strategy 2011

“In Singapore, this research report or research analyses may only be distributed to Institutional “Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, are to contact DBSVR at +65 6878 5233 in respect of any matters arising from or in Chapter 289 of Singapore.” connection with this report.”

www.dbsvickers.com Refer to important disclosures at the end of this report sa: JC

Regional Equity Strategist Joanne Goh +65 6878 5233 [email protected]

Investment Summary Page Index valuations and recommended weightings summary 2 Nine Themes for 2011 2 Macro-economic / asset allocation summary 3 High conviction picks 5

Macro Regional Strategy: Nine themes for 2011 8 Economy: Cutting ribbons 22 Forex: Asia’s ascension begins 32

Regional countries HK / China: The glass is still (almost) half full 48 Indonesia: The makeover continues 49 Malaysia: Charting new frontiers 50 Singapore: Bargain hopping 51 Thailand: Re-rating should continue 52 India: A year of rebalancing 53 Korea: Inflation management becomes a priority 54 Taiwan: Domestic economy on firmer footing 55 Small / mid caps: Go with the flow 56

Regional sectors Airlines: Firm tailwinds 58 Autos: More rational growth ahead 59 Gaming: More excitement ahead 60 F&B: Pricing power matters 61 Banks: Bracing up for the next race 62 Exchanges: Momentum driven 63 Property: Stock picking year 64 REITS: On a hunt for yields 65 Coal: Focus on growth and delivery 66 Plantations: Rosy Outlook in 2011 67 Steel & Metal: Focus on growth 68 Tech: Stay mobile and go corporate 69 Telcos: 3G and Mobile broadband 70 Utilities/Power: Safe and sound 71

Country themes: Malaysia construction: MRT coming to fruition 74 China autos: Market rewards luxury automakers 75 Korea autos: Growth story intact 76 Indonesia autos: Explosive growth ahead 77 Singapore offshore marine: Renewal cycle gaining steam 78 China/ HK Banks: Prefer large caps 79 China Shipyards: Orders keep flowing 80 China Telcos: Prefer equipment players 81 China / HK Retail: Still in the spotlight 82 China insurance: Riding up the rate cycle 83

Regional Earnings Guide 85

DBS Group Research . Equity 27 December 2010

Regional Market Focus

2011 Asia Equity Outlook

Riding the key themes in 2011• We have identified nine key themes in this report to

guide investors through what we expect to be a mixed performance for Asian markets in 2011

• We maintain a moderate risk stance for 1Q11 and a conservative 14% return for Asia equities for the full year

• Growth outlook is even in Asia - no country will be left behind. Asia is headed back to a period of fast growth (akin to the early –90’s) but with a more pleasant end game

• For the astrologists amongst us, the Year of the Rabbit has tended to be a less volatile year than its predecessor (see chart below and main body of report)

• China inflation, policy intervention, USD/EUR confidence crisis and rising geopolitical tensions are tangible risks in 2011

• We recommend investors to focus on yield plays and plays on our nine key themes contained in this report

• Overweight Thailand, Indonesia and Taiwan; Underweight China, Hong Kong and Korea; Neutral in India, Malaysia, and Singapore

• Industrials, commodities and consumer discretionary are our preferred sectors

• High conviction stocks within our overweight markets include: Kasikorn Bank, Thai Oil, PTT Chemical, LPN Dev., Amata, Thai Airways, Major Cineplex, Thai Vegetable Oil, Adaro Energy, Astra Intl, BRI. (Please see inside for additional thematic / stock recommendations in each market)

Fig. 1: Asia ex-Japan Index, log scale

73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 091120

200

400

600

800

1000120014001600

Source: Datastream. Return in USD using Datastream Asia ex-Japan total market index from 1973 - current. Vertical lines mark beginning of Year of Rabbit in 1975, 1987 and 1999.


The Year of the Rabbit


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Investment Summary Index valuations and recommended weightings summary

Returns in MSCI Asia ex-Japan were held back in 2010 by underperformance in MSCI Hong Kong, China, Singapore, Taiwan and Korea, all still between 5-36% from their peaks. MSCI China is still 56% off its previous high. The smaller ASEAN markets and India have already touched pre-crisis highs, brought about by strong liquidity flows diverted into these markets. Korea and Taiwan offer some potential of hitting new highs as they are just 5% and 14% respectively off their highs, whilst valuations are still cheap. The following would be our recommended weightings by market: Thailand Overweight (improving economy, improving

political environment) Indonesia Overweight (stable economy, possible re-

rating) Taiwan Overweight (stronger outlook, favourable

political climate) China Underweight (tightening concerns, policy risk) Korea Underweight (rising political tensions). India Neutral (falling inflation) Singapore Neutral (uncertainties over rate hikes and

inflation) Malaysia Neutral (fairly valued) Nine Themes for 2011

We are advising investors to focus on the following nine sustainable investment themes to ensure outperformance in 2011. Theme #1 - Asia’s consumerism

Consumer affluence and energy consumption are long-term structural themes in Asia, with its a large population base, favorable demographics, urbanization and rising income levels. Low unemployment rates, rising income levels, cheap credit bolstered by low interest rates and strong bank liquidity all bode well for discretionary retail spending. Theme #2 - China’s insatiable quest for energy

Energy demand should remain robust gong into 2011. Although oil inventory levels suggest oil prices should remain stable near term, we are, however, forecasting a higher US$80 -100 per barrel in 2011 in line with our economist’s view of sustained economic growth in Asia. China, with its vast fiscal reserves will continue its global quest for energy security and this will benefit the coal,

natural gas and nuclear energy sectors. Offshore oil & gas and refineries should also benefit from firmer oil prices. Theme #3 - China's prolonged spurt on commodities.

China's ever growing appetite for commodities is the key global swing factor. Even rare earth metals and nuclear reactor fuels are emerging as additional commodity themes for next year. In food based commodities, demand for meat and grain brought about by China's huge population and rapid urbanization has fed a new agricultural boom. Recent price controls in China may be difficult to apply (especially on perishables) and climate change affecting harvest and production levels should bring logistics and food processing sectors into focus. Theme #4 - Engineering excellence in Asia

Recent high profile engineering mishaps (Rolls Royce) and product recalls (Toyota) emphasise the value in reliable industrial, engineering manufacturers as well as services providers. Companies which have sound track records and leading expertise in their respective industries should therefore gain market share at the expense of lower quality players (e.g. Singapore's offshore marine and aircraft servicing sector, Korean shipbuilders. leading Chinese heavy industry and engineering companies etc) Theme #5 - Preparing for the unexpected

Three “black swan” events could trigger a return to risk aversion. The first is heightened forex volatility (on the back of a worsening Euro crisis; worse than expected USD depreciation). The second black swan could be rising political tensions in Korea. The third black and final swan could contagion from a spreading Euro crisis. If the crisis spreads to Spain, we would expect a more precipitous fall in the Euro. The occurrence of two Euro bailouts in a single year does suggest that this particular black swan cannot be ignored. As a hedge against black swan events we remind investors in this report to focus on value as well as (defensive) dividend plays in Asia Theme #6 - Investment push

In China we expect the budget for railway equipment, low cost housing, and inner city infrastructure to see sharp increases in the next 5-year plan. Malaysia’s 10th Malaysia Plan (“10MP”) to improve public transportation systems will include projects such as LRT extensions, MRT and highways, as well as the new financial district. Tax incentives and investments in the oil and gas sector by Petronas are also planned in 2011. Indonesia should continue to gain from ongoing FDI flows into coal mining and commodities.




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Thailand has traditionally lagged in terms of infrastructure spending, the government is likely to tender out the China-Thailand high speed train which will start work in 2011.Finally, in Singapore, following the completion of the two IRs, and the on-going extension of the MRT network, the recent spotlight has shifted to drainage, additional transportation systems, and medium to low cost housing to cater to Singapore’s growing population. We believe construction demand could be on the high end of the S$18bn and S$25bn 2011/12 forecast by the Building Construction Authority. Theme #7 - Asia: Inflows and inflation, and capital controls

Asian central banks/governments are likely to adopt a more measured mix of rate hikes, moderate increases in RRRs, phased currency appreciation, micro capital controls, and mild administrative measures to ward against overheating (notwithstanding the possibility of a more aggressive stance in China). Theme #8 - Firms with pricing power

Rising inflation has had a broad impact across the board on wages, higher raw material costs, foreign exchange and business operating costs. We predict a tougher operating environment next year and considerable pressure on margins. As such, we prefer companies dominant in their respective sectors, yielding stronger pricing power and economies of scale. Theme #9 - Sector picking

We expect strong overall growth in Asia next year and no country will be left behind. The growth outlook in China and US remain key macro drivers for the region. Despite continued economic growth regionally, different dynamics in each country provide for different opportunities by sector: 1. Malaysia - infrastructure, plantations, banks

2. Singapore - Laggard plays, offshore & marine

3. China - Infrastructure, commodities, industrials

4. Hong Kong - Banks

5. Thailand - Top down macro, cheap valuations, energy, banks

6. Indonesia - Coal, banks, consumer, mid caps

7. Taiwan - Domestic sectors

8. Korea - Currency watch

9. India - 2011 wild card

Macro-economic and asset allocation overview

China. We are downgrading China to Underweight mainly due to the impact of expected rate and RRR hikes, loan quota restrictions and administrative controls on food and property prices. Next year's growth is also going to be slower than this year's (9.5% vs 10%). Though real rates will remain low we do not have a hard landing view on China. Hong Kong. Hong Kong should continue to benefit from both a low interest rate environment and Hong Kong’s on-going role as a major RMB offshore centre and gateway to China. Asset reflation will continue to be a main theme in Hong Kong with Hong Kong financials as a main beneficiary. Nevertheless, rate hikes and China policy risk underpin our Underweight stance on Hong Kong. Korea. Although Korea's inflation rate came off after October's spike up to 4.1%, it should still trend higher due to the closure of output gaps, capacity constraints, labour market tightening and rises in international commodity prices. Real rates remain negative, which give room for Korea to raise rates much more aggressively in Q1 if further evidence of a firming economy emerges. North Korea's repeated forays into South Korean territory underscore the market's PE discount to the region. Rate hikes, a slowing economy and geopolitical risk underlie our Underweight positioning in this market. Taiwan. In Taiwan the elections produced no nasty surprises with the ruling KMT winning 3 out of the 5 seats contested. In the near term we expect the overhang from the elections to be cleared and focus on ECFA benefits to resume. Taiwan's presidential elections will only be held in 2012 and we expect KMT to implement more positive policies to ensure its victory in the next election. Coupled with a more favourable economic climate, we are Overweight Taiwan in 2011. India. India is upgraded to Neutral from Underweight. India's inflation rate should drop to 6% by 1Q, giving adequate room for interest rates to subside. Singapore. Having registered 15% GDP growth this year, we forecast Singapore to grow at 7% in 2011, higher than the government's forecast of 4-6%. Singapore's October exports rebound suggested little possibility of technical recession in Singapore, and also reflected the resilience of the economy. There is upside bias for consensus earnings growth forecast of 10% for 2011 in our view. We maintain




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our Neutral stance in Singapore, and are overweight on O&M, plantations and the gaming sectors. Malaysia. Malaysia should continue to perform in line with the region and we advocate a Neutral weighting in 2011. Monetary policy will remain accommodative as Malaysia has hiked rates three times in 2010, ahead of the other countries. We also expect the various infrastructure projects to kick-start in 2011 to be funded by private participation. Indonesia. An investment upgrade, positive commodity prices and a stable rupiah all point to further upside for Indonesia, and revived interest from foreign investors. We believe attractive yield spreads, a stable investment

environment and high growth will continue to attract investors and support our Overweight position. Thailand. Thailand is largely a valuation and turnaround play on a return to political stability after suffering from political uncertainty for the past 5 years. As a reflection of its turn around potential, foreign investors bought a net US$654 million of portfolio investments after the crisis, though less than half of the amount purchased in Indonesia. We are Overweight Thailand on our view that the economic and political environment will stablise further attracting a further market re-rating.




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High Conviction Stock Picks

Company

Exch Sector

Price 22 Dec 10

(LCY)

Target Price (LCY)

Upside (%)

% Chg -1w

% Chg since Entry Date

Date of Entry to

List Mcap US$m

3mths Avg Daily

T/O US$m

Big Caps (>$2bn) Keppel Corporation KEP SP SG Industrials 10.72 12.50 17 1 -1 29-Nov-10 13,163 41 OCBC OCBC SP SG Banks 9.84 11.30 15 2 7 15-Oct-10 25,159 40 Singapore Airlines SIA SP SG Consumer Services 15.34 18.50 21 -1 -2 3-Sep-10 14,055 21 Gamuda GAM MK MY Industrials 3.81 4.90 29 2 15 28-Jun-10 2,494 9 Maybank MAY MK MY Banks 8.50 10.80 27 -1 13 12-Apr-10 19,255 22 Cosco Pacific 1199 HK HK Industrials 13.30 16.08 21 0 2 6-Dec-10 4,636 15 MTR 66 HK HK Consumer services 28.50 36.45 28 -0 -2 6-Dec-10 20,988 15 PICC 2328 HK HK Financial 11.18 14.64 31 2 -7 8-Nov-10 4,967 25 Ping An Insurance 2318 HK HK Financial 84.60 99.00 17 -2 -5 15-Nov-10 31,085 125 SJM Holdings 880 HK HK Consumer services 12.00 14.40 20 -5 -3 6-Dec-10 8,207 32 Bangkok Bank BBL TB TH Banks 147.00 187.00 27 -1 4 23-Jul-10 9,304 25 KASIKORNBANK KBANK TB TH Banks 125.50 150.00 20 -0 45 1-Mar-10 9,959 23 Thai Oil TOP TB TH Oil & Gas 75.50 80.00 6 -6 23 15-Nov-10 5,107 30 XL Axiata EXCL IJ IND Telecommunications 5,450 6,800 25 2 18 4-Aug-10 5,125 1 Kia Motors 000270 KS KS Consumer Goods 52,100 64,000 23 1 10 8-Nov-10 17,942 146 Hynix 000660 KS KS Technology 23,300 31,000 33 -3 -4 22-Oct-10 11,950 219

Company Reasons for Picks / Potential Catalysts

Big Caps (>$2bn)

Keppel Corporation • Prefer KEPPEL for exposure to Petrobras contract wins

• Keppel could win 4 to 11 rigs worth US$3.5b to US$8b from Petrobras.

• We expect more contracts for KEPPEL, which has just secured a newbuild jackup rig contract from Standard Drilling with options for 2 more; its outstanding LOI with Mermaid for 2 newbuild

OCBC Bank • Strong growth potential in non-interest income (insurance and private banking), which is a key differentiating factor to its peers, could drive ROE higher.

• OCBC seems more aggressive in its regional expansion plans especially in Malaysia, Indonesia and China.

• OCBC's asset quality stacks up the best compared to its peers. Singapore Airlines • Rebound in earnings, driven by strong visitor arrivals and economic recovery in Singapore.

• Operating numbers remain robust, improving numbers for both cargo and passenger carriage, with high load factors.

• Firm balance sheet, with net cash of over S$3 per share. Gamuda • RM36bn MRT project, a key milestone catalyst easily doubling orderbook with another 10 years earnings visbility.

• Excellent proxy to Vietnam's positive long term structural shift in property market with RM16bn GDV (12% of SOP).

• Resolution on Selangor State Water restructuring soon could see Gamuda reaping >RM600m in cash or RM0.28/share. Maybank • Strong domestic franchise for consumer and business loans, placing it in a solid position to ride on the economic recovery. Largest

market share (22%) in domestic deposits.

• Indonesian operation poised for robust 20% loans growth and 35% 3-year earnings CAGR. Sharp improvement emerging.

• Major laggard being the only large cap bank trading below +1 SD. COSCO Pacific • Turnaround of new ports, driven by volume ramp up and potential tariff hike.

• Profitablity from its container leasing and manufacturing businesses are expected to be further improved in 2011.

• Undemanding valuation at 13x FY11 P/E and 1.2x FY11P/B. MTR

• Recurrent earnings going from strength to strength.

• Good hedge against inflation.

• Exploiting the value of land bank through skillful land premium negotiation. PICC

• Structural turnaround in underwriting to sustain.

• A-share revival will be icing on the cake.

• Re-rating to continue on improved ROE. Ping An Insurance

• Balanced life premium growth amidst stable new business margin.

• Continual market share gain in P&C market with improved combined ratio.

• SDB deal resolution cleared overhang. SJM Holdings • Promoting new premium mass table area in the Grand Lisboa that will open before the Chinese New Year, we expect solid

performance and should see margin expansion.

• Good defense against any VIP weakening with its well diversified VIP and Mass portfolio on the Macau Peninsula, stronghold for have highest market share of c.30% in the industry.

• Strong balance sheet for potential acquisitions, valuation still lowest in the sector at 10x FY11F EV/EBITDA, Maintain BUY with TP HK$14.40.

Source: Bloomberg, DBS Vickers, Hanadaetoo Securities




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Big Caps (>$2bn)

Bangkok Bank • Higher loan growth of 6.0%, led by stronger demand for corporate and SMEs, with NIM at 3.0% and 7% fee income growth for FY11-12F .

• Transforming into regional bank, with diversified loan portfolio in both domestic and international markets (17% of total loans), specifically China.

• Highest NPL coverage ratio of 134% in the sector and strong capital base.

• Maintain BUY and Bt187.00 TP. KASIKORNBANK • Expect strong loan growth of 9% for FY11, and 8.5% for FY12F, with leading share in high-yield SME loans segment.

• Sustainable high NIM at 3.9%, 18% fee income growth for FY11-12F, and good asset quality with the lowest NPL ratio at 3.18% in 3Q10.

• Higher ROE to16.2% in 2011 vs 12.6% in 2009, premised on K-Transformation and channel expansion projects completion in 2011-12.

Thai Oil PCL • Tight diesel market in next few months as China cuts power supply to reduce air pollution. Diesel accounts for 41% of TOP’s refinery output.

• Improving outlook due to rising oil prices, strong PX spreads.

• BUY, with TP of Bt80/sh based on 2x P/BV; potential re-rating to catch-up with peer, PTTAR. XL Axiata • XL is the price leader for voice and bundled plans, likely to gain revenue share from Telkomsel.

• The growing popularity of mobile Internet plans is the key catalyst for smaller players. Cheap Chinese handsets are helping mobile Internet in a big way.

• Strong balance sheet and highest EBITDA growth in the sector. Kia Motors • While 3Q10 is characterized by Korean auto sector's continued growth story, Kia's result was particularly impressive.

• The stock is still grossly undervalued (FY11 P/E of 8.2x) given the strong potential for a sustainable turnaround.

• Sustainable earnings growth and improving balance sheet will continue to boost sentiment towards Kia shares and trigger catch up to other KOSPI listed companies' and global peers' valuations.

Hynix • Growth in earnings estimates of Hanwha Chemical and YeoCheon NCC (FY11E OP +8.9%, FY12E +10.1%).

• New businesses of solar energy, biosimilar, and battery materials.

• PVC facilities in China will come on stream in 2011.


Company

Exch Sector

Price 20 Dec 10

(LCY)

Target Price (LCY)

Upside (%)

% Chg -1w

% Chg since Entry Date

Date of Entry to List

Mcap US$m

3mths Avg Daily

T/O US$m

Small & Mid Caps (<US$2bn) CDL Hospitality CDREIT SP SG REIT 2.10 2.28 8 1 2 29-Nov-10 1,539 3 CSE Global CSE SP SG Technology 1.24 1.45 17 -1 29 3-Sep-10 485 1 Boustead BOUS MK MY Industrials 5.41 7.60 40 -4 7 4-Oct-10 1,628 2 DRB-Hicom DRB MK MY Industrials 1.91 3.55 86 4 6 13-Dec-10 1,182 6 Anhui Expressway 995 HK HK Industrials 6.96 9.10 31 4 39 23-Aug-10 441 2 China Automation 569 HK HK Industrials 5.83 7.20 23 -9 -3 11-Oct-10 764 1 China Everbright 257 HK HK Industrials 4.03 4.90 22 -2 -9 3-Dec-10 1,887 6 Dalian Port (PDA) 2880 HK HK Industrials 3.30 4.12 25 -2 5 13-Sep-10 451 2 New World Dept Store

825 HK HK General Retailers 6.27 8.94 43 -5 -15 22-Oct-10 1,359 2

Amata Corp AMATA TB TH Real Estates 14.30 20.00 40 -2 -12 3-Sep-10 506 7 Delta Electronics DELTA TB TH Industrials 35.25 39.00 11 2 16 22-Oct-10 1,458 4 Quality Houses QH TB TH Real Estates 2.12 3.04 43 -5 -14 3-Sep-10 596 5 Sampoerno Agro SGRO IJ IND Consumer Goods 3,025 4,400 45 1 41 24-May-10 632 1 Seah Besteel 001430 KS KS Basic Material 35,400 45,000 27 1 60 2-Aug-10 1,103 3 Green Cross 006280 KS KS Healthcare 141,500 210,00

0 48 5 -1 8-Nov-10 1,225 7

Hanmi pharmarceutical

128940 KS KS Healthcare 87,800 190,000

116 -1 -17 11-Oct-10 546 6




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Small & Mid Caps (<$2bn)

CDL Hospitality Trusts • Robust 12% DPU growth expected in 2011 on the back of expected bouyant tourist arrivals

• Low gearing of 21% positions trust to acquire to grow portfolio, earnings

• Maintain BUY and S$2.28 CSE Global • 16%/15% earnings growth in 2010F/11F, driven by organic (order wins) and inorganic expansion (acquisition).

• Trading around 10x average FY10F-11F PER, at 20% discount to historical average of 12.5x.

• 4% dividend yield based on 40% payout ratio, annual dividends at the end of FY10F/11F. Boustead Holdings • GLC-linked conglomerate trades at attractive multiples and offers decent dividend yield.

• Proactive management, morphing into GLCproperty proxy, and surging contract flows for BHIC.

• Beneficiary of upswing in crude palm oil (CPO) prices. DRB-Hicom • We expect a significant rerating from its bargain basement PE and P/Bk valuations on the back of 3-year EPS CAGR of 79%.

• The eventual divestment of 30% of Bank Muamalat could enable the group to expand its footprint regionally. Based on 1.4x NTA, similar to Hong Leong Bank offer for EON Bank's assets, this could raise RM600m.

• A key catalyst is the conversion of Letter of

• Intent (LOI) from the Ministry of Defence for 257 AV 8x8 armoured vehicles potentially worth c.RM8bn. Anhui Expressway • Above-expectation growth in toll revenue by 21% in 1H10.

• Driven by robust traffic growth on key road assets.

• Beneficiary of the policy to receive manufacturing industries from coastal provinces. China Automation • Attractive valuation and strong earnings growth outlook on huge order backlog.

• Expect orders from railway and urban rail segments to provide positive earnings upside.

• ·M&A strategy to further expand business scope. China Everbright • Unique market position with comprehensive exposure in environmental sector.

• Strong deal flow.

• Solid financial position with strong support from banks. Dalian Port (PDA) • Continues to ride on the increasing demands for oil to fuel economy and increasing automobiles.

• More capacity added to facilitate growth.

• Ra-rating driven by A-share listing as A-shares are trading at much higher multiples. New World Dept Store • Strong acquisition potentials given abundant net cash of c.HK$3bn.

• Potential benefits from better consumption driven by Expo in major Shanghai market.

• Undemanding valuation of c.14x ex-cash (adjusted for 2011 calendar year) against close peers. Amata Corporation • AMATA recently inked a 569 rai land deal with Canadoil. This helped boost YTD land sales to 1,099 rai, representing 92% of our

land sales assumption of 1,200 rai this year.

• Management maintains land sales target at 1,500 rai for this year, up sharply from 254 rai last year.

• A prime beneficiary of the rising FDI in Thailand. Maintain BUY with a TP of Bt20 based on RNAV. Delta Electronics Thai • 3Q10 results more than doubled y-o-y, supported by rising sales and wider margins

• Positive outlook intact. Earnings should continue to grow, with growth coming mainly from the new products in solar and automotive industries.

• Solid balance sheet and attractive valuation. Maintain BUY with a TP of Bt40.00, based on 11x 2011F PE, in line with historical average.

Quality Houses • Thailand’s leading property developer, with diversified revenue bases.

• Improving outlook for all businesses; Langsuan condo should start to contribute from 4Q10.

• Secured land plots for future launches in 2H10 and 2011.

• Attractive valuation, trading at 2011F PE of only 8.7x and a deep discount to its RNAV of Bt3.04.

• Maintain BUY; with a TP of Bt3.04 based on RNAV. Sampoerna Agro • Strongest production growth relative to Indonesian peers (i.e. 12.5% 5-year CAGR)..

• While volume dropped 45% qoq in 1Q10 due to heavy rainfall, we expect seasonal recovery in subsequent quarters.

• The least expensive upstream planter in our regional coverage. Seah Besteel Corp • Successful turnaround in FY10

• Promising growth outlook; revenue expected to double by 2015

• Maintain STRONG BUY, raised TP to KRW45,000 Green Cross • Strong sales structure that is relatively less affected by regulation risks.

• Earnings momentum will remain strong in 2011, considering: 1) the expected approval by the WHO on the company’s flu vaccine products in early 2011 should result in new export contracts worth more than W30bn; and 2) overseas OEM sales.

Hanmi Pharmarceutical • Beijing Hanmi Pharmaceutical is likely to be the only overseas Korean pharmaceutical company to show significant growth in the Chinese pharmaceutical market in the coming years.

• Long-term growth drivers from the completion of R&D projects with Esomezol entering the US market later this year; and several incrementally modified drugs (IMDs) planned for release abroad in 2011.

• Our target price is based on 28x FY11E P/E, a 90% premium to the sector's P/E.





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Regional Strategy (Joanne Goh, [email protected]) Markets underpinned by uncertainties in 2010 Asian equities returned 11% to date (6Dec). This wasn’t consistent with strong GDP and earnings growth recorded in the region. While last year's extraordinary return partly explained the lacklustre return this year, global macro uncertainties also dampened appetite for equities as an asset class in our view. Asia markets were mostly flat throughout the whole year until the onset of QE2 in the last quarter of 2010. Quarterly volatility ruled and markets were mainly affected by events in Europe and Euro's weakness, as well as double dip fears. Performance was heavily skewed towards the smaller ASEAN markets. Indonesia, Thailand, Philippines and Malaysia were the best performing markets. Domestic demand gained traction. These economies have shown great resilience in the face of global uncertainties. Domestic liquidity was also strong, driven by low interest rates and fiscal investment push. Strong foreign capital flows also get deflected to these smaller, yet more open markets. The worst performing markets are the Greater China markets (Taiwan, Hong Kong and China) as well as Singapore. China's hard landing risk was the main concern amid rising inflationary and asset bubble threats. This came on the back of supercharged loan growth in the response to the global financial crisis the prior year. Taiwan failed to benefit from ECFA after its conclusion, mainly because of politics and a slowing external cycle. Singapore is in contention to record the strongest GDP growth globally in 2010, but its heavy weight financial sector was affected by low interest rates and sentiments on the property sector were impaired by potential regulatory controls. Korea, Malaysia and India performed in line with the region. Malaysia has always been a defensive play and PM Najib's New Economic Model spiced up hopes for stronger foreign interest in the market. Rising rate concerns in India and geopolitical tension in the Korea peninsular deflected what would otherwise another strong year for the two markets. Outlook for 2011 — Year of the Rabbit According to the Chinese horoscope, the Rabbit brings a year in which we can catch our breaths and calm our nerves. Most Rabbit years are quiet, positive and inspiring. A placid year, it should be very much welcomed and needed after the ferocious year of the Tiger. Investors can look for reduced volatility after the dramatic 2010.

Indeed we look for 2011 as an extension of the economic recovery that began in early 2009. Headline growth should be lower than 2010 after the base effects are gone and should return to average or potential growth. DBS' and consensus forecasts for 2011 thus bear upside in our view. (Fig. 3) Main risk is in the uncertainty when policy support is withdrawn - interest rates are already higher and currencies are stronger than the beginning of this year, and we still expect them to rise in 2011. (Fig. 4-5) Fig. 2: Average annual return by Chinese Zodiac years

Source: Datastream, DBS. Return in USD using Datastream Asia ex-Japan total market index from 1973 current. Rabbit years fall in 1975, 1987 and 1999

Fig. 3: GDP growth forecasts — DBS, consensus, average and long-term potential

Source: Datastream, DBS, Consensus Economics Inc. * Fiscal year. Long term potential derived from Consensus Economics Inc. survey

-20 0 20 40 60

OxHorse

DogSnake

RatTiger

DragonPig

RoosterMonkey

Sheep

Rabbit

%

Consensus Avg LT2007 2008 2009 2010F 2011F 2011F 2003-7 potentia l

US 1.9 0.0 -2.6 2.8 2.8 2.4 2.7 3.0Japan 2.4 -1.2 -5.1 2.7 1.6 1.2 2.2 1.5Eurozone 2.9 0.3 -4.0 1.7 1.5 1.5 2.3 2.0Indones ia 6.3 6.0 4.5 6.0 5.8 6.1 5.4 6.3Malaysia 6.2 4.6 -1.7 7.2 5.5 5.0 5.9 4.6Singapore 8.2 1.4 -1.3 15.0 7.0 4.7 7.2 4.1Thailand 4.9 2.5 -2.2 8.5 4.5 4.3 5.5 4.5China 13.0 9.6 9.1 10.0 9.5 9.1 11.7 8.2Hong Kong 6.4 2.1 -2.7 6.6 5.0 4.6 6.4 3.7Taiwan 6.0 0.7 -1.9 10.3 3.8 4.1 5.0 4.5Korea 5.1 2.3 0.2 6.2 3.9 4.2 4.5 3.9India* 9.2 6.5 7.7 8.8 8.5 8.5 8.6 8.1

DBS

sa: TW




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Fig. 4: Policy rates, historical and forecasts

Source: Bloomberg, DBS. ** 3-month interbank rate. * 1-yr lending rate. Shaded cells indicate higher rates from previous period.

Fig. 5: Exchange rate, historical and forecasts

Source: Datastream, DBS

We conservatively estimate 14% return for 2011 driven by 13% earnings growth in 2011 (which has been priced in) and 14% earnings growth in 2012. Asia valuations trade at 12.4x PE, which is slightly above its 10-year average. There is room for re-rating towards its one standard deviation if liquidity flows exceed expectations. (Fig. 6). Sideline monies available for equities remain strong as evidenced in high bond funds inflows, and domestic deposits. (Fig. 8-9)

Sentiment wise, we don't see support for a big rise in the market for further re-rating above one standard deviation. Lingering European debt concerns, China's ongoing fight with rising price levels, impact of US liquidity injection and high debt levels and uncertainty on USD direction are not going to disappear overnight. One reservation we have for more upside is the high price to book value multiples in Asia, which historically predicts a negative 12-month forward return. (Fig. 7)

Fig. 6: Asia ex-Japan 12-month forward P/E and deviation bands

Source: Datastream, DBS, IBES

Fig. 8: US mutual fund flows into global bond and equity funds


Fig. 7: Asia ex-Japan: Price to book vs 12-month forward return


Fig. 9: Aggregate deposit size in Asia (ex-Japan) commercial banks

Source: CEIC, DBS

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US … … … … …Japan 117.8 110.6 93.6 88.1 84.0 82.0 82.0 81.0 79.0Eurozone 1.37 1.42 1.39 1.33 1.33 1.38 1.42 1.46 1.50Indonesia 9,141 9,404 10,383 9,086 9,008 8,850 8,800 8,750 8,700Malaysia 3.44 3.39 3.52 3.23 3.14 3.08 3.04 3.00 2.96Philippines 46.1 45.3 47.6 45.2 43.7 43.0 42.0 41.0 40.0Singapore 1.51 1.46 1.45 1.37 1.31 1.28 1.26 1.24 1.22Thailand 32.3 32.6 34.3 31.8 30.0 29.5 29.1 28.8 28.5China 7.61 7.28 6.83 6.78 6.65 6.56 6.50 6.44 6.37Hong Kong 7.80 7.79 7.75 7.77 7.76 7.75 7.75 7.75 7.75Taiwan 32.9 32.2 33.0 31.6 30.1 30.2 30.0 29.8 29.6Korea 930 1015 1275 1157 1134 1040 1020 1000 980India 41.2 42.3 48.3 45.7 45.1 44.0 43.5 43.0 42.5

Actual, period avg Forecast, eop4Q07 4Q08 4Q09 current 4Q10 1Q11 2Q11 3Q11 4Q11

US 4.50 1.00 0.25 0.25 0.25 0.25 0.25 0.25 0.50Japan 0.50 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.20Eurozone 4.00 2.50 1.00 1.00 1.00 1.00 1.00 1.25 1.50Indonesia 8.00 9.25 6.50 6.50 6.50 7.00 7.75 8.00 8.00Malaysia 3.50 3.25 2.00 2.75 2.75 3.00 3.25 3.25 3.25Philippines 5.25 5.00 4.00 4.00 4.00 4.25 4.50 4.75 5.00Singapore** 2.38 0.96 0.68 0.44 0.42 0.41 0.41 0.50 0.67Thailand 3.25 2.75 1.25 2.00 2.00 2.50 3.00 3.00 3.25China* 7.47 5.31 5.31 5.56 5.81 6.06 6.31 6.56 6.81Hong Kong** 3.45 0.96 0.14 0.28 0.20 0.25 0.25 0.25 0.55Taiwan 3.38 2.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75Korea 5.00 3.00 2.00 2.50 2.50 3.00 3.25 3.75 4.00India 6.00 5.00 3.25 6.25 6.25 6.50 6.50 6.50 6.50

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US outlook

We believe at the end of the day growth outlook has to improve to support richer valuations. US growth will be coasting around 2.5%, which is much lower than potential level and unemployment rate is probably expected to stay stubbornly high. Monetary and fiscal support for the economy are likely to continue to send positive signals to the market until inflation expectations start rising rapidly. Investors remain mixed on the medium term impact of these policies and of the subsequent withdrawal when these policies expire. Fig. 10: US GDP and domestic demand growth

Source: Datastream, OECD hhistorical and forecasts data Fig. 11: US unemployment rate

Source: Datastream Investors are worried to buy into the rally

Strong inflows into Asia have propped up asset prices that camouflaged the underlying fear in view of the recent years' volatility in the equities market, lingering uncertainties of the European debt crisis, escalating US debt concerns, rising trade tensions and geopolitical risk. While we concur with the cautiousness, we believe Asia economies should stand out against developed market weakness, and domestic demand would flourish on

structural drivers. Investors should remain exposed to Asia equity markets, which stand to benefit from the extension of the Asia economic recovery, which are evidently the strongest globally. We flag 9 themes and risks to the positive Asia outlook, which will shape relative performance in 2011. 9 Themes for 2011

We recommend buying into sustainable themes and to gain exposure to the extension of the recovery momentum. Theme #1 - Asia’s consumerism

Consumer affluence and energy consumption are long-term structural themes in Asia, banking on a large population base and favorable demographics, urbanization, rising income levels and climate change. Given its enduring nature, investors will continue to seek out stocks which will benefit from rising consumption power into 2011. Low unemployment rates brought about by strong economic growth should ensure rising income levels, which bode well for discretionary retail spending. The availability of cheap credit bolstered by low interest rates and strong bank liquidity would also continue to drive discretionary spending. Theme #2 - China’s quest for energy

Demand for energy should remain strong into 2011 as the economy recovers. Oil price should remain well supported at current levels as inventories are adequate. We forecast a higher price range of US$80 -100 per barrel averaging at US$90 in 2011 in view of rising economic activities. The range reflects sensitivity of the oil price on equity markets and currency fluctuations. Long-term growth sustainability needs continuous investments into energy resources. China, with its vast fiscal strength, will continue its quest for energy resources and enhanced energy security. We like coal as an alternative energy play, as well as energy related sectors like offshore oil & gas sector and refinery to benefit from a firmer oil price. Technological innovation has opened the door to abundant new energy resources, such as natural gas. The use of nuclear energy as one of the means to combat greenhouse gas emissions may spur many countries to expand their nuclear industries.

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Theme #3 - China's prolonged spurt on commodities. What's next?

Along with a firmer oil price, we should also see firmer commodity prices. China's prolonged spurt on commodities is very much well in play and movements in commodity prices nowadays are very sensitive to China's IP numbers! Looking forward rare earth metals and nuclear reactors could be a theme for next year. Fig. 12: Changes in China industrial production vs commodity prices, %YoY

Source: Datastream Fig. 13: Market Vectors Rare Earth / Strategic Metals Index

Source: Bloomberg, DBS Besides commodity, an insatiable demand for meat and grain brought about by China's huge population and rapid urbanization creates the new agricultural boom, which has already begun. According to oneworld.net, if by 2031 the Chinese consume as much resources as the Americans do now, grain consumption per person would climb from around 600 pounds today to around 2000 pounds needed to sustain a typical western diet. This would equate to 1,352 million tons

of grain or two thirds of all the grain harvested in the world in 2004. Food inflation remains a thorny issue in China. Recent price controls by the Chinese government may be difficult to apply on perishables like meat, vegetables and agriculture products. Moreover erratic climate changes are affecting harvest and production levels. Sectors in the areas of improving agricultural produce such as perishables logistics and food processing will benefit from the new agricultural revolution in China. Theme #4 - Engineering expertise in Asia

Dramatic midair engine failures that struck several Boeing and Airbus aircraft and the recall exercise by major auto manufacturers provoke thoughts on the need for reliable industrial and engineering parts as well as expertise. Along these lines we believe companies, which have track records and leading expertise should gain market share at the expense of lower-tiered players. We classified these companies as global champions. Notable ones are companies in Singapore's offshore marine sectors and aircraft servicing sector, Korean shipbuilders. Chinese leading heavy industry and engineering companies, leading machinery brands and distributors, construction companies should also continue to benefit from the uptick in infrastructure spending in the region. Theme #5 - Preparing for the unexpected

We identify three black swan events that may trigger a massive risk aversion. One of them is forex volatility. Notwithstanding the European debt crisis, which may or may not need another bailout, the trade on a weak Euro or weak USD is never a one-way bet. Asian markets, like most risk asset class, may benefit from a weak USD environment. But massive USD devaluation could precipitate: - (1) a confidence crisis on the USD, leading to a sell off in

US treasuries and a spike up in treasury yields;

(2) a repricing of risk when bond yields start rising rapidly, including a sell off in other risk asset class;

(3) a sharp rise in commodity prices, which lead to hyper-inflationary pressure

This event could be triggered by talks of possible rating downgrades on US Treasuries in view of mounting US debt levels, and when QE2 ends and funding of US Treasury issuance becomes a problem.

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We believe commodities are good hedges against this scenario. Commodity should also be supported by a growing global and Chinese economy in the non-occurrence of such an event. The second black swan could be triggered by rising political tension in the Korea peninsular. At this time a war looks unlikely but the situation remains a big uncertainty. Domestic political developments and external China/US/Korea/Japan relationship all bear close watching in both North and South Korea, now that wikileaks have revealed all the real intentions! We are downgrading Korea to Underweight as we believe that re-rating in Korea is unlikely and volatility in Korea could rise in the near term. Stress in that region would likely cause the Korean won and the equities market to sink, which may have repercussions in the regional markets. However the impact may be short-lived. The question is does this present a buying opportunity and make South Korean market even cheaper? Fundamentally we believe that the macro environment in Korea may be less favourable in 2011 compared to this year. Please see more discussion in Korea’s country section. A third black swan is possibly a contagion impact from the Euro crisis. Media reports point to Portugal as a likely candidate to ask for a bailout. If the crisis does spread to Spain, then the fall in Euro will likely be severe. The occurrence of two bailouts in a year does suggest that this black swan cannot be ignored. Valuations, valuations, valuations!

As a hedge against black swan events (probability of occurrence of which is low but rising), we remind investors to focus on valuations. Asian markets are not as cheap as in the beginning of this year. A further upside of 28% would render market valuations on the more expensive side unless earnings provide positive surprise. Through the combination of easy money, leverage, momentum and herd behavior, market volatility will be high and upside target can easily be achieved within a short period of time. Our struggle with valuations is the need to justify higher price to book value. The ratio remains at very elevated levels and historically the current valuations could yield a negative return in the next 12 months. Dividend yield plays

In the absence of attractive interest rates we believe dividend yields in Asia offer alternative returns with growth potential. In times of uncertainty and when stocks are stuck in a trading range, dividends provide a cushion. We believe this theme is sustainable into 2011.

Fig. 14: Dividend yield has increasingly been an important component of total market returns

Source: Datastream

Fig. 15: Dividend yield gaps in Asia are trading towards the higher range of their historical bands

Source: Datastream Theme #6 - Investment push

Investment spending on infrastructure should extend beyond China and expand into the region. In China we expect budget for railway infrastructure spending to be revised upwards when China announced its next 5-year plan, considering the earlier than targeted completion of the railway network and the replacement of the slack from property developments in the FAI account. Investors could focus on related growth on locomotives and the real benefits from the completion of the railway transportation system such as the developments in the inner cities. Besides China is also targeting low cost housing to alleviate social dissatisfaction of rising property prices. Urbanization and infrastructure spending towards the inner cities can also be expected in the upcoming 5-year plan.

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Malaysia will also be embarking on its 10MP (10th Malaysia Plan) to improve public transportation systems with projects such as LRT extensions, MRT and highways, as well as the new financial district. Tax incentives and investments in the oil and gas sector by Petronas are also targeted to boost economic activities to raise income levels in Malaysia. Indonesia has been in the forefront in attracting FDI flows in the area of coal mining and commodities in the past few years. We expect this to continue. Infrastructure spending should also accelerate to improve productivity and ease bottlenecks, such as ports, rail roads and expressways. Thailand has been lagging behind in terms of infrastructure spending during the political crisis years, and has always been under-spending the budget. Confidence in new private spending will probably not be restored in the near term, but government pushed efforts should be reflected in many new projects out for tender. The China-Thailand high speed train will start work in 2011. In Singapore, since the near completion of the two IRs, infrastructure spending on amenities to support Singapore's future growth has never ceased. These include the ongoing works in the IRs, extension of the MRT lines, property developments on higher demand, as well as the laying of the nationwide super network. Recent flooding also exposed Singapore's weakness in its capacity constraints in many areas such as drainage, transportation systems, and housing, which will need to be upgraded to cater for a higher population target. The Building Construction Authority estimated the average annual construction demand in 2011/12 to range between S$18bn and S$25bn. We believe construction demand should speed up and be on the high end of the range. The record number of land sites rolled out in the recently released Government Land Sales program for 1H11 also augurs well for construction demand in coming years. Asian economies have been quick to recover from the crisis as responses have been swift to focus on domestic demand and infrastructure spending. With capital inflows likely to accelerate in the foreseeable future, we expect resources to be allocated to infrastructure spending as a means to digest the flows to avoid building up excesses in other parts of the economies. After all Asian economies have under invested in infrastructure in the past decade. Since the Asia financial crisis, Asian economies have focused on de-leveraging and building up reserves strength.

Theme #7 - Asia: Inflows and inflation, and capital controls

There is room for interest rates to normalize, but it will be one of the macro dynamics that is too hard to forecast in 2011. One of the strong arguments for rates hikes is simply if growth has normalized to pre-crisis levels, then interest rates should also return to pre-crisis levels to pre-empt rising inflationary expectations. Real rates are at historical low levels, and in most countries, negative. There are many arguments against this. Firstly food and energy prices dominate the inflation basket in Asia. As long as these are under control, inflation should fall within expectations, or considered a one-off anomaly if there are supply disruptions. Secondly with the influx of hot capital flows due to attractive growth, bond yields and currency appreciation expectations, higher interest rates will fuel more liquidity flows, which will spiral asset inflation. As such central banks will be quite reluctant to raise rates without corresponding capital control mechanism in place, in our view. Thirdly growth momentum is expected to slow from last year on the absence of base effects, uneasy growth in DM, the winding off of the inventory cycle, and withdrawal of policy support. Policy support remains the best tool in ensuring growth sustainability while other factors are not within control. As such central banks will be very careful in making rate hike decisions in our view. In view of these factors, we believe a mix of mild rate hikes, increase in RRRs, currency appreciation, micro capital controls, and administration are the likely paths that central banks will take in monetary controls in our view. Our China economist however warned of a permanent re-rating of the inflation outlook as the housing market has become the pivotal force to drive domestic demand. The excessive credit creation has probably manifested itself permanently into higher prices for food and housing, which in turn triggers stronger demand for wage growth to cope with rising inflation - a process that ramps up inflation expectation nationwide. Correspondingly it implies higher level of interest rates is required, and we expect a lot more tightening in China.




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Tighter capital controls would appear inevitable. Inflows into Asia are expected to remain strong amid attractive spreads and structural opportunities. The question is what is the level of threshold that investor confidence won't be compromised. Conventional tools like forex intervention, withholding taxes, lowering of foreign cap and increases in reserve requirements remain a real risk. Theme #8 - Firms with pricing power

Rising inflation has manifested themselves into high prices for everything, including wages, higher raw material costs, foreign exchange and costs of doing business. We expect a tougher operating environment next year in maintaining margin. As such we prefer companies which enjoy leading competitive position, strong pricing power and economies of scale. These would include the global and Asia champions that are already leading brand names. Theme #9 - Country Themes

We expect strong overall growth in Asia next year and no country will be left behind. Growth will most likely be halved next year but will still at near average or potential levels. The growth outlook in China and US remain key macro drivers for the region. Dynamics in individual countries provide opportunities in sector selections. 1. Malaysia - infrastructure, plantations, banks

2. Singapore - Laggard plays, offshore marine

3. China - Infrastructure, commodities, industrials

4. Hong Kong - Banks

5. Thailand - Top down macro, cheap valuations, energy, banks

6. Indonesia - Coal, banks, consumer, mid caps

7. Taiwan - Domestic sectors

8. Korea - Currency watch

9. India - 2011 wild card

Valuations, earnings growth and index targets

12 -month forward earnings continue to hit pre-crisis high, brought about by the strong economic recovery. The extension of the recovery into next year means that the MSCI Asia index has the potential to touch pre-crisis high again, which is just 16% away from current levels. One of the major challenges in 2011 will be for the major indices to touch pre-crisis high in our view.

Fig. 16: MSCI Asia ex-Japan earnings and price index

Source: Datastream, IBES

Fig. 17: MSCI Asia ex-Japan 12-month forward P/E Bands (Bands are 8, 11, 13, 16,18x)

Source: Datastream, IBES Returns in MSCI Asia ex-Japan were set back by the underperformance of MSCI Hong Kong, China, Singapore, Taiwan and Korea, which are all still about 5-36% from the peak. In 2007, liquidity was the main driver when these markets hit new peaks driving valuations to all time highs as well. Currently, the smaller ASEAN markets and India have already touched pre-crisis highs brought about by strong liquidity flows which were diverted into these markets. The challenges for the bigger markets to hit pre-crisis highs are myriad. Chinese liquidity played an important part then and will not repeat itself as in 2007 when QDIIs were first opened to foreign markets. On the contrary liquidity squeeze from China's tightening fears is the main concern right now. Moreover, for MSCI China, (which is still 56% away from previous high), valuations will be deemed too high and at a bubbly stage if it touches its previous high by next year.

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Korea and Taiwan possess some potential of hitting new highs as they are just 5% and 14% from new highs, and whilst valuations are still cheap. Conservatively, we forecast index targets for 2011 to have 14% upside from current levels based on the current index P/E of 12.4x and 2012 earnings growth assumption of 14%. We recommend underweighting China as markets are jittery on tightening concerns, and underweight for Korea on rising political tension in the peninsular. Taiwan is raised to overweight on a better outlook after the special provincial elections, and India is also raised to Neutral on falling inflation in the first quarter. We retain our overweight stance in the smaller ASEAN markets in Indonesia and Thailand. Singapore and Malaysia stay at Neutral.

Fig. 18: Earnings growth and P/E valuations

Source: Datastream, DBS, IBES. Shaded cells are less than -1SD. Numbers in bold are less than 10-year average.

