Asia Pacific Equity Strategy (Citi)
Corporate Securities Strategy
21 September 2009 44 pages
The Asia Investigator Equity Believe It or Not, Yield Continues to Beat EPS Growth
Asia ex: Yes, hard to believe, but dividend yield continues to outperform growth — Sometimes perception can become reality, but when you underperform, the reality Markus Rosgen is... you underperform. That need not be the case. As we highlighted a few weeks +852-2501-2752 [email protected] ago, country and sector neutral, value is outperforming with less volatility. When it comes to earnings growth vs. dividends, dividends are beating EPS growth. Page 3 Australia Strategist Graham Harman India: Too many trade-offs – will trade down — India has done well (100%+), China Strategist outperformed most indices (MSCI EM, BRIC) & sustained meaningful momentum Lan Xue since its March lows. It’s in large measure global, but outperformance is a mix of domestic macro & micro; policy (easy money), politics (new govt), people Hong Kong Strategist (consumption) & productivity (corporate). Domestic drivers should continue to Anil Daswani drive relative performance. Page 11 India Strategist Aditya Narain, CFA Malaysia: Stake sale to keep GLCs share prices resilient? — News and speculation Indonesia/Pakistan Strategist of a stake sale is expected to keep near-term share prices of government-linked Salman Ali, CFA companies (GLCs) rather resilient vis-à-vis the market. Although share overhang concerns following a sale are valid, we believe Khazanah would prefer long-term Japan Strategist institutional investors as suitors. Within the GLC universe, we are Buyers of Tsutomu Fujita, CFA Tenaga, PLUS Expressways and Sime Darby and Sellers of Axiata, Telekom Korea Strategist Malaysia, UMW Holdings and MISC. Page 28 Michael S Chung
Fun With Flows: Only Asian equity funds report outflows — As per EPFR Data, Malaysia Strategist outflows of US$539m from Asian equity funds last week were 3% above total net Yong Yin Ng, CFA cash received in the previous three weeks. With MXASJ up another 10% over this Pakistan Strategist period, after a 70% rally from its March low, not many are willing to pay 2.1x book Asif Ali for Asian equities. Page 33 Singapore Strategist Hak Bin Chua Market sentiment — Investment sentiment for the region continues to improve as MXASJ moves higher. Market wise, investors in Taiwan and Korea markets are as Taiwan Strategist optimistic as they were in 2007 whereas those in Singapore and Malaysia are Peter Kurz lagging the most. Page 34 Thailand Strategist Suchart Techaposai
Quant Strategist, Asia Pacific Paul Chanin Chief Economist, Asia Pacific Johanna Chua
See Appendix A-1 for Analyst Certification and important disclosures.
Citi Investment Research & Analysis is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Citigroup Global Markets
The Asia Investigator 21 September 2009 Asia Pacific Strategy Overview
Model Portfolio (Asia/Pacific ex Japan) Percentage Weighting Over / Under MSCI Benchmark*
Underweight Overweight -8 -6 -4 -2 0 2 4 6
Hong Kong (8.6) Korea (13.3)
Taiwan (12.6) Aust/NZ (25.7)
Thailand (1.4) Philippines (0.5) Singapore (4.8)
Indonesia (1.8) Malaysia (3.0)
India (8.1) China (20.3)
Model Portfolio (Asia/Pacific ex Japan) Percentage Weighting Over / Under Model Portfolio (Asia ex Japan) Percentage Weighting Over / Under MSCI MSCI Benchmark* Benchmark**
Underweight Overweight Underweight Overweight -10 -5 0 5 10 15 -6 -3 0 3 6 9 12 15
Telecom (6.9) Banks (18.0) Banks (20.1) Telecom (8.4) Info. Tech. (12.9) Info. Tech. (17.2)
Energy (8.3) Utilities (4.4) Utilities (3.6) Consumer Discretionary (6.1)
Industrials (9.1) Energy (8.6) Consumer Discretionary (5.2) Materials (7.1) Real Estate (7.7) Consumer Staples (4.5)
Other Financials (7.1) Other Financials (6.5) Consumer Staples (7.1) Industrials (10.8) Materials (12.0) Real Estate (8.2)
* Numbers in brackets show neutral weights within MSCI AC Asia Pacific ex Japan US$ Index as at 3 July 2009 ** Numbers in brackets show neutral weights within MSCI AC Asia ex Japan US$ Index as at 3 July 2009 Consumer Staples includes food & staples retailing, food beverage & tobacco, household products, health care equipment & services, and pharmaceutical & biotechnology Industrials include capital goods, commercial services & supplies and transportation Information Technology includes technology hardware & equipment, semiconductors and semiconductor equipment, software & services Other Financials include diversified financials and insurance Source: MSCI, Citi Investment Research and Analysis
2 Citigroup Global Markets
The Asia Investigator 21 September 2009 Asia-ex Equity Strategy
Believe It or Not, Yield Continues to Beat EPS Growth
Yes, hard to believe, but dividend yield continues to outperform growth — Markus Rosgen Sometimes perception can become reality, but when you underperform, the +852-2501-2752 [email protected] reality is... you underperform. That need not be the case. As we highlighted a few weeks ago, country and sector neutral, value is outperforming with less Elaine Chu volatility. When it comes to earnings growth vs. dividends, dividends are +852-2501-2768 beating EPS growth. [email protected] Yield in Asia ex does not equate to calcified, ex growth or boring stocks — Back in March, the low for markets this year, the highest dividend yield quintile would have been 20% in materials, 16% in technology and 15% in industrials. Hardly, a defensive portfolio. Even today the highest-yielding quintile includes a fair number of cyclicals, industrials and tech stocks. Yes, increasingly it also includes telecoms, but the biggest chunk is cyclicals.
Post recoveries, yield beats growth; it’s only at the end of the cycle it reverses— Dividend yield is not a panacea. It does well for 3/5th of the market cycle and then begins to underperform. Given that this cycle is only seven months old, it is hard to argue that we have reached the end. Expect yield to continue to outperform for a while before we need to make the switch towards pure earnings growth matrix.
3 Citigroup Global Markets
The Asia Investigator 21 September 2009
Believe It or Not, Yield Continues to Beat EPS Growth
The record may be old, but it is still We may sound like a broken record (for those of you of the post 33.3 rpm LP working. YTD and from the low, dividend record playing days, this makes reference to LP getting dusty/ scratched and yield is still king of the castle. hence jumping over the same four bars time and time again), but there is still a great reluctance on the part of investors to think of dividend yield in any other way than boring/underperform and passé. The good news for those of us that are more value/dividend focused is that it is neither of the above, and has as not yet become consensus. The fact that it remains a non-consensus form of investing suggests that there should be plenty of outperformance left in the strategy. The excess returns have not yet been arbitraged away – that is for us to do, which will entail further outperformance.
Growth vs. yield, it’s a knock-out
If you must buy growth, make it average From the lows in March 2009, the best-performing quintile of earnings growth not highest growth. Your portfolio will – with the benefit of hindsight (best investment strategy there is!) – has been reward you. the 5th quintile, where returns have been 85%. The 5th quintile is the lowest earnings growth quintile. Not exactly a strategy which would come to mind. So, even in the short run and within the growth universe, the highest EPS growth has not outperformed. Low growth has outperformed.
Over the course of the whole period-1990 to today (see Figure 1), the compound return of the 3rd quintile of EPS growth has been 10.6% vs. 7.9% for the highest EPS growth quintile (returns based on equal weighted, US$ total returns with monthly rebalancing). Yes, this is counter intuitive, and I’m not about to tell our kids to become average students when they could be doing better. Far from it, but I do hope that if they end up being above-average (still to be determined), they have the good sense to follow facts more than fiction or preconceived ideas.
Figure 1. Buying Average EPS Growth Rates Has Proven to Be a Lot More Profitable Than Buying the Highest EPS Growth
Dec89=100 EPS growth 1100 1000 900 800 700 600 500 400 300 200 100 0 90 92 94 96 98 00 02 04 06 08 Highest Q2 Q3 Q4 Lowest
Note: Highest means top quintile stocks with the highest EPS growth, Q2=2nd quintile and so on Source: CIRA AP Quant team
4 Citigroup Global Markets
The Asia Investigator 21 September 2009
Highest yield quintile still best of all
The real winner, dividend yield; the higher The highest dividend yield quintile continues to move ahead; not only is it the better. It’s beating growth out of the leaving the best-performing EPS growth quintile behind, but it is also the best lows and over the long run too. quintile amongst the five (see Figure 2). From the lows, the top-performing quintile is up 101% vs. the broad index which is up 76%. Unlike the EPS growth quintile where it is only the benefit of hindsight which allows investors to pick the best-performing one, in the case of dividend yield it is very simple. A rank correlation of 1 ensures that the highest dividend yield quintile outperforms the next highest all the way to the lowest. A perfect score from best to worst.
Figure 2. Buying High Dividend Yield Basket Is the Strategy to Outperform
Dec89=100 Div yield 1800 1600 1400 1200 1000 800 600 400 200 0 90 92 94 96 98 00 02 04 06 08 Highest Q2 Q3 Q4 Lowest
Note: Highest means top quintile stocks with the highest dividend yield, Q2=2nd quintile and so on Source: CIRA AP Quant team
From 1990 to today, the top dividend yield quintile has shown performance of 13.8%p.a. The total return of the MSCI Asia Pac ex index over that period stood at 8.3%. Not only does one outperform growth, but also the index. Now what is so wrong with that?!
If it’s working, don't fix it or mess with it
Out of the 1997/98 crisis yield beat Figure 3 shows the relative performance of the best earnings growth quintile growth, post 2001 yield beat growth and vs. the highest (also the best performing) dividend yield quintile. Dividend yield is doing it again. is making up for lost ground. Secondly, out of the Asian crisis, dividend yield beat growth; out of the 2001 recession, dividend yield beat growth; and out of the 2009 credit crisis, dividends are again beating growth. Don’t fight it, it’s fun to make money.
5 Citigroup Global Markets
The Asia Investigator 21 September 2009
Figure 3. Out of the Asian Crisis, Dividend Yield Beat Growth; Out of the 2001 Recession, Dividend Yield Beat Growth, and Out of the 2009 Credit Crisis, Dividends Are Again Beating Growth
100% Relative performance since 1990: 80% Stocks with highest div yield vs. those in Q3 EPS growth basket 60%
40%
20%
0%
-20%
-40% Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
Source: Citi Investment Research and Analysis
Below, see the list of top-yielding small-caps (below US$500m) and large-caps (above US$5bn).
Figure 4. Small-Caps with High Dividend Yield
Mcap, US$m Price 2009E RIC code Country Name 17-Sep-09 (Local curr.) Rating Div yield HPWR.KA Pakistan Hub Power 433 31.0 1M 10.8% AINT.SI Singapore Ascendas India Trust 479 0.9 2M 8.5% RIMT.SI Singapore Rickmers Maritime 117 0.4 3S 7.8% JORD.KA Pakistan Fauji Fertilizer Bin Qasim 248 22.0 3H 7.6% 2536.TW Taiwan Hung Poo Real Estate Development 451 50.4 1M 7.1% PWLR.SI Singapore Parkway Life REIT 482 1.1 1L 7.1% LPN.BK Thailand LPN Development 284 6.5 1M 6.8% 1565.TWO Taiwan St.Shine Optical 233 150.0 1L 6.2% 1382.HK Cayman Islds Pacific Textiles Holdings 497 2.7 1M 5.6% 5534.TW Taiwan Chong Hong Construction 465 68.1 1M 5.3% 095720.KS Korea WOONGJIN THINKBIG 415 19800.0 1H 5.1% TISCO.BK Thailand TISCO Financial Group 453 21.1 1H 4.7% TAT.SI Singapore Tat Hong Holdings 387 1.1 3H4.6% AP.BK Thailand Asian Property Development 460 6.7 1H 4.2% CSES.SI Singapore CSE Global 294 0.8 1M4.2% 1122.HK China Qingling Motors 490 1.5 1M 3.7% 3311.TW Taiwan Silitech Technology 474 87.3 1H 3.3% 3534.TW Taiwan Ralink Technology 346 89.3 3H 3.0% Source: Citi Investment Research and Analysis
