
Country Assessment
Despite worries of a weak A-share market that may
generate negative wealth effect, we believe China’s
retail sales growth can be maintained at mid- to highteen
levels, driven by higher wage growth. In 2001-
2005, the bear equity market in China did not
suppress retail/consumption growth. We like Li Ning,
Parkson, Gome, Beijing Jinkelong, Wumart, Denway
and Dongfeng Motor.
Shanghai A-share performance and retail sales in China
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1997
Source: CEIC
1998
1999
2000
2001
2002
2003
2004
2005
Shanghai A index (LHS)
2006
China retail sales growth (RHS)
2007
Yoy, %
25
• Pharmaceutical sector. The earnings momentum
has been recovering in the sector. China’s increasing
subsidies in this sector (in rural areas) should provide
more earnings potential for key operators. Earnings
for this sector are unlikely to be much affected by the
US economic slowdown, thus providing both good
defensive value and high growth potential. We like
Mingyuan Medicare and Sino Biopharmaceutical.
• Energy sector. High economic growth in China
has been supporting strong demand for energy and
oil products. We have revised upwards the crude price
assumptions as follows :
2008
20
15
10
5
0
DBS crude price targets
(US$/bbl)
100
90
80
70
60
50
40 29
30
20
10
0
2003
38
2004
55
2005
65
2006
Old Brent targets
Source: Bloomberg, DBS Vickers
High yielding stocks
90
85
72 75
75
70
70
65 65
2007
2008E
2009E
2010E
New Brent targets
The current crude prices are significantly higher than
our assumptions and we see potential for earnings
upgrade for the major listed Chinese oil companies in
2H08. The demand for coal has been strong. China’s
stress on providing better logistic supports for the
delivery of coal will also improve the earnings
potential for the coal sector. We like CNOOC and
China Shenhua.
• High yielding stocks. Companies offering high
dividend yields will attract significant investment
interest amidst the current low interest rate
environment. For instance, HSBC offers a dividend
yield of over 5%.
Price
as of
25 Mar
(HK$)
Mkt
Cap
(HK$
bn)
08F
PER
(x)
2011 and after
08F
Div
Yield
(%)
0005 HK HSBC 127.00 1,507 11.7 5.6
0511 HK TVB 42.80 19 13.5 4.6
2388 HK Bank of China HK 18.44 195 14.8 4.5
0330 HK Esprit Holdings 92.55 115 17.3 4.4
0857 HK PetroChina 9.82 207 10.7 4.2
Source: DBS Vickers
Page 63

Regional Equity Strategy Q2 2008
Country Assessment
Towards the strong support level at 16,500 --
18,000, investors should be more aggressive
and
• Accumulate high beta stocks in oversold
sectors (such as Chinese banks or property
companies), should panic selling (due to external bad
news) drive the market downwards. We believe that,
at this support level, many HSI stocks will be trading at
distressed valuations and will be attractive to most
investors. A rebound is likely to occur from those
levels. Increasing the beta value for the portfolio
ahead of a strong market recovery should benefit
investors.
High beta stocks
Company Code Price Mkt Beta FY08F FY07F
25-Mar Cap* PE P/Bk Rec
HK$ HK$bn x x
Shimao Ppt 813 11.38 38 1.11 8.9 2.0 B
Ch Const Bk 939 5.58 1,254 1.12 13.2 3.2 B
China O'seas 688 12.68 98 1.28 16.7 4.5 B
Angang 347 17.04 19 1.33 11.4 2.1 H
Shenhua 1088 30.95 105 1.40 21.1 4.4 B
HKEX 388 127.3 136 1.51 25.6 16.2 S
GZ R&F 2777 18.2 18 1.52 12.9 4.9 B
* H-share market cap for H shares
Source: Bloomberg, DBS Vickers
• We continue to dislike the exporters,
commodity, shipping companies and Hong Kong
domestic banks.. The global slowdown and Rmb
appreciation will continue to suppress earnings
growth of these companies. China’s measures to
encourage resource conservation, and closing down
of companies that produce low value added products
for exports will reduce demand for commodities.
There may be a risk that a resources tax might be
introduced in 2008, affecting the margins of the
resources companies. The deteriorating external
environment may affect the trade financing and loan
growth prospects as well as weakening interest
margins for domestic banks in Hong Kong.We are
cautious on Johnson Electric, Top Form, Chalco,
Jiangxi Copper, CSCL and Hang Seng Bank.
• We are seeking opportunities to shift some
weighting from Hong Kong property companies
to other sector sectors (like Chinese Banks) in 2Q08 as
the momentum to push up Hong Kong property
prices from falling interest rates is diminishing. Should
there be any deterioration of unemployment rates
(which have reached a low level of 3.3% in February),
property sales activities may slow significantly,thus
affecting the performance of property companies.
Amongst Hong Kong’s developers, we favour Kerry
Properties, and SHK Properties.
Hong Kong’s unemployment rate
(%)
9.00
8.00
• Although the prospects for many Chinese banks are
clouded by the continual implementation of austerity
measures in China, they are starting to offer value at
the current oversold prices. China Construction Bank,
and Industrial & Commercial Bank offer the best
value, in our view. China’s indication that it would
build more low rental housing and allow the market
to determine prices for mid- to high-end housing will
bode well for property companies, as this signals
reduced government intervention in the future.
Amongst the Chinese property companies, we like
Shimao Property and China Overseas Land.
7.00
6.00
5.00
4.00
3.00
Jan-03
Jun-03
Nov-03
Source: CEIC
Apr-04
Sep-04
Feb-05
Jul-05
Dec-05
May-06
Oct-06
Mar-07
Aug-07
Jan-08
Page 64

Regional Equity Strategy Q2 2008
Country Assessment
Economic Indicators
2004A 2005A 2006A 2007A 2008F 2009F
China
GDP Growth (%) 10.1 10.4 11.1 11.4 10.0 9.0
FDI (US$bn) 60.6 72.4 72.6 82.7 80.0 60.0
Exports (yoy %) 35.4 28.4 27.2 25.7 22.0 18.0
Retail Sales (yoy %) 13.3 12.9 13.7 16.8 17.6 16.3
CPI (yoy %) 3.9 1.8 1.5 4.8 5.5 4.5
Hong Kong
GDP Growth (%) 8.5 7.1 7.0 6.3 5.2 4.7
CPI (yoy %) -0.4 0.9 2.0 2.0 3.8 4.0
Source: CEIC, DBS Bank
Valuation - HSI
Index Earnings Growth (%) PE (x) Yield (%)
25-Mar 07E 08F 09F 07E 08F 09F 07E 08F 09F
Finance 35.6 -0.6 2.9 13.6 13.7 13.3 3.8 4.1 4.2
Power, Infrastructure & Utilities 10.4 -0.9 8.1 12.8 12.9 11.9 3.1 3.1 3.4
Properties 31.1 -19.1 4.4 15.0 18.6 17.8 2.1 2.3 2.4
ex Cheung Kong 18.3 10.6 -9.8 19.5 17.6 19.5 2.1 2.3 2.4
Hongs/Conglomerates 39.0 -46.3 27.0 11.3 21.0 16.6 2.9 2.7 2.8
ex Hutchison 30.0 -27.1 7.9 12.3 16.8 15.6 3.2 3.0 3.1
Comm/Ind 27.9 14.9 -0.7 17.5 15.2 15.3 3.2 3.7 3.0
Telecom & Media 18.7 33.7 21.6 24.0 18.0 14.8 1.9 2.6 3.2
HSI 22,465 27.4 -3.3 7.8 14.5 15.0 13.9 3.1 3.4 3.6
HSI ex Cheung Kong and Hutchison 25.4 2.7 5.7 15.0 14.6 13.8 3.1 3.4 3.6
Source: DBS Vickers
Valuation - HSCEI
Index Earnings Growth (%)
PE (x) Yield (%)
25-Mar 07E 08F 09F 07E 08F 09F 07E 08F 09F
Consumer 50.9 15.7 8.6 14.5 12.5 11.6 1.6 2.0 2.8
Energy 10.0 5.7 12.6 15.8 15.0 13.3 2.3 2.4 2.6
Financials 77.8 25.7 12.2 18.2 14.5 12.9 1.2 1.7 1.9
Industrial Goods 56.4 7.8 13.8 16.0 14.8 13.0 2.0 2.1 2.5
Materials -2.7 2.4 16.1 26.4 25.8 22.2 1.1 1.4 1.6
Utilities -12.1 15.2 10.3 11.0 9.6 8.7 4.4 5.2 5.7
Property & Construction 49.9 43.9 26.4 41.5 28.8 22.8 0.6 0.8 1.9
Services 164.7 2.3 -4.6 11.1 10.9 11.4 2.1 2.6 2.6
Telecom & Technology 0.8 25.1 10.6 14.1 11.2 10.2 1.6 2.1 2.4
HSCEI 11,727 40.1 16.2 11.7 17.9 15.4 13.8 1.4 1.8 2.1
Ex oil * 54.9 21.6 12.1 20.3 16.7 14.9 1.2 1.6 1.9
* Ex 386, 857
Source: DBS Vickers
Page 65

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stock picks for Hong Kong
SECTOR REMARKS STOCK SELECTION
Property
Overweight
Banking and
Finance
Underweight
Conglomerates
Neutral
Telecom
Neutral
Industrial
Underweight
Consumer
Neutral
The housing market and property stocks showed divergent performance year-to-date;
home prices continued the upward trend into 2008. According to Centa-City Leading
Index, housing prices have increased 9% y-t-d. While a favourable supply outlook and
negative real interest rates should help support the market, the global economic
slowdown could possibly have repercussion on the local economy and increase
uncertainties for the residential market. Since the beginning of the year, property stocks
have been under pressure. Following the price correction, property stocks have been
offering reasonable upside, despite lower target prices. Therefore, we maintain our
OVERWEIGHT sector rating for the time being.
We believe Hong Kong banks’ earnings will unavoidably be affected by the global
financial turmoil and continued implementation of austerity measures in China. We are
still optimistic on mortgage loan demand. However, this will be more than offset by
other negative factors. First, MTM losses may spread to other higher quality debt
investments (e.g. corporate debt, auto loans, credit cards, etc.). Unfortunately, it is
difficult to quantify the impact, given limited disclosures about the types of debt
investments. Second, loan provisions should start to filter through in 2H08 as the global
economy slows and credit remains tight in China. With many Hong Kong banks
aggressively expanding their SME clientele (including exporters) in recent years, we
expect NPLs to rise from a low base. Third, wealth management fees should decline
going forward, amidst challenging market conditions.
Uncertainties in the financial market and global economic slowdown are expected to cast
a shadow over the prospects of Swire Pacific’s office and aviation businesses. Wharf’s
retail properties are going from strength to strength, even as its China projects remain as
its long-term growth engine. Shun Tak is expected to see growing property earnings
from Macau, which is well secured through successful pre-sales.
Competition in Hong Kong’s telecom market remains tense, especially in the voice
market, with five mobile operators rivalling fiercely to clinch a larger share of the 152%
penetrated market. However, we see the potential for some operators to outperform, by
leveraging on advancement in technology and economies of scale. In this regard, we
continue to favour SmarTone as the top pick for the sector. Major advantages for the
company lie in the following aspects: i) With its 3.5G (HSPA) network in place, capex
would be decreasing over the next 3 to 4 years before the readiness for higher
technology (4G); ii) focused on local market, SmarTone will increasingly benefit from
network synergies and economies of scale; iii) ARPU expansion has been on track, driven
by increasing portion of 3G users; and iv) with the most advanced technology (3.5G) and
commitment to services innovation, we see great potential for SmarTone to increase its
market share. As far as the other telcos in Hong Kong are concerned, we remain
positively cautious on PCCW for its deeply indebted position and cautious on HTIL for its
lack of economies of scale.
Credit crisis in the US has shaken the economic outlook further. This has led us to
continue to favour those manufacturers with good exposure to the domestic consumer
market or increasing sales exposure in China to ensure better sales growth prospects and
sustainable margin. AMVIG is one of the few industrial plays that are not negatively
impacted by the US economy nor rising prices of crude oil/commodities. AMVIG’s
acquisition strategy will enable it to strengthen its leading market position in the
cigarette packaging printing industry.
Retail sales in Hong Kong grew 12.8% y-o-y in 2007, with growth having accelerated
towards 3Q and 4Q. While this has been partly helped by inflationary pressure on food
cost, the particularly strong momentum seen in discretionary and luxury items
demonstrated impact from the economic improvement as well as wealth effect from the
booming stock and property markets. Going forward, with an improving economy and
better income, sentiment for retailing should remain decent, though cost inflation would
continue to be the biggest challenge for retailers. Meanwhile, the strong cash position
for most retailers should ensure a decent dividend yield going ahead. Maintain
NEUTRAL.
Kerry Properties (683)
SHK Properties (16)
Cheung Kong (1)
ICBC Asia (349)
Wharf (4)
SmarTone (315)
AMVIG (2300)
Esprit (330)
Page 66

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stock picks for China
SECTOR REMARKS STOCK SELECTION
Banking
Neutral
Commodities
Underweight
Oil & Gas
Overweight
Telecom
Overweight
Technology
Neutral
We remain cautious over the sector, though we are positive on a long-term basis. An
overall easing in monetary and credit polices is unlikely in the aftermath of the
snowstorms, and in light of high inflationary pressure and high liquidity. Besides hiking
required deposit reserve ratio and interest rates, the regulators will keep a close watch
on loan growth every quarter in 2008 (13% in 2008 versus 2007’s target of 15%). A
tight grip will be applied particularly on loans to property developers and mortgages.
Small banks will be more affected than the big three, given the former group may need
to slow down their loan growth more than the latter. Wealth management fee may also
decline due to the weak A-share market. Provisions may also rise from a low base with
asset quality likely to deteriorate among exporters and property developers.
Rising concerns on retarded global growth, caused by the US credit crunch and a tighter
monetary policy expected from China would sour investors’ risk appetite for China metal
stocks, which are highly susceptible to international metal price volatility. Metal earnings
prospects in the short run will also see downside risk amid cost inflation, prompting
market de-rating talks to continue. We UNDERWEIGHT base metals for 2Q08. We are
relatively positive on coal and maintain our forecast on coal prices, which will grow more
than 10% in 2008. We have used more prudent target valuations on commodities to
reflect falling risk appetite of equity investors. Our top pick in 2Q08 is Shenhua Energy
with target price at HK$44.00.
Orderly depreciation of USD is expected to push up long-term global inflation, which
could drive up long-term E&P costs and hurt non-dollar value of oil producers’ assets.
We may see a vicious weak USD cycle that would cause crude price to exceed its
fundamental optimal level. This will benefit pure E&P plays like CNOOC. However,
integrated oil companies like Sinopec and PetroChina will suffer in the short-term, due
to their high special levy paid to the Government as well as increased refining losses.
With the readiness of the Chinese home-grown 3G technology (TD-SCDMA), we believe
now is the right time for the Chinese Government to announce its plan on telecom
industry restructuring and the granting of 3G licenses. The restructuring would, on the
one hand, intensify competition in China’s telecom market, while on the other hand,
require increased capex for telcos to expand and upgrade networks. Having said that,
we prefer the bigger players; especially as we believe China Telecom would benefit the
most in the long run from both a valuation alignment to incumbent mobile peers and
better growth prospects. Nevertheless, we believe China Telecom will reap the benefits
of its business transformation from 2008 onwards. In the near term, following the
restructuring, we see limited impact on China Mobile’s dominance in the mobile
telecom market in China. In the long run, we believe China Mobile will be able to retain
its local dominance in the high-end data market. Hence, its long-term earnings growth
would be least affected from the restructuring move. Although there are numerous
uncertainties in the telecom services market in China, we believe telecom equipment
vendors would still benefit from any restructuring scenarios. On the global market front,
we believe demand for telecom equipment will be sustainable over the next 5 to 10
years, to be driven by strong subscriber growth in emerging markets and rapid
technology evolution in developed markets. We favour the bigger players with strong
overseas presence. Our sector picks on telecom equipment remain ZTE and CCS.
The US slowdown will offset some of the expected demand created by innovation and
new products. For the handset players, we expect probable roll out of TD-SCDMA and
smart phone products in the year to boost handset replacement demand in China.
However, average selling price pressure will remain, as industry competition will remain
intense. Exporters are likely to face a more uncertain demand outlook as the US
economy slows. For display players, the previously strong LCD TV growth forecast (of
over 30%) associated with the Olympics and Euro 08 could face downward adjustments
as retailers and manufacturers reassess the impact of the recent financial markets
turmoil. The current situation is likely to curb some capex spending by industry players,
as more investors will start to take a wait-and-see approach. The continual high raw
material prices remain as a concern. With that said, current rating of the sector has
already somewhat reflected cautiousness. As such, we rate the technology sector
NEUTRAL.
CCB (939)
Shenhua Energy (1088 HK)
CNOOC (883)
China Mobile (941)
China Telecom (728)
ZTE (763)
Sim Technology (2000)
Page 67

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stock picks for China (Cont’d)
SECTOR REMARKS STOCK SELECTION
Automobile
Overweight
Property
Neutral
Pharmaceutical
and Healthcare
Overweight
China
Consumer -
Food &
Beverages
Neutral
China
Consumer -
Retail
Overweight
Shipping
Underweight
Despite the snowstorm effect in 1Q08, car sales growth was surprisingly strong and
stayed above 20% y-o-y. Amidst high inflation in China, the price-cutting pressure in
1Q08 was less than our expectation. Major risk in the sector in the coming months is the
impact of rising raw material costs (especially for steel), which will eat into the margins of
economy car producers (like Changan Auto). Denway’s new Accord model was well
received, and would be the growth engine for the company. Order book was reported to
be extended into 3Q08. The only concern is the company’s weak earnings in 2007, which
may affect share performance before the results announcement. Investors should take
advantage of price weakness to accumulate for long-term investment.
Concerns over interest rate hikes and the more stringent implementation of tighter credit
policy is expected to impact market sentiment in both the physical property market as
well as the corresponding equities. Potential buyers in the property market are likely to
continue with a wait-and-see attitude in anticipation of price depreciation. Some
developers with liquidity issues might join Vanke in cutting prices in an attempt to unlock
cash flows. The possible introduction of a new round of credit tightening measures will
remain as the main concern for investors. While we believe the mid- to long-term outlook
of the sector is still bright, we are more cautious about the short-term outlook of the
sector. Under the current environment, we expect strong players to outperform.
Companies with healthy balance sheets, reputable brand names, diversified portfolio, and
strong funding capabilities are expected to benefit from market consolidation and
weather the potential slowdown of the property market. We continue to favour Shimao
Properties and Chinese Overseas Land.
We believe the worst of the policy overhang should be behind us. This year, we expect to
start seeing sector earnings recovery and a return to a normal growth track. Some market
leaders have already registered strong recovery in growth with expanding market share.
With a stabilised policy environment and strong long-term underlying demand for good
pharmaceutical and healthcare products, we recommend investors to return to this small
but vigorous sector. Our pick for the sector is Sino Biopharmaceutical.
High raw material costs would remain as the key challenge for F&B players. With price
flexibility of F&B players having been somewhat reduced by China’s new policy on price
intervention introduced in January 2008, margin risk has escalated and this has been
reflected in the sharp de-rating of the whole sector. While most listed players are market
leaders (hence in the longer-term should benefit from the accelerating market
consolidation), near-term margin uncertainty has prompted us to maintain our cautious
view on the sector. However, we do see opportunities for investors to start accumulating
certain quality counters, where the valuation of which have come down to a more
attractive level, e.g. China Mengniu.
Retail sales in China grew 20.2% y-o-y during the first two months of 2008. Adjusted for
inflation, the volume of retail sales still grew c.11%, despite temporary effects from the
recent snowstorms. In the near-term, poor market sentiment amid global credit issues
could inevitably drag retailers’ valuation downwards with the crowd. Nevertheless, swift
income growth in both urban and rural areas of China should continue to provide good
support for overall domestic consumption this year. Under the current environment, we
prefer those retailers posting relatively higher growth potentials and trading liquidity.
Hong Kong/China shipping companies will face increasing cyclical risks in 2008, with their
earnings visibility being clouded by the US economic slowdown, China’s tightening macro
policies as well as cost inflationary pressure. While container liners are highly leveraged to
slowing US demand growth and rising fuel costs, the dry bulk cycle will be more resilient
to these negative factors, as China’s and India’s demand for bulk cargoes should remain
strong. With looming single-hull tanker phasing out, we expect the lacklustre tanker rates
to start bottoming out in 2008. We maintain SELL rating for CSCL, considering the poor
earnings visibility for pure container liners.
Dongfeng Motor (489)
Denway (203)
Shimao Property (813)
Sino Biopharmaceutical
(1177)
China Mengniu (2319)
Li Ning (2331)
Parkson (3368)
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Regional Equity Strategy Q2 2008
Country Assessment
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Page 69

Regional Equity Strategy Q2 2008
China Shenhua Energy
Bloomberg: 1088 HK | Reuters: 1088.HK
BUY HK$30.95 HSI : 22,464.52
Growth on track
Price Target : 12m HK$ 44.00
Potential Catalyst: earlier-than-expected parent asset injection
Analyst
Helen Wang +8621 6888 3370
helen_wang@hk.dbsvickers.com
Price Relative
H K $
56.60
46.60
36.60
26.60
16.60
6.60
Jun-05 D ec-05 Jun-06 D ec-06 Jun-07 D ec-07
S h e n h u a E n e r g y ( L H S ) R e l a t i v e H S I I N D E X ( R H S )
Forecasts and Valuation
Relative
In d e x
FY Dec (RMB m) 2006A 2007A 2008F 2009F
Turnover 65,186 82,107 95,878 108,948
EBITDA 34,600 41,351 54,852 65,094
Pre-tax Profit 25,917 30,779 42,826 51,377
Net Profit 17,698 20,581 27,623 33,138
Net Pft (Pre Ex.) 17,698 20,581 27,623 33,138
EPS (HK$) 1.09 1.23 1.54 1.85
EPS Gth (%) 4.5 13.5 25.1 20.0
Diluted EPS (HK$) 1.09 1.23 1.54 1.85
DPS (HK$) 1.41 0.52 0.54 0.65
BV Per Share (HK$) 4.08 7.31 8.39 9.84
PE (X) 28.7 25.3 20.2 16.8
PE Pre Ex. (X) 28.7 25.3 20.2 16.8
P/Cash Flow (X) 21.6 18.7 15.3 12.8
EV/EBITDA (X) 16.4 12.9 10.3 8.4
Net Div Yield (%) 4.5 1.7 1.7 2.1
P/Book Value (X) 7.6 4.3 3.7 3.2
Net Debt/Equity (X) 0.5 CASH CASH CASH
ROAE (%) 28.6 20.8 19.6 20.3
Earnings Rev (%): - -
Consensus EPS (HK$): 1.62 1.93
Sector : Basic Materials
Principal Business: Leading integrated coal-based energy company
focusing on coal mining and power generation in China
369
319
269
219
169
119
69
19
Story: Shenhua’s proven track record in growing coal
reserves, as indicated by its latest move to increase coal
reserves by more than 20% in 2007, has heightened our
confidence in the company’s ability in sequentially
increasing and broadening its reserve base in the coming
2 to 3 years.
The target assets in the pipeline include: i) 5.98bn tonnes
coal reserves, equivalent to 80% of Shenhua’s existing
total coal reserves; and ii) coal liquefaction project, of
which the first phase is expected to commence oil
production (1.08m tonnes annual capacity) in September
2008. With indicated breakeven at US$30/bbl on coal
liquefaction along with prolonged high energy prices, the
projects, once acquired, will become growth engines in
the longer-term.
Point: Although an upcoming low season in 2Q will
affect spot coal prices, we consider the earnings impact
to be minimal, as the spot volume only represents 20%
of Shenhua’s total domestic coal sales. Besides, the
secured higher-than-industry-average domestic contract
price rise of 10% together with an expected higher
export contract price (we project 30% rise) should help
underscore strong coal prices in 2008.
Relevance: We forecast FD EPS growth of 25% for FY08
and 20% for FY09. Risk to earnings revision is on the
upside if Shenhua accelerates its pace of asset
acquisitions. Despite the short-term hiccup amid
overwhelming de-rating talks on the equity market, we
retain our long-term BUY on Shenhua and maintain
target price at HK$44.00 on blended valuations.
At A Glance
Issued Capital - H shares (m shs) 3,399
- Non H shrs (m shs) 16,491
H shs as a % of Total 17
H Mkt. Cap (HK$m/US$m)
105,186 / 13,537
Major Shareholders
Shenhua Group (%) 73.9
Major H Shareholders (%)
JP Morgan Chase (%) 9.3
UBS (%) 7.0
H Shares-Free Float (%) 83.7
Avg. Daily Vol.(‘000) 28,134
Page 70
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
China Shenhua Energy
Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Turnover 65,186 82,107 95,878 108,948 Net Fixed Assets 107,859 129,369 143,040 149,840
Cost of Goods Sold (33,055) (43,773) (45,529) (49,485) Invts in Associates & JVs 2,369 2,369 2,369 2,369
Gross Profit 32,131 38,334 50,349 59,463 Other LT Assets 22,731 20,788 19,449 20,368
Other Opng (Exp)/Inc (4,640) (5,837) (6,313) (6,997) Cash & ST Invts 15,199 68,136 84,031 109,567
Operating Profit 27,491 32,497 44,037 52,466 Other Current Assets 14,680 17,148 19,271 20,701
Other Non Opg (Exp)/Inc 235 412 258 258 Total Assets 162,838 237,811 268,161 302,846
Associates & JV Inc 564 627 850 1,012
Net Interest (Exp)/Inc (2,372) (2,795) (2,328) (2,369) ST Debt 14,930 16,810 17,066 15,614
Exceptional Gain/(Loss) 0 0 0 0 Other Current Liab 18,303 21,250 25,369 27,989
Pre-tax Profit 25,917 30,779 42,826 51,377 LT Debt 43,266 45,406 47,546 49,686
Tax (5,394) (6,742) (10,707) (12,844) Other LT Liabilities 1,948 1,968 1,989 2,010
Minority Interest (2,825) (3,456) (4,497) (5,395) Shareholder’s Equity 66,461 130,990 150,309 176,269
Preference Dividend 0 0 0 0 Minority Interests 17,930 21,386 25,883 31,277
Net Profit 17,698 20,581 27,623 33,138 Total Cap. & Liab. 162,838 237,811 268,161 302,846
Net Profit before Except. 17,698 20,581 27,623 33,138
EBITDA 34,600 41,351 54,852 65,094 Non-Cash Wkg. Capital (3,623) (4,102) (6,097) (7,288)
Net Cash/(Debt) (42,997) 5,920 19,419 44,266
Sales Gth (%) 24.8 26.0 16.8 13.6
EBITDA Gth (%) 17.4 19.5 32.6 18.7
Opg Profit Gth (%) 16.2 18.2 35.5 19.1
Net Profit Gth (%) 13.3 16.3 34.2 20.0
Effective Tax Rate (%) 20.8 21.9 25.0 25.0
Cash Flow Statement (RMB m)
Rates & Ratio
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Pre-Tax Profit 25,917 30,779 42,826 51,377 Gross Margins (%) 49.3 46.7 52.5 54.6
Dep. & Amort. 6,611 7,777 9,698 11,347 Opg Profit Margin (%) 42.2 39.6 45.9 48.2
Tax Paid (4,191) (6,742) (10,707) (12,844) Net Profit Margin (%) 27.2 25.1 28.8 30.4
Assoc. & JV Inc/(loss) (564) (627) (850) (1,012) ROAE (%) 28.6 20.8 19.6 20.3
Chg in Wkg.Cap. (4,030) (1,755) (1,067) (2,030) ROA (%) 11.6 10.3 10.9 11.6
Other Operating CF (671) 121 (28) (30) ROCE (%) 18.7 18.1 20.1 20.5
Net Operating CF 23,686 29,553 39,873 46,807 Div Payout Ratio (%) 129.7 45.3 35.0 35.0
Capital Exp.(net) (22,839) (27,000) (22,000) (20,000) Net Interest Cover (x) 11.6 11.6 18.9 22.1
Other Invts.(net) (2,106) (2,000) (2,000) (2,000) Asset Turnover (x) 0.4 0.4 0.4 0.4
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 21.1 24.4 25.6 26.5
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 92.8 88.4 104.3 108.1
Other Investing CF 7 (967) (614) (306) Inventory Turn (avg days) 46.0 45.5 53.3 54.4
Net Investing CF (24,938) (29,967) (24,614) (22,306) Current Ratio (x) 0.9 2.2 2.4 3.0
Div Paid (8,582) (22,949) (9,325) (9,668) Quick Ratio (x) 0.8 2.1 2.3 2.8
Chg in Gross Debt 5,525 4,021 2,396 688 Net Debt/Equity (X) 0.5 CASH CASH CASH
Capital Issues 0 64,585 0 0 Capex to Debt (%) 39.2 43.4 34.0 30.6
Other Financing CF 11 7,696 7,566 10,014 N.Cash/(Debt)PS (RMB) (237.7) 29.8 97.6 222.6
Net Financing CF (3,046) 53,352 636 1,034 Opg CFPS (RMB) 153.2 168.9 205.8 245.5
Net Cashflow (4,298) 52,938 15,895 25,536 Free CFPS (RMB) 4.7 13.8 89.9 134.8
Interim Income Statement (RMB m)
Segmental Breakdown
FY Dec 1H2006 2H2006 1H2007 2H2007 FY Dec 2006A 2007A 2008F 2009F
Turnover 29,533 35,653 38,331 43,776 Revenues (RMB m)
Cost of Goods Sold (14,480) (18,575) (19,290) (24,483) Coal segment 53,303 65,949 79,767 90,373
Gross Profit 15,053 17,078 19,041 19,293 Power segment 17,381 24,387 26,820 30,694
Other Oper. (Exp)/Inc (1,895) (2,745) (2,589) (3,248) Railway segment 12,958 16,210 19,946 22,863
Operating Profit 13,158 14,333 16,452 16,045 Port segment 1,569 1,981 2,438 2,794
Other Non Opg (Exp)/Inc (86) 252 214 (1,097) Elimination (20,025) (26,420) (33,093) (37,777)
Associates & JV Inc 142 422 190 437 Total 65,186 82,107 95,878 108,948
Net Interest (Exp)/Inc (1,129) (1,243) (1,462) 0 Gross Profit (RMB m)
Exceptional Gain/(Loss) 0 0 0 0 Coal segment 18,740 20,932 30,277 36,716
Pre-tax Profit 12,085 13,764 15,394 15,385 Power segment 5,920 7,634 8,371 9,333
Tax (2,313) (3,081) (3,110) (3,632) Railway segment 7,142 9,277 10,970 12,575
Minority Interest (1,171) (1,654) (1,969) (1,487) Port segment 405 603 731 838
Net Profit 8,601 9,029 10,315 10,266 Elimination (76) (112) 0 0
Net profit bef Except. 8,601 9,029 10,315 10,266 Total 32,131 38,334 50,349 59,463
EBITDA 16,370 18,163 16,856 15,385 Gross Profit Margins (%)
Coal segment 35.2 31.7 38.0 40.6
Sales Gth (%) 6.5 20.7 7.5 14.2 Power segment 34.1 31.3 31.2 30.4
EBITDA Gth (%) 10.8 11.0 (7.2) (8.7) Railway segment 55.1 57.2 55.0 55.0
Opg Profit Gth (%) 10.3 8.9 14.8 (2.5) Port segment 25.8 30.4 30.0 30.0
Net Profit Gth (%) 10.0 5.0 14.2 (0.5) Others 0.4 0.4 0.0 0.0
Gross Margins (%) 51.0 47.9 49.7 44.1 Total 49.3 46.7 52.5 54.6
Opg Profit Margins (%) 44.6 40.2 42.9 36.7
Net Profit Margins (%) 29.1 25.3 26.9 23.5
Source: Company, DBS Vickers
Page 71