Fig. 19: Index targets and recommendations


Asset allocation

The changing outlook on the domestic front drives our asset allocation revisions for the coming quarter. We are upgrading India and Taiwan and downgrading China, Hong Kong and Korea The downgrade in China is mainly for 1Q where we believe the tightening pace will accelerate before the Lunar New Year festive seasons. Interest rate hikes, RRR hikes, loan quota restrictions and administrative controls on food and property prices are highly possible. Next year's growth is going to be slower than this year's (9.5% vs 10%). Real rates will still be low and this will fuel hard landing talks amid negative sentiments on tightening. We believe the emphasis for the next 5-year plan will be on controlling inflationary pressure. We do not have a hard landing view on China. Hong Kong should continue to benefit from both a low interest rate environment and China. Hong Kong as a major RMB offshore centre will further enhance its status as a major financial centre and gateway to China. A lot of Chinese and foreign companies will be attracted to set up headquarters in Hong Kong, thus continue to encourage domestic demand and liquidity flows. We believe asset reflation will continue to be a main theme in Hong Kong with Hong Kong Financials as a main beneficiary. Korea's inflation came off after October's spike up to 4.1%. Inflation in 2011 should be higher considering closure of output gap, capacity constraints, labour market tightening and rises in international commodities prices. Real rates remain negative, which give room for Korea to raise rates much more aggressively in Q1 after affirming that economic growth has sustained momentum. The risk of negative impact from policy withdrawal is high. To be sure Korea is one of the countries that resist raising rates until December and the Korean won was also flat from last year. With rising inflationary pressure and capital move, there will be increasing pressure for interest rates and won to move higher. Besides North Korea's repeated provocations into South Korea's territory underpin the market's PE discount to the region. Latest action diminishes the re-rating hope, in our view. We are downgrading Korea to Underweight.

*10-yr Avg -1SD 2010F 2011F 2012F 2010F 2011F 2012FHong Kong

HSI 14.3 12.2 13.9 12.1 10.6 26.9 14.8 14.3MSCI China 13.0 10.0 13.8 12.0 10.4 28.1 14.2 16.2MSCI HK 15.9 13.9 18.0 16.6 14.9 26.5 8.1 11.6

Singapore 14.6 12.4 15.3 13.9 12.7 22.4 9.9 9.3Korea 9.2 7.3 10.6 9.6 8.5 49.0 10.5 12.4Taiwan 14.4 10.6 13.9 12.5 11.2 90.2 10.3 11.6India 14.1 10.8 19.1 15.5 12.9 23.0 22.8 19.9Malaysia 14.1 12.7 17.3 14.8 13.3 29.0 17.2 11.2Thailand 10.4 9.0 14.9 12.3 10.7 18.6 20.9 15.2Indonesia 14.0 10.7 17.6 14.5 12.6 19.2 21.5 14.4Asia ex-Japan 12.2 10.6 13.8 12.3 10.8 40.1 12.0 13.2

P/E Earnings Growth

Current 2011 3-monthIndex Index target Upside Index target Upside Recommendation

Hong KongHSI 23321 26891 15% 23767 2% UnderweightMSCI China 68 80 17% 69 2% UnderweightMSCI HK 12314 13089 6% 12411 1% Underweight

Singapore 3172 3642 15% 3290 4% NeutralKorea 1957 2065 6% 1984 1% UnderweightTaiwan 8624 9810 14% 9217 7% OverweightIndia 19967 25483 28% 21346 7% NeutralMalaysia 1501 1663 11% 1582 5% NeutralThailand 1034 1354 31% 1114 8% OverweightIndonesia 3696 4679 27% 3942 7% OverweightAsia ex-Japan 636 725 14% Overweight vs DM




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The elections in Taiwan produced no nasty surprises with the ruling party KMT winning 3 out of the 5 seats contested. According to Taiwan media, total KMT winning votes, however, if aggregated as they were for presidential elections today, will reflect a defeat by KMT. In the near term we expect the overhang from the elections to be cleared and focus on ECFA benefits to resume. Taiwan's presidential elections will only be held in 2012 and we expect KMT to implement more positive policies to ensure its victory in the next election. India is ungraded to Neutral from Underweight. We believe that India's inflation will drop to 6% by 1Q. This should give adequate room for interest rate talks to subside, and in contrast with China tightening in the 1Q. Short of an overweight on fundamental justification, the uncertainty over oil and food prices where India's inflation is most vulnerable makes this an uncomfortable bet for a sustainable fall in inflation. Weather aside, structural issues in food distribution are the main harbingers. Budget in February is not going to show any positive surprise either. Recent corruption scandals and scam will undermine the ruling coalition efforts for reforms in our view. Targeted spending to improve infrastructure bottlenecks was not achieved and objectives missed, which implies that further efforts to raise infrastructure spending will be undermined. Still recent state elections reflect the maturity of voters that favour improved governance and development. Political volatility will rise in the near term in our view, thus setting back the many agendas in India. However we expect the budget deficit to fall from last year. After having registered 15% growth this year, we forecast Singapore to grow at 7% in 2011, higher than the government's forecast of 4-6%. Singapore's October exports rebound suggested little possibility of technical recession in Singapore, and also reflected the resilience of the economy. There is upside bias for consensus earnings growth forecast of 10% for 2011 in our view. Singapore was never a strong performer among regional markets historically. Short of a positive stance on the financial sector, we maintain our Neutral stance in Singapore, and are overweight on O&M, plantations and the gaming sectors. Malaysia should still continue to perform in line with the region in 2011. Monetary policy will remain accommodative as Malaysia has hiked rates three times in 2010, ahead of the other countries. While the other regional countries continue to control inflows through various measures, Malaysia has reiterated that capital controls are not necessary. Indeed what Malaysia need are the inflows. We expect the various infrastructure projects to kick-start in

2011 to be funded by private participation. The positive outlook for Malaysia banks, construction sector, property and plantations should see these sectors outperformance. The outlook for Indonesia remains positive. Against a backdrop of positive outlook for the region we expect Indonesia to continue its outperformance. The re-rating in Indonesia still has room to attempt its previous high PE multiple of 16x. An investment upgrade, positive commodity price and a stable rupiah all point to further avenue of new demand by foreign investors. Domestic investors are concerned about capital outflow. We believe attractive yield spread, stable investment environment and high growth will continue to attract and keep investors. Thailand largely remains a macro story on cheap valuations and potential to be unleashed after suffering from political uncertainty for the past 5 years. Domestic investors have returned to the fore when sentiments bottomed after the worst riots in history. Foreign investors net bought US$654 million after the crisis, less than half of the net bought in Indonesia. FDI flows from Japan continue to be strong under a strong Yen environment. Thailand's GDP contracted both in 2Q and 3Q, technically a "recession", but that was attributed to the riots at end June as well as a softening in exports after the strong first half. We expect growth to normalise from 4Q onwards. Public and private investments will spur growth on top of exports in the coming quarters. This soft run of economic data coupled with domestic political uncertainties does provide enough arguments for the central bank to stay put on rates, but as a testimony to its confidence on the growth outlook, Bank of Thailand raised rates for the second time this year. At 2%, interest rates are still stay far below pre-crisis levels of xx% and are one of the lowest among South East Asian economies. If growth return to pre-crisis levels, our forecast of 3% policy rates still remain accommodative. A major political overhang in the market has been cleared when the Constitution Court dismissed the Democrat dissolution case. No House dissolution is expected until mid-2011 and we expect the government to focus on budget spending in the following few months before the elections.




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Sector weightings

Under a macro outlook of strong growth, modest interest rate hikes and strong liquidity, reflation remains the buzz word. The broad trend should support Consumer Discretionary spending arising from higher income growth, without the risk of regulatory controls. We continue to see robust economic growths, which should drive consumer spending. Rising income level and wealth effect from a boisterous property and stock market should improve confidence levels. Confidence levels were at neutral levels, should rise against a backdrop of improving economic recovery. Income levels, confidence, GDP growth, property market, stock market Industrials sector will benefit from tight capacity and under-investment in Asia led by an improving demand outlook. Leverage and a low interest rate environment will drive investments into capex. Money flows in the commodity sector will be easy, supported by China's quest for energy resources. Defensive sectors like Telecoms, Utilities and Consumer Staples should be least favoured. The competitive and regulatory landscape is not conducive for Telecoms, which make stock pick highly selective. Utility stocks lack pricing power and are under the mercy of regulatory controls, while rising prices will only benefit upstream Consumer Staples. We are selective on Financials, Healthcare and Oil & Gas, but stock selection should not be difficult. Earnings growth in the financial sector should benefit from a low interest rate environment driving loan growth. Interest rates, which are already low this year, are still expected to rise this year, albeit at small increments. Stock selection based on wide interest rate margins, low cost base and less competition benefit those banks in emerging Asia. Regulatory environment are less certain in China, as well as developed markets in Singapore and Hong Kong, which tend to follow US interest rates quite closely. Likewise with the property sector, overheating risks are lesser in emerging Asia than in China, Hong Kong and Singapore. HealthCare is supported by long term structural dynamics but regulatory risks bear watch. Oil & Gas sector is subject to the volatility in oil prices but underlying fundamental demand should still be positive.

COUNTRY VIEWS

Singapore (Sustainability is the key - Neutral)

We see risk on the upside for Singapore's GDP to grow further, to be driven mainly by the services sector. The sector is now 65% of GDP and is growing at a consistent healthy rate amid double digit contractions and volatility from the other two key sectors (manufacturing and construction). Our calculations show that out of the 140K job creation for next year, 104K will be from the services sector which will then bring about further increase in wages. (See “Singapore: Above expectations”, Irvin Seah, Economics-Markets-Strategy, 9 Dec 2010) The two international resorts (IR) have added 1.6ppts to GDP growth. With the resorts yet to run at full capacity and anecdotal evidence suggesting that Singapore is now the top tourist destination in Asia, we expect contribution to growth from the benefits brought about by the IR to exceed expectations. We now forecast GDP growth for 2011 to be 7%, higher than the government forecast range of 4-6%. On markets, we expect three sectors to provide newsflow and near term catalysts for outperformance in 1H: a) Offshore Marine; b) hospitality; and c) Commodity and plantation stocks. We expect offshore and marine sector to create waves in the next few months as the cycle turns up. With oil prices hovering above US$60/barrel, oil majors are expected to increase exploration and production capex in 2011, after two years of low investment in capital spending due to the global crisis and tight credit environment. Singapore, being the new playground of Asia, will continue to attract strong tourist arrivals. YTD October, Singapore has seen new record of 8.6 m visitors, +21% YoY. We believe the growth rate is sustainable into 2011 as the global economic recovery becomes broad-based combined with the gradual opening of rides and attractions, expanded meetings facilities, and tables at the IRs. Direct beneficiaries are the IRs, airlines and hotels. Both supply and demand dynamics favour the outlook for agricultural commodities in 2011. Continued USD weakening and weather disruptions should boost cotton, wheat sugar and rubber prices next year. Coupled with strong demand from China, other than seasonal effects, we should see a firmer price uptrend in the 1H. Direct beneficiaries are the upstream plantation counters.




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Drivers:- • Real rates will continue to be negative in Singapore

driving asset reflation. We believe physical property prices will remain supported as the economy is expected to grow at 7% next year resulting in low unemployment rate and higher income. At this stage we do not see a property market bubble to warrant any government control measures after the last round, as evidenced by the stealthy property price rise and a manageable affordability ratio. A healthy property market will help sustain the wealth effect and consumer spending.

• Having peaked in 2Q10, it is generally expected that

GDP growth momentum will moderate in the coming quarters and markets will need a lot of positive surprises to move higher. Growth in 4Q is likely going to surprise with strong tourist arrivals and exports growing at strong rates, dispelling concerns of a "technical recession". We have upgraded our GDP growth to 7% in 2011 and inflation is raised to 3.2%. We believe there is still room for upside surprises and hence for the Singapore market to re-rate.

Fig. 20: Singapore GDP growth and P/E valuations

Source: Datastream, DBS Risks:-

• Singapore faces strong competition from Hong Kong as a regional financial hub. Hong Kong is benefiting as a gateway to China and a major CNY offshore centre, which stands to attract many international companies to set up regional headquarters. We believe the competition will continue in 2011 and that Singapore will have to step up efforts to be ahead of the competition. A positive surprise will be if Singapore will also be appointed as a CNY clearing centre. This is not entirely impossible.

• Singapore's interest rates are going to stay low for an

extended period of time resulting in NIM compression. In an attempt to improve ROEs which are already one

of the lowest in the region, Singapore banks may increase their risk profile, relying on non interest income, stronger loan growth or M&As. Uncertainty around these moves is underpinning the underperformance of Singapore banks relative to the regional banks in our view and the underperformance will probably continue in 2011.

Malaysia (Welcoming the flows - Neutral)

We expect Malaysia to outperform the region in 2011, driven by accommodative monetary policies and investment drive to boost growth. We expect Malaysia to further delay rate hikes since growth and inflation have slowed. Threat of property bubble is also not apparent in Malaysia. Malaysia has also reiterated that capital controls won't be necessary. Indeed we believe inflows will best be used to fund infrastructure spending under the new economic model (NEM). Other than the RM40bn Mass Rapid Transit (MRT) project which will be implemented in 2011, there were also several initiatives for public-private partnerships including six new highway projects including the West Coast Highway. Other mega projects also include RM26bn financial district to start in 2011, PNB's RM5bn 100-storey tower. Petronas has privatised two of its subsidiaries this year and plans to invest M$64b in the oil & gas sector. We also see value enhancing opportunities from the development of strategic government land. Direct beneficiaries are the construction, banks, property and oil & gas sectors. Earnings growth is forecast to be around 17% for 2011 and 11% for 2012, one of the highest in the region. Trading at a P/E multiple of 14x which is near the 10-year average, we believe strong growth could lead KLCI to chart new high in 2011. Finding Indonesian and ASEAN proxies in Malaysia

As a key member of ASEAN, Malaysia can benefit from the region's growth. With Indonesia companies trading at higher multiples, Malaysia has a handful of companies leveraged to the region's growth and some of which trade at cheaper valuations, such as the banks, CPO stocks and the gaming stocks. Growing integration within the region means a lot more opportunities for Malaysian companies in our view. Drivers:-

• Upcoming elections act as a major near term catalyst for the market as well as accelerating PM Najib's economic plans.

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• Robust development activities bolster M&A. • Three rate hikes in 2010 probably implies pausing in

2011. • The economy continues to strive under accommodative

fiscal policy environment. Risks:-

• Malaysia's key export sectors are palm oil and rubber. It is still vulnerable to external demand weakness should the global demand outlook weaken. Revenue budgeted for development spending relies heavily on the fortunes of this sector.

• Budget spending is always a constraint with Malaysia. It is one of the highest in Asia after India, but of course still shy of European countries.

• FDI needs to follow through to finance a lot of the infrastructure projects.

• Political risk cannot be ruled out if BN continues to lose votes in the upcoming elections.

India (Reprieve in 1Q - Neutral)

The outlook for India in the next 3 months is positive. Our India economist estimates that inflation will probably fall to around 5-6% by March which would dispel talks of the need for further interest rate hikes. So far this year, the Indian market has been perturbed by tightening concerns. A falling headline inflation number should bode well for the market in our view. This is in contrast to China, which our economist believes will strengthen its grip on monetary tightening, with further interest rate hikes, increase in RRR and a lower loan quota for next year. Administrative measures to control inflationary pressure before the Lunar New Year festive season is also possible. We are upgrading India on a tactical move. We recommend a switch out of China into India in 1Q10. There is still a lot of disbelief in India's recent good fortune. The fall in the inflation rate is likely unsustainable and should rise pretty soon as structural issues play an important role, thus warranting rate hikes again. Strong 2Q GDP (fiscal year) will probably need to be paid back in the next quarter. The budget in February would probably not able to surprise In 2Q

Fig. 21: India WPI vs repo rate

Source: Datastream Drivers:-

• Big population as well as high growth in middle income population support a high nominal GDP growth.

• Democracy allows checks on progress in economic development.

Risks:-

• Rising inflation calling for rate hikes is always a high risk to consumer spending and corporate earnings growth.

• Budget spending needs to be controlled to meet deficit targets.

• Rising political pressure on the coalition government due to scandals

• Twin deficit place India at same category of risks as some countries in the Eurozone

Hong Kong / China (Tightening fears ahead - Underweight)

We made a tactical move to downgrade China in 1Q10. Since inflation rose to 4.4% last month, our economist believe that China will probably tighten aggressively in the coming quarter. Measures like increase in policy rates, RRR, administrative controls on property, financial sector and the food sector is highly possible. These could in fact occur before the Chinese New Year, a period where inflationary pressure generally increases. We recommend investors focus on beneficiaries of long term structural sectors, and mid caps industrial sector which are less subject to macro drivers.

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Drivers:-

• Strong growth which we forecast to be near 10% in 2011.

• Rebalancing of economic policy towards domestic demand should continue to result in high income levels, thus favouring discretionary spending.

• Infrastructure spending to lead FAI growth, offsetting the weakness in property development.

• Low real rates imply still strong liquidity environment for driving up asset prices.

Risks:-

• Asset inflation bubble Thailand (Window of opportunity - Overweight)

We view the next six months as an attractive opportunity for investment into Thailand. The latest court decision which ruled in favour of the ruling DPP should remove political risk for now until the next elections which is likely to take place at the end of next year. During this period we expect the ruling coalition to work on budget spending and work to resuscitate FDI flows into the country. These should bode well for the stock market. Indeed the country has shown great resiliency to the series of political upheavals, thanks to the recovery of exports and the strength of agricultural produce. We continue to see this as a tailwind for Thailand in 2011. Valuations are very attractive and one of the lowest in the region. Generally driven by top-down macro input, a perceived more stable political environment will drive re-rating. Drivers:-

• Resilient in the face of political disruptions, which means that politics will become less of a concern over time.

• Agriculture exports sector is a structurally strong sector in Thailand, which is more stable amid exports cyclicality.

• Domestic demand to lead growth in 2011. • Low real rates imply still strong liquidity environment. Risks:-

• Rising interest rates, but still low compared to pre-crisis levels.

• Capital control measures as a response to strong inflows.

Indonesia (Best risk return profile - Overweight)

Indonesia shows the best risk return profile among all Asian countries. It has outperformed the region in 7 out of the past 10 years and gained on average of 32% vs the region's 14%. As it is still one of the smallest markets in Asia, we believe that the demand for Indonesia equities and assets should grow if it achieves an investment status rating by credit agencies. Before then we expect Indonesia equities to continue to outperform the region. The equities market currently trades at 12-month forward P/E of 14.5x. We expect it to test its recent high range of 16x PE, which translates to 4700 for JCI - a 27% increase from current levels. Key drivers are domestic as well as foreign liquidity which are attracted to the consumer story in Indonesia, brought about by rising incomes level thanks to the commodity boom. Direct proxies are the banks, consumer and the commodity sectors. A stable Rupiah is also what investors are looking for in Indonesia, which guarantees the spread in its credit market and hence further enhances attractiveness of its bond market. Inflation has remained benign for most of 2010, but is expected to rise next year when demand continues to pick up. Even if rates rise we expect it to be minimal which should not cause a major bond outflow. Drivers:-

• A country blessed with rich natural resources is currently benefiting from a commodity upcycle and strong China demand.

• Stable political environment until at least 2013 - next general elections is in 2014.

• Possible investment upgrade by 2012 which should bring bond rates down if it rises in the near term.

• Interest rates are low compared to last 10 years and should continue to support a domestic investment cycle.

Risks:-

• Rising interest rates, but still low compared to pre-crisis levels.

• Capital control measures as a response to strong inflows.




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Korea (Rising political tension a key risk - Underweight)

We believe there are two major headwinds in Korea which may defer its re-rating. Firstly, the political uncertainty has again come to the fore with tension rising in the North / South Korea border. Although it may look no different from previous conflicts, we believe the new leadership and the discovery of advanced nuclear facility in North Korea should raise the risk of a major conflict happening this time. In South Korea domestic politics as to the creditability of the current President will also be up for challenge under a strained North / South Korea relationship. Secondly Korea may not enjoy as much fiscal stimulus than before in 2011. The Korean Won has weakened 21% in between 2008 till now since the credit crisis, and interest rates has been raised once in Korea. We forecast that the Korean Won should strengthen in 2011 against a backdrop of rising Asian currencies and current account surplus. Moreover inflation has risen beyond BoK's comfort range and remains on watch. The government is also targeting a budget surplus, meaning that a lot of government stimulus may be withdrawn slowly. All these will mean that growth momentum could slow in the coming quarters. We are downgrading Korea to Underweight and upgrading Taiwan to Overweight. Fig. 22: Korea won and policy rates

Source: Datastream Drivers:-

• Established companies with strong global brands to sustain growth.

• Government intervention is a plus in the face of global uncertainty.

Risks:-

• Highly cyclical industries which are vulnerable to external downturn.

• Exports sector which is sensitive to Won strength. • The real estate market may continue to be depressed

due to negative sentiment on the geopolitical risks and threat of rising interest rates. Wealth effect may still be missing in Korea, as opposed to other Asian countries which have gained on rising asset prices

Taiwan (Sky is clear - Overweight)

Taiwan's GDP will most probably surprise on the upside in 2010 and the positive momentum is expected to extend to 1H 2011. This is largely due to a bottoming of the global demand as well a strong growth outlook in China. Benefits from ECFA is expected to bear fruit in 2011 as many bilateral investments have been progressively made across the Straits since the conclusion of agreement this year. Improving labour market, stronger consumer confidence, still-tight manufacturing capacity, and the enhancement of business operating environment can be expected driving domestic demand growth in 2011. We do not expect much disruption from political noise before the next presidential elections in 2012. We believe that Taiwanese are warming up to the idea of economic cooperation after seeing improvements in the domestic economy, especially the tourism sector and a pick-up in fixed asset investments, and a sequential drop in unemployment rate. We continue to see broadening of the domestic demand recovery to bring down the jobless rate. Drivers:-

• Benefits from ECFA to broaden domestic demand recovery.

• Loan growth to benefit from improved economic activities and low interest rates.

• Diversified and innovative tech sector to offset cyclicality in industry dynamics and short product life cycle.

• Benefits from a Taiwan / Korea allocation switch in view of rising political risks in Korea.

• Capital control rules to benefit equities market in retaining long term investments.

Risks:-

• Vulnerabl

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Economics David CARBON +65 6878 9548 [email protected]

(Extracted from “Economics-Markets-Strategy, 9 Dec 2010”)

GDP growth forecasts

Inflation rate forecasts

* India data & forecasts refer to fiscal years beginning April; inflation is WPI Source: CEIC and DBS Research

Interest rate forecasts

Cutting ribbons • Asia delivered 21 rate hikes in 2010. The Fed

gave us QE2

• If that’s not a picture of two scissor blades cutting in opposite directions, nothing is

• Is Asia decoupling? No – Asia is driving the global economy, and more clearly than ever before. Same train, new locomotive

• The US economy is in far better shape than most reckon. QE2 will not go the distance

• Asia is headed back to a period of fast growth very much the early-90s. But the endgame will be much more pleasant

• These and other Holiday Heresies are explored below

Asia hiked interest rates (or shifted currency regimes to tighten monetary policy) 21 times in 2010. The Fed gave us QE2. That’s about as clear a picture of the new world we live in as there could be. Asia growing at such a fast pace that inflation is now 2.5 to 3 times above the post 97/98 crisis average in countries ranging from China to Singapore to India. The US growing at such a slow pace that core CPI inflation is at a historic low of 0.6% YoY. Almost as if the world were being cut in two by a sharp pair of scissors.

No, the world is not decoupling. Indeed, the opposite is occurring: economies are becoming ever more tightly linked. But Asia is powering its own growth like never before and with the US so weak it has never been easier to see. Twenty-one hikes in Asia; a giant cut in the US. That’s pretty clear. Asia’s driving.

And where’s it going in 2011? Don’t be fooled by the “slower growth in 2011” headlines that are popping up everywhere. That is nothing but deceptive arithmetic. Yes, annual average GDP growth – the way they report things in Asia – will be lower than in 2010. But that’s only because (annual average) GDP growth was extraordinarily high – 8.4% – in 2010.

On the margin, growth in the smaller Asian countries is slowing down. But compared to what? Supernormal double-digit sequential growth for the past 5-6 quarters. That could never last, as we explained here last quarter (“The kink in the curve”, 9Sep10). Growth is returning to normal and that’s to be expected, not feared.

2007 2008 2009 2010f 2011f

US 1.9 0.0 -2.6 2.8 2.8Japan 2.4 -1.2 -5.1 2.7 1.6Eurozone 2.9 0.3 -4.0 1.7 1.5

Indonesia 6.3 6.0 4.5 6.0 5.8Malaysia 6.2 4.6 -1.7 7.2 5.5Philippines 7.1 3.8 0.9 6.2 5.0Singapore 8.2 1.4 -1.3 15.0 7.0Thailand 4.9 2.5 -2.2 8.5 4.5Vietnam 8.4 6.2 5.3 6.7 6.9

China 13.0 9.6 9.1 10.0 9.5Hong Kong 6.4 2.1 -2.7 6.6 5.0Taiwan 6.0 0.7 -1.9 10.3 3.8Korea 5.1 2.3 0.2 6.2 3.9

India* 9.2 6.5 7.7 8.8 8.5

% YoY

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US 2.9 3.8 -0.3 1.6 1.8Japan 0.1 1.4 -1.4 -0.4 0.5Eurozone 2.1 3.3 0.3 1.5 1.5

Indonesia 6.4 9.8 4.8 5.1 6.5Malaysia 2.0 5.4 0.6 1.8 2.4Philippines 2.8 9.3 3.3 4.0 4.4Singapore 2.1 6.4 0.6 2.8 3.2Thailand 2.2 5.5 -0.8 3.3 3.6Vietnam 8.3 23.1 7.0 9.0 10.0

China 4.8 5.9 -0.7 4.0 4.0Hong Kong 2.0 4.3 0.5 2.4 4.0Taiwan 1.8 3.5 -0.9 0.9 1.4Korea 2.5 4.7 2.8 2.9 3.4

India* 4.7 8.4 3.6 8.0 5.6

% YoY

current 1Q11 2Q11 3Q11 4Q11

US 0.25 0.25 0.25 0.25 0.50Japan 0.10 0.10 0.10 0.10 0.20Eurozone 1.00 1.00 1.00 1.25 1.50

Indonesia 6.50 7.00 7.75 8.00 8.00Malaysia 2.75 3.00 3.25 3.25 3.25Philippines 4.00 4.25 4.50 4.75 5.00Singapore n.a. n.a. n.a. n.a. n.a.Thailand 2.00 2.50 3.00 3.00 3.25Vietnam^ 9.00 9.50 10.00 10.00 10.00

China* 5.56 6.06 6.31 6.56 6.81Hong Kong n.a. n.a. n.a. n.a. n.a.Taiwan 1.50 2.00 2.25 2.50 2.75Korea 2.50 3.00 3.25 3.75 4.00

India 6.25 6.50 6.50 6.50 6.50

^ prime rate; * 1-yr lending rate

“This report has been re-published with permission from DBS Group Research” disclosures on page 102 of the report sa: TW




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Asia 2011: how the scissors cut

We’ve never liked the word ‘decoupling’. It makes you think economies are letting go of one another when exactly the opposite is true. Most of the world’s economies – save perhaps for North Korea’s – are becoming more and more integrated as time goes by. That’s surely one of the key aspects of globalization, isn’t it? Ever tighter linkages in economic supplies and demands? And nobody argues that globalization is receding. Quite the contrary. But what most people mean by decoupling is absolutely true. What most people mean is that the US economy doesn’t matter like it used to to the rest of the world. The US is becoming relatively less important – compared to, say, China or the Asia-10 – than it was 5 years ago, 10 years ago and so on. Not so long ago, one had to debate endlessly how and why and even whether this was truly the case. No longer. The global financial crisis ended that debate once and for all. Compared to 3Q08, when Lehman Brothers collapsed and the global financial crisis began in earnest, the Asia-10 economies are nearly 10% bigger. On the same time frame, the US economy is not a single dollar bigger. Asia and US – monetary tightening moves in 2010

Remember all that talk about global imbalances and the worry that if the US did not consume then Asia, which purportedly lived off the US, could not grow? Oops. Since 3Q08, US consumption has grown by 1%, or by a paltry $27bn. Asia’s consumption has grown by 22%, or $225bn. That’s an expansion 8x bigger than in the US. With new consumption demand running 8:1 in Asia’s favor, it’s simply no longer credible to claim that Asia’s growth depends on the US or that failure to fix some ‘imbalance’ puts global growth in peril. It doesn’t. US growth may be in peril – and we stress the word may (see HH5-HH8 below) – but that’s another kettle of fish: one that had everything to do with explosive leverage and abysmal risk management and nothing to do with current account surpluses or deficits.

But if you really want to see the stark difference between the US and Asia, consider this: in 2010, Asian central banks gave us 21 rate hikes (or currency regime shifts, table below). What did the Fed give us? QE2. If that’s not a picture of two scissor blades shearing in opposite directions, nothing is. The Asia blade is moving up, trying to cut inflation. The US blade is moving down, trying to cut unemployment. Two pieces of cloth slip silently to the floor. But hold on. Isn’t this picture of severance even more dramatic / permanent than decoupling? Not really. Asia is leading the recovery and the monetary normalization, that’s all. The US and the Fed will soon follow. The cloth will be whole again before you know it. “But...but... what do you mean, that’s ‘all’? Asia’s leading the recovery? That’s huge”. Yes it is. The scissors have never cut this way before. Asia is driving its own growth to an overheated state while the Fed resorts to QE2. That’s a first. And the debate is finally over. Asia is not decoupling but it sure is driving and that’s all people really meant to say in the first place. Policy Interest rates, - eop

* ID initiated a 300bps rise in the RRR ratio, estimated to be equivalent to two 25bps hikes ** Excluding increases in the RRR

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Indonesia 6.50 6.50 7.75 2* 3 5Malaysia 2.75 2.00 3.25 3 2 5Philippines 4.00 4.00 4.75 0 3 3Singapore n.a. n.a. n.a. 2 1 3Thailand 1.75 1.25 3.00 2 5 7

China 5.56 5.31 6.31 1** 3 4Hong Kong n.a. n.a. n.a. n.a. n.a. n.a.Taiwan 1.50 1.25 2.25 2 6 8Korea 2.50 2.00 3.50 2 4 6

India 6.25 4.75 6.50 6 1 7

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Holiday Heresies

If it all sounds a bit heretical, it shouldn’t. We’ve been talking about the structural shift in who drives global growth for years. Calculating this, charting that. Arguing from the front and from the back. But what finally ended the debate wasn’t any of this. It was the global financial crisis. Or rather, Asia’s recovery from it. Asia completely recovered precrisis output levels 18 months ago, while the US was still falling. How many monetary tightenings did Asia engineer this year? Twenty? While the US pursued QE2? It’s these sorts of audacious facts that finally end the debate. How could they not? And you know what? If it still sounds heretical, that’s okay. Because it’s the end of the year – the time when analysts are encouraged to be a little heretical, to drive a little over the line, to stick their necks out a little more than propriety permits between January and November. In that tradition, we offer an additional eleven Holiday Hypotheses for 2011 below. That makes twelve in all, one for each month of the year. As in past years, full credit may be claimed for correct predictions, yet no penalties are to be assessed for incorrect ones. Everyone deserves some kind of present at year end and this one is ours. Before jumping into 2011, though, the first tradition is to take a quick look at last year’s onions and orchids. Orchid: Given they’re supposed to be heretical, an unusual number of hypotheses came true in 2010. One of them was HH7, which posited that monetary tightening would be a key feature of 2010. Twenty-one hikes in 2010. Tick that box. But Holiday Heresy 9 was the clear winner: “Inflows into Asia will accelerate and the capital control debate will come to the front burner once again”. Tick another box: foreign exchange reserves have soared by 12% of 13% of GDP in the Asia-10 this year. That’s more than at any time in history, including the run-up to the 1997/98 Asian financial crisis. Thailand, Korea, Taiwan, Indonesia have all imposed some sort of inflow control and the only surprise on this front has been the lack of debate about them. Even the IMF and World Bank have changed their positions, acknowledging for the first time that controls can be useful / beneficial. Onion: Unlike last year, we didn’t have any awful bloopers in 2010. Hopefully this is not because we lost our courage after our errors in 2009. In the event, our worst prediction was probably HH13: Asia would grow 6% in 2010. At the

time (Dec09), 6% was a notch higher than consensus (5.5%). But Asia humbled both DBS and consensus, growing by 8.4% this year [1]. How fragrant is this onion? Pretty. When you’re talking about annual average numbers – the way they report GDP growth in Asia – an error of 2.4 percentage points is, quite frankly, huge. But this just underscores how strong Asia’s recovery was last year, especially juxtaposed against a US so weak the Fed had to resort to QE2. Twenty-ten was a monster year for Asia – which makes it a little difficult to come up with really heretical sounding hypotheses for 2011. But it’s the end of the year and you never snuff tradition, so here goes. HH2: Capital inflows into Asia are not just, or even mainly, about the Fed and QE2. There are long-term, “structural” for reasons for capital to flow to Asia that are probably more important and will anyway prove longer-lasting

There’s no doubt capital is flooding into Asia. Between Apr09 and Oct10, stockpiles of foreign reserves at the Asia-10 central banks have risen by US$1.4trn, or by about US$2.4bn per day. That equates to some 12% - 13% of GDP for the countries of the Asia-10. Some of that buildup is of course due to Asia’s current account surpluses. But we estimate that current account surpluses will only come to around 2.5% of GDP on average in the Asia-10 this year, which leaves the lion’s share of the buildup in reserves owing to ‘pure’ capital inflows of one stripe or another (equity purchases, bond purchases, FDI, bank borrowings, etc). Conventional wisdom has it that most of this inflow is due to the Fed and its quantitative easing policies, QE1 and QE2 – the Fed has flooded the markets with liquidity and that money is not staying where it was put. US rates are low. US growth is slow. The dollar is falling. Putting your money somewhere else is almost guaranteed to yield a higher return. So the money moves. Much of it to Asia. No doubt the Fed’s easy money is one factor behind the inflows. But it’s by no means the only factor and maybe not even the main one. One way to see this is to think about the Fed’s QE2 program. When you ask people if they think QE2 is going to “work”, most say no. Why? Because QE1 didn’t really ‘work’ so why would QE2? But why didn’t QE1 work? Because all the money that the Fed supposedly pumped into the economy didn’t really go into the economy. It stayed in the vaults at the Fed. The Fed bought $1.5trn worth of lousy housing assets and Treasuries from the banks




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but the banks didn’t take that money and lend it into the economy. They left it on deposit at the Fed, where it earns almost zero interest. But if all that QE1 money never went into the US economy, how can it then be flooding into Asia? The answer is, it can’t. And it’s not. What’s really going on is the Fed has driven rates to zero, bond yields are very low and the money that was already in the economy has said, ‘to heck with it, let’s go somewhere else where we get paid more’. Does it make a difference whether the money leaving the US for Asia was old money or QE1/QE2 money? After all, a dollar’s a dollar. Yes, it makes a big difference. If all the inflows into Asia are, so far, just old money, what will they look like when the QE1 and QE2 money actually do start to enter the economy? But there’s a bigger factor still behind the inflows into Asia – a longer-term “structural” reason for money to come to Asia that is probably bigger than the Fed and will anyway persist long after the Fed has normalized policy. Asia is where the growth in the world is now taking place. Asia is where the new dollars of demand are being generated each year. It’s those dollars (or euros or yen) that are the very measure of GDP growth and Asia is now generating more of them each year than any other economy in the world. If you’re a businessman, where do you want to invest? Where the growth is. That’s how you make money. Take a look at the chart below. It shows where private consumption demand has gone in the past two years in Asia, the US, Japan and Europe. In the G3, consumption expenditure is about the same as it was two years ago. In Asia, it’s up by 22%. How many dollars worth of growth does that 22% represent? About US$225bn. And how many dollars of consumption growth has the US generated in the past two years? About $27bn – one-eighth as many.

Real global consumption

If you’re a businessman trying to grow your business, where would you put your money, in Asia or the US? Yes, of course you can still grow in the US – if you knock someone else out of the picture. But that’s difficult. And messy. In Asia, you don’t have to knock someone else off the pedestal, you just have to be there. Now ask yourself if there is a reason, over and above the Fed, for money to be flowing from West to East? You bet. Probably the best reason of all: Asia is where the growth is. HH3: Money won’t rush out of Asia back to the US when the Fed starts to normalize policy

The biggest reason for capital to be flowing from West to East is that Asia is where the world’s growth is taking place. As of 2010, Asia generates more new dollars of demand than any other economy in the world. Businesses want to be where the growth is. It’s that simple. But Asia has only just surpassed the US as a generator of new dollars of demand; the gap will be wider next year and wider yet the year after that. This is the biggest structural change underway in the global economy today and it is not going away any time in the next two decades, nor probably the next five. Among other things, this means that capital inflow into Asia is likely to persist for a long time. It’s not going to go away just because the Fed starts to normalize monetary policy. Sure, temporarily there will be some backwash when the Fed starts to hike rates. But the longer-term structural trend is for inflow into Asia and bucking the trend is usually a money losing proposition.

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JPUSEU16

The growth that came"from nowhere"




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HH4: The Fed’s QE2 program is far less exciting than most think

The Fed’s QE2 program has brought much hyperbole from all sides. Some are adamant that it won’t work. Some, perhaps many judging from soaring gold prices, are adamant that soaring inflation will result. Mysteriously, some are adamant about both: “QE2 won’t help the real economy – all it will do is cause inflation”. The first assertion isn’t very heretical. Not many believe that QE2 will have a big impact on growth or employment and we fall into this camp. As mentioned in HH2 above, the $1.5 trn from QE1 never entered the economy (it sat at the Fed in the form of excess reserves) so why would QE2 be any different? Any impact it does have would probably come through the currency. But most research suggests it takes a lot of depreciation and a long time to bring even a small shift in trade flows. So it’s not clear that QE2 would have much of an impact even via this route, especially with Japan nearing the end of its tolerance for a stronger yen and the euro falling again on fears of further bank / economic trouble in the GIIPS countries [2]. But neither is QE2 likely to lead to inflation, if only because it seems unlikely to impact the real economy in the first place. For QE2 to bring inflation, it has to lead to demand in the real economy – people start demanding more (than the economy can produce) and prices start rising. Now wouldn’t that be nice! Indeed, our view is that if we do start to see inflation, we ought to be jumping for joy, not fretting that it’s going to get out of hand. And what if it did start to get out of hand? Would it take the Fed a long time to rein in QE2 and then QE1 before it could raise interest rates to cool inflation? Not at all. The Fed could raise interest rates with a snap of its thumb. All it has to do is pay interest on the (excess) deposits sitting in its vaults. Remember, the money from QE1 and QE2 has not gone into the economy. And if inflation started to rise, it would be because banks had started to take those reserves out of the Fed’s vaults and put them to use in the economy. And how do you put a stop to that? By paying interest on the reserves. Bottom line? Inflation is highly unlikely and anyway ought to be greeted with a big smile rather than a rush to buy gold.

HH5: The US recovery is far stronger than most think When US GDP growth dropped to 1.7% (QoQ, saar) in the second quarter of 2010, fears of a double dip soared and the Fed pulled a U-turn: talk of exit strategies turned to QE2 almost overnight and the latter was delivered in early-November. The worry was that falling US demand would spell trouble not just in the US but elsewhere in the world too. The thing is, demand wasn’t falling at all, supply was. GDP growth may have dropped to 1.7% but US demand had accelerated to a growth rate of 5.3%, the fastest rate of US demand growth since 3Q03! What’s the difference between supply (GDP) and US demand? Foreign demand, or net exports – the trade balance had turned south (thanks in no small way to the exceptionally strong US demand recorded then). While everyone was fretting about a double-dip in US demand, Americans were, in fact, buying up boatloads of everything, including an awful lot of imports. Investors and markets alike were thrown off guard by the most fundamental distinction in all of economics: the difference between supply and demand. Of course Bernanke wouldn’t get thrown off guard by such basic distinctions. Or would he? He duly noted in his Jackson Hole speech (of Aug 27) that what was needed for sustained recovery was growth in private sector final demand (PSFD). Can’t argue with that. So throw out the government and throw out the inventories and see what are you left with: private sector final demand that has also accelerated to 5 year highs. US - domestic demand growth

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US – private final demand growth

So why didn’t Bernanke actually look at the data and tell his audience what he saw? The short answer is markets would have revolted. Markets were waiting for him to say the Greenspan put, or now the Bernanke put, was alive and well – that QE2 would be there if it was needed. If Bernanke had said, “look guys, demand is actually very strong, stronger than anytime in the past 5 years”, markets would have taken it very poorly and democratic politicians concerned about the unemployment rate would have been furious. A simple distinction between supply and demand. Investors did not see it, Bernanke did not acknowledge it, if in fact he saw it. Yet the data show it plain as day. The graph above left shows total domestic demand (now through 3Q10) accelerating further to 5-year highs. The graph above right takes out the inventories and government spending and shows PSFD, also accelerating further to 5-year highs. Either way you cut it, US demand is a lot stronger than most people think, including perhaps the Fed chairman himself. HH6: US labor markets are making a turn for the better. Nonfarm payrolls will touch 350k by June and the unemployment rate will drop to 8% by December

HH6 may sound especially heretical after November nonfarm payrolls plunged to 39k and the unemployment rose to 9.8%. Yet over the past 6-8 weeks, the broader body of labor market data has in fact made a significant turn for the better. Weekly jobless claims have fallen to 435k, an 80k improvement over August / Jackson Hole levels. Historically, a 100k improvement in jobless claims is associated with a 250k improvement in nonfarm payrolls.

The improvement is visible elsewhere too. The manufacturing and service sector ISM labor components have continued to rise and, as of November, are back at 2005 levels. And the ADP gauge of private sector payrolls has continued to rise and, indeed, surprised to the upside in November. Why should hiring look better now? Perhaps a better way to answer that is to ask why hiring stopped cold between April and September after rising more rapidly than in any other postwar recovery between Jan09 and Apr10. Why did things go haywire in May? Hiring stopped cold in May because that’s when the European debt crisis erupted. Sentiment soured and when it comes to economic fundamentals, there is nothing more sensitive to sentiment than hiring. Why? Because firing workers is a very emotional event, not just for the person getting laid off but for the manager who has to do the firing too. It’s an awful experience for all involved so managers don’t hire new workers until they are sure they will be able to keep them. Shake that confidence and hiring stops cold. So private sector payrolls collapsed in May, falling to 51k from 241k in April. Later, the threat of a US double dip and the possible need for QE2 took over the headlines and hiring continued to sideways at best. By October, though, fears of double-dip had begun to recede and private sector job growth had again risen to 159k. Unless the European debt crisis spills over into USD libor markets – a seemingly unlikely event – US job growth should continue to rise from here. US – nonfarm payrolls

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% QoQ, saar, 2qma

3Q103.6%2Q10

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2Q053.8%

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payrolls x1000/month, saTotal

Private

8300kjobs lost

Nov10




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How far could payrolls (and the unemployment rate) go? With GDP growth running just shy of 3% and labor truly stretched to the limit (labor productivity is four standard deviation above trend), payrolls of 300k to 350k could be seen by June. The unemployment rate, now at 9.8%, could drop to 8% by Dec11. Heretical? Not really. Remember, demand growth is at a five-year high and hiring has been postponed twice. Something’s gotta give. HH7: QE2 won’t go the distance

The Fed’s second round of quantitative easing amounts to $600bn and is scheduled to run through June 2011. Will all those dollars really get out the Fed door? Not if the improvement in the labor market continues. A lot of people are worried, rightly or wrongly (the latter in our view) that QE2 will only lead to inflation. They have “put up” with it only because inflation is so low (0.6% YoY for core CPI) and the unemployment rate is so high (9.8%). Even then, worries about inflation have pushed interest rates higher since QE2 was launched, not lower, as the Fed had intended. Yields on 10Y Treasuries are currently 3.22%, some 74bps higher than when QE2 was announced (4Nov); yields on 30Y Treasuries (4.43%) are 50bps higher than when QE2 was announced and 92bps higher than when Bernanke first spoke at length about QE2 at Jackson Hole on 27Aug. When the unemployment rate starts to tick lower – and that should be soon – concerns about inflation will jump and yields will too, probably sharply so. The Fed will be obliged to shift its focus to “maintaining inflation expectations”. It won’t be able to wait until the unemployment rate falls to 5% because inflation expectations will move immediately. And if there is one thing we have learned about the Fed and the markets since August 2007, it is that the former does not like to upset the latter. On the contrary, the Fed seems to do everything in its power to keep markets happy. When yields go up, Treasury purchases go down. QE2 won’t go the distance. HH8: The Fed will be hiking rates by 4Q11

Ending QE2 is not the same as normalizing monetary policy. There is still some $1.75trn of QE1 that has to be soaked up again before things are back to normal. As noted in HH2, most, if not all of that $1.75trn is sitting on deposit at the Fed in the form of excess reserves – reserves which banks are free to withdraw and put to use in the economy anytime they wish.

When will that be? Probably when the unemployment rate starts to tick downward. That is typically the last piece of the recovery puzzle to fall into place and that traditionally rings the “all-clear bell” signalling it is safe for banks to start lending again. Can the Fed reverse $1.75trn of Treasury sales faster than the banks can spend the money handed to them in that exercise? Probably not. It’s surely quicker and easier simply to raise the interest rate paid on those deposits. If banks are keen to lend into the real economy at a 5% rate, then a risk-free Fed rate of 4% would make them a lot less keen. If the economy offers a 6% rate, the Fed can counter with a 5% rate, controlling lending much the same as in days gone by when it raised or lowered the Fed funds rate. The point is, the Fed does not have to – and seems unlikely to – reverse all the QE2 and QE1 before it starts to raise interest rates. This means that investors should ignore how much QE money is out there when they try to gauge when interest rates may rise. What they should consider instead is simply how strong or weak the economy is and what that means for employment and inflation, just as in days gone by. We continue to think the Fed will be hiking interest rates by 4Q11, in contrast to markets, which do not have a Fed hike fully priced in until 2Q12. Heretical? Not at all. This past summer, the Fed switched from exit strategizing to QE2 in a matter of 2-3 months. It can switch back again just as quickly. That’s a lot of Hypotheses centered around the US. It’s time to return to Asia. HH9: Asia’s central banks remain far behind the curve. There will be another 24 rate hikes in the Asia-10 by June

Growth continues to run very strongly in Asia, notwithstanding the sharp “slowdown” in many countries in 3Q10. That slowdown, remember, is just a normalization after 5-6 quarters of supernormal growth that followed the collapse of late-08 early-09. Moreover, growth in China, India – the large domestically driven economies that did not go through the sharp swings that the rest of Asia did in late-2008 – hasn’t slowed at all in 3Q10 — it has accelerated. China’s economy grew by 11% (QoQ, saar) in the third quarter, India’s by 19%! Not for nothing has inflation risen rapidly in the Asia-10 over the course of 2010. In China, inflation is now running at 4.4% YoY, some three times higher than the average rate that has prevailed since the Asian financial crisis of




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1997/98. In India, inflation is running at 8.6%, about 2.5 times the average rate that has prevailed since 97/98. And in Singapore, traditionally home to Asia’s lowest inflation, it is running at 3.7%, almost three times the average rate that has prevailed since 97/98. Above average growth combined with high and accelerating inflation can mean only one thing: Asia’s central banks remain behind the curve. Some (China, Indonesia, Thailand) are far behind the curve; some (India, Malaysia, Singapore) are only a little behind the curve. But more rate hikes and/or currency appreciation is needed in all countries if growth and inflation are to be kept on a steady keel. We saw 21 hikes or currency moves in Asia in 2010; we expect another 24 in the first two quarters of 2011 (table below). China and Indonesia, the two countries which remain the furthest behind the curve in our view, are expected to hike rates by 75bps to 125bps by then. Policy Interest rates, eop

* 1-yr lending rate HH10: Private sectors have been driving growth in Asia. Growth will not slow when government stimulus packages “expire”

When we tell people another 24 rate hikes are coming down the pipe, polite smiles often appear. ‘But won’t growth stop when all the government stimulus packages expire?’ is the question that follows. ‘What government stimulus packages?’, is our response. Sure, a lot of officials promised this and that back in late-08 and early-09 when output was dropping like a rock. Mostly, that was just talk. Politicians said what politicians are supposed to say in times of crisis: we’ll be there, we’ll spend X, we’ll build Y. What else could they do? But look at what governments actually spent and you’ll find it was a lot different from what was promised. In fact, in most cases, you couldn’t tell what had been promised in the first place. The numbers thrown about were pure mumbo jumbo – a mixture of last year’s allocations that hadn’t yet

been spent, next year’s spending already in the budget and a small amount of true additional spending. Trying to figure out which was which was nigh impossible. The mumbo jumbo was so thick in China that it simply became conventional wisdom to talk about a package worth 15 percentage points of GDP. Nothing of the sort ever materialized there or anywhere else in Asia. If guessing at projected future expenditures was impossible, looking back at actual expenditures is easy. And when you do this you find almost no change in government spending growth following the Lehman Brothers collapse in Sep08. In China, expenditure growth remained steady until Jan09 and then began to fall! (chart below). China – government expenditure growth

Take a look at Asia’s GDP growth over the recovery period since 2Q09 (chart top of next page). Growth has been strong over the past six quarters, as we all know. But has it been powered by government spending? Not at all. Take out government spending and the private sector growth you’re left with has been even stronger (than total GDP growth) in 6 of the Asia-10 countries. On average, private sector GDP growth (8.3%) has been stronger than total GDP growth (8%). The idea that Asia’s recovery was driven by government spending is a myth. What happens when mythical expenditures disappear? Not much.