6 Citigroup Global Markets
The Asia Investigator 21 September 2009
Figure 5. Large-Caps with High Dividend Yield
Mcap, US$m Price 2009E RIC code Country Name 17-Sep-09 (Local curr.) Rating Div yield OGDC.KA Pakistan Oil & Gas Development 5,936 114.5 1M 7.4% TEL.PS Philippines PLDT 9,136 2300.0 1L 6.6% 2412.TW Taiwan Chunghwa Telecom 18,724 56.9 3L 6.6% ADVA.BK Thailand Advanced Info 8,437 96.0 2L 6.6% 3045.TW Taiwan Taiwan Mobile 6,566 56.0 1L 5.9% 017670.KS Korea SK Telecom 11,573 173000.0 1M 5.8% 010950.KS Korea S-Oil 5,820 62400.0 3L 5.6% 0011.HK Hong Kong Hang Seng Bank 28,048 113.7 3L 5.5% 2498.TW Taiwan HTC Corporation 8,692 360.0 3H 5.4% KPLM.SI Singapore Keppel Corp 9,475 8.4 1L 5.4% 2382.TW Taiwan Quanta Computer 8,240 72.5 1M 5.2% STEG.SI Singapore Singapore Technologies Engineering 5,902 2.8 1L 5.0% 0006.HK Hong Kong Hongkong Electric 11,773 42.8 2L4.9% 030200.KS Korea KT Corp. 8,848 40900.0 1M 4.9% 0330.HK Hong Kong Esprit 8,143 50.7 3M 4.8% 0002.HK Hong Kong CLP Holdings 16,237 52.3 3L4.7% TLKM.JK Indonesia PT Telkom 17,467 8400.0 1L 4.7% 0902.HK China Huaneng Power International 9,084 5.8 2L 4.5% 1301.TW Taiwan Formosa Plastics 12,746 67.5 2L 4.4% 1326.TW Taiwan Formosa Chemicals & Fiber 11,095 63.2 1L 4.4% 0386.HK China Sinopec 77,415 6.9 1L 4.3% 1038.HK Hong Kong Cheung Kong Infrastructure Holdings 8,100 27.9 1L 4.3% 033780.KS Korea KT&G 8,084 70300.0 1L 4.3% DBSM.SI Singapore DBS Group 21,749 13.5 1L 4.2% 0939.HK China China Construction Bank 195,389 6.5 1M 4.1% 2330.TW Taiwan TSMC 49,932 62.5 1L 4.0% STEL.SI Singapore SingTel 35,700 3.2 1L 3.9% MISCe.KL Malaysia MISC 9,728 9.0 3L 3.9% 600005.SS China Wuhan Iron And Steel 9,748 8.5 3M 3.9% 2454.TW Taiwan MediaTek 17,219 512.0 1L 3.9% 3988.HK China Bank of China 143,456 4.4 2M 3.8% 0941.HK Hong Kong China Mobile 203,183 78.5 1L 3.7% HKLD.SI Hong Kong Hongkong Land 9,447 4.2 1L 3.6% OCBC.SI Singapore OCBC 17,681 7.8 1L 3.6% 1398.HK China Industrial & Commercial Bank of China 268,501 6.2 1M 3.6% UOBH.SI Singapore UOB 18,318 17.0 1L 3.5% 2388.HK Hong Kong BOC Hong Kong 25,319 18.6 1L 3.5% PGAS.JK Indonesia PT Perusahaan Gas Negara 9,206 3725.0 1L 3.3% SCC.BK Thailand Siam Cement 8,149 229.0 1M 3.3% 6505.TW Taiwan Formosa Petrochemical 25,420 86.5 3L 3.2% ONGC.BO India Oil & Natural Gas 51,560 1159.8 3M 3.1% 0363.HK Hong Kong Shanghai Industrial 5,406 38.8 1M3.1% TISC.BO India Tata Steel 7,914 521.2 2M3.1% 1402.TW Taiwan Far Eastern Textile 5,407 37.6 1M 3.1% 0013.HK Hong Kong Hutchison Whampoa 31,411 57.1 1L 3.0% SGXL.SI Singapore Singapore Exchange 6,516 8.6 1L3.0% Source: Citi Investment Research and Analysis
7 Citigroup Global Markets
The Asia Investigator 21 September 2009 Asia Pacific Market Intelligence
Country
Mkt Cap P/E (x) EPS Growth (%) Yield (%) PBV ROE (%) US$ Performance 09/17/2009 USD bil 2008 2009 2010 2008 2009 2010 2009 (x) 2008 2009 2010 1W 1M YTD MSCI Asia Pacific 5011.7 27.0 25.5 16.9 -54.3 6.0 51.0 2.2 1.6 6.0 6.2 8.9 1.4 7.4 32.7 MSCI Asia Pacific ex Japan 2855.0 18.5 18.1 14.8 -25.1 1.9 22.4 2.6 2.0 11.4 11.0 12.5 3.5 11.4 59.4 MSCI Asia 4200.5 32.1 28.0 17.1 -61.9 14.9 63.3 2.0 1.5 4.8 5.4 8.3 0.8 6.2 28.6 MSCI Asia ex Japan 2043.7 20.4 18.3 14.4 -30.2 11.4 27.0 2.2 2.0 10.3 10.7 12.6 2.9 10.1 59.5 Australia 800.4 15.0 17.7 15.9 -13.8 -15.0 11.6 3.8 2.1 14.0 11.7 12.4 5.0 14.6 59.0 China 542.2 18.7 16.7 13.9-10.9 12.0 20.1 2.3 2.4 14.2 14.3 15.4 2.1 7.1 53.3 Hong Kong 232.2 19.1 19.2 17.4 -32.5 -0.5 10.5 2.9 1.5 8.1 7.8 8.3 2.1 6.0 52.5 India 216.5 21.7 20.6 16.8-7.6 4.3 19.4 1.1 3.1 15.6 15.0 15.9 3.6 14.8 81.3 Indonesia 54.4 16.9 16.2 14.3 -1.6 5.0 13.3 2.6 3.7 26.1 23.2 22.7 5.4 7.0 109.3 Japan 2156.8 69.1 54.8 20.7-84.3 25.9 164.2 1.8 1.2 1.8 2.3 5.7 -1.1 2.6 9.2 Korea 398.8 21.2 15.0 11.1 -38.0 40.9 34.7 1.2 1.6 8.2 10.5 12.7 5.2 16.4 64.0 Malaysia 78.7 15.8 17.5 15.3-21.8 -9.6 14.7 2.7 1.9 12.8 11.1 11.8 2.3 6.0 41.1 New Zealand 10.9 11.6 14.7 14.5 -17.6 -21.4 1.6 NA 1.7 15.0 11.4 11.4 3.6 10.2 43.5 Philippines 12.1 19.3 15.8 13.6 -16.4 22.2 15.5 3.3 2.2 13.1 14.0 15.0 -1.0 -1.1 43.5 Singapore 133.0 14.1 17.6 15.2 -13.2 -20.2 16.4 3.3 1.7 12.4 9.7 10.7 0.9 8.1 52.8 Taiwan 336.7 37.7 32.1 18.0-68.1 17.6 78.5 2.9 2.0 5.5 6.1 10.3 2.2 10.7 60.0 Thailand 39.0 15.4 13.2 11.3 13.9 16.8 16.3 3.2 1.8 12.6 13.6 14.4 1.9 13.0 66.5 * MSCI Asia excludes Australia and New Zealand.
Source: IBES Consensus, MSCI, FactSet and Citi Investment Research and Analysis estimates
Sector
Mkt Cap P/E (x) EPS Growth (%) Yield (%) PBV ROE (%) US$ Performance 09/17/2009 USD bil 2008 2009 2010 2008 2009 2010 2009 (x) 2008 2009 2010 1W 1M YTD MSCI Asia Pac ex Japan 2855.0 18.5 18.1 14.8 -25.1 1.9 22.4 2.6 2.0 11.4 11.0 12.5 3.5 11.4 59.4 Energy 226.7 15.7 15.813.4 -7.3 -1.5 18.1 2.5 2.1 15.7 13.4 14.6 2.4 11.2 61.9 Materials 366.2 15.3 19.015.4 -19.1 -19.6 23.4 2.0 2.3 16.4 12.3 13.9 5.8 14.3 75.0 Capital Goods 171.6 19.6 15.2 13.2 -30.7 28.6 15.6 2.0 1.8 10.4 11.8 12.3 2.4 8.4 55.2 Commercial & Professional Services 11.0 16.9 18.0 17.0 1.6 -6.0 5.5 2.2 5.7 36.7 31.5 28.0 3.9 25.6 31.4 Transportation 69.9 52.2 NM24.5 -84.4 -99.0 NM 1.9 1.4 2.5 0.2 5.5 3.0 7.7 38.7 Automobiles & Components 53.1 18.1 14.0 12.4 7.2 28.7 13.3 1.2 2.0 11.1 14.1 14.1 5.2 18.8 159.6 Consumer Durables & Apparel 23.6 31.5 13.8 10.9 -45.4 127.6 27.1 1.7 2.2 7.6 16.2 17.7 -1.9 -1.2 67.1 Consumer Services 29.2 14.6 17.7 14.8 -7.1 -17.8 20.0 1.8 1.8 12.7 10.2 11.6 1.3 13.6 46.8 Media 10.5 13.6 16.315.3 -18.1 -16.4 6.3 5.0 1.7 11.1 10.3 10.5 0.8 12.4 35.1 Retailing 37.3 19.3 19.116.4 -18.6 0.8 16.3 1.7 2.7 16.5 14.0 15.0 1.6 4.2 67.9 Food & Staples Retailing 72.2 18.0 17.9 16.9 7.1 0.2 6.2 2.1 2.3 12.9 12.9 13.1 4.8 11.1 53.2 Food Beverage & Tobacco 76.1 17.0 15.9 14.3 -9.4 7.0 11.4 2.4 2.6 16.9 16.5 16.5 3.0 8.8 39.6 Household & Personal Products 13.9 33.6 25.521.5 18.8 31.8 19.0 1.8 8.5 21.8 25.2 33.9 2.0 8.4 31.1 Health Care Equipment & Services 8.9 22.7 20.4 18.2 15.5 11.4 11.8 0.7 3.4 17.0 16.6 17.2 4.5 18.0 35.4 Pharmaceuticals Biotechnology & 26.8 27.6 19.7 16.4 -3.5 40.4 20.1 0.7 3.7 15.9 18.8 20.7 2.5 7.7 25.1 Life Sciences Banks 593.6 15.7 16.313.6 -11.6 -3.6 20.1 3.2 1.9 13.1 11.5 12.9 4.7 14.2 73.6 Diversified Financials 84.9 23.2 20.1 17.6 -34.7 15.4 14.1 2.7 2.4 11.3 12.2 13.1 4.1 10.2 77.8 Insurance 122.2 30.7 20.217.7 -52.1 51.8 14.3 2.3 2.4 8.5 12.1 12.8 4.8 13.3 41.2 Real Estate 218.8 14.2 17.2 16.2 -19.1 -17.2 5.8 2.9 1.2 8.0 7.2 7.2 2.9 11.3 55.7 Software & Services 64.3 26.9 24.6 21.4 16.9 9.4 14.8 0.8 7.2 32.1 29.0 26.4 3.4 15.7 102.8 Technology Hardware & Equipment 134.6 21.2 29.5 15.0 -48.0 -28.3 97.7 2.0 1.9 9.4 6.4 11.7 2.3 14.4 92.6 Semiconductors & Semiconductor 184.0 NM 27.9 16.0 -96.1 NM 74.3 2.2 2.4 0.5 8.5 13.5 2.4 13.8 79.5 Equipment Telecommunication Services 166.6 12.8 12.8 12.2 4.4 -0.2 5.1 4.4 2.1 18.1 16.8 16.3 0.7 0.0 10.1 Utilities 89.1 26.6 17.915.0 -45.0 48.6 19.4 2.8 1.6 6.3 8.8 9.9 1.6 4.7 23.1 Note: The above valuation data are compiled based on the MSCI Asia Pacific universe of stocks with which IBES forecasts are available. Fiscal year of each company is calendarized to December as the year-end. The market capitalization for countries, sectors and the region are free-float adjusted. NM = Not Meaningful; NA = Not Available.
Source: IBES Aggregate, MSCI, FactSet and Citi Investment Research and Analysis estimates
8 Citigroup Global Markets
The Asia Investigator 21 September 2009 Asia Pacific Model Portfolio by Country
Price YTD Analyst's MSCI Portfolio FY09E FY09E EPS FY09E Div FY09E FY09E Name 18 Sep 09 Perf (%) Ticker Rating Wght (%) Wght (%) PE (x) Gwth (%) Yield (%) P/BV (x) ROE (%) Australia/New Zealand (+135 bps Overweight) 25.7 27.0 Aust & NZ Banking 23.2 51.6 ANZ.AX 1M 7.0 17.9 -12.7 4.0 1.8 9.9 Brambles 7.8 5.0 BXB.AX 2M 5.0 21.7 -29.5 3.3 6.6 30.6 Tabcorp Hld 7.0 0.4 TAH.AX 2M 1.0 7.9 -4.9 9.3 1.3 16.4 Telecom NZ 2.7 16.6 TEL.NZ 2M 4.0 10.2 -30.2 9.0 1.8 18.1 Telstra 3.3 -15.1 TLS.AX 2H 6.0 9.9 10.3 8.6 3.3 32.9 Woodside Pet 50.7 38.0 WPL.AX 1M 4.0 22.3 -23.8 1.8 4.5 20.0 China (-628 bps Underweight) 20.3 14.0 China Construction Bank 6.5 52.5 0939.HK 1M 3.0 12.2 18.1 4.1 2.5 20.6 China Mobile 78.0 0.2 0941.HK 1L 3.0 12.1 2.8 3.7 2.7 22.8 CNOOC 10.8 49.4 0883.HK 3L 5.0 16.9 -43.1 2.1 2.5 14.6 Industrial & Commercial Bank of China 6.2 51.01398.HK 1M 3.0 13.9 17.5 3.6 2.7 19.2 Hong Kong (+637 bps Overweight) 8.6 15.0 BOC Hong Kong 17.2 96.4 2388.HK 1L 4.0 16.1 239.4 3.7 1.9 11.8 Guoco 75.7 66.6 0053.HK 2L 1.0 23.5 42.5 2.6 0.6 2.7 HSBC 7.3 10.3 HSBA.L 1M 2.0 28.0 17.0 2.9 1.6 5.9 Hong Kong & China Gas 19.2 63.8 0003.HK 3L 2.0 25.3 12.1 1.9 3.8 14.9 Henderson Land 51.5 79.4 0012.HK 1L 2.0 18.2 1.5 2.9 0.9 4.9 Hutchison Whampoa 56.7 45.8 0013.HK 1L 4.0 13.5 1.1 3.1 0.8 5.7 India (-309 bps Underweight) 8.1 5.0 Bharti Airtel 442.6 23.8 BRTI.BO 1L 1.0 17.7 17.9 - 4.2 23.8 State Bank of India 2,142.3 66.3 SBI.BO 1L 1.5 13.0 14.1 1.4 2.1 15.8 Wipro 568.2 143.3 WIPR.BO 1L 2.5 20.6 16.8 1.2 4.5 22.0 Indonesia (-78 bps Underweight) 1.8 1.0 PT Telkom 8,400.0 21.7 TLKM.JK 1L 1.0 14.7 -2.1 4.7 4.3 29.3 Korea (+375 bps Overweight) 13.3 17.0 KEPCO 34,800.0 17.6 015760.KS 2L 0.5 -16.8 56.8 - 0.6 -3.4 KB Financial 60,500.0 83.5 105560.KS 1L 4.0 30.3 -62.3 0.6 1.2 3.9 Samsung Elec 806,000.0 78.7 005930.KS 1L 6.5 14.6 47.6 0.7 1.9 12.9 Shinhan Financial 48,200.0 70.6 055550.KS #N/A 3.0 19.4 -42.4 0.7 1.2 5.9 Shinsegae 583,000.0 21.0 004170.KS 3L 3.0 18.9 1.2 0.2 2.5 13.2 Malaysia (-205 bps Underweight) 3.0 1.0 Tanjong 15.3 14.7 TJPL.KL 1L 1.0 9.8 34.8 6.6 1.7 17.2 Philippines (-47 bps Underweight) 0.5 0.0 Singapore (-77 bps Underweight) 4.8 4.0 DBS 13.2 56.3 DBSM.SI 1L 2.0 15.3 -22.2 4.3 1.2 8.1 StarHub 2.2 10.8 STAR.SI 2L 1.0 11.7 4.0 8.4 32.4 276.2 SPH 3.7 18.0 SPRM.SI 1L 1.0 15.1 -11.6 5.9 2.8 18.5 Taiwan (+237 bps Overweight) 12.6 15.0 Acer 80.0 89.7 2353.TW 1M 2.0 18.4 -2.0 2.5 2.4 12.9 Far Eastone 37.9 1.5 4904.TW 2L 2.0 13.3 -7.6 6.9 1.7 13.0 Formosa Plastics 66.6 63.4 1301.TW 2L 2.0 17.5 18.1 4.5 2.1 12.0 Taiwan Mobile 55.6 14.2 3045.TW 1L 3.0 13.8 -7.2 5.9 4.1 29.9 TSMC 62.7 41.9 2330.TW 1L 6.0 20.4 -21.0 4.0 3.5 17.1 Thailand (-40 bps Underweight) 1.4 1.0 Kasikornbank 86.5 92.2 KBANf.BK 3L 1.0 14.2 -5.2 2.3 1.7 11.9 Total 100.0 100.0 16.3 -3.9 3.6 2.0 12.4 Neutral weight as of 3 July 2009
Source: Citi Investment Research and Analysis estimates
9 Citigroup Global Markets
The Asia Investigator 21 September 2009 Asia Pacific Model Portfolio by Sector
Price YTD MSCI Portfolio FY09E FY09E EPS FY09E Div FY09E FY09E Name 18 Sep 09 Perf (%) Country Wght (%) Wght (%) PE (x) Gwth (%) Yield (%) P/BV (x) ROE (%) Banks (+1042 bps Overweight) 20.1 30.5 Aust & NZ Banking 23.2 51.6 AU 7.0 17.9 -12.7 4.0 1.8 9.9 BOC Hong Kong 17.2 96.4 HK 4.0 16.1 239.4 3.7 1.9 11.8 China Construction Bank 6.5 52.5 CN 3.0 12.2 18.1 4.1 2.5 20.6 DBS 13.2 56.3 SG 2.0 15.3 -22.2 4.3 1.2 8.1 HSBC 7.3 10.3 GB 2.0 28.0 17.0 2.9 1.6 5.9 Industrial & Commercial Bank of China 6.2 51.0 0.0 3.0 13.9 17.5 3.6 2.7 19.2 Kasikornbank 86.5 92.2 TH 1.0 14.2 -5.2 2.3 1.7 11.9 KB Financial 60,500.0 83.5 KR 4.0 30.3 -62.3 0.6 1.2 3.9 Shinhan Financial 48,200.0 70.6 KR 3.0 19.4 -42.4 0.7 1.2 5.9 State Bank of India 2,142.3 66.3 IN 1.5 13.0 14.1 1.4 2.1 15.8 Consumer Discre. (-22 bps Underweight) 5.2 5.0 Shinsegae 583,000.0 21.0 KR 3.0 18.9 1.2 0.2 2.5 13.2 SPH 3.7 18.0 SG 1.0 15.1 -11.6 5.92.8 18.5 Tabcorp Hld 7.0 0.4 AU 1.0 7.9 -4.9 9.3 1.3 16.4 Consumer Staples (-710 bps Underweight) 7.1 0.0 Energy (+69 bps Overweight) 8.3 9.0 CNOOC 10.8 49.4 HK 5.0 16.9 -43.1 2.1 2.5 14.6 Woodside Pet 50.7 38.0 AU 4.0 22.3 -23.8 1.8 4.5 20.0 Financials , Others (-615 bps Underweight) 7.1 1.0 Guoco 75.7 66.6 HK 1.0 23.5 42.5 2.6 0.6 2.7 Industrials (-7 bps Underweight) 9.1 9.0 Brambles 7.8 5.0 AU 5.0 21.7 -29.5 3.3 6.6 30.6 Hutchison Whampoa 56.7 45.8 HK 4.0 13.5 1.1 3.1 0.8 5.7 Information Technology (+405 bps Overweight) 12.9 17.0 Acer 80.0 89.7 TW 2.0 18.4 -2.0 2.5 2.4 12.9 Samsung Elec 806,000.0 78.7 KR 6.5 14.6 47.6 0.7 1.9 12.9 Wipro 568.2 143.3 IN 2.5 20.6 16.8 1.2 4.5 22.0 TSMC 62.7 41.9 TW 6.0 20.4 -21.0 4.0 3.5 17.1 Materials (-999 bps Underweight) 12.0 2.0 Formosa Plastics 66.6 63.4 TW 2.0 17.5 18.1 4.5 2.1 12.0 Real Estate (-572 bps Underweight) 7.7 2.0 Henderson Land 51.5 79.4 HK 2.0 18.2 1.5 2.9 0.9 4.9 Telecommunications (+1414 bps Overweight) 6.9 21.0 Bharti Airtel 442.6 23.8 IN 1.0 17.7 17.9 0.0 4.2 23.8 China Mobile 78.0 0.2 HK 3.0 12.1 2.8 3.7 2.7 22.8 Far Eastone 37.9 1.5 TW 2.0 13.3 -7.6 6.9 1.7 13.0 PT Telkom 8,400.0 21.7 ID 1.0 14.7 -2.1 4.7 4.3 29.3 StarHub 2.2 10.8 SG 1.0 11.7 4.0 8.4 32.4 276.2 Taiwan Mobile 55.6 14.2 TW 3.0 13.8 -7.2 5.9 4.1 29.9 Telecom NZ 2.7 16.6 NZ 4.0 10.2 -30.2 9.0 1.8 18.1 Telstra 3.3 -15.1 AU 6.0 9.9 10.3 8.6 3.3 32.9 Utilities (-5 bps Underweight) 3.6 3.5 Hong Kong & China Gas 19.2 63.8 HK 2.0 25.3 12.1 1.9 3.8 14.9 KEPCO 34,800.0 17.6 KR 0.5 -16.8 56.8 0.0 0.6 -3.4 Tanjong 15.3 14.7 MY 1.0 9.8 34.8 6.6 1.7 17.2 Total 100.0 100.0 16.3 -3.9 3.6 2.0 12.4 Neutral weight as of 3 July 2009
