DB Indonesia Banking

Asia Pan-Asia Strategy

24 March 2011 Periodical Company Company Asia Equities Daily Focus Asian Index Closings EQUITIES Close 1D Chg %Chg SHSZ300 3264.93 1.30 4.37 Today's research headlines HSCEI 12752.61 -0.24 0.47 HSI 22825.40 -0.14 -0.91 Asian Edition TWSE 8545.08 0.44 -4.76 KOSPI 2012.18 -0.07 -1.89 FSSTI 3022.19 0.65 -5.26

Nodita_ KLCI 1511.97 0.19 -0.46 1. 2. TOP STORIES SENSEX 18206.16 1.21 -11.23 NIFTY 5480.25 1.23 -10.67 Taiwanese Airlines Cautious near-term outlook priced in; SET 1027.54 0.82 -0.51 Vincent Ha Page 7 upgrading to Hold JCI 3556.23 1.10 -3.98 PCOMP 3855.52 0.04 -8.23 Genting Singapore PLC ASX200 4652.40 0.19 -1.96 (GENS.SI),SGD1.99 Buy NDR highlights; better value emerges Aun-Ling Chia Page 8 FOREX (vs US$) Close 1D Chg YTD Price Target SGD2.43 %Chg Cosco Pacific Rmb 6.56 -0.06 0.72 FY10 in line, outlook positive HK$ 7.79 0.02 -0.27 (1199.HK),HKD14.54 Buy Michael Lee Page 9 Price Target HKD18.00 NT$ 29.58 -0.14 -0.95 Won 1124.35 -0.30 0.15 Global Markets Research S$ 1.26 -0.06 1.52 ESTIMATE & TARGET PRICE CHANGES M$ 3.03 -0.03 1.12 Belle Int'l Holding 2011 - focus on improving store Anne Ling Rupee 44.85 0.25 -0.33 (1880.HK),HKD14.00 Buy Page 10 Baht 30.26 -0.20 -0.66 Price Target HKD16.70 productivity; Buy Rupiah 8723.00 -0.08 3.13 Peso 43.44 -0.30 0.84 China Dongxiang The "stock" shock; maintaining Hold Rebecca Jiang (3818.HK),HKD2.51 Hold A$ 1.02 0.49 -0.79 Page 11 Source: Bloomberg Finance LP Price Target HKD2.38 Latest Commodity Prices China Life Insurance It has to be more than product mix Bob Leung COMMODITIES Close 1D %Chg YTD (2628.HK),HKD28.60 Buy changes Page 12 Price Target HKD37.50 %Chg West Texas 105.03 0.99 14.94 CNOOC Ltd Strong 2010 results David Hurd Brent 115.25 -0.50 22.22 (0883.HK),HKD18.44 Buy Page 13 CRB 357.03 0.16 7.28 Price Target HKD21.52 Copper 441.85 2.67 -0.47 Dah Sing Banking Lower NIM more than priced in; Gold (Spot) 1440.13 0.87 1.36 Sophia Lee Alum. (LME) 2600.00 1.17 5.26 (2356.HK),HKD11.90 Buy reiterating Buy Page 14 Price Target HKD15.20 Baltic Dry 1543.00 0.78 -12.97 Source: Bloomberg Finance LP Guangzhou Auto Still on track for better future; Vincent Ha DB CORPORATE ACCESS (2238.HK),HKD9.15 Buy maintain Buy Page 15 Price Target HKD11.80 DB Access Indonesia Small Cap Corporate Day - SG 4/5 - 6 Hengdeli Cost control the key despite favorable Chen Feng (3389.HK),HKD4.18 Buy DB Access Asia Conference 2011 - Singapore 5/23 - 26 market Page 16 DB Access Taiwan Conference 2011 - Taipei 11/7 - 8 Price Target HKD4.90 DB Access Korea Conference 2011 - Seoul 11/10 - 11 DB Access Indonesia Conference 2011 - Jakarta 11/29 - Little Sheep Group FY11 outlook; maintaining Buy Anne Ling 12/1 Limited (0968.HK),HKD4.88 Buy Page 17 Price Target HKD6.15 Research Team Carissa Szeto Wumart Stores FY11 outlook; maintaining Buy Anne Ling (8277.HK),HKD15.66 Buy Page 18 Equity Focus Price Target HKD19.60 (+852) 2203 6171 [email protected] OCI Company Ltd Warming up to solar; near-term Peter Lee (010060.KS),KRW455,500. earnings looking solid Ching-Li Teo, CFA 00 Buy Price Target Page 19 Equity Focus KRW540,000.00 (+852) 2203 6206 [email protected]

Deutsche Bank AG/Hong Kong All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.

MICA(P) 007/05/2010 24 March 2011 Strategy Asia Equities Daily Focus

STRATEGY/ECONOMICS Asia Economics Daily Kaushik Das CPI inflation eases in Singapore Page 20

US Daily Economic Notes Labor market to buoy housing Joseph A. Page 22 demand LaVorgna Global Commodities Disruptions in the global oil balance Soozhana Choi Daily Page 23

ADDITIONAL RESEARCH China TMT Daily Group buy update; also, 0728.HK, Alan Hellawell Page 25 CTRP III China Shineway Solid year but tough road ahead; Jack Hu (2877.HK),HKD23.75 Hold Page 26 Price Target HKD21.00 maintaining Hold

China Telecom CT FY results Alan Hellawell (0728.HK),HKD4.61 Buy III Page 27 Price Target HKD5.40

Dah Sing Financial FY10 result: encouraging update on Sophia Lee (0440.HK),HKD46.40 Hold Page 28 Price Target HKD64.10 insurance business

Maanshan Iron and Steel Light at the end of the tunnel James Kan (0323.HK),HKD4.15 Buy Page 29 Price Target HKD5.70

PCCW (0008.HK),HKD3.35 FY10 operationally in-line, maintain William Bratton Buy Price Target HKD3.54 Page 30 Buy The United Laboratories Guiding better-than-expected growth Jack Hu (3933.HK),HKD14.34 Buy Page 31 Price Target HKD18.50 for 2011 Wharf (0004.HK),HKD51.20 War-chest ready; Reiterate Buy Karen Tang Buy Price Target HKD62.00 Page 32

POSCO Company visit takeaways ; upside to Chanwook (005490.KS),KRW499,500.0 Park 0 Buy Price Target sales volume guidance Page 33 KRW600,000.00 Malaysia Telecoms Growing signs of competition risks in Wei-Shi Wu Sector Page 34 broadband Automobiles & Impact of proposed diesel tax in Delhi Srinivas Rao Components Page 35

Automobiles & Delhi tax proposal likely to impact all Srinivas Rao Components Page 36 diesel vehicles Indiabulls Real Estate Scrapping of “car park” FSI in Abhay (INRL.BO),INR113.40 Buy Shanbhag Page 37 Price Target INR290.00 Mumbai may not be negative

Agung Podomoro Land FY10 results below consensus Fiky Silvia (APLN.JK),IDR335.00 Buy Page 38 Price Target IDR440.00

Page 2 Deutsche Bank AG/Hong Kong

Astra Int'l Rachman DB MIC February YoY sales remain resilient (ASII.JK),IDR55,850.00 Buy Koeswanto Page 39 Price Target IDR79,000.00 Indonesian Politics Guest-Speaker: Mr. Wimar Witoelar, Consultant with DB Indonesia Banking Lending rate dichotomy Raymond InterMatrix Communications/Adjunct Professor at Deakin Sector Kosasih Page 40 University, Australia 24 Mar @5pm HK/SG / 4pm Jakarta / 9pm UK United Tractors Komatsu resumes its production Rachman (UNTR.JK),IDR23,200.00 Koeswanto Page 41 DB CONFERENCE/CORPORATE DAY Buy Price Target IDR30,000.00 DB Access Indonesia Small Cap Corporate Day - SG 4/5 - 6 DB Access Asia Conference 2011 - Singapore 5/23 - 26 GLOBAL RESEARCH DB Access Taiwan Conference 2011 - Taipei 11/7 - 8 Nippon Electric Glass DB Access Korea Conference 2011 - Seoul 11/10 - 11 Company lowers guidance Katsuhiko DB Access Indonesia Conference 2011 - Jakarta 11/29 - (5214.T),¥1,145 Buy Price Ishibashi Page 42 12/1 Target ¥1,400 Eisai (4523.T),¥3,010 Hold NDRs Upgrading to Hold: Plans cost cuts to Kenji Masuzoe Price Target ¥2,900 Page 43 address patent cliff Little Sheep Group (968 HK) - HK 3/24 Winsway Coking Coal Holdings (1733 HK) - HK 3/224, SG 3/25 Geely Auto (175 HK) - HK 3/25 The notes and reports contained in this Daily are all excerpts of previously NEW: Renhe Commercial Holdings (1387 HK) - SG 3/28 published documents. Please refer to the published notes on our web site for China SCE Property Holdings (1966 HK) - HK 3/28, SG 3/30 details on risks, valuations and earnings changes China High Speed Transmission Equipment (658 HK) -HK 3/28 - 29 Greentown China Holdings (3900 HK) - HK 3/30 Shenzhen Expressway Co (548 HK) - HK 3/31 Industrial and Commercial Bank of China (1398 HK) - HK 3/30 NEW: Jack Hu - SG 3/30 - 31 China Shipping Container Liner (2866 HK) - HK 3/31 - 4/1 Nan Ya Printed Circuit Board Corp (8046 TT) - HK 3/30 - 31, Shenzhen 4/1 NEW: Hengan International Group (1044 HK) - HK 3/31 NEW: C C Land Holdings (1224 HK) - HK 3/31 PT Nippon Indosari Corpindo (ROTI IJ) - HK 4/4 Evergrande Real Estate Group (3333 HK) - SG 4/5, SZX 4/6, PEK 4/8 PT Gajah Tunggal Tbk (GJTL IJ) - HK 4/7 - 8 H TC Corporation (2498 TT) - SG 6/21 - 22, HK 6/23 - 24 DB ANALYST/SALES ROADSHOWS

Sanghi Han: Korea Construction and LS Corp./Utilities - HK 3/28 - 29, SG 3/30 - 31 Wei-Shi Wu: Singapore/Malaysia Telecoms - Wiring up the Nation: the Telecoms Transformation - HK 3/30 - 31 Srinivas Rao: Telecom & Automotive - SG 3/28 - 29, HK 3/30 & 4/1 Phyllis Wang: China Expressway & Rail - HK 4/1 Christopher Wane: CROCI Global - HK 3/31 & 4/1, SEL 4/4, SG 4/5 - 6, PEK 4/7 John Kim: Korea Telecom - HK 4/1 Worawat Saisuphatphol: Thai Banking - SG 4/4 - 5, HK 4/6 - 7 Tony Tsang: China & HK Property - PEK 4/7, HK 4/11 - 12, SG 4/14 - 15 Jihyun Song: Korea Consumer - HK 4/11 - 12, SG 4/13 - 14

DB INTERNATIONAL PRODUCT ROADSHOWS

CIGNA Corp (CI US) - HK 3/25 Brett Feldman: US Telecommunications - SEL 3/28, PEK 3/29, HK 3/30, SG 4/1 Rizwan Ali: Telecom - SG 3/29, HK 3/30 Continental AG (CON GR) - HK 4/8 Lloyds Banking Group (LLOY LN) - PEK 4/11, HK 4/12, SG 4/13 Rod Lache: US Auto Industry - PEK 4/11, HK 4/14, SG 4/15 Torsten Slok, Chief International Economist: Global Economics - SEL 4/12, PEK 4/13, SG 4/14 China Shipping Container Liner (2866 HK): Metals & Mining - SG 4/12, HK 4/13, PEK 4/14 Diageo (DGE LN) - HK 5/9, SG 5/10, PEK 5/11

24 March 2011 Strategy Asia Equities Daily Focus

DAILY REVISIONS: RATING CHANGES Company Ticker Date New Previous China Airlines 2610.TW 23-Mar ▲ Hold Sell China SCE Property 1966.HK 22-Mar Buy NR EVA Airways 2618.TW 23-Mar ▲ Hold Sell

TARGET PRICE CHANGES Company Ticker Date New Previous Chg (%) Belle Int'l Holding [Buy] 1880.HK 23-Mar ▲ 16.70 15.70 6.4 CNOOC Ltd [Buy] 0883.HK 23-Mar ▲ 21.52 21.10 2.0 China Airlines [Hold] 2610.TW 23-Mar ▼ 18.10 21.40 -15.4 China Dongxiang [Hold] 3818.HK 22-Mar ▼ 2.38 3.88 -38.7 China Life Insurance [Buy] 2628.HK 23-Mar ▼ 37.50 38.00 -1.3 China SCE Property [Buy] 1966.HK 22-Mar 2.95 Dah Sing Banking [Buy] 2356.HK 23-Mar ▼ 15.20 16.80 -9.5 EVA Airways [Hold] 2618.TW 23-Mar ▼ 24.40 29.90 -18.4 Geely Auto [Buy] 0175.HK 23-Mar ▼ 4.40 4.70 -6.4 Guangzhou Auto [Buy] 2238.HK 23-Mar ▼ 11.80 12.00 -1.7 Hengdeli [Buy] 3389.HK 23-Mar ▼ 4.90 5.50 -10.9 Little Sheep Group Limited [Buy] 0968.HK 23-Mar ▲ 6.15 5.30 16.0 OCI Company Ltd [Buy] 010060.KS 23-Mar ▲ 540,000.00 500,000.00 8.0 Olam International [Buy] OLAM.SI 22-Mar ▼ 3.20 3.60 -11.1 Tingyi [Hold] 0322.HK 22-Mar ▼ 20.20 20.90 -3.3 Wumart Stores [Buy] 8277.HK 22-Mar ▲ 19.60 18.40 6.5

EPS REVISIONS Company Ticker Date FY New Previous Chg (%) Belle Int'l Holding [Buy] 1880.HK 23-Mar Dec 10 ▼ 0.41 0.42 -2.6 Dec 11 ▼ 0.50 0.51 -2.4 Dec 12 ▼ 0.60 0.61 -2.9 Dec 13 0.71 CNOOC Ltd [Buy] 0883.HK 23-Mar Dec 10 ▲ 1.22 1.07 13.7 Dec 11 ▲ 1.35 1.31 3.1 Dec 12 ▲ 1.36 1.28 6.0 Dec 13 ▲ 1.40 0.75 86.0 Cairn India [Buy] CAIL.BO 22-Mar Mar 11 ▼ 30.46 30.47 0.0 Mar 12 ▼ 55.04 57.37 -4.1 Mar 13 ▼ 53.29 54.76 -2.7 China Airlines [Hold] 2610.TW 23-Mar Dec 10 ▼ 2.55 2.81 -9.2 Dec 11 ▼ 2.00 2.42 -17.4 Dec 12 ▼ 2.14 2.53 -15.5 China Dongxiang [Hold] 3818.HK 22-Mar Dec 10 ▼ 0.26 0.29 -9.5 Dec 11 ▼ 0.18 0.28 -35.5 Dec 12 ▼ 0.21 0.30 -30.6 Dec 13 0.21 China Life Insurance [Buy] 2628.HK 23-Mar Dec 10 ▲ 1.19 1.16 2.8 Dec 11 ▼ 1.23 1.40 -12.3

Page 4 Deutsche Bank AG/Hong Kong 24 March 2011 Strategy Asia Equities Daily Focus

DAILY REVISIONS: Company Ticker Date FY New Previous Chg (%) China SCE Property [Buy] 1966.HK 22-Mar Dec 09 0.04 Dec 10 0.32 Dec 11 0.33 Dec 12 0.44 China Shineway [Hold] 2877.HK 23-Mar Dec 10 ▲ 0.99 0.90 10.6 Dec 11 ▲ 1.05 1.01 4.5 Dec 12 ▼ 1.18 1.19 -0.8 Dec 13 ▼ 1.32 1.44 -8.9 Cosco Pacific [Buy] 1199.HK 22-Mar Dec 10 ▲ 0.10 0.10 0.3 Dec 11 ▲ 0.13 0.13 0.1 Dec 12 ▼ 0.14 0.14 -0.1 Dah Sing Banking [Buy] 2356.HK 23-Mar Dec 10 ▲ 1.19 0.99 20.1 Dec 11 ▼ 1.13 1.21 -6.8 Dec 12 ▼ 1.40 1.48 -5.6 EVA Airways [Hold] 2618.TW 23-Mar Dec 10 ▼ 4.05 4.80 -15.5 Dec 11 ▼ 3.19 4.31 -26.1 Dec 12 ▼ 3.35 4.46 -24.9 Dec 13 3.92 Geely Auto [Buy] 0175.HK 23-Mar Dec 10 ▼ 0.17 0.18 -3.3 Dec 11 ▼ 0.21 0.22 -6.5 Dec 12 ▼ 0.25 0.26 -3.8 Dec 13 0.29 Guangzhou Auto [Buy] 2238.HK 23-Mar Dec 10 ▲ 0.92 0.69 33.6 Dec 11 ▼ 0.83 0.85 -1.5 Dec 12 ▼ 1.06 1.06 -0.6 Dec 13 1.26 HK & Shanghai Hotels [Hold] 0045.HK 22-Mar Dec 10 ▼ 0.28 0.38 -27.1 Dec 11 ▼ 0.49 0.51 -3.0 Dec 12 ▲ 0.60 0.59 1.3 Dec 13 ▲ 0.69 0.68 2.0 Hengdeli [Buy] 3389.HK 23-Mar Dec 10 ▼ 0.12 0.13 -8.1 Dec 11 ▼ 0.15 0.17 -11.8 Dec 12 ▼ 0.19 0.23 -15.7 Dec 13 ▼ 0.24 0.27 -11.8 Little Sheep Group Limited [Buy] 0968.HK 23-Mar Dec 10 ▲ 0.18 0.18 0.8 Dec 11 ▼ 0.22 0.22 -3.2 Dec 12 ▼ 0.26 0.27 -3.1 Dec 13 0.31 OCI Company Ltd [Buy] 010060.KS 23-Mar Dec 11 ▲ 33,761.27 31,174.95 8.3 Dec 12 ▲ 37,775.61 36,241.87 4.2 Reliance Industries [Buy] RELI.BO 22-Mar Mar 10 ▼ 47.72 47.72 0.0 Mar 11 ▼ 62.36 64.56 -3.4 Mar 12 ▲ 73.98 71.99 2.8 Mar 13 ▲ 83.26 82.23 1.3

Deutsche Bank AG/Hong Kong Page 5 24 March 2011 Strategy Asia Equities Daily Focus

DAILY REVISIONS: Company Ticker Date FY New Previous Chg (%) The United Laboratories [Buy] 3933.HK 23-Mar Dec 10 ▲ 0.78 0.78 0.3 Dec 11 ▲ 0.97 0.88 9.1 Dec 12 ▲ 1.29 1.11 16.1 Dec 13 ▲ 1.68 1.38 21.7 Tingyi [Hold] 0322.HK 22-Mar Dec 10 ▼ 0.07 0.08 -13.3 Dec 11 ▼ 0.09 0.09 -0.6 Dec 12 ▼ 0.11 0.11 -2.3 Dec 13 0.13 Wharf [Buy] 0004.HK 23-Mar Dec 10 ▲ 2.58 2.55 1.1 Dec 11 ▲ 2.94 2.87 2.3 Dec 12 ▼ 3.18 3.25 -2.0 Dec 13 ▼ 3.65 3.79 -3.7 Wumart Stores [Buy] 8277.HK 22-Mar Dec 10 ▲ 0.42 0.42 0.8 Dec 11 ▲ 0.52 0.51 1.4 Dec 12 ▼ 0.65 0.65 -0.8 Dec 13 0.80 Source: Deutsche Bank

Page 6 Deutsche Bank AG/Hong Kong 24 March 2011 Strategy Asia Equities Daily Focus