Regional Equity Strategy Q2 2008
China Telecom
Bloomberg: 728 HK | Reuters: 0728.HK
BUY HK$4.96 HSI : 22,465
Price Target : 12-Month HK$ 7.1
Potential Catalyst: forthcoming telecom restructuring, inline or aboveexpectation
FY07 results
Analyst
Steven Liu CFA, +852 2971 1780
steven_liu@hk.dbsvickers.com
Price Relative
H K $
206
7.00
186
6.00
166
5.00
146
126
4.00
106
3.00
86
2.00
66
2004 2005 2006 2007 2008
China Telecom (LH S) R e la tiv e H SI IN D E X (R H S)
Forecasts and Valuation
FY Dec (RMB m) 2006A 2007F 2008F 2009F
Turnover 175,093 179,862 189,284 200,695
EBITDA 89,918 92,250 96,864 101,224
Pre-tax Profit 33,979 35,296 41,074 45,861
Net Profit 27,142 27,386 34,216 37,801
Net Pft (Pre Ex.) 27,142 27,386 34,216 37,803
EPS (HK$) 0.37 0.38 0.47 0.52
EPS Gth (%) (2.8) 0.9 24.9 10.5
Diluted EPS (HK$) 0.37 0.38 0.47 0.52
DPS (HK$) 0.09 0.09 0.12 0.14
BV Per Share (HK$) 2.78 3.06 3.41 3.79
PE (X) 13.4 13.3 10.6 9.6
PE Pre Ex. (X) 13.4 13.3 10.6 9.6
P/Cash Flow (X) 4.6 4.5 4.2 4.0
EV/EBITDA (X) 5.2 4.9 4.4 3.9
Net Div Yield (%) 1.7 1.8 2.4 2.7
P/Book Value (X) 1.8 1.6 1.5 1.3
Net Debt/Equity (X) 0.5 0.4 0.2 0.1
ROAE (%) 14.1 12.9 14.5 14.4
Earnings Rev (%): - - -
Consensus EPS (HK$): 0.32 0.33 0.35
Sector : Telecom
Principal Business: Telecom
Relative
In d e x
Re-rating and brighter outlook
Story: China is to launch TD-SCDMA-based 3G services
prior to the Olympics, which should bode well for
accelerating the restructuring of the telecom industry.
We expect to see significant re-rating on China Telecom
(CT) should the Chinese Government materialises its
restructuring plans this year, and the possibility of which
is highly likely.
Point: Despite the continued mobile substitution of fixed
lines in China, we expect CT to deliver in-line FY07
results, to be underpinned by strong growth in
broadband and VAS. In addition, benefiting from the
lower tax rate (from 33% to 25%), we believe CT would
deliver decent double-digit earnings growth in FY08.
Excluding potential contributions from the mobile
business, we believe CT could restore its decent singledigit
earnings growth in its ongoing business from FY09.
Relevance: The counter is trading at 11.3x FY08 PE,
which is still at a deep discount to its domestic mobile
peers. We believe CT deserves significant re-rating in the
near-term, in view of the forthcoming telecom
restructuring. Despite potential devaluation across many
sectors, due to the credit crunch in the US, restructuring
of the telecom industry should help in offsetting the
market risk. Having said that, we believe our DCF
valuation of HK$7.1, with 15.6x FY08 PE, is
undemanding. Maintain BUY.
At A Glance
Issued Capital - H shares (m shs) 13,877
- Non H shrs (m shs) 67,055
H shs as a % of Total 17
H Mkt. Cap (HK$m/US$m)
Major Shareholders
68,832 / 8,872
China Tel Corp (%) 70.9
GD Rising Asset Mgt (%) 6.9
Major H Shareholders (%)
Deutsche Bank (%) 7.6
ABN AMRO (%) 6.0
KBC Group (%) 6.0
H Shares-Free Float (%) 80.4
Avg. Daily Vol.(‘000) 247,876
Page 72
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
China Telecom
Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Turnover 175,093 179,862 189,284 200,695 Net Fixed Assets 328,304 321,824 315,999 310,244
Cost of Goods Sold (136,483 (140,660) (144,700) (151,684 Invts in Associates & JVs 581 642 703 764
Gross Profit 38,610 39,202 44,583 49,011 Other LT Assets 45,593 45,149 44,873 44,649
Other Opng (Exp)/Inc 0 0 0 1 Cash & ST Invts 18,310 15,996 19,220 16,791
Operating Profit 38,610 39,202 44,583 49,011 Other Current Assets 21,253 21,703 22,575 23,627
Other Non Opg (Exp)/Inc (25) 0 0 0 Total Assets 414,041 405,314 403,369 396,074
Associates & JV Inc 61 61 61 61
Net Interest (Exp)/Inc (4,667) (3,967) (3,570) (3,213) ST Debt 87,806 67,264 43,043 9,335
Exceptional Gain/(Loss) 0 0 0 1 Other Current Liab 68,769 66,877 66,437 63,712
Pre-tax Profit 33,979 35,296 41,074 45,861 LT Debt 37,257 33,442 32,786 32,786
Tax (6,754) (7,833) (6,762) (7,952) Other LT Liabilities 16,336 13,007 10,673 11,789
Minority Interest (83) (77) (96) (106) Shareholder’s Equity 202,425 223,198 248,809 276,726
Preference Dividend 0 0 0 1 Minority Interests 1,448 1,525 1,621 1,727
Net Profit 27,142 27,386 34,216 37,801 Total Cap. & Liab. 414,041 405,314 403,369 396,075
Net Profit before Except. 27,142 27,386 34,216 37,803
EBITDA 89,918 92,250 96,864 101,224 Non-Cash Wkg. Capital (47,516) (45,174) (43,862) (40,084)
Net Cash/(Debt) (106,753 (84,710) (56,609) (25,330)
Sales Gth (%) 3.4 2.7 5.2 6.0
EBITDA Gth (%) 1.4 2.6 5.0 4.5
Opg Profit Gth (%) (0.9) 1.5 13.7 9.9
Net Profit Gth (%) (2.8) 0.9 24.9 10.5
Effective Tax Rate (%) 19.9 22.2 16.5 17.3
Cash Flow Statement (RMB m)
Rates & Ratio
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Pre-Tax Profit 33,979 35,296 41,074 45,859 Gross Margins (%) 22.1 21.8 23.6 24.4
Dep. & Amort. 51,272 52,987 52,220 52,151 Opg Profit Margin (%) 22.1 21.8 23.6 24.4
Tax Paid (5,654) (7,632) (6,564) (7,757) Net Profit Margin (%) 15.5 15.2 18.1 18.8
Assoc. & JV Inc/(loss) (61) (61) (61) (61) ROAE (%) 14.1 12.9 14.5 14.4
Chg in Wkg.Cap. (8,064) (6,943) (4,988) (4,088) ROA (%) 6.5 6.7 8.5 9.5
Other Operating CF 3,034 2,602 2,642 2,698 ROCE (%) 10.0 9.8 12.1 13.3
Net Operating CF 74,506 76,249 84,322 88,803 Div Payout Ratio (%) 23.1 24.1 25.1 26.1
Capital Exp.(net) (50,087) (47,510) (47,533) (47,556) Net Interest Cover (x) 8.3 9.9 12.5 15.3
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 0.4 0.4 0.5 0.5
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 33.3 32.5 32.1 32.0
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 141.2 132.4 125.4 117.9
Other Investing CF 90 (83) (83) (83) Inventory Turn (avg days) 7.6 7.9 7.7 7.4
Net Investing CF (49,997) (47,593) (47,616) (47,639) Current Ratio (x) 0.3 0.3 0.4 0.6
Div Paid (6,283) (6,613) (8,605) (9,884) Quick Ratio (x) 0.2 0.3 0.4 0.5
Chg in Gross Debt (5,077) (24,357) (24,878) (33,708) Net Debt/Equity (X) 0.5 0.4 0.2 0.1
Capital Issues 0 0 0 0 Capex to Debt (%) 40.0 47.2 62.7 112.9
Other Financing CF (10,079) 0 0 1 N.Cash/(Debt)PS (RMB) (131.9) (104.7) (69.9) (31.3)
Net Financing CF (21,439) (30,970) (33,483) (43,591) Opg CFPS (RMB) 102.0 102.8 110.4 114.8
Net Cashflow 3,070 (2,314) 3,223 (2,428) Free CFPS (RMB) 30.2 35.5 45.5 51.0
Interim Income Statement (RMB m)
Segmental Breakdown
FY Dec 2H2005 1H2006 2H2006 1H2007 FY Dec 2006A 2007F 2008F 2009F
Turnover 85,287 87,345 87,748 88,624 Revenues (RMB m)
Cost of Goods Sold (68,076) (66,134) (70,349) (68,340) Voice revenue 125,797 117,798 113,481 109,789
Gross Profit 17,211 21,211 17,399 20,284 Broadband 23,630 30,537 37,552 44,665
Other Oper. (Exp)/Inc 0 0 0 0 VAS 14,133 18,868 24,528 31,396
Operating Profit 17,211 21,211 17,399 20,284 Data and leased lines 7,534 8,300 9,015 9,808
Other Non Opg (Exp)/Inc 2 (20) (5) 0 Others 3,999 4,359 4,708 5,037
Associates & JV Inc 59 7 54 7 Total 175,093 179,862 189,284 200,695
Net Interest (Exp)/Inc (2,427) (2,498) (2,169) (2,022)
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 14,845 18,700 15,279 18,269
Tax (1,604) (4,512) (2,242) (4,760)
Minority Interest (25) (33) (50) (27)
Net Profit 13,216 14,155 12,987 13,482
Net profit bef Except. 13,216 14,155 12,987 13,482
EBITDA 42,746 46,692 43,226 46,224
Sales Gth (%) 1.5 2.4 0.5 1.0
EBITDA Gth (%) (6.9) 9.2 (7.4) 6.9
Opg Profit Gth (%) (20.8) 23.2 (18.0) 16.6
Net Profit Gth (%) (10.1) 7.1 (8.3) 3.8
Gross Margins (%) 20.2 24.3 19.8 22.9
Opg Profit Margins (%) 20.2 24.3 19.8 22.9
Net Profit Margins (%) 15.5 16.2 14.8 15.2
Source: Company, DBS Vickers
Page 73

Regional Equity Strategy Q2 2008
CNOOC Ltd
Bloomberg: 883 HK | Reuters: 0883.HK
BUY HK$10.70 HSI : 22,465
Having the upper hand
Price Target : 12m HK$ 15.64
Potential Catalyst: Strong output growth and oil price hike
Analyst
Gideon Lo CFA +852 2863 8880
gideon_lo@hk.dbsvickers.com
Price Relative
H K $
16.40
14.40
221
201
12.40
181
10.40
161
8.40
141
6.40
121
4.40
101
2.40
81
2004 2005 2006 2007 2008
C N O O C L t d ( L H S ) R e l a t i v e H S I I N D E X ( R H S )
Forecasts and Valuation
R e l a t i v e
In d e x
FY Dec (RMBm) 2006A 2007A 2008F 2009F
Turnover 88,947 90,724 119,642 127,293
EBITDA 51,785 51,325 62,001 63,585
Pretax Profit 44,123 43,311 53,498 66,227
Net Profit 30,927 31,258 40,124 49,670
EPS (HK$) 0.80 0.79 0.99 1.22
EPS Gth (%) 17.9 (1.5) 26.1 22.5
PE (x) 13.4 13.6 10.8 8.8
P/Cash Flow (x) 8.1 7.9 6.7 6.8
EV/EBITDA(x) 8.3 8.0 6.4 6.0
DPS (HK$) 0.29 0.32 0.33 0.40
Div Yield (%) 2.7 3.0 3.1 3.8
Net Gearing (%) 5.5 cash cash cash
ROE (%) 34.1 25.8 27.2 27.9
Book Value (HK$) 2.74 3.33 4.00 4.71
P/Book Value (x) 3.9 3.2 2.7 2.3
Earnings Rev (%) - -
Consensus EPS (HK$) 1.01 1.08
Sector : Oil and Gas
Principal Business: The third largest oil company in China;
exclusive Chinese partner for foreigh entities engaged in offshore
oil exploration and production
Story: In view of the persistently high crude prices and
policy overhangs from product oil price cap in China, we
prefer pure upstream oil plays like CNOOC in China. The
company will see vigorous output growth of 14-16% in
2008, riding on the contribution of its major new oilfields
in China and overseas.
Point: Among the major oil trio in China, CNOOC has
the best earnings visibility, compared to the risk of
earnings pullback for PetroChina and Sinopec. With
profit gains from higher crude prices and strong output
growth, we forecast CNOOC’s earnings to jump 28% in
2008, followed by another 24% growth in 2009, based
on average Brent crude price target of US$90 and US$85
in these two years.
Relevance: The strong earnings growth will bring
CNOOC’s PE multiple to an attractive 10.8x in 2008 and
8.8x in 2009. With its stronger earnings growth, CNOOC
deserves valuation premium over its global peers, which
are trading in the range of 10-16x. CNOOC is our top
pick in 2Q08, riding on the benefits of high crude price
environment. Based on 15x forward PE, our target price
is HK$15.64 apiece.
At A Glance
Issued Capital (m shrs) 44,668
Mkt. Cap (HK$m/US$m) 477,948 / 61,450
Major Shareholders
CNOOC (BVI) Ltd (%) 66.4
Free Float (%) 33.6
Avg. Daily Vol.(‘000) 139,113
Page 74
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
CNOOC Ltd
Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Turnover 88,947 90,724 119,642 127,293
EBITDA 51,785 51,325 62,001 63,585
Depr/Amort (6,933) (7,374) (9,490) (10,356)
Opg Profit 44,852 43,950 52,511 53,229
Associates Inc 322 719 1,000 12,321
Interest (Exp)/Inc (1,051) (1,359) (13) 676
Exceptionals - - - -
Pre-Tax Profit 44,123 43,311 53,498 66,227
Tax (13,196) (12,052) (13,375) (16,557)
Minority Interest - - - -
Net Profit 30,927 31,258 40,124 49,670
Sales Growth (%) 28.1 2.0 31.9 6.4
Net Profit Gr (%) 22.1 1.1 28.4 23.8
EBITDA Mgn (%) 58.2 56.6 51.8 50.0
Opg Mgn (%) 50.4 48.4 43.9 41.8
Tax Rate (%) 29.9 27.8 25.0 25.0
Fixed Assets 103,406 118,880 144,097 160,474
Other LT Assets 3,970 5,779 6,086 12,073
Cash/ST Investments 35,987 40,245 68,483 81,506
Other Current Assets 11,905 14,401 17,596 18,529
Total Assets 155,268 179,305 236,263 272,582
ST Debt 18 - 1,104 2,403
Other Current Liab 14,464 20,913 35,166 40,849
LT Debt 20,324 11,046 25,289 20,771
Other LT Liab 12,649 13,031 13,506 14,083
Minority Interests 42
Shareholders' Equity 107,772 134,315 161,198 194,477
Total Capital 155,268 179,305 236,263 272,582
Share Capital (m) 43,329 44,303 44,303 45,420
Net Cash/(Debt) (5,978) 12,311 25,202 41,444
Working Capital (2,498) (4,627) (6,980) (8,039)
Net Gearing (%) 6 cash cash cash
Cash Flow Statement (RMB m)
FY Dec 2006A 2007E 2008F 2009F
Pretax Profit 44,123 43,311 53,498 66,227
Tax Paid (12,875) (12,624) (12,713) (14,966)
Depr/Amort 7,244 7,809 9,490 10,356
Chg in Wkg Cap 899 2,129 2,354 1,058
Othr Non-Cash (1,391) (114) (1,956) (14,579)
Operational CF 38,000 40,509 50,673 48,096
Capex (44,217) (27,225) (27,384) (24,557)
Assoc, MI, Invsmt (12,281) - - -
Others 16,944 16,972 2,523 7,518
Investment CF (39,554) (10,253) (24,861) (17,038)
Net Chg in Debt 2,960 (9,296) 15,347 (3,219)
New Capital 13,780
Dividend (9,814) (11,968) (12,920) (14,816)
Financing CF 6,926 (21,264) 2,426 (18,035)
Chg in Cash 5,372 8,993 28,239 13,023
Chg in Net Cash 2,412 18,288 12,892 16,242
Rates & Ratio
FY Dec 2006A 2007E 2008F 2009F
ROE (%) 34.1 25.8 27.2 27.9
ROA (%) 22.9 18.7 19.3 19.5
Net Mgn (%) 34.8 34.5 33.5 39.0
Div Cover (x) 2.7 2.5 3.0 3.0
Intr Cover (x) 18.9 17.8 23.2 20.1
Asset Turn (x) 0.7 0.5 0.6 0.5
Asset/Debt (x) 7.6 16.2 9.0 11.8
Gearing (%) 18.9 8.2 16.4 11.9
Net Gearing (%) 5.5 cash cash cash
Debt/EBITDA (x) 0.4 0.2 0.4 0.4
Debt/MktCap (x) 0.2 0.1 0.3 0.3
Capex/Debt (x) 2.2 2.5 1.0 1.1
Capex/Sales (%) 0.5 0.3 0.2 0.2
EV (HK$m) 470,225 450,062 435,881 418,015
EV/EBITDA (x) 8.3 8.0 6.4 6.0
Interim Income Statement (RMB m)
FY Dec 1H2005 2H2005 1H2006 2H2006
Turnover N/A 36,624 48,338 40,609
Cost of Goods Sold (15,967) (16,540) (24,367) (21,466)
Gross Profit 16,865 20,084 23,971 19,143
Other Oper. (Exp)/Inc 39 (253) 447 1,291
Associates & JV Inc 180 127 164 157
Exceptional Gain/(Loss) N/A 0 N/A N/A
Pre-tax Profit 16,972 19,329 23,859 20,265
Tax (5,143) (5,835) (7,581) (5,615)
Minority Interest N/A 0 N/A 0
Net Profit 11,829 13,494 16,278 14,649
Net profit bef Except. 11,829 13,494 16,278 14,649
EBITDA 19,872 23,135 27,949 24,158
Segmental Breakdown
FY Dec 2006A 2007A 2008F 2009F
Turnover
Crude oil 63,974 68,196 86,345 89,188
Natural gas 3,854 4,841 6,324 7,854
Marketing 20,964 17,397 26,788 30,057
Others 155 146 185 194
88,947 90,580 119,642 127,293
Sales Gth (%) N/A 11.5 32.0 (16.0)
EBITDA Gth (%) N/A 16.4 20.8 (13.6)
Opg Profit Gth (%) N/A 17.3 23.1 (16.3)
Net Profit Gth (%) N/A 14.1 20.6 (10.0)
Gross Margins (%) 51.4 54.8 49.6 47.1
Opg Profit Margins (%) 51.5 54.1 50.5 50.3
Net Profit Margins (%) 36.0 36.8 33.7 36.1
Source: Company, DBS Vickers
Page 75

Regional Equity Strategy Q2 2008
Li Ning
Bloomberg: 2331 HK | Reuters: 2331.HK
BUY HK$21.45 HSI : 22,465
Getting stronger
Price Target : 12-Month HK$ 28.00
Potential Catalyst: M&A, stronger-than-expected SSS growth, further
margin expansion
Analyst
Alice Hui CFA, +852 2971 1960
alice_hui@hk.dbsvickers.com
Price Relative
HK$
31.80
26.80
21.80
16.80
11.80
6.80
1.80
2004 2005 2006 2007
Forecasts and Valuation
L i N in g ( L H S ) R e la tiv e H SI IN D E X (R H S)
Relative
Index
FY Dec (RMB m) 2006A 2007A 2008F 2009F
Turnover 3,181 4,349 6,042 7,291
EBITDA 438 682 994 1,254
Pre-tax Profit 401 619 887 1,140
Net Profit 295 474 680 874
Net Pft (Pre Ex.) 295 474 680 874
EPS (HK$) 0.32 0.51 0.73 0.93
EPS Gth (%) 57.0 60.0 43.5 28.6
Diluted EPS (HK$) 0.32 0.51 0.73 0.93
DPS (HK$) 0.13 0.25 0.29 0.37
BV Per Share (HK$) 1.50 1.86 2.41 3.02
PE (X) 67.8 42.4 29.5 23.0
PE Pre Ex. (X) 67.8 42.4 29.5 23.0
P/Cash Flow (X) 60.4 36.8 25.2 20.0
EV/EBITDA (X) 43.7 28.3 19.2 14.8
Net Div Yield (%) 0.6 1.2 1.4 1.7
P/Book Value (X) 14.3 11.5 8.9 7.1
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 23.0 30.1 34.0 34.4
Earnings Rev (%): 7.8 3.8
Consensus EPS (HK$): 0.71 0.97
Sector : Consumer
Principal Business: One of the leading sports brands in China
619
519
419
319
219
119
19
Story: Li Ning’s recently announced FY07 results showed
strong performance across the board -- robust and
accelerating same-store sales growth (20%),
strengthening network (net addition of 936 to 5,233 Li
Ning stores), expanding margin (net margin up 1.6ppt to
10.9%) and rising ROE (30%). Given its established
market position, sound strategy and improving brand
equity, the company should remain as one of the core
beneficiaries of the booming demand for sporting goods
in China.
Point: With strengthening efforts on sales network
management and continual improvement in products
and brands, same-store sales should remain strong at
over 20%. This, coupled with continual network
expansion, especially in second- and third-tier cities,
should fuel solid growth ahead. The strong response
from its trade fairs for Q1-3/08, at which order book
showed 50% growth y-o-y, should bode well for FY08.
In the longer run, we see further potential from its subbrands
Z-Do, Aigle and Double Happiness.
Relevance: Li Ning remains well positioned to pursue
further M&A opportunities, considering its strong net
cash (RMB761m), solid operating cash flow and limited
capex (RMB200m or below). The counter remains as one
of our favourite picks in the sector, considering its solid
earnings growth (FY07-09 CAGR at 36%), quality
management and high ROE. Maintain BUY with target
price unchanged at HK$28, translating in FY09 PE of
29x.
At A Glance
Issued Capital (m shrs) 1,039
Mkt. Cap (HK$m/US$m) 22,280 / 2,864
Major Shareholders
Li Ning & Associates (%) 35.1
GIC (%) 10.0
JP Morgan Chase (%) 7.0
Fidelity International (%) 6.0
Free Float (%) 41.9
Avg. Daily Vol.(‘000) 3,231
Page 76
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Li Ning
Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Turnover 3,181 4,349 6,042 7,291 Net Fixed Assets 157 340 444 537
Cost of Goods Sold (1,672) (2,266) (3,157) (3,803) Invts in Associates & JVs 12 30 30 30
Gross Profit 1,509 2,083 2,885 3,488 Other LT Assets 107 237 452 445
Other Opng (Exp)/Inc (1,106) (1,473) (2,007) (2,362) Cash & ST Invts 849 861 1,053 1,562
Operating Profit 403 610 877 1,125 Other Current Assets 1,040 1,313 1,701 1,928
Other Non Opg (Exp)/Inc 0 0 0 0 Total Assets 2,165 2,781 3,679 4,502
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc (1) 9 9 15 ST Debt 0 100 100 100
Exceptional Gain/(Loss) 0 0 0 0 Other Current Liab 688 877 1,269 1,516
Pre-tax Profit 401 619 887 1,140 LT Debt 0 0 0 0
Tax (106) (145) (207) (266) Other LT Liabilities 60 59 59 59
Minority Interest 0 0 0 0 Shareholder’s Equity 1,417 1,745 2,251 2,827
Preference Dividend 0 0 0 0 Minority Interests 0 0 0 0
Net Profit 295 474 680 874 Total Cap. & Liab. 2,165 2,781 3,679 4,502
Net Profit before Except. 295 474 680 874
EBITDA 438 682 994 1,254 Non-Cash Wkg. Capital 351 435 432 412
Net Cash/(Debt) 849 761 953 1,462
Sales Gth (%) 29.8 36.7 38.9 20.7
EBITDA Gth (%) 47.9 55.5 45.8 26.1
Opg Profit Gth (%) 48.3 51.5 43.9 28.3
Net Profit Gth (%) 57.8 60.6 43.5 28.6
Effective Tax Rate (%) 26.4 23.4 23.4 23.4
Cash Flow Statement (RMB m)
Rates & Ratio
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Pre-Tax Profit 401 619 887 1,140 Gross Margins (%) 47.4 47.9 47.7 47.8
Dep. & Amort. 36 72 117 128 Opg Profit Margin (%) 12.7 14.0 14.5 15.4
Tax Paid (102) (106) (145) (207) Net Profit Margin (%) 9.3 10.9 11.2 12.0
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 23.0 30.1 34.0 34.4
Chg in Wkg.Cap. (43) (182) (65) (45) ROA (%) 15.7 19.2 21.0 21.4
Other Operating CF 1 (9) (10) (15) ROCE (%) 22.8 29.6 33.7 34.0
Net Operating CF 293 393 784 1,002 Div Payout Ratio (%) 39.9 49.9 40.0 40.0
Capital Exp.(net) (98) (235) (200) (200) Net Interest Cover (x) 294.9 1,895.6 1,134.8 NM
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 1.7 1.8 1.9 1.8
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 54.6 53.0 49.4 52.5
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 42.5 45.5 46.1 52.0
Other Investing CF 10 (96) (220) 5 Inventory Turn (avg days) 70.0 69.6 66.1 61.6
Net Investing CF (88) (331) (420) (195) Current Ratio (x) 2.7 2.2 2.0 2.2
Div Paid (88) (138) (173) (298) Quick Ratio (x) 2.2 1.7 1.6 1.8
Chg in Gross Debt 0 100 0 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 9 10 0 0 Capex to Debt (%) N/A 235.2 200.0 200.0
Other Financing CF (9) (19) 1 1 N.Cash/(Debt)PS (RMB) 82.3 73.6 92.2 141.5
Net Financing CF (88) (47) (172) (297) Opg CFPS (RMB) 32.7 55.7 82.2 101.3
Net Cashflow 118 15 192 509 Free CFPS (RMB) 19.0 15.3 56.5 77.6
Interim Income Statement (RMB m)
Segmental Breakdown
FY Dec 1H2006 2H2006 1H2007 2H2007 FY Dec 2006A 2007A 2008F 2009F
Turnover 1,372 1,809 1,909 2,439 Revenues (RMB m)
Cost of Goods Sold (703) (969) (979) (1,287) Footwear 1,253 1,859 2,546 3,174
Gross Profit 668 840 930 1,152 Apparel 1,685 2,218 2,926 3,472
Other Oper. (Exp)/Inc (496) (610) (664) (809) Accessories 243 272 570 645
Operating Profit 173 230 267 343 Total 3,181 4,349 6,042 7,291
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc 1 (2) 0 9
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 173 228 267 352
Tax (43) (63) (68) (77)
Minority Interest 0 0 0 0
Net Profit 130 165 198 275
Net profit bef Except. 130 165 198 275
Sales Gth (%) 1.9 31.8 5.6 27.8
Opg Profit Gth (%) 9.0 33.3 15.9 28.7
Net Profit Gth (%) 19.8 26.9 20.2 38.9
Gross Margins (%) 48.7 46.5 48.7 47.2
Opg Profit Margins (%) 12.6 12.7 14.0 14.1
Net Profit Margins (%) 9.5 9.1 10.4 11.3
Source: Company, DBS Vickers
Page 77