Source: Citi Investment Research and Analysis estimates
10 Citigroup Global Markets
The Asia Investigator 21 September 2009 India Equity Strategy
Too Many Trade-offs – Will Trade Down
Aditya Narain, CFA Macro & Micro, so far: India has done well (100%+), outperformed most +91-22-6631-9879 indices (MSCI EM, BRIC) & sustained meaningful momentum since its [email protected] March lows. It’s in large measure global, but outperformance is a mix of Tirthankar Patnaik domestic macro & micro; policy (easy money), politics (new govt), people +91-22-6631-9887 (consumption) & productivity (corporate). Domestic drivers should continue [email protected] to drive relative performance.
Now, Macro vs. Micro: The economy, and market, now face trade-offs almost across the board: a) strong urban consumption demand vs. rain-hit rural slack; b) investment momentum – infra, policy and capital flows vs. capacity surpluses, dimmed risk appetite; c) easy liquidity vs. risk of higher rates (regulator driven); d) fiscal stimulus vs. high and rising deficit; e) continuing global flows vs. faltering domestic ones; f) global risk trade benefits vs. India’s commodity exposure; and g) rising earnings growth vs. cost rather than demand-driven gains. India is probably not unique on most counts but possibly unique in the number of counts.
Go thematic, market unlikely to be decisive: Dominant themes, in order of influence: a) rising interest rates – inflation rather than demand driven; b) urban consumption momentum; c) infrastructure – investments, policy expectations; and d) government expenditure remaining high/fiscal sluggishness. For market decisiveness (ex-global): on upside, rates remain low, consumption/investment demand broadens and/or earnings rise. On downside – rates rise, loan growth remains slack and/or sales growth remains tepid.
Too many trade-offs; stay defensive, as markets trend (down) to averages: We would position defensively and expect the market to settle at its long-term average valuations – 15x 1yr Fwd (15400). In the immediate term, macro risks – rates, global flows and aggregate demand – overshadow the micro stability, and earnings. We would continue to position the portfolio defensively: Overweight Autos, IT, Telecom, Pharma and Energy; Underweight Banks, Property, Materials.
Figure 1. India has benefited the most from the risk-trade since March 2009
Revival is a Risk Trade 220.0
200.0
180.0 India 160.0
140.0
120.0
100.0
80.0
60.0
40.0 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 US BRIC EM India Crude LME Metals S&P GSCI EMBI Spread Source: Bloomberg, Citi Investment Research and Analysis
11 Citigroup Global Markets
The Asia Investigator 21 September 2009
Global + Local = Outperformance
India a meaningful outperformer since Since March lows, India has been a meaningful outperformer across March lows developing and developed markets benchmarks. In absolute terms, India has jumped 100% from its lows, and the markets' momentum remains robust. And India’s broader market has also meaningfully outperformed the Sensex.
Figure 2. India's Relative Performance vs. Major Markets since March Lows
Comparative Performance of the Sensex vs. Major Equity Indices, since 09-Mar-2009 260.0
240.0
220.0
200.0
180.0
160.0
140.0
120.0
100.0
80.0
60.0 09-Mar-09 24-Mar-09 08-Apr-09 23-Apr-09 08-May-09 23-May-09 07-Jun-09 22-Jun-09 07-Jul-09 22-Jul-09 06-Aug-09 21-Aug-09 05-Sep-09 Sensex Nifty Junior S&P500 Shanghai MSCI EM$ MSCI EM Asia$
Source: Bloomberg, Citi Investment Research and Analysis
New government and earnings growth in The scale of the performance is a global markets phenomenon. But the 1Q10, primary drivers of this outperformance is clearly specific and local-event driven. The primary one: a outperformance new stable government (against market expectations) with a mandate for political stability and more aggressive and efficient governance. The second: earnings growth in 1Q10 (+7%), well ahead of expectations of negative growth. We believe these two events have primarily driven performance ahead of most benchmarks.
Figure 3. Macro and Micro events key driver of this performance
Sensex since March 2009 18000
Decisive Election Verdict 16000
14000
12000
1QFY10 Earnings Well 10000 above Expectations
8000
6000 02-Mar-09 17-Mar-09 01-Apr-09 16-Apr-09 01-May-09 16-May-09 31-May-09 15-Jun-09 30-Jun-09 15-Jul-09 30-Jul-09 14-Aug-09 29-Aug-09 13-Sep-09 Series1
Source: Bloomberg, Citi Investment Research and Analysis
12 Citigroup Global Markets
The Asia Investigator 21 September 2009
Trade-offs Too Many
Tug of war, across market drivers and The times have since changed: with overt pessimism now turned to more subtle market droppers optimism (at a substantially higher market level); we believe there is a ‘tug of war’ across economic and market drivers. We believe this will lead to an uneasy market balance but will limit any meaningful or decisive market moves.
A. Strong Urban Consumption vs. Weak Rural Demand (courtesy the monsoons)
Urban consumption is reviving fast, and Urban consumption is now on a bit of a roll: cars, retail, air-traffic and a few should sustain and widen others moving smartly. This sharp turnaround is a likely mix of lower prices (thanks to the fiscal stimuli – lower taxes, and some drops in raw material costs); pent-up demand – auto growth had been slack for a couple of years; and growing consumer confidence – market and corporate world stabilizing, selective job and compensation growth revival. We do believe this urban consumption growth is relatively broad-based, should sustain (unwinding stimuli a risk) and widen, and is an investment theme that should be pursued.
Figure 4. Signs of Revival in the Auto Sector Figure 5. Domestic Passenger Traffic: All Airports
Revival in the Auto Sector Domestic Passenger Traffic: All Airports 30 35 25.8
29.3 21.3 30 20 25
20 18.2 10 5.18 15
10 0
5
0 -10
-5 -20 -10
-15 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 -30 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Car Sales 2W Sales
Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis Figure 6. Pantaloon Same-Store Sales Growth Figure 7. Foreign Tourism
60 Revival in Foreign Tourism
50 1200 20
40 1000 10
30 800 0
20
600 -10 10
- 400 -20
(10) 200 -30
(20) 0 -40 Jul-08 Oct-08 Jan-09 Apr-09 Jun-09 Jun-08 Feb-09 Sep-08 Nov-08 Dec-08
Aug-08 Mar-09 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 May-09
Value Retailing Life Style Retailing Foreign Tourism Earnings US$m Foreign Tourism Earnings %YoY
Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis
13 Citigroup Global Markets
The Asia Investigator 21 September 2009
Rural faces risks
The lack of rains will hurt – extent might Rural demand might be a different story. We don’t like calling the rains, and we be modest and timing hard to determine, don’t have a big fix on their impact or the timing of the impact (if any). But we but ignoring it is a risk. Follow our do believe there will be an adverse impact on consumption and demand. There telecom team as they ‘walk the rural talk’ are offsets – government schemes (NREGA), fiscal support in terms of higher …https://www.citigroupgeo.com/pdf/SAP3 food prices and possibly more supportive government measures down the line. 9695.pdf We run sensitivity on overall GDP on account of weak agriculture, which remains a negative. Important to note, our intrepid Telecom analysts decided to ‘Walk their Rural Talk’ and traversed the Indian heartlands to possibly get a sense of rain pressure (see Rahul Singh's 14 September 2009 report, "India Wireless – Road Trip to the Rural Belt: More Bad News than Good," at link https://www.citigroupgeo.com/pdf/SAP39695.pdf) – their ground feel was that not every place was affected, but there were areas that were pretty meaningfully hit.
Figure 8. GDP Sensitivity to Agri Growth (%)
Wts FY10E FY11E Old Fcsts New Fcsts Worse Case Agriculture 17.0 3.0 -3.0 -7.03.0 Industry 25.8 5.5 5.5 5.57.4 Services 57.3 8.6 8.6 8.69.3 GDP 100.0 6.8 5.8 5.2 7.8
Source: CSO, Citi Investment Research and Analysis estimates.
No pronounced impact of weak monsoons We do, however, believe at the aggregate there will be negative impact. A fairly on sectoral demand…. Construction & detailed analysis of the last weak monsoon year (2002-2003), see Figures 8- Auto in '03 suggest no specific lags either 11, suggests the impact is relatively modest and not very specific to a quarter or in its time lag.
Figure 9. Growth in Major Sectors since 1999 (Drought period shaded) Figure 10. Impact of the FY03 Drought on Various Sectors
FY03 Drought and Impact on Major Sectors FY03 Sector Impact
20 25 18.8 16.1 16.2 20
15 15 12.4 12.6 9.9 12.0 11.8 8.7 8.7 11.0 10 7.9 8.5 8.7 7.8 7.9 10.3 6.8 7.2 10.0 10.2 10.1 5.3 10 8.4 8.0 8.1 5 7.1 7.4 7.2 0.1 6.3 6.3 6.4 6.2 6.3 5.8 0 4.6 4.9 4.1 4.0 5 4.0 3.9 -5 2.7 2.7 1.6 -10 0.1 0 0.3 -15 -20 -5 -25 -24.5 7.2 -30 -10 Sugar Cement Cement Steel Steel Car Two-Wheeler Tractors 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Consumption Production Consumption Production Production
Agriculture Industry Construction FY03 Long-term Avg.
Source: CSO, Citi Investment Research and Analysis Source: CSO, Citi Investment Research and Analysis
14 Citigroup Global Markets
The Asia Investigator 21 September 2009
Figure 11. Impact of Deficient Rainfall on the Auto Sector in FY03 Figure 12. Impact of Deficient Rainfall on the Construction Sector in FY03
Impact on Deficient Rainfall on the Auto Sector Impact on Deficient Rainfall on the Construction Sector 60 40 51.1 48.5 50 46.3 30.1 30 25.3 25.3 26.2 40 36.8 34.6 23.4 29.1 20 30 16.2 14.9 21.9 14.0 13.0 13.7 11.6 11.6 20 17.9 17.4 11.1 14.0 13.9 14.7 13.3 10 8.6 8.2 8.6 7.7 6.5 6.5 6.0 9.6 5.1 5.3 4.2 4.8 10 6.0 2.9 2.3 4.1 5.1 4.9 2.0 3.1 2.0 - - (1.5) (1.5) (3.6) (10) (10) (12.9) (14.2) (20) (18.0) (21.0) (21.0) (20) (18.0) (30) (28.1) (21.0) (21.0) (31.0) (40) (30) Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Deviation Construction Sales Growth Cement Finished Steel Non-Food Deviation Car Sales 2W Sales Tractors Auto Ancillary Production Despatches Production Credit
Source: CSO, Citi Investment Research and Analysis Source: CSO, Citi Investment Research and Analysis
Last year and last quarter very weak for Overall private domestic consumption is, however, a fundamental worry – it has private domestic consumption… been sub-3% in FY09, and in 1Q10 it grew even more modestly at 1.6%. These meaningful private consumption revival are near historic lows and possibly suggest some of the recent demand gains required to get back to trend line growth need to be meaningfully sustained if the overall consumption levels are to get back to trend line.