Asia Taiwan

Transportation Air

23 March 2011 Recommendation Change Taiwanese Airlines Companies featured China Airlines (2610.TW),TWD17.60 Hold 2009A 2010E 2011E Cautious near-term outlook P/E (x) – 6.9 8.8 EV/EBITDA (x) 17.9 7.7 7.3 Price/book (x) 1.3 1.6 1.4 priced in; upgrading to Hold EVA Airways (2618.TW),TWD24.30 Hold 2010A 2011E 2012E Vincent Ha, CFA Joe Liew, CFA P/E (x) 5.3 7.6 7.2 Research Analyst Research Analyst EV/EBITDA (x) 5.7 5.8 4.8 (+852) 2203 6247 (+852) 2203 6198 Price/book (x) 2.7 1.5 1.3 [email protected] [email protected] Quarterly total revenue trend 1Q11E margin squeeze, but better profitability expected to return in 2Q11E Taiwanese airlines’ shares have dropped by more than 30% YTD, reflecting slowing growth momentum in traffic and yield, and rising jet fuel costs. While we acknowledge these risks, we think 1Q11E should be the worst quarter of margin squeeze. Load factors and yields should improve with 1) the start of individual tourists in April, 2) upside surprises in Taiwan cargo export data, and 3) realization of a jet fuel surcharge increase. Thus, we upgrade both China Airlines (CAL) and EVA Airways from Sell to Hold because we think they are now fairly valued. Weak profitability in 4Q10 expected to continue in 1Q11E, but priced in EVA reported strong FY10 net profit of TWD12.0bn following a loss-making FY09. Nonetheless, on a QoQ basis, EVA’s 4Q10 net profit declined 83.3%, mainly due to rising jet fuel costs. We expect CAL to announce similar results. We expect margin squeeze to continue into 1Q11 given that jet fuel prices increased 24% Quarterly cargo revenue trend while passenger yield grew by only 15% YoY in January-February. Coupled with decelerating cargo traffic and yield growth and the possible impact of the Tohoku Pacific Earthquake, 1Q11E will likely be depressed. On a positive note, however, EVA proposed a cash dividend and since both stocks have retreated 32-34% YTD, we believe 1Q11E results are reflected in the share prices. Improving electronic exports and individual tourists are near-term catalysts Going into 2Q11E, we are more optimistic. We have seen improvements in Taiwan electronic exports growth, one of the leading indicators, to 18-21% YoY in January and February. In addition, on top of the 4,000 visitors per day from China to Taiwan (quota was 3,000 visitors before December 2010), starting in April, 500 individual tourists per day could travel from Shanghai and Beijing to Taiwan without being part of an organized group. We expect March export data and more publicity on individual tourism to be near-term catalysts to support stock prices Quarterly pax revenue trend and restore traffic and yields, especially when the jet fuel surcharge kicks in. However, a worse-than-expected 1Q11E margin squeeze could negatively impact stock performance in the near term. Both Taiwanese airlines are now fairly valued We are slightly reducing our benchmark for CAL to 1.4x FY11E P/BV (from 1.5x) due to no fuel hedging, and are maintaining EVA at 1.5x FY11E P/BV. We think near-one-standard deviation P/BV benchmarks are justified on FY11-12E ROEs of 15-21%. Nonetheless, we have cut our earnings given the cautious 1Q11E outlook and the impact of the Tohoku Pacific Earthquake in Japan. Upside risks: stronger- than-expected air traffic demand and yield recovery, and lower-than-expected jet fuel prices. Downside risks: worse-than-expected jet fuel price increases, a slow recovery in cargo, government pressure on cross-strait ticket prices, and a prolonged impact from the Fukuho Pacific Earthquake. Our top Buys among Asia ex-Japan airlines are Cathay Pacific (0293.HK) and Singapore Airlines (SIAL.SI).

Figure 1: Summary of changes to Taiwanese airlines featured in this report This report changes ratings, target Stock Ticker New Old New Prev New NP (TWD m) Old NP (TWD m) prices, and estimates for several Rec Rec TP TP 2011E 2012E 2011E 2012E companies under our coverage. For China Airlines 2610.TW Hold Sell 18.1 21.4 9,125 9,787 11,044 11,577 detailed listing of these changes, see EVA Airways 2618.TW Hold Sell 24.4 29.9 9,439 9,935 12,774 13,227 Figure 1. Source: Deutsche Bank

Deutsche Bank AG/Hong Kong Page 7

24 March 2011 Strategy Asia Equities Daily Focus

Asia ASEAN Singapore Consumer Hotels/Leisure/Gaming

23 March 2011 Company Update Genting Singapore PLC Reuters: GENS.SI Bloomberg: GENS SP Exchange: SES Ticker: GENS Buy Price at 23 Mar 2011 (SGD) 1.99 Price target - 12mth (SGD) 2.43 52-week range (SGD) 2.35 - 0.86 NDR highlights; better value Straits Times Index 3,003

emerges Price/price relative Aun-Ling Chia, CFA 2.4 Research Analyst 2.0 (+60) 3 2053 6768 1.6 [email protected] 1.2 Recent correction offers better value at 11x EV/EBITDA; parent ups stake 0.8 Deutsche Bank hosted Genting Singapore on an NDR in the US last week. Investor 0.4 interest was strong with focus on market growth, junkets and credit risk. With recent price correction and underperformance vs. Macau peers we see better 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 value in GENS. The stock is trading at low-end of historical EV/EBITDA of 11-18x Genting Singapore PL and a 30% discount to Macau peers (15-16x). Parent Genting Bhd recently upped Straits Times Index (Rebased) its stake 0.2%. With fundamentals intact, a favorable operating landscape and a Performance (%) 1m 3m 12m possible near-term catalyst in seasonally strong 1Q, we reiterate Buy. Absolute 0.5 -6.1 112.8 Straits Times Index 0.0 -4.3 3.3 Junket approvals more likely in 2H; meanwhile VIP volume stays robust Genting Singapore (GENS) derives 60% of its VIP play from North Asia, Stock data increasingly tapping the wealth creation in China and sharing in the prosperity of Market cap (SGDm) 24,220 Macau. GENS plans to expand its VIP table capacity by 33%, adding 10 gaming Market cap (USDm) 19,173 Shares outstanding (m) 12,170.6 salons this year to better tap the growing VIP market. Junket approvals now look Major shareholders Genting Bhd (51.8%) more likely in 2H 2011 instead of 1Q. Our forecast incorporates the junket effect, Free float (%) 45 which if excluded would bring EBITDA to S$1.8bn, similar to the Street estimate. Avg daily value traded (USDm) 128.1

Large receivables raise credit concerns, but we believe it is manageable Key indicators (FY1) GENS’s high receivables at end 2010 warrant attention, but we believe this is not ROE (%) 22.3 overly concerning given the nature of its direct VIP business plus the fact that its Net debt/equity (%) -10.5 operation is still in a ramp-up phase. We gather that both MBS and RWS have Book value/share (SGD) 0.53 Price/book (x) 3.8 similar provision ratios in 2010 (Figure 7). Despite the high receivables, GENS Net interest cover (x) 10.5 generated an S$1.4bn operating cash flow in 2010, similar to EBITDA. Credit risk Operating profit margin (%) 44.0 should significantly reduce once junkets come into play. Upcoming events Date Target price maintained at S$2.43 (S$2.21 without the junket effect in 2011) 1QFY2011 results 12 May 2011 A target price of S$2.43/share values the Singapore gaming operation at 14x 2011E EV/EBITDA plus projected net cash. The multiple is pegged to its historical average trading multiple. Applying a similar EV/EBITDA multiple to ex-junket EBITDA would still imply 15% potential share price upside (to S$2.21/share). Key risks: prolonged delay in junket approvals, regulatory tightening measures, and lower-than-projected market growth and market share. Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (SGDm) 491.2 2,753.3 4,007.6 4,757.6 5,172.9 EBITDA (SGDm) -52.8 1,360.0 2,057.7 2,483.9 2,741.9 Reported NPAT (SGDm) -277.6 37.8 1,285.1 1,709.7 1,949.8 Reported EPS FD(SGD) -0.02 0.00 0.11 0.14 0.16 DB EPS FD(SGD) -0.02 0.07 0.11 0.14 0.16 DB EPS growth (%) -931.7 – 60.1 33.0 14.0 PER (x) – 21.7 18.9 14.2 12.5 EV/EBITDA (x) – 12.3 11.4 8.9 7.4 DPS (net) (SGD) 0.00 0.00 0.00 0.02 0.02 Yield (net) (%) 0.0 0.0 0.0 0.8 0.9 Source: Deutsche Bank estimates, company data

1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close

Page 8 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Conglomerates

24 March 2011 Results Cosco Pacific Reuters: 1199.HK Bloomberg: 1199 HK Exchange: HKG Ticker: 1199 Buy Price at 23 Mar 2011 (HKD) 14.54 Price target - 12mth (HKD) 18.00 52-week range (HKD) 15.72 - 8.68 FY10 in line, outlook positive HANG SENG INDEX 22,825

Price/price relative

16 Michael Lee Jack Frew 14 Research Analyst Research Associate (+852) 2203 6136 (+852) 22036197 12 [email protected] [email protected] 10

8 Cosco Pacific remains our top pick on favorable valuations 6 Cosco Pacific (CP) reported FY10 net profit of US$361m that has more than 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 doubled from last year. The good set of results was 2% above our forecasts and Cosco Paci f i c consensus. Strong operational performances in the past 12 months are within our HANG SENG INDEX (Rebased) expectations and more importantly, CP has painted a rosy outlook for all of its Performance (%) 1m 3m 12m businesses in 2011. CP remains our top pick in the China ports sector as it sets to Absolute -1.5 8.2 19.0 HANG SENG INDEX -0.4 -0.3 8.8 deliver a 31% recurrent earnings growth in 2011, translating to a PEG ratio of just 0.47 compared to MSCI China’s PEG ratio of about 0.55. Maintain Buy. Stock data FY10 results summary Market cap (HKDm) 39,287 Market cap (USDm) 5,041 Headline net profit of US$361m included a one-off disposal gain of US$85m. Shares outstanding (m) 2,702.0 Recurrent net profit was up 88% to US$277m from last year. The full year Major shareholders COSCO Holdings (42.3%) dividend has risen 85% to USc 5.668 that included a special dividend of USc1.426 Free float (%) 58 in the interim. Payout ratio remained at 40%. Net gearing has declined to 30% that Avg daily value traded (USDm) 18.7

positions the company well for further expansion. Key indicators (FY1) Rosy outlook in 2011 ROE (%) 11.2 We expect low teens throughput growth to drive an 18% EPS CAGR in the next 2 Net debt/equity (%) 28.7 Book value/share (USD) 1.33 years. CP is also confident that its Piraeus and Nansha port will likely have positive Price/book (x) 1.4 profit contributions in 2011. Container supply remains tight due to continuous Net interest cover (x) 1.6 slow-steaming operations of the shippers. This is evidenced by the historically Operating profit margin (%) 25.6 high lease yields of 14-15% CP has been asking for recently. As a result, CP expects its container leasing business continues to do well and utilization rate of its box leasing fleet is at a 5-year high of 97%. CP’s 22%-owned container box manufacturer, CIMC expects a 20-30% increase in new box sales in 2011 driven by similar reasons. Valuations attractive at a 34% discount to NAV and PEG of 0.47x The stock is trading at a steep 34% discount to NAV vs its historical average of about 20%. Our target price of HK$18/sh is based on a 20% (historical avg) discount to our NAV of HK$22. Valuation is compelling with the stock trading at 14x 11E PE and a PEG ratio of just 0.47x. Key risks: 1) worse-than-expected throughput growth, 2) worse-than-expected box leasing market, and 3) execution risks at Piraeus/Nansha port. Forecasts and ratios Year End Dec 31 2008A 2009A 2010E 2011E 2012E Sales (USDm) 338.0 349.4 417.2 458.5 504.4 EBITDA (USDm) 228.1 175.9 234.7 269.1 307.1 Reported NPAT (USDm) 274.8 172.5 354.4 353.1 391.1 Reported EPS FD (USD) 0.12 0.08 0.13 0.13 0.14 DB EPS FD (USD) 0.12 0.06 0.10 0.13 0.14 DB EPS growth (%) 11.3 -47.2 59.1 30.9 10.8 PER (x) 13.0 19.7 18.7 14.3 12.9 Yield (net) (%) 3.2 2.5 3.6 2.8 3.1 Source: Deutsche Bank estimates, company data

Deutsche Bank AG/Hong Kong Page 9

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Consumer Retail/Wholesale Trade

24 March 2011 Forecast Change Belle Int'l Holding Reuters: 1880.HK Bloomberg: 1880 HK Exchange: HKG Ticker: 1880 Buy Price at 23 Mar 2011 (HKD) 14.00 Price target - 12mth (HKD) 16.70 52-week range (HKD) 15.72 - 8.90 2011 - focus on improving HANG SENG INDEX 22,825

Key changes store productivity; Buy Price target 15.70 to 16.70 Ç 6.4% Anne Ling Rebecca Jiang, CFA Sales (FYE) 29,745 to 29,171 È -1.9% Op prof margin (FYE) 16.9 to 17.3 Ç 2.0% Research Analyst Research Analyst Net profit (FYE) 4,318.0 to 4,214.3 È -2.4% (+852) 2203 6177 (+852) 2203 6152 [email protected] [email protected] Price/price relative Raising target price to HK$16.7, trimming EPS by 3% for FY11-12E 16 We rate Belle a Buy as we believe the company will continue to benefit from 12 further improvement in store efficiency (a key focus in 2011). The acquisitions made in 2008-09 are now bearing fruit, with improvements in sales per store 8 (higher transaction value) and profitability. This should allow Belle to handle rising 4 operating costs and result in a healthy 23% EPS CAGR for FY10-13. 0 2010 results in line, with special final dividend surprising the market 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 Belle Int'l Holding Belle reported a 20% rise in sales to RMB23.7bn and a 35% rise in net profit to HANG SENG INDEX (Rebased) RMB3.4bn. The results are in line with our forecasts (3% off both our sales and Performance (%) 1m 3m 12m earnings forecasts) and market estimates. The company surprised the market with Absolute 6.4 6.4 42.9 another RMB10 cents special dividend for final results. Together with the ordinary HANG SENG INDEX -0.4 -0.3 8.8 dividend, this increased the total payout ratio to 76% in 2010 (25% in 2009). Stock data 2011 – management guides for healthy store growth as well as sssg Market cap (HKDm) 118,179 For 2011, management guided for 10%+ new stores for footwear and sportswear. Market cap (USDm) 15,165 We expect sssg of 15% (with management’s focus on store efficiency), better Shares outstanding (m) 8,441.3 than 2010 sssg of 5%, for footwear and sportswear. In terms of strategy, the Major shareholders Sheng & Tangs (58.3%) Free float (%) 27 company is exploring potential new formats, brands and markets. Avg daily value traded (USDm) 21.013 We raise our target price to HK$16.7 (implying FY12E P/E of 22.6x) With results in line, we have trimmed our EPS forecast for FY11-12 by 3% and Key indicators (FY1) ROE (%) 24.4 have introduced our 2013 forecast. We derive our target price of HK$16.7 Net debt/equity (%) -33.0 (previously HK$15.7) from the average of our PE/G and DCF valuations. Our DCF Book value/share (CNY) 2.22 valuation has fallen from HK$16.59 to HK$16.53 (beta of 1, new China market COE Price/book (x) 5.3 of 9.5%, TGR remains 2%). Our PE/G value increases from HK$14.8 to HK$16.8, Net interest cover (x) – Operating profit margin (%) 17.3 based on 1.1x Jul2011-Jun2012 PE. This is within the range of 0.9-1.1x PE/G for China consumer stocks over the past 18 months. The main downside risk is integration of acquisitions (see p. 3).

Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (CNYm) 19,761.6 23,705.9 29,171.1 34,299.8 40,388.9 EBITDA (CNYm) 3,442.6 4,655.5 5,849.4 7,038.6 8,485.0 Reported NPAT (CNYm) 2,533.5 3,424.5 4,214.3 5,023.7 6,019.0 Reported EPS FD(CNY) 0.30 0.41 0.50 0.60 0.71 DB EPS FD(CNY) 0.30 0.41 0.50 0.60 0.71 OLD DB EPS FD(CNY) 0.30 0.42 0.51 0.61 – % Change -0.8% -2.6% -2.4% -2.9% – DB EPS growth (%) 26.9 35.2 23.1 19.2 19.8 PER (x) 18.8 25.2 23.6 19.8 16.5 EV/EBITDA (x) 12.1 17.5 15.9 12.9 10.3 DPS (net) (CNY) 0.08 0.31 0.15 0.18 0.21 Yield (net) (%) 1.3 3.0 1.3 1.5 1.8 Source: Deutsche Bank estimates, company data

Page 10 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Consumer Textiles & Apparel

23 March 2011 Forecast Change China Dongxiang Reuters: 3818.HK Bloomberg: 3818 HK Exchange: HKG Ticker: 3818 Hold Price at 22 Mar 2011 (HKD) 2.81 Price target - 12mth (HKD) 2.38 52-week range (HKD) 5.72 - 2.78 The "stock" shock; maintaining HANG SENG INDEX 22,858

Key changes Hold Price target 3.88 to 2.38 È -38.7% Rebecca Jiang, CFA Anne Ling Sales (FYE) 4,753 to 2,858 È -39.9% Op prof margin (FYE) 39.3 to 41.9 Ç 6.6% Research Analyst Research Analyst Net profit (FYE) 1,562.9 to 1,008.1 È -35.5% (+852) 2203 6152 (+852) 2203 6177 [email protected] [email protected] Price/price relative

2011 as a year of adjustment; negative implications to the sector 7.0 The much worse-than-expected retail inventory level of 9.4x months turnover (based on a different sampling method) is the largest surprise from the result, and 6.0 management’s aggressive plan to clear the inventory implies significant downside 5.0 risks to FY11 earnings. We cut our FY11-12E EPS by 31-36% and our target price to HK$2.38. We maintain Hold on valuation as net cash accounts for 50% of the 4.0 current market cap. The sportswear sector could face a further de-rating with 3.0 concerns on the reliability of the company’s reported channel inventory number. 2.0 FY10 results below our and consensus due to inventory return provisions 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 Dongxiang reported FY10 sales of RMB4.3bn (+7% yoy) and net profit of China Dongxiang RMB1.46bn (flat yoy). The disappointment came from a lower order execution rate and RMB155m inventory return provisions in 2H10. The other negative surprises HANG SENG INDEX (Rebased) include a net store closure of 69 stores in 2H and a lengthening of China AR days Performance (%) 1m 3m 12m by 13 to 37 days as a result of increased support for distributors’ cashflow. Absolute -3.4 -15.4 -50.3 HANG SENG INDEX -0.6 -0.8 9.2 Cutting forecast on aggressive channel inventory clearance in 2011 The new management team’s key targets in 2011 are to lower the retail inventory, Stock data strengthen the brand and products, and optimize store portfolio and productivity. Market cap (HKDm) 15,921 Retail inventory turnover at FY10 YE was 9.4x months (vs. ~5x as previously Market cap (USDm) 2,043 Major shareholders Y H Chen (56.6%) disclosed), as the new statistics sample includes more sub-distributors who have Free float (%) 47 higher inventories. We cut our FY11E EPS by 36%, assuming RMB1bn inventory Avg daily value traded (USDm) 6.3 take-back, 15% LFL (like-for-like) revenue decline and 5ppt LFL OPM decline. Shares outstanding (m) 5,665.8