Regional Equity Strategy Q2 2008
Parkson
Bloomberg: 3368 HK | Reuters: 3368.HK
BUY HK$60.60 HSI : 22,465
Positive outlook
Price Target : 12m HK$ 108.19
Potential Catalyst: Robust organic expansion and strong M&A
potentials. An inflationary environment also supports higher commission
from concessionaires.
Analyst
Mavis Hui +852 2863 8879
mavis_hui@hk.dbsvickers.com
Price Relative
HK$
98.80
88.80
78.80
68.80
58.80
48.80
38.80
28.80
18.80
8.80
N ov-05 M ay-06 N ov-06 M ay-07 N ov-07
Forecasts and Valuation
Parkson (LHS) R e la tiv e H SI IN D E X (R H S)
Relative
Index
FY Dec (RMBm) 2006A 2007A 2008F 2009F
Turnover 2,184 3,060 4,085 5,324
EBITDA 797 1,130 1,491 1,913
Pretax Profit 732 943 1,345 1,779
Net Profit 461 676 994 1,314
EPS (HK$) 0.93 1.36 1.99 2.64
EPS Gth (%) 85.8 46.2 47.1 32.2
PE (x) 65.3 44.7 30.4 23.0
P/Cash Flow (x) 38.6 34.5 23.4 17.9
EV/EBITDA (x) 37.8 27.6 19.8 14.7
DPS (HK$) 0.47 0.67 1.00 1.32
Div Yield (%) 0.8 1.1 1.6 2.2
Net Gearing (%) cash 0.3 cash cash
ROE (%) 23.0 27.0 32.7 36.3
Book Value (HK$) 4.0 5.0 5.9 7.1
P/Book Value (x) 15.0 12.0 10.2 8.5
519
419
319
219
119
19
Story: Parkson has recently released a strong set of
results for FY07, with revenue growing 40% y-o-y and
earnings up 47%. Overall same-store sales growth
continued to improve to 18.4% (FY06: 17.1%). Net
margin also widened 1ppt to 22.1%, attributed to better
operating efficiency and a lower effective tax rate (down
7.1ppt to 22.8%). Specifically, gross margin for direct
sales rose 0.5ppt to 17.1% and its concessionaire rate
remained at a respectable level of approximately 20%.
Point: The company remains confident in maintaining
15-18% same-store sales CAGR and c.20% net margin
over the medium-term. Sitting on over RMB1.2bn net
cash, it continues to pursue the acquisition of minority
interests from existing joint venture partners and
exploring other M&A opportunities to boost expansion.
Relevance: Given a lucrative business model, ample
M&A potential and a positive outlook for China’s
domestic consumption, Parkson remains among our top
picks in the more resilient retail sector despite high
market volatility in recent months. Trading at 44%
discount to our target price of HK$108.19, we reiterate our
BUY rating for Parkson.
Earnings Rev (%) - -
Consensus EPS (HK$) 1.90 2.53
Sector : Consumer
Principal Business: Operates an extensive network of 42 Parkson
department stores in China
At A Glance
Issued Capital (m shrs) 557
Mkt. Cap (HK$m/US$m) 33,774 / 4,342
Major Shareholders
Parkson Holdings (%) 53.5
JPMorgan Chase (%) 11.3
Deutsche Bank Aktiengesellschaft (%) 5.1
Free Float (%) 30.1
Avg. Daily Vol.(‘000) 1,646
Page 78
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Refer to important disclosures at the end of this report

Income Statement (RMB m) Balance Sheet (RMB m)
Regional Equity Strategy Q2 2008
Parkson
FY Dec 2006A 2007A 2008F 2009F
Turnover 2,184 3,060 4,085 5,324
EBITDA 797 1,130 1,491 1,913
Depr/Amort (89) (114) (127) (134)
Opg Profit 708 1,017 1,364 1,778
Associates Inc 1 1 1 1
Interest (Exp)/Inc 24 (74) (19) 0
Exceptionals - - - -
Pre-Tax Profit 732 943 1,345 1,779
Tax (219) (215) (309) (414)
Minority Interest (52) (52) (42) (52)
Net Profit 461 676 994 1,314
Sales Growth (%) 79.8 40.1 33.5 30.3
Net Profit Gr (%) 85.8 46.7 47.1 32.2
EBITDA Mgn (%) 36.5 36.9 36.5 35.9
Opg Mgn (%) 32.4 33.2 33.4 33.4
Tax Rate (%) 29.9 22.8 23.0 23.3
FY Dec 2006A 2007A 2008F 2009F
Fixed Assets 750 819 942 998
Other LT Assets 3,065 3,991 3,939 3,893
Cash/ST Investments 3,271 2,860 4,600 5,886
Other Current Assets 388 538 718 936
Total Assets 7,474 8,208 10,199 11,713
ST Debt 84 - - -
Other Current Liab 1,596 2,004 2,652 3,435
LT Debt 3,134 2,852 2,852 2,852
Other LT Liab 341 280 340 411
Minority Interests 92 79 83 87
Shareholders' Equity 2,228 2,789 3,286 3,943
Total Capital 7,474 8,004 9,214 10,728
Share Capital (m) 552 554 554 554
Net Cash/(Debt) 54 (889) 850 2,137
Working Capital 1,979 1,394 2,665 3,387
Net Gearing (%) cash 34% cash cash
Cash Flow Statement (RMB m) Segmental Breakdown (RMB m)
FY Dec 2006A 2007E 2008F 2009F
Profit before tax 732 943 1,345 1,779
Tax Paid (216) (213) (306) (409)
Depr/Amort 89 114 127 134
Chg in Wkg Cap 320 363 576 695
Othr Non-Cash (59) (235) (307) (325)
Operational CF 866 972 1,435 1,876
Capex (74) (183) (250) (190)
Assoc, MI, Invsmt (2,179) (633) 280 269
Investment CF (2,253) (816) 30 79
Net Chg in Debt 2,883 532 - -
New Capital - - - -
Dividend (226) (333) (497) (657)
Other financing CF (53) (766) 772 (11)
Financing CF 2,604 (567) 275 (668)
Chg in Cash 1,216 (411) 1,740 1,287
Chg in Net Cash (1,792) (943) 1,740 1,287
FY Dec 2006A 2007A 2008F 2009F
Sales of goods -
direct sales
758 1,044 1,392 1,810
Commission from
concessionaire sales
1,027 1,511 2,021 2,640
Consultancy and
management fees
42 33 43 56
Rental income 115 139 185 241
Other revenue 242 333 444 577
Total sales 2,184 3,060 4,085 5,324
Source: Company, DBS Vickers
Page 79

Regional Equity Strategy Q2 2008
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)
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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 128

Regional Equity Strategy Q2 2008
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Page 129

Regional Equity Strategy Q2 2008
Country Assessment
Malaysia
Winds of change
KLCI Current : 1,230
KLCI 3 / 12 mths Target : 1,260 / 1,360
Expected Return : +2.4% / +10.6%
The benchmark Kuala Lumpur Composite Index (KLCI)
started the year strongly, driven by robust CPO prices and
optimism of the Government’s planned acceleration of
the Ninth Malaysia Plan projects. Post-election, the stock
market suffered its worst one-day performance since the
Asian financial crisis with the KLCI plunging 123 points
(9.5%) on 10 Mar.
The short-term uncertainty over politics and economic worries has resulted in
excessive selldown among certain stocks. Over the longer term, once political
uncertainties are cleared, we expect a push for greater focus on
implementation, transparency, open bidding and stepped-up drive against
corruption.
Although there could be delays in project implementation, we believe
construction stocks such as Gamuda, IJM and WCT Engineering have been overpenalised.
Sectors relatively unaffected by the political changes were also
indiscriminately sold down. As such, we believe it is a good opportunity to
accumulate stocks in oil & gas, plantation and banking where the fundamentals
are still strong. Our picks within these sectors include KNM, IOI Corp, KL
Kepong, Sime Darby, Public Bank, BCHB, AMMB and Hong Leong Bank.
Wong Ming Tek . (603) 2711 2222 . mingtek@hwangdbsvickers.com.my
Malaysia Research Team . (603) 2711 2222 . general@ hwangdbsvickers.com.my
Page 80
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Country Assessment
Market Data
Indices Closed Chng Net
-1 mth
-1 mth
(%)
-3 mth
(%)
-6 mth
(%)
-12 mth
(%)
52-Week
High Low
KLCI 1,230 (141) (10) (14) (7) (0) 1,525 1,142
KLCON Index 235 (31) (12) (24) (20) (13) 338 210
KLCSU Index 308 (17) (5) (8) (2) 7 353 269
KLFIN Index 9,774 (674) (6) (10) (7) (4) 11,636 8,963
KLIND Index 2,524 (399) (14) (15) (3) 6 3,201 2,265
KLPRO Index 95 (8) (7) (16) (13) (8) 123 92
KLPLN Index 7,287 (1,023) (12) (5) 15 50 8,949 4,769
KLPRP Index 754 (136) (15) (25) (29) (15) 1,223 729
KLSER Index 163 (21) (11) (16) (8) (3) 205 155
KLTEC Index 21 (1) (5) (11) (18) (28) 30 20
FBM2B Index 5,787 (469) (7) (13) (15) n.a. 7,318 5,536
FBMSC Index 9,799 (1,001) (9) (18) (11) 7 12,780 8,874
Transactions:
YTD
Volume (bn) 432
Value (MYR bn) 684
Source: Bloomberg
Market Review
The benchmark Kuala Lumpur Composite Index (KLCI)
started the year strongly on the back of robust CPO
prices and optimism of the Government’s planned
acceleration of the Ninth Malaysia Plan projects. After
breaching a new all-time high of 1,516 on 11 th January
08, the KLCI succumbed to profit-taking on worries
plaguing regional markets such as the US subprime issue
and concerns over global economic growth.
The country’s 12 th General Election was held on 8 th
March 08. The Barisan Nasional (BN) retained control
over the Federal Government by winning 140 out of 222
(or 63.1%) parliamentary seats. This was below the twothird
majority threshold and lower than its landslide
victory of 90.9% in 2004.
The loose opposition alliance of Parti Keadilan Rakyat
(PKR: 31 parliamentary seats, 40 state seats) which is led
by ex-Deputy Prime Minister Anwar Ibrahim, Democratic
Action Party (DAP: 28 parliamentary seats, 73 state
seats), and Parti Islam Se Malaysia (PAS: 23
parliamentary seats, 83 state seats) won over Penang,
Kedah, Selangor, Perak and retained Kelantan. Of the
total number of 505 state seats at stake, BN won only
307 (60.8%).
BN’s slight victory added more gloom to the already
weak market, sending the Kuala Lumpur Composite
Index (KLCI) to a 12-month low of 1,173 points. Postelection,
the stock market suffered its worst one-day
performance since the Asian financial crisis with the KLCI
plunging 123 points (9.5%) on 10 Mar.
The loss of Kedah, Penang, Perak and Selangor cast
doubts over the fate of the major infrastructure projects
planned for implementation in the states.
During the quarter, crude palm oil (CPO) futures closed at
a fresh record of RM4,312/t. This was backed by China’s
high volume purchases since late Jan 2008 after
snowstorms damaged rapeseed supply in certain regions.
However, prices began to ease during the first week of
March. YTD CPO futures prices averaged RM3,706/t.
Crude oil hit an all-time high of USD112/barrel. The
Ringgit appreciated from RM3.31/USD to RM3.20/USD
in February.
Page 81

Regional Equity Strategy Q2 2008
Country Assessment
In terms of corporate news, Gamuda tumbled 27%
over three days after managing director Dato’ Lin Yun
Ling sold 70m shares, cutting his stake to 1.7% from
5.2%. The steep fall that followed the news shaved
Gamuda’s market value off by some RM2.6b.
On the economic front, gross domestic product grew
7.3% in 4Q07 (6.3% in 2007), driven by strong private
consumption spending and investment activities. Bank
Negara Malaysia expects GDP growth of 5-6% in 2008.
the growth expectation arising from potential project
delays. This could be offset by higher than expected
CPO prices. For every RM100/mt increase in our CPO
assumption (of RM3,100/mt currently), our plantation
sector earnings increases by 2% (+0.4 ppt for universe
earnings).
In 2009, our universe growth forecast is relatively
slower at 10% on a higher earnings base and lower
CPO assumptions (of RM2,800/mt).
Growth and Valuation
We expect 18% earnings growth for our universe in
2008 largely driven by the banking, plantation and
construction sectors. There is downside risk arising from
potential delays of mega projects following the election
results. We estimate there could be a 2ppt reduction in
Based on our estimates, the KLCI is currently trading at
12x 09 earnings, which is at the lower end of its fiveyear
historical range. We expect better performance
towards 2H08 on improved visibility on the political
situation with a KLCI year-end target of 1,360 implying
14x 09 earnings.
DBS Vickers Universe: Earnings Growth by Sector
Earnings growth (%)
PER (x)
2008 2009 2008 2009
Banking 19.1 9.5 12.5 11.4
Consumer 34.0 27.3 17.9 14.1
Manufacturing/ Industrial 1.0 15.9 6.5 5.6
Media n.m. 97.2 75.1 38.1
Motor 26.0 11.6 12.2 10.9
Oil & Gas 60.1 43.8 13.4 9.3
Conglomerates 24.3 14.9 17.0 14.8
Construction 62.4 23.2 13.2 10.7
Concessionaires 4.9 4.1 13.4 12.8
Gaming 12.9 4.1 13.8 13.3
Plantation 38.4 5.1 17.8 17.0
Power 0.7 (2.1 ) 9.6 9.8
Property 12.1 32.8 11.5 8.7
Telecommunication 16.3 11.0 15.8 14.3
Technology 55.0 45.8 3.2 2.2
Transport/ Logistic 10.5 11.5 11.3 10.2
HDBSVR Universe 18.0 10.0 13.6 12.3
Notes:
(1) Companies with financial year ending Jan -- Mar classified as preceding year’s results.
Source: DBS Vickers
Strategy
Short term uncertainties. The 12 th General Election
results could set in motion many changes for Malaysian
politics. Following the 8 th March 08 results, several issues
have been raised, including whether there would be a
review of previous government policies and plans and
the working relationship between the opposition states
and federal government. More significantly, only time
will tell if the positions of Abdullah Ahmad Badawi (the
UMNO president cum Prime Minister) and/or Najib Razak
(the UMNO deputy president cum Deputy Prime
Minister) will be challenged in the upcoming UMNO poll.
And given the often-held perception about the
intertwining links between the corridors of political
power and the corporate world in the Malaysian
context, the intense political lobbying and the ensuing
outcome of the UMNO party election may fuel
speculative buying on selective counters.
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Regional Equity Strategy Q2 2008
Country Assessment
Longer-term positives. Over the longer term, once
political uncertainty is cleared, we expect a push for
greater focus on implementation, transparency, open
bidding and stepped-up drive against corruption.
Nevertheless, a review of past UMNO party elections
showed that the effect on the broad stock market -- as
measured by the benchmark Kuala Lumpur Composite
Index (KLCI) -- is not so predictable (before the polls)
possibly due to many other factors at play. Going back
to 1993 to cover four party elections, the KLCI was up
on three occasions (posting an average return of 7.3%
one month prior to election date) but fell in one instance
(minus 1.4% in 2000).
KLCI performances in UMNO party election years
KLCI
1400
1300
1200
1100
1000
900
800
700
600
500
4-Nov-92
4-Jan-93
4-Mar-93
4-May-93
4-Jul-93
4 Nov 1993
4-Sep-93
4-Nov-93
4-Jan-94
4-Mar-94
4-May-94
4-Jul-94
4-Sep-94
4-Nov-94
KLCI 10 Oct 1996
1400
1250
1100
950
800
650
10-Oct-95
10-Dec-95
10-Feb-96
10-Apr-96
10-Jun-96
10-Aug-96
10-Oct-96
10-Dec-96
10-Feb-97
10-Apr-97
10-Jun-97
10-Aug-97
10-Oct-97
T-3 months T-1 month T-1 week
25.5% 13.6% 3.2%
T-3 months T-1 month T-1 week
0.1% 2.4% -0.8%
KLCI 11 May 2000
1100
KLCI
1000
23 Sep 2004
1000
950
900
900
800
850
700
800
600
750
500
700
11-May-99
11-Jul-99
11-Sep-99
11-Nov-99
11-Jan-00
11-Mar-00
11-May-00
11-Jul-00
11-Sep-00
11-Nov-00
11-Jan-01
11-Mar-01
11-May-01
23-Sep-03
23-Nov-03
23-Jan-04
23-Mar-04
23-May-04
23-Jul-04
23-Sep-04
23-Nov-04
23-Jan-05
23-Mar-05
23-May-05
23-Jul-05
23-Sep-05
T-3 months T-1 month T-1 week
-7.9% -1.4% 1.5%
Source: Bloomberg, HwangDBS Vickers Research
T-3 months T-1 month T-1 week
3.5% 6.0% -0.6%
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Regional Equity Strategy Q2 2008
Country Assessment
Potential delay in unawarded projects. Since the 8 th
March elections, construction stocks have taken a hit on
concerns that there would be a review of mega projects
in opposition states and delays to project
implementation. Such a review may result in a slower
than expected rollout of the Ninth Malaysia Plan, which
was already behind schedule since late last year.
But selldown overdone. However, we note this could
be potentially offset by acceleration of mega projects in
states retained by Barisan Nasional such as Johor
(Iskandar Development Region projects), Sabah and
Sarawak (Bakun, Sarawak Corridor projects). In any case,
contractors under our coverage won RM23b worth of
new works in 2007 and have healthy secure orderbooks.
Any delays arising from land acquisition will just see
earnings being recognised in a Iater year. In our opinion,
the selldown in construction stocks under our coverage
since the elections has been overdone for potential
delays in secured projects. Over the longer term, greater
focus on implementation, open bidding and
transparency would be positive for contractors such as
Gamuda, IJM, and WCT Engineering.
Keen on oil & gas, banks. In our opinion, the oil & gas
sector’s selldown presents a good buying opportunity
for investors with longer-term horizons, as the positive
outlook for the sector has not changed. Our picks here
include KNM and Alam Maritim. In the Banking sector,
we like selected banks such as Public Bank, BCHB and
Hong Leong Bank.
High yielding companies
Price
Div Yld
FY08
FY09
Public Bank 10.40 7.1 8.6
Evergreen Fibreboard 1.30 5.8 6.9
Berjaya Sports Toto 5.05 5.9 6.4
Guinness 5.50 5.7 6.1
BAT 42.00 5.8 6.0
PLUS Expressway 3.10 5.1 5.6
Gamuda 3.12 5.5 5.5
Tenaga Nasional 7.35 5.3 5.3
Malaysia Airports 2.86 4.9 5.1
AMMB Holdings 3.58 4.0 5.1
CB Industrial 4.02 3.9 4.9
Digi.Com 24.40 4.5 4.9
YTL Power 2.45 4.6 4.6
Tan Chong Motor 1.61 4.5 4.5
Axis REIT 1.70 5.5 4.5
*For YTL Power : Excludes potential yield of 4% from potential share
distribution.
Source: HwangDBS Vickers Research
Special situations. Although the restructuring of
Malaysia Airports has been delayed, the Group’s
stronger-than-expected results and dividends are
reflective of positive things to come post-restructuring.
We believe higher dividends and distributions in Litrak
could be in the works to help boost yields.
Favourable dynamics for plantations. We continue
to like the plantation sector on the sector’s favourable
supply-demand dynamics, although there may be a
near-term correction after February’s sharp surge in CPO
prices. Our large cap picks are IOI Corp, KL Kepong and
Sime Darby.
Defensive businesses; high yields. Given the nearterm
uncertain market conditions, investors with a
lower risk appetite may want to consider stocks with
relatively more defensive businesses including PLUS,
YTL Power and Litrak. For investors looking for highyield
stocks, we recommend Public Bank, Axis Reit,
and Berjaya Sports Toto.
Page 84

Regional Equity Strategy Q2 2008
Country Assessment
Selected large cap picks (sorted by market capitalisation)
Mkt Price YTD Target Target Earnings gwth CAGR PER (x) Div Yield (%)
Cap (RM) chg Price Return
(%)
(RMm) 25-Mar (%) (RM) (%) 08F 09F 07-09F 08F 09F 08F 09F
Sime Darby 55,588 9.25 (22.3) 12.40 34.1 21.6 16.6 19.1 17.4 14.9 2.6 3.2
IOI Corporation 41,354 6.75 (12.9) 8.70 28.9 35.4 11.1 22.6 20.7 18.6 2.4 2.7
Public Bank 36,732 10.40 (5.5) 13.20 26.9 16.8 15.9 16.4 12.7 11.0 7.1 8.6
BCHB 33,203 9.85 (10.5) 12.90 31.0 29.7 8.7 18.7 12.0 11.0 3.5 3.5
Tenaga Nasional 31,851 7.35 (23.4) 9.80 33.3 0.5 (3.1) (1.3) 8.9 9.1 5.3 5.3
Genting 24,073 6.50 (17.7) 8.80 35.4 13.5 (0.2) 6.4 14.1 14.1 1.0 1.1
Resorts World 19,525 3.34 (13.9) 4.70 40.7 20.3 6.7 13.3 15.8 14.8 1.8 2.1
Digi.Com 18,300 24.40 (1.6) 30.00 23.0 7.3 6.6 6.9 16.2 15.2 4.5 4.9
KL Kepong 17,827 16.70 (4.0) 20.60 23.4 38.6 1.6 18.7 18.5 18.2 2.8 2.8
PLUS Expressway 15,500 3.10 (5.5) 3.95 27.4 (17.0) 4.2 n.m. 15.0 14.4 5.1 5.5
YTL Power 13,177 2.45 (9.3) 3.00 22.4 1.2 1.3 1.2 14.9 14.7 4.6 4.6
PPB Group 11,262 9.50 (13.6) 13.50 42.1 37.5 7.3 21.4 15.4 14.4 3.6 3.8
RHB Capital 10,251 4.76 (18.6) 7.40 55.5 12.1 9.0 10.6 10.9 10.0 2.0 2.3
AMMB Holdings 9,572 3.58 (5.8) 5.75 60.6 (362.1) 44.2 n.m. 14.3 9.9 4.0 5.1
Hong Leong Bank 9,244 5.85 (7.9) 8.10 38.5 28.5 14.2 21.1 11.6 10.2 3.0 3.1
Tanjong 6,412 15.90 (14.1) 20.10 26.4 3.4 12.5 7.9 12.2 10.8 3.9 4.2
Gamuda 6,251 3.12 (35.3) 4.50 44.2 83.1 38.6 59.3 18.0 13.0 5.5 5.5
Asiatic Development 6,049 8.00 (7.5) 9.35 16.9 37.0 (9.2) 11.6 12.8 14.1 1.8 1.6
KNM Group 5,451 5.20 (32.5) 7.60 46.2 107.7 34.6 67.2 13.8 10.2 0.6 0.6
IJM Corp 4,812 5.60 (34.9) 10.30 83.9 21.4 11.8 16.5 13.5 12.1 1.9 1.9
Malaysia Airports 3,146 2.86 (5.3) 3.55 24.1 13.6 4.6 9.0 10.2 9.8 4.9 5.1
WCT Eng 2,318 3.34 (20.0) 5.35 60.2 50.7 10.6 29.1 10.6 9.6 1.7 1.7
Source: HwangDBS Vickers Research
Page 85

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Aviation & related
Underweight
Banks
Overweight
Construction
Overweight
Concessionaires
Overweight
Gaming
Neutral
High jet fuel prices and concerns over global economic slowdown will likely
continue to weigh on the aviation sector. Although airlines could increase fuel
surcharges to pass through gradual increases in cost, this may affect load
factors. Malaysia Airports (MAHB)’s restructuring has taken longer than
expected. However, we view the higher dividend as a good sign of things to
come after the restructuring. The Group is enlarging its retail and F&B space,
which will support revenue growth for the group.
We remain positive on Malaysian banks. We expect 2008 system loan growth
of 8.0-8.5% with business loans to grow as high as 14% and retail loans to
maintain their growth momentum, estimated at 8-9%. We expect PBKF to
maintain its market share and strong earnings growth. We begin to see
Malaysian banks moving at a faster pace beyond its shores, with BCHB taking
a 19.99% stake in Yingkou Bank after Hong Leong Bank’s 19.99% stake in
Chengdu Bank. Maybank clinched the bid for BII in Indonesia. As for M&A
locally, we do not think there would be a full-fledged takeover of other
banking groups, but we see the emergence of strategic partners, mainly
international strategic investors, in the larger scheme of things. EON Cap is in
the midst of completing the 20.2% stake with Primus. ANZ is still managing
AMMB and strategically positioning itself. We think AMMB has reached a
consolidation mode and hence not extremely active in business activities. RHB
Cap has also received approval from regulators for Abu Dhabi Commercial
Bank to be its 25% strategic partner.
Following the announcement of the General Election results, construction
stock share prices have lost ground on concerns that there would be a review
of mega projects in opposition states and delays to project implementation.
Such a review may result in a slower than expected rollout of the Ninth
Malaysia Plan. In our opinion, the selldown of stocks under our coverage is
overdone for potential delays in secured projects. Over the longer term,
greater focus on implementation, open bidding and transparency would be
positive for contractors such as Gamuda, IJM and WCT Engineering.
We like this sector, given attractive yields and capital management potential.
There is also upside from current low traffic volume assumptions. For PLUS,
higher petrol prices may be delayed -- which we believe is positive for the
Group. Net dividend yields have increased to 5%. Litrak has secured SC
approval for its debt refinancing. In our opinion, this could pave the way for
more capital management potential.
Defensive in nature, we believe the appeal of the number forecast operator
(NFO) players lay in its attractive free cashflow yields and high dividend
payouts, as a rule of thumb. While the political landscape has seen opposition
Islamic members sworn in as Mentris Besar (namely Kedah and Perak), we
reckon only the Kedah state will likely face possible NFO outlets closure.
Nevertheless, the impact is marginal i.e. only 2% of total NFO revenue is
derived from Kedah. Perak, a predominantly ethnic Chinese area, in our
opinion, will remain status quo in terms of state law. Perak accounts for c. 15-
20% of total NFO revenue. As for Resorts World -- Malaysia’s only licensed
casino operator -- the appeal lies in its rising cash horde of over RM3b (US$1b)
against a backdrop of rising opportunities in the region and globally with the
credit crunch. We believe this may potentially lead to some exciting regional
expansion in the near future.
Malaysia Airports, MAS
Public Bank, BCHB,
Hong Leong Bank
Gamuda, IJM, WCT
Litrak, PLUS
Resorts World, Genting
Page 86

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Logistics
Underweight
Motor
Underweight
Oil & Gas
Overweight
Plantation
Overweight
Property
Neutral
We foresee a dim outlook for petroleum tanker rates in the medium term.
This is despite a short-term spike in Dec 07 following an oil spill incident near
the port of Daesen, South Korea. We expect rates to remain weak over the
next two years as supply of new vessels should continue to pressure rates.
However, the mandatory scrapping of single hull vessels by 2010 could
strengthen the rates towards 2010. Hence, we project rates would soften by
8% in FY08 and another 10% in FY09. We expect MISC’s expanding heavy
engineering and offshore divisions to partly cushion the weakness in
petroleum tanker rates. The Group is a key beneficiary of Petronas’ increased
focus on deepwater projects.
For 2008, we reckon new vehicle sales will likely grow by 6% y-o-y to
516,773 units (2007: 487,176 units, 2006: 505,339 units). The modest
growth is expected to be driven by:- (1) a firm economic outlook (GDP
growth of 6.2% for 2008) and positive consumption pattern; (2) mass model
launches; and (3) limited downside in the event there is a fuel hike. In terms
of profitability, we expect auto players to benefit from a stronger Ringgit in
the 1H but expect the 2H to experience margin squeeze from higher
electricity, fuel, raw material costs. The longer-term outlook remains
unexciting as rising raw material costs and keen price competition may
impede industry earnings growth.
We remain positive on the oil and gas sector given the increased capex by oil
majors, supported by high crude oil price of above US$80/barrel. Petronas’
increased capex will continue to fuel local projects, while the oil and gas
developments in China, South East Asia and the Middle East will provide
ample opportunities for Malaysian oil and gas service providers. The
unexpected Malaysian general election result is unlikely to affect the sector
given that Petronas is still under the control of the Federal government, and
the high capex is sustainable given the increased exploration and production
activities by Petronas over the next 20 years. We expect orderbook
replenishment to remain promising for the players and charter rates for
vessels to sustain due to growing demand and limited new builds.
Following a swift jump in February, CPO prices have now dropped just as
quickly. While the supply-demand fundamentals remain strong (i.e. tight
supply and strong demand), we believe some correction in the CPO prices
was overdue. We are maintaining our average CPO price forecasts at
RM3,100 this year and RM2,800 next year. Bear in mind that our DCFderived
target prices are based on free cash flow forecasts from 2009
onwards, using significantly lower CPO price assumptions than current price
levels.
The weak sentiment on the property sector worsened after the post- election
surprise, which escalated the political uncertainties. Nevertheless, we believe
the property counters have been indiscriminately sold down across the board,
presenting an attractive entry point for investors to accumulate. The sector
was bashed down largely due to concerns over cyclical sectors such as
property globally and an unfavourable stock market outlook rather than the
fundamental weaknesses in the Malaysia property sector, which in our view,
still offers attractive yield and has one of the most liberal rulings on foreign
ownership. We believe positives from the measures announced by the
government should support property sales, namely relaxation of Foreign
Investment Committee (FIC) rulings, easing of limit on loans taken by
foreigners, and the abolishment of Real Property Gain Tax. The mass market
segment is also expected to pick up with the monthly withdrawal from EPF
Account 2 and stamp duty waiver for properties below RM250,000 effective
January 2008. Top picks include Sunrise and SP Setia.
MISC
MBM Resources
KNM, Alam Maritim
IOI Corp, KL Kepong,
Sime Darby,
IJM Plantations,
TSH Resources
Sunrise, SP Setia, MRCB
Page 87