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%YoY, 12mma

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percent totalhikes hikes hikes hikes by

current 4Q10 1Q11 2Q11 in 4Q10 in 1Q11 in 2Q11 2Q11

Indonesia 6.50 6.50 7.00 7.75 0.00 0.50 0.75 1.25Malaysia 2.75 2.75 3.00 3.25 0.00 0.25 0.25 0.50Philippines 4.00 4.00 4.25 4.50 0.00 0.25 0.25 0.50Singapore n.a. n.a. n.a. n.a.Thailand 2.00 2.00 2.50 3.00 0.00 0.50 0.50 1.00

China* 5.56 5.81 6.06 6.31 0.25 0.25 0.25 0.75Hong Kong n.a. n.a. n.a. n.a.Taiwan 1.50 1.75 2.00 2.25 0.25 0.25 0.25 0.75Korea 2.50 2.50 3.00 3.25 0.00 0.50 0.25 0.75

India 6.25 6.25 6.50 6.50 0.00 0.25 0.00 0.25

Average Asia-10 0.81Total number of 25bps hikes 2 11 10 23




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HH11: Asian currencies will appreciate 5% per year against the dollar for the next 5 years, maybe for longer

Asia is being inundated with inflows. Between Apr09 and Oct10, foreign exchange reserves in the Asia-10 rose by US$1.3trn, or about US$2.4bn per day. In October alone, Singapore’s effective foreign exchange reserves [3] jumped by US$17bn, equivalent to 90% of October GDP. Little wonder the central bank was forced to shift the currency regime for a second time this year toward faster appreciation. On average, since Apr09, the rise in foreign reserves amounts to some 12% - 13% of GDP in the Asia-10, the fastest 18 month rise in history. Asia GDP growth – total and ex-government

As noted in HH2, these inflows are not just, or even mainly about the Fed. Asia is where the growth in the global economy is taking place and this is the most fundamental reason there could possibly be to expect inflows to continue. There are many ways that countries will deal with inflows [4] but we think currency appreciation is likely to be the dominant one. With Asia expected to increasingly drive global growth over the coming decade and inflows expected to remain strong for this and other reasons, currencies could easily appreciate by 5%-6% per year against the US dollar for the next 5-6 years. Would that kill the goose that laid the golden egg, Asia’s exporters? No. First of all, most if not all of Asia’s currencies are likely to head north as a group. That means no Asian country would be disadvantaged vis-a-vis another. Foreign buyers might cringe at higher prices coming from India but running to Thailand would not help. A 25% appreciation is much easier to accept when your neighbors’ currencies have moved by the same amount.

Singapore – official and effective FX reserves

Second, such currency appreciation would be occurring as part and parcel of the growth process. Five percent per year appreciation may sound like a lot but GDP growth has been averaging 7% per year in Asia for many years. Half or more of that 7% GDP growth is coming from productivity growth – whether embedded in imported capital equipment, or in higher skills and education levels of blue and white collar labor, or in more efficient management or better infrastructure that allows goods and services to flow more freely. In this light, a 5% nominal appreciation of the currency could well be 1% or less in ‘real’ terms, when productivity gains are taken into account. Another way of saying the same thing is that stronger currencies are one way in which rising real incomes manifest themselves. They shout ‘it’s payday’ for Asia, after a hard day’s work. Finally, don’t forget that stronger currencies are great for everyone who is not an exporter and that’s still a lot of people in Asia. Stronger currencies lower the import prices of everything from consumer goods to crude oil cheaper and that helps keep inflation low and real incomes high. HH12: The next ten years in Asia will look a lot like the ten years that led up to the Asian financial crisis of 1997/98. With luck, we’ll avoid the endgame that prevailed back then

Capital inflows bring a lot more than currency appreciation. They tend to keep interest rates below normal, they tend to push investment and GDP growth above normal. Ditto for inflation. External balances tend to move toward deficit and leverage tends to rise. If all this sounds like Asia in the 5-10 years leading up to the financial crisis of 1997/98 to you, it does to us too. It is a scenario (see stylized chart below) we have envisioned for more than a year now and in fact discussed here briefly a year ago (HH13). In short, we think Asia is headed into a multi-year period of above average growth and releveraging

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effectivereserves

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US$77bn

$90bn




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– Period 3 in the chart below – even while growth in the G3 (US, JP, EU) is expected to be sub-par. The question of course is: will it all end the way did in 1997/98? We think not. First of all, we have argued that

Asia has spent the past ten years deleveraging and paying down the debt that was built up in the 1900s (Period 2 below). Thus Asia seems well placed to endure a multi-year period of releveraging.

Asia-vu: back to the 90s

The other reason that the endgame is likely to be different this time is that Asia’s policymakers still have the experience of 1997/98 engraved in their minds and are very reluctant to move toward anything that smacks of the 90s. That means, among other things, that capital inflows will be monitored and controlled more tightly – this time with the blessing and support of the IMF / international financial community – with an eye toward keeping inflows digestible and economies on an even keel. With better communications

and planning, it shouldn’t be too hard to convince investors that “filters” on inflows are in their interests as much as the interests of the capital receiving countries. Most investors would much prefer a trajectory of long and steady growth over a boom/bust period that generates no more total growth or return. With such a vision of stronger and steadier growth ahead, we wish everyone the best of luck in 2011.

Endnotes [1] Fourth quarter GDP growth has not yet been reported so full year average growth could be slightly different than the 8.4% mentioned. [2] Greece, Iceland, Ireland, Portugal and Spain [3] “Effective reserves” include not just actual dollar holdings but also commitments to purchase dollars at a future date in the forward market.

Such intervention is now reported by most IMF member countries as part of the reforms introduced in the aftermath of the Asian financial crisis of 1997/98. Forward market intervention has the same impact on the currency as spot purchases even though it does not (yet) appear in official reserve figures. The earlier lack of transparency was judged to have contributed to the crisis, particularly in the case of Thailand, where reported reserves appeared substantial but were, in effect, already zero because they had been sold forward in the forward currency market. The US$17bn increase in Singapore’s reserves in Oct10 is comprised of $8.2bn of spot purchases and $8.6bn of forward purchases.

[4] See “Asia: the six ways to absorb capital inflow”, 26Oct10. Sources: Data for all charts and tables come from CEIC and Bloomberg.

1987 1997 2007 2017

Period 1 Period 2 Period 3

Asianfinancial

crisis

USfinancial

crisis

Capital inflowCurrent acct deficits

Rising leverageRising external debt

Rapid fixed capital form'nAbove-avg GDP growth

Asia-vu:A return to period 1:

Capital inflowExternal balance / deficit

Above average capital form'nAbove-avg GDP growth

Capital outflowCurrent acct surpluses

De-leveragingRepaying external debt

Paltry fixed capital form'nBelow-avg GDP growth




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Forex Philip WEE +65 6224 5521 [email protected]

(Extracted from “Economics-Markets-Strategy, 9 December 2010”)

Exchange rate forecasts

^ prime rate; * 1-yr lending rate

Currencies have generally benefited from CNY de-peg since June 2010

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AUD JPY THB EUR NZD TWD SGD KRW PHP MYR INR CNY IDR HKD VND USD

Note: USD is performance of DXY index

% change vs USD7 Dec 2010 vs 19 Jun 2010

Source: DBS

Asia’s ascension begins • Asia: Emerging Asia is set to embrace its role

as the world’s growth pole in the next five year 2011-15

• 2009-2010 was about emerging from the global crisis

• Having traded back to pre-Lehman levels, emerging Asian currencies may return to pre-Asian crisis levels

CNY: Ascension begins in earnest HKD: Peg to USD remains relevant TWD: Undervalued & moving to strong currency policy KRW: Fundamentals vs Korean peninsula tensions SGD: Firm with inflation amidst resilient growth MYR: More liberalization, not more controls THB: Emerging stronger after the global crisis IDR: Building on recovering foreign investor confidence PHP: Attractive on improving fundamentals INR: Appreciation with constraints VND: Odd man out on imminent devaluation risks USD: Foreign reserve diversification risks JPY: Neutral-to-modest appreciation EUR: Balancing between anti-dollar role and EU crisis AUD: Parity and beyond NZD: Not as strong as the Oz

current 1Q11 2Q11 3Q11 4Q11

US … … … …Japan 83.8 82 81 80 79Eurozone 1.335 1.38 1.42 1.46 1.50

Indonesia 9,012 8,850 8,800 8,750 8,700Malaysia 3.13 3.08 3.04 3.00 2.96Philippines 43.8 43.0 42.0 41.0 40.0Singapore 1.30 1.28 1.26 1.24 1.22Thailand 30.0 29.5 29.1 28.8 28.5Vietnam^ 19,495 20,100 20,100 20,100 20,520

China* 6.65 6.56 6.50 6.44 6.37Hong Kong 7.77 7.75 7.75 7.75 7.75Taiwan 29.9 30.2 30.0 29.8 29.6Korea 1147 1040 1020 1000 980

India 44.9 44.0 43.5 43.0 42.5





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Emerging Asia – the dynamic growth story has only just begun

The year 2011 will mark the start of emerging Asia moving towards a more dynamic and better-balanced growth profile over the next five years. This should pave the way for emerging Asian currencies to appreciate back to their pre-Asian crisis levels. In our view, the appreciation of emerging Asian over the past two years reflected only the region’s emergence from the global crisis. 2010 was really about these economies exiting their loose monetary/fiscal policies put in place earlier to combat the global crisis. Compared to a jobless recovery in the US, a sovereign debt crisis in the Eurozone, and a Japan struggling with deflation, this was important in cementing emerging Asia’s position as the growth pole of world. Many emerging Asian countries have started to shift their economic growth driver from fiscal stimulus to private sector investment. To boost competitiveness, some countries, notably Thailand and Malaysia, are seeking to raise consumer taxes in order to cut corporate and personal income taxes. The more export-dependent economies have also started looking at developing non-trade sectors and boosting household consumption to insulate their economies from external shocks, in particular, volatility from the indebted developed nations. Overall, these are pro-growth policies that will improve fiscal finances and lead to more upgrades in sovereign credit ratings in the region.

By and large, we believe that most emerging Asian governments favor strong currency policies that reflect improving fundamentals and attract productive investment capital for growth and development. We view capital controls in some countries more as policy responses to unstable hot monies unleashed by an ultra-accommodative monetary policies in the US, as well as a weak US dollar policy persistently targeting faster appreciation in the Chinese yuan and other surplus emerging economies. Ironically, currency appreciation in emerging Asia will probably be determined more, and not less by capital inflows going forward. Players banking on narrowing current account surpluses to stifle currency appreciation are also likely to be disappointed. A narrowing current account surplus, especially when coupled with improving fiscal finances, is a strong testimony of value-added growth led by the private investment and rising consumer demand. This is important for one simple reason. After the global crisis, foreign investors place a premium on investment destinations that encourages domestic demand. That’s why these countries tend to be the ones with stock markets that outperform too. The best way to deal with capital inflows is not to chase them away, but to deepen capital markets and improve intermediation in financial markets.

Emerging Asian currencies – back to pre-Asian crisis in the next five years

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1995 2000 2005 2010 2015

USD vs AXJ currencies*Indexed: July 1997

Asiancrisis

Emergence from global crisis

Ascension of Asian currencies

* CNY, HKD, TWD, KRW, SGD, MYR, THB, IDR, PHP




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Notable themes developing in emerging Asia

China’s 12th five-year plan for 2011-15 underscores the ascension of the Chinese yuan in exchange rate markets in the next five years. The transformation of the yuan into a more market-based and internationally accessible currency will have positive implications not only for China, but for the global economy as a whole. More importantly, the yuan will pave the way for China and emerging Asia to become a more dynamic regional bloc that is set to be comparable to the US in size over the next five to ten years. The yuan’s appreciation will reflect the development, restructuring and transformation of the Chinese economy towards more better-balanced, stable and quality growth. One of the most exciting stories in Asia has been the rapid growth and development of the CNH market in Hong Kong. That said, it is too early for the territory to consider a monetary union with the mainland. Hong Kong’s vibrancy as a financial center depends on capital account convertibility and the availability and accessibility of funding, a role that the US dollar provides without restraint as the world’s dominant reserve currency. The Taiwan dollar has scope to abandon its wide 30-35 range established after the 1997/98 Asian crisis. As one of the region’s most undervalued currencies, USD/TWD has scope to trade back to the 24.5-27.5 range seen before 1997. Our optimism is based on Taiwan’s strategy to

reposition its post-global crisis economy by developing non-trade sectors and promoting its financial sector. To lower its unemployment rate, Taiwan wants to attract investments from China and Asia. Herein lies the policymakers’ preference to keep the Taiwan dollar aligned to the appreciation trend of its Asian peers. Malaysia will move closer towards liberalizing the Malaysian ringgit for financial activities. The challenge here appears not whether, but rather how to translate the benefits of this liberalization into a vibrant foreign exchange market that stays in Malaysia. Only then will Malaysia officially lift the ban on offshore ringgit trade. In August 2010, Malaysia allowed settlement of international trade in goods and services in ringgit between residents and nonresidents. Not every currency story in emerging Asia is about appreciation. The Vietnam dong is set to devalue again after the Communist Party National Congress in January 2011 charts the country’s course for the next five years. Since November 2009, the dong was devalued three times by more than 10% in total. Today’s devaluation pressures come from double-digit inflation, a widening trade deficit and fiscal worries. We reckon the dong will be devalued by 3% after the meeting, and by a total 5% for the whole of 2011.

TWD to follow emerging Asia stronger

Market discounting another VND devaluation

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USD/TWD

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Jan-09 Jul-09 Jan-10 Jul-10

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Unofficial exchange rate




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G20 agenda in 2011 – a “win win” solution for USD, CNY & EUR?

In 2010, it did not pay to be too bearish or too bullish in either the US dollar or the euro. The first five months (January-May) was characterised by a collapse in the euro from the Eurozone sovereign debt crisis. The next five months (June-October) was led by a US dollar sell-off on the US pushing China for more yuan appreciation, as well as the Fed delivering a second round of quantitative easing measures (QE2). Since early June, the weak US dollar appeared to have returned as the underlying trend. Unfortunately, the path was also volatile because Europe’s problems did not go away. So far, the experience has been two months of US dollar selling, followed by one month of euro weakness. Nonetheless, corrections can be deep and painful, as witnessed during the Irish crisis in November, even if Europe’s problems failed to reverse the US dollar’s downtrend. Inasmuch as the market has not given up on the EU contagion risks spreading to Portugal and Spain, neither have the Americans relented in pushing China hard to deliver more yuan appreciation. After suffering heavy losses at the US midterm elections, the Obama administration will be looking at the presidential elections in 2012. Apart from Capitol Hill’s preoccupation with the US jobless recovery, the Obama administration is also aware that its pledge to

boost exports and savings is increasingly undermined by widening trade and current account deficits. This was probably why the US Treasury proposed, at the G20 summit in November, to limit current account balances to 4% of GDP. The Treasury also declared that rebalancing the global economy required multilateral efforts, and was not solely the responsibilities of the US and China. In short, the US has started to push for a broadbased depreciation in the US dollar against its major trading partners. Against this backdrop, the G20 agenda to reform the international monetary system in 2011 has increased the downside risks for the US dollar. Essentially, France and Germany agree with China that today’s increasingly multipolar world economy is inconsistent with a financial system dominated by the US dollar. France, who is chairing the G20 in 2011, has recommended reducing the greenback’s share in world’s reserves holdings. Interestingly, during its five-year review in November, the IMF reduced the weight of the US dollar and increased the euro in its Special Drawing Right (SDR). In summary, this will fit in with China’s diversification needs when the US pressures the dollar lower against the yuan, which in turn will provide support for the euro as Eurozone fixes its problems. Sounds like a win-win solution, right?

Allocation of world’s foreign reserves

IMF reduced USD weight in SDR

USD, 0.62

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JPY, 3%

GBP, 4%

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as at 2Q10

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Guarding against complacency

Emerging Asia is right to guard against complacency regarding capital inflows. Recent history suggests that US economic policy has a tendency for the sector it priortized to lead recovery and growth to enter into boom-and-bust cycle. For example, corporate America led growth in the late 1990s, during which it extracted wealth from “irrational exuberance” in the US stock market boom. As US corporates became ransomed to the rising stock prices, accounting standards lapsed and led to the corporate malfeasance crisis. During the last expansion between 2002 and 2008, it was the US consumer that extracted wealth from the housing sector. No need to elaborate on how that ended in tears. Going forward, the US has been relentless in pushing for surplus economies to spend more and import more. Yes, the sector the US wants to lead growth for this cycle after the global crisis is not within America itself. It lies outside the US, targeting mainly China and emerging Asia. One need not look far to see the record high foreign reserves and stock indices achieved by many countries in the region. The challenge is compounded by the ultra-loose monetary policies in the four SDR economies – US, Eurozone, Japan and UK. Understandably, some Asian countries have decided to implement capital controls to minimize mis-allocation of resources into unproductive uses and to discourage speculation in asset markets. Unfortunately, there is no way

of knowing whether these measures merely treat the symptoms or address the causes. The lesson from most crises is that they originate from deleveraging in a sector with a weakened balance sheet. This could be triggered by an economic slowdown, a funding squeeze or a turnaround in the asset prices supporting or driving the sector. The next question is whether the fallout from this sector is severe enough to threaten the stability of the financial system. If it does, the end game often leads to a bailout by the government, debt monetization and more regulation. On a macro level, these weak sectors often turn up in countries that become too addicted to high economic growth policies. The ones at risk tend to have fiscal surpluses and current account deficits, which together imply an overleveraged private sector. The most vulnerable countries are those that need the current account deficit to keep widening to sustain the growth rate. They are also the ones who need to maintain high rates to attract capital inflows to fund the savings-investment shortfall. For emerging Asian countries, this is not a problem today because the US is “printing money” and pushing the dollar weaker against their currencies. The lesson from the 1997/98 Asian crisis is that trouble starts when the US decides to hike rates again and return to a strong dollar policy.

China gets 3rd loudest voice in the IMF

INR derives its support from capital inflows

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99 00 01 02 03 04 05 06 07 08 09 10

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US dollar – foreign reserve diversification risks

The depreciation of the US dollar is an integral component of the US’s economic recovery strategy. One high potential risk next year is more foreign reserve diversification away from the greenback. The fall will be broadbased despite the headline focus on the Chinese yuan, and will be deeper if US’s weak fiscal finances become a dominant worry in financial markets. The agenda for G20 summits in 2011 will be the reform of the USD-centric international monetary system to accommodate an increasingly more multi-polar world economy. To achieve this, France – the G20 chair next year – has recommended reducing the dominance of the greenback in the world’s foreign reserves. It was probably no coincidence that the IMF reduced the USD’s weight in its Special Drawing Right at its five-year review in November. According to France, China has agreed to host the first working seminar on this reform in spring. China has been supportive of EU’s fiscal austerity efforts to address its sovereign debt crisis, and critical of US’s intention to rein the fiscal deficit only after the recovery is fully established. This position was reinforced by the Fed’s second round of quantitative easing measures (QE2) that runs from November 2010 into June 2011. As a result, we have pushed out the Fed Funds Rate hike from the third into the final quarter of 2011.

Interestingly, the US is not likely to be too concerned. The US believes that rebalancing the global economy is a multilateral challenge that is not confined solely to US-China trade imbalances. At the G20 summit in November 2010, the US Treasury proposed that countries keep their current account balances to 4% of GDP. To be sure, the Obama administration is frustrated that instead of boosting exports and savings, the current account deficit has started to deteriorate again. Worse, its bilateral trade deficits with other trading partners have widened too. Herein lies its unspoken desire for a more broadbased depreciation in the US dollar beyond the Chinese yuan. The US probably dismissed the greenback’s fall during June-October as returning unwanted gains from the EU sovereign debt crisis. The reference point for the start of the adjustment process is probably the dollar’s level when the G20 formally replaced the G7 as the world’s chief international economic/financial forum. Today’s situation is similar to the global recovery from the First Oil Shock in the latter 1970s. The G7 was formed to engage Japan and Germany to allow the dollar to fall against their currencies, when the US trade deficit deteriorated quickly with the recovery. Hence, it is clear why the G20 is important to engage China today. So, don’t expect US lawmakers to stop politicizing the yuan issue.

US trade deficit is deteriorating sharply again

Like 1970s, weaker USD on widening trade deficit

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G7 formedin 1975




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Euro – balancing between anti-dollar role and EU crisis

EUR/USD is expected to trade above 1.40 and move towards 1.50 in 2011. Our view is based on a weaker US dollar as opposed to a weaker euro, brought about by foreign reserve diversification away from the US dollar (see G20 agenda in USD section). That said, we are also mindful of sharp euro corrections whenever focus returns to the EU sovereign debt crisis, especially amidst disappointing growth data in major world economies. Ever since the US dollar resumed its fall in June, we have witnessed one month of euro weakness after two months of selling in the US dollar. As long as this trend persists, euro should continue to trend higher albeit high volatility. The euro is the world’s second largest liquid reserve currency after the US dollar. According to IMF data, the US dollar still holds a whopping 62% share of the world’s allocated foreign reserves compared to 27% in the euro. The euro is important to China as an alternative reserve currency when it allows the US dollar to depreciate against the Chinese yuan. Following the Greek and Irish crisis, we believe that EU leaders and policymakers have also started to view China’s reserve diversification efforts favorably to maintain confidence in the single currency. With France chairing the G20 in 2011, and working with China (joined by Germany) on how to reform the world

monetary system, expect the fiscal debate to shift from Eurozone to the US. The main criticism will be directed at US’s insistence to collectively pursue loose fiscal, monetary and exchange rate policies to ensure a sustainable US recovery that is not jobless. That said, we remain mindful that France and Germany also believe that China should appreciate its yuan. On a real effective exchange rate (REER) basis, the euro is considered to be more fairly valued than overvalued. Euro is viewed as too strong or too weak when its REER deviates about 1.5-2.0 times from its lifetime average. The REER is important because it is one of the main components of the ECB’s monetary conditions index. Notably, the REER did not appreciate as fast as the EUR/USD from June, as they fell together during the Greek-led EU crisis in January-May. The reason was straightforward. There was broadbased US dollar weakness in the former, and broadbased euro weakness in the latter. This is important for one simple reason. If the REER EUR appreciates to the 1.5-2.0 standard deviation threshold on the back of broadbased US dollar weakness, EUR/USD can rise above 1.50 again, and even surpass its record high of 1.60 seen in 2008. REER was last reported at 0.67 standard deviation from its lifetime average in November.

REER EUR is more fairly valued than overvalued

REER EUR vs EUR/USD

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Broad-basedEUR weakness

Broad-basedUSD weakness




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Japanese yen – neutral to modest appreciation

Despite an underperforming Japanese economy, we have decided to position for a neutral to stronger Japanese yen in 2011. The main support will come from the emerging Asia growth story shifting into higher gear. The drag will come from renewed interest in yen carry trades. Overall, we see USD/JPY still consolidating between 80 and 85 in 2011; and look for a move below 80 when emerging G20 nations become more comfortable with currency appreciation reflecting stronger fundamentals. Japan is still primarily export-dependent until it successfully exits its deflation trap. Hence, Japan’s current account surplus improves when demand in emerging Asia improves, leading the yen to appreciate with emerging Asian currencies. The only exception was during the Chinese yuan appreciation in 2005-08 when yen carry trades became popular. This was possible because of the US rate hike cycle in 2004-06 and convincing interventions that prevented USD/JPY from falling below its psychological 100 level. These two factors are missing today. In our view, the yen carry trades that normally accompany a growth story are unlikely to result in a higher USD/JPY. It could simply be a case of the yen appreciating at a slower pace compared to other more volatile currencies such as the euro and other commodity currencies. This happened during

the world’s emergence from the Great Recession in 2009, when the US dollar was depreciating on the back of the first round of quantitative easing (QE) in the US. Today, the Fed’s second round of QE that started in November 2010 is expected to run into mid-2011. Japan’s surprise currency intervention on September 15 was considered to be “just shock, no awe”. Interestingly, both these policies were heavily criticized by other countries. Looking ahead, Japan will increasingly need to respond the challenge of a more competitive emerging Asia with relatively high growth strategies. It did not help that the fiscal consolidation agenda of the ruling Democratic Party of Japan (DPJ) was undermined by its defeat at the July Upper House elections. Some Southeast Asian countries want to hike the value-added tax in order to lower their corporate taxes. September‘s currency intervention was also viewed as a policy response to a strong yen pushing Japanese companies to relocate production overseas. The finance ministry, in particular, wants to discourage further yen appreciation against emerging Asian countries. That said, Japan is looking into relaxing its restrictive policy to accept more foreign workers. Apart from addressing its declining population, this push to open its borders will also help Japan integrate with the East Asian region.

Foreign reserves rise vs stable external debt

Current account surpluses, no capital inflows

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Chinese yuan – the ascension story begins in earnest

The ascension of the Chinese yuan will dominate exchange rate markets for the next five years. The transformation of the yuan into a more market-based and internationally accessible currency will have positive implications not only for China, but for the global economy as a whole. More importantly, the yuan will pave the way for China and Emerging Asia to become a more dynamic regional bloc that is set to be comparable to the US in size over the next five to ten years. China's 12th Five-Year Program (FYP) for Economic and Social Development for 2011-2015 will be important in putting the world economy onto a more sustainable growth path. The 12th FYP is China's strategic response to the critical challenges of rebalancing the global economy constrained by an international financial system dominated by reserve currencies with deep debt/deficit burdens. Looking ahead, China will be aiming for its yuan to be included into the IMF's Special Drawing Right (SDR) at the next IMF review in 2015. China recognizes that the yuan needs to be part of the SDR in order to gain clout and credibility in discussions to reform the world international financial system. This is not any different from the US realizing that a G7 without China will be less effective in advancing efforts to rebalance the global economy.

The 12th FYP will continue to favor an appreciating yuan. China's increased clout on the world stage in the last five years has been predicated on a fast expanding economy and high surpluses underlined by currency appreciation expectations. While maintaining relatively high growth will continue to be important, the focus in the next five years will be about development, restructuring and transformation to move China towards better-balanced, stable and quality growth. To facilitate this transformation, the 12th FYP is expected to build on efforts over the past couple of years to promote the yuan as a more international currency. The gradual move towards increasing capital account convertibility should see the yuan being used more (and more), not only in cross-border trade settlements, but also in international investments. By and large, the yuan is likely to continue appreciating in the next five years, but we expect more volatility compared to the previous 2005-2008 experience. Back then, the export/investment model consistently resulted in rapidly widening trade surpluses, which in turn, led the yuan to appreciate at an accelerating pace. So, in theory, the new emphasis on household consumption in the 12th FYP should lead to narrower current account surpluses and decelerating yuan appreciation. The reality is, however, suggesting that the yuan needs to appreciate more first before it can slow down its gains.

Very strong international liquidity position

Capital inflows + current account surpluses

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Korean won – fundamentals vs Korean peninsula tensions

The Korean won is underpinned by improving domestic economic fundamentals underscored by its rising interest rate cycle. The balance of payments suggests that its appreciation is derived more by its robust current account surpluses, than by excessive capital inflows. In our view, capital controls are not aimed at discouraging inflows but in encouraging a better mix between portfolio and direct investments. The main risk to this reassessment remains the unquantifiable risk of an escalation in the tensions between South and North Korea. The positive outlook for the Korean economy is best reflected in the central bank’s latest monetary policy statement on November 16. In assessing that inflation is maintaining an upward trend above 3% alongside solid economic growth, the Bank of Korea (BOK) longer deemed it necessary to keep an accommodative stance in the conducting monetary policy. Although the 7-day repo rate rose to 2.50% from 2.00% this year, it remained well below CPI inflation of 4.1% YoY in Oct10. The policy rate should eventually be lifted to 4.00% by end-2011. The won is supported by an improving international liquidity position. Apart from the disappointing $1.3bn surplus in 1Q10, Korea’s current account surpluses have exceeded $10bn every quarter since 3Q09. While foreign reserves hit a new record high of $293bn in Oct10, short-term external

debt have stabilized and eased to $146bn in 3Q10 from $149bn in 4Q09. Unlike many Asian countries, we remain mindful that Korea’s foreign reserves are still below gross external debt (3Q10: $415bn), which has risen with long-term external debt. Korea’s issue with capital inflows appears to be less worrisome compared to its Asian peers. In the first ten months of 2010, the $23bn in rise in foreign reserves was in line with its total current account surplus of $29bn. The capital and financial account reported a $3bn deficit for the same period, which was also a stark contrast to the $23bn surplus in Jan-Oct 2009. A breakdown of the financial account suggests that the concern lies more with the fact that Korea has been attracting portfolio investment instead of direct investment. Herein lies the rational for the macroprudential measures (a.k.a., capital controls) to encourage longer-term capital that is more productive to the economy. Nonetheless, the won’s outlook is admittedly clouded by one unquantifiable risk – increased tensions between South and North Korea. This year has witnessed a marked increase in incidents between the two sides – the sinking of a SK navy corvette in March and the NK artillery shelling a SK military base on Yeonpyeong island. With Asia’s largest economies located in the northeast, it will not be positive for the world in general if conflict breaks out on the peninsula.

Not the strongest of international liquidity position

BOP shjows CA surplus strength, not capital

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Singapore dollar – firm with inflation amidst resilient growth

Inflation should continue to take precedence over slowing economic growth in Singapore’s exchange rate policy. Unless inflation starts to temper from its stable to firm path, the door remains open for another tightening at the next policy review in April 2011. Based on our assumption for a weaker US dollar, USD/SGD should continue to trend lower towards 1.20 next year. In 2010, Singapore witnessed the most aggressive policy tightening in its exchange rate policy. The Monetary Authority of Singapore (MAS) implemented “twin tightenings” at both semiannual policy reviews in April and October. At the first review, the SGD NEER (nominal effective exchange rate) policy band was re-centered higher and returned to a modest and gradual appreciation path. The pace of this path was slightly increased at the second review, alongside a slight widening in the band. Looking ahead, the MAS wants to cap inflation at 2-3% in 2011 from 2.5-3.0% in 2010 to ensure medium-term price stability. Seasonally-adjusted CPI inflation averaged 2.5% YoY in the first ten months. With the exception of communication, price pressures remained firm in the other components of the CPI basket. Both the domestic supply price index and the manufacturing production price index appeared to have bottomed in Sep10. On average, inflation

in Singapore’s major trading partners also started to move higher again in September 10. The main challenge to inflation in Asia, not just Singapore, is the persistent weakness of the US dollar against the region’s currencies. The inverse relationship between the weak dollar and commodity prices poses another challenge. It was also no coincidence that inflation stabilized in 2Q10 when investors sought safety in the dollar during the EU sovereign debt crisis. Inflation rose above 3.5% again in Sep/Oct10, for the first time since Jan09, when the US dollar fell sharply and led to record inflows in many Asian countries. The authority will remain vigilant to bubble risks, especially in the real estate sector, from hot capital inflows. As for the real economy, Singapore is on track to reporting the fastest growth rate globally in 2010. With manufacturing output surging 31% YoY in Oct10, and non-oil domestic export levels hitting a new record high in the same month, earlier worries of a technical recession have abated. Despite the strong Sing dollar this year, Singapore continues to benefit from China and emerging Asia becoming the growth pole of the world. The Sing dollar has also remained competitive because of concurrent appreciation in other Asian currencies. Hence, the appreciation trend of the Sing dollar is expected to remain resilient in 2011.

Foreign reserves almost as large as economy

BOP is more about current account surpluses

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Malaysian ringgit – more liberalization, not more controls

Slowly but surely, Malaysia has, and should, continue to make good progress to reintegrate the Malaysian ringgit with the international financial system. In August, Bank Negara Malaysia (BNM) allowed settlement of international trade in goods and services between residents and nonresidents in ringgit, during which China also started onshore trading of the yuan against the ringgit. It was also reported that Malaysia bought yuan-denominated for its foreign reserves. Although Malaysia has not lifted the ban on offshore ringgit trade, it appears to be moving towards liberalizing the ringgit for financial activities. The challenge appears not whether to do so, but rather how to translate the benefits of this liberalization into a vibrant foreign exchange market that stays in the country, as well as boosting its ambition to become a premier hub for Islamic finance. To reposition Malaysia after the global crisis, the New Economic Model has laid the path for more meritocracy and transparency to move the country towards developed nation status by 2020. To shift the growth driver from fiscal stimulus towards private investment, policies have been steering towards restoring Malaysia’s competitiveness to attract foreign investments. That’s probably why PM Najib, who is a staunch supporter of free trade, believes that a

strong ringgit benefits Malaysia. Unlike some other Asian countries, Malaysia is clearly moving towards more liberalization, and not more controls, on its exchange rate. Malaysia’s balance of payments have started to reflect the benefits from its policy intentions on the exchange rate. Unlike its Asian peers, Malaysia’s foreign reserves have yet to recover to its precrisis high. Until recently, reserves have been languishing at post-crisis lows during this recovery. Despite strong current account surpluses, the capital and financial account (CFA) remained in deficits. It was, therefore, significant in 2Q10, that the CFA reported its first surplus since 1Q08. Based on the capital inflows reported into local ringgit bonds and the Malaysian stock index hitting its precrisis high, the CFA surplus is likely to be stronger in 2Q10. This was best reflected by the sharp surge in reserves to $94.8bn in Oct10 from $85.1bn in Aug10. Looking ahead, Malaysia is expected to hold general elections in 2011. A strong mandate for PM Najib Razak will allow his government to move towards fiscal consolidation via tax reforms. A goods and services tax would not only widen the tax base, but also provide the scope for more corporate tax cuts and as well as incentives to develop and deepen financial sector activities. In boosting the investment environment, this will improve the outlook for Malaysia’s sovereign credit ratings outlook.

Econ needs to shift from fiscal to pte investment

Malaysia has no problem with capital inflows

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Thai baht – emerging stronger after the global crisis

The Thai baht has emerged from the 2008 global crisis as one of the strongest currencies in Asia ex Japan (AXJ). Having more than recovered their losses from this global crisis, both the baht and Thai equities should continue their journey to return to their pre-Asian crisis highs. The rapid improvement in Thailand’s international liquidity position has been impressive. Foreign reserves surged to $171bn in Oct10, almost double the $87.0bn at end-2007. This was sufficient to cover some 11 months of imports, above the general 5-8 months during the previous 2002-08 global expansion. Most importantly, foreign reserves was 1.8 times of external debt (Sep10: $90bn). After the Asian crisis, external debt fell to 27.8% of GDP in 2009 vs 76.5% in 1999. The Thai baht is likely to remain a key beneficiary of global rebalancing efforts in 2011. After China, the US’s next largest bilateral trade deficit with an AXJ country was Thailand. Having totalled $8.7bn in the first nine months, this year’s US-Thai trade deficit is likely come in close to last year’s $12.2bn. So, don’t expect the Thai baht to be excluded in next year’s push for more appreciation in the yuan and other emerging market currencies.

The current account surplus has started to narrow with the economic recovery, as imports caught up with the initial rebound in exports. This has brought the current account surplus down from 8.3% of GDP in 2009 to 4.0% in 3Q10. Coincidentally, this happened to be the same 4% target for current account balances proposed by the US Treasury at the last G20 summit in November. Then again, the current account surplus alone cannot fully explain this year’s double-digit appreciation. Looking ahead, the capital and financial accounts will probably be better gauges of the baht’s strength, like in the first half of the 1990s when AXJ was also leading world growth. In fact, foreign investors would probably view a simultaneous narrowing in both the current account surplus and the budget deficit as positive evidence of the growth drivers shifting from public spending towards the private sector. In this regard, the general elections due in 2011 will be important in setting the right tone going forward. The current government led by PM Abhisit Vejjajiva is reportedly working on tax reforms to boost Thailand’s competitiveness. The strategy is relatively straightforward – lift the value-added tax rate from the current 7% in order to lower the corporate and personal income tax rates from 30% and 37% respectively. Taking everything into consideration, Thailand is simply trying not to encourage hot money as it works towards improving the climate for foreign investment.

Solid international liquidity position

Strongest capital inflows since pre-Asian crisis

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Current account

$ billion

2010 is extrapolated




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Indonesian rupiah – building on recovering foreign investor confidence

The Indonesian rupiah is expected to remain attractive as Asia’s highest yielding currency as long as the US rate outlook remains dovish. Apart from a weak US dollar environment, the rupiah should also draw strength from the government’s progressive economic policies to rely more on the private sector and foreign investors to grow and develop the economy and financial sector. In the first ten months, foreign reserves increased by $25.7bn to $91.8bn, which was the fastest rise on record. The bulk of the contribution came from the capital and financial account (CFA) surplus, which outpaced the current account (CA) surplus by a ratio of 3:1 in the first three quarters of this year. This was a reversal of the situation in the same period last year, when the CA surplus was more than triple the CFA surplus. Despite this trend, Indonesia is not leaning towards strict capital controls. The capital measures introduced earlier in June were not aimed at encouraging capital outflows or at discouraging inflows but at persuading capital inflows to stay longer. Although portfolio investment contributed most to the CFA surplus, the increase in direct investment this year was notably the strongest after the 1997/98 Asian financial crisis. Looking ahead, the government is keen to encourage the private sector, particularly foreign investors,

to play a larger contributory role to the growth and development of the economy. In fact, the central bank wants to encourage foreign banks to participate towards deepening its financial markets including promoting an onshore foreign exchange market. To the credit of the central bank, money supply growth has been stable around 12-13% despite the 40% jump in foreign reserves. This has helped to prevent CPI inflation from rising above BI’s reference rate this year, allowing rates to stay unchanged at 6.50% throughout 2010. While acknowledging stronger inflationary pressures in 2011, BI’s preference is for rate inaction again in 2011 and 2012 by keeping CPI inflation within a 4-6% stable range. In the end, the pressure for higher rates will probably come from demand-side pressures reflected by the rising core inflation. In our view, BI’s prudence in managing money supply helped to keep the rupiah stable during periods of risk aversion. Even so, we remain mindful that the rupiah has greatly benefited from the ultra-loose monetary policies in the US and other weak developed economies. Apart from encouraging foreigners to seek higher yields in local bonds and money market securities, the locals have also increased their appetite for cheap external funding. So, unless the US surprises by hiking rates sooner-than-expected, the rupiah should remain stable to strong in 2011.

International liquidity position stable

Strongest balance of payments in years

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15

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25

2004 2005 2006 2007 2008 2009 2010


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$ billion

2010: Jan-Sep total




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Australian dollar – to parity and beyond

The Australian dollar is set to trade above parity against the US dollar in 2011. Our view is based on the near-perfect correlation between the Oz and Asia ex Japan equities. This reflected how Australia’s economic fortunes have become increasingly intertwined with those of China and emerging Asia after the global crisis. This is a good thing considering that the region has become the growth pole of the world. The Reserve Bank of Australia (RBA) resumed tightening monetary policy in November 2010, when the cash target rate was raised by 25bps to 4.75%. The policy rate was previously hiked six times between October 2009 and May 2010 to normalize rates from its all-time low of 3.00% to 4.50%. The Australian economy is likely to perform better, not only in terms of growth rates, but also in quality. The RBA expects real GDP growth of 3.5% in 2011 and 2012, higher than the 2.6% YoY and 3.3% growth rate witnessed in 1Q10 and 2Q10 respectively. More importantly, the growth driver is shifting from government spending towards private sector investment. Externally, Australia is benefiting from robust growth in Asia ex Japan as well as ultra-accommodative monetary policies in the developed economies. Hence, the jobs market is likely to be stronger than what the unemployment rate, which has been languishing between 5.1% and 5.4% this year, suggests.

The labor force participation rate hit an all time high 65.9 in Oct10 from its post-crisis low of 65.1 in May10. Against this strengthening growth outlook, inflation is unlikely to be far behind. During this recovery, CPI inflation rose to an average 2.9% YoY in the first three quarters compared to 1.9% for the whole of 2009. Looking ahead, two key factors will be important in determining when rate hike pressures will intensify. The first will be the unemployment rate falling below 5% towards 4%; the participation rate hit a new record high in Oct10. The second will be renewed broadbased US dollar depreciation pressures pushing up commodity prices. Australia is set to post its first trade surplus since 2001. For the first ten months, the trade surplus totaled AUD12.5bn, which was already more than double the total AUD5.0bn surplus in 2001. The year 2010 is also the third straight year that the trade balance has improved. More importantly, the top contributors were from Northeast Asian countries – Japan, China, Korea and Taiwan. Collectively, Japan, China, Hong Kong, Korea, Taiwan and ASEAN accounted for almost 54% of total exports in Jan-Oct10, compared to 49.1% in 2008. This goes some way to explain why the Australian dollar has been highly correlated with the MSCI Asia ex Japan equity index throughout its recovery from the 2008 global crisis.

AUD joins emerging Asian currencies higher

AUD/USD vs AXJ stocks – near identical twins

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Jan-08 Jan-09 Jan-10

FX vs USDIndexed: 15 Jul 08

AUDAsia ex Japancurrencies

Majorcurrencies

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0.95

1.00AUD/USD (rhs)

MSCI Asia ex Japanequity index (lhs)




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REGIONAL COUNTRIES




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China / Hong Kong Derek CHEUNG· (852) 2971 1703 · [email protected]

Bbg Code Rec TP (LCY) Autos Dong Feng Motors 489 HK Buy 17.5 Banks China Construction Bank 939 HK Buy 8.81 ICBC 1398 HK Buy 7.17 Food & Beverages China Foods 506 HK Buy 7.60 China Mengniu 2319 HK Buy 25.30 China Yurun 1068 HK Buy 35.50 Little Sheep 968 HK Buy 6.60 Retail Giordano 709 HK Buy 5.50 Parkson 3368 HK Buy 15.19 New World Dept Store 825 HK Buy 9.52 Beijing Jingkelong 814 HK Buy 10.84 Oriental Watch 398 HK Buy 6.13 Insurance Ping An 2318 HK Buy 99.00 PICC 2328 HK Buy 14.64 Telecom China Telecom 728 HK Buy 4.90

Source: DBS Vickers

PE band chart

4,000

9,000

14,000

19,000

24,000

29,000

34,000

Jan-9

9

Dec

-99

No

v-00

Oct

-01

Sep-0

2

Aug-0

3

Jul-04

Jun-0

5

May

-06

Ap

r-07

Mar

-08

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9

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0

Dec

-10

9x

12x

15x

19x

22x

Source: Bloomberg, DBS Vickers China M2 vs GDP growth

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5

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35

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3Q10

Real GDP growth M2 growth

Yoy, %

Source: CEIC

The glass is still (almost) half full • Targetting 15% HSI upside in 2011 to 26,891

(14.4x FY11 PER). • Global liquidity and China economic

performance still in play but policy risk especially in China an increasing swing factor.

• Preferred sectors: HK Landlord, China Property, Financials, Telecom and Tech. Equipment Supplier, China Railway Equipment Supplier and Consumption.

Room for upside despite risks Despite China policy risks and uncertainty over the impact of a withdrawal of global liquidity measures in 2011, our HSI target of 26,891 is realistic considering its historic long-term sustainable PER level of 15X (or a level of 28,000)

2010 reality check We have stuck to our more realistic view that the global financial crisis is not firmly behind us although economic conditions have improved. The fear towards European debt crisis causing the 1Q-2Q10 correction will continue to be in play while the upswing in 2H10 was due more to excess global liquidity (esp. via QE2).

Double-edged sword Excess liquidity and low interest rates have clearly benefited the business environment. However, if developed economies delay tightening monetary policy and China hesitates in getting its own house in order, the resultant excess liquidity could push the HSI to a bubble bursting 35,000 level (19X FY11 PER).

China catches up Inflation has a nasty habit of catching governments on the hop (see our 11 Oct 10 report - “Super-inflation”). Although China is rushing to catch up with inflation, over-capacity, resources misallocation and an M2 stubbornly higher than nominal GDP, the current consensus FY11 profit forecast does not appear to reflect the risks of policy delay or failure nor possible over-reaction

The glass is “half-full” Recent US economic data releases in 4Q10 and 1H11 forecasts may provide more tangible evidence of sustainable economic recovery. Possible US interest rate hikes may be given a more positive gloss if they are prompted by an improved US outlook rather than stagflation.

Sector outperformers We recommend sectors that will continue to be supported by China policies, will benefit from interest rate hikes and/or have already priced in material tightening: HK Landlord, China Property, Financial, Telecom and Tech. Equipment Supplier, China Railway Equipment Supplier and Consumption.

ed: JW / sa: JC




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Indonesia Indonesia Research Team +6221 39835428 [email protected]

Top Picks Bbg Code Rec TP (Rp) Adaro Energy ADRO IJ Buy 2,800 Astra International ASII IJ Buy 65,000 Bank Rakyat Indonesia BBRI IJ Buy 13,900 Sampoerna Agro SGRO IJ Buy 4,400 Source: DBS Vickers

JCI vs region indices

STI

H Seng

KLCI

SET

JCI

80.0

100.0

120.0

140.0

160.0

Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10

Cumulative net foreign purchase

(2,000)

4,000

10,000

16,000

22,000

Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10

Rpbn

Source: Bloomberg

The makeover continues • Possible sovereign re-rating and capital

inflows to drive JCI index up in 2011

• Growth intact, but rising inflationary pressures

• Top picks: ADRO, ASII, BBRI and SGRO

Sovereign re-rating and capital inflows to drive up JCI in 2011. Indonesia‘s equity market has been a star performer in 2010, with the JCI index climbing over 40% YTD and reaching new highs in early December at 3,786. Much of this has come from foreign capital inflows, with net foreign purchases to date up 57% compared to 2009. We expect this trend to continue on the back of Indonesia’s positive outlook and stable macro environment. These factors, along with a possible credit re-rating, should see a further 27% uptick in the JCI in 2011.

Robust Economic Growth. A combination of rising domestic incomes, foreign investment and commodity exports are the main drivers behind our 5.8% GDP growth forecast for Indonesia in 2011. Although, regionally, this rate of growth is not the highest, it still compares favourably with all except China and India.

Rising inflation. Strong likelihood that further commodity price increases along with a planned reform of fuel subsidies could stoke inflation in 2011. If inflation breaches the 6+% target rate in 2010, interest rates could rise alot earlier than expected. The challenge for policy makers will be to keep inflation in check without dampening growth.

Top picks. Our top picks are: a) Adaro Energy (price recovery and growing demand in 2011); b) Astra International (proxy on Indonesia’s economy with a solid track record and leading market shares); c) Bank Rakyat Indonesia (top micro lender in the country); and d) Sampoerna Agro (volume recovery play with the strongest volume growth among upstream plantation companies).

ed: SGC/JW / sa: JC




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Malaysia WONG Ming Tek +603 2711 0956 [email protected] Malaysia & Research Team [email protected]

Top picks Bbg Code Rec TP (RM) Large caps Maybank MAY MK Buy 10.80 Sime Darby SIME MK Buy 10.20 RHB Capital RHBC MK Buy 10.00 Gamuda GAM MK Buy 4.90 Small-mid caps SP Setia SPSB MK Buy 7.00 Boustead Holdings BOUS MK Buy 7.60 DRB-Hicom DRB MK Buy 3.55 Jobstreet JOBS MK Buy 3.30

*Above bolded stocks are High Conviction Picks Source: HwangDBS Vickers Research

KLCI gains as Ringgit appreciates

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FBMKLCI Index (LHS) USDMYR (RHS) Source: DBS, HwangDBS Vickers Research

KLCI by sector weighting: Potential beneficiary of higher CPO prices given plantations account for 19%

Banking35%

Plantations19%

Gaming9%

Telecommunications14%

Power8%

Conglomerate / Others4%

Oil&Gas2%

Transportation6%

Consumer1%

Construction2%

Source: HwangDBS Vickers Research

Charting new frontiers • 2011 KLCI target of 1,663 (10% upside)

• Positive domestic / regional factors (tranformation program, CPO prices) along with reasonable valuations and earnings upgrades offer good stock picking opportunities

• High conviction picks: Maybank, Gamuda, Boustead Holdings, DRB-Hicom

Uptrend intact. Positive domestic and regional factors (transformation program, strong CPO prices, resilient economic growth, impending Sarawak state elections) underpin our cautiously optimistic view on the market. Near term, the January effect should also come into play; the KLCI has chalked up average gains of 2.4% in January in 8 out of the last 10 years. Our 2010 year-end KLCI target is 1,520. For 2011, we expect the KLCI to chart new highs with our year-end target at 1,650 (14x forward earnings).