New target price of HK$2.38 based on 7% yield; Hold on valuation; risks Key indicators (FY1) We use dividend yield to value the company given the better short-term clarity on ROE (%) 13.2 its dividend than its long-term cashflow outlook. Our new target price of HK$2.38 Net debt/equity (%) -90.9 is based on 70% payout and 7% FY11 dividend yield (July11-June12), in line with Book value/share (CNY) 1.38 Price/book (x) 1.7 that of HK-listed yield plays. Risks: value-accretive acquisitions (positive), higher Net interest cover (x) – inventory take-back (negative), lower payout (negative). Operating profit margin (%) 41.9 Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (CNYm) 3,970.4 4,261.6 2,857.9 3,713.6 3,975.9 EBITDA (CNYm) 1,726.6 1,784.3 1,228.4 1,429.8 1,501.3 Reported NPAT (CNYm) 1,459.8 1,463.7 1,008.1 1,170.3 1,200.7 Reported EPS FD(CNY) 0.26 0.26 0.18 0.21 0.21 DB EPS FD(CNY) 0.26 0.26 0.18 0.21 0.21 OLD DB EPS FD(CNY) 0.26 0.29 0.28 0.30 – % Change 0.0% -9.5% -35.5% -30.6% – DB EPS growth (%) 19.9 0.3 -31.2 16.2 2.6 PER (x) 14.8 16.0 13.3 11.4 11.2 EV/EBITDA (x) 8.7 9.5 4.9 4.0 3.6 DPS (net) (CNY) 0.18 0.18 0.12 0.14 0.00 Yield (net) (%) 4.7 4.4 5.3 6.1 0.0 Source: Deutsche Bank estimates, company data

Deutsche Bank AG/Hong Kong Page 11

24 March 2011 Strategy Asia Equities Daily Focus

Asia Hong Kong Banking/Finance Life Insurance

23 March 2011 Results China Life Insurance Reuters: 2628.HK Bloomberg: 2628 HK Exchange: HKG Ticker: 2628 Buy Price at 23 Mar 2011 (HKD) 28.60 Price target-12mth (HKD) 37.50 52-week range (HKD) 38.20 - 28.40 It has to be more than product HANG SENG INDEX 22,858

Key changes mix changes Price target 38.00 to 37.50 È -1.3% Bob Leung Net profit (FYE) 39,625.3 to 34,745.6 È -12.3%

Research Analyst (+852) 2203 6200 Price/price relative [email protected] 48 44 Strong expense control – cost to income now at just 5.3% 40 China Life reported FY09 NPAT at Rmb33.6bn, up 2.3% YoY, and the group’s 36 32 embedded value (EV) grew 4.5% YoY (post dividend payout and investment 28 experience variances). Core EV grew 15% on strong renewal premium/return on 24 EV. China Life continued its business mix transformation in 2H10 and lengthened 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 the payment duration of its first year premium (FYP). Regular FYP grew 31% with Chi na Li f e Insur ance total FYP growing at 12% for FY10. While expected, overall new business value HANG SENG INDEX (Rebased) growth remained subdued at 12% for FY10. Maintain Buy. Performance (%) 1m 3m 12m Absolute -1.5 -9.6 -20.4 FYP and thus NBV growth unlikely to pick up as agency force restructures HANG SENG INDEX -0.2 -0.2 8.9 As a result of industry-wide continued agency force restructuring (refocusing on efficiency) China Life also saw its agency force drop by another 30,000 to 706,000 Stock data from 1H10. As a result, we maintain our current NBV growth forecast of 10% for Market Cap (HKDm) 808,371 Market Cap (USDm) 103,732 FY11. We have moderated our FY11 forecasts slightly by less than 1% to reflect Shares outstanding (m) 28,264.7 changes in the insurance liability charges and slower G&A expenses. We have also Major Shareholders CLIC (72%) lowered our total FY10 EV growth forecast slightly to 10%. As a result of these Free float (%) 28 changes, we have lowered our target price to HK$37.5 from HK$38. Avg daily value traded (USDm) 162.7

Agency retention and productivity improvement – a key challenge Key indicators (FY1) With second-tier life insurers under group structure/preparing for listing in 2011, Growth in Net premiums (%) 0.0 we reiterate our view that the next 12-18 months will be the first time in China that Avg investment yield (%) 4.4 Embedded value/share (CNY) 11.26 all the top eight players, which control more than 90% market share, would have ROA (%) – sufficient solvency capital to grow their businesses. Agency retention and productivity will likely be the most important factors determining NBV growth and stock price performance, in our view. This is a particular challenge to China Life as its dominance in second-tier cities might be under threat. China Life needs a new catalyst for growth, not just product mix changes We continue to prefer fast-growing life insurers such as Ping An (Buy, HK$76.70) and China Taiping (Buy, HK$23.25). Key risks include 1) higher-than-expected lapses and surrenders, 2) a pandemic and/or disastrous situations, and 3) weaker- than-expected capital markets.

Forecasts and ratios Year End Dec 31 2009A 2010A 2011E Net premiums written (CNYm) 275,077.0 318,088.0 330,684.9 Investment income (CNYm) 38,890.0 48,872.0 61,247.3 Net profit (CNYm) 32,881.0 33,626.0 34,745.6 EPS (CNY) 1.16 1.19 1.23 EPS growth (%) 71.8 2.3 3.3 PER (x) 23.2 25.1 19.6 Price/book (x) 4.5 3.7 2.9 DPS (net) (CNY) 0.70 0.40 0.41 Yield (net) (%) 2.6 1.3 1.7 Source: Deutsche Bank estimates, company data

Page 12 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Energy Oil & Gas

24 March 2011 Results CNOOC Ltd Reuters: 0883.HK Bloomberg: 883 HK Exchange: HKG Ticker: 0883 Buy Price at 23 Mar 2011 (HKD) 18.44 Price target - 12mth (HKD) 21.52 52-week range (HKD) 19.40 - 11.58 Strong 2010 results HANG SENG INDEX 22,825

Key changes Price target 21.10 to 21.52 Ç 2.0% David Hurd, CFA Monica Ma Sales (FYE) 217,665 to 222,758 Ç 2.3% Op prof margin (FYE) 35.9 to 36.1 Ç 0.7% Research Analyst Research Associate Net profit (FYE) 58,549.5 to 60,339.9 Ç 3.1% (+852) 2203 6242 (+852) 2203 6239 [email protected] [email protected] Price/price relative Beating estimates 20 CNOOC Ltd reported full year 2010 eps of Rmb 1.22/ shr vs. our 1.07/shr and Bbrg 16 consensus of 1.17/shr. BOE production grew 44.4% vs. our 42.5%; oil ASP was US$ 77.5 vs. our 79.3/ bbl. The oil to gas mix (80-20) was better than expected 12 (75-25%), which supported revenues. Op costs were under control leading to 39% 8 op margin vs. our 36.6% est. The board proposed a Rmb 0.25/shr dividend vs. our 4 0.21/shr est. We maintain a Buy rating on CNOOC Ltd. with a PT of HK$ 21.52 in 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 anticipation of continued strong earnings growth. CNOOC Lt d HANG SENG INDEX (Rebased) Solid all around Performance (%) 1m 3m 12m CNOOC reported higher than anticipated 2010 rps of Rmb 1.22/shr. CNOOC’s Absolute 5.4 1.0 48.9 CEO, Mr. Yang Hua hit all the right notes in his statement to investors: i) extra HANG SENG INDEX -0.4 -0.3 8.8 efforts will be made for (future) production growth and cost controls; ii) the medium to LT sustainable growth of the company is even more important (than ST Stock data targets); and iii) the company will be more proactive on exploration investments. Market cap (HKDm) 822,864 Despite 2010 M&A spend of US$ 9.5bn and capex of 4.3bn, CNOOC’s cash Market cap (USDm) 105,592 Shares outstanding (m) 44,623.9 balances grew to US$ 10.6bn at YE10 from US$ 7.6bn at YE09. Major shareholders CNOOC (71%) Free float (%) 22 Investment thesis Avg daily value traded (USDm) 144.8 Our investment thesis remains unchanged. Although BOE production will likely slow 2011E (11.1%) and 2012E (8.1%) vs. 2010 (44.4%), it remains robust in Key indicators (FY1) absolute terms and relative to peers. Despite robust 2010 M&A activity--PAE, ROE (%) 26.4 Eagle Ford & Niobrara, cash balances remain high (US$ 10.6bn) and additional Net debt/equity (%) -23.4 acquisitions remain a distinct possibility over the coming 6-12 months. Book value/share (CNY) 5.54 Price/book (x) 2.8 Reasonable valuations – risks unchanged Net interest cover (x) 133.3 Operating profit margin (%) 36.1 We value CNOOC Ltd from a DCF model. Our WACC is 11.0%, with CoE of 11.3%, a China Rfr of 3.30% and an Erp of 6.2%. We use a 4% TG rate reflecting what we believe is a reasonable estimate of CNOOC’s sustainable, LT BOE production growth rate. The principal risks to our Buy rating are 1) lower than anticipated oil prices, 2) integrating the new acquisitions into CNOOC Ltd., and 3) continued M&A activity. Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (CNYm) 105,195.1 183,053.1 222,758.2 230,665.1 241,548.3 EBITDA (CNYm) 56,267.5 99,092.4 113,887.0 117,687.0 123,992.8 DB Net Profit (CNY) 29,485.6 54,409.5 60,339.9 60,654.2 62,635.6 DB EPS FD(CNY) 0.66 1.22 1.35 1.36 1.40 OLD DB EPS FD(CNY) 0.66 1.07 1.31 1.28 0.75 % Change 0.0% 13.7% 3.1% 6.0% 86.0% DB EPS growth (%) -33.3 84.5 10.9 0.5 3.3 PER (x) 13.1 10.0 11.5 11.4 11.1 EV/EBITDA (x) 6.2 5.1 5.6 5.2 4.7 Yield (net) (%) 4.6 4.0 3.5 3.5 3.6 Source: Deutsche Bank estimates, company data

Deutsche Bank AG/Hong Kong Page 13

24 March 2011 Strategy Asia Equities Daily Focus

Asia Hong Kong Banking/Finance Banks

24 March 2011 Forecast Change Dah Sing Banking Reuters: 2356.HK Bloomberg: 2356 HK Exchange: HKG Ticker: 2356 Buy Price at 23 Mar 2011 (HKD) 11.90 Price target - 12mth (HKD) 15.20 52-week range (HKD) 15.20 - 8.80 Lower NIM more than priced HANG SENG INDEX 22,825

Key changes in; reiterating Buy Price target 16.80 to 15.20 È -9.5% Sophia Lee, CFA Tracy Yu Provisioning (FYE) 259.0 to 121.2 È -53.2% Net int margin (FYE) 1.79 to 1.60 È -10.4% Research Analyst Research Analyst Net profit (FYE) 1,349.6 to 1,383.6 Ç 2.5% (+852) 2203 6226 (+852) 2203 6191 [email protected] [email protected] Price/price relative

FY10 results: market overreacts to NIM decline; 2011 YTD NIM stable 16 DSBG reported FY10 NPAT of HKD 1,073m which was 3% above our estimate on lower provisions. While 2H10 loan growth of 11.6% was higher than expected, 12 the market reacted negatively to a sequential NIM decline of 38bps HoH to 1.49%. 8 Although this was greater than expected, YTD NIM has stabilized at the 1.60% level according to management. We think the market has overreacted as DSBG 4 now trades at 1.0x FY11E P/B, implying its ROE will be equal to its COE. This valuation is unjustified given its growth momentum into 2011. We reiterate Buy. 0 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 Why we think NIM will stabilize in 2011 despite deposit competition Dah Sing Banking For FY11, NIM compression should ease for DSBG and we forecast NIM of 1.60% HANG SENG INDEX (Rebased) (-7bps YoY). DSBG’s FY10 NIM declined by 27bps YoY which was driven by lending margins (-16bps), lending mix (-5bps), surplus funds (-15bps) and funding Performance (%) 1m 3m 12m Absolute -8.9 -9.2 16.6 spread (+9bps), and the bulk of movement occurred in 2H10. What is different this HANG SENG INDEX -0.4 -0.3 8.8 year is an industry-wide increase in mortgage rates (+ to lending margin) and completion of treasury book de-risking (+ to surplus funds). We also expect Stock data deposit competition to be less severe than in 2H10 since our 2011 system loan Market cap (HKDm) 14,553 growth forecast is 16%, much lower than last year’s 29%. DSBG’s six-month time Market cap (USDm) 1,868 Shares outstanding (m) 1,222.9 deposit rate has already fallen to 0.15% in Feb 2011, after peaking at 0.27% in Major shareholders Dah Sing Financial (74.23%) July 2010. This is significantly lower than the 0.70% Citibank is offering. Free float (%) 26 Avg daily value traded (USDm) 1.8 FY11 outlook; loan growth of 16% and stronger fee income growth After focusing on de-risking and cost control in 2010, DSBG is poised to reap the Key indicators (FY1) benefits this year. The bank has revamped its wealth management platform, ROE (%) 9.9 resumed marketing activities and expanded its insurance sales channels. The Loan/deposit ratio (%) 71.6 effort could payoff given a pick-up in wealth management activities in Hong Kong Book value/share (HKD) 11.75 as investors look for higher yielding financial products amidst a continued low Price/book (x) 1.0 NPL/total loans (%) 0.2 interest rate environment and high property prices. We forecast DSBG’s non- Net int margin (%) 1.60 interest income to total income to rise from 19% in FY10 to 25% in FY12. While Adjusted ROE (%) 0.0 the current >80% HKD LDR may seem high, DSBG in the past has operated under higher LDR, and it has a lower-than-peers’ leverage ratio (10.1x) and healthy T1 and CAR ratios (11.3% and 17.5% after reflecting HKD1bn rights issuance). We cut target price to HKD15.20 after adjusting for higher beta and new COE We use the Gordon Growth Model to value DSBG. We assume 10.7% sustainable ROE, 9.3% COE and 4.3% long-term growth, yielding a 1.3x P/B. We lower our target price to HKD 15.20 from HKD 16.80 mostly due to a higher beta and Deutsche Bank COE. Key risk for the stock is more severe-than-expected deposit competition leading to NIM erosion.

Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E Price/book (x) 1.15 1.19 1.01 0.95 Yield (net) (%) 0.0 2.4 3.7 4.9 ROE (%) 6.3 8.8 9.9 11.5 Source: Deutsche Bank estimates, company data

Page 14 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Automobiles & Components

24 March 2011 Forecast Change Guangzhou Auto Reuters: 2238.HK Bloomberg: 2238 HK Exchange: HSI Ticker: 2238 Buy Price at 23 Mar 2011 (HKD) 9.15 Price target - 12mth (HKD) 11.80 52-week range (HKD) 13.68 - 8.80 Still on track for better future; HANG SENG INDEX 22,825

Key changes maintain Buy Price target 12.00 to 11.80 È -1.7% Vincent Ha, CFA Sales (FYE) 72,400 to 76,239 Ç 5.3% Op prof margin (FYE) 7.6 to 7.4 È -2.7% Research Analyst Net profit (FYE) 5,205.0 to 5,126.4 È -1.5% (+852) 2203 6247 [email protected] Price/price relative Overhangs still exist in FY11E but outlook is brighter for FY12E 14.0 Guangzhou Auto's (GAC’s) FY10 result is in line with our expectations and the 13.0 company has announced a detailed privatization proposal for GAC Changfeng 12.0 (600991.SS, NR, 14.490CNY). We think a slow start to 1H11 sales, with an aging 11.0 10.0 model line-up and a new tax, will result in a YoY decline in FY11E after-tax profits. 9.0 However, a robust outlook remains for FY12E onwards, given a bigger contribution 8.0 from new models, margin improvement due to higher production utilization, and 8/10 11/10 2/11 the upcoming JV with Mitsubishi (7211.T, NR, 101.000JPY). Retain Buy. Guangzhou Auto HANG SENG INDEX (Rebased) FY10 net profit growth driven by product mix improvement Performance (%) 1m 3m 12m GAC posted 19% FY10 YoY revenue growth to RMB59.8bn, driven by 14% YoY Absolute -3.8 -10.3 – auto sales volume growth in its JVs and subsidiary. With the improvement in HANG SENG INDEX -0.4 -0.3 8.8 product mix, rising earnings contributions from the GAC Toyota JV (with a lower tax rate), and the consolidation of Denway Motors since September 2010, FY10 Stock data net profit growth was faster than revenue growth at 111% YoY to RMB4.3bn. Market cap (HKDm) 56,255 Market cap (USDm) 7,219 A successful consolidation of Changfeng can enhance long-term outlook Shares outstanding (m) 6,148.1 We expect slow YTD sales to improve with increasing sales of new models from Major shareholders GAIG (59%) Free float (%) 36 existing and new brands. Although we see FY11 margin pressure with lower initial Avg daily value traded (USDm) 10.9 profitability for new businesses, a slowdown in sales of aging higher-margin products and the Urban Tax collection, FY12 could be a strong year with sales Key indicators (FY1) ramp-up of newer models like the new GAC Toyota Camry. Moreover, GAC ROE (%) 18.6 Gonow should enlarge GAC’s footprint in the mini-car/pick-up truck segments and Net debt/equity (%) -29.8 GAC Fiat’s compact sedan launch in 2012E will likely allow GAC to penetrate the Book value/share (CNY) 4.79 Price/book (x) 1.6 mini-car universe. Lastly, a successful privatization of Changfeng, subject to Net interest cover (x) – shareholder approval, should pave the way for the establishment of a GAC- Operating profit margin (%) 7.4 Mitsubishi JV to focus on the booming SUV segment. Target valuation benchmark maintained; target price implies 29% upside pot. We value GAC at 12x FY11E P/E, slightly higher than its once-listed subsidiary’s (Denway) long-term average, given a better growth outlook (22% three-year net profit CAGR in FY11-13E). Implied target FY11E P/BV at 2.1x is not stretched with a 20% sustainable ROE. Key downside risks are a weak reception for new models and possible production disruption on import component shortage. Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (CNYm) 50,253.6 59,847.9 76,239.1 88,734.4 102,125.3 Reported NPAT (CNYm) 2,031.8 4,295.1 5,126.4 6,488.6 7,775.3 DB EPS FD (CNY) 0.54 0.92 0.83 1.06 1.26 OLD DB EPS FD (CNY) 0.58 0.69 0.85 1.06 – % Change -6.8% 33.6% -1.5% -0.6% – DB EPS growth (%) 20.9 69.8 -9.3 26.6 19.8 PER (x) – 10.9 9.2 7.3 6.1 Yield (net) (%) – 2.0 3.2 4.1 4.9 Source: Deutsche Bank estimates, company data

Deutsche Bank AG/Hong Kong Page 15

24 March 2011 Strategy Asia Equities Daily Focus Asia China Consumer Retail/Wholesale Trade

23 March 2011 Forecast Change Hengdeli Reuters: 3389.HK Bloomberg: 3389 HK Exchange: HSI Ticker: 3389 Buy Price at 22 Mar 2011 (HKD) 4.48 Price target - 12mth (HKD) 4.90 52-week range (HKD) 5.07 - 3.02 Cost control the key despite HANG SENG INDEX 22,858

Key changes favorable market Price target 5.50 to 4.90 È -10.9% Chen Feng Rebecca Jiang, CFA Anne Ling Sales (FYE) 9,966 to 10,352 Ç 3.9% Op prof margin (FYE) 12.3 to 10.9 È -11.5% Research Analyst Research Analyst Research Analyst Net profit (FYE) 797.5 to 700.2 È -12.2% (+852) 2203 8309 (+852) 2203 6152 (+852) 2203 6177 [email protected] [email protected] [email protected] Price/price relative