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Steel
Overweight
Telco
Overweight
Power
Overweight
REITS
Neutral
We believe near term steel prices would remain on an uptrend supported by
shortage of supply due to China’s enforcing closure on small mills, and higher
raw material prices. Despite higher scrap cost, the stronger increase in prices
has resulted in higher margins. Valuations remain compelling at below 7x
forward earnings for Southern Steel and Kinsteel.
We expect subscriber growth of 11% largely supported by more attractive
packages, and introduction of mobile number portability (MNP). TM
International, the cellular division of TM that is being spun-off for a separate
listing, saw the entry of Jamaluddin Ibrahim (ex-CEO of Maxis) while Digi is
expecting the return of (former CFO and CMO) Johan Dennelind to helm Digi
in Apr 08. Looking forward, we expect the launch of WiMax, listing of TMI
and transfer of 3G spectra to Digi (from Time dotCom) in 2Q08, to create
more excitement in the telco sector.
We believe that the unexpected election results in Malaysia could lead to
potential delays in the implementation of a cost pass through mechanism for
TNB. Nevertheless, we believe that the tariff adjustment is imminent, given the
rise in gas and coal costs. We believe the selling for TNB has been excessive
and at the current price level, TNB is trading at attractive FY09F P/E of 9x with
net yield of 5.4%.
We favour YTLP for its defensive earnings and stable dividend stream with an
attractive 9% net yield based on cash dividend and assumed 1-for-25 share
distribution. YTLP is also well poised for further value-accretive acquisitions of
regulated assets given its gross cash of RM7.6b as at 1H08.
Fundamentals of MREITs are intact despite the increased risk aversion towards
the property sector. We expect rental demand for strategically located
commercial buildings in Malaysia to remain strong given the favourable
supply-demand dynamics. We like MREITs for their defensive earnings quality
with attractive average FY08F gross yield of 7.3%, or yield spread of 3.6%,
against the 10-year MGS. We can expect new acquisition growth due to the
low borrowing cost of 4-5% against net property yields of 6-6.5% for
commercial buildings. We prefer MREITs with attractive underlying assets,
good acquisition pipeline and proven acquisition track record such as Axis REIT.
Kinsteel, Southern Steel
Digi.com, Telekom Malaysia
YTL Power, Tenaga
Nasional
AXIS REIT
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Regional Equity Strategy Q2 2008
Country Assessment
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Page 89

Regional Equity Strategy Q2 2008
PLUS Expressways
Bloomberg: PLUS MK | Reuters: PLUE.KL
BUY RM3.10 KLCI : 1,229.95
Price Target : 12 Months RM 3.95
Potential Catalyst: Higher traffic volume growth, value-enhancing
acquisitions
Analyst
Wong Ming Tek 603 2711 0956
mingtek@hwangdbsvickers.com.my
Price Relative
3.80
3.60
3.40
3.20
3.00
2.80
2.60
2.40
2.20
2.00
RM
Relative Index
2004 2005 2006 2007 2008
211
191
171
151
131
111
91
71
The route to higher dividends
Story: We believe the market has priced in the impact
of a petrol price increase for PLUS. Any delays in the
petrol price increase is good for PLUS’s traffic growth.
Every 1% change in traffic volume growth lifts our net
profit forecast by 3%.
Point: Despite higher taxation (from provision for
deferred taxation) this year, the Group’s cashflow is not
affected. We expect average pretax profit growth of 9%
p.a. over the next three years. The Group has targeted at
least a 12% increase in dividends this year. This implies
15.7 sen net dividend (5.1% yield) for FY08 from 14.0
sen in FY07.
Relevance: We maintain our Buy call and RM3.95 price
target, based on 10% discount to DCF-value. Catalysts
for the stock include higher traffic and dividends and
value-enhancing acquisitions.
PLUS Expressway (LHS) Relative KLCI INDEX (RHS)
Forecasts and Valuation
FY Dec (RM m) 2007A 2008F 2009F 2010F
Turnover 2,282 2,819 2,872 2,947
EBITDA 1,992 2,256 2,328 2,414
Pre-tax Profit 1,308 1,421 1,506 1,603
Net Profit 1,248 1,052 1,114 1,186
Net Pft (Pre Ex.) 1,178 1,052 1,114 1,186
EPS (sen) 25.0 21.0 22.3 23.7
EPS Pre Ex. (sen) 23.6 21.0 22.3 23.7
EPS Gth Pre Ex (%) 7 (11) 6 6
Diluted EPS (sen) 25.0 21.0 22.3 23.7
Net DPS (sen) 14.0 15.7 16.5 17.3
BV Per Share (sen) 106.8 112.2 118.0 124.4
PE (X) 12.4 14.7 13.9 13.1
PE Pre Ex. (X) 13.2 14.7 13.9 13.1
P/Cash Flow (X) 10.0 11.2 10.6 10.0
EV/EBITDA (X) 11.6 10.2 9.9 9.4
Net Div Yield (%) 4.5 5.1 5.3 5.6
P/Book Value (X) 2.9 2.8 2.6 2.5
Net Debt/Equity (X) 1.4 1.4 1.3 1.2
ROAE (%) 25.3 19.2 19.4 19.6
Consensus EPS (sen): 23.8 24.9 25.5
Sector : Concessionaire
Principal Business: Toll road concessionaire
At A Glance
Issued Capital (m shrs) 5,000
Mkt. Cap (RMm/US$m) 15,500 / 4,851
Major Shareholders
Khazanah Nasional (%) 64.1
EPF (%) 10.4
Free Float (%) 25.0
Avg. Daily Vol.(‘000) 2,769
Page 90
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
PLUS Expressways
Income Statement (RM m) Balance Sheet (RM m)
FY Dec 2007A 2008F 2009F 2010F FY Dec 2007A 2008F 2009F 2010F
Turnover 2,282 2,819 2,872 2,947 Net Fixed Assets 11,769 11,789 11,694 11,582
Cost of Goods Sold (676) (937) (927) (926) Invts in Associates & JVs 0 0 0 0
Gross Profit 1,606 1,882 1,944 2,022 Other LT Assets 184 184 184 184
Other Opng (Exp)/Inc 87 44 39 31 Cash & ST Invts 2,481 2,588 2,728 2,950
Operating Profit 1,692 1,926 1,983 2,052 Other Current Assets 1,459 2,009 2,569 3,136
Other Non Opg (Exp)/Inc 0 0 0 0 Total Assets 15,893 16,570 17,175 17,852
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc (455) (505) (478) (450) ST Debt 1,497 1,497 1,497 1,497
Exceptional Gain/(Loss) 70 0 0 0 Other Current Liab 342 342 342 342
Pre-tax Profit 1,308 1,421 1,506 1,603 LT Debt 8,583 8,683 8,683 8,683
Tax (60) (370) (391) (417) Other LT Liabilities 121 430 744 1,099
Minority Interest 0 0 0 0 Shareholder’s Equity 5,340 5,608 5,899 6,220
Preference Dividend 0 0 0 0 Minority Interests 10 10 10 10
Net Profit 1,248 1,052 1,114 1,186 Total Cap. & Liab. 15,893 16,570 17,175 17,852
Net Profit before Except. 1,177 1,052 1,114 1,186
EBITDA 1,992 2,256 2,328 2,414 Non-Cash Wkg. Capital 1,117 1,666 2,226 2,793
Net Cash/(Debt) (7,599) (7,592) (7,452) (7,230)
Sales Gth (%) 9.2 23.5 1.9 2.6
EBITDA Gth (%) 11.9 13.3 3.2 3.7
Opg Profit Gth (%) 9.4 13.8 3.0 3.5
Net Profit Gth (%) 12.9 (15.7) 5.9 6.5
Effective Tax Rate (%) 4.6 26.0 26.0 26.0
Cash Flow Statement (RM m)
Rates & Ratio
FY Dec 2007A 2008F 2009F 2010F FY Dec 2007A 2008F 2009F 2010F
Pre-Tax Profit 1,308 1,421 1,506 1,603 Gross Margins (%) 70.4 66.8 67.7 68.6
Dep. & Amort. 281 330 345 362 Opg Profit Margin (%) 74.2 68.3 69.1 69.6
Tax Paid (60) (60) (60) (60) Net Profit Margin (%) 54.7 37.3 38.8 40.2
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 25.3 19.2 19.4 19.6
Chg in Wkg.Cap. 9 0 0 0 ROA (%) 8.8 6.5 6.6 6.8
Other Operating CF (108) (390) (454) (484) ROCE (%) 14.6 10.9 11.0 11.3
Net Operating CF 1,429 1,301 1,336 1,421 Div Payout Ratio (%) 56.1 74.5 73.9 72.9
Capital Exp.(net) (391) (350) (250) (250) Net Interest Cover (x) 3.7 3.8 4.2 4.6
Other Invts.(net) (107) 0 0 0 Asset Turnover (x) 0.2 0.2 0.2 0.2
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 6.5 7.6 7.4 7.2
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 152.3 99.6 103.2 105.2
Other Investing CF (858) 67 71 76 Inventory Turn (avg days) 0.0 0.0 0.0 0.0
Net Investing CF (1,356) (283) (179) (173) Current Ratio (x) 2.1 2.5 2.9 3.3
Div Paid (425) (784) (823) (864) Quick Ratio (x) 2.1 2.5 2.9 3.3
Chg in Gross Debt 178 (127) (194) (161) Net Debt/Equity (X) 1.4 1.4 1.3 1.2
Capital Issues 0 0 0 0 Capex to Debt (%) 3.9 3.4 2.5 2.5
Other Financing CF 7 0 0 0 N. Cash/(Debt)PS (sen) (152.0) (151.8) (149.0) (144.6)
Net Financing CF (240) (911) (1,017) (1,025) Opg CFPS (sen) 28.4 26.0 26.7 28.4
Net Cashflow (167) 107 140 222 Free CFPS (sen) 20.8 19.0 21.7 23.4
Quarterly / Interim Income Statement (RM m)
FY Dec 1Q2007 2Q2007 3Q2007 4Q2007
Turnover 524 570 554 634
Cost of Goods Sold (163) (161) (166) (186)
Gross Profit 361 408 388 449
Other Oper. (Exp)/Inc 0 2 (3) 14
Operating Profit 360 410 385 463
Other Non Opg (Exp)/Inc 0 0 0 0
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc (94) (93) (93) (99)
Exceptional Gain/(Loss) 0 0 0 70
Pre-tax Profit 266 317 292 434
Tax (7) (7) (6) (41)
Minority Interest 0 0 0 0
Net Profit 259 310 286 393
Net profit bef Except. 259 310 286 393
Sales Gth (%) (7.0) 8.7 (2.8) 14.5
Opg Profit Gth (%) (8.8) 13.8 (6.1) 38.4
Net Profit Gth (%) (13.8) 20.1 (7.8) 37.2
Gross Margins (%) 68.9 71.6 70.0 70.8
Opg Profit Margins (%) 68.7 71.9 69.5 84.1
Net Profit Margins (%) 49.4 54.4 51.6 62.0
Source: Company, DBS Vickers
Page 91

Regional Equity Strategy Q2 2008
Public Bank
Bloomberg: PBKF MK | Reuters: PUBMe.KL
BUY RM10.40 KLCI : 1,229.95
Price Target : 12-month RM 13.20 (Prev RM 13.00)
Potential Catalyst: Accelerating dividends and earnings enhancement
from regulatory changes and operations
Analyst
Sue Lin Lim +603 2711 0971
suelin@hwangdbsvickers.com.my
Price Relative
RM
12.50
11.50
10.50
9.50
8.50
7.50
6.50
5.50
Relative Index
2004 2005 2006 2007 2008
Public Bank (LHS) Relative KLCI INDEX (RHS)
Forecasts and Valuation
FY Dec (RM m) 2007A 2008F 2009F 2010F
Pre-prov. Profit 3,418 3,938 4,427 4,923
Net Profit 2,124 2,481 2,875 3,271
Net Pft (Pre Ex.) 2,124 2,481 2,875 3,271
EPS (sen) 69.9 81.7 94.6 107.6
EPS Pre Ex. (sen) 69.9 81.7 94.6 107.6
EPS Gth Pre Ex (%) 35 17 16 14
Diluted EPS (sen) 69.9 81.7 94.6 107.6
PE Pre Ex. (X) 14.9 12.7 11.0 9.7
Net DPS (sen) 54.8 74.3 88.9 103.3
Div Yield (%) 5.3 7.1 8.6 9.9
ROAE Pre Ex. (%) 23.1 26.2 29.8 33.4
ROAE (%) 23.1 26.2 29.8 33.4
ROA (%) 1.4 1.4 1.4 1.5
BV Per Share (sen) 307 315 320 325
RNAV per shr (sen) 241 245 248 248
P/Book Value (x) 3.4 3.3 3.2 3.2
Consensus EPS (sen): 71.3 78.6 87.1
Sector : Financials
Principal Business: Third largest banking group in Malaysia, and
the second largest in terms of shareholders’ funds.
218
198
178
158
138
118
98
78
Remains a core holding
Story: We expect Public Bank to continue growing on a
three-year 16% EPS CAGR. We are upgrading our
dividend assumptions with a payout ratio of 91-96%
yielding DPS of RM1.00 for FY08, RM1.20 for FY09 and
RM1.40 for FY10. Public Bank provides the highest yield
of 7-10% in our universe of banking stocks.
Point: We like Public Bank for its defensiveness in profits
and growth. We note that Public Bank’s lending policy is
conservative and prudent hence it does not compromise
growth over asset quality. Over the last seven years, we
note that Public Bank’s net profit and loan growth have
been in the double digits while NPL ratios have been the
lowest in the sector.
Relevance: Maintain Buy with target price revised to
RM13.20 from RM13.00 based on the Gordon Growth
Model (assumptions: 28% sustainable ROE, 5% longterm
growth and 11% cost of equity) as we roll over to
CY09 book value. This yields an implied 4.1x CY09 book
value. We believe Public Bank’s premium multiple is
backed by its robust ROE, high dividend yield, unbroken
track record of profitability, excellent asset quality
among its peers, strong management and healthy
growth prospects. Despite carrying premium P/BV
multiples vs. all Malaysian banks, we choose Public Bank
as our top pick. Public Bank remains our top pick for
defensiveness, yields and growth. Regional growth adds
flavour to our investment thesis.
At A Glance
Issued Capital (m shrs) 3,532
Mkt. Cap (RMm/US$m) 36,732 / 11,497
Major Shareholders
Tan Sri Dato' Dr Teh Hong Piow (%) 24.2
EPF (%) 8.8
Free Float (%) 67.0
Avg. Daily Vol.(‘000) 1,941
Page 92
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Public Bank
Income Statement (RM m) Balance Sheet (RM m)
FY Dec 2007A 2008F 2009F 2010F FY Dec 2007A 2008F 2009F 2010F
Net Interest Income 3,244 3,566 3,899 4,198 Cash/Bank Balance 35,549 40,971 45,189 48,227
Non-Interest Income 1,389 1,709 2,051 2,461 Government Securities 12,723 15,268 18,322 21,986
Operating Income 5,111 5,801 6,529 7,296 Inter Bank Assets 2,684 2,684 2,684 2,684
Operating Expenses (1,694) (1,863) (2,102) (2,373) Total Net Loans & Advs. 99,328 114,283 125,725 135,797
Pre-provision Profit 3,418 3,938 4,427 4,923 Investment 16,016 16,816 17,657 18,540
Provisions (419) (486) (486) (450) Associates 46 46 46 46
Associates 5 6 7 7 Fixed Assets 1,124 1,119 1,113 1,108
Exceptionals 0 0 0 0 Goodwill 2,010 2,111 2,216 2,327
Pre-tax Profit 3,004 3,458 3,947 4,480 Other Assets 4,675 5,876 6,381 6,853
Taxation (802) (899) (987) (1,120) Total Assets 174,155 199,174 219,334 237,569
Minority Interests (78) (77) (85) (89) Customer Deposits 138,765 159,579 175,537 189,580
Preference Dividend 0 0 0 0 Inter Bank Deposits 10,438 13,570 16,962 20,354
Net Profit 2,124 2,481 2,875 3,271 Debts/Borrowings 4,324 4,324 4,324 4,324
Net Profit bef Except 2,124 2,481 2,875 3,271 Others 10,650 11,421 11,973 12,553
Minorities 636 714 799 888
Shareholders' Funds 9,342 9,565 9,738 9,869
Total Liab& S/H’s Funds 174,155 199,174 219,334 237,569
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2007A 2008F 2009F 2010F FY Dec 2007A 2008F 2009F 2010F
Margins, Costs & Efficiency Balance Sheet Structure
Yld. On Earnings Assets 4.86 4.81 4.77 4.74 Loan-to-Deposit Ratio 72.8 72.8 72.8 72.8
Avg Cost Of Funds 2.93 2.97 2.95 2.93 Net Loans / Total Assets 57.0 57.4 57.3 57.2
Spread 1.93 1.85 1.82 1.81 Investment / Total Assets 9.2 8.4 8.1 7.8
Net Interest Margin 2.11 2.00 1.95 1.92 Cust . Dep./Int. Bear. Liab. 90.4 89.9 89.2 88.5
Cost-to-Income Ratio 33.1 32.1 32.2 32.5 Interbank Dep / Int. Bear. 6.8 7.6 8.6 9.5
Employees ( Year End) 0 0 0 0 Asset Quality
Effective Tax Rate 26.7 26.0 25.0 25.0 NPL / Total Gross Loans 1.4 1.3 1.1 1.0
Business Mix NPL / Total Assets 0.8 0.7 0.7 0.6
Net Int. Inc / Opg Inc. 63.5 61.5 59.7 57.5 Capital Strength
Non-Int. Inc / Opg inc. 27.2 29.5 31.4 33.7 Total CAR 12.4 14.2 13.2 12.4
Fee Inc / Opg Income 5.4 4.7 4.2 3.8 Tier-1 CAR 9.1 8.2 7.6 7.1
Oth Non-Int Inc/Opg Inc 21.8 24.7 27.2 30.0 Growth
Profitability Total Net Loans 20 15 10 8
ROAE Pre Ex. 23.1 26.2 29.8 33.4 Customer Deposits 24 15 10 8
ROAE 23.1 26.2 29.8 33.4
ROA Pre Ex. 1.4 1.4 1.4 1.5
ROA 1.4 1.4 1.4 1.5
Quarterly / Interim Income Statement (RMm)
FY Dec 1Q2007 2Q2007 3Q2007 4Q2007
Net Interest Income 763 784 826 871
Non-Interest Income 353 349 361 390
Operating Income 1,221 1,253 1,313 1,388
Operating Expenses (451) (426) (423) (458)
Pre-Provision Profit 770 827 891 930
Provisions (96) (96) (118) (110)
Associates 1 1 2 1
Exceptionals 0 0 0 0
Pretax Profit 675 733 774 821
Taxation (184) (193) (211) (213)
Minority Interests (15) (16) (19) (28)
Net Profit 476 524 544 580
Source: Company, DBS Vickers
Page 93

Regional Equity Strategy Q2 2008
Country Assessment
SET Current : 820.31
Thailand
SET 3 / 12 mths Target :
Expected Return :
Focus on domestic plays
850 / 1,040
+4% / +27%
We reiterate our Overweight rating for the Thai market. It
will experience high volatility along with global markets
on fears of a US-led recession and its impact on global
growth. But a correction in the Thai market should be
seen as a good buying opportunity in anticipation of
strong performance for the rest of the year.
Following the government’s aggressive economic stimulus programs, we are
convinced that Thailand’s economic prospects will be robust, with domestic
demand as the key growth driver for the next two years. In the first instance,
government programs will boost private consumption. These include the Bt40bn
tax cut package, village funds and SML funds. Second, the planned budget
deficit for the next three years should fuel an increase in government spending.
Lastly, investments will be driven by (i) pent-up demand built up over the past
few years, (ii) Thailand’s ‘‘Investment year’’ campaign, and (iii) government mega
projects worth Bt1.5trn that should jump start from 4Q08 onwards. ·
The SET should continue to see PE expansion in 2008 as the country enters the
new economic up-cycle, and supported by the current low interest rate
environment. The turnaround in market EPS from a 2.7% contraction in 2007 to
+12% in 2008 should also lift SET performance. Our end-2008 SET target is
1,040, implying 14.8x 2008 PE. ·
We recommend focusing on domestic plays given that these counters will be
minimally affected by a slowing US economy and will be prime beneficiaries of
the strong pick up in domestic demand, which will be the growth driver for the
Thai economy over the next 2-3 years. As such, we reiterate our three thematic
calls: (i) next investment cycle, (ii) domestic consumption recovery, and (iii)
infrastructure-related plays. ·
Chanpen Sirithanarattanakul (66) 2657 7824 chanpens@th.dbsvickers.com
Page 94
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Country Assessment
Market Data
Indices
Close
25 Mar 08
Chg Net
-1 mth
-1 mth
(%)
-3 mth
(%)
-6 mth
(%)
52-Week
-12 mth
(%) High Low
SET 820 (25.5) (3.0) (4.4) (3.0) 21.8 925 671
SET 50 591 (23.3) (3.8) (6.3) (4.1) 25.2 689 470
SET 100 1,275 (46.8) (3.5) (6.0) (4.1) na 1,476 1,020
SET Banks 299 2.3 0.8 2.7 1.4 14.0 329 247
SET Construction Mat’l 5,675 (56.3) (1.0) (4.7) (16.1) (5.9) 7,385 5,201
SET Communication 88 (3.0) (3.3) 5.1 8.0 27.9 100 68
SET Energy 19,539 (1,257.8) (6.0) (11.4) (3.3) 42.5 24,729 13,590
SET Electronics 731 (59.1) (7.5) (12.8) (15.4) 8.3 922 658
SET Property 137 4.7 3.5 7.2 5.9 26.7 206 82
Transactions:
YTD
Volume (bn shares) 159
Value (Bt bn) 1,127
Source: Bloomberg
MARKET REVIEW
The SET index has fallen by 4.2% QTD 25 Mar 2008
due to renewed US sub-prime concerns and growing
uncertainty about the global economic outlook. 1Q08
(QTD) average daily trading value edged down by 2%
from 4Q07 to Bt19.1bn/day, as investors stayed away
from the market.
Foreign investors remained net sellers of stocks valued
at Bt16.3bn in 1Q08 QTD (vs. Bt40.3bn net sell in
4Q07) as renewed concerns of the US sub-prime
meltdown sparked risk aversion across the globe and
resulted in a sell-down in global equity markets,
including Thailand. This was despite the fact that
foreign investors turned more positive towards
Thailand, with the election of a new government.
Following the 23 Dec 2007 general election, the PPPled
coalition government was formed on 20 Jan 2008.
People Power Party (PPP) leader Samak Sundaravej
was appointed PM, and most of the 36 cabinet
members are from the six coalition parties. PM Samak
admitted he was not completely satisfied with the
line-up.
On the bright side, this government believes its
immediate priorities are to revive the economy. The
secretary general of the PPP, Surapong Suebwonglee,
said the party did not see amnesty for 111 TRT
executives, who had been banned from politics for
five years, as an urgent task. This does not preclude
the PPP from seeking amnesty for the 111 TRT
executives once the economy is back on a firm growth
track. The strategy would be to use the economic
revival to defuse possible public objection to the
amnesty.
Companies listed on the SET reported cumulative net
profit of Bt420bn for 2007, down 10% y-o-y despite a
9% y-o-y growth in revenue. The net profit contraction
was due to (i) higher cost of sales, (ii) lower FX gains due
to the strong baht, and (iii) higher loan loss provision by
banks to comply with IAS39. While the Energy sector
contributed the most (49%) to market net profit, the
Technology sector (electronics and communication) was
the best performer with 26% y-o-y growth.
Thailand’s 4Q07 GDP grew 7.1% q-o-q and 5.7% y-o-y,
adding to the 6% rise in 3Q07 and reflecting the
recovery of domestic consumption and investment. As a
result, 2007 GDP growth reached 4.75%, well above
the 4-4.3% growth expected at the start of 2007. It is
notable that this exceptional recovery arrived even
before the new government was formed in 1Q08. This
recovery and the still-elevated levels of capacity
utilization support our view for ample domestic demandled
growth in 2008.
Page 95

Regional Equity Strategy Q2 2008
Country Assessment
LIQUIDITY
The Monetary Policy Committee (MPC) maintained
policy rates at 3.25% at both its meetings this year,
since the economy has continued to grow favorably
and there are still inflation concerns led by spending
recovery and rising oil and commodity prices. The
MPC’s decision was in line market expectations. We
are confident that Thailand’s economic fundamentals
are much better than it seems, and that a rate cut,
especially an aggressive one, would lead to inflationary
problems.
Inflation has accelerated in the first two months of the
year. The CPI rose 5.4% y-o-y in Feb 2008 compared
to 4.3% y-o-y in Jan 2008, driven by a 12.4% rise in
raw food prices and 17.7% rise in energy prices. Core
CPI picked up to 1.5% y-o-y from 1.2% y-o-y in Jan
2008. Headline inflation is definitely dragged higher
by supply side factors outside the control of monetary
policies. Liquidity in the banking system remained
high, with credit-to-deposit ratio at 93.9% at end Jan
2008. Following seasonally lower deposits in Dec
2007, most banks offered term-deposits with interest
rate that were 50-75 bps higher.
The Thai baht (onshore rate) strengthened further
from Bt34.26/US$ at end Dec 2007 to Bt31.53/US$ on
25 Mar 2008. Official foreign reserves continued to
accelerate to US$108bn as at 14 Mar 2008 from
US$87.6bn at end 2007. This represents 4x short-term
foreign debt or 9.1 months of imports.
GROWTH and VALUATION
The replacement of a military government by an elected
government is positive for the economy because a
democratic government would (i) be better accepted by
foreign countries, (ii) have reduced policy risk, and (iii)
have an open-market economic mindset. As most of the
PPP members are ex-TRT members and most of its
election campaign promises are similar to TRT’s, we
believe the direction and policies of PPP would be in line
with TRT’s pro-business agenda.
We attribute Thailand’s sub-potential GDP growth in the
past two years to weak confidence in the country
following policy mis-steps and political uncertainties. The
only growth engine for Thailand’s economic growth in
the past two years was net exports. Going forward,
growth should be led by domestic demand. For now,
further export growth should be limited due to the
strengthening baht and the high base in 2007 following
two years of strong expansion, and specifically a slowing
US economy. As a result, the newly elected government
will focus on domestic demand, which will be the major
growth driver for the Thai economy in the next 2-3
years. Given the low base, the growth potential is
ample.
On the corporate front, the strong economic recovery
should also boost market net profit growth. This is in
line with our forecast that SET EPS growth would
improve from -8.9% in 2006 and -2.7% in 2007 to
12% in 2008. This would be boosted by a series of
government economic stimulus packages.
Earnings Estimates by Sector
EPS Growth %
PE (x)
2007A 2008F 2009F 2007A 2008F 2009F
Banking (30.0) 53.5 13.1 20.4 13.2 11.7
Construction Materials (7.1) (26.3) (14.7) 8.6 10.8 11.6
Chemicals & Plastics 36.8 71.1 36.6 11.6 6.8 5.0
Commerce 11.8 39.0 41.2 26.7 19.2 13.6
Communication 67.9 4.4 (6.8) 15.4 14.8 15.4
Electronics Components 28.3 (12.3) 7.8 7.3 7.9 7.3
Energy 7.3 7.1 3.0 10.6 9.9 9.6
Entertainment & Recreation 14.4 9.7 9.0 19.1 17.6 16.1
Finance & Securities 40.9 (6.2) 20.8 10.8 11.4 9.5
Property Development 82.0 30.0 9.7 21.5 16.8 15.3
Transportation (38.6) 16.5 (1.5) 10.9 9.4 9.5
Others (8.7) 7.3 23.3 18.1 17.9 14.5
DBSV Universe (2.7) 11.9 4.5 13.2 11.7 11.1
Source: DBS Vickers
Page 96

Regional Equity Strategy Q2 2008
Country Assessment
INVESTMENT STRATEGY
Our optimistic view towards the Thai equity market
remains intact. We believe it will continue to
outperform its regional peers for the rest of 2008. This
is premised on (i) strong domestic demand that should
more than offset weakness in the exports sector, (ii)
lower political and policy risks, (iii) attractive valuations
from a low base in the past couple of years, and (iv)
low correlation to the volatile US equity market.
A market correction is a buying opportunity for Thai
stocks in anticipation of out-performance later in the
year. However, Thailand’s equity market will remain
volatile due to fears of a slowing US economy.
We recommend investors focus on domestic plays for
two reasons. First, these counters will be minimally
affected by the slowing US economy. Second, they
will be the prime beneficiaries of strong domestic
demand recovery, which will be the major growth
driver for Thailand’s economy for the next 2-3 years.
We have three themes associated with the domestic
demand play. These are (i) next investment cycle, (ii)
domestic consumption recovery, and (iii)
infrastructure-related theme.
The next investment cycle will be triggered by: (i) huge
pent-up demand for investment, reflected in the
current high industrial utilization rate of 77%, (ii)
easing policy and political risk, and (iii) the
government’s plan to expedite investments in megaprojects.
The result will be a pick up in loan growth
from 2008 onwards. We recommend buying Banking
stocks such as KASIKORNBANK (KBANK TB), Bangkok
Bank (BBL TB), and Krung Thai Bank (KTB TB).
Industrial estate developers will also benefit from this
theme. Our top pick in this segment is Amata
Corporation (AMATA TB), which saw land sales hit a
record high last year on an improved political outlook.
Prospects remain positive for this year, with ongoing
negotiations with several prospective investors.
Easing political tension coupled with the government’s
policies to stimulate the domestic economy should
boost Thailand’s domestic consumption from 2008
onwards. The Property sector will be a prime
beneficiary of this development. Quality Houses (QH
TB), Asian Property (AP TB), and Preuksa Real Estate
(PS TB) are our top picks in the sector.
Non-essential products and services like Media &
Entertainment, which are highly geared towards
consumption recovery, should also be prime
beneficiaries under this theme. Our picks are BEC World
(BEC TB) and Major Cineplex Group (MAJOR TB), which
will benefit from its expansion and improving consumer
confidence.
Consumer stocks under the Commerce sector will also
directly benefit from higher domestic consumption. Our
top picks under this sector include CP All (CPALL TB) and
Home Product Center (HMPRO TB).
The PM reaffirmed that the government would kick-start
the mega-projects by 4Q08. They include expansion of
the mass transit systems, nationwide dual-track railways
and a comprehensive irrigation system. We see this as
positive news for large construction contractors like
Italian-Thai Development (ITD TB) and Ch. Karnchang
(CK TB). However, we recommend investors accumulate
these contractor stocks on price weakness because of
their relatively demanding valuations. Additionally, rising
construction material costs will continue to pressure
already-low margins in the near term, and the positive
impact from infrastructure spending will not take effect
until late 2008 at the earliest.
More interestingly, building material companies that can
pass on higher costs to customers will also benefit from
accelerating investments led by mega-infrastructure
projects. Our top pick for this sector is Tata Steel
(Thailand) (TSTH TB), the largest and most efficient long
steel producer in Thailand. Long steel products are used
in construction while flat steel products are used in
manufacturing, which is why we like Tata Steel.
We also have PTT Exploration & Production (PTTEP), PTT
(PTT TB), and Indorama Polymers (IRP TB) as our top
picks from a bottom-up approach.
Stock Pick Summary: Bangkok Bank (BBL TB),
KASIKORNBANK (KBANK TB), Krung Thai Bank (KTB TB),
Amata Corporation (AMATA TB), Quality Houses (QH
TB), Asian Property (AP TB), Preuksa Real Estate (PS TB),
BEC (BEC TB), Major Cineplex Group (MAJOR TB), CP All
(CPALL TB), Home Product Center (HMPRO TB), Italian-
Thai Development (ITD TB), Tata Steel (Thailand (TSTH
TB), PTT Exploration & Production (PTTEP), PTT (PTT TB),
and Indorama Polymers (IRP TB).
Page 97