Optimistic on prospects of transformation program. The push to improve public transportation should result in the award of the RM40bn high impact strategic MRT project by July 2011. Potential beneficiaries are Gamuda (High Conviction Buy; TP: RM4.90) and MMC (Buy; TP: RM3.85). We also see value-enhancing opportunities from the redevelopment of strategic government land. Potential beneficiaries are MRCB (Buy; TP: RM2.90), and Boustead (High Conviction Buy; TP: RM7.60).

Support from strong CPO prices. With palm oil related stocks accounting for 19% of the KLCI, strong CPO prices are a positive for the market. Sime Darby (Buy; TP: RM10.20) has the most to gain from strong CPO prices with the highest proportion of mature plantations (within our universe) as well as recovering yields in Indonesia. Diversified conglomerate Boustead will also benefit from strong CPO prices.

Fair valuations could see further upside. The market has gained 19% YTD, partly supported by a stronger ringgit. Going into 2011, we expect the ringgit to continue to strengthen. We have also seen substantial earnings upgrades, resulting in robust earnings growth of 22.8% for 2010 and 20.3% forecast for 2011. This implies a market trading on 14x forward earnings, which we believe leaves scope for further upside.

High conviction stock picks. These include : Maybank, Gamuda, Boustead Holdings, DRB-Hicom.

ed: SGC/JW / sa: JC




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Singapore Janice CHUA· (65) 6398 7954 [email protected] Top picks Bbg Code Rec TP (S$) Large caps Cosco Corp COS SP Buy 2.76 Indofood Agri IFAR SP Buy 3.20 Keppel Corp KEP SP Buy 12.50 OCBC Bank OCBC SP Buy 11.30 Venture Corp VMS SP Buy 11.80 Small-mid caps ARA Asset Mgmt ARA SP Buy 1.70 CSE Global CSE SP Buy 1.45 ConscienceFood CSF SP Buy 0.38 Midas Hldgs MIDAS SP Buy 1.20 PEC Ltd PEC SP Buy 1.58 Source: Bloomberg, DBS Vickers Regional Market Data

Earnings Gth (%) PE (x)

10F 11F 10F 11F Singapore 20.3 12.4 15.6 13.9 Malaysia 22.8 20.3 17.8 14.8 HK HSI 30.0 15.3 14.4 12.5 HK HSCCI (Red) 24.0 13.9 16.2 14.2 HK HSCEI (H) 27.4 16.7 12.8 11.0 Thailand 33.0 7.1 12.8 12.0 Indonesia 19.7 23.5 19.0 14.7

Source: DBS Vickers MSCI SG 12-month forward PE

Source: Datastream, DBS Vickers STI gains as S$ appreciates

Bargain-hopping • A good start to the new year but uncertainties

over inflation and interest rate hikes could surface towards 2H

• Hares – oil-related and CPO proxies will rise with ‘inflationary boom’, while offshore and marine sector will benefit from resumption of capex spending

• Tortoises – time for laggards with banks to play catch up with the region

A good start but watch for potential headwinds. Strong liquidity inflows spurred by the strong S$, a low interest rate environment, and buoyant economic growth sets the backdrop for a positive ride into the new year. Potential headwinds halting the market’s ascent towards second half could come from an earlier than expected interest rate hike or anti-inflationary moves from the government.

Valuation inexpensive, lags the region. Earnings growth for DBSV coverage is 20.4% in FY10 before normalising to 12.3% in FY11, translating into PE of 13.9x on FY11 earnings. Singapore’s equities have lagged emerging countries in the region, trading at average PE vs the region trending at close to or above +1 SD. In terms of PE, Singapore is cheaper than Malaysia and Indonesia. We maintain our STI target at 3500 based on +0.5SD or 15.8x FY11 earnings.

Bet on Hares – beta plays enjoy the ride up... As we enter into an ‘inflationary boom’, demand for capital goods and basic materials should pick up as companies tackle capacity constraints. The Offshore and Marine sector will benefit from a sustained recovery of orders for new rigs and production platforms, even as oil prices rise. Plantation companies will ride on the rise in CPO prices in 1H2011 due to demand drivers coinciding with low yields and weather disruptions.

...and Tortoises – banks are laggards with potential catalysts. Singapore banks are laggards trading at 1.4x P/B, an unjustifiable discount to ASEAN peers. We advocate accumulating Singapore banks for their strength in asset quality and capital vs. ASEAN peers. Continuous regionalization efforts and build up in non-interest income generating activities will provide ROE upside. The key reason for overlooking Singapore banks is its low NIM vs. ASEAN peers, and hence slower earnings growth. While our view is for SIBOR to rise only in 4Q11, the possibility of an earlier SIBOR uptick due to inflationary pressure will provide the catalyst. In addition, there is upside to our loan growth assumption of 8% given the robust GDP outlook.

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MSCI SINGAPORE - 12MTH FWD P/E RTIO

Source: Bloomberg, DBS Vickers

ed: JS / sa: JC




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Thailand Chanpen SIRITHANARATTANAKUL +66 0 2657 7824 [email protected] Chirasit VUTTIGRAI +66 0 2657 7836 [email protected]

Top picks Bbg Code Rec TP (Bt) Large caps KASIKORNBANK KBANK TB Buy 150.00 Krung Thai Bank KTB TB Buy 21.00 PTT Chemical PTTCH TB Buy 210.00 Thai Airways THAI TB Buy 64.50 Thai Oil PCL TOP TB Buy 80.00 Small-mid caps Amata Corporation AMATA TB Buy 20.00 L.P.N. Development LPN TB Buy 12.62 Major Cineplex MAJOR TB Buy 19.50 Thai Vegetable Oil TVO TB Buy 38.25

Source: DBS Vickers

Thailand: Market Valuation

08A 09E 10F 11F

EPS growth (%) 33.0 7.1 12.8 12.0

P/E (x) 20.4 17.2 12.8 12.0

P/BV (x) 2.7 2.4 2.2 1.9

Yield (%) 2.6 2.9 3.6 3.7

EV/EBITDA (x) 9.1 8.7 7.3 6.1

Source: DBS Vickers

Regional: Market 2010 PE vs. dividend yield

111213141516171819

2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8FY10 Dividend yield (%)

FY10

PE

(x)

Expensive

Cheap

ThailandChina H

Indonesia

Singapore

Hong Kong

Malaysia

Source: DBS Vickers

Re-rating should continue • In 2011, the Thai market will be driven by (i) ample

liquidity, (ii) easing political tension, and (iii) rising corporate earnings

• Key themes for 2011 are higher commodity prices and increased investment spending

• Our SET Index target is 1213 based on bottom-up approach, implying 14.5x FY11PE

• Overweight Banks, Energy, Petrochemical, and soft commodities

Easing political tension. The recent Court ruling to dismiss two cases involving the Democrat Party is positive for the market, as it has helped to clear a major overhang. Despite the possibility of more protests by the Red-Shirts, we do not expect riots, as occurred in Apr-May of this year. Most of the hardcore Red-Shirt leaders have been arrested, and unlike Apr-May, the pro-Thaksin Puea Thai Party is unlikely to get involved for fear of losing their supporters. In addition, any riots would only delay the long-awaited general election.

General election in 3Q11? Although the current government’s term will expire in Dec 2011, P.M. Abhisit Vejjajiva confirmed he would call an early election if domestic political conditions are right. This suggests he might call for a House dissolution mid-year, allowing for general elections to take place in 3Q11.

Higher commodity prices key driver in 2011. Inflation in 2011 will continue to rise as a result of extremely low interest rates globally and continued quantitative easing in developed economies. As a result, global commodity prices will continue to rise into 2011, meaning that commodity-related sectors, which account for one-third of Thailand’s total market capitalization, should be a key investment theme in 2011.

Increased investment spending. Domestic banks should benefit from a new investment cycle prompted by stretched capacity utilization rates across many sectors and continued growth in consumption and exports.

Best ideas. We are overweight Banks, Energy, Petrochemicals, and Soft Commodities. Our top picks include KASIKORNBANK (KBANK TB), Krung Thai Bank (KTB TB), Thai Oil (TOP TB), PTT Chemical (PTTCH TB), L.P.N. Development (LPN TB), Amata Corporation (AMATA TB), Thai Airways International (THAI TB), Major Cineplex Group (MAJOR TB) and Thai Vegetable Oil (TVO TB).

ed: SGC/JW / sa: JC




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India Ramya SURYANARAYANAN +65 6878 5282 [email protected]


Key economic indicators % Yoy 2009 2010F 2011F 3Q10 4Q10f 1Q11f 2Q11f 3Q11f 4Q11f

GDP 7.2 8.8 8.5 8.9 9.2 8.2 8.8 6.3 9.2Agriculture 0.2 5.6 3.3 4.4 8.3 5.3 4.7 3.3 2.5Industry 10.2 8.0 8.8 9.0 6.8 5.0 8.8 8.0 9.1Services 8.5 9.4 9.8 9.8 8.8 10.2 10.0 7.4 10.5Construction 8.4 10.4 10.4 8.8 13.2 9.2 6.9 10.1 12.0

Merc X -4.0 24.0 20.0 19.0 18.0 23.0 15.0 27.0 19.0Merc I -3.0 14.0 28.0 21.0 7.0 0.0 16.0 26.0 36.0WPI (per. avg) 3.6 8.0 5.6 9.0 8.0 5.0 5.0 6.0 5.0Policy (eop) 4.75 6.25 6.5 6 6.25 6.5 6.5 6.5 6.5

GDP expenditure – edging above trend

7.0

8.28.8

7.5

8.99.3 9.410.210.5 11.0

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% YoY, fiscal year starting April

WPI manufacturing (a proxy for core)

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125

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145

Mar-04 Mar-06 Mar-08 Mar-10 Mar-12

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8

10Level % YoY

2004/05, SA % YoY

Latest: Oct10

Source: Data for all charts and tables come from CEIC and Bloomberg, forecasts are DBS’ forecasts.

A year of rebalancing • We maintain our expectation for above-trend

growth of 9% (QoQ, saar) through 2011/12 (Apr-Mar). This works to annual average growth of 8.5%

• Growth could be higher than 9% if not for several imbalances and bottlenecks in the economy

• Headwinds from tighter liquidity, higher input costs and wider trade and fiscal deficits will all restrain growth in 2011

• We have no rate hikes pencilled in beyond 6.50% on the repo rate and beyond Mar11. But tighter liquidity, either occurring automatically or engineered by reserve ratio hikes, will probably lead to higher borrowing costs in 2011

Strong domestic demand. Consumption and investment spending should broadly maintain momentum from 2010. We have pencilled in a 7.5% (QoQ, saar) rise in consumption spending and a 14% (QoQ, saar) rise in investment spending through 2011/12, faster than trend rates of 6.5% and 12.5% respectively. Anecdotal evident clearly points to a firming up of the labour market, which should support continued strong growth in consumption. After three years of sub-par capacity expansion, utilisation rates are also likely high in many sectors, supporting a strong pick up in investment.

Headwinds from trade imbalances, tight liquidity present. However, higher bank lending rates and higher input costs are likely to restrain full-year growth and keep it from exceeding 9%. The policy repercussions from the wider deficits should especially not be underestimated. In a scenario of faster than expected rise in crude oil prices, it can, for example, force the authorities to pass on the price rise to the consumer (to prevent a rise in deficits). It can also increase the central bank’s tolerance level for tight liquidity conditions (or ‘crowding out’ of private spending). In other words, 2011 may also turn out to be ‘a year of reckoning’ for the imbalances that have been building up, or at least, ‘a year of re-balancing or acting responsibly’.

Higher core inflation and rates. We do not yet have any rate hikes pencilled in beyond 6.50% on the repo rate and beyond Mar11. But tighter liquidity, either occurring automatically or engineered by reserve ratio hikes, will probably lead to higher borrowing costs in 2011.





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Korea MA Tieying +65 6878 2408 [email protected]



GDP 0.2 6.2 3.9 4.4 5.1 4.1 3.6 3.9 4.2Pte C 0.2 4.2 3.6 3.3 3.7 3.8 3.8 3.3 3.3Govt C 5.0 3.5 2.8 2.8 4.1 0.6 2.7 3.2 4.4GFCF -0.2 7.2 3.9 6.6 6.0 5.2 5.0 3.1 2.7Merc X -13.9 27.8 13.9 23.7 21.0 15.4 13.3 17.4 10.1Merc I -25.8 31.2 17.2 24.5 23.0 14.1 15.0 24.2 15.6CPI (per. avg) 2.8 2.9 3.4 2.9 3.5 3.3 3.6 3.5 3.0Policy (eop) 2 2.5 4 2.25 2.5 3 3.25 3.75 4

Inventory overhang in electronics industry

60

100

140

180

220

Jan-04 Jan-06 Jan-08 Jan-10

0.0

0.4

0.8

1.2

1.6

2.0Inventory / Shipment (RHS)ProductionShipment

2005=100, sa Ratio, sa

Latest: Oct10

BOP: portfolios have been strong

-30

-25

-20

-15

-10

-5

0

5

10

15

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

Current Account

Portfolio Investment

Direct Investment

Other Investment

USD bn

Latest: Oct10

Source: Data for all charts and tables come from CEIC and Bloomberg, forecasts are DBS’ forecasts

Inflation management becomes a priority • Real GDP growth is forecasted to moderate to

3.9% in 2011 from 6.2% this year

• CPI inflation, however, will likely stay above the 3% mark for most months in 2011, averaging 3.4% for the whole year

• The Bank of Korea is expected to give policy priority to inflation management, normalizing interest rates at a faster pace in 2011

Growth is stable but unexciting in 2011. Our long-held GDP growth forecast of 3.9% for 2011 is still on track. The growth momentum in exports is unlikely to be as strong as in 2009-2010. Amongst Korea’s major trade partners, China is expected to cool off as a result of greater inflation threats and more serious policy tightening, whilst the G3 economies are anticipated to grow only slowly in 2011. Meanwhile, the currency stimulus effects on Korean exports stemming from a weak won may gradually subside in 2011. The won’s recovery from the 2008 crisis is only halfway thus far. There is near consensus view that the won will appreciate further next year and outperform major Asian currencies, against the global backdrop of dollar weakness.

The BOK will give policy priority to inflation. The Bank of Korea (BOK) has raised the benchmark 7-day repo rate by a cumulative 50bps thus far this year, moving slowly by 25bps each quarter in 3Q and 4Q respectively. Rate levels remain far from neutral. The benchmark rate of 2.5% is still lower than the previous rate bottom of 3.25% seen in 2005, and also lower than the current inflation level of 3% plus. Judging from inflation dynamics – the key determinant for interest rate policy, we expect the BOK to hike rates at a somewhat faster pace in 2011, by 25bps once every two months.

The balance of payments outlook. The current account looks set to reach a surplus of USD 27bn (2.7% of GDP) this year, and is forecasted to post a smaller surplus of USD 18bn (1.5% of GDP) in 2011, due to slower export growth and more expensive commodities imports. Whilst the current account balance is not strong by regional standards, portfolio capital inflows into Korea’s bond and equity markets have been buoyant and underpin the overall external balance. There are widespread perceptions among foreign investors that the Korean won is undervalued and is going to appreciate. The real effective won is 10% below its long term average.





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Taiwan MA Tieying +65 6878 2408 [email protected]



GDP -1.9 10.3 3.8 9.8 6.0 2.9 3.2 4.3 4.5Pte C 1.1 3.4 2.7 4.5 1.9 3.2 2.6 2.5 2.4Govt C 3.9 0.9 0.5 0.4 -0.3 -0.3 0.6 0.6 0.8GFCF -11.0 23.4 5.9 23.7 13.2 9.2 5.8 4.5 4.7Exports -8.7 25.0 6.8 20.1 13.1 8.1 4.0 6.8 8.2Imports -12.8 28.1 5.3 22.8 13.6 5.7 4.6 5.2 6.0CPI (per. avg) -0.9 0.9 1.4 0.4 0.9 0.8 1.0 1.7 1.9Policy (eop) 1.25 1.5 2.75 1.5 1.75 2 2.25 2.5 2.75

The ease of doing business (global rank, 183 couuntries)

2009 2010 2010 2011

SG 1 1 1 1HK 3 3 2 2KR 23 19 4 15 16 1TH 12 12 16 19 3MY 21 23 2 23 21 2TW 61 46 15 34 33 1CN 86 89 3 78 79 1VN 91 93 2 88 78 10ID 129 122 7 115 121 6IN 132 133 1 135 134 1PH 141 144 3 146 148 2

(revised)

Source: The World Bank

Taiwan’s wage costs are the lowest in Asian NIEs

0

500

1000

1500

2000

2500

3000

SG KR HK TW CN

USD / per month

Source: Data for all charts and tables come from CEIC and Bloomberg, forecasts are DBS’ forecasts, unless otherwise stated.

Domestic economy on firmer footing • GDP growth is expected to ease to 3.8% in

2011 from 10.3% this year

• The outlook for domestic demand is positive, despite softer exports

• The ultra low interest rate environment is inconsistent with current fundamentals. The central bank should accelerate the pace of policy normalization in 2011

A better outlook for domestic demand in 2011. Export growth is unlikely to repeat the strong performance of 2010. We are constructive on the outlook for domestic demand in 2011. The reduction of cross-strait economic barriers has improved the business operating environment in Taiwan. Taiwan’s ranking in the World Bank’s ease of doing business index was lifted by a solid 15 notches for 2010 and another one notch for 2011, making it the top reformer in the Asia region. The existence of cross-strait barriers had been a major factor weighing down investor confidence on Taiwan over the past decade, deterring away foreign investors and obliging local firms to relocate overseas. The normalization of economic ties with China should accordingly rebuild Taiwan’s competitiveness, reviving the investment interest of foreign enterprises and also Taiwanese firms staying offshore. Furthermore, R&D capability in Taiwan remains strong, and the supply chain in the high-tech industry is well established. The labor quality is high while the labor costs are the lowest among Asia’s Newly Industrialized Economies. Aided by the improvement in business environment, Taiwan should become a more attractive investment destination in the region for businesses in the technology and knowledge intensive industries.

Consumption growth expected to be stable. Meanwhile, domestic private consumption is expected to maintain a stable growth path in 2011. The cyclical recovery in the labor market remains on track, as worker productivity reaches its potential and employers need to increase hiring. The seasonally-adjusted unemployment rate has dropped to a 23 month low of 5.0% as of Oct10, with employment growth outpacing labor force growth persistently and significantly. Consumer spending should also remain positive next year thanks to wealth effects from property appreciation. The property boom has not morphed into a full-fledged bubble, and the spill-over effects of asset prices inflation are not severe.





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Regional Small Mid cap TAN Ai Teng +65 63987967 [email protected]

Bbg Code Rec TP (LCY) Singapore Conscience Food CSF SP Buy 0.38 Hi-P HIP SP Buy 1.30 Hong Kong Anhui Expressway 995 HK Buy 9.10 Beijing Ent. Water 371 HK Buy 3.70 China Automation 569 HK Buy 7.20 Malaysia DRB Hicom DRB MK Buy 3.55 SP Setia SPSB MK Buy 7.00 Boustead BOUS MK Buy 7.60 Thailand Delta Electronics DELTA TB Buy 40.00 MCOT MCOT TB Buy 39.50 Indonesia Sampoerna Agro SGRO IJ Buy 4400

Source: DBS Vickers

2011 theme and small mid cap picks

Source: DBS Vickers

Go with the flow • Ride on positive market trends when picking

small mid caps in 2011

• Asia consumption is still a growing trend while government spending & infrastructure development remain key drivers

• Dividend can enhance return in the absence of attractive interest rate

Follow positive trends when stock picking for 2011. Regional small and mid caps, up 17% and 27% YTD, had done well in absolute terms. Mid caps in particular have outperformed large caps (+19%). Entering 2011, the regional broad markets do not expect big rises but trends are aplenty (our strategist quoted nine) and we advocate picking small mid caps that will benefit from trends positive to Asia outlook.

Gainers of Asia consumption story. DRB Hicom, a proxy to Malaysia auto sales is the country’s cheapest conglo (5.5x PE, 0.6x P/BV) and a potential multi-bagger with 95% expected return. Conscience Food, Indonesia’s 3rd largest instant noodle manufacturer is poised to grow from strong expansion plans; stock trades at 5x PE vs next closest peer of 11x. Hi-P is a cheap Apple smartphones/ tablets play at 8.5x FY11 PE. MCOT will benefit from robust advertising spending in Thailand and ad rate hikes. Sampoerna Agro in Indonesia will gain from strong volume growth upstream and higher CPO prices. Sampoerna also trades at a discount to other Indonesian plantations at 2.9x P/BV and 12.7x FY11 PE. Beneficiaries of government spending/ infrastructure development. China’s development of inner land bodes well for Anhui Expressway, which is also the cheapest toll road play in HK at 9x PE with 5-6% yield. China Automation is positioned to secure more railway contracts as China continues its rail network expansion. SP Setia is a GLC landlord in Kuala Lumpur to benefit from government re-development projects. Beijing Enterprise Water’s aggressive expansion is underpinned by tighter pollution control in China.

Dividend yield plays. Delta, a power supply manufacturer in Thailand, currently sits on Bt7.6bn net cash, which accounts for 18% of its market cap. Based on 50% payout, dividend yield is decent 5%. Boustead a GLC property proxy in Malaysia also pays 6% dividend yield.

The me Top p ic ksPlay on Asia consumerism Conscience Food ( Indon instant noodle), Hi-P

(smartphone/tablets), MCOT (ad spending), DRB Hicom (Msia auto sales)

Govt spending/ infrastructure development

SP Setia ( Msia govt re-development), Beijing Ent. Water ( China pollution control), Anhui Expressway ( China toll road), China Automation (China rail network)

Dividend yield Delta (strong fundamentals, 5% yield), Boustead (GLC property proxy with 6% yield)

ed: JS / sa: JC




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REGIONAL SECTORS




www.dbsvickers.com Refer to important disclosures at the end of this report ed: JS / sa: JC

Regional Airlines Paul YONG, CFA +65 6398 7951 [email protected] Blg Code Rec TP (LCY)

Hong Kong Air China 753 HK Buy 11.45 Cathay Pacific 293 HK Buy 27.30 China Eastern 760 HK Hold 4.00 China Southern 1055 HK Buy 6.75 Singapore Spore Airlines SIA SP Buy 18.50 Tiger Airways TGR SP Hold 1.90 Malaysia AirAsia AIRA MK Buy 3.20 Malaysian Air MAS MK Hold 1.85 Thailand Thai Airways THAI TB Buy 64.5

Valuations remain reasonable for the sector as a whole

----- PER ---- Price to Book ----- ROAE ----- Company FY10 FY11 FY10 FY11 FY10 FY11 Spore Airlines 13.3 12.0 1.3 1.2 10.1% 10.3% Tiger Airways 15.4 12.0 4.6 3.3 35.1% 32.1% AirAsia 10.9 9.3 2.0 1.6 21.2% 19.1% Malaysian Airlines NA 17.1 4.4 3.5 NA 23.0% Air China 8.1 9.0 2.8 2.2 41.2% 27.3% Cathay Pacific 8.3 7.6 1.7 1.5 23.2% 20.9% China Eastern Air 6.9 9.1 2.8 2.2 NA 26.8% China Southern Air 6.6 6.6 1.5 1.2 31.0% 20.6% Thai Airways 11.7 9.8 1.5 1.3 13.8% 14.5% Median 9.6 9.3 2.0 1.6 23.2% 20.9% Average 10.2 10.3 2.5 2.0 25.1% 21.6%

Prices as of 9 Dec 2010

Source: DBS Vickers

Firm tailwinds • Momentum from strong earnings rebound in

2010 looks sustainable into 2011

• Valuations still reasonable even as share prices re-rated in 2010

• Top picks: SIA (net cash S$3.80/share), CSA (FY11 PE 6.6x), CX (1.5x P/B vs 21% ROE in FY11) and AirAsia (preferred proxy for budget travel).

Firm earnings performance in ‘10 to sustain into ‘11. All nine regional carriers under our coverage are projected to show significant improvement in core earnings in 2010 with only MAS still loss-making (with losses narrowing substantially). With robust air travel demand, regional carriers should continue to be highly profitable. With the exception of SIA (ROE 10.3%) and Thai Airways (ROE 14.5%), all other regional airlines are projected to post ROE of close to at least 20% with 7 of the 9 companies showing improvement in core earnings as well in 2011.

Plenty of reasons to buy into regional airlines. We like Thai Airways and China Southern Airlines for their continued earnings growth momentum into 2011, both of which are projected to post at least 20% growth for the year. Air China is poised to remain as China’s best-run and most profitable carrier and AirAsia should continue to consolidate its position as Asia’s leading budget carrier with 18% profit growth in 2011. We also favour Cathay Pacific as it rides on HK’s position as a key financial hub and gateway to China to sustain an average ROE of over 20% from 2010 to 2012. Last but not least, we believe that Singapore Airlines, flushed with net cash of c. S$4.5bn, could return surplus cash to shareholders and/or make an acquisition to boost its long-term earnings prospects.

Valuations still reasonable. With the exception of Tiger Airways and MAS, the other airlines have seen their share price increase by at least 12% to as much as over 100% (AirAsia and Thai Airways) since end May 2010. Despite this, the sector is still trading at an average of only 10.1x FY10 PE and 10.2x FY11 PE (9.4x FY11 PE excluding MAS), which is at a reasonable level.

Demand and competition are key risks ahead. With a fair amount of new capacity being added in 2011, obvious potential pitfalls for the sector lie in 1) lower than expected demand to fill the seats; and/or 2) intensifying competition in the form of more capacity (lowering load factors) or price competition (lower yields).




www.dbsvickers.com sa: JC

Regional Autos

Jay KIM +852 2971 1921 [email protected] Rachel MIU +852 2863 8843 [email protected] Indonesia Research Team +6221 3983 2668

Bbg Code Rec TP (LCY) Indonesia Astra Int’l ASII IJ Buy 65,000 Malaysia Proton PROH MK Buy 6.60 China / HK Dongfeng Motor 489 HK Buy 17.50 Brilliance China 1114 HK Buy 6.30 Geely Automobile 175 HK Hold 4.40 Korea Hyundai Motor 005380 KS Buy 240,000 Kia Motors 000270 KS Buy 64,000 Hyundai Mobis 012330 KS Buy 330,000 Hankook Tire 000240 KS Buy 37,000 Pyeong Hwa Automotive (PHA)

043370 KS Buy 19,000

Source: DBS Vickers

Carmakers’ FY valuations

PE PEG Yield P/BKEV/

EBITDAROE

11F 11F 11F 11F 11F 11F

Indonesia Astra Int'l 13.6 0.8 3.0 3.7 8.6 29.6

Malaysia Proton # 8.2 n.m. 3.1 0.5 2.4 5.8

HK Dongfeng 10.7 (1.6) 0.9 2.3 4.5 24

Brilliance 20.1 0.7 0.0 3.7 12.5 21

Geely Auto 12.5 0.7 1.6 2.5 7.0 22

Korea Hyundai Motor 8.6 0.5 0.5 1.5 7.1 20

Kia Motors 8.4 0.4 0.5 1.8 7.7 24

# FY 12F Source: DBS Vickers

More rational growth ahead • Auto demand growth to retreat to normal but

firm levels of 12-16% for full year 2011

• Given slower growth, we advocate a selective investment approach to the sector, i.e. seek attractive value plays with near-term earnings upside from cost-cut initiatives

• More cautious on tyre stocks

FY11 outlook. We expect regional sales volume growth to moderate due to this year’s high base effect and governments’ attempts to cool overheated automotive markets (i.e. lower incentives, higher auto-related taxes).

Selective investment approach. As demand growth moderates to more rational levels, automakers’ earnings growth trends will start to diverge and only the most competitive that are able to implement effective cost cutting measures, improve market shares, and meet new consumer demands, will be rewarded handsomely.

Recommend more caution towards tyre stocks. Near term growth for the sector will be muted due to (i) limited capacity addition, and (ii) margin pressure from higher raw material costs. Extremely volatile natural rubber prices may continue to play a negative role in the sector. We would focus on a few counters that are likely to be able to weather margin pressure via major capacity additions and change in product mix (e.g. Multistrada (MASA IJ).

Best idea (s). We like Chinese auto dealers, which should benefit from more lucrative and higher-margin vehicle maintenance services, and hence, should continue to command richer valuations. Indeed, this sub-sector is valued as a consumer play with FY11 PE ranging between 15x and 35x compared to automakers. Auto dealers include Dah Chong Hong (1828 HK), Zhongsheng (881 HK), and Zhengtong (1728 HK) and Sparkle Roll (970 HK).

Among auto stocks, we highlight cost leaders which earnings growth potential will outshine competitors’ amid slowing automotive demand in the region. Our top picks are Dong Feng Motors (489 HK) and Kia Motors (000270 KS).




www.dbsvickers.com ed: SGC / sa: WMT

Regional Gaming YEE Mei Hui +603 2711 1332 [email protected]

Bbg Code Rec TP (LCY) Singapore Genting Singapore GENS SP Buy 2.70 Malaysia Genting Berhad GENT MK Buy 14.60 Genting Malaysia GENM MK Hold 3.70 Berjaya Sports Toto BST MK Hold 4.25 Macau SJM 880 HK Buy 14.40 Galaxy Entertainment 27 HK Buy 9.00 Sands China 1928 HK Buy 18.80 Wynn Macau 1128 HK Hold 15.90

Source: DBS Vickers

Genting Bhd offers the deepest value in the region

0

2

4

6

8

10

12

14

16

0% 10% 20% 30% 40% 50%

2011-12F EV/EBITDA

2010-12F earnings CAGR

Sands China

Sector average

GENS

GENM

SJM

Wynn Macau

GENT

Galaxy

Source: DBS Vickers

More excitement ahead • Asian gaming appetite is insatiable, supported

by positive macro factors

• Singapore and Macau offer largest potential

• Maintain positive view; top picks: Genting Bhd, Genting Singapore, SJM, Galaxy

Outlook remains rosy. We expect the Asian gaming market to grow at 2-year CAGR of 15%, on the back of low gaming penetration, rising discretionary spending, and improved connectivity. There could be opportunities from new casino licences (Japan, Taiwan) and spin-offs (Pagcor’s casinos in Manila), and players with proven track record, financial muscle and potential synergies will have the upper hand. There are policy risks and risk of rising regional competition, but regulators are expected to be pragmatic, and not all new supply are credible threats.

Game has only just begun in Singapore. Despite MBS ramping up, GENS remains the market leader with c.53% share of net revenue and EBITDA. Competition could intensify, but Singapore’s gaming market is still in its infancy and gross gaming revenue should continue to grow strongly (2011F: US$5.0b vs 2010F: US$3.5b), with potential upside from junkets (first licence likely in 1Q11) and new markets.

New supply coming to Macau, but supported by improved infrastructure. Galaxy Macau is slated to open at Cotai in 1Q11, and Sands China’s Phase 5 & 6 likely in 2012. Table supply growth should remain in check given the 5,500-table cap (up to 2013) vs 4,838 currently. Demand - especially mass market - is expected to pick up with the full opening of Guangzhou-Zhuhai MRT by mid-11 and expansion of Gongbei Gate by Aug11. We expect 2011F GGR growth to moderate to 14% (US$28b) from 2010F’s 53% (US$24b).

Valuation undemanding for strong growth. The sector is trading at 10.1x EV/EBITDA for 2-year earnings CAGR of 17%. Top picks: a) Genting Bhd (deepest value at 6x EV/EBITDA); b) Genting Singapore (best proxy to Singapore’s strong GGR growth and highest profitability in the sector, 13x EV/EBITDA valuation comparable to big-cap Macau operators); c) SJM (less affected by rising supply at Cotai and rising competition in VIP segment); and d) Galaxy (re-rating with opening of Galaxy Macau).





Regional Food & Beverages Alice HUI, CFA, +852 2971 1960 [email protected] Titus WU · +852 2820 4611 · [email protected] Andy SIM +65 6398 7969 [email protected] Singapore Research Team +65 6533 9688 [email protected]

Bbg Code Rec TP (LCY) HK/China China Foods 506 HK Buy 7.60 China Mengniu 2319 HK Buy 25.30 China Yurun 1068 HK Buy 35.50 Little Sheep 968 HK Buy 6.60 Singapore China Minzhong MINZ SP Buy 1.60 Source: DBS Vickers

Valuation Upside/ FY11F

(downside) PEHK$ HK$ % x US$m

Ajisen(538 HK)

13.48 13.0 (4) Hold 25.9 1,856

Café de Coral(341 HK)

19.40 18.7 (4) Hold 20.9 1,404

China Foods(506 HK)

5.40 7.6 41 Buy 19.1 1,939

ChinaMengniu(2319 HK)

21.50 25.3 18 Buy 19.1 4,806

China Yurun(1068 HK)

26.70 35.5 33 Buy 17.3 6,220

Tingyi(322 HK)

20.15 18.0 (11) Hold 27.8 14,479

TsingtaoBrewery(168 HK)

42.40 40.0 (6) Hold 29.2 3,572

Want Want(151 HK)

6.80 6.3 (7) Hold 26.0 11,555

Dynasty FineWines(828 HK)

4.46 3.70 (17) FV 27.0 716

China 1.37 1.60 17 Buy 7.7 567MinZhong(MINZ SP)

MktCapCompany Price

TargetPrice Recom

Source: DBS Vickers

Pricing power matters • Cost environment stays challenging

• But margins should start stabilizing as costs are gradually pass on

• Market consolidation and M&A activities continue

• Prefer players with strong pricing ability and robust growth. BUY China Food, China Yurun, China Mengniu, Little Sheep and China Minzhong

Cost & policy concerns. The surge in prices of soft commodities throughout 2010 has affected margins of most F&B players. Without any clear signs of costs abating amid abundant liquidity in the market, cost pressures are likely to remain a concern for F&B players in 2011. In PRC, possible implementation of price control measures has also cast some uncertainties on the sector.

ASP & product mix. Despite the challenging operating environment, we expect margins, following the drop in 2010, should start stabilizing in FY11. Most listed players, given their strong market position, should be able to pass on some of the cost increases gradually to consumers. Since Q3, F&B players such as Mengniu and Tingyi have already raised prices on selected products. Coupled with continual product mix enhancement and improving production efficiency, some of the cost pressures should be alleviated. The exception could be certain necessities such as edible oil, where prices are likely to be closely monitored by the PRC authorities.

Market consolidation and M&A. The challenging cost environment, in our view, could lead to an acceleration in market consolidation. Bigger players, given stronger scale benefits, should be able to weather the cost increases better than their smaller peers. This is illustrated by the robust sales growth posted by most listed players to date. This also creates more M&A opportunities – the latest being Mengniu’s acquisition of Junlebao, and Tsingtao’s purchase of Silver Wheat.

Stock picks. We are positive on the wine sector considering its strong growth and discretionary nature, hence better pricing ability. BUY China Food (506.HK). The same argument applies for catering stocks such as Little Sheep (968 HK). We also like China Yurun (1068.HK) as its business is partly inflation-hedged through exposure in upstream slaughtering operation, and it should remain a key beneficiary of market consolidation. We like China Minzhong (MINZ SP) with growth driven by its increased land cultivation and processing capacity. Dairy players, following sluggish performance in 2010, are trading on undemanding valuations, with organic growth to stay robust. BUY China Mengniu (2319.HK).




www.dbsvickers.com ed: MY / sa: JC

Asean Banks LIM Sue Lin +603 2711 0971 [email protected] Sugittra KONGKHAJORNKIDSUK +662 657 7825 [email protected] HON Seow Mee +603 2711 2222 [email protected] Bbg Code Rec TP (LCY) Singapore DBS DBS SP NR NA OCBC* OCBC SP Buy 11.30 UOB UOB SP Buy 21.50 Malaysia Alliance Financial Grp AFG MK Buy 3.85 AMMB Holdings AMM MK Hold 6.50 CIMB Group CIMB MK Buy 10.10 EON Capital EON MK Buy 7.30 Hong Leong Bank HLBK MK Buy 10.50 Maybank* MAY MK Buy 10.80 Public Bank-F PBKF MK Hold 13.10 RHB Capital RHBC MK Buy 10.00 Indonesia Bank Central Asia BBCA IJ Hold 7,100 Bank Danamon BDMN IJ Fully Valued 6,000 Bank Mandiri BMRI IJ Hold 7,200 Bank Negara Indonesia BBNI IJ Buy^ 4,300^ Bank Rakyat Indonesia* BBRI IJ Buy 13,900 Bank Tabungan Negara BBTN IJ Buy 2,500 Thailand Bank of Ayudhya BAY TB Hold 24.40 Bangkok Bank BBL TB Buy 187.00 KASIKORNBANK* KBANK TB Buy 150.00 Krung Thai Bank KTB TB Buy 21.00 Siam Commercial Bank SCB TB Buy 121.50 Thanachart Capital TCAP TB Hold 42.00 Tisco Bank TISCO TB Hold 44.00

* Top picks for each country ^ TP revised post rights issue; recommendation under review

ASEAN banks YTD performance

Malaysia

Singapore

Indonesia

Thailand

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10

Source: DBS Vickers

Bracing up for the next race • Singapore banks are our key focus

• Emerging ASEAN banks to continue to do well.

• Top picks: OCBC, MAY, KBANK, BBRI

Welcome back to “normal”-land. 2011 will be a normalised year after the strong earnings recovery seen in 2010 from lower provisions and high loan growth. Banks are showing healthy asset quality levels and sturdy capital with only Indonesian banks indulging in rights offerings for growth. The key differentiation in earnings drivers in 2011 would be the banks’ ability to reap extra ROE mileage. Banks with higher non-interest income capabilities would see better ROE prospects amid the competitive NIM outlook.

Singapore banks on top of the radar. Singapore banks remain laggards at unjustifiable valuation discounts to ASEAN peers. We advocate accumulating Singapore banks for their strength in asset quality and capital vs. ASEAN peers. Continuous regionalization efforts and build up in non-interest income generating activities will provide ROE upside. Our preferred pick for Singapore is OCBC. Upside risks to our estimates would be positive surprises in loan growth.

Emerging ASEAN banks will continue to do well. Malaysia banks are reaching new highs given strong deal flow in the capital markets. Creation of regional champions and M&A activities would provide excitement. Thailand’s positive macro view coupled with the recovery mode in its investment cycle bodes well for Thailand banks. Easing of political tensions could add flavour to Thailand valuations. Since valuations have gapped up for Indonesian banks, we are now more selective. Nevertheless, its low loan-to-GDP ratio remains appealing for its longer-term upside as an emerging force among ASEAN banks.

Best ideas: OCBC, MAY, KBANK and BBRI. We like OCBC for its asset quality and growth potential from its regional efforts coupled with positive traction in non-interest income growth from insurance and private banking. We continue to like Malaysia’s regional champions and pick MAY for its improving domestic business efficiency and increasing positive traction from its Indonesia investments as a multi-year growth story. KBANK remains our favourite in Thailand with increasing ROE prospects from non-interest income and as a key beneficiary of stronger loan demand by corporates and SMEs. Our Indonesian pick is now BBRI, the country’s top micro lender.




www.dbsvickers.com ed: MY / sa: WMT

Page 59

Regional Exchanges LIM Sue Lin +603 2711 0971 [email protected] Alexander LEE Ho Wan +852 2971 1930 [email protected] HON Seow Mee +603 2711 2222 [email protected]

Bbg Code Rec TP (LCY) Hong Kong Exchange 388 HK Buy 238.00 Singapore Exchange SGXSP Buy 11.40 Bursa Malaysia BURSA MK Buy 9.60 Source: DBS Vickers

Velocity differentials for HKEX, SGX and Bursa

HKEX

SGX

Bursa

0%

20%

40%

60%

80%

100%

120%

140%

160%

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10

Source: DBS Vickers

Key assumptions for HKEX, SGX and Bursa

Source: Companies; DBS Vickers

Momentum driven • Turnover values and velocity heading north

• Internationalisation is a key theme

• SGX is the cheapest Asian bourse proxy

Strong momentum ahead. Global liquidity conditions are conducive for a bull market ahead, which will be positive for exchanges. We expect turnover values and velocities to head north in 2011 on the back of strong IPO and stock market activities. HKEX provides a strong proxy for the domestic growth within Hong Kong and growing China opportunities, while SGX provides avenues for a more holistic Asian play for both equities and derivatives. SGX’s ongoing merger talks with ASX could spice up interests. Bursa on the other hand is primarily domestic driven and will largely only appeal to Malaysian investors.

HKEX provides an attractive proxy to ride on the RMB appreciation. We believe HKEX will open gates for international money inflows to take advantage of the RMB appreciation. Its strong IPO pipeline, which will largely be dominated by mainland China companies, will bolster revenues and earnings growth for HKEX. We believe HKEX will continue to trade at high multiples given lofty expectations for the Hong Kong stock market.

All eyes on SGX-ASX merger. Lots of buzz surrounded SGX especially with the listings of ADRs in Oct 10. But the excitement reached a climax when SGX announced its merger talks with ASX. While there are short-term uncertainties especially with regulatory approvals, we believe that the long-term positives of the merger should prevail.

Bursa, largely domestic driven. Bursa is expected to benefit from the Malaysia Economic Transformation Plan in terms of structural changes. Bursa would appeal to investors who prefer a pure Malaysian play. Bursa offers CPO futures products which neither HKEX nor SGX offers. The pipeline for IPOs is expected to remain healthy but would largely be domestic-centric.

Best idea – SGX, cheapest bourse in Asia. We like SGX as an Asian exchange proxy in terms of valuations, outlook and reach. A slew of new product offerings especially for derivatives and its Asian Gateway Strategy make it a one-stop venue for international investors and clearly differentiate SGX from its regional peers. While HKEX’s IPO pipeline by size may overwhelm SGX’s, SGX provides a wider range of offerings particularly by countries and products. Derivatives contribute to a higher 45% of SGX’s revenue compared to HKEX (25%) and Bursa (12%).

FY Dec 2009 2010F 2011F 2012F

SGXAve Daily T/over Value (S$m) 1,540 1,997 2,197 2,343

Velocity (%) 59 65 70 75

HKEX Average Daily Value (HK$bn) 62 73 125 144

Velocity (%) 114 120 125 125

Bursa Average Daily Value (RMm) 1,121 1,228 1,456 1,674 Velocity (%) 35 30 35 40




www.dbsvickers.com ed: JS / sa: JC

Regional Property LOCK Mun Yee +65 6398 7972 [email protected]

Bbg Code Rec TP (LCY) Malaysia SP Setia SPSB MK Buy 7.00 Bolton BOL MK Buy 1.50 China China Overseas Land 688 HK Buy 19.00 Agile 3383 HK Buy 14.93 Shimao 813 HK Buy 14.30 Franshion 817 HK Buy 2.88 Thailand Amata AMATA TB Buy 20.00 Supalai SPALI TB Buy 14.30 LPN LPN TB Buy 12.62 Hong Kong Cheung Kong 1 HK Buy 135.00 Sino Land 83 HK Buy 18.74 Singapore Keppel Land KPLD SP Buy 4.96 UOL UOL SP Buy 5.23 Capitaland CAPL SP Buy 4.96 Source: DBS Vickers

Property Stocks Performance by Country

Country 1-mth 3-mth 6-mth 9-mth YTD

Malaysia 2.3% 18.6% 32.0% 30.9% 30.8%

Thailand -0.5% -5.2% 31.7% 33.5% 29.0%

Hong Kong -7.0% 5.1% 18.9% 7.8% 7.0%

Singapore -3.8% 2.2% 11.7% 8.2% 4.8%

China -2.9% 3.6% 17.3% -7.2% -13.0%

Source: DBS Vickers

Stock picking year • Thai and Msia outperformers YTD

• Valuation inexpensive but policy risk overhang

• Prefer commercial plays and maintain Malaysia as our top country pick. Top picks: SP Setia, Bolton, COLI, Agile, Franshion, Cheung Kong, KepLand, Amata

Emerging markets the best performers YTD. Malaysia and Thailand were the outperformers this year, rising by 30.8% and 29% respectively as lack of policy concerns and catalysts from planned government redevelopment land activities boosted the former while a strong recovery in demand post-political tensions in Thailand lifted sentiment, earnings outlook and prices of property stocks.

Commercial still the way to go. For 2011, we maintain a preference for commercial over residential, particularly in HK, on dwindling new supply and improving demand. There is also less risk on the policy front in this segment as office rents are still way below the previous peak. We expect the return of rental pricing power and uplift in capital values to continue. Landlords’ NAV should continue to increase as the upcycle comes through.

Valuations have factored in caution but overhang prevails. We anticipate Malaysia to continue outperforming in 2011 and move our underweight stance on China to Neutral on valuation grounds. In Malaysia, we see catalysts from the government redevelopment land sales, establishment of new MRT lines and potential M&A activities, driving interest and valuations further. In China, wider-than-average NAV discounts and low PE multiples indicate that much of the market caution has been priced in and we would look for opportunities in market leaders, volume players, non-Tier 1 city developers and commercial landlords. While there is a persistent overhang of policy risk in HK and Singapore, valuation at mid-cycle levels are not expensive. We retain our Neutral stance for Thailand, with a preference for industrial players.

Stock selection key to outperformance. We see stock performance as being affected by macroeconomic newsflow regionally and adopt a stock-picking stance for outperformance. We continue to like office plays such as Swire Pacific, Keppel Land and UOL. In terms of developers, we remain upbeat on Malaysian developer SP Setia and Bolton. In China and Hong Kong, our top picks would be Agile, COLI, Franshion and Cheung Kong while in Thailand, we most prefer Amata.





Regional Reits LOCK Mun Yee +65 6398 7972 [email protected]

Bbg Code Rec TP (LCY) Malaysia Axis Reit AXRB MK Buy 2.35 Hong Kong The Link Reit 823 HK Buy 28.15 Fortune Reit 778 HK Buy 4.60 Singapore CDL Hospitality Trust CDREIT SP Buy 2.28 Frasers Centrepoint Trust FCT SP Buy 1.74 Mapletree Logistics Trust MLT SP Buy 1.01 Parkway Life Reit PREIT SP Buy 1.38 Thailand CPN Retail Growth Property Fund

CPNRF TB Buy 12.79

Source: DBS Vickers

Comparison of Reit Yields Across The Region

Source: DBS Vickers

On a hunt for yields • HK and Msia Reits outperformed

• Inflation hedging and acquisition growth in Asia - key themes for 2011

• Leverage on booming hospitality in Singapore

• Prefer healthcare, retail, industrial and hospitality plays.

Hong Kong and Malaysia best performing Reit markets. Hong Kong, largely due to Link Reit, was the best performing Reit market in Asia with a 30% price appreciation YTD, followed closely by Malaysia. Despite this, M-Reits continued to offer yields of c.8% while HK-Reits offered average market-cap weighted yield of 4.9% due to compression in Link Reit’s yield on share price appreciation. Going into 2011, we believe Reits will continue to find favour with investors on the hunt for yields amid low interest rates. New developments such as incentivising Thai PFPOs to turn into Reit structures could also raise interests in these markets. Key risk to Asian Reits’ performance would be a sooner than expected rise in long bond yields, currently expected at end 2011.

Inflation-hedging, growth via acquisitions – key themes for 2011. As inflation becomes a talked-about topic in the coming year, we believe Reits that offer inflation hedging rental structures would outperform both in terms of upside surprise to earnings and share price. In Singapore, healthcare Reit, Parkway Life, whose topline is based on the higher of percentage of hospital turnover or CPI would give investors the greatest delta between earnings growth and inflation. Retail Reits, which generally derive part of revenue from gross turnover and industrial Reits with leases where escalation clauses are inflation-pegged would also benefit in this environment.