Cost control the key despite favourable market 6.0 Hengdeli reported 2010 results; sales were higher than both our and the Street’s 5.0 estimates by 4-5%. However, the bottom line was 8% lower than our forecast, mainly due to higher–than–expected rental and staff costs. Management remains 4.0 optimistic about future growth of the luxury market; its new outlook departed little 3.0 from its previous guidance in 2010. We share the company’s optimistic view 2.0 about the industry outlook and fine tune our numbers to reflect higher operation 1.0 cost in the short term. Maintaining Buy but lowering PT to HK$4.9. 0.0 FY10 top line beats; bottom line 8% lower than our forecast 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 Hengdeli’s sales were up 39% yoy to RMB8.22bn due to higher store openings Hengdeli and strong same–store sales; net profit was up 52% to RMB554m. The company declared RMB4.2 cents in the final dividend. Higher–than–expected rental cost (up HANG SENG INDEX (Rebased) 62% yoy), and to a lesser extent, staff cost (up 42% yoy) were the main reason for Performance (%) 1m 3m 12m the lower–than–expected bottom line. Absolute 8.7 -8.2 19.5 HANG SENG INDEX -0.6 -0.8 9.2 2011 strong start Hengdeli continues to see good sales momentum in January and February 2011, Stock data which is also in line with industry players’ comments on the sector. We believe Market cap (HKDm) 19,694 that operation cost should be relatively contained in 2011. Recent news flow on a Market cap (USDm) 2,527 Shares outstanding (m) 4,396.0 possible cut in luxury tax would be favourable for Hengdeli (though we have no Major shareholders Mr. Zhang Yuping (35%) exact timetable on possible cuts). Free float (%) 33 Avg daily value traded (USDm) 5.490 We lower PT to HK$4.9 from HK$5.5; risks We lower our PT mainly by adjusting for higher operation cost due to continued Key indicators (FY1) store openings and cut our EPS forecast by 12-16% in 2011–13E. We use the ROE (%) 16.8 average of DCF (incorporating a lower cost of equity) and PEG as our primary Net debt/equity (%) -1.3 valuation methodology (see p. 3 for details). Downside risks: 1) slower Book value/share (CNY) 1.09 Price/book (x) 3.4 macro/negative wealth effect and 2) change in demography and consumer Net interest cover (x) 10.8 preferences. Operating profit margin (%) 10.9 Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (CNYm) 5,899.4 8,215.6 10,351.6 12,676.0 14,572.7 EBITDA (CNYm) 667.2 906.0 1,192.8 1,470.8 1,824.9 Reported NPAT (CNYm) 364.8 554.0 700.2 883.4 1,116.1 Reported EPS FD(CNY) 0.09 0.12 0.15 0.19 0.24 DB EPS FD(CNY) 0.10 0.12 0.15 0.19 0.24 OLD DB EPS FD(CNY) 0.10 0.13 0.17 0.23 0.27 % Change 0.0% -8.1% -11.8% -15.7% -11.8% DB EPS growth (%) 20.8 14.6 30.0 23.9 24.5 PER (x) 15.3 26.7 24.5 19.7 15.9 EV/EBITDA (x) 9.2 14.6 14.1 11.6 9.3 DPS (net) (CNY) 0.03 0.04 0.05 0.06 0.08 Yield (net) (%) 1.7 1.3 1.3 1.6 2.0 Source: Deutsche Bank estimates, company data

Page 16 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Consumer Hotels/Leisure/Gaming

23 March 2011 Forecast Change Little Sheep Group Limited Reuters: 0968.HK Bloomberg: 968 HK Exchange: HSI Ticker: 0968 Buy Price at 22 Mar 2011 (HKD) 4.71 Price target - 12mth (HKD) 6.15 52-week range (HKD) 5.50 - 4.12 FY11 outlook; maintaining Buy HANG SENG INDEX 22,858

Key changes Price target 5.30 to 6.15 Ç 16.0% Anne Ling Mabel Wong, CFA Sales (FYE) 2,429 to 2,413 È -0.6% Op prof margin (FYE) 13.0 to 12.7 È -2.6% Research Analyst Research Analyst Net profit (FYE) 232.0 to 226.3 È -2.5% (+852) 2203 6177 (+852) 2203 6178 [email protected] [email protected] Price/price relative

FY results in line; FY11-13E EPS fine-tuned by 1–3.3% 6.0 Little Sheep’s FY10 results were in line with our expectations. We rate LS a Buy as we believe the ASP increase and efficiency in the central kitchen should help 5.0 offset the pressure from rising raw material and labor costs. We fine-tune our FY11-13E EPS by 1-3.3%, as we believe LS should be able to report a healthy 4.0 three-year EPS CAGR of 20.8%. We introduce forecasts for 2013 and raise our target price to HK$6.15 (from HK$5.30). 3.0 Net profit grew by 20.6% yoy to RMB187.8m in 2010 2.0 Sales were up 22.7% yoy to RMB1.9bn. As of end-2010, LS had a total of 184 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 company-owned and 296 franchised stores. GPM was down 2.7 ppt to 55.8%, Little Sheep Group L offset by a 2.6ppt decrease in the opex/sales ratio. LS’s inventory increased as it procured more lamb for 2011, with the average purchase price up 15%. HANG SENG INDEX (Rebased) Performance (%) 1m 3m 12m Aiming to enter high-end and fast-food market with new brand launches Absolute 2.4 -5.8 8.5 To further expand market share, the company is considering broadening its hot-pot HANG SENG INDEX -0.6 -0.8 9.2 brand portfolio with the introduction of high-end hot pot and fast hot pot. It plans to open 10 high-end stores in Shenzhen this year and open fast hot-pot restaurants Stock data via the shop-in-shop format. The company targets to open 40 new company- Market cap (HKDm) 3,988 owned stores and refurbish 29 stores in 2011. Market cap (USDm) 512 Shares outstanding (m) 846.8 New target price of HK$6.15, up from HK$5.30; maintain Buy Major shareholders Zhang Gang & others (34.4%) Free float (%) 38 Our new HK$6.15 target price (HK$5.30 previously) is based on the average of the Avg daily value traded (USDm) 0.3 target valuations generated by our DCF and P/E-to-growth ratio methodologies. Our DCF model values the stock at HK$6.2 (HK$5.1), and based on 1x Jul11- Key indicators (FY1) Jun12E P/E-to-growth (three-year CAGR of 20.8%), we arrive at a value of HK$6.1 ROE (%) 19.6 (HK$5.5). As we are positive on LS’s operating outlook and newly proposed multi- Net debt/equity (%) -11.0 brand strategy, we maintain Buy. Downside risks include the seasonality of Little Book value/share (CNY) 1.21 Price/book (x) 3.3 Sheep's business and performance issues with its new franchise business. Net interest cover (x) 585.5 Operating profit margin (%) 12.7 Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (CNYm) 1,569.7 1,925.5 2,413.5 2,978.4 3,598.6 EBITDA (CNYm) 259.5 324.7 400.0 486.7 579.1 Reported NPAT (CNYm) 155.4 187.8 226.3 274.6 321.4 Reported EPS FD(CNY) 0.15 0.18 0.22 0.26 0.31 DB EPS FD(CNY) 0.15 0.18 0.22 0.26 0.31 OLD DB EPS FD(CNY) 0.15 0.18 0.22 0.27 – % Change -0.6% 0.8% -3.2% -3.1% – DB EPS growth (%) 13.3 20.6 18.6 21.1 16.9 PER (x) 19.6 21.9 18.3 15.1 12.9 EV/EBITDA (x) 10.5 12.3 8.0 6.6 5.4 DPS (net) (CNY) 0.07 0.07 0.08 0.10 0.11 Yield (net) (%) 2.3 1.7 2.0 2.5 2.9 Source: Deutsche Bank estimates, company data

Deutsche Bank AG/Hong Kong Page 17

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Consumer Retail/Wholesale Trade

23 March 2011 Forecast Change Wumart Stores Reuters: 8277.HK Bloomberg: 8277 HK Exchange: HSI Buy Ticker: 8277 Price at 22 Mar 2011 (HKD) 15.46 Price target - 12mth (HKD) 19.60 52-week range (HKD) 21.30 - 13.24 FY11 outlook; maintaining Buy HANG SENG INDEX 22,858

Key changes Price target 18.40 to 19.60 Ç 6.5% Anne Ling Rebecca Jiang, CFA Sales (FYE) 15,949 to 15,851 È -0.6% Op prof margin (FYE) 5.9 to 6.0 Ç 2.8% Research Analyst Research Analyst Net profit (FYE) 651.6 to 660.5 Ç 1.4% (+852) 2203 6177 (+852) 2203 6152 [email protected] [email protected] Price/price relative

New target price is HK$19.6; fine tuning EPS for FY11-12E 24 We rate Wumart a Buy as we believe the company should continue to report EPS at a decent 25% CAGR for FY10-13F with strong cash flow. This is helped by a 20 reduction of losses in Tianjin from 2011, group SSS growth reporting c.10% for 16 2011 and operating efficiency with more fully utilized distribution centres (DCs). Our new target price is HK$19.6 (from HK$18.4) as we roll over our forecast. 12 8 2010 results in line with our forecast In line with our forecasts, Wumart reported 19.6% sales growth to RMB12.6bn 4 and a 21.0% rise in net earnings to RMB530m. For directly owned stores, Wumart 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 opened five hypermarkets, six supermarkets and 15 minimarts. The same–store Wumart Stores sales growth rate was 8.8%. The consolidated gross margin improved to 19.7% in 2010 from 18.7% in 2009 but was offset by rising operating costs (mainly staff HANG SENG INDEX (Rebased) costs). The EBIT margin declined slightly from 6.3% in 2009 to 6.2% in 2010. Performance (%) 1m 3m 12m Absolute -1.9 -19.5 4.7 2011 outlook – improving CGPM, staff efficiency to offset higher staff costs HANG SENG INDEX -0.6 -0.8 9.2 Management aims to increase retail space by 15% with 15–20 new superstores and 50 minimarts. Management expects a high single–digit to low teens increase Stock data in SSS growth with a c.3% value increase. We expect slight CGPM improvement Market cap (HKDm) 19,808 from 19.9% in 2010 to 20.1% in 2011F but slightly lower EBIT to 6% (6.2%in Market cap (USDm) 2,542 Shares outstanding (m) 1,281.3 2010) due to higher operating costs, particularly staff costs. Separately, Major shareholders Wumei Holdings (38.86%) management hopes that the main board listing will be carried out in 1H11. Free float (%) 61 Avg daily value traded (USDm) 2.112 New target price at HK$19.6; valuation & risks We fine tune EPS for FY11-12F by less than 2% and introduce our 2013 forecasts. Key indicators (FY1) We derive our HK$19.6 (from HK$18.4) target price from the average of PE/G and ROE (%) 21.8 DCF valuations. Our DCF value is HK$19.3 and PE/G value is HK$20.0, based on Net debt/equity (%) -59.3 28x rolling PE of July 2011–June 2012F (a 25% EPS CAGR for FY10-13F and 1.1x Book value/share (CNY) 2.50 Price/book (x) 5.2 PEG). Downside risks: higher cost pressure, competition from foreign food Net interest cover (x) 496.2 retailers and an inability to make value-accretive acquisitions. Operating profit margin (%) 6.0 Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (CNYm) 10,511.4 12,571.5 15,850.8 20,075.1 24,795.9 EBITDA (CNYm) 891.1 1,101.6 1,365.3 1,701.2 2,075.8 Reported NPAT (CNYm) 437.8 529.8 660.5 828.1 1,023.3 Reported EPS FD(CNY) 0.36 0.42 0.52 0.65 0.80 DB EPS FD(CNY) 0.35 0.42 0.52 0.65 0.80 OLD DB EPS FD(CNY) 0.35 0.42 0.51 0.65 – % Change 0.0% 0.8% 1.4% -0.8% – DB EPS growth (%) 43.3 20.4 21.7 25.4 23.6 PER (x) 23.5 33.6 25.2 20.1 16.3 EV/EBITDA (x) 10.6 15.6 10.7 7.9 6.0 DPS (net) (CNY) 0.18 0.20 0.25 0.31 0.39 Yield (net) (%) 2.2 1.4 1.9 2.4 3.0 Source: Deutsche Bank estimates, company data

Page 18 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia Korea, Republic of Energy Chemicals

23 March 2011 Forecast Change OCI Company Ltd Reuters: 010060.KS Bloomberg: 010060 KP Exchange: KSC Ticker: 010060 Buy Price at 23 Mar 2011 (KRW) 455,500 Price target - 12mth (KRW) 540,000 52-week range (KRW) 460,000 - 183,000 Warming up to solar; near- KOSPI 2,012.18

Key changes term earnings looking solid Price target 500,000.00 to 540,000.00 Ç 8.0% Peter Lee Kyle Huh, CFA Research Analyst Research Associate Price/price relative (+82) 2 316 8905 (+82) 2 316 8911 500000 [email protected] [email protected] 400000

Maintaining Buy on higher earnings outlook; target price raised to W540,000 300000 We reiterate Buy on OCI and raise our target price to W540,000 from W500,000 to 200000 reflect a stronger earnings outlook. The counter has performed well on 1) surprisingly robust fundamentals, 2) long-term contract announcements, and 3) 100000 reviving the renewable energy theme in the wake of nuclear issues in Japan. 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 While near-term correction might be possible, we believe OCI’s solid earnings OCI Company Ltd outlook, based on its strong polysilicon execution, justifies a positive view on the KOSPI (Rebased) stock. Performance (%) 1m 3m 12m Absolute 15.3 42.3 134.2 Benign market conditions and quick ramp-up to lead to record OP in 1Q KOSPI 2.6 -1.2 19.6 We believe 1Q11 earnings are likely to be strong and hence raise 1Q11 OP by 23% to W266bn (vs. W244bn consensus). Based on our recent meeting with OCI, Stock data we believe the 1Q11 polysilicon ASP is likely to be above our earlier expectations Market cap (KRWbn) 10,532 Market cap (USDm) 9,395 (similar or above 4Q10 ASP of $63/kg) as spot prices have moved higher (~$80/kg Shares outstanding (m) 23.1 in 1Q11 vs. ~$70/kg in 4Q10). Polysilicon volume also appears to be ahead of our Major shareholders Lee family (31.6%) expectations as plant #3 is now operating normally after just a 2-3 months’ ramp- Free float (%) 63 up (we raise our volume assumption by 3% to 6.5kt for 1Q11). The non-polysilicon Avg daily value traded (USDm) 71.387

division also appears to be doing better due to the recent surge in oil prices. Key indicators (FY1) Poly capacity almost sold out ROE (%) 34.4 So far this year OCI has announced 10 long-term poly contracts worth $3.5bn, Net debt/equity (%) 15.8 Book value/share (KRW) 89,052 primarily for the debottlenecking portion of plant# 3 (7kt) and for plant# 4 (20kt). Price/book (x) 5.11 OCI expects to conclude all negotiations by the end of this month, which should Net interest cover (x) 43.8 bring in another $1-2bn of long-term orders (total aggregate orders should reach Operating profit margin (%) 27.5 ~$16bn or 80% of total capacity). The terms of the contract seem more favorable, commanding ~10% prepayment paid before the delivery of the first shipment (last year’s contracts received 5-10% prepayments spread out over a longer period). SOTP- and DCF-based valuations; risk: much weaker polysilicon prices We value OCI’s core business using DCF & its non-core assets using book/market values. For DCF, we use a COE of 11.7% (risk-free rate 4.3%, risk premium 6.3%, beta of 1.17x) and terminal growth of 2%, in line with Korea’s long-term inflation rate. Risks to our Buy call are 1) much weaker polysilicon prices, 2) production problems leading to lower volume and higher costs, and 3) build-out delays at the company’s fourth polysilicon plant. Forecasts and ratios Year End Dec 31 2008A 2009A 2010E 2011E 2012E Sales (KRWbn) 2,121 2,100 2,605 3,295 3,838 EBITDA (KRWbn) 673 694 934 1,316 1,553 Reported NPAT (KRWbn) 317.4 385.4 607.6 780.6 873.4 Reported EPS FD(KRW) 13,729.71 16,667.71 26,279.70 33,761.27 37,775.61 Price/Book (x) 4.12 3.42 5.11 3.81 2.97 PER (x) 22.0 13.3 17.3 13.5 12.1 EV/EBITDA (x) 9.7 7.4 11.2 8.5 7.4 Yield (net) (%) 0.0 0.9 0.7 0.9 1.0 Source: Deutsche Bank estimates, company data

Asia

23 March 2011

Macro Macro Asia Economics Daily CPI inflation eases in Singapore

HIGHLIGHTS

Singapore - Core inflation slows to 1.7% in February, below expectations Taiwan - Industrial production growth eases in February, below expectations

UPCOMING RELEASES

Global Markets Research Hong Kong – Exports (Feb) DB forecast 23.5% (27.6% in Jan) Vietnam- CPI (Mar) DB forecast 13.0%(12.3% in Feb) Philippines – We expect BSP to begin its rate hike cycle with a 25bps increase in both the repo and reverse repo rates.

NEWS IN BRIEF

SINGAPORE CPI inflation (Feb). Consumer prices rose 5.0%yoy in February, down from 5.5% in January and below our forecast of 5.6%. The main reason for the decline was a sharp fall in the private transportation index's change. This component, which has a 11.7% weight in the CPI index, fell 2.9%mom (nsa) to be up 19.6%yoy in February versus 23.9% in January. We suspect this reflects the 4.6%mom (nsa) decline in CoE premia in January (the CPI seems to reflect CoEs a month later). Since these premia fell about twice as fast in February, we expect a further decline in the private transport component of the CPI even though fuel prices likely rose last month. This drop in private transportation inflation more than offset the slight rise in accommodation costs, which were up 0.5%mom or 7.0%yoy in February versus 6.2% in January. Food inflation edged a little lower last month, to 2.6% from 2.8% in January, but we think that source of inflation may rise next month. But excluding private transport and accommodation, the MAS' preferred measure of core inflation fell to 1.7%yoy from 1.9% in January and a recent high of 2.3% in November. We think this may be enough to keep MAS on hold next month.

TAIWAN Industrial production (Feb). Industrial production rose at a slower pace of 13.3%yoy in February as compared to 17.4% (revised) in January and was weaker than our (16.0%) as well as consensus (16.3%) expectations. By category, both manufacturing and mining production posted a weaker growth of 15.4% and 14.0% respectively in February vs. 17.5% and 15.0% in January. Meanwhile, building & construction production disappointed in February, falling by 57.0% following a robust growth of 42.9% in January. On the other hand, electricity production stood stable at 2.0% in February.