Figure 13. Growth Trend in Private Consumption (Crisis Period shaded)
Growth in Consumption by the Private Sector
12
9.7 10 9.3 9.1 9.0 8.4 8.3 8.5 8.2 7.8 8 7.2 6.3 6.2 6.0 6 5.8 5.2 4.5 4.8 4.1 4 2.7 2.1 2.3 2 1.6
0 Annual Annual Annual Annual Annual Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-08 30-Jun-08 30-Sep-08 31-Dec-08 31-Mar-09 30-Jun-09
GDP Private Cons
Source: CSO, Citi Investment Research and Analysis
15 Citigroup Global Markets
The Asia Investigator 21 September 2009
B. Investment momentum vs. Surplus capacities, and dimmed risk appetite
Investment was key to India’s 9%+ growth India’s 9%+ GDP growth years were driven primarily by Investment growth years…remains vital for a strong revival (15%+ for 4 years), and it remains key for overall growth levels to get back to somewhat similar but elevated levels. While investments had slumped with the credit crises, there is a noticeable reversal.
Investment momentum is reviving – Investment growth has bounced back; there remains reasonably visible quantitatively, in policy expectations and investment in certain areas of infrastructure (particularly power), and with easier capital availability expectations are high on government policy-driven initiatives, which would accelerate growth. In addition, capital, equity and debt are more easily available and remain a prerequisite and driver of investment growth.
Figure 14. Index of Industrial Production since July 2008 Figure 15. FII and Mutual Funds Capital Flows since Aug 2008
IIP Growth 300
9 16,000 200 8
7 100 14,000 6
5 0 12,000 4 (100) 3 10,000 2 (200)
1 (300) 8,000 0 Jul-09 Jan-09 Apr-09 Jun-09 Feb-09 Sep-08 Nov-08 Dec-08 Aug-08 Mar-09 Aug-09 -1 May-09 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 FII Inflow US$m (15-day MA) (LHS) DMF Inflow US$m (15-day MA) (LHS) Sensex (RHS)
Source: CSO, Citi Investment Research and Analysis Source: Citi Investment Research and Analysis
But data is not that robust – But will this momentum accelerate, as possibly expected? We do believe there manufacturing capacities have been built are challenges too; the index of capital goods data itself has been relatively up, and risk appetite has probably inconsistent (negative in the most recent month), manufacturing capacities dimmed have been built up over the last few years and capacity utilization in certain sectors remains relatively modest (global capacities won't help), and probably most important, risk appetite in the corporate sector has dimmed since the investment cycle of 2005-2008. Effectively, we believe that the investment cycle will continue, but in a more measured manner, relatively selectively sectorally, and at a more measured pace than before, but this will probably not be enough to generate the double-digit growth rates of the past, or possibly bake in some current expectations.
Figure 16. Capacity Utilization Across Major Industries Figure 17. Index of Capital Goods since July 2008
Capacity Utilization Across Major Sectors Growth in Capital Goods
120.0% 25
110.0% 20
100.0% 15 90.0% 10 80.0%
70.0% 5
60.0% 0
50.0% -5
40.0% 1995 2000 2005 2009 -10 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Cement Steel Electricity Aluminium Refining
Source: Citi Investment Research and Analysis Source: CSO, Citi Investment Research and Analysis
16 Citigroup Global Markets
The Asia Investigator 21 September 2009
C. Easy Liquidity vs. Risk of Higher Rates...
There’s plenty of liquidity, which is good Global liquidity is probably over-riding, but there is meaningful liquidity in the for business, and the market local banking system. This is visible in the Reverse-Repo markets (surpluses at a record high), the incremental loan-deposit ratio at a modest 15% level and the fact that effective market yields at the short end have remained relatively low. Relatively modest loan demand is also providing a cushion for the surpluses that have built up. In addition, the Central Bank has at points in time suggested that it would provide liquidity while the economy continues to rise. Bottom line, there is enough money in the system for the borrower, and potentially the investor, and this is usually a good thing for markets.
Figure 18. Excess Liquidity in the Banking System Figure 19. Net (Excess) Deposits at the Reverse Repo Window
Excess Liquidity in the Banking System Avg. Net Excess Reserves (Reverse Repo)
3000 1500
2500 1300
1100 2000 900
1500 700
500 1000
300 500 100
0 -100
-300 -500 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 -500 Excess Liquidity 6 per. Mov. Avg. (Excess Liquidity) Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09
Source: RBI, Citi Investment Research and Analysis Source: RBI, Citi Investment Research and Analysis
Figure 20. Banks Incremental Loan-Deposit Ratio Figure 21. Loan-Deposit Growth
Incremental Loan-Deposit Ratio Loan-Deposit Growth
300 40%
200 35%
100 30%
- 25% (100) 20% (200) 15% (300)
10% (400)
(500) 5%
(600) 0% Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Jan-03 Jun-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Feb-07 Sep-07 Apr-08 Dec-08 Jul-09
Incremental LD (%) Loans (%) Deposits (%)
Source: RBI, Citi Investment Research and Analysis Source: RBI, Citi Investment Research and Analysis
But what about the risk of rising rates
Consensus expects policy rates to be But what about the much debated risk of rising rates? Consensus expects policy hiked 150-200bps over the next 6-12 rates to be hiked 150-200bps over the next 6-12 months (Citi at 125bps, bear months (Citi at 125bps, bear case at case at 300bps). This is a real risk: India’s 10-year bond yields are up about 300bps) 200bps+ from their lows over the year, the yield curve has steepened and the RBI has been fairly consistent in warning about the risks of inflation. With India having recently come off a burst of double-digit inflation in the recent past, statistical expectations that inflation will rise from the current negative levels to the 5-6% range by March 10, and the risk that a weak monsoon will push up food prices in the near term (CPI is already running at 9% - though it is a dated benchmark), there is a high probability that rates will rise. 17 Citigroup Global Markets
The Asia Investigator 21 September 2009
Overall system liquidity is actually lower In addition, we believe the surplus liquidity as observed by overnight liquidity than in June 2008, when rates were might be over-stating the money in the system. This is because the RBI has substantially higher been aggressively accommodative over the last 12 months and has unwound the bulk of the cushion it held. Figure 17 reflects the liquidity in the system as defined by the RBI, and it is actually currently lower than in June 2008, when India’s interest rates were substantially higher (primarily because of double- digit inflation). With large government borrowing ahead, the liquidity cushion might be a little more illusionary than it appears.
Figure 22. Long-term Sensex and GOI 10-year bond Yield (%)
15 22000 Sensex (right) Yield10 (left) 14 20000
13 18000
12 16000
11 14000 10 12000 9 10000 8
8000 7
6000 6
5 4000
4 2000 1996 1998 2000 2002 2004 2006 2008 2010
Source: Bloomberg, Citi Investment Research and Analysis
D. Fiscal stimulus vs. Rising Deficit
The fiscal stimulus has had the desired The fiscal stimulus has worked: government spend is a key driver of overall effect – has pushed up growth, and growth, the consumption cycle appears to have revived, and we believe part of stimulus will likely continue over the near this stimulus is structural and will sustain (i.e., government job guarantee to medium term scheme), and some of the more temporary measures executed during the crises will also continue. In addition, weak monsoons will probably necessitate some more directed measures in the near term. Bottom line, the government has been a primary driver of growth in the recent past; this has had a positive impact on the economy and will continue over the near to medium term – and support growth rates.
18 Citigroup Global Markets
The Asia Investigator 21 September 2009
Figure 23. Growth in Govt. Consumption in FY09, FY10 Figure 24. Fiscal Deficits across Countries
Growth in Consumption Fiscal Deficits Across the World
25.0% 14
20.2% 12 20.0%
10 15.0% 8 10.0% 10.0% 6
4.9% 5.0% 4 2.9%
0.0% 2
0 -5.0% Global US Euro Area Emerging India Poland South Africa 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Markets
PFCE (Private Consumption) GFCE (Govt. Consumption) 2009F 2010F
Source: CSO, Citi Investment Research and Analysis Source: CSO, Citi Investment Research and Analysis
India is not unique in its current fiscal But this comes at a fiscal cost. While India is not alone here – fiscal deficits deficit (estimated at 7% of GDP in have ballooned the world over – India probably fundamentally has a lot less current year)…however, its high debt to leeway to sustain this than most. This is because its debt to GDP ratio is GDP stands out, and constrains the fiscal already among the highest among peers, and a ballooning deficit will only support that can be sustained strain the balance sheet further and constrain liquidity and interests. We do also believe that some of the stimulus is temporary/one-off in nature – the government's spending plans, particularly in the rural and socio-economic spaces, are committed and dampen fiscal health
Figure 25. Govt. Share of GDP Growth Figure 26. Public Debt / 2010E GDP across countries
Govt. (Cons) Share of GDP Growth 2010 Public Debt/GDP (%) across Countries
35.0% 250.0 32.5%
30.0% 200.0 25.7% 25.0% 21.8% 150.0 20.0%
15.0% 100.0 82.4 10.0% 10.0% 8.0% 7.1% 5.5% 5.8% 4.8% 50.0 5.0% 3.0% 3.6%
0.0% 0.0 -1.1% Africa Asia China India Indonesia Japan Korea C.E. Europe Russia Latin Brazil W. Europe Germany Italy UK US -5.0% Middle East Pacific & CIS America & N. America 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 & Caribbean
Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis
Rate rises on account of inflation We believe the rising rate risk over-rides the current liquidity cushion and is a management likely most damaging…if key overhang on the market. driven by loan growth, then a reflection of economic revival, which should be more We would also probably seek to distinguish the possible drivers of higher positively viewed…could well be a mix of interest rates. The bigger risk is driven by the need to raise rates/tighten both, but rising rates don’t help (though liquidity because of the threat of inflation – this would be the most market markets have risen with rising rates in the damaging. The secondary risk to rates lies in loan demand-driven pressures past) (squeezing liquidity); we don’t believe this is likely, but if rates were to rise because of loan demand, it would be more positive for the market (reflecting relatively stronger economic growth).
19 Citigroup Global Markets
The Asia Investigator 21 September 2009
E. Strong Global vs. Slack Domestic Flows
Market driven by global flows – we don’t It has been global flows that have primarily driven India’s markets on the way make a meaningful call on such flows down and on the way back up. While this has always been the case, given the though we believe India should be the levels, the relative importance has structurally moderated from the previous relative beneficiary vs. developed and peak. We would, however, continue to expect the Indian market to be driven most emerging markets meaningfully by global flows – we don’t make a meaningful call on these (structurally, we believe India should be the relative beneficiary vs. most emerging markets, given the relatively domestic nature of its growth), but we would expect flows going forward to be relatively positive (on an absolute to relative to peers basis).
Regulatory changes in the recent past on However, we are a little less optimistic on domestic flows: in part because the the distribution costs/structures of mutual participation has been relatively muted as the markets have skyrocketed up funds and life insurance, could further (while non-institutional volumes have rebounded, data suggests greater prop moderate already modest inflows volume pickup relative to retail). But equally important, we believe regulatory changes in the recent past on the distribution costs/structures of mutual funds and life insurance, could over the near to medium term, moderate the inflows into their funds, and the market. (See the more detailed note on these changes, from our banking team, "India Banks – Financial Services: The Seller Is King No More," https://www.citigroupgeo.com/pdf/SAP30779.pdf, published 14 September 2009.
Figure 27. Global vs. Domestic Capital Inflows Figure 28. Capital Issuance picking up in 2009
Capital Issuance (2007-) 300
10,000 16,000 200 9,000
8,000 100 14,000 7,000
6,000 0 12,000 5,000
(100) 4,000
10,000 3,000 (200) 2,000
1,000 (300) 8,000 - Jul-09 Jan-09 Apr-09 Jun-09 Feb-09 Sep-08 Nov-08 Dec-08 Aug-08 Aug-09 Mar-09
May-09 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09
FII Inflow US$m (15-day MA) (LHS) DMF Inflow US$m (15-day MA) (LHS) Sensex (RHS) Debt Equity
Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis
India’s capital issuance pipeline is large We believe capital issuance, and the pace with which Indian companies access and continues to expand but does not the markets, is an overhang but might not be as significant as often perceived. compare unfavorably with levels (relative Anticipated capital market activity is at relatively lower levels (capital raised/to to market cap) in the past be raised vs. market cap) than in the past, and we believe its impact tends to be more pronounced on the specific stock raising capital rather than the broader market. The risk, however, does tend to weigh in more in a weak market, and if the capital issuance pipeline expands with the market (a perception, and possibly the case, with India in the past).
20 Citigroup Global Markets
The Asia Investigator 21 September 2009
F. 'Risk' Trade vs. Commodity Risks
Figure 29. India has benefited the most from the risk-trade since March 2009
Revival is a Risk Trade 220.0
200.0
180.0 India 160.0
140.0
120.0
100.0
80.0
60.0
40.0 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 US BRIC EM India Crude LME Metals S&P GSCI EMBI Spread
Source: Bloomberg, Citi Investment Research and Analysis
India’s ‘positioning’ suggests India is at India has performed strongly as the ‘risk’ trade has played through – by virtue the forefront of the ‘risk trade’, and so of being within the emerging markets fold, being more domestic than most does its outperformance peers – i.e., even less impacted by exports, and being capital flows sensitive (investment-led growth meaningfully dependent on capital availability). So, there could well run the argument that as long as this trade continues to play through, India would continue to lead the pack.