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Banks & Finance
Overweight
We expect the Thai banking sector to report strong EPS growth of 54% for
2008. Growth should be led by (i) higher industry loan growth of 12.0% vs
5.6% for 2007, (ii) slightly wider net interest margin, (ii) strong fee-based
income growth, and (iv) lower loan loss provision. The sector is now trading
at 2008 P/BV of only 1.6x vs 1.9x for regional peers. We believe Thai banks,
being regional laggards, will eventually catch up with their peers. Our top
picks for the sector are KASIKORNBANK (KBANK), Bangkok Bank (BBL) and
Krung Thai Bank (KTB).
KBANK, BBL, KTB
Construction Materials
Neutral
A recovery in consumer confidence and tax cuts should improve demand for
residential housing. Investments in mega-projects should be the major driver
of domestic demand for construction materials. Assuming mega-projects
start construction in late 2008, we expect demand to gradually improve in
2008 and accelerate in 2009. Domestic cement demand is expected to grow
0-3% in 2008 and 5-8% in 2009. Meanwhile, steel consumption should rise
3-5% and 10%, respectively. We are cautiously optimistic about the sector’s
prospects given that the positive impact from growing demand could be
offset by rising costs. Hence, we are maintaining the sector weighting at
NEUTRAL. Our top pick for the sector is Tata Steel (Thailand) (TSTH). It is the
most competitive Thai steel producer and is a direct beneficiary of recovering
domestic consumption and mega-projects investment.
TSTH
Consumer
Overweight
The Consumer Confidence Index (CCI) has been improving gradually since
November 2007, ahead of the December general elections in Thailand. The
turnaround in November came after 13 consecutive months of declines. It hit
79.5 in February 2008 from 76 in mid-2007. We believe the turnaround in
consumer confidence is sustainable into 2008. We are retaining our view that
improving consumer spending could be a major driver for the sector. Further,
the National Legislative Assembly had not approved the draft RWBA for
submission to the new cabinet for consideration. This supports our view that
implementation will not happen soon. Given the improving consumer
sentiment, downside risk for the sector should be limited. So weakness
arising from fears of a US-led recession should be a good opportunity to buy
the sector. We reiterate our OVERWEIGHT rating for the Commerce sector
with CPALL and HMPRO as our top picks.
CPALL, HMPRO
Communication
Neutral
The organic growth of Thailand's cellular market should be limited, given the
current cellular penetration rate of 80%. This is similar to Malaysia, but
Malaysia‘s GDP per capita is almost double that of Thailand’s. Cellular
operators accept that the growth in recent years was unnaturally driven by
price cuts.
In our view, the growth of Thai land’s cellular sector will come from
regulatory reform. The National Telecommunication Commission (NTC)’s plan
to award 3G licenses by end-2008 should (i) lower operators' regulatory
costs, (ii) pave the way for existing concessionaires to exit from messy
telecom concession contracts, and (iii) cause the de facto extension of
operating periods. We maintain our NEUTRAL stance on the Thai telecom
sector, with ADVANC as our top pick.
ADVANC
Page 98

Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Electronics Components
Neutral
Energy
Overweight
Entertainment
Overweight
Property Development
Overweight
We like the sector's fundamentals, but sentiment should remain weak due to
(i) negative impact from a US economic slowdown, and (ii) strong baht
against the greenback. Currently, most electronic exporters in Thailand are
trying to match sales and cost currencies to minimise forex risks, in
anticipation of a strengthening Baht against the greenback in 2008-09. But
the impact will vary between companies, depending on their mix of US dollar
and baht costs. To sum, the Electronic sector will be negatively affected by a
global economic slowdown and the strong baht. Hence, we maintain our
NEUTRAL weighting for the Electronics sector. Our top picks for the sector
remain Delta Electronics (DELTA TB) and Calcomp Electronics (CCET).
Thailand has one of the most liberal energy policies in the region. Despite
occasional fuel subsidy programs, most Thai oil & gas companies have not
been affected. Given strong fundamentals to support global oil prices, Thai
oil & gas companies should benefit from resilient oil prices. In addition, major
capacity expansion projects in the next few years should support long-term
growth. We target Brent crude price to average US$90/bbl for 2008,
US$85/bbl for 2009, US$75/bbl for 2010, and US$70/bbl from 2011
onwards. We reiterate our OVERWEIGHT rating for the sector. Our top picks
are PTT and PTTEP.
Thai Media & Entertainment sector will be the prime beneficiary of the strong
recovery in domestic consumption in 2008. The government’s economicstimulus
programs should drive the recovery. In addition, regulatory risks
have subsided after the Broadcasting Act and Public Broadcasting Act were
effective. From a bottom-up approach, the metamorphosis of TITV from a
commercial TV station to a commercial-free public TV station would result in
the migration of advertising spending from TITV to BEC and MCOT. In the
meantime, MAJOR will also benefit from its expansion, both in Bangkok and
upcountry. We maintain our OVERWEIGHT rating for the sector Our top picks
are MCOT (MCOT TB), Major Cineplex (MAJOR TB), and BEC World (BEC TB).
Residential property developers are prime beneficiaries of rebounding
consumer confidence and the government’s tax-cut stimulus packages. We
expect strong earnings growth for the sector, led by (i) higher housing sales,
and (ii) tax savings from the government’s tax cut stimulus packages, which
will come into effect soon and last for one year. Nonetheless, 1Q08 earnings
should be generally soft as buyers wait for the stimulus package to come into
effect, probably in April or May 2008. Our top picks are Asian Property
Development (AP TB), Preuksa Real Estate (PS TB), Quality Houses (QH TB),
and Supalai (SPALI TB).
Industrial Property developers should continue to benefit from the strong
pick up in demand for industrial land, thanks to the improving political scene
and rebounding business sentiment. The government’s tax cut stimulus
packages will also slash tax expenses sharply. Our top pick in this segment is
Amata Corporation (AMATA TB).
Construction contractors should see positive news flow relating to bids for
the mass transit system projects, assuming they proceed as planned.
Nonetheless, we expect contractors to suffer from rising construction
material costs in the near term before seeing positive impact from the megaproject
construction, which might commence in 4Q08 at the earliest.
Commercial property developers e.g. retail and office space, are also
expected to see improved outlook on the back of better consumer and
business confidence.
DELTA, CCET
PTT, PTTEP
MCOT, MAJOR, BEC
AMATA, AP, PS, QH, SPALI
Page 99

Regional Equity Strategy Q2 2008
Banpu
Bloomberg: BANPU TB | Reuters: BANP.BK
BUY Bt408.00 SET : 820.31
Price Target : 12-month Bt 518.00
Potential Catalyst: Unexpected regional coal supply shortage, asset
acquistion.
Analyst
Vichitr Kuladejkhuna CFA +66 0 26577826
vichitrk@th.dbsvickers.com
Price Relative
Bt
533 . 30
483 . 30
433 . 30
383 . 30
333 . 30
283 . 30
233 . 30
183 . 30
133 . 30
83 . 30
Relative Index
2004 2005 2006 2007 2008
Banpu ( LHS ) Relative SET INDEX ( RHS )
Forecasts and Valuation
FY Dec (Bt m) 2006A 2007A 2008F 2009F
Turnover 33,378 32,442 43,828 54,918
EBITDA 9,170 13,391 18,402 23,806
Pre-tax Profit 4,866 8,415 13,516 18,688
Net Profit 3,610 6,654 8,268 10,656
Net Pft (Pre Ex.) 2,710 5,036 8,268 10,656
EPS (Bt) 13.3 24.5 30.4 39.2
EPS Pre Ex. (Bt) 10.0 18.5 30.4 39.2
EPS Gth Pre Ex (%) (5) 86 64 29
Diluted EPS (Bt) 13.3 24.5 30.4 39.2
Net DPS (Bt) 7.5 8.5 12.0 15.0
BV Per Share (Bt) 80.7 126.3 151.7 178.9
PE (X) 30.7 16.7 13.4 10.4
PE Pre Ex. (X) 40.9 22.0 13.4 10.4
P/Cash Flow (X) 17.6 18.2 13.4 9.7
EV/EBITDA (X) 13.7 9.0 6.0 4.3
Net Div Yield (%) 1.8 2.1 2.9 3.7
P/Book Value (X) 5.1 3.2 2.7 2.3
Net Debt/Equity (X) 0.7 0.1 0.2 0.0
ROAE (%) 16.6 23.7 21.9 23.7
Consensus EPS (Bt): 29.0 32.2
Sector : Energy
Principal Business: Investment in coal and power businesses in
Thailand, Indonesia, and China.
324
274
224
174
124
74
Opportunity to accumulate
Story: Prospects for coal price remain bullish at least in
2008-09, supported by strong regional coal demand
growth and tight supply. We expect spot coal price to
surge to US$100/tonne for 2008 and US$90/tonne for
2009.
Point: BANPU’s stake in BLCP and RATCH should
provide stable cash flow from power business, while
coal operation should be key growth driver in 2008-09.
BANPU has committed about 70% of FY08F coal sales
volume at contracted price of c.US$54/tonne. The
remaining uncommitted volume should benefit from
current strong spot coal price of over US$120/tonne.
We expect BANPU’s ASP to average US$60.4/tonne in
2008 and US$71/tonne in 2009. FY08-09F core profit
should surge 64% and 29%, respectively. Other key
projects in the pipeline are (i) Bharinto (coal: 2-4m tpa,
2009, (i) Honga lignite-power pplant (power: 1800MW,
2013). BANPU is also seeking for potential acquisitions
of coal assets in Indonesia and coal and power assets in
China.
Relevance: BANPU share has fallen 22% from its peak,
partly attributed to the broad market sell off and profit
taking. Although spot coal price started to taper off
from its peak of US$131.55/tonne to US$125.75/tonne
currently, the price remains exceptionally strong vs
US$64.9/tonne averaged in 2007. Valuations are
attractive at just 12.8x 2008 PE and 5.8x EV/EBITDA.
Current price offers attractive re-entry level. We
reiterate our Buy rating with a sum-of-parts target price
of Bt518.
At A Glance
Issued Capital (m shrs) 272
Mkt. Cap (Btm/US$m) 110,873 / 3,522
Major Shareholders
Thai NVDR (%) 23.0
State Street Bank And Trust Company, For London (%) 4.9
Littledown Nominees Limited 9 (%) 4.3
Free Float (%) 75.7
Avg. Daily Vol.(‘000) 2,280
Page 100
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Banpu
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Turnover 33,378 32,442 43,828 54,918 Net Fixed Assets 13,445 14,786 14,026 10,147
Cost of Goods Sold (20,838) (20,964) (24,136) (27,985) Invts in Associates & JVs 6,833 11,303 11,064 11,064
Gross Profit 12,541 11,478 19,693 26,934 Other LT Assets 16,708 15,950 15,882 16,554
Other Opng (Exp)/Inc (8,035) (8,390) (9,478) (11,133) Cash & ST Invts 4,804 13,304 18,546 28,666
Operating Profit 4,505 3,088 10,215 15,800 Other Current Assets 7,597 9,708 8,613 10,198
Other Non Opg (Exp)/Inc (182) 1,381 (145) (20) Total Assets 49,386 65,051 68,132 76,628
Associates & JV Inc 801 4,504 3,952 3,357
Net Interest (Exp)/Inc (812) (1,037) (940) (938) ST Debt 5,602 4,086 2,223 4,093
Exceptional Gain/(Loss) 0 0 0 0 Other Current Liab 6,947 7,702 7,924 8,151
Pre-tax Profit 4,866 8,415 13,516 18,688 LT Debt 13,959 14,435 10,177 6,083
Tax (1,122) (1,492) (3,209) (4,935) Other LT Liabilities 535 330 359 359
Minority Interest (134) (269) (2,039) (3,097) Shareholder’s Equity 21,931 34,309 41,222 48,617
Preference Dividend 0 0 0 0 Minority Interests 413 4,188 6,227 9,324
Net Profit 3,610 6,654 8,268 10,656 Total Cap. & Liab. 49,386 65,051 68,131 76,628
Net Profit before Except. 3,610 6,654 8,268 10,656
EBITDA 9,170 13,391 18,402 23,806 Non-Cash Wkg. Capital 650 2,005 689 2,046
Net Cash/(Debt) (14,757) (5,217) 6,147 18,489
Sales Gth (%) 32.4 (2.8) 35.1 25.3
EBITDA Gth (%) (17.3) 46.0 37.4 29.4
Opg Profit Gth (%) (16.1) (31.5) 230.8 54.7
Net Profit Gth (%) (35.1) 84.3 24.3 28.9
Effective Tax Rate (%) 23.1 17.7 23.7 26.4
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Pre-Tax Profit 3,610 6,654 8,268 10,656 Gross Margins (%) 37.6 35.4 44.9 49.0
Dep. & Amort. 3,492 3,939 3,945 4,179 Opg Profit Margin (%) 13.5 9.5 23.3 28.8
Tax Paid 0 0 0 0 Net Profit Margin (%) 10.8 20.5 18.9 19.4
Assoc. & JV Inc/(loss) (801) (4,504) (3,952) (3,357) ROAE (%) 16.6 23.7 21.9 23.7
Chg in Wkg.Cap. (1,107) 195 1,537 (1,130) ROA (%) 7.6 11.6 12.4 14.7
Other Operating CF 11 (1,155) 2,503 3,421 ROCE (%) 10.5 6.3 17.1 22.1
Net Operating CF 4,305 3,371 12,302 13,769 Div Payout Ratio (%) 56.5 34.7 39.4 38.3
Capital Exp.(net) (766) (3,313) (3,185) (300) Net Interest Cover (x) 5.5 3.0 10.9 16.8
Other Invts.(net) 1,067 583 (790) (671) Asset Turnover (x) 0.7 0.6 0.7 0.8
Invts in Assoc. & JV (6,743) (1,737) 0 0 Debtors Turn (avg days) 35.4 43.2 35.6 36.6
Div from Assoc & JV 554 1,702 3,281 2,806 Creditors Turn (avg days) 5.8 9.4 14.5 16.1
Other Investing CF (4,033) (1,761) 858 0 Inventory Turn (avg days) 29.0 30.4 27.3 24.8
Net Investing CF (9,921) (4,526) 164 1,834 Current Ratio (x) 1.0 2.0 2.7 3.2
Div Paid (1,970) (2,154) (2,310) (3,261) Quick Ratio (x) 0.9 1.8 2.5 3.0
Chg in Gross Debt 3,023 (393) (4,964) (2,223) Net Debt/Equity (X) 0.7 0.1 0.2 0.0
Capital Issues 0 0 0 0 Capex to Debt (%) 3.9 17.9 25.7 2.9
Other Financing CF 239 12,211 0 0 N. Cash/(Debt)PS (Bt) (54.3) (19.2) 22.6 68.0
Net Financing CF 1,292 9,664 (7,274) (5,484) Opg CFPS (Bt) 19.9 11.7 39.6 54.8
Net Cashflow (4,324) 8,508 5,192 10,120 Free CFPS (Bt) 13.0 0.2 33.5 49.6
Quarterly / Interim Income Statement (Bt m)
Segmental Breakdown
FY Dec 1Q2007 2Q2007 3Q2007 4Q2007 FY Dec 2006A 2007A 2008F 2009F
Turnover 6,700 7,916 8,641 9,185 Revenues (Bt m)
Cost of Goods Sold (4,220) (5,084) (5,462) (6,198) Coal 30,434 28,429 39,828 50,918
Gross Profit 2,480 2,832 3,178 2,987 Power 2,808 3,865 4,000 4,000
Other Oper. (Exp)/Inc (1,732) (2,006) (2,245) (2,407) Others 136 148 0 0
Operating Profit 748 826 934 580 Total 33,378 32,442 43,828 54,918
Other Non Opg (Exp)/Inc (96) (3) (6) 1,485
Associates & JV Inc 1,306 1,346 1,238 614 Gross profit (Bt m)
Net Interest (Exp)/Inc (242) (275) (279) (242) Coal 11,729 10,467 18,773 26,014
Exceptional Gain/(Loss) 0 0 0 0 Power 812 956 920 920
Pre-tax Profit 1,716 2,149 2,105 2,444 Total 12,541 11,423 19,693 26,934
Tax (500) (348) (335) (308)
Minority Interest (22) (42) (51) (154) Gross profit Margins (%)
Net Profit 1,194 1,759 1,719 1,983 Coal 38.5 36.8 47.1 51.1
Net profit bef Except. 1,194 1,759 1,719 1,983 Power 28.9 24.7 23.0 23.0
EBITDA 2,833 3,638 3,891 3,030 Total 37.6 35.2 44.9 49.0
Sales Gth (%) (34.1) 18.1 9.2 6.3
EBITDA Gth (%) 6.4 28.4 6.9 (22.1)
Opg Profit Gth (%) (48.6) 10.4 13.0 (37.9)
Net Profit Gth (%) 1.3 47.3 (2.3) 15.4
Gross Margins (%) 37.0 35.8 36.8 32.5
Opg Profit Margins (%) 11.2 10.4 10.8 6.3
Net Profit Margins (%) 17.8 22.2 19.9 21.6
Source: Company, DBS Vickers
Page 101

Regional Equity Strategy Q2 2008
BEC World
Bloomberg: BEC TB | Reuters: BEC.BK
BUY Bt26.75 SET : 820.31
Price Target : 12-month Bt31.00
Potential Catalyst: Strong earnings growth
Analyst
Chirasit Vuttigrai 66 (0) 2657 7836
chirasitv@th.dbsvickers.com
Price Relative
29 . 70
24 . 70
19 . 70
14 . 70
9 . 70
Bt
Relative Index
2004 2005 2006 2007 2008
BEC World ( LHS ) Relative SET INDEX ( RHS )
Forecasts and Valuation
FY Dec (Btm) 2006A 2007A 2008F 2009F
Turnover (Btm) 6,775 7,786 8,614 9,227
EBITDA (Btm) 3,873 4,774 5,500 5,945
Pretax Profit (Btm) 2,322 3,267 3,930 4,315
Net Profit (Btm) 1,643 2,252 2,709 2,971
EPS (Bt) 0.82 1.13 1.35 1.49
EPS Gth (%) 86.4 37.1 20.3 9.7
P/E (x) 32.6 23.8 19.7 18.0
P/Cash Flow (x) 16.3 12.4 12.4 11.5
DPS (Bt) 0.75 1.13 1.35 1.49
Div Yield (%) 2.8 4.2 5.1 5.6
EV/EBITDA (x) 13.2 10.4 9.0 8.3
Net Gearing (%) cash cash cash cash
ROE (%) 27.9 35.9 41.4 44.6
Book Value (Bt) 3.02 3.25 3.30 3.37
P/Book Value (x) 8.8 8.2 8.1 7.9
Consensus EPS (Bt) : 1.3 1.4
Sector : Media
Principal Business: Operates TV3 channel, with the second largest
market share in Thailand. It is also involved in radio, show and
concert businesses through its subsidiaries.
215
195
175
155
135
115
95
75
55
Strong growth momentum to
continue in 2008
Story: BEC’s outlook remains highly promising. After
experiencing strong EPS growth of 86% for FY06 and
36% for FY07, we forecast BEC to register 20% EPS
growth for FY08 and 10% for FY09. The further growth
will be driven by higher ad income, to be led by ad
migration from TITV and improving domestic
consumption, as well as margin expansion from
economies of scale.
Point: Its strong jump in ad income in January-February
2008 reaffirms our view. BEC saw its ad income grow
c.20% y-o-y in January 2008, though the company cut its
drama airtime in the first 2-3 weeks of the month to air
special programs for paying tribute to the passing of His
Majesty’s sister Her Royal Highness Princess Galyani
Vadhana. For February, BEC’s growth trend has continued
to be very strong, especially after the 7% ad rate increase
for super primetime slot becomes effective.
Relevance: BEC is attractive given (i) its foreseeable
strong earnings growth in 2008-2009; (ii) subsided policy
risk; and (iii) attractive dividend yield of 5.1% for FY08
and 5.6% for FY09. Further, BEC is a pure domestic play,
which would encounter minimal, if any, negative impact
from the slowing US economy; rather, it would benefit
from the strong recovery in Thailand’s domestic
consumption. BUY reiterated with target price of Bt31.
At A Glance
Issued Capital (m shrs) 2,000
Mkt. Cap (Btm/US$m) 53,500 / 1,699
Major Shareholders
Maleenont’s family (%) 56.6
HSBC (Singapore) Nominees Pte Ltd (%) 5.3
Nortrust Nominees Ltd. (%) 3.1
Free Float (%) 41.6
Avg. Daily Vol.(‘000) 3,787
Page 102
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
BEC World
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Turnover 6,775 7,786 8,614 9,227 Fixed assets 1,903 1,768 1,568 1,368
EBITDA 3,873 4,774 5,500 5,945 Other LT Assets 1,675 1,685 1,796 1,913
Depr/Amort (1,715) (1,602) (1,698) (1,779) Cash/ST Investments 2,681 3,773 3,972 4,235
Opg Profit 2,158 3,172 3,802 4,166 Other Current Assets 967 972 1,073 1,148
Asso. Inc/Others 105 59 99 118 Total Assets 7,226 8,197 8,409 8,663
Interest (Exp)/Inc 59 36 29 31 ST Debt 0 0 1 1
Pre-Tax Profit 2,322 3,267 3,930 4,315 Other Current Liabilities 1,031 1,558 1,595 1,641
Tax (660) (984) (1,151) (1,267) LT Debt 0 0 0 0
Minority Interest (20) (58) (71) (77) Minority Interests 146 140 210 288
Net Profit 1,643 2,252 2,709 2,971 Shareholders' equity 6,049 6,500 6,602 6,733
Sales Growth % 7.4 14.9 10.6 7.1 Total Capital 7,226 8,197 8,409 8,663
Net Profit Gr % 86.4 37.1 20.3 9.7 Share Capital (m) 2,000 2,000 2,000 2,000
EBITDA Mgn % 57.2 61.3 63.8 64.4 Net cash/(debt) 2,681 3,773 3,971 4,234
Opg Mgn % 31.8 40.7 44.1 45.2 Working capital (65) (586) (523) (494)
Tax Rate % 28.5 29.6 29.5 29.5 Gearing (%) cash cash cash cash
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
EBITDA 3,869 4,834 5,530 5,965 ROE (%) 28 36 41 45
Change in W/C 60 700 (167) (99) ROA (%) 23 29 33 35
Taxes paid (695) (897) (1,138) (1,254) Net Margin (%) 24 29 31 32
i) Operating FCF 3,232 4,278 4,304 4,657 Div. Coverage (x) 1.1 1.0 1.0 1.0
Net interest payment 68 42 33 35 Interst Coverage (x) cash cash cash cash
ii) Net FCF 3,300 4,320 4,337 4,692 Asset Turnover (x) 0.9 0.9 1.0 1.1
Investing cashflow (1,314) (1,343) (1,532) (1,590) Asset/Debt (x) cash cash cash cash
iii) Residual cashflow 1,986 2,976 2,805 3,102 Gearing (%) cash cash cash cash
Cashflow fr equity (1,310) (1,885) (2,606) (2,840) Net Gearing (%) cash cash cash cash
Change in net cash 676 1,092 199 262 Debt/EBITDA (x) 0.0 0.0 0.0 0.0
Ending net cash 2,681 3,773 3,971 4,234 Debt/ Market Cap (x) 0.0 0.0 0.0 0.0
Gross CF/Shr (Bt) 1.6 1.9 2.2 2.3 Capex/Debt (x) cash cash cash cash
CF Opera/Shr (Bt) 1.6 2.2 2.2 2.3 Capex/Sales (x) 0.21 0.18 0.17 0.17
Net FCF/Shr (Bt) 1.6 2.2 2.2 2.3 EV (Btm) 50965 49867 49739 49554
CF Int. Cover (x) nm nm nm nm EV/EBITDA (x) 13.2 10.4 9.0 8.3
Quarterly / Interim Income Statement (Bt m)
Revenue Breakdown (Btm)
FY Dec 1Q2007 2Q2007 3Q2007 4Q2007 FY Dec 2006A 2007A 2008F 2009F
Turnover 1,771 1,798 2,037 2,180 -Ad Income 6,114 7,022 7,849 8,474
EBITDA 1,099 1,175 1,288 1,213 -Copyright 295 250 200 160
Depr/Amort (351) (406) (428) (417) -Concerts & Shows 366 513 565 593
Opg Profit 748 769 860 796 Total Revenue 6,775 7,786 8,614 9,227
Asso. Inc/Others 20 31 30 (22)
Interest (Exp)/Inc (0) (0) (0) 37 -Cost of Ad (1,302) (1,233) (1,256) (1,356)
Pre-Tax Profit 768 799 889 811 -Cost of Concerts (373) (471) (536) (563)
Tax (218) (229) (270) (267) -Deprec. & Amor. (1,610) (1,543) (1,599) (1,660)
Minority Interest (9) (8) (15) (26) Total COGS (3,285) (3,247) (3,391) (3,578)
Net Profit 541 588 605 518
Sales Growth % 7.9 4.1 14.3 34.2 SG&A/Sales (%) 19.7 17.5 16.5 16.1
Net Profit Gr % 24.1 26.5 41.6 64.6 Oth. Inc./Sales (%) 1.5 1.5 1.5 1.5
EBITDA Mgn % 62.0 65.4 63.2 55.6 Div. payout ratio (%) 91 100 100 100
Opg Mgn % 42.2 42.8 42.2 36.5 Deferred rights capex 1105 1275 1339 1406
Tax Rate 27.7 28.3 30.3 31.7 Equipment capex 309 129 150 150
Source: Company, DBS Vickers
Page 103