Michael Spencer, Ph.D Jun Ma, Ph.D Taimur Baig, Ph.D Juliana Lee Kaushik Das Chief Economist, Asia Chief Economist, Greater China Chief Economist, India Senior Economist Economist (+852) 2203 8303 (+852) 2203 8308 (+65) 6423 8681 (+852) 2203 8312 (+91) 22 6658 4909 [email protected] [email protected] [email protected] [email protected] [email protected]

Page 20 Deutsche Bank AG/Hong Kong Economics 24 March 2011 Strategy Asia Equities Daily Focus

FINANCIAL MARKETS

Stockmarkets FX Markets Money Markets Bond Markets

Today's % chg vs Today's abs chg vs Today's bps chg vs Today's bps chg vs Closing prev day Closing prev day Closing prev day Closing prev day China 12752 -0.2 6.56 0.0 3.00 0 3.86 0 Hong Kong 22796 -0.3 7.79 0.0 0.26 0 2.67 4 India 18145 0.9 44.93 -0.1 7.21 8 8.01 0 Indonesia 3534 0.5 8720 1.0 7.00 0 8.78 -5 Malaysia 1511 0.1 3.03 0.0 3.04 0 4.02 0 Philippines 3856 0.0 43.3 0.0 1.53 0 7.50 -9 Singapore 3043 0.0 1.26 0.0 0.44 0 2.36 1 S. Korea 2012 -0.1 1120 0.0 3.39 0 4.49 0 Taiwan 8545 0.4 29.5 0.0 0.65 0 1.36 1 Thailand 1025 0.6 30.3 -0.1 3.01 0 2.69 0

US 12019 -0.1 na na 1.28 0 3.33 0 Japan 9449 -1.7 80.8 0.3 0.20 0 1.25 4 Euroland na na 1.42 0.0 1.19 0 0.00 6 Sources: DB Global Markets Research, Bloomberg Finance LP and Reuters

ECONOMIC DIARY Country Release Period DB Expected Consensus Actual Previous Monday, Mar 21 Taiwan Export Orders Feb-YoY 11.5% 13.7% 5.3% 13.5% Tuesday, Mar 22 Hong Kong CPI Feb-YoY 3.6% 3.6% 3.7% 3.6% Current Account Balance Q4 HKD58.2bn NA HKD32.6bn HKD44.1bn Taiwan Unemployment rate (sa) Feb 4.7% 4.7% 4.6% 4.7% Wednesday, Mar 23 Singapore CPI Feb-YoY 5.6% 5.4% 5.0% 5.5% Taiwan Industrial Production Feb-YoY 16.0% 16.3% 13.3% 17.4% Thursday, Mar 24 Hong Kong Exports Feb-YoY 23.5% 10.7% 27.6% Imports Feb-YoY 25.0% 14.4% 19.0% Trade Balance Feb -HKD27.0bn-HKD27.5bn-HKD16.0bn Philippines Fiscal Balance Feb -PHP20.0bn NA PHP13.4bn Vietnam CPI Mar-YoY 13.0% NA 12.3% Events and Meeting:Philippines:BSP Meeting (25bps rate hike expected) Friday, Mar 25 Malaysia CPI Feb-YoY 2.5% 2.7% 2.4% Philippines Imports Jan-YoY 13.5% NA 25.2% Trade Balance Jan -USD0.9bn NA -USD0.7bn Industrial Production (Vol) Jan-YoY NA 13.3% Singapore Industrial Production Feb-YoY 9.0% 6.3% 10.5% Sri Lanka GDP Q4-YoY 7.7% 8.0% 8.0% Exports Jan-YoY 40.8% NA 33.9% Imports Jan-YoY 11.6% NA 30.8% Trade Balance Jan -USD0.6bn NA -USD0.5bn Taiwan M2 Feb-YoY 6.1% NA 5.6% Sources: DB Global Markets Research, Bloomberg Finance LP and Reuters

Deutsche Bank AG/Hong Kong Page 21 24 March 2011 Strategy Asia Equities Daily Focus North America United States

23 March 2011 Economic Research Research Team Joseph A. LaVorgna US Daily Economic Notes Chief US Economist 212 250-7329 [email protected] Carl J. Riccadonna Labor market to buoy housing Senior US Economist 212-250-0186 [email protected] Brett Ryan demand Economist 212-250-6294

1504 [email protected] Thursday Release Forecast Previous Consensus

8:30 am Durable goods orders (Feb): Unch. +3.2% +1.2% Ex transportation: +1.0% -3.0% +2.0%

8:30 am Initial jobless claims (03/19): 390K 385k 383k Source: Deutsche Bank, Bloomberg Finance LP

Commentary for Thursday: The five-year downward spiral of housing starts in the US may be nearing an inflection point as household formation recovers on the Policy Speeches back of an improving labor market. The growth rate of newly formed households, which had declined to 0.3% y/y in 2008, actually grew 1% y/y in the latest month 7:30 pm Fed Governor Duke speaks on for which we have data (December 2010). Moreover, the rental vacancy rate, the impact of the financial crisis on wealth which had peaked at 10.7%, fell to 9.4% in Q4—the lowest level since Q1 2003. in Richmond, VA As the chart below indicates, household formation is significantly correlated with the labor market. If our 2011 forecast for average monthly gains of 225k on Year End Targets nonfarm payrolls in 2011 proves correct, household formation could return to its Real GDP growth: +4.1% Q4/Q4 longer-term average growth rate of 1.5%. This would be a clear positive for Core PCE deflator: +2.1% Q4/Q4 housing because each tenth of a percentage point on household formation Unemployment rate: 7.8% equates to approximately 100k units of incremental demand for housing. Fed Funds: 0.50% Household formation grew at a rate of 0.6% in 2010 (approximately 700k net new Fed Policy households), thus a doubling of the growth rate would appear aggressive—but this is exactly what happened in both 1984 and 2004 when household formation We expect fed funds to be range-bound more than doubled. between 0-25 bps through Q3 2011. The Fed is projected to hike rates to 0.50% in Further evidence of a bottoming in housing is clear when we look at residential Q4 2011. investment as a percentage of nominal GDP, which peaked in the last cycle at 6.3% in Q4 2005. Exactly one quarter later housing starts peaked at 2.1M Tsy & Tips Announcements & annualized units. At present, residential investment remains extremely Auctions depressed—at a historically low 2.2% of GDP as of Q4 2010. The magnitude of the collapse far surpassed any previous downturn as housing had never declined Size Prev. to less than 3.2% of GDP (1982). Moreover, housing’s share of nominal GDP 11:00 am 2-y note (ann.) $35B $35B averaged approximately 4.7% from 1947 through 2000. At the same time, the 11:00 am 5-y note (ann.) $35B $35B inventory of new homes now stands at 186k—almost one-third of the prior peak. 11:00 am 7-y note (ann.) $29B $29B To be sure, we do not expect residential investment to accelerate back to 6% of 1:00 pm 10-y Tips (auc.) $11B $13B GDP in the near future. We have calculated that it should take approximately two years to work off the excess inventory of distressed existing homes before vacancy rates return to their long-term equilibrium. However, given the propensity of demand (household formation) to increase rapidly as the labor market picks up steam, it is possible that the inflection point in residential investment is near.—BR Household formation is significantly correlated with the labor market

% y/y Number of households (break-adjusted, ls) % y/y 3 Nonfarm payroll employment (rs) 6 2 4 1 2 0 0 -1 -2 -2 Correlation = 0.61 -4 -3 -6 76 80 84 88 93 97 01 05 10

Source: Census, BLS & DB Global Markets Research

Page 22 Deutsche Bank AG/Hong Kong Economics 24 March 2011 Strategy Asia Equities Daily Focus Global

23 March 2011 Global Commodities Daily Disruptions in the global oil balance The Day Ahead Commodities & Global Markets Time(EST) Country Event Previous Market View Commodities News In Brief 05:30 UK Bank of England Minutes • API reported US crude oil inventories rose 970kb, while gasoline and distillate stocks 06:00 EZ Industrial New Orders s.a. (MoM) (Jan) 2.1% 1% fell 7.9 mn bbl and 612kb, respectively. • ETF Securities Ltd. may start exchange- 07:00 US MBA Mortgage Applications (Mar 18) -0.7% traded products backed by aluminium, lead and zinc in April, a few weeks later 10:00 US New Home Sales (MoM) (Feb) -12.6% 2.1% than planned, Bloomberg reported. • Japan’s copper wire and cable shipments 10:30 US EIA Crude Oil Stocks change 1745K 1500K rose 5.4% in February from a year earlier, an industry group said. 11:00 EZ Consumer Confidence (Mar) -11 • Oil imports by South Korea jumped 8% in 19:50 Japan Merchandise Trade Balance Total (Feb) -¥471.4B ¥897.3B February from a year ago, posting a tenth straight monthly gain thanks to its economic recovery and healthy refining Overview margins, Korea National Oil Corp said. Oil prices rose for the second straight day as coalition airstrikes on pro-Gaddafi • China's cotton imports fell 16.64% YoY to targets in Libya continued. Events this week in Libya make it increasingly unlikely 184,216 tonnes in February this year, that we’ll see a swift normalization of Libyan crude oil production in the near term. according to the General Administration of Markets are increasingly bracing themselves for a lengthy disruption to Libyan Customs. • crude oil exports that may last potentially many months if not more than a year. Vale SA, the world’s biggest iron-ore producer, hopes to match 2009’s record Japan will release an additional 22 days' worth of crude oil from reserves to ease sales of 140 mn tonnes of iron ore to shortages in the northern. The release of about 9.24 mn kilolitres (58.1 mn bbl) of China “as early as possible” this year, Luiz reserves follows 1.26 mn kl from mandatory stockpiles, or three days' worth of Meriz, president of Vale Minerals China Co., said. demand last week. According to media reports, half of the refineries that were • Thailand, the world’s largest rice exporter, disrupted by the quake are in the process of restarting and may normalize in plans to reduce planting in an attempt to weeks. Consequently, we are assuming that roughly 600kbd of refinery capacity boost crop quality and cut shipments, the may remain offline for months if not longer depending on the extent of the Thai Rice Mills Association said. The damage. Though refineries in Japan that were unaffected by the quake are government plan may eventually reduce ramping up operations to offset the shortfall in the domestic oil balance, we are annual exports by about 2 mn tonnes. likely to see little to no gasoil exports from Japan for the next few months. Global Markets News In Brief

LME copper edged higher yesterday but gains were capped as market sentiment • UK CPI for Feb rose to 0.7% from 0.1% in remains cautious. According to Reuters, premiums for bonded copper in Shanghai January. have doubled over the past week on purchases from Japanese companies. • US house price index for Jan remained Traders estimate that Japanese companies had bought more than 10,000 tonnes unchanged at -0.3% (MoM). of bonded copper in Shanghai since last week. However this only accounts for a • US Richmond fed manufacturing index fell small percentage of total warehouse inventories. We expect that copper and zinc to 20 in Mar from 25 in Feb. could be the principal beneficiaries of a recovery in Japanese demand followed by Event Risks nickel and then aluminium. This is due to copper and zinc’s use infrastructure re- • Germany IFO – Business Climate 25 Mar build and construction activities. Nevertheless, the impact on industrial metals • U. of Michigan Confidence on 25 Mar demand in likely to be limited in our view as Japan only represents roughly 5% of • China Leading Index 24-28 Mar global demand. • US Dallas Fed Manf. Activity on 28 Mar In agriculture, the Australian weather bureau said one of the country’s key grain • China HSBC Manufacturing PMI Mar 31 regions, Eastern Australia, is expected to see above median rainfall during the • US Change in Nonfarm Payrolls on Apr 1 April to June period. The favourable weather condition will increase the chance of Research Team Australia, the world’s third largest wheat exporter, to have another productive Soozhana Choi Xiao Fu harvest after record production in the 2010/11 season. Research Analyst Research Analyst (65) 6423 5261 (44) 20 7547 1558 [email protected] [email protected] Deutsche Bank AG/Hong Kong Page 23 Commodities 24 March 2011 Strategy Asia Equities Daily Focus

Figure 1: Libyan crude oil production history Figure 2: Japanese total demand relative to global consumption for a variety of commodities

1.9 Mln bbl/day 20%

1.8 15%

1.7 10%

1.6 5%

1.5 0%

1.4

1.3

Japan consumption, % of global market (* seaborne) 1.2 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: IEA, Deutsche Bank Source: IEA, Deutsche Bank

Commodity Price Summary

Energy WTI (bbl) Brent (bbl) Nat Gas (mmBtu) RBOB Gas (g) Heating Oil (g) API 4 (t) Close (USD) 104.00 115.70 4.25 3.02 3.08 119.30 Daily price change 1.6% 0.6% 2.2% 0.7% 0.8% 0.0% YTD price change 13.8% 22.1% -3.4% 23.1% 20.9% 3.2% Nymex Precious Metals & FX Comex Gold Comex Silver Nymex Platinum EURUSD USDJPY Palladium Close (USD/oz) (level) 1427.50 36.38 1739.40 737.85 1.42 80.95 Daily price change 0.1% 1.0% -0.3% -0.6% 0.0% -0.1% YTD price change 0.5% 17.7% -2.2% -8.1% 6.1% -0.4% Industrial Metals Aluminium Copper Lead Nickel Tin Zinc LME close 3M (USD/t) 2597 9505 2670 26350 30150 2332 LME close 3M (USc/lb) 117.8 431.1 121.1 1195.2 1367.6 105.8 Daily price change 1.1% 1.1% 0.9% -1.5% 1.5% 2.3% YTD price change 5.1% -1.0% 4.7% 6.5% 12.1% -5.0% LME Stocks (t) 4,606,175 430,500 287,650 124,848 18,250 736,150 Daily change (t) 0 0 0 0 0 0 Agriculture & Livestock Corn (bsh) Cotton (lb) Live Cattle (lb) Soybeans (bsh) Sugar (lb) Wheat (bsh) NY close (USc) 686.75 205.96 114.28 1365.50 27.16 722.25 Daily price change 0.0% 3.5% 0.6% 0.2% -1.2% 0.2% YTD price change 9.2% 42.2% 5.9% -2.0% -15.4% -9.1% Baltic Dry EUA (CO2) Other prices Iron Ore Steel US HRC Ethanol U3O8 USD/lb Index Dec12 (Euro) Close (level) 1543 164.4 890 2.49 17.62 59.00 Daily change 0.8% 0.4% 0.3% 0.0% 0.5% 0.0% YTD change -13.0% -3.4% 30.9% 4.6% 20.4% -5.0% Indices DBLCI-OY DBLCI-MRE DB Harvest SPGSCI DJUBS SPWCI NY close (level) 1403 443 286 5434 335 416 Daily change 1.0% 1.2% 0.0% 1.0% 0.8% 0.8% YTD change 9.6% 3.3% 1.2% 9.9% 2.7% 16.5% Source: Reuters, Bloomberg Finance LP, UxC, Metals Bulletin, Deutsche Bank

Page 24 Deutsche Bank AG/Hong Kong 24 March 2011 Strategy Asia Equities Daily Focus

Asia China Technology

23 March 2011 Periodical

China TMT Daily TOP CHINA TMT PICKS Company Rating Target Price AsiaInfo-Linkage Buy USD 24.75 Group buy update; also, China Telecom Buy HKD 5.40 ZTE Buy HKD 42.78

CHINA TMT STOCKS 0728.HK, CTRP Company Rating Close Price 1D% 3M% TELCOS as on 22/03 China Comm Service Hold 5.6 2.2 21.6 (Please click through to the .pdf version of this document for a full overview of today's China Mobile Hold 71.0 0.1 -7.5 China Telecom Buy 4.5 2.3 13.4 news and views.) China Unicom Hold 13.1 3.8 15.4

FEATURE: INTERNET/ONLINE GAMING Alibaba.com Hold 13.6 -0.7 2.6 China group buy GMV to draw close to US in 2011 Baidu Buy 127.1 2.5 26.5 Ctrip.com Int'l Hold 37.6 -1.1 -10.9 China’s online group buy segment is likely to grow to RMB16.5b (USD2.5b) in Netease.com Buy 45.9 0.2 27.1 2011 (from RMB2b last year), to become 1% of the country’s online retail sales. Shanda Sell 43.3 -0.1 8.6 This forecast places China close behind the US. Daily deal tracker Local Offer Shanda Games Hold 6.4 1.3 4.0 Network puts U.S. gross group buy revenues across the industry at $1.1b last Sina Corp Sell 94.7 1.8 33.4 year, and the site expects gross revenues to grow 138% YoY to USD2.7b in 2011. Sohu.com Hold 80.2 0.5 23.1 Tencent Buy 190.9 -0.7 10.5 Group purchases in China in 2H2010 totaled RMB1.8b, with December alone reaching RMB401m. TECHNOLOGY AsiaInfo-Linkage Buy 20.1 0.4 17.6 Consolidation, clean-up of practices begin Foxconn Int'l Hldgs Hold 5.0 0.4 -7.7 Website tuan800.com reported a total of 1,726 group purchase websites in China HiSoft Buy 20.3 -3.3 -32.3 at the end of 2010, suggesting that 5.7 sites were set up each day last year. China Lenovo Group Hold 4.5 6.5 -12.6 had 18.8m online group purchasers by the end of 2010, or 4.1% of the country's Longtop Buy 30.2 -5.4 -15.3 online population, according to the China Internet Network Information Centre. Synnex Technology Hold 69.6 1.5 -12.2 ZTE Buy 34.8 -2.7 9.8 Tuan800.com reported that group purchases offered an average discount 33%, reducing average deal price to RMB97, theoretically saving RMB4b for group Indices Close 1D% 3M% purchasers. With this seemingly uncontrolled spread of group-buying have arisen as on 22/03 challenges. China’s recent “3.15 Annual Consumer Rights Investigation” HSI 22857.9 0.8 -0.2 HSCEI 12783.2 1.1 2.1 (conducted every March 15th) revealed that 47.3% of group buyers had an Nasdaq 2683.9 -0.3 0.5 “unpleasant experience” or disputes with merchants. In 2010, the 3.15 Consumer Sources: DB, Bloomberg Finance LP Rights Protection Site received 2,090 complaints, and some 1,573 cases in the first three months of 2011 alone. Complaints often related to weak quality control CALENDAR OF EVENTS and "no refund after expiration" policies. Some sites were accused of raising original merchandise prices to misleadingly claim high discount rates. Moreover, the CEO of Groupon.cn recently revealed that some 40% of customers did not Research Team redeem their services in 2010. Many sites did not return unredeemed deposits. Alan Hellawell III Industry leaders rolling out policies to improve customer experience Research Analyst (+852) 2203 6240 Several group-buying sites have started to improve terms for buyers, and offer [email protected] ancillary services, to further the credibility and popularity of their services. For Eva Leung, CFA example, Nuomi has begun to offer unconditional refunds within 7 days of Research Associate purchase, and refunds if purchases expire. Industry peer lashou.com is similarly (+852) 2203 6190 unveiling measures to improve user experience. Group-buying guide site tuan800 [email protected] has put in place a reward system, through which users can exchange activity reward points on the site for merchandise.