Figure 30. Crude Oil and the Impact on the India's BoP Figure 31. Crude Prices and Domestic Inflation
India's Dependence on Crude Crude Prices and Inflation 30 140 16.0% 160 14.0% 25 14.0% 13.6% 120 139 140
12.0% 20 10.1% 10.3% 120 100 10.0% 15 8.9% 104 100 8.0% 7.6% 7.4% 80 6.9% 6.9% 7.1% 6.8% 94 94 10 6.2% 5.7% 6.0% 81 80 4.7% 4.8% 5 73 71 60 66 69 4.0% 3.1% 3.2% 60 59 2.8% 60 2.4% 0 1.6% 1.8% 1.6% 2.0% 47 40 0.5% 40 36 -5 0.0% 20 20 -2.0% -10 -1.8% -1.8% -2.2% -4.0% 0 -15 0 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09
Trade Deficit %GDP Curr. A/c Deficit %GDP Brent Brent (RHS) WPI Inflation WPI Fuel Inflation WPI Mineral Oil Inflation
Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis
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If the risk trade continues – and so do But beyond a level, we believe India’s economy, and by extrapolation, its commodities and crude, this would hurt market, could actually be exposed to this. This is because we believe India’s India’s fundamentals, and the market macro is actually fairly sensitive to commodity prices: it imports over 70% of its crude (and that drives its FX reserves), and the inflationary impact of crude and commodity prices has historically been significant. This was in sharp evidence in Jan–June 2008, when commodity driven inflation increases resulted in India tightening well ahead of the curve (in fact even as the developed world was lowering rates), and meaningfully underperformed developing markets. We believe the same holds true today – if the risk trade continues and commodities (particularly crude and Iron ore) were to participate, India’s fundamentals – FX reserves, inflation and rates – will be impacted. And the risk trade will start working against the market and India and should most likely moderate absolute performance, and clearly relative performance.
G. Earnings Growth vs. Where are these earnings coming from (Costs, or Sales)
India should not see an earnings dip India’s earnings growth in 1Q10 was up 7% YoY, well ahead of expectations, through the credit crisis and FY11 should significantly beating negative earnings expectations. This we believe has bounce back almost 18% resulted in an across-the-board revision in expectations, and based on new revised numbers, the broader Indian market should not experience a dip in aggregate earnings through the credit crisis cycle. This is well ahead of peers, does differentiate India as a market and has clearly boosted optimism on earnings. Important to note, our estimates (and the Street is not very different), suggest a reasonable robust rebound in FY11 (18%) – reason for optimism, and fair justification for higher market levels.
But earnings have come from cost But where are these earnings coming from? 1Q10 was all about cost savings – savings, and very slack sales growth some materials/commodities, and almost all made cost savings in general (3%)….while there is probably some cost operating expenses. This is positive, reflects efficiencies and offers potential cushion, the big leverage lies in sales for further such gains over the near to medium term. But what happened to growth (peak of 35% YoY), for which sales? Excluding the oil companies, sales growth for the Sensex companies demand needs to play out in fuller force grew at under 3%, and it was a relatively similar trend for a wider set of companies excluding metals businesses, where there has been price erosion. We believe such a trend should be cautionary – earnings leverage will ultimately be driven by sales/volume growth – the most recent quarter is not reflective of this. Equally important, a market like India, we believe, has tended to trade relatively expensive in previous highs, in part because of returns, but more because of growth expectations (the market was at its peak when sales growth averaged 35%+ for a quarter).
Figure 32. CIRA Estimates of Sensex Earnings Growth Figure 33. Sensex ex-oil sales, Earnings and EBITDA Margins Trend
25% Sensex ex-oil Perf. 1QFY08-1QFY10E,A
FY09 Profit Growth FY10 Profit Growth FY11 Profit Growth 40.0 25.0 20.81% 20.60% 35.7 19.06% 20% 18.21% 35.0 17.8% 18.1% 31.7 32.1 16.87% 17.1% 17.0% 30.6 30.0 20.0 14.5% 15% 13.4% 12.9% 12.9% 25.0 23.8 11.8% 12.2% 22.5 10.7% 20.2 20.0 19.1 15.0 10% 9.1% 8.3% 15.5 15.2 15.0 12.8 6.1% 6.18% 5.72% 11.8 5% 10.0 10.0 2.9% 3.4% 3.0% 6.8 2.3% 4.8 5.0 2.8 0% 0.8 0.0 5.0 -0.2% -3.9% 0.1% -4.4% -0.3 -5.0 -4.3 -5% -5.5 -7.1 31- 31-Mar 3-Jul 18-Aug 17-Sep 3-Nov 25-Nov 18-Jan 1-Feb 15-Mar 25-May 2-Jul 4-Aug 10-Sep -10.0 0.0 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10E 1QFY10A Dec-07 Sales Earnings Margins
Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis
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Valuations – Trend to Averages
Valuations do not stand out enough, to We believe valuations for India are not decisive – the market is hovering at drive this market meaningfully up or 16.1X PE and 2.8X PBV, a slight premium to its average PE (15X) and PBV down, and probably moderate any big (2.6x) levels, with the earnings growth and ROE outlook only moderately lower moves. than averages. India is also trading at the higher end of emerging markets benchmarks – though in recent years it has tended to command a higher premium. Bottom line, we believe justification for a meaningfully higher or lower market level lies not in valuations, but in the macro and economic outlook and the direction of their drivers.
Expect the market to settle at 15,400 – With most market drivers tending to square off against each other and broadly 15x 1 yr fwd, its long-term average…a balancing out (as argued in the previous section), we believe the market will little lower from current levels tend to settle toward its average, which is about 15x, 1 Yr fwd PE to the market, or about 15400 as the Sensex target. This does imply a certain downside from current levels, which we believe will probably be driven by upside moves on interest rates, probably offsetting rising expectations on the pace of economic growth and corporate earnings.
Figure 34. Sensex and 12-mth Forward Rolling PE Figure 35. MSCI India PB vs. RoE
Sensex and 12-month Rolling Valuations MSCI India P/B vs. RoE (1992-)
25000 30.00 7.00 30.00
6.00 25.00 25.00 20000
5.00 20.00 20.00 15000 4.00 15.00 15.00 3.00 10000 10.00 10.00 2.00
5000 5.00 5.00 1.00
0 0.00 0.00 0.00 Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 PB ROE (RHS) Sensex 12-mth Rolling Forward PE
Source: Bloomberg, Citi Investment Research and Analysis Source: MSCI, Citi Investment Research and Analysis
Market has sustainably traded at Can India trade well above averages, as in the past? Sure, but it does require a decisively higher/lower multiples than mix of supportive rates, easing fiscal, investment driving capital flows, a surge current ones…but for that, the current in earnings – or at least a significant and decisive upswing on two or more of trade-off among market drivers needs to these counts. Likewise, could India go meaningfully lower, given that the fiscal align to one side. and rate outlook could well worsen, consumption uptick well be illusory, and investment momentum not really pick up pace? Again possible, though we believe with the economy having stabilized from a consumption and confidence perspective, downside risks would also tend to hover around averages
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Figure 36. Real and Nominal Interest Rates and Sensex Valuations Figure 37. MSCI India PE vs. Regional Peers
Sensex PE and Interest Rates MSCI India PE vs. Regional Peers 17.000 30 45.00 15.000 40.00 13.000 25 35.00 11.000 20 9.000 30.00
7.000 25.00 15 5.000 20.00
3.000 10 15.00 1.000 10.00 -1.000 5 5.00 -3.000 - -5.000 0 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Nov-94 Nov-95 Nov-96 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 India AxJ Brazil EM 10-year Bond Real Rate Rolling 12-mth Fwd PE
Source: Citi Investment Research and Analysis Source: MSCI, Citi Investment Research and Analysis
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Make the portfolio matter
We do believe there is a little more downside to the market than upside, or at least the market will probably fall before it goes up. With that view, our positioning would be a) defensive and b) invest thematically.
These are the themes we would follow
a) Risk of rising rates -Underweight Banks and Property
b) Urban Consumption demand – Overweight Auto, Media
c) Off-shore demand revival - Overweight IT
d) Defensive: Overweight - Telecom, Pharma and Energy (Gas), Underweight – Materials
e) Capex: Neutral – Industrials
Banks are most meaningful Underweight Our most significant Underweight is in Banks and Financial Services (-5%), (previously Overweight): rate risks, slack which we are cutting from an Overweight that we previously carried. We believe loan growth and stock performance going into a rate cycle is the most challenging time for banks, and the relatively slack loan demand (incremental l-d ratio at 15%) suggests the core lending business itself is relatively challenged. While the sector has rallied significantly recently on the back of easing rate concerns and potential accounting changes, which could limit portfolio damages because of higher rates, we do not believe this changes the only moderate growth, returns and health outlook of the sector, and would expect relative underperformance here-on.
We detail below our recommended portfolio.
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Model Portfolio
Figure 38. CIRA India Model Portfolio
YTD Perf MSCI Portfolio OW/UW EPS 14-Sep-09 (%). RIC Rating Weight Weight vs. MSCI PE(x) Growth PB(x) ROE (%) (%) (%) Automobiles and Components 4.08 6.0 192 Maruti 1475.4 183.7% MRTI.BO 1L 4.0 O/W 20 71.3% 3.8 20.28% M&M 831.6 202.6% MAHM.BO 1L 2.0 O/W 20 29.1% 3.5 20.04% Banks & Diversified Financials 21.49 16.0 -549 AXIS Bank 895.5 77.4% AXBK.BO 1M 2.0 O/W 15 22.2% 2.7 19.94% HDFC 2502.9 68.3% HDFC.BO — 2.0 U/W na na na na HDFC Bank 1494.4 49.8% HDBK.BO 2L 5.0 O/W 21 26.7% 3.6 18.88% ICICI Bank 825.6 84.1% ICBK.BO 2M 3.0 U/W 23 9.1% 1.8 8.07% State Bank of India 1956.2 51.8% SBI.BO 1L 2.0 O/W 12 14.1% 1.9 16.81% Bank of Baroda 467.7 66.7% BOB.BO 2M 2.0 O/W 8 4.1% 1.2 16.69% Capital Goods 10.10 10.0 -10 Jaiprakash 230.8 178.1% JAIA.BO 1M 4.0 O/W 26 52.3% 5.0 25.34% Larsen & Toubro 1607.8 107.6% LART.BO 2L 3.0 M/W 30 16.1% 6.1 29.58% Punj Lloyd 260.3 77.0% PUJL.BO 1M 3.0 O/W 20 111.6% 2.4 14.90% Energy 18.89 21.0 211 Gujarat State Petronet 76.1 126.7% GSPT.BO 1M 2.0 O/W 26 39.5% 3.3 13.48% Cairn India 259.2 50.7% CAIL.BO 2L 2.0 O/W 31 na 1.5 4.71% GAIL 354.6 72.1% GAIL.BO 1L 2.0 O/W 16 1.1% 2.8 18.97% BPCL 567.6 51.0% BPCL.BO 1H 4.0 O/W 9 222.4% 1.5 18.37% Reliance Industries 2147.0 74.5% RELI.BO 2L 11.0 U/W 16 34.6% 2.9 19.74% Food Beverage and Tobacco, Household & Personal Products 5.66 6.0 34 ITC 224.7 31.0% ITC.BO 1L 4.0 O/W 21 24.6% 5.5 27.57% Pantaloon 305.6 40.4% PART.BO 1M 2.0 O/W 27 51.2% 2.4 9.39% Materials 9.41 6.0 -341 Ultra-Tech 730.2 90.6% ULTC.BO 3M 2.0 O/W 7 39.0% 1.9 32.08% Hindalco 121.1 134.5% HALC.BO 1M 2.0 O/W 11 -21.1% 0.8 7.21% Tata Steel 479.1 120.9% TISC.BO 2M 2.0 O/W 10 -24.0% 1.3 14.34% Pharmaceuticals, Biotechnology, Agrochem 3.24 5.0 176 Piramal Healthcare 331.7 39.0% PIRA.BO 1M 1.0 O/W 14 15.1% 4.1 33.19% United Phosphorus 165.9 54.1% UNPO.BO 1H 2.0 O/W 11 14.4% 2.2 22.95% Glenmark Pharmaceuticals 215.3 -27.0% GLEN.BO 2M 2.0 O/W 16 34.9% 2.8 20.89% Software & Services 15.06 17.0 194 Infosys Technologies 2250.6 101.3% INFY.BO 2L 4.0 U/W 22 -2.8% 5.8 28.62% Tata Consultancy Services 560.2 134.3% TCS.BO 1L 5.0 O/W 19 12.8% 5.7 33.16% Wipro 557.7 138.8% WIPR.BO 1L 5.0 O/W 20 16.8% 4.5 24.22% HCL Technologies 312.4 171.2% HCLT.BO 2M 3.0 O/W 19 0.1% 3.3 19.11% Telecom Services/Media 2.66 5.0 234 Bharti Airtel 419.4 17.3% BRTI.BO 1L 3.0 O/W 17 17.9% 4.0 27.07% Zee 208.4 49.2% ZEE.BO 1M 2.0 O/W 22 13.2% 2.5 11.73% Utilities 6.67 7.0 33 NTPC 205.2 13.4% NTPC.BO 2L 3.0 O/W 18 18.4% 2.7 15.81% Tata Power 1273.7 70.2% TTPW.BO 1L 4.0 O/W 46 -2.6% 3.4 7.55% Real Estate 2.74 1.0 -174 DLF 392.0 39.1% DLF.BO 1L 1.0 U/W 35 -56.6% 2.7 8.22% Others* - 0
Cash - Total 100.00 100.0 0 22.7 7.6% 4.0 19.1% Additions: Maruti, Mahindra & Mahindra, Bank of Baroda, Jaiprakash, Punj Lloyd, BPCL, Pantaloon, Ultra-Tech, Hindalco, Tata Steel, Glenmark Pharmaceuticals, Wipro, Zee Entertainment
Deletions: Tata Motors, Hero Honda, Reliance Capital, Bharat Heavy, Hindustan Unilever, Steel Authority of India, National Aluminum, Sun Pharmaceuticals, Sun TV Network
Source: Citi Investment Research and Analysis, MSCI
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India Market Intelligence
Mkt Cap P/E (x) EPS Growth (%) Yield (%) PBV ROE (%) US$ Performance 9/17/2007 USD bil 2008 2009 2010 2008 2009 2010 2009 (x) 2008 2009 2010 1W 1M YTD MSCI India 216.5 21.7 20.6 16.8 -7.6 4.3 19.4 1.1 3.1 15.6 15.0 15.9 3.6 14.8 81.3 Energy 38.4 15.7 13.4 12.7 -2.7 13.5 24.9 2.0 2.1 15.2 14.9 17.1 -1.5 8.1 69.7 Materials 23.5 13.2 14.8 12.1 -17.7 -10.8 22.6 1.2 2.1 16.0 14.5 16.4 7.1 20.9 169.0 Capital Goods 20.9 59.7 41.0 26.1 -45.3 45.5 57.2 0.7 4.8 10.7 11.3 15.2 4.2 17.6 112.4 Automobiles & Components 8.8 24.1 18.8 15.8 -7.3 27.9 19.6 1.2 4.5 22.5 23.8 23.2 7.7 22.3 164.4 Media 0.9 19.2 20.5 19.0 37.8 -6.5 7.8 1.0 2.6 16.2 12.8 12.7 1.9 15.2 53.4 Food Beverage & Tobacco 6.4 26.2 23.4 19.9 7.2 12.2 15.0 1.8 5.6 24.2 23.8 20.0 1.0 5.0 28.2 Household & Personal 4.7 NA NA 21.7 NM NM NM NA 23.0 NA NA 87.9 0.6 6.9 5.6 Products Pharmaceuticals 6.5 72.5 24.5 17.6 -72.8 196.1 39.2 0.8 3.5 4.4 14.0 16.9 1.9 4.2 32.4 Biotechnology & Life Sciences Banks 40.3 25.8 22.8 19.1 11.1 13.2 19.5 1.2 2.7 11.5 11.9 12.9 5.7 18.2 76.8 Diversified Financials 5.7 26.1 24.4 21.7 -1.6 6.8 12.2 0.6 3.0 12.8 12.3 12.4 2.1 12.0 95.7 Real Estate 8.0 16.0 27.8 26.7 -23.1 -42.5 4.3 0.3 2.9 27.5 13.2 7.9 3.0 20.6 63.5 Software & Services 34.1 21.1 21.6 19.8 11.0 -2.1 9.1 1.2 5.6 30.0 25.9 23.7 6.1 19.5 105.3 Telecommunication Services 5.0 12.5 13.5 13.1 11.8 -7.3 3.2 0.3 1.5 15.1 12.5 10.9 2.9 22.8 28.8 Utilities 13.4 20.6 18.5 16.6 8.8 11.2 11.4 1.4 2.4 13.0 13.2 13.2 2.0 7.1 50.6 Note: The above valuation data are compiled based on the MSCI India universe of stocks with which IBES forecasts are available. Fiscal year of each company is calendarized to December as the year-end. The market capitalization for countries, sectors and the region are free-float adjusted. NM = Not Meaningful; NA = Not Available.