Acquisition growth prevails but accretion dependent on cost of capital. As asset cycles bottom out and capital values stabilise, Reits are turning back to acquisitions as growth drivers. We believe buying assets at this part of the cycle would be positive for Reits in terms of through-the-cycle NAV and earnings but the degree of accretion would be dependent on the cost of capital. We think industrial Sreits would enjoy the largest spread between property yields and WACC, given the current low funding cost in Singapore.

Selective stock picking. Our top stock picks would include Parkway Life Reit and retail Reits such as Link, Fortune Reit, FCT and CPNRF while in the industrial space we continue to like MLT. In tandem with the buoyant Singapore hospitality sector, we also retain our Buy call on CDL HT.

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Regional Coal June NG +603 2711 2222 [email protected] Ariyanto KURNIAWAN +6221 3983 2668 [email protected] HO Pei Hwa +65 6398 7968 [email protected] Naphat CHANTARASEREKUL +662 657 7826 [email protected] Suvro SARKAR +65 6398 7973 [email protected]

Bbg Code Rec TP (LCY) China China Coal 1898 HK Buy 17.10 China Shenhua 1088 HK Buy 44.40 Yanzhou 1171 HK Buy 26.00 Indonesia Adaro Energy ADRO IJ Buy 2,800 Indo Tambangraya ITMG IJ Buy 58,000 Tambang Batubara PTBA IJ Buy 23,600 Thailand Banpu BANPU TB Buy 853.00 Singapore Straits Asia SAR SP Hold 2.30 Source: DBS Vickers

Relative performance of coal stocks against HIS and JCI


Focus on growth and delivery • Winter supply shortages and higher 2011 coal

contract prices are key catalysts

• Focus on stocks with strong earnings growth, good delivery, and leverage on coal prices

• Yanzhou and Adro are our top picks; we also favor Shenhua, China Coal, ITMG and Banpu

Expect higher coal contract prices in 2011. Winter supply shortages and higher 2011 coal contract prices are the key catalysts for the coal sector next year. We recently raised average coal price forecasts for FY11/12F by c.3% to US$103 and US$105/ton, backed by current higher spot prices (YTD average US$97) and seasonally stronger demand up to 1Q 2011. The multi-year uptrend for the coal sector is intact, driven by resilient Asia coal demand from China, India and Indonesia, and tight supply growth next few years.

Chinese coal stocks oversold on fears of price cap. The cap on domestic prices is the key risk for Chinese miners. However, intervention may affect periodic coal prices, but not long term coal prices due to strong demand and limited supply growth. Coal miners can also increase spot exposure to compensate for lower contract prices. Yanzhou would be the least affected by a price cap due to its 53% spot exposure against 40% for Shenhua and 26% for China Coal. Chinese stocks are trading at cheaper valuations of 12x FY11F PE and 2x PBV against the Indonesians’ 13x and 4x, respectively, despite registering higher FY09-12F net earnings CAGR of 25% against 15% for Indonesian coal companies. Production shortfall due to heavy rainfall is the key risk for Indonesian miners.

Attractive entry point. Coal stocks offer strong average FY09-12F net profit CAGR of 20%, supported by higher coal prices, production growth from new mines, and further upside from M&As. Valuation is attractive at average of 12x FY11F PE and 3x P/BV, which is 1SD above the last 5 years’ historical sector averages of 9x and 2x, respectively.

Pick stocks for growth and delivery. Yanzhou is our top pick for its strong FY09-12F net earnings CAGR of 32% and high leverage to increases in spot prices. Adro is our pick for Indonesia for its superior infrastructure. We also like stocks with strong earnings growth potential such as China Coal (+26%), and those with high leverage to coal prices such as ITMG (every 1ppt increase in average spot coal price would raise FY11F net earnings by 2.1%) and Banpu (+1.2%).

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www.dbsvickers.com ed: MY / sa: WMT

Regional Plantation Ben SANTOSO +65 6398 7976 [email protected]

Bbg Code Rec TP (LCY) Indonesia Astra Agro Lestari AALI IJ Buy 27,400 London Sumatra Indonesia LSIP IJ Buy 13,600 Sampoerna Agro SGRO IJ Buy 4,400 Malaysia Genting P. GENP MK Buy 11.00 IJM Plantation IJMP MK Buy 3.80 IOI Corporation IOI MK Hold 6.00 KL Kepong KLK MK Hold 21.00 Sime Darby SIME MK Buy 10.20 TSH Resources TSH MK Buy 2.95 Singapore First Resources FR SP Buy 1.55 Indofood Agri Resources IFAR SP Buy 3.20 Kencana Agri KAGR SP Hold 0.46 Wilmar Int’l WIL SP Hold 6.60 Source: DBS Vickers

Assumed planting targets

Planting scheduleIndonesiaAstra Agro Lestari FY10F-FY14FLondon Sumatra* FY10F-FY12FSampoerna Agro FY10F-FY15FMalaysiaGenting Plantations FY10F-FY12FIJM Plantations FY10F-FY16FIOI Corporation** FY10F-FY14FKL Kepong FY10F-FY12FSime Darby FY10F-FY12FTSH Resources FY10F-FY17FSingaporeFirst Resources FY10F-FY13FIndofood Agri R.* FY10F-FY14FKencana Agri FY10F-FY20FWilmar International FY10F-FY20FTotal

49.317.040.0

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38.090.066.0

143.0

28.040.015.010.0

Expansiontarget (k. ha) - own

Source: DBS Vickers estimates

Rosy Outlook in 2011 • Riding on strong CPO prices in 1QCY11

• Pick volume recovery plays for 2011

• Downcycle to start in 2HCY11

• Key risks: currency, crop yield, regulations

Seasonal momentum with unusual circumstances. We expect CPO prices to start on a strong note, assuming (i) USD to weaken further in 1H11 due to QE2 leading to higher soybean and soybean oil prices, (ii) sharper-than-usual seasonal drop in Malaysian FFB yields due to lagged impact of severe drought in Jan-Feb 10, (iii) seasonally higher palm oil demand due to Chinese New Year, compounded by efforts to secure as much supply as possible to cool inflation in China.

Leverage on volume/business recovery plays: We recommend investors to increase exposure to upstream planters to capitalise on CPO price strength in 1QCY11. Based on current visibility and analysis of both palm oil refining and soybean crushing margins, we believe upstream planters offer better value through 2HCY11 vis-à-vis processors such as IOI and Wilmar. FFB yields in Malaysia and Indonesia should reflect diverging trends as Malaysia experienced severe drought in Jan-Feb 10, while Indonesia was pounded by rain. We therefore expect oil palm yields in Indonesia to be comparatively higher. Our top picks reflect this dichotomy, leveraging on strongest volume recovery: Sampoerna Agro, Genting Plantations, and IndoAgri. We also like Sime Darby on strong business recovery.

2HCY11 CPO price downcycle to remain mild. About 892k ha of oil palm estates in Indonesia and Malaysia matured this year. We expect these estates to contribute c.1m MT of CPO volume of 3.6m MT global growth forecast for 2011 (2010: c.1.7m MT growth). Relative to soybean oil, which is expected to decline in 2011, the boost in palm oil supply should widen CPO price discount. Still, tighter soybean oil supply, weak USD and steady demand (mostly incremental demand from Asia) should continue to support palm oil prices.

Key risks. Key risks are (i) the reversal of weak USD trend, (ii) significant CNY revaluation, worse-than-expected soybean yields in South America, and (iii) uncertainties over stricter Indonesian forestry and planting regulations to be issued in early 2011 (of which proposed regulations include a 2-year moratorium on forestry conversion and stricter implementation of timber exploitation licenses), which could affect new planting activities.





Regional Steel & Metal LEE Eun Young +65 6398 7964 [email protected]

Bbg Code Rec TP (LCY)

Korea POSCO 005490 KS Buy 600,000 Hyundai Steel 004020 KS Buy 130,000 Seah Besteel 001430 KS Buy 45,000 Dongkuk Steel 001230 KS Buy 29,000 Korea Zinc 010130 KS Buy 390,000 PoongSan 001430 KS Buy 60,000 China Angang Steel 347 HK Hold 12.99 Maanshan Iron Steel 323 HK Hold 4.97 Sinoref 1020 HK Buy 1.69 Malaysia Kinsteel KSB MK Buy 1.25 Indonesia Aneka Tambang ANTM IJ Fully Valued 1,655 Thailand Tata Steel TSTH TB Buy 2.48

Source: DBS Vickers

HRC Price vs. China imported Iron Ore price


Focus on growth • Global steel demand growth to decelerate and

market competition to intensify

• Steel prices to remain in a band; profit to improve backed by more stable raw material prices.

• Top Picks: Hyundai Steel, Seah Besteel

Decelerating demand and competitive market. Global steel demand growth is estimated to decelerate to 5.3% in FY11 from 13.1% in FY10 following growth from China demand moderating to 3.5% from 6.7%. Korean steel demand is projected to grow only 1% in FY11 from 22% in FY10. China is estimated to increase the crude steel capacity by c 60m tonnes or 9.5% during 2010 and 2011. Korea will also see an increase in crude steel capacity of c 8% in 2011 with the commencement of Hyundai Steel’s #2 blast furnace and POSCO’s new heavy plate plant and new steel making plant. Coupled with over-capacity in China, capacity expansion in China and Korea would result in a more competitive steel market environment in Asia. Hence we expect benchmark HRC prices to fluctuate within the US$500/ton ~ 700/ton band in FY11. Controlling supply will lead to less volatility in raw material prices. There could be some positive developments ahead to control supply and this may include policy measures from the Chinese government to eliminate over-capacity and restructuring in the Japanese steel industry where domestic demand accounts for only 60% of production. If implemented, these could lead to more stable raw material prices and therefore positive to steel companies’ margins and profit. Strong momentum on the metal sector. Share price momentum for commodity stocks is likely to strengthen in the near term supported by improving fundamentals for metals and liquidity. However, the risk factor will be any tightening policies by the governments, which will impact the sector negatively. Stock picks : Mid/Small caps with growth We recommend Hyundai Steel and Seah Besteel as our top picks given that 1) their top and bottom line are projected to register the highest growth among regional peers; 2) growth will be driven by capacity expansion and contribution from the new plants; and 3) undemanding valuations – Hyundai Steel is trading at only 1.3x FY11 P/BV while Seah Besteel is trading at 1.1x FY11 P/BV.

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Regional Tech TAN Ai Teng +65 6398 7967 [email protected]

Bbg Code Rec TP ($) Singapore Venture VMS SP Buy 11.80 Hi-P HIP SP Buy 1.30 Hong Kong AAC Acoustic 2018 HK Buy 24.20 Thailand Delta Electronics DELTA TB Buy 40.00 Stars Microelectronics SMT TB Buy 22.40

Source: DBS Vickers

Regional technology: growth and valuation Earnings Growth PE (%) (x) FY10 FY11 FY10 FY11 Hong Kong Tech sector 71.3 16.9 18.0 15.4 DBSV HK universe 14.4 12.6 31.5 13.8 Consensus Hang Seng Index 30.0 15.3 14.6 12.6 Singapore Tech sector 131.4 19.5 16.5 13.8 DBSV Spore universe 20.4 12.3 15.6 13.9 Consensus FSSTI 18.7 7.8 15.3 14.2 Thailand Tech sector 37.9 -1.7 12.6 12.8 DBSV Thai universe 33.0 7.1 12.8 12.0 Consensus SET 14.4 19.8 14.7 12.2

Source: DBS Vickers

Stay mobile and go corporate • We are selective on the tech sector in view of

moderated growth outlook owing to tepid economic recovery and rising costs

• Make money out of smartphones, tablets and corporate equipment/devices

• Large cap dividend stocks can also enhance returns

Moderate growth in 2011; key to cherry pick. We expect the tech sector to continue growing in 2011 but believe the pace would moderate given a backdrop of weak US/Europe consumer recovery compounded by the prospect of further tightening across Asia. Tech valuations are not exactly cheap at 14x FY11 but upsides are possible if supported by earnings upgrade. We advocate cherry picking companies that will benefit from today’s hottest tech trends.

Trend 1: Smart mobile devices are gaining traction. Smartphones will remain the sweet spot for fast growth in the next two years whereas substantial growth potential of media/PC tablets has just taken off and will continue to gain traction with consumers/businesses. Buy AAC Acoustics, Hi-P and Star Microelectronics for smartphones and tablet plays. TCL is also a beneficiary of smartphones

Trend 2: Corporate demand continues. Corporate IT demand should carry momentum into 2011. The unanimous consensus amongst tech bellwethers in their latest earnings announcements underscores our positive outlook for the enterprise segment. Among companies with corporate focus, we prefer Venture to Lenovo.

Large cap dividend yielding stocks to enhance returns. In a sector that is not expected to grow by leaps and bounds, investors can also enhance their returns with high yield large cap names such as Delta and ASM Pacific at a lower entry level as the latter has done very well in the past one year.

Key risks are further weakening of USD, margin erosion from higher than expected raw material and rising labour costs in China.





Asean Telcos Sachin MITTAL +65 6398 7950 [email protected]

Bbg Code Rec TP (LCY) Malaysia Digi.Com DIGI MK Hold 22.90 Maxis Bhd Maxis MK Hold 5.10 Telekom T MK Hold 3.35 Axiata Group AXIATA MK Buy 5.10 Singapore M1 M1 SP Buy 2.50 SingTel ST SP Buy 3.55 Starhub STH SP Sell 2.20 Thailand Advanced Info Service ADVANC TB Buy 122.00 Total Access DTAC TB Buy 50.40 True Corporation TRUE TB Buy 9.60 Indonesia Indosat ISAT IJ Buy 7,000 XL Axiata EXCL IJ Buy 6,800 PT Telekom TLKM IJ Hold 8,900 Hong Kong / China China Mobile 941 HK Fully Valued 69.00 China Telecom 728 HK Buy 4.90 China Unicom 762 HK Hold 10.0

Source: DBS Vickers

Asian Telcos relative performance versus market

Source: DataStream, DBS Vickers

3G and Mobile broadband • Declining phone price to encourage 3G

adoption

• Limitations of mobile broadband may be evident in 2011.

• BUY XL & Indosat for growth, M1 & DTAC for yield.

Phone prices to spur adoption of 3G in 2011. The advent of 3G era (all countries expect Thailand) brings the burden of buying expensive 3G phones, which are becoming cheaper thanks to Chinese phone vendors. Most operators are looking at 3G phones below US$50 as the sweet spot for 3G adoption. China is the only developing country, which has adopted the handset subsidy model while other countries are still avoiding the trap of handset subsidy model.

Mobile broadband’s shortcomings evident in 2011. In most developing countries, operators offer mobile broadband to connect to Internet for news, web surfing, chatting, facebook etc. However, investors need to be mindful of players, who are offering mobile broadband over notebooks and laptops, as cellular networks may not be able to handle huge data traffic due to technological limitations. In developed markets like Singapore, smartphones like iPhones generate huge data traffic and stimulating more network investments.

Best ideas

(i) XL prefers mobile devices while discouraging notebooks for mobile broadband. Indosat is securing high-end customers led by its new Chief Commercial Officer. We like XL & Indosat for higher-growth prospects but relatively cheaper valuations.

(ii) M1 expects single-digit earnings growth in the next 2-3 years with its entry into the broadband segment. We like M1 for its 6.5% yield and capital management potential.

(iii) Thai telcos are set to witness stable competition pending 3G license. We prefer DTAC for lower regulatory risks and its 2G-concession fee would expire later than others. DTAC is trading at only 10x FY11F PE, 4.0x FY11F EV/EBITDA, and over 7% FY11F dividend yield based on 70% payout ratio.

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Regional Power/Utilities June NG +603 2711 2222 [email protected]

Bbg Code Rec TP (LCY)

China CR Power 836 HK Buy 19.80 Datang 991 HK Hold 2.95 Huaneng 902 HK Hold 4.80 Hong Kong CLP Holdings 2 HK Fully Valued 55.20 Cheung Kong Infrastructure

1038 HK Buy 44.20

HK Electric (HKE) 6 HK Hold 54.40 Malaysia Tenaga Nasional TNB MK Buy 10.10 YTL Power YTLP MK Hold 2.75 Indonesia Perusahaan Gas Pgas IJ Buy 4,800

Source: DBS Vickers

PE band for regional power stocks


Safe and sound • Key themes are M&A driven growth, resilient

earnings and good yields

• CKI is our top pick for upside from M&A, YTLP for resilient yields

• We also like Pgas for its leverage on rising energy demand in Indonesia, and TNB as proxy to strong GDP growth in Malaysia

• Negative on Chinese IPPs

Conducive environment for M&A – CKI. We expect more M&As to be finalised in 2011 given more realistic asset pricing, weaker Euro and GBP, an accommodative interest rate environment, and easy access to funding for acquisition of regulated asset. The recently completed EDF acquisition is the fourth major acquisition for Cheung Kong Infrastructure (CKI) over the last 12 months, and we expect more to come given CKI’s and Hongkong Electric (HKE)’s strong balance sheets. Assuming CKI raises net gearing to 40%, employs 60:40 debt/equity structure, 5% net finance cost and 8% ROE of 8%, the new acquisitions could enhance CKI’s FY11F net earnings by 16%.

Resilient earnings and good yield – YTLP and CKI. Power companies with regulated assets offer resilient earnings premised on strong operating cashflows and regulated returns that allow the transfer of fuel cost risks. Stocks with strong parentage and matured assets such as YTL Power (YTLP) and CKI offers 5% p.a. net yield.

Less promising outlook for Chinese power stocks. The outlook for Chinese IPPs is less promising due to the lack of fuel cost pass through. Chinese players suffer from low profitability (c.50% of power plants are loss-making at current coal prices), coal prices are still rising (+21% YTD), and interest costs are surging. Chinese IPPs have high average net gearing of 2.4x due to large capex to fund new generation capacity and coal-related investments. A tariff hike could provide short term relief, but Chinese IPPs face a structural problem of being unable to offset higher costs.

Pgas and TNB are attractive proxies to rising energy demand. We favour Pgas for its attractive valuation and promising outlook premised on new gas supply. We expect adjustments to gas selling prices to go hand-in-hand with the new supply contracts. Meanwhile, TNB is a market laggard and beneficiary of stronger Ringgit and GDP growth in Malaysia. Both Pgas and TNB are trading at 13x FY11F PE against regional peers’ average of 16x.

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COUNTRY THEMES





Malaysian Construction CHONG Tjen-San, CFA + 603-2711 2295 [email protected]

Bbg Code Rec TP (RM) Gamuda GAM MK Buy 4.90 IJM Corp IJM MK Buy 6.75 MMC Corp MMC MK Buy 3.85 WCT WCT MK Buy 3.60 MRCB MRC MK Buy 2.90 Sunway Holdings SGW MK Buy 2.60 TRC Synergy TRC MK Buy 1.85

Source: DBS Vickers

KL Construction Index at mean levels


MRT coming to fruition • Focus on rollout of jobs in 2011

• MMC-Gamuda JV expected to be PDP

• Gamuda remains a high conviction BUY

2011 a year of project rollouts and execution. This is hot on the heels of 2010, a year of planning and tabling of the 10MP and Budget 2011. And the pump priming story ties in with the widely anticipated general elections this year. We highlight RM221bn worth of jobs that include RM100bn transport-related projects, and envisage the government playing this trump card to create the ‘feel good factor’ by aggressively rolling out new contracts. A case in point is the MRT project, which is expected to contribute RM8-10bn p.a. in GNI based on 2.5-3.5x multiplier effect, and is vital to the economy of Greater KL. The first phase of the LRT extension worth RM1.7bn had been awarded to TRC and Bina Puri.

All eyes still on RM40bn MRT project, Malaysia’s largest contract thus far. It has received the nod from the Economic Council, which is as good as receiving cabinet approval. The recent statement by Malaysia’s PM that he wanted the project to start by July 2011 may be an indication it will not be opened to foreign contractors to avoid delays. In view of this and the expertise of the MMC-Gamuda JV, we believe it will clinch the RM14bn tunnelling contract. This would add RM1.36/share and RM1.02/share to Gamuda and MMC’s SOP value, respectively, based on our DCF value (2011-1016 cashflows, 8.3% blended pretax margins, and 10% discount rate). We only factored in 50% of the DCF value into both MMC and Gamuda’s SOP value.

Gamuda is our high conviction BUY. To gain the most leverage to the MRT project, we reiterate our high conviction BUY for Gamuda (TP RM4.90). An alternative direct MRT proxy is MMC Corp (TP RM3.85). We also like MRCB (TP RM2.90) for the MRCB-IJM Land merger, which will offer minorities the opportunity to leverage on IJM Land’s strength in township development to minimise risks with the eventual development of the 3,400 acres of RRIM land. IJM (TP RM6.75) will also emerge a winner from the IJM Land-MRCB merger with NAV accretion and synergies from the enlarged property entity. It may also be able to carve out a portion of MRCB’s lucrative construction and concession business with its niche in environmental jobs.

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China Autos

Rachel MIU · +852 2863 8843· [email protected]

Bbg Code Rating TP (LCY) Dongfeng Motor 489 HK Buy 17.50 Brilliance China 1114 HK Buy 6.30 Geely Automobile 175 HK Hold 4.40 Guangzhou Auto 2238 HK Not Rated - BYD Co Ltd 1211 HK Not Rated - Dah Chong Hong 1828 HK Not Rated - Zhongsheng 881 HK Not Rated - China ZhengTong 1728 HK Not Rated - Sparkle Roll 970 HK Not Rated -

Source: DBS Vickers

Auto dealers’ profile

No. of outlets09 10F 11F

Dah Chong Hong 1828 HK 40 61* n.a.

Zhongsheng 881 HK 47 83 100-120

China ZhengTong 1728 HK 17 24 50

Sparkle Roll 970 HK 3^ 20 n.a.

Revenue (HK$m)FY09A FY10F % growth

Dah Chong Hong 1828 HK 22,131 29,213 32

Zhongsheng 881 HK 16,010 28,717 79

China ZhengTong 1728 HK 5,812 n.a. n.a.

Sparkle Roll# 970 HK 1,219 2,662 118

Net Profit (HK$m)FY09A FY10F % growth

Dah Chong Hong 1828 HK 710 947 33

Zhongsheng 881 HK 549 1,267 131

China ZhengTong 1728 HK 170 n.a. n.a.

Sparkle Roll# 970 HK 113 190 68

* China only

^ Dealership

# FY09: FY3/10A; FY10: FY3/11F

Exchange rate: RMB1 = HK$1.17

Source: Bloomberg, Companies

Market rewards luxury automakers • Expiry of stimulus policy will lead to

normalised growth rate

• Luxury segment to outperform

• Valuation to reflect growth normalisation

Expect sales growth to normalize, as stimulus policy expires. Growth normalisation will benefit long-term development of auto industry. We project low-teens auto sales growth in next two years, supported by untapped markets from 3rd and 4th tier cities, with rising disposal incomes but relatively low penetration rates of 50 vehicles per 1000 people.

Luxury car sales remain robust next year. The luxury car segment will maintain its solid performance in 2011 with new model roadmap and strong income growth in tier-1 and 2 cities. Luxury car buyers are generally not affected by the tightening of liquidity as they usually pay cash upfront and auto financing is still not widely accepted within the industry.

Auto dealers the lagged beneficiaries. Auto dealers are benefitting from the more lucrative and higher margins vehicle maintenance services and hence should command richer valuation. Besides, this sub-sector is valued as consumer play, where FY11PE range between 15x and 34x compared to the automakers. Auto dealers include Dah Chong Hong (1828 HK), Zhongsheng (881 HK), and Zhengtong (1728 HK) and Sparkle Roll (970 HK).

Most cost effective automakers will benefit. Effective cost controls is key for automakers amid rising production cost environment (driven by higher materials and labour cost). This is even more crucial for 3rd and 4th cities, where demand is mainly focused on 1.6L or below displacement cars. Given the lower sales value and thinner margins, efficient automakers will benefit most, given their tight cost structure.

Valuation levelling off on normalised growth projections. We suggest investors to be selective given that the auto sector has outperformed for two consecutive years. As such, we recommend to focus on the luxury car segment (both dealers and automakers) and strong auto groups that have consistently delivered strong earnings performances. Our pick is Dongfeng Motor (489HK; TP HK$17.5).





Korean Autos

Jay KIM · +852 2971 1921 [email protected]

Bbg Code Rec TP (KRW) Automakers Hyundai Motor Co. 005380 KS Buy 240,000 Kia Motors 000270 KS Buy 64,000 Auto-parts Hyundai Mobis 012330 KS Buy 330,000 Pyeong Hwa 043370 KS Buy 19,000 Tire manufacturers Hankook Tire 000240 KS Buy 37,000

Source: DBS Vickers

Global production

01,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,0009,000,000

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0F

201

1F

201

2F

HMC Korea HMC overseasKia Korea Kia Overseas

unit

Source: Company, DBS Vickers

Growth story intact • Despite rapid expansion over the past two

years, current valuations at 8-10x FY11F P/E on the back of +17% average earnings growth imply the accelerated growth prospects are not fully priced in

• Effective cost control, improving brand perception, and a favourable won/yen rate will continue to boost automakers’ earnings

• We remain positive on Korea’s auto sector; top pick – Kia Motors

Strong cost reduction potential. For 2011, a key earnings driver for Korean automakers – relative to regional peers under our coverage - is significant cost savings arising from lower manufacturing costs with the integration of manufacturing platforms for new models. Both Hyundai Motor Co. (HMC) and Kia are expected continue to make strong progress in platform integration and component commonality. The marginal cost savings will be the key earnings driver for these automakers.

Auto-parts manufacturers to follow suit. Record high global utilization rates, global market share gains, and continued push upscale by HMC and Kia will bode well for Korean auto-parts makers. The Korean auto-parts makers’ solid earnings momentum coupled with potential customer base expansion will re-rate the sector upward.

More cautious on Korean tire stocks in the near term. Despite expectations for Hankook Tire to deliver strong FY11 earnings, is it premised on natural rubber prices falling by c.15% from current record high levels. And without capacity additions scheduled for Korean tire manufacturers in 2011, we do not believe the imminent tire price hikes alone will be sufficient to prompt healthy earnings growth. We prefer Indonesian tire manufacturers over Korean tire makers since the former can overcome expected margin pressure via stronger volume growth.

Top pick remains Kia Motors, despite the share price having risen 61% in the last 6 months. The counter is still grossly undervalued given its strong potential for a sustainable turnaround. Strong growth prospects and rapid deleveraging will continue to boost sentiment towards Kia and trigger a catch up to global peers’ valuations.




www.dbsvickers.com sa: TW

Indonesian Autos

Jay KIM +852 2971 1921 [email protected] Indonesia Research Team +6221 3983 2668

Bbg Code Rec TP IDR

Automakers Astra Int’l ASII IJ Buy 65,000

Source: DBS Vickers

Auto penetration

150160170180190200210220230240250

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

person(mn)

0.5%2.5%4.5%6.5%8.5%10.5%12.5%14.5%16.5%18.5%20.5%22.5%24.5%

Indonesia Population (LHS)4W Penetration (RHS)2W Penetration (RHS)

Source: BPS, CEIC, Gaikindo, AISI

20,00025,00030,00035,00040,00045,00050,00055,00060,00065,00070,00075,000

Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10

units

250,000

300,000

350,000

400,000

450,000500,000

550,000

600,000

650,000

700,000

750,000units

4W Sales (RHS) 2W Sales (RHS)

Source: Gaikindo

Explosive growth ahead • Still low vehicle penetration rate means ample

room for auto demand to grow

• Per capita income will soon hit inflexion point to stimulate explosive demand growth

• Tire industry – volume-led growth

Expect another year of solid growth for Indonesia auto industry. Unit sales are expected to grow 13% y-o-y to 766K vehicles (2-year CAGR of 26%) given the nation’s economy and motorization process are poised to trend up. Even after this year’s record growth, as long as economic growth remains buoyant and low interest rates make auto-financing affordable, the current low penetration rate of less than 46 vehicles per 1000 people means there is still ample room for vehicle ownership to rise

Fears of tax rate changes excessive. Although there are concerns over Jakarta and other state governments’ potentially implementing a new progressive tax rate and higher registration tax for new vehicles, we believe these will have relatively limited impact on overall market growth. It is important to note that automotive demand growth in emerging markets has historically been much more sensitive to overall economic sentiment (i.e. private consumption, auto financing affordability, and inflationary pressure) than government-driven policies.

Growing private consumption will keep Indonesia’s automotive market on solid growth path. Indonesia’s average per capita income expected to reach US$3,000 by end 2011. Based on trends in other emerging markets, this level of per capita income is the inflexion point where private car purchases start to see explosive growth.

Tire industry – better positioned. Despite fears of rising raw material costs, Indonesian tire makers are better-positioned to benefit due to stronger bargaining power as a result of their geographical proximity to plantations, and lower logistics costs compared to global competitors. We have exceptional expectations for tire maker Multistrada (MASA IJ) since it will benefit from 40% expansion in capacity to 13.7m tires/year in 2011. Accordingly, despite weaker margins expectations, core earnings momentum for tire manufacturers will remain strong in FY11 driven by larger sales volumes and improving economies of scale.




www.dbsvickers.com ed: MY sa: TW

Singapore Offshore & Marine Janice CHUA +65 398 7954 [email protected] Jeremy THIA +65 6398 7974 [email protected] Bbg Code Rec TP (S$) Large Caps Keppel Corp Ltd KEP SP Buy 12.50 SembCorp Industries SCI SP Buy 5.60 SembCorp Marine Ltd SMM SP Buy 6.08 Cosco Corp COS SP Buy 2.76 Small / Mid Caps ASL Marine Holdings Ltd ASL SP Hold 0.96 CH Offshore Ltd CHO SP Hold 0.60 Ezion Holdings EZI SP Buy 1.00 Jaya Holdings Ltd JAYA SP Buy 1.15 Mermaid Maritime PCL MMT SP Hold 0.49 Swiber Holdings Ltd SWIB SP Buy 1.28

Source: DBS Vickers Annual order wins vs. Oil price – positively correlated

Source: Keppel Corp, Sembcorp Marine, Bloomberg, DBS Vickers Oversupply persists – Utilisation rates for global AHTS fleet to stay subdued in 2011

AHTS to rig ratio (x) 2010F 2011F 2012F 2013F

Implied utilisation of small AHTS (<8,000bhp) 2.6x 62% 60% 69% 69% 3.0x 71% 69% 79% 80%

Implied utilisation of large AHTS (>8,000bhp)

1.7x 63% 62% 65% 66% 2.3x 86% 84% 88% 89% Implied utilisation of global AHTS fleet 2.3x 63% 62% 69% 69% 2.8x 76% 75% 83% 84%

NB: AHTS to rig ratio based on historical ratios estimated over the 2004-2009 period.

Source: DBS Vickers, ODS Petrodata, Clarksons

Renewal cycle gaining steam • Spurt in new orders since 4Q10 to sustain

• Asset replacement triggered by stricter requirements for rigs vs an aged rig fleet

• Potential in new markets: drillships & wind farm vessels provide new growth drivers.

• Prefer shipyards to offshore vessel owners/operators. Buy Keppel Corp (KEP), SembCorp Marine (SMM) and Cosco Corp, target prices adjusted up to factor in higher contract wins.

Rigbuilders to benefit from fleet renewal cycle. The global offshore rig fleet is highly aged, with 70% >20 years old. This implies a growing technical supply/demand mismatch amid increasingly stringent safety and environmental standards and tougher offshore conditions. Post Macondo, there has been an increased focus on safety among oil and gas companies, along with enhanced safety requirements imposed by the US government. We believe this has kick-started the renewal cycle, which was stalled by the onset of the global financial crisis. Indeed, the divergence in utilisation and day rates with preference for younger vs. older rigs has led to renewed interests among operators to seek newbuilds. Recovery in new rig orders, evidenced since 4Q10, will sustain its momentum on the back of resumed capex spending.

New wings of growth from drillships and tapping on offshore wind energy potential. International drillers are scouting for deepwater rigs, including drillships. KEP and SMM have unveiled new drillship designs with ultra-deepwater and drilling capabilities of up to 40,000 feet. We believe the relatively lower building and operating costs for KEP’s and SMM’s compact design differentiate them from the Korean competitors. Separately, KEP has also secured a wind farm installation vessel order of the KFELS MPSEP design to tap on the projected growth in the global offshore wind energy market.

Offshore vessel operators still face headwinds from oversupply issues. While vessel operators have reported a pick up in activity levels globally, the supply situation remains unfavourable with awards of firm charters slow to materialise. Based on our estimates, utilisation rates of small and mid/large AHTS alike should recover more evidently only from 2012 onwards. Till then, we do not expect a meaningful recovery in earnings for vessel operators.

Prefer shipyards to asset owners/operators. We expect yards to benefit from the asset replacement cycle, with more orders in the offing for newbuild rigs and production units. Vessel owners, on the other hand, could see flat earnings y-o-y, with downside bias on poor visibility of contract coverage.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2003 2004 2005 2006 2007 2008 2009 2010YTD

S$ m

0

20

40

60

80

100

120US$/bbl

KEP SMM Oil price





China / Hong Kong Banks Alexander LEE, CFA +852 2971 1930 [email protected]

Bbg Code Rec Tp (LCY) China CCB 939 HK Buy 8.81 ICBC 1398 HK Buy 7.17 ABC 1288 HK Buy 4.93 CMB 3968 HK Buy 24.50 BoCom 3328 HK Buy 10.70 CNCB 998 HK Buy 6.04 CMBC 1988 HK Buy 8.09 BOC 3988 HK Buy 4.76 Hong Kong Hang Seng 11 HK Buy 123.60 BEA 23 HK Hold 34.00 BOCHK 2388 HK Hold 24.60

*shown in order of preference

Source: DBS Vickers

Chinese banks’ PB vs. 1-yr lending rate

0.0

1.0

2.0

3.0

4.0

5.0

6.0

06 07 08 09 10 114.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Average sector PB (LHS)1-yr lending rate (RHS)

x %

Chinese banks’ PB vs. Rmb

0.0

1.0

2.0

3.0

4.0

5.0

6.0

06 07 08 09 10 110.100

0.110

0.120

0.130

0.140

0.150

0.160

Average sector PB (LHS)US$ / Rmb (RHS)

x US$/Rmb


Prefer large caps • NIM expansion and Rmb appreciation are key

re-rating themes for Chinese banks in 2011

• Prefer larger Chinese banks as they face less regulatory uncertainties

• 2011 will be a year of low margins but high asset growth for HK banks

Early tightening cycle is positive for Chinese banks. Chinese banking stocks will perform well in 2011, as China begins its tightening cycle. Net interest margin expansion and Rmb appreciation will be key re-rating themes. Capital raising activity is also largely completed. However, sentiment may be shaky in early 2011 due to fears of over-tightening and profit taking after rights issues in Dec 2010. Confidence should strengthen once policy makers lay out a concrete policy road map.

Moderate EPS growth even with dilution. We expect Chinese banks to achieve average EPS growth of 12% in 2011, even with IPO and rights dilution effects. Key drivers will include NIM expansion, moderate asset growth, and robust fees. These positives can eclipse higher credit cost due to prudent regulatory changes.

Prefer large cap Chinese banks. Although smaller Chinese banks stand to benefit more from expected interest rate hikes, they are weighed by higher regulatory risks. Mid-cap banks face higher credit cost risk due to likely adoption of a new 2.5% provision to loans requirement. In addition, mid-cap banks also face greater capital pressure compared to large-cap banks.

More selective on HK banks. Hong Kong banks have potential to re-rate further on improving sector’s ROE. However, this may be challenging, as margins will remain low in 2011 with quantitative easing flooding the banking system with liquidity. Meanwhile, credit and operating cost savings are difficult to attain at current levels.

Conviction plays are CCB and ICBC. The two largest banks in China have the most bounce in 2011. Both are well capitalized and have built up prudent provisions. We also like their attractive FY11 PE and P/BV levels of 9x and 1.8x respectively against projected ROE levels of 21+%.




www.dbsvickers.com ed: MY / sa: TW

China Shipyards HO Pei Hwa +65 6398 7968 [email protected] Janice CHUA +65 6398 7954 [email protected]

Bbg Code Rating TP ($) Cosco Corp COS SP Buy 2.76 Yangzijiang YZJ SP BUY 2.60 JES JES SP BUY 0.50

Source: DBS Vickers

Robust order flow and healthy book-to-bill ratio

Cos co Yangzijiang J ES

Orde r book (US D bln) US D 6.1 bn USD 5.3 bn US D 0.8 bnAs of Nov 2010

Delivery s chedule 2010 - 2013 2010 - 2013 2010 - 2012

Book-to-bill ratio 2.3x 2.4x 1.8x

Ne w orde r s YTD US D 1.9bn USD 1.0bn US D0.9bn

Source: DBS Vickers

Price Relative Performance

Source: DBS Vickers

Orders keep flowing • Offshore, containers and tankers’ order flows

will gain momentum.

• Continued strong government support to stimulate shipbuilding industry.

• BUY into leading Chinese yards: Cosco and Yangzijiang

Revival in orders for containers and tankers will offset the slowdown in bulk carrier orders. The order flow for Chinese shipbuilders is expected to remain strong in 2011. A likely slowdown in bulk carriers order after a robust 2010 could be mitigated by the revived interest for containers and tankers. In addition, offshore contract flow is gaining momentum as well, in particular, FPSO, jack up rigs and wind turbine vessels. We estimate global ship orders to grow 15% yoy in 2011, of which, containers and tankers are expected to grow 125% and 45% respectively on the back of declining orderbook-to-fleet ratio, attractive newbuild prices and profitable charter rates.

Government support a key advantage. Government’s support will continue to be a trump card for Chinese shipbuilders especially the SOE and larger private yards, sharpening their competitive advantage over Korean and Japanese yards. In particular, the financing enabled the established shipyards and shipowners to take on new orders and pull in a significant number of owners who would have otherwise headed to South Korea. For instance, Chinese government’s recent US$5bn fund to Greek shipowners could create orders for up to 140 Panamax-equivalent vessels or 11m dwt (2% of current fleet) for Chinese shipyards.

Leaders of the pack. We recommend investors to increase exposure to leading Chinese yards to tap into the robust order flow. Cosco is our top pick for its offshore positioning, being one of the few shipyards that has a track record in offshore projects and the first to secure full turnkey project. Yangzijiang is a prime beneficiary of revived containership orders being the largest privately owned containership builder in China. Revenue visibility is high as book-to-bill ratio are >2x for both yards.

50

90

130

170

210

Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10

Cosco Corp Yangzijang JES Int'l




www.dbsvickers.com sa: DC

Page 79

China / Hong Kong Banks Alexander LEE, CFA +852 2971 1930 [email protected]

Bbg Code Rec Tp (LCY) China CCB 939 HK Buy 8.81 ICBC 1398 HK Buy 7.17 ABC 1288 HK Buy 4.93 CMB 3968 HK Buy 24.50 BoCom 3328 HK Buy 10.70 CNCB 998 HK Buy 6.04 CMBC 1988 HK Buy 8.09 BOC 3988 HK Buy 4.76 Hong Kong Hang Seng 11 HK Buy 123.60 BEA 23 HK Hold 34.00 BOCHK 2388 HK Hold 24.60

*shown in order of preference

Source: DBS Vickers

Chinese banks’ PB vs. 1-yr lending rate

0.0

1.0

2.0

3.0

4.0

5.0

6.0

06 07 08 09 10 114.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Average sector PB (LHS)1-yr lending rate (RHS)

x %

Chinese banks’ PB vs. Rmb

0.0

1.0

2.0

3.0

4.0

5.0

6.0

06 07 08 09 10 110.100

0.110

0.120

0.130

0.140

0.150

0.160

Average sector PB (LHS)US$ / Rmb (RHS)

x US$/Rmb


Prefer large caps • NIM expansion and Rmb appreciation are key

re-rating themes for Chinese banks in 2011

• Prefer larger Chinese banks as they face less regulatory uncertainties

• 2011 will be a year of low margins but high asset growth for HK banks

Early tightening cycle is positive for Chinese banks. Chinese banking stocks will perform well in 2011, as China begins its tightening cycle. Net interest margin expansion and Rmb appreciation will be key re-rating themes. Capital raising activity is also largely completed. However, sentiment may be shaky in early 2011 due to fears of over-tightening and profit taking after rights issues in Dec 2010. Confidence should strengthen once policy makers lay out a concrete policy road map.

Moderate EPS growth even with dilution. We expect Chinese banks to achieve average EPS growth of 12% in 2011, even with IPO and rights dilution effects. Key drivers will include NIM expansion, moderate asset growth, and robust fees. These positives can eclipse higher credit cost due to prudent regulatory changes.

Prefer large cap Chinese banks. Although smaller Chinese banks stand to benefit more from expected interest rate hikes, they are weighed by higher regulatory risks. Mid-cap banks face higher credit cost risk due to likely adoption of a new 2.5% provision to loans requirement. In addition, mid-cap banks also face greater capital pressure compared to large-cap banks.

More selective on HK banks. Hong Kong banks have potential to re-rate further on improving sector’s ROE. However, this may be challenging, as margins will remain low in 2011 with quantitative easing flooding the banking system with liquidity. Meanwhile, credit and operating cost savings are difficult to attain at current levels.

Conviction plays are CCB and ICBC. The two largest banks in China have the most bounce in 2011. Both are well capitalized and have built up prudent provisions. We also like their attractive FY11 PE and P/BV levels of 9x and 1.8x respectively against projected ROE levels of 21+%.





China / Hong Kong Retail Mavis HUI +852 2863 8879 [email protected]

Bbg Code Rec TP (LCY) Food retailers Beijing Jingkelong 814 HK Buy 10.84 Lianhua Supermarket 980 HK Buy 40.74 Wumart 8277 HK Hold 19.21 Department stores Golden Eagle 3308 HK Hold 24.09 Lifestyle 1212 HK Hold 19.83 New World Dept Store 825 HK Buy 9.52 Parkson 3368 HK Buy 15.19 Discretionary retailers Giordano 709 HK Buy 5.50 Gome 493 HK Buy 3.69 Oriental Watch 398 HK Buy 6.13 Sa Sa 178 HK Hold 5.57

Target prices based on projected RMB:HKD forex rate of 1.21:1 by end-2011

Source: DBS Vickers

Average wage in China escalated

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1959 1969 1979 1989 1999 2009

RMB

Note: Latest 10-year CAGR for 2000-09 reached 15%

Source: CEIC, DBS Vickers

Still in the spotlight • Multiple growth drivers from macro and micro

fronts continue to fuel fundamental performance of sector

• Decent valuation to sustain over the medium-term, while global economic concerns could trigger brief corrections

• Maintain positive view and opt for valuation laggards and yield.

Macro outlook stays positive. Chinese retailers remain well-poised to benefit from the government’s rebalance of growth towards consumption. Accelerated expansion in household income along with better purchasing power as Renminbi continues to appreciate should support decent performance across the sector. Retailers’ cost-plus strategies should also help to hedge against an inflationary environment. Over the medium-term, operators that capture discretionary spending, including retailers of cosmetics, clothing & luxury merchandises should show even better growth prospects as living standard boom in China.

Micro drivers lift growth further. In view of ample room for expansion, most Chinese retailers have expedited organic growth plans to more swiftly capture better economies of scale and operating efficiency. This is especially found in 2nd and 3rd-tier cities of China that still offer lower average start-up costs. Coupled with their abundant cash on hand and an open mind on acquisitions to boost growth, the sector should comfortably sustain double-digit revenue growth for 2011.

A strong sector while valuation matters. Riding on positive industry outlook and better purchasing power of the Mainlanders, Chinese retailers as well as tourist retail plays in Hong Kong should continue to stand out as defensive choices in fundamental terms. While sector valuation will sustain at a good level over the medium-run, we could not rule out possible brief corrections that could set off by lingering global uncertainties. Together with share prices of growth stocks running ahead of peers and become less attractive for now, we prefer valuation laggards including Parkson, New World Dept Store, Beijing Jingkelong and Oriental Watch. Counters offering a better yield across the sector, such as Giordano (c.5%) could also serve as good picks under the current environment.





China Insurance Dennis LAM +852 2971 1922 [email protected]

Bbg Code Rec TP (LCY) China China Life 2628 HK Hold 38.00 Ping An Insurance 2318 HK Buy 99.00 China Pacific Insurance 2601 HK Buy 43.00 PICC 2328 HK Buy 14.64

Annual Insurance Data

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2010

E

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

P&C Life and Health insurance

RMB m

Source: CIRC

Riding up the rate cycle • Chinese insurance sector offers secular growth

opportunities that are less impacted by China’s tightening environment.

• Investment returns to improve in an interest rate upcycle.

• Premium growths for both life and non life businesses remain strong

• Attractive valuation as the interest rate cycle moves out of its trough.

Beneficiary of the interest rate upcycle. After a challenging 2010 with low investment yields, 2011 looks set to be a better year as the interest rate upcycle resumes. We believe insurers’ performance will be more favourable in a rising interest rate environment where returns from deposits and fixed income instruments will be higher.

Premium growth remains strong. Premium remained very robust for the insurance industry in 2010 with c.30% yoy growth. We expect FY11 life premiums to continue to be driven by participating products whilst auto insurance will drive non-life premiums growth. The start of the rate upcycle may rekindle some interest in investment-linked products as well.

Valuation still reasonable. Insurers typically perform well on the interest rate upcycle. We continue to think Chinese insurers are still trading at very reasonable valuations as we are just moving out of the cycle trough. We maintain our preference on Ping An for its more balanced premium growth and profitability profile on the life side. We also like PICC for the improving underwriting profitability of its non-life business.