Deutsche Bank AG/Hong Kong Page 25

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Health Care Health Care

23 March 2011 Results China Shineway Reuters: 2877.HK Bloomberg: 2877 HK Exchange: HKG Ticker: 2877 Hold Price at 23 Mar 2011 (HKD) 23.75 Price target - 12mth (HKD) 21.00 52-week range (HKD) 29.10 - 18.16 Solid year but tough road HANG SENG INDEX 22,825

Key changes ahead; maintaining Hold Sales (FYE) 2,407 to 2,412 Ç 0.2% Jack Hu, Ph.D Raymond Yang Op prof margin (FYE) 38.9 to 41.1 Ç 5.5% Net profit (FYE) 833.9 to 871.4 Ç 4.5% Research Analyst Research Associate (+852) 2203 6208 (+852) 2203 6139 Price/price relative [email protected] [email protected]

30 Results in line; reiterating Hold on valuation and 2011 headwinds 2H10 revenues/earnings of RMB1.1bn/RMB401m were in line with consensus of 20 RMB1.2bn/RMB403m. Revenues rose 19% YOY and earnings (ex-FX) increased 25% YOY in 2H10. Scaling distribution expenses fully absorbed the impact of the gross margin decline, resulting in operating margin improvement YOY. We 10 reiterate our Hold rating based on valuation and 2011 headwinds coming from the likely market share loss of a top revenue contributor. 0 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 Imminent market share loss of Qing Kai Ling in 2011 China Shineway We anticipate market share loss for Qing Kai Ling, a top revenue contributor which HANG SENG INDEX (Rebased) represented 32% of 2010 sales. Implementation of the Anhui model has been faster than we expected. Management confirmed what we learned two weeks Performance (%) 1m 3m 12m Absolute 16.1 8.7 16.7 ago: Qing Kai Ling has lost the entire market of Shandong province, the fourth HANG SENG INDEX -0.4 -0.3 8.8 largest drug market in China (after Beijing, Shanghai and Guangdong). Management’s strategy is to cut prices in order to maintain market share. Stock data Market cap (HKDm) 19,641 Margin erosion most likely, primarily due to voluntary price cut Market cap (USDm) 2,520 Management said that current margins would not be sustainable. We Shares outstanding (m) 827.0 acknowledge management’s risk mitigation strategy is likely to partially absorb Major shareholders JP Morgan Chase (7.2%) raw material price increases, but a voluntary price reduction for Qing Kai Ling will Free float (%) 42 Avg daily value traded (USDm) 4.9 significantly erode margin. We remind investors that the Shandong tender price was 28% lower than Shineway’s previous price. Management also guided that Key indicators (FY1) distribution costs as a percentage of revenue would increase in 2011 and beyond. ROE (%) 24.7 Net debt/equity (%) -76.7 P/E-based valuation; volume growth uncertainty remains key risk Book value/share (CNY) 4.64 Our target price is 18x our 2011E EPS. Key downside risks are faster-than- Price/book (x) 4.3 expected implementation of the Anhui model and higher-than-expected raw Net interest cover (x) – material price increases. Upside risks include easing raw material price pressure, Operating profit margin (%) 41.1 potential acquisitions, lower-than-expected government-imposed price reductions and delays in EDL implementation. Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (CNYm) 1,633.2 2,038.4 2,411.9 2,846.8 3,341.8 EBITDA (CNYm) 883.2 1,000.8 1,077.3 1,213.9 1,379.1 Reported NPAT (CNYm) 767.3 821.8 871.4 973.6 1,088.8 Reported EPS FD(CNY) 0.93 0.99 1.05 1.18 1.32 DB EPS FD(CNY) 0.93 0.99 1.05 1.18 1.32 OLD DB EPS FD(CNY) 0.93 0.90 1.01 1.19 1.44 % Change 0.0% 10.6% 4.5% -0.8% -8.9% DB EPS growth (%) 92.7 7.1 6.0 11.7 11.8 PER (x) 7.3 19.2 19.0 17.0 15.2 EV/EBITDA (x) 3.6 13.4 12.6 11.3 9.3 DPS (net) (CNY) 0.22 0.38 0.32 0.35 0.39 Yield (net) (%) 3.3 2.0 1.6 1.8 2.0 Source: Deutsche Bank estimates, company data

Page 26 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Telecommunications Fixed Line

23 Mar 2011 - 04:18:51 AM HKT COMPANY ALERT Results China Telecom Buy

CT FY results Reuters:0728.HK Exchange:HKG Ticker:0728

Price (HKD) 4.49 No major surprises in 2010. China Telecom reported 4Q revenue of Price target (HKD) 5.40 RMB56.3bn (+1.1% QoQ, +4.8% YoY) slightly light of Consensus estimates 52-week range (HKD) 4.70 - 3.34 of RMB58.5bn. Full year operating revenue increased by 5.4% to Market cap (USDm) 46,598 RMB219.4bn. 4Q net profit of RMB3.2bn was higher than both Consensus and DBe. The company reported full year net profit of RMB15.8bn (+9.3% Shares outstanding (m) 80,932.4 YoY). Fixed line revenue declined by 4.2% YoY, while its mobile business Net debt/equity (%) 20.4 experienced 51.5% YoY growth. Adj EBITDA margin improved 0.9pp to Book value/share (CNY) 2.86 40.3%. Final dividend remained at HK$0.085 per share.

Price/book (x) 1.3 Handset subsidies lower than co's guidance but ARPU down sharply.

CT spent RMB12.1bn in handset subsidies (25.4% of mobile service rev) in FYE 12/31 2009A 2010E 2011E 2010, below the 30% of mobile service rev that it intended to spend. How- Sales 209,370 223,763 242,348 ever, ARPU declined 8.9% to RMB54.2. CT made a conscious decision to (CNYm) save on cash subsidy by giving away more airtime, leading to an accelerated Net Profit 14,422.0 15,596.5 17,178.7 ARPU decline. (CNYm)

DB EPS 0.16 0.19 0.21 Targeting 12m broadband net adds; positive outlook on 3G. Although (CNY) no specific target was given, the co believes 2011 mobile net adds should PER (x) 18.7 20.2 17.9 be higher than 2010's 34.4m. It expects ~50% to be 3G.

Yield (net) 2.4 2.0 2.0 (%) Peak capex behind us. Capex remained unchanged at RMB50bn for 2011.

Chairman Wang suggested that 2012 capex will likely remain at current levels. The parentco intends to spend RMB23bn in capex on network opti- mization this year, down from RMB27bn in 2010.

Mobile network acquisition in 2012. The listco plans to acquire the CDMA mobile network from the parentco in 2012. The company intends to finance the purchase mostly through debt. With a net debt/EBITDA ratio of 0.52 and total debt/total capitalization ratio at 23.6%,we believe the co can easily support more debt. The mobile network still has a book value of about RM- B100bn. We expect the purchase to be value accretive to the listco as the depreciation of the parentco network is likely less than the leasing expense paid to the parentco. Maintain Buy.

Alan Hellawell III William Bratton Eva Leung, CFA Research Analyst Research Analyst Research Analyst (+852) 2203 6240 (+852) 2203 6186 (+852) 2203 6190 [email protected] [email protected] [email protected]

Deutsche Bank AG/Hong Kong Page 27

24 March 2011 Strategy Asia Equities Daily Focus

Asia Hong Kong Banking/Finance Banks

23 Mar 2011 - 11:14:46 PM HKT COMPANY ALERT Results Dah Sing Financial Hold

FY10 result: encouraging update on insurance business Reuters:0440.HK Exchange:HKG Ticker:0440

Price (HKD) 48.45 DSFH reported attributable profit of HKD 1,006m, 2% below our forecast. DSFH declared final dividend of HKD 0.86, higher than our estimate of HKD Price target (HKD) 64.10 0.60. Total dividend of HKD 1.06 represents payout of 29%. In addition to 52-week range (HKD) 62.20 - 38.25 the higher-than-expected dividend, the most encouraging update from the Market cap (USDm) 1,617 company is that they have begun expansion of the agency network which contracted over the last two years as DSFH decided to stay away from Shares outstanding (m) 260 agent competition brought on by major international insurance players in NPL/total loans (%) 0.4 Hong kong. Key insurance related figures are 7.4% YoY increase in gross Price/book (x) 1.0 premium income to HKD 1,835m, expansion of EV (after contraction seen

in 2009), and doubling of investment gain to HKD 752m. Higher EV was driven by new business increase and lower risk free rate assumption. Off- FYE 12/31 2009A 2010E 2011E setting this was increase in policy holder reserves as lower interest rate Provisioning 433.3 179.2 259.0 assumptions were used. Albeit off a small base, insurance business NPAT (HKDm) increased by 30% to HKD 314m. We are reviewing our model following this Pre-prov 874 1,465 1,912 results announcement. profit (HKDm)

EPS (HKD) 2.41 3.96 5.00

PER (x) 13.4 12.2 9.7

Yield (net) 0.0 1.7 3.3 (%)

Sophia Lee, CFA Tracy Yu Research Analyst Research Analyst (+852) 2203 6226 (+852) 2203 6191 [email protected] [email protected]

Page 28 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Resources Metals & Mining

23 March 2011 Results Maanshan Iron and Steel Reuters: 0323.HK Bloomberg: 323 HK Exchange: HKG Ticker: 0323 Buy Price at 23 Mar 2011 (HKD) 4.15 Price target - 12mth (HKD) 5.70 52-week range (HKD) 5.10 - 3.32 Light at the end of the tunnel HANG SENG INDEX 22,825

Price/price relative

7.0 James Kan Yvonne Tsai Nam Nguyen 6.0 Research Analyst Research Analyst Research Analyst (+852) 2203 6146 (+886) 2 2192 2824 (+852) 2203 5928 5.0 [email protected] [email protected] [email protected] 4.0

3.0 2010 results mixed but positives around the corner; reiterating Buy 2.0 Maanshan delivered mixed 2010 results. It missed our gross profit forecast for 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 2010 by 5% while operating and net profits were ahead of our and consensus Maanshan Iron and St forecasts. Though Maanshan is still challenged by China’s steel destocking cycle HANG SENG INDEX (Rebased) (resulting from government tightening), we believe positive catalysts remain, Performance (%) 1m 3m 12m including demand from public housing to kick in and Maanshan's high-margin, Absolute 1.5 0.5 -7.4 HANG SENG INDEX -0.4 -0.3 8.8 high-speed-rail wheel business to ramp up in 2H11. We maintain our Buy rating. Mixed 2010 results Stock data Maanshan’s gross profit was 5% below our forecast while operating profit was Market cap (HKDm) 31,958 Market cap (USDm) 4,101 4% above consensus and 16% ahead of our forecast. Net profit was 10% above Shares outstanding (m) 7,700.7 consensus and 38% ahead of our forecast (see Figure 1). We believe Maanshan’s Major shareholders Magang Holding (62.5%) slight miss for the full-year gross margin resulted from a lower-than-expected ASP Avg daily value traded (USDm) 10.0 for its steel products. On the other hand, an iron ore trading gain of RMB429m and Free float(%) 50

other associates helped to make up for the shortfall of gross profits; thus, Key indicators (FY1) operating and net profits were ahead of our and consensus forecasts. ROE (%) 3.0 Management acknowledged over-capacity in China but is seeing some light Net debt/equity (%) 54.8 Book value/share (CNY) 3.54 During the analyst meeting, management acknowledged the over-capacity in Price/book (x) 1.0 China’s steel industry and the current destocking cycle due to government Net interest cover (x) 2.0 tightening. Nevertheless, management also expressed its positive view on its new Operating profit margin (%) 3.3 high–speed-rail wheel business and long steel demand driven by the public housing program. Maanshan might start to mass produce wheels for China Rail High-speed (CRH) in 2H11 (see figures 8-11). Also, Maanshan expects long steel demand in 2H11 to be stimulated by construction for public housing starts. Profitability to improve; reiterating Buy on Maanshan Judging from the average “steel spread” (steel price less raw material costs) shown in figures 3-6, we believe Maanshan’s profit in 1Q11 should be better than in 4Q10. We expect Maanshan’s profitability to further improve when the government loosens the tightening policy and demand from public housing starts to kick in. Though we believe the profit contribution from high-speed-rail wheel production will not be significant until potentially 2013, the new wheel business could be a longer term catalyst. We maintain Buy and set the target price at 1.29x 2011E BVPS. Key risk: steel demand growth below our expectations. Forecasts and ratios Year End Dec 31 2008A 2009A 2010E 2011E 2012E Sales (CNYm) 70,009.6 50,411.6 64,039.2 74,755.8 77,163.0 EBITDA (CNYm) 7,056.6 6,250.2 6,489.7 8,068.2 9,453.0 Reported NPAT (CNYm) 710.2 392.5 797.2 2,026.5 3,010.9 DB EPS growth (%) -70.3 -50.9 103.1 154.2 48.6 DB EPS FD(CNY) 0.10 0.05 0.10 0.26 0.39 PER (x) 32.9 74.8 33.7 13.3 8.9 EV/EBITDA (x) 5.6 7.1 6.5 4.6 3.7 Source: Deutsche Bank estimates, company data

Deutsche Bank AG/Hong Kong Page 29

24 March 2011 Strategy Asia Equities Daily Focus

Asia Hong Kong Telecommunications Fixed Line

23 March 2011 Results PCCW Reuters: 0008.HK Bloomberg: 8 HK Exchange: HKG Ticker: 0008 Buy Price at 22 Mar 2011 (HKD) 3.39 Price target - 12mth (HKD) 3.54 52-week range (HKD) 3.76 - 2.09 FY10 operationally in-line, HANG SENG INDEX 22,858

maintain Buy Price/price relative William Bratton Wei-Shi Wu Grace Lee 8 Research Analyst Research Analyst Research Assistant (+852) 2203 6186 (+65) 6423 4114 (+852) 2203 8267 6 [email protected] [email protected] [email protected] 5 FY10 beat on non-operating gains; maintain Buy 3 PCCW's HK$1,926m NPAT was up 28% YoY and beat DBe (HK$1,658m) on HK$1,155m in investment property fairly valued gains. Otherwise, there were no 2 major surprises in the operational performance, with both revenues and EBITDA generally within expectations. A 10.2 HK cents per share final dividend was 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 announced, bringing the FY10 total dividend to 15.3 HK cents per share (in-line). PCCW We continue to like PCCW given the 5% FY11e dividend yield, cash generative HANG SENG INDEX (Rebased) core business and relatively benign competitive environment. Maintain Buy. Performance (%) 1m 3m 12m Absolute -2.3 6.3 46.8 FY10 revenues and EBITDA both within expectations HANG SENG INDEX -0.6 -0.8 9.2 FY10 consolidated revenues fell 8% YoY to HK$22,962m as lower sales recognition drove a 65% YoY decline in PCPD (Pacific Century Premium Dev)) Stock data revenues. But otherwise, the core telecoms revenues were stable and posted a Market cap (HKDm) 24,653 3% YoY increase to HK$21,467m (102% DB10e). Core revenue growth was driven Market cap (USDm) 3,164 largely by gains in TSS (+3% YoY) and Solutions (+14% YoY), although the TV & Shares outstanding (m) 7,022.3 Major shareholders PCRD (22.6%) Content and Mobile segments also registered (albeit more modest) revenue gains. Free float (%) 52 Overall, FY10 consolidated revenues were in-line. FY10 consolidated EBITDA Avg daily value traded (USDm) 7.1 margin improved to 32%, although FY10 EBITDA slipped 2% YoY to HK$7,353m on the lower revenues. Key indicators (FY1) ROE (%) – Management strategy and outlook Net debt/equity (%) – 2H10 net debt/EBITDA was down to 3.5x and going forward, management Book value/share (HKD) -0.49 expects net finance costs to decline over time on debt repayments. In terms of Price/book (x) -6.9 strategy, management highlighted a continued focus on data to drive incremental Net interest cover (x) 2.6 Operating profit margin (%) 16.6 growth while cost discipline should be maintained. There are ongoing efforts to strengthen pay-TV content by re-channeling some of the EPL cost savings. Management stated that capex will be focused on business streams with higher ARPU and better returns (e.g. mobile and high speed broadband networks). HK$3.54 SOTP target price; key risks include competition, regulation Our target price for PCCW is derived based on SOTP valuation. We value the core telecoms business using DCF analysis based on 7% WACC and 0% terminal growth rate to reflect the generally ex-growth nature of the Hong Kong telecom market. We use current market price for PCCW’s stake in PCPD. Key risks include competition, regulation, capex and changes to PCCW’s credit rating (see p.8). Forecasts and ratios Year End Dec 31 2008A 2009A 2010E 2011E 2012E Sales (HKDm) 31,951.0 25,077.0 23,011.7 23,262.7 23,515.8 EBITDA (HKDm) 7,982.0 7,499.0 7,514.8 7,626.1 7,687.3 Reported NPAT (HKDm) 1,272.0 1,506.0 1,657.9 1,883.5 2,149.2 Reported EPS FD(HKD) 0.19 0.22 0.24 0.26 0.30 PER (x) 23.2 11.9 14.4 13.1 11.5 EV/EBITDA (x) 6.9 6.4 6.8 6.5 6.2 Yield (net) (%) 5.2 5.0 4.4 5.0 5.3 Source: Deutsche Bank estimates, company data

Page 30 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia China Health Care Health Care

23 March 2011 Results The United Laboratories Reuters: 3933.HK Bloomberg: 3933 HK Exchange: HSI Ticker: 3933 Buy Price at 23 Mar 2011 (HKD) 14.34 Price target - 12mth (HKD) 18.50 52-week range (HKD) 17.02 - 6.55 Guiding better-than-expected HANG SENG INDEX 22,825

Key changes growth for 2011 Sales (FYE) 7,503 to 8,250 Ç 10.0% Jack Hu, Ph.D Raymond Yang Op prof margin (FYE) 19.6 to 19.7 Ç 0.4% Net profit (FYE) 1,151.6 to 1,256.1 Ç 9.1% Research Analyst Research Associate (+852) 2203 6208 (+852) 2203 6139 Price/price relative [email protected] [email protected]

20 30% top-line growth guided for 2011; maintaining Buy on attractive valuation 16 2H10 revenues / EPS were HK$3.4bn / HK$0.38, vs. FC consensus of HK$3.2bn / 12 HK$0.356, and our estimate of HK$3.1bn / HK$0.39. The results represent 33% 8 and 13% growth for revenues and EPS, respectively. Management guided 30% 4 top-line growth and potential margin improvement for 2011. We reiterate our Buy 0 rating and believe this name has one of the best risk/reward profiles in the sector. 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 Chairman revealed aggressive mid-term plans The United Laborator The chairman gave a three-year objective of doubling sales, translating into a HANG SENG INDEX (Rebased) CAGR of 26% in 2010-2013. Additionally, a capacity expansion program was Performance (%) 1m 3m 12m announced, with a HK$2bn price tag. Of the HK$2bn, about HK$1.2-1.3bn is to be Absolute 18.7 -10.9 124.1 HANG SENG INDEX -0.4 -0.3 8.8 used to add 10,000 tons of 6-APA capacity on top of the current 13,000 tons, while the remaining HK$0.7-0.8bn is to be utilized for a power station. We are Stock data positively surprised by this ambitious plan. Market cap (HKDm) 18,664 Market cap (USDm) 2,395 The drivers behind the better-than-expected growth Shares outstanding (m) 1,301.5 We believe growth drivers include 1) improving yield and increasing demand for Major shareholders Value Partners (4.8%) intermediate products; 2) newly approved 4,000 ton bulk amoxicillin capacity; and Free float (%) 36 3) improving sales efficiency for finished products, expected volume increases led Avg daily value traded (USDm) 10.1

by price cuts in drugs in insurance catalogs, and two new drug inclusions on the Key indicators (FY1) National Drug Reimbursement List (NDRL). We also believe better-than-expected ROE (%) 22.8 year-to-date sales have boosted management’s confidence. Net debt/equity (%) 28.7 Book value/share (HKD) 4.52 Reiterating Buy and HK$18.5 target price; major risk is government policy Price/book (x) 3.2 With the top five concerns widely disseminated on the street, we believe all the Net interest cover (x) 10.8 risks are reflected in the stock price. We thus believe downside risks are quite Operating profit margin (%) 19.7 limited, while there is substantial upside potential. We use a SoTP valuation, assigning P/E multiples to the company’s 2011 EPS generated from API and finished products. Key risks: government initiatives to change the pharmaceutical business model and raw material price increases. Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (HKDm) 4,643.2 6,502.8 8,250.3 10,133.9 12,305.6 EBITDA (HKDm) 1,120.4 1,674.2 2,098.5 2,650.2 3,313.9 Reported NPAT (HKDm) 541.4 974.2 1,256.1 1,683.3 2,190.2 Reported EPS FD(HKD) 0.45 0.78 0.97 1.29 1.68 DB EPS FD(HKD) 0.45 0.78 0.97 1.29 1.68 OLD DB EPS FD(HKD) 0.45 0.78 0.88 1.11 1.38 % Change 0.0% 0.3% 9.1% 16.1% 21.7% DB EPS growth (%) 25.9 73.3 23.5 34.0 30.1 PER (x) 6.8 13.8 14.9 11.1 8.5 EV/EBITDA (x) 4.8 8.9 9.7 7.8 6.2 DPS (net) (HKD) 0.15 0.31 0.37 0.52 0.71 Yield (net) (%) 4.9 2.9 2.6 3.6 4.9 Source: Deutsche Bank estimates, company data

Deutsche Bank AG/Hong Kong Page 31

24 March 2011 Strategy Asia Equities Daily Focus

Asia Hong Kong Conglomerates

24 March 2011 Results Wharf Reuters: 0004.HK Bloomberg: 4 HK Exchange: HKG Ticker: 0004 Buy Price at 23 Mar 2011 (HKD) 51.20 Price target - 12mth (HKD) 62.00 52-week range (HKD) 62.05 - 35.30 War-chest ready; Reiterate HANG SENG INDEX 22,825

Key changes Buy Op prof margin (FYE) 50.9 to 51.1 Ç 0.5% Karen Tang Net profit (FYE) 7,899.8 to 8,691.6 Ç 10.0%