Regional Equity Strategy Q2 2008
KASIKORNBANK
Bloomberg: KBANK TB | Reuters: KBAN.BK
BUY Bt90.00 SET : 820.31
Price Target : 12-Month Bt 103.00
Potential Catalyst: Continued loan growth led by strong demand from
SMEs, and one of the highest ROE among Thai commercial banks.
Analyst
Sugittra Kongkhajornkidsuk +662 657 7825
sugittrak@th.dbsvickers.com
Price Relative
Bt
98 . 30
88 . 30
78 . 30
68 . 30
58 . 30
48 . 30
38 . 30
Relative Index
2004 2005 2006 2007 2008
KASIKORNBANK ( LHS ) Relative SET INDEX ( RHS )
Forecasts and Valuation
FY Dec (Bt m) 2006A 2007A 2008F 2009F
Pre-prov. Profit 22,818 26,003 29,651 33,049
Net Profit 13,664 15,005 16,150 18,340
Net Pft (Pre Ex.) 13,664 15,005 16,150 18,340
EPS (Bt) 5.7 6.3 6.8 7.7
EPS Pre Ex. (Bt) 5.7 6.3 6.8 7.7
EPS Gth Pre Ex (%) (2) 10 8 14
Diluted EPS (Bt) 5.7 6.3 6.8 7.7
PE Pre Ex. (X) 15.7 14.3 13.3 11.7
Net DPS (Bt) 1.8 2.0 2.2 2.7
Div Yield (%) 1.9 2.2 2.5 3.0
ROAE Pre Ex. (%) 16.4 15.9 15.3 15.6
ROAE (%) 16.4 15.9 15.3 15.6
ROA (%) 1.5 1.6 1.5 1.5
BV Per Share (Bt) 37 42 47 52
RNAV per shr (Bt) N/A N/A N/A N/A
P/Book Value (x) 2.4 2.1 1.9 1.7
Consensus EPS (Bt): 6.6 7.8
Sector : Banking
Principal Business: Banking and financial service
203
183
163
143
123
103
83
Sustainable higher loan growth
with good asset quality
Story: KBANK is a market leader with more than
250,000 SME customers nationwide. It is ranked 2nd in
the SME loan market with 21% share (as of 2006), and
registered the 2nd highest loan growth among large
banks at 12.5% in 2007, due mainly to strong demand
from SME loans and its success in penetrating the
untapped micro SME market. The bank continues to
increase lending to the SME sector, with 16-20% SME
loan growth target for FY08F in anticipation of
strengthening Thai economy and consumer confidence
after the general election.
Point: Prospects remain strong with sustainable loan
growth via its focus on high yield lending markets,
especially SME loans. And KBANK has the lowest NPL
ratio in the industry of only 4.4%, and one of the
highest ROE among Thai commercial banks. We expect
14.0% loan growth for FY08F vs. its internal loan
growth target of 10-15%, and fee income growth of
20%.
Relevance: Maintain BUY. KBANK is our top pick
among Thai banks for its prudent management and high
degree of transparency. Prospects remain strong, with
sustainable loan growth via its focus on high yield
lending markets, especially SME loans, and higher fee
income growth. Our new target price is Bt103.0, based
on 2.2x 2008 P/BV.
At A Glance
Issued Capital (m shrs) 2,393
Mkt. Cap (Btm/US$m) 215,393 / 6,842
Major Shareholders
Thai NVDR (%) 19.5
State Street Bank and Trust Company (%) 7.0
Chase Nominees Limited 42 4.4
Free Float (%) 92.1
Avg. Daily Vol.(‘000) 6,466
Page 104
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
KASIKORNBANK
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Net Interest Income 34,613 37,431 42,286 48,524 Cash/Bank Balance 17,857 18,051 16,874 19,523
Non-Interest Income 13,771 17,601 20,361 22,273 Government Securities 22,200 10,700 11,249 19,523
Operating Income 48,384 55,032 62,647 70,797 Inter Bank Assets 82,842 58,724 67,497 91,109
Operating Expenses (25,565) (29,029) (32,996) (37,748) Total Net Loans & Advs. 646,580 737,916 846,043 967,645
Pre-provision Profit 22,818 26,003 29,651 33,049 Investment 101,504 94,937 109,134 129,505
Provisions (5,419) (5,887) (7,800) (7,800) Associates 482 589 548 651
Associates 178 120 180 120 Fixed Assets 22,301 24,534 24,534 24,534
Exceptionals - - - - Goodwill - - - -
Pre-tax Profit 17,788 21,412 22,831 25,969 Other Assets 41,742 49,067 49,067 49,067
Taxation (4,126) (6,408) (6,661) (7,608) Total Assets 935,509 994,518 1,124,947 1,301,557
Minority Interests 1 0 (20) (20) Customer Deposits 750,985 783,822 889,622 1,009,722
Preference Dividend - - - - Inter Bank Deposits 17,608 14,185 20,265 25,314
Net Profit 13,664 15,005 16,150 18,340 Debts/Borrowings 45,793 58,100 58,262 67,701
Net Profit bef Except 13,664 15,005 16,150 18,340 Others 32,883 38,416 45,097 74,674
Minorities 0 0 0 0
Shareholders' Funds 88,238 99,995 111,701 124,146
Total Liab& S/H’s 935,509 994,518 1,124,947 1,301,557
Profitability & Efficiency Ratios (%) Financial Stability Measures (%)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Margins, Costs & Efficiency Balance Sheet Structure
Yld. On Earnings Assets 6.16 6.15 5.97 6.00 Loan-to-Deposit Ratio 90.5 97.4 97.9 98.3
Avg Cost Of Funds 2.20 2.14 1.83 1.92 Net Loans / Total Assets 69.1 74.2 75.2 74.3
Spread 3.96 4.00 4.14 4.07 Investment / Total Assets 10.9 9.5 9.7 10.0
Net Interest Margin 4.12 4.14 4.27 4.24 Cust . Dep./Int. Bear. Liab. 94.5 94.6 94.1 94.3
Cost-to-Income Ratio 52.4 51.5 51.9 52.8 Interbank Dep / Int. Bear. 2.2 1.7 2.1 2.4
Employees ( Year End) 11,219 0 0 N/A Asset Quality
Effective Tax Rate 23.2 29.9 29.2 29.3 NPL / Total Gross Loans 6.8 4.6 3.2 2.3
Business Mix NPL / Total Assets 5.0 3.5 2.5 1.8
Net Int. Inc / Opg Inc. 71.5 68.0 67.5 68.5 Capital Strength
Non-Int. Inc / Opg inc. 28.5 32.0 32.5 31.5 Total CAR 14.7 14.6 15.8 15.9
Fee Inc / Opg Income 22.0 24.2 25.6 26.7 Tier-1 CAR 10.5 10.7 11.5 11.3
Oth Non-Int Inc/Opg Inc 6.5 7.7 6.9 4.8 Growth
Profitability Total Net Loans 9 14 15 14
ROAE Pre Ex. 16.4 15.9 15.3 15.6 Customer Deposits 9 4 13 14
ROAE 16.4 15.9 15.3 15.6
ROA Pre Ex. 1.5 1.6 1.5 1.5
ROA 1.5 1.6 1.5 1.5
Quarterly / Interim Income Statement (Btm)
FY Dec 1Q2007 2Q2007 3Q2007 4Q2007
Net Interest Income 8,823 9,065 9,397 10,145
Non-Interest Income 3,769 4,143 4,427 5,266
Operating Income 12,593 13,208 13,824 15,411
Operating Expenses (6,497) (7,055) (7,146) (8,333)
Pre-Provision Profit 6,096 6,153 6,678 7,078
Provisions (1,006) (1,321) (1,754) (1,806)
Associates 37 37 57 (11)
Exceptionals - - - -
Pretax Profit 5,527 5,455 5,151 5,282
Taxation (1,651) (1,367) (1,739) (1,651)
Minority Interests - - - -
Net Profit 3,877 4,088 3,412 3,631
P/BV (x)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2004 2005 2006 2007
Source: Company, DBS Vickers
Page 105

Regional Equity Strategy Q2 2008
Minor International
Bloomberg: MINT TB | Reuters: MINT.BK
BUY Bt16.40 SET : 820.31
Price Target : 12-month Bt 22.60
Potential Catalyst: Acquisition of more QSR brands, rising value of real
estate business
Analyst
Chaipat Thanawattano +66 2657 7820
chaipatt@th.dbsvickers.com
Price Relative
20 . 00
18 . 00
16 . 00
14 . 00
12 . 00
10 . 00
8 . 00
6 . 00
4 . 00
2 . 00
Bt
Relative Index
2004 2005 2006 2007 2008
Minor International ( LHS ) Relative SET INDEX ( RHS )
Forecasts and Valuation
FY Dec (Bt m) 2006A 2007A 2008F 2009F
Turnover 11,716 13,538 16,586 18,644
EBITDA 3,296 3,764 4,657 5,412
Pre-tax Profit 1,699 2,148 2,580 3,057
Net Profit 1,271 1,611 1,950 2,311
Net Pft (Pre Ex.) 1,295 1,616 1,950 2,311
EPS (Bt) 0.4 0.5 0.7 0.8
EPS Pre Ex. (Bt) 0.4 0.5 0.7 0.8
EPS Gth Pre Ex (%) 14 22 21 19
Diluted EPS (Bt) 0.4 0.5 0.7 0.8
Net DPS (Bt) 0.2 0.2 0.2 0.2
BV Per Share (Bt) 2.6 3.1 3.6 4.2
PE (X) 37.3 30.1 24.9 21.0
PE Pre Ex. (X) 36.6 30.0 24.9 21.0
P/Cash Flow (X) 19.5 17.0 14.7 12.5
EV/EBITDA (X) 16.8 15.2 12.6 11.1
Net Div Yield (%) 0.9 0.9 1.2 1.4
P/Book Value (X) 6.3 5.3 4.6 3.9
Net Debt/Equity (X) 0.9 0.8 0.8 0.8
ROAE (%) 20.0 19.3 19.7 20.1
Consensus EPS (Bt): 0.6 0.7
Sector : Consumer Discretionary
Principal Business: MINT engaged in the hotel, food services,
shopping center, entertainment and other related businesses.
520
470
420
370
320
270
220
170
120
70
Five - hospitality provider
Story: Minor International (MINT) is the leading
hospitality and leisure business operator in Thailand. It is
also the leader in Thailand’s food & beverage industry
with strong brand recognition.
Point: MINT’s advantage over competitors is its strong
brand recognition for both its hotel and Quick Service
Restaurant (QSR). Its hotel portfolio includes leading
global brands such as Marriott, Four Seasons and St
Regis. MINT has also created its own brand, Anantara, a
premium brand for resort and spa in Thailand and the
Maldives. It is also the leader in the QSR businesses,
mainly the pizza (The Pizza) and ice cream (Swensen’s)
segments.
MINT’s growth prospects are good, premised on its
asset-light expansion strategy. Its Thailand businesses
will be mainly owned by the company, but its overseas
expansion will focus on franchising its brands in Asian
countries and the Middle East. Also its newly acquired
50% stake in The Coffee Club should provide growth
opportunities in Australia and New Zealand.
Relevance: We rate MINT with a Buy recommendation.
The current share price offers 38% upside to our DCFbased
target price of Bt22.6/share. We assumed WACC
of 7.6% and terminal growth of 2%. Upside potential
should come from its overseas investments, especially in
the Middle East and China. Key risks are slowdown in
tourism and consumer confidence, and unexpected
natural disasters in tourist destinations.
At A Glance
Issued Capital (m shrs) 3,186
Mkt. Cap (Btm/US$m) 52,251 / 1,660
Major Shareholders
Minor Corporation (%) 17.2
Minor Holding (Thai) (%) 13.8
Mr. Niti Osatanukorn (%) 6.2
Free Float (%) 42.5
Avg. Daily Vol.(‘000) 3,479
Page 106
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Minor International
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Turnover 11,716 13,538 16,586 18,644 Net Fixed Assets 10,411 11,201 14,237 17,369
Cost of Goods Sold (5,395) (5,854) (7,049) (7,793) Invts in Associates & JVs 444 240 1,064 1,197
Gross Profit 6,321 7,684 9,537 10,851 Other LT Assets 4,416 5,304 5,319 5,334
Other Opng (Exp)/Inc (5,014) (5,707) (6,966) (7,831) Cash & ST Invts 512 1,147 1,962 2,314
Operating Profit 1,307 1,977 2,571 3,020 Other Current Assets 2,003 3,387 4,195 4,679
Other Non Opg (Exp)/Inc 537 436 498 559 Total Assets 17,787 21,280 26,778 30,893
Associates & JV Inc 142 56 123 133
Net Interest (Exp)/Inc (262) (315) (612) (656) ST Debt 2,340 1,967 1,709 5,773
Exceptional Gain/(Loss) (24) (5) 0 0 Other Current Liab 1,643 2,042 3,687 4,077
Pre-tax Profit 1,699 2,148 2,580 3,057 LT Debt 5,388 7,186 9,738 7,598
Tax (378) (494) (568) (673) Other LT Liabilities 291 376 376 376
Minority Interest (41) (43) (62) (74) Shareholder’s Equity 7,578 9,200 10,697 12,426
Preference Dividend (9) 0 0 0 Minority Interests 546 508 570 644
Net Profit 1,271 1,611 1,950 2,311 Total Cap. & Liab. 17,787 21,280 26,778 30,893
Net Profit before Except. 1,295 1,616 1,950 2,311
EBITDA 3,296 3,764 4,657 5,412 Non-Cash Wkg. Capital 360 1,345 508 602
Net Cash/(Debt) (7,216) (8,006) (9,485) (11,056)
Sales Gth (%) 16.6 15.6 22.5 12.4
EBITDA Gth (%) 13.2 14.2 23.7 16.2
Opg Profit Gth (%) (5.6) 51.3 30.0 17.5
Net Profit Gth (%) 20.8 26.7 21.1 18.5
Effective Tax Rate (%) 22.3 23.0 22.0 22.0
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Pre-Tax Profit 1,699 2,148 2,580 3,057 Gross Margins (%) 54.0 56.8 57.5 58.2
Dep. & Amort. 1,310 1,295 1,465 1,699 Opg Profit Margin (%) 11.2 14.6 15.5 16.2
Tax Paid (357) (378) (494) (568) Net Profit Margin (%) 10.8 11.9 11.8 12.4
Assoc. & JV Inc/(loss) (142) (56) (123) (133) ROAE (%) 20.0 19.3 19.7 20.1
Chg in Wkg.Cap. (666) (1,743) 964 (25) ROA (%) 7.7 8.2 8.1 8.0
Other Operating CF 625 1,189 (12) (45) ROCE (%) 7.1 9.2 10.4 10.5
Net Operating CF 2,469 2,456 4,379 3,985 Div Payout Ratio (%) 34.3 28.1 29.9 29.9
Capital Exp.(net) (1,951) (2,163) (4,463) (4,791) Net Interest Cover (x) 5.0 6.3 4.2 4.6
Other Invts.(net) (430) (335) 0 0 Asset Turnover (x) 0.7 0.7 0.7 0.6
Invts in Assoc. & JV (142) 203 (823) (133) Debtors Turn (avg days) 16.4 16.8 16.2 16.2
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 27.7 25.8 28.9 35.3
Other Investing CF (604) (577) 0 0 Inventory Turn (avg days) 25.6 29.1 32.0 35.6
Net Investing CF (3,126) (2,871) (5,286) (4,924) Current Ratio (x) 0.6 1.1 1.1 0.7
Div Paid (368) (436) (453) (582) Quick Ratio (x) 0.5 1.0 1.0 0.6
Chg in Gross Debt (55) 1,244 2,113 1,800 Net Debt/Equity (X) 0.9 0.8 0.8 0.8
Capital Issues 1,250 304 0 0 Capex to Debt (%) 25.2 23.6 39.0 35.8
Other Financing CF 8 (62) 62 74 N. Cash/(Debt)PS (Bt) (2.5) (2.7) (3.2) (3.7)
Net Financing CF 835 1,050 1,722 1,291 Opg CFPS (Bt) 1.1 1.4 1.2 1.4
Net Cashflow 178 635 815 352 Free CFPS (Bt) 0.2 0.1 0.0 (0.3)
Quarterly / Interim Income Statement (Bt m)
Segmental Breakdown
FY Dec 1Q2007 2Q2007 3Q2007 4Q2007 FY Dec 2006A 2007A 2008F 2009F
Turnover 3,554 3,012 3,214 3,757 Revenues (Bt m)
Cost of Goods Sold (1,509) (1,389) (1,382) (1,574) Hotel Business 4,600 5,394 6,899 8,093
Gross Profit 2,045 1,624 1,832 2,183 Food & Beverage 5,941 6,405 7,060 8,097
Other Oper. (Exp)/Inc (1,461) (1,365) (1,388) (1,494) Retails & Property 406 434 447 469
Operating Profit 584 259 444 689 Others 769 1,304 2,180 1,986
Other Non Opg (Exp)/Inc 77 127 88 144
Associates & JV Inc 43 4 (13) 23 Total 11,716 13,538 16,586 18,644
Net Interest (Exp)/Inc (70) (66) (81) (98) Gross Profit (cash) (Bt m)
Exceptional Gain/(Loss) (8) (2) 2 3 Hotel Business 3,067 3,638 4,726 5,543
Pre-tax Profit 626 321 440 760 Food & Beverage 3,730 4,032 4,589 5,263
Tax (160) (87) (64) (184) Retails & Property 296 323 335 352
Minority Interest (16) (4) (5) (18) Others 538 986 1,353 1,391
Net Profit 450 230 370 558
Net profit bef Except. 459 232 369 555 Total 7,631 8,980 11,002 12,550
EBITDA 1,031 722 848 1,163 Gross Profit (cash)
Hotel Business 66.7 67.4 68.5 68.5
Sales Gth (%) 10.7 (15.2) 6.7 16.9 Food & Beverage 62.8 63.0 65.0 65.0
EBITDA Gth (%) 7.4 (30.0) 17.4 37.3 Retails & Property 72.9 74.4 75.0 75.0
Opg Profit Gth (%) 52.6 (55.6) 71.3 55.2 Others 70.0 75.6 62.0 70.1
Net Profit Gth (%) 12.9 (48.8) 60.8 50.6
Gross Margins (%) 57.5 53.9 57.0 58.1 Total 65.1 66.3 66.3 67.3
Opg Profit Margins (%) 16.4 8.6 13.8 18.3
Source: Company, DBS Vickers
Page 107

Regional Equity Strategy Q2 2008
PTT Exploration & Production
Bloomberg: PTTEP TB | Reuters: PTTE.BK
BUY Bt154.00 SET : 820.31
Price Target : 12-month Bt 178.00
Potential Catalyst: (i) Higher oil prices, (ii) commencement of Arthit
project, and (iii) announcement of M9 petroleum reserves
Analyst
Vichitr Kuladejkhuna CFA +66 0 26577826
vichitrk@th.dbsvickers.com
Price Relative
Bt
182 . 80
162 . 80
142 . 80
122 . 80
102 . 80
82 . 80
62 . 80
42 . 80
Relative Index
2004 2005 2006 2007 2008
PTT Exploration & Production ( LHS ) Relative SET INDEX ( RHS )
Forecasts and Valuation
FY Dec (Bt m) 2006A 2007A 2008F 2009F
Turnover 89,267 94,059 115,850 133,908
EBITDA 64,753 67,839 85,436 97,929
Pre-tax Profit 49,672 51,401 66,617 76,839
Net Profit 28,047 28,455 38,305 43,798
Net Pft (Pre Ex.) 26,733 27,540 37,071 43,798
EPS (Bt) 8.5 8.6 11.6 13.3
EPS Pre Ex. (Bt) 8.1 8.3 11.2 13.3
EPS Gth Pre Ex (%) 13 3 35 18
Diluted EPS (Bt) 8.5 8.6 11.6 13.3
Net DPS (Bt) 3.2 3.3 4.3 5.0
BV Per Share (Bt) 26.9 32.4 40.8 49.8
PE (X) 18.0 17.9 13.3 11.6
PE Pre Ex. (X) 18.9 18.4 13.7 11.6
P/Cash Flow (X) 11.8 11.3 9.0 7.9
EV/EBITDA (X) 7.7 7.4 6.0 5.3
Net Div Yield (%) 2.1 2.1 2.8 3.2
P/Book Value (X) 5.7 4.8 3.8 3.1
Net Debt/Equity (X) CASH 0.0 0.1 0.1
ROAE (%) 35.0 29.1 31.8 29.3
Consensus EPS (Bt): 11.2 12.0
Sector : Energy
Principal Business: Explore and produce natural gas, crude oil and
condensate
265
245
225
205
185
165
145
125
105
85
Jump start new growth phase
Story: PTTEP is the only listed E&P play in the Thai market.
In addition to direct exposure to crude oil prices, the
counter also offers exceptional earnings growth from the
upcoming start up of new projects.
Point: After significant volume growth in 2004-05
following assets acquisition, PTTEP’s sales volume sets to
grow 19% CAGR during 2008-10 driven by key projects
include (i) Arthit project (80% interest) in Feb 2008 -- gas:
330mmscfd plus 120mmscfd short-term supply, (ii)
Vietnam Block 9-2 (25%) in 3Q08 -- oil: 20,000bpd, (iii)
MTJDA (50%) in 2H09 - gas: 270mmscfd with option to
raise to 470mmscfd, (iv) Vietnam 16-1 (28.5%) in 2010 --
oil potential of c.30,000bpd, and (v) M9 (100%) in 2012 --
gas potential of c.300mmscfd. Other ongoing exploration
projects should provide long term upside. Earnings are
expected to rise 35% and 18% in 2008-09, respectively.
Relevance: The counter is trading at 13.3x 2008 PE, 60x
EV/EBITDA, and offers 2.8% dividend yield. With our DCF
target price of Bt178, the counter offers 16% upside to
our target price. We reiterate Buy rating. Key risks are: (i)
sharp collapse in crude prices, (ii) project delays, and (iii)
higher than expected operating costs of new projects.
At A Glance
Issued Capital (m shrs) 3,298
Mkt. Cap (Btm/US$m) 507,939 / 16,135
Major Shareholders
PTT (%) 65.7
The Bank Of New York (Nominees) Ltd (%) 2.6
Nortrust Nominees Ltd. (%) 1.6
Free Float (%) 33.4
Avg. Daily Vol.(‘000) 7,771
Page 108
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
PTT Exploration & Production
Income Statement (Bt m) Balance Sheet (Bt m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Turnover 89,267 94,059 115,850 133,908 Net Fixed Assets 121,504 144,089 187,696 218,327
Cost of Goods Sold (37,875) (40,240) (45,185) (51,942) Invts in Associates & JVs 0 0 0 0
Gross Profit 51,392 53,819 70,664 81,966 Other LT Assets 1,345 1,695 1,345 1,345
Other Opng (Exp)/Inc (3,053) (3,369) (3,939) (4,151) Cash & ST Invts 18,521 24,013 13,607 8,268
Operating Profit 48,339 50,449 66,725 77,814 Other Current Assets 16,444 20,242 19,654 23,780
Other Non Opg (Exp)/Inc 1,517 1,047 581 (553) Total Assets 157,813 190,039 222,302 251,719
Associates & JV Inc (9) (22) 0 0
Net Interest (Exp)/Inc (175) (73) (690) (423) ST Debt 7,003 0 0 3,500
Exceptional Gain/(Loss) 0 0 0 0 Other Current Liab 31,781 34,457 37,814 38,203
Pre-tax Profit 49,672 51,401 66,617 76,839 LT Debt 2,204 18,500 21,165 17,385
Tax (21,624) (22,946) (28,312) (33,041) Other LT Liabilities 28,301 30,296 28,842 28,369
Minority Interest 0 0 0 0 Shareholder’s Equity 88,524 106,787 134,481 164,261
Preference Dividend 0 0 0 0 Minority Interests 0 0 0 0
Net Profit 28,047 28,455 38,305 43,798 Total Cap. & Liab. 157,813 190,039 222,302 251,719
Net Profit before Except. 28,047 28,455 38,305 43,798
EBITDA 64,753 67,839 85,436 97,929 Non-Cash Wkg. Capital (15,338) (14,215) (18,160) (14,424)
Net Cash/(Debt) 9,314 5,513 (7,558) (12,617)
Sales Gth (%) 30.6 5.4 23.2 15.6
EBITDA Gth (%) 28.1 4.8 25.9 14.6
Opg Profit Gth (%) 19.1 4.4 32.3 16.6
Net Profit Gth (%) 18.2 1.5 34.6 14.3
Effective Tax Rate (%) 43.5 44.6 42.5 43.0
Cash Flow Statement (Bt m)
Rates & Ratio
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Pre-Tax Profit 49,672 51,401 66,617 76,839 Gross Margins (%) 57.6 57.2 61.0 61.2
Dep. & Amort. 16,811 16,438 18,130 20,667 Opg Profit Margin (%) 54.2 53.6 57.6 58.1
Tax Paid (21,624) (22,946) (28,312) (33,041) Net Profit Margin (%) 31.4 30.3 33.1 32.7
Assoc. & JV Inc/(loss) 9 22 0 0 ROAE (%) 35.0 29.1 31.8 29.3
Chg in Wkg.Cap. (728) (1,224) 2,533 (3,709) ROA (%) 18.6 16.4 18.6 18.5
Other Operating CF 136 2,650 1,172 (500) ROCE (%) 34.1 28.6 30.8 27.8
Net Operating CF 42,215 45,142 58,906 60,257 Div Payout Ratio (%) 37.6 38.0 36.6 37.7
Capital Exp.(net) (35,052) (39,052) (61,736) (51,298) Net Interest Cover (x) 275.9 693.8 96.8 183.8
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 0.6 0.5 0.6 0.6
Invts in Assoc. & JV (30) (600) 578 0 Debtors Turn (avg days) 34.3 43.6 41.0 41.2
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 14.4 17.0 16.6 12.5
Other Investing CF (84) (57) 0 0 Inventory Turn (avg days) 34.7 40.4 34.7 30.1
Net Investing CF (35,166) (39,709) (61,158) (51,298) Current Ratio (x) 0.9 1.3 0.9 0.8
Div Paid (10,856) (10,235) (10,818) (14,018) Quick Ratio (x) 0.8 1.2 0.8 0.7
Chg in Gross Debt (8,235) 9,736 2,665 (280) Net Debt/Equity (X) CASH 0.0 0.1 0.1
Capital Issues 401 563 0 0 Capex to Debt (%) 380.7 211.1 291.7 245.6
Other Financing CF (345) (5) 0 0 N. Cash/(Debt)PS (Bt) 2.8 1.7 (2.3) (3.8)
Net Financing CF (19,036) 59 (8,153) (14,298) Opg CFPS (Bt) 13.1 14.1 17.1 19.4
Net Cashflow (11,986) 5,492 (10,405) (5,340) Free CFPS (Bt) 2.2 1.8 (0.9) 2.7
Quarterly / Interim Income Statement (Bt m)
Segmental Breakdown
FY Dec 1Q2007 2Q2007 3Q2007 4Q2007 FY Dec 2006A 2007A 2008F 2009F
Turnover 20,557 22,478 23,384 27,640 Revenues (Bt m)
Cost of Goods Sold (8,084) (9,219) (10,651) (12,286) Gas 86,339 90,764 112,550 130,608
Gross Profit 12,474 13,258 12,733 15,354 Pipeline sales 2,928 3,295 3,300 3,300
Other Oper. (Exp)/Inc (814) (831) (679) (1,045) Total 89,267 94,059 115,850 133,908
Operating Profit 11,659 12,428 12,053 14,309
Other Non Opg (Exp)/Inc 496 257 467 (174)
Associates & JV Inc 0 (13) (9) 0
Net Interest (Exp)/Inc 39 6 (129) 11
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 12,194 12,678 12,383 14,146
Tax (5,420) (5,520) (5,337) (6,668)
Minority Interest 0 0 0 0
Net Profit 6,774 7,158 7,046 7,478
Net profit bef Except. 6,774 7,158 7,046 7,478
EBITDA 15,743 16,617 16,608 18,871
Sales Gth (%) (1.9) 9.3 4.0 18.2
EBITDA Gth (%) 6.6 5.5 (0.1) 13.6
Opg Profit Gth (%) 4.6 6.6 (3.0) 18.7
Net Profit Gth (%) 10.7 5.7 (1.6) 6.1
Gross Margins (%) 60.7 59.0 54.5 55.6
Opg Profit Margins (%) 56.7 55.3 51.5 51.8
Net Profit Margins (%) 33.0 31.8 30.1 27.1
Source: Company, DBS Vickers
Page 109