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REGIONAL EARNINGS GUIDE

SINGAPORE : EARNINGS GUIDEPrice/ Price/ Net

Mkt Mkt Price Target Avg CAGR BV Sales Debt/Company FYE Cap Cap (S$) Price % 6-mth 09-11 (x) (x) Equity ROA ROE Disclosure

(S$m) (US$m) 16-Dec (S$) Upside Rcmd 3M 6M 12M Vol (m) 09 10F 11F 10F 11F (%) 10F 11F 10F 11F 10F 10F 10F 11F 09(x) 09 09 Analyst Legend

BASIC MATERIALSChina XLX Dec 595 453 0.60 0.66 10% Buy 3 8 (9) 4.2 24 34 45 3.4 4.5 39 17.4x 13.1x 9.7x 7.5x 1.9x 1.0x 1.1% 1.5% 0.56 4% 8% Ho Pei HwaMidas Holdings Dec 1,145 871 0.94 1.20 28% Buy (8) 0 6 7.3 38 48 73 4.6 6.0 20 20.5x 15.7x 10.8x 8.0x 1.8x 5.3x 1.1% 2.1% cash 11% 14% Paul YongXinren Aluminum Dec 549 418 0.50 0.70 40% Buy 0 0 0 38.8 60 73 98 6.6 8.9 15 7.6x 5.6x 6.2x 4.9x 2.2x 0.5x 0.0% 0.0% 4.84 7% 80% Paul YongStraits Asia Dec 1,842 1,262 2.45 2.30 -6% Hold 7 20 5 5.4 175 110 208 9.8 18.5 9 25.1x 13.3x 17.1x 9.3x 4.2x 3.1x 2.4% 4.5% 0.32 14% 31% Suvro SarkarSector 4,131 3,004 297 265 425 15.6x 9.7xCONSUMER GOODSChina Fishery Group Sep 2,165 1,648 2.16 2.38 10% Hold 13 13 67 0.3 124 153 186 15.3 18.5 13 14.1x 11.6x 9.2x 7.6x 2.4x 3.1x 2.3% 2.8% 0.82 12% 26% Andy SimChina Minzhong Jun 726 553 1.35 1.60 19% Buy (2) 19 0 1.8 59 72 86 13.5 15.9 20 10.0x 8.5x 4.7x 4.1x 1.6x 2.6x 0.0% 0.0% cash 24% 35% Andy Sim Note 3ConscienceFood Hldgs Dec 99 75 0.25 0.38 52% Buy 11 0 0 8.2 11 14 16 4.7 5.4 20 5.3x 4.7x 2.2x 1.6x 1.2x 0.9x 9.1% 4.3% cash 30% 54% Andy SimFirst Resources Dec 2,100 1,598 1.43 1.55 8% Buy 31 30 53 1.7 148 135 184 9.2 12.5 12 15.5x 11.4x 8.8x 7.0x 2.3x 5.6x 1.5% 2.6% 0.18 13% 24% SantosoIndofood-Agri Dec 3,923 2,986 2.71 3.20 18% Buy 20 24 26 6.3 222 188 246 13.0 17.0 5 20.8x 16.0x 11.1x 8.8x 2.5x 2.5x 0.0% 0.0% 0.40 7% 18% SantosoKencana Agri Dec 494 376 0.43 0.46 7% Hold 6 41 51 5.5 22 10 20 0.9 1.7 (12) 47.4x 25.0x 17.9x 13.2x 2.0x 2.1x 0.0% 0.0% 0.50 8% 13% SantosoOlam International Jun 6,503 4,949 3.06 3.60 18% Buy 1 18 15 7.2 183 272 354 13.5 16.8 26 22.7x 18.3x 16.4x 12.5x 3.5x 0.6x 1.6% 1.6% 2.49 4% 30% Santoso Note 2Pacific Andes Sep 966 735 0.34 0.48 41% Buy 6 13 21 3.8 124 131 150 4.6 5.3 9 7.4x 6.4x 6.7x 5.7x 0.8x 0.8x 4.0% 4.7% 0.71 6% 15% SantosoPetra Food Dec 990 753 1.62 1.59 -2% Hold 27 35 51 0.4 32 52 63 8.5 10.3 30 19.1x 15.8x 12.3x 11.0x 2.6x 0.5x 2.5% 2.5% 2.02 3% 13% Santoso Note 2Wilmar Dec 38,051 28,956 5.95 6.60 11% Hold (7) 2 (6) 8.5 2,253 1,905 2,280 29.8 35.7 1 20.0x 16.7x 15.5x 12.1x 2.4x 0.8x 1.0% 1.2% 0.36 9% 18% SantosoSector 56,018 42,628 3,178 2,933 3,583 19.1x 15.6xCONSUMER SERVICESAsiatravel.com Sep 102 78 0.41 0.40 -2% Hold (13) 1 (37) 0.6 6 2 5 0.7 2.0 (17) 55.6x 20.4x 19.1x 11.8x 3.2x 1.1x 1.5% 3.0% cash 16% 27% Suvro SarkarBanyan Tree Dec 868 661 1.14 1.18 3% Hold 37 39 50 0.3 3 6 15 0.8 2.0 122 146.5x 58.2x 16.8x 14.1x 1.6x 2.7x 0.0% 0.0% 0.44 0% 1% Derek TanComfortDelgro Dec 3,238 2,464 1.55 1.79 15% Buy 1 8 (3) 3.8 220 230 244 11.0 11.7 5 14.0x 13.3x 5.8x 5.3x 1.8x 1.0x 3.5% 3.7% 0.05 6% 14% Andy SimGenting Singapore Dec 25,456 19,372 2.09 2.70 29% Buy 0 87 82 123.2 (39) 843 1,114 6.9 9.2 nm 30.1x 22.8x 19.8x 13.7x 4.5x 8.1x 0.0% 0.0% 0.22 (4%) (8%) Research Team Note 2, 4Raffles Education Jun 656 499 0.25 0.25 0% FV (12) (17) (37) 9.6 82 47 37 1.8 1.4 (37) 14.0x 17.9x 9.0x 11.7x 1.2x 3.5x 0.0% 0.0% 0.08 5% 11% Andy SimSingapore Airlines Mar 18,269 13,903 15.26 18.50 21% Buy (5) 5 7 1.9 1,062 216 1,416 18.1 118.8 15 84.3x 12.8x 7.4x 4.1x 1.4x 1.4x 0.8% 2.6% cash 4% 7% Paul Yong Note 2Singapore Press Aug 6,333 4,819 3.97 4.37 10% Hold (5) 4 10 3.7 422 485 383 30.5 24.0 (5) 13.0x 16.5x 10.2x 13.0x 2.8x 4.6x 6.8% 6.0% cash 13% 20% Andy SimSMRT Mar 3,053 2,323 2.01 1.88 -6% FV (3) (8) 10 1.9 163 163 158 10.7 10.5 (1) 18.7x 19.2x 9.4x 9.5x 4.0x 3.4x 4.3% 4.3% cash 11% 23% Andy SimTiger Airways Mar 1,009 768 1.86 1.90 2% Hold (11) 4 0 3.3 (51) 37 64 9.3 12.0 na 20.0x 15.5x 25.6x 14.2x 6.6x 1.5x 0.0% 0.0% cash (29%) 69% Paul Yong Note 2Sector 58,983 44,885 1,866 2,028 3,436 29.1x 17.2x

FINANCIALSBanking

OCBC Bank Dec 32,408 24,662 9.70 11.30 16% Buy 10 14 12 4.8 1,859 2,253 2,550 69.8 79.0 16 13.9x 12.3x n.a. n.a. 1.7x n.a. 3.4% 3.8% cash nm 12% Research Team Note 1

UOB Bank Dec 27,864 21,204 17.86 21.50 20% Buy (4) (9) (10) 2.9 1,792 2,447 2,614 161.8 172.9 21 11.0x 10.3x n.a. n.a. 1.5x n.a. 3.5% 3.4% cash nm 12% Research TeamSector 60,272 45,866 3,651 4,700 5,164 12.8x 11.7xNon-Bank FinancialsARA Asset Dec 1,027 781 1.47 1.70 15% Buy 29 36 104 0.9 48 64 62 9.3 9.1 14 15.8x 16.2x 13.0x 12.8x 6.4x 9.6x 3.3% 3.3% cash 35% 47% Derek Tan Note 2Cityspring Infrastructure Mar 544 414 0.56 0.58 4% Hold (9) (6) (3) 0.9 (50) 8 (22) 0.9 (2.3) (53) 60.5x nm 15.5x 15.0x 1.1x 1.2x 8.3% 7.6% 9.74 (2%) (20%) Suvro SarkarFirst Ship Lease Dec 266 203 0.45 0.45 1% Hold 5 19 (25) 0.6 11 1 (3) 0.2 (0.6) na 280.4x nm 6.9x 7.2x 0.6x 2.0x 12.9% 11.5% 1.13 1% 2% Suvro SarkarPacific Shipping Trust Dec 275 209 US$ 0.36 US$0.39 11% Buy 20 25 37 0.2 36 36 38 6.1 6.4 2 7.6x 7.3x 7.2x 8.0x 0.9x 3.4x 9.4% 9.9% 0.82 6% 12% Suvro Sarkar Note 3Rickmers Maritime Dec 161 123 0.38 0.36 -6% Hold 1 1 10 0.4 61 37 42 8.8 10.0 (16) 4.3x 3.8x 6.5x 6.0x 0.4x 0.8x 8.0% 8.3% 1.68 4% 11% Suvro SarkarSingapore Exchange Jun 9,084 6,912 8.48 11.40 34% Buy 0 11 5 4.0 306 316 434 29.5 40.5 19 28.8x 20.9x 20.7x 14.7x 11.1x 14.2x 3.1% 4.3% cash 18% 37% Research TeamSector 11,357 8,642 411 462 550 24.6x 20.6x

HEALTHCAREBiosensors Int'l Mar 1,275 970 1.16 1.20 4% Hold 21 50 50 11.4 14 41 58 3.9 5.5 103 29.8x 21.1x 22.7x 14.6x 6.5x 8.1x 0.0% 0.0% cash (1%) (1%) Andy SimChina Animal Healthcare Dec 629 478 0.40 0.41 4% Buy 27 36 80 11.0 31 38 55 2.4 3.5 32 16.2x 11.4x 8.7x 5.6x 3.2x 4.7x 0.6% 0.9% cash 23% 27% Research Team Note 2Raffles Medical Dec 1,231 936 2.34 2.40 3% Hold 4 26 60 0.4 38 44 54 8.4 10.3 19 27.8x 22.7x 18.7x 15.6x 4.4x 4.8x 1.5% 1.7% cash 12% 16% Andy SimSector 3,134 2,385 83 124 167 25.4x 18.8x

Performance (%) PE (x)EV/EBITDAShare Price Net Profit (Before EI) EPS

(S$m) (Scts)Div Yld

(%)(x)



(S$m) (US$m) 16-Dec (S$) Upside Rcmd 3M 6M 12M Vol (m) 09 10F 11F 10F 11F (%) 10F 11F 10F 11F 10F 10F 10F 11F 09(x) 09 09 Analyst LegendPerformance (%) PE (x)

EV/EBITDAShare Price Net Profit (Before EI) EPS(S$m) (Scts)

Div Yld(%)(x)

INDUSTRIALSAsia Environment Dec 103 79 0.20 0.15 -24% FV 8 33 (31) 0.6 7 8 6 2.0 1.5 (2) 10.2x 13.1x 8.1x 9.4x 0.5x 0.8x 0.0% 0.0% 0.70 2% 4% Tan Ai TengASL Marine Jun 292 223 0.97 0.96 -1% Hold 3 15 8 0.2 51 40 39 13.2 12.9 (13) 7.3x 7.5x 4.9x 4.1x 0.9x 0.6x 2.3% 2.2% 0.33 11% 27% Jeremy Thia Note 2Boustead Singapore Mar 574 437 1.11 1.00 -10% Hold 19 37 51 0.5 60 43 55 8.4 10.7 (4) 13.3x 10.4x 6.2x 4.4x 2.7x 1.3x 5.0% 4.1% cash 14% 33% Tan Ai TengBroadway Dec 220 168 1.06 1.34 27% Hold (12) (4) 86 1.2 32 44 46 21.5 22.4 21 4.9x 4.7x 3.1x 2.7x 0.9x 0.4x 4.2% 4.2% 0.25 8% 17% Tan Ai TengChina Merchant HoldingsDec 428 326 0.74 1.08 47% Buy 3 18 21 0.1 59 51 79 5.9 9.2 na 12.4x 8.0x 14.9x 6.8x 0.8x 7.6x 5.9% 6.6% cash 5% 5% Paul YongCosco Corp Dec 4,658 3,544 2.08 2.46 18% Buy 21 39 94 16.3 110 198 275 8.8 12.3 na 23.5x 16.9x 9.6x 7.0x 3.8x 1.3x 2.3% 3.0% cash 2% 10% Janice ChuaEzion Holdings Dec 493 375 0.69 1.00 45% Buy 3 4 (12) 6.3 20 39 62 5.5 8.3 74 12.6x 8.3x 11.4x 7.2x 2.1x 3.6x 0.7% 0.6% 0.65 6% 11% Jeremy ThiaFraser and Neave Sep 8,566 6,518 6.10 6.90 13% Hold (1) 23 47 2.6 475 583 586 41.8 42.1 11 14.6x 14.5x 9.8x 10.3x 1.4x 1.5x 2.8% 3.1% 0.51 3% 6% Andy SimHiap Seng Mar 196 149 0.65 0.82 26% Buy (2) 2 1 0.9 13 31 26 10.4 8.4 41 6.2x 7.6x 4.5x 4.5x 2.5x 0.8x 6.2% 7.0% cash 12% 26% Ho Pei HwaHyflux Dec 1,259 958 2.20 3.20 45% Hold 7 0 2 1.0 75 79 75 14.8 14.1 0 14.9x 15.6x 12.6x 12.2x 2.8x 2.3x 2.3% 2.3% 0.59 8% 23% Tan Ai Teng Note 2Jaya Holdings Jun 562 428 0.73 1.15 57% Buy 7 11 46 3.9 172 120 61 15.5 7.9 (40) 4.7x 9.3x 4.4x 7.2x 1.2x 1.6x 0.0% 0.0% 0.72 0% 0% Jeremy ThiaJes International Dec 391 297 0.34 0.50 50% Buy 52 97 116 13.8 (21) 12 36 1.0 3.1 nm 33.4x 11.0x 19.6x 4.7x 1.2x 1.0x 0.3% 1.4% cash (3%) (6%) Ho Pei HwaKeppel Corporation Dec 17,136 13,040 10.68 12.50 17% Buy 17 25 33 4.7 1,265 1,283 1,218 80.5 76.4 (2) 13.3x 14.0x 8.8x 9.3x 2.5x 1.8x 4.3% 3.6% cash 10% 31% Janice Chua Note 2Neptune Orient Lines Dec 5,580 4,246 2.16 2.50 16% Buy 7 6 41 13.0 (974) 508 573 19.7 22.2 nm 11.0x 9.7x 6.2x 6.1x 1.3x 0.5x 1.8% 2.1% 0.21 (14%) (28%) Suvro Sarkar Note 2Noble Dec 12,476 9,494 2.07 2.60 26% Buy 16 11 5 26.5 565 635 907 10.7 15.2 2 19.4x 13.6x 14.2x 10.3x 2.5x 0.2x 1.3% 1.8% 0.86 6% 23% SantosoOKP Holdings Dec 147 112 0.56 0.70 26% Buy 19 19 16 0.7 14 15 18 5.6 6.8 8 10.0x 8.2x 3.2x 2.3x 2.2x 1.1x 5.4% 5.4% cash 14% 29% SantosoPan-United Corporation Dec 283 216 0.51 0.62 21% Buy 2 9 (3) 0.3 35 20 28 3.6 5.1 (10) 14.0x 10.0x 6.2x 4.9x 1.0x 0.7x 5.9% 5.9% 0.04 7% 13% Ho Pei HwaPEC Ltd Jun 286 217 1.14 1.58 39% Buy 10 49 68 3.0 21 45 31 18.0 12.4 21 6.3x 9.2x 2.1x 2.4x 1.6x 0.6x 3.1% 2.2% cash 10% 21% Jeremy ThiaSembCorp Industries Dec 8,856 6,739 4.95 5.70 15% Buy 12 22 38 2.5 683 790 644 44.3 36.1 (3) 11.2x 13.7x 5.7x 6.4x 2.3x 1.0x 3.3% 2.9% cash 8% 23% Tan Ai TengSembCorp Marine Dec 10,284 7,826 4.95 6.08 23% Buy 24 26 34 5.1 712 758 655 36.6 31.6 (4) 13.5x 15.6x 8.5x 9.9x 4.3x 2.2x 4.0% 3.2% cash 15% 44% Janice ChuaSIA Engineering Mar 4,721 3,592 4.33 5.10 18% Buy (2) 10 36 0.5 261 230 271 21.3 25.1 2 20.3x 17.2x 15.3x 12.5x 3.7x 4.6x 4.2% 4.6% cash 18% 22% Janice ChuaSATS Ltd Mar 3,098 2,358 2.80 3.13 12% Buy 1 6 10 2.2 147 181 207 16.6 18.9 18 16.9x 14.8x 9.0x 8.2x 2.1x 2.0x 4.6% 5.0% cash 8% 11% Andy SimSingapore Post Mar 2,239 1,704 1.16 1.17 1% Hold (4) 6 18 3.8 146 147 151 7.7 7.9 2 15.1x 14.7x 11.3x 10.8x 8.0x 4.7x 5.6% 5.8% 0.65 20% 65% Sachin Mittal Note 2Sound Global Dec 1,077 820 0.84 0.94 13% Hold 9 (9) 20 8.0 55 53 96 3.6 6.5 23 23.4x 12.9x 11.1x 5.3x 2.4x 3.7x 0.9% 1.6% cash 12% 20% Tan Ai TengST Engineering Dec 9,869 7,510 3.25 3.85 18% Buy (2) 4 2 2.4 444 473 507 15.7 16.8 7 20.7x 19.3x 12.0x 11.3x 5.8x 1.7x 4.3% 4.7% cash 7% 28% Janice ChuaSwiber Dec 508 387 1.00 1.28 28% Buy (5) (1) 3 4.5 11 41 77 8.1 15.1 159 12.3x 6.6x 11.2x 8.1x 1.2x 0.9x 0.0% 0.0% 0.84 4% 14% Janice ChuaTat Hong Mar 467 355 0.94 1.08 15% Hold (6) (1) (10) 0.4 69 39 45 6.8 7.9 (24) 13.9x 11.9x 6.6x 6.4x 1.1x 1.1x 2.7% 2.5% 0.37 8% 18% Ho Pei HwaTiong Seng Holdings Dec 195 149 0.26 0.36 40% Buy (4) 4 0 0.9 43 30 38 3.9 5.0 (6) 6.5x 5.1x 3.4x 1.9x 1.1x 0.6x 0.0% 0.0% cash 12% 54% Derek Tan Note 2Yangzijiang Dec 7,252 5,519 1.89 2.60 38% Buy 7 45 64 15.3 452 559 647 14.6 16.9 17 13.0x 11.2x 9.4x 7.9x 4.0x 3.1x 2.3% 2.7% cash 12% 43% Ho Pei HwaYongnam Holdings Dec 361 275 0.29 0.47 62% Buy 9 16 14 6.4 40 53 58 4.3 4.7 20 6.7x 6.2x 5.6x 5.4x 1.5x 1.0x 2.2% 2.4% 0.76 9% 24% SantosoSector 102,578 78,060 5,040 7,109 7,516 14.4x 13.6xOIL & GASCH Offshore Jun 338 258 0.48 0.60 24% Hold (9) (9) (27) 0.8 59 49 44 7.0 6.2 (14) 6.9x 7.7x 5.8x 4.9x 1.2x 4.1x 2.9% 3.2% cash 31% 34% Jeremy ThiaMermaid Maritime Sep 334 254 0.43 0.49 15% Hold (6) (23) (48) 2.7 30 (28) (4) (3.1) (0.5) #NUM! nm nm 24.2x 8.1x 0.7x 2.5x 0.0% 0.0% 0.07 5% 7% Jeremy ThiaSector 672 511 89 21 40 31.7x 16.9xPROPERTYAllgreen Properties Dec 1,877 1,428 1.18 1.34 14% Hold 3 7 3 2.3 169 209 296 13.1 18.6 32 9.0x 6.3x 8.8x 6.6x 0.7x 2.6x 2.8% 2.8% 0.34 4% 7% Lock Mun YeeBukit Sembawang Mar 1,135 864 4.64 5.25 13% Hold (1) 2 (7) 0.0 13 13 97 6.0 45.1 94 77.2x 10.3x 85.4x 10.5x 1.3x 15.2x 1.0% 1.9% 2.19 (4%) (11%) Derek TanCapitaland Dec 15,601 11,872 3.66 4.96 36% Buy (8) (2) (12) 16.1 872 704 917 16.6 21.6 (0) 22.1x 17.0x 15.8x 12.8x 1.1x 4.3x 1.5% 1.5% 0.08 4% 9% Lock Mun Yee Note 2, 3CapitaMalls Asia Dec 7,185 5,468 1.85 2.59 40% Buy (14) (14) (30) 4.7 388 350 233 9.0 6.0 (23) 20.6x 30.9x 18.2x 27.9x 1.2x 28.7x 0.5% 0.5% cash 7% 11% Lock Mun Yee Note 2, 4City Development Dec 11,985 9,120 13.18 13.26 1% FV 14 25 22 1.5 594 634 834 69.8 91.7 18 18.9x 14.4x 14.0x 11.8x 1.8x 3.6x 0.7% 0.8% 0.50 4% 10% Lock Mun Yee Note 2Global Logistics Mar 9,554 7,271 2.12 2.76 30% Buy 0 0 0 41.9 290 309 6.4 6.9 nm 32.9x 30.9x 32.0x 25.5x 3.7x 17.6x 0.0% 0.0% cash nm nm Lock Mun YeeGuocoland Jun 3,041 2,314 2.57 2.08 -19% Hold 18 25 24 0.2 61 98 128 11.0 14.4 45 23.3x 17.9x 28.3x 23.0x 1.1x 3.7x 1.3% 1.7% 1.12 (1%) (4%) Lock Mun YeeHo Bee Dec 1,136 864 1.54 2.20 43% Buy (3) 2 (3) 1.1 424 226 232 30.6 31.5 (26) 5.0x 4.9x 6.7x 6.6x 0.8x 2.4x 1.3% 1.3% 0.19 17% 32% Lock Mun YeeKeppel Land Dec 6,700 5,099 4.62 4.96 7% Buy 14 22 40 3.5 281 342 467 23.9 32.6 16 19.3x 14.2x 16.3x 11.4x 1.6x 7.1x 1.7% 1.7% 0.22 4% 10% Lock Mun Yee Note 2SC Global Dec 672 511 1.62 2.19 35% Buy 4 2 (2) 0.3 57 111 152 28.1 38.5 63 5.8x 4.2x 9.2x 5.0x 1.1x 0.7x 1.9% 1.4% 2.18 2% 14% Derek TanSingapore Land Dec 3,065 2,332 7.43 8.30 12% Buy 8 13 15 0.1 343 169 179 41.0 43.3 (28) 18.1x 17.1x 14.7x 13.9x 0.8x 5.8x 2.7% 2.7% 0.11 (5%) (7%) Lock Mun YeeUnited Industrial CorporaDec 3,334 2,537 2.42 2.21 -9% Hold 7 14 18 0.1 516 229 217 16.6 15.7 (35) 14.5x 15.4x 14.0x 14.8x 1.0x 3.9x 1.2% 1.2% 0.20 (2%) (5%) Lock Mun YeeUOL Group Dec 3,491 2,657 4.49 5.23 16% Buy 5 19 17 0.8 294 381 417 47.8 52.3 19 9.4x 8.6x 9.0x 9.0x 0.8x 2.9x 2.2% 2.2% 0.30 6% 11% Lock Mun YeeWheelock Properties Dec 2,369 1,803 1.98 2.32 17% Buy 4 7 (2) 0.6 158 184 308 15.4 25.7 40 12.9x 7.7x 8.6x 4.5x 0.9x 4.6x 3.0% 3.0% cash 9% 12% Derek TanWing Tai Hings Jun 1,334 1,015 1.68 2.05 22% Hold (2) 4 (6) 1.4 134 155 147 19.5 18.5 5 8.6x 9.1x 7.5x 8.8x 0.8x 1.6x 2.9% 3.3% 0.47 1% 1% Lock Mun YeeYanlord Dec 3,207 2,441 1.65 1.71 4% Hold (10) (5) (26) 5.6 205 332 353 17.1 18.2 29 9.7x 9.1x 5.6x 7.4x 1.2x 1.9x 1.0% 1.1% 0.02 6% 15% Derek TanYing Li International Dec 822 625 0.38 0.52 37% Buy (8) (11) (41) 4.6 (10) (11) 60 (0.6) 3.1 nm nm 12.2x nm 10.8x 1.7x 86.8x 0.0% 0.0% 0.13 2% 4% Paul Yong Note 2Sector 76,507 58,220 4,499 4,415 5,344 17.3x 14.3x



(S$m) (US$m) 16-Dec (S$) Upside Rcmd 3M 6M 12M Vol (m) 09 10F 11F 10F 11F (%) 10F 11F 10F 11F 10F 10F 10F 11F 09(x) 09 09 Analyst LegendPerformance (%) PE (x)

EV/EBITDAShare Price Net Profit (Before EI) EPS(S$m) (Scts)

Div Yld(%)(x)

REITSAscendas India Trust Mar 704 536 0.92 1.08 18% Hold (8) (7) 5 1.0 57 58 53 5.6 6.4 (7) 16.4x 14.3x 12.7x 12.0x 1.0x 5.8x 8.2% 7.6% 9.2% 0% 0% Derek TanAscendas REITS Mar 3,802 2,894 2.03 2.19 8% Hold (7) 8 7 6.6 211 235 253 14.0 12.8 (6) 14.5x 15.9x 16.0x 18.1x 1.2x 7.9x 6.5% 6.7% 35.7% 5% 8% Derek TanAscott Residence Dec 1,352 1,029 1.22 1.38 13% Buy 6 7 4 1.9 45 55 91 4.7 6.8 15 26.1x 17.9x 24.9x 16.9x 0.9x 4.6x 6.1% 6.7% 41.7% 2% 3% Derek Tan Note 2CDL Hospitality Dec 1,982 1,509 2.07 2.28 10% Buy (8) 14 25 2.0 76 102 121 10.0 11.4 21 20.8x 18.1x 20.7x 19.4x 1.4x 14.2x 5.2% 5.8% 19.0% 4% 6% Derek Tan Note 2, 3Cache Logistics Trust Dec 596 453 0.94 1.11 18% Buy (6) (2) 0 1.6 35 53 4.5 7.5 na 20.9x 12.6x 22.4x 14.8x 1.1x 15.1x 5.9% 8.9% cash nm nm Derek Tan Note 1, 2Cambridge Industrial TrusDec 539 410 0.51 0.58 14% Buy (7) 2 25 1.8 44 44 53 4.2 4.4 0 12.3x 11.7x 13.0x 13.4x 0.8x 6.2x 9.6% 9.8% 42.9% 3% 5% Derek Tan Note 3Capitacommercial Trust Dec 4,122 3,137 1.46 1.47 1% Hold 6 25 26 7.9 199 222 192 6.7 6.3 (3) 21.7x 23.0x 18.8x 20.2x 1.0x 10.5x 5.4% 4.6% 32.9% 3% 5% Lock Mun YeeCapitamall Trust Dec 6,114 4,652 1.92 2.09 9% Buy (2) 1 7 5.2 282 305 314 8.8 9.3 12 21.8x 20.7x 22.2x 21.0x 1.2x 10.4x 4.8% 5.3% 31.3% 3% 5% Lock Mun Yee Note 2CapitaRetail China Trust Dec 763 581 1.22 1.30 7% Hold (2) 2 (6) 1.1 49 52 53 7.3 7.5 7 16.8x 16.2x 16.0x 15.1x 1.1x 6.3x 6.8% 6.9% 35.0% 3% 6% Derek TanFrasers Centrepoint Trust Sep 1,113 847 1.45 1.74 20% Buy (5) 10 12 0.9 47 59 60 6.8 7.2 1 21.2x 20.1x 22.0x 21.1x 1.1x 9.7x 5.7% 5.6% 30.2% 3% 5% Derek Tan Note 2, 3Frasers Commercial Trust Sep 512 390 0.17 0.19 13% Hold 10 18 22 6.6 17 34 38 0.2 0.8 182 72.7x 21.5x 20.7x 18.5x 0.6x 4.3x 6.7% 7.1% 38.9% 0% 0% Derek TanK-Reit Dec 1,895 1,442 1.41 1.20 -15% Hold 12 29 36 0.8 71 93 108 5.1 4.0 8 27.4x 35.5x 31.1x 51.2x 1.0x 18.3x 4.9% 5.5% 28.3% 1% 1% Lock Mun Yee Note 2Mapletree Industrial TrustMar 1,550 1,180 1.06 1.16 9% Buy 0 0 0 22.5 91 99 5.9 6.7 na 17.9x 15.9x 21.0x 19.4x 1.3x 8.7x 5.9% 6.4% cash nm nm Derek TanMapletree Logistics Trust Dec 2,256 1,717 0.93 1.01 9% Buy 9 10 30 3.1 118 130 167 6.1 6.6 10 15.4x 14.1x 18.8x 16.8x 1.1x 8.8x 6.5% 7.1% 36.4% 4% 6% Derek Tan Note 2Parkway Life REIT Dec 986 750 1.63 1.84 13% Buy (1) n.a n.a 1.3 47 52 64 8.1 9.5 15 20.2x 17.2x 22.2x 20.2x 1.2x 12.5x 5.3% 6.0% 28.3% 4% 5% Andy Sim Note 2Starhill Global Reits Dec 1,185 902 0.61 0.76 25% Buy 4 n.a n.a 1.5 75 76 84 3.9 4.9 1 15.5x 12.6x 17.6x 14.9x 0.7x 7.1x 6.4% 7.1% 16.0% 3% 4% Derek Tan Note 2Sector 29,472 22,427 1,337 1,642 1,806 17.9x 16.3xTECHNOLOGYCreative Technology Jun 301 229 4.01 3.51 -13% FV (1) (7) (33) 0.0 (114) (55) (45) (73.9) (60.2) (37) nm nm nm nm 0.8x 0.8x 2.2% 2.2% cash (22%) (34%) Tan Ai TengCSE Global Dec 639 486 1.25 1.45 16% Buy 20 37 53 1.3 43 54 62 10.5 12.1 16 11.9x 10.3x 7.5x 6.5x 3.1x 1.2x 3.4% 3.9% 0.36 13% 36% Sachin MittalHi-P International Dec 887 675 1.00 1.30 30% Buy 12 96 49 1.7 54 62 99 7.4 11.9 38 13.5x 8.4x 3.9x 2.2x 1.4x 0.9x 1.5% 2.4% cash 7% 9% Tan Ai TengLongcheer Jun 280 213 0.71 1.11 57% Buy (11) 0 33 1.6 29 31 38 8.9 10.7 14 7.9x 6.6x 4.1x 3.2x 1.7x 0.3x 5.4% 5.4% cash 13% 24% Tan Ai TengMeiban Group Dec 103 78 0.32 0.30 -5% Hold (6) 11 11 1.1 15 12 15 3.8 4.5 (1) 8.4x 7.0x 1.8x 1.2x 0.7x 0.3x 6.3% 6.3% cash 6% 11% Tan Ai TengVenture Corporation Dec 2,509 1,910 9.15 11.80 29% Buy 3 7 6 0.4 142 196 215 71.4 78.4 23 12.8x 11.7x 7.1x 6.1x 1.3x 0.9x 5.5% 5.5% cash 5% 8% Tan Ai TengSector 4,719 3,591 169 300 383 15.7x 12.3xTELECOMMUNICATIONMobileOne Dec 2,087 1,588 2.32 2.50 8% Buy 5 9 26 0.9 145 160 168 18.0 18.8 8 12.9x 12.3x 7.3x 7.0x 7.3x 2.2x 6.2% 6.5% 0.91 18% 66% Sachin MittalSingapore Telecom Mar 49,239 37,470 3.09 3.55 15% Buy (1) 1 1 18.8 3,454 3,907 3,862 24.6 24.3 6 12.6x 12.7x 7.5x 7.6x 2.2x 2.9x 4.6% 5.5% 0.29 10% 17% Sachin Mittal Note 2Starhub Dec 4,494 3,420 2.62 2.20 -16% Sell 5 16 28 1.9 320 249 280 14.5 16.3 (6) 18.0x 16.1x 8.8x 8.2x 84.9x 2.0x 7.6% 7.6% 5.66 19% 278% Sachin MittalSector 55,821 42,478 3,918 4,317 4,309 12.9x 13.0x

SGD/USD Exch rate: 1.314 LegendNote 1 As at 24 Dec 2010, DBSVS and its affiliates has a proprietary position in these companies.Note 2 DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA, within the past 12 months, have received

compensation and/or within the next 3 months seek to obtain compensation for investment banking servicesNote 3 DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA beneficially own a total

of 1% or more of any class of common equity securities of these companies.Note 4 DBSVS has been appointed as the designated market maker of structured warrant(s) for these

companies issued by DBS Bank Ltd.

MALAYSIA : EARNINGS GUIDEFYE Mkt Mkt Price Target Avg CAGR Price/ Price/ Div Yld Net Debt

Company Cap Cap (RM) Price % 6-mth 09-11 BV (x) Sales (x) (%) /Equity ROA ROE Disclosure

(RMm) (US$m) 16-Dec (RM) Upside Rcmd 3M 6M 12M Vol (m) 09 10F 11F 10F 11F (%) 10F 11F 10F 11F 10F 10F 10F 11F 09E (x) 09E 09E Analyst LegendBanks

Alliance Financial Group Mar 4,582 1,464 2.96 3.85 30% Buy (6) 6 13 2.2 229 301 401 19.5 25.9 32 15.2x 11.4x n.a. n.a. 1.6x n.a. 2.2% 3.1% cash 0.8% 9% Lim Sue LinAMMB Hldgs Mar 20,014 6,393 6.64 6.50 -2% Hold 14 34 34 4.3 861 1,009 1,308 33.5 43.4 17 19.8x 15.3x n.a. n.a. 2.1x n.a. 1.2% 2.3% cash 1.0% 12% Lim Sue LinCIMB Group Hldgs Dec 63,327 20,227 8.52 10.10 19% Buy 3 23 30 9.1 2,807 3,553 4,277 50.3 60.5 24 16.9x 14.1x n.a. n.a. 2.7x n.a. 2.7% 2.5% cash 1.4% 16% Lim Sue LinEON Capital Dec 4,811 1,537 6.94 7.30 5% Hold (1) (1) 8 0.1 341 438 486 63.2 70.1 19 11.0x 9.9x n.a. n.a. 1.2x n.a. 1.9% 2.1% cash 0.8% 10% Lim Sue LinHong Leong Bank Jun 14,853 4,744 9.40 10.50 12% Buy 4 11 14 0.3 905 988 1,086 62.5 68.7 10 15.0x 13.7x n.a. n.a. 2.3x n.a. 1.9% 1.9% cash 1.2% 17% Lim Sue LinMaybank Jun 60,234 19,239 8.51 10.80 27% Buy (3) 14 26 8.5 2,311 3,818 4,346 53.9 61.4 37 15.8x 13.9x n.a. n.a. 2.2x n.a. 4.8% 4.3% cash 0.3% 3% Lim Sue LinPublic Bank-Foreign Dec 45,209 14,440 12.80 13.10 2% Hold 0 10 18 1.2 2,517 2,959 3,349 88.2 99.8 15 14.5x 12.8x n.a. n.a. 3.4x n.a. 3.5% 3.9% cash 1.2% 24% Lim Sue LinRHB Capital Dec 18,412 5,881 8.55 10.00 17% Buy 21 47 61 1.7 1,201 1,376 1,581 63.9 73.4 15 13.4x 11.6x n.a. n.a. 1.9x n.a. 2.2% 2.6% cash 1.1% 15% Lim Sue LinSector 231,442 73,924 11,173 14,443 16,833 16.0x 13.7xNon-Bank FinancialsBursa Malaysia Dec 4,097 1,309 7.71 9.60 25% Buy (1) 10 (4) 0.8 102 128 150 24.5 28.7 22 31.5x 26.9x 12.9x 10.8x 4.7x 11.9x 2.9% 3.4% cash 10% 23% Lim Sue LinTA Enterprise Jan 1,301 416 0.76 1.25 64% Buy 15 13 11 3.5 92 95 75 5.6 4.4 (17) 13.7x 17.3x 13.2x 11.3x 0.8x 3.0x 2.5% 2.9% cash 3% 4% SanSector 5,398 1,724 194 223 226 31.5x 26.9xConsumerAEON Credit Service (M) Feb 449 143 3.74 4.60 23% Buy (4) (6) (5) 0.1 49 55 65 45.9 54.0 15 8.1x 6.9x 9.7x 8.5x 1.8x 2.0x 4.3% 5.0% 2.93 6% 25% SiaBritish American Tobacco Dec 12,849 4,104 45.00 40.00 -11% FV (5) 3 6 0.1 747 724 719 253.5 251.9 (2) 17.7x 17.9x 12.4x 12.3x 24.7x 3.2x 5.1% 5.0% 1.10 51% 177% SiaJobStreet Corp Dec 914 292 2.87 3.30 15% Buy 33 38 95 0.1 27 36 43 11.4 13.7 27 25.2x 20.9x 17.7x 14.9x 6.3x 7.8x 2.0% 2.4% cash 18% 23% SiaParkson Hldgs Bhd Jun 6,212 1,984 5.68 6.60 16% Buy (2) 6 9 0.8 263 284 346 27.4 31.9 12 20.7x 17.8x 7.6x 6.3x 3.1x 2.2x 2.1% 2.2% 0.01 9% 18% SiaPelikan International Dec 615 197 1.20 1.40 17% Buy 6 6 (14) 0.4 36 60 78 11.7 15.2 20 10.2x 7.9x 8.7x 7.1x 0.8x 0.3x 1.7% 2.2% 0.54 2% 6% MeeZhulian Corporation Nov 810 259 1.76 2.85 62% Buy (8) (11) 52 0.3 82 94 109 20.5 23.7 15 8.6x 7.4x 5.4x 4.5x 2.3x 2.3x 7.0% 8.1% cash 23% 27% SiaSector 21,848 6,979 1,204 1,254 1,361 17.4x 16.1xHealthcareFaber Group Dec 958 306 2.64 2.90 10% Hold (17) (10) 73 0.7 75 94 98 25.8 27.0 14 10.2x 9.8x 5.1x 4.5x 2.1x 1.1x 1.9% 2.0% cash 10% 23% SanSector 958 306 75 94 98 10.2x 9.8xManufacturing/ IndustrialBoustead Holdings Dec 5,209 1,664 5.54 7.60 37% Buy 18 45 61 1.0 342 379 595 40.3 63.2 30 13.7x 8.8x 9.4x 6.8x 1.3x 0.9x 4.8% 5.8% 0.60 4% 10% SanEngtex Group Dec 183 58 0.93 1.05 14% Hold (4) (10) (11) 0.3 23 33 35 16.8 17.7 24 5.5x 5.2x 5.5x 5.3x 0.7x 0.3x 1.1% 1.1% 0.70 5% 11% MeeEvergreen Fibreboard Dec 739 236 1.44 2.10 46% Buy (6) (7) 12 0.7 71 119 134 23.1 26.2 37 6.2x 5.5x 4.5x 3.5x 0.9x 0.8x 3.5% 3.5% 0.42 7% 13% Juliana RamliHiap Teck Jul 383 122 1.17 1.35 15% Hold (6) (3) (19) 0.5 43 51 60 15.5 18.3 18 7.6x 6.4x 5.1x 5.0x 0.6x 0.4x 1.1% 1.4% 0.37 4% 7% MeeKossan Rubber Dec 1,033 330 3.23 2.80 -13% FV 1 (13) 29 0.6 67 109 111 34.0 34.7 29 9.5x 9.3x 5.9x 5.5x 2.3x 1.0x 2.3% 2.3% 0.45 10% 20% MeeKinsteel Bhd Dec 798 255 0.84 1.25 50% Buy (2) 1 (5) 2.1 19 29 93 3.1 9.8 121 27.3x 8.5x 11.3x 7.9x 1.0x 0.4x 0.7% 2.4% 0.93 0% 2% MeeMasterskill Education Dec 857 274 2.09 4.90 134% Buy (42) (44) 0 1.1 97 99 115 24.1 28.2 9 8.7x 7.4x 5.2x 4.2x 1.7x 2.8x 5.8% 6.7% cash 28% 40% SiaNotion Vtec Sep 250 80 1.62 2.30 42% Buy (7) (47) (37) 0.6 36 35 46 22.9 28.3 5 7.1x 5.7x 4.6x 3.3x 1.2x 1.1x 2.8% 3.5% 0.24 15% 24% Chiew Sia / Petronas Dagangan Mar 11,723 3,744 11.80 10.15 -14% Hold 6 30 35 0.2 579 753 795 75.8 80.0 17 15.6x 14.8x 8.3x 8.0x 2.6x 0.6x 3.8% 5.1% cash 8% 14% SiaSouthern Steel Dec 931 297 2.22 2.50 13% Hold 10 16 19 0.2 17 111 119 27.0 29.0 163 8.2x 7.7x 5.2x 4.7x 1.1x 0.5x 3.7% 3.9% 0.97 1% 2% MeeTop Glove Aug 3,166 1,011 5.12 4.60 -10% FV (13) (20) 8 1.7 169 245 201 39.7 32.5 9 12.9x 15.8x 7.9x 8.5x 2.9x 1.5x 3.1% 2.5% cash 15% 23% MeeSector 25,272 8,072 1,462 1,962 2,303 12.9x 11.0xMediaAstro Jan 8,396 2,682 4.29 4.30 0% Hold 0 0 0 NA 158 282 256 14.6 13.2 27 29.5x 32.5x 11.2x 11.9x 9.3x 2.5x 2.3% 2.6% 0.59 (14%) (44%) teamSector 8,396 2,682 158 282 256 29.5x 32.9xMotorAPM Automotive Dec 1,109 354 5.50 4.80 -13% FV 16 43 129 0.2 74 113 119 57.3 60.2 26 9.6x 9.1x 4.2x 3.7x 1.5x 0.9x 2.7% 2.7% cash 9% 12% SiaMBM Resources Dec 811 259 3.34 4.80 44% Buy 5 15 37 0.2 66 146 184 59.5 74.8 66 5.6x 4.5x 12.7x 11.0x 0.8x 0.6x 2.5% 2.5% cash 6% 8% SiaProton Mar 2,598 830 4.73 6.60 40% Buy (5) 4 24 0.4 (153) 219 320 39.9 58.2 nm 11.9x 8.1x 1.5x 2.4x 0.5x 0.3x 4.2% 4.2% cash (4%) (6%) SiaUMW Hldgs Dec 7,916 2,528 6.87 7.40 8% Buy 6 11 8 1.6 469 683 756 61.0 67.6 26 11.3x 10.2x 6.0x 5.5x 1.8x 0.6x 3.3% 3.3% 0.08 5% 12% SiaSector 12,433 3,971 456 1,161 1,378 10.7x 9.0xOil & GasAlam Maritim Dec 812 259 1.04 1.00 -4% FV (2) (11) (18) 0.8 91 59 73 7.6 9.4 (12) 13.7x 11.1x 10.8x 9.9x 1.5x 3.1x 0.2% 0.2% 0.96 7% 21% Lee Wee KeatDayang Enterprise Holding Dec 961 307 2.73 3.40 25% Buy 35 32 90 0.6 45 67 96 19.2 27.2 46 14.2x 10.0x 11.1x 7.9x 2.6x 3.2x 1.8% 1.8% 0.16 11% 14% Lee Wee KeatKNM Group Dec 2,643 844 2.64 3.50 33% Buy 50 32 (12) 15.5 261 170 227 17.0 22.6 (7) 15.5x 11.7x 16.1x 11.9x 1.2x 1.6x 0.0% 0.0% 0.34 6% 14% Lee Wee KeatPerisai Petroleum Dec 354 113 0.54 0.70 31% Buy 7 1 3 1.9 38 25 26 3.7 4.0 (27) 14.3x 13.4x 9.7x 9.1x 1.3x 4.4x 0.0% 0.0% 1.01 6% 15% Lee Wee KeatPetra Perdana Dec 410 131 0.91 0.90 -1% Buy (12) (25) (25) 2.5 17 (66) 33 (14.6) 6.4 6 nm 14.3x nm 8.2x 0.7x 1.7x 0.0% 0.0% 0.73 2% 5% Lee Wee KeatTanjung Offshore Dec 429 137 1.47 1.35 -8% Hold (22) 23 47 0.9 3 11 31 4.0 11.1 198 36.4x 13.2x 13.6x 9.9x 1.2x 0.7x 0.9% 0.9% 1.76 0% 1% Lee Wee KeatWah Seong Dec 1,549 495 2.14 1.90 -11% Hold 3 (4) (10) 0.7 121 50 81 6.6 10.7 (18) 32.6x 20.1x 13.0x 10.0x 1.7x 1.1x 0.7% 1.1% 0.26 6% 14% Lee Wee KeatSector 7,158 2,286 576 317 566 22.6x 12.6xConglomeratesDRB-Hicom Mar 3,402 1,087 1.76 3.55 102% Buy 48 71 76 7.2 661 472 539 24.4 27.9 (10) 7.2x 6.3x nm nm 0.7x 0.5x 1.7% 2.9% cash 4% 19% SanPPB Group Dec 20,130 6,430 16.98 15.75 -7% FV (5) 4 6 0.7 1,616 1,031 1,235 87.0 104.2 (13) 19.5x 16.3x 16.6x 14.5x 1.3x 8.4x 5.5% 1.8% cash 11% 12% SanSime Darby Jun 52,583 16,795 8.75 10.20 17% Buy 7 11 (3) 5.5 2,280 727 3,242 12.1 54.0 19 72.3x 16.2x 20.7x 9.9x 2.6x 1.6x 0.3% 3.1% 0.10 6% 11% Ben SantosoSector 72,713 23,225 3,896 1,758 4,478 41.4x 16.2x

(x)Net Profit (Before EI)Share Price

Performance (%) PE (x)EPS (Sen)EV/EBITDA

MALAYSIA : EARNINGS GUIDEFYE Mkt Mkt Price Target Avg CAGR Price/ Price/ Div Yld Net Debt

Company Cap Cap (RM) Price % 6-mth 09-11 BV (x) Sales (x) (%) /Equity ROA ROE Disclosure

(RMm) (US$m) 16-Dec (RM) Upside Rcmd 3M 6M 12M Vol (m) 09 10F 11F 10F 11F (%) 10F 11F 10F 11F 10F 10F 10F 11F 09E (x) 09E 09E Analyst Legend