Research Analyst (+852) 2203 6141 Price/price relative [email protected] 70 60 Accelerates development in China 50 In FY10, Wharf reported a 28% rise in investment property value to HK$148bn. 40 While partly driven by cap rate compression, the uplift highlights Wharf's ability in 30 enhancing value for its HK rental portfolio. Armed with the newly raised HK$10bn 20 from a rights issue, Wharf is ready to accelerate development in China. YTD, it has 10 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 already spent Rmb10bn to acquire four sites. Reiterate Buy with HK$62 target Wharf price as we think Wharf will replicate its success as a premium landlord in China. HANG SENG INDEX (Rebased) FY10 results in line with expectations Performance (%) 1m 3m 12m Excluding revaluation and disposal gains, core earnings rose 9% to HK$7.1bn, Absolute 2.5 -9.3 17.4 HANG SENG INDEX -0.4 -0.3 8.8 driven by higher HK rental (+6%) and port earnings (+26%). Retail revenue was strong (Harbour City +15%, Time Square +13%) while office revenue declined on Stock data negative rental reversion (HC -7%; TS -3%). For 2011, mgmt expects the negative Market cap (HKDm) 155,105 reversion to continue. In China, Shanghai Wheelock Square is now 60% Market cap (USDm) 19,903 committed and Chongqing Time Square should re-open in May after renovation. Shares outstanding (m) 3,029.4 Major shareholders Wheelock (50.02%) China property: Short-term pain, long-term gain Free float (%) 50 In 2010, Wharf achieved contract sales of Rmb8.8bn, up 91%. For 2011, mgmt Avg daily value traded (USDm) 38.0 targets for Rmb14bn, of which Rmb1.2bn has been achieved. Mgmt noted that, Key indicators (FY1) while sales progress was solid in Jan-Feb, transaction volume slowed in March, ROE (%) 5.1 and there might be risks to its 2011 target. That said, mgmt sees the current Net debt/equity (%) 15.7 tightening environment as positive for landbank acquisitions. YTD, Wharf has Book value/share (HKD) 58.90 already bought four sites (Chengsha, Suzhou, two in Hangzhou). By 2016, Wharf’s Price/book (x) 0.9 China rental portfolio will significantly expand from 0.4m sqm currently to 2.3m Net interest cover (x) 10.9 Operating profit margin (%) 51.1 sqm, more than twice the size of its HK rental portfolio. Buy: HK$62 target price based on 25% NAV discount; risks After incorporating the rights issue and higher asset value, our NAV remain largely unchanged at HK$82.6/shr. Our SOTP target price is set at 25% NAV discount, in line with other Hong Kong landlords though higher than Wharf’s historical avg (40% discount). Risks include Ocean Terminal lease renewal, China luxury tax reduction, and weak China property sales. Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (HKDm) 17,553.0 19,380.0 22,784.0 26,473.5 31,061.5 EBITDA (HKDm) 9,855.0 10,700.0 13,008.5 14,378.6 15,879.1 Reported NPAT (HKDm) 19,256.0 35,750.0 8,691.6 9,648.0 11,047.1 Reported EPS FD (HKD) 6.99 12.98 2.94 3.18 3.65 DB EPS FD (HKD) 2.37 2.58 2.94 3.18 3.65 OLD DB EPS FD (HKD) 2.37 2.55 2.87 3.25 3.79 % Change 0.0% 1.1% 2.3% -2.0% -3.7% DB EPS growth (%) 27.6 8.6 14.0 8.5 14.5 PER (x) 12.9 17.5 17.4 16.1 14.0 DPS (net) (HKD) 1.00 1.00 1.10 1.10 1.10 Source: Deutsche Bank estimates, company data

Page 32 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia Korea, Republic of Resources Metals & Mining

23 Mar 2011 - 12:34:42 AM GMT COMPANY ALERT Company Update POSCO Buy

Company visit takeaways ; upside to sales volume guid‐ Reuters:005490.KS Exchange:KSC Ticker:005490 ance

Price (KRW) 507,000 We visited POSCO to update recent trends after the Japanese earthquake. While auto and shipbuilding customers are asking for an output increase Price target (KRW) 600,000 after the accident, construction demand still remains muted. We maintain 52-week range (KRW) 560,000.00 ‐ Buy on POSCO with a target price of W600,000 on overseas expansion. 434,500.00 Market cap (USDm) 39,432 1m tonne sales volume increase likely: +W220bn EBITDA Shares outstanding (m) 87.2 After the earthquake in Japan, POSCO decided to increase sales volume of Net debt/equity (%) 17.0 HRC, Heavy plate and Wire Rod by 1m tonnes this year due to increasing Book value/share (KRW) 402,377 demand from customers (versus original sales volume guidance of 34m tonnes). Considering its carbon steel EBITDA/tonne of ~US$190-200, we Price/book (x) 1.26 believe the additional sales volume will likely increase 2011 EBITDA by W220bn (versus our forecast of W7.06tr).

FYE 12/31 2009A 2010E 2011E Domestic price hike of W100,000‐150,000/tonne in near term Sales (KR- 26,954 32,582 38,403 Wbn) POSCO may announce a domestic price increase of W100,000-150,000/ Net Profit 3,172 4,363 4,126 tonne in the near term to offset the US$120/tonne raw material cost in- (KRWbn) crease. Although this increase could provide positive sentiment, we believe DB EPS 32,219 51,994 47,179 the actual sales price should be lower than the official price, as seen in 2010, (KRW) given the gap between international and domestic prices (domestic HRC price ~$950/tonne after price hike versus Chinese export price of US$720/ PER (x) 13.9 9.8 10.7 tonne). Yield (net) 1.8 2.0 2.0 (%)

Chanwook Park Research Analyst (+82) 2 316-8940 [email protected]

Deutsche Bank AG/Hong Kong Page 33

24 March 2011 Strategy Asia Equities Daily Focus

Asia ASEAN Malaysia Telecommunications

23 March 2011 Industry Update Malaysia Telecoms Sector Top picks DiGi.Com (DSOM.KL),MYR27.62 Buy

Growing signs of competition Companies featured DiGi.Com (DSOM.KL),MYR27.62 Buy 2010A 2011E 2012E risks in broadband P/E (x) 15.5 16.9 15.8 Wei-Shi Wu William Bratton EV/EBITDA (x) 7.7 8.6 8.1 Price/book (x) 14.2 14.3 13.6 Research Analyst Research Analyst Axiata Group Bhd (AXIA.KL),MYR4.76 Hold (+65) 6423 4114 (+852) 2203 6186 2010A 2011E 2012E [email protected] [email protected] P/E (x) 13.1 16.8 16.3 EV/EBITDA (x) 4.6 5.4 4.8 Increasing sector headwinds, reiterate Sell rating on TM Price/book (x) 2.1 1.8 1.7 Maxis (MXSC.KL),MYR5.38 Hold New entrant wireless operators have dominated recent news flow, with YTL's 2010A 2011E 2012E WiMAX launch and U Mobile's announced LTE network deployment. But while we P/E (x) 17.4 17.8 17.4 view these as indication of increased telco aggression, it is unlikely the smaller EV/EBITDA (x) 10.0 10.3 10.1 operators will make any material near-term impact on the overall market structure. Price/book (x) 4.6 4.5 4.4 Telekom Malaysia (TLMM.KL),MYR3.88 Sell The most severe competition risks will be from incumbents (e.g. Celcom and 2010A 2011E 2012E Maxis) and we are increasingly concerned TM could face accelerated market share P/E (x) 22.2 25.7 25.2 erosion. Given growing sector headwinds and rich valuations, reiterate Sell TM. EV/EBITDA (x) 4.8 5.7 5.8 Price/book (x) 1.6 2.0 2.0 Wireless broadband new entrants increasingly in the spotlight YTL created some buzz with its “Yes”-branded WiMAX launch in 4Q10 and started Broadband subscriber shares offering voice services in 1Q11. The company apparently has plans to launch IPTV 1% 1% services going forward (although it remains unclear how viable this would be over 7% its existing 2.3GHz spectrum) and press reports suggest it has spent up to RM2bn TM 6% on related investments. Separately, U Mobile recently announced plans to expand Celcom network coverage and to deploy a 100Mbps LTE network over time. The company Maxis 46% aims to add 2k base stations in the next 12 months (which would bring total base 16% station count to 3k) and targets 5% subscriber share by end 2011. We view these DiGi as signs of growing aggression from the smaller new entrant operators. But while P1 they may be selectively disruptive, it is unlikely they will materially impact the YTL overall market structure within the near-term. 23% U Mobile Competition risks from incumbents; potentially punitive impact on TM

The most severe competition risks are likely to be from incumbent telcos, in our Source: Company data, Deutsche Bank opinion. For instance, we view Celcom’s and Maxis’ impending fixed-line entry as potentially punitive to TM (which supports our increasingly cautious view on this Related recent research Date company). In particular, we believe Maxis is aggressively targeting high-income Buy DiGi, Sell TM post 2010; key trends to watch in residential and commercial areas with its own FTTH network – a move which 2011 Wei-Shi Wu 7 Mar 2011 could accelerate market share erosion for TM. TM currently has an estimated 46% Wiring up the nation: the telecoms transformation share of the overall broadband market, but we are concerned this could fall to 30- Wei-Shi Wu 24 Jan 2011 35% over the medium-term on competition from both alternative fixed and wireless operators. Broadband pricing generally competitive across wireless and fixed In terms of pricing, entry-level wireless broadband plans are generally priced at approx RM40-50, with U Mobile and DiGi having the most competitively-priced packages. TM’s Streamyx broadband services are relatively competitive, especially given the unlimited data allowance offered. But we continue to think there could be near-term resistance towards adoption of TM’s Uni-Fi services, which start from RM149. Please see p.2 for details of selected broadband price plans in M’sia. DiGi still our preferred Malaysian telco and only sector Buy We see increasing fixed-line sector headwinds and are therefore cautious on TM. Despite the relatively defensive 5% fwd div yield, TM’s valuations are rich vs peers and historics and given the 25% downside to our TP, reiterate Sell. Our preferred Malaysian telco is DiGi (strong execution, scope for further operational outperformance and capital return potential) and we maintain Buy. We value DiGi, Maxis and TM using DCF while our Axiata TP is derived by SOTP valuation. Key sector risks include competition and capex (see p.3-4 for details).

Page 34 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia India Automobiles & Components

23 Mar 2011 - 09:32:21 AM IST INDUSTRY ALERT Industry Update Automobiles & Compo‐ Impact of proposed diesel tax in Delhi nents Focus stocks The Delhi state government has announced an additional tax of 25% on all diesel vehicles sold within the state. We believe this is a negative develop‐ Mahindra & Mahindra (MAHM.BO),INR652.40 Buy, Price ment for Mahindra & Mahindra (Buy, TP Rs 820) and Maruti (Hold, TP Rs Target INR820.00 1500) within our coverage universe. Though Delhi would constitute only Maruti Suzuki Limited 6‐7% of overall industry sales, a similar move by other states could signifi‐ (MRTI.BO),INR1,171.85 Hold, Price cantly affect demand of diesel vehicles. Currently, diesel vehicles are 15% Target INR1,500.00 more expensive than petrol vehicles. Tata Motors Ltd (TAMO.BO),INR1,136.00 Buy, Price Target INR1,465.00 Impact of the tax: * M&M: Utility vehicles (UV) contribute 50% of EBITDA and are almost

100% diesel powered. In Delhi, M&M would be selling mostly Scorpios (15% of EBITDA). Assuming Delhi would constitute 5% of sales, the impact would be less than 1%. * Maruti: 24% of its EBITDA is derived from the Swift/Ritz family and c60% of these vehicles are diesel powered. Assuming Delhi constitutes 7% of sales, the impact would be c1% of EBITDA. We do note that the impact on Maruti could be even lower as a diesel cus‐ tomer may shift to a petrol variant of Maruti.

Other takeaways: * The Kirit Parekh committee had last year recommended an additional levy of Rs 80,000 on diesel vehicles. The Central Government has not acted on this recommendation till now. * Almost 60‐70% of Tata Motors' passenger vehicles would also be diesel powered. However, the domestic passenger vehicle segment contributes only about 7‐8% of the company's consolidated EBITDA. * Among the foreign companies, we estimate that Ford (40%), VW (50%), GM (30%) and Toyota (50%) have significant sales from diesel vehicles.

Srinivas Rao, CFA Amyn Pirani Research Analyst Research Analyst (+91) 22 6658 4210 (+91) 22 6658 4355 [email protected] [email protected]

Deutsche Bank AG/Hong Kong Page 35

24 March 2011 Strategy Asia Equities Daily Focus

Asia India Automobiles & Components

23 Mar 2011 - 01:29:28 PM IST INDUSTRY ALERT Breaking News Automobiles & Compo‐ Delhi tax proposal likely to impact all diesel vehicles nents Focus stocks This alert refers to our previous note titled “Impact of proposed diesel tax in Delhi". A detailed reading of the Budget speech and the relevant Act re‐ Mahindra & Mahindra (MAHM.BO),INR652.40 Buy, Price veals: Target INR820.00 * The budget proposes a 25% increase in tax over the existing tax rate for Tata Motors Ltd all diesel powered vehicle. We note that the existing one‐time tax on new (TAMO.BO),INR1,136.00 Buy, Price vehicles is 2%/4% of cost price for vehicles costing upto Rs 400K/more Target INR1,465.00 than Rs 400K. Cost price includes excise duty and sales tax and excludes Maruti Suzuki Limited discounts. (MRTI.BO),INR1,171.85 Hold, Price Target INR1,500.00 * The proposal covers passenger vehicles as well as commercial trucks and buses as against our earlier expectation of only passenger vehicles.

Impact: * Tata Motors and Ashok Leyland: We believe there would be no material impact at this stage. We estimate that c95% of TAMO's domestic vehicle sales are diesel powered. Hence this proposal impacts 95% of its domestic EBITDA (35% of consolidated EBITDA). We believe Delhi would account for less than 5% of TAMO's sales and hence it would impact only 1‐1.5% of its consolidated EBITDA. * M&M and Maruti: As mentioned in our earlier note, this proposal could impact on M&M's and Maruti's EBITDA by 1%.

Srinivas Rao, CFA Amyn Pirani Research Analyst Research Analyst (+91) 22 6658 4210 (+91) 22 6658 4355 [email protected] [email protected]

Page 36 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia India Property Property

23 Mar 2011 - 12:27:45 PM IST COMPANY ALERT Company Update Indiabulls Real Estate Buy

Scrapping of “car park” FSI in Mumbai may not be nega‐ Reuters:INRL.BO Exchange:BSE Ticker:INRL tive

Price (INR) 108.05 Residential ‐ Scrapping of “car park" FSI policy may not be negative: Price target (INR) 290.00 (a) IBREL has sold ~1-1.5msf (of total of ~3.8msf) at 'Sky' projects (net of 52-week range (INR) 212.15 ‐ cancellations) at central Mumbai. However, due to high prices and cancel- 103.15 lations, there have been no net pre-sales in these high-end projects in last Market cap (USDm) 964 3-4m. With registration process now being completed, customers will have Shares outstanding (m) 401.1 to forego their 10% signing amount if they cancel the bookings. (b) Com- pany has received 'Commencement Certificate' for all its 3 Sky projects - 1 Net debt/equity (%) ‐60.0 through TDR acquisition and 2 under 'car parks' FSI policy - and construction Book value/share (INR) 245.55 is in progress. (c) For it's recently acquired land parcels in Worli (central Price/book (x) 0.4 Mumbai), it has made the full payment of INR 21bn. If FSI of >1.33 is not permitted, it expects further hardening of property prices in central Mum-

bai. This will result in nominal returns for its new land parcels and help boost FYE 3/31 2010A 2011E 2012E upsides on its unsold Sky projects. Sales (INRm) 1,294 9,532 12,827

Net Profit -240.0 2,463.0 3,199.4 Office ‐ strong leasing momentum, but weak rentals: (a) Of the ~2.5msf (INRm) (going to ~3.3msf by Jun'11e) completed commercial space, it has leased DB EPS -0.60 6.14 7.98 ~1.6 msf (1.4msf in Dec'10), and hopes to maintain its quarterly run-rate of (INR) net leasing of ~0.25msf. (b) While demand is picking up, huge supply is resulting in rentals being under pressure at ~125-140/sf/m for Indiabulls Fi- PER (x) – 17.6 13.5 nancial Centre ( IFC, erstwhile Elphinstone Mills) and ~175/sf/m for One Yield (net) 0.5 0.9 1.9 Indiabulls Centre (OBC, Jupiter Mills).

Financials: (a) Maintains its conservative FY11e revenue guidance of INR 10bn from real estate, despite having achieved ~85% in 9m (b) Indicates cash of INR 8bn and gross debt of INR ~14bn for its real estate business. It also has gross debt of ~INR 18bn in IPIT (in which it holds ~45% stake) as construction work for 'Sky' projects is in full swing, with only nominal payments being received from pre-sales.

Indiabulls Power: (a) Implementation of ~5,400MW power plants with the first unit of ~270MW expected to become operational by May'12e (earlier guided for Dec'11e) and 1 additional unit becoming operational every month thereafter. (b) Hopes to complete demerger of this listed subsidiary (in which it holds ~59% stake) by Sept'11e.