Source: IBES Aggregate, MSCI, FactSet, Citi Investment Research and Analysis estimates.
27 Citigroup Global Markets
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Stake Sale to Keep GLCs Share Prices Resilient? Yong Yin Ng, CFA +60-3-2383-2939 Share price of the GLCs could remain resilient in the short-term – News and [email protected] speculation of a stake sale is expected to keep near-term share prices of
government-linked companies (GLCs) rather resilient vis-à-vis the market. Although share overhang concerns following a sale are valid, we believe Khazanah would prefer long-term institutional investors as suitors. Within the GLC universe, we are Buyers of Tenaga, PLUS Expressways and Sime Darby and Sellers of Axiata, Telekom Malaysia, UMW Holdings and MISC.
News of stake sale of GLCs continues to resurface – There has been speculation of a stake sale since Azman Mokhtar, Managing Director of Khazanah Nasional hinted of GLCs stake sale in July. This noise adds to previous reports (and subsequent denials) of the sale of GLCs like PLUS, Axiata and Proton. Last Thursday, in what we believe to be the first disposal since July, Khazanah trimmed its holding in Malaysia Airports Holdings Bhd (MAHB) to 67.7% from 72.7% following the sale of a 5% stake to institutional investors (not identified) at RM3.30/sh for a total of RM181.5m, a 2.4% discount to MAHB’s last closing price.
Plan to divest GLCs is not new – The plan to sell down stakes in GLCs was made known a few years ago, following complaints by investors about the market illiquid trading volume and investability (after several investors feedback on improving institutional investments, trading volume, velocity and overall health of the local stock exchange). As part of the overall plan towards this, the previous Prime Minister Badawi initiated the GLC reform in 2004. In our view it made sense, the idea was to improve the operations and thus valuations for these GLCs before paring down equity interests in them.
We are at Phase 3: Tangible results under the GLC Transformation Program – Having initiated the first two stages of reforms, the government believes some of the GLCs have attained tangible results (see Figure 1) and that it is time to initiate the next phase of selling GLC stakes. The Head of Khazanah (the national asset company most GLC stakes are placed under) previously made it known in his speech during Invest Malaysia Conference in July that the time is about right for market making. He said Khazanah "plans to speed up selling stakes in GLC over the next two to three years"...and "...will be more active in pursuing deals in the second half of this year..." and "... if we think values have gone up and this is the right time to divest, we are open for business" (Source: Business Times 2 July 2009).
Proceeds to fund new investment and working capital – Besides improved liquidity, the sale proceeds should come in handy to fund new investments and to a limited extent, help with the budget deficits in the short-term.
Total sell-down unlikely, Government will still be in control – We believe an outright total sell-down, especially in strategic assets such as telecommunication, power and media, is not expected. Rationale will dictate that the government remains in control (say retaining at least 33% in these strategic companies – to avoid having to extend a general offer in the event that it needs to raise stake above 33% in the future).
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GLCs include those held by PNB and EPF – GLCs are defined as companies in which the Malaysian Government has a direct control. Accordingly, direct control refers to the Government’s ability (not just percentage ownership) to “appoint board of directors, senior management, make major decisions (e.g. contract awards, strategy, restructuring and financing, acquisitions and divestments etc.) for GLCs either directly or through government-linked investment companies (GLICs)” as defined by Khazanah. GLICs include Permodalan Nasional Bhd (PNB), Employee Provident Fund (EPF), Kumpulan Wang Persaraan (KWAP), and Lembaga Tabung Haji (LTH). Please see Figures 2 and 3 for the names of listed GLCs and the respective stakes that key GLICs hold.
Share prices of the GLCs could remain resilient in the short-term – We expect more related newsflow on this issue, which, notwithstanding the fundamental investment recommendations on GLCs under CIRA coverage, could help keep near-term share prices of GLCs rather resilient vis-à-vis the market. Currently, we are Sellers of Axiata, Telekom Malaysia, UMW Holdings and MISC-F and Buyers of Tenaga, PLUS Expressways and Sime Darby.
Figure 1. GLC Transformation Program
Source: Khazanah, www.pcg.gov.my
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Figure 2. GLC Holding Structure
Price CIRA Valuation (CY_2009) GLC's (14/9/09) RIC Current Target Rating Khazanah PNB EPF Tabung LTAT Others TOTAL P/E P/B ROE Yield Haji (%) (%) Affin Holdings Bhd AFIN.KL - - NR 44% 44% 9.1 0.6 6.9 2.8 Axiata Group Bhd* AXIA.KL 3.13 2.8 3H 45% 9% 17% 70% 18.8 1.5 10.4 2.3 BIMB Holdings Bhd BIMB.KL - - NR 20% 5% 51% 76% 8.9 NA NA NA Boustead Holdings Bhd BOUS.KL - - NR 43% 43% 9.3 0.8 7.4 3.9 CCM Duopharma Biotech Bhd CCMD.KL - - NR 44% 11% 55% 11.7 NA 20.9 6.3 CCM Bhd CLMS.KL - - NR 60% 10% 69% 44.3 NA 8.8 2.8 CIMB Group Holdings Bhd CIMB.KL - - NR 28% 10% 14% 57% 15.7 2.1 13.8 2.1 Faber Group Bhd FBMS.KL - - NR 34% 34% 8.8 NA 12 3.8 Lityan Holdings Bhd LYAN.KL - - NR 6% 19% 25% NA NA NA NA Malayan Banking Bhd MBBM.KL - - NR 53% 12% 64% 17.2 1.8 10 2.3 Malaysia Airports Holdings Bhd MAHB.KL - - NR 68% 6% 73% 12.9 1.2 9.3 4.3 Malaysia Building Society Bhd MBSS.KL - - NR 15% 67% 82% 22.1 1.2 4.8 1.3 Malaysian Airline System Bhd MASM.KL - - NR 69% 5% 13% 88% -5.7 1.3 -19 0 Malaysian Resources Corp Bhd MYRS.KL - - NR 30% 30% 49.3 1.8 3.7 0.6 MISC Bhd* MISCe.KL 8.72 7.8 3L 11% 63% 74% 28.7 1.6 5.5 4 MNRB Holdings Bhd MNRB.KL - - NR 61% 61% 15.5 NA 4.9 NA NCB Holdings Bhd NPOT.KL - - NR 49% 12% 60% 13 0.8 6 5.3 Petronas Dagangan Bhd PETR.KL - - NR 7% 70% 77% 13.2 1.9 14.1 5.4 Petronas Gas Bhd PGAS.KL - - NR 15% 61% 76% 19.8 2.4 11.7 5 Pharmaniaga Bhd PHMA.KL - - NR 87% 87% 7.4 1 15.2 5.2 PLUS Expressways Bhd* PLUE.KL 3.29 3.7 1L 64% 12% 75% 15 2.8 18.8 4.9 POS Malaysia Bhd PSHL.KL - - NR 32% 12% 10% 54% 15 0.9 10.1 4.4 Proton Holdings Bhd PROT.KL - - NR 43% 17% 60% 33.1 0.4 0.6 1 RHB Capital RHBC.KL - - NR 57% 57% 11.2 1.3 11.7 3.3 Sime Darby Bhd* SIME.KL 8.5 7.72 1M 52% 14% 66% 20.3 2.2 11.2 4 Syarikat Takaful Malaysia Bhd TAKA.KL - - NR 13% 3% 34% 50% NA NA NA NA Telekom Malaysia Bhd* TLMM.KL 3.1 2.6 3L 42% 14% 13% 69% 18.7 1.6 8.7 7 Tenaga Nasional Bhd* TENA.KL 8.22 9.6 1L 38% 10% 16% 63% 13.3 1.3 7.3 2.6 TH Plantations Bhd THPB.KL - - NR 68% 68% 13.7 1.6 13.2 4.5 Time dotcom Bhd TCOM.KL - - NR 31% 41% NA NA NA NA Time Engineering Bhd TENG.KL - - NR 45% 45% NA NA NA NA UAC Bhd UACS.KL - - NR 28% 28% NA NA NA NA UEM Land Bhd ULHB.KL - - NR 77% 77% 66.7 3 4.8 0 UMW Holdings Bhd* UMWS.KL 6.29 5.33 3L 51% 16% 67% 18.6 1.8 10.3 3.6 Source: Bloomberg for NR (Non-Rated) companies, Citi Investment Research and Analysis Estimates
*Stocks Under CIRA Coverage
30 Citigroup Global Markets
21 September2009 The AsiaInvestigator Figure 3. Khazanah Investment Portfolio (30 June 2009) 31 Citigroup Global Markets
Source: Khazanah
The Asia Investigator 21 September 2009
Malaysia Market Intelligence
Mkt Cap P/E (x) EPS Growth (%) Yield (%) PBV ROE (%) US$ Performance 9/17/2007 USD bil 2008 2009 2010 2008 2009 2010 2009 (x) 2008 2009 2010 1W 1M YTD MSCI Malaysia 78.7 15.8 17.5 15.3 -21.8 -9.6 14.7 2.7 1.9 12.8 11.1 11.8 2.3 6.0 41.1 Energy 0.6 14.3 13.3 12.2 -8.7 7.2 9.5 5.4 1.9 14.6 14.6 14.8 1.3 4.3 14.0 Materials 0.6 14.5 14.9 13.3 106.2 -2.1 11.8 4.5 1.7 12.1 11.4 12.2 3.6 4.2 59.4 Capital Goods 11.0 19.7 20.7 17.4 0.3 -4.7 19.1 2.6 1.9 10.3 9.4 10.5 2.1 6.0 76.5 Transportation 5.1 17.1 24.9 17.7 -30.8 -31.4 40.6 3.6 1.8 10.8 7.1 9.6 1.9 2.9 9.9 Automobiles & Components 1.0 12.1 19.0 14.1 17.3 -36.1 34.4 3.4 1.9 16.2 9.9 12.1 -0.1 5.9 22.7 Consumer Services 8.1 13.8 18.5 15.5 7.6 -25.6 19.3 2.0 2.1 16.5 11.3 12.3 1.0 13.1 49.1 Media 0.5 -13.8 54.6 27.6 NM 125.2 97.6 3.0 7.7 -56.1 14.1 30.5 -4.4 10.4 56.1 Retailing 0.8 22.5 18.5 15.3 NM 21.5 21.4 NA 2.9 19.3 15.7 17.0 0.2 3.3 31.3 Food Beverage & Tobacco 11.9 15.8 17.9 16.5 -48.1 -11.5 8.7 2.6 2.8 19.3 15.7 15.5 1.8 5.0 44.0 Banks 18.9 14.5 15.4 13.5 -16.8 -5.5 13.5 2.3 1.8 13.2 11.8 12.4 4.3 6.6 54.0 Diversified Financials 3.0 16.9 16.7 14.7 24.8 1.3 13.8 2.2 1.8 11.6 10.7 11.2 2.2 6.6 68.6 Real Estate 2.0 13.5 18.6 19.2 -9.0 -27.4 -3.2 2.7 1.3 8.8 7.0 6.7 5.3 4.1 36.6 Telecommunication 5.4 16.0 17.4 16.3 -42.1 -8.1 7.2 3.8 2.2 12.9 12.6 13.5 1.4 3.8 19.6 Services Utilities 9.9 14.9 14.8 13.2 -23.6 0.4 12.4 3.1 1.5 10.4 10.2 10.6 1.5 4.7 15.1 Note: The above valuation data are compiled based on the MSCI Malaysia universe of stocks with which IBES forecasts are available. Fiscal year of each company is calendarized to December as the year-end. The market capitalization for countries, sectors and the region are free-float adjusted. NM = Not Meaningful; NA = Not Available.
Source: IBES Aggregate, MSCI, FactSet, Citi Investment Research and Analysis estimates.
32 Citigroup Global Markets
The Asia Investigator 21 September 2009 Fun With Flows
Only Asian Equity Funds Report Outflows
From weak inflows to strong outflows — As per EPFR Data, outflows of Elaine Chu US$539m from Asian equity funds last week were 3% above total net cash +852-2501-2768 [email protected] received in the previous three weeks. With MXASJ up another 10% over this period, after a 70% rally from its March low, not many are willing to pay 2.1x Markus Rosgen book for Asian equities. +852-2501-2752 [email protected] Outflows largely from ETFs — Redemptions from Asian exchange traded index funds were largely responsible for the overall net outflows from all
Asian funds, at a 29-week high of US$775m vs. inflows of US$236m to actively managed funds. Comparing these two numbers, it seems retail investors are emphasizing stock selection as valuations for the region rise.
Other regional emerging market equity funds all reported inflows — Inflows to GEM funds resumed for the first time in three weeks, and EMEA and LatAm equity funds recorded increased inflows. In terms of BRIC markets, with the exception of China funds, others saw the biggest inflows in five weeks — a rotation out of China funds (A-share funds to be specific) seems to be under way.
Global/International funds flooded — New money continues to target developed markets. Global equity funds recorded their biggest inflows since June 2008, at US$1.7bn. August-to-date, net inflows to global funds have totaled US$7.3b, six times the amount taken in by all emerging-market funds.
Figure 1. Weekly Flows to Individual Country Funds, AxJ Regional Funds and Greater China Funds
100 0 -100 -200 US$mn Net flows in the week ended 9/16/09 -300 Prior 4-wk average -400 -500
ia an ng s sia hina Ind Korea ne aiw und C hailand lippines gapore T alaysia ng Ko l f T Indo M o Phi Sin H giona re ater China funds re AxJ G
Source: EPFR Global Citi Investment Research and Analysis
33 Citigroup Global Markets
The Asia Investigator 21 September 2009 Sentiment Indicators
Investment sentiment for the region continues to improve as MXASJ moves Elaine Chu higher. Market wise, investors in Taiwan and Korea markets are as optimistic +852-2501-2768 as they were in 2007, whereas those in Singapore and Malaysia are lagging the [email protected] most.