(x)Net Profit (Before EI)Share Price

Performance (%) PE (x)EPS (Sen)EV/EBITDA

ConstructionGamuda Jul 7,628 2,437 3.73 4.90 31% Buy (0) 24 40 7.5 194 281 404 13.9 20.0 44 26.9x 18.7x 29.7x 17.8x 2.3x 3.1x 2.4% 2.4% 0.09 3% 6% SanIJM Corp Mar 8,498 2,714 6.29 6.75 7% Buy 26 30 37 3.5 290 333 421 25.1 31.8 20 25.1x 19.8x 13.7x 12.8x 1.6x 2.1x 1.3% 1.3% 0.48 3% 7% SanLafarge Malayan Cement Dec 6,611 2,111 7.78 5.40 -31% FV (2) 18 24 0.9 412 323 376 38.0 44.3 (4) 20.5x 17.6x 11.4x 10.1x 2.0x 2.7x 3.2% 3.7% cash 10% 13% Yee Mei HuiMMC Corporation Dec 8,526 2,723 2.80 3.85 38% Buy 1 14 18 2.5 237 334 527 11.0 17.3 - 25.5x 16.2x 9.1x 8.1x 1.3x 1.0x 1.3% 1.4% 1.68 1% 4% SanMalaysian Resource Dec 2,790 891 2.02 2.90 44% Buy 6 30 58 4.5 35 40 71 2.9 5.2 - 69.3x 38.7x 28.8x 23.8x 2.4x 2.0x 0.4% 0.6% 1.19 1% 5% SanSunway Hldgs Dec 1,364 436 2.25 2.60 16% Buy 30 47 79 1.0 109 158 166 26.3 27.6 23 8.5x 8.2x 6.9x 6.5x 1.4x 0.6x 1.0% 1.0% 0.57 5% 16% SanTRC Synergy Dec 263 84 1.38 1.85 34% Buy 33 17 1 0.2 27 20 35 10.4 18.5 14 13.2x 7.4x 2.0x 0.9x 0.9x 0.8x 1.9% 3.4% cash 6% 10% SanWCT Dec 2,493 796 3.17 3.60 14% Buy 9 17 24 2.0 147 152 178 19.3 22.6 10 16.4x 14.0x 12.8x 11.1x 1.8x 1.5x 2.4% 2.4% 0.19 3% 12% SanSector 38,173 12,193 1,451 1,640 2,179 23.3x 17.5xConcessionairesLitrak Mar 1,859 594 3.70 3.65 -1% Hold 5 21 32 0.2 102 86 92 17.3 18.5 (5) 21.4x 19.9x 10.5x 10.4x 4.3x 5.9x 4.6% 4.6% 2.56 5% 15% SanPLUS Expressway Dec 21,800 6,963 4.36 4.60 6% Hold 3 30 35 7.6 1,185 1,254 1,540 25.1 30.8 14 17.4x 14.2x 11.0x 9.5x 3.4x 6.4x 4.2% 4.2% 1.31 7% 20% SanSector 23,659 7,557 1,287 1,340 1,632 17.7x 14.5xGamingBerjaya Sports Toto Apr 5,728 1,830 4.24 4.25 0% Hold 3 (3) 1 1.6 414 382 350 28.5 26.1 (8) 14.9x 16.2x 10.1x 11.4x 12.7x 1.7x 13.6% 4.6% 0.05 39% 102% Yee Mei HuiGenting Bhd Dec 39,209 12,524 10.56 14.60 38% Buy 6 48 47 6.1 1,146 2,459 2,985 66.4 80.6 61 15.9x 13.1x 7.7x 6.4x 2.5x 2.5x 1.2% 1.4% cash 3% 8% Yee Mei HuiGenting Malaysia Dec 19,757 6,310 3.34 3.70 11% Hold 4 20 19 7.8 1,385 1,425 1,479 24.1 25.1 3 13.8x 13.3x 7.0x 6.3x 1.8x 3.7x 1.7% 1.8% cash 12% 13% Yee Mei HuiSector 64,694 20,664 2,944 4,266 4,814 15.2x 13.4xPlantationGenting Plantations Dec 6,678 2,133 8.80 11.00 25% Buy 16 28 44 0.7 233 300 313 39.5 41.2 16 22.3x 21.4x 15.5x 14.6x 2.4x 6.1x 1.0% 1.0% cash 9% 10% Ben SantosoCB Industrial Dec 508 162 3.69 4.40 19% Buy (1) 46 23 0.3 42 61 78 44.6 56.4 36 8.3x 6.5x 8.5x 6.7x 1.7x 1.7x 3.0% 3.8% 0.44 8% 18% SiaIJM Plantation Mar 2,420 773 3.02 3.80 26% Buy 19 22 21 0.4 123 79 119 9.9 14.6 (13) 30.4x 20.7x 14.7x 11.7x 2.1x 5.9x 1.7% 0.9% cash 12% 15% Ben Santoso IOI Corporation Jun 38,850 12,409 5.80 6.00 3% Hold 4 16 5 6.8 984 2,036 2,462 33.0 38.6 53 17.6x 15.0x 12.5x 10.8x 3.6x 2.9x 2.4% 3.1% 0.35 6% 12% Ben SantosoKL Kepong Sep 22,482 7,181 21.06 21.00 0% Hold 23 31 32 0.9 666 902 997 84.5 93.4 22 24.9x 22.5x 15.0x 13.9x 3.7x 3.0x 2.1% 2.3% 0.08 7% 11% Ben SantosoTSH Resources Dec 1,144 365 2.76 2.95 7% Buy 26 52 40 0.2 51 60 84 14.6 20.2 28 19.0x 13.7x 13.2x 11.6x 1.5x 1.2x 1.8% 1.8% 0.67 5% 10% Ben Santoso Sector 72,082 23,023 2,098 3,439 4,052 21.0x 17.8xPowerPetronas Gas Mar 22,439 7,167 11.34 10.80 -5% Hold 5 15 15 0.7 929 941 1,381 47.6 69.8 22 23.8x 16.2x 11.2x 7.9x 2.8x 7.0x 4.4% 4.4% cash 9% 12% Lee Wee KeatTenaga Nasional Aug 36,058 11,517 8.27 10.10 22% Buy (8) (1) (2) 6.0 2,157 2,546 2,902 58.6 66.7 16 14.1x 12.4x 6.2x 5.8x 1.2x 1.2x 1.7% 1.7% 0.63 1% 4% June NgYTL Power Jun 17,374 5,549 2.39 2.75 15% Hold 0 7 9 4.5 1,090 1,212 1,160 16.7 16.0 0 14.3x 14.9x 9.4x 10.0x 2.4x 1.3x 5.5% 5.5% 2.77 2% 10% June NgSector 75,871 24,234 4,175 4,699 5,443 16.1x 13.9xPropertyAxis REIT Dec 887 283 2.36 2.35 0% Buy 10 17 24 0.1 43 53 63 14.2 16.7 3 16.7x 14.1x 18.7x 16.4x 1.2x 10.0x 5.9% 7.0% 33.1% 8% 12% Lee Wee KeatBolton Berhad Mar 340 109 1.06 1.50 42% Buy 12 49 67 0.6 18 28 30 8.6 9.3 28 12.3x 11.4x 6.8x 7.8x 0.8x 1.3x 2.1% 2.3% 0.28 2% 5% Yee Mei HuiEastern & Oriental Bhd Mar 974 311 1.18 1.40 19% Buy 5 27 18 4.3 (7) 36 45 4.9 6.1 nm 23.9x 19.2x 13.8x 8.3x 0.8x 2.4x 0.0% 0.0% 0.81 (2%) (5%) Yee Mei HuiKLCC Property Mar 3,167 1,011 3.39 3.70 9% Hold (0) 12 3 0.6 223 222 267 24.9 28.6 9 13.6x 11.8x 11.1x 11.1x 0.8x 3.6x 3.2% 3.7% 0.32 5% 12% Yee Mei HuiQuill Capita Trust Dec 421 135 1.08 1.55 44% Buy 5 5 7 0.2 32 222 34 8.6 8.8 3 12.5x 12.3x 15.0x 14.8x 0.9x 6.2x 7.6% 7.7% 0.60 4% 7% Lee Wee Keat Note 3SP Setia Oct 5,643 1,803 5.55 7.00 26% Buy 27 38 54 1.6 171 252 289 24.8 28.4 30 22.4x 19.5x 25.7x 15.3x 2.6x 3.2x 2.7% 3.1% 0.18 5% 9% Yee Mei HuiSunrise Berhad Jun 1,501 479 3.03 3.00 -1% Buy 47 59 42 2.2 137 134 151 27.0 30.5 5 11.2x 9.9x 10.0x 9.0x 1.4x 2.5x 1.6% 1.8% 0.46 9% 18% Yee Mei HuiSunway City Dec 2,054 656 4.37 5.10 17% Buy 13 11 44 0.4 223 177 191 37.9 40.8 (8) 11.5x 10.7x 5.6x 5.6x 0.8x 1.9x 8.0% 1.9% 0.37 10% 29% Yee Mei HuiWing Tai Malaysia Jun 600 192 1.86 2.25 21% Buy 22 49 41 0.4 24 49 54 15.2 17.0 50 12.2x 10.9x 8.2x 8.0x 0.8x 1.7x 3.2% 3.2% 0.09 2% 2% Yee Mei HuiSector 14,987 4,787 841 1,124 1,070 13.3x 14.0xTelecommunicationAxiata Group Dec 38,932 12,435 4.61 5.10 11% Buy 1 19 52 13.2 955 2,637 3,093 31.2 36.6 71 14.8x 12.6x 6.2x 5.2x 1.9x 2.4x 2.0% 2.4% 0.55 4% 10% Juliana RamliDigi.Com Dec 19,329 6,174 24.86 22.90 -8% Hold 1 9 15 0.4 1,000 1,136 1,184 146.2 152.2 9 17.0x 16.3x 8.7x 8.3x 14.6x 3.7x 6.9% 6.1% 0.32 21% 59% Juliana RamliMaxis Bhd Dec 39,525 12,625 5.27 5.10 -3% Hold (1) (1) (2) 3.9 2,232 2,252 2,500 30.0 33.3 6 17.6x 15.8x 9.8x 9.1x 4.6x 4.4x 6.7% 7.4% 0.44 21% 41% Juliana RamliTelekom Dec 12,092 3,862 3.38 3.35 -1% Hold 0 2 13 5.7 613 480 468 13.4 13.1 (13) 25.3x 25.8x 5.1x 5.0x 1.8x 1.4x 5.8% 5.8% 0.41 3% 7% Juliana RamliSector 109,877 35,096 4,801 6,505 7,245 16.9x 15.2xTransportAirAsia Dec 7,401 2,364 2.67 3.20 20% Buy 30 109 102 7.6 472 677 799 24.5 29.0 nm 10.9x 9.2x 9.5x 8.0x 2.0x 2.1x 0.0% 0.0% 2.57 5% 26% Juliana RamliMalaysia Airlines Dec 6,584 2,103 1.97 1.85 -6% Hold (10) (5) (22) 2.0 (2,293) (862) 405 (25.8) 12.1 nm nm 16.3x nm 9.5x 4.2x 0.5x 0.0% 0.0% cash 12% 133% Juliana RamliSector 13,985 4,467 (1,821) (186) 1,204 nm 11.6xLogisticsMalaysia Airports Dec 6,600 2,108 6.00 7.60 27% Buy 8 22 55 0.4 285 307 335 33.1 38.5 22 18.1x 15.6x 10.0x 9.9x 1.9x 3.5x 2.8% 3.2% 0.13 7% 12% Juliana RamliMalaysia Bulk Carriers Dec 2,880 920 2.88 2.30 -20% FV (4) (3) (8) 0.3 188 307 335 21.9 22.1 9 13.2x 13.0x 12.4x 12.0x 1.6x 7.3x 4.7% 4.8% cash 10% 13% Juliana RamliMISC Mar 36,469 11,649 8.17 8.90 9% Hold (7) (4) (3) 1.2 1,405 703 1,507 15.8 33.8 (5) 51.9x 24.2x 13.2x 10.7x 1.5x 2.6x 4.3% 4.3% 0.38 4% 7% Juliana RamliSector 45,949 14,677 1,878 1,317 2,177 34.9x 21.1xRM/USD Exch rate: 3.13

LegendNote 3 DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA beneficially own a total

of 1% or more of any class of common equity securities of these companies.

HONG KONG BLUE CHIPS : EARNINGS GUIDE

FYE Mkt Mkt Price Target Avg CAGR P/BV P/SalesCompany Cap Cap (HK$) Price % Performance (%) 6-mth PAT/MI (HK$m) EPS (HK$) 09-11 EBITDA (x) (x) (x) (%) (%)

(HK$bn) (US$bn) 16-Dec (HK$) Upside Rcmd 3M 6M 12M Vol (m) 09A 10F 11F 10F 11F (%) 10F 11F 10F 11F 10F 10F 10F 11F Gear ROA ROE Analyst

Banking and FinanceBank of Communications Dec 207 27 7.81 10.70 37 B -8 -6 -9 352 35,142 43,163 53,241 0.83 0.99 19 9.5 7.9 n.a. n.a. 1.6 n.a. 3.0 3.8 n.a. 1% 19% Alexander LeeBank of China Dec 340 44 4.06 4.76 17 B 5 8 3 1,253 94,591 115,390 127,467 0.43 0.45 11 9.4 8.9 n.a. n.a. 1.5 n.a. 4.1 4.5 n.a. 1% 17% Alexander LeeBank of China HK Dec 271 35 25.60 24.60 -4 H 13 47 46 454 13,760 15,379 18,846 1.45 1.78 17 17.6 14.4 n.a. n.a. 2.4 n.a. 3.6 4.4 n.a. 1.2% 15% Alexander LeeBank of East Asia Dec 66 8 32.35 34.00 5 H 1 13 3 93 2,565 3,679 4,465 1.76 2.10 23 18.4 15.4 n.a. n.a. 1.6 n.a. 3.3 3.9 n.a. 0.6% 7.6% Alexander LeeChina Life Dec 236 30 31.70 38.00 20 review 3 -8 -18 1,670 32,881 36,451 46,132 1.47 1.87 18 21.5 17.0 2.6 2.4 3.9 n.a. 2.4 1.5 n.a. 21% 9% Dennis LamHang Seng Bank Dec 246 32 128.70 123.60 -4 review 15 23 12 215 13,138 14,251 16,207 7.45 8.48 11 17.3 15.2 n.a. n.a. 3.6 n.a. 4.0 4.9 n.a. 2% 24% Alexander LeeHSBC Holdings Dec 1,413 182 79.90 n.a. n.a. NR -2 8 -10 1,813 45,505 107,484 140,893 6.04 7.76 72 13.2 10.3 n.a. n.a. 1.3 n.a. 3.3 4.3 n.a. 0.2% 5% n.a.HK Exchanges & Clearing Dec 189 24 175.30 238.00 36 B 27 45 28 1,095 4,704 5,241 7,976 4.86 7.38 30 36.0 23.7 n.a. n.a. 27.2 n.a. 2.5 3.8 n.a. 9% 61% Alexander LeeICBC Dec 499 64 5.75 7.17 25 B -1 1 -7 1,737 150,105 192,348 226,032 0.56 0.64 20 10.3 8.9 n.a. n.a. 2.1 n.a. 3.8 4.5 n.a. 1% 20% Alexander LeePing An Dec 234 30 82.00 99.00 21 B 13 31 20 727 16,187 21,912 27,878 2.98 3.80 31 27.5 21.6 2.9 2.4 5.3 n.a. 0.9 1.1 n.a. 1.7% 17.5% Dennis LamSector 5,357 689 533,144 716,721 862,905 13.3 11.0Power, Infra & UtilitiesCLP Holdings Dec 152 20 63.05 55.20 -12 review 3 14 21 147 7,484 8,449 8,737 3.51 3.63 8 18.0 17.4 9.5 8.9 2.1 2.9 3.9 3.9 44% 5% 11% June Ng China Resources Power Dec 63 8 13.44 19.80 47 B -22 -16 -10 133 5,317 5,781 6,429 1.30 1.44 10 10.4 9.3 9.4 9.1 1.4 1.4 2.9 3.2 111% 5% 16% June NgChina Shenhua Energy Dec 105 13 30.85 44.40 44 B 1 2 -20 629 36,827 43,821 54,004 2.20 2.72 21 14.0 11.4 7.7 6.2 2.7 3.8 2.5 3.1 5% 11% 20% J Ng / P H HoCNOOC Dec 791 102 17.70 n.a. n.a. NR 21 35 48 960 34,420 59,199 65,358 1.33 1.49 39 13.3 11.9 7.3 6.4 3.3 4.1 2.7 3.0 cash 19% 18% n.a.HK & China Gas Dec 133 12 18.58 18.50 0 H -5 2 5 113 5,175 4,976 5,376 0.69 0.75 -2 26.8 24.8 22.0 22.2 3.8 8.8 1.9 2.0 19% 9% 16% W K Lee / J NgHK Electric Dec 105 14 49.20 54.40 11 review 3 6 17 133 6,697 7,343 8,250 3.44 3.87 11 14.3 12.7 14.6 14.1 1.9 10.1 4.5 5.1 14% 9% 13% J Ng / W K LeeMTR ^ # Dec 164 21 28.35 36.45 29 B 0 6 8 103 7,303 8,616 8,536 1.49 1.48 7 19.0 19.2 17.0 16.8 0.8 5.7 2.0 2.0 26% 4% 7% Jeff YauPetroChina Dec 203 26 9.64 n.a. n.a. NR 13 10 3 836 120,689 155,346 171,166 0.85 0.94 20 11.4 10.2 7.9 7.1 1.6 1.2 3.9 4.4 16% 9% 13% n.a.Sinopec Dec 119 15 7.12 n.a. n.a. NR 12 14 6 601 72,096 82,067 87,788 0.95 1.02 11 7.5 7.0 5.6 5.2 1.2 0.3 3.5 3.8 58% 8% 18% n.a.Sector 1,836 231 296,009 375,599 415,643 12.8 11.6PropertiesCheung Kong # Dec 264 34 113.90 135.00 19 B 10 27 15 545 19,886 22,251 140,893 9.61 10.32 10 11.9 11.0 18.6 16.1 1.0 6.8 2.4 2.5 9% 6% 7% Jeff YauChina Overseas # Dec 121 16 14.76 19.00 29 B -16 -2 -13 405 7,469 9,302 10,388 1.14 1.27 18 13.0 11.6 8.3 8.4 0.9 2.5 1.6 1.7 23% 7% 20% Carol WuChina Resources Land # Dec 73 9 13.54 19.10 41 B -19 -10 -26 203 4,409 4,173 4,941 0.83 0.98 4 16.3 13.8 10.8 11.3 0.6 3.5 1.2 1.5 20% 5% 13% Carol WuHang Lung Properties # ^ Jun 155 20 34.80 36.50 5 H -7 19 19 371 27,355 6,674 4,508 1.61 1.06 36 21.6 32.9 18.1 26.7 1.1 12.9 2.0 2.0 Cash 3% 4% Jeff YauHenderson Land # ^ Dec 115 15 52.95 58.20 10 review 6 11 -9 231 6,088 4,024 5,086 1.86 2.35 -18 28.5 22.5 108.4 44.4 0.7 19.1 1.9 1.9 19% 4% 5% Jeff YauNew World Dev # Jun 57 7 14.58 16.78 15 review 9 16 -12 165 2,084 11,613 5,117 1.57 1.31 54 9.3 11.2 15.7 19.0 0.5 1.9 2.6 2.6 46% 1% 3% Jeff YauSHK Properties # ^ Jun 326 42 126.90 142.00 12 review 8 18 8 707 12,415 13,883 17,086 5.41 6.65 17 23.4 19.1 24.5 21.3 0.8 9.8 2.1 2.5 15% 4% 6% Jeff YauSino Land #* Jun 79 10 15.06 18.54 23 B 4 12 -1 211 3,601 3,506 4,086 0.72 0.83 6 20.9 18.1 22.4 31.9 0.7 10.3 2.7 2.7 16% 4% 6% Jeff YauSector 1,191 153 83,307 75,426 192,104 16.5 15.2Hongs/ConglomeratesHutchison Dec 332 43 77.90 n.a. n.a. NR 27 62 52 1,008 14,168 14,565 20,069 3.49 4.73 19 22.3 16.5 13.0 11.1 1.1 1.6 2.4 2.6 70% 2% 6% n.a.China Merchants Hldgs Dec 71 9 28.90 33.03 14 B 1 17 26 153 124,437 3,552 4,089 1.46 1.68 22 19.8 17.2 15.3 13.9 2.0 15.1 2.2 2.5 32% 6% 10% Ken He /P YongWharf Holdings # Dec 149 19 54.25 48.00 -12 review 16 39 33 196 7,817 7,807 7,488 2.83 2.72 -2 19.1 20.0 16.2 15.1 0.9 7.7 1.8 1.8 19% 4% 7% Jeff YauSector 806 104 163,760 49,515 52,373 18.0 17.0Comm/IndAluminium Corp of China Dec 27 4 6.93 n.a. n.a. NR 4 10 -20 249 -5,420 1,278 4,041 0.09 0.29 n.a. 75.1 24.2 13.0 9.2 1.5 0.89 0.3 1.2 104% 1.3% -8.8% n.a.Belle Int'l Dec 110 14 13.00 n.a. n.a. NR -10 22 32 217 2,957 3,952 4,894 0.47 0.58 28 27.8 22.5 38.6 31.0 5.4 3.91 1.7 1.6 cash 13.2% 15.9% n.a.Cathay Pacific Dec 85 11 21.70 27.30 26 B 5 38 49 148 4,694 12,824 12,310 3.26 3.13 62 6.7 6.9 5.3 4.8 1.6 1.0 4.6 4.6 68% -7% -20% Paul YongChina Coal Energy Dec 48 6 11.74 17.10 46 B 0 8 -16 389 9,128 11,839 15,020 0.89 1.13 28 13.1 10.4 7.7 6.1 1.8 2.0 1.2 1.5 cash 10% 16% P H Ho / J NgCOSCO Pacific Dec 35 5 13.02 14.88 14 B 12 42 32 115 1,338 2,798 2,718 1.09 1.00 30 11.9 13.0 13.0 11.4 1.3 9.6 3.3 3.1 38% 7% 10% Ken He /P YongEsprit Holdings * Jun 49 6 37.85 40.90 8 review -9 -14 -24 277 184,275 4,226 3,692 3.35 2.87 -13 11.3 13.2 9.4 7.9 3.0 1.4 3.7 4.5 Cash 35% 46% Alice HuiFoxconn Int'l Dec 38 5 5.37 n.a. n.a. NR -2 -5 -30 71 300 -979 510 -0.15 0.08 n.a. n.a. 69.1 30.5 13.3 1.4 0.7 0.0 0.0 cash 2% 4% n.a.Li & Fung Dec 174 22 43.30 45.00 4 review -1 18 32 310 3,369 5,037 6,635 1.33 1.67 35 32.5 26.0 26.7 21.6 8.5 1.4 2.5 3.1 13% 8% 22% Patricia YeungTencent Dec 319 41 173.80 n.a. n.a. NR 12 36 9 799 6,018 9,566 12,684 5.20 6.92 44 33.4 25.1 26.1 19.3 16.8 15.5 0.4 0.5 cash 38% 54% n.a.Sector 886 114 206,660 50,541 62,504 22.1 18.3TelecomChina Mobile Dec 1,532 197 76.35 69.00 -10 review -2 0 7 2,269 134,461 139,857 146,647 6.97 7.31 4 11.0 10.4 4.4 3.9 2.3 2.7 3.9 4.1 cash 16% 24% TszWang TamChina Unicom Dec 268 34 11.38 10.00 -12.1 review -3 17 12 375 10,585 4,549 7,918 0.19 0.33 -14 59.5 34.2 4.9 4.3 1.1 1.4 1.6 1.6 30% 2% 4% TszWang TamSector 1,800 231 145,046 144,406 154,565 12.0 11.3

^ underlying profit Sector P/Es are calendarisedP /NAV for Property companies % - fully diluted EPS

*10A

Share Price Latest Rpt Data (%)

Div Yld PE (x)

EV/

DBSV UNIVERSE: HONG KONGFYE Mkt Mkt Price Target Avg CAGR EV/ P/BV P/Sales Latest

Company Cap Cap (HK$) Price % Performance (%) 6-mth PAT/MI (HK$m) EPS (HK$) 09-11 (x) (x) (%) (%) Disclosure(HK$bn) (US$m) 16-Dec (HK$) Upside Rcmd 3M 6M 12M Vol (m) 09A 10F 11F 10F 11F (%) 10F 11F 10F 11F 10F 10F 10F 11F Gear ROA ROE Analyst Legend

Banking and Finance (China)Agricultural Bank of China Dec 125 16128 4.08 4.93 21 B 5 8 3 n.a. 75834 107135 145223 0.37 0.47 28 11.1 8.8 n.a. n.a. 2.1 n.a. 4.3 4.0 n.a. 0.8% 20.5% Alexander Lee Note 2Bank of China Dec 340 43659 4.06 4.76 17 B 5 8 3 1,253 94591 115390 127467 0.43 0.45 11 9.4 8.9 n.a. n.a. 1.5 n.a. 4.1 4.5 n.a. 1.0% 16.6% Alexander LeeBank of Communications Dec 207 26639 7.81 10.70 37 B (8) (6) (9) 352 35142 43163 53241 0.83 0.99 19 9.5 7.9 n.a. n.a. 1.6 n.a. 3.0 3.8 n.a. 1.0% 19.2% Alexander LeeChina CITIC Bank Dec 62 7990 5.01 6.04 21 B 0 1 (23) 249 16988 23369 22453 0.60 0.57 15 8.4 8.7 n.a. n.a. 1.4 n.a. 3.0 2.9 n.a. 0.9% 13.0% Alexander LeeChina Merchants Bank Dec 77 9937 19.76 24.50 24 B (1) 7 5 470 21277 31069 37653 1.49 1.82 30 13.2 10.9 n.a. n.a. 2.7 n.a. 1.8 2.3 n.a. 1.1% 21.2% Alexander LeeChina Minsheng Bank Dec 27 3535 6.66 8.09 21 B (5) 2 (10) 157 14123 16558 20315 0.62 0.76 12 10.7 8.7 n.a. n.a. 1.5 n.a. 1.4 1.7 n.a. 1.0% 17.1% Alexander LeeICBC Dec 499 64177 5.75 7.17 25 B (1) 1 (7) 1,737 150105 192348 226032 0.56 0.64 20 10.3 8.9 n.a. n.a. 2.1 n.a. 3.8 4.5 n.a. 1.2% 20.2% Alexander LeeSector 2995 385076 162829 690455 826151 10.2 8.9Banking and Finance (HK)Bank of China HK Dec 271 34806 25.60 24.60 (4) H 13 47 46 454 13760 15379 18846 1.45 1.78 17 17.6 14.4 n.a. n.a. 2.4 n.a. 3.6 4.4 n.a. 1.2% 14.8% Alexander LeeBank of East Asia Dec 66 8495 32.35 34.00 5 H 1 13 3 93 2565 3679 4465 1.76 2.10 23 18.4 15.4 n.a. n.a. 1.6 n.a. 3.3 3.9 n.a. 0.0% 0.1% Alexander LeeDah Sing Financial Dec 15 1939 51.50 n.a. n.a. NR (5) 25 25 11 626 1163 1436 4.47 5.52 51 11.5 9.3 n.a. n.a. 1.1 n.a. 0.0 0.0 n.a. 0.7% 5.9% n.a.Hang Seng Bank Dec 246 31641 128.70 123.60 (4) review 15 23 12 215 13138 14251 16207 7.45 8.48 11 17.3 15.2 n.a. n.a. 3.6 n.a. 4.0 4.9 n.a. 1.7% 23.9% Alexander LeeHK Exchanges & Clearing Dec 189 24303 175.30 238.00 36 B 27 45 28 1,095 4704 5241 7976 4.86 7.38 30 36.0 23.7 n.a. n.a. 27.2 n.a. 2.5 3.8 n.a. 8.7% 61.4% Alexander LeeHSBC Holdings Dec 1413 181717 79.90 n.a. n.a. NR (2) 8 (10) 1,813 45505 107484 140893 6.04 7.76 72 13.2 10.3 n.a. n.a. 1.3 n.a. 3.3 4.3 n.a. 0.2% 5.2% n.a.Wing Hang Dec 31 4044 106.50 n.a. n.a. NR 17 45 40 34 1205 1596 2067 5.36 6.95 31 19.9 15.3 n.a. n.a. 2.3 n.a. 0.9 3.0 n.a. 0.9% 10.4% n.a.Sector 2271 292056 67704 148792 191891 15.1 11.9Basic MaterialsAngang Steel Dec 13 1620 11.60 12.99 12 review (10) 17 (34) 206 877 5277 6185 0.73 0.85 166 15.9 13.6 7.2 6.1 1.3 0.8 3.2 3.7 57% 0.8% 1.4% E Y Lee / A DaiChina BlueChem Dec 10 1243 5.46 6.40 17 B (4) 13 23 39 1127 1493 1988 0.32 0.43 33 16.9 12.7 8.4 6.2 2.1 3.2 1.7 2.3 cash 7.6% 9.9% Rachel MiuChina Coal Energy Dec 48 6200 11.74 17.10 46 B (0) 8 (16) 389 9128 11839 15020 0.89 1.13 28 13.1 10.4 7.5 6.0 1.8 2.0 1.2 1.5 cash 8.1% 12.8% P H Ho / J NgChina Shenhua Energy Dec 105 13483 30.85 44.40 44 B 1 2 (20) 629 36827 43821 54004 2.20 2.72 21 14.0 11.4 7.7 6.2 2.7 3.8 2.5 3.1 5% 10.8% 19.9% J Ng / P H HoMaanshan I & S Dec 7 911 4.09 4.97 22 review (11) 17 (30) 124 458 1639 1937 0.21 0.25 106 19.2 16.3 4.6 3.9 1.0 0.4 2.6 3.1 36% 0.6% 1.5% E Y Lee / A DaiYanzhou Coal Dec 43 5490 21.80 26.00 19 B 28 26 30 355 4797 9409 9735 1.91 1.98 42 11.4 11.0 7.8 6.4 2.6 3.0 2.6 2.7 48% 8.7% 14.7% J Ng / P H HoSector 225 28947 1127 73478 88869 13.5 11.3Conglomerates-HKWharf Holdings # Dec 149 19212 54.25 48.00 (12) review 16 39 33 26 7817 7807 7488 2.83 2.72 (2) 19.1 20.0 16.2 15.1 0.9 7.7 1.8 1.8 19% 4.4% 7.3% Jeff YauWheelock # Dec 61 7891 30.20 29.70 (2) review 24 40 24 26 4442 5004 5578 2.46 2.75 12 12.3 11.0 8.3 7.2 0.8 2.5 0.4 0.4 27% 1.2% 3.6% Jeff YauSector 321 41216 4442 27910 24224 14.6 16.2Consumer GoodsAutomobiles and PartsBrilliance China Dec 30 3885 6.05 6.30 4 review 41 140 159 143 (1901) 1281 1625 0.26 0.33 n.a. 23.6 18.6 13.3 11.4 4.3 10.3 0.0 0.0 cash -11.4% -29.6% Rachel MiuDongfeng Motor Group Dec 41 5237 14.26 17.50 23 B 5 63 28 351 7268 12592 11745 1.46 1.36 27 9.8 10.5 4.5 4.3 2.8 0.9 1.0 1.0 cash 8.6% 25.3% Rachel MiuGeely Automobile Dec 27 3445 3.60 4.40 22 review 22 37 (18) 288 1353 1827 2156 0.25 0.29 23 14.4 12.2 8.7 6.8 2.9 9.1 1.2 1.6 cash 8.2% 22.4% Rachel MiuSector 98 12566 6719 15700 15525 13.4 12.7Food and BeveragesChina Foods Dec 14 1864 5.19 7.60 46 B (10) 15 (28) 34 568 487 792 0.17 0.28 18 29.8 18.3 13.4 9.5 2.5 0.8 1.2 2.1 cash 5.0% 10.7% T Wu / A HuiChina Mengniu Dec 36 4671 20.90 25.30 21 B (13) (14) (22) 156 1302 1497 1950 0.86 1.12 19 24.3 18.6 12.1 9.2 3.2 1.0 0.8 1.1 cash 7.9% 17.1% A Hui / T WuChina Yurun Dec 48 6137 26.35 35.50 35 B (7) 10 29 208 1745 2405 2798 1.38 1.54 19 19.1 17.1 14.1 12.2 3.5 2.5 1.4 1.6 cash 16.4% 25.7% A Hui / T WuDynasty Fine Wines Dec 5 674 4.20 3.70 (12) FV 21 24 83 10 156 177 206 0.14 0.17 15 29.6 25.4 15.0 12.5 2.7 3.0 1.5 1.8 cash 6.9% 8.8% itus Wu / Alice HuiKingway Brewery Dec 3 414 1.88 1.45 (23) review (17) 11 1 3 31 69 95 0.04 0.06 76 46.5 33.7 10.0 8.4 1.0 1.9 0.0 0.0 2% -1.0% -1.4% Alice HuiTingyi Holding Dec 109 13981 19.46 18.00 (8) H (2) 5 1 113 2971 3687 4039 0.66 0.72 17 29.5 26.9 13.9 12.0 8.0 2.1 1.7 1.9 cash 12.0% 28.7% Alice HuiTsingtao Brewery Dec 27 3525 41.85 40.00 (4) H (5) 10 4 66 1433 1763 1976 1.30 1.46 16 32.1 28.6 16.0 14.1 5.2 2.5 0.5 0.6 cash 17.5% 17.5% itus Wu / Alice HuiVitasoy Mar 6 802 6.12 6.20 1 H (1) 5 18 5 217 260 289 0.26 0.28 15 23.9 21.6 12.1 11.2 4.6 2.1 4.3 4.6 cash 16.8% 16.8% Alice HuiWant Want China Dec 87 11179 6.58 6.30 (4) H 3 2 20 115 2431 2793 3453 0.21 0.26 19 31.1 25.1 22.3 17.6 10.8 5.1 2.7 3.4 cash 20.5% 32.6% A Hui / T WuSector 336 43246 10804 13138 15598 26.5 22.4Household/PersonalHengan Dec 82 10579 67.20 75.00 12 B (8) 11 18 136 2118 2437 3043 2.00 2.50 19 33.6 26.9 23.4 18.8 8.1 6.2 1.9 2.4 cash 13.3% 20.7% Patricia YeungLi & Fung Dec 174 22394 43.30 45.00 4 review (1) 18 32 310 3369 5037 6635 1.33 1.67 35 32.5 26.0 26.7 21.6 8.5 0.1 2.5 3.1 13% 8.5% 21.6% Patricia YeungLi Ning Dec 22 2870 21.20 33.00 56 B (10) (18) (21) 131 1080 1313 1602 1.25 1.53 21 16.9 13.9 9.9 7.9 5.8 0.2 2.4 2.9 cash 20.3% 39.6% Alice HuiMing Fai Dec 2 257 3.14 3.50 11 review 18 10 138 9 96 111 195 0.18 0.30 37 17.4 10.4 9.7 5.7 2.1 1.8 2.3 3.8 cash 9.3% 12.4% Patricia YeungNeo-Neon Dec 3 440 3.73 6.90 85 B (28) (20) (32) 16 158 243 420 0.27 0.46 54 14.0 8.1 7.8 5.7 1.0 2.0 1.8 3.1 cash 4.5% 5.5% Patricia YeungTexwinca * Mar 13 1699 9.78 9.70 (1) review 22 27 29 15 860 1007 1101 0.76 0.82 12 12.9 11.9 8.8 7.8 2.9 1.3 4.9 5.5 2% 14.6% 26.2% Alice HuiYue Yuen Sep 47 6086 28.70 26.00 (9) H 4 21 31 57 3606 3613 4271 2.19 2.59 9 13.1 11.1 8.9 8.0 1.8 1.1 3.4 4.1 10% 9.4% 16.9% Patricia YeungSector 345 44325 11198 13763 17267 24.0 19.5Consumer ServicesGamblingGalaxy^ Dec 34 4352 8.56 9.00 5 review 28 134 146 52 113 1320 2070 0.34 0.53 329 25.5 16.3 19.3 12.3 3.7 1.7 0.0 0.0 15% 4.7% 11.7% Research TeamSands China Dec 131 16807 16.24 18.80 16 B 27 44 57 141 1658 5456 6495 0.68 0.81 98 24.0 20.1 14.9 12.5 3.8 3.9 0.0 0.0 52% 3.0% 8.7% Research Team Note 2SJM Dec 67 8674 12.44 14.40 16 B 52 102 174 178 907 3539 4363 0.65 0.80 119 19.2 15.5 12.3 10.1 6.6 1.2 2.6 3.2 cash 4.3% 11.5% Research TeamWynn Macau Dec 87 11234 16.84 15.90 (6) H 23 40 87 109 2069 3769 4634 0.73 0.89 50 23.2 18.9 17.1 13.7 11.3 4.0 4.5 2.1 74% 15.5% 91.8% Research TeamSector 319 41066 4746 14084 17561 22.7 18.2

Report Data (%)Share Price

PE (x) EBITDA (x)Div Yld





RetailersAeon Stores Dec 4 548 16.38 15.96 (3) review 13 46 27 1 280 273 282 0.86 1.08 25 19.0 15.1 8.8 7.0 3.3 0.5 2.6 3.3 cash 6.9% 20.3% Mavis HuiBeijing Jingkelong % Dec 2 221 9.45 10.84 15 B (5) 18 44 4 173 222 262 0.50 0.49 8 18.8 19.2 9.2 8.1 2.2 0.2 2.9 2.6 73% 3.3% 10.9% Mavis Hui Note 2Esprit Holdings * Jun 49 6272 37.85 40.90 8 review (9) (14) (24) 277 4745 4226 3692 3.35 2.87 (13) 11.3 13.2 9.4 8.0 3.0 1.4 3.7 4.5 Cash 51.6% 27.7% Alice HuiGiordano Dec 7 871 4.53 5.50 21 B (2) 37 105 13 288 493 548 0.33 0.37 38 13.7 12.3 7.6 6.8 2.8 1.5 5.8 6.5 cash 10.7% 14.5% Alice HuiGlorious Sun Dec 4 481 3.53 3.06 (13) H 23 18 28 2 260 264 294 0.25 0.28 7 14.2 12.7 5.1 n.a. 1.7 0.6 4.9 5.5 cash 27.3% 4.3% Alice HuiGolden Eagle % Dec 43 5521 22.10 18.36 (17) review 11 36 43 50 809 1018 1308 0.53 0.68 27 41.6 32.4 24.5 18.9 11.9 15.8 0.7 0.9 cash 14.2% 40.8% Mavis HuiGome Elec Appliances % Dec 48 6117 2.85 3.69 29 B 20 9 1 376 1643 2303 2978 0.13 0.17 34 22.1 17.1 7.7 5.8 2.9 0.8 1.0 1.3 cash 4.5% 13.8% Mavis HuiLianhua Supermarket Dec 7 957 35.95 36.85 3 review 18 22 71 20 581 720 857 1.16 1.38 21 31.1 26.1 11.3 8.9 6.8 0.7 1.1 1.3 cash 3.5% 20.5% Mavis HuiLifestyle Dec 34 4415 20.45 16.80 (18) review 10 33 45 18 1142 1135 1311 0.68 0.79 17 30.1 26.0 18.8 15.1 5.0 0.8 1.4 1.6 cash 10.0% 20.2% Mavis HuiNew World Dept Stores * Jun 11 1405 6.48 8.94 38 B (12) (0) (12) 13 547 570 707 0.29 0.38 8 22.7 17.1 8.1 7.5 2.2 5.5 2.3 2.6 cash 12.2% 19.2% Mavis HuiOriental Watch * Mar 2 252 4.18 4.93 18 B 31 118 156 15 100 113 159 0.30 0.41 15 13.7 10.2 10.2 8.1 1.2 0.3 1.1 1.9 16% 6.3% 8.5% Mavis HuiParkson Dec 35 4537 12.56 14.71 17 B (11) (2) (12) 60 1066 1235 1613 0.44 0.58 23 28.5 21.8 16.3 12.4 6.7 6.8 1.6 2.1 cash 8.9% 27.0% Mavis HuiSa Sa Mar 14 1788 4.97 4.91 (1) review 67 65 109 34 316 381 503 0.14 0.18 26 36.1 27.5 51.5 39.4 11.6 1.3 2.8 2.5 cash 24.7% 32.9% Mavis HuiWumart Dec 11 1369 19.84 17.01 (14) review 11 32 56 17 502 650 833 0.51 0.65 26 39.1 30.5 19.8 15.5 5.9 1.6 1.0 1.3 cash 6.9% 18.6% Mavis HuiSector 270 34754 12452 13601 15347 21.9 18.9Media Next Media Mar 3 326 1.05 1.09 4 review 1 (11) 3 2 257 270 252 0.13 0.10 (1) 7.9 10.0 3.7 5.0 0.7 0.8 0.0 0.0 cash 11.3% 15.4% Mavis HuiPico Far East Oct 2 252 1.62 1.91 18 B 17 20 (2) 2 124 177 184 0.15 0.15 22 11.0 10.5 4.9 4.7 1.8 0.7 4.6 4.7 cash 6.4% 13.5% Mavis HuiTVB Dec 18 2292 40.70 45.17 11 B 4 14 13 47 900 1097 1233 2.51 2.82 17 16.2 14.5 8.8 7.9 2.9 3.9 4.0 4.5 cash 13.1% 15.8% Mavis HuiSector 22 2870 1282 1544 1669 14.4 13.1Travel & LeisureAjisen China Dec 13 1721 12.50 13.00 4 H 11 51 82 23 314 428 558 0.40 0.52 33 31.2 24.0 16.7 12.6 5.0 5.1 1.4 1.9 cash 11.7% 13.7% T Wu / A HuiAir China Dec 38 4864 8.29 11.45 38 B (10) 1 47 167 5667 14724 13323 1.14 1.03 49 7.3 8.0 6.1 6.1 2.5 1.1 0.0 0.0 251% 4.7% 22.1% P Yong / T HsuCafe de Coral * Mar 11 1369 18.92 18.70 (1) H (14) (2) 6 11 442 513 517 0.92 0.93 8 20.5 20.4 11.9 11.4 3.7 2.2 3.3 3.4 cash 17.7% 19.6% Alice HuiCathay Pacific Dec 85 10977 21.70 27.30 26 B 5 38 49 148 4694 12824 12310 3.26 3.13 62 6.7 6.9 5.3 4.8 1.6 1.0 4.6 4.6 62% 4.1% 11.9% Paul YongChina Eastern Airlines Dec 13 1618 3.60 4.00 11 H (17) 6 29 88 197 6450 4909 0.57 0.44 na 6.3 8.3 6.1 6.2 2.6 0.4 0.0 0.0 2563% 0.2% -2.8% P Yong / T HsuChina Southern Airlines Dec 12 1563 4.35 6.75 55 B 5 28 69 115 385 7234 7318 0.74 0.75 294 5.9 5.8 5.0 4.5 1.3 0.4 0.0 0.0 409% 0.4% 3.8% P Yong / T HsuHK & Shanghai Hotels Dec 20 2508 13.18 12.90 (2) H 2 5 16 6 2298 445 593 0.30 0.40 na 43.6 32.7 n.a. n.a. 0.7 4.5 0.7 0.8 9% 0.7% 10.5% Ken ChenLittle Sheep Dec 5 671 5.06 6.60 30 B (3) 18 23 5 181 228 304 0.22 0.29 29 22.9 17.2 12.6 9.6 3.9 2.3 1.7 2.3 cash 12.8% 15.8% T Wu / A HuiTai Cheung * # Mar 4 465 5.85 6.37 9 review 15 34 28 2 211 275 448 0.45 0.72 46 13.1 8.1 10.3 5.9 0.5 6.4 4.6 5.1 Cash 6.6% 7.0% Jeff YauSector 197 25292 13864 42846 39832 8.3 8.7Construction and MaterialsChina Comm Construction Dec 30 3798 6.67 8.00 20 B (7) (5) (8) 133 8229 10349 12206 0.70 0.82 22 9.6 8.1 6.7 5.1 1.4 0.3 2.1 2.5 55% 3.0% 15.0% Rachel MiuChina Railway Construction Dec 20 2617 9.80 12.60 29 B (10) 2 2 133 7669 5940 11503 0.48 0.93 22 20.4 10.5 5.1 2.8 1.8 0.2 1.2 2.2 cash 2.6% 13.1% Rachel MiuChina Railway Group Dec 24 3095 5.72 7.77 36 B (4) 11 (5) 120 8004 9646 11688 0.45 0.55 21 12.6 10.4 6.8 5.7 1.5 0.3 1.6 1.9 6% 2.4% 11.8% Rachel MiuChina South Locomotive Dec 20 2613 10.04 8.90 (11) review 42 81 87 75 1947 2981 3800 0.25 0.32 40 40.0 31.3 20.4 16.4 5.3 1.3 0.7 0.9 cash 3.3% 10.1% Rachel MiuChina State Construction Dec 21 2708 7.07 7.20 2 review 57 213 117 62 613 901 1290 0.30 0.44 39 23.2 16.2 15.7 11.5 4.2 1.4 1.3 1.9 cash 5.5% 17.9% Rachel MiuSector 115 14830 26462 29816 40486 15.6 11.7IndustrialAMVIG Dec 6 746 6.28 5.50 (12) H 24 34 86 12 365 551 564 0.60 0.61 35 10.5 10.3 5.4 4.5 1.2 2.1 2.8 2.9 1% 4.5% 6.7% Patricia YeungChina Automation Dec 6 780 5.95 7.20 21 B 9 12 6 9 247 339 467 0.34 0.46 35 17.7 12.8 12.1 8.8 3.4 3.3 1.3 1.9 cash 11.9% 19.4% Rachel MiuChina High Precision Automation * Jun 6 790 5.92 6.70 13 review 43 21 38 22 234 266 395 0.29 0.38 10 20.7 15.5 11.9 9.7 3.0 7.9 0.8 0.8 cash 31.9% 53.5% Patricia YeungChina High Speed Dec 18 2327 13.16 21.00 60 B (23) (22) (29) 195 1103 1609 1893 1.29 1.52 31 10.2 8.7 8.4 6.8 2.6 2.1 2.8 3.3 74% 10.3% 23.7% Dennis LamHuabao * Mar 35 4454 11.00 14.20 29 B (4) 11 36 53 1110 1340 1619 0.43 0.52 20 25.5 21.3 21.1 17.2 9.1 14.6 1.9 1.4 cash 31.2% 40.4% Patricia YeungLee and Man Paper * Mar 27 3425 5.68 7.60 34 B (5) (5) 12 90 302 1833 1775 0.40 0.39 142 14.1 14.6 11.7 12.0 2.5 2.4 2.4 1.7 81% 11.4% 19.7% Patricia YeungNine Dragons * Jun 53 6870 11.46 17.00 48 B (6) 9 (11) 138 1926 2512 3507 0.56 0.76 31 20.6 15.1 14.7 11.7 2.4 2.6 1.2 1.7 83% 5.0% 11.3% Patricia YeungSinoref Dec 2 208 1.35 1.69 25 B 87 n.a. n.a. n.a. 82 158 177 0.13 0.15 28 10.3 9.1 5.8 5.0 2.6 4.2 2.9 3.3 cash 47.8% 59.1% E Y Lee / A DaiSolargiga Energy Dec 3 414 1.78 2.30 29 B 3 29 (13) 7 (114) 235 411 0.13 0.23 n.a. 13.5 7.7 10.9 6.6 1.7 1.5 2.6 4.5 9% -5.1% -7.4% Dennis LamSector 163 20925 6098 9616 11744 15.3 12.3Infrastructure, EnvironmentalBeijing Enterprises Water % Dec 13 1615 2.75 3.70 35 B 12 5 11 23 193 407 816 0.09 0.18 110 29.3 15.3 21.5 15.3 3.4 2.1 0.0 0.0 77% 3.1% 8.8% Patricia Yeung Note 2China Everbright Intl Dec 15 1926 4.10 4.90 20 B 17 24 11 33 372 539 768 0.15 0.21 36 27.7 19.4 18.8 14.9 2.9 5.5 0.5 0.8 25% 5.0% 10.1% Patricia YeungNew Environmental Energy % Dec 1 86 0.66 2.10 218 B 32 (20) (72) 7 (94) 238 377 0.10 0.13 n.a. 6.6 4.9 5.6 6.0 0.3 0.8 0.0 0.0 95% -3.7% -9.8% Patricia YeungTianjin Cap Environmental Dec 1 124 2.84 2.61 0 H 11 27 3 4 278 299 271 0.21 0.19 (1) 13.6 15.0 4.1 3.6 0.9 0.9 1.1 1.0 78% 3.3% 7.6% Patricia YeungSector 29 3751 650 1482 2233 25.5 16.3InsuranceChina Life Dec 236 30333 31.70 38.00 20 review 3 (8) (18) 1,670 32881 36451 46132 1.47 1.87 18 21.5 17.0 2.6 2.4 3.9 2.9 2.4 1.5 n.a. 21.2% 8.6% Dennis LamChina Pacific Insurance Dec 67 8671 29.15 43.00 48 B 1 (5) n.a. 274 8203 8645 10201 1.01 1.19 12 29.0 24.5 2.1 1.8 2.4 2.7 1.0 1.2 n.a. 2.1% 10.0% Dennis LamPICC Dec 36 4658 10.48 14.64 40 B 3 35 51 191 2073 5687 7656 0.51 0.69 92 20.5 15.3 n.a. n.a. 4.7 36.4 0.0 0.0. n.a. 1.2% 8.6% Dennis LamPing An Dec 234 30134 82.00 99.00 21 B 13 31 20 727 16187 21912 27878 2.98 3.80 31 27.5 21.6 2.9 2.4 5.3 -52.0 0.9 1.1 n.a. 1.7% 17.5% Dennis LamSector 574 73796 59344 72696 91868 24.3 19.2Power (China)China Resources Power Dec 63 8149 13.44 19.80 47 B (22) (16) (10) 133 5317 5781 6429 1.30 1.44 10 10.4 9.3 9.2 8.9 1.4 1.4 2.9 3.2 111% 5.4% 16.4% June NgDatang Intl Dec 9 1173 2.75 2.95 7 H (18) (16) (17) 78 1856 2141 2904 0.18 0.25 25 15.1 11.2 11.1 10.7 1.0 0.5 3.4 4.6 398% 0.9% 6.1% June NgHuaneng Power Dec 13 1619 4.12 4.80 17 review (14) (6) (6) 100 5675 5104 5558 0.42 0.46 (1) 9.7 8.9 9.3 9.1 1.0 0.5 3.1 3.4 244% 2.7% 12.5% June NgSector 85 10941 12849 13026 14890 10.6 9.4Power, Infra & UtilitiesCLP Holdings Dec 152 19509 63.05 55.20 (12) review 3 14 21 147 7484 8449 8737 3.51 3.63 8 18.0 17.4 9.5 9.3 2.1 2.9 3.9 3.9 44% 7.7% 16.4% June Ng HK & China Gas Dec 133 17161 18.58 18.50 (0) H (5) 2 5 113 5175 4976 5376 0.69 0.75 (2) 26.8 24.8 23.9 22.2 3.8 8.8 1.9 2.0 19% 8.8% 16.3% W K Lee / J NgHK Electric Dec 105 13503 49.20 54.40 11 review 3 6 17 133 6697 7343 8250 3.44 3.87 11 14.3 12.7 14.6 14.1 1.9 10.1 4.5 5.1 14% 11.5% 16.8% J Ng / W K LeeCheung Kong Infrastructure Dec 79 10102 34.85 44.20 27 B 12 26 20 44 5568 4750 6111 2.11 2.71 5 16.5 12.9 122.1 124.1 1.8 31.9 3.7 4.0 cash 11.5% 14.1% June Ng Sector 469 60275 24924 25519 28475 18.4 16.5