Abhay Shanbhag Mayank Kankaria Research Analyst Research Associate (+91) 22 6658 4035 (+91) 22 6658 4358 [email protected] [email protected]

Deutsche Bank AG/Hong Kong Page 37

24 March 2011 Strategy Asia Equities Daily Focus

Asia ASEAN Indonesia Property Property

23 March 2011 Results Agung Podomoro Land Reuters: APLN.JK Bloomberg: APLN IJ Exchange: JKT Ticker: APLN Buy Price at 23 Mar 2011 (IDR) 335 Price target - 12mth (IDR) 440 52-week range (IDR) 420 - 320 FY10 results below consensus Jakarta Comp. Index 3,556.23

Price/price relative

Fiky Silvia 440 PT Deutsche Bank Verdhana 400 Indonesia 360 Research Analyst (+62) 21 318 9543 320 [email protected] 280 11/10 2/11 FY10 results in line, but below consensus Agung Podomoro Land APLN reported FY10 net profit of Rp242bn, 19% below consensus and 5% below Jakarta Comp. Index (Rebased) our FY10 forecast of Rp255bn. 1H10 net profit was Rp157bn vs. 2H10's Rp85bn. Performance (%) 1m 3m 12m Revenue increased 126% yoy to Rp1.9tr, which is 94% of our FY10E (in line with Absolute -5.6 -14.1 – consensus). EBIT margin improved from 3% in 2009 to 15%. Given that Jakarta Comp. Index 2.4 -1.5 30.7 consensus may have to adjust estimates lower, there may be downside risks to the stock in the near term. Nevertheless, we maintain our Buy rating, underpinned Stock data by the upside implied by our target price. Market cap (IDRbn) 6,868 Market cap (USDm) 787 Margins remain stable Shares outstanding (m) 20,500.0 APLN derived 5% from recurring income and 95% from property sales—of which Major shareholders Agung Podomo Group (70%) Free float (%) 30 apartment sales account for 80%, office 16% and shop houses 4%. GPMs for Avg daily value traded (USDm) 0.788 recurring income and property sales are 44% and 31%, respectively, translating into consolidated 2010 GPM to 32% (vs. 34% in 2009). Net gearing stood at 0.02x Key indicators (FY1) in 2010 vs.0.92x in 2009. ROE (%) 10.0 Net debt/equity (%) -16.3 Pre-sales January-February 2011 on track: 17% of company’s guidance Book value/share (IDR) 187 For 2011, the company guided for Rp3.5-4.0tr in pre-sales (vs. Rp2.8tr achieved in Price/book (x) 1.79 2010). This is 23% above our FY11 pre-sales estimate of Rp2.7tr. In January- Net interest cover(x) – Operating profit margin (%) 17.2 February 2011, APLN booked pre-sales of Rp600bn (or 22% of our forecast). The biggest contribution should come from Green Bay Pluit (30% of 2011E pre-sales). Downside risks in near term; trading at 2011E P/E of 13.6x We maintain our 2011 revenue and net profit forecasts of Rp2.4tr and Rp482bn (vs. consensus net profit of Rp578bn), respectively. We retain Buy with a target price of Rp440, derived from life-of-land bank DCF with a WACC 10% (RFR 6.0%, ERP 9.0% and beta 0.6x); we assume zero terminal value for its development projects and 5.0% for the investment properties. Risks: sales cancellations and construction delays. (Please see page 4 for details.) Forecasts and ratios Year End Dec 31 2008A 2009A 2010E 2011E 2012E Sales (IDRbn) 810 856 2,052 2,368 2,861 EBITDA(IDRbn) -48 28 428 579 731 Reported NPAT(IDRbn) -12.4 35.1 255.3 481.8 601.3 Reported EPS FD(IDR) -0.61 1.71 12.45 23.50 29.33 DB EPS FD (IDR) -1 2 12 24 29 DB EPS growth (%) – – 626.5 88.7 24.8 PER (x) – – 26.9 14.3 11.4 EV/EBITDA (x) – – 16.4 12.2 9.7 Source: Deutsche Bank estimates, company data

Page 38 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia ASEAN Indonesia Conglomerates

23 March 2011 Industry Update Astra Int'l Reuters: ASII.JK Bloomberg: ASII IJ Exchange: JKT Ticker: ASII Buy Price at 23 Mar 2011 (IDR) 55,850 Price target - 12mth (IDR) 79,000 52-week range (IDR) 60,000 - 36,400 February YoY sales remain Jakarta Comp. Index 3,556.23

resilient Price/price relative Rachman Koeswanto 70000 PT Deutsche Bank Verdhana 60000 Indonesia 50000 Research Analyst 40000 (+62) 21 318 9524 [email protected] 30000 20000 Reiterating Buy on Astra Int’l 10000 We remain upbeat on the automotive industry, especially in light of lower 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 inflationary pressure and delays in the removal of the fuel subsidy for private cars. Astra Int'l Meanwhile, Astra Int’l will continue to be the main beneficiary of credit expansion, Jakarta Comp. Index (Rebased) the doubling of middle-income consumers and strong GDP per capita growth, Performance (%) 1m 3m 12m given its dominant position in the automotive industry. In addition, the stock looks Absolute 7.6 6.3 36.9 attractive, trading at 13x 2011F earnings. Jakarta Comp. Index 2.4 -1.5 30.7

Four-wheeler February sales: 69,489 units (+25% YoY; -6% MoM) Stock data February four-wheeler sales remain resilient YoY, supported by strong demand, Market cap (IDRbn) 226,101 while weaker MoM data can be attributed to fewer working days and record sales Market cap (USDm) 25,919 in January. Meanwhile, Astra recorded February sales of 38,001 units (+21% YoY; Shares outstanding (m) 4,048.4 -10% MoM), maintaining 2010 market share of 55%. Overall, the industry and Major shareholders Cycle & Carriage (50.1%) Astra remain roughly in line with our 2011 forecasts of 862,500 units (+13% YoY) Free float (%) 50 Avg daily value traded (USDm) 31.292 and 477,618 units (+12% YoY), respectively. Two-wheeler February sales: 610,182 units (+13% YoY; -8% MoM) Key indicators (FY1) Despite the higher automotive tax, the industry still delivered higher YoY numbers, ROE (%) 30.8 thanks to robust demand and ample cheap financing, while weak MoM data is due Net debt/equity (%) 39.1 to fewer working days. Additionally, Astra Honda continues to dominate the Book value/share (IDR) 15,151 Price/book (x) 3.69 market, posting February sales of 319,819 units (+32% YoY; -4% MoM) and Net interest cover (x) – gaining market share to reach 52% compared to 46% in 2010. Overall, the Operating profit margin (%) 13.2 industry is on track to meet our 2011 forecast, with Astra slightly ahead. Target price of Rp79,000 Our target price is based on an average 4% holding company discount to Astra’s DCF-based (WACC of 8-16%, TGR of 5-6%) SOTP valuation. Risks include inability to raise financing and seasonality in commodity prices. Forecasts and ratios Year End Dec 31 2009A 2010A 2011E 2012E 2013E Sales (IDRbn) 98,526 129,991 149,672 166,577 182,280 EBITDA (IDRbn) 16,171 18,986 23,347 26,787 29,171 Reported NPAT (IDRbn) 10,040.0 14,366.0 17,035.3 19,732.2 21,867.0 Reported EPS FD (IDR) 2,480.02 3,548.60 4,207.96 4,874.12 5,401.45 DB EPS FD (IDR) 2,480 3,549 4,208 4,874 5,401 DB EPS growth (%) 9.2 43.1 18.6 15.8 10.8 PER (x) 9.5 13.2 13.3 11.5 10.3 EV/EBITDA (x) 5.2 9.4 9.3 7.7 6.6 DPS (net) (IDR) 846 1,264 990 1,255 1,438 Yield (net) (%) 3.6 2.7 1.8 2.2 2.6 Source: Deutsche Bank estimates, company data

Deutsche Bank AG/Hong Kong Page 39

24 March 2011 Strategy Asia Equities Daily Focus

Asia ASEAN Indonesia Banking/Finance

22 March 2011 Industry Update DB Indonesia Banking Top picks BCA (BBCA.JK),IDR6,750.00 Buy BNI (BBNI.JK),IDR3,575.00 Buy Lending rate dichotomy Bank Mandiri (BMRI.JK),IDR6,000.00 Buy

Companies featured BCA (BBCA.JK),IDR6,750.00 Buy Raymond Kosasih, CFA Arinta Harsono 2009A 2010E 2011E P/E (x) 13.7 20.0 18.4 PT Deutsche Bank Verdhana PT Deutsche Bank Verdhana Div yield (%) 2.9 2.0 2.2 Indonesia Indonesia Price/book (x) 4.3 5.1 4.4 Research Analyst Research Analyst BNI (BBNI.JK),IDR3,575.00 Buy (+62) 21 318 9525 (+62) 21 318 9519 2010A 2011E 2012E [email protected] [email protected] P/E (x) 13.0 13.3 10.4 Div yield (%) 2.2 2.1 2.7 Lending rate downtrend; stay with banks with strong deposit franchise Price/book (x) 2.2 1.7 1.6 Bank Mandiri (BMRI.JK),IDR6,000.00 Buy The report looks at Indonesian banks' lending rate structure. So far, we estimate 2009A 2010E 2011E that lending rates for new loans have declined to 11.5-12.0% from 12.9% in 2008, P/E (x) 9.6 15.6 14.6 primarily driven by lower adj COF and/or credit costs. Overall, banks are still Div yield (%) 2.5 1.5 1.6 enjoying risk-adj loan spread (ex opex) of 6.4%. Furthermore, intense lending Price/book (x) 2.8 3.1 2.7 BRI (BBRI.JK),IDR5,200.00 Buy competition could lower spreads by 150-200bps to 4.5-5.0%. Consequently, 2009A 2010E 2011E future earnings drivers will be robust loan growth, cost efficiencies and fee P/E (x) 10.5 14.4 12.0 income. BBNI/BMRI/BBCA/BBRI are better able to weather the competition risks. Div yield (%) 4.1 2.1 2.5 Price/book (x) 3.5 3.8 3.1 Lending rate downtrend largely driven by lower COF and credit costs Based on our estimates, blended average lending rates for Indonesian banks in our coverage universe have declined from 14.6% in 1Q06 to 12.9% in 2008 and 12.4% in 9M10. This suggests lower lending rates for the newly disbursed loans at 11.5-12.0%. Based on our lending rate dichotomy, most of the decline may only reflect lower adj COF and credit costs. Indeed, adj COF (including marketing costs of 25-30bps) dropped from a high of 7.2% in 1Q06 to 6.0% in 2008 and 4.4% in 9M10. Meanwhile, credit costs declined from 2.5-3.0% in 2006-07 to 1.6% in 3Q10. Hence, despite rate declines, banks are still enjoying risk-adj loan spread of 6.4% in 3Q10, up from 4.9% in 4Q06 and 4.4% in 4Q08. Competition likely to drive rates further down There has been a pick-up in lending competition recently. Risk-adj loan spread fell from a record high of 6.9% in 1Q10 to 6.4% in 9M10. We believe risk-adj loan spread could decline by another 150-200bps to a more normalized level of 4.5- 5.0%. Combined with higher adj-COF, this is not an unrealistic trend for the sector, in our view. We have factored this trend into our forecasts. However, the implications will not be uniform to individual banks. Banks with “underutilized” balance sheets should be able to mitigate from the shift in their earnings assets mix. BBNI/BMRI/BBCA’s relatively more competitive lending rates (across segments) suggest lower competition risks. This is evidenced from the increase in risk-adj loan spread for these banks. Major beneficiaries from lending competition are credit-related sectors such as automotive and/or cement companies. BBNI, BMRI and BBCA are our top picks We maintain our long-term overweight on the sector despite competition risks. Indonesian banks will continue to deliver robust 3-year 2010-13F earnings CAGR of approximately 18%. Our top picks in the banking sector remain BBNI, BMRI and BBCA given their more competitive COF and excess liquidity. In addition, they have relatively superior capital structures than peers. Also, we are increasingly more comfortable with BRI’s earnings quality and visibility due to its financial de- leveraging. We have derived the target prices based on the Gordon growth model. Risks to the sector are macroeconomic (e.g. currency stability and rising inflation), regulatory and competition risks.

Page 40 Deutsche Bank AG/Hong Kong

24 March 2011 Strategy Asia Equities Daily Focus

Asia ASEAN Indonesia Automobiles & Components

23 Mar 2011 - 07:04:44 AM GMT COMPANY ALERT Company Update United Tractors Buy

Komatsu resumes its production Reuters:UNTR.JK Exchange:JKT Ticker:UNTR

Price (IDR) 22,250 Resumption of Komatsu's production Komatsu reported some damages on its manufacturing plants - Ibaraki Price target (IDR) 30,000 (dump truck & large wheel loaders), Koriyawa (hydraulic cylinders and com- 52-week range (IDR) 25,900.00 - ponents) and Oyama (engine & hydraulic components) - due to the earth- 16,000.00 quake and tsunami two weeks ago. Nevertheless, these plants will be Market cap (USDm) 8,485 resuming operation - Ibaraki: gradually resume operation as early as middle Shares outstanding (m) 3,326.9 of this week, Koriyawa: back to normal shortly, and Oyama: resume operation on 18 March. Net debt/equity (%) 17.7 Three challenges: electricity, suppliers and infrastructure Book value/share (IDR) 5,965 The challenge for these plants to resume their full production would be from Price/book (x) 3.73 electricity supply that has been rationed as Japan lost some 25% of its electricity capacity.

FYE 12/31 2010A 2011E 2012E Additionally, there are challenges from parts and components availability as half of its 200 suppliers suffered some damages. About 30 from these 100 Sales 37,324 44,768 51,952 suppliers experienced serious damages in manpower and facilities. There- (IDRbn) fore, Komatsu is looking to find alternative sources - in-house or other Net Profit 3,872.9 5,370.4 6,428.2 suppliers - to address this issue. (IDRbn) Finally, damaged infrastructure - Hitachinaka port and roads - presents an- DB EPS 1,164 1,614 1,932 (IDR) other challenge for Komatsu to ship-out its product from Ibaraki plant. The reconstruction work has started at one of the pier and is estimated to take PER (x) 16.7 13.8 11.5 1.5-2 months before resuming export from this port. In the meantime, Ko- Yield (net) 2.4 2.9 3.5 matsu is seeking an alternative port. (%) Maintain Buy rating with TP of Rp30,000 The impact on UNTR, which has 2-3 months equipment inventory, is likely to be smaller than our earlier concern especially if Komatsu could address its electricity, suppliers and alternative port in the next 1-2 months. The stock is attractive especially with 5% share price pullback since Japan's disaster. It is currently trading at 13.8x 2011F earnings.

Rachman Koeswanto PT Deutsche Bank Verdhana In- donesia Research Analyst (+62) 21 318 9524 [email protected]

Deutsche Bank AG/Hong Kong Page 41

24 March 2011 Strategy Asia Equities Daily Focus

Japan Glass & Ceramics

24 Mar 2011 - 12:31:44 AM JST COMPANY ALERT Company Update Nippon Electric Glass Buy

Company lowers guidance. Reuters:5214.T Exchange:TYO Ticker:5214

Price (¥) 1,145 Company lowers 4Q guidance Price target - 12mth (¥) 1,400 Nippon Electric Glass lowered its FY3/11 guidance just after 15:00 JST on 52-week range (¥) 1,441 - 937 the 23rd. The extent of the revision was somewhat of a surprise as we had Market cap (¥bn) 570 expected the company to achieve its guidance given the negligible impact Shares outstanding (m) 497 of the earthquake. We believe the stock will decline over the near term, but maintain our Buy rating in light of valuations. Foreign shareholding ratio (%) 30.7

TOPIX 861 Details of revision The company lowered its FY3/11 sales forecast from ¥400bn to ¥390bn, FYE 3/31 2010A 2011E 2012E and its OP forecast from ¥123bn to ¥116bn (our forecast is for ¥125bn and Sales (¥bn) 332.4 365.0 398.0 the FY3/10 figure was ¥98.4bn). The defective product rate temporarily rose due to shaking from the Tohoku Pacific Earthquake, and utility equipment OP (¥bn) 98.4 125.0 141.5 at the Notogawa plant had experienced trouble at the end of February. For RP (¥bn) 91.4 119.0 135.5 these reasons, the company sees the possibility of a shortfall in LCD glass NP (¥bn) 54.9 67.9 77.1 sales volumes.

EPS (¥) 110 137 155 The company expects 4Q OP to decline ¥8.2bn QoQ to ¥17.4bn. The main factors are a decline in LCD glass volumes (it previously forecast flat or P/E (x) 9.4 8.4 7.4 slightly higher volumes on a QoQ basis), and a decline in the average price of glass (it maintained its assumption of a 0-5% QoQ decline).

Outlook We expect the temporary production trouble that emerged in 4Q to drop out in FY3/12. LCD glass demand typically rises from Apr-Jun as LCD TV makers build inventory for the Christmas shopping season, but we expect this year to be different as LCD TV demand is weak and panel inventories high. We see a growing likelihood that earnings will fall short of our forecasts due to a shortfall in sales volumes. We will review our forecasts after talking with management.

Katsuhiko Ishibashi, CMA Research Analyst (+81) 3 5156-6727 [email protected]

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24 March 2011 Strategy Asia Equities Daily Focus

Japan Health Care & Pharmaceuticals

23 March 2011 Recommendation Change Eisai Reuters: 4523.T Bloomberg: 4523 JT Exchange: TYO Ticker: 4523 Hold Price at 23 Mar 2011 (¥) 3,010 Price target - 12mth (¥) 2,900 Upgrading to Hold: Plans cost cuts 52-week range (¥) 3,520 - 2,757

Key changes to address patent cliff Rating Sell to Hold Ç Target price (¥) 2,600 to 2,900 Ç 11.5% EPS (¥) 253 to 247 È -2.1% Kenji Masuzoe, CMA Akiko Shishido OP (¥bn) 119.2 to 118.5 È -0.5% Research Analyst Research Associate RP (¥bn) 113.2 to 110.5 È -2.4% (+81) 3 5156 6764 (+81) 3 5156-6319 [email protected] [email protected] Price/price relative

4000 Raising TP from ¥2,600 to ¥2,900 owing to cost cuts We have reviewed our forecasts for Eisai, owing mainly to its planned cost cuts. 3600 As a result, we raise our TP from ¥2,600 to ¥2,900 and upgrade our rating from 3200 Sell to Hold. We think it will be some time until we can be bullish on this stock 2800 because we expect the patent cliff to keep earnings weak, and see few near-term catalysts. 2400 3/09 9/09 3/10 9/10 Cutting SG&A and R&D cost forecasts We have reviewed our five-year forecasts in light of Eisai’s 4 March information Eisai TOPIX (Rebased) meeting (announcement of new Hayabusa medium-term plan ending FY3/16) and subsequent discussions with the company. The major changes are cuts to our Performance (%) 1m 3m 12m Absolute -0.3 2.2 -15.9 SG&A and R&D cost forecasts. Eisai plans to cut 600 staff in the US, 100 in Japan TOPIX -8.3 -4.2 -8.4 and 200 in Europe, and to leverage improved cost efficiency to reduce the SG&A costs/sales ratio from 45% (target for FY3/11) to 28% or lower in FY3/16. (See Stock data page 3 for more). Market cap (¥bn) 893 Shares outstanding (m) 297 New TP of ¥2,900, upgrading to Hold Foreign shareholding ratio (%) 17.4 We expect weaker sales accompanying patent expiries for previous mainstays TOPIX 868 Aricept (Alzheimer’s disease) and Pariet/Aciphex (PPI) to limit growth over the next five years. However, we have raised our TP from ¥2,600 to ¥2,900 to reflect the Key indicators (FY1) impact of cost cuts. We raise our rating from Sell to Hold because 1) we think the ROE (%) 16.8 BPS (¥) 1,525 current share price basically allows for the impact of cost cuts, 2) we see limited P/B (x) 2.0 downside from this level and 3) there are few catalysts to affect the share price. EPS growth (%) 81.9 Dividend yield (%) 5.0 Valuation and risk We base our TP of ¥2,900 on the average P/E of 13x for the pharmaceutical companies we cover and our FY3/15 EPS forecast of ¥223.7. (Our previous TP of ¥2,600 was based on the same methodology and our previous EPS forecast of ¥195.6.) Upside risks include 1) stronger-than-expected growth for new cancer drug Halaven, 2) growth driven by new products, new products under development and/or new acquisitions and 3) profit growth due to further cost cuts. Downside risks include 1) weak sales of Halaven, 2) delays for epilepsy treatment Perampanel (NDA filing scheduled for FY3/12) and 3) dividend cuts due to weaker profits.

Forecasts and ratios Year End Mar 31 2010A 2011E 2011CoE 2012E 2013E Sales (¥bn) 803.2 773.9 770.0 707.1 689.5 Operating profit (¥bn) 86.4 118.5 116.0 99.2 86.3 YoY (%) -5.9 37.1 34.2 -16.3 -13.0 Recurring profit (¥bn) 79.7 110.5 107.0 95.8 81.5 Net profit (¥bn) 40.3 73.4 70.0 64.7 56.3 EPS (¥) 136 247 246 218 190 P/E (x) 24.2 12.2 12.3 13.8 15.9 Source: Deutsche Securities Inc. estimates, company data

Deutsche Bank AG/Hong Kong Page 43

24 March 2011 Strategy Asia Equities Daily Focus Appendix 1

Important Disclosures Additional information available upon request

For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.

Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Ching-Li Teo

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total shareholder return (TSR = percentage change in share price 500 61% from current price to projected target price plus pro- 400 jected dividend yield ) , we recommend that investors buy the stock. 300 32% Sell: Based on a current 12-month view of total share- 200 holder return, we recommend that investors sell the 13% 7% 100 12% stock 11% Hold: We take a neutral view on the stock 12-months 0 out and, based on this time horizon, do not recommend Buy Hold Sell either a Buy or Sell. Notes: Companies Covered Cos. w/ Banking Relationship 1. Newly issued research recommendations and target prices always supersede previously published research. Asia-Pacific Universe 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of - 10% or worse over a 12-month period

Page 44 Deutsche Bank AG/Hong Kong 24 March 2011 Strategy Asia Equities Daily Focus

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