Figure 1. Asia ex-Japan Risk-Love Indicator... Figure 2. ... and Its Predictive Power
700 MSCI AC ASIA EX JP U$ - PRICE INDEX 2.5 100 BUY below –1.3 Asia ex-Japan Risk-love, right scale Euphoric 2.0 80 (win ratio 94%) 600 1.5 60 500 1.0 40 0.5 20 400 0.0 0 -0.5 -20 300 -1.0 -40 200 Distress -1.5 -60 SELL above +1.6 -2.0 forward USD return, % -80 (win ratio 86%) 100 -2.5 -3.0 -2.0 -1.0 0.0 1.0 2.0
92 94 96 98 00 02 04 06 08 MSCI AC Asia Pac Free ex-Japan, 6-mth Asia ex-Japan Risk-love Indicator
Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis Figure 3. Hong Kong Risk-Love Indicator Figure 4. India Risk-Love Indicator
33000 Hang Seng Index (LHS) 2.5 SENSEX (LHS) 2.5 20000 Hong Kong Risk-love Indicator (S.D., RHS) 2.0 India Risk-love Indicator (S.D., RHS) 2.0 18000 Euphoria 28000 Euphoria 1.5 1.5 16000 1.0 1.0 23000 14000 0.5 0.5 12000 0.0 0.0 18000 10000 -0.5 -0.5 8000 -1.0 -1.0 Distress 13000 Distress 6000 -1.5 -1.5 4000 -2.0 8000 -2.0 2000 -2.5 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09
Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis
34 Citigroup Global Markets
The Asia Investigator 21 September 2009
Figure 5. Korea Risk-Love Indicator Figure 6. Malaysia Risk-Love Indicator
KOSPI (LHS) 3.0 1500 KLCI (LHS) 2.0 2000 Korea Risk-love Indicator (S.D., RHS) 1400 Euphoria Malaysia Risk-love Indicator 1.5 2.0 1300 Euphoria (S.D., RHS) 1.0 1600 1200 1.0 1100 0.5 1000 0.0 1200 0.0 900 -0.5 800 800 -1.0 Distress -1.0 700 Distress 600 -1.5 400 -2.0 500 -2.0 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09
Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis Figure 7. Singapore Risk-Love Indicator Figure 8. Taiwan Risk-Love Indicator
Straits Times (LHS) 3.0 TWSE (LHS) 3.0 3600 Singapore Risk-love Indicator (S.D., RHS) Taiwan Risk-love Indicator (S.D., RHS) 9200 Euphoria 2.0 Euphoria 2.0 3200 8200 1.0 2800 1.0 7200 2400 0.0 0.0 6200 2000 5200 -1.0 Distress -1.0 -2.0 1600 Distress 4200 1200 -2.0 3200 -3.0 00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09
Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis
35 Citigroup Global Markets
The Asia Investigator 21 September 2009
36 Citigroup Global Markets
The Asia Investigator 21 September 2009
37 Citigroup Global Markets
The Asia Investigator 21 September 2009
Appendix A-1 Analyst Certification
Each research analyst(s) principally responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the research analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. Each research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this research report. IMPORTANT DISCLOSURES KRW Covered Chart current as of 19 September 2009 Shinsegae (004170.KS) Not covered Ratings and Target Price History 800,000 Fundamental Research 700,000 Analyst: Ally Park 600,000 6 1 2 3 4 8 5 500,000 7
400,000
300,000
200,000 ONDJ FMAM J J A SO ND J FMAMJ J ASOND J FMAMJ J AS 2007 2008 2009 Date Rating Target Price Closing Price Date Rating Target Price Closing Price Date Rating Target Price Closing Price 1 8-Nov-06 2L *560,000.00 534,000.00 4 10-Jul-08 3L *500,000.00 500,000.00 7 9-Apr-09 3L *340,000.00 469,500.00 2 1-Aug-07 2L *630,000.00 584,000.00 5 16-Oct-08 3L *410,000.00 450,000.00 8 30-Jul-09 3L *550,000.00 530,000.00 3 16-May-08 *3L *575,000.00 598,000.00 6 30-Oct-08 3L *330,000.00 434,500.00 * Indicates change Rating/target price changes above reflect Eastern Standard Time KRW Covered Chart current as of 19 September 2009 Samsung Electronics (005930.KS) Not covered Ratings and Target Price History 800,000 Fundamental Research 700,000 Analyst: Henry H Kim, CFA 11 Covered since August 11 2008 1 6 12 600,000 2 4 10 3 5 8 7 500,000 9
400,000
300,000 ONDJ FMAM J J A SO ND J FMAMJ J ASOND J FMAMJ J AS 2007 2008 2009 Date Rating Target Price Closing Price Date Rating Target Price Closing Price Date Rating Target Price Closing Price 1 15-Jan-07 *1L *750,000.00 612,000.00 5 14-Nov-07 2L *584,000.00 547,000.00 9 10-Dec-08 1L *664,000.00 481,000.00 2 23-Apr-07 1L *700,000.00 570,000.00 6 7-Dec-07 *1L *790,000.00 608,000.00 10 17-Mar-09 1L *690,000.00 534,000.00 3 13-Jul-07 1L *750,000.00 687,000.00 7 24-Mar-08 1L *820,000.00 599,000.00 11 14-Apr-09 1L *810,000.00 575,000.00 4 27-Aug-07 *2L *620,000.00 577,000.00 8 26-Aug-08 1L *700,000.00 540,000.00 12 28-Jul-09 1L *900,000.00 700,000.00 * Indicates change Rating/target price changes above reflect Eastern Standard Time
38 Citigroup Global Markets
The Asia Investigator 21 September 2009
KRW Covered Chart current as of 19 September 2009 KEPCO (015760.KS) Not covered Ratings and Target Price History 50,000 Fundamental Research Analyst: Pierre Lau, CFA 40,000 2 1 3 Covered since May 17 2007 4 5 6 7 11 30,000 8 9 10
20,000
10,000 ONDJ FMAM J J A SO ND J FMAMJ J ASOND J FMAMJ J AS 2007 2008 2009 Date Rating Target Price Closing Price Date Rating Target Price Closing Price Date Rating Target Price Closing Price 1 26-Sep-06 Coverage suspended 5 1-May-08 3L *33,000.00 33,750.00 9 26-Nov-08 *2L *27,000.00 27,100.00 2 17-May-07 *1L *50,000.00 42,250.00 6 11-Jun-08 3L *31,000.00 31,250.00 10 5-Feb-09 2L *28,100.00 26,700.00 3 29-Oct-07 1L *45,000.00 40,200.00 7 5-Aug-08 3L *25,000.00 32,700.00 11 17-Jun-09 2L *32,000.00 29,200.00 4 3-Feb-08 *3L *34,000.00 37,850.00 8 19-Oct-08 3L *22,000.00 24,800.00 * Indicates change Rating/target price changes above reflect Eastern Standard Time KRW Covered Chart current as of 19 September 2009 KB Financial Group (105560.KS) Not covered Ratings and Target Price History 60,000
Fundamental Research 6 50,000 5 Analyst: Jinsang Kim 3 Covered since September 9 2009 40,000 2 4 1 30,000
20,000
10,000 ONDJ FMAM J J A SO ND J FMAMJ J ASOND J FMAMJ J AS 2007 2008 2009 Date Rating Target Price Closing Price Date Rating Target Price Closing Price Date Rating Target Price Closing Price 1 14-Oct-08 *2L *56,746.50 51,952.40 3 13-Nov-08 2H *36,200.36 29,791.91 5 29-Jul-09 Coverage suspended 2 30-Oct-08 *2H *42,070.68 34,243.58 4 18-May-09 *1M *52,832.95 44,027.46 6 9-Sep-09 *1L *64,000.00 54,400.00 * Indicates change Rating/target price changes above reflect Eastern Standard Time
Citigroup Global Markets Korea Securities Limited (CGMK) performs the role of liquidity provider on the warrants of which the underlying asset is Samsung Elec. As at 18 Sep 09, CGMK holds 3,399,840 Citi ELW 9227, 3,399,690 Citi ELW 9232, 3,400,000 Citi ELW 9262, 3,320,560 Citi ELW 9273, 3,399,900 Citi ELW 9300, 2,845,750 Citi ELW 9306, 3,396,660 Citi ELW 9348, 3,396,990 Citi ELW 9361 Call warrants & 2,840 shares of Samsung Elec. Citigroup Global Markets Korea Securities Limited (CGMK) performs the role of liquidity provider on the warrants of which the underlying asset is S-Oil. As at 18 Sep 09, CGMK holds 3,399,640 Citi ELW 9343 Call warrants of S-Oil. Citigroup Global Markets Korea Securities Limited (CGMK) performs the role of liquidity provider on the warrants of which the underlying asset is Korea Electric Power. As at 18 Sep 09, CGMK holds 3,400,000 Citi ELW 9254, 3,304,900 Citi ELW 9326, 3,400,000 Citi ELW 9336, 3,399,400 Citi ELW 9362 Call warrants & 3,909 shares of KEPCO. Citigroup Global Markets Korea Securities Limited (CGMK) performs the role of liquidity provider on the warrants of which the underlying asset is SKT. As at 18 Sep 09, CGMK holds 3,395,000 Citi ELW 9313, 3,399,980 Citi ELW 9350 Call warrants & 111 shares of SKT. Citigroup Global Markets Korea Securities Limited (CGMK) performs the role of liquidity provider on the warrants of which the underlying asset is KT Corporation. As at 18 Sep 09, CGMK holds 3,399,280 Citi ELW 9240, 2,997,850 Citi ELW 9307, 3,305,000 Citi ELW 9308, 3,400,000 Citi ELW 9337 Call warrants & 540 shares of KT Corporation. Citigroup Global Markets Korea Securities Limited (CGMK) performs the role of liquidity provider on the warrants of which the underlying asset is KT & G. As at 18 Sep 09, CGMK holds 2,789,390 Citi ELW 9314 Call warrants & 6,010 shares of KT & G. Citigroup Global Markets Korea Securities Limited (CGMK) performs the role of liquidity provider on the warrants of which the underlying asset is Shinhan Finance. As at 18 Sep 09, CGMK holds 3,390,000 Citi ELW 9235, 3,396,500 Citi ELW 9256, 3,366,050 Citi ELW 9277, 3,399,800 Citi ELW 9304 Call warrants, 3,385,570 Citi ELW 9305 Put warrants & 3,558 shares of Shinhan Finance. Citigroup Global Markets Korea Securities Limited (CGMK) performs the role of liquidity provider on the warrants of which the underlying asset is KB Financial Group. As at 18 Sep 09, CGMK holds 3,399,990 Citi ELW 9193, 3,399,850 Citi ELW 9204, 3,400,000 Citi ELW 9330 Call warrants & 981 shares of KB Financial Group. Angela Tan, Research Assistant, holds a long position in the securities of DBS Group. Global Markets India Pvt Ltd is providing a fairness opinion to Reliance Petroleum in its proposed merger with Reliance Industries. Citigroup Global Markets Inc. is acting as an advisor to Citigroup Inc. on the proposed disposal of Citi Technology Services Limited to Wipro Technologies, the global IT service business of Wipro Limited. For full disclosures please see original research reports. Salman Ali, CFA, Analyst, holds a long position in the securities of Hub Power.