Properties-ChinaAgile Property Dec 39 5055 11.32 14.93 32 B 18 44 2 148 2175 5603 4153 1.59 1.20 41 7.1 9.5 5.8 4.9 0.5 1.5 3.5 2.6 42% 4.7% 13.8% Carol W / Andy YCC Land # Dec 7 905 2.75 2.31 (16) FV (15) 2 (25) 19 (58) 27 412 0.01 0.16 n.a. 257.5 17.1 160.7 1.6 0.6 3.8 0.0 1.2 4% -0.3% -0.6% Carol WuChina Overseas # Dec 121 15512 14.76 19.00 29 B (16) (2) (13) 405 7469 9302 10388 1.14 1.27 18 13.0 11.6 8.3 8.4 0.9 2.5 1.6 1.7 23% 7.5% 19.8% Carol WuChina Resources Land # Dec 73 9379 13.54 19.10 41 B (19) (10) (26) 203 4409 4173 4941 0.83 0.98 4 16.3 13.8 10.8 7.7 0.6 3.5 1.2 1.5 20% 5.3% 13.0% Carol WuFranshion Properties # Dec 22 2780 2.36 2.88 22 B (0) 6 (14) 21 1174 972 815 0.11 0.09 (22) 22.3 26.5 11.4 3.1 0.6 3.1 0.9 0.7 72% 2.7% 7.8% Carol WuShimao Property # Dec 41 5301 11.62 14.30 23 B (13) (2) (23) 214 4105 4332 4424 1.21 1.23 4 9.6 9.4 10.1 7.2 0.6 1.7 3.2 3.5 51% 2.0% 4.5% Carol WuShui On Land # Dec 20 2614 3.90 3.95 1 H 1 17 (12) 52 3119 2275 1268 0.45 0.25 (38) 8.6 15.5 16.6 15.2 0.6 3.1 2.5 1.8 34% 6.8% 13.9% Carol WuSino-Ocean Land # Dec 29 3683 5.08 5.49 8 review (5) (12) (29) 86 1817 2319 2290 0.41 0.41 12 12.3 12.5 11.8 0.9 0.7 2.0 2.0 2.0 18% 3.4% 7.9% Carol WuSoho China # Dec 30 3883 5.82 6.18 6 H 8 34 47 46 3850 3663 1694 0.71 0.22 (46) 8.2 26.7 4.3 5.5 0.8 1.7 3.6 1.1 Cash 10.3% 21.1% Carol WuSPG Land # Dec 4 488 3.61 3.14 (13) H (2) 16 (28) 4 779 409 1372 0.40 1.34 33 9.1 2.7 7.8 1.3 0.5 0.8 3.3 11.1 18% 5.2% 19.1% Carol WuSector 339 43640 25885 27062 26232 11.6 12.2Properties-HKCheung Kong # Dec 264 33925 113.90 135.00 19 B 10 27 15 545 19886 22251 23898 9.61 10.32 10 11.9 11.0 18.6 16.1 1.0 6.8 2.4 2.5 9% 6.8% 8.5% Jeff YauGreat Eagle # Dec 14 1858 23.20 26.60 15 B 2 13 11 19 1276 1351 1329 2.17 2.13 2 10.7 10.9 11.0 10.9 0.5 3.0 2.3 2.3 12% 4.9% 6.3% Jeff YauHang Lung Group # ^ Jun 67 15803 50.05 42.90 (14) review 2 25 32 43 1454 3695 2999 2.76 2.24 43 18.1 22.3 31.9 9.3 0.9 5.4 1.5 1.5 5% 1.5% 3.9% Jeff YauHang Lung Properties # ^ Jun 155 19995 34.80 36.50 5 H (7) 19 19 371 2388 6674 4508 1.61 1.06 36 21.6 32.9 18.1 26.7 1.1 12.9 2.0 2.0 Cash 6.7% 8.5% Jeff YauHenderson Land # ^ Dec 115 14816 52.95 58.20 10 review 6 11 (9) 231 6088 4024 5086 1.86 2.35 (9) 28.5 22.5 108.4 44.4 0.7 19.1 1.9 1.9 19% 3.3% 4.8% Jeff YauHongkong Land ^ # @ Dec 123 15868 7.05 6.25 (11) review 15 35 42 12 777 801 588 0.36 0.26 (13) 19.8 27.0 22.1 25.4 1.1 11.3 2.3 2.3 19% 4.2% 6.5% Jeff YauHysan Development # Dec 36 4633 34.20 32.00 (6) review 25 61 51 44 1113 1157 1213 1.10 1.15 4 31.1 29.6 28.3 27.0 0.9 20.4 2.0 2.0 6% 2.6% 3.4% Jeff YauK Wah Intl Dec 7 932 2.84 3.89 37 B (3) 18 (1) 27 916 789 1525 0.32 0.62 29 8.9 4.6 10.3 5.7 0.5 2.2 3.9 4.9 37% 6.0% 11.3% Jeff YauKerry Properties # Dec 58 7479 40.50 50.15 24 B (1) 18 (2) 100 2146 2914 4057 2.03 2.83 37 19.9 14.3 18.4 29.4 0.7 2.8 2.2 3.0 18% 2.6% 4.4% Jeff YauMTR ^ # Dec 164 21043 28.35 36.45 29 B 0 6 8 103 7303 8616 8536 1.49 1.48 7 19.0 19.2 17.0 16.8 0.8 5.7 2.0 2.0 26% 4.3% 7.2% Jeff YauNew World Dev # Jun 57 7346 14.58 16.78 15 review 9 16 (12) 165 2084 11613 5117 1.57 1.31 54 9.3 11.2 15.7 19.0 0.5 1.9 2.6 2.6 46% 1.2% 2.8% Jeff YauSHK Properties # ^ Jun 326 41939 126.90 142.00 12 review 8 18 8 707 12415 13883 17086 5.41 6.65 17 23.4 19.1 24.5 21.3 0.8 9.8 2.1 2.5 15% 4.4% 6.0% Jeff YauSino Land #* Jun 79 10187 15.06 18.54 23 B 4 12 (1) 211 3601 3506 4086 0.72 0.83 6 20.9 18.1 22.4 31.9 0.7 10.3 2.7 2.7 16% 4.1% 6.1% Jeff YauTai Cheung * # Mar 4 465 5.85 6.37 9 review 15 34 28 2 211 275 448 0.45 0.72 46 13.1 8.1 10.3 5.9 0.5 6.4 4.6 5.1 Cash 6.6% 7.0% Jeff YauSector 1471 189161 29578 81550 80476 17.7 16.5Transportation - Toll RoadAnhui Expressway Dec 3 443 6.98 9.10 30 B 36 59 30 12 775 887 1208 0.53 0.73 25 13.1 9.6 6.9 5.1 1.7 2.9 3.8 5.2 34% 7.2% 12.7% P Yong / T HsuJiangsu Expressway Dec 10 1259 8.01 9.32 16 B 1 13 17 34 2350 2877 2948 0.57 0.59 12 14.0 13.7 8.8 8.4 2.1 5.5 5.4 5.6 45% 8.6% 13.6% P Yong / T HsuHopewell Highway* Jun 17 2220 5.83 5.96 2 H 1 11 24 8 1059 956 824 0.32 0.28 (12) 18.1 20.9 12.4 13.3 2.1 8.9 5.5 4.7 28% 11.4% 17.7% P Yong / T HsuShenzhen Expressway Dec 3 439 4.57 5.02 10 review 15 32 25 13 631 734 833 0.34 0.38 15 13.6 12.0 12.2 10.8 1.0 2.0 3.6 4.1 108% 2.7% 7.1% P Yong / T HsuSichuan Expressway Dec 5 616 5.35 5.84 9 H (5) 24 34 13 947 1336 1794 0.44 0.59 31 12.2 9.1 7.4 7.5 1.7 5.2 3.3 4.4 11% 6.7% 10.0% P Yong / T HsuZhejiang Expressway Dec 10 1348 7.31 7.52 3 H 5 3 (1) 50 2097 1987 2078 0.46 0.48 (0) 16.0 15.3 6.8 6.2 1.9 4.3 4.4 4.6 cash 7.2% 14.1% P Yong / T HsuSector 49 6325 7859 8778 9685 15.6 14.4Transportation - ServicesBeijing Capital Intl Airport Dec 8 981 4.06 5.30 31 B 4 (8) (17) 35 350 558 789 0.13 0.18 50 31.5 22.3 12.3 11.2 1.2 2.7 1.0 1.5 165% 0.8% 2.4% T Hsu / P YongChina Merchants Hldgs Dec 71 9134 28.90 33.03 14 B 1 17 26 153 3238 3552 4089 1.46 1.68 22 19.8 17.2 15.0 13.5 2.0 17.1 2.2 2.5 32% 6.3% 10.1% Ken He /P YongCOSCO Pacific Dec 35 4540 13.02 14.88 14 B 12 42 32 115 1338 2798 2718 1.09 1.00 30 11.9 13.0 13.0 11.4 1.3 7.9 3.3 3.1 41% 3.9% 6.5% Ken He /P YongDalian Port Dec 4 459 3.36 4.07 21 B 6 9 18 11 707 746 890 0.26 0.30 12 13.2 11.0 9.7 8.1 1.3 4.6 3.2 3.6 30% 5.7% 9.3% Ken He /P YongTianjin Port Dec 11 1425 1.80 1.84 2 H 3 4 (37) 19 (48) 560 683 0.09 0.11 n.a. 19.8 16.2 9.5 8.5 1.3 0.2 2.0 2.5 18% -0.9% -1.3% Ken He /P YongXiamen Int'l Port Dec 1 189 1.49 1.61 8 H 1 11 6 6 235 288 324 0.11 0.12 17 14.1 12.6 6.3 5.6 0.9 1.7 4.7 5.3 cash 3.1% 5.4% Ken He /P YongSector 130 16728 5820 8502 9493 16.8 15.7TechnologyHardware & EquipmentAAC Acoustics Dec 27 3411 21.60 22.55 4 review 37 101 78 60 718 1154 1626 0.94 1.32 50 23.0 16.3 16.3 11.4 5.4 11.6 1.7 2.4 Cash 15.5% 18.5% Steven ZhangASM Pacific Dec 33 4207 82.95 82.30 (1) review 26 35 19 59 935 3074 2952 7.80 7.49 78 10.6 11.1 8.3 8.2 6.3 6.1 5.2 5.0 cash 21.9% 29.8% Steven ZhangLenovo Group * Mar 50 6426 4.99 5.70 14 review 6 14 12 217 (1755) 1003 2149 0.11 0.23 n.a. 45.4 22.1 10.0 7.2 3.9 0.4 1.1 1.6 cash 1.7% 8.9% Steven ZhangTPV Technology Dec 11 1445 4.79 5.35 12 H 4 4 4 10 1095 1184 1392 0.50 0.59 7 9.5 8.1 5.8 5.3 0.9 0.2 3.2 3.7 cash 3.8% 9.8% Steven ZhangSector 120 15489 4023 6415 8120 17.1 14.6Telecom China Mobile Dec 1532 197002 76.35 69.00 (10) review (2) (0) 7 2,269 134461 139857 146647 6.97 7.31 4 11.0 10.4 4.4 3.9 2.3 2.7 3.9 4.1 cash 16.4% 24.3% TszWang TamChina Unicom Dec 268 34481 11.38 10.00 (12) review (3) 17 12 375 10585 4549 7918 0.19 0.33 (14) 59.5 34.2 4.9 4.3 1.1 1.4 1.6 1.6 30% 2.4% 4.4% TszWang TamChina Telecom Dec 55 7031 3.94 4.90 24 B (6) 2 20 226 15494 17001 21189 0.21 0.26 17 18.8 15.0 4.3 3.9 1.2 1.2 2.2 2.2 32% 3.1% 6.1% TszWang TamSector 1855 238514 170108 161407 175754 12.6 11.7Real Estate Investment Trust **Champion REIT Dec 22 2885 4.55 3.86 (15) review 15 28 44 24 1242 1068 1036 n.a. n.a. n.a. nmf nmf nmf nmf 0.8 11.8 5.0 4.7 32% 8.5% 14.6% Jeff YauFortune REIT Dec 7 848 3.95 4.60 16 B 2 14 31 4 338 399 417 n.a. n.a. n.a. nmf nmf nmf nmf 0.7 8.0 6.1 6.3 23% 3.2% 4.5% Jeff Yau Note 2, 3, 4, 5 Prosperity REIT Dec 2 299 1.74 1.95 12 B 7 24 34 3 145 148 162 n.a. n.a. n.a. nmf nmf nmf nmf 0.7 8.7 6.4 6.9 33% 1.6% 5.6% Jeff YauThe Link REIT * Mar 54 6929 24.30 28.15 16 B 6 22 30 150 1819 2134 2408 n.a. n.a. n.a. nmf nmf nmf nmf 1.4 10.8 4.0 4.5 24% n.a. n.a. Jeff YauSector 89 11431 3814 3936 4234 nmf nmf

^ underlying profit Note 2: DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA, within the past 12 months, have received# P /NAV for Property companies compensation and/or within the next 3 months seek to obtain compensation for investment banking services from Sector P/Es are calendarised these companies.% - fully diluted EPS Note 3: DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA beneficially own a total * 10A of 1% or more of any class of common equity securities of these companies.~ Core profit and EPS Note 4: DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA beneficially own a total

of 5% or more of any class of common equity securities of these companies.Note 5: Dual listing in Singapore under FRT SP

THAILAND : EARNINGS GUIDEFYE Mkt Mkt Price Target Avg CAGR P/ P/ Net Debt ROA ROE

Company Cap Cap (Bt) Price % 6-mth 08-10 BV x Sales x /Equity Disclosure(Btm) (US$m) 16-Dec (Bt) Upside Rcmd 3M 6M 12M Vol (m) 09E 10F 11F 10F 11F (%) 10F 11F 10F 11F 10F 10F 10F 11F 09A 09A 09A Analyst Legend

AGRO & FOOD INDUSTRYFood and BeverageMinor International Dec 40,453 1,344 12.40 16.20 31% B 4 22 12 9.1 1,400 1,425 2,316 0.4 0.7 29 28.2 17.4 12.7 10.6 3.1 2.2 1.1 1.7 94.7 5.3 12.3 V Nalyne Charoen Pokphand Foods Dec 178,223 5,919 23.70 24.90 5% H (4) 20 108 50.8 10,190 13,157 13,798 2.0 2.1 17 12.0 11.4 9.6 8.9 2.7 1.0 4.0 4.4 0.6 9.1 21.0 V Nalyne Thai Vegetable Oil Dec 22,547 749 30.00 38.25 28% B 27 71 69 6.4 1,623 1,629 2,064 2.0 2.5 4 14.9 11.8 9.4 7.8 4.5 0.9 4.7 5.9 37.4 19.3 42.3 V Nalyne Thai Union Frozen Products Dec 51,403 1,707 53.75 64.00 19% B (7) 15 92 3.5 3,344 3,950 4,582 4.5 4.6 10 12.0 11.7 8.6 8.1 2.2 0.7 4.2 2.2 53.4 8.8 21.8 V Nalyne Sector 292,625 9,719 16,558 20,161 22,760 14.5 12.9 FINANCIALSBanksBank of Ayudhya Dec 141,528 4,700 23.30 24.40 5% H 10 19 8 22.2 6,659 8,515 9,760 1.4 1.6 21 16.6 14.5 na na 1.4 na 1.9 2.4 na 0.9 7.5 K Sugittra Note 1Bangkok Bank Dec 284,418 9,446 149.00 187.00 26% B 2 24 31 5.5 20,764 24,420 25,820 12.8 13.5 12 11.6 11.0 na na 1.2 na 3.3 3.4 na 1.2 11.2 K Sugittra KASIKORNBANK Dec 296,764 9,856 124.00 150.00 21% B 15 34 47 6.9 14,892 19,005 23,645 7.9 9.9 26 15.6 12.6 na na 2.2 na 2.4 3.2 na 1.1 12.6 K Sugittra Note 1Krung Thai Bank Dec 194,623 6,464 17.40 21.00 21% B 16 36 77 61.8 12,189 15,202 20,220 1.4 1.8 29 12.8 9.6 na na 1.5 na 2.9 3.8 na 0.8 11.3 K Sugittra Siam Commercial Bank Dec 356,977 11,856 105.00 121.50 16% B 14 27 24 10.7 20,760 23,655 27,030 7.0 8.0 14 15.1 13.2 na na 2.3 na 2.9 3.3 na 1.6 15.5 K Sugittra Thanachart Capital Dec 49,659 1,649 37.25 42.00 13% H (1) 43 67 15.2 5,109 5,545 5,860 4.2 4.4 7 9.0 8.5 na na 1.4 na 3.4 3.6 na 1.2 17.1 K Sugittra Tisco Financial Group Dec 28,933 961 39.75 44.00 11% H 7 47 na 4.5 1,988 2,920 3,135 4.0 4.3 25 9.9 9.2 na na 2.0 na 3.8 4.4 na 1.5 16.7 K Sugittra Sector 1,352,903 44,932 82,361 99,263 115,472 13.6 11.7FinanceKim Eng Securities Dec 8,733 290 15.30 18.50 21% B 2 35 24 3.6 715 788 811 1.4 1.4 6 11.1 10.8 na na 1.9 na 7.7 7.9 na 11.5 16.4 K Sugittra Phatra Securities Dec 5,818 193 27.25 38.00 39% B 6 51 60 1.8 426 1,094 530 5.1 2.5 12 5.3 11.0 na na 1.7 na 11.7 8.4 na 8.5 13.7 K Sugittra Sector 14,551 483 1,141 1,881 1,342 7.7 10.8INDUSTRIALPetrochemicals & ChemicalsIndorama Ventures Dec 249,221 8,277 57.50 68.00 18% B 130 176 na 27.4 4,824 8,725 14,308 2.0 3.0 44 28.6 19.4 23.3 13.2 8.5 2.7 0.8 1.6 172.0 6.7 32.2 C Naphat PTT Chemical Dec 221,058 7,342 146.00 210.00 44% B 24 36 109 8.9 6,802 11,706 17,464 7.8 11.6 60 18.7 12.5 11.6 8.2 2.1 2.2 2.3 3.9 33.8 4.4 7.0 C Naphat Sector 470,279 15,619 11,626 20,431 31,771 23.0 14.8PROPERTY & CONSTRUCTIONConstruction MaterialsTata Steel (Thailand)** Mar 13,478 448 1.65 2.48 50% B (12) (1) (15) 21.0 81 (54) 1,141 (0.0) 0.1 275 nm 11.8 17.7 5.7 0.9 0.6 - 2.1 12.8 0.3 0.5 V Nalyne Siam Cement Dec 414,000 13,750 345.00 366.00 6% B 10 35 53 2.6 24,346 38,492 34,731 32.1 28.9 19 10.8 11.9 8.9 6.9 3.3 1.5 3.0 4.3 92.3 8.1 25.4 C Naphat Note 1Sector 427,478 14,197 24,426 38,437 35,872 11.1 11.9 2.0 15.6 23.0 14.8 PropertyAmata Corporation Dec 16,112 535 15.10 20.00 32% B (1) 96 100 17.6 318 855 1,368 0.8 1.3 107 18.8 11.8 11.8 7.4 2.8 4.0 2.1 3.4 83.0 2.5 6.4 S Chanpen Asian Property Development Dec 14,880 494 6.35 7.80 23% B (18) 26 12 30.3 1,866 2,058 2,271 0.9 1.0 10 7.2 6.6 7.8 6.5 1.6 1.1 5.5 6.1 77.6 10.2 25.2 S Chanpen Ch. Karnchang Dec 16,443 546 9.95 11.30 14% B 8 54 72 34.7 90 (294) 783 (0.2) 0.5 176 nm 21.0 165.4 15.3 2.7 2.6 - 2.2 219.9 0.3 1.7 S Chanpen Central Pattana Dec 63,730 2,117 29.25 28.75 -2% H (2) 55 41 3.2 4,952 1,831 2,082 0.8 1.0 (35) 34.8 30.6 16.3 15.0 3.3 6.3 1.1 1.3 74.4 10.5 29.9 S Chanpen CPN Retail Growth Leasehold PropertyDec 12,661 421 11.60 12.79 10% B 6 10 27 1.3 1,452 1,647 1,787 1.0 1.0 4 12.2 11.7 7.4 7.1 1.1 5.8 8.5 8.8 2.0 9.6 10.4 S Chanpen Italian-Thai Development Dec 19,459 646 4.64 5.30 14% H 21 59 60 121.6 (1,774) 47 321 0.0 0.1 nm 412.1 60.5 14.2 8.8 1.8 0.6 - - 187.4 (3.2) (15.8) S Chanpen Hemaraj Land And Development Dec 19,216 638 1.98 2.36 19% B 5 40 157 55.0 575 1,180 1,170 0.1 0.1 43 16.3 16.4 15.4 14.7 2.1 4.9 3.1 3.0 37.2 4.2 7.3 A Sombut Land & Houses Dec 67,675 2,248 6.75 6.50 -4% FV (6) 27 6 30.5 3,908 3,985 4,148 0.4 0.4 3 17.0 16.3 15.2 14.8 2.5 3.8 4.7 4.9 53.5 8.4 15.0 S Chanpen L.P.N. Development Dec 13,503 448 9.15 12.62 38% B (9) 17 28 15.6 1,359 1,678 1,863 1.1 1.3 17 8.0 7.2 5.6 4.7 2.3 1.3 6.7 7.5 cash 16.0 27.9 S Chanpen Preuksa Real Estate Dec 42,150 1,400 19.10 25.00 31% B (21) 12 16 6.6 3,622 3,644 4,597 1.7 2.1 13 11.6 9.2 10.5 9.1 2.7 1.8 2.6 3.3 cash 20.6 31.3 S Chanpen Quality Houses Dec 18,481 614 2.18 3.04 39% B (17) 8 (16) 120.4 1,716 2,085 2,138 0.2 0.3 12 8.9 8.6 9.4 9.4 1.4 1.3 6.7 6.8 94.0 6.0 14.3 S Chanpen Rojana Industrial Park Dec 10,366 344 10.70 10.84 1% FV (7) 14 0 2.3 757 720 865 0.6 0.7 (7) 18.4 15.2 11.6 12.6 1.9 1.3 3.9 4.7 186.7 3.6 10.5 A Sombut Sansiri Dec 8,273 275 5.55 6.97 26% B (3) 10 29 7.8 1,610 1,486 1,853 0.9 1.2 3 6.0 4.8 6.6 6.4 0.8 0.5 6.7 8.4 61.4 6.6 16.9 A Sombut Supalai Dec 18,024 599 10.50 14.30 36% B (15) 23 79 15.9 2,476 2,692 2,916 1.6 1.7 9 6.7 6.2 5.1 4.8 2.0 1.6 6.7 7.3 37.2 17.3 39.4 S Chanpen Samui Airport Property Fund Dec 9,120 303 9.60 9.94 4% B 1 7 20 0.7 656 391 544 0.9 1.0 5 10.2 9.7 10.3 9.8 0.9 9.8 9.8 10.3 cash 5.9 6.0 S Chanpen Sino-Thai Engineering & Con. Dec 16,726 555 14.10 16.56 17% B 10 106 139 31.9 305 411 786 0.3 0.7 61 40.7 21.3 33.1 19.6 3.6 2.1 1.2 2.3 cash 2.9 6.8 A Sombut Sector 366,818 12,183 23,888 24,415 29,490 15.0 12.4RESOURCESEnergyBanpu Dec 217,942 7,238 802.00 853.00 6% B 24 26 35 1.9 14,229 25,256 16,661 92.9 61.3 8 8.6 13.1 9.0 5.6 3.1 3.5 2.2 2.7 16.0 14.9 32.0 C Naphat PTT Dec 910,661 30,244 320.00 372.00 16% B 12 27 40 7.1 59,548 80,054 81,352 28.2 28.7 17 11.3 11.1 6.4 5.5 1.9 0.4 3.1 3.1 46.2 6.0 14.7 C Naphat Note 1PTT Exploration & Production Dec 558,990 18,565 168.50 169.00 0% H 18 14 22 7.4 22,154 36,868 41,217 11.1 12.4 36 15.1 13.5 5.6 5.3 3.3 4.0 2.9 3.0 8.8 8.2 16.0 C Naphat Thai Oil PCL Dec 152,492 5,064 74.75 80.00 7% B 48 69 78 12.4 12,062 11,083 10,439 5.4 5.1 (7) 13.8 14.6 9.4 8.0 2.0 0.6 2.2 3.4 47.7 8.9 19.2 C Naphat Sector 1,840,085 61,112 107,992 153,260 149,669 12.0 12.3SERVICESCommerceBig C Supercenter Dec 68,719 2,282 85.75 79.00 -8% B 34 63 104 0.4 2,868 3,223 3,725 4.0 4.6 14 21.3 18.4 9.0 7.8 3.3 1.0 2.3 2.7 cash 7.7 15.8 V Nalyne CP ALL Dec 180,849 6,006 40.25 48.50 20% B 3 40 71 9.7 4,992 6,318 8,381 1.4 1.9 30 28.6 21.6 14.8 11.2 8.8 1.3 3.5 3.3 cash 11.8 28.1 V Nalyne Home Products Center Dec 36,783 1,222 8.45 11.80 40% B (7) 52 128 12.8 1,143 1,577 1,978 0.4 0.5 21 23.3 18.6 12.4 10.0 5.3 1.5 2.1 2.7 13.0 8.4 22.3 V Nalyne Sector 286,351 9,510 9,003 11,118 14,085 25.8 20.3

Div. Yield(%)

PE(x)

EV/EBITDA (x)

EPS(Bt)Performance (%)

Share Price Net Profit(Btm)

THAILAND : EARNINGS GUIDEFYE Mkt Mkt Price Target Avg CAGR P/ P/ Net Debt ROA ROE

Company Cap Cap (Bt) Price % 6-mth 08-10 BV x Sales x /Equity Disclosure(Btm) (US$m) 16-Dec (Bt) Upside Rcmd 3M 6M 12M Vol (m) 09E 10F 11F 10F 11F (%) 10F 11F 10F 11F 10F 10F 10F 11F 09A 09A 09A Analyst Legend

Div. Yield(%)

PE(x)

EV/EBITDA (x)

EPS(Bt)Performance (%)

Share Price Net Profit(Btm)

EntertainmentAsiasoft Corporation Dec 3,206 106 10.20 13.75 35% B (2) 36 57 0.4 178 255 274 0.8 0.9 22 12.7 11.8 5.2 4.9 2.6 2.2 7.5 8.1 cash 10.5 14.3 V Chirasit BEC World Dec 63,000 2,092 31.50 43.00 37% B (19) 28 31 3.1 2,635 3,248 3,676 1.6 1.8 18 19.4 17.1 9.1 7.8 8.4 5.4 5.2 5.8 cash 30.2 36.9 V Chirasit Major Cineplex Dec 11,465 381 13.00 19.50 50% B 0 42 52 5.5 334 752 795 0.9 0.9 54 15.2 14.4 6.5 5.7 2.1 1.8 5.9 6.2 59.5 3.2 6.2 V Chirasit MCOT Dec 18,895 628 27.50 39.50 44% B (7) 16 15 1.2 1,389 1,450 2,000 2.1 2.9 20 13.0 9.4 5.8 4.8 2.5 3.6 6.5 9.0 cash 14.8 19.0 V Chirasit Workpoint Entertainment PCL Dec 2,380 79 11.90 11.00 -8% H 6 69 70 0.5 73 144 151 0.7 0.8 44 16.5 15.7 6.8 6.2 2.2 1.9 4.2 4.5 cash 6.4 7.4 V Chirasit Sector 98,946 3,286 4,609 5,848 6,897 16.9 14.3TransportBangkok Expressway Dec 14,784 491 19.20 23.37 22% B 4 8 (8) 2.3 1,702 1,851 1,311 2.4 1.7 (12) 8.0 11.3 5.5 5.9 0.8 1.9 6.3 4.4 115.9 4.0 10.1 S Chanpen Thoresen Thai Agencies Sep 15,222 506 21.50 38.40 79% B (9) (8) (19) 9.8 1,814 1,063 1,704 1.5 2.4 (3) 14.3 8.9 3.8 2.4 0.6 0.7 1.7 2.7 cash 4.3 7.1Wee Lee Chong Thai Airways Dec 109,139 3,625 50.00 64.50 29% B 28 89 154 8.4 7,344 14,813 12,384 6.8 5.7 15 7.4 8.8 5.5 4.7 1.3 0.6 3.4 3.0 262.6 2.8 14.9 V Nalyne Sector 139,145 4,621 10,860 17,726 15,399 7.8 9.0TECHNOLOGYCommunicationsAdvanced Info Service Dec 256,169 8,508 86.25 122.00 41% B 2 10 16 7.7 17,055 19,883 21,269 6.7 7.2 12 12.9 12.0 5.5 5.1 6.4 2.4 14.4 8.3 16.6 13.5 23.6 V Chirasit CS Loxinfo Dec 3,023 100 5.10 5.75 13% B 9 52 68 2.8 287 317 322 0.5 0.5 10 9.4 9.3 4.4 4.2 2.5 1.2 9.0 9.1 2.3 13.7 29.1 V Chirasit True Corporation Dec 57,207 1,900 6.75 9.60 42% B 32 115 119 248.3 1,228 3,136 1,614 0.4 0.2 15 16.7 32.5 5.3 5.1 4.0 0.9 - - 1,131.7 1.1 15.9 V Chirasit Total Access Communications Dec 100,632 3,342 42.50 50.40 19% B 9 17 19 10.1 6,628 10,607 9,815 4.5 4.1 22 9.5 10.3 4.1 3.9 1.4 1.4 7.4 6.8 90.3 6.5 10.9 V Chirasit Sector 423,661 14,070 24,727 34,084 33,496 12.4 12.6Electronics Cal-Comp Electronics Dec 13,945 463 3.42 3.54 4% B (8) 2 10 7.4 1,301 1,607 1,760 0.4 0.4 13 8.7 8.1 5.8 4.8 0.8 0.1 3.7 3.9 0.3 2.5 8.4 S Chanpen Note 1Delta Electronics Thai Dec 43,035 1,429 34.50 40.00 16% B 23 60 91 2.8 2,189 4,376 4,508 3.5 3.6 43 9.8 9.6 6.5 5.7 2.1 1.3 5.1 5.2 cash 8.1 12.7 S Chanpen Hana Microelectronics Dec 22,423 745 27.00 25.60 -5% H 3 4 33 2.2 2,043 2,641 2,424 3.1 3.0 15 8.7 9.0 4.6 4.1 1.6 1.3 5.7 5.6 Cash 13.6 16.1 S Chanpen Sector 79,403 2,637 5,534 8,624 8,691 9.2 9.1OTHEROthersBumrungrad Hospital Dec 23,853 792 32.75 37.25 14% B (11) 7 9 1.0 1,246 1,211 1,425 1.7 2.0 7 19.7 16.7 10.4 8.9 3.9 2.4 2.7 3.1 22.5 14.9 24.1 V Nalyne Sector 23,853 792 1,246 1,211 1,425 19.7 16.7

Prices quoted in US$ converted to Bt at 30.11 to calculate ratios. Note 1: As at ,DBSVS and its affiliates hold a proprietary position in these companies.

SB = Strong Buy, B = Buy, H = Hold, FV = Fully Valued, S = Sell, NR = No Rating Note 2: DBSVR,DBSVS,DBS Bank Ltd and/or other affiliates of DBSVUSA,within the past 12 months,have received compensation and/or within the next 3 months seek to obtain compensation for

* Under Revision investment banking services from these companies.

Note 3: DBSVR,DBSVS,DBS Bank Ltd and/or other affiliates of DBSVUSA beneficially own a total of 1%or more of any class of common equity securities of these companies.

Note 4: DBSVR,DBSVS,DBS Bank Ltd and/or other affiliates of DBSVUSA,within the past 12 months,have received compensation and/or within the next 3 months seek to obtain

compensation for investment banking services from related of these companies.

16 December 10

INDONESIA : EARNINGS GUIDEMkt Mkt Price Target Avg CAGR P/ P/ Net Gear ROA RONW

Company FYE Cap Cap (Rp) Price % 6-mth 09-11 BV x Sales x DisclosureRpbn USDm 16-Dec (Rp) Upside Rcmd 3M 6M 12M Vol (m) 09A 10F 11F 10F 11F (%) 10F 11F 10F 11F 10F 10F 10F 11F 09 09 09 Analyst Legend

Conglomerate/AutomotiveAstra International Dec 202,215 22,379 49,950 65,000 30% B -9 7 45 3.6 10,210 13,484 15,784 3331 3899 24 15.0 12.8 9.4 8.1 4.2 2.1 2.3 3.1341 26.9 12.0 28.0 JKSector 202,215 22,379 42.6 36.4 23.0 11.8 2.3 3.1

PropertyIntiland Development Dec 4,095 453 395 725 84% B -25 -32 78 20.4 26 506 511 49 49 145 8.1 8.0 7.9 5.1 1.1 10.6 3.7 3.7 49.0 1.2 2.2 AD Note 1Sector 4,095 453 8.1 8.0 7.9 5.1 1.1 3.7 3.7

ConsumerKalbe Farma Dec 31,484 3,484 3,100 3,275 6% H 23 51 137 24.6 929 1,176 1,411 125 151 25 24.7 20.6 13.8 11.8 5.7 3.5 1.4 1.7 cash 15.2 23.4 AD Note 1

Indofood Sukses Dec 39,731 4,397 4,525 5,925 31% B (11) 16 27 23.3 2,076 2,889 3,360 329 383 27 13.8 11.8 7.7 6.8 3.2 1.1 1.6 2.2 80.5 5.2 22.2 BS Note 171,215 7,881 18.6 15.7 9.0 4.3

BankBank Central Asia Dec 157,792 17,288 6,400 7,100 11% H (2) 14 33 8.9 6,807 8,380 9,448 340 383 18 18.8 16.7 - - 4.9 - 2.2 2.7 - 2.6 26.6 SL Note 1Bank Mandiri Dec 135,406 14,827 6,450 7,200 12% H (7) 12 42 17.1 7,155 8,930 10,900 430 525 23 15.0 12.3 - - 3.3 - 1.9 2.3 - 1.9 21.8 SL

Bank Danamon Dec 48,401 5,302 5,750 6,000 4% FV 2 6 28 5.4 1,533 3,044 3,835 363 458 58 15.8 12.6 - - 2.7 - 3.2 4.0 - 1.6 11.6 SL Note 1Bank Tabungan Negara Dec 14,285 1,565 1,640 2,500 52% B (13) 15 106 22.0 490 792 1,145 91 131 52 18.0 12.5 - - 2.3 - 1.0 1.7 - 0.9 11.5 SLBank Rakyat Indo Dec 127,723 14,115 10,350 13,900 34% B (0) 16 35 12.3 7,308 9,043 11,368 734 922 25 14.1 11.2 - - 3.7 - 2.1 2.7 - 2.6 29.5 SL Note 1Bank Negara Indonesia Dec 68,068 6,169 3,650 4,500 23% B 1 60 93 26.1 2,483 3,961 4,850 259 318 40 14.1 11.5 - - 2.6 - 1.3 2.1 - - 14.4 SL Note 1Sector 551,674 59,267 15.9 13.2 3.7PlantationAstra Agro Lestari Dec 37,873 4,191 24,050 27,400 14% B 16 16 0 1.7 1,661 1,602 2,085 1,017 1,324 12 23.6 18.2 13.8 11.1 5.6 5.1 2.8 2.7 cash 23.6 29.2 BS Note 1Sampoerna Agro Dec 5,528 612 2,925 4,400 50% B 8 23 10 3.8 282 389 469 206 248 29 14.2 11.8 8.4 7.0 2.7 3.0 1.8 2.5 cash 12.8 17.0 BSLondon Sumatra Dec 15,829 1,752 11,600 13,600 17% B 18 35 36 3.6 707 1,135 1,329 831 974 37 14.0 11.9 9.6 8.5 3.4 4.9 1.8 2.2 cash 14.5 20.2 BS Note 1Sector 59,230 6,555 20.2 15.9 10.0 4.7Basic MaterialsAneka Tambang Dec 22,415 2,481 2,350 1,655 -30% FV 1 15 7 27.6 423 1,205 1,452 126 152 85 18.6 15.4 8.9 7.0 2.5 2.3 2.2 2.6 cash 3.8 5.3 AK Note 1INCO Dec 44,962 4,976 4,525 3,979 -12% H (3) 14 25 14.7 910 2,861 2,975 288 299 81 15.7 15.1 8.6 7.8 2.8 7.9 0.6 1.9 cash 5.7 6.7 AK Note 1Timah Dec 13,086 1,448 2,600 2,300 -12% FV (9) 17 38 26.6 314 712 971 142 193 76 18.4 13.5 9.4 7.0 3.2 1.7 2.7 3.7 cash 5.9 8.7 AK Note 1Sector 80,463 8,905 17.0 14.9 10.0 2.8Oil, Gas and EnergyBukit Asam Dec 47,119 5,215 20,450 23,600 15% B 11 23 17 3.0 2,728 2,216 3,650 962 1,584 16 21.3 12.9 15.0 8.5 7.0 5.3 2.6 2.1 cash 38.5 56.2 AK Note 1United Tractors Dec 76,851 8,505 23,100 25,000 8% H 12 24 47 3.3 3,818 4,128 5,025 1,241 1,510 15 18.6 15.3 10.4 8.3 4.8 2.6 2.7 3.0 7.2 16.2 30.6 AK Note 1Adaro Energy Dec 80,765 8,938 2,525 2,800 11% B 17 28 44 67.1 4,367 2,408 5,557 75 174 13 33.5 14.5 12.7 6.7 4.5 3.0 2.2 1.5 26.2 11.5 27.8 AK Note 1Indo Tambangraya Dec 56,270 6,227 49,800 58,000 16% B 29 30 57 1.3 3,031 2,494 4,310 2,207 3,814 19 22.6 13.1 14.0 8.0 7.4 4.1 3.2 2.7 cash 31.0 48.5 AKPerusahaan Gas Dec 103,026 11,402 4,250 4,800 13% B 4 8 8 31.2 6,229 6,704 7,990 282 336 13 15.1 12.6 9.1 7.7 6.8 5.7 3.3 4.0 34.2 23.0 66.2 JN Note 1Sector 364,032 40,287 21.9 13.7 7.7 6.0TelecommunicationsIndosat Dec 28,528 3,157 5,250 7,000 33% B (3) 4 9 3.3 1,503 1,292 1,559 238 287 2 22.1 18.3 5.2 4.6 1.5 1.6 2.3 2.7 123.8 2.8 8.5 SM Note 1Sarana Menara Nusantara Dec 13,570 1,502 13,300 15,000 13% B 118 472 0 0.1 589 182 330 178 323 -25 74.6 41.2 15.7 13.0 10.5 12.5 0.0 0.0 420.3 9.3 72.3 SM Note 1XL Axiata Dec 45,092 4,990 5,300 6,800 28% B (5) 29 179 1.5 1,709 2,785 3,464 327 407 31 16.2 13.0 6.3 5.3 4.0 3.2 1.3 1.6 144.4 6.1 26.1 SMTelekomunikasi Indonesia Dec 156,240 17,291 7,750 8,900 15% H (16) (3) (21) 23.3 11,332 12,069 12,726 605 638 6 12.8 12.2 4.9 4.4 3.8 2.3 4.3 4.5 28.0 12.0 30.9 SM Note 1

Sector 243,430 26,940 18.0 14.7 5.1 3.9

Legend:Note 1 As at DBSVI and its affiliates hold a proprietary position in these companies.Note 2 DBSVR, DBSVI, DBS Bank and/or other affiliates of DBSVUSA, within the past 12 months, have received

compensation and/or within the next 3 months seek to obtain compensation for investment banking servicesNote 3 DBSVR, DBSVI, DBS Bank and/or other affiliates of DBSVUSA beneficially own a total of 1% or more of any class of common equity securities of these companiesNote 4 DBSVI has been appointed as the designated market maker of structure warrant(s) for these companies issued by DBS BankNote 5 DBSVR, DBSVI, DBS Bank and/or other affiliates of DBSVUSA beneficially own a total of 5% or more of any class of common equity securities of these companies

(%)(%)EV/EBITDA Div Yld

16-Dec-10

Performance (%)Share Price

(x)EPS (IDR)PAT/MI (Rpbn) PE (x)

KOREA : EARNINGS GUIDEFYE Mkt Mkt Price Target Avg CAGR Price/ Price/ Div Yld Net Debt

Company Cap Cap (KRW) Price % 6-mth 09-11 BV (x) Sales (x) (%) /Equity ROA ROE

(KRWbn) (US$m) 09-Dec (KRW) Upside Rcmd 3M 6M 12M Vol (m) 09 10F 11F 10F 11F (%) 10F 11F 10F 11F 09 09E 10F 11F 09 09 09 AnalystBasic Materials

Dongkuk Steel Mill Co Dec 1,932 1,671 31,250 29,000 -7% Buy 21 43 14 401 50 203 291 3,276.4 4,706.8 141 9.5x 6.6x 5.5x 4.7x 0.7x 0.4x 1.9% 1.9% 0.22 1% 2% Lee Eun Young

Hyundai Steel Co. Dec 9,896 8,561 116,000 120,000 3% Buy 3 30 41 743 1,152 858 957 10,103.5 11,269.8 (9) 11.5x 10.3x 10.4x 8.0x 1.5x 1.0x 0.4% 0.4% 0.66 8% 20% Lee Eun Young

Poongsan Corporation Dec 1,394 1,206 49,750 60,000 21% Buy 24 68 130 364 147 166 181 5,938.9 6,454.5 11 8.4x 7.7x 7.7x 6.7x 1.4x 0.6x 1.6% 1.6% 0.63 9% 19% Lee Eun Young

POSCO Dec 40,978 35,446 470,000 600,000 28% Buy (8) (0) (21) 266 3,172 4,523 4,895 51,872.6 56,142.7 24 9.1x 8.4x 6.4x 6.2x 1.2x 1.3x 1.7% 2.1% cash 8% 11% Lee Eun Young

SeAh Besteel Co Dec 1,225 1,059 34,150 45,000 32% Strong Buy 33 76 118 94 (39) 133 163 3,715.7 6,454.5 nm 9.2x 7.5x 6.2x 5.0x 1.3x 0.6x 2.9% 2.9% 0.85 (2%) (5%) Lee Eun YoungSector 55,425 47,944 4,483 5,883 6,486 9.4x 8.5x

Consumer Goods

Hankook Tire % Dec 4,847 4,207 31,850 37,000 16% Buy 6 18 29 18,295 351 426 487 2,801.1 3,201.0 18 11.4x 9.9x 8.5x 7.3x 2.1x 1.4x 1.1% 1.1% 0.10 12.4% 19% Jay Kim

Kia Motors % Dec 20,101 17,445 50,700 64,000 26% Buy 50 59 159 158,571 1,450 5,149 6,260 5,148.7 6,259.5 32 9.8x 8.1x 8.5x 7.4x 2.2x 0.9x 0.5% 0.5% 0.36 9.0% 22% Jay Kim

Hyundai Mobis Dec 29,154 25,302 299,500 330,000 10% Buy 24 48 83 76,559 1,615 2,376 2,784 24,408.1 28,597.1 31 12.3x 10.5x 15.8x 12.6x 3.1x 2.1x 0.5% 0.5% Cash 17.1% 24% Jay Kim

Hyundai Motor % Dec 39,209 34,028 178,000 240,000 35% Buy 17 22 60 155,420 2,962 5,329 6,227 18,384.7 21,510.7 46 9.7x 8.3x 9.2x 6.8x 1.8x 1.1x 0.5% 0.5% Cash 8.8% 14% Jay Kim

Pyeong Hwa Automotive Dec 323 281 15,400 19,000 23% Buy 4 35 101 3,387 31 41 47 1,970.4 2,252.9 23 7.8x 6.8x 9.7x 9.7x (1.8x) 0.9x 0.9% 1.1% Cash 12.4% 21% Jay Kim

Sector 97,328 85,342 6,409 13,321 15,806 11.0x 9.4x

(x)Net Profit (Before EI) (bn)

Share Price

Performance (%) PE (x)EPS (KRW)EV/EBITDA




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Research Team Directory Analyst Sector E-mail Regional Timothy Wong Head, Group Research [email protected] Joanne Goh Regional Equity Strategist [email protected] Paul Yong, CFA Singapore & China Industrial & Transport [email protected] Ben Santoso Regional Plantation [email protected] Sachin Mittal Telecom [email protected] Lim Sue Lin Singapore, Indonesia and Malaysia Banking [email protected] June Ng China and Malaysia Power [email protected] Hong Kong / China Derek Cheung Head of Research, Strategy [email protected] Alice Hui, CFA Deputy HOR, Consumer [email protected] Addison Dai Metal [email protected] Carol Wu China Property [email protected] Dennis Lam Insurance [email protected] Alexander Lee, CFA Banking & Finance [email protected] Jeff Yau, CFA Hong Kong Property [email protected] Ken He Port & Shipping [email protected] Mavis Hui Consumer [email protected] Patricia Yeung Environmental [email protected] Paul Yong, CFA Airline, Port & Toll Road [email protected] Rachel Miu Automobile, Infrastructure, Machinery [email protected] Steven Zhang Technology [email protected] Tam Tsz-Wang, CFA Telecom & Internet [email protected] Terry Hsu Airline & Toll Road [email protected] Titus Wu Consumer [email protected] Indonesia Maynard Arif Head of Research, Strategy [email protected] Ariyanto Kurniawan Basic Materials, Oil, Gas & Energy [email protected] Research Team Plantation, Consumer [email protected] Malaysia Wong Ming Tek Head of Research, Strategy [email protected] Goh Yin Foo, CFA Retail/ Technical Product [email protected] June Ng Power, Conglomerates [email protected] Lim Sue Lin Banking [email protected] Yee Mei Hui Gaming, Property [email protected] Juliana Ramli Aviation, Transport, Plantation, Telecommunications [email protected] Chong Tjen-San, CFA Construction, Infrastructure, Conglomerates [email protected] Kok Chiew Sia Consumer , Retail, Technology, Motor [email protected] Lee Wee Keat Oil & Gas, IPO, REITs [email protected] Hon Seow Mee Steel, Rubber Gloves, Financials [email protected] Research Team Small-Mid Caps [email protected] Singapore Janice Chua Head of Research, Strategy, Industrials [email protected] Ho Pei Hwa Industrials [email protected] Lock Mun Yee Property, Reits [email protected] Derek Tan Reits [email protected] Jeremy Thia Industrials, Property [email protected] Andy Sim, CFA Consumer [email protected] Tan Ai Teng Electronics [email protected] Suvro Sarkar Electronics, Industrials [email protected] Thailand Chanpen Sirithanarattanakul Head of Research [email protected] Strategy, Property, REITs, Transportation Chirasit Vuttigrai Strategy, Telecom, Media [email protected] Sugittra Kongkhajornkidsuk Banks, Securities [email protected] Nalyne Viriyasathien Construction Materials, Food and Beverage, [email protected] Healthcare, Hotel, Commerce, Naphat Chantaraserekul Building Materials, Energy, Utilities, Petrochemicals, Chemicals, [email protected] Research Team Automotive, Electronics Korea Lee Eun Young Basic Materials, Utilities [email protected] Jay (Jaehak) Kim Automotive [email protected]




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DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10 to +15% total return over the next 12 months for small caps, -10 to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson (www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg (DBSR GO). For access, please contact your DBSV salesperson. GENERAL DISCLOSURE/DISCLAIMER This document is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). [This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of DBSVR.] The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. DBSVR accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. The assumptions for commodities in this report are for the purpose of forecasting earnings of the companies mentioned herein. They are not to be construed as recommendations to trade in the physical commodities or in futures contracts relating to the commodities mentioned in this report. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 27 Dec 2010, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions). COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the mentioned company as of 24 Dec 2010

DBS Vickers Securities (Thailand) Co., Ltd. and its subsidiaries do not have a proprietary position in the mentioned company as of 24 Dec 2010 Except ADVANC, BAY,BBL and SCC.

PT. DBS Vickers Securities Indonesia ("DBSVI") has a proprietary position in Astra Agro Lestari, Aneka Tambang, Bank Central Asia, Bank Negara Indonesia, Bank Rakyat Indo, Bank Danamon, Indosat, London Sumatra, Perusahaan Gas, Tambang Batubara Bukit Asam, Telekomunikasi Indonesia recommended in this report as of 27 December 2010.

2. DBS Bank Ltd has been appointed as the designated market maker of structured warrant(s) for Genting Singapore issued by DBS Bank Ltd.

3. DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, beneficially own a total of 1% or more of any class of common equity securities of the China Minzhong, Capitaland, Fortune REIT, CDL HT, Frasers Centrepoint Trust as of 27 Dec 2010.

DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer, beneficially own a total of 5% or more of any class of common equity securities of Fortune REIT (778 HK) mentioned in this document as of 27 Dec 2010.




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4. Compensation for investment banking services:

(1) DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Keppel Corp, ARA, SIA, Tiger Airways, Genting Singapore, Keppel Land, Capitaland, Fortune REIT, CDL HT, Frasers Centrepoint Trust, Mapletree Logistics Trust, Parkway Life REIT, Singtel, ASL Marine.

DBSVHK, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Beijing Jingkelong (814 HK), Agricultural Bank of China (1288 HK), Sands China (1928 HK) , Beijing Enterprises Water (371 HK) and Fortune REIT (778 HK) mentioned in this document.

(2) DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or

resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

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




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