Regional Equity Strategy Q2 2008
Country Assessment
Indonesia
Break time
JCI Current : 2,419.6
JCI 3 / 12 mths Target : 2,340 / 3,040
Expected Return : -3.3% / +25.6%
We experienced a period of turbulence and falling risk
appetite in 1Q08 amidst global market volatility. While
the US slowdown could set back the commodity sector
that had been the main JCI driver, it can also ease
inflationary pressures and the government budget deficit.
With lower risk appetite, high volatility and risks of
downside earnings revision, 2Q08 is a time to be
defensive.
We are concerned about the impact of high crude oil and commodity prices on
the Indonesian economy and government budget, but the recent declines from
its peak in commodity prices present an offsetting result. Lower crude oil price
could provide relief for the government budget, but with other commodity
prices mirroring the decline, the JCI could well run out the steam.
Using the 2004 election as a guide, we expect a pick up in private consumption
expenditure (PCE) in 4Q08 as Indonesia’s election approaches. We expect the
government to increase public spending from 4Q08 onwards to raise consumer
purchasing power. Meanwhile, DBS Economics expects Indonesia to achieve
6.5% GDP growth this year, driven by strong domestic demand.
But until then, we choose to be defensive in 2Q08. We like sectors that are less
affected by the economic cycle, and companies with stable cash flows and high
dividend yield. We are maintaining our Overweight rating for the Energy and
alternative energy sectors, which will benefit from higher average prices in FY08.
We also like the Telecommunication sector as a defensive sector, but
downgrade the Consumer sector to Neutral, due to inflationary pressure. Our
weighting for the other sectors are unchanged.
Agus Pramono (6221) 39832668. agus.pramono@id.dbsvickers.com
Page 110
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Country Assessment
Market Data
Close Chg net % Change 52 week
Index 25-Mar-08 -1mth -1mth -3mth -6mth -12mth High Low
JCI 2,419.6 (302.3) (11.1) (11.9) 2.6 32.6 2,830.3 1,800.4
LQ45 520.2 (70.6) (11.9) (11.0) 4.3 33.5 621.1 383.0
Consumer 399.8 (30.3) (7.0) (5.9) (5.5) 3.8 466.8 356.7
Finance 225.4 (23.1) (9.3) (47.0) (8.8) 14.6 274.6 195.8
Infrastructure 777.4 (24.2) (3.0) (10.5) (8.6) 6.9 969.0 675.6
Manufacturing 352.1 (38.0) (9.7) (10.1) 0.0 28.5 419.5 271.4
Property 197.7 (31.8) (13.8) (19.0) (18.0) 38.3 255.7 142.4
Mining 2,826.0 (728.7) (20.5) (13.6) 39.7 110.8 3,597.2 1,256.6
Agriculture 2,944.8 (442.9) (13.1) 6.9 59.5 141.3 3,480.8 1,203.9
Basic Industries 196.4 (19.4) (9.0) (17.5) (4.9) 35.5 250.2 144.3
Misc. Industry 420.7 (62.4) (12.9) (11.9) 12.5 63.3 507.7 249.3
Trade & Service 356.8 (39.4) (9.9) (9.0) (2.9) 18.0 410.4 299.1
Transactions
YTD
Volume (bn) 191.5
Value (IDRtr) 301.1
Source: Bloomberg
Market Review
The Indonesian market lost 11.9% (8.2% in US$) in 1Q08
in an increasingly volatile environment that mirrored the
global equity market. The Agriculture and Consumer sector
indices were the best performers in 1Q08, but the latter
had underperformed in the last 12 months.
However, despite the recent run up in CPO price to
RM3,500/ton from RM2,500/ton (average in 2006), and
coal price from US$67/ton to US$125 in mid-March, prices
of CPO plantation and coal mining stocks under our
coverage fell 7.8% and 4.4%, respectively.
Market ignorance of the risks of high oil and commodity
prices on Indonesia’s economy sent the JCI to its historic
high of 2,830 on 9 Jan 2008, one week before the
global equity sell off that caused the JCI to tumble 5%
on 16 Jan 2008.
Liquidity
The central bank’s open market committee maintained
the policy rate at 8% in the last two meetings in Jan and
Feb 2008, on the back of rising inflationary pressure. DBS
Economics is retaining its interest rate expectations at
8% for the year, but raised inflation forecast to 7.2%.
Inflation was 7.36% and 7.40% in Jan and Feb 2008,
driven by rising food prices. Food inflation had been a
major problem for Indonesia over the last three years,
and has created cautious consumer sentiment. On the
supply side, companies could only partially pass on
higher costs to customers.
Higher inflation this year
% YoY
20
18
16
14
12
10
8
6
4
2
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Source: CEIC
Headline CPI YoY
Core CPI YoY
DBSf
But despite inflationary risks, domestic liquidity should
remain high as interest rates are expected to stay low.
7.2
6.4
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Regional Equity Strategy Q2 2008
Country Assessment
The government has also started pumping liquidity by
introducing social welfare programs such as cooking
oil subsidies and raising civil servant salaries by 20%.
Nevertheless, we expect fiscal spending to improve
consumer sentiment, and spending will begin in 4Q08.
Resources (BUMI) and Indo Tambang Raya Megah
(ITMG) should post higher EPS growth.
Coal and CPO price
140.0
Coal
Declining risk appetite
3,000
2,600
Rpbn
2,500
1,500
USD/tonne
115.0
90.0
DBSVI forecast
(US$100/tonne
500
65.0
2,200
(500)
40.0
Dec-06 May-07 Sep-07 Jan-08 Aug-08
1,800
(1,500)
Jun-07 Aug-07 Sep-07 Nov-07 Jan-08 Mar-08
Net Subscrip(Redeemp.) JCI (LHS)
1,500.0
CPO
Source: Bapepam
Meanwhile, we saw for the first time a net outflow
from mutual funds in Feb08, after six months of net
inflow. We believe this reflects declining risk appetite
among local investors. However, the government was
crowding the market at the same time by issuing retail
bonds. If the volatility continues, there could be more
redemptions.
Growth
DBS economics team still expects GDP to grow 6.5%
in 2008, driven by strong domestic demand. PCE is
forecast to grow 5.3% -- it should be stable at 5.2%
in the first three quarters and accelerate to 5.6% in
4Q08. The drivers of strong PCE growth are the wage
increase that is mandated by the government, and
stronger hiring in 1Q08.
We forecast 2008 EPS to grow at a more normalised
pace of 15.8% y-o-y, with the Plantation sector as the
key driver. We raised our CPO forecast price to
RM3,100 per ton from RM2,600, and accordingly
upgraded our forecasts for Bakrie Sumatra (UNSP),
Astra Agro (AALI) and London Sumatra (LSIP).
The Energy sector should benefit from the current
high crude and coal prices as well. With coal price
hovering at US$120 per ton, coal miners such as Bumi
USD/tonne
1,250.0
1,000.0
750.0
500.0
Source: Bloomberg
EPS growth
DBSVI forecast
US$155/tonne
Dec-06 May-07 Sep-07 Jan-08 Aug-08
07E 08F 09F
Conglomerate/Automotive 7.0 32.2 10.0
Property 22.0 (2.0) (11.5)
Infrastructure 20.3 19.3 13.3
Consumer (11.1) 28.2 19.0
Banks 36.9 25.0 17.8
Plantation 89.0 70.1 1.1
Basic Materials 148.0 (8.3) (16.6)
Oil, Gas & Energy 0.2 20.6 59.8
Telecomm. (13.3) 9.8 17.6
Market 61.6 15.8 17.1
The risk, however, is inflation. High crude oil and
commodity prices have pushed up domestic inflation.
But even if high commodity prices have benefited
some commodity rich areas, the aggregate impact is
negative because 60% of Indonesia’s population
resides on Java island.
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Regional Equity Strategy Q2 2008
Country Assessment
Additionally, we are reminded of 4Q05, just before
the government lowered fuel price subsidy. The
government had to pay Rp97.9tr in subsidies for oil
when the price was US$83/bbl. The government now
plans to raise its price assumption to US$95/bbl.
Budget pressured by strong oil price
There is also a risk of earnings downgrades if inflationary
pressure takes its toll. On the other hand, a slowdown in
global economies is expected to ease inflationary
pressure, although it could result in earnings downgrades
for energy and resource companies.
Strategy
Deficit to GDP ratio (%)
2.5
2
1.5
1
0.5
Govt
forecast
2.1%
We believe 2Q08 is a time to be defensive, premised on
rising risk aversion, high volatility, and downside risk of
earnings revision.
We are still looking at Energy & Plantation sectors to
perform in 2Q08 because crude oil and CPO price in
2008 is still higher than in FY07. And the recent run
up in coal price is driven by global infrastructure
problems that are delaying or halting coal deliveries, a
problem that cannot be resolved within a short time.
Hence, we maintain our Overweight call for the sector.
0
Source: CEIC
Valuation
2000 2001 2002 2003 2004 2005 2006 2007 2008
The JCI is currently trading at 14.5x 2008 PER, more
expensive that its regional peers. Hence, we see the
risk of de-rating if commodity prices tumble.
Neutral view in 2008
2008
Pessimistic DBSVI Optimistic
Key macro factors
FX/BOP Deteriorate x Improve
Interest rate Rising x Stable
Inflation Rising x Stable
GDP Growth Decline x Rising
Political factor Weaken x Stable
Macro policy Maintain x Expanding
Domestic liquidity Tighter x Expanding
External liquidity Deteriorate x Positive
Profit growth Declined x Accelerating
Balance sheet Stable x De-leverage
As mentioned in 1Q08 Brainwaves, we see limited
headroom for upward earnings revisions, and market
valuation is determined more by liquidity and risk appetite.
Importantly, liquidity and risk appetite are likely to fall in
tandmen, accentuating the downward impact on
valuations.
Meanwhile, we downgrade the Consumer sector to
Neutral on concerns of the impact of inflationary
pressure on the lower-income groups and cautious
spending by the higher income group. But the sector
should still benefit from the government’s sentiment
boosting measures possibly in 4Q08.
Consumers turn more cautious
Optimists
Pessimists
Index
160
140
120
100
80
Source: CEIC
Economy nxt 6mths
Employment nxt 6mths
60
Latest: Jan08
40
Jan-05 Oct-05 Jul-06 Apr-07 Jan-08
We maintain our Neutral stance on the Property,
Cement & Construction, Banking, and Basic Material
sectors, and Overweight the Telecommunication
sector
Page 113

Regional Equity Strategy Q2 2008
Country Assessment
Earnings Estimates by Sector
EPS Growth % CAGR PATMI (Rpbn) PE (x)
2007 2008 2009 07-09 2007 2008 2009 2007 2008 2009
Conglomerate/Automotive 75.6 32.2 10.0 20.6 6,519 8,617 9,479 14.9 11.3 10.2
Property (5.3) (2.0) (11.5) (6.9) 350 343 304 8.9 10.1 12.8
Cement and construction 38.1 19.3 13.3 16.3 3,123 3,726 4,222 24.2 19.7 16.9
Consumer 14.7 28.2 19.0 23.5 5,854 7,506 8,932 24.5 20.1 16.8
Bank 28.0 25.0 17.8 21.4 17,316 21,646 25,502 17.1 13.7 11.6
Plantation 93.5 70.1 1.1 31.1 2,657 4,521 4,570 24.7 14.4 14.5
Basic Materials 148.0 (8.3) (16.6) (12.5) 19,423 17,812 14,856 8.8 7.4 8.9
Oil, Gas and Energy 131.4 20.6 59.8 38.8 13,713 16,539 26,429 22.2 17.0 10.7
Telecommunications 26.3 9.8 17.6 13.7 15,677 17,218 20,255 15.0 13.6 11.5
Grand Total 61.6 15.8 17.1 16.4 84,633 97,928 114,54 18.2 14.5 11.9
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Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stocks for Indonesia
SECTOR REMARKS STOCK SELECTION
Conglomerate/Auto.
Overweight
Property
Neutral
Astra International (ASII) has a diversified business that includes
automotive, coal mining and plantation operations. We were Neutral
on the automotive sector in 1Q08. But since ASII’s profit from heavy
equipment, and coal & plantation had risen to 12.6% and 22.3% of
group profit, respectively, we classify ASII as a conglomerate. ASII is
a Buy with target price at Rp34,000.
The Property sector is a beneficiary of low interest rates and
recovering domestic demand. However, interest rates should not fall
much more in 2008 due to rising inflationary pressure. We remain
Neutral on the sector.
ASII
CTRS
Cement and Constructio
Neutral
Domestic cement consumption was robust with Feb data up 17.9%
y-o-y (YTD +17.5% y-o-y), while news flows about infrastructure
projects, especially power plants and toll roads had been positive so
far. This is in line with our expectation that cement demand will
remain strong this year and construction activities will pick up as the
economy continues to accelerate.
TOTL, SMGR
Consumer Goods
Neutral
Banking
Neutral
For cement producers, we favor SMGR for its diversified market
share, less reliance on diesel fuel (no longer subsidized since 4Q05)
compared to its peers, strong balance sheet and more importantly,
undemanding PER valuation. For construction, we like TOTL because
it looks attractive after tumbling c.55% over the last six months.
YTD-February retail sales showed strong growth; RALS’ sales and
same-store-sales grew 24.7% and 12.5% y-o-y, respectively.
However, the low base in the same period last year could be the
main reason. We would wait for 1H08 data before confirming the
strong growth trend.
We believe that economic growth outside Java will be stronger than
Java due to the surge in commodity prices. RALS is the main
beneficiary of rising purchasing power outside Java. Its simple and
compact store concept and strong distribution network in small
cities outside Java are the company’s competitive advantages.
We maintain our Neutral call on the Banking sector premised on
expectations of rising inflation, slower economic growth and lower
loan growth. There are also concerns of higher cost of funds with
the issue of a series of retail bonds by the government. We maintain
our Buy call for Bank Danamon (BDMN), which has diversified
business segments.
RALS
BDMN
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Regional Equity Strategy Q2 2008
Country Assessment
Sector recommendation and stocks for Indonesia
SECTOR REMARKS STOCK SELECTION
Plantation
Overweight
Basic Materials
Neutral
Energy
Overweight
Telecommunications
Overweight
Increasing speculative activities in commodities might explain the
wild movement in CPO prices recently. Despite a 25% correction
from its record high, CPO price remains 34% higher than last year’s
average. More importantly, it is still 7% higher than our
assumptions. We expect that CPO prices will peak this year and
remain high over the next two years. We maintain our Overweight
call for the sector and believe that the current share price weakness
offers an attractive buying opportunity.
Our top picks are Astra Agro Lestari (AALI) the largest plantation
company in Indonesia that has the lowest cost, and UNSP for its
impressive growth strategy.
We maintain our Neutral stance for Basic Materials, as current prices
are well below the peak in 2007. But we still favor tin because the
price has continued to scale new highs due to tight supply outlook
coupled with firm demand. Our top pick in the sector is PT Timah
(TINS), the second largest tin producer in the world.
Energy prices have continued to march upwards led by oil. A
weakened dollar and high demand have pushed up energy price
despite expectation of a global economy slowdown. High oil price
has influenced the price of other energy commodities, namely coal.
Coal has continued to strengthen to record levels amid strong
demand and supply constraints.
Hence, we expect energy-related companies to generate strong
earnings growth this year. Demand for coal will be robust both
domestically and globally, mainly from coal-fired power plants.
Strong economic growth in Asian countries, mainly China and India,
also spurred demand for coal, mostly for power plants.
Our top picks are Bumi Resources (BUMI) and Indo Tambangraya
(ITMG) for coal companies, and Medco Energi (MEDC) in the Oil &
Gas sector.
We reiterate our Overweight stance on the Telco sector. We think
the market is too bearish due to the following concerns: (i) lower
interconnect rates would hurt earnings, although it could lift
earnings if off-net tariffs fall amid an elastic market; (ii) lower ARPU
would hurt earnings, but this is would be (interconnect) cost-led, not
due to competitive pricing. Hence, earnings should remain intact;
and (iii) higher capex spending, but this is to cater for anticipated
growth in volume, which means it would be revenue-driven.
Given the low 40% GSM penetration rate in Indonesia, there is
ample room for subscriber growth. Indonesia’s subscriber base could
double over the next five years, as healthy 6.5% GDP growth and
stable inflation and interest rate outlook for 2008 should augur well
for consumption. Telcos will continue to promote low (affordable)
tariffs to encourage subscriber growth and usage. Coupled with
falling handset prices, we expect telco revenues to see healthy
growth. Promotional tariffs will also lead to higher earnings.
AALI, UNSP
TINS
BUMI, ITMG, MEDC
ISAT, TLKM
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Country Assessment
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Regional Equity Strategy Q2 2008
Astra International
Bloomberg: ASII IJ | Reuters: ASII.JK
BUY Rp23,950 JCI : 2,419.6
Price Target : 12-Month Rp 34,000
Potential Catalyst: Coal mining acquisition
Analyst
Agus Pramono CFA +6221 3983 2668
agus.pramono@id.dbsvickers.com
Price Relative
Rp
29,590.00
24,590.00
19,590.00
14,590.00
9,590.00
4,590.00
Relative Index
2004 2005 2006 2007 2008
Astra International (LHS) Relative JCI INDEX (RHS)
Forecasts and Valuation
FY Dec (Rp bn) 2006F 2007F 2008F 2009F
Turnover 55,508 70,183 82,751 94,775
EBITDA 7,596 12,708 13,350 15,230
Pre-tax Profit 5,872 10,634 12,445 13,698
Net Profit 3,712 6,519 8,617 9,479
Net Pft (Pre Ex.) 3,712 6,519 8,617 9,479
EPS (Rp) 916.9 1,610.4 2,128.6 2,341.4
EPS Pre Ex. (Rp) 916.9 1,610.4 2,128.6 2,341.4
EPS Gth Pre Ex (%) (32) 76 32 10
Diluted EPS (Rp) 916.9 1,610.4 2,128.6 2,341.4
Net DPS (Rp) 490.0 450.0 483.1 638.6
BV Per Share (Rp) 5,527.1 6,660.1 8,305.6 10,008.5
PE (X) 26.1 14.9 11.3 10.2
PE Pre Ex. (X) 26.1 14.9 11.3 10.2
P/Cash Flow (X) 26.4 15.0 13.4 11.1
EV/EBITDA (X) 15.5 9.1 8.4 7.1
Net Div Yield (%) 2.0 1.9 2.0 2.7
P/Book Value (X) 4.3 3.6 2.9 2.4
Net Debt/Equity (X) 0.6 0.4 0.2 0.1
ROAE (%) 17.3 26.4 28.4 25.6
Consensus EPS (Rp): 1,470 1,867 2,191
205
185
165
145
125
105
85
Diversifying into coal mining
Story: Astra International (ASII) has been looking to
acquire coal mining assets since early last year to
diversify its business.
Point: ASII should register robust growth in 2008, driven
by anticipated firm domestic auto sales and higher
commodity prices. Expected strong GDP growth of 6.5%
and a low interest rate environment in 2008 will be the
catalysts for stronger domestic auto sales. We raised our
CPO price assumptions by 17% to US$1,050/tonne for
2008, and coal price by 25% to US$100/tonne.
Acquisition of more coal mines will benefit the company
over the longer term, and secure the utilisation of United
Tractors (UNTR)’s mining contracting division.
Relevance: We reiterate our Buy call for ASII with a
target price of Rp34,000, based on sum-of-parts
valuation. Our call is premised on its solid management,
good corporate governance and diversified business with
exposure to automotive, CPO and coal. We believe the
stock provide a diversified exposure to consumer
purchasing recovery and high commodity prices.
At A Glance
Issued Capital (m shrs) 4,048
Mkt. Cap (Rpbn/US$m)
96,958 / 10,555
Major Shareholders
Cycle & Carriage (%) 50.1
Free Float (%) 49.9
Avg. Daily Vol.(‘000) 6,012
Sector : Consumer Goods
Principal Business: Automotive
Page 118
www.dbsvickers.com
Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Astra International
Income Statement (Rp bn)
Balance Sheet (Rp bn)
FY Dec 2006F 2007F 2008F 2009F FY Dec 2006F 2007F 2008F 2009F
Turnover 55,508 70,183 82,751 94,775 Net Fixed Assets 13,030 14,127 14,877 15,193
Cost of Goods Sold (43,386) (53,694) (63,393) (73,621) Invts in Associates & JVs 8,504 9,771 9,960 10,839
Gross Profit 12,122 16,489 19,358 21,154 Other LT Assets 20,663 20,147 22,203 24,165
Other Opng (Exp)/Inc (7,131) (7,988) (8,521) (9,158) Cash & ST Invts 5,148 6,465 11,026 19,434
Operating Profit 4,991 8,501 10,837 11,997 Other Current Assets 10,583 13,009 13,650 14,597
Other Non Opg (Exp)/Inc (72) 590 174 (36) Total Assets 57,929 63,520 71,715 84,228
Associates & JV Inc 1,360 1,831 1,868 2,026
Net Interest (Exp)/Inc (407) (288) (434) (288) ST Debt 12,502 10,998 4,000 3,500
Exceptional Gain/(Loss) 0 0 0 0 Other Current Liab 7,568 10,345 10,795 12,425
Pre-tax Profit 5,872 10,634 12,445 13,698 LT Debt 9,451 8,848 16,636 20,360
Tax (1,381) (2,663) (2,427) (2,671) Other LT Liabilities 1,977 1,321 1,254 1,284
Minority Interest (779) (1,451) (1,401) (1,548) Shareholder’s Equity 22,376 26,963 33,624 40,518
Preference Dividend 0 0 0 0 Minority Interests 4,055 5,045 5,405 6,142
Net Profit 3,712 6,519 8,617 9,479 Total Cap. & Liab. 57,929 63,520 71,715 84,228
Net Profit before Except. 3,712 6,519 8,617 9,479
EBITDA 7,596 12,708 13,350 15,230 Non-Cash Wkg. Capital 3,015 2,663 2,855 2,172
Net Cash/(Debt) (16,805) (13,380) (9,611) (4,426)
Sales Gth (%) (10.1) 26.4 17.9 14.5
EBITDA Gth (%) (20.4) 67.3 5.0 14.1
Opg Profit Gth (%) (22.2) 70.3 27.5 10.7
Net Profit Gth (%) (32.0) 75.6 32.2 10.0
Effective Tax Rate (%) 23.5 25.0 19.5 19.5
Cash Flow Statement (Rp bn)
Rates & Ratio
FY Dec 2006F 2007F 2008F 2009F FY Dec 2006F 2007F 2008F 2009F
Pre-Tax Profit 5,872 10,634 12,445 13,698 Gross Margins (%) 21.8 23.5 23.4 22.3
Dep. & Amort. 1,317 1,787 471 1,244 Opg Profit Margin (%) 9.0 12.1 13.1 12.7
Tax Paid 0 0 0 0 Net Profit Margin (%) 6.7 9.3 10.4 10.0
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 17.3 26.4 28.4 25.6
Chg in Wkg.Cap. 6,672 969 (2,786) (1,041) ROA (%) 6.2 10.7 12.7 12.2
Other Operating CF (1,286) (2,971) (3,089) (3,263) ROCE (%) 8.5 14.4 18.6 19.4
Net Operating CF 10,589 9,152 6,853 9,758 Div Payout Ratio (%) 53.4 27.9 22.7 27.3
Capital Exp.(net) (2,804) (2,848) (1,152) (1,500) Net Interest Cover (x) 12.3 29.5 25.0 41.7
Other Invts.(net) (50) (584) 401 (201) Asset Turnover (x) 0.9 1.2 1.2 1.2
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 32.7 27.5 28.9 29.3
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 30.8 25.2 24.7 25.3
Other Investing CF 353 390 385 598 Inventory Turn (avg days) 38.4 29.2 25.6 20.7
Net Investing CF (2,500) (3,042) (366) (1,102) Current Ratio (x) 0.8 0.9 1.7 2.1
Div Paid (1,984) (1,822) (1,956) (2,585) Quick Ratio (x) 0.6 0.7 1.4 1.9
Chg in Gross Debt (4,566) (2,108) 791 3,223 Net Debt/Equity (X) 0.6 0.4 0.2 0.1
Capital Issues 0 0 0 0 Capex to Debt (%) 12.8 14.3 5.6 6.3
Other Financing CF (748) (645) (761) (886) N. Cash/(Debt)PS (Rp) (4,151.1) (3,305.0) (2,374.0) (1,093.3)
Net Financing CF (7,298) (4,575) (1,926) (248) Opg CFPS (Rp) 967.7 2,021.3 2,380.9 2,667.6
Net Cashflow 791 1,535 4,560 8,408 Free CFPS (Rp) 1,923.1 1,557.3 1,408.1 2,039.9
Quarterly / Interim Income Statement (Rp bn)
2008F Turnover Breakdown
FY Dec 3M2007 6M2007 9M2007 12M2007
Turnover 14,731 31,571 50,621 70,183
Cost of Goods Sold (11,414) (24,444) (38,837) (53,694)
Gross Profit 3,317 7,127 11,784 16,489
Other Oper. (Exp)/Inc (1,693) (3,815) (5,929) (7,988)
Operating Profit 1,623 3,313 5,855 8,501
Other Non Opg (Exp)/Inc 114 363 654 590
Associates & JV Inc 385 771 1,269 1,831
Net Interest (Exp)/Inc (115) (197) (230) (288)
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 2,007 4,251 7,548 10,634
Tax (482) (1,058) (1,940) (2,663)
Minority Interest (249) (565) (1,028) (1,451)
Net Profit 1,275 2,628 4,581 6,519
Net profit bef Except. 1,275 2,628 4,581 6,519
EBITDA 2,738 5,743 9,730 13,583
Sales Gth (%) (73.5) 114.3 60.3 38.6
EBITDA Gth (%) (67.5) 109.8 69.4 39.6
Opg Profit Gth (%) (67.5) 104.1 76.7 45.2
Net Profit Gth (%) (65.6) 106.0 74.3 42.3
Gross Margins (%) 22.5 22.6 23.3 23.5
Opg Profit Margins (%) 11.0 10.5 11.6 12.1
Net Profit Margins (%) 8.7 8.3 9.0 9.3
Source: Company, DBS Vickers
Financial
services
10%
Automotive -
elimination
51%
Agribusiness
10%
Information
tecnology
1%
Heavy
equipment
28%
Page 119

Regional Equity Strategy Q2 2008
Bumi Resources
Bloomberg: BUMI IJ | Reuters: BUMI.JK
BUY Rp6,100 JCI : 2,419.6
Price Target: 12-Month Rp7,500
Potential Catalyst: Herald Resources acquisition, metal (gold, cooper,
iron ore) mining development
Analyst
Yusuf Ade Winoto CFA +6221 3983 2668
yusuf.winoto@id.dbsvickers.com
Price Relative
Rp
8,319.50
7,319.50
6,319.50
5,319.50
4,319.50
3,319.50
2,319.50
1,319.50
319.50
Relative Index
2004 2005 2006 2007 2008
Bumi resources (LHS) Relative JCI INDEX (RHS)
Forecasts and Valuation
FY Dec (US$ m) 2006A 2007F 2008F 2009F
Turnover 1,852 2,221 3,478 5,131
EBITDA 421 556 1,599 3,003
Pre-tax Profit 225 943 1,476 2,874
Net Profit 222 885 664 1,293
Net Pft (Pre Ex.) 222 331 664 1,293
EPS (Rp) 105.1 418.1 313.8 611.1
EPS Pre Ex. (Rp) 105.1 156.5 313.8 611.1
EPS Gth Pre Ex (%) 80 49 101 95
Diluted EPS (Rp) 105.1 418.1 313.8 611.1
Net DPS (Rp) 8.1 63.8 62.7 78.5
BV Per Share (Rp) 170.1 530.9 782.0 1,314.7
PE (X) 55.2 13.9 18.5 9.5
PE Pre Ex. (X) 55.2 37.1 18.5 9.5
P/Cash Flow (X) 38.5 12.4 15.9 8.7
EV/EBITDA (X) 31.4 22.6 7.7 3.8
Net Div Yield (%) 0.1 1.1 1.1 1.4
P/Book Value (X) 34.1 10.9 7.4 4.4
Net Debt/Equity (X) 2.5 0.1 0.0 CASH
ROAE (%) 74.7 119.3 47.8 58.3
Consensus EPS (Rp): 275 401 564
Sector : Basic Materials
Principal Business: Coal Mining
346
296
246
196
146
96
46
Undisputable leader
Story: Bumi Resources (BUMI) is Indonesia’s biggest coal
producer and exporter. Production should grow 15%
p.a. in FY08-09, while average selling price will
inevitable rise due to strong international spot coal price.
The planned acquisition of Herald Resources Ltd. (a lead
and zinc mining company) is on despite competition
from Aneka Tambang, which offered AU$2.50/share.
BUMI earlier offered AU$2.25/share to Herald
shareholders and has bought c.20% stake. It plans to
seek shareholders approval to raising its offer price for
Herald at its next EGM.
Point: Stronger sales volume and higher selling prices
will boost BUMI’s revenue by 57% and 48% in FY08-
09F, respectively. Accordingly, core profit will surge
101% and 95%. We assume BUMI’s coal production
would reach 66m tonnes in 2008 and 76m tonnes in
2009. Our assumption for international coal price is
US$100/tonne for 2008 and US$90/tonne for 2009.
Relevance: We have a Buy rating for BUMI with a DCFbased
target price of Rp7,500, implying 24x and 12x
FY08-09 PE. The recent sharp correction in the share
price offers a good entry point, underpinned by BUMI’s
robust growth and strong commodity prices, mainly
coal. BUMI is a good proxy for exposure to the buoyant
coal industry, because it is the biggest thermal coal
exporter in the world and one of the biggest producers.
At A Glance
Issued Capital (m shrs) 19,404
Mkt. Cap (Rpbn/US$m)
118,364 / 12,885
Major Shareholders
Bumi Resources (%) 5.8
Long Haul Holding (%) 4.7
Morgan Stanley & Co (%) 4.6
Free Float (%) 78.1
Avg. Daily Vol.(‘000) 142,899
Page 120
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Bumi Resources
Income Statement (US$ m) Balance Sheet (US$ m)
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Turnover 1,852 2,221 3,478 5,131 Net Fixed Assets 702 797 934 966
Cost of Goods Sold (1,367) (1,577) (1,786) (1,943) Invts in Associates & JVs 0 0 0 0
Gross Profit 484 644 1,691 3,187 Other LT Assets 740 774 812 853
Other Opng (Exp)/Inc (161) (178) (209) (308) Cash & ST Invts 190 226 317 1,247
Operating Profit 323 466 1,483 2,880 Other Current Assets 882 929 1,093 1,288
Other Non Opg (Exp)/Inc (2) (17) 0 0 Total Assets 2,514 2,726 3,157 4,354
Associates & JV Inc 2 2 3 5
Net Interest (Exp)/Inc (98) (62) (10) (11) ST Debt 87 29 29 29
Exceptional Gain/(Loss) 0 553 0 0 Other Current Liab 715 723 773 819
Pre-tax Profit 225 943 1,476 2,874 LT Debt 1,023 288 120 126
Tax (3) (28) (443) (862) Other LT Liabilities 317 343 360 378
Minority Interest 0 (30) (369) (718) Shareholder’s Equity 360 1,123 1,655 2,782
Preference Dividend 0 0 0 0 Minority Interests 10 220 220 220
Net Profit 222 885 664 1,293 Total Cap. & Liab. 2,514 2,726 3,157 4,354
Net Profit before Except. 222 331 664 1,293
EBITDA 421 556 1,599 3,003 Non-Cash Wkg. Capital 167 206 320 469
Net Cash/(Debt) (921) (91) 168 1,092
Sales Gth (%) 5.7 19.9 56.6 47.5
EBITDA Gth (%) 22.5 32.1 187.5 87.7
Opg Profit Gth (%) 22.6 44.3 218.0 94.2
Net Profit Gth (%) 80.4 297.9 (24.9) 94.7
Effective Tax Rate (%) 1.1 3.0 30.0 30.0
Cash Flow Statement (US$ m)
Rates & Ratio
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Pre-Tax Profit 225 943 1,476 2,874 Gross Margins (%) 26.2 29.0 48.6 62.1
Dep. & Amort. 98 105 113 118 Opg Profit Margin (%) 17.4 21.0 42.6 56.1
Tax Paid 0 0 0 0 Net Profit Margin (%) 12.0 39.8 19.1 25.2
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 74.7 119.3 47.8 58.3
Chg in Wkg.Cap. (102) 111 (116) (151) ROA (%) 10.5 33.8 22.6 34.4
Other Operating CF (182) 169 (812) (1,581) ROCE (%) 31.2 33.2 62.7 82.7
Net Operating CF 40 1,328 662 1,261 Div Payout Ratio (%) 7.7 15.3 20.0 12.8
Capital Exp.(net) (163) (200) (250) (150) Net Interest Cover (x) 3.3 7.5 142.1 265.2
Other Invts.(net) 0 0 0 0 Asset Turnover (x) 0.9 0.8 1.2 1.4
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 28.4 29.7 26.7 27.3
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 35.1 36.6 36.2 35.4
Other Investing CF (365) (63) (66) (69) Inventory Turn (avg days) 41.4 46.0 41.7 42.5
Net Investing CF (528) (263) (316) (219) Current Ratio (x) 1.3 1.5 1.8 3.0
Div Paid (17) (135) (133) (166) Quick Ratio (x) 1.1 1.3 1.5 2.7
Chg in Gross Debt 495 (793) (168) 6 Net Debt/Equity (X) 2.5 0.1 0.0 CASH
Capital Issues 0 0 0 0 Capex to Debt (%) 14.7 63.0 167.7 96.7
Other Financing CF 5 13 45 47 N. Cash/(Debt)PS (US cts.) (4.7) (0.5) 0.9 5.6
Net Financing CF 483 (915) (256) (113) Opg CFPS (US cts.) 0.7 6.3 4.0 7.3
Net Cashflow (6) 150 90 929 Free CFPS (US cts.) (0.6) 5.8 2.1 5.7
Quarterly / Interim Income Statement (US$ m)
BUMI Coal Production
FY Dec 4Q2006 1Q2007 2Q2007 3Q2007
Turnover 508 578 575 493
Cost of Goods Sold (407) (378) (396) (323)
Gross Profit 101 200 179 170
Other Oper. (Exp)/Inc (29) (87) (78) (101)
60.0
25%
Operating Profit 72 112 101 69
Other Non Opg (Exp)/Inc 11 (3) 562 16
Associates & JV Inc 2 0 2 (2)
50.0
20%
Net Interest (Exp)/Inc (36) (23) (19) (3)
40.0
Exceptional Gain/(Loss) 0 0 0 0
15%
Pre-tax Profit 49 86 645 80
Tax 25 0 (7) 22
30.0
10%
Minority Interest 2 0 (2) (24)
20.0
Net Profit 77 86 636 78
Net profit bef Except. 77 86 636 78
5%
10.0
EBITDA 85 110 664 84
million tonne
Sales Gth (%) 6.5 13.7 (0.5) (14.3)
EBITDA Gth (%) 4.0 29.5 505.5 (87.4)
Opg Profit Gth (%) (24.3) 56.2 (10.4) (31.3)
Net Profit Gth (%) 39.3 12.4 637.6 (87.7)
Gross Margins (%) 19.9 34.5 31.1 34.4
Opg Profit Margins (%) 14.1 19.4 17.5 14.0
Net Profit Margins (%) 15.1 14.9 110.6 15.9
Source: Company, DBS Vickers
-
2001 2002 2003 2004 2005 2006
Production (LHS)
Growth (RHS)
0%
Page 121