39 Citigroup Global Markets
The Asia Investigator 21 September 2009
Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of Hang Seng Bank, Henderson Land, Hutchison Whampoa, Sinopec, Acer Inc, BOC Hong Kong, Australia and New Zealand Banking Group Ltd, AXIS Bank, Brambles Ltd, Glenmark Pharmaceuticals, Housing Development Finance Corp., HSBC Holdings PLC, ICICI Bank, Infosys Technologies, Larsen & Toubro, Mahindra & Mahindra, Piramal Healthcare, Punj Lloyd, TABCORP Holdings Ltd, Tata Consultancy Services, Tata Steel, United Phosphorus, Woodside Petroleum Ltd, Zee Entertainment. This position reflects information available as of the prior business day. Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of Hongkong Electric, Hang Seng Bank, KEPCO, SK Telecom, KT&G, Shanghai Industrial, Sinopec, CNOOC, China Mobile, KB Financial Group, Qingling Motors, BOC Hong Kong, Bank of China, Wuhan Iron And Steel, Formosa Petrochemical, Australia and New Zealand Banking Group Ltd, Bank of Baroda, Bharat Petroleum, DBS Group, GAIL, Glenmark Pharmaceuticals, Gujarat State Petronet, Hindalco Industries, HCL Technologies, Housing Development Finance Corp., HSBC Holdings PLC, MISC, NTPC, Oil & Natural Gas, PT Perusahaan Gas Negara, PLUS Expressways, Punj Lloyd, Reliance Industries, State Bank of India, SingTel, TABCORP Holdings Ltd, Tata Consultancy Services, Tenaga Nasional, Tata Steel, PT Telkom, UltraTech Cement. Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from Hongkong Electric, Hang Seng Bank, Henderson Land, Hutchison Whampoa, Guoco, Samsung Electronics, KEPCO, SK Telecom, Sinopec, CNOOC, Huaneng Power International, China Construction Bank, China Mobile, Cheung Kong Infrastructure Holdings, KB Financial Group, Formosa Plastics, Formosa Chemicals & Fiber, Pacific Textiles Holdings, Industrial & Commercial Bank of China, Far Eastern Textile, Acer Inc, Quanta Computer, BOC Hong Kong, Silitech Technology, Bank of China, Far Eastone, Formosa Petrochemical, Advanced Info, Australia and New Zealand Banking Group Ltd, AXIS Bank, Axiata Group, Bank of Baroda, Bharat Petroleum, Bharti Airtel, Brambles Ltd, CSE Global, DBS Group, GAIL, Glenmark Pharmaceuticals, Hindalco Industries, Hub Power, HSBC Holdings PLC, ICICI Bank, Larsen & Toubro, Mahindra & Mahindra, MISC, NTPC, OCBC, Oil & Gas Development, Oil & Natural Gas, PT Perusahaan Gas Negara, PLUS Expressways, Punj Lloyd, Reliance Industries, State Bank of India, StarHub, Singapore Technologies Engineering, Tata Consultancy Services, Telecom Corporation of New Zealand Ltd, Tenaga Nasional, Tata Steel, PT Telkom, Telstra Corp Ltd, UOB, Woodside Petroleum Ltd. Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from KEPCO, CNOOC, Huaneng Power International, China Mobile, Bank of Baroda, Bharat Petroleum, CSE Global, DLF, GAIL, Glenmark Pharmaceuticals, HDFC Bank, Housing Development Finance Corp., Hub Power, MISC, NTPC, Oil & Gas Development, Oil & Natural Gas, PLUS Expressways, Reliance Industries, Rickmers Maritime, State Bank of India, StarHub, Singapore Technologies Engineering, SingTel, Tenaga Nasional, Tata Steel. Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from Australia and New Zealand Banking Group Ltd, CLP Holdings, Hong Kong & China Gas, Hongkong Electric, Hang Seng Bank, Henderson Land, Hutchison Whampoa, Shinsegae, Guoco, Samsung Electronics, S-Oil, KEPCO, SK Telecom, KT Corp., Esprit, KT&G, Shanghai Industrial, Sinopec, Shinhan Financial Group, CNOOC, Huaneng Power International, China Construction Bank, China Mobile, WOONGJIN THINKBIG, Cheung Kong Infrastructure Holdings, KB Financial Group, Formosa Plastics, Formosa Chemicals & Fiber, Pacific Textiles Holdings, Industrial & Commercial Bank of China, Far Eastern Textile, St.Shine Optical, TSMC, Acer Inc, Quanta Computer, BOC Hong Kong, Chunghwa Telecom, MediaTek, HTC Corporation, Taiwan Mobile, Silitech Technology, Bank of China, Far Eastone, Formosa Petrochemical, Advanced Info, Ascendas India Trust, AXIS Bank, Axiata Group, Bank of Baroda, Bharat Petroleum, Bharti Airtel, Brambles Ltd, Cairn India, CSE Global, DBS Group, DLF, GAIL, Glenmark Pharmaceuticals, Hindalco Industries, HCL Technologies, HDFC Bank, Housing Development Finance Corp., Hongkong Land, Hub Power, HSBC Holdings PLC, ICICI Bank, Infosys Technologies, ITC, Jaiprakash, Kasikornbank, Keppel Corp, Larsen & Toubro, Mahindra & Mahindra, MISC, Maruti Suzuki India, NTPC, OCBC, Oil & Gas Development, Oil & Natural Gas, Pantaloon, PT Perusahaan Gas Negara, Piramal Healthcare, Punj Lloyd, Reliance Industries, State Bank of India, Siam Cement, Singapore Exchange, Sime Darby, Singapore Press, StarHub, Singapore Technologies Engineering, SingTel, Tata Consultancy Services, Telecom Corporation of New Zealand Ltd, PLDT, Tenaga Nasional, Tata Steel, TISCO Financial Group, Tanjong, PT Telkom, Telekom Malaysia, Telstra Corp Ltd, Tata Power, UltraTech Cement, UMW Holdings, United Phosphorus, UOB, Wipro, Woodside Petroleum Ltd in the past 12 months. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): Hongkong Electric, Hang Seng Bank, Henderson Land, Hutchison Whampoa, Guoco, Samsung Electronics, KEPCO, SK Telecom, Sinopec, CNOOC, Huaneng Power International, China Construction Bank, China Mobile, Cheung Kong Infrastructure Holdings, KB Financial Group, Formosa Plastics, Formosa Chemicals & Fiber, Pacific Textiles Holdings, Industrial & Commercial Bank of China, Far Eastern Textile, Acer Inc, Quanta Computer, BOC Hong Kong, Silitech Technology, Bank of China, Far Eastone, Formosa Petrochemical, Advanced Info, Australia and New Zealand Banking Group Ltd, AXIS Bank, Axiata Group, Bank of Baroda, Bharat Petroleum, Bharti Airtel, Brambles Ltd, CSE Global, DBS Group, DLF, GAIL, Glenmark Pharmaceuticals, Hindalco Industries, HDFC Bank, Housing Development Finance Corp., Hub Power, HSBC Holdings PLC, ICICI Bank, Larsen & Toubro, Mahindra & Mahindra, MISC, NTPC, OCBC, Oil & Gas Development, Oil & Natural Gas, PT Perusahaan Gas Negara, PLUS Expressways, Punj Lloyd, Reliance Industries, Rickmers Maritime, State Bank of India, StarHub, Singapore Technologies Engineering, SingTel, Tata Consultancy Services, Telecom Corporation of New Zealand Ltd, Tenaga Nasional, Tata Steel, PT Telkom, Telstra Corp Ltd, UOB, Woodside Petroleum Ltd. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securities- related: Australia and New Zealand Banking Group Ltd, CLP Holdings, Hong Kong & China Gas, Hang Seng Bank, Henderson Land, Hutchison Whampoa, Shinsegae, Guoco, Samsung Electronics, S-Oil, KEPCO, SK Telecom, KT Corp., Esprit, KT&G, Sinopec, Shinhan Financial Group, CNOOC, Huaneng Power International, China Construction Bank, China Mobile, Cheung Kong Infrastructure Holdings, KB Financial Group, Formosa Plastics, Formosa Chemicals & Fiber, Pacific Textiles Holdings, Industrial & Commercial Bank of China, Far Eastern Textile, St.Shine Optical, TSMC, Acer Inc, Quanta Computer, BOC Hong Kong, MediaTek, HTC Corporation, Taiwan Mobile, Silitech Technology, Bank of China, Far Eastone, Formosa Petrochemical, Advanced Info, Ascendas India Trust, AXIS Bank, Axiata Group, Bank of Baroda, Bharat Petroleum, Bharti Airtel, Brambles Ltd, Cairn India, CSE Global, DBS Group, DLF, GAIL, Glenmark Pharmaceuticals, Hindalco Industries, HCL Technologies, HDFC Bank, Housing Development Finance Corp., Hub Power, HSBC Holdings PLC, ICICI Bank, Infosys Technologies, ITC, Kasikornbank, Keppel Corp, Larsen & Toubro, Mahindra & Mahindra, MISC, Maruti Suzuki India, NTPC, OCBC, Oil & Gas Development, Oil & Natural Gas, PT Perusahaan Gas Negara, Piramal Healthcare, Punj Lloyd, Reliance Industries, State Bank of India, Siam Cement, Singapore Exchange, Sime Darby, Singapore Press, StarHub, Singapore Technologies Engineering, SingTel, Tata Consultancy Services, Telecom Corporation of New Zealand Ltd, PLDT, Tenaga Nasional, Tata Steel, TISCO Financial Group, Tanjong, PT Telkom, Telekom Malaysia, Telstra Corp Ltd, UltraTech Cement, UMW Holdings, United Phosphorus, UOB, Wipro, Woodside Petroleum Ltd. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, non- securities-related: CLP Holdings, Hong Kong & China Gas, Hongkong Electric, Hang Seng Bank, Henderson Land, Hutchison Whampoa, Shinsegae, Guoco, Samsung Electronics, S-Oil, KEPCO, SK Telecom, KT Corp., Esprit, KT&G, Shanghai Industrial, Sinopec, Shinhan Financial Group, CNOOC, Huaneng Power International, China Construction Bank, China Mobile, WOONGJIN THINKBIG, Cheung Kong Infrastructure Holdings, KB Financial Group, Formosa Plastics, Formosa Chemicals & Fiber, Pacific Textiles Holdings, Industrial & Commercial Bank of China, Far Eastern Textile, St.Shine Optical, TSMC, Acer Inc, Quanta Computer, BOC Hong Kong, Chunghwa Telecom, MediaTek, HTC Corporation, Taiwan Mobile, Silitech Technology, Bank of China, Far Eastone, Formosa Petrochemical, Advanced Info, Ascendas India Trust, Australia and New Zealand Banking Group Ltd, AXIS Bank, Axiata Group, Bank of Baroda, Bharat Petroleum, Bharti Airtel, Brambles Ltd, Cairn India, CSE Global, DBS Group, DLF, GAIL, Glenmark Pharmaceuticals, Hindalco Industries, HCL Technologies, HDFC Bank, Housing Development Finance Corp., Hongkong Land, Hub Power, HSBC Holdings PLC, ICICI 40 Citigroup Global Markets
The Asia Investigator 21 September 2009
Bank, Infosys Technologies, ITC, Jaiprakash, Kasikornbank, Keppel Corp, Larsen & Toubro, Mahindra & Mahindra, MISC, Maruti Suzuki India, NTPC, OCBC, Oil & Gas Development, Oil & Natural Gas, Pantaloon, PT Perusahaan Gas Negara, Piramal Healthcare, Punj Lloyd, Reliance Industries, State Bank of India, Siam Cement, Singapore Exchange, Sime Darby, Singapore Press, StarHub, Singapore Technologies Engineering, SingTel, Tata Consultancy Services, Telecom Corporation of New Zealand Ltd, PLDT, Tenaga Nasional, Tata Steel, TISCO Financial Group, Tanjong, PT Telkom, Telekom Malaysia, Telstra Corp Ltd, Tata Power, UltraTech Cement, UMW Holdings, United Phosphorus, UOB, Wipro, Woodside Petroleum Ltd. Citigroup Global Markets Inc. or an affiliate received compensation in the past 12 months from Australia and New Zealand Banking Group Ltd. Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability which includes investment banking revenues. The Firm is a market maker in the publicly traded equity securities of CLP Holdings, Hong Kong & China Gas, Hongkong Electric, Hang Seng Bank, Henderson Land, Hutchison Whampoa, Shanghai Industrial, Sinopec, CNOOC, Huaneng Power International, China Construction Bank, China Mobile, Industrial & Commercial Bank of China, BOC Hong Kong, Bank of China, Australia and New Zealand Banking Group Ltd, DBS Group, GAIL, Infosys Technologies, Keppel Corp, PLUS Expressways, State Bank of India, SingTel, Telstra Corp Ltd, UOB, Woodside Petroleum Ltd. For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citi Investment Research & Analysis product ("the Product"), please contact Citi Investment Research & Analysis, 388 Greenwich Street, 29th Floor, New York, NY, 10013, Attention: Legal/Compliance. In addition, the same important disclosures, with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at www.citigroupgeo.com. Valuation and Risk assessments can be found in the text of the most recent research note/report regarding the subject company. Historical disclosures (for up to the past three years) will be provided upon request. Citi Investment Research & Analysis Ratings Distribution Data current as of 30 Jun 2009 Buy Hold Sell Citi Investment Research & Analysis Global Fundamental Coverage 41% 38% 21% % of companies in each rating category that are investment banking clients 46% 45% 39% Guide to Citi Investment Research & Analysis (CIRA) Fundamental Research Investment Ratings: CIRA's stock recommendations include a risk rating and an investment rating. Risk ratings, which take into account both price volatility and fundamental criteria, are: Low (L), Medium (M), High (H), and Speculative (S). Investment ratings are a function of CIRA's expectation of total return (forecast price appreciation and dividend yield within the next 12 months) and risk rating. For securities in developed markets (US, UK, Europe, Japan, and Australia/New Zealand), investment ratings are:Buy (1) (expected total return of 10% or more for Low-Risk stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for Speculative stocks); Hold (2) (0%-10% for Low-Risk stocks, 0%-15% for Medium-Risk stocks, 0%-20% for High-Risk stocks, and 0%-35% for Speculative stocks); and Sell (3) (negative total return). For securities in emerging markets (Asia Pacific, Emerging Europe/Middle East/Africa, and Latin America), investment ratings are:Buy (1) (expected total return of 15% or more for Low-Risk stocks, 20% or more for Medium-Risk stocks, 30% or more for High-Risk stocks, and 40% or more for Speculative stocks); Hold (2) (5%-15% for Low- Risk stocks, 10%-20% for Medium-Risk stocks, 15%-30% for High-Risk stocks, and 20%-40% for Speculative stocks); and Sell (3) (5% or less for Low-Risk stocks, 10% or less for Medium-Risk stocks, 15% or less for High-Risk stocks, and 20% or less for Speculative stocks). Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in investment and/or risk rating, or a change in target price (subject to limited management discretion). At other times, the expected total returns may fall outside of these ranges because of market price movements and/or other short-term volatility or trading patterns. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock's expected performance and risk. Guide to Citi Investment Research & Analysis (CIRA) Corporate Bond Research Credit Opinions and Investment Ratings: CIRA's corporate bond research issuer publications include a fundamental credit opinion of Improving, Stable or Deteriorating and a complementary risk rating of Low (L), Medium (M), High (H) or Speculative (S) regarding the credit risk of the company featured in the report. The fundamental credit opinion reflects the CIRA analyst's opinion of the direction of credit fundamentals of the issuer without respect to securities market vagaries. The fundamental credit opinion is not geared to, but should be viewed in the context of debt ratings issued by major public debt ratings companies such as Moody's Investors Service, Standard and Poor's, and Fitch Ratings. CBR risk ratings are approximately equivalent to the following matrix: Low Risk Triple A to Low Double A; Low to Medium Risk High Single A through High Triple B; Medium to High Risk Mid Triple B through High Double B; High to Speculative Risk Mid Double B and Below. The risk rating element illustrates the analyst's opinion of the relative likelihood of loss of principal when a fixed income security issued by a company is held to maturity, based upon both fundamental and market risk factors. Certain reports published by CIRA will also include investment ratings on specific issues of companies under coverage which have been assigned fundamental credit opinions and risk ratings. Investment ratings are a function of CIRA's expectations for total return, relative return (to publicly available Citigroup bond indices performance), and risk rating. These investment ratings are: Buy/Overweight the bond is expected to outperform the relevant Citigroup bond market sector index (Broad Investment Grade, High Yield Market or Emerging Market), performances of which are updated monthly and can be viewed at http://sd.ny.ssmb.com/ using the "Indexes" tab; Hold/Neutral Weight the bond is expected to perform in line with the relevant Citigroup bond market sector index; or Sell/Underweight the bond is expected to underperform the relevant sector of the Citigroup indexes. Non-US research analysts who have prepared this report are not registered/qualified as research analysts with the NYSE and/or NASD. Such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 and NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. The legal entities employing the authors of this report are listed below: Citigroup Global Markets Asia Markus Rosgen,Lan Xue,Anil Daswani Citigroup Pty Limited Graham Harman Citigroup Global Markets India Private Limited Aditya Narain, CFA PT Citigroup Securities Indonesia Salman Ali, CFA Nikko Citigroup Limited Tsutomu Fujita, CFA Citigroup Global Markets Korea Securities Ltd Michael S Chung Citigroup Global Markets Malaysia SDN BHD Yong Yin Ng, CFA Citibank NA Asif Ali
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Citigroup Global Markets Singapore PTE LIMITED Hak Bin Chua,Paul R Chanin Citigroup Global Markets Taiwan Securities Co. Limited Peter Kurz Citicorp Securities (Thailand) Ltd. Suchart Techaposai OTHER DISCLOSURES Citigroup Global Markets Inc. and/or its affiliates has a significant financial interest in relation to CLP Holdings, Shinsegae, Samsung Electronics, S-Oil, KEPCO, SK Telecom, KT Corp., Shinhan Financial Group, KB Financial Group, Bank of China, Advanced Info, Australia and New Zealand Banking Group Ltd, Bank of Baroda, Bharti Airtel, DBS Group, HDFC Bank, Housing Development Finance Corp., HSBC Holdings PLC, ICICI Bank, Infosys Technologies, ITC, Reliance Industries, State Bank of India, SingTel, Telecom Corporation of New Zealand Ltd, Tata Steel, Telstra Corp Ltd, UOB, Wipro, Woodside Petroleum Ltd. 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