Regional Equity Strategy Q2 2008
Indosat
Bloomberg: ISAT IJ | Reuters: ISAT.JK
BUY Rp6,950 JCI : 2,419.6
Price Target : 12-month Rp 12,000
Potential Catalyst: Better than expected performance, and stronger
IDR.
Analyst
Boon Leong Ong CFA +603 2711 0958
boonleong@hwangdbsvickers.com.my
Price Relative
Rp
9,947.50
8,947.50
7,947.50
6,947.50
5,947.50
4,947.50
3,947.50
2,947.50
Relative Index
2004 2005 2006 2007 2008
Indosat (LHS) Relative JCI INDEX (RHS)
Forecasts and Valuation
FY Dec (Rp bn) 2006A 2007F 2008F 2009F
Turnover 12,239 16,348 19,237 21,932
EBITDA 6,938 8,448 10,099 11,621
Pre-tax Profit 2,023 2,874 3,821 4,913
Net Profit 1,410 1,986 2,615 3,373
Net Pft (Pre Ex.) 1,410 1,986 2,615 3,373
EPS (Rp) 260.9 365.5 481.2 620.7
EPS Pre Ex. (Rp) 260.9 365.5 481.2 620.7
EPS Gth Pre Ex (%) (15) 40 32 29
Diluted EPS (Rp) 260.9 365.5 481.2 620.7
Net DPS (Rp) 149.7 209.7 276.1 356.1
BV Per Share (Rp) 2,812.7 3,014.2 3,285.7 3,630.3
PE (X) 26.6 19.0 14.4 11.2
PE Pre Ex. (X) 26.6 19.0 14.4 11.2
P/Cash Flow (X) 7.1 5.8 4.7 4.0
EV/EBITDA (X) 6.7 5.8 5.3 4.6
Net Div Yield (%) 2.2 3.0 4.0 5.1
P/Book Value (X) 2.5 2.3 2.1 1.9
Net Debt/Equity (X) 0.6 0.7 0.8 0.8
ROAE (%) 9.6 12.6 15.3 17.9
Consensus EPS (Rp): 372.0 451.4 558.4
Sector : Telecommunication Services
Principal Business: Telecommunications
204
184
164
144
124
104
84
64
44
Capitalising on interconnect
Story: The current low price is a good opportunity to
accumulate Indosat (ISAT) shares on weakness, due
mainly to the misperception that ISAT’s earnings would
be hurt by lower interconnect rates (starting April 2008),
falling ARPU and high capex levels.
Point: We have been bullish on the impact of lower
interconnect costs, as it would result in lower retail offnet
(retail) tariff, which is positive in an elastic market
like Indonesia. Lower ARPU is a result of lower
interconnect costs, not pricing pressure. High capex
levels are also positive, as it reflects optimism on the
potential market. We expect new off-net promotions in
2Q-3Q08 to drive subscriber and revenue growth. As
such, we think a strong set of results in 3Q08 would lift
the valuation on ISAT. Building on this momentum,
4Q08 should see strong growth as well, from year-end
festive season. Planning ahead, ISAT raised its FY08
capex budget by 20% to US$1.2bn in August 2007.
Relevance: We continue to like ISAT for its ability to
maintain its subscriber market share despite the entry of
new players and new promotion campaigns by
competitors. ISAT is also likely to meet our FY07
earnings estimates. We project ISAT to register a twoyear
CAGR of 30% versus PT Telkom’s (TLKM IJ) 11%.
Yet it is trading at a similar PE (14x FY08) and EV/EBITDA
(5x FY08) as TLKM. ISAT’s potential net dividend yield of
4.0% is also slightly higher than TLKM’s 3.4%. We
reiterate our BUY call on ISAT with a DCF-based target
price of Rp12,000.
At A Glance
Issued Capital (m shrs) 5,434
Mkt. Cap (Rpbn/US$m)
37,766 / 4,111
Major Shareholders
ST Telemedia (%) 40.8
Govt. of Indonesia (%) 14.3
Free Float (%) 44.9
Avg. Daily Vol.(‘000) 8,885
Page 122
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Indosat
Income Statement (Rp bn)
Balance Sheet (Rp bn)
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Turnover 12,239 16,348 19,237 21,932 Net Fixed Assets 24,963 31,928 38,192 37,746
Cost of Goods Sold (9,067) (12,350) (14,438) (16,150) Invts in Associates & JVs 0 0 0 0
Gross Profit 3,172 3,998 4,799 5,782 Other LT Assets 3,600 3,214 2,827 2,440
Other Opng (Exp)/Inc 0 0 0 0 Cash & ST Invts 2,807 2,807 2,807 2,807
Operating Profit 3,172 3,998 4,799 5,782 Other Current Assets 2,858 3,502 3,906 4,284
Other Non Opg (Exp)/Inc (113) (131) (133) (136) Total Assets 34,229 41,451 47,732 47,278
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc (1,036) (992) (844) (733) ST Debt 1,183 4,755 8,841 13,790
Exceptional Gain/(Loss) 0 0 0 0 Other Current Liab 5,620 9,299 9,958 7,165
Pre-tax Profit 2,023 2,874 3,821 4,913 LT Debt 10,239 8,978 8,978 4,430
Tax (576) (834) (1,146) (1,474) Other LT Liabilities 1,784 1,784 1,784 1,784
Minority Interest (36) (55) (60) (66) Shareholder’s Equity 15,202 16,379 17,854 19,727
Preference Dividend 0 0 0 0 Minority Interests 201 255 315 382
Net Profit 1,410 1,986 2,615 3,373 Total Cap. & Liab. 34,229 41,451 47,732 47,278
Net Profit before Except. 1,410 1,986 2,615 3,373
EBITDA 6,938 8,448 10,099 11,621 Non-Cash Wkg. Capital (2,762) (5,797) (6,052) (2,881)
Net Cash/(Debt) (8,614) (10,926) (15,012) (15,413)
Sales Gth (%) 5.6 33.6 17.7 14.0
EBITDA Gth (%) 3.0 21.8 19.5 15.1
Opg Profit Gth (%) (7.4) 26.0 20.0 20.5
Net Profit Gth (%) (13.1) 40.9 31.6 29.0
Effective Tax Rate (%) 28.5 29.0 30.0 30.0
Cash Flow Statement (Rp bn)
Rates & Ratio
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Pre-Tax Profit 2,023 2,874 3,821 4,913 Gross Margins (%) 25.9 24.5 24.9 26.4
Dep. & Amort. 3,880 4,582 5,434 5,976 Opg Profit Margin (%) 25.9 24.5 24.9 26.4
Tax Paid (392) (629) (990) (1,310) Net Profit Margin (%) 11.5 12.1 13.6 15.4
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 9.6 12.6 15.3 17.9
Chg in Wkg.Cap. 1,017 2,830 99 (3,336) ROA (%) 4.2 5.2 5.9 7.1
Other Operating CF (859) 0 0 0 ROCE (%) 9.8 11.0 11.1 11.8
Net Operating CF 5,670 9,657 8,364 6,243 Div Payout Ratio (%) 57.4 57.4 57.4 57.4
Capital Exp.(net) (6,053) (11,160) (11,311) (5,144) Net Interest Cover (x) 3.1 4.0 5.7 7.9
Other Invts.(net) (278) 0 0 0 Asset Turnover (x) 0.4 0.4 0.4 0.5
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 36.2 33.2 35.1 35.6
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 17.5 17.9 20.0 20.2
Other Investing CF 0 0 0 0 Inventory Turn (avg days) 6.3 4.1 4.5 4.6
Net Investing CF (6,331) (11,160) (11,311) (5,144) Current Ratio (x) 0.8 0.4 0.4 0.3
Div Paid (809) (809) (1,139) (1,500) Quick Ratio (x) 0.8 0.4 0.3 0.3
Chg in Gross Debt 288 2,312 4,086 401 Net Debt/Equity (X) 0.6 0.7 0.8 0.8
Capital Issues (653) 0 0 0 Capex to Debt (%) 53.0 81.3 63.5 28.2
Other Financing CF (75) 0 0 0 N. Cash/(Debt)PS (Rp) (1,593.8) (2,010.7) (2,762.6) (2,836.4)
Net Financing CF (1,249) 1,503 2,947 (1,099) Opg CFPS (Rp) 860.8 1,256.5 1,521.0 1,762.7
Net Cashflow (1,910) 0 0 0 Free CFPS (Rp) (70.9) (276.6) (542.2) 202.3
Quarterly / Interim Income Statement (Rp bn)
Segmental Breakdown
FY Dec 4Q2006 1Q2007 2Q2007 3Q2007 FY Dec 2006A 2007F 2008F 2009F
Turnover 3,367 3,775 3,915 4,190 Revenues (Rp bn)
Cost of Goods Sold (2,416) (2,733) (2,929) (3,013) Long Distance 1,109 1,557 1,693 1,696
Gross Profit 952 1,042 986 1,177 Wireless 9,228 12,694 15,043 17,404
Other Oper. (Exp)/Inc 0 0 0 0 MIDI 1,903 2,097 2,501 2,831
Operating Profit 952 1,042 986 1,177
Other Non Opg (Exp)/Inc (45) (61) (210) 14
Associates & JV Inc 0 0 0 0 Total 12,239 16,348 19,237 21,932
Net Interest (Exp)/Inc (258) (268) (289) (320)
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 648 712 487 870
Tax (158) (220) (117) (260)
Minority Interest (7) (9) (9) (10)
Net Profit 483 484 361 600
Net profit bef Except. 483 484 361 600
EBITDA 1,911 1,958 1,825 2,219
Sales Gth (%) 8.5 12.1 3.7 7.0
EBITDA Gth (%) 11.4 2.5 (6.8) 21.6
Opg Profit Gth (%) 8.2 9.5 (5.3) 19.3
Net Profit Gth (%) 27.6 0.2 (25.4) 66.1
Gross Margins (%) 28.3 27.6 25.2 28.1
Opg Profit Margins (%) 28.3 27.6 25.2 28.1
Net Profit Margins (%) 14.3 12.8 9.2 14.3
Source: Company, DBS Vickers
Page 123

Regional Equity Strategy Q2 2008
Medco Energi
Bloomberg: MEDC IJ | Reuters: MEDC.JK
BUY Rp3,375 JCI : 2,419.6
Price Target : 12-month Rp6,000
Potential Catalyst: Libya Block Reserves announcement, Apexindo
divestment, Medco Global IPO
Analyst
Yusuf Ade Winoto CFA +6221 3983 2668
yusuf.winoto@id.dbsvickers.com
Price Relative
Rp
6,147.50
5,147.50
4,147.50
3,147.50
2,147.50
1,147.50
Relative Index
2004 2005 2006 2007 2008
Medco Energi (LHS) Relative JCI INDEX (RHS)
Forecasts and Valuation
FY Dec (US$ m) 2006A 2007F 2008F 2009F
Turnover 792 828 991 1,023
EBITDA 339 398 514 526
Pre-tax Profit 170 178 260 248
Net Profit 38 67 107 99
Net Pft (Pre Ex.) 38 67 107 99
EPS (Rp) 105.1 185.2 294.5 271.4
EPS Pre Ex. (Rp) 105.1 185.2 294.5 271.4
EPS Gth Pre Ex (%) (49) 76 59 (8)
Diluted EPS (Rp) 105.1 185.2 294.5 271.4
Net DPS (Rp) 0.0 83.3 132.5 122.1
BV Per Share (Rp) 1,474.5 1,576.4 1,738.4 1,887.6
PE (X) 30.9 17.6 11.0 12.0
PE Pre Ex. (X) 30.9 17.6 11.0 12.0
P/Cash Flow (X) 7.2 5.0 4.0 3.8
EV/EBITDA (X) 5.2 4.7 3.8 3.8
Net Div Yield (%) 0.0 2.6 4.1 3.8
P/Book Value (X) 2.2 2.1 1.9 1.7
Net Debt/Equity (X) 0.7 0.6 0.7 0.6
ROAE (%) 7.1 12.1 17.8 15.0
Consensus EPS (Rp): 244 314 422
Sector : Oil & Gas
Principal Business: Oil & Gas
205
185
165
145
125
105
85
65
Benefiting from strong oil price
Story: Medco has submitted a development plan to the
Libyan government for its oil project. The local government
has not yet approved the proposal. Meanwhile, the Senoro
gas block is still facing uncertainty as gas price negotiation
is in a deadlock. The Apexindo divestment process is
showing no progress till now. And oil price has surged to
historical highs and is hovering at above US$100/barrel.
Point: Positive updates on the Libya block should increase
the certainty of the project pending to the Libyan
government approval, and it will add value to Medco.
Meanwhile, delays at the Senoro block have clouded the
project’s future, and Apexindo’s postponed divestment has
caused its share price to plunge by 30% in the last three
months. The higher oil price should benefit Medco in the
near term, and boost the value of the Libya block, in our
view. Medco’s partner for the Libya block, Verenex
(VNX.CN), saw its share price rise by 28% in the last two
months. Note that Verenex has a 50% stake in the block,
which is currently its only major project. Our oil price
assumptions for FY08-09 are US$90 and US$85 per barrel.
Relevance: We derived Rp6,000 target price from sumand
underperformed the broad market by 22%. The
of-parts valuation. Medco’s share price has fallen 37% YTD
current price is an attractive entry point, because investors
will technically get Libya, Senoro and Block A assets for
free as its other existing assets are valued at Rp4,429 per
share.
At A Glance
Issued Capital (m shrs) 3,332
Mkt. Cap (Rpbn/US$m)
11,247 / 1,224
Major Shareholders
Encore Energy Pte (%) 50.7
Treasury (%) 6.7
Free Float (%) 42.6
Avg. Daily Vol.(‘000) 14,984
Page 124
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
Medco Energi
Income Statement (US$ m) Balance Sheet (US$ m)
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Turnover 792 828 991 1,023 Net Fixed Assets 1,047 1,197 1,339 1,425
Cost of Goods Sold (505) (484) (551) (590) Invts in Associates & JVs 0 0 0 0
Gross Profit 287 345 441 433 Other LT Assets 227 227 227 227
Other Opng (Exp)/Inc (107) (118) (121) (125) Cash & ST Invts 285 379 200 208
Operating Profit 180 227 320 308 Other Current Assets 282 281 311 319
Other Non Opg (Exp)/Inc 39 3 3 3 Total Assets 1,841 2,084 2,077 2,178
Associates & JV Inc (3) 0 0 0
Net Interest (Exp)/Inc (47) (53) (62) (63) ST Debt 40 0 0 0
Exceptional Gain/(Loss) 0 0 0 0 Other Current Liab 211 206 214 218
Pre-tax Profit 170 178 260 248 LT Debt 694 853 760 778
Tax (119) (89) (130) (124) Other LT Liabilities 239 240 242 245
Minority Interest (12) (21) (23) (26) Shareholder’s Equity 536 573 632 686
Preference Dividend 0 0 0 0 Minority Interests 122 212 229 252
Net Profit 38 67 107 99 Total Cap. & Liab. 1,841 2,084 2,077 2,178
Net Profit before Except. 38 67 107 99
EBITDA 339 398 514 526 Non-Cash Wkg. Capital 71 75 97 101
Net Cash/(Debt) (449) (474) (560) (570)
Sales Gth (%) 27.8 4.5 19.7 3.2
EBITDA Gth (%) 5.4 17.3 29.3 2.2
Opg Profit Gth (%) (24.8) 26.2 40.7 (3.5)
Net Profit Gth (%) (48.9) 76.3 59.1 (7.9)
Effective Tax Rate (%) 70.2 50.0 50.0 50.0
Cash Flow Statement (US$ m)
Rates & Ratio
FY Dec 2006A 2007F 2008F 2009F FY Dec 2006A 2007F 2008F 2009F
Pre-Tax Profit 170 178 260 248 Gross Margins (%) 36.3 41.6 44.4 42.3
Dep. & Amort. 123 168 192 214 Opg Profit Margin (%) 22.7 27.4 32.2 30.1
Tax Paid (119) (89) (130) (124) Net Profit Margin (%) 4.8 8.1 10.8 9.6
Assoc. & JV Inc/(loss) 3 0 0 0 ROAE (%) 7.1 12.1 17.8 15.0
Chg in Wkg.Cap. 7 (2) (20) (1) ROA (%) 2.3 3.4 5.1 4.6
Other Operating CF (15) (21) (23) (26) ROCE (%) 5.3 9.6 11.9 10.5
Net Operating CF 169 233 279 312 Div Payout Ratio (%) 0.0 45.0 45.0 45.0
Capital Exp.(net) (263) (318) (333) (300) Net Interest Cover (x) 3.9 4.3 5.1 4.9
Other Invts.(net) (42) 0 0 0 Asset Turnover (x) 0.5 0.4 0.5 0.5
Invts in Assoc. & JV (3) 0 0 0 Debtors Turn (avg days) 83.8 84.8 75.8 78.5
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 85.0 95.5 87.2 88.3
Other Investing CF (4) 0 0 0 Inventory Turn (avg days) 29.4 35.0 31.4 32.3
Net Investing CF (313) (318) (333) (300) Current Ratio (x) 2.3 3.2 2.4 2.4
Div Paid (37) (30) (48) (44) Quick Ratio (x) 2.1 3.0 2.2 2.2
Chg in Gross Debt 196 120 (93) 17 Net Debt/Equity (X) 0.7 0.6 0.7 0.6
Capital Issues 0 0 0 0 Capex to Debt (%) 35.9 37.2 43.8 38.6
Other Financing CF 21 90 17 23 N. Cash/(Debt)PS (US cts.) (13.5) (14.2) (16.8) (17.1)
Net Financing CF 180 179 (124) (4) Opg CFPS (US cts.) 4.8 7.0 9.0 9.4
Net Cashflow 36 95 (179) 8 Free CFPS (US cts.) (2.8) (2.5) (1.6) 0.4
Quarterly / Interim Income Statement (US$ m)
Segmental Breakdown
FY Dec 1Q2007 2Q2007 3Q2007 FY Dec 2006A 2007F 2008F 2009F
Turnover 180 403 641 Revenues (US$ m)
Cost of Goods Sold (102) (213) (341) Oil and Gas 613 618 762 772
Gross Profit 78 190 301 Drilling 123 160 176 193
Other Oper. (Exp)/Inc (28) (60) (95) Methanol 33 23 24 25
Operating Profit 50 131 206 Power Plant 24 27 30 32
Other Non Opg (Exp)/Inc 3 (16) (23)
Associates & JV Inc (1) 2 (2) Total 792 828 991 1,023
Net Interest (Exp)/Inc (14) (32) (50) Gross Profit (US$ m)
Exceptional Gain/(Loss) 0 0 0 Oil and Gas 242 274 364 349
Pre-tax Profit 38 84 132 Drilling 31 54 59 65
Tax (18) (47) (79) Methanol 9 6 6 7
Minority Interest (3) (8) (14) Power Plant 5 11 12 13
Net Profit 16 30 38
Net profit bef Except. 16 30 38 Total 287 345 441 433
EBITDA 82 180 284 Gross Margins (%)
Sales Gth (%) (77.3) 124.2 59.0
Oil and Gas
Drilling
39.5
25.4
44.2
34.1
47.7
33.5
45.2
33.5
EBITDA Gth (%) (75.8) 120.3 57.6 Methanol 27.7 26.0 26.0 26.0
Opg Profit Gth (%) (72.2) 160.4 57.8 Power Plant 22.3 40.0 40.0 40.0
Net Profit Gth (%) (58.6) 87.0 29.6
Gross Margins (%) 43.5 47.2 46.9 Total 36.3 41.6 44.4 42.3
Opg Profit Margins (%) 27.9 32.4 32.1
Net Profit Margins (%) 8.8 7.3 6.0
Source: Company, DBS Vickers
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Regional Equity Strategy Q2 2008
PT Indo Tambangraya Megah
Bloomberg: ITMG IJ | Reuters: ITMG.JK
BUY Rp20,100 JCI : 2,419.6
Price Target : Rp34,500
Potential Catalyst: Acquisition of new coal mining concession
Analyst
Yusuf Ade Winoto CFA +6221 3983 2668
yusuf.winoto@id.dbsvickers.com
Price Relative
Rp
32,600.00
27,600.00
22,600.00
17,600.00
12,600.00
Dec-07
Relative Index
Mar-08
219
169
119
PT Indo Tambangraya Megah (LHS) Relative JCI INDEX (RHS)
Forecasts and Valuation
69
19
Heightened optimism
Story: ITMG reported FY07 net profit of US$56.8m
(+144% y-o-y), in line with expectation. Revenue surged
5% y-o-y to US$771.8m, as higher selling prices (+12.2%
y-o-y) offset a drop in sales volume (-6.2% y-o-y).
Management is targeting FY08 production of 19.5m
tonnes, of which 70% had been contracted at
c.US$54/tonne; 11% contracted but not yet priced, and
the remaining 19% un-contracted. About 80% of the
unpriced coal are those with higher CV. Coal price has
remained strong at US$120/tonne.
Point: For FY08, 70% of the targeted production is priced
at US$54/tonne. We assumed FY08-09F selling price to
average US$60 and US$70/tonne. Accordingly, revenue
should grow to US$1,234m and US$1,548m for FY08-09F
respectively. We expect the company to fetch better prices
for the remaining 30% unpriced coal production, as the
bulk is high CV coal. ITMG should be able to produce
20.5m tonnes of coal in 2008, and 21.7m tonnes in 2009.
FY Dec (US$ m) 2006A 2007A 2008F 2009F
Turnover 732 772 1,234 1,548
EBITDA 100 142 381 583
Pre-tax Profit 50 89 336 538
Net Profit 24 57 235 376
Net Pft (Pre Ex.) 24 57 235 376
EPS (Rp) 194.8 460.7 1,907.0 3,055.0
EPS Pre Ex. (Rp) 194.8 465.6 1,907.0 3,055.0
EPS Gth Pre Ex (%) (68) 139 310 60
Diluted EPS (Rp) 194.8 460.7 1,907.0 3,055.0
Net DPS (Rp) 60.9 689.8 92.1 381.4
BV Per Share (Rp) 1,033.4 3,796.0 5,471.9 8,145.5
PE (X) 103.2 43.6 10.5 6.6
PE Pre Ex. (X) 103.2 43.2 10.5 6.6
P/Cash Flow (X) 41.0 25.8 8.9 5.9
EV/EBITDA (X) 26.2 16.5 6.0 3.4
Net Div Yield (%) 0.3 3.4 0.5 1.9
P/Book Value (X) 19.5 5.3 3.7 2.5
Net Debt/Equity (X) 1.1 CASH CASH CASH
ROAE (%) 19.0 19.1 41.2 44.9
Consensus EPS (Rp): 1,589 2,771
Sector : Basic Materials
Principal Business: Coal Mining
Relevance: We derived a target price of Rp34,500 based
on DCF method, implying 18.5-11.5x FY08-09F PE. We
assumed WACC of 8.9% and 3% terminal growth. ITMG
remains a Buy due to its undemanding valuation, and our
positive outlook for coal prices.
At A Glance
Issued Capital (m shrs) 1,130
Mkt. Cap (Rpbn/US$m) 22,711 / 2,477
Major Shareholders
Centralink Wiesea International (%) 77.6
Sigma Buana Cemerlang (%) 2.4
Free Float (%) 20.0
Avg. Daily Vol.(‘000) 3,874
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Refer to important disclosures at the end of this report

Regional Equity Strategy Q2 2008
PT Indo Tambangraya Megah
Income Statement (US$ m) Balance Sheet (US$ m)
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Turnover 732 772 1,234 1,548 Net Fixed Assets 243 297 372 396
Cost of Goods Sold (546) (565) (772) (855) Invts in Associates & JVs 0 0 0 0
Gross Profit 187 207 462 693 Other LT Assets 123 110 115 121
Other Opng (Exp)/Inc (104) (85) (123) (155) Cash & ST Invts 54 226 312 601
Operating Profit 83 122 338 538 Other Current Assets 122 155 210 245
Other Non Opg (Exp)/Inc (19) (19) 0 0 Total Assets 541 787 1,009 1,363
Associates & JV Inc 0 0 0 0
Net Interest (Exp)/Inc (14) (14) (3) 0 ST Debt 31 43 55 60
Exceptional Gain/(Loss) 0 (1) 0 0 Other Current Liab 179 196 228 246
Pre-tax Profit 50 89 336 538 LT Debt 164 49 51 53
Tax (25) (32) (101) (161) Other LT Liabilities 38 32 0 0
Minority Interest (1) 0 0 0 Shareholder’s Equity 127 468 674 1,004
Preference Dividend 0 0 0 0 Minority Interests 2 0 0 0
Net Profit 24 57 235 376 Total Cap. & Liab. 541 787 1,009 1,363
Net Profit before Except. 24 57 235 376
EBITDA 100 142 381 583 Non-Cash Wkg. Capital (57) (41) (19) 0
Net Cash/(Debt) (141) 134 206 487
Sales Gth (%) 53.6 5.4 59.9 25.4
EBITDA Gth (%) (25.0) 42.3 168.2 52.9
Opg Profit Gth (%) (28.2) 47.8 177.3 59.0
Net Profit Gth (%) (67.8) 136.5 313.9 60.2
Effective Tax Rate (%) 50.4 36.1 30.0 30.0
Cash Flow Statement (US$ m)
Rates & Ratio
FY Dec 2006A 2007A 2008F 2009F FY Dec 2006A 2007A 2008F 2009F
Pre-Tax Profit 50 89 336 538 Gross Margins (%) 25.5 26.9 37.4 44.8
Dep. & Amort. 36 39 43 45 Opg Profit Margin (%) 11.3 15.8 27.4 34.8
Tax Paid 0 0 0 0 Net Profit Margin (%) 3.3 7.4 19.0 24.3
Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 19.0 19.1 41.2 44.9
Chg in Wkg.Cap. 15 0 (43) (22) ROA (%) 5.1 8.5 26.2 31.7
Other Operating CF (23) (15) (103) (164) ROCE (%) 15.7 21.1 41.5 44.9
Net Operating CF 79 113 233 397 Div Payout Ratio (%) 31.2 149.7 4.8 12.5
Capital Exp.(net) (51) (85) (118) (70) Net Interest Cover (x) 6.0 9.0 131.7 6,576.2
Other Invts.(net) 0 (32) 0 0 Asset Turnover (x) 1.6 1.2 1.4 1.3
Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) 27.7 33.9 26.9 29.8
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 26.4 38.8 36.9 39.7
Other Investing CF 0 (4) (6) (6) Inventory Turn (avg days) 22.9 19.3 15.7 17.3
Net Investing CF (51) (121) (124) (76) Current Ratio (x) 0.8 1.6 1.8 2.8
Div Paid (8) (85) (11) (47) Quick Ratio (x) 0.7 1.5 1.7 2.6
Chg in Gross Debt 17 (102) 14 8 Net Debt/Equity (X) 1.1 CASH CASH CASH
Capital Issues 0 0 0 0 Capex to Debt (%) 26.3 92.3 111.4 61.7
Other Financing CF 1 367 (26) 6 N. Cash/(Debt)PS (US cts.) (12.5) 11.9 18.3 43.1
Net Financing CF 11 180 (23) (33) Opg CFPS (US cts.) 5.6 10.0 24.4 37.1
Net Cashflow 38 172 86 288 Free CFPS (US cts.) 2.4 2.5 10.2 29.0
Quarterly / Interim Income Statement (US$ m)
ITMG Coal Production
FY Dec 2Q2007 3Q2007 4Q2007
Turnover 316 240 216
Cost of Goods Sold (237) (172) (156)
25.0
Gross Profit 79 68 60
Other Oper. (Exp)/Inc (33) (26) (27)
Operating Profit 46 43 33
Other Non Opg (Exp)/Inc (1) (23) 5
20.0
Associates & JV Inc 0 0 0
Net Interest (Exp)/Inc (5) 5 (14)
Exceptional Gain/(Loss) 0 0 0 15.0
Pre-tax Profit 39 26 25
Tax (16) (8) (9)
Minority Interest (1) 1 (1)
Net Profit 23 18 15
10.0
Net profit bef Except. 23 18 15
EBITDA 45 20 38
5.0
Sales Gth (%) N/A (23.9) (10.1)
EBITDA Gth (%) N/A (55.1) 89.5
Opg Profit Gth (%) N/A (7.6) (22.5)
Net Profit Gth (%) N/A (20.3) (17.0)
0.0
Gross Margins (%) 25.0 28.5 27.7
2002 2003 2004 2005 2006 2007
Opg Profit Margins (%) 14.6 17.8 15.3
Net Profit Margins (%) 7.3 7.7 7.1
Source: Company, DBS Vickers
m tonnes
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Regional Equity Strategy Q2 2008
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Regional Equity Strategy Q2 2008
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